SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended June 30, 1996 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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 incorporation (I.R.S. Employer
or organization) Identification No.)
142 E. First Street, Mountain Grove, Missouri 65711
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (417) 926-5151
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.01 per share
(Title of Class)
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 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 disclosure of delinquent filers pursuant to
Item 405 of Regulation S-B is not contained herein, and will not be contained,
to the best of the Registrant's knowledge, in definitive proxy or other
information statements incorporated by reference in Part III of this Form
10-KSB or any amendments to this Form 10-KSB. [___]
The registrant's revenues for the fiscal year ended June 30, 1996 were
$10,387,000.
As of September 27, 1996, there were outstanding 1,205,376 shares of the
Registrant's Common Stock. The Registrant's voting stock is traded over-
the-counter and is listed on the Nasdaq National Market ("Nasdaq/NMS") under
the symbol "FBSI." The aggregate market value of the voting stock held by
nonaffiliates of the Registrant, based on the closing sales price of the
Registrant's common stock as quoted on the Nasdaq/NMS on September 27, 1996,
was $14,977,456. For purposes of this calculation, officers and directors of
the Registrant, the Employee Stock Ownership Plan and the Management
Recognition Plan are considered affiliates of the Registrant.
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of Annual Report to Stockholders for the Fiscal Year Ended June
30, 1996. (Parts I and II)
2. Portions of Proxy Statement for the 1996 Annual Meeting of Stockholders.
(Part III)
Transitional Small Business Disclosure Format (check one) Yes____ No__X__
</PAGE>
<PAGE>
PART I
Item 1. Business
General
First Bancshares, Inc. ("First Bancshares" or the "Company"), a Missouri
corporation, was incorporated on September 30, 1993 for the purpose of becoming
the holding company for First Home Savings Bank ("First Home" or the "Savings
Bank") upon the Savings Bank's conversion from a state-chartered mutual to a
state-chartered stock savings and loan association ("Conversion"). The
Conversion was completed on December 22, 1993. At June 30, 1996, the Company
had consolidated total assets of $143.7 million, total customer deposits of
$106.0 million and stockholders' equity of $23.7 million. First Bancshares has
not engaged in any significant activity other than holding the stock of First
Home. Accordingly, the information set forth in this report, including
financial statements and related data, relates primarily to the Savings Bank
and its subsidiaries.
The Savings Bank is a Missouri-chartered, federally insured stock savings
and loan association organized in 1911. The Savings Bank conducts its business
from its home office in Mountain Grove and four full service branch facilities
in Marshfield, Ava, Gainesville and Sparta, Missouri. The deposits of the
Savings Bank are insured up to applicable limits by the Savings Association
Insurance Fund ("SAIF") of the Federal Deposit Insurance Corporation ("FDIC").
The Savings Bank provides its customers with a full array of community
banking services. The Savings Bank is primarily engaged in the business of
attracting deposits from the general public and using such deposits, together
with other funding sources, to invest in one- to four-family residential
mortgage loans and, to a lesser extent, multi-family residential, consumer, and
commercial mortgage loans, including home equity loans, for its loan portfolio,
as well as for mortgage-backed and U.S. Government and agency securities and
other assets. At June 30, 1996, the Savings Bank's net loans were $118.8
million, or 82.7% of consolidated total assets, including $95.5 million, or
77.44% of total loans secured by one- to four-family properties, $18.7 million,
or 15.13% of total loans secured by other real estate and $7.1 million of
consumer loans, or 5.78% of total loans. 77.3% of total loans, or $95.3
million, are floating rate one-to-four family residential mortgage loans or
adjustable rate residential mortgage loans (collectively referred to as
"ARMs").
Market Area
The Savings Bank is headquartered in the town of Mountain Grove, in Wright
County, Missouri. Wright County has a population of approximately 17,000 and
its economy is highly diversified, with an emphasis on the beef and dairy
industry. The Savings Bank's market area is predominantly rural in nature and
its deposit taking and lending activities primarily encompass Wright, Webster,
Douglas, Christian and Ozark counties. Companies in the area include Hutchens
Steel, Paramont Cap, Arlee Home Fashions, Emerson Electric, and Rawlings. The
Savings Bank also transacts a significant amount of business in Texas, Greene
and Taney counties, Missouri. The area, especially Ozark County due to its
proximity to the Norfolk and Bull Shoals lakes, has experienced a rather slow
but steady growth from retirees. Economic conditions in the Savings Bank's
market area have been stable.
The Savings Bank has also established a limited lending presence in and
around Kimberling City in Taney and Stone counties, Missouri. That area has
enjoyed significant growth due to its proximity to the resort area of Branson
and Table Rock Lake. Most of the Savings Bank's lending in this area has been
limited to owner occupied single family homes.
Selected Consolidated Financial Information
This information is incorporated by reference from pages 4 and 5 of the
1996 Annual Report to Stockholders ("Annual Report") attached hereto as
Exhibit 13.
1
</PAGE>
<PAGE>
Yields Earned and Rates Paid
The earnings of the Savings Bank depend largely on the spread between the
yield on interest-earning assets (primarily loans and investments) and the
cost of interest-bearing liabilities (primarily deposit accounts), as well as
the relative size of the Savings Bank's interest-earning assets and
interest-bearing liability portfolios.
The following table sets forth, for the periods indicated, information
regarding average balances of assets and liabilities as well as the total
dollar amounts of interest income from average interest-earning assets and
interest expense on average interest-bearing liabilities, resultant yields,
interest rate spread, net interest margin, and ratio of average interest
earning assets to average interest-bearing liabilities. Average balances for
a period have been calculated using the average monthly balances for the years
ended June 30, 1996 and 1995 and the average of month-end balances for the
year ended June 30, 1994.
2
</PAGE>
<PAGE>
<TABLE>
<CAPTION>
Years
Ended June 30,
1996
1995 1994
Interest
Interest Interest
Average and Yield/ Average
and Yield/ Average and Yield/
Balance(2) Dividends Cost Balance(2)
Dividends Cost Balance(2) Dividends Cost
(Dollars in thousands)
Interest-earning assets:
<S> <C> <C> <C> <C>
<C> <C> <C> <C> <C>
Loans(1) $111,335 $8,936 8.03% $93,384
$7,001 7.50% $80,855 $5,984 7.40%
Mortgage-backed securities 3,035 201 6.62 3,221
243 7.54 3,869 232 6.00
Investment securities 13,275 813 6.12 17,738
1,075 6.06 12,386 616 4.97
Daily interest-bearing deposits 3,223 163 5.06 1,704
66 3.87 5,242 171 3.26
Federal funds sold 3 0 -
180 5 2.77 688 14 2.03
-------- ------- -------
- ------ ------- -----
Total interest-earning assets 130,871 0,113 7.73 116,227
8,390 7.22 103,040 7,017 6.81
Non-interest earning assets:
Office properties and equipment, net 2,003 1,736
1,696
Real estate, net 876 441
363
Other non-interest-earning assets 2,614 2,515
2,688
--------- --------
--------
Total assets $136,364 $120,919
$107,787
======== ========
========
Interest-bearing liabilities:
Passbook accounts $ 5,182 164 3.17 $ 5,044
160 3.17 $ 4,861 142 2.92
NOW and Super Saver accounts 26,353 858 3.25 25,820
866 3.35 26,886 757 2.82
Certificates of deposit 68,475 4,021 5.87 62,520
3,428 5.48 47,996 2,366 4.93
------- ----- ------
- ----- ------ -----
Total deposits 100,010 5,043 5.04 93,384
4,454 4.77 79,743 3,265 4.09
Other interest-bearing liabilities 10,404 618 5.94 2,059
100 4.86 7,638 289 3.78
------- ----- ------
- ----- ------ -----
Total interest-bearing liabilities 110,414 5,661 5.13 95,443
4,554 4.77 87,381 3,554 4.07
Non-interest-bearing liabilities:
Other liabilities 2,362 1,319
1,370
-------- ------
------
Total liabilities 112,776 96,762
88,751
Stockholders' equity 23,588 24,157
19,036
------- ------
------
Total liabilities and stockholders'
equity $136,364 $120,919
$107,787
======== ========
========
Net interest income $4,452
$3,836 $3,463
=======
====== ======
Interest rate spread 2.60%
2.45% 2.74%
Net interest margin 3.40%
3.30% 3.36%
Ratio of average interest-earning
assets to average interest-
bearing liabilities 119% 122%
118%
________________
<FN>
(1) Average balances include nonaccrual loans and loans 90 days or more
past due. The corresponding interest up to the date
of nonaccrual status has been included in the "Interest and Dividends"
column.
(2) Average balances for a period have been calculated using the average
monthly balances for the years ended June 30, 1996
and 1995 and the average of month-end balances for the year ended June
30, 1994.
</FN>
</TABLE>
3
</PAGE>
<PAGE>
Yields Earned and Rates Paid
The following table sets forth (on a consolidated basis) for the periods
and at the date indicated, the weighted average yields earned on the Company's
and First Home's assets, the weighted average interest rates paid on First
Home's liabilities, together with the net yield on interest-earning assets.
<TABLE>
<CAPTION>
At June 30, Years
Ended June 30,
1996 1996
1995 1994
----------- ----
- ---- ----
<S> <C> <C>
<C> <C>
Weighted average yield on loan portfolio 8.09% 8.03%
7.50% 7.40
Weighted average yield on mortgage-backed
securities 6.96 6.62
7.54 6.00
Weighted average yield on investment securities 5.77 6.12
6.06 4.97
Weighted average yield on interest-bearing deposits 5.56 5.06
3.87 3.26
Weighted average yield on federal funds sold -- --
2.77 2.03
Weighted average yield on all interest-
earning assets 7.80 7.73
7.22 6.81
Weighted average rate paid on total deposits 4.77 5.04
4.77 4.09
Weighted average rate paid on FHLB advance 5.80 5.94
4.86 3.78
Weighted average rate paid on all interest
-bearing liabilities 4.89 5.13
4.77 4.07
Interest rate spread (spread between weighted
average rate on all interest-earning assets
and all interest-bearing liabilities) 2.91 2.60
2.45 2.74
Net interest margin (net interest income
(expense) as a percentage of average
interest-earning assets) N/A 3.40
3.30 3.36
</TABLE>
4
</PAGE>
<PAGE>
The following table sets forth the effects of changing rates and volumes
on net interest income of the Company and Savings Bank. Information is
provided with respect to (i) effects on interest income attributable to
changes in volume (changes in volume multiplied by prior rate); (ii) effects
on interest income attributable to changes in rate (changes in rate
multiplied by prior volume); and (iii) changes in rate/volume (change in
rate multiplied by change in volume).
<TABLE>
Years Ended June 30, Years
Ended June 30,
1996 Compared to 1995 1995
Compared to 1994
Increase (Decrease) Increase
(Decrease)
Due to
Due to
----------------------------
- ----------------------------
Rate/
Rate/
Volume Rate Volume Net Volume
Rate Volume Net
------ ---- ------ ----- ------
- ---- ------ ----
(In thousands)
<S> <C> <C> <C> <C> <C>
<C> <C> <C>
Interest-earning assets:
Loans(1) $1,346 $495 $94 $1,935 $926
$ 80 $ 11 $1,017
Mortgage-backed securities (14) (30) 2 (42) (39)
60 (10) 11
Investment securities (270) 11 (3) (262) 267
132 60 459
Daily interest-bearing deposits 59 20 18 97 (115)
32 (22) (105)
Federal funds sold (5) (5) 5 (5) (10)
5 (4) (9)
------ ---- ---- ----- -----
- ---- ---- -----
Total net change in income on
interest-earning assets 1,116 491 116 1,723 1,029
309 35 1,373
----- --- ---- ----- -----
- --- --- -----
Interest-bearing liabilities:
Interest-bearing deposits 317 253 19 589 557
540 92 1,189
FHLB advances 406 22 90 518 (211)
82 (60) (189)
Other borrowings -- -- -- -- --
-- -- --
------ ---- ---- ---- -----
- ---- ---- -----
Total net change in expense on
interest- bearing liabilities 723 275 109 1,107
346 622 32 1,000
Net change in net interest income $ 393 $ 216 $ 7 $ 616 $
683 $(313) $ 3 $ 373
________________
(1) Includes interest on loans 90 days or more past due.
</TABLE>
5
</PAGE>
<PAGE>
Interest Rate Sensitivity of Net Portfolio Value
The table below measures interest rate risk by estimating the change in market
value of the Savings Bank's assets, liabilities, and off-balance sheet
contracts in response to an instantaneous change in the general level of
interest rates. The procedure for measuring interest rate risk was developed
by the Office of Thrift Supervision ("OTS") to replace the "gap" analysis (the
difference between interest-earning assets and interest-bearing liabilities
that mature or reprice within a specific time period) used previously by the
OTS. The model first estimates the level of the Savings Bank's market value
of portfolio equity ("MVPE") (market value of assets, less market value of
liabilities, plus or minus the market value of any off-balance sheet items)
under the current rate environment. In general, market values are estimated
by discounting the estimated cash flows of each instrument by appropriate
discount rates. The model then recalculates the Savings Bank's MVPE under
different interest rate scenarios. The change in MVPE under the different
interest rate scenarios provides a measure of the Savings Bank's exposure to
interest rate risk. The data presented below is as of June 30, 1996, the
latest date for which data is available.
<TABLE>
<CAPTION>
-400 -300 -200 -100
+100 +200 +300 +400
Basis Basis Basis Basis No
Basis Basis Basis Basis
Points Points Points Points Change
Points Points Points Points
(In thousands)
<S> <C> <C> <C> <C> <C>
<C> <C> <C> <C>
ASSETS
Mortgage loans and
securities $116,756 $115,551 $114,538 $113,669 $112,703
$111,246 $109,086 $106,499 $103,737
Non-mortgage loans 9,125 9,100 9,075 9,051 9,027
9,004 8,981 8,958 8,936
Cash, deposits and
securities 18,159 17,931 17,709 17,461 17,203
16,938 16,659 16,362 16,074
Premises and
equipment 2,381 2,381 2,381 2,381 2,381
2,381 2,381 2,381 2,381
Other assets 1,227 1,414 1,856 2,534 3,298
4,034 4,729 5,387 6,012
------- -------- -------- -------- --------
- -------- -------- -------- --------
TOTAL $147,648 $146,377 $145,559 $145,096 $144,612
$143,603 $141,836 $139,587 $137,140
======== ======== ======== ======== ========
======== ======== ======== ========
LIABILITIES
Deposits $108,494 $107,955 $107,426 $106,912 $106,410
$105,919 $105,437 $104,967 $104,507
Borrowings 15,589 15,275 14,973 14,681 14,400
14,129 13,867 13,614 13,369
Other liabilities 484 484 484 484
484 483 483 483 483
-------- -------- -------- -------- --------
- -------- -------- -------- --------
TOTAL $124,567 $123,714 $122,883 $122,077 $121,294
$120,531 $119,787 $119,064 $118,359
======== ======== ======== ======== ========
======== ========= ========= ========
MARKET VALUE OF
PORTFOLIO EQUITY $ 23,081 $ 22,663 $ 22,676 $ 23,019 $ 23,318
$ 23,072 $ 22,049 $ 20,523 $ 18,781
======= ======== ======= ======== =======
======= ======= ======= =======
</TABLE>
6
</PAGE>
<PAGE>
Lending Activities
General. The principal lending activity of the Savings Bank is the
origination of conventional mortgage loans for the purpose of purchasing,
constructing or refinancing single-family owner occupied homes within its
primary market area. In an attempt to diversify its lending portfolio,
however, the Savings Bank also originates real estate loans, consumer loans,
mobile home loans, home improvement loans, commercial loans, business loans,
student loans, and loans secured by savings accounts. In addition to loans
within the Savings Bank's primary market area, the Savings Bank also has
originated 14 single family loans, one condominium loan and three land loans in
Texas, Kansas, Arkansas, and Colorado. The aggregate balance of these 18 loans
at June 30, 1996 was $1.4 million.
At June 30, 1996, the Savings Bank's net loans receivable totaled
approximately $118.8 million representing approximately 82.68% of consolidated
total assets. Since 1973, the Savings Bank has primarily originated ARM loan
products. At June 30, 1996, ARM loans accounted for $114.0 million or 92.4%
of the total loan portfolio. The Savings Bank focuses on serving the needs of
its local community and strongly believes in a lending philosophy that
stresses individual customer service and flexibility in meeting the needs of
its customers.
7
</PAGE>
<PAGE>
Loan Portfolio Analysis. The following table sets forth the composition of the
Savings Bank's loan portfolio by type of loan and type of security as of the
dates indicated. Construction loans are included in the residential and
commercial loan types. The Savings Bank does not account for construction
loans separate from residential and commercial loans.
<TABLE>
<CAPTION>
At
June 30,
1996 1995
1994 1993 1992
Amount Percent Amount Percent
Amount Percent Amount Percent Amount Percent
(Dollars
in thousands)
<S> <C> <C> <C> <C>
<C> <C> <C> <C> <C> <C>
Type of Loan:
Residential $95,534 77.44% $82,891 79.12% $70,320 80.17
$61,721 80.76% $53,695 79.94%
Commercial 9,159 7.42 7,074 6.75 5,497 6.27
4,363 5.71 4,474 6.66
Land 5,781 4.69 4,272 4.08 3,464 3.95
2,774 3.63 2,120 3.16
Second mortgage loans 3,727 3.02 2,731 2.60 1,812 2.07
1,736 2.27 1,589 2.37
------- ---- ------ ---- ------ ----
------ ---- ----- ----
Total mortgage loans 114,201 92.57 96,968 92.55 81,093 92.46
70,594 92.37 61,878 92.13
Other Loans:
Automobile loans 4,184 3.39 3,084 2.95 2,685 3.06
2,245 2.94 2,073 3.09
Savings account loans 1,282 1.04 1,145 1.09 941 1.08
718 0.94 879 1.31
Mobile home loans 745 0.60 622 0.59 583 0.66
533 0.69 354 0.52
Other consumer 916 0.75 811 0.78 947 1.08
976 1.28 870 1.30
Commercial business 2,035 1.65 2,142 2.04 1,460 1.66
1,360 1.78 1,110 1.65
Total other loans 9,162 7.43 7,804 7.45 6,616 7.54
5,832 7.63 5,286 7.87
------ ---- ----- ---- ----- -----
----- ---- ----- ----
Total loans 123,363 100.00% 104,772 100.00% 87,709 100.00%
76,426 100.00% 67,164 100.00%
------- ====== ------- ====== ------ ======
------ ====== ------ =======
Add:
Unamortized deferred loan costs,
net of origination fees 70 46 21
-- --
Less:
Undisbursed loans in process 4,133 2,945 1,474
2,878 787
Unamortized loan origination fees,
net of direct costs -- -- --
-- --
Allowance for possible loan losses 520 442 479
470 443
----- ---- -----
----- -----
Total loans receivable, net $118,780 $101,431
$85,777 $73,078 $65,934
</TABLE>
8
</PAGE>
<PAGE>
<TABLE>
<CAPTION>
At
June 30,
1996 1995 1994
1993 1992
Amount Percent Amount Percent Amount
Percent Amount Percent Amount Percent
(Dollars
in thousands)
<S> <C> <C> <C> <C> <C>
<C> <C> <C> <C> <C>
Type of Security:
Residential real estate
Second mortgage loans $ 3,356 2.72% $ 2,355 2.25% $
1,812 2.07% $ 1,736 2.27% $ 1,589 2.37%
One-to-four family 95,534 77.44 82,891 79.12
70,320 80.17 60,380 79.00 52,605 78.32
Multi-family 1,190 0.97 1,391 1.33
1,267 1.45 1,341 1.76 1,090 1.62
Commercial or industrial real estate 8,283 6.71 5,977 5.70
4,230 4.82 4,363 5.71 4,474 6.66
Land 5,838 4.73 4,354 4.15
3,464 3.95 2,774 3.63 2,120 3.16
Commercial or industrial assets 2,035 1.65 2,142 2.04
1,460 1.66 1,360 1.78 1,110 1.65
Automobile 4,184 3.39 3,084 2.95
2,685 3.06 2,245 2.94 2,073 3.09
Savings accounts 1,282 1.04 1,145 1.09
941 1.08 718 0.94 879 1.31
Mobile homes 745 0.60 622 0.59
583 0.66 533 0.69 354 0.52
Other 916 0.75 811 0.78
947 1.08 976 1.28 870 1.30
------ ----- ------ -----
- ------- ---- ------ ----- ------- -----
Total 123,363 100.00% 104,772 100.00%
87,709 100.00% 76,426 100.00% 67,164 100.00%
Add:
Unamortized deferred loan costs,
net of origination fees 70 46
21 -- --
Less:
Undisbursed loans in process 1,535 841
20 1,421 328
Due to borrowers on construction
loans 2,598 2,104
1,454 1,457 459
Allowance for possible loan losses 520 442
479 470 443
------- -------
- ------ ------ ------
Total loans receivable, net $118,780 $101,431
$85,777 $73,078 $65,934
======== ========
======= ======= =======
</TABLE>
9
</PAGE>
<PAGE>
One- to Four-Family Residential Loans. The primary lending activity of
the Savings Bank has been the origination of mortgage loans to enable
borrowers to purchase existing homes, to construct new single-family homes or
refinance existing debt on their homes. Management believes that this policy
of focusing on single-family residential mortgage loans has been successful in
contributing to interest income while keeping delinquencies and losses at a
minimum. At June 30, 1996, approximately $95.5 million, or 77.44% of the
Savings Bank's gross loan portfolio, consisted of loans secured by one- to
four-family residential real estate.
The Savings Bank presently originates ARM loans secured by one- to
four-family properties with loan terms of 10 to 30 years. Since 1973, the
Savings Bank has originated almost exclusively ARM loan products. Initially,
ARM loans were indexed to the Savings Bank's cost of money. In 1979, the
Savings Bank discontinued the use of the indexed ARM loans and changed to its
current policy of non-indexed ARMs, which generally allows but does not
require the Savings Bank to adjust the interest rate once a year, up or down,
not to exceed 1% per year. Loans of this nature originated after 1988
generally were limited to a 6% maximum increase over the life of the loan.
The Savings Bank does not charge points on ARM loans. In addition, the
Savings Bank presently does not charge appraisal fees. It quotes an interest
rate, or base rate, with no points and gives the borrower the option, if
desired, to pay a 1% fee, but obtain the loan at 1% below the Savings Bank's
base rate for the first year of the loan. Construction borrowers can pay a 2%
fee and receive a 2% reduction in the initial interest rate for the first year
of the loan. The Savings Bank funds most of its loan commitments in a
relatively short period of time. If a commitment expires, the Savings Bank
will generally renew the commitment upon request.
The Savings Bank underwrites ARMs based on an assumed 1% per year
interest rate increase. The Savings Bank's policy to adjust the interest rate
once a year within 1% is a self-imposed limit by the Savings Bank. The Savings
Bank's experience has been that most of its borrowers can manage an increased
payment resulting from a 1% increase; however, an increase of over 1% may put
a strain on the borrowers' ability to repay. As a result, the potential for a
substantial increase in interest payments on the Savings Bank's ARM loans is
lessened as is the likelihood of delinquencies and defaults.
The Savings Bank's lending policies generally limit the maximum loan-to-
value ratio on adjustable rate residential mortgage loans to 85% of the lesser
of the appraised value or purchase price of the underlying residential
property. The Savings Bank requires title insurance or an abstract extension
and attorney's opinion, fire and casualty coverage and a flood zone
determination on all mortgage loans originated or purchased. All of the
Savings Bank's real estate loans contain "due on sale" clauses. The Savings
Bank personnel prepare all property evaluations at no expense to the borrower
unless the property is outside its normal lending territory, in which event,
independent appraisers are utilized. At June 30, 1996, the maximum loan-to-
value ratio on loans to local borrowers was generally 85%.
At June 30, 1996, the Savings Bank had $4.4 million in interim
construction loans in its portfolio with maximum loan to value ratios of 80%
to 85%. Most of these loans are residential construction loans for single- or
multi-family dwelling units. All of these loans automatically convert into
permanent residential real estate loans.
Multi-Family Residential Loans. At June 30, 1996, approximately $1.2
million, or .97% of the Savings Bank's gross loan portfolio consisted of 10
loans secured by multi-family residential real estate. Multi-family real
estate loans are generally originated at 80% of the appraised value of the
property or selling price, whichever is less, and carry adjustable rate
mortgages with the principal amortized over 10 to 30 years. Loans secured by
multi-family real estate are generally larger and involve a greater degree of
risk than one- to four- family residential loans. In addition, multi-family
real estate loans carry risks similar to those associated with commercial real
estate lending. See " -- Consumer and Commercial Business Loans."
At June 30, 1996, the Savings Bank's largest multi-family residential
loan was a $236,000 loan secured by five separate properties with a total of
12 rental units in Harrison, Arkansas. At June 30, 1996, the Savings Bank had
10
</PAGE>
<PAGE>
no multi-family residential loans that the Savings Bank originated that were
delinquent 60 days or more. See "-- Non-Performing Assets and Delinquencies."
Land and Commercial Real Estate Loans. The Savings Bank had land and
commercial real estate loans outstanding of $14.9 million at June 30, 1996.
The commercial real estate loans originated by the Savings Bank are primarily
secured by commercial buildings. Land loans on property located primarily in
the Savings Bank's primary market area amounted to $5.8 million or 4.69% of
the total loan portfolio at June 30, 1996. The Savings Bank's land loans
generally are secured by farm land and involve the risks associated with
general agricultural conditions.
The Savings Bank does not actively solicit or originate commercial real
estate loans. At June 30, 1996, the Savings Bank's largest commercial real
estate loan was a $442,000 loan secured by an automobile dealership building
located in its market area which was performing according to its terms. Of
primary concern in commercial real estate lending is the borrower's
creditworthiness and the feasibility and cash flow potential of the property.
Loans secured by income properties are generally larger and involve greater
risks than residential mortgage loans because payments on loans secured by
income properties are often dependent on successful operation or management of
the properties. As a result, repayment of such loans may be subject, to a
greater extent than residential real estate loans, to supply and demand in the
market in the type of property securing the loan and therefore, may be subject
to adverse conditions in the real estate market or the economy. If the cash
flow from the project is reduced, the borrowers ability to repay the loan may
be impaired. Although the thrift industry has generally experienced material
losses in commercial real estate lending, the Savings Bank has sustained no
material losses on such loans.
Consumer and Commercial Business Loans. The Savings Bank's consumer
loans consist of car loans, appliance dealer loans, mobile home loans, savings
account loans, and various other consumer loans. At June 30, 1996, the
Savings Bank's consumer loans totaled approximately $7.1 million, or 5.78% of
the Savings Bank's total loans. Subject to market conditions, management
expects to continue to market and originate consumer loans as part of its
strategy to provide a wide range of personal financial services to its
depository customer base and as a means to enhance the interest rate
sensitivity of the Savings Bank's interest-earning assets and its interest
rate spread.
In May 1994, the Savings Bank purchased a pool of car loans totalling
$250,000 through a private placement. Principal and interest payments are made
on the loans monthly and paid to the Savings Bank. At June 30, 1996, the
balance of these loans totalled $110,000. Based on information from the loan
servicer concerning delinquencies, repossessions and individual balances
written-off, the Savings Bank has established a reserve for the loans
remaining. At June 30, 1996, the balance of the reserve was $32,000.
The Savings Bank also purchases consumer loans from three local appliance
dealers. Such loans are made by the appliance dealers to the dealer's
customers. At June 30, 1996, such loans amounted to $164,000. Reserves for
losses maintained by the dealers at June 30, 1996 totaled $32,000. These
loans are originated by the dealers and are assigned, with recourse, to the
Savings Bank. Payments are made directly to the dealers by the borrower and
any losses are borne by the dealer rather than the Savings Bank. The Savings
Bank obtains and reviews regularly updated financial statements of the
appliance dealers and monitors the individual loans purchased.
The Savings Bank's procedures for underwriting consumer loans include an
assessment of the applicant's payment history on other debts and ability to
meet existing obligations and payments on the proposed loan. Although the
borrower's creditworthiness is a primary consideration, the underwriting
process also includes a comparison of the value of the security, if any, to
the proposed loan amount.
11
</PAGE>
<PAGE>
Consumer loans entail greater risk than do residential mortgage loans,
particularly in the case of consumer loans which are unsecured or secured by
rapidly depreciating assets such as automobiles, mobile homes, boats and
recreational vehicles. In such cases, any repossessed collateral for a
defaulted consumer loan may not provide an adequate source of repayment of the
outstanding loan balance as a result of the greater likelihood of damage, loss
or depreciation. The remaining deficiency often does not warrant further
substantial collection efforts against the borrower beyond obtaining a
deficiency judgment. In addition, consumer loan collections are dependent on
the borrower's continuing financial stability, and thus are more likely to be
adversely affected by job loss, divorce, illness or personal bankruptcy.
Furthermore, the application of various federal and state laws, including
federal and state bankruptcy and insolvency laws, may limit the amount which
can be recovered on such loans. Such loans may also give rise to claims and
defenses by a consumer loan borrower against an assignee of such loans such as
the Savings Bank, and a borrower may be able to assert against such assignee
claims and defenses that it has against the seller of the underlying
collateral. The Savings Bank historically has had a low level of
delinquencies on its consumer loans. See"-- Nonperforming Assets and
Delinquencies." At June 30, 1996, only $108,000 of the Savings Bank's
consumer loan portfolio was 90 days or more past due.
Other loans consists of commercial loans with no real estate as security,
business equipment loans, farm equipment loans and cattle loans. As of June
30, 1996, 1995 and 1994, these loans totaled $2.0 million, $2.1 million and
$1.5 million, respectively. Not only did the dollar amount of other loans
remain basically stable, the ratio of other loans as a percent of total loans
likewise remained relatively constant during the three year ended June 30,
1995 at 1.65%, 2.04% and 1.66%, respectively. These ratios are an indication
that the Savings Bank does not particularly emphasize loans of this type, but
may make such loans for well qualified customers. There have been no losses
from the "other loans" category in the past three fiscal years.
Second Mortgage Loans. The Savings Bank offers adjustable rate second
mortgage loans that are usually made on the security of the borrower's
residence. Loans normally do not exceed 80 to 85% of the appraised value of
the residence, less the outstanding principal of the first mortgage, and have
terms of up to 20 to 25 years requiring monthly payments of principal and
interest. At June 30, 1996, second mortgage loans amounted to $3.7 million,
or 3.02% of total loans of the Savings Bank.
12
</PAGE>
<PAGE>
Loan Maturity and Repricing
The following table sets forth certain information at June 30, 1996
regarding the dollar amount of loans maturing in the Savings Bank's portfolio
based on their contractual terms to maturity, but does not include scheduled
payments or potential prepayments. Demand loans, loans having no stated
schedule of repayments and no stated maturity, are reported as due in one year
or less. Mortgage loans which have adjustable rates are shown as maturing at
their next repricing date. Loan balances do not include undisbursed loan
proceeds, unearned discounts, unearned income and allowance for loan losses.
<TABLE>
<CAPTION>
After One Year After 3 Years
After 5 Years
Within One Year Through 3 Years Through 5 Years
Through 10 Years Beyond 10 Years Total
(Dollars in thousands)
<S> <C> <C> <C>
<C> <C> <C>
Real estate mortgage $98,133 $ 166 $ 29
$ 52 $ -- $98,380
Commercial real estate 9,473 -- --
-- -- 9,473
Land 6,348 -- --
-- -- 6,348
Mobile home 745 -- --
-- -- 745
Automobile 4,058 17 109
-- -- 4,184
Savings account loans 1,266 16 --
-- -- 1,282
Other consumer 875 41 --
-- -- 916
Commercial business 2,028 7 --
-- -- 2,035
------ ------- ------
------- -------- ------
Total loans $122,926 $ 247 $ 138
$ 52 $ -- $123,363
The following table sets forth the dollar amount of all loans due one year
after June 30, 1996, which have
fixed interest rates and have floating or adjustable interest rates.
Fixed Floating or
Rates Adjustable Rates
------- ----------------
(In thousands)
Real estate mortgage $ 247 $ --
Commercial real estate -- --
Land -- --
Mobile home -- --
Automobile 126 --
Savings account loans 16 --
Other consumer 41 --
Commercial business 7 --
----- --------
Total $ 437 $ --
====== ========
</TABLE>
13
</PAGE>
<PAGE>
The following table sets forth scheduled contractual amortization of
loans and mortgage-backed securities at June 30, 1996 and the dollar amount
of such loans and mortgage-backed securities at the date which are scheduled
to mature after one year which have fixed or adjustable interest rates.
Demand loans, loans having no stated schedule of repayments and no stated
maturity are reported as due in one year or less.
<TABLE>
<CAPTION>
At June 30, 1996
Commercial Mortgage-
Mortgage Consumer Business Total Backed
Loans Loans Loans Loans Securities
(In thousands)
<S> <C> <C> <C> <C> <C>
Amounts due:
Within one year $ 3,326 $2,193 $1,077 $ 6,596 $ --
After one year
through three years 868 2,365 334 3,567 --
After three years
through five years 1,850 1,761 248 3,859 --
After five years 108,157 808 376 109,341 2,831
------- ----- ----- ------- -----
Total $114,201 $7,127 $2,035 $123,363 $2,831
======== ====== ====== ======== ======
Interest rate terms
on amounts due after
one year:
Fixed $ 247 $ 183 $ 7 $ 437 $ 227
Adjustable 110,628 4,751 951 116,330 2,604
------- ----- ----- -------- ------
Total $110,875 $4,934 $958 $116,767 $2,831
======== ====== ===== ======== ======
</TABLE>
Mortgage Loan Solicitation and Processing. The Savings Bank's main source
of loans is from referrals from current or prior borrowers, limited walk-ins
and contact and relationships with real estate agents. Once a mortgage loan
application is received, a credit and property analysis is completed including
obtaining a credit report from local reporting agencies, verification of income
and deposits through mail or direct contact, asset and liability verification
as required and an evaluation of the property offered as collateral. Real
estate evaluations are completed by board approved staff personnel. The
application is then submitted for underwriting by designated staff members and
forwarded to a loan officer for review and action along with the underwriter's
recommendations. Decisions are generally made within a week. Loans in excess
of $100,000 are approved by the Board of Directors and loans less than that
amount are approved by authorized officers or a loan officer of the Savings
Bank.
Loan Originations, Purchases and Sales. Loans are originated to meet or
exceed the applicable underwriting requirements of the Savings Bank. The
Savings Bank has never sold loans in the secondary market.
The Savings Bank has occasionally purchased loans from other financial
institutions or three local appliance dealers, as discussed above. See "--
Consumer and Commercial Business Loans." The Savings Bank purchased four
whole mortgage loans during 1996. At June 30, 1996, one loan had been paid
in full and the three remaining loans totaled $177,000.
14
</PAGE>
<PAGE>
<TABLE>
The following table shows total mortgage loans originated, purchased, sold and
repaid during the periods indicated.
<CAPTION>
Years Ended June
30,
1996 1995
1994
(In thousands)
<S> <C> <C>
<C>
Total mortgage loans at beginning of period $96,968 $81,093
$70,594
------- -------
- -------
Loans originated:
One-to-four family residential 32,452 25,817
24,910
Multi-family residential and commercial real estate 4,254 3,052
1,106
Land 3,528 1,646
1,876
------ ------
- ------
Total loans originated 40,234 30,515
27,892
Loans purchased:
Single-family residential 358 --
--
Participation loans -- 117
63
----- -----
-----
Total loans purchased 358 117
63
Loans sold:
Participation loans -- --
--
----- -----
----
Total loans sold -- --
--
Mortgage loan principal repayments 23,359 14,711
17,387
------ ------
------
Other-loans charged off or
transferred to other real estate(1) -- 46
69
---- ----
----
Total other activity -- 46
69
---- ----
----
Total gross mortgage loans at end of period $114,201 $96,968
$81,093
======== =======
=======
Total mortgage-backed certificates at beginning of
period $ 3,134 $ 3,420
$9,159
Mortgage-backed purchased -- --
--
Mortgage-backed sold -- --
--
Principal repayments (265) (229)
(705)
Amortization of premiums (3) (4)
(4)
Adjustment to market value (35) (53)
(30)
------ ------
------
Total mortgage-backed at end of period $2,831 $3,134
$3,420
====== ======
======
<FN>
(1)Loans transferred to other real estate amounted to $0, $43,000 and $66,000
in 1996, 1995 and 1994, respectively.
Loans charged off amounted to $0, $3,000 and $3,000 in 1996, 1995 and 1994,
respectively.
</FN>
</TABLE>
15
</PAGE>
<PAGE>
Loan Commitments. The Savings Bank issues commitments for adjustable
rate one- to four-family residential mortgage loans that are honored for up
to a maximum of 30 days from approval. If the commitment expires, it is
generally renewed upon request without penalty or expense to the borrower at
the current market rate. The Savings Bank had outstanding net loan
commitments of approximately $1.8 million at June 30, 1996. See Note 14 to
Notes to the Consolidated Financial Statements.
Loan Origination and Other Fees. The Savings Bank does not charge
points on ARM mortgage loans. Instead, it quotes an interest rate, or base
rate, with no points and gives the borrower the option, if desired, to pay a
1% fee, but obtain the loan at 1% below the Savings Bank's base rate at the
time the loan is issued. Subsequent increases in the loan's interest rate
are based upon the reduced rate rather than the base rate. Construction
borrowers can pay a 2% fee and receive a 2% reduction in the initial rate.
Current accounting standards require fees received (net of certain loan
origination costs) for originating loans to be deferred and amortized into
interest income over the contractual life of the loan. Net deferred fees
associated with loans that are sold are recognized as income at the time of
sale. The Savings Bank had $70,000 net deferred loan costs at June 30, 1996.
Non-Performing Assets and Delinquencies. When a mortgage loan borrower
fails to make a required payment by the end of the month in which the payment
is due, the Savings Bank generally institutes collection procedures. The
first notice is generally mailed to the borrower, or a phone call made,
within 10 days of the end of the month, and if necessary, a second notice
follows at the end of the next two week period. In most cases, delinquencies
are cured promptly; however, if the Savings Bank is unable to make contact
with the borrower to obtain full payment, or, if that is not possible, work
out a repayment schedule, a notice to commence foreclosure may be mailed to
the borrower. The Savings Bank makes every reasonable effort, however, to
work with delinquent borrowers. Understanding that borrowers sometimes
cannot make payments because of illness, lost jobs, etc., the Savings Bank
will attempt to work with delinquent borrowers who are communicating and
cooperating with the Savings Bank.
The Savings Bank institutes the same collection procedures for
non-mortgage loans.
The Board of Directors is informed on a monthly basis as to the status of
all mortgage and non-mortgage loans that are delinquent 60 days or more, as
well as the status on all loans currently in foreclosure or owned by the
Savings Bank through foreclosure.
The table below sets forth the amounts and categories of non-performing
assets in the Savings Bank's loan portfolio at the dates indicated. Loans are
placed on non-accrual status only when the Savings Bank determines there is
little if any likelihood they will be repaid. The loans are fully reserved at
that time, through appropriate loss reserves and are kept on the books as long
as some principal is being repaid. The Savings Bank has no reserves for
uncollected interest and does not accrue interest on the non-accrual loans.
The Savings Bank would have recorded interest income of $4,300, $4,100 and
$4,400 on non-accrual loans during the years ended June 30, 1996, 1995 and
1994, respectively, if such loans had been performing during such periods.
The Savings Bank did not recognize interest income on loans after being placed
on a non-accrual basis during the years ended June 30, 1996, 1995 and 1994.
16
</PAGE
<PAGE>
<TABLE>
The following table sets forth information with respect to the Savings
Bank's non-performing assets at the dates indicated. At the dates shown, the
Savings Bank had no restructured loans within the meaning of SFAS 15.
<CAPTION>
At June 30,
1996 1995 1994 1993 1992
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Loans accounted for on
a nonaccrual basis:
Real estate -
Residential $ -- $ -- $ -- $ 3 $ --
Commercial -- -- -- -- --
Commercial business 121 40 40 11 19
Consumer 9 11 12 44 53
------ ----- ------ ----- ----
Total $130 $ 51 $ 52 $ 58 $ 72
===== ==== ==== ==== ====
Accruing loans which are contractually
past due 90 days or more:
Real estate -
Residential $548 $295 $355 $292 $381
Commercial 4 106 26 17 29
Commercial business 29 44 23 87 44
Consumer 108 93 161 86 102
---- --- ---- --- ----
Total $689 $538 $565 $482 $556
===== ===== ===== ==== =====
Total of nonaccrual and
90 days past due loans $819 $589 $617 $540 $628
Real estate owned -- 48 47 -- --
Other non-performing assets -- -- -- -- --
Slow home loans (60 to 90 days
delinquent) 446 349 309 198 308
---- ---- ---- ---- ----
Total non-performing assets $1,265 $986 $973 $738 $936
Total loans delinquent 90 days
or more to net loans 0.58% 0.53% 0.66% 0.65% 0.84%
Total loans delinquent 90 days
or more to total consolidated
assets 0.48 0.42 0.48 0.57 0.71
Total non-performing assets
to total consolidated
assets 0.88 0.77 0.82 0.78 1.06
</TABLE>
17
</PAGE>
<PAGE>
Asset Classification. The OTS has adopted various changes in its
regulations regarding problem assets of savings institutions. These
regulations, which became effective on December 31, 1987, are intended to
comply with directives to the FHLBB (as predecessor to the OTS) in the
Competitive Equality Banking Act ("CEBA"). The regulations conform the OTS'
asset classification system to commercial banking practices, eliminate the
FHLBB's previous regulation that had classified certain problem assets as
"scheduled items" and put the establishment of loan loss allowances on a basis
consistent with the requirements of GAAP.
The regulations require that each insured institution review and classify
its assets on a regular basis. In addition, in connection with examinations
of insured institutions, OTS examiners have authority to identify problem
assets and, if appropriate, require them to be classified. There are three
classifications for problem assets: substandard, doubtful and loss.
Substandard assets must have one or more defined weaknesses and are
characterized by the distinct possibility that the insured institution will
sustain some loss if the deficiencies are not corrected. Doubtful assets have
the weaknesses of substandard assets with the additional characteristic that
the weaknesses make collection or liquidation in full on the basis of
currently existing facts, conditions and values questionable, and there is a
high possibility of loss. An asset classified loss is considered
uncollectible and of such little value that continuance as an asset of the
institution is not warranted. Assets classified as substandard or doubtful
require the institution to establish general allowances for these asset
losses. If an asset or portion thereof is classified loss, the insured
institution must either establish specific allowances for loan losses in the
amount of 100% of the portion of the asset classified loss or charge off such
amount. A portion of general loss allowances established to cover possible
losses related to assets classified substandard or doubtful may be included in
determining an institution's regulatory capital, while specific valuation
allowances for loan losses generally do not qualify as regulatory capital.
At June 30, 1996 and 1995 the aggregate amounts of the Savings Bank's
classified assets as determined by the Savings Bank, and of the Savings Bank's
general and specific loss allowances and charge-offs, were as follows:
<TABLE>
<CAPTION>
At June
1996 1995
(In thousands)
<S> <C> <C>
Loss $ 74 $ 86
Doubtful 49 60
Substandard assets 2,197 3,106
----- -----
Total classified assets $2,320 $3,252
====== ======
General loss allowances $ 182 $ 158
Specific loss allowances 338 284
------ ------
Total allowances $ 520 $ 442
====== ======
Charge-offs $ 1 $ 12
====== =======
</TABLE>
The Savings Bank does not use a special mention category in its loan
classification process. Loans classified as substandard, therefore, include
all loans for which any perceived weakness occurs even if no possibility has
arisen that a loss will occur if the weakness is not corrected. The Savings
Bank's policy is to classify as substandard, for example, any loan,
irrespective of payment record or collateral value, when a bankruptcy filing
occurs, a divorce petition is filed, the pay record becomes erratic (i.e.,
miss one monthly payment, but make a double payment the next month), a
borrower moves from the area, a major illness occurs, or a loan becomes
contractually delinquent by two monthly payments.
The Savings Bank's further policy is not to remove a loan from a
substandard classification, again, irrespective of pay record or collateral
value, until those perceived weaknesses are cured. Because of this stringent
classification policy, the June 30, 1996 substandard classification totals
18
</PAGE>
<PAGE>
included $900,000 of loans that were current in their payment obligations. As
of June 30, 1995, loans classified substandard included $1.4 million of
current loans.
The following is a discussion of the Savings Bank's major substandard
loans at June 30, 1996:
The Savings Bank had two borrowers with major substandard loans at June
30, 1996. One borrower obtained a loan in December of 1986 to purchase an
apartment building. The balance at June 30, 1996 was $121,000. The loan was
current at June 30, 1996; however, the loan has been delinquent for 60 days or
more in the past. The second borrower obtained a residential construction
loan in January of 1996. At June 30, 1996, the balance of the loan was
$119,802. The loan is classified due to the fact the borrower exceeded his
initial loan amount and had to borrow additional proceeds to complete the
construction of the house. To date, all principal and interest payments made
by the borrower have been made timely.
Real Estate Owned. Real estate acquired by the Savings Bank as a result
of foreclosure or by deed in lieu of foreclosure is classified as real estate
owned until it is sold. When property is acquired, the unpaid principal
balance of the related loan plus foreclosure costs are compared to the
property's appraised value. The property is then directly written down to the
lower of cost or fair value. Subsequently, the property is carried at the
lower of cost or net realizable value with any adjustments made through the
establishment of a specific reserve. At June 30, 1996, no property was held
as real estate owned. At June 30, 1995 the Savings Bank had two properties in
real estate owned, a single-family residence and a duplex. These properties
were transferred to the Savings Bank's subsidiary during 1996 as investment
property. After this transfer, the single-family residence was sold at a
profit. The duplex has continually ben rented.
Reserve for Loan Losses
The Savings Bank's loan personnel, at least monthly, evaluate the need to
establish reserves for losses on loans based on estimated losses on specific
loans when a finding is made that a decline in value has occurred. Such
evaluation includes a review of all loans for which full collectibility may
not be reasonably assured and considers, among other matters, the estimated
market value of the underlying collateral of problem loans, prior loss
experience, economic conditions and overall portfolio quality. These
provisions for losses are charged against earnings in the year they are
established. The Savings Bank had reserves for loan losses at June 30, 1996,
1995 and 1994 of approximately $520,000, $442,000 and $479,000, respectively.
Management believes that loan loss reserves were adequate at June 30, 1996.
However, if the underlying facts and circumstances of the loan portfolio
change in the future, the adequacy of the allowance for loan losses will be
addressed and, if need be, adjusted accordingly.
While the Savings Bank believes it has established its existing allowance
for loan losses in accordance with GAAP, there can be no assurance that
regulators, in reviewing the Savings Bank's loan portfolio, will not request
the Savings Bank to significantly increase its allowance for loan losses. Any
material increase in reserves may adversely affect the Savings Bank's
financial condition and earnings.
19
</PAGE>
<PAGE>
<TABLE>
The following table sets forth an analysis of the Savings Bank's gross reserve
for possible loan losses for the periods indicated. Where specific loan loss
reserves have been established, any difference between the loss reserve and
the amount of loss realized has been charged or credited to current income.
<CAPTION>
Years Ended June 30,
1996 1995 1994 1993 1992
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Allowance at beginning of period $442 $479 $470 $443 $385
Provision for loan losses 79 (27) 23 41 82
Recoveries:
Residential real estate -- -- -- -- --
Commercial real estate -- -- -- -- --
Consumer -- 2 8 3 3
Commercial business -- -- -- -- --
----- ----- ----- ---- ----
Total recoveries -- 2 8 3 3
----- ---- ----- ---- ----
Charge offs:
Residential real estate -- 3 3 -- 8
Commercial real estate -- -- -- -- --
Consumer 1 9 8 9 19
Commercial business -- -- 11 8 --
---- ---- ---- ---- ----
Total charge offs 1 12 22 17 27
--- ---- ---- --- ---
Net charge offs 1 10 14 14 24
---- ---- ---- ---- ----
Allowance at end of period $520 $442 $479 $470 $443
==== ==== ==== ==== ====
Ratio of allowance to total loans
outstanding at the end of the period 0.42% 0.42% 0.54% 0.61% 0.66%
Ratio of net charge offs to average loans
outstanding during the period -- 0.01% 0.02% 0.02% 0.04%
</TABLE>
20
</PAGE>
<PAGE>
<TABLE>
Allowance for Loan Losses by Category
<CAPTION>
At June
30,
1996 1995
1994 1993
--------------------------- ------------------------
- ------------------------ -------------------------
% %
% %
% of Gross % of Gross
% of Gross % of Gross
of Out- Loans in of Out- Loans in
of Out- Loans in of Out- Loans in
standing Category standing Category
standing Category standing Category
Loans in to Gross Loans in to Gross
Loans in to Gross Loans in to Gross
Amount Category Loans Amount Category Loans
Amount Category Loans Amount Category Loans
------ -------- ------- ------ -------- ------
- ------ -------- ------ ------- -------- --------
(Dollars
in thousands)
<S> <C> <C> <C> <C> <C> <C>
<C> <C> <C> <C> <C> <C>
Real estate -- mortgage:
Residential $179 0.19% 77.44% $186 0.22% 79.12%
$201 0.29% 79.86% $199 0.32% 80.21%
Commercial 61 0.67 7.42 58 0.82 6.75
53 0.96 6.24 49 1.12 5.67
Land 9 0.16 4.69 7 0.16 4.08
5 0.14 3.93 4 0.14 3.60
Second mortgage loans 8 0.21 3.02 4 0.15 2.60
3 0.17 2.06 3 0.17 2.26
Consumer 159 2.23 5.78 146 2.58 5.41
172 3.12 6.25 171 3.42 6.49
Commercial business 104 5.11 1.65 41 1.91 2.04
45 3.08 1.66 44 3.24 1.77
---- ----- ---- -----
- ---- ----- ---- -----
Total allowance for loan
losses $520 0.42% 100.00% $442 0.42% 100.00%
$479 0.54% 100.00% $470 0.61% 100.00%
===== ======= ==== ======
==== ======= ==== =======
At June 30,
1992
---------------
%
% of Gross
of Out- Loans in
standing Category
Loans in to Gross
Amount Category Loans
------ -------- -------
(Dollars in thousands)
Real estate -- mortgage:
Residential $179 0.19% 77.44%
Commercial 61 0.67 7.42
Land 9 0.16 4.69
Second mortgage loans 8 0.21 3.02
Consumer 159 2.23 5.78
Commercial business 104 5.11 1.65
---- -----
Total allowance for loan
losses $520 0.42% 100.00%
</TABLE>
21
</PAGE>
<PAGE>
Investment Activities
Savings and loan associations have authority to invest in various types
of liquid assets, including United States Treasury obligations, securities of
various Federal agencies and of state and municipal governments, deposits at
the FHLB-Des Moines, certificates of deposit of federally insured
institutions, certain bankers' acceptances and federal funds. Subject to
various restrictions, such savings institutions may also invest a portion of
their assets in commercial paper, corporate debt securities and mutual funds,
the assets of which conform to the investments that federally chartered
savings institutions are otherwise authorized to make directly. Savings
institutions are also required to maintain minimum levels of liquid assets
which vary from time to time. See "REGULATION OF FIRST HOME -- Federal Home
Loan Bank System." The Savings Bank may decide to increase its liquidity
above the required levels depending upon the availability of funds and
comparative yields on investments in relation to return on loans.
The Savings Bank is required under federal regulations to maintain a
minimum amount of liquid assets and is also permitted to make certain other
securities investments. See "REGULATION OF FIRST HOME" herein and
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- Liquidity and Capital Resources" in the Annual Report. The
balance of the Savings Bank's investments in short-term securities in excess
of regulatory requirements reflects management's response to the significantly
increasing percentage of deposits with short maturities. At June 30, 1996,
the Savings Bank's regulatory liquidity was 10.65% which is significantly in
excess of the required 5%. It is the intention of management to hold
securities with short maturities in the Savings Bank's investment portfolio in
order to enable the Savings Bank to match more closely the interest-rate
sensitivities of its assets and liabilities.
The Savings Bank has previously invested in various corporate bonds and
at June 30, 1996, its investments included a bond of Sears, Roebuck & Company.
At June 30, 1996, this bond had a maturity date of 1997 and an interest rate
of 9.25%. Management of the Savings Bank presently does not have any plans to
purchase additional corporate bonds..
The Savings Bank purchased one pool of car loans through a private
placement in fiscal 1992 totalling $250,000. Principal and interest payments
are made on the loans monthly and paid to the Savings Bank. The loans have a
five year stated maturity. In October 1993, the Savings Bank was advised by
the trustee that an audit of these loans disclosed evidence of possible
fraudulent activity in connection with the borrowers' payments. On July 10,
1995, the pool of loans was downgraded from B to CCC. Monthly principal and
interest payments are not currently being received but are being paid into
escrow as litigation and bankruptcy proceedings attempt to sort out
allegations of misappropriations. Based on information it has received, the
Savings Bank has written down this investment by $46,000 to its estimated net
realizable value because, in the opinion of management, the decline in market
value was considered to be other than temporary. At June 30, 1996, the
balance of these loans totalled $113,000.
Routine short-term investment decisions are made by the President and
Chief Executive Officer, who acts within policies established by the Board of
Directors, and are reported monthly to the Board. Those investments include
federally insured certificates of deposit, FHLB term time obligations, bankers
acceptances, treasury obligations and U.S. Government agencies. All other
investments including, but not limited to, mortgage-backed securities, bank
qualifying municipal tax exempt bonds, corporate bonds or other longer term
obligations require prior Board approval. Securities are purchased for
investment purposes and are to be held until maturity. The goals of the
Savings Bank's investment policy are to select investments based on safety
first, flexibility second and diversification third. In addition, as a result
of the concern with interest rate risk exposure, there has been a focus on
short-term investments. At June 30, 1996, the Company's and the Savings
Bank's securities investment portfolio totaled $12.6 million and consisted
primarily of federal agency obligations securities, mutual funds, corporate
bonds, and municipal bonds. For further information concerning the Savings
Bank's investment and mortgage-backed securities portfolio, see Notes 2, 3
and 4 of the Notes to the Consolidated Financial Statements.
22
</PAGE>
<PAGE>
<TABLE>
Investment Securities Analysis
The following table sets forth the Company's and the Savings Bank's
investment securities portfolio at carrying value at the dates indicated.
<CAPTION>
At June 30,
1996 1995
1994
Book Percent of Book Percent of
Book Percent of
Value(1) Portfolio Value(1) Portfolio
Value(1) Portfolio
-------- --------- ------- ---------
- -------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C>
<C> <C>
Debt securities:
Domestic corporate bonds $ 155 1.23% $ 159 1.24% $
889 6.87%
U.S. government treasury and
obligations of U.S.
government agencies 8,009 63.56 8,699 67.82
8,071 62.32
Auto and student loan pools 158 1.25 251 1.95
350 2.70
State and political subdivision 2,075 16.47 1,779 13.87
1,782 13.76
----- ----- ------ ----
- ------ -----
Total debt securities 10,397 82.51 10,888 84.88
11,092 85.65
------ ------ ------ -----
- ------ -----
Equity securities:
Federal Home Loan Bank
stock 890 7.06 784 6.11
725 5.60
Other 1,314 10.43 1,155 9.01
1,133 8.75
----- ----- ----- ----
- ----- ----
Total equity securities 2,204 17.49 1,939 15.12
1,858 14.35
----- ----- ----- -----
- ------ -----
Total investment securities $12,601 100.00% $12,827 100.00%
$12,950 100.00%
======= ====== ======= ======
======= ======
<FN>
(1) The market value of the Company's and the Savings Bank's investment
securities portfolio amounted to $12.62 million, $12.84 million and $12.97
million at June 30, 1996, 1995 and 1994, respectively. At June 30, 1996,
the market value of the principal components of the Company's and the
Savings Bank's investment securities portfolio which were obligations of
U.S. Government securities was $8.00 million.
</FN>
</TABLE>
<TABLE>
The following table sets forth the maturities and weighted average yields
of the debt securities in the Company's and the Savings Bank's investment
securities portfolio at June 30, 1996.
<CAPTION>
Less Than One to Five to
Over Ten
One Year Five Years Ten Years
Years
Amount Yield Amount Yield Amount Yield
Amount Yield
------ ----- ------ ----- ------ -----
------- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
<C> <C>
Domestic corporate bonds $ -- --% $ 155 9.25% $ -- --%
$ -- --%
U.S. government treasury and
obligations of U.S.
government agencies 993 4.97 7,016 5.93 -- --
-- --
Auto and student loan pools -- -- 62 7.15 96
7.34 -- --
State and political subdivisions 505 4.44 1,395 5.39 175
5.73 -- --
----- ------ -------
------
Total $1,498 4.80 $8,628 5.94 $271
6.30 $ -- --
===== ===== ====
======
</TABLE>
23
</PAGE>
<PAGE>
At June 30, 1996, the Savings Bank held the following security which had
an aggregate book value in excess of 10% of the Savings Bank's equity.
Carrying Value Fair Value
-------------- ----------
(in thousands)
FFCB bond $ 4,996 $5,005
At June 30, 1995 and 1994, the Savings Bank did not have any securities
(other than U.S. Government and agency securities) which had an aggregate book
value in excess of 10% of the Savings Bank's retained earnings at such dates.
Mortgage-Backed Securities. To supplement lending activities in previous
periods of deposit growth and/or declining loan demand, the Savings Bank has
invested in residential mortgage-backed securities. Because of strong local
loan demand, however, no mortgage-backed have been purchased in the past four
years. Although such securities are held for investment, they can serve as
collateral for borrowings and, through repayments, as a source of liquidity.
For information regarding the carrying and market values of the Savings Bank's
mortgage-backed securities portfolio, see Note 4 of the Notes to Consolidated
Financial Statements. The Savings Bank has invested in federal agency
securities issued by Federal Home Loan Mortgage Corporation ("FHLMC"), Federal
National Mortgage Association ("FNMA") and Government National Mortgage
Association ("GNMA"). As of June 30, 1996, 92% of the outstanding balance of
the mortgage-backed securities had adjustable rates of interest.
As of June 30, 1996, the Savings Bank's portfolio included $2.8 million
of mortgage-backed securities purchased as investments to supplement the
Savings Bank's mortgage lending activities. Included in this amount as of
June 30, 1996, the Savings Bank had a collateralized mortgage obligation
("CMO") with a cost of $2.0 million and an estimated market value of $1.9
million. This CMO is collateralized by GNMA 9% certificates. The CMO has an
adjustable interest rate based on the weekly average yield on U.S. Treasury
Securities adjusted to a constant yield of maturity of seven years (the "7
year Treasury index"), subject to a maximum rate of 10.50% and a minimum rate
of 0%. The principal is to be repaid based on the distribution percentages
for each class in the pool. This CMO is in the fifth class out of six in the
order of repayment. Based on initial projections without any prepayments,
principal will be received in the years 2020 and 2021. This investment is not
considered a high-risk mortgage derivitive security.according the regulatory
guidelines.
The FHLMC, FNMA and GNMA certificates are modified pass-through
mortgage-backed securities that represent undivided interests in underlying
pools of fixed-rate, or certain types of adjustable-rate, single-family
residential mortgages issued by these government-sponsored entities. As a
result, the interest rate risk characteristics of the underlying pool of
mortgages, such as fixed- or adjustable-rate, as well a prepayment risk, are
passed on to the certificate holder. FHLMC and FNMA provide the certificate
holder a guarantee of timely payments of interest and ultimate collection of
principal, whether or not they have been collected. GNMA's guarantee to the
holder timely payments of principal and interest and is backed by the full
faith and credit of the U.S. government. Mortgage-backed securities generally
yield less than the loans that underlie such securities, because of the cost
of payment guarantees or credit enhancements that reduce credit risk. In
addition, mortgage-backed securities are more liquid than individual mortgage
loans and may be used to collateralize obligation of the Savings Bank.
The Savings Bank has incorporated into its investment policy the
regulatory requirements set forth in the OTS TB 52, which deals with the
selection of securities dealers, securities policies, unsuitable investment
practices and mortgage derivative products.
24
</PAGE>
<PAGE>
Deposit Activities and Other Sources of Funds
General. Deposits and loan repayments are the major source of the
Savings Bank's funds for lending and other investment purposes. Loan
repayments are a relatively stable source of funds, while deposit inflows and
outflows and loan prepayments are significantly influenced by general interest
rates and money market conditions. Borrowings may be used on a short-term
basis to compensate for reductions in the availability of funds from other
sources. They may also be used on a longer term basis for general business
purposes.
Deposit Accounts. Deposits are attracted from within the Savings Bank's
primary market area through the offering of a broad selection of deposit
instruments, including negotiable order of withdrawal ("NOW") accounts, money
market accounts, regular savings accounts, certificates of deposit and
retirement savings plans. Deposit account terms vary according to the minimum
balance required, the time periods the funds must remain on deposit and the
interest rate, among other factors. In determining the terms of its deposit
accounts, the Savings Bank considers the rates offered by its competition,
profitability to the Savings Bank, matching deposit and loan products and its
customer preferences and concerns. The Savings Bank generally reviews its
deposit mix and pricing weekly, and adjusts it as necessitated by liquidity
needs, the gap position and competition. Management believes deposits have
remained relatively stable to increasing slightly, net of interest credited,
despite withdrawals as depositors sought increased yields on alternative
investments in the marketplace.
25
</PAGE>
<PAGE>
<TABLE>
The following table sets forth information concerning the Savings Bank's
time deposits and other interest-bearing deposits at June 30, 1996.
<CAPTION>
Nominal Percentage
Interest Minimum of Total
Rate Term Category Amount Balance Deposits
- ------- ---- -------- ------- ------- ---------
(In thousands)
<S> <C> <C> <C> <C> <C>
0.00% None Non-interest bearing $ -- $ 2,490 2.35%
2.00-3.10% None NOW accounts 25 5,397 5.09
2.50-4.00% None Super Saver accounts 1 14,176 13.38
2.00-3.00% None Super NOW accounts 300 7,042 6.65
3.00% None Savings accounts -- 5,781 5.46
Certificates of Deposit
4.85% 3 months Fixed term, fixed rate 500 1,138 1.07
5.25% 6 months Fixed term, fixed rate 500 15,075 14.23
5.55% 12 months Fixed term, fixed rate 500 13,306 12.56
5.70% 18 months Fixed term, fixed rate 500 1,974 1.86
5.90% 24 months Fixed term, fixed rate 500 3,934 3.71
6.05% 30 months Fixed term, fixed rate 500 2,009 1.90
6.20% 36 months Fixed term, fixed rate 500 2,517 2.37
6.30% 48 months Fixed term, fixed rate 500 876 .83
6.40% 60 months Fixed term, fixed rate 500 6,549 6.18
8.00% 96 months Fixed term, fixed rate 500 29 .03
various various Fixed term, adjust rate 500 11,892 11.22
various various Jumbo certificates 100,000 11,775 11.11
-------- -----
TOTAL $105,960 100.00%
======== =======
The following table indicates the amount of the Savings Bank's jumbo
certificates of deposit by time remaining until maturity as of June 30, 1996.
Jumbo certificates of deposit require minimum deposits of $100,000 and rates
paid on such accounts are negotiable.
Certificates
Maturity Period of Deposits
- --------------- ------------
(In thousands)
Three months or less $3,279
Three through six months 2,523
Six through twelve months 2,126
Over twelve months 3,847
--------
Total $11,775
</TABLE>
26
</PAGE>
<PAGE>
<TABLE>
Time Deposits by Rates
The following table sets forth the time deposits in the Savings Bank
classified by rates as of the dates indicated.
<CAPTION>
At June 30,
1996 1995 1994
---- ---- ----
(In thousands)
3.00 - 4.49% $ 240 $ 2,093 $ 27,775
4.50 - 5.49% 34,324 16,041 13,178
5.50 - 6.49% 25,510 36,862 5,956
6.50 - 7.49% 10,261 11,321 2,738
Over 7.49% 739 1,507 4,128
------ ------ ------
Total $71,074 $67,824 $53,775
======= ======= =======
The following table sets forth the amount and maturities of time deposits
at June 30, 1996.
Amount Due
------------------------------------------------
Percent
of Total
Less Than 1-2 2-3 3-4 After
Certificate
One Year Years Years Years 4 Years
Total Accounts
--------- ----- ----- ----- -------
- ------- ----------
(In thousands)
<S> <C> <C> <C> <C> <C>
<C>
3.00 - 4.49% $ 240 $ -- $ -- $ -- $ -- $
240 0.34%
4.50 - 5.49% 29,571 2,832 1,181 617 123
34,324 48.29
5.50 - 6.49% 14,548 6,835 2,274 1,358 495
25,510 35.89
6.50 - 7.49% 1,574 1,176 4,036 3,460 15
10,261 14.44
Over 7.49%1 500 -- 29 210 --
739 1.04
------- ------ ------ ------ -----
- ------ ------
Total $46,433 $10,843 $7,520 $5,645 $633
$71,074 100.00%
======= ======= ====== ====== ====
======= ======
</TABLE>
27
</PAGE>
<PAGE>
<TABLE>
Deposit Flow
The following table sets forth the balances of savings deposits in the
various types of savings
accounts offered by the Savings Bank at the dates indicated.
<CAPTION>
At June 30,
- -------------------------------------------------------------------
1996 1995
1994
-----------------------
- ----------------------- ---------------
Percent Percent
Percent
of Increase of
Increase of
Amount Total (Decrease) Amount Total
(Decrease) Amount Total
------- ------ --------- ------ -----
- --------- ------- -----
(Dollars in
thousands)
<S> <C> <C> <C> <C> <C> <C>
<C> <C>
Non-interest bearing $ 2,490 2.35% $1,764 $ 726 0.74% $
(47) $ 773 0.90%
NOW checking 5,397 5.09 4,388 1,009 1.03 131
878 1.02
Regular savings accounts 5,781 5.46 877 4,904 4.98
(273) 5,177 6.03
Super Saver accounts 14,176 13.38 (160) 14,336 14.57
(1,944) 16,280 18.95
Super NOW accounts 7,042 6.65 (2,548) 9,590 9.75 569
9,021 10.50
Fixed-rate certificates which
mature in the year ending(1):
Within 1 year 42,932 40.52 4,070 38,862 39.50 6,805
32,057 37.32
After 1 year, but within 2 years 5,961 5.62 (238) 6,199 6.30 1,464
4,735 5.51
After 2 years, but within 5 years 8,495 8.02 (1,143) 9,638 9.79
4,226 5,412 6.30
Certificates maturing thereafter -- -- (12) 12 0.01 12
-- --
Adjustable rate Cds 13,686 12.91 573 13,113 13.33 1,542
11,571 13.47
------- ----- ----- ------ ----- -----
------ -----
Total Cds 71,074 67.07 3,250 67,824 68.93
14,049 53,775 62.60
------- ----- ------ ------ ----- ------
------ -----
Total $105,960 100.00% $7,571 $98,389 100.00%
$12,485 $85,904 100.00%
======== ====== ====== ======= ======
======= ======= ======
<FN>
(1)At June 30, 1996, 1995 and 1994, jumbo certificates amounted to $11.8
million, $10.3 million and $8.0
million, respectively, and IRAs equalled $12.6 million, $11.8 million and $9.8
million at those dates,
respectively.
</FN>
</TABLE>
28
</PAGE>
<PAGE>
The following table sets forth the savings activities of the Savings Bank for
the periods indicated.
<TABLE>
<CAPTION>
Year Ended June 30,
---------------------------------
1996 1995 1994
------ ------ ------
(In thousands)
<S> <C> <C> <C>
Beginning balance $98,389 $85,904 $80,068
------- ------- -------
Net increase before
interest credited 3,590 8,948 3,306
Interest credited 3,981 3,537 2,530
----- ----- -----
Net increase in
savings deposits 7,571 12,485 5,836
----- ------ -----
Ending balance $105,960 $98,389 $85,904
======== ======= =======
</TABLE>
In the unlikely event the Savings Bank is liquidated, depositors will be
entitled to full payment of their deposit accounts prior to any payment being
made to the stockholders of the Savings Bank. Substantially all of the
Savings Bank's depositors are residents of the State of Missouri.
Borrowings. Savings deposits are the primary source of funds for the
Savings Bank's lending and investment activities and for its general business
purposes. The Savings Bank may rely upon advances from the FHLB-Des Moines to
supplement its supply of lendable funds and to meet deposit withdrawal
requirements. The FHLB-Des Moines has served as the Savings Bank's primary
borrowing source. Advances from the FHLB-Des Moines are typically secured by
the Savings Bank's first mortgage loans. At June 30, 1996, the Savings Bank
had $13.5 million of borrowings from the FHLB-Des Moines at a weighted average
rate of 5.80% which matures as follows: $3.5 million in October 1996, $3.0
million in December 1997, $5.0 million in June 1998 and $2.0 million in
December 2000. These advances are interest-only loans payable monthly with
principal due at maturity and have fixed rates. These advances were obtained
in response to the Savings Bank's recent strong loan demand and limited
deposit growth. The Savings Bank also has available a $5.0 million open line
of credit with the FHLB. At June 30, 1996, no funds were drawn.
The FHLB-Des Moines functions as a central reserve bank providing credit
for savings and loan associations and certain other member financial
institutions. As a member, the Savings Bank is required to own capital stock
in the FHLB-Des Moines and is authorized to apply for advances on the security
of such stock and certain of its mortgage loans and other assets (principally
securities which are obligations of, or guaranteed by, the United States)
provided certain standards related to creditworthiness have been met.
Advances are made pursuant to several different programs. Each credit program
has its own interest rate and range of maturities. Depending on the program,
limitations on the amount of advances are based either on a fixed percentage
of an institution's retained earnings or on the FHLB's assessment of the
institution's creditworthiness. The FHLB-Des Moines determines specific lines
of credit for each member institution.
Subsidiary Activities
Fybar Service Corporation ("Fybar") is a Missouri corporation wholly
owned by the Savings Bank. Fybar owns three rental properties. One is an
office building in Mountain Grove, Missouri called "The Shannon Centre" which
is adjacent to the Savings Bank's drive-in and is currently approximately 89%
occupied. The other property is in Ava, Missouri and consists of an older
home which has been remodeled into apartments and a duplex. That rental
property is 100% occupied. The third is a duplex in Ozark, Missouri which is
100% occupied.
29
</PAGE>
<PAGE>
Fybar serves as Trustee on all the Savings Bank's deeds of trust, is a
registered agent and receives limited income from credit life and accident and
health policies written in conjunction with the Savings Bank's loans and
operates Lawson & Lawson Insurance Agency.
Fybar acquired Lawson & Lawson in December 1991. Lawson & Lawson is a
general insurance agency with its business transacted off site in a building
currently rented from Fybar. At June 30, 1996, the Savings Bank had an
investment in Fybar of $284,000.
REGULATION OF FIRST HOME
As a Missouri-chartered and federally insured savings and loan
association, First Home is subject to extensive regulation. Lending
activities and other investments must comply with various statutory and
regulatory capital requirements. The Savings Bank is regularly examined by
its state and federal regulators and files periodic reports concerning the
Savings Bank's activities and financial condition. The Savings Bank's
relationship with its depositors and borrowers is also regulated to a great
extent by federal and state laws, especially in such matters as the ownership
of savings accounts and the form and content of the Savings Bank's mortgage
documents.
Missouri Savings and Loan Law
General. As a Missouri-chartered savings and loan association, First
Home derives its authority from, and is governed by, the provisions of the
Missouri Savings and Loan Law ("Missouri Law") and regulations of the Missouri
Division. The Director of the Missouri Division proposes regulations which
must then be approved, amended, modified or disapproved by the State Savings
and Loan Commission ("Commission"). Missouri Law and the resulting
regulations are administered by the Director.
Investments and Accounts. Missouri Law and regulations impose
restrictions on the types of investments and loans that may be made by a
Missouri-chartered institution, generally bringing these restrictions into
parity with the regulation of federally chartered institutions. The manner of
establishing accounts and evidencing the same is prescribed, as are the
obligations of the institution with respect to withdrawals from accounts and
redemption of accounts. The Director may also impose or grant the same
restrictions, duties and powers concerning deposits as are applicable to
federal institutions under federal rules and regulations.
Branch Offices. Under Missouri Law, no institution may establish a
branch office or agency without the prior written approval of the Director.
The Director reviews the proposed location, the functions to be performed at
the office, the estimated volume of business, the estimated annual expense of
the office and the mode of payments. Decisions of the Director may be
appealed to the Commission. The relocation or closing of any office is
subject to additional regulation and in certain circumstances may require
prior approval.
Merger or Consolidation. Missouri Law permits the merger or
consolidation of savings institutions, subject to the approval by the
Director, when the Director finds that such merger or consolidation is
equitable to the members or account holders of the institutions and will not
impair the usefulness and success of other properly conducted institutions in
the community. Mergers or consolidations of mutual institutions must also be
approved by a majority of the members of each institution. Stock institutions
must obtain shareholder approval pursuant to the Missouri statutes relating to
general and business corporations.
Holding Companies. Missouri Law requires a savings and loan holding
company and its subsidiaries to register with the Director within 60 days of
becoming a savings and loan holding company. Following registration it is
subject to examination by the Division and thereafter must file certain
reports with the Director. A savings and loan holding company may acquire
control of an institution of another savings and loan holding company upon
application and prior written approval of the Director. The Director, in
reviewing the application, must determine if such acquisition is consistent
with the interests of maintaining a sound financial system and that the
acquisition does not afford a basis for supervisory objection.
30
</PAGE>
<PAGE>
Examination. Periodic reports to the Division must be made by each
Missouri-chartered institution. The Division conducts and supervises the
examination of state-chartered institutions.
Supervision. The Director has general supervisory authority over
Missouri-chartered institutions and upon the Director's finding that an
institution is violating the provisions of its articles of incorporation, its
bylaws or any law of the state, or is conducting business in an unsafe or
injurious manner, the Director may order the institution to discontinue such
violation or practice, and to conform with all the requirements of law. The
Director may demand and take possession of the institution, if the institution
fails to comply with the Director's order, if the Director determines that the
institution is insolvent, in an unsafe condition or conducting business in an
unsafe manner, or if the institution refuses to submit to examination or
inspection by the Division.
Federal Regulation of Savings Banks
The OTS has extensive authority over the operations of all insured
savings associations. As part of this authority, First Home is required to
file periodic reports with the OTS District Director and is subject to
periodic examinations by the OTS and the FDIC. When these examinations are
conducted by the OTS or the FDIC, the examiners may require the Savings Bank
to provide for higher general or specific loan loss reserves. Financial
institutions in various regions of the United States have been called upon by
examiners to write down assets and to establish increased levels of reserves,
primarily as a result of perceived weaknesses in real estate values and a more
restrictive regulatory climate.
The OTS has established a schedule for the assessment of fees upon all
savings associations to fund the operations of the OTS. A schedule of fees
has also been established for the various types of applications and filings
made by savings associations with the OTS. The general assessment, to be paid
on a semi-annual basis, is computed upon the savings association's total
assets, including consolidated subsidiaries, as reported in the association's
latest quarterly thrift financial report. Savings associations that (unlike
the Savings Bank) are classified as "troubled" (i.e., having a supervisory
rating of "4" or "5" or subject to a conservatorship) are required to pay a
50% premium over the standard assessment. For the first half of 1996, the
Savings Bank's assessment under the semi-annual assessment procedure was
$20,000. Based on the current assessment rates published by the OTS and First
Home's total assets of approximately $140.7 million at June 30, 1996, First
Home will be required to pay a semi-annual assessment of approximately $21,000
for the second half of calendar year 1996.
In addition, the investment and lending authority of the Savings Bank is
prescribed by federal laws and regulations, and the Savings Bank is prohibited
from engaging in any activities not permitted by such laws and regulations.
These laws and regulations generally are applicable to all federally chartered
savings associations and many also apply to state-chartered savings
associations.
Among other things, OTS regulations provide that no savings association
may invest in corporate debt securities not rated in one of the four highest
rating categories by a nationally recognized rating organization. In
addition, the HOLA provides that loans secured by nonresidential real property
may not exceed 400% of regulatory capital, subject to increase by the OTS on a
case-by-case basis.
First Home is subject to limitations on the aggregate amount of loans
that it can make to any one borrower, including related entities. Applicable
regulations generally do not permit loans-to-one borrower to exceed 15% of
unimpaired capital and surplus, provided that loans in an amount equal to an
additional 10% of unimpaired capital and surplus also may be made to a
borrower if the loans are fully secured by readily marketable securities. The
OTS by regulation has amended the loans-to-one borrower rule to permit savings
associations meeting certain requirements, including fully phased-in capital
requirements, to extend loans-to-one borrower in additional amounts under
circumstances limited essentially to loans to develop or complete residential
housing units. At June 30, 1996, First Home was in compliance with applicable
loans-to-one borrower limitations.
31
</PAGE>
<PAGE>
Proposed Federal Legislation
Effective January 1, 1996, the FDIC substantially reduced deposit
insurance premiums for well-capitalized, well-managed financial institutions
that are members of the Bank Insurance Fund ("BIF"). Under the new assessment
schedule, approximately 92% of BIF members pay the statutory minimum annual
assessment of $2,000. With respect to financial institutions that are members
of the SAIF, the FDIC has retained the existing rate schedule of 23 to 31
basis points. The Savings Bank is a member of the SAIF rather than the BIF.
SAIF premiums may not be reduced for several years because the SAIF has lower
reserves than the BIF. Because deposit insurance premiums are often a
significant component of noninterest expense for insured depository
institutions, the reduction in the BIF premiums may place the Savings Bank at
a competitive disadvantage since BIF-insured institutions (such as most
commercial banks) may be able to offer more attractive loan rates, deposit
rates, or both.
Proposed federal legislation would recapitalize the SAIF and resolve the
current premium disparity by requiring savings institutions like the Savings
Bank to pay a one-time assessment to increase SAIF's reserves to $1.25 per
$100 of deposits that is expected to be approximately 80 basis points on the
amount of deposits held by a SAIF-member institution. The payment of a one-
time fee would have the effect of immediately reducing the capital and pre-tax
earnings of SAIF-member institutions by the amount of the fee. Based on the
Savings Bank's assessable deposits of $106.3 million at June 30, 1996, a one-
time assessment of 80 basis points would equal approximately $850,000 on a
pre-tax basis, or $527,000 after tax. Management cannot predict whether any
legislation imposing such a fee will be enacted, or, if enacted, the amount or
timing of any one-time fee or whether ongoing SAIF premiums will be reduced to
a level equal to that of BIF premiums. See "REGULATION".
Potential Operational Restrictions Associated with Regulatory Oversight
The Savings Bank is subject to extensive regulation, supervision and
examination by the OTS, as its chartering authority and primary federal
regulator, and by the FDIC, which insures its deposits up to applicable
limits. The Savings Bank is a member for the FHLB System and is subject to
certain limited regulations promulgated by the Board of Governors of the
Federal Reserve System ("Federal Reserve"). As the holding company of the
Savings Bank, the Corporations also is subject to regulation and oversight by
the OTS. Such regulation and supervision govern the activities in which an
institution can engage and is intended primarily for the protection of the
insurance fund and depositors. Regulatory authorities have been granted
extensive discretion in connection with their supervisory and enforcement
activities which are intended to strengthen the financial condition of the
banking industry, including the imposition of restrictions on the operation of
an institution, the classification of assets by the institution and the
adequacy of an institution's allowance for loan losses. Any change in such
regulation and oversight, whether by the OTS, the FDIC or Congress, could have
a material impact on the Corporation, the Savings Bank and their respective
operations. See "REGULATION". Legislation proposing a comprehensive reform
of the banking and thrift industries has recently been discussed in the United
States Congress. Under such legislation, (I) the BIF and SAIF would be
merged, at which time thrifts and banks would pay the same deposit insurance
premiums, (ii) federal savings associations would be required to convert to a
national bank or state-chartered bank or thrift, (iii) all savings and loan
holding companies would become bank holding companies and (iv) the OTS would
be merged with the Office of the Comptroller of the Currency. It is uncertain
when or if such legislation may be passed and, if passed, in what form such
legislation may be passed.
Office of Thrift Supervision
The OTS is an office in the Department of the Treasury subject to the
general oversight of the Secretary of the Treasury. Except as modified by
FIRREA, the OTS possesses the supervisory and regulatory duties and
responsibilities formerly vested in the FHLBB. Among other functions, the OTS
issues and enforces regulations affecting federally-insured savings
associations and regularly examines these institutions.
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<PAGE>
Federal Deposit Insurance Corporation
The FDIC is an independent federal agency established originally to
insure the deposits, up to prescribed statutory limits, of federally insured
banks and to preserve the safety and soundness of the banking industry. In
1989, the FDIC also became the insurer, up to the prescribed limits, of the
deposit accounts held at federally insured savings associations and
established two separate insurance funds: the BIF and the SAIF. As insurer
of deposits, the FDIC has examination, supervisory and enforcement authority
over all savings associations.
The Savings Bank's accounts are insured by the SAIF. The FDIC insures
deposits at the Savings Bank to the maximum extent permitted by law. The
Savings Bank currently pays deposit insurance premiums to the FDIC based on a
risk-based assessment system established by the FDIC for all SAIF-member
institutions. Under applicable regulations, institutions are assigned to one
of three capital groups that are based solely on the level of an institution's
capital -- "well capitalized," "adequately capitalized," and
"undercapitalized"-- which are defined in the same manner as the regulation
establishing the prompt corrective action system, as discussed below. These
three groups are then divided into three subgroups which reflect varying
levels of supervisory concern, from those which are considered to be healthy
to those which are considered to be of substantial supervisory concern. The
matrix so created results in nine assessment risk classifications, with rates
currently ranging from .23% for well capitalized, financially sound
institutions with only a few minor weaknesses to .31% for undercapitalized
institutions that pose a substantial risk of loss to the SAIF unless effective
corrective action is taken. Until the second half of 1995, the same matrix
applied to BIF-member institutions. The FDIC is authorized to raise
assessment rates in certain circumstances. The Savings Bank's assessments
expensed for the year ended June 30, 1996, totalled $229,000.
Effective January 1, 1996, the FDIC substantially reduced deposit
insurance premiums for well-capitalized, well-managed financial institutions
that are members of the BIF. Under the new assessment schedule, rates were
reduced to a range of 1 to 27 basis points, with approximately 92% of BIF
members paying the statutory minimum annual assessment of $2,000. With
respect to SAIF member institutions, the FDIC has retained the existing rate
schedule of 23 to 31 basis points. The Savings Bank is a member of the SAIF
rather than the BIF.
The FDIC may terminate the deposit insurance of any insured
depositoryinstitution if it determines after a hearing that the institution
has engaged or is engaging in unsafe or unsound practices, is in an unsafe or
unsound condition to continue operations, or has violated any applicable law,
regulation, order or any condition imposed by an agreement with the FDIC. It
also may suspend deposit insurance temporarily during the hearing process for
the permanent termination of insurance, if the institution has no tangible
capital. If insurance of accounts is terminated, the accounts at the
institution at the time of termination, less subsequent withdrawals, shall
continue to be insured for a period of six months to two years, as determined
by the FDIC. Management is aware of no existing circumstances that could
result in termination of the deposit insurance of the Savings Bank.
Federal Home Loan Bank System
The FHLB System, consisting of 12 FHLBs, now is under the jurisdiction of
the FHFB. The designated duties of the FHFB are to: supervise the FHLBs;
ensure that the FHLBs carry out their housing finance mission; ensure that the
FHLBs remain adequately capitalized and able to raise funds in the capital
market; and ensure that the FHLBs operate in a safe and sound manner.
First Home, as a member of the FHLB-Des Moines, is required to acquire
and hold shares of capital stock in the FHLB-Des Moines equal to the greater
of (i) 1.0% of the aggregate outstanding principal amount of residential
mortgage loans, home purchase contracts and similar obligations at the
beginning of each year, or (ii) 1/20 of its advances (borrowings) from the
FHLB-Des Moines. First Home complied with this requirement with an investment
in FHLB-Des Moines stock of $890,000 at June 30, 1996.
Among other benefits, the FHLB provides a central credit facility
primarily for member institutions. It is funded primarily from proceeds
derived from the sale of consolidated obligations of the FHLB System. It
makes advances to members in accordance with policies and procedures
established by the FHFB and the Board of Directors of the FHLB-Des Moines. At
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June 30, 1996, the Savings Bank had $13.5 million of advances from the FHLB-
Des Moines.
Under OTS regulations, a member thrift institution is required to
maintain an average daily balance of liquid assets (cash, certain time
deposits and savings accounts, bankers' acceptances, and specified U.S.
government, state or federal agency obligations and certain other investments)
equal to a monthly average of not less than a specified percentage of its net
withdrawable accounts plus short-term borrowings. This liquidity requirement,
which is currently 5.0% may be changed from time to time by the OTS depending
upon economic conditions and the deposit flows of member associations.
Existing OTS regulations also require each member institution to maintain an
average daily balance of short-term liquid assets at a specified percentage
(currently 1.0%) of the total of its net withdrawable savings accounts and
borrowings payable in one year or less. Monetary penalties may be imposed for
failure to meet liquidity requirements. The short- and long-term liquidity
ratios of First Home at June 30, 1996 were 4.62% and 10.65%, respectively.
Prompt Corrective Action
Under Section 38 of the FDIA, as added by the Federal Deposit Insurance
Corporation Improvement Act of 1991 ("FDICIA"), each federal banking agency is
required to implement a system of prompt corrective action for institutions
which it regulates. In September 1992, the federal banking agencies adopted
substantially similar regulations which are intended to implement the system
of prompt corrective action established by Section 38 of the FDIA, which
became effective on December 19, 1992. Under the regulations, an institution
shall be deemed to be (I) "well capitalized" if it has a total risk-based
capital ratio of 10.0% or more, has a Tier I risk-based capital ratio of 6.0%
or more, has a Tier I leverage capital ratio of 5.0% or more and is not
subject to specified requirements to meet and maintain as specific capital
level for any capital measure: (ii) "adequately capitalized" if it has a
total risk-based capital ratio of 8.0% or more, a Tier I risk-based capital
ratio of 4.0% or more and a Tier I leverage capital ratio of 4.0% or more
(3.0% under certain circumstances) and does not meet the definition of
"well capitalized," (iii) "undercapitalized" if it has a total risk-based
capital ratio that is less than 8.0%, a Tier I risk-based capital ratio that
is less than 1.0% or a Tier I leverage capital ratio that is less than 4.0%
(3.0% under certain circumstances), (iv) "significantly undercapitalized" if
it has a total risk-based capital ratio that is less than 6.0%, a Tier I risk
based capital ratio that is less than 3.0% or a Tier I leverage capital ratio
that is less than 3.0% and (v) "critically undercapitalized" if it has a ratio
of tangible equity to total assets that is equal to or less than 2.0%
Section 38 of the FDIA and the implementing regulations also provide that
a federal banking agency may, after notice and an opportunity for a hearing,
reclassify a well capitalized institution as adequately capitalized an may
require an adequately capitalized institution or an undercapitalized
institution to comply with supervisory actions as if it were in the next lower
category if the institution is in an unsafe or unsound condition or engaging
in an unsafe or unsound practice. (The FDIC may not, however, reclassify a
significantly undercapitalized institution as critically undercapitalized.)
An institution generally must file a written capital restoration plan
which meets specified requirement, as well as a performance guaranty by each
company that controls the institution, with the appropriate federal banking
agency within 45 days of the date that the institution receives notice or is
deemed to have notice that it is undercapitalized, significantly
undercapitalized or critically undercapitalized. Immediately upon becoming
undercapitalized, an institution shall become subject to the provisions of
Section 38 of the FDIA, which sets forth various mandatory and discretionary
restrictions on its operations.
At June 30, 1996, First Home was a "well capitalized" institution under
the prompt corrective action regulations of the OTS.
Standards for Safety and Soundness. Federal law requires the federal
banking regulatory agencies to prescribe, by regulation or guideline,
standards for all insured depository institutions and depository institution
holding companies relating to: (i) internal controls, information systems and
internal audit systems; (ii) loan documentation; (iii) credit underwriting;
(iv) interest rate risk exposure; (v) asset growth; and (vi) compensation,
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fees and benefits. The OTS, as well as the other federal banking agencies,
has adopted safety and soundness guidelines on matters such as loan
underwriting and documentation, internal controls and audit systems, interest
rate risk exposure and compensation and other employee benefits. Any
institution which fails to comply with these standards must submit a
compliance plan. A failure to submit a compliance plan or to comply with an
approved compliance plan will result in further enforcement action against the
institution. Savings and loan holding companies are also required to ensure
that transactions and relationship with their subsidiary savings associations
do not have a detrimental effect on the safe and sound operation of the
association.
Qualified Thrift Lender Test
All savings associations are required to meet a QTL test set forth in
Section 10(m) of the HOLA and regulations of the OTS thereunder to avoid
certain restrictions on their operations. A savings institution that fails to
become or remain a QTL shall either become a national bank or be subject to
the following restrictions on its operations: (1) the association may not
make any new investment or engaging in activities that would not be
permissible for national banks; (2) the association may not establish any new
branch office where a national bank located in the savings institution's home
state would not be able to establish a branch office; (3) the association hall
not be eligible to obtain new advances from any FHLB; and (4) the payment of
dividends by the association shall be subject to the rules regarding the
statutory and regulatory dividend restrictions applicable to national banks.
Also, beginning three years after the date on which the savings institution
ceases to be a qualified thrift lender, the savings institution would be
prohibited from retaining any investment or engaging in any activity not
permissible for a national bank and would be required to repay any outstanding
advances to any FHLB. In addition, within one year of the date on which a
savings association controlled by a company ceases to be a QTL, the company
must register as a bank holding company and becomes subject to the rules
applicable to such companies. A savings institution may requalify as a
qualified thrift lender if it thereafter complies with the QTL test.
Currently, the QTL test requires that a 65% of an institution's
"portfolio assets" (as defined) consist of certain housing and consumer
related assets on a monthly average basis in nine out of every 12 months.
Assets that qualify without limit for inclusion as part of the 65% requirement
are loans made to purchase, refinance, construct, improve or repair domestic
residential housing and manufactured housing; home equity loans; mortgage
backed securities (where the mortgages are secured by domestic residential
housing or manufactured housing);FHLB stock; and direct or indirect
obligations of the FDIC. In addition, the following assets, among others, may
be included in meeting the test subject to an overall limit of 20% of the
savings institution's portfolio assets: 50% of residential mortgage loans
originated and sold within 90 days of origination; 100% of consumer and
educational loans (limited to 10% of total portfolio assets); and stock issued
by the Federal Home Loan Mortgage Corporation or the Federal National Mortgage
Association. Portfolio assets consist of total assets minus the sum of (I)
goodwill and other intangible assets, (ii) property used by the savings
institution to conduct its business, and (iii) liquid assets up to 20% of the
institutions total assets. At June 30, 1996, the qualified thrift investments
of First Home were approximately 80.05% of its portfolio assets.
Capital Requirements
Under OTS regulations a savings association must satisfy three minimum
capital requirements: core capital, tangible capital and risk-based capital.
Savings associations must meet all of the standards in order to comply with
the capital requirements.
OTS capital regulations establish a 3% core capital ratio (defined as the
ratio of core capital to adjusted total assets). Core capital is defined to
include common stockholders' equity, noncumulative perpetual preferred stock
and any related surplus, and minority interests in equity accounts of
consolidated subsidiaries, less (i) any intangible assets ; and (ii) equity
and debt investments in subsidiaries that are not "includable subsidiaries,"
which is defined as subsidiaries engaged solely in activities not
impermissible for a national bank, engaged in activities impermissible for a
national bank but only as an agent for its customers, or engaged solely in
mortgage-banking activities. In calculating adjusted total assets,
adjustments are made to total assets to give effect to the exclusion of
certain assets from capital and to appropriately account for the investments
in and assets of both includable and nonincludable subsidiaries. Institutions
that fail to meet the core capital requirement would be required to file with
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<PAGE>
the OTS a capital plan that details the steps they will take to reach
compliance. In addition, the OTS prompt corrective action regulation provides
that a savings institution that has a core capital leverage ratio of less than
4% (3% for institutions receiving the highest CAMEL examination rating) will
be deemed to be "undercapitalized" and may be subject to certain restrictions.
See "-- Prompt Corrective Action."
Savings associations also must maintain "tangible capital" not less than
1.5% of the Savings Bank's adjusted total assets. "Tangible capital" is
defined, generally, as core capital minus any "intangible assets."
Each savings institution must maintain total capital equal to at least 8%
of risk-weighted assets. Total capital consists of the sum of core and
supplementary capital, provided that supplementary capital cannot exceed core
capital, as previously defined. Supplementary capital includes (i) permanent
capital instruments such as cumulative perpetual preferred stock, perpetual
subordinated debt, and mandatory convertible subordinated debt, (ii) maturing
capital instruments such as subordinated debt, intermediate-term preferred
stock and mandatory redeemable preferred stock, subject to an amortization
schedule, and (iii) general valuation loan and lease loss allowances up to
1.25% of risk-weighted assets.
The risk-based capital regulation assigns each balance sheet asset held
by a savings institution to one of four risk categories based on the amount of
credit risk associated with that particular class of assets. Assets not
included for purposes of calculating capital are not included in calculating
risk-weighted assets. The categories range from 0% for cash and securities
that are backed by the full faith and credit of the U.S. government to 100%
for repossessed assets or assets more than 90 days past due. Qualifying
residential mortgage loans (including multi-family mortgage loans) are
assigned a 50% risk weight. Consumer, commercial, home equity and residential
construction loans are assigned a 100% risk weight, as are nonqualifying
residential mortgage loans and that portion of land loans and nonresidential
construction loans which do not exceed an 80% loan-to-value ratio. The book
value of assets in each category is multiplied by the weighing factor (from 0%
to 100% assigned to that category. These products are then totalled to arrive
at total risk-weighted assets. Off-balance sheet items are included in risk
weighted assets by converting them to an approximate balance sheet "credit
equivalent amount" based on a conversion schedule. These credit equivalent
amounts are then assigned to risk categories in the same manner as balance
sheet assets and included risk-weighted assets.
The OTS has incorporated an interest rate risk component into its
regulatory capital rule. Under the rule, savings associations with an "above
normal" interest rate risk exposure would be subject to a deduction from total
capital for purposes of calculating their risk-based capital requirements. A
savings association's interest rate risk is measured by the decline in the net
portfolio value of its assets (i.e., the difference between incoming and
outgoing discounted cash flows from assets, liabilities and off-balance sheet
contracts) that would result from a hypothetical 200 basis point increase or
decrease in market interest rates divided by the estimated economic value of
the association's assets, as calculated in accordance with guidelines set
forth by the OTS. A savings association whose measured interest rate risk
exposure exceeds 2% must deduct an interest rate risk component in calculating
its total capital under the risk-based capital rule. The interest rate risk
component is an amount equal to one-half of the difference between the
institution's measured interest rate risk and 2%, multiplied by the economic
value of the associations assets. That dollar amount is deducted from an
association's total capital in calculating compliance with its risk-based
capital requirement. Under the rule, there is a two quarter lag between the
reporting date of an institution's financial data and the effective date for
the new capital requirement based on that data. A savings association with
assets of less than $300 million and risk-based capital ratios in excess of
12% is not subject to the interest rate risk component, unless the OTS
determines otherwise. The rule also provides that the Director of the OTS may
waive or defer an association's interest rate risk component on a case-by-case
basis. The OTS has recently postponed the date that the component will first
be deducted from an institution's total capital until an appeals process is
developed for the measurement of an institution's interest rate risk.
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The following table presents the Savings Bank's capital levels as of June
30, 1996.
<TABLE>
<CAPTION>
At June 30, 1996
--------------------
Percent of
Amount Assets
------- -----------
(Dollars in thousands)
<S> <C> <C>
Tangible capital $18,803 13.4%
Minimum required
tangible capital 2,105 1.5
-------- -----
Excess $16,698 11.9%
======= =====
Core capital $18,803 13.4%
Minimum required core
capital 4,210 3.0%
------- -----
Excess $14,593 10.4%
======= =====
Risk-based capital $18,950 20.4%
Minimum risk-based
capital requirement 7,424 8.0
------- -----
Excess $11,526 12.4%
======= =====
</TABLE>
Dividend Limitations
OTS regulations require the Savings Bank to give the OTS 30 days' advance
notice of any proposed declaration of dividends to the Company, and the OTS
has the authority under its supervisory powers to prohibit the payment of
dividends to the Company. In addition, the Savings Bank may not declare or
pay a cash dividend on its capital stock if the effect thereof would be to
reduce the regulatory capital of the Savings Bank below the amount required
for the liquidation account established in connection with the mutual to stock
conversion.
OTS regulations impose uniform limitations on the ability of all savings
associations to engage in various distributions of capital such as dividends,
stock repurchases and cash-out mergers. The regulation utilizes a three-
tiered approach which permits various levels of distributions based primarily
upon a savings association's capital level.
A Tier 1 savings association generally has capital in excess of its fully
phased-in capital requirement (both before and after the proposed capital
distribution) and has not been notified by the OTS that it is in need of more
than normal supervision. A Tier 1 savings association may make (without
application but upon prior notice to, and no objection made by, the OTS)
capital distributions during a calendar year up to 100% of its net income to
date during the calendar year plus one-half its surplus capital ratio (i.e.,
the amount of capital in excess of its fully phased-in requirement) at the
beginning of the calendar year. Capital distributions in excess of such
amount require advance approval from the OTS.
A savings association with either (i) capital equal to or in excess of
its minimum capital requirement but below its fully phased-in capital
requirement (both before and after the proposed capital distribution), or (ii)
capital in excess of its fully phased-in capital requirement (both before and
after the proposed capital distribution) but which has been notified by the
OTS that it is in need of more than normal supervision may be designated by
the OTS as a Tier 2 association. Such an association may make (without
application) capital distributions up to an amount equal to 75% of its net
income during the previous four quarters depending on how close th
association is to meeting its fully phased-in capital requirement. Capital
distributions exceeding this amount require prior OTS approval.
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Tier 3 associations include savings associations with either (i) capital
below the minimum capital requirement (either before or after the proposed
capital distribution), or (ii) capital in excess of the fully phased-in
capital requirement but which has been notified by the OTS that it shall be
treated as a Tier 3 association because it is in need of more than normal
supervision. Tier 3 associations may not make any capital distributions
without prior approval from the OTS.
At June 30, 1996, the Savings Bank met the criteria to be designated a
Tier 1 association and, consequently, could at its option (after prior notice
to, and no objection made by, the OTS) distribute up to 100% of its net income
during the calendar year plus 50% of its surplus capital ratio at the
beginning of the calendar year less any distributions previously paid during the
year.
The OTS issued a proposed rule that would amend its capital distributions
regulation to incorporate the definition of "capital distributions" used under
the system of prompt corrective action established by FDICIA. The proposed
rule would allow capital distributions without notice to the OTS by
associations that are adequately capitalized that receive a composite rating
of 1 or 2, and that are not held by a holding company. Remaining associations
that are at least adequately capitalized after making a capital distribution
would be permitted to made a capital distribution upon notice to the OTS.
Applications for capital distributions would be accepted from troubled
associations and undercapitalized associations but would be approved only
under certain restrictive conditions.
Investment Rules
The permissible amount of loans-to-one borrower now follows the national
bank standard for all loans made by savings institutions. This standard
generally does not permit loans-to-one borrower to exceed 15% of unimpaired
capital and surplus. Loans in an amount equal to an additional 10% of
unimpaired capital and surplus also may be made to a borrower if the loans are
fully secured by readily marketable securities. The Savings Bank believes
that these provisions have not had any material adverse effect on its lending
activities.
Savings institutions and their subsidiaries may not acquire or retain
investments in corporate debt securities that at the time of acquisition were
not rated in one of the four highest rating categories by at least one
nationally recognized rating organization. Investments in a savings
institution's portfolio not meeting this requirement must be divested as
quickly as can be done on a prudent basis, but not later than July 1, 1994.
Pursuant to regulatory accounting rules, securities subject to divestment are
not to be treated as "held for sale"; however, GAAP may still require mark-to
market accounting by virtue of the divestment requirement. The Savings Bank
does not hold any investments that must be divested under this provision.
In addition, the permissible amount of commercial real estate loans for
federal associations is reduced from the pre-FIRREA standard of 40% of assets
to an amount equal to four times capital. This limitation is not expected to
have a material adverse effect on the Savings Bank.
At June 30, 1996, the largest loans by the Savings Bank outstanding to
any one borrower, including related entities, was $879,000 which were secured
primarily by single-family rental properties in and around Mountain Grove,
Missouri. These loans were performing in accordance with their terms at that
date.
Activities of Savings Banks and Their Subsidiaries
When a savings association establishes or acquires a subsidiary or elects
to conduct any new activity through a subsidiary that the association
controls, the savings association shall notify the FDIC and the OTS 30 days in
advance and provide the information each agency may, by regulation, require.
Savings associations also must conduct the activities of subsidiaries in
accordance with existing regulations and orders.
The OTS may determine that the continuation by a savings association of
its ownership control of, or its relationship to, the subsidiary constitutes a
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serious risk to the safety, soundness or stability of the association or is
inconsistent with sound banking practices or with the purposes of the FDIA.
Based upon that determination, the FDIC or the OTS has the authority to order
the savings association to divest itself of control of the subsidiary. The
FDIC also may determine by regulation or order that any specific activity
poses a serious threat to the SAIF. If so, it may require that no SAIF member
engage in that activity directly.
Accounting and Regulatory Standards
An OTS policy statement applicable to all savings associations clarifies
and re-emphasizes that the investment activities of a savings association must
be in compliance with approved and documented investment policies and
strategies, and must be accounted for in accordance with generally accepted
account principles. Under the policy statement, management must support its
classification of an accounting for loans and securities (i.e., whether held
for investment, sale or trading) with appropriate documentation. First Home
is in compliance with these amended rules.
The OTS has adopted an amendment to its accounting regulations, which may
be made more stringent than generally accepted accounting principles by the
OTS, to require that transactions be reported in a manner that best reflects
their underlying economic substance and inherent risk and that financial
reports must incorporate any other accounting regulations or orders prescribed
by the OTS.
Investment Portfolio Policy
OTS supervisory policy requires that securities owned by thrift
institutions must be classified and reported in accordance with GAAP
consistent with the institution's intent to trade, available-for-sale or held
to-maturity. Trading securities are acquired principally for the purpose of
near term sales. Such securities are reported at fair value and unrealized
gains and losses are included in income. Securities which are designated as
held-to-maturity are designated as such because the investor has the ability
to hold these securities to maturity. Such securities are reported at
amortized cost.
All other securities are designated as available-for-sale, a designation
which provides the investor with certain flexibility in managing its
investment portfolio. Such securities are reported at fair value; net
unrealized gains and losses are excluded from income and reported net of
applicable income taxes as a separate component of stockholders' equity. The
Savings Bank has adopted a reporting policy that complies with these OTS
requirements.
Transactions with Affiliates
Savings associations must comply with Sections 23A and 23B of the Federal
Reserve Act ("Sections 23A and 23B") relative to transactions with affiliates
in the same manner and to the same extent as if the savings association were a
Federal Reserve member bank. Generally, Sections 23A and 23B: (i) limit the
extent to which the insured association or its subsidiaries may engage in
certain covered transactions with an affiliate to an amount equal to 10% of
such institution's capital and surplus and place an aggregate limit on all
such transactions with affiliates to an amount equal to 20% of such capital
and surplus, and (ii) require that all such transactions be on terms
substantially the same, or at least as favorable to the institution or
subsidiary, as those provided to a non-affiliate. The term "covered
transaction" includes the making of loans, purchase of assets, issuance of a
guaranty and similar other types of transactions.
Three additional rules apply to savings associations: (i) a savings
association may not make any loan or other extension of credit to an affiliate
unless that affiliate is engaged only in activities permissible for bank
holding companies; (ii) a savings association may not purchase or invest in
securities issued by an affiliate (other than securities of a subsidiary); and
(iii) the OTS may, for reasons of safety and soundness, impose more stringent
restrictions on savings associations but may not exempt transactions from or
otherwise abridge Section 23A or 23B. Exemptions from Section 23A or 23B may
be granted only by the Federal Reserve Board, as is currently the case with
respect to all FDIC-insured banks. The Savings Bank has not been
significantly affected by the rules regarding transactions with affiliates.
REGULATION OF FIRST BANCSHARES
First Bancshares is a unitary savings and loan holding company within the
meaning of the Home Owners' Loan Act of 1933, as amended ("HOLA"). As such,
the Company is registered with the OTS and subject to OTS regulations,
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<PAGE>
examinations, supervision and reporting requirements. The Company is required
to file certain reports with, and otherwise comply with the regulations of,
the OTS and the Securities and Exchange Commission. As a subsidiary of a
savings and loan holding company, the Savings Bank is subject to certain
restrictions in its dealings with the Company and with other companies
affiliated with the Company and also are subject to regulatory requirements
and provisions as federal institutions.
Holding Company Acquisitions
The HOLA and OTS regulations issued thereunder generally prohibit a
savings and loan holding company, without prior OTS approval, from acquiring
more than 5% of the voting stock of any other savings association or savings
and loan holding company or controlling the assets thereof. They also
prohibit, among other things, any director or officer of a savings and loan
holding company, or any individual who owns or controls more than 25% of the
voting shares of such holding company, from acquiring control of any savings
association not a subsidiary of such savings and loan holding company, unless
the acquisition is approved by the OTS.
Holding Company Activities
As a unitary savings and loan holding company, the Company generally is
not subject to activity restrictions. If the Company acquires control of
another savings association as a separate subsidiary, it would become a
multiple savings and loan holding company, and the activities of the Company
and any of its subsidiaries (other than the Savings Bank or any other SAIF
insured savings association) would become subject to such restrictions unless
such other associations each qualify as a qualified thrift lender ("QTL") and
were acquired in a supervisory acquisition.
If the Savings Bank fails the QTL test, the Company must obtain the
approval of the OTS prior to continuing after such failure, directly or
through its other subsidiaries, any business activity other than those
approved for multiple savings and loan holding companies or their
subsidiaries. In addition, within one year of such failure the Company must
register as, and will become subject to, the restrictions applicable to bank
holding companies. The activities authorized for a bank holding company are
more limited than are the activities authorized for a unitary or multiple
savings and loan holding company. See "-- Qualified Thrift Lender Test."
The Company must obtain approval from the OTS before acquiring control of
more than 5% of the voting shares of any other SAIF-insured association. Such
acquisitions generally are prohibited if they result in a multiple savings and
loan holding company controlling savings associations in more than one state.
However, such interstate acquisitions are permitted based on specific state
authorization or in a supervisory acquisition of a failing savings
association.
Affiliate Restrictions
The affiliate restrictions contained in Sections 23A and 23B of the
Federal Reserve Act apply to all federally insured savings associations and
any such "affiliate." A savings and loan holding company, its subsidiaries
and any other company under common control are considered affiliates of the
subsidiary savings association under the HOLA. Generally, Sections 23A and
23B: (i) limit the extent to which the insured association or its
subsidiaries may engage in certain covered transactions with an affiliate to
an amount equal to 10% of such institution's capital and surplus, and contain
an aggregate limit on all such transactions with all affiliates to 20% of such
capital and surplus, and (ii) require that all such transactions be on terms
substantially the same, or at least as favorable to the institution or
subsidiary, as those provided to a non-affiliate. The term "covered
transaction" includes the making of loans, purchase of assets, issuance of a
guarantee and similar other types of transactions. Also, a savings
association may not make any loan to an affiliate unless the affiliate is
engaged only in activities permissible for bank holding companies. Only the
Federal Reserve may grant exemptions from the restrictions of Sections 23A and
23B. The OTS, however, may impose more stringent restrictions on savings
associations for reasons of safety and soundness.
40
</PAGE>
<PAGE>
Qualified Thrift Lender Test
The HOLA requires any savings and loan holding company that controls a
savings association that fails the QTL test, as explained under "REGULATION OF
FIRST HOME -- Qualified Thrift Lender Test," must, within one year after the
date on which the association ceases to be a QTL, register as and be deemed a
bank holding company subject to all applicable laws and regulations.
TAXATION
Federal Taxation
General. The Corporation and the Savings Bank report their income on a
fiscal year basis using the accrual method of accounting and will be subject
to federal income taxation in the same manner as other corporations with some
exceptions, including particularly the Savings Bank's reserve for bad debts
discussed below. The following discussion of tax matters is intended only as
a summary and does not purport to be a comprehensive description of the tax
rules applicable to the Savings Bank or the Corporation.
Tax Bad Debt Reserves. For taxable years beginning prior to January 1,
1996, savings institutions, such as the Savings Bank which met certain
definitional tests primarily relating to their assets and the nature of their
business ("qualifying thrifts") were permitted to establish a reserve for bad
debts and to make annual additions thereto, which additions may, within
specified formula limits, have been deducted in arriving at their taxable
income. The Savings Bank's deduction with respect to "qualifying loans" which
generally are loans secured by certain interests in real property, may have
been computed using an amount based on the Savings Bank's actual loss
experience, or a percentage equal to 8% of the Savings Bank's taxable income,
computed with certain modifications and reduced by the amount of any permitted
additions to the nonqualifying reserve. The Savings Bank's deduction with
respect to nonqualifying loans was computed under the experience method ,
which essentially allows a deduction based on the Savings Bank's actual loss
experience over a period of years. Each year the Savings Bank selected the
most favorable way to calculate the deduction attributable to an addition to
the tax bad debt reserve. The Savings Bank used the percentage method bad
debt deduction for the taxable years ended December 31, 1995, 1994 and 1993.
However, the use of the percentage method for the taxable year ended December
31, 1993 resulted in no bad debt deduction because of other limitations in the
computation.
Recently enacted legislation repealed the reserve method of account for
bad debt reserves for tax years beginning after December 31, 1995. As a
result, savings associations will no longer be able to calculate their
deduction for bad debts using the percentage-of-taxable-income method.
Instead, savings associations will be required to compute their deduction
based on specific charge-offs during the taxable year or, if the savings
association or its controlled group had assets of less than $500 million,
based on actual loss experience over a period of years. This legislation also
requires savings associations to recapture into income over a six-year period
their post-1987 additions to their bad debt tax reserves, thereby generating
additional tax liability. At June 30, 1996, the Savings Bank's post-1987
reserves totalled approximately $398,000. The recapture may be suspended for
up to two years if, during those years, the institution satisfies a
residential loan requirement. The Savings Bank anticipates that it will meet
the residential loan requirement for the taxable year ending December 31,
1996.
Under prior law, if the Savings Bank failed to satisfy the qualifying
thrift definitional tests in any taxable year, if would be unable to make
additions to its bad debt reserve. Instead, the Savings Bank would be
required to deduct bad debts as the occur and would additionally be required
to recapture its bad debt reserve deductions ratable over a multi-year period.
At June 30, 1996, the Savings Bank's total bad debt reserve for tax purposes
was approximately $2.5 million. Among other thinks, the qualifying thrift
definitional test required the Savings Bank to hold at least 60% of its assets
as "qualifying assets." Qualifying assets generally include cash, obligations
of the United State or any agency or instrumentality thereof, certain
obligations of a state or political subdivision thereof, loans secured by
interests in improved residential real property or by savings accounts,
student loans and property used by the Savings Bank in the conduct of its
banking business. Under current law, a savings association will not be
required to recapture its pre-1988 bad debt reserves if it ceases to meet the
qualifying thrift definitional tests.
Distributions. Tot the extent that the Savings Bank makes "nondividend
distributions" to the Corporation that are considered as made: (I) from the
reserve for losses on qualifying real property loans, to the extent the
reserve for such losses exceeds the amount that would have been allowed under
the experience method; or (ii) from the supplemental reserve for losses on
loans ("Excess Distributions"), then an amount based on the amount distributed
41
</PAGE>
<PAGE>
will be included in the Savings Bank's taxable income. Nondividend
distributions include distributions in excess of the Savings Bank's current
and accumulated earnings and profits, distributions in redemption of stock,
and distributions in partial or complete liquidation. However, dividends paid
out of the Savings Bank's current or accumulated earnings and profits, as
calculated for federal income tax purposes, will not be considered to result
in a distribution from the Savings Bank's bad debt reserve. Thus, any
dividends to the Corporations that would reduce amounts appropriated to the
Savings Bank's bad debt reserve and deducted for federal income tax purposes
would create a tax liability for the Savings Bank. The amount of additional
taxable income attributable to an Excess Distribution is an amount that, when
reduced by the tax attributable to the income, is equal to the amount of the
distribution. Thus, if, the Savings Bank makes a "nondividend distribution,'
then approximately one and one-half times the amount so used would be
includable in gross income for federal income tax purposes, assuming a 35%
corporate income tax rate (exclusive of state and local taxes). See
"REGULATION" for limits on the payment of dividends by the Savings Bank. The
Savings Bank does not intend to pay dividends that would result in a recapture
of any portion of its tax bad debt reserve.
Corporate Alternative Minimum Tax. The Code imposes a tax on alternative
minimum taxable income ("AMTI") at a rate of 20%. The excess of the tax bad
debt reserve deduction using the percentage of taxable income method over the
deduction that would have been allowable under the experience method is
treated as a preference item for purposes of computing the AMTI. In addition,
only 90% of the AMTI can be offset by net operating loss carryovers. AMTI is
increased by an amount equal to 75% of the amount by which the Savings Bank's
adjusted current earnings exceeds its AMTI (determined without regard to this
preference and prior to reduction for net operating losses). For taxable
years beginning after December 31, 1986, and before January 1, 1996, an
environmental tax of .12% of the excess of AMTI (with certain modification)
over $2.0 million is imposed on corporations, including the Savings Bank,
whether or not an Alternative Minimum Tax ("AMT") is paid.
Dividends-Received Deduction and Other Matters. The Corporation may
exclude from its income 100% of dividends received from the Savings Bank as a
member of the same affiliated group of corporations. The corporate dividends
received deduction is generally 70% in the case of dividends received from
unaffiliated corporations with which the Corporation and the Savings Bank will
not file a consolidated tax return, except that if the Corporation or the
Savings Bank owns more than 20% of the stock of a corporation distributing a
dividend, then 80% of any dividends received may be deducted.
Other Federal Tax Matter. Other recent changes in the federal tax system
could also affect the business of the Savings Bank. These changes include
limitations on the deduction for personal interest paid or accrued by
individual taxpayers, limitations on the deductibility of losses attributable
to investment in certain passive activities and limitations on the
deductibility of contributions to individual retirement accounts. The Savings
Bank does not believe these changes will have a material effect on its
operations.
There have not been any IRS audits of the Savings Bank's Federal income
tax returns or audits of the Savings Bank's state income tax returns during
the past five years.
Missouri Taxation
Missouri-based thrift institutions, such as the Savings Bank, are subject
to a special financial institutions tax, based on net income without regard to
net operating loss carryforwards, at the rate of 7% of net income. This tax
is in lieu of certain other state taxes on thrift institutions, on their
property, capital or income, except taxes on tangible personal property owned
by the Savings Bank and held for lease or rental to others and on real estate,
contributions paid pursuant to the Unemployment Compensation Law of Missouri,
social security taxes, sales taxes and use taxes. In addition, First Home is
entitled to credit against this tax all taxes paid to the State of Missouri or
any political subdivision except taxes on tangible personal property owned by
the Savings Bank and held for lease or rental to others and on real estate,
contributions paid pursuant to the Unemployment Compensation Law of Missouri,
social security taxes, sales and use taxes, and taxes imposed by the Missouri
Financial Institutions Tax Law. Missouri thrift institutions are not subject
to the regular state corporate income tax.
For additional information regarding taxation, see Notes 1 and 11 of
Notes to Consolidated Financial Statements.
42
</PAGE>
<PAGE>
Competition
The Savings Bank has been, and continues to be, a community-oriented
savings institution offering a variety of financial resources to meet the
needs of Wright, Webster, Douglas, Ozark and Christian counties, Missouri.
The Savings Bank also transacts a significant amount of business in Texas,
Greene and Taney counties, Missouri. The Savings Bank's deposit gathering and
lending activities are concentrated in these market areas. The Savings Bank's
offices are located in Mountain Grove, Marshfield, Ava, Gainesville and
Sparta, Missouri.
The Savings Bank is the only thrift located in Wright County, Missouri.
The Savings Bank faces strong competition in the attraction of savings
deposits and in the origination of loans. Its most direct competition for
savings deposits and loans has historically come from other thrift
institutions and from commercial banks located in its primary market area,
some with a state-wide or regional presence. Additionally, the Savings Bank
faces significant competition from the FHA and Farm Credit System and other
financial entities in lending. The Savings Bank also competes with securities
firms, credit unions, money market funds and mutual funds in raising deposits.
Management considers the Savings Bank's reputation for financial strength
and customer service as its major competitive advantage in attracting and
retaining customers in its market area. The Savings Bank also believes it
benefits from its community orientation as well as its relatively high core
deposit base.
Personnel
As of June 30, 1996, the Savings Bank had 52 full-time employees and
eight part-time employees. The Savings Bank believes that employees play a
vital role in the success of a service company and that the Savings Bank's
relationship with its employees is excellent. The employees are not
represented by a collective bargaining unit.
43
</PAGE>
<PAGE>
Item 2. Properties
<TABLE>
The following table sets forth the Savings Bank's offices, as well as
certain additional
information relating to these offices, as of June 30, 1996.
<CAPTION>
Land Building
Year Net Owned/ Owned/
Square
Location County Opened Book Value Leased Leased
Footage
------ ------ ---------- ------ ------
-------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
<C>
Main Office
142 East First Street Wright 1911 $615 Owned Owned
9,800
Mountain Grove, Missouri 65711
Branch Offices
1208 N. Jefferson Street Douglas 1978 259 Owned Owned
2,800
Ava, Missouri 65608
103 South Clay Street Webster 1974 205 Owned
Owned 2,600
Marshfield, Missouri 65706
Highway 5 and Highway 160 Ozark 1992 65 Leased
Owned 900
Gainesville, Missouri 65655
7164 Highway 14 East Christian 1995 361 Owned
Owned 3,000
Sparta, Missouri 65753
Drive-in Facilities
Route 60 and Oakland Wright 1986 198 Owned
Owned 1,200
Mountain Grove, Missouri 65711
223 West Washington Webster 1993 218 Owned
Owned 1,100
Marshfield, Missouri 65706
</TABLE>
44
<PAGE>
<PAGE>
Item 3. Legal Proceedings
In the opinion of management, the Savings Bank is not a party to any
pending claims or lawsuits that are expected to have a material effect on the
Savings Bank's financial condition or operations. Periodically, there have
been various claims and lawsuits involving the Savings Bank mainly as a
defendant, such as claims to enforce liens, condemnation proceedings on
properties in which the Savings Bank holds security interests, claims involving
the making and servicing of real property loans and other issues incident to
the Savings Bank's business. Aside from such pending claims and lawsuits which
are incident to the conduct of the Savings Bank's ordinary business, the
Savings Bank is not a party to any material pending legal proceedings that
would have a material effect on the financial condition or operations of the
Savings Bank.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended June 30, 1996.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
The information contained in the section captioned "Market for First
Bancshares, Inc.'s Common Stock and Related Stockholder Matters" in the Annual
Report is incorporated herein by reference.
Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operation
The information contained in the section captioned "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in
the Annual Report is incorporated herein by reference.
Item 7. Financial Statements
Independent Auditors Report*
(a) Consolidated Statements of Financial Condition as of June 30, 1996
and 1995
(b) Consolidated Statements of Income For the Years Ended June 30,
1996, 1995 and 1994
(c) Consolidated Statements of Stockholders' Equity For the Years Ended
June 30, 1996, 1995 and 1994
(d) Consolidated Statements of Cash Flows For the Years Ended June 30,
1996, 1995 and 1994
(e) Notes to Consolidated Financial Statements
* Contained in the Annual Report to Stockholders filed as an exhibit hereto
and incorporated herein by reference. All schedules have been omitted as
the required information is either inapplicable or contained in the
Consolidated Financial Statements or related Notes contained in the Annual
Report to Stockholders.
Item 8. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
No disagreement with the Company's independent accountants on accounting
and financial disclosure has occurred during the past 24 months.
45
</PAGE>
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act
The information contained under the section captioned "Proposal I --
Election of Directors" in the Proxy Statement is incorporated herein by
reference.
The following table sets forth certain information with respect to the
executive officers of the Company, each of whom holds the same positions with
the Company and each of whom holds the same positions with the Savings Bank.
Name Age(1) Position
Stephen H. Romines 54 President and Chief Executive Officer
Peter M. Medlen 40 Executive Vice President
Susan J. Uchtman 33 Chief Financial Officer
(1) As of June 30, 1996.
The principal occupation of each executive officer of the Company is set
forth below. All of the officers listed above have held positions with or
been employed by the Company for five years unless otherwise stated. All
executive officers reside in Mountain Grove, Missouri, unless otherwise
stated. There are no family relationships among or between the executive
officers, unless otherwise stated.
Stephen H. Romines joined the Savings Bank in 1973 and has served as
Chairman of the Board, President and Chief Executive Officer the Savings Bank
since 1978. Mr. Romines is the brother-in-law of Mr. Medlen, Executive Vice
President of First Home.
Peter M. Medlen has been employed by First Home since 1985 and currently
serves as Executive Vice President. Mr. Medlen also serves as President of
the Savings Bank's wholly owned subsidiary, Fybar Service Corp. Mr. Medlen is
a past President of the Mountain Grove Jaycees and past Treasurer of the
Mountain Grove Central Business District. He is a past Board member of the
HI-FI-MO, a Missouri not-for-profit elderly housing association. Mr. Medlen
is married to Mr. Stephen H. Romines' sister.
Susan J. Uchtman has been employed by First Home since June of 1994.
Mrs. Uchtman, a CPA, was previously employed by Kirkpatrick Phillips & Miller,
CPAs, P.C., the Company's independant auditors, from September 1985 through
May 1994.
The information contained under the section captioned "Compliance with
Section 16(a) of the Exchange Act" in the Proxy Statement is incorporated
herein by reference.
Item 10. Executive Compensation
The information contained under the section captioned "Proposal I --
Election of Directors" in the Proxy Statement is incorporated herein by
reference.
Item 11. Security Ownership of Certain Beneficial Owners and Management
(a) Security Ownership of Certain Beneficial Owners
Information required by this item is incorporated herein by
reference to the section captioned "Voting Securities and Security
Ownership of Certain Beneficial Owners and Management" of the Proxy
Statement.
46
</PAGE>
<PAGE>
(b) Security Ownership of Management
Information required by this item is incorporated herein by reference to
the sections captioned "Voting Securities and Security Ownership of
Certain Beneficial Owners and Management" and "Proposal I - Election of
Directors" of the Proxy Statement.
(c) Changes in Control
The Company is not aware of any arrangements, including any pledge by
any person of securities of the Company, the operation of which may at a
subsequent date result in a change in control of the Company.
Item 12. Certain Relationships and Related Transactions
The information required by this item is incorporated herein by reference
to the section captioned "Proposal I -- Election of Directors -- Certain
Transactions."
PART IV
Item 13. Exhibits, List Reports on Form 8-K
(a) Exhibits
3.1 Articles of Incorporation of First Bancshares, Inc.*
3.2 Bylaws of First Bancshares, Inc.*
10.1 Employment Agreement with Stephen H. Romines (incorporated by
reference to the Form 10KSB filing for the fiscal year ended
June 30, 1995)
10.2 First Home Savings Bank 1994 Employee Stock Ownership Plan*
10.3 First Bancshares, Inc. 1993 Stock Option Plan**
10.4 First Home Savings Bank Management Recognition and Development
Plan**
13. Annual Report to Stockholders
21. Subsidiaries of the Registrant
23. Auditors' Consent
27. Financial Data Schedule
(b) Report on Form 8-K
No Forms 8-K were filed during the quarter ended June 30, 1996
* Incorporated by reference to the Corporation's Registration Statement on
Form S-1 File No. 33-69886.
** Incorporated by reference to the Corporation's 1994 Annual Meeting Proxy
Statement dated September 14, 1994.
48
</PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of section 13 or 15(d) 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.
Date: September 27, 1996 By: /s/ Stephen H. Romines
-------------------------
Stephen H. Romines
Chairman of the Board, President
and Chief Executive Officer
(Duly Authorized Representative)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
By: /s/ Stephen H. Romines September 27, 1996
----------------------
Stephen H. Romines
Chairman of the Board, President, Chief
Executive Officer (Principal Executive Officer)
By:/s/ Susan J. Uchtman September 27, 1996
--------------------
Susan J. Uchtman
Chief Financial Officer
By: ___________________ ______________, 1996
Harold F. Glass
Director
By:_____________________ ___________ ____, 1996
Almeta Hardebeck
Director
By:/s/ John G. Moody September 27, 1996
-----------------
John G. Moody
Director
By:/s/ Dr. James F. Moore September 27, 1996
------------------
Dr. James F. Moore
Director
</PAGE>
<PAGE>
Exhibit 13
Annual Report to Stockholders
</PAGE>
<PAGE>
FIRST BANCHSHARES, INC
1996 ANNUAL REPORT
</PAGE>
<PAGE>
TABLE OF CONTENTS
Page
Letter to Stockholders. . . . . . . . . . . . . 1
Business of the Corporation . . . . . . . . . . 3
Selected Consolidated Financial Information . . 4
Management's Discussion and Analysis of
Financial Condition and Results of Operations 6
Independent Auditors' Report. . . . . . . . . .13
Consolidated Financial Statements . . . . . . .14
Notes to Consolidated Financial Statements. . .19
Common Stock Information . . . . . . . . . . . 44
Directors and Officers . . . . . . . . . . . . 45
Corporate Information . . . . . . . . . . . . .46
</PAGE>
<PAGE>
Dear Stockholder:
Graph of earnings per share: 1994-$.69, 1995-$.79 and
1996-$.95.
First Bancshares, Inc. ended fiscal 1996 on a strong and
positive note. Net income increased by 11.7% from the preceding
fiscal year. More importantly, earnings per share increased by
20% from $.79 per share for fiscal 1995 to $.95 for fiscal 1996.
Graph of book value per share: 1994-$16.50, 1995-$17.48 and
1996-$18.70.
While stockholders' equity decreased from $24.5 million to
$23.7 million, there was a net reduction of 131,492 outstanding
shares of stock during the fiscal year. As a result, book value
per share increased from $17.48 at June 30, 1995 to $18.70 at
June 30, 1996.
Graph of total assets (in thousands): 1994-$118,460, 1995-
$128,193 and 1996-$143,671. Graph of net loans (in
thousands):1994-$86,127, 1995-$101,431 and 1996-$118,780.
Continued strong loan demand, moderate deposit growth and
annual operating results combined to produce a $15.5 million, or
12%, growth in total assets. Net loans increased by $17.3
million, or 17%, to $118.7 million while deposits increased by
$7.6 million, or 7.7% to $106 million. Federal Home Loan Bank
advances were increased by $8.5 million to complete funding loan
growth.
There was a minor decrease in one measure of asset quality as
non-performing assets to total assets increased to .88% at June
30, 1996 from .77% at June 30, 1995. Allowance for possible loan
losses totaled $520,000, representing 41% of non-performing
loans. Actual losses of First Home Savings Bank-originated
loans, net of recoveries, however, decreased from $11,000 for
fiscal 1995 to $1,000 for fiscal 1996. A pool of auto loans
purchased was written-down by $46,000 during fiscal 1996 to
record the investment at its net realizable value.
First Bancshares, Inc. paid its tenth quarterly dividend of
$.05 per share on June 30, 1996. A third stock repurchase
program of 69,985 shares was completed during the fiscal year. A
fourth repurchase program of 66,560 shares was started in
December 1995 and was completed in July 1996. Also, on July 8,
1996, authority was obtained to begin a fifth repurchase program
of approximately 63,000 shares. As of September 9, 1996, 59,780
shares had been repurchased for $978,000.
Of the three expansion plans started in fiscal 1996, one has
been completed and two are still in process. On September 11,
1995, a new full-service facility was completed and opened in
Sparta, Missouri. At June 30, 1996, (after basically ten months
of operation) Sparta had generated $3.5 million of net new loans
and $1.6 million of net new deposits.
</PAGE>
<PAGE>
Graph of number of all deposit accounts:1994-9,301, 1995-
10,203 and 1996-13,264. And number of checking accounts:
1994-3,175, 1995-3,327 and 1996-5,745.
A checking accounts program, initiated on July 24, 1995,
remains in full swing. By its one year anniversary on July 24,
1996, exactly 2,500 net new checking accounts had been opened,
representing a 75% increase in the number of outstanding checking
accounts. Approximately $3.6 million in net new checking account
deposits were added during the fiscal year representing a 32%
increase in those deposits. Because of its obvious success,
current plans are to keep the program operational indefinitely.
First Home Savings Bank began offering a debit/ATM card to our
customers in August 1996. This is another step in our continuing
efforts to strengthen our checking accounts program and provide
our customers with banking services that meet all their needs.
The convenience of these cards will enable our customers to make
First Home Savings Bank their only bank.
Work on a new facility for our Gainesville branch began in
late April, 1996. Completion and occupancy is tentatively
scheduled for late October. The Gainesville branch was
originally opened in September, 1992, in a small modular facility
with three personnel and zero customers. In just under four
years, that small modular facility, remodeled twice, now has five
personnel taking care of over $10.0 million in loans and almost
$8.0 million in deposits.
A picture of the new Gainesville facility is shown on the
inside front cover of this annual report. The Bank will occupy
almost 4,500 square feet of new construction shown on the left.
Approximately 3,500 square feet of space available for commercial
development is immediately to the right. Pictures of our other
facilities are also shown on the front and back covers of this
report.
With the exception of continued emphasis on the checking
accounts program and completion of the new Gainesville facility,
First Bancshares, Inc. has no unique nor special agenda for
fiscal 1997. We will, of course, continue our efforts to improve
profitability, promote stable growth and be on the look out for
opportunities to enhance stockholder value and better serve our
bank customers.
Sincerely,
/s/ Stephen H. Romines
Stephen H. Romines
President
</PAGE>
<PAGE>
Business of the Corporation
First Bancshares, Inc. (the "Holding Company" or the
"Company"), a Missouri corporation, was incorporated on September
30, 1993 for the purpose of becoming the holding company for
First Home Savings Bank ("First Home" or the "Savings Bank") upon
the conversion of First Home Savings Bank from a Missouri mutual
to a Missouri stock savings and loan association. That
conversion was completed on December 22, 1993. At June 30, 1996,
the Company had total consolidated assets of $143.7 million and
consolidated stockholders' equity of $23.7 million.
The Company is not engaged in any significant business
activity other than holding the stock of First Home.
Accordingly, the information set forth in the report, including
financial statements and related data, applies primarily to First
Home and its subsidiary.
First Home is a Missouri-chartered, federally-insured stock
savings and loan association organized in 1911. The Savings Bank
is regulated by the Missouri Division of Finance and the Office
of Thrift Supervision ("OTS"). Its deposits are insured up to
applicable limits by the Savings Association Insurance Fund of
the Federal Deposit Insurance Corporation. First Home also is a
member of the Federal Home Loan Bank ("FHLB") System.
First Home conducts its business from its home office in
Mountain Grove and four full service branch facilities in
Marshfield, Ava, Gainesville and Sparta, Missouri. First Home
provides its customers with a full array of community banking
services. It is primarily engaged in the business of attracting
deposits from, and making loans to, the general public. It
emphasizes one-to-four family residential mortgage loans and, to
a lesser extent, multi-family residential, consumer, commercial
and home equity loans. First Home has also invested in mortgage
- -backed, U. S. Government and agency securities and other assets.
At June 30, 1996, First Home's total gross loans were $123.3
million, or 85.8% of total consolidated assets, including $95.5
million, or 77.4% of total gross loans secured by one-to-four
family properties and $18.7 million, or 15.1% of total gross
loans secured by other real estate. Of the loans secured by real
estate, over 95.0% are adjustable-rate loans.
3
</PAGE>
<PAGE>
<TABLE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following table sets forth certain information concerning
the consolidated financial position and operating results of the
Company as of and for the dates indicated. On December 22, 1993,
the Company became the holding company for First Home Savings
Bank. The Company is primarily in the business of directing,
planning and coordinating the business activities of First Home.
Since the Company had not commenced operations prior to the
mutual to stock conversion of the Savings Bank on December 22,
1993, the financial information presented for periods prior to
1994 is for the Savings Bank only. The consolidated data is
derived in part from, and should be read in conjunction with, the
Consolidated Financial Statements of the Company and its
subsidiary presented herein.
<CAPTION>
At June 30,
1996 1995 1994 1993 1992
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
FINANCIAL CONDITION DATA:
Total assets $143,671 $128,193 $118,460 $94,890 $88,625
Loans receivable, net 118,780 101,431 85,777 73,078 65,934
Mortgage-backed certificates 2,831 3,134 3,420 4,159 5,250
Cash, interest-bearing deposits
and investment securities 18,236 20,483 24,523 13,785 14,222
Federal funds sold - - 2,000 1,400 850
Customer deposits 105,960 98,389 85,904 80,068 77,910
Borrowed funds 13,555 5,055 8,055 3,055 -
Stockholders' equity 23,729 24,492 24,313 11,421 10,474
Year Ended June 30,
1996 1995 1994 1993 1992
(Dollars in thousands)
OPERATING DATA:
Interest income $ 10,113 $ 8,390 $ 7,017 $ 6,837 $ 7,552
Interest expense 5,661 4,554 3,554 3,659 4,607
------ ----- ----- ----- -----
Net interest income 4,452 3,836 3,463 3,178 2,945
Provision (credit) for loan losses 80 (27) 23 41 82
------ ----- ----- ----- -----
Net interest income after
provision (credit) for
loan losses 4,372 3,863 3,440 3,137 2,863
Gains (losses) on investments (6) (19) (2) - 37
Noninterest income, excluding gains
(losses) on investments 465 317 259 335 290
Noninterest expense 3,045 2,514 2,216 1,974 1,720
----- ----- ----- ----- -----
Income before taxes 1,786 1,647 1,481 1,498 1,470
Income taxes 631 613 431 551 523
----- ----- ----- ----- -----
Net income $ 1,155 $ 1,034 $ 1,050 $ 947 $ 947
======= ======= ======= ======= ======
Earnings per share $ 0.95 $ 0.79 $ 0.69 * *
*Operating as a mutual.
</TABLE>
4
</PAGE>
<PAGE>
<TABLE>
<CAPTION>
At or For the Year Ended June 30,
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
KEY OPERATING RATIOS:
Return on average assets 0.85% 0.85% 0.97% 1.03% 1.09%
Return on average equity 4.90 4.28 5.51 8.63 9.47
Average equity to average assets 17.31 19.98 17.66 11.96 11.46
Interest rate spread for period 2.60 2.45 2.74 3.31 3.17
Net interest margin for period 3.40 3.30 3.36 3.65 3.58
Non-interest expense to average assets
2.23 2.08 2.06 2.15 1.97
Average interest-earning assets to
interest-bearing liabilities 119.00 122.00 118.00 108.00 107.00
Allowance for loan losses to total loans at
end of period 0.42 0.42 0.54 0.61 0.66
Net charge-offs to average outstanding loans
during the period 0.01 0.01 0.02 0.02 0.04
Ratio of non-performing assets to total assets
0.88 0.77 0.82 0.78 1.06
Ratio of loan loss reserves to non-performing assets
41.02 46.55 49.23 63.69 47.33
Dividend payout ratio 21.05 25.32 14.49 * *
At June 30,
1996 1995 1994 1993 1992
OTHER DATA:
Number of:
Loans outstanding 4,712 4,387 4,358 4,210 5,033
Deposit accounts 13,264 10,203 10,028 9,601 9,263
Full service offices 5 4 4 4 3
* Operating as a mutual
</TABLE>
5
</PAGE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
Management's discussion and analysis of financial condition and
results of operations is intended to assist in understanding the
financial condition and results of operations of the Company. The
information contained in this section should be read in conjunction with
the Consolidated Financial Statements, the accompanying Notes to
Consolidated Financial Statements and the other sections contained in
this report.
Operating Strategy
The primary goals of management are to minimize risk, improve
profitability and promote growth. Operating results are primarily
dependent on net interest income, which is the difference between the
income earned on its interest-earning assets, such as loans and
investments, and the cost of its interest-bearing liabilities, consisting
of deposits and borrowings. Net income is also affected by, among other
things, provisions for loan losses and operating expenses. Operating
results are also significantly affected by general economic competitive
conditions, primarily changes in market interest rates, governmental
legislation and policies concerning monetary and fiscal affairs and
housing, as well as financial institutions and the attendant actions of
the regulatory authorities. Management's strategy is to strengthen First
Home's presence in its primary market area.
Management has implemented various general strategies designed to
continue profitability while maintaining safety and soundness. Primary
among those strategies are emphasizing one-to-four family lending,
maintaining asset quality and managing interest-rate risk. It is
anticipated, subject to market conditions, that no changes will be made
in these strategies.
Emphasizing One-to-Four Family Lending. Historically, First Home has
been predominantly a one-to-four family residential lender. Single
family residential loans constituted 78% of mortgage loans originated
during fiscal 1996, 70% of 1995 mortgage loan originations and 72% of
1994 mortgage loan originations. First Home has worked to achieve a
reputation within its local lending territory for prompt, efficient and
courteous service during both the loan origination and servicing
processes.
Maintaining Asset Quality. First Home strongly emphasizes maintaining
asset quality through sound underwriting, constant monitoring and
effective collection techniques. At June 30, 1996, First Home's ratio of
non-performing assets to total assets was .88%. That same ratio at June
30, 1995 was .77%. Actual loan losses, net of recoveries, on First Home
originated loans for the year ended June 30, 1996 were $1,000. Actual
loan losses, net of recoveries, for the year ended June 30, 1995 were
$11,000 and $13,500 for the year ended June 30, 1994.
Managing Interest-Rate Risk. First Home relies primarily on
adjustable interest rate loans to minimize the inherent risks of interest
rate changes. All long-term mortgage loans originated since 1973 have
had adjustable rates rather than fixed rates. Further, with few
exceptions, the majority of other loans including, but not limited to,
car loans, commercial loans, cattle loans and personal loans that have
maturities exceeding two years also have adjustable rates rather than
fixed rates. All loans originated by First Home have been retained in
its portfolio. No loans have been sold in the secondary mortgage market.
To further minimize interest rate risk, First Home maintains a short-term
investment portfolio.
6
</PAGE>
<PAGE>
Fiscal Year Ended June 30, 1996 Compared to June 30, 1995
Net Income. Net income for the fiscal year ended June 30, 1996 was
$1,155,000, an increase of $121,000, or 11.7%, from $1,034,000 for the
fiscal year ended June 30, 1995. Increases in interest income of
1,723,000 and noninterest income of $160,000 were offset by increases in
total interest expense of $1,106,000, provision for loan losses of
$106,000, noninterest expense of $531,000 and income taxes of $18,000.
Net Interest Income. Net interest income increased by $616,000, or
16.1%, to $4,452,000 for the year ended June 30, 1996 compared to
$3,836,000 for the year ended June 30, 1995. An increase of $1,723,000
in total interest income was reduced by a $1,106,000 increase in total
interest expense.
Interest Income. Total interest income was $10,113,000 for the year
ended June 30, 1996 compared to $8,390,000 for the year ended June 30,
1995, an increase of $1,723,000, or 20.5%. Interest income from loans
receivable increased by $1,935,000 primarily attributable to a
$17,349,000 increase in net loans receivable from $101,431,000 at June
30, 1995 to $118,780,000 at June 30, 1996. The increase was also partly
attributable to interest rate increases on existing loans pursuant to
their adjustable rate features. Income from investment securities
decreased $262,000. The decrease was primarily attributable to a
declining balance in investment securities as proceeds from maturities
and sales were used to fund loan demand. Income from mortgage-backed and
related securities decreased by $42,000 due to lower outstanding balances
as these securities have been repaid. The $93,000 increase in income
from other interest-earning assets was primarily attributable to proceeds
from Federal Home Loan Bank advances and proceeds from maturing
investments being placed in interest-bearing accounts until needed to
fund loan demand.
Interest Expense. Interest expense for the year ended June 30, 1996
was $5,661,000, an increase of $1,106,000, or 24.3%, from $4,555,000 for
the year ended June 30, 1995. Interest expense on customer deposits
increased by $590,000 due to an increase in average deposit rates paid
during the year ended June 30, 1996 and an increase in customer deposits
from $98,389,000 at June 30, 1995 to $105,960,000 at June 30, 1996.
Interest expense on borrowed funds increased by $518,000 due to the
additional advances from the FHLB for the year ended June 30, 1996.
Provision (Credit) for Loan Losses. Provision for loan losses of
$80,000 for the year ended June 30, 1996 was an increase of $107,000 from
a credit of $27,000 for the year ended June 30, 1995. Actual loan
charge-offs, net of recoveries, decreased to $1,000 for the year ended
June 30, 1996 compared to $11,000 for the year ended June 30, 1995.
While loan losses were lower for the year ended June 30, 1996, there was
an increase in net loans receivable noted above and also in nonperforming
assets to $1,266,000 at June 30, 1996 from $986,000 of June 30, 1995.
Noninterest Income. Noninterest income increased $160,000, or 53.5%,
to $459,000 for the year ended June 30, 1996 compared to $299,000 for the
year ended June 30, 1995. Income from service charges and other fee
income increased $103,000 due primarily to an increase in customer
deposit accounts. That increase, in turn, was largely attributable to
the checking account program started in July 1995. The year ended June
30, 1996 also included a $20,000 gain on the sale of property and
equipment. Income from real estate operations increased $34,000 during
the year ended June 30, 1996 due to a decrease in vacancies and the full
year's rents from two four-plexes in Gainesville, Missouri which were
completed in July 1995.
Noninterest Expense. Noninterest expense of $3,045,000 for the year
ended June 30, 1996 increased $531,000, or 21.1%, from $2,514,000 for the
year ended June 30, 1995. Compensation and employee benefits increased
$160,000, or 10.4%. Of this increase, $50,000 was attributable to the
fair market value recording of the expense for the Employee Stock
Ownership Plan ("ESOP"). This treatment is required by AICPA's Statement
of Position 93-6, "Employer's Accounting for Employee Stock Ownership
Plans". The Statement requires the recording of shares released from the
ESOP to be recorded at the average fair market value for the period. The
7
</PAGE>
<PAGE>
calculated amount is recorded as expense and an increase in paid-in
capital for the fair market value over cost and to unearned compensation
for the remainder. The expense reduces net income which in turn reduces
retained earnings and stockholders' equity, while the paid-in capital and
unearned compensation amounts increase stockholders equity. Compensation
expense for salaries and related payroll taxes increased by $110,000 due
to the staffing of the Sparta branch and normal annual salary increases.
Group health insurance expense increased by $38,000. Occupancy and
equipment expenses increased $90,000 primarily due to the opening of the
Sparta branch. Deposit insurance premiums increased $24,000 as customer
deposits increased. Professional fees decreased $43,000 due to more of
the required public company reporting being prepared internally.
Other noninterest expense increased $301,000. The marketing expense
for the implementation of the checking account program was $165,000;
however, of that total, $120,000 was non-recurring start-up expense.
Miscellaneous other expenses due to the increase in the number of
checking accounts totaled $39,000. Other cost increases included a
$24,000 increase for office supplies, $10,000 for advertising, $8,000 for
telephone, and $8,000 for postage.
Gain (Loss) on Investments. There was a gain of $27,000 for the year
ended June 30, 1996 attributable to the liquidation of four mutual funds,
two United States Federal Agencies obligations and preferred stock by the
Company to generate additional cash flow. An unrealized loss of $33,000
was recognized during the year ended June 30, 1996 due to the write-down
of a pool of auto loans to net realizable value. The unrealized loss on
this investment for the year ended June 30, 1995 was $17,000.
Income Taxes. Income tax expense of $631,000 for the year ended
June30, 1996 increased $18,000, or 2.9%, from $613,000 for the year ended
June 30, 1995. The increase was attributable to the increase in income
before taxes for the year ended June 30, 1996.
Net Interest Margin. Net interest margin increased slightly to 3.40%
for the year ended June 30, 1996 from 3.30% for the year ended June 30,
1995. The percentage increase in net interest income was slightly more
than the percentage increase in average interest-earning assets.
Interest rates on adjustable-rate loans, which can only be adjusted
annually, outpaced increases on the rates paid on deposits and Federal
Home Loan Bank advances.
Fiscal Year Ended June 30, 1995 Compared to June 30, 1994
Net Income. Net income for the fiscal year ended June 30, 1995 was
$1,034,000, a decrease of $16,000, or 1.5%, from $1,050,000 for the
fiscal year ended June 30, 1994. Increases in interest income of
$1,373,000, noninterest income of $43,000 and a decrease in provision for
loan losses of $50,000 were offset by increases in total interest expense
of $1,000,000, noninterest expense of $298,000 and income taxes of
$182,000.
Net Interest Income. Net interest income increased by $373,000, or
10.8%, to $3,836,000 for the year ended June 30, 1995 compared to
$3,463,000 for the year ended June 30, 1994. An increase of $1,373,000
in total interest income was reduced by a $1,000,000 increase in total
interest expense.
Interest Income. Total interest income increased to $8,390,000 for
the year ended June 30, 1995 from $7,017,000 for the year ended June 30,
1994. This was an increase of $1,373,000, or 19.6%. Interest income
from loans receivable increased by $1,017,000 primarily attributable to
an increase in net loans receivable of $15,654,000 from $85,777,000 at
June 30, 1994 to $101,431,000 at June 30, 1995. Income from investment
securities increased $459,000. This reflected the funds received from
the stock conversion, completed on December 22, 1993, invested for an
entire year for the year ended June 30, 1995 while only invested for six
months for the year ended June 30, 1994. An increase in income from
mortgage-backed and related securities of $11,000 was due to rising
interest rates, partially offset by lower outstanding balances as those
securities have been repaid. The $114,000 decrease in income from other
interest-earning assets was primarily attributable to short-term
investments being converted to loans.
8
</PAGE>
<PAGE>
Interest Expense. Interest expense for the year ended June 30, 1995
was $4,554,000, an increase of $1,000,000, or 28.1%, from $3,554,000 for
the year ended June 30, 1994. Interest expense on customer deposits
increased by $1,189,000 due to an increase in average deposit rates paid
during the year ended June 30, 1995 and an increase in customer deposits
from $85,904,000 at June 30, 1994 to $98,389,000 at June 30, 1995.
Interest expense on borrowed funds decreased by $189,000 due to the
reduction in advances from the FHLB for the year ended June 30, 1995.
Provision (Credit) for Loan Losses. Provision (credit) for loan
losses of a credit of $27,000 for the year ended June 30, 1995 was a
reduction of $50,000 from $23,000 for the year ended June 30, 1994.
Actual loan charge-offs, net of recoveries, remained stable at $11,000
for the year ended June 30, 1995 compared to $13,500 for the year ended
June 30, 1994. While there was an increase in loans outstanding,
nonperforming and classified assets remained stable.
Noninterest Income. Noninterest income increased $43,000, or 16.7%,
to $299,000 for the year ended June 30, 1995 compared to $256,000 for the
year ended June 30, 1994. Income from service charges and other fee
income increased $38,000 due to an increase in customer deposit accounts
and an increase in individual service charges during the year ended June
30, 1995. There was a $17,000 unrealized loss relating to an investment
in a pool of auto loans during the year ended June 30, 1995. The year
ended June 30, 1995 also included a $7,000 gain on the sale of equipment.
Income from real estate operations increased $12,000 during the year
ended June 30, 1995 due to a decrease in vacancies.
Noninterest Expense. Noninterest expense of $2,514,000 for the year
ended June 30, 1995 increased $298,000, or 13.4%, from $2,216,000 for the
year ended June 30, 1994. Compensation and employee benefits increased
$322,000, or 26.5%. Of this increase, $187,000 was attributable to the
ESOP and $48,000 to the Management Recognition Plan ("MRP"). Those two
plans began December 23, 1993, therefore, there was only six months of
related expense during the year ended June 30, 1994 while the year ended
June 30, 1995 reflected expense for twelve months. Also affecting
noninterest expense was implementation of AICPA's Statement of Position
93-6, "Employer's Accounting for Employee Stock Ownership Plans". The
Statement requires the recording of shares released from the ESOP to be
recorded at the average fair market value for the period. The calculated
amount is recorded as expense and an increase in paid-in capital for the
fair market value over cost and to unearned compensation for the
remainder. The expense reduces net income which in turn reduces retained
earnings and stockholders' equity while the paid-in capital and unearned
compensation amounts increase stockholders equity. Compensation expense
for salaries and related payroll taxes increased by $62,000 due to the
hiring of a Chief Financial Officer as of June 1, 1994. Group health
insurance expense increased by $20,000. Occupancy and equipment expenses
decreased $50,000 due to lower depreciation expense and a decrease in
repair expense. Deposit insurance premiums increased $21,000 due to an
increase in customer deposits. Other noninterest expense remained
constant.
Gain (Loss) on Investments. There was a loss of $1,500 attributable
to the liquidation of four mutual funds to satisfy regulatory
requirements. As mentioned in the section for noninterest income, an
unrealized loss of $17,000 was recorded during the year ended June 30,
1995 relating to an investment in a pool of auto loans.
Income Taxes. Income tax expense of $613,000 for the year ended June
30, 1995 increased $182,000, or 42.2%, from $431,000 for the year ended
June 30, 1994. The expense for the year ended June 30, 1994 reflected an
$88,000 reduction for a change in the application of SFAS No. 109 which
was adopted on June 30, 1993. The remainder of the increase is
attributable to the increase in income before taxes for the year ended
June 30, 1995.
Net Interest Margin. Net interest margin decreased slightly to 3.30%
for the year ended June 30, 1995 from 3.36% for the year ended June 30,
1994. Average interest-earning assets increased more rapidly than net
interest income. There was a lag in increasing interest rates on
adjustable-rate loans, which can only be adjusted annually, as compared
to the increases on the rates paid on deposits.
9
</PAGE>
<PAGE>
Financial Condition
General. During the year ended June 30, 1996, First Home continued
its strategy of expanding its loan portfolio within its primary markets
and gaining market share of local deposits. Loan demand was strong
throughout fiscal year 1996 as net loans receivable increased $17.3
million and deposits increased by $7.6 million.
Total Assets. Total assets increased by $15.5 million, or 12.1% from
$128.2 million at June 30, 1995 to $143.7 million at June 30, 1996. The
increase was attributable to a $17.3 million increase in loans offset by
a $2.5 million decrease in cash, investments and mortgage-backed
securities.
Cash and Cash Equivalents. Cash and cash equivalents decreased by
$200,000 or 6.2%, from $3.5 million at June 30, 1995 to $3.3 million at
June 30, 1996.
Certificates of Deposit. Certificates of deposit purchased as
investments totaled $2.3 million at June 30, 1996, a decrease of $1.8
million from the $4.1 million at June 30, 1995.
Investment Securities. Investment securities remained relatively
constant at $11.7 million at June 30, 1996 compared to $12.0 million at
June 30, 1995.
Mortgage-backed Securities. Mortgage-backed certificates decreased by
$300,000, as repayments were made, from $3.1 million at June 30, 1995 to
$2.8 million at June 30, 1996.
Loans Receivable. Net loans receivable increased by $17.3 million, or
17.1%, from $101.4 million at June 30, 1995 to $118.7 million at June 30,
1996. The net loan increase, primarily in one-to-four family residential
real estate loans, was funded from a $7.6 million increase in customer
deposits, proceeds from maturing investments and certificates of deposit
along with an $8.5 million increase in advances from the Federal Home
Loan Bank.
Non-accrual Loans. Non-accrual loans increased to $130,000 at June
30, 1996 compared to $51,000 for the year ended June 30, 1995. The
increase was caused by an unsecured loan created by an overdraft on a
commercial checking account.
Non-performing Assets. Non-performing assets, consisting of 122
loans, increased by $280,000 to $1,266,000 at June 30, 1996, a 28.4%
increase, from $986,000 at June 30, 1995. At least one monthly payment
was received during the quarter on 100 of those loans which totaled
$1,091,000.
Deposits and Borrowings. Deposits increased $7.6 million, or 7.7%
from $98.4 million at June 30, 1995 to $106.0 million at June 30, 1996.
First Home had $5.0 million outstanding in advances from the FHLB at June
30, 1995. An additional $8.5 million was advanced during the year to
bring the balance to $13.5 million at June 30, 1996. The increases in
customer deposits and Federal Home Loan Bank advances were used to fund
loan growth.
Stockholders' Equity. Stockholders' equity decreased $800,000 from
$24.5 million at June 30, 1995 to $23.7 million at June 30, 1996. Net
income was more than offset by stock repurchases and the payment of
dividends.
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. Funds are also provided on a limited extent from FHLB
advances. While maturities and scheduled amortization of loans and
mortgage-backed securities are a predictable source of funds, deposit
flows and mortgage prepayments are greatly influenced by general interest
rates, economic conditions and competition.
10
</PAGE>
<PAGE>
The primary investing activity of First Home is the origination of
mortgage loans. First Home originated mortgage loans of $40.2 million,
$30.5 million and $26.5 million for the years ended June 30, 1996, 1995
and 1994, respectively. Other investing activities include the purchase
of investment securities, which totaled $6.4 million, $1.3 million and
$8.2 million for the years ended June 30, 1996, 1995 and 1994. These
activities were funded primarily by deposit growth, principal repayments
on loans, mortgage-backed securities, other investment securities, FHLB
advances and net conversion proceeds.
First Home must maintain an adequate level of liquidity to ensure
the availability of sufficient funds to support loan growth and deposit
withdrawals, to satisfy financial commitments and to take advantage of
investment opportunities. First Home's sources of funds include deposits
and principal and interest payments from loans and mortgage-backed
securities and investments, and FHLB advances. During fiscal years 1996,
1995 and 1994, First Home used its sources of funds primarily to fund
loan commitments and to pay maturing savings certificates and deposit
withdrawals. At June 30, 1996, First Home had approved loan commitments
totaling $1.8 million and undisbursed loans in process totaling $4.1
million.
Liquid funds necessary for the normal daily operations of First Home
are maintained in three working checking accounts, a daily time account
with the FHLB - Des Moines and in Federal funds. It is the Savings
Bank's current policy to maintain adequate collected balances in those
three 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 to enhance interest income.
At June 30, 1996, certificates of deposits amounted to $71.1 million,
or 67.1%, of First Home's total deposits, including $46.4 million which
were scheduled to mature by June 30, 1997. Historically, First Home has
been able to retain a significant amount of its deposits as they mature.
Management of First Home believes it has adequate resources to fund all
loan commitments by savings deposits and FHLB advances and that it can
adjust the offering rates of savings certificates to retain deposits in
changing interest rate environments.
Currently, the OTS 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
ratios were 10.7%, 11.2% and 20.1% at June 30, 1996, 1995 and 1994,
respectively. First Home's short-term liquidity ratios at June 30, 1996,
1995 and 1994 were 4.6%, 5.7% and 9.5%, respectively. First Home
consistently maintains liquidity levels in excess of regulatory
requirements, and believes this is an appropriate strategy for proper
asset and liability management.
First Home is required to maintain specific amounts of capital
pursuant to the Financial Institutions Reform, Recovery, and Enforcement
Act of 1989 and regulations promulgated pursuant thereto. As of June 30,
1996, First Home was in compliance with all the regulatory capital
requirements which were effective as of such date (as well as certain
regulatory capital requirements scheduled to be phased-in in future
years), with tangible, core and risk-based capital ratios of 13.4%, 13.4%
and 20.4%, respectively. These ratios exceed the 1.5%, 3.0% and 8.0%
required by Federal regulations. In addition, the OTS amended its
capital regulations which require savings institutions to maintain
specified amounts of regulatory capital based on the estimated effects of
changes in market rates and which could further increase the amount of
regulatory capital required to be maintained by the Savings Bank. See
Note 15 of the Notes to Consolidated Financial Statements.
Impact of New Accounting Standard. See Note 1 of the Notes to the
Consolidated Financial Statements.
11
</PAGE>
<PAGE>
Effect of Inflation and Changing Prices. The Consolidated Financial
Statements and related financial data presented herein have been prepared
in accordance with GAAP, which require the measurement of financial
position and operating results in terms of historical dollars, without
considering the changes in relative purchasing power of money over time
due to inflation. The primary impact of inflation on operations of First
Home is reflected in increased operating costs. Unlike most industrial
companies, virtually all the assets and liabilities of a financial
institution are monetary in nature. As a result, interest rates
generally have a more significant impact on a financial institution's
performance than do general levels of inflation. Interest rates do not
necessarily move in the same direction or to the same extent as the
prices of goods and services. During the current interest rate
environment, management believes that the liquidity and the maturity
structure of First Home's assets and liabilities are critical to the
maintenance of acceptable profitability.
12
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<PAGE>
Letterhead of Independent CPA firm
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
FIRST BANCSHARES, INC. AND SUBSIDIARY
Mountain Grove, Missouri
We have audited the accompanying consolidated statements of financial
condition of FIRST BANCSHARES, INC. AND SUBSIDIARY as of june 30, 1996
and 1995, and the related consolidated statements of income, stockholder'
equity, and cash flows for each of the three years in the period ended
June 30, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform these audits
to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit also includes assessing the
accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of FIRST
BANCSHARES, INC. AND SUBSIDIARY as of June 30, 1996 and 1995, and the
results of its operations and its cash flows for each of the three years
in the period ended June 30, 1996, in conformity with generally accepted
accounting principles.
/s/ Kirkpatrick, Phillips + Miller
KIRKPATRICK, PHILLIPS & MILLER, CPSs, P.C.
Springfield, Missouri
August 6, 1996
13
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<PAGE>
<TABLE>
<CAPTION>
FIRST BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
- - - - - - - - - - - - - - - - - - - - - - - -
June 30, 1996 and 1995
1996 1995
<S> <C> <C>
ASSETS
Cash and cash equivalents, including
interest-bearing accounts of $526,578 in 1996
and $1,237,084 in 1995 $ 3,316,282 $ 3,534,680
Certificates of deposit 2,319,000 4,122,000
Investment securities available-for-sale,
at fair value (Notes 1 and 2) 9,478,015 10,013,202
Investment securities held-to-maturity
(estimated fair value of $2,249,438 in 1996
and $1,790,088 in 1995) (Notes 1 and 2) 2,233,375 2,029,620
Investment in Federal Home Loan Bank
stock, at cost (Note 3) 889,800 783,700
Mortgage-backed certificates available-for-sale,
at fair value (Notes 1 and 4) 2,831,153 3,133,832
Loans receivable held-for-investment,
net (Notes 1 and 5) 118,779,992 101,431,362
Accrued interest receivable (Note 6) 468,962 425,484
Prepaid expenses 106,725 106,867
Commissions and other receivables 4,400 5,000
Property and equipment, less accumulated depreciation
and valuation reserves (Notes 1 and 7) 3,194,113 2,487,270
Intangible assets, less accumulated amortization
(Notes 1 and 8) 42,513 58,278
Real estate owned - 48,095
Other assets 6,574 13,535
------------ -----------
Total assets $ 143,670,904 $128,192,925
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Customer deposits (Note 9) $ 105,960,227 $ 98,389,006
Advances from Federal Home Loan Bank (Note 10) 13,500,000 5,000,000
Other borrowed funds 55,000 55,000
Income taxes payable - current (Note 11) 92,169 48,744
Deferred income taxes, net (Notes 1 and 11) 138,771 45,143
Accrued expenses 195,622 163,437
---------- ---------
Total liabilities 119,941,789 103,701,330
----------- -----------
Commitments and contingencies (Note 14) - -
Preferred stock, $.01 par value; 2,000,000 shares authorized,
none issued - -
Common stock, $.01 par value; 8,000,000 shares authorized,
issued 1,553,040 in 1996 and 1,551,392 in 1995, outstanding
1,268,686 in 1996 and 1,400,178 in 1995 15,530 15,514
Paid-in capital 15,059,638 14,921,768
Retained earnings - substantially restricted
(Note 15) 14,010,896 13,094,085
Treasury stock, at cost - 284,354 shares in 1996 and
151,214 shares in 1995 (4,123,081) (1,907,968)
Unearned compensation (Note 12) (1,209,046) (1,460,736)
Unrealized loss on securities available-for-sale, net of
applicable deferred income taxes (24,822) (171,068)
----------- ---------
Total stockholders' equity 23,729,115 24,491,595
---------- -----------
Total liabilities and stockholders' equity $ 143,670,904 $128,192,925
============= ============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements
14
</PAGE>
<PAGE>
<TABLE>
<CAPTION>
FIRST BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
- - - - - - - - - - - - - - - - - - -
Years Ended June 30, 1996, 1995 and 1994
1996 1995 1994
<S> <C> <C> <C>
Interest Income:
Loans receivable $ 8,935,778 $ 7,001,308 $5,983,934
Investment securities 813,178 1,075,115 616,120
Mortgage-backed and related securities 200,611 242,692 232,457
Other interest-earning assets 163,631 71,383 184,742
--------- -------- ---------
Total interest income 10,113,198 8,390,498 7,017,253
---------- --------- ---------
Interest Expense:
Customer deposits (Note 9) 5,043,681 4,454,116 3,264,998
Borrowed funds (Note 10) 617,749 100,452 288,958
--------- ---------- --------
Total interest expense 5,661,430 4,554,568 3,553,956
--------- ---------- ---------
Net interest income 4,451,768 3,835,930 3,463,297
Provision (credit) for loan losses 79,500 (26,660) 22,777
--------- --------- ---------
Net interest income after
provision (credit) for loan losses 4,372,268 3,862,590 3,440,520
--------- --------- ---------
Noninterest Income:
Service charges and other fee income 270,470 166,508 128,188
Loss on investments (6,330) (18,505) (2,241)
Gain on sale of property and equipment 20,243 7,000 -
Loan origination and commitment
fees (Note 1) 3,184 4,028 1,898
Income from real estate operations 93,678 60,118 48,228
Insurance commissions 73,457 76,379 73,142
Other 4,099 3,150 7,167
------- ------- ------
Total noninterest income 458,801 298,678 256,382
------- ------- -------
Noninterest Expense:
Compensation and employee benefits
(Note 12) 1,695,707 1,535,863 1,213,941
Occupancy and equipment 365,150 274,724 324,666
Deposit insurance premiums 228,870 205,489 184,366
Advertising and promotional 204,469 30,953 29,888
Professional fees 56,606 99,775 78,255
Other 494,591 367,008 385,107
--------- -------- --------
Total noninterest expense 3,045,393 2,513,812 2,216,223
--------- --------- ---------
Income before taxes 1,785,676 1,647,456 1,480,679
Income Taxes (Note 11) 631,039 613,204 430,594
--------- -------- --------
Net income $ 1,154,637 $ 1,034,252 $1,050,085
========== ========== =========
Earnings per share (Note 1) $ .95 $ .79$ $ .69
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements
15
</PAGE>
<PAGE>
<TABLE>
<CAPTION>
FIRST BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
- - - - - - - - - - - - - - - - - - - - - - - -
Years Ended June 30, 1996, 1995 and 1994
Common
Unrealized Total
Stock Paid-in Retained
Treasury Unearned Loss on Stockholders'
Shares Amount Capital Earnings
Stock Compensation Securities Equity
------ ------ ------- --------
- --------- ------------ ---------- ---------
<S> <C> <C> <C> <C>
<C> <C> <C> <C>
Balance at June 30, 1993 - $ - $ - $11,421,071 $
- - $ - $ - $11,421,071
Net income - - - 1,050,085
- - - - 1,050,085
Net proceeds from issuance of
common stock (Note 16) 1,551,292 15,513 14,857,610 -
- - - - 14,873,123
Common stock acquired by ESOP - - - -
- - (1,520,870) - (1,520,870)
Common stock acquired by MRP - - - -
- - (304,170) - (304,170)
Cash dividends ($.10 per share) - - - (154,730)
- - - - (154,730)
Purchase of treasury stock
at cost (77,500) - - -
(910,450) - - (910,450)
Repayment from ESOP - - - -
- 82,604 - 82,604
Unrealized loss on securities
available-for-sale, net of
applicable deferred income taxes - - - -
- - (223,959) (223,959)
-------- ------- ----------- --------
- -------- -------- --------- ---------
Balance at June 30, 1994 1,473,792 15,513 14,857,610 12,316,426
(910,450) (1,742,436) (223,959) 24,312,704
Net income - - - 1,034,252
- - - 1,034,252
Proceeds from exercise of
stock option 100 1 999 -
- - - 1,000
Cash dividends ($.20 per share) - - - (256,593)
Purchase of treasury stock
at cost (73,714) - - -
(997,518) - - (256,593)
Vesting of MRP stock - - - -
- 81,640 - 81,640
Release of ESOP shares - - 63,159 -
- 200,060 - 200,060
Net change in unrealized loss on
securities available-for-sale, net of
applicable deferred income taxes - - - -
- - 52,891 52,891
-------- -------- -------- --------
- -------- ------- -------- -------
Balance at June 30, 1995 1,400,178 15,514 14,921,768 13,094,085
(1,907,968) (1,460,736) (171,068) 24,491,595
Net income - - - 1,154,637
- - - 1,154,637
Proceeds from exercise of
stock options 1,648 16 16,464 -
- - - 16,480
Cash dividends ($.20 per share) - - - (237,826)
- - - (237,826)
Purchase of treasury stock
at cost (133,140) - - -
(2,215,113) - - (2,215,113)
Vesting of MRP stock - - - -
- 55,390 - 55,390
Release of ESOP shares - - 121,406 -
- 196,300 - 196,300
Net change in unrealized loss on
securities available-for-sale, net of
applicable deferred income taxes - - - -
- - 146,246 146,246
-------- ------- --------- --------
- ---------- -------- ------- ---------
Balance at June 30, 1996 1,268,686 $ 15,530 $15,059,638 $14,010,896
$(4,123,081) $(1,209,046) $(24,822) $23,729,115
========= ======= ========== ==========
============ ============ ========= ===========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements
16
</PAGE>
<PAGE>
<TABLE>
<CAPTION>
FIRST BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
- - - - - - - - - - - - - - - - - - -
Years Ended June 30, 1996, 1995 and 1994
1996 1995 1994
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 1,154,637 $ 1,034,252 $1,050,085
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 161,513 134,946 155,260
Amortization 15,765 16,083 53,124
Premiums and discounts on mortgage-backed
securities and investment securities 5,842 8,839 15,653
Loss (credit) on loans, net of
recoveries 79,500 (26,660) 22,777
Unrealized loss on investment
securities, net 33,000 17,000 -
(Gain) loss on sale of investment
securities (26,670) 1,505 2,241
Gain on sale of equipment (20,243) (7,000) -
Income reinvested on investment securities
and Federal Home Loan Bank stock (31,391) (62,453) (51,752)
Vesting of MRP shares 55,431 78,856 -
Release of ESOP shares 317,706 263,219 -
Net change in operating accounts:
Accrued interest receivable and
other assets (35,816) (107,248) (91,520)
Deferred loan costs (23,912) (25,366) (21,116)
Accrued expenses 32,185 (18,802) 35,900
Deferred income taxes 16,064 116,087 (50,191)
Income taxes payable - current 43,425 45,329 (125,461)
-------- ------- --------
Net cash from operating activities 1,777,036 1,468,587 995,000
Cash flows from investing activities:
Purchase of investment securities
available-for-sale (5,736,100) (1,009,300)(7,265,850)
Purchase of investment securities
held-to-maturity (685,000) (265,000) (952,000)
Proceeds from maturities of investment
securities available-for-sale 5,016,695 806,902 550,910
Proceeds from maturities of investment
securities held-to-maturity 445,872 265,510 15,000
Proceeds from sale of investment
securities available-for-sale 1,464,308 502,352 223,073
Net change in certificates of deposit 1,803,000 2,482,000 (2,951,000)
Net change in federal funds sold - 2,000,000 (600,000)
Net change in loans receivable (17,433,330) (15,645,278)(12,766,012)
Proceeds from principal payments and maturities
of mortgage-backed certificates 265,265 228,624 703,753
Purchases of property and equipment (832,818) (548,446) (241,474)
Proceeds from sale of property and
equipment 32,800 7,000 -
Net proceeds from sale of real
estate owned 29,112 43,073 18,296
Purchase of other assets - (3,000) -
Repayment from ESOP - - 82,604
-------- ------- ------
Net cash used in investing activities (15,630,196) (11,135,563)(23,182,700)
</TABLE>
17
</PAGE>
<PAGE>
<TABLE>
<CAPTION>
FIRST BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
- - - - - - - - - - - - - - - - - - - - - - - - -
Years Ended June 30, 1996, 1995 and 1994
1996 1995 1994
<S> <C> <C> <C>
Cash flows from financing activities:
Net change in demand deposits, savings accounts,
and certificates of deposit $ 7,571,221 $ 12,485,184 $ 5,835,602
Payments on borrowed funds - (8,000,000) -
Proceeds from borrowed funds 8,500,000 5,000,000 5,000,000
Proceeds from sale of common stock 16,480 1,000 13,048,083
Cash dividends paid (237,826) (256,593) (154,730)
Purchase of treasury stock (2,215,113) (997,518) (910,450)
----------- --------- --------
Net cash from financing activities 13,634,762 8,232,073 22,818,505
---------- --------- ----------
Net increase (decrease) in cash and
cash equivalents (218,398) (1,434,903) 630,805
Cash and cash equivalents -
beginning of period 3,534,680 4,969,583 4,338,778
--------- --------- ---------
Cash and cash equivalents -
end of period $ 3,316,282 $ 3,534,680 $ 4,969,583
============ =========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest on deposits and
other borrowings $ 5,658,063 $ 4,540,132 $ 3,541,710
Income taxes 567,602 455,457 606,245
Supplemental schedule of non-cash investing and
financing activities:
Loans and other real estate
charged off to reserve $ 1,117 $ 12,487 $ 21,520
Loans transferred to real estate
acquired in settlement of loans 29,112 43,073 65,865
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements
18
</PAGE>
<PAGE>
(1)SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
First Bancshares, Inc. is a Missouri corporation organized September
30,1993 for the purpose of becoming a unitary savings and loan
holding company for First Home Savings Bank. The Savings Bank is
primarily engaged in providing a full range of banking and mortgage
services to individual and corporate customers in southern
Missouri. It also provides insurance brokerage activities through
a subsidiary corporation. The Savings Bank is subject to
competition from other financial institutions. The Company and
Savings Bank are also subject to the regulation of certain federal
agencies and undergo periodic examinations by those regulatory
authorities.
On December 16, 1993, the members of the Savings Bank adopted a
plan of conversion pursuant to which the Savings Bank converted
from a state-chartered mutual savings and loan association to a
state-chartered stock savings and loan association wholly owned by
the Holding Company. On December 22, 1993, the Holding Company
completed its Subscription and Community Offering and acquired the
capital stock of the Savings Bank with a portion of the proceeds.
To assist the reader in evaluating the financial statements of First
Bancshares, Inc. and Subsidiary, the significant accounting
policies are summarized below.
Use of estimates - Management uses estimates and assumptions in
preparing these financial statements in accordance with generally
accepted accounting principles. Those estimates and assumptions
affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities, and the reported
revenues and expenses. Actual results could vary from the
estimates that were used.
Material estimates that are particularly susceptible to significant
change relate to the determination of the allowance for loan losses
and the valuation of real estate acquired in connection with
foreclosures or in satisfaction of loans.
While management uses available information to recognize losses on
loans and foreclosed real estate, future additions to the
allowances may be necessary based on changes in local economic
conditions. In addition, regulatory agencies, as an integral part
of their examination process, periodically review the Savings
Bank's allowances for loan losses and foreclosed real estate. Such
agencies may require the Savings Bank to recognize additions to the
allowances based on their judgments about information available to
them at the time of their examination.
Principles of consolidation - The accompanying consolidated financial
statements include the accounts of First Bancshares, Inc. and its
wholly-owned subsidiary, the Savings Bank, and Fybar Service
Corporation, a wholly-owned subsidiary of the Savings Bank. In
consolidation, all significant intercompany balances and
transactions have been eliminated.
Consolidated statements of cash flows - For purposes of the consolidated
statements of cash flows, cash consists of cash on hand and
deposits with other financial institutions which are unrestricted
as to withdrawal or use. Cash equivalents include highly-liquid
instruments with an original maturity of three months or less.
19
</PAGE>
<PAGE>
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
Investment securities and mortgage-backed certificates - During the year
ended June 30, 1994, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," which established three
classifications of investment securities: held-to-maturity,
trading and available-for-sale. Trading securities are acquired
principally for the purpose of near term sales. Such securities
are reported at fair value and unrealized gains and losses are
included in income. Securities which are designated as held-
to-maturity are designated as such because the investor has the
ability to hold these securities to maturity. Such securities are
reported at amortized cost.
All other securities are designated as available-for-sale, a
designation which provides the investor with certain flexibility in
managing its investment portfolio. Such securities are reported at
fair value; net unrealized gains and losses are excluded from
income and reported net of applicable income taxes as a separate
component of stockholders' equity. Gains or losses on sales of
securities are recognized in operations at the time of sale and are
determined by the difference between the net sales proceeds and the
cost of the securities using the specific identification method,
adjusted for any unamortized premiums or discounts. Premiums or
discounts are amortized or accreted to income using the interest
method over the period to maturity.
In adopting SFAS No. 115, the Company modified its accounting
policies and designated its securities in accordance with the three
classifications. The Company's adoption of SFAS No. 115 resulted
in the reclassification of certain securities from the held-
to-maturity portfolio to the available-for-sale portfolio. The net
unrealized losses have been reported as a separate component of
stockholders' equity. At June 30, 1996 and 1995, the Company had
no securities designated as trading securities.
Loans receivable - Loans receivable are stated at their principal amount
outstanding, net of deferred loan origination and commitment fees
and certain direct costs, which are recognized over the contractual
life of the loan as an adjustment of the loan's yield. Interest
income on loans is recognized on an accrual basis.
Non-performing loans are placed on a nonaccrual status when it is
determined that the payment of interest or principal is doubtful of
collection, or when interest or principal is past due 90 days or
more, except when the loan is well secured and in the process of
collection. Any accrued but uncollected interest previously
recorded on such loans is generally reversed in the current period
and interest income is subsequently recognized upon collection.
Cash collections subsequently received are applied against
outstanding principal until the loan is considered fully
collectible, after which cash collections are recognized as
interest income.
The company reports the change in present value of the expected
future cash flows related to impaired loans as an increase or
decrease in bad debt expense.
20
</PAGE>
<PAGE>
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
Property and equipment and related depreciation - Property and equipment
has been stated at cost except as discussed in Note (7).
Depreciation has been principally computed by applying the
following methods and estimated lives:
Category Estimated Life Method
Automobiles 5 Years Straight-line and
declining-balance
Office furniture, fixtures Straight-line and
and equipment 3-10 Years declining-balance
Buildings 15-40 Years Straight-line and
declining-balance
Investment real estate 15-40 Years Straight-line
Maintenance and repairs are charged to expense. Improvements which
extend the lives of the respective assets are capitalized. When
property or equipment is sold or otherwise disposed of, the cost
and related accumulated depreciation are removed from the
respective accounts and the resulting gain or loss is reflected in
income.
Intangible assets - Intangible assets have been recorded by the Savings
Bank in connection with the acquisition of the assets of Lawson and
Lawson Insurance Agency, Inc., which is discussed further in Note
(8). Goodwill, which represents the excess of the purchase price
over the estimated fair market value of net assets and other
intangibles acquired, is being amortized on a straight-line basis
over ten years. The cost of covenants not to compete are being
amortized over five years on a straight-line basis. The cost of
renewal lists acquired are being amortized over their estimated
remaining economic lives, ten years, using the straight-line
method. Organization costs are being amortized on a straight-line
basis over five years.
Income taxes - The Company files a consolidated federal income tax
return with its wholly-owned subsidiary. The income tax effect of
timing differences in reporting transactions for financial
reporting and income tax purposes is reflected in the financial
statements as deferred income taxes.
During the year ended June 30, 1993, the Company adopted SFAS No.
109, "Accounting for Income Taxes". Under SFAS No. 109, income
taxes are accounted for under the asset and liability method.
Under this method, deferred income taxes are recognized for
temporary differences by applying enacted statutory rates
applicable to future years to differences between the financial
statement carrying amounts and the tax basis of existing assets and
liabilities. The effect on deferred taxes of a change in tax rates
is recognized in income in the period that includes the enactment
date. The net effect of the Company's adoption of SFAS No. 109 was
not material to its financial condition or results of operations.
Allowance for loan losses - The Savings Bank maintains an allowance for
loan losses to absorb possible future losses that may be realized
on its loan portfolio. In conjunction with a review of the loan
portfolio, the allowance for loan losses is evaluated and adjusted
at least quarterly. In evaluating the allowance for loan losses,
management considers various factors including historical loss
experience, the level and trend of delinquent and classified loans,
current and anticipated economic and real
21
</PAGE>
<PAGE>
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
estate conditions, and the composition of the loan portfolio.
Losses incurred upon initial acquisition of real estate owned
through foreclosure are charged to the allowance for loan losses.
Special reserves are established for any impaired loan for which
the recorded investment in the loan exceeds the measured value of
the loan. The values of loans subject to impairment valuation are
determined based on the present value of expected future cash
flows, the market price of the loans, or the fair values of the
underlying collateral if the loan is collateral dependent.
Real estate owned - Real estate acquired in the settlement of loans,
including in-substance foreclosures, is recorded at the lower of
the remaining balance or estimated fair value less the estimated
costs to sell the asset. Any write down at the time of foreclosure
is charged against the allowance for loan losses. Subsequently,
net expenses related to holding the property and declines in the
market value are charged against income. Gains on sales are
determined on the specific identification method and are credited
to income when the property is sold.
Loan origination fees and costs - During the year ended June 30, 1994,
the Savings Bank adopted SFAS No. 91, "Accounting for Nonrefundable
Fees and Costs Associated with Originating or Acquiring Loans and
Initial Direct Costs of Leases". Under SFAS No. 91, loan
origination fees and certain direct loan origination costs are
deferred and recognized in interest income over the contractual
lives of the related loans using the interest method. When a loan
is paid-off or sold, the unamortized balance of these deferred fees
and costs is recognized in income. The Savings Bank adopted SFAS
No. 91 prospectively from July 1, 1993. The net effect of the
Savings Bank's adoption of SFAS No. 91 was not material to its
financial condition or results of operations.
Real estate held for investment - Real estate properties held for
investment are carried at the lower of cost, including cost of
improvements incurred subsequent to acquisition, or net realizable
value. Costs relating to the development and improvement of
property are capitalized, whereas costs relating to the holding of
the property are expensed.
Advertising costs - The Company expenses non-direct response advertising
costs as they are incurred.
Earnings per share - Pro forma earnings per share for the year ended
June 30, 1994 is determined by dividing income for the year by the
weighted average number of common and common equivalent shares as
if the Company's conversion occurred on July 1, 1993. Stock
options are regarded as common stock equivalents. For 1996 and
1995, Employee Stock Ownership Plan ("ESOP") shares not committed
to be released are not considered outstanding for purposes of
calculating earnings per share due to the Company's adoption of
Statement of Position 93-6, "Employer's Accounting for Employee
Stock Ownership Plans" (see Note 12). The weighted average number
of shares used in the computation of earnings per share was
1,211,231 in 1996, 1,309,615 in 1995 and 1,531,970 in 1994. If the
ESOP shares not committed to be released were considered
outstanding, the weighted average number of shares for the
computation of earnings per share would have been 1,326,166 in 1996
and 1,444,447 in 1995. Earnings per share for 1996 and 1995,
respectively, would have been $.87 and $.72 using this amount of
weighted average number of shares outstanding. There is no
material difference between primary and fully diluted earnings per
share.
22
</PAGE>
<PAGE>
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
New accounting standards - In March 1995, the Financial Accounting
Standards Board ("FASB") issued SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be
Disposed of" and is effective for years beginning after December
15, 1995. The statement generally requires disclosures for
long-lived impaired assets and long-lived impaired assets to be
disposed of. The impact of the adoption of the new accounting
standard on the Company's consolidated financial statements is not
expected to be material.
In May 1995, FASB issued SFAS No. 122, "Accounting for Mortgage
Servicing Rights". The statement requires that mortgage banking
enterprises recognize as separate assets rights to service mortgage
loans for others. Adoption of this statement will be required by
the Company during the year ending June 30, 1997. The impact of
this statement is not expected to have a material effect on the
Company's consolidated financial statements.
The Corporation records compensation expense for all stock-based
compensation plans as prescribed by APB Opinion No. 25, "Accounting
for Stock Issued to Employees". In October 1995, the FASB issued
SFAS No. 123, "Accounting for Stock-Based Compensation". This
statement establishes a fair value based method of accounting for
stock-based compensation plans. It encourages entities to adopt
that method in place of the provisions of APB Opinion No. 25. This
statement is effective for transactions entered into in fiscal
years that begin after December 15, 1995; however, companies are
required to disclose information for awards granted in their first
fiscal year beginning after December 15, 1994. Currently, there
are no awards granted after these dates. Therefore, SFAS No. 123
is not expected to have a significant impact on the Company's
consolidated financial statements.
In June 1996, FASB issued SFAS No. 125, "Accounting for the
Transfers and Servicing of Financial Assets and Extinguishment of
Liabilities", which clarifies and provides consistent guidance for
distinguishing transfers of financial assets that are sales from
transfers that are borrowings. The standard is based on a
financial components approach that focuses on control. Under that
approach, after a transfer of financial assets, an entity
recognizes the financial and servicing assets it controls and
liabilities it has incurred, and derecognizes liabilities when
extinguished. SFAS No. 125 applies to transfers occurring after
December 31, 1996 and will be applied prospectively. The
Corporation has not completed its assessment of the impact of
adopting Statement No. 125.
Reclassifications - Certain accounts in the prior-years' consolidated
financial statements have been reclassified for comparative
purposes to conform with the presentation in the current-year
consolidated financial statements.
23
</PAGE>
<PAGE>
(2) INVESTMENT SECURITIES
As discussed in Note (1), effective June 30, 1994, the Company adopted
SFAS No. 115 and designated certain securities as available-for-sale.
<TABLE>
A summary of the investment securities available-for-sale at June 30,
1996 is as follows:
<CAPTION>
Estimated
Amortized Gross Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
United States Government and
Federal Agencies obligations $8,045,888 $ 9,906 $(47,077) $8,008,717
Domestic corporate obligations 150,522 4,064 - 154,586
Mutual funds 34,548 - - 34,548
Common and preferred stocks 1,166,842 137,500 (24,178) 1,280,164
Total $9,397,800 $151,470 $(71,255) $9,478,015
</TABLE>
The amortized cost and estimated market value of debt securities available-for
- -sale at June 30, 1996 are summarized below by contractual terms to maturity.
Expected maturities will differ from contractualmaturities because borrowers
may have the right to call or prepayobligations with or without call or
prepayment penalties.
<TABLE>
<CAPTION>
Amortized Estimated
Cost Fair Value
<S> <C> <C>
Due in one year or less $ 1,000,000 $ 992,500
Due after one year through five years 7,196,410 7,170,803
Due after five years through ten years - -
Due after ten years - -
Total $ 8,196,410 $ 8,163,303
</TABLE>
Proceeds from the sales of four mutual funds, two United States Federal
Agencies obligations and preferred stock held as available-for-sale
during the year ended June 30, 1996 were $1,464,308. A gain of $26,670
was recognized on these sales.
24
</PAGE>
<PAGE>
(2) INVESTMENT SECURITIES - (CONTINUED)
<TABLE>
A summary of investment securities held-to-maturity at June 30, 1996 is
as follows:
<CAPTION>
Estimated
Amortized Gross Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Obligations of states and
political subdivisions $ 2,074,609 $ 17,965 $(1,902) $2,090,672
Auto and student loan pools 158,766 - - 158,766
Total $ 2,233,375 $ 17,965 $(1,902) $2,249,438
</TABLE>
Auto and student loan pools consist of an investment in a pool of auto
loans and a pool of student loans and are stated at net realizable value
in 1996 and 1995. The auto loan pool was written down to its estimated
net realizable value because, in the opinion of management, the decline
in market value of that security is considered to be other than
temporary. The amount of the losses, $33,000 and $17,000 for 1996 and
1995, respectively, have been charged to operations.
<TABLE>
The amortized cost and estimated market value of investment securities
held-to-maturity at June 30, 1996, by contractual maturity, are shown
below. Expected maturities will differ from contractual maturities
because borrowers may have the right to call or prepay obligations with
or without call or prepayment penalties.
<CAPTION>
Amortized Estimated
Cost Fair Value
<S> <C> <C>
Due in one year or less $ 505,258 $ 505,174
Due after one year through five years 1,456,889 1,472,480
Due after five years through ten years 271,228 271,784
Total $ 2,233,375 $2,249,438
</TABLE>
<TABLE>
A summary of the investment securities available-for-sale at June 30,
1995 is as follows:
<CAPTION> Estimated
Amortized Gross Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
United States Government and
Federal Agencies obligations $8,910,000 $ 10,250 $(221,025)$8,699,225
Domestic corporate obligations 150,969 7,550 - 158,519
Mutual funds 574,611 10,956 (25,517) 560,050
Common and preferred stocks 555,521 68,750 (28,863) 595,408
Total $10,191,101 $97,506 $(275,405) $10,013,202
</TABLE>
Proceeds from the sales of four mutual funds held as available-for-sale
during the year ended June 30, 1995 were $502,352. A loss of $1,505 was
recognized on this sale.
25
</PAGE>
<PAGE>
(2) INVESTMENT SECURITIES - (CONTINUED)
<TABLE>
A summary of investment securities held-to-maturity at June 30, 1995 is
as follows:
<CAPTION>
Estimated
Amortized Gross Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Obligations of states and
political subdivisions $1,778,982 $19,961 $(8,855)$1,790,088
Auto and student loan pools 250,638 - - 250,638
Total $2,029,620 $ 19,961 $(8,855)$2,040,726
</TABLE>
The book value of securities pledged as collateral, to secure public
deposits was $690,343 at June 30, 1996 and $439,821 at June 30, 1995.
The approximate fair value of pledged securities was $692,482 at June
30, 1996 and $449,027 at June 30, 1995.
(3) INVESTMENT IN FEDERAL HOME LOAN BANK STOCK
Investment in stock of the Federal Home Loan Bank is required by law of
every Federally-insured savings institution. No ready market exists for
this stock and it has no quoted market value. However, redemption of
this stock has been at par value.
The Savings Bank, as a member of the Federal Home Loan Bank of Des
Moines, is required to acquire and hold shares of capital stock in the
Federal Home Loan Bank of Des Moines in an amount equal to the greater of
(i) 1.0% of the aggregate outstanding principal amount of residential
mortgage loans, home purchase contracts and similar obligations at the
beginning of each year, or (ii) 1/20 of its advances (borrowings) from
the Federal Home Loan Bank of Des Moines. The Savings Bank is in
compliance with this requirement with an investment in Federal Home Loan
Bank of Des Moines stock of $889,800 at June 30, 1996.
(4) MORTGAGE-BACKED SECURITIES
<TABLE>
The amortized cost and estimated market values of mortgage-backed
securities available-for-sale as of June 30, 1996 are summarized below:
<CAPTION>
Estimated
Amortized Gross Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
FHLMC certificates $ 393,267 $ 3,026 $ (705) $395,588
FNMA certificates 445,669 - (2,908) 442,761
GNMA certificates 110,053 2,751 - 112,804
Collateralized mortgage
obligations 2,000,000 - (120,000) 1,880,000
Total $2,948,989 $ 5,777 $(123,613)$2,831,153
</TABLE>
26
</PAGE>
<PAGE>
(4) MORTGAGE-BACKED SECURITIES - (CONTINUED)
<TABLE>
The amortized cost and estimated market values of mortgage-backed
securities available-for-sale as of June 30, 1995 are summarized below:
<CAPTION>
Estimated
Amortized Gross Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
FHLMC certificates $ 586,107 $ 4,734 $ - $ 590,841
FNMA certificates 511,574 2,558 - 514,132
GNMA certificates 119,682 9,177 - 128,859
Collateralized mortgage
obligations 2,000,000 - (100,000) 1,900,000
Total $3,217,363 $16,469 $(100,000)$3,133,832
</TABLE>
(5) LOANS RECEIVABLE
<TABLE>
Loans receivable at June 30 consist of the following:
<CAPTION>
1996 1995
<S> <C> <C>
First mortgage loans $ 110,473,413 $ 94,237,492
Loans to depositors, secured by savings 1,282,446 1,144,480
Consumer and automobile loans 5,844,380 4,516,930
Second mortgage loans 3,726,771 2,731,299
Other loans 2,035,412 2,141,621
Total gross loans 123,362,422 104,771,822
Reserve for loan losses (520,045) (441,662)
Loans in process (4,132,779) (2,945,280)
Unamortized deferred loan costs, net
of origination fees 70,394 46,482
Net loans receivable $ 118,779,992 $101,431,362
</TABLE>
<TABLE>
Activity in the allowance for loan losses is summarized as follows for
the years ended June 30:
<CAPTION>
1996 1995
<S> <C> <C>
Balance at beginning of year $ 441,662 $ 478,885
Provision charged (credited) to income 79,500 (26,660)
Charge-offs (1,477) (12,487)
Recoveries 360 1,924
Balance at end of year $ 520,045 $ 441,662
</TABLE>
The Savings Bank primarily grants first mortgage loans to customers
throughout southern Missouri. The loans are typically secured by real
estate or personal property.
27
</PAGE>
<PAGE>
(5) LOANS RECEIVABLE - (CONTINUED)
As of June 30, 1996, the total recorded investment in impaired loans was
$239,146 as recognized in conformity with FASB Statement No. 114, as
amended by FASB Statement No. 118. This amount was subject to allowances
for credit losses of $150,446. During 1996, the average recorded
investment in impaired loans was $236,037. Interest income recognized in
1996 during the period in which the underlying loans were considered
impaired was $10,186.
(6) ACCRUED INTEREST RECEIVABLE
<TABLE>
Accrued interest receivable at June 30 is summarized as follows:
<CAPTION>
1996 1995
<S> <C> <C>
Investment securities $ 109,436 $ 119,458
Mortgage-backed securities 17,952 17,952
Loans receivable 341,574 288,074
Total $ 468,962 $ 425,484
</TABLE>
(7) PROPERTY AND EQUIPMENT
<TABLE>
Property and equipment at June 30 consists of the following:
<CAPTION>
1996
Accum. Valuation
Category Cost Deprec. Reserve Net
<S> <C> <C> <C> <C>
Land $ 259,145 $ - $ - $ 259,145
Buildings 2,532,713 688,305 - 1,844,408
Office furniture,
fixtures and equipment 1,106,434 841,936 - 264,498
Automobiles 89,834 29,011 - 60,823
Investment real estate 1,171,840 135,454 271,147 765,239
Total $5,159,966 $1,694,706 $ 271,147 $3,194,113
1995
Accum. Valuation
Category Cost Deprec. Reserve Net
Land $ 248,289 $ - $ - $ 248,289
Buildings 1,994,691 621,415 - 1,373,276
Office furniture,
fixtures and equipment 954,587 786,023 - 168,564
Automobiles 109,506 51,447 - 58,059
Investment real estate 1,025,768 115,539 271,147 639,082
Total $4,332,841 $1,574,424 $271,147 $2,487,270
</TABLE>
28
</PAGE>
<PAGE>
(7) PROPERTY AND EQUIMENT - (CONTINUED)
Depreciation charges to operations for the years ended June 30, 1996,
1995 and 1994 were $161,513, $134,946, and $155,260, respectively. The
depreciation policies followed by the Company are described in Note (1).
A valuation reserve has been established for certain investment real
estate to adjust the property to its net realizable value at June 30,
1996 and 1995.
(8) INTANGIBLE ASSETS
The subsidiary of the Savings Bank, Fybar Service Corporation, acquired
the assets of the Lawson & Lawson Insurance Agency, Inc. during October,
1991. This transaction was recorded using the purchase method of
accounting. The results of operations of this agency have been included
in the statements of income from the date of acquisition. The purchase
price of $185,000 exceeded the net assets of Lawson & Lawson at the date
of acquisition by $155,000. The excess was assigned to customer renewal
lists, covenants not to compete and goodwill. Organization costs
totaling $4,936 were incurred and capitalized in connection with this
transaction. During the year ended June 30, 1995, $32,628 of the
unamortized balance of the amount allocated to customer renewal lists was
written off. The adjustment was due to the loss of customers when one of
the insurance carriers used by Lawson & Lawson transferred its account to
another insurance agency. The allocation of intangible assets described
above and related accumulated amortization at June 30 is as follows:
<TABLE>
<CAPTION>
1996
Accum.
Category Cost Amort. Net
<S> <C> <C> <C>
Organization costs $ 4,936 $ 4,490 $ 446
Customer renewal lists 110,000 74,254 35,746
Covenants not to compete 40,000 36,396 3,604
Goodwill 5,000 2,283 2,717
Total $159,936 $117,423 $42,513
1995
Accum.
Category Cost Amort. Net
Organization costs $ 4,936 $ 3,537 $ 1,399
Customer renewal lists 110,000 67,654 42,346
Covenants not to compete 40,000 28,675 11,325
Goodwill 5,000 1,792 3,208
Total $ 159,936 $ 101,658 $ 58,278
</TABLE>
The intangible assets are being amortized as described in Note (1).
Amortization expense charged to operations amounted to $15,764 for 1996,
$16,083 for 1995, and $53,124 for 1994.
29
</PAGE>
<PAGE>
(9) CUSTOMER DEPOSITS
<TABLE>
A summary of deposit accounts at June 30 is as follows:
<CAPTION>
Weighted
Average Rate 1996 1995
at 6/30/96 Amount % Amount %
<S> <C> <C> <C> <C> <C>
Noninterest-bearing checking - $ 2,489,984 2.3% $ 725,582 0.8%
Interest-bearing checking 2.57% 12,439,258 11.7 10,598,671 10.8
Super Saver money market 3.77% 14,175,731 13.4 14,335,999 14.6
Savings 3.04% 5,781,593 5.5 4,904,332 4.9
34,886,566 32.9 30,564,584 31.1
Certificates of Deposit:
3.0% to 4.49% 4.23% $ 239,453 0.2% $ 2,093,149 2.1%
4.5% to 5.49% 5.15% 34,324,389 32.4 16,040,759 16.3
5.5% to 6.49% 5.85% 25,510,263 24.1 36,862,808 37.5
6.5% to 7.49% 6.82% 10,261,086 9.7 11,320,616 11.5
7.5% and over 7.73% 738,470 0.7 1,507,090 1.5
71,073,661 67.1 67,824,422 68.9
Total 4.77% $105,960,227 100.0% $98,389,006100.0%
</TABLE>
The aggregate amount of jumbo certificates of deposit with a minimum
denomination of $100,000 was $11,774,506 and $10,331,862 at June 30, 1996
and 1995, respectively.
<TABLE>
At June 30, 1996, scheduled maturities of certificates of deposit are as
follows:
<CAPTION>
During Years Ending June 30,
1997 1998 1999 2000 2001
After
<S> <C> <C> <C> <C> <C>
<C>
3.0% to 4.49% $ 239,453 $ - $ - $ - $ - $
- -
4.5% to 5.49% 29,571,734 2,831,810 1,180,815 616,941 123,089
- -
5.5% to 6.49% 14,548,333 6,834,863 2,273,904 1,358,752 494,411
- -
6.5% to 7.49% 1,573,719 1,176,230 4,036,478 3,459,659 15,000
- -
7.5% and over 499,917 - 29,040 209,513 -
- -
Total $46,433,156 $10,842,903 $7,520,237 $5,644,865 $632,500 $
- -
</TABLE>
<TABLE>
Interest expense on deposits is as follows:
<CAPTION>
Years Ended June 30,
1996 1995 1994
<S> <C> <C> <C>
Checking $ 299,355 $ 273,542 $ 265,374
Super Saver money market 558,737 592,563 491,889
Savings 164,254 159,730 141,738
Certificates of Deposit 4,021,335 3,428,281 2,365,997
Total $5,043,681 $4,454,116 $3,264,998
</TABLE>
30
</PAGE>
<PAGE>
(10) ADVANCES FROM FEDERAL HOME LOAN BANK AND OTHER BORROWED FUNDS
<TABLE>
Advances from the Federal Home Loan Bank at June 30 are summarized as
follows:
<CAPTION>
1996 1995
<S> <C> <C>
Three year, 5.98% fixed; Federal Home Loan Bank of
Des Moines, secured by Federal Home Loan Bank
stock, loans, investment securities and deposit
accounts; interest payable monthly
Matures June 1998 $ 5,000,000 $ 5,000,000
One year, 5.79% fixed; Federal Home Loan Bank of
Des Moines, secured by Federal Home Loan Bank
stock, loans, investment securities and deposit
accounts; interest payable monthly
Matures October 1996 3,500,000 -
Two year, 5.51% fixed; Federal Home Loan Bank of
Des Moines, secured by Federal Home Loan Bank
stock, loans, investment securities and deposit
accounts; interest payable monthly
Matures December 1997 3,000,000 -
Five year, 5.78% fixed; Federal Home Loan Bank of
Des Moines, secured by Federal Home Loan Bank
stock, loans, investment securities and deposit
accounts; interest payable monthly
Matures December 2000 2,000,000 -
Total $13,500,000 $ 5,000,000
</TABLE>
The fixed rate advances shown above shall be subject to a prepayment fee
equal to 100 percent of the present value of the monthly lost cash flow
to the FHLB based upon the difference between the contract rate on the
advance and the rate on an alternative qualifying investment of the same
remaining maturity. Advances may be prepaid without a prepayment fee if
the rate on an advance being prepaid is equal to or below the current
rate for an alternative qualifying investment of the same remaining
maturity.
As of June 30, 1996, the Savings Bank had an open line of credit with the
Federal Home Loan Bank of Des Moines. There was no balance outstanding
at June 30, 1996. The line of credit had a limit of $5,000,000 and
expires on September 15, 1996. The interest rate is adjustable as
indexed to the Federal Home Loan Bank daily investment return. At June
30, 1996, any outstanding advances on the line would have been at 7.10%.
31
</PAGE>
<PAGE>
(10) ADVANCES FROM FEDERAL HOME LOAN BANK AND OTHER BORROWED FUNDS -
(CONTINUED)
<TABLE>
Maturities of Federal Home Loan Bank advances and other borrowed funds
are as follows:
<CAPTION>
Aggregate
Annual
Year Ended June 30 Maturities
<S> <C>
1997 $ 3,500,000
1998 8,055,000
1999 -
2000 -
2001 2,000,000
Later Years -
$ 13,555,000
</TABLE>
<TABLE>
Interest expense on borrowed funds for the years ended June 30 is
summarized below:
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Advances from Federal Home Loan
Bank $ 613,899 $ 96,602 $285,179
Other borrowings 3,850 3,850 3,779
Total $ 617,749 $100,452 $288,958
</TABLE>
11) INCOME TAXES
<TABLE>
The provision for income tax expense for the years ended June 30 is as
follows:
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Current $ 614,992 $ 497,117 $ 480,785
Deferred (benefit) 16,047 116,087 (50,191)
Total $ 631,039 $ 613,204 $ 430,594
</TABLE>
<TABLE>
The provision for income taxes differs from that computed at the
statutory corporate rate, 34% for the years ended June 30, 1996, 1995 and
1994, as follows:
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Tax at statutory rate $ 607,130 $ 560,135 $ 503,431
Increase (decrease) in taxes
resulting from:
State taxes, net of
federal benefit 51,207 52,189 37,558
Recognition of deferred tax asset
related to bad debt deduction - - (88,629)
Tax-exempt income (37,380) (33,309) (23,974)
Net effect of other
book/tax differences 10,082 34,189 2,208
Provision for income taxes $ 631,039 $ 613,204 $ 430,594
</TABLE>
32
</PAGE>
<PAGE>
(11) INCOME TAXES - (CONTINUED)
<TABLE>
Deferred income tax expense (benefit) results from timing differences in
the recognition of income and expense for tax and financial reporting
purposes. The sources of the differences and the related tax effects for
the years ended June 30 were as follows:
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Difference in depreciation methods
used for tax purposes and
financial statements $ 2,066 $ 16,189 $ 29,768
Effect of health insurance plan
reserves not currently deductible (9,210) 810 9,057
Use of different methods for computing
loan loss reserves for tax purposes
and financial statements (7,384) 58,282 (96,237)
Use of different methods for computing
net deferred loan costs/fees for tax
purposes and financial statements 21,968 38,832 -
Other book/tax differences 8,607 1,974 7,221
Increase (decrease) in deferred
income taxes $ 16,047 $116,087 $(50,191)
</TABLE>
<TABLE>
The components of deferred tax assets and liabilities as of June 30, 1996
and 1995 consisted of:
<CAPTION>
1996 1995
<S> <C> <C>
Deferred tax assets:
Reserve for loan losses $ 192,417 $ 169,705
Valuation reserve on investment real estate 92,190 92,190
Unrealized losses on securities
available-for-sale 66,306 138,666
Health insurance plan reserves not
currently deductible 12,496 3,286
Book amortization in excess of tax
amortization 8,124 9,598
Nontemporary decline in security
held-to-maturity 18,500 -
Unearned compensation 10,807 5,327
Total gross deferred tax benefits $400,840 $418,772
Deferred tax liabilities:
Tax depreciation in excess of
book depreciation $ 162,476 $ 164,542
Federal Home Loan Bank stock dividends 68,709 62,863
Nontaxable distributions on investment
securities - 1,911
Bad debt reserves for tax purposes in excess of
base year bad debt reserve 147,078 131,750
Unrealized gains on securities
available-for-sale 57,984 41,830
Unamortized deferred loan costs, net of fees 60,800 38,832
Other 42,564 22,187
Total gross deferred tax liabilities $ 539,611 $ 463,915
Net deferred tax liabilities $(138,771) $ (45,143)
</TABLE>
33
</PAGE>
<PAGE>
(11) INCOME TAXES - (CONTINUED)
Under the Internal Revenue Code, the Savings Bank, in determining taxable
income, was allowed a special bad debt deduction based on a percentage of
taxable income of 8% for 1995 or on specified experience formulas. In
accordance with SFAS No. 109, a deferred tax liability has not been
recognized for tax basis bad debt reserves of approximately $2,145,621 of
the Savings Bank that arose in tax years that began prior to December 31,
1987. At June 30, 1996, the amount of the deferred tax liability that
had not been recognized was approximately $793,880. This deferred tax
liability could be recognized if, in the future, there is a change in
federal tax law, the Savings Bank fails to meet the definition of a
'qualified savings institution,' as defined by the Internal Revenue Code,
certain distributions are made with respect to the stock of the Savings
Bank, or the bad debt reserves are used for any purpose other than
absorbing bad debts. In August 1996, the above percentage of taxable
income special bad debt deduction was repealed. All thrifts are required
to recapture and pay tax on all or a portion of their bad debt reserves
added since the last taxable year beginning before January 1, 1988 (the
"base year"). Institutions are required to recapture the excess of their
bad debt reserves over the balance of the bad debt reserves outstanding
at the end of the base year ratably over a six year period beginning with
the first taxable year after December 31, 1995. Institutions can
postpone the payment of these taxes for two years if they meet a
residential loan requirement. This requirement is, generally, the
institution's mortgage lending activity equaling or exceeding its average
mortgage lending activity for the six taxable years preceding 1996,
adjusted for inflation. As a result of the SFAS No. 109 recording
described above, there will be no impact on the provision for federal
income tax resulting from the recapture of the excess reserves. As the
tax on the recapture is paid, the deferred tax liability will be reduced.
(12) EMPLOYEE BENEFIT PLANS
The Savings Bank participates in a multiple-employer defined benefit
pension plan covering substantially all employees. Separate actuarial
valuations are not available for each participating employer, nor are
plan assets segregated. Pension expense for the years ended June 30,
1996, 1995 and 1994 was approximately $3,638, $5,128, and $1,800,
respectively. Plan assets exceeded the present value of accumulated plan
benefits at June 30, 1996, the latest actuarial valuation date.
As a part of the conversion discussed in Note (1), the Company
established an internally-leveraged ESOP that covers all employees that
are age 21 or older and have completed one year of service with the
Savings Bank. The Savings Bank makes annual contributions to the ESOP
equal to the ESOP's debt service in addition to dividends received by the
ESOP. All dividends received by the ESOP are used to pay debt service.
The ESOP shares initially were pledged as collateral for its debt to the
Company. As the debt is repaid, shares are released from collateral and
allocated to active participants, in proportion to their compensation
relative to total compensation of active participants. The ESOP borrowed
$1,520,870 from the Company and used the funds to purchase 152,087 shares
of the common stock of the Company issued in the conversion. The loan
will be repaid principally from the Savings Bank's discretionary
contributions to the ESOP over a period of ten years. As of June 30,
1996, the loan had an outstanding balance of $1,074,865 and an interest
rate of 6%.
During 1995, the Company began accounting for its ESOP in accordance with
Statement of Position 93-6, "Employer's 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 as a reduction of stockholders' equity in the
consolidated balance sheets. As shares are committed to be released
34
</PAGE>
<PAGE>
(12) EMPLOYEE BENEFIT PLANS - (CONTINUED)
from collateral, the Company reports compensation expense equal to the
current market price of the shares, and the shares become outstanding for
earnings per share computations. Dividends on allocated ESOP shares are
recorded as a reduction of retained earnings; dividends on unallocated
ESOP shares are recorded as a reduction of debt and accrued interest.
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
Savings Bank recorded $ 312,118 of ESOP compensation expense in 1996,
$261,278 in 1995 and $75,000 in 1994.
A summary of ESOP shares at June 30, 1996 is as follows:
Allocated shares 27,942
Shares committed for release 19,630
Unreleased shares 102,692
Total 150,264
Fair value of unreleased shares $1,566,053
The Savings Bank has adopted a Management Recognition Plan ("MRP") for
the benefit of the directors, officers and employees of the Savings Bank.
The MRP provides directors, officers and employees of the Company with a
proprietary interest in the Company in a manner designed to encourage
such persons to remain with the Savings Bank. The MRP is managed by
trustees comprised of the directors of the Company. The trustees acquired
30,417 shares of the common stock of the Company issued in the
conversion, all of which have been awarded as of June 30, 1994. These
shares represent unearned compensation and have been accounted for as a
reduction of stockholders' equity. Such awards vest at the rate of 20%
at the end of each twelve months. Vesting is accelerated upon
retirement. The Savings Bank recorded $55,431 of compensation expense
under the MRP in 1996, $78,856 in 1995 and $30,600 in 1994.
In conjunction with the conversion, 152,087 shares of common stock were
reserved under the 1994 Stock Option and Incentive Plan (Stock Option
Plan) for the benefit of certain officers, employees and directors. The
Stock Option Plan is administered by a committee of the Board of
Directors. Management intends that options granted under the Stock
Option Plan constitute both incentive and non-incentive stock options.
Options granted to non-employee directors will constitute non-incentive
stock options. With respect to incentive stock options, the option
exercise price may be no less than the fair market value of the Company's
common stock on the date of grant. All options expire no later than ten
years from the date of grant. The option grants vest at a rate of 20% at
the end of each 12 months. During 1994, 97,670 incentive and 24,000 non
-incentive stock options were granted at an exercise price of $10 per
share and 10,000 incentive stock options were granted at $10.75 per
share. During 1995, 1,000 incentive stock options were granted at an
exercise price of $15.50 and 100 options were exercised at $10.00.
During 1996, 1,648 options were exercised at $10.00.
35
</PAGE>
<PAGE>
(13) RELATED PARTY TRANSACTIONS
Certain employees, officers and directors are engaged in transactions
with the Savings Bank in the ordinary course of business. It is the
Savings Bank's policy that all related party transactions are conducted
at "arm's length" and all loans and commitments included in such
transactions are made on substantially the same terms, including
interest rates and collateral, as those prevailing at the time for
comparable transactions with other customers. A summary of the changes
in outstanding loans to employees, officers and directors for the years
ended June 30 is as follows:
1996 1995
Beginning balance $ 952,333 $1,112,468
Originations and advances 439,152 348,166
Principal repayments (219,657) (508,301)
Ending balance $1,171,828 $ 952,333
(14) COMMITMENTS AND CONTINGENCIES
In the ordinary course of business, the Savings Bank has various
outstanding commitments that are not reflected in the accompanying
consolidated financial statements. Since some of the commitments are
expected to expire without being drawn upon, the total commitment
amounts do not necessarily represent future cash requirements. The
principal commitments of the Savings Bank are as follows:
Letters of Credit - Outstanding standby letters of credit were
approximately $45,050 and $30,225 at June 30, 1996 and 1995,
respectively.
Loan Commitments - The Savings Bank had outstanding firm commitments to
originate real estate loans in the amount of $1,799,954 and $1,088,314
at June 30, 1996 and 1995, respectively.
Lines of Credit - The unused portion of lines of credit on commercial
loans were approximately $754,795 and $673,731 at June 30, 1996 and
1995, respectively.
Loans in Process - The Savings Bank has recorded loans in process
representing the undisbursed portion of loans in the amount of
$4,132,779 and $2,945,280 at June 30, 1996 and 1995, respectively.
These amounts were recorded as loans receivable, with a corresponding
reduction for such loans in process as reflected in Note (5).
At June 30, 1996, the Savings Bank had an Irrevocable Standby Letter of
Credit issued on its behalf from the Federal Home Loan Bank of Des
Moines in the amount of $250,000, expiring February 28, 1997.
In August 1995, the Federal Deposit Insurance Corporation ("FDIC")
substantially reduced deposit insurance premiums for well-capitalized,
well-managed financial institutions that are members of the Bank
Insurance Fund ("BIF"). As a result, these BIF members will pay the
lowest assessment rate of 4 basis points. With respect to Savings
Association Insurance Fund ("SAIF") of which the Savings Bank is a
member, the FDIC retained the existing rate schedule of 23 to 31 basis
points. SAIF premiums are not likely to be reduced for several years
because SAIF has lower reserves than BIF primarily due to its statutory
obligation to make interest payments on the Financing Corporation
("FICO") bonds. This disparity in deposit insurance premiums may place
the Savings Bank at a competitive disadvantage as the BIF-insurance
institutions may be able to offer more attractive rates. The magnitude
of this disadvantage and its impact on
36
</PAGE>
<PAGE>
(14) COMMITMENTS AND CONTINGENCIES - (CONTINUED)
the Company's results of operations cannot be determined at this time.
Several alternatives to mitigate the effect of this disparity have been
suggested by federal regulators, members of Congress and industry
groups. These alternatives have included a merger of the funds and/or a
one-time assessment by all SAIF-member institutions to increase the
SAIF's reserves. Such assessment has been estimated to be between 83
and 90 basis points on the amount of deposits of each SAIF-member
institution. Based on the Savings Bank's deposits at March 31, 1995, a
one-time assessment would be approximately $883,000. If such a one-time
assessment would be implemented, the payment of the one-time fee would
have the effect of immediately reducing the capital of the institution.
Management cannot predict whether any legislation will be enacted, or,
if enacted, the amount of the one-time fee and any resulting reductions
in SAIF premiums.
(15) REGULATORY CAPITAL REQUIREMENTS
Financial Institutions Reform, Recovery and Enforcement Act ("FIRREA")
of 1989 established the current capital standards for savings
institutions, requiring the Office of Thrift Supervision ("OTS") to
promulgate regulations to prescribe and maintain uniformly applicable
capital standards for savings institutions. The regulations include
three capital requirements: a leverage limit or core capital
requirement of 3.0% of adjusted total assets, a tangible capital
requirement of 1.5% of tangible assets and a risk-based capital
requirement of 8.0% of total risk-weighted assets.
During 1992, the OTS implemented additional statutory requirements for
savings institutions' regulatory capital, as required by provisions of
the Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA"). This framework established five categories of capital
strength, set forth below, ranging from a high, defined as "well
capitalized," to a low, defined as "critically undercapitalized."
Savings institutions are categorized depending upon their capital ratios
in relation to certain capital measures, including risk-based capital
measures, a leverage capital (also referred to as core capital) measure,
and certain other factors. FDICIA requires the OTS and other federal
banking regulatory agencies to take prompt corrective action against
undercapitalized financial institutions and imposes a series of
progressive constraints on the operation of such under-capitalized
institutions.
37
</PAGE>
<PAGE>
(15) REGULATORY CAPITAL REQUIREMENTS - (CONTINUED)
<TABLE>
At June 30, 1996, the Savings Bank's regulatory capital position
exceeded the requirements of the three FIRREA regulatory capital
standards in effect on such date as is summarized below:
<CAPTION>
Risk-
Core Tangible based
Capital Capital Capital
(Dollars in thousands)
<S> <C> <C> <C>
Stockholder equity of
the Savings Bank $ 19,242 $ 19,242 $ 19,242
Adjustment for unrealized losses 85 85 85
Non-allowable assets:
Investments in and
advances to subsidiaries (524) (524) (524)
Additional capital item:
General valuation allowance - - 182
Less assets required to be deducted - - (35)
Regulatory capital $ 18,803 $ 18,803 $18,950
Minimum capital requirement 4,210 2,105 7,424
Regulatory capital excess $ 14,593 $ 16,698 $11,526
Actual regulatory capital ratio 13.4% 13.4% 20.4%
Minimum required ratio-FIRREA 3.0% 1.5% 8.0%
Excess of actual over minimum
ratio 10.4% 11.9% 12.4
</TABLE>
FDICIA provides that a savings institution is "well-capitalized" if its
leverage ratio is 5% or greater, its Tier 1 risk-based capital ratio is
6% or greater, its total risk-based capital ratio is 10% or greater, and
the institution is not subject to a capital directive. As used herein,
total risk-based capital ratio means the ratio of total capital to risk
-weighted assets, Tier 1 risk-based capital ratio means the ratio of
core capital to risk-weighted assets, and leverage ratio means the ratio
of core capital to adjusted total assets, in each case as calculated in
accordance with current OTS capital regulations. Under these
regulations, the Savings Bank is deemed to be "well-capitalized."
38
</PAGE>
<PAGE>
(15) REGULATORY CAPITAL REQUIREMENTS - (CONTINUED)
<TABLE>
The Savings Bank's June 30, 1996 regulatory capital and the FDICIA
capital standards for a "well-capitalized" institution are shown below:
<CAPTION>
Tier 1 Total
Core Risk-based Risk-based
Capital Capital Capital
(Dollars in thousands)
<S> <C> <C> <C>
Actual regulatory capital $ 18,803 $ 18,803 $ 18,950
Minimum capital requirement
for a "well-capitalized" institution 7,017 5,568 9,281
Regulatory capital excess $ 11,786 $ 13,235 $ 9,669
Actual regulatory capital ratio 13.4% 20.3% 20.4%
Minimum required ratio-FDICIA 5.0% 6.0% 10.0%
Excess of actual over minimum
ratio 8.4% 14.3% 10.4%
</TABLE>
In August 1994, the OTS issued a regulation, effective September 30,
1995 that added an interest rate risk component to the risk-based
capital requirement for thrifts. Those thrifts that have an above
normal interest rate risk exposure must take a deduction from the total
capital available to meet their risk-based capital requirement. This
deduction will be equal to one-half of the difference between the
thrift's actual measured exposure and the normal level of exposure. A
thrift's actual measured interest rate risk is expressed as the change
that occurs in its net portfolio value ("NPV") as a result of an
immediate 200 basis point increase or decrease in interest rates
(whichever results in the lower NPV) divided by the estimated economic
value of its assets, as calculated in accordance with OTS instructions.
An above normal decline in NPV is one that exceeds 2% of the estimated
economic value of its assets. Based on its most recent computations,
the Savings Bank does not currently have an "above normal" interest rate
risk.
(16) ADVERTISING COSTS
The Company incurred $204,469, $30,953, and $29,888 in non-direct
response advertising costs during the years ended 1996, 1995 and 1994,
respectively. The Company incurred no direct response advertising costs
during these years.
(17) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments:
Cash and cash equivalents and certificates of deposit - For these
short-term instruments, the carrying amount approximates fair value.
Available-for-sale and held-to-maturity securities - Fair values for
investment securities equal quoted market prices, if available. If
quoted market prices are not available, fair values are estimated
based on quoted market prices of similar securities.
39
</PAGE>
<PAGE>
(17) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS - (CONTINUED)
Loans receivable - 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. Loans with similar characteristics are
aggregated for purposes of the calculations. The carrying value of
accrued interest receivable approximates its fair value.
Investment in FHLB stock - Fair value of the Savings Bank's investment
in FHLB stock approximates the carrying value as no ready market
exists for this investment and the stock could only be sold back to
the Federal Home Loan Bank.
Deposits - The fair value of demand deposits, savings accounts and
interest-bearing demand deposits is the amount payable on demand at
the reporting date (i.e., their carrying amount). The fair value of
fixed-maturity time deposits is estimated using a discounted cash
flow calculation that applies the rates currently offered for
deposits of similar remaining maturities. The carrying amount of
accrued interest payable approximates its fair value.
Federal Home Loan Bank advances - Rates currently available to the
Savings Bank for advances with similar terms and remaining maturities
are used to estimate fair value of existing advances. The carrying
amount of accrued interest payable approximates its fair value.
Commitments to extend credit, letters of credit and lines of credit -
The fair value of commitments is estimated using the fees currently
charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the present credit worthiness
of the counterparties. For fixed-rate loan commitments, fair value
also considers the difference between current levels of interest
rates and the committed rates. The fair value of letters of credit
and lines of credit is based on fees currently charged for similar
agreements or on the estimated cost to terminate or otherwise settle
the obligations with the counterparties at the reporting date.
The following table presents estimated fair values of the Company's financial
instruments. The fair values of certain of these instruments were calculated
by discounted expected cash flows, which involves significant judgments by
management and uncertainties. Fair value is the estimated amount at which
financial assets or liabilities could be exchanged in a current transaction
between willing parties, other than in a forced or liquidation sale. Because
no market exists for certain of these financial instruments and because
management does not intend to sell these financial instruments, the Company
does not know whether the fair values shown below represent values at which
the respective financial instruments could be sold individually or in the
aggregate.
40
</PAGE>
<PAGE>
(17) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS - (CONTINUED)
<TABLE>
<CAPTION>
June 30, 1996
Carrying Fair
Amount Value
<S> <C> <C>
Financial assets:
Cash and cash equivalents $ 3,316,282 $ 3,316,282
Certificates of deposit 2,319,000 2,319,000
Available-for-sale securities 9,478,015 9,478,015
Held-to-maturity securities 2,233,375 2,249,438
Investment in FHLB stock 889,800 889,800
Available-for-sale mortgage-backed
securities 2,831,153 2,831,153
Loans, net of allowance for loan losses 118,779,992 120,385,000
Accrued interest receivable 468,962 468,962
Financial liabilities:
Deposits 105,960,227 106,093,000
FHLB advances 13,500,000 13,323,000
Other borrowings 55,000 55,000
Unrecognized financial instruments
(net of contract amount)
Commitments to extend credit - -
Letters of credit - -
Unused lines of credit - -
</TABLE>
(18) PARENT COMPANY ONLY FINANCIAL INFORMATION
The following condensed statement of financial condition and condensed
statements of operations and cash flows for First Bancshares, Inc.
should be read in conjunction with the consolidated financial statements
and notes thereto.
<TABLE>
Condensed Statements of Financial Condition
<CAPTION>
ASSETS June 30, 1996 June 30, 1995
<S> <C> <C>
Cash 316,530 $ 478,025
Certificates of deposit 120,000 1,227,000
Investment securities available-for-sale,
at fair value 2,063,913 3,284,174
Investment securities held-to-maturity 60,000 112,000
Investment in subsidiary 19,294,954 17,833,561
Loan to ESOP 1,074,865 1,258,389
Property and equipment, less accumulated
depreciation 812,036 280,341
Deferred income tax benefits - 19,759
Other assets 55,182 43,545
Total assets $ 23,797,480 $ 24,536,794
</TABLE>
41
</PAGE>
<PAGE>
(18) PARENT COMPANY ONLY FINANCIAL INFORMATION - (CONTINUED)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY June 30, 1996 June 30, 1995
<S> <C> <C>
Due to subsidiary $ 11,199 $ 34,197
Accrued expenses 18,235 11,002
Deferred income taxes, net 38,931 -
Stockholders' equity 23,729,115 24,491,595
Total liabilities and stockholders'
equity $ 23,797,480 $ 24,536,794
</TABLE>
<TABLE>
Condensed Statements of Income
<CAPTION>
Period from
Year Ended Year Ended December 22,1993
June 30, 1996 June 30, 1995 to June 30, 1994
<S> <C> <C> <C>
Income
Equity in earnings of
subsidiary $ 1,016,319 $ 851,484 $ 507,109
Interest income 227,920 344,447 143,684
Gain on sale of investments 26,670 - -
Other 30,778 14,803 -
Total income 1,301,687 1,210,734 650,793
Expenses
Professional fees 18,480 52,168 10,696
Printing and office supplies 9,262 5,948 4,146
Interest - 1,534 432
Other 58,532 28,786 13,284
Income tax 60,776 88,046 39,157
Total expenses 147,050 176,482 67,715
Net income $ 1,154,637 $ 1,034,252 $ 583,078
</TABLE>
<TABLE>
Condensed Statements of Cash Flows
<CAPTION>
Period from
Year Ended Year Ended December 22, 1993
June 30, 1996 June 30, 1995 to June 30, 1994
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 1,154,637 $ 1,034,252 $ 583,078
Adjustments to reconcile net income to net
cash provided from operating activities:
Equity in earnings of
subsidiary (1,016,319) (851,484) (507,109)
Depreciation expense 10,228 300 -
Income reinvested on
investment securities (15,592) (31,106) (7,598)
Gain on sale of investments(26,670) - -
Net change in operating accounts:
Deferred income taxes, net 302 1,861 -
Other assets (11,637) (2,944) (37,601)
Liabilities (15,765) 5,814 39,385
Net cash from operating
activities 79,184 156,693 70,155
</TABLE>
42
</PAGE>
<PAGE>
(18) PARENT COMPANY ONLY FINANCIAL INFORMATION - (CONTINUED)
<TABLE>
<CAPTION>
Period from
Year Ended Year Ended December 22, 1993
June 30,1996 June 30,1995 to June30, 1994
<S> <C> <C> <C>
Cash flows from investing activities:
Investment in subsidiary - - (7,284,476)
Loan to ESOP - - (1,520,870)
Dividends from subsidiary - 1,500,000 -
Principal payment on ESOP loan 159,059 151,419 82,604
Purchase of investment
securities (150,000) (949,935) (2,467,586)
Proceeds from maturities of
investments 157,336 - -
Proceeds from sales of
investments 1,464,308 - -
Purchase of property and
equipment (541,923) (280,641) -
Purchase of other assets - (3,000) -
Net change in certificates
of deposit 1,107,000 1,033,000 (2,260,000)
Net cash from investing
activities 2,195,780 1,450,843 (13,450,328)
Cash flows from financing activities:
Net proceeds from issuance
of common stock 16,480 1,000 14,568,953
Cash dividends paid (237,826) (256,593) (154,730)
Purchase of treasury stock (2,215,113) (997,518) (910,450)
Net cash from (used in)
financing activities (2,436,459) (1,253,111) 13,503,773
Net increase (decrease)in cash
and cash equivalents (161,495) 354,425 123,600
Cash and cash equivalents at
beginning of period 478,025 123,600 -
Cash and cash equivalents at
end of period $ 316,530 $ 478,025 $ 123,600
</TABLE>
43
</PAGE>
<PAGE>
COMMON STOCK INFORMATION
The common stock of First Bancshares, Inc. is traded on the Nasdaq
National Market System under the symbol "FBSI". As of September 9, 1996,
there were 853 stockholders and 1,205,626 shares of common stock outstanding
(including unreleased ESOP shares of 102,692). This does not reflect the
number of persons or entities who hold stock in nominee or "street name." On
September 1, 1995, November 30, 1995, March 1, 1996 and May 30, 1996, the
Company declared a $.05 common stock dividend payable September 30, and
December 31, 1995 and March 31, and June 30, 1996 to stockholders of record
on September 15, and December 15, 1995 and March 15, and June 15, 1996,
respectively. Dividend payments by the Company are dependent primarily on
dividends received by the Company from the Savings Bank. Under Federal
regulations, the dollar amount of dividends a savings and loan association
may pay is dependent upon the association's capital position and recent net
income. Generally, if an association satisfies its regulatory capital
requirements, it may make dividend payments up to the limits prescribed in
the OTS regulations. However, institutions that have converted to stock form
of ownership may not declare or pay a dividend on, or repurchase any of, its
common stock if the effect thereof would cause the regulatory capital of the
institution to be reduced below the amount required for the liquidation
account which was established in accordance with the OTS regulations and the
Savings Bank's Plan of Conversion. There are also certain dividend
limitations applicable to the Company under Missouri law.
<TABLE>
The following table set forth market price and dividend information for the
Company's common stock.
<CAPTION>
Fiscal 1995 High Low Dividend
<S> <C> <C> <C>
First Quarter $12.50 $10.75 $.05
Second Quarter $13.25 $12.00 $.05
Third Quarter $14.25 $12.75 $.05
Fourth Quarter $15.50 $13.50 $.05
Fiscal 1996
First Quarter $17.00 $14.50 $.05
Second Quarter $17.00 $15.75 $.05
Third Quarter $16.75 $16.00 $.05
Fourth Quarter $16.8125 $15.25 $.05
</TABLE>
44
</PAGE>
<PAGE>
DIRECTORS AND OFFICERS
FIRST BANCSHARES, INC. FIRST HOME SAVINGS BANK
DIRECTORS: DIRECTORS:
Stephen H. Romines Stephen H. Romines
Chairman of the Board Chairman of the Board
First Bancshares, Inc. First Home Savings Bank
Harold F. Glass Harold F. Glass
Partner Partner
Schroff, Glass & Newberry, P.C. Schroff, Glass & Newberry, P.C.
Attorneys at Law Attorneys at Law
John G. Moody John G. Moody
Judge of the 44th Judge of the 44th
Missouri Judicial Circuit Missouri Judicial Circuit
Dr. James F. Moore Dr. James F. Moore
Director of State Fruit Experiment Director of State Fruit Experiment
Station of Southwest Missouri Station of Southwest Missouri
State University State University
Almeta Hardebeck Charles R. Cunningham
Loan Officer at the Sparta Branch Retired Manager of the Marshfield
Branch
First Home Savings Bank First Home Savings Bank
OFFICERS: OFFICERS:
Stephen H. Romines Stephen H. Romines
President, Chief Executive Officer President, Chief Executive Officer
Peter M. Medlen Peter M. Medlen
Vice-President Executive Vice-President
Susan J. Uchtman, CPA Susan J. Uchtman, CPA
Chief Financial Officer Chief Financial Officer
Gina Gunnels Colleen B. Stofer
Secretary and Treasurer Secretary
Diana Lewis
Treasurer
45
</PAGE>
<PAGE>
CORPORATE INFORMATION
CORPORATE HEADQUARTERS TRANSFER AGENT
142 East First Street Registrar and Transfer Co.
Mountain Grove, Missouri 10 Commerce Drive
Cranford, New Jersey 07016
INDEPENDENT AUDITORS (800) 866-1340
Kirkpatrick, Phillips & Miller, CPAs, P.C. COMMON STOCK
Springfield, Missouri
Traded Nasdaq National Market
System
GENERAL COUNSEL Nasdaq Symbol: FBSI
Schroff, Glass, Newberry, P.C.
Springfield, Missouri
SPECIAL COUNSEL
Breyer & Aguggia
Washington, D.C.
ANNUAL MEETING
The Annual Meeting of Stockholders will be held Wednesday, October 16,
1996, at 2:00 p.m., Central Time, at the Days Inn Conference Room, 300 East
19th Street, Mountain Grove, Missouri.
A COPY OF THE FORM 10-KSB AS FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION WILL BE FURNISHED WITHOUT CHARGE TO STOCKHOLDERS AS OF THE RECORD
DATE FOR VOTING AT THE ANNUAL MEETING OF STOCKHOLDERS UPON WRITTEN REQUEST TO
THE SECRETARY, FIRST BANCSHARES, INC., 142 EAST FIRST STREET, MOUNTAIN GROVE,
MISSOURI 65711.
THE CORPORATION'S FORMS 10-KSB, 10-QSB AND OTHER DISCLOSURE DOCUMENTS FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION CAN BE OBTAINED FROM THE SEC HOME
PAGE ON THE WORLD WIDE WEB AT http://www.sec.gov.
46
</PAGE>
<PAGE>
Exhibit 21
Subsidiaries of the Registrant
</PAGE>
<PAGE>
<TABLE>
Parent
First Bancshares, Inc.
Percentage
Jurisdiction or
Subsidiaries (a) of Ownership State of
Incorporation
<S> <C> <C>
First Home Savings Bank 100% Missouri
Fybar Service Corporation (b) 100% Missouri
</TABLE>
___________________
(a) The operation of the Company's wholly owned subsidiaries are included
in the Company's Consolidated Financial Statements contained in the
Annual Report attached hereto as Exhibit 13.
(b) Wholly owned subsidiary of First Home Savings Bank.
</PAGE>
<PAGE>
Exhibit 23
Consent of Auditors
</PAGE>
<PAGE>
(On CPA firm letterhead)
CONSENT OF INDEPENDENT AUDITORS
We have issued our report dated August 6, 1996, accompanying the Consolidated
Financial Statement incorporated by reference in the Annual Report of First
Bancshares, Inc. on Form KSB for the year ending June 30, 1996. We hereby
consent to the incorporation by reference of said reports in the Registration
Statement of First Bancshares, Inc. on Form S-8 (File No. 33-87234, effective
December 9, 1994.
/s/ Kirkpatrick, Phillips & Miller
KIRKPATRICK, PHILLIPS & MILLER, CPAs , P.C.
Springfield, Missouri
September 25, 1996
</PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
DOLLARS IN THOUSANDS
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<CASH> 3316
<INT-BEARING-DEPOSITS> 527
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 12521
<INVESTMENTS-MARKET> 12617
<LOANS> 118780
<ALLOWANCE> 520
<TOTAL-ASSETS> 143671
<DEPOSITS> 105960
<SHORT-TERM> 3500
<LIABILITIES-OTHER> 426
<LONG-TERM> 10055
0
0
<COMMON> 16
<OTHER-SE> 23713
<TOTAL-LIABILITIES-AND-EQUITY> 143671
<INTEREST-LOAN> 8936
<INTEREST-INVEST> 813
<INTEREST-OTHER> 364
<INTEREST-TOTAL> 10113
<INTEREST-DEPOSIT> 5044
<INTEREST-EXPENSE> 618
<INTEREST-INCOME-NET> 4452
<LOAN-LOSSES> 80
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 3045
<INCOME-PRETAX> 1786
<INCOME-PRE-EXTRAORDINARY> 1155
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1155
<EPS-PRIMARY> .95
<EPS-DILUTED> .95
<YIELD-ACTUAL> 7.73
<LOANS-NON> 130
<LOANS-PAST> 689
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 130
<ALLOWANCE-OPEN> 442
<CHARGE-OFFS> 1
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 520
<ALLOWANCE-DOMESTIC> 520
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 182
</TABLE>
