UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------------
FORM 10-QSB
--------------------------------
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ending December 31, 1996
------------------------------------
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________________ to ____________________
Commission File Number 0-22842
First Bancshares,Inc.
(Exact name of registrant as specified in its charter)
Missouri 43-1654695
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
142 East First St., Mountain Grove, MO 65711
(Address of principal executive offices) (Zip Code)
(417) 926-5151
(Registrant's telephone number)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding twelve months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
Yes X No
As of February 13, 1997, there were 1,160,890 shares of the Registrant's
Common Stock, $.01 par value per share, outstanding.
</page>
<PAGE>
FIRST BANCSHARES, INC. AND SUBSIDIARY
FORM 10-QSB
DECEMBER 31, 1996
INDEX PAGE
PART I-FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (unaudited) 1
CONSOLIDATED STATEMENTS OF INCOME (unaudited) 2
CONSOLIDATED STATEMENTS OF CASH FLOWS(unaudited) 3-4
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(unaudited) 5-7
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 8-13
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 14
ITEM 2. CHANGES IN SECURITIES 14
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 14
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITIES HOLDERS 14
ITEM 5. OTHER INFORMATION 14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 14
SIGNATURES
</page>
<PAGE>
<TABLE>
FIRST BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
- - - - - - - - - - - - - - - - - - - - - - -
<CAPTION>
(Unaudited)
December 31, June 30,
1996 1996
----------- --------
<S> <C> <C>
ASSETS (Dollars in thousands)
Cash and cash equivalents, including
interest-bearing accounts of $4,920 at
December 31 and $527 at June 30 $ 8,974 $ 3,316
Certificates of deposit 1,614 2,319
Investment securities available-for-sale,
at fair value 10,611 9,478
Investment securities held-to-maturity (estimated
fair value $2,076 at December 31 and $2,249
at June 30) 2,049 2,233
Investment in Federal Home Loan Bank stock, at cost 1,038 890
Mortgage backed certificates available-for-sale,
at fair value 2,775 2,831
Loans receivable held-for-investment, net (includes
reserves for loan losses of $446 at December 31
and $520 at June 30) 125,794 118,780
Accrued interest receivable 417 469
Prepaid expenses 93 107
Property and equipment, less accumulated
depreciation and valuation reserves 3,603 3,194
Intangible assets, less accumulated amortization 35 43
Other assets 11 11
-------- -------
Total asset $157,014 $143,671
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Customer deposits $112,875 $105,960
Advances from Federal Home Loan Bank 20,500 13,500
Other borrowed funds 55 55
Income taxes payable - current 112 92
Accrued expenses and accounts payable 143 196
Deferred income taxes 169 139
-------- --------
Total liabilities 133,854 119,942
-------- --------
Commitments and contingencies - -
Preferred stock, $.01 par value; 2,000,000 shares
authorized, none issued - -
Common stock, $.01 par value; 8,000,000 shares
authorized, 1,554,240 issued, 1,195,076 and
1,268,686 outstanding at December 31 and
June 30, respectively 16 16
Paid-in capital 15,123 15,059
Retained earnings - substantially restricted 14,457 14,011
Treasury stock - at cost; 359,164 and 284,354
shares at December 31 and June 30, respectively (5,350) (4,123)
Unearned compensation (1,068) (1,209)
Unrealized gain (loss) on securities available-for-
sale, net of applicable deferred income taxes (18) (25)
-------- ---------
Total stockholders' equity 23,160 23,729
-------- ---------
Total liabilities and stockholders' equity $157,014 $143,671
======== ========
</TABLE>
See accompanying notes to Consolidated Financial Statements.
-1-
</page>
<TABLE>
FIRST BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
- - - - - - - - - - - - -- - - - -
<CAPTION>
(Unaudited) (Unaudited)
Quarter Ended Six Months Ended
December 31, December 31,
1996 1995 1996 1995
------- ------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Interest Income:
Loans receivable $ 2,565 $ 2,195 $ 5,044 $ 4,264
Investment securities 230 217 451 459
Mortgage-backed and related
securities 48 50 99 101
Other interest-earning assets 41 37 56 48
------- ------- ------- ------
Total interest income 2,884 2,499 5,650 4,872
------- ------- ------- ------
Interest Expense:
Customer deposits 1,341 1,279 2,649 2,560
Borrowed funds 271 138 492 219
------ ------ ------ ------
Total interest expense 1,612 1,417 3,141 2,779
Net interest income 1,272 1,082 2,509 2,093
Provision for loan losses 18 4 30 9
------ ------ ------ ------
Net interest income after
provisions for losses 1,254 1,078 2,479 2,084
------ ------ ------ ------
Noninterest Income:
Service charges and other fee
income 101 57 185 102
Loan origination and commitment fees 2 1 3 1
Income from real estate operations 24 22 46 44
Insurance commissions 18 19 33 33
Gain (loss) on investments 192 - 188 2
Gain (loss) on property and
equipment (26) - (26) 2
------ ------ ------ ------
Total noninterest income 311 99 429 184
------ ------ ------ ------
Noninterest Expense:
Compensation and employee benefits 437 423 870 825
Occupancy and equipment 95 105 184 188
Deposit insurance premiums 61 56 760 112
Advertising and promotional 10 79 27 144
Professional fees 10 2 29 22
Other 103 132 213 233
------ ------ ------ ------
Total noninterest expense 716 797 2,083 1,524
------ ------ ------ ------
Income (loss) before taxes 849 380 825 744
Income Taxes Expense (Savings) 325 123 268 237
------ ------ ------ ------
Net income $ 524 $ 257 $ 557 $ 507
====== ====== ====== ======
Earnings per share .45 .20 .48 .40
====== ====== ====== ======
Dividends per share .05 .05 05 .05
====== ====== ====== ======
</TABLE>
See accompanying notes to Consolidated Financial Statements.
-2-
</page>
<PAGE>
<TABLE>
FIRST BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
- - - - - - - - - - - - - - - - - - -
Six months ended December 31, 1996 and 1995
<CAPTION>
(Unaudited)
1996 1995
-------- --------
(Dollars in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 557 $ 507
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 82 84
Amortization 8 8
Unrealized loss on investment securities 8 -
Gain on sale of investments (196) -
Gain on sale of property and equipment - (2)
Loss on write-down of property 26 -
Premiums and discounts on mortgage-backed
securities and investment securities - 3
Loss on loans, net of recoveries 30 9
Income reinvested on investment securities and
Federal Home Loan Bank stock - (32)
ESOP compensation expense at fair value 52 58
Vesting of unearned compensation 141 143
Net change in operating accounts:
Accrued interest receivable and other assets 66 49
Deferred loan costs (11) (15)
Income taxes payable - current 20 (3)
Deferred income tax payable 22 4
Accrued expenses (53) (28)
------ ------
Net cash from operating activities 752 785
------ ------
Cash flows from investing activities:
Purchase of investment securities available-
for-sale (2,150) -
Purchase of investment securities held-to-maturity - (780)
Purchase of Federal Home Loan Bank stock (148) -
Proceeds from sales of investment securities
available-for-sale 721 4,916
Proceeds from maturities of investment securities
available-for-sale 500 -
Proceeds from maturities of investment securities
held-to-maturity 176 52
Net change in certificates of deposit 705 (7)
Net change in federal funds sold - -
Net change in loans receivable (7,033) (10,259)
Proceeds from maturities of mortgage-backed
certificates 63 95
Purchases of property and equipment (517) (395)
Proceeds from sale of property and equipment - 6
Purchase of other assets - -
------ ------
Net cash used in investing activities (7,683) (6,372)
------- -------
See accompanying notes to Consolidated Financial Statements.
-3-
FIRST BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
- - - - - - - - - - - - - - - - - - - - - - - -
Six months ended December 31, 1996 and 1995
(Unaudited)
1996 1995
-------- --------
(Dollars in thousands)
Cash flows from financing activities:
Net change in demand deposits, savings accounts,
and certificates of deposit $ 6,915 $ 3,668
Proceeds from borrowed funds 7,000 10,200
Payments on borrowed funds - (1,700)
Proceeds from sale of common stock 12 10
Purchase of treasury stock (1,227) (1,148)
Cash dividends paid (111) (119)
------- ------
Net cash from financing activities 12,589 10,911
------ ------
Net increase in cash and cash equivalents 5,658 5,324
Cash and cash equivalents -
beginning of period 3,316 3,535
------- -------
Cash and cash equivalents -
end of period $ 8,974 $ 8,859
</TABLE>
See accompanying notes to Consolidated Financial Statements.
-4-
</page>
<PAGE>
FIRST BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
NOTE A - Basis of Presentation
The consolidated interim financial statements as of December 31, 1996 included
in this report have been prepared by the Registrant without audit. In the
opinion of management, all adjustments (consisting only of normal recurring
accruals) necessary for a fair presentation are reflected in the December 31,
1996 interim financial statements. The results of operations for the periods
ended December 31, 1996 and 1995 are not necessarily indicative of the
operating results for the full year. The June 30, 1996 Consolidated Statement
of Financial Condition presented with the interim financial statements was
audited and received an unqualified opinion.
NOTE B - Formation of Holding Company and Conversion to Stock Form
On December 22, 1993, First Bancshares, Inc. ("Registrant") became the holding
company for First Home Savings Bank ("Savings Bank") upon the Savings Bank's
conversion from a state chartered mutual savings and loan association to a
state chartered stock savings and loan association. The conversion was
accomplished through the sale and issuance by the Registrant of 1,551,292
shares of common stock at $10.00 per share. Proceeds from the sale of common
stock, net of issuance costs incurred of $639,802, were $14,873,123, inclusive
of $1,520,870 related to shares held by the ESOP plan and $304,170 in
connection with stock held by the MRP. The financial statements included
herein have not been restated as a result of the consummation of the conversion.
NOTE C - Earnings per Share
Earnings per share is presented for the periods ended December 31, 1996 and
1995 based on the average shares issued and outstanding during the period. For
the periods presented, unreleased ESOP shares are not considered outstanding
for purposes of calculating earnings per share. Average shares include the
weighted average number of common shares considered outstanding, plus the
shares issuable upon exercise of stock options after the assumed repurchase
of common shares with the related proceeds as follows:
Weighted Average Number Shares
of Common Shares Outstanding Issuable
Quarter ended December 31, 1996 1,107,530 47,680
Six months ended December 31, 1996 1,116,386 48,134
Quarter ended December 31, 1995 1,216,734 49,165
Six months ended December 31, 1995 1,230,274 49,985
NOTE D - Employee Stock Ownership Plan
In connection with the conversion to stock form as described in Note B, the
Savings Bank established an ESOP for the exclusive benefit of participating
employees (all salaried employees who have completed at least 1000 hours of
service in a twelve-month period and have attained the age of 21). The ESOP
borrowed funds from the Holding Company in an amount sufficient to purchase
152,087 shares (10% of the Common Stock issued in the Conversion). The loan
is secured by the shares purchased and is being repaid by the ESOP with funds
from contributions made by the Savings Bank, dividends received by the ESOP
and any other earnings on ESOP assets. All dividends received by the ESOP are
paid on the loan. The Savings Bank presently expects to contribute approx-
imately $180,000 plus interest annually to the ESOP. Contributions will be
applied to repay interest on the loan first, then the remainder will be
applied to principal. The loan is expected to be repaid approximately nine
years from inception.
-5-
</page>
FIRST BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(continued)
Shares purchased with the loan proceeds are held in a suspense account for
allocation among participants as the loan is repaid. Contributions to the
ESOP and shares released from the suspense account are allocated among
participants in proportion to their compensation relative to total
compensation of all active participants. Benefits generally become 20% vested
after each year of credited service beyond two years.
Vesting is accelerated upon retirement, death or disability of the
participant. Forfeitures are returned to the Savings Bank or reallocated to
other participants to reduce future funding costs. Benefits may be payable
upon retirement, death, disability or separation from service. Since the
Savings Bank's annual contributions are discretionary, benefits payable under
the ESOP cannot be estimated.
The Company accounts for its ESOP in accordance with Statement of Position
93-6, Employers Accounting for Employee Stock Ownership Plans. Accordingly,
the debt of the ESOP is eliminated in consolidation and the shares pledged as
collateral are reported as unearned ESOP shares in the consolidated balance
sheets. Contributions to the ESOP shall be sufficient to pay principal and
interest currently due under the loan agreement. As shares are committed to
be released from collateral, the Company reports compensation expense equal to
the average market price of the shares for the respective period, and the
shares become outstanding for earnings per share computations. Dividends on
allocated ESOP shares are recorded as a reductions of retained earnings;
dividends on unallocated ESOP shares are recorded as a reduction of debt and
accrued interest. ESOP compensation expense was $66,000 and $132,000 for the
three months and six months ended December 31, 1996, respectively. ESOP
compensation expense was $74,000 and $145,000 for the three months and six
months ended December 31, 1995.
<TABLE>
A summary of ESOP shares at December 31, 1996 is as follows:
<S> <C>
Shares allocated 45,869
Shares committed for release 8,537
Unreleased shares 94,155
------
Total 148,561
=======
Fair value of unreleased shares $1,565,327
==========
</TABLE>
NOTE E - Management Recognition Plan
A Management Recognition Plan (MRP) has been adopted for the benefit of
officers, directors and employees of the Savings Bank. The MRP provides
officers, directors and employees with a proprietary interest in the Holding
Company that will encourage them to remain with the Savings Bank or Holding
Company. The Savings Bank has contributed enough funds to the MRP to allow it
to purchase 30,417 shares (2% of the shares of Common Stock issued in the
Conversion). Shares have been granted to qualifying eligible officers,
directors and employees pursuant to terms of the MRP. The shares are in the
form of restricted stock and will vest over a five-year period. Compensation
expense in the amount of the fair market value of the stock at the date of the
grant to the officers, directors or employees will be recognized during the
years in which the shares are payable.
-6-
</page>
<PAGE>
FIRST BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(continued)
NOTE F - Treasury Stock
First Bancshares, Inc. has completed five separate stock repurchase programs
between March 9, 1994 and December 30, 1996. During those five programs, a
total of 351,019 shares of stock have been acquired at a combined cost of
$5,210,000. Further, on December 30, 1996, a sixth repurchase program of
120,342 shares was initiated. As of February 13, 1997, 44,371 shares had been
repurchased at a cost of $789,091. Treasury stock is shown at cost for
financial statement presentation.
NOTE G - Accounting Changes
As of July 1, 1996, the Company adopted Statement of Financial Accounting
Standard ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets
and Long-Lived Assets to be Disposed of". This statement generally requires
disclosures for long-lived impaired assets and long-lived impaired assets to
be disposed of. At this time, the Company does not have any significant long
lived impaired assets for which disclosures are needed.
As of July 1, 1996, the Company adopted 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. At
this time, the Company does not have a mortgage banking enterprise which
services mortgage for others.
As of July 1, 1996, the Company adopted SFAS No. 123 "Accounting for Stock
Based Compensation". This statement establishes a fair value based method of
accounting for stock based compensation plans. Currently, the Company does
not have any stock-based compensation awards granted after the effective dates
given in the statement.
-7-
</page>
<PAGE>
FIRST BANCSHARES, INC. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The discussion and analysis included herein covers those material changes
in liquidity and capital resources that have occurred since June 30, 1996, as
well as certain material changes in results of operations during the three and
six month periods ended December 31, 1996 and 1995.
The following narrative is written with the presumption that the users
have read or have access to the Company's 1996 Form 10-KSB, which contains the
latest audited financial statements and notes thereto, together with
Management's Discussion and Analysis of Financial Condition and Results of
Operations as of June 30, 1996, and for the year then ended. Therefore, only
material changes in financial condition and results of operations are
discussed herein.
This report contains certain "forward-looking statements." The Company
desires to take advantage of the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995 and is including this statement for
the express purpose of availing itself of the protections of such safe harbor
with respect to all of such forward-looking statements. These forward-looking
statements, which are included in Management's Discussion and Analysis,
describe future plans or strategies and include the Company's expectations of
future financial results. The words "believe," "expect," "anticipate,"
"estimate," "project," and similar expressions identify forward-looking
statements. The Company's ability to predict results or the effect of future
plans or strategies is inherently uncertain. Factors which could affect
actual results include interest rate trends, the general economic climate in
the Company's market area and the country as a whole, loan delinquency rates,
and changes in federal and state regulation. These factors should be
considered in evaluating the forward-looking statements, and undue reliance
should not be placed on such statements.
Comparison of the Three Months ended December 31, 1996 to the Three Months
Ended December 31, 1995
Financial Condition. During the quarter ended December 31, 1996, total
assets increased $2.7 million to $157.0 million. Certificates of deposits
purchased decreased $6.1 million as a $6.0 million 18-day certificate
purchased in late September matured. The proceeds were largely used to reduce
FHLB advances. Investment securities available-for-sale increased by $.9
million. Property and equipment increased $285,000 in connection with the new
Gainesville branch which opened on December 9, 1996.
Net loans increased to $125.8 million at December 31, 1996, an increase
during the quarter of $3.1 million. Cash and cash equivalents increased $4.8
million due to additional advances from the FHLB and a $2.9 million increase
in customer deposits. At December 31, 1996, customer deposits were $112.9
million.
Nonperforming assets were $1,417,000, or .90% of total assets at December
31, 1996 compared to $1,515,000, or .98% of total assets at September 30, 1996
and $1,194,000, or .85% of total assets at December 31, 1995. Nonaccrual
loans decreased to $56,000 at December 31, 1996 from $130,000 at September 30,
1996, but increased from $49,000 at December 31, 1995. The $81,000 decrease
between September and December 1996 was attributable to the charge-off of one
nonaccrual loan for which specific reserves had been previously established.
Net Income. Net income was $524,000 for the quarter ended December 31,
1996 compared to $257,000 for the quarter ended December 31, 1995. Net
interest income after provision for loan losses increased $176,000 and
noninterest income increased $212,000. These two increases were enhanced by
an $81,000 decrease in noninterest expense. Income tax expense increased
$202,000 due to the increase in income before income tax expense.
-8-
</page>
<PAGE>
FIRST BANCSHARES, INC. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
Net Interest Income. Net interest income increased by $190,000, or
17.6%, to $1,272,000 for the quarter ended December 31, 1996 from $1,082,000
for the quarter ended December 31, 1995. Interest income increased $385,000
while interest expense increased $195,000.
Interest Income. Interest income of $2,884,000 for the quarter ended
December 31, 1996 was an increase of $385,000, or 15.4%, from $2,499,000 for
the quarter ended December 31, 1995. The majority of the increase was a
$370,000 increase in interest income from loans receivable from $2,195,000 for
the quarter ended December 31, 1995 to $2,565,000 for the quarter ended
December 31, 1996. The increase was largely attributable to the increase in
average loans outstanding and partly to interest rate increases on existing
adjustable rate loans. Interest income from investment securities increased
by $13,000 from $217,000 for the quarter ended December 31, 1995 to $230,000
for the quarter ended December 31, 1996. This increase was due to the
increase in the average balance outstanding in investment securities and
partially offset by interest rate decreases on adjustable-rate securities or
lower reinvestment rates.
Interest Expense. Interest expense of $1,612,000 for the quarter ended
December 31, 1996 increased $195,000, or 13.8%, from $1,417,000 for the
quarter ended December 31, 1995. The increase was partially attributable to
an increase in the balance in customer deposits, but was slightly offset by a
decrease in the average interest rate on these deposits. The majority of the
increase, however, was due to an increase of $133,000 in interest expense on
borrowed funds as additional advances were drawn from the Federal Home Loan
Bank.
Provision for Loan Losses. Loan loss provisions increased by $14,000
from $4,000 for the quarter ended December 31, 1995 to $18,000 for the quarter
ended December 31, 1996. There were $102,000 in loan losses, net of
recoveries, for the quarter ended December 31, 1996 compared to $1,400 for the
quarter ended December 31, 1995. An auto loan pool purchased was written down
by $27,500 and the balance of the overdraft on a commercial account was
written down by $73,500. Specific loss reserves had previously been established
for both write-downs.
Noninterest Income. Noninterest income of $311,000 for the quarter ended
December 31, 1996 increased $212,000 from $99,000 for the quarter ended
December 31, 1995. Service charges and other fee income increased by $44,000
from $57,000 for the quarter ended December 31, 1995 to $101,000 for the
quarter ended December 31, 1996. This increase was primarily attributable to
an increase in demand deposit accounts which, in turn, largely resulted from a
checking account program initiated in July 1995.
There was a $192,000 nonrecurring gain on the sale of investments during
the quarter ended December 31, 1996. That gain was somewhat offset by a
$26,000 loss recognized to write-down the former Gainesville branch facility
to its estimated fair value. The facility, currently listed for sale, became
largely obsolete when the new Gainesville branch was occupied in December
1996.
Noninterest Expense. Noninterest expense decreased $81,000, or 10.2%,
from $797,000 for the quarter ended December 31, 1995 to $716,000 for the
quarter ended December 31, 1996. Compensation and employee benefits increased
$14,000. Occupancy and equipment decreased $10,000 due to reduced
depreciation expense and property taxes. Advertising and promotional expenses
decreased $69,000 due to recognition of the up-front costs of the checking
account program in the quarter ended December 31, 1995. Other noninterest
expense decreases totaling $29,000 included reductions in advertising of
$6,300, office supplies of $11,800, telephone of $4,200, charitable
contributions of $11,000 and nonoperating expenses of $7,000. These
decreases were somewhat offset by increases in audit and accounting of $9,900
and supervisory exam expense of $1,500. The two increases were strictly a
function of accrual estimate adjustments rather than actual expenses incurred.
-9-
</page>
<PAGE>
FIRST BANCSHARES, INC. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
Net Interest Margin. Net interest margin increased from 3.35% for the
three months ended December 31, 1995 to 3.49% for the three months ended
December 31, 1996. Income from earning assets increased by $385,000, or 15%,
between the two quarters while interest expense increased by $195,000, or 14%.
Net interest income increased by $188,000, or 17%. The average earning asset
base increased by $16.5 million, or 12.7%, which was offset by a $16.8
million, or 15%, increase in the average interest-bearing liability base.
Comparison of the Six Months ended December 31, 1996 to the Six Months Ended
December 31, 1995.
Financial Condition. Total assets for the six months ended December 31,
1996 increased by $13.3 million. A net $7.0 million increase in loans was
funded from a $6.9 million increase in customer deposits and $7.0 million
increase in FHLB advances. Cash and cash equivalents increased $5.6 million
pending funding of additional loan demand or the availability of other
investment opportunities.
Nonperforming assets of $1,266,000, or .88% of total assets at June 30,
1996 increased to $1,417,000, or .90% of total assets at December 31, 1996
compared to $1,194,000, or .85% of total assets at December 31, 1995.
Nonaccrual loans of $130,000 at June 30, 1995 decreased to $56,000 at December
31, 1996 compared to $49,000 at December 31, 1995.
Net Income. Net income increased $50,000 from $507,000 for the six
months ended December 31, 1995 to $557,000 for the six months ended December
31, 1996. Net interest income after provision for loan losses was $2,479,000
for the six months ended December 31, 1996 compared to $2,084,000 for the six
months ended December 31, 1995. This $395,000 increase was enhanced by a
$245,000 increase in noninterest income. Those two increases were largely
offset by a $559,000 increase in noninterest expense. Income tax expense
increased by $31,000 due to the increase in income before income tax expense.
Net Interest Income. Net interest income of $2,509,000 for the six
months ended December 31, 1996 increased $416,000 from net interest income of
$2,093,000 for the six months ended December 31, 1995. Total interest income
increased by $778,000 while total interest expense increased $362,000.
Interest Income. Total interest income increased $778,000 from
$4,872,000 for the six months ended December 31, 1995 to $5,650,000 for the
six months ended December 31, 1996. Interest income from loans receivable
increased by $780,000 from $4,264,000 for the six months ended December 31,
1995 to $5,044,000 for the six months ended December 31, 1996. This increase
was primarily due to an increase in the average outstanding loan balances and
partly to interest rate increases on existing adjustable rate loans. Income
on investment securities decreased by $8,000 to $451,000 for the six months
ended December 31, 1996 compared to $459,000 for the six months ended December
31, 1995. Income on other interest-earning assets increased $8,000 from
$48,000 for the six months ended December 31, 1995 to $56,000 for the six
months ended December 31, 1996.
Interest Expense. Total interest expense was $3,141,000 for the six
months ended December 31, 1996, a $362,000 increase from $2,779,000 for the
six months ended December 31, 1995. A $273,000 increase in interest expense on
borrowed funds, attributable to additional Federal Home Loan Bank advances,
made up the majority of the increase in interest expense. An increase in the
average balance of customer deposits partially offset by a decrease in the
average interest rates on these deposits also contributed to the increase.
-10-
</page>
<PAGE>
FIRST BANCSHARES, INC. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
Provision for Loan Losses. Provision for loan losses increased by
$21,000 from $9,000 for the six months ended December 31, 1995 to $30,000 for
the six months ended December 31, 1996. The increase was attributable to
substandard performance of an auto loan pool purchased and an overdraft on a
commercial checking account. Actual loan losses, net of recoveries, were
$102,00 for the six months ended December 31, 1996 compared to $1,400 for the
six months ended December 31, 1995. The losses for the six months ended
December 31, 1996, as discussed in the quarterly analysis section, were to
write down the balance in the auto loan pool and the overdraft to estimated
net realizable value.
Noninterest Income. Noninterest income of $429,000 for the six months
ended December 31, 1996 increased by $245,000 from $184,000 for the six months
ended December 31, 1995. Service charges and other fee income of $185,000 for
the six months ended December 31, 1996 increased by $83,000 from $102,000 for
the six months ended December 31, 1995. This $83,000 increase was primarily
attributable to an increase in demand deposit accounts which, in turn, largely
resulted from a checking account program initiated in July 1995.
Nonrecurring gains from sales of securities were $188,000 in the six
months ended December 31, 1996 as investments were sold by the holding
company.
Noninterest Expense. Noninterest expense increased by $559,000 to
$2,083,000 for the six months ended December 31, 1996 from $1,524,000 for the
six months ended December 31, 1995. Compensation and employee benefits
increased by $45,000, or 5%. Deposit insurance premiums increased $648,000
primarily attributable to a $640,000 expense for a one-time assessment to fund
the Savings Association Insurance Fund (SAIF). Advertising and promotional
expense decreased $117,000 as up-front costs associated with the checking
account program recognized in the six months ended December 31, 1995 were
eliminated in the six months ended December 31, 1996. Other noninterest
expenses decreased by $20,000 also attributable to the checking account
program.
Net Interest Margin. Net interest margin of 3.50% for the six months
ended December 31, 1996 increased .19% from 3.31% for the six months ended
December 31, 1995. The increase in income from earning assets of $778,000 was
partially offset by the increase in interest expense of $362,000. The average
earning assets base increased by $16.4 million, or 13%, which was partially
offset by a $16.7 million, or 16%, increase in average interest-bearing
liabilities.
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, FHLB advances and net operating income. While
maturities and scheduled amortization of loans and mortgage-backed securities
are a somewhat predictable source of funds, deposit flows and mortgage
prepayments are greatly influenced by general interest rates, economic
conditions and competition.
First Home must maintain an adequate level of liquidity to ensure
availability of sufficient funds to support loan growth and deposit
withdrawals, satisfy financial commitments and take advantage of investment
opportunities. Funds from a $5 million Federal Home Loan Bank line of credit
can be drawn as an alternative source of funds. During the periods presented,
First Home used its sources of funds primarily to fund loan commitments, pay
maturing savings certificates and deposit withdrawals. At December 31, 1996,
First Home had approved loan commitments totaling $1.6 million and undisbursed
loans in process of $1.9 million.
-11-
</page>
<PAGE>
FIRST BANCSHARES, INC. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
Liquid funds necessary for normal daily operations of First Home are
maintained in three working checking accounts, a daily time account with the
Federal Home Loan Bank of Des Moines and in federal funds. It is the Savings
Bank's current policy to maintain adequate collected balances in those 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 sold to enhance
income or to reduce any outstanding line-of-credit advance from the Federal
Home Loan Bank.
With two exceptions, normal daily operating expenses are not expected to
significantly change. The first exception is the anticipation of slightly
higher operating expenses because of the new Theodosia branch scheduled to open
in late February of 1997. Secondly is the anticipation of significantly lower
FDIC insurance premiums because of the ont-time assessment funded in late 1996.
Interest expense is expected to slightly increase in the near future as the
deposit base gradually increases. Anticipated additional FHLB advances, to
fund loan growth will also contribute to the increase. The interest expense
increase should, however, be more than offset by the funding of new loans.
No significant changes are anticipated in the rates currently charged on
existing adjustable-rate loans. Customer deposits are expected to exceed
withdrawals over the next twelve months.
At December 31, 1996, certificates of deposit amounted to $75.1 million,
or 66% of First Home's total deposits, including $43.7 million of fixed rate
certificates scheduled to mature within twelve months. Historically, First
Home has been able to retain a significant amount of its deposits as they
mature. Management believes it has adequate resources to fund all loan
commitments from savings deposits, loan payments and the Federal Home Loan
Bank line of credit and adjust the offering rates of savings certificates to
retain deposits in changing interest rate environments.
The Office of Thrift Supervision requires a savings institution to
maintain an average daily balance of liquid assets (cash and eligible
investments) equal to at least 5% of the average daily balance of its net
withdrawable deposits and short-term borrowings. In addition, short-term
liquid assets currently must constitute 1% of the sum of net withdrawable
deposit accounts plus short-term borrowings. First Home's liquidity ratio was
15.68% at December 31, 1996 and its short-term liquidity ratio at December 31,
1996 was 14.49% First Home consistently maintains liquidity levels in excess
of regulatory requirements, and believes this is an appropriate strategy for
proper asset and liability management.
-12-
</page>
<PAGE>
FIRST BANCSHARES, INC. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
The Office of Thrift Supervision requires institutions such as the
Savings Bank to meet certain tangible, core, and risk-based capital
requirements. Tangible capital generally consists of stockholders' equity
minus certain intangible assets. Core capital generally consists of
stockholders' equity. The risk-based capital requirements presently address
risk related to both recorded assets and off-balance sheet commitments and
obligations. The following table summarizes the Savings Bank's capital ratios
and the ratios required by FIRREA and subsequent regulations at December 31,
1996.
<TABLE>
Percent of Adjusted
Amount Total Assets
-------- -----------------
(Unaudited)
(Dollars in thousands)
<S> <C> <C>
Tangible capital $17,901 11.6%
Tangible capital requirement 2,324 1.5
------- -----
Excess $15,577 10.1%
======= =====
Core capital $17,901 11.6%
Core capital requirement 4,647 3.0
------- -----
Excess $13,254 10.1%
Risk-based capital $18,064 18.1%
Risk-based capital requirement 7,969 8.0
------- ----
Excess $10,095 10.1%
======= =====
</TABLE>
-13-
</page>
<PAGE>
FIRST BANCSHARES, INC. AND SUBSIDIARY
PART II - OTHER INFORMATION
ITEM 1, LEGAL PROCEEDINGS
Neither the Registrant nor the Savings Bank is a party to any material legal
proceedings at this time. From time to time the Savings Bank is involved in
various claims and legal actions arising in the ordinary course of business.
ITEM 2, CHANGES IN SECURITIES
Not applicable.
ITEM 3, DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4, SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5, OTHER INFORMATION
None
ITEM 6, EXHIBITS AND REPORT ON FORM 8-K
None
-14-
</page>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
First Bancshares, Inc.
Date: February 13, 1997 By: /s/ Stephen H. Romines
------------------------
Stephen H. Romines
Chairman, President
CEO
By: /s/ Susan J. Uchtman
------------------------
Susan J. Uchtman
CFO
</page>
16
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
Amounts in thousands
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> DEC-31-1996
<CASH> 8974
<INT-BEARING-DEPOSITS> 4920
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 10611
<INVESTMENTS-CARRYING> 2049
<INVESTMENTS-MARKET> 2076
<LOANS> 125794
<ALLOWANCE> 446
<TOTAL-ASSETS> 157014
<DEPOSITS> 112875
<SHORT-TERM> 9500
<LIABILITIES-OTHER> 424
<LONG-TERM> 11055
0
0
<COMMON> 16
<OTHER-SE> 23144
<TOTAL-LIABILITIES-AND-EQUITY> 157014
<INTEREST-LOAN> 2565
<INTEREST-INVEST> 230
<INTEREST-OTHER> 89
<INTEREST-TOTAL> 2884
<INTEREST-DEPOSIT> 1341
<INTEREST-EXPENSE> 1612
<INTEREST-INCOME-NET> 1272
<LOAN-LOSSES> 18
<SECURITIES-GAINS> 192
<EXPENSE-OTHER> 716
<INCOME-PRETAX> 849
<INCOME-PRE-EXTRAORDINARY> 524
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 524
<EPS-PRIMARY> .45
<EPS-DILUTED> .45
<YIELD-ACTUAL> 3.49
<LOANS-NON> 49
<LOANS-PAST> 708
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 1879
<ALLOWANCE-OPEN> 530
<CHARGE-OFFS> 102
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 446
<ALLOWANCE-DOMESTIC> 446
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 198
</TABLE>
