UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________________
FORM 10-QSB
_________________________________
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ending March 31, 1997
-------------------------------
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________________ to ____________________
Commission File Number 0-22842
First Bancshares, Inc.
-------------------------
(Exact name of registrant as specified in its charter)
Missouri 43-1654695
-------------- --------------
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
142 East First St., Mountain Grove, MO 65711
----------------------------------------- ---------
(Address of principal executive offices) (Zip Code)
(417) 926-5151
--------------------
(Registrant's telephone number)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--------- -------
As of May 9, 1997, there were 1,142,774 shares of the Registrant's Common Stock,
$.01 par value per share, outstanding.
</page>
FIRST BANCSHARES, INC. AND SUBSIDIARY
FORM 10-QSB
MARCH 31, 1997
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>
<TABLE>
FIRST BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
- - - - - - - - - - - - - - - - - - - - - - - -
<CAPTION>
(Unaudited)
March 31, June 30,
1997 1996
--------- ---------
<S> <C> <C>
ASSETS (Dollars in thousands)
Cash and cash equivalents, including interest-bearing
accounts of $441 at March 31 and $527 at June 30 $ 4,440 $ 3,316
Certificates of deposit 1,604 2,319
Investment securities available-for-sale, at fair value 14,097 9,478
Investment securities held-to-maturity (estimated fair
value $1,743 at March 31 and $2,249 at June 30) 1,727 2,233
Investment in Federal Home Loan Bank stock, at cost 1,192 890
Mortgage backed certificates available-for-sale, at
fair value 2,815 2,831
Loans receivable held-for-investment, net (includes
reserves for loan losses of $459 at March 31
and $520 at June 30) 129,552 118,780
Accrued interest receivable 645 469
Prepaid expenses 129 107
Property and equipment, less accumulated depreciation
and valuation reserves 3,733 3,194
Intangible assets, less accumulated amortization 33 43
Real estate owned 70 -
Other assets 11 11
-------- --------
Total assets $160,048 $143,671
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Customer deposits $114,242 $105,960
Advances from Federal Home Loan Bank 22,100 13,500
Other borrowed funds 55 55
Income taxes payable - current 338 92
Accrued expenses 175 196
Deferred income taxes 167 139
-------- --------
Total liabilities 137,077 119,942
======== ========
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,
1,556,580 issued, 1,160,135 and 1,268,686 outstanding at
March 31 and June 30, respectively 16 16
Unearned compensation 15,185 15,059
Retained earnings - substantially restricted 14,852 14,011
Treasury stock - at cost; 396,445 and 284,354 shares at
March 31 and June 30, respectively (6,023) (4,123)
Unearned compensation (1,026) (1,209)
Unrealized loss on securities available-for-sale, net of
applicable deferred income taxes (33) (25)
-------- --------
Total stockholders' equity 22,971 23,729
-------- --------
Total liabilities and stockholders' equity $160,048 $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 Nine Months Ended
March 31, March 31,
1997 1996 1997 1996
------- ------- ------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Interest Income:
Loans receivable $ 2,634 $ 2,304 $ 7,678 $ 6,568
Investment securities 293 164 744 623
Mortgage-backed and related
securities 47 47 146 148
Other interest-earning assets 17 61 73 109
------- ------ ------ -------
Total interest income 2,991 2,576 8,641 7,448
------- ------ ------ -------
Interest Expense:
Customer deposits 1,325 1,236 3,974 3,796
Borrowed funds 317 199 809 418
------- ------ ------ -------
Total interest expense 1,642 1,435 4,783 4,214
------- ------ ------ -------
Net interest income 1,349 1,141 3,858 3,234
Provision for loan losses 20 72 50 52
------- ------ ------ -------
Net interest income after
provisions for losses 1,329 1,069 3,808 3,182
------- ------ ------ -------
Noninterest Income:
Service charges and other fee
income 88 68 273 170
Loan origination and commitment
fees 3 2 6 3
Income from real estate
operations 20 25 66 69
Insurance commissions 17 20 50 53
Gain (loss) on investments (3) 7 185 (20)
Gain (loss)on sale of property and
equipment - 17 (26) 19
------ ------ ------ -------
Total noninterest income 125 139 554 294
------ ------ ------ -------
Noninterest Expense:
Compensation and employee
benefits 466 427 1,336 1,252
Occupancy and equipment 104 98 288 286
Deposit insurance premiums 4 58 764 170
Advertising and promotional 22 45 61 189
Professional fees 16 16 45 38
Other 116 103 317 336
------- ------ ------- -------
Total noninterest expense 728 747 2,811 2,271
------- ------ ------- -------
Income before taxes 726 461 1,551 1,205
Income Taxes 278 177 546 414
------- ------- ------- -------
Net income $ 448 $ 284 $1,005 $ 791
======= ======= ======= =======
Earnings per share .39 .22 .87 .62
======= ======= ======= =======
Dividends per share .05 .05 .15 .15
======= ======= ======= =======
</TABLE>
See accompanying notes to Consolidated Financial Statements.
-2-
</page>
<TABLE>
FIRST BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
- - - - - - - - - - - - - - - - - - -
Nine months ended March 31, 1997 and 1996
<CAPTION>
(Unaudited)
1997 1996
-------- --------
(Dollars in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income $1,005 $ 791
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 123 124
Amortization 10 12
Unrealized loss on investment securities, net 12 46
Gain on sale of investments (192) (24)
Gain on sale of property and equipment - (19)
Loss on write-down of property 26 -
Premiums and discounts on mortgage-backed
securities and investment securities (2) 4
Loss on loans, net of recoveries 50 52
Income reinvested on investment securities and
Federal Home Loan Bank stock - (32)
ESOP compensation expense at fair value 91 87
Vesting of unearned compensation 183 174
Net change in operating accounts:
Accrued interest receivable and other assets (198) 5
Deferred loan costs (20) (18)
Income taxes payable - current 246 157
Deferred income tax payable 26 19
Accrued expenses (21) 12
------- -------
Net cash from operating activities 1,339 1,390
------- -------
Cash flows from investing activities:
Purchase of investment securities available-for-sale (6,234) -
Purchase of investment securities held-to-maturity - (780)
Purchase of Federal Home Loan Bank stock (302) (91)
Proceeds from sales of investment securities
available-for-sale 721 1,421
Proceeds from maturities of investment securities
available-for-sale 1,000 5,016
Proceeds from maturities of investment securities
held-to-maturity 494 282
Net change in certificates of deposit 715 393
Net change in loans receivable (10,872) (13,637)
Proceeds from maturities of mortgage-backed
certificates 98 133
Purchases of property and equipment (688) (600)
Proceeds from sale of property and equipment - 36
-------- -------
Net cash used in investing activities (15,068) (7,827)
-------- -------
See accompanying notes to Consolidated Financial Statements.
-3-
FIRST BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
- - - - - - - - - - - - - - - - - - - - - - - - -
(Unaudited)
1997 1996
------- -------
(Dollars in thousands)
Cash flows from financing activities:
Net change in demand deposits, savings accounts,
and certificates of deposit $ 8,282 $ 4,298
Proceeds from borrowed funds 8,600 10,200
Payments on borrowed funds - (1,700)
Proceeds from sale of common stock 35 16
Purchase of treasury stock (1,900) (1,664)
Cash dividends paid (164) (160)
-------- --------
Net cash from financing activities 14,853 10,990
-------- --------
Net increase in cash and cash equivalents 1,124 4,553
Cash and cash equivalents -
beginning of period 3,316 3,535
------- -------
Cash and cash equivalents -
end of period $ 4,440 $ 8,088
======= =======
</TABLE>
See accompanying notes to Consolidated Financial Statements.
-4-
</page>
FIRST BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
NOTE A - Basis of Presentation
The consolidated interim financial statements as of March 31, 1997 included
in this report have been prepared by the Registrant without audit. In the
opinion of management, all adjustments (consisting only of normal recurring
accruals) necessary for a fair presentation are reflected in the March 31,
1997 interim financial statements. The results of operations for the
periods ended March 31, 1997 and 1996 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.
NOTE C - Earnings per Share
Earnings per share are presented for the periods ended March 31, 1997 and
1996 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:
<TABLE>
<CAPTION>
Weighted Average Number Shares
of Common Shares Outstanding Issuable
<S> <C> <C>
Quarter ended March 31, 1997 1,077,283 59,761
Nine months ended March 31, 1997 1,103,542 51,000
Quarter ended March 31, 1996 1,203,347 49,379
Nine months ended March 31, 1996 1,221,363 49,636
</TABLE>
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
approximately $180,000 plus interest annually to the ESOP. Contributions
will be applied to repay interest on the loan first, then the remainder will
be applied to principal. The loan is expected to be repaid approximately
nine years from inception.
Shares purchased with the loan proceeds are held in a suspense account for
allocation among participants as the loan is repaid. Contributions to the
ESOP and shares released from the suspense account are allocated among
participants in proportion to their compensation relative to total
compensation of all active participants. Benefits generally become 20%
vested after each year of credited service beyond two years.
-5-
</page>
FIRST BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(continued)
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 $79,000 and $211,000 for the three months and nine months ended
March 31, 1997, respectively. ESOP compensation expense was $76,000 and
$221,000 for the three months and nine months ended March 31, 1996.
A summary of ESOP shares at March 31, 1997 is as follows:
<TABLE>
<S> <C>
Shares allocated 45,869
Shares committed for release 12,814
Unreleased shares 89,878
--------
Total 148,561
========
Fair value of unreleased shares $1,760,000
==========
</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 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>
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 May 9, 1997, 63,657 shares had been
repurchased at a cost of $1,171,000. 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>
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
nine month periods ended March 31, 1997 and 1996.
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 March 31, 1997 to the Three Months Ended
March 31, 1996
Financial Condition. Total assets increased $3.0 million during the
quarter ended March 31, 1997. Net loans increased $3.8 million during the
quarter while investment securities increased $3.3. These two increases were
funded by a decrease in cash and cash equivalents of $4.5 million, an
increase in Federal Home Loan Bank advances of $1.6 million and an increase
in customer deposits of $1.4 million.
Nonperforming assets were $1,438,000, or .90% of total assets at March 31,
1997 compared to $1,417,000, or .90% of total assets at December 31, 1996 and
$1,041,000, or .74% of total assets at March 31, 1996. Nonaccrual loans of
$56,000 at March 31, 1997 remained constant from December 31, 1996 and
decreased from $130,000 at March 31, 1996.
Net Income. Net income was $448,000 for the quarter ended March 31, 1997,
an increase of $164,000, or 57.7%, from net income of $284,000 for the
quarter ended March 31, 1996. Net interest income after provision for loan
losses increased $260,000 while noninterest income decreased $14,000. Total
noninterest expense decreased $19,000. Income tax expense increased $101,000
due to the increase in income before income tax expense.
Net Interest Income. Net interest income increased $208,000, or 18.2%, to
$1,349,000 for the quarter ended March 31, 1997 from $1,141,000 for the
quarter ended March 31, 1996. Interest income increased $415,000 while
interest expense increased $207,000.
Interest Income. Interest income was $2,991,000 for the quarter ended
March 31, 1997 and $2,576,000 for the quarter ended March 31, 1996. This
$415,000 increase, or 16.1%, was largely attributable to a $330,000 increase
in interest income from loans receivable from $2,304,000 for the quarter
ended March 31, 1996 to $2,634,000 for the quarter ended March 31, 1997. The
balance of average loans outstanding increased while the interest rates on
new and existing adjustable rate loans increased slightly.
Interest income from investment securities increased by $129,000 from
$164,000 for the quarter ended March 31, 1996 to $293,000 for the quarter
ended March 31, 1997. Additional securities were purchased during the
quarter ended March 31, 1997 and the average interest earned on investment
securities increased. Interest on other interest-earning assets decreased
$44,000 from $61,000 for the quarter ended March 31, 1996 to $17,000 for the
quarter ended March 31, 1997. Funds from these assets were used to purchase
the additional investment securities discussed above.
-8-
</page>
FIRST BANCSHARES, INC. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
Interest Expense. Interest expense increased $207,000, or 14.4%, from
$1,435,000 for the quarter ended March 31, 1996 to $1,642,000 for the quarter
ended March 31, 1997. The increase was partially attributable to an increase
in the balance in customer deposits offset partially by a slight decrease in
the average rate paid. The remainder of the increase was due to an increase
of $118,000 in interest expense on borrowed funds as additional advances were
drawn from the Federal Home Loan Bank.
Provision for Loan Losses. Loan loss provisions were $20,000 for the
quarter ended March 31, 1997, a decrease of $52,000 from $72,000 for the
quarter ended March 31, 1996. The quarter ended March 31, 1996 included a
$40,000 provision for an $80,000 overdraft and a $30,000 provision for a pool
of car loans purchased. Actual loan losses, net of recoveries, on First Home
Savings Bank originated loans for the three months ended March 31, 1997 were
$9,200. There were no loan losses on First Home Savings Bank originated
loans for the quarter ended March 31, 1996.
Noninterest Income. Noninterest income of $125,000 for the quarter ended
March 31, 1997 decreased $14,000 from $139,000 for the quarter ended March
31, 1996. Service charges and other fee income increased by $20,000, or
29.4%, from $68,000 for the quarter ended March 31, 1996 to $88,000 for the
quarter ended March 31, 1997. 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.
During the quarter ended March 31, 1996, there was a $24,000 net gain from
the sale of four mutual funds and a FNMA REMIC security. These investments
were sold to generate cash flow for the holding company. A $17,000
unrealized loss was recorded during the quarter ended March 31, 1996 to
write-down a pool of auto loans puchased to net realizable value. Also
during the quarter ended March 31, 1996, a rental property was sold for a
gain of $17,000.
Noninterest Expense. Noninterest expense was $728,000 for the quarter
ended March 31, 1997 compared to $747,000 for the quarter ended March 31,
1996. The reduction was due to a decrease in FDIC deposit insurance premiums
of $54,000. The one-time SAIF assessment discussed in the next section
comparing the nine month periods caused a reduction in the quarterly premiums
beginning January 1, 1997. Compensation and employee benefits increased
$39,000 due to three additional personnel for the opening of a branch in
Theodosia, Missouri and regular annual salary increases. Occupancy and
equipment increased $6,000 due to the opening of the branch in Theodosia,
Missouri. Expenses for the checking account program in advertising and
promotional were reduced by $26,000 as the up-front expenses of
setting up the program were charged to the quarter ended March 31, 1996. A
cash shortage of $9,000 and increases in telephone, office supplies, and
postage made up the $13,000 difference in other expense.
-9-
</page>
FIRST BANCSHARES, INC. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
Net Interest Margin. Net interest margin which was 3.42% for the three
months ended March 31, 1996, increased to 3.57% for the three months ended
March 31, 1997. Income from earning assets increased by $415,000, or 16.1%,
between the two quarters while interest expense increased by $207,000, or
14.4%. Net interest income increased by $208,000, or 18.2%. The average
earning asset base increased by $17.2 million, or 12.9%, which was offset by
a $18.5 million, or 16.4%, increase in the average interest-bearing liability
base.
Comparison of the Nine Months ended March 31, 1997 to the Nine Months Ended
March 31, 1996.
Financial Condition. Total assets for the nine months ended March 31,
1997 increased by $16.4 million. An increase in net loans of $10.7 million;
an increase in cash and cash equivalents, certificates of deposit purchased
and investment securities collectively totalling $4.8 million and a $1.9
million increase in treasury stock were funded by an increase in customer
deposits of $8.3 million and advances from Federal Home Loan Bank of $8.6
million.
Nonperforming assets of $1,438,000, or .90% of total assets at March 31,
1997 was an increase of $172,000 from $1,266,000, or .88% of total assets at
June 30, 1996 and an increase of $397,000 from $1,041,000, or .74% of total
assets at March 31, 1996. Nonaccrual loans of $130,000 at March 31, 1996 and
June 30, 1996 decreased to $56,000 at March 31, 1997.
Net Income. Net income increased $214,000, or 27.0%, from $791,000 for
the nine months ended March 31, 1996 to $1,005,000 for the nine months ended
March 31, 1997. Net interest income after provision for loan losses was
$3,808,000 for the nine months ended March 31, 1997 compared to $3,182,000
for the nine months ended March 31, 1996. This $626,000 increase was
enhanced by a $260,000 increase in noninterest income. Those two increases,
however, were largely offset by a $540,000 increase in noninterest expense.
Income tax expense increased by $132,000 due to the increase in income before
income tax expense.
Net Interest Income. Net interest income of $3,858,000 for the nine
months ended March 31, 1997 increased $624,000 from $3,234,000 for the nine
months ended March 31, 1996. Total interest income increased by $1,193,000
while total interest expense increased $569,000.
Interest Income. Total interest income increased $1,193,000 from
$7,448,000 for the nine months ended March 31, 1996 to $8,641,000 for the
nine months ended March 31, 1997. The increase was primarily comprised of an
increase in income from loans receivable of $1,110,000 from $6,568,000 for
the nine months ended March 31, 1996 to $7,678,000 for the nine months ended
March 31, 1997. This increase was primarily due to an increase in the
average outstanding loan balances during the two periods and partly to
interest rate increases on existing adjustable rate loans. Income on
investment securities increased by $121,000 to $744,000 for the nine months
ended March 31, 1997 compared to $623,000 for the nine months ended March 31,
1996. The increase reflects a higher average balance of investment
securities along with slightly higher average interest rates during the nine
months ended March 31, 1997.
Interest Expense. Total interest expense was $4,783,000 for the nine
months ended March 31, 1997, a $569,000 increase from $4,214,000 for the nine
months ended March 31, 1996. A $391,000 increase in interest expense on
borrowed funds, attributable to additional Federal Home Loan Bank advances,
made up the greater portion of the increase in interest expense. An increase
in the average balance of customer deposits, slightly offset by a decrease in
the average interest rates on the deposits, caused the remainder of the
increase.
-10-
</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 decreased by $2,000
from $52,000 for the nine months ended March 31, 1996 to $50,000 for the nine
months ended March 31, 1997. Actual loan losses, net of recoveries, were
$111,000 for the nine months ended March 31, 1997 compared to $1,400 for the
nine months ended March 31, 1996. During the nine months ended March 31,
1997, an auto loan pool purchased was written down by $27,500, the balance of
the overdraft on a commercial account was written down by $73,500 and a
$7,500 loss was recorded caused by foreclosure of a home loan.
Noninterest Income. Noninterest income of $554,000 for the nine months
ended March 31, 1997 increased by $260,000 from $294,000 for the nine months
ended March 31, 1996. Service charges and other fee income of $273,000 for
the nine months ended March 31, 1997 increased $103,000 from $170,000 for the
nine months ended March 31, 1996. This $103,000 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.
Gains from sales of securities were $188,000 in the nine months ended
March 31, 1997 as six securities were sold by the holding company to increase
cash flow. During the nine months ended March 31, 1996, there was a $24,000
net gain from the sale of four mutual funds and a FNMA REMIC security. A
$46,000 unrealized loss was recorded during the nine months ended March 31,
1996 to write-down a pool of auto loans puchased to net realizable value.
Also during the nine months ended March 31, 1996, a rental property was sold
for a gain of $17,000.
Noninterest Expense. Noninterest expense increased by $540,000 from
$2,271,000 for the nine months ended March 31, 1996 to $2,811,000 for the
nine months ended March 31, 1997. The increase was attributable to a
one-time assessment of $640,000 to fund the Savings Association Insurance
Fund (SAIF). The assessment was, however, somewhat offset by a reduction in
the premium for the quarter ended March 31, 1997 compared to previous
quarterly premiums. The net increase in deposit insurance premiums for the
nine month period ended March 31, 1997 therefore was only $594,000.
Compensation and employee benefits increased by $84,000, or 6.7%. The
increase was attributable to hiring personnel for the Theodosia branch which
opened February 22, 1997 and regular annual salary increases.
Advertising and promotional expense decreased $128,000 as up-front costs
associated with initiating the checking account program recognized in the
nine months ended March 31, 1996 were eliminated in the nine months ended
March 31, 1997. Other noninterest expenses decreased by $19,000 also
attributable to a reduction in promotional expenses for the checking account
program.
-11-
</page>
FIRST BANCSHARES, INC. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
Net Interest Margin. Net interest margin of 3.53% for the nine months
ended March 31, 1997 increased .19% from 3.34% for the nine months ended
March 31, 1996. The increase in income from earning assets of $1,193,000 was
partially offset by the increase in interest expense of $569,000. The
average earning assets base increased by $16.7 million, or 12.9%, which was
offset by a $17.3 million, or 16.0%, 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 and net operating income. While maturities and
scheduled amortization of loans and mortgage-backed securities are a somewhat
predictable source of funds, deposit flows and mortgage prepayments are
greatly influenced by general interest rates, economic conditions and
competition.
First Home must maintain an adequate level of liquidity to ensure
availability of sufficient funds to support loan growth and deposit
withdrawals, satisfy financial commitments and take advantage of investment
opportunities. Funds from a $5 million Federal Home Loan Bank line of credit
can be drawn as an alternative source of funds. During the periods
presented, First Home used its sources of funds primarily to fund loan
commitments, pay maturing savings certificates and deposit withdrawals. At
March 31, 1997, First Home had approved loan commitments totaling $1.4
million and undisbursed loans in process of $1.4 million.
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
show an appreciable change. The first exception is the anticipation of
slightly higher operating expenses because of the new Theodosia branch opened
in late February of 1997. Secondly is the anticipation of significantly
lower FDIC insurance premiums because of the one-time assessment funded in
late 1996.
Interest expense on customer deposits is expected to increase slightly
over the near future as the deposit base gradually increases, rates on
existing interest bearing transaction accounts remain stable and maturing
certificates of deposit are reinvested at slightly higher interest rates.
Interest income is expected to gradually increase over the near future as new
loans are funded, and interest rates remain basically constant or are
gradually increased on current adjustable-rate loans. The net result is the
current scenario, which is expected to continue into the near future, of
First Home Savings Bank cost of deposits increasing slightly faster than
return on FHSB originated loans. Also to be considered are $9.5 million of
FHLB advances which mature over the last half of calendar 1997. If extended
at current market rates, interest expense on borrowings will increase.
-12-
</page>
FIRST BANCSHARES, INC. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
At March 31, 1997, certificates of deposit were $76.4 million, or 66% of
First Home's total deposits, including $38.0 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 16.04% at March 31, 1997 and its short-term liquidity ratio at March 31,
1997 was 15.05% First Home consistently maintains liquidity levels in excess
of regulatory requirements, and believes this is an appropriate strategy for
proper asset and liability management.
The Office of Thrift Supervision requires institutions such as the Savings
Bank to meet certain tangible, core, and risk-based capital requirements.
Tangible capital generally consists of stockholders' equity minus certain
intangible assets. Core capital generally consists of stockholders' equity.
The risk-based capital requirements presently address risk related to both
recorded assets and off-balance sheet commitments and obligations. The
following table summarizes the Savings Bank's capital ratios and the ratios
required by FIRREA and subsequent regulations at March 31, 1997.
<TABLE>
<CAPTION>
Percent of Adjusted
Amount Total Assets
---------- -------------------
(Unaudited)
(Dollars in thousands)
<S> <C> <C>
Tangible capital $18,440 11.7%
Tangible capital requirement 2,368 1.5
------- -----
Excess $16,072 10.2%
======= =====
Core capital $18,440 11.7%
Core capital requirement 4,736 3.0
------- -----
Excess $13,704 8.7%
======= =====
Risk-based capital $18,607 18.4%
Risk-based capital requirement 8,082 8.0
------- -----
Excess $10,525 10.4%
======= =====
</TABLE>
-13-
</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>
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: May 12, 1997 By: /s/ Stephen H. Romines
---------------------------
Stephen H. Romines
Chairman, President
CEO
By: /s/ Susan J. Uchtman
-----------------------
Susan J. Uchtman
CFO
</page>
23
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
Amounts in thousands
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> JUN-30-1997 JUN-30-1997
<PERIOD-END> MAR-31-1997 MAR-31-1997
<CASH> 4440 4440
<INT-BEARING-DEPOSITS> 441 441
<FED-FUNDS-SOLD> 0 0
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 14097 14097
<INVESTMENTS-CARRYING> 1727 1727
<INVESTMENTS-MARKET> 1743 1743
<LOANS> 129552 129552
<ALLOWANCE> 459 459
<TOTAL-ASSETS> 160048 160048
<DEPOSITS> 114242 114242
<SHORT-TERM> 9555 9555
<LIABILITIES-OTHER> 680 680
<LONG-TERM> 12600 12600
0 0
0 0
<COMMON> 16 16
<OTHER-SE> 22955 22955
<TOTAL-LIABILITIES-AND-EQUITY> 160048 160048
<INTEREST-LOAN> 2634 7678
<INTEREST-INVEST> 293 744
<INTEREST-OTHER> 64 219
<INTEREST-TOTAL> 2991 8641
<INTEREST-DEPOSIT> 1325 3974
<INTEREST-EXPENSE> 1642 4783
<INTEREST-INCOME-NET> 1349 3858
<LOAN-LOSSES> 20 50
<SECURITIES-GAINS> 0 185
<EXPENSE-OTHER> 728 2811
<INCOME-PRETAX> 726 1551
<INCOME-PRE-EXTRAORDINARY> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 448 1005
<EPS-PRIMARY> .39 .87
<EPS-DILUTED> .39 .87
<YIELD-ACTUAL> 3.57 3.53
<LOANS-NON> 56 56
<LOANS-PAST> 393 393
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 1438 1438
<ALLOWANCE-OPEN> 446 520
<CHARGE-OFFS> 7 111
<RECOVERIES> 0 0
<ALLOWANCE-CLOSE> 459 459
<ALLOWANCE-DOMESTIC> 459 459
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 202 202
</TABLE>
