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, 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 February 13, 1998, there were 1,103,684 shares of the
Registrant's Common Stock, $.01 par value per share, outstanding.
</page>
FIRST BANCSHARES, INC. AND SUBSIDIARY
FORM 10-QSB
December 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 8-11
PART II - OTHER INFORMATION
- ---------------------------
ITEM 1. LEGAL PROCEEDINGS 12
ITEM 2. CHANGES IN SECURITIES 12
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 12
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITIES HOLDERS 12
ITEM 5. OTHER INFORMATION 12
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 12
SIGNATURES
</page>
<TABLE>
FIRST BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
- - - - - - - - - - - - - - - - - - - - - - - -
<CAPTION>
(Unaudited)
December 31, June 30,
1997 1997
----------- ----------
<S> <C> <C>
ASSETS (Dollars in thousands)
Cash and cash equivalents, including interest-bearing accounts
of $983 at December 31 and $1,895 at June 30 $ 4,444 $ 5,809
Federal funds sold 218 -
Certificates of deposit 1,305 1,504
Investment securities available-for-sale, at fair value 9,499 14,227
Investment securities held-to-maturity (estimated
fair value $1,611 at December 31 and $1,626 at June 30) 1,589 1,605
Investment in Federal Home Loan Bank stock, at cost 1,192 1,264
Mortgage backed certificates available-for-sale, at fair value 768 828
Loans receivable held-for-investment, net (includes reserves for
loan losses of $516 at December 31 and $482 at June 30) 138,157 134,104
Accrued interest receivable 467 665
Prepaid expenses 104 117
Property and equipment, less accumulated depreciation
and valuation reserves 3,776 3,694
Intangible assets, less accumulated amortization - 31
Real estate owned - 114
Other assets 8 11
------- ------
Total assets $161,527 $163,973
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Customer deposits $120,812 $117,685
Advances from Federal Home Loan Bank 17,000 23,500
Other borrowed funds 55 55
Income taxes payable - current 73 5
Accrued expenses and accounts payable 78 249
Deferred income taxes 249 272
-------- --------
Total liabilities 138,267 141,766
-------- --------
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,
1,569,440 issued, 1,092,814 and 1,091,554 outstanding at
December 31 and June 30, respectively 16 16
Paid-in capital 15,499 15,250
Retained earnings - substantially restricted 16,123 15,212
Treasury stock - at cost; 476,626 and 466,976 shares at
December 31 and June 30, respectively (7,627) (7,430)
Unearned compensation (828) (977)
Unrealized gain (loss) on securities available-for-sale, net of
applicable deferred income taxes 77 136
------- --------
Total stockholders' equity 23,260 22,207
-------- --------
Total liabilities and stockholders' equity $161,527 $163,973
======== ========
</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 December 31, Six Months Ended December 31,
1997 1996 1997 1996
--------- --------- ---------- ----------
<S> <C> <C> <C> <C>
(Dollars in thousands)
Interest Income:
Loans receivable $ 2,886 $ 2,565 $ 5,714 $ 5,044
Investment securities 232 230 512 451
Mortgage-backed and related securities 13 48 24 99
Other interest-earning assets 13 41 55 56
-------- --------- -------- --------
Total interest income 3,144 2,884 6,305 5,650
-------- --------- -------- --------
Interest Expense:
Customer deposits 1,467 1,341 2,920 2,649
Borrowed funds 253 271 593 492
------- -------- -------- -------
Total interest expense 1,720 1,612 3,513 3,141
------- -------- -------- -------
Net interest income 1,424 1,272 2,792 2,509
Provision for loan losses 16 18 35 30
------- -------- ------ -------
Net interest income after
provisions for losses 1,408 1,254 2,757 2,479
------- -------- ------- -------
Noninterest Income:
Service charges and other fee income 113 101 220 185
Loan origination and commitment fees 1 2 2 3
Income from real estate operations 22 24 55 46
Insurance commissions 17 18 27 33
Gain on sale of investments (4) 192 83 188
Gain on sale of property and equipment 1 (26) 1 (26)
-------- -------- ------- -------
Total noninterest income 150 311 388 429
-------- -------- ------- -------
Noninterest Expense:
Compensation and employee benefits 550 437 1,050 870
Occupancy and equipment 115 95 221 184
Deposit insurance premiums 18 61 36 760
Advertising and promotional 26 16 48 33
Professional fees 17 10 31 29
Other 138 97 246 207
------- -------- ------- -------
Total noninterest expense 864 716 1,632 2,083
------- -------- ------- -------
Income before taxes 694 849 1,513 825
Income Taxes 201 325 499 268
------- ------- ------- -------
Net income $ 493 $ 524 $ 1,014 $ 557
======= ======= ======= =======
Earnings per share - basic .49 .47 1.01 .50
======= ======= ======= ======
Earnings per share - diluted .46 .45 .94 .48
======= ======== ======= ======
Dividends per share .05 .05 .10 .10
======= ======== ======= =======
</TABLE>
See accompanying notes to Consolidated Financial Statements.
-2-
</page>
<TABLE>
FIRST BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
- - - - - - - - - - - - - - - - - - -
Six months ended December 31, 1997 and 1996
<CAPTION>
(Unaudited)
1997 1996
----------- ----------
<S> <C> <C>
(Dollars in thousands)
Cash flows from operating activities:
Net income $ 1,014 $ 557
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 97 82
Amortization 1 8
Unrealized loss on investment securities 9 8
Gain on sale of intangibles (51) -
Gain on sale of real estate owned (16) -
Gain on sale of investments securities available-for-sale (42) (196)
Premiums and discounts on mortgage-backed
securities and investment securities (8) -
Loss on write-down of property - 26
Loss on loans, net of recoveries 35 30
ESOP compensation expense at fair value 137 52
Vesting of unearned compensation 149 141
Net change in operating accounts:
Accrued interest receivable and other assets 214 66
Deferred loan costs (17) (11)
Income taxes payable - current 68 20
Deferred income tax payable 12 22
Accrued expenses (171) (53)
-------- -------
Net cash from operating activities 1,431 752
-------- -------
Cash flows from investing activities:
Purchase of investment securities available-for-sale (203) (2,150)
Purchase of investment securities held-to-maturity (105) -
Purchase of Federal Home Loan Bank stock - (148)
Proceeds from sales of investment securities
available-for-sale 232 721
Proceeds from maturities of investment securities
available-for-sale 4,650 500
Proceeds from maturities of investment securities
held-to-maturity 112 176
Proceeeds from sale of Federal Home Loan Bank stock 72 -
Net change in certificates of deposit 199 705
Net change in federal funds sold (218) -
Net change in loans receivable (4,227) (7,033)
Proceeds from maturities of mortgage-backed
certificates 65 63
Purchases of property and equipment (188) (517)
Proceeds from sale of property and equipment 9 -
Proceeds from sale of intangibles 81 -
Proceeds from sale of real estate owned 286 -
------- -------
Net cash used in investing activities 765 (7,683)
------- --------
See accompanying notes to Consolidated Financial Statements.
- -3-
</page>
FIRST BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
- - - - - - - - - - - - - - - - - - - - - - - - -
Six months ended December 31, 1997 and 1996
(Unaudited)
1997 1996
--------- -----------
(Dollars in thousands)
Cash flows from financing activities:
Net change in demand deposits, savings accounts,
and certificates of deposit $ 3,127 $ 6,915
Proceeds from borrowed funds - 7,000
Payments on borrowed funds (6,500) -
Proceeds from sale of common stock 112 12
Purchase of treasury stock (197) (1,227)
Cash dividends paid (103) (111)
-------- ---------
Net cash from financing activities (3,561) 12,589
-------- ---------
Net increase/(decrease) in cash and cash equivalents (1,365) 5,658
Cash and cash equivalents -
beginning of period 5,809 3,316
-------- -------
Cash and cash equivalents -
end of period $ 4,444 $ 8,974
======== ========
</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 December 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 December 31, 1997 interim financial statements.
The results of operations for the periods ended December 31, 1997 and
1996 are not necessarily indicative of the operating results for the
full year. The June 30, 1997 Consolidated Statement of Financial
Condition presented with the interim financial statements was audited
and received an unqualified opinion.
NOTE B - Formation of Holding Company and Conversion to Stock Form
- -------------------------------------------------------------------
On December 22, 1993, First Bancshares, Inc. ("Registrant") became
the holding company for First Home Savings Bank ("Savings Bank")
upon the Savings Bank's conversion from a state chartered mutual
savings and loan association to a state chartered stock savings and
loan association. The conversion was accomplished through the sale
and issuance by the Registrant of 1,551,292 shares of common stock at
$10.00 per share. Proceeds from the sale of common stock, net of
issuance costs incurred of $639,802, were $14,873,123, inclusive of
$1,520,870 related to shares held by the ESOP plan and $304,170 in
connection with stock held by the MRP. The financial statements
included herein have not been restated as a result of the
consummation of the conversion.
NOTE C - Earnings per Share
- ---------------------------
Earnings per share are presented for the periods ended December 31,
1997 and 1996 based on the weighted average number of 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 for diluted
presentation 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 Issuable
--------------------- --------
Quarter ended December 1997 1,012,835 69,272
Six months ended December 1997 1,008,018 67,451
Quarter ended December 1996 1,107,530 47,680
Six months ended December 1996 1,116,386 48,134
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 $116,000 and
$223,000 for the quarter and six months ended December 31, 1997,
respectively and $66,000 and $132,000 for the quarter and six months
ended December 31, 1996.
A summary of ESOP shares at December 31, 1997 is as follows:
Shares allocated 63,463
Shares committed for release 9,442
Unreleased shares 75,656
-------
Total 148,561
=======
Fair value of unreleased shares $2,345,336
==========
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 six separate stock repurchase
programs between March 9, 1994 and June 30, 1997. During those six
programs, a total of 471,361 shares of stock have been acquired at a
combined cost of $7,368,000. On June 30, 1997, a seventh repurchase
program of 109,466 shares was initiated. As of February 13, 1998,
5,365 shares had been repurchased at a cost of $112,000. Treasury
stock is shown at cost for financial statement presentation.
NOTE G - Accounting Changes
- ---------------------------
The Company adopted FASB No. 128, Earnings per Share, during
December, 1997. This Statement required the presentation of basic
earnings per share (excludes dilution) and diluted earnings per
share for periods presented on the face of the income statement
with restatement of all prior-period earnings per share data
presented.
NOTE H - Subsequent Events
- --------------------------
On December 30, 1997, the Board of Directors of First Bancshares,
Inc. announced a two for one stock split in the form of a 100%
stock dividend. The stock dividend was payable on January 30, 1998
to shareholders of record as of January 16, 1998.
-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, 1997, as well as certain material changes in
results of operations during the three and six month periods ended
December 31, 1997 and 1996.
The following narrative is written with the presumption that the
users have read or have access to the Company's 1997 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, 1997,
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
protection of such safe harbor with respect to all of such
forwarrd-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
eveluating the forward-looking statements, and undue reliance should
not be placed on such statements.
Comparison of the Three Months ended December 31, 1997 to the Three
- --------------------------------------------------------------------
Months Ended December 31, 1996
--------------------------------
Financial Condition. Total assets decreased $1.3 million during
the quarter to $161.5 million at December 31, 1997. Available-for-
sale investment securities decreased $2.5 million during the quarter
as one security was called and another matured. FHLB advances were
reduced by $2.3 million using the proceeds. Net loans increased $1.3
million during the quarter to $138.1 million and customer deposits
increased by $.6 million to $120.8 million.
Nonperforming assets decreased $.6 million to $950,000, or .59%
of total assets at December 31, 1997 compared to $1,597,000, or .98%
of total assets, at September 30, 1997. Nonaccrual loans of $57,000
at September 30, 1997 remained the same for December 31, 1997.
Net Income. Net income for the quarter ended December 31, 1997
was $493,000 compared to $524,000 for the quarter ended December 31,
1996. Net interest income after provision for loan losses increased
$154,000. Noninterest income decreased $161,000. Noninterest
expense increased $148,000. Income tax expense decreased $124,000
due to the decrease in income before income tax expense.
Net Interest Income. Net interest income increased $152,000,
or 11.9%, from $1,272,000 for the quarter ended December 31, 1996 to
$1,424,000 for the quarter ended December 31, 1997. Interest income
increased $260,000 while interest expense increased $108,000.
Interest Income. Interest income was $3,144,000 for the quarter
ended December 31, 1997, an increase of $260,000, or 9.0%, from
$2,884,000 for the quarter ended December 31, 1996. Interest income
from loans receivable increased $321,000 from $2,595,000 for the
quarter ended December 31, 1996 to $2,886,000 for the quarter ended
December 31, 1997. The increase was attributable to an increase in
average loans outstanding coupled with a slight increase in the
average yield.
Mortgage-backed securities income decreased by $35,000. The
decrease was caused by a reduction in the outstanding balance due to
a sale of a $2.0 million security in April 1997. Income from other
interest-earning assets decreased by $28,000 as a lower balance was
maintained in the FHLB daily-time savings account during the quarter
ended December 31, 1997.
-8-
</page>
FIRST BANCSHARES, INC. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
Interest Expense. Interest expense increased from $1,612,000
for the quarter ended December 31, 1996 to $1,720,000 for the quarter
ended December 31, 1997. The $108,000 increase, or 6.7%, was the
result of customer deposits increasing $7,937,000, or 7.03%, and the
rates paid on these deposits increasing slightly. A decrease in the
outstanding balance of FHLB advances caused interest expense to
decrease by $18,000, or 6.6%.
Provision for Loan Losses. Loan loss provisions decreased
$2,000 from $18,000 for the quarter ended December 31, 1996 to
$16,000 for the quarter ended December 31, 1997. There were no
actual loan losses, net of recoveries, for the quarter ended December
31, 1997. Loan losses, net of recoveries, for the quarter ended
December 31, 1996 were $102,000. An auto loan pool purchased was
written down by $27,500 and the balance of an 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 decreased $161,000 from
$311,000 for the quarter ended December 31, 1996 to $150,000 for the
quarter ended December 31, 1997. Service charges and other fee
income increased to $113,000 for the quarter ended December 31, 1997
from $101,000 for the quarter ended December 31, 1996.
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 was sold for $5,000 in February 1997.
Noninterest Expense. Noninterest expense was $864,000 for the
quarter ended December 31, 1997 compared to $716,000 for the quarter
ended December 31, 1996. The increase of $148,000, or 20.7%, was
primarily in the area of compensation and employee benefits. The
increase in the fair market value of FBSI stock caused the ESOP
expense to increase by $50,000. A bonus of $17,000 was paid to
employees during the quarter ended December 31, 1997. Normal salary
increases were $26,000 and the expense for a temporary employee to
assist in the computer conversion was $8,000. Related payroll taxes
increased $8,000. Occupancy and equipment expense increased $20,000
comprised primarily of increases in maintenance expense of $10,000
and additional $7,000 depreciation for the new Gainesville building
and Theodosia branch.
Deposit insurance premiums decreased $43,000 as lower SAIF
insurance premiums were in effect for the quarter ended December 31,
1997. Advertising and promotional increased $10,000 ($7,000 for
gifts to customer for opening a new checking account and $3,000 for
regular advertising). A modification in accrual amounts caused
professional fees to increase $7,000.
The majority of the $41,000 increase in other expense was
attributable to postage expense increasing $18,000, correspondent
bank service charges increasing $18,000 somewhat offset by a
decrease in office supplies of $9,000.
Net Interest Margin. Net interest margin increased from 3.59%
for the three months ended December 31, 1996 to 3.69% for the three
months ended December 31, 1997. Income from earning assets increased
by $263,000, or 9.1%, between the two quarters while interest expense
increased by $110,000, or 6.8%. The average earning asset base
increased by $8.5 million, or 5.8%, which was offset by a $8.1
million, or 6.4%, increase in the average interest-bearing
liability base.
Comparison of the Six Months ended December 31, 1997 to the Six
- ----------------------------------------------------------------
Months Ended December 31, 1996.
-------------------------------
Financial Condition. Total assets decreased $2.4 million for
the six months ended December 31, 1997. An increase in net loans of
$4.1 million was offset by a $1.4 million decrease in cash and cash
equivalents and a $4.7 million decrease in available-for-sale
investment securities.
FHLB advances were reduced $6.5 million through proceeds from
maturities, calls of investment securities and reductions in cash and
cash equivalents. Customer deposits increased $3.1 million to $120.8
million at December 31, 1997.
Nonperforming assets decreased $570,000 during the six months
ended December 31, 1997.
Net Income. Net income increased $457,000 from $557,000 for the
six months ended December 31, 1996 to $1,014,000 for the six months
ended December 31, 1997. Net interest income after provision for
loan losses increased $278,000, or 11.2%. Noninterest expense
decreased $451,000. This increase was offset by a decrease in
noninterest income of $41,000 and an increase in income taxes of
$231,000.
Net interest income. Net interest income was $2,792,000 for
the six months ended December 31, 1997 compared to $2,509,000 for the
six months ended December 31, 1996. This $283,000 increase was
basically attributable to an increase in interest income of $655,000
offset by an increase in interest expense of $372,000.
Interest income. Total interest income of $5,650,000 for the
six months ended December 31, 1996 increased by $655,000 to
$6,305,000 for the six months ended December 31, 1997. Interest
income from loans receivable increased $670,000, or 13.3%, from
$5,044,000 for the six months ended December 31, 1996 to $5,714,000
for the six months ended December 31, 1997. The increase was
primarily attributable to the increase in avaerage loans outstanding
combined with a slight increase in the average yield.
Interest income from investment securities increased by $61,000
from $451,000 for the six months ended December 31, 1996 to $512,000
for the six months ended December 31, 1997. A higher average
outstanding balance for the period and a slightly higher average
interest rates created the increase. Income from mortgage-backed
securities decreased from $99,000 for the six months ended December
31, 1996 to $24,000 for the six months ended December 31, 1997. The
$75,000 decrease was the result of a reduction in the oustanding
balance due to the sale of a $2.0 million security in April, 1997.
Interest expense. There was a $372,000 increase in interest
expense, or 11.8%, from $3,141,000 for the six months ended December
31, 1996 to $3,513,000 for the six months ended December 31, 1997.
The primary cause of the increase was interest expense on customer
deposits increasing by $271,000 from $2,649,000 for the six months
ended December 31, 1996 to $2,920,000 for the six months ended
December 31, 1997. An increase in average FHLB advances outstanding
resulted in the $101,000 increase in interest expense on borrowed
funds.
Provision for loan losses. Provision for loan losses of $30,000
for the six months ended December 31, 1996 increased by $5,000 to
$35,000 for the six months ended December 31, 1997. Actual loan
losses, net of recoveries, were $9,000 for the six months ended
December 31, 1997 compared to $102,000 for the six months ended
December 31, 1996. The losses for the six months ended December 31,
1996, as discussed in the quarterly section, were to write down the
balance in the auto loan pool purchased and the overdraft to
estimated net realizable value.
Noninterest income. Noninterest income was $388,000 for the
six months ended December 31, 1997, a decrease of $41,000, from
$429,000 for the six months ended December 31, 1996. Service charge
and other fee income increased $35,000, or 18.9%, from $185,000 for
the six months ended December 31, 1996 to $220,000 for the six months
ended December 31, 1997.
Gains on the sale of investments of $83,000 for the six months
ended December 31, 1997 included the sale of the Lawson and Lawson
Insurance Agency which resulted in a $51,000 pre-tax gain, the sale
of common stock at a pre-tax gain of $43,000 netted with an $11,000
additional write-down of an auto loan pool security. Nonrecurring
gains from sales of securities by the holding company were $188,000
for the six months ended December 31, 1996.
Noninterest expense. Noninterest expense decreased from
$2,083,000 for the six months ended December 31, 1996 to $1,632,000
for the six months ended December 31, 1997. The $451,000 decrease
was primarily caused by a reduction in deposit insurance premiums of
$724,000 ($640,000 in a one-time SAIF assessment and $84,000 in
reduced regular premiums). This reduction was offset by increases in
compensation and employee benefits of $180,000 ($91,000 for ESOP
expense based on the increase in the fair market value of FBSI stock,
$45,000 normal salary increases, $17,000 bonus to employees, $8,000
for a temporary employee to assit in the computer conversion, $7,000
group health insurance and $10,000 in related payroll taxes).
Occupancy and equipment expense increased $37,000. The increase
was caused by a $16,000 increase in repairs and maintenance and
$16,000 in additional depreciation for the new Gainesville building
and Theodosia branch. Advertising and promotional increased $15,000
($8,000 gifts to customers for opening new checking accounts and
$7,000 normal advertising costs).
Other expense increased $39,000 as postage expense increased
$18,000 and corresponent bank service charges increased $18,000,
somewhat offset by a $9,000 decrease in office supplies.
Net interest margin. Net interest margin increased from 3.50%
for the six months ended December 31, 1996 to 3.59% for the six
months ended December 31, 1997. Income from earnings assets
increased by $655,000, or 11.6% while interest expense increased
$372,000, or 11.8%. The average earning asset base increased by
$12.5 million, or 8.7%, which was offset by a $13.1 million, or
10.6% increase in the average interest-bearing liability base.
-9-
</page>
FIRST BANCSHARES, INC. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
Liquidity and Capital Resources
- -------------------------------
First Home's primary sources of funds are deposits, proceeds
from principal and interest payments on loans, mortgage-backed
securities, investment securities and net operating income. While
maturities and scheduled amortization of loans and mortgage-backed
securities are a somewhat predictable source of funds, deposit flows
and mortgage prepayments are greatly influenced by general interest
rates, economic conditions and competition.
First Home must maintain an adequate level of liquidity to
ensure availability of sufficient funds to support loan growth and
deposit withdrawals, satisfy financial commitments and take advantage
of investment opportunities. Funds from a $5 million Federal Home
Loan Bank line of credit can be drawn as an alternative source of
funds. During the period presented, First Home used its sources of
funds primarily to fund loan commitments, pay maturing savings
certificates and deposit withdrawals. At December 31, 1997, First
Home had approved loan commitments totaling $1.7 million and
undisbursed loans in process of $2.1 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.
First Home Savings Bank is acquiring two banking centers from
NationsBank, N.A. The banking centers are located in Crane and
Galena, Missouri. The purchase is expected to be completed in
mid-March 1998. Based on preliminary information from NationsBank,
First Home will receive approximately $17.0 million in deposits,
$7.0 million in loans and $10.0 million in liquid funds at closing.
Conversion expenses, such as advertising, notifying current
NationsBank customers and installation of First Home's computer
equipment, will mostly occur in the quarter ending March 31, 1998.
After the purchase is completed, expenses are not expected to exceed
income at the two locations.
Normal daily operating expenses are not expected to significantly
change. Noninterest expense (excluding the one-time SAIF assessment)
as a percentage of average assets at 2.00% is expected to remain
basically constant. Interest expense is expected to gradually
increase as the deposit base gradually increases. The interest
expense increase is projected to be largely offset as new loans are
funded. Customer deposits are expected to exceed withdrawals.
At December 31, 1997, certificates of deposit amounted to $81.2
million, or 67% of First Home's total deposits, including $46.8
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.
-10-
</page>
FIRST BANCSHARES, INC. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
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.
First Home's liquidity ratio was 10.19% at December 31, 1997. 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 December 31, 1997.
<TABLE>
Percent of Adjusted
Amount Total Assets
(Unaudited)
(Dollars in thousands)
<S> <C> <C>
Tangible capital $18,664 11.7%
Tangible capital requirement 2,389 1.5
------- -----
Excess $16,275 10.2%
======= ======
Core capital $18,664 11.7%
Core capital requirement 4,778 3.0
------- ------
Excess $13,886 8.7%
======= ======
Risk-based capital $18,849 17.6%
Risk-based capital requirement 8,557 8.0
------- ------
Excess $10,292 9.6%
======= ======
</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: February 17, 1998 By: /s/ Stephen H. Romines
---------------------- -------------------------
Stephen H. Romines
Chairman, President
CEO
By: /s/ Susan J. Uchtman
-----------------------
Susan J. Uchtman
CFO
15
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> JUN-30-1998 JUN-30-1998
<PERIOD-END> DEC-31-1997 DEC-31-1997
<CASH> 4444 4444
<INT-BEARING-DEPOSITS> 983 983
<FED-FUNDS-SOLD> 218 218
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 0 0
<INVESTMENTS-CARRYING> 13048 13048
<INVESTMENTS-MARKET> 13070 13070
<LOANS> 138157 138157
<ALLOWANCE> 516 516
<TOTAL-ASSETS> 161527 161527
<DEPOSITS> 120812 120812
<SHORT-TERM> 55 55
<LIABILITIES-OTHER> 400 400
<LONG-TERM> 17000 17000
0 0
0 0
<COMMON> 16 16
<OTHER-SE> 23244 23244
<TOTAL-LIABILITIES-AND-EQUITY> 161527 161527
<INTEREST-LOAN> 2886 5714
<INTEREST-INVEST> 245 537
<INTEREST-OTHER> 13 55
<INTEREST-TOTAL> 3144 6305
<INTEREST-DEPOSIT> 1467 2920
<INTEREST-EXPENSE> 1720 3513
<INTEREST-INCOME-NET> 1424 2792
<LOAN-LOSSES> 16 35
<SECURITIES-GAINS> 0 83
<EXPENSE-OTHER> 864 1632
<INCOME-PRETAX> 694 1513
<INCOME-PRE-EXTRAORDINARY> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 493 1014
<EPS-PRIMARY> .49 1.01
<EPS-DILUTED> .46 .94
<YIELD-ACTUAL> 3.69 3.59
<LOANS-NON> 57 57
<LOANS-PAST> 621 621
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 1825 1825
<ALLOWANCE-OPEN> 499 482
<CHARGE-OFFS> 0 9
<RECOVERIES> 1 8
<ALLOWANCE-CLOSE> 516 516
<ALLOWANCE-DOMESTIC> 516 516
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 220 220
</TABLE>
