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, 1998
-------------------------------
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 11, 1998, there were 2,212,706 shares of the Registrant's
Common Stock, $.01 par value per share, outstanding.
</page>
FIRST BANCSHARES, INC. AND SUBSIDIARY
FORM 10-QSB
MARCH 31, 1998
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,
1998 1997
<S> <C> <C>
ASSETS (Dollars in thousands)
Cash and cash equivalents, including
interest-bearing accounts of $12,157
at March 31 and $1,895 at June 30 $ 15,535 $ 5,809
Federal funds sold 613 -
Certificates of deposit 1,805 1,504
Investment securities available-for-sale,
at fair value 6,567 14,227
Investment securities held-to-maturity
(estimated fair value $1,279 at
March 31 and $1,626 at June 30) 1,246 1,605
Investment in Federal Home Loan Bank stock,
at cost 1,192 1,264
Mortgage backed certificates available-
for-sale, at fair value 748 828
Loans receivable held-for-investment, net
(includes reserves for loan losses of
$520 at March 31 and $482 at June 30) 144,264 134,104
Accrued interest receivable 692 665
Prepaid expenses 137 117
Property and equipment, less accumulated
depreciation and valuation reserves 4,126 3,694
Intangible assets, less accumulated
amortization 1,013 31
Real estate owned - 114
Other assets 8 11
--------- ---------
Total assets $ 177,946 $ 163,973
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Customer deposits $ 140,733 $ 117,685
Advances from Federal Home Loan Bank 12,200 23,500
Other borrowed funds - 55
Income taxes payable - current 295 5
Accrued expenses 564 249
Deferred income taxes 265 272
--------- ---------
Total liabilities 154,057 141,766
--------- ---------
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, 3,164,180 issued,
2,210,528 and 2,183,108 outstanding at
March 31 and June 30, respectively 16 16
Paid-in capital 15,730 15,250
Retained earnings - substantially restricted 16,465 15,212
Treasury stock - at cost; 953,652 and
933,952 shares at March 31 and June 30,
respectively (7,632) (7,430)
Unearned compensation (781) (977)
Unrealized loss on securities available-
for-sale, net of applicable deferred
income taxes 91 136
-------- --------
Total stockholders' equity 23,889 22,207
-------- --------
Total liabilities and stockholders'
equity $ 177,946 $ 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 Nine Months Ended
March 31, March 31,
1998 1997 1998 1997
-------- -------- -------- -------
<S> <C> <C> <C> <C>
(Dollars in thousands)
Interest Income:
Loans receivable $ 2,915 $ 2,634 $ 8,629 $ 7,678
Investment securities 208 293 720 744
Mortgage-backed and related
securities 13 47 37 146
Other interest-earning assets 35 17 90 73
------- ------- ------- -------
Total interest income 3,171 2,991 9,476 8,641
------- ------- ------- -------
Interest Expense:
Customer deposits 1,476 1,325 4,396 3,974
Borrowed funds 235 317 828 809
------- ------- ------- ------
Total interest expense 1,711 1,642 5,224 4,783
------- ------- ------- ------
Net interest income 1,460 1,349 4,252 3,858
Provision for loan losses 22 20 57 50
------- ------ ------ ------
Net interest income after
provisions for losses 1,438 1,329 4,195 3,808
------- ------- ------ ------
Noninterest Income:
Service charges and other
fee income 109 88 329 273
Loan origination and commitment
fees 3 3 5 6
Income from real estate
operations 24 20 79 66
Insurance commissions 25 17 52 50
Gain (loss) on investments (9) (3) 74 185
Gain on sale of property and
equipment - - 1 (26)
------- ------ ------ -------
Total noninterest income 152 125 540 554
------- ------ ------ -------
Noninterest Expense:
Compensation and employee
benefits 592 466 1,642 1,336
Occupancy and equipment 117 104 338 288
Deposit insurance premiums 19 4 55 764
Advertising and promotional 31 22 79 61
Professional fees 16 16 47 45
Other 181 116 427 317
------- ------- ------ ------
Total noninterest expense 956 728 2,588 2,811
------- ------ ------ ------
Income before taxes 634 726 2,147 1,551
Income Taxes 230 278 729 546
------- ------ ------- ------
Net income $ 404 $ 448 $ 1,418 $ 1,005
======= ======= ======= =======
Earnings per share -
basic .20 .21 .70 .50
======= ======== ======= =======
Earnings per share -
diluted .18 .20 .66 .46
======= ========= ======= ========
Dividends per share .03 .025 .16 .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, 1998 and 1997
<CAPTION>
(Unaudited)
1998 1997
--------- ---------
<S> <C> <C>
(Dollars in thousands)
Cash flows from operating activities:
Net income $ 1,418 $ 1,005
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 161 123
Amortization 7 10
Unrealized loss on investment securities 18 12
Gain on sale of intangibles (51) -
Gain on sale of real estate owned (16) -
Gain on sale of investments (42) (192)
Gain on sale of property and equipment - -
Loss on write-down of property - 26
Premiums and discounts on mortgage-backed
securities and investment securities (9) (2)
Loss on loans, net of recoveries 57 50
Income reinvested on investment securities and
Federal Home Loan Bank stock - -
ESOP compensation expense at fair value 241 91
Vesting of unearned compensation 196 183
Net change in operating accounts:
Accrued interest receivable and other assets 21 (198)
Deferred loan costs (40) (20)
Deferred income tax benefits, net - -
Income taxes payable - current 290 246
Deferred income tax payable 27 26
Accrued expenses 250 (21)
------- ------
Net cash from operating activities 2,528 1,339
------- -------
Cash flows from investing activities:
Purchase of investment securities available-
for-sale (248) (6,234)
Purchase of investment securities held-to-
maturity (105) -
Purchase of Federal Home Loan Bank stock (302)
Proceeds from redemption of Federal Home Loan
Bank stock 72 -
Proceeds from sales of investment securities
available-for-sale 232 721
Proceeds from maturities of investment securities
available-for-sale 7,650 1,000
Proceeds from maturities of investment securities
held-to-maturity 446 494
Net change in certificates of deposit (301) 715
Net change in federal funds sold (613) -
Net change in loans receivable (5,546) (10,872)
Proceeds from maturities of mortgage-backed
certificates 78 98
Purchases of property and equipment (261) (688)
Proceeds from sale of property and equipment 9 -
Purchase of intangible in branch acquisition (1,019) -
Proceeds from sale of intangibles 81 -
Proceeds from sale of real estate owned 286 -
Purchase of other assets - -
------- -------
Net cash used in investing activities 761 (15,068)
-------- --------
See accompanying notes to Consolidated Financial Statements.
-3-
</page>
FIRST BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
- - - - - - - - - - - - - - - - - - - - - - - - - -
(Unaudited)
1998 1997
--------- ---------
(Dollars in thousands)
Cash flows from financing activities:
Net change in demand deposits, savings
accounts, and certificates of deposit $ 5,626 $ 8,282
Branch acquisition - liabilities assumed, net
of assets 12,294 -
Proceeds from borrowed funds - 8,600
Payments on borrowed funds (11,355) -
Proceeds from sale of common stock 239 35
Purchase of treasury stock (202) (1,900)
Cash dividends paid (165) (164)
--------- ---------
Net cash from financing activities 6,437 14,853
-------- ---------
Net increase in cash and cash equivalents
9,726 1,124
Cash and cash equivalents -
beginning of period 5,809 3,316
------- -------
Cash and cash equivalents -
end of period $ 15,535 $ 4,440
======== =========
</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, 1998
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, 1998 interim financial statements.
The results of operations for the periods ended March 31, 1998 and
1997 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 - Earnings per Share
- ---------------------------
Earnings per share are presented for the periods ended March 31,
1998 and 1997 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 Outstanding Issuable
---------------------------- --------
Quarter ended March 31, 1998 2,054,383 139,710
Nine months ended March 31, 1998 2,028,819 127,977
Quarter ended March 31, 1997 2,154,566 119,522
Nine months ended March 31, 1997 2,207,084 102,000
NOTE C - Employee Stock Ownership Plan
- --------------------------------------
In connection with the conversion to stock form as described in
previous filings, 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,
(equivalent to 304,164 shares after the 2-for-1 stock split on
January 30, 1998). 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 $147,000 and
$370,000 for the three months and nine months ended March 31, 1998,
respectively. ESOP compensation expense was $79,000 and $211,000
for the three months and nine months ended March 31, 1997.
A summary of ESOP shares at March 31, 1998 is as follows:
Shares allocated 125,086
Shares committed for release 28,326
Unreleased shares 141,870
-------
Total 295,282
=======
Fair value of unreleased shares $1,915,245
==========
NOTE D - 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,
(equivalent to 60,834 shares after the 2-for-1 stock split on
January 30, 1998). 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 E - 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 942, 722 shares of stock have been acquired at
a combined cost of $7,368,000. On June 30, 1997, a seventh repurchase
program of 218,932 shares was initiated. As of May 11, 1998, 11,130
shares had been repurchased at a cost of $117,000. Treasury stock is
shown at cost for financial statement presentation.
NOTE F - Acquisition
- --------------------
On March 12, 1998, First Home Savings Bank, the wholly-owned
subsidiary of First Bancshares, Inc., completed a purchase of two
branch banks from NationsBank. The branches are located at Crane
and Galena, Missouri. The acquisition was accounted for under the
purchase method. Assets acquired were cash - $11.3 million,
property and equipment - $341,000, and loans - $4.8 million.
Liabilities assumed were customer deposits of $17.4 million. A
premium was paid to NationsBank for the loans purchased and
customer deposit accounts assumed. The total premium was $1.02
million. This intangible asset will be written off over the
estimated lives of the underlying accounts.
NOTE G - Stock Dividend
- -----------------------
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 paid on January 30, 1998
to sharesholders of record as of January 16, 1998. All amounts in
this report pertaining to shares of stock have been adjusted to
account for the split.
NOTE H - 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.
-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 nine month periods ended
March 31, 1998 and 1997.
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 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, 1998 to the Three
- ----------------------------------------------------------------
Months Ended March 31 1997
--------------------------
Financial Condition. Largely as a result of the two branches
purchased from NationsBank, total assets increased $16.4 million
during the quarter ended March 31, 1998. Loans increased $6.1
million ($4.8 million from the branches purchased). Federal funds
sold and certificates of deposits increased $900,000. Other
increases in assets directly related to the branches purchased were
cash and cash equivalents of $11.1 million, property and equipment
of $350,000 and intangible assets of $1.0 million. These increases
were offset by a decrease in investment securities of $3.3 million.
Customer deposits increased $19.9 million, of which $17.4 million
related to the branches purchased. Advances from the Federal Home
Loan Bank decreased $4.8 million.
Nonperforming assets were $1,175,000, or .66% of total assets
at March 31, 1998 compared to $950,000, or .59% of total assets at
December 31, 1997 and $1,438,000, or .90% of total assets at March
31, 1997. Nonaccrual loans of $57,000 at March 31, 1998 remained
constant from December 31, 1997 and March 31, 1997.
Net Income. Net income was $404,000 for the quarter ended
March 31, 1998, a decrease of $44,000, or 9.8%, from net income of
$448,000 for the quarter ended March 31, 1997. Net interest income
after provision for loan losses increased $109,000 and noninterest
income increased $27,000. Total noninterest expense increased
$228,000. Income tax expense decreased $48,000 due to the decrease
in income before income tax expense.
Net Interest Income. Net interest income increased $111,000,
or 8.2%, to $1,460,000 for the quarter ended March 31, 1998 from
$1,349,000 for the quarter ended March 31, 1997. Interest income
increased $180,000 while interest expense increased $69,000.
Interest Income. Interest income was $3,171,000 for the
quarter ended March 31, 1998 compared to $2,991,000 for the quarter
ended March 31, 1997. This $180,000 increase, or 6.0%, was largely
attributable to a $281,000 increase in interest income from
loans receivable from $2,634,000 for the quarter ended March 31,
1997 to $2,915,000 for the quarter ended March 31, 1998. The
balance of average loans outstanding increased while the interest
rates on new and existing adjustable rate loans increased very
slightly.
Interest income from investment securities decreased by $85,000
from $293,000 for the quarter ended March 31, 1997 to $208,000 for
the quarter ended March 31, 1998. Several securities were called
or matured during the quarter ended March 31, 1998 and the average
interest earned on investment securities decreased slightly.
Mortgage-backed securities income decreased $34,000. 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 increased by $18,000 as higher balances
were maintained in the FHLB daily-time savings account and in federal
funds sold during the quarter ended March 31, 1998.
-8-
</page>
FIRST BANCSHARES, INC. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
Interest Expense. Interest expense of $1,711,000 for the
quarter ended March 31, 1998 increased $69,000, or 4.2%, from
$1,642,000 for the quarter ended March 31, 1997. The increase
was attributable to an increase in the balance in customer
deposits. This increase was offset by a decrease of $82,000 in
interest expense on borrowed funds as Federal Home Loan Bank
advances were repaid.
Provision for Loan Losses. Loan loss provisions remained
basically constant at $22,000 for the quarter ended March 31, 1998
compared to $20,000 for the quarter ended March 31, 1997. Charge-
offs, net of recoveries, on First Home originated loans were
$18,000 for the quarter ended March 31, 1998. There were no loan
losses, net of recoveries, on First Home originated loans for the
quarter ended March 31, 1997.
Noninterest Income. Noninterest income of $152,000 for the
quarter ended March 31, 1998 increased $27,000 from $125,000 for
the quarter ended March 31, 1997. Service charges and other fee
income increased by $21,000 from $88,000 for the quarter ended
March 31, 1997 to $109,000 for the quarter ended March 31, 1998.
Income from real estate operations increased from $20,000 for
the quarter ended March 31, 1997 to $24,000 for the quarter ended
March 31, 1998. This $4,000 increase was primarily attributable
to full occupancy of the rental properties held by the Savings
Bank's service corporation. Insurance commissions increased $8,000.
First Bancshares, Inc. formed a wholly-owned subsidiary corporation,
South Central Missouri Title, Inc. in October 1997. South Central
sells title insurance and performs real estate closings for the
general public.
Noninterest Expense. Noninterest expense increased $228,000,
or 31%, from $728,000 for the quarter ended March 31, 1997 to
$956,000 for the quarter ended March 31, 1998. Compensation and
employee benefits increased $126,000. The increase was
primarily attributable to a $68,000 increase to record ESOP expense
at fair market value and the remainder to payroll increases which
went into effect on January 1, 1998 for existing personnel.
Addition of personnel at the Crane and Galena branches effective
March 12, 1998 contributed slightly to the increase. Occupancy
and equipment increased $13,000. The majority of this increase was
for the installation of a new computer system in January 1998.
The previous system had been fully depreciated for several
quarters. The purchase of the branches in Crane and Galena,
Missouri created a small increase.
Deposit insurance premiums increased $15,000 as the outstanding
balance of customer deposits increased and an overpayment of
premiums from the SAIF assessment were used in the March 1997
payment. Advertising and promotional increased $9,000 to promote
the purchase of the Crane and Galena branches. Other noninterest
expenses increased $65,000, primarily due to $46,000 of nonrecurring
expenses for the purchase of the Crane and Galana branches. Postage
increased $9,000 and correspondent bank charges increased $4,000
caused by increases in checking account activity.
-9-
</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 3.57%
for the three months ended March 31, 1997 to 3.71% for the three
months ended March 31, 1998. Income from earning assets increased
by $180,000, or 6%, between the two quarters while interest expense
increased by $68,000, or 4%. Net interest income increased by
$112,000, or 8%. The average earning asset base increased by $6.3
million, or 4%, which was offset by a $5.7 million, or 4%, increase
in the average interest-bearing liability base.
Comparison of the Nine Months ended March 31, 1998 to the Nine
- ---------------------------------------------------------------
Months Ended March 31, 1997.
----------------------------
Financial Condition. Total assets for the nine months ended
March 31, 1998 increased by $14.0 million. Cash and cash
equivalents, federal funds sold, and certificates of deposit
purchased increased by $10.6 million. Net loans increased $10.2
million and property and equipment increased $432,000. Investment
securities decreased $8.1 million. Intangible assets increased
$982,000 in connection with the Crane and Galena branch purchase.
Customer deposits increased by $23.0 million. Advances from Federal
Home Loan Bank decreased by $11.3 million.
Nonperforming assets decreased $345,000 during the nine months
ended March 31, 1998.
Net Income. Net income increased to $1,418,000 for the nine
months ended March 31, 1998 from $1,005,000 for the nine months ended
March 31, 1997. Net interest income after provision for loan losses
was $4,195,000 for the nine months ended March 31, 1998 compared to
$3,808,000 for the nine months ended March 31, 1997. This $387,000
increase was somewhat offset by a $14,000 decrease in noninterest
income. Noninterest expense decreased $223,000. Income tax expense
increased $183,000 due to the increase in income before income tax
expense.
Net Interest Income. Net interest income of $4,252,000 for the
nine months ended March 31, 1998 increased $394,000 from net interest
income of $3,858,000 for the nine months ended March 31, 1997. Total
interest income increased by $835,000 while total interest expense
increased $441,000.
Interest Income. Total interest income increased $835,000 from
$8,641,000 for the nine months ended March 31, 1997 to $9,476,000
for the nine months ended March 31, 1998. The increase resulted from
a $951,000 increase in income from loans receivable from $7,678,000
for the nine months ended March 31, 1997 to $8,629,000 for the nine
months ended March 31, 1998. This increase was primarily due to an
increase in the average outstanding loan balances during the two
periods.
The increase in income from loans was somewhat offset by a
$24,000 decrease in income on investment securities to $720,000 for
the nine months ended March 31, 1998 compared to $744,000 for the
nine months ended March 31, 1997. The decrease reflects a lower
average balance of investment securities offset slightly by higher
average interest rates during the nine months ended March 31, 1998.
Further, interest income from mortgage-backed securities decreased
$109,000 to $37,000 for the nine months ended March 31, 1998. The
decrease was the result of a reduction in the outstanding balance
due to the sale of a $2.0 million security in April, 1997.
Interest Expense. Total interest expense was $5,224,000 for
the nine months ended March 31, 1998, a $441,000 increase from
$4,783,000 for the nine months ended March 31, 1997. An increase
in the average balance of customer deposits and an increase in the
average interest rates on the deposits caused the greater portion of
the increase. A $19,000 increase in interest expense on borrowed
funds, attributable to additional Federal Home Loan Bank advances,
made up the remainder of the increase in interest expense.
-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 increased
by $7,000 from $50,000 for the nine months ended March 31, 1997 to
$57,000 for the nine months ended March 31, 1998. The increase was
largely attributable to establishment of additional reserves for the
loans purchased at the Crane and Galena branches. Actual loan
losses, net of recoveries, on First Home originated loans were
$27,000 for the nine months ended March 31, 1998 compared to $1,400
for the nine months ended March 31, 1997.
Noninterest Income. Noninterest income of $540,000 for the nine
months ended March 31, 1998 decreased by $14,000 from $554,000 for
the nine months ended March 31, 1997. Service charges and other fee
income of $329,000 for the nine months ended March 31, 1998 increased
$56,000 from $273,000 for the nine months ended March 31, 1997.
Income from real estate operations increased $13,000 from
$66,000 for the nine months ended March 31, 1997 to $79,000 for the
nine months ended March 31, 1998. The increase was attributable to
higher occupancy rates at the commercial rental properties. Gains
from sales of investments for the nine months ended March 31, 1998
included the sale of 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 $20,000 additional write-down
of an auto loan pool security. Nonrecurring gains from sales of
securities by the holding company were $188,000 for the nine months
ended March 31, 1997.
Noninterest Expense. Noninterest expense decreased by $223,000
to $2,588,000 for the nine months ended March 31, 1998 from
$2,811,000 for the nine months ended March 31, 1997. The decrease
was caused by a reduction in deposit insurance premiums of $709,000
($640,000 in a one-time SAIF assessment and $69,000 in reduced regular
premiums). This reduction was offset by increases in compensation and
employee benefits of $306,000, or 23%. The increase was attributable
to an additional $159,000 for the recording of ESOP shares committed
to be released at current fair market value. Other increases in
compensation and employee expense were $103,000 of normal salary
increases, $17,000 for employee bonuses, $21,000 for temporary
employees to assist in the computer conversion and the remainder in
related payroll taxes.
Occupancy and equipment increased $50,000. The increase was
comprised of an increase in repair and maintenance expense,
additional depreciation for the Gainesville building and Theodosia
branch and additional depreciation for the new computer system.
Upfront advertising costs for the Crane and Galena branches and
continuing increases in gifts to customers for opening new checking
accounts increased advertising expense by $18,000. Other noninterest
expenses increased by $110,000 attributable to the purchase of Crane
and Galena branches, increased postage expense and increased
correspondent bank charges.
-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 3.62% for the nine
months ended March 31, 1998 increased .09% from 3.53% for the nine
months ended March 31, 1997. The increase in income from earning
assets of $838,000 was partially offset by the increase in interest
expense of $442,000. The average earning assets base increased by
$10.6 million, or 7%, which was partially offset by a $10.6 million,
or 8%, 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, net operating income and FHLB
advances. 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, 1998, First Home
had approved loan commitments totaling $2.6 million and undisbursed
loans in process of $2.0 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.
Normal daily operating expenses are expected to increase
somewhat as the Crane and Galena branches are assimilated into
our system. Those expenses are, however, expected to be more than
offset by additional revenues generated from those two branches.
Noninterest expense as a percentage of average assets at
approximately 2% is expected to remain basically constant. Interest
expense on customer deposits is expected to increase slightly over
the near future as the deposit base gradually increases. Rates on
existing interest bearing transaction accounts and maturing
certificates of deposits are expected to remain basically stable.
Interest expense on borrowed funds is expected to gradually decrease
as FHLB advances are repaid with liquid funds obtained in conjunction
with the Crane and Galena branch acquisition.
Interest income is expected to gradually increase over the near
future as new loans are funded. Interest rates on existing
adjustable-rate loans are expected to remain basically constant
to gradually decreasing. Securities and maturing investments are
expected to be reinvested at relatively constant interest rates.
Noninterest income is expected to increase slightly as service
charges and other fee income from demand deposit accounts increases.
Customer deposits are expected to marginally exceed withdrawals.
-12-
</page>
FIRST BANCSHARES, INC. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
At March 31, 1998, certificates of deposit amounted to $89.6
million, or 64% of First Home's total deposits, including $54.2
million of fixed rate certificates scheduled to mature within
twelve months. Historically, First Home has been able to retain
a significant amount of its deposits as they mature. Management
believes it has adequate resources to fund all loan commitments from
savings deposits, loan payments and the Federal Home Loan Bank line
of credit and adjust the offering rates of savings certificates to
retain deposits in changing interest rate environments.
The Office of Thrift Supervision requires a savings institution
to maintain an average daily balance of liquid assets (cash and
eligible investments) equal to at least 4% of the average daily
balance of its net withdrawable deposits and short-term borrowings.
First Home's liquidity ratio was 12.49% at March 31, 1998. 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, 1998.
<TABLE>
Percent of Adjusted
Amount Total Assets
------ ------------------
(Unaudited)
(Dollars in thousands)
<S> <C> <C>
Tangible capital $18,203 10.4%
Tangible capital requirement 2,624 1.5
------- -----
Excess $15,579 8.9%
======= ======
Core capital $18,203 10.4%
Core capital requirement 6,999 4.0
------- ------
Excess $11,204 6.4%
======= =====
Risk-based capital $18,401 15.9%
Risk-based capital requirement 9,284 8.0
------- -----
Excess $ 9,117 7.9%
======= =====
</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 14, 1998 By: /s/ Stephen H. Romines
------------------------- -------------------------
Stephen H. Romines
Chairman, President
CEO
By: /s/ Susan J. Uchtman
----------------------
Susan J. Uchtman
CFO
20
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> JUN-30-1998 JUN-30-1998
<PERIOD-END> MAR-31-1998 MAR-31-1998
<CASH> 15535 15535
<INT-BEARING-DEPOSITS> 12157 12157
<FED-FUNDS-SOLD> 613 613
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 0 0
<INVESTMENTS-CARRYING> 10810 10810
<INVESTMENTS-MARKET> 10843 10843
<LOANS> 144264 144264
<ALLOWANCE> 520 520
<TOTAL-ASSETS> 177946 177946
<DEPOSITS> 140733 140733
<SHORT-TERM> 0 0
<LIABILITIES-OTHER> 1124 1124
<LONG-TERM> 12200 12200
0 0
0 0
<COMMON> 16 16
<OTHER-SE> 23873 23873
<TOTAL-LIABILITIES-AND-EQUITY> 177946 177946
<INTEREST-LOAN> 2915 8629
<INTEREST-INVEST> 208 720
<INTEREST-OTHER> 48 127
<INTEREST-TOTAL> 3171 9476
<INTEREST-DEPOSIT> 1476 4396
<INTEREST-EXPENSE> 1711 5224
<INTEREST-INCOME-NET> 1460 4252
<LOAN-LOSSES> 22 57
<SECURITIES-GAINS> 0 74
<EXPENSE-OTHER> 956 2588
<INCOME-PRETAX> 634 2147
<INCOME-PRE-EXTRAORDINARY> 634 2147
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 404 1418
<EPS-PRIMARY> .20 .70
<EPS-DILUTED> .18 .66
<YIELD-ACTUAL> 3.57 3.62
<LOANS-NON> 57 57
<LOANS-PAST> 1491 1491
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 1383 1383
<ALLOWANCE-OPEN> 516 482
<CHARGE-OFFS> 18 27
<RECOVERIES> 0 8
<ALLOWANCE-CLOSE> 520 520
<ALLOWANCE-DOMESTIC> 520 520
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 232 232
</TABLE>
