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, 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 February 10, 1999, there were 2,114,458 shares of the
Registrant's Common Stock, $.01 par value per share, outstanding.
</page>
FIRST BANCSHARES, INC. AND SUBSIDIARIES
FORM 10-QSB
December 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
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited) 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(unaudited) 6-7
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>
<CAPTION>
FIRST BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
- - - - - - - - - - - - - - - - - - - - - - - -
(Unaudited)
December 31, June 30,
1998 1998
------------ --------
ASSETS
(Dollars in thousands)
<S> <C> <C>
Cash and cash equivalents, including interest-bearing
accounts of $10,257 at December 31 and $5,898 at June 30 $ 12,340 $ 11,863
Federal funds sold 245 -
Certificates of deposit 1,909 2,205
Investment securities available-for-sale, at fair value 2,094 2,701
Investment securities held-to-maturity (estimated
fair value $1,058 at December 31 and $1,126 at June 30) 1,042 1,114
Investment in Federal Home Loan Bank stock, at cost 1,058 1,058
Mortgage backed certificates available-for-sale, at fair value 632 703
Loans receivable held-for-investment, net (includes reserves for
loan losses of $553 at December 31 and $528 at June 30) 150,624 146,406
Accrued interest receivable 627 664
Prepaid expenses 85 126
Property and equipment, less accumulated depreciation
and valuation reserves 4,618 4,298
Intangible assets, less accumulated amortization 969 1,003
Other assets 8 32
-------- --------
Total assets $ 176,251 $ 172,173
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Customer deposits $ 147,110 $ 141,059
Advances from Federal Home Loan Bank 3,700 5,700
Income taxes payable - current 96 75
Accrued expenses and accounts payable 568 705
Deferred income taxes 268 269
---------- ----------
Total liabilities 151,742 147,808
---------- ----------
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,
2,695,296 issued, 2,148,683 and 2,213,600 outstanding at
December 31 and June 30, respectively 27 27
Paid-in capital 15,994 15,838
Retained earnings - substantially restricted 17,568 16,823
Treasury stock - at cost; 546,613 and 479,976 shares at
December 31 and June 30, respectively (8,528) (7,664)
Unearned compensation (590) (734)
Unrealized gain (loss) on securities available-for-sale, net of
applicable deferred income taxes 38 75
--------- --------
Total stockholders' equity 24,509 24,365
---------- ----------
Total liabilities and stockholders' equity $ 176,251 $ 172,173
========== ==========
</TABLE>
See accompanying notes to Consolidated Financial Statements.
-1-
</page>
<TABLE>
<CAPTION>
FIRST BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
- - - - - - - - - - - - - - - - - - - - -
(Unaudited) (Unaudited)
Quarter Ended Six Months Ended
December 31, December 31,
1998 1997 1998 1997
-------- ------- -------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Interest Income:
Loans receivable $ 3,061 $2,886 $ 6,098 $ 5,714
Investment securities 93 232 204 512
Mortgage-backed and related securities 16 13 33 24
Other interest-earning assets 78 13 167 55
------- ------ -------- --------
Total interest income 3,248 3,144 6,502 6,305
------- ------ -------- --------
Interest Expense:
Customer deposits 1,630 1,467 3,268 2,920
Borrowed funds 74 253 160 593
------- ------ ------- --------
Total interest expense 1,704 1,720 3,428 3,513
------- ------ ------- --------
Net interest income 1,544 1,424 3,074 2,792
Provision for loan losses 21 16 43 35
------- ------ ------- --------
Net interest income after
provisions for losses 1,523 1,408 3,031 2,757
------- ------- ------ --------
Noninterest Income:
Service charges and other fee income 137 113 293 220
Loan origination and commitment fees 1 1 3 2
Income from real estate operations 27 22 51 55
Insurance commissions 42 17 75 27
Gain on sale of investments (2) (4) (14) 83
Gain on sale of property and equipment (8) 1 (8) 1
------- ------ ------- -------
Total noninterest income 197 150 400 388
------ ------- ------- -------
Noninterest Expense:
Compensation and employee benefits 641 550 1,276 1,050
Occupancy and equipment 143 115 285 221
Deposit insurance premiums 21 18 42 36
Advertising and promotional 12 26 41 48
Professional fees 41 17 63 31
Other 200 138 365 246
------ ------- ------- -------
Total noninterest expense 1,058 864 2,072 1,632
------ ------- -------- -------
Income before taxes 662 694 1,359 1,513
Income Taxes 241 201 494 499
------ ------- ------ --------
Net income $ 421 $ 493 $ 865 $ 1,014
====== ====== ====== ========
Earnings per share - basic .21 .24 .42 .50
====== ====== ====== =======
Earnings per share - diluted .20 .23 .40 .47
====== ====== ====== =======
Dividends per share .03 .025 .06 .05
====== ====== ====== =======
</TABLE>
See accompanying notes to Consolidated Financial Statements.
-2-
</page>
<TABLE>
<CAPTION>
FIRST BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
- - - - - - - - - - - - - - - - - - - - -
Six months ended December 31, 1998 and 1997
(Unaudited)
1998 1997
-------- -------
(Dollars in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 865 $ 1,014
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 127 97
Amortization 34 1
Unrealized loss on investment securities 14 9
Gain on sale of intangibles - (51)
Gain on sale of real estate owned - (16)
Gain on sale of investments securities
available-for-sale - (42)
Loss on disposal of equipment 8 -
Premiums and discounts on mortgage-backed
securities and investment securities - (8)
Loss on loans, net of recoveries 43 35
Vesting of MRP shares 53 56
Release of ESOP shares 238 230
Net change in operating accounts:
Accrued interest receivable and other assets 102 214
Deferred loan costs (38) (17)
Income taxes payable - current 21 68
Deferred income tax payable (4) 12
Accrued expenses (137) (171)
-------- --------
Net cash from operating activities 1,326 1,431
-------- --------
Cash flows from investing activities:
Purchase of investment securities
available-for-sale (27) (203)
Purchase of investment securities held-to-maturity (311) (105)
Proceeds from sales of investment securities
available-for-sale - 232
Proceeds from maturities of investment securities
available-for-sale 600 4,650
Proceeds from maturities of investment securities
held-to-maturity 369 112
Proceeds from sale of Federal Home Loan Bank stock - 72
Net change in certificates of deposit 296 199
Net change in federal funds sold (245) (218)
Net change in loans receivable (4,244) (4,227)
Proceeds from maturities of mortgage-backed
certificates 71 65
Purchases of property and equipment (434) (188)
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 (3,925) 765
-------- ---------
See accompanying notes to Consolidated Financial Statements.
-3-
</page>
FIRST BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
- - - - - - - - - - - - - - - - - - - - - - - - -
Six months ended December 31, 1998 and 1997
(Unaudited)
1998 1997
------- ----------
(Dollars in thousands)
Cash flows from financing activities:
Net change in demand deposits, savings accounts,
and certificates of deposit $ 6,051 $ 3,127
Proceeds from borrowed funds - -
Payments on borrowed funds (2,000) (6,500)
Proceeds from sale of common stock 9 112
Purchase of treasury stock (864) (197)
Cash dividends paid (120) (103)
-------- ---------
Net cash from financing activities 3,076 (3,561)
-------- ---------
Net increase/(decrease) in cash and cash equivalents 477 (1,365)
Cash and cash equivalents -
beginning of period 11,863 5,809
-------- ---------
Cash and cash equivalents -
end of period $ 12,340 $ 4,444
========= =========
</TABLE>
See accompanying notes to Consolidated Financial Statements.
-4-
</page>
<TABLE>
<CAPTION>
FIRST BANCSHARES, INC. AND SUBSIDIARIES
STATEMENTS OF COMPREHENSIVE INCOME
- - - - - - - - - - - - - - - - - - - - -
Six months ended December 31, 1998 and 1997
(Unaudited)
1998 1997
-------- --------
(Dollars in thousands)
<S> <C> <C>
Net income $ 865 $ 1,014
-------- --------
Other comprehensive income, net of tax
Unrealized gains (losses) on securities (37) (59)
-------- ---------
Other comprehensive income (37) (59)
-------- ---------
Comprehensive income $ 828 $ 955
======== =========
</TABLE>
See accompanying notes to Consolidated Financial Statements.
-5-
</page>
FIRST BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
NOTE A - Basis of Presentation
The consolidated interim financial statements as of December 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 December 31, 1998 interim financial statements.
The results of operations for the periods ended December 31, 1998 and
1997 are not necessarily indicative of the operating results for the
full year. The June 30, 1998 Consolidated Statement of Financial
Condition presented with the interim financial statements was audited
and received an unqualified opinion.
NOTE B - Earnings per Share
Basic earnings per share excludes dilution and is computed by
dividing net income available to common stockholders by the weighted
average number of shares outstanding during the period. Diluted
earnings per share reflects the potential dilution that could occur
if securities or other contracts to issue common stock were exercised
or resulted in the issuance of common stock that would share in the
earnings of the Company. Dilutive potential common shares are added
to weighted average shares used to compute basic earnings per share.
The number of shares that would be issued from the exercise of stock
options has been reduced by the number of shares that could have been
purchased from the proceeds at the average market price of the
Company's stock. For the periods presented, unreleased ESOP shares
are not considered outstanding for purposes of calculating earnings
per share.
</page>
-6-
FIRST BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(continued)
NOTE B - Earnings per Share-continued
Dilutive
Weighted Average Number Shares
of Common Shares Issuable
------------------- ---------
Quarter ended Dec. 31, 1998 2,037,560 116,684
Quarter ended Dec. 31, 1997 2,025,670 138,544
Six months ended Dec. 31, 1998 2,047,326 117,451
Six months ended Dec. 31, 1997 2,016,036 134,902
NOTE C - 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 218,932 shares was initiated. As of February 10, 1999,
92,212 shares had been repurchased at a cost of $1,187,000. Treasury
stock is shown at cost for financial statement presentation.
NOTE D - Accounting Changes
During the current year ending June 30, 1999, the Company has adopted
SFAS No. 130, "Reporting Comprehensive Income", which establishes
standards for reporting and presenting of comprehensive income and its
components in a full set of general-purpose financial statements. It
requires that all items that are required to be recognized under
accounting standards as components of comprehensive income be
reported in a financial statement that is presented with the same
prominence as other financial statements. SFAS No. 130 requires that
companies (i) classify items of other comprehensive income by their
nature in a financial statement and (ii) display the accumulated
balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of the
statement of condition. The Company's most significant component of
other comprehensive income is the unrealized holding gains and losses
on the investment securities classified as available-for-sale.
NOTE E - Year 2000 Issues
As part of the ongoing plan for Year 2000 compliance, software has
been updated for the mainframe's operating system and the core
banking applications. Testing of these systems began in December
1998 and will be completed in mid-February 1999. Stand-alone PCs
which did not meet the assessment process have been replaced and
will be tested with updated application software in March 1999.
There is no change in the estimated costs of $250,000 as reported in
the June 30, 1998 annual report. Approximately $200,000 of these
costs have been incurred to date. All systems are scheduled to be in
place and tested by June 30, 1999. The most reasonably likely worst
case Year 2000 scenario is that daily processing may be delayed for
one to three days. The Company's contingency plan describes that the
daily work would be held over until processing could be resumed
normally.
-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, 1998, as well as certain material changes in
results of operations during the three and six month periods ended
December 31, 1998 and 1997.
The following narrative is written with the presumption that
the users have read or have access to the Company's 1998 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, 1998,
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
forward-looking statements. These forward-looking statements, which
are included in Management's Discussion and Analysis, describe future
plans or strategies and include the Company's expectations of future
financial results. The words "believe", "expect", "anticipate",
"estimate", "project," and similar expressions identify
forward-looking statements. The Company's ability to predict results
or the effect of future plans or strategies is inherently uncertain.
Factors which could affect actual results include interest rate
trends, the general economic climate in the Company's market area and
the country as a whole, loan delinquency rates and changes in federal
and state regulation. These factors should be considered in
evaluating the forward-looking statements, and undue reliance should
not be placed on such statements.
Comparison of the Three Months ended December 31, 1998 to the Three
Months Ended December 31, 1997
Financial Condition. During the quarter ended December 31,
1998, total assets increased $3.1 million to $176.3 million at
December 31, 1998. The increase was comprised of a $3.0 million
increase in cash and cash equivalents. Net loans increased $.4
million during the quarter to $150.6 million at December 31, 1998.
Those two increases were offset by a decrease in certificates of
deposit purchased of $.3 million.
Customer deposits increased $4.9 million during the quarter
ended December 31, 1998 to $147.1 million. The majority of the
growth was in checking accounts. FHLB advances were reduced by $2.0
million using the proceeds from the customer deposit growth.
Nonperforming assets remained basically constant at $2.0
million, or 1.13% of total assets at December 31, 1998 compared to
$1.9, or 1.11% of total assets, at September 30, 1998. Nonaccrual
loans of $57,000 at September 30, 1998 remained the same at December
31, 1998.
Net Income. Net income of $421,000 for the quarter ended
December 31, 1998 decreased $72,000 from $493,000 for the quarter
ended December 31, 1997. Net interest income, after provision for
loan losses, increased $115,000. Noninterest income increased
$47,000. These increases were more than offset, however, by a
$194,000 increase in noninterest expense and a $40,000 income tax expense
increase.
-8-
</page>
FIRST BANCSHARES, INC. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
Net Interest Income. Net interest income increased $120,000,
or 8.4%, from $1,424,000 for the quarter ended December 31, 1997 to
$1,544,000 for the quarter ended December 31, 1998. Interest income
increased $104,000 combined with a $16,000 decrease in interest
expense.
Interest Income. Interest income of $3,248,000 for the quarter
ended December 31, 1998 increased $104,000, or 3.3%, from $3,144,000
for the quarter ended December 31, 1997. Interest income from loans
receivable increased $175,000 from $2,886,000 for the quarter ended
December 31, 1997 to $3,061,000 for the quarter ended December 31,
1998. The increase was attributable to the increase in average loans
outstanding offset by a slight decrease in the average yield. The
decrease in yield was the result of the rates on adjustable rate
loans being lowered throughout the previous several months.
Income from other interest-earning assets increased by $65,000
as a higher balance was maintained in the FHLB daily-time savings
account during the quarter ended December 31, 1998. Income from
investment securities decreased $139,000. The average balance of
investment securities was much lower for the quarter ended December
31, 1998, as securities were called and not replaced, compared to
the quarter ended December 31, 1997.
Interest Expense. Interest expense decreased by $16,000 from
$1,720,000 for the quarter ended December 31, 1997 to $1,704,000 for
the quarter ended December 31, 1998. The decrease resulted from
lower interest expense on borrowed funds as FHLB advances were
repaid. That decrease in interest expense on FHLB advances of
$179,000, or 71.1%, however was offset by a $163,000, or 11.2%,
increase in interest on customer deposits. The outstanding balance
of customer deposits increased while the average rate paid on those
deposits decreased slightly.
Provision for Loan Losses. Loan loss provisions increased
$5,000 from $16,000 for the quarter ended December 31, 1997 to
$21,000 for the quarter ended December 31, 1998. Actual loan losses,
net of recoveries, on First Home originated loans were $1,200 for
the quarter ended December 31, 1998. There was no actual loan
losses, net of recoveries, for the quarter ended December 31, 1997.
Noninterest Income. Noninterest income was $197,000 for the
quarter ended December 31, 1998, an increase of $47,000 from $150,000
for the quarter ended December 31, 1997. Service charges and other
fee income increased $24,000, or 21.2%. This increase was combined
with an increase of $25,000 in insurance commissions from South
Central Missouri Title, Inc.
Noninterest Expense. Noninterest expense increased $194,000,
or 22.3% from $864,000 for the quarter ended December 31, 1997 to
$1,058,000 for the quarter ended December 31, 1998. The increase
was primarily in the area of compensation and employee benefits.
Addition of the Crane and Galena branches and South Central Missouri
Title, Inc. added $67,000 to the quarter ended December 31, 1998.
Normal salary increases and related costs were $23,000.
Occupancy and equipment expense increased $28,000 comprised
primarily of increases in depreciation of $10,000 on the new
computer system, additional computer expenses of $8,000 and
depreciation and maintenance for the Crane and Galena buildings and
equipment of $8,000.
Professional fees increased $19,000 primarily due to additional
audit costs. Other noninterest expenses increased as follows:
office supplies-$13,000, telephone - $8,000, charitable contributions
- - $9,500, correspondent bank service charges and related courier
expense - $9,000, loss on checking accounts - $3,000, and amortization
of $17,000 of the premium paid for the Crane and Galena branch purchase
which occurred in March 1998.
-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 3.69%
for the three months ended December 31, 1997 to 3.71% for the three
months ended December 31, 1998. Income from earning assets
increased by $104,000, or 3.3%, between the two quarters while
interest expense decreased by $16,000, or .1%. The average earning
asset base increased by $12.3 million, or 8.0%, which was offset by
a $9.9 million, or 7.4%, increase in the average interest-bearing
liability base.
Comparison of the Six Months ended December 31, 1998 to the Six
Months Ended December 31, 1997.
Financial Condition. Total assets for the six months ended
December 31, 1998 increased $4.1 million, primarily due to
a $4.2 million increase in net loans. Customer deposits
increased $6.0 million to $147.1 million at December 31, 1998. FHLB
advances, as they matured, were reduced $2.0 million through proceeds
from the increase in customer deposits.
Nonperforming assets increased $200,000 during the six months to
$2.0 million at December 31, 1998.
Net Income. Net income decreased $149,000 from $1,014,000 for
the six months ended December 31, 1997 to $865,000 for the six months
ended December 31, 1997. Net interest income, after provision for
loan losses, increased $274,000, or 9.9%. Noninterest income
increased $12,000. Those increases were, however, more than offset
by a $440,000, or 26.9%, increase in noninterest expense.
Net interest income. Net interest income of $3,074,000 for the
six months ended December 31, 1998 increased $282,000 from $2,792,000
for the six months ended December 31, 1997. Interest income increased
$197,000 as interest expense decreased $85,000.
Interest income. Total interest income increased $197,000 from
$6,305,000 for the six months ended December 31, 1997 to $6,502,000
for the six months ended December 31, 1998. Interest income from
loans receivable increased $384,000 as a result of a higher
outstanding balance in loans receivable offset somewhat by a lower
yield due to the reduction in rates on adjustable-rate mortgages.
Income from other earning assets also increased $112,000 attributable
to a higher balance in those assets. Those increases were offset by
a $308,000 decrease in income from investment securities caused by a
lower balance in investments combined with a lower average yield.
Interest Expense. During the six months ended December 31,
1998, interest expense decreased $85,000 to $3,428,000 from
$3,513,000 for the six months ended December 31, 1997. Interest
expense on customer deposits increased $348,000. A higher
outstanding balance, primarily in interest bearing checking
accounts, more than offset a lower average rate paid on deposits.
Reduction in FHLB advances, however, created a
$433,000 decrease in interest expense on FHLB borrowings.
Provision for loan losses. Provision for loan losses increased
from $35,000 for the six months ended December 31, 1997 to $43,000
for the six months ended December 31, 1998. Actual loan losses, net
of recoveries, were $11,200 for the six months ended December 31,
1998 and $9,000 for the six months ended December 31, 1997.
-10-
</page>
FIRST BANCSHARES, INC. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
Noninterest income. Noninterest income was $400,000 for the six
months ended December 31, 1998 compared to $388,000 for the six
months ended December 31, 1997. The $12,000 increase included an
increase in service charges and other fee income of $73,000 and an
increase in insurance commissions of $48,000. The latter increase
was a result of the title insurance commissions from South Central
Missouri Title, Inc. which opened in November 1997.
The above increases were offset by a $97,000 reduction in gain
on investments. 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. The six months ended December 31, 1998 included only
$14,000 from additional write-downs on the auto loan pool security.
This security was completely written off in November 1998.
Noninterest expense. Noninterest expense for the six months
ended December 31, 1998 was $2,072,000 compared to $1,632,000 for the
six months ended December 31, 1997. The $440,000 increase was
primarily related to compensation and employee benefits. Addition of
the Crane and Galena branches and South Central Missouri Title, Inc.
increased compensation and benefits by $125,000. The increase in
fair market value of FBSI stock added $7,000 to ESOP expense. Group
health insurance premiums and self-insurance costs added $52,000.
Normal salary increases and additional personnel at existing
locations contributed $77,000 to the increase. Those increases were
somewhat offset by a increase of $30,000 in employee costs
capitalized as loan costs.
Occupancy and equipment expense increased $64,000.
Depreciation of the new computer system added $21,000, additional
computer expenses were $12,000, depreciation and maintenance costs
for the Crane and Galena buildings were $19,000 and maintenance and
furniture and equipment costs were $6,000.
Professional fees increased $26,000 as a result of additional
audit and outside accounting costs.
Other noninterest expense increased $124,000. The increase
included increases in: office supplies - $14,000, telephone -
$14,000, postage - $9,000, correspondent bank service charges and
related courier expense - $36,000, and charitable contributions -
$19,000. Amortization expense on the premium paid on the Crane and
Galena purchase was $34,000.
Net interest margin. Net interest margin increased from 3.59%
for the six months ended December 31, 1997 to 3.72% for the six
months ended December 31, 1998. Income from earning assets increased
by $198,000, or 3.1%, while interest expense decreased $85,000, or
2.4%. The average earning asset base increased $9.6 million, or
6.1%. The average interest-bearing liability base increased $7.2
million, or 5.3%.
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.
-11-
</page>
FIRST BANCSHARES, INC. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
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, 1998, First
Home had approved loan commitments totaling $1.3 million and
undisbursed loans in process of $2.4 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.
Normal daily operating expenses are not expected to
significantly change. Noninterest expense 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, 1998, certificates of deposit amounted to $88.3
million, or 60% of First Home's total deposits, including $55.5
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 11.11% at December 31, 1998. First
Home consistently maintains liquidity level in excess of regulatory
requirements, and believes this is an appropriate strategy for proper
asset and liability management.
-12-
</page>
FIRST BANCSHARES, INC. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
The Office of Thrift Supervision requires institutions such as
the Savings Bank to meet certain tangible, core, and risk-based
capital requirements. Tangible capital generally consists of
stockholders' equity minus certain intangible assets. Core capital
generally consists of stockholders' equity. The risk-based capital
requirements presently address risk related to both recorded assets
and off-balance sheet commitments and obligations. The following
table summarizes the Savings Bank's capital ratios and the ratios
required by FIRREA and subsequent regulations at December 31, 1998.
<TABLE>
<CAPTION>
Percent of Adjusted
Amount Total Assets
------------ ---------------------
(Unaudited)
(Dollars in thousands)
<S> <C> <C>
Tangible capital $19,941 11.5%
Tangible capital requirement 2,603 1.5
------- ------
Excess $17,338 10.0%
------- ------
Core capital $19,941 11.5%
Core capital requirement 6,942 4.0
------- -----
Excess $12,999 7.5%
------- -----
Risk-based capital $20,169 16.1%
Risk-based capital requirement 9,999 8.0
------- -----
Excess $10,170 8.1%
------- -----
</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 16, 1999 By: /s/ Stephen H. Romines
-------------------- -------------------------
Stephen H. Romines
Chairman, President
CEO
By: /s/ Susan J. Uchtman
-----------------------
Susan J. Uchtman
CFO
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
DOLLARS IN THOUSANDS
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> JUN-30-1999 JUN-30-1999
<PERIOD-END> DEC-31-1998 DEC-31-1998
<CASH> 12340 12340
<INT-BEARING-DEPOSITS> 10257 10257
<FED-FUNDS-SOLD> 245 245
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 2094 2094
<INVESTMENTS-CARRYING> 1042 1042
<INVESTMENTS-MARKET> 1058 1058
<LOANS> 150624 150624
<ALLOWANCE> 553 553
<TOTAL-ASSETS> 176251 176251
<DEPOSITS> 147110 147110
<SHORT-TERM> 3500 3500
<LIABILITIES-OTHER> 932 932
<LONG-TERM> 200 200
0 0
0 0
<COMMON> 27 27
<OTHER-SE> 24482 24482
<TOTAL-LIABILITIES-AND-EQUITY> 176251 176251
<INTEREST-LOAN> 3061 6098
<INTEREST-INVEST> 109 237
<INTEREST-OTHER> 78 167
<INTEREST-TOTAL> 3248 6502
<INTEREST-DEPOSIT> 1630 3268
<INTEREST-EXPENSE> 1704 3428
<INTEREST-INCOME-NET> 1544 3074
<LOAN-LOSSES> 21 43
<SECURITIES-GAINS> 0 0
<EXPENSE-OTHER> 1058 2072
<INCOME-PRETAX> 662 1359
<INCOME-PRE-EXTRAORDINARY> 662 1359
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 421 865
<EPS-PRIMARY> .21 .42
<EPS-DILUTED> .20 .40
<YIELD-ACTUAL> 3.71 3.72
<LOANS-NON> 56 56
<LOANS-PAST> 2592 2592
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 0 0
<ALLOWANCE-OPEN> 540 528
<CHARGE-OFFS> 8 18
<RECOVERIES> 0 0
<ALLOWANCE-CLOSE> 553 553
<ALLOWANCE-DOMESTIC> 553 553
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 262 262
</TABLE>
