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, 1999
--------------------------
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 (I.R.S. Employer
of 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 12, 1999, there were 2,077,702 shares of the Registrant's
Common Stock, $.01 par value per share, outstanding.
</page>
FIRST BANCSHARES, INC. AND SUBSIDIARIES
FORM 10-QSB
March 31, 1999
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 8-11
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>
<CAPTION>
FIRST BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
- - - - - - - - - - - - - - - - - - - - - - - -
(Unaudited)
March 31, June 30,
1999 1998
--------- ---------
ASSETS (Dollars in thousands)
------
<S> <C> <C>
Cash and cash equivalents, including interest-bearing
accounts of $9,104 at March 31 and $5,898 at June 30 $ 11,804 $ 11,863
Federal funds sold 245 -
Certificates of deposit 1,584 2,205
Investment securities available-for-sale, at fair value 2,969 2,701
Investment securities held-to-maturity (estimated
fair value $1,155 at March 31 and $1,126 at June 30) 1,143 1,114
Investment in Federal Home Loan Bank stock, at cost 1,058 1,058
Mortgage backed certificates available-for-sale,
at fair value 596 703
Loans receivable held-for-investment, net (includes
reserves for loan losses of $558 at March 31 and
$528 at June 30) 152,110 146,406
Accrued interest receivable 691 664
Prepaid expenses 124 126
Property and equipment, less accumulated depreciation
and valuation reserves 4,604 4,298
Intangible assets, less accumulated amortization 952 1,003
Other assets 8 32
-------- --------
Total assets $177,888 $172,173
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Customer deposits $148,737 $141,059
Advances from Federal Home Loan Bank 3,700 5,700
Income taxes payable - current 379 75
Accrued expenses and accounts payable 641 705
Deferred income taxes 265 269
-------- --------
Total liabilities 153,722 147,808
-------- --------
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,
2,709,196 issued, 2,089,282 and 2,213,600 outstanding at
March 31 and June 30, respectively 27 27
Paid-in capital 16,140 15,838
Retained earnings - substantially restricted 17,955 16,823
Treasury stock - at cost; 619,914 and 479,976 shares at
March 31 and June 30, respectively (9,458) (7,664)
Unearned compensation (540) (734)
Unrealized gain (loss) on securities available-for-sale, net of
applicable deferred income taxes 42 75
-------- --------
Total stockholders' equity 24,166 24,365
-------- --------
Total liabilities and stockholders' equity $177,888 $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 Nine Months Ended
March 31, March 31,
1999 1998 1999 1998
-------- ------- ------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Interest Income:
Loans receivable $ 3,019 $ 2,915 $ 9,117 $ 8,629
Investment securities 96 208 300 720
Mortgage-backed and related securities 10 13 43 37
Other interest-earning assets 84 35 251 90
------- ------- ------- -------
Total interest income 3,209 3,171 9,711 9,476
------- ------- ------- -------
Interest Expense:
Customer deposits 1,572 1,476 4,840 4,396
Borrowed funds 55 235 215 828
------- ------- ------- -------
Total interest expense 1,627 1,711 5,055 5,224
------- ------- ------- -------
Net interest income 1,582 1,460 4,656 4,252
Provision for loan losses 17 22 60 57
------- ------- ------- -------
Net interest income after
provisions for losses 1,565 1,438 4,596 4,195
------- ------- ------- -------
Noninterest Income:
Service charges and other fee income 148 109 441 329
Loan origination and commitment fees 3 3 6 5
Income from real estate operations 25 24 76 79
Insurance commissions 49 25 124 52
Gain (loss) on sale of investments 21 (9) 7 74
Gain (loss) on sale of equipment - - (8) 1
------- -------- ------- ------
Total noninterest income 246 152 646 540
------- -------- ------- ------
Noninterest Expense:
Compensation and employee benefits 634 592 1,910 1,642
Occupancy and equipment 155 117 440 338
Deposit insurance premiums 22 19 64 55
Advertising and promotional 14 31 55 79
Professional fees 23 16 86 47
Other 211 181 576 427
------ ------- ------- -------
Total noninterest expense 1,059 956 3,131 2,588
------ ------- ------- -------
Income before taxes 752 634 2,111 2,147
Income Taxes 284 230 778 729
------ ------- ------- -------
Net income $ 468 $ 404 $ 1,333 $ 1,418
====== ====== ======= =======
Earnings per share - basic .23 .20 .65 .70
====== ====== ======= =======
Earnings per share - diluted .22 .18 .62 .66
====== ====== ======= =======
Dividends per share .04 .03 .10 .075
====== ====== ======= =======
</TABLE>
See accompanying notes to Consolidated Financial Statements.
-2-
</page>
<TABLE>
<CAPTION>
FIRST BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
- - - - - - - - - - - - - - - - - - - - -
Nine months ended March 31, 1999 and 1998
(Unaudited)
1999 1998
---------- --------
(Dollars in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,333 $ 1,418
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 198 161
Amortization 51 7
Unrealized loss on investment securities 14 18
Gain on sale of intangibles - (51)
Gain on sale of real estate owned - (16)
Gain on sale of investments securities available-for-sale - (42)
Gain on sale of property and equipment (14) -
Premiums and discounts on mortgage-backed
securities and investment securities - (9)
Loss on loans, net of recoveries 60 57
ESOP compensation expense at fair value 223 241
Vesting of unearned compensation 194 196
Net change in operating accounts:
Accrued interest receivable and other assets (1) 21
Deferred loan costs (41) (40)
Deferred income tax benefits, net - -
Income taxes payable - current 304 290
Deferred income tax payable (9) 27
Accrued expenses (64) 250
-------- --------
Net cash from operating activities 2,248 2,528
-------- --------
Cash flows from investing activities:
Purchase of investment securities available-for-sale (898) (248)
Purchase of investment securities held-to-maturity (466) (105)
Proceeds from redemption of Federal Home Loan Bank stock - 72
Proceeds from sales of investment securities
available-for-sale - 232
Proceeds from maturities of investment securities
available-for-sale 600 7,650
Proceeds from maturities of investment securities
held-to-maturity 423 446
Net change in certificates of deposit 621 (301)
Net change in federal funds sold (245) (613)
Net change in loans receivable (5,744) (5,546)
Proceeds from maturities of mortgage-backed
certificates 109 78
Purchases of property and equipment (583) (261)
Proceeds from sale of property and equipment 114 9
Purchase of intangible in branch acquisition - (1,019)
Proceeds from sale of intangibles - 81
Proceeds from sale of real estate owned - 286
-------- ---------
Net cash used in investing activities (6,069) 761
--------- ---------
See accompanying notes to Consolidated Financial Statements.
-3-
FIRST BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
- - - - - - - - - - - - - - - - - - - - - - - - -
Nine months ended March 31, 1999 and 1998
(Unaudited)
1999 1998
---------- ---------
(Dollars in thousands)
Cash flows from financing activities:
Net change in demand deposits, savings accounts,
and certificates of deposit $ 7,678 $ 5,626
Branch acquisition - liabilities assumed, net of
of asset - 12,294
Payments on borrowed funds (2,000) (11,355)
Proceeds from sale of common stock 79 239
Purchase of treasury stock (1,794) (202)
Cash dividends paid (201) (165)
-------- --------
Net cash from financing activities 3,762 6,437
-------- --------
Net increase/(decrease) in cash and cash equivalents (59) 9,726
Cash and cash equivalents -
beginning of period 11,863 5,809
-------- --------
Cash and cash equivalents -
end of period $11,804 $15,535
======== ========
</TABLE>
See accompanying notes to Consolidated Financial Statements.
-4-
</page>
<TABLE>
<CAPTION>
FIRST BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
- - - - - - - - - - - - - - - - - - - - - - - - -
Nine months ended March 31, 1999 and 1998
(Unaudited)
1999 1998
--------- ---------
(Dollars in thousands)
<S> <C> <C>
Net income $ 1,333 $ 1,418
-------- --------
Other comprehensive income, net of tax
Unrealized gains (losses) on securities (33) (45)
--------- ---------
Other comprehensive income (33) (45)
--------- ---------
Comprehensive income $ 1,300 $ 1,373
======== ========
</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 March 31, 1999
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, 1999 interim financial statements.
The results of operations for the periods ended March 31, 1999 and
1998 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.
Dilutive
Weighted Average Number Shares
of Common Shares Issuable
----------------------- --------
Quarter ended March 31, 1999 2,009,395 106,382
Quarter ended March 31, 1998 2,054,383 139,710
Nine months ended March 31, 1999 2,034,867 107,200
Nine months ended March 31, 1998 2,028,819 127,977
-6-
</page>
FIRST BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(continued)
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 May 12, 1999, 159,498
shares had been repurchased at a cost of $1,993,000. 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 was completed in mid-February 1999. Stand-alone PCs which
did not meet the assessment process have been discarded and their
replacements were tested with updated application software in March
1999. There has been no change in the estimated costs of $250,000 as
reported in the June 30, 1998 annual report. Approximately
$215,000 of these costs have been incurred to date. All systems are
scheduled to be in place and tested by June 30, 1999. The most
reasonable 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 nine month periods ended
March 31, 1999 and 1998.
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 March 31, 1999 to the Three
- -----------------------------------------------------------------
Months Ended March 31, 1998
- ----------------------------
Financial Condition. Total assets increased $1.6 million during
the quarter to $177.9 million at March 31, 1999. During the quarter,
net loans increased $1.5 million to $152.1 million. Investment
securities increased $1.0 million. These increases were offset by
decreases in cash and cash equivalents of $.5 million and certificates
of deposit purchased of $.3 million.
Customer deposits increased by $1.6 million during the quarter to
$148.7 million at March 31, 1999. The majority of the growth was in
time and savings accounts.
Nonperforming assets remained constant at $2.0 million, or
1.13% of total assets at December 31, 1998 and March 31, 1999.
Nonaccrual loans of $57,000 at December 31, 1998 were reduced to
$49,000 at March 31, 1999 as one loan was written off after the
collateral was repossessed and sold.
Net Income. Net income increased $64,000 during the quarter
ended March 31, 1999 to $468,000 from $404,000 for the quarter ended
March 31, 1998. Net interest income after provision for loan losses
increased $127,000. Noninterest income increased $94,000. Those
increases were offset by a $103,000 increase in noninterest expense
and a $54,000 income tax expense increase.
Net Interest Income. Net interest income increased $122,000,
or 8.4%, from $1,460,000 for the quarter ended March 31, 1998 to
$1,582,000 for the quarter ended March 31, 1999. Interest income
increased $38,000 while interest expense decreased $84,000.
Interest Income. Interest income increased $38,000, or 1.2%,
from $3,171,000 for the quarter ended March 31, 1998 to $3,209,000
for the quarter ended March 31, 1999. Interest income from loans
receivable increased $104,000. The increase was attributable to the
increase in average loans outstanding offset by a slight decrease in
the average yield. The decrease in yield resulted from rates on
adjustable rate loans being lowered throughout the previous several
months.
Income from other interest-earning assets increased by $49,000 as a
higher balance was maintained in the FHLB daily-time savings account
during the quarter ended March 31, 1999. Income from investment
securities decreased $112,000. The average balance of investment
securities was lower during the quarter ended March 31, 1999 compared
to 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 decreased by $84,000 from
$1,711,000 for the quarter ended March 31, 1998 to $1,627,000 for
the quarter ended March 31, 1999. The decrease was the result of
lower interest expense on borrowed funds as FHLB advances were
repaid. The decrease in interest expense on FHLB advances of
$180,000, or 76.6%, was somewhat offset, however, by a $96,000, or
6.5%, increase in interest on customer deposits. The outstanding
balance of customer deposits increased; however the average rate
paid on these deposits decreased slightly.
Provision for Loan Losses. Loan loss provisions decreased
$5,000 from $22,000 for the quarter ended March 31, 1998 to $17,000
for the quarter ended March 31, 1999. Actual loan losses, net of
recoveries, on First Home originated loans were $9,000 for the
quarter ended March 31, 1999. During the quarter ended March 31,
1998, actual loan losses, net of recoveries, on First Home
originated loans were $18,000.
Noninterest Income. Noninterest income was $246,000 for the
quarter ended March 31, 1999, an increase of $94,000 from $152,000
for the quarter ended March 31, 1998. Service charges and other fee
income increased $39,000, or 35.8%. This increase was combined with
an increase of $24,000 in insurance commissions with the growth of
South Central Missouri Title, Inc.
Gains (losses) on investments increased $30,000. The quarter ended
March 31, 1998 included $9,000 in losses on the writedown of the pool
of auto loans while the quarter ended March 31, 1999 had a $21,000
gain from the sale of investment real estate.
Noninterest Expense. Noninterest expense increased $103,000, or
10.8% from $956,000 for the quarter ended March 31, 1998 to
$1,059,000 for the quarter ended March 31, 1999. 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 $59,000 to the quarter ended March 31, 1999. Group
health insurance premiums and reserves increased by $18,000 as more
personnel were added to the plan and higher reserves were established
based on estimated future costs. Normal salary increases and related
costs were $14,000. Those increases were somewhat offset by a lower
average stock price reducing ESOP plan expense by $32,000, the
elimination of $8,000 for computer personnel that assisted in the
computer conversion during the quarter ended March 31, 1998 and a
$9,000 reduction in Management Recognition Plan expense. The
Management Recognition Plan expired December 23, 1998.
Occupancy and equipment expense increased $38,000 comprised primarily
of increases in depreciation of $10,000 on the new computer system,
additional computer expenses of $3,000, an increase in furniture and
equipment expense of $5,000 and depreciation and maintenance for the
Crane and Galena buildings and equipment of $10,000. The remainder
of the increase was distributed among several other expense types
with less than $2,000 increase in each.
Advertising and promotional expense decreased by $17,000 as the
quarter ended March 31, 1998 included costs for the marketing of
the Crane and Galena branches. Giveaways for the opening of new
checking accounts were lower for the quarter ended March 31, 1999.
Professional fees increased $7,000 due to an increase in the accrual
for the upcoming annual external audit. Other noninterest expenses
increased as follows: office supplies-$2,500, telephone - $4,000,
postage - $3,600, charitable contributions - $7,000, correspondent
bank service charges and related courier expense - $25,000
(primarily due to a change in the method of recording this cost as
gross rather than net).
The quarter ended March 31, 1999 included additional
amortization of $11,000 of the premium paid for the Crane and Galena
branch purchase. Nonoperating expenses decreased by $40,000 for the
acquisition expenses associated with the Crane and Galena branch
purchase.
Net Interest Margin. Net interest margin increased from 3.71%
for the three months ended March 31, 1998 to 3.77% for the three
months ended March 31, 1999. Income from earning assets increased
by $38,000, or 1.2%, between the two quarters while interest expense
decreased by $84,000, or 4.9%. The average earning asset base
increased by $10.5 million, or 6.7%, which was offset by a $8.3
million, or 6.0%, increase in the average interest-bearing liability
base.
Comparison of the Nine Months ended March 31, 1999 to the Nine Months
- -----------------------------------------------------------------------
Ended March 31, 1998.
- ---------------------
Financial Condition. Total assets for the nine months ended
March 31, 1999 increased $5.7 million as net loans increased by the
same amount and customer deposits increased $7.7 million. FHLB
advances were reduced $2.0 million using proceeds from the increase
in customer deposits. Nonperforming assets increased $200,000
during the nine months to $2.0 million at March 31, 1999.
Net Income. Net income decreased $85,000 from $1,418,000 for
the nine months ended March 31, 1998 to $1,333,000 for the nine
months ended March 31, 1999. Net interest income after provision
for loan losses increased $401,000, or 9.6%. Noninterest income
increased $106,000. Those increases were offset by a 20.98%
increase in noninterest expense of $543,000.
Net interest income. Net interest income of $4,656,000 for the
nine months ended March 31, 1999 increased $404,000 from $4,252,000
for the nine months ended March 31, 1998. Interest income increased
$235,000 while interest expense decreased $169,000.
Interest income. Total interest income increased $235,000 from
$9,476,000 for the nine months ended March 31, 1998 to $9,711,000 for
the nine months ended March 31, 1999. Interest income from loans
receivable increased $488,000 as a result of a higher outstanding
balance in loans receivable somewhat offset by a lower yield due to
the reduction in rates on adjustable-rate mortgages. Income from
other earning assets also increased $161,000 attributable to a higher
balance in those assets. Those increases were offset by a $420,000
decrease in income from investment securities caused by a lower
balance in investments combined with a lower average yield.
Interest Expense. During the nine months ended March 31, 1999,
interest expense decreased $169,000 to $5,055,000 from $5,224,000
for the nine months ended March 31, 1998. Interest expense on
customer deposits increased $444,000. A higher outstanding balance,
primarily in interest bearing checking accounts, more than offset a
lower average yield paid on deposits. Reduction in FHLB advances
created a $613,000 decrease in interest expense on borrowed funds.
Provision for loan losses. Provision for loan losses increased
slightly from $57,000 for the nine months ended March 31, 1998 to
$60,000 for the nine months ended March 31, 1999. Actual loan
losses, net of recoveries, were $20,200 for the nine months ended
March 31, 1999 and $27,000 for the nine months ended March 31, 1998.
Noninterest income. Noninterest income was $646,000 for the
nine months ended March 31, 1999 compared to $540,000 for the nine
months ended March 31, 1998. The $106,000 increase included an
increase in service charges and other fee income of $112,000 and an
increase in insurance commissions of $72,000. 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 reduction in gain on
investments of $67,000. The nine months ended March 31, 1998
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 a $20,000 additional write-down
of an auto loan pool security. The nine months ended March 31, 1999
included a $21,000 gain from the sale of investment real estate and
$14,000 from additional write-downs on the auto loan pool security.
That security was completely written off in November 1998.
Noninterest expense. Noninterest expense for the nine months
ended March 31, 1999 was $3,131,000 compared to $2,588,000 for the
nine months ended March 31, 1998. The $543,000 increase was
primarily related to compensation and employee benefits. Addition
of the Crane and Galena branches and South Central Missouri Title,
Inc. added $184,000 to compensation and benefits. Group health
insurance premiums and self-insurance costs added $70,000. Normal
salary increases and additional personnel at existing locations
contributed $83,000 to the increase. Those increases were somewhat
offset by a increase of $38,000 in employee costs capitalized as
loan costs and a decrease in the average fair market value of FBSI
stock which reduced ESOP expense by $25,000.
Occupancy and equipment expense increased $102,000. Depreciation of
the new computer system added $31,000, additional computer expenses
were $15,000, depreciation and maintenance costs for the Crane and
Galena buildings were $29,000 and maintenance and furniture and
equipment costs were $11,000. Advertising and promotional costs,
however, decreased $24,000. The nine months ended March 31, 1998
included additional costs to promote the Crane and Galena branch
acquisition. Professional fees increased $39,000 as a result of
additional audit and outside accounting costs.
Other noninterest expense increased $149,000. The increase included
increases for: office supplies - $16,500, telephone - $18,000,
postage - $12,600, correspondent bank service charges and related
courier expense - $61,000, and charitable contributions - $26,000.
Additional amortization expense on the premium paid on the Crane and
Galena purchase was $45,000. These increases were offset by a
$40,000 decrease in nonoperating expenses for the acquisition costs
associated with the Crane and Galena branch purchases.
Net interest margin. Net interest margin increased from 3.62%
for the nine months ended March 31, 1998 to 3.74% for the nine
months ended March 31, 1999. Income from earning assets increased
by $236,000, or 2.5%, while interest expense decreased $169,000, or
3.3%. The average earning asset base increased $9.7 million, or
6.2%. The average interest-bearing liability base increased $7.6
million, or 5.6%.
-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. During the period presented, First Home
used its sources of funds primarily to fund loan commitments, pay
maturing savings certificates and deposit withdrawals. At March 31,
1999, First Home had approved loan commitments totaling $1.1 million
and undisbursed loans in process of $1.6 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
2.5% 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 March 31, 1999, certificates of deposit amounted to $89.1 million,
or 60% of First Home's total deposits, including $57.1 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 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 4% of the average daily
balance of its net withdrawable deposits and short-term borrowings.
First Home's liquidity ratio was 9.41% at March 31, 1999. First
Home consistently maintains liquidity level 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, 1999.
Percent of Adjusted
Amount Total Assets
---------- ------------------
(Unaudited)
(Dollars in thousands)
Tangible capital $20,542 11.7%
Tangible capital requirement 2,627 1.5
------- ------
Excess $17,915 10.2%
======= ======
Core capital $20,542 11.7%
Core capital requirement 7,005 4.0
------- ------
Excess $13,537 7.7%
======= ======
Risk-based capital $20,772 16.7%
Risk-based capital requirement 9,939 8.0
------- ------
Excess $10,833 8.7%
======= ======
-11-
</page>
FIRST BANCSHARES, INC. AND SUBSIDIARIES
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.
-12-
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 17, 1999 By: /s/ Stephen H. Romines
---------------------------
Stephen H. Romines
Chairman, President
CEO
By: /s/ Susan J. Uchtman
------------------------
Susan J. Uchtman
CFO
9
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
DOLLARS IN THOUSANDS
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> JUN-30-1999 JUN-30-1999
<PERIOD-END> MAR-31-1999 MAR-30-1999
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<TRADING-ASSETS> 0 0
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<INVESTMENTS-MARKET> 1155 1155
<LOANS> 152110 152110
<ALLOWANCE> 558 558
<TOTAL-ASSETS> 177888 177888
<DEPOSITS> 148737 148737
<SHORT-TERM> 3500 3500
<LIABILITIES-OTHER> 1285 1285
<LONG-TERM> 200 200
0 0
0 0
<COMMON> 27 27
<OTHER-SE> 24139 24139
<TOTAL-LIABILITIES-AND-EQUITY> 177888 177888
<INTEREST-LOAN> 3019 9117
<INTEREST-INVEST> 96 300
<INTEREST-OTHER> 94 294
<INTEREST-TOTAL> 3209 9711
<INTEREST-DEPOSIT> 1572 4840
<INTEREST-EXPENSE> 1627 5055
<INTEREST-INCOME-NET> 1582 4656
<LOAN-LOSSES> 17 60
<SECURITIES-GAINS> 0 0
<EXPENSE-OTHER> 1059 3131
<INCOME-PRETAX> 752 2111
<INCOME-PRE-EXTRAORDINARY> 752 2111
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 468 1333
<EPS-PRIMARY> .23 .65
<EPS-DILUTED> .22 .62
<YIELD-ACTUAL> 3.77 3.74
<LOANS-NON> 49 49
<LOANS-PAST> 2342 2342
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 0 0
<ALLOWANCE-OPEN> 553 528
<CHARGE-OFFS> 12 30
<RECOVERIES> 0 0
<ALLOWANCE-CLOSE> 558 558
<ALLOWANCE-DOMESTIC> 558 558
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 264 264
</TABLE>
