SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1999 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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 E. First Street
Mountain Grove, Missouri 65711
------------------------- --------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area
code: (417) 926-5151
--------------
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.01 per share
---------------------------------------
(Title of Class)
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 12 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
--- ----
Indicate by check mark whether disclosure of delinquent filers
pursuant to Item 405 of Regulation S-B is not contained herein, and
will not be contained, to the best of the Registrant's knowledge, in
definitive proxy or other information statements incorporated by
reference in Part III of this Form 10-KSB or any amendments to this
Form 10-KSB. / X /
---
The registrant's revenues for the fiscal year ended June 30, 1999
were $13,565,000.
As of September 25, 1999, there were outstanding 2,042,321 shares
of the Registrant's Common Stock. The Registrant's voting stock is
traded over-the-counter and is listed on the Nasdaq Stock Market
("Nasdaq/NMS") under the symbol "FBSI." The aggregate market value
of the voting stock held by nonaffiliates of the Registrant, based
on the closing sales price of the Registrant's common stock as quoted
on the Nasdaq/NMS on September 25, 1999, was $16,798,350. For
purposes of this calculation, officers and directors of the
Registrant, the Employee Stock Ownership Plan and the Management
Recognition Plan are considered affiliates of the Registrant.
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of Annual Report to Stockholders for the Fiscal Year
Ended June 30, 1999. (Parts I and II)
2. Portions of Proxy Statement for the 1999 Annual Meeting of
Stockholders. (Part III)
Transitional Small Business Disclosure Format (check one)
Yes No X
---- -----
</page>
PART I
Item 1. Business
General
First Bancshares, Inc. ("First Bancshares" or the "Company"),
a Missouri corporation, was incorporated on September 30, 1993 for
the purpose of becoming the holding company for First Home Savings
Bank ("First Home" or the "Savings Bank") upon the Savings Bank's
conversion from a state-chartered mutual to a state-chartered stock
savings and loan association ("Conversion"). The Conversion was
completed on December 22, 1993. At June 30, 1999, the Company had
consolidated total assets of $178.7 million, total customer deposits
of $151.2 million and stockholders' equity of $24.2 million. While
the Company owns a title insurance agency through a subsidiary and
some rental real estate, it is not engaged in any significant
activity other than holding the stock of First Home. Accordingly,
the information set forth in this report, including consolidated
financial statements and related data, relates primarily to the
Savings Bank.
The Savings Bank is a Missouri-chartered, federally insured
stock savings and loan association organized in 1911. The Savings
Bank conducts its business from its home office in Mountain Grove
and seven full service branch facilities in Marshfield, Ava,
Gainesville, Sparta, Theodosia, Crane and Galena, Missouri. The
deposits of the Savings Bank are insured up to applicable limits by
the Savings Association Insurance Fund ("SAIF") of the Federal
Deposit Insurance Corporation ("FDIC").
The Savings Bank provides its customers with a full array of
community banking services. The Savings Bank is primarily engaged
in the business of attracting deposits from the general public and
using such deposits, together with other funding sources, to invest
in one- to four-family residential mortgage loans and, to a lesser
extent, multi-family residential, consumer, and commercial mortgage
loans, including home equity loans, for its loan portfolio, as well
as for mortgage-backed and U.S. Government and agency securities and
other assets. At June 30, 1999, the Savings Bank's net loans were
$153.6 million, or 86.0% of consolidated total assets, including
$113.1 million, or 72.14% of total loans secured by one- to four-
family properties, $29.2 million, or 18.66% of total loans secured
by other real estate and $10.1 million of consumer loans, or 6.45% of
total loans. As discussed in following areas, ARM loans account for
approximately 98% of loans secured by real estate and 89% of the total
loan portfolio.
In March 1998, the Savings Bank purchased two bank branch
offices from NationsBank. The branches are located in Crane and
Galena, Missouri. As part of the agreement, the Savings Bank assumed
customer deposits of $17.4 million and other liabilities of $60,000
in exchange for loans of $4.8 million, premises and
equipment of $300,000, cash of $11.3 million and other assets
of $70,000. The Savings Bank paid a premium of $1.0 million
for the loans purchased and the customer deposits assumed. The
acquisition was recorded using the purchase method of accounting.
The premium paid for the branches is being amortized on a straight-
line basis over fifteen years. Results of operations of the branches
acquired are included in the accompanying financial statements since
the dates of acquisition.
1
<PAGE>
Market Area
The Savings Bank is headquartered in the town of Mountain Grove,
in Wright County, Missouri. Wright County has a population of
approximately 17,000 and its economy is highly diversified, with
an emphasis on the beef and dairy industry. The Savings Bank's market
area is predominantly rural in nature and its deposit taking and
lending activities primarily encompass Wright, Webster, Douglas,
Christian, Ozark, and Stone counties. Companies in the area include
Hutchens Steel, Paramont Cap, Arlee Home Fashions, Copeland
Corporation, and Rawlings. The Savings Bank also transacts a
significant amount of business in Texas and Greene counties,
Missouri. The area, especially Ozark County due to its proximity to
the Norfolk and Bull Shoals lakes, has experienced a rather slow but
steady growth from retirees. Economic conditions in the Savings
Bank's market area have been stable.
Selected Consolidated Financial Information
This information is incorporated by reference to pages 4 and
5 of the 1999 Annual Report to Stockholders ("Annual Report")
attached hereto as Exhibit 13.
2
<PAGE>
Yields Earned and Rates Paid
The earnings of the Savings Bank depend largely on the spread
between the yield on interest-earning assets (primarily loans and
investments) and the cost of interest-bearing liabilities (primarily
deposit accounts and FHLB advances), as well as the relative size of
the Savings Bank's interest-earning assets and interest-bearing
liability portfolios.
The following table sets forth, for the periods indicated,
information regarding average balances of assets and liabilities as
well as the total dollar amounts of interest income from average
interest-earning assets and interest expense on average interest-
bearing liabilities, resultant yields, interest rate spread, net
interest margin, and ratio of average interest-earning assets to
average interest-bearing liabilities. Average balances for a period
have been calculated using the average monthly balances for the period.
3
</page>
<TABLE>
<CAPTION>
Years Ended June 30,
-----------------------------------------------------------------------------------------
1999 1998 1997
--------------------------- --------------------------- -----------------------------
Interest Interest Interest
Average and Yield/ Average and Yield/ Average and Yield/
Balance(2) Dividends Cost Balance(2) Dividends Cost Balance(2) Dividends Cost
--------- --------- ------ --------- --------- ---- --------- -------- ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans(1)............................ $150,968 $12,185 8.07% $142,405 $11,626 8.16% $126,587 $10,420 8.23%
Mortgage-backed securities.......... 633 44 6.95 751 51 6.79 2,374 161 6.76
Investment securities............... 6,216 423 6.81 11,872 873 7.35 16,834 1,029 6.11
Daily interest-bearing deposits..... 9,360 332 3.55 5,898 213 3.61 1,723 85 4.93
Federal funds sold 229 10 4.37 172 8 4.65 - - -
-------- ------ -------- ------- --------- -------
Total interest-earning assets.... 167,406 12,994 7.76 161,098 12,771 7.93 147,518 11,695 7.93
Non-interest earning assets:
Office properties and equipment, net 3,488 3,016 2,349
Real estate, net.................... 1,007 939 1,159
Other non-interest-earning assets... 4,381 5,230 3,511
--------- -------- --------
Total assets...................... $176,282 $170,283 $154,537
======== ======== ========
Interest-bearing liabilities:
Passbook accounts................... $ 9,102 277 3.04 $ 6,435 195 3.03 $ 5,621 170 3.02
NOW and Super Saver accounts........ 43,075 1,301 3.02 34,462 1,003 2.91 28,140 881 3.13
Certificates of deposit............. 88,786 4,851 5.46 84,219 4,810 5.71 75,223 4,326 5.75
-------- ----- -------- ------ ------- -----
Total deposits.................... 140,963 6,429 4.56 125,116 6,008 4.80 108,984 5,377 4.93
Other interest-bearing liabilities.. 4,452 270 6.07 16,398 997 6.08 19,011 1,116 5.87
-------- ------ -------- ------ ------- -----
Total interest-bearing liabilities 145,415 6,699 4.61 141,514 7,005 4.95 127,995 6,493 5.07
Non-interest-bearing liabilities:
Other liabilities................... 6,502 5,211 3,902
--------- -------- --------
Total liabilities................. 151,917 146,725 131,897
Stockholders' equity................. 24,365 23,558 22,640
--------- -------- --------
Total liabilities and
stockholders' equity.............$176,282 $170,283 $154,537
======== ========= ========
Net interest income................... $6,295 $5,766 $5,202
====== ====== ======
Interest rate spread.................. 3.15% 2.98% 2.86%
Net interest margin................... 3.76% 3.58% 3.53%
Ratio of average interest-earning
assets to average interest-
bearing liabilities.................. 115% 114% 115%
__________________
(1) Average balances include nonaccrual loans and loans 90 days or more past due. The corresponding interest up to the date
of nonaccrual status has been included in the "Interest and Dividends" column.
(2) Average balances for a period have been calculated using the average monthly balances for the respective year.
</TABLE>
4
</page>
Yields Earned and Rates Paid
The following table sets forth (on a consolidated basis) for the
periods and at the date indicated, the weighted average yields
earned on the Company's and First Home's assets, the weighted
average interest rates paid on First Home's liabilities, together
with the net yield on interest-earning assets.
<TABLE>
<CAPTION>
At June 30, Years Ended June 30,
1999 1999 1998 1997
---------- ----- ----- -----
<S> <C> <C> <C> <C>
Weighted average yield on loan portfolio.............. 8.08% 8.07% 8.16% 8.23%
Weighted average yield on mortgage-backed
securities.......................................... 6.76 6.95 6.79 6.76
Weighted average yield on investment securities....... 5.67 6.81 7.35 6.11
Weighted average yield on interest-bearing deposits... 4.74 3.55 3.61 4.93
Weighted average yield on federal funds sold.......... 4.86 4.37 4.65 --
Weighted average yield on all interest-
earning assets...................................... 7.83 7.76 7.93 7.93
Weighted average rate paid on total deposits.......... 4.39 4.56 4.80 4.93
Weighted average rate paid on FHLB advance............ 5.85 6.07 6.08 5.87
Weighted average rate paid on all interest
-bearing liabilities................................. 4.41 4.61 4.95 5.07
Interest rate spread (spread between weighted
average rate on all interest-earning assets
and all interest-bearing liabilities)................ 3.42 3.15 2.98 2.86
Net interest margin (net interest income
(expense) as a percentage of average
interest-earning assets)............................ N/A 3.76 3.58 3.53
</TABLE>
5
</page>
Rate/Volume Analysis
The following table sets forth the effects of changing rates and
volumes on net interest income of the Company and Savings Bank.
Information is provided with respect to (i) effects on interest
income attributable to changes in volume (changes in volume
multiplied by prior rate); (ii) effects on interest income
attributable to changes in rate (changes in rate multiplied by prior
volume); (iii) changes in rate/volume (change in rate multiplied by
change in volume); and (iv) the net changes (the sum of the previous
columns).
<TABLE>
<CAPTION>
Years Ended June 30, Years Ended June 30,
1999 Compared to 1998 1998 Compared to 1997
Increase (Decrease) Increase (Decrease)
Due to Due to
---------------------------------- -------------------------------
Rate/ Rate/
Volume Rate Volume Net Volume Rate Volume Net
------- ------ ------ ----- ------- ---- -------- -----
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans(1).......................... $ 698 $(129) $(10) $ 559 $1,303 $ (87) $(10) $1,206
Mortgage-backed securities........ (8) 1 -- (7) (110) 1 (1) (110)
Investment securities............. (416) (64) 30 (450) (303) 209 (62) (156)
Daily interest-bearing deposits... 125 (4) (2) 119 206 (23) (55) 128
Federal funds sold................ 3 (1) -- 2 -- -- 8 8
--------- ------ ----- ------- ------- ----- ----- -------
Total net change in income on
interest-earning assets........... 402 (197) 18 223 1,096 100 (120) 1,076
------- ------ ----- ------- ------- ------ ----- -------
Interest-bearing liabilities:
Interest-bearing deposits......... 760 (300) (39) 421 794 (142) (21) 631
FHLB advances..................... (726) (2) 1 (727) (153) 40 (6) (119)
------- ----- ---- ----- ------ ----- ----- -----
Total net change in expense on
interest- bearing liabilities..... 34 (302) (38) (306) 641 (102) (27) 512
------ ------ ----- ------ ------ ------ ------ ------
Net change in net interest income.. $ 368 $ 105 $ 56 $ 529 $ 455 $ 202 $ (93) $ 564
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
(1) Includes interest on loans 90 days or more past due.
6
</page>
Interest Rate Sensitivity of Net Portfolio Value
The table below measures interest rate risk by estimating the change
in market value of the Savings Bank's assets, liabilities, and off-
balance sheet contracts in response to an instantaneous change in
the general level of interest rates. The procedure for measuring
interest rate risk was developed by the Office of Thrift Supervision
("OTS") to replace the "gap" analysis (the difference between
interest-earning assets and interest-bearing liabilities that mature
or reprice within a specific time period) used previously by the OTS.
The model first estimates the level of the Savings Bank's market
value of portfolio equity ("MVPE") (market value of assets, less
market value of liabilities, plus or minus the market value of any
off-balance sheet items) under the current rate environment. In
general, market values are estimated by discounting the estimated
cash flows of each instrument by appropriate discount rates. The
model then recalculates the Savings Bank's MVPE under different
interest rate scenarios. The change in MVPE under the different
interest rate scenarios provides a measure of the Savings Bank's
exposure to interest rate risk. The data presented below is as of
June 30, 1999.
7
<PAGE>
<TABLE>
<CAPTION>
-300 -200 -100 +100 +200 +300
Basis Basis Basis No Basis Basis Basis
Points Points Points Change Points Points Points
------- ------- -------- ------- ------- -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Mortgage loans and
securities............. $145,228 $143,609 $142,159 $140,960 $139,428 $137,117 $134,271
Non-mortgage loans...... 15,026 14,976 14,927 14,878 14,830 14,783 14,737
Cash, deposits and
securities............. 16,701 16,613 16,521 16,433 16,347 16,262 16,177
Premises and
equipment.............. 3,888 3,888 3,888 3,888 3,888 3,888 3,888
Other assets............ 1,667 2,318 3,338 4,695 6,051 7,331 8,540
--------- -------- --------- --------- -------- -------- --------- --------
TOTAL................... $182,510 $181,404 $180,833 $180,854 $180,544 $179,381 $177,613
========= ========= ========= ======== ======== ======== ========
LIABILITIES
Deposits................ $154,052 $153,453 $152,861 $152,286 $151,724 $151,175 $150,634
Borrowings.............. 2,796 2,767 2,739 2,711 2,684 2,657 2,632
Other liabilities....... 891 891 891 891 890 890 890
-------- -------- -------- -------- -------- -------- -------- -------- --------
TOTAL................... $157,739 $157,111 $156,491 $155,888 $155,298 $154,722 $154,156
======== ======== ======== ======== ======== ======== ========
MARKET VALUE OF
PORTFOLIO EQUITY.........$ 24,771 $ 24,293 $ 24,342 $ 24,966 $ 25,246 $ 24,659 $ 23,457
======== ======== ======== ======== ======== ======== ========
</TABLE>
8
</page>
Lending Activities
General. The principal lending activity of the Savings Bank is
the origination of conventional mortgage loans for the purpose of
purchasing, constructing or refinancing one-to-four family owner occupied
homes within its primary market area. In an attempt to diversify its
lending portfolio, however, the Savings Bank also originates
nonresidential real estate loans, consumer loans, mobile home loans,
home improvement loans, commercial loans, business loans, student
loans and loans secured by savings accounts. In addition to loans
within the Savings Bank's primary market area, the Savings Bank also
has originated 21 one-to-four family home loans, one condominium loan, two
land loans and one commercial real estate loan in Texas, Arkansas, and
Colorado. The aggregate balance of these 25 loans at June 30, 1999
was $1.1 million. These loans were performing according to the
scheduled terms at June 30, 1999.
At June 30, 1999 the Savings Bank's net loans receivable
totaled approximately $153.6 million representing approximately
85.95% of consolidated total assets. Since 1973, the Savings Bank
has primarily originated ARM loan products. At June 30, 1999, ARM
loans accounted for $139.7 million or 89.14% of the total loan
portfolio and 98.17% of loans secured by real estate. The Savings
Bank focuses on serving the needs of its local community and strongly
believes in a lending philosophy that stresses individual customer
service and flexibility in meeting the needs of its customers.
Loan Portfolio Analysis. The following table sets forth the
composition of the Savings Bank's loan portfolio by type of loan
and type of security as of the dates indicated. Construction loans
are included in the residential and commercial loan types. The
Savings Bank does not account for construction loans separate from
residential and commercial loans.
9
<PAGE>
<TABLE>
<CAPTION>
At June 30,
-----------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
----------------- ----------------- ----------------- ----------------- -----------------
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
--------- ------- -------- ------- -------- ------- -------- ------- -------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Type of Loan:
- ------------
Residential................. $113,075 72.14% $112,404 74.74% $105,700 76.82% $ 95,534 77.44% $ 82,891 79.12%
Commercial.................. 15,850 10.11 11,615 7.72 10,876 7.90 9,159 7.42 7,074 6.75
Land........................ 8,407 5.36 8,727 5.80 6,828 4.97 5,781 4.69 4,272 4.08
Second mortgage loans....... 4,991 3.19 4,910 3.27 4,278 3.11 3,727 3.02 2,731 2.60
-------- ----- -------- ----- -------- ------ --------- ------ -------- -----
Total mortgage loans...... 142,323 90.80 137,656 91.53 127,682 92.80 114,201 92.57 96,968 92.55
-------- ----- -------- ----- -------- ------ --------- ----- -------- -----
Other Loans:
Automobile loans............ 5,270 3.36 5,724 3.81 4,334 3.15 4,184 3.39 3,084 2.95
Savings account loans....... 1,944 1.24 1,662 1.10 1,301 0.94 1,282 1.04 1,145 1.09
Mobile home loans........... 1,346 0.86 1,135 0.75 743 0.54 745 0.60 622 0.59
Other consumer.............. 1,552 0.99 1,847 1.23 1,373 1.00 916 0.75 811 0.78
Commercial business......... 4,314 2.75 2,372 1.58 2,162 1.57 2,035 1.65 2,142 2.04
-------- ----- -------- ------ ------- ------ -------- ------ -------- ------
Total other loans......... 14,426 9.20 12,740 8.47 9,913 7.20 9,162 7.43 7,804 7.45
-------- ----- -------- ------ ------- ------ -------- ------- -------- ------
Total loans............... 156,749 100.00% 150,396 100.00% 137,595 100.00% 123,363 100.00% 104,772 100.00%
-------- ======= -------- ======= ------- ======= ------- ======= -------- ======
Add:
Unamortized deferred loan costs,
net of origination fees.... 217 167 107 70 46
Less:
Undisbursed loans in process 2,810 3,629 3,117 4,133 2,945
Allowance for possible loan
losses.................... 540 528 481 520 442
-------- -------- ------- ------- -------
Total loans receivable, net.. $153,616 $146,406 $134,104 $118,780 $101,431
======== ======== ======== ======= =======
</TABLE>
10
</page>
<TABLE>
<CAPTION>
At June 30,
------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
---------------- ---------------- ---------------- ---------------- ----------------
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
------- ------- ------- ------- ------- ------- ------- ------- -------- -------
(Dollars in thousands)
Type of Security:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Residential real estate
Second mortgage loans...... $ 3,746 2.39% $ 3,884 2.58% $ 3,805 2.77% $ 3,356 2.72% $ 2,355 2.25%
One-to-four family......... 113,075 72.14 112,404 74.74 105,700 76,82 95,534 77.44 82,891 79.12
Multi-family............... 1,535 0.98 1,085 0.72 1,119 0.81 1,190 0.97 1,391 1.33
Commercial or industrial real
estate................... 15,437 9.85 11,422 7.60 10,123 7.36 8,283 6.71 5,977 5.70
Land......................... 8,530 5.44 8,861 5.89 6,935 5.04 5,838 4.73 4,354 4.15
Commercial or industrial assets 4,314 2.75 2,372 1.58 2,162 1.57 2,035 1.65 2,142 2.04
Automobile................... 5,270 3.36 5,724 3.81 4,334 3.15 4,184 3.39 3,084 2.95
Savings accounts............. 1,944 1.24 1,662 1.10 1,301 0.94 1,282 1.04 1,145 1.09
Mobile homes................. 1,346 0.86 1,135 0.75 743 0.54 745 0.60 622 0.59
Other........................ 1,552 0.99 1,847 1.23 1,373 1.00 916 0.75 811 0.78
-------- ----- ------- ----- ------ ----- ------ ----- ------- -----
Total..................... 156,749 100.00% 150,396 100.00% 137,595 100.00% 123,363 100.00% 104,772 100.00%
======= ======= ======= ======= =======
Add:
Unamortized deferred loan costs,
net of origination fees..... 217 167 107 70 46
Less:
Undisbursed loans in process 932 1,514 1,185 1,535 841
Due to borrowers on construction
loans..................... 1,878 2,115 1,932 2,598 2,104
Allowance for possible loan losses 540 528 481 520 442
-------- -------- -------- ------- --------
Total loans receivable, net. $153,616 $146,406 $134,104 $118,780 $101,431
======== ======== ======== ======= =======
</TABLE>
11
</page>
One- to Four-Family Residential Loans. The primary lending
activity of the Savings Bank has been the origination of mortgage
loans to enable borrowers to purchase existing homes, to construct
new one-to-four family homes or refinance existing debt on their homes.
Management believes that this policy of focusing on single-family
residential mortgage loans has been successful in contributing to
interest income while keeping delinquencies and losses at a minimum.
At June 30, 1999, approximately $113.1 million, or 72.14% of the
Savings Bank's gross loan portfolio, consisted of loans secured by
one- to four-family residential real estate.
The Savings Bank presently originates ARM loans secured by one-
to four-family properties with loan terms of 10 to 30 years. Since
1973, the Savings Bank has originated almost exclusively ARM loan
products. Initially, ARM loans were indexed to the Savings Bank's
cost of money. In 1979, the Savings Bank discontinued the use of
the indexed ARM loans and changed to its current policy of non-
indexed ARMs, which generally allows, but does not require, the
Savings Bank to adjust the interest rate once a year, up or down,
not to exceed 1% per year. Loans of this nature originated after
1988 generally are limited to a 6% maximum increase over the life of
the loan.
The Savings Bank does not charge points on ARM loans. In
addition, the Savings Bank does not charge appraisal fees. It
quotes an interest rate, or base rate, with no points and gives
the borrower the option, if desired, to pay a 1% fee, but obtain the
loan at 1% below the Savings Bank's base rate for the first year of
the loan. Construction borrowers can pay a 2% fee and receive a 2%
reduction in the initial interest rate for the first year of the
loan. The Savings Bank funds most of its loan commitments in a
relatively short period of time. If a commitment expires, the
Savings Bank will generally renew the commitment upon request.
The Savings Bank underwrites ARMs based on an assumed 1% per
year interest rate increase. The Savings Bank's policy to adjust
the interest rate once a year within 1% is a self-imposed limit by
the Savings Bank. The Savings Bank's experience has been that most
of its borrowers can manage an increased payment resulting from a 1%
increase; however, an increase of over 1% may put a strain on the
borrowers' ability to repay. As a result, the potential for a
substantial increase in interest payments on the Savings Bank's ARM
loans is lessened as is the likelihood of delinquencies and defaults.
The Savings Bank's lending policies generally limit the maximum
loan-to-value ratio on adjustable rate residential mortgage loans to
85% of the lesser of the appraised value or purchase price of the
underlying residential property. The Savings Bank requires title
insurance or an abstract extension and attorney's opinion, fire and
casualty coverage and a flood zone determination on all mortgage
loans originated or purchased. All of the Savings Bank's real
estate loans contain "due on sale" clauses. The Savings Bank
personnel prepare all property evaluations at no expense to the
borrower unless the property is outside its normal lending territory
or the loan exceeds $250,000, in which event, independent appraisers
are utilized. At June 30, 1999 the maximum loan-to-value ratio on
loans to local borrowers was generally 85%.
12
<PAGE>
At June 30, 1999, the Savings Bank had $5.1 million in interim
construction loans in its portfolio with maximum loan to value
ratios of 80% to 85%. Most of these loans are residential
construction loans for single- or multi-family dwelling units. All
of these loans automatically convert into permanent residential real
estate loans.
Multi-Family Residential Loans. At June 30, 1999, approximately
$1.5 million, or .98% of the Savings Bank's gross loan portfolio
consisted of nine loans secured by multi-family residential real
estate. Multi-family real estate loans are generally originated at
80% of the appraised value of the property or selling price,
whichever is less, and carry adjustable rate mortgages with the
principal amortized over 10 to 30 years. Loans secured by
multi-family real estate are generally larger and involve a
greater degree of risk than one- to four- family residential
loans. In addition, multi-family real estate loans carry risks
similar to those associated with commercial real estate lending.
See " -- Consumer and Commercial Business Loans."
At June 30, 1999, the Savings Bank's largest multi-family
residential loan was a $533,000 loan secured by a 24-unit apartment complex
in Taney County, Missouri and a $105,000 note receivable. At June 30, 1999,
these loans were performing according to their scheduled terms. See
"-- Non-Performing Assets and Delinquencies."
Land and Commercial Real Estate Loans. The Savings Bank had
land and commercial real estate loans outstanding of $24.0 million
at June 30, 1999. The commercial real estate loans originated by
the Savings Bank are primarily secured by commercial buildings.
Land loans on property located primarily in the Savings Bank's
primary market area amounted to $8.5 million or 5.44% of the total
loan portfolio at June 30, 1999. The Savings Bank's land loans
generally are secured by farm land used in beef or dairy operations
and involve the risks associated with general agricultural conditions
relative to those areas of agriculture.
The Savings Bank does not actively solicit or originate
commercial real estate loans. At June 30, 1999, the Savings Bank's
largest commercial real estate loan was a $511,000 loan secured by an
automobile dealership building located in its market area which was
performing according to its terms. Of primary concern in commercial
real estate lending is the borrower's creditworthiness and the
feasibility and cash flow potential of the property. Loans secured
by income properties are generally larger and involve greater risks
than residential mortgage loans because payments on loans secured by
income properties are often dependent on successful operation or
management of the properties. As a result, repayment of such loans
may be subject, to a greater extent than residential real estate
loans, to supply and demand in the market in the type of property
securing the loan and therefore, may be subject to adverse conditions
in the real estate market or the economy. If the cash flow from the
project is reduced, the borrowers' ability to repay the loan may be
impaired.
13
</page>
Consumer and Commercial Business Loans. The Savings Bank's
consumer loans consist of car loans, appliance dealer loans, mobile
home loans, savings account loans, and various other consumer loans.
At June 30, 1999, the Savings Bank's consumer loans totaled
approximately $10.1 million, or 6.45% of the Savings Bank's total
loans. Subject to market conditions, management expects to continue
to market and originate consumer loans as part of its strategy to
provide a wide range of personal financial services to its
depository customer base and as a means to enhance the interest
rate sensitivity of the Savings Bank's interest-earning assets and
its interest rate spread.
In May 1994, the Savings Bank purchased a pool of car loans
totaling $250,000 through a private placement. Principal and interest
payments were made on the loans monthly and paid to the Savings Bank.
At June 30, 1999, the balance of these loans had been completely
written off due to lack of payment. The write-off over the holding
period of these loans totaled $29,000.
The Savings Bank also purchases consumer loans from two local
appliance dealers. The loans are made by the appliance dealers to
the dealers' customers. At June 30, 1999, the loans amounted to
$146,000. Reserves for losses maintained by the dealers at June 30,
1999 totaled $13,000. These loans are originated by the dealers and
are assigned, with recourse, to the Savings Bank. Payments are made
directly to the dealers by the borrower and any losses are borne by
the dealer rather than the Savings Bank. The Savings Bank obtains
and reviews regularly updated financial statements of the appliance
dealers and monitors the individual loans purchased.
The Savings Bank's procedures for underwriting consumer loans
include an assessment of the applicant's payment history on other
debts and ability to meet existing obligations and payments on the
proposed loan. Although the borrower's creditworthiness is a primary
consideration, the underwriting process also includes a comparison
of the value of the security, if any, to the proposed loan amount.
Consumer loans entail greater risk than do residential mortgage
loans, particularly in the case of consumer loans which are unsecured
or secured by rapidly depreciating assets such as automobiles, mobile
homes, boats and recreational vehicles. In such cases, any
repossessed collateral for a defaulted consumer loan may not provide
an adequate source of repayment of the outstanding loan balance as a
result of the greater likelihood of damage, loss or depreciation.
The remaining deficiency often does not warrant further substantial
collection efforts against the borrower beyond obtaining a
deficiency judgment. In addition, consumer loan collections are
dependent on the borrower's continuing financial stability, and thus
are more likely to be adversely affected by job loss, divorce,
illness or personal bankruptcy. Furthermore, the application of
various federal and state laws, including federal and state
bankruptcy and insolvency laws, may limit the amount which can be
recovered on such loans. Such loans may also give rise to claims
and defenses by a consumer loan borrower against an assignee of such
loans such as the Savings Bank, and a borrower may be able to assert
against such assignee claims and defenses that it has against the
14
</page>
seller of the underlying collateral. Historically, the Savings Bank
has had a low level of delinquencies on its consumer loans. See
"-- Non-Performing Assets and Delinquencies." At June 30, 1999, only
$227,000 of the Savings Bank's consumer loan portfolio was 90 days or
more past due.
Other loans consist of commercial loans with no real estate as
security, business equipment loans, farm equipment loans and cattle
loans. As of June 30, 1999, 1998 and 1997, these loans totaled $4.3
million, $2.4 million and $2.2 million, respectively. The ratio of
other loans as a percent of total loans increased during
the last of the three years ended June 30, 1999 at 2.75%, 1.58%
and 1.57%, respectively. These ratios are an indication that the
Savings Bank does not particularly emphasize loans of this type, but
may make such loans for well qualified customers. There have been no
losses from First Home originated loans in the "other loans" category
in the past three fiscal years.
Second Mortgage Loans. The Savings Bank offers adjustable rate
second mortgage loans that are usually made on the security of the
borrower's residence. Loans normally do not exceed 80% to 85% of
the appraised value of the residence, less the outstanding principal
of the first mortgage, and have terms of up to 20 to 25 years
requiring monthly payments of principal and interest. At June 30,
1999, second mortgage loans amounted to $5.0 million, or 3.19% of
total loans of the Savings Bank.
15
</page>
Loan Maturity and Repricing
The following table sets forth certain information at June 30,
1999 regarding the dollar amount of loans maturing in the Savings
Bank's portfolio based on their contractual terms to maturity, but
does not include scheduled payments or potential prepayments. Demand
loans, loans having no stated schedule of repayments and no stated
maturity, are reported as due in one year or less. Mortgage loans
which have adjustable rates are shown as maturing at their next
repricing date. Loan balances do not include undisbursed loan
proceeds, unearned discounts, unearned income and allowance for loan
losses.
<TABLE>
<CAPTION>
After One Year After 3 Years After 5 Years
Within One Year Through 3 Years Through 5 Years Through 10 Years Beyond 10 Years Total
--------------- --------------- --------------- ---------------- --------------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Real estate mortgage......... $115,937 $ 210 $ 9 $ 280 $ 385 $116,821
Commercial real estate....... 16,948 -- -- -- 24 16,972
Land......................... 8,522 8 -- -- -- 8,530
Mobile home.................. 1,300 19 27 -- -- 1,346
Automobile................... 5,130 126 14 -- -- 5,270
Savings account loans........ 1,865 50 -- -- 29 1,944
Other consumer............... 1,340 212 -- -- -- 1,552
Commercial business.......... 4,152 91 62 -- 9 4,314
-------- ----- ------ ------- ------- ---------
Total loans............. $155,194 $ 716 $ 112 $ 280 $ 447 $156,749
======== ======= ====== ======== ======== ========
</TABLE>
The following table sets forth the dollar amount of all loans
due one year after June 30, 1999, all of which have fixed interest
rates.
<TABLE>
<CAPTION>
Fixed
Rates
-------
(In thousands)
<S> <C>
Real estate mortgage......... $ 884
Commercial real estate....... 24
Land......................... 8
Mobile home.................. 36
Automobile................... 116
Savings account loans........ 79
Other consumer............... 210
Commercial business.......... 146
------
Total $1,503
======
</TABLE>
16
</page>
The following table sets forth scheduled contractual
amortization of loans and mortgage-backed securities at June 30,
1999 and the dollar amount of such loans and mortgage-backed
securities at the date which are scheduled to mature after one
year which have fixed or adjustable interest rates. Demand loans,
loans having no stated schedule of repayments and no stated maturity
are reported as due in one year or less.
<TABLE>
<CAPTION>
At June 30, 1999
-----------------------------------------------------
Commercial Mortgage-
Mortgage Consumer Business Total Backed
Loans Loans Loans Loans Securities
-------- -------- ---------- ------ ----------
(In thousands)
<S> <C> <C> <C> <C> <C>
Amounts due:
Within one year........... $ 6,110 $3,903 $2,413 $ 12,426 $ --
After one year
through three years...... 2,460 4,749 1,277 8,486 --
After three years
through five years....... 3,288 308 204 3,800 --
After five years.......... 130,465 1,152 420 132,037 557
-------- ------ ------ -------- -----
Total................. $142,323 $10,112 $4,314 $156,749 $557
======== ====== ====== ======== ====
Interest rate terms
on amounts due after
one year:
Fixed................... $ 916 $ 441 $ 146 $ 1,503 $112
Adjustable.............. 135,297 5,768 1,755 142,820 445
------- ------ ------ -------- ----
Total................ $136,213 $6,209 $1,901 $144,323 $557
======== ====== ====== ======== ====
</TABLE>
Mortgage Loan Solicitation and Processing. The Savings Bank's
main source of loans is from referrals from current or prior
borrowers, limited walk-ins and contact and relationships with real
estate agents. Once a mortgage loan application is received, a
credit and property analysis is completed including obtaining a
credit report from local reporting agencies, verification of income
and deposits through mail or direct contact, asset and liability
verification as required and an evaluation of the property offered
as collateral. Real estate evaluations are completed by board
approved staff personnel. The application is then submitted for
underwriting by designated staff members and forwarded to a loan
officer for review and action along with the underwriter's
recommendations. Decisions are generally made within a week. Loans
in excess of $100,000 are approved by the Board of Directors and
loans less than that amount are approved by authorized officers or
a loan officer of the Savings Bank.
17
<PAGE>
Loan Originations, Purchases and Sales. Loans are originated
to meet or exceed the applicable underwriting requirements of the
Savings Bank. The Savings Bank has never sold loans in the
secondary market.
The Savings Bank has occasionally purchased loans from
other financial institutions or three local appliance dealers,
as discussed above. See "-- Consumer and Commercial Business
Loans." The Savings Bank purchased three whole mortgage
loans totaling $49,000 from area individuals during 1999.
18
</page>
The following table shows total mortgage loans originated, purchased,
sold and repaid during the periods indicated.
<TABLE>
<CAPTION>
Years Ended June 30,
--------------------------------------
1999 1998 1997
-------- -------- -------
(In thousands)
<S> <C> <C> <C>
Total mortgage loans at beginning of period......... $137,656 $127,682 $114,201
Loans originated: -------- -------- --------
One-to-four family residential..................... 37,155 34,141 33,414
Multi-family residential and commercial real estate 6,832 3,977 4,539
Land............................................... 3,194 3,769 2,622
-------- -------- --------
Total loans originated........................... 47,181 41,887 40,575
Loans purchased:
One-to-four family residential..................... 49 2,115 --
Multi-family residential and commercial real estate -- 590 --
Land 29 71 --
Participation loans................................ -- -- --
------- ------ -------
Total loans purchased............................ 78 2,776 --
Loans sold.......................................... -- -- --
Mortgage loan principal repayments.................. 42,467 34,643 26,870
-------- -------- --------
Other-loans charged off or
transferred to other real estate(1)................ 125 46 224
-------- -------- -------
Total other activity............................. 125 46 224
-------- -------- -------
Total gross mortgage loans at end of period......... $142,323 $137,656 $127,682
======== ======== =======
Total mortgage-backed certificates at beginning of
period............................................. $ 703 $ 828 $ 2,831
Mortgage-backed purchased........................... -- -- --
Mortgage-backed sold................................ -- -- (2,000)
Principal repayments................................ (143) (123) (128)
Amortization of premiums............................ -- -- --
Adjustment to market value.......................... (10) (2) 125
-------- -------- -------
Total mortgage-backed at end of period.............. $ 550 $ 703 $ 828
======== ======== ========
</TABLE>
- -------------
(1) Loans transferred to other real estate amounted to $99,000,
$41,000 and $114,000 in 1999, 1998 and 1997, respectively. Mortgage
loans charged off amounted to $26,000, $5,000 and $110,000 in 1999,
1998 and 1997, respectively.
19
</page>
Loan Commitments. The Savings Bank issues commitments for
adjustable rate one- to four-family residential mortgage loans that
are honored for up to a maximum of 30 days from approval. If the
commitment expires, it is generally renewed upon request without
penalty or expense to the borrower at the current market rate.
The Savings Bank had outstanding net loan commitments of
approximately $1.5 million at June 30, 1999. See Note 15 of the
Notes to the Consolidated Financial Statements.
Loan Origination and Other Fees. The Savings Bank does not
charge points on ARM mortgage loans. Instead, it quotes an interest
rate, or base rate, with no points and gives the borrower the option,
if desired, to pay a 1% fee, but obtain the loan at 1% below the
Savings Bank's base rate at the time the loan is issued. Subsequent
increases in the loan's interest rate are based upon the reduced rate
rather than the base rate. Construction borrowers can pay a 2% fee
and receive a 2% reduction in the initial rate. Current accounting
standards require fees received (net of certain loan origination
costs) for originating loans to be deferred and amortized into
interest income over the contractual life of the loan. Net
deferred fees associated with loans that are sold are recognized as
income at the time of sale. The Savings Bank had $217,000 net
deferred loan costs at June 30, 1999.
Non-Performing Assets and Delinquencies. The Savings Bank
generally institutes collection procedures when a monthly payment
is two to four weeks delinquent. A first notice is generally mailed
to the borrower, or a phone call made. If necessary, a second notice
follows at the end of the next two week period. In most cases,
delinquencies are cured promptly; however, if the Savings Bank is
unable to make contact with the borrower to obtain full payment, or,
if that is not possible, work out a repayment schedule, a notice to
commence foreclosure may be mailed to the borrower. The Savings Bank
makes every reasonable effort, however, to work with delinquent
borrowers. Understanding that borrowers sometimes cannot make
payments because of illness, loss of employment, etc., the Savings
Bank will attempt to work with delinquent borrowers who are
communicating and cooperating with the Savings Bank.
The Savings Bank institutes the same collection procedures
for non-mortgage loans.
The Board of Directors is informed on a monthly basis as to
the status of all mortgage and non-mortgage loans that are
delinquent 60 days or more, as well as the status on all loans
currently in foreclosure or owned by the Savings Bank through
foreclosure.
The table below sets forth the amounts and categories of
non-performing assets in the Savings Bank's loan portfolio at
the dates indicated. Loans are placed on non-accrual status only
when the Savings Bank determines there is little, if any,
likelihood they will be repaid. The loans are fully reserved at
20
<PAGE>
that time, through appropriate loss reserves and are kept on the
books as long as some principal is being repaid. The Savings Bank
has no reserves for uncollected interest and does not accrue interest
on the non-accrual loans. The Savings Bank would have recorded
interest income of $4,300, $4,300 and $4,300 on non-accrual loans
during the years ended June 30, 1999, 1998 and 1997, respectively,
if such loans had been performing during such periods. The Savings
Bank did not recognize interest income on loans after being placed
on a non-accrual basis during the years ended June 30, 1999, 1998
and 1997.
Accruing loans contractually past due 90 days or more have
been reduced over the past year. The vast majority of the remaining
past due loans are well secured, and the borrowers are making
payments and working with Savings Bank personnel to bring their loans
current.
21
</page>
The following table sets forth information with respect to the
Savings Bank's non-performing assets at the dates indicated. At the
dates shown, the Savings Bank had no restructured loans within the
meaning of SFAS 15.
<TABLE>
<CAPTION>
At June 30,
------------------------------------------
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Loans accounted for on
a nonaccrual basis:
Real estate:
Residential.................... $ -- $ -- $ -- $ -- $ --
Commercial..................... -- -- -- -- --
Commercial business............. 40 48 48 121 40
Consumer........................ 15 9 9 9 11
------ ------ ------ ------ ----
Total....................... $ 55 $ 57 $ 57 $ 130 $ 51
====== ====== ====== ====== ====
Accruing loans which are contractually
past due 90 days or more:
Real estate:
Residential.................... $ 718 $1,321 $ 461 $ 548 $ 295
Commercial..................... 315 306 152 4 106
Commercial business............. 99 201 12 29 44
Consumer........................ 227 255 122 108 93
------ ------ ------ ------ ----
Total...................... $1,359 $2,083 $ 747 $ 689 $ 538
====== ====== ====== ====== =====
Total of nonaccrual and
90 days past due loans......... $1,414 $2,140 $ 804 $ 819 $ 589
Real estate owned................. -- -- 114 -- 48
Other non-performing assets....... -- -- -- -- --
Slow home loans (60 to 90 days
delinquent)...................... 537 700 602 446 349
------ ------ ------ ----- ----
Total non-performing assets.... $1,951 $2,840 $1,520 $1 265 $ 986
====== ======= ====== ====== =====
Total loans delinquent 90 days
or more to net loans............ 0.92% 1.46% 0.56% 0.58% 0.53%
Total loans delinquent 90 days
or more to total consolidated
assets.......................... 0.79 1.24 0.46 0.48 0.42
Total non-performing assets
to total consolidated
assets.......................... 1.09 1.65 0.93 0.88 0.77
</TABLE>
22
</page>
Asset Classification. The OTS has adopted various regulations
regarding problem assets of savings institutions. The regulations
require that each insured institution review and classify its assets
on a regular basis. In addition, in connection with examinations of
insured institutions, OTS examiners have authority to identify
problem assets and, if appropriate, require them to be classified.
There are three classifications for problem assets: substandard,
doubtful and loss. Substandard assets must have one or more defined
weaknesses and are characterized by the distinct possibility that the
insured institution will sustain some loss if the deficiencies are
not corrected. Doubtful assets have the weaknesses of substandard
assets with the additional characteristic that the weaknesses make
collection or liquidation in full on the basis of currently existing
facts, conditions and values questionable, and there is a high
possibility of loss. An asset classified loss is considered
uncollectible and of such little value that continuance as an asset
of the institution is not warranted. If an asset or portion thereof
is classified loss, the insured institution must either establish
specific allowances for loan losses for the full amount of the
portion of the asset classified as loss or charge off such amount.
All or a portion of general loan loss allowances established to
cover possible losses related to assets classified substandard or
doubtful may be included in determining an institution's regulatory
capital, while specific valuation allowances for loan losses
generally do not qualify as regulatory capital.
At June 30, 1999 and 1998 the aggregate amounts of the Savings
Bank's classified assets as determined by the Savings Bank, and of
the Savings Bank's general and specific loss allowances and charge-
offs, were as follows:
<TABLE>
<CAPTION>
At June 30,
----------------------
1999 1998
------- ---------
(In thousands)
<S> <C> <C>
Loss........................... $ 94 $ 73
Doubtful....................... 59 55
Substandard assets............. 1,864 1,419
------- -------
Total classified assets...... $2,017 $1,547
====== ======
General loss allowances........ $ 267 $ 242
Specific loss allowances....... 273 286
------ ------
Total allowances $ 540 $ 528
====== ======
Charge-offs.................... $ 72 $ 32
====== ======
</TABLE>
23
The Savings Bank does not use a special mention category in
its loan classification process. Loans classified as substandard,
therefore, include all loans for which any perceived weakness occurs
even if no possibility has arisen that a loss will occur if the
weakness is not corrected. The Savings Bank's policy is to classify
as substandard, for example, any loan, irrespective of payment record
or collateral value, when a bankruptcy filing occurs, a divorce
petition is filed, the pay record becomes erratic (i.e., miss one
monthly payment, but make a double payment the next month), a
borrower moves from the area, a major illness occurs, or a loan
becomes contractually delinquent by two monthly payments.
The Savings Bank's further policy is not to remove a loan
from a substandard classification, again, irrespective of pay
record or collateral value, until those perceived weaknesses are
cured. Because of this stringent classification policy, the June
30, 1999 substandard classification totals included $1.2 million of
loans that were current in their payment obligations. As of
June 30, 1998, loans classified substandard included $479,000 of
current loans.
The following is a discussion of the Savings Bank's largest
substandard loan at June 30, 1999: The borrower obtained a loan
secured by a home and 132 acres in April 1996. The loan was
classified because of concerns with the self-employed borrower's
ability to continue his business which is his primary source of
income. At June 30, 1999, the balance of the loan was $133,000.
In August 1999,however, a $65,000 payment was made on the loan with funds
received from a fire loss. The loan is adequately secured by the
132 acres.
Real Estate Owned. Real estate acquired by the Savings Bank as
a result of foreclosure or by deed in lieu of foreclosure is
classified as real estate owned until it is sold. When property
is acquired, the unpaid principal balance of the related loan
plus foreclosure costs are compared to the property's appraised
value. The property is then directly written down to the lower of
cost or fair value. Subsequently, the property is carried at the
lower of cost or net realizable value with any adjustments made
through the establishment of a specific reserve. At June 30, 1999
and 1998, no property was held as real estate owned.
Reserve for Loan Losses
The Savings Bank's loan personnel, at least monthly, evaluate
the need to establish reserves for losses on loans based on
estimated losses on specific loans when a finding is made that a
decline in value has occurred. Such evaluation includes a review of
all loans for which full collectibility may not be reasonably assured
and considers, among other matters, historical loss experience, the
level and trend of delinquent and classified loans, current and
anticipated economic; and real estate conditions and the composition
of the loan portfolio. These provisions for losses are charged
against earnings in the year they are established. The Savings
Bank had reserves for loan losses at June 30, 1999, 1998 and 1997 of
approximately $540,000, $528,000 and $482,000, respectively.
24
</page>
Management believes that loan loss reserves were adequate at
June 30, 1999. However, if the underlying facts and circumstances
of the loan portfolio change in the future, the adequacy of the
allowance for loan losses will be addressed and, if need be,
adjusted accordingly.
While the Savings Bank believes it has established its existing
allowance for loan losses in accordance with GAAP, there can be no
assurance that regulators, in reviewing the Savings Bank's loan
portfolio, will not request the Savings Bank to significantly
increase its allowance for loan losses. Any material increase in
reserves may adversely affect the Savings Bank's financial condition
and earnings.
25
</page>
The following table sets forth an analysis of the Savings Bank's
gross reserve for possible loan losses for the periods indicated.
Where specific loan loss reserves have been established, any
difference between the loss reserve and the amount of loss realized
has been charged or credited to current income.
<TABLE>
<CAPTION>
Years Ended June 30,
---------------------------------------------
1999 1998 1997 1996 1995
------ ----- ----- ----- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Allowance at beginning of period........... $528 $482 $520 $442 $479
Provision for loan losses.................. 84 66 71 79 (27)
Recoveries:
Residential real estate................... -- 12 -- -- --
Commercial real estate.................... -- -- -- -- --
Consumer.................................. -- -- 5 -- 2
Commercial business....................... -- -- -- -- --
---- ----- ---- ----- ----
Total recoveries........................ -- 12 5 -- 2
---- ----- ---- ----- ----
Charge offs:
Residential real estate................... 14 5 8 -- 3
Commercial real estate.................... 12 -- -- -- --
Consumer.................................. 46 27 31 1 9
Commercial business....................... -- -- 75 -- --
----- ---- ---- ---- ----
Total charge offs....................... 72 32 114 1 12
----- ---- ---- ---- ----
Net charge offs......................... 72 20 109 1 10
----- ---- ---- ---- ----
Allowance at end of period............. $540 $528 $482 $520 $442
==== ==== ==== ==== ====
Ratio of allowance to total loans
outstanding at the end of the period...... 0.34% 0.35% 0.35% 0.42% 0.42%
Ratio of net charge offs to average loans
outstanding during the period............. 0.05% 0.01% 0.09% -- 0.01%
26
</page>
Allowance for Loan Losses by Category
</TABLE>
<TABLE>
<CAPTION>
At June 30,
-------------------------------------------------------------------------------------------------
1999 1998 1997 1996
----------------------- ----------------------- --------------------- -----------------------
% % % %
% of Gross % of Gross % of Gross % of Gross
of Out- Loans in of Out- Loans in of Out- Loans in of Out- Loans in
standing Category standing Category standing Category standing Category
Loans in to Gross Loans in to Gross Loans in to Gross Loans in to Gross
Amount Category Loans Amount Category Loans Amount Category Loans Amount Category Loans
------ -------- ----- ------ -------- ----- ------- -------- ----- ------ -------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate -- mortgage:
Residential........... $ 198 0.18% 72.14% $195 0.17% 74.74% $174 0.16% 76.82% $179 0.19% 77.44%
Commercial............ 70 0.44 10.11 69 0.59 7.72 60 0.55 7.90 61 0.67 7.42
Land.................. 16 0.19 5.36 20 0.23 5.80 15 0.22 4.97 9 0.16 4.69
Second mortgage loans. 13 0.26 3.19 12 0.24 3.27 9 0.21 3.11 8 0.21 3.02
Consumer................ 163 1.61 6.45 161 1.55 6.89 156 2.01 5.63 159 2.23 5.78
Commercial business..... 80 1.85 2.75 71 2.99 1.58 68 3.15 1.57 104 5.11 1.65
------ ------- ----- ------- ----- ------ ----- ------
Total allowance for
loan losses $ 540 0.34% 100.00% $528 0.35% 100.00% $482 0.35% 100.00% $520 0.42% 100.00%
====== ======= ===== ====== ===== ======= ===== =======
</TABLE>
<TABLE>
<CAPTION>
At June 30,
1995
------------------------
%
% of Gross
of Out- Loans in
standing Category
Loans in To Gross
Amount Category Loans
------ -------- -------
<S> <C> <C> <C>
Real estate--mortgage:
Residential...... $ 186 0.22% 79.12%
Commercial....... 58 0.82 6.75
Land 7 0.16 4.08
Second mortgage loans 4 0.15 2.60
Consumer 146 2.58 5.41
Commercial business 41 1.91 2.04
----- ------
Total allowance for
loan losses $ 442 0.42% 100.00%
====== =======
</TABLE>
27
</page>
Investment Activities
Savings and loan associations have authority to invest in
various types of liquid assets, including United States Treasury
obligations, securities of various Federal agencies and of state and
municipal governments, deposits at the FHLB-Des Moines, certificates
of deposit of federally insured institutions, certain bankers'
acceptances and federal funds. Subject to various restrictions,
savings institutions may also invest a portion of their assets in
commercial paper, corporate debt securities and mutual funds, the
assets of which conform to the investments that federally chartered
savings institutions are otherwise authorized to make directly.
Savings institutions are also required to maintain minimum levels
of liquid assets which vary from time to time. See "REGULATION OF
FIRST HOME -- Federal Home Loan Bank System." The Savings Bank may
decide to increase its liquidity above the required levels depending
upon the availability of funds and comparative yields on investments
in relation to return on loans.
The Savings Bank is required under federal regulations to
maintain a minimum amount of liquid assets and is also permitted
to make certain other securities investments. See "REGULATION OF
FIRST HOME" herein and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- Liquidity and
Capital Resources" in the Annual Report. The balance of the Savings
Bank's investments in short-term securities in excess of regulatory
requirements reflects management's response to the significant
percentage of deposits with short maturities. At June 30, 1999
the Savings Bank's regulatory liquidity was 8.2% which is
significantly in excess of the required 4%. It is the intention of
management to hold securities with short maturities in the Savings
Bank's investment portfolio in order to enable the Savings Bank to
match more closely the interest-rate sensitivities of its assets and
liabilities.
The Savings Bank purchased a pool of car loans totaling $250,000
through a private placement in fiscal 1992. The loans had a five
year stated maturity. Principal and interest payments were to have
been made monthly and paid to the Savings Bank.
In October 1993, the Savings Bank was advised by the trustee
that an audit of these loans disclosed evidence of possible
fraudulent activity in connection with the borrowers' payments. On
July 10, 1995, the pool of loans was downgraded from B to CCC.
As monthly principal and interest payments gradually ceased,
the Savings Bank wrote this investment down by $110,000 to its
estimated net realizable value of zero because, in the opinion of
management, the decline in market value was considered to be other
than temporary.
Routine short-term investment decisions are made by the
President and Chief Executive Officer, who acts within policies
established by the Board of Directors, and are reported monthly to
the Board. Those investments include federally insured certificates
of deposit, FHLB term time obligations, bankers acceptances, treasury
28
<PAGE>
obligations and U.S. Government agencies. All other investments
including, but not limited to, mortgage-backed securities, bank
qualifying municipal tax exempt bonds, corporate bonds or other
longer term obligations require prior Board approval. Securities
are purchased for investment purposes and are to be held until
maturity. The goals of the Savings Bank's investment policy are to
select investments based on safety first, flexibility second and
diversification third. In addition, as a result of the concern with
interest rate risk exposure, there has been a focus on short-term
investments. At June 30, 1999, the Company's and the Savings Bank's
securities investment portfolio totaled $5.8 million and consisted
primarily of federal agency obligations securities, mutual funds,
and municipal bonds. For further information
concerning the Savings Bank's investment and mortgage-backed
securities portfolio, see Notes 3, 4 and 5 of the Notes to the
Consolidated Financial Statements.
29
</page>
Investment Securities Analysis
The following table sets forth the Company's and the Savings
Bank's investment securities portfolio at carrying value at the
dates indicated.
<TABLE>
<CAPTION>
At June 30,
--------------------------------------------------------
1999 1998 1997
----------------- ----------------- -------------------
Book Percent of Book Percent of Book Percent of
Value(1) Portfolio Value(1) Portfolio Value(1) Portfolio
------- --------- -------- --------- ------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Debt securities:
Domestic corporate bonds.........$ -- --% $ -- -- $ 150 0.88%
U.S. government treasury and
obligations of U.S.
government agencies............ 2,172 37.33 1,699 34.87 13,127 76.78
Auto and student loan pools...... 34 0.58 63 1.30 112 0.65
State and political subdivision.. 1,510 25.96 1,050 21.55 1,492 8.73
-------- ------ ------- ------- ------- ------
Total debt securities.......... 3,716 63.87 2,812 57.72 14,881 87.04
-------- ----- ------ ----- ------ -----
Equity securities:
Federal Home Loan Bank
stock.......................... 1,058 18.18 1,058 21.71 1,264 7.39
Other............................ 1,044 17.95 1,002 20.57 951 5.57
------- ----- ------- ------ ------- ----
Total equity securities........ 2,102 36.13 2,060 42.28 2,215 12.96
------- ------ ------- ------ ------- -----
Total investment securities $ 5,818 100.00% $ 4,872 100.00% $17,096 100.00%
======= ======= ======= ======= ======= =======
</TABLE>
(1) The market value of the Company's and the Savings Bank's
investment securities portfolio amounted to $5.81 million,
$4.89 million and $17.12 million at June 30, 1999, 1998 and
1997, respectively. At June 30, 1999, the market value of the
principal components of the Company's and the Savings Bank's
investment securities portfolio which were obligations of U.S.
Government securities was $2.17 million.
The following table sets forth the maturities and weighted
average yields of the debt securities in the Company's and the
Savings Bank's investment securities portfolio at June 30, 1999.
<TABLE>
<CAPTION>
Less Than One to Five to Over Ten
One Year Five Years Ten Years Years
-------------- -------------- -------------- --------------
Amount Yield Amount Yield Amount Yield Amount Yield
------- ----- ------- ----- ------- ----- ------- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. government treasury and
obligations of U.S.
government agencies............. $ -- -- 2,172 6.05 -- -- -- --
Auto and student loan pools....... -- -- 34 6.95 -- -- -- --
State and political subdivisions.. 200 4.84 965 4.86 345 4.69 -- --
------ ----- ----- -----
Total.......................... $ 200 4.84 $3,171 5.70 $345 4.69 $ -- --
----- ----- ----- ------
</TABLE>
30
</page>
At June 30, 1999, the Savings Bank held no security which
had an aggregate book value in excess of 10% of the
Company's stockholders' equity.
Mortgage-Backed Securities. To supplement lending activities
in previous periods of deposit growth and/or declining loan demand,
the Savings Bank has invested in residential mortgage-backed
securities. Because of strong local loan demand, however, no
mortgage-backed securities have been purchased in the past six
years. Although such securities are held for investment, they can
serve as collateral for borrowings and, through repayments, as a
source of liquidity. For information regarding the carrying and
market values of the Savings Bank's mortgage-backed securities
portfolio, see Note 5 of the Notes to Consolidated Financial
Statements. The Savings Bank has invested in federal agency
securities issued by Federal Home Loan Mortgage Corporation
("FHLMC"), Federal National Mortgage Association ("FNMA") and
Government National Mortgage Association ("GNMA"). As of
June 30, 1999, 80% of the outstanding balance of the mortgage-
backed securities had adjustable rates of interest.
As of June 30, 1999, the Savings Bank's portfolio included
$550,000 of mortgage-backed securities purchased as investments
to supplement the Savings Bank's mortgage lending activities.
The FHLMC, FNMA and GNMA certificates are modified pass-
through mortgage-backed securities that represent undivided
interests in underlying pools of fixed-rate, or certain types of
adjustable-rate, single-family residential mortgages issued by
these government-sponsored entities. As a result, the interest
rate risk characteristics of the underlying pool of mortgages, such
as fixed- or adjustable-rate, as well a prepayment risk, are passed
on to the certificate holder. FHLMC and FNMA provide the certificate
holder a guarantee of timely payments of interest and ultimate
collection of principal, whether or not they have been collected.
GNMA's guarantee to the holder of timely payments of principal and
interest is backed by the full faith and credit of the U.S.
government. Mortgage-backed securities generally yield less than
the loans that underlie such securities, because of the cost of
payment guarantees or credit enhancements that reduce credit risk.
In addition, mortgage-backed securities are more liquid than
individual mortgage loans and may be used to collateralize
obligations of the Savings Bank.
The Savings Bank has incorporated into its investment
policy the regulatory requirements set forth in the OTS TB 52,
which deals with the selection of securities dealers, securities
policies, unsuitable investment practices and mortgage derivative
products.
31
<PAGE>
Deposit Activities and Other Sources of Funds
General. Deposits and loan repayments are the major source of
the Savings Bank's funds for lending and other investment purposes.
Loan repayments are a relatively stable source of funds, while
deposit inflows and outflows and loan prepayments are significantly
influenced by general interest rates and money market conditions.
Borrowings may be used on a short-term basis to compensate for
reductions in the availability of funds from other sources. They
may also be used on a longer term basis for general business
purposes.
Deposit Accounts. Deposits are attracted from within the
Savings Bank's primary market area through the offering of a
broad selection of deposit instruments, including negotiable order
of withdrawal ("NOW") accounts, money market accounts, regular
savings accounts, certificates of deposit and retirement savings
plans. Deposit account terms vary according to the minimum balance
required, the time periods the funds must remain on deposit and the
interest rate, among other factors. In determining the terms of
its deposit accounts, the Savings Bank considers the rates offered
by its competition, profitability to the Savings Bank, matching
deposit and loan products and its customer preferences and concerns.
The Savings Bank generally reviews its deposit mix and pricing
weekly, and adjusts it as necessitated by liquidity needs, the gap
position and competition. Management believes deposits have remained
relatively stable to increasing slightly, net of interest credited,
despite withdrawals as depositors sought increased yields on
alternative investments in the marketplace.
32
</page>
The following table sets forth information concerning the
Savings Bank's time deposits and other interest-bearing deposits
at June 30, 1999.
<TABLE>
<CAPTION>
Weighted
Average Percentage
Interest Minimum of Total
Rate Term Category Amount Balance Deposits
- -------- -------- ------------- --------- --------- ----------
(In thousands)
<S> <C> <C> <C> <C> <C>
0.00% None Non-interest bearing $ -- $ 5,146 3.40%
2.16% None NOW accounts 25 18,005 11.91
3.82% None Super Saver accounts 1 21,421 14.17
2.78% None Super NOW accounts 300 6,679 4.42
3.00% None Savings accounts -- 10,207 6.75
Certificates of Deposit
-----------------------
4.39% 3 months Fixed term, fixed rate 500 3,106 2.05
4.58% 6 months Fixed term, fixed rate 500 15,897 10.51
4.91% 12 months Fixed term, fixed rate 500 20,511 13.56
4.98% 18 months Fixed term, fixed rate 500 2,568 1.70
5.24% 24 months Fixed term, fixed rate 500 4,775 3.16
5.52% 30 months Fixed term, fixed rate 500 1,716 1.13
5.73% 36 months Fixed term, fixed rate 500 2,704 1.79
5.71% 48 months Fixed term, fixed rate 500 864 0.59
6.34% 60 months Fixed term, fixed rate 500 7,007 4.63
6.07% 72 months Fixed term, fixed rate 500 79 0.05
5.13% 120 months Fixed term, fixed rate 500 33 0.02
various various Fixed term, adjust rate 500 12,389 8.19
various various Jumbo certificates 100,000 18,103 11.97
-------- -------
TOTAL $151,210 100.00%
======== =======
</TABLE>
The following table indicates the amount of the Savings Bank's
jumbo certificates of deposit by time remaining until maturity as of
June 30, 1999. Jumbo certificates of deposit require minimum
deposits of $100,000 and rates paid on such accounts are negotiable.
<TABLE>
<CAPTION>
Jumbo
Certificates
Maturity Period of Deposits
- --------------- -------------
(In thousands)
<S> <C>
Three months or less $ 430
Three through six months 2,746
Six through twelve months 7,066
Over twelve months 7,861
-------
Total $18,103
=======
</TABLE>
33
</page>
Time Deposits by Rates
The following table sets forth the time deposits in the Savings
Bank classified by rates as of the dates indicated.
<TABLE>
<CAPTION>
At June 30,
------------------------------------
1999 1998 1997
--------- ------------ ----------
(In thousands)
<S> <C> <C> <C>
2.00 - 4.49%.......... $ 4,002 $ 785 $ --
4.50 - 5.49%.......... 61,689 41,051 27,382
5.50 - 6.49%.......... 19,146 36,970 41,547
6.50 - 7.49%.......... 4,705 9,896 10,377
Over 7.49%.......... 210 263 238
------- -------- -------
Total................. $89,752 $88,965 $79,544
======= ======= =======
</TABLE>
The following table sets forth the amount and maturities of time
deposits at June 30, 1999.
<TABLE>
<CAPTION>
Amount Due
--------------------------------------------------
Percent
of Total
Less Than 1-2 2-3 3-4 After Certificate
One Year Years Years Years 4 Years Total Accounts
--------- ------- -------- -------- -------- -------- ---------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
2.00 - 4.49% $ 4,000 $ 2 $ -- $ -- $ -- $ 4,002 4.46%
4.50 - 5.49%............. 49,327 6,991 1,161 3,168 1,042 61,689 68.74
5.50 - 6.49%............. 7,883 4,597 4,515 979 1,172 19,146 21.33
6.50 - 7.49%............. 3,779 15 864 47 -- 4,705 5.24
Over 7.49%............... 210 -- -- -- -- 210 0.23
------- -------- -------- ------- ------ ------- ------
Total.................... $65,199 $11,605 $6,540 $4,194 $2,214 $89,752 100.00%
======= ======= ====== ====== ======= ======= =======
</TABLE>
34
</page>
Deposit Flow
The following table sets forth the balances of savings deposits
in the various types of savings accounts offered by the Savings Bank
at the dates indicated.
<TABLE>
<CAPTION>
At June 30,
-----------------------------------------------------------------------------------
1999 1998 1997
---------------------------- ----------------------------- -----------------
Percent Percent Percent
of Increase of Increase of
Amount Total (Decrease) Amount Total (Decrease) Amount Total
-------- ------- --------- --------- ------ --------- -------- ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Non-interest bearing............... $ 5,146 3.40% $ 683 $ 4,463 3.17% $ 1,192 $ 3,271 2.78%
NOW checking....................... 18,005 11.91 2,870 15,135 10.73 7,163 7,972 6.78
Regular savings accounts........... 10,207 6.75 2,094 8,113 5.75 2,525 5,588 4.75
Super Saver accounts............... 21,421 14.17 3,871 17,550 12.44 2,672 14,878 12.64
Super NOW accounts................. 6,679 4.42 (154) 6,833 4.85 401 6,432 5.47
Fixed-rate certificates which
mature (1):
Within 1 year.................... 61,726 40.82 3,806 57,920 41.06 11,866 46,054 39.13
After 1 year, but within 2 years. 7,366 4.87 (3,595) 10,961 7.77 613 10,348 8.79
After 2 years, but within 5 years 6,226 4.12 (159) 6,385 4.53 (2,032) 8,417 7.15
Thereafter....................... 33 0.02 6 27 0.01 (20) 47 0.04
Adjustable rate certificates...... 14,401 9.52 729 13,672 9.69 (1,006) 14,678 12.47
-------- ------ ------ -------- ----- -------- -------- -------
Total certificates................. 89,752 59.35 787 88,965 63.06 9,421 79,544 67.58
-------- ------ ------ -------- ----- -------- -------- ------
Total......................... $151,210 100.00% $10,151 $141,059 100.00% $23,374 $117,685 100.00%
======== ======= ======== ======== ======= ======== ======== =======
</TABLE>
________________
(1) At June 30, 1999, 1998 and 1997, jumbo certificates of deposit
amounted to $18.1 million, $14.6 million and $14.0 million,
respectively, and IRAs equaled $15.6 million, $15.8 million and $14.1
million at those dates, respectively.
35
</page>
The following table sets forth the savings activities of the
Savings Bank for the periods indicated.
<TABLE>
<CAPTION>
Years Ended June 30,
---------------------------------
1999 1998 1997
--------- -------- --------
(In thousands)
<S> <C> <C> <C>
Beginning balance............ $141,059 $117,685 $105,960
-------- -------- --------
Net increase before
interest credited........... 5,274 19,089 7,415
Interest credited............ 4,877 4,285 4,310
-------- -------- --------
Net increase in
savings deposits............ 10,151 23,374 11,725
-------- -------- --------
Ending balance............... $151,210 $141,059 $117,685
======== ======== =======
</TABLE>
In the unlikely event the Savings Bank is liquidated, depositors
will be entitled to full payment of their deposit accounts prior to
any payment being made to the stockholders of the Savings Bank.
Substantially all of the Savings Bank's depositors are residents of
the State of Missouri.
Borrowings. Savings deposits are the primary source of funds
for the Savings Bank's lending and investment activities and for its
general business purposes. The Savings Bank may rely upon advances
from the FHLB-Des Moines to supplement its supply of lendable funds
and to meet deposit withdrawal requirements. The FHLB-Des Moines
has served as the Savings Bank's primary borrowing source. Advances
from the FHLB-Des Moines are typically secured by the Savings Bank's
first mortgage loans. These advances require monthly payments of
interest only with principal due at maturity and have fixed rates.
These advances were obtained in response to the Savings Bank's
recent strong loan demand and limited deposit growth.
36
<PAGE>
The following tables set forth certain information concerning
the Savings Bank's borrowings at the dates and for the periods
indicated.
<TABLE>
<CAPTION>
At June 30,
-----------------
1999 1998
----- ------
<S> <C> <C>
Weighted average rate paid on
FHLB advances........................ 5.85% 5.89%
Years Ended June 30,
--------------------
1999 1998
-------- ------
(Dollars in thousands)
Maximum amounts of FHLB advances
outstanding at any month end........... $5,700 $23,500
Approximate average FHLB advances
outstanding............................ 4,452 16,398
Approximate weighted average rate paid
on FHLB advances....................... 6.07% 6.08%
</TABLE>
The FHLB-Des Moines functions as a central reserve bank
providing credit for savings and loan associations and certain
other member financial institutions. As a member, the Savings
Bank is required to own capital stock in the FHLB-Des Moines and is
authorized to apply for advances on the security of such stock and
certain of its mortgage loans and other assets (principally
securities which are obligations of, or guaranteed by, the United
States) provided certain standards related to creditworthiness have
been met. Advances are made pursuant to several different programs.
Each credit program has its own interest rate and range of maturities.
Depending on the program, limitations on the amount of advances are
based either on a fixed percentage of an institution's retained
earnings or on the FHLB's assessment of the institution's
creditworthiness. The FHLB-Des Moines determines specific lines of
credit for each member institution.
Subsidiary Activities
Fybar Service Corporation ("Fybar") is a Missouri corporation
wholly owned by the Savings Bank. Fybar owns five rental
properties. One is an office building in Mountain Grove, Missouri
called "The Shannon Centre" which is adjacent to the Savings Bank's
drive-in and is currently 100% occupied. The second
property is in Ava, Missouri and consists of an older home which
has been remodeled into apartments and a duplex. That rental
property is 100% occupied. The third is a duplex in Ozark, Missouri
which is 100% occupied. The fourth property is a single family
residence in Gainesville, Missouri which is currently occupied. The
fifth is a modular house near Mansfield, Missouri which is currently
occupied.
37
<PAGE>
Fybar serves as Trustee on all the Savings Bank's deeds of
trust, is a registered agent and receives limited income from credit
life and accident and health policies written in conjunction with the
Savings Bank's loans.e
At June 30, 1999, the Savings Bank had an investment in Fybar of
$373,000.
South Central Missouri Title, Inc., is a Missouri corporation
wholly owned by First Bancshares, Inc. South Central is a licensed
agent to sell title insurance and also provides real estate closing
services. It is currently operating profitably with offices in three
counties.
REGULATION OF FIRST HOME
As a Missouri-chartered and federally insured savings and
loan association, First Home is subject to extensive regulation.
Lending activities and other investments must comply with various
statutory and regulatory capital requirements. The Savings Bank is
regularly examined by its state and federal regulators and files
periodic reports concerning the Savings Bank's activities and
financial condition. The Savings Bank's relationship with its
depositors and borrowers is also regulated to a great extent by
federal and state laws, especially in such matters as the ownership
of savings accounts and the form and content of the Savings Bank's
mortgage documents.
Missouri Savings and Loan Law
General. As a Missouri-chartered savings and loan association,
First Home derives its authority from, and is governed by, the
provisions of the Missouri Savings and Loan Law ("Missouri Law") and
regulations of the Missouri Division of Finance ("Division"). The
Director of the Missouri Division of Finance ("Director") proposes
regulations which must then be approved, amended, modified or
disapproved by the State Savings and Loan Commission ("Commission").
Missouri Law and the resulting regulations are administered by the
Director.
Investments and Accounts. Missouri Law and regulations impose
restrictions on the types of investments and loans that may be made
by a Missouri-chartered institution, generally bringing these
restrictions into parity with the regulation of federally chartered
institutions. The manner of establishing accounts and evidencing the
same is prescribed, as are the obligations of the institution with
respect to withdrawals from accounts and redemption of accounts. The
Director may also impose or grant the same restrictions, duties and
powers concerning deposits as are applicable to federal institutions
under federal rules and regulations.
Branch Offices. Under Missouri Law, no institution may
establish a branch office or agency without the prior written
approval of the Director. The Director reviews the proposed
location, the functions to be performed at the office, the estimated
volume of business, the estimated annual expense of the office and
the mode of payments. Decisions of the Director may be appealed to
the Commission. The relocation or closing of any office is subject
to additional regulation and in certain circumstances may require
prior approval.
38
<PAGE>
Merger or Consolidation. Missouri Law permits the merger or
consolidation of savings institutions, subject to the approval by
the Director, when the Director finds that such merger or
consolidation is equitable to the members or account holders of the
institutions and will not impair the usefulness and success of other
properly conducted institutions in the community. Mergers or
consolidations of mutual institutions must also be approved by a
majority of the members of each institution. Stock institutions
must obtain shareholder approval pursuant to the Missouri statutes
relating to general and business corporations.
Holding Companies. Missouri Law requires a savings and loan
holding company and its subsidiaries to register with the Director
within 60 days of becoming a savings and loan holding company.
Following registration it is subject to examination by the Division
and thereafter must file certain reports with the Director. A
savings and loan holding company may acquire control of an
institution of another savings and loan holding company upon
application and prior written approval of the Director. The
Director, in reviewing the application, must determine if such
acquisition is consistent with the interests of maintaining a sound
financial system and that the acquisition does not afford a basis for
supervisory objection.
Examination. Periodic reports to the Division must be made by
each Missouri-chartered institution. The Division conducts and
supervises the examination of state-chartered institutions.
Supervision. The Director has general supervisory authority
over Missouri-chartered institutions and upon the Director's finding
that an institution is violating the provisions of its articles of
incorporation, its bylaws or any law of the state, or is conducting
business in an unsafe or injurious manner, the Director may order the
institution to discontinue such violation or practice, and to conform
with all the requirements of law. The Director may demand and take
possession of the institution, if the institution fails to comply
with the Director's order, if the Director determines that the
institution is insolvent, in an unsafe condition or conducting
business in an unsafe manner, or if the institution refuses to
submit to examination or inspection by the Division.
Federal Regulation of Savings Banks
The OTS has extensive authority over the operations of all
insured savings associations. As part of this authority, First
Home is required to file periodic reports with the OTS District
Director and is subject to periodic examinations by the OTS and
the FDIC. When these examinations are conducted by the OTS or the
FDIC, the examiners may require the Savings Bank to provide for
higher general or specific loan loss reserves. Financial
institutions in various regions of the United States have been
called upon by examiners to write down assets and to establish
increased levels of reserves, primarily as a result of perceived
weaknesses in real estate values and a more restrictive regulatory
climate.
The OTS has established a schedule for the assessment of fees
upon all savings associations to fund the operations of the OTS.
A schedule of fees has also been established for the various types
of applications and filings made by savings associations with the
OTS. The general assessment, to be paid on a semi-annual basis, is
39
<PAGE>
computed upon the savings association's total assets, including
consolidated subsidiaries, as reported in the association's latest
quarterly thrift financial report. Savings associations that
(unlike the Savings Bank) are classified as "troubled" (i.e.,
having a supervisory rating of "4" or "5" or subject to a
conservatorship) are required to pay a 50% premium over the
standard assessment. For the first half of 1999, the Savings
Bank's assessment under the semi-annual assessment procedure was
$22,000. Based on the current assessment rates published by the
OTS and First Home's total assets of approximately $176.6 million
at June 30, 1999, First Home will be required to pay a semi-annual
assessment of approximately $23,000 for the second half of calendar
year 1999.
In addition, the investment and lending authority of the Savings
Bank is prescribed by federal laws and regulations, and the Savings
Bank is prohibited from engaging in any activities not permitted by
such laws and regulations. These laws and regulations generally are
applicable to all federally chartered savings associations and many
also apply to state-chartered savings associations.
Among other things, OTS regulations provide that no savings
association may invest in corporate debt securities not rated in
one of the four highest rating categories by a nationally recognized
rating organization. In addition, the HOLA provides that loans
secured by nonresidential real property may not exceed 400% of
regulatory capital, subject to increase by the OTS on a case-by-case
basis.
First Home is subject to limitations on the aggregate amount of
loans that it can make to any one borrower, including related
entities. Applicable regulations generally do not permit loans-to-
one borrower to exceed 15% of unimpaired capital and surplus,
provided that loans in an amount equal to an additional 10% of
unimpaired capital and surplus also may be made to a borrower if
the loans are fully secured by readily marketable securities. The
OTS by regulation has amended the loans-to-one borrower rule to
permit savings associations meeting certain requirements, including
fully phased-in capital requirements, to extend loans-to-one
borrower in additional amounts under circumstances limited
essentially to loans to develop or complete residential housing
units. At June 30, 1999, First Home was in compliance with
applicable loans-to-one borrower limitations.
Potential Operational Restrictions Associated with Regulatory Oversight
The Savings Bank is subject to extensive regulation, supervision
and examination by the OTS, as its chartering authority and primary
federal regulator, and by the FDIC, which insures its deposits up to
applicable limits. The Savings Bank is a member for the FHLB System
and is subject to certain limited regulations promulgated by the
Board of Governors of the Federal Reserve System ("Federal Reserve").
As the holding company of the Savings Bank, the Company also is
subject to regulation and oversight by the OTS. Such regulation and
supervision govern the activities in which an institution can engage
and is intended primarily for the protection of the insurance fund
and depositors. Regulatory authorities have been granted extensive
discretion in connection with their supervisory and enforcement
activities which are intended to strengthen the financial condition
of the banking industry, including the imposition of restrictions on
the operation of an institution, the classification of assets by the
institution and the adequacy of an institution's allowance for loan
40
<PAGE>
losses. Any change in such regulation and oversight, whether by the
OTS, the FDIC or Congress, could have a material impact on the
Company, the Savings Bank and their respective operations.
Office of Thrift Supervision
The OTS is an office in the Department of the Treasury subject
to the general oversight of the Secretary of the Treasury. The OTS
generally possesses the supervisory and regulatory duties and
responsibilities formerly vested in the Federal Home Loan Bank Board.
Among other functions, the OTS issues and enforces regulations
affecting federally-insured savings associations and regularly
examines these institutions.
Federal Deposit Insurance Corporation
The FDIC is an independent federal agency established originally
to insure the deposits, up to prescribed statutory limits, of
federally insured banks and to preserve the safety and soundness of
the banking industry. The FDIC maintains two separate insurance
funds: the BIF and the SAIF. The Savings Bank's accounts are insured
by the FDIC under the SAIF to the maximum extent permitted by law. As
insurer of deposits, the FDIC has examination, supervisory and
enforcement authority over all savings associations.
Under applicable regulations, the FDIC assigns an institution
to one of three capital categories based on the institution's
financial information, as of the reporting period ending seven
months before the assessment period. The capital categories are:
well-capitalized, adequately capitalized, or undercapitalized.
The FDIC also places an institution in one of three supervisory
subcategories within each capital group. The supervisory subgroup
to which an institution is assigned is based on a supervisory
evaluation provided to the FDIC by the institution's primary federal
regulator and information that the FDIC determines to be relevant to
the institution's financial condition and the risk posed to the
deposit insurance funds. An institution's assessment rate depends
on the capital category and supervisory category to which it is
assigned with the most well-capitalized, healthy institutions
receiving the lowest rates.
On September 30, 1996, the Deposit Insurance Funds Act was
enacted, which, among other things, imposed a special one-time
assessment on SAIF member institutions, including First Home, to
recapitalize the SAIF. As a result of the Deposit Insurance Funds
Act and the special one-time assessment, the FDIC reduced the
assessment schedule for SAIF members, effective January 1, 1997, to
a range of 0% to 0.27%, with most institutions, including First
Home, paying 0%. This assessment schedule is the same as that for
the BIF, which reached its designated reserve ratio in 1995. In
addition, since January 1, 1997, SAIF members are charged an
assessment of 0.065% of SAIF-assessable deposits for the purpose of
paying interest on the obligations issued by the Financing
Corporation in the 1980s to help fund the thrift industry cleanup.
BIF-assessable deposits are charged an assessment to help pay
interest on the Financing Corporation bonds at a rate of
41
</page>
approximately .013%. Full pro rata sharing of the Financing
Corporation payments between BIF and SAIF members will occur until
the earlier of December 31, 1999, or the date the BIF and SAIF are
merged.
The FDIC is authorized to raise the assessment rates in certain
circumstances. The FDIC has exercised this authority several times
in the past and may raise insurance premiums in the future. If such
action is taken by the FDIC, it could have an adverse effect on the
earnings of First Home.
Under the FDIA, the FDIC may terminate insurance of deposits
upon a finding that the institution has engaged in unsafe or unsound
practices, is in an unsafe or unsound condition to continue
operations or has violated any applicable law, regulation, rule,
order or condition imposed by the FDIC or the OTS. Management of
First Home does not know of any practice, condition or violation
that might lead to termination of deposit insurance.
Federal Home Loan Bank System
The FHLB System, consisting of 12 FHLBs, is under the
jurisdiction of the Federal Housing Finance Board ("FHFB").
The designated duties of the FHFB are to: supervise the FHLBs;
ensure that the FHLBs carry out their housing finance mission;
ensure that the FHLBs remain adequately capitalized and able to
raise funds in the capital markets; and ensure that the FHLBs
operate in a safe and sound manner.
First Home, as a member of the FHLB-Des Moines, is required to
acquire and hold shares of capital stock in the FHLB-Des Moines
equal to the greater of (i) 1.0% of the aggregate outstanding
principal amount of residential mortgage loans, home purchase
contracts and similar obligations at the beginning of each year,
or (ii) 1/20 of its advances (borrowings) from the FHLB-Des Moines.
First Home complied with this requirement with an investment in FHLB-
Des Moines stock of $1.1 million at June 30, 1999.
Among other benefits, the FHLB provides a central credit
facility primarily for member institutions. It is funded primarily
from proceeds derived from the sale of consolidated obligations of
the FHLB System. It makes advances to members in accordance with
policies and procedures established by the FHFB and the Board of
Directors of the FHLB-Des Moines. At June 30, 1999, the Savings
Bank had $2.2 million of advances from the FHLB-Des Moines.
Liquidity Requirements
Under OTS regulations, a member thrift institution is required
to maintain an average daily balance of liquid assets (cash, certain
time deposits and savings accounts, bankers' acceptances, and
specified U.S. government, state or federal agency obligations and
certain other investments) equal to a monthly average of not less
than 4.0% of its net withdrawable accounts plus
short-term borrowings. The OTS may impose monetary penalties for
failure to meet liquidity requirements. The liquidity ratio of First
Home at June 30, 1999 was 8.2%.
42
<PAGE>
Prompt Corrective Action
Each federal banking agency is required to implement a system
of prompt corrective action for institutions which it regulates.
The federal banking agencies have promulgated substantially similar
regulations to implement this system of prompt corrective action.
Under the regulations, an institution shall be deemed to be (i)
"well capitalized" if it has a total risk-based capital ratio of
10.0% or more, has a Tier I risk-based capital ratio of 6.0% or
more, has a leverage capital ratio of 5.0% or more and is not
subject to specified requirements to meet and maintain as specific
capital level for any capital measure: (ii) "adequately capitalized"
if it has a total risk-based capital ratio of 8.0% or more, a Tier I
risk-based capital ratio of 4.0% or more and a leverage capital
ratio of 4.0% or more (3.0% under certain circumstances) and does
not meet the definition of "well capitalized," (iii)
"undercapitalized" if it has a total risk-based capital ratio that
is less than 8.0%, a Tier I risk-based capital ratio that is less
than 4.0% or a leverage capital ratio that is less than 4.0% (3.0%
under certain circumstances), (iv) "significantly undercapitalized"
if it has a total risk-based capital ratio that is less than 6.0%, a
Tier I risk-based capital ratio that is less than 3.0% or a Tier I
leverage capital ratio that is less than 3.0% and (v) "critically
undercapitalized" if it has a ratio of tangible equity to total
assets that is equal to or less than 2.0%
A federal banking agency may, after notice and an opportunity
for a hearing, reclassify a well capitalized institution as
adequately capitalized an may require an adequately capitalized
institution or an undercapitalized institution to comply with
supervisory actions as if it were in the next lower category if the
institution is in an unsafe or unsound condition or engaging in an
unsafe or unsound practice. (The FDIC may not, however, reclassify
a significantly undercapitalized institution as critically
undercapitalized.)
An institution generally must file a written capital
restoration plan which meets specified requirement, as well as a
performance guaranty by each company that controls the institution,
with the appropriate federal banking agency within 45 days of the
date that the institution receives notice or is deemed to have notice
that it is undercapitalized, significantly undercapitalized or
critically undercapitalized. Immediately upon becoming
undercapitalized, an institution shall become subject to the
provisions of Section 38 of the FDIA, which sets forth various
mandatory and discretionary restrictions on its operations.
At June 30, 1999, First Home was a "well capitalized"
institution under the prompt corrective action regulations of the
OTS.
Standards for Safety and Soundness. The
federal banking regulatory agencies have prescribed, by regulation or
guideline, standards for all insured depository institutions and
depository institution holding companies relating to: (i) internal
controls, information systems and internal audit systems; (ii) loan
documentation; (iii) credit underwriting; (iv) interest rate risk
exposure; (v) asset growth; and (vi) asset quality; (vii) earnings and (viii)
compensation, fees and benefits. The guidelines set forth
the safety and soundness standards that the federal banking agencies
43
<PAGE>
use to identify and address problems at insured depository
institutions before capital becomes impaired. Any institution which
fails to meet any standard prescribed by the guidelines, must submit
a compliance plan. Management is not aware of any conditions
relating to these safety and soundness standards which would require
submission of a plan of compliance.
Qualified Thrift Lender Test. All savings associations,
including First Home, are required to meet a qualified thrift lender
test to avoid certain restrictions on their operations. This test
requires a savings association to have at least 65% of its portfolio
asset, as defined by regulation, in qualified thrift investments on
a monthly average for nine out of every 12 months on a rolling
basis. As an alternative, the savings association may maintain 60%
of its assets in those assets specified in Section 7701(a)(19) of
the Code. Under either test, such assets primarily consist of
residential housing related loans and investments. At June 30, 1999,
First Home met the test and its qualified thrift lender percentage
was 74.48%.
Any savings association that fails to meet the qualified thrift
lender test must convert to a national bank charter, unless it
requalifies as a qualified thrift lender and thereafter remains a
qualified thrift lender. If an association does not requalify and
converts to a national bank charter, it must remain SAIF-insured
until the FDIC permits it to transfer to the BIF. If such an
association has not yet requalified or converted to a national bank,
its new investments and activities are limited to those permissible
for both a savings association and a national bank, and it is
limited to national bank branching rights in its home state. In
addition, First Home is immediately ineligible to receive any new
FHLB borrowings and is subject to national bank limits for payment
of dividends. If such association has not requalified or converted
to a national bank within three years after the failure, it must
divest of all investments and cease all activities not permissible
for a national bank. In addition, it must repay promptly any
outstanding FHLB borrowings, which may result in prepayment
penalties. If any association that fails the qualified thrift
lender test is controlled by a holding company, then within one year
after the failure, the holding company must register as a bank
holding company and become subject to all restrictions on bank
holding companies.
Capital Requirements
Under OTS regulations a savings association must satisfy three
minimum capital requirements: core capital, tangible capital and
risk-based capital. Savings associations must meet all of the
standards in order to comply with the capital requirements.
OTS capital regulations establish a 3% core capital ratio
(defined as the ratio of core capital to adjusted total assets).
Core capital is defined to include common stockholders' equity,
noncumulative perpetual preferred stock and any related surplus, and
minority interests in equity accounts of consolidated subsidiaries,
44
</page>
less (i) any intangible assets, except for certain qualifying
intangible assets; (ii) certain mortgage servicing rights; and
(iii) equity and debt investments in subsidiaries that are not
"includable subsidiaries," which is defined as subsidiaries engaged
solely in activities not impermissible for a national bank, engaged
in activities impermissible for a national bank but only as an agent
for its customers, or engaged solely in mortgage-banking activities.
In calculating adjusted total assets, adjustments are made to total
assets to give effect to the exclusion of certain assets from capital
and to appropriately account for the investments in and assets of
both includable and nonincludable subsidiaries. Institutions that
fail to meet the core capital requirement would be required to file
45
<PAGE>
with the OTS a capital plan that details the steps they will take to
reach compliance. In addition, the OTS prompt corrective action
regulation provides that a savings institution that has a core
capital leverage ratio of less than 4% (3% for institutions
receiving the highest CAMEL examination rating) will be deemed
to be "undercapitalized" and may be subject to certain restrictions.
See "-- Prompt Corrective Action."
Savings associations also must maintain "tangible capital" not
less than 1.5% of the Savings Bank's adjusted total assets. "Tangible
capital" is defined, generally, as core capital minus any "intangible
assets."
Each savings institution must maintain total capital equal to
at least 8% of risk-weighted assets. Total capital consists of the
sum of core and supplementary capital, provided that supplementary
capital cannot exceed core capital, as previously defined.
Supplementary capital includes (i) permanent capital instruments
such as cumulative perpetual preferred stock, perpetual
subordinated debt, and mandatory convertible subordinated debt,
(ii) maturing capital instruments such as subordinated debt,
intermediate-term preferred stock and mandatory redeemable
preferred stock, subject to an amortization schedule, and
(iii) general valuation loan and lease loss allowances up to 1.25%
of risk-weighted assets.
The risk-based capital regulation assigns each balance sheet
asset held by a savings institution to one of four risk categories
based on the amount of credit risk associated with that particular
class of assets. Assets not included for purposes of calculating
capital are not included in calculating risk-weighted assets. The
categories range from 0% for cash and securities that are backed by
the full faith and credit of the U.S. government to 100% for
repossessed assets or assets more than 90 days past due. Qualifying
residential mortgage loans (including multi-family mortgage loans)
are assigned a 50% risk weight. Consumer, commercial, home equity
and residential construction loans are assigned a 100% risk weight,
as are nonqualifying residential mortgage loans and that portion of
land loans and nonresidential construction loans which do not exceed
an 80% loan-to-value ratio. The book value of assets in each
category is multiplied by the weighing factor (from 0% to 100%
assigned to that category. These products are then totaled to arrive
at total risk-weighted assets. Off-balance sheet items are included
in risk-weighted assets by converting them to an approximate balance
sheet "credit equivalent amount" based on a conversion schedule.
These credit equivalent amounts are then assigned to risk categories
in the same manner as balance sheet assets and included risk-weighted
assets.
The OTS has incorporated an interest rate risk component into
its regulatory capital rule. Under the rule, savings associations
with an "above normal" interest rate risk exposure would be subject
to a deduction from total capital for purposes of calculating their
risk-based capital requirements. A savings association's interest
rate risk is measured by the decline in the net portfolio value of
46
<PAGE>
its assets (i.e., the difference between incoming and outgoing
discounted cash flows from assets, liabilities and off-balance sheet
contracts) that would result from a hypothetical 200 basis point
increase or decrease in market interest rates divided by the
estimated economic value of the association's assets, as calculated
in accordance with guidelines set forth by the OTS. A savings
association whose measured interest rate risk exposure exceeds 2%
must deduct an interest rate risk component in calculating its total
capital under the risk-based capital rule. The interest rate risk
component is an amount equal to one-half of the difference between
the institution's measured interest rate risk and 2%, multiplied by
the economic value of the associations assets. That dollar amount
is deducted from an association's total capital in calculating
compliance with its risk-based capital requirement. Under the rule,
there is a two quarter lag between the reporting date of an
institution's financial data and the effective date for the new
capital requirement based on that data. A savings association with
assets of less than $300 million and risk-based capital ratios in
excess of 12% is not subject to the interest rate risk component,
unless the OTS determines otherwise. The rule also provides that
the Director of the OTS may waive or defer an association's
interest rate risk component on a case-by-case basis. Under
certain circumstances, a savings association may request an
adjustment to its interest rate risk component if it believes that
the OTS-calculated interest rate risk component overstates its
interest rate risk exposure. In addition, certain "well-capitalized"
institutions may obtain authorization to use their own interest rate
risk model to calculate their interest rate risk component in lieu of
the OTS-calculated amount. The OTS has recently postponed the date
that the component will first be deducted from an institution's
total capital until an appeals process is developed for the
measurement of an institution's interest rate risk.
47
</page>
The following table presents the Savings Bank's capital levels
as of June 30, 1999.
<TABLE>
<CAPTION>
At June 30, 1999
-------------------
Percent of
Amount Assets
-------- ---------
(Dollars in thousands)
<S> <C> <C>
Tangible capital............. $19,676 11.2%
Minimum required
tangible capital............ 2,640 1.5
------- ------
Excess....................... $17,036 9.7%
======= ======
Core capital................. $19,676 11.2%
Minimum required core
capital..................... 7,041 4.0%
------- -----
Excess....................... $12,635 7.2%
======= =====
Risk-based capital........... $19,909 15.7%
Minimum risk-based
capital requirement......... 10,124 8.0
------- -----
Excess....................... $ 9,785 7.7%
======= =====
</TABLE>
Limitations on Capital Distributions
OTS regulations impose various restrictions on savings
institutions with respect to their ability to make distributions of
capital, which include dividends, stock redemptions or repurchases,
cash-out mergers and other transactions charged to the capital
account.
Generally, savings institutions, such as First Home, that
before and after the proposed distribution meet their capital
requirements, may make capital distributions during any calendar
year equal to the greater of 100% of net income for the year-to-
date plus 50% of the amount by which the lesser of the
institution's tangible, core or risk-based capital exceeds its
capital requirement for such capital component, as measured at
the beginning of the calendar year, or 75% of their net income
for the most recent four quarter period. However, an institution
deemed to be in need of more than normal supervision by the OTS
may have its dividend authority restricted by the OTS. First Home
48
<PAGE>
may pay dividends in accordance with this general authority.
Savings institutions proposing to make any capital distribution
need only submit written notice to the OTS 30 days prior to such
distribution. Savings institutions that do not, or would not meet
their current minimum capital requirements following a proposed
capital distribution, however, must obtain OTS approval prior to
making such distribution. The OTS may object to the distribution
during that 30-day period based on safety and soundness concerns.
See "-- Capital Requirements."
The OTS has proposed regulations that would revise the current
capital distribution restrictions. Under the proposal, a savings
institution may make a capital distribution without notice to the
OTS, unless it is a subsidiary of a holding company, provided that
it has a regulatory rating in the two top categories, is not of
supervisory concern, and would remain adequately capitalized, as
defined in the OTS prompt corrective action regulations, following
the proposed distribution. Savings institutions that would remain
adequately capitalized following the proposed distribution but do
not meet the other noted requirements must notify the OTS 30 days
prior to declaring a capital distribution. The OTS stated it will
generally regard as permissible that amount of capital distributions
that do not exceed 50% of the institution's excess regulatory
capital plus net income to date during the calendar year. A
savings institution may not make a capital distribution without
prior approval of the OTS and the FDIC if it is undercapitalized
before, or as a result of, such a distribution. As under the
current rule, the OTS may object to a capital distribution if it
would constitute an unsafe or unsound practice. No assurance may
be given as to whether or in what form the regulations may be
adopted.
At June 30, 1999, the Savings Bank met the criteria to be
designated a Tier 1 association and, consequently, could at its
option (after prior notice to, and no objection made by, the OTS)
distribute up to 100% of its net income during the calendar year
plus 50% of its surplus capital ratio at the beginning of the
calendar year less any distributions previously paid during the year.
Investment Rules
Under the HOLA, savings institutions are generally subject to
the national bank limit on loans to one borrower. Generally, this
limit is 15% of the Savings Bank's unimpaired capital and surplus,
plus an additional 10% of unimpaired capital and surplus, if such
loan is secured by readily-marketable collateral, which is defined
to include certain financial instruments and bullion. The OTS by
regulation has amended the loans to one borrower rule to permit
savings associations meeting certain requirements, including capital
requirements, to extend loans to one borrower in additional amounts
under circumstances limited essentially to loans to develop or
49
</page>
complete residential housing units. At June 30, 1999, the largest
loans by the Savings Bank outstanding to any one borrower, including
related entities, was $872,000 which were secured primarily by
single-family rental properties in and around Mountain Grove,
Missouri. These loans were performing in accordance with their terms
at that date.
Activities of Savings Associations and Their Subsidiaries
When a savings association establishes or acquires a subsidiary
or elects to conduct any new activity through a subsidiary that the
association controls, the savings association shall notify the FDIC
and the OTS 30 days in advance and provide the information each
agency may, by regulation, require. Savings associations also must
conduct the activities of subsidiaries in accordance with existing
regulations and orders.
The OTS may determine that the continuation by a savings
association of its ownership control of, or its relationship to, the
subsidiary constitutes a serious risk to the safety, soundness or
stability of the association or is inconsistent with sound banking
practices or with the purposes of the FDIA. Based upon that
determination, the FDIC or the OTS has the authority to order the
savings association to divest itself of control of the subsidiary.
The FDIC also may determine by regulation or order that any specific
activity poses a serious threat to the SAIF. If so, it may require
that no SAIF member engage in that activity directly.
Accounting and Regulatory Standards
An OTS policy statement applicable to all savings associations
clarifies and re-emphasizes that the investment activities of a
savings association must be in compliance with approved and
documented investment policies and strategies, and must be accounted
for in accordance with generally accepted account principles. Under
the policy statement, management must support its classification of
an accounting for loans and securities (i.e., whether held for
investment, sale or trading) with appropriate documentation. First
Home is in compliance with these amended rules.
The OTS has adopted an amendment to its accounting regulations,
which may be made more stringent than generally accepted accounting
principles by the OTS, to require that transactions be reported in a
manner that best reflects their underlying economic substance and
inherent risk and that financial reports must incorporate any other
accounting regulations or orders prescribed by the OTS.
Investment Portfolio Policy
OTS supervisory policy requires that securities owned by thrift
institutions must be classified and reported in accordance with GAAP
consistent with the institution's intent to trade, available-for-sale
or held-to-maturity. Trading securities are acquired principally for
the purpose of near term sales. Such securities are reported at fair
value and unrealized gains and losses are included in income.
50
<PAGE>
Securities which are designated as held-to-maturity are designated as
such because the investor has the ability to hold these securities to
maturity. Such securities are reported at amortized cost.
All other securities are designated as available-for-sale, a
designation which provides the investor with certain flexibility in
managing its investment portfolio. Such securities are reported at fair
value; net unrealized gains and losses are excluded from income and
reported net of applicable income taxes as a separate component of
stockholders' equity. The Savings Bank has adopted a reporting
policy that complies with these OTS requirements.
Transactions with Affiliates
Savings associations must comply with Sections 23A and 23B of
the Federal Reserve Act ("Sections 23A and 23B") relative to
transactions with affiliates in the same manner and to the same
extent as if the savings association were a Federal Reserve member
bank. Generally, Sections 23A and 23B: (i) limit the extent to
which the insured association or its subsidiaries may engage in
certain covered transactions with an affiliate to an amount equal
to 10% of such institution's capital and surplus and place an
aggregate limit on all such transactions with affiliates to an
amount equal to 20% of such capital and surplus, and (ii) require
that all such transactions be on terms substantially the same, or
at least as favorable to the institution or subsidiary, as those
provided to a non-affiliate. The term "covered transaction"
includes the making of loans, purchase of assets, issuance of a
guaranty and similar other types of transactions.
Three additional rules apply to savings associations: (i) a
savings association may not make any loan or other extension of
credit to an affiliate unless that affiliate is engaged only in
activities permissible for bank holding companies; (ii) a savings
association may not purchase or invest in securities issued by an
affiliate (other than securities of a subsidiary); and (iii) the OTS
may, for reasons of safety and soundness, impose more stringent
restrictions on savings associations but may not exempt transactions
from or otherwise abridge Section 23A or 23B. Exemptions from
Section 23A or 23B may be granted only by the Federal Reserve Board,
as is currently the case with respect to all FDIC-insured banks.
The Savings Bank has not been significantly affected by the rules
regarding transactions with affiliates.
REGULATION OF FIRST BANCSHARES
First Bancshares is a unitary savings and loan holding company
within the meaning of the Home Owners' Loan Act of 1933, as amended
("HOLA"). As such, the Company is registered with the OTS and
subject to OTS regulations, examinations, supervision and reporting
requirements. The Company is required to file certain reports with,
and otherwise comply with the regulations of, the OTS and the
Securities and Exchange Commission. As a subsidiary of a savings
and loan holding company, the Savings Bank is subject to certain
restrictions in its dealings with the Company and with other
companies affiliated with the Company and also are subject to
regulatory requirements and provisions as federal institutions.
Holding Company Acquisitions
The HOLA and OTS regulations issued thereunder generally
prohibit a savings and loan holding company, without prior OTS
51
<PAGE>
approval, from acquiring more than 5% of the voting stock of any
other savings association or savings and loan holding company or
controlling the assets thereof. They also prohibit, among other
things, any director or officer of a savings and loan holding
company, or any individual who owns or controls more than 25% of
the voting shares of such holding company, from acquiring control
of any savings association not a subsidiary of such savings and
loan holding company, unless the acquisition is approved by the OTS.
Holding Company Activities
As a unitary savings and loan holding company, the Company
generally is not subject to activity restrictions. If the Company
acquires control of another savings association as a separate
subsidiary, it would become a multiple savings and loan holding
company, and the activities of the Company and any of its
subsidiaries (other than the Savings Bank or any other SAIF-insured
savings association) would become subject to such restrictions
unless such other associations each qualify as a qualified thrift
lender ("QTL") and were acquired in a supervisory acquisition.
If the Savings Bank fails the QTL test, the Company must obtain
the approval of the OTS prior to continuing after such failure,
directly or through its other subsidiaries, any business activity
other than those approved for multiple savings and loan holding
companies or their subsidiaries. In addition, within one year of
such failure the Company must register as, and will become subject
to, the restrictions applicable to bank holding companies. The
activities authorized for a bank holding company are more limited
than are the activities authorized for a unitary or multiple savings
and loan holding company. See "-- Qualified Thrift Lender Test."
The Company must obtain approval from the OTS before acquiring
control of more than 5% of the voting shares of any other SAIF-
insured association. Such acquisitions generally are prohibited if
they result in a multiple savings and loan holding company
controlling savings associations in more than one state. However,
such interstate acquisitions are permitted based on specific state
authorization or in a supervisory acquisition of a failing savings
association.
Affiliate Restrictions
The affiliate restrictions contained in Sections 23A and 23B of
the Federal Reserve Act apply to all federally insured savings
associations and any such "affiliate." A savings and loan holding
company, its subsidiaries and any other company under common control
are considered affiliates of the subsidiary savings association
under the HOLA. Generally, Sections 23A and 23B: (i) limit the
extent to which the insured association or its subsidiaries may
engage in certain covered transactions with an affiliate to an amount
equal to 10% of such institution's capital and surplus, and contain
an aggregate limit on all such transactions with all affiliates to
20% of such capital and surplus, and (ii) require that all such
transactions be on terms substantially the same, or at least as
favorable to the institution or subsidiary, as those provided to a
non-affiliate. The term "covered transaction" includes the making
of loans, purchase of assets, issuance of a guarantee and similar
other types of transactions. Also, a savings association may not
make any loan to an affiliate unless the affiliate is engaged only
in activities permissible for bank holding companies. Only the
Federal Reserve may grant exemptions from the restrictions of
52
</page>
Sections 23A and 23B. The OTS, however, may impose more stringent
restrictions on savings associations for reasons of safety and
soundness.
Qualified Thrift Lender Test
The HOLA requires any savings and loan holding company that
controls a savings association that fails the QTL test, as explained
under "REGULATION OF FIRST HOME -- Qualified Thrift Lender Test,"
must, within one year after the date on which the association ceases
to be a QTL, register as and be deemed a bank holding company subject
to all applicable laws and regulations.
TAXATION
Federal Taxation
General. The Corporation and the Savings Bank report their
income on a fiscal year basis using the accrual method of accounting
and will be subject to federal income taxation in the same manner
as other corporations with some exceptions, including particularly
the Savings Bank's reserve for bad debts discussed below. The
following discussion of tax matters is intended only as a summary and
does not purport to be a comprehensive description of the tax rules
applicable to the Savings Bank or the Corporation.
Bad Debt Reserve. Historically, savings institutions such as
the Savings Bank which met certain definitional tests primarily
related to their assets and the nature of their business ("qualifying
thrift") were permitted to establish a reserve for bad debts and to
made annual additions thereto, which may have been deducted in
arriving at their taxable income. The Savings Bank's deductions
with respect to "qualifying real property loans," which are generally
loans secured by certain interest in real property, were computed
using an amount based on the Savings Bank's actual loss experience,
or a percentage equal to 8% of the Savings Bank's taxable income,
computed with certain modifications and reduced by the amount of any
permitted additions to the non-qualifying reserve. Due to the
Savings Bank's loss experience, the Savings Bank generally
recognized a bad debt deduction equal to 8% of taxable income.
In August 1996, the provisions repealing the current thrift
bad debt rules were passed by Congress as part of "The Small
Business Job Protection Act of 1996." The new rules eliminate the
8% of taxable income method for deducting additions to the tax bad
debt reserves for all thrifts for tax years beginning after December
31, 1995. These rules also require that all institutions recapture
all or a portion of their bad debt reserves added since the base
year (last taxable year beginning before January 1, 1988). The
Savings Bank has previously recorded a deferred tax liability equal
to the bad debt recapture and as such the new rules will have no
effect on the net income or federal income tax expense. For taxable
years beginning after December 31, 1995, the Savings Bank's bad debt
deduction will be determined under the experience method using a
formula based on actual bad debt experience over a period of years
or, if the Savings Bank is a "large" association (assets in excess
of $500 million) on the basis of net charge-offs during the taxable
year. The new rules allow an institution to suspend bad debt reserve
recapture for the 1996 and 1997 tax years if the institution's
lending activity for those years is equal to or greater than the
institutions average mortgage lending activity for the six taxable
years preceding 1996 adjusted for inflation. For this purpose, only
home purchase or home improvement loans are included and the
53
</page>
institution can elect to have the tax years with the highest and
lowest lending activity removed from the average calculation. If an
institution is permitted to postpone the reserve recapture, it must
begin its six year recapture no later than the 1998 tax year. The
unrecaptured base year reserves will not be subject to recapture as
long as the institution continues to carry on the business of banking.
In addition, the balance of the pre-1988 bad debt reserves continue
to be subject to provisions of present law referred to below that
require recapture in the case of certain excess distributions to
shareholders.
Distributions. To the extent that the Savings Bank makes
"nondividend distributions" to the Corporation that are considered as
made: (I) from the reserve for losses on qualifying real property
loans, to the extent the reserve for such losses exceeds the amount
that would have been allowed under the experience method; or (ii)
from the supplemental reserve for losses on loans ("Excess
Distributions"), then an amount based on the amount distributed
will be included in the Savings Bank's taxable income. Nondividend
distributions include distributions in excess of the Savings Bank's
current and accumulated earnings and profits, distributions in
redemption of stock, and distributions in partial or complete
liquidation. However, dividends paid out of the Savings Bank's
current or accumulated earnings and profits, as calculated for
federal income tax purposes, will not be considered to result in
a distribution from the Savings Bank's bad debt reserve. Thus, any
dividends to the Corporations that would reduce amounts appropriated
to the Savings Bank's bad debt reserve and deducted for federal income
tax purposes would create a tax liability for the Savings Bank. The
amount of additional taxable income attributable to an Excess
Distribution is an amount that, when reduced by the tax attributable
to the income, is equal to the amount of the distribution. Thus,
if, the Savings Bank makes a "nondividend distribution,' then
approximately one and one-half times the amount so used would be
includable in gross income for federal income tax purposes, assuming
a 35% corporate income tax rate (exclusive of state and local taxes).
See "REGULATION" for limits on the payment of dividends by the
Savings Bank. The Savings Bank does not intend to pay dividends
that would result in a recapture of any portion of its tax bad debt
reserve.
Corporate Alternative Minimum Tax. The Code imposes a tax on
alternative minimum taxable income ("AMTI") at a rate of 20%. The
excess of the tax bad debt reserve deduction using the percentage of
taxable income method over the deduction that would have been
allowable under the experience method is treated as a preference
item for purposes of computing the AMTI. In addition, only 90% of
the AMTI can be offset by net operating loss carryovers. AMTI is
increased by an amount equal to 75% of the amount by which the
Savings Bank's adjusted current earnings exceeds its AMTI
(determined without regard to this preference and prior to reduction
for net operating losses). For taxable years beginning after
December 31, 1986, and before January 1, 1996, an environmental tax
of .12% of the excess of AMTI (with certain modification) over $2.0
million was imposed on corporations, including the Savings Bank,
whether or not an Alternative Minimum Tax ("AMT") was paid.
Dividends-Received Deduction and Other Matters. The Corporation
may exclude from its income 100% of dividends received from the
Savings Bank as a member of the same affiliated group of corporations.
The corporate dividends-received deduction is generally 70% in the
case of dividends received from unaffiliated corporations with which
54
<PAGE>
the Corporation and the Savings Bank will not file a consolidated tax
return, except that if the Corporation or the Savings Bank owns more
than 20% of the stock of a corporation distributing a dividend, then
80% of any dividends received may be deducted.
Other Federal Tax Matter. Other recent changes in the federal
tax system could also affect the business of the Savings Bank.
These changes include limitations on the deduction for personal
interest paid or accrued by individual taxpayers, limitations on
the deductibility of losses attributable to investment in certain
passive activities and limitations on the deductibility of
contributions to individual retirement accounts. The Savings Bank
does not believe these changes will have a material effect on its
operations.
There have not been any IRS audits of the Savings Bank's Federal
income tax returns during the past five years.
Missouri Taxation
Missouri-based thrift institutions, such as the Savings Bank,
are subject to a special financial institutions tax, based on net
income without regard to net operating loss carryforwards, at the
rate of 7% of net income. This tax is in lieu of certain other
state taxes on thrift institutions, on their property, capital or
income, except taxes on tangible personal property owned by the
Savings Bank and held for lease or rental to others and on real
estate, contributions paid pursuant to the Unemployment
Compensation Law of Missouri, social security taxes, sales taxes
and use taxes. In addition, First Home is entitled to credit
against this tax all taxes paid to the State of Missouri or any
political subdivision except taxes on tangible personal property
owned by the Savings Bank and held for lease or rental to others
and on real estate, contributions paid pursuant to the Unemployment
Compensation Law of Missouri, social security taxes, sales and use
taxes, and taxes imposed by the Missouri Financial Institutions Tax
Law. Missouri thrift institutions are not subject to the regular
state corporate income tax.
There have not been any audits of the Savings Bank's state
income tax returns during the past five years.
For additional information regarding taxation, see Notes 1
and 11 of the Notes to the Consolidated Financial Statements.
Competition
The Savings Bank has been, and continues to be, a
community-oriented savings institution offering a variety of
financial resources to meet the needs of Wright, Webster, Douglas,
Ozark , Christian and Stone counties, Missouri. The Savings Bank also
transacts a significant amount of business in Texas and Greene
counties, Missouri. The Savings Bank's deposit gathering
and lending activities are concentrated in these market areas.
The Savings Bank's offices are located in Mountain Grove,
Marshfield, Ava, Gainesville, Sparta, Theodosia, Crane and Galena,
Missouri.
The Savings Bank is the only thrift located in Wright County,
Missouri. The Savings Bank faces strong competition in the
attraction of savings deposits and in the origination of loans.
Its most direct competition for savings deposits and loans has
55
<PAGE>
historically come from other thrift institutions and from commercial
banks located in its primary market area, some with a state-wide or
regional presence. Additionally, the Savings Bank faces significant
competition from the FHA and Farm Credit System and other financial
entities in lending. The Savings Bank also competes with securities
firms, credit unions, money market funds and mutual funds in raising
deposits.
Management considers the Savings Bank's reputation for financial
strength and customer service as its major competitive advantage in
attracting and retaining customers in its market area. The Savings
Bank also believes it benefits from its community orientation as
well as its relatively high core deposit base.
Personnel
As of June 30, 1999, the Savings Bank had 79 full-time employees
and seven part-time employees. The Savings Bank believes that
employees play a vital role in the success of a service company and
that the Savings Bank's relationship with its employees is good.
The employees are not represented by a collective bargaining unit.
56
</page>
Item 2. Properties
The following table sets forth information regarding the Savings Bank's
offices as of June 30, 1999.
<TABLE>
<CAPTION>
Net Land Building
Year Book Value Owned/ Owned/ Square
Location County Opened as of 6/30/99 Leased Leased Footage
- --------------------- -------- ------ ---------- ------ ------ -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Main Office
- -----------
142 East First Street Wright 1911 $566 Owned Owned 9,800
Mountain Grove, Missouri 65711
Branch Offices
- --------------
1208 N. Jefferson Street Douglas 1978 252 Owned Owned 2,800
Ava, Missouri 65608
103 South Clay Street Webster 1974 430 Owned Owned 4,200
Marshfield, Missouri 65706
Highway 5 and Highway 160 Ozark 1992 723 Owned Owned 3,600
Gainesville, Missouri 65655
7164 Highway 14 East Christian 1995 326 Owned Owned 3,000
Sparta, Missouri 65753
Business Highway 160 Ozark 1997 81 Leased Leased 1,200
Theodosia, Missouri 65761
123 Main Street
Crane, Missouri 65633 Stone 1998 290 Owned Owned 3,800
South Side of Square
Galena, Missouri 65656 Stone 1998 76 Owned Owned 1,600
Drive-in Facilities
- --------------------
Route 60 and Oakland Wright 1986 173 Owned Owned 1,200
Mountain Grove, Missouri 65711
223 West Washington Webster 1993 198 Owned Owned 1,100
Marshfield, Missouri 65706
</TABLE>
57
</page>
Item 3. Legal Proceedings
In the opinion of management, the Savings Bank is not a party
to any pending claims or lawsuits that are expected to have a
material adverse effect on the Savings Bank's financial condition or
operations. Periodically, there have been various claims and
lawsuits involving the Savings Bank mainly as a defendant, such as
claims to enforce liens, condemnation proceedings on properties in
which the Savings Bank holds security interests, claims involving
the making and servicing of real property loans and other issues
incident to the Savings Bank's business. Aside from such pending
claims and lawsuits which are incident to the conduct of the Savings
Bank's ordinary business, the Savings Bank is not a party to any
material pending legal proceedings that would have a material adverse
effect on the financial condition or operations of the Savings Bank.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during
the fourth quarter of the fiscal year ended June 30, 1999.
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters
The information contained in the section captioned "Common
Stock Information" in the Annual Report is incorporated herein by
reference.
Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operation
The information contained in the section captioned "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" in the Annual Report is incorporated herein by reference.
58
<PAGE>
Item 7. Financial Statements
Independent Auditors Report*
(a) Consolidated Statements of Financial Condition as of
June 30, 1999 and 1998*
(b) Consolidated Statements of Income For the Years Ended
June 30, 1999, 1998 and 1997*
(c) Consolidated Statements of Stockholders' Equity For the
Years Ended June 30, 1999, 1998 and 1997*
(d) Consolidated Statements of Cash Flows For the Years
Ended June 30, 1999, 1998 and 1997*
(e) Notes to Consolidated Financial Statements*
* Contained in the Annual Report to Stockholders filed as an
exhibit hereto and incorporated herein by reference. All
schedules have been omitted as the required information is
either inapplicable or contained in the Consolidated
Financial Statements or related Notes contained in the Annual
Report to Stockholders.
Item 8. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure
No disagreement with the Company's independent accountants on
accounting and financial disclosure has occurred during the past
24 months.
PART III
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange Act
The information contained under the section captioned "Proposal
I -- Election of Directors" in the Proxy Statement is incorporated
herein by reference.
The following table sets forth certain information with respect
to the executive officers of the Company, each of whom holds the same
positions with the Company and each of whom holds the same positions
with the Savings Bank.
Name Age(1) Position
- -------- ------ --------
Stephen H. Romines 57 President and Chief Executive Officer
Peter M. Medlen 43 Executive Vice President
Susan J. Uchtman 36 Chief Financial Officer
_________________
(1) As of June 30, 1999.
The principal occupation of each executive officer of the
Company is set forth below. All of the officers listed above have
held positions with or been employed by the Company for five years
59
<PAGE>
unless otherwise stated. All executive officers reside in Mountain
Grove, Missouri, unless otherwise stated. There are no family
relationships among or between the executive officers, unless
otherwise stated.
Stephen H. Romines joined the Savings Bank in 1973 and has
served as Chairman of the Board, President and Chief Executive
Officer of the Savings Bank since 1978. Mr. Romines is the brother-
in-law of Mr. Medlen, Executive Vice President of First Home.
Peter M. Medlen has been employed by First Home since 1985
and currently serves as Executive Vice President. Mr. Medlen also
serves as President of the Savings Bank's wholly owned subsidiary,
Fybar Service Corp. Mr. Medlen is a past President of the Mountain
Grove Jaycees and past Treasurer of the Mountain Grove Central
Business District. He is a past Board member of the HI-FI-MO, a
Missouri not-for-profit elderly housing association. Mr. Medlen is
married to Mr. Stephen H. Romines' sister.
Susan J. Uchtman has been employed by First Home since June of
1994. Mrs. Uchtman, a CPA, was previously employed by Kirkpatrick
Phillips & Miller, CPAs, P.C., the Company's independent auditors,
from September 1985 through May 1994.
The information contained under the section captioned
"Compliance with Section 16(a) of the Exchange Act" in the
Proxy Statement is incorporated herein by reference.
Item 10. Executive Compensation
The information contained under the section captioned "Proposal
I -- Election of Directors" in the Proxy Statement is incorporated
herein by reference.
Item 11. Security Ownership of Certain Beneficial Owners and Management
(a) Security Ownership of Certain Beneficial Owners
Information required by this item is incorporated herein
by reference to the section captioned "Voting Securities
and Security Ownership of Certain Beneficial Owners and
Management" of the Proxy Statement.
(b) Security Ownership of Management
Information required by this item is incorporated herein
by reference to the sections captioned "Voting Securities
and Security Ownership of Certain Beneficial Owners and
Management" and "Proposal I - Election of Directors" of the
Proxy Statement.
(c) Changes in Control
The Company is not aware of any arrangements, including
any pledge by any person of securities of the Company, the
operation of which may at a subsequent date result in a
change in control of the Company.
60
</page>
Item 12. Certain Relationships and Related Transactions
The information required by this item is incorporated herein
by reference to the section captioned "Proposal I -- Election of
Directors -- Certain Transactions."
PART IV
Item 13. Exhibits, List Reports on Form 8-K
(a) Exhibits
3.1 Articles of Incorporation of First Bancshares,
Inc.*
3.2 Bylaws of First Bancshares, Inc.*
10.1 Employment Agreement with Stephen H. Romines
(incorporated by reference to the Form 10KSB
filing for the fiscal year ended June 30, 1995)
10.2 First Home Savings Bank 1994 Employee Stock
Ownership Plan*
10.3 First Bancshares, Inc. 1993 Stock Option Plan**
10.4 First Home Savings Bank Management Recognition and
Development Plan**
13. Annual Report to Stockholders
21. Subsidiaries of the Registrant
23. Auditors' Consent
27. Financial Data Schedule
(b) Report on Form 8-K
No Forms 8-K were filed during the quarter ended
June 30, 1999
- -------------------
* Incorporated by reference to the Corporation's Registration
Statement on Form S-1 File No. 33-69886.
** Incorporated by reference to the Corporation's 1994 Annual
Meeting Proxy Statement dated September 14, 1994.
61
</page>
SIGNATURES
Pursuant to the requirements of section 13 or 15(d) 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: September 28, 1999 By: /s/ Stephen H. Romines
--------------------------
Stephen H. Romines
Chairman of the Board,
President and Chief
Executive Officer (Duly
Authorized Representative)
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates
indicated.
By: /s/ Stephen H. Romines September 28, 1999
-------------------------------
Stephen H. Romines
Chairman of the Board, President, Chief
Executive Officer (Principal Executive Officer)
By:/s/ Susan J. Uchtman September 28, 1999
-------------------------------
Susan J. Uchtman
Chief Financial Officer
By: 1999
---------------------------------
Harold F. Glass
Director
By:/s/ Almeta Hardebeck September 28, 1999
----------------------------------
Almeta Hardebeck
Director
By:/s/ John G. Moody September 28, 1999
-----------------------
John G. Moody
Director
By: , 1999
------------------------- --------- ---
Dr. James F. Moore
Director
</page>
Exhibit 13
Annual Report to Stockholders
</page>
(LOGO of FIRST BANCSHARES, INC.)
FIRST BANCSHARES, INC.
1999 ANNUAL REPORT
</page>
TABLE OF CONTENTS
Page
----
Letter to Stockholders................................1
Business of the Corporation 3
Selected Consolidated Financial Information 4
Management's Discussion and Analysis of Financial
Condition and Results of Operations 6
Independent Auditors' Report 16
Consolidated Financial Statements 17
Notes to Consolidated Financial Statements 22
Common Stock Information 46
Directors and Officers 47
Corporate Information 48
</page>
Dear Stockholder:
{Column graph of Earning per share: 1995-$0.39, 1996-$0.48,
1997-$0.65, 1998-$.90 and 1999-$.90}
Fiscal year 1999 was a year of stability in some areas coupled
with steady growth in others. Net income at $1.8 million, earnings
per share at $.90 and stockholders' equity at $24.2 million all
remained basically constant. Book value per share, loans, deposits
and assets; however, continued their growth patterns maintained
since the stock conversion in 1993.
{Column graph of book value per share: 1995-$8.75, 1996-$9.35,
1997-$10.17, 1998-$11.01 and 1999-$11.75}
First Bancshares, Inc. stock repurchase, somewhat offset by
bank employees exercising options, resulted in a decrease in
outstanding shares of almost 150,000 shares. With no significant
change in stockholders' equity and a decrease in outstanding
shares, book value per share increased from $11.01 to $11.75.
On August 31, 1999, the Board authorized a new plan to repurchase,
if available, an additional 203,239 shares over the next year.
{Column graph of total assets: 1995-$128,193,000, 1996-$143,671,000,
1997-$163,973,000, 1998-$172,173,000 and 1999-$178,721,000.}
Total assets increased $6.5 million to $178.7 million during
the fiscal year as net deposit growth totaled $10.2 million and net
loan growth totaled $7.2 million. Borrowed funds were reduced by
$3.5 million. Current plans are to repay the remaining outstanding
debt, totaling $2.0 million, by November of this year. No branch
acquisitions were made during the year as we were outbid for two
area banks in which we were interested.
First Bancshares, Inc. paid its 22nd quarterly dividend on
June 30, 1999 and a $.04 per share dividend has been announced to
be paid on September 30, 1999. The dividend was increased from $.03
per share to $.04 per share in March of this year.
As Y2K approaches, maintaining our customers' confidence is our
Number One priority. We have been working on the potential problems
since late 1997 and have upgraded or replaced all our computer
systems to bring them into Y2K compliance. We have completed
testing our systems and are pleased to report that the tests were
successful. We are now using Y2K-ready systems in all our daily
operations.
</page>
{Column graph of customer deposit accounts: 1995-$98,389,
1996-$105,960, 1997-$117,685, 1998-$141,059 and 1999-$151,210
and net loans receivable: 1995-$101,431, 1996-$118,780,
1997-$134,104, 1998-$146,406 and 1999-$153,616}
Federal Banking regulators have examined our bank several times
not only for Y2K compliance, but for our contingency planning as
well. Our back-ups (including a generator installed in 1990) and
contingency plans are in place to minimize disruptions and maintain
operations and service in the event problems arise. While we can't
say for sure that there will be absolutely no glitches (just as
we can't say everything will work perfectly 100 percent of the time
in our normal operations today) we fully expect the transition to
the year 2000 to be uneventful for our customers.
As we begin fiscal year 2000, we are very excited about our
entry into the world of internet banking. We are on the internet -
our website is shown on the front cover of this report - and are
testing our systems. We hope to be fully operational by late fall.
Our primary objective by offering internet banking is to better
serve our area customers by giving them the ability to bank from
home. Our internet service will provide full account inquiry
capacity, the ability to transfer funds among existing FHSB accounts
and a complete bill paying service. In addition to the ability to
bank from home, we will, of course, continue to emphasize our
long-standing tradition of friendly personal service for those
customers who prefer to bank in person.
Negotiations with the United State Postal Service to build a
new facility in Gainesville finally culminated in a 20-year lease
signed on July 1, 1999. Renovation of the old gymnasium immediately
adjacent to our branch bank began one week later with completion
and occupancy tentatively scheduled for late this year. The
architect's rendering of the new facility and our Gainesville branch
bank is shown on the back page of this report.
South Central Missouri Title, Inc., our wholly owned title
insurance agency, continues to grow and expand. Office space has
been purchased and renovated in Hartville. A third office was
opened in November 1998 in Marshfield, the county seat of Webster
County.
Just last month we began printing checks, at our main office in
Mountain Grove, for our checking account customers. This new
service will allow much quicker delivery and save our checking
account customers money. We currently have over 12,000 checking and
money market accounts and supply free checks to over 4,000 of these
accounts. The cost savings and potential fee income from this new
service should be an enhancement to net income.
As we begin fiscal year 2000, our specific plans are to
concentrate on implementing internet banking, finishing the
Gainesville post office and making January 1, 2000 as uneventful as
possible. As always, we will continue to watch for opportunities
to better serve our area customers, to grow and to enhance
stockholder value.
Sincerely,
/s/ Stephen H. Romines
Stephen H. Romines
President
</page>
Business of the Corporation
First Bancshares, Inc. ("Holding Company" or the "Company"), a
Missouri corporation, was incorporated on September 30, 1993 for the
purpose of becoming the holding company for First Home Savings Bank
("First Home" or the "Savings Bank") upon the conversion of First
Home from a Missouri mutual to a Missouri stock savings and loan
association. That conversion was completed on December 22, 1993. At
June 30, 1999, the Company had total consolidated assets of $178.7
million and consolidated stockholders' equity of $24.2 million.
While the Company owns a title insurance agency through a
subsidiary and some rental real estate, it is not engaged in any
significant business activity other than holding the stock of First
Home. Accordingly, the information set forth in the report,
including consolidated financial statements and related data, applies
primarily to First Home.
First Home is a Missouri-chartered, federally-insured stock
savings bank organized in 1911. The Savings Bank is regulated by the
Missouri Division of Finance and the Office of Thrift Supervision
("OTS"). Its deposits are insured up to applicable limits by the
Savings Association Insurance Fund ("SAIF") of the Federal Deposit
Insurance Corporation. First Home also is a member of the Federal
Home Loan Bank ("FHLB") System.
First Home conducts its business from its home office in Mountain
Grove and seven full service branch facilities in Marshfield, Ava,
Gainesville, Sparta, Theodosia, Crane, and Galena, Missouri. First
Home provides its customers with a full array of community banking
services. It is primarily engaged in the business of attracting
deposits from, and making loans to, the general public. It emphasizes
one-to-four family residential mortgage loans and, to a lesser extent,
multi-family residential, consumer, commercial and home equity loans.
First Home also invests in mortgage-backed U. S. Government and
agency securities and other assets.
At June 30, 1999, First Home's total gross loans were $156.7
million, or 87.7% of total consolidated assets, including $116.8
million, or 74.5% of total gross loans secured by one-to-four family
properties and $25.5 million, or 16.3% of total gross loans secured by
other real estate. Of the loans secured by real estate, over 95.0%
are adjustable-rate loans.
3
</page>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following table sets forth certain information concerning
the consolidated financial position and operating results of the
Company as of and for the dates indicated. The Company is primarily
in the business of directing, planning and coordinating the business
activities of First Home. The consolidated data is derived
in part from, and should be read in conjunction with, the
Consolidated Financial Statements of the Company and its subsidiaries
presented herein.
<TABLE>
<CAPTION>
At June 30,
---------------------------------------------------
1999 1998 1997 1996 1995
--------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
(Dollars in thousands)
FINANCIAL CONDITION DATA:
Total assets $178,721 $172,173 $163,973 $143,671 $128,193
Loans receivable, net 153,616 146,406 134,104 118,780 101,431
Mortgage-backed certificates 550 703 828 2,831 3,134
Cash, interest-bearing deposits
and investment securities 17,749 18,941 24,408 18,236 20,483
Federal funds sold 245 - - - --
Customer deposits 151,210 141,059 117,685 105,960 98,389
Borrowed funds 2,200 5,700 23,555 13,555 5,055
Stockholders' equity 24,249 24,365 22,207 23,729 24,492
<CAPTION>
Year Ended June 30,
----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C>
(Dollars in thousands)
OPERATING DATA:
Interest income $ 12,994 $ 12,771 $11,695 $10,113 $ 8,390
Interest expense 6,699 7,005 6,493 5,661 4,554
-------- ------- ------ ------- ------
Net interest income 6,295 5,766 5,202 4,452 3,836
Provision (credit) for loan losses 84 66 71 80 (27)
-------- ------- ------ ------- -------
Net interest income after provision
(credit) for loan losses 6,211 5,700 5,131 4,372 3,863
Gains (losses) on investments and
mortgage-backed securities 23 11 187 (6) (19)
Noninterest income, excluding gains
(losses) on securities 900 755 527 465 317
Noninterest expense 4,254 3,729 3,648 3,045 2,514
------- ------- ------- ------- ------
Income before taxes 2,880 2,737 2,197 1,786 1,647
Income taxes 1,062 892 784 631 613
------ ------ ------ ------- ------
Net income $ 1,818 $ 1,845 $ 1,413 $ 1,155 $ 1,034
======== ======== ======== ======== =======
Basic earnings per share $ 0.90 $ 0.90 $ 0.65 $ 0.48 $ 0.39
======== ======== ======== ======== =======
4
</page>
<CAPTION>
At or For the Year Ended June 30,
----------------------------------------------------
1999 1998 1997 1996 1995
KEY OPERATING RATIOS: -------- -------- -------- -------- ------
<S> <C> <C> <C> <C> <c.
Return on average assets 1.03% 1.08% 0.91% 0.85% 0.85%
Return on average equity 7.46 7.83 6.24 4.90 4.28
Average equity to average assets 13.82 13.83 14.65 17.31 19.98
Interest rate spread for period 3.15 2.98 2.85 2.60 2.45
Net interest margin for period 3.76 3.58 3.53 3.40 3.30
Non-interest expense to average assets 2.41 2.19 2.36 2.23 2.08
Average interest-earning assets to
interest-bearing liabilities 115.00 114.00 115.00 119.00 122.00
Allowance for loan losses to total
loans at end of period 0.34 0.35 0.35 0.42 0.42
Net charge-offs to average outstanding
loans during the period 0.05 0.02 0.09 0.01 0.01
Ratio of non-performing assets to
total assets 1.06 1.02 0.93 0.88 0.77
Ratio of loan loss reserves to
non-performing assets 28.48 29.93 31.68 41.02 46.55
Dividend payout ratio 15.56 12.22 16.13 21.05 25.32
<CAPTION>
At June 30,
-------------------------------------------------------
1999 1998 1997 1996 1995
--------- --------- --------- -------- -------
OTHER DATA:
<S>
Number of:
Loans outstanding 5,676 5,545 4,999 4,712 4,387
Deposit account 21,038 20,127 15,447 13,264 10,203
Full service offices 8 8 6 5 4
5
</page>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
Management's discussion and analysis of financial condition and
results of operations is intended to assist in understanding the
financial condition and results of operations of the Company. The
information contained in this section should be read in conjunction
with the Consolidated Financial Statements, the accompanying Notes to
Consolidated Financial Statements and the other sections contained in
this report.
Management's Discussion and Analysis ("MD&A") and other portions
of this report contain certain "forward-looking statements" concerning
the future operations of the Company. Management 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 the Company of the protections of such safe
harbor with respect to all "forward-looking statements" contained in
our Annual Report. We have used "forward-looking statements" to
describe future plans and strategies, including our expectations of
the Company's future financial results. Management'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, the ability of
the Company to control costs and expenses, the ability of the Company
to efficiently incorporate acquisitions into its operations, the
ability of the Company to successfully address Year 2000 ("Y2K")
issues, competitive products and pricing, 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.
Operating Strategy
The primary goals of management are to minimize risk, improve
profitability and promote growth. Operating results depend primarily
on net interest income, which is the difference between the income
earned on its interest-earning assets, such as loans and investments,
and the cost of its interest-bearing liabilities, consisting of
deposits and borrowings. Net income is also affected by, among other
things, provisions for loan losses and operating expenses. Operating
results are also significantly affected by general economic and
competitive conditions, primarily changes in market interest rates,
governmental legislation and policies concerning monetary and fiscal
affairs and housing, as well as financial institutions and the
attendant actions of the regulatory authorities. Management's strategy
is to strengthen First Home's presence in, and expand the boundaries
of, its primary market area.
Management has implemented various general strategies designed to
continue profitability while maintaining safety and soundness. Primary
among those strategies are emphasizing one-to-four family lending,
maintaining asset quality and managing interest-rate risk. It is
anticipated, subject to market conditions, that no changes will be made
in these strategies.
Emphasizing One-to-Four Family Lending. Historically, First Home
has been predominantly a one-to-four family residential lender. Single
family residential loans constituted 66% of mortgage loans originated
during fiscal 1999, 69% of 1998 mortgage loan originations and 79% of
1997 mortgage loan originations. First Home has worked to achieve a
reputation within its local lending territory for prompt, efficient and
courteous service during both the loan origination and servicing
processes.
6
<PAGE>
Maintaining Asset Quality. First Home strongly emphasizes
maintaining asset quality through sound underwriting, constant
monitoring and effective collection techniques. At June 30, 1999,
First Home's ratio of non-performing assets to total assets was 1.06%.
This ratio was 1.02% at June 30, 1998. Actual loan losses, net of
recoveries, of loans originated by First Home were $44,000 for the year
ended June 30, 1999. During the year ended June 30, 1998, actual loan
losses, net of recoveries, of loans originated by First Home were
$19,400. Actual loan losses, net of recoveries, of loans originated
were $12,000 for the year ended June 30, 1997.
Managing Interest-Rate Risk. First Home relies primarily on
adjustable interest rate loans to minimize the inherent risks of
interest rate changes. All long-term mortgage loans originated since
1973 have had adjustable rates rather than fixed rates. Further, with
few exceptions, the majority of other loans including, but not limited
to, car loans, commercial loans, cattle loans and personal loans that
have maturities exceeding two years also have adjustable rates rather
than fixed rates. All loans originated by First Home have been
retained in its portfolio. No loans have been sold in the secondary
mortgage market. To further minimize interest rate risk, First Home
maintains a short-term investment portfolio.
Year 2000 Issues
Since 1997, First Home has been reviewing the potential effects of
the Year 2000 issue on the Company. Four federal agencies share in the
responsibility to make sure financial institutions are Year 2000
compliant. These agencies are conducting special examinations of
insured financial institutions to see they are taking the necessary
steps to be prepared for the century date change. First Home is
following the specific criteria set forth by these agencies to assess,
implement and test Year 2000 compliance.
As part of the awareness and assessment process, First Home
examined its computer system along with related interfaces and data
exchange processes with third parties, other equipment utilizing date
sensitive technology, servicer and vendor relationships and all daily
business processing activities. From this process, First Home
developed a renovation plan which included purchasing new mainframe
hardware and upgrading the software for core applications. During
the validation and implementation phase, the mainframe was installed
in January 1998 and the software was upgraded in August 1998. Any
other hardware or software that was determined not to be Year
2000 compliant was replaced or upgraded. All affected systems were
then tested. Servicer and vendor applications were also tested.
Any systems requiring modification were retested as necessary.
Throughout the remainder of 1999, First Home will continue to test
any changes made to affected systems.
Management believes the major areas with respect to Year 2000
have been addressed and the progress of remedying the related issues
have been or are being completed on schedule. However, there can
be no assurance the Company will not be impacted by Year 2000
complications. The Company has prepared and is in the process of
testing contingency plans. The plans utilize alternative
procedures, other third parties and manual intervention, to
compensate for the loss of the different areas of the computer
system. These plans will continually be evaluated and tested
through the remainder of 1999.
First Home has spent approximately $290,000 and estimates the
future cost for Year 2000 compliance will be $10,000 to $15,000. These
costs are primarily new equipment and software purchases. Also
included are internal payroll costs for application implementation and
testing.
Fiscal Year Ended June 30, 1999 Compared to June 30, 1998
Net Income. Net income for the fiscal year ended June 30, 1999
remained basically constant at $1,818,000 compared to $1,845,000 for
the fiscal year ended June 30, 1998. Total interest income increased
$223,000, noninterest income increased $157,000 and total interest
expense decreased $306,000. These items were more than offset by a
$525,000 increase in noninterest expense, an increase in income taxes
of $170,000 and an increase in provision for loan losses of $18,000.
7
<PAGE>
Net Interest Income. During the fiscal year ended June 30, 1999,
net interest income was $6,295,000, an increase of $529,000, or 9.2%,
from $5,766,000 for the fiscal year ended June 30, 1998. A $223,000
increase in total interest income was enhanced by a $306,000 decrease
in interest expense.
Interest Income. Total interest income increased $223,000, or
1.7%, to $12,994,000 for the fiscal year ended June 30, 1999 from
$12,771,000 for the fiscal year ended June 30, 1998. Interest income
from loans receivable increased $559,000, or 4.8%. This increase was
largely attributable to a $7,210,000 increase in net loans receivable.
Offsetting the increase resulting from the growth in net loans
receivable was a decrease in the annualized yield from 8.16% for the
year ended June 30, 1998 to 8.07% for the year ended June 30, 1999.
This was a result of the continued decrease in interest rates on
existing loans with adjustable rate features.
Interest income from other interest-earning assets increased
$122,000, or 55.6%. A higher balance was maintained in
interest-earning accounts as the FHLB became the correspondent bank in
late 1998. FHLB pays interest on daily funds deposited which allows
interest to be earned sooner than with the previous correspondent bank.
Interest income from investment securities decreased $450,000, or
51.2%, as a result of a lower average balance maintained in investment
securities and certificates of deposits purchased along with lower
interest rates on investments. The majority of government agency
securities purchased in the previous two years contained early
redemption provisions which were exercised by the respective agency.
Interest income from mortgage-backed securities decreased $7,000 as
principal repayments were received on these securities and no new
securities were purchased.
Interest Expense. For the year ended June 30, 1999, interest
expense decreased $306,000, or 4.4%, to $6,699,000 from $7,005,000 for
the year ended June 30, 1998. The increased interest expense related
to higher average customer deposits was more than offset by a lower
average rate paid on those deposits and a $727,000 reduction in
interest expense on FHLB advances. The average interest rate paid on
customer deposits was 4.56% for the year ended June 30, 1999 compared
to 4.7% for the year ended June 30, 1998. FHLB interest expense
decreased as FHLB advances totaling $3.5 million were repaid during
the fiscal year at their respective maturity dates.
Provision for Loan Losses. Provision for loan losses for the year
ended June 30, 1999 was $84,000 compared to $66,000 for the year ended
June 30, 1998. Provision for loan losses were increased by $18,000, or
27.3%, since actual losses and total loans outstanding both increased.
Actual loan charge-offs, net of recoveries, of First Home originated
loans were $44,000 for the year ended June 30, 1999 compared to $19,000
for the year ended June 30, 1998.
Noninterest Income. Noninterest income was $923,000 for the
fiscal year ended June 30, 1999. This was a $157,000, or 20.5%
increase, from $766,000 for the year ended June 30, 1998. Service
charge and other fee income increased $55,000, or 10.8%. As in
previous years, the increase was primarily a result of the checking
account program begun in July 1995, which continues to create an
increase in customer deposit accounts. Also contributing to the
increase was service charges and fees on the deposit accounts acquired
as part of the purchase of the two branches from NationsBank which was
completed in March 1998.
Insurance commissions for the fiscal year ended June 30, 1999 were
$196,000 compared to $81,000 for the fiscal year ended June 30, 1998.
The $115,000 increase was attributable to title insurance commissions
earned by South Central Missouri Title, Inc. which opened in November
1997. In addition to increased business at the Hartville, Missouri
office, branch offices of the title company were opened in Marshfield
and Ava, Missouri. Other increases to noninterest income were
$6,000 from real estate operations and $6,000 from other income.
Gains on the sale of property and equipment decreased $37,000.
The fiscal year ended June 30, 1998 included a $51,000 gain from the
sale of the assets of Lawson & Lawson Insurance Agency. The only
significant gain, totalling $22,000, in fiscal 1999 was from the sale
of real estate held for investment.
8
<PAGE>
Gains on investment securities and mortgage-backed securities
increased by $12,000 from $11,000 for the fiscal year ended June 30,
1998 to $23,000 for the year ended June 30, 1999. Information
regarding this increase is provided under "-Gain on Investment and
Mortgage-backed Securities.
Noninterest Expense. During the fiscal year ended June 30, 1999,
noninterest expense increased $525,000, or 14.1%. The majority of the
increase was in the area of compensation and employee benefits which
increased $289,000, or 12.7%. The primary components of this increase
were $144,000 for salaries and related payroll taxes for staff at the
Crane and Galena branches purchased in March 1998, $64,000 for salaries
and related payroll taxes for South Central Missouri Title, Inc.
personnel and $109,000 for hiring of additional personnel and regular
annual payroll increases for existing personnel.
Group health insurance expense also increased $81,000. The
increase resulted from the addition of the Crane and Galena personnel
in March 1998 and existing personnel meeting the health plan coverage
requirements.
The average fair market value of the Company's common stock
decreased during the year ended June 30, 1999 which in turn reduced the
expense for the Employee Stock Ownership Plan ("ESOP") by $51,000.
This treatment is required by the American Institute of Certified
Public Accountant's Statement of Position 93-6, "Employer's Accounting
for Employee Stock Ownership Plans." The statement requires the
recording of shares released from the ESOP to be recorded at the
average fair market value for the period.
There were also decreases in compensation and employee benefits of
$37,000 relating to the capitalization of estimated loan personnel
costs in accordance with Statement of Financial Accounting Standards
No. 91, "Accounting for Nonrefundable Fees and Costs Associated with
Originating or Acquiring Loans and Initial Direct Costs of Lease.
Management Recognition Plan expense decreased $21,000 as all of the
granted shares became fully vested and distributed during the year.
Occupancy and equipment expense increased $98,000 from $491,000
for the fiscal year ended June 30, 1998 to $589,000 for the fiscal year
ended June 30, 1999. Addition of the Crane and Galena branches in
March 1998 raised normal occupancy and equipment expenses by $31,000.
Operation of South Central Missouri Title, Inc. for an entire year and
the addition of two additional locations for the title company were
responsible for $15,000 of the increase. A new computer system
installed in January 1998 and an upgrade of the check sorting machine
also caused increases in depreciation and maintenance expenses of
$39,000. Additions of furniture and equipment at existing branches
during the year created a $7,000 increase in depreciation expense. The
Marshfield branch underwent a renovation to provide additional space
which increased expenses by $5,000.
Professional fees increased $47,000 including $30,000 additional
accounting and audit fees incurred in late 1998 and a $17,000 increase
in the accrual for the 1999 audit. The FDIC insurance premiums on
deposit accounts increased $11,000 due to additional accounts and the
addition of the Crane and Galena deposit accounts.
There was a $22,000 decrease in advertising and promotional
expense attributable to the elimination of additional expenses
promoting the purchase of the Crane and Galena branches and a
lower number of gifts given to new customers.
During the year ended June 30, 1999, other noninterest expense
increased $102,000. The majority of the increase was amortization
of the premium paid to NationsBank for the purchase of the loans and
deposits at the Crane and Galena branches. This expense increased
$101,000 which includes $50,000 for an additional write-off to
reflect purchased accounts that were closed by the customers since
the branches were acquired by First Home.
Correspondent bank service charges increased $22,000 as deposit
activity with the correspondent banks increased in connection with new
accounts and the addition of the Crane and Galena branches. During
late 1998, correspondent bank processing was moved to the FHLB. The
service charges are slightly higher at the FHLB; however, interest is
9
<PAGE>
paid on collected balances which more than offsets the service charges.
Related courier service costs also increased by $11,000 due to the
deposits being transported to St. Louis rather than Springfield,
Missouri.
The addition of Crane and Galena also created a total of $20,000
increase in the following expenses: free checks to customers,
insurance, regulatory assessments, dues and employee education.
Commitment of a $10,000 contribution to a local YMCA and
additional contributions for which Missouri Neighborhood Assistance
Tax Credit were issued created a $25,000 increase in charitable
contributions. Postage expense increased $21,000 attributable to a
slight rate increase and the increase in statement mailings due to
new accounts acquired at Crane and Galena. Implementation of
Telebanker, First Home's automated informational telephone banking
system, currently handling 5,000 to 7,000 calls per month, raised
telephone costs by $18,000.
There was a decrease in nonoperating expenses of $31,000 due to
the elimination of the Crane and Galena acquisition costs. A $92,000
decrease in loss on checking accounts included a $34,000 reserve
established in June 1998 for items deposited with the correspondent
bank for which First Home had not received credit. The entry was
reversed in October 1998 when the posting of these items was corrected.
The remainder of the decrease was attributable to extremely
insignificant deposit account losses during the year.
Gain on Investments and Mortgage-backed Securities. As noted in
Noninterest Income," gains on investments and mortgage-backed
securities increased $12,000. Common stock was sold during the year
ended June 30, 1999 for $137,000 which resulted in a $37,000 pretax
gain. The gain was offset by $14,000 to complete the write-off of a
pool of automobile loans purchased. During the year ended June 30,
1998, common and preferred stocks were sold for $232,000 resulting in a
pretax gain of $41,000. The gain was offset by $30,000 in write-downs
on the automobile loan pool.
Income Taxes. Income tax expense increased $170,000. This was a
higher percentage increase than the increase in income before taxes due
to the additional tax deduction for the fair market value of stock
options exercised by employees during early 1998.
Net Interest Margin. Net interest margin was 3.76% for the year
ended June 30, 1999, an increase of .18% from 3.58% for the year ended
June 30, 1998. A decrease in the yield on loans attributable to the
reduction in rates on adjustable-rate loans combined with a decline in
the yield on investment securities created a decrease in the yield on
interest-earning assets. This decrease was more than offset by a
decrease in the cost of customer deposits and borrowings to create the
increase in the net interest margin.
Fiscal Year Ended June 30, 1998 Compared to June 30, 1997
Net Income. Net income for the fiscal year ended June 30, 1998
was $1,845,000, an increase of $432,000, or 30.6%, from $1,413,000
for the fiscal year ended June 30, 1997. Increases in interest
income of $1,076,000 combined with a $52,000 increase in noninterest
income and a $5,000 decrease in provision for loan losses were offset
by increases in interest expense of $512,000, noninterest expense
of $81,000 and income taxes of $107,000.
Net Interest Income. Net interest income increased $564,000,
or 10.8%, to $5,766,000 for the year ended June 30, 1998 compared to
$5,202,000 for the year ended June 30, 1997. A $1,076,000
increase in interest income was reduced by a $512,000 increase in
interest expense.
Interest Income. Total interest income for the year ended
June 30, 1998 increased $1,076,000, or 9.2%, to $12,771,000 from
$11,695,000 for the year ended June 30, 1997. Interest income from
loans receivable increased $1,206,000. The increase in income from
loans receivable that resulted from a $12,303,000 increase in net
loans receivable was somewhat offset by a decrease in the annualized
yield on loans from 8.23% for the year ended June 30, 1997 to 8.16%
for the year ended June 30, 1998. Interest rates were decreased
10
<PAGE>
during the year on existing loans pursuant to their adjustable rate
features. Interest income from investment securities decreased
$155,000 as a large portion of securities held were called for early
redemption. Income from mortgage-backed and related securities
decreased $109,000 due to the sale of one security during the year
ended June 30, 1997 and principal repayments of the remaining
balances. A larger average balance in Federal funds sold and
FHLB daily time savings resulted in a $135,000 increase in interest
income. Funds to maintain those higher balances were primarily
acquired as part of the purchase of the branches from NationsBank.
Interest Expense. Interest expense for the year ended June
30, 1998 was $7,005,000, an increase of $512,000, or 7.9%, from
$6,493,000 for the year ended June 30, 1997. Interest expense on
customer deposits increased $631,000 as the average balance of
customer deposits increased. This was partially offset by a
decrease in the average deposit rates paid during the period. FHLB
advances were paid off at their respective maturity dates to create
a $119,000 reduction in interest expense on borrowed funds.
Provision for Loan Losses. Provision for loan losses decreased
$5,000, or 7.6%, to $66,000 for the year ended June 30, 1998 from
$71,000 for the year ended June 30, 1997. Actual loan charge-
offs, net of recoveries, of First Home originated loans were
$19,000 for the year ended June 30, 1998 compared to $12,000 for
the year ended June 30, 1997.
Noninterest Income. Noninterest income increased $52,000 to
$766,000 for the year ended June 30, 1998 from $714,000 for the year
ended June 30, 1997. The 7.2% increase included a $119,000, or
30.7%, increase in service charges and other fee income from
customer deposit accounts. Two factors influenced the increase in
service charges and other fee income. The primary factor was the
checking account program begun in July 1995 which has created a
continued increase in customer deposit accounts. The second
factor was the acquisition of $6.7 million in demand accounts as
part of the purchase of two branches from NationsBank completed
in March 1998. Gains of $58,000 on the sale of property and
equipment for the year ended June 31, 1998 were an increase of
$83,000 from the $25,000 loss recognized during the year ended
June 30, 1997. The gain for the year ended June 30, 1998 was
primarily from the sale of the assets of Lawson & Lawson Insurance
Agency.
Insurance commissions increased $16,000, or 25.0%, to $81,000
for the year ended June 30, 1998 from $65,000 for the year ended
June 30, 1997. The decrease in insurance commissions, because
Lawson & Lawson Insurance Agency was sold, were more than offset by
title insurance commissions earned by South Central Missouri Title,
Inc. which opened in November 1997. Other increases in noninterest
income were $5,000 from real estate operations and other income of
$3,000.
Offsetting the increases described above was a $176,000
reduction in gain on investment securities and mortgage-backed
securities to $11,000 for the year ended June 30, 1998 from
$187,000 for the year ended June 30, 1997. Information regarding
this reduction is provided under "-Gain (Loss) on Investments and
Mortgage-backed Securities."
Noninterest Expense. Noninterest expense increased $82,000, or
2.2%, from $3,647,000 for the year ended June 30, 1997 to $3,729,000
for the year ended June 30, 1998. Compensation and employee
benefit expense increased $457,000, or 25.1%, including $60,000
attributable to salaries and related payroll taxes for staff at the
Crane and Galena branches purchased, $38,000 for the hiring of two
personnel to assist in the computer conversion and the downloading of
the Crane and Galena data into First Home's computer system, an
$18,500 bonus to all employees in December 1997 and $28,000 for
the addition of personnel for South Central Missouri Title, Inc.
The remaining $105,500 salaries and payroll taxes increase was
attributable to hiring of additional personnel at other branches and
annual payroll increases for existing personnel.
Due to the increase in the average fair market value of the
Company's common stock, the expense for the Employee Stock Ownership
Plan ("ESOP") increased $195,000. This treatment is described in the
June 30, 1999 Comparison section above.
11
<PAGE>
The remaining increase in compensation and employee benefit
expense was $33,000 for group health insurance expense. Addition of
employees at Crane and Galena and existing personnel meeting
the health plan requirements created the increase.
Occupancy and equipment expense was $491,000 for the year ended
June 30, 1998 compared to $392,000 for the year ended June 30, 1997.
Included in the $99,000, or 25.2%, increase was $44,000 in additional
depreciation expense ($22,000 for the new computer system,
$12,000 for the Gainesville building and furnishings placed in
service in December 1996, $4,000 for the Crane and Galena buildings
and equipment, and the remaining depreciation expense for the
replacement of fully depreciated equipment at existing locations).
Also included in the $99,000 increase were $31,000 in maintenance
expense ($13,000 on the old computer system, $5,000 for the addition
of Crane and Galena branches and the remaining in upgrading
alarm and security systems), $11,000 in items expensed primarily
relating to the computer conversion, $8,000 in furniture, fixtures
and equipment expense (mostly small items purchased for Crane and
Galena branches), $5,000 increase in utilities, and $5,000 increase
in real estate taxes.
Other noninterest expense rose to $711,000 for the year ended
June 30, 1998 from $517,000 for the year ended June 30, 1997. The
majority of the $194,000, or 37.4%, increase was a $53,000
increase in loss on checking accounts and an increase of $48,000
for correspondent bank processing and service charges. The increase
for loss on checking accounts includes a provision of $34,000 to
establish a reserve for items deposited with the correspondent bank
for which First Home has not yet received credit. In August 1998,
the correspondent bank processing was moved to the FHLB.
The remaining $93,000 increase, partially attributable to the
Crane and Galena acquisition, was caused by increases in:
postage - $19,000 (28.6%), telephone - $10,000 (19.9%), office
supplies - $8,000 (13.3%), cost of checks for customers - $7,000
(24.0%). The branch acquisitions also resulted in $17,000 for
amortization of the premium paid on the deposits assumed and the
loans purchased, a $22,000 broker fee and $9,000 of filing fees
for regulatory approval.
Advertising and promotional expense increased $32,000, or
44.3%. Marketing expense, consisting of the cost of the gifts given
to customers for opening new checking accounts or referring a new
customer to open a checking account increased $18,000 as the
number of checking accounts opened continued to increase. Other
advertising costs increased $14,000 to promote the Crane and
Galena branch acquisition.
The above increases were offset by a decrease in deposit
insurance premiums of $708,000. During the year ended June 30,
1997, a $640,000 one-time assessment to recapitalize the SAIF was
paid and expensed. The legislation mandating the assessment, however,
also provided for reductions in future premiums.
Gain (Loss) on Investments and Mortgage-backed Securities. As
noted in "--Noninterest Income," gain on investment securities and
mortgage-backed securities decreased $176,000 from the $187,000
gain reported for the year ended June 30, 1997 to $11,000 for the
year ended June 30, 1998. Common and preferred stocks were sold
during the year ended June 30, 1998 for $232,000 resulting in a
pretax gain of $41,000. The gain was offset by $30,000 in write-
downs on a pool of auto loans purchased. During the year ended
June 30, 1997, common and preferred stock were sold for $832,000
resulting in a pretax gain of $223,000. The gain was somewhat
offset by a $20,000 loss on the sale of a collaterized mortgage
obligation and $16,000 in write-downs on a pool of auto loans
purchased.
Income Taxes. Income tax expense was $891,000 for the year
ended June 30, 1998 compared to $784,000 for the year ended June
30, 1997. The increase of $107,000, or 13.7%, was attributable to
the $539,000 increase in income before taxes.
Net Interest Margin. Net interest margin increased by .05% to
3.58% for the year ended June 30, 1998 compared to 3.53% for the year
ended June 30, 1997. A decrease in the yield on loans due to the
12
<PAGE>
reduction in rates on adjustable-rate loans, was offset by an
increase in the yield on investment securities for an overall steady
yield on interest-earning assets. A reduction in the cost of
customer deposits created an increase in the actual net interest
margin.
Financial Condition
General. Net loans receivable increased $7.2 million during the
year ended June 30, 1999. The loan portfolio was expanded through
loans made at existing locations including the Crane and Galena
branches acquired in March 1998. Deposit growth of $10.1 million was
also achieved in the same manner.
Total Assets. During the year ended June 30, 1999, total assets
increased $6.5 million, or 3.8%. The increase is attributable to the
$7.2 million increase in net loans receivable and $1.0 million increase
in investment securities offset by a decrease in cash and cash
equivalents and certificates of deposits purchased.
Cash and Cash Equivalents. Cash and cash equivalents decreased
$1.2 million from $11.9 million at June 30, 1998 to $10.7 million at
June 30, 1999.
Certificates of Deposit. Certificates of deposit purchased as
investments of $1.2 million at June 30, 1999 decreased $1.0 million
from $2.2 million at June 30, 1998.
Investment Securities. The purchase of bonds in excess of bonds
that were called and regular scheduled maturities of investment
securities created a $900,000 increase from $4.9 million at June 30,
1998 to $5.8 million at June 30, 1999.
Mortgage-backed Securities. Mortgage-backed securities decreased
$153,000 from $703,000 at June 30, 1998 to $550,000 at June 30, 1999.
This decrease was the result of regular principal repayments.
Loans Receivable. During the year ended June 30, 1999, net loans
receivable increased $7.2 million, or 4.9%, from $146.4 million at June
30, 1998 to $153.6 million at June 30, 1999. The net loan increase was
funded from the increase in customer deposits, proceeds from maturing
investments and certificates of deposit.
Non-accrual Loans. Non-accrual loans remained basically constant
at $57,000 at June 30, 1998 compared to $55,000 at June 30, 1999.
Nonperforming Assets. Nonperforming assets increased very
slightly to $1.9 million at June 30, 1999 compared to $1.8 million at
June 30, 1998. At June 30, 1999, nonperforming assets was comprised of
155 loans. At least one monthly payment was received during the
quarter ended June 30, 1999 on 134 of those loans which had ending
balances totaling $1.7 million.
Customer Deposits and Borrowings. Customer deposits were $151.2
million at June 30, 1999, an increase of $10.1 million, or 7.2%, from
$141.1 million at June 30, 1998. The increase was simply the result of
growth from normal operations at existing locations. FHLB advances
were reduced by $3.5 million from $5.7 million at June 30, 1998 to $2.2
million at June 30, 1999. The increase in customer deposits was the
source of the funds for the repayment.
Stockholders' Equity. Stockholders' equity decreased slightly by
$116,000 from $24.4 million at June 30, 1998 to $24.2 million at June
30, 1999. The decrease was the result of net income of $1.8 million,
$524,000 in unearned compensation adjustments and $126,000 from the
exercise of stock options offset by $2.2 million for the repurchase of
treasury stock and $279,000 for payment of dividends. At June 30,
1999, shares of stock outstanding had been reduced to 2,063,902 from
2,213,600 outstanding at June 30, 1998.
13
<PAGE>
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. Funds are also obtainable from FHLB advances. While
maturities and scheduled amortization of loans and mortgage-backed
securities are a predictable source of funds, deposit flows and
mortgage prepayments are greatly influenced by general interest rates,
economic conditions and competition.
The primary investing activity of First Home is the origination of
mortgage loans. Mortgage loans originated by First Home have increased
each year at $47.2 million, $41.9 million and $40.6 million for the
years ended June 30, 1999, 1998 and 1997, respectively. Other
investing activities include the purchase of investment securities,
which totaled $2.8 million, $1.7 million and $6.6 million for the years
ended June 30, 1999, 1998 and 1997. These activities were funded
primarily by deposit growth, principal repayments on loans,
mortgage-backed securities, other investment securities, and FHLB
advances.
OTS regulations require First Home to maintain an adequate level
of liquidity to ensure the availability of sufficient funds to support
loan growth and deposit withdrawals, to satisfy financial commitments
and to take advantage of investment opportunities. First Home's
sources of funds include deposits, principal and interest payments from
loans and mortgage-backed securities and investments, and FHLB
advances. During fiscal years 1999, 1998 and 1997, First Home used its
sources of funds primarily to fund loan commitments and to pay maturing
savings certificates and deposit withdrawals. At June 30, 1999, First
Home had approved loan commitments totaling $1.5 million and
undisbursed loans in process totaling $2.8 million.
Liquid funds necessary for the normal daily operations of First
Home are maintained in three working checking accounts, a daily time
account with the FHLB - 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 to enhance interest income.
At June 30, 1999, certificates of deposit amounted to $89.8
million, or 59.3%, of First Home's total deposits, including $65.2
million which were scheduled to mature by June 30, 2000. Historically,
First Home has been able to retain a significant amount of its deposits
as they mature. Management of First Home believes it has adequate
resources to fund all loan commitments by savings deposits and FHLB
advances and that it can adjust the offering rates of savings
certificates to retain deposits in changing interest rate environments.
Currently, the OTS 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
ratios were 8.2%, 16.3% and 15.8% at June 30, 1999, 1998 and 1997,
respectively. First Home consistently maintains liquidity levels in
excess of regulatory requirements, and believes this is an appropriate
strategy for proper asset and liability management.
OTS regulations require First Home to maintain specific amounts of
capital. As of June 30, 1999, First Home was in compliance with all
the regulatory capital requirements which were effective as of such
date, with tangible, core and risk-based capital ratios of 11.2%, 11.2%
and 15.7%, respectively. These ratios exceed the 1.5%, 4.0% and 8.0%,
respectively, capital ratios required by OTS regulations. In addition,
the OTS amended its capital regulations which require savings
institutions to maintain specified amounts of regulatory capital based
on the estimated effects of changes in market rates and which could
further increase the amount of regulatory capital required to be
maintained by the Savings Bank. See Note 16 of the Notes to
Consolidated Financial Statements.
Impact of New Accounting Standards. See Note 1 of the Notes to
Consolidated Financial Statements.
14
<PAGE>
Effect of Inflation and Changing Prices. The Consolidated
Financial Statements and related financial data presented herein have
been prepared in accordance with generally accepted accounting
principles, which require the measurement of financial position and
operating results in terms of historical dollars, without considering
the changes in relative purchasing power of money over time due to
inflation. The primary impact of inflation on operations of First Home
is reflected in increased operating costs. Unlike most industrial
companies, virtually all the assets and liabilities of a financial
institution are monetary in nature. As a result, interest rates
generally have a more significant impact on a financial institution's
performance than do general levels of inflation. Interest rates do not
necessarily move in the same direction or to the same extent as the
prices of goods and services. During the current interest rate
environment, management believes that the liquidity and the maturity
structure of First Home's assets and liabilities are critical to the
maintenance of acceptable profitability.
15
<PAGE>
{LOGO OF KIRKPATRICK, PHILLIPS & MILLER, CPAs, A PROFESSIONAL
CORPORATION}
INDEPENDENT AUDITORS' REPORT
----------------------------
To the Board of Directors and Stockholders
First Bancshares, Inc. and Subsidiaries
Mountain Grove, Missouri
We have audited the accompanying consolidated statements of financial
condition of First Bancshares, Inc. and Subsidiaries as of June 30,
1999 and 1998, and the related consolidated statements of income,
stockholders' equity, and cash flows for each of the three years in
the period ended June 30, 1999. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
these audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of First Bancshares, Inc. and Subsidiaries as of June 30,
1999 and 1998, and the results of operations and its cash flows
for each of the three years in the period ended June 30, 1999, in
conformity with generally accepted accounting principles.
/s/ Kirkpatrick, Phillips & Miller
KIRKPATRICK, PHILLIPS & MILLER, CPAs, P.C.
August 10, 1999
Springfield, Missouri
</page>
</TABLE>
<TABLE>
<CAPTION>
FIRST BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
- - - - - - - - - - - - - - - - - - - - - - - -
June 30, 1999 and 1998
1999 1998
------------- -------------
ASSETS
- ------
<S> <C> <C>
Cash and cash equivalents, including interest-bearing accounts
of $8,032,183 in 1999 and $5,898,306 in 1998 $ 10,721,664 $ 11,862,951
Certificates of deposit 1,209,000 2,205,000
Federal funds sold 245,000 -
Investment securities available-for-sale, at fair value (Notes 1 and 3) 3,216,799 2,701,208
Investment securities held-to-maturity (estimated fair value of
$1,529,597 in 1999 and $1,125,763 in 1998) (Notes 1 and 3) 1,543,948 1,113,907
Investment in Federal Home Loan Bank stock, at cost (Note 4) 1,057,600 1,057,600
Mortgage-backed certificates available-for-sale,
at fair value (Notes 1 and 5) 550,296 702,722
Loans receivable held-for-investment, net (Notes 1 and 6) 153,615,936 146,406,343
Accrued interest receivable (Note 7) 772,474 664,414
Prepaid expenses 91,414 126,373
Commissions and other receivables 152,605 23,906
Property and equipment, less accumulated depreciation
and valuation reserve (Notes 1 and 8) 4,651,801 4,297,515
Intangible assets, less accumulated amortization (Notes 1 and 2) 885,236 1,003,216
Other assets 7,725 7,725
------------- -------------
Total assets $ 178,721,498 $ 172,172,880
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ---------------------------------------
Customer deposits (Note 9) $ 152,209,747 $ 141,058,748
Advances from Federal Home Loan Bank (Note 10) 2,200,000 5,700,000
Income taxes payable - current (Note 11) 196,103 74,686
Deferred income taxes, net (Notes 1 and 11) 194,572 269,434
Accrued expenses 672,023 705,342
------------- -------------
Total liabilities 154,472,445 147,808,210
============= =============
Commitments and contingencies (Note 15) - -
Preferred stock, $.01 par value; 2,000,000 shares authorized,
none issued - -
Common stock, $.01 par value; 8,000,000 shares authorized,
issued 2,718,796 in 1999 and 2,693,576 in 1998, outstanding
2,063,902 in 1999 and 2,213,600 in 1998 27,188 26,936
Paid-in capital 16,244,473 15,838,295
Retained earnings - substantially restricted (Note 16) 18,362,321 16,823,131
Treasury stock, at cost - 654,894 shares in 1999 and
479,976 shares in 1998 (9,873,113) (7,664,176)
Unearned compensation (491,031) (734,516)
Accumulated other comprehensive income (loss) (20,785) 75,000
------------ -------------
Total stockholders' equity 24,249,053 24,364,670
------------ -------------
Total liabilities and stockholders' equity $ 178,721,498 $ 172,172,880
============= =============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements
17
</page>
<TABLE>
<CAPTION>
FIRST BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
- - - - - - - - - - - - - - - - - - - -
Years Ended June 30, 1999, 1998 and 1997
1999 1998 1997
------------ ------------ -----------
<S> <C> <C> <C>
Interest Income:
Loans receivable $ 12,185,082 $ 11,626,193 $10,420,259
Investment securities 423,128 873,623 1,028,922
Mortgage-backed and related securities 43,704 51,100 160,580
Other interest-earning assets 341,946 219,763 84,980
------------ ------------ -----------
Total interest income 12,993,860 12,770,679 11,694,741
------------ ------------ -----------
Interest Expense:
Customer deposits (Note 9) 6,429,120 6,008,164 5,376,936
Borrowed funds (Note 10) 270,131 996,913 1,115,838
----------- ----------- -----------
Total interest expense 6,699,251 7,005,077 6,492,774
----------- ----------- -----------
Net interest income 6,294,609 5,765,602 5,201,967
Provision (credit) for loan losses 83,549 65,955 71,361
----------- ---------- -----------
Net interest income after
provision for loan losses 6,211,060 5,699,647 5,130,606
----------- ----------- -----------
Noninterest Income:
Service charges and other fee income 563,778 508,635 389,217
Gain on investment securities and
mortgage-backed securities 22,766 11,444 187,438
Gain/(loss) on sale of property and equipment 18,277 55,269 (24,988)
Loan origination and commitment fees (Note 1) 6,880 6,905 7,737
Income from real estate operations 101,188 95,115 86,157
Insurance commissions 196,594 81,458 65,144
Other 13,554 6,995 3,536
----------- ----------- ----------
Total noninterest income 923,037 765,821 714,241
----------- ----------- ----------
Noninterest Expense:
Compensation and employee benefits (Note 12) 2,570,546 2,281,341 1,823,972
Occupancy and equipment 589,454 491,294 392,336
Deposit insurance premiums 85,483 74,777 782,542
Advertising and promotional 83,634 105,688 73,235
Professional fees 111,286 64,605 58,102
Other 813,281 710,964 517,278
----------- ----------- ----------
Total noninterest expense 4,253,684 3,728,669 3,647,465
----------- ----------- -----------
Income before taxes 2,880,413 2,736,799 2,197,382
Income Taxes (Note 11) 1,062,028 891,316 783,979
----------- ----------- -----------
Net income $ 1,818,385 $ 1,845,483 $ 1,413,403
=========== =========== ===========
Basic earnings per share (Note 1) $ .90 $ .90 $ .65
=========== =========== ===========
Diluted earnings per share (Note 1) $ .86 $ .85 $ .62
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements
18
</page>
<TABLE>
FIRST BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
- - - - - - - - - - - - - - - - - - - - - - - - -
Years Ended June 30, 1999, 1998 and 1997
<CAPTION>
Common Unrealized Total
Stock Paid-in Retained Treasury Unearned Gain/(Loss) on Stockholders'
Shares Amount Capital Earnings Stock Compensation Securities Equity
--------- -------- ----------- ------------ ----------- ------------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1996 1,268,686 $15,530 $15,059,638 $14,010,896 $(4,123,081) $(1,209,046) $ (24,822) $23,729,115
Comprehensive income
Net income - - - 1,413,403 - - - 1,413,403
Other comprehensive income,
net of tax:
Change in unrealized gain
(loss) on securities
available-for-sale, net of
deferred income taxes of
$169,656 - - - - - - 288,874 288,874
Less: reclassification
adjustment, net of deferred
income taxes of $(75,272) - - - - - - (128,166) (128,166)
-------------
Total Comprehensive Income 1,574,111
-------------
Proceeds from exercise of
stock options 5,490 55 54,845 - - - - 54,900
Cash dividends ($.20 per share) - - - (212,471) - - - (212,471)
Purchase of treasury stock
at cost (182,622) - - - (3,306,588) - - (3,306,588)
Vesting of MRP stock - - - - - 55,640 - 55,640
Release of ESOP shares - - 135,997 - - 175,940 - 311,937
--------- -------- ----------- ----------- ------------ ------------ --------- ----------
Balance June 30, 1997 1,091,554 15,585 15,250,480 15,211,828 (7,429,669) (977,466) 135,886 22,206,644
Comprehensive Income
Net income - - - 1,845,483 - - - 1,845,483
Other comprehensive income,
net of tax:
Change in unrealized gain
(loss) on securities
available-for-sale, net of
deferred income taxes of
$(20,535) - - - - - - (34,965) (34,965)
Less: reclassification
adjustment, net of deferred
income taxes of $(15,223) - - - - - - (25,921) (25,921)
-------------
Total Comprehensive Income 1,784,597
-------------
Proceeds from exercise of
stock options 32,342 324 265,361 - - - - 265,685
Cash dividends ($.11 per share) - - - (223,153) - - - (223,153)
100% stock dividend (Note 1) 1,102,704 11,027 - (11,027) - - - -
Purchase of treasury stock
at cost (13,000) - - - (234,507) - - (234,507)
Vesting of MRP stock - - - - - 55,250 - 55,250
Release of ESOP shares - - 322,454 - - 187,700 - 510,154
--------- -------- ----------- ----------- ------------ ------------ --------- -----------
Balance June 30, 1998 2,213,600 26,936 15,838,295 16,823,131 (7,664,176) (734,516) 75,000 24,364,670
Comprehensive Income
Net income - - - 1,818,385 - - - 1,818,385
Other comprehensive income,
net of tax:
Change in unrealized gain
(loss) on securities
available-for-sale, net of
deferred income taxes of
$(42,490) - - - - - - (72,347) (72,347)
Less: reclassification
adjustment, net of deferred
income taxes of $(13,765) - - - - - - (23,438) (23,438)
-------------
Total Comprehensive Income 1,722,600
-------------
Proceeds from exercise of
stock options 25,220 252 125,848 - - - - 126,100
Cash dividends ($.11 per share) - - - (279,195) - - - (279,195)
Purchase of treasury stock
at cost (174,918) - - - (2,208,937) - - (2,208,937)
Vesting of MRP stock - - - - - 56,250 - 56,250
Release of ESOP shares - - 280,330 - - 187,235 - 467,565
--------- -------- ----------- ----------- ------------ ------------ --------- -----------
Balance at June 30, 1999 2,063,902 $27,188 $16,244,473 $18,362,321 $(9,873,113) $(491,031) $(20,785) $24,249,053
========= ======= =========== =========== ============ ========== ========= ============
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements
19
</page>
<TABLE>
FIRST BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
- - - - - - - - - - - - - - - - - - -
Years Ended June 30, 1999, 1998 and 1997
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 1,818,385 $ 1,845,483 $ 1,413,403
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 278,802 223,681 178,489
Amortization 117,981 18,183 11,159
Premiums and discounts on mortgage-backed
securities and investment securities (229) (9,690) (1,353)
Loss (credit) on loans, net of recoveries 83,549 65,955 71,361
Unrealized loss on investment securities 14,437 30,000 16,000
Gain on sale of investment securities
and mortgage-backed securities (37,203) (41,444) (203,438)
(Gain)/ loss on sale of equipment (18,777) (1,813) 24,988
Gain on sale of intangible assets - (49,829) -
Gain on sale of real estate owned 500 (3,627) -
Vesting of MRP shares 56,250 55,250 55,658
Release of ESOP shares 467,565 510,154 311,937
Net change in operating accounts:
Accrued interest receivable and other assets (201,800) 51,214 (207,527)
Deferred loan costs (49,886) (59,487) (37,034)
Accrued expenses (33,319) 391,485 53,235
Deferred income taxes (42,891) 29,963 39,759
Income taxes payable - current 121,417 69,663 (87,146)
------------ ------------ ------------
Net cash from operating activities 2,574,780 3,125,141 1,639,491
------------ ------------ ------------
Cash flows from investing activities:
Purchase of investment securities
available-for-sale (1,833,406) (1,644,900) (6,224,000)
Purchase of investment securities held-to-maturity (984,389) (105,000) -
Purchase of Federal Home Loan Bank stock - - (374,000)
Proceeds from maturities of investment securities
available-for-sale 1,100,454 12,900,450 1,000,000
Proceeds from maturities of investment securities
held-to-maturity 540,140 563,759 610,542
Proceeds from sale of investment securities
available-for-sale 137,203 231,948 832,277
Proceeds from sale of Federal Home Loan Bank stock - 206,200 -
Net change in certificates of deposit 996,000 (701,000) 815,000
Net increase in federal funds sold (245,000) - -
Net change in loans receivable (7,342,126) (7,561,466) (15,471,648)
Proceeds from principal payments and maturities
of mortgage-backed certificates 142,031 122,405 127,895
Proceeds from sales of mortgage-backed
certificates - - 1,980,000
Purchases of property and equipment (728,561) (496,056) (710,755)
Proceeds from sale of property and equipment 114,250 11,761 7,500
Proceeds from sale of intangible assets - 80,000 -
Net proceeds from sale of real estate owned 98,370 158,461 -
Net cash received in acquisition of
branches (Note 2) - 11,274,501 -
------------ ------------ ------------
Net cash from (used in) investing activities (8,005,034) 15,041,063 (17,407,189)
------------ ------------ ------------8
20
</page>
FIRST BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
- - - - - - - - - - - - - - - - - - - - - - - - -
Years Ended June 30, 1999, 1998 and 1997
1999 1998 1997
------------- ------------- ------------
Cash flows from financing activities:
Net change in demand deposits, savings accounts,
and certificates of deposit $ 10,150,999 $ 5,947,762 $ 11,724,505
Payments on borrowed funds (3,500,000) (18,055,000) (3,500,000)
Proceeds from borrowed funds - 200,000 13,500,000
Proceeds from sale of common stock 126,100 252,715 54,900
Cash dividends paid (279,195) (223,153) (212,471)
Purchase of treasury stock (2,208,937) (234,507) (3,306,588)
------------- ------------- ------------
Net cash from (used in) financing activities 4,288,967 (12,112,183) 18,260,346
------------ ------------- ------------
Net increase (decrease) in cash and cash equivalents (1,141,287) 6,054,021 2,492,648
Cash and cash equivalents -
beginning of period 11,862,951 5,808,930 3,316,282
------------ ----------- -----------
Cash and cash equivalents -
end of period $ 10,721,664 $ 11,862,951 $ 5,808,930
============ ============ =============
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest on deposits and
other borrowings $ 6,739,175 $ 6,541,148 $ 6,462,776
Income taxes 905,286 798,195 831,149
Supplemental schedule of non-cash investing and
financing activities:
Loans and other real estate
charged off to reserve $ 71,565 $ 19,414 $ 109,863
Loans transferred to real estate
acquired in settlement of loans 98,870 41,058 113,776
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements
21
</page>
FIRST BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - - - - - - - - - - - - - - - - - - - -
Years Ended June 30, 1999, 1998 and 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of business - To assist the reader in evaluating the
financial statements of First Bancshares, Inc. and
Subsidiaries, the significant accounting policies are
summarized below.
First Bancshares, Inc., a Missouri corporation, was organized
on September 30, 1993 for the purpose of becoming a unitary
savings and loan holding company for First Home Savings Bank.
The Savings Bank is primarily engaged in providing a full
range of banking and mortgage services to individual and
corporate customers in southern Missouri. It also provided
insurance brokerage activities through a subsidiary
corporation until September 1997. The Savings Bank is subject
to competition from other financial institutions. The Company
and Savings Bank are also subject to the regulation of certain
federal agencies and undergo periodic examinations by those
regulatory authorities. In November of 1997, South Central
Missouri Title, Inc. was formed as a subsidiary corporation of
First Bancshares, Inc. South Central is a licensed agent to
sell title insurance and also provides real estate sales
closing services.
Use of estimates - Management uses estimates and assumptions in
preparing these financial statements in accordance with
generally accepted accounting principles. Those estimates and
assumptions affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and
liabilities, and the reported revenues and expenses. Actual
results could vary from the estimates that were used.
Material estimates that are particularly susceptible to
significant change relate to the determination of the
allowance for loan losses and the valuation of real estate
acquired in connection with foreclosures or in satisfaction of
loans.
While management uses available information to recognize losses
on loans and foreclosed real estate, future additions to the
allowances may be necessary based on changes in local economic
conditions. In addition, regulatory agencies, as an integral
part of their examination process, periodically review the
Savings Bank's allowances for loan losses and foreclosed real
estate. Such agencies may require the Savings Bank to
recognize additions to the allowances based on their judgments
about information available to them at the time of their
examination.
Principles of consolidation - The accompanying consolidated
financial statements include the accounts of First
Bancshares, Inc. and its wholly-owned subsidiaries, the
Savings Bank and South Central Missouri Title, Inc., and
Fybar Service Corporation, a wholly-owned subsidiary of the
Savings Bank. In consolidation, all significant intercompany
balances and transactions have been eliminated.
Consolidated statements of cash flows - For purposes of the
consolidated statements of cash flows, cash consists of cash
on hand and deposits with other financial institutions which
are unrestricted as to withdrawal or use. Cash equivalents
include highly-liquid instruments with an original maturity of
three months or less.
22
</page>
FIRST BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - - - - - - - - - - - - - - - - - - - -
Years Ended June 30, 1999, 1998 and 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
Investment securities and mortgage-backed certificates -
Securities are classified in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 115, "Accounting
for Certain Investments in Debt and Equity Securities," which
establishes three classifications of investment securities:
held-to-maturity, trading and available-for-sale. Trading
securities are acquired principally for the purpose of near
term sales. Such securities are reported at fair value and
unrealized gains and losses are included in income. At June
30, 1999 and 1998, the Company had no securities designated as
trading securities. Securities which are designated as
held-to-maturity are designated as such because the investor
has the ability to hold these securities to maturity. Such
securities are reported at amortized cost.
All other securities are designated as available-for-sale, a
designation which provides the investor with certain
flexibility in managing its investment portfolio. Such
securities are reported at fair value; net unrealized gains
and losses are excluded from income and reported net of
applicable income taxes as a separate component of
stockholders' equity. Gains or losses on sales of securities
are recognized in operations at the time of sale and are
determined by the difference between the net sales proceeds
and the cost of the securities using the specific
identification method, adjusted for any unamortized premiums
or discounts. Premiums or discounts are amortized or accreted
to income using the interest method over the period to
maturity.
Loans receivable - Loans receivable are stated at their principal
amount outstanding, net of deferred loan origination and
commitment fees and certain direct costs, which are recognized
over the contractual life of the loan as an adjustment of the
loan's yield. Interest income on loans is recognized on an
accrual basis.
The accrual of interest on impaired loans is discontinued when it
is determined that the payment of interest or principal is
doubtful of collection, or when interest or principal is past
due 90 days or more, except when the loan is well secured and
in the process of collection. Any accrued but uncollected
interest previously recorded on such loans is generally
reversed in the current period and interest income is
subsequently recognized upon collection. Cash collections
subsequently received are applied against outstanding
principal until the loan is considered fully collectible,
after which cash collections are recognized as interest
income.
The Company reports the change in present value of the expected
future cash flows related to impaired loans as an increase or
decrease in bad debt expense.
23
</page>
FIRST BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - - - - - - - - - - - - - - - - - - - -
Years Ended June 30, 1999, 1998 and 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
Property and equipment and related depreciation - Property and
equipment has been stated at cost except as discussed in
Note (8). Depreciation has been principally computed by
applying the following methods and estimated lives:
Category Estimated Life Method
--------------------- -------------- ----------
Automobiles 5 Years Straight-line and
declining-balance
Office furniture, fixtures Straight-line and
and equipment 3-10 Years declining-balance
Buildings 15-40 Years Straight-line and
declining-balance
Investment real estate 15-40 Years Straight-line
Maintenance and repairs are charged to expense.
Improvements which extend the lives of the respective
assets are capitalized. When property or equipment is
sold or otherwise disposed of, the cost and related
accumulated depreciation are removed from the respective
accounts and the resulting gain or loss is reflected in
income.
Intangible assets - Intangible assets have been recorded by the
Savings Bank in connection with the acquisition of two
branches from NationsBank, which is discussed further in Note
(2). The premium paid by the Savings Bank for the branches is
being amortized on a straight-line basis over fifteen years.
Amortization expense relating to this premium was $117,980 and
$17,000 in 1999 and 1998, respectively. During the year ended
June 30, 1999 amortization expense includes a $50,000
write-down due to the loss of customers that were acquired
from NationsBank.
Intangible assets were also recorded by Fybar Service Corporation
in connection with the acquisition of Lawson and Lawson
Insurance Agency, Inc. during October, 1991. In September,
1997, the intangible assets of Lawson and Lawson were sold.
Amortization expense relating to these intangible assets were
$1,183 and $11,159 in 1998 and 1997, respectively.
Income taxes - The Company files a consolidated federal income tax
return with its wholly-owned subsidiaries. The income tax
effect of timing differences in reporting transactions for
financial reporting and income tax purposes is reflected in
the financial statements as deferred income taxes.
Income taxes are accounted for under the asset and liability
method in accordance with SFAS No. 109, "Accounting for Income
Taxes." Under this method, deferred income taxes are
recognized for temporary differences by applying enacted
statutory rates applicable to future years to differences
between the financial statement carrying amounts and the tax
basis of existing assets and liabilities. The effect on
deferred taxes of a change in tax rates is recognized in
income in the period that includes the enactment date.
24
</page>
FIRST BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - - - - - - - - - - - - - - - - - - - -
Years Ended June 30, 1999, 1998 and 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
Allowance for loan losses - The Savings Bank maintains an
allowance for loan losses to absorb possible future losses
that may be realized on its loan portfolio. In conjunction
with a review of the loan portfolio, the allowance for loan
losses is evaluated and adjusted at least quarterly. In
evaluating the allowance for loan losses, management considers
various factors including historical loss experience, the
level and trend of delinquent and classified loans, current
and anticipated economic; and real estate conditions, and the
composition of the loan portfolio. Losses incurred upon
initial acquisition of real estate owned through foreclosure
are charged to the allowance for loan losses.
Special reserves are established for any impaired loan for which
the recorded investment in the loan exceeds the measured value
of the loan. The values of loans subject to impairment
valuation are determined based on the present value of
expected future cash flows, the market price of the loans, or
the fair values of the underlying collateral if the loan is
collateral dependent.
Real estate owned - Real estate acquired in the settlement of
loans, including in-substance foreclosures, is recorded at the
lower of the remaining balance or estimated fair value less
the estimated costs to sell the asset. Any write down at the
time of foreclosure is charged against the allowance for loan
losses. Subsequently, net expenses related to holding the
property and declines in the market value are charged against
income. Gains on sales are determined on the specific
identification method and are credited to income when the
property is sold.
Loan origination fees and costs - Loan origination fees and costs
are recorded in accordance with SFAS No. 91, "Accounting for
Nonrefundable Fees and Costs Associated with Originating or
Acquiring Loans and Initial Direct Costs of Leases." Under
SFAS No. 91, loan origination fees and certain direct loan
origination costs are deferred and recognized in interest
income over the contractual lives of the related loans using
the interest method. When a loan is paid-off or sold, the
unamortized balance of these deferred fees and costs is
recognized in income.
Real estate held for investment - Real estate properties held for
investment are carried at the lower of cost, including cost of
improvements incurred subsequent to acquisition, or net
realizable value. Costs relating to the development and
improvement of property are capitalized, whereas costs
relating to the holding of the property are expensed.
Advertising costs - The Company expenses non-direct response
advertising costs as they are incurred.
Stock Dividend - On December 30, 1997, the Company's Board of
Directors declared a two-for-one stock split (in the form of a
100% stock dividend) of First Bancshares, Inc. common stock to
stockholders of record on January 16, 1998, payable on January
30, 1998. Common stock was increased and retained earnings
was reduced for the aggregate par value of the shares issued.
The stated par value of each share was not changed from $.01.
All per share amounts and average shares outstanding have been
restated to reflect the aforementioned stock dividend.
25
</page>
FIRST BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - - - - - - - - - - - - - - - - - - - -
Years Ended June 30, 1999, 1998 and 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
Earnings per share - In February 1997, the Financial Accounting
Standards Board ("FASB") issued SFAS No. 128, "Earnings Per
Share." SFAS No. 128 replaces the presentation of primary
earnings per share with a presentation of basic and diluted
earnings per share on the face of the income statement for all
entities with complex capital structures. SFAS No. 128 also
requires a reconciliation of the numerator and denominator of
the basic and diluted earnings per share computation. The
Company adopted SFAS No. 128 during the year ended June 30,
1998, and prior periods were restated. The adoption of this
standard did not have a material effect on previously reported
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 common 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.
Comprehensive income - The Company adopted SFAS No. 130,
"Reporting Comprehensive Income," as of July 1, 1998.
Accounting principles generally require that recognized
revenue, expenses, gains and losses be included in net
income. Although certain changes in assets and liabilities,
unrealized gains and losses on available-for-sale securities,
are reported as a separate component of the equity section
of the balance sheet, such items, along with net income, are
components of comprehensive income. The adoption of SFAS
No. 130 had no effect on the Company's net income or
shareholders' equity.
New accounting standards - In June 1998, FASB issued SFAS
No. 133, "Accounting for Derivative Instruments and
Hedging Activities," which establishes accounting and
reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts,
(collectively referred to as derivatives) and for hedging
activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement
of financial position and measure those instruments at fair
value. This Statement is effective for all fiscal quarters
of fiscal years beginning after June 15, 1999. The
adoption of this standard is not expected to have a material
impact on the Company
Reclassifications - Certain accounts in the prior-years'
consolidated financial statements have been reclassified for
comparative purposes to conform with the presentation in the
current-year consolidated financial statements.
26
</page>
FIRST BANCSHARES, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - - - - - - - - - - - - - - - - - - - -
Years Ended June 30, 1999, 1998 and 1997
(2) ACQUISITION
In March 1998, the Savings Bank purchased two bank branch
offices from NationsBank. The branches are located at Crane
and Galena, Missouri. As part of the agreement, the Savings
Bank assumed customer deposits of $17,426,254 and other
liabilities of $65,000 in exchange for loans of $4,787,311,
premises and equipment of $341,197, cash of $11,274,501 and
other assets of $68,029. The Savings Bank paid a premium of
$1,020,216 for the loans purchased and customer deposit
accounts assumed. The acquisition was recorded using the
purchase method of accounting. Results of operations of the
branches acquired are included in the accompanying financial
statements since the date of acquisition.
(3) INVESTMENT SECURITIES
As discussed in Note (1), the Company has designated certain
securities as available-for-sale.
A summary of the investment securities available-for-sale at
June 30, 1999 is as follows:
<TABLE>
<CAPTION>
Estimated
Amortized Gross Unrealized Fair
Cost Gains Losses Value
------------ ---------- ---------- --------------
<S> <C> <C> <C> <C>
United States Government and
Federal Agencies obligations $ 2,200,000 $ - $ 27,611 $ 2,172,389
Mutual funds 33,644 3,072 - 36,716
Common and preferred stocks 981,406 26,288 - 1,007,694
------------- ---------- ----------- -------------
Total $ 3,215,050 $ 29,360 $ 27,611 $ 3,216,799
============ ========== =========== =============
</TABLE>
The amortized cost and estimated market value of debt securities
available-for-sale at June 30, 1999 are summarized below by
contractual terms to maturity. Expected maturities will differ
from contractual maturities because borrowers may have the right
to call or prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Amortized Estimated
Cost Fair Value
------------- -------------
<S> <C> <C>
Due after one year through five years 2,200,000 2,172,389
============ ============
</TABLE>
Proceeds from the sales of common stock held as available-for-
sale during the year ended June 30, 1999 were
$137,203. A gain of $37,203 was recognized on these sales.
A summary of investment securities held-to-maturity at
June 30, 1999 is as follows:
<TABLE>
<CAPTION>
Estimated
Amortized Gross Unrealized Fair
Cost Gains Losses Value
------------ --------- ---------- -----------
<S> <C> <C> <C> <C>
Obligations of states and
political subdivisions $ 1,510,061 $ 7,839 $ (22,190) $ 1,495,710
Auto and student loan pools 33,887 - - 33,887
----------- --------- ---------- -----------
Total $ 1,543,948 $ 7,839 $ (22,190) $ 1,529,597
============ ========= ========== ===========
</TABLE>
27
</page>
FIRST BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - - - - - - - - - - - - - - - - - - - -
Years Ended June 30, 1999, 1998 and 1997
(3) INVESTMENT SECURITIES - (CONTINUED)
Auto and student loan pools are stated at net realizable value
in 1999, 1998 and 1997. The auto loan pool was written down to
its estimated net realizable value because, in the opinion of
management, the decline in market value of that security is
considered to be other than temporary. The amount of the
losses, $14,437, $30,000 and $16,000 for 1999,
1998 and 1997, respectively, have been charged to operations.
The amortized cost and estimated market value of investment
securities held-to-maturity at June 30, 1999, by contractual
maturity, are shown below. Expected maturities will differ
from contractual maturities because borrowers may have the
right to call or prepay obligations with or without call or
prepayment penalties.
<TABLE>
<CAPTION>
Amortized Estimated
Cost Fair Value
------------ ------------
<S> <C> <C>
Due in one year or less $ 200,000 $ 201,152
Due after one year through five years 998,948 993,979
Due after five years through ten years 345,000 334,466
----------- -----------
Total $ 1,543,948 $ 1,529,597
=========== ===========
</TABLE>
A summary of the investment securities available-for-sale at
June 30, 1998 is as follows:
<TABLE>
<CAPTION>
Estimated
Amortized Gross Unrealized Fair
Cost Gains Losses Value
----------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
United States Government and
Federal Agencies obligations $ 1,700,000 $ 750 $ (1,300) $ 1,699,450
Mutual funds 34,098 3,410 - 37,508
Common and preferred stocks 848,000 116,250 - 964,250
----------- ---------- ----------- ------------
Total $ 2,582,098 $ 120,410 $ (1,300) $ 2,701,208
=========== ========== =========== ===========
</TABLE>
Proceeds from the sales of common and preferred stock held as
available-for-sale during the year ended June 30, 1997 were
$231,948. A gain of $41,444 was recognized on these sales.
Proceeds from the sales of common and preferred stock held as
available-for-sale during the year ended June 30, 1997 were
$832,277. A gain of $223,438 was recognized on these sales.
A summary of investment securities held-to-maturity at June 30,
1998 is as follows:
<TABLE>
<CAPTION>
Estimated
Amortized Gross Unrealized Fair
Cost Gains Losses Value
----------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
Obligations of states and
political subdivisions $ 1,050,443 $ 11,856 $ - $ 1,062,299
Auto and student loan pools 63,464 - - 63,464
----------- --------- ---------- -----------
Total $ 1,113,907 $ 11,856 $ - $ 1,125,763
=========== ========= ========== ===========
</TABLE>
28
</page>
FIRST BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - - - - - - - - - - - - - - - - - - - -
Years Ended June 30, 1999, 1998 and 1997
(3) INVESTMENT SECURITIES - (CONTINUED)
The book value of securities pledged as collateral, to secure
public deposits was $1,340,450 at June 30, 1999 and $1,392,427 at
June 30, 1998. The approximate fair value of pledged securities
was $1,327,067 at June 30, 1999and $1,393,896 at June 30, 1998.
(4) INVESTMENT IN FEDERAL HOME LOAN BANK STOCK
Investment in stock of the Federal Home Loan Bank is required
by law of every Federally-insured savings institution. No
ready market exists for this stock and it has no quoted market
value. However, redemption of this stock has been at par value.
The Savings Bank, as a member of the Federal Home Loan Bank of
Des Moines, is required to acquire and hold shares of capital
stock in the Federal Home Loan Bank of Des Moines in an amount
equal to the greater of (i) 1.0% of the aggregate outstanding
principal amount of residential mortgage loans, home purchase
contracts and similar obligations at the beginning of each year,
or (ii) 1/20 of its advances (borrowings) from the Federal Home
Loan Bank of Des Moines. The Savings Bank is in compliance with
this requirement with an investment in Federal Home Loan Bank of
Des Moines stock of $1,057,600 at June 30, 1999.
(5) MORTGAGE-BACKED SECURITIES
The amortized cost and estimated market values of mortgage-
backed securities available-for-sale as of June 30, 1999 are
summarized below:
<TABLE>
<CAPTION>
Estimated
Amortized Gross Unrealized Fair
Cost Gains Losses Value
---------- --------- --------- -----------
<S> <C> <C> <C> <C>
FHLMC certificates $ 213,495 $ 849 $ (3,421) $ 210,923
FNMA certificates 273,498 - (5,280) 268,218
GNMA certificates 69,665 1,490 - 71,155
---------- ---------- --------- ----------
Total $ 556,658 $ 2,339 $ (8,701) $ 550,296
========== ========= ========= ==========
</TABLE>
The amortized cost and estimated market values of mortgage-
backed securities available-for-sale as of June 30, 1998 are
summarized below:
<TABLE>
<CAPTION>
Estimated
Amortized Gross Unrealized Fair
Cost Gains Losses Value
---------- --------- --------- -----------
<S> <C> <C> <C> <C>
FHLMC certificates $ 276,499 $ 1,887 $ - $ 278,386
FNMA certificates 338,824 285 (640) 338,469
GNMA certificates 83,366 2,501 - 85,867
---------- ---------- --------- ----------
Total $ 698,689 $ 4,673 $ (640) $ 702,722
========== ========= ========= ==========
</TABLE>
29
<PAGE>
FIRST BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - - - - - - - - - - - - - - - - - - - -
Years Ended June 30, 1999, 1998 and 1997
(5) MORTGAGE-BACKED SECURITIES - (CONTINUED)
Proceeds from the sale of a collateralized mortgage obligation
during the year ended June 30, 1997 was $1,980,000. A loss of
$20,000 was recognized on this sale.
(6) LOANS RECEIVABLE
Loans receivable at June 30 consist of the following:
<TABLE>
<CAPTION>
1999 1998
------------- --------------
<S> <C> <C>
First mortgage loans $ 137,331,895 $ 132,745,973
Loans to depositors, secured by
savings accounts 1,944,489 1,662,078
Consumer and automobile loans 8,054,123 8,706,448
Second mortgage loans 4,990,937 4,909,851
Other loans 4,427,739 2,371,898
----------- -------------
Total gross loans 156,749,183 150,396,248
Reserve for loan losses (540,068) (528,084)
Loans in process (2,809,979) (3,628,736)
Unamortized deferred loan costs, net
of origination fees 216,800 166,915
------------ ------------
Net loans receivable $ 153,615,936 $ 146,406,343
============= =============
</TABLE>
Activity in the allowance for loan losses is summarized as
follows for the years ended June 30:
<TABLE>
<CAPTION>
1999 1998
---------- ---------
<S> <c. <C>
Balance at beginning of year $ 528,084 $ 481,543
Provision charged to income 83,549 65,955
Charge-offs (71,907) (32,394)
Recoveries 342 12,980
---------- ---------
Balance at end of year $ 540,068 $ 528,084
========= =========
</TABLE>
The Savings Bank primarily grants first mortgage loans to
customers throughout southern Missouri. The loans are
typically secured by real estate or personal property.
As of June 30, 1999 and 1998, the total recorded investment in
impaired loans was $55,110 and $81,120, respectively as
recognized in conformity with SFAS No. 114, as amended by SFAS
No. 118. This amount was subject to allowances for credit
losses of $55,110 and $81,120, as of June 30, 1999 and 1998,
respectively. During 1999 and 1998, the average recorded
investment in impaired loans was $55,110 and $86,579,
respectively. Interest income recognized in 1998 during the
period in which the underlying loans were considered impaired
was $956. There was no interest income recognized in 1999 on
impaired loans.
30
<PAGE>
FIRST BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - - - - - - - - - - - - - - - - - - - -
Years Ended June 30, 1999, 1998 and 1997
(7) ACCRUED INTEREST RECEIVABLE
Accrued interest receivable at June 30 is summarized as follows:
<TABLE>
<CAPTION>
1999 1998
----------- ----------
<S> <C> <C>
Investment securities $ 56,860 $ 45,168
Mortgage-backed securities 8,799 8,799
Loans receivable 706,815 610,447
---------- ----------
Total $ 772,474 $ 664,414
========== ==========
</TABLE>
(8) PROPERTY AND EQUIPMENT
Property and equipment at June 30 consists of the following:
<TABLE>
<CAPTION>
1999
------------------------------------------------------
Accum. Valuation
Category Cost Deprec. Reserve Net
---------------------------- ----------- ---------- --------- -----------
<S> <C> <C> <C> <C>
Land $ 470,777 $ - $ - $ 470,777
Buildings 3,162,798 915,073 - 2,247,725
Office furniture,
fixtures and equipment 1,920,399 1,113,592 - 806,807
Automobiles 117,047 58,263 - 58,784
Investment real estate 1,538,397 199,542 271,147 1,067,708
----------- ---------- --------- -----------
Total $ 7,209,418 $ 2,286,470 $ 271,147 $ 4,651,801
=========== =========== ========= ===========
</TABLE>
<TABLE>
<CAPTION>
1998
------------------------------------------------------
Accum. Valuation
Category Cost Deprec. Reserve Net
------------------------ ----------- ---------- --------- ------------
<S> <C> <C> <C> <C>
Land $ 448,777 $ - $ - $ 448,777
Buildings 2,893,596 831,307 - 2,062,289
Office furniture,
fixtures and equipment 1,739,449 976,427 - 763,022
Automobiles 102,350 52,018 - 50,332
Investment real estate 1,420,618 176,376 271,147 973,095
----------- ---------- --------- ------------
Total $ 6,604,790 $2,036,128 $ 271,147 $ 4,297,515
=========== ========== ========= ============
</TABLE>
Depreciation charges to operations for the years ended June 30,
1999, 1998 and 1997 were $278,802, $223,681, and $178,489,
respectively. The depreciation policies followed by the
Company are described in Note (1).
A valuation reserve was established in a prior year for certain
investment real estate to adjust the property to its net
realizable value.
31
<PAGE>
FIRST BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - - - - - - - - - - - - - - - - - - - -
Years Ended June 30, 1999, 1998 and 1997
(9) CUSTOMER DEPOSITS
A summary of deposit accounts at June 30 is as follows:
<TABLE>
<CAPTION>
1999 1998
-------------------- ----------------------
Amount % Amount %
------------ ------ -------------- ------
<S> <C> <C> <C> <C>
Noninterest-bearing checking $ 5,145,977 3.4% $ 4,462,915 3.2%
Interest-bearing checking 24,683,993 16.3 21,967,908 15.6
Super Saver money market 21,420,529 14.2 17,550,514 12.4
Savings 10,206,759 6.8 8,112,612 5.7
Certificates of Deposit: 89,752,489 59.3 88,964,799 63.1
------------ ----- ------------- -----
Total $ 151,209,747 100.0% $ 141,058,748 100.0%
============= ====== ============= ======
</TABLE>
The aggregate amount of jumbo certificates of deposit with a
minimum denomination of $100,000 was $18,102,733 and $14,563,772
at June 30, 1999 and 1998, respectively.
At June 30, 1999, scheduled maturities of certificates of
deposit are as follows:
<TABLE>
<CAPTION>
<S> <C>
2000 $ 65,198,382
2001 17,817,987
2002 4,522,375
2003 2,163,379
2004 and later 50,366
-------------
$ 89,752,489
=============
</TABLE>
32
</page>
FIRST BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - - - - - - - - - - - - - - - - - - - -
Years Ended June 30, 1999, 1998 and 1997
(10) ADVANCES FROM FEDERAL HOME LOAN BANK AND OTHER BORROWED FUNDS
The advances listed below were obtained from the Federal Home
Loan Bank of Des Moines and secured by Federal Home Loan Bank
stock, loans, investment securities and deposit accounts.
Interest is payable monthly. Advances from the Federal Home
Loan Bank at June 30 are summarized as follows:
<TABLE>
caption>
1999 1998
------------ ------------
<S> <C> <C>
Two year; 5.74% fixed; matures November 1998 - 2,000,000
Three year; 5.85% fixed; matures November 1999 2,000,000 2,000,000
Two year; 6.19% fixed; matures June 1999 - 1,500,000
Five year; 5.90% fixed; matures January 2003 200,000 200,000
------------ ------------
Total $ 2,200,000 $ 5,700,000
============ ============
</TABLE>
The fixed rate advances shown above shall be subject to a
prepayment fee equal to 100 percent of the present value of the
monthly lost cash flow to the Federal Home Loan Bank based upon
the difference between the contract rate on the advance and the
rate on an alternative qualifying investment of the same
remaining maturity. Advances may be prepaid without a
prepayment fee if the rate on an advance being prepaid is equal
to or below the current rate for an alternative qualifying
investment of the same remaining maturity.
Maturities of Federal Home Loan Bank advances and other borrowed
funds are as follows:
<TABLE>
<CAPTION>
Aggregate
Annual
Year Ended June 30 Maturities
------------------ -------------
<S> <C>
2000 $ 2,000,000
2001 -
2002 -
2003 200,000
------------
$ 2,200,000
=============
</TABLE>
Interest expense on borrowed funds for the years ended June 30
is summarized below:
<TABLE>
<CAPTION>
1999 1998 1997
----------- --------- ---------
<S> <C> <C> <C>
Advances from Federal Home Loan
Bank $ 270,131 $ 992,959 $1,111,990
Other borrowings - 3,954 3,848
----------- --------- ---------
Total $ 270,131 $ 996,913 $1,115,838
============ ========= =========
</TABLE>
33
<PAGE>
FIRST BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - - - - - - - - - - - - - - - - - - - -
Years Ended June 30, 1999, 1998 and 1997
(11) INCOME TAXES
The provision for income tax expense for the years ended June
30 is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Current $1,104,919 $ 858,842 $ 744,220
Deferred (42,891) 32,474 39,759
---------- ---------- ----------
Total $1,062,028 $ 891,316 $ 783,979
========== ========== ==========
</TABLE>
The provision for income taxes differs from that computed at
the statutory corporate rate, 34% for the years ended June 30,
1999, 1998 and 1997, as follows:
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Tax at statutory rate $ 979,340 $ 930,512 $ 747,110
Increase (decrease) in taxes
resulting from:
State taxes, net of
federal benefit 81,897 68,966 56,179
Tax-exempt income (18,211) (24,665) (32,586)
Employee benefit plans 32,404 (85,975) 12,183
Net effect of other
book/tax differences (13,402) 2,478 1,093
----------- ---------- ---------
Provision for income taxes $1,062,028 $ 891,316 $ 783,979
========= ========= =========
</TABLE>
Deferred income tax expense results from timing differences in
the recognition of income and expense for tax and financial
reporting purposes. The sources of the differences and the
related tax effects for the years ended June 30 were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Difference in depreciation methods
used for tax purposes and
financial statements $ 27,755 $ 26,281 $ 48,496
Effect of health insurance plan
reserves not currently deductible (5,737) 6,010 5,431
Use of different methods for computing
loan loss reserves for tax purposes
and financial statements (26,160) (28,083) 14,246
Use of different methods for computing
net deferred loan costs/fees for tax
purposes and financial statements 12,672 17,741 17,932
Other book/tax differences (51,421) 10,525 (46,346)
---------- -------- --------
Increase in deferred income taxes $ (42,891) $ 32,474 $ 39,759
========= ========= =========
</TABLE>
34
<PAGE>
FIRST BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - - - - - - - - - - - - - - - - - - - -
Years Ended June 30, 1999, 1998 and 1997
(11) INCOME TAXES - (CONTINUED)
The components of deferred tax assets and liabilities as of June
30, 1999 and 1998 consisted of:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Deferred tax assets:
Reserve for loan losses $ 199,825 $ 195,391
Reserve for losses on uncollected funds - 12,580
Valuation reserve on investment real estate 92,190 92,190
Unrealized losses on securities available-for-sale 13,439 720
Health insurance plan reserves not
currently deductible 6,792 1,055
Book amortization in excess of tax amortization 17,194 -
Nontemporary decline in security held-to-maturity - 14,800
Unearned compensation 9,020 10,842
Other 33,878 -
--------- ---------
Total gross deferred tax benefits $ 372,338 $ 327,578
--------- ---------
Deferred tax liabilities:
Tax depreciation in excess of book depreciation $ 264,984 $ 237,229
Federal Home Loan Bank stock dividends 60,936 60,936
Bad debt reserves for tax purposes in excess of
base year bad debt reserve 114,489 136,215
Unrealized gains on securities available-for-sale 10,219 46,282
Installment sale recognition 7,136 9,141
Unamortized deferred loan costs, net of fees 109,146 96,474
Other - 10,735
--------- ---------
Total gross deferred tax liabilities $ 566,910 $ 597,012
--------- ---------
Net deferred tax liabilities $(194,572) $(269,434)
========== =========
</TABLE>
In accordance with SFAS No. 109, a deferred tax liability has
not been recognized for tax basis bad debt reserves of
approximately $2,145,621 of the Savings Bank that arose in tax
years that began prior to December 31, 1987. At June 30, 1999
the amount of the deferred tax liability that had not been
recognized was approximately $793,880. This deferred tax
liability could be recognized if, in the future, there is a
change in federal tax law, the Savings Bank fails to meet the
definition of a 'qualified savings institution,' as defined by
the Internal Revenue Code, certain distributions are made with
respect to the stock of the Savings Bank, or the bad debt
reserves are used for any purpose other than absorbing bad
debts. In August 1996, new legislation was enacted which
provided for the recapture into taxable income of certain
amounts previously deducted as additions to the bad debt
reserves for income tax purposes. The Savings Bank began
changing its method of determining bad debt reserves for tax
purposes during 1996. The amounts to be recaptured for income
tax reporting purposes are considered by the Savings Bank in
the determination of the net deferred tax liability.
35
<PAGE>
FIRST BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - - - - - - - - - - - - - - - - - - - -
Years Ended June 30, 1999, 1998 and 1997
(12) EMPLOYEE BENEFIT PLANS
The Savings Bank participates in a multiple-employer defined
benefit pension plan covering substantially all employees.
Separate actuarial valuations are not available for each
participating employer, nor are plan assets segregated. Pension
expense for the years ended June 30, 1999, 1998 and 1997 was
approximately $4,220, $3,800, and $3,681, respectively. Plan
assets exceeded the present value of accumulated plan benefits
at June 30, 1999, the latest actuarial valuation date.
The Company established an internally-leveraged ESOP in December
1993 that covers all employees that are age 21 or older and have
completed one year of service with the Savings Bank. The Savings
Bank makes annual contributions to the ESOP equal to the ESOP's
debt service in addition to dividends received by the ESOP. All
dividends received by the ESOP are used to pay debt service. The
ESOP shares initially were pledged as collateral for its debt to
the Company. As the debt is repaid, shares are released from
collateral and allocated to active participants, in proportion to
their compensation relative to total compensation of active
participants. The loan will be repaid principally from the
Savings Bank's discretionary contributions to the ESOP over a
period of ten years. As of June 30, 1999 the loan had an
outstanding balance of $515,409 and an interest rate of 6%.
The Company accounts for its ESOP in accordance with Statement
of Position 93-6, "Employer's 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 as a reduction of
stockholders' equity in the consolidated balance sheets. As
shares are committed to be released from collateral, the Company
reports compensation expense equal to the current market price
of the shares, and the shares become outstanding for earnings
per share computations. Dividends on allocated ESOP shares are
recorded as a reduction of retained earnings; dividends on
unallocated ESOP shares are recorded as a reduction of debt and
accrued interest. Benefits generally become 20% vested after
each year of credited service beyond two years. 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 Savings Bank recorded $445,117 of ESOP
compensation expense in 1999, $496,302 in 1998 and $302,763 in
1997.
A summary of ESOP shares at June 30, 1999 is as follows:
Allocated shares 157,371
Shares committed for release 37,698
Unreleased shares 94,958
----------
Total 290,027
==========
Fair value of unreleased shares $1,092,017
==========
36
<PAGE>
FIRST BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - - - - - - - - - - - - - - - - - - - -
Years Ended June 30, 1999, 1998 and 1997
(12) EMPLOYEE BENEFIT PLANS - (CONTINUED)
The Savings Bank has adopted a Management Recognition Plan ("MRP")
for the benefit of the directors, officers and employees of the
Savings Bank. The MRP provides directors, officers and employees
of the Company with a proprietary interest in the Company in a
manner designed to encourage such persons to remain with the
Savings Bank. The MRP is managed by trustees comprised of the
directors of the Company. The plan authorizes the Company to grant
up to 60,834 shares of the Company stock, all of which are awarded
as of June 30, 1999. These shares represent unearned compensation
and have been accounted for as a reduction of stockholders'
equity. Such awards vest at the rate of 20% at the end of each
twelve months. Vesting is accelerated upon retirement. During
the year ended June 30, 1999 all of the MRP shares became fully
vested. The Savings Bank recorded $31,375 of compensation expense
under the MRP in 1999, $52,250 in 1998 and $55,658 in 1997.
The Company has reserved 304,174 shares of common stock under the
1994 Stock Option and Incentive Plan (Stock Option Plan) for the
benefit of certain officers, employees and directors. The Stock
Option Plan is administered by a committee of the Board of
Directors. Management intends that options granted under the
Stock Option Plan constitute both incentive and non-incentive
stock options.
Options granted to non-employee directors will constitute
non-incentive stock options. With respect to incentive stock
options, the option exercise price may be no less than the fair
market value of the Company's common stock on the date of grant.
All options expire no later than ten years from the date of grant.
The option grants vest at a rate of 20% at the end of each 12
months.
A summary of the Company's stock option activity, and related
information for the years ended June 30 follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------------------- ------------------ ---------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
-------- ------- -------- ------- ---------- ------
<S> <C> <C> <C> <C> <C> <C>
Outstanding - beginning of year 193,980 5.06 247,320 5.05 258,300 5.05
Granted - - - - - -
Exercised (25,220) 5.00 (52,692) 5.04 (10,980) 5.00
Forfeited (328) 5.00 (648) 5.00 - -
-------- -------- --------
Outstanding - end of year 168,432 5.06 193,980 5.06 247,320 5.05
======== ========= ========
Exercisable at end of year 168,032 5.06 140,512 5.05 140,784 5.05
======== ========= ========
Exercise prices for options outstanding as of June 30, 1999
ranged from $5.00 to $7.75. The weighted-average remaining
contractual life of those options is 4.5 years.
37
<PAGE>
FIRST BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - - - - - - - - - - - - - - - - - - - -
Years Ended June 30, 1999, 1998 and 1997
(12) EMPLOYEE BENEFIT PLANS - (CONTINUED)
The Company accounts for stock options in accordance with SFAS
No. 123, "Accounting for Stock-Based Compensation". As permitted
by the standard, the Company has elected to continue following the
guidance of Accounting Principles Board Opinion No. 25 (APB No.
25), "Accounting for Stock Issued to Employees". Under APB No.
25, no compensation expense is recognized because the exercisable
price of the Company's stock options equals or exceeds the market
price of the stock on the date of grant. The effect of applying
the fair value method required by SFAS No. 123 to the Company's
stock option awards results in net income and earnings per share
that are not materially different from amounts reported in the
consolidated statements of income.
All references in this note to the number of shares and per share
amounts have been restated to reflect the 100% stock dividend
during 1998.
(13) EARNINGS PER SHARE
The following information shows the amounts used in computing
earnings per share and the effect on income and the weighted
average number of shares of dilutive potential common stock. The
amounts in the income columns represent the numerator and the
amounts in the shares columns represent the denominator.
1999 1998 1997
------------------------------- ------------------------------ -------------------------------
Per Share Per Share Per Share
Income Shares Amount Income Shares Amount
Income Shares Amount
----------- --------- ------- --------- --------- ------ -------------- ---------- ------
Basic EPS:
Income available
to Common
Stockholders $1,818,385 2,018,005 $.90 $1,845,483 2,039,290 $.90 $1,413,403 2,174,446 $.65
===== ===== ======
Effect of
dilutive securities - 100,125 - 121,818 - 107,904
---------- --------- ----------- ---------- ----------- ----------
Diluted EPS:
Income available to
stockholders plus
stock options $1,818,385 2,118,130 $.86 $1,845,483 2,161,108 $.85 $1,413,403 2,282,350 $.62
============= ========= ===== =========== ========= ===== ========== ========= ======
38
<PAGE>
FIRST BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - - - - - - - - - - - - - - - - - - - -
Years Ended June 30, 1999, 1998 and 1997
(14) RELATED PARTY TRANSACTIONS
Certain employees, officers and directors are engaged in
transactions with the Savings Bank in the ordinary course of
business. It is the Savings Bank's policy that all related party
transactions are conducted at "arm's length" and all loans and
commitments included in such transactions are made on
substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable
transactions with other customers. A summary of the changes in
outstanding loans to employees, officers and directors for the
years ended June 30 is as follows:
Beginning balance $ 1,053,077 $ 1,217,653
Originations and advances 568,405 371,032
Principal repayments (477,947) (535,608)
------------ ------------
Ending balance $ 1,143,535 $ 1,053,077
=========== ===========
(15) COMMITMENTS AND CONTINGENCIES
In the ordinary course of business, the Savings Bank has various
outstanding commitments that are not reflected in the accompanying
consolidated financial statements. Since some of the commitments
are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash
requirements. The principal commitments of the Savings Bank are
as follows:
Letters of Credit - Outstanding standby letters of credit were
approximately $339,060 at June 30, 1999.
Loan Commitments - The Savings Bank had outstanding firm
commitments to originate real estate loans in the amount of
$1,510,100 at June 30, 1999.
Lines of Credit - The unused portion of lines of credit on
commercial loans were approximately $3,008,766 at June 30, 1999.
Loan in Process - The Savings Bank has recorded loans in process
representing the undisbursed portion of loans in the amount of
$2,809,979 at June 30, 1999. These amounts were recorded as
loans receivable, with a corresponding reduction for such loans
in process as reflected in Note (6).
At June 30, 1999, the Savings Bank had an Irrevocable Standby
Letter of Credit issued on its behalf from the Federal Home
Loan Bank of Des Moines in the amount of $300,000, expiring
May 26, 2000.
39
<PAGE>
FIRST BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - - - - - - - - - - - - - - - - - - - -
Years Ended June 30, 1999, 1998 and 1997
(16) REGULATORY CAPITAL REQUIREMENTS
The Savings Bank is subject to various regulatory capital
requirements administered by its primary federal regulator, the
Office of Thrift Supervision ("OTS"). Failure to meet the minimum
regulatory capital requirements can initiate certain mandatory,
and possible additional discretionary actions by regulators, that
if undertaken, could have a direct material affect on the Savings
Bank and the consolidated financial statements. Under the
regulatory capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Savings Bank must meet
specific capital guidelines involving quantitative measures of the
Savings Bank's assets, liabilities, and certain off-balance-sheet
items as calculated under regulatory accounting practices. The
Savings Bank's capital amounts and classification under the prompt
corrective action guidelines are also subject to qualitative
judgments by the regulators about components, risk weightings, and
other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Savings Bank to maintain minimum amounts and
ratios (set forth in the table below) of total risk-based capital
and Tier 1 capital to risk-weighted assets (as defined in the
regulations), Tier 1 capital to adjusted total assets (as
defined), and tangible capital to adjusted total assets (as
defined). Management believes, as of June 30, 1999, that the
Savings Bank meets all capital adequacy requirements to which it
is subject.
As of June 30, 1999, the most recent notification from the OTS,
the Savings Bank was categorized as well-capitalized under the
framework for prompt corrective action. To be categorized as
well-capitalized, the Savings Bank must maintain minimum total
risk-based, Tier 1 risk-based, and core capital leverage ratios as
set forth in the table. There are no conditions or events since
that notification that management believes have changed the
institution's category.
40
<PAGE>
FIRST BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - - - - - - - - - - - - - - - - - - - -
Years Ended June 30, 1999, 1998 and 1997
(16) REGULATORY CAPITAL REQUIREMENTS - (CONTINUED)
The Savings Bank's actual capital amounts and ratios are also
presented in the table.
</TABLE>
<TABLE>
<CAPTION>
To Be Well-
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
-------------- ----------------- -----------------
Amount Ratio Amount Ratio Amount Ratio
------- ----- ---------- ------ --------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
As of June 30, 1999:
Total Risk-Based Capital
(to Risk-Weighted Assets) $ 19,909 15.7% > $10,124 > 8.0% > $ 12,655 > 10.0%
Core Capital
(to Adjusted Tangible Assets) 19,676 11.2% > 7,041 > 4.0% > 8,801 > 5.0%
Tangible Capital
(to Tangible Assets) 19,676 11.2% > 2,640 > 1.5% N/A
Tier 1 Capital
(to Risk-Weighted Assets) 19,676 15.6% N/A > 7,593 > 6.0%
As of June 30, 1998:
Total Risk-Based Capital
(to Risk-Weighted Assets) $ 19,070 16.3% > 9,356 > 8.0% > $ 11,695 > 10.0%
Core Capital
(to Adjusted Tangible Assets) 18,862 11.2% > 6,765 > 4.0% > 8,456 > 5.0%
Tangible Capital
(to Tangible Assets) 18,862 11.2% > 2,537 > 1.5% N/A
Tier 1 Capital
(to Risk-Weighted Assets) 18,862 16.1% N/A > 7,017 > 6.0%
</TABLE>
(17) ADVERTISING COSTS
The Company incurred $83,634, $105,688, and $73,235 in
non-direct response advertising costs during the years ended
1999, 1998 and 1997, respectively. The Company incurred no
direct response advertising costs during these years.
(18) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the
fair value of each class of financial instruments:
Cash and cash equivalents and certificates of deposit - For
these short-term instruments, the carrying amount
approximates fair value.
41
</page>
FIRST BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - - - - - - - - - - - - - - - - - - - -
Years Ended June 30, 1999, 1998 and 1997
(18) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS -
(CONTINUED)
Available-for-sale and held-to-maturity securities - Fair values
for investment securities equal quoted market prices, if
available. If quoted market prices are not available, fair
values are estimated based on quoted market prices of
similar securities.
Loans receivable - The fair value of loans is estimated by
discounting the future cash flows using the current rates
at which similar loans would be made to borrowers with
similar credit ratings and for the same remaining
maturities. Loans with similar characteristics are
aggregated for purposes of the calculations. The carrying
value of accrued interest receivable approximates its fair
value.
Investment in Federal Home Loan Bank stock - Fair value of the
Savings Bank's investment in Federal Home Loan Bank stock
approximates the carrying value as no ready market exists
for this investment and the stock could only be sold back
to the Federal Home Loan Bank.
Deposits - The fair value of demand deposits, savings accounts
and interest-bearing demand deposits is the amount payable
on demand at the reporting date (i.e., their carrying
amount). The fair value of fixed-maturity time deposits
is estimated using a discounted cash flow calculation that
applies the rates currently offered for deposits of similar
remaining maturities. The carrying amount of accrued
interest payable approximates its fair value.
Federal Home Loan Bank advances - Rates currently available to
the Savings Bank for advances with similar terms and
remaining maturities are used to estimate fair value of
existing advances. The carrying amount of accrued
interest payable approximates its fair value.
Commitments to extend credit, letters of credit and lines of
credit - The fair value of commitments is estimated using
the fees currently charged to enter into similar
agreements, taking into account the remaining terms of the
agreements and the present credit worthiness of the
counterparties. For fixed-rate loan commitments, fair
value also considers the difference between current levels
of interest rates and the committed rates. The fair value
of letters of credit and lines of credit is based on fees
currently charged for similar agreements or on the
estimated cost to terminate or otherwise settle the
obligations with the counterparties at the reporting date.
The following table presents estimated fair values of the
Company's financial instruments. The fair values of certain
of these instruments were calculated by discounted expected
cash flows, which involves significant judgments by management
and uncertainties. Fair value is the estimated amount at which
financial assets or liabilities could be exchanged in a current
transaction between willing parties, other than in a forced or
liquidation sale. Because no market exists for certain of these
financial instruments and because management does not intend to
sell these financial instruments, the Company does not know
whether the fair values shown below represent values at which
the respective financial instruments could be sold individually
or in the aggregate.
42
</page>
FIRST BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - - - - - - - - - - - - - - - - - - - -
Years Ended June 30, 1999, 1998 and 1997
(18) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS - (CONTINUED)
<TABLE>
<CAPTION>
June 30, 1999
--------------------------
Carrying Fair
Amount Value
------------ -----------
<S> <C> <C>
Financial assets:
Cash and cash equivalents $ 10,721,664 $ 10,721,664
Certificates of deposit 1,209,000 1,209,000
Federal funds sold 245,000 245,000
Available-for-sale securities 3,216,799 3,216,799
Held-to-maturity securities 1,543,948 1,529,597
Investment in Federal Home Loan Bank stock 1,057,600 1,057,600
Available-for-sale mortgage-backed securities 550,296 550,296
Loans, net of allowance for loan losses 153,615,936 154,498,000
Accrued interest receivable 772,474 772,474
Financial liabilities:
Deposits 151,209,747 150,999,000
Federal Home Loan Bank advances 2,200,000 2,196,000
Unrecognized financial instruments (net of contract amount)
Commitments to extend credit - -
Letters of credit - -
Unused lines of credit - -
June 30, 1998
---------------------------
Carrying Fair
Amount Value
------------- -------------
Financial assets:
Cash and cash equivalents $ 11,862,951 $ 11,862,951
Certificates of deposit 2,205,000 2,205,000
Available-for-sale securities 2,701,208 2,701,208
Held-to-maturity securities 1,113,907 1,125,763
Investment in Federal Home Loan Bank stock 1,057,600 1,057,600
Available-for-sale mortgage-backed securities 702,722 702,722
Loans, net of allowance for loan losses 146,406,343 147,966,000
Accrued interest receivable 664,414 664,414
Financial liabilities:
Deposits 141,058,748 141,173,000
Federal Home Loan Bank advances 5,700,000 5,703,000
Unrecognized financial instruments (net of contract amount)
Commitments to extend credit - -
Letters of credit - -
Unused lines of credit - -
</TABLE>
43
</page>
FIRST BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - - - - - - - - - - - - - - - - - - - -
Years Ended June 30, 1999, 1998 and 1997
(19) PARENT COMPANY ONLY FINANCIAL INFORMATION
The following condensed statement of financial condition and
condensed statements of operations and cash flows for First
Bancshares, Inc. should be read in conjunction with the
consolidated financial statements and notes thereto.
<TABLE>
<CAPTION>
Condensed Statements of Financial Condition
ASSETS June 30, 1999 June 30, 1998
------- -------------- -------------
<S> <C> <C>
Cash $ 1,206,584 $ 1,856,647
Certificates of deposit 85,839 210,000
Investment securities available-for-sale, at fair value 487,694 741,250
Investment in subsidiary 21,198,150 20,408,871
Loan to ESOP 515,409 708,321
Property and equipment, less accumulated
depreciation 632,438 535,928
Other assets 161,541 41,554
------------ ------------
Total assets $ 24,287,655 $ 24,502,571
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Due to subsidiary $ 12,351 $ 23,171
Accrued expenses 20,378 73,162
Deferred income taxes, net 5,872 41,568
Stockholders' equity 24,249,054 24,364,670
------------ ------------
Total liabilities and stockholders' equity $ 24,287,655 $ 24,502,571
============ ============
</TABLE>
<TABLE>
<CAPTION>
Condensed Statements of Income
Year Ended Year Ended Year Ended
June 30, 1999 June 30, 1998 June 30, 1997
------------- ------------- -------------
<S> <C> <C> <C>
Income
Equity in earnings of subsidiary $ 1,778,557 $ 1,789,186 $ 1,245,031
Interest income 64,588 96,705 135,556
Gain on sale of investments 37,203 41,444 205,938
Gain on sale of property and equipment 21,735 - -
Other 32,041 26,129 27,698
----------- ----------- -----------
Total income 1,934,124 1,953,464 1,614,223
----------- ----------- -----------
Expenses
Professional fees 16,212 13,501 12,427
Printing and office supplies 12,973 9,936 9,201
Interest 155 978 22,191
Other 73,134 57,269 64,102
Income tax 13,265 26,297 92,899
----------- ----------- -----------
Total expenses 115,739 107,981 200,820
----------- ----------- -----------
Net income $ 1,818,385 $ 1,845,483 $ 1,413,403
=========== =========== ===========
</TABLE>
44
</page>
FIRST BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - - - - - - - - - - - - - - - - - - - -
Years Ended June 30, 1999, 1998 and 1997
(19) PARENT COMPANY ONLY FINANCIAL INFORMATION - (CONTINUED)
<TABLE>
<CAPTION>
Condensed Statements of Cash Flows
Year Ended Year Ended Year Ended
June 30, 1999 June 30, 1998 June 30, 1997
------------- ------------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 1,818,385 $ 1,845,483 $ 1,413,403
Adjustments to reconcile net income to net
cash provided from operating activities:
Equity in earnings of subsidiary (1,778,557) (1,789,186) (1,245,031)
Depreciation expense 12,496 10,318 10,196
Gain on sale of investments (37,203) (41,444) (205,938)
Gain on sale of property and equipment (21,735) - -
Net change in operating accounts:
Deferred income taxes, net (13,048) 1,742 2,165
Other assets (119,987) 24,570 2,028
Liabilities (63,604) 46,003 20,896
------------ ----------- -----------
Net cash from (used in) operating activities (203,253) 97,486 (2,281)
------------ ----------- -----------
Cash flows from investing activities:
Dividends from subsidiary 1,500,000 1,500,000 1,500,000
Principal payment on ESOP loan 174,533 165,939 161,258
Purchase of investment securities (233,406) (248,000) (250,000)
Proceeds from maturities of investments 300,000 500,000 560,000
Proceeds from sales of investments 137,203 231,948 832,277
Purchase of property and equipment (200,769) (1,133) (397,507)
Proceeds from sales of property and
equipment 113,500 - 654,234
Purchase of South Central Missouri Title, Inc stock - (5,000) -
Net change in certificates of deposit 124,161 (200,000) 110,000
--------- --------- ---------
Net cash from investing activities 1,915,222 1,943,754 3,170,262
--------- --------- ---------
Cash flows from financing activities:
Proceeds from borrowed funds - - 50,000
Repayment of borrowed funds - (50,000) -
Net proceeds from issuance of common stock 126,100 252,715 54,900
Cash dividends paid (279,195) (223,153) (212,471)
Purchase of treasury stock (2,208,937) (234,507) (3,306,588)
----------- ----------- -----------
Net cash used in financing activities (2,362,032) (254,945) (3,414,159)
----------- ----------- -----------
Net increase (decrease) in cash (650,063) 1,786,295 (246,178)
Cash at beginning of period 1,856,647 70,352 316,530
---------- ---------- ----------
Cash at end of period $ 1,206,584 $ 1,856,647 $ 70,352
=========== =========== ===========
</TABLE>
45
</page>
COMMON STOCK INFORMATION
The common stock of First Bancshares, Inc. is traded on The
Nasdaq Stock Market under the symbol "FBSI". As of September 3,
1999, there were 807 stockholders and 2,049,821 shares of common
stock outstanding (including unreleased ESOP shares of 94,958).
This does not reflect the number of persons or entities who hold
stock in nominee or "street name."
On August 31, 1998 and November 30, 1998, the Company declared a
$.03 common stock dividend payable September 30, and December 31, 1998
to stockholders of record on September 15, and December 15, 1998,
respectively. On February 26, May 28, and August 31, 1999, the Company
declared a $.04 common stock dividend payable March 31, June 30, and
September 30, 1999 to stockholders of record on March 16, June 16, and
September 16, 1999, respectively. Dividend payments by the Company are
dependent primarily on dividends received by the Company from the
Savings Bank. Under Federal regulations, the dollar amount of
dividends a savings and loan association may pay is dependent upon the
association's capital position and recent net income. Generally, if an
association satisfies its regulatory capital requirements, it may make
dividend payments up to the limits prescribed in the OTS regulations.
However, institutions that have converted to stock form of ownership
may not declare or pay a dividend on, or repurchase any of, its common
stock if the effect thereof would cause the regulatory capital of the
institution to be reduced below the amount required for the liquidation
account which was established in accordance with the OTS regulations
and the Savings Bank's Plan of Conversion. In addition, under Missouri
law, the Company is generally prohibited from declaring and paying
dividends at a time when the Company's net assets are less than its
stated capital or when the payment of dividends would reduce the
Company's net assets below its stated capital.
The following table sets forth market price and dividend
information for the Company's common stock. All per share amounts
prior to the stock dividend have been adjusted to reflect the stock
dividend.
<TABLE>
<CAPTION>
Fiscal 1998 High Low Dividend
- ----------- --------- ------- ---------
<S> <C> <C> <C>
First Quarter $12.8125 $10.00 $.025
Second Quarter $17.50 $11.8125 $.025
Third Quarter $17.75 $14.00 $.03
Fourth Quarter $16.00 $12.50 $.03
Fiscal 1999
First Quarter $13.75 $12.50 $.03
Second Quarter $13.375 $12.50 $.03
Third Quarter $13.25 $11.75 $.04
Fourth Quarter $12.625 $10.75 $.04
</TABLE>
46
</page>
<TABLE>
<CAPTION>
DIRECTORS AND OFFICERS
FIRST BANCSHARES, INC. FIRST HOME SAVINGS BANK
<S> <C>
DIRECTORS: DIRECTORS:
Stephen H. Romines Stephen H. Romines
Chairman of the Board Chairman of the Board
Harold F. Glass Harold F. Glass
Partner Partner
Millington, Glass & Walters, Attorneys at Law Millington, Glass & Walters, Attorneys at Law
John G. Moody John G. Moody
Judge of the 44th Judge of the 44th
Missouri Judicial Circuit Missouri Judicial Circuit
Dr. James F. Moore Dr. James F. Moore
Director of State Fruit Experiment Station of Director of State Fruit Experiment Station of
Southwest Missouri State University Southwest Missouri State University
Almeta Hardebeck Charles R. Cunningham
Loan Officer at the Sparta Branch Retired Manager of the Marshfield Branch
First Home Savings Bank First Home Savings Bank
OFFICERS: OFFICERS:
Stephen H. Romines Stephen H. Romines
President and Chief Executive Officer President and Chief Executive Officer
Peter M. Medlen Peter M. Medlen
Vice-President Executive Vice-President
Susan J. Uchtman, CPA Susan J. Uchtman, CPA
Chief Financial Officer Chief Financial Officer
Gina Gunnels Colleen B. Stofer
Secretary and Treasurer Secretary
Diana Lewis
Treasurer
</TABLE>
47
</page>
CORPORATE INFORMATION
CORPORATE HEADQUARTERS TRANSFER AGENT
142 East First Street Registrar and Transfer Co.
P.O. Box 777 10 Commerce Drive
Mountain Grove, Missouri Cranford, New Jersey
07016
INDEPENDENT AUDITORS (800) 866-1340
Kirkpatrick, Phillips & Miller, CPAs, P.C. COMMON STOCK
Springfield, Missouri
Traded on The Nasdaq
Stock Market
GENERAL COUNSEL Nasdaq Symbol: FBSI
Harold F. Glass
Springfield, Missouri
SPECIAL COUNSEL
Breyer & Associates, P.C.
Washington, D.C.
ANNUAL MEETING
The Annual Meeting of Stockholders will be held Wednesday,
October 20, 1999, at 2:00 p.m., Central Time, at the Days Inn
Conference Room, 300 East 19th Street, Mountain Grove, Missouri.
____________________________________________________________________
A COPY OF THE FORM 10-KSB AS FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION WILL BE FURNISHED WITHOUT CHARGE TO STOCKHOLDERS AS OF
THE RECORD DATE FOR VOTING AT THE ANNUAL MEETING OF STOCKHOLDERS
UPON WRITTEN REQUEST TO THE SECRETARY, FIRST BANCSHARES, INC.,
P.O. BOX 777, MOUNTAIN GROVE, MISSOURI 65711.
THE CORPORATION'S FORMS 10-KSB, 10-QSB AND OTHER DISCLOSURE
DOCUMENTS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
CAN BE OBTAINED FROM THE SEC HOME PAGE ON THE WORLD WIDE WEB
AT http://www.sec.gov.
48
</page>
Exhibit 21
Subsidiaries of the Registrant
</page>
Exhibit 21
Subsidiaries of the Registrant
<TABLE>
<CAPTION>
Parent
- -------
First Bancshares, Inc.
Percentage Jurisdiction or
Subsidiaries (a) of Ownership State of Incorporation
<S> <C> <C>
First Home Savings Bank 100% Missouri
South Central Missouri Title, Inc. 100% Missouri
Fybar Service Corporation (b) 100% Missouri
</TABLE>
- ----------------------
(a) The operation of the Company's wholly owned subsidiaries are
included in the Company's Consolidated Financial Statements contained
in the Annual Report attached hereto as Exhibit 13.
(b) Wholly owned subsidiary of First Home Savings Bank.
</page>
Exhibit 23
Consent of Auditors
(On CPA firm letterhead)
CONSENT OF INDEPENDENT AUDITORS
We have issued our report dated August 10, 1999, accompanying the
Consolidated Financial Statement incorporated by reference in the
Annual Report of First Bancshares, Inc. on Form 10-KSB for the year
ending June 30, 1999. We hereby consent to the incorporation by
reference of said reports in the Registration Statement of First
Bancshares, Inc. on Form S-8 (File No. 33-87234, effective December
9, 1994).
/s/Kirkpatrick, Phillips & Miller
KIRKPATRICK, PHILLIPS & MILLER, CPAs , P.C.
Springfield, Missouri
September 27, 1999
</page>
??
148148
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> JUN-30-1999
<CASH> 10721664
<INT-BEARING-DEPOSITS> 8032183
<FED-FUNDS-SOLD> 245000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 3216799
<INVESTMENTS-CARRYING> 1543948
<INVESTMENTS-MARKET> 1529597
<LOANS> 153615936
<ALLOWANCE> 540068
<TOTAL-ASSETS> 178721498
<DEPOSITS> 151209747
<SHORT-TERM> 2000000
<LIABILITIES-OTHER> 1062698
<LONG-TERM> 200000
0
0
<COMMON> 27188
<OTHER-SE> 24221865
<TOTAL-LIABILITIES-AND-EQUITY> 178721498
<INTEREST-LOAN> 12185082
<INTEREST-INVEST> 423128
<INTEREST-OTHER> 385650
<INTEREST-TOTAL> 12993860
<INTEREST-DEPOSIT> 6429120
<INTEREST-EXPENSE> 6699251
<INTEREST-INCOME-NET> 6294609
<LOAN-LOSSES> 83549
<SECURITIES-GAINS> 22766
<EXPENSE-OTHER> 4253684
<INCOME-PRETAX> 2880413
<INCOME-PRE-EXTRAORDINARY> 1818385
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1818385
<EPS-BASIC> .90
<EPS-DILUTED> .86
<YIELD-ACTUAL> 3.76
<LOANS-NON> 55000
<LOANS-PAST> 1359000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 528084
<CHARGE-OFFS> 71907
<RECOVERIES> 342
<ALLOWANCE-CLOSE> 540068
<ALLOWANCE-DOMESTIC> 540068
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 267000
</TABLE>
