UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------------
FORM 10-QSB
------------------------------------
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ending December 31, 1999
----------------------
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
----------- --------------
Commission File Number 0-22842
----------------------------
First Bancshares, Inc.
--------------------------
(Exact name of registrant as specified in its charter)
Missouri 43-1654695
- ----------------------------- --------------
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
142 East First St., Mountain Grove, MO 65711
- ------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(417) 926-5151
- ------------------------
(Registrant's telephone number)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding twelve months
(or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
--------- ---------
As of February 11, 2000, there were 1,972,220 shares of the
Registrant's Common Stock, $.01 par value per share, outstanding.
</page>
FIRST BANCSHARES, INC. AND SUBSIDIARIES
FORM 10-QSB
December 31, 1999
INDEX PAGE
PART I-FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (unaudited) 1
CONSOLIDATED STATEMENTS OF INCOME (unaudited) 2
CONSOLIDATED STATEMENTS OF CASH FLOWS(unaudited) 3-4
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited) 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(unaudited) 6-7
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 8-13
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 14
ITEM 2. CHANGES IN SECURITIES 14
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 14
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITIES HOLDERS 14
ITEM 5. OTHER INFORMATION 14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 14
SIGNATURES
</page>
<TABLE>
<CAPTION>
FIRST BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
- - - - - - - - - - - - - - - - - - - - - - - -
(Unaudited)
December 31, June 30,
1999 1999
------------ --------
ASSETS
(Dollars in thousands)
<S> <C> <C>
Cash and cash equivalents, including interest-bearing
accounts of $5,231 at December 31 and $8,032 at June 30 $ 8,471 $ 10,722
Federal funds sold 245 245
Certificates of deposit 1,209 1,209
Investment securities available-for-sale, at fair value 3,658 3,217
Investment securities held-to-maturity (estimated
fair value $1,606 at December 31 and $1,530 at June 30) 1,625 1,544
Investment in Federal Home Loan Bank stock, at cost 1,058 1,058
Mortgage backed certificates available-for-sale, at fair value 486 550
Loans receivable held-for-investment, net (includes reserves for
loan losses of $578 at December 31 and $540 at June 30) 161,782 153,616
Accrued interest receivable 827 772
Prepaid expenses 127 91
Property and equipment, less accumulated depreciation
and valuation reserves 5,547 4,652
Real estate owned 64 -
Intangible assets, less accumulated amortization 851 885
Other assets 9 160
---------- ----------
Total assets $ 185,959 $ 178,721
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Customer deposits $ 152,532 $ 151,210
Advances from Federal Home Loan Bank 8,159 2,200
Other borrowed funds 29 -
Income taxes payable - current 101 196
Accrued expenses and accounts payable 597 672
Deferred income taxes 205 194
---------- ----------
Total liabilities 161,623 154,472
---------- ----------
Commitments and contingencies - -
Preferred stock, $.01 par value; 2,000,000 shares authorized,
none issued - -
Common stock, $.01 par value; 8,000,000 shares authorized,
2,728,796 issued, 1,987,320 and 2,063,902 outstanding at
December 31 and June 30, respectively 27 27
Paid-in capital 16,391 16,245
Retained earnings - substantially restricted 19,255 18,362
Treasury stock - at cost; 741,476 and 654,894 shares at
December 31 and June 30, respectively (10,845) (9,873)
Unearned compensation (409) (491)
Unrealized gain (loss) on securities available-for-sale, net of
applicable deferred income taxes (83) (21)
--------- ----------
Total stockholders' equity 24,336 24,249
---------- ----------
Total liabilities and stockholders' equity $ 185,959 $ 178,721
========== ==========
</TABLE>
See accompanying notes to Consolidated Financial Statements.
-1-
</page>
<TABLE>
<CAPTION>
FIRST BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
- - - - - - - - - - - - - - - - - - - - -
(Unaudited) (Unaudited)
Quarter Ended Six Months Ended
December 31, December 31,
1999 1998 1999 1998
-------- ------- -------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Interest Income:
Loans receivable $ 3,229 $3,061 $ 6,364 $ 6,098
Investment securities 124 93 224 204
Mortgage-backed and related securities 9 16 18 33
Other interest-earning assets 58 78 146 167
------- ------ -------- --------
Total interest income 3,420 3,248 6,752 6,502
------- ------ -------- --------
Interest Expense:
Customer deposits 1,669 1,630 3,311 3,268
Borrowed funds 61 74 94 160
------- ------ ------- --------
Total interest expense 1,730 1,704 3,405 3,428
------- ------ ------- --------
Net interest income 1,690 1,544 3,347 3,074
Provision for loan losses 20 21 37 43
------- ------ ------- --------
Net interest income after
provisions for losses 1,670 1,523 3,310 3,031
------- ------- ------ --------
Noninterest Income:
Service charges and other fee income 168 137 321 293
Loan origination and commitment fees 1 1 3 3
Income from real estate operations 41 27 68 51
Insurance commissions 46 42 96 75
Gain on sale of investments 1 (2) - (14)
Gain on sale of property and equipment - (8) - (8)
------- ------ ------- -------
Total noninterest income 257 197 488 400
------ ------- ------- -------
Noninterest Expense:
Compensation and employee benefits 651 641 1,314 1,276
Occupancy and equipment 174 143 323 285
Deposit insurance premiums 22 21 44 42
Advertising and promotional 16 12 32 41
Professional fees 15 41 39 63
Other 216 200 434 365
------ ------- ------- -------
Total noninterest expense 1,094 1,058 2,186 2,072
------ ------- -------- -------
Income before taxes 833 662 1,612 1,359
Income Taxes 303 241 570 494
------ ------- ------ --------
Net income $ 530 $ 421 $1,042 $ 865
====== ====== ====== ========
Earnings per share - basic .28 .21 .54 .42
====== ====== ====== =======
Earnings per share - diluted .26 .20 .51 .40
====== ====== ====== =======
Dividends per share .03 .03 .06 .06
====== ====== ====== =======
</TABLE>
See accompanying notes to Consolidated Financial Statements.
-2-
</page>
<TABLE>
<CAPTION>
FIRST BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
- - - - - - - - - - - - - - - - - - - - -
Six months ended December 31, 1999 and 1998
(Unaudited)
1998 1998
-------- -------
(Dollars in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,042 $ 865
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 161 127
Amortization 34 34
Unrealized loss on investment securities - 14
Loss on disposal of equipment - 8
Loss on loans, net of recoveries 37 43
Vesting of MRP shares - 53
Release of ESOP shares 178 238
Net change in operating accounts:
Accrued interest receivable and other assets 60 102
Deferred loan costs (24) (38)
Income taxes payable - current (95) 21
Deferred income tax payable 11 (4)
Accrued expenses (75) (137)
-------- --------
Net cash from operating activities 1,329 1,326
-------- --------
Cash flows from investing activities:
Purchase of investment securities
available-for-sale (500) (27)
Purchase of investment securities held-to-maturity (100) (311)
Proceeds from maturities of investment securities
available-for-sale - 600
Proceeds from maturities of investment securities
held-to-maturity 19 369
Net change in certificates of deposit - 296
Net change in federal funds sold - (245)
Net change in loans receivable (8,243) (4,244)
Proceeds from maturities of mortgage-backed
certificates 61 71
Purchases of property and equipment (1,056) (434)
-------- ---------
Net cash used in investing activities (9,819) (3,925)
-------- ---------
See accompanying notes to Consolidated Financial Statements.
-3-
</page>
FIRST BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
- - - - - - - - - - - - - - - - - - - - - - - - -
Six months ended December 31, 1999 and 1998
(Unaudited)
1999 1998
------- ----------
(Dollars in thousands)
Cash flows from financing activities:
Net change in demand deposits, savings accounts,
and certificates of deposit $ 1,322 $ 6,051
Proceeds from borrowed funds 5,988 -
Payments on borrowed funds - (2,000)
Proceeds from sale of common stock 50 9
Purchase of treasury stock (972) (864)
Cash dividends paid (149) (120)
-------- ---------
Net cash from financing activities 6,239 3,076
-------- ---------
Net increase/(decrease) in cash and cash equivalents (2,251) 477
Cash and cash equivalents -
beginning of period 10,722 11,863
-------- ---------
Cash and cash equivalents -
end of period $ 8,471 $ 12,340
========= =========
</TABLE>
See accompanying notes to Consolidated Financial Statements.
-4-
</page>
<TABLE>
<CAPTION>
FIRST BANCSHARES, INC. AND SUBSIDIARIES
STATEMENTS OF COMPREHENSIVE INCOME
- - - - - - - - - - - - - - - - - - - - -
Six months ended December 31, 1999 and 1998
(Unaudited)
1999 1998
-------- --------
(Dollars in thousands)
<S> <C> <C>
Net income $ 1,042 $ 865
-------- --------
Other comprehensive income, net of tax
Unrealized gains (losses) on securities (62) (37)
-------- ---------
Other comprehensive income (62) (37)
-------- ---------
Comprehensive income $ 980 $ 828
======== =========
</TABLE>
See accompanying notes to Consolidated Financial Statements.
-5-
</page>
FIRST BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
NOTE A - Basis of Presentation
The consolidated interim financial statements as of December 31, 1999
included in this report have been prepared by the Registrant without
audit. In the opinion of management, all adjustments (consisting
only of normal recurring accruals) necessary for a fair presentation
are reflected in the December 31, 1999 interim financial statements.
The results of operations for the periods ended December 31, 1999 and
1998 are not necessarily indicative of the operating results for the
full year. The June 30, 1999 Consolidated Statement of Financial
Condition presented with the interim financial statements was audited
and received an unqualified opinion.
NOTE B - Earnings per Share
Basic earnings per share excludes dilution and is computed by
dividing net income available to common stockholders by the weighted
average number of shares outstanding during the period. Diluted
earnings per share reflects the potential dilution that could occur
if securities or other contracts to issue common stock were exercised
or resulted in the issuance of common stock that would share in the
earnings of the Company. Dilutive potential common shares are added
to weighted average shares used to compute basic earnings per share.
The number of shares that would be issued from the exercise of stock
options has been reduced by the number of shares that could have been
purchased from the proceeds at the average market price of the
Company's stock. For the periods presented, unreleased ESOP shares
are not considered outstanding for purposes of calculating earnings
per share.
</page>
-6-
FIRST BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(continued)
NOTE B - Earnings per Share-continued
Dilutive
Weighted Average Number Shares
of Common Shares Issuable
------------------- ---------
Quarter ended Dec. 31, 1999 1,923,770 89,423
Quarter ended Dec. 31, 1998 2,037,560 116,684
Six months ended Dec. 31, 1999 1,941,135 91,120
Six months ended Dec. 31, 1998 2,047,326 117,451
NOTE C - Treasury Stock
First Bancshares, Inc. has completed seven separate stock repurchase
programs between March 9, 1994 and September 21, 1999. During those
seven programs, a total of 683,308 shares of stock have been acquired
at a combined cost of $10.2 million. On September 21, 1999, an
eighth repurchase program of 203,239 shares was initiated. As of
February 12, 2000, 70,168 shares had been repurchased at a cost of
$767,000. Treasury stock is shown at cost for financial statement
presentation.
NOTE D - Accounting Changes
In June 1998, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standard ("SFAS") No. 133,
"Accounting for Derivative Instruments and Hedging Activities,"
which established 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 as fair value.
This Statement was adopted July 1, 1999 by the Company. The
adoption of this standard has not had a material impact on the
Company to date.
-7-
</page>
FIRST BANCSHARES, INC. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The discussion and analysis included herein covers those
material changes in liquidity and capital resources that have
occurred since June 30, 1999, as well as certain material changes in
results of operations during the three and six month periods ended
December 31, 1999 and 1998.
The following narrative is written with the presumption that
the users have read or have access to the Company's 1999 Form
10-KSB, which contains the latest audited financial statements and
notes thereto, together with Management's Discussion and Analysis of
Financial Condition and Results of Operations as of June 30, 1999,
and for the year then ended. Therefore, only material changes in
financial condition and results of operations are discussed herein.
This report contains certain "forward-looking statements." The
Company desires to take advantage of the "safe harbor" provisions of
the Private Securities Litigation Reform Act of 1995 and is including
this statement for the express purpose of availing itself of the
protection of such safe harbor with respect to all of such
forward-looking statements. These forward-looking statements, which
are included in Management's Discussion and Analysis, describe future
plans or strategies and include the Company's expectations of future
financial results. The words "believe", "expect", "anticipate",
"estimate", "project," and similar expressions identify
forward-looking statements. The Company's ability to predict results
or the effect of future plans or strategies is inherently uncertain.
Factors which could affect actual results include interest rate
trends, the general economic climate in the Company's market area and
the country as a whole, loan delinquency rates and changes in federal
and state regulation. These factors should be considered in
evaluating the forward-looking statements, and undue reliance should
not be placed on such statements.
Comparison of the Three Months ended December 31, 1999 to the Three
Months Ended December 31, 1998
Financial Condition. During the quarter ended December 31,
1999, total assets increased $5.1 million to $185.9 million.
Net loans increased $3.7 million during the quarter to $161.8
million. Cash and cash equivalents and property and equipment,
net of accumulated depreciation each increased $.7 million.
Customer deposits decreased $.7 million during the quarter
ended December 31, 1999 to $152.5 million. The majority of the
reduction was in checking accounts. FHLB advances increased by $5.9
million to fund loan growth.
Nonperforming assets increased to $2.7 million, or 1.45% of
total assets at December 31, 1999 compared to $2.3 million, or 1.27% of
total assets, at September 30, 1999.
Net Income. Net income of $530,000 for the quarter ended
December 31, 1999 increased $109,000 from $421,000 for the quarter
ended December 31, 1998. Net interest income, after provision for
loan losses, increased $147,000. Noninterest income increased
$60,000. These increases were somewhat offset by a $36,000 increase
in noninterest expense and a $62,000 income tax expense increase.
-8-
</page>
FIRST BANCSHARES, INC. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
Net Interest Income. Net interest income increased $146,000,
or 9.5%, from $1,544,000 for the quarter ended December 31, 1998 to
$1,690,000 for the quarter ended December 31, 1999. Interest income
increased $172,000 offset slightly by a $26,000 increase in interest
expense.
Interest Income. Interest income of $3,420,000 for the quarter
ended December 31, 1999 increased $172,000, or 5.3%, from $3,248,000
for the quarter ended December 31, 1998. Interest income from loans
receivable increased $168,000 from $3,061,000 for the quarter ended
December 31, 1998 to $3,229,000 for the quarter ended December 31,
1999. The increase was attributable to the increase in average loans
outstanding as the average yield remained basically constant.
Income from investment securities increased $31,000. The
average balance of investment securities was higher for the quarter
ended December 31, 1999, as additional securities were purchased
compared to the quarter ended December 31, 1998. Income from other
interest-earning assets decreased by $20,000 as a lower balance was
maintained in the FHLB daily-time savings account during the quarter
ended December 31, 1999.
Interest Expense. Interest expense increased by $26,000 to
$1,730,000 for the quarter ended December 31, 1999 from $1,704,000
for the quarter ended December 31, 1998. The increase resulted from
a $39,000 increase in interest expense on customer deposits. The
outstanding balance of customer deposits increased slightly; however
the average rate paid on those deposits was somewhat lower in the
quarter ended December 31, 1999 than the quarter ended December 31,
1998.
Interest expense on borrowed funds decreased by $13,000. While
December 31, 1999 quarter ended FHLB advances were higher, a lower
average balance of those advances was maintained during the quarter
ended December 31, 1999 compared to the quarter ended December 31,
1998.
Provision for Loan Losses. Loan loss provisions remained
basically constant at $21,000 for the quarter ended December 31,
1998 compared to $20,000 for the quarter ended December 31, 1999.
Actual loan losses, net of recoveries, on First Home originated loans
were $3,100 for the quarter ended December 31, 1999 compared to
$1,200 for the quarter ended December 31, 1998.
Noninterest Income. Noninterest income increased $60,000, or
30.5% to $257,000 for the quarter ended December 31, 1999 from
$197,000 for the quarter ended December 31, 1998. Service charges
and other fee income increased $31,000, or 22.6%. This increase was
combined with an increase of $14,000 in income from real estate
operations and $4,000 in insurance commissions. Losses on
investments and property and equipment of $10,000 for the quarter
ended December 31, 1998 were replaced with a $1,000 gain for the quarter
ended December 31, 1999.
Noninterest Expense. Noninterest expense increased $36,000,
or 3.4% from $1,058,000 for the quarter ended December 31, 1998 to
$1,094,000 for the quarter ended December 31, 1999. The increase
was primarily in the area of occupancy and equipment expenses,
specifically additional depreciation and operating costs of computer
hardware and software. Other noninterest expenses increased $16,000
as additional charitable contributions were made (which will provide
First Home with state income tax credits) and postage costs increased.
Compensation and employee benefits increased $10,000. Normal
salary increases and additional personnel created a $41,000 increase
and additional group health insurance costs added $26,000. These two
increases were offset by a $24,000 decrease in payroll taxes and a
$32,000 decrease in ESOP expense as there was an additional decline
in the fair market value of FBSI stock. Professional fees decreased
$26,000 due to reduced audit costs.
-9-
</page>
FIRST BANCSHARES, INC. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
Net Interest Margin. Net interest margin increased from 3.71%
for the three months ended December 31, 1998 to 3.84% for the three
months ended December 31, 1999. Income from earning assets
increased by $171,000, or 5.3%, between the two quarters while
interest expense increased by $26,000, or 1.5%. The average earning
asset base increased by $7.5 million, or 4.5%, which was offset by
a $9.9 million, or 6.9%, increase in the average interest-bearing
liability base.
Comparison of the Six Months ended December 31, 1999 to the Six
Months Ended December 31, 1998.
Financial Condition. Total assets for the six months ended
December 31, 1999 increased $7.2 million. Net loans increased $8.2
million, property and equipment increased a net $.9 million and
cash and cash equivalents decreased $2.2 million. Customer deposits
increased $1.3 million to $152.5 million at December 31, 1999. FHLB
advances increased $5.9 million with the proceeds used to fund loan
growth.
Nonperforming assets increased $800,000 during the six months to
$2.7 million.
Net Income. Net income increased $177,000 from $865,000 for
the six months ended December 31, 1998 to $1,042,000 for the six
months ended December 31, 1999. Net interest income, after provision
for loan losses, increased $279,000, or 9.2%. Noninterest income
increased $88,000. Those increases were, however, offset
by a $114,000, or 5.5%, increase in noninterest expense and a $76,000
increase in income tax expense.
Net interest income. Net interest income of $3,347,000 for the
six months ended December 31, 1999 increased $273,000 from $3,074,000
for the six months ended December 31, 1998. Interest income
increased $250,000 while interest expense decreased $23,000.
Interest income. Total interest income increased $250,000 from
$6,502,000 for the six months ended December 31, 1998 to $6,752,000
for the six months ended December 31, 1999. Interest income from
loans receivable increased $266,000 as a result of a higher
outstanding balance in loans receivable offset somewhat by a lower
average yield. Income from investment securities increased $20,000
attributable to a higher balance in those assets. Those increases
were offset by a $21,000 decrease in income from interest-earning
assets and a $15,000 decrease in mortgage-backed and related
securities both caused by a lower balance in investments combined
with a slightly lower average yield.
Interest Expense. During the six months ended December 31,
1999, interest expense decreased $23,000 to $3,405,000 from
$3,428,000 for the six months ended December 31, 1998. Interest
expense on customer deposits increased $43,000. Higher
outstanding balances, primarily in interest bearing checking
accounts, more than offset a lower average rate paid on deposits.
Reduction in the average FHLB advances, however, created a
$66,000 decrease in interest expense on FHLB borrowings.
Provision for loan losses. Provision for loan losses decreased
from $43,000 for the six months ended December 31, 1998 to $37,000
for the six months ended December 31, 1999. Recoveries exceeded
charge-offs for the six months ended December 31, 1999 by $800.
Actual loan losses, net of recoveries, were $11,200 for the six
months ended December 31, 1998.
-10-
</page>
FIRST BANCSHARES, INC. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
Noninterest income. Noninterest income was $488,000 for the six
months ended December 31, 1999 compared to $400,000 for the six
months ended December 31, 1998. The $88,000 increase included an
increase in service charges and other fee income of $28,000, an
increase in insurance commissions of $21,000 and an increase in
income from real estate operations of $17,000. The increase in
insurance commissions resulted from increased activity at the
Hartville office and addition of South Central Missouri Title, Inc.
offices in Marshfield and Ava, Missouri. Income from real estate
operations increased with the acquisition of additional rental
properties.
The six months ended December 31, 1998 contained the write-down
of $14,000 in an auto loan pool security and $8,000 in the disposal
of unused equipment. There were no such corresponding losses in the
six months ended December 31, 1999.
Noninterest expense. Noninterest expense for the six months
ended December 31, 1999 was $2,186,000 compared to $2,072,000 for the
six months ended December 31, 1998. The $114,000 increase was
primarily related to other operating expenses. The majority of the
increase in other operating expenses were postage costs, in-house
printing of checks for custmers with selected checking accounts and
additional charitable contributions for which First Home will receive
state tax credits. Also contributing to the overall increase was a
$35,000 reduction in a loss reserve for items deposited with the
correspondent bank for which First Home had not yet received credit
as of June 30, 1998. First Home received credit for these items
during the six months ended December 31, 1998.
Compensation and employee benefits increased $38,000. In July,
1999, First Home's management initiated a reimbursement plan to
employees who purchased a personal computer for home use. The
expense for the six months ended Decemer 31, 1999 for this plan
was $60,000. Normal salary increases and additional personnel
created $55,000 of the increase. Group health insurance premiums
and self-insurance funding costs increased $31,000. The decrease in
the fair market value of FBSI stock caused the ESOP expense to
decrease by $64,000. Final vesting of the MRP shares in December
1998 created a $44,000 expense. There was no such corresponding
expense in the six months ended December 31, 1999.
Occupancy and equipment expense increased $38,000, primarily
for additional depreciation and operating costs of computer hardware
and software. Professional fees decreased $24,000 as a result of
reduction of audit and outside accounting costs.
Net interest margin. Net interest margin increased from 3.72%
for the six months ended December 31, 1998 to 3.84% for the six
months ended December 31, 1999. Income from earning assets increased
by $248,000, or 3.8%, while interest expense decreased $23,000, or
.6%. The average earning asset base increased $8.0 million, or
4.8%. The average interest-bearing liability base increased $8.7
million, or 6.1%.
Liquidity and Capital Resources
First Home's primary sources of funds are deposits, proceeds
from principal and interest payments on loans, mortgage-backed
securities, investment securities and net operating income. While
maturities and scheduled amortization of loans and mortgage-backed
securities are a somewhat predictable source of funds, deposit
flows and mortgage prepayments are greatly influenced by general
interest rates, economic conditions and competition.
-11-
</page>
FIRST BANCSHARES, INC. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
First Home must maintain an adequate level of liquidity to
ensure availability of sufficient funds to support loan growth and
deposit withdrawals, satisfy financial commitments and take advantage
of investment opportunities. Funds from a Federal Home
Loan Bank line of credit can be drawn as an alternative source of
funds. During the period presented, First Home used its sources of
funds primarily to fund loan commitments, pay maturing savings
certificates and deposit withdrawals. At December 31, 1999, First
Home had approved loan commitments totaling $1.0 million and
undisbursed loans in process of $1.6 million.
Liquid funds necessary for normal daily operations of First
Home are maintained in three working checking accounts, a daily time
account with the Federal Home Loan Bank of Des Moines and in federal
funds. It is the Savings Bank's current policy to maintain adequate
collected balances in those three checking accounts to meet daily
operating expenses, customer withdrawals, and fund loan demand.
Funds received from daily operating activities are deposited, on a
daily basis, in one of the working checking accounts and transferred,
when appropriate, to daily time or federal funds sold to enhance
income or to reduce any outstanding line-of-credit advance from the
Federal Home Loan Bank.
Normal daily operating expenses are not expected to
significantly change. Noninterest expense as a percentage of average
assets at 2.5% is expected to remain basically constant. Interest
expense is expected to gradually increase as the deposit base
gradually increases and average interest rates paid on new and
renewed accounts increase. New or renewed FHLB advances are expected
to contribute to the increase in interest expense. The interest
expense increase is projected to be largely offset as new loans are
funded and rates on existing adjustable rate loans are gradually
increased. Customer deposits are expected to exceed withdrawals.
At December 31, 1999, certificates of deposit amounted to $92.7
million, or 61% of First Home's total deposits, including $58.4
million of fixed rate certificates scheduled to mature within twelve
months. Historically, First Home has been able to retain a
significant amount of its deposits as they mature. Management
believes it has adequate resources to fund all loan commitments from
savings deposits, loan payments and the Federal Home Loan Bank line
of credit and adjust the offering rates of savings certificates to
retain deposits in changing interest rate environments.
The Office of Thrift Supervision requires a savings institution
to maintain an average daily balance of liquid assets (cash and
eligible investments) equal to at least 4% of the average daily
balance of its net withdrawable deposits and short-term borrowings.
First Home's liquidity ratio was 6.35% at December 31, 1999. First
Home consistently maintains liquidity level in excess of regulatory
requirements, and believes this is an appropriate strategy for proper
asset and liability management.
-12-
</page>
FIRST BANCSHARES, INC. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
The Office of Thrift Supervision requires institutions such as
the Savings Bank to meet certain tangible, core, and risk-based
capital requirements. Tangible capital generally consists of
stockholders' equity minus certain intangible assets. Core capital
generally consists of stockholders' equity. The risk-based capital
requirements presently address risk related to both recorded assets
and off-balance sheet commitments and obligations. The following
table summarizes the Savings Bank's capital ratios and the ratios
required by FIRREA and subsequent regulations at December 31, 1999.
<TABLE>
<CAPTION>
Percent of Adjusted
Amount Total Assets
------------ ---------------------
(Unaudited)
(Dollars in thousands)
<S> <C> <C>
Tangible capital $20,482 11.2%
Tangible capital requirement 2,744 1.5
------- ------
Excess $17,738 9.7%
------- ------
Core capital $20,482 11.2%
Core capital requirement 7,318 4.0
------- -----
Excess $13,164 7.2%
------- -----
Risk-based capital $20,734 15.3%
Risk-based capital requirement 10,869 8.0
------- -----
Excess $ 9,865 7.3%
------- -----
</TABLE>
-13-
</page>
FIRST BANCSHARES, INC. AND SUBSIDIARY
PART II - OTHER INFORMATION
ITEM 1, LEGAL PROCEEDINGS
Neither the Registrant nor the Savings Bank is a party to any
material legal proceedings at this time. From time to time the
Savings Bank is involved in various claims and legal actions
arising in the ordinary course of business.
ITEM 2, CHANGES IN SECURITIES
Not applicable.
ITEM 3, DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4, SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5, OTHER INFORMATION
None
ITEM 6, EXHIBITS AND REPORT ON FORM 8-K
None.
-14-
</page>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
First Bancshares, Inc.
Date: February 15, 2000 By: /s/ Stephen H. Romines
-------------------- -------------------------
Stephen H. Romines
Chairman, President
CEO
By: /s/ Susan J. Uchtman
-----------------------
Susan J. Uchtman
CFO
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
IN THOUSANDS
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> JUN-30-2000 JUN-30-2000
<PERIOD-END> DEC-31-1999 DEC-31-1999
<CASH> 8471 8471
<INT-BEARING-DEPOSITS> 5231 5231
<FED-FUNDS-SOLD> 245 245
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 3658 3658
<INVESTMENTS-CARRYING> 1625 1625
<INVESTMENTS-MARKET> 1606 1606
<LOANS> 161782 161782
<ALLOWANCE> 578 578
<TOTAL-ASSETS> 185959 185959
<DEPOSITS> 152532 152532
<SHORT-TERM> 7650 7650
<LIABILITIES-OTHER> 903 903
<LONG-TERM> 538 538
0 0
0 0
<COMMON> 27 27
<OTHER-SE> 24309 24309
<TOTAL-LIABILITIES-AND-EQUITY> 185959 185959
<INTEREST-LOAN> 3229 6364
<INTEREST-INVEST> 124 224
<INTEREST-OTHER> 67 164
<INTEREST-TOTAL> 3420 6752
<INTEREST-DEPOSIT> 1669 3311
<INTEREST-EXPENSE> 1730 3405
<INTEREST-INCOME-NET> 1690 3347
<LOAN-LOSSES> 20 37
<SECURITIES-GAINS> 1 0
<EXPENSE-OTHER> 1094 2186
<INCOME-PRETAX> 833 1612
<INCOME-PRE-EXTRAORDINARY> 530 1042
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 530 1042
<EPS-BASIC> .28 .54
<EPS-DILUTED> .26 .51
<YIELD-ACTUAL> 3.84 3.84
<LOANS-NON> 57 57
<LOANS-PAST> 3044 3044
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 0 0
<ALLOWANCE-OPEN> 561 540
<CHARGE-OFFS> 4 4
<RECOVERIES> 1 5
<ALLOWANCE-CLOSE> 578 578
<ALLOWANCE-DOMESTIC> 578 578
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 286 286
</TABLE>
