<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(MARK ONE)
X Annual Report under Section 13 or 15(d) of the Securities Exchange Act
- ----- of 1934
For the fiscal year ended December 31, 1996
OR
Transition Report under Section 13 or 15(d) of the Securities Exchange
- ----- Act of 1934
For the transition period from ________ to ________
Commission file no. 33-94288
THE FIRST BANCSHARES, INC.
(Name of Small Business Issuer in Its Charter)
Mississippi 64-0862173
-------------------- ------------------
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
6480 U.S. Hwy. 98 West
Hattiesburg, Mississippi 39402
--------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
(601) 268-8998
Issuer's Telephone Number, Including Area Code
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 past 90 days. Yes X No
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ X ]
The aggregate market value of the voting stock held by non-affiliates
of the registrant as of March 15, 1997, was $5,060,540. This calculation is
based upon the sales price of $10.00 per share in the Company's initial public
offering. There is no active trading market for the common stock and the $10.00
per share price is not indicative of present value.
There were 721,848 shares of the Company's common stock issued and
outstanding as of March 15, 1997.
Transitional Small Business Disclosure Format. (Check one): Yes No X
--- ---
<PAGE> 2
PART I
ITEM 1. BUSINESS.
This Report contains statements which constitute forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
the Securities Exchange Act of 1934. These statements appear in a number of
places in this Report and include all statements regarding the intent, belief or
current expectations of the Company, its directors or its officers with respect
to, among other things: (i) the Company's financing plans; (ii) trends affecting
the Company's financial condition or results of operations; (iii) the Company's
growth strategy and operating strategy; and (iv) the declaration and payment of
dividends. Investors are cautioned that any such forward-looking statements are
not guarantees of future performance and involve risks and uncertainties, and
that actual results may differ materially from those projected in the
forward-looking statements as a result of various factors discussed herein and
those factors discussed in detail in the Company's filings with the Securities
and Exchange Commission.
GENERAL
The First Bancshares, Inc. (the "Company") was organized on June 23,
1995, to become a bank holding company by acquiring all the capital stock of The
First National Bank of South Mississippi (the "Bank") upon its formation. From
June 23, 1995, through August 2, 1996, the Company's principal activities
related to its organization, the conducting of its initial public stock
offering, and pursuit of approval from the Office of the Comptroller of the
Currency ("OCC") for its application to charter the Bank. The Bank received its
national bank charter and commenced operations on August 5, 1996, and the only
activity of the Company since then has been the ownership and operation of the
Bank.
On February 8, 1996, the Company satisfied the condition for releasing
subscription funds from escrow. Proceeds in the amount of $5,652,380 received
through that date were transferred to the Company. The Company used a portion of
the proceeds to repay the organizers for amounts advanced by them for
organizational, offering, and pre-offering expenses. On August 27, 1996, the
Company completed the initial public offering (the "Offering") of its Common
Stock, par value $1.00 per share (the "Common Stock"), in which it sold 721,848
shares of Common Stock at a price of $10.00 per share for an aggregate of
$7,218,480.
The Bank was organized as a banking association under the laws of the
United States. The Bank is engaged in a general commercial and retail banking
business from its main office in Hattiesburg, Mississippi.
The Company's holding company structure can assist the Bank in
maintaining its required capital ratios because the Company may, subject to
compliance with Federal Reserve debt guidelines, borrow money and contribute the
proceeds to the Bank as primary capital. The holding company structure also
permits greater flexibility in issuing stock for cash, property or services and
in reorganization transactions. Moreover, subject to certain regulatory
limitations, a holding company can purchase shares of its own stock, which the
Bank may not do. A holding company may also engage in certain non-banking
activities which the Board of Governors has deemed to be closely related to
banking. See "Supervision and Regulation." If circumstances should lead the
Company's management to believe that there is a need for these services in the
Bank's marketing area and that such activities could be profitably conducted,
the management of the Company would have the flexibility of commencing these
activities upon filing notice thereof with the Board of Governors.
<PAGE> 3
MARKETING FOCUS
Most of the banks in the Lamar County area are local branches of large
regional banks. The Company, however, generally does not attempt to compete for
the banking relationships of large corporations, but concentrates its efforts on
small to medium-sized businesses and on individuals.
The Bank advertises using all forms of media to target market segments,
emphasizing the Company's local ownership, community bank nature, and ability to
provide more personalized service than its competition.
BANKING SERVICES
The Bank offers a full range of deposit services that are typically
available in most banks and savings and loan associations, including checking
accounts, NOW accounts, savings accounts and other time deposits of various
types, ranging from daily money market accounts to longer-term certificates of
deposit. The transaction accounts and time certificates are tailored to the
Bank's principal market area at rates competitive to those offered in the Lamar
County area. In addition, the Bank offers certain retirement account services,
such as Individual Retirement Accounts (IRAs). All deposit accounts are insured
by the FDIC up to the maximum amount allowed by law (generally, $100,000 per
depositor subject to aggregation rules). The Bank solicits these accounts from
individuals, businesses, associations and organizations, and governmental
authorities. The Bank offers a Founders' Account to individuals who purchased a
minimum of 500 shares ($5,000) of Common Stock in the initial public offering.
The Founders' Account is a checking account, in the name of the original
purchaser of the Common Stock, which has no service charges for the life of the
account (subject to certain exclusions). The Bank offers free checking for
depositors who maintain a minimum monthly balance of $500 or an average monthly
balance of $1,500.
The Bank also offers a full range of short-to-medium term commercial
and personal loans. Commercial loans include both secured and unsecured loans
for working capital (including inventory and receivables), business expansion
(including acquisition of real estate and improvements), and purchase of
equipment and machinery. Consumer loans include secured and unsecured loans for
financing automobiles, home improvements, education and personal investments.
The Bank also makes real estate construction and acquisition loans. The Bank's
lending activities are subject to a variety of lending limits imposed by federal
law. While differing limits apply in certain circumstances based on the type of
loan or the nature of the borrower (including the borrower's relationship to the
Bank), in general the Bank is subject to a loan-to-one-borrower limit of an
amount equal to 15% of the Bank's unimpaired capital and surplus, or 25% of the
unimpaired capital and surplus if the excess over 15% is approved by the board
of directors of the Bank and is fully secured by readily marketable collateral.
The Bank may not make any loans in excess of 5% of the Bank's capital to any
director, officer, employee or 10% shareholder of the Company or the Bank unless
the loan is approved by the Board of Directors of the Bank and is made on terms
not more favorable to such person than would be available to a person not
affiliated with the Bank.
Other bank services include safe deposit boxes, travelers checks,
direct deposit of payroll and social security checks, and automatic drafts for
various accounts. The Bank is associated with a shared network of automated
teller machines that may be used by Bank customers throughout Mississippi and
other regions. The Bank also offers MasterCard and VISA credit card services
through a correspondent bank as an agent for the Bank.
2
<PAGE> 4
The Bank does not plan to exercise trust powers during its initial
years of operation. The Bank may in the future offer a full-service trust
department, but cannot do so without the prior approval of the OCC.
LENDING ACTIVITIES
General. The Bank emphasizes a range of lending services, including
real estate, commercial, and consumer loans, to individuals and small to
medium-sized businesses and professional concerns that are located in or conduct
a substantial portion of their business in the Bank's market area.
Real Estate Loans. The loans secured generally by first or second
mortgages on real estate are one of the primary components of the Bank's loan
portfolio. These loans consist of commercial real estate loans, construction and
development loans, and residential real estate loans (but excludes home equity
loans, which are classified as consumer loans). Loan terms are generally limited
to five years or less, although payments may be structured on a longer
amortization basis. Interest rates may be fixed or adjustable, and are more
likely to be fixed in the case of shorter term loans. Management attempts to
reduce credit risk in the commercial real estate portfolio by emphasizing loans
on owner-occupied office and retail buildings where the loan-to-value ratio,
established by independent appraisals, generally does not exceed 80%. In
addition, the Bank typically requires personal guarantees of the principal
owners of the property backed with a review by the Bank of the personal
financial statements of the principal owners. The principal economic risk
associated with each category of anticipated loans, including real estate loans,
is the creditworthiness of the Bank's borrowers. The risks associated with real
estate loans vary with many economic factors, including employment levels and
fluctuations in the value of real estate. The Bank competes for real estate
loans with a number of bank competitors which are well established in the Lamar
County area. Most of these competitors have substantially greater resources and
lending limits than the Bank. As a result, the Bank may charge lower interest
rates to attract borrowers.
The Bank also plans to originate loans for sale into the secondary
market. The Bank limits interest rate risk and credit risk on these loans by
locking the interest rate for each loan with the secondary investor and
receiving the investor's underwriting approval prior to originating the loan.
Commercial Loans. The Bank makes loans for commercial purposes in
various lines of businesses. Equipment loans are typically made for a term of
five years or less at fixed or variable rates, with the loan fully amortized
over the term and secured by the financed equipment and generally with a
loan-to-value ratio of 80% or less. Working capital loans typically have terms
not exceeding one year and are usually secured by accounts receivable,
inventory, and personal guarantees of the principals of the business. For loans
secured by accounts receivable or inventory, principal is typically repaid as
the assets securing the loan are converted into cash, and in other cases
principal is typically due at maturity. The principal economic risk associated
with each category of anticipated loans, including commercial loans, is the
creditworthiness of the Bank's borrowers. The risks associated with commercial
loans vary with many economic factors, including the economy in the Lamar County
area. The well established banks in the Lamar County area make proportionately
more loans to medium- to large-sized businesses than the Bank. Many of the
Bank's anticipated commercial loans are made to small to medium-sized businesses
who are less able to withstand competitive, economic, and financial conditions
than larger borrowers.
3
<PAGE> 5
Consumer Loans. The Bank makes a variety of loans to individuals for
personal and household purposes, including secured and unsecured installment and
term loans, home equity loans and lines of credit, and revolving lines of
credit. These loans typically carry balances of less than $25,000 and, in the
case of non-revolving loans, are amortized over a period not exceeding 48 months
or are set up as ninety-day term loans, usually bearing interest at a fixed
rate. The revolving loans typically bear interest at a fixed rate and require
monthly payments of interest and a portion of the principal balance. The
underwriting criteria for home equity loans and of credit are generally the same
as applied by the Bank when making a first mortgage loan, as described above,
and home equity lines of credit typically expire ten years or less after
origination. As with the other categories of loans, the principal economic risk
associated with consumer loans is the creditworthiness of the Bank's borrowers,
and the principal competitors for consumer loans are the established banks in
the Lamar County area.
Loan Approval and Review. The Bank's loan approval policies provide for
various levels of officer lending authority. When the amount of aggregate loans
to a single borrower exceeds that individual officer's lending authority, the
loan request is considered and approved by an officer with a higher lending
limit or the officers' loan committee. The Bank's officers' loan committee has
lending limits, and any loan in excess of this lending limit is approved by the
directors' loan committee.
OTHER BANKING SERVICES
Other anticipated bank services include cash management services, safe
deposit boxes, travelers checks, direct deposit of payroll and social security
checks, and automatic drafts for various accounts. The Bank is associated with a
shared network of automated teller machines that may be used by the Bank
customers throughout Mississippi and other regions. The Bank also offers
MasterCard and VISA credit card services through a correspondent bank as an
agent for the Bank. The Bank does not plan to exercise trust powers during its
initial years of operation. The Bank may in the future offer a full-service
department, but cannot do so without the prior approval of the OCC.
LOCATION AND SERVICE AREA
The Bank engages in a general commercial and retail banking business,
emphasizing the needs of small to medium-sized businesses, professional concerns
and individuals, primarily in Lamar County, Mississippi and the surrounding
area. The Bank has a main office located west of the city of Hattiesburg,
Mississippi, in Lamar County, and a branch office located in the city of Purvis,
Mississippi, also in Lamar County. See "Item 2, Description of Property" below.
The main office primarily serves the area in and around the northern
third of Lamar County which is west of Hattiesburg. The branch office primarily
serves the area in and around Purvis, Mississippi, which is in the east central
part of Lamar County and is the county seat.
Lamar County is located in the southeastern section of the State of
Mississippi. Hattiesburg, one of the largest cities in Mississippi, is located
in Forrest and Lamar Counties. Hattiesburg can be reached via Highways 98 and 49
and Interstate 59. Lamar County, which includes the projected service areas for
both sites of the Bank, had an estimated population in 1990 of 30,424 according
to the 1990 Census of Population and Housing. Major employers located in the
Lamar County area include Forrest General Hospital, the University of Southern
Mississippi, the Methodist Hospital, Camp Shelby, Sunbeam Oster, the Hattiesburg
Public Schools, the Hattiesburg Clinic, the City of Hattiesburg, Marshall Durbin
Poultry, and Murray Envelope. The principal components of the economy of the
Lamar County area are service industries, wholesale and retail trade,
manufacturing,
4
<PAGE> 6
and transportation and public utilities. The Lamar County area has experienced
steady growth over the past ten years, and the Company expects the Lamar County
area, as well as the service industry needed to support it, to continue to grow.
COMPETITION
The banking business is highly competitive. The Bank competes as a
financial intermediary with other commercial banks, savings and loan
associations, credit unions, and money market mutual funds operating in the
Lamar County area and elsewhere. As of December 1995, there were five commercial
banks operating in Lamar County. A number of these competitors are well
established in the Lamar County area. Most of them have substantially greater
resources and lending limits than the Bank and offer certain services, such as
extensive and established branch networks and trust services, that the Bank
either does not yet provide. However, the Company believes that the community
bank focus of the Bank, with its emphasis on service to small businesses,
individuals, and professional concerns, gives it an advantage in this market.
EMPLOYEES
The Bank has approximately fifteen full-time employees and one
part-time employee. The Company does not have any employees other than its
officers, none whom receive any remuneration for their services to the Company.
SUPERVISION AND REGULATION
The Company and the Bank are subject to state and federal banking laws
and regulations which impose specific requirements or restrictions on and
provide for general regulatory oversight with respect to virtually all aspects
of operations. These laws and regulations are generally intended to protect
depositors, not shareholders. To the extent that the following summary describes
statutory or regulatory provisions, it is qualified in its entirety by reference
to the particular statutory and regulatory provisions. Any change in applicable
laws or regulations may have a material effect on the business and prospects of
the Company. Beginning with the enactment of the Financial Institutions Reform,
Recovery and Enforcement Act of 1989 ("FIRREA") and following with FDICIA, which
was enacted in 1991, numerous additional regulatory requirements have been
placed on the banking industry in the past several years, and additional changes
have been proposed. The operations of the Company and the Bank may be affected
by legislative changes and the policies of various regulatory authorities. The
Company is unable to predict the nature or the extent of the effect on its
business and earnings that fiscal or monetary policies, economic control, or new
federal or state legislation may have in the future.
The Company. Because it owns the outstanding capital stock of the Bank,
the Company is a bank holding company within the meaning of the federal Bank
Holding Company Act of 1956 (the "BHCA") and the Mississippi Banks and Financial
Institutions Act (the "Mississippi Act"). The activities of the Company are also
governed by the Glass-Steagall Act of 1933 (the "Glass-Steagall Act").
The BHCA. Under the BHCA, the Company is subject to periodic
examination by the Federal Reserve and is required to file periodic reports of
its operations and such additional information as the Federal Reserve may
require. The Company's and the Bank's activities are limited to banking,
managing or controlling banks, furnishing services to or performing services for
its subsidiaries, and
5
<PAGE> 7
engaging in other activities that the Federal Reserve determines to be so
closely related to banking or managing or controlling banks as to be a proper
incident thereto.
Investments, Control, and Activities. With certain limited exceptions,
the BHCA requires every bank holding company to obtain the prior approval of the
Federal Reserve before (i) acquiring substantially all the assets of any bank,
(ii) acquiring direct or ownership or control of any voting shares of any bank
if after such acquisition it would own or control more than 5% of the voting
shares of such bank (unless it already owns or controls the majority of such
shares), or (iii) merging or consolidating with another bank holding company.
In addition, and subject to certain exceptions, the BHCA and the Change
in Bank Control Act, together with regulations thereunder, require Federal
Reserve approval (or, depending on the circumstances, no notice of disapproval)
prior to any person or company acquiring "control" of a bank holding company,
such as the Company. Control is conclusively presumed to exist if an individual
or company acquires 25% or more of any class of voting securities of the bank
holding company. Control is rebuttably presumed to exist if a person acquires
10% or more but less than 25% of any class of voting securities and either the
Company has registered securities under Section 12 of the Exchange Act (which
the Company will be required to do by April 30, 1997) or no other person owns a
greater percentage of that class of voting securities immediately after the
transaction. The regulations provide a procedure for challenge of the rebuttable
control presumption.
Under the BHCA, a bank holding company is generally prohibited from
engaging in, or acquiring direct or indirect control of more than 5% of the
voting shares of any company engaged in, non-banking activities, unless the
Federal Reserve Board, by order or regulation, has found those activities to be
so closely related to banking or managing or controlling banks as to be a proper
incident thereto. Some of the activities that the Federal Reserve Board has
determined by regulation to be proper incidents to the business of a bank
holding company include making or servicing loans and certain types of leases,
engaging in certain insurance and discount brokerage activities, performing
certain data processing services, acting in certain circumstances as a fiduciary
or investment or financial adviser, owning savings associations, and making
investments in certain corporations or projects designed primarily to promote
community welfare.
The Federal Reserve Board has imposed certain capital requirements on
the Company under the BHCA, including a minimum leverage ratio and a minimum
ratio of "qualifying" capital to risk- weighted assets. These requirements are
described below under "Capital Regulations." Subject to its capital requirements
and certain other restrictions, the Company may borrow money to make a capital
contribution to the Bank, and such loans may be repaid from dividends paid from
the Bank to the Company (although the ability of the Bank to pay dividends is
subject to regulatory restrictions as described below in "The Bank -
Dividends"). The Company is also able to raise capital for contribution to the
Bank by issuing securities without having to receive regulatory approval,
subject to compliance with federal and state securities laws.
Source of Strength: Cross-Guarantee. In accordance with Federal Reserve
Board policy, the Company is expected to act as a source of financial strength
to the Bank and to commit resources to support the Bank in circumstances in
which the Company might not otherwise do so. Under the BHCA, the Federal Reserve
Board may require a bank holding company to terminate any activity or relinquish
control of a nonbank subsidiary (other than a nonbank subsidiary of a bank) upon
the Federal Reserve Board's determination that such activity or control
constitutes a serious risk to the financial soundness or stability of any
subsidiary depository institution of the bank holding company. Further, federal
bank regulatory authorities have additional discretion to require a bank holding
6
<PAGE> 8
company to divest itself of any bank or nonbank subsidiary if the agency
determines that divestiture may aid the depository institution's financial
condition.
Glass-Steagall Act. The Company is also restricted in its activities by
the provisions of the Glass-Steagall Act, which prohibit the Company from owning
subsidiaries that are engaged principally in the issue, flotation, underwriting,
public sale, or distribution of securities. The interpretation, scope, and
application of the provisions of the Glass-Steagall Act currently are being
considered and reviewed by regulators and legislators, and the interpretation
and application of those provisions have been challenged in the federal courts.
Mississippi Act. As a bank holding company registered under the
Mississippi Act, the Company is subject to regulation by the Mississippi Banking
Department. Consequently, the Company must receive the approval of the
Mississippi Banking Department prior to engaging in the acquisitions of banking
or nonbanking institutions or assets. The Company must also file with the
Mississippi Banking Department periodic reports with respect to its financial
condition and operations, management, and intercompany relationships between the
Company and its subsidiaries.
The Bank. The Bank operates as a national banking association
incorporated under the laws of the United States and subject to examination by
the OCC. Deposits in the Bank are insured by the FDIC up to a maximum amount
(generally $100,000 per depositor, subject to aggregation rules). The OCC and
the FDIC regulates or monitors virtually all areas of the Bank's operations,
including security devices and procedures, adequacy of capitalization and loan
loss reserves, loans, investments, borrowings, deposits, mergers, issuances of
securities, payment of dividends, interest rates payable on deposits, interest
rates or fees chargeable on loans, establishment of branches, corporate
reorganizations, maintenance of books and records, and adequacy of staff
training to carry on safe lending and deposit gathering practices. The OCC
requires the Bank to maintain certain capital ratios and imposes limitations on
the Bank's aggregate investment in real estate, bank premises, and furniture and
fixtures. The Bank is required by the OCC to prepare quarterly reports on the
Bank's financial condition and to conduct an annual audit of its financial
affairs in compliance with minimum standards and procedures prescribed by the
OCC.
Under FDICIA, all insured institutions must undergo regular on-site
examinations by their appropriate banking agency. The cost of examinations of
insured depository institutions and any affiliates may be assessed by the
appropriate agency against each institution or affiliate as it deems necessary
or appropriate. Insured institutions are required to submit annual reports to
the FDIC and the appropriate agency (and state supervisor when applicable).
FDICIA also directs the FDIC to develop with other appropriate agencies a method
for insured depository institutions to provide supplemental disclosure of the
estimated fair market value of assets and liabilities, to the extent feasible
and practicable, in any balance sheet, financial statement, report of condition
or any other report of any insured depository institution. FDICIA also requires
the federal banking regulatory agencies to prescribe, by regulation, standards
for all insured depository institutions and depository institution holding
companies relating, among other things, to: (i) internal controls, information
systems, and audit systems; (ii) loan documentation; (iii) credit underwriting;
(iv) interest rate risk exposure; and (v) asset quality.
National banks and their holding companies which have been chartered or
registered or undergone a change in control within the past two years or which
have been deemed by the OCC or the Federal Reserve Board, respectively, to be
troubled institutions must give the OCC or the Federal Reserve Board,
respectively, thirty days prior notice of the appointment of any senior
executive
7
<PAGE> 9
officer or director. Within the thirty day period, the OCC or the Federal
Reserve Board, as the case may be, may approve or disapprove any such
appointment.
Deposit Insurance. The FDIC establishes rates for the payment of
premiums by federally insured banks and thrifts for deposit insurance. Deposits
in the banks are insured by the FDIC up to a maximum amount (generally $100,00
per depositor, subject to aggregation rules), and the FDIC maintains an
insurance fund for commercial banks with insurance premiums from the industry
used to offset losses from insurance payouts when banks fail. Banks pay premiums
to the FDIC on their deposits. In 1993, the FDIC adopted a rule which
establishes a risk-based deposit insurance premium system for all insured
depository institutions. Under the 1993 rule, a depository institution pays to
the FDIC a premium of from $0.00 to $0.31 per $100 of insured deposits depending
on its capital levels and risk profile, as determined by its primary federal
regulator on a semi-annual basis. In 1996, the Bank's assessment rate for
insured deposits was $500 per quarter. The Deposit Insurance Funds Act of 1996
eliminated the minimum assessment required by statute. It also separates,
effective January 1, 1997, the Financial Corporation (FICO) assessment to
service the interest on its bond obligations. The amount assessed on individual
institutions, including the Bank, by FICO will be in addition to the amount paid
for deposit insurance according to the risk-related assessment rate schedule.
FICO assessment rates for the first semi-annual period of 1997 were set at 1.30
basis points annually for BIF deposits. For the first semi-annual period of
1997, the FDIC Board of Directors maintained the adjusted rate schedule and the
Bank's insurance assessment will remain at $.00 per $100 in deposits through
June 1997. Increases in deposit insurance premiums or changes in risk
classification will increase the Bank's cost of funds, and there can be no
assurance that such cost can be passed on the Bank's customers.
Transactions With Affiliates and Insiders. The Bank is subject to the
provisions of Section 23A of the Federal Reserve Act, which place limits on the
amount of loans or extensions of credit to, or investments in, or certain other
transactions with, and on the amount of advances to third parties collateralized
by the securities or obligations of affiliates. The aggregate of all covered
transactions is limited in amount, as to any one affiliate, to 10% of the bank's
capital and surplus and, as to all affiliates combined, to 20% of the bank's
capital and surplus. Furthermore, within the foregoing limitations as to amount,
each covered transaction must meet specified collateral requirements. Compliance
is also required with certain provisions designed to avoid the taking of low
quality assets.
The Bank is also subject to the provisions of Section 23B of the
Federal Reserve Act which, among other things, prohibit an institution from
engaging in certain transactions with certain affiliates unless the transactions
are on terms substantially the same, or at least as favorable to such
institution or its subsidiaries, as those prevailing at the time for comparable
transactions with non-affiliated companies. The Bank is subject to certain
restrictions on extensions of credit to executive officers, directors, certain
principal shareholders, and their related interests. Such extensions of credit
(i) must be made on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
third parties and (ii) must not involve more than the normal risk of repayment
or present other unfavorable features.
Dividends. A national bank may not pay dividends from its capital. All
dividends must be paid out of undivided profits then on hand, after deducting
expenses, including reserves for losses and bad debts. In addition, a national
bank is prohibited from declaring a dividend on its shares of common stock until
its surplus equals its stated capital, unless there has been transferred to
surplus no less than one-tenth of the bank's net profits of the preceding two
consecutive half-year periods (in the case of an annual dividend). The approval
of the OCC is required if the total of all dividends
8
<PAGE> 10
declared by a national bank in any calendar year exceeds the total of its net
profits for that year combined with its retained net profits for the preceding
two years, less any required transfers to surplus.
The OCC has promulgated regulations that became effective on December
13, 1990, which significantly affect the level of allowable dividend payments
for national banks. The effect is to make the calculation of national banks'
dividend-paying capacity consistent with generally accepted accounting
principles. In this regard, the allowance for loan and lease losses are not
considered an element of either "undivided profits then on hand" or "net
profits." Further, a national bank may be able to use a portion of its capital
surplus account as "undivided profits then on hand," depending on the
composition of that account. In addition, under FDICIA, the Bank may not pay a
dividend if, after paying the dividend, the Bank would be undercapitalized. See
"Capital Regulations" below.
Branching. National banks are required by the National Bank Act to
adhere to branch office banking laws applicable to state banks in the states in
which they are located. Under current Mississippi law, the Bank may open
branches throughout Mississippi with the prior approval of the OCC. In addition,
with prior regulatory approval, the Bank is able to acquire existing banking
operations in Mississippi. Furthermore, federal legislation has recently been
passed which permits interstate branching. The new law permits out of state
acquisitions by bank holding companies (subject to veto by new state law),
interstate branching by banks if allowed by state law, interstate merging by
banks, and de novo branching by national banks if allowed by state law. See
"Recent Legislative Developments."
Community Reinvestment Act. The Community Reinvestment Act requires
that, in connection with examinations of financial institutions within their
respective jurisdictions, the Federal Reserve, the FDIC, OCC, or the Office of
Thrift Supervision shall evaluate the record of the financial institutions in
meeting the credit needs of their local communities, including low and moderate
income neighborhoods, consistent with the safe and sound operation of those
institutions. These factors are also considered in evaluating mergers,
acquisitions, and applications to open a branch or facility.
Other Regulations. Interest and certain other charges collected or
contracted for by the Bank are subject to state usury laws and certain federal
laws concerning interest rates. The Bank's loan operations also subject to
certain federal laws applicable to credit transactions, such as the federal
Truth-In-Lending Act, governing disclosures of credit terms to consumer
borrowers; the Home Mortgage Disclosure of 1975, requiring financial
institutions to provide information to enable the public and public officials to
determine whether a financial institution is fulfilling its obligation to help
meet the housing needs community it serves; the Equal Credit Opportunity Act,
prohibiting discrimination on the basis of creed or other prohibited factors in
extending credit; the Fair Credit Reporting Act of 1978, governing the use and
provision of information to credit reporting agencies; the Fair Debt Collection
Act, concerning the manner in which consumer debts may be collected by
collection agencies; and the rules and regulations of the various federal
agencies charged with the responsibility of implementing such federal laws. The
deposit operations of the Bank also are subject to the Right to Financial
Privacy Act, which imposes a duty to maintain confidentiality of consumer
financial records and prescribes procedures for complying with administrative
subpoenas of financial records, and the Electronic Funds Transfer Act and
Regulation E issued by the Federal Reserve Board to implement that Act, which
governs automatic deposits to and withdrawals from deposit accounts and
customers' rights and liabilities arising from the use of automated teller
machines and other electronic banking services.
9
<PAGE> 11
Capital Regulations. The federal bank regulatory authorities have
adopted risk-based capital guidelines for banks and bank holding companies that
are designed to make regulatory capital requirements more sensitive to
differences in risk profile among banks and bank holding companies, account for
off-balance sheet exposure and minimize disincentives for holding liquid assets.
The resulting capital ratios represent qualifying capital as a percentage of
total risk-weighted assets and off-balance sheet items. The guidelines are
minimums, and the federal regulators have noted that banks and bank holding
companies contemplating significant expansion programs should not allow
expansion to diminish their capital ratios and should maintain ratios well in
excess of the minimums. The current guidelines require all bank holding
companies and federally-regulated banks to maintain a minimum risk-based total
capital ratio equal to 8%, of which at least 4% must be Tier 1 capital. Tier 1
capital includes common shareholders' equity, qualifying perpetual preferred
stock and minority interests in equity accounts of consolidated subsidiaries,
but excludes goodwill and most other intangibles and excludes the allowance for
loan and lease losses. Tier 2 capital includes the excess of any preferred stock
not included in Tier 1 capital, mandatory convertible securities, hybrid capital
instruments, subordinated debt and intermediate term-preferred stock and general
reserves for loan and lease losses up to 1.25% of risk-weighted assets.
Under the guidelines, banks' and bank holding companies' assets are
given risk-weights of 0%, 20%, 50% and 100%. In addition, certain off-balance
sheet items are given credit conversion factors to convert them to asset
equivalent amounts to which an appropriate risk-weight will apply. These
computations result in the total risk-weighted assets. Most loans are assigned
to the 100% risk category, except for first mortgage loans fully secured by
residential property and, under certain circumstances, residential construction
loans, both of which carry a 50% rating. Most investment securities are assigned
to the 20% category, except for municipal or state revenue bonds, which have a
50% rating, and direct obligations of or obligations guaranteed by the United
States Treasury or United States Government agencies, which have a 0% rating.
The federal bank regulatory authorities have also implemented a
leverage ratio, which is Tier 1 capital as a percentage of average total assets
less intangibles, to be used as a supplement to the risk-based guidelines. The
principal objective of the leverage ratio is to place a constraint on the
maximum degree to which a bank holding company may leverage its equity capital
base. The minimum required leverage ratio for top-rated institutions is 3%, but
most institutions are required to maintain an additional cushion of at least 100
to 200 basis points.
FDICIA established a new capital-based regulatory scheme designed to
promote early intervention for troubled banks and requires the FDIC to choose
the least expensive resolution of bank failures. The new capital-based
regulatory framework contains five categories of compliance with regulatory
capital requirements, including "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized," and "critically
undercapitalized." To qualify as a "well capitalized" institution, a bank must
have a leverage ratio of no less than 5%, a Tier 1 risk- based ratio of no less
than 6%, and a total risk-based capital ratio of no less than 10%, and the bank
must not be under any order or directive from the appropriate regulatory agency
to meet and maintain a specific capital level. As of December 31, 1996, the
Company and the Bank were qualified as "well capitalized." See "Management's
Discussion and Analysis or Plan of Operation -- Capital."
Under the FDICIA regulations, the applicable agency can treat an
institution as if it were in the next lower category if the agency determines
(after notice and an opportunity for hearing) that the institution is in an
unsafe or unsound condition or is engaging in an unsafe or unsound practice. The
degree of regulatory scrutiny of a financial institution will increase, and the
permissible activities of the institution will decrease, as it moves downward
through the capital categories. Institutions that
10
<PAGE> 12
fall into one of the three undercapitalized categories may be required to (i)
submit a capital restoration plan; (ii) raise additional capital; (iii) restrict
their growth, deposit interest rates and other activities; (iv) improve their
management; (v) eliminate management fees; or (vi) divest themselves of all or
part of their operations. Bank holding companies controlling financial
institutions can be called upon to boost the institutions' capital and to
partially guarantee the institutions' performance under their capital
restoration plans.
These capital guidelines can affect the Company in several ways. If the
Bank begins to grow at a rapid pace, a premature "squeeze" on capital could
occur making a capital infusion necessary. The requirements could impact the
Company's ability to pay dividends. The Company's present capital levels are
more than adequate; however, rapid growth, poor loan portfolio performance or
poor earnings performance or a combination of these factors could change the
Bank's capital position in a relatively short period of time.
Effective January 1, 1997, the OCC amended the risk-based capital
standards to incorporate a measure for market risk to cover all positions
located in a institution's trading account, and foreign exchange and commodity
positions wherever located. The effect of the rule is that it requires any bank
or bank holding company with significant exposure to market risk to measure the
risk and hold capital commensurate with that risk. Since the Bank does not
currently engage, nor has any plans to engage, in trading, foreign exchange or
commodity position activities, the rule does not have an effect on the required
Bank capital levels.
Both the Company and the Bank exceeded their respective regulatory capital
requirements at December 31, 1996. See "Management's Discussion and Analysis or
Plan of Operation -- Capital."
Enforcement Powers. FIRREA expanded and increased civil and criminal
penalties available for use by the federal regulatory agencies against
depository institutions and certain "institution- affiliated parties" (primarily
including management, employees, and agents of a financial institution,
independent contractors such as attorneys and accountants, and others who
participate in the conduct of the financial institution's affairs). These
practices can include the failure of an institution to timely file required
reports or the filing of false or misleading information or the submission of
inaccurate reports. Civil penalties may be as high as $1,000,000 a day for such
violations. Criminal penalties for some financial institution crimes have been
increased to twenty years. In addition, regulators are provided with greater
flexibility to commence enforcement actions against institutions and
institution- affiliated parties. Possible enforcement actions include the
termination of deposit insurance. Furthermore, FIRREA expanded the appropriate
banking agencies' power to issue cease and desist orders that may, among other
things, require affirmative action to correct any harm resulting from a
violation or practice, including restitution, reimbursement, indemnifications or
guarantees against loss. A financial institution may also be ordered to restrict
its growth, dispose of certain assets, rescind agreements or contracts, or take
other actions as determined by the ordering agency to be appropriate.
Recent Legislative Developments. On September 29, 1994, the federal
government enacted the Riegle-Neal Interstate Banking and Branching Efficiency
Act of 1994 (the Interstate Banking Act). This Act became effective on September
29, 1995, and permits eligible bank holding companies in any state, with
regulatory approval, to acquire banking organizations in any other state.
Effective June 1, 1997, the Interstate Banking Act will allow banks with
different home states to merge, unless a particular state opts out of the
statute. In addition, beginning June 1, 1997, the Interstate Banking Act will
permit national and state banks to establish de novo branches in another state
if there is a law in that state which applies equally to all banks and expressly
permits all out-of-state banks to establish
11
<PAGE> 13
de novo branches. From time to time, various bills are introduced in the United
States Congress with respect to the regulation of financial institutions.
Certain of these proposals, if adopted, could significantly change the
regulation of banks and the financial services industry. The Company cannot
predict whether any of these proposals will be adopted or, if adopted, how these
proposals would affect the Company.
Effect of Governmental Monetary Policies. The earnings of the Bank are
affected by domestic economic conditions and the monetary and fiscal policies of
the United States government and its agencies. The Federal Reserve Board's
monetary policies have had, and are likely continue to have, an important impact
on the operating results of commercial banks through its power to implement
national monetary policy in order, among other things, to curb inflation or
combat a recession. The monetary policies of the Federal Reserve Board have
major effects upon the levels of bank loans, investments and deposits through
its open market operations in United States government securities and through
its regulation of the discount rate on borrowings of member banks and the
reserve requirements against member bank deposits. It is not possible to predict
the nature or impact of future changes in monetary and fiscal policies.
ITEM 2. DESCRIPTION OF PROPERTY.
The principal place of business of both the Company and the main office
of the Bank is located at the southwest corner of U.S. Highway 98 and Old
Highway 11, Hattiesburg, Mississippi. The main office sits on a 2.0 plus acre
plot of land on which the Company has built a permanent banking facility of
10,000 square feet. The Bank opened this new facility in late January 1997. The
Bank also operates a branch office facility on Highway 589 in eastern Purvis,
Mississippi. The Company believes that the facilities adequately serves the
Bank's needs for its first several years of operation.
ITEM 3. LEGAL PROCEEDINGS.
Neither the Company nor the Bank is a party to, nor is any of their
property the subject of, any material pending legal proceedings incidental to
the business of the Company or the Bank.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.
The Company's articles of incorporation authorize it to issue up to
10,000,000 shares of Common Stock, of which 721,848 were sold in the Company's
initial public offering and are outstanding as of March 15, 1997. As of December
31, 1996, the Company had 719 shareholders of record. There is no established
public trading market in the Common Stock, and one is not expected to develop in
the near future.
All outstanding shares of Common Stock of the Company are entitled to
share equally in dividends from funds legally available therefor, when, as and
if declared by the Board of Directors.
12
<PAGE> 14
The Company does not plan to declare any dividends in the immediate future. See
Item 1. Business - Dividends.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company was organized June 23, 1995 (the "Inception Date"). From
the Inception Date through August 2, 1996, the Company's principal activities
related to its organization, the conducting of its initial stock offering, and
pursuit to approval from the Office of the Comptroller of the Currency ("OCC")
for its application to charter its subsidiary bank, The First National Bank of
South Mississippi (the "Bank" or "The First"). The First received its charter
and commenced operations on August 5, 1996. The Company's initial stock offering
was closed on August 27, 1996 after 721,848 shares were sold at $10.00 per share
generating capital of $7,218,480. Since the Company's inception date was June
23, 1995, and all 1995 efforts were directed toward the approval and opening The
First, any comparison of 1995 and 1996 financial is without merit and,
therefore, we have elected not to provide a comparative analysis but rather
focus upon 1996 financials.
At the close of business, December 31, 1996, The First concluded it
first five (approximate) months of operations. As of year end 1996, the
Company's assets totaled $14,176,760. Of this total, $1,458,586 was Cash and Due
From Banks; $2,311,386 was Fed Funds Sold; $4,216,027 was Securities comprised
of U.S. Government Agency and Mortgage Backed; $4,290,272 Loans Net of the
Reserve for Loan Losses ($37,148); $1,691,760 Premises and Equipment; $35,576
Interest Receivable; and $173,153 Other Assets.
Deposits as of year end 1996 totaled $7,506,649. Of this total,
$1,566,076 were non-interest bearing; $400,000 were Time Deposits of $100,000 or
more; and $5,540,573 were Other Interest Bearing deposits. Interest payable of
$26,646 and Other Liabilities of $22,936 comprised the remaining liabilities as
of year-end.
Shareholders' equity totaled $6,620,529 as of December 31, 1996. Of
this amount, $721,848 was stated capital from Common Stock at $1 par value;
$6,451,456 was representative of Additional paid-in capital from the initial
stock offering; ($555,658) was representative of accumulated losses from 1996
operating losses; and $2,883 was representative of the unrealized gain on
"Available for Sale" securities at year-end.
Since commencing operations on August 5, 1996, the Company has
sustained monthly operating losses resulting in both a negative Return on
Average Assets (ROA) and Return on Equity (ROE). The net loss per common share
through year-end 1996 was equal to ($.58).
Net interest income, the primary source of earnings for the Company,
represents earnings generated from earning assets less the interest expense of
funding those assets. During 1996, earning assets grew $10,817,685. Changes in
net interest income can be divided into components, the change in average
earning assets (volume component) and the change in the net interest margin
(rate component). Net Interest Margin represents the difference between yields
on earning assets and rates paid on interest bearing liabilities. The Net
Interest Margin for 1996 was 2.39%.
The Company's Provision for Loan and Lease Losses is utilized to
replenish its Reserve for Loan and Lease Losses on its balance sheet. The
reserve is maintained at a level deemed adequate by
13
<PAGE> 15
the Board of Directors after evaluation of credit risk and loan performance
trends in the loan portfolio. The reserve amount currently maintained (.85% of
loans net of unearned interest) is deemed adequate to cover existing exposure
within the Company's loan portfolio. Management currently intends to grow the
reserve and maintain it at 1.10% of loans net of unearned. However, management's
judgment is based upon a number of assumptions about future events, which are
believed to be reasonable, but which may or may not prove valid. See
"Determination of Reserve for Loan Losses."
Non-interest income and non-interest expense reflect the impact of
costs associated with beginning operations and growing the deposit base.
Non-interest income includes various service charges, fees, and commissions
collected by the Company; non-interest expense represents ordinary overhead
expenses to include salaries, bonuses, and benefits.
LIQUIDITY, ASSET/LIABILITY MANAGEMENT
Liquidity may be defined as the ability of the Company to meet cash
flow requirements created by decreases in deposits and/or other sources of funds
or increases in loan demand. The Company has maintained an asset/liability
management policy which focuses upon interest rate risk and rate sensitivity.
The primary objective of rate sensitivity management is to maintain interest
income growth while reducing exposure to adverse fluctuations in interest rates.
The Company utilizes an Asset/Liability Management Committee which evaluates and
analyzes the Company's pricing, maturities, growth, and balance sheet mix
strategies in an effort to make informed decisions that will increase income and
limit interest rate risk. The committee utilizes GAP Analysis generated using
Asset Liability Management Software. Utilizing GAP analysis, the bank desires to
maintain a rate sensitivity position which is essentially neutral, with rate
sensitive assets being equal to rate sensitive liabilities with repricing
opportunities of one year or less. The Company has experienced no problem with
liquidity since commencing operations and anticipates that all liquidity
requirements will be met in the foreseeable future. The Company's traditional
sources of funds from deposit increases, maturing loans and investments have
allowed it to generate sufficient funds for liquidity needs. At December 31,
1996, the Company's Loan to Deposit ratio was 57%. As The First grows and
continues to make additional loans, management anticipates that this rate will
increase.
CAPITAL
Under current regulatory requirements a bank should have a basic
leverage ratio of 5% to be considered "well capitalized". At December 31, 1996,
The First maintained a 34.5% leverage ratio which allowed it to significantly
exceed the ratio required for a "well capitalized" institution. The regulatory
authorities have become increasingly interested in evaluating a financial
institutions capital against its assets which have been risk weighted (high risk
assets would require a higher capital allotment, lower risk assets a lower
capital allotment). In this context, a "well capitalized" bank is required to
have a Tier I risk based capital ratio (excludes reserve for loan losses) of 6%
and a total risk based capital ratio (includes reserve for loan losses) of 10%.
At the end of 1996, the Company had a Tier I ratio of 91.3% and total risk based
consolidated capital of 91.8%, once again placing the Company well above the
consolidated level required for a "well capitalized" institution. The Company's
capital position exceeds regulatory requirements, even for "well capitalized"
institutions. See "Supervision and Regulation." Management considers current
capital levels to be sufficient to support the needs of the Company and
anticipates no events or conditions in the near future that would significantly
affect the capital position.
14
<PAGE> 16
IMPACT OF INFLATION AND CHANGING PRICES
The consolidated financial statements, and notes thereto, 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 the
relative purchasing power of money over time due to inflation. The impact of
inflation is reflected in the increased cost of the Bank's operations. Unlike
most industrial companies, nearly all the assets and liabilities of the Bank are
monetary in nature. As a result, interest rates have a greater impact on the
Bank's performance than do the effects of general levels of inflation. Interest
rates do not necessarily move in the same direction or to the same extent as the
price of goods and services.
15
<PAGE> 17
SUPPLEMENTAL STATISTICAL INFORMATION
I. DISTRIBUTION OF ASSETS, LIABILITIES, AND SHAREHOLDERS' EQUITY; INTEREST
AND INTEREST DIFFERENTIAL
A. AVERAGE BALANCE SHEETS (IN THOUSANDS):
<TABLE>
<CAPTION>
ASSETS CONSOLIDATED
<S> <C>
Cash And Due From Banks $ 3,313
Investments and Fed Funds Sold and Securities Purchased
Under Agreements to Resell $ 3,339
Loans, Net of Unearned and Reserve for Loan Losses $ 1,432
Deposits on Land $ 52
Fixed Assets $ 796
Accrued Income $ 16
Other Assets $ 188
TOTAL ASSETS $ 9,111
LIABILITIES AND SHAREHOLDERS' EQUITY DEPOSITS:
Non-Interest Bearing $ 1,152
Interest Bearing $ 2,402
Total Deposits $
Fed Funds Purchased and Securities Sold Under Agreement to
Repurchase $ 0
Borrowed Funds $ 0
Other Liabilities $ 25
TOTAL LIABILITIES $ 2,740
Shareholders' Equity $ 6,371
Total Liabilities and Shareholders' Equity $ 9,111
</TABLE>
16
<PAGE> 18
B. ANALYSIS OF NET INTEREST EARNINGS
The table below shows, for the year ended December 31, 1996, an
analysis of net interest earnings, including the average amount of
interest-earning assets and interest-bearing liabilities outstanding
during the period, the interest earned or paid on such accounts, the
average yields/rates paid and the net yield on interest-earning assets:
($ IN THOUSANDS) USING AVERAGE BALANCES
<TABLE>
<CAPTION>
EARNING ASSETS CONSOLIDATED YIELDS
EARNED
AND
RATES
PAID %
<S> <C> <C>
Net Loans $1,432 9.486%
Investments and Fed Funds Sold and Securities
Purchased Under Agreements to Resell $3,339 5.597%
TOTALS $4,771 6.46%
INTEREST-BEARING LIABILITIES:
Interest-Bearing Deposits $2,402 5.469%
Borrowed Funds and Fed Funds Purchased and
Securities Sold Under Agreements to Repurchase $ 0 0%
TOTALS $2,402 5.469%
Net Amounts $2,369 .991%
</TABLE>
Net yield on earning assets:
(1) Interest and yields on tax-exempt obligations are not on a fully
taxable equivalent basis.
(2) For the purpose of these computations, non-accruing loans are
included in the average loan balances outstanding.
C. INCREASE (DECREASE) IN INTEREST INCOME AND INTEREST EXPENSE
Since The First commenced operations on August 5, 1996 and no prior
year information is available for any comparison of changes in interest
income and interest expense, this analysis is omitted.
17
<PAGE> 19
II. INVESTMENT PORTFOLIO
A. The following tables present the book values of securities as of
December 31, 1996. All amounts are stated in thousands.
<TABLE>
<CAPTION>
SECURITY DESCRIPTION CONSOLIDATED
<S> <C>
U.S. Treasury $ 0
U.S. Gov't Agencies and Mortgage Backed Securities $4,058
States and Political Subdivisions $ 0
Other $ 0
TOTAL BOOK VALUE $4,216
</TABLE>
B. The following table sets forth maturities of investment and
mortgage-backed securities (carrying values) at December 31, 1996, and
the weighted average yield of such securities.
All dollar values are stated in thousands.
<TABLE>
<CAPTION>
YIELD 1-5 YIELD 5-10 YIELD
SECURITIES 0-1 (%) YEARS (%) YEARS (%)
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury $ 0 0% $ 0 0% $ 0 0%
U.S. Gov't Agencies $2,961 5.19% $ 497 6.57% $ 0 0%
Mortgage Backed $ 0 0% $ 0 0% 254 6.51
Securities
States and Political $ 0 0% $ 0 0% $ 0 0%
Subdivisions
Other $ 0 0% $ 0 0% $ 0 0%
TOTAL $2,961 5.19% $ 497 6.57% $ 254 6.51%
Greater Than Yield (%)
10 Years
Mortgage Backed $ 346 6.681
Securities
Equity Securities $ 158 6.00%
TOTAL $ 504 6.467
</TABLE>
NOTE: Interest and yields on tax-exempt obligations are not on a
taxable equivalent basis. Average yield on floating rate securities was
determined using the current yield.
C. Investment securities in excess of 10% of shareholders'
equity. At December 31, 1996, there were no securities from any issues
in excess of 10% of shareholders' equity.
18
<PAGE> 20
III. LOAN PORTFOLIO
A. TYPE OF LOANS
The amount of loans outstanding by type at the indicated dates are
shown in the following table. All dollar amounts are expressed in
thousands.
<TABLE>
<CAPTION>
LOAN TYPE DECEMBER 31, 1996
<S> <C>
Commercial, financial and agriculture $2,740
Real Estate - construction $36
Real Estate - mortgage $1,079
Installment loans to individuals $470
Other $2
Total Loans $4,327
Less: Unearned Interest $0
Total Loans Net of Unearned Int. $4,327
</TABLE>
B. MATURITIES AND SENSITIVITIES OF LOANS TO CHANGES IN INTEREST
RATES.
All dollar values are expressed in thousands as of December
31, 1996.
<TABLE>
<CAPTION>
MATURING
WITHIN 1 1 - 3 3 - 7 OVER 7
LOAN TYPE YEAR YEARS YEARS YEARS TOTAL
<S> <C> <C> <C> <C> <C>
Commercial, financial and $1,788 $ 822 $ 130 $ 0 $2,740
agricultural
Real Estate - construction $ 23 $ 11 $ 2 $ 0 $ 36
Real Estate - mortgage $ 704 $ 324 $ 51 $ 0 $1,079
Installment loans to individuals $ 307 $ 141 $ 22 $ 0 $ 470
Other loans, excluding real estate - $ 1 $ 1 $ 0 $ 0 $ 2
mortgage and installment loans
Total Loans by Maturity or Earliest $2,823 $1,299 $ 205 $ 0 $4,327
Repricing Date
LOANS INCLUDED IN TOTALS ABOVE WITH:
Predetermined interest rates $ 0 $ 0 $ 0 $ 0 $ 0
Floating interest rates $2,621 $ 0 $ 0 $ 0 $2,621
</TABLE>
C. NON-PERFORMING LOANS
1. As of December 31, 1996 there were no loans classified as
non-performing in nature.
2. There were no loan concentrations in excess of 10% of total loans at
December 31, 1996.
19
<PAGE> 21
3. There were no outstanding foreign loans at December 31, 1996.
4. Loans classified for regulatory purposes or for internal credit
review purposes that have not been disclosed in the above table do not
represent or result from trends or uncertainties that management
expects will materially impact the financial condition of the Company
or The First, or their future operating results, liquidity, or capital
resources.
5. As of December 31, 1996, no loans were in non-accruing status and
therefore interest income has not been impacted by such activity.
6. Management stringently monitors loans that are classified as
non-performing. Non- performing loans include non-accrual loans, loans
past due 90 days or more, and loans renegotiated or restructured
because of a debtor's financial difficulties. Loans are generally
placed on non-accrual status if any of the following events occur: (1)
the classification of a loan as non-accrual internally or by regulatory
examiners; (2) delinquency on principal for 90 days or more unless
management is in the process of collection; (3) a balance remains after
repossession of collateral; (4) notification of bankruptcy; or (5)
management's judgement that non-accrual is appropriate.
D. OTHER INTEREST-BEARING ASSETS
There were no other interest-bearing non-performing assets at December
31, 1996.
20
<PAGE> 22
IV. SUMMARY OF LOAN LOSS EXPERIENCE
A. An analysis of the loan loss experience for the period ending
December 31, 1996 is provided in the following table. All balances are
provided in thousands of dollars.
<TABLE>
<CAPTION>
BEGINNING BALANCE DECEMBER 31, 1996
<S> <C>
CHARGE-OFFS:
Commercial, Financial and Agricultural $ 0
Real Estate $ 0
Installment Loans and Other $ 0
TOTAL CHARGE-OFFS $ 0
Recoveries:
Commercial, Financial and Agricultural $ 0
Real Estate $ 0
Installment Loans and Other $ 0
TOTAL RECOVERIES $ 0
NET CHARGE-OFFS $ 0
Provision Charged to Operations $ 37
Ending Balance $ 37
Ratio of Net Charge-offs to Average Loans Outstanding 0%
Ratio of Reserve for Loan Losses to Loans Outstanding .86%
at Year-End
</TABLE>
B. DETERMINATION OF RESERVE FOR LOAN LOSSES
The allowance for loan losses represents a reserve for potential losses
in the loan portfolio. The adequacy of the allowance for loan losses is
evaluated periodically based on a review of all significant loans, with
a particular emphasis on non-accruing, past due and other loans that
management believes require attention. The loan loss reserve is
currently based upon the formula established in the bank charter
application with the Office of the Comptroller of the Currency. The
determination of the reserve level rests upon management's judgment
about factors affecting loan quality and assumptions about the economy.
Management considers the year-end allowance appropriate and adequate to
cover possible losses in the loan portfolio; however, management's
judgment is based upon a number of assumptions about future events,
which are believed to be reasonable, but which may or may not prove
valid. Thus, there can be no assurance that charge-offs in future
periods will not exceed the allowance for loan loss or that additional
increases in the loan loss allowance will not be required.
C. LOANS AND RISK DESCRIPTIONS REAL ESTATE LOANS
Approximately $1.1 million or 26% of the loan portfolio consisted of
real estate loans at December 31, 1996. These loans were extended after
a thorough review of all supporting financial and collateral
information with a loan to value margin of up to 80%. The Bank believes
that these loans represent an acceptable risk. At December 31, 1996 the
Bank had $2.7 million or approximately 60% of the loan portfolio in
Commercial/Financial/Industrial
21
<PAGE> 23
loans. These loans to both businesses and individuals were booked after
a thorough credit analysis of the borrower's repayment ability. The
credit analysis included the review of financial statements, tax
returns, credit bureaus, and supporting collateral. These type loans
represent the core of the bank's loan portfolio and represent a
conservative vehicle for interest income.
CONSUMER AND OTHER LOANS
At December 31, 1996 approximately 11% or $0.5 million of the Bank's
portfolio consisted of consumer loans. These loans represent an
opportunity for the bank to meet the varied needs of its customers.
These loans allow the Bank to earn a stable rate of interest income and
are reserved for borrower's that meet the bank's credit quality
standards.
V. DEPOSITS
A. AVERAGE DEPOSITS
<TABLE>
<CAPTION>
($ In Thousands) Rate
Amount
<S> <C> <C>
Non-Interest Bearing Deposits $ 250 0%
Interest Bearing Deposits (1) $1,565 4.75%
Savings Deposits $ 25 2.417%
Time Deposits $ 402 5.661%
Total Deposits $2,248 4.351%
</TABLE>
(1) Includes Money Market Accounts
B. OTHER CATEGORIES
None
C. FOREIGN DEPOSITS
None
D. TIME CERTIFICATES OF DEPOSIT OF $100,000 OR MORE AND
MATURITIES AT DECEMBER 31, 1996.
<TABLE>
<CAPTION>
3 Months 3-6 Months 6-12 Months Over 12
or Less Months
<S> <C> <C> <C> <C>
Time Certificates of Deposit of $100 $0 $400 $200
$100,000 or more
</TABLE>
22
<PAGE> 24
E. FOREIGN OFFICE TIME DEPOSITS OF $100,000 OR MORE
Not Applicable
VI. RETURN ON EQUITY AND ASSETS
The following financial ratios are presented for analytical purposes:
<TABLE>
<CAPTION>
RATIO DESCRIPTION DECEMBER 31, 1996
<S> <C>
Return on Assets (net income divided by average total assets) (5.42%)
Return on Equity ( net income divided by average equity) (7.75%)
Dividend payout ratio (dividends per share divided by net 0%
income per share)
Equity to asset ratio (average equity divided by average total 69.93%
assets)
</TABLE>
VII. SHORT TERM BORROWINGS
As of December 31, 1996 there were no short term borrowings. During
1996 the Company and The First had no short term borrowings in excess
of 30% of shareholders' equity.
VIII. CAPITAL ADEQUACY DATA
Total capital of the Company as a percentage of total adjusted assets
was as follows:
<TABLE>
<CAPTION>
($ Thousands)
December 31, 1996
<S> <C>
Total Assets $14,177
Allowance for Loan Losses $ 37
Total Adjusted Assets $14,214
Total Shareholders' Equity (excluding unrealized loss) $ 6,618
Allowance for Loan Losses $ 37
Other Components of Capital $ 0
Total Primary Capital $ 6,655
Total Secondary Capital $ 0
Total Capital $ 6,655
Ratio of Total Capital to total Adjusted Assets 46.80%
</TABLE>
23
<PAGE> 25
Tier I and total capital as a percentage of "risk-weighted" assets at
December 31, 1996 were as follows:
<TABLE>
<CAPTION>
December 31, 1996
<S> <C>
Tier I Capital Percentage 91.3%
Total Capital Percentage 91.8%
</TABLE>
The Company's capital ratios exceed the minimum capital requirements at
December 31, 1996 and management expects this to continue.
IX. INTEREST RATE SENSITIVITY ANALYSIS
The following table reflects the year-end position of the Company's
interest-earning assets and interest-bearing liabilities which can
either reprice or mature within the designated time period. The
interest rate sensitivity gaps can vary from day-to-day and are not
necessarily a reflection of the future. In addition, certain assets and
liabilities within the same designated time period may none the less
reprice at different times and at different levels.
<TABLE>
<CAPTION>
($ In Thousands)
December 31, 1996
Interest Sensitive Within (Cumulative)
Within 3 Within 12 Within 5 Total Interest
Months Months Years Earning assets
<S> <C> <C> <C> <C>
Interest Earning Assets:
Loans $1,976 $3,022 $4,319 $4,326
Investments and Mortgage Backed $1,976 $2,952 $4,046 $4,046
Securities
Fed Funds Sold and Other $2,311 $2,311 $2,311 $2,311
Totals $5,098 $7,299 $9,690 $9,696
Interest Bearing Liabilities:
Deposits and Borrowed Funds $5,512 $6,516 $7,291 $7,291
Sensitivity Gap:
Dollar amount ($577) $ 620 $2,236 $2,243
Percent of Total Interest Earning (11.32%) 8.49% 23.08 23.13%
Assets
</TABLE>
The matching of assets and liabilities may be analyzed by examining the
extent to which such assets and liabilities are "interest rate
sensitive" and by monitoring rate sensitivity differences ("GAP")
between assets and liabilities. An asset or liability is considered to
be rate sensitive within a specific time period if it will mature or be
subject to repricing within that period of time. The interest rate
sensitivity gap is the difference between the amount of
interest-earning assets anticipated, based upon certain assumptions, to
mature or reprice within that time period. A gap is considered to be
positive when the amount of rate sensitive assets maturing or repricing
within a period of time exceeds the amount of rate sensitive
liabilities maturing within that same time frame. During a period of
falling interest rates, a negative gap would
24
<PAGE> 26
tend to result in an increase in net interest income while a positive
gap would tend to adversely affect net interest income. In an
environment of rising interest rates, an institution with a positive
gap would generally be expected, absent the effects of other factors,
to experience a greater increase in the yield of its assets relative to
the costs of its liabilities and thus an increase in the institution's
net interest income would result whereas an institution with a negative
gap could experience the opposite results.
At December 31, 1996, total interest-earning assets maturing or
repricing within one year was greater than interest bearing liabilities
maturing or repricing within the same period of time by $620,000
(cumulative), representing a positive cumulative gap of 8.49% of
earning assets. While the Company generally has a positive gap in all
time frames, the primary contributing factor to this gap position is
the short term of the Company's operation. As the Company matures and
deposits diversify, it is expected that this gap will move toward a
more neutral position with the addition of deposits with fixed
maturities of a longer duration than seen at the present time. This
trend should be particularly noticeable in the 1 - 5 year time frame,
since these will be the maturities in which most time deposits will be
marketed and in which any change in interest rates will have the
greatest impact on earnings.
ITEM 7. FINANCIAL STATEMENTS.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditor's Report................................................................................... 14
Consolidated Balance Sheet as of December 31, 1996, and 1995................................................... 15
Consolidated Statements of Operations for the Year Ended December 31, 1996, and the
Period Ended December 31, 1995................................................................................. 16
Consolidated Statement of Shareholders' Equity for the Year Ended December 31, 1996, and
the Period Ended December 31, 1995............................................................................. 17
Consolidated Statements of Cash Flows for the Year Ended December 31, 1996, and the
Period Ended December 31, 1995................................................................................. 18
Notes to Consolidated Financial Statements..................................................................... 19
</TABLE>
All schedules have been omitted because they are inapplicable or the required
information is provided in the financial statements, including the notes
thereto.
25
<PAGE> 27
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Shareholders
The First Bancshares, Inc.
Hattiesburg, Mississippi
We have audited the accompanying consolidated balance sheets of The First
Bancshares, Inc., and subsidiary as of December 31, 1996 and 1995, and the
related consolidated statements of operations, changes in shareholders' equity,
and cash flows for the year ended December 31, 1996, and the period from June
23, 1995 (inception) to December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these 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 the 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 our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above, present fairly, in
all material respects, the consolidated financial position of The First
Bancshares, Inc., and subsidiary as of December 31, 1996 and 1995, and the
consolidated results of their operations and their cash flows for the year ended
December 31, 1996, and the period from June 23, 1995, to December 31, 1995, in
conformity with generally accepted accounting principles.
T. E. Lott & Company
Columbus, Mississippi
February 6, 1997
26
<PAGE> 28
THE FIRST BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
ASSETS 1996 1995
------ ------------ ------------
<S> <C> <C>
Cash and due from banks $ 1,458,586 $ 561
Federal funds sold 2,311,386 --
Securities (Note C) 4,216,027 --
Loans, net of reserve for loan losses of $37,148 (Note D) 4,290,272 --
Premises and equipment (Note E) 1,691,760 148,345
Interest receivable 35,576 --
Other assets 173,153 103,362
$ 14,176,760 $ 252,268
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Deposits:
Noninterest-bearing $ 1,566,076 $ --
Time, $100,000 or more 400,000 --
Other interest-bearing 5,540,573 --
------------ ------------
Total deposits 7,506,649 --
Interest payable 26,646 --
Borrowed funds (Note F) -- 441,950
Other liabilities 22,936 10,128
------------ ------------
Total liabilities 7,556,231 452,078
------------ ------------
Shareholders' Equity (Note G):
Common stock, par value $1 per share; 10,000,000
shares authorized; issued and outstanding 721,848
and 10 at December 31, 1996 and 1995, respectively 721,848 10
Preferred stock, par value $1 per share, 10,000,000
shares authorized; no shares issued and outstanding -- --
Additional paid-in capital 6,451,456 90
Accumulated deficit (555,658) (199,910)
Unrealized gain on available-for-sale securities 2,883 --
------------ ------------
Total shareholders' equity 6,620,529 (199,810)
------------ ------------
$ 14,176,760 $ 252,268
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
27
<PAGE> 29
THE FIRST BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
PERIODS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
------------ -------------
INTEREST INCOME
<S> <C> <C>
Interest and fees on loans $ 80,035 $ --
Interest and dividends on investment securities - taxable 60,738 --
Interest on federal funds sold 119,003 --
Interest on deposits in banks 6,516 --
Other, preopening 183,083 --
--------- ---------
449,375 --
INTEREST EXPENSE
Interest on time deposits of $100,000 or more 7,433 --
Interest on other deposits 66,052 --
Interest on borrowed funds 5,909 --
--------- ---------
79,394 --
--------- ---------
Net interest income 369,981 --
Provision for loan losses 37,148 --
--------- ---------
Net interest income after provision for loan losses 332,833 --
OTHER INCOME
Service charges on deposit accounts 2,136 --
Other service charges and fees 2,190 --
--------- ---------
4,326 --
OTHER EXPENSES
Salaries 172,051 --
Employee benefits 34,328 --
Occupancy expense 13,166 --
Furniture and equipment expense 51,942 --
Marketing and public relations 21,182 --
Other 176,253 --
Preopening expenses (Note L) 223,985 199,910
--------- ---------
692,907 199,910
--------- ---------
Net loss $(355,748) $(199,910)
========= =========
Net loss per common share $ (.58)
=========
</TABLE>
The accompanying notes are an integral part of these statements.
28
<PAGE> 30
THE FIRST BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
PERIODS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
Unrealized
Gain
On
Additional Available-
Common Paid-in Accumulated For-Sale
Stock Capital Deficit Securities Total
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Issuance of organization stock $ 10 $ 90 $ -- $ -- $ 100
Net loss for 1995 -- -- (199,910) -- (199,910)
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1995 10 90 (199,910) -- (199,810)
Issuance of common stock,
net of issuance costs 721,848 6,451,456 -- -- 7,173,304
Net loss for 1996 -- -- (355,748) -- (355,748)
Unrealized gain on available-
for-sale securities -- -- -- 2,883 2,883
Redemption of organization
stock (10) (90) -- -- (100)
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1996 $ 721,848 $ 6,451,456 $ (555,658) $ 2,883 $ 6,620,529
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
29
<PAGE> 31
THE FIRST BANCSHARES, INC.,
CONSOLIDATED STATEMENTS OF CASH FLOWS
PERIODS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ 355,748) $ (199,910)
Adjustments to reconcile net income to net cash:
Depreciation 42,210 --
Provision for loan losses 37,148 --
Amortization and accretion (13,285) --
Increase in interest receivable (35,576) --
Increase in other assets (69,791) --
Increase in interest payable 26,646 --
Increase in other liabilities 12,808 10,128
------------ ------------
Net cash used in operating activities (355,588) (189,782)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of available-for-sale securities (4,949,859) --
Proceeds from maturities and calls of available-for-sale
securities 750,000 --
Increase in loans (4,327,420) --
Additions to premises and equipment (1,585,625) (148,345)
------------ ------------
Net cash used in investing activities (10,112,904) (148,345)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in deposits 7,506,649 --
(Decrease) increase in borrowed funds (441,950) 441,950
Proceeds from issuance of stock, net 7,173,204 --
Proceeds from the sale of organization shares -- 100
Increase in organization and deferred registration costs -- (103,362)
------------ ------------
Net cash provided by financing activities 14,237,903 338,688
------------ ------------
Net increase in cash and cash equivalents 3,769,411 561
Cash and cash equivalents at beginning of year 561 --
------------ ------------
Cash and cash equivalents at end of year $ 3,769,972 $ 561
============ ============
CASH PAID DURING THE YEAR FOR:
Interest $ 52,748 $ 2,424
Income taxes -- --
</TABLE>
The accompanying notes are an integral part of these statements.
30
<PAGE> 32
THE FIRST BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE A - ORGANIZATION
The First Bancshares, Inc. (the Company) was incorporated under the
laws of Mississippi on June 23, 1995 (the "Inception Date"), for the
purpose of becoming a one-bank holding company. From the Inception Date
through August 5, 1996, the Company was a development-stage company and
its activities during the period consisted of its organization, the
conducting of its initial public stock offering, pursuit of the
approval of the Office of the Comptroller of the Currency ("OCC") for
its application to charter its subsidiary bank, the First National Bank
of South Mississippi (the "Bank"), and the establishing of systems,
hiring and training of personnel, and other matters related to the
opening of the Bank. The Bank began its operations on August 5, 1996.
NOTE B - SUMMARY OF ACCOUNTING POLICIES
1. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and the Bank. All significant intercompany accounts and
transactions have been eliminated.
2. NATURE OF OPERATIONS
The Company as a bank holding company is regulated by the Federal
Reserve Bank.
The Bank operates under a national bank charter and provides full
banking services. It is subject to the regulation of the OCC. The Bank
provides services primarily to Forrest and Lamar Counties of
Mississippi.
3. ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
31
<PAGE> 33
( Continued )
THE FIRST BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE B - SUMMARY OF ACCOUNTING POLICIES (Continued)
4. SECURITIES
Investments in securities are classified into three categories and are
accounted for as follows:
Available-for-Sale Securities
Securities classified as available-for-sale are those securities that
are intended to be held for an indefinite period of time, but not
necessarily to maturity. Any decision to sell a security classified as
available-for-sale would be based on various factors, including
movements in interest rates, liquidity needs, security risk
assessments, changes in the mix of assets and liabilities and other
similar factors. These securities are carried at their estimated fair
value, and the net unrealized gain or loss is reported in shareholders'
equity, net of tax, when applicable, until realized.
Gains and losses on the sale of available-for-sale securities are
determined using the adjusted cost of the specific security sold.
Premiums and discounts are recognized in interest income using the
interest method.
Securities to be Held-to-Maturity
Securities classified as held-to-maturity are those securities for
which there is a positive intent and ability to hold to maturity. These
securities are carried at cost adjusted for amortization of premiums
and accretion of discounts, computed by the interest method. There were
no securities classified as held-to-maturity at December 31, 1996 and
1995.
Trading Account Securities
Trading account securities are those securities which are held for the
purpose of selling them at a profit. There were no trading account
securities on hand at December 31, 1996 and 1995.
5. LOANS
Loans are carried at the principal amount outstanding, net of unearned
interest. Interest income on installment loans is recognized using a
method which approximates the interest method. Interest income on all
other loans is recognized based on the principal balance outstanding
and the stated rate of the loan.
32
<PAGE> 34
( Continued )
THE FIRST BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE B - SUMMARY OF ACCOUNTING POLICIES (Continued)
6. PREMISES AND EQUIPMENT
Premises and equipment are stated at cost, less accumulated
depreciation. The depreciation policy is to provide for depreciation
over the estimated useful lives of the assets using the straight-line
method. Repairs and maintenance expenditures are charged to operating
expenses; major expenditures for renewals and betterments are
capitalized and depreciated over their estimated useful lives.
7. RESERVE FOR LOAN LOSSES
For financial reporting purposes, the provision for loan losses charged
to operations is based upon management's estimations of the amount
necessary to maintain the reserve at an adequate level, considering
losses charged to the loan portfolio, current economic conditions,
credit reviews of the loan portfolio, and other factors warranting
consideration. Reserves for any impaired loans are generally determined
based on collateral values. Loans are charged against the reserve for
loan losses when management believes the collectibility of the
principal is unlikely. The reserve is maintained at a level believed
adequate by management to absorb potential loan losses.
8. ORGANIZATION COSTS
Organization costs consisting of incorporation expenses are included in
other assets and are being amortized to expense over a sixty-month
period.
9. INCOME TAXES
A deferred tax asset or liability is recognized for the future income
tax effects attributable to the differences in the tax bases of assets
or liabilities and their reported amounts in the financial statements,
as well as operating loss and tax credit carryforwards. The deferred
tax asset or liability is measured using the enacted tax rate expected
to apply to taxable income in the period in which the deferred tax
asset or liability is expected to be realized.
10. STATEMENT OF CASH FLOWS
For purposes of reporting cash flows, cash and cash equivalents include
cash and due from banks and federal funds sold. Generally, federal
funds are sold for a one-day period.
33
<PAGE> 35
( Continued )
THE FIRST BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE B - SUMMARY OF ACCOUNTING POLICIES (Continued)
11. OFF-BALANCE SHEET FINANCIAL INSTRUMENTS
In the ordinary course of business, the Bank enters into off-balance
sheet financial instruments consisting of commitments to extend credit,
credit card lines and standby letters of credit. Such financial
instruments are recorded in the financial statements when they are
exercised.
12. PER SHARE DATA
Per share data for the year ended December 31, 1996, is based on the
weighted average of common stock outstanding for the period. Per share
data for the period ended December 31, 1995, is not presented since it
is not considered to be meaningful. The weighted average shares
outstanding for the year ended December 31, 1996, was 612,435.
NOTE C - SECURITIES
Securities at December 31, 1996, consisted of available-for-sale
securities with a carrying amount of $4,216,027. The amortized cost,
gross unrealized gains, gross unrealized losses and estimated fair
value of these securities at December 31, 1996, are as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Available-for-sale securities:
Obligations of U. S.
Government agencies $3,458,269 $ 3,486 $ 4,448 $3,457,307
Mortgage-backed securities 596,475 3,845 -- 600,320
Equity securities 158,400 -- -- 158,400
---------- ---------- ---------- ----------
$4,213,144 $ 7,331 $ 4,448 $4,216,027
========== ========== ========== ==========
</TABLE>
34
<PAGE> 36
(Continued)
THE FIRST BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE C - SECURITIES (Continued)
The scheduled maturities of securities at December 31, 1996, are as follows:
<TABLE>
<CAPTION>
Estimated
Amortized Fair
Cost Value
<S> <C> <C>
Due in one year or less $ 3,458,269 $ 3,457,307
Mortgage-backed securities and equity securities 754,875 758,720
----------- -----------
$ 4,213,144 $ 4,216,027
=========== ===========
</TABLE>
Actual maturities can differ from contractual maturities because the
obligations may be called or prepaid with or without penalties.
No gains and losses were realized on available-for-sale securities in
1996. No securities were pledged at December 31, 1996.
NOTE D - LOANS
Loans outstanding include the following types at December 31, 1996:
<TABLE>
<CAPTION>
(In Thousands)
<S> <C>
Commercial, financial, and agricultural $ 1,297
Real estate - construction 36
Real estate - mortgage:
Commercial 1,317
Residential 1,205
Consumer 470
Other 2
----------
4,327
Reserve for loan losses (37)
----------
$ 4,290
----------
</TABLE>
Activity in the reserve for loan losses included a provision for loan
losses charged to operations of $37,148 for the year ended December 31,
1996. For the period ended December 31, 1996, the Bank had no loans
classified as impaired.
35
<PAGE> 37
THE FIRST BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE E - PREMISES AND EQUIPMENT
The detail of premises and equipment at December 31, 1996 and 1995, is
as follows:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Premises:
Land $ 452,121 $ 142,382
Buildings and improvements 60,863 --
Equipment 342,443 5,963
Construction in process 878,543 --
----------- -----------
1,733,970 148,345
Less accumulated depreciation (42,210) --
----------- -----------
$ 1,691,760 $ 148,345
=========== ===========
</TABLE>
The amount charged to operating expense for depreciation in 1996 was $42,210.
NOTE F - BORROWED FUNDS
Upon formation of the Company, the organizers executed and, as a group,
guaranteed a $500,000 line of credit on behalf of the Company from an
unrelated financial institution. Proceeds were used to fund
organization costs, registration costs, and pre-opening expenses. At
December 31, 1995, the outstanding balance was $441,950. Upon
completion of the sale of the minimum shares of common stock in the
initial stock offering, the debt was repaid. Interest expense amounted
to $5,909 in 1996 and $7,107 in 1995.
NOTE G - REGULATORY MATTERS
The Company and its subsidiary bank are subject to regulatory capital
requirements administered by federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory, and
possibly additional discretionary, actions by regulators that, if
undertaken, could have a direct material effect on the Company's
financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Company and the
Bank must meet specific capital guidelines that involve quantitative
measures of assets, liabilities, and certain off-balance-sheet items as
calculated under regulatory accounting practices. Capital amounts and
classifications are also subject to qualitative judgment by regulators
about components, risk weightings, and other related factors.
36
<PAGE> 38
( Continued )
THE FIRST BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE G - REGULATORY MATTERS (Continued)
To ensure capital adequacy, quantitative measures have been established
by regulators and these require the Company and the Bank to maintain
minimum amounts and ratios (set forth in the table below) of total and
Tier I capital (as defined) to risk-weighted assets (as defined), and
of Tier I capital to adjusted total assets (leverage). Management
believes, as of December 31, 1996, that the Company and the Bank exceed
all capital adequacy requirements.
At December 31, 1996, the Bank was categorized by regulators as
well-capitalized under the regulatory framework for prompt corrective
action. A financial institution is considered to be well- capitalized
if it has total risk-based capital of 10% or more, has Tier I
risk-based ratio of 6% or more, and has a Tier I leverage capital ratio
of 5% or more. There are no conditions or anticipated events that, in
the opinion of management, would change the categorization.
The actual capital amounts and ratios at December 31, 1996 are
presented in the following table. No amount was deducted from capital
for interest-rate risk exposure.
<TABLE>
<CAPTION>
($ In Thousands )
Company
(Consolidated) Bank
-------------- ----
Amount Ratio Amount Ratio
------ ----- ------ -----
<S> <C> <C> <C> <C>
Total risk-based $ 6,655 91.8% $ 4,842 69.8%
Tier I risk-based 6,618 91.3% 4,805 69.1%
Tier I leverage 6,618 46.6% 4,805 34.5%
</TABLE>
The minimum amounts of capital and ratios as established by banking regulators
at December 31, 1996, are as follows:
<TABLE>
<CAPTION>
($ In Thousands )
Company
(Consolidated) Bank
-------------- ----
Amount Ratio Amount Ratio
------ ----- ------ -----
<S> <C> <C> <C> <C>
Total risk-based $ 6,655 91.8% $ 4,842 69.8%
Total risk-based $ 580 8.0% $ 556 8.0%
Tier I risk-based 290 4.0% 278 4.0%
Tier I leverage 426 3.0% 417 3.0%
</TABLE>
The Company's dividends, if any, will be made from dividends received
from the Bank. The OCC limits dividends of a national bank in any
calendar year to the net profits of that year combined with the
retained net profits for the two preceding years. At December 31, 1996,
the Bank had no retained net profits free of the restrictions.
37
<PAGE> 39
THE FIRST BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE H - INCOME TAXES
The Company's accounting and reporting of income taxes is in accordance
with Financial Accounting Standards Board (FASB) Statement No. 109,
"Accounting for Income Taxes." At December 31, 1996 and 1995, the
Company had a net operating loss carryforward of approximately $555,000
and $200,000, respectively, for financial reporting purposes. The
realization of any deferred tax asset by the Company depends upon
having sufficient taxable income in the carryforward periods. Under
Statement No. 109, deferred tax assets are recognized for future
deductible amounts resulting from differences in the financial
statements and tax bases of assets, liabilities and operating loss
carryforwards. A valuation allowance is then established to reduce the
deferred tax asset to an amount that it is "more likely than not" to be
realized in the future. The net operating losses during the periods
ended December 31, 1996 and 1995, generated deferred tax assets of
approximately $208,000 and $75,000, respectively, each of which have
been fully offset by a valuation allowance of the same amount.
For income tax accounting purposes, the Company had a consolidated net
operating loss of approximately $180,000 at December 31, 1996. The
difference in the loss carryforward for financial and tax reporting
purposes is primarily due to the deferral and amortization of
pre-opening expenses over a sixty-month period for tax reporting.
Carryforwards of net operating losses will expire in the year 2011 if
not utilized.
NOTE I - EMPLOYEE BENEFITS
The Company has an employment agreement with its President and Chief
Executive Officer which was assigned to the Bank upon its organization.
The initial term of the agreement is for three years with an extension
provision for an additional three year term. It provides for a minimum
salary to be reviewed by the Board of Directors annually and increased
at its discretion and allows for participation in any management
incentive programs, long-term equity incentives, and eligibility for
grants of any stock options, restricted stock, and other similar
awards. In the first two years of operations of the Bank, bonuses, if
any, will be determined by the Board of Directors. Thereafter, the
bonuses are based upon a percentage of net profits after taxes of the
Bank. Further, the officer has been granted an option to purchase up to
3% of the number of shares sold in the initial stock offering at a
price per share equal to the initial offering price. If the employment
agreement is extended for an additional three years, the agreement
grants to the officer an additional option to purchase a number of
shares equal to 4% of the number of shares sold in the initial stock
offering at the fair market value of the stock at the grant date. The
options vest one-third per year for the first three years of operations
of the Bank and will be subject to certain performance criteria as
established by the Board of Directors. The option to purchase will have
a term of ten years. In addition, the agreement provides for additional
benefits in the event of termination after a change in control.
38
<PAGE> 40
( Continued )
THE FIRST BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE I - EMPLOYEE BENEFITS (Continued)
The Company accounts for stock options in accordance with Accounting
Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to
Employees". In accordance with APB 25, no expense has been recorded in
the accompanying financial statements. If FASB No. 123, "Accounting for
Stock-Based Compensation" had been applied, the net loss from
operations for the year ended December 31, 1996, would have been
$367,290 and the net loss per common share would have been $.60.
The Bank provides a deferred compensation arrangement (401(k) plan)
whereby employees contribute a percentage of their compensation. For
employee contributions of three percent or less, the Bank provides a
matching contribution.
NOTE J - RELATED PARTY TRANSACTIONS
In the normal course of business, the Bank makes loans to its directors
and officers and to companies in which they have a significant
ownership interest. These loans are made on substantially the same
terms, including interest rates and collateral, as those prevailing at
the time for comparable transactions with other persons. Such loans
amounted to approximately $655,000 at December 31, 1996. In the opinion
of management, such loans are consistent with sound banking policies
and are within applicable regulatory and lending limitations.
The Bank contracted with a company in which a director is a principal
to construct a new bank building. For the year 1996, approximately
$580,000 had been paid to the company for construction costs.
Management of the Company and of the Bank are of the opinion such
transactions are consistent with sound business practices.
NOTE K - COMMITMENTS, CONTINGENCIES, AND CONCENTRATIONS OF CREDIT RISK
In the normal course of business, there are outstanding various
commitments and contingent liabilities, such as guaranties, commitments
to extend credit life, etc., which are not reflected in the
accompanying financial statements. The Bank had outstanding letters of
credit of $50,000 at December 31, 1996, and had made loan commitments
of approximately $785,000 at December 31, 1996. The Bank's exposure to
credit loss in the event of nonperformance by the other party to the
financial instrument for commitments to extend credit and letters of
credit is represented by the contractual amount of the instrument. The
Bank uses the same credit policies in making commitments and
conditional obligations as it does for its lending activities. No
significant losses are anticipated as a result of these transactions.
39
<PAGE> 41
( Continued )
THE FIRST BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE K - COMMITMENTS, CONTINGENCIES, AND CONCENTRATIONS OF CREDIT RISK
(Continued)
The Bank is in the process of completing a new banking facility for its
main office in Hattiesburg, Mississippi. At December 31, 1996, the
estimated cost to complete the construction was approximately $350,000.
The building was occupied in February, 1997.
The primary market area served by the Bank is Forrest and Lamar
Counties within South Mississippi. Management closely monitors its
credit concentrations and attempts to diversify the portfolio within
its primary market area. As of December 31, 1996, management does not
consider there to be any significant credit concentration within the
loan portfolio. Although the Bank's loan portfolio, as well as existing
commitments, reflect the diversity of its primary market area, a
substantial portion of a borrower's ability to repay a loan is
dependent upon the economic stability of the area.
The Bank has Sixteenth Section land leases and contracts for bank
premises. The leases have 40 year terms with annual rentals of $20,240
subject to reappraisals every 10 years.
NOTE L - PREOPENING EXPENSES
A summary of the components of pre-opening expenses for the periods
ended December 31, 1996 and 1995, are as follows:
<TABLE>
<CAPTION>
Periods Ended
December 31,
-------------------------
1996 1995
------ ------
<S> <C> <C>
Salaries and employee benefits $ 153,736 $ 72,643
Consultant fees - 50,613
Professional fees 19,557 30,036
Marketing and public relations 9,910 14,059
Occupancy costs 22,526 10,294
Supplies and postage 7,607 10,464
Other 10,649 11,801
$ 223,985 $ 199,910
========== ==========
</TABLE>
40
<PAGE> 42
THE FIRST BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE M - FAIR VALUE OF FINANCIAL INSTRUMENTS
FASB No. 107, "Disclosure about Fair Value of Financial Instruments,"
requires the Company to disclose estimated fair values for its
financial instruments. Fair value estimates, methods, and assumptions
are set forth below. The following information does not purport to
represent the aggregate consolidated fair value of the Company.
Cash and Cash Equivalents - The carrying amount of these financial
instruments (cash and due from banks and federal funds sold)
approximate fair value.
Investment Securities - Fair values are based on quoted market prices,
where available. If quoted market prices are not available, fair values
are based on quoted market prices of comparable instruments.
Loans - For certain categories of loans, such as variable rate loans
and other lines of credit, the carrying amount, adjusted for credit
risk, is a reasonable estimate of fair value as the Company has the
ability to reprice the loan as interest rate changes occur. The fair
value of other 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.
Deposits - The fair value of demand deposits, savings accounts, and
money market accounts is the amount payable on demand at the reporting
date. The fair value of fixed-maturity certificates of deposit is
estimated by discounting the future cash flows using rates currently
offered for deposits of similar remaining maturities.
Commitments to Extend Credit - Management is of the opinion the
estimated fair value is not significantly different than the
contractual or notational amounts.
The carrying amount and estimated fair value of the Company's
consolidated financial instruments are as follows:
(In Thousands)
December 31, 1996
-------------------
Carrying Fair
Amount Value
-------- --------
Financial Assets:
Cash and cash equivalents $ 3,770 $ 3,770
======== ========
Investment securities $ 4,216 $ 4,216
======== ========
41
<PAGE> 43
( Continued )
THE FIRST BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE M - FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
<TABLE>
<CAPTION>
(In Thousands)
December 31, 1996
------------------------
Carrying Fair
Amount Value
-------- --------
<S> <C> <C>
Loans:
Adjustable rate $ 2,622 $ 2,622
Fixed rate 1,705 1,698
------- -------
Total loans 4,327 4,320
Reserve for loan losses (37) --
------- -------
Net Loans $ 4,290 $ 4,320
======= =======
Financial liabilities:
Deposits:
Noninterest-bearing demand $ 1,566 $ 1,566
Interest-bearing demand 3,912 3,912
Savings 71 71
Certificates of deposit 1,958 1,960
------- -------
Total Deposits $ 7,507 $ 7,509
======= =======
</TABLE>
Statement No. 107 prohibits adjustments for any value derived from the
expected retention of deposits for a future time period. That value,
often referred to as a core deposit intangible, is neither included in
the fair value amounts nor recorded as an intangible asset in the
consolidated balance sheets.
42
<PAGE> 44
THE FIRST BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE N - PARENT COMPANY FINANCIAL INFORMATION
The balance sheets, statements of operations, and cash flows for the
First Bancshares, Inc. (parent only) follow:
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
------------
1996 1995
---- ----
<S> <C> <C>
Assets:
Cash $ 461 $ 561
Interest-bearing deposit with subsidiary bank 1,515,077 --
Investment in subsidiary bank 4,807,805 --
Fixed assets 332,077 148,345
Other 43,518 103,362
----------- -----------
$ 6,698,938 $ 252,268
=========== ===========
Liabilities:
Accounts payable and accrued expenses $ 78,410 $ 10,128
Note payable -- 441,950
----------- -----------
78,410 452,078
----------- -----------
Shareholders' equity (deficit) 6,620,528 (199,810)
----------- -----------
$ 6,698,938 $ 252,268
=========== ===========
CONDENSED STATEMENTS OF OPERATIONS
Periods Ended
December 31,
------------
1996 1995
---- ----
Income:
Interest $ 242,583 $ --
Expenses:
Preopening and other expenses 28,884 199,910
----------- -----------
Income (loss) before income taxes and equity in
undistributed loss of subsidiary 213,699 (199,910)
Income taxes 75,410 --
----------- -----------
Income (loss) before equity in undistributed loss
of subsidiary 138,289 (199,910)
Equity in undistributed loss of subsidiary (494,037) --
----------- -----------
Net loss $ (355,748) $ (199,910)
=========== ===========
</TABLE>
43
<PAGE> 45
( Continued )
THE FIRST BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE N - PARENT COMPANY FINANCIAL INFORMATION (Continued)
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Periods Ended
December 31,
--------------------------
1996 1995
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (355,748) $ (199,910)
Adjustments to reconcile net loss to net cash
and cash equivalents:
Equity in undistributed loss of subsidiary 494,037 --
Other, net 128,126 10,128
----------- -----------
Net cash provided by (used in) operating activities 266,415 (189,782)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in subsidiary (5,298,960) --
Acquisition of fixed assets (183,732) (148,345)
----------- -----------
Net cash used in investing activities (5,482,692) (148,345)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of stock, net 7,173,204 100
Proceeds from note payable -- 441,950
Payment of note payable (441,950) --
Increase in organization and deferred registration
costs -- (103,362)
----------- -----------
Net cash provided by financing activities 6,731,254 338,688
----------- -----------
Net increase in cash and cash equivalents 1,514,977 561
Cash and cash equivalents at beginning of period 561 --
----------- -----------
Cash and cash equivalents at end of period $ 1,515,538 $ 561
=========== ===========
</TABLE>
44
<PAGE> 46
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
No change in accountants has taken place in any period subsequent to
the date of the most recent financial statements. The Company had no
disagreement with accountants with respect to accounting principles or practices
or financial statement disclosures or auditing scope or procedure, or
disagreements with regard to reportable events. The Company has had the same
independent accounting firm since its inception.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
All of the directors serve as directors of the Company and the Bank.
Biographical information concerning the directors is set forth below. Ted E.
Parker and Perry Edward Parker are brothers, and Dawn T. Parker is their
sister-in-law. None of the other organizers or directors are related.
David Waldron Bomboy, M.D., 51, is a director of the Company and the
Bank. He was born in 1946 and is a lifelong resident of Hattiesburg,
Mississippi. He graduated with honors in Pre-Medicine from the University of
Mississippi in 1968 and earned an M.D. degree from the University of Mississippi
Medical Center in 1971. Dr. Bomboy completed his orthopedic surgical training at
the University of Mississippi in 1976. He is a Board-certified orthopedic
surgeon and has practiced orthopedics in southern Mississippi for nineteen
years. A vestry member of the Trinity Episcopal Church, Dr. Bomboy is also a
member of the United Way of Southeast Mississippi, the Family Y, the Mississippi
State Medical Association, and the American Medical Association. Currently, he
is the president of the Physicians Healthcare Network and a member of the
executive committee of the Mississippi Orthopedic Society. He is the past
president of the Methodist Hospital Medical Staff.
E. Ricky Gibson, 40, is a director of the Company and the Bank. He is
also Treasurer of the Company and the Bank. He is the president and owner of N&H
Electronic, Inc., a wholesale electronics distributor, since 1988 and Mid South
Electronics, a wholesale consumer electronics distributor, since 1993. He is
active in the Parkway Heights United Methodist Church. Mr. Gibson attended the
University of Southern Mississippi. He was born in Hattiesburg, Mississippi in
1956.
John Hudson, 55, is a director of the Company and the Bank. He was born
in 1941 in Purvis, Mississippi and is a lifelong resident of Purvis,
Mississippi. Prior to 1992, Mr. Hudson was an appraiser for, and assistant to
the southern division manager of, the Louisiana Pacific Corporation in Purvis,
Mississippi. He managed five lumber manufacturing mills. From 1992 to 1995, he
was the owner and president of R&R Trucking. He is currently a director of, and
consultant to, R&R Trucking. Mr. Hudson is a councilman and a member of the
finance committee of the Purvis Church of God. He also served on the Purvis City
Council for eleven years.
David E. Johnson, 43, is a director and President and Chief Executive
Officer of the Company. He is also President of the Bank. Mr. Johnson received a
B.S. degree in Agricultural Economics in 1975 and an M.B.A. degree, with
emphasis in Finance, in 1977 from Mississippi State University. In 1990, he
graduated from the University of Oklahoma Commercial Lending and Graduate
School. Mr. Johnson has completed various OMEGA lending courses and has taught a
course at the University of Mississippi School of Banking. From 1993 to 1994, he
served as chairman of the Southern Mississippi Group of Robert Morris &
Associates.
From 1987 to 1995, Mr. Johnson was with Sunburst Bank, now merged with
Union Planters National Bank, as Senior Lender for the Hattiesburg branch and
later as Senior Lender and Credit Administrator for Southern Mississippi. He was
responsible for approving loans and maintaining the credit quality of a $250
million portfolio of consumer, mortgage, and commercial loans. Currently, he is
a member of the First Baptist Church, the Hattiesburg Racquet Club, and the
Hattiesburg Rotary Club. He was born in Laurel, Mississippi in 1953.
45
<PAGE> 47
Fred A. McMurry, 32, is a director of the Company and the Bank. He has
lived in Oak Grove for the past 30 years. Since 1985, he has been the vice
president and general manager of Harvard Pest Control, Inc., a family-owned
business. In addition, he is vice president of Oak Grove Land Co., Inc., a
family-owned property management company. He was born in 1964 in Laurel,
Mississippi.
Dawn T. Parker, 49, is a director and Chairman of the Board of both the
Company and the Bank. Mrs. Parker earned a B.A. degree from Vanderbilt
University in 1970. Prior to 1985, Mrs. Parker was the president and general
manager of Terra Firma Corporation, a rental and land management company, in
Hattiesburg, Mississippi. In addition, she has owned and operated a commercial
art and sign company, Creative Services, located in Hattiesburg, and has been a
partner in H. P. Cattle Co., located in Sumrall, Mississippi, for the past ten
years. She is also president of Clear Run Cattle Co., Inc., a cattle feeding
company. Mrs. Parker is a member of the Sumrall United Methodist Church and has
served on the Lamar County Education Foundation Board of Directors. She was born
in 1948 in Hattiesburg, Mississippi.
Perry Edward Parker, 31, is a director of the Company. He was born in
1965 in Hattiesburg, Mississippi. He graduated from Pearl River Junior College
in 1983 and the University of Southern Mississippi in 1985. He graduated from
the University of Chicago Graduate School of Business in 1989 with an M.B.A. in
Finance. While attending school in Chicago he worked for Goldman Sachs & Company
on the Chicago Mercantile Exchange. Mr. Parker became a member of the Exchange
in 1990. In 1991, he became a currency option trader for Goldman Sachs &
Company. In 1995 he became a currency options trader with Deutsche Bank.
He currently resides in London, England.
Ted E. Parker, 37, is a director of the Company and the Bank. Mr.
Parker attended the University of Southern Mississippi and served as a licensed
commodity floor broker at the Chicago Mercantile Exchange. He has been in the
stocker-grazer cattle business for the past 15 years and is the owner of
Highlander Laundry Center. He was selected as Lamar County Young Farmer and
Rancher for 1993 and served as a board member of Farm Bureau Insurance, He is a
member of the National Cattlemen's Association, the Texas Cattle Feeders
Association and the Sumrall United Methodist Church. Mr. Parker was born in 1960
in Hattiesburg, Mississippi.
Dennis L. Pierce, 40, is a director of the Company and the Bank. He is
the president of Pierce/Foote, Inc. of Baton Rouge, a real estate development
company, and the owner and president of PierCon, Inc. of Hattiesburg, a general
contracting firm. Through PierCon, Mr. Pierce is responsible for several
commercial construction jobs, and he is also involved in numerous commercial
ventures. He is the president of Dennis Pierce Inc., which has been very active
in homebuilding and the development of the Hattiesburg area. In addition, Mr.
Pierce is a deacon of the Lincoln Road Baptist Church; president-elect,
director, and national representative of the Hattiesburg Homebuilders
Association; and a director of the North Lamar Water Association. Since 1995, he
has been a member and broker with the Hattiesburg Board of Realtors. He attended
the University of Southern Mississippi. He was born in 1957 in Hattiesburg,
Mississippi.
Charles T. Ruffin, 45, who has been nominated as a Class II director of
the Company, was born in 1952 in Laurel, Mississippi. He received a Bachelor of
Arts degree from the University of Mississippi in 1974 and a Masters of Business
Administration in 1979 from the University of Southern Mississippi. Mr. Ruffin
is also a graduate of Louisiana State University's Graduate School of Banking of
The South. He began his banking career as management trainee with the First
National Bank of Jackson (now Trustmark National Bank) and was later promoted to
Assistant Vice President and Manager of Accounts Services. Mr Ruffin was a
Senior Lender and the Senior Operations Officer of the People's Bank of the
Delta until 1991 when he accepted employment as Senior Credit Officer with The
National Bank of Commerce of Mississippi at the Aberdeen Banking Center, where
he worked until he became Executive Vice President and Chief Operating Officer
for the Bank in 1996.
A. L. "Pud" Smith, 70, is a director of the Company and the Bank. He
was born in 1927 in Brooklyn, Mississippi. Before attending the University of
Southern Mississippi, Mr. Smith was in the military. He entered the petroleum
business in 1960, starting with a service station, and today he is owner and
manager of A. L. Smith
46
<PAGE> 48
Oil Company, Inc., a wholesale and retail petroleum products company. Mr.
Smith's community activities range from being the Mayor of the City of
Lumberton, a past president of the Jaycee's, a past president of the Lion's Club
and a member of the Rotary Club (a Paul Harris Fellow). He is an active member
of the First Baptist Church where he is a deacon and has been a member of the
Finance Committee for 30 years. He serves on the Stone County Economic
Development Council.
Andrew D. Stetelman, 36, is a director of the Company and the Bank. He
is the third generation of his family in London and Stetelman Realtors. He
graduated from the University of Southern Mississippi in 1983. He has served in
many capacities with the national and local Board of Realtors, where he was a
past president and the Realtor of the Year in 1992. He presently serves as the
chairman of the Hattiesburg Convention Center, is an ambassador for the Area
Development Partnership, and is a member of Kiwanis International. Mr.
Stetelman was born in 1960 in Hattiesburg. Mississippi.
STAGGERED BOARD OF DIRECTORS
The Articles of Incorporation and Bylaws of the Company provide that
the directors of the Company are divided into three classes, with each class
containing one-third of the total number of directors, as near as is possible,
so that each director serves for a term ending on the date of the third annual
meeting of shareholders following the annual meeting at which such director was
elected, and the term of office of one of the three classes of directors expires
in each year. The term of John Hudson, David E. Johnson, Dawn T. Parker and
Andrew D. Stetelman expires in 1997; and that of David W. Bomboy, E. Ricky
Gibson, and Fred A. McMurry expires in 1998; and that of Perry E. Parker, Ted E.
Parker, Dennis L. Pierce, and A. L. Smith expires in 1999.
ITEM 10. EXECUTIVE COMPENSATION.
The following table shows the cash compensation paid by the Company to
the Company's Chief Executive Officer for the years ended December 31, 1995 and
December 31, 1996. No other executive officers of the Company or the Bank earned
total annual compensation, including salary and bonus, in excess of $100,000 for
the fiscal year ended December 31, 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------
Other Annual
<S> <C> <C> <C> <C>
Name and Principal Position Year Salary Compensation
--------------------------- ---- ------ ------------
David E. Johnson, President 1996 $82,619 $1,060 (1)
and Chief Executive Officer 1995 $50,819 $2,500 (1)
</TABLE>
- ------------
(1) The Company also pays health insurance premiums and provides the use of
a car for Mr. Johnson.
In March 1997, the Board of Directors adopted a stock option plan
whereby directors, executive officers and certain other key employees of the
Company and the Bank can receive options to purchase shares of the Company's
Common Stock, and, as described below, Mr. Johnson has been granted stock
options in accordance with the terms of his employment agreement with the
Company. See "Employment Agreement." The Board will present the Stock Option
Plan to the shareholders for their approval of the 1997 Annual Meeting of
Shareholders.
EMPLOYMENT AGREEMENT
David E. Johnson and the Company entered into an Employment Agreement
pursuant to which Mr. Johnson serves as the President and Chief Executive
Officer of the Company and the Bank. The agreement provided for a starting
salary of $75,000 per annum until the date the subscription proceeds were
released from escrow and
47
<PAGE> 49
now provides for $85,000 per annum, to be reviewed by the Board of Directors at
least annually and increased at its discretion. Mr. Johnson will be eligible to
participate in any management incentive program of the Bank or any long-term
equity incentive program and be eligible for grants of stock options, restricted
stock, and other awards thereunder. In addition, for the first and second years
after the date the Bank opens, he will be eligible to receive a cash bonus in an
amount determined by the Board of Directors. In the third year after the Bank
opens, Mr. Johnson will receive a cash bonus equal to 10% of the net profits
after taxes of the Bank for such year. If the term of the Employment Agreement
is extended, Mr. Johnson will receive a minimum of 5% of the net profits after
taxes of the Bank for each of the remaining three years of the Employment
Agreement. In accordance with the employment agreement, the Company is granting
Mr. Johnson an option to purchase 21,655 shares of Common Stock, exercisable at
$10.00 per share. The options will vest at the rate of one-third per year for
each of the first three years of operations of the Bank, subject to certain
performance criteria (subject to accelerated vesting in the event of a change in
control of the Company). The options will have a term of ten years.
Additionally, Mr. Johnson will participate in the Bank's retirement, welfare and
other benefit programs and is entitled to a life insurance policy and
reimbursement for automobile expenses, club dues, and travel and business
expenses.
The Employment Agreement provides for an initial term commencing on the
date of the Employment Agreement and ending on the third anniversary of the date
that the Bank opened. The term of the Employment Agreement will be automatically
extended for an additional three-year term unless either party serves written
notice of its intent not to renew the Employment Agreement. In the event that
the Company does not renew the Employment Agreement under the automatic
extension, the Company will pay Mr. Johnson his current monthly base salary for
a period of six months from the last day of the Employment Agreement.
In addition, the Employment Agreement provides that after a change in
control, Mr. Johnson will have the option of (i) automatically extending the
term for three years from the date of the change in control or (ii) receiving,
within fifteen days of the change in control, any sums due him thereunder and,
in one lump sum payment, severance compensation in an amount equal to three
times his then current annual base salary. Furthermore, in the event of a change
in control, the Company must remove any restrictions on outstanding incentive
awards so that all such awards vest immediately.
If Mr. Johnson (i) is terminated for cause (other than termination for
behavior which is materially disruptive to the orderly conduct of the Company's
business operations as determined in the good faith judgment of the Board of
Directors), then for the remaining term of the Employment Agreement, or (ii)
resigns for any reason other than following a change in control, then for a
period of one year following the date of resignation, Mr. Johnson may not (a) be
employed in the banking business as a director, officer, or organizer, or
promoter of, or consultant to, or acquire more than a 1% passive investment in,
any financial institution within the Territory, (b) solicit customers of the
Company or its affiliates for the purpose of providing financial services, or
(c) solicit employees of the Company or its affiliates for employment. Under the
Employment Agreement, "Territory" means a radius of 25 miles from (i) the main
office of the Bank, (ii) any branch office of the Bank, or (iii) any office of
the Company. Until the subscriptions are released from escrow, the Company shall
maintain a keyman life insurance policy on Mr. Johnson in the amount of
$1,000,000, with the proceeds payable to the Board of Directors.
DIRECTOR COMPENSATION
The Company or the Bank did not pay directors' fees during the last
fiscal year and does not presently intend to pay directors' fees in the initial
years of operation.
48
<PAGE> 50
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth the number and percentage of outstanding
shares of Common Stock beneficially owned at the Record Date by (a) each
executive officer of the Company, (b) each director of the Company, (c) all
executive officers and directors of the Company as a group, and (d) each person
or entity known to the Company to own more than 5% of the outstanding Common
Stock.
Shares Beneficially Owned
-------------------------
Number of
Name Shares(1) Percent(2)
- ---- ------- -------
David Waldon Bomboy 28,000 3.88%
E. Ricky Gibson(3) 15,500 2.15%
John Hudson(4) 38,100 5.28%
David E. Johnson(5) 17,724 2.46%
Fred A. McMurry 15,000 2.08%
Dawn T. Parker(6) 32,100 4.45%
Perry Edward Parker 26,250 3.64%
Ted E. Parker(7) 11,520 1.60%
Dennis L. Pierce 10,000 1.39%
A.L. Smith 10,000 1.39%
Andrew D. Stetelman(8) 10,300 1.43%
------- -----
TOTAL 214,494 29.71%
- -----------
(1) Information relating to the beneficial ownership of Common Stock is
based upon "beneficial ownership" concepts set forth in rules of the
Securities Exchange Commission under Section 13(d) of the Securities
Exchange Act of 1934. Under these rules a person is deemed to be a
"beneficial owner" of a security if that person has or shares "voting
power," which includes the power to vote or direct the voting of each
security, or "investment power," which includes the power to dispose or
to direct the disposition of such security. A person is also deemed to
be a beneficial owner of any security of which that person has the
right to acquire beneficial ownership within 60 days. Under the rules,
more than one person may be deemed to be a beneficial owner of the same
securities, and a person may be deemed to be a beneficial owner of
securities as to which he has no beneficial interest. For instance,
beneficial ownership includes spouses, minor children, and other
relatives residing in the same household, and trusts, partnerships,
corporations or deferred compensation plans which are affiliated with
the principal.
(2) Percent is calculated by treating shares subject to options held by the
named individual for whom the percentage is held by the named
individual for whom the percentage is calculated which are exercisable
within the next 60 days as if outstanding, but treating shares subject
to options held by another shareholder as not outstanding.
(3) Includes 500 shares for which the beneficial ownership is attributable
to Mr. Gibson as a result of his son's ownership of 250 shares and his
daughter's ownership of 250 shares.
49
<PAGE> 51
(4) Includes 4,100 shares for which the beneficial ownership is
attributable to Mr. Hudson as a result of his wife's ownership of 1,100
shares and his grandchildren's ownership of a total of 3,000 shares.
(5) Includes 1,362 shares for which the beneficial ownership is
attributable to Mr. Johnson as a result of his wife's ownership of
1,162 shares and his daughters' ownership of 200 shares.
(6) Includes 5,850 shares for which the beneficial ownership is
attributable to Mrs. Parker as a result of her children's ownership of
5,850 shares.
(7) Includes 1,520 shares for which the beneficial ownership is
attributable to Mr. Parker as a result of his wife's ownership of 1,120
shares and his children's ownership of 400 shares.
(8) Includes 300 shares for which the beneficial ownership is attributable
to Mr. Stetelman as a result of his children's ownership of 300 shares.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Andrew Stetelman, an organizer and director of the Company, was
retained prior to his involvement as an organizer, by Cellular South, the seller
of the parcel of land which the Company purchased and subsequently leased to the
DPS. Mr. Stetelman earned a commission of 6% (approximately $1,795.53) which was
paid by Cellular South once the land was sold. Along with three other bidders:
Carter & Mullings, Inc. Mac's Construction, Inc., and Finlo Construction Co.,
Inc., Dennis Pierce's company, PierCon, Inc. bid on the construction of the
Bank's main office. The bid was awarded to PierCon, Inc., which submitted the
lowest bid.
The Company and the Bank expect to have banking and other transactions
in the ordinary course of business with organizers, directors, and officers of
the Company and the Bank and their affiliates, including members of their
families or corporations, partnerships, or other organizations in which such
organizers, officers, or directors have a controlling interest, on substantially
the same terms (including price, or interest rates and collateral) as those
prevailing at the time for comparable transactions with unrelated parties. Such
transactions are not expected to involve more than the normal risk of
collectability nor present other unfavorable features to the Company and the
Bank. The Bank is subject to a limit on the aggregate amount it could lend to it
and the Company's directors and officers as a group equal to its unimpaired
capital and surplus (or, under a regulatory exemption available to banks with
less than $100 million in deposits, twice that amount), loans to individual
directors and officers must also comply with the Bank's lending policies and
statutory lending limits, and directors with a personal interest in any loan
application is excluded from the consideration of such loan application.
50
<PAGE> 52
PART IV
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this report:
<TABLE>
<S> <C>
3.1 Articles of Incorporation of the Company (incorporated by
reference to Exhibit 3.1 of the Registration Statement on Form
S-1, File No. 33-94288.)
3.2 Bylaws of the Company (incorporated by reference to Exhibit
3.2 of the Registration Statement on Form S-1, File No.
33-94288.)
4.1 Provisions in the Company's Articles of Incorporation and
Bylaws defining the rights of holders of the Company's common
stock (incorporated by reference to Exhibit 4.1 of the
Registration Statement on Form S-1, File No. 33-94288.)
10.3 Contract for the Purchase and assignment of 16th Section
Leasehold, dated June 26, 1995 by and between the proposed
bank and Department of Public Safety, State of Mississippi
(incorporated by reference to Exhibit 10.4 of the Registration
Statement on Form S-1, File No. 33-94288.)
10.4 Option to purchase dated May 23, 1995, among the Bank, John
Hudson, and La Carroll Hudson (incorporated by reference to
Exhibit 10.4 of the Registration Statement on Form S-1, File
No.
33-94288.)
10.5 Lease agreement dated June 21, 1995, among Joel S. Thoms,
individually, Thoms Enterprises, Inc. and the Company
(incorporated by reference to Exhibit 10.5 of the Registration
Statement on Form S-1, File No. 33-94288.)
10.6 Amended and restated employment agreement dated November 20,
1995, between David E. Johnson and the Company (incorporated
by reference to Exhibit 10.7 of the Company's Form 10-KSB for
the fiscal year ended December 31, 1995, File No. 33-94288.)
10.7 1997 Stock Option Plan dated as of March 18, 1997.
21.1 Subsidiaries of the Company.
27.1 Financial Data Schedule (for SEC use only)
</TABLE>
- -----------
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fourth quarter of
the year ended December 31, 1996.
51
<PAGE> 53
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
THE FIRST BANCSHARES, INC.
Date: March 18, 1997 By: /s/ David E. Johnson
------------------- -----------------------------------
David E. Johnson
President and Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints David E. Johnson, his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign any
and all amendments to this Registration Statement, and to file the same, with
all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto attorney-in-fact and agent
full power and authority to do and perform each and every act and thing
requisite or necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that attorney-in-fact and agent, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ David Waldron Bomboy Director March 18, 1997
- -------------------------- ---------------
David Waldron Bomboy
/s/ E. Ricky Gibson Director March 18, 1997
- -------------------------- ---------------
E. Ricky Gibson
/s/ John Hudson Director March 18, 1997
- -------------------------- ---------------
John Hudson
Director, President and Chief
/s/ David E. Johnson Executive Officer (principal March 18, 1997
- -------------------------- financial and accounting officer) ---------------
David E. Johnson
/s/ Fred A. McMurry Director March 18, 1997
- -------------------------- ---------------
Fred A. McMurry
/s/ Dawn T. Parker Director March 18, 1997
- -------------------------- --------------
Dawn T. Parker
Director --------------
- -------------------------
Perry Edward Parker
</TABLE>
<PAGE> 54
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Ted E. Parker Director March 18, 1997
- ------------------------- ---------------
Ted E. Parker
/s/ Dennis L. Pierce Director March 18, 1997
- ------------------------- ---------------
Dennis L. Pierce
/s/ A.L. "Pud" Smith Director March 18, 1997
- ------------------------- --------------
A.L. "Pud" Smith
/s/ Andrew D. Stetelman
- -------------------------
Andrew D. Stetelman Director March 18, 1997
--------------
</TABLE>
<PAGE> 55
INDEX TO EXHIBITS
Exhibit
Number Description
- ------ -----------
<TABLE>
<S> <C>
3.1 Articles of Incorporation of the Company (incorporated by reference to
Exhibit 3.1 of the Registration Statement on Form S-1, File No.
33-94288.)
3.2 Bylaws of the Company (incorporated by reference to Exhibit 3.2 of the
Registration Statement on Form S-1, File No. 33-94288.)
4.1 Provisions in the Company's Articles of Incorporation and Bylaws
defining the rights of holders of the Company's common stock
(incorporated by reference to Exhibit 4.1 of the Registration Statement
on Form S-1, File No. 33-94288.)
10.3 Contract for the Purchase and assignment of 16th Section Leasehold,
dated June 26, 1995 by and between the proposed bank and Department of
Public Safety, State of Mississippi (incorporated by reference to
Exhibit 10.4 of the Registration Statement on Form S-1, File No.
33-94288.)
10.4 Option to purchase dated May 23, 1995, among the Bank, John Hudson, and
La Carroll Hudson (incorporated by reference to Exhibit 10.4 of the
Registration Statement on Form S-1, File No. 33-94288.)
10.5 Lease agreement dated June 21, 1995, among Joel S. Thoms, individually,
Thoms Enterprises, Inc. and the Company (incorporated by reference to
Exhibit 10.5 of the Registration Statement on Form S-1, File No.
33-94288.)
10.6 Amended and restated employment agreement dated November 20, 1995,
between David E. Johnson and the Company (incorporated by reference to
Exhibit 10.7 of the Company's Form 10-KSB for the fiscal year ended
December 31, 1995, File No. 33-94288.)
10.7 1997 Stock Option Plan dated as of March 18, 1997.
21.1 Subsidiaries of the Company.
27.1 Financial Data Schedule (for SEC use only)
- --------------------------------
</TABLE>
<PAGE> 1
EXHIBIT 10.7
THE FIRST BANCSHARES, INC.
1997 STOCK OPTION PLAN
<PAGE> 2
THE FIRST BANCSHARES, INC.
1997 STOCK OPTION PLAN
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I
DEFINITIONS.................................................................. 1
ARTICLE II
THE PLAN..................................................................... 5
2.1 Name.............................................. 5
2.2 Purpose........................................... 5
2.3 Effective Date.................................... 5
ARTICLE III
PARTICIPANTS................................................................. 5
ARTICLE IV
ADMINISTRATION............................................................... 5
4.1 Duties and Powers of the Committee................ 5
4.2 Interpretation; Rules............................. 6
4.3 No Liability...................................... 6
4.4 Majority Rule..................................... 6
4.5 Company Assistance................................ 6
ARTICLE V
SHARES OF STOCK SUBJECT TO PLAN.............................................. 6
5.1 Limitations....................................... 6
5.2 Antidilution...................................... 7
ARTICLE VI
OPTIONS...................................................................... 8
6.1 Types of Options Granted.......................... 8
6.2 Option Grant and Agreement........................ 8
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
6.3 Optionee Limitations.............................. 9
6.4 $100,000 Limitation............................... 9
6.5 Exercise Price.................................... 9
6.6 Exercise Period................................... 10
6.7 Option Exercise................................... 10
6.8 Reload Options.................................... 11
6.9 Nontransferability of Option...................... 11
6.10 Termination of Employment or Service.............. 11
6.11 Employment Rights................................. 12
6.12 Certain Successor Options......................... 12
6.13 Effect of Change in Control....................... 12
ARTICLE VII
RESTRICTED STOCK............................................................. 12
7.1 Awards of Restricted Stock........................ 12
7.2 Non-Transferability............................... 13
7.3 Lapse of Restrictions............................. 13
7.4 Termination of Employment......................... 13
7.5 Treatment of Dividends............................ 13
7.6 Delivery of Shares................................ 13
ARTICLE VIII
STOCK APPRECIATION RIGHTS.................................................... 13
8.1 SAR Grants........................................ 13
8.2 Determination of Price............................ 14
8.3 Exercise of a SAR................................. 14
8.4 Payment for a SAR................................. 14
8.5 Status of a SAR under the Plan.................... 14
8.6 Termination of SARs............................... 14
8.7 No Shareholder Rights............................. 15
ARTICLE IX
STOCK CERTIFICATES........................................................... 15
ARTICLE X
TERMINATION AND AMENDMENT.................................................... 16
10.1 Termination and Amendment......................... 16
10.2 Effect on Grantee's Rights........................ 16
</TABLE>
ii
<PAGE> 4
ARTICLE XI
RELATIONSHIP TO OTHER COMPENSATION PLANS..................................... 16
ARTICLE XII
MISCELLANEOUS................................................................ 16
12.1 Replacement or Amended Grants..................... 16
12.2 Forfeiture for Competition........................ 16
12.3 Plan Binding on Successors........................ 16
12.4 Singular, Plural; Gender.......................... 16
12.5 Headings, etc., No Part of Plan................... 17
12.6 Interpretation.................................... 17
Exhibit A........................................................... i
SCHEDULE A.......................................................... vi
SCHEDULE B..........................................................vii
iii
<PAGE> 5
THE FIRST BANCSHARES, INC.
1997 STOCK OPTION PLAN
ARTICLE I
DEFINITIONS
As used herein, the following terms have the following meanings unless
the context clearly indicates to the contrary:
"Award" shall mean a grant of Restricted Stock or an SAR.
"Board" shall mean the Board of Directors of the Company.
"Cause" shall mean theft or destruction of property of the
Company, a Parent, or a Subsidiary, disregard of Company rules
or policies, or conduct evincing willful or wanton disregard
of the interests of the Company. Such determination shall be
made by the Committee based on information presented by the
Company and the Employee and shall be final and binding on all
parties hereto.
"Change in Control" shall mean the occurrence of either of the
following events:
(i) A change in the composition of the Board of Directors
as a result of which fewer than one-half of the
incumbent directors are directors who either:
(A) Had been directors of the Company 24 months
prior to such change; or
(B) Were elected, or nominated for election, to
the Board of Directors with the affirmative
votes of at least a majority of the
directors who had been directors of the
Company 24 months prior to such change and
who were still in office at the time of the
election or nomination; or
(ii) Any "person" (as such term is used in sections 13(d)
and 14(d) of the Exchange Act), other than any person
who is a shareholder of the Company on or before the
effective date of the Plan, by the acquisition or
aggregation of securities is or becomes the
beneficial owner, directly or indirectly, of
securities of the Company representing 50 percent or
more of the combined voting power of the Company's
then outstanding securities ordinarily (and apart
from rights accruing under special circumstances)
having the right to vote at elections of directors
(the "Base Capital Stock"); except that any change in
the relative beneficial ownership of the Company's
securities by any person resulting solely from a
reduction in the aggregate number of outstanding
shares of Base Capital
<PAGE> 6
Stock, and any decrease thereafter in such person's
ownership of securities, shall be disregarded until
such person increases in any manner, directly or
indirectly, such person's beneficial ownership of any
securities of the Company.
"Code" shall mean the United States Internal Revenue
Code of 1986, including effective date and transition
rules (whether or not codified). Any reference herein
to a specific section of the Code shall be deemed to
include a reference to any corresponding provision of
future law.
"Committee" shall mean a committee of at least two
Directors appointed from time to time by the Board,
having the duties and authority set forth herein in
addition to any other authority granted by the Board;
provided, however, that with respect to any Options
or Awards granted to an individual who is also a
Section 16 Insider, the Committee shall consist of
either the entire Board of Directors or a committee
of at least two Directors (who need not be members of
the Committee with respect to Options or Awards
granted to any other individuals) who are
Non-Employee Directors, and all authority and
discretion shall be exercised by such Non-Employee
Directors, and references herein to the "Committee"
shall mean such Non-Employee Directors insofar as any
actions or determinations of the Committee shall
relate to or affect Options or Awards made to or held
by any Section 16 Insider. At any time that the Board
shall not have appointed a committee as described
above, any reference herein to the Committee shall
mean a reference to the Board.
"Company" shall mean The First Bancshares, Inc., a
Mississippi corporation.
"Director" shall mean a member of the Board and any
person who is an advisory or honorary director of the
Company if such person is considered a director for
the purposes of Section 16 of the Exchange Act, as
determined by reference to such Section 16 and to the
rules, regulations, judicial decisions, and
interpretative or "no-action" positions with respect
thereto of the Securities and Exchange Commission, as
the same may be in effect or set forth from time to
time.
"Employee" shall mean an employee of the Employer.
"Employer" shall mean the corporation that employs a
Grantee.
"Exchange Act" shall mean the Securities Exchange Act
of 1934. Any reference herein to a specific section
of the Exchange Act shall be deemed to include a
reference to any corresponding provision of future
law.
"Exercise Price" shall mean the price at which an
Optionee may purchase a share of Stock under a Stock
Option Agreement.
2
<PAGE> 7
"Fair Market Value" on any date shall mean (i) the
closing sales price of the Stock, regular way, on
such date on the national securities exchange having
the greatest volume of trading in the Stock during
the thirty-day period preceding the day the value is
to be determined or, if such exchange was not open
for trading on such date, the next preceding date on
which it was open; (ii) if the Stock is not traded on
any national securities exchange, the average of the
closing high bid and low asked prices of the Stock on
the over-the-counter market on the day such value is
to be determined, or in the absence of closing bids
on such day, the closing bids on the next preceding
day on which there were bids; or (iii) if the Stock
also is not traded on the over-the-counter market,
the fair market value as determined in good faith by
the Board or the Committee based on such relevant
facts as may be available to the Board, which may
include opinions of independent experts, the price at
which recent sales have been made, the book value of
the Stock, and the Company's current and future
earnings.
"Grantee" shall mean a person who is an Optionee or a
person who has received an Award of Restricted Stock
or an SAR.
"Incentive Stock Option" shall mean an option to
purchase any stock of the Company, which complies
with and is subject to the terms, limitations and
conditions of Section 422 of the Code and any
regulations promulgated with respect thereto.
"Non-Employee Director" shall have the meaning set
forth in Rule 16b-3 under the Exchange Act, as the
same may be in effect from time to time, or in any
successor rule thereto, and shall be determined for
all purposes under the Plan according to
interpretative or "no-action" positions with respect
thereto issued by the Securities and Exchange
Commission.
"Officer" shall mean a person who constitutes an
officer of the Company for the purposes of Section 16
of the Exchange Act, as determined by reference to
such Section 16 and to the rules, regulations,
judicial decisions, and interpretative or "no-action"
positions with respect thereto of the Securities and
Exchange Commission, as the same may be in effect or
set forth from time to time.
"Option" shall mean an option, whether or not an
Incentive Stock Option, to purchase Stock granted
pursuant to the provisions of Article VI hereof.
"Optionee" shall mean a person to whom an Option has
been granted hereunder.
"Parent" shall mean any corporation (other than the
Employer) in an unbroken chain of corporations ending
with the Employer if, at the time of the grant (or
modification) of the Option, each of the corporations
other than the Employer owns stock possessing 50
percent or more of the total combined voting power of
the classes of stock in one of the other corporations
in such chain.
3
<PAGE> 8
"Permanent and Total Disability" shall have the same
meaning as given to that term by Code Section
22(e)(3) and any regulations or rulings promulgated
thereunder.
"Plan" shall mean The First Bancshares, Inc. 1997
Stock Option Plan, the terms of which are set forth
herein.
"Purchasable" shall refer to Stock which may be
purchased by an Optionee under the terms of this Plan
on or after a certain date specified in the
applicable Stock Option Agreement.
"Qualified Domestic Relations Order" shall have the
meaning set forth in the Code or in the Employee
Retirement Income Security Act of 1974, or the rules
and regulations promulgated under the Code or such
Act.
"Reload Option" shall have the meaning set forth in
Section 6.8 hereof.
"Restricted Stock" shall mean Stock issued, subject
to restrictions, to a Grantee pursuant to Article VII
hereof.
"Restriction Agreement" shall mean the agreement
setting forth the terms of an Award, and executed by
a Grantee as provided in Section 7.1 hereof.
"SAR" means a stock appreciation right, which is the
right to receive an amount equal to the appreciation,
if any, in the Fair Market Value of a share of Stock
from the date of the grant of the right to the date
of its payment, all as provided in Article VIII
hereof.
"SAR Price" means the base value established by the
Committee for a SAR on the date the SAR is granted
and which is used in determining the amount of
benefit, if any, paid to a Grantee.
"Section 16 Insider" shall mean any person who is
subject to the provisions of Section 16 of the
Exchange Act, as provided in Rule 16a-2 promulgated
pursuant to the Exchange Act.
"Stock" shall mean the Common Stock, par value $1.00
per share, of the Company or, in the event that the
outstanding shares of Stock are hereafter changed
into or exchanged for shares of a different stock or
securities of the Company or some other entity, such
other stock or securities.
"Stock Option Agreement" shall mean an agreement
between the Company and an Optionee under which the
Optionee may purchase Stock hereunder, a sample form
of which is attached hereto as Exhibit A (which form
may be varied by the Committee in granting an
Option).
4
<PAGE> 9
"Subsidiary" shall mean any corporation (other than the
Employer) in an unbroken chain of corporations beginning with
the Employer if, at the time of the grant (or modification) of
the Option, each of the corporations other than the last
corporation in the unbroken chain owns stock possessing 50
percent or more of the total combined voting power of all
classes of stock in one of the other corporations in such
chain.
ARTICLE II
THE PLAN
2.1 Name. This Plan shall be known as "The First Bancshares, Inc.
1997 Stock Option Plan."
2.2 Purpose. The purpose of the Plan is to advance the interests
of the Company, its Subsidiaries and its shareholders by affording
certainemployees and Directors of the Company and its Subsidiaries, as well as
key consultants and advisors to the Company or any Subsidiary, an opportunity to
acquire or increase their proprietary interests in the Company. The objective of
the issuance of the Options and Awards is to promote the growth and
profitability of the Company and its Subsidiaries because the Grantees will be
provided with an additional incentive to achieve the Company's objectives
through participation in its success and growth and by encouraging their
continued association with or service to the Company.
2.3 Effective Date. The Plan shall become effective on March 18,
1997; provided, however, that if the shareholders of the Company have not
approved the Plan on or prior to the first anniversary of such effective date,
then all options granted under the Plan shall be non- Incentive Stock Options.
ARTICLE III
PARTICIPANTS
The class of persons eligible to participate in the Plan shall consist
of all persons whose participation in the Plan the Committee determines to be in
the best interests of the Company which shall include, but not be limited to,
all Directors and employees, including but not limited to executive personnel,
of the Company or any Subsidiary, as well as key consultants and advisors to the
Company or any Subsidiary.
ARTICLE IV
ADMINISTRATION
4.1 Duties and Powers of the Committee. The Plan shall be
administered the Committee. The Committee shall select one of its members as its
Chairman and shall hold its meetings at such times and places as it may
determine. The Committee shall keep minutes of its meetings and shall make such
rules and regulations for the conduct of its business as it may
5
<PAGE> 10
deem necessary. The Committee shall have the power to act by unanimous written
consent in lieu of a meeting, and to meet telephonically. In administering the
Plan, the Committee's actions and determinations shall be binding on all
interested parties. The Committee shall have the power to grant Options or
Awards in accordance with the provisions of the Plan and may grant Options and
Awards singly, in combination, or in tandem. Subject to the provisions of the
Plan, the Committee shall have the discretion and authority to determine those
individuals to whom Options or Awards will be granted and whether such Options
shall be accompanied by the right to receive Reload Options, the number of
shares of Stock subject to each Option or Award, such other matters as are
specified herein, and any other terms and conditions of a Stock Option Agreement
or Restriction Agreement. The Committee shall also have the discretion and
authority to delegate to any Officer its powers to grant Options or Awards under
the Plan to any person who is an employee of the Company but not an Officer or
Director. To the extent not inconsistent with the provisions of the Plan, the
Committee may give a Grantee an election to surrender an Option or Award in
exchange for the grant of a new Option or Award, and shall have the authority to
amend or modify an outstanding Stock Option Agreement or Restriction Agreement,
or to waive any provision thereof, provided that the Grantee consents to such
action.
4.2 Interpretation; Rules. Subject to the express provisions of
the Plan, the Committee also shall have complete authority to interpret the
Plan, to prescribe, amend, and rescind rules and regulations relating to it, to
determine the details and provisions of each Stock Option Agreement, and to make
all other determinations necessary or advisable for the administration of the
Plan, including, without limitation, the amending or altering of the Plan and
any Options or Awards granted hereunder as may be required to comply with or to
conform to any federal, state, or local laws or regulations.
4.3 No Liability. Neither any member of the Board nor any member
of the Committee shall be liable to any person for any act or determination made
in good faith with respect to the Plan or any Option or Award granted hereunder.
4.4 Majority Rule. A majority of the members of the Committee
shall constitute a quorum, and any action taken by a majority at a meeting at
which a quorum is present, or any action taken without a meeting evidenced by a
writing executed by all the members of the Committee, shall constitute the
action of the Committee.
4.5 Company Assistance. The Company shall supply full and timely
information to the Committee on all matters relating to eligible persons, their
employment, death, retirement, disability, or other termination of employment,
and such other pertinent facts as the Committee may require. The Company shall
furnish the Committee with such clerical and other assistance as is necessary in
the performance of its duties.
ARTICLE V
SHARES OF STOCK SUBJECT TO PLAN
5.1 Limitations. Subject to any antidilution adjustment pursuant
to the provisions of Section 5.2 hereof, the maximum number of shares of Stock
that may be issued hereunder shall
6
<PAGE> 11
be 72,185. Any or all shares of Stock subject to the Plan may be issued in any
combination of Incentive Stock Options, non-Incentive Stock Options, Restricted
Stock, or SARs, and the amount of Stock subject to the Plan may be increased
from time to time in accordance with Article X, provided that the total number
of shares of Stock issuable pursuant to Incentive Stock Options may not be
increased to more than 72,185 (other than pursuant to anti-dilution adjustments)
without shareholder approval. Shares subject to an Option or issued as an Award
may be either authorized and unissued shares or shares issued and later acquired
by the Company. The shares covered by any unexercised portion of an Option that
has terminated for any reason (except as set forth in the following paragraph),
or any forfeited portion of an Award, may again be optioned or awarded under the
Plan, and such shares shall not be considered as having been optioned or issued
in computing the number of shares of Stock remaining available for option or
award hereunder.
If Options are issued in respect of options to acquire stock of any
entity acquired, by merger or otherwise, by the Company (or any Subsidiary of
the Company), to the extent that such issuance shall not be inconsistent with
the terms, limitations and conditions of Code section 422 or Rule 16b-3 under
the Exchange Act, the aggregate number of shares of Stock for which Options may
be granted hereunder shall automatically be increased by the number of shares
subject to the Options so issued; provided, however, that the aggregate number
of shares of Stock for which Options may be granted hereunder shall
automatically be decreased by the number of shares covered by any unexercised
portion of an Option so issued that has terminated for any reason, and the
shares subject to any such unexercised portion may not be optioned to any other
person.
5.2 Antidilution.
(a) If (x) the outstanding shares of Stock are changed
into or exchanged for a different number or kind of shares or other securities
of the Company by reason of merger, consolidation, reorganization,
recapitalization, reclassification, combination or exchange of shares, or stock
split or stock dividend, (y) any spin-off, spin-out or other distribution of
assets materially affects the price of the Company's stock, or (z) there is any
assumption and conversion to the Plan by the Company of an acquired company's
outstanding option grants, then:
(i) the aggregate number and kind of shares of Stock
for which Options or Awards may be granted hereunder shall be
adjusted proportionately by the Committee; and
(ii) the rights of Optionees (concerning the number
of shares subject to Options and the Exercise Price) under
outstanding Options and the rights of the holders of Awards
(concerning the terms and conditions of the lapse of any then-
remaining restrictions), shall be adjusted proportionately by
the Committee.
(b) If the Company shall be a party to any reorganization
in which it does not survive, involving merger, consolidation, or acquisition of
the stock or substantially all the assets of the Company, the Committee, in its
discretion, may:
7
<PAGE> 12
(i) notwithstanding other provisions hereof, declare
that all Options granted under the Plan shall become
exercisable immediately notwithstanding the provisions of the
respective Stock Option Agreements regarding exercisability,
that all such Options shall terminate 30 days after the
Committee gives written notice of the immediate right to
exercise all such Options and of the decision to terminate all
Options not exercised within such 30-day period, and that all
then- remaining restrictions pertaining to Awards under the
Plan shall immediately lapse; and/or
(ii) notify all Grantees that all Options or Awards
granted under the Plan shall be assumed by the successor
corporation or substituted on an equitable basis with options
or restricted stock issued by such successor corporation.
(c) If the Company is to be liquidated or dissolved in
connection with a reorganization described in Section 5.2(b), the provisions of
such Section shall apply. In all other instances, the adoption of a plan of
dissolution or liquidation of the Company shall, notwithstanding other
provisions hereof, cause all then-remaining restrictions pertaining to Awards
under the Plan to lapse, and shall cause every Option outstanding under the Plan
to terminate to the extent not exercised prior to the adoption of the plan of
dissolution or liquidation by the shareholders, provided that, notwithstanding
other provisions hereof, the Committee may declare all Options granted under the
Plan to be exercisable at any time on or before the fifth business day following
such adoption notwithstanding the provisions of the respective Stock Option
Agreements regarding exercisability.
(d) The adjustments described in paragraphs (a) through
(c) of this Section 5.2, and the manner of their application, shall be
determined solely by the Committee, and any such adjustment may provide for the
elimination of fractional share interests; provided, however, that any
adjustment made by the Board or the Committee shall be made in a manner that
will not cause an Incentive Stock Option to be other than an Incentive Stock
Option under applicable statutory and regulatory provisions. The adjustments
required under this Article V shall apply to any successors of the Company and
shall be made regardless of the number or type of successive events requiring
such adjustments.
ARTICLE VI
OPTIONS
6.1 Types of Options Granted. The Committee may, under this Plan,
grant either Incentive Stock Options or Options which do not qualify as
Incentive Stock Options. Within the limitations provided in this Plan, both
types of Options may be granted to the same person at the same time, or at
different times, under different terms and conditions, as long as the terms and
conditions of each Option are consistent with the provisions of the Plan.
Without limitation of the foregoing, Options may be granted subject to
conditions based on the financial performance of the Company or any other factor
the Committee deems relevant.
8
<PAGE> 13
6.2 Option Grant and Agreement. Each Option granted hereunder
shall be evidenced by minutes of a meeting or the written consent of the
Committee and by a written Stock Option Agreement executed by the Company and
the Optionee. The terms of the Option, including the Option's duration, time or
times of exercise, exercise price, whether the Option is intended to be an
Incentive Stock Option, and whether the Option is to be accompanied by the right
to receive a Reload Option, shall be stated in the Stock Option Agreement. No
Incentive Stock Option may be granted more than ten years after the earlier to
occur of the effective date of the Plan or the date the Plan is approved by the
Company's shareholders.
Separate Stock Option Agreements may be used for Options intended to be
Incentive Stock Options and those not so intended, but any failure to use such
separate agreements shall not invalidate, or otherwise adversely affect the
Optionee's interest in, the Options evidenced thereby.
6.3 Optionee Limitations. The Committee shall not grant an
Incentive Stock Option to any person who, at the time the Incentive Stock Option
is granted:
(a) is not an employee of the Company or any of its Subsidiaries;
or
(b) owns or is considered to own stock possessing at least 10% of
the total combined voting power of all classes of stock of the Company or any of
its Parent or Subsidiary corporations; provided, however, that this limitation
shall not apply if at the time an Incentive Stock Option is granted the Exercise
Price is at least 110% of the Fair Market Value of the Stock subject to such
Option and such Option by its terms would not be exercisable after five years
from the date on which the Option is granted. For the purpose of this subsection
(b), a person shall be considered to own: (i) the stock owned, directly or
indirectly, by or for his or her brothers and sisters (whether by whole or half
blood), spouse, ancestors and lineal descendants; (ii) the stock owned, directly
or indirectly, by or for a corporation, partnership, estate, or trust in
proportion to such person's stock interest, partnership interest or beneficial
interest therein; and (iii) the stock which such person may purchase under any
outstanding options of the Employer or of any Parent or Subsidiary of the
Employer.
6.4 $100,000 Limitation. Except as provided below, the Committee
shall not grant an Incentive Stock Option to, or modify the exercise provisions
of outstanding Incentive Stock Options held by, any person who, at the time the
Incentive Stock Option is granted (or modified), would thereby receive or hold
any Incentive Stock Options of the Employer and any Parent or Subsidiary of the
Employer, such that the aggregate Fair Market Value (determined as of the
respective dates of grant or modification of each option) of the stock with
respect to which such Incentive Stock Options are exercisable for the first time
during any calendar year is in excess of $100,000 (or such other limit as may be
prescribed by the Code from time to time); provided that the foregoing
restriction on modification of outstanding Incentive Stock Options shall not
preclude the Committee from modifying an outstanding Incentive Stock Option if,
as a result of such modification and with the consent of the Optionee, such
Option no longer constitutes an Incentive Stock Option; and provided that, if
the $100,000 limitation (or such other limitation prescribed by the Code)
described in this Section 6.4 is exceeded, the Incentive Stock Option, the
granting or modification of which resulted in the exceeding of such limit, shall
9
<PAGE> 14
be treated as an Incentive Stock Option up to the limitation and the excess
shall be treated as an Option not qualifying as an Incentive Stock Option.
6.5 Exercise Price. The Exercise Price of the Stock subject to
each Option shall be determined by the Committee. Subject to the provisions of
Section 6.3(b) hereof, the Exercise Price of an Incentive Stock Option shall not
be less than the Fair Market Value of the Stock as of the date the Option is
granted (or in the case of an Incentive Stock Option that is subsequently
modified, on the date of such modification).
6.6 Exercise Period. The period for the exercise of each Option
granted hereunder shall be determined by the Committee, but the Stock Option
Agreement with respect to each Option intended to be an Incentive Stock Option
shall provide that such Option shall not be exercisable after the expiration of
ten years from the date of grant (or modification) of the Option.
6.7 Option Exercise.
(a) Unless otherwise provided in the Stock Option
Agreement or Section 6.6 hereof, an Option may be exercised at any time or from
time to time during the term of the Option as to any or all full shares which
have become Purchasable under the provisions of the Option, but not at any time
as to less than 100 shares unless the remaining shares that have become so
Purchasable are less than 100 shares. The Committee shall have the authority to
prescribe in any Stock Option Agreement that the Option may be exercised only in
accordance with a vesting schedule during the term of the Option.
(b) An Option shall be exercised by (i) delivery to the
Company at its principal office a written notice of exercise with respect to a
specified number of shares of Stock and (ii) payment to the Company at that
office of the full amount of the Exercise Price for such number of shares in
accordance with Section 6.7(c). If requested by an Optionee, an Option may be
exercised with the involvement of a stockbroker in accordance with the federal
margin rules set forth in Regulation T (in which case the certificates
representing the underlying shares will be delivered by the Company directly to
the stockbroker).
(c) The Exercise Price is to be paid in full in cash upon
the exercise of the Option and the Company shall not be required to deliver
certificates for the shares purchased until such payment has been made;
provided, however, that in lieu of cash, all or any portion of the Exercise
Price may be paid by tendering to the Company shares of Stock duly endorsed for
transfer and owned by the Optionee, or by authorization to the Company to
withhold shares of Stock otherwise issuable upon exercise of the Option, in each
case to be credited against the Exercise Price at the Fair Market Value of such
shares on the date of exercise (however, no fractional shares may be so
transferred, and the Company shall not be obligated to make any cash payments in
consideration of any excess of the aggregate Fair Market Value of shares
transferred over the aggregate Exercise Price); provided further, that the Board
may provide in a Stock Option Agreement (or may otherwise determine in its sole
discretion at the time of exercise) that, in lieu of cash or shares, all or a
portion of the Exercise Price may be paid by
10
<PAGE> 15
the Optionee's execution of a recourse note equal to the Exercise Price or
relevant portion thereof, subject to compliance with applicable state and
federal laws, rules and regulations.
(d) In addition to and at the time of payment of the
Exercise Price, the Optionee shall pay to the Company in cash the full amount of
any federal, state, and local income, employment, or other withholding taxes
applicable to the taxable income of such Optionee resulting from such exercise;
provided, however, that in the discretion of the Committee any Stock Option
Agreement may provide that all or any portion of such tax obligations, together
with additional taxes not exceeding the actual additional taxes to be owed by
the Optionee as a result of such exercise, may, upon the irrevocable election of
the Optionee, be paid by tendering to the Company whole shares of Stock duly
endorsed for transfer and owned by the Optionee, or by authorization to the
Company to withhold shares of Stock otherwise issuable upon exercise of the
Option, in either case in that number of shares having a Fair Market Value on
the date of exercise equal to the amount of such taxes thereby being paid, and
subject to such restrictions as to the approval and timing of any such election
as the Committee may from time to time determine to be necessary or appropriate
to satisfy the conditions of the exemption set forth in Rule 16b-3 under the
Exchange Act, if such rule is applicable.
(e) The holder of an Option shall not have any of the
rights of a shareholder with respect to the shares of Stock subject to the
Option until such shares have been issued and transferred to the Optionee upon
the exercise of the Option.
6.8 Reload Options.
(a) The Committee may specify in a Stock Option Agreement (or may
otherwise determine in its sole discretion) that a Reload Option shall be
granted, without further action of the Committee, (i) to an Optionee who
exercises an Option (including a Reload Option) by surrendering shares of Stock
in payment of amounts specified in Sections 6.7(c) or 6.7(d) hereof, (ii) for
the same number of shares as are surrendered to pay such amounts, (iii) as of
the date of such payment and at an Exercise Price equal to the Fair Market Value
of the Stock on such date, and (iv) otherwise on the same terms and conditions
as the Option whose exercise has occasioned such payment, except as provided
below and subject to such other contingencies, conditions, or other terms as the
Committee shall specify at the time such exercised Option is granted; provided,
that the shares surrendered in payment as provided above must have been held by
the Optionee for at least six months prior to such surrender.
(b) Unless provided otherwise in the Stock Option Agreement, a
Reload Option may not be exercised by an Optionee (i) prior to the end of a
one-year period from the date that the Reload Option is granted, and (ii) unless
the Optionee retains beneficial ownership of the shares of Stock issued to such
Optionee upon exercise of the Option referred to above in Section 6.8(a)(i) for
a period of one year from the date of such exercise.
6.9 Nontransferability of Option. No Option shall be transferable
by an Optionee other than by will or the laws of descent and distribution or, in
the case of non-Incentive Stock Options, pursuant to a Qualified Domestic
Relations Order. During the lifetime of an Optionee,
11
<PAGE> 16
Options shall be exercisable only by such Optionee (or by such Optionee's
guardian or legal representative, should one be appointed).
6.10 Termination of Employment or Service. The Committee shall have
the power to specify, with respect to the Options granted to a particular
Optionee, the effect upon such Optionee's right to exercise an Option of
termination of such Optionee's employment or service under various
circumstances, which effect may include immediate or deferred termination of
such Optionee's rights under an Option, or acceleration of the date at which an
Option may be exercised in full; provided, however, that in no event may an
Incentive Stock Option be exercised after the expiration of ten years from the
date of grant thereof.
6.11 Employment Rights. Nothing in the Plan or in any Stock Option
Agreement shall confer on any person any right to continue in the employ of the
Company or any of its Subsidiaries, or shall interfere in any way with the right
of the Company or any of its Subsidiaries to terminate such person's employment
at any time.
6.12 Certain Successor Options. To the extent not inconsistent with
the terms, limitations and conditions of Code section 422 and any regulations
promulgated with respect thereto, an Option issued in respect of an option held
by an employee to acquire stock of any entity acquired, by merger or otherwise,
by the Company (or any Subsidiary of the Company) may contain terms that differ
from those stated in this Article VI, but solely to the extent necessary to
preserve for any such employee the rights and benefits contained in such
predecessor option, or to satisfy the requirements of Code section 424(a).
6.13 Effect of Change in Control. The Committee may determine, at
the time of granting an Option or thereafter, that such Option shall become
exercisable on an accelerated basis in the event that a Change in Control occurs
with respect to the Company (and the Committee shall have the discretion to
modify the definition of a Change in Control in a particular Option Agreement).
If the Committee finds that there is a reasonable possibility that, within the
succeeding six months, a Change in Control will occur with respect to the
Company, then the Committee may determine that all outstanding Options shall be
exercisable on an accelerated basis.
ARTICLE VII
RESTRICTED STOCK
7.1 Awards of Restricted Stock. The Committee may grant Awards of
Restricted Stock, which shall be governed by a Restriction Agreement between the
Company and the Grantee. Each Restriction Agreement shall contain such
restrictions, terms, and conditions as the Committee may, in its discretion,
determine, and may require that an appropriate legend be placed on the
certificates evidencing the subject Restricted Stock.
Shares of Restricted Stock granted pursuant to an Award hereunder shall
be issued in the name of the Grantee as soon as reasonably practicable after the
Award is granted, provided that the Grantee has executed the Restriction
Agreement governing the Award, the appropriate blank
12
<PAGE> 17
stock powers and, in the discretion of the Committee, an escrow agreement and
any other documents which the Committee may require as a condition to the
issuance of such Shares. If a Grantee shall fail to execute the foregoing
documents within any time period prescribed by the Committee, the Award shall be
void. At the discretion of the Committee, Shares issued in connection with an
Award shall be deposited together with the stock powers with an escrow agent
designated by the Committee. Unless the Committee determines otherwise and as
set forth in the Restriction Agreement, upon delivery of the Shares to the
escrow agent, the Grantee shall have all of the rights of a shareholder with
respect to such Shares, including the right to vote the Shares and to receive
all dividends or other distributions paid or made with respect to the Shares.
7.2 Non-Transferability. Until any restrictions upon Restricted
Stock awarded to a Grantee shall have lapsed in a manner set forth in Section
7.3, such shares of Restricted Stock shall not be transferable other than by
will or the laws of descent and distribution, or pursuant to a Qualified
Domestic Relations Order, nor shall they be delivered to the Grantee.
7.3 Lapse of Restrictions. Restrictions upon Restricted Stock
awarded hereunder shall lapse at such time or times (but, with respect to any
award to a Grantee who is also a Section 16 Insider, not less than six months
after the date of the Award) and on such terms and conditions as the Committee
may, in its discretion, determine at the time the Award is granted or
thereafter.
7.4 Termination of Employment. The Committee shall have the power
to specify, with respect to each Award granted to any particular Grantee, the
effect upon such Grantee's rights with respect to such Restricted Stock of the
termination of such Grantee's employment under various circumstances, which
effect may include immediate or deferred forfeiture of such Restricted Stock or
acceleration of the date at which any then-remaining restrictions shall lapse.
7.5 Treatment of Dividends. At the time an Award of Restricted
Stock is made the Committee may, in its discretion, determine that the payment
to the Grantee of any dividends, or a specified portion thereof, declared or
paid on such Restricted Stock shall be (i) deferred until the lapsing of the
relevant restrictions and (ii) held by the Company for the account of the
Grantee until such lapsing. In the event of such deferral, there shall be
credited at the end of each year (or portion thereof) interest on the amount of
the account at the beginning of the year at a rate per annum determined by the
Committee. Payment of deferred dividends, together with interest thereon, shall
be made upon the lapsing of restrictions imposed on such Restricted Stock, and
any dividends deferred (together with any interest thereon) in respect of
Restricted Stock shall be forfeited upon any forfeiture of such Restricted
Stock.
7.6 Delivery of Shares. Except as provided otherwise in Article IX
below, within a reasonable period of time following the lapse of the
restrictions on shares of Restricted Stock, the Committee shall cause a stock
certificate to be delivered to the Grantee with respect to such shares and such
shares shall be free of all restrictions hereunder.
13
<PAGE> 18
ARTICLE VIII
STOCK APPRECIATION RIGHTS
8.1 SAR Grants. The Committee, in its sole discretion, may grant
to any Grantee a SAR. The Committee may impose such conditions or restrictions
on the exercise of any SAR as it may deem appropriate, including, without
limitation, restricting the time of exercise of the SAR to specified periods as
may be necessary to satisfy the requirements of Rule 16b-3.
8.2 Determination of Price. The SAR Price shall be established by
the Committee in its sole discretion. The SAR Price shall not be less than 100%
of Fair Market Value of the Stock on the date the SAR is granted for a SAR
issued in tandem with an Incentive Stock Option.
8.3 Exercise of a SAR. Upon exercise of a SAR, the Grantee shall
be entitled, subject to the terms and conditions of this Plan and the Agreement,
to receive the excess for each share of Stock being exercised under the SAR of
(i) the Fair Market Value of such share of Stock on the date of exercise over
(ii) the SAR Price for such share of Stock.
8.4 Payment for a SAR. At the sole discretion of the Committee,
the payment of such excess shall be made in (i) cash, (ii) shares of Stock, or
(iii) a combination of both. Shares of Stock used for this payment shall be
valued at their Fair Market Value on the date of exercise of the applicable SAR.
8.5 Status of a SAR under the Plan. Shares of Stock subject to an
Award of a SAR shall be considered shares of Stock which may be issued under the
Plan for purposes of Section 5.1 hereof, unless the Agreement making the Award
of the SAR provides that the exercise of such SAR results in the termination of
an unexercised Option for the same number of shares of Stock.
8.6 Termination of SARs. A SAR may be terminated as follows:
(a) During the period of continuous employment with the
Company, Parent or Subsidiary, a SAR will be terminated only if it has
been fully exercised or it has expired by its terms.
(b) Upon termination of employment, the SAR will terminate
upon the earliest of (i) the full exercise of the SAR, (ii) the
expiration of the SAR by its terms, and (iii) not more than three
months following the date of employment termination; provided, however,
should termination of employment (A) result from the death or Permanent
and Total Disability of the Grantee, the period referenced in clause
(iii) hereof shall be one year or (B) be for Cause, the SAR will
terminate on the date of employment termination. For purposes of the
Plan, a leave of absence approved by the Company shall not be deemed to
be termination of employment unless otherwise provided in the Agreement
or by the Company on the date of the leave of absence.
14
<PAGE> 19
(c) Subject to the terms of the Agreement with the
Grantee, if a Grantee shall die or become subject to a Permanent and
Total Disability prior to the termination of employment with the
Company, Parent or Subsidiary and prior to the termination of a SAR,
such SAR may be exercised to the extent that the Grantee shall have
been entitled to exercise it at the time of death or disability, as the
case may be, by the Grantee, the estate of the Grantee or the person or
persons to whom the SAR may have been transferred by will or by the
laws of descent and distribution.
(d) Except as otherwise expressly provided in the Agreement
with the Grantee, in no event will the continuation of the term of a
SAR beyond the date of termination of employment allow the Employee, or
his beneficiaries or heirs, to accrue additional rights under the Plan,
have additional SARs available for exercise, or receive a higher
benefit than the benefit payable as if the SAR had been exercised on
the date of employment termination.
8.7 No Shareholder Rights. The Grantee shall have no rights as a
shareholder with respect to a SAR. In addition, no adjustment shall be made for
dividends (ordinary or extraordinary, whether in cash, securities or other
property) or distributions or rights except as provided in Section 5.2 hereof.
ARTICLE IX
STOCK CERTIFICATES
The Company shall not be required to issue or deliver any certificate
for shares of Stock purchased upon the exercise of any Option granted hereunder
or any portion thereof, or deliver any certificate for shares of Restricted
Stock granted hereunder, prior to fulfillment of all of the following
conditions:
(a) The admission of such shares to listing on all stock exchanges
on which the Stock is then listed;
(b) The completion of any registration or other qualification of
such shares which the Committee shall deem necessary or advisable under any
federal or state law or under the rulings or regulations of the Securities and
Exchange Commission or any other governmental regulatory body;
(c) The obtaining of any approval or other clearance from any
federal or state governmental agency or body which the Committee shall determine
to be necessary or advisable; and
(d) The lapse of such reasonable period of time following the
exercise of the Option as the Board from time to time may establish for reasons
of administrative convenience.
15
<PAGE> 20
Stock certificates issued and delivered to Grantees shall bear such
restrictive legends as the Company shall deem necessary or advisable pursuant to
applicable federal and state securities laws.
ARTICLE X
TERMINATION AND AMENDMENT
10.1 Termination and Amendment. The Board may at any time terminate
the Plan; provided, however, that the Board (unless its actions are approved or
ratified by the shareholders of the Company within twelve months of the date
that the Board amends the Plan) may not amend the Plan to:
(a) Increase the total number of shares of Stock issuable
pursuant to Incentive Stock Options under the Plan, except as contemplated in
Section 5.2 hereof; or
(b) Change the class of employees eligible to receive
Incentive Stock Options that may participate in the Plan.
10.2 Effect on Grantee's Rights. No termination,
amendment, or modification of the Plan shall affect adversely a Grantee's rights
under a Stock Option Agreement or Restriction Agreement without the consent of
the Grantee or his legal representative.
ARTICLE XI
RELATIONSHIP TO OTHER COMPENSATION PLANS
The adoption of the Plan shall not affect any other stock option,
incentive, or other compensation plans in effect for the Company or any of its
Subsidiaries; nor shall the adoption of the Plan preclude the Company or any of
its Subsidiaries from establishing any other form of incentive or other
compensation plan for employees or Directors of the Company or any of its
Subsidiaries.
ARTICLE XII
MISCELLANEOUS
12.1 Replacement or Amended Grants. At the sole discretion of the
Committee, and subject to the terms of the Plan, the Committee may modify
outstanding Options or Awards or accept the surrender of outstanding Options or
Awards and grant new Options or Awards in substitution for them. However no
modification of an Option or Award shall adversely affect a Grantee's rights
under a Stock Option Agreement or Restriction Agreement without the consent of
the Grantee or his legal representative.
12.2 Forfeiture for Competition. If a Grantee provides services to
a competitor of the Company or any of its Subsidiaries, whether as an employee,
officer, director,
16
<PAGE> 21
independent contractor, consultant, agent, or otherwise, such services being of
a nature that can reasonably be expected to involve the skills and experience
used or developed by the Grantee while an Employee, then that Grantee's rights
under any Options outstanding hereunder shall be forfeited and terminated, and
any shares of Restricted Stock held by such Grantee subject to remaining
restrictions shall be forfeited, subject in each case to a determination to the
contrary by the Committee.
12.3 Plan Binding on Successors. The Plan shall be binding upon
the successors and assigns of the Company.
12.4 Singular, Plural; Gender. Whenever used herein, nouns in the
singular shall include the plural, and the masculine pronoun shall include the
feminine gender.
12.5 Headings, etc., No Part of Plan. Headings of Articles and
Sections hereof are inserted for convenience and reference; they do not
constitute part of the Plan.
12.6 Interpretation. With respect to Section 16 Insiders,
transactions under this Plan are intended to comply with all applicable
conditions of Rule 16b-3 or its successors under the Exchange Act. To the extent
any provision of the Plan or action by the Plan administrators fails to so
comply, it shall be deemed void to the extent permitted by law and deemed
advisable by the Plan administrators.
* * * * *
17
<PAGE> 22
Exhibit A to
The First Bancshares, Inc.
1997 Stock Option Plan -
Form of Stock Option Agreement
THE FIRST BANCSHARES, INC.
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT (this "Agreement"), entered into as of this
____ day of _____, _____, by and between The First Bancshares, Inc., a
Mississippi corporation (the "Company"), and _________________ (the "Optionee").
WHEREAS, on _____________, 1997, the Board of Directors of the Company
adopted a stock option plan known as the "The First Bancshares, Inc. 1997 Stock
Option Plan" (the "Plan"), and recommended that the Plan be approved by the
Company's shareholders; and
WHEREAS, the Committee has granted the Optionee a stock option to
purchase the number of shares of the Company's common stock as set forth below,
and in consideration of the granting of that stock option the Optionee intends
to remain in the employ of the Company; and
WHEREAS, the Company and the Optionee desire to enter into a written
agreement with respect to such option in accordance with the Plan.
NOW, THEREFORE, as an employment incentive and to encourage stock
ownership, and also in consideration of the mutual covenants contained herein,
the parties hereto agree as follows.
1. Incorporation of Plan. This option is granted pursuant to the
provisions of the Plan and the terms and definitions of the Plan are
incorporated herein by reference and made a part hereof. A copy of the Plan has
been delivered to, and receipt is hereby acknowledged by, the Optionee.
2. Grant of Option. Subject to the terms, restrictions,
limitations and conditions stated herein, the Company hereby evidences its grant
to the Optionee, not in lieu of salary or other compensation, of the right and
option (the "Option") to purchase all or any part of the number of shares of the
Company's Common Stock, par value $1.00 per share (the "Stock"), set forth on
Schedule A attached hereto and incorporated herein by reference. The Option
shall be exercisable in the amounts and at the time specified on Schedule A. The
Option shall expire and shall not be exercisable on the date specified on
Schedule A or on such earlier date as determined pursuant to Section 8, 9, or 10
hereof. Schedule A states whether the Option is intended to be an Incentive
Stock Option.
i
<PAGE> 23
3. Purchase Price. The price per share to be paid by the Optionee
for the shares subject to this Option (the "Exercise Price") shall be as
specified on Schedule A, which price shall be an amount not less than the Fair
Market Value of a share of Stock as of the Date of Grant (as defined in Section
11 below) if the Option is an Incentive Stock Option.
4. Exercise Terms. The Optionee must exercise the Option for at
least the lesser of 100 shares or the number of shares of Purchasable Stock as
to which the Option remains unexercised. In the event this Option is not
exercised with respect to all or any part of the shares subject to this Option
prior to its expiration, the shares with respect to which this Option was not
exercised shall no longer be subject to this Option.
5. Option Non-Transferable. No Option shall be transferable by an
Optionee other than by will or the laws of descent and distribution or, in the
case of non-Incentive Stock Options, pursuant to a Qualified Domestic Relations
Order. During the lifetime of an Optionee, Options shall be exercisable only by
such Optionee (or by such Optionee's guardian or legal representative, should
one be appointed).
6. Notice of Exercise of Option. This Option may be exercised by
the Optionee, or by the Optionee's administrators, executors or personal
representatives, by a written notice (in substantially the form of the Notice of
Exercise attached hereto as Schedule B) signed by the Optionee, or by such
administrators, executors or personal representatives, and delivered or mailed
to the Company as specified in Section 14 hereof to the attention of the
President or such other officer as the Company may designate. Any such notice
shall (a) specify the number of shares of Stock which the Optionee or the
Optionee's administrators, executors or personal representatives, as the case
may be, then elects to purchase hereunder, (b) contain such information as may
be reasonably required pursuant to Section 12 hereof, and (c) be accompanied by
(i) a certified or cashier's check payable to the Company in payment of the
total Exercise Price applicable to such shares as provided herein, (ii) shares
of Stock owned by the Optionee and duly endorsed or accompanied by stock
transfer powers having a Fair Market Value equal to the total Exercise Price
applicable to such shares purchased hereunder, or (iii) a certified or cashier's
check accompanied by the number of shares of Stock whose Fair Market Value when
added to the amount of the check equals the total Exercise Price applicable to
such shares purchased hereunder. Upon receipt of any such notice and
accompanying payment, and subject to the terms hereof, the Company agrees to
issue to the Optionee or the Optionee's administrators, executors or personal
representatives, as the case may be, stock certificates for the number of shares
specified in such notice registered in the name of the person exercising this
Option.
7. Adjustment in Option. The number of Shares subject to this
Option, the Exercise Price and other matters are subject to adjustment during
the term of this Option in accordance with Section 5.2 of the Plan.
ii
<PAGE> 24
8. Termination of Employment.
(a) Except as otherwise specified in Schedule A hereto, in the
event of the termination of the Optionee's employment with the Company or any of
its Subsidiaries, other than a termination that is either (i) for cause, (ii)
voluntary on the part of the Optionee and without written consent of the
Company, or (iii) for reasons of death or disability or retirement, the Optionee
may exercise this Option at any time within 30 days after such termination to
the extent of the number of shares which were Purchasable hereunder at the date
of such termination.
(b) Except as specified in Schedule A attached hereto, in the
event of a termination of the Optionee's employment that is either (i) for cause
or (ii) voluntary on the part of the Optionee and without the written consent of
the Company, this Option, to the extent not previously exercised, shall
terminate immediately and shall not thereafter be or become exercisable.
(c) Unless and to the extent otherwise provided in Exhibit A
hereto, in the event of the retirement of the Optionee at the normal retirement
date as prescribed from time to time by the Company or any Subsidiary, the
Optionee shall continue to have the right to exercise any Options for shares
which were Purchasable at the date of the Optionee's retirement provided that,
on the date which is three months after the date of retirement, the Options will
become void and unexercisable unless on the date of retirement the Optionee
enters into a noncompete agreement with The First Bancshares, Inc. and continues
to comply with such noncompete agreement. This Option does not confer upon the
Optionee any right with respect to continuance of employment by the Company or
by any of its Subsidiaries. This Option shall not be affected by any change of
employment so long as the Optionee continues to be an employee of the Company or
one of its Subsidiaries.
9. Disabled Optionee. In the event of termination of employment
because of the Optionee's becoming a Disabled Optionee, the Optionee (or his or
her personal representative) may exercise this Option, within a period ending on
the earlier of (a) the last day of the one year period following the Optionee's
death or (b) the expiration date of this Option, to the extent of the number of
shares which were Purchasable hereunder at the date of such termination.
10. Death of Optionee. Except as otherwise set forth in Schedule A
with respect to the rights of the Optionee upon termination of employment under
Section 8(a) above, in the event of the Optionee's death while employed by the
Company or any of its Subsidiaries or within three months after a termination of
such employment (if such termination was neither (i) for cause nor (ii)
voluntary on the part of the Optionee and without the written consent of the
Company), the appropriate persons described in Section 6 hereof or persons to
whom all or a portion of this Option is transferred in accordance with Section 5
hereof may exercise this Option at any time within a period ending on the
earlier of (a) the last day of the one year period following the Optionee's
death or (b) the expiration date of this Option. If the
iii
<PAGE> 25
Optionee was an employee of the Company at the time of death, this Option may be
so exercised to the extent of the number of shares that were Purchasable
hereunder at the date of death. If the Optionee's employment terminated prior to
his or her death, this Option may be exercised only to the extent of the number
of shares covered by this Option which were Purchasable hereunder at the date of
such termination.
11. Date of Grant. This Option was granted by the Board of
Directors of the Company on the date set forth in Schedule A (the "Date of
Grant").
12. Compliance with Regulatory Matters. The Optionee acknowledges
that the issuance of capital stock of the Company is subject to limitations
imposed by federal and state law and the Optionee hereby agrees that the Company
shall not be obligated to issue any shares of Stock upon exercise of this Option
that would cause the Company to violate law or any rule, regulation, order or
consent decree of any regulatory authority (including without limitation the
Securities and Exchange Commission) having jurisdiction over the affairs of the
Company. The Optionee agrees that he or she will provide the Company with such
information as is reasonably requested by the Company or its counsel to
determine whether the issuance of Stock complies with the provisions described
by this Section 12.
13. Restriction on Disposition of Shares. The shares purchased
pursuant to the exercise of an Incentive Stock Option shall not be transferred
by the Optionee except pursuant to the Optionee's will, or the laws of descent
and distribution, until such date which is the later of two years after the
grant of such Incentive Stock Option or one year after the transfer of the
shares to the Optionee pursuant to the exercise of such Incentive Stock Option.
14. Miscellaneous.
(a) This Agreement shall be binding upon the parties hereto and
their representatives, successors and assigns.
(b) This Agreement is executed and delivered in, and shall be
governed by the laws of, the State of Mississippi.
(c) Any requests or notices to be given hereunder shall be deemed
given, and any elections or exercises to be made or accomplished shall be deemed
made or accomplished, upon actual delivery thereof to the designated recipient,
or three days after deposit thereof in the United States mail, registered,
return receipt requested and postage prepaid, addressed, if to the Optionee, at
the address set forth below and, if to the Company, to the executive offices of
the Company at 6424 U.S. Hwy. 98 West, Suite A, Hattiesburg, Mississippi 39402.
(d) This Agreement may not be modified except in writing executed
by each of the parties hereto.
iv
<PAGE> 26
IN WITNESS WHEREOF, the Board of Directors of the Company has caused
this Stock Option Agreement to be executed on behalf of the Company and the
Company's seal to be affixed hereto and attested by the Secretary or an
Assistant Secretary of the Company, and the Optionee has executed this Stock
Option Agreement under seal, all as of the day and year first above written.
The First Bancshares, Inc. OPTIONEE
By: /s/
___________________________ ___________________________
Name: Name:
Title: Address:
ATTEST: ___________________________
___________________________
______________________________
Secretary/Assistant Secretary
[SEAL]
v
<PAGE> 27
SCHEDULE A
TO
STOCK OPTION AGREEMENT
BETWEEN
THE FIRST BANCSHARES, INC.
AND
__________________________
Dated: ________
1. Number of Shares Subject to Option: _____________________ Shares.
2. This Option (Check one) [ ] is [ ] is not an Incentive Stock Option.
3. Option Exercise Price: $___________ per Share.
4. Date of Grant: ____________
5. Option Vesting Schedule:
Check one:
( ) Options are exercisable with respect to all shares on
or after the date hereof
( ) Options are exercisable with respect to the number of
shares indicated below on or after the date indicated
next to the number of shares:
No. of Shares Vesting Date
------------- ------------
6. Option Exercise Period:
Check One:
( ) All options expire and are void unless exercised on
or before __________ , 19__.
( ) Options expire and are void unless exercised on or
before the date indicated next to the number of
shares:
No. of Shares Vesting Date
------------- ------------
7. Effect of Termination of Employment of Optionee (if different from that
set forth in Sections 8 and 10 of the Stock Option Agreement):
<PAGE> 28
SCHEDULE B
NOTICE OF EXERCISE
The undersigned hereby notifies The First Bancshares, Inc. (the
"Company") of this election to exercise the undersigned's stock option to
purchase __________ shares of the Company's common stock, par value $1.00 per
share (the "Common Stock"), pursuant to the Stock Option Agreement (the
"Agreement") between the undersigned and the Company dated __________.
Accompanying this Notice is (1) a certified or a cashier's check in the amount
of $ payable to the Company, and/or (2) _______________ shares of the Company's
Common Stock presently owned by the undersigned and duly endorsed or accompanied
by stock transfer powers, having an aggregate Fair Market Value (as defined in
the First Bancshares, Inc. 1997 Stock Option Plan) as of the date hereof of
$__________________, such amounts being equal, in the aggregate, to the purchase
price per share set forth in Section 3 of the Agreement multiplied by the number
of shares being purchased hereby (in each instance subject to appropriate
adjustment pursuant to Section 5.2 of the Agreement).
IN WITNESS WHEREOF, the undersigned has set his hand and seal, this ___
day of _______, 19__ .
OPTIONEE [OR OPTIONEE'S
ADMINISTRATOR,
EXECUTOR OR PERSONAL
REPRESENTATIVE]
__________________________________
Name:
Position (if other than Optionee):
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF REGISTRANT
FIRST NATIONAL BANK OF SOUTH MISSISSIPPI
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,458,586
<INT-BEARING-DEPOSITS> 5,540,573
<FED-FUNDS-SOLD> 2,311,386
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 4,216,027
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 4,290,272
<ALLOWANCE> 37,000
<TOTAL-ASSETS> 14,176,760
<DEPOSITS> 7,506,649
<SHORT-TERM> 0
<LIABILITIES-OTHER> 22,936
<LONG-TERM> 0
0
0
<COMMON> 721,848
<OTHER-SE> 6,454,339
<TOTAL-LIABILITIES-AND-EQUITY> 14,176,760
<INTEREST-LOAN> 80,035
<INTEREST-INVEST> 60,738
<INTEREST-OTHER> 183,083
<INTEREST-TOTAL> 449,375
<INTEREST-DEPOSIT> 73,485
<INTEREST-EXPENSE> 79,394
<INTEREST-INCOME-NET> 332,833
<LOAN-LOSSES> 37,148
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 692,907
<INCOME-PRETAX> (355,748)
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (355,748)
<EPS-PRIMARY> (.58)
<EPS-DILUTED> (.58)
<YIELD-ACTUAL> .991
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 0
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 37,000
<ALLOWANCE-DOMESTIC> 37,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
