<PAGE> 1
As filed with the Securities and Exchange Commission on September 14, 1998.
Registration No. 333-61081
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------
AMENDMENT NO. 1 TO THE
FORM SB-2
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
----------------------------
THE FIRST BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Mississippi 6021 64-0862173
- --------------------------------- ---------------------------- --------------------------------
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identificiation
incorporation or organization) Classification Number) No.)
</TABLE>
Post Office Box 15549, Hattiesburg, Mississippi 39404-5549
(601) 268-8998
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
David E. Johnson
President and Chief Executive Officer
Post Office Box 15549
Hattiesburg, Mississippi 39404-5549
(601) 268-8998
(601) 268-8904 (Fax)
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies of all communications, including copies of all communications
sent to agent for service, should be sent to:
Neil E. Grayson, Esq.
Nelson Mullins Riley & Scarborough, L.L.P.
First Union Plaza, Suite 1400
999 Peachtree Street, N.E.
Atlanta, Georgia 30309
(404) 817-6000
(404) 817-6225 (Fax)
Approximate date of commencement of proposed sale to the public: As
soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under
the Securities Act of 1933, check the following box.(X)
If the Registrant elects to deliver its latest annual report to
security holders, or a complete and legible facsimile thereof,
pursuant to Item 11(a)(1) of this form, check the following box: ( )
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please
check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for
the same offering. [_] 33-_________________
If this form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. ( )
If this form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. ( )
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. ( )
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
===============================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PRICE PER SHARE AGGREGATE PRICE(1) FEE(2)
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $1.00 par value..... 533,333 $15.00 $7,999,995 $2,360*
===============================================================================================================
</TABLE>
*Previously paid.
Estimated solely for the purpose of calculating the registration fee pursuant
to Rule 457(a) under the Securities Act of 1933.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE
REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES
THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN
ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL
THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE
COMMISSION, ACTING PURSUANT TO SUCH SECTION 8(A), MAY DETERMINE.
<PAGE> 2
PROSPECTUS
533,333 SHARES
THE FIRST BANCSHARES, INC.
{LOGO}
This Prospectus is for a public offering of up to 533,333 shares of
Common Stock by The First Bancshares, Inc., a Mississippi corporation (the
"Company"). Prior to this offering, there has been only limited trading in the
Common Stock, and the Company does not anticipate a reliable market for the
Common Stock to exist after the offering.
This is a "best efforts" offering by the Company, and it will be
terminated by the Company upon the sale of 533,333 shares or December 31, 1998,
whichever occurs first, unless the Company extends the offering for additional
periods ending no later than May 31, 1999. However, the Company reserves the
right to terminate the offering at any time after the sale of the minimum
offering of 340,000 shares. Subscriptions are binding on subscribers and may
not be revoked by subscribers without the consent of the Company.
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK
IN THIS OFFERING.
-----------------------------------------
THE SECURITIES OFFERED HEREBY ARE NOT SAVINGS OR DEPOSIT ACCOUNTS OR OTHER
OBLIGATIONS OF A BANK OR SAVINGS ASSOCIATION AND ARE NOT INSURED BY THE
SAVINGS ASSOCIATION INSURANCE FUND OR THE BANK INSURANCE FUND OF
THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENTAL AGENCY.
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Price to Public Underwriting Proceeds to the
Discount (1) Company (2)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share....................................... $ 15.00 None $ 15.00
- -----------------------------------------------------------------------------------------------------------------------
Total (Minimum)................................ $5,100,000 None $5,100,000
(Maximum)................................ $7,999,995 None $7,999,995
=======================================================================================================================
</TABLE>
(1) This offering will be made on behalf of the Company primarily by its
directors and executive officers, to whom no commission or other
compensation will be paid on account of such activity. The Company
believes that such officers and directors will not be deemed brokers under
the Securities Exchange Act of 1934 (the "Exchange Act"), based on
reliance on Rule 3a4-1 of the Exchange Act. See "The Offering."
(2) Before deducting expenses related to this offering, estimated to be
approximately $100,000. See "Use of Proceeds."
-----------------------------------------
September 16, 1998
<PAGE> 3
THE FIRST BANCSHARES, INC.
[A map of Mississippi, highlighting Lamar, Forrest, and Jones Counties,
is included here]
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more
detailed information and the Company's consolidated financial statements and
notes thereto appearing elsewhere in this Prospectus. Prospective investors
should consider carefully the information set forth under the heading "Risk
Factors" before investing. This Prospectus contains forward-looking statements
that involve risks and uncertainties. The Company's actual results may differ
materially from the results discussed in the forward-looking statements.
Factors that might cause such a difference include, but are not limited to,
those discussed in "Risk Factors."
THE COMPANY
The First Bancshares, Inc. is a Mississippi bank holding company
formed in 1995 to serve as a holding company for The First National Bank of
South Mississippi (the "Hattiesburg Bank"). The Hattiesburg Bank opened as a
national bank in August 1996 with an office in the Oak Grove community, which
is located on the outskirts of Hattiesburg, Mississippi. The Hattiesburg Bank
opened a branch office in Purvis, Mississippi in November 1996 and plans to
open an additional branch office on Lincoln Road in Hattiesburg in the fourth
quarter of 1998. The Company has grown from approximately $14.2 million in
total assets, $4.3 million in total loans, $7.5 million in deposits, and $6.6
million in shareholders' equity at December 31, 1996, to approximately $36.5
million in total assets, $23.3 million in total loans, $30.0 million in
deposits, and $6.4 million in shareholders' equity at June 30, 1998.
The Company has recently entered into a bank development agreement
with the organizers of The First National Bank of the Pine Belt, a proposed de
novo community bank in Laurel, Mississippi (the "Laurel Bank"). The organizers
of the Laurel Bank (together with members of their families) have indicated
that they intend to purchase an aggregate of 166,667 shares of Common Stock
(approximately $2.5 million) in this offering. The Company intends to use the
first $5.0 million in proceeds from this offering to provide the initial
capitalization of the Laurel Bank, which the Company anticipates will open in
early 1999. The chief executive officer of the Laurel Bank will be William M.
Renovich, Jr., and the initial board of directors of the Laurel Bank will
include the following organizers, as well as David E. Johnson, the Company's
Chairman, President, and Chief Executive Officer, and Charles T. Ruffin, the
Company's Chief Financial Officer:
<TABLE>
<S> <C>
Roy H. Boutwell William M. Renovich, Jr.
Michael W. Chancellor David L. Rice, III, D.M.D.
M. Ray (Hoppy) Cole, Jr. J. Douglas Seidenburg
Peeler G. Lacey, M.D. Ralph T. Simmons
Charles R. Lightsey Josephine E. Waites
Eric E. (Ric) Lindstrom, Jr. Nick D. Welch
John J. McGraw, M.D. William H. Wells
Trent A. Mulloy
</TABLE>
The Company's strategy is for the Hattiesburg Bank and the Laurel Bank
(collectively, the "Banks") to operate on a decentralized basis, emphasizing
each Bank's local board of directors and management and their knowledge of
their local community. Each Bank's local board of directors will act to promote
its Bank and introduce prospective customers to the Bank. The Company believes
that this autonomy will allow each Bank to generate high-yielding loans and to
attract and retain core deposits.
Following the offering, the Company intends to focus on the
development of the Laurel Bank and the continued growth of the Hattiesburg
Bank. While the Company does not intend actively to search for opportunities to
expand into additional markets, the Company may consider opportunities that
arise from time to time. The Company has no specific acquisition or expansion
plans at the current time, other than the development of the Laurel Bank.
The Company's goal is to be the leading community bank holding company
in the Pine Belt region of Mississippi, which includes Lamar, Forrest, and
Jones Counties of Mississippi. The Hattiesburg Bank's primary service area
includes portions of Lamar and Forrest Counties, and the Laurel Bank's primary
service area will include Jones County. The Company believes that there is a
demand for strong community banks in the Pine Belt region, in part as a
3
<PAGE> 5
result of takeovers of several Mississippi-based banks by large southeastern
regional bank holding companies. In many cases when these consolidations occur,
local boards of directors are dissolved and local management is relocated or
terminated. The Company believes this situation creates favorable opportunities
for new community banks with local management and local directors. The Company
believes that the Hattiesburg Bank and the Laurel Bank can be successful in
attracting individuals and small- to medium- sized businesses as customers who
wish to conduct business with a locally owned and managed institution that
takes an active interest in their banking needs and financial affairs. For this
reason, when the Company conducted its initial stock offering in 1996 in
connection with the formation of the Hattiesburg Bank, it sold approximately
97% of the shares to residents of the Pine Belt region of Mississippi,
including approximately 13% to Jones County residents. In this offering, the
Company has agreed with the organizers of the Laurel Bank to allocate
approximately 62% of the shares in the offering to residents of Jones County
and approximately 38% to existing customers of the Hattiesburg Bank and
shareholders of the Company.
The principal executive offices of both the Company and the
Hattiesburg Bank are located on U.S. Highway 98, two miles west of Hattiesburg,
Mississippi. The address of these offices is 6480 U.S. Highway 98 West,
Hattiesburg, Mississippi 39402, and the Company's mailing address is Post
Office Box 15549, Hattiesburg, Mississippi 39404-5549. The Company's telephone
number is (601) 268-8998. The initial office of the Laurel Bank will be located
at 523 Commerce Street, 2nd Floor, Laurel, Mississippi 39440.
THE OFFERING
<TABLE>
<S> <C> <C>
Common Stock offered by the Company............................ Minimum: 340,000 shares
Maximum: 533,333 shares
Common Stock outstanding prior to the offering(1).............. 721,848 shares
Common Stock to be outstanding after the offering(1)........... Minimum: 1,061,848 shares
Maximum: 1,255,181 shares
Use of proceeds................................................ The Company will use approximately $5 million of the
net proceeds of this offering to capitalize the
Laurel Bank and the remaining proceeds to support the
continued growth and expansion of the Hattiesburg
Bank and the Laurel Bank, and for general corporate
purposes. See "Use of Proceeds."
</TABLE>
- ------------------
(1) Excludes 72,185 shares of Common Stock issuable upon the exercise of stock
options outstanding as of the date of this Prospectus, all of which are
exercisable at $10.00 per share.
RISK FACTORS
An investment in the securities offered hereby involves substantial
risks including, among others, the risks associated with the proposed expansion
of the Company, the lack of an established trading market for the Common Stock,
control of a substantial portion of the Common Stock by the directors and
executive officers of the Company and the Banks, the credit risk associated
with the Company's loan portfolio, and the adequacy of the allowance for loan
losses.
4
<PAGE> 6
SUMMARY CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
--------------------- --------------------------
1998 1997 1997 1996
---- ---- ---- ----
STATEMENT OF OPERATIONS DATA: (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net interest income..................... $ 712 $ 335 $ 882 $ 370
Provision for loan losses............... 71 84 156 37
Noninterest income...................... 94 45 216 4
Noninterest expense..................... 722 550 1,203 693
Net income (loss)....................... 13 (254) (262) (356)
BALANCE SHEET DATA:
Total assets............................ $36,539 $21,114 $ 27,527 $ 14,177
Earning assets.......................... 32,610 17,575 23,661 10,854
Investment securities (1)............... 6,390 5,469 4,304 4,216
Loans (2)............................... 23,345 11,151 17,487 4,327
Allowance for loan losses............... 264 122 194 37
Deposits................................ 30,011 14,632 21,058 7,507
Shareholders' equity.................... 6,377 6,373 6,368 6,621
SHARE DATA:
Basic net income (loss) per share (3)... $ 0.02 $ (0.35) $ (0.36) $ (0.58)
Diluted net income (loss) per share (4). 0.02 (0.35) (0.36) (0.58)
Book value per share (period end) (5)... 8.83 8.81 8.82 9.17
Tangible book value per share (period 8.78 8.76 8.75 9.08
end) (5)..............................
Weighted average shares outstanding...... 721,848 721,848 721,848 721,848
PERFORMANCE RATIOS:
Return on average assets................ 0.07% (2.88)% (1.16)% (3.91)%
Return on average equity................ 0.38 (3.91) (4.09) (5.59)
Interest rate spread.................... 4.13 3.01 3.41 1.38
Net interest margin (6)................. 5.03 4.78 4.63 4.76
Efficiency (7).......................... 89.58 144.74 109.56 185.29
ASSET QUALITY RATIOS:
Allowance for loan losses to period end 1.13% 1.09% 1.10% 0.86%
loans (2).............................
Net charge-offs to average loans........ -- -- -- --
Nonperforming assets to period end loans -- -- -- --
and foreclosed property (2)(8)
Nonperforming assets to period end total -- -- -- --
assets (8)............................
CAPITAL AND LIQUIDITY RATIOS: (9)
Average equity to average assets........ 19.35% 36.82% 23.35% 55.46%
Leverage................................ 13.21 21.86 23.24 34.48
Risk-based capital
Tier 1................................ 19.44 26.05 23.63 69.12
Total............................... 20.50 25.38 24.54 69.78
Average loans to average deposits..... 81.31 69.91 79.24 40.29
</TABLE>
- -------------------
(1) Securities held to maturity are stated at amortized cost, and securities
available for sale are stated at fair market value.
(2) Loans are stated net of unearned income, before allowance for loan losses.
(3) Basic net income (loss) per share is computed using the weighted average
number of shares of common stock outstanding for the period.
(4) Diluted net income (loss) per share is computed using the weighted average
number of outstanding shares of common stock and dilutive common stock
equivalents from outstanding unexercised stock options (using the treasury
stock method).
(5) Excludes the effect of any outstanding stock options.
(6) Net interest income divided by average earning assets.
(7) Noninterest expense divided by the sum of net interest income and
noninterest income, net of gains and losses on sales of assets.
(8) The Company did not have any nonperforming assets during the periods
indicated.
(9) Capital and liquidity ratios are for the Hattiesburg Bank, not the Company.
5
<PAGE> 7
RISK FACTORS
An investment in the Common Stock involves certain risks. In addition
to the other information contained in the Prospectus, prospective investors
should consider the following factors in evaluating an investment in the shares
of Common Stock. This Prospectus contains "forward-looking statements" relating
to, without limitation, future economic performance, plans and objectives of
management for future operations, and projections of revenues and other
financial items that are based on the beliefs of the Company's management, as
well as assumptions made by and information currently available to the
Company's management. The words "expect," "estimate," "anticipate," and
"believe," as well as similar expressions, are intended to identify
forward-looking statements. The cautionary statements set forth in this "Risk
Factors" section and elsewhere in this Prospectus identify important factors
with respect to such forward-looking statements, including certain risks and
uncertainties, that could cause actual results to differ materially from those
in such forward-looking statements.
NO ASSURANCE OF REGULATORY APPROVALS FOR THE LAUREL BANK. Before the
Laurel Bank may open, it must obtain approval of its charter application from
the Office of the Comptroller of the Currency (the "OCC") and its application
for deposit insurance from the Federal Deposit Insurance Corporation (the
"FDIC"). The Laurel Bank organizers filed the OCC application on July 31, 1998
and the FDIC application on August 3, 1998. Although the Company anticipates
that the OCC and the FDIC will preliminarily approve these applications prior
to November 30, 1998, there is a risk that the Laurel Bank will fail to obtain
either one or both of these approvals, or that the approvals may not be granted
by this date. The Company anticipates that the OCC will require the Company to
capitalize the Laurel Bank with $5 million, and the Company intends to use the
proceeds of this offering for this purpose. However, there is a risk that the
OCC may require the Company to capitalize the Laurel Bank with more than $5
million, in which case the Company would have to receive additional net
proceeds in the offering, use its existing capital, or obtain additional
capital from another source. The Company has not sought any other source from
which to obtain this capital, and there can be no assurances the Company would
be able to do so.
Before the Company may acquire the common stock of the Laurel Bank,
the Company must obtain the approval of the Board of Governors of the Federal
Reserve System (the "Federal Reserve Board"). The Company intends to file an
application to request this approval in September 1998, and the Company
anticipates receiving this approval prior to December 1998. However, there is a
risk that the Company will fail to obtain this approval, or that the approval
may not be granted by this date.
Any significant delay in obtaining any of the approvals described
above will result in an increase in pre-opening expenses for the Laurel Bank
and may reduce the amount of the Laurel Bank's and the Company's capital,
potential revenues, and income. Because the Company will not be able to open
the Laurel Bank unless the Laurel Bank and the Company obtain the approvals
described above, to reduce the risks to investors in this offering the Company
has decided to place the proceeds from this offering in an escrow account and
will not release the proceeds of the offering from escrow until the following
conditions are met: (a) the Company has accepted subscriptions and payment in
full for a minimum of 340,000 shares (which will result in gross offering
proceeds in excess of $5 million); (b) the Company has obtained approval from
the Federal Reserve Board to acquire the stock of the Laurel Bank; (c) the
Laurel Bank has received preliminary approval of its application for a charter
from the OCC; and (d) the Laurel Bank has received preliminary approval of its
application for deposit insurance from the FDIC. See "The Offering - Conditions
to the Offering and Release of Funds."
RISKS ASSOCIATED WITH OPENING A NEW BANK. The proceeds of the offering
will be used to enhance the Company's capital position and to support its
proposed growth and expansion, including the establishment of the Laurel Bank.
There can be no assurance that the Company will actually experience any
further asset or deposit growth, or that the Company will experience any
favorable results if such growth occurs. The Laurel Bank is currently in the
organizational stage and has no operating history. Although the Hattiesburg
Bank has been operating since August 1996, because of the impact of the
formation of the Laurel Bank and the Company's short history, the Company's
historical results of operations are not necessarily indicative of the
Company's future operations.
As a bank holding company, the Company's continued profitability will
depend entirely upon the operations of the Banks. The operations of the Laurel
Bank will be subject to the risks inherent in the establishment of a new
business and, specifically, of a new bank. The likelihood of the success of
the Laurel Bank must be considered in
6
<PAGE> 8
light of the problems, expenses, complications, and delays frequently
encountered in connection with the development of a new bank and the
competitive environment in which the Laurel Bank will operate. Typically, new
banks incur substantial initial expenses and are not profitable for several
years after commencing business. To commence business, the Laurel Bank must
also attract and retain additional officers and employees. There can be no
assurance that the Laurel Bank will ever operate profitably or that the impact
of its operations will not have a material adverse effect on the results of
operations and financial condition of the Company. The Company believes that
the successful development and initial operation of the Laurel Bank will also
be largely dependent upon the efforts of its organizers. None of the organizers
is obligated to serve as a director of, or to otherwise remain associated with,
the Laurel Bank, although the Company believes they will do so. If the Laurel
Bank's organizers do not remain associated with the Laurel Bank, the results of
operations and the financial condition of the Laurel Bank and the Company could
be materially and adversely affected.
LACK OF ESTABLISHED TRADING MARKET AND POSSIBLE VOLATILITY OF STOCK
PRICE AND QUARTERLY EARNINGS. Prior to this offering, there has been no
established or liquid market for the Common Stock. See "Market for Common
Stock." The public offering price of the Common Stock offered hereby has been
determined solely by the Company and may bear no relationship to the market
price of the Common Stock after this offering. See "The Offering Determination
of the Offering Price." Although the Company has filed a registration statement
with the Securities and Exchange Commission (the "SEC") to register the
issuance of the Common Stock in the offering under the Securities Act of 1933
and intends to make arrangements with one or more market makers to trade the
Common Stock on the OTC Bulletin Board, the Company does not anticipate that a
reliable or liquid secondary trading market for the Common Stock will exist or
develop in the near term following the offering, and there is a risk that no
market will develop for the Common Stock at all.
The Company intends to list the Common Stock on The Nasdaq National
Market, the Nasdaq SmallCap Market, the American Stock Exchange, or another
national securities exchange as soon as it meets the listing requirements to do
so, but the Company does not expect to meet these requirements for at least two
years following the offering. Qualification requirements for The Nasdaq
National Market currently include: (i) net tangible assets of $6,000,000,
pre-tax income of $1,000,000, and 1,100,000 publicly-held shares with a market
value of $8,000,000 held by 400 shareholders, or (ii) net tangible assets of
$18,000,000, two years of operating history, and 1,100,000 publicly-held shares
with a market value of $18,000,000 held by 400 shareholders, or (iii)
$75,000,000 of market capitalization and 1,100,000 publicly-held shares with a
market value of $20,000,000 held by 400 shareholders. The Nasdaq SmallCap
Market and American Stock Exchange have similar listing criteria. There is a
risk that the Company will never qualify for such a listing or will elect not
to list even if it does qualify. As a result, an investment in the Common Stock
may continue to be relatively illiquid for the foreseeable future, and
investors may not be able to dispose of any of their shares except in private,
directly negotiated sales. In addition, sales of substantial amounts of Common
Stock after the offering could adversely affect prevailing market prices. See
"Description of Securities -- Shares Eligible for Future Sale."
Even if a market for the Common Stock does develop after the offering,
the market price of the Common Stock could be subject to significant
fluctuations in response to variations in quarterly and yearly operating
results (which could be substantial in the near term as a result of the
expenses associated with the opening of the Laurel Bank), general trends in the
Company's industry, and other factors. Furthermore, it is possible that in some
future quarter the Company's operating results will be below the expectations
of public market analysts and investors. In such an event, the price of the
Common Stock would likely be materially adversely affected. In addition, the
stock market in recent years has experienced extreme price and volume
fluctuations that have often been unrelated or disproportionate to the
operating performance of affected companies. These broad fluctuations may
adversely affect the market price of the Common Stock. See "Market for Common
Stock."
DEPENDENCE ON SENIOR MANAGEMENT. The Company's growth and development
to date have been largely the result of the contributions of certain of the
senior executive officers of the Company, including David E. Johnson, the
Company's Chairman, President, and Chief Executive Officer, and Charles T.
Ruffin, the Company's Chief Financial Officer and the President of the
Hattiesburg Bank. Future growth and development of the Company will also be
largely dependent on current Company Vice President, William M. Renovich, Jr.,
who will become the Chief Executive Officer of the Laurel Bank upon its
opening. The loss of the services of one or more of these individuals could
have a material adverse effect on the Company's business and development. No
assurance can be given that replacements for any of these officers could be
employed if these officers' services were no longer available. In addition,
continued growth of the Company will require that the Company attract
7
<PAGE> 9
and retain additional personnel with a variety of skills and experience.
Significant competition exists for such personnel with the skills and
experience needed successfully to manage the Company's business and operations.
See "Management."
COMPETITION. The Company encounters strong competition from other
financial institutions within its primary market area. In addition, established
financial institutions not already operating in the Company's primary market
area may, under Mississippi law, open branches in the area at future dates, and
the Company is aware of at least one other de novo bank which plans to open in
the Laurel, Mississippi area in the near future. In the conduct of certain
aspects of its banking business, the Company also competes with savings
institutions, credit unions, mortgage banking companies, consumer finance
companies, insurance companies, and other institutions, some of which are not
subject to the same degree of regulation and restriction imposed upon the
Company. Many of these competitors have substantially greater resources and
lending limits than the Company and offer certain services that the Company
does not currently provide. In addition, many of these competitors have
numerous branch offices located throughout their extended market areas which
provide them with a competitive advantage over the Company. Furthermore, as a
consequence of legislation enacted by the United States Congress, out-of-state
banks are allowed to commence operations and compete in the Company's primary
market areas. No assurance can be given that such competition will not have an
adverse impact on the financial condition and results of operations of the
Company or that the Company will ultimately be able to successfully compete
with other financial institutions in its market. See "Business -- Competition"
and "Supervision and Regulation."
CREDIT RISK; ADEQUACY OF ALLOWANCE FOR LOAN LOSSES. There are risks
inherent in making all loans, including risks with respect to the period of
time over which loans may be repaid, risks resulting from changes in economic
and industry conditions, risks inherent in dealing with individual borrowers,
and, in the case of a collateralized loan, risks resulting from uncertainties
about the future value of the collateral. The Company maintains an allowance
for loan losses based on, among other things, historical experience, an
evaluation of economic conditions, and regular reviews of delinquencies and
loan portfolio quality. Management's judgment about the adequacy of the
allowance is based upon a number of assumptions about future events which it
believes to be reasonable but which may not prove to be accurate, particularly
given the Company's short operating history and rapid growth. Thus, there is a
risk that charge-offs in future periods could exceed the allowance for loan
losses or that substantial additional increases in the allowance for loan
losses could be required. Additions to the allowance for loan losses would
result in a decrease of the Company's net income and, possibly, its capital.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Provision and Allowance for Loan Losses."
POTENTIAL IMPACT OF CHANGES IN INTEREST RATES. The Company's
profitability is primarily dependent on its net interest income, which is the
difference between interest income on interest-earning assets and interest
expense on interest-bearing liabilities. The Company, like most financial
institution holding companies, is affected by changes in general interest rate
levels and other economic factors beyond the Company's control. As of June 30,
1998, the Company had a cumulative one-year positive gap position of 0.24% of
total interest-bearing assets. With a positive gap position, the yields on the
Company's interest-earning assets will likely adjust to changes in market
interest rates at a faster rate than the yields on the Company's interest
bearing liabilities, which means that the Company could be materially and
adversely affected by a period of falling interest rates. Although the Company
has structured its asset and liability management strategies to mitigate the
impact of changes in interest rates, there is a risk that these strategies will
not be successful. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Net Interest Income."
NO DIVIDENDS. The Company has never paid cash dividends on its Common
Stock and in the near-term intends to retain any future earnings to finance its
growth. As the Company's business operations are conducted almost exclusively
through the Hattiesburg Bank and, when it opens, the Laurel Bank, the Company's
ability to pay dividends on the Common Stock will be directly dependent on the
dividends paid by the Banks to the Company. The ability of the Banks to pay
dividends to the Company is subject to the Banks' profitability and to
government regulations that limit the aggregate amount of cash dividends paid
to shareholders based on then-current income levels. There can be no assurance
that either Bank's future earnings will support dividend payments to the
Company. Additionally, there is no restriction on the ability of the Company to
issue shares of stock with preferential dividend rights. See "Dividend Policy,"
"Supervision and Regulation -- Dividends," and "Description of Securities --
Preferred Stock."
8
<PAGE> 10
LOCAL ECONOMIC CONDITIONS. The Company's success is influenced by the
geographic markets served by the Company, including Hattiesburg and, when the
Laurel Bank opens, Laurel, Mississippi. Adverse changes in economic conditions
in these markets would likely impair the Company's ability to collect loans and
could otherwise have a negative effect on the financial condition of the
Company. See "Business -- Marketing Focus."
DILUTION. Purchasers of Common Stock in the offering will experience
immediate dilution in the net tangible book value per share of the Common Stock
from the public offering price. Moreover, in the near-term, the Company expects
that the expenses associated with the offering and the establishment of the
Laurel Bank will result in dilution of the Company's return on equity and
earnings per share. See "Dilution" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
SHARES ELIGIBLE FOR FUTURE SALE. Future sales of substantial amounts
of Common Stock could adversely affect the market price of the Common Stock.
Upon consummation of the offering, the Company will have a minimum of 1,061,848
and a maximum of 1,255,181 shares of Common Stock outstanding, and all of these
shares will be freely tradable without restriction or registration under the
Securities Act of 1933 (the "Securities Act"), unless owned by an affiliate of
the Company. In addition, there are outstanding stock options that the Company
has granted to certain directors, officers, and employees of the Company for
the purchase of an aggregate of 72,185 shares of Common Stock, of which options
for 30,190 shares are currently exercisable at $10.00 per share. The Company
also intends to submit a proposal to its shareholders at its 1999 shareholders
meeting to increase the number of shares authorized for issuance pursuant to
the Company's stock option plan from 72,185 shares to approximately 150,000
shares (or to adopt a new, similar plan to cover these additional shares). The
Company has agreed in the Development Agreement for the Laurel Bank that
options for an aggregate of approximately 32,000 shares will be granted to the
initial members of the board of directors of the Laurel Bank, options for an
aggregate of approximately 21,333 shares will be granted to the initial
executive officers of the Laurel Bank, and options for an aggregate of
approximately 16,000 shares will be granted to members of the Company's board
of directors. See "Management -- Interests of Management and Others in Certain
Transactions." The remaining shares will be available for future option grants
as determined by the Company's Board of Directors, including grants to
employees, officers, and directors of the Company and each of the Banks. See
"Description of Securities -- Shares Eligible for Future Sale."
ISSUANCE OF ADDITIONAL STOCK. Pursuant to its Articles of
Incorporation, the Company has the authority to issue up to 10,000,000 shares
of Common Stock and 10,000,000 shares of Preferred Stock without obtaining
additional shareholder approval. Accordingly, after this offering, the Company
will have the authority to issue up to 8,938,152 (based on the minimum offering
of 340,000 shares) additional shares of Common Stock and all 10,000,000 shares
of Preferred Stock without obtaining additional shareholder approval. Further,
the Board of Directors may issue the Preferred Stock on such terms and with
such rights, preferences, and designations as the Board of Directors may
determine. Issuance of such Preferred Stock could have the effect of delaying,
deterring, or preventing a change in control of the Company. Issuance of
additional shares of Common Stock or Preferred Stock could also result in the
dilution of the voting power of the Common Stock purchased in this offering.
See "Description of Securities -- Common Stock," "-- Preferred Stock," and "--
Certain Antitakeover Effects."
ANTITAKEOVER PROVISIONS; INSIDER CONTROL OF THE COMPANY. Certain
provisions of the Company's Articles of Incorporation could delay or frustrate
the removal of incumbent directors and could make a merger, tender offer, or
proxy contest involving the Company more difficult, even if such events could
be perceived as beneficial to the interests of the shareholders. These
provisions include staggered terms for the Board of Directors and requirements
of super-majority votes to approve the voting rights of persons who acquire
control blocks of the Common Stock. In addition, certain provisions of state
and federal law may also have the effect of discouraging or prohibiting a
future takeover attempt in which shareholders of the Company might otherwise
receive a substantial premium for their shares over then-current market prices.
To the extent that these provisions are effective in discouraging or preventing
takeover attempts, they may tend to reduce the market price for the Common
Stock offered hereby.
Directors and executive officers of the Company currently own in the
aggregate approximately 25.0% of the outstanding shares of Common Stock. The
Company anticipates that its directors and executive officers, as well as the
organizers of the Laurel Bank, may purchase additional shares in this offering,
although there is no requirement for them to do so. Therefore, to the extent
they vote together, after the offering the directors and
9
<PAGE> 11
executive officers of the Company will continue to have the ability to exert
significant influence over the election of the Company's Board of Directors and
other corporate actions requiring shareholder approval. See "Principal
Shareholders" and "Description of Securities -- Certain Antitakeover Effects."
GOVERNMENT REGULATION. The banking industry is heavily regulated. This
regulation is intended primarily for the protection of depositors of the Banks,
not shareholders, and could adversely affect the operations of the Banks, such
as their ability to make loans and attract deposits. In recent years, the
United States Congress has enacted three major pieces of banking legislation:
The Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA"), the Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA"), and the Riegle-Neal Interstate Banking and Branching Efficiency Act
of 1994 (the "Interstate Banking Act"). These three Acts have significantly
changed the commercial banking industry through, among other things, revising
and limiting the types and amounts of investment authority, significantly
increasing minimum regulatory capital requirements, broadening the scope and
power of federal bank and thrift regulators over financial institutions and
affiliated persons in order to protect the deposit insurance funds and
depositors, and significantly enhancing the ability of banks and bank holding
companies to engage in interstate bank acquisition and branching activities.
Additional legislation affecting financial institutions has been proposed and
may be enacted, and regulations now affecting the Company may be modified at
any time. There can be no assurance that any such legislation or modifications
would not adversely affect the business of the Company. The Company is also
affected by the Federal Reserve's monetary policies, and there can be no
assurance that actions by the Federal Reserve will not have an adverse effect
on the deposit levels, loan demand, or the business and earnings of the
Company. See "Supervision and Regulation."
YEAR 2000. Like many financial institutions, the Company relies upon
computers for the daily conduct of its business and for information systems
processing. There is concern among industry experts that on January 1, 2000
computers will be unable to "read" the new year and there may be widespread
computer malfunctions. While the Company believes that it has available
resources and has adopted a plan to address Year 2000 compliance, it is largely
dependent on third party vendors. The Company handles its own data processing
using an IBM AS 400 mainframe computer and software licensed from a third party
vendor. The Company has been informed by this vendor that this software is Year
2000 compliant. The Company is seeking assurances about the Year 2000
compliance with respect to the other third party hardware or software systems
it uses, and the Company believes that its internal systems and software and
the network connections it maintains will be adequately programmed to address
the Year 2000 issue. The Company has also begun testing these systems to
confirm that they will be Year 2000 compliant. Based on information currently
available, management does not believe that the Company will incur significant
costs in connection with the Year 2000 issue. Nevertheless, there is a risk
that some of the hardware or software that the Company uses will not be Year
2000 compliant, and the Company cannot predict with any certainty the costs the
Company will incur to respond to any Year 2000 issues.
Further, the business of many of the Company's customers may be
negatively affected by the Year 2000 issue, and any financial difficulties
incurred by the Company's customers in solving Year 2000 issues could
negatively affect these customers' ability to repay any loans which the Company
may have extended. Therefore, even if the Company does not incur significant
direct costs in connection with responding to the Year 2000 issue, there is a
risk that the failure or delay of the Company's customers or other third
parties in addressing the Year 2000 issue or the costs involved in such process
could have a material adverse effect on the Company's business, financial
condition, or results of operations. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Year 2000."
10
<PAGE> 12
THE OFFERING
GENERAL
The Company is offering for sale a minimum of 340,000 shares and a
maximum of 533,333 shares of its Common Stock at a price of $15.00 per share to
raise gross proceeds of between $5,100,000 and $7,999,995 for the Company. The
minimum purchase for any investor (together with the investor's affiliates) is
100 shares and the maximum purchase for any investor (other than organizers of
the Laurel Bank) is 6,667 shares (approximately $100,000) unless the Company,
in its sole discretion, elects to accept a subscription for a lesser or greater
number of shares.
The organizers of the Laurel Bank (together with members of their
families) intend to purchase an aggregate of at least 166,667 shares of the
Common Stock to be sold in this offering (approximately $2.5 million), and
existing directors and executive officers of the Company may also purchase
shares in the offering. These persons may subscribe for up to 100% of the
shares in the offering if necessary to help the Company achieve the minimum
subscription level necessary to release subscription proceeds from escrow. Any
shares purchased by the organizers of the Laurel Bank or directors and
executive officers of the Company in excess of their original commitment will
be purchased for investment and not with a view to the resale of such shares.
See "Description of Securities -- Shares Eligible for Future Sale." Because
purchases by these persons may be substantial, investors should not place any
reliance on the sale of a specified minimum offering amount as an indication of
the merits of this offering or that such a person's investment decision is
shared by unaffiliated investors.
Subscriptions to purchase shares will be received until 6:00 p.m.,
Hattiesburg, Mississippi time, on December 31, 1998, unless all of the shares
are earlier sold or the offering is earlier terminated or extended by the
Company. See "Conditions to the Offering and Release of Funds." The Company
reserves the right to terminate the offering at any time or to extend the
expiration date for additional periods not to extend beyond May 31, 1999. The
date the offering terminates is referred to in this prospectus as the
"Expiration Date." Any extension of the offering period will not alter the
binding nature of subscriptions already accepted by the Company. The Company is
subject to the reporting requirements of the Securities Exchange Act of 1934
(the "Exchange Act") and will make the periodic reports it files pursuant to
these requirements available to subscribers who request a copy. In addition,
the Company intends to provide quarterly communications to all subscribers
which will include information concerning any extensions of the offering. The
Company will not be required to provide notice of an extension of the offering
period prior to the extension. Extension of the Expiration Date might cause an
increase in the expenses and in the expenses incurred with this offering.
Following acceptance by the Company, subscriptions will be binding on
and may not be revoked by subscribers except with the consent of the Company.
In addition, the Company reserves the right to cancel accepted subscriptions at
any time and for any reason until the proceeds of this offering are released
from escrow (for additional information on this matter, please refer to the
section "Conditions to the Offering and Release of Funds" below), and the
Company reserves the right to reject any subscription, or a portion of any
subscription, in its sole discretion. The Company may, in its sole discretion,
allocate shares among subscribers in the event of an oversubscription for the
shares. In determining which subscriptions to accept, the Company may take into
account any factors it considers relevant, including the order in which
subscriptions are received, a subscriber's potential to do business with, or to
direct customers to, either of the Banks, and the Company's desire to sell
approximately 62% of the shares in the offering to residents of Jones County
and approximately 38% to existing customers of the Hattiesburg Bank and
shareholders of the Company. If the Company rejects any subscription, or
accepts a subscription but in its discretion subsequently elects to cancel all
or part of that subscription, the Company will refund promptly the amount
remitted that corresponds to $15.00 multiplied by the number of shares as to
which the subscription is rejected or canceled. Certificates representing
shares duly subscribed and paid for will be issued by the Company promptly
after the offering conditions are satisfied and escrowed funds are delivered to
the Company.
CONDITIONS TO THE OFFERING AND RELEASE OF FUNDS
Subscription proceeds accepted by the Company for the initial 340,000
shares subscribed for in this offering will be promptly deposited in an escrow
account with the Hattiesburg Bank until the conditions to this offering have
been satisfied or the offering has been terminated. The offering will be
terminated, no shares will
11
<PAGE> 13
be issued, and no subscription proceeds will be released from escrow to the
Company, unless on or before the Expiration Date:
(a) the Company has accepted subscriptions and payment in full for a
minimum of 340,000 shares (which will result in gross offering
proceeds in excess of $5 million);
(b) the Company has obtained approval from the Federal Reserve Board to
acquire the stock of the Laurel Bank;
(c) the Laurel Bank has received preliminary approval of its application
for a charter from the OCC; and
(d) the Laurel Bank has received preliminary approval of its application
for deposit insurance from the FDIC.
Any subscription proceeds accepted after satisfaction of the conditions
set forth above but before termination of this offering will not be deposited
in escrow but will be available for immediate use by the Company.
If the above conditions are not satisfied by the Expiration Date or the
offering is otherwise earlier terminated:
(a) accepted subscription agreements will be of no further force or effect
and subscribers in the offering will not be shareholders of the
Company;
(b) the funds held in the escrow account will not be subject to the claims
of any creditor of the Company or available to defray the expenses of
this offering; and
(c) the full amount of all subscription funds will be returned promptly to
subscribers, without interest. The Company will retain any interest
earned on subscriptions to repay the expenses incurred by the Company
in organizing the Laurel Bank.
Subscription funds held in escrow will be invested in short-term
United States Treasury securities or such other investments as the Company may
determine. The Company does not intend to invest the subscription proceeds held
in escrow in instruments that would mature after the Expiration Date of the
offering.
DETERMINATION OF THE OFFERING PRICE
The Company determined the offering price of the Common Stock based on
a number of factors, including the Company's assessment of the value of the
Common Stock based on the financial and operating history and trends of the
Company, the experience of its management, the position of the Company in its
industry, and the Company's prospects and financial results. The Company also
considered the price of recent trades in the Common Stock of which management
is aware. However, no established trading market has developed and trading in
the Common Stock is limited and sporadic. The Company issued 721,848 shares
(100%) of its currently issued and outstanding Common Stock in its initial
public offering, which closed on August 27, 1996. The price per share in the
initial public offering was $10.00. The Company is not aware of all prices at
which the Common Stock has been traded since the initial offering. Based on
information available to the Company from a limited number of sellers and
purchasers of Common Stock, the Company is aware of several transactions
between August 27, 1996 and December 31, 1996, all of which were at $10.00 per
share, and the Company believes transactions in the Common Stock ranged from
$10.00 to $12.00 during 1997 and from $12.00 to $17.50 from January 1, 1998
through June 30, 1998. There is a risk that investors in this offering will not
be able to resell their shares of Common Stock at a price equal to or greater
than $15.00 per share, particularly since the Company does not expect that an
active market will develop for the shares in the short term following the
offering. See "Risk Factors -- Lack of Established Trading Market and Possible
Volatility of Stock Price and Quarterly Earnings."
MINIMUM AND MAXIMUM PURCHASES
The minimum purchase for any person is 100 shares ($1,500), unless the
Company, in its sole discretion, waives this requirement in a particular case
and agrees to accept a subscription for a lesser number of shares. The maximum
purchase for any person or household (other than organizers of the Laurel Bank)
is 6,667 shares (approximately $100,000), unless the Company, in its sole
discretion, waives this requirement in a particular case and agrees to accept a
subscription for a larger number of shares.
12
<PAGE> 14
METHOD OF DISTRIBUTION
The Common Stock is being offered and sold through the efforts of the
directors and executive officers of the Company. Their activities in connection
with this offering will be in addition to their other duties, and they will not
receive any additional compensation, commission, or other remuneration for such
activities.
HOW TO SUBSCRIBE
Each prospective investor who desires to purchase shares of Common
Stock should:
1. Complete, date, and execute the Subscription Agreement which
has been delivered with this Prospectus;
2. Make a check, bank draft, or money order payable to The First
Bancshares, Inc., in the amount of $15.00 times the number of
shares subscribed for; and
3. Deliver the completed Subscription Agreement and check to the
Company at either of the following addresses:
<TABLE>
<S> <C>
David E. Johnson William M. Renovich, Jr.
President and Chief Executive Officer Vice President, proposed CEO of the Laurel Bank
The First Bancshares, Inc. The First Bancshares, Inc.
P.O. Box 15549 523 Commerce Street, 2nd Floor
Hattiesburg, Mississippi 39404-5549 Laurel, Mississippi 39440
</TABLE>
If you have any questions about the offering or how to subscribe,
please call Mr. Johnson at (601) 268-8998 or Mr. Renovich at (601) 426-6003.
Subscribers should retain a copy of the completed Subscription Agreement for
their records. The subscription price is due and payable when the Subscription
Agreement is delivered.
USE OF PROCEEDS
The Company estimates that the net proceeds it will receive from the
sale of the Common Stock in this offering will be between approximately $5.0
million (based on the minimum offering of 340,000 shares) and $8.0 million
(based on the maximum offering of 533,333 shares). Upon receipt of final
regulatory approvals associated with the organization of the Laurel Bank as a
wholly-owned subsidiary of the Company, the Company intends to use
approximately $5.0 million of the net proceeds to purchase all of the capital
stock of the Laurel Bank.
The organizers of the Laurel Bank have entered into an option
agreement to purchase for $675,000 an 8.77 acre site on which the Laurel Bank
intends to build its permanent facility. The organizers will assign this option
to the Company, and the Company will purchase this site using existing funds or
the proceeds of this offering. Upon the incorporation and capitalization of the
Laurel Bank, the Company will sell approximately 2.0 acres of this site to the
Laurel Bank for an amount equal to the Company's pro rata cost of purchasing
and developing this site, taking into account site preparation and
improvements. The Company does not anticipate that this price will exceed
$275,000. The Company intends to sell the remaining 6.77 acres to third parties
after the offering.
Any remaining balance of the net proceeds from the offering will be
available for general corporate purposes, including the funding of internal
growth of earning assets at the Hattiesburg Bank and, when it opens, the Laurel
Bank. Management will have significant discretion regarding how and when the
balance of such proceeds will be applied toward the expansion of the Company's
business. Pending application of such proceeds, the Company expects that the
balance of the net proceeds from this offering will be deposited with the
Hattiesburg Bank and, when it opens, the Laurel Bank.
13
<PAGE> 15
Of the $5.0 million received by the Laurel Bank from the sale of its
common stock to the Company, the Laurel Bank will use approximately $220,000 to
reimburse the organizers of the Laurel Bank for organizational and pre-opening
expenses, $250,000 to purchase equipment and furnishings, $275,000 for land
costs and site preparation associated with the acquisition of the Laurel Bank
property, and $1.2 million for the construction of a main office building for
the Laurel Bank. The Laurel Bank will also use approximately $100,000 to outfit
and lease temporary office facilities, which will be used until the Laurel
Bank's permanent facility is completed.
The balance of the proceeds received by the Laurel Bank will be
commingled with funds obtained by the Laurel Bank from other sources,
principally expected to be customer deposits, and will be employed in banking
operations, including making loans to customers, making investments, and, until
operations begin to generate income, payment of current operating expenses
(including management salaries). The amount and manner in which these funds
will be used will be subject to the discretion of the management of the Laurel
Bank based upon current market conditions and, therefore, cannot currently be
definitively quantified.
MARKET FOR COMMON STOCK
Prior to this offering, there has been no established or liquid market
for the Common Stock. Although the Company has filed a registration statement
with the SEC to register the issuance of the Common Stock in the offering under
the Securities Act of 1933 and intends to make arrangements with one or more
market makers to trade the Common Stock on the OTC Bulletin Board, the Company
does not anticipate that a market for the Common Stock will exist or develop in
the near term following the offering, and there is a risk that no market will
develop for the Common Stock at all. The development of a public trading market
depends on the existence of willing buyers and sellers, the presence of which
is not within the control of the Company or any market maker.
The Company intends to list the Common Stock on The Nasdaq National
Market, the Nasdaq SmallCap Market, the American Stock Exchange, or another
securities exchange as soon as it meets the requirements to do so, but the
Company does not expect to meet these listing requirements for at least two
years following the offering. The decisions whether and where to apply for
listing have not yet been made and remain in the discretion of the Company.
There is no assurance that the Company will apply for or be accepted for
listing within any particular period of time, if at all. See "Risk Factors --
Lack of Established Trading Market and Possible Volatility of Stock Price and
Quarterly Earnings."
There is currently no established public trading market in the Common
Stock, and trading and quotations of the Common Stock have been limited and
sporadic. The Company issued 721,848 shares (100%) of its currently issued and
outstanding Common Stock in its initial public offering, which closed on August
27, 1996. The price per share in the initial public offering was $10.00. The
Company is not aware of all prices at which the Common Stock has been traded
since the initial offering. Based on information available to the Company from
a limited number of sellers and purchasers of Common Stock, the Company is
aware of several transactions between August 27, 1996 and December 31, 1996,
all of which were at $10.00 per share, and the Company believes transactions in
the Common Stock ranged from $10.00 to $12.00 during 1997 and from $12.00 to
$17.50 from January 1, 1998 through June 30, 1998.
As of the date of this Prospectus, there were 721,848 shares of Common
Stock outstanding held by 713 shareholders of record.
DIVIDEND POLICY
The Company has not declared or distributed any cash dividends to its
shareholders since its organization in 1995, and the Company does not
anticipate paying any cash dividends in the near future because it intends to
retain its earnings to provide funds to operate and expand the business of the
Company. The future dividend policy of the Company is subject to the discretion
of the Board of Directors and will depend upon a number of factors, including
future earnings, financial condition, cash requirements, and general business
conditions. The Company's ability to distribute cash dividends will depend
entirely upon the Banks' abilities to distribute dividends to the Company. As
national banks, the Banks will be subject to legal limitations on the amount of
dividends they are permitted to pay. For example, the Banks may only pay
dividends out of their net profits then
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<PAGE> 16
on hand, after deducting expenses, including losses and bad debts. See
"Supervision and Regulation -- Dividends."
DILUTION
At June 30, 1998, the Company had a net tangible book value of
approximately $6.3 million, or $8.78 per share. Net tangible book value per
share represents the amount of the Company's shareholders' equity, less
intangible assets, divided by the number of shares of Common Stock outstanding.
Dilution per share to new investors represents the difference between the
amount per share paid by purchasers of shares of Common Stock in this offering
and the pro forma net tangible book value per share of Common Stock immediately
after completion of the offering. The following table illustrates the per share
dilution to new investors based on the minimum offering of 340,000 shares and
the maximum offering of 533,333 shares, after (a) giving effect to the sale by
the Company of such shares of Common Stock in this offering, (b) deducting
estimated offering expenses, and (c) giving effect to the application of the
estimated net proceeds as set forth under "Use of Proceeds":
<TABLE>
<CAPTION>
MINIMUM MAXIMUM
OFFERING OFFERING
---------------- -----------------
<S> <C> <C> <C> <C>
Initial public offering price per share................................ $15.00 $15.00
Net tangible book value per share at June 30, 1998............... $8.78 $8.78
Increase per share attributable to new investors................. 1.89 2.55
----- -----
10.67 11.33
------ ------
Pro forma net tangible book value per share after the offering.........
$ 4.33 $ 3.67
====== ======
Dilution per share to new investors....................................
</TABLE>
The following tables set forth on a pro forma basis, as of June 30,
1998, (a) the number of shares of Common Stock purchased from the Company prior
to the offering and the number of shares purchased in the offering, and (b) the
total consideration and average price per share paid to the Company with
respect to Common Stock held by the existing shareholders of the Company and to
be paid by new investors in the offering.
Based on the maximum offering:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ----------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing shareholders.............................. 721,848 57.5% $ 7,218,480 47.4% $10.00
New investors...................................... 533,333 42.5 7,999,995 52.6 15.00
--------- ------- ------------ -------
Total......................................... 1,255,181 100.0% $ 15,218,475 100.0%
========= ======= ============ =======
</TABLE>
Based on the minimum offering:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ----------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing shareholders.............................. 721,848 68.0% $ 7,218,480 58.6% $10.00
New investors...................................... 340,000 32.0 5,100,000 41.4 15.00
--------- ------- ------------ -------
Total......................................... 1,061,848 100.0% $ 12,318,480 100.0%
========= ======= ============ =======
</TABLE>
The foregoing tables assume no exercise of outstanding stock options.
As of the date of this Prospectus, there are outstanding options to purchase an
aggregate of 72,185 shares of Common Stock at an exercise price of $10.00 per
share. To the extent outstanding options are exercised, there will be further
dilution to new investors.
15
<PAGE> 17
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company at June 30, 1998, and as adjusted to reflect the sale of a minimum of
340,000 and a maximum of 533,333 shares of Common Stock in this offering at an
initial public offering price of $15.00 per share and the application of the
net proceeds therefrom as set forth under "Use of Proceeds."
<TABLE>
<CAPTION>
JUNE 30, 1998
--------------------------------
AS ADJUSTED, AS ADJUSTED,
MINIMUM MAXIMUM
ACTUAL OFFERING OFERING
-------- ------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
SHAREHOLDERS' EQUITY:
Preferred stock, par value $1.00 per share,
10,000,000 shares authorized, no shares issued or outstanding ..... -- -- --
Common stock, par value $1.00 per share; 10,000,000
shares authorized, 721,848 shares issued and
outstanding - actual; 1,061,848 shares issued and
outstanding - as adjusted for the minimum offering;
1,255,181 shares issued and outstanding - as adjusted
for the maximum offering (1)....................................... $ 722 1,062 1,255
Additional paid-in capital............................................. 6,451 11,111 13,818
Accumulated deficit.................................................... (804) (804) (804)
Unrealized gain on securities available for sale....................... 8 8 8
------- ------------- -------
Total shareholders' equity............................................. $ 6,377 $ 11,377 $14,277
======= ============= =======
</TABLE>
- -----------------
(1) Excludes 72,185 shares of Common Stock issuable upon exercise of stock
options outstanding as of June 30, 1998, at an exercise price of $10.00
per share.
16
<PAGE> 18
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected financial data for each of the years ended
December 31, 1997 and 1996 and the six months ended June 30, 1998 and 1997 is
derived from, and is qualified in its entirety by, the consolidated financial
statements, including the accompanying notes, of the Company included elsewhere
in the Prospectus. The financial statements for the years ended December 31,
1997 and 1996 were audited by T.E. Lott & Co., independent auditors. The
selected consolidated financial data as of and for the six months ended June
30, 1998 and 1997 has not been audited but, in the opinion of management,
contains all adjustments (consisting of only normal recurring adjustments)
necessary to present fairly the financial position and results of operations of
the Company as of such dates and for such periods in accordance with generally
accepted accounting principles. The financial data for the year ended December
31, 1996 reflects approximately five months of operations and seven months of
organizational and pre-opening activities, as the Hattiesburg Bank opened for
business on August 5, 1996. The selected financial data should be read in
conjunction with the consolidated financial statements of the Company,
including the accompanying notes, included elsewhere herein.
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEARS ENDED
JUNE 30, DECEMBER 31,
--------------------- -----------------------
1998 1997 1997 1996
---- ---- ---- ----
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Interest income.......................... $ 1,376 $ 560 $ 1,523 $ 449
Interest expense......................... 664 225 641 79
------- -------- -------- --------
Net interest income...................... 712 335 882 370
Provision for loan losses................ 71 84 156 37
------- -------- -------- --------
Net interest income after provision for 641 251 725 333
loan losses............................
Noninterest income....................... 94 45 216 4
Noninterest expense...................... 722 550 1,203 693
------- -------- -------- --------
Net income (loss)........................ $ 13 $ (254) $ (262) $ (356)
======= ======== ======== ========
BALANCE SHEET DATA:
Total assets............................. $36,539 $ 21,114 $ 27,527 $ 14,177
Earning assets........................... 32,610 17,575 23,661 10,854
Investment securities (1)................ 6,390 5,469 4,304 4,216
Loans (2)................................ 23,345 11,151 17,487 4,327
Allowance for loan losses................ 264 122 194 37
Deposits................................. 30,011 14,632 21,058 7,507
Shareholders' equity..................... 6,377 6,373 6,368 6,621
SHARE DATA:
Basic net income (loss) per $ 0.02 $ (0.35) $ (0.36) $ (0.58)
share (3)..............................
Diluted net income (loss) per 0.02 (0.35) (0.36) (0.58)
share (4)..............................
Book value per share (period 8.83 8.81 8.82 9.17
end) (5)...............................
Tangible book value per share (period 8.78 8.76 8.75 9.08
end)(5)................................
Weighted average shares outstanding 721,848 721,848 721,848 721,848
PERFORMANCE RATIOS:
Return on average assets................. 0.07% (2.88)% (1.16)% (3.91)%
Return on average equity................. 0.38 (3.91) (4.09) (5.59)
Interest rate spread..................... 4.13 3.01 3.41 1.38
Net interest margin (6).................. 5.03 4.78 4.63 4.76
Efficiency (7)........................... 89.58 144.74 109.56 185.29
ASSET QUALITY RATIOS:
Allowance for loan losses to period end 1.13% 1.09% 1.10% 0.86%
loans (2)..............................
Net charge-offs to average loans -- -- -- --
Nonperforming assets to period end -- -- -- --
loans and foreclosed property (2)(8)...
Nonperforming assets to period end total -- -- -- --
assets (8).............................
CAPITAL AND LIQUIDITY RATIOS (9):
Average equity to average assets......... 19.35% 36.82% 23.35% 55.46%
Leverage (4.00% required minimum)........ 13.21 21.86 23.24 34.48
Risk-based capital
Tier 1................................. 19.44 26.05 23.63 69.12
Total.................................. 20.50 25.38 24.54 69.78
Average loans to average deposits........ 81.31 69.91 79.24 40.29
</TABLE>
- --------------------
(1) Securities held to maturity are stated at amortized cost, and securities
available for sale are stated at fair market value.
(2) Loans are stated net of unearned income, before allowance for loan losses.
(3) Basic net income per share is computed using the weighted average number of
shares of common stock for the period.
(4) Diluted net income (loss) per share is computed using the weighted average
number of outstanding shares of common stock and dilutive common stock
equivalents from stock options (using the treasury stock method).
(5) Excludes the effect of any outstanding stock options.
(6) Net interest income divided by average earning assets.
(7) Noninterest expense divided by the sum of net interest income and
noninterest income, net of gains and losses on sales of assets.
(8) The Company did not have any nonperforming assets during the periods
indicated.
(9) Capital and liquidity ratios are for the Hattiesburg Bank, not the Company.
17
<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company was incorporated on June 23, 1995 to serve as a holding
company for the Hattiesburg Bank. The Hattiesburg Bank began operations on
August 5, 1996 from its main office in the Oak Grove community, which is on the
outskirts of Hattiesburg, Mississippi, and in November 1996 opened a branch
office in Purvis, Mississippi. The Hattiesburg Bank plans to open an additional
branch office on Lincoln Road in Hattiesburg in the fourth quarter of 1998. In
June 1998, the Company entered into a bank development agreement with the
organizers of the Laurel Bank, a proposed de novo community bank in Laurel,
Mississippi. The Company anticipates that the Laurel Bank will open in early
1999. The Company engages in a general commercial and retail banking business
characterized by personalized service and local decision-making, emphasizing
the banking needs of small- to medium-sized businesses, professional concerns,
and individuals.
The Company's primary source of revenue is interest income and fees,
which it earns by lending and investing the funds which are held on deposit.
Because loans generally earn higher rates of interest than investments, the
Company seeks to employ as much of its deposit funds as possible in the form of
loans to individuals, businesses, and other organizations. To ensure sufficient
liquidity, the Company also maintains a portion of the Banks' deposits in cash,
government securities, deposits with other financial institutions, and
overnight loans of excess reserves (known as "Federal Funds sold") to
correspondent banks. The revenue which the Company earns (prior to deducting
its overhead expenses) is essentially a function of the amount of the Company's
loans and deposits, as well as the profit margin ("interest spread") and fee
income which can be generated on these amounts.
The Company has grown from approximately $14.2 million in total
assets, $4.3 million in loans, $7.5 million in deposits, and $6.6 million in
shareholders' equity at December 31, 1996 to approximately $36.5 million in
total assets, $23.3 million in loans, $30.0 million in deposits, and $6.4
million in shareholders' equity at June 30, 1998. The Company enjoyed its first
quarterly profit in the third quarter of 1997 and has earned a profit in each
quarter of 1998. Comparisons of the Company's results for all of the periods
presented should be made with an understanding of the Company's short history.
The following discussion should be read in conjunction with the preceding
"Selected Consolidated Financial Data" and the Company's Financial Statements
and the Notes thereto and the other financial data included elsewhere in this
Prospectus.
The following table demonstrates the Company's growth during each
calendar quarter from August 5, 1996 (when the Hattiesburg Bank opened for
business) through June 30, 1998.
<TABLE>
<CAPTION>
SUMMARY QUARTERLY FINANCIAL DATA
(Dollars in thousands, except per share data)
1998 1997 1996
------------------ ----------------------------------------- -------------------
SECOND FIRST FOURTH THIRD SECOND FIRST FOURTH THIRD
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net interest income.......... $ 364 $ 348 $ 297 $ 250 $ 190 $ 145 $ 116 $ 156
Provision for loan losses.... 28 43 35 38 38 46 31 6
Noninterest income........... 54 40 36 135 28 17 -- 4
Noninterest expense.......... 378 344 333 320 288 262 263 365
Net income (loss)............ 12 1 (35) 27 (111) (143) (163) (201)
Net income (loss) per share.. 0.02 0.01 (0.05) 0.04 (0.15) (0.20) (0.27) (0.28)
SELECTED PERIOD-END BALANCES:
Total assets................. $36,539 $34,276 $27,527 $24,303 $21,114 $17,173 $14,177 $10,208
Earning assets............... 32,610 29,704 23,661 20,389 17,575 14,654 10,854 8,273
Investment securities........ 6,390 5,286 4,304 4,319 5,469 4,126 4,216 1,997
Loans........................ 23,345 21,968 17,487 14,510 11,151 7,619 4,327 1,446
Deposits..................... 30,011 27,771 21,058 17,740 14,632 10,640 7,507 3,385
</TABLE>
18
<PAGE> 20
RESULTS OF OPERATIONS
NET INCOME
The Company's net income for the six months ended June 30, 1998 was
$13,000, or $0.02 per share, as compared to a net loss of $(254,000), or
$(0.35) per share, for the six months ended June 30, 1997. The Company's net
income for the three months ended June 30, 1998 was $12,000 or $0.02 per share,
as compared to a net loss of $(110,000), or $(0.15) per share, for the three
months ended June 30, 1997. Average earning assets increased to $28.3 million
for the six months ended June 30, 1998, as compared to $14.0 million for the
comparable period of 1997. The increase in average earning assets resulted in
an increase in net interest income of $377,000, or 112.5%, to $712,000 for the
six months ended June 30, 1998 as compared to $335,000 for the six months ended
June 30, 1997. In addition, noninterest income increased 108.9%, to $94,000,
for the six months ended June 30, 1998 as compared to $45,000 for the
comparable period of 1997, while noninterest expense increased 31.3%, to
$722,000, for the six months ended June 30, 1998 as compared to $550,000 for
the six months ended June 30, 1997. In addition, noninterest income increased
to $54,000 for the three months ended June 30, 1998 as compared to $28,000 for
the comparable period of 1997, while noninterest expense increased to $378,000
for the three months ended June 30, 1998 as compared to $290,000 for the three
months ended June 30, 1997.
During the year ended December 31, 1997, a $212,000, or 5,300.0%,
increase in noninterest income to $216,000 in 1997 as compared to $4,000 in
1996 significantly contributed to the improvement in net income. The
substantial increase in noninterest income resulted from increased account
charges in 1997, as the Company offered free checking and other lower account
charges as promotional activities during the first several months of operations
of the Hattiesburg Bank in 1996. In addition, noninterest income in 1997
included a one-time gain on the sale of land of $112,000. Increases in
noninterest income also resulted from increased deposit and related account
charges associated with an increase in deposit balances of $13.6 million from
year-end 1996 to year-end 1997. The increases in net interest income and
noninterest income were partially offset by a $510,000 increase in noninterest
expense. The increases in expenses primarily resulted from increases in staff
during this period, as well as higher marketing and advertising expenses during
the Hattiesburg Bank's first full year of operations.
NET INTEREST INCOME
The largest component of net income for the Company is net interest
income, which is the difference between the income earned on assets and
interest paid on deposits and borrowings used to support such assets. Net
interest income is determined by the rates earned on the Company's
interest-earning assets and the rates paid on its interest-bearing liabilities,
the relative amounts of interest-earning assets and interest-bearing
liabilities, and the degree of mismatch and the maturity and repricing
characteristics of its interest-earning assets and interest-bearing
liabilities.
Net interest income was $712,000 for the six months ended June 30,
1998 as compared to $335,000 for the six months ended June 30, 1997. This
112.5% increase reflected the substantial growth of the Company's loan
portfolio between these periods, which resulted in substantial improvements in
the Company's net interest spread and net interest margin. Net interest income
was $364,000 for the three months ended June 30, 1998 as compared to $190,000
for the three months ended June 30, 1997. Net interest spread, the difference
between the yield on earning assets and the rate paid on interest-bearing
liabilities, was 4.13% for the six months ended June 30, 1998 as compared to
3.01% for the six months ended June 30, 1997. Net interest margin (which is net
interest income divided by average interest-earning assets) increased to 5.03%
for the six months ended June 30, 1998 as compared to 4.78% for the six months
ended June 30, 1997. These increases reflect the fact that loans comprised
75.7% of average earning assets during the first six months of 1998 as compared
to only 53.7% during the same period of 1997. Loans typically provide a higher
yield than the other types of earning assets and thus one of the Company's
goals is to continue to grow the loan portfolio as a percentage of total
earning assets.
Net interest income totaled $882,000 in 1997 and $370,000 in 1996. Net
interest spread was 3.41% in 1997 as compared to 1.38% in 1996. The Company's
net interest margin also decreased to 4.63% in 1997 as
19
<PAGE> 21
compared to 4.76% in 1996. The Hattiesburg Bank began operations in August
1996, and funds raised from the initial stock offering were invested in
interest-bearing assets without any off-setting deposit costs.
Average Balances, Income and Expenses, and Rates. The following tables
depict, for the periods indicated, certain information related to the Company's
average balance sheet and its average yields on assets and average costs of
liabilities. Such yields are derived by dividing income or expense by the
average balance of the corresponding assets or liabilities. Average balances
have been derived from daily averages.
AVERAGE BALANCES, INCOME AND EXPENSES, AND RATES
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------
1997 1996
------------------------- -----------------------------
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
BALANCE EXPENSE RATE BALANCE EXPENSE RATE (2)
------- ------- ------ -------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Earning Assets
Loans (1) ......................................... $ 12,692 $1,142 9.00% $ 1,432 $ 80 9.49%
Securities......................................... 4,720 290 6.14 1,568 61 5.63
Federal funds sold................................. 1,653 91 5.51 2,285 125 5.47
Short-term investments, pre-opening................ -- -- -- 2,486 183 4.85
-------- ------ ------- ------
Total earning assets............................. 19,065 1,523 7.99 7,771 449 6.85
-------- ------ ------- ------
Cash and due from banks............................ 753 313
Premises and equipment............................. 1,956 796
Other assets....................................... 893 231
Allowance for loan losses.......................... (136) --
-------- -------
Total assets..................................... $ 22,531 $ 9,111
======== =======
LIABILITIES
Interest-bearing liabilities....................... $ 13,987 $ 641 4.58% $ 2,402 $ 79 5.47%
Demand deposits (1)................................ 2,030 313
Other liabilities.................................. 111 25
Shareholders' equity............................... 6,403 6,371
-------- -------
Total liabilities and shareholders' equity....... $ 22,531 $ 9,111
======== =======
Net interest spread................................ 3.41% 1.38%
Net interest income/margin......................... $ 882 4.63% $ 370 4.76%
====== ======
</TABLE>
- --------------------
(1) All loans and deposits were made to borrowers in the United States. The
Company had no nonaccrual loans during the periods presented.
(2) Annualized.
20
<PAGE> 22
AVERAGE BALANCES, INCOME AND EXPENSES, AND RATES
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-----------------------------------------------------------
1998 1997
-----------------------------------------------------------
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
BALANCE EXPENSE RATE (2) BALANCE EXPENSE RATE (2)
------- ------- -------- ------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Earning Assets
Loans (1) ........................................... $ 21,403 $1,171 10.94% $ 7,517 $ 367 9.76%
Securities........................................... 5,863 171 5.83 4,666 144 6.17
Federal funds sold................................... 1,027 34 6.62 1,825 49 5.37
-------- ------ ------- ------
Total earning assets............................... 28,293 1,376 9.73 14,008 560 8.00
-------- ------ ------- ------
Cash and due from banks.............................. 721 448
Premises and equipment............................... 2,094 1,813
Other assets......................................... 2,060 1,462
Allowance for loan losses............................ (228) (80)
-------- -------
Total assets....................................... $ 32,940 $17,651
======== =======
LIABILITIES
Interest-bearing liabilities......................... $ 23,725 $ 664 5.60% $ 9,009 $ 225 4.99%
Demand deposits (1).................................. 2,716 1,617
Other liabilities.................................... 126 528
Shareholders' equity................................. 6,373 6,497
-------- -------
Total liabilities and shareholders' equity......... $ 32,940 $17,651
======== =======
Net interest spread.................................. 4.13% 3.01%
Net interest income/margin........................... $ 712 5.03% $ 335 4.78%
====== ======
</TABLE>
- --------------------
(1) All loans and deposits were made to borrowers in the United States. The
Company had no nonaccrual loans during the periods presented.
(2) Annualized.
21
<PAGE> 23
Analysis of Changes in Net Interest Income. The following table
presents the dollar amount of changes in interest income and interest expense
attributable to changes in volume and to changes in rate. The combined effect
in both volume and rate which cannot be separately identified has been
allocated proportionately to the change due to volume and due to rate.
ANALYSIS OF CHANGES IN NET INTEREST INCOME
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
----------------------------- ------------------------------
1998 VERSUS 1997 1997 VERSUS 1996
INCREASE (DECREASE) DUE TO INCREASE (DECREASE) DUE TO
----------------------------- ------------------------------
VOLUME RATE NET VOLUME RATE NET
------ ---- --- ------ ---- ---
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
EARNING ASSETS
Loans...................................... $ 754 $ 50 $ 804 $ 1,067 $ (6) $ 1,061
Securities................................. 35 (8) 27 219 10 229
Federal funds sold and securities
purchased under agreements to resell.... (30) 15 (15) (35) 1 (34)
Other short-term investments............... -- -- -- (92) (90) (182)
------- ------- ------- ------- ------- -------
Total interest income................... 759 57 816 1,159 (85) 1,074
------- ------- ------- ------- ------- -------
INTEREST-BEARING LIABILITIES
Interest-bearing transaction accounts...... 23 (2) 21 58 2 60
Money market accounts...................... (23) 18 (5) 123 -- 123
Savings deposits........................... 3 -- 3 2 -- 2
Time deposits.............................. 347 73 420 398 (21) 377
------- ------- ------- ------- ------- -------
Total interest expense.................. 350 89 439 581 (19) 562
------- ------- ------- ------- ------- -------
Net interest income........................ $ 409 $ (32) $ 377 $ 578 $ (66) $ 512
======= ======== ======= ======= ======= =======
</TABLE>
Interest Sensitivity. The Company monitors and manages the pricing and
maturity of its assets and liabilities in order to diminish the potential
adverse impact that changes in interest rates could have on its net interest
income. A monitoring technique employed by the Company is the measurement of
the Company's interest sensitivity "gap," which is the positive or negative
dollar difference between assets and liabilities that are subject to interest
rate repricing within a given period of time. The Company also performs
asset/liability modeling to assess the impact varying interest rates and
balance sheet mix assumptions will have on net interest income. Interest rate
sensitivity can be managed by repricing assets or liabilities, selling
securities available-for-sale, replacing an asset or liability at maturity, or
adjusting the interest rate during the life of an asset or liability. Managing
the amount of assets and liabilities repricing in the same time interval helps
to hedge the risk and minimize the impact on net interest income of rising or
falling interest rates. The Company evaluates interest sensitivity risk and
then formulates guidelines regarding asset generation and repricing, funding
sources and pricing, and off-balance sheet commitments in order to decrease
interest rate sensitivity risk.
22
<PAGE> 24
The following tables illustrate the Company's interest rate
sensitivity and cumulative gap position at December 31, 1997 and June 30, 1998.
<TABLE>
<CAPTION>
DECEMBER 31, 1997
--------------------------------------------------------------
AFTER THREE
WITHIN THROUGH WITHIN GREATER THAN
THREE TWELVE ONE ONE YEAR OR
MONTHS MONTHS YEAR NONSENSITIVE TOTAL
------ ------ ---- ------------ -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Earnings Assets
Loans.................................. $ 6,687 $ 3,636 $ 10,323 $ 7,164 $ 17,487
Securities............................. 1,007 1,776 2,783 1,521 4,304
Funds sold............................. 1,870 -- 1,870 -- 1,870
--------- --------- --------- --------- ---------
Total earning assets................. 9,564 5,412 14,976 8,685 23,661
--------- --------- --------- --------- ---------
LIABILITIES
Interest-bearing liabilities
Interest-bearing deposits
NOW accounts (1)....................... -- 2,370 2,370 -- 2,370
Money market accounts.................. 4,296 -- 4,296 -- 4,296
Savings deposits (1) .................. -- 200 200 -- 200
Time deposits.......................... 1,464 5,423 6,887 4,826 11,713
--------- --------- --------- --------- ---------
Total interest-bearing deposits..... 5,760 7,993 13,753 4,826 18,579
--------- --------- --------- --------- ---------
Interest-sensitivity gap per period....... $ 3,804 $ (2,581) $ 1,223 $ 3,859 $ 5,082
========= ========= ========= ========= =========
Cumulative gap at December 31, 1997....... $ 3,804 $ 1,223 $ 1,223 $ 5,082 $ 5,082
========= ========= ========= ========= =========
Ratio of cumulative gap to total
earning assets at December 31, 1997...... 16.08% 5.17% 5.17% 21.47%
<CAPTION>
JUNE 30, 1998
--------------------------------------------------------------
AFTER THREE
WITHIN THROUGH WITHIN GREATER THAN
THREE TWELVE ONE ONE YEAR OR
MONTHS MONTHS YEAR NONSENSITIVE TOTAL
------ ------ ---- ------------ -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Earnings Assets
Loans........................................ $ 9,493 $ 3,624 $ 13,117 $ 10,228 $ 23,345
Securities................................... 897 1,488 2,385 4,005 6,390
Funds sold................................... 2,875 -- 2,875 -- 2,875
--------- --------- --------- --------- ---------
Total earning assets....................... 13,265 5,112 18,377 14,233 32,610
--------- --------- --------- --------- ---------
LIABILITIES
Interest-bearing liabilities
Interest-bearing deposits
NOW accounts (1)............................. -- 2,680 2,680 -- 2,680
Money market accounts........................ 5,498 -- 5,498 -- 5,498
Savings deposits (1) ........................ -- 306 306 -- 306
Time deposits................................ 3,102 6,712 9,814 8,725 18,539
--------- --------- --------- --------- ---------
Total interest-bearing deposits........... 8,600 9,698 18,298 8,725 27,023
--------- --------- --------- --------- ---------
Interest-sensitivity gap per period............. $ 4,665 $ (4,586) $ 79 $ 5,508 $ 5,587
========= ========= ========= ========= =========
Cumulatiave gap at June 30, 1998................ $ 4,665 $ 79 $ 79 $ 5,587 $ 5,587
========= ========= ========= ========= =========
Ratio of cumulative gap to total
earning assets at June 30, 1998.............. 14.31% 0.24% 0.24% 17.13%
</TABLE>
- ------------------
(1) NOW and savings accounts are subject to immediate withdrawal and
repricing. These deposits do not tend to immediately react to changes in
interest rates and the Company believes these deposits are a stable and
predictable funding source. Therefore, these deposits are included in the
repricing period that management believes most closely matches the periods
in which they are likely to reprice rather than the period in which the
funds can be withdrawn contractually.
23
<PAGE> 25
The Company generally would benefit from increasing market rates of
interest when it has an asset-sensitive gap and generally from decreasing
market rates of interest when it is liability sensitive. The Company currently
is asset sensitive over the three month and greater-than-one-year time frames.
However, the Company's gap analysis is not a precise indicator of its interest
sensitivity position. The analysis presents only a static view of the timing of
maturities and repricing opportunities, without taking into consideration that
changes in interest rates do not affect all assets and liabilities equally. For
example, rates paid on a substantial portion of core deposits may change
contractually within a relatively short time frame, but those rates are viewed
by management as significantly less interest-sensitive than market-based rates
such as those paid on non-core deposits. Accordingly, management believes a
liability sensitive-position would not be as indicative of the Company's true
interest sensitivity as it would be for an organization which depends to a
greater extent on purchased funds to support earning assets. Net interest
income is also affected by other significant factors, including changes in the
volume and mix of earning assets and interest-bearing liabilities.
PROVISION AND ALLOWANCE FOR LOAN LOSSES
The Company has developed policies and procedures for evaluating the
overall quality of its credit portfolio and the timely identification of
potential problem loans. Management's judgment as to the adequacy of the
allowance is based upon a number of assumptions about future events which it
believes to be reasonable, but which may not prove to be accurate, particularly
given the Company's short operating history and rapid growth. Thus, there can
be no assurance that charge-offs in future periods will not exceed the
allowance for loan losses or that additional increases in the loan loss
allowance will not be required.
Additions to the allowance for loan losses, which are expended as the
provision for loan losses on the Company's statement of operations, are made
periodically to maintain the allowance at an appropriate level based on
management's analysis of the potential risk in the loan portfolio. Currently,
the allowance for loan losses is evaluated on an overall portfolio basis.
Management intends to begin allocating the allowance to loan categories once
the loan portfolio becomes large and diversified enough to support such an
allocation system. The amount of the provision is a function of the level of
loans outstanding, the level of nonperforming loans, historical loan loss
experience, the amount of loan losses actually charged against the reserve
during a given period, and current and anticipated economic conditions.
At June 30, 1998 the allowance for loan losses amounted to $264,000,
or 1.13% of outstanding loans. At December 31, 1997 and 1996, the allowance for
loan losses amounted to $193,000 and $37,000, respectively. The allowance
represented 1.10% and 0.86% of outstanding loans at December 31, 1997 and 1996,
respectively. The Company's provision for loan losses was $71,000 and $85,000
for the six months ended June 30, 1998 and 1997, respectively, and was $156,000
and $37,000 for the years ended December 31, 1997 and 1996, respectively. The
provision for loan losses was $28,000 and $38,000 for the three months ended
June 30, 1998 and 1997, respectively. In each case, the provision was made
based on management's assessment of general loan loss risk and asset quality.
The Company discontinues accrual of interest on loans when management
believes, after considering economic and business conditions and collection
efforts, that a borrower's financial condition is such that the collection of
interest is doubtful. Generally, the Company will place a delinquent loan in
nonaccrual status when the loan becomes 90 days or more past due. At the time a
loan is placed in nonaccrual status, all interest which has been accrued on the
loan but remains unpaid is reversed and deducted from earnings as a reduction
of reported interest income. No additional interest is accrued on the loan
balance until the collection of both principal and interest becomes reasonably
certain. The Company had no nonaccrual, restructured, or other nonperforming
loans at June 30, 1998 or at December 31, 1997 or 1996. At June 30, 1998 the
Company had loans in the principal amount of $2,000 delinquent by more than 30
days, and no loans that were delinquent by more than 90 days. At December 31,
1997 and 1996, the Company did not have any loans that were delinquent by more
than 30 days.
A potential problem loan is one in which management has serious doubts
about the borrower's future performance under the terms of the loan contract.
These loans are current as to principal and interest and, accordingly, they are
not included in nonperforming assets categories. The level of potential problem
loans is one factor used in the determination of the adequacy of the allowance
for loan losses. At June 30, 1998 and December 31, 1997, the Company had
$225,000 and $30,000, respectively, in potential problem loans.
24
<PAGE> 26
ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
------------------------ -----------------------
1998 1997 1997 1996
---- ---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Average loans outstanding.......................... $ 21,403 $ 7,517 $ 12,692 $ 1,432
======== ======== ======== ========
Loans outstanding at period end.................... $ 23,345 $ 11,151 $ 17,487 $ 4,327
======== ======== ======== ========
Total nonperforming loans.......................... -- -- -- --
======== ======== ======== ========
Beginning balance of allowance..................... 193 37 37 --
Loans charged-off.................................. -- -- -- --
-------- -------- -------- --------
Total loans charged-off............................ -- -- -- --
-------- -------- -------- --------
Total recoveries................................... -- -- -- --
-------- -------- -------- --------
Net loans charged-off.............................. -- -- -- --
-------- -------- -------- --------
Provision for loan losses.......................... 71 85 156 37
-------- -------- -------- --------
Balance at period end.............................. $ 264 $ 122 $ 194 $ 37
======== ======== ======== ========
Net charge-offs to average loans................... -- -- -- --
Allowance as percent of total loans................ 1.13% 1.09% 1.10% 0.86%
Nonperforming loans as a percentage of total loans. -- -- -- --
Allowance as a percentage of nonperforming loans... -- -- -- --
</TABLE>
NONINTEREST INCOME AND EXPENSE
Noninterest Income. The Company's primary source of noninterest income
is service charges on deposit accounts. In addition, the Company originates
mortgage loans, which are closed in the name of a third party, for which the
Company receives a fee. Other sources of noninterest income include bankcard
fees, commissions on check sales, safe deposit box rent, wire transfer fees,
and official check fees.
Total noninterest income increased by $49,000, or 108.9%, to $94,000
during the first six months of 1998 as compared to $45,000 during the same
period in 1997, reflecting increased activity fees related to increases in
deposit and loan balances. Deposit service charges were $68,000 for the first
six months of 1998 as compared to $6,000 for the first six months of 1997.
Total noninterest income increased by $54,000 to $94,000 during the three
months ended June 30, 1998 as compared to $45,000 during the same period in
1997. Deposit service charges were $39,000 for the three months ended June 30,
1998 as compared to $4,000 for the three months ended June 30, 1997.
Noninterest income for the year ended December 31, 1997 was $216,000
as compared to $4,000 for 1996. The substantial increase in noninterest income
resulted from increased account charges in 1997, as the Company offered free
checking and other lower account charges as promotional activities during the
first several months of operations of the Hattiesburg Bank in 1996. In
addition, noninterest income in 1997 included a one-time gain on the sale of
land of $112,000. This increase is also a result of the substantial growth in
deposit account balances and the related deposit account fees. These fees
amounted to $68,000 in 1997 as compared to $2,000 in 1996.
Noninterest Expense. Total noninterest expense increased by $172,000,
or 31.3%, to $722,000 during the first six months of 1998 as compared to
$550,000 during the same period of 1997 as a result of the Company's continued
growth. This increase includes a $78,000 increase in salary and benefits
expense, as the Company employed additional full time employees, a $24,000
increase in occupancy expense, and a $16,000 increase in deposit and other
insurance expense. Total noninterest expense increased by $54,000 to $722,000
during the three months ended June 30, 1998 as compared to $28,000 during the
same period of 1997.
Noninterest expense increased from $693,000 for the year ended
December 31, 1996 to $1.2 million for the year ended December 31, 1997. The
Company experienced increases in most expense categories, which reflects the
growth of the Company during its first full year of operations. The largest
increase was in salary and
25
<PAGE> 27
employee benefits, which increased by $426,000 in 1997 as compared to 1996.
This increase included normal merit increases in salaries as well as the
employment of additional employees in late 1996 and throughout 1997. Occupancy
expense increased from $13,000 in 1996 as compared to $77,000 in 1997. This
increase resulted from costs related to the move to permanent facilities of the
office in January 1997. Equipment expense increased from $52,000 in 1996 as
compared to $123,000 in 1997. This increase is primarily due to an increase in
maintenance expense of banking equipment and to depreciation of newly acquired
equipment. Other expenses, including data processing and marketing expenses,
increased primarily as a result of the growth of the Company in 1997 as
compared to 1996 and the resulting increased lending activities. In light of
the intense competition in the financial services market in recent years,
management emphasizes expense management and will continue to evaluate and
monitor growth in discretionary expense categories in an attempt to control
future increases.
Pre-opening activities accounted for $224,000 of the noninterest
expenses during 1996. These pre-opening activities included the preparation and
filing of applications with various regulators and planning and organizing
activities for the opening of the Hattiesburg Bank.
The following table sets forth the primary components of noninterest
expense for the periods indicated:
NONINTEREST EXPENSE
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEARS ENDED DECEMBER 31,
------------------------------ ------------------------------
1998 1997 1997 1996
---- ---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Salaries and employee benefits..... $375 $297 $ 632 $206
Occupancy.......................... 49 25 77 13
Equipment.......................... 67 53 123 52
Marketing and public relations..... 16 21 43 21
Data processing.................... 11 8 33 22
Supplies........................... 25 21 40 29
Telephone.......................... 13 10 20 16
Correspondent services............. 8 1 13 1
Deposit and other insurance........ 19 3 34 9
Professional fees.................. 13 13 36 19
Postage............................ 12 9 17 5
Other.............................. 114 89 135 76
Pre-opening expense................ -- -- -- 224
---- ---- ------ ----
Total......................... $722 $550 $1,203 $693
==== ==== ====== ====
</TABLE>
INCOME TAX EXPENSE
The Company had a cumulative net operating loss carryforward for the
six months ended June 30, 1998 and for the years ended December 31, 1997 and
1996, respectively. At June 30, 1998 and December 31, 1997, the cumulative net
operating loss carryforward available was approximately $366,000. The Company's
ability to realize a deferred tax benefit as a result of net operating losses
will depend upon whether the Company has sufficient taxable income of an
appropriate character in the carryforward periods. The Company recognizes
deferred tax assets for future deductible amounts resulting from differences in
the financial statement and tax bases of assets and liabilities and operating
loss carryforwards. The Company then establishes a valuation allowance to
reduce the deferred tax asset to the level that it is "more likely than not"
that the tax benefit will be realized. The Company has fully offset the
deferred tax assets resulting primarily from the provision for loan losses, the
deferred pre-opening costs, and the operating loss carryforwards by a valuation
allowance in the same amount.
26
<PAGE> 28
ANALYSIS OF FINANCIAL CONDITION
EARNING ASSETS
Loans. Loans typically provide higher yields than the other types of
earning assets, and thus one of the Company's goals is for loans to be the
largest category of the Company's earning assets. At June 30, 1998, loans
accounted for 72% of earning assets, as compared to 74% and 40% of earning
assets at December 31, 1997 and 1996, respectively. Management attempts to
control and counterbalance the inherent credit and liquidity risks associated
with the higher loan yields without sacrificing asset quality to achieve its
asset mix goals. Loans averaged $12.7 million during 1997, as compared to $1.4
million in 1996, reflecting the substantial growth of the Company during the
period.
The following table shows the composition of the Hattiesburg Bank's
loan portfolio by category:
COMPOSITION OF LOAN PORTFOLIO
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
------------------- --------------------------------------------
1998 1997 1996
------------------- ----------------------- ------------------
PERCENT PERCENT PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL
------- -------- ------- ---------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Commercial, financial $ 8,421 36.1% $ 5,187 29.7% $ 1,106 25.6%
and agricultural..........
Real Estate:
Mortgage-commercial....... 4,551 19.5 4,166 23.8 1,508 34.9
Mortgage-residential...... 4,142 17.7 3,698 21.1 1,205 27.8
Construction.............. 2,442 10.5 2,031 11.6 36 0.8
Consumer and other........... 3,789 16.2 2,405 13.8 472 10.9
------- ----- ------- ----- ------- -----
Total loans............. $23,345 100.0% $17,487 100.0% $ 4,327 100.0%
===== ===== =====
Allowance for loan losses.... 264 193 37
------- ------- -------
Total net loans......... $23,081 $17,294 $ 4,290
======= ======= =======
</TABLE>
In the context of this discussion, a "real estate mortgage loan" is
defined as any loan, other than loans for construction purposes, secured by
real estate, regardless of the purpose of the loan. The Company follows the
common practice of financial institutions in the Company's market area of
obtaining a security interest in real estate whenever possible, in addition to
any other available collateral. This collateral is taken to reinforce the
likelihood of the ultimate repayment of the loan and tends to increase the
magnitude of the real estate loan portfolio component. Generally, the Company
limits its loan-to-value ratio to 80%. Due to the short term the loan portfolio
has existed, the current portfolio may not be indicative of the ongoing
portfolio mix. Management attempts to maintain a conservative philosophy
regarding its underwriting guidelines and believes it will reduce the risk
elements of its loan portfolio through strategies that diversify the lending
mix.
The repayment of loans in the loan portfolio as they mature is a
source of liquidity for the Company. The following table sets forth the
Company's loans maturing within specified intervals at December 31, 1997.
27
<PAGE> 29
LOAN MATURITY SCHEDULE AND SENSITIVITY TO CHANGES IN INTEREST RATES
<TABLE>
<CAPTION>
DECEMBER 31, 1997
--------------------------------------------------------------
OVER ONE YEAR
ONE YEAR THROUGH OVER FIVE
OR LESS FIVE YEARS YEARS TOTAL
-------- ------------- --------- -----
<S> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Commercial, financial and agricultural.. $ 4,511 $ 676 $ -- $ 5,187
Real estate - construction.............. 1,524 507 -- 2,031
All other loans......................... 4,288 5,889 92 10,269
-------- -------- -------- ---------
$ 10,323 $ 7,072 $ 92 $ 17,487
======== ======== ======== =========
Loans maturing after one year with:
Fixed interest rates........................................................ $ 1,625
Floating interest rates..................................................... 5,539
---------
$ 7,164
=========
</TABLE>
The information presented in the above table is based on the
contractual maturities of the individual loans, including loans which may be
subject to renewal at their contractual maturity. Renewal of such loans is
subject to review and credit approval, as well as modification of terms upon
their maturity.
Investment Securities. The investment securities portfolio is a
significant component of the Company's total earning assets. Total securities
averaged $4.7 million in 1997, as compared to $1.6 million in 1996. This
represents 24.8% and 20.2% of the average earning assets for the years ended
December 31, 1997 and 1996, respectively. At June 30, 1998, investment
securities were $6.4 million and represented 19.6% of earning assets. The
Company attempts to maintain a portfolio of high quality, highly liquid
investments with returns competitive with short term U.S. Treasury or agency
obligations. This objective is particularly important as the Company continues
to emphasize increasing the percentage of the loan portfolio to total earning
assets. The Company primarily invests in U.S. Treasury securities and
securities of other U.S. Government agencies with maturities up to five years.
The following table summarizes the book value of securities for the
dates indicated.
SECURITIES PORTFOLIO
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
-------------- ----------------------------
1998 1997 1996
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Available-for-sale
U.S. Treasury......................... $ 503 $ 504 $ --
U.S. Government agencies.............. 3,774 2,635 4,058
Other................................. 1,716 658 158
------- ------- -------
Total available-for-sale.............. 5,993 3,797 4,216
------- ------- -------
Held-to-maturity
U.S. Government agencies.............. $ 397 $ 507 $ --
------- ------- -------
Total..................................... $ 6,390 $ 4,304 $ 4,216
======= ======= =======
</TABLE>
The following table shows, at carrying value, the scheduled maturities
and average yields of securities held at December 31, 1997.
28
<PAGE> 30
INVESTMENT SECURITIES MATURITY DISTRIBUTION AND YIELDS (1)
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-------------------------------------------------------------
AFTER ONE BUT
WITHIN ONE YEAR WITHIN FIVE YEARS AFTER TEN YEARS
--------------- ----------------- -----------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Held-to-maturity: $ -- -- $ -- -- $ -- --
------- ------- -------
U.S. Government agencies (2).....
Available-for-sale:
U.S. Treasury.................... -- -- 504 6.25% -- --
U.S. Government agencies (3)..... -- -- 500 6.06 -- --
Other............................ 490 5.57% -- $ 168 6.00%
------- ------- -------
Total investment securities
available-for-sale........... 490 5.57 1,004 6.13 168 6.00
------- ------- -------
Total investment securities.... $ 490 5.57 $ 1,004 6.13 $ 168 6.00
======= ======= =======
</TABLE>
--------------------
(1) Investments with a call feature are shown as of the contractual maturity
date.
(2) Excludes mortgage-backed securities totaling $507,000 with a yield of
5.00%.
(3) Excludes mortgage-backed securities totaling $2.1 million with a yield of
6.52%.
Short-Term Investments. Short-term investments, which consist of
Federal Funds sold, averaged $1.6 million in 1997 as compared to $2.3 million
in 1996. At June 30, 1998 and December 31, 1997, short-term investments totaled
$2.9 million and $1.8 million, respectively. These funds are a primary source
of the Company's liquidity and are generally invested in an earning capacity on
an overnight basis.
DEPOSITS
Deposits. Average interest-bearing deposits increased $11.6 million,
or 482.3%, to $14.0 million in 1997, from $2.4 million in 1996, and average
total deposits increased $13.3 million, or 489.9%, to $16.0 million in 1997
from $2.7 million in 1996. Average interest-bearing deposits increased $14.7
million, or 163.4%, to $23.7 million, for the six months ended June 30, 1998,
as compared to $9.0 million for the six months ended June 30, 1997. At December
31, 1997, total deposits were $21.0 million, compared to $7.5 million a year
earlier, an increase of 180.5%. At June 30, 1998, total deposits were $30.0
million, an increase of 42.5% from total deposits at December 31, 1997.
The following table sets forth the deposits of the Company by category
for the periods indicated.
<TABLE>
<CAPTION>
DEPOSITS
JUNE 30, DECEMBER 31,
-------------------- --------------------------------------------
1998 1997 1996
-------------------- --------------------- ----------------------
PERCENT OF PERCENT OF PERCENT OF
AMOUNT DEPOSITS AMOUNT DEPOSITS AMOUNT DEPOSITS
------ ---------- ------ ---------- ------ ----------
<S> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Demand deposit accounts........ $ 3,001 10.0% $ 2,479 11.8% $ 1,566 20.9%
NOW accounts................... 2,680 9.0 2,370 11.3 1,257 16.7
Money market accounts.......... 5,497 18.3 4,296 20.4 2,655 35.4
Savings accounts............... 306 1.0 200 0.9 71 0.9
Time deposits less than 12,218 40.7 7,267 34.5 1,256 16.7
$100,000.......................
Time deposits of $100,000 or
over........................... 6,309 21.0 4,446 21.1 702 9.4
------- ------ -------- ----- -------- -----
Total deposits.............. $30,011 100.0% $ 21,058 100.0% $ 7,507 100.0%
======= ====== ======== ====== ======== =====
</TABLE>
29
<PAGE> 31
The Company's loan-to-deposit ratio was 77.8% at June 30, 1998, 83.0% at
December 31, 1997, and 57.6% at December 31, 1996. The loan-to-deposit ratio
averaged 79.2% during 1997. Core deposits, which exclude time deposits of
$100,000 or more, provide a relatively stable funding source for the Company's
loan portfolio and other earning assets. The Company's core deposits were $23.7
million at June 30, 1998 and $16.6 million at December 31, 1997. Management
anticipates that a stable base of deposits will be the Company's primary source
of funding to meet both its short-term and long-term liquidity needs in the
future. The Company also purchases brokered deposits from time to time to help
fund loan growth and maintain a loan-to-deposit ratio under 80.0%. Brokered
deposits and jumbo certificates of deposit generally carry a higher interest
rate than traditional core deposits. Further, brokered deposit customers
typically do not have loan or other relationships with the Company. The Company
has adopted a policy not to permit brokered deposits to represent more than 10%
of all of the Company's deposits. Certificates of deposit included brokered
deposits totaling $500,000 at June 30, 1998, representing only 1.7% of the
Company's total deposits at that date.
The maturity distribution of the Company's certificates of deposits of
$100,000 or more at June 30, 1998 and December 31, 1997 is shown in the
following table. The Company did not have any other time deposits of $100,000
or more at either of these dates.
MATURITIES OF CERTIFICATES OF DEPOSIT
OF $100,000 OR MORE
<TABLE>
<CAPTION>
AFTER THREE
WITHIN THREE THROUGH AFTER TWELVE
MONTHS TWELVE MONTHS MONTHS TOTAL
------------ ------------- ------------ -------
<S> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
December 31, 1997................... $ 508 $2,639 $1,299 $ 4,446
June 30, 1998....................... $1,631 $2,108 $2,570 $ 6,309
</TABLE>
Borrowed funds. Borrowed funds consist primarily of short-term
borrowings in the form of Federal Funds purchased from correspondent banks and
securities sold under agreements to repurchase. The Company did not have any
short-term borrowings in 1997 or during the first six months of 1998. Although
the Company may use short-term borrowings as a secondary funding source from
time to time, management expects that core deposits will continue to be the
Company's primary funding source.
CAPITAL
Total shareholders' equity as of December 31, 1997 was $6.3 million, a
decrease of $253,000, or approximately 3.8%, compared with shareholders' equity
of $6.6 million as of December 31, 1996. This decrease was primarily
attributable to a net loss from operations for the year ended December 31, 1997
of $262,000.
The Federal Reserve Board and bank regulatory agencies require bank
holding companies and financial institutions to maintain capital at adequate
levels based on a percentage of assets and off-balance sheet exposures,
adjusted for risk weights ranging from 0% to 100% (the Federal Reserve grants
an exemption from these requirements for bank holding companies with less than
$150 million in consolidated assets, and therefore the Company's capital is
currently measured only at the Hattiesburg Bank level). Under the risk-based
standard, capital is classified into two tiers. Tier 1 capital consists of
common shareholders' equity, excluding the unrealized gain (loss) on
available-for-sale securities, minus certain intangible assets. Tier 2 capital
consists of the general reserve for loan losses subject to certain limitations.
An institution's qualifying capital base for purposes of its risk-based capital
ratio consists of the sum of its Tier 1 and Tier 2 capital. The regulatory
minimum requirements are 4% for Tier 1 and 8% for total risk based capital.
Bank holding companies and banks are also required to maintain capital
at a minimum level based on total assets, which is known as the leverage ratio.
The minimum requirement for the leverage ratio is 3%. All but the highest rated
institutions are required to maintain ratios 100 to 200 basis points above the
minimum. The Company and the Hattiesburg
30
<PAGE> 32
Bank exceeded their minimum regulatory capital ratios as of December 31, 1997
and 1996. See also "Supervision and Regulation - Capital Regulations."
ANALYSIS OF CAPITAL
<TABLE>
<CAPTION>
REGULATORY MINIMUMS
------------------------- THE COMPANY THE HATTIESBURG BANK
CAPITAL RATIOS ADEQUATELY WELL ------------------- --------------------
CAPITALIZED CAPITALIZED DECEMBER 31, DECEMBER 31,
----------- ----------- ------------------- --------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Leverage.............. 4.0% 5.0% 30.3% 116.6% 23.2% 34.5%
Risk-based capital
Tier 1........... 4.0% 6.0% 30.7% 91.3% 23.6% 69.1%
Total............ 8.0% 10.0% 31.7% 91.8% 24.5% 69.8%
</TABLE>
LIQUIDITY MANAGEMENT
Liquidity management involves monitoring the Company's sources and
uses of funds in order to meet its day-to-day cash flow requirements while
maximizing profits. Liquidity represents the ability of a company to convert
assets into cash or cash equivalents without significant loss and to raise
additional funds by increasing liabilities. Liquidity management is made more
complicated because different balance sheet components are subject to varying
degrees of management control. For example, the timing of maturities of the
investment portfolio is very predictable and subject to a high degree of
control at the time investment decisions are made. However, net deposit inflows
and outflows are far less predictable and are not subject to the same degree of
control. Asset liquidity is provided by cash and assets which are readily
marketable, which can be pledged, or which will mature in the near future.
Liability liquidity is provided by access to core funding sources, principally
the ability to generate customer deposits in the Company's market area.
The Company sold 721,848 shares during its initial public offering in
1996, with net proceeds, after offering expenses, of $7.1 million.
Approximately $5.3 million of the proceeds of the offering were used to
capitalize the Hattiesburg Bank. The remaining offering proceeds were used to
provide working capital for the Company. With the successful completion of the
initial public offering, the Company has maintained a high level of liquidity
that has been adequate to meet planned capital expenditures, as well as
providing the necessary cash requirements of the Company needed for operations.
The Company's Federal Funds sold position, which is typically its primary
source of liquidity, averaged $1.7 million during the year ended December 31,
1997 and was $1.9 million at December 31, 1997.
Management regularly reviews the liquidity position of the Company and
has implemented internal policies which establish guidelines for sources of
asset-based liquidity and limit the total amount of purchased funds used to
support the balance sheet and funding from non-core sources. The Company
intends to use the net proceeds of the offering to finance the formation and
initial growth of the Laurel Bank, as well as to support the continued growth
of the Hattiesburg Bank. See "Use of Proceeds." The Company anticipates that
the net proceeds of the offering will be adequate for the establishment of this
institution and the Company's capital needs for the foreseeable future.
However, should the Company need additional capital to support growth, it would
likely obtain loans from third parties.
ACCOUNTING MATTERS
In June 1997, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standard ("SFAS") No. 130, "Reporting
Comprehensive Income." SFAS 130 established standards for reporting and display
of comprehensive income and its components (revenues, expenses, gains, and
losses) in a full set of general purpose financial statements. SFAS 130
requires that all items that are required to be recognized under accounting
standards as components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements. SFAS 130 requires that companies (i) classify items of other
comprehensive income by their nature in a financial statement and (ii) display
the accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of the statement
of financial position at the end of an accounting period. SFAS 130 is effective
for fiscal years beginning after December 31, 1997, and the Company began
following the statement in the first quarter of 1998. As required by the
statement, reclassification of earlier periods has been reflected in the
financial statements included elsewhere herein.
31
<PAGE> 33
In June 1998, the FASB issued SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting and
reporting standards for derivative instruments and hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in its financial statements and that those instruments be measured
at fair value. Implementation is required for all fiscal quarters of fiscal
years beginning after June 15, 1999. The Company has not determined the impact
the adoption of this statement may have on its consolidated financial
statements.
YEAR 2000
Like many financial institutions, the Company relies upon computers
for the daily conduct of its business and for information systems processing.
There is concern among industry experts that on January 1, 2000 computers will
be unable to "read" the new year, which may result in widespread computer
malfunctions. While the Company believes that it has available resources and
has adopted a plan to address Year 2000 compliance, it is largely dependent on
third party vendors. The Company handles its own data processing using an IBM
AS 400 mainframe computer and software licensed from a third party vendor. The
Company has been informed by this vendor that this software is Year 2000
compliant. The Company is seeking assurances about the Year 2000 compliance
with respect to the other third party hardware or software systems it uses, and
the Company believes that its internal systems and software and the network
connections it maintains will be adequately programmed to address the Year 2000
issue. The Company has also begun testing these systems to confirm that they
will be Year 2000 compliant. Based on information currently available,
management does not believe that the Company will incur significant costs in
connection with the Year 2000 issue. Nevertheless, there is a risk that some of
the hardware or software that the Company uses will not be Year 2000 compliant,
and the Company cannot predict with any certainty the costs the Company will
incur to respond to any Year 2000 issues. Factors which may affect the amount
of these costs include the Company's inability to control third party
modification plans, the Company's ability to identify and correct all relevant
computer codes, the availability and cost of engaging personnel trained in
solving Year 2000 issues, and other similar uncertainties.
Further, the business of many of the Company's customers may be
negatively affected by the Year 2000 issue, and any financial difficulties
incurred by the Company's customers in solving Year 2000 issues could
negatively affect those customers' ability to repay any loans which the Company
may have extended. Therefore, even if the Company does not incur significant
direct costs in connection with responding to the Year 2000 issue, there can be
no assurance that the failure or delay of the Company's customers or other
third parties in addressing the Year 2000 issue or the costs involved in such
process will not have a material adverse effect on the Company's business,
financial condition, or results of operations.
IMPACT OF INFLATION
Unlike most industrial companies, the assets and liabilities of
financial institutions such as the Company are primarily monetary in nature.
Therefore, interest rates have a more significant effect on the Company's
performance than do the effects of changes in the general rate of inflation and
change in prices. In addition, interest rates do not necessarily move in the
same direction or in the same magnitude as the prices of goods and services. As
discussed previously, management seeks to manage the relationships between
interest sensitive assets and liabilities in order to protect against wide
interest rate fluctuations, including those resulting from inflation.
32
<PAGE> 34
BUSINESS
OVERVIEW
The Company is a bank holding company headquartered in Hattiesburg,
Mississippi which currently operates through one community bank (the
Hattiesburg Bank) and is in the process of developing an additional community
bank (the Laurel Bank) in the Pine Belt region of Mississippi. The Company was
organized in 1995 by a group of business leaders from the Forrest and Lamar
County areas of Mississippi to serve as a holding company for the Hattiesburg
Bank, which opened on August 6, 1996. In June 1998, the Company reached an
agreement with a group of business leaders from the Jones County area to form
the Laurel Bank as a subsidiary of the Company. The Company anticipates that
the Laurel Bank will open during the first quarter of 1999. Each of the
Hattiesburg Bank and the Laurel Bank will be independently managed community
banks that serve their respective local markets but which share a common vision
and benefit from the strength, resources, and economies of a larger
institution.
The Company's goal is to be the leading community bank holding company
in the Pine Belt region of Mississippi, which includes Lamar, Forrest, and
Jones Counties of Mississippi. The Company believes that there is a demand for
strong community banks in the Pine Belt region, in part as a result of
takeovers of several Mississippi-based banks by large southeastern regional
bank holding companies. In many cases, when these consolidations occur, local
boards of directors are dissolved and local management is relocated or
terminated. The Company believes this situation creates favorable opportunities
for new community banks with local management and local directors. The Company
believes that the Hattiesburg Bank and the Laurel Bank can be successful in
attracting individuals and small- to medium-sized businesses as customers who
wish to conduct business with a locally owned and managed institution that
demonstrates an active interest in their business and personal financial
affairs.
MARKETING FOCUS
The Hattiesburg Bank's primary service area includes portions of Lamar
and Forrest Counties, and the Laurel Bank's primary service area will include
Jones County, Mississippi. According to the U.S. Census Bureau, Lamar County is
one of the fastest growing counties in Mississippi with a population of 33,642
in 1995, reflecting a 10.6% increase from the 1990 population of 30,424. The
per capita income in Lamar County was $14,450 in 1993, as compared to $14,858
for Mississippi as a whole. Similarly, the population of Forrest County grew
6.5%, from 68,134 to 72,553, between 1990 and 1995, and the population of Jones
County grew 1.6%, from 62,031 to 63,001, during this period. In 1993, the per
capita income was $14,824 in Forrest County and $15,146 in Jones County, as
compared to $14,858 for Mississippi as a whole.
Total nonagricultural employment in Lamar, Forrest, and Jones Counties
grew by 6.7%, 4.1%, and 2.0% respectively from 1995 to 1997. During the same
time, unemployment fell from 3.3% to 2.6% in Lamar County, from 4.4% to 3.4% in
Forrest County, and from 4.0% to 3.6% in Jones County, all of which are lower
than the 5.7% unemployment rate for the State of Mississippi.
Most of the banks in the Pine Belt region are local branches of large
regional banks. Although size gives the larger banks certain advantages in
competing for business from large corporations, including higher lending limits
and the ability to offer services in other areas of Mississippi and elsewhere,
the Company believes that there remains a demand for community banks in the
Pine Belt region that the Company can successfully fulfill. As a result, the
Company 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 Company strives to provide its customers
with the breadth of products comparable to a regional bank, while maintaining
the quick response and personal service of a locally headquartered bank. The
Company's advertising emphasizes the Company's local ownership, community bank
nature, and ability to provide more personalized service than its competition.
OPERATING AND GROWTH STRATEGY
The Company's goal is to be the leading community bank holding company
in the Pine Belt region. It intends to achieve this goal by providing
personalized service with local management, hiring and retaining well qualified
and
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motivated employees, maintaining high asset quality, increasing asset size
through expansion and internal growth, and offering its customers a breadth of
products comparable to a large regional bank. These goals and the following
strategies and characteristics of the Company are intended to build long-term
shareholder value.
- Personalized Service. The Company strives to provide high
service levels and maintain strong customer relationships. It
seeks customers who prefer to conduct business with a locally
owned and managed institution that demonstrates an active
interest in their business and personal financial affairs.
- Local Ownership. The Company believes that each Bank's ability
to compete with other financial institutions in its respective
market area will be enhanced by its posture as a locally
managed bank with a broad base of local ownership. For this
reason, when the Company conducted its initial stock offering
in 1996 in connection with the formation of the Hattiesburg
Bank, it sold approximately 97% of the shares to residents of
the Pine Belt region of Mississippi, including approximately
13% of the shares to Jones County residents. In this offering,
the Company has agreed with the organizers of the Laurel Bank
to allocate approximately 62% of the shares in the offering to
residents of Jones County and approximately 38% to existing
customers of the Hattiesburg Bank and shareholders of the
Company. In addition, the organizers of the Laurel Bank, all
of whom reside in Jones County, have indicated that they each
intend to purchase a significant amount of Common Stock in the
offering. The Company believes that local ownership of the
Company's Common Stock is a highly effective means of
attracting customers, fostering loyalty to the Banks, and
maintaining asset quality.
- Local Management and Community Focus. The Company emphasizes
its local management and decision-making and approaches
banking with a community focus. The Company's strategy is for
the Hattiesburg Bank and the Laurel Bank to operate on a
decentralized basis, emphasizing each Bank's local board of
directors and management and their knowledge of their local
community. Each Bank's local board of directors will act to
promote its Bank and introduce prospective customers to the
Bank. The Company believes that this autonomy will allow each
Bank to generate high yielding loans and attract and retain
core deposits. The Hattiesburg Bank serves the cities of
Hattiesburg and Purvis and the surrounding areas of Lamar and
Forrest Counties, Mississippi. The Laurel Bank will serve the
city of Laurel and the surrounding area of Jones County,
Mississippi. Most of the executive officers and directors of
the Hattiesburg Bank and the organizers of the Laurel Bank are
long-time residents of their respective communities, and all
management decisions of each Bank will be made locally.
- Motivated Employees. The Company believes that the key to its
success lies with its employees, because it is through the
employees that the Company is able to provide its banking
customers with a very high level of service and attention. The
Company seeks to hire well qualified banking professionals who
are committed to providing a superior level of banking service
and are willing to accept a significant degree of
responsibility. The Company believes it can provide a very
high level of customer service and satisfaction. Each employee
focuses on the individual needs of the Company's customers and
strives to deliver the specific products and services that
will best help these customers achieve their financial goals.
- High Asset Quality. The Company places a great deal of
emphasis on maintaining high asset quality and believes that
the outstanding asset quality it has experienced to date is
principally due to the relationship of its lenders, senior
officers, and directors to their customers and their
significant knowledge of the communities in which they reside.
Since the Hattiesburg Bank's inception through June 30, 1998,
the Hattiesburg Bank has never charged off any loans. The
Company intends to continue to emphasize high asset quality
through operation of the Laurel Bank.
- Formation of the Laurel Bank and Internal Growth. The Company
has recently entered into a bank development agreement with
the organizers of the Laurel Bank, a proposed de novo
community bank in Laurel, Mississippi, and the Company intends
to use the first $5 million in proceeds from this offering to
provide the initial capitalization of the Laurel Bank. In
addition, the Hattiesburg Bank has grown significantly since
opening in August 1996, and the Company intends to use a
portion of the proceeds of this offering to support the
Hattiesburg Bank's continued growth, including the opening of
an additional branch office in the Hattiesburg area in the
fourth quarter of 1998 at the corner of Lincoln Road and South
28th Avenue in Hattiesburg. Following the opening of the
Laurel Bank, the Company will continue to focus on acquiring
market share, particularly from large Southeastern regional
bank holding companies, by emphasizing its local management
and decision-making and personal services.
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BANKING SERVICES
The Company strives to provide its customers with the
breadth of products and services comparable to those offered by large regional
banks, while maintaining the quick response and personal service of a locally
owned and managed bank. In addition to offering a full range of deposit
services and commercial and personal loans, the Hattiesburg Bank offers
products such as mortgage loan originations. The following is a description of
the products and services currently offered by the Hattiesburg Bank. The
Company anticipates that the Laurel Bank will offer similar products and
services when it opens.
- Deposit Services. The Hattiesburg 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
Hattiesburg Bank's principal market area at rates competitive
to those offered by other banks in the area. In addition, the
Hattiesburg Bank offers certain retirement account services,
such as Individual Retirement Accounts (IRAs). All deposit
accounts are insured by the Federal Deposit Insurance
Corporation (the "FDIC") up to the maximum amount allowed by
law. The Hattiesburg Bank solicits these accounts from
individuals, businesses, associations and organizations, and
governmental authorities.
- Loan Products. The Hattiesburg Bank offers a full range of
commercial and personal loans. Commercial loans include both
secured and unsecured loans for working capital (including
loans secured by inventory and accounts receivable), business
expansion (including acquisition of real estate and
improvements), and purchase of equipment and machinery.
Consumer loans include equity lines of credit and secured and
unsecured loans for financing automobiles, home improvements,
education, and personal investments. The Hattiesburg Bank also
makes real estate construction and acquisition loans. The
Hattiesburg 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 Hattiesburg Bank), in general the
Hattiesburg Bank is subject to a loans-to-one-borrower limit
of an amount equal to 10% of the Hattiesburg Bank's unimpaired
capital and surplus. The Hattiesburg Bank may not make any
loans to any director, officer, employee, or 10% shareholder
of the Hattiesburg Bank unless the loan is approved by the
Board of Directors of the Hattiesburg Bank and is made on
terms not more favorable to such a person than would be
available to a person not affiliated with the Hattiesburg
Bank.
- Mortgage Loan Division. The Hattiesburg Bank recently
established a mortgage loan division through which it will
broaden the range of services that it offers to its customers.
The mortgage loan division originates loans to purchase
existing or construct new homes and to refinance existing
mortgages. The Hattiesburg Bank anticipates generating
additional fee income by selling most of these loans in the
secondary market and cross-selling its other products and
services to its mortgage customers.
- Other Services. Other 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 Hattiesburg Bank is associated with
the Money Belt, Gulfnet, and Plus networks of automated teller
machines that may be used by the Hattiesburg Bank's customers
throughout Mississippi and other regions. The Hattiesburg Bank
also offers VISA and MasterCard credit card services through a
correspondent bank as an agent for the Hattiesburg Bank.
LOCATION AND SERVICE AREA
The Hattiesburg Bank. The Hattiesburg Bank serves the cities of
Hattiesburg and Purvis and the surrounding areas of Lamar and Forrest Counties,
Mississippi. The Hattiesburg Bank has a main office located west of the city of
Hattiesburg, Mississippi, in Lamar County. The main office is located in a
10,000 square foot facility which the Company constructed and opened in January
1997 on a two acre plot of land at the southwest corner of U.S. Highway 98 and
Old Highway 11. The Hattiesburg Bank also has a branch office located in a
modular building on Highway 589 in the city of Purvis, Mississippi, also in
Lamar County, and plans to open a third office in the fourth quarter of 1998 in
a 3,300 square foot facility located at the intersection of Lincoln Road and
South 28th Avenue in Hattiesburg.
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The main office primarily serves the area in and around the northern
portion of Lamar County which is west of Hattiesburg. The Purvis 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 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. Major
employers located in the Lamar and Forrest County areas 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 and Forrest County areas
include service industries, wholesale and retail trade, manufacturing, and
transportation and public utilities.
The Laurel Bank. The Laurel Bank will serve the city of Laurel and the
surrounding area of Jones County, Mississippi. The Laurel Bank's permanent main
office will be located at 1945 Highway 15 North, Laurel, Mississippi. During
the first year of operation, the Laurel Bank will operate from a temporary
facility located across the street of the site of its permanent facility, at
1930 Highway 15 North, Laurel, Mississippi. The Laurel Bank expects to draw 75%
of its retail business within a five mile radius of this location, with the
remaining business coming from other areas of Jones County, as well as portions
of Jasper County, Wayne County, Smith County, and Covington County that are
within a 15 mile radius of the Laurel Bank.
COMPETITION
Banks generally compete with other financial institutions through the
selection of banking products and services offered, the pricing of services,
the level of service provided, the convenience and availability of services,
and the degree of expertise and the personal manner in which services are
offered. Mississippi law permits statewide branching by banks and savings
institutions, and many financial institutions in the state have branch
networks. Consequently, commercial banking in Mississippi is highly
competitive. Many large banking organizations currently operate in the
Company's market area, several of which are controlled by out-of-state
ownership. In addition, competition between commercial banks and thrift
institutions (savings institutions and credit unions) has been intensified
significantly by the elimination of many previous distinctions between the
various types of financial institutions and the expanded powers and increased
activity of thrift institutions in areas of banking which previously had been
the sole domain of commercial banks. Recent legislation, together with other
regulatory changes by the primary regulators of the various financial
institutions, has resulted in the almost total elimination of practical
distinctions between a commercial bank and a thrift institution. Consequently,
competition among financial institutions of all types is largely unlimited with
respect to legal ability and authority to provide most financial services.
The Company faces increased competition from both federally-chartered
and state-chartered financial and thrift institutions, as well as credit
unions, consumer finance companies, insurance companies, and other institutions
in the Company's market area. Some of these competitors are not subject to the
same degree of regulation and restriction imposed upon the Company. Many of
these competitors also have broader geographic markets and substantially
greater resources and lending limits than the Company and offer certain
services such as trust banking that the Company does not currently provide. In
addition, many of these competitors have numerous branch offices located
throughout the extended market areas of the Company that may provide these
competitors with an advantage in geographic convenience that the Company does
not have at present.
Currently there are eight other commercial banks, one savings
institution, and three credit unions operating in the Hattiesburg Bank's
primary service area, and six other commercial banks and two credit unions
operating in the Laurel Bank's proposed primary service area. The Company is
also aware of at least one other de novo bank which plans to open in the
Laurel, Mississippi area in the near future.
LEGAL PROCEEDINGS
The Company has not been a party to any legal proceedings. Management
does not believe that there is any threatened proceeding against the Company
which, if determined adversely, would have a material effect on the business,
results of operations, or financial position of the Company.
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SUPERVISION AND REGULATION
The Company and the Hattiesburg 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 Banks 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 Hattiesburg Bank
and will own the outstanding capital stock of the Laurel 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 Banks' activities are limited to banking,
managing or controlling banks, furnishing services to or performing services
for its subsidiaries, and 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 has done) 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, nonbanking 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.
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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 Banks, and such loans may be repaid from
dividends paid from the Banks to the Company (although the ability of the Banks
to pay dividends is subject to regulatory restrictions as described below in
"The Banks - Dividends"). The Company is also able to raise capital for
contribution to the Banks 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 Banks and to commit resources to support the Banks 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 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 BANKS
The Hattiesburg Bank operates, and the Laurel Bank will operate, as a
national banking association incorporated under the laws of the United States
and subject to examination by the OCC. Deposits in the Banks 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 Banks' 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 Banks to maintain certain capital
ratios and imposes limitations on the Banks' aggregate investment in real
estate, bank premises, and furniture and fixtures. The Banks are required by
the OCC to prepare quarterly reports on their financial condition and to
conduct an annual audit of their 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.
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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 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. A
separate Bank Insurance Fund ("BIF") and Savings Association Insurance Fund
("SAIF") are maintained for commercial banks and thrifts, respectively, with
insurance premiums from the industry used to offset losses from insurance
payouts when banks and thrifts fail. Since 1993, insured depository
institutions like the Banks have paid for deposit insurance under a risk-based
premium system. Under this system, until mid-1995 depositor institutions paid
to BIF or SAIF from $0.23 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 semiannual basis. Once the BIF reached its legally mandated
reserve ratio in mid-1995, the FDIC lowered premiums for well-capitalized
banks, eventually to $.00 per $100, with a minimum semiannual assessment of
$1,000. However, in 1996 Congress enacted the Deposit Insurance Funds Act of
1996, which eliminated this minimum assessment. It also separated the Financial
Corporation (FICO) assessment to service the interest on its bond obligations.
The amount assessed on individual institutions, including the Banks, by FICO is
in addition to the amount paid for deposit insurance according to the
risk-related assessment rate schedule. Increases in deposit insurance premiums
or changes in risk classification will increase the Banks' cost of funds, and
there can be no assurance that such cost can be passed on to the Banks'
customers.
Transactions With Affiliates and Insiders. The Banks are subject to
Section 23A of the Federal Reserve Act, which places limits on the amount of
loans to and certain other transactions with affiliates, as well as 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.
The Banks are also subject to Section 23B of the Federal Reserve Act,
which prohibits an institution from engaging in certain transactions with
affiliates unless the transactions are on terms substantially the same, or at
least as favorable to such institution, as those prevailing at the time for
comparable transactions with nonaffiliated companies. The Banks are 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 the bank has transferred to
surplus no less than one-tenth of its 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 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. In addition, under FDICIA, the Banks 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 Banks may open
branches throughout Mississippi with the prior approval of the OCC. In
addition, with prior regulatory approval, the Banks are 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
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(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, the 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 Banks are subject to state usury laws and certain federal
laws concerning interest rates. The Banks' loan operations are 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 Act 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 Banks 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.
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.
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FDICIA established a 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 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, 1997, the
Company and the Hattiesburg 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 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 Company continues 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 could change the Company's capital position in a
relatively short period of time.
Failure to meet these capital requirements would mean that a bank
would be required to develop and file a plan with its primary federal banking
regulator describing the means and a schedule for achieving the minimum capital
requirements. In addition, such a bank would generally not receive regulatory
approval of any application that requires the consideration of capital
adequacy, such as a branch or merger application, unless the bank could
demonstrate a reasonable plan to meet the capital requirement within a
reasonable period of time.
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; 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.
Since June 1, 1997, the Interstate Banking Act has allowed 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 has permitted
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 de novo branches.
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<PAGE> 43
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 Banks
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 to 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.
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<PAGE> 44
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS OF THE COMPANY
The following sets forth certain information regarding the Company's
executive officers and directors as of the date of this Prospectus. In addition
to the individuals described below, the following four organizers of the Laurel
Bank have been appointed to the Company's Board of Directors: M. Ray (Hoppy)
Cole, Jr. (Class III director), David L. Rice, III, D.M.D. (Class I director),
J. Douglas Seidenburg (Class II director), and Ralph T. Simmons (Class III
director). Please see "--Organizers and Proposed Officers and Directors of the
Laurel Bank" for additional information about each of these individuals. The
Company's Articles of Incorporation provide for a classified Board of
Directors, so that, as nearly as possible, one-third of the directors are
elected each year to serve three-year terms. The terms of office of the classes
of directors expire as follows: Class I at the 1999 annual meeting of
shareholders, Class II at the 2000 annual meeting of shareholders, and Class
III at the 2001 annual meeting of shareholders. Executive officers of the
Company serve at the discretion of the Company's Board of Directors.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- ---- --- -------------------------
<S> <C> <C>
David W. Bomboy, M.D. 52 Director
E. Ricky Gibson 41 Director
David E. Johnson 45 Chairman of the Board, President and
Chief Executive Officer
Fred A. McMurry 33 Director
Dawn T. Parker 50 Director
Perry E. Parker 32 Director
Ted. E. Parker 38 Director
Dennis L. Pierce 41 Director
Charles T. Ruffin 46 Director and Chief Financial Officer
A. L. "Pud" Smith 69 Director
Andrew D. Stetelman 37 Director
</TABLE>
David Waldron Bomboy, M.D., Class III director, 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 orthopaedic
surgical training at the University of Mississippi in 1976. He is a
board-certified orthopaedic surgeon and has practiced orthopaedics in southern
Mississippi for approximately 20 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
Orthopaedic Society. He is the past president of the Methodist Hospital Medical
Staff.
E. Ricky Gibson, Class III director, has been president and owner of
N&H Electronic, Inc., a wholesale electronics distributor, since 1988 and of
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.
David E. Johnson, Class II director, is the President, Chief Executive
Officer, and Chairman of the Board of the Company. Mr. Johnson, a native of
Laurel, 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 of Hattiesburg,
the Hattiesburg Racquet Club, and the Hattiesburg Rotary Club. He was born in
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Laurel, Mississippi in 1953. Mr. Johnson has headed the Lamar County United Way
Campaign for the past two years and is currently serving as chairman of the
Lamar County Chamber of Commerce.
Fred A. McMurry, Class III director, has lived in Oak Grove for the
past 30 years. Since 1985, he has been the vice president and general manager
of Havard 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, Class II director, earned a B.A. degree from
Vanderbilt University in 1970. Prior to 1985, Ms. 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. Ms. Parker is also president of Clear Run Cattle Co., Inc., a
cattle feeding company, and vice president of First Choice Feeders, LP, a
cattle feeding operation and land holding company in Abilene, Texas. Ms. 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, Class I director, 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 was born in 1965 in Hattiesburg, Mississippi and currently
resides in London, England.
Ted E. Parker, Class I director, 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, Class I director, is president of Dennis Pierce,
Inc., a real estate development company in Hattiesburg, Mississippi, 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. In
addition, Mr. Pierce is a deacon of the Lincoln Road Baptist Church; 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, Class II director, is the President and Chief
Operating Officer of the Hattiesburg Bank, and the Chief Financial Officer of
the Company. Mr. Ruffin was born in 1952 in Laurel, Mississippi, and 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 Account 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 remained employed until
1996. Mr. Ruffin has been with the Hattiesburg Bank since 1996.
A.L. "Pud" Smith, Class I director, was born in 1929 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 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, past president
of the Jaycee's, past president of the Lion's Club, and a member of the Rotary
Club (a Paul Harris Fellow).
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He is an active member of the First Baptist Church of Lumberton 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, Class II director, 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 Hattiesburg Board of Realtors, and is a past president and the Realtor of
the Year in 1992 of the Hattiesburg Board of Realtors. 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.
Dawn T. Parker is the mother of Ted E. Parker and Perry E. Parker. No
other directors or executive officers are related.
ORGANIZERS AND PROPOSED OFFICERS AND DIRECTORS OF THE LAUREL BANK
The following sets forth certain information regarding organizers and
the proposed officers and directors of the Laurel Bank as of the date of this
Prospectus. In addition to the following individuals, David E. Johnson and
Charles T. Ruffin, the Chief Executive Officer and the Chief Financial Officer
of the Company, respectively, will serve as directors of the Laurel Bank.
<TABLE>
<CAPTION>
NAME AGE PROPOSED POSITION WITH THE LAUREL BANK
- ---- --- --------------------------------------
<S> <C> <C>
Roy H. Boutwell 64 Director
Michael W. Chancellor 30 Director
M. Ray (Hoppy) Cole, Jr. 36 Director and Director of the Company
Peeler G. Lacey, M.D. 44 Director
Charles R. Lightsey 58 Director
Eric E. (Ric) Lindstrom, Jr. 34 Director
John J. McGraw, M.D. 47 Director
Trent A. Mulloy 27 Director
William M. Renovich, Jr. 51 Director, President and Chief Executive Officer, and
Vice President of the Company
David L. Rice, III, D.M.D. 44 Director and Director of the Company
J. Douglas Seidenburg 38 Director and Director of the Company
Ralph T. Simmons 65 Director and Director of the Company
Josephine E. Waites 64 Director
Nick D. Welch 37 Director
William H. Wells 56 Director
</TABLE>
Roy H. Boutwell is Chancery Clerk of Jones County, Mississippi where
he also serves as County Auditor, County Treasurer, and County Comptroller. He
graduated from the University of Southern Mississippi with a B.S. degree in
Business Administration as well as a Masters of Education in School
Administration. Mr. Boutwell's community activities range from being a past
president of the Jones County Junior College Alumni Association, a past
president of the Jones County Chapter of the University of Southern
Mississippi, member and church clerk of First Baptist Church of Shady Grove,
and member of the Laurel Kiwanis Club.
Michael W. Chancellor has been employed by Stover Smith Electrical
Supply, Inc. from January 1990 and has served as president since April 1996. Mr.
Chancellor serves on the St. John's Day School Board and received the All Civic
Award for Business of the Year in 1997. In addition, he is involved with various
organizations related to the electrical industry. Mr. Chancellor graduated from
the University of Southern Mississippi where he earned a B.S. degree in Business
Administration.
M. Ray (Hoppy) Cole, Jr. has served as the secretary/treasurer and
chief financial officer of the Headrick Companies, Inc. since 1991. Prior to
that time, he served as a corporate banking officer with The First National
Bank of Commerce in New Orleans, Louisiana and also as a senior lender and
president of Sunburst Bank, Laurel, Mississippi
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<PAGE> 47
where he supervised and managed all local banking functions. He is an active
member of the First Baptist Church in Ellisville, Mississippi and is a director
of the Hope Foundation, a not-for-profit corporation that supports religious
ministries. Mr. Cole is a graduate of the University of Mississippi where he
earned a B.B.A. degree and an M.B.A. degree.
Peeler G. Lacey, M.D. is a diagnostic radiologist with Radiology
Associates, P.A. of Laurel, Mississippi, where he is vice president and
partner. He has served in this capacity since 1983. Dr. Lacey has been a deacon
with the First Baptist Church of Laurel since 1993 and is past president of the
South Mississippi Medical Society (1994). He is past president of the medical
staff at South Central Regional Medical Center in Laurel (1995). He has been an
executive board member of the Pine Burr Area Council Boy Scouts of America
since 1991 and is past chairman of Pine Burr Area Council National Eagle Scout
Association (1995-1996). Dr. Lacey is a graduate of Emory University in Atlanta
where he earned a B.A. degree in Chemistry and the University of Mississippi
School of Medicine where he earned his M.D. degree.
Charles R. Lightsey has been employed by the Social Security
Administration since 1961, serving as manager of the Laurel Social Security
Administration office since 1968. He is a recipient of the Social Security
Administration's highest award, The Commissioner's Citation, and was recognized
as Innovative Manager of the Year in 1989. Mr. Lightsey's community activities
in Jones County and Laurel, Mississippi include: past member of the board of
directors of the Laurel Kiwanis Club, deacon of the First Baptist Church of
Laurel, president of the Laurel-Jones County Council on Aging, member of the
Pine Belt Mental Health Association Council, chairman of the Federal, State and
Local Government United Givers Fund, and city and county chairman of the
American Cancer Society. Mr. Lightsey graduated from the University of Southern
Mississippi in 1961 with a degree in Management and Real Estate.
Eric E. Lindstrom, Jr. is chief financial officer and general counsel
for Fail Telecommunications Corporation, a communications holding company. His
prior work experience includes serving as an accountant with Arthur Andersen
and Company and Ernst & Whinney, and practicing tax and commercial law as an
attorney with Forman, Perry, Watkins & Krutz and Drisdale & Lindstrom. He
serves his community as a deacon in the Westminster Presbyterian Church. Mr.
Lindstrom is involved in many professional organizations, including the
Mississippi Society of CPAs, the American Institute of Certified Public
Accountants, the Mississippi State Bar Association, and the American Bar
Association. Mr. Lindstrom is a graduate of the University of Mississippi,
earning a Bachelor of Accountancy, the University of Mississippi School of Law,
where he earned the Juris Doctor degree, and New York University School of Law,
where he earned an L.L.M. degree in Taxation.
John J. McGraw, M.D. is a partner in Laurel Bone and Joint Clinic,
P.A. He has been involved in this Orthopaedic Surgery Clinic since 1989. Dr.
McGraw serves as team physician for Jones County Junior College and is the
chief flight surgeon for the 186th Air Refueling Wing of the Mississippi Air
National Guard. He was president of the William Carey College Alumni
Association 1989-91 and the Distinguished Alumnus 1996. He is currently a
member of the board of trustees of the Southern Orthopaedic Association, is
secretary/treasurer of the Mississippi Orthopaedic Society, and is a lay
minister and active member of the First Baptist Church of Ellisville,
Mississippi. Dr. McGraw is a graduate of William Carey College, where he earned
a B.A. degree, the University of Mississippi School of Medicine, where he
earned his M.D. degree, and St. Louis University, where he completed his
orthopaedic surgery residency.
Trent A. Mulloy is a Laurel native and the fourth generation of his
family to work in the family-owned Laurel Machine and Foundry Company. He was
promoted to vice president in the first quarter of 1997 at Laurel Machine and
Foundry Company. Mr. Mulloy has also served as vice president and secretary of
PEMCO Recycling since 1993. Mr. Mulloy is a member of the One Hundred Club of
Jones County and the Masonite/International Paper Community Advisory Council, is
a current board member of the South Mississippi Fair Commission, and attends St.
John's Episcopal Church in Laurel, Mississippi. Mr. Mulloy is also a member of
the following professional societies: BIPEC, the Mississippi Economic Council,
the Mississippi Manufacturer's Association, and the American Foundrymen's
Society. Mr. Mulloy graduated with a B.A. degree from The University of the
South in Sewanee, Tennessee.
William M. Renovich, Jr. is the Vice President of the Company until
the opening of the Laurel Bank and the proposed President and Chief Executive
Officer of the Laurel Bank. He graduated from the University of Mississippi in
1970 with a B.B.A. and in 1972 with a Masters of Urban and Regional Planning.
Mr. Renovich's banking background is extensive. He began his banking career in
1979 with the Bank of Laurel, serving as an assistant vice president. After
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<PAGE> 48
leaving the Bank of Laurel in 1984, he joined Deposit Guaranty National Bank
where he served as vice president and commercial lender and later as senior
vice president and senior commercial lender. In 1988, Mr. Renovich was named
community bank president of Deposit Guaranty - Laurel where he was responsible
for all business development, commercial loans, and overall management of the
Deposit Guaranty National Bank locations in Jones County. This included a
branch network of five locations. He has been active in numerous civic
organizations, including the Economic Development Authority of Jones County,
the Rotary Club, the American Heart Association, the Laurel Downtown
Association, the Mississippi Bankers Association, the American Red Cross, the
Salvation Army, the United Way, and the Ole Miss Alumni Board of Directors. Mr.
Renovich is a member of The Westminster Presbyterian Church and is a native of
Meridian, Mississippi.
David L. Rice, III, D.M.D. is a practicing dentist in the Jones County
area where he has had several clinics since 1980. Dr. Rice's community
activities range from being a United Way volunteer, a member of the Jones County
Economic Development Authority, a volunteer dentist at the Good Shepherd Clinic,
a dental missionary to Honduras, a deacon at The First Baptist Church of Laurel,
and a former vice president and president of the BEST Club of West Jones High
School. Dr. Rice is a graduate of Mississippi State University, where he earned
a B.S. degree, and the University of Alabama School of Dentistry, where he
earned a D.M.D. degree.
J. Douglas Seidenburg is the owner and president of Molloy-Seidenburg
& Co., Ltd., CPAs. He has been a CPA for 15 years. Mr. Seidenburg is involved
in many civic, educational, and religious activities in the Jones County area.
He serves on the board of directors of Leadership Jones County and the Future
Leaders of Jones County, is treasurer of St. John's Day School, and is a member
of the Budget and Finance Committee of the First Baptist Church of Laurel. Past
activities include serving as president of the Laurel Sertoma Club, president
of the University of Southern Mississippi Alumni Association of Jones County,
and one of the founders of 1st Call for Help, a local United Way Agency started
in 1990. Mr. Seidenburg is a graduate of the University of Southern
Mississippi, where he earned a B.S. degree in Accounting.
Ralph T. Simmons is a retired vice president of Sunbeam-Oster
Corporation, where he was employed from 1963 to 1995 as credit manager,
assistant treasurer, and vice president. Mr. Simmons has served as
chairman-deacons of the First Baptist Church of Laurel, chairman of the
Salvation Army, past chairman of the Red Cross, past chairman of the FBLA/PBL
Foundation, president of the University of Southern Mississippi World Wide
Alumni Association, past president of the Kiwanis Club of Laurel, Lt. Governor
of the Louisiana-Mississippi-West Tennessee District of Kiwanis International,
and moderator of the Jones County Baptist Association. Mr. Simmons is also on
the board of directors of the University of Southern Mississippi Foundation.
Mr. Simmons is a native of Laurel, Mississippi and graduated from the
University of Southern Mississippi with a B.S. degree.
Josephine E. Waites has maintained active involvement in community
activities. A life member of the Junior Auxiliary of Laurel, she has served as
chairman of the Speech and Hearing Clinic Committee, the Amblyopia Committee,
and the Elementary Schools Art contest. Her community activities include: past
president of the Jones County Medical Alliance, past president of the
Mississippi State Medical Association Alliance, board member and secretary,
troop leader, and area associations chairman for the Gulf Pines Girl Scout
Council, and chairman and secretary of the Jones County Jury Commission. As a
member of the First Baptist Church of Laurel, Ms. Waites has been director and
group leader of WMU, a director and leader of Girls in Action, and a member of
numerous committees within the church. Ms. Waites is a graduate of the
University of Southern Mississippi, where she earned a B.S. degree.
Nick D. Welch is currently owner of Production Well Testers, Inc., a
Mississippi corporation formed in 1988. He is also 50% owner of Delta Outdoor,
a Mississippi corporation formed in 1997. From 1982 until he sold it in 1991,
he was owner of Flarestack, Inc., and from 1991 until 1994 he was the owner of
Laurel Fitness and Health Club. Mr. Welch has been very active in his community
and has served as a member of the Boys and Girls Club, as a member of the Jones
County Adopt-a-School Program, as a member (since 1981) of the Dixie Boys and
Majors Baseball Program, as a sponsor of the Jones County Junior Livestock
Program, and as a member of the Indian Springs Baptist Church. He has been
involved with St. Judes Children's Hospital, the Miss Mississippi Corporation,
the West Jones Diamond Club, and the West Jones Touchdown Club.
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<PAGE> 49
William H. Wells is presently owner of Wells-Carter Drug Store and is
active on a daily basis as a pharmacist. He is a native of Jones County and has
lived in Laurel for over 50 years. He is a graduate of the University of
Mississippi, where he earned a B.S. degree in Pharmacy. Mr. Wells is past
president of the Laurel Jaycees, is past president of the Laurel Kiwanis, is an
active deacon in the First Baptist Church of Laurel, is active in Honduras
Missions, and is an organizer of the Good Shepherd Dental/Medical Clinic of
Laurel. Mr. Wells is active in the University of Mississippi Alumni
Association, the Mississippi Pharmacy Association, the National Association for
Community Pharmacist, and the American Pharmaceutical Association.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with David E.
Johnson, as the President and Chief Executive Officer of the Company, and
William M. Renovich, Jr., as the Vice President of the Company until the date
of the opening of the Laurel Bank, at which time his agreement will be assigned
to the bank and he will become President and Chief Executive Officer of the
Laurel Bank. Both employment agreements provide for an initial term of three
years, to be extended automatically for an additional three year term unless
either party serves written notice of its intent not to renew. In July 1998,
the Company renewed Mr. Johnson's agreement for an additional three year
period. Both agreements provide for annual salaries of $85,000, in each case to
be reviewed by the Board of Directors at least annually and increased at its
discretion.
Under his employment agreement, Mr. Johnson is also eligible to
receive a cash bonus for each of the first two years after the opening date of
the Hattiesburg Bank in an amount to be determined by the Board of Directors
(with Mr. Johnson abstaining), based on tangible performance criteria to be
established by the Board of Directors. In the third year after the opening date
of the Hattiesburg Bank, Mr. Johnson is entitled to a cash bonus equal to 10%
of the net profits of the Hattiesburg Bank after taxes, not to exceed 50% of
his base salary for the year. In each subsequent year for which his employment
agreement is extended, Mr. Johnson will receive a cash bonus equal to a minimum
of 5% of the net profits of the Hattiesburg Bank after taxes, provided that the
earnings of the Hattiesburg Bank are at least 70% of the projected earnings
identified in the Hattiesburg Bank's charter application to the OCC and the
Hattiesburg Bank's ratio of nonperforming loans to total loans does not exceed
the nonperforming loan ratio of the Hattiesburg Bank's peer group by more than
10% (as determined by the Uniform Bank Performance Report).
Mr. Renovich is eligible under his employment agreement to participate
in management incentive or long-term incentive programs and to receive annual
cash bonus payments up to 10% of base salary in each of the first three years
after the opening date of the Hattiesburg Bank, and up to 15% of his base
salary in each subsequent year, based upon achievement criteria established by
the Board of Directors, and subject to the discretion of the Board of Directors
(with Mr. Renovich abstaining from the vote to determine his bonus).
In the event that the Company terminates the executives' employment
without cause, the Company will be obligated to continue Mr. Johnson's current
monthly base salary for an additional 18 month period and Mr. Renovich's
current monthly base salary for an additional 12 month period. In addition,
after a change in control, Mr. Johnson will have the option of (i)
automatically extending the term of the employment agreement for three years
from the date of the change in control or (ii) receiving, within fifteen days
of the change in control, a lump sum severance compensation in an amount equal
to three times his then current annual base salary plus any reimbursement of
expenses due him under his agreement. Mr. Renovich will have the option of
receiving, within thirty days of the change of control, a lump sum severance
compensation equal to his current annual base salary plus any reimbursement of
expenses due him under his agreement. Furthermore, the Company must remove any
restrictions on the executives' outstanding incentive awards so that all such
awards vest immediately.
In addition, both employment agreements provide that following
termination of the executive's employment with the Company and for a period of
twelve months thereafter, the executive may not (i) 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, (ii) solicit customers of the Company or its affiliates
for the purpose of providing financial services, or (iii) solicit employees of
the Company or its affiliates for employment. Under Mr. Johnson's employment
agreement, "Territory" means a radius of 25 miles from (i) the main office of
the Hattiesburg Bank, (ii) any branch office of the Hattiesburg Bank, or (iii)
any office of the company. Under Mr.
48
<PAGE> 50
Renovich's employment agreement, "Territory" means a radius of 50 miles from (i)
the main office of the Laurel Bank, (ii) any branch office of the Laurel Bank,
or (iii) any office of the Company.
The Company has also granted Mr. Johnson an option, with a term of ten
years, to purchase 21,655 shares of Common Stock exercisable at $10.00 per
share and Mr. Renovich an option, with a term of seven years, to purchase the
number of shares equivalent to 2.5% of the shares sold in this offering at
$15.00 per share. Mr. Johnson's and Mr. Renovich's options will vest at the
rate of one-third per year for each of the first three years of operations of
the Hattiesburg Bank and the Laurel Bank, respectively, subject to certain
performance criteria. Both options also provide for accelerated vesting in the
event of a change in control of the Company. Mr. Johnson has also been granted
stock options in connection with his service as a director of the Company. See
"Compensation of Directors and Executive Officers." In addition, Mr. Johnson's
employment agreement provides that, in connection with the Company's extension
in July 1998 of Mr. Johnson's employment agreement for an additional three-year
term, the Company is obligated to issue stock options for an additional 28,874
shares of Common Stock to Mr. Johnson (representing an amount equal to 4% of
the shares sold in the Company's initial stock offering in 1996). See "--Stock
Option Grants."
49
<PAGE> 51
EXECUTIVE COMPENSATION
The following table shows the cash compensation paid by the Company to
the Company's President and Chief Executive Officer for the years ended
December 31, 1995 through 1997. No executive officers of the Company or the
Hattiesburg Bank earned total annual compensation, including salary and bonus,
in excess of $100,000 for the fiscal year ended December 31, 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION (1) ----------------------
NAME AND ------------------------ SECURITIES ALL OTHER
PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) UNDERLYING OPTIONS (#) COMPENSATION (1)
------------------- ---- ---------- --------- ---------------------- ----------------
<S> <C> <C> <C> <C> <C>
David E. Johnson - 1997 $89,049 -- -- $2,000
Director, President, 1996 82,619 -- 21,656 1,060
and Chief Executive 1995 50,819 -- -- 2,500
Officer
</TABLE>
- ----------
(1) Executive officers of the Company also receive indirect compensation
in the form of certain perquisites and other personal benefits. The
amount of such benefits received in the fiscal year by Mr. Johnson did
not exceed 10% of his annual salary and bonus.
STOCK OPTION GRANTS
The following table sets forth information with respect to Mr. Johnson
concerning the exercise of options during 1997 and unexercised options held as
of December 31, 1997.
AGGREGATED OPTION/SAR EXERCISES IN
LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED IN-
UNDERLYING UNEXERCISED THE-MONEY OPTIONS/SARS
SHARES VALUE OPTIONS/SARS AT FY-END (#) AT FY-END ($)(1)
ACQUIRED ON REALIZED --------------------------- -------------------------
NAME EXERCISE (#) ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
----- ------------ -------- --------------------------- -------------------------
<S> <C> <C> <C> <C>
David E. Johnson 0 0 7,219/17,718 $14,438/$35,436
</TABLE>
- ---------------
(1) There is no active trading market for the Company's Common Stock;
therefore, the fair market value of the Common Stock as of December
31, 1997 is not readily discernible. Based on the sale of the Common
Stock nearest December 31, 1997 of which the Company is aware, which
sale was at $12.00 per share, the Company believes that the fair
market value of the Common Stock was approximately $12.00 per share on
December 31, 1997. The exercise price for the option is $10.00 per
share and thus based on a fair market value of $12.00 per share, all
of the options were in-the-money as of December 31, 1997.
The Board of Directors and shareholders of the Company have adopted
the 1997 Stock Option Plan, effective March 18, 1997. The 1997 Stock Option
Plan provides that restricted stock may be awarded, and stock options may be
granted, with respect to an aggregate of no more than 72,185 shares, subject to
adjustment upon changes in capitalization. Stock appreciation rights may also
be granted under the 1997 Stock Option Plan. The purpose of the 1997 Stock
Option Plan is to advance the interest of the Company, any subsidiaries, and
its shareholders by affording certain persons, principally directors and key
employees of the Company, an opportunity to acquire or increase their
proprietary interests in the Company. The objective of the issuance of the
stock options and awards of restricted stock is to promote the growth and
profitability of the Company because the grantee or recipients 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.
50
<PAGE> 52
Stock options may be granted either as incentive stock options or as
nonqualified stock options. Options generally may not be transferred except by
will or by the laws of descent and distribution, and during an optionee's
lifetime may be exercised only by the optionee (or by his or her guardian or
legal representative, should one be appointed). The 1997 Stock Option Plan is
administered by a committee consisting of at least two members of the Board of
Directors. The committee determines the employees and directors who will
receive options or restricted stock and, based on each such person's position
and current and potential contribution to the Company or the Banks, the amount
of restricted stock or the number of shares that will be covered by their
options. The committee also determines the periods of time (not exceeding ten
years from the date of grant in the case of an incentive stock option) during
which options will be exercisable and determines whether termination of an
optionee's employment under various circumstances would terminate options
granted under the 1997 Stock Option Plan to that person. In addition, the
committee determines the restriction period and vesting conditions, the
consequences of any termination of employment, and the other terms of any grant
of restricted stock. The option price per share is an amount determined by the
Board of Directors, but will not be less than 100% of the fair market value per
share on the date of grant for incentive stock options. Generally, the option
price will be payable in full upon exercise. The Company and the Banks receive
no consideration upon the granting of an option.
On March 18, 1997, the Company granted Mr. Johnson options to acquire
21,656 shares of Common Stock in accordance with his employment agreement as
Chief Executive Officer and President of the Company, with such options vesting
over a three year period beginning on September 1, 1997, as well as options to
acquire an additional 3,281 shares of Common Stock as a director of the
Company, with the options vesting over a three year period beginning on March
18, 1998. As of the date of this Prospectus, Mr. Johnson holds options to
acquire a total of 24,937 shares of Common Stock, and options for 15,531 of
such shares are exercisable. In addition, Mr. Johnson's employment agreement
provides that, in connection with the Company's extension in July 1998 of Mr.
Johnson's employment agreement for an additional three-year term, the Company
is obligated to issue stock options for an additional 28,874 shares of Common
Stock to Mr. Johnson (representing an amount equal to 4% of the shares sold in
the Company's initial stock offering in 1996). See "-- Stock Option Grants."
On March 18, 1997, the Company granted Mr. Ruffin options to acquire
7,219 shares of Common Stock in connection with his employment as Chief
Operating Officer of the Hattiesburg Bank, with such options vesting over a
three year period beginning on September 1, 1997. As of the date of this
Prospectus, options for 4,813 of such shares are exercisable.
DIRECTOR'S COMPENSATION
Neither the Company nor the Hattiesburg Bank paid directors' fees
during the last fiscal year, and neither the Company nor either of the Banks
presently intends to pay directors' fees in the initial years of operation. The
Company has previously adopted the 1997 Stock Option Plan under which the
Company may grant options to officers, directors, and key employees of the
Company and its subsidiaries, and the Company has granted options under this
plan for 3,281 shares of Common Stock to each of the original members of the
Company's Board of Directors. These options vest ratably on each of the first
three anniversaries of the grant date (March 18, 1997). The Company intends to
submit a proposal to its shareholders to amend this plan to increase the number
of shares authorized for issuance pursuant to options from 72,185 shares to
approximately 150,000 shares (or adopt a new, similar plan to cover these
additional shares). These shares will be available for future option grants as
determined by the Company's Board of Directors, including grants to employees,
officers, and directors of the Company and each Bank. The Company has agreed in
the Development Agreement for the Laurel Bank that options for an aggregate of
approximately 32,000 shares will be granted to the initial members of the board
of directors of the Laurel Bank, options for an aggregate of approximately
21,333 shares will be granted to the initial executive officers of the Laurel
Bank, and options for an aggregate of approximately 16,000 shares will be
reserved for grant to certain members of the Company's Board of Directors.
51
<PAGE> 53
INTERESTS OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS
The Company has entered into a construction contract for the Lincoln
Road branch of the Hattiesburg Bank with PierCon, Inc., which is owned by
Dennis Pierce, a director of the Company and the Hattiesburg Bank. The Company
awarded this contract to PierCon, Inc. through a competitive bidding process.
The Company anticipates paying PierCon, Inc.
approximately $468,000 under this contract.
The Company has entered into a Bank Development Agreement (the
"Development Agreement") with the organizers of the Laurel Bank that allocates
to the organizers substantially all of the responsibilities relating to the
development of the Laurel Bank as a wholly-owned subsidiary of the Company,
other than certain oversight responsibilities of the Company of various legal
and accounting aspects, including state and federal regulatory matters. The
Company and the organizers of the Laurel Bank believe that the leading role
being taken by the organizers in the development of the Laurel Bank is
necessary to demonstrate to both the Company and the Jones County community the
level of local interest in forming the Laurel Bank. The Company believes that
more localized participation in the development and governance of the Laurel
Bank is a preferable way to achieve a presence in a market having the size and
character of the Jones County area. Other than the stock options described
below, the organizers of the Laurel Bank will receive no compensation for any
liabilities or responsibilities they are assuming under the Development
Agreement.
Under the Development Agreement, the Company is responsible for all
legal and accounting costs associated with the development of the Laurel Bank.
All other costs incurred in connection with the formation of the Laurel Bank,
including real estate, equipment and furnishings costs, third-party bank
consulting fees and regulatory filing fees, are the responsibility of the
organizers of the Laurel Bank. Until Mr. Renovich assumes the office of
President of the Laurel Bank concurrently with the commencement of its
operations, the organizers of the Laurel Bank have also agreed to reimburse to
the Company 60% of the cost to the Company of Mr. Renovich's salary under his
employment agreement with the Company. See "-Employment Agreements." To fund
their share of the costs under the Development Agreement, the organizers of the
Laurel Bank have obtained a line of credit from the Hattiesburg Bank. Under the
Development Agreement, the obligations under the line of credit are to be
satisfied from the proceeds used in the capitalization of the Laurel Bank,
absent any breach by the organizers of the Laurel Bank of the Development
Agreement. If the Laurel Bank fails to become capitalized within regulatory
minimums or fails to commence operations following its capitalization, the
Company has agreed to assume the obligations under the line of credit as long
as the organizers of the Laurel Bank have subscribed and paid for at least $2.0
million of Common Stock in this offering and the failure of the Laurel Bank to
become adequately capitalized or to commence operations is not the result of a
negligent, willful, or intentional act or omission of the Company or any
authorized representative of the Company. In all other events, the organizers
of the Laurel Bank will remain liable under the line of credit.
The Development Agreement designates the composition of the executive
officers of the Laurel Bank and provides that the initial Board of Directors of
the Laurel Bank is to be composed of the organizers of the Laurel Bank, David
E. Johnson, and Charles Ruffin. In addition, as long as the organizers of the
Laurel Bank have subscribed and paid for at least $2.0 million of Common Stock
in this offering and the Laurel Bank has opened for business, the Company is
required to expand the Company's Board of Directors and to appoint four of the
organizers of the Laurel Bank to the Company's Board. In anticipation of
achieving each of these goals, the Company has already appointed the four
organizers to the Company's Board. See " -- Management."
Upon the incorporation and capitalization of the Laurel Bank, the
Development Agreement also obligates the organizers of the Laurel Bank to
convey to the Laurel Bank all real estate and leasehold interests held or
acquired by the organizers in connection with the development and organization
of the Laurel Bank. In addition, until June 30, 1999, each of the parties to
the Development Agreement is prohibited from participating in the formation of
a new financial institution or the affiliation with or expansion of an existing
financial institution within a 50-mile radius of Laurel, Mississippi, other
than activities relating to the organization and development of the Laurel
Bank. Moreover, the Development Agreement provides that the Company will grant
stock options to the initial directors and executive officers of the Laurel
Bank and the members of the Company's Board of Directors. The granting of the
options will be subject to shareholder approval and the number of options
provided for will be adjusted proportionately to the amount of the offering.
See " -- Stock Option Grants."
52
<PAGE> 54
In order to fund various costs and expenses associated with the
development and organization of the Laurel Bank, the organizers of the Laurel
Bank have obtained from the Hattiesburg Bank a $300,000 line of credit bearing
interest at the Hattiesburg Bank's prime rate. As of August 31, 1998,
approximately $90,000 was outstanding under the line of credit. Principal and
interest under the line of credit are due in a lump-sum payment on June 14,
1999, unless such payment date is extended by the Hattiesburg Bank. Each of the
organizers has personally guaranteed up to $35,000 of the line of credit. To
the extent the Laurel Bank has not been capitalized on or before the payment
due date of the line of credit, it is the intention of the Hattiesburg Bank to
extend the payment due date on the line of credit as appropriate to accommodate
the expected capitalization timetable for the Laurel Bank, provided that there
has been no breach by the organizers under the terms of the Bank Development
Agreement executed between the organizers and the Company. The Company believes
that the terms of the line of credit are no more or less favorable to the
Hattiesburg Bank than those that would be obtainable through arms' length
negotiations with unrelated third parties for similar services.
EXCULPATION AND INDEMNIFICATION
The Articles of Incorporation of the Company contain a provision
which, subject to certain exceptions described below, eliminates the liability
of a director or officer to the Company or its shareholders for monetary
damages for any breach of duty as a director or officer. This provision does
not eliminate such liability to the extent the director or officer engaged in
willful misconduct or a knowing violation of criminal law or of any federal or
state securities law, including, without limitation, laws proscribing insider
trading or manipulation of the market for any security.
Under its Bylaws, the Company must indemnify any person who becomes
subject to a lawsuit or proceeding by reason of service as a director of the
Company or the Hattiesburg Bank or any other corporation which the person
served as a director at the request of the Company. Except as noted in the next
paragraph, directors are entitled to be indemnified against judgments,
penalties, fines, settlements, and reasonable expenses actually incurred by the
director in connection with the proceeding. Directors are also entitled to have
the Company advance any such expenses prior to final disposition of the
proceeding, upon delivery of a written affirmation by the director of his good
faith belief that the standard of conduct necessary for indemnification has
been met and a written undertaking to repay the amounts advanced if it is
ultimately determined that the standard of conduct has not been met.
Under the Bylaws, indemnification will be disallowed if it is
established that the director appropriated, in violation of his duties, any
business opportunity of the Company, engaged in acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law
approved dividends or other distributions in violation of the Mississippi
Business Corporation Act (the "Corporation Act"), or engaged in any transaction
in which the director derived an improper personal benefit. In addition to the
Bylaws of the Company, the Corporation Act requires that a corporation
indemnify a director who was wholly successful, on the merits or otherwise, in
the defense of any proceeding to which he was a party because he is or was a
director of the corporation against reasonable expenses incurred by him in
connection with the proceeding. The Corporation Act also provides that upon
application of a director a court may order indemnification if it determines
that the director is entitled to such indemnification under the applicable
standard of the Corporation Act.
The Board of Directors of the Company also has the authority to extend
to officers, employees, and agents the same indemnification rights held by
directors, subject to all of the accompanying conditions and obligations. The
Board of Directors has extended or intends to extend indemnification rights to
all of its executive officers.
53
<PAGE> 55
PRINCIPAL SHAREHOLDERS
The following table sets forth the number and percentage of
outstanding shares of Common Stock beneficially owned as of the date of this
Prospectus out of a total of 721,848 shares of Common Stock by (a) the
President and Chief 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. This table also reflects the anticipated purchases by
existing executive officers and directors of the Company and by the organizers
of the Laurel Bank. All such purchases will be made in this offering at a price
of $15.00 per share, the same price at which shares are being offered to the
public. No person is expected to own more than 5% of the shares of the Common
Stock immediately after the offering. However, executive officers and directors
of the Company and organizers of the Laurel Bank may purchase additional shares
in the offering, including up to 100% of the shares in the offering, and may do
so to enable the Company to achieve the minimum offering amount. Any such
shares purchased by such persons will be purchased for investment and not with
a view to resale. Although each individual described above has indicated that
he or she intends to purchase the number of shares indicated, none of these
individuals will be obligated to purchase shares except pursuant to a valid
subscription agreement executed after receipt of this Prospectus.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED SHARES ANTICIPATED TO BE OWNED
PRIOR TO THE OFFERING FOLLOWING THE OFFERING
--------------------------- --------------------------------------
PERCENTAGE OF PERCENTAGE
MINIMUM OF MAXIMUM
NAME OF BENEFICIAL OWNER NUMBER(1) PERCENTAGE(2) NUMBER OFFERING OFFERING
- ------------------------ ------ ---------- ------ ------------- ----------
<S> <C> <C> <C> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS:
David W. Bomboy(3) 29,094 4.02% 29,094 2.74% 2.32%
E. Ricky Gibson(4) 16,594 2.30 18,261 1.72 1.45
David E. Johnson(5) 33,255 4.51 34,922 3.24 2.75
Fred A. McMurry(6) 16,094 2.23 22,761 2.14 1.81
Dawn T. Parker(7) 33,194 4.59 33,861 3.19 2.70
Perry Edward Parker(8) 27,344 3.78 30,677 2.89 2.44
Ted E. Parker(9) 12,614 1.74 13,281 1.25 1.06
Dennis L. Pierce(10) 11,094 1.53 12,761 1.20 1.02
Charles T. Ruffin(11) 7,556 1.04 7,556 0.71 0.60
A.L. Smith(12) 11,094 1.53 11,761 1.11 0.94
Andrew D. Stetelman(13) 11,394 1.58 11,394 1.07 0.91
Executive officers and directors as a group 210,827 28.03% 270,163 24.74% 21.02%
(15 persons) (14)
</TABLE>
54
<PAGE> 56
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED SHARES ANTICIPATED TO BE OWNED
PRIOR TO THE OFFERING FOLLOWING THE OFFERING
----------------------------- -----------------------------------------
PERCENTAGE OF PERCENTAGE
MINIMUM OF MAXIMUM
NAME OF BENEFICIAL OWNER NUMBER(1) PERCENTAGE(2) NUMBER OFFERING OFFERING
- ------------------------ ------ ---------- ------ ------------- ----------
ORGANIZERS OF THE LAUREL BANK:
<S> <C> <C> <C> <C> <C>
Roy H. Boutwell 0 0.00% 8,333 0.78% 0.66%
Michael W. Chancellor 0 0.00 8,000 0.75 0.64
M. Ray (Hoppy) Cole, Jr. 0 0.00 6,667 0.63 0.53
Dr. Peeler G. Lacey 6,500 0.90 16,500 1.55 1.31
Charles R. Lightsey 0 0.00 14,000 1.32 1.12
Eric E. (Ric) Lindstrom 0 0.00 13,333 1.26 1.06
Dr. John J. McGraw 0 0.00 10,000 0.94 0.80
Trent A. Mulloy 0 0.00 6,667 0.63 0.53
William M. Renovich, Jr. 0 0.00 8,333 0.78 0.66
David L. Rice, III, D.M.D. 0 0.00 6,667 0.63 0.53
J. Douglas Seidenburg 1,500 0.21 1,500 0.14 0.12
Ralph T. Simmons 0 0.00 13,667 1.29 1.09
Josephine Waites 0 0.00 6,667 0.63 0.53
Nick D. Welch 0 0.00 16,667 1.57 1.33
William H. Wells 0 0.00 8,000 0.75 0.64
OTHER SIGNIFICANT SHAREHOLDERS
John Hudson(15) 39,194 5.42% 39,194 3.69% 3.12%
</TABLE>
- ----------
(1) Information relating to the beneficial ownership of Common Stock is
based upon "beneficial ownership" concepts set forth in rules of the
Securities and 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,
including, without limitation, shares of Common Stock subject to
currently exercisable options. 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 which are exercisable within the next 60 days as
if outstanding, but treating shares subject to options not exercisable
within 60 days as not outstanding.
(3) Includes currently exercisable options to purchase a total of 1,094
shares of Common Stock.
(4) 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. Includes currently exercisable
options to purchase a total of 1,094 shares of Common Stock.
55
<PAGE> 57
(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. Includes
currently exercisable options to purchase a total of 15,531 shares of
Common Stock.
(6) Includes currently exercisable options to purchase a total of 1,094
shares of Common Stock.
(7) Includes 5,850 shares for which the beneficial ownership is
attributable to Ms. Parker as a result of her children's ownership of
5,850 shares. Includes currently exercisable options to purchase a
total of 1,094 shares of Common Stock.
(8) Includes currently exercisable options to purchase a total of 1,094
shares of Common Stock.
(9) 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. Includes
currently exercisable options to purchase a total of 1,094 shares of
Common Stock.
(10) Includes currently exercisable options to purchase a total of 1,094
shares of Common Stock.
(11) Includes currently exercisable options to purchase a total of 4,813
shares of Common Stock.
(12) Includes currently exercisable options to purchase a total of 1,094
shares of Common Stock.
(13) Includes 300 shares for which the beneficial ownership is attributable
to Mr. Stetelman as a result of his children's ownership of 300 shares.
Includes currently exercisable options to purchase a total of 1,094
shares of Common Stock.
(14) Includes 30,190 shares that the officers and directors have the right
to acquire directly or indirectly within 60 days pursuant to the
exercise of stock options under the 1997 Stock Option Plan. These
figures also include Messrs. Cole, Renovich, Rice, Seidenburg, and
Simmons, each of whom is listed in the section "Organizers of the
Laurel Bank" but is also a director or executive officer of the
Company.
(15) 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. Also includes currently exercisable options to purchase a
total of 1,094 shares of Common Stock.
PURCHASE OF COMMON STOCK BY ORGANIZERS OF THE LAUREL BANK
As of the date of this Prospectus, none of the organizers of the
Laurel Bank has entered into any agreement or arrangement that obligates the
organizers of the Laurel Bank to purchase any shares of Common Stock.
Collectively, however, the organizers of the Laurel Bank (together with members
of their families) have indicated that they intend to purchase an aggregate of
166,667 shares of Common Stock in the offering. In order to achieve the sale of
the minimum amount of shares offered hereby or for other reasons, the
organizers of the Laurel Bank may also purchase an amount of shares in addition
to the number reflected above.
56
<PAGE> 58
DESCRIPTION OF SECURITIES
GENERAL
The authorized capital stock of the Company consists of 10,000,000
shares of Common Stock, par value $1.00 per share, and 10,000,000 shares of
Preferred Stock, par value $1.00 per share, the rights and preferences of which
may be designated as the Board of Directors may determine. As of the date of
this Prospectus, 721,848 shares of Common Stock were outstanding and were held
of record by approximately 713 shareholders. After the completion of this
offering, there will be 1,255,181 shares of Common Stock outstanding (based on
the maximum offering). No shares of Preferred Stock are currently outstanding.
COMMON STOCK
Holders of Common Stock are entitled to receive such dividends as may
from time to time be declared by the Board of Directors of the Company out of
funds legally available therefor. Holders of Common Stock are entitled to one
vote per share and do not have any cumulative voting rights. Holders of Common
Stock have no preemptive, conversion, redemption, or sinking fund rights. In
the event of a liquidation, dissolution, or winding-up of the Company, holders
of Common Stock are entitled to share equally and ratably in the assets of the
Company, if any, remaining after the payment of all debts and liabilities of
the Company and the liquidation preference of any outstanding Preferred Stock.
The outstanding shares of Common Stock are, and the shares of Common Stock
offered by the Company hereby when issued will be, fully paid and
nonassessable. The rights, preferences, and privileges of holders of Common
Stock are subject to any classes or series of Preferred Stock that the Company
may issue in the future.
PREFERRED STOCK
The Articles provide that the Board of Directors is authorized,
without further action by the holders of the Common Stock, to provide for the
issuance of shares of the Preferred Stock in one or more classes or series and
to fix the designations, preferences, and other rights and restrictions
thereof, including the dividend rate, conversion rights, voting rights,
redemption price, and liquidation preference, and to fix the number of shares
to be included in any such classes or series. Any Preferred Stock so issued may
rank senior to the Common Stock with respect to the payment of dividends and
amounts upon liquidation, dissolution, or winding-up. In addition, any such
shares of Preferred Stock may have class or series voting rights. Upon
completion of this offering, the Company will not have any shares of Preferred
Stock outstanding. Issuances of Preferred Stock, while providing the Company
with flexibility in connection with general corporate purposes, may, among
other things, have an adverse effect on the rights of holders of Common Stock,
and in certain circumstances such issuances could have the effect of decreasing
the market price of the Common Stock. The Company has no present plans to issue
any Preferred Stock.
CERTAIN ANTITAKEOVER EFFECTS
The provisions of the Articles, the Bylaws and the Corporation Act
summarized in the following paragraphs may be deemed to have antitakeover
effects and may delay, defer, or prevent a tender offer or takeover attempt
that a shareholder might consider to be in such shareholder's best interest,
including those attempts that might result in a premium over the market price
for the shares held by shareholders, and may make removal of management more
difficult.
Authorized but Unissued Stock. The authorized but unissued shares of
Common Stock and Preferred Stock will be available for future issuance without
shareholder approval. These additional shares may be used for a variety of
corporate purposes, including future public offerings to raise additional
capital, corporate acquisitions, and employee benefit plans. The existence of
authorized but unissued and unreserved shares of Common Stock and Preferred
Stock may enable the Board of Directors to issue shares to persons friendly to
current management, which could render more difficult or discourage any attempt
to obtain control of the Company by means such as a proxy contest, tender
offer, or merger, and thereby protect the continuity of the Company's
management.
Number and Qualifications of Directors. The Articles and Bylaws
provide that the number of directors shall be fixed from time to time by
resolution adopted by a majority of the directors then in office or the
shareholders, but may not consist of fewer than nine nor more than 25 members.
57
<PAGE> 59
Classified Board of Directors. The Articles and Bylaws divide the
Board of Directors into three classes of directors serving staggered three-year
terms. As a result, approximately one-third of the Board of Directors will be
elected at each annual meeting of shareholders. The classification of
directors, together with the provisions in the Articles and Bylaws described
below that limit the ability of shareholders to remove directors and that
permit the remaining directors to fill any vacancies on the Board of Directors,
have the effect of making it more difficult for shareholders to change the
composition of the Board of Directors. As a result, at least two annual
meetings of shareholders may be required for the shareholders to change a
majority of the directors, whether or not a change in the Board of Directors
would be beneficial to the Company and its shareholders and whether or not a
majority of the Company's shareholders believes that such a change would be
desirable.
Removal of Directors and Filling Vacancies. A director may only be
removed for cause, and only by the unanimous consent of the shareholders or at
a meeting called for the specific purpose of such removal. The Bylaws also
provide that all vacancies on the Board of Directors, including those resulting
from an increase in the number of directors, may be filled by a majority of the
remaining directors, even if they do not constitute a quorum. When a director
resigns effective at a future date, a majority of directors then in office,
including the director who is to resign, may vote on filling the vacancy.
Advance Notice Requirements for Shareholder Proposals and Director
Nominations. The Bylaws establish advance notice procedures with regard to
shareholder proposals and the nomination, other than by or at the direction of
the Board of Directors or a committee of the Board, of candidates for election
as directors. These procedures provide that the notice of shareholder proposals
and shareholder nominations for the election of directors at any meeting of
shareholders must be in writing and be received by the Secretary of the Company
on or before the later to occur of (i) 60 days prior to the meeting or (ii) 10
days after notice of the meeting is provided to the shareholders. The Company
may reject a shareholder proposal or nomination that is not made in accordance
with such procedures.
Limitations on Shareholders' Action by Written Consent. The Bylaws
permit shareholder action by written consent in lieu of a meeting only if such
consent is unanimous.
Certain Nomination Requirements. Pursuant to the Bylaws, the Company
has established certain nomination requirements for an individual to be elected
as a director of the Company at any annual or special meeting of the
shareholders, including that the nominating party provide the Company within a
specified time prior to the meeting (i) notice that such party intends to
nominate the proposed director; (ii) the name and certain biographical
information on the nominee; and (iii) a statement that the nominee has
consented to the nomination. The chairman of any shareholders meeting may, for
good cause shown, waive the operation of these provisions. These provisions
could reduce the likelihood that a third party would nominate and elect
individuals to serve on the Company's Board of Directors.
Control Share Acquisition Provision. The Articles include a control
share acquisition provision requiring any person who plans to acquire a control
block of stock (generally defined as 10%) to obtain approval by the majority
vote of disinterested shareholders or the affirmative vote of 75% of eligible
members of the Board of Directors in order to vote the control shares. If a
control share is made without first obtaining this approval, all stock
beneficially owned by the acquiring person in excess of 10% will be considered
"excess stock" and will not be entitled to vote.
Any person who proposes to make or has made a control share
acquisition may deliver a statement to the Company describing the person's
background and the control share acquisition and requesting a special meeting
of shareholders of the Company to decide whether to grant voting rights to the
shares acquired in the control share acquisition. The acquiring person must pay
the expenses of this meeting. If no request is made, the voting rights to be
accorded the shares acquired in the control share acquisition shall be
presented to the next special or annual meeting of the shareholders. If the
acquiring person does not deliver his or her statement with the Company, the
Company may elect to repurchase the acquiring person's shares at fair market
value. Control shares acquired in a control share acquisition are not subject
to redemption after an acquiring person statement has been filed unless the
shares are not accorded full voting rights by the shareholders.
Consideration of Other Constituencies in Mergers. The Corporation Act
grants the Board of Directors the discretion, when considering whether a
proposed merger or similar transaction is in the best interests of the Company
and its shareholders, to take into account the effect of the transaction on the
employees, customers, and suppliers of the Company and upon the communities in
which the offices of the Company are located.
58
<PAGE> 60
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering (assuming sale of the maximum
offering), the Company will have 1,255,181 shares of Common Stock outstanding.
The shares sold in this offering will be freely tradable, without restriction
or registration under the Securities Act, except for shares purchased by
"affiliates" of the Company, which will be subject to resale restrictions under
the Securities Act. An affiliate of the issuer is defined in Rule 144 under the
Securities Act as a person that directly or indirectly, through one or more
intermediaries, controls, is controlled by, or is under common control with the
issuer. Rule 405 under the Securities Act defines the term "control" to mean
possession of the power to direct the management and policies of the person.
Affiliates of a company generally include its directors, executive officers,
and principal shareholders. Securities held by affiliates may be sold without
registration in accordance with the provisions of Rule 144 or another exemption
from registration.
In general, under Rule 144 an affiliate of the Company or a person
holding restricted shares may sell, within any three-month period, a number of
shares no greater than 1% of the then outstanding shares of the Company's
Common Stock or the average weekly trading volume of the Common Stock during
the four calendar weeks preceding the sale, whichever is greater. Rule 144 also
requires that the securities must be sold in "brokers' transactions," as
defined in the Securities Act, and the person selling the securities may not
solicit orders or make any payment in connection with the offer or sale of
securities to any person other than the broker who executes the order to sell
the securities. Rule 144 also requires persons holding restricted securities to
hold the shares for at least one year prior to sale.
LEGAL MATTERS
Certain legal matters in connection with the Common Stock offered
hereby are being passed upon for the Company by Nelson Mullins Riley &
Scarborough, L.L.P., Atlanta, Georgia.
EXPERTS
The consolidated balance sheets of the Company as of December 31, 1996
and 1997 and the consolidated statements of the operations, shareholders'
equity, and cash flows of the Company for each of the years in the period ended
December 31, 1997 have been included in this Prospectus in reliance on the
report of independent auditors T. E. Lott & Company, given on the authority of
that firm as an expert in accounting and auditing.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Exchange Act, and in accordance therewith files reports, proxy statements, and
other information with the Securities and Exchange Commission. Such reports,
proxy statements, and other information can be inspected and copied at
prescribed rates at the public reference facilities maintained by the
Securities and Exchange Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the Securities and Exchange Commission's regional
offices at Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661 and at 7 World Trade Center, New York, New York 10048.
Copies of such material can be obtained by mail from the Public Reference
Section of the Securities and Exchange Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The Securities and Exchange
Commission maintains a web site that contains reports, proxy and information
statements, and other information regarding registrants that file
electronically with the Securities and Exchange Commission. The address of this
site is http://www.sec.gov.
The Company has filed with the Securities and Exchange Commission a
Registration Statement on Form SB-2 under the Securities Act with respect to
the shares of Common Stock offered hereby. This Prospectus, which is a part of
the Registration Statement, does not contain all of the information set forth
in the Registration Statement and the exhibits thereto. Statements contained
herein regarding the provisions of documents filed as exhibits to the
Registration Statement are not necessarily complete, and each such statement is
qualified in its entirety by reference to the copy of the applicable document
filed with the Securities and Exchange Commission. Any interested party may
inspect the Registration Statement without charge at the public reference
facilities of the Commission described above and may obtain copies of all or
any part of it from the Commission upon payment of the fees prescribed.
59
<PAGE> 61
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
THE FIRST BANCSHARES, INC.
Report of Independent Certified Public Accountants....................................... F-2
Consolidated Balance Sheets at December 31, 1997 and 1996, and at June 30, 1998
(unaudited)........................................................................ F-3
Consolidated Statements of Operations for the Years Ended December 31, 1997 and 1996,
and for the Six Months Ended June 30, 1998 and 1997 (unaudited).................... F-4
Consolidated Statement of Shareholders' Equity for the Years Ended December 31, 1997 and
1996 and for the Six Months Ended June 30, 1998 (unaudited)........................ F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 1997 and 1996,
and for the Six Months Ended June 30, 1998 and 1997 (unaudited).................... F-6
Notes to Consolidated Financial Statements............................................... F-7
</TABLE>
F-1
<PAGE> 62
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, 1997 and 1996, and the
related consolidated statements of operations, changes in shareholders' equity,
and cash flows for the years then ended. 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, 1997 and 1996, and the
consolidated results of their operations and their cash flows for the years then
ended, in conformity with generally accepted accounting principles.
T.E. Lott & Company
Columbus, Mississippi
February 11, 1998
F-2
<PAGE> 63
THE FIRST BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
June 30, -------------------------------
ASSETS 1998 1997 1996
- ------------------------------------------------------- ------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C>
Cash and due from banks ............................... $ 665,063 $ 970,262 $ 1,458,586
Federal funds sold .................................... 2,875,000 1,870,000 2,311,386
Securities (Note C):
Held to maturity ................................... 396,820 506,725 --
Available for sale ................................. 5,992,875 3,796,862 4,216,027
------------ ------------ ------------
Total securities ................................. 6,389,695 4,303,587 4,216,027
------------ ------------ ------------
Loans (Note D):
Loans .............................................. 23,344,724 17,487,427 4,327,420
Reserve for loan losses ............................ 263,814 193,566 37,148
------------ ------------ ------------
Net loans ........................................ 23,080,910 17,293,861 4,290,272
------------ ------------ ------------
Premises and equipment (Note E) ....................... 2,152,044 2,092,225 1,691,760
Interest receivable ................................... 436,661 188,365 35,576
Other assets .......................................... 940,055 808,338 173,153
------------ ------------ ------------
Total assets...................................... $ 36,539,428 $ 27,526,638 $ 14,176,760
============ ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
- -------------------------------------------------------
Deposits:
Noninterest-bearing ................................ $ 2,988,329 $ 2,479,084 $ 1,566,076
Time, $100,000 or more ............................. 6,308,853 2,631,198 400,000
Other interest-bearing ............................. 20,714,246 15,948,103 5,540,573
------------ ------------ ------------
Total deposits ................................... 30,011,428 21,058,385 7,506,649
Interest payable ...................................... 132,856 94,649 26,646
Other liabilities ..................................... 17,977 5,900 22,936
------------ ------------ ------------
Total liabilities ................................ 30,162,261 21,158,934 7,556,231
------------ ------------ ------------
Commitments and contingent liabilities (Note J)
Shareholders' Equity (Note F):
Common stock, par value $1.00 per share;
10,000,000 shares authorized; issued and
outstanding 721,848 at June 30, 1998 and
December 31, 1997 and 1996........................ 721,848 721,848 721,848
Preferred stock, par value $1.00 per share,
10,000,000 shares authorized; no shares issued
and outstanding................................... -- -- --
Additional paid-in capital ......................... 6,451,456 6,451,456 6,451,456
Accumulated deficit ................................ (804,131) (817,651) (555,658)
Accumulated other comprehensive income ............. 7,994 12,051 2,883
------------ ------------ ------------
Total shareholders' equity ....................... 6,377,167 6,367,704 6,620,529
------------ ------------ ------------
$ 36,539,428 $ 27,526,638 $ 14,176,760
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE> 64
THE FIRST BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Six Months Ended June 30, Years ended December 31,
---------------------------- -----------------------------
1998 1997 1997 1996
----------- ----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans ............... $ 1,171,360 $ 367,347 $ 1,141,101 $ 80,035
Interest and dividends on investment
securities - taxable.................... 171,073 144,205 290,247 60,738
Interest on federal funds sold ........... 34,236 48,900 91,354 119,003
Interest on deposits in banks ............ -- -- -- 6,516
Other, preopening ........................ -- -- -- 183,083
----------- ----------- ----------- -----------
1,376,669 560,452 1,522,702 449,375
----------- ----------- ----------- -----------
INTEREST EXPENSE
Interest on time deposits of $100,000 or
more ................................... 137,037 23,428 68,385 7,433
Interest on other deposits ............... 494,625 201,816 572,762 66,052
Interest on borrowed funds ............... 32,586 -- -- 5,909
----------- ----------- ----------- -----------
664,248 225,244 641,147 79,394
----------- ----------- ----------- -----------
Net interest income ...................... 712,421 335,208 881,555 369,981
Provision for loan losses ................ 70,248 84,358 156,418 37,148
----------- ----------- ----------- -----------
Net interest income after provision
for loan losses ...................... 642,173 250,850 725,137 332,833
OTHER INCOME
Service charges on deposit accounts ...... 67,842 6,374 67,543 2,136
Other service charges and fees ........... 15,221 -- 24,723 2,190
Other (Note E) ........................... 10,073 39,122 123,858 --
----------- ----------- ----------- -----------
93,136 45,496 216,124 4,326
----------- ----------- ----------- -----------
OTHER EXPENSES
Salaries ................................. 316,157 247,256 531,754 172,051
Employee benefits ........................ 58,824 50,182 100,538 34,328
Occupancy expense ........................ 49,140 25,387 77,401 13,166
Furniture and equipment expense .......... 66,851 52,592 122,739 51,942
Marketing and public relations ........... 16,392 21,256 43,245 21,182
Other .................................... 214,425 153,466 327,577 176,253
Preopening expenses (Note K) ............. -- -- -- 223,985
----------- ----------- ----------- -----------
721,789 550,139 1,203,254 692,907
----------- ----------- ----------- -----------
Net income (loss) ........................... 13,520 (253,793) $ (261,993) $ (355,748)
=========== =========== =========== ===========
Net income (loss) per common share (Note
B-12) .................................... $ .02 $ (.35) $ (.36) $ (.58)
=========== =========== =========== ===========
Net income (loss) per common share -
assuming dilution (Note B-12) ............ $ .02 $ (.35) $ (.36) $ (.58)
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 65
THE FIRST BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Accumulated
Other
Additional Compre-
Common Paid-in Accumulated hensive
Stock Capital Deficit Income Total
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1996 ............ $ 10 $ 90 $ (199,910) $ -- $ (199,810)
Issuance of common stock,
net of issuance costs ............ 721,848 6,451,456 7,173,304
Comprehensive income:
Net loss for 1996 ................... -- -- (355,748) -- --
Unrealized gain on
available-for-sale securities .... -- -- -- 2,883 --
Comprehensive income ................ -- -- -- -- (352,865)
Redemption of
organization stock ............... (10) (90) -- -- (100)
----------- ----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1996 .......... 721,848 6,451,456 (555,658) 2,883 6,620,529
Comprehensive income:
Net loss for 1997 ................... -- -- (261,993) -- --
Net change in unrealized gain on
available-for-sale securities,
net of tax ....................... -- -- -- 9,168 --
Comprehensive income ................ -- -- -- -- (252,825)
----------- ----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1997 .......... $ 721,848 $ 6,451,456 $ (817,651) $ 12,051 $ 6,367,704
Comprehensive income:
Net income for the period ........... -- -- 13,520 -- --
Net change in unrealized gain on
available-for-sale securities,
net of tax ....................... -- -- -- (4,057) --
Comprehensive income ................ -- -- -- -- 9,463
----------- ----------- ----------- ----------- -----------
BALANCE, JUNE 30, 1998
(UNAUDITED) ...................... $ 721,848 $ 6,451,456 $ (804,131) $ 7,994 $ 6,377,167
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE> 66
THE FIRST BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended June 30, Years Ended December 31,
------------------------------- -------------------------------
1998 1997 1997 1996
------------ ------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss ........................................... $ 13,520 $ (253,793) $ (261,993) $ (355,748)
Adjustments to reconcile net income to net cash:
Depreciation and amortization .................... 100,642 60,261 157,333 42,210
Provision for loan losses ........................ 70,248 84,358 156,418 37,148
Amortization and accretion ............................ (42,536) 48,761 (101,992) (13,285)
Increase in interest receivable ....................... (248,296) (618,984) (152,789) (35,576)
Increase in other assets .............................. (162,623) (12,168) (672,157) (69,791)
Increase in interest payable .......................... 38,207 64,604 68,003 26,646
(Decrease) increase in other liabilities .............. 12,077 (5,725) (17,036) 12,808
------------ ------------ ------------ ------------
Net cash used in operating activities ............ (218,761) (632,686) (824,213) (355,588)
------------ ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of available-for-sale securities ......... (4,330,979) (4,248,013) (6,252,319) (4,949,859)
Proceeds from maturities and calls of
available-for-sale securities ...................... 2,283,350 3,000,425 6,782,920 750,000
Purchase of securities to be held-to-maturity ...... -- -- (507,001) --
Increase in loans .................................. (5,857,297) (6,823,985) (13,160,007) (4,327,420)
Additions to premises and equipment ................ (129,555) (545,228) (520,826) (1,585,625)
------------ ------------ ------------ ------------
Net cash used in investing activities ............ (8,034,481) (8,616,801) (13,657,233) (10,112,904)
------------ ------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in deposits ............................... 8,953,043 7,124,501 13,551,736 7,506,649
Decrease in borrowed funds ......................... -- -- -- (441,950)
Proceeds from issuance of stock, net ............... -- -- -- 7,173,204
------------ ------------ ------------ ------------
Net cash provided by financing activities .......... 8,953,043 7,124,501 13,551,736 14,237,903
Net increase (decrease) in cash and cash equivalents .. 699,801 (2,124,986) (929,710) 3,769,411
Cash and cash equivalents at beginning of year ........ 2,840,262 3,769,972 3,769,972 561
------------ ------------ ------------ ------------
Cash and cash equivalents at end of year .............. 3,540,063 1,644,986 $ 2,840,262 $ 3,769,972
============ ============ ============ ============
CASH PAID DURING THE YEAR FOR:
Interest ........................................... 626,041 262,726 $ 573,144 $ 52,748
Income taxes ....................................... -- -- -- --
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE> 67
THE FIRST BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
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.
F-7
<PAGE> 68
THE FIRST BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE B - SUMMARY OF ACCOUNTING POLICIES (Continued)
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.
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, 1997 and 1996.
5. LOANS
Loans are carried at the principal amount outstanding, net of the reserve
for loan losses. Interest income on loans is recognized based on the
principal balance outstanding and the stated rate of the loan.
6. 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.
7. 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.
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.
F-8
<PAGE> 69
THE FIRST BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE B - SUMMARY OF ACCOUNTING POLICIES (Continued)
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.
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. NET LOSS PER SHARE
In February, 1997, the Financial Accounting Standards Board (FASB) issued
Statement No. 128, "Earnings Per Share," which is effective for years ending
after December 15, 1997. Under Statement No. 128, two per share amounts are
to be considered and presented, if applicable. Basic per share data is
calculated based on the weighted-average number of common shares outstanding
during the reporting period. Diluted per share data includes any dilution
from potential common stock outstanding, such as exercise of stock options.
The following table discloses the reconciliation of the numerators and
denominators of the basic and diluted computations:
<TABLE>
<CAPTION>
For the Year Ended For the Year Ended
December 31, 1997 December 31, 1996
---------------------------------------- ----------------------------------------
Net Loss Shares Per Share Net Loss Shares Per Share
(Numerator) (Denominator) Data (Numerator) (Denominator) Data
----------- ------------- --------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Basic per share ..... $(261,993) 721,848 $ (.36) $(355,748) 612,435 $ (.58)
====== ======
Effect of dilutive
shares:
Stock options ....... -- 8,865 -- --
--------- --------- --------- ---------
Diluted per share ... $(261,993) 730,713 $ (.36) $(355,748) 612,435 $ (.58)
========= ========= ====== ========= ========= ======
</TABLE>
The diluted per share amounts were computed by applying the treasury stock
method.
NOTE C - SECURITIES
Securities at December 31, 1997 and 1996, consisted of available-for-sale
securities with a carrying amount of $3,796,862 and $4,216,027,
respectively, and securities held-to-maturity with a carrying amount of
$506,725 and $ -0-, respectively. The amortized cost, gross unrealized
gains, gross unrealized losses and estimated fair value of these securities
at December 31, 1997 and 1996, are as follows:
F-9
<PAGE> 70
THE FIRST BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE C - SECURITIES (CONTINUED)
<TABLE>
<CAPTION>
1997
----------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Available-for-sale securities:
U.S. Treasury securities ....................... $ 499,928 $ 3,822 $ -- $ 503,750
Obligations of U. S. Government agencies ....... 500,000 -- 310 499,690
Mortgage-backed securities ..................... 2,126,525 9,721 1,181 2,135,065
Equity securities .............................. 167,950 -- -- 167,950
Other securities ............................... 490,407 -- -- 490,407
---------- ---------- ---------- ----------
$3,784,810 $ 13,543 $ 1,491 $3,796,862
========== ========== ========== ==========
Held-to-maturity securities:
Mortgage-backed securities ..................... $ 506,725 $ 877 $ -- $ 507,602
========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
1996
----------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair 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>
The scheduled maturities of securities at December 31, 1997, are as follows:
<TABLE>
<CAPTION>
Amortized Estimated
Cost Fair Value
---------- ----------
<S> <C> <C>
Due in one year or less........................................ $ 490,407 $ 490,407
Due after one year through five years.......................... 999,928 1,003,440
Mortgage-backed securities and equity securities............... 2,801,200 2,810,617
---------- ----------
$4,291,535 $4,304,464
========== ==========
</TABLE>
Actual maturities can differ from contractual maturities because the
obligations may be called or prepaid with or without penalties.
Equity securities consist of stock in the Federal Reserve Bank, the
transferability of which is restricted.
No gains and losses were realized on available-for-sale securities in 1997
and 1996.
Securities with a carrying value of $499,310 and $ -0- at December 31, 1997
and 1996, respectively, were pledged to secure public deposits and for other
purposes as required or permitted by law.
F-10
<PAGE> 71
THE FIRST BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE D - LOANS
Loans outstanding include the following types at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
(In thousands)
-------------------------
1997 1996
-------- -------
<S> <C> <C>
Commercial, financial, and agricultural.................... $ 5,187 $ 1,106
Real estate - construction................................. 2,031 36
Real estate - mortgage:
Commercial............................................. 4,166 1,508
Residential............................................ 3,698 1,205
Consumer................................................... 2,392 470
Other...................................................... 13 2
-------- -------
17,487 4,327
Reserve for loan losses.................................... (193) (37)
-------- -------
$ 17,294 $ 4,290
======== =======
</TABLE>
Activity in the reserve for loan losses included a provision for loan losses
charged to operations of $156,418 and $37,148 for the years ended December
31, 1997 and 1996. For the period ended December 31, 1997 and 1996, the Bank
had no loans classified as impaired.
NOTE E - PREMISES AND EQUIPMENT
The detail of premises and equipment at December 31, 1997 and 1996, is as
follows:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Premises:
Land................................................... $ 453,366 $ 452,121
Buildings and improvements............................. 1,380,205 60,863
Equipment.................................................. 421,225 342,443
Construction in process.................................... -- 878,543
----------- -----------
2,254,796 1,733,970
Less accumulated depreciation.............................. (162,571) (42,210)
----------- -----------
$ 2,092,225 $ 1,691,760
=========== ===========
</TABLE>
The amounts charged to operating expense for depreciation were $120,361 and
$42,210 in 1997 and 1996, respectively.
Included in other income for the year ended December 31, 1997, is a gain of
$112,177 from the sale of nonbanking real estate.
F-11
<PAGE> 72
THE FIRST BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE F - 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.
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 1
capital (as defined) to risk-weighted assets (as defined), and of Tier 1
capital to adjusted total assets (leverage). Management believes, as of
December 31, 1997, that the Company and the Bank exceed all capital adequacy
requirements.
At December 31, 1997, 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 1 risk-based ratio of
6% or more, and has a Tier 1 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, 1997 and 1996, are
presented in the following table. No amount was deducted from capital for
interest-rate risk exposure.
<TABLE>
<CAPTION>
Company
(Consolidated) Bank
------------------- -------------------
Amount Ratio Amount Ratio
------ ----- ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C>
DECEMBER 31, 1997
Total risk-based.............................. $6,496 31.7% $5,025 24.5%
Tier 1 risk-based............................. 6,303 30.7% 4,829 23.6%
Tier 1 leverage............................... 6,303 30.3% 4,829 23.2%
DECEMBER 31, 1996
Total risk-based.............................. $6,655 91.8% $4,842 69.8%
Tier 1 risk-based............................. 6,618 91.3% 4,805 69.1%
Tier 1 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, 1997 and 1996, are as follows:
F-12
<PAGE> 73
THE FIRST BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE F - REGULATORY MATTERS (CONTINUED)
<TABLE>
<CAPTION>
(Dollars in thousands)
-----------------------------------------------
Company
(Consolidated) Bank
------------------- -------------------
Amount Ratio Amount Ratio
------ ----- ------ -----
<S> <C> <C> <C> <C>
DECEMBER 31, 1997
Total risk-based........................................ $1,640 8.0% $1,638 8.0%
Tier 1 risk-based....................................... 820 4.0% 819 4.0%
Tier 1 leverage......................................... 839 4.0% 832 4.0%
DECEMBER 31, 1996
Total risk-based........................................ $ 580 8.0% $ 556 8.0%
Tier 1 risk-based....................................... 290 4.0% 278 4.0%
Tier 1 leverage......................................... 569 4.0% 557 4.0%
</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, 1997, the Bank had no retained net
profits free of the restrictions.
NOTE G - INCOME TAXES
The Company's accounting and reporting of income taxes is in accordance with
FASB Statement No. 109, "Accounting for Income Taxes." At December 31, 1997
and 1996, the Company had a net operating loss carryforward of approximately
$817,000 and $555,000, 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 years ended December 31, 1997 and 1996, generated deferred
tax assets of approximately $306,000 and $208,000, 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 $360,000 at December 31, 1997. 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 2012 if not utilized.
NOTE H - EMPLOYEE BENEFITS
The Company and the Bank have an employment agreement with its President and
Chief Executive Officer. 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 were determined by
the Board of Directors. Thereafter, the bonuses will
F-13
<PAGE> 74
THE FIRST BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE H - EMPLOYEE BENEFITS (CONTINUED)
be based upon a percentage of net profits after taxes of the Bank.
Initially, the agreement granted an option to purchase up to 3% of the
number of shares sold in the stock offering at a price per share equal to
the initial offering price. The options vested one-third per year for the
first three years of operations of the Bank and were subject to certain
performance criteria as established by the Board of Directors. The option to
purchase had a term of ten years. The stock option provisions of the
agreement were superseded by the stock option plan adopted in 1997. In
addition, the agreement provides for additional benefits in the event of
termination after a change in control.
In 1997, the Company adopted the 1997 Stock Option Plan (the "Plan"). The
plan provides for the granting of options to purchase up to 72,185 shares of
Company common stock by directors and key employees of the Company and its
subsidiary. As of December 31, 1997, all shares had been granted. The
options may be exercised at an option price equal to the fair market value
of the stock at the grant date. The options may be exercised over ten years.
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 consolidated financial statements. If FASB No. 123, "Accounting
for Stock-Based Compensation" had been applied, the net loss from operations
for the years ended December 31, 1997 and 1996, would have been $300,468 and
$367,290, respectively, and the basic net loss per common share would have
been $.42 and $.60, respectively.
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. Contributions by the Bank totaled $8,646 in 1997 and $2,017 in
1996.
NOTE I - 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 $1,565,000 and $655,000 at December 31, 1997 and 1996,
respectively. 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. Approximately $310,000 in 1997 and $580,000
in 1996 were 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 J - 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, etc., which are not reflected in the accompanying financial
statements. The Bank had outstanding letters of credit of $82,500 and
$50,000 at December 31, 1997 and 1996, and had made loan commitments of
approximately $1,882,000 and $785,000 at December 31, 1997 and 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.
F-14
<PAGE> 75
THE FIRST BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE J - COMMITMENTS, CONTINGENCIES, AND CONCENTRATIONS OF CREDIT RISK
(CONTINUED)
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, 1997, 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 K - PREOPENING EXPENSES
A summary of the components of pre-opening expenses for the year ended
December 31, 1996, is as follows:
<TABLE>
<S> <C>
Salaries and employee benefits................................... $153,736
Professional fees................................................ 19,557
Marketing and public relations................................... 9,910
Occupancy costs.................................................. 22,526
Supplies and postage............................................. 7,607
Other............................................................ 10,649
--------
$223,985
========
</TABLE>
NOTE L - 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.
F-15
<PAGE> 76
THE FIRST BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE L - FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
The carrying amount and estimated fair value of the Company's consolidated
financial instruments are as follows:
<TABLE>
<CAPTION>
(In thousands)
----------------------------------------------------
December 31, 1997 December 31, 1996
----------------------- -----------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Financial Assets:
Cash and cash equivalents .................................... $ 2,840 $ 2,840 $ 3,770 $ 3,770
======== ======== ======== ========
Investment securities ........................................ $ 4,304 $ 4,304 $ 4,216 $ 4,216
======== ======== ======== ========
Loans ........................................................ $ 17,487 $ 17,466 $ 4,327 $ 4,320
Reserve for loan losses ...................................... (193) -- (37) --
-------- -------- -------- --------
Net Loans .................................................. $ 17,294 $ 17,466 $ 4,290 $ 4,320
======== ======== ======== ========
Financial Liabilities:
Deposits:
Noninterest-bearing demand ................................... $ 2,479 $ 2,479 $ 1,566 $ 1,566
Interest-bearing demand ...................................... 6,666 6,666 3,912 3,912
Savings ...................................................... 200 200 71 71
Certificates of Deposit ...................................... 11,713 11,719 1,958 1,960
-------- -------- -------- --------
Total Deposits ............................................. $ 21,058 $ 21,064 $ 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.
NOTE M - PARENT COMPANY FINANCIAL INFORMATION
The balance sheets, statements of operations, and cash flows for The First
Bancshares, Inc. (parent only) follow:
<TABLE>
<CAPTION>
December 31,
---------------------------
1997 1996
---------- ----------
<S> <C> <C>
CONDENSED BALANCE SHEETS
Assets:
Cash........................................................... $ -- $ 461
Interest - bearing deposit with subsidiary bank................ 1,480,758 1,515,077
Investment in subsidiary bank.................................. 4,861,510 4,807,805
Fixed assets................................................... -- 332,077
Other.......................................................... 32,861 43,518
---------- ----------
$6,375,129 $6,698,938
========== ==========
Liabilities:
Other.......................................................... $ 7,425 $ 78,410
Shareholders' equity........................................... 6,367,704 6,620,528
---------- ----------
$6,375,129 $6,698,938
========== ==========
</TABLE>
F-16
<PAGE> 77
THE FIRST BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE M - PARENT COMPANY FINANCIAL INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
Years Ended
December 31,
-------------------------
1997 1996
--------- ---------
<S> <C> <C>
CONDENSED STATEMENTS OF OPERATIONS
Interest .............................................................. $ 73,435 $ 242,583
Other ................................................................. 8,134 --
--------- ---------
81,569 242,583
Expenses:
Other ............................................................. 44,034 28,884
--------- ---------
Income before income taxes and equity in undistributed loss of
subsidiary ........................................................ 37,535 213,699
Income taxes .......................................................... 7,188 75,410
--------- ---------
Income before equity in undistributed loss of subsidiary .............. 30,347 138,289
Equity in undistributed loss of subsidiary ............................ (292,340) (494,037)
--------- ---------
Net loss .............................................................. $(261,993) $(355,748)
========= =========
</TABLE>
<TABLE>
<CAPTION>
Years Ended
December 31,
-----------------------------
1997 1996
----------- -----------
<S> <C> <C>
CONDENSED STATEMENTS OF CASH FLOWS
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ......................................................... $ (261,993) $ (355,748)
Add cash equivalents:
Equity in undistributed loss of subsidiary ....................... 292,340 494,037
Other, net ....................................................... (60,327) 128,126
----------- -----------
Net cash provided by (used in) operating activities .............. (29,980) 266,415
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in subsidiary ......................................... -- (5,298,960)
Acquisition of fixed assets ...................................... (4,800) (183,732)
----------- -----------
Net cash used in investing activities ............................ (4,800) (5,482,692)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of stock, net ............................. -- 7,173,204
Payment of note payable .......................................... -- (441,950)
----------- -----------
Net cash provided by financing activities ........................ -- 6,731,254
----------- -----------
Net increase (decrease) in cash and cash equivalents ................. (34,780) 1,514,977
Cash and cash equivalents at beginning of period ..................... 1,515,538 561
----------- -----------
Cash and cash equivalents at end of period ........................... $ 1,480,758 $ 1,515,538
=========== ===========
</TABLE>
F-17
<PAGE> 78
THE FIRST BANCSHARES, INC.
STOCK ORDER FORM/SUBSCRIPTION AGREEMENT
<TABLE>
<S> <C> <C>
TO: David E. Johnson William M. Renovich, Jr.
President and Chief Executive Officer Vice President, proposed CEO of the Laurel Bank
The First Bancshares, Inc. or The First Bancshares, Inc.
P.O. Box 15549 523 Commerce Street, 2nd Floor
Hattiesburg, Mississippi 39404-5549 Laurel, Mississippi 39440
</TABLE>
Gentlemen:
You have informed me that The First Bancshares, Inc., a Mississippi
corporation (the "Company"), is offering up to 533,333 shares of its Common
Stock, par value $1.00 per share (the "Common Stock), at a price of $15.00 per
share payable as provided herein and as described in the offering pursuant to
the Prospectus furnished with this Subscription Agreement (the "Prospectus").
1. SUBSCRIPTION. Subject to the terms and conditions hereof, the
undersigned hereby tenders this subscription, together with payment to "The
First Bancshares, Inc.," the amount indicated below (the "Funds"), representing
the payment of $15.00 per share for the number of shares of Common Stock
indicated below. The total subscription price must be paid at the time the
Subscription Agreement is executed.
2. ACCEPTANCE OF SUBSCRIPTION. The Company shall have the right
to accept or reject this subscription in whole or in part, for any reason
whatsoever. The Company may reduce the number of shares for which the
undersigned has subscribed, indicating acceptance of less than all of the shares
subscribed on its written form of acceptance.
3. ACKNOWLEDGMENTS. The undersigned hereby acknowledges that he
or she has received a copy of the Prospectus. This Subscription Agreement
creates a legally binding obligation and the undersigned agrees to be bound by
the terms of this Agreement.
4. REVOCATION. The undersigned agrees that once this Subscription
Agreement is tendered to the Company, it may not be withdrawn and that this
Agreement shall survive the death or disability of the undersigned.
BY EXECUTING THIS AGREEMENT, THE SUBSCRIBER IS NOT WAIVING ANY RIGHTS HE OR SHE
MAY HAVE UNDER FEDERAL SECURITIES LAWS, INCLUDING THE SECURITIES ACT OF 1933 AND
THE SECURITIES EXCHANGE ACT OF 1934.
THE SHARES OF COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR SAVINGS
DEPOSITS ACCOUNTS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY.
A-1
<PAGE> 79
Please indicate in the space provided below the exact name or names and
address in which the stock certificate representing shares subscribed for
hereunder should be registered.
<TABLE>
<S> <C>
- ------------------------------------------------ ---------------------------------------------------------
Number of Shares Subscribed Name or Names of Subscribers (Please Print)
For (minimum 100 shares)
$
- ------------------------------------------------ ---------------------------------------------------------
Total Subscription Price at Please indicate form of ownership desired (individual,
$15.00 per shares (funds must be joint tenants with right of survivorship, tenants in
enclosed) common, trust corporation, partnership, custodian, etc.)
Date: (L.S.)
------------------------------------------- ---------------------------------------------------------
Signature of Subscriber(s)*
(L.S.)
- ------------------------------------------------ ---------------------------------------------------------
Social Security Number or Federal Signature of Subscriber(s)*
Taxpayer Identification Number
</TABLE>
Street (Residence) Address:
_______________________________________
_______________________________________
_______________________________________
City, State and Zip Code
*When signing as attorney, trustee, administrator, or guardian, please
give your full title as such. If a corporation, please sign in full corporate
name by president or other authorized officer. In the case of joint tenants or
tenants in common, each owner must sign.
TO BE COMPLETED BY THE COMPANY:
Accepted as of _________, 1998, as to _________ shares.
THE FIRST BANCSHARES, INC.
--------------------------------------------
By:
Title:
<PAGE> 80
FEDERAL INCOME TAX BACKUP WITHHOLDING
In order to prevent the application of federal income tax backup
withholding, each subscriber must provide the Escrow Agent with a correct
Taxpayer Identification Number ("TIN"). An individual's social security number
is his or her TIN. The TIN should be provided in the space provided in the
Substitute Form W-9, which is set forth below.
Under federal income tax law, any person who is required to furnish his
or her correct TIN to another person, and who fails to comply with such
requirements, may be subject to a $50 penalty imposed by the IRS.
Backup withholding is not an additional tax. Rather, the tax liability
of persons subject to backup withholding will be reduced by the amount of tax
withheld. If backup withholding results in an overpayment of taxes, a refund may
be obtained from the IRS. Certain taxpayers, including all corporations, are not
subject to these backup withholding and reporting requirements.
If the shareholder has not been issued a TIN and has applied for a TIN
or intends to apply for a TIN in the near future, "Applied For" should be
written in the space provided for the TIN on the Substitute Form W-9.
SUBSTITUTE FORM W-9
Under penalties of perjury, I certify that: (i) The number shown on
this form is my correct Taxpayer Identification Number (or I am waiting for a
Taxpayer Identification Number to be issued to me), and (ii) I am not subject to
backup withholding because: (a) I am exempt from backup withholding; or (b) I
have not been notified by the Internal Revenue Service ("IRS") that I am subject
to backup withholding as a result of a failure to report all interest or
dividends; or (c) the IRS has notified me that I am no longer subject to backup
withholding.
You must cross out item (ii) above if you have been notified by the IRS
that you are subject to backup withholding because of underreporting interest or
dividends on your tax return. However, if after being notified by the IRS that
you were subject to backup withholding you received another notification from
the IRS that you are no longer subject to backup withholding, do not cross out
item (ii).
Each subscriber should complete this section.
- ------------------------------------- -------------------------------------
Signature of Subscriber Signature of Subscriber
- ------------------------------------- -------------------------------------
Printed Name Printed Name
- ------------------------------------- -------------------------------------
Social Security or Employer Social Security or Employer
Identification No. Identification No.
<PAGE> 81
================================================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE HEREBY. IF GIVEN OR MADE, SUCH
INFORMATION AND REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL
OR SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH
JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER AT ANY TIME SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT
THE INFORMATION HEREIN IS CORRECT AT ANY TIME AFTER THE DATE HEREOF.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.............................................................3
Risk Factors...................................................................6
The Offering..................................................................11
Use of Proceeds...............................................................13
Market for Common Stock.......................................................14
Dividend Policy...............................................................14
Dilution......................................................................15
Capitalization................................................................16
Selected Consolidated Financial Data..........................................17
Management's Discussion and Analysis of
Financial Condition and Results of Operation..................................18
Business......................................................................33
Supervision and Regulation....................................................37
Management....................................................................43
Principal Shareholders........................................................54
Description of Securities.....................................................57
Legal Matters.................................................................59
Experts.......................................................................59
Available Information.........................................................59
Index to Financial Statements................................................F-1
Subscription Agreement.......................................................A-1
</TABLE>
================================================================================
================================================================================
533,333 SHARES
THE FIRST BANCSHARES, INC.
COMMON STOCK
----------
PROSPECTUS
----------
September 16, 1998
================================================================================
<PAGE> 82
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 79-4-8.50 through 79-4-8.59 of the Mississippi Business
Corporation Act (the "Act") provide the Company with broad powers and authority
to indemnify its directors and officers and to purchase and maintain insurance
for such purposes and mandate the indemnification of the Company's directors
under certain circumstances. The Company's Articles of Incorporation also
provide the Company with the power and authority to the fullest extent legally
permissible under the Act to indemnify its directors and officers, persons
serving at the request of the Company or for its benefit as directors or
officers of another corporation, and persons serving as the Company's
representatives or agents in certain circumstances. Pursuant to such authority
and the provisions of the Company's Articles of Incorporation, the Company
intends to purchase insurance against certain liabilities that may be incurred
by it and its officers and directors. Reference is also made to the discussion
in the Prospectus under the caption "Description of Securities -- Director
Liability."
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers, and controlling persons of the Company
pursuant to the Articles of Incorporation or Bylaws, or otherwise, the Company
has been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Estimated expenses (other than underwriting commissions) of the sale of
the shares of Common Stock are as follows:
<TABLE>
<S> <C>
SEC Registration Fee.................................. $ 1,574
Printing and Engraving................................ 20,000
Legal Fees and Expenses............................... 60,000
Accounting Fees....................................... 10,000
Blue Sky Fees and Expenses............................ 3,000
Transfer Agent and Registrar Fees and Expenses........ 2,000
Miscellaneous Disbursements........................... 3,426
--------
Total................................................. $100,000
========
</TABLE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
None.
<TABLE>
<CAPTION>
ITEM 27. EXHIBITS.
<S> <C>
3.1. Amended and Restated Articles of Incorporation (incorporated by
reference to Exhibit 3.1 to the Company's Registration Statement No.
33-94288 on Form S-1)
3.2. Bylaws (incorporated by reference to Exhibit 3.2 to the Company's
Registration Statement No. 33-94288 on Form S-1)
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 to the Company's Registration
Statement No. 33-94288 on Form S-1)
4.2. Form of Certificate of Common Stock (incorporated by reference to
Exhibit 4.2 to the Company's Registration Statement No. 33-94288 on
Form S-1)
5.1. Opinion of Nelson Mullins Riley & Scarborough, L.L.P. Regarding
Legality*
</TABLE>
II-1
<PAGE> 83
<TABLE>
<S> <C>
10.1. Amended and restated employment agreement dated November 20, 1995, by
and 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. 333-61081)
10.2. Employment Agreement dated June 10, 1998 by and between the Company and
The First National Bank of the Pine Belt and William M. Renovich, Jr.
(incorporated by reference to Exhibit 10.1 to the Company's Current
Report on Form 8-K filed June 25, 1998)
10.3. Bank Development Agreement dated June 19, 1998 by and among the Company
and the organizers of The First National Bank of the Pine Belt
(incorporated by reference to Exhibit 10.2 to the Company's Current
Report on Form 8-K filed June 25, 1998)
10.4. First Bancshares, Inc. 1997 Stock Option Plan as of March 18, 1997
(incorporated by reference to Exhibit 10.7 of the Company's Form 10-KSB
for the fiscal year ended December 31, 1996, File No. 333-61081)
10.5. Promissory Note dated June 16, 1998 by and between the Company and The
First National Bank of the Pine Belt*
10.6 Construction Agreement dated March 18, 1998 between The First National
Bank of South Mississippi and Piercon, Inc.*
10.7 Option to Purchase Real Estate dated June 29, 1998 between the Pine
Belt Organizers, LLC and Frances B. Wheelis
21.1 Subsidiaries of the Company*
23.1. Consent of Independent Public Accountants
23.2. Consent of Nelson Mullins Riley & Scarborough, L.L.P. (appears in its
opinion filed as Exhibit 5.1)
24.1. Power of Attorney*
27.1. Financial Data Schedule
</TABLE>
* Previously filed
ITEM 28. UNDERTAKINGS.
The undersigned Company will:
(a)(1) File, during any period in which it offers or sells
securities, a post-effective amendment to this registration
statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in
the information in the registration statement; and
(iii) Include any additional or changed material information on the
plan of distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) File a post-effective amendment to remove from registration
any of the securities that remain unsold at the end of the offering.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors, officers and
controlling persons of the Company pursuant to the provisions described in Item
24
II-2
<PAGE> 84
above, or otherwise, the Company has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Company of expenses incurred or paid by a
director, officer or controlling person of the Company in the successful defense
of any action, suit, or proceeding) is asserted by such director, officer, or
controlling person in connection with the securities being registered, the
Company will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
II-3
<PAGE> 85
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of
Hattiesburg, State of Mississippi, on September 14, 1998.
THE FIRST BANCSHARES, INC.
By: /s/ David E. Johnson
-----------------------------------------
David E. Johnson
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ David W. Bomboy* September 14, 1998
- ------------------------------
David Waldron Bomboy Director
- ------------------------------
M. Ray (Hoppy) Cole, Jr. Director
- ------------------------------
E. Ricky Gibson Director
/s/ David E. Johnson September 14, 1998
- ------------------------------
David E. Johnson Director, President and Chief
Executive Officer
/s/ Fred A. McMurry* September 14, 1998
- ------------------------------
Fred A. McMurry Director
/s/ Dawn T. Parker* September 14, 1998
- ------------------------------
Dawn T. Parker Director
- ------------------------------
Perry Edward Parker Director
/s/ Ted E. Parker* September 14, 1998
- ------------------------------
Ted E. Parker Director
/s/ Dennis L. Pierce* September 14, 1998
- ------------------------------
Dennis L. Pierce Director
- ------------------------------
David L. Rice, III Director
</TABLE>
II-4
<PAGE> 86
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Charles T. Ruffin* September 14, 1998
- ------------------------------
Charles T. Ruffin Director, Principal Financial and
Accounting Officer
- ------------------------------
J. Douglas Seidenburg Director
/s/ A.L. "Pud" Smith* Director September 14, 1998
- ------------------------------
A.L. "Pud" Smith
/s/ Andrew D. Stetelman* September 14, 1998
- ------------------------------
Andrew D. Stetelman Director
</TABLE>
*By David E. Johnson, with power of attorney.
II-5
<PAGE> 1
EXHIBIT 10.7
OPTION TO PURCHASE REAL ESTATE
FOR AND IN CONSIDERATION of the sum of FIVE THOUSAND DOLLARS
($5,000.00) cash in hand paid, the receipt of which is hereby acknowledged, I,
FRANCES B. WHEELIS, herein called Seller, do hereby grant, sell, convey and
warrant unto PINE BELT ORGANIZERS, LLC, or its assigns, herein called Buyer the
exclusive option to purchase the real property herein described on the following
terms and conditions.
1. DESCRIPTION. A parcel of land consisting of approximately 8.77
acres situated at the Southeast corner of 20th Street and Mississippi Highway 15
North in the City of Laurel, 2nd Judicial District, Jones County, Mississippi,
such real property hereinafter referred to as the "Property" and that shown on
the attached Exhibit "A".
2. OPTION PERIOD. This option shall commence on July 1, 1998 and
shall expire at midnight on September 30, 1998.
3. PRICE. The purchase price for the property, to be paid at
closing, is: SIX HUNDRED SEVENTY FIVE THOUSAND DOLLARS ($675,000.00)
4 EXERCISE OF OPTION. This option may be exercised at any time
during the option period by written notice to the Seller delivered or mailed to
the Seller address set forth herein.
5. FAILURE TO EXERCISE OPTION. If the buyer does not exercise the
option, the consideration paid for this option shall be retained by the Seller
and neither party shall have any further rights or claims against the other.
6. CLOSING. The transaction forming the subject of this Option
shall be closed by Seller and Buyer within thirty (30) days after the option is
exercised by the Buyer even though such date may extend beyond the option period
set forth in paragraph 2. The closing shall occur in Laurel, Mississippi at a
place mutually acceptable to Buyer and Seller, and the Buyer shall pay all
closing costs associated with the sale of the Property. If the option is
exercised, then the moneys paid for said option and any extension will be
applied to the purchase price.
7. DEED. At closing, Seller shall deliver unto Buyer title to the
real property by Warranty Deed, warranting title to be free and clear of all
liens, charges and encumbrances, clouds and defects whatsoever, except for
reservation of oil, gas, and mineral interests and standard exceptions.
8. TITLE EXAMINATION; DEFECTS. Buyer shall, at its expense, cause
an examination of the Seller's title to be conducted by an attorney of Buyer's
choice. Should such examination reveal defects, encumbrances, liens or clouds
upon the title of Seller which, in the opinion of
1
<PAGE> 2
said attorney, cannot be cured at closing by satisfaction and payment of liens,
Buyer shall notify Seller of same and give Seller the opportunity to cure such
defects. Upon receipt of such notice from Buyer, Seller shall, within ten (10)
days, notify Buyer either of the intent to cure such defects or the intent to
terminate the option and refund the option price to Buyer. If Seller attempt to
cure the defects, the running of the option period herein set forth shall
automatically be interrupted for the period of time necessary to effectuate cure
by the Seller and shall not begin to run again until Seller provide Buyer with
written evidence that cure has been effected or that no cure is possible. If
Seller give notice to Buyer of intent to terminate the option and refund the
option price, such notice shall not automatically terminate this option unless
Buyer gives Seller written notice of consent thereto. Notwithstanding such
notice of intent to terminate by Seller, Buyer may, in its discretion and at its
cost, take such action as may be necessary to cure the title defects and Seller
shall cooperate with Buyer in such action. In the event Buyer elects to
effectuate a cure of title defects, the running of the option period set forth
in paragraph 2 shall automatically be interrupted for a period of time not to
exceed 30 days.
9. PROPERTY CONDITION. At closing, the Buyer will accept the
property in its present condition. Seller hereby grants unto the Buyer the right
to enter upon the property for the purpose of performing any study, inspection,
survey, or audit it may desire during the Primary term of this Option or any
extension thereof. The Buyer agrees to indemnify and hold the Seller harmless
from any and all loss, liability, claim, demand or expense, of any kind or
nature arising out of any such study, inspection, survey, or audit it chooses to
conduct.
10. PRORATIONS. All real property ad valorem taxes shall be
prorated as of the date of closing, using for such purposes the rate and
valuation shown on the last tax receipt.
11. NOTICES. Any notice which may or is required to be sent
pursuant to the provisions of this agreement shall be sent by United States
Mail, first class postage prepaid or, at the option of either party, by
certified mail, postage prepaid, return receipt requested, addressed as follows:
SELLERS: FRANCES B, WHEELIS
1230 West 20th Street
Laurel, MS 39440
BUYER: PINE BELT ORGANIZERS, LLC
523 Commerce Street
Laurel, MS 39440
12. MINERALS. All oil, gas, and minerals are to be excepted from
this agreement, and no oil, gas, or mineral rights will be conveyed pursuant to
this agreement.
13. BENEFITS. This agreement shall be binding on and shall inure
to the benefit of Seller and Buyer and their respective heirs, executors,
administrators, successors and assigns.
2
<PAGE> 3
14. DEFAULT: In the event of default by any party hereto, the
non-defaulting party shall have the right to enforce this contract and/or seek
damages for its breach. In addition to such other damages as may be provided
herein or as may be proved by the non-defaulting party, the defaulting party
shall be liable and responsible for all attorney's fees, court costs, and/or
other expenses incurred by the non-defaulting party as a result, directly or
indirectly, of the breach by the defaulting party.
15. MISSTATEMENTS AND/OR OMISSIONS. The parties understand and
agree that the parties are relying upon the information contained in this Option
Agreement, and in the event of any misstatements or misrepresentations by the
Seller, the Buyer shall be entitled to a refund of the $5,000.00 paid in
consideration for this option.
16. EXTENSION. As a further part of the consideration herefor,
Buyer is granted the right to extend this option for one (1) additional period
of sixty days (60) on the same terms and conditions as herein provided by paying
Seller, before the expiration of this option, the amount of $5,000.00 for said
extension. If the option is exercised, then the money's paid for this extension
will be applied to the purchase price. If the option is not exercised, then the
moneys paid for this extension will be forfeited.
17. AGENCY AND SALES FEE: It is understood and agreed that CHRIS
WILSON, REALTOR is licensed real estate broker in Mississippi and is acting as a
Sellers' Agent. Seller agrees to pay 7% commission based on the agreed Sales
Price at closing to said Agent.
18. ZONING: The Property carries a Zoning classification of C-3
for Highway Commercial Uses. The land lying adjacent to the East of the Property
is zoned R-1 for Single Family Residential Purposes. Should the Buyer exercise
its Option to Purchase said Property, Buyer agrees to develop an attractive
planted area across the Eastern boundary of said Property, so as to create a
suitable buffer zone between the two types of land use.
WITNESS OUR SIGNATURES this the 29th day of June, 1998.
SELLER:
/s/ Francis B. Wheelis
----------------------------
Frances B. Wheelis
BUYER:
Pine Belt Organizers, LLC
/s/ William M. Renovich
----------------------------
By: William M. Renovich
3
<PAGE> 4
STATE OF MISSISSIPPI
COUNTY OF JONES
This day personally appeared before me, the undersigned authority in
and for the jurisdiction aforesaid, the within named FRANCES B. WHEELIS, who
acknowledged that she signed and delivered the above and foregoing Option to
Purchase Real Property on the day and year therein mentioned and for the
purposes therein mentioned.
WITNESS MY SIGNATURE on this the 29th day of June, 1998.
/s/ Betty Powe Livingston
-----------------------------------
NOTARY PUBLIC
MY COMMISSION EXPIRES:
- ----------------------------
STATE OF MISSISSIPPI
COUNTY OF JONES
This day personally appeared before me, the undersigned authority in
and for the jurisdiction aforesaid, the within named WILLIAM M. RENOVICH who is
AGENT OF PINE BELT ORGANIZERS, LLC, and who acknowledged that he signed and
delivered the above and foregoing Option to Purchase Real Property on the day
and year therein mentioned and for the purposes therein mentioned after having
been first authorized to do so by its Directors.
WITNESS MY SIGNATURE on this 26th day of June, 1998.
-----------------------------------
NOTARY PUBLIC
MY COMMISSION EXPIRES:
4
<PAGE> 1
EXHIBIT 23.1
T. E. LOTT & COMPANY
A PROFESSIONAL ASSOCIATION
CERTIFIED PUBLIC ACCOUNTANTS
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The First Bancshares, Inc.:
We hereby consent to the use in this Registration Statement on Form SB-2 of our
report dated February 11, 1998, relating to the consolidated financial
statements of The First Bancshares, Inc., and its subsidiary, and to the
reference to our Firm under the caption "Experts" in the Prospectus.
/s/ T.E. Lott & Company
------------------------------
T.E. LOTT & COMPANY
Columbus, Mississippi
September 14, 1998
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF FIRST BANCSHARES, INC. FOR THE 6 MONTHS ENDED JUNE 30,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 665,063
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 2,875,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 5,992,875
<INVESTMENTS-CARRYING> 396,820
<INVESTMENTS-MARKET> 396,820
<LOANS> 23,344,724
<ALLOWANCE> 263,814
<TOTAL-ASSETS> 36,539,428
<DEPOSITS> 30,011,428
<SHORT-TERM> 0
<LIABILITIES-OTHER> 17,977
<LONG-TERM> 0
0
0
<COMMON> 721,848
<OTHER-SE> 5,655,319
<TOTAL-LIABILITIES-AND-EQUITY> 36,539,428
<INTEREST-LOAN> 1,171,360
<INTEREST-INVEST> 171,073
<INTEREST-OTHER> 34,236
<INTEREST-TOTAL> 1,376,669
<INTEREST-DEPOSIT> 631,662
<INTEREST-EXPENSE> 664,248
<INTEREST-INCOME-NET> 712,421
<LOAN-LOSSES> 70,248
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 721,789
<INCOME-PRETAX> 13,520
<INCOME-PRE-EXTRAORDINARY> 13,520
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,520
<EPS-PRIMARY> 0.02
<EPS-DILUTED> 0.02
<YIELD-ACTUAL> 4.13
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 225,000
<ALLOWANCE-OPEN> 193,000
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 264,000
<ALLOWANCE-DOMESTIC> 264,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
