<PAGE> 1
As filed with the Securities and Exchange Commission on August 10, 1998.
Registration No. ___-____
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------
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 Identification
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. ( )
CALCULATION OF REGISTRATION FEE
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<CAPTION>
=================================================================================================================
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>
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
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED _____ __, 1998
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>
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Underwriting Proceeds to the
Price to Public 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)................................ $8,000,000 None $8,000,000
========================================================================================================================
</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 and 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."
-----------------------------------------
_____________, 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
in 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:
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<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 West in 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 1945 Highway 15 North,
Laurel, Mississippi 39440.
THE OFFERING
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<S> <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
end) (5).................................. 8.78 8.76 8.75 9.08
Weighted average shares outstanding 721,848 21,848 721,848 721,848
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 loans (2)............................. 1.13% 1.09% 1.10% 0.86%
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 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") and of the Mississippi Banking
Department. The Company intends to file applications to request these approvals
in August 1998, and the Company anticipates receiving these approvals prior to
December 1998. However, there is a risk that the Company will fail to obtain
either one or both of these approvals, or that the approvals 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 and the Mississippi Banking Department 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.
6
<PAGE> 8
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 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 Capital Stock --
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
7
<PAGE> 9
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 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. 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
8
<PAGE> 10
stock with preferential dividend rights. See "Dividend Policy," "Supervision and
Regulation -- Dividends," and "Description of Securities -- Preferred Stock."
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 -- Market Areas."
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. 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 "Certain Relationships and Related Transactions -- Bank
Development Agreement." 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 27.8% of the outstanding shares of Common Stock. The
Company anticipates that its directors and executive officers, as
9
<PAGE> 11
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 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 system 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."
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 $8,000,000 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
10
<PAGE> 12
$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 ($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 Capital Stock of
the Company -- 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. See "Management."
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 Company's organizational and pre-opening 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 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);
11
<PAGE> 13
(b) the Company has obtained approval from the Federal Reserve Board and
the Mississippi Banking Department 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.
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.
12
<PAGE> 14
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 1945 Highway 15 North
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 $7.9 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.
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.
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, $375,000 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.
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<PAGE> 15
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 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":
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<PAGE> 16
<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
----- -----
Pro forma net tangible book value per share after the offering......... 10.67 11.33
------ ------
Dilution per share to new investors.................................... $ 4.33 $ 3.67
====== ======
</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 59.1% $ 7,218,480 49.0% $ 10.00
New investors ............................ 533,333 40.9 8,000,000 51.0 15.00
--------- ------ ----------- ------
Total ............................... 1,255,181 100.0% $14,718,480 100.0%
========= ====== =========== ======
</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.
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<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 OFFERING
-----------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
SHAREHOLDER ' 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
loan losses ........................................... 641 251 725 333
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 end)(5) ............ 8.78 8.76 8.75 9.08
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 loans (2)......... 1.13% 1.09% 1.10% 0.86%
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 for sale are stated at fair value.
(2) Loans are stated net of unearned income, before allowance for loan
losses.
(3) Net income per share is computed using the weighted average number of
shares of common stock and dilutive common stock equivalents from stock
options (using treasury stock method).
(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 in 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. 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.
SUMMARY QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
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 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. 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.
A $212,000, or 5,300.0%, increase in noninterest income to $216,000 in
1997 as compared to $4,000 in 1996 also 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. All categories of noninterest expense increased. The increases in
expenses primarily result 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 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 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
19
<PAGE> 21
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 the amount attributable 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%
</TABLE>
<TABLE>
<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
======= ======= ======= ======= =======
Cumulative 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 or may not be valid. 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 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 $ 193 $ 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, 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.
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.
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 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 addition of 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
25
<PAGE> 27
$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.
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
26
<PAGE> 28
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
and agricultural........ $ 8,421 36.1% $ 5,187 29.7% $ 1,106 25.6%
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.
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
-------- ------------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
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>
27
<PAGE> 29
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
<TABLE>
<CAPTION>
DECEMBER 31, 1997
---------------------------------------------------------------
AFTER ONE BUT
WITHIN ONE YEAR WITHIN FIVE YEARS AFTER TEN YEARS
--------------- ----------------- ---------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
------ ----- ------ ----- ------ -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
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. At December 31, 1997, total deposits were $21.0 million,
compared to $ 7.5 million a year earlier, an increase of 180.5%.
The following table sets forth the deposits of the Company by category
for the periods indicated.
DEPOSITS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
--------------------- -------------------------------------------
1998 1997 1996
--------------------- ------------------- --------------------
PERCENT OF PERCENT OF PERCENT OF
AMOUNT DEPOSITS AMOUNT DEPOSITS AMOUNT DEPOSITS
------- ---------- ------ ---------- ------ ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
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 $100,000 ........ 12,218 40.7 7,267 34.5 1,256 16.7
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>
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
29
<PAGE> 31
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
------------ ------------- ------------ -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
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%, but all but the highest
rated institutions are required to maintain ratios 100 to 200 basis points above
the minimum. The Company and the Hattiesburg Bank exceeded their minimum
regulatory capital ratios as of December 31, 1997 and 1996. See also
"Supervision and Regulation -- Capital Regulations."
30
<PAGE> 32
ANALYSIS OF CAPITAL
<TABLE>
<CAPTION>
REGULATORY MINIMUMS
------------------------
THE COMPANY THE HATTIESBURG BANK
ADEQUATELY WELL ------------ -----------------------
CAPITAL RATIOS 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 it 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 system 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 non-agricultural 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 are
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 saving
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, non-banking activities, unless the
Federal Reserve Board, by order or regulation, has found those activities to be
so closely related to banking or managing or controlling banks as to be a proper
incident thereto. Some of the activities that the Federal Reserve Board has
determined by regulation to be proper incidents to the business of a bank
holding company include making or servicing loans and certain types of leases,
engaging in certain insurance and discount brokerage activities, performing
certain data processing services, acting in certain circumstances as a fiduciary
or investment or financial adviser, owning savings associations, and making
investments in certain corporations or projects designed primarily to promote
community welfare.
The Federal Reserve Board has imposed certain capital requirements on
the Company under the BHCA, including a minimum leverage ratio and a minimum
ratio of "qualifying" capital to risk-weighted assets. These
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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 its financial affairs in compliance with minimum
standards and procedures prescribed by the OCC.
Under FDICIA, all insured institutions must undergo regular on-site
examinations by their appropriate banking agency. The cost of examinations of
insured depository institutions and any affiliates may be assessed by the
appropriate agency against each institution or affiliate as it deems necessary
or appropriate. Insured institutions are required to submit annual reports to
the FDIC and the appropriate agency (and state supervisor when applicable).
FDICIA also directs the FDIC to develop with other appropriate agencies a method
for insured depository institutions to provide supplemental disclosure of the
estimated fair market value of assets and liabilities, to the extent feasible
and practicable, in any balance sheet, financial statement, report of condition
or any other report of any insured depository institution. FDICIA also requires
the federal banking regulatory agencies to prescribe, by regulation, standards
for all insured depository institutions and depository institution holding
companies relating, among other things, to: (i) internal controls, information
systems, and audit systems; (ii) loan documentation; (iii) credit underwriting;
(iv) interest rate risk exposure; and (v) asset quality.
National banks and their holding companies which have been chartered or
registered or undergone a change in control within the past two years or which
have been deemed by the OCC or the Federal Reserve Board, respectively, to
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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
semi-annual 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 the Banks' customers.
Transactions With Affiliates and Insiders. The Banks are subject to the
provisions of Section 23A of the Federal Reserve Act, which place limits on the
amount of loans or extensions of credit to, or investments in, or certain other
transactions with, and on the amount of advances to third parties collateralized
by the securities or obligations of affiliates. The aggregate of all covered
transactions is limited in amount, as to any one affiliate, to 10% of the bank's
capital and surplus and, as to all affiliates combined, to 20% of the bank's
capital and surplus. Furthermore, within the foregoing limitations as to amount,
each covered transaction must meet specified collateral requirements. Compliance
is also required with certain provisions designed to avoid the taking of low
quality assets.
The Banks are also subject to the provisions of Section 23B of the
Federal Reserve Act which, among other things, prohibit an institution from
engaging in certain transactions with certain affiliates unless the transactions
are on terms substantially the same, or at least as favorable to such
institution or its subsidiaries, as those prevailing at the time for comparable
transactions with non-affiliated companies. The 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 there has been transferred to
surplus no less than one-tenth of the bank's net profits of the preceding two
consecutive half-year periods (in the case of an annual dividend). The approval
of the OCC is required if the total of all dividends 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 (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."
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Community Reinvestment Act. The Community Reinvestment Act requires
that, in connection with examinations of financial institutions within their
respective jurisdictions, the Federal Reserve, the FDIC, OCC, or the Office of
Thrift Supervision shall evaluate the record of the financial institutions in
meeting the credit needs of their local communities, including low and moderate
income neighborhoods, consistent with the safe and sound operation of those
institutions. These factors are also considered in evaluating mergers,
acquisitions, and applications to open a branch or facility.
Other Regulations. Interest and certain other charges collected or
contracted for by the 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.
FDICIA established a new capital-based regulatory scheme designed to
promote early intervention for troubled banks and requires the FDIC to choose
the least expensive resolution of bank failures. The new capital-based
regulatory framework contains five categories of compliance with regulatory
capital requirements, including "well capitalized,"
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<PAGE> 42
"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 or a combination of these factors could change the
Company's capital position in a relatively short period of time.
FDICIA requires the federal banking regulators to revise the risk-based
capital standards to provide for explicit consideration of interest-rate risk,
concentration of credit risk, and the risks of untraditional activities. It is
uncertain what effect these regulations, when implemented, would have on the
Company.
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 or the filing of false or misleading information or the submission of
inaccurate reports. Civil penalties may be as high as $1,000,000 a day for such
violations. Criminal penalties for some financial institution crimes have been
increased to twenty years. In addition, regulators are provided with greater
flexibility to commence enforcement actions against institutions and
institution-affiliated parties. Possible enforcement actions include the
termination of deposit insurance. Furthermore, FIRREA expanded the appropriate
banking agencies' power to issue cease and desist orders that may, among other
things, require affirmative action to correct any harm resulting from a
violation or practice, including restitution, reimbursement, indemnifications or
guarantees against loss. A financial institution may also be ordered to restrict
its growth, dispose of certain assets, rescind agreements or contracts, or take
other actions as determined by the ordering agency to be appropriate.
Recent Legislative Developments. On September 29, 1994, the federal
government enacted the Riegle-Neal Interstate Banking and Branching Efficiency
Act of 1994 (the Interstate Banking Act). This Act became effective on September
29, 1995, and permits eligible bank holding companies in any state, with
regulatory approval, to acquire banking organizations in any other state. 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. From time to time, various
bills are introduced in the United States Congress with respect to the
regulation of
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<PAGE> 43
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. 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 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.
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<PAGE> 45
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. She is also president of Clear Run Cattle Co., Inc., a cattle feeding
company and vice president of First Choice Feeders, LP commercial, 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. He is the
president of Dennis Pierce Inc., which has been very active in homebuilding and
the development of the Hattiesburg area. In addition, Mr. Pierce is a deacon of
the Lincoln Road Baptist Church; 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 Operation
Officer of the People's Bank of the Delta until 1991 when he accepted employment
as Senior Credit Officer with The National Bank 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, a past president
of the Jaycee's, a past president of the Lion's Club, and a member of the Rotary
Club (a Paul Harris Fellow). He is an active member of the First Baptist Church
where he is a deacon and has been a member of the Finance Committee for 30
years. He serves on the Stone County Economic Development Council.
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<PAGE> 46
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.
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 Proposed 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 also
Vice President of the Company
David L. Rice, III 44 Director and Proposed Director of the Company
Douglas J. Seidenburg 38 Director and Proposed Director of the Company
Ralph T. Simmons 65 Director and Proposed 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 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.
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<PAGE> 47
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. In addition, he is a partner in a
real estate partnership which owns the medical building which Radiology
Associates occupies. Dr. Lacey has been a deacon with the First Baptist Church
of Laurel since 1983 and is past president of the South Mississippi Medical
Society (1994). 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
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
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<PAGE> 48
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 past
chairman-deacons of the First Baptist Church of Laurel, past chairman of the
Salvation Army, past chairman of the Red Cross, past chairman of the FBLA/PBL
Foundation, past president of the University of Southern Mississippi World Wide
Alumni Association, past president of the Kiwanis Club of Laurel, past Lt.
Governor of the Lousiana-Mississippi-West Tennessee District of Kiwanis
International, and past 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.
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.
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<PAGE> 49
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.
Both Mr. Johnson and Mr. Renovich are also eligible to participate in management
incentive or long-term incentive programs and to receive annual payments based
upon achievement criteria established by the Board of Directors.
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. 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 a 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. 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."
48
<PAGE> 50
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 -- -- $2,000
Director, President, 1996 82,619 -- 21,656 1,060
and Chief Executive 1995 50,819 -- -- 2,500
Officer
</TABLE>
- ----------
(1) Executive officers of the Company also receive indirect compensation in
the form of certain perquisites and other personal benefits. The amount
of such benefits received in the fiscal year by each named executive
officer did not exceed 10% of the executive's annual salary and bonus.
STOCK OPTION GRANTS
The following table sets forth information with respect to Mr. Johnson
concerning the exercise of options during the last fiscal year and unexercised
options held as of the end of the fiscal year.
AGGREGATED OPTION/SAR EXERCISES IN
LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
SHARES VALUE NUMBER OF SECURITIES VALUE OF UNEXERCISED IN-
ACQUIRED ON REALIZED UNDERLYING UNEXERCISED THE-MONEY OPTIONS/SARS
NAME EXERCISE (#) ($) OPTIONS/SARS AT FY-END(#) AT FY-END ($)(1)
------ ------------ -------- -------------------------- -------------------------
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
are in-the-money as of December 31, 1997.
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
49
<PAGE> 51
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
The Company or the Hattiesburg Bank did not pay directors' fees during
the last fiscal year, and does not presently intend to pay directors' fees in
the initial years of operation. 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.
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.
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.
50
<PAGE> 52
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 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 "Management -- 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 has
agreed to expand the Company's Board of Directors and to appoint four of the
organizers of the Laurel Bank to the Company's Board.
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 "-- 1997
Stock Option Plan."
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
51
<PAGE> 53
interest at the Hattiesburg Bank's prime rate. As of July 31, 1998,
approximately $65,000 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. See " Bank
Development Agreement." 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.
52
<PAGE> 54
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 officer 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
------------------------- ---------------------------------------
NAME OF BENEFICIAL OWNER PERCENTAGE OF PERCENTAGE
- ------------------------ MINIMUM OF MAXIMUM
NUMBER PERCENTAGE NUMBER OFFERING OFFERING
------ ---------- ------ -------------- -----------
DIRECTORS AND EXECUTIVE OFFICERS:
<S> <C> <C> <C> <C> <C>
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 * *
A.L. Smith(12) 11,094 1.53 11,761 1.11 *
Andrew D. Stetelman(13) 11,394 1.58 11,394 1.07 *
Executive officers and directors as a group (11 209,327 27.83 270,163 24.74 21.02
persons) (14)
ORGANIZERS OF THE LAUREL BANK:
Roy H. Boutwell * * 8,333 * *
Michael W. Chancellor * * 8,000 * *
M. Ray (Hoppy) Cole, Jr. * * 6,667 * *
Dr. Peeler G. Lacey * * 16,500 1.55 1.31
Charles R. Lightsey * * 14,000 1.32 1.12
Eric E. (Ric) Lindstrom * * 13,333 1.26 1.06
Dr. John J. McGraw * * 10,000 * *
Trent A. Mulloy 6,667 * *
William M. Renovich, Jr. 8,333 * *
Dr. David L. Rice, III 6,667 * *
J. Douglas Seidenburg 8,500 * *
Ralph T. Simmons 13,667 1.29 1.09
Josephine Waites 6,667 * *
Nick D. Welch 16,667 1.57 1.33
William H. Wells 8,000 * *
</TABLE>
53
<PAGE> 55
- ----------
(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.
(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. The
post-offering figures also include Messrs. Cole, Renovich, Rice,
Seidenburg, and Simmons, each of whom the Company expects will be a
director or executive officer of the Company following the offering.
54
<PAGE> 56
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.
55
<PAGE> 57
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 "Preferred Stock"), 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.
56
<PAGE> 58
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 decided 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 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.
57
<PAGE> 59
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.
58
<PAGE> 60
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
THE FIRST BANCSHARES, INC.
<TABLE>
<S> <C>
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> 61
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> 62
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> 63
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> 64
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
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> 65
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> 66
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> 67
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> 68
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> 69
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> 70
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> 71
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> 72
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> 73
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> 74
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> 75
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
---------- ----------
CONDENSED BALANCE SHEETS
<S> <C> <C>
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> 76
THE FIRST BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE M - PARENT COMPANY FINANCIAL INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
Years Ended
December 31,
-----------------------
1997 1996
---------- ----------
CONDENSED STATEMENTS OF OPERATIONS
<S> <C> <C>
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
---------- ----------
CONDENSED STATEMENTS OF CASH FLOWS
<S> <C> <C>
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> 77
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 1945 Highway 15 North
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 SHARE 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> 78
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 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:
A-2
<PAGE> 79
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 not longer subject to backup withholding, do not cross out
item (ii).
Each subscriber should complete this section.
<TABLE>
<S> <C>
- ------------------------------------------------ ----------------------------------------------------
Signature of Subscriber Signature of Subscriber
- ------------------------------------------------ ----------------------------------------------------
Printed Name Printed Name
- ------------------------------------------------ ----------------------------------------------------
Social Security or Employer Social Security or Employer
Identification No. Identification No.
</TABLE>
A-3
<PAGE> 80
================================================================================
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...................................
Risk Factors.........................................
The Offering.........................................
Use of Proceeds......................................
Market for Common Stock..............................
Dividend Policy......................................
Dilution.............................................
Capitalization.......................................
Selected Consolidated Financial Data.................
Management's Discussion and Analysis of
Financial Condition and Results of Operation.........
Business.............................................
Supervision and Regulation...........................
Management...........................................
Compensation of Directors
And Executive Officers...............................
Principal Shareholders...............................
Description of Securities............................
Legal Matters........................................
Experts..............................................
Available Information................................
Index to Financial Statements........................ F-1
Subscription Agreement............................... A-1
</TABLE>
================================================================================
================================================================================
533,333 SHARES
THE FIRST BANCSHARES, INC.
COMMON STOCK
-----------
PROSPECTUS
-----------
, 1998
--------------------
================================================================================
<PAGE> 81
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.
ITEM 27. EXHIBITS.
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
II-1
<PAGE> 82
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. 33-94288)
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. 33-94288)
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.
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 (appears as part of signature page)
27.1. Financial Data Schedule (to be filed by amendment)
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 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.
II-2
<PAGE> 83
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> 84
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 August 4, 1998.
THE FIRST BANCSHARES, INC.
By: /s/ David E. Johnson
----------------------------------------
David E. Johnson
President and Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints David E. Johnson his true and lawful
attorney-in-fact and agent with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign any
and all amendments to this Registration Statement, and to file the same, with
all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto such attorney-in-fact and
agent, full power and authority to do and perform each and every act and thing
requisite or necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that such attorney-in-fact and agent, or his substitute or
substitutes, may lawfully do or cause to be done by virtue thereof.
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 August 4, 1998
- ----------------------------------------
David Waldron Bomboy Director
- ----------------------------------------
E. Ricky Gibson Director
/s/ David E. Johnson August 4, 1998
- ----------------------------------------
David E. Johnson Director, President and Chief
Executive Officer
/s/ Fred A. McMurry August 4, 1998
- ----------------------------------------
Fred A. McMurry Director
/s/ Dawn T. Parker August 4, 1998
- ----------------------------------------
Dawn T. Parker Director
- ----------------------------------------
Perry Edward Parker Director
/s/ Ted E. Parker August 4, 1998
- ----------------------------------------
Ted E. Parker Director
/s/ Dennis L. Pierce August 4, 1998
- ----------------------------------------
Dennis L. Pierce Director
</TABLE>
II-4
<PAGE> 85
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Charles T. Ruffin August 4, 1998
- ----------------------------------------
Charles T. Ruffin Director, Principal Financial and
Accounting Officer
/s/ A.L. "Pud" Smith August 4, 1998
- ----------------------------------------
A.L. "Pud" Smith Director
/s/ Andrew D. Stetelman August 4, 1998
- ----------------------------------------
Andrew D. Stetelman Director
</TABLE>
II-5
<PAGE> 86
EXHIBIT INDEX
<TABLE>
<S> <C>
3.1. Articles of Incorporation of the Company (incorporated by reference to
Exhibit 3.1 to the Company's Registration Statement No. 33-94288 on
Form S-1)
3.2. Bylaws of the Company (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
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. 33-94288)
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. 33-94288)
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.
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 (appears as part of signature page)
27.1. Financial Data Schedule (to be filed by amendment)
</TABLE>
II-6
<PAGE> 1
EXHIBIT 5.1
[LETTERHEAD NELSON MULLINS RILEY & SCARBOROUGH, LLP]
August 7, 1998
The First Bancshares, Inc.
6480 U.S. Highway 98 West
Hattiesburg, Mississippi 39404
Re: Registration Statement on Form SB-2
Ladies and Gentlemen:
We have acted as counsel to The First Bancshares, Inc. (the "Company") in
connection with the filing of a Registration Statement on Form SB-2 (the
"Registration Statement"), under the Securities Act of 1933, covering the
offering of up to 533,333 shares (the "Shares") of the Company's Common Stock,
par value $1.00 per share. In connection therewith, we have examined such
corporate records, certificates of public officials, and other documents and
records as we have considered necessary or proper for the purpose of this
opinion.
The opinions set forth herein are limited to the laws of the State of
Mississippi and applicable federal laws.
Based on the foregoing, and having regard to legal considerations which
we deem relevant, we are of the opinion that the Shares, when issued and
delivered as subscribed in the Registration Statement, will be legally issued,
fully paid, and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm under the caption "Legal
Matters" in the Prospectus contained in the Registration Statement.
NELSON MULLINS RILEY & SCARBOROUGH, L.L.P.
By: /s/ Neil E. Grayson
----------------------------------------
Neil E. Grayson
<PAGE> 1
EXHIBIT 10.5
<TABLE>
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
THE FIRST NATIONAL BANK OF THE THE FIRST NATIONAL BANK OF SOUTH
PINEBELT (IN ORGANIZATION) MISSISSIPPI Loan Number 9004882
P.O. BOX 6535 6480 HWY 98 W Date JUNE 16, 1998
LAUREL, MS 39441 HATTIESBURG, MS 39402 Maturity Date JUNE 14, 1999
Loan Amount $ 300,000.00
Renewal Of
BORROWER'S NAME AND ADDRESS LENDER'S NAME AND ADDRESS
"I" includes each borrower above, "You" means the lender, its
joint and severally. successors and assigns.
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
For value received, I promise to pay to you, or your order, at your address
listed above the PRINCIPAL sum of THREE HUNDRED THOUSAND AND NO/100* * * * * * *
----------------------------------------------
* * * * * * * * * * * * * * * * * * * * * * * * * Dollars $ 300,000.00
- ------------------------------------------------- --------------------
[ ]SINGLE ADVANCE: I will receive all of this principal sum on _______________.
No additional advances are contemplated under this note.
[X]MULTIPLE ADVANCE: The principal sum shown above is the maximum amount of
principal I can borrow under this note. On ________________ I will receive
the amount of $_______________________ and future principal advances are
contemplated.
CONDITIONS: The conditions for future advances are _______________________
___________________________________________________________________________
___________________________________________________________________________
[X]OPEN END CREDIT: You and I agree that I may borrow up to the maximum
amount of principal more than one time. This feature is subject to all
other conditions and expires on JUNE 14, 1999.
-------------
[ ]CLOSED END CREDIT: You and I agree that I may borrow up to the maximum
only one time (and subject to all other conditions).
INTEREST: I agree to pay interest on the outstanding principal balance from
JUNE 16, 1998 at the rate of 8.500% per year until FIRST CHANGE DATE.
------------- ----- -----------------
[X]VARIABLE RATE: This rate may then change as stated below.
[X]INDEX RATE: The future rate will be EQUAL TO the following index rate:
--------
THE PRIME RATE AS PUBLISHED IN THE MONEY SECTION OF THE
--------------------------------------------------------------------------
WALL STREET JOURNAL
--------------------------------------------------------------------------
--------------------------------------------------------------------------
[ ]NO INDEX: The future rate will not be subject to any Internal or
external index. It will be entirely in your control.
[X]FREQUENCY AND TIMING: The rate on this note may change as often as
DAILY.
-----
A change in the interest rate will take effect ON THE SAME DAY .
----------------------
[ ]LIMITATIONS: During the term of this loan, the applicable annual
interest rate will not be more than ____________% or less
than ____________%. The rate may not change more than _____________%
each _______________.
EFFECT OF VARIABLE RATE: A change in the interest rate will have the
following effect on the payments:
[X] The amount of each scheduled payment will change.
[X] The amount of the final payment will change.
[ ] ______________________________________________________________________.
ACCRUAL METHOD: Interest will be calculated on a ACTUAL/365 basis.
-----------------------
POST MATURITY RATE: I agree to pay interest on the unpaid balance of this
note owing after maturity, and until paid in full, as stated below:
[X] on the same fixed or variable rate basis in effect before maturity
(as indicated above).
[ ] at a rate equal to ___________________________________________________.
[X]LATE CHARGE: If a payment is made more than 15 days after it is due, I agree
to pay a late charge of 4.000% OF THE LATE PAYMENT WITH A MINIMUM OF $5.00
--------------------------------------------------
AND A MAXIMUM OF $50.00 .
--------------------------------------------------------------------------
[X]ADDITIONAL CHARGES: In addition to interest, I agree to pay the following
charges which [ ] are [X] are not included in the principal amount above:
DOC PREP FEE $25.00 .
--------------------------------------------------------------------------
PAYMENTS: I agree to pay this note as follows:
[X]INTEREST: I agree to pay accrued interest
ON THE 14TH DAY OF EACH THIRD MONTH BEGINNING SEPTEMBER 14, 1998
---------------------------------------------------------------------------
---------------------------------------------------------------------------
[X]PRINCIPAL: I agree to pay the principal JUNE 14, 1999 .
-----------------------------------
---------------------------------------------------------------------------
[ ]INSTALLMENTS: I agree to pay this note in _________ payments. The first
payment will be in the amount of $________ and will be due _______________.
A payment of $__________ will be due _____________________________________
thereafter. The final payment of the entire unpaid balance of principal and
interest will be due _____________________________________________________.
ADDITIONAL TERMS:
<TABLE>
<S> <C>
- --------------------------------------------------------
[ ] SECURITY: This note is separately secured by PURPOSE: The purpose of this loan is BUSINESS:
(describe separate document by type and date): ------------
OPERATING CAPITAL .
-------------------------------------------------
SIGNATURES: I AGREE TO THE TERMS OF THIS NOTE
(This section is for your internal use. Failure to list a (INCLUDING THOSE ON PAGE 2). I have received a
separate security document does not mean the copy on today's date.
agreement will not secure this note.)
- --------------------------------------------------------
THE FIRST NATIONAL BANK OF THE PINEBELT (IN
Signature for Lender ORGANIZATION)
--------------------------------------------------
X /s/ DAVID E. JOHNSON BY: /s/ WILLIAM M. RENOVICH
- -------------------------------------------------------- --------------------------------------------------
DAVID E. JOHNSON WILLIAM M/ RENOVICH, PROPOSED CEO
BY: /s/ RALPH T. SIMMONS
- -------------------------------------------------------- --------------------------------------------------
RALPH T. SIMMONS, CHAIRMAN
--------------------------------------------------
</TABLE>
<PAGE> 2
DEFINITIONS: As used on page 1, "[X]" means the terms that apply to this loan.
"I", "me" or "my" means each Borrower who signs this note and each other person
or legal entity (including guarantors, endorsers, and sureties) who agrees to
pay this note (together referred to as "us"). "You" or "your" means the Lender
and its successors and assigns.
APPLICABLE LAW: The law of the state in which you are located will govern this
note. Any term of this note which is contrary to applicable law will not be
effective, unless the law permits you and me to agree to such a variation. If
any provision of this agreement cannot be enforced according to its terms, this
fact will not affect the enforceability of the remainder of this agreement. No
modification of this agreement may be made without your express written consent.
Time is of the essence in this agreement.
PAYMENTS: Each payment I make on this note will first reduce the amount I owe
you for charges which are neither interest nor principal. The remainder of each
payment will then reduce accrued unpaid interest, and then unpaid principal. If
you and I agree to a different application of payments, we will describe our
agreement on this note. I may prepay a part of, or the entire balance of this
loan without penalty, unless we specify to the contrary on this note. Any
partial prepayment will not excuse or reduce any later scheduled payment until
this note is paid in full (unless, when I make the prepayment, you and I agree
in writing to the contrary).
INTEREST: Interest accrues on the principal remaining unpaid from time to time,
until paid in full. If I receive the principal in more than one advance, each
advance will start to earn interest only when I receive the advance. The
interest rate in effect on this note at any given time will apply to the entire
principal advanced at that time. Notwithstanding anything to the contrary, I do
not agree to pay and you do no intend to charge any rate of interest that is
higher than the maximum rate of interest you could charge under applicable law
for the extension of credit that is agreed to here (either before or after
maturity). If any notice of interest accrual is sent and is in error, we
mutually agree to correct it, and if you actually collect more interest than
allowed by law and this agreement, you agree to refund it to me.
INDEX RATE: The index will serve only as a device for setting the rate on this
note. You do not guarantee by selecting this index, or the margin, that the rate
on this note will be the same rate you charge on any other loans or class of
loans to me or other borrowers.
ACCRUAL METHOD: The amount of interest that I will pay on this loan will be
calculated using the interest rate and accrual method stated on page 1 of this
note. For the purpose of interest calculation, the accrual method will determine
the number of days in a "year." If no accrual method is stated, then you may use
any reasonable accrual method for calculating interest.
POST MATURITY RATE: For purposes of deciding when the "Post Maturity Rate"
(shown on page 1) applies, the term "maturity" means the date of the last
scheduled payment indicated on page 1 of this note or the date you accelerate
payment on the note, whichever is earlier.
SINGLE ADVANCE LOANS: If this is a single advance loan, you and I expect that
you will make only one advance of principal. However, you may add other amounts
to the principal if you make any payments described in the "PAYMENTS BY LENDER"
paragraph below.
MULTIPLE ADVANCE LOANS: If this is a multiple advance loan, you and I expect
that you will make more than one advance of principal. If this is closed end
credit, repaying a part of the principal will not entitle me to additional
credit.
PAYMENTS BY LENDER: If you are authorized to pay, on my behalf, charges I am
obligated to pay (such as property insurance premiums), then you may treat those
payments made by you as advances and add them to the unpaid principal under this
note, or you may demand immediate payment of the charges.
SET-OFF: I agree that you may set off any amount due and payable under this note
against any right I have to receive money from you.
"Right to receive money from you" means:
(1) any deposit account balance I have with you;
(2) any money owed to me on an item presented to you or in your possession
for collection or exchange; and
(3) any repurchase agreement or other nondeposit obligation.
"Any amount due and payable under this note" means the total amount of which
you are entitled to demand payment under the terms of this note at the time you
set off. This total includes any balance the due date for which you properly
accelerate under this note.
If my right to receive money from you is also owned by someone who has not
agreed to pay this note, your right of set-off will apply to my interest in the
obligation and to any other amounts I could withdraw on my sole request or
endorsement. Your right of set-off does not apply to an account or other
obligation where my rights are only as a representative. It also does not apply
to any Individual Retirement Account or other tax-deferred retirement account.
You will not be liable for the dishonor of any check when the dishonor
occurs because you set off this debt against any of my accounts. I agree to hold
you harmless from any such claims arising as a result of your exercise of your
right of set-off.
REAL ESTATE OR RESIDENCE SECURITY: If this note is secured by real estate or a
residence that is personal property, the existence of a default and your
remedies for such a default will be determined by applicable law, by the terms
of any separate instrument creating the security interest and, to the extent not
prohibited by law and not contrary to the terms of the separate security
instrument, by the "Default" and "Remedies" paragraphs herein.
DEFAULT: I will be in default if any one or more of the following occur: (1) I
fail to make a payment on time or in the amount due; (2) I fail to keep the
property insured, if required; (3) I fail to pay, or keep any promise, on any
debt or agreement I have with you; (4) any other creditor of mine attempts to
collect any debt I owe him through court proceedings; (5) I die, am declared
incompetent, make an assignment for the benefit of creditors, or become
insolvent (either because my liabilities exceed my assets or I am unable to pay
my debts as they become due); (6) I make any written statement or provide any
financial information that is untrue or inaccurate at the time it was provided;
(7) I do or fail to do something which causes you to believe that you will have
difficulty collecting the amount I owe you; (8) any collateral securing this
note is used in a manner or for a purpose which threatens confiscation by a
legal authority; (9) I change my name or assume an additional name without first
notifying you before making such a change; (10) I fail to plant, cultivate and
harvest crops in due season if I am a producer of crops; (11) any loan proceeds
are used for a purpose that will contribute to excessive erosion of highly
croditle land or to the conversion of wetlands to produce an agricultural
commodity, as further explained in 7 C.F.R. Part 1940, Subpart G, Exhibit M.
REMEDIES: If I am in default on this note you have, but are not limited to, the
following remedies:
(1) You may demand immediate payment of all I owe you under this note
(principal, accrued unpaid interest and other accrued charges).
(2) You may set off this debt against any right I have to the payment of
money from you, subject to the terms of the "Set-Off" paragraph herein.
(3) You may demand security, additional security, or additional parties to
be obligated to pay this note as a condition for not using any other
remedy.
(4) You may refuse to make advances to me or allow purchases on credit by
me.
(5) You may use any remedy you have under state or federal law.
By selecting any one or more of these remedies you do not give up your right to
later use any other remedy. By waiving your right to declare an event to be a
default, you do not waive your right to later consider the event as a default if
it continues or happens again.
COLLECTION COSTS AND ATTORNEY'S FEES: I agree to pay all costs of collection,
replevin or any other or similar type of cost if I am in default. In addition,
if you hire an attorney to collect this note, I also agree to pay any fee you
incur with such attorney plus court costs (except where prohibited by law). To
the extent permitted by the United States Bankruptcy Code, I also agree to pay
the reasonable attorney's fees and costs you incur to collect this debt as
awarded by any court exercising jurisdiction under the Bankruptcy Code.
WAIVER: I give up my rights to require you to do certain things. I will not
require you to:
(1) demand payment of amounts due (presentment);
(2) obtain official certification of nonpayment (protest); or
(3) give notice that amounts due have not been paid (notice of dishonor).
I waive any defenses I have based on suretyship or impairment of collateral.
OBLIGATIONS INDEPENDENT: I understand that I must pay this note even if someone
else has also agreed to pay it (by, for example, signing this form or a separate
guarantee or endorsement). You may sue me alone, or anyone else who is obligated
on this note, or any number of us together, to collect this note. You may do so
without any notice that it has not been paid (notice of dishonor). You may
without notice release any party to this agreement without releasing any other
party. If you give up any of your rights, with or without notice, it will not
affect my duty to pay this note. Any extension of new credit to any of us, or
renewal of this note by all or less than all of us will not release me from my
duty to pay it. (Of course, you are entitled to only one payment in full.) I
agree that you may at your option extend this note or the debt represented by
this note, or any portion of the note or debt, from time to time without limit
or notice and for any term without affecting my liability for payment of the
note. I will not assign my obligation under this agreement without your prior
written approval.
CREDIT INFORMATION: I agree and authorize you to obtain credit information about
me from time to time (for example, by requesting a credit report) and to report
to others your credit experience with me (such as a credit reporting agency). I
agree to provide you, upon request, any financial statement or information you
may deem necessary. I warrant that the financial statements and information I
provide to you are or will be accurate, correct and complete.
NOTICE: Unless otherwise required by law, any notice to me shall be given by
delivering it or by mailing it by first class mail addressed to me at my last
known address. My current address is on page 1. I agree to inform you in writing
of any change in my address. I will give any notice to you by mailing it first
class to your address stated on page 1 of this agreement, or to any other
address that you have designated.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
BORROWER'S INTEREST
DATE OF PRINCIPAL INITIALS PRINCIPAL PRINCIPAL INTEREST INTEREST PAID
TRANSACTION ADVANCE (not required) PAYMENTS BALANCE RATE PAYMENTS THROUGH
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
/ / $ $ $ % $ / /
- -----------------------------------------------------------------------------------------------------------------
/ / $ $ $ % $ / /
- -----------------------------------------------------------------------------------------------------------------
/ / $ $ $ % $ / /
- -----------------------------------------------------------------------------------------------------------------
/ / $ $ $ % $ / /
- -----------------------------------------------------------------------------------------------------------------
/ / $ $ $ % $ / /
- -----------------------------------------------------------------------------------------------------------------
/ / $ $ $ % $ / /
- -----------------------------------------------------------------------------------------------------------------
/ / $ $ $ % $ / /
- -----------------------------------------------------------------------------------------------------------------
/ / $ $ $ % $ / /
- -----------------------------------------------------------------------------------------------------------------
/ / $ $ $ % $ / /
- -----------------------------------------------------------------------------------------------------------------
/ / $ $ $ % $ / /
- -----------------------------------------------------------------------------------------------------------------
/ / $ $ $ % $ / /
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 1
EXHIBIT 10.6
THE AMERICAN INSTITUTE OF ARCHITECTS
- --------------------------------------------------------------------------------
AIA Document A101
STANDARD FORM OF AGREEMENT BETWEEN
OWNER AND CONTRACTOR
where the basis of payment is a
STIPULATED SUM
1987 EDITION
THIS DOCUMENT HAS IMPORTANT LEGAL CONSEQUENCES; CONSULTATION WITH AN
ATTORNEY IS ENCOURAGED WITH RESPECT TO ITS COMPLETION OR MODIFICATION.
The 1987 Edition of AIA Document A201, General Conditions of the Contract for
Construction, is adopted in this document by reference. Do not use with other
general conditions unless this document is modified. This document has been
approved and endorsed by The Associated General Contractors of America.
- --------------------------------------------------------------------------------
AGREEMENT made as of the Eighteenth day of March in the Year of Nineteen Hundred
and Ninety Eight
BETWEEN the Owner: The First National Bank of South Mississippi
Hattiesburg, Mississippi
and the Contractor: Piercon, Inc.
Hattiesburg, Mississippi
The Project is: Branch Bank Building for
The First National Bank of South Mississippi
Hattiesburg, Mississippi
The Architect is: David K. Hemeter
Hattiesburg, Mississippi
The Owner and Contractor agree as set forth below.
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ARTICLE 1
THE CONTRACT DOCUMENTS
The Contract Documents consist of this Agreement, Conditions of the Contract
(General, Supplementary and other Conditions), Drawings, Specifications, Addenda
issued prior to execution of this Agreement, other documents listed in this
Agreement and Modifications issued after execution of this agreement; these form
the Contract, and are as fully a part of the Contract as if attached to this
Agreement or repeated herein. The Contract represents the entire and integrated
agreement between the parties hereto and supersedes prior negotiations,
representations or agreements, either written or oral. An enumeration of the
Contract Documents, other than Modifications, appears in Article 9.
ARTICLE 2
THE WORK OF THIS CONTRACT
The Contractor shall execute the entire Work described in the Contract
Documents, except to the extent specifically indicated in the Contract Documents
to be the responsibility of others, or as follows:
The entire Work.
ARTICLE 3
DATE OF COMMENCEMENT AND SUBSTANTIAL COMPLETION
3.1 The date of commencement is the date from which the Contract Time of
Paragraph 3.2 is measured, and shall be the date of this Agreement, as first
written above, unless a different date is stated below or provision is made for
the date to be fixed in a notice to proceed issued by the Owner. Date of
commencement shall be specified in a Notice to Proceed to be issued by the
Architect.
Unless the date of commencement is established by a notice to proceed
issued by the Owner, the Contractor shall notify the Owner in writing not less
than five days before commencing the Work to permit the timely filing of
mortgages, mechanic's liens and other security interests.
3.2 The contract shall achieve Substantial Completion of the entire Work not
later than Two Hundred and Ten (210) consecutive calendar days from date of
commencement specified in Notice to Proceed, subject to adjustments of this
Contract Time as provided in the Contract Documents.
ARTICLE 4
CONTRACT SUM
4.1 The Owner shall pay the Contractor in current funds for the Contractor's
performance of the Contract the Contract Sum of Four Hundred Sixty Eight
Thousand Eight Hundred Eighty
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Four and no/100 Dollars ($468,884.00), subject to additions and deductions as
provided in the Contract Documents.
4.2 The Contract Sum is based upon the following alternates, if any, which are
described in the Contract Documents and are hereby accepted by the Owner:
Contract Sum is Contractor's Base Bid.
The Owner reserves the right to accept any or all Alternate Bids within Thirty
(30) days from date of this Contract. If Owner chooses to accept any Alternative
Bids, a Change Order will be issued, lowering the Contract sum by the total of
the sums on the Form of Proposal for the Alternates accepted.
4.3 Unit prices, if any, are as follows: No unit prices.
ARTICLE 5
PROGRESS PAYMENTS
5.1 Based upon Applications for Payment submitted to the Architect by the
Contractor and Certificates for Payment issued by the Architect, the Owner shall
make progress payments on account of the Contract Sum to the Contractor as
provided below and elsewhere in the Contract Documents.
5.2 The period covered by each Application for Payment shall be one calendar
month ending on the last day of the month, or as follows:
The period covered by each Application for Payment shall be one calendar month
ending the Twenty-Fifth day of the month.
5.3 Provided an Application for Payment is received by the Architect not later
than the first day of a month, the Owner shall make payment to the Contractor
not later than the tenth day of the month. If an Application for Payment is
received by the Architect after the application date fixed above, payment shall
be made by the Owner not later than ten days after the Architect receives the
Application for Payment.
5.4 Each Application for Payment shall be based upon the Schedule of Values
submitted by the Contractor in accordance with the Contract Documents. The
Schedule of Values shall allocate the entire Contract Sum among the various
portions of the Work and be prepared in such form and supported by such data to
substantiate its accuracy as the Architect may require. This Schedule, unless
objected to by the Architect, shall be used as a basis for reviewing the
Contractor's Applications for Payment.
5.5 Applications for Payment shall indicate the percentage of completion of
each portion of the Work as of the end of the period covered by the Application
for Payment.
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5.6 Subject to the provisions of the Contract Documents, the amount of each
progress payment shall be computed as follows:
5.6.1 Take that portion of the Contract Sum properly allocable to completed Work
as determined by multiplying the percentage completion of each portion of the
Work by the share of the total Contract Sum allocated to that portion of the
Work in the Schedule of Values, less retainage of ten percent (10%). Pending
final determination of cost to the Owner of changes in the Work, amounts not in
dispute may be included as provided in Subparagraph 7.3.7 of the General
Conditions even though the Contract Sum has not yet been adjusted by Change
Order;
5.6.2 Add that portion of the Contract Sum properly allocable to materials and
equipment delivered and suitably stored at the site for subsequent incorporation
in the completed construction (or, if approved in advance by the Owner, suitably
stored off the site at a location agreed upon in writing), less retainage of ten
percent (10%);
5.6.3 Subtract the aggregate of previous payments made by the Owner; and
5.6.4 Subtract amounts, if any, for which the Architect has withheld or
nullified a Certificate for Payment as provided in Paragraph 9.5 of the General
Conditions.
5.7 The progress payment amount determined in accordance with Paragraph 5.6
shall be further modified under the following circumstances:
5.7.1 Add, upon Substantial Completion of the Work, a sum sufficient to increase
the total payments to ninety percent (90%) of the Contract sum, less such
amounts as the Architect shall determine for Incomplete Work and unsettled
claims; and
5.7.2 Add, if final completion of the Work is thereafter materially delayed
through no fault of the Contract or, any additional amounts payable in
accordance with Subparagraph 9.10.3 of the General Conditions.
5.8 Reduction or limitation of retainage, if any, shall be as follows:
ARTICLE 6
FINAL PAYMENT
Final payment, constituting the entire unpaid balance of the Contract Sum, shall
be made by the Owner to the Contractor when (1) the Contract has been fully
performed by the Contractor except for the Contractor's responsibility to
correct nonconforming Work as provided in Subparagraph 12.2.2 of the General
Conditions and to satisfy other requirements, if any, which necessarily survive
final payment; and (2) a final Certificate of Payment has been issued by the
Architect; such final payment shall be made by the Owner not more than 30 days
after the issuance of the Architect's final Certificate for Payment, or as
follows:
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ARTICLE 7
MISCELLANEOUS PROVISIONS
7.1 Where reference is made in this Agreement to a provision of the General
Conditions or another Contract Document, the reference refers to that provision
as amended or supplemented by other provisions of the Contract Documents.
7.2 Payments due and unpaid under the Contract shall bear interest from the
date payment is due at the rate stated below, or in the absence thereof, at the
legal rate prevailing from time to time at the place where the Project is
located.
(Usury laws and requirements under the Federal Truth in Lending Act, similar
state and local consumer credit laws and other regulations at the Owner's and
Contractor's principal places of business, the location of the Project and
elsewhere may affect the validity of this provision. Legal advice should be
obtained with respect to deletions or modifications, and also regarding
requirements such as written disclosures or waivers.)
7.3 Other provisions
ARTICLE 8
TERMINATION OR SUSPENSION
8.1 The Contract may be terminated by the Owner or the Contractor as provided
in Article 14 of the General Conditions.
8.2 The Work may be suspended by the Owner as provided in Article 14 of the
General Conditions.
ARTICLE 9
ENUMERATION OF CONTRACT DOCUMENTS
9.1 The Contract Documents, except for Modifications issued after execution of
this Agreement, are enumerated as follows:
9.1.1 The Agreement is this executed Standard Form of Agreement Between Owner
and Contractor, AIA Document A101, 1987 Edition.
9.1.2 The General Conditions are the General Conditions of the Contract
for Construction, AIA Document A201, 1987 Edition.
9.1.3 The Supplementary and other Conditions of the Contract are those contained
in the Project Manual dated February 11, 1998, and are as follows:
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<TABLE>
<CAPTION>
DOCUMENT TITLE PAGES
<S> <C> <C>
Modifications to General Conditions 1. Cleaning Up GC-1
2. Payments and Completion GC-1
3. Insurance GC-1,
GC-2
</TABLE>
9.1.4 The Specifications are those contained in the Project Manual dated as in
Subparagraph 9.1.3, and are as follows:
<TABLE>
<CAPTION>
SECTION TITLE PAGES
<S> <C> <C>
1 Special Conditions 1-1
2 Site Development 2-1 thru 2-3
3 Concrete 3-1 thru 3-3
4 Masonry 4-1
5 Metals 5-1
6 Wood and Plastics 6-1 thru 6-3
7 Thermal and Moisture Protection 7-1 thru 7-3
8 Doors And Windows 8-1, 8-2
9 Finishes 9-1, 9-2
10 Specialties 10-1
11 Equipment 11-1
15000 Mechanical 15010 thru 15900-1
16 Electrical 16010-1 thru 16700-3
</TABLE>
9.1.5 The Drawings are as follows, and are dated February 11, 1998 unless a
different date is shown below:
<TABLE>
<CAPTION>
NUMBER TITLE DATE
<S> <C> <C>
SD-1 Site Development
A-1 thru A-7 Architectural
S-1 Structural
M-1 thru M-A Mechanical
E-1 thru E-3 Electrical
</TABLE>
9.1.6 The addenda, if any, are as follows:
<TABLE>
<CAPTION>
NUMBER DATE PAGES
<S> <C> <C>
1 March 10, 1998 1
</TABLE>
Portions of addenda relating to bidding requirements are not part of the
Contract Documents unless the bidding requirements are also enumerated in this
Article 9.
9.1.7 Other documents, if any, forming part of the Contract Documents are as
follows:
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This Agreement is entered into as of the day and year first written above and is
executed in at least three original copies of which one is to be delivered to
the Contractor, one to the Architect for use in the administration of the
Contract, and the remainder to the Owner.
OWNER CONTRACTOR
The First National Bank of South Mississippi Piercon, Inc.
/s/ David E. Johnson /s/ Bill Novak
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(Signature) (Signature)
David E. Johnson, CEO and President Bill Novak, Vice President
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(Printed name and title) (Printed name and title)
CAUTION: You should sign an original AIA document which has this caution printed
in printed in red. An original assures that changes will not be obscured as may
occur when documents are reproduced.
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Exhibit 21.1
Subsidiaries of the Company
The First National Bank of South Mississippi
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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
August 6, 1998
II-7
