WASHINGTON, D. C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: June 30, 1999
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 33-94288
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THE FIRST BANCSHARES, INC.
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(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
MISSISSIPPI 64-0862173
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
6480 U.S. HIGHWAY 98 WEST
HATTIESBURG, MISSISSIPPI 39404-5549
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(ADDRESS OF PRINCIPAL (ZIP CODE)
EXECUTIVE OFFICES)
(601) 268-8998
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(ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE)
NONE
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(FORMER NAME, ADDRESS AND FISCAL YEAR, IF CHANGED SINCE LAST REPORT)
INDICATE BY CHECK MARK WHETHER THE ISSUER: (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT
OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO
SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS.
YES X NO
--- ---
ON JUNE 30, 1999, 1,150,691 SHARES OF THE ISSUER'S COMMON STOCK, PAR VALUE
$1.00 PER SHARE, WERE ISSUED AND OUTSTANDING.
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE):
YES NO X
--- ---
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
THE FIRST BANCSHARES, INC., AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
($ amounts in thousands) (Unaudited)
June 30, December 31,
ASSETS 1999 1998
__________ ___________
Cash and due from banks $ 1,696 $ 1,457
Interest-bearing deposits with banks 95 95
Federal funds sold 2,689 2,964
__________ ___________
Total cash and cash equivalents 4,480 4,516
Securities held-to-maturity, at amortized cost 107 122
Securities available-for-sale, at fair value 11,129 7,364
Loans 47,774 32,406
Allowance for loan losses (569) (347)
__________ ___________
LOANS, NET 47,205 32,059
Premises and equipment 4,353 3,604
Accrued income receivable 522 325
Other assets 1,823 1,923
__________ ___________
$ 69,619 $ 49,913
========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest-bearing $ 6,505 $ 3,407
Time, $100,000 or more 10,385 8,372
Interest-bearing 37,560 23,888
__________ ___________
TOTAL DEPOSITS 54,450 35,667
Interest payable 222 166
Stock subscription deposits - 6,433
Borrowed funds 2,578 1,200
Other liabilities 41 25
__________ ___________
TOTAL LIABILITIES 57,291 43,491
__________ ___________
SHAREHOLDERS' EQUITY:
Common stock, $1 par value. Authorized
10,000,000 shares; issued and
outstanding 1,150,691 at June 30, 1999
and 721,848 at December 31, 1998 1,151 722
Paid-in capital 12,356 6,451
Accumulated deficit (1,151) (751)
Accumulated other comprehensive income (28) -
__________ ___________
TOTAL SHAREHOLDERS' EQUITY 12,328 6,422
__________ ___________
$ 69,619 $ 49,913
========== ===========
THE FIRST BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
($ amounts in thousands except earnings per share)
(Unaudited) (Unaudited)
Three Months Six Months
Ended Ended
June 30, June 30,
______________ ______________
1999 1998 1999 1998
______ ______ ______ ______
INTEREST INCOME:
Loans, including fees $1,045 $ 618 $1,920 $1,171
Securities:
Taxable 148 92 243 171
Tax exempt 5 - 5 -
Federal funds sold 37 23 109 34
Other 1 - 33 -
______ ______ ______ ______
TOTAL INTEREST INCOME 1,236 733 2,310 1,376
INTEREST EXPENSE:
Deposits 540 342 985 632
Other borrowings 19 27 55 33
______ ______ ______ ______
TOTAL INTEREST EXPENSE 559 369 1,040 665
______ ______ ______ ______
NET INTEREST INCOME 677 364 1,270 711
PROVISION FOR LOAN LOSSES 109 28 230 70
______ ______ ______ ______
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 568 336 1,040 641
OTHER INCOME:
Service charges on deposit accounts 31 10 43 17
Other service charges, commissions and
fees 92 44 160 77
______ ______ ______ ______
TOTAL OTHER INCOME 123 54 203 94
OTHER EXPENSES:
Salaries and employee benefits 474 194 828 375
Occupancy and equipment expense 115 61 217 116
Preopening costs - - 187 -
Other operating expenses 143 123 411 231
______ ______ ______ ______
TOTAL OTHER EXPENSES 732 378 1,643 722
______ ______ ______ ______
INCOME (LOSS) BEFORE INCOME TAXES (41) 12 (400) 13
INCOME TAXES - - - -
______ ______ ______ ______
NET INCOME (LOSS) $ (41) $ 12 $ (400) $ 13
====== ====== ====== ======
INCOME (LOSS) PER SHARE - BASIC $ (.04) $ .02 $ (.37) $ .02
INCOME (LOSS) PER SHARE - ASSUMING DILUTION $ (.03) $ .02 $ (.36) $ .02
THE FIRST BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ Amounts in Thousands)
(Unaudited)
Six Months Ended
June 30,
__________________
1999 1998
________ ________
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME (LOSS) $ (400) $ 13
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization 129 101
Provision for loan losses 230 70
Increase in accrued income receivable (197) (248)
Increase in interest payable 56 38
Other, net (22) (193)
________ ________
NET CASH USED BY OPERATING ACTIVITIES (204) (219)
________ ________
CASH FLOWS FROM INVESTING ACTIVITIES:
Maturities and calls of held-to-maturity
securities 15 -
Maturities and calls of securities
available-for-sale 6,541 2,284
Purchases of securities available-for-sale (10,306) (4,331)
Net increase in loans (15,376) (5,857)
Purchases of premises and equipment (867) (130)
________ ________
NET CASH USED BY INVESTING ACTIVITIES (19,993) (8,034)
________ ________
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in deposits 18,783 8,953
Net increase in borrowed funds 1,378 -
________ ________
NET CASH PROVIDED BY FINANCING ACTIVITIES 20,161 8,953
________ ________
NET INCREASE (DECREASE) IN CASH (36) 700
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 4,516 2,840
________ ________
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 4,480 $ 3,540
======== ========
CASH PAYMENTS FOR INTEREST $ 984 $ 626
CASH PAYMENTS FOR INCOME TAXES - -
THE FIRST BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial statements and with the instructions to Form 10-QSB and
Item 310(b) of Regulation S-B of the Securities and Exchange Commission.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. However, in the opinion of management, all adjustments
(consisting of normal recurring adjustments) considered necessary for a
fair presentation have been included. Operating results for the three and
six months ended June 30, 1999, are not necessarily indicative of the results
that may be expected for the year ended December 31, 1999. For further
information, please refer to the consolidated financial statements and
footnotes thereto included in the Company's Form 10-KSB for the year ended
December 31, 1998.
Certain reclassifications have been made to the 1998 financial statements to
conform to those used in 1999.
NOTE B -- SUMMARY OF ORGANIZATION
The First Bancshares, Inc., Hattiesburg, Mississippi (the "Company"), was
incorporated June 23, 1995, under the laws of the State of Mississippi for
the purpose of operating as a bank holding company with respect to a then
proposed de novo bank, The First National Bank of South Mississippi,
Hattiesburg, Mississippi (the "Hattiesburg Bank").
The Company offered its common stock for sale to the public under an
initial public offering price of $10 per share. As of August 27, 1996,
when the offering was terminated, 721,848 shares were sold, resulting in
net proceeds of approximately $7.1 million.
During 1996, the Company obtained regulatory approval to operate a national
bank in Hattiesburg, Mississippi, and the Company purchased 100% of the
capital stock of the Hattiesburg Bank. The Hattiesburg Bank opened for
business on August 5, 1996, with a total capitalization of $5.2 million.
In June 1998, the Company 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"). On
August 10, 1998, the Company filed a registration statement on Form SB-2
relating to the issuance of up to 533,333 shares of Common Stock in
connection with the formation of the Laurel Bank. The offering was closed
on December 31, 1998, with 428,843 shares subscribed with an aggregate
purchase price of $6.4 million. On January 19, 1999, the Laurel Bank
received approval from its banking regulator to begin banking operations,
and the Company used $5 million of the net proceeds to purchase 100% of
the capital stock of the Laurel Bank. Simultaneously, the 428,843 shares
subscribed to in the offering were issued.
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 acts to promote its Bank and introduce
prospective customers. The Company believes that this autonomy will allow
each Bank to generate high-yielding loans and to attract and retain core
deposits.
The Hattiesburg Bank and the Laurel Bank engage in general commercial
banking business, emphasizing in its marketing the Bank's local management
and ownership. The Banks offer a full range of banking services designed
to meet the basic financial needs of its customers. These services
include checking accounts, NOW accounts, money market deposit accounts,
savings accounts, certificates of deposit, and individual retirement
accounts. The Banks also offer short- to medium-term commercial, mortgage,
and personal loans. At June 30, 1999, the Company had approximately $69.6
million in consolidated assets, $47.2 million in consolidated loans, $54.4
million in consolidated deposits, and $12.3 million in consolidated
shareholders' equity. For the six months ended June 30, 1999, the
Company reported a consolidated net loss of $400,000. For the same period,
the Laurel Bank reported a net loss of $479,000, and the Hattiesburg Bank
net income of $72,000.
NOTE C - INCOME PER COMMON SHARE
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.
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
__________ __________ __________ __________
Numerator:
Net income (loss) $ (41,000) $ 12,000 $ (400,000) $ 13,000
========== ========== ========== ==========
Denominator:
Denominator for
basic income (loss)
per share -
weighted average
shares 1,150,691 721,848 1,075,118 721,848
Dilutive potential
common shares -
employee stock
options 24,062 8,865 21,398 8,865
__________ __________ __________ __________
Denominator for
diluted earnings
(loss) per share -
adjusted weighted
average shares 1,174,753 730,713 1,096,516 730,713
========== ========== ========== ==========
ITEM NO. 2 MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion 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 Company's actual results may differ
materially from the results discussed in the forward-looking statements,
and the Company's operating performance each quarter is subject to various
risks and uncertainties that are discussed in detail in the Company's
filings with the Securities and Exchange Commission, including the "Risk
Factors" section in the Company's Registration Statement on Form SB-2
(Registration Number 333-61081) as filed with and declared effective by the
Securities and Exchange Commission. The Hattiesburg Bank completed its
first full year of operations in 1997 and has grown substantially since
opening on August 5, 1996. The Laurel Bank has been in operation since
January 19, 1999. Comparisons of the Company's results for the periods
presented should be made with an understanding of the subsidiary Banks'
short histories.
FINANCIAL CONDITION
The subsidiary Banks represent a significant portion of the assets of
the Company. The Hattiesburg Bank reported total assets of $49.6 million
at June 30, 1999, compared to $48.9 million at December 31, 1998. Loans
of the Hattiesburg Bank increased $3.7 million, or 11.3%, during the first
six months of 1999. Deposits at June 30, 1999, totaled $41.8 million
compared to $42.6 million at December 31, 1998. However, at December 31,
1998, the total assets and liabilities of the Hattiesburg Bank included the
$6.4 million resulting from the stock offering which had been deposited in
the Bank in an escrow account. In January 1999, $5 million of these funds
were disbursed as capitalization of the Laurel Bank. For the six month
period ended June 30, 1999, the Hattiesburg Bank reported net income of
$72,000. At June 30, 1999, the Laurel Bank had total assets of $19.3
million, total loans of $11.7 million, and total deposits of $14.7 million.
For the six month period ended June 30, 1999, the Laurel Bank reported a net
loss from operations of $479,000. Included in other expense was $187,000 of
preopening costs related to the formation and opening of the Laurel Bank.
NONPERFORMING ASSETS AND RISK ELEMENTS. Diversification within the loan
portfolio is an important means of reducing inherent lending risks. At
June 30, 1999, the subsidiary Banks had no concentrations of ten percent or
more of total loans in any single industry nor any geographical area
outside their immediate market areas.
At June 30, 1999, the subsidiary banks had loans past due as follows:
($ In Thousands)
Past due 30 through 89 days $ 86
Past due 90 days or more and still accruing 19
Nonaccrual loans 84
The accrual of interest is discontinued on loans which become ninety days
past due (principal and/or interest), unless the loans are adequately
secured and in the process of collection. Any other real estate owned is
carried at fair value, determined by an appraisal. A loan is classified as
a restructured loan when the interest rate is materially reduced or the
term is extended beyond the original maturity date because of the inability
of the borrower to service the debt under the original terms. The
subsidiary Banks had no restructured loans and no other real estate at
June 30, 1999.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity is considered adequate with consolidated cash and cash
equivalents of $4.5 million as of June 30, 1999. In addition, loans and
investment securities repricing or maturing within one year or less exceeded
$20.6 million at June 30, 1999. Approximately $6.2 million in loan
commitments are expected to be funded within the next six months and other
commitments, primarily standby letters of credit, totaled $345,000 at
June 30, 1999. On August 10, 1998, the Company filed a registration
statement on Form SB-2 relating to the issuance of up to 533,333 shares of
Common Stock in connection with the formation of the Laurel Bank. At
December 31, 1998, closing date of the offering, the Company had received
subscriptions for 428,843 shares resulting in proceeds of $6.3 million, net
of offering costs. The funds were held in escrow until regulatory approval
for the Laurel Bank was obtained, which occurred on January 19, 1999. The
Company used $5 million of the net proceeds to purchase 100% of the capital
stock of the Laurel Bank.
There are no known trends or any known commitments of uncertainties that
will result in the subsidiary banks' liquidity increasing or decreasing
in a material way. In addition, the Company is not aware of any
recommendations by any regulatory authorities which would have a material
effect on the Company's liquidity, capital resources or results of
operations.
Total consolidated equity capital at June 30, 1999, is $12.3 million, or
approximately 17.7% of total assets. The Hattiesburg Bank and Laurel Bank
currently have adequate capital positions to meet the minimum capital
requirements for all regulatory agencies. Their capital ratios as of
June 30, 1999, are as follows:
Hattiesburg Laurel
Bank Bank
_____ _____
Tier 1 leverage 10.3% 29.7%
Tier 1 risk-based 12.7% 33.5%
Total risk-based 13.7% 34.7%
RESULTS OF OPERATIONS
Three months ended June 30, 1999, compared to three months ended June 30,
1998:
The Company had a consolidated net loss of $41,000 for the three month
period ending June 30, 1999, compared with consolidated net income of
$12,000 for the same period last year. As noted above, however, this net
loss was attributable to the opening of the Laurel Bank.
Interest income and interest expense both increased from 1998 to 1999
resulting from the increase in earning assets and interest-bearing
liabilities. Consequently, net interest income increased to $677,000
from $364,000, or an increase of 86%. Earning assets at June 30, 1999,
reflected an increase of $18.8 million when compared to June 30, 1998,
and interest-bearing liabilities also increased $20.2 million, reflecting
increases of 43.9% and 54.7%, respectively.
Noninterest income for the three months ending June 30, 1999, was $123,000
compared to $54,000 for the same period in 1998, reflecting an increase of
$69,000, or 127.8%. Noninterest income consists mainly of other service
charges such as commissions and fees. The increase is primarily due to an
increase in origination fees on mortgage loans. Service charges on
deposit accounts for the three months ending June 30, 1999, were $31,000
compared with $10,000 for the same period in 1998, reflecting an increase
of 210.0%. This increase corresponds with the increase in deposit accounts
and the related activities.
The provision for loan losses was $109,000 for 1999 compared with $28,000
for the same period in 1998. Provisions charged to expense reflect
management's intent to maintain the allowance for loan losses at an
adequate level. The level of this allowance is dependent upon a
number of factors, including the total amount of past due loans, general
economic conditions, regulatory reviews, and management's assessment of
potential losses. This evaluation is inherently subjective as it requires
estimates that are susceptible to significant change. Ultimately, losses
may vary from current estimates and future additions to the allowance may
be necessary. 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. Management
evaluates the adequacy of the allowance for loan losses quarterly and makes
provisions for loan losses based on this evaluation.
Other expenses for 1999 increased by $354,000, or 93.7%, when compared to
the same three month period in 1998 primarily due to the addition of the
Laurel Bank and to the continued growth of the Hattiesburg Bank.
No provision for income tax expense has been provided. Prior to 1998, the
Company reported consolidated net operating losses, and the Company has
available approximately $437,000 of consolidated net operating loss
carryovers from prior years.
RESULTS OF OPERATIONS
Six months Ended June 30, 1999, compared to six months ended June 30, 1998:
The Company had a consolidated net loss of $400,000 for the six months
ended June 30, 1999, compared with consolidated net income of $13,000 for
the same period last year. This net loss was the result of the expenses
associated with the opening of the Laurel Bank in January 1999. As noted
above, the Hattiesburg Bank generated net income of $72,000 during the first
six months of 1999, a significant increase over the net income the Company
generated during the comparable period in 1998.
Interest income and interest expense both increased from 1998 to 1999,
resulting from the increase in earning assets and interest-bearing
liabilities. Consequently, net interest income increased to $1,270,000
from $711,000 for the six months ending June 30, 1999, or an increase of
78.6%.
Noninterest income for the six months ending June 30 1999, was $203,000
compared to $94,000 for the same period in 1998, reflecting an increase
of $109,000, or 116.0%. Noninterest income consists mainly of other service
charges such as commissions and fees. The increase is primarily due to
origination fees on mortgage loans which are sold into the secondary
market. Service charges on deposit accounts for the six months ending
June 30, 1999, were $43,000 compared with $17,000 for the same period in
1998, reflecting an increase of 152.9%. This increase corresponds to an
increase in deposit accounts and related activities.
The provision for loan losses was $230,000 in the first six months of 1999
compared with $70,000 for the same period in 1998. The allowance for loan
losses of $569,000 at June 30, 1999, (approximately 1.2% of loans) is
considered by management to be adequate to cover losses inherent in the
loan portfolio. The level of this allowance is dependent upon a
number of factors, including the total amount of past due loans, general
economic conditions, regulatory reviews, and management's assessment of
potential losses. This evaluation is inherently subjective as it requires
estimates that are susceptible to significant change. Ultimately, losses
may vary from current estimates and future additions to the allowance may
be necessary. 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. Management
evaluates the adequacy of the allowance for loan losses quarterly and makes
provisions for loan losses based on this evaluation.
Other expenses increased by $921,000, or 127.6%, in the first six months of
1999 primarily due to the addition of the Laurel Bank and to the continued
growth of the Hattiesburg Bank. Also, included in noninterest expense for
1999 was $187,000 in preopening costs associated with the formation and
preparation of the opening of the Laurel Bank.
No provision for income tax expense has been provided. Prior to 1998, the
Company reported consolidated net operating losses. At December 31, 1998,
the Company had available approximately $437,000 of consolidated net
operating loss carryovers to subsequent years.
ACCOUNTING MATTERS
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. Recently, the FASB delayed implementation of SFAS
133 to all fiscal quarters of fiscal years beginning after June 15, 2000.
The Company has not determined the impact the adoption of this statement
may have on its consolidated financial statements.
YEAR 2000
Like many financial institutions, the Company relies upon computers for the
daily conduct of its business and for information systems processing.
There is concern among industry experts that on January 1, 2000, computers
will be unable to "read" the new year, which may result in widespread
computer malfunctions. These problems are widely expected to increase in
frequency and severity as the year 2000 approaches and are commonly referred
to as the "Year 2000 Problem." The Year 2000 Problem could affect computers,
software, and other equipment that the Company uses. In June 1996, the
Federal Financial Institutions Examination Council alerted the banking
industry that serious challenges could be encountered with Year 2000 issues.
In addition, the OCC has issued guidelines to require compliance with
Year 2000 issues. In accordance with these guidelines, we have developed
and are executing a plan to ensure that our computer and telecommunication
systems do not have these Year 2000 problems. We rely on third party vendors
to supply most of our computer and telecommunication systems and other office
equipment. Our technology and processing vendors work with many other
financial institutions, all of whom, like us, are required by their bank
regulators to be Year 2000 compliant. Because our systems are substantially
similar to those used in many other banks, we believe that the scrutiny
imposed by our regulatory and the banking industry in general have
significantly reduced the Year 2000 related risks we might otherwise have
faced. Nontheless, there is a risk that the Year 2000 issues could
negatively affect our business. The Company handles its own data processing
using an IBM AS 400 mainframe computer and software licensed from Jack
Henry & Associates, Inc. Jack Henry & Associates, Inc., is a well-established
company and provides computer systems and data processing for numerous
financial institutions. Jack Henry & Associates, Inc., has tested its
systems with software and hardware similar to the Company's. The Company has
reviewed these tests results and is relying on them as a proxy for a test of
its own systems with Jack Henry & Associates, Inc. Banking regulators have
approved this type of testing as a valid means of testing. Based on this
review, the Company does not believe that its data processing system has any
material Year 2000 issues. 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 tested these
systems to confirm that they will be Year 2000 compliant. Based on
information currently available, management does not believe 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.
The Company believes that the largest Year 2000 Problem exposure to most
financial institutions is the preparedness of their customers. The Company
is addressing with its customers the possible consequences of not being
prepared for Year 2000. Should large borrowers not sufficienty address this
issue, the Company may experience an increase in loan defaults. The amount
of potential loss from this issue is not quantifiable. The Company is
attempting to reduce this exposure by educating its customers. The Company
has implemented a comprehensive Year 2000 credit review policy for all
existing loans that exceed $100,000 as well as an underwriting policy for
all new loan requests. At present, the Company's review indicates that the
Company's exposure to credit risks associated with Year 2000 is considered to
be low. The Company's credit review procedures will continue to include
these policies throughout 1999.
Most Likely Consequences of Year 2000 Problems
______________________________________________
The Company expects to identify and resolve all Year 2000 Problems that could
materially adversely affect its business. However, the Company believes that
it is not possible to determine with complete certainty that all Year 2000
Problems affecting it have been identified or corrected. The number of
devices that could be affected and the interactions among these devices are
simply too numerous. In addition, the Company cannot accurately predict
how many failures related to the Year 2000 Problem will occur with its
suppliers, customers, or other third parties or the severity, duration or
financial consequences of such failures.
As a result, the Company expects that it could possibly suffer the following
consequences:
. A number of operational inconveniences and inefficiencies for the
Company, its service providers, or its customers that may divert the
Company's time and attention and financial and human resources from
its ordinary business activities; and
. System malfunctions that may require significant efforts by the
Company or its service providers or customers to prevent or alleviate
material business disruptions.
Additionally, there may be a higher than usual demand for liquidity
immediately prior to the century change due to deposit withdrawals by
customers concerned about Year 2000 issues. To address this possible demand,
the Company has secured additional credit lines with the Federal Home
Loan Bank, Federal Reserve Discount Window, and numerous correspondent banks.
Contingency Plans
_________________
The Company has developed contingency plans to be implemented as part of
its efforts to identify and correct Year 2000 Problems affecting its
internal systems. Depending on the systems affected, these plans include
(a) accelerated replacement of affected equipment or software; (b) short
term use of backup equipment and software; (c) increased work hours for the
Company's personnel or use of contract personnel to correct, on an
accelerated schedule, any Year 2000 Problems which arise; and (d) other
similar approaches. If the Company is required to implement any of these
contingency plans, these plans could have a material adverse effect on its
business.
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULT UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's annual meeting of stockholders held May 27, 1999,
the following proposals were approved:
1. The following six individuals were elected to serve as Class I
directors of the Company for terms that expire at the annual
meeting of stockholders to be held in 2002:
Perry Edward Parker J. Douglas Seidenburg
Ted E. Parker Ralph T. Simmons
Dennis L. Pierce A. L. "Pud" Smith
Set forth below is the number of votes cast for, against, or
withheld, with respect to each nominee for office:
For Against Withheld
_______ _______ ________
Perry Edward Parker 633,422 0 2,000
Ted E. Parker 633,422 0 2,000
Dennis L. Pierce 632,767 0 2,655
J. Douglas Seidenburg 633,322 0 2,100
Ralph T. Simmons 631,422 0 4,000
A. L. "Pud" Smith 633,322 0 2,100
The terms of the Class II directors expire at the 2000 Annual
Shareholders Meeting. The terms of the Class III directors
will expire at the 2001 Annual Shareholders Meeting. Our
directors and their classes are:
Class I Class II Class III
Perry E. Parker M. Ray Cole, Jr. David W. Bomboy
Ted E. Parker David E. Johnson E. Ricky Gibson
Dennis L. Pierce Dawn T. Parker Fred A. McMurry
J. Douglas Seidenburg Charles T. Ruffin David L. Rice, III,
Ralph T. Simmons Andrew D. Stetelman D.M.D.
A. L. Smith
2. The 1999 Stock Option Plan (Plan) which authorizes the
granting to Company employees and directors stock options
and restricted stock for up to 106,689 shares of common
stock. The Plan provides for initial stock option grants
of 73,890 common shares as follows:
. Options for a total of 12,859 shares to the Company's
directors (1,169 shares to each);
. Options for a total of 25,725 shares to the directors
of the Laurel Bank (1,715 shares to each);
. Options for 28,874 shares to David Johnson (President
and CEO of the Company) and 10,723 shares to William
Renovich (President and CEO of the Laurel Bank).
Each of these option grants have the following features:
. An exercise period of ten years
. A three year vesting term
. Restrictions on transferability
. An exercise price of $15 per share (the fair market
value of the common stock on the date of grant).
The Stock Option Plan was approved at the meeting, with 595,570
votes cast for and 17,070 votes against. In addition, there
were 4,651 abstentions and 18,131 broker non-votes.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) 27 Financial Data Schedule (for SEC use only)
b) The Company did not file any reports on Form 8-K during the
quarter ended June 30, 1999.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registration has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE FIRST BANCSHARES, INC.
--------------------------
(Registrant)
August 13, 1999 /s/ DAVID E. JOHNSON
______________________________ David E. Johnson, President and
(Date) Chief Executive Officer
August 13, 1999 /s/ CHARLES T. RUFFIN
______________________________ Charles T. Ruffin, Principal
(Date) Accounting and Financial Officer
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