UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2008
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE EXCHANGE ACT
For the transition period from __________ to __________
Commission File Number: 0-22842
FIRST BANCSHARES, INC.
(Exact name of small business issuer as specified in its charter)
Missouri 43-1654695
-------- ----------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
142 East First Street, Mountain Grove, Missouri 65711
-----------------------------------------------------
(Address of principal executive offices)
(417) 926-5151
---------------
(Issuer's telephone number)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
----- -----
Indicate by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act).
Yes No X
----- -----
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
Class: Outstanding at May 9, 2008:
Common Stock, $.01 par value 1,550,815 Common Shares
Transitional Small Business Disclosure Format Yes No X
----- -----
1
FIRST BANCSHARES, INC.
AND SUBSIDIARIES
FORM 10-QSB
INDEX
Page No.
--------
Part I. Financial Information
-------------------------------
Item 1. Financial Statements:
Consolidated Statements of Financial Condition
at March 31, 2008 and June 30, 2007 (Unaudited) 3
Consolidated Statements of Income for the Three and Nine
Months Ended March 31, 2008 and 2007 (Unaudited) 4
Consolidated Statements of Comprehensive Income for the
Three and Nine Months Ended March 31, 2008 and 2007
(Unaudited) 5
Consolidated Statements of Cash Flows for the
Nine Months Ended March 31, 2008 and 2007 (Unaudited) 6
Notes to Consolidated Financial Statements (Unaudited) 7
Item 2. Management's Discussion and Analysis or Plan of Operation 11
Item 3. Controls and Procedures 19
Part II. Other Information
---------------------------
Item 1. Legal Proceedings 20
Item 2. Unregistered Sales of Equity Securities and
Use of Proceeds 20
Item 3. Defaults Upon Senior Securities 20
Item 4. Submission of Matters to a Vote of Security Holders 20
Item 5. Other Information 20
Item 6. Exhibits 20
Signatures 21
Exhibit Index 22
Certifications 23
2
FIRST BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Unaudited)
March 31, June 30,
2008 2007
---- ----
ASSETS
------
Cash and cash equivalents $ 16,419,875 $ 21,030,321
Certificates of deposit 561,613 746,632
Securities available-for-sale 41,260,051 31,321,225
Securities held-to-maturity 4,337,070 10,786,182
Federal Home Loan Bank stock, at cost 1,613,200 1,613,800
Loans receivable, net 166,243,231 158,992,921
Loan held for sale 1,916,954 -
Accrued interest receivable 1,128,379 1,259,460
Prepaid expenses 253,563 360,375
Property and equipment 6,955,558 7,506,862
Real estate owned 989,853 293,337
Intangible assets 247,998 285,584
Deferred tax asset, net 573,671 707,066
Income taxes recoverable - 196,687
Bank-owned life insurance 6,066,049 5,919,973
Other assets 445,807 310,334
------------ ------------
Total assets $249,012,872 $241,330,759
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Deposits $198,140,896 $190,090,359
Retail repurchase agreements 407,439 2,103,105
Advances from Federal Home Loan Bank 22,000,000 22,000,000
Accrued expenses and accounts payable 995,422 669,202
------------ ------------
Total liabilities 221,543,757 214,862,666
------------ ------------
Preferred stock, $.01 par value; 2,000,000
shares authorized, none issued - -
Common stock, $.01 par value; 8,000,000
shares authorized, 2,895,036 issued at
March 31,2008 and June 30, 2007, 1,550,815
shares outstanding at March 31, 2008 and
June 30, 2007 28,950 28,950
Paid-in capital 18,005,343 17,936,224
Retained earnings - substantially restricted 28,131,326 27,850,962
Treasury stock - at cost; 1,344,221 shares at
March 31, 2008 and June 30, 2007 (19,112,627) (19,112,627)
Accumulated other comprehensive income
(loss) 416,123 (235,416)
------------ ------------
Total stockholders' equity 27,469,115 26,468,093
------------ ------------
Total liabilities and stockholders'
equity $249,012,872 $241,330,759
============ ============
See notes to consolidated financial statements
3
FIRST BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Three Months Ended Nine Months Ended
March 31, March 31,
2008 2007 2008 2007
---- ---- ---- ----
Interest Income:
Loans receivable $3,002,153 $2,732,992 $ 8,974,688 $ 8,074,907
Securities 582,160 478,060 1,780,875 1,390,168
Other interest-earning
assets 105,314 226,267 486,516 615,773
---------- ---------- ----------- -----------
Total interest income 3,689,627 3,437,319 11,242,079 10,080,848
---------- ---------- ----------- -----------
Interest Expense:
Deposits 1,489,698 1,551,421 4,882,807 4,299,306
Retail repurchase
agreements 5,416 9,972 34,087 10,750
Borrowed funds 319,840 352,337 966,337 1,036,840
---------- ---------- ----------- -----------
Total interest expense 1,814,954 1,913,730 5,883,231 5,346,896
---------- ---------- ----------- -----------
Net interest income 1,874,673 1,523,589 5,358,848 4,733,952
Provision for loan losses 428,100 40,000 580,600 280,000
---------- ---------- ----------- -----------
Net interest income after
provision for loan losses 1,446,573 1,483,589 4,778,248 4,453,952
---------- ---------- ----------- -----------
Non-interest Income:
Service charges and other
fee income 510,070 426,257 1,538,473 1,371,616
Gain on sale of loans 111,800 - 376,412 -
Gain on sale of securities
available-for-sale - 177,000 - 177,000
Gain (loss) on sale of
property and equipment
and real estate owned (7,044) 289 5,040 92,498
Income from bank-owned
life insurance 52,653 52,962 146,076 161,518
Other 40,700 34,819 107,564 116,586
---------- ---------- ----------- -----------
Total non-interest
income 708,179 691,327 2,173,565 1,919,218
---------- ---------- ----------- -----------
Non-interest Expense:
Compensation and
employee benefits 1,112,301 978,270 3,292,819 3,207,184
Occupancy and equipment 438,769 386,507 1,243,822 1,145,668
Professional fees 162,304 220,385 493,821 439,799
Deposit insurance premiums 27,773 5,240 82,087 16,757
Other 406,951 384,551 1,314,570 1,270,703
---------- ---------- ----------- -----------
Total non-interest
expense 2,148,098 1,974,953 6,427,119 6,080,111
---------- ---------- ----------- -----------
Income before taxes 6,654 199,963 524,694 293,059
Income taxes 38,381 8,068 244,330 28,495
---------- ---------- ----------- -----------
Net income (loss) $ (31,727) $ 191,895 $ 280,364 $ 264,564
========== ========== =========== ===========
Earnings (loss) per
share - basic $ (0.02) $ 0.12 $ 0.18 $ 0.17
========== ========== =========== ===========
Earnings (loss) per
share - diluted (0.02) 0.12 0.18 0.17
========== ========== =========== ===========
Dividends per share 0.00 0.00 0.00 0.08
========== ========== =========== ===========
See notes to consolidated financial statements
4
FIRST BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
Three Months Ended Nine Months Ended
March 31, March 31,
2008 2007 2008 2007
---- ---- ---- ----
Net income (loss) $(31,727) $191,895 $280,364 $264,564
Other comprehensive income
(loss), net of tax:
Change in unrealized gain
on securities available-
for-sale, net of deferred
income taxes 226,911 (54,704) 651,539 169,858
-------- -------- -------- --------
Comprehensive income $195,184 $137,191 $931,903 $434,422
======== ======== ======== ========
See notes to consolidated financial statements
5
FIRST BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Nine Months Ended
March 31,
2008 2007
---- ----
Cash flows from operating activities:
Net income $ 280,364 $ 264,564
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 633,570 567,298
Amortization 37,586 37,586
Premiums and discounts on securities (115,591) 27,990
Stock based compensation 69,120 56,878
Provision for loan losses 580,600 280,000
Provision for losses on real estate owned 27,850 -
Proceeds from sales of loans originated for
sale 16,267,312 -
Loans originated for sale (16,302,004) -
Deferred income taxes 12,120 (54,740)
(Gain) loss on sale of property and equipment
and real estate owned (31,986) (93,525)
Gain on sale of securities available-for-sale - (177,000)
Loss on the sale of other repossessed assets 1,502 -
Income from bank-owned life insurance (146,076) (161,518)
Net change in operating accounts:
Accrued interest receivable and other assets 274,415 (581,862)
Deferred loan costs (94,641) 5,775
Income taxes recoverable 196,687 249,206
Accrued expenses and accounts payable 111,854 (233,870)
------------ ------------
Net cash provided by operating activities 1,802,682 186,782
------------ ------------
Cash flows from investing activities:
Purchase of securities available-for-sale (18,177,765) (12,115,370)
Purchase of securities held to maturity - (345,000)
Proceeds from maturities of securities
available-for-sale 9,343,711 4,069,941
Proceeds from sales of securities available-
for-sale - 1,986,000
Proceeds from maturities of securities held to
maturity 6,447,112 8,583,953
Purchase of Federal Home Loan Bank stock - (84,500)
Proceeds from redemption of Federal Home
Loan Bank stock 600 -
Net change in certificates of deposit
purchased 185,019 2,095,780
Net change in loans receivable (10,645,865) (13,182,107)
Purchases of property and equipment (336,655) (541,485)
Net proceeds from the sale of property and
equipment 287,112 41,500
Net proceeds from sale of real estate owned
and repossessed assets 128,732 710,150
------------ ------------
Net cash used in investing activities (12,767,999) (8,781,138)
------------ ------------
Cash flows from financing activities:
Net change in deposits 8,050,537 8,947,975
Net change in retail repurchase agreements (1,695,666) 1,133,007
Proceeds from borrowed funds - 3,000,000
Cash dividends paid - (124,166)
Purchase of treasury stock - (19,424)
------------ ------------
Net cash provided by financing activities 6,354,871 12,937,392
------------ ------------
Net increase (decrease) in cash and cash
equivalents (4,610,446) 4,343,036
Cash and cash equivalents - beginning of period 21,030,321 23,473,645
------------ ------------
Cash and cash equivalents - end of period $ 16,419,875 $ 27,816,681
============ ============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest on deposits and borrowed funds $ 5,813,092 $ 5,343,399
============ ============
Income taxes - 18,000
============ ============
Supplemental schedule of non-cash investing and
financing activities:
Loans transferred to real estate owned and
other repossessed assets. $ 855,338 $ 495,243
============ ============
See notes to consolidated financial statements.
6
FIRST BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting policies followed for interim reporting by First Bancshares,
Inc. (the "Company") and its consolidated subsidiaries, First Home Savings
Bank (the "Bank") and SCMG, Inc. are consistent with the accounting policies
followed for annual financial reporting. All adjustments that, in the opinion
of management, are necessary for a fair presentation of the results for the
periods reported have been included in the accompanying unaudited consolidated
financial statements, and all such adjustments are of a normal recurring
nature. The accompanying consolidated statement of financial condition as of
June 30, 2007, which has been derived from audited financial statements, and
the unaudited interim financial statements have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information and note disclosures normally included in annual financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to those rules and
regulations, although the Company believes that the disclosures made are
adequate to make the information not misleading. It is suggested that these
consolidated financial statements be read in conjunction with the financial
statements and the notes thereto included in the Company's latest
shareholders' Annual Report on Form 10-KSB for the year ended June 30, 2007
(Form 10-KSB). The results for theses interim periods may not be indicative of
results for the entire year or for any other period.
2. ACCOUNTING DEVELOPMENTS
In September 2006, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 157, "Fair Value Measurements". This Statement defines fair value,
establishes a framework for measuring fair value, and expands disclosures
about fair value measurements. It clarifies that fair value is the price that
would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants in the market in which the
reporting entity transacts. This Statement does not require any new fair
value measurements, but rather, it provides enhanced guidance to other
pronouncements that require or permit assets or liabilities to be measured at
fair value. This Statement is effective for fiscal years beginning after
November 15, 2007. The Company does not expect that the adoption of this
Statement will have a material impact on its financial position, results of
operation and cash flows.
In February 2007, the FASB issued FASB Statement No. 159, "The Fair Value
Option for Financial Assets and Financial Liabilities Including an amendment
of FASB Statement No. 115", which provides all entities, including
not-for-profit organizations, with an option to report selected financial
assets and liabilities at fair value. The objective of the Statement is to
improve financial reporting by providing entities with the opportunity to
mitigate volatility in earnings caused by measuring related assets and
liabilities differently without having to apply the complex provisions of
hedge accounting. Certain specified items are eligible for the irrevocable
fair value measurement option as established by Statement No. 159. Statement
No. 159 is effective as of the beginning of an entity's first fiscal year
beginning after November 15, 2007. The Company is currently evaluating the
impact that the adoption of this Statement will have on its financial
position, results of operation and cash flows.
In September 2006, the Emerging Issues Task Force ("EITF") reached a final
consensus on Issue 06-04, "Accounting for Deferred Compensation and
Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance
Arrangements." The consensus stipulates that an agreement by an employer to
share a portion of the proceeds of a life insurance policy with an employee
during the postretirement period is a postretirement benefit arrangement
required to be accounted for under SFAS No. 106 or Accounting Principles Board
Opinion ("APB") No. 12, "Omnibus Opinion - 1967." The consensus concludes that
the
7
purchase of a split-dollar life insurance policy does not constitute a
settlement under SFAS No. 106 and, therefore, a liability for the
postretirement obligation must be recognized under SFAS No. 106 if the benefit
is offered under an arrangement that constitutes a plan or under APB No. 12 if
it is not part of a plan. Issue 06-04 is effective for annual or interim
reporting periods beginning after December 15, 2007. The Company does not
expect that the adoption of EITF 06-04 will have a material impact on its
financial position, results of operation and cash flows.
In March 2007, the EITF reached a final conclusion on Issue 06-10, "Accounting
for Collateral Assignment Split-Dollar Life Insurance Arrangements". The
consensus concludes that a liability must be recognized for the postretirement
obligation related to a collateral assignment split-dollar life insurance
arrangement in accordance with SFAS No. 106 or APB No. 12. Any asset should
be recognized and measured based on the nature and substance of the collateral
assignment split-dollar life insurance arrangement. The effective date of
EITF 06-10 is for fiscal years beginning after December 15, 2007. The Company
does not expect that the adoption of EITF 06-10 will have a material impact on
its financial position, results of operation and cash flows.
In December 2007, FASB issued SFAS No. 141(revised), "Business Combinations".
The Statement establishes principles and requirements for how an acquirer
recognizes and measures tangible assets acquired, liabilities assumed,
goodwill and any noncontrolling interests and identifies related disclosure
requirements for business combinations. Measurement requirements will result
in all assets, liabilities, contingencies and contingent consideration being
recorded at fair value on the acquisition date, with limited exceptions.
Acquisition costs and restructuring costs will generally be expensed as
incurred. This Statement is effective for business combinations for which the
acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008. The Company does not expect
the adoption of this Statement will have a material impact on its financial
position or results of operations.
In December 2007, FASB issued SFAS No. 160, "Noncontrolling Interests in
Consolidated Financial Statements an amendment of ARB No. 51". The
Statement establishes accounting and reporting standards for noncontrolling
interests in a subsidiary and for the deconsolidation of a subsidiary.
Minority interests will be recharacterized as noncontrolling interests and
classified as a component of equity. It also establishes a single method of
accounting for changes in a parent's ownership interest in a subsidiary and
requires expanded disclosures. This Statement is effective for fiscal years
beginning on or after December 15, 2008. The Company does not expect the
adoption of this Statement will have a material impact on its financial
position or results of operations.
3. EARNINGS PER SHARE
Basic earnings per share is based on net income divided by the weighted
average number of shares outstanding during the period. Diluted earnings per
share includes the effect of the issuance of shares eligible to be issued
pursuant to stock option agreements.
8
The table below presents the numerators and denominators used in the basic
earnings per common share computations for the three month and nine month
periods ended March 31, 2008 and 2007.
Three Months Ended Nine Months Ended
March 31, March 31,
--------- ---------
2008 2007 2008 2007
---- ---- ---- ----
Basic earnings per common share:
Numerator:
Net income (loss) $ (31,727) $ 191,895 $ 280,364 $ 264,564
========== ========== ========== ==========
Denominator:
Weighted average common
shares outstanding 1,550,815 1,551,666 1,550,815 1,551,917
========== ========== ========== ==========
Basic earnings (loss) per
common share ($0.02) $ 0.12 $ 0.18 $ 0.17
========== ========== ========== ==========
Diluted earnings per common share:
Numerator:
Net income (loss) $ (31,727) $ 191,895 $ 280,364 $ 264,564
========== ========== ========== ==========
Denominator:
Weighted average common
shares outstanding 1,550,815 1,551,666 1,550,815 1,551,917
========== ========== ========== ==========
Basic earnings (loss) per
common share ($0.02) $ 0.12 $ 0.18 $ 0.17
========== ========== ========== ==========
4. COMMITMENTS
At March 31, 2008 and June 30, 2007, the Company had outstanding commitments
to originate loans and fund unused lines of credit totaling $2.4 million and
$5.1 million, respectively. It is expected that outstanding loan commitments
will be funded with existing liquid assets.
5. STOCK OPTION PLAN
Effective July 1, 2006, the Company adopted the fair value recognition
provisions of SFAS No. 123(R), Share-Based Payment, using the
modified-prospective-transition method. Under that transition method,
compensation cost recognized in the three-month and nine-month periods ended
March 31, 2008 and 2007 includes: (a) compensation cost for all share-based
payments granted prior to, but not yet vested as of July 1, 2006, based on the
grant date fair value estimated in accordance with the original provisions of
Statement 123, and (b) compensation cost for all share-based payments granted
subsequent to July 1, 2006, based on the grant-date fair value estimated in
accordance with the provisions of Statement 123(R).
The Company uses historical data to estimate the expected term of the options
granted, volatilities, and other factors. Expected volatilities are based on
the historical volatility of the Company's common stock over a period of time.
The risk-free rate for periods within the contractual life of the option is
based on the U.S. Treasury yield curve in effect at the time of grant. The
dividend rate is equal to the dividend rate in effect on the date of grant.
The Company used the following assumptions for grants in fiscal 2007,
respectively: dividend rates of .00% to .99%, price volatility of 18.36% to
20.29%, risk-free interest rates of 4.58% to 5.02%, and an expected life of
7.5 to 10 years. There were no grants made during the nine months ended March
31, 2008.
9
A summary of option activity under the 2004 Stock Option Plan ("Plan") as of
March 31, 2008, and changes during the nine months ended March 31, 2008, is
presented below:
Weighted-
Weighted- Average
Average Remaining
Exercise Contractual
Options Shares Price Term
------- ------ ----- ----
(in months)
Outstanding at beginning of period 64,500 $ 16.76 113
Granted - -
Exercised - -
Forfeited or expired - -
------ -------
Outstanding at end of period 64,500 $ 16.76 104
A summary of the Company's non-vested shares as of March 31, 2008, and changes
during the nine months ended March 31, 2008, is presented below:
Weighted-
Average
Grant Date
Non-vested Options Options Fair Value
------------------ ------- ----------
Outstanding at beginning of period 61,100 $ 6.02
Granted - -
Exercised - -
Vested 10,025 5.94
Forfeited or expired - -
------ ------
Outstanding at end of period 51,075 $ 6.04
====== ======
As of March 31, 2008, there was $135,000 of total unrecognized compensation
cost related to nonvested share-based compensation arrangements granted under
the Plan. That cost is expected to be recognized over a weighted-average
period of approximately 13 months.
6. RECLASSIFICATIONS
Certain amounts in the prior period financial statements have been
reclassified, with no effect on net income or stockholders' equity, to be
consistent with the current period classification.
10
Item 2. Management's Discussion and Analysis or Plan of Operation
General
First Bancshares, Inc. (the "Company") is a unitary savings and loan holding
company whose primary assets are First Home Savings Bank and SCMG, Inc. The
Company was incorporated on September 30, 1993, for the purpose of acquiring
all of the capital stock of First Home Savings Bank in connection with Bank's
conversion from a state-charted mutual to a state-chartered stock form of
ownership. The transaction was completed on December 22, 1993.
On March 31, 2008, the Company had total assets of $249.0 million, net loans
receivable of $166.2 million, total deposits of $198.1 million and
stockholders' equity of $27.5 million. The Company's common shares trade on
The Nasdaq Global Market of The NASDAQ Stock Market LLC under the symbol
"FBSI."
The following discussion focuses on the consolidated financial condition of
the Company and its subsidiaries, at March 31, 2008, compared to June 30,
2007, and the consolidated results of operations for the three-month and nine-
month periods ended March 31, 2008, compared to the three-month and nine-month
periods ended March 31, 2007, respectively. This discussion should be read in
conjunction with the Company's consolidated financial statements, and notes
thereto, for the year ended June 30, 2007.
Corporate Developments and Overview
During the nine months ended March 31, 2008, the Company entered into a lease
agreement for approximately 5,100 square feet of office space in Springfield,
Missouri. The new space houses the Bank's Loan Production Office, which has
been operating out of a much smaller location since it was approved by the
State of Missouri during the third quarter of fiscal 2007. In addition to the
Loan Production Office, there will be offices for senior officers of the
Company and the Bank, who spend time in Springfield, as well as, the Company
home office in Mountain Grove, Missouri. The move to the larger facility was
completed in November 2007.
During the nine month period ended March 31, 2008, the operations of the
in-house brokerage service, which was based in Mountain Grove, Missouri, were
discontinued due to staffing difficulties. This brokerage service operated
under a Bank subsidiary, First Home Investments. The Company entered into an
agreement with an outside company based in Springfield, Missouri to provide
brokerage services to the Bank's customers. This agreement has begun to
generate a small amount of commission income.
The Bank continues to operate under a Memorandum of Understanding (the "MOU")
with the Office of Thrift Supervision (the "OTS"). The MOU was entered into
during the December 31, 2006 quarter. The MOU dealt with various issues
affecting the operations of the Bank. Management of the Bank believes it has
addressed and substantially resolved all the issues raised in the MOU, the
last part of which was the three year business plan which was approved by the
Bank's Board of Directors at its meeting on October 26, 2007, and submitted to
the OTS on October 29, 2007. The board of the Bank receives budget versus
actual comparisons and analysis on a monthly basis. This information is also
sent to the OTS, as required by the MOU.
For more information concerning the MOU or the activities of and developments
about the Company during the fiscal year ended June 30, 2007, please refer to
the sections titled "Corporate Developments and Overview" and "Risk Factors"
on pages one through three of the Company's Form 10-KSB, which was filed with
the Securities and Exchange Commission ("SEC") on September 28, 2007.
On February 22, 2008, the Company filed a preliminary proxy statement and a
Schedule 13E-3, in connection with the Company's intention to reduce the
number of stockholders to less than 300 through a reverse stock split at a
one-to-one thousand ratio, with the purpose terminating the registration of
the Company's state and
11
suspending the Company's reporting obligations with the SEC. This would
eliminate the significant costs associated with being a public company. On
April 8, 2008, the Company filed an amendment to the February 22, 2008 filing,
changing the ratios from one-to-one thousand to one-to-five hundred and on
April 25, 2008 mailed the proxy materials to its shareholders.
Financial Condition
As of March 31, 2008, First Bancshares, Inc. had assets of $249.0 million,
compared to $241.3 million at June 30, 2007. The increase in total assets of
$7.7 million, or 3.1%, was primarily the result of increases in loans
receivable and securities available-for-sale of $7.2 million and $9.9 million,
respectively. These increases were partially offset by decreases in cash and
cash equivalents and securities held to maturity of $4.6 million and $6.4
million, respectively, during the nine-month period ended March 31, 2008. The
growth in loans receivable and securities available-for-sale was funded by the
decreases in cash and cash equivalents and securities held to maturity, and by
deposit growth of $8.0 million during the nine month period. At March 31,
2008, there was a total of $1.9 million in loans originated for sale which
were not yet funded by the purchasers. The increase in deposits was partially
offset by a decrease of $1.7 million in retail repurchase agreements. Advances
from the Federal Home Loan Bank of Des Moines remained constant during the
nine month period.
Loans receivable, net totaled $166.2 million at March 31, 2008, an increase of
$7.2 million from $159.0 million at June 30. 2007. The increase in loans is
the result of increased originations in commercial real estate and commercial
business loans during the third fiscal quarter. The opportunity for increased
commercial lending resulted from the lower interest rate environment and the
fact that the Company's primary market area for such loans, namely
Springfield, Missouri, has remained relatively strong. There continues to be
some uncertainty in the economy, both locally and nationally, brought about by
problems in the sub-prime mortgage market. Housing sales, both new and
existing, consumer confidence and other indicators of economic health have
decreased over the last several months.
The Company's deposits grew $8.0 million from $190.1 million as of June 30,
2007 to $198.1 million as of December 31, 2007. The growth is the result of
efforts made by the Company to attract core deposits through new products
introduced during fiscal 2007 and internal emphasis on business development.
The balance of the Company's retail repurchase agreements, first introduced
during fiscal 2007, decreased by $1.7 million from $2.1 million at June 30,
2007 to $407,000 at March 31, 2008.
As of March 31, 2008 the Company's stockholders' equity totaled $27.5 million,
compared to $26.5 million as of June 30, 2007. The increase of $1.0 million
was due to net income of $280,000 during the first nine months of the fiscal
year and a positive change in the mark-to-market adjustment, net of taxes, of
$652,000 on the Company's available for sale securities portfolio. In
addition, there was a $69,000 increase resulting from the accounting treatment
of stock based compensation. There were no dividends paid during the period
and the Company does not currently have a stock repurchase program in place.
Non-performing Assets and Allowance for Loan Losses
Generally, when a loan becomes delinquent 90 days or more, or when the
collection of principal or interest becomes doubtful, the Company will place
the loan on non-accrual status and, as a result of this action, previously
accrued interest income on the loan is reversed against current income. The
loan will remain on non-accrual status until the loan has been brought current
or until other circumstances occur that provide adequate assurance of full
repayment of interest and principal.
Non-performing assets increased from $3.5 million, or 1.5% of total assets, at
June 30, 2007 to $3.9 million, or 1.6% of total assets at March 31, 2008. The
Bank's non-performing assets consist of non-accrual loans, past due loans over
90 days, impaired loans not past due or past due less than 60 days, real
estate owned and other
12
repossessed assets. The increase in non-performing assets consisted of an
increase of $6,000 in non-accrual loans and an increase of $632,000 in real
estate owned and other repossessed assets, which were partially offset by a
decrease of $436,000 in loans 90 days or more delinquent and still accruing
interest. During the nine month period ended March 31, 2008, these categories
were impacted by transfers to real estate owned and repossessed assets of
$855,000 and write offs of $988,000.
Classified assets. Federal regulations provide for the classification of
loans and other assets as "substandard", "doubtful" or "loss", based on the
level of weakness determined to be inherent in the collection of the principal
and interest. When loans are classified as either substandard or doubtful,
the Company may establish general allowances for loan losses in an amount
deemed prudent by management. General allowances represent loss allowances
which have been established to recognize the inherent risk associated with
lending activities, but which, unlike specific allowances, have not been
allocated to particular problem loans. When assets are classified as loss, the
Company is required either to establish a specific allowance for loan losses
equal to 100% of that portion of the loan so classified, or to charge-off such
amount. The Company's determination as to the classification of its loans and
the amount of its allowances for loan losses are subject to review by its
regulatory authorities, which may require the establishment of additional
general or specific allowances for loan losses.
On the basis of management's review of its loans and other assets, at March
31, 2008, the Company had classified a total of $2.6 million of its assets as
substandard, $490,000 as doubtful and none as loss. This compares to
classifications at June 30, 2007 of $4.2 million substandard, $101,000
doubtful and none as loss. This reduction in classified assets to $3.3
million from $4.3 million is the result of transfers to real estate owned and
other repossessed assets of loans totaling $855,000 and to loan write-offs of
$988,000 during the nine month period. In addition, classified assets at March
31, 2008 and June 30, 2007 included real estate owned and other repossessed
assets of $990,000 and $293,000, respectively.
In addition to the classified loans, the Bank has identified an additional
$2.6 million of credits at March 31, 2008 on its internal watch list compared
to $4.8 million at June 30, 2007 and $6.3 million at March 31, 2007.
Management has identified these loans as high risk credits and any
deterioration in their financial condition could increase the classified loan
totals. The decrease in the internal watch list is the result of the stricter
internal policies relating to the identification and monitoring of problem
loans. During the nine months ended March 31, 2008, thirteen loans totaling
$3.2 million were removed from the watch list as a result the resolution of
the reasons they were on the watch list.
Allowance for loan losses. The Company establishes its provision for loan
losses, and evaluates the adequacy of its allowance for loan losses based upon
a systematic methodology consisting of a number of factors including, among
others, historic loss experience, the overall level of classified assets and
non-performing loans, the composition of its loan portfolio and the general
economic environment within which the Bank and its borrowers operate.
At March 31, 2008, the Company has established an allowance for loan losses
totaling $2.3 million compared to $2.6 million at June 30, 2007. The
allowance represents approximately 78.3% and 82.4% of the total non-performing
loans at March 31, 2008 and June 30, 2007, respectively.
The allowance for loan losses reflects management's best estimate of probable
losses inherent in the portfolio based on currently available information.
The Company believes that the allowance for loan losses as of March 31, 2008
was adequate to absorb the known and inherent risks of loss in the loan
portfolio at that date. While the Company believes the estimates and
assumptions used in the determination of the adequacy of the allowance are
reasonable, there can be no assurance that such estimates and assumptions will
not be proven incorrect in the future, or that the actual amount of future
provisions will not exceed the amount of past provisions or that any increased
provisions that may be required will not adversely impact the Company's
financial condition and results of operations. Future additions to the
allowance may become necessary based upon changing economic conditions,
increased loan balances or changes in the underlying collateral of the loan
portfolio. In addition, the determination
13
of the amount of the Bank's allowance for loan losses is subject to review by
bank regulators as part of the routine examination process, which may result
in the establishment of additional reserves based upon their judgment of
information available to them at the time of their examination.
Critical Accounting Policies
The Company's financial statements are prepared in accordance with accounting
principles generally accepted in the United States of America. The financial
information contained within these statements is, to a significant extent,
financial information that is based on approximate measures of the financial
effects of transactions and events that have already occurred. Based on its
consideration of accounting policies that involve the most complex and
subjective decisions and assessments, management has identified its most
critical accounting policy to be the policy related to the allowance for loan
losses.
The Company's allowance for loan loss methodology incorporates a variety of
risk considerations, both quantitative and qualitative, in establishing an
allowance for loan loss that management believes is appropriate at each
reporting date. Quantitative factors include the Company's historical loss
experience, delinquency and charge-off trends, collateral values, changes in
non-performing loans, and other factors. Quantitative factors also incorporate
known information about individual loans, including borrowers' sensitivity to
interest rate movements. Qualitative factors include the general economic
environment in the Company's markets, including economic conditions throughout
the Midwest and, in particular, the state of certain industries. Size and
complexity of individual credits in relation to loan structure, existing loan
policies, and pace of portfolio growth are other qualitative factors that are
considered in the methodology. As the Company adds new products and increases
the complexity of its loan portfolio it will enhance its methodology
accordingly. Management may have reported a materially different amount for
the provision for loan losses in the statement of operations to change the
allowance for loan losses if its assessment of the above factors were
different. This discussion and analysis should be read in conjunction with
the Company's financial statements and the accompanying notes presented
elsewhere herein, as well as the portion of this Management's Discussion and
Analysis section entitled "Non-performing Assets and Allowance for Loan
Losses." Although management believes the levels of the allowance as of both
March 31, 2008 and June 30, 2007 were adequate to absorb probable losses
inherent in the loan portfolio, a decline in local economic conditions, or
other factors, could result in increasing losses.
Results of Operations for the Three Months Ended March 31, 2008 Compared to
the Three Months Ended March 31, 2007
General. For the three months ended March 31, 2008, the Company reported a
net loss of $(32,000), or $0.02 diluted share, compared to net income of
$192,000, or $0.12 per diluted share, for the same period in 2007. The
decrease in net income for the 2008 period included increases in the provision
for loan losses, non-interest expense and income taxes, which were partially
offset by increases in net interest income and non-interest income.
Net interest income. The Company's net interest income for the three months
ended March 31, 2008 was $1.9 million, compared to $1.5 million for the same
period in 2007. The increase reflects a $252,000 increase in interest income
partially offset by a $99,000 decrease in interest expense.
Interest income. Interest income for the three months ended March 31, 2008
increased $252,000, or 7.3%, to $3.7 million compared to $3.4 million for the
same period in 2007. Interest income from loans increased $269,000 to $3.0
million from $2.7 million in 2007. This was attributable to an increase in
average loans to $162.8 million during the 2008 period from $155.4 million
during the comparable 2007 period, and to an increase in the yield on loans to
7.40% during the three months ended March 31, 2008 from 7.13% during the
comparable period in 2007.
14
The increase in average loans was the result of an increase in lending volume
during the 2008 quarter, and the increase in yield was the result of an upward
trend in interest rates during the first six months between the two periods.
Interest rates began to decrease during the quarter ended March 31, 2008.
Interest income from investment securities and other interest-earning assets
for the three months ended March 31, 2008 decreased $17,000 to $687,000 from
$704,000 for the same period in 2007. The decrease was the result of a
decrease in the yield on these assets to 4.56% for the 2008 period from 4.91%
for the 2007 period which was partially offset by an increase in the average
balance of these assets of $2.4 million to $60.5 million for the quarter ended
March 31, 2008 from $58.1 million for the same period in 2007.
Interest expense. Interest expense for the three months ended March 31, 2008
decreased $99,000 or 5.2%, to $1.8 million from $1.9 million for the same
period in 2007. Interest expense on deposits decreased $62,000 to $1.5 million
in the three months ended March 31, 2008 from $1.6 million in the same period
in 2007. The decrease resulted from a decrease in the average cost of deposits
to 3.28% in the 2008 period from 3.40% in the 2007 period. This decrease was
partially offset buy an increase in average interest-bearing deposit balances
of $9.4 million to $182.4 million in the 2008 period from $173.0 million in
the 2007 period. Interest expense on other interest-bearing liabilities
decreased $38,000 to $325,000 in the three months ended March 31, 2008 from
$363,000 in the comparable period in 2007. Virtually all of the decrease in
interest expense on other interest-bearing liabilities was due to a decrease
in the average outstanding balances of other interest-bearing liabilities to
$22.7 million during the 2008 period from $25.9 million during the 2007
period. The average outstanding balance of retail repurchase agreements
decreased to $710,000 during the three months ended March 31, 2008 from
$908,000 during the comparable period in 2007.
Net interest margin. The Company's net interest margin increased to 3.37% for
the three months ended March 31, 2008 from 2.89% for the three months ended
March 31, 2007.
Provision for loan loss. During the quarter ended March 31, 2008, the
provision for loan losses was $428,000, compared to $40,000 for the quarter
ended March 31, 2007. For a discussion of this change, see "Non-performing
Assets and Allowance for Loan Losses" herein.
Non-interest income. For the three months ended March 31, 2008, non-interest
income totaled $708,000, compared to $691,000 for the three months ended March
31, 2007. The $17,000 increase between the two periods resulted primarily
from profit of $112,000 on the sale of loans, and to an increase in service
charges and fee income of $84,000. There was no profit on the sale of loans
during the 2007 period. These increases in non-interest income were partially
offset by decreases of $7,000 and $177,000 in gain on the sale of property and
equipment and real estate owned and gain on the sale of securities
available-for-sale. The gain recorded in the 2007 period did not re-occur in
the 2008 period.
Non-interest expense. Non-interest expense increased by $173,000 from $2.0
million during the three months ended March 31, 2007 to $2.1 million for the
three months ended March 31, 2008. This was the result of increases of
$134,000, $52,000, $23,000 and $22,000 in compensation and benefits, occupancy
and equipment expense, deposit insurance premiums and other non-interest
expense, respectively. These increases were partially offset by a decrease of
$58,000 in professional fees. The decrease in professional fees was due to
additional fees paid during the three month ended March 31, 2007 related to
the transition to a new chief financial officer within the Company's
accounting and finance area. Such fees were not incurred during the quarter
ended March 31, 2008. The increase in deposit insurance premiums was the
result of an increase in the assessment rates by the Federal Deposit Insurance
Corporation.
Income tax expense. State income tax expense and income tax benefits are
recorded based on the taxable income or loss of each of the companies. Federal
income taxes are calculated based on the combined income of the consolidated
group. Pre-tax net income is reduced by non-taxable income items and increased
by non-deductible expense items. The tax provision for the quarter ended March
31, 2008 was larger than anticipated due to the
15
effect of the loan write offs recorded during the quarter. Those write offs
created a shift in deferred tax assets. The current tax liability increased at
the effective current tax rate, while the deferred tax benefit from the timing
difference decreased at the higher rate that the Company applies to its timing
differences.
Results of Operations for the Nine Months Ended March 31, 2008 Compared to the
Nine Months Ended March 31, 2007
General. For the nine months ended March 31, 2008, the Company reported net
income of $280,000, or $0.18 diluted share, compared to net income of
$265,000, or $0.17 per diluted share, for the same period in 2007. The
increase in net income for the 2007 period included increases in net interest
income and non-interest income, which were partially offset by increases in
the provision for loan losses, non-interest expense and income taxes.
Net interest income. The Company's net interest income for the nine months
ended March 31, 2008 was $5.4 million, compared to $4.7 million for the same
period in 2007. The increase reflects a $1.1 million increase in interest
income partially offset by a $536,000 increase in interest expense.
Interest income. Interest income for the nine months ended March 31, 2008
increased $1.2 million, or 11.5%, to $11.2 million compared to $10.1 million
for the same period in 2007. Interest income from loans increased $900,000 to
$9.0 million from $8.1 million in 2007. This was attributable to an increase
in average loans to $159.7 million during the 2008 period from $150.5 million
during the comparable 2007 period, and to an increase in the yield on loans to
7.46% during the nine months ended March 31, 2008 from 7.15% during the
comparable period in 2007. The increase in average loans was the result of an
increase in lending volume primarily during the quarters ended September 30,
2007 and March 31, 2008, while loan volume was down during the quarter ended
December 31, 2007. The fluctuation in quarterly loan volume is somewhat
normal with the last calendar quarter usually being slower than the preceding
quarters. This was magnified in 2007 as a result of uncertainties in the real
estate markets and the general state of the economy. The increase in yield was
the result of a general upward trend in interest rates during the six months
ending September 30, 2007, which was somewhat mitigated by a general downward
trend at the start of calendar 2008.
Interest income from investment securities and other interest-earning assets
for the nine months ended March 31, 2008 increased $261,000 to $2.3 million
from $2.0 million for the same period in 2007. The increase was the result of
an increase in the average balance of these assets of $6.0 million to $63.3
million for the nine months ended March 31, 2008 from $57.3 million for the
same period in 2007, and to an increase in the yield on these assets to 4.75%
for the 2008 period from 4.66% for the 2007 period.
Interest expense. Interest expense for the nine months ended March 31, 2008
increased $536,000 or 10.0%, to $5.9 million from $5.4 million for the same
period in 2007. Interest expense on deposits increased $584,000 to $4.9
million in the nine months ended March 31, 2008 from $4.3 million in the same
period in 2007. The increase resulted from an increase in average
interest-bearing deposit balances of $13.0 million to $181.3 million in the
2008 period from $168.3 million in the 2007 period. The increase was also
attributable to an increase in the average cost of deposits to 3.58% in the
2008 period from 3.40% in the 2007 period. Interest expense on other
interest-bearing liabilities decreased $48,000 to $1.1 million in the nine
months ended March 31, 2008 from $1.0 million in the comparable period in
2007. Virtually all of the decrease in interest expense on other
interest-bearing liabilities was due to a decrease in the average outstanding
balances of other interest-bearing liabilities to $23.4 million during the
2008 period from $24.5 million during the 2007 period. The average outstanding
balance of retail repurchase agreements increased to $1.4 million during the
nine months ended March 31, 2008 from $363,000 during the comparable period in
2007.
Net interest margin. The Company's net interest margin increased to 3.19% for
the nine months ended March 31, 2008 from 3.03% for the nine months ended
March 31, 2007.
16
Provision for loan loss. During the nine months ended March 31, 2008, the
provision for loan losses was $581,000, compared to $280,000 for the nine
months ended March 31, 2007. For a discussion of this change, see "Non-
performing Assets and Allowance for Loan Losses" herein.
Non-interest income. For the nine months ended March 31, 2008, non-interest
income totaled $2.2 million, compared to $1.9 million for the nine months
ended March 31, 2007. The $254,000 increase between the two periods resulted
primarily from profit of $376,000 on the sale of loans, and to an increase in
service charges and fee income of $167,000. There was no profit on the sale of
loans during the 2007 period. These increases were partially offset by
decreases of $87,000, $15,000, $9,000 and $177,000, in gain on the sale of
property and equipment and real estate owned, income from bank owned life
insurance, other non-interest income and gain on the sale of securities
available-for-sale, respectively.
Non-interest expense. Non-interest expense totaled $6.4 million for the nine
months ended March 31, 2008, compared to $6.1 million for the nine months
ended March 31, 2007, increasing by $347,000. This was the result of
increases of $86,000, $98,000, $54,000, $65,000 and $44,000 in compensation
and benefits, occupancy and equipment, professional fees, deposit insurance
premiums and other non-interest expense, respectively. The increase in
professional fees was due to additional internal audit work performed during
the period, compared to the prior year and other accounting and legal issues.
The increase in deposit insurance premiums was the result of an increase in
the assessment rates by the Federal Deposit Insurance Corporation.
Income tax expense. State income tax expense and income tax benefits are
recorded based on the taxable income or loss of each of the companies. Federal
income taxes are calculated based on the combined income of the consolidated
group. Pre-tax net income is reduced by non-taxable income items and increased
by non-deductible expense items. The increase in income taxes is primarily the
result of the increase in pre-tax income.
Liquidity and Capital Resources
The Company's primary sources of funds are deposits, borrowings, principal and
interest payments on loans, investments, and mortgage-backed securities, and
funds provided by other operating activities. While scheduled payments on
loans, mortgage-backed securities, and short-term investments are relatively
predictable sources of funds, deposit flows and early loan repayments are
greatly influenced by general interest rates, economic conditions, and
competition.
The Company uses its capital resources principally to meet ongoing commitments
to fund maturing certificates of deposits and loan commitments, to maintain
liquidity, and to meet operating expenses. At March 31, 2008, the Company had
commitments to originate loans and fund unused lines of credit totaling $2.4
million. The Company believes that loan repayment and other sources of funds
will be adequate to meet its foreseeable short- and long-term liquidity needs.
Regulations require First Home Savings Bank to maintain minimum amounts and
ratios of total risk-based capital and Tier 1 capital to risk-weighted assets,
and a leverage ratio consisting of Tier 1 capital to average assets. The
following table sets forth First Home Savings Bank's actual capital and
required capital amounts and ratios at March 31, 2008 which, at that date,
exceeded the minimum capital adequacy requirements.
17
Minimum
Requirement To Be
Minimum Well Capitalized
Requirement For Under Prompt
Capital Adequacy Corrective Action
Actual Purposes Provisions
------ -------- ----------
At March 31, 2008 Amount Ratio Amount Ratio Amount Ratio
----------------- ------ ----- ------ ----- ------ -----
(Dollars in thousands)
Tangible Capital
(to adjusted total
assets) $24,718 10.05% $ 3,688 1.50% - -
Tier 1 (Core) Capital
(to adjusted total
assets) 24,718 10.05 9,834 4.00 $12,293 5.00%
Total Risk Based
Capital (to risk
weighted assets) 26,730 16.42 13,023 8.00 16,279 10.00
The Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA)
established five regulatory capital categories and authorized the banking
regulators to take prompt corrective action with respect to institutions in an
undercapitalized category. At March 31, 2008, First Home Savings Bank
exceeded minimum requirements for the well-capitalized category.
Forward Looking Statements
The Company, and its wholly-owned subsidiaries, First Home Saving Bank and
SCMG, Inc., may from time to time make written or oral "forward-looking
statements," including statements contained in its filings with the Securities
and Exchange Commission, in its reports to shareholders, and in other
communications by the Company, which are made in good faith by the Company
pursuant to the "safe harbor" provisions of the Private Securities Litigation
Reform Act of 1995.
These forward-looking statements include statements with respect to the
Company's beliefs, expectations, estimates and intentions that are subject to
significant risks and uncertainties, and are subject to change based on
various factors, some of which are beyond the Company's control. Such
statements may address: future operating results; customer growth and
retention; loan and other product demand; earnings growth and expectations;
new products and services; credit quality and adequacy of reserves;
technology; and our employees. The following factors, among others, could
cause the Company's financial performance to differ materially from the
expectations, estimates, and intentions expressed in such forward-looking
statements: the strength of the United States economy in general and the
strength of the local economies in which the Company conducts operations; the
effects of, and changes in, trade, monetary, and fiscal policies and laws,
including interest rate policies of the Federal Reserve Board; inflation,
interest rate, market, and monetary fluctuations; the timely development of
and acceptance of new products and services of the Company and the perceived
overall value of these products and services by users; the impact of changes
in financial services' laws and regulations; technological changes;
acquisitions; changes in consumer spending and saving habits; and the success
of the Company at managing its "litigation", improving its loan underwriting
and related lending policies and procedures, collecting assets of borrowers in
default, successfully resolving the MOU and managing the risks involved in the
foregoing.
The foregoing list of factors is not exclusive. Additional discussions of
factors affecting the Company's business and prospects are contained in the
Company's periodic filings with the SEC. The Company expressly disclaims any
intent or obligation to update any forward-looking statement, whether written
or oral, that may be made from time to time by or on behalf of the Company.
18
Item 3. Controls and Procedures
Any control system, no matter how well designed and operated, can provide only
reasonable (not absolute) assurance that its objectives will be met.
Furthermore, no evaluation of controls can provide absolute assurance that all
control issues and instances of fraud, if any, have been detected.
Disclosure Controls and Procedures
The Company's management, with the participation of the Company's Chief
Executive Officer and Chief Financial Officer, has evaluated the effectiveness
of the Company's disclosure controls and procedures, as such term is defined
in Rules 13a 15(e) and 15d 15(e) of the Securities Exchange Act of 1934
(Exchange Act) as of the end of the period covered by the report.
Based upon that evaluation, the Company's Chief Executive Officer and Chief
Financial Officer concluded that as of March 31, 2008 the Company's
disclosure controls and procedures were effective to provide reasonable
assurance that (i) the information required to be disclosed by the Company in
this Report was recorded, processed, summarized and reported within the time
periods specified in the SEC's rules and forms, and (ii) information required
to be disclosed by the Company in the reports that its files or submits
under the Exchange Act is accumulated and communicated to its management,
including its principal executive and principal financial officers, or
persons performing similar functions, as appropriate to allow timely decisions
regarding required disclosure.
Internal Control Over Financial Reporting
During the quarter ended March 31, 2008, there have been no changes in our
internal control over financial reporting (as defined in Rule 13a-15(f) of the
Act) that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
The Company does not expect that its disclosure controls and procedures and
internal control over financial reporting will prevent all error and all
fraud. A control procedure, no matter how well conceived and operated, can
provide only reasonable, not absolute, assurance that the objectives of the
control procedure are met. Because of the inherent limitations in all control
procedures, no evaluation of controls can provide absolute assurance that all
control issues and instances of fraud, if any, within the Company have been
detected. These inherent limitations include the realities that judgments in
decision-making can be faulty, and that breakdowns can occur because of simple
error or mistake. Additionally, controls can be circumvented by the
individual acts of some persons, by collusion of two or more people, or by
management override of the control. The design of any control procedure also
is based in part upon certain assumptions about the likelihood of future
events, and there can be no assurance that any design will succeed in
achieving its stated goals under all potential future conditions; over time,
controls may become inadequate because of changes in conditions, or the degree
of compliance with the policies or procedures may deteriorate.
The Company intends to continually review and evaluate the design and
effectiveness of its disclosure controls and procedures and to improve its
controls and procedures over time and to correct any deficiencies that it may
discover in the future. The goal is to ensure that senior management has
timely access to all material financial and non-financial information
concerning the Company's business. While the Company believes the present
design of its disclosure controls and procedures is effective to achieve its
goal, future events affecting its business may cause the Company to modify its
disclosure controls and procedures.
19
FIRST BANCSHARES, INC.
AND SUBSIDIARIES
PART II - OTHER INFORMATION
FORM 10-QSB
Item 1. Legal Proceedings
-----------------
There are no material pending legal proceedings to which the Company or its
subsidiaries is a party other than ordinary routine litigation incidental to
their respective businesses.
Item 2. Unregistered Sale of Equity Securities and Use of Proceeds
----------------------------------------------------------
(a) Recent sales of unregistered securities - None.
(b) Use of proceeds - None.
(c) Stock repurchases - None
Item 3. Defaults Upon Senior Securities - None
--------------------------------------
Item 4. Submission of Matters to a Vote of Security Holders - None
----------------------------------------------------------
Item 5. Other Information - None
------------------------
Item 6. Exhibits
--------
(a) Exhibits:
31.1 Certification of Chief Executive Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
32.1 Certification of Chief Executive Officer pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
32.2 Certification of Chief Financial Officer pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
------------------
20
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has
duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
FIRST BANCSHARES, INC.
Date: May 12, 2008 By: /s/ Daniel P. Katzfey
------------ ---------------------
Daniel P. Katzfey, President,
and Chief Executive Officer
Date: May 12, 2008 By: /s/ Ronald J. Walters
------------ ---------------------
Ronald J. Walters, Senior Vice President,
Treasurer and Chief Financial Officer
21
EXHIBIT INDEX
Exhibit No. Description of Exhibit
----------- ----------------------
31.1 Certification of Chief Executive Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
32.1 Certification of Chief Executive Officer pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
32.2 Certification of Chief Financial Officer pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
22
Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Daniel P. Katzfey, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of First
Bancshares, Inc.;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
registrant and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the
period in which this report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report
based on such evaluation; and
(c) Disclosed in this report any changes in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter ended (the registrant's
fourth fiscal quarter in the case of an annual report), that has
materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officer(s) and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent
functions):
(a) All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant's ability
to record, process, summarize and report financial information;
and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: May 12, 2008 /s/ Daniel P. Katzfey
------------ -----------------------
Chief Executive Officer
23
Exhibit 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Ronald J. Walters, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of First
Bancshares, Inc.;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
registrant and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the
period in which this report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report
based on such evaluation; and
(c) Disclosed in this report any changes in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter ended (the registrant's
fourth fiscal quarter in the case of an annual report), that has
materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officer(s) and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent
functions):
(a) All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant's ability
to record, process, summarize and report financial information;
and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: May 12, 2008 /s/ Ronald J. Walters
------------------------
Chief Financial Officer
24
Exhibit 32.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO 18USC SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the accompanying Quarterly Report on Form 10-QSB of First
Bancshares, Inc. (the "Company") for the quarterly period ended December 31,
2007 (the "Report"), I, Daniel P. Katzfey, Chief Executive Officer of the
Company, hereby certify, pursuant to 18 USC Section 1350, as adopted, pursuant
to section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations
of the Company.
May 12, 2008 By: /s/ Daniel P. Katzfey
------------------------
Name: Daniel P. Katzfey
Chief Executive Officer
25
Exhibit 32.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO 18USC SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the accompanying Quarterly Report on Form 10-QSB of First
Bancshares, Inc. (the "Company") for the quarterly period ended December 31,
2007 (the "Report"), I, Ronald J. Walters, Chief Financial Officer of the
Company, hereby certify, pursuant to 18 USC Section 1350, as adopted pursuant
to section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations
of the Company.
May 12, 2008 by: /s/ Ronald J. Walters
-----------------------
Name: Ronald J. Walters
Chief Financial Officer
26