UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): December 1, 2006
FIRST BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
Missouri 000-22842 43-1654695
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
142 East First Street, Mountain Grove, Missouri 65711
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (417) 926-5151
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of
the following provisions.
* Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
* Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
* Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
* Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
Item 8.01 Other Events.
First Home Savings Bank ("Bank") is the wholly-owned financial
institution subsidiary of First Bancshares, Inc. As a Missouri
state-chartered savings and loan association, the Bank is subject to
regulation and examination by the Missouri Division of Finance, the Federal
Deposit Insurance Corporation and the Office of Thrift Supervision ("OTS").
On December 1, 2006, the Bank entered into a memorandum of understanding
("MOU") with the OTS. The MOU, which is effective December 1, 2006 provides
that the Bank will take certain corrective actions including: (1) developing
procedures concerning ongoing credit administration and monitoring; (2)
continuing to identify, track and correct credit and collateral documentation
exceptions and loan policy exceptions; (3) preparing and submitting to the
Bank's Board of Directors an accurate and complete loan-to-one borrower
report; (4) preparing and updating, where appropriate, a workout plan for each
classified asset over $250,000; (5) adopting a revised Allowance for Loan and
Lease Losses Policy; (6) amending the Bank's appraisal policy; (7) adopting a
revised loan policy that provides for underwriting guidelines, loan
documentation, and credit administration procedures for unsecured loans; (8)
certain actions with respect to the Bank's subsidiary, FYBAR Service
Corporation; (9) implementing corrective actions with respect to the
information technology audit; and (10) preparing, adopting and submitting to
the OTS a comprehensive three year business plan and budget.
The MOU is filed as Exhibit 99.1 and incorporated by reference herein.
Item 9.01. Financial Statements and Exhibits.
(c) Exhibits
99.1 Memorandum of Understanding dated December 1, 2006.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: December 4, 2006 FIRST BANCSHARES, INC.
/s/James W. Duncan
-------------------------------------
James W. Duncan
President and Chief Executive Officer
Exhibit 99.1
Memorandum of Understanding dated December 1, 2006
MEMORANDUM OF UNDERSTANDING
---------------------------
This Memorandum of Understanding (Memorandum) is an agreement between the
Board of Directors (Board) of First Home Savings Bank, Mountain Grove,
Missouri (First Home or the Bank) (OTS Docket No. 05233) and the Office of
Thrift Supervision (OTS), acting through its Midwest Regional Director
(Regional Director). The Bank agrees to take the corrective actions set forth
below to correct the unsatisfactory conditions and regulatory violations
discussed in the OTS report of examination, dated July 24, 2006.
1. Compliance With Regulatory Requirements: The Bank and its directors,
officers, and employees and agents shall take steps to prevent any
further violations of:
A. 12 C.F.R. Section 560.101 (real estate lending standards);
B. 12 C.F.R. Section 560.170(c) and (d) (loan documentation and loan
administration requirements);
C. 12 C.F.R. Section 563.161(a) (financial policies);
D. 12 C.F.R. Section 564.4 (appraisal standards); and
E. 12. C.F.R. Section 564.8 (appraisal policies).
2. Credit Administration
---------------------
By January 31, 2007, management shall develop procedures that requires
ongoing credit administration and monitoring that includes, but it not
limited to (1) obtaining, for all loans over $250,000, updated financial
information from borrower(s) and/or guarantor(s), tax returns, and credit
reports periodically during the term of the loan and preparing a
documented analysis of such information; (2) periodic documentation of
collateral value or verification of existence of collateral for
designated categories of loans; and (3) tracking of borrower's compliance
with the conditions of approval for designated categories of loans. By
January 31, 2007 and thereafter 30 days after the end of each quarter,
management shall submit to the Board for review a detailed report
analyzing the borrower's financial condition for all loans over $250,000.
The Board's review shall be documented in the Board minutes.
3. Loan Documentation
------------------
A. Management shall continue to identify, track, and correct credit and
collateral documentation exceptions and loan policy exceptions.
B. By January 31, 2007 and thereafter 30 days after the end of each
quarter, management shall submit to the Board for review the loan
documentation exception and loan policy exception reports. The
Board shall require corrective action for all
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Memorandum of Understanding
missing, incomplete, or inaccurate information. The Board's review
shall be reflected in the Board minutes.
4. Loan-to-One-Borrower Report
---------------------------
By January 31, 2007, management shall submit to the Board an accurate and
complete report that identifies the borrowing relationships that should
be monitored to ensure compliance with the lending limit set fort in 12
C.F.R. Section 560.93 (LTOB report). The LTOB report shall identify
loans and relationships that would result in the aggregation of the
borower's debt. Management shall submit quarterly LTOB reports to the
Board for review by 30 days after the end of each quarter. The Board's
review shall be reflected in the Board minutes.
5. Asset Classification
--------------------
A. By January 31, 2007 and thereafter 30 days after the end of each
quarter, management shall prepare and update, where appropriate, a
written workout plan for each classified asset over $250,000, and
submit a copy to the Board for review and discussion, with a copy to
OTS. The workout plan shall set forth, at a minimum, (1) an
analysis of the financial condition of the borrower and/or
guarantor, (2) cash flow, (3) debt service coverage, (4) the current
collateral value, (5) any necessary steps taken to perfect the
Bank's security interest in the collateral, and (6) a strategy for
resolving the classified asset. The Board's review of the workout
plans shall be set forth in the Board minutes.
B. By March 31, 2007, the Board shall adopt an Allowance for Loan and
Lease Losses (ALLL) Policy that (1) complies with 12 C.F.R. Section
560.16; Section 260 of the OTS Examination Handbook and Section II.G
of Appendix A to 12 C.F.R. Part 570; (2) requires ALLL to be
determined and maintained for each portfolio category, taking into
consideration historical loss experience, in accordance with OTS CEO
Letter No. 192, entitled "Update on Accounting for Loan and Lease
Losses," dated March 1, 2004; (3) reflects the Bank's current
methodology; and (4) requires quarterly evaluation of the allocation
for ALLL and any required additional allocation of ALLL to be
reflected in the Bank's books and records within 30 days after the
evaluation and in the Bank's Thrift Financial Report.
6. Appraisals
----------
By February 28, 2007, the Board shall amend the Bank's appraisal policy
to require written review of all appraisals required by 12 C.F.R. Section
564.3 prior to the final loan approval. Documentation of the appraisal
review shall be maintained in the loan file. The review shall address
whether the appraisal complied with the standards set forth in 12 C.F.R.
Part 564; Thrift Bulletin 55a, dated November 4, 1994; Section 208 of the
OTS Examination Handbook; and OTS CEO Letter No. 240, entitled "2006
Revisions to Uniform Standards of Professional Appraisal Practice," dated
June 22, 2006.
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Memorandum of Understanding
7. Unsecured Loan Underwriting
---------------------------
A. By March 31, 2007, the Board shall adopt a revised loan policy that
provides for underwriting guidelines, loan documentation, and credit
administration procedures for unsecured loans. These requirements
for unsecured loans shall require (1) a detailed analysis of the
financial condition of the borrower or guarantor and ability to
repay the loan in a timely manner, and (2) the periodic submission
of updated financial statements or tax returns, or the procurement
and review of credit reports during the term of the loan for
unsecured loans exceeding $5000. The policy also shall (a) set
forth the highest and lowest thresholds for unsecured loans; (b) set
forth fee and interest rates criteria based on specific categories
of loans; (c) set forth approval levels for the loan officers, loan
committee, and Board; and (d) provide for periodic reports to the
Board regarding the repayment of such loans and delinquencies.
B. The Board shall require management to implement and adhere to the
revised loan policy.
8. Subsidiary Operations
---------------------
By February 28, 2007, the Board shall either submit an application to the
Federal Deposit Insurance Corporation for its written consent for FYBAR
to hold real estate for investment pursuant to 12 C.F.R. Section 362.12
or approve a plan for divestiture of the investment by June 30, 2007.
9. Information Technology Audit
----------------------------
By February 28, 2007, management shall implement corrective actions to
address all exceptions noted in the June 9, 2006 independent information
technology audit and submit a report to the Board regarding the
completion of such actions.
10. Business Plan
-------------
A. By February 28, 2007, the Board shall prepare, adopt and submit a
revised comprehensive three-year business plan and budget (Business
Plan) for OTS's review and a written notice of non-objection. The
Business Plan shall: (1) set forth specific and well supported
strategies to enhance profitability; (2) delineate the portfolio mix
with established targets and declination of credit risks; (3) set
forth projected liquidity and funding levels from retail deposits,
Federal Home Loan Bank advances, and other sources; (4) projected
capital levels; (5) address projected dividend payments to its
holding company, First Banchsares, Inc.; (6) discuss the appropriate
staffing level and expertise to fulfill the profitability strategies
set forth in the Business Plan; (7) address compensation of any new
directors, officers, employees, or consultants; (8) specify the
costs of relocation of home office or the opening of a loan
production office, any branch, or an administrative office; and (9)
address subsidiary operations.
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Memorandum of Understanding
B. The budget shall contain monthly estimates of major asset,
liability, capital, income, and expense components. The budget also
shall set forth a detailed description of the assumptions used to
prepare three-year pro forma statements that follow the business
plan guidelines set forth the Section 625 of the OTS Applications
Processing Handbook. These assumptions shall include, but not be
limited to (1) the assumed interest rate scenario for each category
or type of interest earning asset and interest costing liability and
analysis of changes in the asset maturity structure on the Bank's
interest rate risk exposure; (2) assumptions used for non-interest
income and non-interest expense; (3) discussion of expected loan
repayments, repayment of relocation mortgage-backed securities,
other maturing investments, purchases of certificate of deposits,
and repayment of Federal Home Loan Bank advances; and (4)
assumptions for the start-up costs, volumes, and expected returns
for any new product or service.
C. The Board shall direct management to follow and implement the
Business Plan after receiving written notice of non-objection from
OTS.
D. Any material new activity, operation, or line of business shall
require the prior review and approval of the Board and a written
notice of non-objection from OTS. Any material modifications to the
Business Plan shall be submitted to OTS 45 days prior to
implementation unless OTS waives such time period.
E. Management shall prepare and submit to the Board for review, with a
copy to OTS, monthly variance reports on the Bank's compliance with
the Business Plan at each regular monthly meeting beginning by the
March 2007 Board meeting and for 12 consecutive months thereafter.
Thereafter, the Board shall review such variance reports quarterly
and management shall submit a copy to OTS. Such variance reports
shall compare actual income to budgeted income and actual operating
results to projected results and shall include detailed explanations
of any material deviations from the Business Plan and a specific
description of the corrective actions or measures that have been
implemented, proposed, or are under consideration to correct any
material deviation. A deviation shall be considered material under
this Paragraph 10 when: (1) the Bank engages in any material
activity that is inconsistent with the Business Plan; or (2) the
Bank exceeds the level of any activity or asset growth contemplated
in the Business Plan or fails to meet target amounts established in
the Business Plan by more than 15%, unless the activity involves
assets risk-weighted 50% or less, in which case a variance of more
than 25% shall be deemed to be a material deviation.
Notwithstanding the foregoing, none of the following deviations
shall be deemed to be material: (1) a change of $2,000,000 or less
in any balance sheet item; (2) a change of $500,000 or less in any
income statement item, except for net income; or (3) a change of
$250,000 or less in net income. The Board's review of the Business
Plan shall be fully documented in the Board meeting minutes.
11. Compliance with Memorandum of Understanding
-------------------------------------------
A. The Board shall monitor and review, on at least a monthly basis, the
Bank's compliance with this Memorandum. The Board shall not adopt a
board resolution
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Memorandum of Understanding
rescinding its obligations under this Memorandum without the prior
written notice of non-objection of OTS.
B. By the 30th day after the end of each quarter beginning with the
calendar quarter ending December 31, 2006, the Board shall adopt and
submit to OTS a certified copy of a board resolution (Compliance
Resolution), formally resolving that, following a diligent inquiry
of relevant information (including, but not limited to, management
reports), to the best of its knowledge and belief, during the
immediately preceding quarter, the Bank has complied with each
provision of this Memorandum currently in effect, except as
otherwise stated.
C. The Compliance Resolution shall (1) specify in detail how, if at
all, full compliance was found not to exist, and (2) identify all
notices of exemption or non-objection issued by OTS that were
outstanding as of the date of its adoption. In the event that one
or more Directors do not agree with the representations set forth in
the Compliance Resolution, such disagreement shall be noted in the
minutes of the Board and in the Compliance Resolution.
12. Miscellaneous Provisions
------------------------
A. All technical words or terms used in this Memorandum for which
meanings are not specified or otherwise provided by the provisions
of the Memorandum shall, insofar as applicable, have meanings as
defined in Chapter V of Title 12 of the Code of Federal Regulations,
Home Owners' Loan Act (HOLA), Federal Deposit Insurance Act (FDIA),
or OTS Publications. Any such technical words or terms used in this
Memorandum and undefined in the Code of Federal Regulations, HOLA,
FDIA OR OTS Publications shall have meanings that are in accordance
with the best custom and usage in the banking industry.
B. For purposes of this Memorandum, nothing shall be deemed
"acceptable" to the Regional Director or OTS unless the Regional
Director, or the assigned Regional Deputy Director or Assistant
Director, has stated, in writing that it is acceptable or has
provided a written notice of non-objection to it.
C. Except as otherwise provided herein, any request, demand,
authorization, directive, notice, consent, waiver or other document
provided or permitted by this Memorandum to be made upon, given or
furnished to, delivered to, or filed with:
1. OTS, by the Bank, shall be addressed to the assigned Assistant
Director, Office of Thrift Supervision, Department of the
Treasury, 225 East John Carpenter Freeway, Suite 500, Irving,
Texas 75602, or telecopied to (972) 277-9501; and
2. First Home, by OTS, in each case shall be addressed to Chief
Executive Officer or the Board of the Bank, at 142 East 1st
Street, Mountain Grove, Missouri 65711, or telecopied to (417)
926-4362.
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Memorandum of Understanding
3. Such delivery shall be sufficient for every purpose hereunder
and only if in writing and mailed, first class, postage
prepaid; sent via overnight delivery service; physically
delivered; or set by means of electronic transmission. If
there is a dispute about the date on which a written notice has
been received by a party to this Memorandum and such notice was
sent by United States mail, there shall be a presumption that
the notice was received two (2) business days after the date of
the postmark on the envelope in which the notice was enclosed.
D. The Regional Director or the assigned OTS Regional Deputy Director
or Assistant Director may extend time frames by written notice.
E. The Regional Director or the assigned OTS Regional Deputy Director
or Assistant Director may request additional information and provide
written notice of non-objection or objection with respect to any
submission required by this Memorandum.
F. Nothing in this Memorandum shall be construed as: (a) allowing the
Bank to violate any law, rule, regulation, or policy statement to
which it is subject; or (b) restricting OTS from taking such
action(s), including, without limitation, any type of supervisory,
enforcement or resolution action that OTS determines to be
appropriate in fulfilling the responsibilities placed upon it by
law.
G. Each Director signing the Memorandum attests, by such act, that she
or he voted in favor of a Board resolution authorizing the execution
of this Memorandum by the Bank.
H. The provisions of this Memorandum shall be binding upon the Bank and
any institution-affiliated party as such term is defined in Section
3(u) of the FDIA, 12 U.S.C. Section 1813(u), to include its
directors, officers, employees, agents, successors, assigns, and
other persons participating in the conduct of the affairs of the
Bank.
I. This Memorandum shall become effective on the Effective Date noted
below.
J. The Board shall not adopt a board resolution rescinding its
obligations under this Memorandum without the prior written notice
of non-objection of OTS. The provisions of this Memorandum shall
remain effective except to the extent that, and until such time as,
any provisions of this Memorandum shall have been modified,
terminated, suspended, or set aside by OTS through the Regional
Director.
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Memorandum of Understanding
IN WITNESS WHEREOF, OTS, acting by and through the Regional Director, and the
Bank, in accordance with a duly adopted resolution of its Board, which is
attached hereto, hereby execute this Memorandum as of the Effective Date.
OFFICE OF THRIFT SUPERVISION
By:
/s/Frederick R. Casteel Effective Date: December 1, 2006
------------------------------- ------------------
Frederick R. Casteel
Regional Director
FIRST HOME SAVINGS BANK, MOUNTAIN GROVE, MISSOURI
-------------------------------------------------
By a majority of its Directors
/s/James W. Duncan /s/Thomas W. Sutherland
-------------------------------- ---------------------------------
James W. Duncan, President Chief Thomas W. Sutherland, Chairman of
Financial Officer, and Director the Board and Director
/s/Billy E. Hixon /s/Harold F. Glass
-------------------------------- ---------------------------------
Billy E. Hixon, Director Harold F. Glass, Director
/s/John G. Moody
-----------------------
John G. Moody, Director
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Memorandum of Understanding