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 December 31, 2006
[ ] 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 February 9, 2007:
Common Stock, $.01 par value 1,551,715 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 December 31, 2006 and June 30, 2006 (Unaudited) 3
Consolidated Statements of Income for the Three and Six
Months Ended December 31, 2006 and 2005 (Unaudited) 4
Consolidated Statements of Comprehensive Income (Loss) for
the Three and Six Months Ended December 31, 2006 and
2005(Unaudited) 5
Consolidated Statements of Cash Flows for the
Six Months Ended December 31, 2006 and 2005 (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 18
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 21
Item 6. Exhibits 21
Signatures 22
Certifications 23
2
FIRST BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
December 31, 2006 June 30, 2006
(In thousands)
ASSETS
------
Cash and cash equivalents $ 18,871 $ 23,474
Certificates of deposit 3,905 3,827
Securities available-for-sale 26,782 20,884
Securities held-to-maturity 11,583 19,210
Federal Home Loan Bank stock, at cost 1,695 1,612
Loans receivable, net 156,765 141,987
Accrued interest receivable 1,390 1,178
Prepaid expenses 233 292
Property and equipment 8,090 8,028
Real estate owned 228 497
Intangible assets 311 336
Deferred tax asset, net 608 718
Income taxes recoverable 314 317
Bank-owned life insurance 5,814 5,705
Other assets 368 330
-------- --------
Total assets $ 236,957 $ 228,395
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 184,558 $ 179,141
Retail repurchase agreements 279 -
Advances from Federal Home Loan Bank 25,000 22,000
Accrued expenses and accounts payable 626 963
-------- --------
Total liabilities 210,463 202,104
-------- --------
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 December 31 and June
30, 1,551,715 and 1,552,480 outstanding at December 31
and June 30, respectively 29 29
Paid-in capital 17,895 17,852
Retained earnings - substantially restricted 27,652 27,703
Treasury stock - at cost; 1,343,321 and 1,342,556
shares at December 31, 2006 and June 30, 2006,
respectively (19,098) (19,085)
Accumulated other comprehensive income (loss) 16 (208)
-------- --------
Total stockholders' equity 26,494 26,291
-------- --------
Total liabilities and stockholders' equity $ 236,957 $ 228,395
======== ========
See notes to consolidated financial statements
3
FIRST BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Six Months Ended
December 31, December 31,
2006 2005 2006 2005
------ ------ ------ ------
(Dollars in thousands, except per share data)
Interest Income:
Loans receivable $ 2,774 $ 2,625 $ 5,342 $ 5,386
Securities 458 315 912 624
Other interest-earning assets 185 280 390 481
------ ------ ------ ------
Total interest income 3,417 3,220 6,644 6,491
Interest Expense: ------ ------ ------ ------
Deposits 1,445 1,100 2,748 2,023
Retail repurchase agreements 1 - 1 -
Borrowed funds 361 408 685 815
------ ------ ------ ------
Total interest expense 1,807 1,508 3,434 2,838
------ ------ ------ ------
Net interest income 1,610 1,712 3,210 3,653
Provision for loan losses 130 44 240 837
Net interest income after ------ ------ ------ ------
provision for loan losses 1,480 1,668 2,970 2,816
Non-interest Income: ------ ------ ------ ------
Service charges and other fee income 501 482 945 965
Gain (loss) on sale of property and
equipment and real estate owned 45 22 92 (30)
Income from bank-owned life insurance 54 60 109 118
Other 36 34 82 56
------ ------ ------ ------
Total non-interest income 636 598 1,228 1,109
------ ------ ------ ------
Non-interest Expense:
Compensation and employee benefits 1,063 1,027 2,229 2,045
Occupancy and equipment 430 254 759 550
Professional fees 161 105 219 179
Customer deposit account processing fees - 57 - 117
Deposit insurance premiums 6 6 12 13
Other 466 566 886 949
------ ------ ------ ------
Total non-interest expense 2,126 2,015 4,105 3,853
------ ------ ------ ------
Income (loss) before taxes (10) 251 93 72
Income taxes (benefit) (11) 91 20 (46)
------ ------ ------ ------
Net income $ 1 $ 160 $ 73 $ 118
====== ====== ====== ======
Earnings per share basic $ 0.00 $ 0.10 $ 0.05 $ 0.08
====== ====== ====== ======
Earnings per share diluted 0.00 0.10 0.05 0.08
====== ====== ====== ======
Dividends per share 0.04 0.04 0.08 0.08
====== ====== ====== ======
See notes to consolidated financial statements
4
FIRST BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
Three Months Ended Six Months Ended
December 31, December 31,
2006 2005 2006 2005
------ ------ ------ ------
(Dollars in thousands)
Net Income $ 1 $ 160 $ 73 $ 118
Other comprehensive income, net of tax:
Change in unrealized gain (loss) on
securities available-for-sale, net of
deferred income taxes (41) (23) 224 (152)
------ ------ ------ ------
Other comprehensive income (loss) (41) (23) 224 (152)
------ ------ ------ ------
Comprehensive income (loss) $ (40) $ 137 $ 297 $ (34)
====== ====== ====== ======
See notes to consolidated financial statements
5
FIRST BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
December 31,
2006 2005
------ ------
(Dollars in thousands)
Cash flows from operating activities:
Net income $ 73 $ 118
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation 378 321
Amortization 25 34
Premiums and discounts on securities 51 30
Provision for loan losses 240 836
Stock based compensation 43 -
Deferred income taxes (110) 293
(Gain) loss on sale of property and equipment
and real estate owned (92) 30
Income from bank-owned life insurance (109) (118)
Net change in operating accounts:
Accrued interest receivable and other assets (187) 316
Deferred loan costs 2 13
Income taxes payable (3) (347)
Accrued expenses (337) 123
------ ------
Net cash provided by (used in) operating activities (26) 1,649
------ ------
Cash flows from investing activities:
Purchase of securities available-for-sale (6,579) (2,010)
Purchase of securities held to maturity (345) (2,000)
Proceeds from maturities of securities available-for-sale 983 1,385
Proceeds from maturities of securities held to maturity 7,972 4,332
Purchase of Federal Home Loan Bank stock 83 -
Proceeds from redemption of Federal Home Loan Bank stock - 24
Net change in certificates of deposit purchased 78 962
Net change in loans receivable (15,476) 10,278
Purchases of property and equipment (440) (291)
Proceeds from payment on note receivable - 2
Net proceeds from sale of real estate owned 588 230
------ ------
Net cash provided by (used in) investing activities (13,136) 12,912
------ ------
Cash flows from financing activities:
Net change in deposits 5,417 (3,726)
Net change in retail repurchase agreements 279 -
Payments on borrowed funds - (1,174)
Proceeds on borrowed funds 3,000 100
Proceeds from sale of common stock - 15
Cash dividends paid (124) (124)
Purchase of treasury stock (13) (24)
------ ------
Net cash provided by (used in) financing activities 8,559 (4,933)
------ ------
Net increase (decrease) in cash and cash equivalents (4,603) 9,628
Cash and cash equivalents - beginning of period 23,474 20,617
------ ------
Cash and cash equivalents - end of period $ 18,871 $ 30,245
====== ======
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest on deposits and borrowed funds $ 3,410 $ 2,735
====== ======
Income taxes 17 -
====== ======
Supplemental schedule of non-cash investing and financing activities:
Loans transferred to real estate acquired in
settlement of loans $ 228 $ 188
====== ======
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, 2006,
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 (Form 10-KSB). The results for
these interim periods may not be indicative of results for the entire year or
for any other period.
2. ACCOUNTING DEVELOPMENTS
In February 2006, FASB issued SFAS 155, "Accounting for Certain Hybrid Financial
Instruments", which permits, but does not require, fair value accounting for any
hybrid financial instrument that contains an embedded derivative that would
otherwise require bifurcation in accordance with SFAS 133, "Accounting for
Derivative Instruments and Hedging Activities". The statement also subjects
beneficial interests in securitized financial assets to the requirements of SFAS
133. For the Company, this statement is effective for all financial instruments
acquired, issued, or subject to remeasurement after the beginning of its fiscal
year that begins after September 15, 2006, with earlier adoption permitted. 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 March 2006, the FASB issued SFAS No. 156, "Accounting for Servicing of
Financial Assets, an amendment of FASB Statement No. 140." The Statement amends
SFAS No. 140 by (1) requiring the separate accounting for servicing assets and
servicing liabilities, which arise from the sale of financial assets; (2)
requiring all separately recognized serving assets and servicing liabilities to
be initially measured at fair value, if practicable; and (3) permitting an
entity to choose between an amortization method or a fair value method for
subsequent measurement for each class of separately recognized servicing assets
and servicing liabilities. This Statement is effective for fiscal years
beginning after September 15, 2006, with earlier adoption permitted. 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 June 2006, the FASB issued FASB Interpretation No. 48 ("FIN 48"), "Accounting
for Uncertainty in Income Taxes." This interpretation applies to all tax
positions accounted for in accordance with SFAS No. 109, "Accounting for Income
Taxes." FIN 48 clarifies the application of SFAS No. 109 by defining the
criteria that an individual tax position must meet in order for the position to
be recognized within the financial statements and provides guidance on
measurement, derecognition, classification, interest and penalties, accounting
in interim periods, disclosure and transition for tax positions. This
interpretation is effective for fiscal years beginning after December 15,
2006, with earlier adoption permitted. The
7
Company does not expect that the adoption of this interpretation will have a
material impact on its financial position, results of operation and cash flows.
In September 2006, the 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, with earlier adoption permitted. 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 September 2006, the FASB issued Statement No. 158, ("SFAS No. 158"),
"Employers' Accounting for Defined Benefit Pension and Other Postretirement
Plans - an amendment of FASB Statements No. 87, 88, 106 and 132(R)." SFAS No.
158 requires a company that sponsors a postretirement benefit plan to fully
recognize, as an asset or liability, the overfunded or underfunded status of
its benefit plan in its balance sheet. The funded status is measured as the
difference between the fair value of the plan's assets and its benefit
obligation (projected benefit obligation for pension plans and accumulated
postretirement benefit obligation for other postretirement benefit plans).
Currently, the funded status of such plans is reported in the notes to the
financial statements. This provision is effective for public companies for
fiscal years ending after December 15, 2006. In addition, SFAS No. 158 also
requires a company to measure its plan assets and benefit obligations as of its
year end balance sheet date. Currently, a company is permitted to choose a
measurement date up to three months prior to its year end to measure the plan
assets and obligations. This provision is effective for all companies for
fiscal years ending after December 15, 2008. The Company is evaluating the
impact that the adoption of this Statement.
In September 2006, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin ("SAB") No. 108 to require quantification of financial
statement misstatements under both the "rollover approach" and the "iron
curtain approach". The "rollover approach" quantifies a misstatement based on
the amount of the error originating in the current year income statement, but
ignores the effects of correcting the portion of the current year balance sheet
misstatement that originated in prior years. The "iron curtain approach"
quantifies a misstatement based on the effects of correcting the misstatement
existing in the balance sheet at the end of the current year, irrespective of
the misstatement's year(s) of origination. The provisions of SAB No. 108 must
be applied to financial statements for fiscal years ending after November 15,
2006. The Company does not anticipate that the quantification of financial
statement misstatements pursuant to the provisions of SAB No. 108 will result
in any material impact to the Company's financial statements.
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.
The table below presents the numerators and denominators used in the basic
earnings per common share computations for the three and six month periods ended
December 31, 2006 and 2005. For all periods presented, no dilutive effect would
result from the issuance of shares eligible to be issued pursuant to stock
option agreements.
8
Three Months Ended Six Months Ended
December 31, December 31,
------------ ------------
2006 2005 2006 2005
Basic earnings per common share: ------ ------ ------ ------
Numerator:
Net income $ 957 $159,664 $72,669 $118,133
Denominator: ====== ======= ====== =======
Weighted average common shares
outstanding 1,551,715 1,553,437 1,552,040 1,553,419
========= ========= ========= =========
Basic earnings per common share $ 0.00 $ 0.10 $ 0.05 $ 0.08
===== ===== ===== =====
4. COMMITMENTS
At December 31, 2006 and June 30, 2006, the Company had outstanding commitments
to originate loans and fund unused lines of credit totaling $5.7 million and
$6.3 million, respectively, excluding undisbursed portions of loans in process.
It is expected that outstanding loan commitments will be funded with existing
liquid assets.
5. STOCK OPTION PLAN
Prior to July 1, 2006, the Company accounted for its stock option plans under
the recognition and measurement provisions of APB Opinion No. 25, Accounting
for Stock Issued to Employees and related Interpretations, as permitted by
SFAS No. 123, Accounting for Stock-Based Compensation. No stock-based
employee compensation cost was recognized for stock options in the Statement
of Operations for the year ended June 30, 2006 or prior years, as all options
granted under those plans had an exercise price equal to the market value of
the underlying common stock on the date of grant. 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- and six-
month periods ended December 31, 2006 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). Results for
prior periods have not been restated. As a result of adopting Statement
123(R) on July 1, 2006, the Company's pre-tax net income for the three and six
month periods ended December 31, 2006 are $30,000 and $43,000 lower,
respectively, than if it had continued to account for share-based compensation
under Opinion 25.
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 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 2006, respectively:
dividend rates of .91% to .99%, price volatility of 18.97% to 20.29%, risk-
free interest rates of 4.67% to 5.02%, and an expected life of 10 years.
A summary of option activity under the Plan as of December 31, 2006, and
changes during the six months ended December 31, 2006, is presented below:
9
Weighted-
Weighted- Average
Average Remaining Aggregate
Exercise Contractual Intrinsic
Options Shares Price Term Value
------- ------ ----- ---- -----
(in years)
Outstanding at beginning of period 48,000 $ 17.46
Granted 15,000 16.10
Exercised - -
Forfeited or expired (21,000) 17.78
-------
Outstanding at end of period 42,000 $ 16.81 7.40 -
======= ====== ===== =====
Exercisable at end of period 10,000 $ 17.79 0.22 -
======= ====== ===== =====
A summary of the Company's nonvested shares as of December 31, 2006, and changes
during the six months ended December 31, 2006, is presented below:
Weighted-
Average
Grant-Date
Nonvested Shares Shares Fair Value
---------------- ------ ----------
Nonvested at July 1, 2006 43,000 $ 6.25
Granted 15,000 5.84
Vested (5,000) 6.25
Forfeited (21,000) 6.26
------
Nonvested at December 31, 2006 32,000 6.13
======
As of December 31, 2006, there was $103,000 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 1.5 years.
The pro forma disclosures previously permitted under SFAS No. 123 are no
longer an alternative to financial statement recognition. SFAS No. 123
established a fair value based method for financial accounting and reporting
for stock-based employee compensation plans and for transactions in which an
entity issued its equity instruments to acquire goods and services from
nonemployees. However, the standard allowed compensation to continue to be
measured by using the intrinsic value based method of accounting prescribed
by APB No. 25, but required expanded disclosures. The Company had elected to
apply the intrinsic value based method of accounting for stock options issued
to employees. Accordingly, prior to July 1, 2006, no compensation cost had
been recognized by the Company in its financial statements. Had compensation
cost for the Plan been determined based on the grant date fair values of
awards (the method described in SFAS No. 123), the approximate reported net
income and earnings per share would not have been materially different from
amounts reported in the consolidate statements of income.
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. 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 December 31, 2006, the
Company had total assets of $237.0 million, total net loans of $156.8 million,
total customer deposits of $184.6 million and stockholders' equity of $26.5
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 December 31, 2006, compared to June 30, 2006,
and the consolidated results of operations for the three and six month periods
ended December 31, 2006, compared to the three and six month periods ended
December 31, 2005. This discussion should be read in conjunction with the
Company's consolidated financial statements, and notes thereto, for the year
ended June 30, 2006.
Corporate Developments and Overview
As previously disclosed in the Company's Form 8-K filing on December 4, 2006,
the Bank entered into a memorandum of understanding ("MOU") with the Office of
Thrift Supervision (the "OTS"). The MOU resulted from issues noted during the
most recent examination of the Bank by the OTS, and includes deficiencies in
lending policies and procedures, recent operating losses, and the need to
revise both the business plan and the budget to enhance profitability. The
Board of Directors and the officers of the Bank established a schedule, during
which the issues noted in the MOU will be addressed and resolved. The schedule
is consistent with the requirements set forth by the OTS, and management
believes that the process of addressing and resolving the issues raised by
the MOU is on schedule.
During the second quarter of fiscal 2007, there were several changes in
composition of senior management of both the Company and the Bank. In November,
Ronald J. Walters was named Chief Financial Officer of both the Company and the
Bank. In December, James W. Duncan resigned as President and Chief Executive
Officer of both the Company and the Bank. Daniel P. Katzfey, Executive Vice
President and Chief Lending Officer, was named Interim President and CEO. On
January 19, 2007, Mr. Katzfey became President and Chief Executive Officer of
both the Company and the Bank. The Boards of Directors of the Company and the
Bank were expanded in connection with the addition of a sixth person and the
appointment of an advisory director. As the result of the personnel changes and
the MOU, both of which were discussed above, and other changes in products,
operations and procedures, the Bank is in the process of filling several
positions, including Chief Lending Officer, credit analyst and controller.
The Bank has continued to seek opportunities to decrease non-interest expense
and improve customer service through technology. At the beginning of the
current fiscal year, the Bank went from manual posting of all customer
transactions to branch capture with electronic settlement with the Federal
Reserve. This eliminated courier expenses to route checks and other items from
the branches to the Mountain Grove office, and to the Federal Reserve. In
addition, the Bank also utilized imaging features of branch capture, along
with auto-mail technology, to bring customer statement processing in-house.
Third party processing costs were eliminated, postage expense decreased, and
statement delivery time to customers decreased from approximately three weeks
to three days.
11
Financial Condition
As of December 31, 2006, First Bancshares, Inc. had assets of $237.0 million,
compared to $228.4 million at June 30, 2006. The increase in total assets of
$8.6 million, or 3.7%, reflects the Company's planned strategy to increase the
level of loans receivable utilizing excess cash, a portion of cash flows from
maturities and paydowns on securities and increases in deposits. Loans
receivable increased $14.8 million during the six-month period, while cash and
cash equivalents and total investments decreased $4.6 million and $1.7 million,
respectively, during the period. Deposits and advances from the Federal Home
Loan Bank of Des Moines increased by $5.5 million and $3.0 million,
respectively.
Loans receivable totaled $156.8 million as of December 31, 2006, an increase of
$14.8 million from $142.0 million at June 30, 2006. The increase in loans is,
in part, the result of capitalizing on new lending opportunities brought about
by the opening of the Bank's branch in Springfield, Missouri during the first
quarter of the current fiscal year.
The Company's deposits grew $5.5 million from $179.1 million as of June 30,
2006 to $184.6 million as of December 31, 2006. The growth can be attributed
to new deposit products and changes in existing deposit products which were
initiated during the quarter ended December 31, 2006. In addition, the Company
began to offer retail repurchase agreements during the quarter ended December
31, 2006. Retail repurchase agreements were added to the Bank's product mix
as an additional tool to attract business customers.
Advances from the Federal Home Loan Bank of Des Moines increased by $3.0
million to $25.0 million at December 31, 2006 from $22.0 million at June 30,
2006. The increase was the result of deposit outflows during the first
quarter of the fiscal year.
As of December 31, 2006 the Company's shareholders' equity totaled $26.5
million, compared to $26.3 million as of June 30, 2006. The increase of
$200,000 pertains primarily to a positive change in the mark-to-market
adjustment, net of taxes, on the Company's available for sale securities
portfolio. This increase was partially offset by the payment of dividends
on common stock.
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 decreased by $69,000, remaining at $1.3 million, or
0.5% of total assets at December 31, 2006 from $1.3 million, or 0.6% of
total assets, at June 30, 2006. The Bank's non-performing loans consist of
non-accrual loans, past due loans over 90 days, impaired loans not past due
or past due less than 60 days and real estate owned.
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
12
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 December
31, 2006, the Company had classified a total of $4.5 million of its assets as
substandard, $31,000 as doubtful and none as loss. This compares to
classifications at June 30, 2006 of $5.9 million substandard, $686,000
doubtful and none as loss. This reduction is primarily due to a decrease in
past due loans and to a lesser extent payoffs of problem credits. The Bank
has implemented stricter internal policies relating to the identification and
monitoring of its problem loans due to the problems experienced in the
commercial, commercial business and consumer loan portfolios.
In addition to the classified loans, the Bank has identified an additional
$7.2 million of credits at December 31, 2006 on its internal watch list
compared to $5.3 million at September 30, 2006. Management has identified
these loans as high risk credits and any deterioration in their financial
condition could increase the classified loan totals. The increase in the
internal watch list is the result of the stricter internal policies relating
to the identification and monitoring of problem loans.
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 December 31, 2006, the Company has established an allowance for loan losses
totaling $2.6 million compared to $2.5 million at June 30, 2006. The
allowance represents approximately 204% and 186% of the total non-performing
loans at December 31, 2006 and June 30, 2006, respectively.
The allowance for loan losses reflects management's best estimate of probable
losses inherent in the portfolio based on currently available information.
Future additions to the allowance for loan losses may become necessary based
upon changing economic conditions, increased loan balances or changes in the
underlying collateral of the loan portfolio.
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-
13
performing Assets and Allowance for Loan Losses." Although management believes
the levels of the allowance as of both December 31, 2006 and June 30, 2006 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
General. For the three months ended December 31, 2006, the Company recorded
net income of $1,000, or less than one cent per diluted share, compared to net
income of $160,000, or $0.10 per diluted share, for the same period in 2005.
Earnings in the quarter were impacted by a decrease in net interest income,
an increase in the provision for loan losses and an increase in non-interest
expense, which were partially offset by an increase in non-interest income.
Earnings for the six month period ended December 31, 2006 were $73,000, or
$0.05 per diluted share, compared to net income of $118,000, or $0.08 per
diluted share for the same period last year. Earnings for the six-month
period were impacted by a decrease in net interest income and an increase
in non-interest expense which were partially offset by a decrease in the
provision for loan losses and an increase in non-interest expense.
Net interest income. The Company's net interest income for the three months
ended December 31, 2006 was $1.6 million, compared to $1.7 million for the
same period in 2005. For the six month period ended December 31, 2006 net
interest income totaled $3.2 million compared to $3.7 million for the same
period in 2005. The decrease in net interest income is primarily the result
of an increase in the cost of funds for both of the 2006 periods compared
to the same periods in 2005.
Interest income. Interest income for the three months ended December 31, 2006
increased $197,000, or 6.1%, to $3.4 million compared to $3.2 million for
the same period in 2005. Interest income from loans increased $149,000 to
$2.8 million from $2.6 million in 2005. This was attributable to an increase
in average loans to $152.5 million during the 2006 period from $148.6 million
during the comparable 2005 period, and to an increase in the yield on loans
to 7.22% during the three months ended December 31, 2006 from 7.01% during
the comparable period in 2005. The increase in average loans was the result
of an increase in lending volume during the 2006 period, and the increase in
yield was the result of an upward trend in interest rates between periods.
Interest income from investment securities and other interest-earning assets
for the three months ended December 31, 2006 increased $48,000 to $643,000
from $595,000 for the same period in 2005. The increase was the result of an
increase in the yield on these assets to 5.84% for the 2006 period from 3.25%
for the 2005 period, which was partially offset by a decrease in the average
balance of these assets to $45.3 million in 2006 from $72.6 million in 2005.
Interest income for the six months ended December 31, 2006 increased $153,000,
or 2.4%, to $6.6 million compared to $6.5 million for the same period in 2005.
Interest income from loans decreased $44,000 to $5.3 million for the six months
ended December 31, 2006 from $5.4 million for the same period in 2005. This was
attributable to a decrease in average loans to $148.6 million during the 2006
period from $152.2 million during the 2005 period, which was partially offset
by an increase in the yield on loans to 7.13% for the six months ended December
31, 2006 from 7.02% during the same period in 2005. The decrease in average
loans was the result of a decrease in lending volume during the three months
ended September 30, 2006, which reflected a trend noted during the year ended
June 30, 2006, and which was reversed during the three months ended December
31, 2006. The increase in yield was the result of an upward trend in market
interest rates between these periods.
Interest income from investment securities and other interest-earning assets
for the six months ended December 31, 2006 increased $197,000 to $1.3 million
from $1.1 million for the same period in 2005. The increase was the result of
an increase in the yield to 5.91% from 3.03% between periods, which was
partially offset by a decrease in the average balance of these assets to
$45.3 million during the six months ended December 31, 2006 from $72.3
million during the comparable period in 2005.
14
Interest expense. Interest expense for the three months ended December 31, 2006
increased $299,000 or 19.8%, to $1.8 million from $1.5 million for the same
period in 2005. Interest expense on deposits increased $345,000 to $1.4 million
in the three months ended December 31, 2006 from $1.1 million in the same period
in 2005. The increase resulted from an increase in average deposit balances of
$9.4 million to $179.9 million in the 2006 period from $170.5 million in the
2005 period, and to an increase in the average cost of deposits to 3.19% in the
2006 period from 2.56% in the 2005 period. Interest expense on other
interest-bearing liabilities decreased $47,000 to $361,000 in the three months
ended December 31, 2006 from $408,000 in the comparable period in 2005.
Interest expense for the six months ended December 31, 2006 increased $596,000,
21.0%, to $3.4 million from $2.8 million for the same period in 2005. Interest
expense on deposits increased $725,000 to $2.7 million in the six months ended
December 31, 2006 from $2.0 million in the same period in 2005. The increase
resulted from an increase in average deposit balances of $6.9 million to $178.4
million in the 2006 period from $171.5 million in the 2005 period, and to an
increase in the average cost of deposits to 3.06% in the 2006 period from 2.34%
in the 2005 period. Interest expense on other interest-bearing liabilities
decreased $129,000 to $685,000 in the six months ended December 31, 2006 from
$815,000 in the comparable period in 2005.
Net interest margin. Net interest margin increased to 3.23% for the three months
ended December 31, 2006 from 3.13% for the three months ended December 31, 2005.
Income from interest-earning assets increased by $197,000, or 6.1%, and expense
on interest-bearing liabilities increased by $299,000, or 19.8%, from the 2005
period to the 2006 period.
Net interest margin decreased to 3.28% for the six months ended December 31,
2006 from 3.32% for the six months ended December 31, 2005. Income from
interest-earning assets increased by $153,000, or 2.4%, and expense on
interest-bearing liabilities increased by $596,000, or 21.0%, from the 2005
period to the 2006 period.
Provision for loan loss. During the quarter ended December 31, 2006, the
provision for loan losses was $130,000, compared to $44,000 for the quarter
ended December 31, 2005. During the six month period ended December 31, 2006,
the Company recorded a loan loss provision of $240,000, compared to a provision
of $837,000 during the same period in 2005. See "Non-performing Assets and
Allowance for Loan Losses" herein.
Non-interest income. For the three months ended December 31, 2006, non-interest
income totaled $636,000, compared to $598,000 for the three months ended
December 31, 2005. Non-interest income for the six months ended December 31,
2006 totaled $1.2 million compared to $1.1 million for the same period of 2005.
The increase during the three month period resulted from increases in service
charges and gain on the sale of property and equipment and real estate owned of
$19,000 and $23,000, respectively, which were partially offset by a decrease of
$6,000 in income from bank owned life insurance. The increase during the six
month period was the result of increases in gain on the sale of property and
equipment and real estate owned and other non-interest income, of $122,000 and
$26,000, respectively, which were partially offset by decreases of $20,000 and
$9,000, respectively, in service charges and income from bank owned life
insurance.
Non-interest expense. Non-interest expense for the second fiscal quarter of 2007
totaled $2.1 million, compared to $2.0 million for the same quarter in fiscal
year 2006. Higher compensation expense and legal and consulting expense were
the main contributors to this increase. For the six months ended December 31,
2006, non-interest expense totaled $4.1 million, compared to $3.9 million for
the same period in the prior year.
The Company's compensation expense for the second fiscal quarter of 2007 totaled
$1.1 million, which reflected a $36,000 increase compared to the same quarter in
fiscal 2006. For the first six months of fiscal year 2007, compensation expense
totaled $2.2 million, which reflected an increase of $184,000 compared to the
same period in fiscal year 2006. The increase was primarily the result of staff
additions for the new branch office in Springfield, Missouri which opened in
July 2006, which was partially offset by staffing changes during the last half
of fiscal 2006 and the first quarter of fiscal 2007.
15
The Company also incurred higher expenses for occupancy and equipment and
professional fees during the three and six months periods ended December 31,
2006 compared to the same periods in 2005. These were the result of the opening
of the new branch office, costs related to system upgrades, including the branch
capture and electronic settlement upgrade discussed earlier, accounting and
consulting expenses incurred during the second fiscal quarter of 2007. The
accounting and consulting expenses were, in part, for outside services required
as the result of the Company and Bank being without a Chief Financial Officer
for approximately two months and for services related to internal audit and
the MOU.
Income tax expense. Income tax expense and income tax benefits were recorded
based on the taxable income of each of the companies of the consolidated group.
Pre-tax net income is reduced by non-taxable income items and increased by
non-deductible expense items.
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 December 31, 2006, the Company
had commitments to originate and loans and fund unused lines of credit
totaling $5.7 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 December 31, 2006 which, at that date,
exceeded the minimum capital adequacy requirements.
Minimum
Requirement
Minimum To Be Well
Requirement Capitalized
For Under Prompt
Capital Corrective
Adequacy Action
Actual Purposes Provisions
------ -------- ----------
At December 31, 2006 Amount Ratio Amount Ratio Amount Ratio
-------------------- ------ ----- ------ ----- ------ -----
(Dollars in thousands)
Tangible Capital
(to adjusted total assets) $22,878 9.79% $3,358 1.50% - -
Tier 1 (Core) Capital
(to adjusted total assets) 22,878 9.79 9,351 4.00 $11,689 5.00%
Total Risk Based Capital
(to risk weighted assets) 24,817 16.40 12,109 8.00 15,136 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 December 31, 2006, 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
16
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.
17
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, our Chief Executive Officer and Chief Financial
Officer concluded that as of December 31, 2006 our disclosure controls and
procedures were effective to provide reasonable assurance that (i) the
information required to be disclosed by us 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 us in
our reports that we file or submit under the Exchange Act is accumulated and
communicated to our management, including our 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 September 30, 2006, the Company remediated the material
weakness reported as of June 30, 2006 in which the Company did not identify or
record certain transactions related to the other than temporary impairment of
certain equity securities. To remediate the material weakness in the Company's
internal control over financial reporting, the Company has implemented controls
to quantify and record the impairment of the debt and equity securities and
evaluate the near term prospects of the issuer in relation to the severity,
duration and materiality of the unrealized losses. During the six month period
ended December 31, 2006, no other changes have occurred in the Company's
internal control over financial reporting that has materially affected, or is
reasonably likely to materially affect, the Company's 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. Because of the inherent limitations in a cost-effective control
procedure, misstatements due to error or fraud may occur and not be detected.
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.
18
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
----------------------------------------------------------
The following table summarizes the stock repurchase program information for the
three months ended December 31, 2006:
Total Number of Maximum Number
Shares Purchased of Shares that
Total Number Average As part of may yet be
of Shares Price Paid Publicly purchased
Period Purchased per Share Announced Plan Under the Plan(1)
-------------------------------------------------------------------------------
October 1-31,
2006 - - - 69,818
November 1-30,
2006 - - - 69,818
December 1-31,
2006 - - - 69,818
(1) The Company completed ten separate stock repurchase programs between March
9, 1994 and May 28, 2004. On May 28, 2004, an eleventh repurchase program of
164,336 shares was initiated. As of February 14, 2007, 69,818 shares remained
available for repurchase under this repurchase program.
Item 3. Defaults Upon Senior Securities - None
-------------------------------
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
The Company's 2006 Annual Meeting of Stockholders was held on November 17, 2006
at the Days Inn Conference Room, 300 East 19th Street, Mountain Grove, Missouri.
The results of the vote on items presented at the meeting are as follows:
a) Election of Directors:
Stockholders elected the following nominees to the Board of Directors for a
three-year term ending in 2009 by the following vote:
Number of Number of
Votes For Percentage Votes Withheld Percentage
--------- ---------- -------------- ----------
Harold F. Glass 581,491 70.8% 240,097 29.2%
James W. Duncan 589,723 71.8 231,865 28.2
The following directors, whose terms did not expire in 2006, and were not up for
re-election at the Annual Meeting of Stockholders, continue to serve as
directors: Thomas M. Sutherland, John G. Moody and Billy E. Hixon.
19
Item 5. Other Information - None
------------------------
Item 6. Exhibits
--------
(a) Exhibits:
3.2 Amended Bylaws of First Bancshares, Inc. (1)
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.
---------------------------------
(1) Filed as an Exhibit to the Current Report on Form 8-K dated December 29,
2006, and incorporated herein by reference.
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: February 14, 2007 By: /s/ Daniel P. Katzfey
----------------- ----------------------------
Daniel P. Katzfey, President,
and Chief Executive Officer
Date: February 14, 2007 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: February 14, 2007 /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: February 14, 2007 /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,
2006 (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.
February 14, 2007 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,
2006 (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.
February 14, 2007 by: /s/ Ronald J. Walters
----------------------
Name: Ronald J. Walters
Chief Financial Officer
26