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, 2007
[ ] 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 8, 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 December 31, 2007 and June 30, 2007 (Unaudited) 3
Consolidated Statements of Income for the Three and Six
Months Ended December 31, 2007 and 2006 (Unaudited) 4
Consolidated Statements of Comprehensive Income
for the Three and Six Months Ended December 31, 2007
and 2006 (Unaudited) 5
Consolidated Statements of Cash Flows for the
Six Months Ended December 31, 2007 and 2006 (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)
December 31, June 30,
2007 2007
ASSETS ---- ----
------
Cash and cash equivalents $ 22,151,819 $ 21,030,321
Certificates of deposit 656,543 746,632
Securities available-for-sale 35,514,901 31,321,225
Securities held-to-maturity 7,303,888 10,786,182
Federal Home Loan Bank stock, at cost 1,613,200 1,613,800
Loans receivable, net 158,731,508 158,992,921
Loan held for sale 794,751 -
Accrued interest receivable 1,138,986 1,259,460
Prepaid expenses 316,575 360,375
Property and equipment 6,968,718 7,506,862
Real estate owned 727,078 293,337
Intangible assets 260,527 285,584
Deferred tax asset, net 631,913 707,066
Income taxes recoverable 29,128 196,687
Bank-owned life insurance 6,013,395 5,919,973
Other assets 592,959 310,334
------------- -------------
Total assets $ 243,445,889 $ 241,330,759
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Deposits $ 191,990,833 $ 190,090,359
Retail repurchase agreements 1,136,149 2,103,105
Advances from Federal Home Loan Bank 22,000,000 22,000,000
Accrued expenses and accounts payable 1,066,744 669,202
------------- -------------
Total liabilities 216,193,726 214,862,666
------------- -------------
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
December 31, 2007 and June 30, 2007,
1,550,815 shares outstanding at
December 31, 2007 and June 30, 2007 28,950 28,950
Paid-in capital 17,983,574 17,936,224
Retained earnings - substantially
restricted 28,163,054 27,850,962
Treasury stock - at cost; 1,344,221
shares at December 31, 2007 and
June 30, 2007 (19,112,627) (19,112,627)
Accumulated other comprehensive income (loss) 189,212 (235,416)
------------- -------------
Total stockholders' equity 27,252,163 26,468,093
------------- -------------
Total liabilities and stockholders'
equity $ 243,445,889 $ 241,330,759
============= =============
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,
2007 2006 2007 2006
---- ---- ---- ----
Interest Income:
Loans receivable $3,018,324 $2,773,741 $5,972,535 $5,341,915
Securities 613,642 458,031 1,198,715 912,108
Other interest-earning
assets 175,666 185,418 381,202 389,506
---------- ---------- ---------- ----------
Total interest income 3,807,632 3,417,190 7,552,452 6,643,529
---------- ---------- ---------- ----------
Interest Expense:
Deposits 1,660,803 1,445,295 3,393,109 2,747,885
Retail repurchase
agreements 11,891 778 28,671 778
Borrowed funds 323,240 360,977 646,497 684,503
---------- ---------- ---------- ----------
Total interest
expense 1,995,934 1,807,050 4,068,277 3,433,166
---------- ---------- ---------- ----------
Net interest income 1,811,698 1,610,140 3,484,175 3,210,363
Provision for loan losses 145,000 130,000 152,500 240,000
---------- ---------- ---------- ----------
Net interest income after
provision for loan
losses 1,666,698 1,480,140 3,331,675 2,970,363
---------- ---------- ---------- ----------
Non-interest Income:
Service charges and other
fee income 527,454 500,541 1,028,403 945,359
Gain on sale of loans 111,683 - 264,612 -
Gain (loss) on sale of
property and equipment
and real estate owned (24,709) 45,123 12,084 92,209
Income from bank-owned
life insurance 40,462 54,278 93,422 108,556
Other 25,782 36,509 66,865 81,767
---------- ---------- ---------- ----------
Total non-interest
income 680,672 636,451 1,465,386 1,227,891
---------- ---------- ---------- ----------
Non-interest Expense:
Compensation and employee
benefits 1,043,837 1,063,244 2,180,518 2,228,914
Occupancy and equipment 411,466 429,594 805,053 759,161
Professional fees 184,569 160,549 331,517 219,414
Deposit insurance premiums 27,251 5,608 54,314 11,517
Other 480,016 467,485 907,619 886,152
---------- ---------- ---------- ----------
Total non-interest
expense 2,147,139 2,126,480 4,279,021 4,105,158
---------- ---------- ---------- ----------
Income before taxes 200,231 (9,889) 518,040 93,096
Income taxes 113,512 (10,846) 205,949 20,427
---------- ---------- ---------- ----------
Net income $ 86,719 $ 957 $ 312,091 $ 72,669
========== ========== ========== ==========
Earnings per share
- basic $ 0.05 $ 0.00 $ 0.20 $ 0.05
========== ========== ========== ==========
Earnings per share
- diluted 0.05 0.00 0.20 0.05
========== ========== ========== ==========
Dividends per share 0.00 0.04 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 Six Months Ended
December 31, December 31,
2007 2006 2007 2006
---- ---- ---- ----
Net Income $ 86,719 $ 957 $ 312,091 $ 72,669
Other comprehensive
income, net of tax:
Change in unrealized
gain on securities
available-for-sale,
net of deferred
income taxes 251,879 73,480 424,628 224,562
---------- --------- --------- ---------
Comprehensive income $ 338,598 $ 74,437 $ 736,719 $ 297,231
========== ========= ========= =========
See notes to consolidated financial statements
5
FIRST BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Six Months Ended
December 31,
2007 2006
---- ----
Cash flows from operating activities:
Net income $ 312,091 $ 72,699
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 437,036 377,901
Amortization 25,057 25,058
Premiums and discounts on securities (79,094) 51,099
Stock based compensation 47,350 42,908
Provision for loan losses 152,500 240,000
Provision for losses on real estate owned 20,500 -
Proceeds from sales of loans originated
for sale 11,069,876 -
Loans originated for sale (9,820,118) -
Deferred income taxes (46,122) 9,846
(Gain) loss on sale of property and equipment
and real estate owned (31,986) (91,655)
Loss on the sale of other repossessed assets 1,502 -
Income from bank-owned life insurance (93,423) (108,556)
Net change in operating accounts:
Accrued interest receivable and other assets (108,599) (189,378)
Deferred loan costs (35,781) 2,380
Income taxes recoverable 167,559 2,477
Accrued expenses and accounts payable 300,069 (334,727)
----------- -----------
Net cash provided by operating activities 2,318,417 100,052
----------- -----------
Cash flows from investing activities:
Purchase of securities available-for-sale (9,602,566) (6,578,707)
Purchase of securities held to maturity - (345,000)
Proceeds from maturities of securities
available-for-sale 5,856,507 982,796
Proceeds from sales of securities
available-for-sale - -
Proceeds from maturities of securities
held to maturity 3,757,146 7,971,999
Purchase of Federal Home Loan Bank stock - (84,000)
Proceeds from redemption of Federal Home Loan
Bank stock 600 -
Net change in certificates of deposit purchased 90,089 (78,224)
Net change in loans receivable (2,494,777) (15,271,696)
Purchases of property and equipment (153,280) (439,537)
Net proceeds from the sale of property
and equipment 287,112 -
Net proceeds from sale of real estate owned
and repossessed assets 128,732 587,875
----------- -----------
Net cash used in investing activities (2,130,437) (13,254,494)
----------- -----------
Cash flows from financing activities:
Net change in deposits 1,900,474 5,417,002
Net change in retail repurchase agreements (966,956) 278,788
Proceeds from borrowed funds - 3,000,000
Cash dividends paid - (124,166)
Purchase of treasury stock - (12,764)
----------- -----------
Net cash provided by financing activities 933,518 8,558,860
----------- -----------
Net increase (decrease) in cash
and cash equivalents 1,121,498 (4,595,582)
Cash and cash equivalents - beginning of period 21,030,321 23,473,645
----------- -----------
Cash and cash equivalents - end of period $22,151,819 $18,878,063
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest on deposits and borrowed funds $ 3,920,165 $ 3,410,346
=========== ===========
Income taxes - 17,000
=========== ===========
Supplemental schedule of non-cash investing
and financing activities:
Loans transferred to real estate acquired
in settlement of loans $ 512,728 $ 227,500
=========== ===========
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 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 Financial Accounting Standards Board (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
7
Principles Board Opinion ("APB") No. 12, "Omnibus Opinion - 1967." The
consensus concludes that the 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 Emerging Issues Task Force ("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.
The table below presents the numerators and denominators used in the basic
earnings per common share computations for the three month and six month
periods ended December 31, 2007 and 2006.
Three Months Ended Six Months Ended
December 31, December 31,
------------ ------------
2007 2006 2007 2006
Basic earnings per ---- ---- ---- ----
common share:
Numerator:
Net income $ 86,719 $ 957 $ 312,091 $ 72,669
========== ========== ========= ==========
8
Denominator:
Weighted average common
shares outstanding 1,550,815 1,551,715 1,550,815 1,552,040
========== ========== ========= ==========
Basic earnings per common
share $ 0.05 $ 0.00 $ 0.20 $ 0.05
====== ====== ====== ======
Diluted earnings per common share:
Numerator:
Net income $ 86,719 $ 957 $ 312,091 $ 72,669
========== ========== ========= ==========
Denominator:
Weighted average common
shares outstanding 1,550,860 1,551,715 1,550,835 1,552,040
========== ========== ========= ==========
Basic earnings per
common share $ 0.05 $ 0.00 $ 0.20 $ 0.05
====== ====== ====== ======
4. COMMITMENTS
At December 31, 2007 and June 30, 2007, the Company had outstanding
commitments to originate loans and fund unused lines of credit totaling $4.9
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 six-month periods ended
December 31, 2007 and 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).
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 six months ended
December 31, 2007.
A summary of option activity under the Plan as of December 31, 2007, and
changes during the six months ended December 31, 2007, 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 $ 16.76 107
9
A summary of the Company's non-vested shares as of December 31, 2007, and
changes during the six months ended December 31, 2007, 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 3,000 5.84
Forfeited or expired - -
------ ------
Outstanding at end of period 58,100 $ 6.03
====== ======
As of December 31, 2007, 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 16 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 December 31, 2007, the Company had total assets of $243.4 million, net
loans receivable of $158.7 million, total deposits of $192.0 million and
stockholders' equity of $27.3 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, 2007, compared to June 30,
2007, and the consolidated results of operations for the three-month and
six-month periods ended December 31, 2007, compared to the three-month and
six-month periods ended December 31, 2006, 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 six month period ended December 31, 2007, the Company entered into
a lease agreement for approximately 5,100 square feet of office space in
Springfield, Missouri. The new space will house 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 six month period ended December 31, 2007, 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.
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. While the Bank has sought to resolve
all the issues raised in the MOU, at September 30, 2007, there was one item of
the MOU outstanding, namely the completion and filing with the OTS of a
three-year business plan for the Bank. The business plan was due by October
31, 2007. The three year business plan was approved by the Bank's board of
directors at its meeting on October 26, 2007, and was submitted to the OTS on
October 29, 2007.
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 on September 28, 2007.
Financial Condition
As of December 31, 2007, First Bancshares, Inc. had assets of $243.4 million,
compared to $241.3 million at June 30. 2007. The increase in total assets of
$2.1 million, or 0.9%, was primarily the result of increases in cash and cash
equivalents, securities and other assets of $1.1 million, $711,000 and $1.1
million, respectively. These increases were
11
partially offset by a decrease in net loans receivable of $261,000 during the
six-month period ended December 31, 2007. The growth in cash and cash
equivalents and in investments was funded by deposit growth of $1.9 million
during the six month period. At December 31, 2007, there was a total of
$795,000 in loans originated for sale which were not yet funded by the
purchasers. The increase in deposits was partially offset by a decrease of
$967,000 in retail repurchase agreements. Advances from the Federal Home Loan
Bank of Des Moines remained constant during the six month period.
Loans receivable, net totaled $158.7 million at December 31, 2007, a decrease
of $261,000 from $159.0 million at June 30, 2007. The decrease in loans is,
in part, the result of decreased originations because of the current
uncertainty in the economy, both local and national, brought about by problems
in the sub-prime mortgage market. These problems have affected many sectors of
the economy and have created concerns for individuals and businesses. Housing
sales, both new and existing, consumer confidence and other indicators of
economic health in our market area have decreased over the last few months.
The Company's deposits grew $1.9 million from $190.1 million as of June 30,
2007 to $192.0 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 $967,000 from $2.1 million at June 30, 2007
to $1.1 million at December 31, 2007.
As of December 31, 2007 the Company's stockholders' equity totaled $27.3
million, compared to $26.5 million as of June 30, 2007. The increase of
$784,000 was due to net income of $312,000 during the first six months of the
fiscal year and a positive change in the mark-to-market adjustment, net of
taxes, of $425,000 on the Company's available for sale securities portfolio.
In addition, there was a $47,000 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 decreased from $3.5 million, or 1.5% of total assets, at
June 30, 2007 to $3.4 million, or 1.4% of total assets at December 31, 2007.
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 repossessed assets. The decrease in non-performing
assets consisted of a decrease of $315,000 in non-accrual loans and a decrease
of $285,000 in loans 90 days or more delinquent and still accruing interest,
which were partially offset by an increase of $436,000 in real estate owned
and other repossessed assets. A portion of the decrease in the two loan
categories was the result of transfers to real estate owned and other
repossessed assets, and a portion was the result of charge offs totaling
$621,000 during the six month period.
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, 2007, the Company had classified a total of $3.1 million of its assets as
substandard, $184,000 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 transfers to real estate owned and
other repossessed assets of loans totaling $685,000 and to the write-off of
loans during the six month period. In addition, classified assets at December
31, 2007 and June 30, 2007 included real estate owned and other repossessed
assets of $727,000 and $293,000, respectively.
In addition to the classified loans, the Bank has identified an additional
$1.9 million of credits at December 31, 2007 on its internal watch list
compared to $4.8 million at June 30, 2007 and $7.3 million at December 31,
2006. 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 six months ended December 31, 2007, eight loans totaling
$3.1 million were removed from the watch list due to 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 December 31, 2007, the Company has established an allowance for loan losses
totaling $2.1 million compared to $2.6 million at June 30, 2007. The
allowance represents approximately 78.2% and 82.4% of the total non-
performing loans at December 31, 2007 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.
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
13
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
September 30, 2007 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 December 31, 2007 Compared to
the Three Months Ended December 31, 2006
General. For the three months ended December 31, 2007, the Company reported
net income of $87,000, or $0.05 diluted share, compared to net income of
$1,000, or $0.00 per diluted share, for the same period in 2006. The increase
in net income for the 2007 period included increases in net interest income
and non-interest income, and a decrease in the provision for loan losses,
which were partially offset by increases in non-interest expense and income
taxes.
Net interest income. The Company's net interest income for the three months
ended December 31, 2007 was $1.8 million, compared to $1.6 million for the
same period in 2006. The increase reflects a $390,000 increase in interest
income partially offset by a $189,000 increase in interest expense.
Interest income. Interest income for the three months ended December 31, 2007
increased $390,000, or 11.4%, to $3.8 million compared to $3.4 million for the
same period in 2006. Interest income from loans increased $245,000 to $3.0
million from $2.8 million in 2006. This was attributable to an increase in
average loans to $158.1 million during the 2007 period from $152.5 million
during the comparable 2006 period, and to an increase in the yield on loans to
7.58% during the three months ended December 31, 2007 from 7.22% during the
comparable period in 2006. The increase in average loans was the result of an
increase in lending volume during the last six months of fiscal 2007, 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, 2007 increased $146,000 to $789,000
from $643,000 for the same period in 2006. The increase was the result of an
increase in the average balance of these assets of $11.2 million to $65.5
million for the quarter ended December 31, 2007 from $54.3 million for the
same period in 2006, and to an increase in the yield on these assets to 4.78%
for the 2007 period from 4.69% for the 2006 period.
Interest expense. Interest expense for the three months ended December 31,
2007 increased $189,000 or 10.5%, to $2.0 million from $1.8 million for the
same period in 2006. Interest expense on deposits increased $216,000 to $1.7
million in the three months ended December 31, 2007 from $1.4 million in the
same period in 2006. The increase resulted from an increase in average
interest-bearing deposit balances of $13.8 million to $181.3 million in the
2007 period from $167.5 million in the 2006 period. The increase was also
attributable to an increase in the average cost of deposits to 3.63% in the
2007 period from 3.42% in the 2006 period. Interest expense on other
interest-bearing liabilities decreased $27,000 to $335,000 in the three months
ended December 31, 2007 from $362,000 in the comparable period in 2006.
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 $22.0 million during the 2007 period from
$25.0 million during the 2006 period. The average outstanding balance of
retail repurchase agreements increased to $1.6 million from $93,000 between
periods. The Company began to offer retail repurchase agreements during the
2006 period.
Net interest margin. Net interest margin increased to 3.22% for the three
months ended December 31, 2007 from 3.09% for the three months ended December
31, 2006.
14
Provision for loan loss. During the quarter ended December 31, 2007, the
provision for loan losses was $145,000, compared to $130,000 for the quarter
ended December 31. 2006. For a discussion of this change, see "Non-
performing Assets and Allowance for Loan Losses" herein.
Non-interest income. For the three months ended December 31, 2007,
non-interest income totaled $681,000, compared to $636,000 for the three
months ended December 31, 2006. The $44,000 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 $27,000. There was no profit on
the sale of loans during the 2006 period. It is expected that we will continue
to generate profit on the sale of loans, but in light of the current real
estate climate it is likely that the amount of profit will be less than
anticipated over the balance of the fiscal year. These increases were
partially offset by decreases of $70,000, $14,000 and $11,000 in gain on the
sale of property and equipment and real estate owned, income from bank owned
life insurance and other non-interest income, respectively.
Non-interest expense. Non-interest expense totaled $2.1 million for both the
three months ended December 31, 2007 and the three months ended December 31,
2006, increasing by only $21,000. This was the result of increases of
$24,000, $21,000 and $12,000 in professional fees, deposit insurance premiums
and other non-interest expense, respectively. These increases were partially
offset by decreases of $19,000 in compensation expense and $18,000 in
occupancy and equipment. 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. The tax provision for the quarter
ended December 31, 2007 was larger than anticipated due to the 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 Six Months Ended December 31, 2007 Compared to
the Six Months Ended December 31, 2006
General. For the six months ended December 31, 2007, the Company reported net
income of $312,000, or $0.20 diluted share, compared to net income of $73,000,
or $0.05 per diluted share, for the same period in 2006. The increase in net
income for the 2007 period included increases in net interest income and
non-interest income, and a decrease in the provision for loan losses, which
were partially offset by increases in non-interest expense and income taxes.
Net interest income. The Company's net interest income for the six months
ended December 31, 2007 was $3.5 million, compared to $3.2 million for the
same period in 2006. The increase reflects a $909,000 increase in interest
income partially offset by a $635,000 increase in interest expense.
Interest income. Interest income for the six months ended December 31, 2007
increased $909,000, or 16.7%, to $7.6 million compared to $6.7 million for the
same period in 2006. Interest income from loans increased $631,000 to $6.0
million from $5.3 million in 2006. This was attributable to an increase in
average loans to $157.8 million during the 2007 period from $148.6 million
during the comparable 2006 period, and to an increase in the yield on loans to
7.51% during the six months ended December 31, 2007 from 7.13% during the
comparable period in 2006. The increase in average loans was the result of an
increase in lending volume during the last six months of fiscal 2007, and the
increase in yield was the result of an upward trend in interest rates between
periods.
15
Interest income from investment securities and other interest-earning assets
for the six months ended December 31, 2007 increased $278,000 to $1.6 million
from $1.3 million for the same period in 2006. The increase was the result of
an increase in the average balance of these assets of $9.0 million to $64.9
million for the six months ended December 31, 2007 from $55.9 million for the
same period in 2006, and to an increase in the yield on these assets to 4.83%
for the 2007 period from 4.62% for the 2006 period.
Interest expense. Interest expense for the six months ended December 31, 2007
increased $635,000 or 18.5%, to $4.1 million from $3.4 million for the same
period in 2006. Interest expense on deposits increased $645,000 to $3.4
million in the six months ended December 31, 2007 from $2.7 million in the
same period in 2006. The increase resulted from an increase in average
interest-bearing deposit balances of $14.4 million to $180.5 million in the
2007 period from $166.1 million in the 2006 period. The increase was also
attributable to an increase in the average cost of deposits to 3.73% in the
2007 period from 3.28% in the 2006 period. Interest expense on other
interest-bearing liabilities decreased $10,000 to $675,000 in the six months
ended December 31, 2007 from $685,000 in the comparable period in 2006.
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 $22.0 million during the 2007 period from
$23.7 million during the 2006 period. The average outstanding balance of
retail repurchase agreements increased to $1.8 million from $46,000 between
periods. The Company began to offer retail repurchase agreements during the
2006 period.
Net interest margin. Net interest margin decreased to 3.10% for the six months
ended December 31, 2007 from 3.12% for the six months ended December 31, 2006.
Provision for loan loss. During the six months ended December 31, 2007, the
provision for loan losses was $153,000, compared to $240,000 for the six
months ended December 31. 2006. For a discussion of this change, see "Non-
performing Assets and Allowance for Loan Losses" herein.
Non-interest income. For the six months ended December 31, 2007, non-interest
income totaled $1.5 million, compared to $1.2 million for the six months ended
December 31, 2006. The $237,000 increase between the two periods resulted
primarily from profit of $265,000 on the sale of loans, and to an increase in
service charges and fee income of $83,000. There was no profit on the sale of
loans during the 2006 period. It is expected that we will continue to generate
profit on the sale of loans, but in light of the current real estate climate
it is likely that the amount of profit will be less than anticipated over the
balance of the fiscal year. These increases were partially offset by decreases
of $80,000, $15,000 and $15,000 in gain on the sale of property and equipment
and real estate owned, income from bank owned life insurance and other
non-interest income, respectively.
Non-interest expense. Non-interest expense totaled $4.3 million for the six
months ended December 31, 2007, compared to $4.1 million for the six months
ended December 31, 2006, increasing by $174,000. This was the result of
increases of $45,000, $112,000, $43,000 and $21,000 in occupancy and
equipment, professional fees, deposit insurance premiums and other
non-interest expense, respectively. These increases were partially offset by a
decrease of $48,000 in compensation expense. 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.
16
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, 2007, the Company
had commitments to originate loans and fund unused lines of credit totaling
$4.9 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 September 30, 2007 which, at that date,
exceeded the minimum capital adequacy requirements.
Minimum
Requirement
To Be Well
Minimum Capitalized
Requirement Under Prompt
For Capital Corrective
Adequacy Action
Actual Purposes Provisions
------ -------- ----------
At December 31, 2007 Amount Ratio Amount Ratio Amount Ratio
-------------------- ------ ----- ------ ----- ------ -----
(Dollars in thousands)
Tangible Capital (to
adjusted total assets) $24,567 10.22% $ 3,607 1.50% - -
Tier 1 (Core) Capital (to
adjusted total assets) 24,567 10.22 9,619 4.00 $12,024 5.00%
Total Risk Based Capital
(to risk weighted assets) 26,475 17.14 12,361 8.00 15,451 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, 2007, 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
17
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 December 31, 2007 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 December 31, 2007, 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: February 8, 2008 By: /s/ Daniel P. Katzfey
---------------- ----------------------------
Daniel P. Katzfey, President,
and Chief Executive Officer
Date: February 8, 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: February 8, 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: February 8, 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.
February 8, 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.
February 8, 2008 by: /s/ Ronald J. Walters
-----------------------------
Name: Ronald J. Walters
Chief Financial Officer
26