SECURITIES
AND EXCHANGE COMMISSION


Washington, D.C.
20549





FORM
10-K





[X]
      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACT OF 1934





For the
fiscal year ended June 30, 2010 OR





[ ]
      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934





Commission
File Number: 0-22842





FIRST BANCSHARES,
INC.


(Exact
name of registrant as specified in its charter)




Missouri
            43-1654695(State or other
      jurisdiction of
            (I.R.S.
      Employerincorporation
      or organization)
            Identification
      No.)142 E. First
      StreetMountain Grove,
      Missouri
            65711(Address of
      principal executive offices)
            (Zip
      Code)





Issuer's
telephone number:  (417)
926-5151





Securities
registered pursuant to Section 12(b) of the Act:




Common Stock, par
      value $0.01 per share
            The Nasdaq Stock
      Market LLC(Title
      of class)
            (Name
      of each exchange on which
              registered)




Securities
registered pursuant to Section 12(g) of the Act: None





Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes   No x





Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Act. Yes   No x





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes x  No





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes No  __





Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [x]












Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See the definitions of "large accelerated filer,"
"accelerated filer" and "smaller reporting company" in Rule 12b-2 of the
Exchange Act.  (Check one):




Large accelerated
      filer [ ]
            
            Accelerated filer [
      ]Non-accelerated
      filer [ ]
            
            Smaller reporting
      company [x]





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act). Yes   No
x





As of October 13, 2010, the
registrant had outstanding 1,550,815 shares of common stock.  The
registrant's common stock is listed on the Nasdaq Global Market of The Nasdaq
Stock Market LLC under the symbol "FBSI."  The aggregate market value
of the common stock held by non-affiliates of the registrant, based on the
closing sales price of the registrant's common stock as quoted on The Nasdaq
Stock Market LLC on December 31, 2009, was $11.9 million.  For
purposes of this calculation, officers and directors of the registrant and the
Employee Stock Ownership Plan are considered affiliates of the
registrant.  The exclusion of the value of the shares owned by these
individuals shall not be deemed an admission by the issuer that such person is
an affiliates of the issuer.





DOCUMENTS
INCORPORATED BY REFERENCE





1.
            Portions
      of the Annual Report to Stockholders for the Fiscal Year Ended June 30,
      2010. (Parts I and II)





2.
            Portions
      of the Proxy Statement for the 2010 Annual Meeting of Stockholders. (Part
      III)





ii


DISCLOSURE
REGARDING FORWARD-LOOKING STATEMENTS











This Annual
Report on Form 10-K contains certain "forward-looking statements" that relate to
First Bancshares, Inc. (“Company” or “First Bancshares”) within the meaning of
the Private Securities Litigation Reform Act of 1995. These forward-looking
statements may be identified by the use of words such as "believe," "expect,"
"anticipate," "intend," "should," "plan," "project," "estimate," "potential,"
"seek," "strive," or "try" or other conditional verbs such as "will," "would,"
"should," "could," or "may" or similar expressions. These forward-looking
statements relate to, among other things, expectations of the business
environment in which we operate and about the Company and First Home Savings
Bank (“Savings Bank” or “First Home”), projections of future performance,
perceived opportunities in the market, potential future credit experience, and
statements regarding our strategies. Our ability to predict results or the
actual effects of our plans or strategies is inherently uncertain. Although we
believe that our plans, intentions and expectations, as reflected in these
forward-looking statements are reasonable, we can give no assurance that these
plans, intentions or expectations will be achieved or realized. Our actual
results, performance, or achievements may differ materially from those
suggested, expressed, or implied by forward-looking statements as a result of a
wide variety or range of factors including, but not limited to: the credit risks
of lending activities, including changes in the level and trend of loan
delinquencies and write-offs that may be impacted by deterioration in the
housing and commercial real estate markets and may lead to increased losses and
non-performing assets in our loan portfolio, result in our allowance for loan
losses not being adequate to cover actual losses, and require us to materially
increase our reserves; changes in general economic conditions, either nationally
or in our market areas; changes in the levels of general interest rates, and the
relative differences between short and long term interest rates, deposit
interest rates, our net interest margin and funding sources; deposit flows;
fluctuations in the demand for loans, the number of unsold homes and other
properties and fluctuations in real estate values in our market areas; adverse
changes in the securities markets; results of examinations of us by the Office
of Thrift Supervision, the Missouri Division of Finance (“Division”) and the
Federal Deposit Insurance Corporation ("FDIC") or other regulatory authorities,
including the possibility that any such regulatory authority may, among other
things, require us to increase our reserve for loan losses, write-down assets,
change our regulatory capital position or affect our ability to borrow funds or
maintain or increase deposits, which could adversely affect our liquidity and
earnings; the possibility that we will be unable to comply with the conditions
imposed upon us by the Order to Cease and Desist issued by the OTS, including
but not limited to our ability to reduce our non-performing assets, which could
result in the imposition of additional restrictions on our operations; our
ability to control operating costs and expenses; the use of estimates in
determining fair value of certain of our assets, which estimates may prove to be
incorrect and result in significant declines in valuation; difficulties in
reducing risk associated with the loans on our balance sheet; staffing
fluctuations in response to product demand or the implementation of corporate
strategies that affect our work force and potential associated charges; computer
systems on which we depend could fail or experience a security breach, or the
implementation of new technologies may not be successful; our ability to manage
loan delinquency rates; our ability to retain key members of our senior
management team; costs and effects of litigation, including settlements and
judgments; increased competitive pressures among financial services companies;
changes in consumer spending, borrowing and savings habits; legislative or
regulatory changes such as the Dodd-Frank Act and its implementing regulations
that adversely affect our business including changes in regulatory policies and
principles, including the interpretation of regulatory capital or other

















rules;
the availability of resources to address changes in laws, rules, or regulations
or to respond to regulatory actions; adverse changes in the securities markets;
the inability of key third-party providers to perform their obligations to us;
changes in accounting policies, principles and practices, as may be adopted by
the financial institution regulatory agencies or the Financial Accounting
Standards Board, including additional guidance and interpretation on accounting
issues and details of the implementation of new accounting methods; the economic
impact of war or any terrorist activities; other economic, competitive,
governmental, regulatory, and technological factors affecting our operations;
pricing, products and services; our ability to lease excess space in
Company-owned buildings; and other risks detailed in this Annual Report. Any of
the forward-looking statements that we make in this Form 10-K and in the other
public statements we make may turn out to be wrong because of the inaccurate
assumptions we might make, because of the factors illustrated above or because
of other factors that we cannot foresee. Additionally, the timing and occurrence
or non-occurrence of events may be subject to circumstances beyond our control.
We caution readers not to place undue reliance on any forward-looking
statements. We do not undertake and specifically disclaim any obligation to
revise any forward-looking statements to reflect the occurrence of anticipated
or unanticipated events or circumstances after the date of such statements.
These risks could cause our actual results for future periods to differ
materially from those expressed in any forward-looking statements by, or on
behalf of, us, and could negatively affect the Company's operating and stock
performance.





iv


PART
I





Item
1.  Description of Business





General





First
Bancshares, a Missouri corporation, was incorporated on September 30, 1993
for the purpose of becoming the holding company for First Home Savings Bank
(“Savings Bank”) upon its conversion from a state-chartered mutual to a
state-chartered stock savings and loan association ("Conversion"). The
Conversion was completed on December 22, 1993.  At June 30, 2010, the
Company had consolidated total assets of $211.7 million, total deposits of
$180.1 million and stockholders' equity of $22.6 million.  The Company
is not engaged in any significant activity other than holding the stock of First
Home. Accordingly, the information set forth in this report, including
consolidated financial statements and related data, relates primarily to
operations of the Savings Bank. The Company's common shares trade on The Nasdaq
Stock Market LLC under the symbol "FBSI."





The Savings
Bank is a Missouri-chartered, federally insured stock savings and loan
association organized in 1911.  The Savings Bank conducts its business
from its home office in Mountain Grove and ten full service branch facilities in
Marshfield, Ava, Gainesville, Sparta, Theodosia, Crane, Galena, Kissee Mills,
Rockaway Beach and Springfield, Missouri.  The deposits of the Savings
Bank are insured up to applicable limits by the Federal Deposit Insurance
Corporation ("FDIC").  As a Missouri-chartered savings and loan
association, First Home currently derives its authority from, and is governed
by, the provisions of the Missouri Savings and Loan Law ("Missouri Law") and
regulations of the Missouri Division of Finance ("Division") and the Office of
Thrift Supervision ("OTS").  As a result
of the enactment on July 21, 2010 of the Dodd-Frank Wall Street Reform and
Consumer Protection Act (the “Dodd-Frank Act”), the primary regulator of all
state savings associations, including the Savings Bank, will change from the OTS
to the FDIC.  This change will occur on July 21, 2011, subject to
extension for up to six additional months.  Additionally, the
Dodd-Frank Act will change the regulator of all savings and loan holding
companies, including the Company, from the OTS to the Board of Governors of the
Federal Reserve System (the “Federal Reserve Board”), currently the regulator of
bank holding companies.  For additional information regarding the
Dodd-Frank Act, see " – Regulation of First Home" below.





The Savings
Bank provides its customers with a full array of community banking
services.  The Savings Bank is primarily engaged in the business of
attracting deposits from the general public and using such deposits, together
with other funding sources, to invest in residential mortgage loans, commercial
real estate loans, land loans, second mortgage loans, consumer loans and
commercial business loans, for its loan portfolio.  Excess funds are
typically invested in securities and other assets.  At June 30, 2010,
the Savings Bank's net loans were $108.7 million, or 51.4% of consolidated total
assets. Gross loans of $111.0 million consisted of $60.2 million, or 54.2% of
total loans, in residential mortgages, $34.6 million, or 31.2% of total loans,
in commercial real estate loans, $4.4 million, or 3.9% of total loans, in land
loans, $4.5 million, or 4.0% of total loans, in second mortgage loans, $2.9
million, or 2.6% of total loans, in consumer loans, and $4.5 million, or 4.1% of
total loans, in commercial business loans.  Of loans maturing after
June 30, 2011, at June 30, 2010, adjustable rate mortgage ("ARM") loans
accounted for approximately 78.1% of loans secured by real estate and
­­61.3% of the gross loan portfolio.  See "-- Lending
Activities" below.









Corporate
Developments and Overview





On August 17, 2009, the Company and the
Savings Bank each entered into a Stipulation and Consent to the Issuance of
Order to Cease and Desist with the OTS.





Under the
terms of the OTS orders, the Savings Bank and the Company, without the prior
written approval of the OTS, may not:





·
            Increase
      assets during any quarter;


·
            Pay
      dividends;


·
            Increase
      brokered deposits;


·
            Repurchase
      shares of the Company’s outstanding common stock;
  and


·
            Issue
      any debt securities or incur any debt (other than that incurred in the
      normal course of business).





Other
material provisions of the order require the Savings Bank and the Company
to:





·
            develop
      a business plan for enhancing, measuring and maintaining profitability,
      increasing earnings, improving liquidity and maintaining capital levels,
      acceptable to the OTS;


·
            ensure
      the Savings Bank’s compliance with applicable laws, rules, regulations and
      agency guidelines, including the terms of the
  order;


·
            not
      appoint any new director or senior executive officer or change the
      responsibilities of any current senior executive officers without
      notifying the OTS;


·
            not
      enter into, renew, extend or revise any compensation or benefit agreements
      for directors or senior executive
officers;


·
            not
      make any indemnification, severance or golden parachute
      payments;


·
            enhance
      its asset classification policy;


·
            provide
      progress reports to the OTS regarding certain classified
      assets;


·
            submit
      a comprehensive plan for reducing classified
  assets;


·
            develop
      a plan to reduce its concentration in certain loans contained in the loan
      portfolio and that addresses the assessment, monitoring and control of the
      risks association with the commercial real estate
    portfolio;


·
            not
      enter into any arrangement or contract with a third party service provider
      that is significant to the overall operation or financial position of the
      Savings Bank, or that is outside the normal course of business;
      and


·
            prepare
      and submit progress reports to the OTS. The OTS orders will remain in
      effect until modified or terminated by the
OTS.





All
customer deposits remain insured to the fullest extent permitted by the FDIC.
The Savings Bank expects to continue to serve its customers in all areas
including making loans, establishing lines of credit, accepting deposits and
processing banking transactions. Neither the Company nor the Savings Bank
admitted any wrongdoing in entering into the respective Stipulation and Consent
to the Issuance of a Cease and Desist Order. The OTS did not impose or recommend
any monetary penalties.





For
additional information regarding the terms of the orders, please see our Form
8-K that we filed with the SEC on August 18, 2009. Further, we may be subject to
more severe future regulatory enforcement actions, including but








2





not
limited to civil money penalties, if we do not comply with the terms of the
orders.





Market
Area





Similar to national trends, the Savings Bank’s market area unemployment rate at
June 30, 2010 remained near the higher levels noted at June 30,
2009.  While the Savings Bank’s market area unemployment rate has
increased over the past year, it is somewhat lower than the national
average.  Economic conditions in the Savings Bank’s market areas, with
the exception of a recent slight downturn in the housing market, have been
relatively stable.  The overall condition of the primary market area
can be characterized as stable, with modest growth potential, based on regional
population and economic projections.





The
Savings Bank is headquartered in the town of Mountain Grove, in Wright County,
Missouri.  Wright County has a population of approximately 17,000 and
its economy is highly diversified, with an emphasis on the beef and dairy
industries.  Except for the branch office that opened in July 2006 in
Springfield, Missouri, the Savings Bank's market area is predominantly rural in
nature.  Its deposit taking and lending activities primarily encompass
Wright, Webster, Douglas, Christian, Ozark, Stone, Taney and  Greene
counties in Missouri.  Significant companies in the rural areas
include Hutchens Steel, Bore Flex, Inc., Copeland Corporation, Dairy Farmers of
America and WoodPro Cabinetry.  The Springfield, Missouri market has a
number of  significant companies, including Kraft Foods, Willow Brook
Foods, Bass Pro Shops, O'Reilly Automotive, Positronic Industries, Lauren Cook
Company and Paul Mueller Company.  In addition, Missouri State
University, St. John's Hospital and Cox Health Systems are major employers and
contributors to the economic well-being of the Springfield, Missouri
area.  The Savings Bank also transacts a significant amount of
business in Texas County, Missouri.  The Savings Bank's market area,
especially Ozark County because of its proximity to Norfolk and Bull Shoals
lakes, has experienced a rather slow but steady growth from retirees. The
Springfield market had robust growth and development for several years, and
while that growth and development slowed substantially during the last two to
three years, the market remains relatively strong.  Economic
conditions in the Savings Bank's market areas have been relatively stable, in
spite of the recent downturn in the housing market and the economy in general.





Selected
Consolidated Financial Information





This
information is incorporated by reference to pages 4 and 5 of the 2010 Annual
Report to Stockholders ("Annual Report") attached hereto as Exhibit
13.





Average
Balances, Yields Earned and Rates Paid





This
information is incorporated by reference to page 20 of the Annual Report
attached hereto as Exhibit 13.





Yields
Earned and Rates Paid





This
information is incorporated by reference to page 21 of the Annual Report
attached hereto as Exhibit 13.








Rate/Volume
Analysis





This information is incorporated by
reference to page 22 of the Annual Report attached hereto as Exhibit
13.






3


Lending
Activities





General.  Historically,
the principal lending activity of the Savings Bank has been the origination of
conventional mortgage loans for the purpose of purchasing, constructing or
refinancing one-to-four family owner occupied homes within its primary market
area.  While the Savings Bank continues to actively seek originations
of such loans, most of the fixed-rate loans of this type are currently
originated for sale in the secondary market.  In an attempt to
diversify its lending portfolio, the Savings Bank also originates commercial
real estate loans, land loans, consumer loans, such as mobile home loans,
automobile loans and loans secured by savings accounts, and commercial business
loans.  The proportion of residential and commercial real estate loans
to total loans has shifted gradually in recent years as a result of both this
diversification and the minimal number of fixed-rate, one-to-four family loans
originated for the portfolio.  Additionally, the Savings Bank
originated and purchased loans pursuant to the Small Business Administration's
("SBA") guaranteed programs between September 2000 and December 2005. As of June 30, 2010, the
Savings Bank had twelve commercial business and commercial real estate loans
with an aggregate balance of $2.5 million that had SBA
guarantees.  The Savings Bank has not been active in SBA lending since
December 2005.





In
addition to loans within the Savings Bank's primary market area, the Savings
Bank also has originated nine one-to-four family loans, eight commercial real
estate loans, four land loans, one commercial business loan and ten consumer
loans in Arkansas, Oregon, Kansas and eight other states.  The 32
loans had an aggregate balance of $5.0 million at June 30, 2010.  As
of June 30, 2010 there was one loan of $123,000 collateralized by a
single-family residence in excess of 90 days past due. Additionally, at June 30,
2010 there were five out-of-state loans totaling $301,000 that were past due
between 8 and 15 days. The remaining 26 loans were performing according to their
scheduled repayment terms.





At June
30, 2010, the Savings Bank's net loans receivable totaled $108.7 million, which
represented 51.4% of consolidated total assets.  Historically, the
Savings Bank has primarily originated adjustable rate loan
products.  At June 30, 2010, adjustable rate loans with a maturity
date after June 30, 2011 accounted for $70.5 million or 63.5% of the total loan
portfolio and $68.0 million or 78.1% of loans secured by real estate. The
Savings Bank focuses on serving the needs of its local community and strongly
believes in a lending philosophy that emphasizes individual customer service and
flexibility in meeting the needs of its customers.  During the four
years ended June 30, 2006, the Savings Bank experienced a significant decline in
the amount of its one-to-four family loan portfolio. While this trend was
moderately reversed during the year ended June 30, 2007, during the years ended
June 30, 2008 through June 30, 2010, the Savings Bank experienced futher
decreases in its one-to-four family loan portfolio. During the year ended June
30, 2010, originations of one-to-four family loans, including those originated
for sale in the secondary market, decreased by $26.9 million to $4.4 million
from $31.3 million in the year ended June 30, 2009. The decrease in one-to-four
family originations for the portfolio during fiscal 2010 was the result of
closing the secondary market operation in June 2009, and the continuing decline
in economic conditions during the period and the resulting negative impact on
property values. In addition, the Savings Bank retained primarily adjustable
rate in its portfolio and almost all one-to-four family loans with fixed
interest rates were sold to other investors.While the origination of
loans for others does not increase the Savings Bank's loan portfolio, it does
provide the Savings Bank with the opportunity to generate fee income, and the
ability to meet its customers’ needs. In addition, the Savings Bank historically
has retained some fixed-rate mortgage loans in its portfolio.  The
retained loans generally have a higher interest rate than those loans originated
for other investors.  Generally, fixed rate loans that are retained in
the Savings Bank's portfolio are loans








4
 with
smaller principal balances ($50,000 or less) where the value of the acreage is
too great for the residence to qualify under the secondary market
standards.





Loan Portfolio
Analysis.  The following table sets forth the composition of
the Savings Bank's loan portfolio by type of loan as of the dates indicated.
Construction loans are included in residential and commercial real estate loans
depending on the type of security.  At June 30, 2010, the Savings Bank
had $3.7 million, or 3.3% of total loans, in interim construction loans in its
portfolio of which $461,000 were for residential construction and $3.2 million
were for commercial construction, as described below.  At June 30,
2009, the Savings Bank had $4.2 million, or 3.1% of total loans, in interim
construction loans in its portfolio of which $1.4 million were for residential
construction and $2.8 million were for commercial construction. Because of the
amount of its construction loans, and the fact that most of these loans are made
with the intent for them to convert to permanent financing, the Savings Bank
does not separately disclose these types of loans.  The decrease in
construction loans was the result of several factors, including reduced demand
for such loans, both by borrowers and by the Savings Bank, due to the economic
climate, and write downs, based on FASB 114 analyses, of certain existing
loans.





5


At June 30,


2010
            2009
            2008
            2007
            2006Amount
            Percent
            Amount
            Percent
            Amount
            Percent
            Amount
            Percent
            Amount
            Percent{Dollars
      in thousands}Type
      of Loan:Real Estate LoansResidential Mortgage
            $
      60,217
            54.24%
            $
      71,141
            51.89%
            $
      75,992
            44.83%
            $
      86,530
            53.57%
            $
      82,519
            55.59%Commercial real estate (1)
            34,573
            31.15
            39,816
            29.04
            53,730
            31.69
            40,331
            24.97
            37,097
            24.99Land
            4,358
            3.93
            7,395
            5.39
            10,756
            6.34
            9,095
            5.63
            7,949
            5.36Second mortgage loans
            4,469
            4.03
            4,900
            3.57
            7,103
            4.19
            4,828
            2.99
            3,659
            2.47Total mortgage loans
            103,617
            93.35
            123,252
            89.89
            147,581
            87.05
            140,784
            87.16
            131,224
            88.41Consumer
      Loans:Automobile loans
            1,127
            1.02
            2,052
            1.50
            4,726
            2.79
            4,078
            2.53
            3,467
            2.34Savings account loans
            1,181
            1.06
            1,165
            0.85
            1,468
            0.87
            1,504
            0.93
            1,709
            1.15Mobile home loans
            188
            0.17
            267
            0.19
            2,977
            1.76
            3,589
            2.22
            2,438
            1.64Other consumer
            392
            0.35
            561
            0.41
            1,007
            0.59
            2,860
            1.77
            1,060
            0.71Total consumer loans
            2,888
            2.60
            4,045
            2.95
            10,178
            6.01
            12,031
            7.45
            8,674
            5.84Commercial
      business
            4,491
            4.05
            9,817
            7.16
            11,769
            6.94
            8,700
            5.39
            8,532
            5.75Total loans
            110,996
            100.00%
            137,114
            100.00%
            169,528
            100.00%
            161,515
            100.00%
            148,430
            100.00%Add:Unamortized deferred loan
              costs, net of origination
              fees
            214
            
            235
            
            304
            
            171
            
            184Less:Undisbursed loans in process
            -
            
            1
            
            -
            
            1
            
            4,153Allowance for probable loanLosses
            2,527
            
            4,186
            
            2,797
            
            2,692
            
            2,474Total
      loans receivable, net
            $108,683
            
            $133,162
            
            $167,035
            
            $158,993
            
            $141,987____________(1)
      Includes multi-family residential loans














6


One-to-Four Family Residential
Loans.  The Savings Bank originates residential mortgage loans
to enable borrowers to purchase existing homes, to construct new one-to-four
family homes or refinance existing debt on their homes. At June 30, 2010, $60.2
million, or 54.2% of the Savings Bank's gross loan portfolio, consisted of
residential mortgage loans (almost all of which are ARMs, with the principal
amortizing over loan terms ranging from 10 to 30 years).  Since 1973
until fiscal 2006, the Savings Bank had originated almost exclusively ARM loan
products. The Savings Bank originates ARMs, which generally allows, but does not
require, the Savings Bank to adjust the interest rate once a year, up or down,
not to exceed 2% per year.  Loans of this nature, with the exception
of a small number of loans originated prior to 1989 generally were limited to a
6% maximum increase over the life of the loan. Beginning in the  year
ended June 30, 2007, the Savings Bank has offered fixed rate one-to-four family
residential mortgage lending in an effort to compete with products offered by
other lenders.  Most of these loans were originated for sale in the
secondary market.





The
Savings Bank's lending policies generally limit the maximum loan-to-value ratio
on one-to-four family residential mortgage loans originated for portfolio to 80%
of the lesser of the appraised value or purchase price of the underlying
residential property. A maximum loan-to-value ratio of 80% limits the Savings
Bank's exposure and allows these loans to qualify for sale in the secondary
market.The
Savings Bank requires title insurance, fire and casualty coverage and a flood
zone determination on all residential mortgage loans originated or
purchased.  All of the Savings Bank's real estate loans contain "due
on sale" clauses.  In prior years, the Savings Bank's personnel
prepared all property evaluations at no expense to the borrower unless the
property was outside its normal lending territory or the loan exceeded $250,000,
in which event, independent appraisers were utilized.  During fiscal
2006, the Savings Bank changed this practice and now obtains independent
appraisals on all residential mortgage loans, except some owner-occupied,
single-family residences with a loan balance of $75,000 or less, as well as, all
non-residential mortgage loans.





At June
30, 2010, the Savings Bank had $461,000 in residential construction loans in its
residential portfolio with maximum loan-to-value ratios of 80% based upon the
estimated value upon completion.  Typically, the Savings Bank limits
its construction lending to individuals who are building their primary
residences.  Generally, loan proceeds are disbursed as construction
progresses, based on invoices presented and inspections
made.  Construction financing generally is considered to involve a
higher degree of risk, and possibly loss, than long-term financing on improved,
occupied real estate.  Risk of loss on a construction loan is
dependent largely upon the accuracy of the estimated cost of construction and
the accuracy of the initial estimate of the property's value at completion of
construction or development. During the construction phase, a number of factors
could result in delays and cost overruns.  The Savings Bank has sought
to minimize this risk by primarily limiting construction lending to qualified
borrowers in the Savings Bank's market area. At June 30, 2010, all $461,000 in
residential construction loans were custom construction loans which represented
0.4% of the total loan portfolio.  The majority of these loans are
converted into permanent residential real estate loans. During construction,
these loans typically require monthly interest-only payments.  Once
construction is completed, these loans convert to monthly principal and interest
based on amortization schedules for conventional residential
mortgages.





While
construction loans inherently carry a higher level of risk than residential
mortgage loans, at June 30, 2010, none of the Savings Bank’s one-to-four family
construction loan portfolio was classified as substandard, doubtful or loss at
that date. In addition, at June 30, 2010, there were no construction loan
specially mentioned.






7





Second Mortgage
Loans.  The Savings Bank originates  fixed and
adjustable rate second mortgage loans that are generally  made on the
security of the borrower's residence.  Loans typically  do
not exceed 80% of the appraised value of the residence, less the outstanding
principal of the first mortgage, and have terms of up to 10 years requiring
monthly payments of principal and interest.  At June 30, 2010, second
mortgage loans amounted to $4.5 million, or 4.0% of total loans of the Savings
Bank.





The
Savings Bank also offers home equity lines of credit.  Home equity
lines of credit have terms of up to ten years and carry an interest rate of
prime with a monthly adjustment for those loans that, combined with the first
mortgage, result in a loan-to-value ratio of no more than 80%. The Savings Bank
no longer originates loans that, combined with the first mortgage, result in a
loan-to-value ratio of greater than 80%.  These loans are included
with either residential loans, if they have a first lien position, or second
mortgages in the various schedules that are part of this report.  As
of June 30, 2010, home equity lines of credit totaled $2.9 million, of which
$1.2 million was included in the residential loan totals and $1.7 million was
included with the second mortgage total.





Land and Commercial Real Estate
Loans.  The Savings Bank had loans outstanding secured by land
and commercial real estate of $38.9 million, or 35.1% of the Savings Bank's
gross loan portfolio, at June 30, 2010.





The
Savings Bank’s commercial real estate loan portfolio consists of loans on a
variety of types of property with no significant concentrations by property
type. In addition to various types of commercial buildings and properties, this
portfolio includes loans on farm land used in beef or dairy operations. At June
30, 2010, the portfolio totaled $34.6 million, or 31.2% of the total loan
portfolio, and the collateral properties are primarily located in the Savings
Bank's market area. The average size of these loans is $326,000. These loans
typically are made with a fixed rate for one to five years and then adjust at
least annually, thereafter, based on prime rate or the Constant Maturity
Treasury Index ("CMT").The Savings Bank's
largest commercial real estate loan at June 30, 2010 was a participation loan of
$2.5 million.  The loan is for a term of five years and is
collateralized by a shopping center development in St. Joseph, Missouri. The
Savings Bank also has another loan totaling $731,000 on this development. At
June 30, 2010, these loans were performing according to their repayment
terms.





Of
primary concern in commercial real estate lending is the feasibility and cash
flow potential of the property along with the borrower's creditworthiness and
the value of the underlying collateral.  Loans secured by income
properties are generally larger and involve greater risks than residential
mortgage loans because payments on loans secured by income properties are often
dependent on successful operation or management of the properties.  As
a result, repayment of such loans may be subject, to a greater extent than
residential real estate loans, to supply and demand in the market for the type
of property securing the loan and, therefore, may be subject to adverse
conditions in the real estate market or the economy.  If the cash flow
from the project is reduced, the borrower’s ability to repay the loan may be
impaired.  Commercial real estate loans also tend to have shorter
maturities than residential mortgage loans and may not be fully amortizing,
meaning that they may have a significant principal balance or "balloon" payment
due on maturity. Commercial real estate loans with principal balances totaling
approximately $4.0 million have balance payments at maturity. In addition,
commercial real estate properties, particularly industrial properties, are
generally subject to relatively greater environmental risks than non-commercial
properties and to the corresponding burdens and costs of compliance with
environmental laws and regulations.  Also, there may be costs and
delays involved in enforcing rights of a property owner against tenants in
default under the terms of leases with respect to commercial
properties.  For





8
 example,
tenants may seek the protection of the bankruptcy laws, which could result in
termination of lease contracts, reducing cash flow. Loans secured by farm
properties are of particular concern sincerepayment is dependent
upon the successful operation of the farming operations, which is greatly
contingent on various factors outside the control of either the borrower or the
Savings Bank.  These factors include adverse weather conditions,
fluctuating market prices of both final product and production costs, factors
affecting the physical condition of livestock and government regulations.
Weather and grain prices have been favorable for dairy and cattle operations
over the past two years, and price increases for both milk and beef products
over the two to three quarters have risen, improving the outlook for these
operations.





At June
30, 2010, the Savings Bank had six loans secured by multi-family residential
real estate, totaling approximately $2.3 million, or 2.0% of the Savings Bank's
gross loan portfolio.  At June 30, 2010, all of these loans were
performing in accordance with their repayment terms.  Multi-family
real estate loans are generally originated at 80% of the appraised value of the
property or selling price, whichever is less, and carry interest rates that are
fixed for one to five years and then adjust annually based on the CMT with the
principal amortized over 15 to 30 years.  Loans secured by
multi-family real estate are generally larger and involve a greater degree of
risk than one-to-four family residential loans.  In addition,
multi-family real estate loans carry risks similar to those associated with
commercial real estate lending.





Land
loans amounted to $4.4 million, or 3.9% of the gross loan portfolio at June 30,
2010 and are secured primarily by property located in the Savings Bank's primary
market area. The Saving Bank’s land loans generally are of three types: loans on
undeveloped land; loans on residential developments, and; loans on commercial
development. At June 30, 2010, there was one loan of $40,000, or 0.9%, of land
loans, that was more than 60 days delinquent.





Consumer Loans.  The
Savings Bank's consumer loans consist of automobile loans, recreational
vehicles, mobile home loans, savings account loans, and various other consumer
loans.  At June 30, 2010, the Savings Bank's consumer loans totaled
$2.9 million, or 2.6% of the Savings Bank's total loan portfolio. Subject to
market conditions, management expects to continue to market and originate
consumer loans as part of its strategy to provide a wide range of personal
financial services to its depository customer base and as a means to enhance the
interest rate sensitivity of the Savings Bank's interest-earning assets and its
interest rate spread.





At June
30, 2010, the Savings Bank's loan portfolio secured by automobiles amounted to
$1.1 million, or 1.0% of total loans.  These loans are originated
directly with the borrower with a maximum term of 60 months.  The
Savings Bank may lend up to 75% of the purchase price of a new automobile or up
to 75% of the purchase price, not to exceed the National Automobile Dealers
Association published loan value for a used vehicle.  The Savings Bank
requires all borrowers to maintain automobile insurance, including collision,
fire and theft insurance, with the Savings Bank listed as loss
payee.





The
Savings Bank's procedures for underwriting consumer loans include an assessment
of the applicant's payment history on other debts and ability to meet existing
obligations and payments on the proposed loan.  Although the
borrower's creditworthiness is a primary consideration, the underwriting process
also includes a comparison of the value of the security, if any, to the proposed
loan amount.





Consumer
loans are considered more risky than residential mortgage loans,particularly in the case of
consumer loans which are unsecured or secured by rapidly depreciating assets
such as automobiles, mobile homes, boats and recreational vehicles. Repossessed
collateral for a defaulted consumer loan may








9
 not
provide an adequate source of repayment of the outstanding loan
balance.  The remaining deficiency often does not warrant further
substantial collection efforts against the borrower. In addition, consumer loan
collections are dependent on the borrower's continuing financial stability, and
thus are more likely to be adversely affected by job loss, divorce, illness or
personal bankruptcy.  Furthermore, the application of various federal
and state laws, including federal and state bankruptcy and insolvency laws, may
limit the amount which can be recovered on such loans.  Consumer loans
may also give rise to claims and defenses by a borrower against an assignee of
such loans such as the Savings Bank, and a borrower may be able to assert
against the assignee claims and defenses that it has against the seller of the
underlying collateral.  The largest
balance of consumer loans are loans for automobiles, boats, recreational
vehicles, mobile homes and small unsecured loans.  At June 30, 2010,
none of loans in the Savings Bank's consumer loan portfolio was 90 days or more
past due.





Commercial Business
Loans.  Commercial business loans consist of loans to
businesses with no real estate as security, such as business equipment loans,
farm equipment loans and cattle loans.  As of June 30, 2010, these
loans totaled $4.5 million, or 4.1% of the Savings Bank's total loan
portfolio.  The Savings Bank has, during the past several years, had a
number of commercial business loans that have become problem loans. See "--
Non-Performing Assets and Delinquencies" and "-- Allowance for Loan Losses" for
data on loans originated by the Savings Bank.





At June
30, 2010, the average size of commercial business loans was
$36,000.  These loans  typically have  maturities
of five years or less and have variable interest rates based on the prime
rate.  The largest commercial business loan at June 30, 2010 was an
amortizing term loan to a Branson, Missouri restaurant, collateralized by
restaurant equipment and guaranteed by a related entity. At June 30, 2010, the
balance of this loan was $479,000 and the loan was past due five days and was
classified as “special mentioned”.





Commercial
business loans may involve greater risk than real estate
lending.  Because payments on commercial business  loans are
often dependent on successful operation of the business involved, repayment of
such loans may be subject to adverse conditions in the economy and other
negative circumstances affecting the business.  In recognition of this
risk, the Savings Bank attempts to make loans secured by adequate collateral to
provide the majority of repayment of the principal balance in the event that
business operations are not successful.  However, collateral for these
types of loans may quickly decline in market value through normal usage and
changes in technology, and may fluctuate in value based on the success of the
business.  In addition, the Savings Bank limits this type of lending
to its market area and to borrowers with which it has prior experience or who
are otherwise well known to the Savings Bank.  The Savings Bank
generally requires personal guarantees for commercial business
loans.





Non-accrual
commercial business loans decreased by $801,000 from $883,000 at June 30, 2009
to $82,000 at June 30, 2010.  While the economic environment over the
last two years resulted in adverse market conditions  for most
businesses, the Savings Bank has had some success in working with borrowers to
bring their loans current or move them to other institutions. In addition, some
of these loans were resolved through repossession of the underlying collateral.
However, no assurance can be given that non-performing business loans will not
increase in future periods.














10


Loan
Maturity and Re-pricing





The
following table sets forth certain information at June 30, 2010 regarding the
dollar amount of loans maturing or re-pricing in the Savings Bank’s portfolio
based on their contractual terms to maturity or next re-pricing date, but does
not include scheduled payments or potential prepayments.





AfterAfter
            
            ThreeOne
      Year
            
            YearsThrough
            
            Through
            
            AfterWithin
            
            Three
            
            Five
            
            FiveOne
      Year
            
            Years
            
            Years
            
            Years
            
            Total(In
      thousands)Mortgage
      LoansResidential
      Mortgage
            $
      4,479
            
            $
      2,433
            
            $
      1,361
            
            $51,944
            
            $
      60,217Commercial
      Real Estate
            10,136
            
            10,016
            
            537
            
            13,884
            
            34,573Land
            1,296
            
            589
            
            228
            
            2,245
            
            4,358Second
      Mortgage
            623
            
            153
            
            10
            
            3,683
            
            4,469Total
      Mortgage Loans
            16,534
            
            13,191
            
            2,136
            
            71,756
            
            103,617Consumer
      LoansAutomobile
            246
            
            777
            
            104
            
            -
            
            1,127Savings
      Account
            927
            
            131
            
            123
            
            -
            
            1,181Mobile
      Home
            3
            
            29
            
            18
            
            138
            
            188Other
            70
            
            196
            
            76
            
            50
            
            392Total
      Consumer Loans
            1,246
            
            1,133
            
            321
            
            188
            
            2,888Commercial
      Business Loans
            1,149
            
            991
            
            1,152
            
            1,199
            
            4,491Total
      Loans
            $18,929
            
            $15,715
            
            $3,609
            
            $73,143
            
            $110,996








The
following table sets forth the dollar amount of all loans due more than one year
after June 30, 2010, which have fixed interest rates and have floating or
adjustable interest rates.





At
      June 30, 2010Non-
            CommercialCommercial
            Real
      Estate
            
            
            CommercialMortgage
            And
      Land
            Consumer
            
            Business
            
            TotalLoans
            
            Loans
            
            Loans
            
            Loans
            
            Loans(In
      thousands)Interest
      rate termson
      amounts due afterone
      year:Fixed
            $11,717
            
            $
      7,335
            
            $1,532
            
            $1,001
            
            $21,585Adjustable
            47,867
            
            20,164
            
            110
            
            2,341
            
            70,482Total
            $59,584
            
            $27,499
            
            $1,642
            
            $3,432
            
            $92,067








Loan Solicitation and
Processing.  The Savings Bank's main source of loans is from
contacts and relationships with real estate agents,  referrals from
customers, and to a lesser extent walk-in applicants.  Once a loan
application is received, a credit report, along with verification of income, is
obtained.  An appraisal of the proposed collateral is then ordered.
Real estate appraisals are completed by independent appraisers on all
one-to-four family loans originated after March 2006 and on all other real
estate secured loans.  The application is then reviewed by the loan
officer and action is taken or loan write-up is presented to the Savings Bank's
Directors’ Loan Committee if the amount is greater than the loan officer's
lending authority.







11


Commercial
business and commercial real estate loans are primarily obtained through
referrals or loan officer contacts.  While loan officers are delegated
reasonable commitment authority based on their experience and qualification,
credit decisions on significant commercial business loans and commercial real
estate loans are made by the Directors’ Loan Committee, which is made up of
senior loan officers and members of the Board of Directors.





Consumer
loans are originated through referrals and existing deposit and loan customers
of the Savings Bank.  Consumer loan applications below set limits may
be processed at branch locations or by loan documentation personnel at the main
office.





Loan Originations, Purchases and
Sales.  During the year ended June 30, 2007, the Savings Bank
opened a loan origination office in Springfield, Missouri.  This
office primarily originated fixed-rate, single-family loans for sale in the
secondary market, as well as, to a lesser extent, fixed and adjustable rate
single family loans for the Savings Bank's portfolio. The loan origination
office was closed in June 2009, having operated at only break even during both
fiscal 2008 and 2009.





The
following table shows total mortgage loans originated, sold and repaid during
the periods indicated.  No loans were purchased during the periods
indicated. The significant decrease in loan originations was the result of
several factors, including reduced loan demand resulting from the weak economic
climate, and the Savings Bank concentrating its efforts on resolving problem
loans in its existing portfolio rather than on origination of new
loans.





Year
      Ended June 30,2010
            
            2009(In
      thousands)Total
      gross loans at beginning of year
            
            $137,114
            
            $169,528Loans
      originated:Secondary
      market loans
            
            691
            
            23,036One-to-four
      family loans
            
            3,732
            
            8,246Multi-family
      residential and commercialreal
      estate
            
            4,907
            
            6,990Land
            
            242
            
            593Total
      mortgage loans originated
            
            9,572
            
            38,865Consumer
      loans:Automobile
      loans
            
            547
            
            713Deposit
      account loans
            
            708
            
            702Mobile
      home loans
            
            -
            
            18Other
      consumer loans
            
            166
            
            122Total
      consumer loans originated
            
            1,421
            
            1,555Commercial
      business loans originated
            
            1,293
            
            2,309Loans
      sold:Secondary
      market loans
            
            1,531
            
            23,352Loans
      principal repayments
            
            30,145
            
            45,292Other
      decreases:Loans
      charged-off
            
            2,915
            
            4,171Loans
      transferred to real estate owned
            
            3,736
            
            1,878Loans
      transferred to repossessed assets
            
            77
            
            4506,777
            
            6,499Total
      gross loans at end of year
            
            $110,996
            
            $137,114








12


Loan
Commitments.  The Savings Bank issues commitments for
one-to-four family residential loans that are honored for up to 60 days from
approval.  If the commitment expires, it is generally renewed upon
request without penalty or expense to the borrower at the current market
rate.  The Savings Bank had outstanding net loan commitments of
$594,000 at June 30, 2010 compared to $121,000 at June 30, 2009. The decrease in
outstanding loan commitments is primarily the result of the generally poor
economic environment, generally more restrictive underwriting standards and the
Savings Bank’s emphasis on issues relating to the existing loan portfolio. See
Note 13 of the Notes to the Consolidated Financial Statements contained in the
Annual Report to Shareholders filed as Exhibit 13 to this report.





Non-Performing Assets and
Delinquencies. The Savings Bank generally institutes collection
procedures when a monthly payment is two to four weeks delinquent.  A
first notice is generally mailed to the borrower, or a phone call is
made.  If necessary, a second notice follows at the end of the next
two week period.  In most cases, delinquencies are cured promptly.
However, if the Savings Bank is unable to make contact with the borrower to
obtain full payment, or, full payment is not possible and the Savings Bank
cannot work out a repayment schedule, a notice to commence foreclosure may be
mailed to the borrower.  The Savings Bank makes every reasonable
effort, however, to work with delinquent borrowers.  Understanding
that borrowers sometimes cannot make payments because of illness, loss of
employment, or similar reasons, the Savings Bank will attempt to work with
delinquent borrowers who are communicating and cooperating with the Savings
Bank.





The
Savings Bank generally follows the same collection procedures for non-mortgage
loans.





The
Savings Bank’s senior management team has implemented several new procedures and
policies to reduce the risk of delinquent loans.  The following are
some of the key elements  of the new policies and
procedures:  all commercial credits with an aggregate loan balance of
$100,000 or greater must be approved by the Director’s Loan Committee;
individual loan officer commercial lending limits have been lowered; a Credit
Administrator position was created to coordinate the loan review process, and;
extensive loan officer training has established improved consistency throughout
the organization.  Also, once a loan is 45 days past due, the loan is
subject to a full evaluation by the individual loan officer to be presented to
the Director’s Loan Committee to review and establish the proper loan
grade.  Any loan graded a “special mention” or worse is subject to a
quarterly review by the loan officer.





These
changes were established as a direct result of an extensive internal review of
loans that was initiated in November 2008 following the changes in senior
management. Classified assets decreased by $400,000 to $11.6 million at June 30,
2010, compared to $12.0 million of classified assets at June 30, 2009. The
decrease in classified assets is the result of the impact of several factors.
Some loans were taken to foreclosure or repossession, which resulted in an
increase in real estate owned. Some borrowers refinanced with other financial
institutions. Finally, some loans were brought current.





The Board
of Directors is informed on a monthly basis as to the status of all mortgage and
non-mortgage loans that are delinquent, as well as the status on all loans
currently in foreclosure or real estate and repossessed assets owned by the
Savings Bank through foreclosure or repossession.





The table
below sets forth the amounts and categories of non-performing assets in the
Savings Bank's loan portfolio at the dates indicated.  Loans are
placed on non-accrual status when it is determined that the payment of interest
or principal is doubtful of collection, or when interest or principal is
past-due 90 days or more.  Any accrued but uncollected interest
previously recorded








13
 on such
loans is reversed in the current period and interest income is subsequently
recognized upon collection.  The Savings Bank would have recorded
interest income on non-accrual loans of $121,000 and $250,000 during the years
ended June 30, 2010 and 2009, respectively, if such loans had been performing
according to their terms during such periods.





Non-accrual
loans increased from $3.0 million at June 30, 2009 to $3.9 million at June 30,
2010.  The $900,000 increase in non-accrual loans was the result of an
increase of $3.3 million in non-accrual commercial real estate loans which was
partially offset by decreases of $1.5 million in non-accrual land loans,
$635,000 in non-accrual commercial business loans and $335,000 non-accrual
residential mortgages. The non-accrual commercial real estate loans consisted of
a $2.1 million loan on an office building in downtown Springfield, Missouri, a
$1.2 million loan on a motel in Branson, Missouri and a $288,000 loan on land
and a residence in St. Charles County, Missouri. The allowance for loan losses
on these three loans totaled $548,000 at June 30, 2010.





The
Savings Bank considers all non-accrual loans, loans past due 90 days or more and
performing trouble debt restructured loans to be impaired. These loans are
closely monitored and any necessary additional action will be taken as
warranted.





The following table sets forth
information with respect to the Savings Bank's non-performing assets at the
dates indicated.





At
      June 30,2010
            
            2009
            
            2008
            
            2007
            
            2006(Dollars
      in thousands)Loans
      accounted for on a non-accrualBasis:Real
      estate:Residential
            $       258
            
            $     
        593
            
            $   
        94
            
            $ 
         245
            
            $   
       322Commercial
      and land
            3,587
            
            1,714
            
            1,882
            
            2,171
            
            306Commercial
      business
            82
            
            717
            
            316
            
            467
            
            65Consumer
            -
            
            -
            
            21
            
            6
            
            148Total
            $  
      3,927
            
            $ 
       3,024
            
            $2,313
            
            $2,889
            
            $  
       841Accruing
      loans which are contractuallypast
      due 90 days or more:Real
      estate:Residential
            $   
              -
            
            $  
               -
            
            $ 
        296
            
            $  
        278
            
            $   
           -Commercial
      and land
            -
            
            122
            
            64
            
            81
            
            -Commercial
      business
            -
            
            166
            
            -
            
            -
            
            -Consumer
            -
            
            -
            
            -
            
            -
            
            3Total
            $    
             -
            
            $  
         288
            
            $  
       360
            
            $  
       359
            
            $   
          3Total
      of non-accrual and90
      days past due loans
            $   
      3,927
            
            $  
       3,312
            
            $ 
      2,673
            
            $ 
      3,248
            
            $ 
        844Real
      estate owned
            3,885
            
            1,549
            
            1,206
            
            291
            
            497Repossessed
      assets
            61
            
            158
            
            -
            
            2
            
            -Other
      non-performing assets:Impaired
      loans not past due
            5,228
            
            7,013
            
            -
            
            -
            
            -Slow
      home loans (60 to 90 daysPast
      due)
            -
            
            -
            
            -
            
            -
            
            -Total
      non-performing assets
            $13,101
            
            $12,032
            
            $
      3,879
            
            $ 
      3,541
            
            $1,341Total
      loans delinquent 90 daysor
      more to net loans
            0.00%
            
            0.22%
            
            0.22%
            
            0.23%
            
            0.59%Total
      loans delinquent 90 daysor
      more to total consolidated assets
            0.00%
            
            0.13%
            
            0.14%
            
            0.15%
            
            0.37%Total
      non-performing assetsto
      total consolidated assets
            6.19%
            
            5.23%
            
            1.56%
            
            1.47%
            
            0.59%





14




Asset
Classification.  OTS regulations require that each insured
savings institution review and classify its assets on a regular
basis.  In addition, in connection with examinations of insured
institutions, OTS examiners have authority to identify problem assets and, if
appropriate, require them to be classified.  There are three
classifications for problem assets: substandard, doubtful and
loss.  An asset is classified substandard when it is inadequately
protected by the current net worth and paying capacity of the borrower or by the
collateral pledged, if any.  Assets so classified must have one or
more defined weaknesses and are characterized by the distinct possibility that
the insured institution will sustain some loss if the deficiencies are not
corrected. The Savings Bank's policy is to classify as substandard, for example,
any loan, irrespective of payment record or collateral value, when a bankruptcy
filing occurs, the pay record becomes erratic (e.g., the borrower misses several
monthly payments, but makes double payments in the future), or a loan becomes
contractually delinquent by three monthly payments. Doubtful assets have the
weaknesses of substandard assets with the additional characteristic that the
weaknesses make collection or liquidation in full on the basis of currently
existing facts, conditions and values questionable, and there is a high
possibility of loss.  An asset classified loss is considered
uncollectible and of such little value that continuance as an asset of the
institution is not warranted.  If an asset or portion thereof is
classified loss, the insured institution must either establish specific
allowances for loan losses for the full amount of the portion of the asset
classified as loss or charge-off such amount.  All or a portion of
general loan loss allowances established to cover possible losses related to
assets classified substandard or doubtful may be included in determining an
institution's regulatory capital, while specific valuation allowances for loan
losses generally do not qualify as regulatory capital.





As of
June 30, 2010, the Savings Bank had loans with an aggregate outstanding balance
of $7.7 million with respect to which known information concerning possible
credit problems with the borrowers or the cash flows of the properties securing
the respective loans has caused management to be concerned about the ability of
the borrowers to comply with present loan repayment terms, which may result in
the future inclusion of such loans in the non-accrual loan category. In
addition, there were loans totaling $1.6 million noted as special mention. These
loans are reflected in the Savings Bank's classified assets, discussed
below.





At June
30, 2010 and 2009 the aggregate amounts of the Savings Bank's classified assets
and special mention credits, as determined by the Savings Bank, and of the
Savings Bank's general and specific loss allowances and net charge-offs, were as
follows:





At
      June 30,2010
            
            
            2009(In
      thousands)Loss
            
            $      
          -
            
            
            $     
           -Doubtful
      loans
            
            -
            
            
            4,189Substandard
      loans
            
            7,678
            
            
            6,137Total
      classified loans
            
            7,678
            
            
            10,326Special
      mention credits
            1,477
            
            
            -Total
      loans of concern
            $9,155
            
            
            $10,326Total
      classified loans
            $7,678
            
            
            $10,326Real
      estate owned
            3,885
            
            
            1,549Repossessed
      collateral
            61
            
            
            157Total
      classified assets
            $11,624
            
            
            $12,032








15





At
      June 30,2010
            
            2009(In
      thousands)General
      loss allowances
            $
      1,290
            
            $1,043Specific
      loss allowances
            1,237
            
            3,143Total
      loss allowances
            $2,527
            
            $4,186Net
      charge-offs
            
            $
      2,661
            
            $
      3,925





Net
charge-offs in fiscal 2010 decreased by $1.2 million, or 32.2%, to $2.7 million
compared to $3.9 million in fiscal 2009. A substantial majority of the
charge-offs for both fiscal years related to credits identified as problem loans
during fiscal 2009, the larger portion of which was charged-off during fiscal
2009.





The
$400,000 decrease in classified assets to $11.6 million at June 30, 2010 from
$12.0 million at June 30, 2009. The decrease in classified assets was the result
of the impact of several factors. Some loans were taken to foreclosure or
repossession, which resulted in an increase in real estate owned. Some borrowers
refinanced with other financial institutions. Finally, some loans were brought
current.





At June
30, 2010, the Savings Bank's largest substandard loan to one borrower consisted
of one loan to an individual with an outstanding balance of $2.1
million.  At June 30, 2010, this loan was 65 days delinquent. The loan
is collateralized by an office building in Springfield, Missouri. A reserve of
$300,000 provided on this loan during the fourth quarter of fiscal 2010. While
management believes the net current balance reflects the net value of the
property, the final financial impact resulting from disposal of the property
will not be known until that time. The property was in the process of
foreclosure as of June 30, 2010.





The
Savings Bank, until fiscal 2010, rarely used the "special mention" category in
its internal loan classification process.  Instead, a category titled
'watch' was used by the Savings Bank to monitor loans which were not typical in
their repayment terms, collateral, or a situation with the borrower that may
create repayment difficulties in the future.  In connection with the
assistance of a consultant that was retained to review large loans, the Savings
Bank’s internal policies on asset classification were reviewed and
updated.   An asset is designated as special mention when it has
potential weaknesses that deserve management’s close attention, and which left
uncorrected, may result in the deterioration of the repayment prospects for the
asset or in the Savings Bank’s credit position.





Real
Estate Owned and Other Repossessed Assets





Real
estate owned and other repossessed assets includes real estate and other assets
acquired in the settlement of loans, which is recorded at
the  estimated fair value less the estimated costs to sell the
asset.  Any write down at the time of foreclosure is charged against
the allowance for loan losses.  Subsequently, net expenses related to
holding the property and declines in the market value are charged against
income. At June 30, 2010, real estate owned consisted of eighteen properties
(ten single family residences, seven commercial properties and one parcel of
farmland) with a net book value of $3.9 million. At June 30, 2010, repossessed
collateral consisted of 1,168 radiators, 23 sections of steel shelving, a pallet
jack and a moveable staircase with a book value of $53,000, and a motorcycle
with a book value of $7,000. At June 30, 2009, real estate owned consisted of
twenty-one properties (thirteen single family residences, six commercial
properties and two parcels  of vacant land) with a net book value of
$1.5 million. At June 30, 2009,








16
 repossessed collateral consisted of boats, motors, boat trailers and related
equipment with a book value of $112,000 and vehicles with a book value of
$45,000.





Allowance
for Loan Losses





Management recognizes that loan losses
may occur over the life of a loan and that the allowance for loan losses must be
maintained at a level necessary to absorb specific losses on impaired loans and
probable losses inherent in the loan portfolio.





Management
believes that the accounting estimate related to the allowance for loan losses
is a critical accounting estimate because it is highly susceptible to change
from period to period.  This may require management to make
assumptions about losses on loans; and the impact of a sudden large loss could
deplete the allowance and potentially require increased provisions to replenish
the allowance, which would negatively affect earnings.





The
allowance for loan losses is evaluated on a monthly basis by management and is
based on management's periodic review of the collectibility of the loans in
light of historical experience, the nature and volume of the loan portfolio,
adverse situations that may affect the borrower's ability to repay, estimated
value of any underlying collateral and prevailing economic conditions, such as
unemployment rates, bankruptcies and vacancy rates of business and residential
properties. This evaluation is inherently subjective as it requires estimates
that are susceptible to significant revision as more information becomes
available.





The
allowance for loan losses includes allowance allocations calculated in
accordance with ASC Topic 310, Recievables and allowance
allocations calculated in accordance with ASC Topic 450, Accounting for Contingencies. The level
of the allowance reflects management’s continuing evaluations of delinquencies,
charge-offs and recoveries, loan volumes and terms, changes in underwriting
procedures, depth of the Company’s lending management, national and local
economy, industry conditions, credit concentrations, and other external factors,
including competition and legal and regulatory requirements, as well as trends
in the foregoing.





The
allowance is increased by the provision for loan losses, which is charged
against current period operating results and decreased by the amount of actual
loan charge-offs, net of recoveries.





The
Savings Bank had an allowance for loan losses at June 30, 2010 and 2009 of $2.5
million and $4.2 million, respectively.  The Savings Bank began
experiencing an increase in problem loans during fiscal year
2005.  This increase required a significant increase in the allowance
for loan losses.  At June 30, 2008 the allowance for loan losses was
$2.8 million, or 1.6%, of gross loans compared to $4.2 million, or 3.1%, of
gross loans at June 30, 2009, and $2.5 million, or 2.3%, of gross loans at June
30, 2010. In addition, the allowance is 32.1% of non-performing
assets.





Management
believes that the allowance for loan losses was adequate at June 30, 2010 to
absorb the known and inherent risks of loss in the loan portfolio at that date.
While management believes the estimates and assumptions used in its
determination of the adequacy of the allowance are reasonable, there can be no
assurance that such estimates and assumptions will not be proven incorrect in
the future, or that the actual amount of future provisions will not exceed the
amount of past provisions or that any increased provisions that may be required
will not adversely impact our financial condition and results of
operations.  In addition, the determination of the amount of the
Savings Bank's allowance for loan losses is subject to review by bank
regulators, as part of the routine examination process, which may result








17
 in the
establishment of additional provision based upon their judgment of information
available to them at the time of their examination.  Any material
increase in the allowance may adversely affect the Savings Bank's financial
condition and earnings.





The following table sets forth an
analysis of the Savings Bank's allowance for loan losses for the periods
indicated.





At
      or For The Year Ended June 30,2010
            
            2009
            
            2008
            
            2007
            
            2006(Dollars
      in thousands)Allowance
      at beginning of period
            $4,186
            
            $2,797
            
            $2,692
            
            $2,474
            
            $2,851Provision
      for loan losses
            852
            
            5,314
            
            1,291
            
            426
            
            1,520Recoveries:Residential
      real estate
            12
            
            7
            
            3
            
            24
            
            5Commercial
      real estate
            27
            
            91
            
            1
            
            8
            
            -Consumer
            21
            
            77
            
            27
            
            37
            
            48Commercial
      business
            194
            
            71
            
            5
            
            96
            
            50Total
      recoveries
            254
            
            246
            
            36
            
            165
            
            103Charge-offs:Residential
      real estate
            694
            
            678
            
            393
            
            169
            
            26Commercial
      real estate
            1,096
            
            2,065
            
            325
            
            94
            
            88Consumer
            28
            
            175
            
            62
            
            32
            
            223Commercial
      business
            1,097
            
            1,253
            
            442
            
            78
            
            1,663Total
      charge-offs
            2,915
            
            4,171
            
            1,222
            
            373
            
            2,000Net
      charge-offs
            2,661
            
            3,925
            
            1,186
            
            208
            
            1,897Transfer
      from allowance on letter of credit
            150
            
            -
            
            -
            
            -
            
            -Allowance
      at end of period
            $2,527
            
            $4,186
            
            $2,797
            
            $2,692
            
            $2,474Ratio
      of allowance to total loansoutstanding
      at the end of thePeriod
            2.28%
            
            3.05%
            
            1.65%
            
            1.59%
            
            1.67%Ratio
      of net charge offs to averageloans
      outstanding during thePeriod
            1.97%
            
            2.93%
            
            0.74%
            
            0.14%
            
            1.29%







Between
June 30, 2009 and June 30, 2010, there were some significant changes in the
reserve allocations of the different loan categories. The decrease in both the
dollar amount of the allowance and the percent of the allowance to total loans
for residential real estate loans was primarily the result of the majority of
the loans that were past due at June 30, 2009 either having been transferred to
real estate owned, charged off or a combination of both.




The
increase in the allowance and its percentage to total commercial real estate
loans was primarily due to three loans with approximately $5.0 million in total
principal balances and approximately $800,000 in allowances for loan losses
having been included in the 2010 amount.




The
decrease in the allowance and its percentage to total commercial business loans
was primarily due to write-offs during the 2010 fiscal year and the upgrade of
one loan which had had an allowance of $356,000.




The
following table sets forth the composition of the allowance for loan losses by
loan category as of the dates indicated. Management believes that the allowance
can be allocated by category only on an approximate basis. The allocation of the
allowance to each category is not necessarily indicative of future losses and
does not restrict the use of the allowance to absorb losses in any other
categories.











18


Allowance
for Loan Losses by Category








At
      June 30,2010
            
            2009
            
            2008Percent
            
            
            
            
            
            Percent
            
            
            
            
            
            PercentOf
            
            Percent
            
            
            
            Of
            
            Percent
            
            
            
            Of
            
            PercentAllowance
            
            Of
      Gross
            
            
            
            Allowance
            
            Of
      Gross
            
            
            
            Allowance
            
            Of
      Grossto
      Out-
            
            Loans
      in
            
            
            
            to
      Out-
            
            Loans
      in
            
            
            
            to
      Out-
            
            Loans
      inStanding
            
            Category
            
            
            
            Standing
            
            Category
            
            
            
            Standing
            
            CategoryLoans
      in
            
            To
      Gross
            
            
            
            Loans
      in
            
            To
      Gross
            
            
            
            Loans
      in
            
            To
      GrossAmount
            
            Category
            
            Loans
            
            Amount
            
            Category
            
            Loans
            
            Amount
            
            Category
            
            Loans(Dollars
      in thousands)Real
      estate -- mortgage:Residential
            $  380
            
            0.63
            %
            54.24
            %
            $  749
            
            1.06
            %
            51.89
            %
            $  411
            
            0.54
            %
            44.83
            %Commercial
            1,713
            
            4.96
            
            31.15
            
            991
            
            2.89
            
            29.04
            
            991
            
            1.84
            
            31.69Land
            73
            
            1.68
            
            3.93
            
            176
            
            2.38
            
            5.39
            
            196
            
            1.82
            
            6.34Second
      mortgage loans
            107
            
            2.39
            
            4.03
            
            157
            
            3.20
            
            3.57
            
            23
            
            0.32
            
            4.19Consumer
            20
            
            0.71
            
            2.60
            
            86
            
            2.13
            
            2.95
            
            228
            
            2.24
            
            6.01Commercial
      business
            234
            
            5.20
            
            4.05
            
            2,027
            
            20.66
            
            7.16
            
            948
            
            8.06
            
            6.94Total
      allowance forloan
      losses
            $2,527
            
            2.28
            %
            100.00
            %
            $4,186
            
            3.05
            %
            100.00
            %
            $2,797
            
            1.65
            %
            100.00
            %








At
      June 30,2007
            
            2006Percent
            
            
            
            
            
            PercentOf
            
            Percent
            
            
            
            Of
            
            PercentAllowance
            
            Of
      Gross
            
            
            
            Allowance
            
            Of
      Grossto
      Out-
              Standing
            
            Loans
      in
              Category
            
            
            
            to
      Out-
              Standing
            
            Loans
      in
              CategoryLoans
      in
            
            To
      Gross
            
            
            
            Loans
      in
            
            To
      GrossAmount
            
            Category
            
            Loans
            
            Amount
            
            Category
            
            Loans(Dollars
      in thousands)Real
      estate -- mortgage:Residential
            $  164
            
            0.19
            %
            53.58
            %
            $  222
            
            0.27
            %
            55.59
            %Commercial
            1,567
            
            3.89
            
            24.97
            
            726
            
            1.96
            
            24.99Land
            119
            
            1.31
            
            5.63
            
            25
            
            0.31
            
            5.36Second
      mortgage loans
            60
            
            1.24
            
            2.99
            
            31
            
            0.86
            
            2.47Consumer
            239
            
            1.99
            
            7.44
            
            82
            
            0.95
            
            5.84Commercial
      business
            543
            
            6.24
            
            5.39
            
            1,388
            
            16.27
            
            5.75Total
      allowance forloan
      losses
            $2,692
            
            1.59
            %
            100.00
            %
            $2,474
            
            1.67
            %
            100.00
            %








19


Securities
Activity





Savings
and loan associations have authority to invest in various types of liquid
assets, including United States Treasury obligations, securities of various
Federal agencies and of state and municipal governments, deposits at the Federal
Home Loan Bank (“FHLB”) of Des Moines, certificates of deposit of federally
insured institutions, certain bankers' acceptances and federal funds. Subject to
various restrictions, savings institutions may also invest a portion of their
assets in commercial paper, corporate debt securities and mutual funds, the
assets of which conform to the investments that federally chartered savings
institutions are otherwise authorized to make directly.  Savings
institutions are also required to maintain minimum levels of liquid assets which
vary from time to time.  See "Regulation of First Home -- Federal Home
Loan Bank System."  The Savings Bank may decide to increase its
liquidity depending upon the availability of funds and comparative yields on
securities in relation to return on loans.





Routine
short-term investment decisions, which are reported monthly to the Board of
Directors, are made by the Savings Bank’sPresident, Chief
Financial Officer and Controller, who act within policies established by the
Board. Those securities include federally insured certificates of deposit, FHLB
time obligations, bankers acceptances, treasury obligations, U.S. Government
agency obligations, mortgage-backed securities, bank qualifying municipal tax
exempt bonds, and corporate bonds.  Securities not within the
parameters of the policies require prior Board approval.  Securities
are purchased for investment purposes.  The goals of the Savings
Bank's investment policy are to select securities based on safety first,
flexibility second and diversification third. In addition, as a result of the
concern with interest rate risk exposure, there has been a focus on short-term
investments.  At June 30, 2010, the Company's and the Savings Bank's
securities portfolio (which includes securities held by the Savings Bank)
totaled $62.8 million (of which $60.3 million were available for sale) and
consisted primarily of federal agency obligations securities, federal agency
mortgage-backed securities, common stocks, FHLB stock and municipal
bonds.  For further information concerning the securities portfolio,
see Note 2 of the Notes to the Consolidated Financial Statements included in the
Annual Report.





Securities
Analysis





The following table sets forth the
Company's securities portfolio at carrying value at the dates indicated.
Securities that are held-to-maturity are shown at amortized cost, and securities
that are available-for-sale are shown at the current market value.





At
      June 30,2010
            
            2009
            
            2008Book
            
            Percent
            
            Book
            
            Percent
            
            Book
            
            PercentValue
            
            Of
            
            Value
            
            Of
            
            Value
            
            Of(1)
            
            Portfolio
            
            (1)
            
            Portfolio
            
            (1)
            
            Portfolio(Dollars
      in thousands)Debt securities:United
      States Governmentand
      Federal agenciesObligations
            $27,028
            
            43.07
            %
            $
      8,609
            
            17.40
            %
            $
      6,157
            
            13.21
            %Obligations
      of state andpolitical
      subdivisions
            1,575
            
            2.51
            
            1,854
            
            3.75
            
            3,109
            
            6.67Federal
      agency mortgage-Backed
      securities
            33,438
            
            53.29
            
            37,167
            
            75.10
            
            35,460
            
            76.06Total
      debt securities
            62,041
            
            98.87
            
            47,630
            
            96.25
            
            44,726
            
            95.94Equity
      securities:FHLB
      stock
            434
            
            0.69
            
            1,581
            
            3.19
            
            1,613
            
            3.46Other
            276
            
            0.44
            
            278
            
            0.56
            
            279
            
            0.60Total
      equity securities
            710
            
            1.13
            
            1,859
            
            3.75
            
            1,892
            
            4.06Total
      securities
            $62,751
            
            100.00
            %
            $49,489
            
            100.00
            %
            $46,618
            
            100.00
            %
















20






_____________(1)
            The
      market value of the Company's securities portfolio amounted to $62.8
      million, $49.5 million and $46.7 million at June 30, 2010, 2009 and 2008,
      respectively.  At June 30, 2010, the market value of the
      principal component of the Company's and the Savings Bank’s securities
      portfolio which were federal agencies mortgage-backed securities was $33.5
      million.




The
following table sets forth the maturities and weighted average yields of the
debt securities in the Company's investment securities portfolio at June 30,
2010.





After
      One Year
            
            After
      Five YearsOne
      Year or Less
            
            Through
      Five Years
            
            Through
      Ten Years
            
            After
      Ten YearsAmount
            
            Yield
            
            Amount
            
            Yield
            
            Amount
            
            Yield
            
            Amount
            
            Yield(Dollars
      in thousands)United
      StatesGovernmentand Federalagenciesobligations
            $   
         -
            
            -
            %
            $11,208
            
            2.52
            %
            $14,817
            
            2.86
            %
            $1,003
            
            2.00
            %Obligations
      ofstate andpoliticalsubdivisions
            270
            
            4.02
            
            990
            
            4.23
            
            315
            
            5.07
            
            -
            
            -Mortgage-backedsecurities
            265
            
            3.53
            
            2,353
            
            4.74
            
            6,347
            
            4.68
            
            24,473
            
            4.80Total
      debt
              securities
            $
      535
            
            
            
            $14,551
            
            
            
            $21,479
            
            
            
            $25,476








At June
30, 2010, the Company held no security which had an aggregate book value in
excess of 10% of the Company's stockholders' equity.





To
supplement lending activities in periods of deposit growth and/or declining loan
demand, the Savings Bank has invested in residential mortgage-backed
securities.  Although such securities are held for investment, they
can serve as collateral for borrowings and, through repayments, as a source of
liquidity.  For information regarding the carrying and market values
of the Company's mortgage-backed securities portfolio, see Note 2 of the Notes
to Consolidated Financial Statements included in the Annual
Report.  The Savings Bank has invested in federal agency securities
issued by FHLMC, FNMA and Government National Mortgage Association
("GNMA").  As of June 30, 2010, 24.4% of the outstanding balance of
the mortgage-backed securities had adjustable rates of interest that adjust
within the next two years.  As of June 30, 2010, the Savings Bank's
portfolio included $33.5 million of mortgage-backed securities purchased as
investments to supplement the Savings Bank's mortgage lending
activities.





The FHLMC, FNMA and GNMA certificates
are modified pass-through mortgage-backed securities that represent undivided
interests in underlying pools of fixed-rate, or certain types of
adjustable-rate, one-to-four family residential mortgages issued by these
government-sponsored entities.  As a result, the interest rate risk
characteristics of the underlying pool of mortgages, such as fixed- or
adjustable-rate, as well as prepayment risk, are passed on to the certificate
holder.  FHLMC and FNMA provide the certificate holder a guarantee of
timely payments of interest and ultimate collection of principal, whether or not
they have been collected.  GNMA's guarantee to the holder of timely
payments of principal and interest is backed by the full faith and credit of the
U.S. government.  Mortgage-backed securities generally yield less than
the loans that underlie such securities, because of the cost of payment
guarantees or credit enhancements that reduce credit risk.  In
addition, mortgage-backed securities are more liquid than individual mortgage
loans and may be used to








21








collateralize
obligations of the Savings Bank. At June 30, 2010, the Savings Bank owned no
mortgage derivative products.





Deposit
Activities and Other Sources of Funds





General.  Deposits
and loan repayments are the major source of the Savings Bank's funds for lending
and other investment purposes.  Loan repayments are a relatively
stable source of funds, while deposit inflows and outflows and loan prepayments
are significantly influenced by general interest rates and money market
conditions.  Borrowings may be used on a short-term basis to
compensate for reductions in the availability of funds from other
sources.  They may also be used on a longer term basis for general
business purposes.





Deposit
Accounts.  Deposits are attracted from within the Savings
Bank's primary market area through the offering of a broad selection of deposit
instruments, including negotiable order of withdrawal ("NOW") accounts, money
market accounts, regular savings accounts, certificates of deposit and
retirement savings plans.  Deposit account terms vary according to the
minimum balance required, the time periods the funds must remain on deposit and
the interest rate, among other factors.  In determining the terms of
its deposit accounts, the Savings Bank considers the rates offered by its
competition, profitability to the Savings Bank, matching deposit and loan
products and its customer preferences and concerns.  The Savings Bank
does not have any brokered deposits. The Savings Bank generally reviews its
deposit mix and pricing at least weekly, and adjusts it as necessitated by
liquidity needs, the interest rate sensitivity gap position (which is the extent
to which interest earning assets re-pricing during a specified time period
exceed interest bearing liabilities re-pricing during the same time period, or
vice versa) and competition.





The Savings Bank experienced a $9.1
million decrease in deposits during the year ended June 30, 2010. Certificates
of deposit decreased by $9.0 million from $86.2 million at June 30, 2009 to
$77.2 million at June 30, 2010, non-interest-bearing checking balances decreased
by $3.0 million from $14.8 million at June 30, 2009 to $11.8 million at June 30,
2010 and savings accounts decreased by $628,000 from $21.1 million at June 30,
2009 to $20.5 million at June 30, 2010. These decreases were partially offset by
increases in the money market savings account of $1.3 million in fiscal 2010
from $34.7 million at June 30, 2009 to $36.0 million at June 30, 2010 and in NOW
account balances of $2.1 million from $32.5 million at June 30, 2009 to $34.6
million at June 30, 2010. During most of the fiscal year ended June 30, 2010,
with the exception of our e-checking product, the rates paid by the Savings Bank
were below the mid-point of the range of rates offered by competitors in each
type and maturity of account. However, during the second half of fiscal 2010,
the Savings Bank did increase its rates on longer term certificates of deposit
in an effort to lengthen the overall maturity of its deposit portfolio. The
rates offered were higher than those offered by our competitors.





The
following table sets forth information concerning the Savings Bank's time
deposits and other interest-bearing deposits at June 30, 2010.


22





WeightedAverage
            
            
            
            
            
            
            
            
            PercentageInterest
            
            
            
            
            
            Minimum
            
            
            
            of
      TotalRate
            
            Term
            
            Category
            
            Amount
            
            Balance
            
            Deposits(Dollars
      in
              thousands)0.00%
            
            None
            
            Non-interest
      bearing
            
            $
      100
            
            $   
       11,774
            
            6.54
            %0.81
            
            None
            
            NOW
      accounts
            
            100
            
            34,632
            
            19.230.85
            
            None
            
            Super
      Saver accounts
            
            1,000
            
            9,086
            
            5.050.55
            
            None
            
            Savings
      accounts
            
            25
            
            11,380
            
            6.321.23
            
            None
            
            Money
      Market Savings
            
            10,000
            
            36,032
            
            20.01Certificates
      of deposit0.53
            
            3
      months
            Fixed
      term, fixed rate
            
            500
            
            643
            
            0.361.14
            
            6
      months
            Fixed
      term, fixed rate
            
            500
            
            8,634
            
            4.791.24
            
            9
      months
            Fixed
      term, fixed rate
            
            500
            
            1,405
            
            0.781.67
            
            11
      months
            Fixed
      term, fixed rate
            
            500
            
            1,984
            
            1.101.55
            
            12
      months
            Fixed
      term, fixed rate
            
            500
            
            13,253
            
            7.361.95
            
            15
      months
            Fixed
      term, fixed rate
            
            500
            
            957
            
            0.532.35
            
            18
      months
            Fixed
      term, fixed rate
            
            500
            
            1,487
            
            0.830.00
            
            21
      months
            Fixed
      term, fixed rate
            
            500
            
            -
            
            0.002.51
            
            24
      months
            Fixed
      term, fixed rate
            
            500
            
            7,713
            
            4.280.00
            
            27
      months
            Fixed
      term, fixed rate
            
            500
            
            -
            
            0.002.71
            
            30
      months
            Fixed
      term, fixed rate
            
            500
            
            365
            
            0.203.49
            
            33
      months
            Fixed
      term, fixed rate
            
            500
            
            27
            
            0.012.82
            
            36
      months
            Fixed
      term, fixed rate
            
            500
            
            1,719
            
            0.953.07
            
            48
      months
            Fixed
      term, fixed rate
            
            500
            
            945
            
            0.523.54
            
            60
      months
            Fixed
      term, fixed rate
            
            500
            
            3,331
            
            1.853.67
            
            72
      months
            Fixed
      term, fixed rate
            
            500
            
            22
            
            0.012.28
            
            Various
            
            Fixed
      term, adjustable rate
            500
            
            8,926
            
            4.962.42
            
            Various
            
            Jumbo
      certificates
            100,000
            
            25,760
            
            14.32$180,075
            
            100.00
            %








The
following table indicates the amount of the Savings Bank's jumbo certificates of
deposit by time remaining until maturity as of June 30, 2010.  Jumbo
certificates of deposit require minimum deposits of $100,000 and rates paid on
such accounts are negotiable.





JumboCertificatesMaturity
      Period
            
            Of
      Deposit(In
      thousands)Three
      months or less
            
            $   
       3,929After
      three through six months
            5,315After
      six through twelve months
            10,004After
      twelve months
            
            6,512Total
            
            $25,760











23











Time Deposits by Rates. The
following table sets forth the time deposits in the Savings Bank classified by
rates as of the dates indicated.





At
      June 30,2010
            
            2009(In
      thousands)0.00
      - 1.49%
            
            $
       27,712
            
            $   
      4,0601.50
      - 2.49%
            
            23,888
            
            26,8812.50
      - 3.49%
            
            17,342
            
            35,2973.50
      - 4.49%
            
            1,276
            
            6,3844.50
      - 5.00%
            
            6,173
            
            11,8795.01
      – 5.49%
            
            780
            
            1,566Over
      5.49%
            
            -
            
            121Total
            
            $77,171
            
            $86,188





The
following table sets forth the amount and maturities of time deposits at June
30, 2010.





Amount
      DueMore
            
            More
            MoreThan
            
            Than
            
            than
            
            
            
            
            
            PercentOne
      Year
            
            2
      Years
            
            3
      Years
            
            
            
            
            
            of
      TotalOne
      Year
            
            Thru
            
            Thru
            
            thru
            
            After
      4
            
            
            
            CertificateOr
      less
            
            2
      Years
            
            3
      Years
            
            4
      Years
            
            Years
            
            Total
            
            Accounts(In
      thousands)0.00
      - 1.49%
            $23,139
            
            $  
         867
            
            $ 
      1,538
            
            $
      2,168
            
            $       
        -
            
            $27,712
            
            35.92
            %1.50
      - 2.49%
            17,063
            
            5,596
            
            891
            
            338
            
            -
            
            23,888
            
            30.952.50
      - 3.49%
            10,880
            
            1,876
            
            1,064
            
            956
            
            2,566
            
            17,342
            
            22.473.50
      - 4.49%
            330
            
            774
            
            148
            
            2
            
            22
            
            1,276
            
            1.654.50
      - 5.00%
            4,177
            
            1,197
            
            799
            
            -
            
            -
            
            6,173
            
            8.00Over
      5.00%
            265
            
            248
            
            267
            
            -
            
            -
            
            780
            
            1.01Total
            
            $55,854
            
            $10,558
            
            $4,707
            
            $3,464
            
            $2,588
            
            $77,171
            
            100.00
            %





Deposit Flow. The following
table sets forth the balances of savings deposits in the various types of
savings accounts offered by the Savings Bank at the dates
indicated.




At
      June 30,2010
            
            2009Percent
            
            
            
            
            
            PercentOf
            
            Increase
            
            
            
            Of
            
            IncreaseAmount
            
            Total
            
            (Decrease)
            Amount
            
            Total
            
            (Decrease)(Dollars
      in thousands)Non-interest
      bearing
            $   
      11,774
            
            6.54
            %
            $(2,966)
            
            $ 
       14,740
            
            7.79
            %
            $  2,402NOW
      checking
            
            34,632
            
            19.23
            
            2,147
            
            32,485
            
            17.17
            
            373Regular
      savingsaccounts
            
            9,086
            
            5.05
            
            (230)
            
            9,316
            
            4.92
            
            (1,422)Super
      Saver accounts
            11,380
            
            6.32
            
            (398)
            
            11,778
            
            6.22
            
            (608)Money
      Marketsavings
      accounts
            36,032
            
            20.00
            
            1,321
            
            34,711
            
            18.34
            
            (5,193)Fixed-rateCertificatesWhich
      mature (1):Within
      1 year
            
            50,825
            
            28.23
            
            (2,034)
            
            52,859
            
            27.95
            
            (1,062)After
      1 year, butWithin
      2 years
            6,855
            
            3.81
            
            (4,347)
            
            11,202
            
            5.92
            
            5,729After
      2 years, butWithin
      5 years
            6,795
            
            3.77
            
            2,872
            
            3,923
            
            2.07
            
            315After
      5 years
            
            15
            
            0.01
            
            -
            
            15
            
            0.01
            
            15Adjustable-rateCertificates
            
            12,681
            
            7.04
            
            (5,508)
            
            18,189
            
            9.61
            
            (5,924)TotalCertificates
            
            77,171
            
            42.86
            
            (9,017)
            
            86,188
            
            45.56
            
            (927)Total
            
            $180,075
            
            100.00
            %
            $(9,143)
            
            $189,218
            
            100.00
            %
            $(5,375)









24







(1)
            At
      June 30, 2010 and 2009, jumbo certificates of deposit amounted to $25.8
      million and $28.7 million, respectively, and Individual Retirement
      Accounts (“IRAs”) amounted to $23.2 million and $25.1 million at those
      dates, respectively.




The
following table sets forth the savings activities of the Savings Bank for the
periods indicated.





Years
      Ended June 30,2010
            
            2009(In
      thousands)Beginning
      balance
            
            $189,218
            
            $194,593Net
      increase (decrease)before
      interest credited
            
            (12,411)
            
            (9,596)Interest
      credited
            
            3,268
            
            4,221Net
      increase/(decrease) insavings
      deposits
            
            (9,143)
            
            (5,375)Ending
      balance
            
            $180,075
            
            $189,218





In the
unlikely event the Savings Bank is liquidated, depositors will be entitled to
full payment of their deposit accounts prior to any payment being made to the
Company, as sole stockholder of the Savings Bank.  Substantially all
of the Savings Bank's depositors are residents of the State of
Missouri.





Retail Repurchase
Agreements.  In December 2006, the Savings Bank began to offer
retail repurchase agreements.  This was done to provide an additional
product for its existing customer base and to attract new customers who would
find the product beneficial.  Customers with large balances in
checking accounts benefit by having those balances which exceed a predetermined
level "swept" out of the checking account and into a retail repurchase
account.  The repurchase account earns interest at a floating market
rate and is uninsured. However, the balance is collateralized by designated
investment securities of the Savings Bank.  At June 30, 2010, the
Savings Bank had $5.4 million in retail repurchase agreements.





Borrowings.  Savings
deposits are the primary source of funds for the Savings Bank's lending and
investment activities and for its general business purposes.  The
Savings Bank also relies on advances from the FHLB-Des Moines to supply funds
and to act as a source of liquidity, if needed.  The FHLB-Des Moines
has served as the Savings Bank's primary borrowing source.  Advances
from the FHLB-Des Moines are typically secured by the Savings Bank's first
mortgage loans.  These advances require monthly payments of interest
only with principal due at maturity and have fixed rates. At June 30, 2010, the
Savings Bank had $3.0 million in advances from the FHLB-Des Moines.





The
following tables set forth certain information concerning the Savings Bank's
borrowings at the dates and for the periods indicated.





At
      June 30,2010
            
            
            2009
            
            
            2008Weighted
      average rate paid onFHLB
      advances
            
            
            4.94
            %
            
            
            3.05
            %
            
            
            5.75
            %Years
      Ended June 30,2010
            
            
            
            2009
            
            
            
            2008(Dollars
      in thousands)Maximum
      amounts of FHLB advancesOutstanding
      at any month end
            
            $
            10,000
            
            
            $
            29,000
            
            
            $
            22,000Approximate
      average FHLB advancesOutstanding
            
            $
            5,692
            
            
            $
            22,846
            
            
            
            22,000Approximate
      average effective ratepaid
      on FHLB advances
            
            
            3.18
            %
            
            
            5.14
            %
            
            
            5.85
            %





The
FHLB-Des Moines functions as a central reserve bank providing credit for savings
and loan associations and other member financial institutions.  As








25
 a member,
the Savings Bank is required to own capital stock in the FHLB-Des Moines and is
authorized to apply for advances on the security of such stock and on the
security of certain of its mortgage loans and other assets (principally
securities which are obligations of, or guaranteed by, the United States)
provided certain standards related to creditworthiness have been
met.  Advances are made pursuant to several different
programs.  Each credit program has its own interest rate and range of
maturities.  Depending on the program, limitations on the amount of
advances are based either on a fixed percentage of an institution's retained
earnings or on the FHLB's assessment of the institution's creditworthiness. The
FHLB-Des Moines determines specific lines of credit for each member institution.
As of June 30, 2010, the Savings Bank, based on the available collateral could
have borrowed an additional $30.7 million in advances from the FHLB. During
fiscal 2009, the Savings Bank determined to prepay $19.0 million in fixed-rate,
convertible advances with a weighted average interest cost of 5.88%. A penalty
for the prepayment totaled just over $1.2 million, which amount is included in
other operating expense for fiscal 2009.





Subsidiary
Activities





Fybar
Service Corporation ("Fybar") is a Missouri corporation wholly-owned by the
Savings Bank.  Until May 2007, Fybar owned five rental properties,
which were transferred to the Company.  The transfer of the real
estate was done to comply with one of the requirements of the Memorandum of
Understanding with the OTS, specifically that Fybar either divest itself of its
real estate holdings or apply for an exception from the FDIC. Management
believes that the transfer to the Company was the best and most expeditious way
to meet the MOU requirement.  The transfer was done at the net book
value on Fybar's books.  The Company took title to the properties,
assumed the mortgage obligation to the Savings Bank, paid a portion of the
difference between the net book value of the real estate and the balance of the
mortgage in cash and executed a note payable to Fybar for the remainder of the
difference. During the year ended June 30, 2008, the Company paid off its note
to Fybar.





Fybar
serves as Trustee on all the Savings Bank's deeds of trust, is a registered
agent and receives limited income from credit life and accident and health
policies written in conjunction with the Savings Bank's loans.





At June
30, 2010, the Savings Bank had an investment in Fybar of $620,000.





Regulation
of First Home





As a
Missouri-chartered and federally insured savings and loan association, First
Home is subject to extensive regulation.  Lending activities and other
investments must comply with various statutory and regulatory capital
requirements.  The Savings Bank is regularly examined by its state and
federal regulators and files periodic reports concerning the Savings Bank's
activities and financial condition.  The Savings Bank's relationship
with its depositors and borrowers is also regulated to a great extent by federal
and state laws, especially in such matters as the ownership of savings accounts
and the form and content of the Savings Bank's mortgage documents.





Missouri Savings and Loan
Law





General.  As a
Missouri-chartered savings and loan association, First Home derives its
authority from, and is governed by, the provisions of the Missouri Savings and
Loan Law ("Missouri Law") and regulations of the Missouri Division of Finance
("Division").  The Director of the Missouri Division of Finance
("Director") proposes regulations which must then be approved, amended, modified
or disapproved by the State Savings and Loan Commission
("Commission").  Missouri Law and the resulting regulations are
administered by the Director.






26





Investments and Accounts.
Missouri Law and regulations impose restrictions on the types of investments and
loans that may be made by a Missouri-chartered institution, generally bringing
these restrictions into parity with the regulation of federally chartered
institutions.  The manner of establishing accounts and evidencing the
same is prescribed, as are the obligations of the institution with respect to
withdrawals from accounts and redemption of accounts.  The Director
may also impose or grant the same restrictions, duties and powers concerning
deposits as are applicable to federal institutions under federal rules and
regulations.





Branch
Offices.  Under Missouri Law, no institution may establish a
branch office or agency without the prior written approval of the
Director.  The Director reviews the proposed location, the functions
to be performed at the office, the estimated volume of business, the estimated
annual expense of the office and the mode of payments.  Decisions of
the Director may be appealed to the Commission.  The relocation or
closing of any office is subject to additional regulation and in certain
circumstances may require prior approval.





Merger or
Consolidation.  Missouri Law permits the merger or
consolidation of savings institutions, subject to the approval by the Director,
when the Director finds that such merger or consolidation is equitable to the
members or account holders of the institutions and will not impair the
usefulness and success of other properly conducted institutions in the
community.  Mergers or consolidations of mutual institutions must also
be approved by a majority of the members of each institution.  Stock
institutions must obtain shareholder approval pursuant to the Missouri statutes
relating to general and business corporations.





Holding
Companies.  Missouri Law requires a savings and loan holding
company and its subsidiaries to register with the Director within 60 days of
becoming a savings and loan holding company.  Following registration
it is subject to examination by the Division and thereafter must file periodic
reports with the Director.  A savings and loan holding company may
acquire control of an institution, which is the subsidiary of another savings
and loan holding company upon application and prior written approval of the
Director.  The Director, in reviewing the application, must determine
if such acquisition is consistent with the interests of maintaining a sound
financial system and that the acquisition does not afford a basis for
supervisory objection.





Examination.  Periodic
reports to the Division must be made by each Missouri-chartered
institution.  The Division conducts and supervises the examination of
state-chartered institutions.





Supervision.  The
Director has general supervisory authority over Missouri-chartered institutions
and upon the Director's finding that an institution is violating the provisions
of its articles of incorporation, its bylaws or any law of the state, or is
conducting business in an unsafe or injurious manner, the Director may order the
institution to discontinue such violation or practice, and to conform with all
the requirements of law.  The Director may demand and take possession
of the institution, if the institution fails to comply with the Director's
order, if the Director determines that the institution is insolvent, in an
unsafe condition or conducting business in an unsafe manner, or if the
institution refuses to submit to examination or inspection by the
Division.





Federal Regulation of Savings
Banks




New Legislation.  On
July 21 2010, the Dodd-Frank Act was signed into law. The Dodd-Frank Act
implements far-reaching changes across the financial regulatory landscape,
including provisions that, among other things, will:




·
            On
      July 21, 2011 (unless extended for up to six additional months), transfer
      the responsibilities and authority of the OTS to supervise and








27








examine state
      savings associations, including the Savings Bank, to the FDIC, and
      transfer the responsibilities and authority of the OTS to supervise and
      examine savings and loan holding companies, including the Company, to the
      Federal Reserve Board.




·
            Centralize
      responsibility for consumer financial protection by creating a new agency
      within the Federal Reserve Board, the Bureau of Consumer Financial
      Protection, with broad rulemaking, supervision and enforcement authority
      for a wide range of consumer protection laws that would apply to all banks
      and thrifts.  Smaller financial institutions, including the
      Savings Bank, will be subject to the supervision and enforcement of their
      primary federal banking regulator with respect to the federal consumer
      financial protection laws.




·
            Require
      new capital rules and apply the same leverage and risk-based capital
      requirements that apply to insured depository institutions to savings and
      loan holding companies beginning July 21,
2015.




·
            Require
      the federal banking regulators to seek to make their capital requirements
      countercyclical, so that capital requirements increase in times of
      economic expansion and decrease in times of economic
      contraction.




·
            Provide
      for new disclosure and other requirements relating to executive
      compensation and corporate
governance.




·
            Make
      permanent the $250,000 limit for federal deposit insurance and provide
      unlimited federal deposit insurance until January 1, 2013 for
      non-interest bearing demand transaction accounts at all insured depository
      institutions.




·
            Effective
      July 21, 2011, repeal the federal prohibitions on the payment of interest
      on demand deposits, thereby permitting depository institutions to pay
      interest on business transaction and other
  accounts.




·
            Require
      all depository institution holding companies to serve as a source of
      financial strength to their depository institution subsidiaries in the
      event such subsidiaries suffer from financial
  distress.







Many
aspects of the Dodd-Frank Act are subject to rulemaking and will take effect
over several years, making it difficult to anticipate the overall financial
impact on the Company and the financial services industry more
generally.  The elimination of the prohibition on the payment of
interest on demand deposits could materially increase our interest expense,
depending our competitors’ responses.  Provisions in the legislation
that require revisions to the capital requirements of the Company and the
Savings Bank could require the Company and the Savings Bank to seek additional
sources of capital in the future.





Office of Thrift
Supervision.The OTS is an office in the Department of the
Treasury subject to the general oversight of the Secretary of the Treasury.
Among other functions, the OTS issues and enforces regulations affecting
federally-insured savings associations and regularly examines these
institutions.





The OTS
has extensive authority over the operations of all insured savings
associations.  As part of this authority, First Home is required to
file periodic reports with the OTS District Director and is subject to periodic
examinations by the OTS and the FDIC.  The OTS and FDIC have extensive
discretion in their supervisory and enforcement activities and examination
policies, including policies with respect to the classification of assets and
the establishment of adequate loan loss reserves for regulatory
purposes.  Any change in these policies, whether by the OTS, the FDIC
or Congress, could have a material adverse impact on the Company and the Savings
Bank.






28





The OTS
has established a schedule for the assessment of fees upon all savings
associations to fund the operations of the OTS.  The general
assessment, paid on a semi-annual basis, is determined based upon the savings
association's total assets, including consolidated subsidiaries, as reported in
the savings association's latest quarterly thrift financial
report.  For the first half of calendar 2010, the Savings Bank's
assessment under the semi-annual assessment procedure was $52,000, and for the
second half of calendar 2010, the Savings Bank's assessment under the
semi-annual assessment procedure was $51,000.





If the
OTS deems an institution to be in “troubled condition” (because it receives a
composite CAMELS rating of 4 or 5, is subject to a cease and desist or consent
order, a capital or prompt corrective action directive, or a formal written
agreement, or because of other reasons), the institution will become subject to
various restrictions, such as growth limits, requirement for prior application
of any new director or senior executive officer, restrictions on dividends,
compensation and golden parachute and indemnification payments, and restrictions
on transactions with affiliates and third parties.  Higher assessment
and application fees will also apply.





In
addition, the OTS, as well as the other federal banking agencies, has adopted
guidelines establishing safety and soundness standards on such matters as loan
underwriting and documentation, asset quality, earnings, internal controls and
audit systems, interest rate risk exposure and compensation and other employee
benefits.  Any institution that fails to comply with these standards
must submit a compliance plan.  In this regard, both the Company and
the Savings Bank stipulated to Cease and Desist Orders from OTS in August 2009.
For additional information regarding the Cease and Desist Orders, see
"-Corporate Developments and Overview."





Insurance of Accounts and Regulation
by the FDIC. The Savings Bank's deposits are insured up to applicable
limits by the Deposit Insurance Fund (“DIF”) of the FDIC.  The DIF is
the successor to the Bank Insurance Fund and the Savings Association Insurance
Fund, which were merged effective March 31, 2006.  As insurer, the
FDIC imposes deposit insurance premiums and is authorized to conduct
examinations of, and to require reporting by, FDIC-insured
institutions.  It also may prohibit any FDIC-insured institution from
engaging in any activity the FDIC determines by regulation or order to pose a
serious risk to the insurance fund. The FDIC also has the authority to initiate
enforcement actions against savings institutions, after giving the OTS an
opportunity to take such action, and may terminate the deposit insurance if it
determines that the institution has engaged in unsafe or unsound practices or is
in an unsafe or unsound condition.




The FDIC
currently assesses deposit insurance premiums on each FDIC-insured institution
quarterly based on annualized rates for four risk categories applied to its
deposits, subject to certain adjustments. Each institution is assigned to one of
four risk categories based on its capital, supervisory ratings and other
factors. Well capitalized institutions that are financially sound with only a
few minor weaknesses are assigned to Risk Category I. Risk Categories II, III
and IV present progressively greater risks to the DIF. Under FDIC’s risk-based
assessment rules, effective April 1, 2009, the initial base assessment rates
prior to adjustments range from 12 to 16 basis points for Risk Category I,
and  are 22 basis points for Risk Category II, 32 basis points for
Risk Category III, and 45 basis points for Risk Category IV.  Initial
base assessment rates are subject to adjustments based on an institution’s
unsecured debt, secured liabilities and brokered deposits, such that the total
base assessment rates after adjustments range from 7 to 24 basis points for Risk
Category I, 17 to 43 basis points for Risk Category II, 27 to 58 basis points
for Risk Category III, and 40 to 77.5 basis points for Risk Category
IV.  The FDIC’s regulations include authority for the FDIC to increase
or decrease total base assessment rates in the future by as much as








29
 three
basis points without a formal rulemaking proceeding.  No institution
may pay a dividend if in default of the FDIC assessment.




The
Dodd-Frank Act requires the FDIC to amend its regulations to define the
assessment base against which deposit insurance premiums are calculated as a
depository institution’s average total consolidated assets less the
institution’s average tangible equity.  At this time, the extent to
which the above-described assessment system will be modified by the Dodd-Frank
Act implementing regulations is unknown.




The
Dodd-Frank Act increased the minimum reserve ratio (the ratio of the net worth
of the DIF to estimated insured deposits) from 1.15% of estimated deposits to
1.35% of estimated deposits (or a comparable percentage of the asset-based
assessment base described above).  The Dodd-Frank Act requires the
FDIC to offset the effect of the increase in the minimum reserve ratio when
setting assessments for insured depository institutions with less than $10
billion in total consolidated assets, including the Bank. The FDIC has until
September 30, 2020 to achieve the new minimum reserve ratio of
1.35%.




A significant increase in insurance
premiums would likely have an adverse effect on the operating expenses and
results of operations of the Savings Bank.  There can be no prediction
as to what insurance assessment rates will be in the
future.  Insurance of deposits may be terminated by the FDIC upon a
finding that the institution has engaged in unsafe or unsound practices, is in
an unsafe or unsound condition to continue operations or has violated any
applicable law, regulation, rule, order or condition imposed by the FDIC or the
OTS.  Management of the Savings Bank is not aware of any practice,
condition or violation that might lead to termination of the Savings Bank’s
deposit insurance.




On November 12, 2009, the FDIC required
insured depository institutions to prepay their quarterly risk-based assessments
for the quarter ended December 31, 2009 and for all of calendar 2010, 2011, and
2012, on December 30, 2009, along with each institution’s risk-based assessment
for the third quarter of 2009.  In December 2009, the Savings Bank
paid the prepaid assessment of $1.6 million; and as of June 30, 2010, the
outstanding prepaid assessment was $1.2 million.




Federal Home Loan Bank
System.The Savings Bank is a member of the FHLB-Des Moines,
which is one of 12 regional FHLBs that administer the home financing credit
function of member financial institutions.  Each FHLB serves as a
reserve or central bank for its members within its assigned
region.  It is funded primarily from proceeds derived from the sale of
consolidated obligations of the FHLB System.  It makes loans or
advances to members in accordance with policies and procedures, established by
the Board of Directors of the FHLB, which are subject to the oversight of the
Federal Housing Finance Agency.  All advances from the FHLB are
required to be fully secured by sufficient collateral as determined by the
FHLB.  In addition, all long-term advances are required to provide
funds for residential home financing.  At June 30, 2010, the Savings
Bank had $3.0 million of outstanding advances from the FHLB-Des
Moines.  See “Business -- Deposit Activities and Other Sources of
Funds -- Borrowings” herein.





As a member, the Savings Bank is
required to purchase and maintain stock in the FHLB-Des Moines.  At
June 30, 2010, the Savings Bank had $434,000 in FHLB-Des Moines stock, which was
in compliance with this requirement.  In past years, the Savings Bank
has received substantial dividends on its FHLB-Des Moines stock.  The
average dividend yield for fiscal 2010, 2009, 2008 and 2007 was 2.56%, 0.94%,
4.46% and 4.97%, respectively.  There can be no
assurance  that the FHLB-Des Moines will maintain its dividend at
these levels.





Under
federal law, the FHLB is required to provide funds for the resolution of
troubled savings institutions and to contribute to low- and moderately-priced
housing programs through direct loans or interest subsidies








30
 on
advances targeted for community investment and low- and moderate-income housing
projects.  These contributions have affected adversely the level of
FHLB dividends paid and could continue to do so in the future.  These
contributions could also have an adverse effect on the value of FHLB stock in
the future.  A reduction in value of the Savings Bank's FHLB stock may
result in a corresponding reduction in the Savings Bank's
capital.





Prompt Corrective
Action.The OTS is required to take certain supervisory
actions against undercapitalized savings associations, the severity of which
depends upon the institution's degree of under-capitalization. Generally, an
institution is considered to be “undercapitalized” if it has a Tier 1 capital
ratio of less than 4% (3% or less for institutions with the highest examination
rating), a ratio of total capital to risk-weighted assets of less than 8.0%, or
a ratio of Tier 1 capital to risk-weighted assets of less than
4.0%.  An institution that has a core capital ratio that is less than
3%, a capital ratio less than 6%, and a Tier I risk-based capital ratio of less
than 3% is considered to be "significantly undercapitalized" and an institution
that has a tangible capital to assets ratio equal to or less than 2% is deemed
to be "critically undercapitalized."





Subject
to a narrow exception, the OTS is required to appoint a receiver or conservator
for a savings institution that is "critically under-capitalized."  OTS
regulations also require that a capital restoration plan be filed with the OTS
within 45 days of the date a savings institution receives notice that it is
"undercapitalized," "significantly undercapitalized" or "critically
undercapitalized." The capital plan must include a guarantee by the
institution’s holding company, capped at the lesser of 5.0% of the institution’s
assets when it was on notice that it was undercapitalized, or the amount
necessary to restore it to adequately capitalized status when it initially fails
to comply with its capital restoration plan. In addition, numerous mandatory
supervisory actions become immediately applicable to an undercapitalized
institution, including, but not limited to, increased monitoring by regulators
and restrictions on growth, capital distributions and
expansion.  “Significantly undercapitalized” and “critically
undercapitalized” institutions are subject to more extensive mandatory
regulatory actions.  Under various circumstances, the OTS also can
take one or more of a number of further supervisory actionsagainst an
institution that is not at least adequately capitalized,, including the issuance
of a capital directive and the replacement of senior executive officers and
directors.





At June 30, 2010, First Home was
categorized as "well capitalized"  under the prompt corrective action
regulations of the OTS.  The OTS defines “well capitalized” to mean
that an institution has a core capital ratio of at least 5.0%, a ratio of total
capital to risk-weighted assets of at least 10.0% and a ratio of Tier 1 capital
to risk-weighted assets of at least 6.0%, and is not subject to a written
agreement, order or directive requiring it to maintain any specific capital
measure.  An “adequately capitalized” institution is one that does not
meet the definition of “well capitalized” and has a core capital ratio of at
least 4.0%, a ratio of total capital to risk-weighted assets of at least 8.0%
and a ratio of Tier 1 capital to risk-weighted assets of at least
4.0%.  The OTS may reclassify an institution to a lower capital
category based on various supervisory criteria.  An “adequately
capitalized” institution is subject to restrictions on deposit rates under the
FDIC’s brokered deposit rule which covers, in some circumstances, deposits
solicited directly by the institution.





Qualified Thrift Lender
Test.  All savings associations, including First Home, are
required to meet a qualified thrift lender test to avoid certain restrictions on
their operations.  This test requires a savings association to have at
least 65% of its total assets, as defined by regulation, in qualified thrift
investments on a monthly average for nine out of every 12 months on a rolling
basis.  As an alternative, the savings association may maintain 60% of
its assets in those assets specified in Section 7701(a)(19) of the Internal








31
 Revenue
Code of 1986, as amended (“Code”).  Under either test, such assets
primarily consist of residential housing related loans and
investments.  A savings association that fails to meet the qualified
thrift lender test is subject to certain operating restrictions and may be
required to convert to a national bank charter.  At June 30, 2010,
First Home maintained 68.13% of it portfolio assets in qualified thrift
investments and, therefore, met the qualified thrift lender
test.





Capital
Requirements.The OTS's capital regulations require federal
savings institutions to meet three minimum capital standards: a 1.5% tangible
capital ratio, a 4% core capital ratio  and an 8% risk-based capital
ratio. In addition, the prompt corrective action standards discussed above also
establish, in effect, minimum ratios of 2% tangible capital, 4% core capital (3%
for institutions receiving the highest rating on the CAMELS system), 8%
risk-based capital and,  4% Tier I risk-based capital. The OTS
regulations also require that, in meeting the tangible, core and risk-based
capital ratios, institutions must generally deduct investments in and loans to
subsidiaries engaged in activities as principal that are not permissible for a
national bank.





The
risk-based capital standard requires federal savings institutions to maintain
Tier I and total capital (which is defined as core capital and supplementary
capital) to risk-weighted assets of at least 4% and 8%, respectively. In
determining the amount of risk-weighted assets, all assets, including certain
off-balance sheet assets, recourse obligations, residual interests and direct
credit substitutes, are multiplied by a risk-weight factor of 0% to 100%,
assigned by the OTS capital regulation based on the risks believed inherent in
the type of asset.  Core capital is defined as common stockholders'
equity (including retained earnings), certain non-cumulative perpetual preferred
stock and related surplus and minority interests in equity accounts of
consolidated subsidiaries, less intangibles other than certain mortgage
servicing rights and credit card relationships. The components of supplementary
capital currently include cumulative preferred stock, long-term perpetual
preferred stock, mandatory convertible securities, subordinated debt and
intermediate preferred stock, the allowance for loan losses limited to a maximum
of 1.25% of risk-weighted assets and up to 45% of unrealized gains on
available-for-sale equity securities with readily determinable fair market
values.  Overall, the amount of supplementary capital included as part
of total capital cannot exceed 100% of core capital.





The OTS
also has authority to establish individual minimum capital requirements in
appropriate cases upon a determination that an institution's capital level is or
may become inadequate in light of the particular circumstances. At June 30,
2010, the Savings Bank met each of these capital requirements, which is
reflected in the  following table.





At
      June 30, 2010Percent
      ofAmount
            
            Assets(Dollars
      in thousands)Tangible
      capital
            
            $20,153
            
            9.65
            %Minimum
      required tangible capital
            3,133
            
            1.50Excess
            
            $17,020
            
            8.15
            %Core
      capital
            
            $20,153
            
            9.65
            %Minimum
      required core capital
            
            8,354
            
            4.00Excess
            
            $11,799
            
            5.65
            %Risk-based
      capital
            
            $21,419
            
            19.99
            %Minimum
      risk-based capital requirement
            8,572
            
            8.00Excess
            
            $12,847
            
            11.99
            %






32


Limitations on Capital
Distributions.OTS regulations impose various restrictions on
savings institutions with respect to their ability to make distributions of
capital, which include dividends, stock redemptions or repurchases, cash-out
mergers and other transactions charged to the capital
account.  Generally, savings institutions, such as the Savings Bank,
that before and after the proposed distribution are well-capitalized, may make
capital distributions during any calendar year up to 100% of net income for the
year-to-date plus retained net income for the two preceding years. However, an
institution deemed to be in need of more than normal supervision or in troubled
condition by the OTS may have its dividend authority restricted by the
OTS.  The Savings Bank currently is required to file an application
and receive approval of the OTS prior to paying any dividends or making any
capital distributions.  For additional information, see “Item 1A --
Risk Factors--Risks Related to Our Market and Business--We are subject to the
restrictions and conditions of Cease and Desist Orders from, and other
commitments we have made to, the Office of Thrift Supervision. Failure to comply
with the Cease and Desist Orders could result in additional enforcement action
against us, including the imposition of monetary penalties.”




Savings
institutions proposing to make any capital distribution need not submit written
notice to the OTS prior to such distribution unless they are a subsidiary of a
holding company or would not remain well-capitalized following the
distribution.  Savings institutions that do not, or would not meet
their current minimum capital requirements following a proposed capital
distribution or propose to exceed these net income limitations, must obtain OTS
approval prior to making such distribution.  The OTS may object to the
distribution during that 30-day period based on safety and soundness
concerns.





Loans to One
Borrower.Federal law provides that savings institutions are
generally subject to the national bank limit on loans to one
borrower.  A savings institution may not make a loan or extend credit
to a single or related group of borrowers in excess of 15% of its unimpaired
capital and surplus.  An additional amount may be lent, equal to 10%
of unimpaired capital and surplus, if such loan is secured by specified
readily-marketable collateral.  At June 30, 2010, the Savings Bank's
largest extension of credit outstanding to any one borrower, including related
entities, was $3.9 million,of which $637,000 was unfunded.  This amount represents two
participation loans secured by  a shopping center development in St.
Joseph, Missouri. These loans were performing in accordance with their terms at
that date.





The OTS,
as well as the other federal banking agencies, has adopted guidelines
establishing safety and soundness standards on such matters as loan underwriting
and documentation, asset quality, earnings, internal controls and audit systems,
interest rate risk exposure and compensation and other employee
benefits.  Any institution that fails to comply with these standards
must submit a compliance plan.





Activities of Savings Associations
and Their Subsidiaries.When a savings association establishes
or acquires a subsidiary or elects to conduct any new activity through a
subsidiary that the association controls, the savings association must notify
the FDIC and the OTS 30 days in advance and provide the information each agency
may require.  Savings associations also must conduct the activities of
subsidiaries in accordance with existing regulations and orders.





The OTS
may determine that the continuation by a savings association of its ownership
control of, or its relationship to, the subsidiary constitutes a serious risk to
the safety, soundness or stability of the savings association or is inconsistent
with sound banking practices or with the purposes of the Federal Deposit
Insurance Act.  Based upon that determination, the FDIC or the OTS has
the authority to order the savings association to divest itself of control of
the subsidiary.  The FDIC also may determine by regulation or order
that any specific activity poses a serious threat to the DIF.  If so,
it may require that no DIF member engage in that activity directly.






33





Transactions with Affiliates.The Savings Bank's authority to engage in transactions with "affiliates"
is limited by OTS regulations and by Sections 23A and 23B of the Federal Reserve
Act as implemented by the Federal Reserve Board's Regulation W.  The
term "affiliates" for these purposes generally means any company that controls
or is under common control with an institution.  The Company and its
non-savings institution subsidiaries would be affiliates of the Savings
Bank.  In general, transactions with affiliates must be on terms that
are as favorable to the institution as comparable transactions with
non-affiliates.  In addition, certain types of transactions are
restricted to an aggregate percentage of the institution's capital. Collateral
in specified amounts must be provided by affiliates in order to receive loans
from an institution.  In addition, savings institutions are prohibited
from lending to any affiliate that is engaged in activities that are not
permissible for bank holding companies and no savings institution may purchase
the securities of any affiliate other than a subsidiary.Federally
insured savings institutions are subject, with certain exceptions, to certain
restrictions on extensions of credit to their parent holding companies or other
affiliates, on investments in the stock or other securities of affiliates and on
the taking of such stock or securities as collateral from any
borrower.  In addition, these institutions are prohibited from
engaging in certain tie-in arrangements in connection with any extension of
credit or the providing of any property or service.  An institution
deemed to be in “troubled condition” must file a notice with the OTS and obtain
its non-objection to any transaction with an affiliate (subject to certain
exemptions).





The Sarbanes-Oxley Act of 2002
("Sarbanes-Oxley Act") generally prohibits a company from making loans to its
executive officers and directors. However, that act contains a specific
exception for loans by a depository institution to its executive officers and
directors in compliance with federal banking laws.  Under such laws,
the Savings Bank's authority to extend credit to executive officers, directors
and 10% stockholders ("insiders"), as well as entities which such person's
control, is limited.  The law restricts both the individual and
aggregate amount of loans the Savings Bank may make to insiders based, in part,
on the Savings Bank's capital position and requires certain Board approval
procedures to be followed.  Such loans must be made on terms
substantially the same as those offered to unaffiliated individuals and not
involve more than the normal risk of repayment.  There is an exception
for loans made pursuant to a benefit or compensation program that is widely
available to all employees of the institution and does not give preference to
insiders over other employees.  There are additional restrictions
applicable to loans to executive officers.





Community Reinvestment
Act.  Under the Community Reinvestment Act (“CRA”), every
FDIC-insured institution has a continuing and affirmative obligation consistent
with safe and sound banking practices to help meet the credit needs of its
entire community, including low and moderate income
neighborhoods.  The CRA does not establish specific lending
requirements or programs for financial institutions nor does it limit an
institution's discretion to develop the types of products and services that it
believes are best suited to its particular community, consistent with the
CRA.  The CRA requires the OTS, in connection with the examination of
the Savings Bank, to assess the institution's record of meeting the credit needs
of its community and to take such record into account in its evaluation of
certain applications, such as a merger or the establishment of a branch, by the
Savings Bank.  The OTS may use an unsatisfactory rating as the basis
for the denial of an application.  Due to the heightened attention
being given to the CRA in the past few years, the Savings Bank may be required
to devote additional funds for investment and lending in its local
community.  The Savings Bank was examined for CRA compliance and
received a rating of outstanding in its latest examination.






34


Regulatory and Criminal Enforcement
Provisions.  The OTS has primary enforcement responsibility
over savings institutions and has the authority to bring action against all
"institution-affiliated parties," including stockholders, attorneys, appraisers
and accountants who knowingly or recklessly participate in wrongful action
likely to have an adverse effect on an insured institution.  Formal
enforcement action may range from the issuance of a capital directive or cease
and desist order to the removal of officers or directors, receivership,
conservatorship or termination of deposit insurance. Civil penalties cover a
wide range of violations and can amount to $25,000 per day, or $1.1 million per
day in especially egregious cases.  The FDIC has the authority to
recommend to the Director of the OTS that an enforcement action be taken with
respect to a particular savings institution. If the Director does not take
action, the FDIC has authority to take such action under certain
circumstances.  Federal law also establishes criminal penalties for
certain violations.




Environmental Issues Associated with
Real Estate Lending.  The Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA"), a federal statute, generally imposes
strict liability on all prior and present "owners and operators" of sites
containing hazardous waste.  However, Congress asked to protect
secured creditors by providing that the term "owner and operator" excludes a
person whose ownership is limited to protecting its security interest in the
site.  Since the enactment of the CERCLA, this "secured creditor
exemption" has been the subject of judicial interpretations which have left open
the possibility that lenders could be liable for cleanup costs on contaminated
property that they hold as collateral for a loan.  In addition,
lenders, such as the Savings Bank, may be subject to environmental liabilities
with respect to real estate properties that are placed in foreclosure that they
subsequently take title to.  For additional information, see Item 1A,
“Risk Factors – Risks Related
to Our Market and Business -- Our real estate lending also exposes us to
the risk of environmental liabilities.”




To the
extent that legal uncertainty exists in this area, all creditors, including the
Savings Bank, that have made loans secured by properties with potential
hazardous waste contamination (such as petroleum contamination) could be subject
to liability for cleanup costs, which costs often substantially exceed the value
of the collateral property.





Privacy
Standards.  The Gramm-Leach-Bliley Financial Services
Modernization Act of 1999 ("GLBA") modernized the financial services industry by
establishing a comprehensive framework to permit affiliations among commercial
banks, insurance companies, securities firms and other financial service
providers.  The Savings Bank is subject to OTS regulations
implementing the privacy protection provisions of the GLBA. These regulations
require the Savings Bank to disclose its privacy policy, including identifying
with whom it shares "non-public personal information," to customers at the time
of establishing the customer relationship and annually thereafter.





Anti-Money Laundering and Customer
Identification.  Congress enacted the Uniting and Strengthening
America by Providing Appropriate Tools Required to Intercept and Obstruct
Terrorism Act of 2001 (the "USA Patriot Act") on October 26, 2001 in response to
the terrorist events of September 11, 2001. The USA Patriot Act gives the
federal government new powers to address terrorist threats through enhanced
domestic security measures, expanded surveillance powers, increased information
sharing, and broadened anti-money laundering requirements.  In March
2006, Congress re-enacted certain expiring provisions of the USA Patriot
Act.





Regulation
of First Bancshares





General.  First
Bancshares is a unitary savings and loan holding company subject to the
regulatory oversight of the OTS.  Accordingly, the Company is








35


required
to register and file reports with the OTS and is subject
to  regulation and examination by the OTS.  In addition, the
OTS has enforcement authority over the Company and its non-savings institution
subsidiaries, which also permits the OTS to restrict or prohibit activities that
are determined to present a serious risk to the subsidiary savings institution.
As noted above, pursuant to the Dodd-Frank Act, the authority to supervise and
examine the Company as a savings and loan holding company will be transferred
from the OTS to the Federal Reserve Board.  In addition, beginning
July 21, 2015, the Company as a savings and loan holding company will be subject
to the same leverage and risk-based capital requirements that apply to insured
depository institutions.





Activities
Restrictions.  The GLBA provides that no company may acquire
control of a savings association after May 4, 1999 unless it engages only in the
financial activities permitted for financial holding companies under the law or
for multiple savings and loan holding companies as described
below.  The GLBA also specifies, subject to a grandfather provision,
that existing savings and loan holding companies may only engage in such
activities.  The Company qualifies for the grandfathering and is
therefore not restricted in terms of its activities.  Upon any
non-supervisory acquisition by the company of another savings association as a
separate subsidiary, the Company would become a multiple savings and loan
holding company and would be limited to those activities permitted multiple
savings and loan holding companies by OTS regulation.  Multiple
savings and loan holding companies may engage in activities permitted for
financial holding companies, and certain other activities including acting as a
trustee under deed of trust and real estate investments.





If the
Savings Bank fails the qualified thrift lender test, the Company must, within
one year of that failure, register as, and will become subject to, the
restrictions applicable to bank holding companies.  See "Regulation of
First Home -- Qualified Thrift Lender Test" for information regarding the
Savings Bank's qualified thrift lender test.





Mergers and Acquisitions. The
Company must obtain approval from the OTS before acquiring more than 5% of the
voting stock of another savings institution or savings and loan holding company
or acquiring such an institution or holding company by merger, consolidation or
purchase of its assets.  In evaluating an application for the Company
to acquire control of a savings institution, the OTS would consider the
financial and managerial resources and future prospects of the Company and the
target institution, the effect of the acquisition on the risk to the DIF, the
convenience and the needs of the community and competitive factors.





The OTS
may not approve any acquisition that would result in a multiple savings and loan
holding company controlling savings institutions in more than one state, subject
to two exceptions; (i) the approval of interstate supervisory acquisitions by
savings and loan holding companies and (ii) the acquisition of a savings
institution in another state if the laws of the states of the target savings
institution specifically permit such acquisitions.  The states vary in
the extent to which they permit interstate savings and loan holding company
acquisitions.





Sarbanes-Oxley Act of
2002.  The Sarbanes-Oxley Act of 2002 was signed into law on
July 30, 2002 in response to public concerns regarding corporate accountability
in connection with recent accounting scandals.  The stated goals of
the Sarbanes-Oxley Act are to increase corporate responsibility, to provide for
enhanced penalties for accounting and auditing improprieties at publicly traded
companies and to protect investors by improving the accuracy and reliability of
corporate disclosures pursuant to the securities laws.  The
Sarbanes-Oxley Act generally applies to all companies that file or are required
to file periodic reports with the SEC, under the Securities Exchange Act of
1934, including the Company.






36


The
Sarbanes-Oxley Act includes very specific additional disclosure requirements and
corporate governance rules, requires the SEC and securities exchanges to adopt
extensive additional disclosure, corporate governance and other related rules
and mandates further studies of certain issues by the SEC and the Comptroller
General. The Sarbanes-Oxley Act represents significant federal involvement in
matters traditionally left to state regulatory systems, such as the regulation
of the accounting profession, and to state corporate law, such as the
relationship between a board of directors and management and between a board of
directors and its committees.As noted
above, the Dodd-Frank Act imposes additional disclosure and corporate government
requirements and represents further federal involvement in matters historically
addressed by state corporate law.




Taxation





Federal Taxation





General.  The
Company and the Savings Bank report their income on a fiscal year basis using
the accrual method of accounting and are subject to federal income taxation in
the same manner as other corporations with some exceptions, including
particularly the Savings Bank's reserve for bad debts discussed
below.  The following discussion of tax matters is intended only as a
summary and does not purport to be a comprehensive description of the tax rules
applicable to the Savings Bank or the Company.





Bad Debt
Reserve.Historically, savings institutions such as the
Savings Bank which met certain definitional tests primarily related to their
assets and the nature of their business ("qualifying thrift") were permitted to
establish a reserve for bad debts and to make annual additions thereto, which
may have been deducted in arriving at their taxable income.  The
Savings Bank's deductions with respect to "qualifying real property loans,"
which are generally loans secured by certain interest in real property, were
computed using an amount based on the Savings Bank's actual loss experience, or
a percentage equal to 8% of the Savings Bank's taxable income, computed with
certain modifications and reduced by the amount of any permitted additions to
the non-qualifying reserve.  Due to the Savings Bank's loss
experience, the Savings Bank generally recognized a bad debt deduction equal to
8% of taxable income.





In August
1996, the provisions repealing the current thrift bad debt rules were passed by
Congress as part of "The Small Business Job Protection Act of
1996."  The rules eliminate the 8% of taxable income method for
deducting additions to the tax bad debt reserves for all thrifts for tax years
beginning after December 31, 1995.  These rules also require that all
institutions recapture all or a portion of their bad debt reserves added since
the base year (last taxable year beginning before January 1,
1988).   For taxable years beginning after December 31, 1995, the
Savings Bank's bad debt deduction will be determined under the experience method
using a formula based on actual bad debt experience over a period of years or,
if the Savings Bank is a "large" association (assets in excess of $500 million)
on the basis of net charge-offs during the taxable year.  The
un-recaptured base year reserves will not be subject to recapture as long as the
institution continues to carry on the business of banking.  In
addition, the balance of the pre-1988 bad debt reserves continue to be subject
to provisions of present law referred to below that require recapture in the
case of certain excess distributions to shareholders.




Distributions.To
the extent that the Savings Bank makes "non-dividend distributions" to the
Company that are considered as made:  (i) from the reserve for losses
on qualifying real property loans, to the extent the reserve for such losses
exceeds the amount that would have been allowed under the experience method; or
(ii)  from the supplemental reserve for losses on loans ("Excess
Distributions"), then an amount based on the amount distributed will








37
 be
included in the Savings Bank's taxable income.  Non-dividend
distributions include distributions in excess of the Savings Bank's current and
accumulated earnings and profits, distributions in redemption of stock, and
distributions in partial or complete liquidation.  However, dividends
paid out of the Savings Bank's current or accumulated earnings and profits, as
calculated for federal income tax purposes, will not be considered to result in
a distribution from the Savings Bank's bad debt reserve.  Thus, any
dividends to the Company that would reduce amounts appropriated to the Savings
Bank's bad debt reserve and deducted for federal income tax purposes would
create a tax liability for the Savings Bank. The amount of additional taxable
income attributable to an Excess Distribution is an amount that, when reduced by
the tax attributable to the income, is equal to the amount of the
distribution.  Thus, if, the Savings Bank makes a "non-dividend
distribution," then approximately one and one-half times the amount so used
would be includable in gross income for federal income tax purposes, assuming a
35% corporate income tax rate (exclusive of state and local
taxes).  See "Regulation of First Home – Limitations on Capital
Distributions" for limits on the payment of dividends by the Savings
Bank.  The Savings Bank does not intend to pay dividends that would
result in a recapture of any portion of its tax bad debt
reserve.





Corporate Alternative Minimum
Tax.The Code imposes a tax on alternative minimum taxable
income ("AMTI") at a rate of 20%.  The excess of the tax bad debt
reserve deduction using the percentage of taxable income method over the
deduction that would have been allowable under the experience method is treated
as a preference item for purposes of computing the AMTI.  AMTI is
increased by an amount equal to 75% of the amount by which the Savings Bank's
adjusted current earnings exceed its AMTI (determined without regard to this
preference and prior to reduction for net operating losses).





Dividends-Received Deduction and
Other Matters.The Company may exclude from its income 100% of
dividends received from the Savings Bank as a member of the same affiliated
group of corporations.  The corporate dividends-received deduction is
generally 70% in the case of dividends received from unaffiliated corporations
with which the Company and the Savings Bank will not file a consolidated tax
return, except that if the Company or the Savings Bank owns more than 20% of the
stock of a corporation distributing a dividend, then 80% of any dividends
received may be deducted.





Other Federal Tax
Matters.Other changes in the federal tax system could also
affect the business of the Savings Bank.  These changes include
limitations on the deduction for personal interest paid or accrued by individual
taxpayers, limitations on the deductibility of losses attributable to investment
in certain passive activities and limitations on the deductibility of
contributions to individual retirement accounts.  The Savings Bank
does not believe these changes will have a material effect on its
operations.





There
have not been any IRS audits of the Company's and Savings Bank's consolidated
Federal income tax returns during the past five years.





Missouri Taxation





Missouri-based
thrift institutions, such as the Savings Bank, are subject to a special
financial institutions tax, based on net income without regard to net operating
loss carry-forwards, at the rate of 7% of net income.  This tax is in
lieu of certain other state taxes on thrift institutions, on their property,
capital or income, except taxes on tangible personal property owned by the
Savings Bank and held for lease or rental to others and on real estate,
contributions paid pursuant to the Unemployment Compensation Law of Missouri,
social security taxes, sales taxes and use taxes.  In addition, First
Home is entitled to credit against this tax all taxes paid to the State of
Missouri or any political subdivision except taxes on tangible personal property
owned by the Savings Bank and held for lease or rental to others and on real
estate, contributions paid pursuant to the Unemployment Compensation Law of
Missouri,








38
 social
security taxes, sales and use taxes, and taxes imposed by the Missouri Financial
Institutions Tax Law.  Missouri thrift institutions are not subject to
the regular state corporate income tax.





There
have not been any audits of the Savings Bank's state income tax returns during
the past five years.





For
additional information regarding taxation, see Note 9 of the Notes to the
Consolidated Financial Statements included in the Annual Report.





Competition





The
Savings Bank has been, and continues to be, a community-oriented savings
institution offering a variety of financial resources to meet the needs of
Wright, Webster, Douglas, Ozark, Christian, Stone, Taney and Green counties,
Missouri.  The Savings Bank also transacts a significant amount of
business in Texas county, Missouri.  The Savings Bank's deposit
gathering and lending activities are concentrated in these market
areas.  At June 30, 2010, the Savings Bank's offices were located in
Mountain Grove, Marshfield, Ava, Gainesville, Sparta, Theodosia, Crane, Galena,
Kissee Mills, Rockaway Beach, and Springfield, Missouri.





The
Savings Bank is the only thrift institution based in Wright County,
Missouri.  The Savings Bank faces strong competition in the attraction
of savings deposits and in the origination of loans. Its most direct competition
for savings deposits and loans has historically come from other thrift
institutions and from commercial banks, small loan companies and credit unions
located in its primary market area, some with a state-wide or regional
presence.  The Savings Bank also competes with securities firms, money
market funds and mutual funds in raising deposits. Many of these institutions
are substantially larger and have greater financial resources than the Savings
Bank.





The competitive factors among
financial institutions can be classified into two categories; competitive rates
and competitive services.  Interest rates are widely advertised and
thus competitive, especially in the area of time deposits.  From a
service standpoint, financial institutions compete against each other in types
and quality of services.  The Savings Bank is generally competitive
with other financial institutions in its area with respect to interest rates
paid on time and savings deposits, fees charged on deposit accounts, and
interest rates charged on loans.  With respect to services, the
Savings Bank offers a customer service-oriented atmosphere which management
believes is tailored to its customers' needs.





The
Savings Bank also believes it benefits from its focus on meeting the needs of it
community  as well as its relatively high core deposit
base.





Executive
Officers





The
following table sets forth certain information with respect to the executive
officers of the Company and the Savings Bank.






39





Name
              Age(1)
              PositionThomas
      M. Sutherland
              58
              Chairman
      of the Board and Chief
                Executive Officer of
      the Company and
                the Savings BankLannie E.
      Crawford
              59
              President
      of the Company and the Savings
                BankRonald
      J. Walters
              60
              Senior
      Vice President, Treasurer and
                Chief Financial Officer of the
                Company and the Savings
      BankDale W.
      Keenan
              47
              Executive
      Vice President and Senior
                Lender of the
      Savings Bank


_________________


(1)
            As
      of June 30, 2010.





The
principal occupation of each executive officer of the Company is set forth
below.  All executive officers reside in the Savings Bank's primary
trade area in Missouri, unless otherwise stated. There are no family
relationships among or between the executive officers, unless otherwise
stated.





Thomas M. Sutherland was
appointed as Chief Executive Officer of the Company and the Savings Bank
effective November 6, 2008.  Mr. Sutherland, a resident of
Springfield, Missouri, has served as Chairman of the Board of the Company’s and
Savings Bank’s Boards of Directors since 2005.Mr.
Sutherland is one of the owners and operators of the Sutherlands Home
Improvement Centers group of stores.





Lannie E. Crawford was
appointed as President of the Company and the Savings Bank effective November 6,
2008.  Mr. Crawford joined the Savings Bank in November 2007 and has
more than 32 years of experience with financial institutions. Prior to joining
the Company and the Savings Bank, Mr. Crawford served as Senior Vice President
and Regional Manager of Sun Security Bank, Mountain Grove, Missouri from 2003
until November 2007.





Ronald J. Walters joined the
Company and the Savings Bank on November 20, 2006 as Senior Vice President,
Treasurer and Chief Financial Officer.  Mr. Walters, a CPA, was
previously Senior Vice President, Secretary, Treasurer and Chief Financial
Officer of Meta Financial Group and MetaBank in Storm Lake, Iowa from 2003 to
2006.  He has over 34 years experience in financial
services.





Dale W. Keenan joined the
Savings Bank on March 11, 2007 as Executive Vice President and Senior
Lender.  Mr. Keenan was previously a Senior Vice President and Senior
Lender for Heritage Bank of the Ozarks in Lebanon, Missouri from 2003 to
2007.  Mr. Keenan has over 27 years of experience in financial
services.





Personnel





As of
June 30, 2010, the Savings Bank had 80 full-time employees and 16 part-time
employees.  The Savings Bank believes that employees play a vital role
in the success of a service company and that the Savings Bank's relationship
with its employees is good.  The employees are not represented by a
collective bargaining unit.





Item 1A.  Risk
Factors





An
investment in our common stock is subject to risks inherent in our business.
Before you invest in our common stock, you should be aware that there are
various risks, including those described below, which could affect the value of
your investment in the future. The trading price of our common








40
 stock
could decline as a result of any of these risks, and you may lose all or part of
your investment. The risk factors described in this section, as well as any
cautionary language in this Form 10-K, provide examples of risks, uncertainties
and events that could have a material adverse effect on our business, including
our operating results and financial condition. This Form 10-K also contains
forward-looking statements that involve risks and uncertainties. These risks
could cause our actual results to differ materially from the expectations that
we describe in our forward-looking statements. You should carefully consider the
risks described below, together with all of the other information included or
incorporated by reference in this Form 10-K, before making an investment
decision.




We
are subject to the restrictions and conditions of Cease and Desist Orders from,
and other commitments we have made to, the Office of Thrift Supervision. Failure
to comply with the Cease and Desist Orders could result in additional
enforcement action against us, including the imposition of monetary
penalties.





As
discussed above under "Corporate Developments and Overview," we have entered
into a Stipulation and Consent to the issuance of Order to Cease and Desist with
the Office of Thrift Supervision.





Under the
terms of the Office of Thrift Supervision orders, the Savings Bank and the
Company, without the prior written approval of the Office of Thrift Supervision,
may not:





·
            Increase
      assets during any quarter;




·
            Pay
      dividends;




·
            Increase
      brokered deposits;




·
            Repurchase
      shares of the Company’s outstanding common stock;
  and




·
            Issue
      any debt securities or incur any debt (other than that incurred in the
      normal course of business).







Other
material provisions of the order require the Savings Bank and the Company
to:





·
            develop
      a business plan for enhancing, measuring and maintaining profitability,
      increasing earnings, improving liquidity and maintaining capital levels,
      acceptable to the Office of Thrift
Supervision;




·
            ensure
      the Savings Bank’s compliance with applicable laws, rules, regulations and
      agency guidelines, including the terms of the
  order;




·
            not
      appoint any new director or senior executive officer or change the
      responsibilities of any current senior executive officers without
      notifying the Office of Thrift
Supervision;




·
            not
      enter into, renew, extend or revise any compensation or benefit agreements
      for directors or senior executive
officers;




·
            not
      make any indemnification, severance or golden parachute
      payments;




·
            enhance
      its asset classification policy;




·
            provide
      progress reports to the Office of Thrift Supervision regarding certain
      classified assets;




·
            submit
      a comprehensive plan for reducing classified
  assets;






41




·
            develop
      a plan to reduce its concentration in certain loans contained in the loan
      portfolio and that addresses the assessment, monitoring and control of the
      risks association with the commercial real estate
    portfolio;




·
            not
      enter into any arrangement or contract with a third party service provider
      that is significant to the overall operation or financial of the Savings
      Bank, or that is outside the normal course of business;
  and




·
            prepare
      and submit progress reports to the Office of Thrift Supervision. The
      Office of Thrift Supervision orders will remain in effect until modified
      or terminated by the Office of Thrift
  Supervision.





If the Office of Thrift Supervision
determines that we are not in compliance with the orders, it would have
available various remedies, including among others, the power to enjoin “unsafe
or unsound” practices, to require affirmative action to correct any conditions
resulting from any violation or practice, to direct an increase in capital, to
remove officers and/or directors, to assess civil monetary penalties or to
enforce the orders through court proceedings.





Management has been taking action and
implementing programs to comply with the requirements of the orders and the
Savings Bank and the Company believes that they are in substantial compliance
with the requirements set forth in the orders, as of the date of this Form 10-K.
Compliance with the orders, however, is subject to a determination by the Office
of Thrift Supervision. The Office of Thrift Supervision may determine, in its
sole discretion, that we have not addressed the issues raised by the orders
satisfactorily, or that any current or past actions, violations or deficiencies
could be the subject of further regulatory enforcement actions taken by
it.  Such enforcement actions could involve penalties or limitations
on our business and negatively affect our ability to implement our business
plan, the value of our common stock as well as our financial condition and
results of operations.





Our
business may be adversely affected by credit risk associated with residential
property.




At June
30, 2010, $60.2 million, or 54.2% of our total loan portfolio, was secured by
one-to four-family residential real estate loans. This type of lending is
generally sensitive to regional and local economic conditions that significantly
impact the ability of borrowers to meet their loan payment obligations making
loss levels difficult to predict. The decline in residential real estate values
as a result of the downturn in the housing market has reduced the value of the
real estate collateral securing the majority of our loans held for investment
and has increased the risk that we will incur losses if borrowers default on
their loans.  Continued declines in both the volume of real estate
sales and the sales prices coupled with the current recession and the associated
increases in unemployment may result in higher than expected loan delinquencies
or problem assets, a decline in demand for our products and services, a lack of
growth and/or a decrease in deposits.  These potential negative events
may cause us to incur losses, adversely affect our capital and liquidity, and
damage our financial condition and business operations. These declines may have
a greater effect on our earnings and capital than on the earnings and capital of
financial institutions whose loan portfolios are more diversified.




Our loan portfolio includes loans
with a higher risk of loss.





We
originate residential mortgage loans (including second mortgage loans),
construction loans, commercial mortgage and land loans, commercial business
loans and consumer loans primarily within our market area. Generally,








42
 the types
of loans other than residential mortgage loans have a higher risk of loss than
residential mortgage loans.  We had $40.4 million or 36.4% of our
total loan portfolio outstanding in these higher risk loans at June 30, 2010. We
have had a significant increase in these types of loans since 1999, when we
began to diversify the loan portfolio in order to mitigate other types of risk,
such as interest-rate risk.  While diversification into construction,
commercial real estate  and land, commercial business, and consumer
loans may have reduced interest-rate risk as a result of their typically shorter
terms and, in most cases, adjustable nature of their interest rates, they do
expose a lender to greater credit risk than loans secured by residential real
estate. The collateral securing these loans may not be sold as easily as
residential real estate. These loans also have greater credit risk than
residential real estate for the following reasons and as discussed in detail
under A-- Lending
Activities”:





·
            Commercial Real Estate and
      Land Loans.  Commercial real estate and land loans
      typically involve higher principal amounts than other types of
      loans.  Repayment is dependent upon income being generated in
      amounts sufficient to cover borrowers' operating expenses, as well as,
      debt service.  Loans on land under development or held for
      future use also pose additional risk because of a lack of income produced
      by the property and the potential illiquid nature of the
      security.  The repayment of loans secured by farm properties is
      dependent upon the success of farming operations, which is contingent on
      many factors outside the control of either the borrowers or
      us.  These factors include adverse weather conditions,
      fluctuating market prices of both final product and production costs,
      factors affecting the physical condition of livestock and government
      regulations.





·
            Commercial Business
      Loans.  Repayment of these loans is dependent upon the
      successful operation of the borrower's
  businesses.





·
            Consumer
      Loans.  Consumer loans (such as vehicle loans, mobile
      home loans and personal lines of credit) are collateralized, if at all,
      with assets that may not provide an adequate source of payment of the loan
      due to depreciation, damage, or
loss.





·
            Construction
      Loans.  Construction
      lending in lending involves the inherent difficulties of estimating
      the cost of the project and estimating a property's value at completion of
      the project.  If the estimate of construction cost proves to be
      inaccurate, we may need to advance funds beyond the original loan amount
      in order to complete the project.  If the estimate of value upon
      completion proves to be inaccurate, we may be confronted at, or prior to,
      the maturity of the loan with a project the value of which is insufficient
      to assure full repayment.




Our
allowance for loan losses may prove to be insufficient to absorb losses in our
loan portfolio.




Lending
money is a substantial part of our business and each loan carries a certain risk
that it will not be repaid in accordance with its terms or that any underlying
collateral will not be sufficient to assure repayment. This risk is affected by,
among other things:




·
            cash
      flow of the borrower and/or the project being
  financed;




·
            changes
      and uncertainties as to the future value of the collateral, in the case of
      a collateralized loan;






43




·
            the
      duration of the loan;




·
            the
      credit history of a particular borrower;
and




·
            changes
      in economic and industry
conditions.




We
maintain an allowance for loan losses, which is a reserve established through a
provision for loan losses charged to expense, which we believe is appropriate to
provide for probable losses in our loan portfolio. The amount of this allowance
is determined by our management through periodic reviews and consideration of
several factors, including, but not limited to:




·
            our
      general reserve, based on our historical default and loss experience and
      certain macroeconomic factors based on management’s expectations of future
      events; and




·
            our
      specific reserve, based on our evaluation of non-performing loans and
      their underlying collateral.




The
determination of the appropriate level of the allowance for loan losses
inherently involves a high degree of subjectivity and requires us to make
various assumptions and judgments about the collectability of our loan
portfolio, including the creditworthiness of our borrowers and the value of the
real estate and other assets serving as collateral for the repayment of many of
our loans. In determining the amount of the allowance for loan losses, we review
our loans and the loss and delinquency experience, and evaluate economic
conditions and make significant estimates of current credit risks and future
trends, all of which may undergo material changes. If our estimates are
incorrect, the allowance for loan losses may not be sufficient to cover losses
inherent in our loan portfolio, resulting in the need for additions to our
allowance through an increase in the provision for loan
losses.  Continuing deterioration in economic conditions affecting
borrowers, new information regarding existing loans, identification of
additional problem loans and other factors, both within and outside of our
control, may require an increase in the allowance for loan
losses.  Our allowance for loan losses was $2.5 million or 2.28% of
gross loans held for investment and 64.4% of nonperforming loans at June 30,
2010. In addition, bank regulatory agencies periodically review our allowance
for loan losses and may require an increase in the provision for possible loan
losses or the recognition of further loan charge-offs, based on judgments
different than those of management. If charge-offs in future periods exceed the
allowance for loan losses, we will need additional provisions to increase the
allowance for loan losses. Any increases in the provision for loan losses will
result in a decrease in net income and may have a material adverse effect on our
financial condition, results of operations and our capital.





If
our allowance for loan losses is not adequate, we may be required to make
further increases in our provisions for loan losses and to charge-off additional
loans, which could adversely affect our results of operations.





For the
fiscal year ended June 30, 2010 we recorded a provision for loan losses of
$852,000 compared to $5.3 million for the fiscal year ended June 30, 2009. Our
results of operations for fiscal 2009 were severely impacted by the $5.3 million
provision for loan losses. We also recorded net loan charge-offs of $2.7 million
for the fiscal year ended June 30, 2010 compared to $3.9 million for the fiscal
year ended June 30, 2009. During these last two fiscal years, we experienced
increasing loan delinquencies and credit losses. Generally, our non-performing
loans and assets reflect operating difficulties of individual borrowers
resulting from weakness in the local economy; however, more recently adverse
conditions in the general economy have become a significant contributing factor
to the increased levels of loan delinquencies








44
 and
non-performing loans. Slower sales and excess inventory in the housing market
have been a contributing factor to the increase in delinquencies and
non-performing loans. At June 30, 2010, our total non-performing loans had
increased to $3.9 million, or 3.5% of total loans, compared to $3.3 million, or
2.4% of total loans, at June 30, 2009. If current trends in the housing and real
estate markets continue, we expect that we will continue to experience higher
than normal delinquencies and credit losses. Moreover, until general economic
conditions improve, we will continue to experience significantly higher than
normal delinquencies and credit losses. As a result, we could be required to
make further increases in our provision for loan losses and to charge off
additional loans in the future, which could have a material adverse effect on
our financial condition and results of operations.




The
current economic recession in the market areas we serve may continue to
adversely impact our earnings and could increase our credit risk associated with
our loan portfolio.





Substantially
all of our loans are to businesses and individuals in the eight counties of
Wright, Webster, Douglas, Christian, Ozark, Stone, Taney and Greene in the State
of Missouri, which we consider to be our primary market area.  In
addition to loans within our primary market area, we also have originated loans
in 11 other states.  The local economic conditions in our market areas
have a significant impact on the demand for our products and services as well as
the ability of our customers to repay loans, the value of the collateral
securing loans and the stability of our deposit funding sources.




A further
deterioration in economic conditions in the market areas we serve could result
in the following consequences, any of which could have a materially adverse
impact on our business, financial condition and results of
operations:




·
            loan
      delinquencies, problem assets and foreclosures may
    increase;




·
            demand
      for our products and services may
decline;




·
            collateral
      for loans made may decline further in value, in turn reducing customers’
      borrowing power, reducing the value of assets and collateral associated
      with existing loans;




·
            the
      amount of our low-cost or non-interest bearing deposits may decrease;
      and




·
            the
      price of our common stock may
decrease.




We
may have continuing losses and low earnings.





We have
had losses and reduced net income in recent years.  For the fiscal
years ended June 30, 2010, 2009 and 2006, we had net losses of $1.5 million,
$4.0 million and $173,000, respectively. Net income was $363,000 and $272,000,
for the fiscal years ended June 30, 2008 and 2007,
respectively.  Similarly, our return on average assets was 0.15% and
0.09% for the fiscal years ended June 30, 2008 and 2007 and our return on
average equity was 1.34% and 0.77% for the same years.  Our returns on
average assets and average equity were negative for the fiscal years ended June
30, 2010, 2009 and 2006, as we incurred net losses for those years. We continue
to face considerable challenges that will hinder our ability to improve our
earnings significantly. These challenges include the restriction on our
operations under the Cease and Desist Orders with the Office of Thrift
Supervision, the increased  level of our problem loans, and the
pressure on our interest rate spread. Our interest








45
 rate
spread, which is the difference between the average yield earned on our
interest-earning assets and the average rate paid on interest-bearing
liabilities, has fluctuated during the past three years from a low of 2.71% for
the year ended June 30, 2007 to 3.11% for the year ended June 30,
2010.





While we
have identified and are implementing various strategic initiatives to improve
earnings and to overcome these operating and other challenges, our strategic
initiatives might not succeed in increasing our net income.





We have had a significant amount of
problem loans and related losses.





Between
1999 and 2008, the Savings Bank focused on increasing our commercial business
loan and commercial real estate loan portfolios.  However, as a
result, we recognized substantial write-offs in the fiscal years ended June 30,
2010, 2009, 2006 and 2005.  Our ratio of non-performing assets to
total assets increased from 0.59% at June 30, 2006 to 1.47% at June 30, 2007, to
1.56% at June 30, 2008, to 5.23% at June 30, 2009 and to 6.19% at June 30, 2010.
Our total non-accruing loans increased from $841,000 at June 30, 2006 to $2.9
million at June 30, 2007,  decreased to $2.3 million at June 30, 2008,
increased to $3.0 million at June 30, 2009 and increased to $3.9 million at June
30, 2010. The increase in non-performing loans between June 30, 2008 and June
30, 2010 was primarily attributable to the impact of deteriorating economic
conditions on borrowers, both commercial and consumer, during that time
period.




At June
30, 2010, classified assets were $11.6 million, a decrease from $12.0 million at
June 30, 2009.  We also indentified an additional $1.6 million of
loans at June 30, 2010 as Special Mention. These items could increase our
classified assets if there was further deterioration in their financial
condition.  These loans include $623,000, $70,000, $909,000 of
commercial real estate, land and commercial non-real estate loans,
respectively.





Fluctuating
interest rates can adversely affect our profitability.





Our profitability is dependent to a
large extent upon net interest income, which is the difference, or spread,
between the interest earned on loans, securities and other interest-earning
assets and the interest paid on deposits, borrowings, and other interest-bearing
liabilities. Because of the differences in maturities and repricing
characteristics of our interest-earning assets and interest-bearing liabilities,
changes in interest rates do not produce equivalent changes in interest income
earned on interest-earning assets and interest paid on interest-bearing
liabilities.  We principally manage interest rate risk by managing our
volume and mix of our earning assets and funding liabilities. In a changing
interest rate environment, we may not be able to manage this risk
effectively.  Changes in interest rates also can affect: (1) our
ability to originate and/or sell loans; (2) the value of our interest-earning
assets, which would negatively impact stockholders’ equity, and our ability to
realize gains from the sale of such assets; (3) our ability to obtain and retain
deposits in competition with other available investment alternatives; and (4)
the ability of our borrowers to repay adjustable or variable rate
loans.  Interest rates are highly sensitive to many factors, including
government monetary policies, domestic and international economic and political
conditions and other factors beyond our control.  If we are unable to
manage interest rate risk effectively, our business, financial condition and
results of operations could be materially harmed.






46





Continued
weak or worsening credit availability could limit our ability to replace
deposits and fund loan demand, which could adversely affect our earnings and
capital levels.




Continued
or worsening credit availability and the inability to obtain adequate funding to
replace deposits and fund continued loan growth may negatively affect asset
growth and, consequently, our earnings capability and capital levels. In
addition to any deposit growth, maturity of investment securities and loan
payments, we rely from time to time on advances from the Federal Home Loan Bank
of Des Moines and certain other wholesale funding sources to fund loans and
replace deposits. If the economy does not improve or continues to deteriorate,
these additional funding sources could be negatively affected, which could limit
the funds available to us. Our liquidity position could be significantly
constrained if we were unable to access funds from the Federal Home Loan Bank of
Des Moines or other wholesale funding sources.




We
are dependent on key members of our senior management team, which has changed
significantly in the past five years.





We are
dependent on the continued efforts and abilities of our executive officers and
key management personnel.  Their experience and industry contacts
significantly benefit us. The loss of any of these individuals could have a
material adverse impact on our operations because other officers may not have
the experience and expertise to readily replace these individuals.




We have
had four different Presidents and Chief Executive Officers since
2003.  Our current President was appointed in November 2008 and has
only been employed by the Company and the Savings Bank since November
2007.  In addition, our current Chief Executive Officer has only
served in that position since November 2008; however, he has served as our
Chairman of the Board of Directors since 2005.  Finally, our Chief
Financial Officer has only been with the Company and the Savings Bank since
November 2006, and many of our other key members of senior management have been
with the Savings Bank for just over three years.




While we
believe we have qualified individuals in place to succeed the individuals who
have left the Savings Bank, these individuals will need to develop a cohesive
and unified senior management team.  Any additional changes in key
personnel and their responsibilities may be disruptive to our business and could
have a material adverse effect on our business, financial condition and
profitability.





Increases
in deposit insurance premiums and special FDIC assessments will hurt our
earnings.




Beginning
in late 2008, the economic environment caused higher levels of bank failures,
which dramatically increased FDIC resolution costs and led to a significant
reduction in the deposit insurance fund. As a result, the FDIC has significantly
increased the initial base assessment rates paid by financial institutions for
deposit insurance. The base assessment rate was increased by seven basis points
(seven cents for every $100 of deposits) for the first quarter of 2009.
Effective April 1, 2009, initial base assessment rates were changed to range
from 12 basis points to 45 basis points across all risk categories with possible
adjustments to these rates based on certain debt-related components. These
increases in the base assessment rate have increased our deposit insurance costs
and negatively impacted our earnings. In addition, in May 2009, the FDIC imposed
a special assessment on all insured institutions due to recent bank and savings
association failures. The emergency assessment amounts to five basis points on
each institution’s assets minus Tier 1 capital as of June 30, 2009, subject to a
maximum equal to 10 basis points times the institution’s assessment base. Our
FDIC deposit insurance expense for fiscal 2010 and 2009 was $603,000 and
$256,000, respectively.






47




In
addition, the FDIC may impose additional emergency special assessments of up to
five basis points per quarter on each institution’s assets minus Tier 1 capital
if necessary to maintain public confidence in federal deposit insurance or as a
result of deterioration in the deposit insurance fund reserve ratio due to
institution failures. Any additional emergency special assessment imposed by the
FDIC will hurt our earnings.  Additionally, in November 2009, the FDIC
required financial institutions to prepay its estimated quarterly risk-based
assessment for the fourth quarter of 2009 and for all of 2010, 2011 and
2012.  The Savings Bank prepaid $1.6 million in December 2009 and as
of June 30, 2010, the outstanding balance, after estimated accruals, was $1.2
million.




Our
growth or future losses may require us to raise additional capital in the
future, but that capital may not be available when it is needed or the cost of
that capital may be very high.




We are
required by federal regulatory authorities to maintain adequate levels of
capital to support our operations.   In addition, we may elect to
raise additional capital to support our business or to finance acquisitions, if
any.  In that regard, a number of financial institutions have recently
raised considerable amounts of capital as a result of a deterioration in their
results of operations and financial condition arising from the turmoil in the
mortgage loan market, deteriorating economic conditions, declines in real estate
values and other factors.  If we are required by regulatory
authorities to raise additional capital, we may seek to do so through the
issuance of, among other things, our common stock or preferred
stock.





Our ability to raise additional
capital, if needed, will depend on conditions in the capital markets at that
time, which are outside our control, and on our financial condition and
performance.  Accordingly, we cannot make assurances that we will be
able to raise additional capital if needed on terms that are acceptable to us,
or at all.  If we cannot raise additional capital when needed, our
ability to further expand our operations through internal growth and
acquisitions could be materially impaired and our financial condition and
liquidity could be materially and adversely affected.  In addition, if
we are unable to raise additional capital when required by the Office of Thrift
Supervision, we may be subject to additional adverse regulatory
action.  See “We are subject to the restrictions and conditions of
Cease and Desist Orders from, and other commitments we have made to, the Office
of Thrift Supervision. Failure to comply with the Cease and Desist Orders could
result in additional enforcement action against us, including the imposition of
monetary penalties.”




Competition
with other financial institutions could adversely affect our
profitability.




The
banking and financial services industry is very competitive. Legal and
regulatory developments have made it easier for new and sometimes unregulated
competitors to compete with us. Consolidation among financial service providers
has resulted in fewer very large national and regional banking and financial
institutions holding a large accumulation of assets. These institutions
generally have significantly greater resources, a wider geographic presence or
greater accessibility. Our competitors sometimes are also able to offer more
services, more favorable pricing or greater customer convenience than we do. In
addition, our competition has grown from new banks and other financial services
providers that target our existing or potential customers. As consolidation
continues, we expect additional institutions to try to exploit our
market.




Technological
developments have allowed competitors including some non-depository
institutions, to compete more effectively in local markets and have expanded the
range of financial products, services and capital available to








48





our
target customers. If we are unable to implement, maintain and use such
technologies effectively, we may not be able to offer products or achieve
cost-efficiencies necessary to compete in our industry. In addition, some of
these competitors have fewer regulatory constraints and lower cost
structures.





We
operate in a highly regulated environment and may be adversely affected by
changes in federal and state laws and regulations, including changes that may
restrict our ability to foreclose on single-family residential loans and offer
overdraft protection.




We are
subject to extensive regulation, supervision and examination by federal banking
authorities. Any change in applicable regulations or laws could have a
substantial impact on us and our operations. Additional legislation and
regulations that could significantly affect our powers, authority and operations
may be enacted or adopted in the future, which could have a material adverse
effect on our financial condition and results of operations. New legislation
proposed by Congress may give bankruptcy courts the power to reduce the
increasing number of home foreclosures by giving bankruptcy judges the authority
to restructure mortgages and reduce a borrower’s payments. Property owners would
be allowed to keep their property while working out their debts. Other similar
bills placing additional temporary moratoriums on foreclosure sales or otherwise
modifying foreclosure procedures to the benefit of borrowers and the detriment
of lenders may be enacted by either Congress in the future. These laws may
further restrict our collection efforts on one-to-four single-family mortgage
loans. A federal rule which took effect July 6, 2010, prohibits a financial
institution from automatically enrolling customers in overdraft protection
programs, on ATM and one-time debit card transactions, unless a consumer
consents, or opts in, to the overdraft service.  This recent federal rule
is likely to adversely affect the results of our operations by reducing the
amount of our non-interest income.




Further,
our regulators have significant discretion and authority to prevent or remedy
unsafe or unsound practices or violations of laws by financial institutions and
holding companies in the performance of their supervisory and enforcement
duties.  Congress and federal regulatory agencies continually review
banking laws, regulations and policies for possible changes.  Changes
to statutes, regulations or regulatory policies, including changes in
interpretation or implementation of statutes, regulations or policies, could
affect us in substantial and unpredictable ways.  Such changes could
subject us to additional costs, limit the types of financial services and
products we may offer and/or increase the ability of non-banks to offer
competing financial services and products, among other things.





The recently enacted Dodd-Frank Act
could have a material adverse impact on us.





On
July 21, 2010, the President signed into law the Dodd-Frank Act which,
among other things, imposes new restrictions and an expanded framework of
regulatory oversight for financial institutions and their holding companies.
Under the Dodd Frank-Act, the Office of Thrift Supervision will be eliminated
and existing state savings associations, including the Savings Bank, will be
subject to regulation and supervision by the FDIC.  Federal savings
associations will be subject to regulation and supervision by the Office of the
Comptroller of the Currency.  Savings and loan holding companies,
including the Company, will be regulated by the Federal Reserve Board, which
will have the authority to promulgate new regulations governing the Company that
will impose additional capital requirements and may result in additional
restrictions on investments and other holding company activities. These
transfers of regulatory authority will occur on July 21, 2011, unless extended
for up to an additional six months.  The Dodd-Frank Act also creates a
new consumer financial protection bureau that will have the authority to
promulgate rules intended to protect consumers in the financial products and
services market. The creation of this bureau could result in new regulatory








49
 requirements
and raise the cost of regulatory compliance. One year after the date of its
enactment, the Dodd-Frank Act eliminates the federal prohibitions on paying
interest on demand deposits, thus allowing businesses to have interest bearing
checking accounts. Depending on our competitors’ responses, this change could
materially increase our interest expense.  Additional provisions of
the Dodd-Frank Act are described in this report under “Item 1. Business —
Regulation of First Home.”





Many
aspects of the Dodd-Frank Act are subject to rulemaking and will take effect
over several years, making it difficult to anticipate the overall financial
impact on us.  However, compliance with this new law and its
implementing regulations is expected to result in additional operating costs
that could have a material adverse effect on our financial condition and results
of operations.




Changes
in accounting standards may affect our performance.




Our accounting policies and methods are
fundamental to how we record and report our financial condition and results of
operations. From time to time there are changes in the financial accounting and
reporting standards that govern the preparation of our financial statements.
These changes can be difficult to predict and can materially impact how we
report and record our financial condition and results of operations. In some
cases, we could be required to apply a new or revised standard retroactively,
resulting in a retrospective adjustment to prior financial
statements.




We
have suspended our regular cash dividend.





We have
not paid a regular cash dividend since March 2007, when our board of directors
determined to suspend our regular cash dividend in response to our operating
performance.  A special dividend of $0.10 per share of common stock
was declared by the board of directors at its regular meeting in July
2008.  Any dividends we pay in the future will depend on a number of
factors, including our capital requirements, our financial condition and results
of operations, our ability to generate sufficient earnings to warrant the
payment of dividends, tax considerations, statutory and regulatory limitations
and general economic conditions.  In addition, our ability to pay
dividends may depend, in part, on our receipt of dividends from the Savings Bank
because the Company has minimal income sources beyond the earnings from the
Savings Bank. Under the Cease and Desist Orders currently in place, both the
Company and the Savings Bank must request permission from the Office of Thrift
Supervision at least 30 days in advance of the proposed dividend payment and
obtain a non-objection letter from the Office of Thrift
Supervision.





Our
real estate lending also exposes us to the risk of environmental
liabilities.




In the
course of our business, we may foreclose and take title to real estate, and we
could be subject to environmental liabilities with respect to these properties.
We may be held liable to a governmental entity or to third persons for property
damage, personal injury, investigation, and clean-up costs incurred by these
parties in connection with environmental contamination, or may be required to
investigate or clean up hazardous or toxic substances, or chemical releases at a
property. The costs associated with investigation or remediation activities
could be substantial. In addition, as the owner or former owner of a
contaminated site, we may be subject to common law claims by third parties based
on damages and costs resulting from environmental contamination emanating from
the property. If we ever become subject to significant environmental
liabilities, our business, financial condition and results of operations could
be materially and adversely affected.







50




We
rely on effective internal controls.





If we fail to maintain an effective
system of disclosure controls and procedures and internal control over financial
reporting, we may not be able to accurately report our financial results or
prevent fraud, and, as a result, investors and depositors could lose confidence
in our financial reporting, which could adversely affect our business, the
trading price of our stock and our ability to attract additional
deposits.





In connection with the enactment of the
Sarbanes-Oxley Act of 2002 and the implementation of the rules and regulations
promulgated by the SEC, the Company must maintain disclosure controls and
procedures and internal control over financial reporting.  If the
Company fails to identify and correct any significant deficiencies in the design
or operating effectiveness of its disclosure controls and procedures or internal
control over financial reporting or fails to prevent fraud, current and
potential shareholders, and depositors could lose confidence in our internal
controls and financial reporting, which could adversely affect our business,
financial condition and results of operations, the trading price of our stock
and our ability to attract additional deposits.





Item
1B.  Unresolved Staff Comments





The Company has not received any
written comments from the staff of the SEC regarding its periodic or current
reports under the Securities Exchange Act of 1934 that remain
unresolved.





Item
2.  Properties





The
following table sets forth information regarding the Savings Bank's offices as
of June 30, 2010.




Net
      BookValueas
      of
            
            Land
            
            BuildingYear
            
            June
      30,
            
            Owned/
            
            Owned/
            
            SquareLocation
            
            County
            
            Opened
            
            2010
            
            Leased
            
            Leased
            
            FootageMain Office
            
            
            
            (In
      thousands)142
      East First Street
            
            Wright
            
            1911
            
            $  945
            
            Owned
            
            Owned
            
            15,476Mountain
      Grove, MO 65711Branch Offices1208
      N. Jefferson Street
            
            Douglas
            
            1978
            
            220
            
            Owned
            
            Owned
            
            3,867Ava,
      MO 65608103
      South Clay Street
            
            Webster
            
            1974
            
            247
            
            Owned
            
            Owned
            
            3,792Marshfield,
      MO 65706203
      Elm Street
            
            Ozark
            
            1992
            
            438
            
            Owned
            
            Owned
            
            3,321Gainesville,
      MO 656557164
      Highway 14 East
            
            Christian
            1995
            
            186
            
            Owned
            
            Owned
            
            3,000Sparta,
      MO 65753(table
      continued on the following page)











51














Net
      BookValueas
      of
            
            Land
            
            BuildingYear
            
            June
      30,
            
            Owned/
            
            Owned/
            
            SquareLocation
            
            County
            
            Opened
            
            2010
            
            Leased
            
            Leased
            
            Footage


(In
      thousands)Business
      Highway 160 (2)
            
            Ozark
            
            1997
            
            165
            
            Owned
            
            Owned
            
            1,824Theodosia,
      MO 65761123
      Main Street
            
            Stone
            
            1998
            
            284
            
            Owned
            
            Owned
            
            5,000Crane,
      MO 65633South
      Side of Square
            
            Stone
            
            1998
            
            47
            
            Owned
            
            Owned
            
            1,100Galena,
      MO 6565620377
      US Highway 160
            
            Taney
            
            2000
            
            715
            
            Owned
            
            Owned
            
            3,386


Forsyth,
      MO 65653 (1)





2536
      State Highway 176
            
            Taney
            
            2000
            
            377
            
            Owned
            
            Owned
            
            2,500Rockaway
      Beach, MO 657402655
      South Campbell
            
            Greene
            
            2006
            
            51
            
            Leased
            
            Leased
            
            2,963Springfield,
      MO 65807Drive-in FacilitiesRoute
      60 and Oakland
            
            Wright
            
            1986
            
            112
            
            Owned
            
            Owned
            
            2,268Mountain
      Grove, MO 65711Drive-in Facilities223
      West Washington
            
            Webster
            
            1993
            
            183
            
            Owned
            
            Owned
            
            1,000Marshfield,
      MO 65706


_____________


(1)
            This
      office is located in Kissee Mills, Missouri, but has a mailing address in
      Forsyth, Missouri.


(2)
            The
      Theodosia office was leased until the Savings Bank acquired the property
      at a sheriff’s sale on June 29,
2009.


Item
3.  Legal Proceedings





From time
to time, the Company and the Savings Bank may be involved in various legal
proceedings that are incidental to their business.  In the opinion of
management, neither the Company nor the Savings Bank is a party to any current
legal proceedings that are expected to be material to the financial condition or
results of operations of the Company or the Savings Bank, either individually or
in the aggregate.






52


Item 4.  [Removed
and Reserved]





PART
II





Item 5.  Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities





The information contained in the
section captioned "Common Stock Information" in the Annual Report to
Stockholders attached to this Form 10-K as Exhibit 13 is incorporated herein by
reference.  In addition, the "Equity Compensation Plan Information"
contained in Part III, Item 12 of this Form 10-K is incorporated herein by
reference.





Share
Repurchase Activity





The
Company completed 11 separate stock repurchase programs between March 9, 1994
and April 27, 2007.  On June 24, 2008, a repurchase program of 50,000
shares was initiated and  was terminated at the end of calendar 2008,
without any shares being purchased. Since the termination of this repurchase
program, no shares have been repurchased by the Company.  As of June
30, 2010, 1,344,221 shares had been repurchased under repurchase programs at a
cost of $19.1 million or an average cost per share of $14.22.





Item 6.  Selected
Financial Data





This
information is incorporated by reference to pages 5 and 6 of the 2010 Annual
Report attached hereto as Exhibit 13.





Item
7.  Management's Discussion and Analysis of Financial Condition and
Results of Operations





The
information contained in the section captioned "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in the Annual Report
is incorporated herein by reference.





Item
7A.  Quantitative and Qualitative Disclosures About Market
Risk





The
information contained in the section captioned "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in the Annual Report
is incorporated herein by reference.





Item 8.  Financial
Statements and Supplementary Data





Independent
Auditors Reports *


(a)
            Consolidated
      Statements of Financial Condition as of June 30, 2010 and
      2009*


(b)
            Consolidated
      Statements of Operations for the Years Ended June 30, 2010 and
      2009*


(c)
            Consolidated
      Statements of Stockholders' Equity for the Years Ended June 30, 2010 and
      2009*


(d)
            Consolidated
      Statements of Cash Flows for the Years Ended June 30, 2010 and
      2009*


(e)
            Notes
      to Consolidated Financial
Statements*





*
            Contained
      in the Annual Report to Stockholders attached to this Form 10-K as Exhibit
      13, which is incorporated herein by reference.  All schedules
      have been omitted as the required information is either









53




inapplicable or
      contained in the Consolidated Financial Statements or related Notes
      contained in the Annual Report to
Stockholders.




Item 9.  Changes
in and Disagreements With Accountants on Accounting and Financial
Disclosure




There have been no changes in and no
disagreements with the Company's independent accountants on
accounting and financial disclosures during the two most recent fiscal
years.







Item 9A.  Controls
and Procedures





(a)            
An evaluation of the Company's disclosure controls and procedures (as defined in
Section 13(a)-15(e) of the Securities Exchange Act of 1934 (the "Act")) was
carried out as of June 30, 2010 under the supervision and with the participation
of the Company's Chief Executive  Officer, Chief Financial Officer and
several other members of the Company's senior management.  The
Company's Chief Executive Officer and Chief Financial Officer concluded that as
of June 30, 2010 the Company's disclosure controls and procedures were effective
in ensuring that the information required to be disclosed by the Company in the
reports it files or submits under the Act is (i) accumulated and communicated to
the Company's management (including the Chief Executive Officer and Chief
Financial Officer) to allow  timely decisions regarding required
disclosure, and (ii) recorded, processed, summarized and reported within the
time periods specified in the SEC's rules and forms.





(b)            During
the quarter ended June 30, 2010, no change 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 internal control over financial reporting will
prevent all errors 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.




Management’s Annual Report
on Internal Control Over Financial Reporting




Management
of the Company is responsible for establishing and maintaining adequate internal
control over financial reporting (as defined in Rule 13a-15(f) under the
Securities Exchange Act of 1934).  The Company's internal control over
financial reporting is a process designed under the supervision of the Company's
management, including its Chief Executive Officer and its Chief Financial
Officer, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of the Company's financial statements for external
reporting purposes in accordance with generally accepted accounting principles
in the United States of America.






54


The
Company's internal control over financial reporting includes policies and
procedures that: pertain to the maintenance of records which, in reasonable
detail, accurately and fairly reflect transactions and dispositions of assets;
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles in the United States of America, and that receipts and
expenditures are being made only in accordance with authorizations of management
and the directors of the Company; and provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use or disposition
of the Company's assets that could have a material effect on the Company's
financial statements.




Management
recognizes that there are inherent limitations in the effectiveness of any
system of internal control and, accordingly, even effective internal control can
provide only reasonable assurance with respect to financial statement
preparation and fair presentation. Further, because of changes in conditions,
the effectiveness of internal control may vary over time.




Under the
supervision and with the participation of the Company's management, including
the Company's Chief Executive Officer and Chief Financial Officer, the Company
conducted an assessment of the effectiveness of the Company's internal control
over financial reporting based on the framework established in Internal
Control-Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission. Based on this assessment, management has determined
that the Company's internal control over financial reporting as of June 30, 2010
is effective.




This
annual report does not include an attestation report of the Company's registered
public accounting firm regarding internal control over financial
reporting.  Management's report was not subject to attestation by the
Company's independent registered public accounting firm pursuant to temporary
rules of the Securities and Exchange Commission that permit the Company to
provide only management's report in this annual report.




/s/ Thomas M.
      Sutherland
            /s/ Ronald J.
      WaltersThomas M.
      Sutherland
            Ronald J.
      WaltersPresident and Chief
      Executive Officer
            Senior Vice
      President, Treasurer and(Principal Executive
      Officer)
            Chief Financial Officer(Principal Financial
      Officer)





Item 9B.  Other
Information





There
was no information to be disclosed by the Company in a report on Form 8-K during
the fourth quarter of the year ended June 30, 2010 that was not so
disclosed.





PART
III


Item
10.  Directors, Executive Officers and Corporate
Governance




Directors
and Executive Officers





For
information required by this item concerning Directors of the Company, see the
section captioned "Proposal I -- Election of Directors" included in the
Company's Proxy Statement, a copy of which will be filed with the SEC no later
than 120 days after the Company's fiscal year end and is incorporated herein by
reference.






55





For information concerning Executive
Officers of the Company, see the section captioned "-- Executive Officers" in
Part I of this Form 10-K, which is incorporated herein by this
reference.





Compliance with Section 16(a) of the
Exchange Act





The
information required by this item will be contained in the section captioned
"Compliance with Section 16(a) of the Exchange Act" in the Company's Proxy
Statement and is incorporated herein by reference.





Audit
Committee and Audit Committee Financial Expert





The Audit Committee
consists of Directors Ashlock, Moody and Hixon.  TheBoard of
Directors has determined Director Hixon qualifies as an "audit committee
financial expert," as defined by the SEC.  Mr. Hixon is independent,
as independence for audit committee members as defined under the listing
standards of the NASDAQ Stock Market.





56


Code
of Ethics





The Company has adopted a Code of
Ethics that applies to its directors, executive officers and all other
employees.  A copy of the Code of Ethics was included as Exhibit 14 to
the Company's Form 10-KSB for the year ended June 30, 2006.  A
copy of the Company's Code of Ethics is available to any person without charge,
upon written request made to the Corporate Secretary at P.O. Box 777, Mountain
Grove, Missouri 65711.





Item
11.  Executive Compensation





The
information contained under the section captioned "Directors' Compensation" and
"Executive Compensation" is included in the Proxy Statement, a copy of which
will be filed with the SEC no later than 120 days after the Company's fiscal
year end, is incorporated herein by reference.





Item 12.  Security
Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters





Equity
Compensation Plan Information





The
following table summarizes share and exercise price information about the
Company's equity compensation plans as of June 30, 2010.





(c)Number
      ofSecurities(a)
            (b)
            RemainingAvailable
      forNumber
      of
            
            Future
      IssuanceSecurities
      to
            Weighted-
            Under
      EquityBe
      Issued Upon
            Average
            PlansExercise
      of
            Exercise
      Price
            CompensationOutstanding
            of
      Outstanding
            (ExcludingOptions,
            Options,
            SecuritiesWarrants
      and
            Warrants
      and
            Reflected
      inPlan Category
            Rights
            Rights
            Column (a))Equity
      Compensation Plans approved by security holders:Option
      Plan
            22,000
            
            16.85
            
            78,000Restricted
      stock plan
            -
            
            -
            
            50,000Equity
      Compensation Plans notapproved
      by security holders:
            -
            
            -
            
            -Total
            22,000
            
            16.85
            
            128,000








Security
Ownership of Certain Beneficial Owners and Management





The
information contained in the section captioned "Voting Securities and Security
Ownership of Certain Beneficial Owners and Management" is included in the Proxy
Statement, a copy of which will be filed with the SEC no later than 120 days
after the Company's fiscal year end, is incorporated herein by
reference.





57


Changes
in Control





The
Company is not aware of any arrangements, including any pledge by any person of
securities of the Company, the operation of which may at a subsequent date
result in a change in control of the Company.





Item 13.  Certain
Relationships and Related Transactions, and Director
Independence





The
information contained in the section captioned "Transactions
with  Management" and "Meetings and Committees of the Board of
Directors and Corporate Governance Matters – Corporate Governance –
Director  Independence" is included in the Company's Proxy Statement,
a copy of which will be filed with the SEC no later than 120 days after the
Company's fiscal year end, is incorporated herein by reference.





Item
14.Principal Accountant Fees
and Services.





The
information required by this item is included in the Company's Proxy Statement,
a copy of which will be filed with the Securities and Exchange Commission no
later than 120 days after the Company's fiscal year end, and is incorporated
herein by reference.





Item 15.  Exhibits
and Financial Statement Schedules





(a)           Exhibits





3.1
            Articles
      of Incorporation of First Bancshares,
Inc.(1)


3.2
            Bylaws
      of First Bancshares, Inc.(2)


4.1
            Specimen
      stock certificate of First Bancshares
(1)


10.1
            First
      Home Savings Bank 1994 Employee Stock Ownership
  Plan(1)


10.2
            First
      Bancshares, Inc. 1993 Stock Option Plan
(3)


10.3
            First
      Home Savings Bank Management Recognition and Development Plan
      (3)


10.4
            First
      Bancshares, Inc. 2004 Management Recognition Plan
  (4)


10.5
            First
      Bancshares, Inc. 2004 Stock Option Plan
(4)


10.6
            Form
      of Incentive Stock Option
      Agreement(5)


10.7
            Form
      of Non-Qualified Stock Option Agreement
(5)


10.8
            First
      Bancshares, Inc. 2004 Management Recognition Plan
  (4)


10.9
            Severance
      Agreement between First Bancshares, Inc. and First Home Savings Bank and
      Charles W. Schumacher (6)


10.10
            Employment
      Agreement with James W. Duncan (7)


10.11
            Employment
      Agreement with Daniel P. Katzfey
(8)


13.
            2010
      Annual Report to Stockholders (Except for the portions of the 2010 Annual
      Report to Stockholders that are expressly incorporated by reference in
      this Annual Report on Form 10-K, the 2010 Annual Report to Stockholders
      shall not be deemed filed as a part
hereof.)


14.
            Code
      of Ethics (9)


21.
            Subsidiaries
      of the Registrant


23.
            Auditors'
      Consent


31.1
            Rule
      13a-14(a) Certification (Chief Executive
  Officer)


31.2
            Rule
      13a-14(a) Certification (Chief Financial
  Officer)


32.1
            Section
      1350 Certification (Chief Executive
Officer)


32.2
            Section
      1350 Certification (Chief Financial
Officer)


58





-------------------


(1)
            Incorporated
      by reference to the Company's Registration Statement on Form S-1 File No.
      33-69886.


(2)
            Filed
      as an exhibit to the Current Report on Form 8-K dated November 30, 2007
      and incorporated herein by
reference.


(3)
            Incorporated
      by reference to the Company's 1994 Annual Meeting Proxy Statement dated
      September 14, 1994.


(4)
            Incorporated
      by reference to the Company's 2004 Annual Meeting Proxy Statement dated
      September 15, 2004.


(5)
            Filed
      as an exhibit to the Current Report on Form 8-K dated February 22, 2006
      and incorporated herein by
reference.


(6)
            Filed
      as an exhibit to the Current Report on Form 8-K dated October 31,
      2005.


(7)
            Filed
      as an exhibit to the Quarterly Report on Form 10-Q for the quarter ended
      December 31, 2005.


(8)
            Filed
      as an exhibit to the Current Report on Form 8-K dated July 20,
      2007.


(9)
            Filed
      as an exhibit to the Company's Form 10-KSB for the fiscal year ended June
      30, 2006.








59


SIGNATURES





Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.




FIRST BANCSHARES,
      INC.Date: October 13,
      2010
            By:/s/Thomas M.
      SutherlandThomas M. SutherlandChief Executive Officer








In
accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.








By: /s/Thomas M.
      Sutherland
            October 13,
      2010Thomas M.
      SutherlandChief Executive Officer(Principal Executive Officer)By: /s/Lannie E.
      Crawford
            October 13,
      2010Lannie E. CrawfordPresidentBy: /s/Ronald J.
      Walters
            October 13,
      2010Ronald J. WaltersSenior Vice President, Treasurer andChief Financial Officer(Principal
      Financial and Accounting Officer)By: /s/Thomas M.
      Sutherland
            October 13,
      2010Thomas M. SutherlandChairman of the BoardBy: /s/Harold F.
      Glass
            October 13,
      2010Harold F. GlassDirectorBy: /s/John G.
      Moody
            October 13,
      2010John G. MoodyDirectorBy: /s/D. Mitch
      Ashlock
            October 13,
      2010D. Mitch AshlockDirectorBy: /s/Billy E.
      Hixon
            October 13,
      2010Billy
      E. HixonDirectorBy: /s/Robert J.
      Breidenthal
            October 13,
      2010Robert J. BreidenthalDirector




















EXHIBIT
      INDEXEXHIBIT
      NUMBER
              EXHIBIT
      DESCRIPTION
  13
              2010
      Annual Report to Stockholders.  Except for the portions of the
      2010 Annual Report to Stockholders that are expressly incorporated by
      reference in this Annual Report on Form 10-K, the 2010 Annual Report to
      Stockholders  shall not be deemed filed as a part
      hereof.21
              Subsidiaries
      of the Registrant23
              Consent
      of Auditors31.1
              Rule
      13a – 14(a) Certification (Chief Executive Officer)31.2
              Rule
      13a – 14(a) Certification (Chief Financial Officer)32.1
              Rule
      1350 Certification (Chief Executive Officer)32.2
              Rule
      1350 Certification (Chief Financial
Officer)