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, 2009 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 September 28, 2009, 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, 2008, was $22.8 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,
      2009. (Parts I and II)





2.
            Portions
      of the Proxy Statement for the 2009 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 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 the remainder of
fiscal 2010 and beyond 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 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, 2009, the Company had consolidated
total assets of $229.9 million, total deposits of $189.2 million and
stockholders' equity of $23.8 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 full service branch in
Springfield, Missouri opened in July 2006.  In June  2009,
the Savings Bank ceased the operations of a loan origination office in
Springfield, Missouri. It was determined that the office, which opened in March
2007 for the purpose of originating loans on single-family residences for sale
into the secondary market, would not produce the desired return on investment.
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 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").  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, 2009,
the Savings Bank's net loans were $133.2 million, or 57.9% of consolidated total
assets. Gross loans of $137.1 million consisted of $71.1 million, or 51.9% of
total loans, in residential mortgages, $39.8 million, or 29.0% of total loans,
in commercial real estate loans, $7.4 million, or 5.4% of total loans, in land
loans, $4.9 million, or 3.6% of total loans, in second mortgage loans, $4.0
million, or 2.9% of total loans, in consumer loans, and $9.8 million, or 7.2% of
total loans, in commercial business loans.  Of loans maturing after
June 30, 2010, at June 30, 2009, adjustable rate mortgage ("ARM") loans account
for approximately 61.2% of loans secured by real estate and ­­­58%
of the gross loan portfolio.  See "-- Lending Activities"
below.





Recent
Developments and Corporate Overview





On August 17, 2009, the Company and the
Bank each entered into a Stipulation and Consent to the Issuance of Order to Cease andDesist 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 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
      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 not limited to
civil money penalties, if we do not comply with the terms of the
order.





Market
Area





Similar
to national trends, the Bank’s market area unemployment rate was higher as of
June 2009 versus one year ago.  While the Bank’s market area






2




unemployment
rate has increased over the past year, it is somewhat lower than the national
average.  Economic conditions in the 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, since July 2006,
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 shown robust growth and development for several years,
and while that growth and development slowed substantially over the last 12 to
18 months, 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 2009 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 24 of the Annual Report
attached hereto as Exhibit 13.





Yields
Earned and Rates Paid





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





Rate/Volume
Analysis





This information is incorporated by
reference to page 25 of the Annual Report attached hereto as Exhibit
13.





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






3


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 ratios 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 both
originated and purchased loans pursuant to the Small Business Administration's
("SBA") guaranteed programs between September 2000 and December 2005. As of June 30, 2009, 16
commercial business and commercial real estate loans with an aggregate balance
of $2.8 million 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, nine commercial real
estate loans, three land loans, one commercial business loan and seven consumer
loans in Arkansas, Oregon, Kansas and eight other states.  The 29
loans had an aggregate balance of $5.0 million at June 30, 2009.  As
of June 30, 2009 there was one loan of $247,000 collateralized by commercial
real estate in excess of 90 days past due and one loan of $313,000 on commercial
real estate more than 60 days, but less than 90 days, past due. Additionally,
there was one out-of-state loan of less than $1,000 that was past due 25 days.
The remaining 26 loans were performing according to their scheduled repayment
terms.





At June
30, 2009, the Savings Bank's net loans receivable totaled $133.2 million, which
represented 57.9% of consolidated total assets.  Historically, the
Savings Bank has primarily originated adjustable rate loan
products.  At June 30, 2009, adjustable rate loans with a maturity
date after June 30, 2010 accounted for $82.1 million or 59.9% of the total loan
portfolio and $79.1 million or 64.2% 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 and 2009, the Savings Bank experienced decreases in its
one-to-four family loan portfolio. During the year ended June 30, 2009,
originations of one-to-four family loans, including those originated for sale in
the secondary market, decreased by $6.0 million to $31.3 million from $37.3
million in the year ended June 30, 2008.  The decrease in
one-to-four family originations for the portfolio during fiscal 2009 was the
result of the 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 service its customer’s loans. 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 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
standard.





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, 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, as described below.  At June
30, 2008, the Savings Bank had $13.9 million, or 8.34% of total loans, in
interim construction loans in its portfolio of which $4.4 million were for
residential construction, $574,000 were for multi-family construction and $9.0
million were





4









5




At
      June 30,2009
                    2008
                    2007
                    2006
                    2005Amount
                    Percent
                    Amount
                    Percent
                    Amount
                    Percent
                    Amount
                    Percent
                    Amount
                    Percent{Dollars
      in thousands}Type
      of Loan:Real
      Estate LoansResidential
      Mortgage
                    $
      71,141
                    51.89%
                    $
      75,992
                    44.83%
                    $
      86,530
                    53.57%
                    $
      82,519
                    55.59%
                    $
      89,220
                    54.36%Commercial
      real estate (1)
                    39,816
                    29.04
                    53,730
                    31.69
                    40,331
                    24.97
                    37,097
                    24.99
                    41,492
                    25.28Land
                    7,395
                    5.39
                    10,756
                    6.34
                    9,095
                    5.63
                    7,949
                    5.36
                    9,450
                    5.76Second
      mortgage loans
                    4,900
                    3.57
                    7,103
                    4.19
                    4,828
                    2.99
                    3,659
                    2.47
                    4,161
                    2.54Total
      mortgage loans
                    123,252
                    89.89
                    147,581
                    87.05
                    140,784
                    87.16
                    131,224
                    88.41
                    144,323
                    87.94Consumer
      Loans:Automobile
      loans
                    2,052
                    1.50
                    4,726
                    2.79
                    4,078
                    2.53
                    3,467
                    2.34
                    4,910
                    2.99Savings
      account loans
                    1,165
                    0.85
                    1,468
                    0.87
                    1,504
                    0.93
                    1,709
                    1.15
                    1,709
                    1.04Mobile
      home loans
                    267
                    0.19
                    2,977
                    1.76
                    3,589
                    2.22
                    2,438
                    1.64
                    2,139
                    1.30Other
      consumer
                    561
                    0.41
                    1,007
                    0.59
                    2,860
                    1.77
                    1,060
                    0.71
                    979
                    0.60Total
      consumer loans
                    4,045
                    2.95
                    10,178
                    6.01
                    12,031
                    7.45
                    8,674
                    5.84
                    9,737
                    5.93Commercial
      business
                    9,817
                    7.16
                    11,769
                    6.94
                    8,700
                    5.39
                    8,532
                    5.75
                    10,057
                    6.13Total
      loans
                    137,114
                    100.00%
                    169,528
                    100.00%
                    161,515
                    100.00%
                    148,430
                    100.00%
                    164,117
                    100.00%Add:Unamortized
      deferred loan
                      costs,
      net of origination
                      fees
                    235
                    
                    304
                    
                    171
                    
                    184
                    
                    201Less:Undisbursed
      loans in process
                    1
                    
                    -
                    
                    1
                    
                    4,153
                    
                    3,324Allowance
      for possible loanLosses
                    4,186
                    
                    2,797
                    
                    2,692
                    
                    2,474
                    
                    2,851Total
      loans receivable, net
                    $133,162
                    
                    $167,035
                    
                    $158,993
                    
                    $141,987
                    
                    $158,143____________(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, 2009, $71.1
million, or 51.9% 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 originated after 1988
generally were limited to a 6% maximum increase over the life of the loan.
During the  year ended June 30, 2007, the Savings Bank began offering
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, as well as, all non-residential
mortgage loans.





At June
30, 2009, the Savings Bank had $1.4 million 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, 2009, all $1.4 million
in residential construction loans were custom construction loans which
represented 1.0% 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, 2009, the Savings Bank’s construction loan portfolio
had only one single family construction loan of $176,000 classified as
substandard. There were  no construction loans classified as doubtful
or loss at that date. In addition, at June 30, 2009, there was  one
one-to-four family construction loan of  $241,000 on the Savings
Bank’s watch list.






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, 2009, second
mortgage loans amounted to $4.9 million, or 3.6% of total loans of the Savings
Bank.





During
the year ended June 30, 2007, the Savings Bank began offering 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, 2009, home equity lines of
credit totaled $2.9 million, of which $1.1 million was included in the
residential loan totals and $1.8 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 $47.2 million, or 34.4% of the Savings Bank's
gross loan portfolio, at June 30, 2009.





The
Savings Bank’s portfolio of commercial real estate loans, which includes loans
primarily on farm land used in beef or dairy operations, was $39.8 million, or
29.0% of the total loan portfolio, and are primarily located in the Savings
Bank's market area.  The average size of these loans is
$316,000.  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
commercial real estate portfolio consists of loans on a variety of types of
property  with no significant  concentrations by property
type.  The Savings Bank's largest commercial real estate loan at June
30, 2009 was a $2.3 million loan.  The loan is for a term of three
years and is collateralized by office buildings, a parking garage and parking
lots located in Springfield, Missouri. At June 30, 2009, the loan was performing
according to its 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 in 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 $8.2 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 example, tenants may seek the protection of the
bankruptcy laws, which could result in termination of lease contracts, reducing
cash flow. Loans secured by




8
 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. While
weather has been favorable for dairy and cattle operations over the past two
years, price decreases for both milk and beef products in recent months have
begun to squeeze these operations.





At June
30, 2009, the Savings Bank had eight loans secured by multi-family residential
real estate, totaling approximately $2.9 million, or 2.1% of the Savings Bank's
gross loan portfolio.  At June 30, 2009, 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 $7.4 million, or 5.4% of the gross loan portfolio at June 30,
2009 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, 2009, there were two land loans totaling $1.5 million,
or 19.8%, of land loans on non-accrual status, one loan of $122,000, or 1.6%, of
land loans at least 90 days delinquent and two loans totaling $406,000, or 5.5%,
of land loans at least 60 days, but less than 90 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, 2009, the Savings Bank's consumer loans totaled
$4.0 million, or 3.0% 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, 2009, the Savings Bank's loan portfolio secured by automobiles amounted to
$2.1 million, or 1.5% 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,
2009, 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, 2009, these
loans totaled $9.8 million, or 7.2% 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, 2009, the average size of commercial business loans was
$46,000.  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, 2009 was an
amortizing term loan to a Branson, Missouri restaurant collateralized by
restaurant equipment and guaranteed by a related entity. At June 30, 2009, the
balance of this loan was $555,000 and all payments had been made according to
terms.





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-performing
commercial business loans increased by $567,000 from $316,000 at June 30, 2008
to $883,000 at June 30, 2009.  This is a result of the economic
environment, which has resulted in adverse market conditions  for most
businesses.  As a result, no assurance can be given, however, that
non-performing business loans will not increase in future periods.





Loan
Maturity and Re-pricing





The
following table sets forth certain information at June 30, 2009 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.






10





AfterAfter
            
            ThreeOne
      Year
            
            YearsThrough
            
            Through
            
            AfterWithin
            
            Three
            
            Five
            
            FiveOne
      Year
            
            Years
            
            Years
            
            Years
            
            Total(In
      thousands)Mortgage
      LoansResidential
      Mortgage
            $  
       5,141
            
            $  
       3,661
            
            $    
      1,881
            
            $60,458
            
            $  
       71,141Commercial
      Real Estate
            9,076
            
            8,763
            
            5,392
            
            16,585
            
            39,816Land
            4,048
            
            1,008
            
            317
            
            2,022
            
            7,395Second
      Mortgage
            224
            
            553
            
            298
            
            3,825
            
            4,900Total
      Mortgage Loans
            18,489
            
            13,985
            
            7,888
            
            82,890
            
            123,252Consumer
      LoansAutomobile
            166
            
            1,305
            
            581
            
            -
            
            2,052Savings
      Account
            1,065
            
            63
            
            37
            
            -
            
            1,165Mobile
      Home
            10
            
            36
            
            47
            
            174
            
            267Other
            147
            
            141
            
            224
            
            49
            
            561Total
      Consumer Loans
            1,388
            
            1,545
            
            889
            
            223
            
            4,045Commercial
      Business Loans
            4,170
            
            2,042
            
            2,141
            
            1,464
            
            9,817Total
      Loans
            $24,047
            
            $17,572
            
            $10,918
            
            $84,577
            
            $137,114








The
following table sets forth the dollar amount of all loans due more than one year
after June 30, 2009, which have fixed interest rates and have floating or
adjustable interest rates.





At
      June 30, 2009Non-
            CommercialCommercial
            Real
      Estate
            
            CommercialMortgage
            And
      Land
            Consumer
            
            Business
            
            TotalLoans
            
            Loans
            
            Loans
            
            Loans
            
            Loans(In
      thousands)Interest
      rate termson
      amounts due afterone
      year:Fixed
            $14,876
            
            $10,740
            
            $2,524
            
            $2,847
            
            $30,987Adjustable
            51,124
            
            28,023
            
            133
            
            2,800
            
            82,080Total
            $66,000
            
            $38,763
            
            $2,657
            
            $5,647
            
            $113,067








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.





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.






11


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 issues with the
existing portfolio rather than on origination of new loans.





Year
      Ended June 30,2009
            
            
            2008(In
      thousands)Total
      gross loans at beginning of year
            
            $
            169,528
            
            
            $
            161,515Loans
      originated:Secondary
      market loans
            
            
            23,036
            
            
            
            21,445One-to-four
      family loans
            
            
            8,246
            
            
            
            15,794Multi-family
      residential and commercialreal
      estate
            
            
            6,990
            
            
            
            17,862Land
            
            
            593
            
            
            
            4,013Total
      mortgage loans originated
            
            
            38,865
            
            
            
            59,114Consumer
      loans:Automobile
      loans
            
            
            713
            
            
            
            2,856Deposit
      account loans
            
            
            702
            
            
            
            655Mobile
      home loans
            
            
            18
            
            
            
            57Other
      consumer loans
            
            
            122
            
            
            
            132Total
      consumer loans originated
            
            
            1,555
            
            
            
            3,700Commercial
      business loans originated
            
            
            2,309
            
            
            
            6,312Loans
      sold:Secondary
      market loans
            
            
            23,352
            
            
            
            22,343Loans
      principal repayments
            
            
            45,294
            
            
            
            36,392Other
      decreases:Loans
      charged-off
            
            
            4,171
            
            
            
            1,222Loans
      transferred to real estate owned
            
            
            1,876
            
            
            
            1,156Loans
      transferred to repossessed assets
            
            
            450
            
            
            
            -6,497
            
            
            
            2,378Total
      gross loans at end of year
            
            $
            137,114
            
            
            $
            169,528





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
$121,000 at June 30, 2009 compared to $793,000 at June 30, 2008. 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




12
 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 “watch” 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 increased by $5.0 million to $12.0 million at June
30, 2009, compared to $7.0 million of classified assets at June 30, 2008. The
increase in classified assets is the result of the impact of current economic
conditions on borrowers, both individuals and businesses, and the increased
level of monitoring.





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 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 $250,000 and
$219,000 during the years ended June 30, 2009 and 2008, respectively, if such
loans had been performing according to their terms during such
periods.





Non-accrual
loans increased from $2.3 million at June 30, 2008 to $3.0 million at June 30,
2009.  The increase in non-accrual loans was the result of increases
of $499,000 in non-accrual residential mortgages and $401,000 in non-accrual
commercial business loans, which were partially offset by decreases of $168,000
in non-accrual commercial real estate and land loans and $21,000 in non-accrual
consumer loans.






13





The
Savings Bank considers all non-accrual loans and loans past due 90 days or more
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 30,2009
            
            
            2008
            
            
            2007
            
            
            2006
            
            
            2005(Dollars
      in thousands)Loans
      accounted for on a non-accrualBasis:Real
      estate:Residential
            
            $
            593
            
            
            $
            94
            
            
            $
            245
            
            
            $
            322
            
            
            $
            221Commercial
      and land
            
            
            1,714
            
            
            
            1,882
            
            
            
            2,171
            
            
            
            306
            
            
            
            1,112Commercial
      business
            
            
            717
            
            
            
            316
            
            
            
            467
            
            
            
            65
            
            
            
            1,502Consumer
            
            
            -
            
            
            
            21
            
            
            
            6
            
            
            
            148
            
            
            
            19Total
            
            $
            3,024
            
            
            $
            2,313
            
            
            $
            2,889
            
            
            $
            841
            
            
            $
            2,854Accruing
      loans which are contractuallypast
      due 90 days or more:Real
      estate:Residential
            
            $
            -
            
            
            $
            296
            
            
            $
            278
            
            
            $
            -
            
            
            $
            63Commercial
      and land
            
            
            122
            
            
            
            64
            
            
            
            81
            
            
            
            -
            
            
            
            30Commercial
      business
            
            
            166
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Consumer
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            3
            
            
            
            55Total
            
            $
            288
            
            
            $
            360
            
            
            $
            359
            
            
            $
            3
            
            
            $
            148Total
      of non-accrual and90
      days past due loans
            
            $
            3,312
            
            
            $
            2,673
            
            
            $
            3,248
            
            
            $
            844
            
            
            $
            3,002Real
      estate owned
            
            
            1,549
            
            
            
            1,206
            
            
            
            291
            
            
            
            497
            
            
            
            340Repossessed
      assets
            
            
            158
            
            
            
            -
            
            
            
            2
            
            
            
            -
            
            
            
            -Other
      non-performing assets:Impaired
      loans not past due
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            2,004Slow
      home loans (60 to 90 dayspast
      due)
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            450Total
      non-performing assets
            
            $
            5,019
            
            
            $
            3,879
            
            
            $
            3,541
            
            
            $
            1,341
            
            
            $
            5,796Total
      loans delinquent 90 daysor
      more to net loans
            
            
            0.22
            %
            
            
            0.22
            %
            
            
            0.23
            %
            
            
            0.59
            %
            
            
            1.90
            %Total
      loans delinquent 90 daysor
      more to total consolidated assets
            
            
            0.13
            %
            
            
            0.14
            %
            
            
            0.15
            %
            
            
            0.37
            %
            
            
            1.23
            %Total
      non-performing assetsto
      total consolidated assets
            
            
            2.18
            %
            
            
            1.56
            %
            
            
            1.47
            %
            
            
            0.59
            %
            
            
            2.39
            %





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




14
 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, 2009, the Savings Bank had loans with an aggregate outstanding balance
of $10.3 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.  These loans are reflected in the Savings Bank's classified
assets, discussed below. In addition, the Savings Bank has identified an
additional $13.4 million of loans on its internal watch list (discussed below)
to review quarterly for any deterioration in their capacity to perform as
agreed. The $13.4 million of watch list credits at June 30, 2009 included $7.8
million, $1.6 million, $1.5 million, $2.5 million and $47,000 of commercial real
estate, land, commercial business, one-to-four family and consumer loans,
respectively. The $4.7 million of watch list credits at June 30, 2008 included
$2.1 million, $2.0 million, $480,000 and $119,000 of commercial real estate,
commercial business, one-to-four family and consumer loans,
respectively.





At June
30, 2009 and 2008 the aggregate amounts of the Savings Bank's classified assets
as determined by the Savings Bank, and of the Savings Bank's general and
specific loss allowances and charge-offs, were as follows:





At
      June 30,2009
            
            
            2008(In
      thousands)Loss
            
            $
            -
            
            
            $
            -Doubtful
            
            
            4,188
            
            
            
            718Substandard
      assets
            
            
            7,843
            
            
            
            6,268Sub
      total
            
            
            12,031
            
            
            
            6,986Special
      mention
            
            
            -
            
            
            
            -Total
      classified assets
            
            
            12,032
            
            
            
            6,986Total
      watch list credits
            
            
            13,415
            
            
            
            4,671Total
      assets of concern
            
            $
            25,447
            
            
            $
            11,657General
      loss allowances
            
            $
            4,186
            
            
            $
            2,436Specific
      loss allowances
            
            
            -
            
            
            
            361Total
      loss allowances
            
            $
            4,186
            
            
            $
            2,797Net
      charge-offs
            
            $
            3,925
            
            
            $
            1,186





The large
increase in net charge-offs in fiscal 2009 compared to fiscal 2008 was the
result of completing the foreclosure process on a number of loans during 2009,
including several that were non-performing at the end of fiscal
2008.





15


The $1.5
million increase in substandard assets to $7.8 million at June 30, 2009
from $6.3 million at June 30, 2008, was primarily the result of the housing
crisis that has evolved over the last 12 to 15 months and the related general
downturn in the national and local economic conditions. These recent economic
issues have prompted the Savings Bank to apply more stringent standards in its
loan review process.





At June
30, 2009, the Savings Bank's largest substandard loan to one borrower consisted
of one loan to an individual with an outstanding balance of $1.5
million.  At June 30, 2009, this loans was  almost nine
months delinquent. The loan is collateralized by a subdivision development in
Springfield, Missouri. This loan was written down by $1.4 million during the
fourth quarter of fiscal 2009. While management believes the 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
Savings Bank rarely uses a "special mention" category in its internal loan
classification process.  Instead, a category titled 'watch' is used by
the Savings Bank to monitor loans which are not typical in their repayment
terms, collateral, or a situation with the borrower that may create repayment
difficulties in the future.  Loans are designated as watch when the
ability to meet current payment schedules is questionable, even though interest
and principle are still being paid as agreed.





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, 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, 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. At June 30, 2008, real estate owned consisted of twelve
properties (six single family residences, five commercial properties and one
piece of vacant land) with a net book value of $1.2 million. There was no
repossessed collateral at June 30, 2008.





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






16
 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 Statement of Financial Accounting Standards (SFAS) No. 114,
Accounting for Creditors for
Impairment of a Loan, as amended by SFAS 118, and allowance allocations
calculated in accordance with SFAS 5, 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, 2009 and 2008 of $4.2
million and $2.8 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, 2007 the allowance for loan losses was
$2.7 million, or 1.7%, of gross loans compared to $2.8 million, or 1.6%, of
gross loans at June 30, 2008, and $4.2 million, or 3.1%, of gross loans at June
30, 2009.





Management
believes that the allowance for loan losses was adequate at June 30, 2009 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 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.











17






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 30,2009
            
            2008
            
            2007
            
            2006
            
            2005(Dollars
      in thousands)Allowance
      at beginning of period
            $2,797
            
            $2,692
            
            $2,474
            
            $2,851
            
            $1,240Provision
      for loan losses
            5,314
            
            1,291
            
            426
            
            1,520
            
            2,333Recoveries:Residential
      real estate
            7
            
            3
            
            24
            
            5
            
            1Commercial
      real estate
            91
            
            1
            
            8
            
            -
            
            9Consumer
            77
            
            27
            
            37
            
            48
            
            62Commercial
      business
            71
            
            5
            
            96
            
            50
            
            15Total
      recoveries
            246
            
            36
            
            165
            
            103
            
            87


Charge-offs:Residential
      real estate
            678
            
            393
            
            169
            
            26
            
            110Commercial
      real estate
            2,065
            
            325
            
            94
            
            88
            
            77Consumer
            175
            
            62
            
            32
            
            223
            
            415Commercial
      business
            1,253
            
            442
            
            78
            
            1,663
            
            207Total
      charge-offs
            4,171
            
            1,222
            
            373
            
            2,000
            
            809Net
      charge-offs
            3,925
            
            1,186
            
            208
            
            1,897
            
            722Allowance
      at end of period
            $4,186
            
            $2,797
            
            $2,692
            
            $2,474
            
            $2,851Ratio
      of allowance to total loansoutstanding
      at the end of thePeriod
            3.05%
            
            1.65%
            
            1.59%
            
            1.67%
            
            0.46%Ratio
      of net charge offs to averageLoans
      outstanding during thePeriod
            2.93%
            
            0.74%
            
            0.14%
            
            1.29%
            
            0.10%







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 30,2009
            
            2008
            
            2007Percent
            
            
            
            
            
            Percent
            
            Percent
            
            
            
            Percent
            
            PercentOf
            
            Percent
            
            
            
            Of
            
            
            
            
            
            OfAllowance
            
            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
            $  749
            
            1.06
            %
            51.89
            %
            $  411
            
            0.54
            %
            44.83
            %
            $  164
            
            0.19
            %
            53.58
            %Commercial
            991
            
            2.89
            
            29.04
            
            991
            
            1.84
            
            31.69
            
            1,567
            
            3.89
            
            24.97Land
            176
            
            2.38
            
            5.39
            
            196
            
            1.82
            
            6.34
            
            119
            
            1.31
            
            5.63Second
      mortgage loans
            157
            
            3.20
            
            3.57
            
            23
            
            0.32
            
            4.19
            
            60
            
            1.24
            
            2.99Consumer
            86
            
            2.13
            
            2.95
            
            228
            
            2.24
            
            6.01
            
            239
            
            1.99
            
            7.44Commercial
      business
            2,027
            
            20.66
            
            7.16
            
            948
            
            8.06
            
            6.94
            
            543
            
            6.24
            
            5.39Total
      allowance forloan
      losses
            $4,186
            
            3.05
            %
            100.00
            %
            $2,797
            
            1.65
            %
            100.00
            %
            $2,692
            
            1.59
            %
            100.00
            %








At
      June 30,2006
            
            2005Percent
            
            Percent
            
            
            
            Percent
            
            PercentOf
            
            Of
      Gross
            
            
            
            Of
            
            Of
      GrossAllowance
            
            Loans
      in
            
            
            
            Allowance
            
            Loans
      into
      Out-
            
            Category
            
            
            
            to
      Out-
            
            CategoryLoans
      in
            
            To
      Gross
            
            
            
            Loans
      in
            
            To
      GrossAmount
            
            Category
            
            Loans
            
            Amount
            
            Category
            
            Loans(Dollars
      in thousands)Real
      estate -- mortgage:Residential
            $  222
            
            0.27
            %
            55.59
            %
            $  217
            
            0.24
            %
            54.36
            %Commercial
            726
            
            1.96
            
            24.99
            
            759
            
            1.83
            
            25.28Land
            25
            
            0.31
            
            5.36
            
            26
            
            0.28
            
            5.76Second
      mortgage loans
            31
            
            0.86
            
            2.47
            
            32
            
            0.76
            
            2.54Consumer
            82
            
            0.95
            
            5.84
            
            177
            
            1.82
            
            5.93Commercial
      business
            1,388
            
            16.27
            
            5.75
            
            1,640
            
            16.30
            
            6.13Total
      allowance forloan
      losses
            $2,474
            
            1.67
            %
            100.00
            %
            $2,851
            
            1.74
            %
            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, 2009, the Company's and the Savings Bank's
securities portfolio totaled $49.5 million (of which $45.3 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 Savings
Bank's 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 and the Savings Bank'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 30,2009
            
            2008
            
            2007Book
            
            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
            $
      8,609
            
            17.40
            %
            $
      6,157
            
            13.21
            %
            $13,460
            
            30.79
            %Obligations
      of state andpolitical
      subdivisions
            1,854
            
            3.75
            
            3,109
            
            6.67
            
            3,510
            
            8.03Federal
      agency mortgage-backed
      securities
            37,167
            
            75.10
            
            35,460
            
            76.06
            
            24,856
            
            56.85Total
      debt securities
            47,630
            
            96.25
            
            44,726
            
            95.94
            
            41,826
            
            95.67Equity
      securities:FHLB
      stock
            1,581
            
            3.19
            
            1,613
            
            3.46
            
            1,614
            
            3.69Other
            278
            
            0.56
            
            279
            
            0.60
            
            281
            
            0.64


Total
      equity
              securities
            1,859
            
            3.75
            
            1,892
            
            4.06
            
            1,895
            
            4.33Total
      securities
            $49,489
            
            100.00
            %
            $46,618
            
            100.00
            %
            $43,721
            
            100.00
            %













20






_____________(1)
            The
      market value of the Company's and the Savings Bank's securities portfolio
      amounted to $49.5 million, $46.7 million and $43.5 million at June 30,
      2009, 2008 and 2007, respectively.  At June 30, 2009, 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 $37.2 million.




The
following table sets forth the maturities and weighted average yields of the
debt securities in the Company's and the Savings Bank's investment securities
portfolio at June 30, 2009.





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
            $   -
            
            -
            %
            $
      6,605
            
            3.53
            %
            $2,004
            
            3.23
            %
            $     -
            
            -
            %Obligations
      ofstate andpoliticalsubdivisions
            220
            
            3.83
            
            1,170
            
            4.17
            
            464
            
            4.81
            
            -
            
            -Mortgage-backedsecurities
            621
            
            4.01
            
            2,796
            
            4.64
            
            6,630
            
            4.76
            
            27,390
            
            5.13Total
      debt
              securities
            $
      841
            
            
            
            $10,571
            
            
            
            $8,828
            
            
            
            $27,390








At June
30, 2009, the Savings Bank 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 Savings Bank'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, 2009, 21.9% 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, 2009, the Savings Bank's
portfolio included $37.4 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






21




securities
are more liquid than individual mortgage loans and may be used to collateralize
obligations of the Savings Bank. At June 30, 2009, the Savings Bank owned no
mortgage derivative products.





As of June 30, 2009, neither the
Company nor the Savings Bank had investments in preferred or common stock of
Fannie Mae or Freddie Mac.





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 brokered deposits on its books. 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 modest
deposit decrease of $5.4 million during the year ended June 30, 2009. The money
market savings account, first introduced late in calendar 2006, decreased by
$5.2 million in fiscal 2009 from $39.9 million at June 30, 2008 to $34.7 million
at June 30, 2009. Additionally, certificates of deposit decreased by $927,000
from $87.1 million at June 30, 2008 to $86.2 million at June 30, 2009. The
decreases in money market savings and certificates of deposit were partially
offset by increases in both non-interest-bearing checking accounts and
interest-bearing checking accounts during the year. During most of the
fiscal year ended June 30, 2009, with the exception 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. There were,
however, two or three short periods of time during fiscal 2009, when the Savings
Bank increased rates in selected maturities to improve cash flows. During those
times the offering rates were near the top of those among our
competitors.





The
following table sets forth information concerning the Savings Bank's time
deposits and other interest-bearing deposits at June 30, 2009.






22





WeightedAverage
            
            
            
            
            
            
            
            
            PercentageInterest
            
            
            
            
            
            Minimum
            
            
            
            of
      TotalRate
            
            Term
            
            Category
            
            Amount
            
            Balance
            
            Deposits(Dollars
      in thousands)0.00%
            
            None
            
            Non-interest
      bearing
            
            $
      100
            
            $
      14,740
            
            7.79
            %0.84
            
            None
            
            NOW
      accounts
            
            100
            
            32,485
            
            17.171.08
            
            None
            
            Super
      Saver accounts
            
            1,000
            
            9,316
            
            4.920.75
            
            None
            
            Savings
      accounts
            
            25
            
            11,778
            
            6.221.96
            
            None
            
            Money
      Market Savings
            
            10,000
            
            34,711
            
            18.34Certificates
      of deposit1.30
            
            3
      months
            Fixed
      term, fixed rate
            
            500
            
            841
            
            0.442.06
            
            6
      months
            Fixed
      term, fixed rate
            
            500
            
            9,070
            
            4.792.38
            
            9
      months
            Fixed
      term, fixed rate
            
            500
            
            1,847
            
            0.983.12
            
            11
      months
            Fixed
      term, fixed rate
            
            500
            
            5,005
            
            2.652.40
            
            12
      months
            Fixed
      term, fixed rate
            
            500
            
            12,501
            
            6.612.98
            
            15
      months
            Fixed
      term, fixed rate
            
            500
            
            1,794
            
            0.952.72
            
            18
      months
            Fixed
      term, fixed rate
            
            500
            
            1,284
            
            0.683.49
            
            21
      months
            Fixed
      term, fixed rate
            
            500
            
            26
            
            0.013.24
            
            24
      months
            Fixed
      term, fixed rate
            
            500
            
            6,687
            
            3.533.49
            
            27
      months
            Fixed
      term, fixed rate
            
            500
            
            26
            
            0.013.54
            
            30
      months
            Fixed
      term, fixed rate
            
            500
            
            507
            
            0.273.49
            
            33
      months
            Fixed
      term, fixed rate
            
            500
            
            26
            
            0.013.58
            
            36
      months
            Fixed
      term, fixed rate
            
            500
            
            1,217
            
            0.644.05
            
            48
      months
            Fixed
      term, fixed rate
            
            500
            
            572
            
            0.304.08
            
            60
      months
            Fixed
      term, fixed rate
            
            500
            
            2,323
            
            1.233.65
            
            72
      months
            Fixed
      term, fixed rate
            
            500
            
            22
            
            0.01Various
            
            Various
            
            Fixed
      term, adjustable rate
            500
            
            13,709
            
            7.25Various
            
            Various
            
            Jumbo certificates
            
            100,000
            
            28,731
            
            15.20$189,218
            
            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, 2009.  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
            
            $
      6,566After
      three through six months
            6,171After
      six through twelve months
            7,040After
      twelve months
            
            8,954Total
            
            $28,731





Time Deposits by
Rates.





23







At
      June 30,2009
            
            2008(In
      thousands)0.00
      - 1.49%
            
            $
      4,060
            
            $    
           -1.50
      - 2.49%
            
            26,881
            
            11,5612.50
      - 3.49%
            
            35,297
            
            23,5753.50
      - 4.49%
            
            6,384
            
            22,7544.50
      - 5.00%
            
            11,879
            
            22,7105.01
      – 5.49%
            
            1,566
            
            6,290Over
      5.49%
            
            121
            
            225Total
            
            $86,188
            
            $87,115





The
following table sets forth the amount and maturities of time deposits at
June 30, 2009.





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%
            $   831
            
            $
      1,035
            
            $    -
            
            $2,194
            
            $  -
            
            $
      4,060
            
            4.71
            %1.50
      - 2.49%
            24,721
            
            1,046
            
            797
            
            317
            
            -
            
            26,881
            
            31.192.50
      - 3.49%
            23,236
            
            9,577
            
            1,553
            
            399
            
            532
            
            35,297
            
            40.953.50
      - 4.49%
            5,092
            
            200
            
            925
            
            165
            
            2
            
            6,384
            
            7.414.50
      - 5.00%
            5,633
            
            4,184
            
            1,160
            
            902
            
            -
            
            11,879
            
            13.785.01
      – 5.49%
            810
            
            249
            
            242
            
            265
            
            -
            
            1,566
            
            1.82Over
      5.49%
            
            121
            
            -
            
            -
            
            -
            
            -
            
            121
            
            0.14Total
            
            $60,444
            
            $16,291
            
            $4,677
            
            $4,242
            
            $534
            
            $86,188
            
            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 30,2009
            
            2008Percent
            
            
            
            
            
            PercentOf
            
            Increase
            
            
            
            Of
            
            IncreaseAmount
            
            Total
            
            (Decrease)
            Amount
            
            Total
            
            (Decrease)(Dollars
      in thousands)Non-interest
      bearing
            $
      14,740
            
            7.79
            %
            $2,402
            
            $
      12,338
            
            6.34
            %
            $  (378)NOW
      checking
            
            32,485
            
            17.17
            
            373
            
            32,112
            
            16.50
            
            304Regular
      savingsaccounts
            
            9,316
            
            4.92
            
            (1,422)
            
            12,386
            
            6.37
            
            (223)Super
      Saver accounts
            11,778
            
            6.22
            
            (608)
            
            10,738
            
            5.52
            
            (2,637)Money
      Marketsavings
      accounts
            34,711
            
            18.33
            
            (5,193)
            
            39,904
            
            20.50
            
            3,618Fixed-ratecertificatesWhich
      mature (1):Within
      1 year
            
            52,859
            
            27.95
            
            (1,062)
            
            53,921
            
            27.72
            
            3,651After
      1 year, butWithin
      2 years
            11,202
            
            5.92
            
            5,729
            
            5,473
            
            2.81
            
            1,710After
      2 years, butWithin
      5 years
            3,923
            
            2.07
            
            315
            
            3,608
            
            1.85
            
            1,29815
            
            0.01
            
            15Adjustable-ratecertificates
            
            18,189
            
            9.61
            
            (5,924)
            
            24,113
            
            12.39
            
            (2,840)


Totalcertificates
            
            86,188
            
            45.56
            
            (927)
            
            87,115
            
            44.77
            
            3,819Total
            
            $189,218
            
            100.00
            %
            $(5,375)
            
            $194,593
            
            100.00
            %
            $
      4,503















24




______________(1)
            At
      June 30, 2009 and 2008, jumbo certificates of deposit amounted to $28.7
      million and $27.0 million, respectively, and Individual Retirement
      Accounts (“IRAs”) amounted to $25.1 million and $23.0 million at those
      dates, respectively.




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





Years
      Ended June 30,2009
            
            2008(In
      thousands)Beginning
      balance
            
            $194,593
            
            $190,090Net
      increase (decrease)before
      interest credited
            
            (9,596)
            
            (1,692)Interest
      credited
            
            4,221
            
            6,195Net
      increase/(decrease) insavings
      deposits
            
            (5,375)
            
            4,503Ending
      balance
            
            $189,218
            
            $194,593





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, 2009, the
balances of retail repurchase agreements totaled $5.7 million.





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, 2009, the Savings Bank had $10.0 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 30,2009
            
            2008
            
            2007Weighted
      average rate paid onFHLB
      advances
            3.05
            %
            5.75
            %
            5.75
            %Years
      Ended June 30,2009
            
            2008
            
            2007(Dollars
      in thousands)Maximum
      amounts of FHLB advancesoutstanding
      at any month end
            $29,000
            
            $22,000
            
            $25,000Approximate
      average FHLB advancesOutstanding
            $22,846
            
            $22,000
            
            24,077Approximate
      average effective ratepaid
      on FHLB advances
            5.14
            %
            5.85
            %
            5.76
            %









25


The
FHLB-Des Moines functions as a central reserve bank providing credit for savings
and loan associations and other member financial institutions.  As 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
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, 2009, the Savings Bank, based
on the available collateral could have borrowed an additional $25.0 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.





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, 2009, the Savings Bank had an investment in Fybar of $612,000.





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





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.






27





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.





The OTS
has established a schedule for the assessment of fees upon all savings
associations to fund the operations of the OTS.  A schedule of fees
has also been established for the various types of applications and filings made
by savings associations with 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 2009, the Savings Bank's assessment under the semi-annual
assessment procedure was $51,000.  Based on the current assessment
rates published by the OTS and First Home's total assets of approximately $241.7
million at March 31, 2009, First Home will be required to pay a semi-annual
assessment of $55,000 for the second half of calendar year 2009.





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.  Pursuant to the
Emergency Economic Stabilization Act of 2008, which was enacted into law on
October 3, 2008, FDIC insurance coverage was temporarily increased from $100,000
to $250,000 until December 31, 2013. 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
applies risk-based assessment system under authority granted by the Federal
Deposit Insurance Reform Act of 2005, which was enacted in 2006






28


(“Reform
Act”). The FDIC 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 three basis
points without a formal rulemaking proceeding.  No institution may pay
a dividend if in default of the FDIC assessment.


The
Reform Act provided the FDIC with authority to adjust the DIF ratio to insured
deposits within a range of 1.15% and 1.50%, in contrast to the prior statutorily
fixed ratio of 1.25%.  The ratio, which is viewed by the FDIC as the
level that the fund should achieve, was established by the agency at
1.25%.




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 May 22, 2009, the Board of Directors
of the FDIC voted to levy a special assessment on insured institutions as part
of the agency’s efforts to rebuild the DIF and help maintain public confidence
in the banking system.  The final rule establishes a special
assessment of five basis points on each FDIC-insured depository institution’s
assets, minus its Tier 1 capital, as of June 30, 2009. The special assessment
will be collected September 30, 2009.  Accordingly, the Savings Bank
accrued $99,400 for this special assessment in June 2009.





The
special assessment is assessed against assets minus Tier 1 capital rather than
domestic deposits, but the assessment will be capped at 10 basis points of an
institution’s domestic deposits so that no institution would pay an amount
higher than they would have paid under the interim rule. The special assessment
rule also permits the FDIC to impose two additional special assessments, each of
the same amount or less, based on assets, capital and deposits as of September
30, 2009 and December 31, 2009, to be collected, respectively, on December 31,
2009 and March 30, 2010.  The FDIC has announced that the first of the
additional special assessments is probable and the second is less
certain.





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








29


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
Board.  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, 2009, the Savings Bank had $10.0 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, 2009, the Savings Bank had $1.5 million 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 2009, 2008 and 2007 was
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.





The FHLBs
continue to contribute to low- and moderately-priced housing programs through
direct loans or interest subsidies 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, 2009, First Home was a
"well capitalized" institution 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






30




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.





Standards for Safety and Soundness.As required by statute, the federal banking agencies have adopted
Interagency Guidelines prescribing Standards for Safety and
Soundness.  The Guidelines set forth the safety and soundness
standards that the federal banking agencies use to identify and address problems
at insured depository institutions before capital becomes impaired. If the OTS
determines that a savings institution fails to meet any standard prescribed by
the Guidelines, the OTS may require the institution to submit an acceptable plan
to achieve compliance with the standard.  Management is aware of no
conditions relating to these safety and soundness standards which would require
submission of a plan of compliance.





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
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, 2009,
First Home maintained 76.9% 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,






31
 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,
2009, the Bank met each of these capital requirements, which is reflected in
the  following table.





At
      June 30, 2009Percent
      ofAmount
            
            Assets(Dollars
      in thousands)Tangible
      capital
            
            $21,140
            
            9.32
            %Minimum
      required tangible capital
            3,402
            
            1.50Excess
            
            $17,738
            
            7.82
            %Core
      capital
            
            $21,140
            
            9.32
            %Minimum
      required core capital
            
            9,071
            
            4.00Excess
            
            $12,069
            
            5.32
            %Risk-based
      capital
            
            $22,737
            
            17.57
            %Minimum
      risk-based capital requirement
            10,351
            
            8.00Excess
            
            $12,386
            
            9.57
            %





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, 2009, the Savings Bank's
largest extension of credit




32
 outstanding
to any one borrower, including related entities, was $3.9 million,of which $1.1 million 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.





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





The OTS may determine that the
continuation by a savings institution of its ownership, control of, or its
relationship to, the subsidiary constitutes a serious risk to the safety,
soundness or stability of the savings institution 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 institution 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.





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




33
 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.




Regulatory and CriminalEnforcementProvisions.  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.







34




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 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 Corporation 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.





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.







35


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.





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.





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.





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.





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.







36


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 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




37
 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, 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, 2009, 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




38
 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.


Name
              Age
      (1)
              PositionThomas
      M. Sutherland
              57
              Chairman
      of the Board and Chief

                  Executive Officer of the Company and
                  the Savings BankLannie E.
      Crawford
              58
              President
      of the Company and the Savings
                BankRonald
      J. Walters
              59
              Senior
      Vice President, Treasurer and
                Chief Financial Officer of the
                Company and the Savings BankDale W.
    Keenan
              46
              Executive
      Vice President and Senior
                Lender of the Savings Bank


_________________


(1)
            As
      of June 30, 2009.





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.Previously,
Mr. Sutherland was 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 30 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.






39





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 31 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 25 years of experience in financial
services.





Personnel





As of
June 30, 2009, the Savings Bank had 93 full-time employees and 21 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 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 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:






40





·
            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 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.





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




At June
30, 2009, $71.1 million, or 51.9% of our total loan portfolio, was secured by
one-to four-family residential real property. 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. The decline in
residential real estate values due to 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, or lack of growth or a decrease in
deposits.  These potential negative events may cause us to incur
losses, adversely affect our capital, 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, the types
of loans other than residential mortgage loans have a higher risk of loss than
residential mortgage loans.  We had $62.2 million or 45.36% of our




41
 total
loan portfolio outstanding in these higher risk loans at June 30, 2009. 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;




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




·
            the
      duration of the loan;






42






·
            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
significant estimates of current credit risks and future trends, all of which
may undergo material changes. 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. 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. In addition, 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 allowance for loan losses will
result in a decrease in net income and, possibly, capital, and may have a
material adverse effect on our financial condition and results of
operations.




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, 2009 we recorded a provision for loan losses of $5.3
million compared to $1.3 million for the fiscal year ended June 30, 2008, which
severely impacted our results of operations for fiscal 2009.  We also
recorded net loan charge-offs of $3.9 million for the fiscal year ended June 30,
2009 compared to $1.2 million for the fiscal year ended June 30,
2008.  We are experiencing 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 the deterioration in the general economy has
become a significant contributing factor to the increased levels of
delinquencies and non-performing loans. Slower sales and excess inventory in the
housing market has been the primary cause of the increase in delinquencies and
foreclosures for residential construction loans, which represented 4.5% of our
non-performing assets at June 30, 2009. In addition, slowing housing sales have
been a contributing factor to the increase in non-performing loans as well as
the increase in delinquencies. At June 30, 2009, our total non-performing loans
increased to $3.3 million, or 2.4% of total loans, compared to $2.7 million, or
1.6% of total loans, at June 30, 2008. 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 significant delinquencies and
credit losses. As a result, we will continue to make provision for loan losses
and to charge off additional loans in the future, which could materially
adversely affect our financial condition and results of operations.






43




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.





Our
success depends primarily on the general economic conditions of the State of
Missouri and the specific local markets in which we operate.  Unlike
larger national or other regional banks that are more geographically
diversified, we provide banking and financial services to customers located
primarily in the eight counties of Wright, Webster, Douglas, Christian, Ozark,
Stone, Taney and, since July 2006, Greene counties   in Missouri.
As of June 30, 2009, substantially our entire real estate portfolio consisted of
loans secured by properties located in Missouri, with only 21 real estate loans
totaling $4.9 million secured by properties outside of Missouri. 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; and




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




Beginning
in 2007 and continuing into 2009, the U.S. housing market has experienced
significant adverse trends, including accelerated price depreciation in some
markets and rising delinquency and default rates. Our construction and land loan
portfolios, commercial and multifamily loan portfolios and certain of our other
loans have been affected by the downturn in the residential real estate market.
During the past year, evidence of this downturn became more apparent in the
markets we serve, and contributed substantially to the increase in the provision
for loan losses, the increases in delinquencies, foreclosures and repossessions.
While we are inclined to think “the worst is over”, we realize that further
declines in the markets will hurt our business. If real estate values continue
to decline, the collateral for our loans will provide less security, and our
ability to recover on defaulted loans by selling the underlying real estate will
be diminished, making it more likely that we will suffer losses on defaulted
loans. As a result of these trends, we have recently experienced an increase in
delinquency and default rates, particularly in construction and land loans in
our primary market areas. These trends if they continue or worsen could cause
further credit losses and loan loss provisioning and could adversely affect our
earnings and financial condition.





We
have had losses and low earnings in recent years.





Our net
income has decreased in recent years.  Net income was $363,000,
$272,000, $1.3 million, and $2.3 million for the fiscal years ended June 30,
2008, 2007, 2005 and 2004, respectively.  We had net losses of $4.0
million and $173,000 for the fiscal years ended June 30, 2009 and 2006,
respectively. Our return on average assets was 0.15%, 0.09%, 0.51%, and 0.87%
for the fiscal years ended June 30, 2008, 2007, 2005, and 2004 and our
return on average




44
 equity
was 1.34%, 0.77%, 4.60%, and 8.49% for the same years.  Our returns on
average assets and average equity were negative for the fiscal years ended June
30, 2009 and 2006, as we incurred net losses for those years. We 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, as discussed
above, the increase in our problem loans, as discussed below, and our low
interest rate spread. Our interest 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, declined from 2.96% for the year ended
June 30, 2006 to 2.71% for the year June 30, 2007.  For the year
ended June 30, 2008, our interest rate spread improved to 3.01%, but declined
again during the year ended June 30, 2009 to 2.94%. While we have identified
various strategic initiatives we are pursuing in our efforts to overcome these
challenges and improve earnings, our strategic initiatives might not succeed in
increasing our net income.
  We have had a significant amount of
problem loans and related losses.





Since
1999, we have focused our efforts 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, 2009, 2008,
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 and to 2.18% at June 30, 2009. 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 and
increased to $3.0 million at June 30, 2009. The increase in non-performing loans
between June 30, 2008 and June 30, 2009 was primarily attributable to the impact
of current economic conditions on borrowers, both commercial and
consumer.





At June
30, 2009, classified assets were $12.0 million, an increase from $7.0 million at
June 30, 2008.  We also indentified an additional $13.4 million of
loans at June 30, 2009 on our internal watch list that could increase our
classified assets if there was further deterioration in their financial
condition.  These loans include $2.4 million, $7.8 million, $1.6
million, $1.5 million and $47,000 of 1-4 family residential real estate,
commercial real estate, land, commercial non-real estate and consumer loans,
respectively.    Our internal watch list of $13.4 million as
of June 30, 2009 reflects an increase of $8.7 million from $4.7 million at June
30, 2008.





Changes
in interest rates may reduce our net interest income.




Like
other financial institutions, we are subject to interest rate risk. Our primary
source of income is net interest income, which is the difference between
interest earned on loans and investment securities and the interest paid on
interest-bearing deposits and borrowings.  We expect that we will
periodically experience imbalances in the interest rate sensitivities of our
assets and liabilities and the relationships of various interest rates to each
other.  Over any period of time, our interest-earning assets may be
more sensitive to changes in market interest rates than our interest-bearing
liabilities, or vice versa.  In addition, the individual market
interest rates underlying our loan and deposit products may not change to the
same degree over a given time period.  In any event, if market
interest rates should move contrary to our position, our earnings may be
negatively affected.  In addition, loan volume and quality and deposit
volume and mix can be affected by market interest rates.  Changes in
levels of market interest rates could materially adversely affect our net
interest margin, asset quality, origination volume and overall
profitability.





We manage
our assets and liabilities in order to achieve long-term profitability while
limiting our exposure to the fluctuation of interest rates.  We
anticipate periodic imbalances in the interest rate sensitivity of our assets
and liabilities and the relationship of various interest rates to




45
 each
other.  At any reporting period, we may have earning assets which are
more sensitive to changes in interest rates than interest-bearing liabilities,
or vice versa.  The fluctuation of market interest rates can
materially affect our net interest spread, interest margin, loan originations,
deposit volumes and overall profitability.  Additionally, there is a
risk attributable to calculation methods (modeling risks) and assumptions used
in the model to calculate our interest rate risk exposure, including loan
prepayment and forward interest rate assumptions.




Continued
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. In the event 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 highly dependent on key members of our senior management team, which has
changed significantly in the past five years, and we currently are being led by
new senior management.





We are
highly 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.




During
the past six years we have had four different Presidents and Chief Executive
Officers.  Our current President was appointed to that position 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 a year.




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.





The
FDIC has increased deposit insurance premiums to restore and maintain the
federal deposit insurance fund, which has increased our costs.





During
the second quarter of 2009, the FDIC increased deposit insurance assessment
rates generally and imposed a special assessment of five basis points on each
insured institution’s total assets less Tier 1 capital. This special assessment
was calculated based on the insured institution’s assets at June 30, 2009,
and will be collected on September 30, 2009. Based on the assets of First
Home as of June 30, 2009 subject to the FDIC assessment, the






46


special
assessment totaled $99,000. This special assessment is in addition to the
regular quarterly risk-based assessment. The FDIC has announced that an
additional special assessment in 2009 of up to five basis points is
probable.




The FDIC
deposit insurance fund may suffer additional losses in the future due to bank
failures. There can be no assurance that there will not be additional
significant deposit insurance premium increases in order to restore the
insurance fund’s reserve ratio.




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.  Should we be 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.




There
is strong competition in financial services including the market areas we
serve.





We
compete in our market areas with numerous commercial banks, savings
institutions, mortgage brokerage firms, credit unions, finance companies, mutual
funds, insurance companies, and brokerage and investment banking firms operating
locally and throughout the county.  Some of these competitors have
substantially greater resources and lending limits than we have, have greater
name recognition and market presence that benefit them in attracting business,
and offer certain services that we do not or cannot provide
profitably.  In addition, larger competitors may be able to price
loans and deposits more aggressively than we do.  Our profitability
depends upon the Company's continued ability to successfully compete in its
market areas.  The greater resources and deposit and loan products
offered by some of our competitors may limit the Company's ability to attract
funds or increase its interest-earning assets.  For additional
information see Item I, ABusiness --
Competition.





We are subject to extensive
government regulation and supervision.





We are
subject to extensive federal and state regulation and supervision, and, as
discussed above, we currently operate under Cease and Desist Orders with the
Office of Thrift Supervision which places restrictions on our business
activities. Banking regulations are primarily intended to protect depositors'
funds, federal deposit insurance funds and the banking system as a whole, not
shareholders. These regulations affect our lending practices, capital structure,
investment practices, dividend policy and growth, among other
things.  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






47


policies,
could affect the Company 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.  Failure to comply with laws, regulations or policies could
result in sanctions by regulatory agencies, civil money penalties and/or
reputation damage, which could have a material adverse effect on our business,
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.




Legislation
and other measures undertaken by the Treasury, the Federal Reserve and other
governmental agencies may not be successful in stabilizing the U.S. financial
system or improving the housing market.




On
October 3, 2008, President Bush signed into law the Emergency Economic
Stabilization Act of 2008 (“EESA”) which, among other measures, authorized the
Treasury Secretary to establish the Troubled Asset Relief Program (“TARP”). The
EESA gives broad authority to Treasury to purchase, manage, modify, sell and
insure the troubled mortgage related assets that triggered the current economic
crisis as well as other “troubled assets.” EESA includes additional provisions
directed at bolstering the economy, including:




·
            authority
      for the Federal Reserve to pay interest on depository institution
      balances;


·
            mortgage
      loss mitigation and homeowner
protection;


·
            temporary
      increase in FDIC insurance coverage from $100,000 to $250,000 through to
      December 31, 2013; and


·
            authority
      for the Securities and Exchange Commission to suspend mark-to-market
      accounting requirements for any issuer or class of category of
      transactions.




Under the TARP, the Treasury has
created a capital purchase program (“CPP”), pursuant to which it is providing
access to capital to financial institutions through a standardized program to
acquire preferred stock (accompanied by warrants) from eligible financial
institutions that will serve as Tier 1 capital.





EESA also contains a number of
significant employee benefit and executive compensation provisions, some of
which apply to employee benefit plans generally, and others which impose on
financial institutions that participate in the CPP restrictions on executive
compensation.




EESA
followed, and has been followed by, numerous actions by the Federal Reserve,
Congress, Treasury, the Securities and Exchange Commission, and others to
address the liquidity and credit crisis that has followed the sub-prime meltdown
that commenced in 2007. These measures include homeowner relief that encourages
loan restructuring and modification; the establishment of significant liquidity
and credit facilities for financial institutions and investment banks; the
lowering of the federal funds rate; action against short selling practices; a
temporary guaranty program for money market funds; the establishment of a
commercial paper funding facility to provide back-stop




48
 liquidity
to commercial paper issuers; and coordinated international efforts to address
illiquidity and other weaknesses in the banking sector.




In
addition, the Internal Revenue Service has issued an unprecedented wave of
guidance in response to the credit crisis, including a relaxation of limits on
the ability of financial institutions that undergo an “ownership change” to
utilize their pre-change net operating losses and net unrealized built-in
losses. The relaxation of these limits may make significantly more attractive to
acquire financial institutions whose tax basis in their loan portfolios
significantly exceeds the fair market value of those portfolios.




The FDIC established its Temporary
Liquidity Guarantee Program (“TLGP”) in October, 2008.  Under the
interim rule for the TLGP, there are two parts to the program: the Debt
Guarantee Program (“DGP”) and the Transaction Account Guarantee Program
(“TAGP”).   Eligible entities are participants unless they opted
out on or before December 5, 2008 and pay various fees.





Under the DGP, the FDIC guarantees
new senior unsecured debt certain convertible debt of an eligible holding
companies and insured institutions issued no later than October 31,
2009.  The guarantee is effective through the earlier of the maturity
date or June 30, 2012 (for debt issued before April 1, 2009) or December 31,
2012 (for debt issued on or after April 1, 2009) .  The DGP coverage
limit is generally 125% of the eligible entity’s eligible debt outstanding on
September 30, 2008 and scheduled to mature on or before June 30, 2009, or for
certain institutions, 2% of liabilities as of September 30, 2008.





Under the TAGP, the FDIC provides
unlimited deposit insurance coverage for non interest-bearing transaction
accounts (typically business checking accounts), NOW accounts bearing interest
at 0.5% or less, and certain funds swept into non interest-bearing savings
accounts.  NOW accounts and money market deposit accounts are not
covered.  The TAGP remains in effect for participants until December
31, 2009, and unless they opt out of the extension, through the extension period
from January 1, 2010 through June 30, 2010.




The
actual impact that EESA, ARRA and such related measures undertaken to alleviate
the credit crisis, including the extreme levels of volatility and limited credit
availability currently being experienced, is unknown. The failure of such
measures to help stabilize the financial markets and a continuation or worsening
of current financial market conditions could materially and adversely affect our
business, financial condition, results of operations, access to credit or the
trading price of our common stock.




We
suspended our regular cash dividend.





On March
1, 2007, in response to our recent operating performance, our board of directors
decided to suspend our regular cash.  The Company did not pay a
dividend for six consecutive quarters. 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.  Whether we pay dividends in the future will depend on a
number of factors, including 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 OTS at
least 30 days in advance of the proposed dividend payment and obtain a
non-objection letter from the OTS.






49





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.




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, 2009.






50





Net
      BookValueas
      of
            
            Land
            
            BuildingYear
            
            June 30, 2009
            
            Owned/
            
            Owned/
            
            SquareLocation
            
            County
            
            Opened
            
            (In
      thousands)
            
            Leased
            
            Leased
            
            FootageMain
      Office142
      East First Street
            
            Wright
            
            1911
            
            $  987
            
            Owned
            
            Owned
            
            15,476Mountain
      Grove, MO 65711Branch
      Offices1208
      N. Jefferson Street
            
            Douglas
            
            1978
            
            237
            
            Owned
            
            Owned
            
            3,867Ava,
      MO 65608103
      South Clay Street
            
            Webster
            
            1974
            
            237
            
            Owned
            
            Owned
            
            3,792Marshfield,
      MO 65706203
      Elm Street
            
            Ozark
            
            1992
            
            454
            
            Owned
            
            Owned
            
            3,321Gainesville,
      MO 656557164
      Highway 14 East
            
            Christian
            1995
            
            193
            
            Owned
            
            Owned
            
            3,000Sparta,
      MO 65753Business
      Highway 160 (2)
            
            Ozark
            
            1997
            
            164
            
            Owned
            
            Owned
            
            1,824Theodosia,
      MO 65761123
      Main Street
            
            Stone
            
            1998
            
            289
            
            Owned
            
            Owned
            
            5,000Crane,
      MO 65633South
      Side of Square
            
            Stone
            
            1998
            
            49
            
            Owned
            
            Owned
            
            1,100Galena,
      MO 6565620377
      US Highway 160
            
            Taney
            
            2000
            
            738
            
            Owned
            
            Owned
            
            3,386Forsyth,
      MO 65653 (1)2536
      State Highway 176
            
            Taney
            
            2000
            
            389
            
            Owned
            
            Owned
            
            2,500Rockaway
      Beach, MO 65740(table
      continued on the following page)











51














Net
      BookValueas
      of
            
            Land
            
            BuildingYear
            
            6/30/09
            
            Owned/
            
            Owned/
            
            SquareLocation
            
            County
            
            Opened
            
            (In
      thousands)
            
            Leased
            
            Leased
            
            FootageDrive-in
      FacilitiesRoute
      60 and Oakland
            
            Wright
            
            1986
            
            123
            
            Owned
            
            Owned
            
            2,268Mountain
      Grove, MO 65711Drive-in
      Facilities223
      West Washington
            
            Webster
            
            1993
            
            191
            
            Owned
            
            Owned
            
            1,000Marshfield,
      MO 65706Loan Production
      Office1411
      East Primrose, Suite A
            
            Greene
            
            2007
            
            1
            
            Leased
            
            Leased
            
            5,100Springfield,
      MO 65804 (3)


_____________


(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.


(3)
            The
      loan production office ceased operations on June 12, 2009 and the facility
      was leased by  a new tenant on August 17,
  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.





Item
4.  Submission of Matters to a Vote of Security
Holders





None.








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.






52





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. This repurchase program terminated at the end of calendar
2008, without any shares having been purchased. As of June 30, 2009,
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 2009 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, 2009 and
      2008*


(b)   Consolidated
      Statements of Operations for the Years Ended June 30, 2009 and
      2008*


(c)   Consolidated
      Statements of Stockholders' Equity for the Years Ended June 30, 2009 and
      2008*


(d)   Consolidated
      Statements of Cash Flows for the Years Ended June 30, 2009 and
      2008*


(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
      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(T).  Controls and Procedures





(a)            
Evaluation of
Disclosure Controls and Procedures:  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, 2009 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




53
 Executive
Officer and Chief Financial Officer concluded that as of June 30, 2009 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)           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.




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, 2009
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.
Walters


Thomas M.
Sutherland                                                                                     Ronald
J. Walters


President
and Chief Executive
Officer                                                                                  Senior
Vice President, Treasurer and


(Principal
Executive
Officer)                                                                                                    
Chief Financial Officer


(Principal Financial Officer)




54





(c)            Changes in Internal Control
Over Financial Reporting:  During the quarter ended June 30,
2009, 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.





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, 2009 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.





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 Sutherland, 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.






55





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, 2009.





(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
            
            
            88,000Restricted
      stock plan
            
            -
            
            
            -
            
            
            50,000Equity
      Compensation Plans notapproved
      by security holders:
            
            -
            
            
            -
            
            
            -Total
            
            22,000
            
            
            16.85
            
            
            138,000








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.






56


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.(1)


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
(2)


10.3
            First
      Home Savings Bank Management Recognition and Development Plan
      (2)


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.
            2008
      Annual Report to Stockholders (Except for the portions of the 2008
      Stockholder Report that are expressly incorporated by reference in this
      Annual Report on Form 10-K, the 2008 Stockholder Report of the Company
      shall not be deemed filed as a part
hereof.)


14.
            Code
      of Ethics (9)


16.
            Letter
      on change in certifying accountant
(10)


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)









57


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


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


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


(3)   Incorporated
      by reference to the Company's Form 10-KSB for the fiscal year ended June
      30, 2001.  An updated Employment Agreement with Mr. Schumacher
      was entered into in November 2004 and terminated in June
    2005.


(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.


(10)
            Filed
      as an exhibit to the Company's Current Report on Form 8-K filed on May 2,
      2006 and incorporated herein by
reference.








58


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:
September 28,
2009                                                                                By:/s/Thomas M.
SutherlandThomas M. Sutherland


Chief 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                                                                                          September
28, 2009


Thomas M. Sutherland


Chief Executive Officer


(Principal Executive
Officer)








By: /s/Lannie E.
Crawford                                                                                                
September 28, 2009


Lannie E. Crawford


President








By: /s/Ronald J.
Walters                                                                                                 
September 28, 2009


Ronald J. Walters


Senior Vice President, Treasurer
and


Chief Financial Officer


(Principal Financial and Accounting
Officer)








By: /s/Thomas M.
Sutherland____                                                                               September
28, 2009


Thomas M. Sutherland


Chairman of the Board





By: /s/Harold F.
Glass                                                                                                     
September 28, 2009


Harold F. Glass


Director





By: /s/John G. Moody
__                                                                                              
September 28, 2009


John G. Moody


Director





By: /s/D. Mitch
Ashlock                                                                                                September
28, 2009


D. Mitch Ashlock


Director





By: /s/Billy E.
Hixon                                                                                                      
September 28, 2009


Billy E. Hixon


Director





By: /s/Robert J. Breidenthal
__                                                                                    September
28, 2009


Robert J. Breidenthal


Director





EXHIBIT
INDEX





EXHIBIT
NUMBER                                                      EXHIBIT
DESCRIPTION











13
            2009
      Stockholder Report.  Except for the portions of the 2008
      Stockholder Report that are expressly incorporated by reference in this
      Annual Report on Form 10-K, the 2008 Stockholder Report of the Company
      shall not be deemed filed as a part
hereof.





21
            Subsidiaries
      of the Registrant





23
            Consent
      of Auditors





31.1
            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)