Exhibit
      13
















First
Bancshares, Inc.











2009
Annual Report


























First
Home Savings Bank





A
wholly owned subsidiary
of First Bancshares, Inc.





www.fhsb.com






























































TABLE
OF CONTENTS











PageLetter
      to Shareholders
            
            
            1Business
      of the Company
            
            
            3Selected
      Consolidated Financial Information
            
            
            4Management’s
      Discussion and Analysis of Financial Conditionand
      Results of Operations
            
            
            6Independent
      Registered Public Accounting Firm’s report
            
            
            28Consolidated
      Financial Statements
            
            
            29Notes
      to Consolidated Financial Statements
            
            
            34Common
      Stock Information
            
            
            65Directors
      and Executive Officers
            
            
            66Corporate
      Information
            
            
            67





Letter To
Shareholders




Dear
Shareholders:




Our
fiscal year ended on June 30, 2009 and it was an extraordinary year – one that
saw dramatic changes in the financial industry landscape. Major institutions
failed, others combined with stronger partners, and the federal government
initiated multiple new programs in reaction to the unprecedented economic
environment. It was a year in which the performance of all financial
institutions suffered, including First Bancshares. Our results for fiscal 2009
were tremendously disappointing and culminated in our entering into a Cease and
Desist Order with our primary federal regulator, the Office of Thrift
Supervision.  The terms of the Cease and Desist Order are more fully
described in the Management’s Discussion and Analysis section of this Annual
Report. We anticipate that fiscal 2010 will be another challenging year for
the financial institutions industry, and for the nation overall, as we continue
to work our way through these unprecedented economic conditions.





Recognizing
the difficulties ahead, we are making every effort to be realistic and
proactively confront this turbulent economic environment. Our first
priority is to preserve capital and to take the appropriate actions to navigate
the stressed operating environment. Our second priority is to position First
Bancshares to emerge from this recession with improved viability and long-term
performance. In this process, we will be defining who we are and how we will
best compete, both now and when better times arrive.




Being
Realistic and Navigating the Economic Environment




While our
fiscal 2009 financial results were very disappointing, it was a year in which we
took a proactive and realistic approach to the economic cycle. Early in the year
– painful as it was – we continued to implement a policy of not paying
regular cash dividends in order to preserve capital. We also continued to
aggressively recognize and resolve problem loans. Additionally, we
strengthened our overall liquidity position and ended fiscal 2009 with
$25 million in unused secured borrowing capacity. At year-end 2009, we had
$26.2 million in cash and cash equivalents.




Several
changes were made in our existing risk management team, adding individuals with
experience in turnaround situations. The efforts of this team resulted in early
identification of commercial credit issues, primarily in commercial real estate
loans. Furthermore, we increased our loan loss reserve levels throughout fiscal
2009, with an increase of $1.4 million during the year. On a comparative basis,
our loan loss reserves increased from 1.65% of loans at year-end 2008 to 3.05%
at year-end 2009.




There is
no doubt the current recession represents continuing credit challenges for all
financial institutions, but we are addressing these credit challenges through
our risk management team and combined strong capital and reserves.




In
recognition of the current operating environment and our obligations to
shareholders, no bonuses for fiscal 2009 were paid to the Executive Management
Team and no merit salary increases will be received by the Executive Management
Team in fiscal 2010.




Going
forward, we anticipate adopting other cost saving measures to streamline
our cost structure given current revenue pressures and additional
expenses in the form of higher FDIC insurance premiums and loan collection
expenses. To that end, we are aggressively pursuing improvements in efficiency
and






1
 operating
under the assumption that there is no such thing as “business as usual,” and
nothing is above scrutiny.  Every option to eliminate unnecessary expenses
will be considered as we explore our opportunities to streamline our cost
structure.




Making
Certain We Are Ready




Post-Recession
Environment


The
current environment is difficult for all financial institutions, including First
Bancshares. The recession will, in all likelihood, get worse before it gets
better.  Banks that emerge intact from the current environment will be
those that understand their customers and provide value-added solutions
along with a strong community image and distribution system that provide a
deposit base to fund lending opportunities. We are improving our training and
systems in an effort to capture this opportunity. In addition, as a
result of the bank failures and mergers, pricing competition should decrease.
These factors, among others, should result in a favorable environment in which a
company that provides exceptional service to local businesses and consumers can
succeed – and that is what we intend to do.




A
Focused Plan




We must
be ready for this opportunity – ready to compete and ready to perform. We will
strive to build more personal banking relationship with our local
businesses and customers; and we will strive to cooperate across lines of
business to put the best solution in front of our customers.




Our
history and the strength of our bank is clearly linked to our local customers
from our various locations. As we strengthen our historical niche, we look
forward to the opportunity to deepen and expand these core banking relationships
as well as developing and expanding our commercial banking business. Our focus
on community involvement will provide a strong niche for retail customers who
value local pride and service over price. Strategically, our focus is
on:




·Improving
      credit quality;·Managing
      capital and liquidity;·Attracting
      and building core banking relationships;·Deepening
      customer relationships;·Establishing
      better loan and deposit pricing; and·Improving
      efficiency and expense
management.





While we
anticipate bringing many strengths and improvements to the post-recession world
– an experienced management team, and a profitable institution with a solid
capital base – we recognize that increasing our core long-term customer funding
remains a strategic imperative. We believe that there will be deposits available
and we are instituting a strategy to ensure that we are in a position to
take advantage of this opportunity.




Recognizing
the difficulties ahead, we believe we are focused on building credibility with
our shareholders, customers, and regulators, which we believe, in turn, will
increase our franchise value.




Thank you
for your support and understand­ing during these trying times, and I look
forward to building our future success together.












Lannie E.
Crawford


President






2


Business
of the Company





First
Bancshares, Inc. (“Company”), a Missouri corporation, was incorporated on
September 30, 1993 for the purpose of becoming the holding company for First
Home Savings Bank (“First Home” or the “Savings Bank”) upon the conversion of
First Home from a Missouri mutual to a Missouri stock savings and loan
association.  That conversion was completed on December 22,
1993.  At June 30, 2009, the Company had total consolidated assets of
$229.9 million and consolidated stockholders’ equity of $23.8
million.





The
Company is not engaged in any significant business activity other than holding
the stock of First Home.  Accordingly, the information set forth in
this report, including the consolidated financial statements and related data,
applies primarily to First Home.





First
Home is a Missouri-chartered, federally-insured stock savings bank organized in
1911.  The Savings Bank is regulated by the Missouri Division of
Finance and the Office of Thrift Supervision (“OTS”).  Its deposits
are insured up to applicable limits by the Federal Deposit Insurance
Corporation.  First Home also is a member of the Federal Home Loan
Bank (“FHLB”) System.





First
Home 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.
First Home provides its customers with a full array of community banking
services and is primarily engaged in the business of attracting deposits from,
and making loans to, the general public, including individuals and small to
medium size businesses.  First Home originates real estate loans,
including one-to-four family residential mortgage loans, multi-family
residential loans, commercial real estate loans and home equity loans, as well
as, non-real estate loans, including commercial business loans and consumer
loans.  First Home also invests in mortgage-backed, United States
Government and agency securities and other assets.





At June
30, 2009, First Home’s total gross loans were $137.1 million, or 59.6% of total
consolidated assets, including residential first mortgage loans of $71.1
million, or 51.9% of total gross loans and other mortgage loans of $52.1
million, or 38.0% of total gross loans.  Of the gross mortgage loans,
over 61.2% are adjustable-rate loans.


3


SELECTED CONSOLIDATED FINANCIAL INFORMATION




The
following table sets forth certain information concerning the consolidated
financial position and operating results
of the Company as of and for the dates indicated.  The Company is
primarily in the business of directing, planning
and coordinating the business activities of First Home.  The
consolidated data is derived in part from, and
should be read in conjunction with, the Consolidated Financial Statements of the
Company and its subsidiaries
presented herein.








At
      June 30,2009
            
            2008
            
            2007
            
            2006
            
            2005(In
      thousands)FINANCIAL
      CONDITION DATA:Total
      assets
            
            $
            229,915
            $
            249,232
            $
            241,331
            $
            228,395
            $
            244,007Loans
      receivable, net
            
            
            133,162
            
            167,035
            
            158,993
            
            141,987
            
            158,143Cash,
      interest-bearing depositsand
      securities
            
            
            81,335
            
            64,195
            
            65,498
            
            69,007
            
            68,600Deposits
            
            
            189,218
            
            194,593
            
            190,090
            
            179,141
            
            187,143Retail
      repurchase agreements
            
            
            5,713
            
            4,648
            
            2,103
            
            -
            
            -Borrowed
      funds
            
            
            10,000
            
            22,000
            
            22,000
            
            22,000
            
            28,394Stockholders'
      equity
            
            
            23,764
            
            27,100
            
            26,468
            
            26,291
            
            26,817Years
      Ended June 30,2009
            
            2008
            
            2007
            
            2006
            
            2005(In
      thousands, except per share information)OPERATING
      DATA:Interest
      income
            
            $
            12,366
            $
            14,828
            $
            13,724
            $
            12,913
            $
            13,265Interest
      expense
            
            
            5,443
            
            7,451
            
            7,354
            
            5,987
            
            5,091Net
      interest income
            
            
            6,923
            
            7,377
            
            6,370
            
            6,926
            
            8,174Provision
      for loan losses
            
            
            5,314
            
            1,291
            
            426
            
            1,520
            
            2,333Net
      interest income after provisionfor
      loan losses
            
            
            1,609
            
            6,086
            
            5,944
            
            5,406
            
            5,841Impairment
      of and gains/(losses) on
              securities
            
            
            143
            
            -
            
            177
            
            (421)
            
            (4)Non-interest
      income, excludinggains
      (losses) on securities
            
            
            2,514
            
            2,903
            
            2,127
            
            1,902
            
            2,911Non-interest
      expense
            
            
            9,834
            
            8,557
            
            8,094
            
            7,151
            
            7,415Income
      (loss) before taxes
            
            
            (5,568)
            
            432
            
            154
            
            (264)
            
            1,333Income
      tax expense (benefit)
            
            
            (1,532)
            
            69
            
            (118)
            
            (91)
            
            16Net
      income (loss)
            
            $
            (4,036)
            $
            363
            $
            272
            $
            (173)
            $
            1,317Basic
      earnings (loss) per share
            
            $
            (2.60)
            $
            0.23
            $
            0.18
            $
            (0.11)
            $
            0.83Diluted earnings (loss) per share
            
            $
            (2.60)
            $
            0.23
            $
            0.18
            $
            (0.11)
            $
            0.83Dividends
      per share
            
            $
            0.10
            $
            0.00
            $
            0.08
            $
            0.16
            $
            0.16














4







At
      or For the Years Ended June 30,2009
            
            2008
            
            2007
            
            2006
            
            2005KEY
      OPERATING RATIOS:Return
      on average assets
            
            
            N/A
            %
            0.15
            %
            0.09
            %
            N/A
            %
            0.51
            %Return
      on average equity
            
            
            N/A
            
            1.34
            
            0.77
            
            N/A
            
            4.60Average
      equity to average assets
            
            
            10.70
            
            11.05
            
            11.32
            
            11.52
            
            11.10Interest
      rate spread for period
            
            
            2.94
            
            3.01
            
            2.71
            
            2.96
            
            3.31Net
      interest margin for period
            
            
            3.16
            
            3.30
            
            3.01
            
            3.21
            
            3.48Non-interest
      expense to average
              assets
            
            4.00
            
            3.49
            
            3.46
            
            2.99
            
            2.88Average
      interest-earning assets tointerest-bearing
      liabilities
            
            
            108.87
            
            108.95
            
            108.66
            
            108.98
            
            108.01Allowance
      for loan losses to total loansat
      end of period
            
            
            3.05
            
            1.65
            
            1.59
            
            1.67
            
            1.74Net
      charge-offs to average loansoutstanding
      during the period
            
            
            2.63
            
            0.74
            
            0.14
            
            1.29
            
            0.44Ratio
      of non-performing assets to total
              assets
            2.18
            
            1.56
            
            1.47
            
            0.59
            
            2.21Ratio
      of loan loss allowance tonon-performing
      assets
            
            
            83.40
            
            72.10
            
            79.08
            
            184.52
            
            52.93Dividend
      payout ratio
            
            
            N/A
            
            -
            
            44.44
            
            N/A
            
            19.28June
      30,OTHER
      DATA:
            
            
            2009
            
            2008
            
            2007
            
            2006
            
            2005Number
      of:Loans
      outstanding
            
            
            2,802
            
            3,388
            
            3,450
            
            3,644
            
            4,263Deposit
      accounts
            
            
            21,965
            
            23,221
            
            23,983
            
            24,724
            
            25,021Full
      service offices
            
            
            11
            
            11
            
            11
            
            10
            
            10














5


MANAGEMENT’S
DISCUSSION AND ANALYSIS


OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS


General





Management’s
discussion and analysis of financial condition and results of operations is
intended to assist in understanding the financial condition and results of
operations of the Company.  The information contained in this section
should be read in conjunction with the Consolidated Financial Statements, the
accompanying Notes to Consolidated Financial Statements and the other sections
contained in this report.





Forward-Looking
Statements





This
Annual Report contains certain "forward-looking statements" 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, 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, resulting 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 polices 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






6




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 Annual Report
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.





As used
throughout this report, the terms "we", "our", or "us" refer to First
Bancshares, Inc. and our consolidated subsidiary, First Home Savings
Bank.





Recent
Developments and Corporate Overview





The
economic decline that began in calendar 2008 and that has continued thus far
into calendar 2009 has created significant challenges for financial institutions
such as First Home Savings Bank.  Dramatic declines in the housing
market, marked by falling home prices and increasing levels of mortgage
foreclosures, have resulted in significant write-downs of asset values by many
financial institutions, including government-sponsored entities and major
commercial and investment banks.  In addition, many lenders and
institutional investors have reduced, and in some cases ceased to provide,
funding to borrowers, including other financial institutions, as a result of
concern about the stability of the financial markets and the strength of
counterparties.





In
response to the crises affecting the U.S. banking system and financial markets
and attempts to bolster the distressed economy and improve consumer confidence
in the financial system, on October 3, 2008, the U.S. Congress passed, and the
President signed into law, the Emergency Economic Stabilization Act of 2008
(“EESA”).  The EESA authorizes the U.S. Treasury Department to
purchase from financial institutions and their holding companies up to $700
billion in mortgage loans, mortgage-related securities and certain other
financial instruments, including debt and equity securities issued by financial
institutions and their holding companies in a troubled asset relief program
(“TARP”).  The purpose of TARP is to restore confidence and stability
to the U.S. banking system and to encourage financial institutions to increase
their lending to customers and to each other.  Under the TARP Capital
Purchase Program (“CPP”), the Treasury may purchase debt or equity securities
from participating institutions.  The TARP also allows direct
purchases or guarantees of troubled assets of financial
institutions.  Participants in the CPP are subject to executive
compensation limits and are encouraged to expand their lending and mortgage loan
modifications.  First Bancshares elected not to participate in
TARP.





EESA also
increased FDIC deposit insurance on most accounts from $100,000 to $250,000.
This increase was set to expire at the end of 2009, but has recently been
extended to the end of 2013, and is not covered by deposit insurance premiums
paid by the banking industry.





Following
a systemic risk determination, the FDIC established a Temporary Liquidity
Guarantee Program (“TLGP”) on October 14, 2008.  The TLGP includes the
Transaction Account Guarantee Program, which




7




provides
unlimited deposit insurance coverage through December 31, 2009 for
noninterest-bearing transaction accounts (typically business checking accounts)
and certain funds swept into noninterest-bearing savings accounts
(“TAGP”).  Institutions participating in the TAGP pay a 10 basis
points fee (annualized) on the balance of each covered account in excess of
$250,000, while the extra deposit insurance is in place.  The TLGP
also includes the Debt Guarantee Program (“DGP”), under which the FDIC
guarantees certain senior unsecured debt of FDIC-insured institutions and their
holding companies.  The unsecured debt must be issued on or after
October 14, 2008 and not later than June 30, 2009, and the guarantee is
effective through the earlier of the maturity date or June 30, 2012. 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 insured institutions, 2% of their liabilities as of
September 30, 2008.  Depending on the term of the debt maturity, the
nonrefundable DGP fee ranges from 50 to 100 basis points (annualized) for
covered debt outstanding until the earlier of maturity or June 30,
2012.  The TAGP and DGP are in effect for all eligible entities,
unless the entity opted out on or before December 5, 2008.  First
Bancshares and First Home Savings Bank did not opt out of the TAGP; however,
since neither the Company nor First Home Savings Bank has unsecured senior debt,
we did elect to opt out of the DGP. The TLGP has been amended to allow
participants to seek approval of applications to issue guaranteed convertible
debt.





On
February 17, 2009, President Obama signed The American Recovery and Reinvestment
Act of 2009 (“ARRA”) into law.  The ARRA is intended to revive the US
economy by creating millions of new jobs and stemming home
foreclosures.  For financial institutions that have received or will
receive financial assistance under TARP or related programs, the ARRA
significantly rewrites the original executive compensation and corporate
governance provisions of Section 111 of the EESA. Among the most important
changes instituted by the ARRA are new limits on the ability of TARP recipients
to pay incentive compensation to up to 20 of the next most highly-compensated
employees in addition to the “senior executive officers,” a restriction on
termination of employment payments to senior executive officers and the five
next most highly-compensated employees and a requirement that TARP recipients
implement “say on pay” shareholder votes.  Further legislation is
anticipated to be passed with respect to the economic
recovery.  However, the executive compensation limitations contained
in the ARRA will not have an effect on First Bancshares, since it elected not to
participate in TARP.





The
Administration also announced in February 2009 its Financial Stability Plan
(“FSP”) and Homeowners Affordability and Stability Plan (“HASP”). Many details
of these plans have not been finalized.  The FSP is administrated by
the U.S. Treasury and includes the following four key elements: (1) the
development of a public/private investment fund essentially structured as a
government sponsored enterprise with the mission to purchase troubled assets
from banks with an initial capitalization from government funds; (2) the
continuation of the Capital Assistance Program with the Treasury purchasing
additional bank capital available only for banks that have undergone a new
stress test given by their regulator; (3) an expansion of the Federal Reserve’s
term asset-backed liquidity facility to support the purchase of up to $1
trillion in AAA–rated asset-backed securities backed by consumer, student and
small business loans and possibly other types of loans; and (4) the
establishment of a mortgage loan modification program with $5.0 billion in
federal funds further detailed in the HASP.





The HASP
is a voluntary program developed to help seven to nine million families
restructure their mortgages to avoid foreclosure with $275 billion in government
funding commitments.  The plan also develops guidance for loan
modifications nationwide. However, it is mandatory for recipients of FSP
financial assistance.  HASP provides programs and funding for eligible
refinancing of loans owned or guaranteed by Fannie Mae or Freddie Mac, along
with incentives to lenders, mortgage servicers, and borrowers to modify
mortgages of “responsible” homeowners who are at risk of defaulting on their
mortgage. The goals of HASP are to assist in the prevention of home foreclosures
and to help stabilize falling home prices.






8





These
programs are not expected to have any direct impact on First Bancshares since it
has determined not to participate in TARP and these related
programs.  First Bancshares will benefit from these programs if they
help stabilize the national banking system and aid in the recovery in the
housing market.





In
February 2009, the FDIC issued new deposit premium regulations providing for
increases of premiums, higher premiums for institutions with secured debt
(including FHLB advances and brokered deposits) and a special assessment in the
second quarter of 2009 to replenish the fund.  Under these new deposit
insurance premium regulations, the FDIC assesses deposit insurance premiums on
all FDIC-insured institutions quarterly based on annualized rates for four risk
categories.  Each institution is assigned to one of four risk
categories based on 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.  Institutions assigned to Risk Categories II, III and IV present
progressively greater risks to the DIF.  Under the FDIC’s risk-based
assessment rules, 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 rate after adjustments range from 7 to 24
basis points for Risk Category I, 17 to 43 basis points Risk Category II, 27 to
58 basis points for Risk Category III, and 40 to 77.5 basis points for Risk
Category IV.  The rule also includes 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.





In
addition to the regular quarterly assessments, as a result of the losses and
projected losses attributed to failed institutions, the FDIC adopted a rule
imposing on every insured institution a special assessment equal to 20 basis
points of its assessment base as of June 30, 2009 to be collected on September
30, 2009. However, Congress increased the FDIC’s borrowing authority from $30
billion to $100 billion (and up to $500 billion under special
circumstances). As the result of the increase in borrowing authority, the
special assessment was reduced to five basis points which, in the case of the
Savings Bank, amounted to approximately $99,000 in fiscal year ended June 30,
2009. There remains a distinct possibility that the FDIC could levy additional
special assessments due to the magnitude of losses and projected losses to the
fund.





The
preceding is a summary of recently enacted laws and regulations that could
materially impact our results of operations or financial
condition.  This discussion is qualified in its entirety by reference
to such laws and regulations and should be read in conjunction with “Regulation
of First Home” discussion later in this 2009 Annual Report on Form
10-K.





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




Under the
terms of the OTS orders, the 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:






9







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


·
            ensure
      the 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 associated 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 condition 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 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 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.





Since the
end of fiscal 2008, the Company and the Bank have had changes in senior
management. On September 23, 2008, Adrian C. Rushing, the Savings Bank’s Chief
Operating Officer, resigned his position to pursue another opportunity. The
Savings Bank reviewed the position description for the Chief Operating Officer,
and decided to reassign several functions and responsibilities to other
officers. The position of Operations Manager was created to manage the remaining
functions and responsibilities. The position was filled from within the Savings
Bank in November 2008.





On
October 28, 2008, Daniel P. Katzfey, President and Chief Executive Officer of
both the Company and the Bank, and a director of both the Company and the
Savings Bank, resigned his positions.





The
Companyappointed
Thomas M. Sutherland, Chairman of the Company’s and Savings Bank’s Boards of
Directors, to serve as the Interim Chief Executive Officer of the Company and
the Savings Bank.  Mr. Sutherland has served as Chairman of the Board
of the Company’s and Savings Bank’s Boards of Directors since 2005. In addition,
the Company appointed Lannie E. Crawford, a Senior Vice President of the Bank,
to serve as Interim President of the Company and the Savings
Bank.  Mr. Crawford joined the Savings Bank in November 2007 and has
more than 30 years of experience with financial institutions. The interim
appointments of Mr. Sutherland as Chief Executive Officer of the Company and the
Savings Bank, and of Mr. Crawford as President of the Company and the Savings
Bank, were made permanent at the organizational meeting of the board of the
Company and a special board meeting of the Savings Bank on November 6,
2008.






10





R.J.
Breidenthal was selected to fill the vacancy created on the Boards of Directors
of the Company and the Savings Bank by Mr. Katzfey’s resignation.  Mr.
Breidenthal served as an advisory director of the Company and the Savings Bank
from December 2006 to November 2008. Mr. Breidenthal serves on the Bank’s Loan
Committee. Mr. Breidenthal is the first cousin of Thomas M. Sutherland, the
Chairman of the Board and Chief Executive Officer of the Company and the Savings
Bank.





During
the months of November and December 2008, in light of a continually worsening
economy and the departure of several loan officers, the Savings Bank conducted
an in-depth review and analysis of its loan portfolio primarily focusing on its
commercial real estate, multi-family, development and commercial business loans.
As a result of this review, the Savings Bank added 65 loans with principal
balances totaling $12.6 million to either the classified asset list or the
internal watch list. Additionally, 33 loans which had appeared on either the
classified asset list or the internal watch list at the end of November 2008
were downgraded. During the quarter ended December 31, 2008, based on this loan
analysis and in light of the economic conditions, the Savings Bank recorded a
provision for loan losses of $4.4 million.





During
the quarters ended March 31, 2009 and June 30, 2009, the Savings Bank continued
its internal review and analysis of the loan portfolio, which contributed to
additional provisions for loan losses of $643,000 and $454,000 for the March and
June quarters, respectively.





At its
December 19, 2008 meeting, the Board of Directors, following extensive
discussions over several months, determined that it was in the best interest of
both the Bank and the Company to cash out the bank owned life insurance (“BOLI”)
owned by the Savings Bank. This decision resulted in an additional tax provision
of $562,000. However, the benefits from the transaction in the form of
additional liquidity provided by the proceeds, the elimination of a non-cash
flowing asset and a reduction in the Company’s exposure to the increased risk
that has been a significant factor in the marketplace over the last several
months, more than offset the cost. As of June 30, 2009, the Company had received
the cash proceeds from two of the three insurance companies that had issued
policies under the BOLI plan. The remaining BOLI funds are scheduled to be
received no later than the end of September 2009.





Operating
Strategy





The
primary goals of management are to improve profitability, reduce and manage risk
and take whatever steps necessary to satisfy the terms and conditions of the
Cease and Desist orders under which both the Company and the Savings Bank are
currently conducting business, with the stated purpose of having those orders
lifted.  Operating results depend primarily on net interest income,
which is the difference between the income earned on interest-earning assets,
consisting of loans and securities, and the cost of interest-bearing
liabilities, consisting of deposits and borrowings.  Net income is
also affected by, among other things, provisions for loan losses and operating
expenses.  Operating results are also significantly affected by
general economic and competitive conditions, primarily changes in market
interest rates, governmental legislation and policies concerning monetary and
fiscal affairs and housing, as well as, by other financial institutions and the
actions of the regulatory authorities.  Management’s strategy is to
strengthen First Home’s presence in its primary market area.





Management
has implemented various general strategies with the intent of improving
profitability while maintaining, and as necessary, improving safety and
soundness.  Primary among those strategies are, to the extent that
market conditions allow, increasing the volume of originated one-to-four family
loans, actively seeking high quality commercial real estate loans, continuing
improvement in, and maintaining, asset quality, and managing interest-rate
risk.  Following the opening of a loan origination office in
Springfield, Missouri in March 2007, most of the fixed-rate, single-family
mortgages originated by the Company have been sold to third parties, while
adjustable rate loans are retained in the portfolio.  This is






11


consistent
with First Home’s historical general practice of primarily being an adjustable
rate lender. The loan origination office ceased operation in June 2009. The
operating results for the loan origination office were about break-even without
full consideration of related administrative costs. This fact, coupled with the
costs of maintaining a facility which, subsequent to the November 2008
management changes, was only half occupied, led to the decision to cease
operation of the loan production office.  However, the Savings Bank
will continue to originate fixed-rate, single-family mortgages for sale into the
secondary market.





Lending.  Historically,
First Home predominantly originated one-to-four family residential
loans.  One-to-four family residential loans were 80% of the mortgage
loans originated, or 76% of total loan originations, during fiscal year 2009,
compared with 63% of the mortgage loans originated, or 57% of total loan
originations, during fiscal 2008.  At June 30, 2009, residential
mortgage loans as a percent of the Savings Bank’s total gross loan portfolio
were approximately 52% compared to approximately 45% at June 30,
2008.  First Home had gradually increased its commercial real estate
loan originations within its traditional lending territory during the eight year
period from fiscal 2001 through fiscal 2008. In fiscal 2001, commercial real
estate and land loan originations were approximately 20% of mortgage loan
originations compared to approximately 37% of mortgage loan originations in
fiscal 2008. Commercial real estate and land loan originations were
approximately 20% of mortgage loan originations in fiscal 2009. A number of
factors contributed to the decrease in commercial real estate and land loans,
including a decrease in values for such real estate, declining business and
development activity and tighter lending standards by the Savings Bank. While
commercial real estate and land loans will continue to be a part of the real
estate loans originated by the Savings Bank, they will likely, at least for the
immediate future, remain less than 25% of the mix of originations.





Asset Quality. Asset quality
remains a significant concern of management and the Company’s Board of
Directors.  The Savings Bank’s asset quality is monitored and measured
using various benchmarks.  The two key items are non-performing loans
and classified loans.  Non-performing loans consist of non-accrual
loans, loans past due over 90 days and impaired loans not past due or past due
less than 60 days.  Classified loans are loans internally identified
as having greater credit risk and requiring additional monitoring. Past due and
non-accrual loans, including loans 30-89 days delinquent, at June 30, 2009
were  $7.8 million, or 5.90% of the total loan portfolio, and included
$1.2 million, or 1.65% of total residential loans, $117,000, or 2.39% of total
second mortgage loans, $3.2 million, or 7.95% of total commercial real estate
loans, $2.0 million, or 26.97%, of total land loans, $1,4 million, or 13.48%, of
total commercial business loans, and $61,000; or 1.50% of total consumer
loans.





The table
below shows the risk classification of the Savings Bank’s loan portfolio at the
dates indicated.  Non-performing loans increased by $639,000, or
23.9%, to $3.3 million at June 30, 2009 from $2.6 million at June 30,
2008.  During fiscal 2009, real estate owned and repossessed assets
increased by $501,000 from $1.2 million to $1.7 million. In addition, net
charge-offs for fiscal 2009 increased by $2.7 million over those for fiscal
2008, to $3.9 million from $1.2 million. Classified loans increased by $4.5
million, or 78.6%, to $10.3 million at June 30, 2009 compared to $5.8 million at
June 30, 2008.  Stricter internal policies relating to the
identification and monitoring of loans in the current economic climate have
identified potential problems, and have also resulted in a significant increase
in classified loans. In addition to the classified loans, the Savings Bank has
identified an additional $13.4 million of credits at June 30, 2009 on its
internal watch list including $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. Management has identified
these loans as high risk credits and any deterioration in their financial
condition could increase the classified loan totals.





Of the
$10.3 million in classified loans as of June 30, 2009, seven loans with
outstanding balances totaling $1.3 million were outside the Savings Bank’s
market area. The allowance for loan losses related to these seven loans totaled
$449,000 as of June 30, 2009. Four of these loans totaling $547,000, with






12




related
allowances for loan losses of $140,000, were located in other areas of the state
of Missouri. Of the remaining three loans, there was one each in Tennessee,
Nebraska and Minnesota.





Asset
quality: (in thousands)


At
      or for the
              Year
      Ended June 30,2009
            
            2008Non-performing
      assets:Past
      due over 90 days
            $      288
            
            $       360Non-accrual
      loans
            3,024
            
            2,313Other
            -
            
            -Total
      non-performing loans
            3,312
            
            2,673Real
      estate owned
            1,549
            
            1,206Repossessed
      assets
            158
            
            -Total
      non-performing assets
            $   5,019
            
            $     3,879Classified
      loans:Loss
            $           -
            
            $            -Doubtful
            4,188
            
            718Substandard
            6,137
            
            5,062Total
      classified loans
            10,325
            
            5,780Total
      watch list credits
            13,415
            
            4,671Total
      loans of concern
            $  23,740
            
            $   10,451Net
      charge-offs
            $   3,925
            
            $      1,187Provision
      for loan losses
            $   5,314
            
            $      1,291





The
Savings Bank’s provision for loan losses for the year ended June 30, 2009
increased $4.0 million to $5.3 million from $1.3 million for the year ended June
30, 2008. This was primarily the result of management’s efforts to identify
problem loans and the deteriorating economic environment during fiscal 2009.
Most businesses and individuals have been negatively impacted. Customer cash
flows are strained and loan evaluations reflect an increased awareness of the
potential for problems in the loan portfolio. While the Savings Bank has
addressed loan quality issues over the past couple of years, it became clear
that the magnitude of problem loans, both in terms of their number and the total
dollars, was significantly greater than initially realized when the in-depth
loan review process began in November 2008. Steps were taken on each loan, as
appropriate for the type of credit, to determine the current status, the
magnitude of the problem, current net value, updated cash flows, proper
classification, accrual status and necessary reserves. This process resulted in
significant increases in classified assets, watch list credits, the provision
for loan losses and net charge offs.





Managing Interest-Rate
Risk.  First Home has relied primarily on adjustable interest
rate loans and short-term fixed-rate loans to manage the inherent risks of
interest rate changes.  During fiscal 2006, in order to compete in the
current interest rate environment, First Home began offering long-term fixed
rate mortgages to borrowers with good credit quality.  With the goal
of mitigating risk on these long-term fixed rate products, management monitors
the number, outstanding balance and other amounts related to these loans to
determine when changes should be made to the terms of the loans
offered.  While a small number of fixed-rate loans are retained in
portfolio, most fixed rate loans originated during the fiscal years ended June
30, 2009 and June 30, 2008 were originated for sale in the secondary
market.  To some extent FHLB advances with terms that correspond with
the terms of the loan products are utilized.





Critical Accounting
Policies.  The Company uses estimates and assumptions in its
financial statements in accordance with generally accepted accounting
principles.  Material or critical estimates that are




13




susceptible
to significant change include the determination of the allowance for loan losses
and the associated provision for loan losses, as well as the estimation of fair
value for a number of the Company’s assets.





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 of the Savings Bank assesses the allowance for loan losses
on a monthly basis, through the analysis of several different factors including
delinquency, charge-off rates and the changing risk profile of the Company’s
loan portfolio, as well as local economic conditions such as unemployment rates,
bankruptcies and vacancy rates of business and residential
properties.





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
require increased provisions, which would negatively affect
earnings.





The
allowance for loan losses is evaluated on a regular basis by management and is
based on management’s periodic review of the collectability 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, the
estimated value of any underlying collateral and prevailing economic
conditions.  This evaluation is inherently subjective as it requires
estimates that are susceptible to significant revision as more information
becomes available.





The
allowance for loan losses includes allowance allocations calculated 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.





Estimation of
Fair Value.The estimation of
fair value is significant to a number of the Company’s assets, including
securities and real estate owned.  These assets are all recorded at
either fair value or at the lower of cost or fair value.





Declines
in the fair value of equity securities below their amortized cost basis that are
deemed to be other-than-temporary impairment losses are reflected as realized
losses.  To determine if an other-than-temporary impairment exists on
an equity security, the Company considers (a) the length of time and the extent
to which the fair value has been less than cost, (b) the financial condition and
near-term prospects of the issuer and (c) the intent and ability of the Company
to retain its investment in the issuer for a period of time sufficient to allow
for an anticipated recovery in fair value.  To determine if a
other-than-temporary-impairment exists on a debt security, the Company first
determines if (a) it intends to sell the security or (b) it is more likely than
not that it will be required to sell the security before its anticipated
recovery.  If either of the conditions is met, the Company will
recognize a other-than-temporary-impairment in earnings equal to the difference
between the fair value of the security and its adjusted cost
basis.  If neither of the conditions is met, the Company determines
(a) the amount of the impairment related to credit loss and (b) the amount of
the impairment due to all other factors.  The difference






14


between
the present values of the cash flows expected to be collected and the amortized
cost basis is the credit loss.  The amount of the credit loss is
included in the consolidated statements of income as a
other-than-temporary-impairment on securities and is an adjustment to the cost
basis of the security.  The portion of the total impairment that is
related to all other factors is included in other comprehensive income
(loss).





Real
estate owned is recorded at 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.





Deferred
Tax Assets





The
Company accounts for income taxes according to the asset and liability method.
Under this method, deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax basis. Deferred tax assets and liabilities are measured
using the enacted tax rates applicable to taxable income for the years in
which those temporary differences are expected to be recovered or settled.
Deferred tax assets are recognized subject to management’s judgment
that realization is more-likely-than-not. An estimate of probable income tax
benefits that will not be realized in future years is required
in determining the necessity for a valuation allowance for deferred tax
assets.





Comparison
of Financial Condition at June 30, 2009 and June 30, 2008





General.The most
significant change in the Company’s financial condition during the year ended
June 30, 2009 was a decrease in net loans receivable of $33.9 million or
20.3%.  This decrease in loans provided the funding to increase our
investment in securities by $2.9 million, increase our investment in
certificates of deposit by $5.1 million, reduce our borrowings from the FHLB of
Des Moines by $12.0 million and fund a net deposit outflow of $5.4 million.
Additional funding was provided by cashing in $4.0 million in BOLI and an
increase of $1.1 million in funds received in retail repurchase
agreements.





Total Assets.Total assets
decreased $19.3 million, or 7.7%, to $229.9 million at June 30, 2009 from $249.2
million at June 30, 2008.  The decrease was primarily attributable to
the $33.9 million decrease in loans receivable and a $4.0 million decrease in
BOLI which were partially offset by increases of $9.2 million in cash and cash
equivalents, $5.1 million in certificates of deposit and $2.9 million in
securities. Additionally, deposits decreased by $5.4 million and borrowings from
the FHLB of Des Moines decreased by $12.0 million.





Cash and Cash
Equivalents.Cash and cash equivalents was $26.2 million at
June 30, 2009 compared to $17.0 million at June 30, 2008, an increase of $9.2
million, or 54.1%.  The increase was the result of the decrease in
loans receivable, which provided funds to increase investments in securities and
certificates of deposit, manage net deposit outflows, repay borrowings and
increase the liquidity of the Savings Bank during the
current  economic downturn.





Certificates of Deposit
Purchased.Certificates of deposit purchased as investments
increased $5.1 million to $5.6 million at June 30, 2009 from $567,000 at June
30, 2008.  The decision to invest in certificates of deposit was based
on a comparison of market interest rates and attendant risk for various
alternative short-term investments. All certificates of deposit are covered by
deposit insurance and had terms of 12 months or less.





Securities.Securities
increased $2.9 million to $47.9 million at June 30, 2009 from $45.0 million at
June 30, 2008.  Proceeds from the sales, maturities, calls and
prepayments on securities were reinvested, along with other excess funds,
primarily in mortgage-backed securities issued by Freddie Mac and Fannie Mae.






15




The
available-for-sale portfolio increased by $4.5 million, or 11.0%, to $45.3
million at June 30, 2009 from $40.8 million at June 30, 2008. The held to
maturity portfolio decreased by $1.6 million, or 37.9%, to $2.6 million at June
30, 2009 from $4.2 million at June 30, 2008. This change was the result of a
decision, made in fiscal 2007, to allow the held to maturity portfolio to run
off through maturities while new purchases were categorized as
available-for-sale, providing the greatest level of flexibility in the
investment portfolio. During fiscal 2009, the Savings Bank sold $6.1 million of
fixed-rate, mortgage-backed securities for a profit of $143,000. Our analysis of
the securities that were sold indicated a high probability of extension risk,
meaning that it was likely that the securities would be repaid over a period of
time significantly longer than the period of time anticipated when they were
purchased. The proceeds were used to purchase adjustable-rates, mortgage-backed
securities.





Loans
Receivable.  Net loans receivable decreased from $167.0 million
at June 30, 2008 to $133.2 million at June 30, 2009. The $33.9 million, or
20.3%, decrease was the result of several factors. Loan originations during
fiscal 2009 were less than 2008 because of the economic downturn, which both
decreased demand and resulted in  a tightening of the Savings Bank’s
underwriting standards. The Savings Bank, subsequent to the November 2008
management changes, made a concerted effort to eliminate certain credits out
from the Savings Bank’s loan portfolio. There was an increase in foreclosures
and repossessions, and the provision for loan losses was four times what it was
in fiscal 2008. All of these factors reduced net loans receivable.





Commercial
real estate loans decreased by $13.9 million, or 25.9%, to $39.8 million at June
30, 2009 from $53.7 million at June 30, 2008. Land loans decreased by $3.4
million, or 31.2%, to $7.4 million at June 30, 2009 from $10.8 million at June
30, 2008. Commercial business loans decreased by $2.0 million, or 16.6%, to $9.8
million at June 30, 2009 from $11.8 million at June 30, 2008. Consumer
loans, including personal and automobile loans, overdrafts, loans on deposit
accounts and second mortgages, decreased by $8.3 million, or 48.2%, to $8.9
million at June 30, 2009 from $17.3 million at June 30, 2008. One-to-four family
loans decreased by $4.9 million, or 6.4%, to $71.1 million at June 30, 2009
from $76.0 million at June 30, 2008.





The
origination of loans for portfolio decreased by $28.0 million, or 58.7%, to
$19.7 million in fiscal 2009 from $47.7 million in fiscal 2008. Real estate loan
originations, including loans originated for sale, decreased by $20.2 million,
or 34.3%, to $38.9 million for the year ended June 30, 2009 compared to $59.1
million for the year ended June 30, 2008. Commercial real estate, multi-family
and land loan originations decreased by $14.3 million, while one-to-four family
loan originations decreased by $6.0 million. Consumer loan originations
decreased by $2.1 million to $1.6 million for the year ended June 30, 2009 from
$3.7 million for the year ended June 30, 2008. Commercial business loan
originations decreased by $4.0 million to $2.3 million in fiscal 2009, as
compared to originations of $6.3 million in fiscal 2008. The primary reason for
the reduction in loan volume was the nationwide deteriorating economic climate
that prevailed during most of fiscal 2008 and all of fiscal 2009. In addition,
the Savings Bank began to tighten its underwriting standards in the fourth
quarter of fiscal 2008. This process continued throughout fiscal 2009. While the
Savings Bank’s local market areas have not been impacted to the same degree as
other areas of the country, the slowdown in business activity, the decline in
real estate values and the increased level of unemployment have been readily
apparent in the increase in delinquencies, non-performing assets, classified
assets, foreclosures and repossessions.





Non-accrual Loans.Non-accrual
loans increased from $2.3 million at June 30, 2008 to $3.0 million at June 30,
2009. The $711,000 increase in non-accrual loans was due to increases of
$499,000 in non-accrual residential mortgages, $1.5 million in non-accrual land
loans and $401,000 in commercial business loans. These increases were partially
offset by a decrease of $21,000 in non-accrual consumer loans and a decrease of
$1.6 million in non-accrual commercial real estate loans.






16





Non-performing Assets.Non-performing assets
increased $1.1 million, from $3.9 million at June 30, 2008 to $5.0 million at
June 30, 2009.  At June 30, 2009, the ratio of non-performing assets
to total assets was 2.18% compared to 1.56% at June 30, 2008.The Savings Bank’s
non-performing loans consist of non-accrual loans and past due loans over 90
days. Non-performing assets also include real estate owned and other repossessed
assets.





The
Savings Bank has identified an additional $13.4 million of credits at June 30,
2009 on its internal watch list including $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.  Management has identified these loans as high risk
credits and any deterioration in their financial condition could increase the
classified loan totals.





Deposits.Deposits decreased
$5.4 million, or 2.8%, to $189.2 million at June 30, 2009 from $194.6 million at
June 30, 2008.  The decrease in deposit balances during fiscal 2009
included a decrease of $8.3 million in savings accounts, which included a $5.2
million decrease in money market savings accounts, first introduced in December
2006. The money market savings account had $34.7 million in balances at June 30,
2009. In addition, certificates of deposits decreased $927,000, from $87.1 at
June 30, 2008 to $86.2 million at June 30, 2009. These decreases were partially
offset by an increase of $3.8 million in checking balances from $55.2 million at
June 30, 2008 to $59.0 million at June 30, 2009.  The rates paid by
the Savings Bank on deposits, with the exception of special offerings and
specifically designed accounts, usually fall in the lower half of the range of
rates offered by the Savings Bank’s competitors.





Retail Repurchase
Agreements.In December 2006, the Savings Bank began to offer
retail repurchase agreements. This was done to provide an additional product for
our 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, representing an increase of $1.1 million, or 23.9%, over the $4.6
million balance at June 30, 2008.  During most of fiscal 2009, the
balances of the retail repurchase agreements remained relatively unchanged
because there was very little change in the balances maintained by the largest
user of the program.





Borrowings.Advances
from the Federal Home Loan Bank of Des Moines decreased by $12.0 million from
$22.0 million at June 30, 2008 to $10.0 million at June 30, 2008. During the
year ended June 30, 2009, the Savings Bank borrowed $7.0 million from the FHLB
of Des Moines at an attractive rate during a period of net cash outflows. The
advance will be repaid at maturity prior to December 31, 2009.  The
Savings Bank opted to prepay $19.0 million in FHLB of Des Moines advances,
incurring a prepayment penalty of just over $1.2 million. There was no other
borrowed money during the year ended June 30, 2009.





Stockholders’
Equity.Stockholders’ equity was $23.8 million at June 30,
2009 compared to $27.1 million at June 30, 2008.  The $3.3 million
decrease was the result of a net loss of $4.0 million and the payment of a
dividend which totaled $155,000. The decision to pay a special dividend was made
by the Board in July 2008, the first month of fiscal 2009. The amount was based
on the net income for fiscal 2008, and the decision was made prior to any
indication of the loan problems which came to light in the second quarter of the
fiscal year. These decreases were partially offset by an increase in
paid-in-capital of $27,000, which resulted from the implementation of FASB 123R
in regard to stock based compensation, and an improvement of $828,000 in other
comprehensive income, related to net unrealized gains and losses on
available-for-sale securities.  At June 30, 2009, there were 1,550,815
shares of stock






17




outstanding,
or the same number of shares that were shares outstanding at June 30,
2008.  The book value per share decreased to $15.32 at June 30, 2009
from $17.47 at June 30, 2008.





Comparison
of Operating Results for the Years Ended June 30, 2009 and June 30,
2008





Net Income.The
Company recorded a net loss of $4.0 million for the fiscal year ended June 30,
2009, as compared to net income of $363,000 for the fiscal year ended June 30,
2008.  The primary reason for the $4.4 million negative change in the
results of operations was an increase of $4.0 million in provision for loan
losses in fiscal 2009 compared to fiscal 2008. In addition, net interest income
decreased by $455,000 in fiscal 2009 to $6.9 million from $7.4 million in fiscal
2008, non-interest income decreased by $246,000 to $2.7 million from $2.9
million and non-interest expense increased by $1.2 million to $9.8 million from
$8.6 million. These items were partially offset by a tax benefit of $1.5 million
for fiscal 2009 compared to a tax provision of $69,000 for fiscal
2008.





Net Interest
Income.Net interest income decreased $455,000, or 6.2%, to
$6.9 million for the fiscal year ended June 30, 2009 from $7.4 million for the
fiscal year ended June 30, 2008.  Total interest income decreased $2.5
million, while total interest expense decreased by $2.0 million.





Interest
Income.Interest income decreased $2.5 million, or 16.6%, to
$12.4 million for the fiscal year ended June 30, 2009, from $14.8 million for
the fiscal year ended June 30, 2008.  Interest income on loans
receivable decreased by $2.1 million, or 18.0%, to $9.8 million for the fiscal
year ended June 30, 2009 from $11.9 million for the fiscal year ended June 30,
2008.  During the year ended June 30, 2009, the average balance of net
loans outstanding decreased $11.5 million, or 7.4%, to $149.3 million from
$161.5 million for the fiscal year ended June 30, 2008. In addition, the yield
on net loans outstanding decreased to 6.54% in fiscal 2009 from 7.39% in fiscal
2008 due to a significant reduction in market interest rates between fiscal 2008
and fiscal 2009, and to substantial decreases in the outstanding balances of
consumer, commercial real estate and commercial business loans during 2009.
These types of loans generally have higher rates. Total loan originations were
$42.7 million during the year ended June 30, 2009, while sales of loans totaled
$23.4 million and repayments on loans were $45.3 million.





Interest
income from securities increased $83,000, or 3.5% to $2.5 million for the year
ended June 30, 2009 from $2.4 million for the year ended June 30,
2008.  The increase was the result of an increase of $4.5 million, or
10.1%, in the average balance of securities to $49.3 million in fiscal 2009 from
$44.8 million in fiscal 2008, which was partially offset by a decrease in the
yield on securities to 4.97% for fiscal 2009 from 5.29% for fiscal
2008.





Interest
income from other interest-earning assets (primarily overnight funds) decreased
$395,000, or 73.4%, to $143,000 for the fiscal year ended June 30, 2009 from
$538,000 for the fiscal year ended June 30, 2008.  The decrease is
attributable to a decrease in the yield on other interest-earning assets from
3.10% for the year ended June 30, 2008 to 0.69% for the year ended June 30,
2009, which was partially offset by an increase in the average balance of other
interest-earning assets from $17.4 million in fiscal 2008 to $20.7 million
during fiscal 2009.





Interest
Expense.Interest expense for the fiscal year ended June 30,
2009 decreased $2.0 million, or 27.0%, to $5.5 million from $7.5 million for the
fiscal year ended June 30, 2008.  Expense on interest-bearing customer
deposits decreased by $1.9 million, or 31.8%, to $4.2 million for fiscal 2009
from $6.1 million for fiscal 2008. This decrease was the result of a decrease of
$8.0 million, or 4.4%, in the average balance of deposits to $173.6 million for
the fiscal year ended June 30, 2009 from $181.6 million for the fiscal year
ended June 30, 2008, and by a decrease in the average cost of deposits to 2.41%
for fiscal 2009 from 3.37% for fiscal 2008.  The decrease in the
average cost of deposits was the result of decreased short-term interest rates
during fiscal 2009 and maturities of higher costing time deposits.






18





Interest
expense on retail repurchase agreements increased by $49,000 to $86,000 during
the fiscal year ended June 30, 2009 from $37,000 for the fiscal year ended June
30, 2008. The increase was the result of an increase in the average balance of
retail repurchase agreements of $3.5 million to $5.0 million for fiscal 2009
from $1.5 million for fiscal 2008, which was partially offset by a decrease in
the average cost on retail repurchase agreements to 1.71% for fiscal 2009 from
2.44% for fiscal 2008. Interest expense on other interest-bearing liabilities
decreased $111,000, or 8.6%, to $1.2 million for the fiscal year ended June 30,
2009 from $1.3 million for the fiscal year ended June 30, 2008. The decrease was
the result of a decrease in the average cost of these liabilities to 5.14% in
fiscal 2009 from 5.85% in fiscal 2008, which was partially offset by an increase
in the average balance of these liabilities of $846,000 to $22.8 million for
fiscal 2009 from $22.0 million for fiscal 2008.





Provision for Loan
Losses.The provision for loan losses increased $4.0 million,
or 311.5%, to $5.3 million for the fiscal year ended June 30, 2009 from $1.3
million for the fiscal year ended June 30, 2008.  The allowance for
loan losses was $2.8 million, or 1.65%, of gross loans at June 30, 2008 compared
to $4.2 million, or 3.05%, of gross loans at June 30, 2009.  Loan
charge-offs, net of recoveries was $3.9 million for the fiscal year ended June
30, 2009 compared to $1.2 million for the fiscal year ended June 30,
2008.  The increase in net loan charge-offs was the result of the
extensive loan review which began in November 2008 that identified a significant
number of problem loans, both in terms of numbers of loans and total dollars
involved. Many of the loans identified as problems during the eight month period
ended June 30, 2009 were or became delinquent, migrated to classified assets,
became subject to FASB 114 analysis and were written down, or taken into real
estate owned or repossessed collateral at some amount less than the loan
balances.





Non-interest
Income.  Non-interest income decreased $246,000, or 8.5%, to
$2.7 million for the fiscal year ended June 30, 2009 compared to $2.9 million
for the fiscal year ended June 30, 2008.  During fiscal 2009, there
were decreases of $143,000, or 7.0%, in service charges and other fee income and
$51,000 in income from BOLI. Additionally, the Savings Bank recorded $266,000 in
write-downs on real estate owned. These decreases in non-operating income were
partially offset by increases of $24,000, or 4.8%, in gain on the sale of loans,
$23,000, or 852.6%, in gain on the sale of property and equipment and $25,000,
or 17.7% in other operating income. In addition, there was a profit on the sale
of securities available-for-sale of $143,000. The decrease in service charges
and other fee income seems to reflect a higher level of caution on the part of
checking customers in a difficult economic period. The decrease in income on
BOLI is the result of the liquidation of two thirds of the Savings Bank’s BOLI
policies at mid fiscal year. The write downs on real estate owned are the result
of a decrease in real estate values during the ongoing economic downturn, and to
a decrease in the number of active buyers of these properties.





Non-interest
Expense.Non-interest expense increased $1.3 million, or
14.9%, to $9.8 million for the fiscal year ended June 30, 2009 from $8.6 million
for the fiscal year ended June 30, 2008. There were increases of $147,000 and
$1.3 million in deposit insurance premiums and other expenses, respectively.
These increases were partially offset by decreases of $5,000, $20,000 and
$148,000 in compensation and employee benefits, occupancy expenses and
professional fees, respectively.





Compensation
and employee benefits decreased $5,000, or 0.1%, remaining at $4.4 million for
the fiscal year ended June 30, 2009. The decrease in compensation and benefits
included a decrease of $148,000, or 3.7%, in compensation and related payroll
taxes, a decrease of $56,000, or 67.2%, in stock option expense and a decrease
of $34,000, or 61.8%, in directors’, officers’ and employees’ expenses. These
decreases were partially offset by increases of $34,000, or 90.0%, in directors’
compensation, $53,000, or 11.8%, in group health insurance costs and, as the
result of the reduced lending volume in fiscal 2009, a decrease of $149,000, or
55.3%, in the amount of compensation costs deferred on loan originations under
FASB 91. At the annual organizational meeting of the Board of Directors of the
Savings Bank, decided to restructure board and committee fees. Almost one-half
of the increase in fees during fiscal 2009 is due to






19




a $2,000
monthly fee paid to the Chairman of the Board in recognition of the additional
responsibilities of serving as Chief Executive Officer.





Occupancy
and equipment expense for the fiscal year ended June 30, 2009 decreased $20,000,
or 1.2%, remaining at $1.6 million. The decrease was partially attributable to
the Savings Bank discontinuing its use of the original loan production facility
the end of calendar 2008. In the fall of 2006, the Bank leased space in
Springfield, Missouri which was to be used as a loan production office and
provide offices for the Bank’s senior officers. Within the first year, it became
apparent that the space was inadequate, and an additional, larger facility, also
in Springfield, Missouri, was leased. The original facility was empty for
several months, but operations management, loan processing and human resources
were moved into the space early in 2008.  Subsequent to the management
changes in November 2008, loan processing, human resources and operations
management were relocated back to the Mountain Grove and Marshfield offices,
from which they had been moved originally. There were no other significant
changes in occupancy in fiscal 2009. Fiscal 2010 will reflect the closure of the
second loan origination office which, as noted earlier, was also in Springfield,
Missouri.





Professional
fees decreased $148,000, or 24.9%, from $594,000 in fiscal 2008 to $446,000 in
fiscal 2009.  Included in the professional fees for fiscal 2008 was
approximately $225,000 in accounting, legal and consulting work related to the
unsuccessful effort to take the Company private. Excluding these items, there
would have been an increase in professional fees of approximately $77,000 during
fiscal 2009. The increase in costs includes increases in external audit fees,
internal audit fees and costs related to compliance with Section 404 of the
Sarbanes Oxley Act of 2002.





Deposit
insurance premiums increased $147,000, or 134.9%, from $109,000 in fiscal 2008
to $256,000 in fiscal 2009, primarily as the result of higher premium
assessments from the FDIC and a special 5 basis point assessment levied by the
FDIC on the June 30, 2009 calculation base. In light of the costs to the
insurance fund of financial institution failures during calendar 2009, it is
highly probable that additional special assessments will be levied.





Other
non-interest expense increased by $1.3 million, or 73.4%, from $1.8 million for
fiscal 2008 to $3.1 million for fiscal 2009. The increase in this category,
which covers all other operating expense of the Company, was the result of a
$1.2 million penalty on the prepayment of $19.0 million in borrowings from the
FHLB of Des Moines.





Income
Taxes.Income tax benefit for the fiscal year ended June 30,
2009 totaled $1.5 million compared to income tax expense of $69,000 for the
fiscal year ended June 30, 2008. This was primarily the result of a pre-tax loss
of $5.6 million in fiscal 2009 compared to pre-tax income of $432,000 in fiscal
2008.





Net Interest
Margin.Net interest margin for the fiscal year ended June 30,
2009 was 3.16% compared to 3.30% for the fiscal year ended June 30,
2008.  The decrease in the net interest margin was the result of a
decrease in the yield on interest-earning assets that was only partially offset
by a decrease in the cost of interest-bearing liabilities. While the ratio of
interest-earning assets to interest-bearing liabilities remained unchanged
during fiscal 2009 compared to fiscal 2008, the interest rate spread between
interest-earning assets and interest-bearing liabilities decreased seven basis
points from 3.01% to 2.94%.





Average
Balances, Interest and Average Yields/Costs





The
earnings of the Savings Bank depend largely on the spread between the yield on
interest-earning assets (primarily loans and securities) and the cost of
interest-bearing liabilities (primarily deposit accounts and FHLB advances), as
well as the relative size of the Savings Bank's interest-earning assets and
interest-bearing liability portfolios.






20








Yields
Earned and Rates Paid





The
following table sets forth (on a consolidated basis) for the periods and at the
date indicated, the weighted average yields earned on the Company’s and First
Home's assets, the weighted average interest rates paid on First Home's
liabilities, together with the net yield on interest-earning
assets.





At
      June 30,
            
            
            Years
      Ended June 302009
            
            
            2009
            
            
            2008Weighted
      average yieldon
      loan portfolio
            6.52
            %
            
            6.54
            %
            
            7.39
            %Weighted
      average yieldon
      securities
            4.68
            
            
            4.97
            
            
            5.29Weighted
      average yield on otherinterest-earning
      assets
            0.78
            
            
            0.69
            
            
            3.10Weighted
      average yieldon
      all interest-earning assets
            5.35
            
            
            5.64
            
            
            6.64Weighted
      average ratepaid
      on total deposits
            2.11
            
            
            2.41
            
            
            3.37Weighted
      average rate paid on retailrepurchase
      agreements
            1.46
            
            
            1.71
            
            
            2.44Weighted
      average rate paid on otherinterest-bearing
      liabilities
            2.27
            
            
            5.14
            
            
            5.85Weighted
      average rate paid onAll
      interest-bearing liabilities
            2.10
            
            
            2.70
            
            
            3.63Interest
      rate spread (spreadbetween
      weighted averagerate
      on all interest-earning assetsand
      all interest-bearing liabilities)
            3.25
            
            
            2.94
            
            
            3.01Net
      interest margin (net interestincome
      (expense) as a percentageof
      average interest-earning assets)
            N/A
            
            
            3.16
            
            
            3.30



































The
following table sets forth, for the periods indicated, information regarding
average balances of assets and liabilities as well as the total dollar amounts
of interest income from average interest-earning assets and interest expense on
average interest-bearing liabilities, resultant yields, interest rate spread,
net interest margin, and ratio of average interest-earning assets to average
interest-bearing liabilities.









21







Years
      Ended June 30,2009
              
              
              2008Interest
              
              
              
              
              
              
              InterestAverage
              
              and
              
              Yield/
              
              
              Average
              
              and
              
              Yield/Balance(2)
              
              Dividends
              
              Cost
              
              
              Balance(2)
              
              Dividends
              
              Cost(Dollars
      in thousands)Interest-earning
      assets:Loans(1)
              
              $  149,325
              
              $      9,770
              
              6.54
              %
              
              $  161,318
              
              $    11,920
              
              7.39
              %Securities
              
              49,320
              
              2,452
              
              4.97
              
              
              44,780
              
              2,370
              
              5.29Other
              
              20,747
              
              144
              
              0.69
              
              
              17,357
              
              538
              
              3.10Total
      interest-earning assets
              219,392
              
              12,366
              
              5.64
              
              
              223,455
              
              14,828
              
              6.64Non-interest
      earning assetsOffice
      properties and equipment, net
              6,793
              
              
              
              
              
              
              7,100Real
      estate, net
              1,651
              
              
              
              
              
              
              825Other
      non-interest earning assets
              13,757
              
              
              
              
              
              
              13,868Total
      assets
              $  241,593
              
              
              
              
              
              
              $  245,248Interest-bearing
      liabilities:Savings
      and Money Market savings accounts
              $    46,210
              
              913
              
              1.98
              
              
              $    52,556
              
              1,700
              
              3.23Checking
      and Super Saver accounts
              41,835
              
              407
              
              0.97
              
              
              43,126
              
              544
              
              1.26Certificates
      of deposit
              85,598
              
              2,862
              
              3.34
              
              
              85,949
              
              3,885
              
              4.52Total
      deposits
              173,643
              
              4,182
              
              2.41
              
              
              181,631
              
              6,129
              
              3.37Retail
      repurchase agreements
              5,029
              
              86
              
              1.71
              
              
              1,476
              
              36
              
              2.44Advances  from
      Federal Home Loan Bank
              22,846
              
              1,175
              
              5.14
              
              
              22,000
              
              1,286
              
              5.85Total
      interest-bearing liabilities
              201,518
              
              5,443
              
              2.70
              
              
              205,107
              
              7,451
              
              3.63Non-interest
      bearing liabilities:Other
      liabilities
              14,217
              
              
              
              
              
              
              13,045Total
      liabilities
              215,735
              
              
              
              
              
              
              218,152Stockholders'
      equity
              25,858
              
              
              
              
              
              
              27,096Total
      liabilities andstockholders'
      equity
              $  241,593
              
              
              
              
              
              
              $  245,248Net
      interest income
              
              
              $      6,923
              
              
              
              
              
              
              $      7,377Interest
      rate spread
              
              
              
              
              2.94
              %
              
              
              
              
              
              3.01
              %Net
      interest margin
              
              
              
              
              3.16
              %
              
              
              
              
              
              3.30
              %Ratio
      of average interest-earningassets
      to average interest-bearing
      liabilities
              108.9%
              
              
              
              
              
              
              108.9%




(1)
            Average
      balances include non-accrual loans and loans 90 days or more past due. The
      corresponding interest up to the date of non-accrual status has been
      included in the "Interest and Dividends"
column.


(2)
            Average
      balances for a period have been calculated using the average monthly
      balances for the   respective
  year.








22





Rate/Volume
Analysis





The
following table presents certain information regarding changes in interest
income and interest expense of the Company and Savings Bank for the periods
indicated.  For each category of interest-earning assets and
interest-bearing liabilities, information is provided with respect to (i)
effects on interest income and interest expense attributable to changes in
volume (changes in volume multiplied by prior rate); (ii) effects on interest
income and interest expense attributable to changes in rate (changes in rate
multiplied by prior volume); (iii) the net changes (the sum of the previous
columns).   The effects on interest income and interest expense
attributable to changes in both rate and volume are allocated to the change in
volume variance and the change in the rate variance on a pro rated
basis.


Years
      Ended June 30,
              
              
              Years
      Ended June 30,2009
      Compared to 2008
              
              
              2008
      Compared to 2007Increase/(Decrease)
              
              
              Increase/(Decrease)Due
      to
              
              
              Due
      toVolume
              
              
              Rate
              
              
              Net
              
              
              Volume
              
              
              Rate
              
              
              Net(In
      thousands)Interest-earning
      assets:Loans
      (1)
              
              $
              (844
              )
              
              $
              (1,306
              )
              
              $
              (2,150
              )
              
              $
              671
              
              
              $
              304
              
              
              $
              975Securities
              
              
              230
              
              
              
              (148
              )
              
              
              82
              
              
              
              70
              
              
              
              373
              
              
              
              443Other
              
              
              95
              
              
              
              (489
              )
              
              
              (394
              )
              
              
              62
              
              
              
              (377
              )
              
              
              (315
              )Total
      net change in income oninterest-earnings
      assets
              
              
              (519
              )
              
              
              (1,943
              )
              
              
              (2,462
              )
              
              
              803
              
              
              
              300
              
              
              
              1,103Interest-bearing
      liabilities:Interest-bearing
      deposits
              
              
              (260
              )
              
              
              (1,687
              )
              
              
              (1,947
              )
              
              
              406
              
              
              
              (223
              )
              
              
              183Retail
      repurchase agreements
              
              
              77
              
              
              
              (27
              )
              
              
              50
              
              
              
              33
              
              
              
              (18
              )
              
              
              15Other
      interest-bearing liabilities
              
              
              49
              
              
              
              (160
              )
              
              
              (111
              )
              
              
              (101
              )
              
              
              -
              
              
              
              (101
              )Total
      net change in expense oninterest-bearing
      liabilities
              
              
              (134
              )
              
              
              (1,874
              )
              
              
              (2,008
              )
              
              
              338
              
              
              
              (241
              )
              
              
              97Net
      change in net interest income
              
              $
              (385
              )
              
              $
              (69
              )
              
              $
              (454
              )
              
              $
              465
              
              
              $
              541
              
              
              $
              1,006
  (1)  Includes
interest on loans 90 days or more past due not on non-accrual
status.





Liquidity
and Capital Resources





First
Home’s primary sources of funds are proceeds from principal and interest
payments on loans and securities, customer deposits, customer retail repurchase
agreements and FHLB advances.  While maturities and scheduled
amortization of loans and securities are a relatively predictable source of
funds, deposit flows and mortgage prepayments are greatly influenced by general
interest rates, economic conditions and competition.





The
primary investing activity of First Home is the origination of mortgage loans.
Mortgage loans originated by First Home decreased by $20.2 million to $38.9
million for the year ended June 30, 2009 from $59.1 million for the year ended
June 30, 2008.  Other investing activities include the purchase of
securities and certificates of deposit, which totaled $30.0 million and $21.2
million for the years ended June 30, 2009 and 2008, respectively, the
origination of non-mortgage loans, which totaled $2.3 million








23






and $6.3
million for the years ended June 30, 2009 and 2008,
respectively.  These activities were funded primarily by principal
repayments and prepayments on loans and sales, maturities and calls on
securities.





During
the fiscal year ended June 30, 2009, the Company’s cash and securities increased
by $17.2 million to almost $79.8 million from $62.6 million at June 30, 2008.
This resulted primarily from the decrease in the loan portfolio and a reasonably
stable deposit base. Management believed that an increase in liquid assets would
serve the Company well in the current economic climate.





OTS
regulations require First Home to maintain an adequate level of liquidity to
ensure the availability of sufficient funds to support loan growth and deposit
withdrawals, to satisfy financial commitments and to take advantage of
investment opportunities.  First Home’s sources of funds include
customer deposits, retail repurchase agreements, principal and interest payments
from loans and securities, FHLB advances and other credit lines. During fiscal
2009, First Home used its sources of funds primarily to purchase securities and
domestic certificates of deposit, repay advances from the FHLB of Des Moines,
fund loan commitments and to pay maturing savings certificates and deposit
withdrawals. During fiscal year 2008, First Home used its sources of funds
primarily to purchase securities, fund loan commitments and to pay maturing
savings certificates and deposit withdrawals.  At June 30, 2009, First
Home had approved customer loan commitments totaling $121,000 and unused lines
of credit totaling $6.5 million.





Liquid
funds necessary for the normal daily operations of First Home are maintained in
checking accounts, a daily time account with the FHLB of Des Moines and a
repurchase agreement account at a regional bank.  It is the Savings
Bank’s current policy to maintain adequate collected balances in checking
accounts to meet daily operating expenses, customer withdrawals, and fund loan
demand.  Funds received from daily operating activities are deposited,
on a daily basis, in one of the checking accounts and transferred, when
appropriate, to the daily time account, used to purchase investments or reduce
FHLB advances to enhance net interest income.





At June
30, 2009, certificates of deposit of customers amounted to $86.2 million, or
45.5%, of First Home’s total deposits, including $60.4 million which are
scheduled to mature by June 30, 2010.  Historically, First Home has
been able to retain a significant amount of its deposits as they
mature.  Management of First Home believes it has adequate resources
to fund all loan commitments with savings deposits and FHLB advances and that it
can adjust the offering rates of savings certificates to retain deposits in
changing interest rate environments.





Capital





OTS
regulations require First Home to maintain specific amounts of
capital.  As of June 30, 2009, First Home was in compliance with all
current regulatory capital requirements with tangible, core and risk-based
capital ratios of 9.3%, 9.3% and 17.6%, respectively.  These ratios
exceed the 1.5%, 4.0% and 8.0% tangible, core and risk-based capital ratios
required by OTS regulations.  In addition, the OTS amended its capital
regulations that require savings institutions to maintain specified amounts of
regulatory capital based on the estimated effects of changes in market rates and
that could further increase the amount of regulatory capital required to be
maintained by the Savings Bank.





Consistent
with our goal to operate a sound and profitable financial organization, we
actively seek to maintain a "well capitalized" institution in accordance with
regulatory standards.  Total equity capital was $23.8 million at June
30, 2009, or 10.31%, of total assets on that date. As of June 30, 2009, we
exceeded all regulatory capital requirements.  Our regulatory capital
ratios at June 30, 2009 were as follows: Tier 1 (core) capital 9.32%; Tier 1
risk-based capital 16.34%; and total risk-based capital 17.57%.  The
regulatory capital requirements to be considered well capitalized are 5%, 6% and
10%, respectively.








24





Off-Balance
Sheet Arrangements





The
Company is a party to financial instruments with off-balance sheet risk in the
normal course of business in order to meet the financing needs of our
customers.  These financial instruments generally include commitments
to originate mortgage, commercial and consumer loans, and involve to varying
degrees, elements of credit and interest rate risk in excess of the amount
recognized in the balance sheet.  The Company’s maximum exposure to
credit loss in the event of nonperformance by the borrower is represented by the
contractual amount of those instruments.  Since some commitments may
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements.  The Company uses the same credit
policies in making commitments as it does for on-balance sheet
instruments.  Collateral is not required to support
commitments.





Undisbursed
balances of loans closed include funds not disbursed but committed for
construction projects.  Unused lines of credit include funds not
disbursed but committed to, on home equity, commercial and consumer lines of
credit.





Commercial
letters of credit are conditional commitments issued by the Company to guarantee
the performance of a customer to a third party.  Those guarantees are
primarily used to support public and private borrowing
arrangements.  The credit risk involved in issuing letters of credit
is essentially the same as that involved in extending loan facilities to
customers.  Collateral held varies as specified above and is required
in instances where we deem it necessary.





The
following is a summary of commitments and contingent liabilities with
off-balance sheet risks as of June 30, 2009:





Commitments:(In
      thousands)Fixed
      rate loans
              $       34Adjustable
      rate loans
              87Undisbursed
      balance of loans closed
              1,726Unused
      lines of credit
              6,501Commercial
      standby letters of credit
              437Total
              $   8,785
  Accounting
Policies





Various
elements of the Company’s accounting policies, by their nature, are inherently
subject to estimation techniques, valuation assumptions and other subjective
assessments.  In particular, management has identified several
accounting policies that, as a result of the judgments, estimates and
assumptions inherent in those policies, are critical to an understanding of the
financial statements of the Company.  These policies relate to the
methodology for the determination of the provision and allowance for loan
losses, the valuation of real estate held for sale and the allowance for
deferred income taxes.  These policies and the judgments, estimates
and assumptions are described in greater detail in this Management’s Discussion
and Analysis of Financial Condition and Results of Operations section and in the
section entitled “New accounting standards” contained in Note 1 of the Notes to
Consolidated Financial Statements.  Management believes that the
judgments, estimates and assumptions used in the preparation of the financial
statements are appropriate based on the factual circumstances at the
time.  However, because of the sensitivity of the financial statements
to these critical accounting policies, the






25




use of
other judgments, estimates and assumptions could result in material differences
in the results of operations or financial condition.





Effect
of Inflation and Changing Prices





The
Consolidated Financial Statements and related financial data presented herein
have been prepared in accordance with accounting principles generally accepted
in the United States of America, which require the measurement of financial
position and operating results in terms of historical dollars, without
considering the changes in relative purchasing power of money over time due to
inflation.  The primary impact of inflation on operations of First
Home is reflected in increased operating costs.  Unlike most
industrial companies, virtually all the assets and liabilities of a financial
institution are monetary in nature.  As a result, interest rates
generally have a more significant impact on a financial institution’s
performance than do general levels of inflation.  Interest rates do
not necessarily move in the same direction or to the same extent as the prices
of goods and services.  During the current interest rate environment,
management believes that the liquidity and the maturity structure of First
Home’s assets and liabilities are critical to the maintenance of acceptable
profitability.




Quantitative
and Qualitative Disclosures About Market Risk







Interest Rate Sensitivity of Net
Portfolio Value.The following table sets forth the change in
the Savings Bank’s net portfolio value at June 30, 2009, based on (OTS) models.
Net portfolio value is the present value of expected cash flows from assets,
liabilities and off-balance sheet contracts. The calculation is intended to
illustrate the change in net portfolio value that will occur upon an immediate
and permanent change in interest rates at the various levels of change
indicated. There is no effect given to any steps that management might take to
counter the effect of that interest rate movement.









Net
      Portfolio as % ofNet
      Portfolio Value
            
            Portfolio
      Value of AssetsBasis
      Point ("bp")
            
            Dollar
            
            Dollar
            
            Percent
            
            Net
      PortfolioChange
      in Rates
            
            Amount
            
            Change(1)
            
            Change
            
            Value
      Ratio(2)
            
            Change(3)(Dollars
      in thousands)300
            bp
            $
      38,087
            
            $
      1,865
            
            5
            %
            16.05
            %
            79
            bp200
            
            37,587
            
            1,365
            
            4
            
            15.83
            
            57100
            
            37,016
            
            794
            
            2
            
            15.59
            
            3350
            
            36,583
            
            361
            
            1
            
            15.41
            
            15-
            
            36,222
            
            -
            
            -
            
            15.26
            
            -(50)
            
            35,401
            
            (820)
            
            (2)
            
            14.95
            
            (31)(100)
            
            34,496
            
            (1,726)
            
            (5)
            
            14.61
            
            (65)





(1)
            Represents
      the increase (decrease) of the estimated net portfolio value at the
      indicated change in interest rates compared to the net portfolio value
      assuming no change in interest
rates.


(2)
            Calculated
      as the estimated net portfolio value divided by the portfolio value of
      total assets.


(3)
            Calculated
      as the increase (decrease) of the net portfolio value ratio assuming the
      indicated change in interest rates over the estimated net portfolio value
      ratio assuming no change in interest
rates.





The above
table illustrates, for example, that at June 30, 2009 an instantaneous 200 basis
point increase in market interest rates would increase the Savings Bank’s net
portfolio value by approximately $1.4 million, or approximately 4%, and an
instantaneous 100 basis point decrease in market interest rates would decrease
the Savings Bank’s net portfolio value by $1.7 million, or approximately
5%.








26





The
following summarizes key exposure measures for the dates
indicated.  They measure the change in net portfolio value ratio for a
200 basis point increase and for a 100 basis point decrease in interest
rates.





June
      30,
            
            
            March
      31,
            
            
            June
      30,2009
            
            
            2009
            
            
            2008Pre-shock
      net portfolioValue
      ratio
            
            
            15.26
            %
            
            
            13.91
            %
            
            
            15.89
            %Post-shock
      net portfolioValue
      ratio (Up 200 bp)
            
            
            15.83
            %
            
            
            14.82
            %
            
            
            15.98
            %Increase
      (decrease) in portfolioValue
      ratio (Up 200 bp)
            
            
            57
            bp
            
            
            91
            bp
            
            
            9
            bpPost-shock
      net portfolioValue
      ratio (Down 100 bp)
            
            
            14.61
            %
            
            
            13.30
            %
            
            
            15.66
            %Increase
      (decrease) in portfolioValue
      ratio (Down 100 bp)
            
            
            (65
            )
      bp
            
            
            (61
            )
      bp
            
            
            (23
            )
      bp





The
calculated risk exposure measures of the Savings Bank’s interest rate risk at
June 30, 2009 indicate that the “shock” increase in market rates would increase
the net portfolio value while the “shock” decrease in market rates would
decrease the net portfolio value. This is consistent with the exposure measures
calculated at June 30, 2008. However, the magnitudes of the changes have
increased in both scenarios. There was an improvement of 9 basis points for the
up 200 basis point scenario at June 30, 2008 compared to an improvement of 57
basis points for the same scenario at June 30, 2009. There was a decline of 23
basis points in the down 100 basis point scenario at June 30, 2008 compared to a
decline of 65 basis points for the same scenario at June 30, 2009.





The OTS
uses certain assumptions in assessing the interest rate risk of thrift
institutions.  These assumptions relate to interest rates, loan
prepayment rates, deposit decay rates, and the market values of certain assets
under differing interest rate scenarios, among others.  As with any
method of measuring interest rate risk, certain shortcomings are inherent in the
method of analysis presented in the foregoing table.  For example,
although certain assets and liabilities may have similar maturities or period to
repricing, they may react in different degrees to changes in market interest
rates.  Also, the interest rates on certain types of assets and
liabilities may fluctuate in advance of changes in market interest rates, while
interest rates on other types may lag behind changes in market interest
rates.  Additionally, certain assets, such as adjustable rate mortgage
loans, have features that restrict changes in interest rates on a short-term
basis and over the life of the asset.  Further, in the event of a
change in interest rates, expected rates of prepayments on loans and early
withdrawals from certificates of deposit could deviate significantly from those
assumed in calculating the table.




27


Report of
Independent Registered Public Accounting Firm








To the
Board of Directors and Stockholders


First
Bancshares, Inc.








We have
audited the accompanying consolidated statements of financial condition of First
Bancshares, Inc. and subsidiaries as of June 30, 2009 and 2008 and the related
consolidated statements of operations, stockholders’ equity and cash flows for
the years then ended.  These financial statements are the
responsibility of the Company’s management.  Our responsibility is to
express an opinion on these financial statements based on our
audits.





We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement.  An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements.  An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statements
presentation.  We believe that our audits provide a reasonable basis
for our opinion.





In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of First Bancshares, Inc. and
subsidiaries as of June 30, 2009 and 2008 and the results of their operations
and their cash flows for the years then ended in conformity with U.S. generally
accepted accounting principles.





We were
not engaged to examine managements’ assessment of the effectiveness of First
Bancshares, Inc.’s internal control over financial reporting as of June 30, 2009
included in the Company’s Annual Report on Form 10K filed with the Securities
and Exchange Commission and, accordingly, we do not express an opinion
thereon.




















Kansas
City, Missouri


September
24, 2009











28











FIRST
      BANCSHARES, INC. AND SUBSIDIARIESCONSOLIDATED
      STATEMENTS OF FINANCIAL CONDITION-
      - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
      - - - - - - - - -June
      30, 2009 and 20082009
            
            
            2008ASSETSCash
      and cash equivalents
            
            
            $
            26,217,607
            
            
            $
            17,010,093Certificates
      of deposit purchased
            
            
            
            5,628,062
            
            
            
            566,800Securities
      available-for-sale
            
            
            
            45,316,804
            
            
            
            40,830,284Securities
      held to maturity
            
            
            
            2,591,510
            
            
            
            4,174,886Federal
      Home Loan Bank stock, at cost
            
            
            
            1,580,800
            
            
            
            1,613,200Loans
      receivable, net
            
            
            
            133,162,106
            
            
            
            167,034,726Loans
      held for sale
            
            
            
            820,270
            
            
            
            755,357Accrued
      interest receivable
            
            
            
            955,037
            
            
            
            1,135,894Prepaid
      expenses
            
            
            
            399,753
            
            
            
            243,368Property
      and equipment, net
            
            
            
            6,669,373
            
            
            
            6,913,125Real
      estate owned and other repossessed assets, net
            
            
            
            1,706,615
            
            
            
            1,205,737Intangible
      assets, net
            
            
            
            185,355
            
            
            
            235,470Deferred
      tax asset, net
            
            
            
            1,838,785
            
            
            
            795,688Income
      taxes receivable
            
            
            
            274,583
            
            
            
            57,653Bank-owned
      life insurance
            
            
            
            2,154,025
            
            
            
            6,121,360Other
      assets
            
            
            
            414,608
            
            
            
            538,121Total assets
            
            
            $
            229,915,293
            
            
            $
            249,231,762LIABILITIES AND
      STOCKHOLDERS' EQUITYDeposits
            
            
            $
            189,217,878
            
            
            $
            194,593,283Retail
      repurchase agreements
            
            
            
            5,713,382
            
            
            
            4,647,587Advances
      from Federal Home Loan Bank
            
            
            
            10,000,000
            
            
            
            22,000,000Accrued
      expenses
            
            
            
            1,220,142
            
            
            
            891,320Total
      liabilities
            
            
            
            206,151,402
            
            
            
            222,132,190Commitments
      and contingencies (Note 13)Preferred
      stock, $.01 par value; 2,000,000 shares authorized,none issued
            
            
            
            -
            
            
            
            -Common
      stock, $.01 par value; 8,000,000 shares authorized,issued 2,895,036 in 2009 and in 2008, outstanding1,550,815 in 2009 and in 2008
            
            
            
            28,950
            
            
            
            28,950Paid-in
      capital
            
            
            
            18,047,257
            
            
            
            18,019,852Retained
      earnings – substantially restricted
            
            
            
            24,022,637
            
            
            
            28,214,183Treasury
      stock, at cost - 1,344,221 shares in 2009 and in 2008
            
            
            
            (19,112,627
            )
            
            
            (19,112,627
            )Accumulated
      other comprehensive income (loss)
            
            
            
            777,674
            
            
            
            (50,786
            )Total
      stockholders' equity
            
            
            
            23,763,891
            
            
            
            27,099,572Total liabilities and stockholders' equity
            
            
            $
            229,915,293
            
            
            $
            249,231,762See
      notes to the consolidated financial statements






29




FIRST
      BANCSHARES, INC. AND SUBSIDIARIESCONSOLIDATED
      STATEMENTS OF OPERATIONS-
      - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
      -Years
      Ended June 30, 2009 and 20082009
            
            2008Interest
      Income:Loans
      receivable
            $     9,770,332
            
            $   11,920,427Securities
            2,452,442
            
            2,369,758Other
      interest-earning assets
            142,832
            
            537,997Total
      interest income
            12,365,606
            
            14,828,182Interest
      Expense:Deposits
            4,181,951
            
            6,128,745Retail
      repurchase agreements
            85,577
            
            36,279Advances
      from Federal Home Loan Bank
            1,175,562
            
            1,286,063Total
      interest expense
            5,443,090
            
            7,451,087Net
      interest income
            6,922,516
            
            7,377,095Provision
      for loan losses
            5,313,801
            
            1,291,300Net
      interest income afterprovision
      for loan losses
            1,608,715
            
            6,085,795Non-interest
      Income:Service
      charges and other fee income
            1,907,418
            
            2,050,561Gain
      on the sale of loans
            531,865
            
            507,702Gain
      on sale of securities
            142,783
            
            -Gain
      on sale of property and equipmentand
      real estate owned
            24,011
            
            30,503Write-down
      on real estate owned
            (265,654)
            
            (27,850)Income
      from bank-owned life insurance
            150,616
            
            201,387Other
            165,476
            
            140,437Total
      non-interest income
            2,656,515
            
            2,902,740Non-interest
      Expense:Compensation
      and employee benefits
            4,425,787
            
            4,430,314Occupancy
      and equipment
            1,626,520
            
            1,646,733Professional
      fees
            446,095
            
            594,311Deposit
      insurance premiums
            256,157
            
            109,042Other
            3,078,882
            
            1,776,067Total
      non-interest expense
            9,833,441
            
            8,556,467Income
      (loss) before income taxes
            (5,568,211)
            
            432,068Income
      taxes (benefit)
            (1,531,751)
            
            68,847Net
      income (loss)
            $ (4,036,460)
            
            $      363,221Basic
      earnings (loss) per share
            $         (2.60)
            
            $            0.23Diluted
      earnings (loss) per share
            $         (2.60)
            
            $           0.23See
      notes to the consolidated financial statements


30









FIRST
      BANCSHARES, INC. AND
  SUBSIDIARIESCONSOLIDATED
      STATEMENTS OF STOCKHOLDERS' EQUITY-
      - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
      -Years
      Ended June 30, 2009 and 2008Common
            
            
            
            
            
            
            
            Accumulated
      Other
            
            TotalStock
            
            Paid-in
            
            Retained
            
            Treasury
            
            Comprehensive
            
            Stockholders'Shares
            
            Amount
            
            Capital
            
            Earnings
            
            Stock
            
            Income
      (Loss)
            
            EquityBalances
      at June 30, 2007
            1,550,815
            $
            28,950
            $
            17,936,224
            $
            27,850,962
            $
            (19,112,627)
            $
            (235,416)
            $
            26,468,093Comprehensive
      income:Net
      income
            -
            
            -
            
            -
            
            363,221
            
            -
            
            -
            
            363,221Other
      comprehensive income, net of tax:Change
      in unrealized gain(loss) onsecurities
      available-for-sale, net of deferredincome
      taxes of $95,112
            -
            
            -
            
            -
            
            -
            
            -
            
            184,630
            
            184,630Total
      Comprehensive Income
            
            
            
            
            
            
            
            
            
            
            
            
            547,851Stock
      based compensation
            -
            
            -
            
            83,628
            
            -
            
            -
            
            -
            
            83,628Balances
      at June 30, 2008
            1,550,815
            
            28,950
            
            18,019,852
            
            28,214,183
            
            (19,112,627)
            
            (50,786)
            
            27,099,572Comprehensive
      income:Net
      loss
            -
            
            -
            
            -
            
            (4,036,460)
            
            -
            
            -
            
            (4,036,460)Other
      comprehensive income, net of tax:Change
      in unrealized gain(loss) onsecurities
      available-for-sale, net of deferredincome
      taxes of $426,782
            -
            
            -
            
            -
            
            -
            
            -
            
            922,696
            
            922,696Reclassification
      adjustment net of deferred incometaxes
      of $48,547.
            
            
            
            
            
            
            
            
            
            
            (94,236)
            
            (94,236)Total
      Comprehensive Income
            
            
            
            
            
            
            
            
            
            
            
            
            (3,208,000)Dividends
      paid ($0.10 per share)
            
            
            
            
            
            
            (155,086)
            
            
            
            
            
            (155,086)Stock
      based compensation
            -
            
            -
            
            27,405
            
            -
            
            -
            
            -
            
            27,405Balances
      at June 30, 2009
            1,550,815
            $
            28,950
            $
            18,047,257
            $
            24,022,637
            $
            (19,112,627)
            $
            777,674
            $
            23,763,891See
      notes to the consolidated financial
statements





31


FIRST
      BANCSHARES, INC. AND SUBSIDIARIESCONSOLIDATED
      STATEMENTS OF CASH FLOWS-
      - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
      -Years
      Ended June 30, 2009 and 20082009
            
            2008Cash
      flows from operating activities:Net
      income (loss)
            $         (4,036,460)
            
            $       363,221Adjustments
      to reconcile net income  to netcash
      provided by operating activities:Depreciation
            658,854
            
            812,798Amortization
            50,115
            
            50,114Net
      premium amortization and (discount accretion) on
securities
            (199,427)
            
            (151,357)Stock
      based compensation
            27,405
            
            83,628Gain
      on sale of securities
            (142,783)
            
            -Provision
      for loan losses
            5,313,801
            
            1,291,300Write
      down on real estate owned
            265,654
            
            27,850Gain
      on the sale of loans
            (531,865)
            
            (507,702)Proceeds
      from the sale of loans originated for sale
            23,883,603
            
            22,851,155Loans
      originated for sale
            (23,036,252)
            
            (21,444,857)Deferred
      income taxes
            (1,469,879)
            
            (64,869)Gain
      on sale of property and equipmentand
      real estate owned
            (9,993)
            
            (29,286)(Gain)
      loss on the sale of other repossessed assets
            (14,018)
            
            18,252Increase
      in cash surrender value on bank-ownedlife
      insurance
            (150,616)
            
            (201,387)Net
      change in operating accounts:Accrued
      interest receivable, prepaid expenses and other assets
            94,415
            
            445,691Deferred
      loan costs
            69
      441
            
            (133,844)Income
      taxes receivable
            (216,930)
            
            20,169Accrued
      expenses
            328,822
            
            222,118Net
      cash provided by operating activities
            883,887
            
            3,652,994Cash
      flows from investing activities:Purchase
      of certificates of deposit purchased
            (5,256,669)
            
            (21,168)Maturities
      of certificates of deposit purchased
            195,407
            
            200,000Purchase
      of securities available-for-sale
            (24,756,669)
            
            (21,172,637)Proceeds
      from sale of securities available-for-sale
            6,120,121
            
            -Proceeds
      from maturities of securitiesavailable-for-sale
            15,749,618
            
            12,097,222Proceeds
      from maturities of securitiesheld-to-maturity
            1,581,238
            
            6,608,751Purchase
      of Federal Home Loan Bank stock
            (261,500)
            
            -Proceeds
      from redemption of Federal Home Loan Bank stock
            293,900
            
            600Net
      (increase) decrease in loans receivable
            26,161,802
            
            (12,409,241)Proceeds
      from surrender of bank owned life insurance
            4,117,951
            
            -Purchases
      of property and equipment
            (502,403)
            
            (472,450)Proceeds
      from sale of property and equipment
            84,257
            
            287,112Proceeds
      from sale of real estate owned and other repossessed
assets
            1,261,270
            
            161,183Net
      cash provided by (used in) investing activities
            24,788,323
            
            (14,720,628)Continued








32






FIRST BANCSHARES, INC. AND
    SUBSIDIARIESCONSOLIDATED
      STATEMENTS OF CASH FLOWS (Continued)-
      - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
      -Years
      Ended June 30, 2009 and 20082009
            
            2008Cash
      flows from financing activities:Net
      change in deposits
            $         (5,375,405)
            
            $  4,502,924Net
      change in retail repurchase agreements
            1,065,795
            
            2,544,482Payments
      on borrowed funds
            (19,000,000)
            
            -Proceeds
      from borrowed funds
            7,000,000
            
            -Cash
      dividends paid
            (155,086)
            
            -Net
      cash provided by (used in) financing activities
            (16,464,696)
            
            7,047,406Net
      increase (decrease) in cash and cash equivalents
            9,207,514
            
            (4,020,228)Cash
      and cash equivalents -Beginning
      of period
            17,010,093
            
            21,030,321Cash
      and cash equivalents -end
      of period
            $          26,217,607
            
            $      17,010,093Supplemental
      disclosures of cash flow information:Cash
      paid during the year for:Interest
      on deposits andother
      borrowings
            $            5,398,180
            
            $        7,480,518Income
      taxes
            -
            
            17,300Supplemental
      schedule of non-cash investing andfinancing
      activities:Loans
      transferred to real estate owned
            $             2,325,576
            
            $         1,155,722See
      notes to consolidated financial
statements










33
 FIRST
BANCSHARES, INC. AND SUBSIDIARIES
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 -
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
- - - - - -
 Years
Ended June 30, 2009 and 2008
  
 (1)        SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
 
 Nature of
              business
      – First Bancshares, Inc., a Missouri corporation
      (“Company”),  was organized on September 30, 1993 for the
      purpose of becoming a unitary savings and loan holding company for First
      Home Savings Bank (”Savings Bank”).  The Savings Bank is
      primarily engaged in providing a full range of banking and mortgage
      services to individual and corporate customers in southern
      Missouri.  The Company and Savings Bank are also subject to the
      regulation of certain federal and state agencies and undergo periodic
      examinations by those regulatory
authorities.
 
 Principles
              of
      consolidation – The accompanying consolidated financial statements include
      the accounts of the Company, and its wholly-owned subsidiaries, the
      Savings Bank and SCMG, Inc. (formerly South Central Missouri Title, Inc.)
      and the wholly-owned subsidiaries of the Savings Bank, Fybar Service
      Corporation and First Home Investments.  In consolidation, all
      significant intercompany balances and transactions have been
      eliminated.
 
 Estimates
              –
      In preparing the consolidated financial statements in conformity with
      accounting principles generally accepted in the United States of America,
      management is required to make estimates and assumptions that affect the
      reported amounts of assets and liabilities and disclosure of contingent
      assets and liabilities as of the date of the balance sheet and reported
      amounts of revenues and expenses during the reporting
      period.  Actual results could differ from those
      estimates.  Material estimates that are particularly susceptible
      to significant change in the near term relate to the determination of the
      fair value of financial instruments, the allowance for loan losses and the
      deferred tax valuation.
 
 Segment r
              eporting
      - An operating segment is defined as a component of a business for which
      separate financial information is available that is evaluated regularly by
      the chief operating decision maker in deciding how to allocate resources
      and evaluate performance. The Company has one operating segment, community
      banking.
 
 Consolida
              ted
      statements of cash flows – For purposes of the consolidated statements of
      cash flows, cash consists of cash on hand and deposits with other
      financial institutions.  Cash equivalents include highly-liquid
      instruments with an original maturity of three months or less. Csh flows
      from loans and deposits are reported
net.
 
 Certificate
              s of
      deposit purchased – These are funds placed on deposit at other financial
      institutions which mature in one year or less and do not, at any one
      financial institution, aggregate to more than the insurance of accounts
      limitation.
 
 Securities
              –
      Securities which are designated as held-to-maturity are designated as such
      because the Company has the ability and intent to hold these securities to
      maturity.  Such securities are reported at amortized
      cost.
 
 All
      other securities are designated as available-for-sale, a designation which
      provides the Company with certain flexibility in managing its investment
      portfolio.  Such securities are reported at fair value; net
      unrealized gains and losses are excluded from income and reported net of
      applicable income taxes as a separate component of stockholders’
      equity.
 
 
 34
  FIRST
BANCSHARES, INC. AND SUBSIDIARIES
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 -
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
- - - - - -
 Years
Ended June 30, 2009 and 2008
  
 (1)
              SUMMARY OF SIGNIFICANT
      ACCOUNTING POLICIES
(CONTINUED)
 
 Interest
income on securities is recognized on the interest method according to the terms
of the security. Gains or losses on sales of securities are recognized in
operations at the time of sale and are determined by the difference between the
net sales proceeds and the cost of the securities using the specific
identification method, adjusted for any unamortized premiums or discounts.
Premiums or discounts are amortized or accreted to income using the interest
method over the period to maturity.
 
 Declines
in the fair value of equity securities below their amortized cost basis that are
deemed to be other-than-temporary impairment losses are reflected as realized
losses.  To determine if an other-than-temporary impairment exists on
an equity security, the Company considers (a) the length of time and the extent
to which the fair value has been less than cost, (b) the financial condition and
near-term prospects of the issuer and (c) the intent and ability of the Company
to retain its investment in the issuer for a period of time sufficient to allow
for an anticipated recovery in fair value.  To determine if an
other-than-temporary-impairment exists on a debt security, the Company first
determines if (a) it intends to sell the security or (b) it is more likely than
not that it will be required to sell the security before its anticipated
recovery.  If either of the conditions is met, the Company will
recognize an other-than-temporary-impairment in earnings equal to the difference
between the fair value of the security and its adjusted cost
basis.  If neither of the conditions is met, the Company determines
(a) the amount of the impairment related to credit loss and (b) the amount of
the impairment due to all other factors.  The difference between the
present values of the cash flows expected to be collected and the amortized sot
basis is the credit loss.  The amount of the credit loss is included
in the consolidated statements of income as an other-than-temporary-impairment
on securities and is an adjustment to the cost basis of the
security.  The portion of the total impairment that is related to all
other factors is included in other comprehensive income (loss).
 
 Federal
              Home
      Loan Bank stock - The Savings Bank, as a member of the Federal Home Loan
      Bank (“FHLB”) system, is required to maintain an investment in capital
      stock of the FHLB of Des Moines.  No ready market exists for
      this stock and it has no quoted market value.  The stock is
      subject to repurchase by the FHLB at par and is reported at
      cost.
 
 Loans re
              ceivable
      – Loans that management has the intent and ability to hold for the
      foreseeable or until maturity or payoff are stated at their principal
      amount outstanding, net of deferred loan origination fees and certain
      direct costs.  Loan origination fees and certain direct loan
      origination costs are deferred and recognized in interest income over the
      contractual lives of the related loans using the interest
      method.  When a loan is paid-off, the unamortized balance of
      these deferred fees and costs is recognized in
  income.
 
 Interest
income on loans is recognized on an accrual basis.
 
 The
accrual of interest on impaired loans is discontinued 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.  The interest on these loans
is accounted for on the cash-basis method, until qualifying for return to
accrual.  Any accrued but uncollected interest previously recorded on
such loans is generally reversed in the current period and interest income is
subsequently recognized upon collection.
 
 35
  FIRST
BANCSHARES, INC. AND SUBSIDIARIES
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 -
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
- - - - - -
 Years
Ended June 30, 2009 and 2008
 
 (1)
              SUMMARY OF SIGNIFICANT
      ACCOUNTING POLICIES
(CONTINUED)
 
 Loans are
returned to accrual status when all the principal and interest amounts
contractually due are brought current and future payments are reasonably
assured.
 
 Allowan
              ce
      for loan losses – The allowance for loan losses is established as losses
      are estimated to have occurred through a provision for loan losses charged
      to earnings.  Loan losses are charged against the allowance when
      management believes the collectability of a loan balance is unlikely.
      Subsequent recoveries, if any, are credited to the
    allowance.
 
 The
allowance is an amount management believes will be adequate to absorb probable
losses on existing loans that may become uncollectible, based on evaluations of
the collectability of loans and prior loss experience. The allowance for loan
losses includes allowance allocations calculated 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.
 
 A loan is
considered impaired when, based on current information and events, it is
probable that the Savings Bank will be unable to collect the scheduled payments
of principal or interest when due according to the contractual terms of the loan
agreement.  Factors considered by management in determining impairment
include payment status, collateral value, and the probability of collecting
scheduled principal and interest payments when due.  Loans that
experience insignificant payment delays and payment shortfalls generally are not
classified as impaired.  Management determines the significance of
payment delays and payment shortfalls on a case-by-case basis, taking into
consideration all of the circumstances surrounding the loan and the borrower,
including the length of the delay, the reasons for the delay, the borrower’s
prior payment record, and the amount of the shortfall in relation to the
principal and interest owed.  Impairment is measured on a loan-by-loan
basis for commercial and real estate loans by either the present value of
expected future cash flows discounted at the loan’s effective interest rate, the
loan’s obtainable market price, or the fair value of the collateral if the loan
is collateral dependent.
 
 Large
groups of smaller balance homogeneous loans are collectively evaluated for
impairment.  Accordingly, the Savings Bank does not separately
identify individual consumer loans for impairment disclosures.
 
 Loans he
              ld
      for sale – Loans held for sale are originated and intended for sale on the
      secondary market on a loan by loan basis with terms established with both
      the borrower and the investor prior to commitment and closing. Funding by
      the investor, based on the established terms, generally takes place in
      three to four weeks. Loans held for sale are carried at cost, which
      approximates fair value, due to the short term nature of the loans. Gains
      on loans sold are recognized based on the net cash flow of each sale.
      Loans are generally sold with servicing rights
  released.
 
 
 36
  FIRST
BANCSHARES, INC. AND SUBSIDIARIES
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 -
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
- - - - - -
 Years
Ended June 30, 2009 and 2008
 
 (1)
              SUMMARY OF SIGNIFICANT
      ACCOUNTING POLICIES
(CONTINUED)
 
 Property
              and
      equipment and related depreciation – Land is stated at cost. Property and
      equipment are stated at cost, net of accumulated
      depreciation.  Property and equipment depreciation is
      principally computed by applying the following methods and estimated
      lives:
  Category
              
              Estimated Life
              
              MethodAutomobiles
              
              5
      Years
              
              Straight-lineOffice
      furniture, fixtures
                and equipment
              
              3-10
      Years
              
              Straight-lineBuildings
              
              15-40
      Years
              
              Straight-lineInvestment real
      estate
              
              15-40
      Years
              
              Straight-line
  
 Intangibl
              e
      assets – The intangible asset relates to customer relationships that were
      acquired in connection with the acquisition of two
      branches.  The premium paid by the Savings Bank for the branches
      is being amortized on a straight-line basis over 15
  years.
 
 Bank-ow
              ned
      life insurance – Bank-owned life insurance is carried at its cash
      surrender value.  Changes in cash surrender value are recorded
      in non-interest income.
 
 Income t
              axes
      – Deferred taxes are determined using the liability (or balance sheet)
      method whereby deferred tax assets are recognized for deductible temporary
      differences and operating loss and tax credit carry-forwards and deferred
      tax liabilities are recognized for taxable temporary differences.
      Temporary differences are the differences between the reported amounts of
      assets and liabilities and their tax bases.  Deferred tax assets
      are reduced by a valuation allowance when, in the opinion of management,
      it is more likely than not that some portion or all of the deferred tax
      assets will not be realized.  Deferred tax assets and
      liabilities are adjusted for the effects of changes in tax laws and rates
      on the date of enactment.
 
 The
      Company adopted the provisions of Financial Accounting Standards Board
      (FASB) Interpretation No. 48, Accounting for Uncertainty in
      Income Taxes (FIN 48), as of July 1, 2007. The Interpretation
      provides clarification on accounting for uncertainty in income taxes
      recognized in an enterprise’s financial statements in accordance with FASB
      Statement of Financial Accounting Standards (SFAS) No. 109, Accounting for Income
      Taxes.  The Interpretation prescribes a recognition
      threshold and measurement attribute for the financial statement
      recognition and measurement of a tax position taken or expected to be
      taken in a tax return. As a result of the Company’s evaluation of the
      implementation of FIN 48, no significant income tax uncertainties were
      identified. Therefore, the Company recognized no adjustment for
      unrecognized income tax benefits during the years ended June 30, 2009 and
      June 30, 2008.
 
 Real est
              ate
      owned and 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/repossession 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.
 
 Earning
              s per
      share – Basic earnings per share is computed by dividing net income
      available to common stockholders by the weighted average number of common
      shares outstanding during the period.  Diluted earnings per
      share reflects the potential dilution that could occur if securities or
      other
   37
  FIRST
BANCSHARES, INC. AND SUBSIDIARIES
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 -
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
- - - - - -
 Years
Ended June 30, 2009 and 2008
 (1)
              SUMMARY OF SIGNIFICANT
      ACCOUNTING POLICIES
(CONTINUED)
 
 contracts
to issue common stock were exercised or resulted in the issuance of common stock
that would share in the earnings of the Company.  Dilutive potential
common shares are added to weighted average shares used to compute basic
earnings per share.  The number of shares that would be issued from
the exercise of stock options has been reduced by the number of shares that
could have been purchased from the proceeds at the average market price of the
Company’s stock.
 
 Compreh
              ensive
      income – Accounting principles generally require that recognized revenue,
      expenses, gains and losses be included in net income.  Although
      certain changes in assets and liabilities, such as unrealized gains and
      losses on available-for-sale securities, are reported as a separate
      component of the equity section of the balance sheet, such items, along
      with net income, are components of comprehensive
  income.
 
 Employe
              e
      stock options – The Company has stock-based employee compensation plans
      which are described more fully in Note 10, Employee Benefit
      Plans.
 
 Compensation
costs for all stock-based awards are measured at fair value on the grant date
and are recognized over the requisite service period for awards expected to
vest.  Management makes an estimate of expected forfeitures and
recognizes compensation costs only for those equity awards expected to
vest.  The Company uses the Black-Scholes option pricing model to
estimate the fair value of stock option grants.  Cash flows resulting
from the tax benefits of tax deductions in excess of the compensation cost
recognized for those options are presented as financing cash flows.
 
 Revenue
              recognition
      – Deposit account transaction fees and other ancillary non-interest income
      related to the Savings Bank’s deposit and lending activities are
      recognized as services are
performed.
 
 Transfers
              of
      financial assets – Transfers of financial assets are accounted for as
      sales only when control over the assets has been surrendered. Control over
      transferred assets is deemed to be surrendered when: (1) the assets have
      been isolated from the Company, (2) the transferee obtains the right to
      pledge or exchange the assets it received, and no condition both
      constrains the transferee from taking advantage of its right to pledge or
      exchange and provides more than a modest benefit to the transferor, and
      (3) the Company does not maintain effective control over the transferred
      assets through an agreement to repurchase them before their maturity or
      the ability to unilaterally cause the holder to return specific
      assets.
 
 Impairmen
              t
      of long-lived assets – Long-lived assets, including property and equipment
      and intangible assets, are reviewed for impairment whenever events or
      changes in circumstances indicate the carrying amount of an asset may not
      be recoverable. If such assets are considered to be impaired, the
      impairment to be recognized is measured by the amount by which the
      carrying amount of the assets exceeds the fair value of the
      assets.
 
 Newaccou
              nting
      standards – In September 2006, the Financial Accounting Standards Board
      (“FASB”) issued Statement of Financial Accounting Standards (“SFAS” or
      “Statement”) No. 157, “Fair Value Measurements.” This Statement
      defines fair value, establishes a framework for measuring fair value, and
      expands disclosures about fair value measurements.  It clarifies
      that fair value is the price that would be received to sell an asset or
      paid to transfer a liability in an
   38
  FIRST
BANCSHARES, INC. AND SUBSIDIARIES
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 -
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
- - - - - -
 Years
Ended June 30, 2009 and 2008
 (1)
              SUMMARY OF SIGNIFICANT
      ACCOUNTING POLICIES
(CONTINUED)
 
 orderly
      transaction between market participants in the market in which the
      reporting entity transacts.  This Statement does not require any
      new fair value measurements, but rather, it provides enhanced guidance to
      other pronouncements that require or permit assets or liabilities to be
      measured at fair value.  This Statement is effective for fiscal
      years beginning after November 15, 2007, with earlier adoption permitted.
      However, in February 2008, FASB decided that an entity need not apply this
      standard to non-financial assets and liabilities that are recognized or
      disclosed at fair value in the financial statements on a non-recurring
      basis until the subsequent year. The adoption of this standard on July 1,
      2008 was limited to financial assets and liabilities, and any
      non-financial assets and liabilities recognized or disclosed at fair value
      on a recurring basis. Please refer to Note 17, Fair Value Measurements,
      for additional information.
 
 In
February 2007, the FASB issued FASB Statement No. 159, “The Fair Value Option
for Financial Assets and Financial Liabilities – Including an amendment of FASB
Statement No. 115,”which provides all entities, including not-for-profit organizations, with
an option to report selected financial assets and liabilities at fair
value.  The objective of the Statement is to improve financial reporting by
providing entities with the opportunity to mitigate volatility in earnings
caused by measuring related assets and liabilities differently without having to
apply the complex provisions of hedge accounting.  Certain specified items
are eligible for the irrevocable fair value measurement option as established by
Statement No. 159.  Statement No. 159 is effective as of the beginning of
an entity’s first fiscal year beginning after November 15, 2007.  The
Company did not elect any fair value options as of July 1, 2008.
 
 In April
2009, the FASB issued Financial Accounting Standards Board Staff Position
(“FSP”) FAS 115−2 and FAS 124−2, “Recognition and Presentation of
Other-Than-Temporary Impairments” (“FSP FAS 115−2/124−2”). FSP FAS
115−2/124−2  requires entities to separate an other-than-temporary
impairment of a debt security into two components when there are credit
related losses associated with the impaired debt security for which management
asserts that it does not have the intent to sell the security, and it is
more likely than not that it will not be required to sell the security before
recovery of its cost basis. The amount of the
other-than-temporary impairment related to a credit loss is recognized in
earnings, and the amount of the other-than-temporary impairment related to other
factors is recorded in other comprehensive loss. FSP FAS 115−2/124−2 is
effective for periods ending after June 15, 2009, with early adoption permitted
for periods ending after March 15, 2009. The Company has adopted FSP FAS
115−2/124−2 effective for the year ended June 30, 2009. The adoption did not
have an impact on the Company’s financial position and results of
operations.
 
 In April
2009, the FASB issued FSP FAS 157−4, “Determining Fair Value When Volume and
Level of Activity for the Asset or Liability Have Significantly Decreased
and Identifying Transactions that are Not Orderly” (“FSP FAS 157−4”). Under FSP
FAS 157−4, if an entity determines that there has been a significant
decrease in the volume and level of activity for the asset or the liability in
relation to the normal market activity for the asset or liability (or
similar assets or liabilities), then transactions or quoted prices may not
accurately reflect fair value. In addition, if there is evidence that the
transaction for the asset or liability is not orderly, the entity shall place
little, if any weight on that transaction price as an indicator of fair value.
FSP FAS 157−4 is effective for periods ending after June 15, 2009, with
early adoption permitted for periods ending after March 15, 2009. The Company
has adopted FSP FAS 115−4 effective for
   39
  FIRST
BANCSHARES, INC. AND SUBSIDIARIES
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 -
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
- - - - - -
 Years
Ended June 30, 2009 and 2008
 (1)
              SUMMARY OF SIGNIFICANT
      ACCOUNTING POLICIES
(CONTINUED)
 
 the year
ended June 30, 2009. The adoption did not have an impact on the Company’s
financial position and results of operations.
  In May
2009, the FASB issued SFAS No. 165, Subsequent Events (“SFAS
165”). SFAS 165 establishes principles and requirements for subsequent events.
In particular, this Statement sets forth the period after the balance sheet date
during which management of a reporting entity shall evaluate events or
transactions that may occur for potential recognition or disclosure in the
financial statements, the circumstances under which an entity shall recognize
events or transactions occurring after the balance sheet date in its financial
statements, and the disclosures that an entity shall make about events or
transactions that occurred after the balance sheet date. SFAS 165 is effective
for interim or annual financial periods ending after June 15, 2009, and
shall be applied prospectively. Events occurring subsequent to June 30, 2009,
have been evaluated as to their potential impact to these financial statements
through the date of issuance, September 28, 2009.
  In June 2009, the FASB issued SFAS
No. 166, Accounting for
Transfers of Financial Assets, an amendment of SFAS No. 140 (“SFAS
166”). SFAS 166 amends SFAS No. 140 to improve the relevance,
representational faithfulness, and comparability of the information that a
reporting entity provides in its financial reports about a transfer of financial
assets; the effects of a transfer on its financial position, financial
performance, and cash flows; and a transferor’s continuing involvement in
transferred financial assets. This Statement is effective as of the beginning of
each reporting entity’s first annual reporting period that begins after
November 15, 2009, for interim periods within that first annual reporting
period, and for interim and annual reporting periods thereafter. Earlier
application is prohibited. The recognition and measurement provisions of this
Statement shall be applied to transfers that occur on or after the effective
date. The Company is currently assessing the impact of the adoption of SFAS 166
on the Company’s financial condition, results of operations and cash
flows.
  In June
2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation
No. 46(R)(“SFAS 167”). SFAS 167 amends certain requirements of FASB
Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest
Entities, to improve financial reporting by enterprises involved with
variable interest entities and to provide more relevant and reliable information
to users of financial statements. This Statement is effective as of the
beginning of each reporting entity’s first annual reporting period that begins
after November 15, 2009, for interim periods within that first annual
reporting period, and for interim and annual reporting periods thereafter.
Earlier application is prohibited. The Company is currently assessing the impact
of the adoption of SFAS 167 on the Company’s financial condition, results of
operations and cash flows.
 
 
 
 40
  FIRST
BANCSHARES, INC. AND SUBSIDIARIES
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 -
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
- - - - - -
 Years
Ended June 30, 2009 and 2008
 
 (2)           SECURITIES
 
 A summary
of the securities available-for-sale at June 30, 2009 is as
follows:
  Amortized
                
                
                Gross
      Unrealized
                
                
                FairCost
                
                
                Gains
                
                
                Losses
                
                
                ValueUnited
      States Government andFederal
      agency obligations
                
                $
                8,506,234
                
                
                $
                110,311
                
                
                $
                (7,480
                )
                
                $
                8,609,065Obligations
      of states andpolitical
      subdivisions
                
                
                150,000
                
                
                
                975
                
                
                
                --
                
                
                
                150,975Mutual
      funds
                
                
                19,904
                
                
                
                --
                
                
                
                --
                
                
                
                19,904Federal
      agency mortgage-backed
      securities
                
                
                35,204,373
                
                
                
                1,126,185
                
                
                
                (51,698
                )
                
                
                36,278,860Common
      and preferred stocks
                
                
                258,000
                
                
                
                --
                
                
                
                --
                
                
                
                258,000Total
                
                $
                44,138,511
                
                
                $
                1,237,471
                
                
                $
                (59,178
                )
                
                $
                45,316,804
  A summary of
securities held to maturity at June 30, 2009 is as follows:
  Amortized
                
                
                Gross
      Unrealized
                
                
                FairCost
                
                
                Gains
                
                
                Losses
                
                
                ValueUnited
      States Government andFederal
      agency obligations
                
                $
                --
                
                
                $
                --
                
                
                $
                --
                
                
                $
                --Obligations
      of states andpolitical
      subdivisions
                
                
                1,703,035
                
                
                
                29,062
                
                
                
                (1,208
                )
                
                
                1,730,889Federal
      agency mortgage-backed
      securities
                
                
                888,475
                
                
                
                13,326
                
                
                
                (6,584
                )
                
                
                895,217Total
                
                $
                2,591,510
                
                
                $
                42,388
                
                
                $
                (7,792
                )
                
                $
                2,626,106
  The
amortized cost and estimated market value of securities at June 30, 2009, by
contractual maturity, are shown below.  Expected maturities will
differ from contractual maturities because borrowers may have the right to call
or prepay obligations with or without call or prepayment penalties.
  Available
      for SaleAmortized
                  Cost
                
                
                Fair
      ValueDue
      in one year or less
                
                $
                --
                
                
                $
                --Due
      after one year through five years
                
                
                6,540,681
                
                
                
                6,645,500Due
      after five years through ten years
                
                
                2,115,553
                
                
                
                2,114,540Subtotal
                
                
                8,656,234
                
                
                
                8,760,040Mutual
      funds
                
                
                19,904
                
                
                
                19,904Federal
      agency mortgage-backed securities
                
                
                35,204,373
                
                
                
                36,278,860Common
      and preferred stocks
                
                
                258,000
                
                
                
                258,000Total
                
                $
                44,138,511
                
                
                $
                45,316,804
 
 
 41
  FIRST
BANCSHARES, INC. AND SUBSIDIARIES
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 -
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
- - - - - -
 Years
Ended June 30, 2009 and 2008
 
 (2) SECURITIES
(CONTINUED)
  Held
      to MaturityAmortized
                    Cost
                  
                  
                  Fair
      ValueDue
      in one year or less
                  
                  $
                  219,983
                  
                  
                  $
                  221,257Due
      after one year through five years
                  
                  
                  1,129,825
                  
                  
                  
                  1,155,523Due
      after five years through ten years
                  
                  
                  353,227
                  
                  
                  
                  354,109Subtotal
                  
                  
                  1,703,035
                  
                  
                  
                  1,730,889Federal
      agency mortgage-backed securities
                  
                  
                  888,475
                  
                  
                  
                  895,217Total
                  
                  $
                  2,591,510
                  
                  
                  $
                  2,626,106
   A summary
of the securities available-for-sale at June 30, 2008 is as
follows:
 
 Amortized
                
                
                Gross
      Unrealized
                
                
                FairCost
                
                
                Gains
                
                
                Losses
                
                
                ValueUnited
      States Government andFederal
      agency obligations
                
                $
                5,439,272
                
                
                $
                23,308
                
                
                $
                (55,930
                )
                
                $
                5,406,650Obligations
      of states andpolitical
      subdivisions
                
                
                1,165,000
                
                
                
                705
                
                
                
                --
                
                
                
                1,165,705Mutual
      funds
                
                
                21,682
                
                
                
                --
                
                
                
                --
                
                
                
                21,682Federal
      agency mortgagebacked
      securities
                
                
                34,023,279
                
                
                
                220,594
                
                
                
                (265,626
                )
                
                
                33,978,247Common
      and preferred stocks
                
                
                258,000
                
                
                
                --
                
                
                
                --
                
                
                
                258,000Total
                
                $
                40,907,233
                
                
                $
                244,607
                
                
                $
                (321,556
                )
                
                $
                40,830,284
 A summary
of securities held to maturity at June 30, 2008 is as follows:
 
 Amortized
                
                
                Gross
      Unrealized
                
                
                FairCost
                
                
                Gains
                
                
                Losses
                
                
                ValueUnited
      States Government andFederal
      agency obligations
                
                $
                750,000
                
                
                $
                7,973
                
                
                $
                (56,247
                )
                
                $
                757,973Obligations
      of states andpolitical
      subdivisions
                
                
                1,943,330
                
                
                
                16,016
                
                
                
                (1,990
                )
                
                
                1,957,356Federal
      agency mortgagebacked
      securities
                
                
                1,481,556
                
                
                
                1,069
                
                
                
                (79,706
                )
                
                
                1,402,919Total
                
                $
                4,174,886
                
                
                $
                7,346
                
                
                $
                (81,696
                )
                
                $
                4,118,248
  The
following tables present the fair value and gross unrealized losses of the
Company’s securities with unrealized losses aggregated by category and length of
time that individual securities have been in a continuous unrealized loss
position, at June 30, 2009 and 2008.
 
 
 
 
 
 
 42
   FIRST
BANCSHARES, INC. AND SUBSIDIARIES
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 -
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
- - - - - -
 Years
Ended June 30, 2009 and 2008
 
 (2)
              SECURITIES
      (CONTINUED)
 
  
 Available-for-sale
      as of June 30, 2009Less Than 12 Months
              
              
              12 Months or More
              
              
              TotalGross
              
              
              
              
              
              Gross
              
              
              
              
              
              GrossUnrealized
              
              
              
              
              
              Unrealized
              
              
              
              
              
              UnrealizedFair Value
              
              
              (Losses)
              
              
              Fair Value
              
              
              (Losses)
              
              
              Fair Value
              
              
              LossesUnited
      StatesGovernment
      andFederal
      agencyobligations
              
              $
              3,002,500
              
              
              $
              (7,480
              )
              
              $
              -
              
              
              $
              -
              
              
              $
              3,002,500
              
              
              $
              (7,480
              )Obligations
      of statesand
      politicalsubdivisions
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Federal
      agencymortgage-backedsecurities
              
              
              1,580,242
              
              
              
              (14,501
              )
              
              
              512,235
              
              
              
              (37,197
              )
              
              
              2,092,477
              
              
              
              (51,698
              )Total
      temporarilyimpaired
      securities
              
              $
              4,582,742
              
              
              $
              (21,981
              )
              
              $
              512,235
              
              
              $
              (37,197
              )
              
              $
              5,094,977
              
              
              $
              (59,178
              )









Held
      to Maturity as of June 30, 2009Less Than 12 Months
              
              
              12 Months or More
              
              
              TotalGross
              
              
              
              
              
              Gross
              
              
              
              
              
              GrossUnrealized
              
              
              
              
              
              Unrealized
              
              
              
              
              
              UnrealizedFair Value
              
              
              (Losses)
              
              
              Fair Value
              
              
              (Losses)
              
              
              Fair Value
              
              
              LossesUnited
      StatesGovernment
      andFederal
      agencyobligations
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -Obligations
      of statesand
      politicalsubdivisions
              
              
              -
              
              
              
              -
              
              
              
              202,019
              
              
              
              (1,208
              )
              
              
              202,019
              
              
              
              (1,208
              )Federal
      agencymortgage-backedsecurities
              
              
              173,519
              
              
              
              (5,028
              )
              
              
              134,470
              
              
              
              (1,556
              )
              
              
              307,989
              
              
              
              (6,584
              )Total
      temporarilyimpaired
      securities
              
              $
              173,519
              
              
              $
              (5,028
              )
              
              $
              336,489
              
              
              $
              (2,764
              )
              
              $
              510,008
              
              
              $
              (7,792
              )
  43


FIRST
BANCSHARES, INC. AND SUBSIDIARIES
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 -
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
- - - - - -
 Years
Ended June 30, 2009 and 2008
  (2)
              SECURITIES
      (CONTINUED)
  Available-for-sale
      as of June 30, 2008Less Than 12 Months
              
              
              12 Months or More
              
              
              TotalGross
              
              
              
              
              
              Gross
              
              
              
              
              
              GrossUnrealized
              
              
              
              
              
              Unrealized
              
              
              
              
              
              UnrealizedFair Value
              
              
              (Losses)
              
              
              Fair Value
              
              
              (Losses)
              
              
              Fair Value
              
              
              LossesUnited
      StatesGovernment
      andFederal
      agencyobligations
              
              $
              1,944,070
              
              
              $
              (55,930
              )
              
              $
              -
              
              
              $
              -
              
              
              $
              1,944,070
              
              
              $
              (55,930
              )Obligations
      of statesand
      politicalsubdivisions
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Federal
      agencymortgage-backedsecurities
              
              
              15,195,480
              
              
              
              (265,626
              )
              
              
              -
              
              
              
              -
              
              
              
              15,195,480
              
              
              
              (265,626
              )Total
      temporarilyimpaired
      securities
              
              $
              17,139,550
              
              
              $
              (321,556
              )
              
              $
              -
              
              
              $
              -
              
              
              $
              17,139,550
              
              
              $
              (321,556
              )




Held
      to Maturity as of June 30, 2008Less Than 12 Months
                
                
                12 Months or More
                
                
                TotalGross
                
                
                
                
                
                Gross
                
                
                
                
                
                GrossUnrealized
                
                
                
                
                
                Unrealized
                
                
                
                
                
                UnrealizedFair Value
                
                
                (Losses)
                
                
                Fair Value
                
                
                (Losses)
                
                
                Fair Value
                
                
                LossesUnited
      StatesGovernment
      andFederal
      agencyobligations
                
                $
                -
                
                
                $
                -
                
                
                $
                -
                
                
                $
                -
                
                
                $
                -
                
                
                $
                -Obligations
      of statesand
      politicalsubdivisions
                
                
                -
                
                
                
                -
                
                
                
                201,592
                
                
                
                (1,990
                )
                
                
                201,592
                
                
                
                (1,990
                )Federal
      agencymortgage-backedsecurities
                
                
                -
                
                
                
                -
                
                
                
                1,108,411
                
                
                
                (79,706
                )
                
                
                1,108,411
                
                
                
                (79,706
                )Total
      temporarilyimpaired
      securities
                
                $
                -
                
                
                $
                -
                
                
                $
                1,310,003
                
                
                $
                (81,696
                )
                
                $
                1,310,003
                
                
                $
                (81,696
                )
  
  The
Company evaluates securities for other-than-temporary impairment on a periodic
basis. Consideration is given to the length of time and the extent to which the
fair value has been less than cost, and the financial condition and near-term
prospects of the issuer. In analyzing an issuer’s financial condition, the
Company may consider whether the securities are issued by the Federal government
or its agencies or sponsored entities, whether downgrades by bond rating
agencies have occurred, and the results of review of the issuer’s financial
condition.
 
 For all
of the above investment securities, the unrealized losses are generally due to
changes in interest rates and not from deterioration in the creditworthiness of
the issuer and as such were considered temporary by the Company. In addition,
the Company does not intend to sell these securities and it is
 
 44
  FIRST
BANCSHARES, INC. AND SUBSIDIARIES
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 -
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
- - - - - -
 Years
Ended June 30, 2009 and 2008
   (2)           SECURITIES
(CONTINUED)
 
 not more
likely than not that the Company will be required to sell these securities
before their anticipated recovery.
 
 The
following table presents proceeds from sales of securities and the gross
realized securities gains and losses.
    June
    30,2009
              
              
              2008Proceeds from
      sales
              
              $
              6,120,121
              
              
              $
              -Realized
      gains
              
              $
              142,783
              
              
              $
              -Realized
      (losses)
              
              
              -
              
              
              
              -Net
      realized
              
              $
              142,783
              
              
              $
              -
 
 The
carrying value of securities pledged on retail repurchase agreements at June 30,
2009 and June 30, 2008 was $7,006,000 and $5,407,000, respectively.
 
 
 (3)           LOANS
RECEIVABLE
 
 Loans
receivable at June 30 consisted of the following:
 2009
              
              
              2008Residential
      real estate
              
              $
              71,140,655
              
              
              $
              75,992,066Commercial
      real estate
              
              
              39,816,588
              
              
              
              53,730,159Land
              
              
              7,395,477
              
              
              
              10,755,522Loans
      to depositors, secured by savings accounts
              
              
              1,164,602
              
              
              
              1,468,078Consumer
      and automobile loans
              
              
              2,800,247
              
              
              
              8,575,973Second
      mortgage loans
              
              
              4,899,841
              
              
              
              7,103,278Commercial
      business loans
              
              
              9,816,666
              
              
              
              11,768,789Overdrafts
              
              
              79,078
              
              
              
              133,978Total
      gross loans
              
              
              137,113,154
              
              
              
              169,527,843Allowance
      for loan losses
              
              
              (4,185,326
              )
              
              
              (2,796,836
              )Loans
      in process
              
              
              (1,195
              )
              
              
              -Unamortized
      deferred loan costs, net of
                origination
      fees
              
              
              235,473
              
              
              
              303,719Net
      loans receivable
              
              $
              133,162,106
              
              
              $
              167,034,726
 
 
 
 
 45
 
 FIRST
BANCSHARES, INC. AND SUBSIDIARIES
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 -
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
- - - - - -
 Years
Ended June 30, 2009 and 2008
 
 (3)           LOANS RECEIVABLE
(CONTINUED)
 
 Activity
in the allowance for loan losses is summarized as follows for the years
ended
 June
30:
 
 2009
                
                
                2008Balance
      at beginning of year
                
                $
                2,796,836
                
                
                $
                2,692,594Provision
      charged to income
                
                
                5,313,801
                
                
                
                1,291,300Charge-offs
                
                
                (4,171,171
                )
                
                
                (1,223,380
                )Recoveries
                
                
                245,860
                
                
                
                36,322Balance
      at end of year
                
                $
                4,185,326
                
                
                $
                2,796,836
 
 The
Savings Bank primarily originates loans to customers throughout southern
Missouri.  The loans are typically secured by real estate or personal
property.
 
 Loans
receivable at June 30, 2009 and 2008 that are past 90 days due or non-accrual
consist of the following:
  2009
                
                
                2008Past
      due 90 days or more and still accruing interest
                
                $
                288,255
                
                
                $
                359,846Non-accrual
                
                
                3,023,647
                
                
                
                2,312,977$
                3,311,902
                
                
                $
                2,672,823
 
 The
following is a summary of information pertaining to impaired loans:
 
 June
      30,2009
                
                
                2008Total
      impaired loans
                
                $
                3,311,902
                
                
                $
                2,672,823Total
      impaired loans without an allowance
                
                $
                1,633,278
                
                
                $
                --Total
      impaired loans with an allowance
                
                $
                1,678,624
                
                
                $
                2,672,823Valuation
      allowance related to impaired loans
                
                $
                1,067,298
                
                
                $
                361,267
 Years
      Ended June 30,2009
                
                
                2008Average
      investment inimpaired
      loans
                
                $
                4,391,191
                
                
                $
                2,895,808Interest
      income recognizedon
      impaired loans
                
                $
                96,402
                
                
                $
                72,909Interest
      income recognized ona
      cash basis on impaired loans
                
                $
                94,759
                
                
                $
                72,909
 46
 
 FIRST
BANCSHARES, INC. AND SUBSIDIARIES
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 -
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
- - - - - -
 Years
Ended June 30, 2009 and 2008
 (4)           PROPERTY AND
EQUIPMENT
  Property and
equipment at June 30 consists of the following:
    2009Category
                
                Cost
                
                
                Accumulated
                  Depreciation
                
                
                NetLand
                
                $
                643,704
                
                
                $
                --
                
                
                $
                643,704Buildings
                
                
                5,874,079
                
                
                
                2,404,076
                
                
                
                3,470,003Office
      furniture, fixturesand
      equipment
                
                
                4,231,316
                
                
                
                3,200,682
                
                
                
                1,030,634Automobiles
                
                
                132,530
                
                
                
                70,379
                
                
                
                62,151Investment
      real estate
                
                
                2,141,181
                
                
                
                678,300
                
                
                
                1,462,881Total
                
                $
                13,022,810
                
                
                $
                6,353,437
                
                
                $
                6,669,373
   2008Category
                
                Cost
                
                
                Accumulated
                  Depreciation
                
                
                NetLand
                
                $
                635,204
                
                
                $
                --
                
                
                $
                635,204Buildings
                
                
                5,620,504
                
                
                
                2,230,141
                
                
                
                3,390,363Office
      furniture, fixturesand
      equipment
                
                
                4,290,287
                
                
                
                3,039,240
                
                
                
                1,251,047Automobiles
                
                
                132,530
                
                
                
                43,873
                
                
                
                88,657Investment
      real estate
                
                
                2,187,025
                
                
                
                639,171
                
                
                
                1,547,854Total
                
                $
                12,865,550
                
                
                $
                5,952,425
                
                
                $
                6,913,125
  Depreciation
charged to operations for the years ended June 30, 2009 and 2008 was $658,854
and $812,798, respectively.
 
 The
Savings Bank’s full-service branch office in Springfield is leased. The lease on
the Springfield full-service branch office was assumed and it has six years
remaining on the initial term. The Savings Bank also leases three ATM drive-up
kiosks located in the parking lots of a major retailer in Mountain Grove,
Marshfield and Ava, Missouri. These leases were entered into in the third
quarter of fiscal 2008, and were for a four year term. During fiscal 2009, the
Savings Bank acquired, at a sheriff’s sale, the small strip mall in which its
Theodosia branch office is located. The operations of the Loan Origination
Office, which was also located in Springfield, were discontinued in mid-June
2009. Subsequent to the end of fiscal 2009, the Savings Bank, through a local
realtor, found a new tenant, and negotiated a buy-out on the remaining term of
the lease. The cost of the buyout totaled approximately $57,000.
 
 Minimum
future lease payments for the Springfield, Missouri branch office and the three
leased ATMs for the years ending June 30 are as follows:
 
 2010
                
                $
                154,9322011
                
                
                154,9322012
                
                
                133,3922013
                
                
                90,3122014
                
                
                90,3122013
                
                
                94,075$
                717,955
 47
 FIRST
BANCSHARES, INC. AND SUBSIDIARIES
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 -
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
- - - - - -
 Years
Ended June 30, 2009 and 2008
 (4)           PROPERTY AND EQUIPMENT
(CONTINUED)
 
 Rent
expense for the years ended June 30, 2009 and 2008 was $220,370 and $220,565,
respectively.
  (5)           
INTANGIBLE
ASSET
  A
summary of the intangible asset at June 30 is as follows:
 2009
                  
                  
                  2008Premium
      on branch acquisition
                  
                  $
                  1,020,216
                  
                  
                  $
                  1,020,216Accumulated
      amortization
                  
                  
                  (834,861
                  )
                  
                  
                  (784,746
                  )Net
      premium on branch acquisition
                  
                  $
                  185,355
                  
                  
                  $
                  235,470
  Amortization
      expense relating to this premium was $50,115 for the year ended June 30,
      2009 and $50,114 for the year ended June
    30,  2008.
 
 Estimated
      future amortization expense is as follows for the years ending June
      30:
  2010
                
                $
                50,1152011
                
                
                50,1152012
                
                
                50,1152013
                
                
                35,010$
                185,355
 (6)
              DEPOSITS
 
 A
      summary of deposit accounts at June 30 is as
  follows:
 
 2009
              
              
              2008Non-interest-bearing
      checking
              
              $
              14,739,628
              
              
              $
              12,338,284Interest-bearing
      checking
              
              
              32,484,889
              
              
              
              2,112,206Super
      Saver money market
              
              
              11,778,495
              
              
              
              10,737,807Savings
              
              
              9,315,558
              
              
              
              12,386,264Money
      Market savings accounts
              
              
              34,711,303
              
              
              
              39,904,058Certificates
      of Deposit
              
              
              86,188,005
              
              
              
              87,114,664Total
              
              $
              189,217,878
              
              
              $
              194,593,283
 
 The
aggregate amount of certificates of deposit with a minimum denomination of
$100,000 was $28,730,992 and $26,956,997 at June 30, 2009 and 2008,
respectively.
 
 At June
30, 2009, scheduled maturities of certificates of deposit are as
follows:
 
 Fiscal
                2010
                
                $
                60,443,3252011
                
                
                16,290,7562012
                
                
                4,677,5202013
                
                
                4,242,4092014
                
                
                533,995$
                86,188,005
   48
 FIRST
BANCSHARES, INC. AND SUBSIDIARIES
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 -
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
- - - - - -
 Years
Ended June 30, 2009 and 2008
 (7)
              RETAIL REPURCHASE
      AGREEMENTS
 
 The
      Savings Bank offers retail repurchase agreements as an additional item in
      its product mix. Retail repurchase agreements allow customers to have
      excess checking account balances “swept” from the checking accounts into a
      non-insured interest bearing account. The customers’ investment in these
      non-insured accounts is collateralized by securities of the Savings Bank
      pledged at FHLB for that purpose.
 
 (8)        
  ADVANCES
FROM FEDERAL HOME LOAN BANK AND OTHER BRROWED MONEY
 
 The
      advances listed below were obtained from the FHLB of Des
      Moines.  The advances are secured by FHLB stock and a blanket
      pledge of qualifying one-to-four family mortgage
      loans.  Advances from the FHLB at June 30 are summarized as
      follows:
 
 2009
                
                
                Weighted
                  Average
                  Rate
                
                
                2008
                
                
                Weighted
                  Average
                  RateTerm
      Advances:Long-term;
      fixed-rate;callable
      quarterly
                
                $
                --
                
                
                
                --
                %
                
                $
                19,000,000
                
                
                
                5.88
                %Short-term,
      fixed rate,Non-callable
                
                
                7,000,000
                
                
                
                1.12
                
                
                
                --
                
                
                
                --Long-term;
      fixed-rate;non-callable
                
                
                3,000,000
                
                
                
                4.94
                
                
                
                3,000,000
                
                
                
                4.94Total
                
                $
                10,000,000
                
                
                
                3.05
                %
                
                $
                22,000,000
                
                
                
                5.75
                %
  As of
June 30, 2009 the fixed-rate term advances shown above were subject to a
prepayment fee equal to 100 percent of the present value of the monthly lost
cash flow to the FHLB based upon the difference between the contract rate on the
advance and the rate on an alternative qualifying investment of the same
remaining maturity.  Advances may be prepaid without a prepayment fee
if the rate on an advance being prepaid is equal to or below the current rate
for an alternative qualifying investment of the same remaining
maturity.
 
 Maturities
of FHLB advances are as
follows:
  Year Ended June 30,
                
                Aggregate
                  Annual
                  Maturities2010
                
                $
                7,000,0002011
                
                
                --2012
                
                
                --2013
                
                
                3,000,000$
                10,000,000
   At June
30, 2009, the Savings Bank had irrevocable letters of credit issued on its
behalf from the FHLB totaling $3,385,000, as collateral for public entity
deposits in excess of federal insurance limits.  The letters of credit
expire through June 2010. At June 30, 2009, the Savings Bank had collateralized
borrowing capacity with the FHLB of approximately $25.0 million.
 
 While the
Company had no outstanding borrowed money from other lenders as of June 30,
2009, the Company does have available a $5.0 line of credit from another
financial institution.
 
 49
 FIRST
BANCSHARES, INC. AND SUBSIDIARIES
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 -
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
- - - - - -
 Years
Ended June 30, 2009 and 2008
 (9)           INCOME
TAXES
 
 The provision for income taxes
(benefit) for the years ended June 30 is as follows:
 
 2009
                
                
                2008Current
                
                $
                (61,872
                )
                
                $
                142,274Deferred
                
                
                (1,469,879
                )
                
                
                (73,427
                )Total
                
                $
                (1,531,751
                )
                
                $
                68,847
 The
provision for income taxes (benefit) differs from that computed at the statutory
corporate rate, 34%, for the years ended June 30 as follows:
 
 2009
              
              
              2008Tax
      at statutory rate
              
              $
              (1,893,192
              )
              
              $
              146,903Increase
      (decrease) in taxes resulting from:State
      taxes, net of federal benefit
              
              
              (34,725
              )
              
              
              (13,127
              )Tax-exempt
      income
              
              
              (32,873
              )
              
              
              (39,167
              )Bank-owned
      life insurance
              
              
              355,451
              
              
              
              (68,472
              )Dividends
      received deduction
              
              
              (2,851
              )
              
              
              (
      2,423
              )Change
      in valuation allowance
              
              
              15,722
              
              
              
              472Stock
      based compensation
              
              
              9,318
              
              
              
              28,434Net
      effect of other book/tax differences
              
              
              51,399
              
              
              
              16,227Provision
      for income taxes
              
              $
              (1,531,751
              )
              
              $
              68,847
 
 
 The
components of deferred tax assets and liabilities as of June 30, 2009 and 2008
consisted of:
 2009
                
                
                2008Deferred
      tax assets:Allowance
      for loan losses
                
                $
                1,603,916
                
                
                $
                1,027,146Book
      amortization in excess of tax amortization
                
                
                19,882
                
                
                
                31,119Compensated
      employee absences
                
                
                29,157
                
                
                
                24,698State
      net operating loss carry-forwards
                
                
                89,500
                
                
                
                73,778Federal
      net operating loss carry-forwards
                
                
                852,964
                
                
                
                --Capital
      loss carry-forwards
                
                
                1,080
                
                
                
                1,080Net
      unrealized loss on available-for-sale securities
                
                
                --
                
                
                
                26,163Charitable
      contributions
                
                
                14,937
                
                
                
                --Other
                
                
                99,649
                
                
                
                46,444Total
      gross deferred tax assets
                
                
                2,711,085
                
                
                
                1,230,428Valuation
      allowance
                
                
                (90,580
                )
                
                
                (74,858
                )$
                2,620,505
                
                
                $
                1,155,570
 
 50
 
 FIRST
BANCSHARES, INC. AND SUBSIDIARIES
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 -
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
- - - - - -
 Years
Ended June 30, 2009 and 2008
 
 (9)        INCOME TAXES
(CONTINUED)
   Deferred tax
      liabilities:Premises and equipment
              
              $
              (107,727
              )
              
              $
              (127,998
              )FHLB
      stock dividends
              
              
              (60,936
              )
              
              
              (60,714
              )Prepaid
      expenses
              
              
              (125,313
              )
              
              
              (58,794
              )Net
      unrealized gain on available-for-sale securities
              
              
              (400,619
              )
              
              
              -Unamortized deferred loan costs, net of
      fees
              
              
              (87,125
              )
              
              
              (112,376
              )Total
      gross deferred tax liabilities
              
              $
              (781,720
              )
              
              $
              (359,882
              )Total net deferred tax assets
              
              $
              1,838,785
              
              
              $
              795,688
   In
accordance with SFAS No. 109, a deferred tax liability has not been recognized
for tax basis bad debt reserves of $2,190,825 of the Savings Bank that arose in
tax years that began prior to December 31, 1987.  At June 30, 2009,
the amount of the deferred tax liability that had not been recognized was
approximately $811,000.  This deferred tax liability could be
recognized if, in the future, there is a change in federal tax law, the Savings
Bank fails to meet the definition of a “qualified savings institution,” as
defined by the Internal Revenue Code, certain distributions are made with
respect to the stock of the Savings Bank, or the bad debt reserves are used for
any purpose other than absorbing bad debts.
 
 During
the years ended June 30, 2009 and 2008, the Company recorded a valuation
allowance of $90,580 and $74,858, respectively, on the deferred tax assets to
reduce the total to an amount that management believes will ultimately be
realized.  Realization of deferred tax assets is dependent upon
sufficient future taxable income during the period that deductible temporary
differences and carry forwards are expected to be available to reduce taxable
income.
 
 (10)           EMPLOYEE BENEFIT
PLANS
 
 The
      Savings Bank had participated in a multiple-employer defined benefit
      pension plan covering substantially all employees.  In fiscal
      2006, the Savings Bank opted to freeze the plan. Participants in the plan
      became entitled to their vested benefits at the date it was frozen. The
      Savings Bank limited its future obligations to the funding amount required
      by the annual actuarial evaluation of the plan and administrative costs.
      No participants will be added to the plan. Pension expense for the years
      ended June 30, 2009 and 2008 was approximately $47,000 and $38,000,
      respectively.  This plan is not subject to the requirements of
      FAS 158.
 
 The First
Home Savings Bank Employee Stock Ownership and 401(k) Plan covers all employees
that are age 21 and have completed six months of service.  The Company
makes contributions on a matching basis of up to 3% on employee deferrals.
Expense for the ESOP and 401(k) plan for the years ended June 30, 2009 and 2008
was $51,136 and $58,039, respectively.
 
 Effective
      July 1, 2006, the Company adopted SFAS No. 123R, Share-based Payments,
      using the modified prospective transition method. Prior to that date the
      Company accounted for stock option awards under APB Opinion No. 25,
      Accounting for Stock Issued to Employees. In accordance with SFAS No.
      123R, compensation expense for stock-based awards is recorded over the
      vesting period at the fair values of the award at the time of the grant.
      The recording of such compensation began on
July
 
   51
  FIRST
BANCSHARES, INC. AND SUBSIDIARIES
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 -
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
- - - - - -
 Years
Ended June 30, 2009 and 2008
 (10)
              EMPLOYEE BENEFIT PLANS
      (CONTINUED)
 
 1,
      2006 for shares not yet vested as of that date and for all new grants
      subsequent to that date. The exercise price of options granted under the
      Company’s incentive plans is equal to the fair market value of the
      underlying stock at the grant date. The Company assumes no projected
      forfeiture rates on its stock-based
  compensation.
 
 The
Company’s 2004 Stock Option and Incentive Plan has authorized the grant of
options to certain officers, employees and directors for up to 100,000 shares of
the Company’s common stock. All options granted have 10 year terms and vest and
become exercisable ratably over five years following the date of
grant.  The plan was approved by shareholders in October 2004. At June
30, 2009, there were 88,000 shares of stock available for grant under the
plan
 
 The
      Company’s 2004 Management Recognition Plan has authorized the award of
      shares to certain officers, employees and directors for up to 50,000
      shares of the Company’s common stock.  All shares awarded will
      have a restricted period to be determined by the Corporation’s
      Compensation Committee.  The restricted period shall not be less
      than three years if the award is time based, or not less than one year if
      performance based.  The plan was approved by shareholders in
      October 2004. No shares have been issued from this
  plan.
 
 The
      Company uses historical data to estimate the expected term of the options
      granted, volatilities, and other factors.  Expected volatilities
      are based on the historical volatility of the Company’s common stock over
      a period of time equal to the expected life of the option. The risk-free
      rate for periods corresponding with the expected life of the option is
      based on the U.S. Treasury yield curve in effect at the time of
      grant.  The dividend rate is equal to the dividend rate in
      effect on the date of grant.  The Company used the following
      assumptions for the most recent grants made, which were in fiscal 2007,
      respectively:  dividend rates of .00% to .99%, price volatility
      of 18.36% to 20.29%, risk-free interest rates of 4.58% to 5.02%, and an
      expected life of 7.5 to 10 years. The weighted average grant date fair
      value for options granted in fiscal 2007 was $5.92 per share. No options
      were granted during either fiscal 2009 or fiscal
  2008.
  A
summary of the Company’s stock option activity, and related information for the
years ended June 30 follows:
 
 2009
              
              
              2008Weighted
              
              
              
              
              
              WeightedAverage
              
              
              
              
              
              AverageExercise
              
              
              
              
              
              ExerciseOptions
              
              
              Price
              
              
              Options
              
              
              PriceOutstanding
      at beginning of year
              
              
              60,500
              
              
              $
              16.72
              
              
              
              64,500
              
              
              $
              16.72Granted
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Exercised
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Forfeited
              
              
              (38,500
              )
              
              
              16.64
              
              
              
              (4,000
              )
              
              
              16.78Outstanding
      at end of year
              
              
              22,000
              
              
              
              16.85
              
              
              
              60,500
              
              
              
              16.72Exercisable
      at end of year
              
              
              11,200
              
              
              $
              16.83
              
              
              
              15,425
              
              
              $
              16.73
 
 
 52
 
 FIRST
BANCSHARES, INC. AND SUBSIDIARIES
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 -
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
- - - - - -
 Years
Ended June 30, 2009 and 2008
  (11)
              EMPLOYEE BENEFIT PLANS
      (CONTINUED)
  The
      following table summarizes information about stock options outstanding at
      June 30, 2009:
    Number
              
              Number
              
              RemainingExercise
              
              Outstanding
      at
              
              Exercisable at
              
              ContractualPrice
              
              June
    30
              
              June
    30
              
              Life
      (Months)$
              17.00
              
              10,000
              
              4,000
              
              9316.78
              
              10,000
              
              6,000
              
              8416.50
              
              2,000
              
              1,200
              
              80
  As of
June 30, 2009, there was $18,000 of total unrecognized compensation cost related
to non-vested share-based compensation agreements granted under the plan. That
cost is expected to be recognized over a weighted-average period of
approximately 10 months.
 
 There
      is no intrinsic value of vested options on Company stock as of June 30,
      2009.
 
 (11)
              EARNINGS PER
      SHARE
 
 The
following information shows the amounts used in computing earnings per share and
the effect on income and the weighted average number of shares of dilutive
potential common stock.  The amounts in the income columns represent
the numerator and the amounts in the shares columns represent the denominator.
There was no dilutive effect since the exercise price of all stock options at
June 30, 2008 and June 30, 2009 exceeded the market price of the Company’s
common shares on both of those dates.
 
 Years
      Ended June 30,2009
              
              
              2008Per
              
              
              
              
              
              
              
              
              PerShare
              
              
              
              
              
              
              
              
              ShareIncome
              
              
              Shares
              
              
              Amount
              
              
              Income
              
              
              Shares
              
              
              AmountBasic
      EPS:Income
      (loss) availableto
      commonstockholders
              
              $
              (4,036,463
              )
              
              
              1,550,815
              
              
              $
              (2.60
              )
              
              $
              363,221
              
              
              
              1,550,815
              
              
              $
              0.23Effect
      of dilutivesecurities:
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Diluted
      EPS:Income
      (loss) availableto
      stockholdersplus
      stock options
              
              $
              (4,036,463
              )
              
              
              1,550,815
              
              
              $
              (2.60
              )
              
              $
              363,221
              
              
              
              1,550,815
              
              
              $
              0.23
 
 (12)
              RELATED PARTY
      TRANSACTIONS
 
 Certain
employees, officers and directors are engaged in transactions with the Savings
Bank in the ordinary course of business.  It is the Savings Bank’s
policy that all related party transactions are conducted at “arm’s length” and
all loans and commitments included in such transactions are made on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with other
customers.
 
 53
  FIRST
BANCSHARES, INC. AND SUBSIDIARIES
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 -
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
- - - - - -
 Years
Ended June 30, 2009 and 2008
 (12)
              RELATED PARTY
      TRANSACTIONS (CONTINUED)
 
 A summary
of the changes in outstanding loans to officers and directors for the fiscal
years ended June 30, 2009 and 2008 is as follows:
 
  2009
              
              
              2008Beginning
      balances
              
              $
              222,608
              
              
              $
              528,752Originations and
      advances
              
              
              -
              
              
              
              20,000Principal
      repayments
              
              
              (117,816)
              
              
              
              (326,144
              )Ending
      balances
              
              $
              104,792
              
              
              $
              222,608
  The
Company had two directors that perform legal services, primarily on behalf of
the Savings Bank.  One of these directors resigned from the Board
prior to the end of calendar 2005, but received a monthly retainer through the
first half of fiscal 2008. The services provided by the current director relate
primarily to foreclosures and bankruptcies.  During the years ended
June 30, 2009 and 2008, the Savings Bank paid $79,967 and $55,682, respectively,
for legal services performed by these directors.
 
 (13)        COMMITMENTS AND
CONTINGENCIES
 
 In
      the ordinary course of business, the Savings Bank has various outstanding
      commitments that are not reflected in the accompanying consolidated
      financial statements.  The principal commitments of the Savings
      Bank are as follows:
 
 Letters
      of Credit – Outstanding standby letters of credit were approximately
      $437,000 and $488,000 at June 30, 2009 and 2008,
    respectively.
 
 Loan
      Commitments – The Savings Bank had outstanding firm commitments to
      originate loans in the amount of $121,000 and $793,000 at June 30, 2009
      and 2008, respectively.
 
 Lines
      of Credit – The unused portion of lines of credit was approximately
      $6,501,000 and $1,120,000 at June 30, 2009 and 2008,
      respectively.
 
 Commitments
to extend credit are agreements to lend to a customer as long as there is no
violation of any condition established in the contract.  Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee.  Since many of the commitments are expected
to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The Company evaluates each
customer’s creditworthiness on a case-by-case basis. The amount of collateral
obtained, if deemed necessary by the Company upon extension of credit, is based
on management’s credit evaluation of the party.  Collateral held
varies, but may include accounts receivable, crops, livestock, inventory,
property and equipment, residential and commercial real estate as well as
income-producing commercial properties.
 
 Standby
letters of credit are conditional commitments issued by the Company to guarantee
the performance of a customer to a third party.  Those guarantees are
primarily issued to support public and private borrowing arrangements, including
commercial paper, bond financing and similar transactions.  None of
the guarantees extend longer than one year. The credit risk involved in issuing
letters of credit is essentially the same as that involved in extending loan
facilities to customers.  Collateral held varies as specified above
and is required in instances which the Company deems necessary.  All
of the standby
 
 
 54
 FIRST
BANCSHARES, INC. AND SUBSIDIARIES
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 -
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
- - - - - -
 Years
Ended June 30, 2009 and 2008
  (13)         COMMITMENTS AND
CONTINGENCIES (CONTINUED)
 
 letters
of credit outstanding at June 30, 2009 were collateralized.  No
amounts were recorded as liabilities at June 30, 2009 or 2008 for the Company’s
potential obligations under these guarantees.
 
 In the
normal course of business, the Company is involved in various legal proceedings.
In the opinion of management, any liability resulting from such proceedings
would not have a material adverse effect on the Company’s consolidated financial
statements.
 
 (14)         CONCENTRATION OF CREDIT
RISK
 
 The
Savings Bank maintains its primary bank accounts with institutions in Missouri
and Iowa.  On June 30, 2009, the individual balances of these accounts
exceeded standard insurance limits established by the Federal Deposit Insurance
Corporation.  The Savings Bank has not experienced any losses in such
accounts.
 
 (15)         REGULATORY
MATTERS
 
 The
      Savings Bank is subject to various regulatory capital requirements
      administered by its primary federal regulator, the Office of Thrift
      Supervision (“OTS”).  Failure to meet the minimum regulatory
      capital requirements can initiate certain mandatory and possible
      additional discretionary, actions by regulators that if undertaken, could
      have a direct material affect on the Savings Bank and the consolidated
      financial statements.  Under the regulatory capital adequacy
      guidelines and the regulatory framework for prompt corrective action, the
      Savings Bank must meet specific capital guidelines involving quantitative
      measures of the Savings Bank’s assets, liabilities, and certain
      off-balance-sheet items as calculated under regulatory accounting
      practices.  The Savings Bank’s capital amounts and
      classification under the prompt corrective action guidelines are also
      subject to qualitative judgments by the regulators about components, risk
      weightings, and other factors.
 
 Quantitative
measures established by regulation to ensure capital adequacy require the
Savings Bank to maintain minimum amounts and ratios (set forth in the table
below) of total risk-based capital and Tier 1 capital to risk-weighted assets
(as defined in the regulations), Tier 1 capital to adjusted total assets (as
defined), and tangible capital to adjusted total assets (as
defined).
 
 Management
believes, as of June 30, 2009, that the Savings Bank meets all capital adequacy
requirements to which it is subject.
 
 As of
June 30, 2009, the most recent notification from the OTS, the Savings Bank was
categorized as well-capitalized under the regulatory framework for prompt
corrective action.  To be categorized as well-capitalized, the Savings
Bank must maintain minimum total risk-based, Tier 1 risk-based, and core capital
leverage ratios as set forth in the table.  There are no conditions or
events since that notification that management believes have changed the
institution’s category.
 
 
 
 55
 
 FIRST
BANCSHARES, INC. AND SUBSIDIARIES
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 -
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
- - - - - -
 Years
Ended June 30, 2009 and 2008
 
 (15)
              REGULATORY MATTERS
      (CONTINUED)
 
 The
Savings Bank’s actual capital amounts and ratios are also presented in the
table.
  Actual
                
                
                Minimum
                  For
      Capital
                  Adequacy
      Purposes
                
                
                Minimum
                  to
      Be Well-
                  Capitalized
      Under
                  Prompt
      Corrective
                  Action
      ProvisionsAmount
                
                
                Ratio
                
                
                Amount
                
                
                Ratio
                
                
                Amount
                
                
                Ratio(Dollars
      in thousands)As
      of June 30, 2009:Total
      Risk-Based Capital(to
      Risk-Weighted Assets)
                
                $
                22,737
                
                
                
                17.57
                %
                
                $
                10,351
                
                
                
                8.0
                %
                
                $
                12,939
                
                
                
                10.0
                %Core
      Capital(to
      Adjusted Tangible Assets)
                
                
                21,140
                
                
                
                9.32
                %
                
                
                9,071
                
                
                
                4.0
                %
                
                
                11,339
                
                
                
                5.0
                %Tangible
      Capital(to
      Adjusted Tangible Assets)
                
                
                21,140
                
                
                
                9.32
                %
                
                
                3,402
                
                
                
                1.5
                %
                
                
                N/ATier
      1 Capital(to
      Risk-Weighted Assets)
                
                
                21,140
                
                
                
                16.34
                %
                
                
                9,071
                
                
                
                4.0
                %
                
                
                13,607
                
                
                
                6.0
                %As
      of June 30, 2008:Total
      Risk-Based Capital(To
      Risk-Weighted Assets)
                
                $
                26,859
                
                
                
                16.27
                %
                
                $
                13,206
                
                
                
                8.0
                %
                
                $
                16,507
                
                
                
                10.0
                %Core
      Capital(to
      Adjusted Tangible Assets)
                
                
                24,818
                
                
                
                10.05
                %
                
                
                9,881
                
                
                
                4.0
                %
                
                
                12,351
                
                
                
                5.0
                %Tangible
      Capital(to
      Adjusted Tangible Assets)
                
                
                24,818
                
                
                
                10.05
                %
                
                
                3,705
                
                
                
                1.5
                %
                
                
                N/ATier
      1 Capital(to
      Risk-Weighted Assets)
                
                
                24,818
                
                
                
                15.03
                %
                
                
                9,881
                
                
                
                4.0
                %
                
                
                14,822
                
                
                
                6.0
                %
 
 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 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, maintaining capital levels, acceptable to the
OTS;
 ·  ensure
the Bank’s compliance with applicable laws, rules, regulations and agency
guidelines, including the terms of the order;
   56
  FIRST
BANCSHARES, INC. AND SUBSIDIARIES
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 -
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
- - - - - -
 Years
Ended June 30, 2009 and 2008
 
 (15)
              REGULATORY MATTERS
      (CONTINUED)
 
 · 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 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 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 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.
 
 (16)  COMMON
STOCK
 
 As
provided in the Company’s Articles of Incorporation, record holders of Common
Stock who beneficially own, either directly or indirectly, in excess of 10% of
the Company’s outstanding shares are not entitled to any vote with respect to
the shares they hold in excess of the 10% limit.
 
 (17)
              FAIR VALUE
      MEASUREMENTS
 
 Effective
July 1, 2008, the Company adopted the provisions of SFAS No. 157,
"Fair Value Measurements," for financial assets and financial liabilities. In
accordance with FSP No. 157-2, "Effective Date of FASB Statement
No. 157," the Company will delay application of SFAS No. 157 for
non-financial assets and non-financial liabilities measured on a non-recurring
basis, until July 1, 2009.  SFAS No. 157 defines fair value,
establishes a framework for measuring fair value in generally accepted
accounting principles and expands disclosures about fair value
measurements.
 
 SFAS No.
157 defines fair value as the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between market
participants. A fair value measurement assumes that the transaction to sell the
asset or transfer the liability occurs in the principal market for the asset or
liability or, in the absence of a principal market, the most advantageous market
for the asset or liability.
 
 57
 FIRST
BANCSHARES, INC. AND SUBSIDIARIES
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 -
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
- - - - - -
 Years
Ended June 30, 2009 and 2008
 (17)         FAIR
VALUE  MEASUREMENTS (CONTINUED)
 
 The price
in the principal (or most advantageous) market used to measure the fair value of
the asset or liability shall not be adjusted for transaction costs. An orderly
transaction is a transaction that assumes exposure to the market for a period
prior to the measurement date to allow for marketing activities that are usual
and customary for transactions involving such assets and liabilities; it is not
a forced transaction. Market participants are buyers and sellers in the
principal market that are (i) independent, (ii) knowledgeable,
(iii) able to transact and (iv) willing to transact.
 
 SFAS No.
157 requires the use of valuation techniques that are consistent with the market
approach, the income approach and/or the cost approach. The market approach uses
prices and other relevant information generated by market transactions involving
identical or comparable assets and liabilities. The income approach uses
valuation techniques to convert future amounts, such as cash flows or earnings,
to a single present amount on a discounted basis. The cost approach is based on
the amount that currently would be required to replace the service capacity of
an asset (replacement cost). Valuation
 techniques
should be consistently applied. Inputs to valuation techniques refer to the
assumptions that market participants would use in pricing the asset or
liability. Inputs may be observable, meaning those that reflect the assumptions
market participants would use in pricing the asset or liability developed based
on market data obtained from independent sources, or unobservable, meaning those
that reflect the reporting entity's own assumptions about the assumptions market
participants would use in pricing the asset or liability developed based on the
best information available in the circumstances. In that regard, SFAS No.
157 establishes a fair value hierarchy for valuation inputs that gives the
highest priority to quoted prices in active markets for identical assets or
liabilities and the lowest priority to unobservable inputs. The fair value
hierarchy is as follows:
 
 Level 1
Inputs - Unadjusted quoted prices in active markets for identical assets or
liabilities that the reporting entity has the ability to access at the
measurement date.
 
 Level 2
Inputs - Inputs other than quoted prices included in Level 1 that are
observable for the asset or liability, either directly or indirectly. These
might include quoted prices for similar assets or liabilities in active markets,
quoted prices for identical or similar assets or liabilities in markets that are
not active, inputs other than quoted prices that are observable for the asset or
liability (such as interest rates, volatilities, prepayment speeds, credit
risks, etc.) or inputs that are derived principally from or corroborated by
market data by correlation or other means.
 
 Level 3
Inputs - Unobservable inputs for determining the fair values of assets or
liabilities that reflect an entity's own assumptions about the assumptions that
market participants would use in pricing the assets or liabilities.
 
 A
description of the valuation methodologies used for instruments measured at fair
value, as well as the general classification of such instruments pursuant to the
valuation hierarchy, is set forth below. These valuation methodologies were
applied to all of the Company's financial assets and financial liabilities
carried at fair value effective July 1, 2008.
 
 In
general, fair value is based upon quoted market prices, where available. If such
quoted market prices are not available, fair value is based upon internally
developed models that primarily use, as inputs, observable market-based
parameters. Valuation adjustments may be made to ensure that
financial
 
 
 58
 FIRST
BANCSHARES, INC. AND SUBSIDIARIES
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 -
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
- - - - - -
 Years
Ended June 30, 2009 and 2008
 (17)         FAIR
VALUE  MEASUREMENTS (CONTINUED)
 
 instruments
are recorded at fair value. These adjustments may include amounts to reflect
counterparty credit quality, the Company's creditworthiness, among other things,
as well as unobservable parameters. Any such valuation adjustments are applied
consistently over time. The Company's valuation methodologies may produce a fair
value calculation that may not be indicative of net realizable value or
reflective of future fair values. While management believes the Company's
valuation methodologies are appropriate and consistent with other market
participants, the use of different methodologies or assumptions to determine the
fair value of certain financial instruments could result in a different estimate
of fair value at the reporting date.
 
 Securities
Available for Sale - Securities classified as available for sale are reported at
fair value utilizing Level 1 and Level 2 inputs. For equity securities,
unadjusted quoted prices in active markets for identical assets are utilized to
determine fair value at the measurement date.  For all other
securities, the Company obtains fair value measurements from an independent
pricing service. The fair value measurements consider observable data that may
include dealer quotes, market spreads, cash flows, the U.S. Treasury yield
curve, live trading levels, trade execution data, market consensus prepayment
speeds, credit information and the bond's terms and conditions, among other
things.
 
 Impaired
Loans - The Company does not record impaired loans at fair value on a recurring
basis.  However, periodically, a loan is considered impaired and is
reported at the fair value of the underlying collateral, less estimated costs to
sell, if repayment is expected solely from the collateral. Impaired loans
measured at fair value typically consist of loans on non-accrual status and
loans with a portion of the allowance for loan losses allocated specifically to
the loan. Collateral values are estimated using Level 2 inputs, including recent
appraisals and Level 3 inputs based on customized discounting
criteria.  Due to the significance of the Level 3 inputs, impaired
loans fair values have been classified as Level 3.
 
 The
following table summarizes financial assets measured at fair value on a
recurring basis as of June 30, 2009, segregated by the level of the valuation
inputs within the fair value hierarchy utilized to measure fair
value:
  Level 1
                Inputs
              
              Level 2
                Inputs
              
              Level 3
                Inputs
              
              
              Total
                Fair
      Value(dollars
      in
      thousands)Securities-available-for-sale
              $
              -
              
              $
              45,317
              
              $
              -
              
              
              $
              45,317
 
 
 Certain
financial assets and financial liabilities are measured at fair value on a
nonrecurring basis; that is, the instruments are not measured at fair value on
an ongoing basis but are subject to fair value adjustments in certain
circumstances (for example, when there is evidence of impairment). Financial
assets and financial liabilities, excluding impaired loans, measured at fair
value on a non-recurring basis were not significant at June 30,
2009.
 
 
 
 59
  FIRST
BANCSHARES, INC. AND SUBSIDIARIES
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 -
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
- - - - - -
 Years
Ended June 30, 2009 and 2008
 
 
 (17)           FAIR
VALUE  MEASUREMENTS (CONTINUED)
 
 The
following table summarizes financial assets measured at fair value on a
non-recurring basis as of June 30, 2009, segregated by the level of the
valuation inputs within the fair value hierarchy utilized to measure fair
value:
 
 Level 1
              
              
              Level 2
              
              Level 3
              
              
              
              TotalInputs
              
              
              Inputs
              
              Inputs
              
              
              
              Fair Value(dollars
      in thousands)Impaired
      Loans
              
              $
              -
              
              
              $
              -
              
              $
              611
              
              
              
              $
              611
 
 Non-financial
assets and non-financial liabilities measured at fair value on a recurring basis
include reporting units measured at fair value in the first step of a goodwill
impairment test. Non-financial assets measured at fair value on a non-recurring
basis include non-financial assets and non-financial liabilities measured at
fair value in the second step of a goodwill impairment test, as well as
intangible assets and other non-financial long-lived assets measured at fair
value for impairment assessment. As stated above, SFAS 157 will be
applicable to these fair value measurements beginning July 1,
2009.
 
 SFAS 107,
“Disclosures about Fair Value of Financial Instruments,” requires disclosure of
the fair value of financial assets and financial liabilities, including those
financial assets and financial liabilities that are not measured and reported at
fair value on a recurring basis or non-recurring basis.  The
methodologies for estimating the fair value of financial assets and financial
liabilities that are measured at fair value on a recurring or non-recurring
basis are discussed above.  The methodologies for other financial
assets and financial liabilities are discussed below.
 
 June
      30, 2009Approximate
                Carrying
              
              
              ApproximateAmount
              
              
              Fair
      ValueFinancial
      assets:Cash
      and cash equivalents
              
              $
              26,218,000
              
              
              $
              26,218,000Certificates
      of deposit purchased
              
              
              5,628,000
              
              
              
              5,628,000Available-for-sale
      securities
              
              
              45,317,000
              
              
              
              45,317,000Held-to-maturity
      securities
              
              
              2,592,000
              
              
              
              2,626,000Investment
      in FHLB stock
              
              
              1,581,000
              
              
              
              1,581,000Loans,
      net of allowance for loan losses
              
              
              133,162,000
              
              
              
              134,947,000Loans
      held for sale
              
              
              820,000
              
              
              
              820,000Accrued
      interest receivable
              
              
              955,000
              
              
              
              955,000Financial
      liabilities:Deposits
              
              
              189,218,000
              
              
              
              190,096,000Retail
      repurchase agreements
              
              
              5,713,000
              
              
              
              5,713,000FHLB
      advances
              
              
              10,000,000
              
              
              
              10,450,000Accrued
      interest payable
              
              
              385,000
              
              
              
              385,000
 
 
 
 60
 FIRST
BANCSHARES, INC. AND SUBSIDIARIES
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 -
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
- - - - - -
 Years
Ended June 30, 2009 and 2008
 (17)           FAIR
VALUE  MEASUREMENTS (CONTINUED)
 
 June
      30, 2008Approximate
                Carrying
              
              
              ApproximateAmount
              
              
              Fair
      ValueFinancial
      assets:Cash
      and cash equivalents
              
              $
              17,010,000
              
              
              $
              17,010,000Certificates
      of deposit purchased
              
              
              567,000
              
              
              
              567,000Available-for-sale
      securities
              
              
              40,830,000
              
              
              
              40,830,000Held-to-maturity
      securities
              
              
              4,175,000
              
              
              
              4,118,000Investment
      in FHLB stock
              
              
              1,613,000
              
              
              
              1,613,000Loans,
      net of allowance for loan losses
              
              
              167,035,000
              
              
              
              166,663,000Loans
      held for sale
              
              
              755,000
              
              
              
              755,000Accrued
      interest receivable
              
              
              1,136,000
              
              
              
              1,136,000Financial
      liabilities:Deposits
              
              
              194,593,000
              
              
              
              195,816,000Retail
      repurchase agreements
              
              
              4,648,000
              
              
              
              4,648,000FHLB
      advances
              
              
              22,000,000
              
              
              
              22,986,000Accrued
      interest payable
              
              
              414,000
              
              
              
              414,000
 
 Cash
      and
              cash
      equivalents and certificates of deposit purchased – For these short-term
      instruments, the carrying amount approximates fair
  value.
 
 Loans re
              ceivable
      – The fair value of loans is estimated by discounting the future cash
      flows using the current rates at which similar loans would be made to
      borrowers with similar credit ratings and for the same remaining
      maturities.  Loans with similar characteristics are aggregated
      for purposes of the calculations.
 
 Loans h
              eld
      for sale – The carrying amounts of loans held for sale approximate the
      fair value due to the short term nature of these
  loans.
 
 Investm
              ent
      in FHLB stock – Fair value of the Savings Bank’s investment in FHLB stock
      approximates the carrying value as no ready market exists for this
      investment and the stock could only be sold back to the FHLB at
      par.
 
 Accrued
interest – The carrying amounts of accrued interest approximate their fair
value.
 
 Deposits
              –
      The fair value of demand deposits, savings accounts and interest-bearing
      demand deposits is the amount payable on demand at the reporting date
      (i.e., their carrying amount).  The fair value of fixed-maturity
      time deposits is estimated using a discounted cash flow calculation that
      applies the market rates currently offered for deposits of similar
      remaining maturities.
 
 Retail rep
              urchase
      agreements – The fair value of retail repurchase agreements is the amount
      payable at the reporting date.
 
 FHLB ad
              vances
      – Rates currently available to the Savings Bank for advances with similar
      terms and remaining maturities are used to estimate fair value of existing
      advances by discounting the future cash
flows.
    
 61
  FIRST
BANCSHARES, INC. AND SUBSIDIARIES
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 -
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
- - - - - -
 Years
Ended June 30, 2009 and 2008
  (17)           FAIR
VALUE  MEASUREMENTS (CONTINUED)
 
 Commit
              ments
      to extend credit, letters of credit and lines of credit – The fair value
      of commitments is estimated using the fees currently charged to enter into
      similar agreements, taking into account the remaining terms of the
      agreements and the present credit worthiness of the
      counterparties.  For fixed-rate loan commitments, fair value
      also considers the difference between current levels of interest rates and
      the committed rates.  The fair value of letters of credit and
      lines of credit is based on fees currently charged for similar agreements
      or on the estimated cost to terminate or otherwise settle the obligations
      with the counterparties at the reporting date and are
      insignificant.
 
 (18)
              PARENT COMPANY ONLY
      FINANCIAL INFORMATION
 
 The
      following condensed statements of financial condition and condensed
      statements of operations and cash flows for First Bancshares, Inc. are as
      follows:
 
 Condensed
      Statements of Financial ConditionJune
      30,ASSETS
              
              2009
              
              
              2008Cash
      and cash equivalents
              
              $
              102,882
              
              
              $
              86,524Certificates
      of deposit
              
              
              10,000
              
              
              
              10,000Securities
      available-for-sale
              
              
              248,000
              
              
              
              248,000Investment
      in subsidiaries
              
              
              22,224,633
              
              
              
              25,921,123Property
      and equipment, net
              
              
              1,462,881
              
              
              
              1,547,855Deferred
      tax asset, net
              
              
              183,163
              
              
              
              90,138Other
      assets
              
              
              169,611
              
              
              
              187,316Total
      assets
              
              $
              24,401,170
              
              
              $
              28,090,956LIABILITIES AND
      STOCKHOLDERS' EQUITY
              
              $
              623,717
              
              
              $
              636,481Notes
      payable, subsidiaries
              
              
              13,562
              
              
              
              354,903Accrued
      expenses
              
              
              637,279
              
              
              
              991,384Total
      Liabilities
              
              
              23,763,891
              
              
              
              27,099,572Stockholders'
      equity
              
              $
              24,401,170
              
              
              $
              28,090,956Total
      liabilities and stockholders' equity
  
 
 
 62
 
 FIRST
BANCSHARES, INC. AND SUBSIDIARIES
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 -
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
- - - - - -
 Years
Ended June 30, 2009 and 2008
 
 (18)
              PARENT COMPANY ONLY
      FINANCIAL INFORMATION
(CONTINUED)
 
 Condensed
      Statements of OperationsYear
      ended June 30,2009
              
              
              
              
              2008Income:Equity
      in earnings (loss) of subsidiaries
              
              $
              (3,852,354
              )
              
              
              
              $
              677,898Interest
      and dividend income
              
              
              8,642
              
              
              
              
              
              10,708Gain/(loss)
      on sale or write-down
                of
      property and equipment
              
              
              (3,044
              )
              
              
              
              
              32,723Other
              
              
              56,358
              
              
              
              
              
              49,022Total
      income (loss)
              
              
              (3,790,398
              )
              
              
              
              
              770,351Expenses:Professional
      fees
              
              
              193,474
              
              
              
              
              
              360,454Printing
      and office supplies
              
              
              15,429
              
              
              
              
              
              17,319Interest
              
              
              53,616
              
              
              
              
              
              60,263Other
              
              
              66,279
              
              
              
              
              
              63,880Income
      tax benefit
              
              
              (82,736
              )
              
              
              
              
              (94,786
              )Total
      expenses
              
              
              246,062
              
              
              
              
              
              407,130Net
      income (loss)
              
              $
              (4,036,460
              )
              
              
              
              $
              363,221
 
 Condensed
      Statements of Cash FlowsYear
      ended June 30.2009
              
              
              
              
              2008Cash
      flows from operating activities:Net
      income (loss)
              
              $
              (4,036,460
              )
              
              
              
              $
              363,221Adjustments
      to reconcile net income tonet
      cash provided from operating activities:Equity
      in earnings of subsidiaries
              
              
              4,552,354
              
              
              
              
              
              (677,898
              )Depreciation
      expense
              
              
              60,676
              
              
              
              
              
              61,797(Gain)/loss
      on sale or write down of
                property and equipment
              
              
              3,044
              
              
              
              
              
              (32,723
              )Net
      change in operating accounts:Deferred
      tax asset, net
              
              
              (93,025
              )
              
              
              
              
              15,960Other
      assets and liabilities
              
              
              (323,635
              )
              
              
              
              
              247,895Net
      cash used in (provided by) operating activities
              
              
              162,954
              
              
              
              
              
              (21,748
              )Cash
      flows from investing activities:Purchase
      of property and equipment
              
              
              (63,003
              )
              
              
              
              
              (24,229
              )Proceeds
      from sales of property andEquipment
              
              
              84,257
              
              
              
              
              
              287,112Net
      cash provided by investing activities
              
              
              21,254
              
              
              
              
              
              262,883
 
 
 
 
 63
 FIRST
BANCSHARES, INC. AND SUBSIDIARIES
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 -
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
- - - - - -
 Years
Ended June 30, 2009 and 2008
 
 
 (18)
              PARENT COMPANY ONLY
      FINANCIAL INFORMATION
(CONTINUED)
 
 Condensed
      Statements of Cash Flows (Continued)Year
      ended June 30.2009
              
              
              2008Cash
      flows from financing activities:Payments
      on notes payable
              
              
              (12,764
              )
              
              
              (311,284
              )Cash
      dividends paid
              
              
              (155,086
              )
              
              
              -Net
      cash (used in) financing activities
              
              
              (167,850
              )
              
              
              (311,284
              )Net
      increase (decrease) in cash and cash
                equivalents
              
              
              16,358
              
              
              
              (70,149
              )Cash
      and cash equivalents-beginning of period
              
              
              86,524
              
              
              
              156,673Cash
      and cash equivalents-end of period
              
              $
              102,882
              
              
              $
              86,524
 
 
 
 
 
 
  64
  FIRST
BANCSHARES, INC. AND SUBSIDIARIES
 
 ADDITIONAL
INFORMATION
 
 
 COMMON
STOCK INFORMATION
 
 The
common stock of First Bancshares, Inc. is traded on The Nasdaq Stock Market LLC
under the symbol “FBSI”.  As of September 15, 2009, there were 430
registered stockholders and 1,550,815 shares of common stock
outstanding.  This does not reflect the number of persons or entities
who hold stock in nominee or “street name.”
 
 At its
February 2007 meeting, the Board of Directors decided to suspend dividend
payments until the Company’s earnings improved. As a result, there were no
dividend payments made during fiscal 2008. Primarily as a result of the
operating results for fiscal 2008, on July 31, 2008, the Board of Directors
declared a special dividend of $0.10 per share payable on August 29, 2008 to
stockholders of record on August 15, 2008.
 
 Dividend
payments by the Company are dependent on its cash flows, which include
reimbursement from its subsidiaries for the income tax savings created by its
stand alone operating loss, the operation of real estate owned by the Company
and dividends received by the Company from the Savings Bank.  Under
Federal regulations, the dollar amount of dividends a savings and loan
association may pay is dependent upon the association’s capital position and
recent net income.  Generally, if an association satisfies its
regulatory capital requirements, it may make dividend payments up to the limits
prescribed in the OTS regulations.  However, institutions that have
converted to stock form of ownership may not declare or pay a dividend on, or
repurchase any of, its common stock if the effect thereof would cause the
regulatory capital of the institution to be reduced below the amount required
for the liquidation account which was established in accordance with the OTS
regulations and the Savings Bank’s Plan of Conversion. The Cease and Desist
orders to both the Company and the Savings Bank require a 30 day advance
notification to the OTS of the proposed dividend and receipt of a non-objection
letter from the OTS.  In addition, under Missouri law, the Company is
generally prohibited from declaring and paying dividends at a time when the
Company’s net assets are less than its stated capital or when the payment of
dividends would reduce the Company’s net assets below its stated
capital.
 
 The
following table sets forth market price and dividend information for the
Company’s common stock.
    Fiscal
      2009
              High
              Low
              DividendFirst
      Quarter
              $16.99
              $11.33
              $0.10Second
      Quarter
              $15.95
              $10.26
              N/AThird
      Quarter
              $15.64
              $
    8.08
              N/AFourth
      Quarter
              $14.90
              $
      6.12
              N/AFiscal
      2008
              High
              Low
              DividendFirst
      Quarter
              $17.51
              $15.15
              N/ASecond
      Quarter
              $17.50
              $15.00
              N/AThird
      Quarter
              $18.40
              $13.01
              N/AFourth
      Quarter
              $16.60
              $11.57
              N/A
   
 
 
 
 65
 
 DIRECTORS AND EXECUTIVE
      OFFICERSFIRST BANCSHARES,
      INC.
                FIRST HOME SAVINGS
      BANKDIRECTORS:
                DIRECTORS:Thomas M.
      Sutherland, Chairman
                Thomas M.
      Sutherland, ChairmanOne of the owners
      and operators of Sutherlands
                One of the owners
      and operators of SutherlandsHome Improvement
      Centers group of stores
                Home Improvement
      Centers group of storesD. Mitch
      Ashlock
                D. Mitch
      AshlockDirector, President
      and Chief Executive Officer
                Director, President
      and Chief Executive OfficerFirst Federal
      Savings Bank of Olathe
                First Federal
      Savings Bank of OlatheHarold F.
      Glass
                Harold F.
      GlassPartner
                PartnerMillington, Glass
      & Love, Attorneys at Law
                Millington, Glass
      & Love, Attorneys at LawBilly E.
      Hixon
                Billy E.
      HixonRetired partner from
      regional CPA firm
                Retired partner from
      regional CPA firmof BKD,
      LLP
                of BKD,
      LLPRobert J.
      Breidenthal
                Robert J.
      BreidenthalDirector
                DirectorSecurity Bank of
      Kansas City
                Security Bank of
      Kansas CityJohn G.
      Moody
                John G.
      MoodyElected
      Official
                Elected
      OfficialOFFICERS:
                OFFICERS:Thomas M.
      Sutherland,
                Thomas M.
      SutherlandChief Executive
      Officer
                Chief Executive
      OfficerLannie E.
      Crawford
                Lannie E.
      CrawfordPresident
                PresidentRonald J. Walters,
      CPA
                Ronald J. Walters,
      CPASenior Vice
      President, Treasurer
                Senior Vice
      President, Treasurerand Chief Financial
      Officer
                and Chief Financial
      OfficerShannon
      Peterson
                Dale W.
      KeenanSecretary
                Executive Vice
      President andSenior Lending
      OfficerShannon
      PetersonSecretary
 
 
 
  66
  
 CORPORATE
      INFORMATIONCORPORATE
      HEADQUARTERS
                TRANSFER
      AGENT142 East First
      Street
                Registrar and
      Transfer CompanyP.O. Box
      777
                10 Commerce
      DriveMountain Grove,
      Missouri 65711
                Cranford, New
      Jersey 07016(800)
      866-1340INDEPENDENT
      AUDITORSMcGladrey &
      Pullen, LLP
                COMMON
      STOCKKansas City,
      Missouri
                Traded on The Nasdaq
      Stock Market LLCNasdaq Symbol: FBSIGENERAL
      COUNSELHarold F.
      GlassSpringfield,
      MissouriSPECIAL
      COUNSELBreyer &
      Associates PCMcLean,
      Virginia
 
 
 
 ANNUAL
MEETING
 
 The
Annual Meeting of Stockholders will be held Thursday, October 22, 2009, at 1:00
p.m., Central Time, at the Days Inn Conference Room, 300 East 19th Street,
Mountain Grove, Missouri.
  
 
 
 FORM
10-K
 
 A COPY OF
THE FORM 10-K AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION WILL BE
FURNISHED WITHOUT CHARGE TO STOCKHOLDERS AS OF THE RECORD DATE FOR VOTING AT THE
ANNUAL MEETING OF STOCKHOLDERS UPON WRITTEN REQUEST TO THE SECRETARY, FIRST
BANCSHARES, INC., P.O. BOX 777, MOUNTAIN GROVE,
MISSOURI   65711.
 
 THE
COMPANY’S FORMS 10-K, 10-Q AND OTHER DISCLOSURE DOCUMENTS FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION CAN BE OBTAINED FROM THE SEC HOME PAGE ON THE
WORLD WIDE WEB AT http://www.sec.gov.




67