First Bancshares, Inc.







2004 Annual Report

















First Home Savings Bank





www.firsthomesavingsbank.com



A wholly owned subsidiary of First Bancshares, Inc.























































TABLE OF CONTENTS







|                                                              | Page
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|                                                              |     
|Letter to Stockholders....                    | 1   
|Business of the Company...                       | 3   
|Selected Consolidated Financial Information....        | 4   
|Managements Discussion and Analysis of Financial Condition.. |     
|and Results of Operations...                    | 6   
|Independent Auditors Report....                 | 18  
|Consolidated Financial Statements....              | 19  
|Notes to Consolidated Financial Statements......       | 24  
|Common Stock Information...                         | 52  
|Directors and Officers                                        | 53  
|Corporate Information....                     | 54  































































Dear Stockholder:



The end of our fiscal year brought us several changes and continued financial success. The most obvious change you will note is the person writing this annual letter.  On June 30th of this year, following an extremely successful career with the Company, Steve Romines stepped down as Chairman of the Board of Directors for both First Bancshares, Inc. and First Home Savings Bank.  In addition, he retired as President/CEO of First Bancshares, Inc.  Steve was responsible for taking the Company public in 1993 and served the Company and the Bank in various capacities for almost 30 years.  Frequently, the individual, who follows a legend, such as Steve, has their work cut out for them and I have found that is certainly my situation.  Fortunately, Steve will continue his service to the Company and the Bank as a Director Emeritus and, thus, remain a valuable resource for our continued success.



Our financial results for the year ended June 30, 2004 were higher than the previous year in terms of net income.  Earnings for 2004 finished at $2,347,000 for the 12 months compared to $2,244,000 in the previous year, a 4.6% increase.  For our stockholders, this increase meant an increase in earnings per share from $1.37 in 2003 to $1.42 in 2004.  During the same period, book value per share increased from $16.17 to $16.77.



First Bancshares, Inc. completed the repurchase of the remaining 33,435 shares under its 10th repurchase program during 2004.  A new repurchase program (our 11th) was authorized by the Board of Directors in April 2004 for 164,336 shares and we have already repurchased 16,314 shares under this program.  These repurchases, combined with employees exercising options for 45,860 shares, resulted in a net decrease of outstanding shares in the Company.



In addition to the repurchase program, First Bancshares Inc. continued payment of its $0.04 per share quarterly dividend in 2004, which has been paid for 42 consecutive quarters.  The Board of Directors has already approved, and the Company has declared, its next $0.04 dividend to be paid on September 30, 2004 to stockholders of record on September 15, 2004.



In 2004, First Home Savings Bank shrank slightly in total assets compared to year-end 2003.  Total assets at June 30, 2004 were $264,978,000 compared to $268,542,000 at June 30, 2003.  Deposits decreased from $211,664,000 to $207,247,000 for the same time period, while loans decreased from $176,707,000 to $166,259,000.  Interest rates remained low for this period and as a result borrowers continued to take advantage of the rates to lock in their costs.  The Bank continued with its program of not originating and holding long-term fixed-rate loans.



As mentioned in our letter last year, the Bank added the bill pay option to its Internet Banking package this year.  In February 2004, the Bank began providing statements to its customers with images of their checks rather than the actual checks in anticipation of Check 21 and increased the number of its ATMs to nine in 2004.  We now have an ATM at or nearby eight of the 10 locations throughout our branch network.  This also continues with our commitment to provide the electronic avenues for our customer base.



The upcoming year will more than likely bring a return to higher interest rates as the economy rebounds and fears of inflation appear.



Sincerely,







Charles (Charlie) Schumacher

Chairman of the Board















































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, 2004, the Company had total consolidated assets of $265.0 million and consolidated stockholders equity of $27.3 million.



While the Company owns some rental real estate and, until July 2004, a title insurance agency through a subsidiary, it 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 Savings Association Insurance Fund (SAIF) of 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 nine full service branch facilities in Marshfield, Ava, Gainesville, Sparta, Theodosia, Crane, Galena, Kissee Mills and Rockaway Beach, Missouri.  First Home provides its customers with a full array of community banking services.  The Savings Bank is primarily engaged in the business of attracting deposits from, and making loans to, the general public.  It emphasizes one-to-four family residential mortgage loans along with multi-family residential, consumer, commercial and home equity loans.  First Home also invests in mortgage-backed U. S. Government and agency securities and other assets.



At June 30, 2004, First Homes total gross loans were $169.6 million, or 64.0% of total consolidated assets, including $97.6 million, or 57.5% of total gross loans secured by one-to-four family properties and $50.9 million, or 30.0% of total gross loans secured by other real estate.  Of the loans secured by real estate, over 95.0% are adjustable-rate loans.



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|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.                                                                                   
|                                                                                                                 
|                                                                                                                 
|                                                                                                                 
|                                                                                                                 
|                                                                                                                 
|                                                                                                                 
|FINANCIAL CONDITION DATA:                                                                                        
|                                                                                                                 
|Total assets                                                                                                     
|Loans receivable, net                                                                                            
|Mortgage-backed certificates                                                                                     
|Cash, interest-bearing deposits                                                                                  
|and investment securities                                                                                        
|Federal funds sold                                                                                               
|Customer deposits                                                                                                
|Borrowed funds                                                                                                   
|Stockholders' equity                                                                                             
|                                                                                                                 
|                                                                                                                 
|                                                                                                                 
|                                                                                                                 
|OPERATING DATA:                                                                                                  
|                                                                                                                 
|Interest income                                                                                                  
|Interest expense                                                                                                 
|Net interest income                                                                                              
|Provision for loan losses                                                                                        
|Net interest income after provision                                                                              
|for loan losses                                                                                                  
|Gains on investments and                                                                                         
|mortgage-backed securities                                                                                       
|Noninterest income, excluding gains                                                                              
|on securities                                                                                                    
|Noninterest expense                                                                                              
|Income before taxes                                                                                              
|Income taxes                                                                                                     
|Net income                                                                                                       
|Basic earnings per share                                                                                         



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|                                               |  |  | At or For the Years Ended June 30, |  
|---------------------------------------------- |  |  | ---------------------------------- | -
|                                               |  |  | 2004                               |  
|KEY OPERATING RATIOS:                          |  |  |                                    |  
|                                               |  |  |                                    |  
|Return on average assets                       |  |  | 0.87                               | %
|Return on average equity                       |  |  | 8.49                               |  
|Average equity to average assets               |  |  | 10.22                              |  
|Interest rate spread for period                |  |  | 3.05                               |  
|Net interest margin for period                 |  |  | 3.22                               |  
|Non-interest expense to average assets         |  |  | 2.49                               |  
|Average interest-earning assets to             |  |  |                                    |  
|interest-bearing liabilities                   |  |  | 107.00                             |  
|Allowance for loan losses to total loans at    |  |  |                                    |  
|end of period                                  |  |  | 0.73                               |  
|Net charge-offs to average outstanding loans   |  |  |                                    |  
|during the period                              |  |  | 0.14                               |  
|Ratio of non-performing assets to total assets |  |  | 1.18                               |  
|Ratio of loan loss reserves to non-performing  |  |  |                                    |  
|assets                                         |  |  | 39.66                              |  
|                                               |  |  |                                    |  
|Dividend payout ratio                          |  |  | 11.27                              |  
|                                               |  |  |                                    |  
|                                               |  |  |                                    |  
|                                               |  |  | At June 30,                        |  
|                                               |  |  | 2004                               |  
|OTHER DATA:                                    |  |  |                                    |  
|                                               |  |  |                                    |  
|Number of:                                     |  |  |                                    |  
|Loans outstanding                              |  |  | 4,771                              |  
|Deposit accounts                               |  |  | 25,419                             |  
|Full service offices                           |  |  | 10                                 |  
|                                               |  |  |                                    |  



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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.



Managements Discussion and Analysis (MD&A) and other portions of this report contain certain forward-looking statements concerning the future operations of the Company.  Management desires to take advantage of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and is including this statement for the express purpose of availing the Company of the protections of such safe harbor with respect to all forward-looking statements contained in our Annual Report.  We have used forward-looking statements to describe future plans and strategies, including our expectations of the Companys future financial results.  Managements ability to predict results or the effect of future plans or strategies is inherently uncertain.  Factors which could affect actual results include interest rate trends, the general economic climate in the Companys market area and the country as a whole, the ability of the Company to control costs and expenses, the ability of the Company to efficiently incorporate acquisitions into its operations, competitive products and pricing, loan delinquency rates, and changes in federal and state regulation.  These factors should be considered in evaluating the forward-looking statements, and undue reliance should not be placed on such statements.



Operating Strategy



The primary goals of management are to minimize risk, improve profitability and promote growth.  Operating results depend primarily on net interest income, which is the difference between the income earned on its interest-earning assets, such as loans and investments, and the cost of its 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 financial institutions and the attendant actions of the regulatory authorities.  Managements strategy is to strengthen First Homes presence in, and expand the boundaries of, its primary market area.



Management has implemented various general strategies designed to continue profitability while maintaining safety and soundness.  Primary among those strategies are emphasizing, if possible, one-to-four family lending, maintaining asset quality and managing interest-rate risk.  It is anticipated, subject to market conditions, that no changes will be made in these strategies.



Lending.  Historically, First Home has predominantly originated one-to-four family residential loans.  Single family residential loans were 62% of the mortgage loans originated during fiscal year 2004, a decrease from 68% during fiscal 2003 and an increase from 55% during fiscal 2002.  In connection with originations of single family residential loans decreasing during fiscal 2004, single family residential loans as a percent of the Savings Banks total loan portfolio has also slightly declined.  First Home has gradually increased loan originations within its traditional lending territory that are secured by nonresidential real estate as well as loans to consumers for personal and business purposes.  First Home has worked to achieve a reputation within its local lending territory for prompt, efficient and courteous service during both the loan origination and servicing processes.



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Maintaining Asset Quality.  First Home strongly emphasizes maintaining asset quality through sound underwriting, constant monitoring and effective collection techniques.  At June 30, 2004, First Home's ratio of nonperforming loans to total assets was 1.18%, a decrease from 1.78% at June 30, 2003.  However, the quality of the nonperforming loans slightly deteriorated during the current fiscal year as evidenced in Note (5) of the Notes to Consolidated Financial Statements.  Loans past 90 days due and still accruing interest and loans not accruing interest have increased $700,000 from $1.5 million at June 30, 2003 to $2.2 million at June 30, 2004.  In addition, impaired loans have increased from $1.5 million to $2.0 million at June 30, 2003 and 2004, respectively.  The decreases in the quality of the past due and impaired loans are reflected in the increase of the allowance for loan losses as a percentage of total loans from 0.63% to 0.73% at June 30, 2003 and 2004, respectively.  First Homes reserve for loan losses was increased as a result of these nonperforming loans.  Actual loan losses, net of recoveries, of loans originated by First Home were $244,000 for the year ended June 30, 2004.  During the year ended June 30, 2003, actual loan losses, net of recoveries, of loans originated by First Home were $167,000.



Managing Interest-Rate Risk.  First Home relies primarily on adjustable interest rate loans to minimize the inherent risks of interest rate changes.  All long-term mortgage loans originated since 1973 have had adjustable rates rather than fixed rates.  Further, with few exceptions, the majority of other loans including, but not limited to, commercial loans, cattle loans and agricultural loans that have maturities exceeding two years also have adjustable rates rather than fixed rates.  All loans originated by First Home have been retained in its portfolio.  As a response to customer requests, First Home processes a minimal number of fixed rate loans as a correspondent for a third party mortgage company.  Those loans, with prior customer notification, are not retained by the Savings Bank.



Fiscal Year Ended June 30, 2004 Compared to June 30, 2003



Net Income.  Net income increased $103,000, or 4.6%, to $2.3 million for the fiscal year ended June 30, 2004 from $2.2 million for the fiscal year ended June 30, 2003.  Total interest expense decreased $1.4 million, provision for loan losses decreased $87,000, noninterest income increased $584,000 and income taxes decreased $199,000.  Those factors were offset by a $1.8 million decrease in total interest income and a $387,000 increase in noninterest expense.



Net Interest Income.Net interest income decreased $380,000, or 4.5%, to $8.0 million for the fiscal year ended June 30, 2004 from $8.4 million for the fiscal year ended June 30, 2003.  Interest income decreased $1.8 million while interest expense decreased $1.4 million.



Interest Income.  Interest income decreased $1.8 million, or 11.3%, to $13.7 million for the fiscal year ended June 30, 2004 from $15.5 million for the fiscal year ended June 30, 2003.  A two year trend of declining overall balances in loans combined with declining rates on those loans continued into the current year.  The average yield on loans decreased from 7.47% to 7.03% while the average balance of net loans outstanding decreased $13.9 million, or 7.6%.  The overall effect was a decrease in interest income from loans receivable of $1.8 million, or 13.0%, to $12.0 million for the fiscal year ended June 30, 2004 from $13.8 million during the fiscal year ended June 30, 2003.



A portion of the funds from early loan payoffs during fiscal years 2004 and 2003 was invested in mortgage-backed securities, which caused interest income on mortgage-backed securities to increase $136,000, or 89.7%.  The average balance maintained in mortgage-backed securities increased $4.0 million, or 68.8%, while the average yield increased from 2.58% for the fiscal year ended June 30, 2003 to 2.91% for the fiscal year ended June 30, 2004.



Interest income from investment securities decreased $35,000, or 2.62% from $1.4 million for the fiscal year ended June 30, 2003 to $1.3 million for the fiscal year ended June 30, 2004.  Funds from early loan payoffs were invested to increase the average balance in investment securities from $36.0 million for the fiscal year ended June 30, 2003 to $42.7 million for the fiscal year ended June 30, 2004.  The reduction in interest income from investment securities was



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caused by a decline in the average rate earned from 3.79% for the fiscal year ended June 30, 2003 to 3.11% for the fiscal year ended June 30, 2004.



Interest income from other interest-earning assets decreased $66,000, or 29.8%.  That income is primarily earnings on balances at the FHLB and other financial institutions.  The reduction in income was caused by a decline in the average rate earned on those funds.  The average yield for the fiscal year ended June 30, 2004 was 0.59% compared to 0.95% for the fiscal year ended June 30, 2003.



Interest Expense.  Interest expense for the fiscal year ended June 30, 2004 decreased $1.4 million, or 19.3%, to $5.7 million from $7.1 million for the fiscal year ended June 30, 2003.  The average rate paid on customer deposits decreased from 2.72% for the fiscal year ended June 30, 2003 to 2.01% for the fiscal year ended June 30, 2004.  Even though the balance in customer deposits at June 30, 2004 compared to June 30, 2003 decreased $4.4 million, there was a $3.3 million increase in the average balance outstanding during the fiscal year.   The effect of the decrease in the average rate paid on customer deposits was only slightly offset by the increase in average balance to result in a $1.3 million, or 24.9%, decrease in interest expense on customer deposits for the fiscal year ended June 30, 2004.  Interest expense on borrowed funds for the fiscal year ended June 30, 2004 decreased $22,000, or 1.3%, from the fiscal year ended June 30, 2003 as principal reductions were made on FHLB advances.



Provision for Loan Losses.  Provision for loan losses decreased from $427,000 for the fiscal year ended June 30, 2003 to $340,000 for the fiscal year ended June 30, 2004.  The $87,000 decrease was attributable to an $80,000 provision in 2003 for a group of loans to one borrower that became impaired in 2003.  Actual loan charge-offs, net of recoveries, of loans originated by First Home were $244,000 for the fiscal year ended June 30, 2004 compared to $167,000 for the fiscal year ended June 30, 2003.



Noninterest Income.  Noninterest income was $2.5 million for the fiscal year ended June 30, 2004 which was an increase of $584,000, or 30.7%, from $1.9 million for the fiscal year ended June 30, 2003.  Service charges and other fee income increased $252,000, or 16.8%.  This is primarily the result of the continuation of the overdraft protection program the Savings Bank began in October 2002 that automatically pays overdraft checks up to a certain amount for customers that have good credit history with the Savings Bank.  The normal overdraft check fee is charged for each check paid.  During the fiscal year ended June 30, 2004, there was no increase in losses on checking accounts as an effect of allowing more customer accounts to pay into an overdrawn status.  Service charges and other fee income also increased $11,000 during fiscal year ended 2004 with the issuance of debit cards to more of the Savings Banks customer base and the addition of three ATMs.



Late in June 2003, the Savings Bank purchased $5.5 million in bank-owned life insurance.  The earnings on this product were $263,000 during the fiscal year ended June 30, 2004.



During the fiscal year ended June 30, 2004, income from real estate operations decreased $63,000 to $47,000 as a result of lower rent income on a commercial building.  The building is being rented to an area college at a reduced rate to assist in providing additional classroom facilities for the Mountain Grove campus.



During the fiscal year ended June 30, 2004, net losses from the sales of foreclosed property amounted to $37,000 compared to $16,000 in net losses during the fiscal year ended June 30, 2003.



Common stock in a Missouri savings and loan holding company undergoing an acquisition was redeemed and other equity securities were sold for a combined $178,000 pre-tax gain during the fiscal year ended June 30, 2004.  The $27,000 gain on the sale of investments during the fiscal year ended June 30, 2003 resulted from the sale of an equity security and the above par redemption of another equity security.



Noninterest Expense.  Noninterest expense increased $387,000, or 6.1%, from $6.4 million for the fiscal year ended June 30, 2003 to $6.7 million for the fiscal year ended June 30, 2004.



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Compensation and employee benefits for the fiscal year ended June 30, 2004 increased $203,000, or 5.5%, to $3.9 million from $3.7 million for the fiscal year ended June 30, 2003.  First, payroll expense during fiscal 2004 increased $85,000, or 3.5%, as a result of annual pay rate increases.  Second, and most significantly, retirement plan expenses increased $148,000 during fiscal 2004 as additional contributions were required to fund a defined benefit plan, established in 1969.  The Plan had been fully funded for the 15 years previous to the fiscal year 2003. Group health insurance costs decreased $21,000, or 2.1%.  A comprehensive review of the components of the Savings Banks partially self-funded health insurance plan was performed to limit or reduce future years costs of this benefit.  Finally, the expense for the compensated absences policy decreased $8,000 during fiscal 2004.



Occupancy and equipment expense for the fiscal year ended June 30, 2004 increased $114,000, or 11.4%, to $1.1 million from $999,000 for the fiscal year ended June 30, 2003.  Depreciation expense on computer systems increased $49,000 from computer upgrades and enhancements on both hardware and software.



Maintenance expense for the fiscal year ended June 30, 2004 increased $49,000.  With the addition of more ATMs, upgrades and enhancements in computer hardware and software (including telephone and internet banking products), the cost of the related maintenance agreements have increased accordingly.  The expense related to furniture and equipment not required to be capitalized increased $16,000 as the result of items purchased for additional offices at the main bank.



As the result of new and increased regulations for public companies, professional fees, which includes legal, accounting and auditing expenses, increased $17,000, or 10.5%.



Other noninterest expense for the fiscal year ended June 30, 2004 increased $56,000, or 3.8%, to $1.5 million from $1.4 million for the fiscal year ended June 30, 2003.



The primary increase was $90,000 for the outsourcing of customer deposit statement preparation and mailing.  The process includes sending customers images of their checks rather than the actual check.  A major factor in the decision process to outsource this function is in preparation of Check 21 Act.  This change in law, which becomes effective in October 2004, allows financial institutions to exchange electronic images of customer checks rather than the physical item.  This electronic exchange should result in lower fees from check processing.  In connection with the implementation of the overdraft protection program, the Savings Bank paid an additional $22,000 (10% of the net increase in related fees) to a marketing firm for ongoing support.



Outside consultant fees increased $18,000 as the Savings Bank began using a consultant to assist in asset/liability and interest rate risk management.  Charitable contributions increased $16,000 for the fiscal year ended June 30, 2004 as the Savings Bank made additional contributions to area programs.  The Savings Bank purchased Missouri low-income housing tax credits in December 2003 to use to offset Missouri Savings and Loan tax for approximately the next 10 years. Amortization related to those credits was $14,000 during fiscal 2004.



As an offset to the above increases, the following items decreased during the fiscal year ended June 30, 2004.   Advertising expense decreased $43,000, or 24.6%, to $130,000 from $173,000 for the fiscal year ended June 30, 2003.  The Savings Bank reduced the coverage area and amount of advertising run in local newspapers during fiscal 2004. Office supplies decreased $25,000 through the software purchases and enhancements noted above.  More forms are completed through these software programs which reduces the amount of paper forms to be purchased and stored.  The costs associated with in-house printing of customer checks decreased $17,000 as volume discounts were utilized when purchasing the related supplies.



Employee education expense decreased $13,000 as the majority of the training costs for the computer hardware and software upgrades occurred in fiscal 2003.  Correspondent bank service charges decreased $14,000 during fiscal 2004 attributable to the outsourcing of the customer check processing function and as the volume of items processed began to decrease.  Postage expense decreased $7,000, or 4.2%, which was attributable to the outsourcing of



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customer statement preparation in which customers are sent check images rather than the actual checks, providing for lower mailing weight.



Income Taxes.  Income tax expense for the fiscal year ended June 30, 2004 decreased $199,000, or 15.7%, to $1.0 million from $1.3 million for the fiscal year ended June 30, 2003.  The reduction is primarily due to earnings on the bank-owned life insurance, which are not taxable, and the decrease in income before taxes.



Net Interest Margin.  Net interest margin for the fiscal year ended June 30, 2004 was 3.22% compared to 3.37% for the fiscal year ended June 30, 2003.  The decrease was the result of the reduction in the yield on loans and investments offset slightly by the reduction in the cost of customer deposits.



Fiscal Year Ended June 30, 2003 Compared to June 30, 2002



Net Income. Net income increased $585,000, or 35.3%, to $2.2 million for the fiscal year ended June 30, 2003 from $1.7 million for the fiscal year ended June 30, 2002.  Total interest expense decreased $1.6 million and noninterest income increased $576,000.  Those two factors, however, were partially offset by a $469,000 decrease in total interest income, a $53,000 increase in provision for loan losses and an $816,000 increase in noninterest expense.



Net Interest Income.  Net interest income increased $1.1 million or 16.1%, to $8.4 million for the fiscal year ended June 30, 2003 from $7.2 million for the fiscal year ended June 30, 2002.  Interest expense decreased by  $1.6 million while interest income only decreased by $469,000.



Interest Income.  For the fiscal year ended June 30, 2003, interest income decreased $469,000, or 2.9%, to $15.5 million from $16.0 million for the fiscal year ended June 30, 2002.  As noted in the previous years annual report, the rates on First Homes newly originated loans and on existing loans eligible for rate review and adjustment began a general decline.  That trend continued into the current year as evidenced by a decrease in interest income from loans receivable of $1.2 million, or 7.8%, to $13.8 million for the fiscal year ended June 30, 2003 from $14.9 million during the fiscal year ended June 30, 2002.  The average rate on those loans decreased from 7.85% to 7.47% while the average balance of net loans outstanding decreased $6.1 million, or 3.2%.



In a repeat from the previous year, an increase in customer deposits without a corresponding increase in loans resulted in an increase in investment securities, mortgage-backed certificates and other interest-earning accounts at the FHLB.  Interest income from those sources increased $700,000, or 67.6% to $1.7 million for the year ended June 30, 2003 from $1.0 million for the year ended June 30, 2002.



Interest Expense.  Interest expense for the fiscal year ended June 30, 2003 decreased $1.6 million, or 18.7%, to $7.1 million from $8.7 million for the fiscal year ended June 30, 2002.  The average rate paid on customer deposits decreased from 3.89% for the fiscal year ended June 30, 2002 to 2.72% for the fiscal year ended June 30, 2003.  That decrease more than offset the $21.4 million increase in average interest-bearing customer deposits resulting in a $1.5 million, or 21.7%, decrease in interest expense on customer deposits for the fiscal year ended June 30, 2003.



Interest expense on borrowed funds for the fiscal year ended June 30, 2003 also decreased $127,000, or 7.0%, to $1.7 million from $1.8 million for the fiscal year ended June 30, 2002 as principal reductions were made on FHLB advances.



Provision for Loan Losses.  Provision for loan losses increased from $374,000 for the fiscal year ended June 30, 2002 to $427,000 for the fiscal year ended June 30, 2003.  This $53,000 increase was a result of an increase in nonperforming loans, secured by commercial real estate, from $3.2 million at June 30, 2002 to $3.6 million at June 30, 2003 and an increase in impaired loans.  Actual loan charge-offs, net of recoveries, of First Home originated loans were



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$167,000 for the fiscal year ended June 30, 2003 compared to $188,000 for the fiscal year ended June 30, 2002.



Noninterest Income.  Noninterest income increased $576,000, or 43.4%, to $1.9 million for the fiscal year ended June 30, 2003 compared to $1.3 million for the fiscal year ended June 30, 2002.  Service charges and other fee income increased $616,000, or 70.1%.  In October 2002, the Savings Bank began an overdraft protection program that automatically pays overdraft checks up to a certain amount for customers that have good credit history with the Savings Bank.  The normal overdraft check fee is charged for each check paid.  The increase in service charges and other fee income during fiscal 2003 was entirely related to overdraft check fees.



Late payment fees on loans increased $17,000 as the result of a more automated approach to collecting late fees.  Income from in-house printing of checks for First Home customers increased $6,000 as more customers took advantage of obtaining their checks more quickly and at a lower cost.  Expenses related to this program only increased $5,000.



During the fiscal year ended June 30, 2003, First Home began acting as a correspondent on behalf of a fixed rate real estate mortgage company.  The loans generated through this relationship are not maintained on First Homes loan portfolio.  The fee income from these transactions was $19,000 for the fiscal year ended June 30, 2003.



Title insurance commissions earned by the Companys subsidiary, South Central Missouri Title, Inc., decreased $78,000 during the fiscal year ended June 30, 2003 as two of the three branches of the title company were closed.



During the fiscal year ended June 30, 2003, income from real estate operations increased $5,000 to $110,000 through reduced depreciation and maintenance expenses.



During the fiscal year ended June 30, 2003, losses from the sales of foreclosed property totaled $16,000 compared to a $14,000 gain during the fiscal year ended June 30, 2002.  The gain was comprised of a $25,000 gain on the sale of a residential rental property offset by losses of $11,000 on the sale of other foreclosed property.



The $27,000 gain on the sale of investments during the fiscal year ended June 30, 2003 compared to none during fiscal 2002 and resulted from the sale of an equity security and the above par redemption of another equity security.





Noninterest Expense.  Noninterest expense increased $816,000, or 14.7%, from $5.5 million for the fiscal year ended June 30, 2002 to $6.4 million for the fiscal year ended June 30, 2003.



Compensation and employee benefits for the fiscal year ended June 30, 2003 increased $398,000, or 12.1%, to $3.7 million from $3.3 million for the fiscal year ended June 30, 2002.  That increase was comprised of four items.  First, payroll expense and related taxes during fiscal 2003 increased $155,000, or 6.6% as a result of annual pay rate increases and additional support staff.  Second, and most significantly, group health insurance costs increased $383,000, or 64.0%, attributable to unexpected serious or potentially serious claims paid through the partially self-funded component of the Savings Banks health insurance plan.  A comprehensive review of the funding alternatives and components of the health insurance plan are currently in process to limit or reduce future years costs of this benefit.  Third, retirement plan expenses increased $127,000 during fiscal 2003 as contributions were required to fund a defined benefit plan, established in 1969, which had been fully funded for the previous 15 years.  The retirement plan increase also included a $40,000 discretionary contribution to the 401(k) plan.  Finally, those increases were somewhat offset by the elimination of $244,000 in Employee Stock Ownership Plan (ESOP) expense as the ESOP plan was fully funded in March of 2002 and the expense for the compensated absences policy decreased $30,000 during fiscal 2003.



11



Occupancy and equipment expense for the fiscal year ended June 30, 2003 increased $165,000, or 19.8%, to $999,000 from $834,000 for the fiscal year ended June 30, 2002.  Depreciation expense on computer systems increased $58,000 from computer upgrades and enhancements.  Depreciation on buildings increased $33,000 primarily due to the completion of the Kissee Mills branch building and remodeling at the home office.



Maintenance expense for the fiscal year ended June 30, 2003 increased $60,000.  With the addition of more ATMs, upgrades and enhancements in computer hardware and software (including telephone and internet banking products), the cost of the related maintenance agreements have increased accordingly.



During the fiscal year ended June 30, 2003, advertising expense increased $44,000, or 34.4%, to $173,000 from $129,000 for the fiscal year ended June 30, 2002.  The Savings Bank increased advertising and promotion of deposit account services, such as telephone and internet banking, debit card and ATM activity.



With new and increased regulations for public companies, professional fees, which includes legal, accounting and auditing expenses, increased $50,000, or 44.7%.  Of this increase, Stephen Romines, President of the Company, received $12,000 in consulting fees and $6,000 in legal fees and Harold F. Glass, a director of the Company, received $2,000 in legal fees.  Postage expense increased $21,000 primarily as a result of increase in postage rates.



Other noninterest expense for the fiscal year ended June 30, 2003 increased $139,000, or 13.8% to $1.1 million from $1.0 million for the fiscal year ended June 30, 2002.



In connection with the implementation of the overdraft protection program, the Savings Bank paid $30,000 (10% of the net increase in related fees) to a marketing firm for ongoing support.  In relation to this program, losses on checking accounts during fiscal 2003 increased $29,000.  There were also losses on checking accounts, unrelated to the overdraft protection program, of $26,000.



Charitable contributions increased $11,000 for the fiscal year ended June 30, 2003 as the Savings Bank made additional contributions to take advantage of credits against Missouri taxes for contributions to area programs.  Correspondent bank service charges increased $4,000 during fiscal 2003 as the volume of items processed continued to increase.  An increase in courier expenses of $10,000 also contributed to the increase in other noninterest expense during fiscal 2003.



During the fiscal year ended June 30, 2003, the Savings Bank established a subsidiary, First Home Investments, Inc., to provide brokerage and financial planning services to current and potential customers.  The development and operating expenses for this fiscal year were $56,000.  Income from commissions and services during this period was $6,000.



The Savings Banks increase in asset size was also reflected in a $20,000 increase in the cost of insurance premiums and a $9,000 increase in assessments paid to regulatory agencies.



Amortization of the intangible asset associated with the Crane and Galena branch acquisitions in 1998 increased by $17,000 during the fiscal year ended June 30, 2003, which was attributable to a change in the calculation of annual amortization as required by recent accounting pronouncements.



In addition, during the fiscal year ended June 30, 2003, employee education expense decreased $20,000 and  telephone costs decreased $33,000.  The decrease in telephone costs is attributable to a credit received for lines that had been disconnected but for which the telephone company had continued to bill the Savings Bank.  Also, during the previous fiscal year, data communications lines between the branches were upgraded with lower cost agreements.



12



Income Taxes.  Income tax expense for the fiscal year ended June 30, 2003 increased $284,000, or 29.0% to $1.3 million from $980,000 as income before taxes increased.



Net Interest Margin.  Net interest margin for the fiscal year ended June 30, 2003 was 3.37% compared to 3.16% for the fiscal year ended June 30, 2002.  The increase was the result of the reduction in the cost of customer deposits offset slightly by the reduction in the yield on loans and investments.





Comparison of Financial Condition at June 30, 2004 and June 30, 2003



General.  The continued low interest rate environment contributed to a $10.4 million decrease in net loans receivable and a $5.4 million decrease in mortgage-backed securities from June 30, 2003 to June 30, 2004.  First Home has had a long standing policy of not holding long-term fixed rate loans in its portfolio and, as a result, some customers have refinanced elsewhere to obtain a fixed rate.  Customer deposits during this period decreased $4.4 million.  These funds and the proceeds from the loan payoffs and mortgage-backed securities paydowns were held in cash until used to purchase investment securities.



Total Assets.  Total assets decreased $3.6 million, or 1.3% to $265.0 million during the year ended June 30, 2004 from $268.6 million.  The decrease was attributable to a $10.4 million decrease in net loans receivable and a $5.4 million decrease in mortgage-backed certificates.  Those two items were offset by a $8.1 million increase in cash, interest-bearing deposits and certificates of deposits purchased and $3.9 in investment securities.



Cash and Cash Equivalents.  Cash and cash equivalents was $32.8 million at June 30, 2004 compared to $23.3 million at June 30, 2003, an increase of $9.5 million, or 40.8%.  Additional deposits were held at the FHLB in interest-bearing accounts in order to avoid penalties on insufficient compensating balances and in interest bearing accounts at other financial institutions.



Certificates of Deposit.  Certificates of deposit purchased as investments decreased $1.4 million to $3.4 million at June 30, 2004 from $4.8 million at June 30, 2003.  The balance held in certificates of deposit purchased was reduced to place funds in interest bearing accounts at another financial institution.



Investment Securities.  Investment securities increased $3.9 million to $37.0 million at June 30, 2004 from $33.1 million at June 30, 2003.  Funds from loan and mortgage-backed securities paydowns were used to purchase additional investments.  There was also activity in the securities portfolio as most securities with call features had that right exercised and the funds were reinvested.



Mortgage-backed Securities.  Significant paydowns on mortgage-backed securities caused a $5.4 million decrease from $12.3 million at June 30, 2003 to $6.9 million at June 30, 2004.  Payments and maturities during this fiscal year were $7.7 million, or 51.7%, of the balance at June 30, 2003 plus fiscal year 2004 purchases.



Loans Receivable.  Net loans receivable decreased from $176.7 million at June 30, 2003 to $166.3 million at June 30, 2004  The $10.4 million, or 5.9%, decrease was the result of loan payments and payoffs exceeding loan originations.  The sustained low long-term rates caused some of the Savings Banks customers to seek long-term fixed rate products that First Home does not offer.



Nonaccrual Loans.Nonaccrual loans increased from $175,000 at June 30, 2003 to $1.8 million at June 30, 2004.  The balance of nonaccrual loans at June 30, 2004 consisted primarily of commercial loans to one borrower and related companies that have filed for protection under Chapter 11 bankruptcy .



13



Nonperforming Assets.   Nonperforming assets decreased $1.6 million from $4.8 million at June 30, 2003 to $3.2 million at June 30, 2004.  At June 30, 2004, First Home's ratio of nonperforming loans to total assets was 1.18%, a decrease from 1.78% at June 30, 2003.  However, the quality of the nonperforming loans slightly deteriorated during the current fiscal year as evidenced in Note (5) of the Notes to Consolidated Financial Statements.  Loans past 90 days due and still accruing interest and loans not accruing interest have increased $700,000 from $1.5 million at June 30, 2003 to $2.2 million at June 30, 2004.  In addition, impaired loans have increased from $1.5 million to $2.0 million at June 30, 2003 and 2004, respectively.



Customer Deposits and Borrowings.  Customer deposits decreased $4.4 million to $207.3 million at June 30, 2004 from $211.7 million at June 30, 2003.  Certificates of deposit decreased $6.0 million while interest-bearing checking increased $2.0 million.  There were no maturities of significant FHLB advances during this period which caused the balance to remain basically constant.



Stockholders Equity.  Stockholders equity was $27.3 million at June 30, 2004 compared to $26.4 million at June 30, 2003.  The $900,000 increase was the result of net income of $2.3 million and $243,000 from the exercise of stock options offset by $1.0 million used for the repurchase of treasury stock, a $434,000 change in the net unrealized losses on investment securities available-for-sale and $264,000 for the payment of dividends.  At June 30, 2004, shares of stock outstanding had been reduced to 1,627,819 from 1,632,627 shares outstanding at June 30, 2003 as the result of repurchases by the Company reduced by the exercise of employee stock options.





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 investments) 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.



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.  Average balances for a period have been calculated using the average monthly balances for the period.



14



|                                     | Years Ended June 30,  
|------------------------------------ | ----------------------
|                                     | 2004                  
|                                     |                       
|                                     |                       
|                                     |                       
|                                     | (Dollars in thousands)
|Interest-earning assets:             |                       
|Loans(1)                             |                       
|Mortgage-backed securities           |                       
|Investment securities                |                       
|Daily interest-bearing deposits      |                       
|Total interest-earning assets        |                       
|Non-interest earning assets          |                       
|Office properties and equipment, net |                       
|Real estate, net                     |                       
|Other non-interest earning assets    |                       
|Total assets                         |                       
|                                     |                       
|Interest-bearing liabilities:        |                       
|Passbook accounts                    |                       
|NOW and Super Saver accounts         |                       
|Certificates of deposit              |                       
|Total deposits                       |                       
|Other interest-bearing liabilities   |                       
|Total interest-bearing liabilities   |                       
|Non-interest bearing liabilities:    |                       
|Other liabilities                    |                       
|Total liabilities                    |                       
|Stockholders' equity                 |                       
|Total liabilities and                |                       
|stockholders' equity                 |                       
|Net interest income                  |                       
|Interest rate spread                 |                       
|Net interest margin                  |                       
|Ratio of average interest-earning    |                       
|assets to average interest-          |                       
|bearing liabilities                  |                       
|                                     |                       

__________________





(1)

Average balances include nonaccrual loans and loans 90 days or more past due. The corresponding interest up to the date of nonaccrual 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.



15



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, 
|---------------------------------------------- | --------------------- |  | ---------------------
|                                               | 2004 Compared to 2003 |  | 2003 Compared to 2002
|                                               | Increase/(Decrease)   |  | Increase/(Decrease)  
|                                               | Due to                |  | Due to               
|                                               |                       |  |                      
|                                               | Volume                |  | Rate                 
|                                               | (In thousands)       
|Interest-earning assets:                       |                       |  |                      
|Loans (1)                                      | $   (1,005)           |  | $  (781)             
|Mortgage-backed securities                     | 115                   |  | 21                   
|Investment securities                          | 231                   |  | (267)                
|Daily interest-earning deposits                | 36                    |  | (101)                
|Total net change in income on                  |                       |  |                      
|interest-earnings assets                       | (623)                 |  | (1,128)              
|                                               |                       |  |                      
|Interest-bearing liabilities:                  |                       |  |                      
|Interest-bearing deposits                      | 90                    |  | (1,439)              
|FHLB advances                                  | (25)                  |  | 3                    
|Total net change in expense on                 |                       |  |                      
|Interest-bearing deposits                      | 65                    |  | (1,436)              
|Net increase/(decrease) in net interest income | $   (688)             |  | $ 308                
|                                               |                       |  |                      







(1)  Includes interest on loans 90 days or more past due not on nonaccrual status.



Liquidity and Capital Resources



First Homes primary sources of funds are deposits, proceeds from principal and interest payments on loans, mortgage-backed securities, investment securities, net operating income and FHLB advances.  While maturities and scheduled amortization of loans and mortgage-backed securities are a 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 have remained strong at $43.7 million, $39.2 million and $41.5 million for the years ended June 30, 2004, 2003 and 2002, respectively.  Other investing activities include the purchase of investment securities, which totaled $26.3 million, $29.4 million and $31.6 million for the years ended June 30, 2004, 2003, and 2002, respectively, and the purchase of mortgage-backed securities, which totaled $2.6 million, $13.3 million and



16

$2.5 for the fiscal years ended June 30, 2004, 2003 and 2002, respectively.  These activities were funded primarily by principal repayments on loans, mortgage-backed securities, other investment securities, and deposit growth.



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 deposits, principal and interest payments from loans, mortgage-backed securities and investments, and FHLB advances.  During fiscal years 2004, 2003 and 2002, First Home used its sources of funds primarily to purchase investment securities and mortgage-backed securities, fund loan commitments and to pay maturing savings certificates and deposit withdrawals.  At June 30, 2004, First Home had approved loan commitments totaling $2.5 million and undisbursed loans in process totaling $2.3 million.



Liquid funds necessary for the normal daily operations of First Home are maintained in three working checking accounts and a daily time account with the FHLB - Des Moines.  It is the Savings Banks current policy to maintain adequate collected balances in those three 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 working checking accounts and transferred, when appropriate, to the daily time account, or used to purchase investments or reduce FHLB advances to enhance net interest income.



At June 30, 2004, certificates of deposit amounted to $104.5 million, or 50.4%, of First Homes total deposits, including $75.8 million which are scheduled to mature by June 30, 2005.  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 by savings deposits and FHLB advances and that it can adjust the offering rates of savings certificates to retain deposits in changing interest rate environments.



OTS regulations require First Home to maintain specific amounts of capital.  As of June 30, 2004, First Home was in compliance with all current regulatory capital requirements with tangible, core and risk-based capital ratios of 8.6%, 8.6% and 14.4%, respectively.  These ratios exceed the 1.5%, 4.0% and 8.0%, respectively, 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.  See Note 19 of the Notes to Consolidated Financial Statements.



Impact of New Accounting Standards



See Note 1 of the Notes to Consolidated Financial Statements.



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.



17







{On Kirkpatrick, Phillips & Miller, CPAs, PC letterhead}





REPORT OF INDEPENDENT REGISTERED

PUBLIC ACCOUNTING FIRM

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



To the Board of Directors and Stockholders

First Bancshares, Inc. and Subsidiaries

Mountain Grove, Missouri





We have audited the accompanying consolidated statements of financial condition of First Bancshares, Inc. and Subsidiaries as of June 30, 2004 and 2003, and the related consolidated statements of income, stockholders equity, and cash flows for each of the three years in the period ended June 30, 2004.  These consolidated financial statements are the responsibility of the Companys management.  Our responsibility is to express an opinion on these consolidated 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 these audits to obtain reasonable assurance about whether the financial statements are free from 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 statement 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, 2004 and 2003, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 2004, in conformity with U.S. generally accepted account principles.







/s/ Kirkpatrick, Phillips & Miller



August 9, 2004

Springfield, Missouri





|FIRST BANCSHARES, INC. AND SUBSIDIARIES                                                      
|---------------------------------------------------------------------------------------------
|                                                                                             
|CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION                                               
|- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
|June 30, 2004 and 2003                                                                       
|                                                                                             
|                                                                                             
|ASSETS                                                                                       
|                                                                                             
|Cash and cash equivalents, including interest-bearing accounts                               
|of $27,430,860 in 2004 and $18,157,688 in 2003                                               
|Certificates of deposit purchased                                                            
|Investment securities available-for-sale, at fair value                                      
|Investment securities held-to-maturity (estimated fair value of                              
|$28,635,456 in 2004 and $21,637,528 in 2003)                                                 
|Investment in Federal Home Loan Bank stock, at cost                                          
|Mortgage-backed certificates available-for-sale,                                             
|at fair value                                                                                
|Mortgage-backed certificates held-to-maturity (estimated fair                                
|value of $3,922,555 in 2004 and $9,682,492 in 2003)                                          
|Loans receivable held-for-investment, net                                                    
|Accrued interest receivable                                                                  
|Prepaid expenses                                                                             
|Property and equipment, less accumulated depreciation                                        
|and valuation reserve                                                                        
|Real estate owned                                                                            
|Intangible assets, less accumulated amortization                                             
|Deferred tax asset, net                                                                      
|Bank-owned life insurance                                                                    
|Other assets                                                                                 
|Total assets                                                                                 
|                                                                                             
|LIABILITIES AND STOCKHOLDERS' EQUITY                                                         
|                                                                                             
|Customer deposits                                                                            
|Advances from Federal Home Loan Bank                                                         
|Borrowings                                                                                   
|Income taxes payable                                                                         
|Deferred income taxes, net                                                                   
|Accrued expenses                                                                             
|Total liabilities                                                                            
|                                                                                             
|Commitments and contingencies                                                                
|                                                                                             
|Preferred stock, $.01 par value; 2,000,000 shares authorized,                                
|none issued                                                                                  
|Common stock, $.01 par value; 8,000,000 shares authorized,                                   
|issued 2,891,036 in 2004 and 2,845,176 in 2003, outstanding                                  
|1,627,819 in 2004 and 1,632,627 in 2003                                                      
|Paid-in capital                                                                              
|Retained earnings - substantially restricted                                                 
|Treasury stock, at cost - 1,263,217 shares in 2004 and                                       
|1,212,549 shares in 2003                                                                     
|Accumulated other comprehensive income                                                       
|Total stockholders' equity                                                                   
|Total liabilities and stockholders' equity                                                   
|                                                                                             
|The accompanying notes are an integral part of the                                           
|consolidated financial statements                                                            
|19                                                                                           





|FIRST BANCSHARES, INC. AND SUBSIDIARIES                              
|---------------------------------------------------------------------
|                                                                     
|CONSOLIDATED STATEMENTS OF INCOME                                    
|- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
|Years Ended June 30, 2004, 2003, and 2002                            
|                                                                     
|                                                                     
|Interest Income:                                                     
|Loans receivable                                                     
|Investment securities                                                
|Mortgage-backed and related securities                               
|Other interest-earning assets                                        
|Total interest income                                                
|                                                                     
|Interest Expense:                                                    
|Customer deposits                                                    
|Borrowed funds                                                       
|Total interest expense                                               
|                                                                     
|Net interest income                                                  
|                                                                     
|Provision for Loan Losses                                            
|                                                                     
|Net interest income after                                            
|provision for loan losses                                            
|                                                                     
|Noninterest Income:                                                  
|Service charges and other fee income                                 
|Gain on sale of investments                                          
|Gain/(loss) on sale of property and equipment                        
|and real estate owned                                                
|Income from bank-owned life insurance                                
|Income from real estate operations                                   
|Insurance commissions                                                
|Other                                                                
|Total noninterest income                                             
|                                                                     
|Noninterest Expense:                                                 
|Compensation and employee benefits                                   
|Occupancy and equipment                                              
|Professional fees                                                    
|Deposit insurance premiums                                           
|Other                                                                
|Total noninterest expense                                            
|                                                                     
|Income before taxes                                                  
|                                                                     
|Income Taxes                                                         
|                                                                     
|Net income                                                           
|                                                                     
|Basic earnings per share                                             
|                                                                     
|Diluted earnings per share                                           
|                                                                     
|The accompanying notes are an integral part of the                   
|consolidated financial statements                                    
|20                                                                   





|FIRST BANCSHARES, INC. AND SUBSIDIARIES                                      
|-----------------------------------------------------------------------------
|                                                                             
|CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY                              
|- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
|Years Ended June 30, 2004, 2003 and 2002                                     
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|Balances at June 30, 2001                                                    
|Comprehensive Income:                                                        
|Net Income                                                                   
|Other comprehensive income, net of tax:                                      
|Change in unrealized gain(loss) on                                           
|securities available-for-sale, net of deferred                               
|income taxes of $48,090                                                      
|Total Comprehensive Income                                                   
|Proceeds from exercise of stock options                                      
|Cash dividends ($.16 per share)                                              
|Purchase of treasury stock at cost                                           
|Release of ESOP shares                                                       
|Balances at June 30, 2002                                                    
|Comprehensive Income:                                                        
|Net Income                                                                   
|Other comprehensive income, net of tax:                                      
|Change in unrealized gain(loss) on                                           
|securities available-for-sale, net of deferred                               
|income taxes of $110,787                                                     
|Less:  reclassification adjustment, net of                                   
|deferred income taxes of $(9,937)                                            
|Total Comprehensive Income                                                   
|Proceeds from exercise of stock options                                      
|Tax benefit from stock options exercised                                     
|Cash dividends ($.16 per share)                                              
|Purchase of treasury stock at cost                                           
|Balances at June 30, 2003                                                    
|Comprehensive Income:                                                        
|Net Income                                                                   
|Other comprehensive income, net of tax:                                      
|Change in unrealized gain(loss) on                                           
|securities available-for-sale, net of deferred                               
|income taxes of $(188,904)                                                   
|Less:  reclassification adjustment, net of                                   
|deferred income taxes of $(65,925)                                           
|Total Comprehensive Income                                                   
|Proceeds from exercise of stock options                                      
|Tax benefit from stock options exercised                                     
|Cash dividends ($.16 per share)                                              
|Purchase of treasury stock at cost                                           
|Balances at June 30, 2004                                                    



The accompanying notes are an integral part of the consolidated financial statements.

21



|FIRST BANCSHARES, INC. AND SUBSIDIARIES                                      
|-----------------------------------------------------------------------------
|                                                                             
|CONSOLIDATED STATEMENTS OF CASH FLOWS                                        
|- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
|Years Ended June 30, 2004, 2003 and 2002                                     
|                                                                             
|                                                                             
|Cash flows from operating activities:                                        
|Net income                                                                   
|Adjustments to reconcile net income to net                                   
|cash provided by operating activities:                                       
|Depreciation                                                                 
|Amortization                                                                 
|Premiums and discounts on mortgage-backed                                    
|securities and investment securities                                         
|Gain on sale of investment securities                                        
|Loss on loans, net of recoveries                                             
|Gain on sale of property and equipment                                       
|Loss on sale of real estate owned                                            
|Increase in cash surrender value on bank-owned                               
|life insurance                                                               
|Release of ESOP shares                                                       
|Net change in operating accounts:                                            
|Accrued interest receivable and other assets                                 
|Deferred loan costs                                                          
|Accrued expenses                                                             
|Deferred income taxes                                                        
|Income taxes payable - current                                               
|Net cash from operating activities                                           
|                                                                             
|Cash flows from investing activities:                                        
|Purchase of investment securities available-for-sale                         
|Purchase of investment securities held-to-maturity                           
|Purchase of Federal Home Loan Bank stock                                     
|Proceeds from sale of investment securities                                  
|available-for-sale                                                           
|Proceeds from maturities of investment securities                            
|available-for-sale                                                           
|Proceeds from maturities of investment securities                            
|held-to-maturity                                                             
|Net change in certificates of deposit                                        
|Net change in loans receivable                                               
|Purchase of mortgage-backed certificates available-for-sale                  
|Purchase of mortgage-backed certificates held-to-maturity                    
|Proceeds from principal payments and maturities                              
|of mortgage-backed certificates available-for-sale                           
|Proceeds from principal payments and maturities                              
|of mortgage-backed certificates held-to-maturity                             
|Purchases of property and equipment                                          
|Proceeds from sale of property and equipment                                 
|Purchase of bank owned life insurance                                        
|Net proceeds from sale of real estate owned                                  
|Net cash from (used in) investing activities                                 
|                                                                             
|22                                                                           



|FIRST BANCSHARES, INC. AND SUBSIDIARIES                                      
|-----------------------------------------------------------------------------
|                                                                             
|CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)                            
|- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
|Years Ended June 30, 2004, 2003 and 2002                                     
|                                                                             
|                                                                             
|Cash flows from financing activities:                                        
|Net change in demand deposits, savings accounts,                             
|and certificates of deposit                                                  
|Payments on borrowed funds                                                   
|Proceeds from borrowed funds                                                 
|Proceeds from issuance of common stock                                       
|Cash dividends paid                                                          
|Purchase of treasury stock                                                   
|Net cash from (used in) financing activities                                 
|                                                                             
|Net increase in cash and cash equivalents                                    
|                                                                             
|Cash and cash equivalents -                                                  
|beginning of period                                                          
|Cash and cash equivalents -                                                  
|end of period                                                                
|                                                                             
|                                                                             
|Supplemental disclosures of cash flow information:                           
|                                                                             
|Cash paid during the year for:                                               
|Interest on deposits and                                                     
|other borrowings                                                             
|Income taxes                                                                 
|                                                                             
|                                                                             
|Supplemental schedule of non-cash investing and                              
|financing activities:                                                        
|Loans and other real estate                                                  
|charged off to reserve                                                       
|Loans transferred to real estate                                             
|acquired in settlement of loans                                              
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|The accompanying notes are an integral part of the                           
|consolidated financial statements                                            
|23                                                                           





FIRST BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

-

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

-

Years Ended June 30, 2004, 2003 and 2002



(1)        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES



Nature of business  First Bancshares, Inc., a Missouri corporation, was organized on September 30, 1993 for the purpose of becoming a unitary savings and loan holding company for First Home 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 agencies and undergo periodic examinations by those regulatory authorities.



Principles of consolidation  The accompanying consolidated financial statements include the accounts of First Bancshares, Inc. and its wholly-owned subsidiaries, the Savings Bank and South Central Missouri Title, Inc., and Fybar Service Corporation and First Home Investments, Inc, wholly-owned subsidiaries of the Savings Bank.  In consolidation, all significant intercompany balances and transactions have been eliminated.



Use of estimates  Management uses estimates and assumptions in preparing these financial statements in accordance with accounting principles generally accepted in the United States of America.  Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses.  Actual results could vary from the estimates that were used.



Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for loan losses and the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans.



While management uses available information to recognize losses on loans and foreclosed real estate, future additions to the allowances may be necessary based on changes in local economic conditions.  In addition, regulatory agencies, as an integral part of their examination process, periodically review the Savings Banks allowances for loan losses and foreclosed real estate.  Such agencies may require the Savings Bank to recognize additions to the allowances based on their judgments about information available to them at the time of their examination.



Consolidated 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 which are unrestricted as to withdrawal or use.  Cash equivalents include highly-liquid instruments with an original maturity of three months or less.



24





FIRST BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

-

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

-

Years Ended June 30, 2004, 2003 and 2002





(1)        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)



Investment securities and mortgage-backed certificates  Securities are classified in accordance with Statement of Financial Accounting Standards (SFAS) No. 115, Accounting for Certain Investments in Debt and Equity Securities, which establishes three classifications of investment securities:  held-to-maturity, trading and available-for-sale.  Trading securities are acquired principally for the purpose of near term sales.  Such securities are reported at fair value and unrealized gains and losses are included in income.  At June 30, 2004 and 2003, the Company had no securities designated as trading securities.  Securities which are designated as held-to-maturity are designated as such because the investor 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 investor 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.  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.



Loans receivable  Loans receivable are stated at their principal amount outstanding, net of deferred loan origination and commitment fees and certain direct costs, which are recognized over the contractual life of the loan as an adjustment of the loans yield.  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 120 days or more.   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.  Loans not secured by real estate are then charged against the Savings Banks allowance for loan losses.  Loans secured by real estate that become 180 days or more past due that have not been foreclosed upon are then charged against the Savings Banks allowance for loan losses.   Cash collections subsequently received are applied against outstanding principal until the loan is considered fully collectible, after which cash collections are recognized as interest income.



The Company reports the change in present value of the expected future cash flows related to impaired loans as an increase or decrease in bad debt expense.



25



FIRST BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

-

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

-

Years Ended June 30, 2004, 2003 and 2002



(1)        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)



Property and equipment and related depreciation  Property and equipment has been stated at cost except as discussed in Note (7).  Depreciation has been principally computed by applying the following methods and estimated lives:



Category                     Estimated Life                         Method

Automobiles                                                  5 Years                    Straight-line

Office furniture, fixtures

and equipment                                        3-10 Years                    Straight-line

Buildings                                                 15-40 Years                    Straight-line

Investment real estate                              15-40 Years                    Straight-line



Maintenance and repairs are charged to expense.  Improvements which extend the lives of the respective assets are capitalized.  When property or equipment is sold or otherwise disposed of, the cost and related accumulated depreciation are removed from the respective accounts and the resulting gain or loss is reflected in income.



Intangible assets  An intangible asset was recorded by the Savings Bank in connection with the acquisition of two branches from NationsBank. The intangible asset relates to customer relationships that were acquired.  The premium paid by the Savings Bank for the branches is being amortized on a straight-line basis over 15 years.



Income taxes  The Company files a consolidated federal income tax return with its wholly-owned subsidiaries.  The income tax effect of timing differences in reporting transactions for financial reporting and income tax purposes is reflected in the consolidated financial statements as deferred income taxes.



Income taxes are accounted for under the asset and liability method in accordance with SFAS No. 109, Accounting for Income Taxes.  Under this method, deferred income taxes are recognized for temporary differences by applying enacted statutory rates applicable to future years to differences between the financial statement carrying amounts and the tax basis of existing assets and liabilities.  The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date.



26



FIRST BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

-

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

-

Years Ended June 30, 2004, 2003 and 2002



(1)        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)





Allowance 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 uncollectibility of a loan balance is confirmed.  Subsequent recoveries, if any, are credited to the allowance.



Loans are charged against the allowance at the time management has the information to consider it a loss or the loan is 120 days or more past due and not adequately collateralized with real estate.  If the loan is adequately secured by the real estate and becomes 180 days or more past due it is then charged against the allowance.  Subsequent recoveries, if any, are credited to the allowance.



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



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.



Real estate owned  Real estate acquired in the settlement of loans, including in-substance foreclosures, is recorded at the lower of the remaining balance or estimated fair value less the estimated costs to sell the asset.  Any write down at the time of foreclosure is charged against the allowance for loan losses.  Subsequently, net expenses related to holding the property and declines in the market value are charged against income.



27



FIRST BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

-

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

-

Years Ended June 30, 2004, 2003 and 2002



(1)        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)



Loan origination fees and costs  Loan origination fees and costs are recorded in accordance with SFAS No. 91, Accounting for Nonrefundable Fees and Costs Associated with Originating or Acquiring Loans and Initial Direct Costs of Leases.  Under SFAS No. 91, 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 or sold, the unamortized balance of these deferred fees and costs is recognized in income.



Real estate held for investment  Real estate properties held for investment are carried at the lower of cost, including cost of improvements incurred subsequent to acquisition, or net realizable value.  Costs relating to the development and improvement of property are capitalized, whereas costs relating to the holding of the property are expensed.



Advertising costs  The Company expenses non-direct response advertising costs as they are incurred.



Earnings per share  Basic earnings per share excludes dilution and 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 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.



Comprehensive 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.



Employee stock options  During the years ended June 30, 2004, 2003 and 2002, respectively, the Company had a stock-based employee compensation plan, which is described more fully in Note 13, Employee Benefit Plans.  The Company accounted for the plan under the recognition and measurement provisions of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations.



New accounting standards - In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities.  This Statement amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities under SFAS No. 133.  This Statement is effective for contracts entered into or modified after June 30, 2003.  The adoption of this Statement did not have a material impact on the Company.



28



FIRST BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

-

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

-

Years Ended June 30, 2004, 2003 and 2002



(1)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.    This Statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity.   The provisions of this Statement are effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003.  The adoption of this Statement did not have a material impact on the Company.



In January 2003, the FASB issued FASB Interpretation No. 46,Consolidation of Variable Interest Entities.  This Interpretation of ARB No. 51, Consolidated Financial Statements,addresses consolidation by business enterprises of variable interest entities.  Interpretation No. 46 amends ARB No. 51 and establishes standards for determining under what circumstances a so-called variable interest entity should be consolidated with its primary beneficiary, including those to which the usual condition for consolidation does not apply.  This Interpretation was effective immediately for variable interest entities created after January 31, 2003, and to variable interest entities in which an enterprise obtains an interest after that date.  It applies in the first fiscal year or interim period ending after December 15, 2003, to variable interest entities in which an enterprise holds a variable interest that it acquired before February 1, 2003.  The adoption of this Interpretation did not have a material impact on the Company.  In December 2003, the FASB issued FASB Interpretations No. 46 (Revised December 2003) Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51 (FIN 46R).  FIN 46R is an update of FIN 46 and contains different implementation dates based on the types of entities subject to the standard and based on whether a company has adopted FIN 46.  The Company does not expect FIN 46R will have a material impact on the Companys results of operations or financial condition.



In December 2003, the Financial Accounting Standards Board issued a revision of Statement No. 132, Employers Disclosures about Pensions and Other Postretirement Benefit.  The revised Statement does not change the measurement or recognition of pension and other postretirement benefit plans.  It retains the disclosure requirements of the original Statement and requires additional disclosure about the assets, obligations, cash flows, and net periodic benefit cost of defined benefit pensions plans and other defined benefit postretirement plans.  All disclosures required by the Statement are included in Note 13, Employee Benefit Plans.



Reclassifications  Certain accounts in the prior-years consolidated financial statements have been reclassified for comparative purposes to conform to the presentation in the current-year consolidated financial statements.



29



FIRST BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

-

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

-

Years Ended June 30, 2004, 2003 and 2002



(2)        INVESTMENT SECURITIES



As discussed in Note (1), the Company has designated certain securities as available-for-sale.

A summary of the investment securities available-for-sale at June 30, 2004 is as follows:



Estimated

Amortized       Gross Unrealized           Fair

Cost   Gains   Losses   Value

United States Government and

Federal Agencies obligations     $   5,510,957   $    17,324   $    85,698   $      5,442,583

Obligations of states and

political subdivisions                         130,000                 -              2,058             127,942

Mutual funds                                          27,306                 -                 -                   27,306

Corporate senior notes                         150,000                 -              5,250             144,750

Common and preferred stocks  2,527,260   25,000        120,260     2,432,000

Total                                          $    8,345,523   $    42,324   $  213,266   $      8,174,581



A summary of investment securities held-to-maturity at June 30, 2004 is as follows:



Estimated

Amortized       Gross Unrealized           Fair

Cost   Gains   Losses   Value

United States Government and

Federal Agencies obligations   $    26,258,431   $      4,312   $ 213,356   $    26,049,387

Obligations of states and

political subdivisions                  2,557,381   34,365  5,677   2,586,069

Total                                          $    28,815,812   $   38,677   $  219,033   $  28,635,456



The amortized cost and estimated market value of debt securities at June 30, 2004, 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 Sale

Amortized            Estimated

Cost      Fair Value

Due in one year or less                                               $            -        $                 -

Due after one year through five years                            5,140,957             5,067,947

Due after five years through ten years                              500,000                502,578

Due after ten years                                                    -      -

Total                                                                        $   5,640,957      $     5,570,525



Held to Maturity

Amortized            Estimated

Cost      Fair Value

Due in one year or less                                               $    4,546,110      $    4,537,645

Due after one year through five years                            14,881,742          14,822,106

Due after five years through ten years                              8,387,960            8,305,075

Due after ten years                                                    1,000,000     970,630

Total                                                                        $    28,815,812     $   28,635,456



30



FIRST BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

-

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

-

Years Ended June 30, 2004, 2003 and 2002





(2)        INVESTMENT SECURITIES (CONTINUED)



A summary of the investment securities available-for-sale at June 30, 2003 is as follows:



Estimated

Amortized       Gross Unrealized           Fair

Cost   Gains   Losses   Value

United States Government and

Federal Agencies obligations       $   7,505,232   $  178,583   $          -     $      7,683,815

Corporate bonds                                     607,500         28,096               -               635,596

Mutual funds                                            28,182               -                   -                 28,182

Corporate senior notes                           250,000            4,500               -               254,500

Common and preferred stocks          2,814,203        243,494             -        3,057,697

Total                                          $    11,205,117   $  454,673   $          -   $   11,659,790



A summary of investment securities held-to-maturity at June 30, 2003 is as follows:

Estimated

Amortized       Gross Unrealized           Fair

Cost   Gains   Losses   Value

United States Government and

Federal Agencies obligations     $   16,755,964   $  125,301   $          -   $    16,881,265

Obligations of states and

political subdivisions                    4,658,418   98,360   515   4,756,263

Total                                          $     21,414,382  $  223,661   $        515   $   21,637,528



The following table presents the fair value and associated unrealized losses, aggregated by debt investment category and length of time the individual securities have been in a continuous unrealized loss position, at June 30, 2004.



|                                                          |                     |                   |                   |                   |             |                  
|--------------------------------------------------------- | ------------------- | ----------------- | ----------------- | ----------------- | ----------- | -----------------
|                                                          | Less Than 12 Months |                   | 12 Months or More |                   | Total       |                  
|                                                          | Fair Value          | Unrealized Losses | Fair Value        | Unrealized Losses | Fair Value  | Unrealized Losses
|United States Government and Federal Agencies obligations | $  27,472,985       | $   299,054       | $              -  | $            -    | $27,472,985 | $   299,054      
|Obligations of states and political subdivisions          | 1,052,787           | 7,735             | -                 | -                 | 1,052,787   | 7,735            
|Federal agency mortgage backed securities                 | 4,142,944           | 84,723            | 1,699,229         | 173,012           | 5,842,173   | 257,735          
|Corporate senior notes                                    | 144,750             | 5,250             | -                 | -                 | 144,750     | 5,250            
|Subtotal, debt securities                                 | 32,813,466          | 396,762           | 1,699,229         | 173,012           | 34,512,695  | 569,774          
|Common and preferred stocks                               | 1,949,000           | 120,260           | -                 | -                 | 1,949,000   | 120,260          
|Total temporarily                                         |                     |                   |                   |                   |             |                  
|impaired securities                                       | $  34,762,466       | $  517,022        | $  1,699,229      | $  173,012        | $36,461,695 | $  690,034       
|                                                          |                     |                   |                   |                   |             |                  



31



FIRST BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

-

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

-

Years Ended June 30, 2004, 2003 and 2002



(2)        INVESTMENT SECURITIES (CONTINUED)



The unrealized losses associated with the Companys debt securities are not considered to be other-than-temporarily impaired because their unrealized losses are related to changes in interest rates and do not affect the expected cash flows of the underlying collateral or issuer.  Because the Company has the ability and intent to hold these investments until a recovery of fair value, which may be maturity, the Company does not consider these investments to be other-than-temporarily impaired at June 30, 2004.



The Companys investments in common and preferred stocks consist primarily of two stocks ($1,946,000 of the total fair value and $123,260 of the total unrealized losses).  The Company evaluated the near-term prospects of the issuer in relation to the severity and duration of the impairment.  Based on that evaluation and the Companys ability and intent to hold these investments for a reasonable period of time sufficient for a forecasted recovery of fair value, the Company does not consider these investments to be other-than-temporarily impaired at June 30, 2004.



The following table presents proceeds from sales of securities and the components of the net securities gains.

June 30,

2004         2003

Proceeds from sales                                                   $      1,172,619         $     519,357



Realized gains                                                            $        187,925         $       26,857

Realized losses                                                           9,749         -

Net realized gains                                                    $        178,176         $       26,857



The Savings Bank did not sell any securities in 2002.



The book value of securities pledged as collateral, to secure public deposits was $427,708 at June 30, 2004 and $397,853 at June 30, 2003.  The approximate fair value of pledged securities was $435,500 at June 30, 2004 and $415,689 at June 30, 2003.



(3)        INVESTMENT IN FEDERAL HOME LOAN BANK STOCK



Investment in stock of the Federal Home Loan Bank is required by law of every federally-insured savings institution.  The Savings Bank is in compliance with this requirement with an investment in Federal Home Loan Bank of Des Moines stock of $1,904,300 at June 30, 2004.  No ready market exists for this stock and it has no quoted market value.  However, redemption of this stock historically has been at par value.





32



FIRST BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

-

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

-

Years Ended June 30, 2004, 2003 and 2002



(4)        MORTGAGE-BACKED SECURITIES



The amortized cost and estimated market values of mortgage-backed securities available-for-sale as of  June 30, 2004 are summarized below:

Estimated

Amortized       Gross Unrealized           Fair

Cost   Gains   Losses   Value

FHLMC certificates                  $           476,130   $        444   $      3,892   $        472,682

FNMA certificates                              1,041,458          2,447         13,338          1,030,567

GNMA certificates                    1,302,711   1,416   30,661   1,273,466

Total                                       $         2,820,299   $     4,307   $    47,891   $     2,776,715



The amortized cost and estimated market values of mortgage-backed securities held-to-maturity at June 30, 2004 is as follows:

Estimated

Amortized       Gross Unrealized           Fair

Cost   Gains   Losses   Value



FHLMC certificates               $         2,664,104   $        341   $  146,530   $      2,517,915

FNMA certificates                             1,242,708          1,890         63,314          1,181,284

GNMA certificates                  222,754   602   -   223,356

Total                                    $         4,129,566   $      2,833   $  209,844   $    3,922,555



The amortized cost and estimated market values of mortgage-backed securities available-for-sale as of  June 30, 2003 are summarized below:

Estimated

Amortized       Gross Unrealized           Fair

Cost   Gains   Losses   Value

FHLMC certificates               $         1,297,692   $      6,884   $        948   $ 1,303,628

FNMA certificates                            1,282,373           7,203          1,709       1,287,867

GNMA certificates                 18,923   2,687   -   21,610

Total                                     $         2,598,988   $    16,774   $      2,657   $  2,613,105



The amortized cost and estimated market values of mortgage-backed securities held-to-maturity at June 30, 2003 is as follows:

Estimated

Amortized       Gross Unrealized           Fair

Cost   Gains   Losses   Value

FHLMC certificates                  $     4,955,682   $    24,906   $    19,080   $      4,961,508

FNMA certificates                            1,910,727         15,429          2,195            1,923,961

GNMA certificates                  2,798,080   4,356   5,413   2,797,023

Total                                       $      9,664,489   $    44,691   $    26,688   $      9,682,492



33



FIRST BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

-

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

-

Years Ended June 30, 2004, 2003 and 2002



(5)        LOANS RECEIVABLE HELD-FOR-INVESTMENT



Loans receivable at June 30 consist of the following:



2004      2003

Residential real estate                                                 $    95,338,510      $  103,750,804

Commercial real estate                                                     40,195,511            41,158,035

Land                                                                                    9,018,858             9,891,765

Loans to depositors, secured by savings accounts              1,900,083             1,812,851

Consumer and automobile loans                                        8,743,077             9,397,378

Second mortgage loans                                                       3,881,863             4,678,652

Commercial loans                                                             10,334,315             9,165,022

Overdrafts                                                                    185,781      129,339

Total gross loans                                                           169,597,998          179,983,846

Reserve for loan losses                                                      (1,239,618)           (1,144,158)

Loans in process                                                                (2,323,626)           (2,373,139)

Unamortized deferred loan costs, net

of origination fees                                                     224,279      240,216

Net loans receivable held-for-investment                  $  166,259,033      $  176,706,765



Activity in the allowance for loan losses is summarized as follows for the years ended June 30:



2004      2003

Balance at beginning of year                                       $      1,144,158      $        884,402

Provision charged to income                                                  339,510                427,087

Charge-offs                                                                           (346,207)             (227,772)

Recoveries                                                                    102,157      60,441

Balance at end of year                                               $      1,239,618      $      1,144,158



The Savings Bank primarily grants loans to customers throughout southern Missouri.  The loans are typically secured by real estate or personal property.



Loans receivable at June 30, 2004 and 2003 that are interest-bearing and past 90 days due or are not accruing interest consist of the following:



2004      2003

Interest-bearing                                                          $        403,027      $      1,324,013

Nonaccrual                                                                1,811,719      175,625

$      2,214,746      $      1,499,638



The following is a summary of information pertaining to impaired loans:



June 30,

2004      2003

Total impaired loans                                                       $      1,970,421      $   1,544,179



Valuation allowance related to impaired loans                  $ 398,546         $        400,000



34



FIRST BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

-

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

-

Years Ended June 30, 2004, 2003 and 2002



(5)        LOANS RECEIVABLE HELD-FOR-INVESTMENT (CONTINUED)



Years Ended June 30,

2004      2003      2002

Average investment in

impaired loans                              $ 2,008,873    $      1,548,638      $            1,093,078



Interest income recognized

on impaired loans                        $       27,229      $        114,248      $          97,671



Interest income recognized on

a cash basis on impaired loans    $       30,221      $        126,767      $          74,000



The Savings Bank has issued unsecured letters of credit totaling $1,335,000 for a customer with $1,594,051 in impaired loans.  There were no impaired loans without a valuation allowance as of June 30, 2004 and 2003.



(6)        ACCRUED INTEREST RECEIVABLE



Accrued interest receivable at June 30 is summarized as follows:



2004      2003

Investment securities                                                  $        180,649      $        227,718

Mortgage-backed securities                                                    26,278                  52,233

Loans receivable                                                        1,374,997      1,421,415

Total                                                                        $      1,581,924      $      1,701,366



(7)        PROPERTY AND EQUIPMENT



Property and equipment at June 30 consists of the following:



2004

Accum.        Valuation

Category               Cost   Deprec.   Reserve   Net

Land                                           $     642,704   $             -     $             -     $     642,704

Buildings                                        5,564,753     1,568,936                  -         3,995,817

Office furniture, fixtures

and equipment                              2,880,044     1,706,288                  -         1,173,756

Automobiles                                       170,352        123,254                  -             47,098

Investment real estate                 3,309,531  493,677   271,147   2,544,707

Total                                        $ 12,567,384   $ 3,892,155   $    271,147   $ 8,404,082



35



FIRST BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

-

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

-

Years Ended June 30, 2004, 2003 and 2002



(7)        PROPERTY AND EQUIPMENT (CONTINUED)



2003

Accum.        Valuation

Category               Cost   Deprec.   Reserve   Net

Land                                            $     642,704   $             -     $             -     $     642,704

Buildings                                         5,514,048     1,394,543                  -         4,119,505

Office furniture, fixtures

and equipment                               2,688,383     1,400,378                  -         1,288,005

Automobiles                                        190,900        120,087          -                      70,813

Investment real estate                  2,901,804  410,516   271,147  2,220,141

Total                                      $ 11,937,839   $ 3,325,524   $     271,147   $8,341,168



Depreciation charges to operations for the years ended June 30, 2004, 2003 and 2002 were $662,040, $605,148, and $514,269, respectively.  The depreciation policies followed by the Company are described in Note (1).



A valuation reserve was established in a prior year for certain investment real estate to adjust the property to its net realizable value.



(8)        INTANGIBLE ASSET



A summary of the intangible asset at June 30 is as follows:



2004      2003

Premium on branch acquisition                                    $      1,020,216      $      1,020,216

Accumulated amortization                                           (539,446)     (471,442)

Net premium on branch acquisition                            $        480,770      $        548,774



Amortization expense relating to this premium was $68,004 in 2004, $65,502 in 2003 and $35,000 in 2002.



Estimated amortization expense is as follows for the years ending June 30:



2005                                         $          50,115

2006                                                     50,115

2007                                                     50,115

2008                                                     50,115

2009                                                     50,115

After                                        230,195

$        480,770



36



FIRST BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

-

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

-

Years Ended June 30, 2004, 2003 and 2002



(9)        CUSTOMER DEPOSITS



A summary of deposit accounts at June 30 is as follows:



2004   2003

Amount  %   Amount  %

Noninterest-bearing checking                $      9,961,669       4.8 %   $    8,886,917     4.2%

Interest-bearing checking                            37,190,834      18.0           35,203,795    16.6

Super Saver money market                          38,845,175     18.7           40,724,686     19.3

Savings                                                         16,751,418       8.1           16,331,491       7.7

Certificates of Deposit                           104,497,436  50.4     110,516,947  52.2

Total                                                  $  207,246,532  100.0 % $  211,663,836 100.0%



The aggregate amount of jumbo certificates of deposit with a minimum denomination of $100,000 was $30,409,979 and $29,804,558 at June 30, 2004 and 2003, respectively.



At June 30, 2004, scheduled maturities of certificates of deposit are as follows:



2005                                         $       75,809,421

2006                                                  14,439,166

2007                                                   6,189,720

2008                                                   7,012,942

2009                                         1,046,187

2010                                         -

$     104,497,436



(10)      ADVANCES FROM FEDERAL HOME LOAN BANK



The advances listed below were obtained from the Federal Home Loan Bank of Des Moines (FHLB).  The advances are secured by FHLB stock and one-to-four family mortgage loans.  The FHLB requires the Savings Bank to maintain collateral equal to outstanding balances of advances.  For collateral purposes, the FHLB values one-to-four family mortgage loans at 70% of their fair value.  Advances from the FHLB at June 30 are summarized as follows:



Weighted                         Weighted

Average                           Average

2004   Rate   2003   Rate

Term Advances:



Long-term; fixed-rate; noncallable   $             -           -   %      $     166,667       6.61%



Long-term; fixed-rate; callable         28,000,000         5.48          28,000,000       5.48



Amortizing Advances:



Long-term; fixed-rate; noncallable   1,120,741         7.48        1,185,343       7.48



Total                                                $29,120,741         5.55        $29,352,010      5.56



37



FIRST BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

-

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

-

Years Ended June 30, 2004, 2003 and 2002



(10)      ADVANCES FROM FEDERAL HOME LOAN BANK (CONTINUED)



At June 30, 2004 the $28,000,000 of callable advances are callable quarterly.  In the table below, these advances are shown as maturing on their maturity date instead of their call date because at the interest rates prevailing as of June 30, 2004 it would be to the FHLBs advantage not to call these advances.



As of June 30, 2004 the fixed-rate term advances shown above shall be 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:



Aggregate

Annual

Year Ended June 30                           Maturities

2005                                        $             69,599

2006                                                       74,983

2007                                                       80,784

2008                                                       87,035

2009                                                       93,769

Later years                                   28,714,571

$       29,120,741





Interest expense on borrowed funds for the years ended June 30 is summarized below:



2004   2003   2002

Advances from FHLB                                 $      1,650,104   $      1,668,258   $      1,799,595

Other borrowings      1,600             5,723             955

Total                                                    $      1,651,704   $      1,673,981   $      1,800,550



(11)      BORROWINGS



Borrowings consist of the following:



2004   2003

Prime minus .5%; Midwest Independent

Bank; $1,000,000 line of credit; secured

by Bank stock; interest payable

semi-annually; due on demand or March, 2005             $        450,000   $               -



At June 30, 2004, the Savings Bank had irrevocable letters of credit issued on its behalf from the FHLB Home Loan Bank of Des Moines totaling $12,315,000.  The letters of credit expire in August 2004.



38



FIRST BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

-

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

-

Years Ended June 30, 2004, 2003 and 2002



(12)      INCOME TAXES



The provision for income tax expense for the years ended June 30 is as follows:



2004   2003   2002

Current                                                   $      1,045,444   $      1,374,944   $      1,000,343

Deferred                                                  19,739   (110,691)  (20,622)

Total                                                     $      1,065,183   $      1,264,253   $        979,721



The provision for income taxes differs from that computed at the statutory corporate rate, 34%, for the years ended June 30 as follows:



2004   2003   2002

Tax at statutory rate                                $      1,160,210   $      1,192,948   $        897,114

Increase (decrease) in taxes resulting from:

State taxes, net of federal benefit                     61,605             102,338               81,722

Tax-exempt income                                         (37,061)            (31,858)            (24,098)

Employee benefit plans                                              -                         -                2,296

Bank-owned life insurance                               (89,337)                     -                     -

Net effect of other book/tax differences(30,234)  825   22,687

Provision for income taxes                       $      1,065,183   $    1,264,253   $        979,721



Deferred income tax expense results from timing differences in the recognition of income and expense for tax and financial reporting purposes.  The sources of the differences and the related tax effects for the years ended June 30 were as follows:



2004   2003   2002

Difference in depreciation methods used

for tax purposes and financial statements  $     93,324   $          73,756   $        543,431

Effect of health insurance plan reserves

not currently deductible                                     (2,794)            (31,791)            (28,498)

Use of different methods for computing

loan loss reserves for tax purposes and

financial statements                                          (43,690)          (114,273)            (85,076)

Effect of accrued employee absences not

currently deductible                                            (4,440)              (7,400)            (18,500)

Use of different methods for computing net

deferred loan costs/fees for tax purposes

and financial statements                                      (9,193)             (15,215)          (14,203)

Other book/tax differences                       (13,468)  (15,768)  72,224

Increase (decrease) in deferred income taxes  $   19,739   $       (110,691)  $      (20,622)



39



FIRST BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

-

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

-

Years Ended June 30, 2004, 2003 and 2002



(12)      INCOME TAXES (CONTINUED)



The components of deferred tax assets and liabilities as of June 30, 2004 and 2003 consisted of:



2004   2003

Deferred tax assets:

Reserve for loan losses                                                        $     451,222   $     418,393

Valuation reserve on investment real estate                                 92,190            92,190

Unrealized losses on securities available-for-sale                      105,878                985

Health insurance plan reserves not currently deductible              67,792            64,998

Book amortization in excess of tax amortization                          41,019            41,023

Compensated employee absences                                                 56,240            51,800

Other                                                                                      4,568                   -

Total gross deferred tax benefits                                        818,909   669,389



Deferred tax liabilities:

Tax depreciation in excess of book depreciation                          536,596          443,272

FHLB stock dividends                                                                     60,936           60,936

Bad debt reserves for tax purposes in excess of base

year bad debt reserve                                                                            -             10,861

Unrealized gains on securities available-for-sale                            26,504        169,972   Unamortized deferred loan costs, net of fees                                                     92,719        101,912

Other                                                                                        -   9,953

Total gross deferred tax liabilities                                        716,755   796,906

Net deferred tax assets/(liabilities)                                    $     102,154   $ (127,517)



In accordance with SFAS No. 109, a deferred tax liability has not been recognized for tax basis bad debt reserves of approximately $2,190,825 of the Savings Bank that arose in tax years that began prior to December 31, 1987.  At June 30, 2004 the amount of the deferred tax liability that had not been recognized was approximately $810,605.  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.  In August 1996, new legislation was enacted which provided for the recapture into taxable income of certain amounts previously deducted as additions to the bad debt reserves for income tax purposes.  The Savings Bank began changing its method of determining bad debt reserves for tax purposes during 1996.  The amounts to be recaptured for income tax reporting purposes are considered by the Savings Bank in the determination of the net deferred tax liability.



(13)      EMPLOYEE BENEFIT PLANS



The Savings Bank participates in a multiple-employer defined benefit pension plan covering substantially all employees.  Separate actuarial valuations are not available for each participating employer, nor are plan assets segregated.  As of December 2002, the pension plan was no longer over funded as in prior years.  As a result, the Savings Bank has been experiencing increased pension costs.  Pension expense for the years ended June 30, 2004, 2003 and 2002 was approximately $239,533, $91,499, and $4,300 respectively.



40



FIRST BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

-

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

-

Years Ended June 30, 2004, 2003 and 2002



(13)      EMPLOYEE BENEFIT PLANS (CONTINUED)



The Company established an internally-leveraged Employee Stock Ownership Plan (ESOP) in December 1993.  The Savings Bank made annual contributions to the ESOP equal to the ESOPs debt service in addition to dividends received by the ESOP.  All dividends received by the ESOP were used to pay debt service.  The ESOP shares initially were pledged as collateral for its debt to the Company.  As the debt was repaid, shares were released from collateral and allocated to active participants, in proportion to their compensation relative to total compensation of active participants.  As shares were committed to be released from collateral, the Company reported compensation expense equal to the current market price of the shares, and the shares became outstanding for earnings per share computations.  During the year ended June 30, 2002 the loan was paid in full and the remaining unallocated shares were released.



During the year ended June 30, 2003, the Company amended its ESOP and changed its name to First Home Savings Bank Employee Stock Ownership and 401(k) Plan.  The amended plan covers all employees that are age 21 and have completed six months of service.  The Company may make discretionary contributions in the form of Company common stock or cash.  The Company recorded expense related to the ESOP and 401(k) plan of $40,000 in 2004 and 2003 and $243,583 in 2002.



The Company has elected to follow Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25) and related Interpretations in accounting for its employee stock options because, as discussed below, the alternative fair value accounting provided for under FASB Statement No. 123, Accounting for Stock-Based Compensation, requires use of option valuation models that were not developed for use in valuing employee stock options.  Under APB 25, because the exercise price of the Companys employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized.



The Companys 1993 Stock Option and Incentive Plan has authorized the grant of options to certain officers, employees and directors for up to 304,174 shares of the Companys common stock.  All options granted had 10 year terms and vest and became exercisable ratably over 5 years following date of grant.  This plan expired on December 23, 2003.



Pro forma information regarding net income is required by SFAS No. 123, and has been determined as if the Company had accounted for its employee stock options under the fair value method of that Statement.  The fair value for these options was estimated at the date of grant using a minimum fair value option pricing model.



The effect of applying the fair value method required by SFAS No. 123 to the Companys stock option awards results in net income and earnings per share that are not materially different from amounts reported in the consolidated statements of income.



41



FIRST BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

-

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

-

Years Ended June 30, 2004, 2003 and 2002



(13)      EMPLOYEE BENEFIT PLANS (CONTINUED)



The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable.  In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility.  Because the Companys employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in managements opinion, the existing models do not necessarily provide a reliable single measure of fair value of its employee stock options.



A summary of the Companys stock option activity, and related information for the years ended June 30 follows:



2004   2003   2002

Weighted                            Weighted                            Weighted

Average                             Average                             Average

Exercise                             Exercise                             Exercise

Options   Price   Options   Price   Options   Price

Outstanding 

beginning of year        51,860   $       5.74            89,760   $        5.55       131,830   $ 5.45

Granted                                 -                  -                  -                     -                  -               -

Exercised                     (45,860)           5.29           (37,900)           5.29       (42,070)     5.24

Forfeited                 -               -     -                  -     -           -

Outstanding 

end of year           6,000            9.17   51,860            5.74    89,760       5.55



Exercisable at end

of year                  2,000            7.75   45,860            5.20  81,760        5.13



The following table summarizes information about stock options outstanding at June 30, 2004:



Number               Number             Remaining

Exercise          Outstanding at      Exercisable at        Contractual

Price   June 30   June 30   Life (Months)

$                7.75                   2,000                   2,000             12

9.88   4,000   -             75

6,000   2,000



The weighted-average remaining contractual life of those options is 4.5 years.



42



FIRST BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

-

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

-

Years Ended June 30, 2004, 2003 and 2002



(14)      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.



Years Ended June 30,

2004 2003                           2002

Per                                 Per                                     Per

Share                                              Share                                                Share

Income  Shares  Amt  Income  Shares  Amt  Income  Shares  Amt

Basic EPS:

Income available

to common

stockholders    $    2,347,200    1,649,525  $ 1.42  $  2,244,419   1,634,936  $1.37  $    1,658,849  1,722,558  $ .96

Effect of dilutive

securities               -  3,226            -  30,304              -         50,182

Diluted EPS:

Income available

to stockholders

plus stock options $   2,347,200  1,652,751  $1.42 $ 2,244,419  1,665,240 $1.35   $  1,658,849  1,772,740  $  .94



(15)      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.  A summary of the changes in outstanding loans to employees, officers and directors for the years ended June 30 is as follows:



2004   2003

Beginning balances                                                  $         2,090,712   $         1,860,345

Originations and advances                                                  1,684,000             1,791,642

Principal repayments                                               (2,068,488)  (1,561,275)

Ending balances                                                      $         1,706,224   $         2,090,712



The Company has two directors that perform legal services on behalf of the Savings Bank.  The services primarily relate to foreclosures and bankruptcies.  During the years ended June 30, 2004, 2003 and 2002, the Savings Bank paid $34,044, $23,985 and $10,225, respectively, for legal services performed by these directors.



43



FIRST BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

-

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

-

Years Ended June 30, 2004, 2003 and 2002



(16)      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.  Since some of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.  The principal commitments of the Savings Bank are as follows:



Letters of Credit  Outstanding standby letters of credit were approximately $2,050,160 at June 30, 2004.



Loan Commitments  The Savings Bank had outstanding firm commitments to originate fixed interest rate loans in the amount of $609,900 and variable interest rate loans in the amount of $1,866,100 at June 30, 2004.



Lines of Credit  The unused portion of lines of credit was approximately $3,568,194 at June 30, 2004.



Loans in Process  The Savings Bank has recorded loans in process representing the undisbursed portion of loans in the amount of $2,323,626 at June 30, 2004.  These amounts were recorded as loans receivable, with a corresponding reduction for such loans in process as reflected in Note (5).





(17)      CONCENTRATION OF CREDIT RISK



The Savings Bank maniintains its primary bank accounts with institutions in Missouri and Iowa.

On June 30, 2004, inthe individual balances of these accounts exceeded standard FDIC insurance limits.



(18)    SUBSEQUENT EVENTS



On June 22, 2004, an agreement was entered into to sell the property and equipment of South Central Missouri Title Company, Inc. for $252,000.  In addition, South Central entered into a covenant not to compete agreement with the purchaser.  Expenses related to the sale totaled $62,566.  As of the date of the sale, the assets sold had a net book value of $100,166.  At the date of the sale, the assets sold had a book value $100,166. The majority of the sales price is in the form of a promissory note to South Central with a five year maturity.  The transaction closed on July 16, 2004.  As a result of this sale, the subsidiary will no longer offer sales of title insurance or real estate closing services.



44



FIRST BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

-

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

-

Years Ended June 30, 2004, 2003 and 2002





(19)    REGULATORY CAPITAL REQUIREMENTS



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, 2004, that the Savings Bank meets all capital adequacy requirements to which it is subject.



As of June 30, 2004, the most recent notification from the OTS, the Savings Bank was categorized as well-capitalized under the 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.



45



FIRST BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

-

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

-

Years Ended June 30, 2004, 2003 and 2002





(19)      REGULATORY CAPITAL REQUIREMENTS (CONTINUED)



The Savings Banks actual capital amounts and ratios are also presented in the table.



To Be Well-

Capitalized Under

For Capital                Prompt Corrective

Actual            Adequacy Purposes            Action Provisions

Amount   Ratio            Amount       Ratio            Amount     Ratio

(Dollars in thousands)



As of June 30, 2004:

Total Risk-Based Capital

(to Risk-Weighted Assets)         $ 23,430   14.4%        > $13,041    > 8.0%         >  $16,301   > 10.0%

Core Capital

(to Adjusted Tangible Assets)    22,237    8.6%         >   10,393    > 4.0%         >    12,991   >  5.0%

Tangible Capital

(to Tangible Assets)                  22,237    8.6%        >     3,897    > 1.5%                N/A

Tier 1 Capital

(to Risk-Weighted Assets)         22,237   13.6%                N/A                       >     9,78115,590 >  6.0%



As of June 30, 2003:

Total Risk-Based Capital

(to Risk-Weighted Assets)         $ 22,235   13.1%        > $13,610    > 8.0%        >  $17,013   > 10.0%

Core Capital

(to Adjusted Tangible Assets)    21,809    8.3%         >   10,573    > 4.0%         >    13,216   >  5.0%

Tangible Capital

(to Tangible Assets)                  21,809    8.3%        >     3,965    > 1.5%                N/A

Tier 1 Capital

(to Risk-Weighted Assets)         21,809   12.8%                N/A                        >    10,208   >  6.0%











(20)   ADVERTISING COSTS



The Company incurred $130,459, $172,980, and $128,742 in non-direct response advertising costs during the years ended June 30, 2004, 2003 and 2002, respectively.  The Company incurred no direct response advertising costs during these years.



(21)    DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS



The following methods and assumptions were used to estimate the fair value of each class of financial instruments:



Cash and cash equivalents and certificates of deposit  For these short-term instruments, the carrying amount approximates fair value.



Available-for-sale and held-to-maturity securities  Fair values for investment securities equal quoted market prices, if available.  If quoted market prices are not available, fair values are estimated based on quoted market prices of similar securities.



46



FIRST BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

-

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

-

Years Ended June 30, 2004, 2003 and 2002



(21)      DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)



Loans receivable  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.  The carrying value of accrued interest receivable approximates its fair value.



Investment 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.



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 rates currently offered for deposits of similar remaining maturities.  The carrying amount of accrued interest payable approximates its fair value.



FHLB advances  Rates currently available to the Savings Bank for advances with similar terms and remaining maturities are used to estimate fair value of existing advances.  The carrying amount of accrued interest payable approximates its fair value.



Borrowings  The carrying amounts of the Companys borrowings approximate their fair values.



Commitments 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.





47



FIRST BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

-

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

-

Years Ended June 30, 2004, 2003 and 2002



(21)    DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)



The following table presents estimated fair values of the Companys financial instruments.  The fair values of certain of these instruments were calculated by discounting expected cash flows, which involves uncertainties and significant judgments by management.  Fair value is the estimated amount at which financial assets or liabilities could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale.  Because no market exists for certain of these financial instruments and because management does not intend to sell these financial instruments, the Company does not know whether the fair values shown below represent values at which the respective financial instruments could be sold individually or in the aggregate.



|                                                            |   | June 30, 2004
|----------------------------------------------------------- | - | -------------
|                                                            |   | Carrying     
|                                                            |   | Amount       
|Financial assets:                                           |   |              
|Cash and cash equivalents                                   | $ | 32,771,262   
|Certificates of deposit                                     |   | 3,398,674    
|Available-for-sale securities                               |   | 8,174,581    
|Held-to-maturity securities                                 |   | 28,815,812   
|Investment in FHLBederal Home Loan Bank stock               |   | 1,904,300    
|Available-for-sale mortgage-backed securities               |   | 2,776,715    
|Held-to-maturity mortgage-backed securities                 |   | 4,129,566    
|Loans, net of allowance for loan losses                     |   | 166,259,033  
|Accrued interest receivable                                 |   | 1,581,924    
|                                                            |   |              
|Financial liabilities:                                      |   |              
|Deposits                                                    |   | 207,246,532  
|FHLBederal Home Loan Bank advances                          |   | 29,120,741   
|Borrowings                                                  |   | 450,000      
|Accrued interest payable                                    |   | 253,679      
|Unrecognized financial instruments (net of contract amount) |   |              
|Commitments to extend credit                                |   | -            
|Letters of credit                                           |   | -            
|Unused lines of credit                                      |   | -            



48



FIRST BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

-

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

-

Years Ended June 30, 2004, 2003 and 2002



(21)    DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)



|                                                            |   | June 30, 2003
|----------------------------------------------------------- | - | -------------
|                                                            |   | Carrying     
|                                                            |   | Amount       
|Financial assets:                                           |   |              
|Cash and cash equivalents                                   | $ | 23,312,740   
|Certificates of deposit                                     |   | 4,782,699    
|Available-for-sale securities                               |   | 11,659,790   
|Held-to-maturity securities                                 |   | 21,414,382   
|Investment in FHLBederal Home Loan Bank stock               |   | 1,901,200    
|Available-for-sale mortgage-backed securities               |   | 2,613,105    
|Held-to-maturity mortgage-backed securities                 |   | 9,664,489    
|Loans, net of allowance for loan losses                     |   | 176,720,130  
|Accrued interest receivable                                 |   | 1,701,366    
|                                                            |   |              
|Financial liabilities:                                      |   |              
|Deposits                                                    |   | 211,663,836  
|FHLBederal Home Loan Bank advances                          |   | 29,352,010   
|Accrued interest payable                                    |   | 379,005      
|Unrecognized financial instruments (net of contract amount) |   |              
|Commitments to extend credit                                |   | -            
|Letters of credit                                           |   | -            
|Unused lines of credit                                      |   | -            



49





FIRST BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

-

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

-

Years Ended June 30, 2004, 2003 and 2002

(22)    PARENT COMPANY ONLY FINANCIAL INFORMATION



The following condensed statements of financial condition and condensed statements of income and cash flows for First Bancshares, Inc. should be read in conjunction with the consolidated financial statements and notes thereto.



|                                                        | Condensed Statements of Financial Condition
|------------------------------------------------------- | -------------------------------------------
|                                                        |                                            
|ASSETS                                                  |                                            
|Cash                                                    | $                                          
|Certificates of deposit                                 |                                            
|Investment securities available-for-sale, at fair value | 473,000                                    
|Investment in subsidiaries                              |                                            
|Property and equipment, less accumulated                |                                            
|depreciation                                            |                                            
|Due from subsidiary                                     |                                            
|Other assets                                            |                                            
|Total assets                                            | $                                          
|                                                        |                                            



|LIABILITIES AND STOCKHOLDERS' EQUITY       |   |            |  
|------------------------------------------ | - | ---------- | -
|Note payable                               | $ | 450,000    | $
|Accrued expenses                           |   | 13,079     |  
|Deferred income taxes, net                 |   | 52,332     |  
|Stockholders' equity                       |   | 27,296,243 |  
|Total liabilities and stockholders' equity | $ | 27,811,654 | $



|Condensed Statements of Income
|------------------------------

|                                      
|--------------------------------------
|                                      
|                                      
|Income:                               
|Equity in earnings of subsidiaries    
|Interest and dividend income          
|Gain on sale of investments           
|Gain on sale of property and equipment
|Other                                 
|Total income                          
|                                      
|Expenses:                             
|Professional fees                     
|Printing and office supplies          
|Interest                              
|Other                                 
|Income tax                            
|Total expenses                        
|Net income-                           
|                                      

50





FIRST BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

-

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

-

Years Ended June 30, 2004, 2003 and 2002





(22)    PARENT COMPANY ONLY FINANCIAL INFORMATION (CONTINUED)



|Condensed Statements of Cash Flows
|----------------------------------

|                                            
|--------------------------------------------
|                                            
|                                            
|Cash flows from operating activities:       
|Net income                                  
|Adjustments to reconcile net income to net  
|cash provided from operating activities:    
|Equity in earnings of subsidiaries          
|Depreciation expense                        
|Gain on sale of investments                 
|Gain on sale of property and equipment      
|Net change in operating accounts:           
|Deferred income taxes, net                  
|Other assets and liabilities                
|Net cash from (used in) operating activities



|Cash flows from investing activities:                |         |             |             |             |         |            
|---------------------------------------------------- | ------- | ----------- | ----------- | ----------- | ------- | -----------
|Dividends from subsidiary                            |         | 2,000,000   |             | 2,250,000   |         | 1,000,000  
|Principal payments on ESOP loan                      |         | -           |             | -           |         | 171,640    
|Purchase of investment securities                    |         | -           |             | -           |         | -          
|Proceeds from sale of investments                    |         | 425,106     |             | -           |         | -          
|Purchase of property and equipment                   |         | (375,027)   |             | -           |         | -          
|Proceeds from sales of property and                  |         |             |             |             |         |            
|Equipment                                            |         | -           |             | -           |         | 25,000     
|Net change in certificates of deposit                |         | (1,793,358) |             | -           |         | -          
|Net cash from investing activities                   |         | 256,721     |             | 2,250,000   |         | 1,196,640  
|                                                     |         |             |             |             |         |            
|Cash flows from financing activities:                |         |             |             |             |         |            
|Proceeds from borrowed funds                         | 450,000 |             | 470,000     |             | 949,946
|Payments on borrowed funds                           | -       |             | (1,419,946) |             | -      
|Proceeds from issuance of common stock               | 242,799 |             | 200,563     |             | 220,288
|Cash dividends paid                                  |         | (263,520)   |             | (258,681)   |         | (274,508)  
|Purchase of treasury stock                           |         | (1,037,281) |             | (809,310)   |         | (2,386,846)
|Net cash used in financing activities                |         | (608,002)   |             | (1,817,374) |         | (1,491,120)
|Net increase (decrease) in cash and cash
equivalents |         | (376,106)   |             | (404,327)   |         | (288,700)  
|Cash and cash equivalents -  beginning of period     | 490,860 |             | 86,533      |             | 375,233
|                                                     |         |             |             |             |         |            
|Cash and cash equivalents -  end of period           | $       | 114,754     | $           | 490,860     | $       | 86,533     
|                                                     |         |             |             |             |         |            



51



COMMON STOCK INFORMATION



The common stock of First Bancshares, Inc. is traded on The Nasdaq Stock Market under the symbol FBSI.  As of August 31, 2004, there were 583 stockholders and 1,626,119 shares of common stock outstanding.  This does not reflect the number of persons or entities who hold stock in nominee or street name.



On August 27 and November 25, 2003 and February 25, May 26 and August 25, 2004, the Company declared a $.04 common stock dividend payable on September 30 and December 31, 2003 and March 31, June 30, and September 30, 2004 to stockholders of record on September 12 and December 15, 2003 and March 15, June 15, and September 15, 2004, respectively.  Dividend payments by the Company are dependent primarily on 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.  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 2004                        High                 Low                 Dividend



First Quarter                           $21.04              $16.66                   $.04



Second Quarter                       $21.21              $19.62                   $.04



Third Quarter                          $21.88              $20.00                   $.04



Fourth Quarter                        $21.40              $19.51                   $.04



Fiscal 2003



First Quarter                           $13.75              $10.25                   $.04



Second Quarter                       $13.25              $11.60                   $.04



Third Quarter                          $15.13              $13.25                   $.04



Fourth Quarter                        $17.36              $14.80                   $.04



52



DIRECTORS AND OFFICERS





FIRST BANCSHARES, INC.                                                FIRST HOME SAVINGS BANK



DIRECTORS:                                                               DIRECTORS:



Charles W. Schumacher                                                   Charles W. Schumacher

Chairman of the Board, President and CEO                    Chairman of the Board, President and CEO



Harold F. Glass                                                             Harold F. Glass

Partner                                                                           Partner

Millington, Glass & Love, Attorneys at Law                Millington, Glass & Love, Attorneys at Law



John G. Moody                                                              John G. Moody

Judge of the 44th                                                           Judge of the 44th

Missouri Judicial Circuit                                              Missouri Judicial Circuit



Dr. James F. Moore                                                      Dr. James F. Moore

Director of State Fruit Experiment Station of                Director of State Fruit Experiment Station of

Southwest Missouri State University                               Southwest Missouri State University



Director Emeritus                                                          Director Emeritus

Stephen H. Romines                                                      Stephen H. Romines

Retired Chairman of the Board, President                       Retired Chairman of the Board, President

and Chief Executive Officer                                           and Chief Executive Officer





OFFICERS:                                                                  OFFICERS:



Charles W. Schumacher                                                  Charles W. Schumacher

President and Chief Executive Officer                            President/CEO



Susan J. Uchtman,  CPA                                               Susan J. Uchtman, CPA

Chief Financial Officer                                                  Chief Financial Officer



Gina Gunnels                                                                 Colleen B. Stofer

Secretary and Treasurer                                                   Secretary



Diana Blanton

Treasurer



53



CORPORATE INFORMATION



CORPORATE HEADQUARTERS                              TRANSFER AGENT



142 East First Street                                                      Registrar and Transfer Co.

P.O. Box 777                                                                10 Commerce Drive

Mountain Grove, Missouri  65711                                   Cranford, New Jersey  07016

(800) 866-1340

INDEPENDENT AUDITORS



Kirkpatrick, Phillips & Miller, CPAs, P.C.                       COMMON STOCK

Springfield, Missouri

Traded on The Nasdaq Stock Market

GENERAL COUNSEL                                                 Nasdaq Symbol:  FBSI



Harold F. Glass

Springfield, Missouri



SPECIAL COUNSEL



Breyer & Associates PC

McLean, Virginia





ANNUAL MEETING



The Annual Meeting of Stockholders will be held Wednesday, October 20, 2004, at 2:00 p.m., Central Time, at the Days Inn Conference Room, 300 East 19th Street, Mountain Grove, Missouri.







FORM 10-KSB



A COPY OF THE FORM 10-KSB 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-KSB, 10-QSB 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.





54