As filed with the Securities and Exchange Commission on August 4, 2006
Registration Number: 333-136326
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDED FORM S-4
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
THE FIRST BANCSHARES, INC.
(Exact name of Registrant as specified in its charter)
MISSISSIPPI 6022 64-0862173
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification
incorporation or organization) Classification Code Number) Number)
6480 U.S. HWY. 98 WEST
HATTIESBURG, MISSISSIPPI 39402
(601) 268-8998
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
DONNA T. LOWERY
6480 U.S. HWY. 98 WEST
HATTIESBURG, MISSISSIPPI 39402
(601) 268-8998
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
J. ANDREW GIPSON, ESQ.
WATKINS LUDLAM WINTER & STENNIS, P.A.
POST OFFICE BOX 427
633 NORTH STATE STREET
JACKSON, MISSISSIPPI 39202
(601) 949-4900
Approximate Date of Commencement of Proposed Sale of the Securities to the Public: As soon as practicable after
this Registration Statement becomes effective.
If the securities being registered on this Form are being offered in connection with the formation of a
holding company and there is compliance with General Instruction G, please check the following box. |_|
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the
Securities Act, check the following box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_| _____
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check
the following box and list the Securities Act registration statement number of the earlier effective registration
statement for the same offering. |_| _______
CALCULATION OF REGISTRATION FEE
Title of each class of Amount to be Proposed Maximum Proposed Maximum Amount of
securities to be Registered(1) Offering Price Per Aggregate Offering Registration Fee(2)
registered Share(2) Price(2)
------------------------ -------------- ------------------ ------------------ --------------------
Common Stock 109,274 $19.00 $2,076,200 $222.15
($1.00 Par Value)
(1) The number of First Bancshares common shares to be issued to record holders of
First National Bank of Wiggins stock in accordance with the Merger Agreement.
(2) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(f)(1) and (3), based on the value of First
Bancshares common stock agreed upon under the terms of the Merger Agreement.
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment that specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
PART I
INFORMATION TO BE INCLUDED IN PROSPECTUS/PROXY STATEMENT
FIRST NATIONAL BANK OF WIGGINS
124 Border Avenue
Wiggins, Mississippi 39577
August 30, 2006
To Our Shareholders:
You are cordially invited to attend a Special Meeting of Shareholders (the “Meeting”) of First National Bank of Wiggins (“FNB Wiggins”) to be held at 4:00 p.m. local time, on September 21, 2006 at 124 Border Avenue, Wiggins, Mississippi.
At the Meeting, you will be asked to consider and vote upon a proposal to approve an Agreement and Plan of Merger (the “Merger Agreement”), dated as of May 19, 2006, by and among The First Bancshares, Inc. (“First Bancshares”), a Mississippi corporation and registered bank holding company, and its wholly-owned subsidiary, The First, a National Banking Association (“The First”), a banking association organized under the laws of the United States, on the one hand, and FNB Wiggins on the other hand, pursuant to which (a) FNB Wiggins will merge with and into The First (the “Merger”), and (b) each outstanding share of FNB Wiggins common stock, $10.00 par value per share (“FNB Wiggins Common Stock”) will be converted into the right to receive cash and shares of First Bancshares common stock, $1.00 par value per share (“First Bancshares Common Stock”). Details of the proposal are set forth in the accompanying Proxy Statement/Prospectus, which you should read carefully.
Upon completion of the Merger, FNB Wiggins shareholders will receive in the aggregate cash and common stock of First Bancshares having a combined value of approximately $4,152,400 ("Merger Consideration"). This approximate value is based upon the terms of the Merger Agreement, which states that FNB Wiggins shareholders will receive approximately $175.00 in value (in the form of cash and/or First Bancshares Common Stock as described below) for each share of FNB Wiggins Common Stock they own. For purposes of the Merger Consideration, the Merger Agreement states that First Bancshares Common Stock will be valued at $19.00. Shares of First Bancshares Common Stock traded on the NASDAQ stock market for prices ranging from $21.09 to $24.00 between the date of the Merger Agreement and August 18, 2006. Therefore, should the shares of First Bancshares Common Stock have a value on the Effective Date of the Merger that equals its trading price on August 18, 2006, the actual value of the consideration received by FNB Wiggins shareholders as a result of the Merger would be approximately $4,698,619.00. However, no assurance can be given as to the market price of First Bancshares Common Stock on the Effective Date.
Under the terms of the Merger Agreement, FNB Wiggins shareholders will be entitled to receive the Merger Consideration, consisting of $87.50 per share in cash (“Cash Element”) and 4.605 shares of First Bancshares common stock (“Stock Element”), in exchange for each share of FNB Wiggins stock owned by them, representing approximately 50% cash and 50% stock as consideration for their shares.
As a result of the Merger and subject to certain limitations provided for in the Merger Agreement, shares of FNB Wiggins Common Stock issued and outstanding immediately prior to the Effective Date, other than dissenting shares, shall by virtue of the Bank Merger be converted into and represent the right to receive the Stock Element, the cash payable in lieu of fractional shares, and the Cash Element less a pro rata share of Seven Hundred and Eighty Thousand Dollars ($780,000) in Consideration Deductions (which represents $32.873 per share of outstanding FNB Wiggins Common Stock), which are defined as follows: (i) Two Hundred and Eighty Thousand Dollars ($280,000) which represents a maximum of 50% of the cost of cancellation of FNB Wiggins’ data processing contract with Brasfield Technology, LLC; (ii) Two Hundred Thousand Dollars ($200,000) which represents a potential payment under that certain Confidential Term Sheet between FNB Wiggins and Richton Bank & Trust Company dated January 20, 2006 and discussed in further detail below (“Richton Letter of Intent”); and (iii) Three Hundred Thousand Dollars ($300,000) to account for potential losses related to the Mortgage Loan Purchase and Sale Agreements dated October 31, 2005 and December 16, 2005.
On the Effective Date, First Bancshares shall deposit into an escrow account cash in the amount of the Consideration Deductions (the “Escrow Fund”) in accordance with the terms of the escrow agreement which is attached to the Merger Agreement as Exhibit E (“Escrow Agreement”). A distribution to the holders of FNB Wiggins Common Stock (other than holders of dissenting shares) of certain portions of the Escrow Fund remaining after the payment of any Actual Loss (as defined in the Escrow Agreement) shall be made in accordance with the methods stated in the Escrow Agreement and upon the occurrence of each of the following events: (a) the date of the execution of a settlement and release or the entering of a final judgment with regards to any amounts owed by FNB Wiggins to Brasfield Technology, LLC, for termination fees related to the termination of the data processing agreement between FNB Wiggins and Brasfield Technology, LLC; (b) the date of the execution of a settlement and release or the entering of a final judgment with regards to the suit brought by Richton Bank & Trust Company against FNB Wiggins for breach of the Richton Letter of Intent (See “Summary – Recent Developments”); and (c) December 16, 2006, with regards to any amounts paid according to that certain Mortgage Loan Purchase and Sale Agreements whereby FNB Wiggins sold certain assets with recourse to SNGC, LLC. Notwithstanding the foregoing, on May 19, 2009, or upon the earlier termination of the Escrow Agreement, whichever occurs first, the balance remaining in the Escrow Fund shall be distributed to the holders of FNB Wiggins Common Stock (other than holders of dissenting shares) in accordance with the terms of the Escrow Agreement.
FNB Wiggins shareholders who perfect dissenters’ rights will be deemed to have elected to receive cash in the amount of the appraised value of such FNB Wiggins shares in accordance with Sections 215 and 215a of Title 12 of the United States Code. FNB Wiggins shareholders considering whether to perfect dissenters’ rights should read carefully the section of the attached Proxy Statement/Prospectus discussing dissenters’ rights, as well as the copy of Sections 215 and 215a of Title 12 of the United States Code attached thereto as an Exhibit. Specific steps must be taken to perfect statutory dissenters’ rights.
After careful consideration, the Merger Agreement has been unanimously approved by your Board of Directors. The Board believes the Merger is in the best interests of FNB Wiggins and its shareholders and unanimously recommends that you vote for approval of the Merger Agreement. The reasons for such recommendation are set forth in the accompanying Proxy Statement/Prospectus. Furthermore, FNB Wiggins’ financial advisor, Southard Financial, has issued its opinion to the effect that, as of the date of such opinion and based upon the considerations described therein, the consideration to be received by the holders of FNB Wiggins Common Stock pursuant to the Merger is fair, from a financial point of view, to such shareholders.
The Merger presents an opportunity for holders of FNB Wiggins Common Stock to join in a combined enterprise with greater financial resources and a more geographically diversified business. As a result of the proposed Merger, you, as a shareholder of First Bancshares, will own common stock in a bank holding company whose shares are actively traded on NASDAQ which provides you with greater liquidity.
We urge you to read the enclosed materials carefully so that you can evaluate the Merger for yourself. The affirmative vote of the holders of two-thirds (2/3) of the outstanding shares of FNB Wiggins Common Stock is required to approve the Merger. Accordingly, the Board is hereby soliciting the necessary approval of FNB Wiggins shareholders in order to effectuate the Merger.
In the material accompanying this letter, you will find a Notice of Special Meeting of Shareholders, a Prospectus/Proxy Statement (the “Proxy Statement”) relating to the actions to be taken by FNB Wiggins shareholders at the Meeting, and a form of proxy. The Proxy Statement more fully describes the proposed Merger and includes information about FNB Wiggins, First Bancshares, and The First.
All shareholders are invited to attend the Meeting in person. However, in order to ensure that your shares will be represented at the Meeting, your Board of Directors urges that you sign, date and return the enclosed form of proxy promptly in the enclosed self addressed, stamped envelope, whether or not you plan to attend the Meeting. The prompt return of your signed proxy, regardless of the number of shares you hold, will assist FNB Wiggins in reducing the expense of additional proxy solicitation. Your proxy may be revoked at any time prior to the vote at the Meeting by notice to the Secretary of FNB Wiggins or by execution and delivery of a later dated proxy. If you attend the Meeting you may, if you wish, revoke your proxy and vote in person on all matters brought before the Meeting. A returned proxy which has been signed but which does not indicate how the proxy is to be voted (whether on one or more of the proposals) will be voted “FOR” the proposal for which there is no voting indication.
Very truly yours,
YOUR VOTE IS IMPORTANT
PLEASE SIGN, DATE AND RETURN YOUR PROXY
FIRST NATIONAL BANK OF WIGGINS
124 Border Avenue
Wiggins, Mississippi 39577
______________________________
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
to be held on September 21, 2006
______________________________
To the Shareholders of First National Bank of Wiggins
Notice is hereby given that a Special Meeting of Shareholders (the “Meeting”) of First National Bank of Wiggins, a national banking association (“FNB Wiggins”), will be held at 124 Border Avenue, Wiggins, Mississippi, on September 21, 2006 at 4:00 p.m. local time, for the purpose of considering and voting upon the following matters:
1. To consider and vote upon the approval and adoption of an Agreement and Plan of Merger (the “Merger Agreement”), dated as of May 19, 2006, by and among The First Bancshares, Inc. (“First Bancshares”), a Mississippi corporation and registered bank holding company, and its wholly-owned subsidiary, The First, a National Banking Association (“The First”), a national banking association organized under the laws of the United States, on the one hand, and FNB Wiggins on the other hand, pursuant to which (a) FNB Wiggins will merge with and into The First (the “Merger”), and (b) each outstanding share of FNB Wiggins common stock, $10.00 par value per share (“FNB Wiggins Common Stock”) will be converted into the right to receive cash and shares of First Bancshares common stock, $1.00 par value per share (“First Bancshares Common Stock”) in accordance with the terms of the Merger Agreement; and
2. To transact such other business as may properly come before the Meeting.
The foregoing items of business are more fully described in the Proxy Statement/Prospectus accompanying this Notice. Only shareholders of record at the close of business on August 1, 2006 are entitled to notice of, and to vote at, the Meeting and any adjournments thereof. Approval of the Merger Agreement requires the affirmative vote of the holders of two-thirds (2/3) of the outstanding shares of FNB Wiggins Common Stock. A conformed copy of the Merger Agreement is attached to this Proxy Statement/Prospectus as Exhibit A.
Dissenting shareholders of FNB Wiggins who comply with the procedural requirements of Sections 215 and 215a of Title 12 of the United States Code will be entitled to receive payment of the “fair value” of their shares of FNB Wiggins Common Stock.
THE FNB WIGGINS BOARD OF DIRECTORS RECOMMENDS THAT THE HOLDERS OF FNB WIGGINS COMMON STOCK VOTE FOR APPROVAL OF THE PROPOSED MERGER. YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF SHARES THAT YOU OWN. EVEN IF YOU PLAN TO ATTEND THE MEETING, PLEASE DATE AND SIGN THE ENCLOSED FORM OF PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED, POSTAGE-PAID ENVELOPE. YOUR PROXY MAY BE REVOKED AT ANY TIME PRIOR TO THE VOTE AT THE MEETING BY NOTICE TO THE SECRETARY OF FNB WIGGINS OR BY EXECUTION AND DELIVERY OF A LATER DATED PROXY. IF YOU ATTEND THE MEETING, YOU MAY WITHDRAW YOUR PROXY AND VOTE IN PERSON.
By Order of the Board of Directors
FIRST NATIONAL BANK OF WIGGINS
124 Border Avenue
Wiggins, Mississippi 39577
PROXY
This Proxy is Solicited on Behalf of the Board of Directors.
The undersigned hereby appoints H.F. Campbell and B. H. Bell, Jr. or any of them, with full power to act alone and to
appoint a substitute, as Proxies, and hereby authorizes them to represent and to vote all the shares of common
stock of First National Bank of Wiggins held of record by the undersigned on August 1, 2006, at the special
meeting of shareholders to be held on September 21, 2006, at 4:00 p.m., local time, and at any and all adjournments
thereof as follows:
1. The proposal to approve an Agreement and Plan of Merger dated as of May 19, 2006, as amended (the "Plan"
or the "Agreement") pursuant to which First National Bank of Wiggins will merge with and The First, a
National Banking Association, whose main office is located in Hattiesburg, Mississippi (the "Merger").
FOR ____ AGAINST ____ ABSTAIN ____
2. The proposal to transact any other business which may properly come before the meeting.
FOR ____ AGAINST ____ ABSTAIN ____
The Board of Directors recommends a vote "FOR" each of the above Proposals. The Proxies are authorized to vote
in their discretion upon such other business as may properly come before the Meeting or any adjournment thereof.
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE SPECIFIED, THIS PROXY WILL BE VOTED FOR THE
PROPOSALS. IF ANY OTHER BUSINESS IS PRESENTED AT SUCH MEETING, THIS PROXY WILL BE VOTED BY THOSE NAMED IN THIS
PROXY IN THEIR DISCRETION.
Please sign exactly as your name appears on certificate(s) representing shares to be voted by this proxy. When
signing as attorney, executor, administrator, trustee, or guardian, please give your full title. If a
corporation, please sign in full corporate name by the president or other authorized officer. If a partnership,
please sign in full partnership name by an authorized person. If shares are held as joint tenants, each holder
should sign.
Dated ___________________, 2006
------------------------------- ----------------------------------
SIGNATURE OF SHAREHOLDER SIGNATURE OF SHAREHOLDER
PLEASE PROMPTLY COMPLETE, DATE, SIGN AND MAIL THIS PROXY IN THE ENCLOSED ENVELOPE
PROSPECTUS / PROXY STATEMENT
THE FIRST BANCSHARES, INC. FIRST NATIONAL BANK OF WIGGINS
-------------------------- -------------------------------
109,274 Shares of Special Meeting of
Common Stock, $1.00 par value Shareholders to be held
September 21, 2006
This Proxy Statement/Prospectus is being furnished to holders of the common stock of First National Bank of Wiggins, a national banking association (“FNB Wiggins”), in connection with the solicitation of proxies by the Board of Directors of FNB Wiggins for use at its Special Meeting of Shareholders (the “Meeting”) to be held on September 21, 2006. This Proxy Statement/Prospectus and accompanying proxy cards were first mailed to shareholders of FNB Wiggins on or about August 30, 2006.
At the Meeting, the holders of FNB Wiggins common stock, $10.00 par value per share (“FNB Wiggins Common Stock”), will be asked to approve the Agreement and Plan of Merger (the “Merger Agreement”), dated as of May 19, 2006, by and among The First Bancshares, Inc., a Mississippi corporation and registered bank holding company (“First Bancshares”), and its wholly-owned subsidiary, The First, a National Banking Association, a national banking association organized under the laws of the United States (“The First”), on the one hand, and FNB Wiggins on the other hand, pursuant to which FNB Wiggins will merge with and into The First (the “Merger”). Upon consummation of the Merger, each outstanding share of FNB Wiggins Common Stock, other than shares held by FNB Wiggins’ shareholders who perfect dissenters’ rights, will be converted into the right to receive cash and shares of First Bancshares common stock, $1.00 par value per share (“First Bancshares Common Stock”), as well as cash in lieu of any fractional shares, all in accordance with the terms of the Merger Agreement.
Upon completion of the Merger, FNB Wiggins shareholders will receive in the aggregate cash and stock of First Bancshares having a combined value of approximately $4,152,400 ("Merger Consideration"). This approximate value is based upon the terms of the Merger Agreement, which states that FNB Wiggins shareholders will receive approximately $175.00 in value (in the form of cash and/or First Bancshares Common Stock as described below) for each share of FNB Wiggins Common Stock they own. For purposes of the Merger Consideration, the Merger Agreement states that First Bancshares Common Stock will be valued at $19.00. Shares of First Bancshares Common Stock traded on the NASDAQ stock market for prices ranging from $21.09 to $24.00 between the date of the Merger Agreement and August 18, 2006. Therefore, should the shares of First Bancshares Common Stock have a value on the Effective Date of the Merger that equals its trading price on August 18, 2006, the actual value of the consideration received by FNB Wiggins shareholders as a result of the Merger would be $4,698,619.00. However, no assurance can be given as to the market price of First Bancshares Common Stock on the Effective Date.
Under the terms of the Merger Agreement, FNB Wiggins shareholders will be entitled to receive the Merger Consideration, which will consist of $87.50 per share in cash (“Cash Element”) and 4.605 shares of First Bancshares Common Stock (“Stock Element”), in exchange for each share of FNB Wiggins Common Stock owned by them, representing approximately 50% cash and 50% stock as consideration for their shares.
As a result of the Bank Merger and subject to certain limitations provided for the Merger Agreement, shares of FNB Wiggins Common Stock issued and outstanding immediately prior to the Effective Date, other than dissenting shares, shall by virtue of the Bank Merger be converted into and represent the right to receive the Stock Element, the cash payable in lieu of fractional shares, and the Cash Element less a pro rata share of Seven Hundred and Eighty Thousand Dollars ($780,000) in Consideration Deductions (which represents $32.873 per share of outstanding FNB Wiggins Common Stock), which are defined as follows: (i) Two Hundred and Eighty Thousand Dollars ($280,000) which represents a maximum of 50% of the cost of cancellation of FNB Wiggins’ data processing contract with Brasfield Technology, LLC; (ii) Two Hundred Thousand Dollars ($200,000) which represents a potential payment under that certain Confidential Term Sheet between FNB Wiggins and Richton Bank & Trust Company dated January 20, 2006 and discussed in further detail below (“Richton Letter of Intent”); and (iii) Three Hundred Thousand Dollars ($300,000) to account for potential losses related to the Mortgage Loan Purchase and Sale Agreements dated October 31, 2005 and December 16, 2005.
On the Effective Date, First Bancshares shall deposit into an escrow account cash in the amount of the Consideration Deductions (the “Escrow Fund”) in accordance with the terms of the Escrow Agreement which is attached to the Merger Agreement as Exhibit E (“Escrow Agreement”). A distribution to the holders of FNB Wiggins Common Stock (other than holders of dissenting shares) of certain portions of the Escrow Fund remaining after the payment of any Actual Loss (as defined in the Escrow Agreement) shall be made in accordance with the methods stated in the Escrow Agreement and upon the occurrence of each of the following events: (a) the date of the execution of a settlement and release or the entering of a final judgment with regards to any amounts owed by FNB Wiggins to Brasfield Technology, LLC, for termination fees related to the termination of the data processing agreement between FNB Wiggins and Brasfield Technology, LLC; (b) the date of the execution of a settlement and release or the entering of a final judgment with regards to the suit brought by Richton Bank & Trust Company against FNB Wiggins for breach of the Richton Letter of Intent (See “Summary – Recent Developments”); and (3) December 16, 2006, with regards to any amounts paid according to that certain Mortgage Loan Purchase and Sale Agreements whereby FNB Wiggins sold certain assets with recourse to SNGC, LLC. Notwithstanding the foregoing, on May 19, 2009, or upon the earlier termination of the Escrow Agreement, whichever occurs first, the balance remaining in the Escrow Fund shall be distributed to the holders of FNB Wiggins Common Stock (other than holders of dissenting shares) in accordance with the terms of the Escrow Agreement.
First Bancshares Common Stock is traded on the NASDAQ stock market under the symbol FBMS. However, FNB Wiggins Common Stock is not listed, traded or quoted on any securities exchange or in the over-the-counter market, and no dealer makes a market in the FNB Wiggins Common Stock, although isolated transactions between individuals occur from time to time. Management of FNB Wiggins believes that transactions involving FNB Wiggins Common Stock have occurred in the following price ranges:
2001 $225 - $250
2002 $250 - $300
2003 $ 50 - $200
2004 $ 50 - $175
2005 No sales to FNB Wiggins' management's knowledge
2006 No sales to FNB Wiggins' management's knowledge
The holders of FNB Wiggins Common Stock are entitled to receive dividends when and if declared by FNB Wiggins Board out of funds that are legally available therefor. As noted below, FNB Wiggins may not declare or pay a dividend without prior approval of the Office of the Comptroller of the Currency (“OCC”).
As of the record date of August 1, 2006, there were 23,728 shares of FNB Wiggins Common Stock issued and outstanding, held by approximately 126 shareholders.
Page 12 of this Proxy Statement/Prospectus contains a table that illustrates the number of shares of First Bancshares Common Stock to be received based on the value of $19.00 for each share of First Bancshares Common Stock as stated in the Merger Agreement. For a more complete description of the Merger Agreement and the terms of the Merger, see “The Merger.” A conformed copy of the Merger Agreement is attached to this Proxy Statement/Prospectus as Exhibit A. For a more complete description of dissenters’ rights, see “Dissenters’ Rights” and Exhibit C.
First Bancshares has filed a Registration Statement on Form S-4 with the Securities and Exchange Commission (the “Commission”), pursuant to the Securities Act of 1933, as amended (the “Securities Act”), covering up to 109,274 shares of First Bancshares Common Stock to be issued in connection with the Merger. This document constitutes a Proxy Statement of FNB Wiggins in connection with the Meeting and a Prospectus of First Bancshares with respect to the shares of First Bancshares Common Stock to be issued upon consummation of the Merger. Each of First Bancshares and FNB Wiggins has furnished all information included herein with respect to it and its consolidated subsidiaries.
No person is authorized to give any information or to make any representation concerning the Merger not contained in this Proxy Statement/Prospectus and, if given or made, such information or representation should not be relied upon as having been authorized. This Proxy Statement/Prospectus does not constitute an offer to sell, or a solicitation of an offer to purchase, the securities offered by this Proxy Statement/Prospectus, or the solicitation of a proxy, in any jurisdiction, to or from any person to whom it is unlawful to make such offer or solicitation of an offer or proxy solicitation in such jurisdiction. Neither the delivery of this Proxy Statement/Prospectus nor any distribution of the securities made under this Proxy Statement/Prospectus shall, under any circumstances, create any implication that there has been no change in the information set forth herein since the date of this Proxy Statement/Prospectus.
This Proxy Statement/Prospectus does not cover any resales of First Bancshares Common Stock to be received by FNB Wiggins’ shareholders upon consummation of the Merger, and no person is authorized to make use of this Proxy Statement/Prospectus in connection with any such resale.
_________________
THE SECURITIES TO BE ISSUED PURSUANT TO THIS PROXY STATEMENT/PROSPECTUS HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE SECURITIES OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR BANK DEPOSITS, ARE NOT OBLIGATIONS OF OR GUARANTEED BY ANY BANKING OR NONBANKING AFFILIATE OF THE FIRST, AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
Do not send in your stock certificates now. After the Merger is completed, First Bancshares
will send you written instructions on how to exchange your stock for First Bancshares Common
Stock and cash.
__________________________
Subject to completion the date of this Proxy Statement/Prospectus is August 30, 2006.
AVAILABLE INFORMATION
First Bancshares is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and in accordance therewith, files periodic reports, proxy statements and other information with the Commission. Such reports, proxy statements and other information filed by First Bancshares are available to the public at the web site and EDGAR database maintained by the Commission at http://www.sec.gov. The documents filed by First Bancshares are also available at the Commission’s Public Reference Room, which provides access to EDGAR (for documents submitted electronically) and Thomson Research (for imaged paper filings) terminals. The public library of Commission information is provided through the Commission’s Public Reference Room between the hours of 9:00 a.m. — 4:00 p.m., except federal holidays and official closings, at 100 F Street, NE, Room 1580, Washington, D.C. 20549.
First Bancshares has filed with the Commission a Registration Statement on Form S-4 (the “Registration Statement”) under the Securities Act with respect to the common stock offered by this Proxy Statement/Prospectus. This Proxy Statement/Prospectus does not contain all the information set forth in the Registration Statement, certain portions of which have been omitted pursuant to the Rules and Regulations of the Commission, and to which portions reference is hereby made for further information with respect to First Bancshares and the securities offered hereby.
As indicated below, this Proxy Statement/Prospectus incorporates by reference certain information with respect to First Bancshares, which is not presented herein or delivered herewith. Copies of any such information or documents, other than exhibits to such documents which are not specifically incorporated by reference herein, are available without charge, upon the written or oral request of any person, including any beneficial owner, to whom this Proxy Statement/Prospectus is delivered. In order to ensure timely delivery of such documents, any request should be made by September 15, 2006, and such requests should be directed to First Bancshares’ principal executive offices at 6480 U.S. Hwy 98 W (39402), P. O. Box 15549 (39404-5549), Hattiesburg, Mississippi, Attention: Donna T. Lowery, Chief Financial Officer, telephone number (601) 268-8998. First Bancshares will send the requested documents by first-class mail within one business day of the receipt of the request.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCEThe following documents filed by First Bancshares with the Securities and Exchange Commission (“SEC”) are hereby incorporated by reference:
(1) First Bancshares' Annual Report on Form 10-KSB for the fiscal year ended December 31, 2005;
(2) First Bancshares' Quarterly Report on Form 10-QSB for the quarter ended March 31, 2006;
(3) First Bancshares' Current Reports on Form 8-K filed on May 22, 2006, May 25, 2006, May 31,
2006, and July 11, 2006; and
(4) The description of capital stock contained under the heading "Description of Securities" on Form
SB-2/A, Registration Number 333-61081, filed by First Bancshares with the Commission
on September 14, 1998 relating to the description of First Bancshares Common Stock.
All documents filed by First Bancshares pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date hereof and prior to the date of the Meeting are hereby incorporated by reference into this Proxy Statement/Prospectus and shall be deemed a part hereof from the date of filing of such documents.
Any statement contained in a document incorporated by reference shall be deemed to be modified or superseded for purposes hereof to the extent that a statement contained herein (or in any other subsequently filed document which also is incorporated by reference herein) modifies or supersedes such statement. Any statement so modified or superseded shall not be deemed to constitute a part hereof except as so modified or superseded.
The public may read and copy any materials filed by First Bancshares with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers such as First Bancshares that file electronically with the SEC at www.sec.gov. Information regarding First Bancshares is also available on its Internet website at www.thefirstbank.com.
TABLE OF CONTENTS
Page
QUESTIONS AND ANSWERS............................................................................................1
SUMMARY..........................................................................................................4
Purpose of the Meeting...........................................................................................4
Date, Time and Place of the Meeting; Record Date ................................................................5
Vote Required ...................................................................................................5
The Parties......................................................................................................5
Recommendation of the Boards of Directors; Reasons for the Merger................................................6
Opinion of Financial Advisor.....................................................................................6
Risk Factors.....................................................................................................6
Regulatory Approvals ...........................................................................................10
Other Conditions to Consummation of the Merger..................................................................10
Exchange of FNB Wiggins' Certificates; No Fractional Shares ....................................................10
Effective Date .................................................................................................10
Interests of Certain Persons in the Merger .....................................................................10
Termination.....................................................................................................11
Certain Federal Income Tax Consequences ........................................................................11
Dissenters' Rights .............................................................................................11
Resales of First Bancshares Common Stock........................................................................11
Recent Market Prices............................................................................................12
Recent Developments.............................................................................................12
Selected Financial Data.........................................................................................12
FNB Wiggins Selected Financial Data ............................................................................13
First Bancshares and Subsidiaries - Selected Financial Data.....................................................14
Comparative Per Share Information...............................................................................15
INTRODUCTION....................................................................................................16
General ........................................................................................................16
Record Date; Voting Rights; Proxies ............................................................................16
THE MERGER......................................................................................................17
General.........................................................................................................17
Structure and Terms of the Merger...............................................................................17
Background of and Reasons for the Merger - FNB Wiggins..........................................................19
Reasons for the Merger - First Bancshares and The First.........................................................23
Opinion of Financial Advisor....................................................................................24
Effective Date .................................................................................................26
Regulatory Approvals............................................................................................26
Other Conditions to the Merger..................................................................................27
Interests of Certain Persons in the Merger......................................................................27
Exchange of FNB Wiggins' Certificates ..........................................................................28
Amendment; Waiver; Termination..................................................................................29
Conduct of Business Pending the Merger..........................................................................29
Resales of First Bancshares Common Stock........................................................................31
Expenses and Fees ..............................................................................................32
Certain Federal Income Tax Consequences.........................................................................32
DISSENTERS' RIGHTS..............................................................................................33
Filing Vote Against or Dissent from the Merger and Filing of Dissenters' Request................................33
Appraisal.......................................................................................................34
Notices.........................................................................................................34
COMPARATIVE RIGHTS OF SHAREHOLDERS..............................................................................34
Voting Rights; Cumulative Voting................................................................................35
Limitations on Directors' and Officers' Liability...............................................................35
Supermajority Voting Requirements; Business Combinations or Control Share Acquisition...........................35
Removal of Directors............................................................................................36
Board of Directors..............................................................................................36
Vacancies in the Board of Directors.............................................................................36
Amendment of the Articles of Incorporation or Bylaws............................................................36
Special Meetings of Shareholders................................................................................37
Shareholder Proposals and Nominations...........................................................................37
Authorized Capital..............................................................................................37
Indemnification.................................................................................................37
INFORMATION CONCERNING FNB WIGGINS..............................................................................38
Business........................................................................................................39
Competition.....................................................................................................39
Dividend on Common Stock........................................................................................39
Liability and Asset Management..................................................................................39
Employees.......................................................................................................40
Properties......................................................................................................40
Legal Proceedings...............................................................................................40
Supervision and Regulation......................................................................................40
FNB WIGGINS' MANAGEMENT'S DISCUSSIONAND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS..................................................................................43
SECURITY OWNERSHIP OF PRINCIPAL SHAREHOLDERS AND MANAGEMENT.....................................................47
LEGAL OPINION...................................................................................................48
EXPERTS .......................................................................................................48
OTHER MATTERS...................................................................................................48
Exhibit A - Agreement and Plan of Merger
Exhibit B - Fairness Opinion of Southard Financial
Exhibit C - Dissenters' Rights under National Bank Act - 12 USCA §§ 215 and 215a
Exhibit D - Audited Consolidated Financial Statements of The First Bancshares, Inc., and Subsidiary for the
Periods Ended December 31, 2004 and December 31, 2005; Unaudited Consolidated Financial Statements of
The First Bancshares, Inc., and Subsidiary for the Interim Period Ended June 30, 2006
Exhibit E - Audited Consolidated Financial Statements of First National Bank of Wiggins for the Periods Ended
December 31, 2003 and December 31, 2004; Unaudited Consolidated Financial Statements of First
National Bank of Wiggins for the Period Ended December 31, 2005 and the Interim Period Ended June 30,
2006
Exhibit F - The First Bancshares, Inc., Pro Forma Financial Statements
QUESTIONS AND ANSWERS
This section highlights selected information from this document. It does not contain all of the information that
is important to you. You should carefully read this entire document and the documents to which we have referred
you in order to fully understand the merger and to obtain a more complete description of the legal terms of the
Merger. This section also includes certain page references that direct you to more complete descriptions in this
document of the topics discussed.
Q(1): Why is FNB Wiggins merging with The First?
A: FNB Wiggins's Board has approved the Merger with The First based upon: (1) its assessment of the
financial condition and prospects of FNB Wiggins in particular; (2) the provisions of the OCC Consent
Order, which is discussed in further detail in the following sections of this Prospectus/Proxy
Statement; and (3) the competitive and regulatory environment for financial institutions generally. The
First, A National Banking Association, is a nationally chartered bank which operates offices in
Mississippi. Its parent company, First Bancshares, whose common stock is traded on the NASDAQ stock
market under the symbol FBMS, is a Mississippi corporation that is also registered as a bank holding
company. The Merger will enable FNB Wiggins shareholders to hold stock in First Bancshares, a larger
and more diversified entity whose shares are more widely held and more actively traded. The Merger will
also enable us to better serve our customers with more products and services. To review the background
and reasons for the Merger see page 19.
In recommending approval of the Merger, we also considered the opinion of our financial advisor,
Southard Financial that as of the date of its opinion, the exchange ratio was fair from a financial
point of view to FNB Wiggins's shareholders. We have attached this opinion as Exhibit B to this
document. You should read it carefully.
A copy of the Merger Agreement is attached to this document as Appendix A. We encourage you to read the
Merger Agreement. It is the legal document that governs the Merger.
Q(2): As a FNB Wiggins shareholder, what will I receive in the Merger?
A: You will have the right to receive $87.50 per share in cash ("Cash Element") and 4.605 shares of First
Bancshares Common Stock ("Stock Element"), in exchange for each share of FNB Wiggins Common Stock you
own, representing approximately 50% cash and 50% stock as consideration for your shares. No fractional
shares will be issued, but you will be compensated with cash for the proportional value of the
fractional share.
Example: If you own 100 shares of FNB Wiggins Common Stock upon completion of the Merger, you will have
the right to receive a check for $8,750.00, as well as the equivalent of 460.5 shares of First
Bancshares Common Stock. Since no fractional shares are to be issued, you will receive 460 shares of
stock and $9.50 representing the value of the fractional .5 share.
Q(3): What are the key attributes of the First Bancshares Common Stock?
A: First Bancshares Common Stock has the voting, dividend, and liquidation rights usually associated with
common stock. To review a more detailed description of the First Bancshares Common Stock and for a
comparison to FNB Wiggins Common Stock see "Comparative Rights of Shareholders" on page 34.
Q(4): May a FNB Wiggins shareholder elect to receive more cash or First Bancshares Common Stock?
A: No. All FNB Wiggins shareholders will receive approximately 50% cash and 50% stock for their shares.
Q(5): What happens as the market price of First Bancshares Common Stock fluctuates?
A: The exchange ratio is based upon a formula that is not determined by the market price of First
Bancshares Common Stock and is not expected to change. The market value of First Bancshares Common
Stock will fluctuate before and after the Merger. First Bancshares cannot predict the price at which it
will trade at any particular point in time.
Q(6): When do you expect the merger to be completed?
A: We hope to complete the Merger on or before September 30, 2006, following the approval of FNB Wiggins
shareholders.
Q(7): What are the tax consequences of the Merger to me?
A: We expect that for U.S. federal income tax purposes, your receipt of First Bancshares Common Stock in
exchange for your shares of FNB Wiggins Common Stock in the Merger generally will not cause you to
recognize any gain or loss. You will, however, have to recognize gain in connection with any cash
received or if you exercise dissenters' appraisal rights under the National Bank Act.
We provide a more detailed review of the U.S. federal income tax consequences of the Merger on page 32
of this document.
Q(8): As a FNB Wiggins shareholder, do I have to accept the First Bancshares Common Stock and the cash
consideration of $87.50 per share in exchange for my shares if the Merger is approved?
A: If you follow the procedures prescribed by the National Bank Act, you may dissent from the Merger and
have the fair value of your stock determined according to those procedures. If you follow those
procedures, you will not receive First Bancshares Common Stock. The fair value of your FNB Wiggins
Common Stock, determined in the manner prescribed by the National Bank Act, will be paid to you in cash.
For a more complete description of these dissenters' rights, see page 33 of this document, as
well as Exhibit C, which provides the text of the National Bank Act that governs dissenters'
rights.
Q(9): What do I need to do now?
A: Just indicate on your proxy card how you want to vote, and sign and mail the proxy card in the
enclosed return envelope as soon as possible so that your shares may be represented at the meeting. If
you sign and send in your proxy but don't indicate how you want to vote, your proxy will be counted as a
vote in favor of the Merger. If you don't return your proxy card or you abstain, the effect will be a
vote against the Merger.
The Meeting will take place on September 21, 2006. You are invited to the meeting to vote your shares in
person rather than signing and mailing your proxy card. If you do sign your proxy card, you can take
back your proxy until and including the date of the meeting and either change your vote or attend the
meeting and vote in person. We provide more detailed instructions about voting on page 16.
The Board of Directors of FNB Wiggins unanimously recommends voting in favor of the proposed Merger.
Q(10): Should I send in my stock certificates now?
A: No. No one should send their stock certificates in now. After the Merger is completed, First
Bancshares will send you written instructions on how to exchange your FNB Wiggins Common Stock for First
Bancshares Common Stock.
Q(11): Who can help answer my questions?
A: If you have more questions about the Merger you should contact Benny Bell or Buddy Lewis at First
National Bank of Wiggins, 124 Border Avenue, Wiggins, Mississippi 39577, Telephone (601) 928-5241.
The following is a brief summary of certain information contained elsewhere in this Proxy Statement/Prospectus and the documents incorporated herein by reference. This summary is necessarily incomplete and is subject to and qualified in its entirety by reference to the more detailed information and financial statements contained elsewhere in this Proxy Statement/Prospectus, including the Exhibits and the documents incorporated in this Proxy Statement/Prospectus by reference. Certain capitalized terms used in this summary are defined elsewhere in this Proxy Statement/Prospectus.
Purpose of the MeetingThe purpose of the Meeting (as defined below) is to consider and vote upon a proposal to approve an Agreement and Plan of Merger, dated May 19, 2006 (the “Merger Agreement”), by and among The First Bancshares, Inc., a Mississippi corporation and registered bank holding company (“First Bancshares”), and its wholly-owned subsidiary, The First, a National Banking Association, a national banking association organized under the laws of the United States (“The First”), on the one hand, and First National Bank of Wiggins, a national banking association organized under the laws of the United States (“FNB Wiggins”), on the other hand, pursuant to which, among other things, (a) FNB Wiggins will be merged with and into The First (the “Merger”), and (b) on the effective date of the Merger (the “Effective Date”), each outstanding share of FNB Wiggins common stock, $10.00 par value per share (“FNB Wiggins Common Stock”), will be converted into the right to receive cash and common stock, $1.00 par value per share, of First Bancshares (“First Bancshares Common Stock”) as determined pursuant to the Merger Agreement.
Upon completion of the Merger, FNB Wiggins shareholders will receive in the aggregate cash and shares of First Bancshares Common Stock having a combined value of approximately $4,152,400 ("Merger Consideration"). This approximate value is based upon the terms of the Merger Agreement, which states that FNB Wiggins shareholders will receive approximately $175.00 in value (in the form of cash and/or First Bancshares Common Stock as described below) for each share of FNB Wiggins Common Stock they own. For purposes of the Merger Consideration, the Merger Agreement states that First Bancshares Common Stock will be valued at $19.00. Shares of First Bancshares Common Stock traded on the NASDAQ stock market for prices ranging from $21.09 to $24.00 between the date of the Merger Agreement and August 18, 2006. Therefore, should the shares of First Bancshares Common Stock have a value on the Effective Date of the Merger that equals its trading price on August 18, 2006, the actual value of the consideration received by FNB Wiggins shareholders as a result of the Merger would be $4,698,619.00. However, no assurance can be given as to the market price of First Bancshares Common Stock on the Effective Date.
Under the terms of the Merger Agreement, FNB Wiggins shareholders will be entitled to receive the Merger Consideration, consisting of $87.50 per share in cash (“Cash Element”) and 4.605 shares of First Bancshares Common Stock (“Stock Element”), in exchange for each share of FNB Wiggins Common Stock owned by them, representing approximately 50% cash and 50% stock as consideration for their shares.
As a result of the Bank Merger and subject to certain limitations provided for in the Merger Agreement, shares of FNB Wiggins Common Stock issued and outstanding immediately prior to the Effective Date, other than dissenting shares, shall by virtue of the Bank Merger be converted into and represent the right to receive the Stock Element, the cash payable in lieu of fractional shares, and the Cash Element less a pro rata share of Seven Hundred and Eighty Thousand Dollars ($780,000) in Consideration Deductions (which represents $32.873 per share of outstanding FNB Wiggins Common Stock), which are defined as follows: (i) Two Hundred and Eighty Thousand Dollars ($280,000) which represents a maximum of 50% of the cost of cancellation of FNB Wiggins’ data processing contract with Brasfield Technology, LLC; (ii) Two Hundred Thousand Dollars ($200,000) which represents a potential payment under that certain Confidential Term Sheet between FNB Wiggins and Richton Bank & Trust Company dated January 20, 2006 and discussed in further detail below (“Richton Letter of Intent”); and (iii) Three Hundred Thousand Dollars ($300,000) to account for potential losses related to the Mortgage Loan Purchase and Sale Agreements dated October 31, 2005 and December 16, 2005.
On the Effective Date, First Bancshares shall deposit into an escrow account cash in the amount of the Consideration Deductions (the “Escrow Fund”) in accordance with the terms of the Escrow Agreement which is attached to the Merger Agreement as Exhibit E (“Escrow Agreement”). A distribution to the holders of FNB Wiggins Common Stock (other than holders of dissenting shares) of certain portions of the Escrow Fund remaining after the payment of any Actual Loss (as defined in the Escrow Agreement) shall be made in accordance with the methods stated in the Escrow Agreement and upon the occurrence of each of the following events: (a) the date of the execution of a settlement and release or the entering of a final judgment with regards to any amounts owed by FNB Wiggins to Brasfield Technology, LLC, for termination fees related to the termination of the data processing agreement between FNB Wiggins and Brasfield Technology, LLC; (b) the date of the execution of a settlement and release or the entering of a final judgment with regards to the suit brought by Richton Bank & Trust Company against FNB Wiggins for breach of the Richton Letter of Intent (See “Summary – Recent Developments”); and (3) December 16, 2006, with regards to any amounts paid according to that certain Mortgage Loan Purchase and Sale Agreements whereby FNB Wiggins sold certain assets with recourse to SNGC, LLC. Notwithstanding the foregoing, on May 19, 2009, or upon the earlier termination of the Escrow Agreement, whichever occurs first, the balance remaining in the Escrow Fund shall be distributed to the holders of FNB Wiggins Common Stock (other than holders of dissenting shares) in accordance with the terms of the Escrow Agreement.
As a result of the Merger, the business and properties of FNB Wiggins will become the business and properties of First Bancshares, and holders of FNB Wiggins Common Stock will become shareholders of First Bancshares, except for any such holders who perfect dissenters’ rights. Page 12 of this Proxy Statement/Prospectus contains a table that illustrates the number of shares of First Bancshares Common Stock to be received based on the value of $19.00 for each share of First Bancshares Common Stock as stated in the Merger Agreement.
Date, Time and Place of the Meeting; Record DateA Special Meeting of Shareholders (the “Meeting”) of FNB Wiggins will be held on September 21, 2006, at 4:00 p.m. at 124 Border Avenue, Wiggins, Mississippi. The Board of Directors of FNB Wiggins has fixed the close of business on August 1, 2006, as the record date (the “Record Date”) for determining holders of outstanding shares of FNB Wiggins Common Stock entitled to notice of and to vote at the Meeting. Only holders of FNB Wiggins Common Stock of record on the books of FNB Wiggins at the close of business on the Record Date are entitled to vote at the Meeting or at any adjournment thereof. As of the Record Date, there were 23,728 shares of FNB Wiggins Common Stock issued and outstanding, each of which is entitled to one vote. See “Introduction — General” and “Introduction — Record Date; Voting Rights; Proxies.”
Vote RequiredHolders of two-thirds (2/3) of the outstanding shares of FNB Wiggins Common Stock must approve the Merger Agreement. As of the Record Date, the executive officers and directors of FNB Wiggins as a group had the power to vote approximately 11,220 shares of FNB Wiggins Common Stock, representing approximately 47% of the outstanding shares.
The PartiesFirst Bancshares. First Bancshares is a bank holding company headquartered at 6480 U.S. Highway 98 West, Hattiesburg, Mississippi 39402, telephone number (601) 268-8998. Its principal subsidiary is The First, a National Banking Association. The First serves the cities of Bay St. Louis, Hattiesburg, Laurel, Pascagoula, Picayune, Purvis, and the surrounding areas of Forrest, Hancock, Jackson, Jones, Lamar, and Pearl River Counties in Mississippi. First Bancshares, through its subsidiary, strives to provide its customers with the breadth of products and services comparable to those offered by large regional banks, while maintaining the quick response and personal service of a locally owned and managed bank.
As of June 30, 2006, First Bancshares had total assets of $329.2 million; total deposits of $268.6 million, total loans of $238.0 million, and shareholders’ equity of $19.5 million.
The First. The First is a national banking association headquartered at 6480 U.S. Highway 98 West, Hattiesburg, Mississippi 39402, telephone number (601) 268-8998. The First also has branch offices located at: (1) 835 Hwy 90, Suite 4 in Bay St. Louis, Hancock County, Mississippi; (2) 631 Hwy 589 in Purvis, Lamar County, Mississippi; (3) 2702 Lincoln Road in Hattiesburg, Forrest County, Mississippi; (4) 3318 Hardy Street in Hattiesburg, Forrest County, Mississippi; (5) Hwy 15 North in Laurel, Jones County, Mississippi; (6) 1506-B Hwy 43 South in Picayune, Pearl River County, Mississippi; and (7) 1126 Jackson Avenue, Suite 101 in Pascagoula, Jackson County, Mississippi. The First provides a full complement of consumer and commercial banking services in south Mississippi.
FNB Wiggins. FNB Wiggins is a national banking association headquartered at 124 Border Avenue, Wiggins, Mississippi, telephone number (601) 928-5241. FNB Wiggins provides various consumer and commercial banking services to Wiggins and Stone County, Mississippi.
Recommendation of the Boards of Directors; Reasons for the MergerTHE BOARD OF DIRECTORS OF FNB WIGGINS (THE “FNB WIGGINS BOARD”) BELIEVES THE MERGER IS FAIR TO AND IN THE BEST INTERESTS OF FNB WIGGINS AND ITS SHAREHOLDERS AND RECOMMENDS THAT HOLDERS OF FNB WIGGINS COMMON STOCK VOTE “FOR” APPROVAL OF THE MERGER AGREEMENT. See “The Merger — Background of and Reasons for the Merger — FNB Wiggins.” For information on the interests of certain officers and directors of FNB Wiggins in the Merger, see “The Merger — Interests of Certain Persons in the Merger.”
In recommending approval of the Merger Agreement to the holders of FNB Wiggins Common Stock, the FNB Wiggins Board considered, among other factors, the terms of the Consent Order with the Office of the Comptroller of the Currency (“OCC”), the enhanced opportunities for operating efficiencies and growth, the additional products which would be available to customers of FNB Wiggins, and the additional liquidity First Bancshares Common Stock would provide for FNB Wiggins’ shareholders. See “The Merger — Background of and Reasons for the Merger — FNB Wiggins.”
In addition, the FNB Wiggins Board has received the opinion of Southard Financial (“Southard”) that the consideration payable under the Merger Agreement is fair from a financial point of view to the holders of FNB Wiggins Common Stock. The opinion of Southard is attached as Exhibit B and should be read in its entirety. See “The Merger — Opinion of Financial Advisor.”
The Board of Directors of The First has approved the Merger Agreement because it believes that the Merger will enhance The First’s earnings capacity by enabling it to deliver products and provide services to a larger geographic customer base, and that the combination of The First and FNB Wiggins can take advantage of increased overall efficiencies and economies of scale. See “The Merger — Reasons for the Merger — First Bancshares.”
Opinion of Financial AdvisorSouthard, FNB Wiggins’ financial advisor, has rendered its opinion that the Merger Consideration to be received by the holders of FNB Wiggins Common Stock pursuant to the Merger Agreement, when taken as a whole, is fair to FNB Wiggins and its shareholders from a financial point of view. The opinion of Southard is attached hereto as Exhibit B and should be read in its entirety with respect to the assumptions made therein and other matters considered. See “The Merger — Opinion of Financial Advisor” for further information regarding, among other things, the selection of Southard and its compensation arrangement in connection with the Merger Agreement.
Risk FactorsMaking or continuing an investment in securities, including First Bancshares’ Common Stock, involves certain risks that you should carefully consider. The risks and uncertainties described below are not the only risks that may have a material adverse effect on First Bancshares. Additional risks and uncertainties also could adversely affect First Bancshares’ business and results of operations. If any of the following risks actually occur, First Bancshares’ business, financial condition or results of operations could be affected, the market price for your securities could decline, and you could lose all or a part of your investment. Further, to the extent that any of the information contained in this Proxy Statement/Prospectus constitutes forward-looking statements, the risk factors set forth below also are cautionary statements identifying important factors that could cause First Bancshares’ actual results to differ materially from those expressed in any forward-looking statements made by or on behalf of First Bancshares.
A portion of First Bancshares’ loan portfolio is secured by real estate. If the economy deteriorated and depressed real estate values beyond a certain point, that collateral value of the portfolio and the revenue stream from those loans could come under stress and possibly require additional loan loss accruals. First Bancshares’ ability to dispose of foreclosed real estate at prices above the respective carrying values could also be impinged, causing additional losses.
General economic conditions in the areas where First Bancshares' operations or loans are concentrated may adversely affect our customers’ ability to meet their obligations.
A sudden or severe downturn in the economy in the geographic markets served by First Bancshares in the state of Mississippi may affect the ability of First Bancshares’ customers to meet loan payments obligations on a timely basis. The local economic conditions in these areas have a significant impact on First Bancshares’ commercial, real estate, and construction loans, the ability of borrowers to repay these loans and the value of the collateral securing such loans. Changes resulting in adverse economic conditions of First Bancshares’ market areas could negatively impact the financial results of First Bancshares’ banking operations and its profitability. Additionally, adverse economic changes may cause customers to withdraw deposit balances, thereby causing a strain on First Bancshares’ liquidity.
First Bancshares is subject to a risk of rapid and significant changes in market interest rates.First Bancshares’ assets and liabilities are primarily monetary in nature, and as a result First Bancshares is subject to significant risks tied to changes in interest rates. First Bancshares’ ability to operate profitably is largely dependent upon net interest income. Unexpected movement in interest rates markedly changing the slope of the current yield curve could cause First Bancshares’ net interest margins to decrease, subsequently decreasing net interest income. In addition, such changes could adversely affect the valuation of First Bancshares’ assets and liabilities.
At present First Bancshares’ one-year interest rate sensitivity position is slightly asset sensitive, but a gradual increase in interest rates during the next twelve months should not have a significant impact on net interest income during that period. However, as with most financial institutions, First Bancshares’ results of operations are affected by changes in interest rates and First Bancshares’ ability to manage this risk. The difference between interest rates charged on interest-earning assets and interest rates paid on interest-bearing liabilities may be affected by changes in market interest rates, changes in relationships between interest rate indices, and/or changes in the relationships between long-term and short-term market interest rates. A change in this difference might result in an increase in interest expense relative to interest income, or a decrease in First Bancshares’ interest rate spread.
Certain changes in interest rates, inflation, or the financial markets could affect demand for First Bancshares’ products and First Bancshares’ ability to deliver products efficiently.
Loan originations, and potentially loan revenues, could be adversely impacted by sharply rising interest rates. Conversely, sharply falling rates could increase prepayments within First Bancshares’ securities portfolio lowering interest earnings from those investments. An unanticipated increase in inflation could cause First Bancshares’ operating costs related to salaries & benefits, technology, & supplies to increase at a faster pace than revenues.
The fair market value of First Bancshares’ securities portfolio and the investment income from these securities also fluctuate depending on general economic and market conditions. In addition, actual net investment income and/or cash flows from investments that carry prepayment risk, such as mortgage-backed and other asset-backed securities, may differ from those anticipated at the time of investment as a result of interest rate fluctuations.
Changes in the policies of monetary authorities and other government action could adversely affect First Bancshares’ profitability.
The results of operations of First Bancshares are affected by credit policies of monetary authorities, particularly the Federal Reserve Board. The instruments of monetary policy employed by the Federal Reserve Board include open market operations in U.S. government securities, changes in the discount rate or the federal funds rate on bank borrowings and changes in reserve requirements against bank deposits. In view of changing conditions in the national economy and in the money markets, particularly in light of the continuing threat of terrorist attacks and the current military operations in the Middle East, we cannot predict possible future changes in interest rates, deposit levels, loan demand or First Bancshares’ business and earnings. Furthermore, the actions of the United States government and other governments in responding to such terrorist attacks or the military operations in the Middle East may result in currency fluctuations, exchange controls, market disruption and other adverse effects.
Natural disasters could affect First Bancshares' ability to operateFirst Bancshares’ market areas are susceptible to natural disasters such as hurricanes. Natural disasters can disrupt First Bancshares’ operations, result in damage to properties and negatively affect the local economies in which First Bancshares operates. First Bancshares cannot predict whether or to what extent damage caused by future hurricanes will affect First Bancshares’ operations or the economies in First Bancshares’ market areas, but such weather events could cause a decline in loan originations, a decline in the value or destruction of properties securing the loans and an increase in the risk of delinquencies, foreclosures or loan losses.
Greater loan losses than expected may adversely affect First Bancshares' earnings.First Bancshares as lender is exposed to the risk that its customers will be unable to repay their loans in accordance with their terms and that any collateral securing the payment of their loans may not be sufficient to assure repayment. Credit losses are inherent in the business of making loans and could have a material adverse effect on First Bancshares’ operating results. First Bancshares’ credit risk with respect to its real estate and construction loan portfolio will relate principally to the creditworthiness of corporations and the value of the real estate serving as security for the repayment of loans. First Bancshares’ credit risk with respect to its commercial and consumer loan portfolio will relate principally to the general creditworthiness of businesses and individuals within First Bancshares’ local markets.
First Bancshares makes various assumptions and judgments about the collectibility of its loan portfolio and provide an allowance for estimated loan losses based on a number of factors. First Bancshares believes that its current allowance for loan losses is adequate. However, if First Bancshares’ assumptions or judgments prove to be incorrect, the allowance for loan losses may not be sufficient to cover actual loan losses. First Bancshares may have to increase its allowance in the future in response to the request of one of its primary banking regulators, to adjust for changing conditions and assumptions, or as a result of any deterioration in the quality of First Bancshares’ loan portfolio. The actual amount of future provisions for loan losses cannot be determined at this time and may vary from the amounts of past provisions.
First Bancshares may need to rely on the financial markets to provide needed capitalFirst Bancshares’ Common Stock is listed and traded on the NASDAQ stock market. Although First Bancshares anticipates that its capital resources will be adequate for the foreseeable future to meet its capital requirements, at times First Bancshares may depend on the liquidity of the NASDAQ stock market to raise equity capital. If the market should fail to operate, or if conditions in the capital markets are adverse, First Bancshares may be constrained in raising capital. First Bancshares maintains a consistent analyst following; therefore, downgrades in First Bancshares’ prospects by an analyst(s) may cause First Bancshares’ Common Stock price to fall and significantly limit First Bancshares’ ability to access the markets for additional capital requirements. Should these risks materialize, First Bancshares’ ability to further expand its operations through internal growth may be limited.
First Bancshares is subject to the regulations of the Securities and Exchange Commission (“SEC”), the Federal Reserve Board, the Federal Deposit Insurance Corporation, and the OCC. New regulations issued by these agencies may adversely affect First Bancshares’ ability to carry on its business activities. First Bancshares is subject to various Federal and state laws and certain changes in these laws and regulations may adversely affect First Bancshares’ operations.
First Bancshares is also subject to the accounting rules and regulations of the SEC and the Financial Accounting Standards Board. Changes in accounting rules could adversely affect the reported financial statements or results of operations of First Bancshares and may also require extraordinary efforts or additional costs to implement. Any of these laws or regulations may be modified or changed from time to time, and First Bancshares cannot be assured that such modifications or changes will not adversely affect First Bancshares.
First Bancshares engages in acquisitions of other businesses from time to time.On occasion, First Bancshares will engage in acquisitions of other businesses. Acquisitions may result in customer and employee turnover, thus increasing the cost of operating the new businesses. The acquired companies may also have legal contingencies, beyond those that First Bancshares is aware of, that could result in unexpected costs.
First Bancshares is subject to industry competition which may have an impact upon its success.The profitability of First Bancshares depends on its ability to compete successfully. First Bancshares operates in a highly competitive financial services environment. Certain competitors are larger and may have more resources than First Bancshares does. First Bancshares faces competition in its regional market areas from other commercial banks, savings and loan associations, credit unions, internet banks, finance companies, mutual funds, insurance companies, brokerage and investment banking firms, and other financial intermediaries that offer similar services. Some of First Bancshares’ nonbank competitors are not subject to the same extensive regulations that govern First Bancshares or the Bank and may have greater flexibility in competing for business.
Another competitive factor is that the financial services market, including banking services, is undergoing rapid changes with frequent introductions of new technology-driven products and services. First Bancshares’ future success may depend, in part, on its ability to use technology competitively to provide products and services that provide convenience to customers and create additional efficiencies in First Bancshares’ operations.
Future issuances of additional securities could result in dilution of shareholders' ownership.First Bancshares may determine from time to time to issue additional securities to raise additional capital, support growth, or to make acquisitions. Further, First Bancshares may issue stock options or other stock grants to retain and motivate First Bancshares’ employees. Such issuances of Company securities will dilute the ownership interests of First Bancshares’ shareholders.
Anti-takeover laws and certain agreements and charter provisions may adversely affect share value.Certain provisions of state and federal law and First Bancshares’ articles of incorporation may make it more difficult for someone to acquire control of First Bancshares. Under federal law, subject to certain exemptions, a person, entity, or group must notify the federal banking agencies before acquiring 10% or more of the outstanding voting stock of a bank holding company, including First Bancshares’ shares. Banking agencies review the acquisition to determine if it will result in a change of control. The banking agencies have 60 days to act on the notice, and take into account several factors, including the resources of the acquiror and the antitrust effects of the acquisition. There also are Mississippi statutory provisions and provisions in First Bancshares’ articles of incorporation that may be used to delay or block a takeover attempt. As a result, these statutory provisions and provisions in First Bancshares’ articles of incorporation could result in First Bancshares being less attractive to a potential acquiror.
Securities issued by First Bancshares, including First Bancshares’ Common Stock, are not savings or deposit accounts or other obligations of any bank and are not insured by the FDIC, the Deposit Insurance Fund, or any other governmental agency or instrumentality, or any private insurer, and are subject to investment risk, including the possible loss of principal.
Regulatory ApprovalsIt is a condition to the consummation of the Merger that all required regulatory approvals be obtained. The only required regulatory approval is the approval of the OCC. See “The Merger — Regulatory Approvals.”
Other Conditions to Consummation of the MergerIn addition to regulatory approvals and the approval of the Merger Agreement by the requisite vote of the holders of FNB Wiggins Common Stock, which conditions may not be waived, the respective obligations of each party under the Merger Agreement are subject, among other conditions, to: (1) the receipt of an opinion of Watkins Ludlam Winter & Stennis, P.A., that the transactions contemplated by the Merger Agreement will be treated for federal income tax purposes as a tax-free reorganization under Section 368 of the Internal Revenue Code of 1986, as amended (the “Code”), with respect to the Stock Element provided to the holders of FNB Wiggins Common Stock as part of the Merger Consideration, which condition may not be waived; and (2) the absence of a material adverse change in the financial condition, results of operations or business of the other party’s consolidated group which condition may be waived. See “The Merger — Other Conditions to the Merger” and “The Merger – Certain Federal Income Tax Consequences” for additional information concerning the conditions to consummation of the Merger.
Exchange of FNB Wiggins' Certificates; No Fractional SharesAs soon as practicable after the Effective Date, The First (the “Exchange Agent”) will mail to each holder of record of FNB Wiggins Common Stock, a letter of transmittal and instructions for use in effecting the surrender of the certificates which, immediately prior to the Effective Date, represented issued and outstanding shares of FNB Wiggins Common Stock in exchange for cash and certificates representing First Bancshares Common Stock. See “The Merger — Exchange of FNB Wiggins’ Certificates.” Cash will also be paid in lieu of any fractional shares of First Bancshares Common Stock. See “The Merger — Structure and Terms of the Merger. Certificates representing FNB Wiggins Common Stock should not be surrendered until the letter of transmittal is received.
Effective DateIf the Merger Agreement is approved by the requisite vote of the holders of FNB Wiggins Common Stock, the Merger is approved by all required regulatory agencies, and the other conditions to the Merger are satisfied or waived (where permissible), the Merger will become effective at the date agreed to by FNB Wiggins and The First (the “Effective Date”) which will be explicitly stated in the Certificate of Merger filed with the OCC. It is expected that the Effective Date will occur on or before September 30, 2006; however, there can be no assurance that the conditions to the Merger will be satisfied or waived so that the Merger can be consummated. See “The Merger — Effective Date” and “The Merger — Other Conditions to the Merger.”
Interests of Certain Persons in the MergerCertain members of FNB Wiggins’ management and Board of Directors have interests in the Merger in addition to their interests as shareholders of FNB Wiggins generally. Those interests include, among others, provisions in the Merger Agreement that: (1) allow FNB Wiggins to purchase Tail Insurance which will provide post Closing coverage for errors and omissions similar to that provided by the directors’ and officers’ errors and omissions insurance policy presently carried by FNB Wiggins; (2) require The First to reimburse any person that is defined as an insured under the current directors’ and officers’ errors and omissions insurance policy and insured under the Tail Insurance policy for any expenditures classified as retention or deductible amounts under the policy that are incurred by the insured as a result of any errors or omissions covered by the Tail Insurance; and (3) grant to some of them the eligibility to participate in certain employee benefit plans of The First. The executive officers and directors of FNB Wiggins will also receive cash and shares of First Bancshares Common Stock in the Merger with an aggregate value of $2,221,275.00, based on the price of $19.00 for each share of First Bancshares Common Stock. See “The Merger — Interests of Certain Persons in the Merger” and “Security Ownership of Principal Shareholders and Management.”
Among other reasons, the Merger Agreement may be terminated at any time prior to the Effective Date (i) in the event the Merger Agreement is not approved by the OCC or shareholders of FNB Wiggins at the Meeting, (ii) if either party commits a material breach of any covenant, agreement, warranty, or representation in the Merger Agreement that is not or cannot be cured within sixty (60) days after the breaching party receives written notice of such breach, (iii) if the number of shares of FNB Wiggins Common Stock, the holders of which perfect dissenters’ rights, is in such numbers as would disqualify the transaction as a nontaxable reorganization under and in accordance with Sections 368(a)(1)(A) and 368(a)(2)(D) of the Code, or (iv) if the Closing has not occurred by 5:00 p.m. local time on September 30, 2006. The Merger Agreement may also be terminated by mutual consent. See “The Merger — Amendment; Waiver; Termination.”
Certain Federal Income Tax ConsequencesConsummation of the Merger is conditioned upon receipt by each of the parties to the Merger Agreement of an opinion of Watkins Ludlam Winter & Stennis, P.A. that the Merger will be treated, for federal income tax purposes, as a tax-free reorganization, with the result that no gain or loss will be recognized by FNB Wiggins or by holders of FNB Wiggins Common Stock who exchange their FNB Wiggins Common Stock for First Bancshares Common Stock pursuant to the Merger, except with respect to cash received. FNB Wiggins’ shareholders who exercise dissenters’ rights and receive all cash for their shares will have gain or loss for federal income tax purposes. FNB Wiggins’ shareholders are urged to consult their own tax advisors as to the specific tax consequences to them of the Merger. See “The Merger — Certain Federal Income Tax Consequences.”
Dissenters' RightsUnder the National Bank Act, holders of FNB Wiggins Common Stock who vote against the Merger and who deliver to FNB Wiggins the required written demand and who otherwise comply with the requirements of the National Bank Act will be entitled to receive the value of their shares in cash as determined under the provisions of the National Bank Act. Such right will be lost, however, if the procedural requirements of the National Bank Act are not fully and precisely satisfied. See “Dissenters’ Rights” and Exhibit C hereto.
Resales of First Bancshares Common StockThe shares of First Bancshares Common Stock to be issued to the holders of FNB Wiggins Common Stock pursuant to the Merger Agreement have been registered under the Securities Act pursuant to a Registration Statement on Form S-4, of which this Proxy Statement/Prospectus is a part, thereby allowing such shares to be freely transferred without restriction by persons who will not be “affiliates” of First Bancshares or who were not “affiliates” of FNB Wiggins within the meaning of Rule 145 under the Securities Act. In general, affiliates of FNB Wiggins include its executive officers and directors and any person who controls, is controlled by or is under common control with FNB Wiggins. For the purposes of Rule 145, any shareholder who owns ten percent (10%) or more of the voting stock of a company is presumptively deemed to have “control.” However, the amount of voting stock owned by a shareholder is not the only factor considered when deciding who has “control” over a company, and a person may or may not be deemed to have “control” regardless of how much voting stock they own if other factors apply. Holders of FNB Wiggins Common Stock who are affiliates of FNB Wiggins will not be able to resell the First Bancshares Common Stock received by them in the Merger unless the First Bancshares Common Stock is registered for resale under the Securities Act, is sold in compliance with Rule 145 under the Securities Act or is sold in compliance with another exemption from the registration requirements of the Securities Act. See “The Merger — Resales of First Bancshares Common Stock.”
The following table compares the values stated in the Merger Agreement for each share of the First Bancshares Common Stock with the values stated in the Merger Agreement for each share of FNB Wiggins Common Stock. Shares of First Bancshares Common Stock were trading for $21.09 on the NASDAQ stock market on the date of the Merger Agreement, and said shares have traded on that same exchange for prices ranging from $21.09 to $24.00 between the date of the Merger Agreement and August 18, 2006. However, no assurance can be given as to the market price of First Bancshares Common Stock on the Effective Date. FNB Wiggins Common Stock is not listed, traded, or quoted on any securities exchange or in the over-the-counter market, and no dealer makes a market in the FNB Wiggins Common Stock, although isolated transactions between individuals occur from time to time. To FNB Wiggins' management's knowledge, the most recent transactions with respect to FNB Wiggins Common Stock were conducted in December of 2004 at approximately $175 per share.
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First Bancshares Common Stock FNB Wiggins Common Stock
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$19.00 $175.00
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Recent Developments
On May 24, 2006, Centon Bancorp, Inc., a Mississippi corporation and registered bank holding company located in Richton Mississippi (“Centon”), along with its wholly-owned subsidiary, Richton Bank & Trust Company, a Mississippi banking corporation whose main office is located in Richton, Mississippi (“RB&T”), filed suit against FNB Wiggins in the Circuit Court of Stone County for the following causes of action: (1) the breach of a Confidential Term Sheet executed by RB&T and FNB Wiggins whereby both expressed an intent for RB&T to purchase and assume certain assets and liabilities of FNB Wiggins pursuant to a definitive agreement that was contemplated by the Confidential Term Sheet but was never completed; (2) the breach of an implied covenant of good faith and fair dealing with regards to its failure to abide by the Confidential Term Sheet; and (3) the tortious breach of the Confidential Term Sheet due to its alleged and willful disregard of its contractual obligations to RB&T. RB&T also claimed the right to recover the following damages as a result of the alleged causes of action: (1) $200,000 of liquidated damages as specified in the Confidential Term Sheet; (2) punitive damages for the tortious breach of the Confidential Term Sheet; (3) attorneys’ fees in an amount to be determined at trial; and (4) such other relief as the Court deems proper.
On June 16, 2006, FNB Wiggins, through its attorneys Tadd and Jack Parsons, filed an answer to RB&T’s complaint, asserting the following defenses: (1) that Centon and RB&T have failed to state a claim for which relief can be granted; (2) that FNB Wiggins did not violate the Confidential Term Sheet; (3) that the punitive damage request violates the Fourteenth Amendment of the United States Constitution; and (4) that the request for attorney’s fees should be dismissed. FNB Wiggins asked for the lawsuit to be dismissed and also made a motion to join Holloway & Associates, consultants to Centon and RB&T, to the lawsuit as a third party defendant. The FNB Wiggins Board believes the suit is without merit; however, this should not be construed as a guaranty that FNB Wiggins will not be assigned fault by the court.
For more information on the Confidential Term Sheet that is the subject of the suit, see “The Merger – Background of the Merger.”
Selected Financial DataThe following selected financial data for First Bancshares and FNB Wiggins have been derived from the consolidated financial statements of First Bancshares and FNB Wiggins. The information set forth below should be read in conjunction with the consolidated financial statements of First Bancshares and FNB Wiggins incorporated by reference or included elsewhere herein, and FNB Wiggins’ Management’s Discussion and Analysis of Financial Condition and Results of Operations, included elsewhere herein.
FNB Wiggins -Selected Financial Data
(In Thousands Except Per Share Amounts and Ratios)
Six Months Ended Year Ended December 31,
June 30, (unaudited)
--------------------------- ------------------------------------------------------
(Unaudited)
2006 2005 2005 2004 2003 2002 2001
--------------------------- ------------------------------------------------------
Statements of earnings
Interest income 1,410 1,166 2,548 2,487 2,971 3,853 4,841
Interest expense 518 532 1,061 1,206 1,440 1,959 2,710
--------------------------- ------------------------------------------------------
Net interest income 892 634 1,487 1,281 1,531 1,894 2,131
Provision for possible loan 400 102 118 287 88 2,042 835
losses
--------------------------- ------------------------------------------------------
Net interest income after 492 532 1,369 994 1,443 (148) 1,296
provision for possible
loan losses
Other operating income 139 187 300 540 521 635 627
Other operating expense 993 909 1,912 2,137 2,043 2,275 2,050
--------------------------- ------------------------------------------------------
Income before income taxes and (362) (190) (243) (603) (79) (1,788) (127)
cumulative effect of
accounting change
Income tax expense 0 0 0 8 0 (618) (32)
--------------------------- ------------------------------------------------------
Income before cumulative effect (362) (190) (243) (611) (79) (1,170) (95)
of accounting change
Cumulative effect of account 0 0 0 0 0 0 0
change
--------------------------- ------------------------------------------------------
Net income (362) (190) (243) (611) (79) (1,170) (95)
=========================== ======================================================
Net income per common share (15.26)* (8.00) (10.24) (26.05) (3.66) (58.50) (4.75)
--------------------------- ------------------------------------------------------
=========================== ======================================================
FNB Wiggins - Additional Selected Financial Data (Unaudited)
Six Months Ended Year Ended December 31,
June 30, (unaudited)
--------------------------- ------------------------------------------------------
2006 2005 2005 2004 2003 2002 2001
--------------------------- ------------------------------------------------------
Weighted average shares 23,728 23,728 23,728 23,453 21,589 20,000 20,000
outstanding
Statements of condition -
averages
Total assets 47,599 45,327 50,193 49,335 50,667 55,630 59,801
Earning assets 43,705 41,443 45,315 45,003 47,484 51,839 55,723
Securities 21,529 14,103 15,996 17,332 16,312 10,569 9,914
Loans 19,513 26,246 23,630 26,820 29,756 39,324 42,677
Deposits 45,130 42,328 45,203 44,479 42,770 50,411 53,906
FHLB advances 0 0 0 0 0 0 0
Total stockholders' equity 3,214 3,560 3,588 4,091 4,138 4,386 5,004
Selected ratios
Return on average assets (1.52) (.84) (.48) (1.24) (.16) (2.10) (.16)
Return on average equity (22.53) (10.67) (6.7) (14.9) (1.9) (26.7) (1.89)
Net interest margin - tax 4.08 3.06 3.28 2.85 3.22 3.65 3.82
equivalent
Loans to deposits 43.89 61.1 43.9 60.4 63.7 77.5 79.4
Allowance for possible loan 3.73 4.17 1.48 3.71 4.48 3.90 1.40
losses to loans
Net charge-offs to average loans .03 .05 3.32 2.30 .94 2.89 2.33
Dividend payout 0 0 0 0 0 0 0
Average equity to average assets 6.75 7.85 7.2 8.3 8.2 7.9 8.4
Leverage ratio 6.57 7.32 6.5 7.1 8.2 6.8 8.3
* This calculation includes a recent increase in the Provision for Possible Loan Losses requested by First
Bancshares following their due diligence review of the FNB Wiggins loan portfolio. Excluding such increase, the
net loss per share would have been $3.37 per share. For more information on the recent increase in the Provision
for Possible Loan Losses, see "INFORMATION CONCERNING FNB WIGGINS - Supervision and Regulation - Loan Loss
Reserves."
First Bancshares and Subsidiaries - Selected Financial Data
(In Thousands Except Per Share Amounts and Ratios)
Six Months Ended
June 30, Year Ended December 31,
(unaudited)
------------------- -------------------------------------------------------------
2006 2005 2005 2004 2003 2002 2001
------------------- -------------------------------------------------------------
Statements of earnings
Interest income 10,392 7,020 15,692 11,014 10,486 9,839 9,937
Interest expense 3,816 2,347 5,542 3,199 3,177 3,703 4,970
------------------- -------------------------------------------------------------
Net interest income 6,576 4,673 10,150 7,815 7,309 6,136 4,967
Provision for possible loan 294 437 921 672 468 369 342
Losses
------------------- -------------------------------------------------------------
Net interest income after 6,282 4,236 9,229 7,143 6,841 5,767 4,625
provision for possible loan
losses
Other operating income 1,123 892 1,682 1,963 1,772 1,690 1,074
Other operating expense 4,969 3,837 8,138 7,228 7,134 6,180 4,781
------------------- -------------------------------------------------------------
Income before income taxes 2,436 1,291 2,773 1,878 1,479 1,277 918
Income tax expense 688 432 864 635 472 413 246
------------------- -------------------------------------------------------------
Net income 1,748 859 1,909 1,243 1,007 864 672
=================== =============================================================
Net income per share
Primary .74 .37 .81 .54 .43 .37 .29
Fully diluted .69 .35 .77 .52 .42 .36 .28
Cash dividends per share .16 .10 .10 .075 .05 .05 0
Weighted average shares outstanding
Primary 2,377,802 2,356,746 2,358,308 2,331,970 2,338,102 2,330,330 2,305,936
Fully diluted 2,536,381 2,473,480 2,488,890 2,406,682 2,414,484 2,407,220 2,362,770
Statements of condition - averages
Total assets 316,485 239,343 252,913 186,440 161,039 147,204 129,738
Earning assets 291,826 219,682 231,565 168,474 143,345 131,697 118,003
Securities available for sale 57,275 26,618 30,971 24,725 25,121 23,162 21,026
Investment securities 57,288 26,632 30,985 24,740 25,141 23,190 21,071
Loans, net of unearned income 222,790 187,069 189,187 140,052 112,468 103,069 89,762
Deposits 262,605 188,869 199,389 139,264 119,910 115,679 105,041
Long-term debt 32,254 31,596 34,759 30,292 24,740 16,007 10,756
Total stockholders' equity 18,568 16,780 17,278 16,203 15,698 14,802 13,543
Selected ratios
Return on average assets 1.10 .72 .75 .67 .63 .59 .52%
Return on average equity 18.82 10.24 11.0 7.7 6.4 5.8 5.0
Net interest margin - tax 4.51 4.25 4.38 4.64 5.10 4.66 4.21
equivalent
*Efficiency ratio 64.54 68.95 68.78 73.92 78.56 78.97 79.14
Loans to deposits 87.5 98.8 81.4 102.9 93.4 85.1 80.6
Allowance for possible loan 1.12 1.03 1.18 1.01 1.01 1.14 1.12
losses to loans, net of unearned
income
Net charge-offs (recoveries) to .03 .06 .11 .13 .47 .20 .30
average loans, net of unearned
income
Dividend payout 10.81 13.51 12.3 14.2 11.6 13.5 0
Average equity to average assets 5.87 7.01 6.8 8.7 9.7 10.1 10.4
Leverage ratio 8.45 9.8 8.0 10.8 12.7 12.5 10.2
Tier 1 risk-based 10.87 12.21 12.0 13.7 16.2 15.6 14.7
Total risk-based 13.69 13.27 12.4 14.6 18.6 19.5 15.8
*Excludes the effects of amortization of goodwill and core deposit intangibles.
The following table sets forth certain historical comparative information and certain pro forma and equivalent pro forma information with respect to income per share, book value per share and cash dividends per share for the First Bancshares Common Stock and the FNB Wiggins Common Stock. The information that follows should be read in conjunction with the audited historical financial statements and notes thereto of First Bancshares incorporated by reference herein and the audited historical financial statements and notes thereto of FNB Wiggins included in this Proxy Statement/Prospectus. The comparative pro forma and equivalent pro forma data have been included herein for comparative purposes only and do not purport to be indicative of the results of operations or financial condition that actually would have resulted had the Merger occurred at the beginning of the period or the results of operations or financial condition that may be obtained in the future.
Pro Forma
-------------------------------------
First
Historical Bancshares and
-------------------------------- FNB Wiggins FNB Wiggins
First Pro Forma Pro Forma
Per Common Share Bancshares FNB Wiggins Combined Equivalent (a)
---------------------------------------- ------------- --------------- ----------------- ----------------
Net Income (b)
For the six months ended .74 (15.26) .56 .025
June 30, 2006
For the year ended .81 (10.24) .68 .030
December 31,
2005
2004 .54 (26.05) .26 .011
2003 .43 (3.66) .38 .017
Cash Dividends (c)
For the six months ended .16 0 .16 .007
June 30, 2006
For the year ended .10 0 .10 .004
December 31,
2005
2004 .075 0 .075 .003
2003 .05 0 .05 .002
Book Value (d)
As of June 30, 2006 8.18 125.21 8.50 .37
As of December 31, 2005 7.70 144.51 8.09 .36
As of December 31, 2004 7.08 157.91 7.36 .32
As of December 31, 2003 6.64 186.90 7.16 .32
___________________________
(a) FNB Wiggins pro forma equivalent amounts are computed by multiplying the pro forma combined
amounts by 4.4%.
(b) Net income per common share is based on weighted average common shares outstanding.
(c) Pro forma cash dividends represent historical cash dividends of First Bancshares.
(d) Book value per common share is based on total period-end shareholders' equity.
This Proxy Statement/Prospectus is being furnished to holders of FNB Wiggins Common Stock in connection with the solicitation by the FNB Wiggins Board of proxies for use at the Meeting to be held at 4:00 p.m. local time, on September 21, 2006 at 124 Border Avenue, Wiggins, Mississippi, and at any adjournment thereof.
At the Meeting, shareholders will consider and vote upon a proposal to approve the Merger Agreement, by and among First Bancshares, The First, and FNB Wiggins pursuant to which FNB Wiggins will merge with and into The First and each share of FNB Wiggins Common Stock issued and outstanding immediately prior to the Effective Date of the Merger (except Dissenting Shares, as hereinafter defined) will be converted into the right to receive and be exchangeable for cash and shares of First Bancshares Common Stock pursuant to the Merger Agreement. As a result of the Merger, the holders of FNB Wiggins Common Stock (other than holders of Dissenting Shares) will become shareholders of First Bancshares.
This Proxy Statement/Prospectus constitutes a Proxy Statement of FNB Wiggins with respect to the Meeting and a Prospectus of First Bancshares with respect to the shares of First Bancshares Common Stock to be issued in connection with the Merger. The information in this Proxy Statement/Prospectus concerning First Bancshares and its subsidiaries and FNB Wiggins has been furnished by each of such entities, respectively.
The principal executive offices of First Bancshares and The First are located at 6480 Highway 98 West, Hattiesburg, Mississippi 39402, and their telephone number is (601) 268-8998. The principal executive office of FNB Wiggins is located at 124 Border Avenue, Wiggins, Mississippi, and its telephone number is (601) 928-5241.
This Proxy Statement/Prospectus is first being mailed to holders of FNB Wiggins Common Stock on or about August 30, 2006.
Record Date; Voting Rights; ProxiesThe FNB Wiggins Board has fixed the close of business on August 1, 2006 as the Record Date for determining holders of outstanding shares of FNB Wiggins Common Stock entitled to notice of and to vote at the Meeting. Only holders of FNB Wiggins Common Stock of record on the books of FNB Wiggins at the close of business on the Record Date are entitled to vote at the Meeting or at any adjournment thereof. As of the Record Date, there were 23,728 shares of FNB Wiggins Common Stock issued and outstanding, each of which is entitled to one vote. The approval of the Merger Agreement by shareholders, in person or by proxy, holding two-thirds (2/3) of the total voting power of FNB Wiggins is necessary for the Merger to become effective. Shares of FNB Wiggins Common Stock represented by properly executed proxies will be voted in accordance with the instructions indicated on the proxies or, if no instructions are indicated, will be voted FOR the proposal to approve the Merger Agreement and in the discretion of the proxy holders as to any other matter which may properly come before the Meeting or any adjournment thereof, except that, with respect to shares voting against approval of the Merger Agreement, this discretionary authority will not be used to vote for adjournment of the Meeting in order to permit further solicitation of proxies. A shareholder who has given a proxy may revoke it at any time before it is voted by (a) filing with the Secretary of FNB Wiggins (i) a notice in writing revoking it, or (ii) a duly executed proxy bearing a later date, or (b) voting in person at the Meeting.
Approval of the Merger Agreement requires the approval of the holders of two-thirds (2/3) of the outstanding shares of FNB Wiggins Common Stock. An abstention by a shareholder present at the Meeting in person or by proxy, a failure to return a properly executed proxy, or a broker submitting a proxy without exercising discretionary authority with respect to approval of the Merger Agreement will have the same effect as a vote against the Merger Agreement. As of the Record Date, the executive officers and directors of FNB Wiggins as a group had the power to vote approximately 11,220 shares of FNB Wiggins Common Stock, representing approximately 47% of the outstanding shares, all of which are expected to be voted in favor of approval of the Merger Agreement.
First Bancshares’ shareholders are not required to approve the Merger Agreement or the issuance of shares of First Bancshares Common Stock. However, The Board of Directors of First Bancshares is required to approve the issuance of shares of First Bancshares Common Stock. Additionally, the Merger Agreement must be approved by the Board of Directors of The First and by First Bancshares as sole shareholder of The First.
FNB Wiggins will bear the costs of soliciting proxies from its shareholders. In addition to the use of the mail, proxies may be solicited by the directors, officers and employees of FNB Wiggins in person, or by telephone, telecopier or telegram. Such directors, officers and employees will not be additionally compensated for such solicitation but may be reimbursed for out-of-pocket expenses incurred in connection therewith. Arrangements will also be made with custodians, nominees and fiduciaries for the forwarding of solicitation material to the beneficial owners of FNB Wiggins Common Stock held of record by such persons, and FNB Wiggins may reimburse such custodians, nominees and fiduciaries for reasonable out-of-pocket expenses incurred in connection therewith.
The Merger Agreement provides that, subject to the satisfaction or waiver (where permissible) of certain conditions, including, among other things, the receipt of all necessary regulatory approvals, the expiration of all related waiting periods and the approval of the holders of FNB Wiggins Common Stock, FNB Wiggins will be merged with and into The First. As a result of the Merger, the separate corporate existence of FNB Wiggins will cease and the holders of FNB Wiggins Common Stock (other than shares owned by shareholders who, pursuant to the National Bank Act, perfect any right to receive the fair value of such shares (“Dissenting Shares”)) will become shareholders of First Bancshares. The date on which the Merger will be consummated is herein referred to as the “Effective Date.” See “The Merger — Effective Date.”
The description of the Merger Agreement included in this Proxy Statement/Prospectus is qualified in its entirety by reference to the Merger Agreement, which is incorporated herein by reference and a copy of which is attached hereto as Exhibit A.
Structure and Terms of the MergerUpon consummation of the Merger, FNB Wiggins will be merged with and into The First and the FNB Wiggins Common Stock issued and outstanding at the Effective Date (other than holders of Dissenting Shares) will be converted into the right to receive and be exchangeable for cash and shares of First Bancshares Common Stock in the amount of the Merger Consideration.
Upon completion of the Merger, FNB Wiggins shareholders will receive in the aggregate cash and shares of First Bancshares Common Stock having a combined value of approximately $4,152,400 ("Merger Consideration"). This approximate value is based upon the terms of the Merger Agreement, which states that FNB Wiggins shareholders will receive approximately $175.00 in value (in the form of cash and/or First Bancshares Common Stock as described below) for each share of FNB Wiggins Common Stock they own. For purposes of the Merger Consideration, the Merger Agreement states that First Bancshares Common Stock will be valued at $19.00. Shares of First Bancshares Common Stock traded on the NASDAQ stock market for prices ranging from $21.09 to $24.00 between the date of the Merger Agreement and August 18, 2006. Therefore, should the shares of First Bancshares Common Stock have a value on the Effective Date of the Merger that equals its trading price on August 18, 2006, the actual value of the consideration received by FNB Wiggins shareholders as a result of the Merger would be $4,698,619.00. However, no assurance can be given as to the market price of First Bancshares Common Stock on the Effective Date.
Under the terms of the Merger Agreement, FNB Wiggins shareholders will be entitled to receive the Merger Consideration, consisting of $87.50 per share in cash (“Cash Element”) and 4.605 shares of First Bancshares Common Stock (“Stock Element”), in exchange for each share of FNB Wiggins Common Stock owned by them, representing approximately 50% cash and 50% stock as consideration for their shares.
As a result of the Merger and subject to certain limitations provided for the Merger Agreement, shares of FNB Wiggins Common Stock issued and outstanding immediately prior to the Effective Date, other than Dissenting Shares, shall by virtue of the Merger be converted into and represent the right to receive the Stock Element, the cash payable in lieu of fractional shares, and the Cash Element less a pro rata share of Seven Hundred and Eighty Thousand Dollars ($780,000) in Consideration Deductions (which represents $32.873 per share of outstanding FNB Wiggins Common Stock), which are defined as follows: (i) Two Hundred and Eighty Thousand Dollars ($280,000) which represents a maximum of 50% of the cost of cancellation of FNB Wiggins’ data processing contract with Brasfield Technology, LLC; (ii) Two Hundred Thousand Dollars ($200,000) which represents a potential payment under that certain Confidential Term Sheet between FNB Wiggins and Richton Bank & Trust Company dated January 20, 2006 and discussed in further detail below (“Richton Letter of Intent”); and (iii) Three Hundred Thousand Dollars ($300,000) to account for potential losses related to the Mortgage Loan Purchase and Sale Agreements dated October 31, 2005 and December 16, 2005.
On the Effective Date, First Bancshares shall deposit into an escrow account cash in the amount of the Consideration Deductions (the “Escrow Fund”) in accordance with the terms of the escrow agreement which is attached to the Merger Agreement as Exhibit E (“Escrow Agreement”). A distribution to the holders of FNB Wiggins Common Stock (other than holders of dissenting shares) of certain portions of the Escrow Fund remaining after the payment of any Actual Loss (as defined in the Escrow Agreement) shall be made in accordance with the methods stated in the Escrow Agreement and upon the occurrence of each of the following events: (a) the date of the execution of a settlement and release or the entering of a final judgment with regards to any amounts owed by FNB Wiggins to Brasfield Technology, LLC, for termination fees related to the termination of the data processing agreement between FNB Wiggins and Brasfield Technology, LLC; (b) the date of the execution of a settlement and release or the entering of a final judgment with regards to the suit brought by Richton Bank & Trust Company against FNB Wiggins for breach of the Richton Letter of Intent (See “Summary – Recent Developments”); and (c) December 16, 2006, with regards to any amounts paid according to that certain Mortgage Loan Purchase and Sale Agreements whereby FNB Wiggins sold certain assets with recourse to SNGC, LLC. Notwithstanding the foregoing, on May 19, 2009, or upon the earlier termination of the Escrow Agreement, whichever occurs first, the balance remaining in the Escrow Fund shall be distributed to the holders of FNB Wiggins Common Stock (other than holders of dissenting shares) in accordance with the terms of the Escrow Agreement.
The Merger Consideration is illustrated by the table below, which shows the price assigned to shares of First Bancshares’ Common Stock by the Merger Agreement, the per share amounts for the two elements of the Merger Consideration, the total number of shares of First Bancshares Common Stock issuable in the Merger, the aggregate value of the Stock Element of the Merger Consideration based on the price for each share of First Bancshares Common Stock stated in the Merger Agreement, and the aggregate value of the Cash Element of the Merger Consideration paid to the holders of FNB Wiggins Common Stock as a result of the Merger. The table assumes that, immediately before the Effective Date, a total of 23,728 shares of FNB Wiggins Common Stock are outstanding.
Total Number
Merger Merger Consideration of Shares of
Agreement Price -------------------------------- First
of First Stock Bancshares Aggregate Value of Stock Aggregate Value of Cash
Bancshares Cash Element Per Element Per Common Stock Element of Merger Element of Merger
Common Stock Share Share Issuable Consideration Consideration
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$19.00 $87.50* 4.605** 109,274 $2,076,200** $2,076,200*
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* These Amounts include all of the $780,000.00 ($32.873 per share) of cash deposited into the Escrow Fund for
Consideration Deductions, some of which is likely to not be distributed to the FNB Wiggins Shareholders upon the
termination of the Escrow Agreement.
** These Amounts are based on the value assigned to each share of First Bancshares Common Stock by the Merger
Agreement, which is $19.00.
If prior to the Effective Date the outstanding shares of First Bancshares Common Stock shall be increased, decreased, changed into or exchanged for a different number or class of shares by reason of any reclassification, recapitalization, stock split or reverse stock split, split-up or if a stock dividend thereon shall be declared with a record date within such period, or by reason of a combination or exchange of shares in a transaction in which First Bancshares is effectively acquired, or other like changes in First Bancshares’ capitalization shall have occurred, then the Merger Consideration shall be adjusted accordingly.
The Merger Consideration was determined by a process of arm’s length negotiations involving the managements of FNB Wiggins, The First, and First Bancshares and their respective advisors. The number of shares of First Bancshares Common Stock which will be issued upon consummation of the Merger (109,274 shares) will constitute approximately 4.40% of the shares of First Bancshares Common Stock outstanding immediately after the Effective Date. These calculations do not make any adjustment for fractional shares or Dissenting Shares and are based upon the number of shares of FNB Wiggins Common Stock and First Bancshares Common Stock outstanding on the Record Date.
No fractional shares of First Bancshares Common Stock will be issued in the Merger. Any FNB Wiggins shareholder otherwise entitled to receive a fractional share of First Bancshares Common Stock will be paid a cash amount in lieu of any such fractional share determined by multiplying (i) the Merger Agreement Price of First Bancshares Common Stock ($19.00), by (ii) the fraction of a share of First Bancshares Common Stock to which such holder would otherwise be entitled.
Background of Business and Reasons for the Merger - FNB WigginsFNB Wiggins is a national banking association organized in 1973 under the National Bank Act. The principal executive offices of FNB Wiggins are located at 124 Border Avenue, Wiggins, Mississippi 39577. FNB Wiggins has no subsidiaries.
The principal market for FNB Wiggins is Stone County, Mississippi. FNB Wiggins has historically drawn the bulk of its customers from this area. Stone County has seven (7) offices of four commercial banks and one credit union. FNB Wiggins offers traditional depository services including checking accounts, certificates of deposit, and savings accounts.
FNB Wiggins, as a national bank, is a member of the Federal Reserve System. Its deposit accounts are insured by the Deposit Insurance Fund of the Federal Deposit Insurance Corporation (“FDIC”) up to the maximum legal limits of the FDIC, and it is subject to regulation, supervision and regular examination by the OCC. The regulations of these various agencies govern most aspects of FNB Wiggins’ business, including required reserves against deposits, loans, investments, mergers and acquisitions, borrowing, distributions and location and number of branch offices. The laws and regulations governing FNB Wiggins generally have been promulgated to protect depositors and the deposit insurance funds, and not for the purpose of protecting shareholders. As a result of an examination that commenced on December 2, 2002, FNB Wiggins, through its Board of Directors, executed a Stipulation and Consent to the Issuance of a Consent Order dated July 9, 2003. The terms of the Consent Order, which is a public document available on the website of the OCC at www.occ.treas.gov, may be summarized as follows:
Article I. — The FNB Wiggins Board is to establish a compliance committee for monitoring and coordinating FNB Wiggins’ adherence to the provisions of the Consent Order. The committee is to consist of not less than three directors, a majority of whom shall not be employees of FNB Wiggins. This committee is to meet at least monthly and provide written monthly reports to the FNB Wiggins Board of Directors and the OCC.
Article II. — The FNB Wiggins Board is required to adopt and implement a written strategic plan covering the ensuing three years. The plan shall establish objectives for FNB Wiggins’ overall risk profile, earnings performance, growth, balance sheet mix, off balance sheet activities, liability structure, capital adequacy, reduction in value of nonperforming assets, product line development and market segments that FNB Wiggins intends to promote or develop, along with strategies for achieving those objectives. Upon adoption, the plan must be approved by the OCC, and FNB Wiggins shall not deviate significantly from the plan without a written determination of supervisory non-objection from the OCC.
Article III. — FNB Wiggins is to achieve and maintain Tier 1 regulatory capital equal to at least 12% of risk weighted assets and Tier 1 regulatory capital equal to 8% of total adjusted assets. In conjunction with achieving and maintaining such capital levels, the FNB Wiggins Board is to develop, implement and insure adherence to a 3-year capital plan detailing specific plans for the maintenance of capital and projections for growth and capital requirements, together with the sources of additional capital. This capital plan shall be submitted to the OCC for approval. If the OCC determines that FNB Wiggins has failed to submit an acceptable capital plan or implement an approved capital plan within stated time limits, FNB Wiggins shall develop a capital contingency plan detailing the FNB Wiggins Board’s proposal to sell, merge, or liquidate FNB Wiggins, which must be immediately implemented after its approval by the OCC.
Article IV. — The FNB Wiggins Board is to adopt a plan to identify and employ a new senior lending officer to be approved by the OCC.
Article V. — The FNB Wiggins Board is to develop, implement and insure the adherence of FNB Wiggins to a written program to improve its loan portfolio management and to insure compliance with FNB Wiggins’ loan policy. In addition, FNB Wiggins is to develop a system to provide for early problem loan identification and management.
Article VI. — The FNB Wiggins Board is required to secure an independent and ongoing loan review system to review at least quarterly all loans in FNB Wiggins’ loan and lease portfolio to assure timely identification and categorization of problem credits. The FNB Wiggins Board is also required to evaluate the loan and lease review report and ensure immediate, adequate, and remedial action is taken upon all finding noted in the report.
Article VII. — The FNB Wiggins Board is to review the adequacy of FNB Wiggins’ reserve for loan and lease losses and shall establish a program for maintenance of the reserve in conformity with regulations of the OCC.
Article VIII. — FNB Wiggins is to take immediate and continuing actions to protect its interests in problem assets identified in the Report of Examination, and the FNB Wiggins Board is to adopt, implement, and adhere to a written program to eliminate the basis of criticism of assets criticized in the Report of Examination or any other review.
Article IX. — The FNB Wiggins Board is to secure current and satisfactory credit information on all loans lacking such information and to insure that proper collateral documentation is obtained and maintained on all loans.
Article X. — The FNB Wiggins Board is to adopt and insure compliance with an independent internal audit program sufficient to detect irregularities in FNB Wiggins’ operations and internal control systems and to determine the level of compliance with applicable laws, rules and regulations as well as the policies and procedures of FNB Wiggins.
Article XI. — The FNB Wiggins Board is to adopt, implement and insure adherence to a written liquidity, asset, and liability management policy. The FNB Wiggins Board is also required to review the liquidity of FNB Wiggins on a monthly basis, and ensure that FNB its asset and liability management committee meets and makes reports to the FNB Wiggins Board at least quarterly.
Article XII. — The FNB Wiggins Board is to take all necessary steps to insure correction of any violation of law, rule or regulation cited in the Report of Examination.
Article XIII. — The FNB Wiggins Board is required to develop Information Technology Systems (“ITS”) policies and operations procedures in conformity with regulations of the Federal Financial Institutions Examination Council and 12 C.F.R. Part 30, Appendix B, together with an effective and independent internal ITS audit program. The FNB Wiggins Board shall also immediately take all steps necessary to correct each ITS deficiency cited in the Report of Examination.
Article XIV. — The FNB Wiggins Board is to develop a written program of policies and procedures, to be approved by the OCC, which will insure compliance with the Bank Secrecy Act and the regulations promulgated thereunder, and will include a comprehensive training program.
Article XV. — The FNB Wiggins Board will insure that FNB Wiggins has a capable experienced compliance officer vested with sufficient authority to monitor and insure its compliance with all applicable laws, rules and regulations. This officer shall report directly to the FNB Wiggins Board and shall be independent of management.
Article XVI. — The FNB Wiggins Board shall adopt, implement and thereafter insure adherence to a written consumer compliance program designed to insure that FNB Wiggins is operating in compliance with all applicable consumer protection laws, rules and regulations.
FNB Wiggins submitted its capital and strategic plan to the OCC on February 24, 2005. On May 7, 2005, FNB Wiggins received a letter from the OCC determining that its capital plan was not sufficient, and ordering it to sell, merge, or liquidate FNB Wiggins. On July 20, 2005, the FNB Wiggins Board voted to sell, merge, or liquidate FNB Wiggins in accordance with the Consent Order.
Capital Adequacy Guidelines Applicable to FNB Wiggins under the Consent OrderUnder the terms of the Consent Order, FNB Wiggins is required to maintain certain capital requirements specific to FNB Wiggins which supersede the regular minimum requirements discussed above. Under Article III of the Consent Order, FNB Wiggins is to achieve and maintain Tier 1 regulatory capital equal to at least 12% of risk weighted assets and Tier 1 regulatory capital equal to 8% of total adjusted assets. In conjunction with achieving and maintaining such capital levels, the FNB Wiggins Board has been required to develop, implement and insure adherence to a 3-year capital plan detailing specific plans for the maintenance of capital and projections for growth and capital requirements, together with the sources of additional capital. This capital plan was previously submitted to the OCC for approval. In February, 2005 FNB Wiggins received a letter from the OCC determining that its capital and strategic plan was not sufficient, and ordering FNB Wiggins to sell, merge, or liquidate FNB Wiggins.
Potential Sale TransactionsThe Bank has been directed by the OCC to seek a potential purchaser of FNB Wiggins as a result of FNB Wiggins’ inability to secure OCC approval for the capital and strategic plan pursuant to the Consent Order discussed above. At the present time, FNB Wiggins is not in compliance with Articles II and III requiring OCC approval of a strategic plan and budget. Beginning in June, 2004, FNB Wiggins pursued several potential sale transactions, none of which were fruitful.
In October, 2004 FNB Wiggins submitted a revised strategic and capital plan as requested by the OCC. The revised plan contemplated a strategy to raise capital through a stock offering, and failing that, the plan contemplated the sale, merger, or liquidation of FNB Wiggins. FNB Wiggins began working toward raising additional capital pursuant to a Regulation D offering in December, 2004.
From June, 2004, through February, 2005 FNB Wiggins held discussions with four (4) potential buyers of FNB Wiggins. None of these discussions resulted in offers considered by the FNB Wiggins Board to be fair to FNB Wiggins or its shareholders. In carrying out its fiduciary duties, FNB Wiggins’s Board determined that FNB Wiggins and its shareholders would be better served by raising additional capital, and that additional capital could be raised. As noted above, in February, 2005, the OCC, by letter, directed FNB Wiggins to implement the plan to sell, merge, or liquidate FNB Wiggins. Concurrently with receipt of such letter, the only potential buyer who had actually made an offer withdrew its preliminary offer of $150.00 per share. Therefore, the FNB Wiggins Board was not afforded the opportunity to seriously pursue this offer at the time.
From February through May, 2005, FNB Wiggins attempted to work with the OCC to craft a new strategic and capital plan that would satisfy the OCC’s concerns. However, on June 7, 2005, the OCC issued a letter to the FNB Wiggins Board determining that FNB Wiggins was in willful violation of the Consent Order by allegedly failing to implement and adhere to FNB Wiggins’ capital contingency plan.
As a result of OCC’s June 7, 2005, letter and subsequent statements made by the OCC, and despite having spent substantial time, efforts, and other Bank resources on the stock offering, FNB Wiggins’ Board voted on June 28, 2005, to abandon efforts at raising capital and remaining independent and to sell, merge, or liquidate FNB Wiggins. In pursuit of such sale, between June 28, 2005, and late August, 2005, FNB Wiggins solicited a number of bids from potential purchasers in accordance with a timetable mutually agreed to by OCC and the FNB Wiggins Board. After August, 2005, progress to implement the sell, merge, or liquidate directive was practically delayed as a result of the impact of Hurricane Katrina, which directly affected FNB Wiggins’ operations, service area, and customers.
On January 6, 2006, Richton Bank & Trust Company, a Mississippi banking corporation having its main office in Richton, Mississippi (“RB&T”), delivered a Confidential Term Sheet (“Richton Letter of Intent”) to FNB Wiggins which contained an offer to acquire substantially all of the assets and liabilities of FNB Wiggins through a deposit assumption and asset purchase arrangement. According to the Richton Letter of Intent, the offered acquisition price was $4,000,000, and the assets purchased would have included all assets reflected on the books of FNB Wiggins as of the date of the acquisitions, with the exception of deferred income tax assets, income tax refunds due FNB Wiggins, certain equipment and software related to data processing operations, and intangible assets on the books of FNB Wiggins. RB&T also agreed to assume all current deposit liabilities, including interest thereon, and any other liabilities selected at the sole discretion of RB&T. Such liabilities would include any liability associated with an asset purchased, but would expressly exclude the existing data processing contract and associated contracts, if any, between FNB Wiggins and Brasfield Technology, LLC, even though RB&T agreed to pay up to fifty percent (50%) of the first $100,000 of termination fee penalties assessed as a result of FNB Wiggins’ termination of the Brasfield Technology, LLC, contract.
FNB Wiggins executed the Richton Letter of Intent on January 20, 2006. However, during March, 2006, the negotiations for a definitive agreement between FNB Wiggins and RB&T stalled, and, on March 17, 2006, FNB Wiggins terminated the Richton Letter of Intent and thereby discontinued those negotiations. That decision of the FNB Wiggins Board of Directors was primarily based on the fact that the structure of the transaction left the shareholders of FNB Wiggins with many liabilities and various assets, including the FNB Wiggins’ national bank charter, which were going to be difficult to liquidate after the disposal of all desirable assets and liabilities to RB&T. Additionally, the lack of clarity obtained during the course of negotiations with RB&T with regards to exactly which assets would be purchased and which liabilities would be assumed made it difficult for the FNB Wiggins Board to ascertain the ultimate value that would be received by shareholders of FNB Wiggins as a result of the proposed deposit assumption and asset purchase agreement. The inability to agree on the terms of a definitive agreement with RB&T caused FNB Wiggins to terminate the Richton Letter of Intent. Shortly thereafter, FNB Wiggins began negotiating with The First, and it executed a letter of intent with The First on March 20, 2006 (“The First Letter of Intent”).
On May 18, 2006, at a special meeting the FNB Wiggins Board met to consider the proposed Merger Agreement, which was largely based upon the terms of The First Letter of Intent. After discussing the Merger Agreement, the Consent Order, the circumstances surrounding the termination of the Richton Letter of Intent, and various other factors relating to the proposed Merger with legal counsel, the FNB Wiggins Board unanimously approved the Merger Agreement.
Reasons for the Merger.In reaching its determination that the Merger and Merger Agreement are fair to, and in the best interests of, FNB Wiggins and its shareholders, the FNB Wiggins Board consulted with its legal and financial advisors, as well as with FNB Wiggins’ management, and considered a number of factors, including, without limitation, the following:
(a) the FNB Wiggins Board’s review, based in part on the presentation by FNB Wiggins’ management regarding its due diligence of First Bancshares and The First, of the business, operations, earnings and financial condition of First Bancshares and The First on both a historical and prospective basis, the enhanced opportunities for operating efficiencies (particularly in terms of integration of operations, data processing and support functions, although the FNB Wiggins Board did not quantify such anticipated operating efficiencies) that could result from the Merger, the enhanced opportunities for growth that the Merger would make possible and the respective contributions the parties would bring to a combined institution;
(b) the FNB Wiggins Board’s belief, based upon an analysis of the anticipated financial effects of the Merger, that upon consummation of the Merger, First Bancshares and its banking subsidiary would continue to be well capitalized institutions, the financial positions of which would be in excess of all applicable regulatory capital requirements;
(c) the fact that the value assigned under the terms of the Merger Agreement to the shares of First Bancshares Common Stock which will be received by holders of FNB Wiggins Common Stock is $19.00, while the actual trading price of shares of First Bancshares Common Stock on the NASDAQ stock market on the date of the Merger Agreement was $23.20;
(d) the FNB Wiggins Board’s belief that, in light of the reasons discussed above, First Bancshares and The First were the most attractive choice as a long-term affiliation partner of FNB Wiggins;
(e) the expectation that the Merger will generally be a tax-free transaction of FNB Wiggins and its shareholders to the extent such shareholders receive shares of First Bancshares Common Stock. See “The Merger — Certain Federal Income Tax Consequences;"
(f) the current and prospective economic and regulatory environment and competitive constraints facing FNB Wiggins and the banking and financial institutions in FNB Wiggins’ market area;
(g) the fact that inquiries of 5 other financial institutions regarding a potential business combination did not result in a more favorable proposal than the First Bancshares proposal;
(h) the recent business combinations involving financial institutions, either announced or completed, during the past year in the United States, the State of Mississippi and contiguous states and the effect of such combinations on competitive conditions in FNB Wiggins’ market area; and
(i) the terms of the Consent Order and, based on historical efforts of FNB Wiggins since the issuance of the Consent Order, the reasonable likelihood that FNB Wiggins would not reach a more favorable solution to resolve the sell, merge, or liquidate requirements under the Consent Order.
The FNB Wiggins Board considered as potentially negative the fact that FNB Wiggins would no longer be an independent community-based bank owned primarily by local residents, and the fact that certain officers were required to execute retention and non-compete agreements.
The FNB Wiggins Board did not assign any specific or relative weight to the foregoing factors in their considerations. It should be noted that there is no guarantee that any of the positive results listed above will be achieved.
BASED ON THE FOREGOING, THE FNB WIGGINS BOARD APPROVED THE MERGER AGREEMENT AND UNANIMOUSLY RECOMMENDS THAT THE HOLDERS OF FIRST NATIONAL BANK OF WIGGINS COMMON STOCK VOTE "FOR" APPROVAL OF THE MERGER AGREEMENT.
Reasons for the Merger - First Bancshares and The FirstThe Boards of Directors of First Bancshares and The First believe that by expanding the customer base of The First into the FNB Wiggins service territory, the Merger should enhance the earnings capacity of First Bancshares and The First by enabling The First to deliver products and provide services to that enlarged customer base, and by permitting cost savings through consolidation of operations. In addition, the Boards of Directors of First Bancshares and The First believe that the combination of The First and FNB Wiggins will allow The First and FNB Wiggins to increase overall efficiency and take advantage of economies of scale in several areas. In evaluating the Merger, the Boards of Directors of The First and First Bancshares considered a variety of factors, including the respective results of operations, financial condition and prospects of First Bancshares, The First, and FNB Wiggins; the compatibility and complementary nature of the respective businesses and managerial philosophies of First Bancshares, The First, and FNB Wiggins; and the relative prices paid in recent acquisitions of financial institutions.
The FNB Wiggins Board originally retained Southard in March 2006 to serve as its financial advisor in the negotiations with Richton Bank & Trust Company. However, after those negotiations ceased and a letter of intent was received from First Bancshares, the engagement with Southard was continued by verbally substituting First Bancshares for RB&T. Southard subsequently rendered a written fairness opinion, dated July 31, 2006, that the consideration to be paid to FNB Wiggins’ shareholders by First Bancshares in the Merger is fair from a financial point of view. The fairness opinion, which is included in Exhibit B, should be read in its entirety by FNB Wiggins’ shareholders.
Southard, as part of its valuation services practice, is regularly engaged to value the securities of banks, issue fairness opinions and assist in other aspects of structuring mergers among financial institutions. FNB Wiggins retained Southard on the basis of its reputation and its experience in evaluating mergers among financial institutions and in representing the institutions in merger transactions. No limitations were imposed by the FNB Wiggins Board with respect to the investigations made or the procedures followed by Southard in rendering its fairness opinion. FNB Wiggins has agreed to pay Southard a fee of $12,000 for serving as financial advisor and rendering its opinion. FNB Wiggins has agreed to indemnify Southard and its partners, employees, consultants, agents and representatives against certain liabilities, including liabilities under the federal securities laws.
As part of its investigation, Southard reviewed: (1) the Merger Agreement; (2) regulatory financial statements of FNB Wiggins for the periods ended December 31, 2000-05, and March 31, 2006; (3) projected financial statements of FNB Wiggins for 2006; (4) internal financial statements of FNB Wiggins for the period ended June 30, 2006 and certain internal financial information through July 12, 2006; (5) Annual Report, including audited financial statements, of First Bancshares for the years ended December 31, 2003-05; (6) regulatory financial statements of The First for the periods ended December 31, 2001-05, and March 31, 2006; (7) regulatory financial statements of First Bancshares for the periods ended December 31, 2003-05; (8) SEC Form 10-KSB of First Bancshares for the year ended December 31, 2005; (9) SEC Form 10-QSB of First Bancshares for the quarter ended March 31, 2006 and draft summary for the quarter ended June 30, 2006; (10) 2006 Budget of The First; (11) public market pricing data of publicly traded bank holding companies which Southard deemed comparable to First Bancshares; (12) transaction data involving other banks which have been acquired; and (13) public data regarding First Bancshares’ agreement to merge FNB Wiggins with and into The First.
As part of its engagement, representatives of Southard visited with the management of FNB Wiggins in Wiggins, Mississippi and the management of First Bancshares and The First in Hattiesburg, Mississippi. Factors considered in rendering the opinion included: (1) terms of the Merger Agreement; (2) the arms’ length process by which the Merger Agreement was negotiated; (3) an analysis of the proposed Merger presented to the Board of Directors; (4) an analysis of the estimated pro forma changes in book value per share, earnings per share, and dividends per share from the perspective of the shareholders of FNB Wiggins; (5) a review of First Bancshares’ historical financial performance, historical stock pricing, the liquidity of its shares and pricing in relation to other publicly traded bank holding companies; (6) a review of FNB Wiggins’ historical financial performance and projected financial performance; and (7) tax consequences of the Merger for shareholders of FNB Wiggins.
In connection with rendering its opinion, Southard performed a variety of financial analyses, which are summarized below. Southard believes that its analyses must be considered as a whole and that selection of portions of such analyses and the factors considered therein, without considering all factors and analyses, could create an incomplete view of the analyses and the process underlying Southard’s opinion. Also, Southard relied upon management forecasts in rendering its opinion. Southard did not represent or warrant that the actual performance would reflect that which was projected. Southard did not compile nor audit FNB Wiggins’ or First Bancshares’ financial statements, nor did Southard independently verify the information reviewed. Southard relied upon such information as being complete and accurate in all material respects. Southard did not make an independent valuation of the loan portfolio, adequacy of the loan loss reserve or other assets or liabilities of either institution. Southard’s opinion does not constitute a recommendation to any shareholder as to how the shareholder should vote on the proposed Merger; nor did Southard express any opinion as to the prices at which any security of FNB Wiggins or First Bancshares might trade in the future.
Transaction Summary. Southard noted that, under the terms of the Merger Agreement, FNB Wiggins' shareholders would receive $2,076,200 in cash plus 109,274 shares of First Bancshares Common Stock at the stated price of $19.00 per share. Southard also noted that the total consideration received by FNB Wiggins’ shareholders under the terms of the Merger Agreement would be $4,152,400 less any amount of the Consideration Deductions that is not delivered to the FNB Wiggins’ shareholders pursuant to the terms of the Escrow Agreement, which represents approximately 140% of FNB Wiggins’ reported common equity as of June 30, 2006 ($2,971,404). The price to trailing twelve-month earnings is not meaningful, as trailing 12-month earnings were negative ($415,000) as of June 30, 2006. FNB Wiggins’ projected earnings for 2006 were $188,292; however, earnings in the first half of the year were substantially below projections (loss of $362,178 versus projected profit of $26,404).
On the date that Southard rendered its oral opinion to the FNB Wiggins Board, First Bancshares was trading in the vicinity of $21.60 per share. If the Merger were consummated on that date, the total consideration would be about $4,436,518, or $186.97 per share of FNB Wiggins common stock. In such event, the price/book value of the transaction would be approximately 149%.
Market Transaction Analysis. Southard reviewed the prices paid for various banks that have been acquired based upon certain available public information as compiled by SNL Securities. Southard noted that most banking transactions are measured in terms of the price/earnings (“P/E”), price/book (“P/B”), and price/assets (“P/A”) ratios. The bank acquisition data was divided into the following groups: (1) aggregate national acquisition data; (2) banks based in the Southeast; (3) banks based in Mississippi; (4) banks with assets under $100 million; and (5) banks with an equity-to-asset ratio of 6%-8%.
For each group, average and median P/E, P/B, and P/A ratios were calculated for the combined period of calendar year 2005 and the year-to-date period ended July 12, 2006. The average P/B and P/A ratios were then multiplied times FNB Wiggins’ respective book value, tangible book value, and assets to develop an overall indicated range for FNB Wiggins. The P/E ratio could not be used due to the losses incurred by FNB Wiggins over the 2005-06 period.
Southard concluded that the P/B and P/A multiples of the market transactions were well above those implied by the Merger. However, this disparity is normally observed in market transactions where the target bank has incurred losses. Further, the implied P/E for FNB Wiggins based upon budgeted earnings is within the observed range. Finally, a review of prior market transactions where the target bank was unprofitable indicated that the pricing of the Merger falls within a reasonable range.
Pro Forma Analysis of Per Share Data. Southard analyzed the changes in pro forma dividends per share, earnings per share, and book value per share from the perspective of FNB Wiggins’ shareholders. Southard did not represent or warrant that the actual pro forma data reflected in the Proxy Statement/Prospectus mailed to FNB Wiggins’ shareholders would reflect that which was developed in its analysis. Southard noted that the proposed terms of the Merger would result in a substantial increase in earnings, book value, and dividends per share for shareholders of FNB Wiggins.
Discounted Cash Flow Analysis. A discounted cash flow ("DCF") analysis would normally be prepared to develop an estimate of value shareholders of FNB Wiggins might realize assuming a sale was delayed five years. Indications of value derived using the DCF method reflect interim cash flows (dividends) and a terminal cash flow (the value of FNB Wiggins at the end of the projection period), both discounted to the present at an appropriate required rate of return.
However, FNB Wiggins is currently unprofitable, and FNB Wiggins’ management indicated that it did not anticipate paying any dividends in the foreseeable future; thus, no interim cash flows were assumed. Further, it is not prudent to estimate a terminal value since earnings cannot be projected with confidence. Also, it was noted that by delaying a sale in an effort to realize more value that shareholders of FNB Wiggins would run the risk of losing value if market and/or economic conditions changed, if management’s projected performance was not achieved, or other such events occurred. Further, FNB Wiggins is under an order from the OCC to sell.
Analysis of Liquidity. FNB Wiggins Common Stock is not listed on an exchange, and there is not an organized trading market for the stock. Thus, the ability to sell FNB Wiggins Common Stock is very limited. Alternatively, First Bancshares Common Stock is listed and traded on the NASDAQ stock market under the symbol “FBMS”. Therefore, although trading volume of First Bancshares Common Stock is light, the proposed Merger would provide some liquidity for smaller minority shareholders of FNB Wiggins over time. Southard noted that shareholders of FNB Wiggins will collectively own about 4.4% of First Bancshares Common Stock, assuming 109,274 shares of First Bancshares Common Stock are issued to the shareholders of FNB Wiggins.
Review of First Bancshares. Using public and other available information, Southard compared the historical financial performance and current market pricing of First Bancshares with publicly traded bank holding companies throughout the U.S., in the South Central U.S., and in Mississippi. Comparisons were also made with institutions having fundamental ratios similar to those of First Bancshares. None of the companies considered in the comparison analysis are identical to First Bancshares. Southard noted that, in general, First Bancshares could be characterized as slightly less profitable than the comparable group medians, but assets and earnings are growing rapidly. Further, based on the current trading range of its stock, First Bancshares has a lower P/E and a higher P/B than the median statistics.
Other Factors. Other factors considered by Southard in rendering its opinion included the possibility that shareholders of FNB Wiggins may benefit from a merger with The First given the ongoing industry consolidation. Southard made no representation or warranty, however, that such an event would occur, or if it did occur, that it would occur on favorable terms. Southard also noted the offers and overtures made by other institutions as noted elsewhere in this Proxy Statement/Prospectus. However, the offer made by First Bancshares was superior to any other offers being discussed with other institutions.
Effective DateThe Merger will be consummated and become effective at the time the Certificate of Merger is filed with the OCC, or as of such later date or time to which First Bancshares, The First and FNB Wiggins agree, which may be specified in the Certificate of Merger. It is expected that the Effective Date will occur on or before September 30, 2006; however, there can be no assurance that the conditions to the Merger will be satisfied or waived so that the Merger can be consummated. See “The Merger — Regulatory Approvals” and “The Merger — Other Conditions to the Merger.”
Regulatory ApprovalsIt is a condition to the consummation of the Merger that all required regulatory approvals be obtained. The Merger is subject to prior approval by the OCC under the National Bank Act.
The National Bank Act requires the OCC, when approving a transaction such as the Merger, to take into consideration the financial and managerial resources (including the competence, experience and integrity of the officers, directors and principal shareholders) and future prospects of the existing and proposed institutions and the convenience and needs of the communities to be served. In considering financial resources and future prospects, the OCC will, among other things, evaluate the adequacy of the capital levels of the parties to a proposed transaction.
The National Bank Act prohibits the OCC from approving a merger if it would result in a monopoly or be in furtherance of any combination or conspiracy to monopolize or to attempt to monopolize the business of banking in any part of the United States, or if its effect in any section of the country would be substantially to lessen competition or to tend to create a monopoly, or if it would in any other manner result in a restraint of trade, unless the OCC finds that the anti-competitive effects of a merger are clearly outweighed in the public interest by the probable effect of the transaction in meeting the convenience and needs of the communities to be served. In addition, under the Community Reinvestment Act of 1977, as amended, the OCC must take into account the record of performance of the existing institutions in meeting the credit needs of the entire community, including lowand moderate-income neighborhoods, served by such institutions.
Applicable U. S. federal law provides for the publication of notice and public comment on applications or notices filed with the OCC and authorizes such agency to permit interested parties to intervene in the proceedings. If an interested party is permitted to intervene, such intervention could delay the regulatory approvals required for consummation of the Merger.
The Merger generally may not be consummated until thirty (30) days (which may be shortened to fifteen (15) days with the consent of the U. S. Department of Justice) following the date of all applicable United States federal regulatory approvals, during which time the U. S. Department of Justice may challenge the Merger on antitrust grounds. The commencement of an antitrust action by the U. S. Department of Justice would stay the effectiveness of the regulatory agency’s approval unless a court specifically ordered otherwise.
It is anticipated that OCC approval will be obtained in August, 2006. No other regulatory approvals are required for consummation of the Merger.
Other Conditions to the MergerThe respective obligations of each party to the Merger Agreement are subject to the following conditions, which may not be waived: (i) approval of the Merger Agreement by the requisite vote of the holders of FNB Wiggins Common Stock, (ii) approval of the Merger by the OCC, (iii) the declared effectiveness of the Registration Statement filed with the SEC, the absence of any stop order with regards to the issuance of First Bancshares’ stock, and the receipt of all required state securities and blue sky permits or approvals, (iv) the absence of any order, decree or injunction of a court or agency of competent jurisdiction enjoining or prohibiting consummation of the Merger, and (v) receipt of an opinion of Watkins Ludlam Winter & Stennis, P.A. substantially to the effect that the transactions contemplated by the Merger Agreement will be treated for federal income tax purposes as a tax-free reorganization under Section 368 of the Code.
The obligations of FNB Wiggins under the Merger Agreement are also subject to the following conditions, which may be waived: (i) the representations and warranties of First Bancshares contained in the Merger Agreement shall be true and correct in all material respects as of the date of the Merger Agreement and as of the Closing as though made at and as of the Closing (except as otherwise contemplated by the Merger Agreement), (ii) First Bancshares shall have performed in all material respects all obligations and complied with all covenants required by it under the Merger Agreement prior to the Closing and First Bancshares shall deliver at Closing appropriate certificates setting forth such, (iii) there shall not have occurred any material adverse change from the date of the Merger Agreement to the Closing Date in the financial condition, results of operations or business of First Bancshares and its subsidiaries taken as a whole, and (iv) the receipt of customary legal opinions from counsel to First Bancshares.
The obligations of First Bancshares under the Merger Agreement are also subject to the following conditions, which may be waived: (i) the representations and warranties of FNB Wiggins contained in the Merger Agreement shall be true and correct in all material respects as of the date of the Merger Agreement and as of the Closing as though made at and as of the Closing (except as otherwise contemplated by the Merger Agreement), (ii) FNB Wiggins shall have performed in all material respects all obligations and complied with all covenants required by it under the Merger Agreement prior to the Closing and FNB Wiggins shall deliver at Closing appropriate certificates setting forth such, (iii) there shall not have occurred any material adverse change in the financial condition, results of operations or business of FNB Wiggins (iv) the receipt of customary legal opinions from counsel to FNB Wiggins, (v) any obligations of FNB Wiggins under any employment, incentive or severance agreement with FNB Wiggins’ employees requiring payments in the event of exercise or sale of FNB Wiggins shall have been fully and completely resolved, canceled and rendered invalid, void and unenforceable and certain officers of FNB Wiggins as determined by First Bancshares shall have executed retention and noncompete agreements between The First and such employee, and (vi) each employee with whom FNB Wiggins has an employment agreement shall have executed and delivered to First Bancshares an amendment to their respective employment agreements or other written arrangements with FNB Wiggins terminating such agreements at the Effective Date.
Interests of Certain Persons in the MergerTail Insurance. The Merger Agreement provides that First Bancshares shall permit FNB Wiggins and its directors and officers to purchase insurance (commonly referred to as “Tail Insurance”) which will provide post Effective Date coverage for errors and omissions similar to that provided by the directors’ and officers’ errors and omissions insurance presently carried by FNB Wiggins. Additionally, The First agrees to reimburse any person that is (1) defined as an insured under the current FNB Wiggins directors’ and officers’ errors and omissions insurance, and (2) insured under the Tail Insurance for any expenditures classified as retention or deductible amounts under the policy which are incurred by the insured as a result of any errors or omissions covered by the Tail Insurance.
Employee Benefits. The Merger Agreement provides that, after the Effective Date of the Merger, First Bancshares and The First will, subject to compliance with applicable legal and regulatory requirements, use their best efforts to retain FNB Wiggins’ officers and employees. The First will make reasonable efforts to maintain duties and compensation levels for retained personnel commensurate with the employees’ experience and qualifications, and in accordance with First Bancshares’ and The First’s salary administration program. With regard to any retained employee, First Bancshares and The First shall be free of any obligation to honor any past agreement of FNB Wiggins to such person. With respect to FNB Wiggins’ group health and life benefit plan as it relates to its employees, The First shall have the option of either: (a) continuing such plan on and after the Effective Date of the Merger; or (b) discontinuing such plan upon the Effective Date and thereafter, all retained employees will be eligible to participate in The First’s group health and life benefit plan based on the provisions in the plan. The ninety (90) day employment period will be waived for eligible retained employees in accordance with The First’s plan. The First will waive pre-existing medical conditions for health insurance purposes as to all retained personnel, but only if and to the extent such pre-existing medical conditions were waived under similar plans of Bank as of the date hereof. FNB Wiggins also currently maintains a 401(k) Plan which will remain operative and in effect through the Effective Date of the Merger (the “Plan”). At the sole option of The First, the Plan will, as of the Effective Date of the Bank Merger, either (a) be merged with an existing retirement plan of The First, or (b) be terminated and distributed to the participants in accordance with the terms of the Plan after the normal and customary contributions for periods prior to the Effective Date of the Merger have been made consistent with past practices. All retained employees will be eligible to enter The First’s 401(k) Plan upon meeting the eligibility requirements set forth in such plan. All retained employees will be granted full credit for all prior service with FNB Wiggins for all purposes, including determining eligibility, under The First’s 401(k) Plan. Additionally, all retained employees will be eligible to enter The First’s Employee Stock Ownership Plan once that plan becomes effective (which is expected to occur subsequent to the Effective Date) and upon meeting the eligibility requirements thereof. However, any retained employees will not be granted credit for prior service with FNB Wiggins for any purpose, including determining eligibility, under The First’s Employee Stock Ownership Plan. Other FNB Wiggins benefit plans will continue through the Effective Date of the Merger. Thereafter, all retained employees will be eligible to participate in all employee benefit plans of The First not discussed above, based on the provisions set forth in the plans.
Exchange of FNB Wiggins' CertificatesOn the Effective Date, each holder of FNB Wiggins Common Stock will cease to have any rights as a shareholder of FNB Wiggins and his or her sole rights will pertain to the right to receive shares of First Bancshares Common Stock and cash to which such holder’s shares of FNB Wiggins Common Stock shall have been converted pursuant to the Merger, except for any such shareholder who exercises statutory dissenters’ rights.
As soon as practicable after the Effective Date, the Exchange Agent will mail to each holder of record of FNB Wiggins Common Stock a letter of transmittal and instructions for effecting the surrender of the stock certificates which, immediately prior to the Effective Date, represented outstanding shares of FNB Wiggins Common Stock in exchange for cash and certificates representing shares of First Bancshares Common Stock. Shareholders of FNB Wiggins are requested not to surrender their FNB Wiggins’ certificates for exchange until such letter of transmittal and instructions are received. Upon surrender of a certificate for exchange and cancellation to the Exchange Agent, together with such letter of transmittal, duly executed, such certificate shall forthwith be cancelled and the holder of such certificate shall be entitled to receive in exchange therefore the following: (a) a certificate representing that number of whole shares of First Bancshares Common Stock, as defined below, to which such holder of FNB Wiggins Common Stock shall have become entitled pursuant to the provisions of the Merger Agreement; and (b) a check representing (i) the amount of cash, as defined below, to which such holder of FNB Wiggins Common Stock shall have become entitled pursuant to the provisions of the Merger Agreement, and (ii) the amount of cash paid to the FNB Wiggins shareholder in lieu of fractional shares, if any.
First Bancshares will not pay former shareholders of FNB Wiggins who become holders of First Bancshares Common Stock pursuant to the Merger any dividends or other distributions that may have become payable to holders of record of First Bancshares Common Stock following the Effective Date until they have surrendered their certificates evidencing ownership of shares of FNB Wiggins Common Stock along with a properly completed letter of transmittal.
Shareholders of FNB Wiggins who cannot locate their certificates are urged to promptly contact Patty Fiveash, Vice President of FNB Wiggins at 124 Border Avenue, Wiggins, Mississippi, telephone number (601) 928-5241. A new certificate will be issued to replace the lost certificate(s) only upon execution by the shareholder of an affidavit certifying that his or her certificate(s) cannot be located and an agreement to indemnify FNB Wiggins and First Bancshares and their transfer agents and registrars against any claim that may be made against FNB Wiggins or First Bancshares by the owner of the certificate(s) alleged to have been lost or destroyed. FNB Wiggins or First Bancshares may also require the shareholder to post a bond in such sum as is sufficient to support the shareholder’s agreement to indemnify FNB Wiggins and First Bancshares.
Amendment; Waiver; TerminationThe Merger Agreement may be amended at any time before or after its approval by the shareholders of FNB Wiggins by written agreement of FNB Wiggins, First Bancshares, and The First, except that no amendment may be made after FNB Wiggins’ shareholder approval that changes the consideration to be received by FNB Wiggins’ shareholders or that by law would require further shareholder approval unless such further shareholder approval is obtained.
The Merger Agreement provides that either party may (i) extend the time for performance of any of the obligations or other acts of the other parties, (ii) waive any inaccuracies in the representations and warranties contained in the Merger Agreement or in any document delivered pursuant to the Merger Agreement, or (iii) waive compliance with any of the agreements or conditions contained in the Merger Agreement other than the satisfaction of all requirements prescribed by law for consummation of the Merger.
The Merger Agreement may be terminated at any time prior to the Effective Date (i) by mutual written consent of the parties, properly authorized by their respective Boards of Directors; (ii) by the Boards of Directors of First Bancshares or FNB Wiggins, in writing, if the Bank Merger shall have not become effective on or before 5:00 p.m. local time on September 30, 2006, unless the absence of such occurrence shall be due to the failure of the party seeking to terminate the Merger Agreement to perform each of its obligations under the Merger Agreement required to be performed by it on or prior to the Effective Date; (iii) by either party to the Merger Agreement, in the event of a breach by the other party (A) of any covenant or agreement contained therein or (B) of any representation or warranty therein, if (1) the facts constituting such breach reflect a material and adverse change in the financial condition, results of operations, business, or prospects taken as a whole, of the breaching party, which in either case cannot be or is not cured within sixty (60) days after written notice of such breach is given to the party committing such breach, or (2) in the event of a breach of a warranty or covenant, such breach results in a material increase in the cost of the non breaching party’s performance of this Agreement; (iv) by either party to the Merger Agreement, at any time after any bank regulatory authority or United States Department of Justice has denied any application for any approval or clearance required to be obtained as a condition to the consummation of the Bank Merger and the time period for all appeals or requests for reconsideration thereof has run; (v) by either party to the Merger Agreement, if the Merger is not approved by the required vote of shareholders of FNB Wiggins; or (vi) by First Bancshares and The First if holders of outstanding FNB Wiggins Common Stock exercise statutory rights of dissent and appraisal pursuant to 12 U.S.C. §§ 215 and 215a, in such numbers as would disqualify the transaction as a nontaxable reorganization under and in accordance with Sections 368(a)(1)(A) and 368(a)(2)(D) of the Code.
The Merger Agreement provides that FNB Wiggins will operate its business solely in the ordinary course consistent with prudent business practices and in compliance with all applicable laws, regulations and rules. Without the prior consent of First Bancshares, which shall not be unreasonably withheld, delayed or conditioned, FNB Wiggins shall not: (i) amend or otherwise change its Articles of Association or Bylaws, as each such document is in effect on the date of the Merger Agreement (except to the extent required in order to effect the Merger as contemplated herein); (ii) issue or sell, or authorize for issuance or sale, any shares of FNB Wiggins Common Stock or any additional shares of any class of capital stock of FNB Wiggins; (iii) issue, grant, or enter into any subscription, option, warrant, right, convertible security, or other agreement or commitment of any character obligating FNB Wiggins to issue securities; (iv) declare, set aside, make, or pay any dividend or other distribution with respect to its capital stock; (v) redeem, purchase, or otherwise acquire, directly or indirectly, any of its capital stock respectively; (vi) authorize any capital expenditure(s) which, individually or in the aggregate, exceeds $10,000; (vii) extend any new, or renew any existing, loan, credit, lease, or other type of financing which individually exceeds $100,000 or does not meet The First’s loan policy requirements except in connection with the workout of loans; provided, however, that The First shall have the right to review on a monthly basis new and existing extensions of credit which individually exceed $25,000 and all extensions of credit which are past due ninety (90) days or more and still accruing interest or on nonaccrual status; (viii) except in the ordinary course of business, sell, pledge, dispose of, or encumber, or agree to sell, pledge, dispose of, or encumber, any material assets of FNB Wiggins; (ix) excluding normal and customary banking transactions, incur any indebtedness for borrowed money, issue any debt securities, or enter into or modify any contract, agreement, commitment, or arrangement with respect thereto; (x) establish or add any automated teller machines, branches or other banking offices; (xi) take any action that would materially and adversely affect the ability of any party hereto to obtain the regulatory and shareholder approvals necessary for consummation of the transactions contemplated thereby or that would materially and adversely affect FNB Wiggins’ ability to perform its covenants and agreements thereunder; (xii) acquire (by merger, consolidation, lease or other acquisition of stock, ownership interests or assets) any corporation, partnership, or other business organization or division thereof, or enter into any contract, agreement, commitment, or arrangement with respect to any of the foregoing, other than in connection with a foreclosure or collection of a debt previously contracted for in good faith; (xiii) enter into, extend, or renew any lease for office or other space; (xiv) except as required by law, enter into, adopt or amend any bonus, profit sharing, compensation, stock option, pension, retirement, deferred compensation, employment, or other employee benefit plan, agreement, trust, fund, or arrangement for the benefit or welfare of any officer, employee or representative of FNB Wiggins; (xv) grant any increase in compensation or benefits to any director, officer, or employee or representative of FNB Wiggins except in the ordinary course of business consistent with past practice; (xvi) other than such amendments and Change of Control Payments (as defined in the Merger Agreement), enter into, amend, or terminate any employment agreement, relationship or responsibilities with any director, officer, or key employee or representative of FNB Wiggins, or enter into, amend, or terminate any employment agreement with any other person otherwise than in the ordinary course of business, or take any action with respect to the grant or payment of any severance, change in control or termination pay except as expressly consented to in writing by Bancshares; (xvii) take any action or omit to take any action which would cause any of FNB Wiggins’ representations or warranties in the Merger Agreement to be untrue or misleading in any material respect or any covenant of FNB Wiggins under the Merger Agreement incapable of being performed; or (xviii) agree, in writing or otherwise, to do any of the foregoing.
In addition, FNB Wiggins has agreed that it shall not authorize nor knowingly permit any of its officers, directors, employees, representatives, agents or other persons controlled by FNB Wiggins to directly or indirectly, encourage or solicit or, hold any discussions or negotiations with, or provide any information to, any persons, entity or group concerning any merger, consolidation, sale of substantial assets, sale of shares of capital stock or similar transactions including, without limitation, a tender offer, involving, directly or indirectly, FNB Wiggins (a “Third Party Acquisition Proposal”) except as contemplated by the Merger Agreement. FNB Wiggins shall promptly communicate to Bancshares the identity and terms of any Third Party Acquisition Proposal which it may receive. As a condition of and as an inducement to First Bancshares and The First entering into the Merger Agreement, FNB Wiggins has covenanted, acknowledged, and agreed that it shall be a specific, absolute, and unconditionally binding condition precedent to FNB Wiggins entering into a letter of intent, agreement in principle, or definitive agreement (whether or not considered binding, non-binding, conditional or unconditional) with any third party with respect to a Third Party Acquisition Proposal, or supporting or indicating an intent to support a Third Party Acquisition Proposal (other than the Merger Agreement and the transactions contemplated hereby), regardless of whether FNB Wiggins has otherwise complied with the non-solicitation provisions of the Merger Agreement, that FNB Wiggins or such third party to the Third Party Acquisition Proposal shall have paid to First Bancshares, as liquidated damages, the sum of One Hundred Seventy-five Thousand Dollars ($175,000), which sum represents the (i) direct costs and expenses (including, but not limited to, fees and expenses incurred by First Bancshares’ financial or other consultants, printing costs, investment bankers, accountants, and counsel) incurred by or on behalf of First Bancshares in negotiating and undertaking to carry out the transactions contemplated by the Merger Agreement; (ii) indirect costs and expenses of First Bancshares in connection with the transactions contemplated by the Merger Agreement, including First Bancshares’ management time devoted to negotiation and preparation for the transactions contemplated by the Merger Agreement; and (iii) First Bancshares’ loss as a result of the transactions contemplated by the Merger Agreement not being consummated. Notwithstanding anything to the contrary in the non-solicitation provisions of the Merger Agreement, in the event such Third Party Acquisition Proposal should be the result of a hostile takeover of FNB Wiggins, any sums due First Bancshares under the non-solicitation provisions of the Merger Agreement shall be paid only at the closing of the transactions set forth in such Third Party Acquisition Proposal. First Bancshares has acknowledged that under no circumstances shall any officer or director of FNB Wiggins (unless such officer or director shall have an interest in a potential acquiring party in any Third Party Acquisition Proposal) be held personally liable to First Bancshares or FNB Wiggins for any amount of the foregoing payment. On payment of such amount to First Bancshares, then neither First Bancshares nor The First shall have any cause of action or claim (either in law or equity) whatsoever against FNB Wiggins, or any officer or director of FNB Wiggins, with respect to or in connection with such Third Party Acquisition Proposal or the Merger Agreement, so long as FNB Wiggins, or such person, shall not have intentionally violated the non-solicitation provisions of the Merger Agreement. The requirements, conditions, and obligations imposed by the non-solicitation provisions of the Merger Agreement shall continue in full force and effect from the date of the Merger Agreement until the earlier of (i) the Effective Date, (ii) the date on which the Merger Agreement shall have been terminated mutually by the parties; or (iii) twelve (12) months from the date the Merger Agreement shall have been terminated as a result of a breach by FNB Wiggins, unless the failure to consummate the transactions contemplated by the Merger Agreement by 5:00 p.m. local time on September 30, 2006 results from or is related to pending or threatened litigation arising out of or in connection with the Merger or a Third Party Acquisition Proposal, in which case the date shall be extended to that date which is thirty (30) days after the final termination of such litigation or threatened litigation.
The shares of First Bancshares Common Stock to be issued to the holders of FNB Wiggins Common Stock pursuant to the Merger Agreement have been registered under the Securities Act pursuant to a Registration Statement on Form S-4, of which this Proxy Statement/Prospectus is a part, thereby allowing such shares to be freely transferred without restriction by persons who will not be “affiliates” of First Bancshares or who were not “affiliates” of FNB Wiggins within the meaning of Rule 145 under the Securities Act. In general, affiliates of FNB Wiggins include its executive officers and directors and any person who controls, is controlled by or is under common control with FNB Wiggins. For the purposes of Rule 145, any shareholder who owns ten percent (10%) or more of the voting stock of a company is presumptively deemed to have “control.” However, the amount of voting stock owned by a shareholder is not the only factor considered when deciding who has “control” over a company, and a person may or may not be deemed to have “control” regardless of how much voting stock they own if other factors apply. Holders of FNB Wiggins Common Stock who are affiliates of FNB Wiggins will not be able to resell the First Bancshares Common Stock received by them in the Merger unless the First Bancshares Common Stock is registered for resale under the Securities Act, is sold in compliance with Rule 145 under the Securities Act, or is sold in compliance with another exemption from the registration requirements of the Securities Act.
Pursuant to Rule 145 under the Securities Act, the sale of First Bancshares Common Stock held by former affiliates of FNB Wiggins will be subject to certain restrictions. Such persons may sell First Bancshares Common Stock under Rule 145 only if (i) First Bancshares has filed all reports required to be filed by it under Section 13 or 15(d) of the Exchange Act during the preceding twelve months, (ii) such First Bancshares Common Stock is sold in a “broker’s transaction,” which is defined in Rule 144 under the Securities Act as a sale in which (a) the seller does not solicit or arrange for orders to buy the securities, (b) the seller does not make any payment other than to the broker, (c) the broker does no more than execute the order and receive a normal commission, and (d) the broker does not solicit customer orders to buy the securities, and (iii) such sale and all other sales made by such person within the preceding three months do not exceed the greater of (a) 1% of the outstanding shares of First Bancshares Common Stock or (b) the average weekly trading volume of First Bancshares Common Stock on the New York Stock Exchange during the four-week period preceding the sale. Any affiliate of FNB Wiggins who is not an affiliate of First Bancshares after the Merger may sell First Bancshares Common Stock without restriction one year after the Effective Date; provided that First Bancshares has filed all reports required to be filed by it under Section 13 or 15(d) of the Exchange Act during the preceding twelve months.
FNB Wiggins has agreed to use its best efforts to cause each of its directors and executive officers and each person who is deemed to be an affiliate under the Securities Act to enter into an agreement not to sell shares of First Bancshares Common Stock received by him or her in violation of the Securities Act or the rules and regulations of the Commission thereunder.
Expenses and FeesExcept for the breach of the non-solicitation provisions discussed above by FNB Wiggins, in which case FNB Wiggins shall be liable to First Bancshares in an amount equal to said economic damages in addition to First Bancshares’ and the First’s out of pocket expenses incurred in connection with the transactions contemplated by the Merger Agreement, including but not limited to its reasonable attorney fees and accountant fees and in addition to any payments otherwise due to Bancshares pursuant to the non-solicitation provisions, each party to the Merger Agreement has agreed to pay all costs, fees and expenses which it has incurred in connection with or incidental to the matters contained in the Merger Agreement, including without limitation any fees and disbursements to its accountants and counsel. First Bancshares has agreed to prepare the applications, regulatory filings and Registration Statement necessary to obtain approval of the Merger and the issuance of the First Bancshares Common Stock. FNB Wiggins has agreed to be responsible for the cost of its accountants and legal counsel and will bear all costs related to conducting its stockholders’ meetings and obtaining stockholders’ approval of the Merger.
Certain Federal Income Tax ConsequencesThe following discussion of the principal federal income tax consequences of the Merger is based on provisions of the Code, the regulations thereunder, judicial authority, and administrative rulings and practice as of the date hereof, any of which is subject to change. Consummation of the Merger is conditioned on the receipt by First Bancshares, The First, and FNB Wiggins of an opinion of Watkins Ludlam Winter & Stennis, P.A., counsel to First Bancshares and The First, to the effect that the Merger will be treated, for federal income tax purposes, as a tax-free reorganization under Section 368(a) of the Code.
Shareholders of FNB Wiggins will not recognize any gain or loss upon the exchange of their FNB Wiggins Common Stock to the extent that they receive First Bancshares Common Stock in return. The aggregate tax basis of First Bancshares Common Stock received by such a holder in exchange for FNB Wiggins Common Stock will equal such holder’s tax basis in the FNB Wiggins Common Stock surrendered less any cash received by such a holder as a result of the transaction. If such shares of FNB Wiggins Common Stock are held as capital assets at the Effective Date, the holding period of the First Bancshares Common Stock received will include the holding period of the FNB Wiggins Common Stock surrendered therefor. Shareholders of FNB Wiggins should consult their tax advisors as to the determination of their tax basis and holding period in any one share of First Bancshares Common Stock, as several methods of determination may be available.
As discussed above, a portion of each share of FNB Wiggins Common Stock will be exchanged by holders for the Cash Element. Any shareholder of FNB Wiggins who receives cash pursuant to the Merger will recognize a gain or loss equal to the difference between the amount of cash received for that portion of the FNB Wiggins Common Stock and the basis of that portion of the FNB Wiggins Common Stock. Any such gain or loss recognized on such redemption will typically be treated as capital gain or loss if the FNB Wiggins Common Stock was held as a capital asset.
To avoid the expense and inconvenience to First Bancshares of issuing fractional shares, no fractional shares of First Bancshares Common Stock will be issued pursuant to the Merger. Any shareholder of FNB Wiggins who receives cash pursuant to the Merger in lieu of a fractional share interest will generally recognize capital gain or loss on such a deemed redemption of the fractional share in an amount determined by the difference between the amount of cash received for such fractional share and the shareholder’s tax basis in the fractional share.
Shareholders of FNB Wiggins who perfect dissenters’ rights and receive cash in exchange for their FNB Wiggins Common Stock will be treated, under Code Sections 302(a) and 302(b)(3), as receiving such payment in complete redemption of the FNB Wiggins Common Stock subject to the proceeding, provided that such shareholder does not actually or constructively own (under Code Section 318) any FNB Wiggins Common Stock after the redemption. Such deemed redemption may also be subject to Section 302(a) of the Code if such deemed redemption is “substantially disproportionate” with respect to the FNB Wiggins shareholder who exercises dissenters’ rights, or is “not essentially equivalent to a dividend,” with the result that a shareholder who exercises dissenters’ rights will recognize gain or loss equal to the difference between the amount realized and such shareholder’s tax basis in the FNB Wiggins Common Stock subject to the proceeding. Any such gain or loss recognized on such redemption will be treated as capital gain or loss if the FNB Wiggins Common Stock with respect to which dissenters’ rights were exercised was held as a capital asset. Each FNB Wiggins shareholder who contemplates exercising dissenters’ rights should consult a tax advisor as to the possibility that all or a portion of the payment received pursuant to the dissenters’ rights proceeding will be treated as dividend income.
Unless an exemption applies under the applicable law and regulations, the Exchange Agent will be required to withhold federal and/or state income taxes from any cash payments to which a shareholder or other payee is entitled pursuant to the Merger unless the shareholder or other payee provides its taxpayer identification number (social security number or employer identification number) and certifies that such number is correct. Each shareholder and, if applicable, each other payee should complete and sign the substitute Form W-9 included as part of the letter of transmittal so as to provide the information and certification necessary to avoid backup withholding, unless an applicable exemption exists and is established in a manner satisfactory to First Bancshares and the Exchange Agent.
THE FOREGOING IS A SUMMARY OF THE MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER WITHOUT REGARD TO THE PARTICULAR FACTS AND CIRCUMSTANCES OF EACH FNB WIGGINS SHAREHOLDER. SHAREHOLDERS OF FNB WIGGINS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE MERGER, INCLUDING THE APPLICABILITY AND EFFECT OF FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX LAWS.
DISSENTERS' RIGHTSThe following summary of applicable provisions of federal law governing the rights of FNB Wiggins’ shareholders is qualified in its entirety by reference to Exhibit C. Any shareholder of FNB Wiggins entitled to vote on the Merger Agreement has the right to receive payment of the fair value of his shares of FNB Wiggins Common Stock upon compliance with 12 U.S.C. §§ 215 and 215a.
Filing Vote Against or Dissent from the Merger and Filing of Dissenter's RequestAn FNB Wiggins shareholder may not dissent as to less than all of the shares that he beneficially owns. A nominee or fiduciary may not dissent on behalf of any beneficial owner as to less than all of the shares of such beneficial owner held of record by such nominee or fiduciary. A beneficial owner asserting dissenters’ rights to shares held on his behalf must submit to FNB Wiggins the written consent of the record shareholder of FNB Wiggins to the dissent not later than the time the beneficial shareholder asserts dissenters’ rights. Any FNB Wiggins shareholder intending to enforce this right must vote against the Merger Agreement or must file written notice of his or her dissent from the Merger Agreement with the presiding officer of the Meeting either before the Meeting or at the Meeting. Such dissenting shareholder shall then be entitled to receive the value of the share so held by him or her when the Merger shall be approved by the OCC upon written request made to The First (“Dissenter’s Request”) at any time before thirty (30) days after the date of consummation of the Bank Merger, accompanied by the surrender of his or her stock certificates. The Dissenter’s Request must state that the FNB Wiggins shareholder intends to demand payment for his or her shares of FNB Wiggins Common Stock. A vote against approval of the Merger Agreement will not, in and of itself, constitute a Dissenter’s Request satisfying the requirements of 12 U.S.C. §§ 215 and 215a. A failure to vote will not constitute a waiver of appraisal rights as long as the requirements of 12 U.S.C. §§ 215 and 215a are complied with. However, any FNB Wiggins shareholder who executes a proxy card and who desires to pursue his appraisal rights must mark the proxy card “Against” the proposal relating to the Merger because if the proxy card is left blank, it will be voted “For” the proposal relating to the Merger.
The value of the shares of any dissenting shareholder shall be ascertained, as of the Effective Date of the Merger, by an appraisal made by a committee of three (3) persons, composed of (1) one person selected by the vote of the holders of the majority of the FNB Wiggins Common Stock, the owners of which are entitled to payment in cash in accordance with dissenters’ rights; (2) one person selected by the directors of The First; and (3) one person selected by the two so selected. The valuation agreed upon by any two of the three appraisers shall govern. If the value so fixed shall not be satisfactory to any dissenting shareholder who has requested payment, that shareholder may, within five (5) days after being notified of the appraised value of his or her shares, appeal to the OCC, who shall cause a reappraisal to be made which shall be final and binding as to the value of the shares of the appellant. If, within ninety (90) days from the date of consummation of the Merger, for any reason one or more of the appraisers is not selected as provided above, or the appraisers fail to determine the value of such shares, the OCC shall, upon written request of any interested party, cause an appraisal to be made which shall be final and binding on all parties. The expenses of the OCC in making the reappraisal or the appraisal, as the case may be, shall be paid by The First. The value of the shares ascertained shall be promptly paid to the dissenting shareholders by The First. The shares of stock of First Bancshares which would have been delivered to such dissenting shareholders had they not requested payment shall be sold by First Bancshares at an advertised public auction, and First Bancshares shall have the right to purchase any of such shares at such public auction, if it is the highest bidder therefor, for the purpose of reselling such shares within thirty (30) days thereafter to such person or persons and at such price not less than par as its board of directors by resolution may determine. If the shares are sold at public auction at a price greater than the amount paid to the dissenting shareholders, the excess in such sale price shall be paid to such dissenting shareholders.
The foregoing is a summary of all applicable provisions of the National Bank Act which shareholders must comply with to exercise their dissenters’ rights. This summary is not intended to be a complete statement of such provisions, and is qualified in its entirety by reference to such sections, which are included as Exhibit C hereof.
NoticesPrior to the Effective Date, dissenting shareholders of FNB Wiggins should send any communications regarding their rights to Patty Fiveash, Vice President, FNB Wiggins, 124 Border Avenue, Wiggins, Mississippi, 39577. On or after the Effective Date, dissenting FNB Wiggins shareholders should send any communications regarding their rights to Chandra B. Kidd, Corporate Secretary, First Bancshares, Inc., 6480 U.S. Hwy 98 West, Hattiesburg, Mississippi 39402. All such communications should be signed by or on behalf of the dissenting FNB Wiggins shareholder in the form in which his or her shares are registered on the books of FNB Wiggins. First Bancshares and The First have the right to terminate the Merger Agreement if the number of shares of FNB Wiggins Common Stock as to which holders thereof are legally entitled to assert Dissenters’ Rights equals a number that would disqualify the transaction as a nontaxable reorganization under and in accordance with Sections 368(a)(1)(A) and 368(a)(2)(D) of the Code. See “The Merger — Amendment; Waiver; Termination.”
ANY FNB WIGGINS SHAREHOLDER WHO DESIRES TO EXERCISE DISSENTERS' RIGHTS SHOULD CAREFULLY REVIEW THE NATIONAL BANK ACT AND IS URGED TO CONSULT SUCH SHAREHOLDER'S LEGAL ADVISOR BEFORE EXERCISING OR ATTEMPTING TO EXERCISE SUCH RIGHTS.
COMPARATIVE RIGHTS OF SHAREHOLDERSFNB Wiggins is a national bank organized under the laws of the United States and First Bancshares is a business corporation incorporated in the State of Mississippi. If the Merger is consummated, holders of FNB Wiggins Common Stock, whose rights as shareholders are currently governed by federal law and by the FNB Wiggins Articles of Association and Bylaws, will, upon consummation of the Merger, become shareholders of First Bancshares and their rights as such will be governed by Mississippi law and by First Bancshares’ Articles of Incorporation (the “First Bancshares Articles”) and Bylaws.
Certain significant differences between the rights of holders of FNB Wiggins Common Stock and holders of First Bancshares Common Stock are set forth below. This summary is not intended to be relied upon as an exhaustive list or a detailed description of the provisions discussed and is qualified in its entirety by the National Bank Act and the Mississippi Business Corporation Act (“MBCA”) and by the Articles of Association and Bylaws of FNB Wiggins and the Articles of Incorporation and Bylaws of First Bancshares, respectively, to which holders of FNB Wiggins Common Stock are referred.
Voting Rights; Cumulative VotingFNB Wiggins. Generally, each outstanding share of FNB Wiggins' common stock is entitled to one vote on each matter submitted to a vote. However, FNB Wiggins’ Bylaws and the National Bank Act provide that in the election of directors, each shareholder entitled to vote has the right to vote in person or by proxy the number of shares owned by him for as many persons as there are directors to be elected for whose election he has a right to vote, or to cumulate his votes by giving one candidate as many votes as the number of such directors multiplied by the number of his shares shall equal, or by distributing such votes on the same principle among any number of candidates. Holders of FNB Wiggins Common Stock do have cumulative voting rights in the election of directors.
First Bancshares. Pursuant to the MBCA and First Bancshares' Bylaws, each outstanding share of First Bancshares stock is entitled to one vote on each matter submitted to a vote. Holders of First Bancshares Common Stock do not have cumulative voting rights. Article 2.6 of the First Bancshares Bylaws provides that unless otherwise required by the MBCA or the Articles, all classes or series of First Bancshares shares entitled to vote generally on a matter shall for that purpose be considered a single voting group.
Limitations on Directors' and Officers' LiabilityFNB Wiggins. FNB Wiggins' Articles of Association and Bylaws provide for indemnification or reimbursement of its directors and executive officers by FNB Wiggins, for reasonable expenses actually incurred in connection with any action, suit, or proceeding to which he or they are made a party by reason of being or having been a director, officer, or employee of FNB Wiggins, subject to certain exceptions.
First Bancshares. Article 7 of First Bancshares' Articles of Incorporation provide that no director of First Bancshares shall be personally liable to the Corporation or its shareholders for monetary damages for breach of fiduciary duty as a director, except for any appropriation in violation of fiduciary duties of any business opportunity; for acts or omissions not in good faith or involving intentional misconduct or a knowing violation of law, under Section 79-4-8.33 of the MBCA, or for any transaction from which the director derived an improper personal benefit. Article 8 of First Bancshares’ Bylaws provide for indemnification of Directors and Officers as discussed below under the caption “Indemnification.”
Supermajority Voting Requirements; Business Combinations or Control Share AcquisitionFNB Wiggins. FNB Wiggins' Articles of Association and Bylaws are silent as to supermajority voting requirements. However, 12 U.S.C. §§ 215 and 215a and require for any Merger of FNB Wiggins with another institution to be ratified and confirmed by the affirmative vote of its shareholders owning at least two-thirds (2/3) of its capital stock outstanding.
First Bancshares. The MBCA states that in the absence of a greater requirement in the articles of incorporation, a sale, lease, exchange, or other disposition of all, or substantially all, a corporation’s property requires approval by a majority of the shares entitled to vote on the transaction. The First Bancshares Articles of Incorporation do not provide for a greater than majority vote on such a transaction.
The First Bancshares Articles of Incorporation do include a Control Share Acquisition provision requiring any person who plans to acquire a control block of stock (generally defined as 10%) to obtain approval by the majority vote of disinterested shareholders or the affirmative vote of 75% of eligible members of the Board of Directors in order to vote the control shares. If a control share is made without first obtaining this approval, all stock beneficially owned by the acquiring person in excess of 10% will be considered “excess stock” and will not be entitled to vote.
Any person who proposes to make or has made a control share acquisition may deliver a statement to First Bancshares describing the person’s background and the control share acquisition and requesting a special meeting of shareholders of First Bancshares to decide whether to grant voting rights to the shares acquired in the control share acquisition. The acquiring person must pay the expenses of this meeting. If no request is made, the voting rights to be accorded the shares acquired in the control share acquisition shall be presented to the next special or annual meeting of the shareholders. If the acquiring person does not deliver his or her statement to First Bancshares, it may elect to repurchase the acquiring person’s shares at fair market value. Control shares acquired in a control share acquisition are not subject to redemption after an acquiring person’s statement has been filed unless the shares are not accorded full voting rights by the shareholders.
Removal of DirectorsFNB Wiggins. FNB Wiggins' Articles of Association and Bylaws are silent as to removal of directors.
First Bancshares. Article 11 of First Bancshares' Articles of Incorporation provide that no director of First Bancshares may be removed except by the shareholders for cause; provided that directors elected by a particular voting group may be removed only by the shareholders in that voting group for cause. Article 3.3 of First Bancshares’ Bylaws provide further that removal action may only be taken at a shareholders’ meeting for which notice of the removal action has been given. A removed director’s successor may be elected at the same meeting to serve the unexpired term.
Board of DirectorsFNB Wiggins. All members of the FNB Wiggins Board are elected annually.
First Bancshares. Under Article 10 of the First Bancshares Articles of Incorporation, the Board of Directors of First Bancshares is divided into three classes — Class I, Class II, and Class III as nearly equal in numbers of directors as possible. Article 3.2 of the Bylaws establishes a minimum of 9 directors, and a maximum of 25 directors. At present there are 6 Class I directors, 6 Class III directors, and 5 Class II directors. The terms of the Class III directors will expire at the 2007 Annual Shareholders’ Meeting. The terms of the Class I directors will expire at the 2008 Annual Shareholders’ Meeting. The terms of the Class II directors will expire at the 2009 Annual Shareholders’ Meeting.
Vacancies in the Board of DirectorsFNB Wiggins. Under FNB Wiggins' Articles of Association and Bylaws, any vacancy may be filled by action of the FNB Wiggins Board.
First Bancshares. Under First Bancshares' Bylaws, any vacancy, may be filled for the unexpired term by the affirmative vote of a majority of the remaining directors, provided that, if the vacant office was held by a director elected by a particular voting group, only the shares of that voting group or the remaining directors elected by that voting group shall be entitled to fill the vacancy; and further provided that, if the vacant office was held by a director elected by a particular voting group, the other remaining directors or director (elected by another voting group or groups) may fill the vacancy during an interim period before the shareholders of the vacated director’s voting group act to fill the vacancy.
Amendment of the Articles of Incorporation or BylawsFNB Wiggins. Amendments of the FNB Wiggins Articles of Association require the vote of the holders of a majority of the outstanding shares of FNB Wiggins Common Stock. The FNB Wiggins Bylaws may be altered, amended or repealed and new bylaws may be adopted at any regular meeting of the FNB Wiggins Board by a majority vote of the whole number of directors.
First Bancshares. Under the MBCA, the board of directors has the power to amend or repeal the bylaws of a Mississippi corporation such as First Bancshares, unless such power is expressly reserved for the shareholders. Article 10 of First Bancshares’ Bylaws provide that the Bylaws may be amended, altered, or repealed by the Board of Directors, except with regard to the provisions establishing the number of directors and process for removal of directors, which may only be amended by the affirmative vote of holders of outstanding shares entitled to more than 80% of the votes entitled to be cast on the alteration, amendment, or repeal.
Amendments to the Articles of Incorporation that result in dissenters’ rights require the affirmative vote of a majority of the outstanding shares entitled to vote on the amendment. Otherwise, the Articles of Incorporation may be amended by a majority vote of the shares present at a meeting where a quorum is present.
Special Meetings of ShareholdersFNB Wiggins. FNB Wiggins' Bylaws authorize the FNB Wiggins Board or any three or more shareholders who hold at least 25% of the issued and outstanding shares of FNB Wiggins Common Stock to call a special meeting of shareholders. Such a call shall state the purpose or purposes of the proposed special meeting.
First Bancshares. Under First Bancshares' Bylaws, special meetings of the shareholders, for any purpose or purposes, may be called by the Chairman of the Board, the Chief Executive Officer, or the Board of Directors, or within 75 days of a written request of shareholders holding in the aggregate 10% or more of the total voting power entitled to vote on an issue. Such a request must state the purpose or purposes of the proposed special meeting.
Shareholder Proposals and NominationsFNB Wiggins. The FNB Wiggins Bylaws do not contain any provisions regarding shareholder proposals and nominations.
First Bancshares. First Bancshares' Bylaws provide procedures that must be followed to properly nominate candidates for election as directors. At least 60 days prior to the Annual Meeting, or 10 days after notice of the Annual Meeting is provided to shareholders, notice must be given to the Secretary of First Bancshares if a shareholder intends to nominate an individual for election to the Board of Directors or propose any shareholder action. These Bylaw provisions also require information to be supplied about both the shareholder making such nomination or proposal and the person nominated.
Authorized CapitalFNB Wiggins. The authorized capital stock of FNB Wiggins consists of 50,000 Shares, $10 Par Value Common Stock.
First Bancshares. First Bancshares has 10,000,000 shares of authorized Common Stock, $1.00 par value, and authority to issue up to 10,000,000 shares of Preferred Stock, $1.00 par value, with such preferences, limitations, and relative rights as determined by the Board of Directors. No shares of preferred stock are currently issued and outstanding.
IndemnificationFNB Wiggins. FNB Wiggins' Articles of Association and Bylaws provide for indemnification or reimbursement of its directors and executive officers by FNB Wiggins, for reasonable expenses actually incurred in connection with any action, suit, or proceeding to which they are made a party by reason of being or having been a director, officer, or employee of FNB Wiggins, subject to certain exceptions. The exceptions are that no person shall be so indemnified or reimbursed in relation to any matter in such action, suit, or proceeding: 1) as to which he shall finally be adjudged to have been guilty of or liable for gross negligence, willful misconduct, or criminal acts in the performance of his duties to FNB Wiggins; or 2) which has been made the subject of a compromise settlement except with the approval of a court of competent jurisdiction, or the holders of record of a majority of the outstanding shares of FNB Wiggins, or the Board of Directors acting by vote of directors not parties to the same or substantially the same action, suit, or proceeding, constituting a majority of the whole number of directors. These rights are not exclusive of other rights FNB Wiggins is entitled to as a matter of law.
First Bancshares. Section 79-4-8.50 through 79-4-8.59 of the MBCA provide First Bancshares with broad powers and authority to indemnify its directors and officers and to purchase and maintain insurance for such purposes and mandate the indemnification of First Bancshares’ directors under certain circumstances. First Bancshares’ Articles of Incorporation also provide it with the power and authority, to the fullest extent legally permissible under the MBCA, to indemnify its directors and officers, persons serving at the request of the First Bancshares or for its benefit as directors or officers of another corporation, and persons serving as First Bancshares’ representatives or agents in certain circumstances. Pursuant to such authority and the provisions of First Bancshares’ Articles of Incorporation, First Bancshares intends to purchase insurance against certain liabilities that may be incurred by it and its officers and directors.
The Articles of Incorporation of First Bancshares contain a provision which, subject to certain exceptions described below, eliminates the liability of a director or officer to it or its shareholders for monetary damages for any breach of duty as a director or officer. This provision does not eliminate such liability to the extent the director or officer engaged in willful misconduct or a knowing violation of criminal law or of any federal or state securities law, including, without limitation, laws proscribing insider trading or manipulation of the market for any security.
Under its Bylaws, First Bancshares must indemnify any person who becomes subject to a lawsuit or proceeding by reason of service as a director of First Bancshares or The First or any other corporation which the person served as a director at the request of First Bancshares. Except as noted in the next paragraph, directors are entitled to be indemnified against judgments, penalties, fines, settlements, and reasonable expenses actually incurred by the director in connection with the proceeding. Directors are also entitled to have First Bancshares advance any such expenses prior to final disposition of the proceeding, upon delivery of (1) a written affirmation by the director of his good faith belief that the standard of conduct necessary for indemnification has been met, and (2) a written undertaking to repay the amounts advanced if it is ultimately determined that the standard of conduct has not been met.
Under the Bylaws, indemnification will be disallowed if it is established that the director appropriated, in violation of his duties, any business opportunity of First Bancshares, engaged in acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, approved dividends or other distributions in violation of the MBCA, or engaged in any transaction in which the director derived an improper personal benefit. In addition to the Bylaws of First Bancshares, the MBCA requires that a corporation indemnify a director who was wholly successful, on the merits or otherwise, in the defense of any proceeding to which he or she was a party because he is or was a director of the corporation against reasonable expenses incurred by him or her in connection with the proceeding. The MBCA also provides that, upon application of a director, a court may order indemnification if it determines that the director is entitled to such indemnification under the applicable standard of the MBCA.
The Board of Directors of First Bancshares also has the authority to extend to officers, employees, and agents the same indemnification rights held by directors, subject to all of the accompanying conditions and obligations. The Board of Directors has extended or intends to extend indemnification rights to all of its executive officers.
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers, and controlling persons of First Bancshares pursuant to the Articles of Incorporation or Bylaws, or otherwise, First Bancshares has been advised that, in the opinion of the SEC, such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable.
FNB Wiggins is a national banking association organized in 1973 under the National Bank Act. The principal executive offices of FNB Wiggins are located at 124 Border Avenue, Wiggins, Mississippi 39577.
FNB Wiggins was established in 1973 as a federally chartered national banking association under the name of “First National Bank of Wiggins.” It has no subsidiaries.
CompetitionThe principal market for FNB Wiggins is Stone County, Mississippi. It has historically drawn the bulk of its customers from this area.
Stone County has seven (7) offices of four commercial banks and one credit union. FNB Wiggins offers traditional depository services including checking accounts, certificates of deposit, and savings accounts.
FNB Wiggins is subject to intense competition in all aspects of its activities. As a lender, FNB Wiggins competes not only with other banks, but also with savings and loan associations, mortgage companies, credit unions, finance companies, insurance companies and brokerage companies. FNB Wiggins must compete for savings and time deposits with other banks, savings and loan associations, credit unions, money market and mutual funds, and issuers of commercial paper, securities and various forms of fixed and variable income investments. The primary competitive factors in the marketplace for deposits and loans are interest rates paid and interest rates charged, along with related services.
FNB Wiggins has historically operated as a community oriented bank and management believes that there has been a market niche for FNB Wiggins in the services offered by a community financial institution, particularly in the area of originating and servicing mortgage loans.
FNB Wiggins compares favorably with competing financial institutions in terms of prices, interest rates, and hours of operation. The range of services is, of necessity, more narrow than other larger financial institutions. FNB Wiggins’ operating strategies have been and will continue to be developed to respond to the economic conditions prevailing in its market area.
Dividends on Common StockAs discussed elsewhere in this Prospectus/Proxy Statement, until FNB Wiggins has fully complied with the OCC’s Consent Order and its earnings and capital levels support such activities, FNB Wiggins may not declare or pay dividends on its common stock.
Liability and Asset ManagementLiabilities of FNB Wiggins are represented almost entirely by customers’ deposit balances including demand deposits and interest bearing accounts. In managing its liabilities, FNB Wiggins has attempted to attract customers who, assuming rates are competitive, would be inclined to maintain an ongoing relationship with FNB Wiggins, and in the case of maturing savings certificates, would tend to renew or reinvest their deposits with FNB Wiggins.
Assets of FNB Wiggins consist primarily of loans and investment securities. In order to maintain a high degree of liquidity and minimize fluctuations in the interest margin (the difference between interest income and interest expense), management endeavors to maintain loans and investment securities which are generally similar to the maturity distribution of FNB Wiggins’s deposit liabilities.
Since the majority of FNB Wiggins’s deposits have a maturity of six months or less, FNB Wiggins invests the majority of its investable funds (funds not put into loans) in readily marketable assets, such as Federal Funds and short-to-intermediate term issues of the United States government and its agencies. Interest rates on many loans are negotiated on a variable rate basis, especially when the loan maturity is in excess of one year. By pricing loans on a variable rate structure or selling on the secondary market long term fixed rate mortgages, and by maintaining loan maturities and investments of a relatively short term, FNB Wiggins attempts to maintain a relatively consistent interest rate margin.
FNB Wiggins employs sixteen (16) full-time equivalent employees and seven (7) part-time employees.
PropertiesFNB Wiggins owns its main office. FNB Wiggins’ Operations Center, adjacent to the Main Office, is also owned by FNB Wiggins. Management considers the properties to be adequate for the needs of FNB Wiggins.
Legal ProceedingsFNB Wiggins, in the usual and ordinary conduct of its business, becomes involved from time to time in litigation, both as plaintiff and as defendant. FNB Wiggins is currently a defendant in a lawsuit filed by Centon Bancorp, Inc., and Richton Bank & Trust Company in the Circuit Court of Stone County, Mississippi, on May 24, 2006, as discussed earlier in this Proxy Statement/Prospectus (See “Summary – Recent Developments”). None of the legal proceedings to which FNB Wiggins is now a party is deemed to be likely to have any material effect upon it or its operations
Supervision and Regulation GeneralFNB Wiggins, as a national bank, is a member of the Federal Reserve System. Its deposit accounts are insured by the Deposit Insurance Fund of the Federal Deposit Insurance Corporation (“FDIC”) up to the maximum legal limits of the FDIC, and it is subject to regulation, supervision and regular examination by the OCC and the FDIC. The regulations of these various agencies govern most aspects of FNB Wiggins’ business, including required reserves against deposits, loans, investments, mergers and acquisitions, borrowing, distributions and location and number of branch offices. The laws and regulations governing FNB Wiggins generally have been promulgated to protect depositors and the deposit insurance funds, and not for the purpose of protecting shareholders.
Interest Rate RiskBanking is a business which depends on interest rate differentials. In general, the differences between the interest paid by a bank on its deposits and its other borrowings and the interest received by a bank on loans extended to its customers and securities held in its investment portfolio constitute the major portion of FNB Wiggins’ earnings. However, due to recent deregulation of the industry, the banking business is becoming increasingly dependent on the generation of fees and service charges.
The earnings and growth of FNB Wiggins are subject to the influence of economic conditions generally, both domestic and foreign, and also to the monetary and fiscal policies of the United States and its agencies, particularly the Federal Reserve Board, which regulates the supply of money through various means including open market dealings in United States government securities. The nature and timing of changes in such policies and their impact on FNB Wiggins cannot be predicted.
Capital Adequacy GuidelinesFNB Wiggins is generally subject to capital adequacy guidelines adopted by the various federal banking regulatory agencies for use in their examination and regulation of banks. While the General Capital Adequacy Guidelines discussed below are applicable to all banks, FNB Wiggins is presently subject to more stringent and specific capital requirements contained in the OCC’s Consent Order dated July 9, 2003. See “Business of the Bank — Governmental Supervision and Regulation — Consent Order.”
Banks generally are expected to meet certain capital guidelines which employ two measures of capital: (1) a Leverage Capital Ratio (comparing capital to total balance sheet assets), and (2) a Risk Based Capital Ratio (comparing capital to risk weighted assets and off balance sheet activity). While the General Capital Adequacy Guidelines discussed herein are applicable to all banks, FNB Wiggins is presently subject to more stringent and specific capital requirements contained in the OCC’s Consent Order dated July 9, 2003, and discussed under “Capital Adequacy Guidelines Applicable to FNB Wiggins under the Consent Order” below.
The federal banking regulators, including the OCC, have adopted leverage capital guidelines under which the most highly-rated banks under the Uniform Interagency Bank Rating System are expected to maintain a minimum Leverage Capital Ratio (core capital (Tier 1) to total adjusted assets) of 3.0%. All other banks are required to meet a minimum Leverage Capital Ratio of at least 4% to 5%. As of December 31, 2003, and December 31, 2004, FNB Wiggins’ Leverage Capital Ratio was 8.0% and 7.1% respectively, in each case above the regulatory minimum requirement, but in 2004 slightly below the amount of capital required by the Consent Order. As of December 31, 2005, FNB Wiggins’ Leverage Capital Ration was 6.45%, again above the regulatory minimum requirement, but slightly below the amount of capital required by the Consent Order.
The federal banking regulators have also adopted risk based capital adequacy guidelines which are used to determine the adequacy of capital based on the risk inherent in various classes of assets and off-balance sheet items. Under these guidelines, banks are expected to meet a minimum ratio of core capital (Tier 1) to risk weighted assets of 4.0% and a minimum ratio of total qualifying capital (the sum of core capital (Tier 1) and supplementary capital (Tier 2)) to risk weighted assets of 8%.
Tier 1 Capital generally consists of the sum of common stockholders’ equity plus a certain portion of perpetual preferred stock, less intangible assets. Tier 2 Capital consists primarily of the excess of any perpetual preferred stock which is not included in Tier 1 Capital, mandatory convertible securities, subordinated debt and general reserves for loan losses.
The risk-weighted asset base is determined by adjusting the assets of the bank under the risk-based capital guidelines to take into account different risk characteristics. Assets are assigned to one of four risk categories: these are 0%, 20%, 50% and 100%. Off-balance sheet items (for example, standby letters of credit) also are adjusted to take into account certain risk characteristics through a two-step process. First, the amount of the off-balance sheet item is multiplied by a credit conversion factor of either 0%, 20%, 50% or 100%. Then, the result is assigned to one of the four risk categories. A bank’s risk-weighted assets equal the sum of the aggregate dollar values of assets and off-balance sheet items in each risk category, after multiplied by the weight assigned to that category.
Capital Adequacy Guidelines Applicable to FNB Wiggins under the Consent OrderUnder the terms of the Consent Order, FNB Wiggins is required to maintain certain capital requirements specific to FNB Wiggins which supersede the regular minimum requirements discussed above. Under Article III of the Consent Order, FNB Wiggins is to achieve and maintain Tier 1 regulatory capital equal to at least 12% of risk weighted assets and Tier 1 regulatory capital equal to 8% of total adjusted assets. In conjunction with achieving and maintaining such capital levels, the FNB Wiggins Board was required to develop, implement and insure adherence to a 3-year capital plan detailing specific plans for the maintenance of capital and projections for growth and capital requirements, together with the sources of additional capital, which had to be submitted to the OCC for approval. However, the failure of the FNB Wiggins Board to develop an OCC approved capital plan was its motivation for deciding to merge with another institution.
As of December 31, 2003, the Tier 1 Leverage capital ratio of FNB Wiggins was 8.2%; the Tier 1 Risk-Weighted Capital ratio of FNB Wiggins was 12.2% and the Total Risk-Based capital ratio of FNB Wiggins was 13.5%, in each case above the regulatory minimum requirement, and slightly above the requirements of the Order. As of December 31, 2004, the Tier 1 Leverage capital ratio of FNB Wiggins was 7.1%; the Tier 1 Risk-Weighted Capital ratio of FNB Wiggins was 11.7% and Total Risk-Based capital ratio of FNB Wiggins was 13.0%, slightly below the requirements of the Order. As of December 31, 2005, the Tier 1 Leverage capital ratio of FNB Wiggins was 6.45%; the Tier 1 Risk-Weighted Capital ratio of FNB Wiggins was 12.18% and Total Risk-Based capital ratio of FNB Wiggins was 13.36%, slightly below the requirements of the Order. At present, FNB Wiggins is not compliant with the capital requirements of the Consent Order applicable to FNB Wiggins.
FNB Wiggins is required by the FDIC and the OCC to maintain an adequate reserve for loan and lease losses. Management of FNB Wiggins is responsible for devising a monitoring system which adequately assesses the losses each period and maintains an adequate reserve. This reserve is funded by charges to FNB Wiggins’ income. The charges adversely impact income irrespective of actual losses.
During the due diligence review of FNB Wiggins, The First determined that an additional $400,000 was needed in the allowance for loan losses of FNB Wiggins. This determination was reached after reviewing approximately 50% of the loan portfolio, applying the more conservative loan classification standards of The First to those loans reviewed, and extrapolating the results to the remainder of the loan population. The review revealed that an additional allowance of approximately $400,000 was needed. This additional provision was primarily related to: (1) loans that would be downgraded under the loan classification standards of The First but were previously rated as pass by FNB Wiggins; (2) loans with capitalized interest; (3) charge-offs that would have been taken under the loan classification standards of The First; and (4) loans with insufficient documentation to justify their current classification. As a result, The First requested that an additional provision for loan losses of $400,000 be recorded by FNB Wiggins and reflected in its June 30, 2006, call report, which was filed with the FDIC. FNB Wiggins complied with this request, and the additional provision is reflected within the June 30, 2006, financial information that is part of this Prospectus/Proxy Statement. However, the recording of this additional provision does not mean that the prior loan loss allocation used by FNB Wiggins according to its methodology was insufficient. It reflects a difference in the loan classification standards of The First and FNB Wiggins. Additionally, the additional provision will have no effect on the Merger Consideration received by holders of FNB Wiggins Common Stock under the terms of the Merger Agreement.
For more information on loan loss reserves for the periods ended December 31, 2003, December 31, 2004, and December 31, 2005, see “FNB WIGGINS’ MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — Allowance for Loan Losses” for the respective periods below.
Enforcement AuthorityFederal banking law grants substantial enforcement powers to federal banking regulators. This enforcement authority includes, among other things, the ability to assess civil money penalties, to issue cease-and-desist or removal orders and to initiate injunctive actions against banking organizations and institution-affiliated parties. In general, these enforcement actions may be initiated for violations of laws and regulations and unsafe or unsound practices. Other actions or inactions may provide the basis for enforcement action, including misleading regulatory authorities or the untimely filing of reports.
Additional RegulationFNB Wiggins is subject to Federal Reserve regulations which, among other things, require it to maintain reserves against transaction accounts (primarily checking accounts), money market deposit accounts and nonpersonal time deposits. Because reserves generally must be maintained in cash or in noninterest-bearing accounts, the effect of the reserve requirements is to increase the cost of funds for FNB Wiggins.
In addition to the specific laws affecting banks and the regulations promulgated by the OCC, FNB Wiggins will also be subject to general state laws (including, for example, usury laws which govern interest rates and other finance charges collectible by FNB Wiggins on loans) except to the extent any such laws may be preempted by federal law.
FNB Wiggins is subject to laws and regulations which impose specific requirements or restrictions on and provide for general regulatory oversight with respect to virtually all aspects of operations. The operations of FNB Wiggins may be affected by legislative changes and changes in the policies of various regulatory authorities. FNB Wiggins is unable to predict the nature or the extent of the effect on its business and earnings that fiscal or monetary policies, economic control, or new federal or state legislation may have in the future.
Consent OrderAs a result of an examination of FNB Wiggins by the OCC that commenced on December 2, 2002, FNB Wiggins, through its Board of Directors, executed a Stipulation and Consent to the Issuance of a Consent Order dated July 9, 2003. The terms of the Consent Order, which is a public document available on the website of the OCC at www.occ.treas.gov, is on page 8.
The Bank remains in noncompliance with the Consent Order. As noted, FNB Wiggins is obligated by the Consent Order to achieve and maintain certain minimum regulatory capital ratios. At present, FNB Wiggins is not compliant with the capital requirements of the Consent Order and has been ordered to sell, merge, or liquidate FNB Wiggins. The previous capital plan of FNB Wiggins calling for increase of capital by sale of the stock offered hereby was not approved by the OCC. Failure of the Bank to comply with the requirements of the Consent Order has resulted in an Order by the OCC to sell or liquidate FNB Wiggins.
The following discussion and analysis of the financial condition and results of operations of FNB Wiggins should be read in conjunction with the consolidated financial statements, accompanying footnotes and other supplemental financial information appearing elsewhere in this Proxy Statement/Prospectus.
Forward Looking StatementsThis Proxy Statement/Prospectus prepared by FNB Wiggins, as well as other filings, reports and press releases made or issued by FNB Wiggins, and oral statements made by executive officers of FNB Wiggins, may include forward-looking statements relating to such matters as (a) assumptions concerning future economic and business conditions and their effect on the economy in general and on the markets in which FNB Wiggins does business, and (b) expectations for increased revenues and earnings for FNB Wiggins through improved operations, attraction of new deposit and loan customers and the introduction of new products and services. Such forward-looking statements are based on assumptions rather than historical or current facts and, therefore, are inherently uncertain and subject to risk.
Results of operations, 2005 compared to 2004The Bank reported a net loss of $242,631 for the year ended December 31, 2005 compared to net loss of $611,025 for the year ended December 31, 2004.
Interest income was $2,547,684 for the year ended December 31, 2005, up from $2,487,104 for the year ended December 31, 2004. Interest expense was $1,060,558 for the year ended December 31, 2005, compared to $1,205,691 for the previous year.
Non-interest income for the year ended December 31, 2005 decreased to $299,749 from $540,023 for the prior year ended December 31, 2004. Non-interest expense decreased to $1,910,989 from $2,136,836 for December 31, 2005 and 2004, respectively.
Salaries decreased to $638,588 for the year ended December 31, 2005, compared to $724,796 for the prior year.
FNB Wiggins’ provision for loan losses charged to operations was decreased to $118,419 for the year ended December 31, 2005, down from $287,187 for the year ended December 31, 2004.
For the year ended December 31, 2005, FNB Wiggins incurred no income tax expense as compared to $8,438 for the year ended December 31, 2004.
Changes in Financial Position and Liquidity - For the year ended December 31, 2005, total assets increased to $51,039,282 from $47,435,468 at December 31, 2004.
Allowance for Loan Losses - FNB Wiggins maintains its allowance for loan losses at a level that is considered sufficient to absorb potential losses in the loan portfolio. The estimate of the loan loss allowance and provision for loan losses is determined by management after considering the following factors: (1) analytical review of the loan loss experience in relations to outstanding loans; (2) internal review of problem loans and overall portfolio quality; (3) examinations of the loan portfolio conducted by state and federal supervisory authorities; (4) management’s judgment with respect to current and expected economic conditions and their impact on the loan portfolio and borrower’s ability to pay; and (5) the relationship of the reserve for possible loan losses to outstanding loans.
FNB Wiggins continues to make significant efforts to strengthen the loan portfolio through sound lending practices and careful monitoring of existing loans. The allowance for loan losses decreased to $308,876 at December 31, 2005 compared to $975,122 at December 31, 2004. Management regularly reviews the level of the allowance for possible loan losses and believes it is adequate to absorb estimated probable loan losses at December 31, 2005. The following is a summary of activity in the allowance for loan losses for each of the past two years:
2005 2004
------------------------------------- -------------- -------------
Beginning Balance $975,122 $1,306,123
------------------------------------- -------------- -------------
Charge-offs (894,018) (780,855)(1)
-------------- -------------
Recoveries 109,353 162,667 (2)
-------------- -------------
Net recoveries (charge-offs) (784,665) (618,188)
Provision for loan losses 118,419 287,187
-------------- -------------
Ending Balance $308,876 $975,122
Pursuant to the Consent Order discussed above, FNB Wiggins is required to develop, implement and insure Bank adherence to a written program to improve FNB Wiggins’ loan portfolio management and to insure compliance with its loan policy. In addition, FNB Wiggins is to develop a system to provide for early problem loan identification and management. The FNB Wiggins Board is also required to secure an independent and ongoing loan review system to review at least quarterly all loans in FNB Wiggins’ loan and lease portfolio to assure timely identification and categorization of problem credits, and to review the adequacy of the FNB Wiggins’ reserve for loan and lease losses and shall establish a program for maintenance of the reserve in conformity with regulations of the OCC.
------------------------ (1) This includes charge-offs for commercial, real estate, and consumer loans, as well as approximately $35,000 in charge-offs of other types ofloans including agricultural finance loans, obligations of states and political subdivisions, and other loans. (2) This includes approximately $10,000 in recoveries for other loans including agricultural finance oans, obligations of states andp olitical subdivisions, and other loans.
During the year ended December 31, 2005, FNB Wiggins decreased its provision for loan losses charged to operations to $118,419 from $287,187 during the prior year. The allowance for loan losses decreased during the year ended December 31, 2005 to $308,876 from $975,122 for the prior year.
Results of operations, 2004 compared to 2003The Bank reported a net loss of $611,025 for the year ended December 31, 2004 compared to net loss of $79,153 for the year ended December 31, 2003. The increased loss can be attributed largely to loan losses experienced during 2004.
Interest income was $2,487,104 for the year ended December 31, 2004, down from $2,970,816 for the year ended December 31, 2003. Interest expense was $1,205,691 for the year ended December 31, 2004, compared to $1,439,893 for the previous year.
Non-interest income for the year ended December 31, 2004 increased to $540,023, up from $520,901 for the prior year ended December 31, 2003. Non-interest expense increased to $2,136,836 from $2,043,043 for December 31, 2004 and 2003, respectively.
Salaries were reduced to $724,796 for the year ended December 31, 2004, compared to $737,867 for the prior year.
FNB Wiggins’ provision for loan losses charged to operations was increased substantially to $287,187 for the year ended December 31, 2004, up from $87,934 for the year ended December 31, 2003. This increase was due primarily to the FNB Wiggins’ continued recognition and charge-off of doubtful loans, the process discussed in more detail below under “Allowance for Loan Losses.”
For the year ended December 31, 2004, FNB Wiggins incurred income tax expense in the amount of $8,438, compared to no such expense during 2003.
Changes in Financial Position and Liquidity - For the year ended December 31, 2004, total assets decreased to $47,435,468 from $50,334,566 at December 31, 2003.
Allowance for Loan Losses - FNB Wiggins maintains its allowance for loan losses at a level that is considered sufficient to absorb potential losses in the loan portfolio. The estimate of the loan loss allowance and provision for loan losses is determined by management after considering the following factors: (1) analytical review of the loan loss experience in relations to outstanding loans; (2) internal review of problem loans and overall portfolio quality; (3) examinations of the loan portfolio conducted by state and federal supervisory authorities; (4) management’s judgment with respect to current and expected economic conditions and their impact on the loan portfolio and borrower’s ability to pay; and (5) the relationship of the reserve for possible loan losses to outstanding loans.
FNB Wiggins continues to make significant efforts to strengthen the loan portfolio through sound lending practices and careful monitoring of existing loans. The allowance for loan losses decreased to $975,122 at December 31, 2004 compared to $1,306,123 at December 31, 2003. Management regularly reviews the level of the allowance for possible loan losses and believes it is adequate to absorb estimated probable loan losses at December 31, 2004. The following is a summary of activity in the allowance for loan losses for each of the past two years:
2004 2003
------------------------------------- -------------- -------------
Beginning Balance $1,306,123 $1,497,498
Charge-offs ($780,855) (474,388)(3)
-------------- -------------
Recoveries 162,667 195,079 (4)
-------------- -------------
Net recoveries (charge-offs) (618,188) (279,309)
Provision for loan losses 287,187 87,934
-------------- -------------
Ending Balance 975,122 $1,306,123
--------------------------
(3) This includes charge-offs for commercial, real estate, and consumer loans, as well as approximately $35,000 in
charge-offs of other types of loans including agricultural finance oans, obligations of states and political
subdivisions, and other loans.
(4) This includes approximately $10,000 in recoveries for other loans including agricultural finance loans, obligations
of states and political subdivisions, and other loans.
Pursuant to the Consent Order discussed above, FNB Wiggins is required to develop, implement and insure Bank adherence to a written program to improve FNB Wiggins’ loan portfolio management and to insure compliance with its loan policy. In addition, FNB Wiggins is to develop a system to provide for early problem loan identification and management. The FNB Wiggins Board is also required to secure an independent and ongoing loan review system to review at least quarterly all loans in FNB Wiggins’ loan and lease portfolio to assure timely identification and categorization of problem credits, and to review the adequacy of the FNB Wiggins’ reserve for loan and lease losses and shall establish a program for maintenance of the reserve in conformity with regulations of the OCC.
During the year ended December 31, 2004, FNB Wiggins increased its provision for loan losses charged to operations to $287,187 from $87,934 during the prior year. Despite the FNB Wiggins’ increase in its provision for loan losses, its allowance for loan losses decreased during the year ended December 31, 2004 to $975,122 from $1,306,123 for the prior year. This overall decrease in allowance for loan losses was attributed to substantially more charge-offs during 2004 than in the prior year as a result of the FNB Wiggins’ implementation of higher scrutiny in its loan quality review procedures.
Interest Rate RiskFNB Wiggins is subject to liquidity and interest rate risks related to the composition of its interest bearing assets and liabilities.
Capital AdequacyUnder the terms of the Consent Order, FNB Wiggins is required to maintain certain capital requirements specific to FNB Wiggins which supercede the capital adequacy guidelines generally applicable to all banks and discussed above under the subheading General Capital Adequacy Guidelines. Under Article III of the Consent Order, FNB Wiggins is to achieve and maintain Tier 1 regulatory capital equal to at least 12% of risk weighted assets and Tier 1 regulatory capital equal to 8% of total adjusted assets. In conjunction with achieving and maintaining such capital levels, the FNB Wiggins Board is to develop, implement and insure adherence to a 3-year capital plan detailing specific plans for the maintenance of capital and projections for growth and capital requirements, together with the sources of additional capital. This capital plan shall be submitted to the OCC for approval.
As of December 31, 2003, the Tier 1 Leverage capital ratio of FNB Wiggins was 8.2%; the Tier 1 Risk-Weighted Capital ratio of FNB Wiggins was 12.2% and the Total Risk-Based capital ratio of FNB Wiggins was 13.5%, in each case above the regulatory minimum requirement, and slightly above the requirements of the Consent Order. As of December 31, 2004, the Tier 1 Leverage capital ratio of FNB Wiggins was 7.1%; the Tier 1 Risk-Weighted Capital ratio of FNB Wiggins was 11.7% and Total Risk-Based capital ratio of FNB Wiggins was 13.0%, slightly below the requirements of the Consent Order. As of December 31, 2005, the Tier 1 Leverage capital ratio of FNB Wiggins was 6.45%; the Tier 1 Risk-Weighted Capital ratio of FNB Wiggins was 12.18% and Total Risk-Based capital ratio of FNB Wiggins was 13.36%, slightly below the requirements of the Consent Order. At present, FNB Wiggins is not compliant with the capital requirements of the Consent Order applicable to FNB Wiggins.
See discussion under “Consent Order” at “Business of the Bank — Supervision and Regulation” above.
The conditions imposed on FNB Wiggins by the Consent Order and by ongoing capital adequacy and other regulatory requirements effectively restrict its ability to increase its assets and deposit base, expand its operations, make acquisitions or pay dividends until FNB Wiggins has fully complied with the Order and its earnings and capital levels support such activities. Although management does not expect FNB Wiggins to experience future operating losses at the levels incurred in prior years, there can be no assurance that continued losses and further depletion of the FNB Wiggins’ capital will not occur. Any future losses could significantly impact FNB Wiggins’ ability to continue to meet its capital requirements. If FNB Wiggins does not meet its capital requirements or otherwise fully comply with the Consent Order, FNB Wiggins could be subject to further restrictions or enforcement actions by regulatory authorities.
The following table sets forth certain information as of December 31, 2005, with respect to the beneficial ownership of the FNB Wiggins’ shares owned by its Directors and Executive Officers individually and in the aggregate. Except as otherwise indicated, each director and executive officer has sole voting and investment power with respect to the shares shown on the table.
Title # of Shares Percent
of Beneficially of
Class Name Owned Class(1)
Common Robert Regan, Jr. 3,046 12.84%
Common John M. White 2,332 9.83%
Common H. F. Campbell 4,078 17.19%
Common Gerald Price 965 4.07%
Common Durwood Stephens 674 2.84%
Common Benoyd H. Bell, Jr. 125 0.53%
Directors and Executive Officers as a Group 11,220 47.29%
--------------------------
(1) Calculated based on 23,728 shares outstanding on December 31, 2005.
Effective as of December 31, 2003, directors and other insiders of FNB Wiggins purchased 3,728 shares of bank common stock for an aggregate purchase price of $745,600 ($200 per share). This was done in order that the additional capital resulting from the sale of these shares could be reflected in the financial statements of FNB Wiggins as of Year End 2003.
The following table sets forth those persons or entities who, as of December 31, 2005, owned of record or beneficially, directly or indirectly, 5% or more of the outstanding common stock of FNB Wiggins.
Title # of Shares Percent
of Beneficially of
Class Name Owned Class(1)
Common Robert Regan, Jr. 3,046 12.84%
Common Dana R. Parsons and Parsons 3,014 12.70%
Family
Common John M. White 2,332 9.83%
Common H. F. Campbell 4,078 17.19%
Common Earl Danzey Estate 1,473 6.21%
------------------------
(1) Calculated based on 23,728 shares outstanding on December 31, 2005. Each of these
individuals purchased additional shares at year-end 2003 as noted above.
Watkins Ludlam Winter & Stennis, P.A., of Jackson, Mississippi will render its opinion that the shares of First Bancshares Common Stock to be issued in connection with the Bank Merger have been duly authorized and, if and when issued pursuant to the terms of the Merger Agreement, will be validly issued, fully paid and non-assessable.
The balance sheets of FNB Wiggins as of December 31, 2004, and December 31, 2003, and the consolidated statements of the operations, stockholders’ equity, and cash flows of FNB Wiggins for the years then ended have been included in this Proxy Statement/Prospectus in reliance on the report of independent auditors T. E. Lott & Company, given on the authority of that firm as an expert in accounting and auditing.
The consolidated balance sheets of First Bancshares as of December 31, 2005 and December 31, 2004, and the consolidated statements of operations, stockholders' equity, and cash flows of First Bancshares for the same time periods have been included in this Proxy Statement/Prospectus and in the Registration Statement in reliance on the report of independent registered public accounting firm T.E. Lott & Company, given on the authority of that firm as an expert in accounting and auditing.
As of the date of this Proxy Statement/Prospectus, the FNB Wiggins Board knows of no matters which will be presented for consideration at the Meeting other than as set forth in the notice of such Meeting attached to this Proxy Statement/Prospectus. However, if any other matters shall come before the Meeting or any adjournment thereof and be voted upon, the enclosed proxy shall be deemed to confer discretionary authority to the individuals named as proxies therein to vote the shares represented by such proxy as to any such matters, except that, with respect to shares voting against approval of the Merger Agreement, this discretionary authority will not be used to vote for adjournment of the meeting in order to permit further solicitation of proxies.
EXHIBIT A
AGREEMENT AND PLAN OF MERGER
By And Among
THE FIRST BANCSHARES, INC.
Hattiesburg, Mississippi
THE FIRST, A NATIONAL BANKING ASSOCIATION
Hattiesburg, Mississippi
And
FIRST NATIONAL BANK OF WIGGINS
Wiggins, Mississippi
Dated as of May 19, 2006
ARTICLE 1. DEFINITIONS.............................................................................1
1.1 "Agreement".................................................................................1
1.2 "Acquisition Related Expenses"..............................................................1
1.3 "Bancshares"................................................................................1
1.4 "Bank"......................................................................................1
1.5 "Business Day"..............................................................................2
1.6 "Change of Control Payments"................................................................2
1.7 "Closing"...................................................................................2
1.8 "Effective Date"............................................................................2
1.9 "FNB Wiggins"...............................................................................2
1.10 "FRB".......................................................................................2
1.11 "OCC".......................................................................................2
1.12 "Party".....................................................................................2
1.13 "Person"....................................................................................3
ARTICLE 2. THE MERGER AND RELATED MATTERS..........................................................3
2.1 Bank Merger.................................................................................3
2.2 Effect of Bank Merger.......................................................................3
ARTICLE 3. CONVERSION OF STOCK.....................................................................4
3.1 Conversion of FNB Wiggins Stock.............................................................4
a. Bancshares Common Stock............................................................4
b. Merger Consideration...............................................................4
c. Treasury Shares....................................................................5
3.2 Exchange of Certificates Representing FNB Wiggins Common Stock..............................5
a. Exchange Fund......................................................................5
b. Transmittal Letter.................................................................5
c. No Dividends on FNB Wiggins Certificates not Exchanged.............................6
d. No Transfers after Closing.........................................................6
e. No Fractional Shares Issued........................................................6
f. Failure to Surrender FNB Wiggins Certificates......................................6
g. Escheat............................................................................7
h. Lost Certificates..................................................................7
3.3 Adjustment of Exchange Ratio................................................................7
ARTICLE 4. ACCOUNTING AND TAX MATTERS..............................................................7
4.1 Affiliates..................................................................................7
4.2 Tax Representations.........................................................................7
ARTICLE 5. FNB WIGGINS' COVENANTS AND AGREEMENTS...................................................8
5.1 Operation of Business.......................................................................8
5.2 Preservation of Business....................................................................9
5.3 Insurance...................................................................................9
5.4 Stockholders' Meeting.......................................................................10
5.5 Property Transfers..........................................................................10
5.6 FNB Wiggins Financial and Other Reports.....................................................10
5.7 Due Diligence...............................................................................10
5.8 No Solicitation.............................................................................11
Exhibit A-1
ARTICLE 6. REPRESENTATIONS AND WARRANTIES OF FNB WIGGINS...........................................12
6.1 Organization and Authority..................................................................12
6.2 Authorization...............................................................................12
6.3 Capital Structure of FNB Wiggins............................................................13
6.4 Ownership of Other Entities.................................................................13
6.5 FNB Wiggins Financial Statements and Other Reports..........................................13
6.6 No Material Adverse Change..................................................................13
6.7 Tax Liability...............................................................................13
6.8 Tax Returns: Payment of Taxes...............................................................14
6.9 Litigation and Proceedings..................................................................14
6.10 Brokers' or Finders' Fees...................................................................14
6.11 Contingent Liabilities......................................................................14
6.12 Title to Assets; Adequate Insurance Coverage................................................15
6.13 Liabilities.................................................................................16
6.14 Loans.......................................................................................16
6.15 Allowance for Loan Losses...................................................................16
6.16 Investments.................................................................................16
6.17 Information for Registration and Proxy Statement............................................16
6.18 Commitments and Contracts...................................................................17
6.19 Employee Plans..............................................................................17
6.20 Plan Liability..............................................................................17
6.21 Vote Required...............................................................................18
6.22 Continuity of Interest......................................................................18
6.23 Continuity of Business Enterprise...........................................................18
6.24 Environmental Matters.......................................................................18
6.25 Accuracy of Information.....................................................................18
6.26 Compliance with Laws and Contracts..........................................................18
6.27 Stock Ownership.............................................................................19
ARTICLE 7. BANCSHARES' REPRESENTATIONS AND WARRANTIES..............................................19
7.1. Organization and Authority..................................................................19
7.2 Shares Fully Paid and Non Assessable........................................................19
7.3 Authorization...............................................................................19
7.4 No Violation................................................................................19
7.5 No Material Adverse Change..................................................................20
7.6 Loans.......................................................................................20
7.7 Litigation..................................................................................20
7.8 Contingent Liabilities......................................................................20
7.9 Allowances for Possible Loan Losses.........................................................20
7.10 Benefit Plans...............................................................................21
7.11 Financial Statements........................................................................21
7.12 Disclosure..................................................................................21
7.13 Title to Assets; Adequate Insurance Coverage................................................21
7.14 Tax Liability...............................................................................22
7.15 Tax Returns: Payment of Taxes...............................................................23
Exhibit A-2
ARTICLE 8. BANCSHARES' COVENANTS AND AGREEMENTS....................................................23
8.1 Conduct of Business.........................................................................23
8.2 Due Diligence...............................................................................23
8.3 Registration Statement......................................................................23
8.4 Continuity of Business Enterprise...........................................................24
8.5 Indemnification; Insurance..................................................................24
ARTICLE 9. CONDITIONS TO CLOSING...................................................................25
9.1 Conditions to Each Party's Obligations to Effect the Bank Merger............................25
a. Stockholder Approval...............................................................25
b. Regulatory Approvals...............................................................25
c. Registration Statement.............................................................25
d. No Restraining Action..............................................................25
e. Tax Opinion........................................................................25
9.2 Conditions to Obligations of FNB Wiggins to Effect the Bank Merger..........................26
a. Representations and Warranties.....................................................26
b. Performance of Obligations.........................................................26
c. No Material Adverse Change.........................................................26
d. Legal Opinion......................................................................26
9.3 Conditions to Obligations of Bancshares to Effect the Bank Merger...........................27
a. Representations and Warranties.....................................................27
b. Performance of Obligations.........................................................27
c. No Material Adverse Change.........................................................27
d. Legal Opinion......................................................................27
e. Resolution of Change in Control Payments; Execution of Retention Agreements........28
f. Termination of Employment Agreements...............................................28
ARTICLE 10 CLOSING.................................................................................28
10.1 Closing.....................................................................................28
10.2 Deliveries at Closing.......................................................................28
ARTICLE 11. EMPLOYMENT MATTERS......................................................................29
11.1 Employees...................................................................................29
11.2 Retirement Plan.............................................................................29
11.3 Other Benefit Plans.........................................................................29
11.4 Notices.....................................................................................30
ARTICLE 12. REMEDIES................................................................................30
12.1 Parties' Joint Remedies.....................................................................30
12.2 Joint Remedies for Unintentional Breach.....................................................30
12.3 FNB Wiggins' Remedies.......................................................................30
12.4 Bancshares' Remedies........................................................................30
12.5 Attorney Fees...............................................................................31
ARTICLE 13. TERMINATION.............................................................................31
13.1 Termination.................................................................................31
a. Mutual Consent.....................................................................31
b. Expiration of Time.................................................................31
c. Breach of Representation, Warranty or Covenant.....................................31
d. Regulatory Approval................................................................31
e. Shareholder Approval...............................................................31
f. Dissenters.........................................................................31
ARTICLE 14. APPRAISAL RIGHTS........................................................................32
Exhibit A-3
ARTICLE 15. MISCELLANEOUS...........................................................................32
15.1 Entire Agreement............................................................................32
15.2 Appointment of Representative...............................................................32
15.3 Survival of Representations, Warranties and Agreements......................................32
15.4 Headings....................................................................................32
15.5 Counterparts................................................................................32
15.6 Governing Law...............................................................................33
15.7 Successors: No Third Party Beneficiaries....................................................33
15.8 Modification; Assignment....................................................................33
15.9 Notice......................................................................................33
15.10 Waiver......................................................................................34
15.11 Costs, Fees and Expenses....................................................................34
15.12 Press Releases..............................................................................34
15.13 Severability................................................................................34
15.14 Mutual Covenant of Best Efforts and Good Faith..............................................34
EXHIBITS:
Exhibit A Bank Merger Agreement
Exhibit B Form of Affiliate Agreement
Exhibit C Statement of Representations
Exhibit D Form of Joinder of Shareholders
Exhibit E Escrow Agreement
SCHEDULES:
Schedule 3.1(b) FNB Wiggins' Loan Package
Schedule 5.1(p) FNB Wiggins' Change of Control Payments
Schedule 6.9 FNB Wiggins' Litigation and Proceedings
Schedule 6.11 FNB Wiggins' Contingent Liabilities
Schedule 6.12 FNB Wiggins' Title to Assets; Adequate Insurance Coverage
Schedule 6.18(a) FNB Wiggins' Employment Contracts
Schedule 6.18(b) FNB Wiggins' Arrangements with Officers, Directors, Employees, and Consultants
Schedule 6.24 FNB Wiggins' Environmental Matters
Schedule 7.6 Bancshares' Loans Subject to Counterclaims
Schedule 7.7 Bancshares' Litigation
Schedule 7.8 Bancshares' Contingent Liabilities
Schedule 7.13 Bancshares' Title to Assets; Adequate Insurance Coverage
Schedule 11.1 Officers and Employees of FNB Wiggins Not Retained
Exhibit A-4
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement"), dated as of the 19th day of May, 2006, is made by
and between FIRST NATIONAL BANK OF WIGGINS, Wiggins, Mississippi, a national banking association ("FNB Wiggins"
or "Seller"), THE FIRST, A NATIONAL BANKING ASSOCIATION, Hattiesburg, Mississippi ("Bank"), and THE FIRST
BANCSHARES, INC., Hattiesburg, Mississippi, a Mississippi corporation and registered bank holding company
("Bancshares").
The Boards of Directors of FNB Wiggins, Bank and Bancshares have duly approved this Agreement and have
authorized the execution hereof by their respective Presidents. FNB Wiggins has directed that this Agreement be
submitted to a vote of its shareholders, in accordance with 12 U.S.C. §§ 215 and 215a and the terms of this
Agreement.
In consideration of their mutual promises and obligations, the Parties hereto adopt and make this
Agreement for the merger of FNB Wiggins with and into Bank with Bank as the survivor and prescribe the terms and
conditions of such merger and the mode of carrying it into effect, which shall be as follows:
ARTICLE 1.
DEFINITIONS
Certain Defined Terms. As used in this Agreement, the following terms shall have the following meanings
(such meaning to be equally applicable to both the singular and plural forms of the terms defined):
1.1 "Acquisition Related Expenses" means with respect to FNB Wiggins, those costs and expenses incurred by
FNB Wiggins directly related to the transactions contemplated by this Agreement, including without limitation,
attorneys and accounting fees and expenses, regulatory filing fees and costs related to mailings to FNB Wiggins
shareholders for purposes of seeking shareholder approval of the transactions contemplated hereby.
1.2 "Agreement" means this Agreement and Plan of Merger by and between FNB Wiggins, Bank and Bancshares,
together with any amendments thereto. References to Articles, Sections, Schedules and the like refer to the
Articles, Sections, Schedules and the like of this Agreement unless otherwise indicated.
1.3 "Bancshares" means The First Bancshares, Inc., a corporation duly chartered, organized and existing
under and pursuant to the laws of the State of Mississippi; maintaining its principal place of business at 6480
Highway 98 W., P. O. Box 15549, in Hattiesburg, Lamar County, Mississippi; which, as owner of 100% of the
outstanding shares of Bank, is a bank holding company within the meaning of the Bank Holding Company Act of 1956,
as amended.
1.4 "Bank" means The First, A National Banking Association, organized and existing under and pursuant to the
laws of the United States, maintaining its principal place of business at 6480 Highway 98 W, P.O. Box 15549, in
Hattiesburg, Lamar County, Mississippi.
Exhibit A-5
1.5 "Business Day" means a day on which Bank is open for business and which is not a Saturday, Sunday or
legal bank holiday.
1.6 "Change of Control Payments" means the aggregate amount of cash consideration to be paid to any officer,
director or employee of FNB Wiggins, contingent upon consummation of the Bank Merger in accordance with any
employment, retention, stock bonus or other similar agreement between FNB Wiggins and such officer, director or
employee.
1.7 "Closing" means the closing of the transactions contemplated herein which will take place at a place and
on a date that is mutually agreed to by the Parties ("Closing Date") that is within thirty (30) days following
the later of the date of receipt of all applicable regulatory approvals relating to the transactions contemplated
herein, the expiration of all applicable statutory and regulatory waiting periods relative thereto and
satisfaction of conditions to Closing set forth in Article 9, the date the Registration Statement (the
"Registration Statement") filed with the Securities and Exchange Commission ("SEC") is declared effective, or such
later date as may be agreed to by the Parties. At the Closing the Parties shall each deliver to the other such
evidence of the satisfaction of the conditions to Closing of the Bank Merger (as defined in Section 2.1 hereof)
as may reasonably be required (including material required to be delivered under this Agreement).
1.8 "Effective Date" means the date the Bank Merger shall become effective which shall be as of the date and
time specified in a Certificate of Combination or other written record issued by the OCC. Immediately upon
consummation of the Closing, or on such other later date as the Parties hereto may agree, the Bank Merger
Agreement (as defined in Section 2.1 hereof), along with all other documentation that is required to be submitted
to the OCC prior to its issuance of the Certificate of Combination, shall be certified, executed, acknowledged
and delivered to the OCC for filing pursuant to and in accordance with the provisions of the National Bank Act
and the rules and regulations of the OCC.
1.9 "FNB Wiggins" means First National Bank of Wiggins, a national banking association organized and
existing under and pursuant to the laws of the United States, maintaining its principal place of business at 124
Border Avenue, P.O. Box 307 in Wiggins, Stone County, Mississippi.
1.10 "FRB" means that agency of the United States of America which acts in the capacity of a governmental
central bank known as the Federal Reserve System represented by actions of its Board of Governors, having
regulatory authority over bank holding companies (including Bancshares), or any successor United States
governmental agency performing the function of exercising such regulatory authority.
1.11 "OCC" means the Office of the Comptroller of the Currency, a federal agency having regulatory authority
over FNB Wiggins and Bank, or any successor governmental agency exercising such regulatory authority.
1.12 "Party" means Bancshares, Bank or FNB Wiggins, as applicable in the context used, and "Parties" shall
mean Bancshares, Bank and FNB Wiggins.
Exhibit A-6
1.13 "Person" means any individual, corporation, partnership, joint venture, association, joint stock
company, trust, unincorporated organization or government or any agency or political subdivision thereof.
ARTICLE 2.
THE MERGER AND RELATED MATTERS
2.1 Bank Merger. On the Effective Date, FNB Wiggins shall be merged with and into Bank under the Articles
of Association of Bank, pursuant to the provisions of this Agreement, the provisions of and with the effect
provided in 12 U.S.C. §§ 215 and 215a (the "Bank Merger"), and the Bank Merger Agreement in substantially the
form of Exhibit A hereto (the "Bank Merger Agreement"). For federal income tax purposes, it is intended that the
Bank Merger shall qualify as a non-taxable reorganization under and in accordance with Sections 368(a)(1)(A) and
368(a)(2)(D) of the Internal Revenue Code of 1986, as amended (the "Code"), and the applicable Internal Revenue
Service ("IRS") regulations. The Parties expect that the Bank Merger will further certain of their business
objectives, including, and without limitation, the expansion of Bank's operations as a financial institution.
Notwithstanding the foregoing and Section 2.2 below, Bancshares may, in its sole discretion restructure
the transaction whereby Bancshares will acquire 100% of the outstanding capital stock of FNB Wiggins and maintain
it as a subsidiary distinct from Bank; provided, however, that the Merger Consideration (as defined below) shall
remain the same, the acquisition shall qualify as a non-taxable reorganization under and in accordance with
Sections 368(a)(1)(A) and 368(a)(2)(D) of the Code and the applicable IRS regulations, and such restructuring
shall not materially impair or delay the consummation of the Bank Merger or require resubmission to FNB Wiggins'
shareholders or to regulatory authorities for approval.
2.2 Effect of Bank Merger. Upon consummation of the Bank Merger as of the Effective Date, the separate
corporate existence of FNB Wiggins shall cease and Bank shall continue as the surviving bank. The name of Bank,
as the surviving bank, shall by virtue of the Bank Merger remain unchanged. On the Effective Date all of the
assets and property of every kind and character, real, personal and mixed, tangible and intangible, choses in
action, rights, and credits then owned by FNB Wiggins, or which would inure to it, shall immediately by operation
of law and without any conveyance or transfer or without any further action or deed, be vested in and become the
property of Bank, which shall have, hold, and enjoy the same in its own right as fully and to the same extent as
the same were possessed, held, and enjoyed by FNB Wiggins prior to the Bank Merger; and Bank shall be deemed to
be and shall be a continuation of the original entities and all of the rights and obligations of FNB Wiggins
shall remain unimpaired, and Bank, on the Effective Date shall succeed to all such rights, obligations, duties
and liabilities connected therewith.
Exhibit A-7
ARTICLE 3.
CONVERSION OF STOCK
3.1 Conversion of FNB Wiggins Stock.
a. Bancshares Common Stock. On the Effective Date, each share of Bancshares Common Stock, $1.00 par value
("Bancshares Common Stock"), issued and outstanding immediately prior to the Effective Date shall remain
outstanding and shall represent one share of Bancshares Common Stock.
b. Merger Consideration. The aggregate consideration to holders of outstanding FNB Wiggins common stock
("FNB Wiggins Common Stock") shall be Four Million One Hundred Fifty-two Thousand Four Hundred Dollars
($4,152,400) (the "Merger Consideration"). The Merger Consideration represents One Hundred and
Seventy-Five Dollars ($175.00) per share of outstanding FNB Wiggins Common Stock. The Merger
Consideration shall be comprised of fifty percent (50%) cash or $87.50 per share of FNB Wiggins Common
Stock (the "Cash Element"), and fifty percent (50%) Bancshares Common Stock valued at $19 per share or
4.605 shares of Bancshares Common Stock for each share of FNB Wiggins Common Stock (the "Stock
Element"). As a result of the Bank Merger and subject to the limitations provided for in Sections 3.1
through 3.3 of this Agreement, shares of FNB Wiggins Common Stock issued and outstanding immediately
prior to the Effective Date, other than dissenting shares, shall by virtue of the Bank Merger be
converted into and represent the right to receive the Stock Element, the cash payable in lieu of
fractional shares as set forth in Section 3.2(e), and the Cash Element less Seven Hundred and Eighty
Thousand Dollars ($780,000) in Consideration Deductions (which represents $32.873 per share of
outstanding FNB Wiggins Common Stock), which are defined as follows: (i) Two Hundred and Eighty
Thousand Dollars ($280,000) which represents a maximum of 50% of the cost of cancellation of FNB
Wiggins' data processing contract with Brasfield Technology, LLC; (ii) Two Hundred Thousand Dollars
($200,000) which represents a potential payment under that certain Confidential Term Sheet between FNB
Wiggins and Richton Bank & Trust Company dated January 20, 2006 ("Prior Letter of Intent"); and (iii)
Three Hundred Thousand Dollars ($300,000) to account for potential losses related to the Mortgage Loan
Purchase and Sale Agreements dated October 31, 20005 and December 16, 2005, copies of which are attached
hereto as Schedule 3.1(b). At the Effective Date, Bancshares shall deposit into an escrow account cash
in the amount of the Consideration Deductions (the "Escrow Fund") in accordance with the terms of the
Escrow Agreement attached hereto as Exhibit E. Upon termination of the Escrow Agreement in accordance
with the terms thereof, the balance remaining in the Escrow Fund shall be distributed to the holders of
FNB Wiggins Common Stock (other than holders of dissenting shares) in accordance with the terms of the
Escrow Agreement.
As a result of the Bank Merger and without any action on the part of the holder thereof, all shares of
FNB Wiggins Common Stock shall cease to be outstanding and shall be canceled and retired and shall cease
to exist, and each holder of a certificate (a "Certificate") representing any shares of FNB Wiggins
Common Stock shall thereafter cease to have any rights with respect to such shares of FNB Wiggins Common
Stock, except, as applicable, the right to receive, without interest, Bancshares Common Stock and cash
in accordance with Section 3.1(b) and cash for fractional shares of Bancshares Common Stock, if any, in
accordance with Section 3.2(e) upon the surrender of such Certificate.
Exhibit A-8
c. Treasury Shares. Each share of FNB Wiggins Common Stock issued and held in FNB Wiggins' treasury, if
any, at the Effective Date shall, by virtue of the Bank Merger, cease to be outstanding and shall be
canceled and retired without payment of any consideration therefor.
3.2 Exchange of Certificates Representing FNB Wiggins Common Stock.
a. Exchange Fund. As of the Effective Date, Bancshares shall deposit, or shall cause to be deposited, with
Bank, as exchange agent (the "Exchange Agent"), for the benefit of the holders of shares of FNB Wiggins
Common Stock for exchange in accordance with this Article 3, certificates representing the shares of
Bancshares Common Stock and cash (such certificates for shares of Bancshares Common Stock and cash being
hereinafter referred to as the "Exchange Fund") to be issued pursuant to Section 3.1 and paid pursuant
to this Section 3.2 in exchange for outstanding shares of FNB Wiggins Common Stock.
b. Transmittal Letter. Promptly after the Effective Date, Bancshares shall cause the Exchange Agent to
mail to each holder of record of a Certificate or Certificates (other than those representing shares
with respect to which the holder thereof has perfected dissenters' appraisal rights under 12 U.S.C. §§
215 and 215a and has not subsequently lost, withdrawn or forfeited such rights): (i) a letter of
transmittal which shall specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to the Exchange Agent and shall be in
such form and have such other provisions as Bancshares may reasonably specify; and (ii) instructions
for use in effecting the surrender of the Certificates in exchange for certificates representing
shares of Bancshares Common Stock and cash, and cash in lieu of fractional shares. Upon surrender of
a Certificate for cancellation to the Exchange Agent together with such letter of transmittal, duly
executed and completed in accordance with the instructions thereto, the holder of such Certificate
shall be entitled to receive in exchange therefor the appropriate Merger Consideration with regard to
shares involved, consisting of (A) a certificate representing that number of whole shares of
Bancshares Common Stock, if applicable, and/or (B) a check representing the amount of cash and cash in
lieu of fractional shares, if any, which such holder has the right to receive in respect of the
Certificate surrendered pursuant to Section 3.1(b), after giving effect to any required withholding
tax, and the Certificate so surrendered shall forthwith be canceled. No interest will be paid or
accrued on the value of any Bancshares Common Stock or cash payable to holders of Certificates. In
the event of a transfer of ownership of FNB Wiggins Common Stock which is not registered in the
transfer records of FNB Wiggins, a certificate representing the proper number of shares of Bancshares
Common Stock, together with a check for the cash component of the Merger Consideration and/or cash to
be paid in lieu of fractional shares, may be issued to such a transferee if the Certificate
representing such FNB Wiggins Common Stock is presented to the Exchange Agent, accompanied by all
documents required to evidence and effect such transfer and to evidence that any applicable stock
transfer taxes have been paid.
Exhibit A-9
c. No Dividends on FNB Wiggins Certificates not Exchanged. Notwithstanding any other provisions of this
Agreement, no dividends on Bancshares Common Stock shall be paid with respect to any shares of FNB
Wiggins Common Stock exchangeable into Bancshares Common Stock and represented by a Certificate until
such Certificate is surrendered for exchange as provided herein. Subject to the effect of applicable
laws, following surrender of any such Certificate, there shall be paid to the holder of the
certificates representing whole shares of Bancshares Common Stock issued in exchange therefor, without
interest, (i) at the time of such surrender, the amount of dividends or other distributions with a
record date after the Effective Date theretofore payable with respect to such whole shares of
Bancshares Common Stock and not paid, less the amount of any withholding taxes which may be required
thereon, and (ii) at the appropriate payment date, the amount of dividends or other distributions with
a record date after the Effective Date but prior to surrender and a payment date subsequent to
surrender payable with respect to such whole shares of Bancshares Common Stock less the amount of any
withholding taxes which may be required thereon.
d. No Transfers after Closing. On or after the Effective Date, there shall be no transfers on the stock
transfer books of FNB Wiggins of the shares of FNB Wiggins Common Stock. If, after the Effective
Date, Certificates are presented to Bancshares, they shall be canceled and exchanged for certificates
for shares of Bancshares Common Stock and cash, as appropriate, and cash in lieu of fractional shares,
if any, deliverable in respect thereof pursuant to this Agreement in accordance with the procedures
set forth in this Article 3. Certificates surrendered for exchange by any person constituting an
"affiliate" of FNB Wiggins for purposes of Rule 145(c) under the Securities Act of 1933, as amended
(the "Securities Act"), shall not be exchanged until Bancshares has received a written agreement from
such person as provided in Section 4.1.
e. No Fractional Shares Issued. No fractional shares of Bancshares Common Stock shall be issued pursuant
hereto. In lieu of the issuance of any fractional share of Bancshares Common Stock pursuant to
Section 3.1(b), cash adjustments will be paid to holders in respect of any fractional share of
Bancshares Common Stock that would otherwise be issuable, and the amount of such cash adjustment shall
be equal to such fractional proportion of the Bancshares Common Stock Value.
f. Failure to Surrender FNB Wiggins Certificates. Any portion of the Exchange Fund (including the proceeds
of any investments thereof and any shares of Bancshares Common Stock) that remains unclaimed by the
former stockholders of FNB Wiggins one year after the Effective Date shall be delivered to
Bancshares. Any former stockholders of FNB Wiggins who have not theretofore complied with this
Article 3 shall thereafter look only to Bancshares for payment in respect of their shares, in any
event without any interest thereon. In the event that any such holder fails to surrender either such
Certificate or the documents and information contemplated by the letter of transmittal and
instructions on or before the fifth (5th) anniversary of the Effective Date, Bancshares shall not have
any obligation to deliver the amount to which any such holder would have been entitled in accordance
with the provisions of this Agreement and any such holder shall not be entitled to receive from
Bancshares any amount in substitution and exchange for each share canceled and extinguished in
accordance with this Agreement.
Exhibit A-10
g. Escheat. None of Bancshares, the Exchange Agent or any other person shall be liable to any former
holder of shares of FNB Wiggins Common Stock for any amount properly delivered to a public official
pursuant to applicable abandoned property, escheat or similar laws.
h. Lost Certificates. In the event any Certificate shall have been lost, stolen or destroyed, upon the
making of an affidavit of that fact by the person claiming such Certificate to be lost, stolen or
destroyed and, if required by Bancshares, the posting by such person of a bond in such reasonable
amount as Bancshares may direct as indemnity against any claim that may be made against it with
respect to such Certificate, the Exchange Agent will issue in exchange for such lost, stolen or
destroyed Certificate the shares of Bancshares Common Stock and/or cash, as appropriate, and cash in
lieu of fractional shares, and unpaid dividends and distributions on shares of Bancshares Common Stock
as provided in Section 3.2(c), deliverable in respect thereof pursuant to this Agreement.
3.3 Adjustment of Exchange Ratio. In the event that, subsequent to the date of this Agreement but prior to
the Effective Date, FNB Wiggins or Bancshares changes the number of shares of FNB Wiggins Common Stock or
Bancshares Common Stock, respectively, issued and outstanding as a result of a stock split, reverse stock split,
stock dividend, recapitalization or other similar transaction, the FNB Wiggins Exchange Ratio, shall be
appropriately adjusted.
ARTICLE 4.
ACCOUNTING AND TAX MATTERS
4.1 Affiliates. FNB Wiggins and Bancshares shall cooperate and use their best efforts to identify those
persons who may be deemed to be "affiliates" of FNB Wiggins within the meaning of Rule 145(c) or Rule 144 (as
applicable) under the Securities Act. FNB Wiggins shall use its best efforts to cause each person so identified
to deliver to Bancshares, not later than thirty (30) days after the date of this Agreement, a written agreement
in substantially the form set forth in Exhibit B attached hereto. Bancshares shall be entitled to place
appropriate legends on the certificates evidencing shares of Bancshares Common Stock to be received pursuant to
this Agreement by such affiliates and to issue appropriate stop transfer instructions to the transfer agent for
Bancshares Common Stock.
4.2 Tax Representations. Each Party hereto represents and warrants that the statements made with respect to
it in the Statement of Representations attached hereto on Exhibit C and made a part hereof, are true and correct
as of the date hereof and will be true and correct on the Effective Date, except to the extent qualified herein
or in Exhibit C.
Exhibit A-11
ARTICLE 5.
FNB WIGGINS' COVENANTS AND AGREEMENTS
5.1 Operation of Business. Between the date hereof and the Effective Date, or until the termination of this
Agreement, FNB Wiggins covenants and agrees that it will operate its business solely in the ordinary course
consistent with prudent business practices and in compliance with all applicable laws, regulations and rules; and
without the prior written consent of Bancshares, which shall not be unreasonably withheld, delayed or
conditioned, FNB Wiggins will not:
a. Amend or otherwise change its Articles of Association or Bylaws, as each such document is in effect on
the date hereof (except to the extent required in order to effect the Bank Merger as contemplated
herein);
b. Issue or sell, or authorize for issuance or sale, any shares of FNB Wiggins Common Stock or any
additional shares of any class of capital stock of FNB Wiggins;
c. Issue, grant, or enter into any subscription, option, warrant, right, convertible security, or other
agreement or commitment of any character obligating FNB Wiggins to issue securities;
d. Declare, set aside, make, or pay any dividend or other distribution with respect to its capital stock;
e. Redeem, purchase, or otherwise acquire, directly or indirectly, any of its capital stock respectively;
f. Authorize any capital expenditure(s) which, individually or in the aggregate, exceeds $10,000;
g. Extend any new, or renew any existing, loan, credit, lease, or other type of financing which
individually exceeds $100,000 or does not meet Bank's loan policy requirements except in connection
with the workout of loans; provided, however, Bank shall have the right to review on a monthly basis
new and existing extensions of credit which individually exceed $25,000 and all extensions of credit
which are past due ninety (90) days or more and still accruing interest or on nonaccrual status;
h. Except in the ordinary course of business, sell, pledge, dispose of, or encumber, or agree to sell,
pledge, dispose of, or encumber, any material assets of FNB Wiggins;
Exhibit A-12
i. Excluding normal and customary banking transactions, incur any indebtedness for borrowed money, issue
any debt securities, or enter into or modify any contract, agreement, commitment, or arrangement with
respect thereto;
j. Establish or add any automated teller machines, branches or other banking offices;
k. Take any action that would materially and adversely affect the ability of any Party hereto to obtain the
regulatory and shareholder approvals necessary for consummation of the transactions contemplated
hereby or that would materially and adversely affect FNB Wiggins' ability to perform its covenants and
agreements hereunder;
l. Acquire (by merger, consolidation, lease or other acquisition of stock, ownership interests or assets)
any corporation, partnership, or other business organization or division thereof, or enter into any
contract, agreement, commitment, or arrangement with respect to any of the foregoing, other than in
connection with a foreclosure or collection of a debt previously contracted for in good faith;
m. Enter into, extend, or renew any lease for office or other space;
n. Except as required by law, enter into, adopt or amend any bonus, profit sharing, compensation, stock
option, pension, retirement, deferred compensation, employment, or other employee benefit plan,
agreement, trust, fund, or arrangement for the benefit or welfare of any officer, employee or
representative of FNB Wiggins;
o. Grant any increase in compensation or benefits to any director, officer, or employee or representative
of FNB Wiggins except in the ordinary course of business consistent with past practice;
p. Other than such amendments and Change of Control Payments as shown on Schedule 5.1(p), enter into,
amend, or terminate any employment agreement, relationship or responsibilities with any director,
officer, or key employee or representative of FNB Wiggins, or enter into, amend, or terminate any
employment agreement with any other person otherwise than in the ordinary course of business, or take
any action with respect to the grant or payment of any severance, change in control or termination pay
except as expressly consented to in writing by Bancshares;
q. Take any action or omit to take any action which would cause any of FNB Wiggins' representations or
warranties herein to be untrue or misleading in any material respect or any covenant of FNB Wiggins
under this Agreement incapable of being performed; or
r. Agree, in writing or otherwise, to do any of the foregoing.
5.2 Preservation of Business. Between the date hereof and the Effective Date, FNB Wiggins will use its best
efforts to preserve its existing business and to keep its business organization intact, including its present
relationships with its employees and customers and others having business relations with it.
Exhibit A-13
5.3 Insurance. Pending the Closing, FNB Wiggins shall cause the real property owned by FNB Wiggins to be
insured reasonably against all insurable risks under policies with reasonable deductibles and in full compliance
with any co-insurance provision.
5.4 Stockholders' Meeting. FNB Wiggins will (i) take all steps necessary to call, give notice of, convene
and hold a meeting of its stockholders as soon as practicable after the date hereof for the purpose of seeking
its stockholders' approval of this Agreement and the transactions contemplated hereby, and for such other
purposes as may be necessary or desirable, and (ii) cooperate and consult with Bancshares with respect to the
foregoing matters. The notice for said stockholders' meeting (and accompanying proxy materials) shall solicit
FNB Wiggins stockholders' proxies in favor of this Agreement, unless it is determined that such a recommendation
would or could be construed as a breach of fiduciary duty on the part of the directors of FNB Wiggins, such
determination to be evidenced by an opinion of counsel experienced in such matters as to such breach of fiduciary
duty, and if such recommendation is not made, then the notice and proxy materials shall contain no recommendation
and state the reason therefore. Any and all such notices shall be given in accordance with all applicable laws,
regulations, and rules and, without limitation, inform FNB Wiggins stockholders with respect to their dissenters'
rights. FNB Wiggins agrees to use its best efforts to have each director voting in favor of this Agreement
execute and deliver to Bancshares within ten (10) days after the date hereof a Joinder of Stockholders
substantially in the form attached hereto as Exhibit D.
5.5 Property Transfers. From time to time, as and when requested by Bancshares and to the extent permitted
by Mississippi law, the officers and directors of FNB Wiggins last in office shall execute and deliver such deeds
and other instruments and shall take or cause to be taken such further or other actions as shall be necessary in
order to vest or perfect in or to confirm of record or otherwise to Bancshares and/or Bank title to, and
possession of, all the property, interests, assets, rights, privileges, immunities, powers, franchises, and
authorities of FNB Wiggins, and otherwise to carry out the purposes of this Agreement.
5.6 FNB Wiggins Financial and Other Reports. FNB Wiggins shall make available to Bancshares the following
statements and other reports and documents:
a. FNB Wiggins' Consolidated Balance Sheets as of December 31, 2004 (audited); Consolidated Statement of
Income and Changes in Stockholders' Equity and Consolidated Statement of Cash Flows for the year ended
December 31, 2004 (audited); and Consolidated Balance Sheets, Statements of Income, and Changes in
Stockholders' Equity for the year ended December 31, 2005, and the quarter ended March 31, 2006
(unaudited) ("FNB Wiggins Financial Statements");
b. All correspondence with the FDIC, the OCC, and the IRS from January 1, 2003 through the date of Closing
(except as may be restricted by legal limitations); and
Exhibit A-14
c. Such additional financial or other information as may be required for the regulatory applications and
Registration Statement in connection with the consummation of the Bank Merger (subject to any legal
limitations).
5.7 Due Diligence. In order to afford Bancshares access to such information as it may reasonably deem
necessary to perform any due diligence review with respect to the assets of FNB Wiggins to be acquired as a
result of the Bank Merger, FNB Wiggins shall, upon reasonable notice, afford Bancshares and its officers,
employees, counsel, accountants, and other authorized representatives access, during normal business hours
throughout the period prior to the Effective Date, to all of its properties, books, contracts, commitments, loan
files, litigation files and records (including, but not limited to, the minutes of the Board of Directors of FNB
Wiggins and all committees thereof), and it shall, upon reasonable notice and to the extent consistent with
applicable law, furnish promptly to Bancshares such information as Bancshares may reasonably request to perform
such review.
5.8 No Solicitation.
a. Prior to the Effective Date, FNB Wiggins shall not authorize nor knowingly permit any of its officers,
directors, employees, representatives, agents or other persons controlled by FNB Wiggins to directly
or indirectly, encourage or solicit or, hold any discussions or negotiations with, or provide any
information to, any persons, entity or group concerning any merger, consolidation, sale of substantial
assets, sale of shares of capital stock or similar transactions including without limitation, a tender
offer, involving, directly or indirectly, FNB Wiggins (a "Third Party Acquisition Proposal") except as
contemplated by this Agreement. FNB Wiggins shall promptly communicate to Bancshares the identity and
terms of any Third Party Acquisition Proposal which it may receive.
b. As a condition of and as an inducement to Bancshares' and Bank's entering into this Agreement, FNB
Wiggins covenants, acknowledges, and agrees that it shall be a specific, absolute, and unconditionally
binding condition precedent to FNB Wiggins' entering into a letter of intent, agreement in principle,
or definitive agreement (whether or not considered binding, non-binding, conditional or unconditional)
with any third party with respect to a Third Party Acquisition Proposal, or supporting or indicating
an intent to support a Third Party Acquisition Proposal (other than this Agreement and the
transactions contemplated hereby), regardless of whether FNB Wiggins has otherwise complied with the
provisions of Section 5.8(a) hereof, that FNB Wiggins or such third party to the Third Party
Acquisition Proposal shall have paid to Bancshares, as liquidated damages, the sum of One Hundred
Seventy-five Thousand Dollars ($175,000), which sum represents the (i) direct costs and expenses
(including, but not limited to, fees and expenses incurred by Bancshares' financial or other
consultants, printing costs, investment bankers, accountants, and counsel) incurred by or on behalf of
Bancshares in negotiating and undertaking to carry out the transactions contemplated by this
Agreement; (ii) indirect costs and expenses of Bancshares in connection with the transactions
contemplated by this Agreement, including Bancshares' management time devoted to negotiation and
preparation for the transactions contemplated by this Agreement; and (iii) Bancshares' loss as a
result of the transactions contemplated by this Agreement not being consummated. Notwithstanding
anything to the contrary in this Section 5.8(b), in the event such Third Party Acquisition Proposal
should be the result of a hostile takeover of FNB Wiggins, any sums due Bancshares hereunder shall be
paid only at the closing of the transactions set forth in such Third Party Acquisition Proposal.
Bancshares acknowledges that under no circumstances shall any officer or director of FNB Wiggins
(unless such officer or director shall have an interest in a potential acquiring party in any Third
Party Acquisition Proposal) be held personally liable to Bancshares or FNB Wiggins for any amount of
the foregoing payment. On payment of such amount to Bancshares, then neither Bancshares nor Bank
shall have any cause of action or claim (either in law or equity) whatsoever against FNB Wiggins, or
any officer or director of FNB Wiggins, with respect to or in connection with such Third Party
Acquisition Proposal or this Agreement, so long as FNB Wiggins or such person, shall not have
intentionally violated the provisions of Section 5.8(a).
Exhibit A-15
c. The requirements, conditions, and obligations imposed by Section 5.8(b) shall continue in full force and
effect from the date of this Agreement until the earlier of (i) the Effective Date, (ii) the date on
which this Agreement shall have been terminated mutually by the Parties pursuant to Section 13.1(a)
hereof; or (iii) twelve (12) months from the date this Agreement shall have been terminated as a
result of a breach by FNB Wiggins, unless the failure to consummate the transactions contemplated by
this Agreement by 5:00 p.m. local time on September 30, 2006 results from or is related to pending or
threatened litigation arising out of or in connection with the Bank Merger or a Third Party
Acquisition Proposal, in which case the date shall be extended to that date which is thirty (30) days
after the final termination of such litigation or threatened litigation provided, however, for
purposes of this subparagraph (c)(iii), a Third Party Acquisition Proposal shall not include a private
or public placement of capital stock of FNB Wiggins which does not result in a change of control
requiring prior notice to the OCC within the meaning of 12 U.S.C. §1817(j).
ARTICLE 6.
REPRESENTATIONS AND WARRANTIES OF FNB WIGGINS
FNB Wiggins is subject to a Consent Order dated July 9, 2003 with the OCC (the "Consent Order"), a copy
of which has been provided to Bancshares. The representations and warranties of FNB Wiggins are made subject to
the provisions and limitations set forth in the Consent Order. FNB Wiggins represents and warrants to Bancshares
as follows:
6.1 Organization and Authority. FNB Wiggins is a national banking association duly organized, validly
existing and in good standing under the laws of the United States of America and FNB Wiggins has the corporate
power and authority to own, lease and operate its properties and assets and to carry on its business as it is now
being conducted.
6.2 Authorization. The execution, delivery and performance of this Agreement by FNB Wiggins and the
consummation of the transactions contemplated hereby have been duly authorized by the Board of Directors of FNB
Wiggins, subject to regulatory approval. No other corporate proceedings on the part of FNB Wiggins are necessary
to authorize consummation of this Agreement, except for the approval of the transaction by FNB Wiggins'
stockholders, and the performance by FNB Wiggins of the terms hereof. This Agreement is a valid and binding
obligation of FNB Wiggins enforceable against FNB Wiggins in accordance with its terms, except as may be limited
by applicable bankruptcy, insolvency, reorganization or moratorium or other similar laws affecting creditors'
rights generally, and except that the availability of equitable remedies is within the discretion of the
appropriate court, and except that it is subject to approval by its stockholders and applicable regulatory
agencies.
Exhibit A-16
Neither the execution, delivery or performance of this Agreement by FNB Wiggins, nor the consummation of
the transactions contemplated hereby, nor compliance by FNB Wiggins with any of the provisions hereof, will (a)
in any material respect violate, conflict with, or result in a breach of any provision of, or constitute a
default (or an event which, with notice or lapse of time or both, would constitute a default) under or result in
the termination of, or accelerate the performance required by, or result in a right of termination or
acceleration, or the creation of any lien, security interest, charge or encumbrance upon any of the properties or
assets of FNB Wiggins under any terms, conditions or provisions of (i) FNB Wiggins' Charter, Articles of
Association or Bylaws, or (ii) any material note, bond, mortgage, indenture, deed of trust, license, lease,
agreement or other instrument or obligation to which FNB Wiggins is a party or by which FNB Wiggins may be bound,
or to which FNB Wiggins or the properties or assets of it may be subject, except for any breach of that Prior
Letter of Intent with Richton Bank & Trust Company referred to in Section 3.1(b), or (b) violate in any material
respect any judgment, ruling, order, writ, injunction, decree, statute, rule or regulation applicable to FNB
Wiggins or any of its properties or assets.
6.3 Capital Structure of FNB Wiggins. As of the date hereof, the authorized capital stock of FNB Wiggins
consists solely of fifty-thousand (50,000) shares of common stock, $10.00 par value. As of the date hereof
23,728 shares of FNB Wiggins Common Stock are issued and outstanding. The outstanding shares of FNB Wiggins
Common Stock are validly issued and outstanding, fully paid and nonassessable. There are no outstanding options,
conversion rights, warrant, calls, rights, commitments or agreements to issue any form of stock or other security
of FNB Wiggins. There are no outstanding obligations or commitments to purchase, redeem or otherwise acquire any
outstanding shares of FNB Wiggins Common Stock.
6.4 Ownership of Other Entities. FNB Wiggins does not own, directly or indirectly, five percent (5%) or
more of the outstanding capital stock or other voting securities of any corporation, bank, or other organization.
6.5 FNB Wiggins Financial Statements and Other Reports. FNB Wiggins Financial Statements and other reports
(a) have been, and will be, prepared in accordance with generally accepted accounting principles ("GAAP"),
consistently applied, (b) have been and will (as the case may be) present fairly the consolidated results of
operations and financial position of FNB Wiggins for the periods and at the times indicated, and (c) have been
and will (as the case may be) be true and correct in all material respects for the periods and at the times
indicated.
6.6 No Material Adverse Change. Since December 31, 2005, there has been no event or condition of any
character (whether actual, or to the knowledge of FNB Wiggins, threatened or contemplated) that has had or can
reasonably be anticipated to have, or that, if concluded or sustained adversely to FNB Wiggins would reasonably
be anticipated to have, a material adverse effect on the financial condition, results of operations, business or
prospects of FNB Wiggins, excluding changes in laws or regulations that affect banking institutions generally.
Exhibit A-17
6.7 Tax Liability. The amounts set up as liabilities for taxes in the FNB Wiggins Financial Statements are
sufficient for the payment of all respective taxes (including, without limitation, federal, state, local, and
foreign excise, franchise, property, payroll, income, capital stock, and sales and use taxes) accrued in
accordance with GAAP and unpaid at the respective dates thereof.
6.8 Tax Returns: Payment of Taxes. All federal, state, local, and foreign tax returns (including, without
limitation, estimated tax returns, withholding tax returns with respect to employees, and FICA and FUTA returns)
("Tax Returns") required to be filed by or on behalf of FNB Wiggins have been timely filed or requests for
extensions have been timely filed and granted and have not expired for periods ending on or before December 31,
2005, and all returns filed are complete and accurate to the best information and belief of their respective
managements and all taxes shown on filed returns have been paid. Additionally, any Tax Returns yet to be filed
as of the date of this Agreement by or on behalf of FNB Wiggins for periods ending on or before December 31,
2005, for which extension requests have been timely filed and granted shall be prepared by an accountant chosen
by FNB Wiggins' and approved by Bancshares, which such approval shall not be unreasonably withheld, and filed
with the appropriate taxing authority prior to Closing. As of the date hereof, there is no audit, examination,
deficiency or refund litigation or matter in controversy with respect to any taxes that might result in a
determination materially adverse to FNB Wiggins except as reserved against in the FNB Wiggins Financial
Statements. All taxes, interest, additions and penalties due with respect to completed and settled examinations
or concluded litigation have been paid, and FNB Wiggins' reserves for bad debts at December 31, 2005 as filed
with the IRS were not greater than the maximum amounts permitted under the provisions of Section 585 of the Code.
6.9 Litigation and Proceedings. Except as set forth on Schedule 6.9 hereto, no litigation, proceeding or
controversy before any court or governmental agency is pending against FNB Wiggins that in the opinion of its
management is likely to have a material adverse effect on the business, results of operations or financial
condition of FNB Wiggins taken as a whole, and, to the best of its knowledge, no such litigation, proceeding or
controversy has been threatened or is contemplated.
6.10 Brokers' or Finders' Fees. No agent, broker, investment banker, investment or financial advisor or
other person acting on behalf of FNB Wiggins or under their authority is entitled to any commission, broker's or
finder's fee from any of the Parties hereto in connection with any of the transactions contemplated by this
Agreement.
6.11 Contingent Liabilities. Except as disclosed on Schedule 6.11 hereto or as specifically reflected in the
FNB Wiggins Financial Statements and except in the case of unfunded loan commitments made in the ordinary course
of business consistent with past practices, as of December 31, 2005, FNB Wiggins does not have any obligation or
liability (contingent or otherwise) that was material, or that when combined with all similar obligations or
liabilities would have been material, to FNB Wiggins and there does not exist a set of circumstances resulting
from transactions effected or events occurring prior to, on, or after December 31, 2005, or from any action
omitted to be taken during such period that, to the knowledge of FNB Wiggins, could reasonably be expected to
result in any such material obligation or liability.
Exhibit A-18
6.12 Title to Assets; Adequate Insurance Coverage.
Except as described on Schedule 6.12:
a. As of December 31, 2005, FNB Wiggins had, and except with respect to assets disposed of for adequate
consideration in the ordinary course of business since such date, now has, good and merchantable title
to all real property and good and merchantable title to all other material properties and assets
reflected in the FNB Wiggins Financial Statements, free and clear of all mortgages, liens, pledges,
restrictions, security interests, charges and encumbrances of any nature except for (i) mortgages and
encumbrances which secure indebtedness which is properly reflected in the FNB Wiggins Financial
Statements or which secure deposits of public funds as required by law; (ii) liens for taxes accrued
but not yet payable; (iii) liens arising as a matter of law in the ordinary course of business with
respect to obligations incurred after December 31, 2005, provided that the obligations secured by such
liens are not delinquent or are being contested in good faith; (iv) such imperfections of title and
encumbrances, if any, as do not materially detract from the value or materially interfere with the
present use of any of such properties or assets or the potential sale of any such owned properties or
assets; and (v) capital leases and leases, if any, to third parties for fair and adequate
consideration. FNB Wiggins owns, or has valid leasehold interests in, all material properties and
assets, tangible or intangible, used in the conduct of its business. Any real property and other
material assets held under lease by FNB Wiggins are held under valid, subsisting and enforceable
leases with such exceptions as are not material and do not interfere with the use made or proposed to
be made by Bancshares in such lease of such property.
b. With respect to each lease of any real property or a material amount of personal property to which FNB
Wiggins is a party, except for financing leases in which FNB Wiggins is lessor, (i) such lease is in
full force and effect in accordance with its terms; (ii) all rents and other monetary amounts that
have been due and payable thereunder have been paid; (iii) there exists no default or event,
occurrence, condition or act which with the giving of notice, the lapse of time or the happening of
any further event, occurrence, condition or act would become a default under such lease; and (iv) the
Bank Merger will not constitute a default or a cause for termination or modification of such lease.
c. FNB Wiggins has no legal obligation, absolute or contingent, to any other person to sell or otherwise
dispose of any substantial part of its assets or to sell or dispose of any of its assets except in the
ordinary course of business consistent with past practices.
Exhibit A-19
d. To the knowledge and belief of its management, the policies of fire, theft, liability and other
insurance maintained with respect to the assets or business of FNB Wiggins provides adequate coverage
against loss and the fidelity bonds in effect as to which FNB Wiggins is named insured meet the
applicable standards of the American Bankers Association.
6.13 Liabilities. To the best of FNB Wiggins' and its officers' knowledge, all liabilities of FNB Wiggins
were, and will be created, for good, valuable and adequate consideration in accordance with prudent business
standards and in substantial compliance with all laws, regulations and rules and the accounts or evidence of
ownership of accounts are and will be genuine, true, valid and enforceable in accordance with their written
terms. FNB Wiggins has not agreed to any modification or extension of accounts or account terms or otherwise
made any agreements regarding such accounts except as disclosed in writing on the books and records of FNB
Wiggins; and FNB Wiggins has no knowledge of any claim of ownership to any account other than as shown on the
written ownership records of FNB Wiggins for each account, and FNB Wiggins has no knowledge of any alleged
improper or wrongful withdrawal or payment of any such account.
6.14 Loans. To the best knowledge and belief of its management, each loan reflected as an asset of FNB
Wiggins in the FNB Wiggins Financial Statements, as of December 31, 2005, or acquired since that date, is the
legal, valid, and binding obligation of the obligor named therein, enforceable in accordance with its terms, and
no loan is subject to any asserted defense, offset or counterclaim known to FNB Wiggins, except as disclosed in
writing to Bancshares on or prior to the date hereof.
6.15 Allowance for Loan Losses. The allowances for possible loan losses shown on the consolidated balance
sheets of FNB Wiggins as of December 31, 2005 are adequate in all material respects under the requirements of
GAAP to provide for possible losses, net of recoveries, relating to loans previously charged off, on loans
outstanding (including accrued interest receivable) as of December 31, 2005, and each such allowance has been
established in accordance with GAAP.
6.16 Investments. Except for investments classified as held to maturity as prescribed under the Financial
Accounting Standards Board Statement Number 115, and pledges to secure public or trust deposits, none of the
investments reflected in the FNB Wiggins Financial Statements under the heading "Investment Securities," and none
of the investments made by FNB Wiggins since December 31, 2005, and none of the assets reflected in the FNB
Wiggins Financial Statements under the heading "Cash and Due From Banks," is subject to any restriction, whether
contractual or statutory, that materially impairs the ability of FNB Wiggins freely to dispose of such investment
at any time. With respect to all repurchase agreements to which FNB Wiggins is a party, FNB Wiggins has a valid,
perfected first lien or security interest in the government securities or other collateral securing each such
repurchase agreement which equals or exceeds the amount of debt secured by such collateral under such agreement.
Exhibit A-20
6.17 Information for Registration and Proxy Statement. None of the information supplied or to be supplied by
FNB Wiggins for inclusion in (a) the Registration Statement to be filed by Bancshares with the SEC; (b) the
Notice of Meeting and Proxy Statement to be mailed by FNB Wiggins to their stockholders in connection with the
meeting referred to in Section 5.4 hereof (the "Proxy Statement"); or (c) any other documents to be filed with
the SEC or any regulatory agency in connection with the transactions contemplated hereby will, (i) as amended or
supplemented at the time the Registration Statement is filed with the SEC or at the time it becomes effective,
(ii) at the time the Proxy Statement is mailed to holders of FNB Wiggins Common Stock, as may be amended at the
time of FNB Wiggins Stockholders' Meeting, and (iii) at the time of filing of such other documents, respectively,
contain any untrue statement of a material fact or omit to state a material fact required to be stated therein in
order to make the statements therein, in light of the circumstances under which they were made, not misleading.
All documents, financial statements, or other information or materials which FNB Wiggins shall provide for filing
with any regulatory agency in connection with the Bank Merger will comply with GAAP.
6.18 Commitments and Contracts. FNB Wiggins is not a party or subject to any of the following (whether
written or oral, express or implied):
a. except as listed on Schedule 6.18(a) attached hereto and with a complete copy provided to Bancshares,
any employment contract (including any obligations with respect to severance or termination pay
liabilities or fringe benefits) with any present or former officer, director, employee or consultant
(other than those which are terminable at will by FNB Wiggins);
b. except as listed on Schedule 6.18(b) attached hereto and with a complete copy provided to Bancshares,
any plan or contract providing for any bonus, pension, option, deferred compensation, retirement
payment, profit sharing or similar arrangement with respect to any present or former officer,
director, employee or consultant; or
c. any contract not made in the ordinary course of business containing covenants which limit the ability of
FNB Wiggins to compete in any line of business or with any person or which involves any restriction of
the geographical area in which, or method by which, FNB Wiggins may carry on its respective business
(other than as may be required by law or applicable regulatory authorities).
6.19 Employee Plans. To the best of FNB Wiggins' knowledge and belief, it, and all "employee benefit plans,"
as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), that
cover one or more employees employed by FNB Wiggins:
a. are in compliance with all laws, regulations, reporting and licensing requirements and orders applicable
to its business or to such plan or any of its employees (because of such employee's activities on
behalf of it), the breach or violation of which could have a material and adverse effect on such
business; and
b. except Consent Order, it has received no notification from any agency or department of federal, state or
local government or the staff thereof asserting that any such entity is not in compliance with any of
the statutes, regulations or ordinances that such governmental authority enforces, or threatening to
revoke any license, franchise, permit or governmental authorization, and is subject to no agreement
with any such governmental authority with respect to its assets or business.
Exhibit A-21
6.20 Plan Liability. Except for liabilities to the Pension Benefit Guaranty Corporation pursuant to Section
4007 of ERISA, all of which have been fully paid, and except for liabilities to the IRS under Section 4971 of the
Code, all of which have been fully paid, FNB Wiggins does not have any liability to the Pension Benefit Guaranty
Corporation or to the IRS with respect to any pension plan qualified under Section 401 of the Code.
6.21 Vote Required. The affirmative vote of the holders of at least two-thirds of the FNB Wiggins Common
Stock is necessary to approve this Agreement, the Bank Merger and related transactions contemplated hereby.
6.22 Continuity of Interest. Subsequent to initiation of merger discussions between Bancshares and FNB
Wiggins, no FNB Wiggins stockholder has had a portion of such stockholder's FNB Wiggins interest redeemed by FNB
Wiggins, or received a distribution with respect to its FNB Wiggins interest, and no corporation related to FNB
Wiggins within the meaning of Treasury Regulation § 1.368-1(e)(3)(i)(B) acquired any stock of FNB Wiggins held by
such FNB Wiggins stockholder, where such disposition or acquisition would reduce the aggregate value of the
Bancshares Common Stock to be received by all such FNB Wiggins stockholders (with such value measured as of the
Bank Merger date) to an amount less than 45% of the value of the FNB Wiggins Common Stock held by such
stockholders immediately before any of such distribution, disposition or acquisition. See Exhibit C for
additional representations regarding continuity of stockholder interest under Sections 368(a)(1)(A) and
368(a)(2)(D) of the Code.
6.23 Continuity of Business Enterprise. FNB Wiggins operates at least one significant historic business
line, namely, financial services, and owns at least a significant portion of its historic business assets within
the meaning of Treasury Regulation Section 1.368-1(d).
6.24 Environmental Matters. Except as set forth on Schedule 6.24, neither FNB Wiggins nor, to the best
knowledge of FNB Wiggins and its officers, any previous owner or operator of any properties at any time owned
(including any properties owned or subsequently resold), leased, or occupied by FNB Wiggins or used by FNB
Wiggins in its business ("FNB Wiggins Properties") used, generated, treated, stored, or disposed of any hazardous
waste, toxic substance, or similar materials on, under, or about FNB Wiggins Properties except in compliance with
all applicable federal, state, and local laws, rules and regulations pertaining to air and water quality,
hazardous waste, waste disposal, air omissions, and other environmental matters ("Environmental Laws"). FNB
Wiggins has not received any notice of noncompliance with Environmental Laws, applicable laws, orders, or
regulations of any governmental authorities relating to waste generated by any such party or otherwise or notice
that any such party is liable or responsible for the remediation, removal, or clean up of any site relating to
FNB Wiggins Properties.
6.25 Accuracy of Information. To the best of FNB Wiggins' and its officers' knowledge, all information
furnished by FNB Wiggins to Bancshares relating to its assets, liabilities, and this Agreement is accurate, and
FNB Wiggins has not omitted to disclose any information which is or would be material to this Agreement.
Exhibit A-22
6.26 Compliance with Laws and Contracts. Except for the Consent Order, to the best of FNB Wiggins' and its
officers' knowledge, FNB Wiggins is not in violation of any laws, regulations, or agreements to which it is a
party and has not failed to file any material reports required by any governmental or other regulatory body, the
violation of which or failure to file is reasonably likely to have a materially adverse effect on FNB Wiggins or
its ability to consummate this Agreement
6.27 Stock Ownership. To the best of FNB Wiggins' and its officers' knowledge and without any independent
investigation, no known dispute exists as to the title and/or ownership interest in any shares of FNB Wiggins
Common Stock.
ARTICLE 7.
BANCSHARES' REPRESENTATIONS AND WARRANTIES
Bancshares represents and warrants to FNB Wiggins as follows: for the purposes of this Agreement, except
in Section 7.1 and where the context requires otherwise, any reference to Bancshares in this Article 7 shall be
deemed to include Bancshares and Bank and any reference to material, material adverse effect or a similar
standard shall refer to the financial condition, operations or other aspects of Bancshares and its subsidiaries
including Bank taken as a whole.
7.1 Organization and Authority. Bancshares is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Mississippi, it is a duly registered bank holding company pursuant to the
Bank Holding Company Act of 1956, as amended, and it has the corporate power and authority to own its properties
and assets and to carry on its business as it is now being conducted. Bank is a national banking association
duly organized, validly existing and in good standing under the laws of the United States of America and Bank has
the corporate power and authority to own, lease and operate its properties and assets and to carry on its
business as it is now being conducted.
7.2 Shares Fully Paid and Non Assessable. The outstanding shares of capital stock of Bancshares are validly
issued and outstanding, fully paid and nonassessable and all outstanding shares of Bank are owned directly or
indirectly by Bancshares free and clear of all liens, claims, and encumbrances. The shares of Bancshares common
stock to be issued in connection with the Bank Merger pursuant to this Agreement have been duly authorized and,
when issued in accordance with the terms of this Agreement, will be validly issued, fully paid, and nonassessable.
7.3 Authorization. The execution, delivery and performance of this Agreement by Bancshares and the
consummation of the transactions contemplated hereby have been duly authorized by the Board of Directors of
Bancshares, subject to regulatory approval. No other corporate proceedings on the part of Bancshares are
necessary to authorize consummation of this Agreement, except for the approval of the transaction by Bancshares
as the sole stockholder of Bank, and the performance by Bancshares of the terms hereof. This Agreement is a
valid and binding obligation of Bancshares enforceable against Bancshares in accordance with its terms except as
may be limited by applicable bankruptcy, insolvency, reorganization or moratorium or other similar laws affecting
creditors' rights generally and except that the availability of equitable remedies is within the discretion of
the appropriate court and except that it is subject to approval of applicable regulatory agencies.
Exhibit A-23
7.4 No Violation. Neither the execution, delivery or performance of this Agreement by Bancshares, nor the
consummation of the transactions contemplated hereby, nor compliance by Bancshares with any of the provisions
hereof, will (a) in any material respect violate, conflict with, or result in a breach of any provision of, or
constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under
or result in the termination of, or accelerate the performance required by, or result in a right of termination
or acceleration, or the creation of any lien, security interest, charge or encumbrance upon any of the properties
or assets of Bancshares under any terms, conditions or provisions of (i) Bancshares' Charter, Articles of
Incorporation, or Bylaws or other charter documents of Bancshares, or (ii) any material note, bond, mortgage,
indenture, deed of trust, license, lease, agreement or other instrument or obligation to which Bancshares is a
party or by which Bancshares may be bound, or to which Bancshares or the properties or assets of it may be
subject, or (b) violate in any material respect any judgment, ruling, order, writ, injunction, decree, statute,
rule or regulation applicable to Bancshares or any of its properties or assets.
7.5 No Material Adverse Change. Since December 31, 2005, there has been no event or condition of any
character (whether actual, or to the knowledge of Bancshares, threatened or contemplated) that has had or can
reasonably be anticipated to have, or that, if concluded or sustained adversely to Bancshares would reasonably be
anticipated to have, a material adverse effect on the financial condition, results of operations, business or
prospects of Bancshares excluding changes in laws or regulations that affect banking institutions generally.
7.6 Loans. To the best knowledge and belief of its management, and management of Bank, each loan reflected
as an asset of Bancshares in the unaudited consolidated balance sheet contained in Bancshares' annual report to
shareholders for the period ended December 31, 2005, or acquired since that date, is the legal, valid and binding
obligation of the obligor named therein, enforceable in accordance with its terms, and no loan is subject to any
asserted defense, offset, or counterclaim known to Bancshares, except as disclosed on Schedule 7.6 hereto.
7.7 Litigation. Except as disclosed on Schedule 7.7 hereto, no litigation, proceeding or controversy before
any court or governmental agency is pending that in the opinion of its management is likely to have a material
and adverse effect on the business, results of operations or financial condition of Bancshares and its
subsidiaries taken as a whole, and, to the best of its knowledge, no such litigation, proceeding or controversy
has been threatened or is contemplated.
7.8 Contingent Liabilities. Except as disclosed on Schedule 7.8 hereto or reflected in the reports of
Bancshares that have been filed with the SEC or the OCC ("Bancshares Reports"), and except in the case of
Bancshares' subsidiaries for unfunded loan commitments made in the ordinary course of business consistent with
past practices, as of December 31, 2005, neither Bancshares nor any of its subsidiaries had any obligation or
liability (contingent or otherwise) that was material, or that when combined with all similar obligations or
liabilities would have been material, to Bancshares and its subsidiaries taken as a whole and there does not
exist a set of circumstances resulting from transactions effected or events occurring prior to, on, or after
December 31, 2005, or from any action omitted to be taken during such period that, to the knowledge of
Bancshares, could reasonably be expected to result in any such material obligation or liability.
Exhibit A-24
7.9 Allowances for Possible Loan Losses. The allowances for possible loan losses shown on the balance sheet
of Bancshares contained in the Bancshares Reports as of December 31, 2005, were or will be, as the case may be,
adequate in all material respects under the requirements of GAAP to provide for possible loan losses, net of
recoveries relating to loans previously charged off, on loans outstanding (including accrued interest receivable)
as of the respective date of such balance sheet and such allowance has been or will have been established in
accordance with GAAP. To the knowledge of Bancshares' management, Bancshares is not likely to be required to
materially increase the provision for loan losses between the date hereof and the Effective Date.
7.10 Benefit Plans. To the knowledge and belief of Bancshares' senior management, Bancshares, each of its
subsidiaries and all "employee benefit plans," as defined in Section 3(3) of ERISA, that cover one or more
employees employed by Bancshares or any of its subsidiaries:
a. are in compliance with all laws, regulations, reporting and licensing requirements and orders applicable
to its business or to such plan or any of its employees (because such employee's activities on behalf
of it), the breach or violation of which could have a material and adverse effect on such business; and
b. has received no notification from any agency or department of federal, state or local government or the
staff thereof asserting that any such entity is not in compliance with any of the statutes;
regulations or ordinances that such governmental authority enforces, or threatening to revoke any
license, franchise or permit or governmental authorization, and is subject to no agreement or written
understanding with any such governmental authorities with respect to its assets or business.
7.11 Financial Statements. Complete copies of Bancshares' most recent Annual Report have been provided to
FNB Wiggins. The Bancshares financial statements have been audited by T. E. Lott & Company, independent auditors
(in the case of the Bancshares audited financial statements), in accordance with generally accepted auditing
standards, have been prepared in accordance with GAAP and, except as disclosed therein, applied on a basis
consistent with prior periods, and present fairly the financial position of Bancshares and its consolidated
subsidiaries at such dates and the results of operations and cash flows for the periods then ended. The
Bancshares unaudited interim financial statements reflect all adjustments (consisting only of normal recurring
adjustments) that are necessary for a fair statement of the results for the interim periods presented therein
(collectively, the "Bancshares Financial Statements").
7.12 Disclosure. No representations or warranties by Bancshares or Bank in this Agreement and no statement
contained in the schedules or exhibits or in any certificates to be delivered pursuant to this Agreement,
contains or will contain any untrue statement of material fact or omits or will omit to state any material fact
necessary, in light of the circumstances under which it was made, in order to make the statements herein or
therein not misleading.
Exhibit A-25
7.13 Title to Assets; Adequate Insurance Coverage. Except as described on Schedule 7.13:
a. As of December 31, 2005, Bancshares had, and except with respect to assets disposed of for adequate
consideration in the ordinary course of business since such date, now has, good and merchantable title
to all real property and good and merchantable title to all other material properties and assets
reflected in the Bancshares Financial Statements, free and clear of all mortgages, liens, pledges,
restrictions, security interests, charges and encumbrances of any nature except for (i) mortgages and
encumbrances which secure indebtedness which is properly reflected in the Bancshares Financial
Statements or which secure deposits of public funds as required by law; (ii) liens for taxes accrued
but not yet payable; (iii) liens arising as a matter of law in the ordinary course of business with
respect to obligations incurred after December 31, 2005, provided that the obligations secured by such
liens are not delinquent or are being contested in good faith; (iv) such imperfections of title and
encumbrances, if any, as do not materially detract from the value or materially interfere with the
present use of any of such properties or assets or the potential sale of any such owned properties or
assets; and (v) capital leases and leases, if any, to third parties for fair and adequate
consideration. Bancshares owns, or has valid leasehold interests in, all material properties and
assets, tangible or intangible, used in the conduct of its business. Any real property and other
material assets held under lease by Bancshares are held under valid, subsisting and enforceable leases
with such exceptions as are not material and do not interfere with the use made or proposed to be made
by Bancshares in such lease of such property.
b. With respect to each lease of any real property or a material amount of personal property to which
Bancshares is a party, except for financing leases in which Bancshares is lessor, (i) such lease is in
full force and effect in accordance with its terms; (ii) all rents and other monetary amounts that
have been due and payable thereunder have been paid; (iii) there exists no default or event,
occurrence, condition or act which with the giving of notice, the lapse of time or the happening of
any further event, occurrence, condition or act would become a default under such lease; and (iv) the
Bank Merger will not constitute a default or a cause for termination or modification of such lease.
c. Bancshares has no legal obligation, absolute or contingent, to any other person to sell or otherwise
dispose of any substantial part of its assets or to sell or dispose of any of its assets except in the
ordinary course of business consistent with past practices.
d. To the knowledge and belief of its management, the policies of fire, theft, liability and other
insurance maintained with respect to the assets or business of Bancshares provides adequate coverage
against loss and the fidelity bonds in effect as to which Bancshares is named insured meet the
applicable standards of the American Bankers Association.
Exhibit A-26
7.14 Tax Liability. The amounts set up as liabilities for taxes in the consolidated Bancshares Financial
Statements are sufficient for the payment of all respective taxes (including, without limitation, federal, state,
local, and foreign excise, franchise, property, payroll, income, capital stock, and sales and use taxes) accrued
in accordance with GAAP and unpaid at the respective dates hereof.
7.15 Tax Returns: Payment of Taxes. All federal, state, local, and foreign tax returns (including, without
limitation, estimated tax returns, withholding tax returns with respect to employees, and FICA and FUTA returns)
required to be filed by or on behalf of Bancshares and Bank have been timely filed or requests for extensions
have been timely filed and granted and have not expired for periods ending on or before December 31, 2005, and
all returns filed are complete and accurate to the best information and belief of their respective managements
and all taxes shown on filed returns have been paid. As of the date hereof, there is no audit, examination,
deficiency or refund litigation or matter in controversy with respect to any taxes that might result in a
determination materially adverse to Bancshares or Bank except as reserved against in the Bancshares Financial
Statements. All taxes, interest, additions and penalties due with respect to completed and settled examinations
or concluded litigation have been paid, and Bancshares' and Bank's reserves for bad debts at December 31, 2005,
as filed with the IRS, were not greater than the maximum amounts permitted under the provisions of Section 585 of
the Code.
ARTICLE 8.
BANCSHARES' COVENANTS AND AGREEMENTS
Bancshares covenants and agrees as follows:
8.1 Conduct of Business. Bancshares agrees to operate its business solely in the ordinary course consistent
with prudent business practices and in compliance with all applicable laws, regulations, and rules; but nothing
herein shall be construed as limiting or restricting Bancshares in its assets, liability, or capital structure or
limiting any action of Bancshares or its affiliates, nor shall anything in this Agreement be construed as
limiting the future number and amount of outstanding shares of Bancshares Common Stock pending settlement of this
transaction.
8.2 Due Diligence. In order to afford FNB Wiggins access to such information as it may reasonably deem
necessary to perform its due diligence review with respect to Bancshares and its assets in connection with the
Bank Merger, Bancshares shall, (a) upon reasonable notice, afford FNB Wiggins and its officers, employees,
counsel, accountants and other authorized representatives, during normal business hours throughout the period
prior to the Effective Date and to the extent consistent with applicable law, access to its premises, properties,
books and records, and to furnish FNB Wiggins and such representatives with such financial and operating data and
other information of any kind respecting its business and properties as FNB Wiggins shall from time to time
reasonably request to perform such review, and (b) promptly advise FNB Wiggins of the occurrence before the
Effective Date of any event or condition of any character (whether actual or to the knowledge of Bancshares,
threatened or contemplated) that has had or can reasonably be anticipated to have, or that, if concluded or
sustained adversely to Bancshares, would reasonable be anticipated to have, a material adverse effect on the
financial condition, results of operations, business or prospects of its consolidated group as a whole.
Exhibit A-27
8.3 Registration Statement.
a. Bancshares will prepare and file on Form S-4 a registration statement under the Securities Act (which
will include the Proxy Statement) complying with all the requirements of the Securities Act applicable
thereto, for the purpose, among other things, of registering the Bancshares Common Stock which will be
issued to the holders of FNB Wiggins Common Stock pursuant to the Bank Merger (the "Registration
Statement"). Bancshares shall use its best efforts to cause the Registration Statement to become
effective as soon as practicable, to qualify the Bancshares Common Stock under the securities or blue
sky laws of such jurisdictions as may be required, and to keep the Registration Statement and such
qualifications current and in effect for so long as is necessary to consummate the transactions
contemplated hereby.
b. FNB Wiggins shall cooperate in preparing the Registration Statement and the Proxy Statement, and will
promptly furnish all such data and information relating to it as Bancshares may reasonably request for
the purpose of including such data and information in the Registration Statement.
c. Bancshares will indemnify and hold harmless FNB Wiggins and each of its directors, officers, agents and
other persons, if any, who control FNB Wiggins within the meaning of the Securities Act from and
against any losses, claims, damages, liabilities or judgments, joint or several, to which they or any
of them may become subject under the Securities Act or any state securities or blue sky laws or
otherwise, insofar as such losses, claims, damages, liabilities, or judgments (or actions in respect
thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material
fact contained in the Registration Statement, or in any amendment or supplement thereto, or in any
state application for qualification, permit, exemption or registration as a broker/dealer, or in any
amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse each such person for any legal or other expenses reasonably
incurred by such person in connection with investigating or defending any such action or claim;
provided, however, that Bancshares shall not be liable, in any such case, to the extent that any such
loss, claim, damage, liability, or judgment (or action in respect thereof) arises out of or is based
upon any untrue statement or alleged untrue statement or omission or alleged omission made in the
Registration Statement, or any such amendment or supplement thereto, or in any such state application,
or in any amendment or supplement thereto, in reliance upon and in conformity with information
furnished in writing to Bancshares by FNB Wiggins.
8.4 Continuity of Business Enterprise. It is the present intention of Bancshares to continue at least one
significant historic business line of FNB Wiggins, namely, financial services, and to use at least a significant
portion of FNB Wiggins' historic business assets in a business within the meaning of Treasury Regulation Section
1.368-1(d).
Exhibit A-28
8.5 Tail Insurance. Notwithstanding the provisions of Section 5.1, FNB Wiggins and its directors and
officers shall be permitted, at their option, to purchase insurance (commonly referred to as "Tail Insurance")
which will provide post Closing coverage for errors and omissions similar to that provided by the directors' and
officers' errors and omissions insurance policy number 1620929 presently carried by FNB Wiggins. Additionally,
Bank agrees to reimburse any person that is defined as an insured under policy number 1620929 and, insured under
the Tail Insurance for any expenditures classified as retention or deductible amounts under the policy which are
incurred by the insured as a result of any errors or omissions covered by the Tail Insurance.
ARTICLE 9.
CONDITIONS TO CLOSING
The obligations of FNB Wiggins and Bancshares under this Agreement, except as otherwise provided herein,
shall be subject to the satisfaction or waiver of the following conditions on or prior to the Closing:
9.1 Conditions to Each Party's Obligations to Effect the Bank Merger. The respective obligation of each
Party to effect the Bank Merger shall be subject to the following conditions:
a. Stockholder Approval. The Bank Merger shall have been approved by the requisite vote of the holders of
the outstanding shares of FNB Wiggins Common Stock at FNB Wiggins' Stockholders' Meeting, as well as by
Bancshares as the sole stockholder of Bank.
b. Regulatory Approvals. The transactions contemplated by this Agreement shall have been approved by all
necessary governing regulatory authorities, without any condition or requirement that either Bancshares
or FNB Wiggins deem burdensome, or which otherwise would have a material adverse effect on the business,
operations, properties, assets or financial condition of Bancshares, Bank or FNB Wiggins after the
Effective Date, all conditions required to be satisfied shall have been satisfied, and all waiting
periods relating to such approvals shall have expired.
c. Registration Statement. The Registration Statement shall have been declared effective and shall not be
subject to a stop order or any threatened stop order, and all state securities and blue sky permits or
approvals required to consummate the transactions contemplated by this Agreement shall have been
received.
d. No Restraining Action. No action or proceeding shall have been instituted before a court or other
governmental body to restrain or prohibit the transactions contemplated by the Bank Merger Agreement
or this Agreement or instituted or threatened to be instituted to obtain damages or other relief in
connection with the execution of such agreements or the consummation of the transactions contemplated
hereby or thereby; and no governmental agency shall have given notice to any Party hereto to the
effect that consummation of the transactions contemplated by the Bank Merger Agreement or this
Agreement would constitute a violation of any law or that it intends to commence proceedings to
restrain consummation of the Bank Merger.
Exhibit A-29
e. Tax Opinion. Bancshares and FNB Wiggins shall have received an opinion from Watkins Ludlam Winter &
Stennis, P.A. substantially to the effect that the transactions contemplated by this Agreement will be
treated for federal income tax purposes as a tax-free reorganization under Section 368 of the Code.
9.2 Conditions to Obligations of FNB Wiggins to Effect the Bank Merger. The obligations of FNB Wiggins to
effect the Bank Merger shall be subject to the following additional conditions:
a. Representations and Warranties. The representations and warranties of Bancshares set forth in this
Agreement shall be true and correct in all material respects (except to the extent such representation
or warranty is qualified by materiality, in which case such representation or warranty shall be true and
correct) as of the date of this Agreement and as of the Closing as though made at and as of the Closing,
except as otherwise contemplated by this Agreement or consented to in writing by FNB Wiggins.
b. Performance of Obligations. Bancshares shall have performed in all material respects all obligations
and complied with all covenants required by it under this Agreement prior to the Closing and
Bancshares shall deliver at Closing appropriate certificates setting forth such.
c. No Material Adverse Change. There shall not have occurred any material adverse change from the date of
this Agreement to the Closing Date in the financial condition, results of operations or business of
Bancshares and its subsidiaries taken as a whole.
d. Legal Opinion. An opinion of Watkins Ludlam & Stennis, P.A., special counsel to Bancshares, shall be
delivered to FNB Wiggins dated the Closing Date and in form and substance reasonably satisfactory to
FNB Wiggins and its counsel to the effect that:
i. Bancshares is a corporation duly incorporated, validly existing and in good standing under the laws
of the State of Mississippi, a bank holding company duly registered under the Bank Holding
Company Act of 1956, as amended, and it has the corporate authority to own and operate its
businesses and properties and to carry on its business as presently conducted by it;
ii. Bank is a national banking association duly organized, validly existing and in good standing under
the laws of the United States of America and Bank has the corporate power and authority to own,
lease and operate its properties and assets and to carry on its business as it is now being
conducted;
Exhibit A-30
iii. Bancshares and Bank had and have the corporate authority to make, execute and deliver this Agreement, it
has been duly authorized and approved by all necessary corporate action of Bancshares and
Bank, and it has been duly executed and delivered and is as of the Closing Date its valid and
binding obligation subject, however, to bankruptcy, insolvency and similar laws affecting the
enforcement of creditors' rights generally and to the availability of equitable remedies in
general;
iv. All required regulatory approvals have been obtained;
v. To such counsel's knowledge after inquiry, but without independent investigation, there is no
litigation or proceeding pending or threatened against Bancshares or Bank relating to the participation
in or consummation of this Agreement by Bancshares and Bank, and consummation will not violate
any other contract, agreement, Charter, Articles of Incorporation, Articles of Association, or
Bylaw of Bancshares and Bank; and
vi. All shares of Bancshares Common Stock to be issued pursuant to the Bank Merger have been duly authorized
and, when issued pursuant to the Bank Merger Agreement, will be validly and legally issued,
fully paid and non-assessable, registered pursuant to the Securities Act, and will be, at the
time of their delivery, free and clear of all liens, charges, security interests, mortgages,
pledges and other encumbrances and any preemptive or similar rights.
9.3 Conditions to Obligations of Bancshares to Effect the Bank Merger. The obligations of Bancshares to
effect the Bank Merger shall be subject to the following additional conditions:
a. Representations and Warranties. The representations and warranties of FNB Wiggins set forth in this
Agreement shall be true and correct in all material respects (except to the extent such representation
or warranty is qualified by materiality, in which case such representation or warranty shall be true
and correct) as of the date of this Agreement and as of the Closing as though made at and as of the
Closing, except as otherwise contemplated by this Agreement or consented to in writing by Bancshares.
b. Performance of Obligations. FNB Wiggins shall have performed in all material respects all obligations
and complied with all covenants required by it under this Agreement prior to the Closing and FNB
Wiggins shall deliver at Closing appropriate certificates setting forth such.
c. No Material Adverse Change. There shall not have occurred any material adverse change from the date of
this Agreement to the Closing Date in the financial condition, results of operations or business of
FNB Wiggins and its subsidiaries, if any, taken as a whole.
d. Legal Opinion. An Opinion of Brunini, Grantham, Grower, & Hewes, PLLC, special counsel to FNB Wiggins,
shall be delivered to Bancshares dated the Closing Date, and in form and substance reasonably
satisfactory to Bancshares to the effect that:
Exhibit A-31
i. FNB Wiggins is a national banking association duly organized and validly existing and in good standing
under the laws of the United States, and has corporate authority to own and operate its
businesses and properties and to carry on its business as presently conducted by it;
ii. FNB Wiggins had and has corporate authority to make, execute and deliver this Agreement, it has been
duly authorized and approved by all necessary corporate action of FNB Wiggins and has been
duly executed and delivered and is as of the Closing Date its valid and binding obligation
subject, however, to bankruptcy, insolvency and similar laws affecting the enforcement of
creditors' rights generally and to the availability of equitable remedies in general;
iii. To such counsel's knowledge after inquiry, but without independent investigation there is no litigation
or proceeding pending or threatened against FNB Wiggins relating to the participation in or
consummation of this Agreement by FNB Wiggins and consummation will not violate any other
contract, agreement, Charter, Articles of Association, or Bylaw of FNB Wiggins, except for the
Prior Letter of Intent described in Section 3.1(b) above; and
iv. FNB Wiggins has complied with all laws and regulations relating to dissenters' rights.
e. Resolution of Change in Control Payments; Execution of Retention Agreements. Any obligations of FNB
Wiggins under any employment, incentive or Change of Control Payments with FNB Wiggins' employees
requiring payments in the event of exercise or sale of FNB Wiggins shall have been fully and
completely resolved, canceled and rendered invalid, void and unenforceable and the appropriate
accounting entries made in accordance with Section 3.1(b). Certain officers of FNB Wiggins as
determined by Bancshares shall have executed retention and noncompete agreements between Bank and such
employee to be effective at consummation.
f. Termination of Employment Agreements. Each employee with whom FNB Wiggins has an employment agreement
shall have executed and delivered to Bancshares, and not withdrawn, rescinded or otherwise contested
the validity or enforceability of, or threatened any such action, an amendment to their respective
employment agreements or other written arrangements with FNB Wiggins, terminating such agreements at
the Effective Date.
ARTICLE 10.
CLOSING
10.1 Closing. The Closing shall be held at the office of Bancshares or such other place as Bancshares and
FNB Wiggins shall mutually designate.
Exhibit A-32
10.2 Deliveries at Closing. At the Closing, all documents and instruments shall be duly and validly
executed and delivered by all the Parties hereto, and possession of all liabilities and assets shall be
transferred and delivered accordingly. The Parties shall execute any and all documents reasonably requested by
them or their legal counsel for the purpose of effectuating the transaction contemplated, including but not
limited to a listing of dissenting stockholders, if any, including name, address, and number of shares owned.
ARTICLE 11.
EMPLOYMENT MATTERS
11.1 Employees. Except as disclosed on Schedule 11.1 hereto, Bancshares and Bank shall use their best
efforts to retain FNB Wiggins' officers and employees. Bank will make reasonable efforts to maintain duties and
compensation levels for retained personnel commensurate with the employees' experience and qualifications, and in
accordance with Bancshares' and Bank's salary administration program. With regard to any retained employee,
Bancshares and Bank shall be free of any obligation to honor any past agreement of FNB Wiggins to such person.
With respect to FNB Wiggins' group health and life benefit plan as it relates to its employees, Bank
shall have the option of either: (a) continuing such plan on and after the Effective Date of the Bank Merger; or
(b) discontinuing such plan upon the Effective Date and thereafter, all retained employees will be eligible to
participate in Bank's group health and life benefit plan based on the provisions in the plan. The ninety (90)
day employment period will be waived for eligible retained employees in accordance with Bank's plan. Bank will
waive pre-existing medical conditions for health insurance purposes as to all retained personnel, but only if and
to the extent such pre-existing medical conditions were waived under similar plans of Bank as of the date hereof.
11.2 Retirement Plan. FNB Wiggins currently maintains a 401(k) Plan which will remain operative and in
effect through the Effective Date of the Bank Merger (the "Plan"). At the sole option of Bank, the Plan will, as
of the Effective Date of the Bank Merger, either (a) be merged with an existing retirement plan of Bank, or (b)
be terminated and distributed to the participants in accordance with the terms of the Plan after the normal and
customary contributions for periods prior to the Effective Date of the Bank Merger have been made consistent with
past practices. FNB Wiggins agrees to cooperate with Bank in its implementation of either merging the 401(k)
Plan or terminating it as referenced above, which cooperation includes, but is not limited to, any corporate
action that must take place prior to the Effective Date.
All retained employees will be eligible to enter the Bank's 401(k) Plan upon meeting the eligibility
requirements set forth in such plan. All retained employees will be granted full credit for all prior service
with FNB Wiggins for all purposes, including determining eligibility, under the Bank's 401(k) Plan.
Additionally, all retained employees will be eligible to enter the Bank's Employee Stock Ownership Plan once that
plan becomes effective (which is expected to occur subsequent to the Effective Date) and upon meeting the
eligibility requirements thereof. However, any retained employees will not be granted credit for prior service
with FNB Wiggins for any purpose, including determining eligibility, under the Bank's Employee Stock Ownership
Plan.
Exhibit A-33
11.3 Other Benefit Plans. Other FNB Wiggins benefit plans will continue through the Effective Date of the
Bank Merger. Thereafter, all retained employees will be eligible to participate in all Bank employee benefit
plans not set forth in Sections 11.1 and 11.2 hereof, based on the provisions set forth in the plans.
11.4 Notices. FNB Wiggins shall be responsible for notifying its employees of the terms of this Agreement as
it affects and/or relates to them and for complying with any applicable laws regarding such notices.
ARTICLE 12.
REMEDIES
For purposes of this Agreement, any reference to Bancshares in this Article 12 shall be deemed to
include Bancshares and Bank.
12.1 Parties' Joint Remedies. In the event regulatory authorities impose requirements which do not
materially alter this Agreement and which are not otherwise burdensome or objectionable to the Parties, then the
Parties agree to amend this Agreement to conform to such regulatory requirements, and specific performance shall
be available as a remedy for this purpose.
12.2 Joint Remedies for Unintentional Breach. Notwithstanding any remedy in Sections 12.3 or 12.4 hereof, in
the event this Agreement is terminated pursuant to Section 13.1(c) hereof as a result of an unintentional breach
of a warranty, representation, covenant or agreement, then the sole remedy shall be that this Agreement becomes
null and void, other than the provisions of Section 5.8.
12.3 FNB Wiggins' Remedies. In the event Bancshares breaches this Agreement, other than as provided in
Section 12.2 hereof, then FNB Wiggins shall give Bancshares notice of the breach, and Bancshares shall have a
reasonable amount of time to cure the breach, and Bancshares shall be liable for such economic damages that are
the direct result of any uncured breach, but Bancshares shall not be liable for consequential or punitive
damages. If Bancshares breaches a warranty, representation, covenant or agreement that does not materially
affect the entire transaction, then the amount of the damages shall be mutually agreed upon by the Parties, and
if they cannot agree as to the damage, then by an arbitrator mutually agreeable to them, and the damage
determined shall be conclusively binding on both Parties and shall be treated as an adjustment to the Merger
Consideration.
12.4 Bancshares' Remedies. In the event FNB Wiggins breaches this Agreement, other than as provided in
Section 12.2 hereof, then Bancshares shall give FNB Wiggins notice of the breach, and FNB Wiggins shall have a
reasonable amount of time to cure the breach, and FNB Wiggins shall be liable for such economic damages that are
the direct result of any uncured breach, but FNB Wiggins shall not be liable for consequential or punitive
damages; provided, however, in the event FNB Wiggins breaches Section 5.8, then FNB Wiggins shall be liable to
Bancshares in an amount equal to said economic damages in addition to Bancshares' and Bank's out of pocket
expenses incurred in connection with the transactions contemplated hereby, including but not limited to its
reasonable attorney fees and accountant fees and in addition to any payments otherwise due to Bancshares pursuant
to Section 5.8(b). If FNB Wiggins breaches a warranty, representation, covenant or agreement that does not
materially affect the entire transaction, then the amount of the damages shall be mutually agreed upon by the
Parties, and if they cannot agree as to the damage, then by an arbitrator mutually agreeable to them, and the
damage determined shall be conclusively binding on both Parties and shall be treated as an adjustment to the
Merger Consideration.
Exhibit A-34
12.5 Attorney Fees. Each Party shall bear its own attorney fees except in accordance with Section 12.4 above.
ARTICLE 13.
TERMINATION
13.1 Termination. This Agreement may be terminated, either before or after approval by the stockholders of
FNB Wiggins as follows:
a. Mutual Consent. At any time on or prior to the Effective Date, by the mutual consent in writing of a
majority of the members of each of the Board of Directors of the Parties hereto;
b. Expiration of Time. By the Board of Directors of Bancshares in writing or by the Board of Directors of
FNB Wiggins in writing, if the Bank Merger shall have not become effective on or before 5:00 p.m.
local time on September 30, 2006, unless the absence of such occurrence shall be due to the failure of
the Party seeking to terminate this Agreement to perform each of its obligations under this Agreement
required to be performed by it on or prior to the Effective Date;
c. Breach of Representation, Warranty or Covenant. By either Party hereto, in the event of a breach by the
other Party (i) of any covenant or agreement contained herein or (ii) of any representation or
warranty herein, if (A) the facts constituting such breach reflect a material and adverse change in
the financial condition, results of operations, business, or prospects taken as a whole, of the
breaching Party, which in either case cannot be or is not cured within sixty (60) days after written
notice of such breach is given to the Party committing such breach, or (B) in the event of a breach of
a warranty or covenant, such breach results in a material increase in the cost of the non breaching
Party's performance of this Agreement.
d. Regulatory Approval. By either Party hereto, at any time after any bank regulatory authority or United
States Department of Justice has denied any application for any approval or clearance required to be
obtained as a condition to the consummation of the Bank Merger and the time period for all appeals or
requests for reconsideration thereof has run.
Exhibit A-35
e. Shareholder Approval. By either Party hereto, if the Bank Merger is not approved by the required vote
of shareholders of FNB Wiggins.
f. Dissenters. By Bancshares, if holders of outstanding FNB Wiggins Common Stock exercise statutory rights
of dissent and appraisal pursuant to 12 U.S.C. § 215a, in such numbers as would disqualify the
transaction as a nontaxable reorganization under and in accordance with Sections 368(a)(1)(A) and
368(a)(2)(D) of the Code.
ARTICLE 14.
APPRAISAL RIGHTS
Notwithstanding any other provision of this Agreement to the contrary, dissenting stockholders of FNB
Wiggins who comply with the procedural requirements of 12 U.S.C. § 215a will be entitled to receive payment of
the fair cash value of their shares as provided therein.
ARTICLE 15.
MISCELLANEOUS
15.1 Entire Agreement. This Agreement embodies the entire understanding of the Parties in relation to the
subject matter herein and supersedes all prior understandings or agreements, oral or written, between the Parties
hereto.
15.2 Appointment of Representative. Each of the shareholders of FNB Wiggins immediately prior to the
Effective Date (except any shareholders who exercise their right to dissent according to 12 U.S.C. §§ 215 and
215a) shall, by virtue of the Bank Merger and without any further action on the part of such shareholders, be
deemed to have appointed H. F. Campbell or, in the event of his death, inability or unwillingness to act, B. H.
Bell, Jr., as such shareholder's agent and attorney-in-fact ("Representative") with respect to any and all
actions and decisions required or permitted to be made under the Escrow Agreement, and agrees to be bound by any
actions or decisions taken the Representative with respect thereto. The Representative shall have full power and
authority to act on behalf of each stockholder of FNB Wiggins described above, to take any and all actions on
behalf of, execute any and all instructions on behalf of, and to execute or waive any and all rights of such
stockholders under the Escrow Agreement. The Representative shall have no liability to any stockholder of FNB
Wiggins described above for any action taken or omitted to be taken on behalf of such stockholder pursuant to the
Escrow Agreement. The appointment of the Representative shall be irrevocable and is coupled with an interest,
except that a successor to the Representative may be appointed by a written instrument signed and acknowledged by
a majority in interest of such shareholders or their legal representatives, in form and substance reasonably
satisfactory to Bancshares and delivered to Bancshares. The Representative shall use reasonable efforts to keep
the former stockholders of FNB Wiggins described above informed or any material events occurring which may affect
such stockholder's right to receive any portion of the Escrow Fund.
15.3 Survival of Representations, Warranties and Agreements. None of the representations and warranties made
herein shall survive the Effective Date, or the earlier termination of this Agreement pursuant to Article 13
hereof, other than Section 5.8.
Exhibit A-36
15.4 Headings. The headings and subheadings in this Agreement, except the terms identified for definition in
Article 1 and elsewhere in this Agreement, are inserted for convenience only and shall not affect the meaning or
interpretation of this Agreement or any provision hereof.
15.5 Counterparts. This Agreement may be executed in any number of duplicate counterparts, each of which
shall be deemed an original and all of which when combined shall be deemed to be one original document.
15.6 Governing Law. This Agreement and the rights and obligations hereunder shall be governed and construed
by the laws of the State of Mississippi without regard to its conflicts of laws principles.
15.7 Successors: No Third Party Beneficiaries. All terms and conditions of this Agreement shall be binding
on the successors and assigns of the Parties. Except as otherwise specifically provided in this Agreement,
nothing expressed or referred to in this Agreement is intended or shall be construed to give any person other
than the Parties any legal or equitable right, remedy or claim under or in respect of this Agreement or any
provisions contained herein, it being the intention of the Parties hereto that this Agreement, the obligations
and statements of responsibilities hereunder, and all other conditions and provisions hereof are for the sole and
exclusive benefit of the Parties and for the benefit of no other person.
15.8 Modification; Assignment. No amendment or other modification of any part of this Agreement shall be
effective except pursuant to a written agreement subscribed by the duly authorized representatives of all of the
Parties hereto. This Agreement may not be assigned without the express written consent of both Parties.
15.9 Notice. Any notice, request, demand, consent, approval or other communication to any Party hereof shall
be effective when received and shall be given in writing, and delivered in person against receipt thereof, or
sent by certified mail, postage prepaid or courier service at its address set forth below or at such other
address as it shall hereafter furnish in writing to the others. All such notices and other communications shall
be deemed given on the date received by the addressee or its agent.
FNB Wiggins
First National Bank of Wiggins
124 Border Avenue
P.O. Box 307
Wiggins, Mississippi 39577-0307
Attn: Benny Bell, President & CEO
(Fax: 601-928-8300)
Copy to:
Granville Tate, Jr.
Brunini, Grantham, Grower & Hewes, PLLC
248 E. Capitol, Suite 1400
Jackson, Mississippi 39201
(Fax: 601-960-6902)
Exhibit A-37
Bancshares
The First Bancshares, Inc.
6480 U.S. Hwy 98 W.
Post Office Box 15549
Hattiesburg, Mississippi 39404-5549
Attn: David E. Johnson, Chairman and CEO
(Fax: 601-296-9207)
Copy to:
Craig N. Landrum
Watkins Ludlam Winter & Stennis, P.A.
P. O. Box 427
Jackson, Mississippi 39205-0427
or
633 North State Street
Jackson, Mississippi 39202
(Fax: 601-949-4804)
15.10 Waiver. The Parties may waive their respective rights, powers or privileges under this Agreement;
provided that such waiver shall be in writing; and further provided that no failure or delay on the part of a
Party to exercise any right, power or privilege under this Agreement will operate as a waiver thereof, nor will
any single or partial exercise of any right, power or privilege under this Agreement preclude any other or
further exercise thereof or the exercise of any other right, power or privilege by the Parties under the terms of
this Agreement, nor will any such waiver operate or be construed as a future waiver of such right, power or
privilege under this Agreement.
15.11 Costs, Fees and Expenses. Except as provided in Article 11 herein, each Party hereto agrees to pay all
costs, fees and expenses which it has incurred in connection with or incidental to the matters contained in this
Agreement, including without limitation any fees and disbursements to its accountants and counsel. Bancshares
will be responsible for preparing the applications, regulatory filings and Registration Statement necessary to
obtain approval of the Bank Merger and the issuance of the Bancshares Common Stock. FNB Wiggins will be
responsible for the cost of its accountants and legal counsel and will bear all costs related to conducting its
stockholders' meetings and obtaining stockholders' approval of the Bank Merger.
15.12 Press Releases. FNB Wiggins and Bancshares shall consult with each other as to the form and substance
of any press release related to this Agreement or the transactions contemplated hereby, and shall consult each
other as to the form and substance of other public disclosures related thereto, provided, however, that nothing
contained herein shall prohibit Bancshares, following notification to FNB Wiggins, from making any disclosures
which its counsel deems necessary to conform with requirements of law or the rules of the National Association of
Securities Dealers Automated Quotation System.
Exhibit A-38
15.13 Severability. If any provision of this Agreement is invalid or unenforceable then, to the extent
possible, all of the remaining provisions of this Agreement shall remain in full force and effect and shall be
binding upon the Parties hereto.
15.14 Mutual Covenant of Best Efforts and Good Faith. The Parties mutually covenant and agree with each other
that they will use their best efforts to consummate the transactions herein contemplated and that they will act
and deal with each other in good faith as to this Agreement and all matters arising from or related to it.
Exhibit A-39
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed by their duly
authorized representatives as of the date first above written.
FIRST NATIONAL BANK OF WIGGINS
By: /s/ B. H. Bell, Jr.
-----------------------------------------
Attest: Name: B. H. Bell, Jr.
Title: Chief Executive Officer and President
Name: /s/ Patricia B. Fiveash
----------------------------------------
(Seal)
THE FIRST BANCSHARES, INC.
By: /s/ Dee Dee Lowery
-----------------------------------------
Attest: Name: Dee Dee Lowery
Title: CFO & EVP
Name: /s/ Chandra B. Kidd
----------------------------------------
(Seal)
THE FIRST, A NATIONAL BANKING ASSOCIATION
By: /s/ Dee Dee Lowery
-----------------------------------------
Attest: Name: Dee Dee Lowery
Title: CFO & EVP
Name: /s/ Chandra B. Kidd
----------------------------------------
(Seal)
Exhibit A-40
EXHIBIT A
BANK MERGER AGREEMENT
This Bank Merger Agreement is made and entered into as of the ____ day of May, 2006, between The First,
A National Banking Association, Hattiesburg, Mississippi ("The First"), and First National Bank of Wiggins,
Wiggins, Mississippi, a national banking association ("FNB Wiggins") (the "Bank Merger Agreement").
WITNESSETH:
WHEREAS, The First and FNB Wiggins (collectively, the "Constituent Banks") and their respective Boards
of Directors deem it advisable that FNB Wiggins be merged with and into The First with The First as the survivor
(the "Bank Merger") pursuant to the provisions of 12 U.S.C. §§ 215 and 215a and upon the terms and conditions
hereinafter set forth and in the Agreement (as hereinafter defined); and;
WHEREAS, the Constituent Banks have entered into an Agreement and Plan of Merger dated as of the date
hereof (the "Agreement") (the defined terms in which are used herein as defined therein) setting forth certain
representations, warranties, covenants, and conditions relating to the Bank Merger;
NOW THEREFORE, the Constituent Banks hereby make, adopt and approve this Bank Merger Agreement and
prescribe the terms and conditions of the Bank Merger and the mode of carrying the Bank Merger into effect as
follows:
ARTICLE ONE
THE BANK MERGER
Upon the terms and subject to the conditions hereinafter set forth, and in the Agreement, on the
Effective Date (as defined in Article Two hereof) FNB Wiggins shall be merged with and into The First. Upon
consummation of the Bank Merger the separate corporate existence of FNB Wiggins shall cease and The First shall
continue as the surviving bank. The name of The First, as the surviving bank, shall by virtue of the Bank Merger
remain unchanged. On the Effective Date all of the assets and property of every kind and character, real,
personal and mixed, tangible and intangible, choses in action, rights, and credits then owned by FNB Wiggins, or
which would inure to it, shall immediately by operation of law and without any conveyance or transfer or without
any further action or deed, be vested in and become the property of The First, which shall have, hold, and enjoy
the same in its own right as fully and to the same extent as the same were possessed, held, and enjoyed by FNB
Wiggins prior to the Bank Merger; and The First shall be deemed to be and shall be a continuation of the original
entities and all of the rights and obligations of FNB Wiggins shall remain unimpaired, and The First, on the
Effective Date of the Bank Merger shall succeed to all such rights, obligations, duties and liabilities connected
therewith.
Exhibit A-41
ARTICLE TWO
EFFECTIVE DATE AND TIME
The Bank Merger shall be effective no earlier than the date and time specified or permitted by the
Office of the Comptroller of the Currency ("OCC") in a Certificate of Combination or other written record issued
by the OCC (the "Effective Date").
ARTICLE THREE
CONVERSION AND CANCELLATION OF SHARES
a. On the Effective Date, each share of Bancshares common stock, $1.00 par value ("Bancshares Common
Stock"), issued and outstanding immediately prior to the Effective Date shall remain outstanding and shall
represent one share of Bancshares Common Stock.
b. The aggregate consideration to holders of outstanding FNB Wiggins common stock ("FNB Wiggins
Common Stock") shall be Four Million One Hundred Fifty-two Thousand Four Hundred Dollars ($4,152,400) (the
"Merger Consideration"). The Merger Consideration represents One Hundred and Seventy-Five Dollars ($175.00) per
share of outstanding FNB Wiggins Common Stock. The Merger Consideration shall be comprised of fifty percent
(50%) cash or $87.50 per share of FNB Wiggins Common Stock (the "Cash Element"), and fifty percent (50%)
Bancshares Common Stock valued at $19 per share or 4.605 shares of Bancshares Common Stock for each share of FNB
Wiggins Common Stock (the "Stock Element"). As a result of the Bank Merger and subject to the limitations
provided for in Sections 3.1 through 3.3 of the Agreement, shares of FNB Wiggins Common Stock issued and
outstanding immediately prior to the Effective Date, other than dissenting shares, shall by virtue of the Bank
Merger be converted into and represent the right to receive the Stock Element, the cash payable in lieu of
fractional shares as set forth in Section (d), and the Cash Element less Seven Hundred and Eighty Thousand
Dollars ($780,000) in Consideration Deductions (which represents $32.873 per share of outstanding FNB Wiggins
Common Stock), which are defined as follows: (i) Two Hundred and Eighty Thousand Dollars ($280,000) which
represents a maximum of 50% of the cost of cancellation of FNB Wiggins' data processing contract with Brasfield
Technology, LLC; (ii) Two Hundred Thousand Dollars ($200,000) which represents a potential payment under that
certain Confidential Term Sheet between FNB Wiggins and Richton Bank & Trust Company dated January 20, 2006
("Prior Letter of Intent"); and (iii) Three Hundred Thousand Dollars ($300,000) to account for potential losses
related to the Mortgage Loan Purchase and Sale Agreements dated October 31, 20005 and December 16, 2005, copies
of which are attached as Schedule 3.1(b) to the Agreement. At the Effective Date, Bancshares shall deposit into
an escrow account cash in the amount of the Consideration Deductions (the "Escrow Fund") in accordance with the
terms of the Escrow Agreement attached hereto as Exhibit E. Upon termination of the Escrow Agreement in
accordance with the terms thereof, the balance remaining in the Escrow Fund shall be distributed to the holders
of FNB Wiggins Common Stock (other than holders of dissenting shares) in accordance with the terms of the Escrow
Agreement.
Exhibit A-42
As a result of the Bank Merger and without any action on the part of the holder thereof, all shares of
FNB Wiggins Common Stock shall cease to be outstanding and shall be canceled and retired and shall cease to
exist, and each holder of a certificate (a "Certificate") representing any shares of FNB Wiggins Common Stock
shall thereafter cease to have any rights with respect to such shares of FNB Wiggins Common Stock, except, as
applicable, the right to receive, without interest, Bancshares Common Stock and cash in accordance with this
Section (b) and cash for fractional shares of Bancshares Common Stock, if any, in accordance with Section (d)
upon the surrender of such Certificate......
c. Each share of FNB Wiggins Common Stock issued and held in FNB Wiggins' treasury, if any, at the
Effective Date shall, by virtue of the Bank Merger, cease to be outstanding and shall be canceled and retired
without payment of any consideration therefor.
d. No fractional shares of Bancshares Common Stock representing such fractional shares will be issued to
the holders of FNB Wiggins Common Stock. Instead, a shareholder otherwise entitled to receive such fractional
shares shall be entitled to a cash payment (without interest) as provided in the Agreement.
ARTICLE FOUR
EFFECTS OF BANK MERGER
The Bank Merger shall have the effects set forth in 12 U.S.C. §§ 215 and 215a. Upon the Effective Date,
the office of FNB Wiggins immediately before the Bank Merger becomes effective shall become a branch office of
The First.
ARTICLE FIVE
FILING OF ARTICLES OF MERGER
If this Bank Merger Agreement is approved by the shareholders of FNB Wiggins and The First, then the
fact of such approval shall be so certified by the Secretary or Assistant Secretary of the Constituent Banks, and
the appropriate documents shall be delivered to the OCC for filing and recordation in the manner required by law
ARTICLE SIX
MISCELLANEOUS
The obligations of the Constituent Banks to effect the Bank Merger shall be subject to all of the terms
and conditions of the Agreement. At any time prior to the Effective Date, this Bank Merger Agreement may be
terminated (a) by the mutual agreement of the Boards of Directors of the Constituent Banks, or (b) pursuant to
the terms and provisions of the Agreement.
Exhibit A-43
IN WITNESS WHEREOF, this Bank Merger Agreement is signed by a majority of the Directors of each of the
Constituent Banks as of the day first above written.
THE FIRST, A NATIONAL BANKING ASSOCIATION FIRST NATIONAL BANK OF WIGGINS
By a Majority of its Board of Directors By a Majority of its Board of Directors
/s/ David W. Bomboy /s/ B. H. Bell, Jr.
---------------------------------------- ------------------------------------------
David W. Bomboy B. H. Bell, Jr.
/s/ M. Ray Cole /s/ H. F. Campbell
---------------------------------------- ------------------------------------------
M. Ray Cole, Jr. H. F. Campbell
/s/ E. Ricky Gibson /s/ E. E. Danzey
---------------------------------------- ------------------------------------------
E. Ricky Gibson E. E. Danzey
/s/ David E. Johnson /s/ G. L. Price
---------------------------------------- ------------------------------------------
David E. Johnson G. L. Price
/s/ R. P. Regan, Jr.
---------------------------------------- ------------------------------------------
Peeler G. Lacey, M.D. R. P. Regan, Jr.
/s/ Charles Lightsey /s/ Durwood Stephens
---------------------------------------- ------------------------------------------
Charles Lightsey Durwood Stephens
/s/ Fred McMurry /s/ J. M. White
---------------------------------------- ------------------------------------------
Fred McMurry J. M. White
/s/ Gregory H. Mitchell (constituting of a majority of its Directors)
---------------------------------------- ------------------------------------------
Gregory H. Mitchell
/s/ Trent A.Mulloy
----------------------------------------
Trent A. Mulloy
/s/ Ted Parker
----------------------------------------
Ted Parker
/s/ Gerald C. Patch
----------------------------------------
Gerald C. Patch
----------------------------------------
Dennis Pierce
/s/ J. Douglas Seidenburg
----------------------------------------
J. Douglas Seidenourg
Exhibit A-44
/s/ Ralph T. Simmons
----------------------------------------
Ralph T. Simmons
/s/ A. L. Smith
----------------------------------------
A. L. Smith
/s/ Andrew D. Stetelman
----------------------------------------
Andrew D. Stetelman
(constituting of a majority of its Directors)
(Seal) (Seal)
Exhibit A-45
EXHIBIT "B"
FORM OF AFFILIATE AGREEMENT
(Date)
THE FIRST BANCSHARES, INC.
Post Office Box 15549
Hattiesburg, MS 39404-5549
Gentlemen:
I, the undersigned director, executive officer or significant stockholder of First National Bank of
Wiggins, Wiggins, Mississippi, a national banking association ("FNB Wiggins"), acknowledge and understand that,
as an affiliate of FNB Wiggins, Rule 145 promulgated under the Securities Act of 1933, as amended (the "Act"),
restricts my ability to sell, pledge, transfer or otherwise dispose of the shares of The First Bancshares, Inc.
("Bancshares") common stock ("Bancshares Common Stock") to be issued to me in connection with the Agreement and
Plan of Merger ("Agreement") between Bancshares, its subsidiary The First, A National Banking Association, and
FNB Wiggins, unless the requirements of Rule 145(d) are satisfied or the sale, transfer or disposition is
otherwise in compliance with the Act.
On the basis of the foregoing, and in consideration of the delivery to me of the Bancshares Common Stock
into which my FNB Wiggins common stock will be converted, I agree that:
1. I will not sell, transfer, pledge, alienate, encumber or otherwise dispose of said securities
in violation of the Act or rules of regulations promulgated thereunder.
2. I have no plan or intention to sell, transfer or otherwise dispose of a number of said
securities to be received pursuant to the Agreement that would reduce FNB Wiggins stockholders' ownership of the
Bancshares Common Stock to a number of shares having a value, as of the Effective Date (as defined in the Bank
Merger Agreement) of the Bank Merger (as defined in the Agreement), of less than 50% of the value of all of the
formerly outstanding FNB Wiggins common stock as of the same date.
3. I expressly agree to the placement of a restrictive legend on any and all certificates for
shares of Bancshares Common Stock to be received pursuant to the Bank Merger, to the effect that the shares were
received in a transaction to which Rule 145 applies, as follows:
"The shares represented by this certificate have been issued or transferred to
the registered holder as a result of a transaction to which Rule 145 under the
Securities Act of 1933, as amended (the "Act"), applies. The shares
represented by this certificate may not be sold, transferred, pledged or
assigned, and the issuer shall not be required to give effect to any attempted
sale, transfer or assignment, except in accordance with the requirements of
the Act and the other conditions specified in that certain Affiliate Agreement
dated as of _________________________, 2006 between the issuer and the
shareholder, a copy of which Affiliate Agreement will be furnished, without
charge, by The First Bancshares, Inc., to the holder of this certificate upon
written request therefor."
Exhibit A-46
4. I agree to be bound by the terms of this letter until the expiration of the time period set
forth in Rule 145(d)(2) or (3), whichever may apply.
________________________________________________
Exhibit A-47
EXHIBIT "C"
STATEMENT OF REPRESENTATIONS
Reference to the "Code" are to the Internal Revenue Code of 1986, as amended.
The following representations are being made by FNB Wiggins in connection with the Bank Merger:
1. The value of the Bancshares Common Stock and other consideration (collectively, the "Merger
Consideration") received by each FNB Wiggins shareholder in the Bank Merger exchange will be
approximately equal to the value of the FNB Wiggins Common Stock surrendered in the exchange.
2. Subsequent to initiation of merger discussions between Bancshares and FNB Wiggins, no FNB Wiggins
shareholder has had a portion of such shareholder's FNB Wiggins interest redeemed by FNB Wiggins, or
received a distribution with respect to its FNB Wiggins interest, and no corporation related to FNB
Wiggins within the meaning of Treasury Reg. § 1.368-1(e)(3)(i)(B) acquired any stock of FNB Wiggins held
by such FNB Wiggins shareholder, where such disposition or acquisition would reduce the aggregate value
of the Bancshares stock to be received by all such FNB Wiggins shareholders (with such value measured as
of the merger date) to an amount less than 45% of the value of the FNB Wiggins stock held by such
shareholders immediately before any of such distribution, disposition or acquisition.
3. The liabilities of FNB Wiggins assumed by Bank and the liabilities, if any, to which the transferred
assets of FNB Wiggins are subject, were incurred by FNB Wiggins in the ordinary course of its business.
4. FNB Wiggins and the shareholders of FNB Wiggins will pay their respective expenses, if any, incurred in
connection with the Bank Merger (subject to representation 12 below).
5. There is no intercorporate indebtedness existing between Bancshares or Bank and FNB Wiggins that was
issued, acquired, or will be settled at a discount.
6. FNB Wiggins is not an investment company as defined in Code Section 368(a)(2)(F)(iii) and (iv).
7. FNB Wiggins is not under the jurisdiction of a court in a Title 11 or similar case within the meaning of
section 368(a)(3)(A) of the Code.
8. The value of the assets of FNB Wiggins transferred to Bank will equal or exceed the sum of the
liabilities assumed by Bank, plus the amount of the liabilities, if any, to which the transferred assets
are subject.
9. None of the compensation received by any shareholder-employee of FNB Wiggins pursuant to any employment,
consulting or similar arrangement is or will be separate consideration for, or allocable to, any of his
shares of FNB Wiggins Common Stock; none of the shares of Bancshares Common Stock received by any
shareholder-employee of FNB Wiggins pursuant to the Bank Merger will be separate consideration for, or
allocable to, any employment agreement; and the compensation paid to any shareholder-employee of FNB
Wiggins pursuant to any employment, consulting or similar arrangement is or will be for services
actually rendered and will be commensurate with amounts paid to third parties bargaining at arm's-length
for similar services.
Exhibit A-48
The following representations are being made by Bancshares in connection with the Bank Merger:
1. The value of the Bancshares Common Stock portion of the Merger Consideration paid by Bancshares in the
Bank Merger will, on the Effective Date, constitute at least forty-five percent (45%) of the fair market
value of the Merger Consideration paid by Bancshares in the Bank Merger.
2. Bancshares has no plan or intention to reacquire any of the Bancshares Common Stock issued in the Bank
Merger.
3. Bancshares has no plan or intention to sell or otherwise dispose of any of the assets of FNB Wiggins
acquired in the Bank Merger, except for dispositions made in the ordinary course of business or
transfers described in section 368(a)(2)(C) of the Code.
4. Following the Bank Merger, Bancshares will continue the historic business of FNB Wiggins or use a
significant portion of FNB Wiggins' historic business assets in a business.
5. Bancshares, FNB Wiggins and the stockholders of FNB Wiggins will pay their respective expenses, if any,
incurred in connection with the Bank Merger (subject to representation 8 below).
6. There is no intercorporate indebtedness existing between Bancshares and FNB Wiggins or between Bank and
FNB Wiggins that was issued, acquired, or will be settled at a discount.
7. Bancshares is not an investment company as defined in Code section 368(a)(2)(F)(iii) and (iv).
8. Bancshares will pay or assume only those expenses of FNB Wiggins that are solely and directly related to
the Bank Merger in accordance with the guidelines established in Rev. Rul. 73-54, 1973-1 C.B. 187.
Exhibit A-49
EXHIBIT "D"
FORM OF JOINDER OF SHAREHOLDERS
The undersigned shareholder of First National Bank of Wiggins ("FNB Wiggins"), in consideration of the
benefits to be derived by FNB Wiggins and its stockholders pursuant to an Agreement and Plan of Merger dated May
19, 2006 (the "Agreement") by and between FNB Wiggins, The First Bancshares, Inc. ("Bancshares"), and The
First, A National Banking Association ("The First") (the defined terms in which are used herein as defined
therein) and the expenses to be incurred by Bancshares in connection therewith, hereby agrees with Bancshares as
follows:
1. Such shareholder, acting solely in such shareholder's capacity as such, agrees and undertakes
to vote or cause to be voted all shares of FNB Wiggins Common Stock as to which such shareholder has voting power
at any meeting or meetings (including any and all adjournments thereof) before which the Agreement or any similar
agreement may come for consideration by FNB Wiggins shareholders, in favor of the approval of the Agreement and
the Bank Merger Agreement, and against any similar agreement, unless Bancshares then is in breach or default in
any material respect with respect to any covenant, representation or warranty as to it contained in the Agreement
to an extent that would permit FNB Wiggins to terminate the Agreement pursuant to Section 13.1 of the Agreement.
Such shareholder further agrees not to transfer any of the shares of FNB Wiggins Common Stock over which such
shareholder has dispositive power or grant any proxy thereto (except any such proxy approved by Bancshares) until
the earlier of the Effective Date or the date that the Agreement has been terminated pursuant to its provisions,
except (i) for transfers by operation of law, and (ii) for transfers in connection with which the transferee
shall agree in writing with Bancshares to be bound by this Joinder as fully as the undersigned. In the case of
any transfer by operation of law, the provisions of this Joinder of Shareholders are intended to be binding upon
and to inure to the benefit of such transferee, and such transferee shall be bound thereby.
2. The provisions of this Joinder shall be enforceable through an action by Bancshares for damages
at law or a suit for specific performance or other appropriate extraordinary relief, the signatory shareholder
acknowledging that remedies at law for breach or default under this Joinder might be or become inadequate.
All provisions hereof shall survive the Effective Date of the Bank Merger.
This Joinder is executed by the undersigned on ______________, 2006.
Signature(s) of Shareholder(s)
________________________________________________________
________________________________________________________
Exhibit A-50
EXHIBIT "E"
ESCROW AGREEMENT
THIS ESCROW AGREEMENT (this "Agreement") is made this ____ day of ___________, 2006, by and among (a)
First National Bank of Wiggins, Wiggins, Mississippi, a national banking association ("FNB Wiggins"), (b) The
First Bancshares, Inc., Hattiesburg, Mississippi, a Mississippi corporation and registered bank holding company
("Bancshares"), (c) The First, A National Banking Association, Hattiesburg, Mississippi, a wholly-owned subsidiary
of Bancshares ("The First"), and (d) H. F. Campbell, an individual residing in Wiggins, Mississippi (the
"Representative"). Capitalized terms used but not otherwise defined herein shall have the respective meanings
given such terms in the Plan of Merger (as defined below).
WHEREAS, Bancshares, The First, and FNB Wiggins have entered into an Agreement and Plan of Merger (the
"Plan of Merger"), pursuant to which FNB Wiggins shall be merged with and into The First in accordance with 12
U.S.C. §§ 215 and 215a (the "Bank Merger"), and the shareholders of FNB Wiggins immediately prior to the
Effective Time will be entitled to receive (a) cash and Bancshares common stock, plus (b) the right to receive a
pro rata portion of the Escrow Funds (as defined below) remaining upon termination of this Agreement;
WHEREAS, the Representative has been duly authorized pursuant to the Plan of Merger to act on behalf of
the holders of shares of FNB Wiggins Common Stock;
WHEREAS, FNB Wiggins hereby acknowledges that, prior to the date of the Plan of Merger, it entered into
the following arrangements which may cause it to incur certain losses: (a) that certain data processing agreement
with Brasfield Technology, LLC; (b) that certain Confidential Term Sheet with Richton Bank & Trust Company
("Richton") dated January 20, 2006; and (c) those certain Mortgage Loan Purchase and Sale Agreements dated October
31, 2005 and December 16, 2005 between FNB Wiggins and SNGC, LLC, copies of which are attached as Schedule 3.1(b)
to the Agreement (collectively, "Potential Losses"); and
WHEREAS, the Plan of Merger provides that, on the Effective Date, Bancshares shall, among other things,
place into escrow pursuant to the terms of this Agreement an amount in cash as described in Section 2(a) of this
Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual covenants, representations,
warranties and agreements herein contained, the parties hereto do hereby agree as follows:
1. Appointment of Escrow Agent. Bancshares and FNB Wiggins hereby designate and appoint The First as
escrow agent (in such capacity, the "Escrow Agent") to serve in accordance with the terms and conditions of this
Agreement, and the Escrow Agent hereby agrees to act as such, upon the terms and conditions provided in this
Agreement.
Exhibit A-51
2. Creation and Administration of Escrow Fund.
(a) Deposit of Escrow Fund. Concurrently with the execution and delivery of this Agreement, Bancshares shall
place or cause to be placed into an escrow account at The First (the "Escrow Account") an amount in cash equal to
Seven Hundred and Eighty Thousand Dollars ($780,000). The amount deposited in the Escrow Account is broken down
into three classes of Potential Losses: (i) $280,000 related to termination of the Brasfield Technology, LLC
Agreement; (ii) $200,000 related to Richton; and (iii) $300,000 related to the Mortgage Loan Purchase and Sale
Agreements. The amount deposited into the Escrow Account, together with any proceeds of investments thereof and
less any distributions therefrom in accordance with the terms of this Agreement, are hereinafter referred to
collectively as "Escrow Funds." The Escrow Agent shall keep appropriate records to reflect the current value
from time to time of the Escrow Funds, including appropriate adjustments for disbursements and income earned or
losses in respect thereof. Subject to the Escrow Agent's right to resign pursuant to Section 5(b), all Escrow
Funds shall be held by the Escrow Agent pursuant to this Agreement as recourse for certain claims pursuant to
Section 3(a) of this Agreement. Without limiting the foregoing, the Escrow Agent will not make any payment or
distribution of Escrow Funds except as and in the manner expressly provided by this Agreement.
(b) Rights in Remaining Escrow Funds. On satisfaction of a condition set forth in Section 6(a), each holder
of FNB Wiggins Common Stock immediately prior to the Effective Date (other than Dissenting Shares) (collectively,
the "Shareholders") shall be entitled to receive a pro rata portion of the Escrow Funds released equal to (i) the
number of shares of FNB Wiggins Common Stock held by such shareholder as of immediately prior to the Effective
Date, divided by (ii) the number of shares of FNB Wiggins Common Stock outstanding immediately prior to the
Effective Date.
(c) Rights to Escrow Funds. None of Bancshares, the Shareholders, the Representative or any of their
respective affiliates shall have any right, title or interest in or possession of any of the Escrow Funds and
shall not pledge, convey, hypothecate or grant a security interest in any portion of the Escrow Funds. The
Escrow Agent will not act or be deemed to act as custodian for any party for purposes of perfecting a security
interest therein.
(d) Payments from Escrow Account. Except as expressly provided in Section 6 and elsewhere in this
Agreement, any distribution, payment or disposition of any Escrow Funds by the Escrow Agent shall be made by the
Escrow Agent only in accordance with Section 3. Any payment to be made by the Escrow Agent pursuant to this
Agreement shall be made by check or wire transfer (upon receipt of written wire transfer instructions of the
recipient) out of the Escrow Account, and the Escrow Agent shall make such payment out of and to the extent of
any cash on hand from the Escrow Account before liquidating any investments to obtain cash to make such payment.
(e) Investment of Escrow Funds. The Escrow Agent will invest any funds in the Escrow Account in investments
of a type described in the following clauses: (i) direct obligations of the United States or any agency thereof,
or obligations guaranteed by the United States or any agency thereof; (ii) commercial paper rated at least A-I by
Standard & Poor's Corporation and P-I by Moody's Investors Service, Inc.; (iii) time deposits with, including
certificates of deposit issued by, any office located in the United States of any bank or trust company which is
organized under the laws of the United States or any State thereof which has capital, surplus and undivided
profits aggregating at least $10,000,000; or (iv) repurchase agreements.
Exhibit A-52
3. Purpose, Disposition and Use of Escrow Funds.
(a) Purpose of Escrow. Bancshares shall be entitled to recover from the Escrow Funds the amount of any
loss, liability, damage, cost or expense (including reasonable attorneys' fees) suffered or incurred by The First
(as successor to FNB Wiggins) or any of its affiliates as a result of the Potential Losses accruing into actual
losses ("Actual Losses") after the Closing Date, including without limitation, any collection costs or expenses
paid by The First or any of its Affiliates in connection with the Potential Losses. Notwithstanding the
foregoing, Bancshares shall only be entitled to that portion of the Escrow Fund reserved for the particular class
of Potential Losses which accrues into an Actual Loss. For example, the maximum portion of the Escrow Fund which
may be released to Bancshares by the Escrow Agent for a claim of Actual Loss attributable to the Richton
Potential Loss is $200,000 plus any interest earned on such amount of the Escrow Fund prior to release.
(b) Notice of Claim. If Bancshares shall be entitled to any payment from the Escrow Fund under Section
3(a), Bancshares shall notify the Escrow Agent and the Representative in writing of such claim (the "Escrow
Notice"), which notice shall describe the nature of the Potential Losses, the facts and circumstances asserted by
Bancshares that give rise to such claim of Actual Losses and the amount of such Actual Losses. Within 5 days
after the date on which such Escrow Notice is given, the Escrow Agent shall make payment of such claim (limited
to the amounts for each class of Potential Losses as set forth in Section 3(a)) to Bancshares or set aside and
establish a reserve in the amount reasonably estimated by Bancshares as set forth above.
4. Representative. Shareholders pursuant to the Plan of Merger have appointed H. F. Campbell (or in the
event of his death, inability or unwillingness to act, B. H. Bell, Jr.), as the Representative, and hereby
authorize and empower the Representative to make, execute and deliver any and all instruments, papers and
documents, and to do and perform any and all acts and things, of every conceivable kind and character whatsoever
which the Shareholders, or their successors or assigns, could make, execute or deliver, or do or perform, if
personally present and acting, including, without limitation, full and complete power and authority to obtain the
advice of legal counselors or others, to agree with Bancshares to any changes, alterations, modifications or
amendments to this Agreement, and otherwise to do and perform any and all acts and things, and to incur any and
all costs, charges and expenses as the Representative shall, in his sole discretion, deem necessary, advisable or
appropriate to carry out and perform his duties and responsibilities under this Agreement. It is the intent of
this Agreement to confer upon the Representative the fullest, most complete and unrestricted power and authority
of which it is possible to conceive, and which is delegable, and the Representative may exercise any and all such
power and authority as the Representative in his sole discretion shall determine. The power and authority granted
to the Representative hereby is intended to be and shall be a power coupled with an interest, and shall not be
revoked by the dissolution, death or incompetence of any Shareholder.
5. Escrow Agent.
(a) Protection of Escrow Agent. In consideration of this escrow by the Escrow Agent, the parties agree that:
(i) either Bancshares or the Representative may examine the Escrow Account at any time during
regular business hours and upon prior notice at the office of the Escrow Agent, and the Escrow Agent shall periodically
provide a written accounting of the Escrow Account to Bancshares and the Representative in accordance with the
Escrow Agent's standard practices, but in no event less often than monthly;
Exhibit A-53
(ii) the Escrow Agent's duties and responsibilities shall be limited to those expressly set forth in
this Agreement, and the Escrow Agent shall not be subject to, nor obliged to recognize, any other agreement between,
or direction or instruction of, any or all of the parties hereto even though reference thereto may be made
herein; provided, however, that this Agreement may be amended at any time or times in accordance with Section
7(f);
(iii) subject to Section7(d), no assignment of the interest of any of the parties or their successors shall
be binding upon the Escrow Agent unless and until written evidence of such assignment in form satisfactory to Escrow
Agent shall be filed with and accepted by Escrow Agent;
(iv) the Escrow Agent shall exercise the same degree of care toward the Escrow Funds as it exercises
toward its own similar property or similar property held in escrow for the account of others (whichever degree of care
is higher), and shall not be held to any higher standard of care under this Agreement;
(v) the Escrow Agent makes no representation as to the validity, value, genuineness or collectibility of
any security or other document or instrument held by or delivered to it;
(vi) the Escrow Agent shall not be called upon to advise any party as to selling or retaining, or taking
or refraining from taking any action with respect to, any securities or other property deposited hereunder;
(vii) the Escrow Agent shall be entitled to rely upon any order, judgment, certification, instruction,
notice or other writing delivered to it in compliance with the provisions of this Agreement without being required to
determine the authenticity or the correctness of any fact stated therein or the propriety or validity of service
thereof;
(viii) the Escrow Agent may act in reliance upon any instrument comporting with the provisions of
this Agreement or signature believed by it to be genuine and may assume that any Person purporting to give notice or
receipt or advice or make any statement or execute any document in connection with the provisions hereof has been
duly authorized to do so;
(ix) the Escrow Agent may act pursuant to the advice of counsel chosen by it with respect to any
matter relating to this Agreement and shall not be liable for any action taken or omitted in accordance with such advice;
(x) notwithstanding anything herein to the contrary, the Escrow Agent shall be under no duty to monitor
or enforce compliance by any Person with any term or provision of the Plan of Merger;
(xi) if the Escrow Agent shall be uncertain as to its duties or rights hereunder or shall
receive instructions from any of the undersigned with respect to any property held by it in escrow pursuant to this
Agreement which, in the opinion of the Escrow Agent, are in conflict with any of the provisions of this Agreement
or the Plan of Merger, the Escrow Agent shall be entitled to refrain from taking any action until it shall be
directed otherwise by a writing executed by Bancshares and the Representative;
Exhibit A-54
(xii) if the Escrow Agent becomes involved in litigation in connection with this Agreement, it shall have
the right to retain counsel, and shall be reimbursed for all reasonable costs and expenses, including its reasonable
attorneys' fees and expenses, incurred in connection therewith out of the Escrow Funds; provided, however, that
the Escrow Agent shall not be entitled to any reimbursement for its fees and expenses incurred as a result of its
negligence or willful misconduct;
(xiii) the Escrow Agent may, in its sole and absolute discretion, resign in a manner consistent with
Section 5(b); and
(xiv) Bancshares and the Representative may jointly remove and replace the Escrow Agent at any time,
subject to the provisions of Section 5(b) and Section 5(c).
(b) New Escrow Agent. If the Escrow Agent shall be removed as escrow agent by Bancshares and the
Representative or shall resign or otherwise cease to act as escrow agent, Bancshares and the Representative shall
mutually agree upon a successor which successor shall be deemed to be the Escrow Agent for all purposes of this
Agreement. If a successor Escrow Agent has not been appointed and accepted such appointment by the end of the
30-day period following such removal, resignation or cessation, the Escrow Agent may apply to any court in which
it is permitted to commence litigation for the appointment of a successor Escrow Agent and deposit the Escrow
Funds with the then chief or presiding judge of such court (and upon so depositing such property and filing its
complaint in interpleader, it shall be relieved of all liability under the terms hereof as to the property so
deposited), and the costs, expenses and reasonable attorneys' fees which the Escrow Agent incurs in connection
with such a proceeding shall be paid out of the Escrow Funds. The removal, resignation or other ceasing to act as
escrow agent by the Escrow Agent or any successor thereto shall have no effect on this Agreement or any of the
rights of the parties hereunder, all of which shall remain in full force and effect.
(c) Survival-of-Obligations. The agreements contained in Section 5(a) and Section 5(b) shall survive
termination of this Agreement and, with respect to any Escrow Agent, the withdrawal or removal of such Escrow
Agent.
6. Final Distribution and Termination of Escrow Account.
(a) Automatic Distribution. A distribution of any portion of the Escrow Fund remaining after the payment of
any Actual Loss shall be made by class of Potential Losses as set forth in Section 3(a) upon the occurrence of
each of the following events: (i) the date of the execution of a settlement and release or the entering of a
final judgment with regards to any amounts owed by FNB Wiggins to Brasfield Technology, LLC, for termination fees
related to the above referenced data processing agreement, (ii) the date of the execution of a settlement and
release or the entering of a final judgment with regards to any suit brought by Richton against FNB Wiggins, if
any; or (iii) December 16, 2006 as relates to the Mortgage Loan Purchase and Sale Agreement. However,
notwithstanding the foregoing, all funds remaining in the Escrow Fund on May 19, 2008 (such date, the
"Termination Date"), shall be distributed in accordance with Section 3(b). Such funds shall be distributed in
accordance with Section 2(b). Any funds then included in the Escrow Funds, or then held by the Escrow Agent to
fund any reserve set aside and established prior to the Termination Date, that is not so distributed, shall be
retained by the Escrow Agent until such time as (i) any and all such claims that have not been paid, or fully
reserved against, on or prior to the Termination Date, shall have been paid, and (ii) any and all funds held by
the Escrow Agent to fund any and all reserves set aside and established pursuant to this Agreement on or prior to
the Termination Date shall have been disbursed for the purposes for which such reserves were respectively
created, or determined by the mutual agreement of Bancshares and the Representative not to be required for such
purpose, at which time all of the remaining Escrow Funds shall be distributed in accordance with Section 2(b).
Exhibit A-55
(b) Termination by Agreement. This Agreement may be terminated at any time by and upon the receipt by the
Escrow Agent of a written notice of termination executed by Bancshares and the Representative directing the
Escrow Agent to dispose of any assets that are part of the Escrow Funds pursuant to the terms of this Agreement
and to distribute the Escrow Funds in accordance with such directions.
(c) Automatic Termination for Lack of Funds. This Agreement shall automatically terminate when all of the
Escrow Funds shall have been distributed, or otherwise disposed of, by the Escrow Agent in accordance with the
terms of this Agreement.
7. Miscellaneous.
(a) Notices. All notices, requests, demands and other communications which are required or permitted
hereunder shall be in writing and shall be deemed to have been duly given (i) when received if personally
delivered; (ii) when transmitted if transmitted by telecopy, electronic or digital transmission method and an
appropriate confirmation is received; (iii) the day after it is sent, if sent for next day delivery to a domestic
address by recognized overnight delivery service (e.g., Federal Express); and (iv) upon receipt, if sent by
certified or registered mail, return receipt requested. In each case, such notices, requests, demands and other
communications shall be addressed as follows:
If to The First (as Escrow Agent) or to Bancshares, to:
The First Bancshares, Inc.
6480 U.S. Hwy 98 W.
Post Office Box 15549
Hattiesburg, Mississippi 39404-5549
Attn: David E. Johnson, Chairman and CEO
(Fax: 601-296-9207)
With a required copy to:
Craig N. Landrum
Watkins Ludlam Winter & Stennis, P.A.
P. O. Box 427
Jackson, Mississippi 39205-0427
or
633 North State Street
Jackson, Mississippi 39202
(Fax: 601-949-4804)
Exhibit A-56
If to the Representative, to:
H. F. Campbell
713 W. Border Avenue
Wiggins, Mississippi 39577
____________________
With a required copy to:
Granville Tate, Jr.
Brunini Grantham Grower & Hewes, PLLC
248 E. Capitol Street, Suite 1400
Jackson, Mississippi 39201
(Fax: 601-960-6902)
(b) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the
State of Mississippi applicable to agreements made and entirely to be performed within such jurisdiction except
to the extent federal law may be applicable.
(c) Counterparts. This Agreement may be executed in separate counterparts, each of which will be an original
and all of which taken together will constitute one and the same agreement.
(d) Successors and Assigns. Neither Bancshares nor the Representative shall assign or agree to assign or
grant to any other party any rights under this Agreement (including, without limitation, any rights in or to the
Escrow Funds) without the prior written consent of the other parties hereto, and this Agreement shall be binding
upon, and inure to the benefit of, the parties hereto and their respective successors, heirs, personal
representatives and permitted assigns.
(e) Specific Performance. The obligations of the parties hereto (including the Escrow Agent) are unique in
that time is of the essence, and any delay in performance hereunder by any party will result in irreparable harm
to the other parties hereto. Accordingly, any party may seek specific performance and/or injunctive relief
before any court of competent jurisdiction in order to enforce this Agreement or to prevent violations of the
provisions hereof, and no party shall object to specific performance or injunctive relief as an appropriate
remedy. The Escrow Agent acknowledges that its obligations, as well as the obligations of Bancshares and the
Representative hereunder, are subject to the equitable remedy of specific performance and/or injunctive relief.
(f) Amendment, Waiver, etc. This Agreement may only be amended, modified, altered or revoked by a written
instrument signed by Bancshares and by the Representative; provided that no amendment or modification will be
made to Section 5 without the written consent of the Escrow Agent. Bancshares and the Representative hereby agree
to give the Escrow Agent advance notice of any amendment or modification to this Agreement and to provide the
Escrow Agent promptly with copies of any such amendment or modification.
Exhibit A-57
IN WITNESS WHEREOF, this Agreement has been signed on behalf of each of the parties hereto as of the
date first written above.
FIRST NATIONAL BANK OF WIGGINS
By:
------------------------------------------
Name: B. H. Bell, Jr.
Title: Chief Executive Officer and President
THE FIRST BANCSHARES, INC.
By:
------------------------------------------
Name:
------------------------------------------
Title:
------------------------------------------
THE FIRST, A NATIONAL BANKING ASSOCIATION
By:
------------------------------------------
Name:
------------------------------------------
Title:
------------------------------------------
H. F. CAMPBELL, REPRESENTATIVE
Signature:
-------------------------------------
H. F. Campbell
Exhibit A-58
SCHEDULE 3.1(b)
FNB WIGGINS' LOAN PACKAGE
1. See attached Mortgage Loan Purchase and Sale Agreements dated October 31, 2005 and December 16, 2005
between FNB Wiggins and SNGC, LLC.
Exhibit A-59
SCHEDULE 5.1(p)
FNB WIGGINS' CHANGE OF CONTROL PAYMENTS
1. None.
Exhibit A-60
SCHEDULE 6.9
FNB WIGGINS' LITIGATION AND PROCEEDINGS
1. Pending case styled The Estate of Doyle Sellars v. Life of Mississippi and First National Bank of Wiggins.
All filings, claims, counterclaims, etc. have been reviewed and made fully available to management of Bank.
Copies of all documentation, pleadings, correspondence, and other documents pertaining to the case have been
provided to Bank.
Exhibit A-61
SCHEDULE 6.11
FNB WIGGINS' CONTINGENT LIABILITIES
1. Costs involved in terminating the contract between FNB Wiggins and Brasfield Technology, LLC. Contract
stipulates that all disputes shall be resolved through arbitration. A copy of the contract has been
provided to Bank.
2. Any damages owed by FNB Wiggins as a result of the termination of the Prior Letter of Intent. A copy of
the Prior Letter of Intent has been provided to Bank.
Exhibit A-62
SCHEDULE 6.12
FNB WIGGINS' TITLE TO ASSETS; ADEQUATE INSURANCE COVERAGE
1. None.
2. The insurance policy covering the assets of FNB Wiggins is currently underwritten by Stone Insurance
Agency, 132 Vardaman Street, Wiggins, MS 39577, and will be made available to Bank upon request.
Exhibit A-63
SCHEDULE 6.18(a)
FNB WIGGINS' EMPLOYMENT CONTRACTS
1. None.
Exhibit A-64
SCHEDULE 6.18(b)
FNB WIGGINS' ARRANGEMENTS WITH
OFFICERS, DIRECTORS, EMPLOYEES, AND CONSULTANTS
1. Consulting Agreement with Buddy Lewis.
Exhibit A-65
SCHEDULE 6.24
FNB WIGGINS' ENVIRONMENTAL MATTERS
1. None.
Exhibit A-66
SCHEDULE 7.6
BANCSHARES' LOANS SUBJECT TO COUNTERCLAIMS
1. None.
Exhibit A-67
SCHEDULE 7.7
BANCSHARES' LITIGATION
Exhibit A-68
SCHEDULE 7.8
BANCSHARES' CONTINGENT LIABILITIES
Exhibit A-69
SCHEDULE 7.13
BANCSHARES' TITLE TO ASSETS; ADEQUATE INSURANCE COVERAGE
Exhibit A-70
SCHEDULE 11.1
OFFICERS AND EMPLOYEES OF FNB WIGGINS NOT RETAINED
Exhibit A-71
EXHIBIT B
FAIRNESS OPINION
Agreement and Plan of Merger
By and Among
THE FIRST BANCSHARES, INC.
THE FIRST, A NATIONAL BANKING ASSOCIATION
AND
FIRST NATIONAL BANK OF WIGGINS
Dated as of May 19, 2006
Report Dated
July 31, 2006
Exhibit B-1
July 31, 2006
Board of Directors
First National Bank of Wiggins
Wiggins, Mississippi
RE: Fairness Opinion Relative to the Agreement and Plan of Merger by and among The First Bancshares,
Inc., The First, A National Banking Association, and First National Bank of Wiggins Dated May 19,
2006 (the "Merger Agreement")
Directors:
The Board of Directors of First National Bank of Wiggins ("FNB Wiggins") retained Southard Financial, in its
capacity as a financial valuation and consulting firm, to render its opinion of the fairness, from a financial
viewpoint, of the merger of FNB Wiggins with and into The First, A National Banking Association ("The First")
(the "Merger"), a wholly-owned national bank subsidiary of The First Bancshares, Inc. ("First Bancshares").
Southard Financial and its principals have no past, present, or future contemplated financial, equity, or other
interest in either FNB Wiggins, The First, or First Bancshares. This opinion is issued based upon financial data
as of June 30, 2006 for FNB Wiggins, The First, and First Bancshares.
Southard Financial is a financial valuation consulting firm specializing in the valuation of closely-held
companies and financial institutions. Since its founding in 1987, Southard Financial has provided over 3,000
valuation opinions for clients in 43 states. Further, Southard Financial provides valuation services and fairness
opinions for approximately 130 financial institutions annually. Southard Financial is independent of the parties
to the merger.
Approach to Assignment
The key consideration in this fairness opinion is the adequacy of the total price paid in the Merger. Under the
terms of the Merger, the shareholders of FNB Wiggins will receive a total consideration of $4,152,400 for all of
the outstanding shares of common stock of FNB Wiggins ("FNB Wiggins Common Stock"). FNB Wiggins shareholders
will receive 4.605 shares of First Bancshares common stock ("First Bancshares Common Stock") and $87.50 in cash
for each share of FNB Wiggins Common Stock. The consideration equates to approximately $175.00 per share of FNB
Wiggins Common Stock, assuming a value of $19.00 per share for First Bancshares Common Stock. However, it should
be noted that the First Bancshares Common Stock (NASDAQ: FBMS) has traded above $19.00 per share since the
2-for-1 stock split on March 16, 2006. Since that time, daily closing prices ranged from $20.00 to $26.65 per
share, and average daily volume was low at just 642 shares. FNB Wiggins Common Stock is not listed or traded on
any exchange.
Exhibit B-2
The approach to this assignment was to consider the following factors:
• A review of the financial performance and position of FNB Wiggins and the value of its common stock;
• A review of the financial performance and position of First Bancshares and the value of its common stock;
• A review of recent bank merger transactions;
• A review of the current and historical market prices of banks and bank holding companies in Mississippi
and surrounding states;
• A review of the investment characteristics of the common stock of FNB Wiggins and First Bancshares;
• A review of the Agreement and Plan of Merger between First Bancshares, The First, and FNB Wiggins;
• An evaluation of the impact of the Merger on the expected return to the current shareholders of FNB
Wiggins; and,
• An evaluation of other factors as was considered necessary to render this opinion.
It is Southard Financial's understanding that the Merger and resulting exchange of the outstanding FNB Wiggins
Common Stock for shares of First Bancshares Common Stock constitutes a non-taxable exchange for Federal income
tax purposes. The exchange of FNB Wiggins Common Stock for cash may have tax consequences. Because the form of
consideration to be received by shareholders of FNB Wiggins will include a combination of cash and First
Bancshares Common Stock, the transaction may have tax consequences for all shareholders of FNB Wiggins.
DUE DILIGENCE REVIEW PROCESS
Review of First National Bank of Wiggins
Southard Financial reviewed the following information pertaining to FNB Wiggins:
1. Uniform Bank Performance Report ("UBPR") of First National Bank of Wiggins for the periods ended
December 31, 2000-05, and March 31, 2006.
2. Internal financial statements of First National Bank of Wiggins for the period ended June 30, 2006.
3. First National Bank of Wiggins Projected Financial Statements for 2006.
4. Additional pertinent information deemed necessary to render this opinion.
Southard Financial visited with the management of FNB Wiggins in Wiggins, Mississippi. Discussions included
questions regarding the current and historical financial position and performance of FNB Wiggins, its outlook for
the future, and other pertinent factors.
Review of The First Bancshares, Inc.
Southard Financial reviewed the following information pertaining to First Bancshares and The First:
1. Annual Report, including audited financial statements, of The First Bancshares, Inc. for the years ended
December 31, 2003-05.
2. Uniform Bank Performance Report ("UBPR") of The First, a National Banking Association for the periods
ended December 31, 2001-05, and March 31, 2006.
3. Consolidated Financial Statements for Bank Holding Companies (FR Y-9C) of The First Bancshares, Inc. for
the periods ended December 31, 2003-05.
4. SEC Form 10-KSB of The First Bancshares, Inc. for the year ended December 31, 2005.
5. SEC Form 10-QSB of The First Bancshares, Inc. for the quarter ended March 31, 2006 and draft summary for
the quarter ended June 30, 2006.
6. Bank Holding Company Performance Report of The First Bancshares, Inc. for the periods ended December 31,
2003-05.
7. 2006 Budget of The First, a National Banking Association.
8. Additional pertinent information deemed necessary to render this opinion.
Southard Financial visited with the management of First Bancshares and The First in Hattiesburg, Mississippi.
Discussions included questions regarding the current and historical financial position and performance of First
Bancshares, its outlook for the future, and other pertinent factors.
Exhibit B-3
Merger Documentation Southard Financial reviewed the Merger Agreement and its predecessor Letter of Intent dated March 20, 2006. Appropriate aspects of the Merger Agreement were discussed with the management of FNB Wiggins and First Bancshares. Southard Financial also reviewed pro forma financial statements for the combination of The First and FNB Wiggins as of March 31, 2006 and "one year out." Limitations of Analysis Although discussions with management and supporting documentation give Southard Financial comfort that its due diligence efforts were appropriate, Southard Financial has not conducted a physical examination of all FNB Wiggins' properties or facilities and has not obtained or been provided with any formal evaluation of such properties and facilities. Southard Financial has reviewed the financial information and other internal data provided, as well as other publicly available information, and while unable to verify the accuracy and completeness of such data and information, Southard Financial has judged the reasonableness thereof and made certain judgments thereto. The opinion is necessarily based upon market, economic and other considerations as they exist on, and can be evaluated as of the date of this letter. Further, Southard Financial is not expressing any opinion as to the actual value of the First Bancshares Common Stock when issued to FNB Wiggins' shareholders pursuant to the Merger, or the price at which shares of First Bancshares Common Stock will trade subsequent to the Merger. MAJOR CONSIDERATIONS Numerous factors were considered in the overall review of the proposed Merger. The review process included considerations regarding FNB Wiggins, First Bancshares, The First, and the proposed Merger. The major considerations are as follows: First National Bank of Wiggins • Historical earnings and dividend payments; • Outlook for future performance, earnings, and dividends; • Economic conditions and outlook in FNB Wiggins' market; • The competitive environment in FNB Wiggins' market; • Comparisons with peer banks and bank holding companies; • Potential risks in the loan and securities portfolios; • Recent minority stock transactions in FNB Wiggins Common Stock; • Regulatory actions, such as the mandate by the OCC to sell FNB Wiggins; and, • Other such factors as were deemed appropriate in rendering this opinion. The First Bancshares, Inc. • Historical earnings and dividend payments; • Outlook for future performance, earnings, and dividends; • Economic conditions and outlook in The First's market; • The competitive environment in The First's market; • Comparisons with peer banks and bank holding companies; • Potential risks in the loan and securities portfolios; • Recent minority stock transactions in First Bancshares Common Stock; and, • Other such factors as were deemed appropriate in rendering this opinion.Exhibit B-4
Common Factors
• Historical and current bank merger pricing; and,
• Current market prices for minority blocks of common stock of banks and bank holding companies in
Mississippi and surrounding states.
The Proposed Merger
• The terms of the Merger Agreement and the specific pricing of the Merger;
• Adequacy of the consideration paid to the shareholders of FNB Wiggins;
• The impact on First Bancshares' and The First's capital and liquidity positions;
• The historical dividend payments of First Bancshares and the likely impact on the dividend income of the
current shareholders of FNB Wiggins (equivalency of cash dividends);
• Pro-forma combined income statements for First Bancshares post Merger and the expected returns to FNB
Wiggins shareholders;
• The market for minority blocks of First Bancshares Common Stock;
Restrictions on the transfer of First Bancshares Common Stock; and,
Other such factors as deemed appropriate.
OVERVIEW OF FAIRNESS ANALYSIS
In connection with rendering its opinion, Southard Financial performed a variety of financial analyses. Southard
Financial believes that its analyses must be considered as a whole and that considering only selected factors
could create an incomplete view of the analyses and the process underlying the opinion. The preparation of a
fairness opinion is a complex process involving subjective judgment and is not susceptible to partial analyses.
In its analyses, Southard Financial made numerous assumptions, many of which are beyond the control of FNB
Wiggins, The First, and First Bancshares. Any estimates contained in the analyses prepared by Southard Financial
are not necessarily indicative of future results or values, which may vary significantly from such estimates.
Estimates of value of companies do not purport to be appraisals or necessarily reflect the prices at which
companies or their securities may actually be sold. None of the analyses performed by Southard Financial was
assigned greater significance than any other.
Exhibit B-5
FAIRNESS OPINION
Based upon the analyses of the foregoing and such matters as were considered relevant, it is the opinion of
Southard Financial that the terms of the Merger of FNB Wiggins with and into The First pursuant to the Merger
Agreement are fair, from a financial viewpoint, to the shareholders of FNB Wiggins.
This opinion is solely for the use and benefit of the Board of Directors, and (except for inclusion in proxy
materials to be sent to shareholders of FNB Wiggins and in necessary regulatory applications) any summary of or
reference to the opinion or any other reference to Southard Financial by FNB Wiggins in connection with the
Merger will be subject to Southard Financial's prior review and written approval, which shall not be unreasonably
withheld. The opinion will not be included in summarized form, or referred to in any manner in materials
distributed to the public or potential investors of FNB Wiggins without Southard Financial's prior written
consent, which shall not be unreasonably withheld.
In accordance with recognized professional ethics, Southard Financial's professional fees for this service are
not contingent upon the opinion expressed herein. Thank you for this opportunity to be of service to First
National Bank of Wiggins
Sincerely yours,
SOUTHARD FINANCIAL
/s/ Southard Financial
Exhibit B-6
EXHIBIT C
DISSENTERS' RIGHTS
12 U.S.C. § 215
(a) In general
Any national bank or any bank incorporated under the laws of any State may, with the approval of the
Comptroller, be consolidated with one or more national banking associations located in the same State under the
charter of a national banking association on such terms and conditions as may be lawfully agreed upon by a
majority of the board of directors of each association or bank proposing to consolidate, and be ratified and
confirmed by the affirmative vote of the shareholders of each such association or bank owning at least two-thirds
of its capital stock outstanding, or by a greater proportion of such capital stock in the case of such State bank
if the laws of the State where it is organized so require, at a meeting to be held on the call of the directors
after publishing notice of the time, place, and object of the meeting for four consecutive weeks in a newspaper
of general circulation published in the place where the association or bank is located, or, if there is no such
newspaper, then in the paper of general circulation published nearest thereto, and after sending such notice to
each shareholder of record by certified or registered mail at least ten days prior to the meeting, except to
those shareholders who specifically waive notice, but any additional notice shall be given to the shareholders of
such State bank which may be required by the laws of the State where it is organized. Publication of notice may
be waived, in cases where the Comptroller determines that an emergency exists justifying such waiver, by
unanimous action of the shareholders of the association or State bank.
(b) Liability of consolidated association; capital stock; dissenting shareholders
The consolidated association shall be liable for all liabilities of the respective consolidating banks
or associations. The capital stock of such consolidated association shall not be less than that required under
existing law for the organization of a national bank in the place in which it is located: Provided, That if such
consolidation shall be voted for at such meetings by the necessary majorities of the shareholders of each
association and State bank proposing to consolidate, and thereafter the consolidation shall be approved by the
Comptroller, any shareholder of any of the associations or State banks so consolidated who has voted against such
consolidation at the meeting of the association or bank of which he is a stockholder, or who has given notice in
writing at or prior to such meeting to the presiding officer that he dissents from the plan of consolidation,
shall be entitled to receive the value of the shares so held by him when such consolidation is approved by the
Comptroller upon written request made to the consolidated association at any time before thirty days after the
date of consummation of the consolidation, accompanied by the surrender of his stock certificates.
(c) Valuation of shares
The value of the shares of any dissenting shareholder shall be ascertained, as of the effective date of
the consolidation, by an appraisal made by a committee of three persons, composed of (1) one selected by the vote
of the holders of the majority of the stock, the owners of which are entitled to payment in cash; (2) one
selected by the directors of the consolidated banking association; and (3) one selected by the two so selected.
The valuation agreed upon by any two of the three appraisers shall govern. If the value so fixed shall not be
satisfactory to any dissenting shareholder who has requested payment, that shareholder may, within five days
after being notified of the appraised value of his shares, appeal to the Comptroller, who shall cause a
reappraisal to be made which shall be final and binding as to the value of the shares of the appellant.
(d) Appraisal by Comptroller; expenses of consolidated association; sale and resale of shares; State appraisal
and consolidation law
Exhibit C-1
If, within ninety days from the date of consummation of the consolidation, for any reason one or more of
the appraisers is not selected as herein provided, or the appraisers fail to determine the value of such shares,
the Comptroller shall upon written request of any interested party cause an appraisal to be made which shall be
final and binding on all parties. The expenses of the Comptroller in making the reappraisal or the appraisal, as
the case may be, shall be paid by the consolidated banking association. The value of the shares ascertained shall
be promptly paid to the dissenting shareholders by the consolidated banking association. Within thirty days after
payment has been made to all dissenting shareholders as provided for in this section the shares of stock of the
consolidated banking association which would have been delivered to such dissenting shareholders had they not
requested payment shall be sold by the consolidated banking association at an advertised public auction, unless
some other method of sale is approved by the Comptroller, and the consolidated banking association shall have the
right to purchase any of such shares at such public auction, if it is the highest bidder therefor, for the
purpose of reselling such shares within thirty days thereafter to such person or persons and at such price not
less than par as its board of directors by resolution may determine. If the shares are sold at public auction at
a price greater than the amount paid to the dissenting shareholders the excess in such sale price shall be paid
to such shareholders. The appraisal of such shares of stock in any State bank shall be determined in the manner
prescribed by the law of the State in such cases, rather than as provided in this section, if such provision is
made in the State law; and no such consolidation shall be in contravention of the law of the State under which
such bank is incorporated.
(e) Status of consolidated association; property rights and interests vested and held as fiduciary
The corporate existence of each of the consolidating banks or banking associations participating in such
consolidation shall be merged into and continued in the consolidated national banking association and such
consolidated national banking association shall be deemed to be the same corporation as each bank or banking
association participating in the consolidation. All rights, franchises, and interests of the individual
consolidating banks or banking associations in and to every type of property (real, personal, and mixed) and
choses in action shall be transferred to and vested in the consolidated national banking association by virtue of
such consolidation without any deed or other transfer. The consolidated national banking association, upon the
consolidation and without any order or other action on the part of any court or otherwise, shall hold and enjoy
all rights of property, franchises, and interests, including appointments, designations, and nominations, and all
other rights and interests as trustee, executor, administrator, registrar of stocks and bonds, guardian of
estates, assignee, receiver, and committee of estates of lunatics, and in every other fiduciary capacity, in the
same manner and to the same extent as such rights, franchises, and interests were held or enjoyed by any one of
the consolidating banks or banking associations at the time of consolidation, subject to the conditions
hereinafter provided.
(f) Removal as fiduciary; discrimination
Where any consolidating bank or banking association, at the time of the consolidation, was acting under
appointment of any court as trustee, executor, administrator, registrar of stocks and bonds, guardian of estates,
assignee, receiver, or committee of estates of lunatics, or in any other fiduciary capacity, the consolidated
national banking association shall be subject to removal by a court of competent jurisdiction in the same manner
and to the same extent as was such consolidating bank or banking association prior to the consolidation. Nothing
contained in this section shall be considered to impair in any manner the right of any court to remove the
consolidated national banking association and to appoint in lieu thereof a substitute trustee, executor, or other
fiduciary, except that such right shall not be exercised in such a manner as to discriminate against national
banking associations, nor shall any consolidated national banking association be removed solely because of the
fact that it is a national banking association.
(g) Issuance of stock by consolidated association; preemptive rights
Stock of the consolidated national banking association may be issued as provided by the terms of the
consolidation agreement, free from any preemptive rights of the shareholders of the respective consolidating
banks.
Exhibit C-2
12 U.S.C. § 215a
(a) Approval of Comptroller, board and shareholders; merger agreement; notice; capital stock; liability of
receiving association
One or more national banking associations or one or more State banks, with the approval of the
Comptroller, under an agreement not inconsistent with this subchapter, may merge into a national banking
association located within the same State, under the charter of the receiving association. The merger agreement
shall--
(1) be agreed upon in writing by a majority of the board of directors of each association or State bank
participating in the plan of merger;
(2) be ratified and confirmed by the affirmative vote of the shareholders of each such association or
State bank owning at least two-thirds of its capital stock outstanding, or by a greater proportion of
such capital stock in the case of a State bank if the laws of the State where it is organized so
require, at a meeting to be held on the call of the directors, after publishing notice of the time,
place, and object of the meeting for four consecutive weeks in a newspaper of general circulation
published in the place where the association or State bank is located, or, if there is no such
newspaper, then in the newspaper of general circulation published nearest thereto, and after sending
such notice to each shareholder of record by certified or registered mail at least ten days prior to the
meeting, except to those shareholders who specifically waive notice, but any additional notice shall
be given to the shareholders of such State bank which may be required by the laws of the State where it
is organized. Publication of notice may be waived, in cases where the Comptroller determines that an
emergency exists justifying such waiver, by unanimous action of the shareholders of the association or
State banks;
(3) specify the amount of the capital stock of the receiving association, which shall not be less than
that required under existing law for the organization of a national bank in the place in which it is
located and which will be outstanding upon completion of the merger, the amount of stock (if any) to be
allocated, and cash (if any) to be paid, to the shareholders of the association or State bank being
merged into the receiving association; and
(4) provide that the receiving association shall be liable for all liabilities of the association or
State bank being merged into the receiving association.
(b) Dissenting shareholders
If a merger shall be voted for at the called meetings by the necessary majorities of the shareholders of
each association or State bank participating in the plan of merger, and thereafter the merger shall be approved
by the Comptroller, any shareholder of any association or State bank to be merged into the receiving association
who has voted against such merger at the meeting of the association or bank of which he is a stockholder, or has
given notice in writing at or prior to such meeting to the presiding officer that he dissents from the plan of
merger, shall be entitled to receive the value of the share so held by him when such merger shall be approved by
the Comptroller upon written request made to the receiving association at any time before thirty days after the
date of consummation of the merger, accompanied by the surrender of his stock certificates.
(c) Valuation of shares
The value of the shares of any dissenting shareholder shall be ascertained, as of the effective date of
the merger, by an appraisal made by a committee of three persons, composed of (1) one selected by the vote of the
holders of the majority of the stock, the owners of which are entitled to payment in cash; (2) one selected by
the directors of the receiving association; and (3) one selected by the two so selected. The valuation agreed
upon by any two of the three appraisers shall govern. If the value so fixed shall not be satisfactory to any
dissenting shareholder who has requested payment, that shareholder may, within five days after being notified of
the appraised value of his shares, appeal to the Comptroller, who shall cause a reappraisal to be made which
shall be final and binding as to the value of the shares of the appellant.
Exhibit C-3
(d) Application to shareholders of merging associations: appraisal by Comptroller; expenses of receiving
association; sale and resale of shares; State appraisal and merger law
If, within ninety days from the date of consummation of the merger, for any reason one or more of the
appraisers is not selected as herein provided, or the appraisers fail to determine the value of such shares, the
Comptroller shall upon written request of any interested party cause an appraisal to be made which shall be final
and binding on all parties. The expenses of the Comptroller in making the reappraisal or the appraisal, as the
case may be, shall be paid by the receiving association. The value of the shares ascertained shall be promptly
paid to the dissenting shareholders by the receiving association. The shares of stock of the receiving
association which would have been delivered to such dissenting shareholders had they not requested payment shall
be sold by the receiving association at an advertised public auction, and the receiving association shall have
the right to purchase any of such shares at such public auction, if it is the highest bidder therefor, for the
purpose of reselling such shares within thirty days thereafter to such person or persons and at such price not
less than par as its board of directors by resolution may determine. If the shares are sold at public auction at
a price greater than the amount paid to the dissenting shareholders, the excess in such sale price shall be paid
to such dissenting shareholders. The appraisal of such shares of stock in any State bank shall be determined in
the manner prescribed by the law of the State in such cases, rather than as provided in this section, if such
provision is made in the State law; and no such merger shall be in contravention of the law of the State under
which such bank is incorporated. The provisions of this subsection shall apply only to shareholders of (and stock
owned by them in) a bank or association being merged into the receiving association.
(e) Status of receiving association; property rights and interests vested and held as fiduciary
The corporate existence of each of the merging banks or banking associations participating in such
merger shall be merged into and continued in the receiving association and such receiving association shall be
deemed to be the same corporation as each bank or banking association participating in the merger. All rights,
franchises, and
interests of the individual merging banks or banking associations in and to every type of property (real,
personal, and mixed) and choses in action shall be transferred to and vested in the receiving association by
virtue of such merger without any deed or other transfer. The receiving association, upon the merger and without
any order or other action on the part of any court or otherwise, shall hold and enjoy all rights of property,
franchises, and interests, including appointments, designations, and nominations, and all other rights and
interests as trustee, executor, administrator, registrar of stocks and bonds, guardian of estates, assignee,
receiver and committee of estates of lunatics, and in every other fiduciary capacity, in the same manner and to
the same extent as such rights, franchises, and interests were held or enjoyed by any one of the merging banks or
banking associations at the time of the merger, subject to the conditions hereinafter provided.
(f) Removal as fiduciary; discrimination
Where any merging bank or banking association, at the time of the merger, was acting under appointment
of any court as trustee, executor, administrator, registrar of stocks and bonds, guardian of estates, assignee,
receiver, or committee of estates of lunatics, or in any other fiduciary capacity, the receiving association
shall be subject to removal by a court of competent jurisdiction in the same manner and to the same extent as was
such merging bank or banking association prior to the merger. Nothing contained in this section shall be
considered to impair in any manner the right of any court to remove the receiving association and to appoint in
lieu thereof a substitute trustee, executor, or other fiduciary, except that such right shall not be exercised in
such a manner as to discriminate against national banking associations, nor shall any receiving association be
removed solely because of the fact that it is a national banking association.
(g) Issuance of stock by receiving association; preemptive rights
Stock of the receiving association may be issued as provided by the terms of the merger agreement, free
from any preemptive rights of the shareholders of the respective merging banks.
Exhibit C-4
EXHIBIT D
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
OF
THE FIRST BANCSHARES, INC., AND SUBSIDIARY
FOR THE PERIODS ENDED
DECEMBER 31, 2004 AND DECEMBER 31, 2005;
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
OF
THE FIRST BANCSHARES, INC., AND SUBSIDIARY
FOR THE INTERIM PERIOD ENDED
JUNE 30, 2006
Exhibit D-1
T. E. Lott & Company
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
To the Audit Committee of the
Board of Directors and Stockholders
The First Bancshares, Inc.
Hattiesburg, Mississippi
We have audited the accompanying consolidated balance sheets of The First
Bancshares, Inc., and subsidiary as of December 31, 2005 and 2004, and the
related consolidated statements of income, changes in stockholders' equity,
and cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audits to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of The First Bancshares,
Inc., and subsidiary as of December 31, 2005 and 2004, and the consolidated
results of their operations and their cash flows for the years then ended, in
conformity with accounting principles generally accepted in the United States
of America.
/s/ T. E. Lott & Company
Columbus, Mississippi
January 25, 2006
(February 22, 2006, as to Note R)
THE FIRST BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2005 AND 2004
ASSETS 2005 2004
------------ ------------
Cash and due from banks $ 12,144,142 $ 5,576,854
Interest-bearing deposits with banks 958,790 649,834
Federal funds sold 15,785,000 919,000
------------ ------------
Total cash and cash equivalents 28,887,932 7,145,688
Held-to-maturity securities (Note C) (fair value of
$13,967 in 2005 and $14,711 in 2004) 13,808 14,285
Available-for-sale securities (Note C) 48,543,078 26,351,421
Other securities 2,102,700 2,156,300
------------ ------------
Total securities 50,659,586 28,522,006
Loans held for sale 3,318,993 3,072,856
Loans, net of allowance for loan losses of $2,366,773
in 2005 and $1,658,527 in 2004 (Note D) 194,623,514 159,643,031
Interest receivable 1,714,535 1,088,102
Premises and equipment (Note E) 8,330,506 8,670,429
Cash surrender value of life insurance 5,054,161 3,319,597
Other assets 1,800,588 934,325
------------ ------------
Total assets $294,389,815 $212,396,034
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits (Note F):
Noninterest-bearing $ 49,584,666 $ 30,365,312
Interest-bearing 192,364,456 126,464,314
------------ ------------
Total deposits 241,949,122 156,829,626
Interest payable 452,469 191,049
Borrowed funds (Note G) 25,465,272 30,850,633
Subordinated debentures (Note M) 7,217,000 7,217,000
Other liabilities 828,352 568,125
------------ ------------
Total liabilities 275,912,215 195,656,433
------------ ------------
Stockholders' Equity (Note H):
Preferred stock, par value $1 per share, 10,000,000
shares authorized; no shares issued and outstanding - -
Common stock, par value $1 per share; 10,000,000 shares
authorized; 1,213,844 and 1,194,940 shares issued
in 2005 and 2004, respectively 1,213,844 1,194,940
Additional paid-in capital 13,220,940 12,985,939
Retained earnings 4,694,292 3,018,788
Accumulated other comprehensive income (187,831) 3,579
Treasury stock, at cost (Note N) (463,645) (463,645)
------------ ------------
Total stockholders' equity 18,477,600 16,739,601
------------ ------------
Total liabilities and stockholders' equity $294,389,815 $212,396,034
============ ============
The accompanying notes are an integral part of these statements.
THE FIRST BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 2005 AND 2004
2005 2004
------------ ------------
INTEREST INCOME
Interest and fees on loans $ 14,097,048 $ 10,143,488
Interest and dividends on securities:
Taxable interest and dividends 987,487 672,497
Tax-exempt interest 183,141 141,767
Interest on federal funds sold 387,518 38,849
Interest on deposits in banks 37,269 17,037
------------ ------------
Total interest income 15,692,463 11,013,638
------------ ------------
INTEREST EXPENSE
Interest on time deposits of $100,000 or more 898,990 413,891
Interest on other deposits 3,127,870 1,614,548
Interest on borrowed funds 1,515,792 1,169,864
------------ ------------
Total interest expense 5,542,652 3,198,303
------------ ------------
Net interest income 10,149,811 7,815,335
Provision for loan losses 920,737 671,770
------------ ------------
Net interest income after provision for loan losses 9,229,074 7,143,565
------------ ------------
OTHER INCOME
Service charges on deposit accounts 1,129,889 1,413,298
Other service charges and fees 385,315 299,777
Bank owned life insurance income 134,564 149,667
Other gains 59,748 152,562
Loss on other real estate (7,065) (81,410)
Loss on fixed assets (58,462) -
Securities losses - (5,221)
Other 38,159 34,241
------------ ------------
Total other income 1,682,148 1,962,914
------------ ------------
OTHER EXPENSE
Salaries 3,967,191 3,325,375
Employee benefits 848,476 759,684
Occupancy 584,621 530,706
Furniture and equipment 767,778 689,675
Supplies and printing 193,500 170,182
Professional and consulting fees 287,428 297,866
Marketing and public relations 207,391 175,649
Data processing 150,123 153,222
Other 1,131,717 1,125,757
------------ ------------
Total other expense 8,138,225 7,228,116
------------ ------------
Income before income taxes 2,772,997 1,878,363
Income taxes (Note J) 863,803 635,620
------------ ------------
Net income $ 1,909,194 $ 1,242,743
============ ============
Net income per common share (Note R):
Basic $1.62 $1.07
Diluted 1.53 1.03
The accompanying notes are an integral part of these statements.
THE FIRST BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2005 AND 2004
Accumulated
Other
Compre- Compre-
hensive Common Paid-in Retained hensive Treasury
Income Stock Capital Earnings Income Stock Total
----------- ---------- ----------- ---------- ----------- ---------- -----------
Balance,
January 1, 2004 $1,191,659 $12,949,210 $1,950,819 $ 23,428 $(463,645) $15,651,471
Comprehensive income:
Net income for 2004 $1,242,743 - - 1,242,743 - - 1,242,743
Net change in
unrealized gain
(loss) on available-
for-sale securities,
net of tax (19,849) - - - (19,849) - (19,849)
-----------
Comprehensive
Income $1,222,894
===========
Exercise of stock
options 3,281 36,729 - - - 40,010
Cash dividend declared,
$.15 per share - - (174,774) - - (174,774)
---------- ----------- ---------- ----------- ---------- -----------
Balance,
December 31, 2004 1,194,940 12,985,939 3,018,788 3,579 (463,645) 16,739,601
Comprehensive income:
Net income for 2005 $1,909,194 - - 1,909,194 - - 1,909,194
Net change in
unrealized gain
(loss) on available-
for-sale securities,
net of tax (191,410) - - - (191,410) - (191,410)
-----------
Comprehensive
Income $1,717,784
===========
Exercise of stock
options 18,904 235,001 - - - 253,905
Cash dividend declared,
$.20 per share - - (233,690) - - (233,690)
---------- ----------- ---------- ----------- ---------- -----------
Balance,
December 31, 2005 $1,213,844 $13,220,940 $4,694,292 $(187,831) $(463,645) $18,477,600
========== =========== ========== ============ ========== ===========
The accompanying notes are an integral part of these statements
THE FIRST BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2005 AND 2004
2005 2004
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,909,194 $ 1,242,743
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 626,287 658,428
FHLB Stock dividends (51,700) (22,000)
Loss on disposal of assets 63,113 -
Provision for loan losses 920,737 671,770
Deferred income taxes (229,453) (58,490)
Increase in cash value of life insurance (134,564) (149,667)
Securities amortization and accretion, net 43,941 41,462
Other gains (59,748) (152,562)
Loss on other real estate 7,065 81,410
Securities losses, net - 5,221
Changes in:
Loans held for sale (246,137) (1,510,422)
Interest receivable (626,433) (265,619)
Other assets (334,254) (223,251)
Interest payable 261,420 23,491
Other liabilities 129,379 419,583
------------ ------------
Net cash provided by operating activities 2,278,847 762,097
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of available-for-sale securities (32,178,300) (10,669,719)
Purchases of other securities (301,100) (481,000)
Proceeds from maturities and calls of available-for-sale
securities 8,653,164 7,944,981
Proceeds from sales of securities available-for-sale 1,000,000 6,213,670
Proceeds from redemption of other securities 406,400 -
Proceeds from sale of lease/land 134,977 152,562
Proceeds from sale of other real estate 50,625 694,834
Increase in loans (36,101,865) (48,330,492)
Investment in bank owned life insurance (1,600,000) -
Additions to premises and equipment (354,854) (867,431)
------------ ------------
Net cash used in investing activities (60,290,953) (45,342,595)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in deposits 85,119,496 35,131,275
Proceeds from borrowed funds 19,901,100 24,274,127
Repayment of borrowed funds (25,286,461) (13,409,721)
Exercise of stock options 253,905 40,010
Dividends paid on common stock (233,690) (174,774)
The accompanying notes are an integral part of these statements.
THE FIRST BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2005 AND 2004
2005 2004
-------------- --------------
Net cash provided by financing activities 79,754,350 45,860,917
-------------- --------------
Net increase in cash and cash equivalents 21,742,244 1,280,419
Cash and cash equivalents at beginning of year 7,145,688 5,865,269
-------------- --------------
Cash and cash equivalents at end of year $ 28,887,932 $ 7,145,688
============== ==============
Cash paid during the year for:
Interest $ 5,281,232 $ 3,174,812
Income taxes 1,051,417 361,594
Non-cash activities:
Transfers of loans to other real estate 193,560 529,427
The accompanying notes are an integral part of these statements.
The First Bancshares, Inc. (the Company) is a financial holding company whose business is primarily conducted by its wholly-owned subsidiary, The First, A National Banking Association (“The First” or “The Bank”). The bank provides a full range of banking services in its primary market area of South Mississippi. The Company, as a financial holding company, is regulated by the Federal Reserve Bank. Its subsidiary bank is subject to the regulation of the Office of the Comptroller of the Currency (OCC).
NOTE B - SUMMARY OF ACCOUNTING POLICIESThe Company and its subsidiary follow accounting principles generally accepted in the United States of America including, where applicable, general practices within the banking industry.
1. Principles of ConsolidationThe consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary. All significant intercompany accounts and transactions have been eliminated.
2. EstimatesThe preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses and the valuation of deferred tax assets.
3. Cash and Due From BanksIncluded in cash and due from banks are legal reserve requirements which must be maintained on an average basis in the form of cash and balances due from the Federal Reserve. The reserve balance varies depending upon the types and amounts of deposits. At December 31, 2005, the required reserve balance on deposit with the Federal Reserve Bank was approximately $1,393,000.
4. SecuritiesInvestments in securities are accounted for as follows:
Securities classified as available-for-sale are those securities that are intended to be held for an indefinite period of time, but not necessarily to maturity. Any decision to sell a security classified as available-for-sale would be based on various factors, including movements in interest rates, liquidity needs, security risk assessments, changes in the mix of assets and liabilities and other similar factors. These securities are carried at their estimated fair value, and the net unrealized gain or loss is reported in stockholders’ equity, net of tax, when applicable, until realized. Premiums and discounts are recognized in interest income using the interest method.
Gains and losses on the sale of available-for-sale securities are determined using the adjusted cost of the specific security sold.
Securities to be Held-to-MaturitySecurities classified as held-to-maturity are those securities for which there is a positive intent and ability to hold to maturity. These securities are carried at cost adjusted for amortization of premiums and accretion of discounts, computed by the interest method.
Trading Account SecuritiesTrading account securities are those securities which are held for the purpose of selling them at a profit. There were no trading account securities on hand at December 31, 2005 and 2004.
Other SecuritiesOther securities are carried at cost and are restricted in marketability. Other securities consist of investments in the Federal Home Loan Bank (FHLB), Federal Reserve Bank and First National Banker’s Bankshares, Inc.
5. Loans held for saleThe Company originates fixed rate single family, residential first mortgage loans on a presold basis. The Company issues a rate lock commitment to a customer and concurrently “locks in” with a secondary market investor under a best efforts delivery mechanism. Such loans are sold without the servicing retained by the Company. The terms of the loan are dictated by the secondary investors and are transferred within several weeks of the Company initially funding the loan. The Company recognizes certain origination fees and service release fees upon the sale which are included in interest and fees on loans in the consolidated statement of income. Between the initial funding of the loans by the Company and the subsequent purchase by the investor, the Company carries the loans held for sale at the lower of cost or fair value in the aggregate as determined by the outstanding commitments from investors.
6. LoansLoans are carried at the principal amount outstanding, net of the allowance for loan losses. Interest income on loans is recognized based on the principal balance outstanding and the stated rate of the loan. Loan origination fees and certain direct origination costs are deferred and recognized as an adjustment of the related loan yield using the interest method.
A loan is considered impaired when, based upon current events and information, it is probable that the scheduled payments of principal or interest will not be collected in accordance with the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral values, and the probability of collecting scheduled payments of principal and interest when due. Generally, impairment is measured on a loan by loan basis using the fair value of the supporting collateral.
Loans are generally placed on a nonaccrual status when principal or interest is past due ninety days or when specifically determined to be impaired. When a loan is placed on nonaccrual status, interest accrued but not received is generally reversed against interest income. If collectability is in doubt, cash receipts on nonaccrual loans are used to reduce principal rather than recorded in interest income. Past due status is determined based upon contractual terms.
7. Allowance for Loan LossesFor financial reporting purposes, the provision for loan losses charged to operations is based upon management’s estimations of the amount necessary to maintain the allowance at an adequate level. Allowances for any impaired loans are generally determined based on collateral values. Loans are charged against the allowance for loan losses when management believes the collectabality of the principal is unlikely.
Management evaluates the adequacy of the allowance for loan losses on a regular basis. These evaluations are based upon a periodic review of the collectability considering historical experience, the nature and value of the loan portfolio, underlying collateral values, internal loan reviews, and prevailing economic conditions. In addition, the OCC, as a part of the regulatory examination process, reviews the loan portfolio and the allowance for loan losses and may require changes in the allowance based upon information available at the time of the examination. The allowance consists of two components: allocated and unallocated. The components represent an estimation done pursuant to either Financial Accounting Standards Board (FASB) Statement No. 5, “Accounting for Contingencies,” or FASB Statement No. 114, “Accounting by Creditors for Impairment of a Loan.” The allocated component of the allowance reflects expected losses resulting from an analysis developed through specific credit allocations for individual loans, including any impaired loans, and historical loan loss history. The analysis is performed quarterly, and loss factors are updated regularly.
The unallocated portion of the allowance reflects management’s estimate of probable inherent but undetected losses within the portfolio due to uncertainties in economic conditions, changes in collateral values, unfavorable information about a borrower’s financial condition, and other risk factors that have not yet manifested themselves. In addition, the unallocated allowance includes a component that explicitly accounts for the inherent imprecision in the loan loss analysis.
In August 2005, Hurricane Katrina struck the Mississippi Gulf Coast causing significant damage. In determining the allowance for loan losses, factors resulting from the Hurricane based upon communications with borrowers, collateral inspections and various risk characteristics were considered. These factors are based upon management’s estimates and judgments utilizing information available as of the date of the consolidated financial statements and, accordingly, actual results could differ.
8. Premises and EquipmentPremises and equipment are stated at cost, less accumulated depreciation. The depreciation policy is to provide for depreciation over the estimated useful lives of the assets using the straight-line method. Repairs and maintenance expenditures are charged to operating expenses; major expenditures for renewals and betterments are capitalized and depreciated over their estimated useful lives. Upon retirement, sale, or other disposition of property and equipment, the cost and accumulated depreciation are eliminated from the accounts, and any gains or losses are included in operations.
Other real estate consists of properties acquired through foreclosure and, as held for sale property, is recorded at the lower of the outstanding loan balance or current appraisal less estimated costs to sell. Any write-down to fair value required at the time of foreclosure is charged to the allowance for loan losses. Subsequent gains or losses on other real estate are reported in other operating income or expenses. At December 31, 2005 and 2004, other real estate totaled $310,728 and $167,793, respectively.
10. Other AssetsFinancing costs related to the issuance of junior subordinated debentures are being amortized over the life of the instruments and are included in other assets. The Company invests in bank owned life insurance (BOLI). BOLI involves the purchasing of life insurance by the Company on a chosen group of employees. The Company is the owner of the policies and, accordingly, the cash surrender value of the policies is reported as an asset, and increases in cash surrender values are reported as income.
11. Stock OptionsFASB Statement No. 123, “Accounting for Stock-Based Compensation,” requires a fair value-based method of measuring employee stock options. Under this method, compensation cost is measured at the option grant date based on the value of the award and is recognized over the service period. In lieu of recording the value of such options, the Company has elected to continue to measure compensation cost using Accounting Principles Board (APB) No. 25, “Accounting for Stock Issued to Employees,” and to provide pro forma disclosures quantifying the difference between compensation cost included in reported net income and the related cost measured by such fair value-based method.
Had compensation cost for the stock plans been determined based on the fair values of the options at the grant dates consistent with the method of FASB Statement No. 123, the Company’s net income and net income per share would have been reduced to the pro forma amounts indicated below:
Years ended December 31,
2005 2004
--------------- --------------
Net income as reported $ 1,909,194 $ 1,242,743
Deduct stock-based compensation expense
determined under the fair value based method 8,368 3,618
--------------- --------------
Pro forma net income $ 1,900,826 $ 1,239,125
=============== ==============
Basic net income per share as reported $ 1.62 $ 1.07
Pro forma basic net income per share 1.61 1.06
Diluted net income per share as reported 1.53 1.03
Pro forma diluted net income per share 1.53 1.03
For options granted in the year ended December 31, 2005, the assumptions used in estimating compensation cost on a pro forma basis were: dividend yield of 1.3%, expected life of three years, volatility of near 50%, and a risk-free interest rate of 3.7%. No grants were issued during the year ended December 31, 2004.
Income taxes are provided for the tax effects of the transactions reported in the financial statements and consist of taxes currently payable plus deferred taxes related primarily to differences between the bases of assets and liabilities as measured by income tax laws and their bases as reported in the financial statements. The deferred tax assets and liabilities represent the future tax consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled.
The Company and its subsidiary file consolidated income tax returns. The subsidiary provides for income taxes on a separate return basis and remits to the Company amounts determined to be payable.
13. Advertising CostsAdvertising costs are expensed in the period in which they are incurred. Advertising expense for the years ended December 31, 2005 and 2004, was approximately $149,340 and $146,236, respectively.
14. Statements of Cash FlowsFor purposes of reporting cash flows, cash and cash equivalents include cash, amounts due from banks, interest-bearing deposits with banks and federal funds sold. Generally, federal funds are sold for a one to seven day period.
15. Off-Balance Sheet Financial InstrumentsIn the ordinary course of business, the subsidiary bank enters into off-balance sheet financial instruments consisting of commitments to extend credit, credit card lines and standby letters of credit. Such financial instruments are recorded in the financial statements when they are exercised.
16. Per Share AmountsPer share amounts are presented in accordance with FASB Statement No. 128, "Earnings Per Share." Under Statement No. 128, two per share amounts are considered and presented, if applicable. Basic per share data is calculated based on the weighted-average number of common shares outstanding during the reporting period. Diluted per share data includes any dilution from potential common stock outstanding, such as exercise of stock options.
The following table discloses the reconciliation of the numerators and denominators of the basic and diluted computations:
For the Year Ended For the Year Ended
December 31, 2005 December 31, 2004
----------------------------------------------- ----------------------------------------------
Net Net
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
------------- ------------- ----------- ------------- -------------- ------------
Basic per share $ 1,909,194 1,179,154 $ 1.62 $ 1,242,743 1,165,985 $ 1.07
=========== =========
Effect of dilutive
shares:
Stock options 65,291 37,356
--------- ---------
Diluted per share $ 1,909,194 1,244,445 $ 1.53 $ 1,242,743 1,203,341 $ 1.03
============ ========= ========== ============ ========= =========
The diluted per share amounts were computed by applying the treasury stock method.
17. ReclassificationsCertain reclassifications have been made to the 2004 financial statements to conform with the classifications used in 2005. These reclassifications did not impact the Company’s consolidated financial condition or results of operations.
18. Accounting PronouncementsIn November, 2005, the Financial Accounting Standards Board (FASB) issued FASB Staff Position (FSP) 115-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments. This FSP provides additional guidance on when an investment in a debt or equity security should be considered impaired and when that impairment should be considered other-than-temporary and recognized as a loss in earnings. Specifically, the guidance clarifies that an investor should recognize an impairment loss no later than when the impairment is deemed other-than-temporary, even if a decision to sell has not been made. The FSP also requires certain disclosures about unrealized losses that have not been recognized as other-than-temporary impairments. Management applied the guidance in this FSP in 2005.
In December, 2004, the FASB revised SFAS 123, Accounting for Stock-Based Compsensation. SFAS 123R establishes accounting requirements for share-based compensation to employees and carries forward prior guidance on accounting for awards to non-employees. In 2005, the FASB issued further guidance on the classification and measurement of freestanding financial instruments originally issued for employee service and the application of grant date as defined in SFAS 123R. The Corporation will be required to adopt these statements on January 1, 2006. SFAS 123R will require the Corporation to change its method of accounting for share-based awards to include estimated forfeitures in the initial estimate of compensation expense and to accelerate the recognition of compensation expense for retirement eligible employees. The adoption of these standards is not expected to have a material effect on financial condition, results of operations, or liquidity.
A summary of the amortized cost and estimated fair value of available-for-sale securities and held-to-maturity securities at December 31, 2005 and 2004, follows:
December 31, 2005
-----------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------ ------------- ------------- ---------------
Available-for-sale securities:
Obligations of U. S.
Government agencies $ 32,030,191 $ 5,699 $ 239,639 $ 31,796,251
Tax-exempt and taxable
obligations of states and
municipal subdivisions 5,844,353 82,114 47,043 5,879,424
Mortgage-backed securities 8,194,035 6,226 92,858 8,107,403
Corporate obligations 2,759,092 908 - 2,760,000
------------ ------------- ------------- ---------------
$ 48,827,671 $ 94,947 $ 379,540 $ 48,543,078
============ ============= ============= ===============
Held-to-maturity securities:
Mortgage-backed securities $ 13,808 $ 159 $ - $ 13,967
============ ============= ============= ===============
December 31, 2004
-----------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------ ------------- ------------- ---------------
Available-for-sale securities:
Obligations of U. S.
Government agencies $ 10,254,389 $ 7,848 $ 46,122 $ 10,216,115
Tax-exempt and taxable
obligations of states and
municipal subdivisions 7,203,371 94,873 18,453 7,279,791
Mortgage-backed securities 6,376,011 6,154 32,900 6,349,265
Corporate obligations 2,512,228 - 5,978 2,506,250
------------ ------------- ------------- ---------------
$ 26,345,999 $ 108,875 $ 103,453 $ 26,351,421
============ ============= ============= ===============
Held-to-maturity securities:
Mortgage-backed securities $ 14,285 $ 426 $ - $ 14,711
============ ============= ============= ===============
The scheduled maturities of securities at December 31, 2005, are as follows:
Available-for-Sale Held-to-Maturity
--------------------------------- ----------------------------
Estimated Estimated
Amortized Fair Amortized Fair
Cost Value Cost Value
-------------- ------------- ------------- ------------
Due less than one year $ 11,548,108 $ 11,495,352 $ - $ -
Due after one year through five years 21,780,845 21,597,277 - -
Due after five years through ten years 3,544,791 3,536,334 - -
Due after ten years 3,759,892 3,806,712 - -
Mortgage-backed securities 8,194,035 8,107,403 13,808 13,967
-------------- ------------- ------------- ------------
$ 48,827,671 $ 48,543,078 $ 13,808 $ 13,967
============== ============= ============= ============
Actual maturities can differ from contractual maturities because the obligations may be called or prepaid with or without penalties.
No gains or losses were realized on available-for-sale securities in 2005. Gains of $14,114 and losses of $19,335 were realized on available-for-sale securities in 2004.
Securities with a carrying value of $11,221,000 and $21,417,000 at December 31, 2005 and 2004, respectively, were pledged to secure public deposits and for other purposes as required or permitted by law.
The details concerning securities classified as available for sale with unrealized losses as of December 31, 2005 and 2004, were as follows:
2005
----------------------------------------------------------------------------------------
Losses < 12 Months Losses 12 Months or > Total
--------------------------- ---------------------------- ----------------------------
Gross Gross Gross
Fair Unrealized Fair Unrealized Fair Unrealized
Value Losses Value Losses Value Losses
------------ ------------ ------------ -------------- ------------ --------------
Obligations of U. S.
Government agencies $ 22,124,908 $ 164,105 $5,179,618 $ 75,534 $27,304,526 $ 239,639
Tax-exempt and taxable
obligations of states
and municipal
subdivisions 1,616,839 19,078 1,519,399 27,966 3,136,238 47,044
Mortgage-backed
Securities 4,148,550 56,071 1,756,360 36,786 5,904,910 92,857
Corporate obligations - - - - - -
------------ ------------ ------------ -------------- ------------ --------------
$ 27,890,297 $ 239,254 $8,455,377 $ 140,286 $36,345,674 $ 379,540
============ ============ ============ ============== ============ ==============
2004
----------------------------------------------------------------------------------------
Losses < 12 Months Losses 12 Months or > Total
--------------------------- ---------------------------- ----------------------------
Gross Gross Gross
Fair Unrealized Fair Unrealized Fair Unrealized
Value Losses Value Losses Value Losses
------------ ------------ ------------ -------------- ------------ --------------
Obligations of U. S.
Government agencies $ 5,225,635 $ 29,567 $1,483,445 $ 16,555 $ 6,709,080 $ 46,122
Tax-exempt and taxable
obligations of states
and municipal
subdivisions 2,455,744 14,790 306,374 3,663 2,762,118 18,453
Mortgage-backed
securities 3,393,040 24,565 1,452,624 8,335 4,845,664 32,900
Corporate obligations - - 1,006,250 5,978 1,006,250 5,978
------------ ------------ ------------ -------------- ------------ --------------
$ 11,074,419 $ 68,922 $4,248,693 $ 34,531 $15,323,112 $ 103,453
============ ============ ============ ============== ============ ==============
Approximately 71% of the number of securities in the investment portfolio at December 31, 2005, reflected an unrealized loss. Management is of the opinion the Company has the ability to hold these securities until such time as the value recovers or the securities mature. Management also believes the deterioration in value is attributable to changes in market interest rates and not to the credit quality of the issuer.
NOTE D - LOANS
Loans outstanding include the following types at December 31, 2005 and 2004:
2005 2004
---------- -----------
(In thousands)
Commercial, financial, and agricultural $ 30,576 $ 23,248
Real estate - construction 37,660 28,842
Real estate - mortgage 116,484 98,564
Installment loans to individuals 12,145 10,512
Overdrafts 126 136
---------- -----------
196,991 161,302
Allowance for loan losses (2,367) (1,659)
---------- -----------
$ 194,624 $ 159,643
========== ===========
Transactions in the allowance for loan losses for the years ended December 31, 2005 and 2004, were as follows:
2005 2004
---------- -----------
Balance at beginning of year $1,658,527 $ 1,165,614
Additions:
Provision for loan losses charged to operations 920,737 671,770
Recoveries 89,978 112,019
---------- -----------
2,669,242 1,949,403
Deductions:
Loans charged off 302,469 290,876
---------- -----------
Balance at end of year $2,366,773 $ 1,658,527
========== ===========
During the years 2005 and 2004 and as of December 31, 2005 and 2004, no significant loans were classified as
impaired.
At December 31, 2005 and 2004, the Company had nonaccrual loans and loans past due 90 days or more as
follows:
2005 2004
---------- -----------
(In thousands)
Nonaccrual loans $ 283 $ 361
Past due 90 days or more and still accruing 331 299
Premises and equipment are stated at cost, less accumulated depreciation and amortization as follows:
2005 2004
---------- -----------
Premises:
Land $2,431,604 $ 2,506,834
Buildings and improvements 5,640,164 5,618,753
Equipment 3,669,932 3,437,732
Construction in progress 11,893 -
---------- -----------
11,753,593 11,563,319
Less accumulated depreciation and amortization (3,423,087) (2,892,890)
---------- -----------
$8,330,506 $ 8,670,429
The amounts charged to operating expense for depreciation were $556,455 and $561,641 in 2005 and 2004, respectively.
NOTE F - DEPOSITSThe aggregate amount of time deposits in denominations of $100,000 or more for 2005 and 2004 was $50,388,588 and $29,768,591, respectively.
At December 31, 2005, the scheduled maturities of time deposits included in interest-bearing deposits are as follows (in thousands):
Year Amount
2006 $ 74,626
2007 12,181
2008 10,043
2009 2,492
2010 1,579
$ 100,921
NOTE G - BORROWED FUNDS
Borrowed funds consisted of the following:
December 31,
-------------------------------
2005 2004
------------- ---------------
FHLB advances $ 25,465,272 $ 30,626,190
Other - 224,443
------------- ---------------
$ 25,465,272 $ 30,850,633
============= ===============
Advances from the FHLB have maturity dates ranging from May, 2006, through June, 2013. Interest is payable monthly at rates ranging from 2.651% to 5.920%. Advances due to the FHLB are collateralized by a blanket lien on first mortgage loans in the amount of the outstanding borrowings, FHLB capital stock, and amounts on deposit with the FHLB. At December 31, 2005, FHLB advances available and unused totaled $45.2 million.
Other borrowed funds consist of loans sold in transactions in which the risk of loss or obligation for payment is retained by The First. For regulatory and financial reporting purposes, these amounts are required to be reported as borrowed funds.
Future annual principal repayment requirements on the borrowings from the FHLB at December 31, 2005, are as follows:
Year Amount
----------- -------------
2006 $ 4,637,840
2007 4,929,908
2008 3,370,245
2009 4,490,193
2010 7,530,288
Thereafter 506,798
-------------
$ 25,465,272
=============
NOTE H - REGULATORY MATTERS
The Company and its subsidiary bank are subject to regulatory capital requirements administered by federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and its subsidiary bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgment by regulators about components, risk weightings, and other related factors.
To ensure capital adequacy, quantitative measures have been established by regulators, and these require the Company and its subsidiary bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier I capital (as defined) to risk-weighted assets (as defined), and of Tier I capital to adjusted total assets (leverage). Management believes, as of December 31, 2005, that the Company and its subsidiary bank exceed all capital adequacy requirements.
At December 31, 2005 and 2004, the subsidiary bank was categorized by regulators as well-capitalized under the regulatory framework for prompt corrective action. A financial institution is considered to be well-capitalized if it has a total risk-based capital ratio of 10% or more, has a Tier I risk-based capital ratio of 6% or more, and has a Tier I leverage capital ratio of 5% or more. There are no conditions or anticipated events that, in the opinion of management, would change the categorization.
The actual capital amounts and ratios at December 31, 2005 and 2004, are presented in the following table. No amount was deducted from capital for interest-rate risk exposure.
Subsidiary
Company ----------------------
(Consolidated) The First
------------------------- ----------------------
Amount Ratio Amount Ratio
------------ ---------- ---------- ----------
($ In thousands)
December 31, 2005
Total risk-based $ 25,666 12.4% $ 24,728 11.9%
Tier I risk-based 24,887 12.0% 22,361 10.8%
Tier I leverage 24,887 8.0% 22,361 7.8%
December 31, 2004
Total risk-based $ 23,736 14.6%$ 19,880 12.3%
Tier I risk-based 22,315 13.7% 18,222 11.3%
Tier I leverage 22,315 10.8% 18,222 8.7%
The minimum amounts of capital and ratios as established by banking regulators at December 31, 2005 and
2004, are as follows:
Subsidiary
Company ----------------------
(Consolidated) The First
------------------------- ----------------------
Amount Ratio Amount Ratio
------------ ---------- ---------- ----------
($ In thousands)
December 31, 2005
Total risk-based $ 16,612 8.0% $ 16,588 8.0%
Tier I risk-based 8,306 4.0% 8,294 4.0%
Tier I leverage 12,504 4.0% 11,496 4.0%
December 31, 2004
Total risk-based $ 13,019 8.0% $ 12,914 8.0%
Tier I risk-based 6,509 4.0% 6,457 4.0%
Tier I leverage 8,236 4.0% 8,333 4.0%
The Company’s dividends, if any, are expected to be made from dividends received from its subsidiary bank. The OCC limits dividends of a national bank in any calendar year to the net profits of that year combined with the retained net profits for the two preceding years.
NOTE I - COMPREHENSIVE INCOMEThe Company and its subsidiary bank report comprehensive income as required by FASB Statement No. 130, “Reporting Comprehensive Income.” In accordance with this statement, unrealized gains and losses on securities available-for-sale are included in other comprehensive income.
In the calculation of comprehensive income, certain reclassification adjustments are made to avoid double counting amounts that are displayed as part of net income for a period that also had been displayed as part of other comprehensive income. The disclosure of the reclassification amounts is as follows:
Years Ended December 31,
------------------------------------
2005 2004
-------------- ---------------
Unrealized holding gains (losses) on available-for-
sale securities $ (290,015) $ (31,716)
Reclassification adjustment for (gains) losses
realized in income - 5,221
-------------- ---------------
Net unrealized gains (losses) (290,015) (26,495)
Tax effect 98,605 6,646
-------------- ---------------
Net-of-tax amount $ (191,410) $ (19,849)
============== ===============
The components of income tax expense are as follows:
December 31,
---------------------------------
2005 2004
------------- --------------
Current:
Federal $ 958,287 $ 607,310
State 134,969 86,800
Deferred (229,453) (58,490)
------------- --------------
$ 863,803 $ 635,620
============= ==============
The Company’s income tax expense differs from the amounts computed by applying the federal income tax statutory rates to income before income taxes. A reconciliation of the differences is as follows:
Years Ended December 31,
-----------------------------------------------------------------
2005 2004
--------------------------------- -----------------------------
Amount % Amount %
---------------- ------------ --------------- -----------
Income taxes at statutory rate $ 942,819 34 $ 638,644 34
Tax-exempt income (107,996) (4) (102,253) (5)
State income tax, net of federal tax effect 89,080 3 56,559 3
Tax credits (43,502) (2) - -
Other, net (16,598) - 42,670 2
---------------- ------------ --------------- -----------
$ 863,803 31 $ 635,620 34
================ ============ =============== ===========
The components of deferred income taxes included in the consolidated financial statements are as follows:
December 31,
-----------------------------------
2005 2004
--------------- ---------------
Deferred tax assets:
Allowance for loan losses $ 734,157 $ 493,549
Unrealized loss on available-for-sale securities 96,762 -
Other 3,414 6,143
834,333 499,692
Deferred tax liabilities:
Securities (53,180) (39,180)
Premises and equipment (467,325) (472,900)
Unrealized gain on available-for-sale securities - (1,844)
--------------- ---------------
(520,505) (513,924)
--------------- ---------------
Net deferred tax asset (liability) $ 313,828 $ (14,232)
=============== ===============
The Company and its subsidiary bank provide a deferred compensation arrangement (401(k) plan) whereby employees contribute a percentage of their compensation. For employee contributions of three percent or less, the Company and its subsidiary bank provide a matching contribution. Contributions totaled $67,227 in 2005, and $64,191 in 2004.
The Company and its subsidiary bank have employment agreements with certain executive officers. These agreements contain provisions concerning salaries, bonuses, incentive programs, and benefits related to a change in control.
NOTE L - STOCK PLANSIn 1997, the Company adopted the 1997 Stock Option Plan (1997 Plan) which provides for the granting of options to purchase up to 72,185 shares of Company common stock by directors and key employees of the Company and the Bank. Options granted under the 1997 Plan were exercisable at December 31, 1999, and expire ten years after the grant date. As of December 31, 2005, 53,567 grants had not been exercised or forfeited. The options are exercisable at not less than the market value of the Company’s stock at the grant date. Accordingly, no compensation cost has been recognized.
On May 27, 1999, the Company’s shareholders approved the 1999 Stock Incentive Plan (1999 Plan). The 1999 Plan provides for the granting of options to purchase up to 106,689 shares of the Company’s common stock by the Company’s and its subsidiaries’ directors, key employees, and management. Under the 1999 Plan, the Company may grant either incentive stock options or nonqualified stock options. Options granted to directors and employees vest in equal amounts over three years. Stock options granted to management vest based on annual performance goals or after nine years and eleven months, if still employed. At December 31, 2005, 106,679 options had been granted, and 29,690 had been exercised or forfeited. Of the remaining grants available, 73,024 were vested. All options expire and are void unless exercised on or before April 15, 2009. The options are exercisable at not less than the market value of the Company’s stock at the grant date. Accordingly, no compensation expense has been recognized.
A summary of the status of the stock option plans as of December 31, 2005 and 2004, and changes during the years ending on those dates is presented below:
December 31,
------------------------------------------------------------
2005 2004
------------------------------ ---------------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
----------- ---------------- ----------- --------------
Options outstanding at beginning of year 147,495 $ 13 151,776 $ 13
Options granted 3,965 $ 25 - $ -
Options exercised (18,904) $ 13 (3,281) $ 10
Options forfeited (2,000) $ 17 (1,000) $ 15
Options outstanding at end of year 130,556 $ 13 147,495 $ 13
Options exercisable at end of year 126,591 $ 13 145,162 $ 13
The following table summarizes information about stock options at December 31, 2005:
Remaining
Number Contractual Number
Exercise Price Outstanding Life in Years Exercisable
----------------- ------------- --------------- -------------
$10.00 53,567 1.3 53,567
$15.00 - $17.50 73,024 3.3 73,024
$25.00 3,965 3.3 -0-
NOTE M - SUBORDINATED DEBENTURES
The Company issued $7,217,000 of floating rate junior subordinated deferrable interest debentures to The First Bancshares Statutory Trust I, a Connecticut business trust, in which the Company owns all of the common equity. The debentures are the sole asset of the Trust. The Trust issued $7,000,000 of Trust Preferred Securities (TPSs) to investors. The Company’s obligations under the debentures and related documents, taken together, constitute a fully and unconditional guarantee by the Company of the Trust’s obligations under the preferred securities. The preferred securities are redeemable by the Company in 2007, or earlier in the event the deduction of related interest for federal income taxes is prohibited, treatment as Tier I capital is no longer permitted, or certain other contingencies arise. The preferred securities must be redeemed upon maturity of the debentures in 2032. Interest on the preferred securities is the three month London Interbank Offer Rate (LIBOR) plus 3.6% and is payable quarterly. The terms of the subordinated debentures are identical to those of the preferred securities. In December 2003, the Company adopted the provisions of FASB Interpretations No. 46R (FIN 46R), “Consolidation of Variable Interest Entities, An Interpretation of ARB No. 51.” The adoption of FIN 46R required the company to deconsolidate the subsidiary.
NOTE N - TREASURY STOCKShares held in treasury totaled 26,494 at December 31, 2005 and 2004.
NOTE O - RELATED PARTY TRANSACTIONSIn the normal course of business, the subsidiary bank makes loans to its directors and executive officers and to companies in which they have a significant ownership interest. In the opinion of management, these loans are made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other parties, are consistent with sound banking practices, and are within applicable regulatory and lending limitations. Such loans amounted to approximately $8,093,000 and $7,672,000 at December 31, 2005 and 2004, respectively. The activity in loans to current directors, executive officers, and their affiliates during the year ended December 31, 2005, is summarized as follows (in thousands):
Loans outstanding at beginning of year $ 7,672
New loans 4,569
Repayments (4,148)
------------
Loans outstanding at end of year $ 8,093
============
In 2004, the Company sold its leasehold interest in sixteenth section land to a related party for $153,562.
NOTE P - COMMITMENTS, CONTINGENCIES, AND CONCENTRATIONS OF CREDIT RISKIn the normal course of business, there are outstanding various commitments and contingent liabilities, such as guaranties, commitments to extend credit, etc., which are not reflected in the accompanying financial statements. The subsidiary bank had outstanding letters of credit of $1,446,000 and $927,000 at December 31, 2005 and 2004, respectively, and had made loan commitments of approximately $33,364,000 and $23,471,000 at December 31, 2005 and 2004, respectively.
Commitments to extend credit and letters of credit include some exposure to credit loss in the event of nonperformance of the customer. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. The credit policies and procedures for such commitments are the same as those used for lending activities. Because these instruments have fixed maturity dates and because a number expire without being drawn upon, they generally do not present any significant liquidity risk. No significant losses on commitments were incurred during the two years ended December 31, 2005, nor are any significant losses as a result of these transactions anticipated.
The primary market area served by the subsidiary bank is Forrest, Lamar, Jones, Pearl River and Jackson Counties within South Mississippi. Management closely monitors its credit concentrations and attempts to diversify the portfolio within its primary market area. As of December 31, 2005, management does not consider there to be any significant credit concentrations within the loan portfolio. Although the banks’ loan portfolio, as well as existing commitments, reflects the diversity of its primary market area, a substantial portion of a borrower’s ability to repay a loan is dependent upon the economic stability of the area.
The Company has three leases for facilities. The first lease expires in July, 2006, and the monthly lease payments are $2,110. The second lease expires in May, 2006, and the monthly lease payments are $1,675. The third lease requires monthly payments of $2,706 through December, 2006, with escalation to $2,829 through the lease expiration in June, 2007. Three one-year renewal options are included in the lease terms. Renewal rates will be based on the increase in the Consumer Price Index.
Rental expense for premises and equipment for the years ended December 31, 2005 and 2004, was approximately $136,000 and $90,000, respectively.
The Company and its subsidiary bank are subject to claims and lawsuits which arise primarily in the ordinary course of business. It is the opinion of management that the disposition or ultimate resolution of such claims and lawsuits will not have a material adverse effect on the consolidated financial position of the Company.
The following disclosure of the estimated fair value of financial instruments is made in accordance with FASB Statement No. 107, “Disclosures About Fair Value of Financial Instruments.” The estimated fair value amounts have been determined using available market information and appropriate valuation methodologies. However, considerable judgment is necessarily required to interpret market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that could be realized in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.
The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:
Cash and Cash Equivalents -For such short-term instruments, the carrying amount is a reasonable estimate of fair value.
Securities - For securities held as investments, fair value equals market price, if available. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities.
Loans - 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.
Deposits - The fair values of demand deposits are, as required by Statement No. 107, equal to the carrying value of such deposits. Demand deposits include noninterest-bearing demand deposits, savings accounts, NOW accounts, and money market demand accounts. The fair value of variable rate term deposits, those repricing within six months or less, approximates the carrying value of these deposits. Discounted cash flows have been used to value fixed rate term deposits and variable rate term deposits repricing after six months. The discount rate used is based on interest rates currently being offered on comparable deposits as to amount and term.
Short-Term Borrowings - The carrying value of any federal funds purchased and other short-term borrowings approximates their carrying values.
FHLB and Other Borrowings - The fair value of the fixed rate borrowings are estimated using discounted cash flows, based on current incremental borrowing rates for similar types of borrowing arrangements. The carrying amount of any variable rate borrowings approximates their fair values.
Subordinated Debentures - The subordinated debentures bear interest at a variable rate and the carrying value approximates the fair value.
Off-Balance Sheet Instruments - Fair values of off-balance sheet financial instruments are based on fees charged to enter into similar agreements. However, commitments to extend credit do not represent a significant value until such commitments are funded or closed. Management has determined that these instruments do not have a distinguishable fair value and no fair value has been assigned.
December 31, 2005 December 31, 2004
-------------------------------- -------------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
------------- -------------- --------------- -------------
Financial Instruments: (In thousands)
Assets:
Cash and cash equivalents $ 28,888 $ 28,888 $ 7,146 $ 7,146
Securities available-for-sale 48,543 48,543 26,351 26,351
Securities held-to-maturity 14 14 15 15
Other securities 2,103 2,103 2,156 2,156
Loans 197,943 194,380 162,716 161,569
Liabilities:
Noninterest-bearing deposits 49,585 49,585 30,365 30,365
Interest-bearing deposits 192,364 192,364 126,464 127,010
Subordinated debentures 7,217 7,217 7,217 7,217
FHLB and other borrowings 25,465 25,465 30,851 30,851
NOTE R - SUBSEQUENT EVENT
On February 22, 2006, the Company’s board of directors declared a two-for-one stock split effected in the form of a 100% stock dividend. The record date for the shareholders entitled to receive the additional shares is March 1, 2006. The stock split will result in the issuance of approximately 1,187,600 shares of common stock and will be accounted for by the transfer of approximately $1,187,600 from additional paid-in-capital to common stock. Pro forma net income per share amounts on a post-split basis for the years ended December 31, 2005 and 2004 would be as follows:
Year Ended December 31
-----------------------------------
2005 2004
---- ----
Net income per common share
Basic:
As reported $1.62 $1.07
Pro forma (unaudited) .81 .53
Diluted:
As reported $1.53 $1.03
Pro forma (unaudited) .77 .52
The information presented in the consolidated financial statements and the related notes have not been
restated to reflect the stock split.
NOTE S - PARENT COMPANY FINANCIAL INFORMATION
The balance sheets, statements of income, and cash flows for The First Bancshares, Inc. (parent only) follow.
Condensed Balance Sheets
December 31,
--------------------------------------
2005 2004
------------------ -----------------
Assets:
Cash and cash equivalents $ 1,796,768 $ 4,340,922
Investment in subsidiary bank 22,172,888 18,226,060
Investment in statutory trust 217,000 217,000
Other securities 150,000 150,000
Premises and equipment 677,063 752,292
Other 680,881 273,518
------------------ -----------------
$ 25,694,600 $ 23,959,792
================== =================
Liabilities and Stockholders' Equity:
Subordinated debentures $ 7,217,000 $ 7,217,000
Other - 3,191
Stockholders' equity 18,477,600 16,739,601
------------------ -----------------
$ 25,694,600 $ 23,959,792
================== =================
Condensed Statements of Income
Years Ended
December 31,
-----------------------------------
2005 2004
--------------- --------------
Income:
Interest and dividends $ 141,000 $ 150,684
Gain on sale of lease 59,748 152,562
Other 3,847 43,274
--------------- --------------
204,595 346,520
Expenses:
Interest on borrowed funds 502,649 370,788
Other 102,823 159,910
--------------- --------------
605,472 530,698
Loss before income taxes and equity in undistributed income
of subsidiary (400,877) (184,178)
Income tax benefit (171,813) (65,800)
--------------- --------------
Loss before equity in undistributed income of subsidiary (229,064) (118,378)
Equity in undistributed income of subsidiary 2,138,258 1,361,121
--------------- --------------
Net income $ 1,909,194 $ 1,242,743
=============== ==============
Condensed Statements of Cash Flows
Years Ended
December 31,
-----------------------------------
2005 2004
--------------- --------------
Cash flows from operating activities:
Net income $ 1,909,194 $ 1,242,743
Adjustments to reconcile net income to net cash used in operating activities:
Equity in undistributed income of subsidiary (2,138,258) (1,361,121)
Gain on sale of lease (59,748) (152,562)
Other, net (222,460) 67,872
Net cash used in operating activities (511,272) (203,068)
Cash flows from investing activities:
Investment in subsidiary bank (2,000,000) -
Other, net (188,074) -
Proceeds from sale of lease and land 134,977 500,008
Net cash provided by (used in) investing activities (2,053,097) 500,008
Cash flows from financing activities:
Dividends paid on common stock (233,690) (174,774)
Issuance of subordinated debentures - -
Exercise of stock options 253,905 40,010
Purchase of treasury stock - -
Issuance of common stock - -
Net cash provided by (used in) financing activities 20,215 (134,764)
Net increase (decrease) in cash and cash equivalents (2,544,154) 162,176
Cash and cash equivalents at beginning of year 4,340,922 4,178,746
Cash and cash equivalents at end of year $ 1,796,768 $ 4,340,922
Three Months Ended
-------------------------------------------------------------
Mar. 31 June 30 Sept. 30 Dec. 31
------------- ----------- ----------- ------------
(In thousands, except per share amounts)
2005
Total interest income $ 3,302 $ 3,718 $ 4,101 $ 4,571
Total interest expense 1,073 1,274 1,493 1,703
------------- ----------- ----------- ------------
Net interest income 2,229 2,444 2,608 2,868
Provision for loan losses 204 233 313 170
------------- ----------- ----------- ------------
Net interest income after provision for
loan losses 2,025 2,211 2,295 2,698
Total non-interest income 459 433 368 422
Total non-interest expense 1,937 1,900 2,055 2,246
Income tax expense 182 250 203 229
------------- ----------- ----------- ------------
Net income $ 365 $ 494 $ 405 $ 645
============= =========== =========== ============
Per share:
Net income $ .31 $ .42 $ .34 $ .55
Net income, diluted .30 .39 .33 .51
Cash dividends declared .20 - - -
2004
Total interest income $ 2,484 $ 2,611 $ 2,809 $ 3,110
Total interest expense 726 736 792 944
------------- ----------- ----------- ------------
Net interest income 1,758 1,875 2,017 2,166
Provision for loan losses 134 154 213 171
------------- ----------- ----------- ------------
Net interest income after provision for
loan losses 1,624 1,721 1,804 1,995
Total non-interest income 573 487 431 472
Total non-interest expense 1,709 1,742 1,795 1,982
Income tax expense 161 164 152 159
------------- ----------- ----------- ------------
Net income $ 327 $ 302 $ 288 $ 326
============= =========== =========== ============
Per share:
Net income $ .28 $ .26 $ .25 $ .28
Net income, diluted .27 .25 .24 .27
Cash dividends declared .15 - - -
THE FIRST BANCSHARES, INC.
UNAUDITED FINANCIAL STATEMENTS
JUNE 30, 2006
THE FIRST BANCSHARES, INC.
BALANCE SHEET
(Unaudited)
($ amounts in thousands)
June 30, 2006
ASSETS
Cash and due from banks $ 13,510
Interest-bearing deposits with banks 240
Federal funds sold 365
--------
Total cash and cash equivalents 14,115
Securities held-to-maturity, at amortized cost 14
Securities available-for-sale, at fair value 56,392
Other securities 2,348
Loans held for sale 5,587
Loans 235,065
Allowance for loan losses (2,623)
--------
LOANS, NET 232,442
Premises and equipment 8,538
Interest receivable 2,026
Cash surrender value 5,150
Other assets 2,617
--------
$329,229
========
LIABILITIES AND SHAREHOLDERS' EQUITY
Non-interest bearing $ 55,142
Time, $100,000 or more 58,880
Interest-bearing 154,615
--------
TOTAL DEPOSITS 268,637
Interest payable 665
Borrowed funds 28,831
Subordinated debentures 11,217
Other liabilities 420
--------
TOTAL LIABILITIES 309,770
SHAREHOLDERS' EQUITY:
Common stock, $1 par value. Authorized 2,406
10,000,000 shares; 2,406,124 issued
Preferred stock, par value $1 per share,
10,000,000 shares authorized; no shares
issued or outstanding -
Treasury stock, at cost, 26,494 shares (464)
Additional paid-in capital 12,067
Retained earnings 6,063
Accumulated other comprehensive loss (613)
--------
TOTAL SHAREHOLDERS' EQUITY 19,459
$329,229
========
Exhibit D-28
THE FIRST BANCSHARES, INC.
STATEMENT OF INCOME
(Unaudited)
($ amounts in thousands except earnings per share)
Six Months Ended
June 30, 2006
INTEREST INCOME:
Loans, including fees $ 8,761
Securities:
Taxable 1,278
Tax exempt 98
Federal funds sold 255
Other -
---------
TOTAL INTEREST INCOME 10,392
INTEREST EXPENSE:
Deposits 2,811
Other borrowings 1,005
---------
TOTAL INTEREST EXPENSE 3,816
---------
NET INTEREST INCOME 6,576
PROVISION FOR LOAN LOSSES 294
---------
NET INTEREST INCOME
AFTER PROVISION FOR LOAN LOSSES 6,282
NONINTEREST INCOME:
Service charges on deposit accounts 592
Other service charges,
commissions and fees 307
Gain on sale of properties 224
---------
TOTAL NONINTEREST INCOME 1,123
---------
NONINTEREST EXPENSES:
Salaries and employee benefits 2,938
Occupancy and equipment expense 622
Other operating expenses 1,409
---------
TOTAL NONINTEREST EXPENSES 4,969
---------
INCOME BEFORE INCOME TAXES 2,436
INCOME TAXES 688
---------
NET INCOME $ 1,748
=========
EARNINGS PER SHARE - BASIC $ .74
EARNINGS PER SHARE - ASSUMING DILUTION $ .69
DIVIDENDS PER SHARE $ .16
Exhibit D-29
EXHIBIT E
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
OF
FIRST NATIONAL BANK OF WIGGINS
FOR THE PERIODS ENDED
DECEMBER 31, 2003 AND DECEMBER 31, 2004;
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
OF
FIRST NATIONAL BANK OF WIGGINS
FOR THE PERIOD ENDED
DECEMBER 31, 2005,
AND THE INTERIM PERIOD ENDED
JUNE 30, 2006
Exhibit E-1
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
First National Bank of Wiggins
Wiggins, Mississippi
We have audited the accompanying balance sheets of First National Bank of Wiggins as of December 31, 2004 and
2003, and the related statements of operations, changes in stockholders' equity, and cash flows for the years
then ended. These financial statements are the responsibility of the Bank's management. Our responsibility is
to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of
America. Those standards require that we plan and perform the audits to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
The accompanying financial statements have been prepared assuming that the Bank will continue as a going
concern. As discussed in Note G to the financial statements, at December 31, 2004, the Bank did not meet its
minimum capital requirements established by the Office of the Comptroller of the Currency (OCC) according to its
consent order. The Bank also has suffered recurring losses from operations. The Bank has filed a capital plan
with the OCC outlining its plans for attaining the required levels of regulatory capital. The Bank has received
notification from the OCC rejecting its capital plan. Failure to meet the capital requirements and other
conditions of the OCC included in the consent order would expose the institution to regulatory sanctions that may
include restrictions on operations and growth, mandatory asset dispositions, and seizure. These matters raise
substantial doubt about the ability of the Bank to continue as a going concern. The accompanying financial
statements do not include any adjustments that might result from the outcome of this uncertainty.
Exhibit E-2
Board of Directors and Stockholders First National Bank of Wiggins Page 2 March 24, 2005 In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the First National Bank of Wiggins as of December 31, 2004 and 2003, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. /s/ T. E. LOTT & COMPANY Columbus, Mississippi March 24, 2005Exhibit E-3
FIRST NATIONAL BANK OF WIGGINS
BALANCE SHEETS
DECEMBER 31, 2004 AND 2003
ASSETS 2004 2003
------------ ------------
Cash and due from banks $ 1,694,265 $ 1,417,664
Federal funds sold 175,000 1,200,000
------------ ------------
Total cash and cash equivalents 1,869,265 2,617,664
Securities 17,632,715 16,707,186
Other Securities 336,450 324,400
Loans, net of allowance for loan losses of $975,122
in 2004 and $1,306,123 in 2003 25,291,600 27,815,094
Premises and equipment 727,102 764,831
Interest receivable 315,285 383,647
Foreclosed assets 757,459 1,062,971
Other assets 505,592 658,773
------------ ------------
Total assets $ 47,435,468 $ 50,334,566
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing $ 6,540,048 $ 5,211,052
Interest-bearing 36,971,396 40,502,859
------------ ------------
Total deposits 43,511,444 45,713,911
Interest payable 116,029 124,969
Borrowed funds 24,133 41,478
Other liabilities 36,884 122,463
------------ ------------
Total liabilities 43,688,490 46,002,821
------------ ------------
Stockholders' Equity:
Common stock, $10 par value, authorized 50,000 and
25,000 shares in 2004 and 2003, respectively; issued
and outstanding 23,728 and 23,177 shares in 2004
and 2003, respectively 237,280 231,770
Additional paid-in capital 4,908,320 4,803,630
Accumulated deficit (1,318,730) (707,705)
Accumulated other comprehensive income (loss) (79,892) 4,050
------------ ------------
Total stockholders' equity $ 3,746,978 $ 4,331,745
------------ ------------
Total Liabilities & Stockholders' Equity $ 47,435,468 $ 50,334,566
============ ============
The accompanying notes are an integral part of these statements.
FIRST NATIONAL BANK OF WIGGINS
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 2004 AND 2003
2004 2003
------------ ------------
INTEREST INCOME
Interest and fees on loans $ 1,926,975 $ 2,460,819
Interest and dividends on securities:
Taxable 526,328 466,516
Nontaxable 15,744 16,813
Interest on federal funds sold 17,972 26,596
Other 85 72
------------ ------------
Total interest income 2,487,104 2,970,816
------------ ------------
INTEREST EXPENSE
Interest on time deposits of $100,000 or more 372,857 420,565
Interest on other deposits 831,865 1,017,718
Interest on borrowed funds 969 1,610
------------ ------------
Total interest expense 1,205,691 1,439,893
------------ ------------
Net interest income 1,281,413 1,530,923
Provision for loan losses 287,187 87,934
------------ ------------
Net interest income after provision for loan losses 994,226 1,442,989
------------ ------------
OTHER INCOME
Service charges on deposit accounts 456,085 502,930
Other service charges and fees 68,067 47,150
Securities gains (losses), net (6,258) -
Gain (loss) on sale of foreclosed assets, net 644 (85,696)
Other 21,485 56,517
------------ ------------
Total other income 540,023 520,901
------------ ------------
OTHER EXPENSE
Salaries 724,796 737,867
Employee benefits 201,951 186,590
Occupancy 98,066 89,540
Furniture and equipment 167,073 165,359
Write-down of foreclosed assets 102,231 -
Directors' fees 38,640 39,930
Printing, stationery, and supplies 74,901 86,407
Data processing fees 43,777 50,239
Consulting fees 4,723 37,859
Property foreclosure 103,186 69,285
FDIC deposit insurance assessments 83,575 56,259
Audits and examinations 104,802 96,845
Blanket bond insurance 44,798 21,452
Postage 34,599 28,760
Legal 42,813 45,415
Computer 36,333 9,239
Other losses 7,936 137,779
Other 222,636 184,218
------------ ------------
Total other expense 2,136,836 2,043,043
------------ ------------
Loss before income taxes (602,587) (79,153)
Income tax expense 8,438 -
------------ ------------
Net Loss $ (611,025) $ (79,153)
============ ============
The accompanying notes are an integral part of these statements.
FIRST NATIONAL BANK OF WIGGINS
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2004 AND 2003
Accumulated
Other
Compre-
Compre- Additional hensive
hensive Common Paid-in Accumulated Income
Income Stock Capital Deficit (Loss) Total
----------- ---------- ----------- ---------- ----------- ----------
Balance,
January 1, 2003 $ 200,000 $ 4,200,000 $ (628,552) $ 68,306 $3,839,754
Comprehensive income:
Net loss for 2003 $ (79,153) - - (79,153) - (79,153)
Net change in
unrealized gain
(loss) on available-
for-sale securities,
net of tax (64,256) - - - (64,256) (64,256)
-----------
Comprehensive loss $ (143,409)
===========
Issuance of stock 31,770 603,630 - - 635,400
---------- ----------- ---------- --------- ----------
Balance,
December 31, 2003 231,770 4,803,630 (707,705) 4,050 4,331,745
Comprehensive income:
Net income for 2004 $ (611,025) - - (611,025) - (611,025)
Net change in
unrealized gain
(loss) on available-
for-sale securities,
net of tax (83,942) - - - (83,942) (83,942)
-----------
Comprehensive loss $ (694,967)
===========
Issuance of common stock 5,510 104,690 - - 110,200
---------- ----------- ---------- --------- ----------
Balance,
December 31, 2004 $ 237,280 $ 4,908,320 $(1,318,730) $ (79,892) $3,746,978
========== =========== =========== ============ ==========
The accompanying notes are an integral part of these statements
FIRST NATIONAL BANK OF WIGGINS
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2004 AND 2003
2004 2003
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (611,025) $ (79,153)
Adjustments to reconcile net loss to net cash:
Depreciation and amortization 109,873 99,693
Deferred income tax expense (benefit) 89,438 (81,000)
Provision for loan losses 287,187 87,934
FHLB stock dividends (3,700) (4,400)
(Gain) loss on sale of foreclosed assets (644) 85,696
Write-down of foreclosed assets 102,231 -
Armotization of premiums and discounts on securities, net 63,297 30,770
Losses on sale of securities, net 6,258 -
Changes in:
Interest receivable 68,362 138,445
Other assets 113,333 5,736
Interest payable (8,940) (31,620)
Other liabilities (85,579) 104,976
------------ ------------
Net cash provided by operating activities 130,091 357,077
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of available-for-sale securities (10,161,157) (16,706,314)
Proceeds from sales of available-for-sale securities 2,707,470 -
Proceeds from maturities and calls of available-for-sale securities 5,794,085 9,510,394
Proceeds from maturities and calls of held-to-maturity 530,986 1,159,458
Purchases of other securities (8,350) -
Decrease in loans 1,495,221 8,016,844
Proceeds from sale of foreclosed assets 945,011 386,415
Additions to premises and equipment (72,144) (167,228)
------------ ------------
Net cash used in investing activities 1,231,122 2,199,569
------------ ------------
The accompanying notes are an integral part of these statements.
Exhibit E-7
FIRST NATIONAL BANK OF WIGGINS
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2004 AND 2003
(Continued)
2004 2003
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Decrease in deposits $ (2,202,467) $ (3,820,798)
Issuance of common stock 110,200 635,400
Proceeds from issuance of borrowed funds - 36,758
Repayment of borrowed funds (17,345) (15,167)
-------------- --------------
Net cash provided by financing activities (2,109,612) (3,163,807)
-------------- --------------
Net decrease in cash and cash equivalents (748,399) (607,161)
Cash and cash equivalents at beginning of year 2,617,664 3,224,825
-------------- --------------
Cash and cash equivalents at end of year $ 1,869,265 $ 2,617,664
============== ==============
Cash paid (received) during the year for:
Interest $ 1,214,631 $ 1,471,513
Income taxes (159,416) -
Non-cash activities:
Transfers of loans to foreclosed assets 653,786 960,889
The accompanying notes are an integral part of these statements.
Exhibit E-8
FIRST NATIONAL BANK OF WIGGINS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
NOTE A - SUMMARY OF ACCOUNTING POLICIES
The accounting and reporting policies of First National Bank of Wiggins (the Bank) conform to accounting
principles generally accepted in the United States of America and, where applicable, to general practice
within the banking industry. The following is a description of the significant policies:
1. Nature of Operations
The Bank provides full banking services. It operates under a national bank charter and is subject to
regulation of the Office of the Comptroller of the Currency (OCC). The Bank serves the Stone County,
Mississippi area.
2. Estimates
In preparing financial statements in conformity with accounting principles generally accepted in the United
States of America, management is required to make estimates and assumptions that affect the reported amounts
of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the
financial statements and revenues and expenses during the reporting period. Actual results could differ from
those estimates.
The determination of the adequacy of the allowance for loan losses is based on estimates that are
particularly susceptible to significant changes in the economic environment and market conditions. In
connection with the determination of the estimated losses on loans, management obtains independent appraisals
for significant collateral. The Bank's loans are generally secured by specific items of collateral including
real property, consumer assets, and business assets. Although the Bank has a diversified loan portfolio, a
substantial portion of its debtors' ability to honor their contracts is dependent on local economic
conditions. While management uses available information to recognize losses on loans, further changes in the
allowance 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 estimated losses on loans. Such
agencies may require, and have required, the Bank to recognize additional losses based on their judgments
about information available to them at the time of their examination. Because of these factors, it is
reasonably possible that the estimated losses on loans may change materially in the near term. However, the
amount of the change that is reasonably possible cannot be estimated.
Exhibit E-9
FIRST NATIONAL BANK OF WIGGINS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
NOTE A - SUMMARY OF ACCOUNTING POLICIES (Continued)
3. Securities
Investments in securities are accounted for as follows:
Available-for-Sale Securities
Securities classified as available-for-sale are those securities that are intended to be held for an
indefinite period of time but not necessarily to maturity. Any decision to sell a security classified as
available-for-sale would be based on various factors including movements in interest rates, liquidity needs,
security risk assessments, changes in the mix of assets and liabilities and other similar factors. These
securities are carried at their estimated fair value, and the net unrealized gain or loss is reported as
accumulated other comprehensive income. Premiums and discounts are recognized in interest income using the
interest method.
Gains and losses on the sale of available-for-sale securities are determined using the adjusted cost of the
specific security sold.
Securities to be Held-to-Maturity
Securities classified as held-to-maturity are those securities for which there is a positive intent and
ability to hold to maturity. These securities are carried at cost adjusted for amortization of premium and
accretion of discount, computed by the interest method.
Trading Account Securities
Trading account securities are those securities which are held for the purpose of selling them at a profit.
There were no trading account securities on hand at December 31, 2004 and 2003.
Other Securities
Other securities are carried at cost and are restricted in marketability. Other securities consist of
investments in the Federal Home Loan Bank (FHLB) and the Federal Reserve Bank.
4. Loans
Loans are generally carried at the principal amount outstanding and adjusted for the allowances for loan
losses. Interest is accrued into income based upon the principal outstanding and the stated rate of the
loan.
( Continued )
Exhibit E-10
FIRST NATIONAL BANK OF WIGGINS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
NOTE A - SUMMARY OF ACCOUNTING POLICIES (Continued)
4. Loans (Continued)
A loan is considered to be impaired when it appears probable that the entire amount contractually due will
not be collected. Factors considered in determining impairment include payment status, collateral values,
and the probability of collecting scheduled payments of principal and interest when due. Generally,
impairment is measured on a loan by loan basis using the fair value of the supporting collateral.
The accrual of interest on significant loans, as determined by bank management, is discontinued when, in the opinion
of management, there are indications that the borrower may be unable to meet payments as they become due.
Thereafter, no interest is taken into income until received.
Direct loan costs and any related loan origination fees are recognized currently as period costs and income,
respectively, and do not vary materially from the results that would be recorded using the deferral method
prescribed by Financial Accounting Standards Board (FASB) No. 91, "Accounting for Nonrefundable Fees and
Costs Associated with Originating or Acquiring Loans and Initial Direct Costs of Leases."
5. Allowance for Loan Losses
The allowance for loan losses is maintained at a level believed adequate by management to absorb probable
losses inherent in the loan portfolio and is based on the size and current risk characteristics of the loan
portfolio, an assessment of individual problem loans, actual and anticipated loss experience, current
economic events, internal and regulatory loan reviews, and other pertinent factors, including regulatory
guidance and general economic conditions. Determination of the allowance is inherently subjective as it
requires significant estimates, including the evaluation of collateral supporting impaired loans, estimated
losses on pools of homogeneous loans based on historical loss experience, and consideration of current
economic trends, all of which may be susceptible to significant change. Loan losses are charged off against
the allowance, while recoveries of amounts previously charged off are credited to the allowance. A provision
for loan losses is charged to operations based on management's periodic evaluation of the factors previously
mentioned, as well as other pertinent factors.
( Continued )
Exhibit E-11
FIRST NATIONAL BANK OF WIGGINS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
NOTE A - SUMMARY OF ACCOUNTING POLICIES (Continued)
5. Allowance for Loan Losses (Continued)
The allowance for loan losses consists of an allocated component and an unallocated component. The
components of the allowance for loan losses represent an estimation done pursuant to either FASB Statement
No. 5, "Accounting for Contingencies," or FASB Statement No. 114, "Accounting by Creditors for Impairment of
a Loan." The allocated component of the allowance for loan losses reflects expected losses resulting from an
analysis developed through specific credit allocations for individual loans and historical loss experience
for each loan category. The specific allocations are based on a regular review of all loans where the
internal credit rating is at or below a predetermined classification. The historical loan loss element is
determined statistically using loss experience and the related internal gradings of loans charged off. The
analysis is performed quarterly and loss factors are updated regularly based on actual experience. The
allocated component of the allowance for loan losses also includes consideration of the amounts necessary for
any concentrations and changes in portfolio mix and volume.
The unallocated portion of the allowance reflects management's estimate of probable inherent but undetected
losses within the portfolio due to uncertainties in economic conditions, changes in collateral values,
unfavorable information about a borrower's financial condition, and other risk factors. In addition, the
unallocated allowance includes a component that explicitly accounts for the inherent imprecision in the loan
loss analysis.
6.Premises and Equipment
Premises and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation and
amortization are determined using the straight-line and accelerated methods at rates calculated to depreciate
or amortize the cost of the assets over their estimated useful lives.
Repairs and maintenance expenditures are charged to operating expenses; major expenditures for renewals and
betterments are capitalized and depreciated over their estimated useful lives. Upon retirement, sale, or
other disposition of premises and equipment, the cost and accumulated depreciation are eliminated from the
accounts, and any gains or losses are included in operations.
( Continued )
Exhibit E-12
FIRST NATIONAL BANK OF WIGGINS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
NOTE A - SUMMARY OF ACCOUNTING POLICIES (Continued)
7. Employee Benefits
The Bank provides a deferred compensation arrangement (401(k) plan) whereby employees contribute a percentage
of their compensation. Eligible employees are allowed to contribute up to 10% of their compensation, as
defined in the plan, and the Bank matches up to 4% of the employee contribution. For the years ended
December 31, 2004 and 2003, expense attributable to the Plan amounted to $19,403 and $14,650, respectively.
8. Income Taxes
Deferred income tax assets and liabilities are determined using the liability (or balance sheet) method.
Under this method, the net deferred tax asset or liability is determined based on the tax effects of the
differences between the book and tax bases of the various balance sheet assets and liabilities and gives
current recognition to changes in tax rates and laws.
9. Foreclosed Assets
Real estate properties acquired through or in lieu of loan foreclosure are initially recorded at the lower of
the Bank's carrying amount or fair value less estimated selling cost at the date of foreclosure. Any
write-downs based on the asset's fair value at the date of the acquisition are charged to the allowance for
loan losses. After foreclosure, property held for sale is carried at the lower of the new cost basis or fair
value less cost to sell. Impairment losses on property to be held and used are measured as the amount by
which the carrying amount of a property exceeds its fair value. Costs of significant property improvements
are capitalized, whereas costs relating to holding property are expensed. Valuations are periodically
performed by management, and any subsequent write-downs are recorded as a charge to operations, if necessary,
to reduce the carrying value of a property to the lower of its cost or fair value less cost to sell.
10. Statement of Cash Flows
For purposes of reporting cash flows, cash and cash equivalents include cash and due from banks and federal
funds sold. Generally, federal funds are sold for one to seven-day periods.
( Continued )
Exhibit E-13
FIRST NATIONAL BANK OF WIGGINS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
NOTE A - SUMMARY OF ACCOUNTING POLICIES (Continued)
11. Off-Balance Sheet Financial Instruments
In the ordinary course of business, the Bank has entered into off-balance-sheet financial instruments
consisting of commitments to extend credit. Such financial instruments are recorded in the financial
statements when they are exercised.
12. Accounting Pronouncements
On September 30, 2004, the FASB issued FASB Staff Position ("FSP") Emerging Issues Task Force ("EITF") Issue
No. 03-1-1 delaying the effective date of paragraphs 10-20 of EITF 03-1, "The Meaning of Other-Than-Temporary
Impairment and Its Application to Certain Investments." The EITF Issue provides guidance for determining the
meaning of "other-than-temporarily impaired" and its application to certain debt and equity securities within
the scope of SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities", and
investments accounted for under the cost method. The guidance requires that investments which have declined
in value due to credit concerns or solely due to changes in interest rates must be recorded as
other-than-temporarily impaired unless the Bank can assert and demonstrate its intention to hold the security
for a period of time sufficient to allow for a recovery of fair value up to or beyond the cost of the
investment which might mean maturity. The delay of the effective date of EITF 03-1 will be superceded
concurrent with the final issuance of proposed FSP Issue 03-1-a. Proposed FSP Issue 03-1-a is intended to
provide implementation guidance with respect to all securities analyzed for impairment under paragraphs 10-20
of EITF 03-1. Management continues to closely monitor and evaluate how the provisions of EITF 03-1 and
proposed FSP Issue 03-1-a will affect the Bank.
In December 2003, the Accounting Standards Executive Committee issued Statement of Position ("SOP") 03-3,
"Accounting for Certain Loans or Debt Securities Acquired in a Transfer." The SOP is effective for loans
acquired in fiscal years beginning after December 15, 2004. The SOP addresses accounting for differences
between contractual cash flows and cash flows expected to be collected from an investor's initial investment
in loans or debt securities acquired in a transfer if those differences are attributable, at least in part,
to credit quality. The SOP applies to loans acquired in business combinations but does not apply to loans
originated by the Bank. Management does not believe the provision of this standard will have a material
impact on the results of future operations.
13. Reclassifications
Certain prior period amounts have been reclassified to conform with the 2004 presentation.
( Continued )
Exhibit E-14
FIRST NATIONAL BANK OF WIGGINS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
NOTE A - SUMMARY OF ACCOUNTING POLICIES (Continued)
14. Advertising Costs
Advertising costs are expensed in the period in which they are incurred. Advertising expense for the years
ended December 31, 2004 and 2003, was $7,712 and $15,597, respectively.
NOTE B - SECURITIES
Securities at December 31, 2004 and 2003, consisted of available-for-sale securities with a carrying amount
of $16,946,151 and $15,491,670, respectively, and securities to be held-to-maturity with a carrying amount of
$686,564 and $1,215,516, respectively. The amortized cost, gross unrealized gains, gross unrealized losses
and estimated fair value of these securities at December 31, 2004 and 2003, are as follows:
December 31, 2004
-------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------------ --------------- ---------------- ------------------
Available-for-sale securities:
Obligations of other U. S.
Government agencies $ 8,575,199 $ 3,981 $ 73,847 $ 8,505,333
Mortgage backed securities 5,487,139 5,026 40,232 5,451,933
Corporate securities 1,956,099 - 1,375 1,954,724
Mutual Fund 1,047,524 - 13,363 1,034,161
------------------ --------------- ---------------- ------------------
$ 17,065,961 $ 9,007 $ 128,817 $ 16,946,151
================== =============== ================ ==================
Held-to-maturity securities:
Obligations of other U. S.
Government agencies $ 249,939 $ 7,171 $ - $ 257,110
Obligations of states and
political subdivisions 414,946 3,409 - 418,355
Mortgage backed securities 21,679 37 - 21,716
------------------ --------------- ---------------- ------------------
$ 686,564 $ 10,617 $ - $ 697,181
================== =============== ================ ==================
( Continued )
Exhibit E-15
FIRST NATIONAL BANK OF WIGGINS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
NOTE B - SECURITIES (Continued)
December 31, 2003
------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------------ --------------- ---------------- -----------------
Available-for-sale securities:
Obligations of other U. S.
Government agencies $ 9,557,386 $ 38,095 $ 27,638 $ 9,567,843
Obligations of states and
political subdivisions 320,000 - - 320,000
Mortgage backed securities 2,871,036 18,866 5,788 2,884,114
Corporate securities 704,545 2,266 - 706,811
Mutual Fund 2,024,981 - 12,079 2,012,902
------------------ --------------- ---------------- -----------------
$ 15,477,948 $ 59,227 $ 45,505 $ 15,491,670
Held-to-maturity securities:
Obligations of other U. S.
Government agencies $ 747,999 $ 30,988 $ - $ 778,987
Obligations of states and
political subdivisions 414,832 12,933 - 427,765
Mortgage backed securities 52,685 534 - 53,219
------------------ --------------- ---------------- -----------------
$ 1,215,516 $ 44,455 $ - $ 1,259,971
================== =============== ================ =================
The details concerning securities classified as available for sale with unrealized losses as of December 31,
2004 and 2003, were as follows:
Losses < 12 Months Losses > 12 Months Total
-------------------------------- --------------------------- --------------------------------
Estimated Gross Estimated Gross Estimated Gross
Fair Unrealized Fair Unrealized Fair Unrealized
Value Losses Value Losses Value Losses
----------------- ------------ -------------- -------------- ------------------ --------------
2004:
Obligations of other
U. S. Government
agencies $ 17,032,958 $ 73,847 $ - $ - $ 17,032,958 $ 73,847
Mortgage backed
securities 5,082,726 40,232 - - 5,082,726 40,232
Corporate securities 900,000 1,375 - - 900,000 1,375
Mutual Fund - - 1,047,524 13,363 1,047,524 13,363
----------------- ------------ -------------- -------------- ------------------ --------------
$ 23,015,684 $ 115,454 $ 1,047,524 $ 13,363 $ 24,063,208 $ 128,817
================= ============ ============== ============== ================== ==============
( Continued )
Exhibit E-16
FIRST NATIONAL BANK OF WIGGINS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
NOTE B - SECURITIES (Continued)
Losses < 12 Months Losses > 12 Months Total
------------------------------ ---------------------------- ---------------------------------
Estimated Gross Estimated Gross Estimated Gross
Fair Unrealized Fair Unrealized Fair Unrealized
Value Losses Value Losses Value Losses
---------------- ------------- --------------- -------------- ------------------ --------------
2003:
Obligations of other
U. S. Government
agencies $ 5,476,045 $ 27,638 $ - $ - $ 5,476,045 $ 27,638
Mortgage backed
securities 912,707 5,788 - - 912,707 5,788
Mutual Fund 2,024,981 12,079 - - 2,024,981 12,079
---------------- ------------- --------------- -------------- ------------------ --------------
$ 8,413,733 $ 45,505 $ - $ - $ 8,413,733 $ 45,505
================ ============= =============== ============== ================== ==============
As of December 31, 2004, approximately 64% of the number of securities in the investment portfolio reflected
an unrealized loss. Management is of the opinion the Bank has the ability to hold these securities until
such time as the value recovers or the securities mature. Management also believes the deterioration in
value is attributable to changes in market interest rates and not to the credit quality of the issuer.
The scheduled maturities of securities available-for-sale and securities to be held-to-maturity are as
follows:
December 31, 2004
--------------------------------------------------------------------------
Available-for-Sale Held-to-Maturity
-------------------------------------- ----------------------------------
Estimated Estimated
Amortized Fair Amortized Fair
Cost Value Cost Value
------------------- ---------------- ----------------- ----------------
Due in one year or less $ 1,850,029 $ 1,843,749 $ 194,946 $ 197,866
Due after one year through five years 6,926,147 6,862,363 369,939 377,336
Due after five years through ten years 500,000 499,220 100,000 100,263
Due after ten years 1,255,122 1,254,725 - -
Mortgage backed and mutual fund 6,534,663 6,486,094 21,679 21,716
------------------- ---------------- ----------------- ----------------
$ 17,065,961 $ 16,946,151 $ 686,564 $ 697,181
Exhibit E-17
FIRST NATIONAL BANK OF WIGGINS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
NOTE B - SECURITIES (Continued)
Gross gains of $1,507 and gross losses of $7,765 were realized in securities available-for-sale in 2004.
The Bank had no sales of securities during 2003.
Securities with a carrying value of $4,394,000 and $6,206,000 at December 31, 2004 and 2003, respectively,
were pledged for various purposes as required by law.
NOTE C - LOANS
Loans outstanding include the following types at December 31, 2004 and 2003:
2004 2003
-------------- ---------------
(In Thousands)
Real estate $ 19,397 $ 14,074
Commercial and industrial 1,530 3,696
Loans to individuals for personal expenditures 5,064 10,859
Overdrafts 43 36
Other 233 456
-------------- ---------------
Total loans 26,267 29,121
Allowance for loan losses (975) (1,306)
-------------- ---------------
$ 25,292 $ 27,815
============== ===============
At December 31, 2004 and 2003, the recorded investment in loans considered to be impaired totaled
approximately $1,311,000 and $2,550,000, respectively. The allowance for loan losses related to these
loans approximated $272,000 and $583,000 at December 31, 2004 and 2003, respectively. The average recorded
investment in impaired loans during the years ended December 31, 2004 and 2003, was approximately
$1,602,000 and $2,809,000, respectively. For the years ended December 31, 2004 and 2003, the amount of
income recognized on impaired loans was immaterial. At December 31, 2004 and 2003, nonaccrual loans
amounted to approximately $1,198,000 and $2,297,000 respectively, and loans past due ninety days or more
and still accruing interest amounted to approximately $372,000 and $566,000 at December 31, 2004 and 2003,
respectively.
( Continued )
Exhibit E-18
FIRST NATIONAL BANK OF WIGGINS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
NOTE C - LOANS (Continued)
Transactions in the allowance for loan losses were as follows:
Years Ended
December 31,
-----------------------------------
2004 2003
----------------- ----------------
Balance at beginning of year $ 1,306,123 $ 1,497,498
Additions:
Recoveries 162,667 195,079
Provision for loan losses charged to operations 287,187 87,934
----------------- ----------------
1,755,977 1,780,511
Deductions:
Loans charged off 780,855 474,388
----------------- ----------------
Balance at end of year $ 975,122 $ 1,306,123
================= ================
NOTE D - PREMISES AND EQUIPMENT
The details of premises and equipment are as follows:
December 31,
-----------------------------------
2004 2003
----------------- ----------------
Premises:
Land $ 86,737 $ 86,737
Buildings 933,584 933,584
Equipment 1,375,811 1,303,668
----------------- ----------------
2,396,132 2,323,989
Less accumulated depreciation and amortization 1,669,030 1,559,158
----------------- ----------------
$ 727,102 $ 764,831
================= ================
Exhibit E-19
FIRST NATIONAL BANK OF WIGGINS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
NOTE E - TIME DEPOSITS
The aggregate amount of time deposits in denominations of $100,000 or more for 2004 and 2003 was $11,833,000
and $14,781,000, respectively.
Projected maturities of time deposits included in interest-bearing deposits at December 31, 2004, are as
follows (in thousands):
Year Amount
------------ ------------------
2005 $ 11,686
2006 4,028
2007 7,382
2008 3,910
2009 3,136
Thereafter -
------------------
$ 30,142
==================
NOTE F - BORROWED FUNDS
Borrowed funds consisted of the following:
December 31,
------------------------------------
2004 2003
----------------- -----------------
Note payable to an individual. Monthly installments of $885,
including interest at 10%. $ 858 $ 10,846
Note payable to a finance company. Collateralized by an
automobile. Monthly installments of $613, bearing no interest. 23,275 30,632
----------------- -----------------
$ 24,133 $ 41,478
================= =================
( Continued )
Exhibit E-20
FIRST NATIONAL BANK OF WIGGINS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
NOTE F - BORROWED FUNDS (Continued)
Annual principal repayment requirements at December 31, 2004, are as follows:
Year Amount
---- ---------------
2005 $ 8,204
2006 7,352
2007 7,352
2008 1,225
The Bank has available credit lines at the Federal Reserve and Federal Home Loan Bank.
NOTE G - REGULATORY MATTERS
The Bank, as a national bank, is subject to the dividend restrictions set forth by the Comptroller of the
Currency. Under such restrictions, the Bank may not, without the prior approval of the Comptroller of the
Currency, declare dividends in excess of the sum of the current year's earnings (as defined) plus the
retained earnings (as defined) from the prior two years.
The Bank operated under an OCC Formal Agreement for the year 2002. The Agreement provided, among other
things, that the Bank not accept brokered deposits without prior OCC approval and provided certain other
directives regarding asset quality, earnings, and operations. During its regulatory examination in 2002, the
OCC instructed the Bank to charge off significant amounts of loans and book additional provisions for loan
losses. Additional regulatory supervision and directives as a result of this examination came in the form of
a Consent Order that superseded the Formal Agreement. The Consent Order, effective July 9, 2003, requires
the Bank's Board of Directors to increase their supervisory roles, raise and maintain capital levels at
prescribed minimums, and implement certain operational controls, policies, and procedures. At December 31,
2004, the Bank continued to operate under the regulatory Consent Order. During the years 2003 and 2004, the
Bank sold 3,177 and 551 shares of common stock for $635,400 and $110,200, respectively.
The Bank is subject to regulatory capital requirements administered by federal banking agencies. Failure to
meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary,
actions by regulators that, if undertaken, could have a direct material effect on the Bank's financial
statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the
Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and
certain off-balance-sheet items as calculated under regulatory accounting practices. Capital amounts and
classifications are also subject to qualitative judgment by regulators about components, risk weightings, and
other related factors.
( Continued )
Exhibit E-21
FIRST NATIONAL BANK OF WIGGINS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
NOTE G - REGULATORY MATTERS (Continued)
To ensure capital adequacy, quantitative measures have been established by regulators and these require the
Bank to maintain minimum amounts and ratios (set forth in the table below) of Total and Tier I capital (as
defined) to risk-weighted assets (as defined), and of Tier I capital to adjusted total assets (leverage).
At December 31, 2004, the Bank was adequately capitalized under the guidelines provided in the regulatory
framework for prompt corrective action. A financial institution is considered to be adequately capitalized
if it has total risk-based capital ratio of 8% or more, has a Tier I risk-based capital ratio of 4% or more,
and has a Tier I leverage capital ratio of 4% or more. However, at the most recent examination by the OCC,
the Bank's capital was determined to be critically deficient.
The actual capital amounts and ratios at December 31, 2004 and 2003, are presented in the following table.
No amount was deducted from capital for interest-rate risk exposure.
December 31, 2004 December 31, 2003
--------------------------- ------------------------------
Amount Ratio Amount Ratio
------------- ----------- ------------- --------------
($ In Thousands)
Total risk-based $ 3,859 13.0% $ 4,462 13.5%
Tier I risk-based 3,481 11.7% 4,035 12.2%
Tier I leverage 3,481 7.1% 4,035 8.0%
The minimum amounts of capital and ratios as established by banking regulators in accordance with the
regulatory framework for prompt corrective action at December 31, 2004 and 2003, were as follows:
December 31, 2004 December 31, 2003
--------------------------- ------------------------------
Amount Ratio Amount Ratio
------------- ----------- ------------- --------------
($ In Thousands)
Total risk-based $ 2,372 8.0% $ 2,648 8.0%
Tier I risk-based 1,186 4.0% 1,324 4.0%
Tier I leverage 1,960 4.0% 2,011 4.0%
( Continued )
Exhibit E-22
FIRST NATIONAL BANK OF WIGGINS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
NOTE G - REGULATORY MATTERS (Continued)
The Consent Order issued in 2003 required the Bank to maintain certain levels of capital and ratio measures
as follows:
Amount Ratio
--------------- ------------
($ In Thousands)
2004:
Tier I risk-based $ 3,559 12.0%
Tier I leverage 3,920 8.0%
2003:
Tier I risk-based $ 3,972 12.0%
Tier I leverage 4,023 8.0%
NOTE H - INCOME TAXES
The current and deferred income tax provisions included in the statements of operations are as follows:
Years Ended
December 31,
-------------------------------------
2004 2003
----------------- ------------------
Current tax expense (benefit) $ (81,000) $ 81,000
Deferred tax expense (benefit) 89,438 (81,000)
----------------- ------------------
$ 8,438 $ -
================= ==================
The current tax benefit represents the estimated income taxes to be paid (refunded) on the Bank's tax return.
The deferred tax arises because of differences for financial and tax reporting purposes. A reconciliation of
income taxes at the federal statutory rate of 34% to income taxes as reflected in the financial statements is
as follows:
Years Ended
December 31,
-------------------------------------
2004 2003
----------------- ------------------
Tax at statutory rate $ (204,880) $ (26,912)
Change in rates resulting from:
Tax-exempt income (9,319) (10,755)
Valuation allowance 218,964 35,020
Other, net 3,673 2,647
----------------- ------------------
Actual tax provision $ 8,438 $ -
================= ==================
( Continued )
Exhibit E-23
FIRST NATIONAL BANK OF WIGGINS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
NOTE H - INCOME TAXES (Continued)
The components of the net deferred tax asset included in the financial statements at December 31, 2004 and
2003, are as follows:
2004 2003
--------------- ---------------
Deferred tax assets:
Allowance for loan losses $ 146,300 $ 265,400
Foreclosed assets 98,100 30,900
Nonaccrual loan interest 92,978 125,938
Unrealized loss on available-for-sale securities 39,918 -
Net operating loss carryover 396,908 177,944
Estimated loss on misappropriation - 27,000
--------------- ---------------
774,204 627,182
Valuation allowance (396,908) (177,944)
--------------- ---------------
377,296 449,238
--------------- ---------------
Deferred tax liabilities:
Premises and equipment (44,100) (66,522)
Unrealized gain on available-for-sale securities - (9,675)
--------------- ---------------
(44,100) (76,197)
Net deferred tax asset $ 333,196 $ 373,041
=============== ===============
NOTE I - RELATED PARTY TRANSACTIONS
In the normal course of business, the Bank makes loans to its directors and executive officers and to
companies in which they have a significant ownership interest. These loans are made on substantially the same
terms, including interest rates and collateral, as those prevailing at the time for comparable transactions
with other persons. Such loans amounted to approximately $1,810,000 and $1,575,000 at December 31, 2004 and
2003, respectively. In the opinion of management, such loans are consistent with sound banking policies and
are within applicable regulatory and lending limitations.
NOTE J - COMMITMENTS AND CONTINGENT LIABILITIES
In the ordinary course of business, the Bank is subject to legal actions and complaints. Management, after
consultation with legal counsel and based upon available facts and proceedings to date, believes that the
ultimate liability, if any, arising from such legal actions or complaints will not have a material adverse
effect on the financial position or future results of operations of the Bank.
( Continued )
Exhibit E-24
FIRST NATIONAL BANK OF WIGGINS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
NOTE J - COMMITMENTS AND CONTINGENT LIABILITIES (Continued)
The Bank has entered into a borrowing agreement with the Federal Home Loan Bank of Dallas under which the
Bank can obtain funds by collateralizing its first mortgage notes. The amount of borrowings available is
based upon the amount of first mortgage loans and total assets of the Bank. At December 31, 2004 and 2003, no
borrowings had been advanced from the Federal Home Loan Bank.
In the normal course of business, there are outstanding various commitments and contingent liabilities, such
as guarantees, commitments to extend credit life, etc., which are not reflected in the accompanying financial
statements. The Bank had no outstanding letters of credit at December 31, 2004 and 2003, respectively, and
had made loan commitments of approximately $1,533,000 and $526,000 at December 31, 2004 and 2003,
respectively. The Bank's exposure to credit loss in the event of nonperformance by the other party to the
financial instrument for commitments to extend credit and letters of credit is represented by the contractual
amount of the instrument. The Bank uses the same credit policies in making commitments and conditional
obligations as it does for its lending activities. No significant losses are anticipated as a result of
these transactions.
NOTE K - CONCENTRATION OF CREDIT RISK
Most of the Bank's loans, commitments, and letters of credit have been granted in the Bank's primary market
area. Generally, borrowers are also depositors of the Bank. Investments in states and municipal securities
also involve governmental entities within the Bank's market area. The concentrations of credit by type of
loan are set forth in Note C. The distribution of commitments to extend credit approximates the distribution
of loans outstanding.
NOTE L - COMPREHENSIVE INCOME
In the calculation of comprehensive income, certain reclassification adjustments are made to avoid double
counting amounts that are displayed as part of net income for a period that also had been displayed as part
of other comprehensive income. The disclosure of the reclassification amounts are as follows:
Years Ended December 31,
--------------------------------------
2004 2003
------------------ -------------------
Unrealized gains (losses) on securities available-for-sale,
net of tax, arising during year $ (90,200) $ (64,256)
Less reclassification adjustment for (gains) losses included
in net income, net of tax 6,258 -
------------------ -------------------
Net change in unrealized gains (losses) on securities
available-for-sale, net of tax $ (83,942) $ (64,256)
================== ===================
Exhibit E-25
FIRST NATIONAL BANK OF WIGGINS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
NOTE M - RISK FACTORS
The Bank's operations are affected by various risk factors, including interest-rate risk, credit risk, and
risk from geographic concentration of lending activities. Management attempts to manage interest rate risk
through various asset/liability management techniques designed to match maturities of assets and
liabilities. Loan policies and administration are designed to provide assurance that loans will only be
granted to credit-worthy borrowers, although credit losses are expected to occur because of subjective
factors and factors beyond the control of the Bank. In addition, the Bank is a community Bank and, as such,
is mandated by the Community Reinvestment Act and other regulations to conduct most of its lending activities
within the geographic area where it is located. As a result, the Bank and its borrowers may be especially
vulnerable to the consequences of changes in the local economy.
NOTE N - MISAPPROPRIATION OF ASSETS
Subsequent to December 31, 2003, a discovery of a misappropriation scheme was uncovered. The
misappropriation totaled approximately $109,000, of which $103,000 was estimated and reported in the 2003
financial statements. The additional $6,000 was reported in the 2004 financial statements.
Exhibit E-26
FIRST NATIONAL BANK OF WIGGINS
UNAUDITED FINANCIAL STATEMENTS
DECEMBER 31, 2005
Exhiit E-27
FIRST NATIONAL BANK OF WIGGINS
BALANCE SHEETS
DECEMBER 31, 2005
(Unaudited)
ASSETS 2005
------------
Cash and due from banks $ 2,046,216
Federal funds sold 8,675,000
------------
Total cash and cash equivalents 10,721,216
Securities 17,498,729
Other Securities 327,600
Loans, net of allowance for loan losses of $308,876
in 2005 20,545,449
Premises and equipment 657,769
Interest receivable 342,984
Other assets 945,535
------------
Total assets $ 51,039,282
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing $ 12,478,492
Interest-bearing 34,965,545
------------
Total deposits 47,444,037
Interest payable 97,562
Borrowed funds 16,531
Other liabilities 51,872
------------
Total liabilities 47,610,002
------------
Stockholders' Equity (Note H):
Common stock, $10 par value, authorized 50,000; issued
and outstanding 23,728 237,280
Additional paid-in capital 4,908,320
Accumulated deficit (1,561,361)
Accumulated other comprehensive income (loss) (154,959)
------------
Total stockholders' equity $ 3,429,280
------------
Total liabilities and stockholders' equity $ 51,039,282
============
Exhibit E-28
FIRST NATIONAL BANK OF WIGGINS
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2005
(unaudited)
2005
------------
INTEREST INCOME
Interest and fees on loans $ 1,940,357
Interest and dividends on securities:
Taxable 522,373
Nontaxable 10,376
Interest on federal funds sold 74,352
Other 226
------------
Total interest income 2,547,684
------------
INTEREST EXPENSE
Interest on time deposits of $100,000 or more 321,365
Interest on other deposits 737,851
Interest on borrowed funds 1,442
------------
Total interest expense 1,060,658
------------
Net interest income 1,487,026
Provision for loan losses 118,419
------------
Net interest income after provision for loan losses 1,368,607
------------
OTHER INCOME
Service charges on deposit accounts 326,457
Other service charges and fees 59,361
Loss on sale of other assets (49,735)
Loss on sale of foreclosed assets, net (64,201)
Other 27,867
------------
Total other income 299,749
------------
OTHER EXPENSE
Salaries 642,488
Employee benefits 176,744
Occupancy 111,850
Furniture and equipment 174,431
Directors' fees 23,970
Printing, stationery, and supplies 60,788
Data processing fees 48,996
Consulting fees 51,984
Property foreclosure 68,241
FDIC deposit insurance assessments 76,709
Audits and examinations 114,671
Blanket bond insurance 50,210
Postage 22,072
Legal 45,985
Computer 9,878
Other losses 42,389
Other 189,582
------------
Total other expense 1,910,988
------------
Loss before income taxes (242,632)
Income tax expense -
------------
Net Loss $ (242,632)
============
Exhibit E-29
FIRST NATIONAL BANK OF WIGGINS
UNAUDITED INTERIM FINANCIAL STATEMENTS
JUNE 30, 2006
Exhibit E-30
FIRST NATIONAL BANK OF WIGGINS
BALANCE SHEETS
JUNE 30, 2006
(Unaudited)
ASSETS June 30, 2006
------------
Cash and due from banks $ 2,260,125
Federal funds sold 975,000
------------
Total cash and cash equivalents 3,235,125
Securities 22,746,158
Other Securities 329,600
Loans, net of allowance for loan losses of $705,196 18,213,948
Premises and equipment 615,234
Interest receivable 366,812
Other assets 749,315
------------
Total assets $ 46,256,192
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing $ 9,618,627
Interest-bearing 33,487,741
------------
Total deposits 43,106,368
Interest payable 99,574
Other liabilities 78,846
------------
Total liabilities 43,284,788
------------
Stockholders' Equity:
Common stock, $10 par value, authorized 50,000; issued
and outstanding 23,728 237,280
Additional paid-in capital 4,908,320
Accumulated deficit (1,923,539)
Accumulated other comprehensive income (loss) (250,657)
------------
Total stockholders' equity $ 2,971,404
------------
Total liabilities and stockholders' equity $ 46,256,192
============
Exhibit E-31
FIRST NATIONAL BANK OF WIGGINS
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2006
(Unaudited)
INTEREST INCOME
Interest and fees on loans $ 864,757
Interest and dividends on securities:
Taxable 435,592
Nontaxable 10,875
Interest on federal funds sold 100,379
Other 174
------------
Total interest income 1,411,777
------------
INTEREST EXPENSE
Interest on time deposits of $100,000 or more 150,138
Interest on other deposits 369,312
Interest on borrowed funds 219
------------
Total interest expense 519,669
------------
Net interest income 892,108
Provision for loan losses 400,000
------------
Net interest income after provision for loan losses 492,108
------------
OTHER INCOME
Service charges on deposit accounts 124,930
Other service charges and fees 13,640
Loss on sale of other real estate (13,245)
Loss on sale of foreclosed assets, net (1,500)
Other 15,848
------------
Total other income 139,673
------------
OTHER EXPENSE
Salaries 299,969
Employee benefits 79,167
Occupancy 65,255
Furniture and equipment 129,342
Directors' fees 10,170
Printing, stationery, and supplies 30,070
Data processing fees 26,813
Consulting fees 48,657
Property foreclosure 14,176
FDIC deposit insurance assessments 40,260
Audits and examinations 27,339
Blanket bond insurance 25,438
Postage 11,928
Legal 33,579
Computer 9,135
Other losses 11,494
Other 131,167
------------
Total other expense 993,959
------------
Loss before income taxes (362,178)
Income tax expense -
------------
Net Loss $ (362,178)
============
The accompanying notes are an integral part of these statements.
Exhibit E-32
EXHIBIT F
THE FIRST BANCSHARES, INC.,
PRO FORMA FINANCIAL STATEMENTS
Exhibit F-1
THE FIRST BANCSHARES, INC.
1 YEAR AFTER MERGER
BALANCE SHEET
HOLDING CO
FIRST BUYER SELLER CONSOLIDATED
BANCSHARES THE FIRST FNB WIGGINS ADJUSTMENTS COMPANY
1 YEAR OUT 1 YEAR OUT 1 YEAR OUT DEBITS CREDITS 1 YEAR OUT
--------------- --------------- ---------------- ----------- ------------ ------------
ASSETS
CASH AND DUE FROM BANKS 357 12,829 1,634 (6) 4,000 4,000 (7) 14,463
(7) 4,000 357 (10)
INVESTMENT IN THE FIRST 22,929 (8) 3,814 30,743 (9) -
SECURITIES 74,203 12,095 ** 86,298
FEDERAL FUNDS SOLD 4,387 - (1) 4,000 2,063 (4) 6,324
LOANS AND LEASES (NET OF UNEARNED) 263,798 39,286 303,084
RESERVE FOR LOAN LOSSES (3,659) (776) (4,435)
BANK PREMISIS AND EQUIPMENT 677 7,585 635 (4) 150 9,047
OTHER ASSETS 1,102 14,329 1,622 17,053
CORE DEPOSIT INTANGIBLE ASSET (2) 915 92 (5) 823
GOODWILL - - - (3)(4) 917 915 (2) 2
----------- ------------- ------------- ------------ ---------- ------------
TOTAL ASSETS 25,065 373,472 54,496 17,796 38,170 432,659
LIABILITIES
TOTAL DEPOSITS - 320,298 50,353 (10) 357 370,294
TRUST PREFERRED 7,217 4,000 (6) 11,217
LIABILITIES FOR BORROWED MONEY - 25,159 15 25,174
OTHER LIABILITIES - 1,272 162 - 397 (3) 1,831
----------- ------------- ------------- ------------ ---------- ------------
TOTAL LIABILITIES 7,217 346,729 50,530 357 4,397 408,516
(9) 30,743 3,814 (8)
CAPITAL ACCOUNTS (5) 92 2,063 (4)
TOTAL CAPITAL ACCOUNTS 18,148 26,743 3,966 (4) 3,456 4,000 (1) 24,443
----------- ------------- ------------- ------------ ---------- -------------
TOTAL LIAB & CAPITAL 25,365 373,472 54,496 34,648 14,274 432,959
Exhibit F-2
THE FIRST, A NATIONAL BANKING ASSOCIATION
1 YEAR AFTER MERGER
INCOME STATEMENT
HOLDING CO BUYER SELLER COMBINED
FIRST BANCSHARES THE FIRST FNB WIGGINS ADJUSTMENTS BANK
1 YEAR OUT 1 YEAR OUT 1 YEAR OUT DEBIT CREDIT 1 YEAR OUT
------------------ ------------- -------------- ------------ ------------ -------------
INTEREST INCOME 15 20,826 3,063 - - 23,889
INTEREST EXPENSE (908) (7,851) (1,184) - - (9,035)
----------------- -------------- -------------- ------------- ------------ -------------
NET INTEREST INCOME (893) 12,975 1,879 - - 14,854
NON-INTEREST INCOME 2 3,333 422 - - 3,755
NON-INTEREST EXPENSES (30) (10,700) (1,551) (5) (92) - (12,348)
INCOME TAX EXPENSE 313 (1,794) (240) - - (2,034)
----------------- -------------- -------------- ------------- ------------ -------------
NET INCOME (608) 3,814 510 (92) - 4,232
================= ============== ============== ============= ============ =============
Exhibit F-3
The Mississippi Business Corporation Act (“MBCA”) provides that a director, officer or agent of a corporation may be indemnified for such service if he conducted himself in good faith, and he reasonably believed in the case of conduct in his official capacity with the corporation, that his conduct was in the corporation’s best interests; and in all other cases that his conduct was at least not opposed to the corporation’s best interests. In the case of a criminal proceeding, a director must show that he had no reasonable cause to believe his conduct was unlawful. Indemnification permitted under this section in connection with a derivative action is limited to reasonable expenses incurred in connection with the proceeding.
First Bancshares’ Articles of Incorporation provide it with the power and authority, to the fullest extent legally permissible under the MBCA, to indemnify its directors and officers, persons serving at the request of the First Bancshares or for its benefit as directors or officers of another corporation, and persons serving as First Bancshares’ representatives or agents in certain circumstances. Pursuant to such authority and the provisions of First Bancshares’ Articles of Incorporation, First Bancshares intends to purchase insurance against certain liabilities that may be incurred by it and its officers and directors.
The MBCA further authorizes a corporation to make further indemnity for certain actions that do not constitute gross negligence or willful misconduct if authorized by the corporation’s Articles of Incorporation. The First Bancshares Articles provide for indemnification to the fullest extent permitted by the MBCA and specifically provide for the further indemnity authorized by the MBCA.
The Articles of Incorporation of First Bancshares contain a provision which, subject to certain exceptions described below, eliminates the liability of a director or officer to it or its shareholders for monetary damages for any breach of duty as a director or officer. This provision does not eliminate such liability to the extent the director or officer engaged in willful misconduct or a knowing violation of criminal law or of any federal or state securities law, including, without limitation, laws proscribing insider trading or manipulation of the market for any security.
Under its Bylaws, First Bancshares must indemnify any person who becomes subject to a lawsuit or proceeding by reason of service as a director of First Bancshares or The First or any other corporation which the person served as a director at the request of First Bancshares. Except as noted in the next paragraph, directors are entitled to be indemnified against judgments, penalties, fines, settlements, and reasonable expenses actually incurred by the director in connection with the proceeding. Directors are also entitled to have First Bancshares advance any such expenses prior to final disposition of the proceeding, upon delivery of (1) a written affirmation by the director of his good faith belief that the standard of conduct necessary for indemnification has been met, and (2) a written undertaking to repay the amounts advanced if it is ultimately determined that the standard of conduct has not been met.
Under the Bylaws, indemnification will be disallowed if it is established that the director appropriated, in violation of his duties, any business opportunity of First Bancshares, engaged in acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, approved dividends or other distributions in violation of the MBCA, or engaged in any transaction in which the director derived an improper personal benefit. In addition to the Bylaws of First Bancshares, the MBCA requires that a corporation indemnify a director who was wholly successful, on the merits or otherwise, in the defense of any proceeding to which he or she was a party because he is or was a director of the corporation against reasonable expenses incurred by him or her in connection with the proceeding. The MBCA also provides that, upon application of a director, a court may order indemnification if it determines that the director is entitled to such indemnification under the applicable standard of the MBCA.
The Board of Directors of First Bancshares also has the authority to extend to officers, employees, and agents the same indemnification rights held by directors, subject to all of the accompanying conditions and obligations. The Board of Directors has extended or intends to extend indemnification rights to all of its executive officers.
In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer, or controlling person of the Registrant in the successful defense of any such action, suit or proceeding) is asserted by such director, officer, or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue.
Item 21. Exhibits and Financial Statement Schedules
2 Agreement and Plan of Merger - Included as Appendix A to the Prospectus
/Proxy Statement contained herein.
3.1 Amended and Restated Articles of Incorporation (incorporated by
reference to Exhibit 3.1 to the Company's Registration
Statement No. 33-94288 on Form S-1).
3.2 Bylaws (incorporated by reference to Exhibit 3.2 to the
Company's Registration Statement No. 33-94288 on Form S-1).
4.1 Provisions in the Company's Articles of Incorporation and
Bylaws defining the rights of holders of the Company's Common
Stock (incorporated by reference to Exhibit 4.1 to the
Company's Registration Statement No. 33-94288 on Form S-1).
4.2 Form of Certificate of Common Stock (incorporated by reference
to Exhibit 4.2 to the Company's Registration Statement No.
33-94288 on Form S-1).
5 Opinion of Watkins Ludlam Winter & Stennis, P.A. regarding legality of shares.
8 Opinion of Watkins Ludlam Winter & Stennis, P.A. regarding certain tax matters.
10.5 Amended and restated employment agreement dated November 20,
1995, by and between David E. Johnson and the Company
(incorporated by reference to Exhibit 10.7 of the Company's
Form 10-KSB for the fiscal year ended December 31, 1995, File
No. 33-94288).
10.6 Employment Agreement dated June 10, 1998 by and between the
Company and The First National Bank of the Pine Belt and
William M. Renovich, Jr. (incorporated by reference to Exhibit
10.1 to the Company's Current Report on Form 8-K filed June
25, 1998).
10.7 Bank Development Agreement dated June 19, 1998 by and among the
Company and the organizers of The First National Bank of the
Pine Belt (incorporated by reference to Exhibit 10.2 to the
Company's Current Report on Form 8-K filed June 25, 1998).
10.8 First Bancshares, Inc. 1997 Stock Option Plan as of March 18,
1997 (incorporated by reference to Exhibit 10.7 of the
Company's Form 10-KSB for the fiscal year ended December 31,
1996, File No. 33-94288).
10.9 Agreement to Repurchase Stock by and among The First
Bancshares, Inc., Nick Welch and David Johnson (incorporated
by reference to Exhibit 10.9 to the Company's Registration
Statement No. 333-102908 on Form S-2).
13.1 Audited Consolidated Financial Statements of The First Bancshares, Inc.,
and Subsidiary for the Periods Ended December 31, 2004 and
December 31, 2005; Unaudited Consolidated Financial Statements of
The First Bancshares, Inc., and Subsidiary for the Interim Period Ended
June 30, 2006 - Included as Appendix D to the Prospectus/Proxy Statement
contained herein.
13.2 Audited Consolidated Financial Statements of First National Bank of Wiggins for
the Periods Ended December 31, 2003 and December 31, 2004; Unaudited
Consolidated Financial Statements of First National Bank of Wiggins for the
Period Ended December 31, 2005 and the Interim Period Ended June 30, 2006
- Included as Appendix E to the Prospectus/Proxy Statement contained herein.
21.1 Subsidiaries of the Company (incorporated by reference to
Exhibit 21.1 to the Company's Form 10-KSB filed March 31, 1999).
23.1 Consent of T.E. Lott & Company
23.2 Consent of T.E. Lott & Company
23.3 Consent of Watkins Ludlam Winter & Stennis, P.A. - Included in Opinion of
Watkins Ludlam Winter & Stennis, P.A. regarding legality of shares, attached
hereto as Exhibit 5, and included in Opinion of Watkins Ludlam Winter &
Stennis, P.A. regarding certain tax matters, attached hereto as Exhibit 8.
23.4 Consent of Southard Financial - Included in Fairness Opinion attached as Exhibit B
to the Prospectus/Proxy Statement contained herein.
24 Power of Attorney - Included on the signature page of the Registration Statement.
99.1 Form of Proxy of First National Bank of Wiggins, previously filed.
Item 22. Undertakings.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a post-effective amendment
to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1993;
(ii) To reflect in the prospectus any facts or events arising after the effective date of
the Registration Statement (or the most recent post-effective amendment thereof)
which, individually or in the aggregate, represent a fundamental change in the
information set forth in the Registration Statement;
(iii) To include any material information with respect to the plan or distribution not
previously disclosed in the Registration Statement or any material change to such
information in the Registration Statement;
(2) That, for the purpose of determining any liability under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new Registration Statement relating to the
securities offered therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof;
(3) To remove from registration by means of post-effective amendment any of the securities being
registered which remain unsold at the termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of determining any liability under the
Securities Act of 1933, each filing of the Registrant's annual report pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 (and, when applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering
thereof.
(c) (1) The undersigned Registrant hereby undertakes as follows: that prior to any public reoffering
of the securities registered hereunder through use of a prospectus which is a part of this
Registration Statement, by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called for by the other
items of the applicable form.
(2) The Registrant undertakes that every prospectus (i) that is filed pursuant to
paragraph (1) immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Act and is used in connection with an offering of securities
subject to Rule 415, will be filed as a part of an amendment to the Registration
Statement and will not be used until such amendment is effective, and that, for
purposes of determining any liability under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new Registration Statement relating
to the securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(d) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to
directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(e) The undersigned Registrant hereby undertakes to respond to requests for information that is incorporated
by reference into the prospectus pursuant to Item 4, 10(b), 11, or 13 of this Form, within one business day of
receipt of such request, and to send the incorporated documents by first class mail or other equally prompt
means. This includes information contained in documents filed subsequent to the effective date of the
Registration Statement through the date of responding to the request.
(f) The undersigned Registrant hereby undertakes to supply by means of post-effective amendment all
information concerning a transaction, and the company being acquired involved therein, that was not the subject
of and included in the Registration Statement when it became effective.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of
Hattiesburg, State of Mississippi, this 22nd day of August, 2006.
FIRST BANCSHARES, INC.
(Registrant)
By: /s/ David E. Johnson
---------------------------------------
David E. Johnson
Chief Executive Officer
By: /s/ Donna T. Lowery
---------------------------------------
Donna T. Lowery
Chief Financial Officer
Know all men by these presents, that each individual whose signature appears below constitutes and appoints David E. Johnson and Donna T. Lowery, and each or either one of them, his true and lawful attorney-in-fact and agent, with power of substitution and resubstitution, for him and in his name, place and stead in any and all capacities, to sign this Registration Statement on Form S-4 and relating to the registration of shares of First Bancshares Common Stock, $1.00 par value per share, and any and all amendments (including post-effective amendments) to such Registration Statement, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, their, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration Statement by the following
persons in the capacities and on the dates indicated.
SIGNATURES TITLE DATE
/s/ Fred McMurry Director August 22 , 2006
---------------------------------------- ---------------
/s/ David W. Bomboy Director August 22 , 2006
---------------------------------------- ---------------
/s/ E. Ricky Gibson Director August 22 , 2006
---------------------------------------- ---------------
/s/ Ted Parker Director August 22 , 2006
---------------------------------------- ---------------
/s/ Perry Parker Director August 22 , 2006
---------------------------------------- ---------------
/s/ M. Ray Cole, Jr. Director August 22 , 2006
---------------------------------------- ---------------
/s/ Andrew D. Stetelman Director August 22 , 2006
---------------------------------------- ---------------
/s/ Gerald C. Patch Director August 22 , 2006
---------------------------------------- ---------------
/s/ Michael W. Chancellor Director August 22 , 2006
---------------------------------------- ---------------
/s/ J. Douglas Seidenburg Director August 22 , 2006
---------------------------------------- ---------------
Director , 2006
---------------------------------------- ---------------
Director , 2006
---------------------------------------- ---------------
Director , 2006
---------------------------------------- ---------------
/s/ David E. Johnson CEO and Director August 22 , 2006
---------------------------------------- (Principal Executive Officer) ---------------
/s/ Donna T. Lowery Executive VP & Chief Financial August 22 , 2006
---------------------------------------- Officer (Principal Financial and ---------------
Accounting Officer)
INDEX TO EXHIBITS
Exhibit No Description
2 Agreement and Plan of Merger - Included as Appendix A to the Prospectus
/Proxy Statement contained herein.
3.1 Amended and Restated Articles of Incorporation (incorporated by
reference to Exhibit 3.1 to the Company's Registration
Statement No. 33-94288 on Form S-1).
3.2 Bylaws (incorporated by reference to Exhibit 3.2 to the
Company's Registration Statement No. 33-94288 on Form S-1).
4.1 Provisions in the Company's Articles of Incorporation and
Bylaws defining the rights of holders of the Company's Common
Stock (incorporated by reference to Exhibit 4.1 to the
Company's Registration Statement No. 33-94288 on Form S-1).
4.2 Form of Certificate of Common Stock (incorporated by reference
to Exhibit 4.2 to the Company's Registration Statement No.
33-94288 on Form S-1).
5 Form of Opinion of Watkins Ludlam Winter & Stennis, P.A. regarding legality of shares.
8 Form of Opinion of Watkins Ludlam Winter & Stennis, P.A. regarding certain tax matters.
10.5 Amended and restated employment agreement dated November 20,
1995, by and between David E. Johnson and the Company
(incorporated by reference to Exhibit 10.7 of the Company's
Form 10-KSB for the fiscal year ended December 31, 1995, File
No. 33-94288).
10.6 Employment Agreement dated June 10, 1998 by and between the
Company and The First National Bank of the Pine Belt and
William M. Renovich, Jr. (incorporated by reference to Exhibit
10.1 to the Company's Current Report on Form 8-K filed June
25, 1998).
10.7 Bank Development Agreement dated June 19, 1998 by and among the
Company and the organizers of The First National Bank of the
Pine Belt (incorporated by reference to Exhibit 10.2 to the
Company's Current Report on Form 8-K filed June 25, 1998).
10.8 First Bancshares, Inc. 1997 Stock Option Plan as of March 18,
1997 (incorporated by reference to Exhibit 10.7 of the
Company's Form 10-KSB for the fiscal year ended December 31,
1996, File No. 33-94288).
10.9 Agreement to Repurchase Stock by and among The First
Bancshares, Inc., Nick Welch and David Johnson (incorporated
by reference to Exhibit 10.9 to the Company's Registration
Statement No. 333-102908 on Form S-2).
13.1 Audited Consolidated Financial Statements of The First Bancshares, Inc.,
and Subsidiary for the Periods Ended December 31, 2004 and
December 31, 2005; Unaudited Consolidated Financial Statements of
The First Bancshares, Inc., and Subsidiary for the Interim Period Ended
June 30, 2006 - Included as Appendix D to the Prospectus/Proxy Statement
contained herein.
13.2 Audited Consolidated Financial Statements of First National Bank of Wiggins for
the Periods Ended December 31, 2003 and December 31, 2004; Unaudited
Consolidated Financial Statements of First National Bank of Wiggins for the
Period Ended December 31, 2005 and the Interim Period Ended June 30, 2006
- Included as Appendix E to the Prospectus/Proxy Statement contained herein.
21.1 Subsidiaries of the Company (incorporated by reference to
Exhibit 21.1 to the Company's Form 10-KSB filed March 31, 1999).
23.1 Consent of T.E. Lott & Company
23.2 Consent of T.E. Lott & Company
23.3 Consent of Watkins Ludlam Winter & Stennis, P.A. - Included in Opinion of
Watkins Ludlam Winter & Stennis, P.A. regarding legality of shares, attached
hereto as Exhibit 5, and included in Opinion of Watkins Ludlam Winter &
Stennis, P.A. regarding certain tax matters, attached hereto as Exhibit 8.
23.4 Consent of Southard Financial - Included in Fairness Opinion attached as Exhibit B
to the Prospectus/Proxy Statement contained herein.
24 Power of Attorney - Included on the signature page of the Registration Statement.
99.1 Form of Proxy of First National Bank of Wiggins, included in the Prospectus/Proxy
Statement contained herein.