-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Bj2yuS+zgt098kvQa5eqDE9kH1lSTeVNX/zNU2oQXM0IrRNxjZfrECbAZ7UR5Re2 tB8owN1JW6L5LK1wbT10Ew== 0000310979-99-000005.txt : 19990322 0000310979-99-000005.hdr.sgml : 19990322 ACCESSION NUMBER: 0000310979-99-000005 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19990304 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19990319 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRST BANKS AMERICA INC CENTRAL INDEX KEY: 0000310979 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 751604965 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 001-08230 FILM NUMBER: 99568976 BUSINESS ADDRESS: STREET 1: 135 N MERAMEC STREET 2: PO BOX 802527 CITY: CLAYTON STATE: MO ZIP: 77263-0369 BUSINESS PHONE: 7137817171 MAIL ADDRESS: STREET 1: BANCTEXAS GROUP INC STREET 2: 9605 ABRAMS ROAD CITY: DALLAS STATE: TX ZIP: 75243 FORMER COMPANY: FORMER CONFORMED NAME: BANCTEXAS GROUP INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: COMMERCE SOUTHWEST INC DATE OF NAME CHANGE: 19820831 8-K 1 FORM 8-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 , FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): March 19, 1999 (March 4, 1999) FIRST BANKS AMERICA, INC. ------------------------- (Exact name of registrant as specified in its charter) Delaware -------- (State or other jurisdiction of incorporation) 0-8937 75-1604965 ------ ---------- (Commissioner File Number) (IRS Employer Identification No.) 135 N. Meramec, Clayton, Missouri 63105 --------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (314) 854-4600 Not Applicable -------------- (Former name or former address, if changed since last report) Item 2. Acquisition or Disposition of Assets On March 4, 1999, First Banks America, Inc. (FBA) completed its acquisition of Redwood Bancorp (Redwood) and its wholly owned subsidiary, Redwood Bank, effective March 3, 1999. Pursuant to the Agreement and Plan of Reorganization, the shareholder of Redwood received $26.0 million in cash. Redwood currently operates as a wholly owned subsidiary of FBA. The transaction was accounted for using the purchase method of accounting. FBA funded the acquisition from the proceeds from the sale of investment securities available for sale. These securities were purchased from the remaining proceeds from First America Capital Trust's, a wholly trust subsidiary of FBA, issuance of cumulative trust preferred securities in July 1998. There were no material relationships between Redwood, or any of its affiliates, directors or officers, or any associates of any such directors or officers, and the Registrant, or any of its affiliates, directors or officers, or any associates of any such directors or officers. Item 7. Financial Statements and Exhibits a) Financial Statements of Business Acquired Pursuant to the requirements of Article 3 of Regulation S-X, the following consolidated financial statements for Redwood have been included in this filing or incorporated herein by reference as noted: 1. Consolidated Statements of Condition as of December 31, 1998 (unaudited) and December 31, 1997 - filed herewith. 2. Consolidated Statements of Operations for years ended December 31, 1998 (unaudited) and December 31, 1997 - filed herewith. 3. Consolidated Statements of Stockholders' Equity and Comprehensive Income for the years ended December 31, 1998 (unaudited) and 1997 - filed herewith. 4. Consolidated Statements of Cash Flows for the years ended December 31, 1998 (unaudited) and December 31, 1997 - filed herewith. 5. Audited Consolidated Financial Statements as of and for the years ended December 31, 1997 and 1996 and related report of Independent Auditors. (b) Pro Forma Financial Information 1. Pro Forma Combined Condensed Balance Sheet as of December 31,1998 (unaudited) - filed herewith. 2. Pro Forma Consolidated Condensed Statement of Income for the year ended December 31, 1998 and 1997 (unaudited) - filed herewith. 3. Notes to Pro Forma Combined Condensed Financial Statements - filed herewith. (c) Exhibits The following exhibit are incorporated herein by reference: Exhibit No. Exhibit 2 Agreement and Plan of Reorganization, dated September 3, 1998, by and among FBA, Empire Holdings, Inc. and Redwood Bancorp, dated September 3, 1998 (filed as Exhibit 2 to the Report on Form 8-K, dated September 21, 1998 and incorporated herein by reference). Item 7(a) Financial Statements of Business Acquired REDWOOD BANCORP AND SUBSIDIARIES Consolidated Statements of Financial Condition
December 31, --------------------------- 1998 1997 ---- ---- (unaudited) ASSETS ------ Cash and due from banks...................................................... $ 6,014,396 8,672,217 Federal funds sold........................................................... -- 1,200,000 Investment securities: Held-to-maturity.......................................................... 10,908,100 4,228,570 Available-for-sale........................................................ 21,343,582 14,489,971 Loans, net................................................................... 132,092,293 109,483,706 Bank premises and equipment, net............................................. 1,127,229 796,241 Interest receivable.......................................................... 1,191,320 921,150 Goodwill..................................................................... 3,784,695 3,964,918 Other assets................................................................. 2,235,151 1,715,421 -------------- ------------- Total assets........................................................ $ 178,696,766 145,472,194 ============== ============= LIABILITIES AND SHAREHOLDER'S EQUITY ------------------------------------ Liabilities: Deposits.................................................................. $ 157,960,012 126,772,656 Interest payable and other liabilities.................................... 1,353,477 1,227,427 -------------- ------------- Total liabilities................................................... 159,313,489 128,000,083 -------------- ------------- Shareholder's equity: Common stock, $3.33 par value; authorized 1,000,000 shares; issued and outstanding 250,000 shares in 1998 and 1997.......................................................... 832,500 832,500 Surplus................................................................... 10,642,469 10,639,969 Retained earnings......................................................... 7,908,808 5,988,022 Accumulated other comprehensive income (loss)............................. (500) 11,620 -------------- ------------- Total shareholder's equity.......................................... 19,383,277 17,472,111 -------------- ------------- Total liabilities and shareholder's equity.......................... $ 178,696,766 145,472,194 ============== =============
REDWOOD BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31, ------------------------ 1998 1997 ---- ---- (unaudited) Interest income: Interest and fees on loans................................................ $ 11,507,954 10,417,676 Interest on federal funds sold............................................ 195,438 243,921 Interest on investment securities......................................... 1,428,914 1,018,486 -------------- -------------- Total interest income............................................... 13,132,306 11,680,083 Interest expense............................................................. 4,884,560 3,863,742 -------------- -------------- Net interest income before provision for loan losses................ 8,247,746 7,816,341 Provision for loan losses.................................................... -- -- -------------- -------------- Net interest income after provision for loan losses................. 8,247,746 7,816,341 -------------- -------------- Noninterest income: Customer service fees..................................................... 248,624 372,429 Other.... .................................................................. 801,530 28,317 -------------- -------------- Total noninterest income............................................ 1,050,154 400,746 -------------- -------------- Noninterest expense: Salaries and employee benefits............................................ 3,266,189 3,362,288 Occupancy and equipment................................................... 1,065,196 933,728 Deposit insurance and regulatory assessments.............................. 35,962 35,220 Professional services..................................................... 241,736 82,729 Insurance................................................................. 128,139 143,729 Data processing........................................................... 222,882 216,326 Forms and supplies........................................................ 122,090 105,065 Telecommunication and postage............................................. 170,890 147,366 Corporate expenses........................................................ 84,000 56,000 Goodwill amortization..................................................... 180,224 180,224 Other.... .................................................................. 467,111 378,166 -------------- -------------- Total noninterest expense........................................... 5,984,419 5,640,841 -------------- -------------- Income before income tax expense.................................... 3,313,481 2,576,246 Income tax expense........................................................... 1,392,695 1,155,851 -------------- -------------- Net income.......................................................... $ 1,920,786 1,420,395 ============== ============== Net income per share--basic................................................... $ 7.68 5.68 ============== ============== Net income per share--diluted................................................. $ 7.68 5.68 ============== ============== Weighted average common stock outstanding.................................... 250,000 250,000 ============== ==============
REDWOOD BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY AND COMPREHENSIVE INCOME For the years ended December 31, 1998 (unaudited) and 1997
Accumu- lated other Compre- compre- Common stock hensive Retained hensive Shares Amount Surplus Income Earnings Income Total ------ ------ ------- ------ -------- ------ ----- Balance, December 31, 1996..... 250,000 $ 832,500 10,639,969 4,567,627 (96,917) 15,943,179 Year ended December 31, 1997: Comprehensive income: Net income.................. -- -- -- 1,420,395 1,420,395 -- 1,420,395 Other comprehensive income -- unrealized losses on securities...... -- -- -- 108,537 -- 108,537 108,537 ---------- Comprehensive income...... -- -- -- 1,528,932 -- -- -- --------- --------- ----------- ========= ---------- --------- ----------- Balance, December 31, 1997..... 250,000 832,500 10,639,969 5,988,022 11,620 17,472,111 Year ended December 31, 1998 (unaudited): Comprehensive income: Net income.................. -- -- -- 1,920,786 1,920,786 -- 1,920,786 Other comprehensive Income -- unrealized losses on securities...... -- -- -- (12,120) -- (12,120) (12,120) ---------- Comprehensive income...... -- -- -- 1,908,666 -- -- -- ========== Contribution of capital........ -- -- 2,500 -- -- 2,500 --------- --------- ----------- ---------- --------- ----------- Balance, December 31, 1998.... 250,000 $ 832,500 10,642,469 7,908,808 (500) 19,383,277 ========= ========= =========== ========== ========= ===========
REDWOOD BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, ------------------------ 1998 1997 ---- ---- (unaudited) Cash flows from operating activities: Net income..................................................................... $ 1,920,786 1,420,395 Reconciliation to net cash provided by operating activities: Deferred income tax........................................................ (536,220) 826,000 Depreciation and leasehold amortization............................................................. 269,521 212,703 Amortization and accretion of premiums and discounts................................................... (293,185) (219,090) Goodwill amortization...................................................... 180,224 180,224 Net increase (decrease) in deferred loan fees....................................................... (21,371) (6,734) Increase (decrease) in interest receivable and other assets......................................................... 216,963 (63,513) Increase (decrease) in interest payable and other liabilities............................................ 126,136 489,710 Gain on sale of other real estate owned.................................... -- (12,084) ------------ ------------ Net cash provided by operating activities................................ 1,862,854 2,827,611 ------------ ------------ Cash flows from investing activities: Purchase of: Held-to-maturity securities.................................................. (12,694,302) (5,000,000) Available-for-sale securities................................................ (56,075,062) (9,970,184) Proceeds from: Maturities of held-to-maturity securities.................................... 6,033,163 3,041,583 Maturities of available-for-sale securities.................................. 49,484,631 5,134,262 Loan originations and purchases, net of repayments and participations................................................ (23,938,874) (8,608,504) Purchase of bank premises and equipment........................................ (756,026) (223,820) Proceeds from sale of other real estate owned.................................. -- 138,262 ------------ ------------ Net cash used in investing activities.................................... (37,946,470) (15,488,401) ------------ ----------- Cash flows from financing activities: Net change in deposits......................................................... 31,189,515 9,392,901 Net change in other borrowings................................................. 1,036,280 -- ------------ ------------ Net cash provided by financing activities................................ 32,225,795 9,392,901 ------------ ------------ Net decrease in cash and cash equivalents................................ (3,857,821) (3,267,889) Cash and cash equivalents at beginning of year.................................... 9,872,217 13,140,106 ------------ ------------ Cash and cash equivalents at end of year.......................................... $ 6,014,396 9,872,217 ============ ============ Other cash flow information: Interest paid.................................................................. $ 4,647,111 3,824,888 Income taxes paid.............................................................. 1,435,872 260,000 ============ ============
Redwood Bancorp and Subsidiaries San Francisco, California Consolidated Financial Statements December 31, 1997 and 1996 (With Independent Auditors' Report Thereon) CONSENT OF INDEPENDENT ACCOUNTANTS March 19, 1999 We consent to the use in this current report on Form 8-K under the Securities Exchange Act of 1934 of First Banks America, Inc. of our report dated June 19, 1998 on our audit of the consolidated financial statements of Redwood Bancorp as of and for years ended December 31, 1997 and 1996. /s/Pricewaterhousecoopers LLP - ---------------------------- Pricewaterhousecoopers LLP REDWOOD BANCORP AND SUBSIDIARIES Report of Independent Accountants Shareholder and Board of Directors of Redwood Bancorp and Subsidiaries: We have audited the consolidated statements of financial condition of Redwood Bancorp and its subsidiaries (the Company) as of December 31, 1997 and 1996, and the related consolidated statements of operations, shareholder's equity, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Redwood Bancorp and its subsidiaries at December 31, 1997 and 1996, and the results of its operations and its cash flows for the years then ended, in conformity with generally accepted accounting principles. /s/ Coopers & Lybrand L.L.P. ---------------------------- San Francisco, California June 19, 1998 REDWOOD BANCORP AND SUBSIDIARIES Consolidated Statements of Financial Condition
December 31, ------------------- 1997 1996 ---- ---- ASSETS ------ Cash and due from banks......................................................... $ 8,672,217 8,140,106 Federal funds sold.............................................................. 1,200,000 5,000,000 Investment securities: Held-to-maturity............................................................. 4,228,570 2,249,207 Available-for-sale........................................................... 14,489,971 9,347,368 Loans, net...................................................................... 109,483,706 100,994,646 Bank premises and equipment, net................................................ 796,241 785,118 Interest receivable............................................................. 921,150 804,215 Goodwill........................................................................ 3,964,918 4,145,142 Other assets.................................................................... 1,715,421 2,594,849 ------------- ------------ Total assets........................................................... $ 145,472,194 134,060,651 ============= =========== LIABILITIES AND SHAREHOLDER'S EQUITY ------------------------------------ Liabilities: Deposits..................................................................... $ 126,772,656 117,379,755 Interest payable and other liabilities....................................... 1,227,427 737,717 Other borrowings............................................................. -- -- ------------- ------------ Total liabilities...................................................... 128,000,083 118,117,472 ------------- ------------ Shareholder's equity: Common stock, $3.33 par value; authorized 1,000,000 shares; issued and outstanding 250,000 shares in 1997 and 1996............................................................. 832,500 832,500 Surplus...................................................................... 10,639,969 10,639,969 Retained earnings............................................................ 5,988,022 4,567,627 Unrealized gain/loss on investment securities available-for-sale............. 11,620 (96,917) ------------- ------------ Total shareholder's equity............................................. 17,472,111 15,943,179 ------------- ------------ Total liabilities and shareholder's equity............................. $ 145,472,194 134,060,651 ============= ============ The accompanying notes are an integral part of these consolidated financial statements.
REDWOOD BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31, ------------ 1997 1996 ---- ---- Interest income: Interest and fees on loans....................................................... $ 10,417,676 8,791,684 Interest on federal funds sold................................................... 243,921 232,516 Interest on investment securities................................................ 1,018,486 967,244 Interest on deposits in other financial institutions............................. -- 13,572 ------------- ------------ Total interest income...................................................... 11,680,083 10,005,01 Interest expense.................................................................... 3,863,742 3,442,833 ------------- ------------ Net interest income before provision for loan losses....................... 7,816,341 6,562,183 Provision for loan losses........................................................... -- -- Net interest income after provision for loan losses........................ 7,816,341 6,562,183 ------------ ------------ Noninterest income: Customer service fees............................................................ 372,429 363,706 Other.... ....................................................................... 28,317 30,247 ------------- ------------ Total noninterest income................................................... 400,746 393,953 ------------- ------------ Noninterest expense: Salaries and employee benefits................................................... 3,362,288 3,085,229 Occupancy and equipment.......................................................... 933,728 966,284 Deposit insurance and regulatory assessments..................................... 35,220 35,371 Professional services............................................................ 82,729 166,700 Insurance........................................................................ 143,729 147,695 Data processing.................................................................. 216,326 221,279 Forms and supplies............................................................... 105,065 101,007 Telecommunication and postage.................................................... 147,366 150,085 Corporate expenses............................................................... 56,000 57,000 Goodwill amortization............................................................ 180,224 180,224 Other.... ....................................................................... 378,166 311,541 ------------- ------------ Total noninterest expense.................................................. 5,640,841 5,422,415 ------------- ------------ Income before income taxes................................................. 2,576,246 1,533,721 Income tax expense (benefit)........................................................ 1,155,851 (1,773,000) ------------- ---------- Net income................................................................. $ 1,420,395 3,306,721 ============= ============ Net income per share-- basic........................................................ $ 5.68 13.23 ============= ============ Net income per share-- diluted...................................................... $ 5.68 13.23 ============= ============ Weighted average common stock outstanding........................................... $ 250,000 250,000 ============= ============ The accompanying notes are an integral part of these consolidated financial statements.
REDWOOD BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY For the years ended December 31, 1997 and 1996
Unrealzied Gain/Loss on Investment Securities Common stock Retained Available- Shares Amount Surplus Earnings For-Sale Total ------ ------ ------- -------- -------- ----- Balance, December 31, 1995..... 250,000 $ 832,500 10,639,969 1,260,906 55,971 12,789,346 Net Income.................. -- -- -- 3,306,721 -- 3,306,721 Change in unrealized gain/ loss on available-for- sale securities........... -- -- -- -- (152,888) (152,888) --------- --------- ------------ ---------- --------- ------------ Balance, December 31, 1996..... 250,000 832,500 10,639,969 4,567,627 (96,917) 15,943,179 Net Income.................. -- -- -- 1,420,395 -- 1,420,395 Change in unrealized gain/ loss on available-for- sales securities.......... -- -- -- -- 108,537 108,537 --------- --------- ------------ ---------- --------- ------------ Balance, December 31, 1997..... 250,000 $ 832,500 10,639,969 5,988,022 11,620 17,472,111 ========= ========= ============ ========== ========= ============ The accompanying notes are an integral part of these consolidated financial statements.
REDWOOD BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, ------------------- 1997 1996 ---- ---- Cash flows from operating activities: Net income....................................................................... $ 1,420,395 3,306,721 Reconciliation to net cash provided by operating activities: Deferred income tax.......................................................... 826,000 (1,982,000) Depreciation and leasehold amortization............................................................... 212,703 225,429 Amortization and accretion of premiums and discounts..................................................... (219,090) (185,772) Goodwill amortization........................................................ 180,224 180,224 Net increase (decrease) in deferred loan fees......................................................... (6,734) 81,407 Increase in interest receivable and other assets........................................................... (63,513) (3,752) Increase (decrease) in interest payable and other liabilities.............................................. 489,710 (144,076) Gain on sale of other real estate owned...................................... (12,084) -- ------------ ---------- Net cash provided by operating activities................................ 2,827,611 1,478,181 ------------ ---------- Cash flows from investing activities: Purchase of: Held-to-maturity securities.................................................... (5,000,000) (2,940,333) Available-for-sale securities.................................................. (9,970,184) (7,455,899) Proceeds from: Maturities of held-to-maturity securities...................................... 3,041,583 2,181,859 Maturities of available-for-sale securities.................................... 5,134,262 9,670,112 Net change in interest-earning deposits in other financial institutions................................................ -- 322,520 Loan originations and purchases, net of repayments and participations.................................................. (8,608,504) (21,611,266) Purchase of bank premises and equipment.......................................... (223,820) (165,133) Proceeds from sale of other real estate owned.................................... 138,262 -- ------------ ----------- Net cash used in investing activities........................................ (15,488,401) (19,998,140) ------------ ----------- Cash flows from financing activities: Net change in deposits........................................................... 9,392,901 13,237,354 Net change in other borrowings................................................... -- -- ----------- ----------- Net cash provided by financing activities.................................... 9,392,901 13,237,354 ----------- ----------- Net decrease in cash and cash equivalents.................................... (3,267,889) (5,282,605) Cash and cash equivalents at beginning of year...................................... 13,140,106 18,422,711 ------------ ----------- Cash and cash equivalents at end of year............................................ $ 9,872,217 13,140,106 ============ =========== Other cash flow information: Interest paid.................................................................... $ 3,824,888 3,436,800 ============ =========== Income taxes paid................................................................ $ 260,000 211,500 ============ =========== The accompanying notes are an integral part of these consolidated financial statements.
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION Redwood Bancorp (Bancorp or the Company) is owned by Empire Holdings, Inc., a wholly owned subsidiary of Empire Holdings, Ltd., a closely held bank holding company with no other significant operations. Redwood Bank (the Bank) is Bancorp's principal subsidiary and the primary operating entity of the consolidated group. All intercompany transactions have been eliminated. NATURE OF OPERATIONS Bancorp operates four branches in the San Francisco Bay Area. Bancorp's primary source of revenue is through providing commercial and real estate loans to customers, who are predominantly small and middle-market businesses. The cost of funds relates to various deposit products offered to these same businesses and individuals. USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of certain assets and certain liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of certain revenues and certain expenses during the reporting period. Actual results could differ from those estimates. CASH EQUIVALENTS For the purposes of reporting cash flows, cash equivalents include federal funds sold. Generally, federal funds are sold for one-day periods. Substantially all cash equivalents held in other financial institutions exceed existing deposit insurance coverage. INTEREST-EARNING DEPOSITS IN OTHER FINANCIAL INSTITUTIONS Interest-earning deposits in other financial institutions generally have one year original maturities and no individual deposit exceeds $100,000. Accordingly, these deposits are recorded at cost, which approximates market. INVESTMENT SECURITIES: Bancorp classifies and accounts for debt and equity securities as follows: * Held-to-Maturity -- Debt securities that management has the positive intent and ability to hold until maturity are classified as held-to-maturity and are carried at their remaining unpaid principal balance, net of unamortized premiums or unaccreted discounts. Premiums are amortized and discounts are accreted using the level interest yield method over the estimated remaining term of the underlying security. * Trading Securities -- Debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and reported at market value, with unrealized gain and loss included in earnings. The Bank held no trading securities during 1997 and 1996. * Available-For-Sale -- Debt and equity securities that will be held for indefinite periods of time, including securities that may be sold in response to changes in market interest or prepayment rates, needs for liquidity and changes in the availability of and the yield of alternative investments are classified as available-for-sale. After amortization or accretion of any premiums or discounts, these assets are carried at market value. Market value is determined using published quotes as of the close of business. Unrealized gains and losses are excluded from earnings and reported net of tax as a separate component of stockholders' equity until realized. Realized gains and losses on held-to-maturity and available-for-sale securities are computed using the specific identification method using amortized cost. LOANS Loans held for investment are carried at amortized cost. Bancorp's loan portfolio consists of commercial, installment, real estate construction and other real estate loans generally collateralized by first and second deeds of trust on real estate, business assets, or personal property. Interest income is accrued daily on the outstanding loan balances using the simple interest method. Loans are generally placed on nonaccrual status when the borrowers are past due 90 days and when payment in full of principal or interest is not expected. At the time a loan is placed on nonaccrual status, any interest income previously accrued but not collected is reversed. Bancorp charges loan origination and commitment fees. Net loan origination fees are deferred and amortized to interest income over the life of the loan on a method that produces a level yield. Loan commitment fees related to lines of credit are amortized to interest income over the commitment period. If a loan is paid-off prior to maturity, the remaining unamortized deferred fee is immediately recognized to interest income. ALLOWANCE FOR LOAN LOSSES An allowance for loan losses is maintained at a level deemed appropriate by management to provide for known and unidentified losses in the loan portfolio. The allowance is based upon management's assessment of various factors affecting the collectibility of the loans and commitments to extend credit, including current and projected economic conditions, past credit experience, delinquency status, the value of the underlying collateral, if any, and the continuing review of the portfolio of loans and commitments. The allowance for loan losses is based on estimates, and ultimate losses may vary from the current estimates. These estimates are reviewed periodically and, as adjustments become necessary, they are reported in earnings in the periods in which they become known. A loan is considered impaired based on current information and events, if it is probable that the Bancorp will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. The allowance for losses on impaired loans is measured under one of three prescribed methods. Since most of the Bancorp's loans are collateral dependent, the calculation of the allowance on impaired loans is generally based on the fair value of the collateral. Income recognition on impaired loans conforms to the method the Bancorp uses for income recognition on nonaccrual loans. BANK PREMISES AND EQUIPMENT Bank premises and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are computed on the straight-line basis over the shorter of the estimated useful lives of the assets or the term of the lease. OTHER REAL ESTATE OWNED Other real estate owned consists of properties acquired through foreclosure and is stated at the lower of cost or fair market value less estimated costs to sell. Estimated losses that result from the ongoing periodic valuation of these properties are charged to current earnings with a provision for losses on foreclosed property in the period in which they are identified. Operating expenses of such properties, net of related income, are included in other expenses. INCOME TAXES Bancorp is included in the consolidated federal income tax returns of Empire Holdings, Inc. and files its own state income tax returns. Income taxes have been computed on the separate results of Bancorp based on the provisions of its tax sharing agreements with Empire Holdings, Inc. These agreements generally provide that Bancorp will be charged or reimbursed based on the tax effect of its earnings or losses in the combined and consolidated tax returns. Deferred income taxes reflect the estimated future tax effects of temporary differences between amount of assets and liabilities for financial reporting purposes and such amounts as measured by tax laws and regulations. GOODWILL Goodwill represents the excess of the purchase price over the estimated fair value of identifiable net assets associated with the purchase of Bancorp in March 1980. Goodwill is being amortized over 40 years on a straight-line basis. PER SHARE DATA Net income per share is stated in accordance with SFAS No. 128, Earnings Per Share. Basic net income per share is computed by dividing net income available to common shareholders (the numerator) by the weighted average number of common shares outstanding during the year (denominator). Diluted net income per share is computed by dividing diluted net income available to common shareholders by the weighted average number of common shares and common equivalent shares outstanding. There were no common equivalent shares outstanding during 1997 and 1996. (2) INVESTMENT SECURITIES The amortized cost and estimated market values of investment securities at December 31, 1997 and 1996 were as follows:
1997 ----------------------------------------------------- Unrealized Unrealized Market Cost gains losses value ---- ----- ------ ----- Held-to-maturity: U.S. Government Agencies........................ $ 4,228,570 754 -- 4,229,324 ------------- --------- -------- ------------- 4,228,570 754 -- 4,229,324 ------------- --------- -------- ------------- Available-for-sale: U.S. Treasury Securities........................ 2,000,348 1,527 -- 2,001,875 U.S. Government Agencies........................ 12,478,003 10,093 -- 12,488,096 ------------- --------- -------- ------------- 14,478,351 11,620 -- 14,489,971 ------------- --------- -------- ------------- $ 18,706,921 12,374 -- 18,719,295 ============= ========= ======== ============= 1996 --------------------------------------------------- Unrealized Unrealized Market Cost gains losses value ---- ----- ------ ----- Held-to-maturity: U.S. Treasury Securities........................ $ 979,385 3,256 -- 982,641 U.S. Government Agencies........................ 1,269,822 -- (4,280) 1,265,542 ------------- --------- --------- ------------- 2,249,207 3,256 (4,280) 2,248,183 ------------- --------- --------- ------------- Available-for-sale: U.S. Treasury Securities........................ 1,999,864 1,387 -- 2,001,251 U.S. Government Agencies........................ 7,444,421 -- (98,304) 7,346,117 ------------- --------- ------- ------------- 9,444,285 1,387 (98,304) 9,347,368 ------------- --------- --------- ------------- $ 11,693,492 4,643 (102,584) 11,595,551 ============= ========= ========= ============= At December 31, 1997 and 1996, securities with carrying amounts of $6,992,099 and $8,965,398 were pledged to secure public deposits.
The amortized cost and estimated market value of investment securities at December 31, 1997 by contractual maturity, is as follows: Amortized Market cost value --------- ------ Held-to-maturity: Over five through ten years.................................................. $ 3,000,000 3,007,454 Over ten years............................................................... 1,228,570 1,221,870 -------------- -------------- 4,228,570 4,229,324 Available for Sale: One year or less............................................................. 7,992,634 7,997,174 Over one through five years.................................................. 5,983,500 5,988,494 Over five through ten years.................................................. 502,217 504,303 -------------- -------------- 14,478,351 14,489,971 -------------- -------------- $ 18,706,921 18,719,295 ============== ============== (3) LOANS AND ALLOWANCE FOR LOAN LOSSES The loan portfolio at December 31, 1997 and 1996 consisted of the following: 1997 1996 ---- ---- Commercial...................................................................... $ 12,219,400 12,600,149 Real estate--mortgage........................................................... 80,168,678 69,257,087 Real estate--construction....................................................... 10,566,258 11,557,092 Installment and other loans..................................................... 8,193,617 8,258,278 Acceptances of other banks...................................................... -- 999,855 -------------- -------------- 111,147,953 102,672,461 Less: Deferred loan fees.......................................................... (477,622) (484,356) Allowance for loan losses................................................... (1,186,625) (1,193,459) -------------- -------------- $ 109,483,706 100,994,646 ============== ============== Bancorp concentrates its lending activities in commercial loans and real estate loans made primarily to businesses and individuals within the San Francisco Bay Area. The change in the allowance for loan losses for the years ended December 31, 1997 and 1996 are as follows: 1997 1996 ---- ---- Balance at beginning of year.................................................... $ 1,193,459 1,210,127 Provision for loan losses....................................................... -- -- Loans charged off............................................................... (13,249) (38,170) Recoveries...................................................................... 6,415 21,502 -------------- -------------- Balance at end of year.......................................................... $ 1,186,625 1,193,459 ============== ==============
At December 31, 1997 and 1996, loans on nonaccrual status totaled $1,354,003 and $2,470,127. Foregone interest on these loans for 1997 and 1996 were $123,941 and $230,667. At December 31, 1997 and 1996, the recorded investment in loans for which impairment has been recognized in accordance with SFAS No. 114 totaled $641,431 and $626,689 with a corresponding valuation allowance of $103,792 and $239,176, respectively. The average recorded investment in impaired loans in 1997 and 1996 was $634,060 and $370,845, respectively. From the time each loan was classified as impaired, no interest income was recognized on such loans in 1997 or 1996. At December 31, 1997 and 1996, loans pledged to secure public deposits were $322,660 and $425,394, respectively. (4) BANK PREMISES AND EQUIPMENT
Bank premises and equipment at December 31, 1997 and 1996 consisted of the following: 1997 1996 ---- ---- Land............................................................................ $ 228,923 228,923 Building........................................................................ 661,392 672,368 Furniture and fixtures.......................................................... 447,662 696,769 Equipment....................................................................... 1,515,192 2,424,191 Leasehold improvements.......................................................... 1,872,058 1,830,899 -------------- -------------- 4,725,227 5,853,150 Less accumulated depreciation and amortization................................. (3,928,986) (5,068,032) -------------- -------------- $ 796,241 785,118 ============== ============== Depreciation and amortization expense for the year ended December 31, 1997 and 1996 were $212,697 and $225,429.
(5) DEPOSITS
At December 31, 1997 and 1996, deposits consisted of the following: 1997 1996 ---- ---- Noninterest-bearing demand...................................................... $ 27,427,159 27,115,692 Savings and interest-bearing demand............................................. 55,152,181 50,545,444 Certificates of deposit issued in amounts less than $100,000.................... 26,936,714 26,246,053 Certificates of deposit of $100,000 or more..................................... 17,256,602 13,472,566 -------------- -------------- Total.................................................................. $ 126,772,656 117,379,755 ============== ============== The maturity of certificates accounts are as follows: 1998................................................. $ 39,545,316 1999................................................. 3,829,000 2000................................................. 479,000 2001................................................. 120,000 2002 and thereafter......................................... 220,000 -------------- $ 44,193,316 ==============
(6) INCOME TAXES
The components of the provision (benefit) for federal and state income taxes are as follows: 1997 1996 ---- ---- Currently payable: Federal...................................................................... $ 30,851 23,000 State ....................................................................... 265,000 186,000 ------------ ------------ Total.................................................................. 295,851 209,000 ------------ ------------ Deferred: Federal...................................................................... 19,000 27,000 State........................................................................ (45,000) 14,000 Reduction of income tax due to utilization of net operating loss carryforward............................................ 886,000 514,000 Reduction in valuation allowance............................................. -- (2,537,000) ------------ ----------- Total.................................................................. 860,000 (1,982,000) ------------ ------------ Income tax expense (benefit).................................... $ 1,155,851 (1,773,000) ============ ============ Reconciliation of the statutory tax rate to the effective tax rate is as follows: 1997 1996 ---- ---- Statutory federal tax rate...................................................... 35.0% 35.0% State tax, net of federal income tax effect..................................... 5.6% 8.9% Reduction in deferred tax asset valuation allowance............................. -- (165.4)% Other, net...................................................................... 4.3% 5.9% ------- ------- 44.9% (115.6)% ======= ======= The components of net deferred income tax assets and liabilities as of December 31 are as follows: 1997 1996 ---- ---- Allowance for loan losses....................................................... $ 237,000 239,000 Fixed assets.................................................................... 148,000 147,000 Deferred loan fees.............................................................. 20,000 32,000 Net operating loss carryforward................................................. 803,000 1,689,000 State tax, net of federal income tax effect..................................... 196,000 151,000 AMT credit carryforward......................................................... 53,000 34,000 Other..... ..................................................................... 3,000 (6,000) ------------ ----------- Total deferred tax assets.............................................. $ 1,460,000 2,286,000 ============ ===========
As of December 31, 1997, Bancorp had federal net operating loss carryforwards of $2,363,000 available to reduce future financial statement income based on the provisions of its tax sharing, agreement with Empire Holdings, Inc. In addition, Bancorp is a member of the Empire Holdings, Inc. and subsidiaries consolidated tax return filing group. As of December 31, 1997, the Empire Holdings consolidated group had federal net operating loss carryforwards available, on a tax basis, to reduce future taxable income as follows: Net Operating Expiration loss carryover date ---- --------- ---- $ 70,000....................................... 2002 2,846, 000....................................... 2003 245,000....................................... 2004 3,000....................................... 2005 658,000....................................... 2006 5,000....................................... 2007 164,000....................................... 2008 26,000....................................... 2009 ------------- ---- $ 4,017,000 ============ (7) EMPLOYEE BENEFIT PLAN Bancorp has a 401(k) savings plan covering substantially all employees of Bancorp. Under the provisions of the plan, employees who elect to participate are allowed to make "deferred contributions" (as defined in the Plan Agreement) of up to 15% of their annual salary. In addition, the Bank will make matching contributions equal to 50% of each employee's elective deferral and at year end 1% of the employee's annual salary. Contributions by Bancorp for the year ended December 31, 1997 and 1996 amounted to $107,200 and $104,954, respectively. (8) RELATED PARTY TRANSACTIONS In the ordinary course of business, the Bancorp has made loans and advances under lines of credit to directors and officers and their related interests. An analysis of loans to related parties for 1997 and 1996 are shown below: 1997 1996 ---- ---- Balance, beginning of year........................ $ -- 100,000 Advances.......................................... -- 886,000 Payments.......................................... -- (986,000) -------- -------- Balance, end of year.............................. -- -- ======== ======== (9) COMMITMENTS AND CONTINGENCIES The Bank is required by federal regulations to maintain certain minimum average balances with the Federal Reserve Bank, based primarily on the Bank's daily demand deposit balances. Required deposits held with the Federal Reserve Bank as of December 31, 1997 and 1996 were $1,479,000 and $1,482,000, and the Bank had a balance of $6,213,000 and $5,177,000 with the Federal Reserve Bank at these dates. Bancorp has entered into various noncancellable operating lease arrangements for three branch offices. Future minimum lease payments as of December 31, 1997 are as follows: Future minimum lease payments -------------- 1998...................................... $ 385,683 1999...................................... 19,400 ----------- $ 405,083 =========== Certain of the leases contain renewal options and rent escalation clauses based upon certain economic indices. Net rental expense for bank premises and equipment under operating leases for the year ended December 31, 1997 and 1996 was $477,398 and $475,395. Bancorp is involved in legal actions arising from normal business activities. Management, upon the advice of legal counsel handling such actions, believes that the ultimate resolution of these actions will not have a material effect on the financial position of Bancorp. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK Bancorp is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. To date, these financial instruments include commitments to extend credit which involve elements of credit and interest rate risk in excess of the amount recognized in the statement of financial position. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bancorp upon commitments to extend credit, is based on management's credit evaluation of the counter-party. Collateral held varies but usually consists of residential and commercial property. Standby letters of credit are performance assurances made on behalf of customers who have a contractual obligation to produce or deliver goods or services or otherwise perform. Credit risk in these transactions arises from the possibility that a customer may not be able to repay the Bank if the letter of credit is drawn upon. As with commitments to extend credit, the Bank evaluates each customer's creditworthiness on a case-by-case basis. At December 31, 1997 and 1996, Bancorp had $18,883,206 and $16,244,782 of commitments to extend credit and $366,968 and $226,968 in standby letters of credit. (10) REGULATORY CAPITAL REQUIREMENTS The Bank is subject to various regulatory capital requirements administered by the 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 the Bank's assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Bank's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital (as defined) to average assets (as defined). Management believes, as of December 31, 1997, that the Bank meets all capital adequacy requirements to which it is subject. The following table sets forth the regulatory capital position of the Bank as of December 31, 1997 and 1996 (in thousands):
To be well- capitalized under For capital prompt corrective Actual adequacy purposes action provisions Amount Ratio Amount Ratio Amount Ratio ------ ----- ------ ----- ------ ----- As of December 31, 1997: Total Capital (to Risk Weighted Assets............................. $13,803 12.0% >$ 9,237 >8.0% >$ 11,546 >10.0% Tier I Capital (to Risk Weighted Assets)............................ 12,617 10.9% 4,618 4.0% 6,928 6.0% Tier I Capital (to Average Assets)............................ 12,617 9.0% 5,611 4.0% 7,014 5.0% As of December 31, 1996: Total Capital (to Risk Weighted Assets)............................ 11,514 10.6% 8,663 8.0% 10,829 10.0% Tier I Capital (to Risk Weighted Assets)............................ 10,320 9.5% 4,331 4.0% 6,497 6.0% Tier I Capital (to Average Assets)............................ 10,320 8.5% 4,837 4.0% 6,046 5.0%
As of December 31, 1997 and 1996, the regulatory capital position of Bancorp approximated the Bank's. As of December 31, 1997, the Bank was categorized as "well-capitalized" under the regulatory framework for prompt corrective action. To be categorized as "well-capitalized," the Bank must maintain minimum total risk-based, Tier I risk-based, Tier I leverage ratios as set forth in the table, and not be subject to a capital directive. In addition, the California State Banking Department limits the amount of dividends that can be paid without its prior approval for all state chartered banks. The limitation for a given year is the lesser of the Bank's retained earnings or its net income for the last three fiscal years, less the amount of any distributions made by the Bank's during such period. As of December 31, 1997, the Bank could pay dividends of up to $4,829,074 without prior approval. Lastly, in September 1992, Bancorp entered into an agreement with the Federal Reserve Bank whereby Bancorp cannot pay dividends unless the Bank maintains a Tier 1 capital ratio of at least 7.0%, a Tier 1 risk-based capital ratio of at least 4% and a total risk-based capital ratio of 8%. (11) FAIR VALUES OF FINANCIAL INSTRUMENTS Fair value estimates are determined as of a specific date in time utilizing quoted market prices, where available, or various assumptions and estimates. As the assumptions underlying these estimates change, the fair value of the financial instruments will change. The use of assumptions and various valuation techniques, as well as the absence of secondary markets for certain financial instruments, will likely reduce the comparability of fair value disclosures between financial institutions. Additionally, Bancorp has not disclosed highly subjective values of other nonfinancial instruments. Accordingly, the aggregate fair value amounts presented do not represent and should not be construed to represent the full underlying value of the Bank. The methods and assumptions used to estimate the fair values of each class of financial instruments are as follows: Cash and Cash Equivalents The carrying value of cash and cash equivalents approximates fair value due to the relatively short term nature of these instruments. Interest Earning Deposits in Other Financial Institutions The carrying value of interest earning deposits in other financial institutions approximates fair value due to the short term nature of all such deposits in the Bancorp's portfolio. Investment Securities Fair value of securities and investments is based on quoted market prices. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments. Loans Receivable In order to determine the fair values for loans, the loan portfolio was segmented based on loan type, credit quality and repricing characteristics. For certain variable rate loans with no significant credit concerns and frequent pricing, estimated fair values are based on the carrying values. The fair values of other loans are estimated using discounted cash flow analyses. The discount rates used in these analyses are generally based on origination rates for similar loans of comparable credit quality. Maturity estimates of installment loans are based on historical experience with prepayments. Deposits The fair values for deposits, subject to immediate withdrawal such as interest and noninterest bearing, and savings deposit accounts, are equal to the amount payable on demand at the reporting date (i.e., their carrying amount on the balance sheet). Fair values for fixed rate certificates of deposits are estimated by discounting future cash flows using interest rates currently offered on time deposits with similar remaining maturities.
December 31, 1997 December 31, 1996 ----------------- ----------------- Carrying Fair Carrying Fair amount value amount value ------ ----- ------ ----- Financial assets: Cash and cash equivalents..................... $ 9,872,217 9,872,217 13,140,106 13,140,106 Investment securities......................... 18,718,541 18,719,295 11,596,575 11,595,551 Loans receivable, net......................... 109,483,706 109,442,971 100,994,646 100,924,569 -------------- --------------- -------------- --------------- $ 138,074,464 138,034,483 125,731,327 125,660,226 ============== =============== ============== =============== Financial liabilities: Deposits...................................... $ 126,772,656 126,832,967 117,379,755 117,420,827 ============== =============== ============== ===============
(12) PARENT COMPANY ONLY CONDENSED FINANCIAL STATEMENTS
The financial statements of Bancorp (parent company only) follow: 1997 1996 ---- ---- Balance Sheets Cash............................................................................ $ 307 567 Investment in subsidiaries...................................................... 16,594,254 14,369,612 Deferred tax assets............................................................. 877,550 1,573,000 ------------- ------------- Total assets........................................................... $ 17,472,111 15,943,179 ============= ============= Shareholder's equity: Common stock................................................................. $ 832,500 832,500 Surplus...................................................................... 10,639,969 10,639,969 Retained earnings............................................................ 5,988,022 4,567,627 Accumulated other comprehensive income (loss), net of tax.................... 11,620 (96,917) ------------- -------------- Total shareholder's equity...................................................... $ 17,472,111 15,943,179 ============= ============= Income Statements Expenses: Goodwill amortization........................................................ $ (180,224) (180,224) ------------- ------------- Total expenses............................................................... (180,224) (180,224) -------------- -------------- Loss before taxes and equity in undistributed net income of subsidiaries........ (180,224) (180,224) Income tax benefit.............................................................. -- 1,573,000 ------------- ------------- Income (loss) before equity in undistributed net income of subsidiaries......... (180,224) 1,392,776 Equity in undistributed net income of subsidiaries.............................. 1,600,619 1,913,945 ------------- ------------- Net Income...................................................................... $ 1,420,395 3,306,721 ============= ============= 1997 1996 ---- ---- Statements of Cash Flows Cash flows--operating activities: Net Income................................................................... $ 1,420,395 3,306,721 Reconciliation of net income to net cash from operations: Equity in undistributed net income of subsidiaries......................... (1,600,619) (1,913,945) Goodwill amortization...................................................... 180,224 180,224 Deferred income tax........................................................ 695,450 (1,573,000) ------------- ------------- Operating cash flows, net....................................................... 695,450 -- ------------- ------------- Cash flows--investing activities: Capital contribution to the subsidiaries..................................... (695,710) -- ------------- ------------- Investing cash flows, net................................................ (695,710) -- ------------- ------------- Net decrease in cash............................................................ (260) -- Cash at beginning of the year................................................... 567 567 ------------- ------------- Cash at end of the year......................................................... $ 307 567 ============= =============
(13) SUBSEQUENT EVENT On June 8, 1998, the sole shareholder of Bancorp signed an Agreement in Principle to sell all of Bancorp's outstanding shares to First Banks America Inc. The transaction is expected to be completed in the fourth quarter of 1998, subject to regulatory approval. Item 7(b) Pro Forma Financial Statements PRO FORMA FINANCIAL INFORMATION The following unaudited pro forma combined condensed balance sheet as of December 31, 1998 and unaudited pro forma combined condensed statements of operations for the years ended December 31, 1998 and 1997, have been prepared to reflect the effects on the historical results of FBA of the acquisition of Redwood and its wholly owned subsidiary, Redwood Bank. The unaudited pro forma combined condensed balance sheet has been prepared as if the acquisition of Redwood occurred on December 31, 1998. The unaudited pro forma combined condensed statements of operations have been prepared assuming the acquisition of Redwood occurred on January 1, 1998. In addition, the unaudited pro forma combined condensed statements of operations reflect the acquisitions of Surety Bank, completed on December 1, 1997, and of the minority stockholders' interest in the net assets of First Commercial Bancorp, Inc. and its wholly owned subsidiary, First Commercial Bank (FCB), completed on February 2, 1998, as if the transactions occurred on January 1, 1997. The unaudited pro forma combined condensed statements of operations for the year ended December 31, 1997 also reflect the restatement of FBA's results of operations for its acquisition of First Banks' interest in FCB completed on February 2, 1998. The pro forma financial information set forth below is unaudited and not necessarily indicative of the results that will occur in the future.
Unaudited Pro Forma Combined Condensed Balance Sheet (1) December 31, 1998 ------------------------------------------------------ Pro Forma Adjustments - Pro Forma FBA Redwood Redwood Combined --- ------- ------- -------- (dollars expressed in thousands, except per share data) Assets ------ Cash and cash equivalents: Cash and due from banks.................................... $ 34,312 6,014 -- 40,326 Interest bearing deposits.................................. 1,001 -- -- 1,001 Federal funds sold......................................... 11,000 -- -- 11,000 --------- -------- -------- -------- Total cash and cash equivalents........................ 46,313 6,014 -- 52,327 --------- -------- -------- -------- Investment securities: Available for sale, at fair value.......................... 114,937 21,344 (26,000) (7) 110,281 Held to maturity........................................... 2,026 10,908 -- 12,934 --------- -------- -------- -------- Total investment securities............................ 116,963 32,252 (26,000) 123,215 --------- -------- -------- -------- Loans: Commercial and financial................................... 140,151 16,179 -- 156,330 Real estate construction and development................... 161,696 17,029 -- 178,725 Real estate mortgage....................................... 155,443 89,129 1,781 (6) 246,353 Consumer and other......................................... 61,907 11,467 -- 73,374 --------- -------- -------- -------- Total loans............................................ 519,197 133,804 1,781 654,782 Unearned discount.......................................... (2,794) (456) -- (3,250) Allowance for possible loan losses......................... (12,127) (1,256) -- (13,383) --------- -------- -------- -------- Net loans.............................................. 504,276 132,092 1,781 638,149 --------- -------- -------- -------- Bank premises and equipment, net.............................. 11,542 1,127 425 (6) 13,094 Intangibles associated with the purchase of subsidiaries...... 8,405 3,785 5,190 (6) 17,380 Foreclosed property, net...................................... 161 156 -- 317 Deferred tax assets........................................... 12,121 597 -- 12,718 Other assets.................................................. 20,216 2,674 -- 22,890 --------- -------- -------- -------- Total assets........................................... $ 719,997 178,697 (18,501) 880,090 ========= ======== ======== ======== Liabilities ----------- Deposits: Demand: Non-interest-bearing..................................... $ 105,949 33,595 -- 139,544 Interest-bearing......................................... 72,662 26,742 -- 99,404 Savings.................................................... 179,152 34,471 -- 213,623 Time deposits: Time deposits of $100 or more............................ 52,132 25,101 -- 77,233 Other time deposits...................................... 189,252 38,051 -- 227,303 --------- -------- -------- -------- Total deposits......................................... 599,147 157,960 -- 757,107 Short-term borrowings......................................... 4,141 -- -- 4,141 Deferred tax liabilities...................................... 1,392 -- 779 (6) 2,171 Accrued expenses and other liabilities........................ 5,317 1,354 -- 6,671 --------- -------- -------- -------- Total liabilities...................................... 609,997 159,314 779 770,090 --------- -------- -------- -------- Guaranteed preferred beneficial interests in FBA's subordinated debentures.................................... 44,155 -- -- 44,155 --------- -------- -------- -------- Stockholders' Equity -------------------- Common stock: Common stock............................................... 581 833 (833) (6) 581 Class B common stock....................................... 375 -- -- 375 Capital surplus............................................... 68,743 10,642 (10,642) (6) 68,743 Retained earnings............................................. 5,693 7,909 (7,909) (6) 5,693 Treasury stock................................................ (10,088) -- -- (10,088) Accumulated other comprehensive income........................ 541 (1) 1 (6) 541 --------- -------- -------- -------- Total stockholders' equity............................. 65,845 19,383 (19,383) 65,845 --------- -------- -------- -------- Total liabilities and stockholders' equity............. $ 719,997 178,697 (18,604) 880,090 ========= ======== ======== ========
See notes to pro forma combined condensed financial statements.
Unaudited Pro Forma Combined Condensed Statement of Operations (1) For year ended December 31, 1998 -------------------------------- Pro Forma Adjustments - Pro Forma FBA Redwood Redwood Combined --- ------- ------- -------- (dollars expressed in thousands, except per share data) Interest income: Interest and fees on loans........................ $ 45,118 11,508 (356) (6) 56,270 Investment securities............................. 8,103 1,429 (1,235) (7) 8,297 Federal funds sold and other...................... 1,206 195 -- 1,401 --------- ------- --------- -------- Total interest income......................... 54,427 13,132 (1,591) 65,968 --------- ------- --------- -------- Interest expense: Interest on deposits.............................. 21,606 4,878 -- 26,484 Note payable and other borrowings................. 1,622 6 -- 1,628 --------- ------- --------- -------- Total interest expense........................ 23,228 4,884 -- 28,112 --------- ------- --------- -------- Net interest income........................... 31,199 8,248 (1,591) 37,856 Provision for possible loan losses................... 900 -- -- 900 --------- ------- --------- -------- Net interest income after provision for possible loan losses.................... 30,299 8,248 (1,591) 36,956 --------- ------- --------- -------- Noninterest income: Service charges on deposit accounts .............. 2,935 249 -- 3,184 Other income...................................... 1,440 801 -- 2,241 --------- ------- --------- -------- Total noninterest income...................... 4,375 1,050 -- 5,425 --------- ------- --------- -------- Noninterest expense: Salary and employee benefits...................... 8,203 3,266 -- 11,469 Occupancy, furniture and equipment................ 3,999 1,065 17 (6) 5,081 Other noninterest expense......................... 14,270 1,653 353 (6) 16,276 --------- ------- --------- -------- Total noninterest expense..................... 26,472 5,984 370 32,826 --------- ------- --------- -------- Income before provision for income tax expense 8,202 3,314 (1,961) 9,555 Provision for income tax expense (benefit)........... 3,592 1,393 (810) (6) 4,175 --------- ------- --------- -------- Net income.................................... $ 4,610 1,921 (1,151) 5,380 ========= ======= ========= ======== Weighted average common stock outstanding (in thousands).............................. 5,140 -- -- 5,140 ========= ======= ========= ======== Earnings per common share: Basic............................................. $ 0.90 1.05 (8) Diluted........................................... 0.90 1.05 (8) ==== ====
See notes to pro forma combined condensed financial statements.
Unaudited Pro Forma Combined Condensed Statement of Operations (1) For the year ended December 31, 1997 ------------------------------------ Pro Forma Pro Forma Adjustments- Pro Forma Adjustments- Pro Forma FBA Surety FCB & Surety Combined Redwood Redwood Combined ---- ------ ------------ ------- ------- -------- --------- (dollars expressed in thousands, except per share data) Interest income: Interest and fees on loans............. $ 33,393 4,338 -- 37,731 10,418 (356) (6) 47,793 Investment securities.................. 7,870 699 -- 8,569 1,018 (1,235) (7 8,352 Federal funds sold..................... 1,254 -- -- 1,254 244 -- 1,498 -------- ------- ------- ------- ------- -------- -------- Total interest income.............. 42,517 5,037 -- 47,554 11,680 (1,591) 57,643 -------- ------- ------- ------- ------- -------- -------- Interest expense: Interest on deposits................... 16,716 2,297 -- 19,013 3,863 -- 22,876 Note payable and other borrowings...... 2,439 16 (504)(3,5) 1,951 1 -- 1,952 -------- ------- ------- ------- ------- ------- -------- Total interest expense............. 19,155 2,313 (504) 20,964 3,864 -- 24,828 -------- ------- ------- ------- ------- -------- -------- Net interest income................ 23,362 2,724 504 26,590 7,816 (1,591) 32,815 Provision for possible loan losses........ 2,000 255 -- 2,255 -- -- 2,255 -------- ------- ------- ------- ------- -------- -------- Net interest income after provision for possible loan losses......... 21,362 2,469 504 24,335 7,816 (1,591) 30,560 -------- ------- ------- ------- ------- -------- -------- Noninterest income: Service charges on deposit accounts.... 2,239 369 -- 2,608 373 -- 2,981 Other income........................... 1,048 952 (20) (4) 1,980 28 -- 2,008 -------- ------- ------- ------- ------- ----- -------- Total noninterest income........... 3,287 1,321 (20) 4,588 401 -- 4,989 -------- ------- ------- ------- ------- -------- -------- Noninterest expense: Salary and employee benefits........... 6,226 2,151 -- 8,377 3,362 -- 11,739 Occupancy, furniture and equipment..... 3,315 360 8 (4) 3,683 1,150 17 (6) 4,850 Other noninterest expense.............. 8,136 1,580 293 (2,4) 10,009 1,129 353 (6) 11,491 -------- ------- ------- ------- ------- -------- -------- Total noninterest expense.......... 17,677 4,091 301 22,069 5,641 370 28,080 -------- ------- ------- ------- ------- -------- -------- Income (loss) before provision for income tax expense (benefit) and minority interest in income of subsidiary. 6,972 (301) 183 6,854 2,576 (1,961) 7,469 Provision for income tax expense (benefit) 3,145 (120) 167 3,192 1,156 (810) (6) 3,538 -------- -------- ------- ------- ------- ------- -------- Income before minority interest in income of subsidiary............. 3,827 (181) 16 3,662 1,420 (1,151) 3,931 Minority interest in income of subsidiary. (294) -- 294 (2) -- -- -- -- -------- ------- ------- ------- ------- ------- -------- Net income......................... $ 3,533 (181) 310 3,662 1,420 (1,151) 3,931 ======== ======= ======= ======= ======= ======== ======== Weighted average common stock equivalents outstanding (in thousands)............. 4,069 265 (8) 1,093 (8) 5,427 -- -- 5,427 ======== ======= ======= ======= ======= ======== ======== Earnings per common share: Basic.................................. $ 0.87 0.67 (8) 0.72 (8) Diluted................................ 0.86 0.67 (8) 0.72 (8) ==== ==== ====
See notes to pro forma combined condensed financial statements. Notes to Pro Forma Combined Condensed Financial Statements (1) The unaudited pro forma combined condensed balance sheet has been prepared based on the historical financial statements of FBA and Redwood as if the pending acquisition of Redwood had occurred on December 31, 1998. The unaudited pro forma combined condensed statements of operations set forth the results of operations of FBA as if the pending acquisition of Redwood had occurred as of January 1, 1997. In addition, the unaudited pro forma combined condensed statements of operations reflect the acquisitions of Surety Bank and of the minority stockholders' interest in the net assets of FCB as if these transactions were completed on January 1, 1997. The unaudited pro forma combined condensed statements of operations for the year ended December 31, 1997 also reflect the restatement of FBA's results of operations for its acquisition of First Banks' interest in FCB completed on February 2, 1998. No adjustments have been made for any operational synergies that may occur as a result of these transactions. The pro forma financial information is unaudited and not necessarily indicative of the results that will occur in the future. Acquisition of the Minority Stockholders' Interest in FCB: (2) The application of the purchase method of accounting gives rise to purchase adjustments to reflect the fair value of assets acquired and liabilities assumed. Intangibles associated with the purchase of subsidiaries includes $1.63 million of goodwill for the acquisition of the minority stockholders' interest in the net assets of FCB. This amount represents the difference between the minority stockholders' interest in the net assets of FCB as of February 2, 1998 of $2.85 million and the estimated market value of that interest. The pro forma combined condensed statements of operations have been adjusted to include the amortization of goodwill generated by this transaction, amortized over a 15 year period using the straight-line method, and the elimination of minority interest in income of subsidiary. (3) The pro forma combined condensed statements of operations have been adjusted to reflect the reduction in interest expense from the exchange of $10 million of the promissory note payable to First Banks, Inc. (First Banks Note), majority owner of FBA's voting stock, for 804,000 shares of FBA common stock as of February 2, 1998. The First Banks Note carries an interest rate equal to 25 basis points below the prime rate. During 1998 and 1997, the average prime rate of interest was approximately 8.35% and 8.375%, respectively. Acquisition of Surety: (4) Intangibles associated with the purchase of subsidiaries include $2.77 million in goodwill generated by the transaction between FBA and Surety, representing the difference between the purchase price and the fair value of the net assets acquired. The fair value of the net assets acquired reflects increases of $200,000 and $210,000 relating to bank premises and mortgage servicing rights (MSRs), respectively, offset by the accrual of $389,000 in estimated acquisition costs. The deferred tax effects of these adjustments were recorded using an effective tax rate of 35%. The pro forma combined condensed statements of operations for the year ended December 31, 1997 have been adjusted to include the amortization of goodwill generated by the transaction, amortized over a 15 year period using the straight-line method, and the additional depreciation and amortization relating to the increases in bank premises and MSRs. (5) The pro forma combined condensed statements of operations for the year ended December 31, 1997 have been adjusted to reflect the amount of interest expense which would have been paid on the advance under the First Banks Note to fund the cash portion of the acquisition. The First Banks Note carries an interest rate equal to 25 basis points below the prime rate. During 1997, the average prime rate of interest was approximately 8.375%. Acquisition of Redwood: (6) Intangibles associated with the purchase of subsidiaries include $9.1 million in goodwill generated by the transaction between FBA and Redwood, representing the difference between the purchase price and the fair value of the net assets acquired. The $9.1 million of goodwill includes $3.8 million of goodwill existing on Redwood's consolidated statements of condition prior to its acquisition by FBA. The fair value of the net assets acquired reflects increases of $1.8 million and $425,000 relating to loans and bank premises, respectively. The deferred tax effects of these adjustments were recorded using an effective tax rate of 35%. The pro forma combined condensed statements of operations for the year ended December 31, 1998 and 1997 have been adjusted to include the amortization of goodwill generated by this transaction, amortized over a 15 year period using the straight-line method, and the additional amortization and depreciation relating to the increases in loans and bank premises. (7) The pro forma combined condensed statements of operations for the years ended December 31, 1998 and 1997 have been adjusted to reflect the reduction in interest income as the acquisition of Redwood was funded through the sale of investment securities. Earnings Per Share: (8) Basic pro forma earnings per share (EPS) for the years ended December 30, 1998 and 1997 were calculated based upon FBA's weighted average shares outstanding plus 264,621 shares assumed to be issued in the transaction between FBA and Surety, and 289,552 and 804,000 assumed to be issued in the acquisition of the minority stockholders' interest in the net assets of FCB. Diluted pro forma EPS for the years ended December 30, 1998 and 1997 were calculated similar to basic EPS, except for the additional common shares that would have been outstanding had the dilutive average common stock options of 8,000 and 27,000 for the years ended December 31, 1998 and 1997, respectively, been issued. SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Dated: March 19, 1999 FIRST BANKS AMERICA, INC. By:/s/ Allen H. Blake --------------------- Allen H. Blake Executive Vice President and Chief Operating and Financial -----END PRIVACY-ENHANCED MESSAGE-----