-----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, Ve0dVeo1WYHn8RmmPcQD3GTcz9ukGisdlsIRWNHBUkH6CvG5B6kDg3bnAiK/OIM5 tTbSBoU5vQcqapY5Odnhww== 0000310979-99-000011.txt : 19990809 0000310979-99-000011.hdr.sgml : 19990809 ACCESSION NUMBER: 0000310979-99-000011 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990802 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: 10-Q SEC ACT: SEC FILE NUMBER: 001-08230 FILM NUMBER: 99675943 BUSINESS ADDRESS: STREET 1: 135 N MERAMEC STREET 2: PO BOX 802527 CITY: CLAYTON STATE: MO ZIP: 77263-0369 BUSINESS PHONE: 3148544600 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 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 0-8937 ------ FIRST BANKS AMERICA, INC. ------------------------- (Exact name of registrant as specified in its charter) DELAWARE 75-1604965 -------- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 135 North Meramec Avenue, Clayton, Missouri 63105 ------------------------------------------------- (address of principal executive offices) (Zip Code) (314) 854-4600 -------------- (Registrant's telephone number, including area code) - -------------------------------------------------------------------------------- (Former name, former address, and former fiscal year, if changed since last report) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ____ Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Outstanding at Class July 31, 1999 ----- ------------- Common Stock, $0.15 par value 3,207,801 Class B Common Stock, $0.15 par value 2,500,000 FIRST BANKS AMERICA, INC. INDEX
Page PART I FINANCIAL INFORMATION Item 1. Financial Statements: Consolidated Balance Sheets as of June 30, 1999 and December 31, 1998............................................................ -1- Consolidated Statements of Income for the three and six months ended June 30, 1999 and 1998.............................................. -3- Consolidated Statements of Changes in Stockholders' Equity and Comprehensive Income for the six months ended June 30, 1999 and 1998 and the six months ended December 31, 1998................................................................ -4- Consolidated Statements of Cash Flows for the six months ended June 30, 1999 and 1998..................................................... -5- Notes to Consolidated Financial Statements......................................... -6- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.............................................. -13- PART II OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders................................ -24- Item 6. Exhibits and Reports on Form 8-K................................................... -24- SIGNATURES........................................................................................... -25-
PART I - FINANCIAL INFORMATION Item 1. Financial Statements FIRST BANKS AMERICA, INC. Consolidated Balance Sheets (unaudited) (dollars expressed in thousands, except per share data)
June 30, December 31, 1999 1998 ---- ---- ASSETS ------ Cash and cash equivalents: Cash and due from banks................................................... $ 26,051 34,312 Interest-bearing deposits with other financial institutions with maturities of three months or less................................. 1,122 1,001 Federal funds sold........................................................ 13,000 11,000 ------------ --------- Total cash and cash equivalents....................................... 40,173 46,313 ------------ --------- Investment securities: Available for sale, at fair value......................................... 84,990 114,937 Held to maturity, at amortized cost (fair value of $1,922 and $2,013 at June 30, 1999 and December 31, 1998, respectively)........................................................... 2,012 2,026 ------------ --------- Total investment securities........................................... 87,002 116,963 ------------ --------- Loans: Commercial and financial.................................................. 173,020 140,151 Real estate construction and development.................................. 214,088 161,696 Real estate mortgage...................................................... 252,697 155,443 Consumer and installment.................................................. 53,969 61,907 ------------ --------- Total loans........................................................... 693,774 519,197 Unearned discount......................................................... (1,748) (2,794) Allowance for possible loan losses........................................ (14,383) (12,127) ------------ --------- Net loans............................................................. 677,643 504,276 ------------ --------- Bank premises and equipment, net of accumulated depreciation................................................ 12,815 11,542 Intangibles associated with the purchase of subsidiaries..................... 16,644 8,405 Accrued interest receivable.................................................. 5,870 4,443 Other real estate............................................................ 90 161 Deferred tax assets.......................................................... 11,956 12,121 Other assets................................................................. 19,712 15,773 ------------ --------- Total assets.......................................................... $ 871,905 719,997 ============ =========
FIRST BANKS AMERICA, INC. Consolidated Balance Sheets (unaudited) (dollars expressed in thousands, except per share data) (continued)
June 30, December 31, 1999 1998 ---- ---- LIABILITIES ----------- Deposits: Demand: Non-interest-bearing....................................................... $ 121,458 105,949 Interest-bearing........................................................... 70,553 72,662 Savings..................................................................... 239,787 179,152 Time deposits: Time deposits of $100 or more.............................................. 85,497 52,132 Other time deposits........................................................ 228,352 189,252 ----------- ---------- Total deposits........................................................... 745,647 599,147 Short-term borrowings........................................................... 7,379 4,141 Accrued interest payable........................................................ 1,633 538 Deferred tax liabilities........................................................ 1,478 1,722 Accrued expenses and other liabilities.......................................... 3,673 4,449 ----------- ---------- Total liabilities........................................................ 759,810 609,997 ----------- ---------- Guaranteed preferred beneficial interest in First Banks America, Inc. subordinated debenture....................................... 44,186 44,155 ----------- ---------- STOCKHOLDERS' EQUITY -------------------- Common Stock: Common stock, $0.15 par value; 6,666,666 shares authorized; 3,872,697 shares issued........................................ 581 581 Class B common stock, $0.15 par value; 4,000,000 shares authorized; 2,500,000 shares issued and outstanding........................ 375 375 Capital surplus................................................................. 69,070 68,743 Retained earnings since elimination of accumulated deficit of $259,117, effective December 31, 1994.................................... 9,383 5,693 Common treasury stock, at cost; 666,896 shares and 651,867 shares at June 30, 1999 and December 31, 1998, respectively................................................................ (10,358) (10,088) Accumulated other comprehensive income (loss)................................... (1,142) 541 ----------- ---------- Total stockholders' equity............................................... 67,909 65,845 ----------- ---------- Total liabilities and stockholders' equity............................... $ 871,905 719,997 =========== ==========
The accompanying notes are an integral part of the consolidated financial statements. FIRST BANKS AMERICA, INC. Consolidated Statements of Income (unaudited) (dollars expressed in thousands, except per share data)
Three months ended Six months ended June 30, June 30, ----------------- ----------------- 1999 1998 1999 1998 ---- ---- ---- ---- Interest income: Interest and fees on loans................................................ $ 15,715 11,002 28,584 21,570 Investment securities..................................................... 1,600 2,122 3,428 4,155 Federal funds sold and other.............................................. 126 277 224 672 -------- ------- ------- -------- Total interest income................................................. 17,441 13,401 32,236 26,397 -------- ------- ------- -------- Interest expense: Deposits: Interest-bearing demand................................................. 285 334 553 683 Savings................................................................. 2,143 1,495 3,949 2,949 Time deposits of $100 or more........................................... 899 786 1,640 1,561 Other time deposits..................................................... 2,821 2,891 5,400 5,675 Promissory note payable and other borrowings.............................. 358 529 466 1,066 -------- ------- ------- -------- Total interest expense................................................ 6,506 6,035 12,008 11,934 -------- ------- ------- -------- Net interest income................................................... 10,935 7,366 20,228 14,463 Provision for possible loan losses........................................... 123 200 213 500 -------- ------- ------- -------- Net interest income after provision for possible loan losses.......... 10,812 7,166 20,015 13,963 -------- ------- ------- -------- Noninterest income: Service charges on deposit accounts and customer service fees............. 900 604 1,630 1,343 Gain on sales of securities, net.......................................... 88 9 174 101 Other income.............................................................. 516 266 855 585 -------- ------- ------- -------- Total noninterest income.............................................. 1,504 879 2,659 2,029 -------- ------- ------- -------- Noninterest expense: Salaries and employee benefits............................................ 2,907 2,156 5,202 4,291 Occupancy, net of rental income........................................... 800 575 1,361 1,066 Furniture and equipment................................................... 446 480 848 827 Advertising and business development...................................... 99 272 163 370 Postage, printing and supplies............................................ 202 239 387 406 Data processing fees...................................................... 837 431 1,556 906 Legal, examination and professional fees.................................. 1,144 1,179 2,247 2,069 Communications............................................................ 146 227 300 427 (Gain) loss on sales of other real estate, net of expenses................ 7 (70) 7 87 Amortization of intangibles associated with the purchase of subsidiaries............................................................ 306 155 508 288 Guaranteed preferred debenture............................................ 993 -- 1,986 -- Other..................................................................... 796 697 1,624 1,661 -------- ------- ------- -------- Total noninterest expense............................................. 8,683 6,341 16,189 12,398 -------- ------- ------- -------- Income before provision for income tax expense........................ 3,633 1,704 6,485 3,594 Provision for income tax expense............................................. 1,574 683 2,795 1,473 -------- ------- ------- -------- Net income............................................................ $ 2,059 1,021 3,690 2,121 ======== ======= ======= ======== Earnings per common share: Basic................................................................. $ 0.36 0.20 0.65 0.42 Diluted............................................................... 0.36 0.20 0.64 0.42 ======== ======= ====== ======= Weighted average shares of common stock outstanding (in thousands)........... 5,713 5,206 5,717 5,059 ======== ======= ======= =======
The accompanying notes are an integral part of the consolidated financial statements. FIRST BANKS AMERICA, INC. Consolidated Statements of Changes in Stockholders' Equity and Comprehensive Income (unaudited) Six months ended June 30, 1999 and 1998 and six months ended December 31, 1998 (dollars expressed in thousands, except per share data)
Accu- mulated other compre- Total Class B Compre- Common hensive stock- Common common Capital hensive Retained treasury income holders' stock stock surplus income earnings stock (loss) equity ----- ----- ------------- -------- ----- ------ ------ Consolidated balances, January 1, 1998........... $ 322 375 47,329 1,083 (4,350) 332 45,091 Six months ended June 30, 1998: Comprehensive income: Net income.................................. -- -- -- 2,121 2,121 -- -- 2,121 Other comprehensive income, net of tax - Unrealized gains on securities, net of reclassification adjustment (1)......... -- -- -- 14 -- -- 14 14 ------ Comprehensive income........................ 2,135 ====== Issuance of common stock for purchase accounting acquisition of FCB............... 43 -- 2,965 -- -- -- 3,008 Conversion of promissory note payable......... 121 -- 9,879 -- -- -- 10,000 Repurchases of common stock................... -- -- -- -- (3,806) -- (3,806) ------- ---- ------- ----- ------ ------ ------- Consolidated balances, June 30, 1998............. 486 375 60,173 3,204 (8,156) 346 56,428 Six months ended December 31, 1998: Comprehensive income: Net income.................................. -- -- -- 2,489 2,489 -- -- 2,489 Other comprehensive income, net of tax - Unrealized gains on securities, net of reclassification adjustment (1)......... -- -- -- 195 -- -- 195 195 ------ Comprehensive income........................ 2,684 ====== Exercise of stock options..................... -- -- 13 -- -- -- 13 Redemption of stock options................... -- -- (48) -- -- -- (48) Compensation paid in stock.................... -- -- 27 -- -- -- 27 Conversion of 12% convertible debentures...... 95 -- 8,578 -- -- -- 8,673 Repurchases of common stock................... -- -- -- -- (1,932) -- (1,932) ------- ---- ------- ----- ------ ------ ------- Consolidated balances, December 31, 1998......... 581 375 68,743 5,693 (10,088) 541 65,845 Six months ended June 30, 1999: Comprehensive income: Net income.................................. -- -- -- 3,690 3,690 -- -- 3,690 Other comprehensive income, net of tax - Unrealized losses on securities, net of reclassification adjustment (1)......... -- -- -- (1,683) -- -- (1,683) (1,683) ------ Comprehensive income........................ 2,007 ====== Reduction of valuation reserve................ -- -- 327 -- -- -- 327 Repurchases of common stock................... -- -- -- -- (270) -- (270) ------- ---- ------- ----- ------ ------ ------- Consolidated balances, June 30, 1999............. $ 581 375 69,070 9,383 (10,358) (1,142) 67,909 ======= ==== ======= ===== ======= ======= ======= - ---------------------
(1) Disclosure of reclassification adjustment:
Six months Six months ended June 30, ended -------------- 1999 1998 December 31, 1998 ---- ---- ----------------- Unrealized gains (losses) arising during the period............... $(1,570) 80 351 Less: reclassification adjustment for gains included in net income 113 66 156 ------- --- --- Unrealized gains (losses) on securities........................... $(1,683) 14 195 ======= === ===
The accompanying notes are an integral part of the consolidated financial statements. FIRST BANKS AMERICA, INC. Consolidated Statements of Cash Flows (unaudited) (dollars expressed in thousands)
Six months ended June 30, ------------------ 1999 1998 ---- ---- Cash flows from operating activities: Net income......................................................................... $ 3,690 2,121 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, amortization and accretion, net.................................... 1,036 861 Provision for possible loan losses............................................... 213 500 Provision for income tax expense................................................. 2,795 1,473 Payments of income taxes......................................................... (941) (495) Gain on sales of securities, net................................................. (174) (101) (Increase) decrease in accrued interest receivable............................... (538) 697 Interest accrued on liabilities.................................................. 12,008 11,934 Payments of interest on liabilities.............................................. (11,860) (12,819) Other operating activities, net.................................................. (5,353) (32) ---------- ------- Net cash provided by operating activities...................................... 876 4,139 ---------- ------- Cash flows from investing activities: Cash (paid) received for acquired entities, net of cash and cash equivalents received (paid)................................................. (17,244) 3,241 Proceeds from sales of investment securities available for sale.................... 54,414 13,027 Maturities of investment securities available for sale............................. 19,118 44,724 Maturities of investment securities held to maturity............................... 14 -- Purchases of investment securities available for sale.............................. (13,897) (40,197) Net increase in loans.............................................................. (36,933) (10,522) Recoveries of loans previously charged off......................................... 1,375 1,063 Purchases of bank premises and equipment........................................... (379) (1,417) Proceeds from sales of other real estate........................................... 283 830 Other investing activities, net.................................................... (292) (14,205) ---------- ------- Net cash provided by (used in) investing activities............................ 6,459 (3,456) ---------- ------- Cash flows from financing activities: Other (decreases) increases in deposits: Demand and savings deposits...................................................... (23,497) (10,143) Time deposits.................................................................... 7,053 4,898 Increase in federal funds purchased................................................ 5,000 1,300 Decrease in Federal Home Loan Bank advances........................................ -- (585) (Decrease) increase in securities sold under agreements to repurchase.............. (1,761) 1,006 Increase in promissory note payable................................................ -- 6,200 Decrease in payable to former shareholders of Surety Bank.......................... -- (3,829) Repurchases of common stock for treasury........................................... (270) (3,806) ---------- ------- Net cash used in financing activities.......................................... (13,475) (4,959) ---------- ------- Net decrease in cash and cash equivalents...................................... (6,140) (4,276) Cash and cash equivalents, beginning of period........................................ 46,313 35,162 ---------- ------- Cash and cash equivalents, end of period.............................................. $ 40,173 30,886 ========== ======= Noncash investing and financing activities: Loans transferred to other real estate............................................. $ 31 462 Reduction of valuation reserve..................................................... 327 -- Issuance of common stock in purchase accounting acquisition........................ -- 3,008 Conversion of promissory note payable to common stock.............................. -- 10,000 ========== =======
The accompanying notes are an integral part of the consolidated financial statements. FIRST BANKS AMERICA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) Basis of Presentation The accompanying consolidated financial statements of First Banks America, Inc. (FBA or the Company) are unaudited and should be read in conjunction with the consolidated financial statements contained in the 1998 annual report on Form 10-K. In the opinion of management, all adjustments, consisting of normal recurring accruals considered necessary for a fair presentation of the results of operations for the interim periods presented herein, have been included. Operating results for the six month period ended June 30, 1999 are not necessarily indicative of the results that may be expected for the year ending December 31, 1999. The consolidated financial statements include the accounts of FBA and its subsidiaries, all of which are wholly owned. All significant intercompany accounts and transactions have been eliminated. Certain reclassifications of 1998 amounts have been made to conform with the 1999 presentation. FBA is majority owned by First Banks, Inc., St. Louis, Missouri (First Banks). At June 30, 1999 and December 31, 1998, First Banks' ownership interest in FBA was 82.56% and 76.84%, respectively. FBA operates through three banking subsidiaries, First Bank Texas N.A., headquartered in Houston, Texas (FB Texas), First Bank of California, headquartered in Roseville, California (FB California) and Redwood Bancorp, headquartered in San Francisco, California (Redwood). Redwood operates through its wholly owned subsidiary, Redwood Bank, headquartered in San Francisco, California (Redwood Bank). FB Texas, FB California and Redwood Bank are collectively referred to as the Subsidiary Banks. (2) Transactions with Related Parties FBA purchases certain services and supplies from or through First Banks. FBA's financial position and operating results could significantly differ from those that would be obtained if FBA's relationship with First Banks did not exist. First Banks provides management services to FBA and certain of its Subsidiary Banks. Management services are provided under a management fee agreement whereby FBA compensates First Banks on an hourly basis for its use of personnel for various functions including internal audit, loan review, income tax preparation and assistance, accounting, asset/liability and investment services, loan servicing and other management and administrative services. Fees paid under this agreement were $724,000 and $1.4 million for the three and six months ended June 30, 1999, in comparison to $576,000 and $1.0 million for the three and six months ended June 30, 1998, respectively. Fees payable to First Banks generally increase as FBA expands through acquisitions and internal growth, reflecting the higher levels of service needed to operate the Subsidiary Banks. The fees for management services are at least as favorable as could have been obtained from unaffiliated third parties. Because of the affiliation with First Banks and the geographic proximity of certain of their offices, FBA shares the cost of certain personnel and services used by FBA and First Banks. This includes the salaries and benefits of certain loan and administrative personnel. The allocation of the shared costs are charged and/or credited under the terms of cost sharing agreements entered into in 1996. Management anticipates Redwood Bank will execute a similar cost sharing agreement in 1999. Because this involves distributing essentially fixed costs over a larger asset base, it allows each bank to receive the benefit of personnel and services at a reduced cost. Fees paid under these agreements were $220,000 and $432,000 for the three and six months ended June 30, 1999, and $268,000 and $524,000 for the same periods in 1998, respectively. First Services L.P., a limited partnership indirectly owned by First Banks' Chairman and his children through its general partners and limited partners, provides data processing and various related services to FB Texas and FB California under the terms of data processing agreements. Fees paid under these agreements were $740,000 and $1.4 million for the three and six months ended June 30, 1999, and $382,000 and $811,000 for the same periods in 1998, respectively. Fees payable to First Services L.P. generally increase as FBA expands through acquisitions and internal growth, reflecting the higher levels of service needed to operate the Subsidiary Banks. The fees paid for data processing services are at least as favorable as could have been obtained from unaffiliated third parties. First Brokerage of America, L.L.C. (First Brokerage), a limited liability company, whose shareholders are the trusts of the children of First Banks' Chairman, provides back-office support and product support for FBA's brokerage and insurance operations. For the three and six months ended June 30, 1999, FBA received commissions from First Brokerage of approximately $51,000 and $128,000, respectively, and First Brokerage received commissions from unaffiliated third-party companies of approximately $22,000 and $55,000, respectively, from unaffiliated third-party companies from the sale of these products to customers of FBA. FBA's Subsidiary Banks had $106.5 million and $86.2 million in whole loans and loan participations outstanding at June 30, 1999 and December 31, 1998, respectively, that were purchased from banks affiliated with First Banks. In addition, FBA's Subsidiary Banks had sold $238.6 million and $182.9 million in whole loans and loan participations to affiliates of First Banks at June 30, 1999 and December 31, 1998, respectively. These loans and loan participations were acquired and sold at interest rates and terms prevailing at the dates of their purchase or sale and under standards and policies followed by FBA's Subsidiary Banks. FBA has a $20.0 million revolving note payable from First Banks (Note Payable). The borrowings under the Note Payable bear interest at an annual rate of one-quarter percent less than the "Prime Rate" as reported in the Wall Street Journal. The outstanding principal balance and accrued interest under the Note Payable are due and payable on October 31, 2001. In July 1998, FBA repaid all outstanding borrowings under the Note Payable and has not utilized the Note Payable since that time. The interest expense under the Note Payable was $274,000 and $546,000 for the three and six months ended June 30, 1998, respectively. In connection with FBA's acquisition of First Commercial Bancorp, Inc. (FCB) and its wholly-owned subsidiary, First Commercial Bank (First Commercial), FBA issued a convertible debenture to First Banks of $6.5 million plus accrued interest. This debenture replaced similar FCB debentures previously owned by First Banks. On December 4, 1998, First Banks converted the $6.5 million principal and $2.4 million accrued and unpaid interest into 629,557 shares of FBA common stock. The related interest expense associated with this debenture was $194,000 and $404,000 for the three and six months ended June 30, 1998, respectively. (3) Regulatory Capital FBA and the Subsidiary Banks are subject to various regulatory capital requirements administered by the federal and state 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 FBA's financial statements. Under capital adequacy guidelines and the regulatory framework for Prompt Corrective Action, the Subsidiary Banks 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 judgments by the regulators about components, risk weightings and other factors. Quantitative measures established by regulations to ensure capital adequacy require FBA and the Subsidiary Banks to maintain certain minimum capital ratios. FBA and the Subsidiary Banks are required to maintain a minimum risk-based capital to risk-weighted assets ratio of 8.00%, with at least 4.00% being "Tier 1" capital (as defined in the regulations). In addition, a minimum leverage ratio (Tier 1 capital to average assets) of 3.00% plus an additional cushion of 100 to 200 basis points is expected. In order to be considered well capitalized under Prompt Corrective Action provisions, a bank is required to maintain a risk-weighted asset ratio of at least 10.00%, a Tier 1 to risk-weighted asset ratio of at least 6.00%, and a leverage ratio of at least 5.00%. As of March 31, 1999, the date of the most recent notification from FBA's primary regulator, FB Texas and FB California were categorized as well capitalized under the regulatory framework for Prompt Corrective Action. Management believes, as of June 30, 1999, FBA and the Subsidiary Banks were well capitalized. At June 30, 1999 and December 31, 1998, FBA's and the Subsidiary Banks' capital ratios were as follows:
Risk-based capital ratios Total Tier 1 Leverage Ratio ----- ------ -------------- 1999 1998 1999 1998 1999 1998 ---- ---- ---- ---- ---- ---- FBA 12.91% 16.66% 8.76% 11.51% 8.06% 10.25% FB Texas 11.81 11.37 10.56 10.11 9.72 9.15 FB California 11.11 10.63 9.84 9.37 9.28 8.34 Redwood Bank (1) 11.66 -- 10.72 -- 9.50 -- --------------- (1) Redwood Bank was acquired by FBA on March 4, 1999.
(4) Acquisitions On March 4, 1999, FBA completed its acquisition of Redwood and its wholly-owned subsidiary, Redwood Bank, for cash consideration of $26.0 million. The acquisition was accounted for using the purchase method of accounting. The excess of the cost over the fair value of the net assets acquired was $9.5 million and is being amortized over 15 years. The acquisition was funded from available proceeds from the sale of the 8.50% Cumulative Trust Preferred Securities completed in July 1998. Redwood is headquartered in San Francisco, California and operates four banking locations in the San Francisco Bay area. Redwood had $183.9 million in total assets, $134.4 million in loans, net of unearned discount, $32.4 in investment securities and $162.9 million in deposits at the acquisition date. The following information presents unaudited pro forma condensed results of operations of FBA for the six months ended June 30, 1999 and 1998, combined with the acquisition of Redwood, as if FBA had completed the transaction on January 1, 1998.
June 30, ------------------ 1999 1998 ---- ---- (dollars expressed in thousands, except per share data) Net interest income........................................... $ 21,394 17,715 Provision for possible loan losses............................ 423 516 Net income.................................................... 3,702 2,365 ========= ======== Weighted average shares of common stock outstanding (in thousands)............................... 5,717 5,253 ========= ======== Earnings per common share: Basic.................................................... $ 0.65 0.45 Diluted.................................................. 0.64 0.45 ========= ========
The unaudited pro forma condensed results of operations reflect the application of the purchase method of accounting for Redwood and certain other assumptions. Purchase accounting adjustments have been applied to loans, investment securities, bank premises and equipment, deferred tax assets and liabilities and excess cost required to reflect the assets acquired and liabilities assumed at fair value. The resulting premiums and discounts are amortized or accreted to income consistent with the accounting policies of FBA. The unaudited pro forma condensed results of operations do not reflect the acquisition of Pacific Bay Bank completed on February 2, 1998 as it did not have a material impact on the results of operations for the six months ended June 30, 1998. (5) Earnings Per Common Share The following is a reconciliation of the numerators and denominators of the basic and diluted earnings per share (EPS) computations for the periods indicated:
Income Shares Per share (numerator) (denominator) amount ---------- ------------- ------ (dollars expressed in thousands, except per share data) Three months ended June 30, 1999: Basic EPS - income available to common stockholders..... $ 2,059 5,713 $ 0.36 ======= Effect of dilutive securities - stock options........... -- 7 ------- ------ Diluted EPS - income available to common stockholders... $ 2,059 5,720 $ 0.36 ======= ====== ======= Three months ended June 30, 1998: Basic EPS - income available to common stockholders..... $ 1,021 5,206 $ 0.20 ======= Effect of dilutive securities - stock options........... -- 13 ------- ------ Diluted EPS - income available to common stockholders... $ 1,021 5,219 $ 0.20 ======= ====== ======= Six months ended June 30, 1999: Basic EPS - income available to common stockholders..... $ 3,690 5,717 $ 0.65 ======= Effect of dilutive securities - stock options........... -- 7 ------- ------ Diluted EPS - income available to common stockholders... $ 3,690 5,724 $ 0.64 ======= ====== ======= Six months ended June 30, 1998: Basic EPS - income available to common stockholders..... $ 2,121 5,059 $ 0.42 ======= Effect of dilutive securities - stock options........... -- 13 ------- ------ Diluted EPS - income available to common stockholders... $ 2,121 5,072 $ 0.42 ======= ====== =======
(6) Business Segment Results FBA's business segments are its Subsidiary Banks. The reportable business segments are consistent with the management structure of FBA, the Subsidiary Banks and the internal reporting system that monitors performance. Through the respective branch networks, the Subsidiary Banks provide similar products and services in their defined geographic areas. The products and services offered include a broad range of commercial and personal banking services, including certificates of deposit, individual retirement and other time deposit accounts, checking and other demand deposit accounts, interest checking accounts, savings accounts and money market accounts. Loans include commercial and financial, commercial and residential real estate, real estate construction and development and consumer loans. Other financial services include mortgage banking, credit and debit cards, discount brokerage, credit-related insurance, automatic teller machines, telephone account access, safe deposit boxes, trust and private banking services and cash management services. The revenues generated by each business segment consist primarily of interest income, generated from the loan and investment security portfolios, and service charges and fees, generated from the deposit products and services. The geographic areas include Houston, Dallas, Irving and McKinney, Texas (FB Texas) and northern California (FB California and Redwood Bank). The products and services are offered to customers primarily within their respective geographic areas, with the exception of loan participations executed between the Subsidiary Banks and other banks affiliated with First Banks. There are no foreign operations. The business segment results are summarized as follows and are consistent with FBA's internal reporting system, which is consistent, in all material respects, with generally accepted accounting principles and practices predominant in the banking industry. The balance sheet information is presented as of June 30, 1999 and December 31, 1998, and the statement of income information is presented for the three and six months ended June 30, 1999 and 1998, respectively. The business segment results include Redwood Bank, which was acquired on March 4, 1999, for the period subsequent to the acquisition date.
FB California Redwood Bank (1) ---------------------------- -------------------------- June 30, December 31, June 30, December 31, 1999 1998 1999 1998 ---- ---- ---- ---- (dollars expressed in thousands) Balance sheet information: Investment securities.......................... $ 29,566 53,449 19,865 -- Loans, net of unearned discount................ 331,707 314,977 142,409 -- Total assets................................... 396,656 410,110 190,879 -- Deposits....................................... 349,254 363,422 163,688 -- Stockholders' equity........................... 43,709 42,825 25,870 -- ========== ========== =========== ========== FB California Redwood Bank (1) ---------------------- ------------------- Three months ended Three months ended June 30, June 30, ----------------------- --------------------- 1999 1998 1999 1998 ---- ---- ---- ---- (dollars expressed in thousands) Income statement information: Interest income................................ $ 8,132 8,117 3,750 -- Interest expense............................... 2,996 3,436 1,393 -- ---------- ---------- ----------- ---------- Net interest income......................... 5,136 4,681 2,357 -- Provision for possible loan losses............. 20 150 73 -- ---------- ---------- ----------- ---------- Net interest income after provision for possible loan losses.................. 5,116 4,531 2,284 -- ---------- ---------- ----------- ---------- Noninterest income............................. 815 616 177 -- Noninterest expense............................ 3,926 4,077 1,469 -- ---------- ---------- ----------- ---------- Net income before income tax expense........ 2,005 1,070 992 -- Provision for income tax expense............... 866 432 480 -- ---------- ---------- ----------- ---------- Net income.................................. $ 1,139 638 512 -- ========== ========== =========== ========== FB California Redwood Bank (1) --------------------------- ------------------------- Six months ended Six months ended June 30, June 30, --------------------------- ------------------------- 1999 1998 1999 1998 ---- ---- ---- ---- (dollars expressed in thousands) Income statement information: Interest income................................ $ 16,132 15,874 4,930 -- Interest expense............................... 6,075 6,752 1,835 -- ---------- ---------- ----------- ---------- Net interest income......................... 10,057 9,122 3,095 -- Provision for possible loan losses............. 80 300 73 -- ---------- ---------- ----------- ---------- Net interest income after provision for possible loan losses.................. 9,977 8,822 3,022 -- ---------- ---------- ----------- ---------- Noninterest income............................. 1,424 1,329 203 -- Noninterest expense............................ 7,625 7,807 1,907 -- ---------- ---------- ----------- ---------- Net income before income tax expense........ 3,776 2,344 1,318 -- Provision for income tax expense............... 1,653 967 644 -- ---------- ---------- ----------- ---------- Net income.................................. $ 2,123 1,377 674 -- ========== ========== =========== ==========
- ----------------- (1) Redwood Bank was acquired by FBA on March 4, 1999. (2) Corporate and other includes $645,000 and $1.3 million of guaranteed preferred debenture expense, after applicable income tax benefit of $348,000 and $695,000, for the three and six months ended June 30, 1999.
FB Texas Corporate and other Consolidated total --------------------------- ----------------------------- ----------------------------- June 30, December 31, June 30, December 31, June 30, December 31, 1999 1998 1999 1998 1999 1998 ---- ---- ---- ---- ---- ---- (dollars expressed in thousands) 33,777 59,914 3,794 3,600 87,002 116,963 217,908 201,426 2 -- 692,026 516,403 277,114 300,984 7,256 8,903 871,905 719,997 238,118 264,425 (5,413) (28,700) 745,647 599,147 30,091 30,249 (31,761) (7,229) 67,909 65,845 ========== ========== =========== ========== =========== ========= FB Texas Corporate and other Consolidated total ---------------------------- ----------------------------- ------------------------------- Three months ended Three months ended Three months ended June 30, June 30, June 30, --------------------------- ------------------------------ ------------------------------- 1999 1998 1999 (2) 1998 1999 1998 ---- ---- ---- ---- ---- ---- (dollars expressed in thousands) 5,481 5,286 78 (2) 17,441 13,401 2,163 2,132 (46) 467 6,506 6,035 ---------- ---------- ------------ ---------- ----------- ----------- 3,318 3,154 124 (469) 10,935 7,366 30 50 -- -- 123 200 ---------- ---------- ----------- ---------- ----------- ----------- 3,288 3,104 124 (469) 10,812 7,166 ---------- ---------- ----------- ----------- ----------- ----------- 513 373 (1) (110) 1,504 879 2,231 2,185 1,057 79 8,683 6,341 ---------- ---------- ----------- ---------- ----------- ----------- 1,570 1,292 (934) (658) 3,633 1,704 541 444 (313) (193) 1,574 683 ---------- ---------- ----------- ----------- ----------- ----------- 1,029 848 (621) (465) 2,059 1,021 ========== ========== =========== ========== =========== =========== FB Texas Corporate and other Consolidated total -------------------------- ----------------------------- ------------------------------ Six months ended Six months ended Six months ended June 30, June 30, June 30, --------------------------- ------------------------------ ------------------------------ 1999 1998 1999 (2) 1998 1999 1998 ---- ---- ---- ---- ---- ---- (dollars expressed in thousands) 11,023 10,523 151 -- 32,236 26,397 4,325 4,232 (227) 950 12,008 11,934 ----------- ---------- ----------- ---------- ----------- ----------- 6,698 6,291 378 (950) 20,228 14,463 60 200 -- -- 213 500 ----------- ---------- ----------- ---------- ----------- ----------- 6,638 6,091 378 (950) 20,015 13,963 ----------- ---------- ----------- ----------- ----------- ----------- 1,056 752 (24) (52) 2,659 2,029 4,510 4,388 2,147 203 16,189 12,398 ----------- ---------- ----------- ---------- ----------- ----------- 3,184 2,455 (1,793) (1,205) 6,485 3,594 1,096 854 (598) (348) 2,795 1,473 ----------- ---------- ----------- ---------- ----------- ----------- 2,088 1,601 (1,195) (857) 3,690 2,121 =========== ========== =========== ========== =========== ===========
Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations The discussion set forth in Management's Discussion and Analysis of Financial Condition and Results of Operations contains certain forward looking statements with respect to the financial condition, results of operations and business of FBA. These forward looking statements are subject to certain risks and uncertainties, not all of which can be predicted or anticipated. Factors that may cause actual results to differ materially from those contemplated by the forward looking statements herein include market conditions as well as conditions specifically affecting the banking industry generally and factors having a specific impact on FBA including but not limited to fluctuations in interest rates and in the economy; the impact of laws and regulations applicable to FBA and changes therein; competitive conditions in the markets in which FBA conducts its operations, including competition from banking and non-banking companies with substantially greater resources than FBA, some of which may offer and develop products and services not offered by FBA; and the ability of FBA to respond to changes in technology, including effects of the Year 2000 problem. With regard to FBA's efforts to grow through acquisitions, factors that could affect the accuracy or completeness of forward looking statements contained herein include the potential for higher than acceptable operating costs arising from the geographic dispersion of the offices of FBA, as compared with competitors operating solely in contiguous markets; the competition of larger acquirers with greater resources than FBA; fluctuations in the prices at which acquisition targets may be available for sale and in the market for FBA's securities; and the potential for difficulty or unanticipated costs in realizing the benefits of particular acquisition transactions. Additional factors potentially affecting the Company's results were identified in the Annual Report on Form 10-K filed with the Securities and Exchange Commission. General FBA is a registered bank holding company, incorporated in Delaware and headquartered in Clayton, Missouri. At June 30, 1999, FBA had approximately $871.9 million in total assets; $692.0 million in total loans, net of unearned discount; $745.6 million in total deposits; and $67.9 million in total stockholders' equity. FBA operates through its Subsidiary Banks. Through the Subsidiary Banks' six locations in Texas and 14 locations in the San Francisco - Sacramento corridor of northern California, FBA offers a broad range of commercial and personal banking services including certificates of deposit, individual retirement and other time deposit accounts, checking and other demand deposit accounts, interest checking accounts, savings accounts and money market accounts. Loans include commercial and financial, commercial and residential real estate, real estate construction and development and consumer loans. Other financial services include mortgage banking, credit and debit cards, discount brokerage, credit-related insurance, automatic teller machines, telephone account access, safe deposit boxes, trust and private banking services and cash management services. The following table lists the Subsidiary Banks at June 30, 1999:
Loans, net of Number of Total unearned Total locations assets discount deposits --------- ------ -------- -------- (dollars expressed in thousands) FB California.................... 10 $ 396,656 331,707 349,254 FB Texas ........................ 6 277,114 217,908 238,118 Redwood Bank..................... 4 190,879 142,409 163,688
Financial Condition FBA's total assets were $871.9 million and $720.0 million at June 30, 1999 and December 31, 1998, respectively. The increase in total assets is primarily attributable to FBA's acquisition of Redwood, which provided assets of $183.9 million, and internal loan growth primarily concentrated in the areas of commercial and financial, real estate construction and development and real estate mortgage. Offsetting this increase and providing an additional source of funds for the loan growth was a reduction in investment securities of $30.0 million to $87.0 million at June 30, 1999 from $117.0 million at December 31, 1998. Total deposits, excluding the deposits provided by the acquisition of Redwood, decreased by $16.4 million, while short-term borrowings increased by $3.2 million to $7.4 million at June 30, 1999 from $4.1 million at December 31, 1998. During the six months ended June 30, 1999, FBA purchased $270,000 of its common stock for treasury. FBA utilized available cash to fund its repurchase of common stock. In 1998, the Board of Directors authorized the purchase of an additional 5% of its common stock for treasury. FBA has purchased an aggregate total of 666,896 common shares for treasury as of June 30, 1999 and could purchase approximately 150,000 additional shares under the existing authorization. Results of Operations Net Income Net income was $2.1 million, or $0.36 per share on a diluted basis, for the three months ended June 30, 1999, in comparison to $1.0 million, or $0.20 per share on a diluted basis, for the same period in 1998. For the six months ended June 30, 1999 and 1998, net income was $3.7 million, or $0.64 per share on a diluted basis, and $2.1 million, or $0.42 per share on a diluted basis, respectively. The earnings progress was primarily driven by increased interest income generated by the acquisition of Redwood and by loan growth in both the California and Texas markets, coupled with continued improvement in asset quality, resulting in a reduced provision for loan losses. As previously mentioned, the loan growth was funded through a reduction in investment securities, and is reflective of FBA's lending strategy which focuses on further diversifying the Company's loan portfolios. Offsetting the increase in net income for the six months ended June 30, 1999 are increased operating expenses. The increased operating expenses are primarily attributable to the guaranteed preferred debenture expense associated with the formation of First America Capital Trust (FACT) in July 1998 and FACT's issuance of Cumulative Trust Preferred Securities, operating expenses of Redwood subsequent to the acquisition date and increased data processing fees. Net Interest Income Net interest income was $10.9 million, or 5.46% of average interest-earning assets, for the three months ended June 30, 1999, in comparison to $7.4 million, or 4.81% of average interest-earning assets, for the same period in 1998. For the six months ended June 30, 1999 and 1998, net interest income was $20.2 million, or 5.45% of average interest-earning assets, in comparison to $14.5 million, or 4.79% of average interest-earning assets, respectively. The improved net interest income is primarily attributable to the net interest-earning assets provided by the acquisitions of First Commercial Bancorp, Inc., Pacific Bay Bank and Redwood and internal loan growth. Contributing further to the improved net interest income is the effect of (a) the exchange of $10.0 million of the Note Payable for common stock; (b) the repayment of all borrowings outstanding under the Note Payable in July 1998; (c) the conversion of a debenture in December 1998 and (d) the earnings impact of the interest rate swap agreements entered into in 1998. Although net interest margin improved, the yield on the loan portfolio declined to 9.13% and 9.18% from 9.66% and 9.72% for the three and six months ended June 30, 1999 and 1998, respectively. This reduction primarily results from the overall decline in the prime lending rate experienced during the latter part of 1998. The effect of the reduced yield on the loan portfolio was partially mitigated by the earnings impact of the interest rate swap agreements and a reduced rate paid on interest-bearing liabilities. For the six months ended June 30, 1999 and 1998, the overall rate paid on the deposit portfolio was 4.04% and 4.49%, respectively, representing FBA's gradual realignment of the portfolio, while the overall rate paid on promissory notes payable and short-term borrowings was 5.29% and 8.14%, respectively, reflecting the exchange and repayment of the Note Payable and the debenture conversion. The following table sets forth certain information relating to FBA's average balance sheets, and reflects the average yield earned on interest-earning assets, the average cost of interest-bearing liabilities and the resulting net interest income for the three and six month periods ended June 30:
Three months ended June 30, Six months ended June 30, ---------------------------------------------- ------------------------------------------- 1999 1998 1999 1998 ---------------------- ---------------------- --------------------- ------------------ Interest Interest Interest Interest Average income/ Yield/ Average income/ Yield/ Average Income/ Yield/ Average Income/ Yield/ balance expense rate balance expense rate balance expense rate balance expense rate (dollars expressed in thousands) Assets ------ Interest-earning assets: Loans(1)(2)(3)................ $690,199 15,715 9.13% $456,869 11,002 9.66% $628,205 28,584 9.18% $ 447,717 21,570 9.72% Investment securities(3)...... 101,681 1,600 6.31 137,702 2,122 6.18 110,189 3,428 6.27 137,095 4,155 6.11 Federal funds sold and other.. 10,917 126 4.63 19,797 277 5.61 9,445 224 4.78 23,875 672 5.68 -------- ------- ------ ------- ------- ------ -------- ------ Total interest-earning assets..................... 802,797 17,441 8.71 614,368 13,401 8.75 747,839 32,236 8.69 608,687 26,397 8.75 ------- ------- ------ ------ Nonearning assets................ 85,850 66,127 79,921 64,186 -------- ------- ------- -------- Total assets................ $888,647 $680,495 $827,760 $672,873 ======== ======== ======== ======== Liabilities and Stockholders' Equity - ------------------------------------ Interest-bearing liabilities: Interest-bearing demand deposits..................... $ 84,133 285 1.36% $ 74,360 334 1.80% $ 79,987 553 1.39% $ 73,829 683 1.87% Savings deposits.............. 237,084 2,143 3.63 153,917 1,495 3.89 218,676 3,949 3.64 152,560 2,949 3.90 Time deposits of $100 or more. 69,514 899 5.19 53,809 786 5.86 63,287 1,640 5.23 52,713 1,561 5.97 Other time deposits........... 226,319 2,821 5.00 211,170 2,891 5.49 213,807 5,400 5.09 208,582 5,675 5.49 -------- ------- -------- ------- ------- ------ -------- ------ Total interest-bearing deposits.................. 617,050 6,148 4.00 493,256 5,506 4.48 575,757 11,542 4.04 487,684 10,868 4.49 Promissory notes payable and short term-borrowings........ 28,139 358 5.10 25,797 529 8.23 17,775 466 5.29 26,398 1,066 8.14 -------- ------- ------- ------- ------- ------ -------- ------ Total interest-bearing liabilities.............. 645,189 6,506 4.04 519,053 6,035 4.66 593,532 12,008 4.08 514,082 11,934 4.68 ------- ------- ------ ------ Noninterest-bearing liabilities: Demand deposits............... 119,033 96,188 111,782 93,753 Other liabilities............. 55,690 8,968 55,130 9,463 -------- ------- ------- -------- Total liabilities........... 819,912 624,209 760,444 617,298 Stockholders' equity............. 68,735 56,286 67,316 55,575 -------- ------- ------- -------- Total liabilities and stockholders' equity..... $888,647 $680,495 $827,760 $672,873 ======== ======== ======== ======== Net interest income.............. 10,935 7,366 20,228 14,463 ======== ======= ====== ====== Net interest margin.............. 5.46% 4.81% 5.45% 4.79% ==== ==== ==== ====
- ------------- (1) Nonaccrual loans are included in the average loan amounts. (2) Includes the effects of interest rate exchange agreements. (3) FBA has no tax exempt income. Provision for Possible Loan Losses The provision for possible loan losses was $123,000 and $213,000 for the three and six months ended June 30, 1999, compared to $200,000 and $500,000 for the same periods in 1998. The decrease in the provision for possible loan losses is primarily attributable to improved asset quality as determined by management's review and evaluation of the credit quality of the loans in the portfolio, and management's assessment of the adequacy of the allowance for possible loan losses. For the six months ended June 30, 1999, nonperforming assets decreased by $3.4 million from $8.8 million at December 31, 1998 to $5.4 million at June 30, 1999, resulting in a reduced ratio of nonperforming loans to loans of 1.67% at December 31, 1998 and 0.76% at June 30, 1999. FBA's loan loss experience for the three and six months ended June 30, 1999 further contributed to the reduced provision for possible loan losses. Net loan recoveries were $223,000 and $577,000 for the three and six months ended June 30, 1999, in comparison to net loan charge-offs of $418,000 and $947,000 for the same periods in 1998. The overall improvement results from improved asset quality reflected in a decrease in the amount of loans requiring charge-off accompanied by an increase in the collection of previously charged-off loans. The acquisitions of Redwood, completed on March 4, 1999, and Pacific Bay Bank, completed on February 2, 1998, provided $1.5 million and $885,000, respectively, in additional allowance for possible loan losses. Tables summarizing nonperforming assets, past due loans and charge-off experience are presented under "--Lending and Credit Management" of this Form 10-Q. Noninterest Income Noninterest income was $1.5 million and $2.7 million for the three and six months ended June 30, 1999, in comparison to $879,000 and $2.0 million for the same periods in 1998, respectively. Noninterest income consists primarily of service charges on deposit accounts and customer service fees, and other income. Service charges on deposit accounts and customer service fees increased to $900,000 and $1.6 million for the three and six months ended June 30, 1999, from $604,000 and $1.3 million for the same periods in 1998, respectively. This increase is primarily attributable to: (a) the acquisitions of Redwood and Pacific Bay Bank; (b) increased utilization of commercial banking services by FBA's customers; and (c) increased interchange income associated with automatic teller machine services and debit and credit cards. Other income was $516,000 and $855,000 for the three and six months ended June 30, 1999, in comparison to $266,000 and $585,000 for the same periods in 1998, respectively. The increase is primarily attributable to increased income earned on FBA's investment in bank owned life insurance (BOLI), established in April 1998. For the six months ended June 30, 1999 and 1998, BOLI income totaled $318,000 and $101,000, respectively. In addition, FBA's expansion of its discount brokerage and private banking and trust services contributed to the overall increase in other income. Noninterest Expense Noninterest expense was $8.7 million and $16.2 million for the three and six months ended June 30, 1999, in comparison to $6.3 million and $12.4 million for the same periods in 1998, respectively. The increase is reflective of: (a) the guaranteed preferred debenture expense associated with the formation of FACT and FACT's issuance of Cumulative Trust Preferred Securities; (b) the noninterest expense of Redwood and Pacific Bay Bank; (c) increased data processing fees primarily associated with FBA's Year 2000 Program; and (d) FBA's continuing expansion of its corporate lending, retail banking and specialized services development staff, including the necessary operational support, associated with the expansion of its product and service offerings. The overall increase in noninterest expense is partially offset by a reduction in advertising and business development expenses and communications expenses, and is consistent with management's continued efforts to more effectively and efficiently monitor and manage these expenditures. Data processing fees increased to $837,000 and $1.6 million for the three and six months ended June 30, 1999, from $431,000 and $906,000 for the same periods in 1998. The increased data processing fees are attributable to growth and technological advancements consistent with FBA's product and service offerings, increased expenses attributable to communication data lines related to the expansion of the branch infrastructure and expenses associated with FBA's Year 2000 Program. Amortization of intangibles associated with the purchase of subsidiaries increased to $306,000 and $508,000 for the three and six months ended June 30, 1999, from $155,000 and $288,000 for the same periods in 1998. This increase is attributable to the acquisitions of Redwood, completed in March 1999, and Pacific Bay Bank, completed in February 1998. On July 21, 1998, FACT, a newly-formed Delaware business trust subsidiary of FBA, issued 1.84 million shares of 8.50% Cumulative Trust Preferred Securities (FACT Preferred Securities) at $25.00 per share in an underwritten public offering, and issued 56,908 shares of common securities to FBA at $25.00 per share. FBA owns all of FACT's common securities. The primary purposes of the offering were to raise capital with which to fund acquisitions and to repay the Note Payable. The gross proceeds of the offering were used by FACT to purchase $47.4 million of 8.50% Subordinated Debentures (Subordinated Debentures) from FBA, maturing on June 30, 2028. The Subordinated Debentures are the sole asset of FACT. In connection with the issuance of the FACT Preferred Securities, FBA made certain guarantees and commitments that, in the aggregate, constitute a full and unconditional guarantee by FBA of the obligations of FACT under the FACT Preferred Securities. FBA's proceeds from the issuance of the Subordinated Debentures, net of underwriting fees and offering expenses, were approximately $44.0 million. Guaranteed preferred debenture expense was $993,000 and $2.0 million for the three and six months ended June 30, 1999 and is recorded as noninterest expense in the accompanying consolidated statements of income. Lending and Credit Management Interest earned on the loan portfolio is the primary source of income of FBA. Total loans, net of unearned discount, represented 79.4% and 71.7% of total assets as of June 30, 1999 and December 31, 1998, respectively. Total loans, net of unearned discount, were $692.0 million and $516.4 million at June 30, 1999 and December 31, 1998, respectively. The increase in loans, as summarized on the consolidated balance sheets, is attributable to the acquisition of Redwood and the growth of the commercial and financial, commercial real estate and real estate construction and development loan portfolios, partially offset by a continuing decline in FB Texas' consumer indirect automobile loan portfolio. FBA's corporate lending function continues to focus its efforts toward further redistribution of the Company's loan portfolios. Commensurate with the growth in corporate lending and FBA's prescribed credit exposure guidelines for extending credit to an individual borrower, loan participations sold to and purchased from banks affiliated with First Banks have increased to $238.6 million and $106.5 million, respectively, from $182.9 million and $86.2 million, respectively, at June 30, 1999 and December 31, 1998. See Note 2 to the accompanying consolidated financial statements for a further discussion of transactions with related parties. FBA's nonperforming loans consist of loans on nonaccrual status and loans on which the original terms have been restructured. The following is a summary of nonperforming assets and past due loans at the dates indicated:
June 30, December 31, 1999 1998 ---- ---- (dollars expressed in thousands) Nonperforming assets: Nonperforming loans............................................... $ 5,289 8,632 Other real estate................................................. 90 161 ----------- ---------- Total nonperforming assets.................................. $ 5,379 8,793 =========== ========== Loans past due and still accruing: Over 30 days to 90 days........................................... $ 4,840 6,269 Over 90 days...................................................... 1,632 306 -- ----------- ---------- Total past due loans......................................... 6,472 6,575 =========== ========== Loans, net of unearned discount..................................... $ 692,026 516,403 =========== ==========
June 30, December 31, 1999 1998 ---- ---- Asset quality ratios: Allowance for possible loan losses to loans....................... 2.08% 2.35% Nonperforming loans to loans ..................................... 0.76 1.67 Allowance for possible loan losses to nonperforming loans ........................................... 271.94 140.49 Nonperforming assets to loans and other real estate............... 0.78 1.70 ======== ========
Nonperforming loans, consisting of loans on nonaccrual status and restructured loans, were $5.3 million at June 30, 1999, in comparison to $8.6 million at December 31, 1998. The decrease is a result of: (a) a reduction of $3.3 million relating to loans on nonaccrual status; (b) continued aggressive collection efforts; and (c) management's continued efforts to effectively monitor and manage the loan portfolios of acquired entities. The acquired allowances for possible loan losses of Pacific Bay Bank and Redwood totaled $885,000 and $1.5 million at the respective acquisition dates. Impaired loans, consisting of loans on nonaccrual status and indirect consumer and installment loans 60 days or more past due, were $5.4 million and $9.0 million at June 30, 1999 and December 31, 1998, respectively. The following is a summary of loan loss experience for the three and six months ended June 30:
Three months ended Six months ended June 30, June 30, ----------------- ----------------- 1999 1998 1999 1998 ---- ---- ---- ---- (dollars expressed in thousands) Allowance for possible loan losses, beginning of period................ $ 14,037 12,063 12,127 11,407 Acquired allowances for possible loan losses........................ -- -- 1,466 885 ---------- --------- --------- ------- 14,037 12,063 13,593 12,292 ---------- --------- --------- ------- Loans charged-off................................................... (318) (951) (798) (2,010) Recoveries of loans previously charged-off.......................... 541 533 1,375 1,063 ---------- --------- --------- ------- Net loan (charge-offs) recoveries................................... 223 (418) 577 (947) ---------- --------- --------- ------- Provision for possible loan losses.................................. 123 200 213 500 ---------- --------- --------- ------- Allowance for possible loan losses, end of period...................... $ 14,383 11,845 14,383 11,845 ========== ========= ========= =======
The allowance for possible loan losses is monitored on a monthly basis. Each month, the credit administration department provides FBA's management with detailed lists of loans on the watch list and summaries of the entire loan portfolio of each Subsidiary Bank by risk rating. These are coupled with analyses of changes in the risk profiles of the portfolios, changes in past due and nonperforming loans and changes in watch list and classified loans over time. In this manner, the overall increases or decreases in the levels of risk in the portfolios are monitored continually. Factors are applied to the loan portfolios for each category of loan risk to determine acceptable levels of allowance for possible loan losses. These factors are derived primarily from the actual loss experience of the Subsidiary Banks and from published national surveys of norms in the industry. The calculated allowances required for the portfolios are then compared to the actual allowance balances to determine the provisions necessary to maintain the allowances at appropriate levels. In addition, management exercises judgment in its analysis of determining the overall level of the allowance for possible losses. In its analysis, management considers the change in the portfolio, including growth and composition, and the economic conditions of the regions in which FBA operates. Based on this quantitative and qualitative analysis, the allowance for possible loan losses is adjusted. Such adjustments are reflected in the consolidated statements of income. Interest Rate Risk Management FBA utilizes off-balance-sheet derivative financial instruments to assist in the management of interest rate sensitivity and to modify the repricing, maturity and option characteristics of on-balance-sheet assets and liabilities. Derivative financial instruments held by FBA for purposes of managing interest rate risk are summarized as follows:
June 30, 1999 December 31, 1998 ---------------------- ---------------------- Notional Credit Notional Credit amount exposure amount exposure ------ -------- ------ -------- (dollars expressed in thousands) Interest rate swap agreements - pay adjustable rate, receive adjustable rate.... $ 75,000 -- -- -- Interest rate swap agreements - pay adjustable rate, receive fixed rate......... 65,000 678 65,000 667 Interest rate cap agreement................... 10,000 74 10,000 135 ====== ==== ====== ===
The notional amounts of derivative financial instruments do not represent amounts exchanged by the parties and, therefore, are not a measure of FBA's credit exposure through its use of derivative financial instruments. The amounts and the other terms of the derivatives are determined by reference to the notional amounts and the other terms of the derivatives. The credit exposure represents the accounting loss FBA would incur in the event the counterparties failed completely to perform according to the terms of the derivative financial instruments and the collateral was of no value. During 1998, FBA entered into $65.0 million notional amount of interest rate swap agreements to effectively lengthen the repricing characteristics of certain interest-earning assets to correspond more closely with its funding source with the objective of stabilizing cash flow, and accordingly, net interest income, over time. The swap agreements provide for FBA to receive a fixed rate of interest and pay an adjustable rate of interest equivalent to the 90-day London Interbank Offering Rate (LIBOR). The terms of the swap agreements provide for FBA to pay quarterly and receive payment semi-annually. The amount receivable by FBA under the swap agreements was $820,000 at June 30, 1999 and December 31, 1998, and the amount payable by FBA under the swap agreements was $142,000 and $153,000 at June 30, 1999 and December 31, 1998, respectively. During May 1999, FBA entered into $75.0 million notional amount of interest rate swap agreements with the objective of stabilizing the net interest margin during the six-month period surrounding the Year 2000 century date change. The swap agreements provide for FBA to receive an adjustable rate of interest equivalent to the daily weighted average 30-day LIBOR and pay an adjustable rate of interest equivalent to the daily weighted average prime lending rate minus 2.665%. The terms of the swap agreements, which have an effective date of October 1, 1999 and a maturity date of March 31, 2000, provide for FBA to pay and receive interest on a monthly basis. The maturity dates, notional amounts, interest rates paid and received and fair values of the swap agreements outstanding as of June 30, 1999 were as follows:
Notional Interest rate Interest rate Maturity Date amount paid received Fair value ------------- ------ ---- -------- ---------- (dollars expressed in thousands) March 31, 2000 (1)...................... $ 50,000 --% --% $ 37 March 31, 2000 (1)...................... 25,000 -- -- 19 June 11, 2002........................... 15,000 5.10 6.00 (72) September 16, 2002...................... 20,000 5.16 5.36 (496) September 18, 2002...................... 30,000 5.18 5.33 (771) ---------- ------- $ 140,000 5.16 5.49 $(1,283) ========== ==== ==== =======
----------------- (1) These interest rate swap agreements will become effective on October 1, 1999. FBA has a $10.0 million interest rate cap agreement outstanding to limit the interest expense associated with certain interest-bearing liabilities. At June 30, 1999 and December 31, 1998, the unamortized costs of this agreement were $74,000 and $130,000, respectively, and were included in other assets. The net amount due to FBA under this agreement was $5,000 at December 31, 1998. There was no amount net amount due to FBA at June 30, 1999. Year 2000 Compatibility FBA and the Subsidiary Banks are subject to risks associated with the "Year 2000" issue, a term which refers to uncertainties about the ability of various data processing hardware and software systems to interpret dates correctly surrounding the beginning of the Year 2000. Financial institutions are particularly vulnerable to Year 2000 issues because of heavy reliance in the industry on electronic data processing and funds transfer systems. As described in Note 2 to the accompanying consolidated financial statements, data processing services are provided to FBA by First Services, L.P. under the terms of data processing agreements. To address the Year 2000 issue, FBA, working jointly with First Banks, has established a dedicated team to coordinate the overall Year 2000 Preparedness Program (Program) under the guidelines of the Comprehensive Year 2000 Plan (Plan) as approved by the Board of Directors. The Plan summarizes each major phase of the Program and the estimated costs to remediate and test systems in preparation for the Year 2000. The Plan addresses both Information Technology (IT) projects, such as data processing and data network, and non-IT projects, such as building facilities and security. The major phases of the Program are awareness, assessment, remediation, validation and implementation. The awareness phase included a company-wide campaign to communicate the Year 2000 issue and the potential ramifications to the organization. Concurrent with this phase, the Year 2000 Program Team (Team) began the assessment phase of the Program. The assessment phase included the inventorying of systems that may be impacted by the Year 2000 issue. The business use of each inventoried item was analyzed and prioritized from critical to non-critical, based upon the perceived adverse effect on the financial condition of FBA in the event of a loss or interruption in the use of each system. The awareness and assessment phases of the Program were completed as scheduled. FBA's critical systems are purchased from industry-known vendors. Such systems are generally used in their standard configuration, that is, with minor modification. Focusing on these critical systems, FBA continues to closely review and monitor the Year 2000 progress as reported by each vendor, and has tested, in most cases, on a system separate from the on-line production system. The review and testing of critical data processing service providers was substantially complete as of March 31, 1999. For the critical systems that have been modified, the vendors provided remediation for such systems that were not otherwise reported as "Year 2000-ready." As the remediation phase was completed within the stated deadline, FBA did not invoke any remediation contingency efforts. Concurrent with the completion of the remediation phase of the Program, FBA commenced the final analysis of the validation phase for critical systems, including remediated systems provided by third party vendors. This portion of the Program was substantially complete as of December 31, 1998. FBA, along with First Banks, has accelerated the replacement of its existing teller system (ISC), since certain functions of ISC were not Year 2000 compliant. Planning for the replacement of ISC has been underway for several years with the primary objectives of adding functionality to meet expanding product and service offerings and improving efficiency in serving customers. As the newly selected teller system (CFI) also provided a solution for the Year 2000 problem, the overall implementation schedule was accelerated. Recognizing the heightened risks of deploying the CFI system within the narrowed timeline created by the Year 2000 issue, emphasis was first given to the Year 2000 solution for ISC, with simultaneous deployment of CFI occurring throughout 1999. The testing of the Year 2000 solution for ISC was completed and ISC was upgraded throughout FBA's branch network by June 30, 1999, thereby maintaining compliance with appropriate regulatory guidelines associated with Year 2000. The testing of CFI was completed by December 31, 1998. The CFI system was installed in selected bank test locations of First Banks during the fourth quarter of 1998. FB Texas was converted to CFI during the second quarter of 1999 and FB California's conversion will be completed during the third quarter of 1999. Redwood Bank will not convert to CFI in 1999. The estimated cost of the teller replacement is $1.4 million and will be charged to expense over a 60-month period upon installation at each branch location. First Banks is also upgrading its local area network-based systems, networks and core processor, and has purchased certain item processing equipment, as the previous equipment, which is fully depreciated, was not Year 2000 compliant. FBA's portion of the cost of these upgrades and the item processing equipment will be included in the billings under the terms of existing data processing and management services agreements. See Note 2 to the accompanying consolidated financial statements for a further discussion of transactions with related parties. The final phase of the Program was the implementation of remediated and other systems into the operating environment of FBA and First Banks. With the final phase of the Program substantially completed by June 30, 1999, FBA continues to focus its efforts on overall contingency planning and specific Year 2000 event preparation. FBA has also assessed the Year 2000 risks relating to its lines of business separate from its dependence on data processing. The assessment includes a review of larger commercial loan and deposit customers to ascertain their overall preparedness regarding Year 2000 risks. The process requires lending and other banking officers to periodically meet with certain of their customers to review and assess their overall preparedness for Year 2000 risks. While the process of evaluating the potential adverse effects of Year 2000 risks on these customers revealed no probable adverse effect to FBA, it is not possible to quantify the overall potential adverse effects to FBA resulting from the failure of these customers, or other customers not meeting the review criteria, to adequately prepare for the Year 2000. The failure of a commercial bank customer to adequately prepare for Year 2000 could have a significant adverse effect on such customer's operations and profitability, in turn inhibiting its ability to repay loans in accordance with their terms or requiring the use of its deposited funds. FBA continues to review and structure certain funding sources to facilitate the Subsidiary Banks' liquidity requirements under varying cash flow assumptions. In addition, Year 2000 risks associated with adversely rated credits are monitored more frequently in conjunction with the internal watch list review committee meetings, while new credit relationships include parameters to assess and evaluate Year 2000 risks at the time of the initial credit decision. The Plan also provides for the identification and communication with significant non-data processing third party vendors regarding their preparedness for Year 2000 risks. While the results of this process have not revealed any quantifiable loss to FBA, the absence of certain basic services such as telecommunications, electric power and service provided by other financial institutions and governmental agencies would have a serious impact on the operations of FBA. FBA has developed processes to monitor significant non-data processing third party vendors regarding their preparedness for Year 2000 risks. The total cost of the Program is currently estimated at $2.3 million, comprised of capital improvements of $1.4 million and direct expenses reimbursable to First Services L.P. of $900,000. The capital improvements, as previously discussed, will be charged to expense in the form of depreciation expense or lease expense, generally over a period of 60 months. FBA incurred direct expenses related to the Program of approximately $135,000 and $270,000 for the three and six months ended June 30, 1999, respectively, and $180,000 for the year ended December 31, 1998. In addition, FBA is estimating direct expenses of $450,000 for the duration of the Program. The acquisition of Redwood is not expected to have a significant impact on the total cost of FBA's Program. The total cost could vary significantly from those currently estimated for unforeseen circumstances that could develop in carrying out the Program. Concurrent with the development and execution of the Plan is the evolution of FBA's Year 2000 Contingency Plan (Contingency Plan). The Contingency Plan is intended to be an evolving document changing and developing to reflect the results, progress and current status of the Program. The Contingency Plan addresses a variety of issues including critical and common systems, credit risk, liquidity, loan and deposit customers, facilities, supplies and computer back-up locations. Additionally, FBA has developed business resumption plans and process resumption test plans for each functional area deemed to be critical to the operations of FBA. These business resumption plans, collectively with the Contingency Plan, also serve as evolving documents and will continue to be modified to appropriately address Year 2000 risks associated with the individual needs and responsibilities of each of these critical functional areas based upon the results of the process resumption testing efforts. While FBA is making a substantial effort to become Year 2000 compliant, there is no assurance the Year 2000 issue will not have a material adverse effect on its financial condition or results of operations. Liquidity The liquidity of FBA and the Subsidiary Banks is the ability to maintain a cash flow which is adequate to fund operations, service debt obligations and meet obligations and other commitments on a timely basis. The Subsidiary Banks receive funds for liquidity from customer deposits, loan payments, maturities of loans and investments, sales of investments and from earnings. In addition, FBA and the Subsidiary Banks may avail themselves of more volatile sources of funds through the issuance of certificates of deposit in denominations of $100,000 or more, federal funds borrowed, securities sold under agreements to repurchase and borrowings from the Federal Home Loan Bank. The aggregate funds acquired from these more volatile sources were $92.9 million and $56.3 million at June 30, 1999 and December 31, 1998, respectively. The following table presents the maturity structure of volatile funds, which consists of certificates of deposit of $100,000 or more and short-term borrowings, at June 30, 1999. (dollars expressed in thousands) Three months or less..................................... $ 34,586 Over three months through six months..................... 13,845 Over six months through twelve months.................... 27,012 Over twelve months....................................... 17,433 ----------- Total.............................................. $ 92,876 =========== In addition to these more volatile sources of funds, FBA has previously borrowed from First Banks under the Note Payable. Borrowings under the Note Payable have been utilized to facilitate the funding of FBA's acquisitions, support the possible repurchases of common stock from time to time and for other corporate purposes. There were no amounts outstanding under the Note Payable at June 30, 1999 and December 31, 1998. Management believes the available liquidity and operating results of the Subsidiary Banks will be sufficient to provide funds for growth and to permit the distribution of dividends to FBA sufficient to meet FBA's operating and debt service requirements both on a short-term and long-term basis and to pay the dividends on the FACT Preferred Securities. Effect of New Accounting Standards In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 133 -- Accounting for Derivative Instruments and Hedging Activities (SFAS 133). SFAS 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. SFAS 133 requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. If certain conditions are met, a derivative may be specifically designated as a hedge in one of three categories. The accounting for changes in the fair value of a derivative (that is, gains and losses) depends on the intended use of the derivative and the resulting designation. Under SFAS 133, an entity that elects to apply hedge accounting is required to establish, at the inception of the hedge, the method it will use for assessing the effectiveness of the hedging derivative and the measurement approach for determining the ineffective aspect of the hedge. Those methods must be consistent with the entity's approach to managing risk. SFAS 133 applies to all entities. In June 1999, the FASB issued SFAS No. 137 - Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133, an Amendment of FASB Statement No. 133, which defers the effective date of SFAS 133 from fiscal years beginning after June 15, 1999 to fiscal years beginning after June 15, 2000. Initial application should be as of the beginning of an entity's fiscal quarter; on that date, hedging relationships must be designated and documented pursuant to the provisions of SFAS 133, as amended. Earlier application of all of the provisions is encouraged but is permitted only as of the beginning of any fiscal quarter that begins after the issuance date of SFAS 133, as amended. Additionally, SFAS 133, as amended, should not be applied retroactively to financial statements of prior periods. FBA is currently evaluating the requirements of SFAS 133, as amended, to determine its potential impact on the consolidated financial statements. PART II - OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders An Annual Meeting of Stockholders was held on June 9, 1999. The seven directors of FBA were elected, with the vote totals indicated in the following table: Name of Director For Withheld ---------------- --- -------- Allen H. Blake 5,603,656 21,864 Charles A. Crocco, Jr. 5,603,833 21,687 James F. Dierberg 5,601,099 24,421 Albert M. Lavezzo 5,603,760 21,760 Ellen D. Schepman 5,602,665 22,855 Edward T. Story, Jr. 5,582,252 43,268 Donald W. Williams 5,602,913 22,607 An amendment to the Restated Certificate of Incorporation of First Banks America, Inc., eliminating a provision that authorized the issuance of up to 3,000,000 shares of preferred stock, was approved and adopted with the vote totals indicated below: Broker For Against Abstain Non-Votes --- ------- ------- --------- Shares Voted 5,041,166 10,153 4,139 570,062 Item 6. Exhibits and Reports on Form 8-K (a) The exhibits are numbered in accordance with the Exhibit Table of Item 601 of Regulation S-K. Exhibit Number Description ------ ----------- 3(a) Restated Certificate of Incorporation of the Company effective August 31, 1995 (filed as Exhibit 3(a) to Quarterly Report on Form 10-Q for the quarter ended September 30, 1995 and incorporated herein by reference). 3(b) Amended and Restated Bylaws of the Company (as amended April 21, 1995) (filed as Exhibit 3(b) to Quarterly Report on Form 10-Q for the quarter ended March 31, 1995 and incorporated herein by reference). 3(c) Certificate of Amendment of the Restated Certificate of Incorporation of the Company effective June 16, 1999 (filed herewith). 27 Article 9 - Financial Data Schedule (EDGAR only). (b) FBA filed no reports on Form 8-K during the three months ended June 30, 1999. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. FIRST BANKS AMERICA, INC. Registrant Date: August 2, 1999 By: /s/ James F. Dierberg ------------------------------- James F. Dierberg Chairman, President and Chief Executive Officer Date: August 2, 1999 By: /s/ Allen H. Blake ------------------------------- Allen H. Blake Executive Vice President, Chief Financial Officer, Chief Operating Officer and Secretary (Principal Financial Officer) EXHIBIT 3(c) CERTIFICATE OF AMENDMENT OF THE RESTATED CERTIFICATE OF INCORPORATION FIRST BANKS AMERICA, INC. First Banks America, Inc., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware, does hereby certify as follows: FIRST: That at a meeting of the Board of Directors of First Banks America, Inc. (the "Corporation"), resolutions were duly adopted setting forth a proposed amendment of the Restated Certificate of Incorporation of the Corporation, declaring said amendment to be advisable and calling a meeting of the stockholders of the Corporation for consideration thereof. The resolution setting forth the proposed amendments is as follows: RESOLVED: That Article FOURTH of the Restated Certificate of Incorporation of First Banks America, Inc., is amended to read in its entirety as follows: FOURTH: (A) The total number of shares of all classes of capital stock which the Corporation shall have authority to issue is ten million six hundred sixty-six thousand six hundred sixty-six (10,666,666) shares consisting of (a) six million six hundred sixty-six thousand six hundred sixty-six (6,666,666) shares of a class designated Common Stock, par value $0.15 per share ("Common Stock"), and (b) four million (4,000,000) shares of a class designated Class B Common Stock, par value $0.15 per share ("Class B Common Stock"). (B) The designations and the powers, preferences, rights, qualifications, limitations, and restrictions of the Common Stock and the Class B Common Stock are as follows: 1. Provisions Relating to the Common Stock and the Class B Common Stock. (a) General. Except as otherwise provided herein, or as otherwise provided by applicable law, all shares of Common Stock and Class B Common Stock shall have identical rights and privileges in every respect. (b) Voting. The Common Stock and the Class B Common Stock shall each be fully voting stock entitled to one vote per share with respect to the election of directors and for all other purposes. The holders of Common Stock and Class B Common Stock shall, unless otherwise required by law or by another provision of this Certificate of Incorporation, vote as a single class on all matters. In all elections for directors of the Corporation, each stockholder shall have the right to cast as many votes in the aggregate as shall equal the number of voting shares held by such stockholder in the Corporation, multiplied by the number of directors to be elected by the class to which such stockholder belongs at such election, and each stockholder may cast the whole number of votes, either in person or by proxy, for one candidate or distribute them among two or more candidates. (c) Dividends. Subject to the limitations prescribed herein, holders of Common Stock and Class B Common Stock shall participate equally in any dividends (whether payable in cash, stock or property) when and as declared by the Board of Directors of the Corporation out of the assets of the Corporation legally available therefor and the Corporation shall treat the Common Stock and Class B Common Stock identically in respect of any subdivisions or combinations (for example, if the Corporation effects a two-for-one stock split with respect to the Common Stock, it shall at the same time effect a two-for-one stock split with respect to the Class B Common Stock); provided, however, that (i) with respect to dividends payable in cash by the Corporation, the holders of Class B Common Stock shall participate equally per share only if and to the extent such cash dividends exceed $0.45 per share on the Common Stock per calendar year (for example, if the Board of Directors declares and the Corporation pays a dividend of $0.75 per share of Common Stock for a given calendar year, holders of Class B Common Stock shall be entitled to a dividend of $0.30 per share); and (ii) dividends payable in shares of Common Stock (or rights to subscribe for or purchase shares of Common Stock or securities or indebtedness convertible into shares of Common Stock) shall be paid only on shares of Common Stock and dividends payable in shares of Class B Common Stock (or rights to subscribe for or purchase shares of Class B Common Stock or securities or indebtedness convertible into shares of Class B Common Stock) shall be paid only on shares of Class B Common Stock (for example, if the Board of Directors declares and the Corporation pays a five percent (5%) stock dividend on the Common Stock, payable in shares of Common Stock, at the same time the Board of Directors shall declare and the Corporation shall pay a five percent (5%) stock dividend on the Class B Common Stock payable in shares of Class B Common Stock). (d) Liquidation. In the event the Corporation is liquidated, dissolved or wound up, whether voluntarily or involuntarily, the holders of the Common Stock and the Class B Common Stock shall participate equally in any distribution. (e) Voluntary Conversion of Class B Common Stock. (i) Conversion Rights. Each share of Class B Common Stock may be converted into one (1) share of Common Stock at the option of any holder thereof at any time after the fifth (5th) anniversary of the date of its issuance by the Corporation. For the foregoing purpose, a share of Class B Common Stock issued as a stock dividend or pursuant to a stock split, reclassification or other combination, shall be deemed to have been issued on the date of the share of Class B Common Stock with respect to which it is so issued. (ii) Conversion Procedures. Any holder of Class B Common Stock desiring to exercise such holder's option to convert such Class B Common Stock in accordance with the foregoing shall surrender the certificate or certificates representing the Class B Common Stock to be converted, duly endorsed to the Corporation or in blank, at the principal executive office of the Corporation, and shall give written notice to the Corporation at such office that such holder elects to convert the number of shares represented by such certificate or certificates, or a specified number thereof. As promptly as practicable after the surrender for conversion of any Class B Common Stock, the Corporation shall execute and deliver or cause to be executed and delivered to the holder of such Class B Common Stock certificates representing the shares of Common Stock issuable upon such conversion. In case any certificate or certificates representing shares of Class B Common Stock shall be surrendered for conversion for only a part of the shares represented thereby, the Corporation shall execute and deliver to the holders of the certificate or certificates for shares of Class B Common Stock so surrendered a new certificate or certificates representing the shares of Class B Common Stock not converted, dated the same date as the certificate or certificates representing the Common Stock. Shares of the Class B Common Stock converted as aforesaid shall be deemed to have been converted immediately prior to the close of business on the date such shares are duly surrendered for conversion, and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock as of such date. (iii) Recapitalization, Consolidation, or Merger of the Corporation. In the event that the Corporation shall be recapitalized, consolidated with, or merged with or into any other corporation (a "Reorganization") and the terms thereof shall provide (i) that the Class B Common Stock shall remain outstanding after such Reorganization and (ii) for any change in or conversion of the Common Stock, then the terms of such Reorganization shall include a provision to the effect that each share of Class B Common Stock after such Reorganization shall thereafter be entitled to receive upon conversion the same kind and amount of securities or assets as shall be distributable upon such Reorganization with respect to one share of Common Stock. (iv) Reservation of Shares. The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of Class B Common Stock as herein provided, such number of shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of Class B Common Stock and shall take all such corporate action as may be necessary to assure that such shares of Common Stock may be validly and legally issued upon conversion of all of the outstanding shares of Class B Common Stock; and if, at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of the Class B Common Stock, the Corporation shall take such corporate action as may be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose. (v) Retirement of Shares. Shares of Class B Common Stock which have been issued and have been converted into Common Stock, repurchased, or reacquired in any other manner by the Corporation shall not be reissued. (f) Mandatory Conversion of Class B Common Stock. If, at any time while there are shares of Class B Common Stock issued and outstanding, it shall be determined by the Board of Directors, in its sole discretion, that legislation or regulations are enacted or any judicial or administrative determination is made which would prohibit the listing, quotation or trading of the Common Stock on the New York Stock Exchange or the National Association of Securities Dealers Automated Quotation System, or would otherwise have a material adverse effect on the Corporation, in any such case due to the Corporation having more than one class of common shares outstanding, then the Board of Directors may by resolution convert all outstanding shares of Class B Common Stock into shares of Common Stock on a share-for-share basis. To the extent practicable, notice of such conversion of Class B Common Stock specifying the date fixed for said conversion shall be mailed, postage pre-paid, at least ten (10) days but not more than thirty (30) days prior to said conversion date to the holders of record of Common Stock and Class B Common Stock at their respective addresses as the same shall appear on the books of the Corporation; provided, however, that no failure or inability to provide such notice shall limit the authority or ability of the Board of Directors to convert all outstanding shares of Class B Common Stock into shares of Common Stock. Immediately prior to the close of business on said conversion date (or, if said conversion date is not a business day, on the next succeeding business day) each outstanding share of Class B Common Stock shall thereupon automatically be converted into a share of Common Stock and each certificate theretofore representing shares of Class B Common Stock shall thereupon and thereafter represent a like number of shares of Common Stock. (g) Class Voting Under Certain Circumstances. None of the provisions hereof affecting the powers, preferences, rights, qualifications, limitations or restrictions of the Class B Common Stock may be amended or repealed unless, in addition to any other vote required by law or this Certificate of Incorporation, such amendment shall be approved by the affirmative vote of the holders of a majority of the shares of the Common Stock then outstanding, voting as a separate class. 2. General. Subject to the foregoing provisions of this Certificate of Incorporation, the Corporation may issue shares of its Common Stock and Class B Common Stock from time to time for such consideration (not less than the par value thereof) as may be fixed by the Board of Directors of the Corporation, which is expressly authorized to fix the same in its absolute and uncontrolled discretion, subject to the foregoing conditions. Shares so issued for which the consideration shall have been paid or delivered to the Corporation shall be deemed fully paid stock and shall not be liable to any further call or assessment thereon, and the holders of such shares shall not be liable for any further payments in respect of such shares. SECOND: That thereafter, an annual meeting of the stockholders of the Corporation was duly called and held, upon notice in accordance with Section 222 of the General Corporation Law of the State of Delaware, at which meeting the necessary number of shares as required by statute were voted in favor of the amendments. THIRD: That said amendments were duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, First Banks America, Inc. has caused this Certificate to be signed by James F. Dierberg, Chairman of the Board of Directors, Chief Executive Officer and President and Allen H. Blake, Secretary, this 16th day of June, 1999. First Banks America, Inc. By:/s/James F. Dierberg ----------------------- James F. Dierberg Chairman of the Board of Directors, Chief Executive Officer and President Attest: /s/Allen H. Blake - ----------------- Allen H. Blake Secretary EX-27 2 FDS --
9 0000310979 First Banks America, Inc. 1,000 6-mos Dec-31-1999 Jan-01-1999 Jun-30-1999 26,051 1,122 13,000 0 84,990 2,012 1,922 692,026 14,383 871,905 745,647 7,379 6,784 44,186 0 0 956 66,953 871,905 28,584 3,428 224 32,236 11,542 12,008 20,228 213 174 16,189 6,485 6,485 0 0 3,690 0.65 0.64 8.69 5,289 1,632 0 7,241 12,127 798 1,375 14,383 8,888 0 5,495
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