-----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, FwfpyQ07rNO+BNJBoPbcxCJtPHRRr8uu6Ot77bSVgX3myQPfN2ZpSmM7tJUWPR3A nFjoRCa1EiTMxNqCuMmcMQ== 0001085204-00-000014.txt : 20000515 0001085204-00-000014.hdr.sgml : 20000515 ACCESSION NUMBER: 0001085204-00-000014 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000512 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRST BANKS INC CENTRAL INDEX KEY: 0000710507 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 431175538 STATE OF INCORPORATION: MO FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 033-33786 FILM NUMBER: 627591 BUSINESS ADDRESS: STREET 1: 135 N MERAMEC AVE CITY: ST LOUIS STATE: MO ZIP: 63105 BUSINESS PHONE: 3148544600 MAIL ADDRESS: STREET 1: 135 N MERAMEC AVE CITY: ST LOUIS STATE: MO ZIP: 63105 10-Q 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2000 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______ to ________ Commission File No. 0-20632 FIRST BANKS, INC. (Exact name of registrant as specified in its charter) MISSOURI 43-1175538 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 135 North Meramec, Clayton, Missouri 63105 (Address of principal executive offices) (Zip Code) (314) 854-4600 (Registrant's telephone number, including area code) -------------------------- 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 practical date. Shares outstanding Class at April 30, 2000 ----- ------------------- Common Stock, $250.00 par value 23,661 FIRST BANKS, INC. TABLE OF CONTENTS
Page ---- PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS: CONSOLIDATED BALANCE SHEETS......................................................... 1 CONSOLIDATED STATEMENTS OF INCOME................................................... 3 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME........................................................ 4 CONSOLIDATED STATEMENTS OF CASH FLOWS............................................... 5 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.......................................... 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS....................................................... 11 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.......................... 20 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS................................................................... 21 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.................................................... 21 SIGNATURES ....................................................................................... 22
PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS FIRST BANKS, INC. CONSOLIDATED BALANCE SHEETS - (UNAUDITED) (dollars expressed in thousands, except per share data)
March 31, December 31, 2000 1999 ---- ---- ASSETS ------ Cash and cash equivalents: Cash and due from banks....................................................... $ 126,128 126,720 Interest-bearing deposits with other financial institutions with maturities of three months or less..................................... 2,118 1,674 Federal funds sold............................................................ 81,600 42,500 ------------ ----------- Total cash and cash equivalents..................................... 209,846 170,894 ------------ ----------- Investment securities: Available for sale, at fair value............................................. 424,240 430,093 Held to maturity, at amortized cost (fair value of $21,204 and $21,476 at March 31, 2000 and December 31, 1999, respectively).............. 21,362 21,554 ------------ ----------- Total investment securities......................................... 445,602 451,647 ------------ ----------- Loans: Commercial, financial and agricultural........................................ 1,223,258 1,086,919 Real estate construction and development...................................... 816,366 795,081 Real estate mortgage.......................................................... 1,927,978 1,851,569 Consumer and installment...................................................... 212,155 233,374 Loans held for sale........................................................... 48,836 37,412 ------------ ----------- Total loans......................................................... 4,228,593 4,004,355 Unearned discount............................................................. (6,289) (8,031) Allowance for loan losses..................................................... (73,859) (68,611) ------------ ----------- Net loans........................................................... 4,148,445 3,927,713 ------------ ----------- Bank premises and equipment, net of accumulated depreciation and amortization................................................. 78,516 75,647 Intangibles associated with the purchase of subsidiaries........................... 49,088 46,085 Accrued interest receivable........................................................ 31,658 33,491 Deferred income taxes.............................................................. 63,803 51,972 Other assets....................................................................... 107,885 110,298 ------------ ----------- Total assets........................................................ $ 5,134,843 4,867,747 ============ ===========
The accompanying notes are an integral part of the consolidated financial statements. FIRST BANKS, INC. CONSOLIDATED BALANCE SHEETS (CONTINUED) - (UNAUDITED) (dollars expressed in thousands, except per share data)
March 31, December 31, 2000 1999 ---- ---- LIABILITIES ----------- Deposits: Demand: Non-interest-bearing........................................................ $ 625,626 606,064 Interest-bearing............................................................ 409,261 415,113 Savings....................................................................... 1,272,108 1,198,314 Time: Time deposits of $100 or more............................................... 349,774 339,214 Other time deposits......................................................... 1,803,542 1,693,109 ------------ ----------- Total deposits........................................................... 4,460,311 4,251,814 Short-term borrowings.............................................................. 98,612 73,554 Note payable....................................................................... 74,000 64,000 Accrued interest payable........................................................... 12,205 11,607 Deferred income taxes.............................................................. 11,355 6,582 Accrued expenses and other liabilities............................................. 30,515 25,616 Minority interest in subsidiary.................................................... 11,951 12,058 ------------ ----------- Total liabilities........................................................ 4,698,949 4,445,231 ------------ ----------- Guaranteed preferred beneficial interests in: First Banks, Inc. subordinated debentures..................................... 83,420 83,394 First Banks America, Inc. subordinated debentures............................. 44,233 44,217 ------------ ----------- Total guaranteed preferred beneficial interests in subordinated debentures.............................................. 127,653 127,611 ------------ ----------- STOCKHOLDERS' EQUITY -------------------- Preferred stock: $1.00 par value, 5,000,000 shares authorized, no shares issued and outstanding at March 31, 2000 and December 31, 1999..................... -- -- Class A convertible, adjustable rate, $20.00 par value, 750,000 shares authorized, 641,082 shares issued and outstanding.................... 12,822 12,822 Class B adjustable rate, $1.50 par value, 200,000 shares authorized, 160,505 shares issued and outstanding....................................... 241 241 Common stock, $250.00 par value, 25,000 shares authorized, 23,661 shares issued and outstanding.......................................... 5,915 5,915 Capital surplus.................................................................... 3,117 3,318 Retained earnings.................................................................. 284,650 270,259 Accumulated other comprehensive income............................................. 1,496 2,350 ------------ ----------- Total stockholders' equity............................................... 308,241 294,905 ------------ ----------- Total liabilities and stockholders' equity............................... $ 5,134,843 4,867,747 ============ ===========
FIRST BANKS, INC. CONSOLIDATED STATEMENTS OF INCOME - (UNAUDITED) (dollars expressed in thousands, except per share data)
Three months ended March 31, ------------------- 2000 1999 ---- ---- Interest income: Interest and fees on loans........................................................... $89,678 74,675 Investment securities................................................................ 6,870 7,662 Federal funds sold and other......................................................... 1,169 223 ------- --------- Total interest income............................................................ 97,717 82,560 ------- --------- Interest expense: Deposits: Interest-bearing demand............................................................ 1,465 1,114 Savings............................................................................ 11,636 10,929 Time deposits of $100 or more...................................................... 3,015 2,775 Other time deposits................................................................ 23,907 21,130 Interest rate exchange agreements, net............................................... -- 1,283 Short-term borrowings................................................................ 1,109 839 Note payable......................................................................... 1,155 896 ------- --------- Total interest expense........................................................... 42,287 38,966 ------- --------- Net interest income.............................................................. 55,430 43,594 Provision for loan losses................................................................. 3,582 2,490 ------- --------- Net interest income after provision for loan losses.............................. 51,848 41,104 ------- --------- Noninterest income: Service charges on deposit accounts and customer service fees........................ 4,592 3,882 Gain on mortgage loans sold and held for sale........................................ 1,392 2,332 Net gain on sales of available-for-sale securities................................... 379 677 Net loss on trading securities....................................................... -- (303) Other................................................................................ 3,201 3,015 ------- --------- Total noninterest income......................................................... 9,564 9,603 ------- --------- Noninterest expense: Salaries and employee benefits....................................................... 16,891 14,502 Occupancy, net of rental income...................................................... 3,222 2,883 Furniture and equipment.............................................................. 2,675 1,901 Postage, printing and supplies....................................................... 1,108 1,142 Data processing fees................................................................. 5,189 4,536 Legal, examination and professional fees............................................. 989 1,320 Gain on sales of other real estate, net of expenses.................................. (179) (53) Guaranteed preferred debentures...................................................... 3,014 3,014 Other................................................................................ 4,884 6,242 ------- --------- Total noninterest expense........................................................ 37,793 35,487 ------- --------- Income before provision for income taxes and minority interest in income of subsidiary........................................................ 23,619 15,220 Provision for income taxes................................................................ 8,544 5,638 ------- --------- Income before minority interest in income of subsidiary.......................... 15,075 9,582 Minority interest in income of subsidiary................................................. 488 311 ------- --------- Net income....................................................................... 14,587 9,271 Preferred stock dividends................................................................. 196 196 ------- --------- Net income available to common stockholders...................................... $14,391 9,075 ======= ========= Earnings per common share: Basic................................................................................ 608.21 383.52 Diluted.............................................................................. 589.52 372.57 ======== ========= Weighted average shares of common stock outstanding....................................... 23,661 23,661 ======= =========
The accompanying notes are an integral part of the consolidated financial statements. FIRST BANKS, INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME - (UNAUDITED) Three months ended March 31, 2000 and 1999 and nine months ended December 31, 1999 (dollars expressed in thousands, except per share data)
Accu- Adjustable rate mulated preferred stock other Total ------------------ Class A Compre- compre- stock- conver- Common Capital hensiveRetained hensive holders' tible Class B stock surplus income earnings income equity ----- ------- ----- ------- ------ -------- ------ ------ Consolidated balances, December 31, 1998......... $12,822 241 5,915 780 231,867 11,738 263,363 Three months ended March 31, 1999: Comprehensive income: Net income................................. -- -- -- -- 9,271 9,271 -- 9,271 Other comprehensive income, net of tax Unrealized losses on securities, net of reclassification adjustment (1)........ -- -- -- -- (2,373) -- (2,373) (2,373) ------ Comprehensive income....................... 6,898 ====== Class A preferred stock dividends, $0.30 per share............................ -- -- -- -- (192) -- (192) Class B preferred stock dividends, $0.03 per share............................ -- -- -- -- (4) -- (4) Effect of capital stock transactions of majority-owned subsidiaries............... -- -- -- (2,965) -- -- (2,965) Reclassification of retained earnings........ -- -- -- 5,000 (5,000) -- -- ------- ----- ----- ----- ------- ------ ------- Consolidated balances, March 31, 1999............ 12,822 241 5,915 2,815 235,942 9,365 267,100 Nine months ended December 31, 1999: Comprehensive income: Net income................................. -- -- -- -- 34,907 34,907 -- 34,907 Other comprehensive income, net of tax Unrealized losses on securities, net of reclassification adjustment (1)........ -- -- -- -- (7,015) -- (7,015) (7,015) ------ Comprehensive income....................... 27,892 ====== Class A preferred stock dividends, $0.90 per share............................ -- -- -- -- (577) -- (577) Class B preferred stock dividends, $0.08 per share............................ -- -- -- -- (13) -- (13) Effect of capital stock transactions of majority-owned subsidiaries............... -- -- -- (308) -- -- (308) Reduction of deferred tax asset valuation allowance........................ -- -- -- 811 -- -- 811 ----- ---- ----- ----- ------- ----- ------- Consolidated balances, December 31, 1999......... 12,822 241 5,915 3,318 270,259 2,350 294,905 Three months ended March 31, 2000: Comprehensive income: Net income................................. -- -- -- -- 14,587 14,587 -- 14,587 Other comprehensive income, net of tax Unrealized losses on securities, net of reclassification adjustment (1)........ -- -- -- -- (854) -- (854) (854) ------ Comprehensive income....................... 13,733 ====== Class A preferred stock dividends, $0.30 per share............................ -- -- -- -- (192) -- (192) Class B preferred stock dividends, $0.03 per share............................ -- -- -- -- (4) -- (4) Effect of capital stock transactions of majority-owned subsidiary................. -- -- -- (201) -- -- (201) ------- ----- ----- ----- ------- ------ ------- Consolidated balances, March 31, 2000............ $12,822 241 5,915 3,117 284,650 1,496 308,241 ======= ===== ===== ===== ======= ====== =======
- ------------------------- (1) Disclosure of reclassification adjustment:
Three months ended Nine months ended March 31, December 31, ---------------- ------------ 2000 1999 1999 ---- ---- ---- Unrealized losses arising during the period............................................ $ (608) (1,934) (6,940) Less reclassification adjustment for gains included in net income...................... 246 439 75 ------ ----- ----- Unrealized losses on securities........................................................ $ (854) (2,373) (7,015) ====== ====== ======
The accompanying notes are an integral part of the consolidated financial statements. FIRST BANKS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS - (UNAUDITED) (dollars expressed in thousands)
Three months ended March 31, ------------------ 2000 1999 ---- ---- Cash flows from operating activities: Net income........................................................................... $ 14,587 9,271 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization of bank premises and equipment....................... 2,220 1,596 Amortization, net of accretion..................................................... 1,841 3,066 Originations and purchases of loans held for sale.................................. (94,450) (167,385) Proceeds from the sale of loans held for sale...................................... 62,671 168,532 Provision for loan losses.......................................................... 3,582 2,490 Provision for income taxes......................................................... 8,544 5,638 Refunds (payments) of income taxes................................................. 75 (1,491) Decrease in accrued interest receivable............................................ 2,499 1,557 Net decrease in trading securities................................................. -- 3,425 Interest accrued on liabilities.................................................... 42,287 38,966 Payments of interest on liabilities................................................ (42,203) (35,861) Gain on sale of branch facility.................................................... -- (247) Other operating activities, net.................................................... (5,711) (221) Minority interest in income of subsidiary.......................................... 488 311 -------- ------- Net cash (used in) provided by operating activities.............................. (3,570) 29,647 -------- ------- Cash flows from investing activities: Cash paid for acquired entities, net of cash and cash equivalents received........... (2,709) (17,245) Proceeds from sales of investment securities available for sale...................... 8,148 49,467 Maturities of investment securities available for sale............................... 135,151 54,682 Maturities of investment securities held to maturity................................. 670 998 Purchases of investment securities available for sale................................ (109,481) (7,297) Purchases of investment securities held to maturity.................................. (489) (1,982) Net increase in loans................................................................ (155,830) (42,308) Recoveries of loans previously charged-off........................................... 4,081 2,224 Purchases of bank premises and equipment............................................. (5,247) (6,717) Other investing activities........................................................... 1,316 (5,543) -------- ------- Net cash (used in) provided by investing activities.............................. (124,390) 26,279 -------- ------- Cash flows from financing activities: Increase (decrease) in demand and savings deposits................................... 42,873 (37,729) Increase in time deposits............................................................ 89,177 2,311 Decrease in Federal Home Loan Bank advances.......................................... -- (50,000) Increase (decrease) in securities sold under agreements to repurchase................ 25,058 (3,955) Increase (decrease) in notes payable................................................. 10,000 (48) Sale of branch deposits.............................................................. -- (2,854) Payment of preferred stock dividends................................................. (196) (196) -------- ------- Net cash provided by (used in) financing activities.............................. 166,912 (92,471) -------- ------- Net increase (decrease) in cash and cash equivalents............................. 38,952 (36,545) Cash and cash equivalents, beginning of period............................................ 170,894 214,762 -------- ------- Cash and cash equivalents, end of period.................................................. $209,846 178,217 ======== ======= Noncash investing and financing activities: Loans transferred to other real estate............................................... $ 558 317 Loans held for sale transferred to loans............................................. 21,568 6,007 ======== =======
The accompanying notes are an integral part of the consolidated financial statements. FIRST BANKS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) BASIS OF PRESENTATION The accompanying consolidated financial statements of First Banks, Inc. and subsidiaries (First Banks or the Company) are unaudited and should be read in conjunction with the consolidated financial statements contained in the 1999 Annual Report on Form 10-K. The consolidated financial statements have been prepared in accordance with generally accepted accounting principles and conform to practices prevalent among financial institutions. Management of First Banks has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare the consolidated financial statements in conformity with generally accepted accounting principles. 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 three months ended March 31, 2000 are not necessarily indicative of the results that may be expected for the year ending December 31, 2000. The consolidated financial statements include the accounts of First Banks, Inc. and its subsidiaries, net of minority interest, as more fully described below. All significant intercompany accounts and transactions have been eliminated. Certain reclassifications of 1999 amounts have been made to conform with the 2000 presentation. First Banks operates through its subsidiary bank holding companies and financial institutions (collectively referred to as the Subsidiary Banks) and through its non-banking subsidiary, First Capital Group, Inc., as follows: First Bank, headquartered in St. Louis County, Missouri (First Bank); First Bank & Trust, headquartered in Newport Beach, California (FB&T); First Capital Group, Inc., headquartered in Albuquerque, New Mexico (FCG); First Banks America, Inc., headquartered in St. Louis County, Missouri (FBA), and its wholly owned subsidiaries: First Bank Texas N.A., headquartered in Houston, Texas (FB Texas); First Bank of California, headquartered in Roseville, California (FB California); Redwood Bank, headquartered in San Francisco, California; and Lippo Bank, headquartered in San Francisco, California. The Subsidiary Banks and FCG are wholly owned by their respective parent companies except FBA, which was 84.10% and 83.37% owned by First Banks at March 31, 2000 and December 31, 1999, respectively. (2) ACQUISITIONS On February 29, 2000, FBA completed its acquisition of Lippo Bank, San Francisco, California, in exchange for $17.2 million in cash. Lippo Bank operates three banking locations in San Francisco, San Jose and Los Angeles, California. The acquisition was funded from available cash. At the time of the transaction, Lippo Bank had $85.3 million in total assets, $40.9 million in loans, net of unearned discount, $37.4 million in investment securities and $76.4 million in total deposits. This transaction was accounted for using the purchase method of accounting. The excess of the cost over the fair value of the net assets acquired was approximately $5.5 million and is being amortized over 15 years. Lippo Bank will be merged into FB California. On February 29, 2000, First Banks completed its acquisition of certain assets and liabilities of FCG, Albuquerque, New Mexico, in exchange for $65.1 million in cash. FCG is a leasing company that specializes in commercial leasing and operates a multi-state leasing business. The acquisition was funded from available cash. At the time of the transaction, FCG had $64.6 million in total assets, consisting almost solely of commercial leases, net of unearned income. The premium paid on the lease portfolio acquired was $1.5 million and is being amortized as a yield adjustment over approximately four years. FCG operates as a direct subsidiary of First Banks, Inc. (3) EARNINGS PER SHARE The following is a reconciliation of the numerators and denominators of the basic and diluted EPS computations for the periods indicated:
Income Shares Per share (numerator) (denominator) amount ----------- ------------- ------ (dollars in thousands, except for per share data) Three months ended March 31, 2000: Basic EPS - income available to common stockholders............. $ 14,391 23,661 $ 608.21 ========== Effect of dilutive securities: Class A convertible preferred stock........................... 192 1,076 --------- ------- Diluted EPS - income available to common stockholders........... $ 14,583 24,737 $ 589.52 ========= ======= ========== Three months ended March 31, 1999: Basic EPS - income available to common stockholders............. $ 9,075 23,661 $ 383.52 ========== Effect of dilutive securities: Class A convertible preferred stock........................... 192 1,212 --------- ------- Diluted EPS - income available to common stockholders........... $ 9,267 24,873 $ 372.57 ========= ======= ==========
(4) TRANSACTIONS WITH RELATED PARTIES First Brokerage America, L.L.C., a limited liability corporation which is indirectly owned by First Banks' Chairman and members of his immediate family, received approximately $530,000 and $379,000 for the three months ended March 31, 2000 and 1999, respectively, in commissions paid by unaffiliated third-party companies. The commissions received were primarily in connection with the sales of annuities and securities and other insurance products to individuals, including customers of the Subsidiary Banks. First Services, L.P., a limited partnership indirectly owned by First Banks' Chairman and his adult children, provides data processing services and operational support for First Banks, Inc. and its Subsidiary Banks. Fees paid under agreements with First Services, L.P. were $4.5 million and $4.1 million for the three months ended March 31, 2000 and 1999, respectively. During the three months ended March 31, 2000 and 1999, First Services, L.P. paid First Banks $454,000 and $215,000, respectively, in rental fees for the use of data processing and other equipment owned by First Banks. The fees paid by First Banks for data processing services are at least as favorable as could have been obtained from unaffiliated third parties. (5) REGULATORY CAPITAL First Banks 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 First Banks' financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, First Banks and 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 regulation to ensure capital adequacy require First Banks and the Subsidiary Banks to maintain minimum amounts and ratios of total and Tier I capital (as defined in the regulations) to risk-weighted assets, and of Tier I capital to average assets. Management believes, as of March 31, 2000, First Banks and the Subsidiary Banks were each well capitalized. As of March 31, 2000, the most recent notification from First Banks' primary regulator categorized First Banks and the Subsidiary Banks as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, First Banks and the Subsidiary Banks must maintain minimum total risk-based, Tier I risk-based and Tier I leverage ratios as set forth in the table below. At March 31, 2000 and December 31, 1999, First Banks' and the Subsidiary Banks' required and actual capital ratios were as follows:
To be well Actual capitalized under ----------------------- March 31, December 31, For capital prompt corrective 2000 1999 adequacy purposes action provisions ---- ---- ----------------- ----------------- Total capital (to risk-weighted assets): First Banks............................. 10.04% 10.05% 8.0% 10.0% First Bank.............................. 10.55 10.60 8.0 10.0 FB&T.................................... 11.79 10.96 8.0 10.0 FB California........................... 11.03 10.81 8.0 10.0 FB Texas................................ 12.25 12.42 8.0 10.0 Redwood Bank............................ 11.09 11.17 8.0 10.0 Lippo Bank (1).......................... 13.61 -- 8.0 10.0 Tier 1 capital (to risk-weighted assets): First Banks............................. 8.15% 8.00% 4.0% 6.0% First Bank.............................. 9.30 9.35 4.0 6.0 FB&T.................................... 10.53 9.70 4.0 6.0 FB California........................... 9.77 9.56 4.0 6.0 FB Texas................................ 11.00 11.17 4.0 6.0 Redwood Bank............................ 9.97 10.15 4.0 6.0 Lippo Bank (1).......................... 12.36 -- 4.0 6.0 Tier 1 capital (to average assets): First Banks............................. 7.57% 7.14% 3.0% 5.0% First Bank.............................. 8.51 8.10 3.0 5.0 FB&T.................................... 9.46 8.57 3.0 5.0 FB California........................... 9.69 9.95 3.0 5.0 FB Texas................................ 10.27 10.39 3.0 5.0 Redwood Bank............................ 8.47 8.48 3.0 5.0 Lippo Bank (1).......................... 7.93 -- 3.0 5.0
------------------------- (1) Lippo Bank was acquired by FBA on February 29, 2000. (6) BUSINESS SEGMENT RESULTS First Banks' business segments are First Bank, FB California, Redwood Bank, Lippo Bank, FB Texas and FB&T. The reportable business segments are consistent with the management structure of First Banks, the Subsidiary Banks and the internal reporting system that monitors performance. Through the respective branch networks, First Bank, FB California, Redwood Bank, Lippo Bank, FB Texas and FB&T provide similar products and services in four 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, debit and credit cards, brokerage services, 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 products and services are offered to customers primarily within their respective geographic areas, with the exception of loan participations executed between the Subsidiary Banks. The business segment results are summarized as follows and are consistent with First Banks' internal reporting system and, in all material respects, with generally accepted accounting principles and practices predominant in the banking and mortgage banking industries.
First Bank FB California Redwood Bank (1) Lippo Bank (2) ------------------------- ---------------------- ---------------------- -------------- March 31, December 31, March 31, December 31, March 31, December 31, March 31, 2000 1999 2000 1999 2000 1999 2000 ---- ---- ---- ---- ---- ---- ---- (dollars expressed in thousands) Balance sheet information: Investment securities................ $ 222,652 241,624 25,142 20,743 27,485 37,539 31,944 Loans, net of unearned discount...... 2,705,376 2,527,649 380,446 379,632 142,228 138,902 41,148 Total assets......................... 3,136,666 3,028,046 471,257 431,838 193,928 199,988 98,355 Deposits............................. 2,738,103 2,689,671 406,058 367,563 167,110 173,703 76,431 Stockholders' equity................. 268,639 263,466 49,191 47,990 24,615 24,275 17,273 ========= ======== ======= ======= ======= ======= ====== First Bank FB California Redwood Bank (1) Lippo Bank (2) ---------------------- ------------------ ------------------ ---------------- Three months ended Three Months ended Three months ended Month ended March 31, March 31, March 31, March 31, ---------------------- ------------------ ------------------ ---------------- 2000 1999 2000 1999 2000 1999 2000 ---- ---- ---- ---- ---- ---- ---- Income statement information: Interest income...................... $ 58,758 53,173 9,758 8,000 3,933 1,180 534 Interest expense..................... 26,252 26,531 3,511 3,079 1,574 442 216 -------- -------- ------- ------- ------- ------- ------ Net interest income............. 32,506 26,642 6,247 4,921 2,359 738 318 Provision for loan losses............ 2,600 2,100 90 60 132 -- -- -------- -------- ------- ------- ------- ------- ------ Net interest income after provision for loan losses..... 29,906 24,542 6,157 4,861 2,227 738 318 -------- -------- ------- ------- ------- ------- ------ Noninterest income................... 6,994 7,588 676 609 (118) 26 116 Noninterest expense.................. 19,806 19,020 3,615 3,699 1,500 438 442 -------- -------- ------- ------- ------- ------- ------ Income (loss) before provision (benefit) for income taxes and minority interest in income of subsidiary......... 17,094 13,110 3,218 1,771 609 326 (8) Provision (benefit) for income taxes. 5,833 4,498 1,270 787 324 164 (7) -------- -------- ------- ------- ------- ------- ------ Income (loss) before minority interest in income of subsidiary......... 11,261 8,612 1,948 984 285 162 (1) Minority interest in income of subsidiary................ -- -- -- -- -- -- -- -------- -------- ------- ------- ------- ------- ------ Net income...................... $ 11,261 8,612 1,948 984 285 162 (1) ======== ======== ======= ======= ======= ======= ======
- ----------------- (1) Redwood Bank was acquired by FBA on March 4, 1999. (2) Lippo Bank was acquired by FBA on February 29, 2000 and will be merged into FB California during the second quarter of 2000. (3) Corporate and other includes $2.0 million of guaranteed preferred debenture expense, after applicable income tax benefit of $1.0 million for the three months ended March 31, 2000 and 1999, respectively. In addition, corporate and other includes FCG.
Corporate, other and intercompany FB Texas First Bank & Trust reclassifications (3) Consolidated totals ------------------------ ------------------------ -------------------------- ------------------------ March 31, December 31, March 31, December 31, March 31, December 31, March 31, December 31, 2000 1999 2000 1999 2000 1999 2000 1999 ---- ---- ---- ---- ---- ---- ---- ---- (dollars expressed in thousands) 26,152 30,439 95,330 103,636 16,897 17,666 445,602 451,647 214,473 213,731 739,040 736,828 (407) (418) 4,222,304 3,996,324 291,625 278,988 970,805 944,013 (27,793) (15,126) 5,134,843 4,867,747 255,517 244,248 839,754 804,976 (22,662) (28,347) 4,460,311 4,251,814 30,827 30,338 103,245 102,014 (185,549) (173,178) 308,241 294,905 ======= ======= ======= ======= ======== ======== ======== ========= Corporate, other and intercompany FB Texas First Bank & Trust reclassifications (3) Consolidated totals ---------------------- ---------------------- ------------------------ ------------------- Three months ended Three months ended Three months ended Three months ended March 31, March 31, March 31, March 31, ---------------------- ---------------------- ------------------------ -------------------- 2000 1999 2000 1999 2000 1999 2000 1999 ---- ---- ---- ---- ---- ---- ---- ---- 5,668 5,542 18,914 14,341 152 324 97,717 82,560 2,289 2,162 7,508 6,199 937 553 42,287 38,966 ------ ------- ------- ------ -------- -------- -------- ------- 3,379 3,380 11,406 8,142 (785) (229) 55,430 43,594 120 30 640 300 -- -- 3,582 2,490 ------ ------- ------- ------ -------- -------- -------- ------- 3,259 3,350 10,766 7,842 (785) (229) 51,848 41,104 ------ ------- ------- ------ -------- -------- -------- ------- 491 543 1,881 1,243 (476) (406) 9,564 9,603 2,109 2,279 7,016 6,552 3,305 3,499 37,793 35,487 ------ ------- ------- ------ -------- -------- -------- ------- 1,641 1,614 5,631 2,533 (4,566) (4,134) 23,619 15,220 587 555 2,222 1,123 (1,685) (1,489) 8,544 5,638 ------ ------- ------- ------ -------- -------- -------- ------- 1,054 1,059 3,409 1,410 (2,881) (2,645) 15,075 9,582 -- -- -- -- 488 311 488 311 ------ ------- ------- ------ -------- -------- -------- ------- 1,054 1,059 3,409 1,410 (3,369) (2,956) 14,587 9,271 ====== ======= ======= ====== ======== ======== ======== =======
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 First Banks. 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 affecting the banking industry generally and factors having a specific impact on First Banks, including but not limited to fluctuations in interest rates and in the economy; the impact of laws and regulations applicable to First Banks and changes therein; competitive conditions in the markets in which First Banks conducts its operations, including competition from banking and non-banking companies with substantially greater resources than First Banks, some of which may offer and develop products and services not offered by First Banks; the ability of First Banks to control the composition of the loan portfolio without adversely affecting interest income; and the ability of First Banks to respond to changes in technology. With regard to First Banks' 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 First Banks, as compared with competitors operating solely in contiguous markets; the competition of larger acquirers with greater resources than First Banks, fluctuations in the prices at which acquisition targets may be available for sale and in the market for First Banks' securities; and the potential for difficulty or unanticipated costs in realizing the benefits of particular acquisition transactions. Readers of the Form 10-Q should therefore not place undue reliance on forward-looking statements. General First Banks is a registered bank holding company incorporated in Missouri and headquartered in St. Louis County, Missouri. At March 31, 2000, First Banks had $5.13 billion in total assets, $4.22 billion in total loans, net of unearned discount, $4.46 billion in total deposits and $308.2 million in total stockholders' equity. First Banks operates through its subsidiary bank holding companies and financial institutions (collectively referred to as the Subsidiary Banks) and through its non-banking subsidiary, First Capital Group, Inc., as follows: First Bank, headquartered in St. Louis County, Missouri (First Bank); First Bank & Trust, headquartered in Newport Beach, California (FB&T); First Capital Group, Inc., headquartered in Albuquerque, New Mexico (FCG); First Banks America, Inc., headquartered in St. Louis County, Missouri (FBA), and its wholly owned subsidiaries: First Bank Texas N.A., headquartered in Houston, Texas (FB Texas); First Bank of California, headquartered in Roseville, California (FB California); Redwood Bank, headquartered in San Francisco, California; and Lippo Bank, headquartered in San Francisco, California. The Subsidiary Banks and FCG are wholly owned by their respective parent companies except FBA, which was 84.10% and 83.37% owned by First Banks at March 31, 2000 and December 31, 1999, respectively. Through the Subsidiary Banks, First Banks offers a broad range of commercial and personal banking services including certificate of deposit accounts, 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, financial and agricultural, real estate construction and development, commercial and residential real estate, consumer and installment, student and Small Business Administration loans. Other financial services include mortgage banking, credit and debit cards, brokerage services, credit-related insurance, automatic teller machines, telephone banking, safe deposit boxes, trust and private banking services and cash management services. First Banks centralizes overall corporate policies, procedural and administrative functions and operational support functions for the Subsidiary Banks. Primary responsibility for managing the Subsidiary Banks remains with the officers and directors. The following table summarizes selected data about the Subsidiary Banks at March 31, 2000:
Loans, net of Number of Total unearned Total Subsidiary Banks locations assets discount deposits ---------------- --------- ------ -------- -------- (dollars expressed in thousands) First Bank.................................. 87 $ 3,136,666 2,705,376 2,738,103 FB&T ....................................... 27 970,805 739,040 839,754 FBA: FB California.......................... 11 471,257 380,446 406,058 FB Texas............................... 6 291,625 214,473 255,517 Redwood Bank........................... 4 193,928 142,228 167,110 Lippo Bank............................. 3 98,355 41,148 76,431
Financial Condition First Banks' total assets increased by $260.0 million to $5.13 billion from $4.87 billion at March 31, 2000 and December 31, 1999, respectively. As discussed in Note 2 to the accompanying consolidated financial statements, the acquisitions of Lippo Bank and FCG provided assets of $85.3 million and $64.6 million, respectively. Loans, net of unearned discount, excluding the $40.9 million and $66.1 million of loans acquired from Lippo Bank and FCG, respectively, increased by $119.0 million, which is further discussed under "--Loans and Allowance for Loan Losses." Total deposits, excluding the deposits provided by the acquisition of Lippo Bank, increased by $132.1 million to $4.46 billion at March 31, 2000. The funds generated from the deposit growth were primarily utilized to fund internal loan growth and the acquisition of the FCG leases, with the remainder temporarily invested in cash and cash equivalents. In addition, short-term borrowings and note payable increased to $98.6 million and $74.0 million at March 31, 2000, respectively. Results of Operations Net Income Net income was $14.6 million for the three months ended March 31, 2000, compared to $9.3 million for the comparable period in 1999. The earnings progress was primarily driven by increased net interest income generated from the acquisitions of Lippo Bank, FCG, Century Bank and Redwood Bank, the continued change in the composition of the loan portfolio, an increase in interest rates and internal loan growth. As previous mentioned, the loan growth was primarily funded through internal deposit growth. The increase in net income was partially offset by an increased provision for loan losses, as discussed under "--Loans and Allowance for Loan Losses," and an increase in operating expenses of $2.3 million to $37.8 million from $35.5 million for the three months ended March 31, 2000 and 1999, respectively. The increased operating expenses are reflective of the operating expenses of Lippo Bank, FCG, Century Bank and Redwood Bank subsequent to their respective acquisition dates, increased salaries and employee benefit expenses, increased data processing fees and increased amortization of intangibles associated with the purchase of subsidiaries. Net Interest Income Net interest income (expressed on a tax equivalent basis) improved to $55.6 million, or 4.85% of interest-earning assets, for the three months ended March 31, 2000, from $43.8 million, or 4.28% of interest-earning assets, for the comparable period in 1999. The improved net interest income is primarily attributable to the net interest-earning assets provided by the aforementioned acquisitions, internal loan growth and an increase in the prime-lending rate. For the three months ended March 31, 2000, loans, on average, increased by $461.0 million from the comparable period in 1999. Contributing further to the improved net interest income is the reduced aggregate weighted average rate paid on interest-bearing liabilities. For the three months ended March 31, 2000 and 1999, respectively, the aggregate weighted average rate paid on the deposit portfolio decreased to 4.31% from 4.41%, reflecting First Banks' continual process of realigning the deposit portfolios of acquired entities, competitive pricing and enhanced products and services. This decrease was partially offset by an increase in the weighted average rates paid on short-term borrowings and notes payable and other to 5.12% and 7.13% for the three months ended March 31, 2000, respectively, from 4.86% and 6.43% for the comparable period in 1999, respectively, reflecting an increase in the average balance of these financial instruments. The following table sets forth, on a tax-equivalent basis, certain information relating to First Banks' 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 periods indicated.
For the three months ended March 31, ----------------------------------------------------- 2000 1999 ------------------------ ------------------------ Interest Interest Average income/ Yield/ Average income/ Yield/ balance expense rate balance expense rate ------- ------- ---- ------- ------- ----- (dollars expressed in thousands) ASSETS ------ Interest-earning assets: Loans (1) (2) (3)(4) ................................. $4,086,591 89,753 8.83% $3,625,581 74,761 8.36% Investment securities (4) ............................ 440,803 7,002 6.39 510,844 7,807 6.20 Federal funds sold.................................... 81,320 1,126 5.57 14,854 193 5.27 Other................................................. 2,231 43 7.75 1,074 30 11.33 ---------- ------- ---------- ------- Total interest-earning assets.................... 4,610,945 97,924 8.54 4,152,353 82,791 8.09 ------- ------- Nonearning assets......................................... 351,309 343,402 ---------- ---------- Total assets..................................... $4,962,254 $4,495,755 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY -------------------- Interest-bearing liabilities: Interest-bearing deposits: Interest-bearing demand deposits................... $ 423,088 1,465 1.39% $ 371,174 1,114 1.22% Savings deposits................................... 1,225,323 11,636 3.82 1,212,273 10,929 3.66 Time deposits of $100 or more (3).................. 236,937 3,014 5.12 213,461 2,918 5.54 Other time deposits (3)............................ 1,847,003 23,908 5.21 1,618,772 22,214 5.57 ---------- ------- ---------- ------- Total interest-bearing deposits.................. 3,732,351 40,023 4.31 3,415,680 37,175 4.41 Short-term borrowings (3)............................. 87,183 1,109 5.12 83,256 998 4.86 Notes payable and other............................... 65,126 1,155 7.13 50,001 793 6.43 ---------- ------- ---------- ------- Total interest-bearing liabilities............... 3,884,660 42,287 4.38 3,548,937 38,966 4.45 ------- ------- Noninterest-bearing liabilities: Demand deposits....................................... 587,417 508,451 Other liabilities..................................... 194,914 171,607 ---------- ---------- Total liabilities................................ 4,666,991 4,228,995 Stockholders' equity...................................... 295,263 266,760 ---------- ---------- Total liabilities and stockholders' equity....... $4,962,254 $4,495,755 ========== ========== Net interest income....................................... 55,637 43,825 ======= ======= Interest rate spread...................................... 4.16 3.64 Net interest margin....................................... 4.85% 4.28% ==== ====
- ------------------------ (1) For purposes of these computations, nonaccrual loans are included in the average loan amounts. (2) Interest income on loans includes loan fees. (3) Includes the effects of interest rate exchange agreements. (4) Information is presented on a tax-equivalent basis assuming a tax rate of 35%. The tax-equivalent adjustments were approximately $207,000 and $231,000 for the three months ended March 31, 2000 and 1999, respectively. Provision for Loan Losses The provision for loan losses was $3.6 million and $2.5 million for the three months ended March 31, 2000 and 1999, respectively. The increase in the provision for loan losses is primarily attributable to the continued growth and changing composition of the loan portfolio. Loan charge-offs were $3.2 million for the three months ended March 31, 2000, in comparison to $1.9 million for the comparable period in 1999. This increase in loan charge-offs is reflective of overall growth, both internal and through acquisitions, in the loan portfolio and increased risk associated with the continued change in the composition of the loan portfolio. For the three months ended March 31, 2000, loan charge-offs include a charge-off of $1.6 million on a single loan. Loan recoveries increased to $4.1 million for the three months ended March 31, 2000 from $2.2 million for the comparable period in 1999 reflecting management's continued aggressive collection efforts. The acquisitions of Lippo Bank, completed on February 29, 2000, and Redwood Bank, completed on March 4, 1999, provided $799,000 and $1.5 million, respectively, in additional allowance for loan losses. Tables summarizing nonperforming assets, past-due loans and charge-off and recovery experience are presented under "--Loans and Allowance for Loan Losses." Noninterest Income Noninterest income was $9.6 million for the three months ended March 31, 2000 and 1999. Noninterest income consists primarily of service charges on deposit accounts and customer service fees, mortgage banking revenues and other income. Service charges on deposit accounts and customer service fees increased by $700,000 to $4.6 million from $3.9 million for the three months ended March 31, 2000 and 1999, respectively. The increase in service charges and customer service fees is attributable to (a) increased deposit balances provided by internal growth; (b) the acquisitions of Lippo Bank, Century Bank and Redwood Bank; (c) additional products and services available and utilized by First Banks' expanding base of retail and commercial customers; (d) increased fee income resulting from revisions of customer service charge rates effective April 1, 1999 and enhanced control of fee waivers; and (e) increased interchange income associated with automatic teller machine services and debit and credit cards. The gain on mortgage loans sold and held for sale decreased $900,000 to $1.4 million from $2.3 million for the three months ended March 31, 2000 and 1999, respectively. This decrease is primarily attributable to a reduced volume of loans originated and sold commensurate with the increase in mortgage loan rates experienced during the first quarter of 2000. The net gain on sales of available-for-sale securities was $379,000 and $677,000 for the three months ended March 31, 2000 and 1999, respectively. These gains primarily resulted from sales of available-for-sale securities necessary to facilitate the funding of First Banks' loan growth. The decrease in the net gain reflects the sales of certain investment securities held by acquired institutions that did not meet First Banks' overall investment objectives, which resulted in a loss upon liquidation of these investment securities. The net loss on trading securities of $303,000 for the three months ended March 31, 1999 resulted from the termination of First Banks' trading division, effective December 31, 1998, and the liquidation of all trading securities during the first quarter of 1999. Other income was $3.2 million for the three months ended March 31, 2000 in comparison to $3.0 million for the comparable period in 1999. The primary components of the increase are attributable to income earned on First Banks' investment in bank-owned life insurance and increased rental fees received from First Services, L.P. for the use of data processing and other equipment owned by First Banks. The increase in such fees is commensurate with the replacement of First Banks' teller system and certain other technological upgrades, including local and wide area network-based systems, networks, core processors and item processing equipment that were replaced in 1999 in conjunction with Year 2000 compliance preparations. See Note 4 to the accompanying consolidated financial statements for further information regarding transactions with related parties. Noninterest Expense Noninterest expense increased to $37.8 million for the three months ended March 31, 2000 from $35.5 million for the comparable period in 1999. The increase is reflective of: (a) the noninterest expense of Lippo Bank, FCG, Century Bank and Redwood Bank subsequent to their respective acquisition dates, including certain nonrecurring expenses associated with those acquisitions; (b) increased salaries and employee benefit expenses; (c) increased data processing fees; and (d) increased amortization of intangibles associated with the purchase of subsidiaries. The overall increase in noninterest expense was partially offset by decreases in legal, examination and professional fees and other expense. Salaries and employee benefits were $16.9 million and $14.5 million for the three months ended March 31, 2000 and 1999, respectively. The increase is attributable to the aforementioned acquisitions and is also reflective of the competitive environment in the employment market that has resulted in a higher demand for limited resources, thus escalating industry salary and employee benefit costs associated with employing and retaining qualified personnel. Occupancy, net of rental income, and furniture and equipment expense were $3.2 million and $2.7 million for the three months ended March 31, 2000, respectively, in comparison to $2.9 million and $1.9 million for the comparable period in 1999, respectively. The increase is primarily attributable to the aforementioned acquisitions, the relocation of certain California and Texas branches and increased depreciation expense associated with numerous capital expenditures made throughout 1999 including the implementation of First Banks' new teller system. Data processing fees were $5.2 million and $4.5 million for the three months ended March 31, 2000 and 1999, respectively. The increased data processing fees are attributable to growth and technological advancements consistent with First Banks' product and service offerings, upgrades to technological equipment, networks and communication channels and external third-party data processing fees associated with Lippo Bank. Legal, examination and professional fees decreased by $331,000 to $989,000 from $1.3 million for the three months ended March 31, 2000 and 1999, respectively. The decrease in these fees is primarily attributable to a decline in First Banks' utilization of external consultants who provided assistance throughout 1999 associated with the development and expansion of selected business initiatives. In addition, the decrease is also reflective of the settlement of certain litigation completed in 1999. Other expense decreased by $1.3 million to $4.9 million from $6.2 million for the three months ended March 31, 2000 and 1999, respectively. Other expense is comprised of numerous general administrative expenses including but not limited to travel, meals and entertainment, insurance, FDIC premiums, communications, advertising and business development, freight and courier services, correspondent bank charges, amortization of intangibles associated with the purchase of subsidiaries, miscellaneous losses and recoveries and sales taxes. The decrease in such expenditures is a function of: (a) reduced fraud losses; (b) recoveries from loans of acquired entities that had been fully charged-off prior to the acquisition dates; and (c) management's continued efforts to control these costs. Offsetting the overall decrease in other expenses was an increase of $174,000 in amortization of intangibles associated with the purchase of subsidiaries, which is directly associated with the completion of the aforementioned acquisitions. Interest Rate Risk Management First Banks 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. The use of such derivative financial instruments is strictly limited to reducing the interest rate exposure of First Banks. Derivative financial instruments held by First Banks for purposes of managing interest rate risk are summarized as follows:
March 31, 2000 December 31, 1999 ---------------------- -------------------- Notional Credit Notional Credit amount exposure amount exposure ------ -------- ------ -------- (dollars expressed in thousands) Interest rate swap agreements - pay adjustable rate, receive adjustable rate............ $ -- -- 500,000 -- Interest rate swap agreements - pay adjustable rate, receive fixed rate................. 455,000 40 455,000 3,349 Interest rate floor agreements.......................... 35,000 11 35,000 13 Interest rate cap agreements............................ 10,000 4 10,000 26 Forward commitments to sell mortgage-backed securities.......................... 29,000 -- 33,000 -- ========= === ======= ======
The notional amounts of derivative financial instruments do not represent amounts exchanged by the parties and, therefore, are not a measure of First Banks' 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 other terms of the derivatives. The credit exposure represents the accounting loss First Banks would incur in the event the counterparties failed completely to perform according to the terms of the derivative financial instruments and the collateral held to support the credit exposure was of no value. During 1998, First Banks entered into $280.0 million notional amount interest rate swap agreements. The swap agreements 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 initially provided for First Banks to receive a fixed rate of interest and pay an adjustable rate equivalent to the 90-day London Interbank Offering Rate (LIBOR). In March 2000, the terms of the swap agreements were modified such that First Banks currently pays an adjustable rate of interest equivalent to the daily weighted average prime lending rate minus 2.705%. The terms of the swap agreements provide for First Banks to pay quarterly and receive payment semiannually. The amount receivable by First Banks under the swap agreements was $853,000 and $4.1 million at March 31, 2000 and December 31, 1999, respectively, and the amount payable by First Banks under the swap agreements was $779,000 and $770,000 at March 31, 2000 and December 31, 1999, respectively. During May 1999, First Banks entered into $500.0 million notional amount 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 provided for First Banks 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 had an effective date of October 1, 1999 and a maturity date of March 31, 2000, provided for First Banks to pay and receive interest on a monthly basis. In January 2000, First Banks determined these swap agreements were no longer necessary based upon the results of the Year 2000 century date change and terminated these agreements at a cost of $150,000. During September 1999, First Banks entered into $175.0 million notional amount 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 First Banks to receive a fixed rate of interest and pay an adjustable rate equivalent to the weighted average prime lending rate minus 2.70%. The terms of the swap agreements provide for First Banks to pay and receive interest on a quarterly basis. The amount receivable by First Banks under the swap agreements was $119,000 at March 31, 2000 and December 31, 1999, and the amount payable by First Banks under the swap agreements was $153,000 and $141,000 at March 31, 2000 and December 31, 1999, respectively. The maturity dates, notional amounts, interest rates paid and received, and fair values of interest rate swap agreements outstanding as of March 31, 2000 and December 31, 1999 were as follows:
Notional Interest rate Interest rate Fair value Maturity date amount paid received gain (loss) ------------- ------ ---- -------- ----------- (dollars expressed in thousands) March 31, 2000: September 27, 2001.............................. $ 75,000 6.30% 6.14% $ (932) September 27, 2001.............................. 45,000 6.30 6.14 (559) September 27, 2001.............................. 40,000 6.30 6.14 (497) September 27, 2001.............................. 15,000 6.30 6.14 (186) June 11, 2002................................... 15,000 6.30 6.00 (362) September 16, 2002.............................. 175,000 6.30 5.36 (7,229) September 16, 2002.............................. 20,000 6.30 5.36 (826) September 18, 2002.............................. 40,000 6.30 5.33 (1,691) September 18, 2002.............................. 30,000 6.30 5.33 (1,268) ---------- ---------- $ 455,000 6.30 5.68 $ (13,550) ========== ===== ===== ========= December 31, 1999: March 31, 2000.................................. $ 350,000 5.84% 6.45% $ 87 March 31, 2000.................................. 75,000 5.84 6.45 19 March 31, 2000.................................. 50,000 5.84 6.45 12 March 31, 2000.................................. 25,000 5.84 6.45 6 September 27, 2001.............................. 75,000 5.80 6.14 (685) September 27, 2001.............................. 45,000 5.80 6.14 (411) September 27, 2001.............................. 40,000 5.80 6.14 (365) September 27, 2001.............................. 15,000 5.80 6.14 (137) June 11, 2002................................... 15,000 6.12 6.00 (291) September 16, 2002.............................. 175,000 6.12 5.36 (6,574) September 16, 2002.............................. 20,000 6.12 5.36 (751) September 18, 2002.............................. 40,000 6.14 5.33 (1,543) September 18, 2002.............................. 30,000 6.14 5.33 (1,157) ---------- --------- $ 955,000 5.91 6.08 $ (11,790) ========== ===== ===== =========
In the event of early termination of the interest rate swap agreements, the net proceeds received or paid are deferred and amortized over the shorter of the remaining contract life or the maturity of the related asset. If, however, the amount of the underlying asset is repaid, then the fair value gains or losses on the interest rate swap agreements are recognized immediately in the consolidated statements of income. First Banks also utilizes interest rate cap and floor agreements to limit the interest expense associated with certain interest-bearing liabilities and the net interest expense of certain interest rate swap agreements, respectively. At March 31, 2000 and December 31, 1999, the unamortized costs of these agreements were $11,000 and $32,000, respectively, and were included in other assets. Derivative financial instruments issued by First Banks consist of commitments to originate fixed-rate loans. Commitments to originate fixed-rate loans consist primarily of residential real estate loans. These loan commitments, net of estimated underwriting fallout, and loans held for sale were $34.1 million and $31.5 million at March 31, 2000 and December 31, 1999, respectively. These net loan commitments and loans held for sale are hedged with forward contracts to sell mortgage-backed securities of $29.0 million and $33.0 million at March 31, 2000 and December 31, 1999, respectively. Gains and losses from forward contracts are deferred and included in the cost basis of loans held for sale. At March 31, 2000 and December 31, 1999, the net unamortized gains were $562,000 and $838,000, respectively. Such gains and losses were applied to the carrying value of the loans held for sale as part of the lower of cost or market valuation. Loans and Allowance for Loan Losses Interest earned on the loan portfolio represents the principal source of income for First Banks and its Subsidiary Banks. Interest and fees on loans were 91.8% and 90.4% of total interest income for the three months ended March 31, 2000 and 1999, respectively. Total loans, net of unearned discount, increased $220.0 million to $4.22 billion, or 82.2% of total assets, at March 31, 2000, compared to $4.00 billion, or 82.1% of total assets, at December 31, 1999. The increase in loans, as summarized on the consolidated balance sheets, is primarily attributable to the acquisitions of Lippo Bank and FCG, which provided loans, net of unearned of discount, of $40.9 million and $64.6 million, respectively, and the continued growth and diversification of the commercial, financial and agricultural and commercial real estate mortgage loan portfolios. This increase was partially offset by a decline in the consumer and installment portfolio of $86.5 million reflecting reductions in new loan volumes and the repayment of principal on the existing portfolio. This is consistent with First Banks' objectives of de-emphasizing indirect automobile lending and increasing commercial lending. Nonperforming assets include nonaccrual loans, restructured loans and other real estate. The following table presents the categories of nonperforming assets and certain ratios as of the dates indicated:
March 31, December 31, 2000 1999 ---- ---- (dollars expressed in thousands) Commercial, financial and agricultural: Nonaccrual........................................................ $ 14,797 18,397 Restructured terms................................................ 22 29 Real estate construction and development: Nonaccrual........................................................ 975 1,886 Real estate mortgage: Nonaccrual........................................................ 15,053 16,414 Restructured terms................................................ 2,981 2,979 Consumer and installment: Nonaccrual........................................................ 456 32 --------- --------- Total nonperforming loans..................................... 34,284 39,737 Other real estate...................................................... 1,752 2,129 --------- --------- Total nonperforming assets................................... $ 36,036 41,866 ========= ========= Loans, net of unearned discount........................................ 4,222,304 3,996,324 ========= ========= Loans past due 90 days or more and still accruing...................... 3,143 5,844 ========= ========= Allowance for loan losses to loans..................................... 1.75% 1.72% Nonperforming loans to loans........................................... 0.81 0.99 Allowance for loan losses to nonperforming loans....................... 215.43 172.66 Nonperforming assets to loans and other real estate.................... 0.85 1.05 ========== ========
Nonperforming loans (also considered impaired loans), consisting of loans on nonaccrual status and certain restructured loans, were $34.3 million at March 31, 2000 in comparison to $39.7 million at December 31, 1999. The decrease in nonperforming loans is almost solely attributable to a decrease in nonaccrual loans of $5.4 million, continued aggressive collection efforts and management's continued efforts to effectively monitor and manage the loan portfolios of acquired entities. The following table presents a summary of loan loss experience for the periods indicated:
Three months ended March 31, ------------------- 2000 1999 ---- ---- (dollars expressed in thousands) Allowance for loan losses, beginning of period........................... $ 68,611 60,970 Acquired allowances for loan losses................................. 799 1,466 --------- --------- 69,410 62,436 -------- --------- Loans charged-off................................................... (3,214) (1,911) Recoveries of loans previously charged-off.......................... 4,081 2,224 --------- --------- Net loan recoveries................................................. 867 313 --------- --------- Provision for loan losses........................................... 3,582 2,490 --------- --------- Allowance for loan losses, end of period................................. $ 73,859 65,239 ========= =========
The allowance for loan losses is monitored on a monthly basis. Each month, the credit administration department provides First Banks' 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 combined 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 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 loan losses. In its analysis, management considers the change in the portfolio, including growth, composition and the ratio of net loans to total assets, and the economic conditions of the regions in which First Banks operates. Based on this quantitative and qualitative analysis, the allowance for loan losses is adjusted. Such adjustments are reflected in the consolidated statements of income. Liquidity The liquidity of First Banks 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 earnings. In addition, First Banks 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, borrowings from the Federal Home Loan Banks and other borrowings, including First Banks' $100 million Credit Agreement. The aggregate funds acquired from these more volatile sources were $522.4 million and $476.8 million at March 31, 2000 and December 31, 1999, respectively. The following table presents the maturity structure of volatile funds, which consists of certificates of deposit of $100,000 or more, short-term borrowings and the note payable, at March 31, 2000:
March 31, 2000 -------------- (dollars expressed in thousands) Three months or less.......................................................... $ 287,989 Over three months through six months.......................................... 93,823 Over six months through twelve months......................................... 80,108 Over twelve months............................................................ 60,466 --------- Total.................................................................. $ 522,386 =========
In addition to these more volatile sources of funds, in 1999, First Bank, FB&T, FB California and FB Texas established borrowing relationships with the Federal Reserve Banks in their respective districts. These borrowing relationships, which are secured by commercial loans, provide an additional liquidity facility that may be utilized for contingency purposes. At March 31, 2000, First Banks' borrowing capacity under these agreements was approximately $1.25 billion. In addition, the Subsidiary Banks' borrowing capacity through their relationships with the Federal Home Loan Banks was approximately $306.6 million at March 31, 2000. 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 First Banks sufficient to meet its operating and debt service requirements, both on a short-term and long-term basis. Year 2000 Compatibility First Banks and the Subsidiary Banks were subject to risks associated with the "Year 2000" issue, a term which referred 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 were particularly vulnerable to Year 2000 issues because of heavy reliance in the industry on electronic data processing and funds transfer systems. First Banks successfully completed all phases of its Year 2000 program (Program) within the appropriate timeframes established by the regulatory agencies. In addition, First Banks did not encounter any significant business disruptions or processing problems as a result of the Year 2000 century date change. Furthermore, management is unaware of any Year 2000 issues encountered by First Banks' more significant borrowers and vendors that would inhibit their ability to repay obligations or provide goods or services. The total cost of the Program was $14.9 million, comprised of capital improvements of $12.3 million and direct expenses reimbursable to First Services, L.P. of $2.6 million. The capital improvements are being charged to expense in the form of depreciation expense or lease expense, generally over a period of 60 months. First Banks incurred direct expenses related to the Program of approximately $180,000 and $450,000 for the three months ended March 31, 2000 and 1999, respectively and $1.8 million for the year ended December 31, 1999. Effects 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. First Banks is currently evaluating the requirements of SFAS 133, as amended, to determine its potential impact on the consolidated financial statements. ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK At December 31, 1999, First Banks' risk management program's simulation model indicated a loss of projected net interest income in the event of a decline in interest rates. While a decline in interest rates of less than 100 basis points was projected to have a minimal impact on the earnings of First Banks, a decline in interest rates of 100 basis points indicated a projected pre-tax loss equivalent to approximately 7.1% of net interest income based on assets and liabilities at December 31, 1999. At March 31, 2000, First Banks remains in an "asset-sensitive" position and thus, remains subject to a higher level of risk in a declining interest-rate environment. First Banks' asset-sensitive position, coupled with the recent increases in the prime lending rate, is reflected in First Banks' increased net interest income for the three months ended March 31, 2000 as further discussed under "--Results of Operations." During the three months ended March 31, 2000, First Banks' asset-sensitive position and overall susceptibility to market risks have not changed significantly. Part II - OTHER INFORMATION ITEM 1 - LEGAL PROCEEDINGS Since 1996, the former majority owner of Lippo Bank and various entities with which he is associated, including Lippo Bank, have been a subject of federal investigations involving alleged financial improprieties with respect to federal election campaign laws. These alleged improprieties relate to various transactions occurring between 1988 and 1996, particularly with respect to the 1996 U.S. Presidential campaign. Lippo Bank, which has cooperated with authorities conducting the investigations, has been informed that in the event other persons or entities, which are the principal focus of the investigations, are charged in connection with these alleged improprieties, it may also be charged in either civil or criminal proceedings. All of the matters under investigation occurred years before FBA's acquisition of Lippo Bank in February 2000. In the course of negotiating the acquisition of Lippo Bank, FBA was informed of the ongoing investigations and their potential outcome, and took steps to protect itself against financial loss from this matter. These included establishment of an accrual for anticipated legal defense costs and an escrow arrangement pursuant to which Lippo Bank's former majority owner is required to indemnify FBA for certain costs. FBA, with the advice of legal counsel, believes that if any charges were to be instituted, the resolution thereof would not have a material adverse financial effect on FBA. 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 -------------- ----------- 27 Article 9 - Financial Data Schedule (EDGAR only) (b) First Banks filed no reports on Form 8-K during the three months ended March 31, 2000. SIGNATURES Pursuant to the requirements of Section of 13 or 15(d) 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, INC. By: /s/ James F. Dierberg --------------------------------------- James F. Dierberg Chairman of the Board of Directors and Chief Executive Officer May 10, 2000 (Principal Executive Officer) By: /s/ Frank H. Sanfilippo --------------------------------------- Frank H. Sanfilippo Executive Vice President and Chief Financial Officer May 10, 2000 (Principal Financial and Accounting Officer) EX-27 2 FDS --
9 0000710507 First Banks, Inc. 1000 3-mos Dec-31-2000 Jan-01-2000 Mar-31-2000 126,128 2,118 81,600 0 424,240 21,362 21,204 4,222,304 73,859 5,134,843 4,460,311 98,612 140,026 127,653 0 13,063 5,915 289,263 5,134,843 89,678 6,870 1,169 97,717 40,023 42,287 55,430 3,582 379 37,793 23,619 23,619 0 0 14,587 608.21 589.52 8.54 31,281 3,143 0 73,349 68,611 3,214 4,081 73,859 64,434 0 9,425
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