-----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, SFS5bAnXQLkMgluf1dv3znaOVtcuQ6lGaxsH1l+hm+8IYaGCAkCbRWFBHn6piAqo yV5/nhxUznyylZQxcFZzHQ== /in/edgar/work/20000808/0001085204-00-000022/0001085204-00-000022.txt : 20000921 0001085204-00-000022.hdr.sgml : 20000921 ACCESSION NUMBER: 0001085204-00-000022 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000808 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRST BANKS INC CENTRAL INDEX KEY: 0000710507 STANDARD INDUSTRIAL CLASSIFICATION: [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: 687851 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 0001.txt 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 June 30, 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 (I.R.S. Employer Identification No.) incorporation or organization) 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 July 31, 2000 ----- ------------------ Common Stock, $250.00 par value 23,661 FIRST BANKS, INC. TABLE OF CONTENTS
Page ---- PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS - (UNAUDITED): 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........................................................ 12 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.......................... 23 PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K..................................................... 24 SIGNATURES ...................................................................................... 25
PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS FIRST BANKS, INC. CONSOLIDATED BALANCE SHEETS - (UNAUDITED) (dollars expressed in thousands, except per share data)
June 30, December 31, 2000 1999 ---- ---- ASSETS ------ Cash and cash equivalents: Cash and due from banks....................................................... $ 137,265 126,720 Interest-bearing deposits with other financial institutions with maturities of three months or less..................................... 3,424 1,674 Federal funds sold............................................................ 19,100 42,500 ------------ ----------- Total cash and cash equivalents..................................... 159,789 170,894 ------------ ----------- Investment securities: Available for sale, at fair value............................................. 414,978 430,093 Held to maturity, at amortized cost (fair value of $21,302 and $21,476 at June 30, 2000 and December 31, 1999, respectively)............... 21,342 21,554 ------------ ----------- Total investment securities......................................... 436,320 451,647 ------------ ----------- Loans: Commercial, financial and agricultural........................................ 1,284,606 1,086,919 Real estate construction and development...................................... 816,687 795,081 Real estate mortgage.......................................................... 1,996,265 1,851,569 Consumer and installment...................................................... 195,930 233,374 Loans held for sale........................................................... 40,067 37,412 ------------ ----------- Total loans......................................................... 4,333,555 4,004,355 Unearned discount............................................................. (7,162) (8,031) Allowance for loan losses..................................................... (77,822) (68,611) ------------ ----------- Net loans........................................................... 4,248,571 3,927,713 ------------ ----------- Bank premises and equipment, net of accumulated depreciation and amortization................................................. 80,922 75,647 Intangibles associated with the purchase of subsidiaries........................... 47,995 46,085 Accrued interest receivable........................................................ 37,331 33,491 Deferred income taxes.............................................................. 63,930 51,972 Other assets....................................................................... 105,614 110,298 ------------ ----------- Total assets........................................................ $ 5,180,472 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)
June 30, December 31, 2000 1999 ---- ---- LIABILITIES ----------- Deposits: Demand: Non-interest-bearing........................................................ $ 649,606 606,064 Interest-bearing............................................................ 396,400 415,113 Savings....................................................................... 1,269,595 1,198,314 Time: Time deposits of $100 or more............................................... 353,839 339,214 Other time deposits......................................................... 1,787,013 1,693,109 ------------ ----------- Total deposits........................................................... 4,456,453 4,251,814 Short-term borrowings.............................................................. 150,812 73,554 Note payable....................................................................... 58,500 64,000 Accrued interest payable........................................................... 13,067 11,607 Deferred income taxes.............................................................. 10,639 6,582 Accrued expenses and other liabilities............................................. 29,124 25,616 Minority interest in subsidiary.................................................... 12,142 12,058 ------------ ----------- Total liabilities........................................................ 4,730,737 4,445,231 ------------ ----------- Guaranteed preferred beneficial interests in: First Banks, Inc. subordinated debentures..................................... 83,446 83,394 First Banks America, Inc. subordinated debentures............................. 44,249 44,217 ------------ ------------ Total guaranteed preferred beneficial interests in subordinated debentures.............................................. 127,695 127,611 ------------ ------------ STOCKHOLDERS' EQUITY -------------------- Preferred stock: $1.00 par value, 5,000,000 shares authorized, no shares issued and outstanding at June 30, 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.................................................................... 2,989 3,318 Retained earnings.................................................................. 299,190 270,259 Accumulated other comprehensive income............................................. 883 2,350 ------------ ----------- Total stockholders' equity............................................... 322,040 294,905 ------------ ----------- Total liabilities and stockholders' equity............................... $ 5,180,472 4,867,747 ============ ===========
FIRST BANKS, INC. CONSOLIDATED STATEMENTS OF INCOME - (UNAUDITED) (dollars expressed in thousands, except per share data)
Three months ended Six months ended June 30, June 30, ------------------ ------------------- 2000 1999 2000 1999 ---- ---- ---- ---- Interest income: Interest and fees on loans....................................... $ 96,148 78,964 185,826 153,639 Investment securities............................................ 7,149 6,445 14,019 14,107 Federal funds sold and other..................................... 864 232 2,033 455 -------- ------ -------- -------- Total interest income........................................ 104,161 85,641 201,878 168,201 -------- ------ -------- -------- Interest expense: Deposits: Interest-bearing demand........................................ 1,420 1,182 2,885 2,296 Savings........................................................ 12,434 11,085 24,070 22,014 Time deposits of $100 or more.................................. 2,840 2,691 5,855 5,466 Other time deposits............................................ 26,315 19,831 50,222 40,961 Interest rate exchange agreements, net........................... -- 1,305 -- 2,588 Short-term borrowings............................................ 1,406 1,420 2,515 2,259 Note payable..................................................... 1,356 636 2,511 1,532 -------- ------ -------- -------- Total interest expense....................................... 45,771 38,150 88,058 77,116 -------- ------ -------- -------- Net interest income.......................................... 58,390 47,491 113,820 91,085 Provision for loan losses............................................. 3,620 3,373 7,202 5,863 -------- ------ -------- -------- Net interest income after provision for loan losses.......... 54,770 44,118 106,618 85,222 -------- ------ -------- -------- Noninterest income: Service charges on deposit accounts and customer service fees.... 4,872 4,475 9,464 8,357 Gain on mortgage loans sold and held for sale.................... 1,876 1,502 3,268 3,834 Net gain on sales of available-for-sale securities............... -- 115 379 792 Net loss on trading securities................................... -- -- -- (303) Other............................................................ 4,723 7,423 7,924 10,438 -------- ------ -------- -------- Total noninterest income..................................... 11,471 13,515 21,035 23,118 -------- ------ -------- -------- Noninterest expense: Salaries and employee benefits................................... 18,346 15,569 35,237 30,071 Occupancy, net of rental income.................................. 3,433 2,959 6,655 5,842 Furniture and equipment.......................................... 2,998 2,098 5,673 3,999 Postage, printing and supplies................................... 1,075 1,011 2,183 2,153 Data processing fees............................................. 5,474 4,687 10,663 9,223 Legal, examination and professional fees......................... 1,014 1,922 2,003 3,242 (Gain) loss on sales of other real estate, net of expenses....... (45) 39 (224) (14) Guaranteed preferred debentures.................................. 2,998 3,014 6,012 6,028 Other............................................................ 6,624 5,949 11,508 12,191 -------- ------ -------- -------- Total noninterest expense.................................... 41,917 37,248 79,710 72,735 -------- ------ -------- -------- Income before provision for income taxes and minority interest in income of subsidiary........................... 24,324 20,385 47,943 35,605 Provision for income taxes............................................ 9,197 7,465 17,741 13,103 -------- ------ -------- -------- Income before minority interest in income of subsidiary...... 15,127 12,920 30,202 22,502 Minority interest in income of subsidiary............................. 455 361 943 672 -------- ------ -------- -------- Net income................................................... 14,672 12,559 29,259 21,830 Preferred stock dividends............................................. 132 132 328 328 -------- ------ -------- -------- Net income available to common stockholders.................. $ 14,540 12,427 28,931 21,502 ======== ====== ======== ======== Earnings per common share: Basic............................................................ $ 614.51 525.23 1,222.71 908.75 Diluted.......................................................... 594.12 505.15 1,182.47 877.36 ======== ====== ======== ======== Weighted average shares of common stock outstanding................... 23,661 23,661 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) Six months ended June 30, 2000 and 1999 and six 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 Six months ended June 30, 1999: Comprehensive income: Net income................................. -- -- -- -- 21,830 21,830 -- 21,830 Other comprehensive income, net of tax Unrealized losses on securities, net of reclassification adjustment (1)........ -- -- -- -- (4,916) -- (4,916) (4,916) ------ Comprehensive income....................... 16,914 ====== Class A preferred stock dividends, $0.50 per share............................ -- -- -- -- (321) -- (321) Class B preferred stock dividends, $0.04 per share............................ -- -- -- -- (7) -- (7) Effect of capital stock transactions of majority-owned subsidiary................. -- -- -- (3,040) -- -- (3,040) Reclassification of retained earnings........ -- -- -- 5,000 (5,000) -- -- Reduction of deferred tax asset valuation reserve........................ -- -- -- 270 -- -- 270 ------ ---- ----- ------ ------- ----- ------- Consolidated balances, June 30, 1999............. 12,822 241 5,915 3,010 248,369 6,822 277,179 Six months ended December 31, 1999: Comprehensive income: Net income................................. -- -- -- -- 22,348 22,348 -- 22,348 Other comprehensive income, net of tax Unrealized losses on securities, net of reclassification adjustment (1)........ -- -- -- -- (4,472) -- (4,472) (4,472) ------ Comprehensive income....................... 17,876 ====== Class A preferred stock dividends, $0.70 per share............................ -- -- -- -- (448) -- (448) Class B preferred stock dividends, $0.07 per share............................ -- -- -- -- (10) -- (10) Effect of capital stock transactions of majority-owned subsidiary................. -- -- -- (233) -- -- (233) Reduction of deferred tax asse valuation allowance........................ -- -- -- 541 -- -- 541 ------ ---- ----- ----- ------- ----- ------- Consolidated balances, December 31, 1999......... 12,822 241 5,915 3,318 270,259 2,350 294,905 Six months ended June 30, 2000: Comprehensive income: Net income................................. -- -- -- -- 29,259 29,259 -- 29,259 Other comprehensive income, net of tax Unrealized losses on securities, net of reclassification adjustment (1)........ -- -- -- -- (1,467) -- (1,467) (1,467) ------ Comprehensive income....................... 27,792 ====== Class A preferred stock dividends, $0.50 per share............................ -- -- -- -- (321) -- (321) Class B preferred stock dividends, $0.04 per share............................ -- -- -- -- (7) -- (7) Effect of capital stock transactions of majority-owned subsidiary................. -- -- -- (329) -- -- (329) ------- ----- ---- ----- ------- ------ ------- Consolidated balances, June 30, 2000............. $12,822 241 5,915 2,989 299,190 883 322,040 ======= ===== ===== ===== ======= ====== =======
- ------------------------- (1) Disclosure of reclassification adjustment: Three months ended Six months ended Six months ended June 30, June 30, December 31, ----------------- --------------- ------------ 2000 1999 2000 1999 1999 ---- ---- ---- ---- ---- Unrealized losses arising during the period....................... $ (613) (2,467) (1,221) (4,401) (4,473) Less reclassification adjustment for gains included in net income. -- 76 246 515 (1) ------- ------- ----- ----- ----- Unrealized losses on securities................................... $ (613) (2,543) (1,467) (4,916) (4,472) ======= ======= ====== ====== ======
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)
Six months ended June 30, ------------------ 2000 1999 Cash flows from operating activities: Net income........................................................................... $ 29,259 21,830 Adjustments to reconcile net income to net cash (used in) provided by operating activities: Depreciation and amortization of bank premises and equipment....................... 4,578 3,293 Amortization, net of accretion..................................................... 3,801 6,379 Originations and purchases of loans held for sale.................................. (238,508) (297,565) Proceeds from the sale of loans held for sale...................................... 185,316 352,434 Provision for loan losses.......................................................... 7,202 5,863 Provision for income taxes......................................................... 17,741 13,103 Payments of income taxes........................................................... (5,382) (11,547) Increase in accrued interest receivable............................................ (3,295) (2,462) Net decrease in trading securities................................................. -- 3,425 Interest accrued on liabilities.................................................... 88,058 77,116 Payments of interest on liabilities................................................ (87,088) (73,901) Gain on sale of branch facility.................................................... (1,355) (4,473) Net gain on sales of available-for-sale investment securities...................... (379) (792) Other operating activities, net.................................................... (12,080) 874 Minority interest in income of subsidiary.......................................... 943 672 -------- ------- Net cash (used in) provided by operating activities.............................. (11,189) 94,249 -------- ------- 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 88,714 Maturities of investment securities available for sale............................... 191,276 85,650 Maturities of investment securities held to maturity................................. 679 1,503 Purchases of investment securities available for sale................................ (149,971) (15,029) Purchases of investment securities held to maturity.................................. (489) (1,982) Net increase in loans................................................................ (254,431) (120,721) Recoveries of loans previously charged-off........................................... 6,180 4,206 Purchases of bank premises and equipment............................................. (10,039) (8,904) Other investing activities........................................................... 2,183 (3,668) -------- ------- Net cash (used in) provided by investing activities.............................. (209,173) 12,524 -------- ------- Cash flows from financing activities: Increase (decrease) in demand and savings deposits................................... 55,340 (83,907) Increase in time deposits............................................................ 81,595 26,221 Increase in federal funds purchased.................................................. 36,100 -- Decrease in Federal Home Loan Bank advances.......................................... -- (50,000) Increase in securities sold under agreements to repurchase........................... 41,158 6,524 Decrease in note payable............................................................. (5,500) (2,048) Payment of preferred stock dividends................................................. (328) (328) Sale of branch deposits.............................................................. 892 (48,979) -------- -------- Net cash provided by (used in) financing activities.............................. 209,257 (152,517) -------- -------- Net decrease in cash and cash equivalents........................................ (11,105) (45,744) Cash and cash equivalents, beginning of period............................................ 170,894 214,762 -------- -------- Cash and cash equivalents, end of period.................................................. $159,789 169,018 ======== ======== Noncash investing and financing activities: Loans transferred to other real estate............................................... $ 1,081 1,189 Loans held for sale transferred to available-for-sale investment securities.......... 7,186 -- Loans held for sale transferred to loans............................................. 46,153 9,206 ======== ========
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 and six months ended June 30, 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 Sacramento, California (FB California); and Redwood Bank, headquartered in San Francisco, California. The Subsidiary Banks and FCG are wholly owned by their respective parent companies except FBA, which was 84.33% and 83.37% owned by First Banks at June 30, 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 operated 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 $5.6 million and is being amortized over 15 years. Lippo Bank was merged into FB California on May 31, 2000. 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. On March 21, 2000, First Banks executed a definitive agreement providing for the acquisition of Bank of Ventura, headquartered in Ventura, California, by First Banks. Under the terms of the agreement, the shareholders of Bank of Ventura will receive $25.52 per share, subject to adjustment for earnings from March 1, 2000 through the month prior to closing. At June 30, 2000, Bank of Ventura had $65.5 million in total assets, $38.6 million in loans, net of unearned discount, $16.7 million in investment securities and $59.3 million in deposits. First Banks expects this transaction, which is subject to the approval of Bank of Ventura shareholders, will be completed during the third quarter of 2000. On June 27, 2000, FBA and Commercial Bank of San Francisco (Commercial Bank) executed a definitive agreement providing for the acquisition of Commercial Bank, San Francisco, California, by FBA. Under the terms of the agreement, the shareholders of Commercial Bank will receive $17.75 per share in cash, or a total of approximately $29.5 million. Commercial Bank operates one branch office in the San Francisco financial district. At June 30, 2000, Commercial Bank had $178.4 million in total assets, $97.4 million in loans, net of unearned discount, $63.8 million in investment securities and $132.7 million in deposits. FBA expects this transaction, which is subject to regulatory approvals and the approval of Commercial Bank shareholders, will be completed during the first quarter of 2001. On June 29, 2000, First Banks and FBA executed a definitive agreement providing for the acquisition of First Banks' wholly owned subsidiary, FB&T, by FBA. Under the terms of the agreement, First Banks will exchange all of the outstanding stock of FB&T for approximately 6.5 million shares of common stock of FBA, which will increase First Banks' ownership percentage of FBA to approximately 93.0%. This transaction and related internal reorganizations will allow First Banks and FBA to merge their Texas and California interests. FB&T operates 26 banking locations in the counties of Los Angeles, Orange, Ventura and Santa Barbara, California as well as branches in San Jose and Walnut Creek, in Northern California. First Banks expects this transaction, which is subject to regulatory and shareholder approvals, will be completed during the fourth quarter of 2000. (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 June 30, 2000: Basic EPS - income available to common stockholders............. $ 14,540 23,661 $ 614.51 ========== Effect of dilutive securities: Class A convertible preferred stock........................... 128 1,028 --------- ------- Diluted EPS - income available to common stockholders........... $ 14,668 24,689 $ 594.12 ========= ======= ========== Three months ended June 30, 1999: Basic EPS - income available to common stockholders............. $ 12,427 23,661 $ 525.23 ========== Effect of dilutive securities: Class A convertible preferred stock........................... 128 1,194 --------- ------- Diluted EPS - income available to common stockholders........... $ 12,555 24,855 $ 505.15 ========= ======= ========== Six months ended June 30, 2000: Basic EPS - income available to common stockholders............. $ 28,931 23,661 $ 1,222.71 ========== Effect of dilutive securities: Class A convertible preferred stock........................... 321 1,076 --------- ------- Diluted EPS - income available to common stockholders........... $ 29,252 24,737 $ 1,182.47 ========= ======= ========== Six months ended June 30, 1999: Basic EPS - income available to common stockholders............. $ 21,502 23,661 $ 908.75 ========== Effect of dilutive securities: Class A convertible preferred stock........................... 321 1,212 --------- ------- Diluted EPS - income available to common stockholders........... $ 21,823 24,873 $ 877.36 ========= ======= ==========
(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 $565,000 and $1.1 million for the three and six months ended June 30, 2000, and $507,000 and $924,000 for the comparable periods in 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 $4.7 million and $9.2 million for the three and six months ended June 30, 2000, and $4.1 million and $8.2 million for the comparable periods in 1999, respectively. During the three months ended June, 2000 and 1999, First Services, L.P. paid First Banks $435,000 and $269,000, respectively, and during the six months ended June 30, 2000 and 1999, First Services, L.P. paid First Banks $889,000 and $484,000, 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 and the rental fees charged by First Banks 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 June 30, 2000, First Banks and the Subsidiary Banks were each well capitalized under the applicable regulations. As of June 30, 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 June 30, 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 ----------------------- June 30, December 31, For capital prompt corrective 2000 1999 adequacy purposes action provisions ---- ---- ----------------- ----------------- Total capital (to risk-weighted assets): First Banks............................. 10.26% 10.05% 8.0% 10.0% First Bank.............................. 10.69 10.60 8.0 10.0 FB&T.................................... 10.96 10.96 8.0 10.0 FB California........................... 11.72 10.81 8.0 10.0 FB Texas................................ 12.04 12.42 8.0 10.0 Redwood Bank............................ 11.55 11.17 8.0 10.0 Tier 1 capital (to risk-weighted assets): First Banks............................. 8.49% 8.00% 4.0% 6.0% First Bank.............................. 9.44 9.35 4.0 6.0 FB&T.................................... 9.70 9.70 4.0 6.0 FB California........................... 10.46 9.56 4.0 6.0 FB Texas................................ 10.78 11.17 4.0 6.0 Redwood Bank............................ 10.34 10.15 4.0 6.0
To be well Actual capitalized under ----------------------- June 30, December 31, For capital prompt corrective 2000 1999 adequacy purposes action provisions ---- ---- ----------------- ----------------- Tier 1 capital (to average assets): First Banks............................. 7.80% 7.14% 3.0% 5.0% First Bank.............................. 8.50 8.10 3.0 5.0 FB&T.................................... 8.97 8.57 3.0 5.0 FB California........................... 9.72 9.95 3.0 5.0 FB Texas................................ 10.32 10.39 3.0 5.0 Redwood Bank............................ 9.17 8.48 3.0 5.0
(6) BUSINESS SEGMENT RESULTS First Banks' business segments are First Bank, FB California, Redwood Bank, FB Texas and FB&T. The reportable business segments are consistent with the management structure of First Banks and the Subsidiary Banks, the internal reporting system that monitors performance and, in all material respects, generally accepted accounting principles and practices predominant in the banking industry. Through the respective branch networks, First Bank, FB California, Redwood 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, financial and agricultural, real estate construction and development, commercial and residential real estate, commercial leasing, trade finance, consumer and installment, student and Small Business Administration 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:
First Bank FB California (1) Redwood Bank (2) ----------------------- ---------------------- ---------------------- June 30, December 31, June 30, December 31, June 30, December 31, 2000 1999 2000 1999 2000 1999 ---- ---- ---- ---- ---- ---- (dollars expressed in thousands) Balance sheet information: Investment securities............................ $ 215,426 241,624 54,250 20,743 21,242 37,539 Loans, net of unearned discount.................. 2,714,862 2,527,649 445,681 379,632 143,866 138,902 Total assets..................................... 3,150,764 3,028,046 566,314 431,838 199,256 199,988 Deposits......................................... 2,675,427 2,689,671 488,729 367,563 172,369 173,703 Stockholders' equity............................. 274,267 263,466 66,373 47,990 24,893 24,275 ========= ======== ======== ======= ======= ======= First Bank FB California (1) Redwood Bank (2) --------------------- --------------------- -------------------- Three months ended Three months ended Three months ended June 30, June 30, June 30, --------------------- --------------------- -------------------- 2000 1999 2000 1999 2000 1999 ---- ---- ---- ---- ---- ---- Income statement information: Interest income.................................. $ 61,869 54,418 12,329 8,132 3,951 3,750 Interest expense................................. 28,268 25,645 4,622 2,996 1,534 1,393 --------- -------- -------- ------- ------- ------- Net interest income......................... 33,601 28,773 7,707 5,136 2,417 2,357 Provision for loan losses........................ 3,150 2,600 45 20 150 73 --------- -------- -------- ------- ------- ------- Net interest income after provision for loan losses................. 30,451 26,173 7,662 5,116 2,267 2,284 --------- -------- -------- ------- ------- ------- Noninterest income............................... 8,971 11,207 931 815 69 177 Noninterest expense.............................. 22,120 19,102 5,225 3,926 1,433 1,469 --------- -------- -------- ------- ------- ------- Income (loss) before provision (benefit) for income taxes and minority interest in income of subsidiary................................ 17,302 18,278 3,368 2,005 903 992 Provision (benefit) for income taxes............. 6,097 6,019 1,314 866 477 480 --------- -------- -------- ------- ------- ------- Income (loss) before minority interest in income of subsidiary.......... 11,205 12,259 2,054 1,139 426 512 Minority interest in income of subsidiary........ -- -- -- -- -- -- --------- -------- -------- ------- ------- ------- Net income.................................. $ 11,205 12,259 2,054 1,139 426 512 ========= ======== ======== ======= ======= ======= First Bank FB California (1) Redwood Bank (2) --------------------- --------------------- ------------------- Six months ended Six months ended Six months ended June 30, June 30, June 30, --------------------- --------------------- ------------------- 2000 1999 2000 1999 2000 1999 ---- ---- ---- ---- ---- ---- Income statement information: Interest income.................................. $ 120,627 107,591 22,621 16,132 7,884 4,930 Interest expense................................. 54,520 52,176 8,349 6,075 3,108 1,835 --------- ------- ------- ------- ------- ------- Net interest income......................... 66,107 55,415 14,272 10,057 4,776 3,095 Provision for loan losses........................ 5,750 4,700 135 80 282 73 --------- ------- ------- ------- ------- ------- Net interest income after provision for loan losses................. 60,357 50,715 14,137 9,977 4,494 3,022 --------- ------- ------- ------- ------- ------ Noninterest income............................... 15,965 18,795 1,723 1,424 (49) 203 Noninterest expense.............................. 41,926 38,122 9,282 7,625 2,933 1,907 --------- ------- ------- ------- ------- ------- Income (loss) before provision (benefit) for income taxes and minority interest in income of subsidiary................................ 34,396 31,388 6,578 3,776 1,512 1,318 Provision (benefit) for income taxes............. 11,930 10,517 2,577 1,653 801 644 --------- ------- ------- ------- ------- ------ Income (loss) before minority interest in income of subsidiary.......... 22,466 20,871 4,001 2,123 711 674 Minority interest in income of subsidiary........ -- -- -- -- -- -- --------- ------- ------- ------- ------- ------ Net income.................................. $ 22,466 20,871 4,001 2,123 711 674 ========= ======= ======= ======= ======= ======
- ---------------- (1) Lippo Bank was acquired by FBA on February 29, 2000 and merged into FB California on May 31, 2000. (2) Redwood Bank was acquired by FBA on March 4, 1999. (3) Corporate and other includes $2.0 million and $3.9 million of guaranteed preferred debenture expense, after applicable income tax benefit of $1.0 million and $2.1 million for the three and six months ended June 30, 2000 and 1999. In addition, corporate and other includes FCG and holding company expenses.
Corporate, other and FB Texas FB&T intercompany reclassifications (3) Consolidated totals ------------------------ ------------------------ ------------------------------------- ------------------- June 30, December 31, June 30, December 31, June 30, December 31, June 30, December 31, 2000 1999 2000 1999 2000 1999 2000 1999 ---- ---- ---- ---- ---- ---- ---- ---- (dollars expressed in thousands) 31,605 30,439 97,214 103,636 16,583 17,666 436,320 451,647 222,995 213,731 799,226 736,828 (237) (418) 4,326,393 3,996,324 303,570 278,988 1,000,541 944,013 (39,973) (15,126) 5,180,472 4,867,747 257,542 244,248 875,048 804,976 (12,662) (28,347) 4,456,453 4,251,814 30,111 30,338 101,581 102,014 (175,185) (173,178) 322,040 294,905 ====== ======= ======== ======= ======== ======== ======== ======= Corporate, other and FB Texas First Bank & Trust intercompany Consolidated totals ---------------------- ---------------------- reclassifications (3) -------------------- --------------------- Three months ended Three months ended Three months ended Three months ended June 30, June 30, June 30, June 30, ---------------------- ---------------------- --------------------- -------------------- 2000 1999 2000 1999 2000 1999 2000 1999 ---- ---- ---- ---- ---- ---- ---- ---- 5,990 5,481 20,391 14,014 (369) (154) 104,161 85,641 2,431 2,163 8,356 5,790 560 163 45,771 38,150 ------ ------- -------- ------ -------- -------- -------- ------- 3,559 3,318 12,035 8,224 (929) (317) 58,390 47,491 175 30 100 650 -- -- 3,620 3,373 ------ ------- -------- ------ -------- -------- -------- ------- 3,384 3,288 11,935 7,574 (929) (317) 54,770 44,118 ------ ------- -------- ------ -------- -------- -------- ------- 495 513 1,302 1,121 (297) (318) 11,471 13,515 2,196 2,231 7,582 6,673 3,361 3,847 41,917 37,248 ------ ------- -------- ------ -------- -------- -------- ------- 1,683 1,570 5,655 2,022 (4,587) (4,482) 24,324 20,385 570 541 2,270 937 (1,531) (1,378) 9,197 7,465 ------ ------- -------- ------ -------- -------- -------- ------- 1,113 1,029 3,385 1,085 (3,056) (3,104) 15,127 12,920 -- -- -- -- 455 361 455 361 ------ ------- -------- ------ -------- -------- -------- ------- 1,113 1,029 3,385 1,085 (3,511) (3,465) 14,672 12,559 ====== ======= ======== ====== ======== ======== ======== ======= Corporate, other FB Texas First Bank & Trust and intercompany Consolidated totals ----------------------- ----------------------- reclassifications (3) ------------------- --------------------- Six months ended Six months ended Six months ended Six months ended June 30, June 30, June 30, June 30, ----------------------- ----------------------- --------------------- ------------------- 2000 1999 2000 1999 2000 1999 2000 1999 ---- ---- ---- ---- ---- ---- ---- ---- 11,658 11,023 39,305 28,355 (217) 170 201,878 168,201 4,720 4,325 15,864 11,989 1,497 716 88,058 77,116 ------ ------- -------- ------ -------- -------- -------- ------- 6,938 6,698 23,441 16,366 (1,714) (546) 113,820 91,085 295 60 740 950 -- -- 7,202 5,863 ------ ------- -------- ------ -------- -------- -------- ------- 6,643 6,638 22,701 15,416 (1,714) (546) 106,618 85,222 ------ ------- -------- ------ -------- -------- -------- ------- 986 1,056 3,183 2,364 (773) (724) 21,035 23,118 4,305 4,510 14,598 13,225 6,666 7,346 79,710 72,735 ------ ------- -------- ------ -------- -------- -------- ------- 3,324 3,184 11,286 4,555 (9,153) (8,616) 47,943 35,605 1,157 1,096 4,492 2,060 (3,216) (2,867) 17,741 13,103 ------ ------- -------- ------ -------- -------- -------- ------- 2,167 2,088 6,794 2,495 (5,937) (5,749) 30,202 22,502 -- -- -- -- 943 672 943 672 ------ ------- -------- ------ -------- -------- -------- ------- 2,167 2,088 6,794 2,495 (6,880) (6,421) 29,259 21,830 ====== ======= ======== ====== ======== ======== ======== =======
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 June 30, 2000, First Banks had $5.18 billion in total assets, $4.33 billion in total loans, net of unearned discount, $4.46 billion in total deposits and $322.0 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 Sacramento, California (FB California); and Redwood Bank, headquartered in San Francisco, California. The Subsidiary Banks and FCG are wholly owned by their respective parent companies except FBA, which was 84.33% and 83.37% owned by First Banks at June 30, 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, commercial leasing, trade finance, 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 June 30, 2000:
Loans, net of Number of Total unearned Total Subsidiary Banks locations assets discount deposits ---------------- --------- ------ -------- -------- (dollars expressed in thousands) First Bank.................................. 87 $ 3,150,764 2,714,862 2,675,427 FB&T ....................................... 26 1,000,541 799,226 875,048 FBA: FB California.......................... 13 566,314 445,681 488,729 FB Texas............................... 6 303,570 222,995 257,542 Redwood Bank........................... 4 199,256 143,866 172,369
Financial Condition First Banks' total assets increased by $310.0 million to $5.18 billion from $4.87 billion at June 30, 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 loans acquired from Lippo Bank and FCG, increased by $180.2 million, which is further discussed under "--Loans and Allowance for Loan Losses." Offsetting the overall increase in total assets and providing an additional source of funds for continued internal loan growth was a reduction in investment securities of $52.7 million, which was partially offset by $37.4 million of investment securities acquired from Lippo Bank, to $436.3 million at June 30, 2000. Total deposits, excluding the $76.4 million of deposits provided by the acquisition of Lippo Bank, increased by $128.2 million to $4.46 billion at June 30, 2000. The funds generated from the deposit growth were primarily utilized to fund internal loan growth and the acquisition of the FCG leases. In addition, short-term borrowings increased by $77.3 million to $150.8 million at June 30, 2000, reflecting increases of $36.1 million and $36.9 million in federal funds purchased and retail repurchase agreements, respectively. Results of Operations Net Income Net income was $14.7 million and $29.3 million for the three and six months ended June 30, 2000, in comparison to $12.6 million and $21.8 million for the comparable periods in 1999. A significant element in the earnings progress was 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, increased yields on earning assets and internal loan growth. The overall loan growth was primarily funded through internal deposit growth. The increase in net income was partially offset by a reduced level of noninterest income, an increased provision for loan losses, as discussed under "--Loans and Allowance for Loan Losses," and an increase in operating expenses of $4.7 million and $7.0 million for the three and six months ended June 30, 2000 in comparison to the comparable periods in 1999, respectively. The reduced level of noninterest income resulted primarily from a reduction in non-recurring gains on sales of branch facilities. The increased operating expenses reflect the operating expenses of Lippo Bank, FCG, Century Bank and Redwood Bank subsequent to their respective acquisition dates, increased salaries and employee benefits expenses, increased data processing fees and increased amortization of intangibles associated with the purchase of subsidiaries. This increase was partially offset by a reduction in legal, examination and professional fees. Net Interest Income Net interest income (expressed on a tax equivalent basis) improved to $58.6 million, or 4.94% of interest-earning assets, for the three months ended June 30, 2000, from $47.7 million, or 4.51% of interest-earning assets, for the comparable period in 1999. For the six months ended June 30, 2000 and 1999, net interest income (expressed on a tax-equivalent basis) was $114.2 million, or 4.90%, and $91.5 million, or 4.40% of interest-earning assets, respectively. The improved net interest income is primarily attributable to the net interest-earning assets provided by the aforementioned acquisitions, internal loan growth and increases in the prime-lending rate. For the three and six months ended June 30, 2000, average loans increased by $482.7 million and $471.9 million, respectively. During the period from July 1, 1999 through June 30, 2000, the Board of Governors of the Federal Reserve System increased the discount rate three times, resulting in multiple increases in the prime rate of interest from 8.00% to 9.50%. This is reflected not only in the rate of interest earned on loans that are indexed to the prime rate, but also in other assets and liabilities which either have variable or adjustable rates, or which matured or repriced during this period. Although the cost of interest-bearing liabilities has also increased, it has been less dramatic than the earnings on interest-earning assets, contributing to an improvement in net interest margins. This is further discussed under "--Interest Rate Risk Management." For the three and six months ended June 30, 2000, the aggregate weighted average rate paid on the deposit portfolio increased to 4.52% and 4.42%, respectively, from 4.21% and 4.31% for the comparable periods in 1999, reflecting First Banks' increased rates paid to provide a funding source for continued loan growth. In addition, the aggregate weighted average rate on the note payable increased to 7.95% and 7.55% for the three and six months ended June 30, 2000, respectively, from 6.05% and 6.24% for the comparable periods in 1999, reflecting an increase in market rates on these financial instruments. First Banks' $100.0 million revolving line of credit with a group of unaffiliated banks (Note Payable) bears interest at the lead bank's corporate base rate or, at the option of First Banks, at the Eurodollar Rate plus a margin determined by the outstanding balance and First Banks' profitability. Thus, the Note Payable represents a relatively high-cost funding source, so that increased advances under the Note Payable have the effect of increasing the weighted average rate of non-deposit liabilities. 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.
Three months ended June 30, Six months ended June 30, ---------------------------------------------- ----------------------------------------------- 2000 1999 2000 1999 ---------------------- --------------------- ---------------------- ---------------------- 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)(4).......... $4,274,961 96,234 9.05% $3,792,234 78,991 8.35% $4,180,776 185,987 8.95% $3,708,908 153,752 8.36% Investment securities (4)... 440,008 7,277 6.65 434,288 6,578 6.08 440,405 14,279 6.52 472,566 14,385 6.14 Federal funds sold.......... 54,152 817 6.07 13,137 217 6.63 67,737 1,943 5.77 13,995 410 5.91 Other....................... 2,739 47 6.90 1,743 15 3.45 2,485 90 7.28 1,408 45 6.45 ---------- ------- ---------- ------ ---------- ------ ---------- ------- Total interest-earning assets................ 4,771,860 104,375 8.80 4,241,402 85,801 8.11 4,691,403 202,299 8.67 4,196,877 168,592 8.10 ------- ------ ------- ------- Nonearning assets.............. 345,751 337,342 348,529 340,373 ---------- ---------- ---------- ---------- Total assets........... $5,117,611 $4,578,744 $5,039,932 $4,537,250 ========== ========== ========== ========== Liabilities and Stockholders' Equity ------------------------------------ Interest-bearing liabilities: Interest-bearing deposits: Interest-bearing demand deposits................ $ 421,937 1,420 1.35% $ 388,317 1,182 1.22% 422,512 2,885 1.37% $ 379,746 2,296 1.22% Savings deposits.......... 1,257,448 12,434 3.98 1,233,559 11,085 3.60 1,241,385 24,070 3.90 1,222,916 22,014 3.63 Time deposits of $100 or more (3)............. 210,945 2,841 5.42 211,042 2,834 5.39 223,941 5,855 5.26 212,252 5,752 5.46 Other time deposits (3)... 1,939,657 26,314 5.46 1,598,543 20,916 5.25 1,893,330 50,222 5.33 1,608,657 43,130 5.41 ---------- ------- ---------- ------ ---------- ------ ---------- ------- Total interest-bearing deposits.............. 3,829,987 43,009 4.52 3,431,461 36,017 4.21 3,781,168 83,032 4.42 3,423,571 73,192 4.31 Short-term borrowings (3)... 105,033 1,406 5.38 113,120 1,393 4.94 96,109 2,515 5.26 98,188 2,391 4.91 Note payable................ 68,611 1,356 7.95 49,054 740 6.05 66,869 2,511 7.55 49,527 1,533 6.24 ---------- ------- ---------- ------ ---------- ------ ---------- ------- Total interest-bearing liabilities........... 4,003,631 45,771 4.60 3,593,635 38,150 4.26 3,944,146 88,058 4.49 3,571,286 77,116 4.35 ------- ------ ------ ------- Noninterest-bearing liabilities: Demand deposits............. 617,501 534,472 602,459 521,461 Other liabilities........... 179,961 174,456 187,437 173,033 ---------- ---------- ---------- ---------- Total liabilities...... 4,801,093 4,302,563 4,734,042 4,265,780 Stockholders' equity........... 316,518 276,181 305,890 271,470 ---------- ---------- ---------- ---------- Total liabilities and stockholders' equity.. $5,117,611 $4,578,744 $5,039,932 $4,537,250 ========== ========== ========== ========== Net interest income............ 58,604 47,651 114,241 91,476 ======= ====== ======= ======= Interest rate spread........... 4.20 3.85 4.18 3.75 Net interest margin............ 4.94% 4.51% 4.90% 4.40% ==== ==== ==== ====
------------------------ (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 $214,000 and $421,000 for the three and six months ended June 30, 2000, and $160,000 and $391,000 for the comparable periods in 1999, respectively. Provision for Loan Losses The provision for loan losses was $3.6 million and $7.2 million for the three and six months ended June 30, 2000, in comparison to $3.4 million and $5.9 million for the comparable periods in 1999, respectively. The increase in the provision for loan losses is primarily attributable to the overall growth, both internal and through acquisitions, and increased risk associated with the continued changing composition of the loan portfolio. Loan charge-offs were $1.8 million and $5.0 million for the three and six months ended June 30, 2000, respectively, in comparison to $5.6 million and $7.5 million for the comparable periods in 1999. The decrease in loan charge-offs is indicative of the generally strong economic conditions prevalent in First Banks' markets, as well as a decline in nonperforming assets and management's continued efforts to effectively monitor and manage its loan portfolio. For the six months ended June 30, 2000, loan charge-offs include a charge-off of $1.6 million on a single loan. Loan recoveries increased to $2.1 million and $6.2 million for the three and six months ended June 30, 2000, respectively, from $2.0 million and $4.2 million for the comparable periods in 1999 reflecting 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 $11.5 million and $21.0 million for the three and six months ended June 30, 2000, in comparison to $13.5 million and $23.1 million for the comparable periods in 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 were $4.9 million and $9.5 million for the three and six months ended June 30, 2000, in comparison to $4.5 million and $8.4 million for the comparable periods in 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 income associated with automatic teller machine services and debit and credit cards. The gain on mortgage loans sold and held for sale was $1.9 million and $3.3 million for the three and six months ended June 30, 2000, in comparison to $1.5 million and $3.8 million for the comparable periods in 1999, respectively. The overall decrease for the six months ended June 30, 2000 is primarily attributable to a reduced volume of loans originated and sold commensurate with the increases in mortgage loan rates experienced in recent months. The net gain on sales of available-for-sale securities was $379,000 for the six months ended June 30, 2000, compared with net gains of $115,000 and $792,000 for the three and six months ended June 30, 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 gains reflects the sales, at a loss, of certain investment securities that did not meet First Banks' overall investment objectives. The net loss on trading securities of $303,000 for the six months ended June 30, 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 $4.7 million and $7.9 million for the three and six months ended June 30, 2000, in comparison to $7.4 million and $10.4 million for the comparable periods in 1999. The reduction in other income is almost solely attributable to non-recurring gains on branch divestitures. During the three months ended June 30, 2000, First Banks divested one of its branch locations in central Illinois, resulting in a pre-tax gain of $1.4 million, net of related expenses. In the same period in 1999, six branch offices in central and northern Illinois were divested, resulting in a pre-tax gain of $4.4 million, net of related expenses. The reduction in these gains were partially offset by increased income earned on First Banks' investment in bank-owned life insurance, rental income associated with FCG's leasing activities 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 was $41.9 million and $79.7 million for the three and six months ended June 30, 2000, in comparison to $37.2 million and $72.7 million for the comparable periods in 1999. The increase reflects: (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 benefits expenses; (c) increased data processing fees; (d) increased amortization of intangibles associated with the purchase of subsidiaries; and (e) increased expenses associated with First Banks' internal restructuring process. The overall increase in noninterest expense was partially offset by a decrease in legal, examination and professional fees. During 1999, First Banks began an internal restructuring process designed to better position the Company for future growth and opportunities expected to become available as consolidation and changes continue in the delivery of financial services. The magnitude of this project was extensive and covered almost every area within First Banks. The primary objectives of the restructuring process were: (a) to redesign the corporate organization to provide clearer lines of authority which are more conducive to the effective delivery of services to customers; (b) to enhance First Banks' technological strength to enable it to more effectively and efficiently provide the products, services and delivery channels necessary to remain competitive in the financial services industry of the future; (c) to establish the infrastructure necessary to better support the service delivery and business development efforts, and to provide more efficient, better quality services to customers; (d) to increase the depth and abilities of all levels of management and supervision within First Banks to lead its efforts to accomplish its corporate objectives; and (e) to improve internal monitoring systems in order to better assess the progress of all areas of First Banks in achieving its corporate objectives. Although these efforts have primarily led to increased capital expenditures and noninterest expenses in the short-term as further discussed below, First Banks anticipates they will lead to more effective internal growth, more efficient operations and improved profitability over the long term. Salaries and employee benefits were $18.3 million and $35.2 million for the three and six months ended June 30, 2000, in comparison to $15.6 million and $30.1 million for the comparable periods in 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. In addition, the increase includes various additions to staff to enhance executive and senior management expertise, improve technological support and strengthen centralized operational functions. Occupancy, net of rental income, and furniture and equipment expense totaled $6.4 million and $12.3 million for the three and six months ended June 30, 2000, in comparison to $5.1 million and $9.8 million for the comparable periods 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. This increase has been partially offset by selective elimination of 15 branch offices by sales, mergers or closures during 1999 and 2000. Data processing fees were $5.5 million and $10.7 million for the three and six months ended June 30, 2000, in comparison to $4.7 million and $9.2 million for the comparable periods in 1999, respectively. The increased data processing fees are attributable to growth and technological advancements consistent with First Banks' product and service offerings and upgrades to technological equipment, networks and communication channels. Legal, examination and professional fees were $1.1 million and $2.0 million for the three and six months ended June 30, 2000, in comparison to $1.9 million and $3.2 million for the comparable periods in 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 was $6.6 million and $11.5 million for the three and six months ended June 30, 2000, in comparison to $5.9 million and $12.2 million for the comparable periods in 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 overall decrease in such expenditures for the six months ended June 30, 2000 is a function of: (a) recoveries from loans of acquired entities that had been fully charged-off prior to the acquisition dates; (b) management's continued efforts to control these costs; and (c) reduced fraud losses. Offsetting the overall decrease in other expenses in 2000 was an increase of $285,000 in amortization of intangibles associated with the purchase of subsidiaries, which is directly associated with the completion of the aforementioned acquisitions; increases in freight and courier services; and a $300,000 provision for an estimated loss on leasing equipment associated with a previously acquired entity. 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:
June 30, 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 3,339 455,000 3,349 Interest rate floor agreements.......................... 35,000 9 35,000 13 Interest rate cap agreements............................ -- -- 10,000 26 Forward commitments to sell mortgage-backed securities.......................... 39,000 -- 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 $4.1 million at June 30, 2000 and December 31, 1999, and the amount payable by First Banks under the swap agreements was $748,000 and $770,000 at June 30, 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 transition 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 June 30, 2000 and December 31, 1999, and the amount payable by First Banks under the swap agreements was $132,000 and $141,000 at June 30, 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 June 30, 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) June 30, 2000: September 27, 2001.............................. $ 75,000 6.80% 6.14% $ (869) September 27, 2001.............................. 45,000 6.80 6.14 (521) September 27, 2001.............................. 40,000 6.80 6.14 (464) September 27, 2001.............................. 15,000 6.80 6.14 (174) June 11, 2002................................... 15,000 6.80 6.00 (330) September 16, 2002.............................. 175,000 6.80 5.36 (6,568) September 16, 2002.............................. 20,000 6.80 5.36 (754) September 18, 2002.............................. 40,000 6.80 5.33 (1,540) September 18, 2002.............................. 30,000 6.80 5.33 (1,155) ---------- --------- $ 455,000 6.80 5.68 $ (12,375) ========== ===== ===== ========= 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 floor agreements to limit the interest expense associated with the net interest expense of certain interest rate swap agreements. At June 30, 2000 and December 31, 1999, the unamortized costs of these agreements were $9,000 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 $45.7 million and $31.5 million at June 30, 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 $39.0 million and $33.0 million at June 30, 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 June 30, 2000 and December 31, 1999, the net unamortized gains were $186,000 and $838,000, respectively. Such gains 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 92.3% and 92.0% of total interest income for the three and six months ended June 30, 2000, in comparison to 92.2% and 91.3% for the comparable periods in 1999, respectively. Total loans, net of unearned discount, increased $330.0 million to $4.33 billion, or 83.5% of total assets, at June 30, 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 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 $37.4 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 expanding 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:
June 30, December 31, 2000 1999 ---- ---- (dollars expressed in thousands) Commercial, financial and agricultural: Nonaccrual..................................................... $ 14,824 18,397 Restructured terms............................................. 22 29 Real estate construction and development: Nonaccrual..................................................... 2,392 1,886 Real estate mortgage: Nonaccrual..................................................... 16,398 16,414 Restructured terms............................................. 2,971 2,979 Consumer and installment: Nonaccrual..................................................... 208 32 ----------- ---------- Total nonperforming loans.................................. 36,815 39,737 Other real estate................................................... 1,903 2,129 ----------- ---------- Total nonperforming assets................................ $ 38,718 41,866 =========== ========== Loans, net of unearned discount..................................... $ 4,326,393 3,996,324 =========== ========== Loans past due 90 days or more and still accruing................... $ 3,477 5,844 =========== ========== Allowance for loan losses to loans.................................. 1.80% 1.72% Nonperforming loans to loans........................................ 0.85 0.99 Allowance for loan losses to nonperforming loans.................... 211.39 172.66 Nonperforming assets to loans and other real estate................. 0.89 1.05 =========== ==========
Nonperforming loans (also considered impaired loans), consisting of loans on nonaccrual status and certain restructured loans, were $36.8 million at June 30, 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 $2.9 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 Six months ended June 30, June 30, ---------------------- -------------- 2000 1999 2000 1999 ---- ---- ---- ---- (dollars expressed in thousands) Allowance for loan losses, beginning of period.............. $ 73,859 65,239 68,611 60,970 Acquired allowances for loan losses.................... -- -- 799 1,466 --------- -------- -------- -------- 73,859 65,239 69,410 62,436 --------- -------- -------- -------- Loans charged-off...................................... (1,756) (5,617) (4,970) (7,528) Recoveries of loans previously charged-off............. 2,099 1,982 6,180 4,206 --------- -------- -------- -------- Net loan recoveries (charge-offs)...................... 343 (3,635) 1,210 (3,322) --------- -------- -------- -------- Provision for loan losses.............................. 3,620 3,373 7,202 5,863 --------- -------- -------- -------- Allowance for loan losses, end of period.................... $ 77,822 64,977 77,822 64,977 ========= ======== ======== ========
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, provisions are made to the allowance for loan losses. Such provisions 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 the Note Payable. The aggregate funds acquired from these more volatile sources were $563.2 million and $476.8 million at June 30, 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 June 30, 2000:
(dollars expressed in thousands) Three months or less.......................................................... $ 344,648 Over three months through six months.......................................... 69,448 Over six months through twelve months......................................... 85,925 Over twelve months............................................................ 63,130 --------- Total.................................................................. $ 563,151 =========
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 June 30, 2000 and December 31, 1999, First Banks' borrowing capacity under these agreements was approximately $1.29 billion and $1.67 billion, respectively. In addition, the Subsidiary Banks' borrowing capacity through their relationships with the Federal Home Loan Banks was approximately $318.2 million at June 30, 2000 and $395.9 million at December 31, 1999. 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 $15,000 and $195,000 for the three and six months ended June 30, 2000, and $450,000 and $900,000 for the comparable periods in 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. In June 2000, the FASB issued SFAS No. 138 - Accounting for Derivative Instruments and Hedging Activities, an Amendment of FASB Statement No. 133, which addresses a limited number of issues causing implementation difficulties for numerous entities that apply SFAS 133, as amended. SFAS 138 amends the accounting and reporting standards of SFAS 133, as amended, for certain derivative instruments, certain hedging activities and for decisions made by the FASB relating to the Derivatives Implementation Group (DIG) process. 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 June 30, 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 increases in the prime lending rate experienced throughout the last six months, is reflected in First Banks' increased net interest income for the three and six months ended June 30, 2000 as further discussed under "--Results of Operations." During the three and six months ended June 30, 2000, First Banks' asset-sensitive position and overall susceptibility to market risks have not changed materially. Part II - OTHER INFORMATION 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 June 30, 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 August 8, 2000 (Principal Executive Officer) By: /s/ Frank H. Sanfilippo --------------------------------------- Frank H. Sanfilippo Executive Vice President and Chief Financial Officer August 8, 2000 (Principal Financial and Accounting Officer) EX-27 2 0002.txt FDS --
9 0000710507 First Banks, Inc. 1,000 6-mos Dec-31-2000 Jan-01-2000 Jun-30-2000 137,265 3,424 19,100 0 414,978 21,342 21,302 4,326,393 77,822 5,180,472 4,456,453 150,812 123,472 127,695 0 13,063 5,915 303,062 5,180,472 185,826 14,019 2,033 201,878 83,032 88,058 113,820 7,202 379 79,710 47,943 47,943 0 0 29,259 1,222.71 1,182.47 8.67 33,822 3,477 0 91,769 68,611 4,970 6,180 77,822 68,553 0 9,269
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