<DOCUMENT>
<TYPE>10-Q
<SEQUENCE>1
<FILENAME>fbi10q301.txt
<DESCRIPTION>FORM 10-Q
<TEXT>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2001
[ ] 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 (I.R.S. Employer Identification No.)
of 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 April 30, 2001
----- -----------------
Common Stock, $250.00 par value 23,661
<PAGE>
FIRST BANKS, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS - (UNAUDITED):
<S> <C>
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.......................... 24
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.................................................... 25
SIGNATURES ..................................................................................... 26
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
FIRST BANKS, INC.
CONSOLIDATED BALANCE SHEETS - (UNAUDITED)
(dollars expressed in thousands, except share and per share data)
<TABLE>
<CAPTION>
March 31, December 31,
2001 2000
---- ----
ASSETS
------
Cash and cash equivalents:
<S> <C> <C>
Cash and due from banks....................................................... $ 145,878 167,474
Interest-bearing deposits with other financial institutions
with maturities of three months or less..................................... 1,720 4,005
Federal funds sold............................................................ 51,410 26,800
------------ -----------
Total cash and cash equivalents..................................... 199,008 198,279
------------ -----------
Investment securities:
Available for sale, at fair value............................................. 389,293 539,386
Held to maturity, at amortized cost (fair value of $24,412 and $24,507
at March 31, 2001 and December 31, 2000, respectively)...................... 23,642 24,148
------------ -----------
Total investment securities......................................... 412,935 563,534
------------ -----------
Loans:
Commercial, financial and agricultural........................................ 1,508,509 1,496,284
Real estate construction and development...................................... 811,761 809,682
Real estate mortgage.......................................................... 2,208,218 2,202,857
Consumer and installment...................................................... 130,799 181,602
Loans held for sale........................................................... 183,413 69,105
------------ -----------
Total loans......................................................... 4,842,700 4,759,530
Unearned discount............................................................. (7,623) (7,265)
Allowance for loan losses..................................................... (77,996) (81,592)
------------ -----------
Net loans........................................................... 4,757,081 4,670,673
------------ -----------
Bank premises and equipment, net of depreciation and amortization.................. 118,921 114,771
Intangibles associated with the purchase of subsidiaries, net of amortization...... 82,935 85,021
Accrued interest receivable........................................................ 39,717 45,226
Deferred income taxes.............................................................. 71,138 75,699
Derivative instruments............................................................. 41,945 --
Other assets....................................................................... 120,395 123,488
------------ -----------
Total assets........................................................ $ 5,844,075 5,876,691
============ ===========
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<PAGE>
FIRST BANKS, INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED) - (UNAUDITED)
(dollars expressed in thousands, except share and per share data)
<TABLE>
<CAPTION>
March 31, December 31,
2001 2000
---- ----
LIABILITIES
-----------
Deposits:
Demand:
<S> <C> <C>
Non-interest-bearing........................................................ $ 779,123 808,251
Interest-bearing............................................................ 450,586 448,146
Savings....................................................................... 1,422,970 1,447,898
Time:
Time deposits of $100 or more............................................... 524,463 499,956
Other time deposits......................................................... 1,792,718 1,808,164
------------ -----------
Total deposits........................................................... 4,969,860 5,012,415
Short-term borrowings.............................................................. 150,978 140,569
Note payable....................................................................... 43,000 83,000
Accrued interest payable........................................................... 26,105 23,227
Deferred income taxes.............................................................. 25,864 12,774
Accrued expenses and other liabilities............................................. 38,295 54,944
Minority interest in subsidiary.................................................... 14,879 14,067
------------ -----------
Total liabilities........................................................ 5,268,981 5,340,996
------------ -----------
Guaranteed preferred beneficial interests in:
First Banks, Inc. subordinated debentures..................................... 138,523 138,569
First Banks America, Inc. subordinated debentures............................. 44,295 44,280
------------ -----------
Total guaranteed preferred beneficial interests in
subordinated debentures.............................................. 182,818 182,849
------------ -----------
STOCKHOLDERS' EQUITY
--------------------
Preferred stock:
$1.00 par value, 5,000,000 shares authorized, no shares issued
and outstanding at March 31, 2001 and December 31, 2000..................... -- --
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.................................................................... 2,595 2,267
Retained earnings.................................................................. 337,736 325,580
Accumulated other comprehensive income............................................. 32,967 6,021
------------ -----------
Total stockholders' equity............................................... 392,276 352,846
------------ -----------
Total liabilities and stockholders' equity............................... $ 5,844,075 5,876,691
============ ===========
</TABLE>
<PAGE>
FIRST BANKS, INC.
CONSOLIDATED STATEMENTS OF INCOME - (UNAUDITED)
(dollars expressed in thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended
March 31,
-------------------
2001 2000
---- ----
Interest income:
<S> <C> <C>
Interest and fees on loans.............................................................. $ 107,062 89,678
Investment securities................................................................... 8,480 6,870
Federal funds sold and other............................................................ 495 1,169
--------- --------
Total interest income............................................................... 116,037 97,717
--------- --------
Interest expense:
Deposits:
Interest-bearing demand............................................................... 1,673 1,465
Savings............................................................................... 14,183 11,636
Time deposits of $100 or more......................................................... 7,876 3,015
Other time deposits................................................................... 27,189 23,907
Short-term borrowings................................................................... 1,989 1,109
Note payable............................................................................ 1,230 1,155
--------- --------
Total interest expense.............................................................. 54,140 42,287
--------- --------
Net interest income................................................................. 61,897 55,430
Provision for loan losses.................................................................... 3,390 3,582
--------- --------
Net interest income after provision for loan losses................................. 58,507 51,848
--------- --------
Noninterest income:
Service charges on deposit accounts and customer service fees........................... 5,225 4,592
Gain on mortgage loans sold and held for sale........................................... 3,468 1,392
Gain on sale of credit card portfolio................................................... 2,275 --
Net (loss) gain on sales of available-for-sale securities............................... (174) 379
Gain on derivative instruments, net..................................................... 497 --
Other................................................................................... 5,183 3,201
--------- --------
Total noninterest income............................................................ 16,474 9,564
--------- --------
Noninterest expense:
Salaries and employee benefits.......................................................... 22,452 16,891
Occupancy, net of rental income......................................................... 4,116 3,222
Furniture and equipment................................................................. 3,211 2,675
Postage, printing and supplies.......................................................... 1,155 1,108
Data processing fees.................................................................... 6,499 5,189
Legal, examination and professional fees................................................ 1,690 989
Amortization of intangibles associated with the purchase of subsidiaries................ 1,850 1,171
Guaranteed preferred debentures......................................................... 4,489 3,014
Other................................................................................... 6,156 3,534
--------- --------
Total noninterest expense........................................................... 51,618 37,793
--------- --------
Income before provision for income taxes, minority interest in income
of subsidiary and cumulative effect of change in accounting principle............. 23,363 23,619
Provision for income taxes................................................................... 9,124 8,544
--------- --------
Income before minority interest in income of subsidiary and cumulative
effect of change in accounting principle ......................................... 14,239 15,075
Minority interest in income of subsidiary.................................................... 511 488
--------- --------
Income before cumulative effect of change in accounting principle................... 13,728 14,587
Cumulative effect of change in accounting principle, net of tax.............................. 1,376 --
--------- --------
Net income.......................................................................... 12,352 14,587
Preferred stock dividends.................................................................... 196 196
--------- --------
Net income available to common stockholders......................................... $ 12,156 14,391
========= ========
Earnings per common share:
Basic:
Income before cumulative effect of change in accounting principle..................... $ 571.94 608.21
Cumulative effect of change in accounting principle, net of tax....................... (58.16) --
--------- --------
Basic................................................................................. 513.78 608.21
========= ========
Diluted:
Income before cumulative effect of change in accounting principle..................... $ 561.09 589.52
Cumulative effect of change in accounting principle, net of tax....................... (58.16) --
--------- --------
Diluted............................................................................... 502.93 589.52
========= ========
Weighted average common stock outstanding.................................................... 23,661 23,661
========= ========
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FIRST BANKS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME - (UNAUDITED)
Three months ended March 31, 2001 and 2000 and nine months ended December 31, 2000
(dollars expressed in thousands, except per share data)
Accu-
Adjustable rate mulated
preferred stock other Total
------------------
Class A Compre- compre- stock-
conver- Common Capital hensive Retained hensive holders'
tible Class B stock surplus income earnings income equity
----- ------- ----- ------- ------- -------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Consolidated balances, December 31, 1999......... $12,822 241 5,915 3,318 270,259 2,350 294,905
Three months ended March 31, 2000:
Comprehensive income:
Net income................................. -- -- -- -- 14,587 14,587 -- 14,587
Other comprehensive income, net of tax
Unrealized losses on securities, net of
reclassification adjustment (1)........ -- -- -- -- (854) -- (854) (854)
------
Comprehensive income....................... 13,733
======
Class A preferred stock dividends,
$0.30 per share............................ -- -- -- -- (192) -- (192)
Class B preferred stock dividends,
$0.03 per share............................ -- -- -- -- (4) -- (4)
Effect of capital stock transactions of
majority-owned subsidiary................. -- -- -- (201) -- -- (201)
------- ----- ----- ----- ------- ------ -------
Consolidated balances, March 31, 2000............ 12,822 241 5,915 3,117 284,650 1,496 308,241
Nine months ended December 31, 2000:
Comprehensive income:
Net income................................. -- -- -- -- 41,520 41,520 -- 41,520
Other comprehensive income, net of tax
Unrealized gains on securities, net of
reclassification adjustment (1)........ -- -- -- -- 4,525 -- 4,525 4,525
------
Comprehensive income....................... 46,045
======
Class A preferred stock dividends,
$0.90 per share............................ -- -- -- -- (577) -- (577)
Class B preferred stock dividends,
$0.08 per share............................ -- -- -- -- (13) -- (13)
Effect of capital stock transactions of
majority-owned subsidiary................. -- -- -- (850) -- -- (850)
------- ----- ----- ----- ------- ------ -------
Consolidated balances, December 31, 2000......... 12,822 241 5,915 2,267 325,580 6,021 352,846
Three months ended March 31, 2001:
Comprehensive income:
Net income................................. -- -- -- -- 12,352 12,352 -- 12,352
Other comprehensive income, net of tax:
Unrealized gains on securities, net of
reclassification adjustment (1)........ -- -- -- -- 5,471 -- 5,471 5,471
Derivative instruments:
Cumulative effect of change in
accounting principle, net........... -- -- -- -- 9,069 -- 9,069 9,069
Current period transactions............ -- -- -- -- 12,406 -- 12,406 12,406
Reclassification to earnings........... -- -- -- -- -- -- -- --
------
Comprehensive income....................... 39,298
======
Class A preferred stock dividends,
$0.30 per share............................ -- -- -- -- (192) -- (192)
Class B preferred stock dividends,
$0.03 per share............................ -- -- -- -- (4) -- (4)
Effect of capital stock transactions of
majority-owned subsidiary................. -- -- -- 328 -- -- 328
------- ----- ----- ----- ------- ------ -------
Consolidated balances, March 31, 2001............ $12,822 241 5,915 2,595 337,736 32,967 392,276
======= ===== ===== ===== ======= ====== =======
</TABLE>
<PAGE>
-------------------------
(1) Disclosure of reclassification adjustment:
<TABLE>
<CAPTION>
Three months ended Nine months ended
March 31, December 31,
-------- ------------
2001 2000 2000
---- ---- ----
Unrealized gains (losses) on investment securities
<S> <C> <C> <C>
arising during the period............................................. $5,358 (608) 4,388
Less reclassification adjustment for (losses) gains
included in net income................................................ (113) 246 (137)
------ ------ ------
Unrealized gains (losses) on investment securities....................... $5,471 (854) 4,525
====== ====== ======
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<PAGE>
FIRST BANKS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS - (UNAUDITED)
(dollars expressed in thousands)
<TABLE>
<CAPTION>
Three months ended
March 31,
---------------------
2001 2000
---- ----
Cash flows from operating activities:
<S> <C> <C>
Net income........................................................................... $ 12,352 14,587
Adjustments to reconcile net income to net cash used in operating activities:
Cumulative effect of change in accounting principle, net of tax...................... 1,376 --
Depreciation and amortization of bank premises and equipment....................... 3,219 2,220
Amortization, net of accretion..................................................... 1,783 1,841
Originations and purchases of loans held for sale.................................. (331,761) (94,450)
Proceeds from the sale of loans held for sale...................................... 187,174 62,671
Provision for loan losses.......................................................... 3,390 3,582
Provision for income taxes......................................................... 9,124 8,544
(Payments) refunds of income taxes................................................. (16,990) 75
Decrease in accrued interest receivable............................................ 5,509 2,499
Interest accrued on liabilities.................................................... 54,140 42,287
Payments of interest on liabilities................................................ (51,262) (42,203)
Gain on sale of credit card portfolio.............................................. (2,275) --
Other operating activities, net.................................................... (10,363) (5,711)
Minority interest in income of subsidiary.......................................... 511 488
-------- ---------
Net cash used in operating activities............................................ (134,073) (3,570)
-------- ---------
Cash flows from investing activities:
Cash paid for acquired entities, net of cash and cash equivalents received........... -- (2,709)
Proceeds from sales of investment securities available for sale...................... 67,918 8,148
Maturities of investment securities available for sale............................... 121,101 135,151
Maturities of investment securities held to maturity................................. 500 670
Purchases of investment securities available for sale................................ (18,991) (109,481)
Purchases of investment securities held to maturity.................................. -- (489)
Net decrease (increase) in loans..................................................... 42,612 (155,830)
Recoveries of loans previously charged-off........................................... 1,917 4,081
Purchases of bank premises and equipment............................................. (7,411) (5,247)
Other investing activities, net...................................................... 519 1,316
-------- ---------
Net cash provided by (used in) investing activities.............................. 208,165 (124,390)
-------- ---------
Cash flows from financing activities:
(Decrease) increase in demand and savings deposits................................... (51,616) 42,873
Increase in time deposits............................................................ 8,134 89,177
Increase in securities sold under agreements to repurchase........................... 10,409 25,058
Advances drawn on note payable....................................................... -- 10,000
Repayments of note payable........................................................... (40,000) --
Payment of preferred stock dividends................................................. (196) (196)
Other financing activities, net...................................................... (94) --
-------- ---------
Net cash (used in) provided by financing activities.............................. (73,363) 166,912
-------- ---------
Net increase in cash and cash equivalents........................................ 729 38,952
Cash and cash equivalents, beginning of period............................................ 198,279 170,894
-------- ---------
Cash and cash equivalents, end of period.................................................. $199,008 209,846
======== =========
Noncash investing and financing activities:
Loans transferred to other real estate............................................... $ 451 558
Reductions of deferred tax asset valuation reserve................................... 541 --
Loans held for sale transferred to mortgage-backed securities........................ 10,522 --
Loans held for sale transferred to loans............................................. 18,195 21,568
======== =========
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<PAGE>
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) are unaudited and should be read in conjunction
with the consolidated financial statements contained in the 2000 Annual Report
on Form 10-K. The consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of
America and conform to predominant practices within the banking industry.
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 accounting principles generally accepted in the
United States of America. In the opinion of management, all adjustments,
consisting of normal recurring accruals considered necessary for a fair
presentation of the results of operations for the interim periods presented
herein, have been included. Operating results for the three months ended March
31, 2001 are not necessarily indicative of the results that may be expected for
the year ending December 31, 2001.
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 2000 amounts have been made to
conform to the 2001 presentation.
First Banks operates through its subsidiary bank holding companies and
subsidiary 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 Capital Group, Inc., headquartered in Albuquerque, New Mexico (FCG);
First Banks America, Inc., headquartered in St. Louis County, Missouri
(FBA), and its wholly owned subsidiary:
The San Francisco Company, headquartered in San Francisco, California
(SFC), and its wholly-owned subsidiary:
First Bank & Trust, headquartered in San Francisco, California
(FB&T).
The Subsidiary Banks and FCG are wholly owned by their respective
parent companies except FBA, which was 93.15% and 92.86% owned by First Banks at
March 31, 2001 and December 31, 2000, respectively.
(2) DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
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). In June 1999 and June
2000, 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, and SFAS No. 138 - Accounting for
Derivative Instruments and Hedging Activities, an Amendment of FASB Statement
No. 133, respectively. SFAS 133, as amended, establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. SFAS 133,
as amended, requires an entity to 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, as
amended, 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.
<PAGE>
First Banks utilizes derivative instruments and hedging activities to
assist in the management of interest rate sensitivity and to modify the
repricing, maturity and option characteristics of certain assets and
liabilities. First Banks uses such derivative instruments solely to reduce its
interest rate exposure. The following is a summary of First Banks' accounting
policies for derivative instruments and hedging activities under SFAS 133, as
amended:
Interest Rate Swap Agreements - Cash Flow Hedges. Interest rate swap
agreements designated as cash flow hedges are accounted for at fair value. The
effective portion of the change in the cash flow hedge's gain or loss is
initially reported as a component of other comprehensive income and subsequently
reclassified into noninterest income when the underlying transaction affects
earnings. The ineffective portion of the change in the cash flow hedge's gain or
loss is recorded in earnings on each quarterly measurement date. The swap
agreements are accounted for on an accrual basis with the net interest
differential being recognized as an adjustment to interest income or interest
expense of the related asset or liability.
<PAGE>
Interest Rate Swap Agreements - Fair Value Hedges. Interest rate swap
agreements designated as fair value hedges are accounted for at fair value.
Changes in the fair value of the swap agreements are recognized currently in
noninterest income. The change in the fair value on the underlying hedged item
(liabilities) attributable to the hedged risk adjusts the carrying amount of the
underlying hedged item and is also recognized currently in noninterest income.
All changes in fair value are measured on a quarterly basis. The swap agreements
are accounted for on an accrual basis with the net interest differential being
recognized as an adjustment to interest income or interest expense of the
related asset or liability.
Interest Rate Cap and Floor Agreements. Interest rate cap and floor
agreements are accounted for at fair value. Changes in the fair value of
interest rate cap and floor agreements are recognized in earnings on each
quarterly measurement date.
Interest Rate Lock Commitments. Commitments to originate loans
(interest rate lock commitments), which primarily consist of commitments to
originate fixed rate residential mortgage loans, are recorded at fair value.
Changes in the fair value are recognized in noninterest income on a monthly
basis.
Forward Contracts to Sell Mortgage-Backed Securities. Forward contracts
to sell mortgage-backed securities are recorded at fair value. Changes in the
fair value of forward contracts to sell mortgage-backed securities are
recognized in noninterest income on a monthly basis.
On January 1, 2001, First Banks implemented SFAS 133, as amended. The
implementation of SFAS 133, as amended, resulted in an increase in derivative
instruments of $12.5 million, an increase in deferred tax liabilities of $5.1
million and an increase in other comprehensive income of $9.1 million. In
addition, First Banks recorded a cumulative effect of change in accounting
principle of $1.4 million, net of taxes of $741,000, as a reduction of net
income.
(3) EARNINGS PER SHARE
The following is a reconciliation of the numerators and denominators of
the basic and diluted earnings per share (EPS) computations for the periods
indicated:
<TABLE>
<CAPTION>
Income Shares Per share
(numerator) (denominator) amount
----------- ------------- ------
(dollars in thousands, except per share data)
Three months ended March 31, 2001:
<S> <C> <C> <C>
Basic EPS - income before cumulative effect..................... $ 13,532 23,661 $ 571.94
Cumulative effect of change in accounting principle, net of tax. (1,376) -- (58.16)
--------- ------- ----------
Basic EPS - income available to common stockholders............. 12,156 23,661 513.78
Effect of dilutive securities:
Class A convertible preferred stock........................... 192 893 --
--------- ------- ----------
Diluted EPS - income available to common stockholders........... $ 12,348 24,554 $ 502.93
========= ======= ==========
Three months ended March 31, 2000:
Basic EPS - income available to common stockholders............. $ 14,391 23,661 $ 608.21
Effect of dilutive securities:
Class A convertible preferred stock........................... 192 1,076 --
--------- ------- ---------
Diluted EPS - income available to common stockholders........... $ 14,583 24,737 $ 589.52
========= ======= ==========
</TABLE>
<PAGE>
(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 $731,000 and $535,000 for the three months ended
March 31, 2001, and 2000, respectively, in commissions paid by unaffiliated
third-party companies. The commissions received were primarily in connection
with sales of annuities, securities and other insurance products to 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 $5.3 million and $4.5 million
for the three months ended March 31, 2001 and 2000, respectively. During the
three months ended March 31, 2001 and 2000, First Services, L.P. paid First
Banks $486,000 and $454,000, 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 March 31, 2001, First Banks and the Subsidiary Banks were each
well capitalized.
As of March 31, 2001, the most recent notification from First Banks'
primary regulator categorized First Banks and the Subsidiary Banks as well
capitalized under the regulatory framework for prompt corrective action. To be
categorized as well capitalized, First Banks and the Subsidiary Banks must
maintain minimum total risk-based, Tier I risk-based and Tier I leverage ratios
as set forth in the table below.
At March 31, 2001 and December 31, 2000, First Banks' and the
Subsidiary Banks' required and actual capital ratios were as follows:
<TABLE>
<CAPTION>
To be well
Actual capitalized under
------
March 31, December 31, For capital prompt corrective
2001 2000 adequacy purposes action provisions
---- ---- ----------------- -----------------
Total capital (to risk-weighted assets):
<S> <C> <C> <C> <C>
First Banks............................. 10.46% 10.21% 8.0% 10.0%
First Bank.............................. 10.45 10.71 8.0 10.0
FB&T.................................... 10.59 10.58 8.0 10.0
BSF (1)................................. -- 22.38 8.0 10.0
Tier 1 capital (to risk-weighted assets):
First Banks............................. 7.87% 7.56 4.0 6.0
First Bank.............................. 9.20 9.46 4.0 6.0
FB&T................................9.34 9.32 4.0 6.0
BSF (1) -- 21.42 4.0 6.0
Tier 1 capital (to average assets):
First Banks............................. 7.27% 7.45 3.0 5.0
First Bank.............................. 8.32 8.49 3.0 5.0
FB&T.................................... 8.89 9.27 3.0 5.0
BSF (1)................................. -- 22.00 3.0 5.0
---------------------
(1) BSF was acquired by FBA on December 31, 2000. FB&T was merged
with and into BSF on March 29, 2001, and was renamed FB&T.
</TABLE>
<PAGE>
(6) BUSINESS SEGMENT RESULTS
First Banks' business segments are its Subsidiary Banks. The reportable
business segments are consistent with the management structure of First Banks,
the Subsidiary Banks and the internal reporting system that monitors
performance.
Through the respective branch networks, the Subsidiary Banks provide
similar products and services in their defined geographic areas. The products
and services offered include a broad range of commercial and personal deposit
products, including demand, savings, money market and time deposit accounts. In
addition, the Subsidiary Banks market combined basic services for various
customer groups, including packaged accounts for more affluent customers, and
sweep accounts, lock-box deposits and cash management products for commercial
customers. The Subsidiary Banks also offer both consumer and commercial loans.
Consumer lending includes residential real estate, home equity and installment
lending. Commercial lending includes commercial, financial and agricultural
loans, real estate construction and development loans, commercial real estate
loans, asset-based loans, commercial leasing and trade financing.
Other financial services include mortgage banking, credit and debit
cards, brokerage services, credit-related insurance, automated teller machines,
telephone banking, safe deposit boxes and trust, private banking and
institutional money management services. The revenues generated by each business
segment consist primarily of interest income, generated from the loan and
investment security portfolios, and service charges and fees, generated from the
deposit products and services. The geographic areas include Missouri, Illinois,
southern and northern California and Houston, Dallas, Irving and McKinney,
Texas. 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 consistent with First Banks' internal
reporting system and, in all material respects, with accounting principles
generally accepted in the United States of America and practices predominant in
the banking industry.
<PAGE>
<TABLE>
<CAPTION>
The business segment results are summarized as follows:
First Bank First Bank & Trust (1)
-------------------------- -------------------------
March 31, December 31, March 31, December 31,
2001 2000 2001 2000
---- ---- ---- ----
(dollars expressed in thousands)
Balance sheet information:
<S> <C> <C> <C> <C>
Investment securities........................................... $ 175,361 214,005 217,295 330,478
Loans, net of unearned discount................................. 2,813,757 2,694,005 2,021,737 2,058,628
Total assets.................................................... 3,260,105 3,152,885 2,660,924 2,733,545
Deposits........................................................ 2,743,906 2,729,489 2,241,177 2,306,469
Stockholders' equity............................................ 284,821 273,848 321,343 333,186
=========== ========= ======== ==========
First Bank First Bank & Trust (1)
Three months end Three months ended
March 31, March 31,
-------------------------- ---------------------
2001 2000 2001 2000
---- ---- ---- ----
Income statement information:
Interest income................................................. $ 61,595 58,758 54,739 38,807
Interest expense................................................ 31,176 26,252 22,340 15,098
----------- --------- ------- -------
Net interest income........................................ 30,419 32,506 32,399 23,709
Provision for loan losses....................................... 3,300 2,600 90 982
----------- --------- ------- -------
Net interest income after
provision for loan losses................................ 27,119 29,906 32,309 22,727
Noninterest income.............................................. 12,432 6,994 4,510 3,046
Noninterest expense............................................. 24,306 19,806 20,792 14,682
----------- --------- ------- -------
Income (loss) before provision (benefit)
for income taxes, minority
interest in income of subsidiary and cumulative
of change in accounting principle....................... 15,245 17,094 16,027 11,091
Provision (benefit) for income taxes........................... 5,327 5,833 6,284 4,396
----------- --------- ------- -------
Income (loss) before minority interest in income of
subsidiary and cumulative effect of change in
accounting principle..................................... 9,918 11,261 9,743 6,695
Minority interest in income of subsidiary....................... -- -- -- --
----------- --------- ------- -------
Income before cumulative effect of change in
accounting principle..................................... 9,918 11,261 9,743 6,695
Cumulative effect of change in accounting principle,
net of tax.................................................... 917 -- 459 --
----------- --------- ------- -------
Net income................................................. 9,001 11,261 9,284 6,695
=========== ========= ======= =======
</TABLE>
---------------------------
(1) Includes BSF, which was acquired by FBA on December 31, 2000. FB&T was
merged with and into BSF on March 29, 2001, and was renamed FB&T.
(2) Corporate and other includes $2.9 million and $2.0 million of guaranteed
preferred debenture expense, after applicable income tax benefit of $1.6
million and $1.0 million for the three months ended March 31, 2001 and
2000, respectively. In addition, corporate and other includes FCG and
holding company expenses.
<PAGE>
<TABLE>
<CAPTION>
Corporate and other
intercompany reclassifications (2) Consolidated totals
---------------------------------- ------------------------------
March 31, December 31, March 31, December 31,
2001 2000 2001 2000
---- ---- ---- ----
(dollars expressed in thousands)
<S> <C> <C> <C> <C>
20,279 19,051 412,935 563,534
(417) (368) 4,835,077 4,752,265
(76,954) (9,739) 5,844,075 5,876,691
(15,223) (23,543) 4,969,860 5,012,415
(213,888) (254,188) 392,276 352,846
========= ======== ======== =========
Corporate, other and (2)
intercompany reclassifications Consolidated totals
------------------------------ -------------------
Three months ended Three months ended
March 31, March 31,
------------------------------- --------------------------------
2001 2000 2001 2000
---- ---- ---- ----
(297) 152 116,037 97,717
624 937 54,140 42,287
--------- ------- -------- -------
(921) (785) 61,897 55,430
-- -- 3,390 3,582
--------- ------- -------- -------
(921) (785) 58,507 51,848
(468) (476) 16,474 9,564
6,520 3,305 51,618 37,793
--------- ------- -------- -------
(7,909) (4,566) 23,363 23,619
(2,487) (1,685) 9,124 8,544
--------- ------- -------- -------
(5,422) (2,881) 14,239 15,075
511 488 511 488
--------- ------- -------- -------
(5,933) (3,369) 13,728 14,587
-- -- 1,376 --
--------- ------- -------- -------
(5,933) (3,369) 12,352 14,587
========= ======= ======== =======
</TABLE>
<PAGE>
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 our financial condition, results of operations and
business. 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 us, including but not limited to fluctuations in interest
rates and in the economy; the impact of laws and regulations applicable to us
and changes therein; the impact of accounting pronouncements applicable to us
and changes therein; competitive conditions in the markets in which we conduct
our operations, including competition from banking and non-banking companies
with substantially greater resources than us, some of which may offer and
develop products and services not offered by us; our ability to control the
composition of our loan portfolio without adversely affecting interest income;
and our ability to respond to changes in technology. With regard to our 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 our offices, as compared with competitors operating solely in
contiguous markets; the competition of larger acquirers with greater resources
than us, fluctuations in the prices at which acquisition targets may be
available for sale and in the market for our 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
We are a registered bank holding company incorporated in Missouri and
headquartered in St. Louis County, Missouri. Through the operation of our
subsidiaries, we offer a broad array of financial services to consumer and
commercial customers. We currently operate banking subsidiaries with 138 branch
offices throughout California, Illinois, Missouri and Texas. At March 31, 2001,
we had total assets of $5.84 billion, loans, net of unearned discount, of $4.84
billion, total deposits of $4.97 billion and total stockholders' equity of
$392.3 million.
We operate through two subsidiary banks, two subsidiary bank holding
companies, and through our subsidiary leasing company, as follows:
First Bank, headquartered in St. Louis County, Missouri;
First Capital Group, Inc., or FCG, headquartered in Albuquerque,
New Mexico;
First Banks America, Inc., or FBA, headquartered in St. Louis County,
Missouri, and its wholly owned subsidiary:
The San Francisco Company, or SFC, headquartered in San
Francisco, California, and its wholly-owned subsidiary:
First Bank & Trust, or FB&T, headquartered in San Francisco,
California.
Our subsidiary banks and FCG are wholly owned by their respective
parent companies. We owned 93.15% and 92.86% of FBA at March 31, 2001 and
December 31, 2000, respectively.
Through our subsidiary banks, we offer a broad range of commercial and
personal deposit products, including demand, savings, money market and time
deposit accounts. In addition, we market combined basic services for various
customer groups, including packaged accounts for more affluent customers, and
sweep accounts, lock-box deposits and cash management products for commercial
customers. We also offer both consumer and commercial loans. Consumer lending
includes residential real estate, home equity and installment lending.
Commercial lending includes commercial, financial and agricultural loans, real
estate construction and development loans, commercial real estate loans,
asset-based loans, commercial leasing and trade financing. Other financial
services offered include mortgage banking, credit and debit cards, brokerage
services, credit-related insurance, automated teller machines, telephone
banking, safe deposit boxes and trust, private banking and institutional money
management services.
Primary responsibility for managing our subsidiary banking units rests
with the officers and directors or each unit. However, we centralize overall
corporate policies, procedures and administrative functions and provide
operational support functions for our subsidiaries. This practice allows us to
achieve various operating efficiencies while allowing our subsidiary banking
units to focus on customer service.
<PAGE>
Financial Condition
Our total assets were $5.84 billion and $5.88 billion at March 31, 2001
and December 31, 2000, respectively. The decrease in total assets is primarily
attributable to an anticipated level of attrition associated with our
acquisitions of Commercial Bank of San Francisco, Millennium Bank and Bank of
San Francisco, which were completed during the fourth quarter of 2000. Loans,
net of unearned discount, increased by $82.8 million, which is further discussed
under "--Loans and Allowance for Loan Losses." Investment securities decreased
by $150.6 million to $412.9 million at March 31, 2001 from $563.5 million at
December 31, 2000. We attribute the decrease in investment securities primarily
to the liquidation of certain investment securities acquired through acquisition
that did not meet our investment objectives and a higher than normal level of
investment security calls experienced during the three months ended March 31,
2001. The funds generated from the reduction of investment securities were
utilized to fund loan growth, with the remaining funds being utilized to fund
the deposit attrition. Offsetting the overall reduction in total assets was an
increase in derivative instruments of $41.9 million, resulting solely from the
implementation of Statement of Financial Accounting Standards, or SFAS, No. 133,
Accounting for Derivative Instruments and Hedging Activities, as amended by 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, and SFAS No. 138 - Accounting for Derivative Instruments and
Hedging Activities, an Amendment of FASB Statement No. 133. Total deposits
decreased by $40.0 million to $4.97 billion at March 31, 2001 from $5.01 billion
at December 31, 2000, which reflects an anticipated level of attrition
associated with our fourth quarter acquisitions as well as normal cyclical
trends typically experienced during the first quarter of each calendar year.
Short-term borrowings increased by $10.4 million to $151.0 million at March 31,
2001, reflecting an increase in securities sold under agreements to repurchase.
Our note payable decreased by $40.0 million to $43.0 million at March 31, 2001
from $83.0 million at December 31, 2000. The reduction of our note payable was
funded with dividends from our subsidiaries and a capital reduction of $23.0
million that was recorded in conjunction with the merger of our former
subsidiary, First Bank & Trust, with and into Bank of San Francisco, effective
March 29, 2001. In conjunction with this merger, Bank of San Francisco was
renamed FB&T. In addition, accrued expenses and other liabilities decreased by
$16.6 million to $38.3 million at March 31, 2001 from $54.9 million at December
31, 2000. We attribute the majority of this decrease to our first quarter tax
payments.
Results of Operations
Net Income
Net income was $12.4 million for the three months ended March 31, 2001
compared to $14.6 million for the comparable period in 2000, representing a
decrease of 15.1%. The implementation of SFAS No. 133, as amended, on January 1,
2001, resulted in the recognition of a cumulative effect of change in accounting
principle of $1.4 million, net of tax, which reduced net income. Excluding this
item, net income was $13.7 million for the three months ended March 31, 2001.
The primary factors that led to the decline in our earnings for the three months
ended March 31, 2001 were the recent reductions in the prime lending rate and
higher operating expenses. Net interest income improved primarily as a result of
increased earning assets generated through internal loan growth as well as our
acquisitions of Lippo Bank, certain assets of FCG, Bank of Ventura, Commercial
Bank of San Francisco, Millennium Bank and Bank of San Francisco, completed
during 2000. However, the improvement in net interest income was partially
mitigated by several reductions in the prime lending rate that occurred during
the first quarter of 2001. During the three months ended March 31, 2001 and
2000, noninterest income improved to $16.5 million from $9.6 million,
respectively, as further discussed under "--Noninterest Income."
The improvement in net interest income and noninterest income was
slightly more offset by increased operating expenses of $13.8 million to $51.6
million from $37.8 million for the three months ended March 31, 2001 and 2000,
respectively. The increased operating expenses are primarily attributable to the
operating expenses of the aforementioned acquisitions subsequent to their
respective acquisition dates, increased salaries and employee benefit expenses,
increased data processing fees, increased legal, examination and professional
fees and increased amortization of intangibles associated with the purchase of
the aforementioned entities. Additionally, guaranteed preferred debentures
expense of $1.5 million on the trust preferred securities issued by First
Preferred Capital Trust II in October 2000 further contributed to the overall
increase in operating expenses. These higher operating expenses are reflective
of significant investments that we have made in personnel, technology, capital
expenditures and new business lines in conjunction with our overall strategic
growth plan. The payback on these investments is expected to occur over a longer
period of time through higher and more diversified revenue streams.
<PAGE>
Net Interest Income
Net interest income (expressed on a tax equivalent basis) improved to
$62.1 million, or 4.75% of interest-earning assets, for the three months ended
March 31, 2001, from $55.6 million, or 4.85% of interest-earning assets, for the
comparable period in 2000. We credit the improved net interest income primarily
to the net interest-earning assets provided by our aforementioned acquisitions
completed during 2000, internal loan growth, increased yields on
interest-earning assets and earnings on our interest rate swap agreements that
we entered into in conjunction with our risk management program.
Average loans, net of unearned discount, increased by $710.0 million to
$4.80 billion for the three months ended March 31, 2001 from $4.09 billion for
the comparable period in 2000. The yield on our loan portfolio increased to
9.06% for the three months ended March 31, 2001, in comparison to 8.83% for the
comparable period in 2000. Although yields on our interest-earning assets have
improved for the three months ended March 31, 2001, our net interest rate margin
declined 10 basis points. We attribute the decline in our net interest rate
margin primarily to the recent declines in the prime lending rate, which we
anticipate will continue to occur in the upcoming months. During the period from
January 1, 2001 through March 31, 2001, the Board of Governors of the Federal
Reserve System decreased the targeted federal funds rate three times, resulting
in three decreases in the prime rate of interest from 9.5% to 8.0%. 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.
As further discussed under "--Interest Rate Risk Management," the reduced level
of interest income earned on our loan portfolio as a result of declining rates
was partially mitigated by the earnings associated with our interest rate swap
agreements. For the three months ended March 31, 2001, these agreements provided
income of $973,000, in comparison to expense of $652,000 incurred for the
comparable period in 2000.
The improved yield earned on our interest-earning assets was partially
offset by an increased rate paid on our interest-bearing liabilities. For the
three months ended March 31, 2001, the aggregate weighted average rate paid on
our deposit portfolio increased to 4.90% from 4.31% for the comparable period in
2000, reflecting increased rates paid by us to attract and retain deposits as a
result of the high level of competition within our market areas. In addition,
the aggregate weighted average rate paid on our notes payable and other
borrowings increased to 7.25% for the three months ended March 31, 2001 from
7.13% for the comparable period in 2000. Amounts outstanding under our $120.0
million line of credit with a group of unaffiliated banks bear interest at the
lead bank's corporate base rate or, at our option, at the Eurodollar rate plus a
margin determined by the outstanding balance and our profitability. Thus, our
revolving credit line represents a relatively high-cost funding source, so that
increased advances under the revolving note payable have the effect of
increasing the weighted average rate of non-deposit liabilities. During 2000, we
utilized the note payable to fund our acquisitions of Commercial Bank of San
Francisco, Millennium Bank and Bank of San Francisco, thus resulting in a higher
level of borrowings occurring during the fourth quarter of 2000.
<PAGE>
The following table sets forth, on a tax-equivalent basis, certain
information relating to our average balance sheets, and reflects the average
yield earned on our interest-earning assets, the average cost of our
interest-bearing liabilities and our resulting net interest income for the
periods indicated.
<TABLE>
<CAPTION>
For the three months ended March 31,
-----------------------------------------------------
2001 2000
------------------------ ------------------------
Interest Interest
Average income/ Yield/ Average income/ Yield/
balance expense rate balance expense rate
------- ------- ---- ------- ------- ----
(dollars expressed in thousands)
ASSETS
------
Interest-earning assets:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans (1) (2) (3)(4) ................................. $ 4,797,109 107,138 9.06% $4,086,591 89,753 8.83%
Investment securities (4) ............................ 469,178 8,606 7.44 440,803 7,002 6.39
Federal funds sold.................................... 29,257 428 5.93 81,320 1,126 5.57
Other................................................. 3,133 67 8.67 2,231 43 7.75
----------- -------- ---------- -------
Total interest-earning assets.................... 5,298,677 116,239 8.90 4,610,945 97,924 8.54
-------- -------
Nonearning assets......................................... 507,906 368,737
----------- ----------
Total assets..................................... $ 5,806,583 $4,979,682
=========== ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY
--------------------
Interest-bearing liabilities:
Interest-bearing deposits:
Interest-bearing demand deposits................... $ 454,497 1,673 1.49% $ 423,088 1,465 1.39%
Savings deposits................................... 1,425,876 14,183 4.03 1,225,323 11,636 3.82
Time deposits of $100 or more (3).................. 519,358 7,876 6.15 236,937 3,014 5.12
Other time deposits (3)............................ 1,812,460 27,189 6.08 1,847,003 23,908 5.21
----------- -------- ---------- -------
Total interest-bearing deposits.................. 4,212,191 50,921 4.90 3,732,351 40,023 4.31
Short-term borrowings................................. 158,773 1,989 5.08 87,183 1,109 5.12
Notes payable and other............................... 68,806 1,230 7.25 65,126 1,155 7.13
---------- -------- ---------- -------
Total interest-bearing liabilities............... 4,439,770 54,140 4.95 3,884,660 42,287 4.38
-------- -------
Noninterest-bearing liabilities:
Demand deposits....................................... 711,523 587,417
Other liabilities..................................... 294,761 212,342
----------- ----------
Total liabilities................................ 5,446,054 4,684,419
Stockholders' equity...................................... 360,529 295,263
----------- ----------
Total liabilities and stockholders' equity....... $ 5,806,583 $4,979,682
=========== ==========
Net interest income....................................... 62,099 55,637
======== ======
Interest rate spread...................................... 3.95% 4.16%
Net interest margin....................................... 4.75 4.85
==== ====
</TABLE>
------------------------
(1) 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 $202,000 and
$207,000 for the three months ended March 31, 2001 and 2000, respectively.
<PAGE>
Provision for Loan Losses
The provision for loan losses was $3.4 million and $3.6 million for the
three months ended March 31, 2001 and 2000, respectively. We attribute the
slight decrease in the provision for loan losses primarily to management's
overall assessment of the adequacy of the allowance for loan losses. Loan
charge-offs were $8.9 million for the three months ended March 31, 2001, in
comparison to $3.2 million for the comparable period in 2000. Included in 2001
loan charge-offs is a single loan in the amount of $4.5 million that was
charged-off due to suspected fraud on the part of the borrower. Excluding the
large individual charge-off, we attribute the increase in loan charge-offs
primarily to the recent general slow down in economic conditions prevalent in
our markets, which we anticipate will continue in the upcoming months. Loan
recoveries were $1.9 million for the three months ended March 31, 2001, in
comparison to $4.1 million for the comparable period in 2000. Loan recoveries
for the three months ended March 31, 2000 included a recovery of $1.3 million on
a single credit relationship. Nonperforming assets and past-due loans have
increased during the three months ended March 31, 2001, and we anticipate these
trends will continue in the near future. However, we believe these trends
represent normal cyclical trends experienced within the banking industry during
times of economic slow down. Management considered these trends in its overall
assessment of the adequacy of the allowance for loan losses and concluded that
no additional provision for loan losses was necessary.
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 $16.5 million and $9.6 million for the three
months ended March 31, 2001 and 2000, respectively. Noninterest income consists
primarily of service charges on deposit accounts and customer service fees,
mortgage banking revenues, a gain on the sale of our credit card portfolio and
other income.
Service charges on deposit accounts and customer service fees were $5.2
million and $4.6 million for the three months ended March 31, 2001 and 2000,
respectively. We attribute the increase in service charges and customer service
fees to:
>> increased deposit balances provided by internal growth;
>> our acquisitions completed during 2000;
>> additional products and services available and utilized by our
expanding base of retail and commercial customers;
>> increased fee income resulting from revisions of customer service
charge rates, effective June 1, 2000, and enhanced control of fee
waivers; and
>> increased income associated with automatic teller machine services and
debit and credit cards.
The gain on mortgage loans sold and held for sale was $3.5 million and
$1.4 million for the three months ended March 31, 2001 and 2000, respectively.
The overall increase for the three months ended March 31, 2001 is primarily
attributable to a significant increase in the volume of loans originated and
sold resulting from loan refinancings due to reductions in mortgage loan rates
experienced in recent months. We also attribute the increase to the continued
expansion of our mortgage banking activities into new and existing markets.
<PAGE>
During the three months ended March 31, 2001, we recorded a $2.3
million pre-tax gain on the sale of our credit card portfolio. This gain is
solely attributable to the sale of our credit card portfolio as a result of a
strategic decision to exit this product line and enter into an agent
relationship with a larger credit card service provider.
Noninterest income for the three months ended March 31, 2001 also
included a net loss on the sale of available-for-sale investment securities of
$174,000, in comparison to a net gain on the sale of available-for-sale
investment securities of $379,000 for the comparable period in 2000. The net
loss for 2001 resulted primarily from the liquidation of certain equity
investment securities held by FBA that resulted in a loss of $134,000, whereas
the net gain in 2000 resulted primarily from sales of certain investment
securities held by acquired institutions that did not meet our overall
investment objectives.
The net gain on derivative instruments is solely attributable to
changes in the fair value of our interest rate cap agreements and interest rate
floor agreements, and results from the implementation of SFAS No. 133, as
amended, on January 1, 2001. See Note 2 to our accompanying consolidated
financial statements.
Other income was $5.2 million and $3.2 million for the three months
ended March 31, 2001 and 2000, respectively. We attribute the primary components
of the increase to:
>> our acquisitions completed during 2000;
>> increased portfolio management fee income of $667,000 associated with
with our Institutional Money Management Division, which was formed in
in August 2000;
>> increased brokerage revenue, which is primarily associated with the
the stock option services acquired in conjunction with our acquisition
of Bank of San Francisco;
>> increased rental income of $413,000 associated with our commercial
leasing activities that were acquired in conjunction with our
acquisition of FCG in February 2000.
<PAGE>
>> increased earnings associated with our international banking products,
which were initially offered in March 2000; and
>> income of approximately $300,000 associated with equipment leasing
activities that were acquired in conjunction with our acquisition of
of Bank of San Francisco in December 2000.
Noninterest Expense
Noninterest expense was $51.6 million for the three months ended March
31, 2001, in comparison to $37.8 million for the comparable period in 2000. The
increase reflects:
>> the noninterest expense of our acquisitions completed during 2000
subsequent to the respective acquisition dates, including certain
nonrecurring expenses associated with those acquisitions;
>> increased salaries and employee benefit expenses;
>> increased data processing fees;
>> increased legal, examination and professional fees;
>> increased amortization of intangibles associated with the purchase of
subsidiaries; and
>> increased guaranteed preferred debentures expense.
Salaries and employee benefits were $22.5 million and $16.9 million for
the three months ended March 31, 2001 and 2000, respectively. We primarily
associate the increase with our 2000 acquisitions. However, the increase also
reflects 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
throughout 2000 to enhance executive and senior management expertise, improve
technological support, strengthen centralized operational functions and expand
our product lines.
Occupancy, net of rental income, and furniture and equipment expense
totaled $7.3 million and $5.9 million for the three months ended March 31, 2001
and 2000, respectively. We primarily attribute the increase to our
aforementioned acquisitions, the relocation of certain branches and operational
areas and increased depreciation expense associated with numerous capital
expenditures.
Data processing fees were $6.5 million and $5.2 million for the three
months ended March 31, 2001 and 2000, respectively. As more fully described in
Note 4 to our accompanying consolidated financial statements, First Services,
L.P. provides data processing and various related services to our subsidiaries
and us. We attribute the increased data processing fees to growth and
technological advancements consistent with our product and service offerings,
continued upgrades to technological equipment, networks and communication
channels, and certain nonrecurring expenses associated with the data processing
conversions of Redwood Bank and Commercial Bank of San Francisco, completed in
February 2001 and March 2001, respectively.
Legal, examination and professional fees were $1.7 million and $989,000
for the three months ended March 31, 2001 and 2000, respectively. We primarily
attribute the increase in these fees to the ongoing professional services
utilized by certain of our acquired entities, increased professional fees
associated with our Institutional Money Management Division, which was formed in
August 2000, and increased legal fees associated with commercial loan
documentation, collection efforts and certain defense litigation, which we
expect to continue in the near future.
Amortization of intangibles associated with the purchase of
subsidiaries was $1.9 million and $1.2 million for the three months ended March
31, 2001 and 2000, respectively. The increase for 2001 is attributable to
amortization of the cost in excess of the fair value of the net assets acquired
of the six acquisitions that we completed during 2000.
Guaranteed preferred debentures expense increased by $1.5 million to
$4.5 million from $3.0 million for the three months ended March 31, 2001 and
2000, respectively. The increase for 2001 is solely attributable to the issuance
of trust preferred securities in October 2000 by our financing subsidiary, First
Preferred Capital Trust II.
<PAGE>
Other expense was $6.2 million and $3.5 million for the three months
ended March 31, 2001 and 2000, respectively. Other expense encompasses numerous
general and administrative expenses including but not limited to travel, meals
and entertainment, insurance, freight and courier services, correspondent bank
charges, advertising and business development, miscellaneous losses and
recoveries, memberships and subscriptions, transfer agent fees and sales taxes.
We attribute the majority of the increase in other expense to:
>> our acquisitions completed during 2000;
>> increased advertising and business development expenses associated with
various product and service initiatives and enhancements;
>> increased travel expenses primarily associated with business
evelopment efforts and the ongoing integration of the recently
acquired entities into our corporate culture and systems; and
>> overall continued growth and expansion of our banking franchise.
Provision for Income Taxes
The provision for income taxes was $9.1 million and $8.5 million for
the three months ended March 31, 2001 and 2000, representing an effective income
tax rate of 39.1% and 36.2%, respectively. The increase in the effective income
tax rate for the three months ended March 31, 2001 is primarily attributable to
>> the increase in amortization of intangibles associated with the
purchase of subsidiaries; and
>> a reduction of the deferred tax asset valuation reserve of $404,000
related to the utilization of net operating losses associated with a
previously acquired entity, which was recorded in March 2000.
Interest Rate Risk Management
We utilize derivative financial instruments and hedging activities to
assist in our management of interest rate sensitivity and to modify the
repricing, maturity and option characteristics of certain assets and
liabilities. We limit the use of such derivative financial instruments to reduce
our interest rate exposure. The derivative instruments we hold, for purposes of
managing interest rate risk, are summarized as follows:
<TABLE>
<CAPTION>
March 31, 2001 December 31, 2000
---------------------- ----------------------
Notional Credit Notional Credit
amount exposure amount exposure
------ -------- ------ --------
(dollars expressed in thousands)
<S> <C> <C> <C> <C>
Cash flow hedges....................................... $1,255,000 291 1,055,000 3,449
Fair value hedges...................................... 250,000 873 50,000 758
Interest rate floor agreements......................... 310,000 5,453 35,000 6
Interest rate cap agreements........................... 450,000 1,352 450,000 3,753
Interest rate lock commitments......................... 30,100 -- 4,100 --
Forward commitments to sell mortgage-backed securities. 98,000 -- 32,000 --
========== ====== ======= ======
</TABLE>
The notional amounts of derivative financial instruments do not
represent amounts exchanged by the parties and, therefore, are not a measure of
our credit exposure through our use of these instruments. The credit exposure
represents the accounting loss we 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, we entered into $280.0 million notional amount interest
rate swap agreements to effectively lengthen the repricing characteristics of
certain interest-earning assets to correspond more closely with their funding
source with the objective of stabilizing cash flow, and accordingly, net
interest income, over time. The swap agreements, which have been designated as
cash flow hedges, initially provided for us to receive a fixed rate of interest
and pay an adjustable rate of interest equivalent to the 90-day London Interbank
Offering Rate. In March 2000, the terms of the swap agreements were modified
such that we currently pay 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 us to pay quarterly and receive payment semiannually. The
amount receivable by us under the swap agreements was $845,000 and $4.1 million
at March 31, 2001 and December 31, 2000, respectively, and the amount payable by
us under the swap agreements was $654,000 and $744,000 at March 31, 2001 and
December 31, 2000, respectively.
<PAGE>
During September 1999, we 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 their funding source with the objective of stabilizing cash flow, and
accordingly, net interest income, over time. The swap agreements, which had been
designated as cash flow hedges, provided for us to receive a fixed rate of
interest and pay an adjustable rate of interest equivalent to the weighted
average prime lending rate minus 2.70%. The terms of the swap agreements
provided for us to pay and receive interest on a quarterly basis. In April 2001,
we terminated these swap agreements, which would have expired in September 2001,
in order to lengthen the period covered by the swaps. In conjunction with the
termination of these swap agreements, we recorded a pre-tax gain of $985,000.
The amount receivable by us under the swap agreements was $119,000 at December
31, 2000, and the amount payable by us under the swap agreements was $165,000 at
December 31, 2000.
During September 2000, we entered into $600.0 million notional amount
of interest rate swap agreements to effectively lengthen the repricing
characteristics of certain interest-earning assets to correspond more closely
with their funding source with the objective of stabilizing cash flow, and
accordingly, net interest income, over time. The swap agreements, which have
been designated as cash flow hedges, provide for us to receive a fixed rate of
interest and pay an adjustable rate of interest equivalent to the weighted
average prime lending rate minus 2.70%. The terms of the swap agreements provide
for us to pay and receive interest on a quarterly basis. The amount receivable
by us under the swap agreements was $1.2 million at March 31, 2001 and December
31, 2000, and the amount payable by us under the swap agreements was $1.1
million and $1.2 million at March 31, 2001 and December 31, 2000, respectively.
In conjunction with these interest rate swap agreements, we also entered into
$450.0 million notional amount of interest rate cap agreements to limit the net
interest expense associated with the interest rate swap agreements. The interest
rate cap agreements have maturity dates of September 20, 2004 and provide for us
to receive a quarterly adjustable rate of interest equivalent to the
differential between the three-month London Interbank Offering Rate and the
strike price of 7.50% should the three-month London Interbank Offering Rate
exceed 7.50%. At March 31, 2001 and December 31, 2000, the carrying value of
these interest rate cap agreements, which is included in derivative instruments
in the accompanying consolidated balance sheet, was $1.4 million and $3.8
million, respectively.
During September 2000, we entered into $25.0 million notional amount of
one-year interest rate swap agreements and $25.0 million of five and one-half
year interest rate swap agreements to effectively shorten the repricing
characteristics of certain interest-bearing liabilities with the objective of
stabilizing net interest income over time. The swap agreements, which have been
designated as fair value hedges, provide for us to receive fixed rates of
interest ranging from 6.60% to 7.25% and pay an adjustable rate equivalent to
the three-month London Interbank Offering Rate minus rates ranging from 0.02% to
0.11%. The terms of the swap agreements provide for us to pay interest on a
quarterly basis and receive interest either on a semiannual basis or an annual
basis. The amount receivable by us under the swap agreements was $967,000 and
$1.0 million at March 31, 2001 and December 31, 2000, respectively, and the
amount payable by us under the swap agreements was $94,000 and $119,000 at March
31, 2001 and December 31, 2000, respectively.
During January 2001, we entered into $200.0 million notional amount of
interest rate swap agreements to effectively shorten the repricing
characteristics of certain interest-bearing liabilities with the objective of
stabilizing net interest income over time. The swap agreements, which have been
designated as fair value hedges, provide for us to receive a fixed rate of
interest and pay an adjustable rate of interest equivalent to the three-month
London Interbank Offering Rate. The terms of the swap agreements provide for us
to pay and receive interest on a quarterly basis. The amount receivable by us
under the swap agreements was $2.5 million at March 31, 2001, and the amount
payable by us under the swap agreements was $2.6 million at March 31, 2001.
During January 2001, we also entered into $200.0 million notional
amount of an interest rate floor agreements to further stabilize our net
interest income in the event of a falling rate scenario. The interest rate floor
agreements have maturity dates of January 9, 2004, and provide for us to receive
a quarterly adjustable rate of interest equivalent to the differential between
the three-month London Interbank Offering Rate and the strike price of 5.50%
should the three-month London Interbank Offering Rate fall below 5.50%. At March
31, 2001, the carrying value of these interest rate floor agreements, which is
included in derivative instruments in the accompanying consolidated balance
sheet, was $4.5 million.
<PAGE>
During March 2001, we entered into $200.0 million notional amount of
interest rate swap agreements to effectively lengthen the repricing
characteristics of certain interest-earning assets to correspond more closely
with their funding source with the objective of stabilizing cash flow, and
accordingly, net interest income, over time. The swap agreements, which have
been designated as cash flow hedges, provide for us to receive a fixed rate of
interest and pay an adjustable rate of interest equivalent to the weighted
average prime lending rate minus 2.82%. The terms of the swap agreements provide
for us to pay and receive interest on a quarterly basis. The amount receivable
by us under the swap agreements was $291,000 at March 31, 2001, and the amount
payable by us under the swap agreements was $317,000 at March 31, 2001.
During March 2001, we also entered into $75.0 million notional amount
of an interest rate floor agreement to further stabilize our net interest income
in the event of a falling rate scenario. The interest rate floor agreement has a
maturity date of March 21, 2004, and provides for us to receive a quarterly
adjustable rate of interest equivalent to the differential between the
three-month London Interbank Offering Rate and the strike price of 5.00% should
the three-month London Interbank Offering Rate fall below 5.00%. At March 31,
2001, the carrying value of this interest rate floor agreement, which is
included in derivative instruments in the accompanying consolidated balance
sheet, was $1.0 million.
During the three months ended March 31, 2001, the net interest income
realized on our derivative financial instruments was $973,000, in comparison to
net interest expense of $652,000 realized on our derivative financial
instruments for the comparable period in 2000.
At March 31, 2001, we had pledged investment securities available for
sale with a carrying value of $9.6 million in connection with our interest rate
swap agreements. In addition, at March 31, 2001, we had accepted investment
securities with a fair value of $31.4 million as collateral in connection with
the interest rate swap agreements. We are permitted by contract to sell or
repledge the collateral accepted from our counterparties, however, at March 31,
2001, we had not sold or repledged any of this collateral.
The maturity dates, notional amounts, interest rates paid and received
and fair value of interest rate swap agreements outstanding as of March 31, 2001
and December 31, 2000 were as follows:
<TABLE>
<CAPTION>
Notional Interest rate Interest rate Fair
Maturity date amount paid received value
------------- ------ ---- -------- -----
(dollars expressed in thousands)
March 31, 2001:
<S> <C> <C> <C> <C>
September 13, 2001.............................. $ 12,500 5.02% 6.80% $ 103
September 21, 2001.............................. 12,500 4.83 6.60 109
September 27, 2001.............................. 175,000 5.30 6.14 1,164
June 11, 2002................................... 15,000 5.30 6.00 219
September 16, 2002.............................. 195,000 5.30 5.36 1,619
September 18, 2002.............................. 70,000 5.30 5.33 549
January 9, 2004................................. 50,000 5.70 5.37 397
September 20, 2004.............................. 600,000 5.30 6.78 30,630
March 21, 2005.................................. 200,000 5.18 5.24 33
January 9, 2006................................. 150,000 5.70 5.51 648
March 13, 2006.................................. 12,500 4.93 7.25 (171)
March 22, 2006.................................. 12,500 4.78 7.20 (160)
---------- ---------
$1,505,000 5.32 6.07 $ 35,140
========== ===== ===== =========
December 31, 2000:
September 13, 2001.............................. $ 12,500 6.56% 6.80% 42
September 21, 2001.............................. 12,500 6.47 6.60 43
September 27, 2001.............................. 175,000 6.80 6.14 65
June 11, 2002................................... 15,000 6.80 6.00 7
September 16, 2002.............................. 195,000 6.80 5.36 (1,776)
September 18, 2002.............................. 70,000 6.80 5.33 (690)
September 20, 2004.............................. 600,000 6.80 6.78 16,869
March 13, 2006.................................. 12,500 6.47 7.25 5
March 22, 2006.................................. 12,500 6.39 7.20 6
---------- ---------
$1,105,000 6.70 6.43 $ 14,571
========== ===== ===== =========
</TABLE>
<PAGE>
Loans and Allowance for Loan Losses
Interest earned on our loan portfolio represents the principal source
of income for our subsidiary banks. Interest and fees on loans were 92.3% and
91.8% of total interest income for the three months ended March 31, 2001 and
2000, respectively. Total loans, net of unearned discount, increased $90.0
million to $4.84 billion, or 82.7% of total assets, at March 31, 2001, compared
to $4.75 billion, or 80.9% of total assets, at December 31, 2000. The increase
in loans, as summarized on our consolidated balance sheets, is primarily
attributable to an increase of $114.3 million in our loans held for sale
portfolio to $183.4 million at March 31, 2001 from $69.1 million at December 31,
2000. We attribute this increase to be the direct result of a significantly
higher volume of residential mortgage loans originated, including both new
fundings as well as refinancings, as a result of declining interest rates
experienced during the first quarter of 2001. This increase was partially offset
by a decline in our consumer and installment portfolio, net of unearned
discount, to $123.2 million at March 31, 2001 from $174.3 million at December
31, 2000. This decrease reflects reductions in new loan volumes, repayment of
principal on the existing portfolio and the sale of our credit card portfolio,
and is also consistent with our objectives of de-emphasizing indirect automobile
lending and expanding commercial lending. In addition, the overall increase in
loans, net of unearned discount, was further offset by an anticipated amount of
attrition associated with our acquisitions completed during the fourth quarter
of 2000. While we anticipate some additional run-off of the loan portfolio
associated with our recent acquisitions, we do not expect this trend to continue
this year.
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:
<TABLE>
<CAPTION>
March 31, December 31,
2001 2000
---- ----
(dollars expressed in thousands)
Commercial, financial and agricultural:
<S> <C> <C>
Nonaccrual..................................................... $ 28,643 22,437
Restructured terms............................................. -- 22
Real estate construction and development:
Nonaccrual..................................................... 11,302 11,068
Real estate mortgage:
Nonaccrual..................................................... 24,272 16,524
Restructured terms............................................. 2,944 2,952
Consumer and installment:
Nonaccrual..................................................... 34 155
Restructured terms............................................. 8 8
----------- ----------
Total nonperforming loans.................................. 67,203 53,166
Other real estate................................................... 2,558 2,487
----------- ----------
Total nonperforming assets................................. $ 69,761 55,653
=========== ==========
Loans, net of unearned discount..................................... $ 4,835,077 4,752,265
=========== ==========
Loans past due 90 days or more and still accruing................... $ 9,474 3,009
=========== ==========
Allowance for loan losses to loans.................................. 1.61% 1.72%
Nonperforming loans to loans........................................ 1.39 1.12
Allowance for loan losses to nonperforming loans.................... 116.06 153.47
Nonperforming assets to loans and other real estate................. 1.44 1.17
=========== ==========
</TABLE>
Nonperforming loans (also considered impaired loans), consisting of
loans on nonaccrual status and certain restructured loans, were $67.2 million at
March 31, 2001 in comparison to $53.2 million at December 31, 2000. We attribute
the increase in nonperforming loans and past-due loans to be reflective of
normal, cyclical trends experienced within the banking industry during times of
economic slow down. Consistent with the recent general economic slow down
experienced within our prevalent markets, we anticipate this trend will continue
in the upcoming months and therefore, we expect our nonperforming loans and
past-due loans to remain at a higher level in the near future. Despite the
increase in nonperforming loans, these loans represent only 1.39% of our loan
portfolio.
<PAGE>
The following table is a summary of loan loss experience for the
periods indicated:
<TABLE>
<CAPTION>
Three months ended
March 31,
----------------------
2001 2000
---- ----
(dollars expressed in thousands)
<S> <C> <C>
Allowance for loan losses, beginning of period......................... $ 81,592 68,611
Acquired allowances for loan losses............................... -- 799
--------- -------
81,592 69,410
--------- -------
Loans charged-off................................................. (8,903) (3,214)
Recoveries of loans previously charged-off........................ 1,917 4,081
--------- -------
Net loan (charge-offs) recoveries................................. (6,986) 867
--------- -------
Provision for loan losses......................................... 3,390 3,582
--------- -------
Allowance for loan losses, end of period............................... $ 77,996 73,859
========= =======
</TABLE>
The allowance for loan losses is monitored on a monthly basis. Each
month, the credit administration department provides management with detailed
lists of loans on the watch list and summaries of the entire loan portfolio of
each subsidiary bank by risk rating. These are coupled with analyses of changes
in the risk profiles of the portfolios, changes in past-due and nonperforming
loans and changes in watch list and classified loans over time. In this manner,
we continually monitor the overall increases or decreases in the levels of risk
in the portfolios. Factors are applied to the loan portfolios for each category
of loan risk to determine acceptable levels of allowance for loan losses. We
derive these factors from the actual loss experience of our 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 a certain degree of
judgment in its analysis of the overall adequacy 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 we operate. Based on this
quantitative and qualitative analysis, provisions are made to the allowance for
loan losses. Such provisions are reflected in our consolidated statements of
income.
Liquidity
Our liquidity and the liquidity of our 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. Our
subsidiary banks receive funds for liquidity from customer deposits, loan
payments, maturities of loans and investments, sales of investments and
earnings. In addition, we may avail ourselves of other sources of funds by
issuing certificates of deposit in denominations of $100,000 or more, borrowing
federal funds, selling securities sold under agreements to repurchase and
utilizing borrowings from the Federal Home Loan Banks and other borrowings,
including our revolving credit line. The aggregate funds acquired from these
sources were $718.4 million and $723.5 million at March 31, 2001 and December
31, 2000, respectively.
The following table presents the maturity structure of these other
sources of funds, which consists of certificates of deposit of $100,000 or more,
short-term borrowings and our revolving note payable, at March 31, 2001:
(dollars expressed
in thousands)
Three months or less............................... $ 320,010
Over three months through six months............... 143,026
Over six months through twelve months.............. 113,087
Over twelve months................................. 142,318
---------
Total....................................... $ 718,441
=========
<PAGE>
In addition to these sources of funds, our subsidiary banks have
established borrowing relationships with the Federal Reserve Banks in their
respective districts. These borrowing relationships, which are secured by
commercial loans, provide an additional liquidity facility that may be utilized
for contingency purposes. At March 31, 2001 and December 31, 2000, the borrowing
capacity of our subsidiary banks under these agreements was approximately $917.5
million and $1.24 billion, respectively. In addition, our subsidiary banks'
borrowing capacity through their relationships with the Federal Home Loan Banks
was approximately $330.3 million and $262.1 million at March 31, 2001 and
December 31, 2000, respectively.
Management believes the available liquidity and operating results of
our subsidiary banks will be sufficient to provide funds for growth and to
permit the distribution of dividends to us sufficient to meet our operating and
debt service requirements, both on a short-term and long-term basis, and to pay
the dividends on the trust preferred securities issued by our financing
subsidiaries, First Preferred Capital Trust I and First Preferred Capital Trust
II, and FBA's financing subsidiary, First America Capital Trust.
Effects of New Accounting Standards
In September 2000, the FASB issued SFAS No. 140 -- Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,
a replacement of FASB Statement 125. SFAS 140 revises the standards for
accounting for securitizations and other transfers of financial assets and
collateral and requires certain disclosures. SFAS 140 provides accounting and
reporting standards for transfers and servicing of financial assets and
extinguishments of liabilities which are based on the consistent application of
a financial-components approach. SFAS 140 is effective for transfers and
servicing of financial assets and extinguishments of liabilities occurring after
March 31, 2001, and is effective for recognition and reclassification of
collateral and for disclosures relating to securitization transactions and
collateral for fiscal years ending after December 15, 2001. On December 31,
2000, we implemented the disclosure requirements of SFAS 140, which did not have
a material effect on our consolidated financial statements. We have evaluated
the additional requirements of SFAS 140 to determine their potential impact on
our consolidated financial statements and do not believe they will have a
material effect on our consolidated financial statements.
<PAGE>
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
At December 31, 2000, our 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 relatively minimal impact on our net interest income, an
instantaneous, parallel decline in the interest yield curve of 100 basis points
indicated a pre-tax projected loss of approximately 5.2% of net interest income,
and an instantaneous, parallel decline in the interest yield curve of 200 basis
points indicated a pre-tax projected loss of approximately 7.1% of net interest
income, based on assets and liabilities at December 31, 2000. At March 31, 2001,
we remain in an "asset-sensitive" position and thus, remain subject to a higher
level of risk in a declining interest-rate environment, as experienced during
the first quarter of 2001. Although we do not anticipate that instantaneous
shifts in the yield curve as projected in our simulation model are likely, these
are indications of the effects that changes in rates would have over time. Our
asset-sensitive position, coupled with reductions in the prime lending rate
throughout the last three months, is reflected in our reduced net interest rate
margin for the three months ended March 31, 2001 as further discussed under
"--Results of Operations." During the three months ended March 31, 2001, our
asset-sensitive position and overall susceptibility to market risks have not
changed materially.
<PAGE>
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
-------------- -----------
None Not Applicable
(b) We filed no reports on Form 8-K during the three months ended March 31,
2001.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
FIRST BANKS, INC.
By: /s/ James F. Dierberg
------------------------------------------
James F. Dierberg
Chairman of the Board of Directors
and Chief Executive Officer
May 14, 2001 (Principal Executive Officer)
By: /s/ Frank H. Sanfilippo
------------------------------------------
Frank H. Sanfilippo
Executive Vice President and
Chief Financial Officer
May 14, 2001 (Principal Financial
and Accounting Officer)
</TEXT>
</DOCUMENT>