<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
(Mark one)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 0-8937
First Banks America, Inc.
(Exact name of registrant as specified in its charter)
Delaware 75-1604965
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
8820 Westheimer Road
P.O. Box 630369
Houston, Texas 77263-0369
(Address of principal executive offices) (Zip Code)
(713) 781-7171
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12 (b) of the Act:
Name of each exchange on
Title of class which registered
Common Stock, $.01 Par Value Per Share New York Stock Exchange
Securities registered pursuant to Section 12 (g) of the Act: None
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by nonaffiliates of the
registrant, based on the closing price of the Common Stock on the New York Stock
Exchange on March 19, 1996 was $12,752,417. For purposes of this computation,
officers, directors and 5% beneficial owners of the registrant are deemed to be
affiliates. Such determination should not be deemed an admission that such
directors, officers or 5% beneficial owners are, in fact, affiliates of the
registrant.
As of March 19, 1996, 1,314,663 shares of the registrant's Common Stock,
$.15 par value and 2,500,000 shares of the registrant's Class B Common Stock,
$.15 par value, were outstanding. Documents incorporated by reference: Portions
of the Annual Report to Stockholders for the year ended December 31, 1995 are
incorporated by reference into Part I and II of this report.
<PAGE>
PART I
Item 1. Business
General
First Banks America, Inc., a bank holding company headquartered in Houston,
Texas ("FBA" or the "Company"), was organized as a Delaware corporation in 1978
and was known as BancTEXAS Group Inc. until the corporate name changed in August
1995. The Company's executive office is located at 8820 Westheimer Road,
Houston, Texas. The principal function of the Company is to assist the
management of its banking subsidiary, BankTEXAS N.A. (the "Bank") in asset and
liability management, planning, operating policies and procedures, loan
participation, personnel management, internal audit and control procedures, loan
review and regulatory compliance. The Bank operates under the day-to-day
management of its own officers with guidance from FBA.
At December 31, 1995, FBA had, on a consolidated basis, approximately
$296.6 million in total assets, $187.3 million in total loans net of unearned
discount, $249.2 million in total deposits, and $35.2 million in total
stockholders' equity.
The Bank is headquartered at 8820 Westheimer Road, Houston, Texas. Through
its six offices located in Houston, Dallas, McKinney and Irving, Texas, the Bank
offers a broad range of commercial and personal banking services including
certificates of deposit accounts, individual retirement and other time deposit
accounts, checking and other demand deposit accounts, interest checking
accounts, savings accounts and money market accounts. The Bank also offers
various types of loans to its customers, which include commercial and
industrial, commercial and residential real estate, real estate construction and
development, and consumer and installment loans. In addition, the Bank makes
available to its customers other financial services, which include automatic
teller machines, credit-related insurance and safe deposit boxes.
In 1994 FBA issued and sold 2,500,000 shares of Class B common stock (the
"Class B Stock") in exchange for $30 million cash in a private placement. The
purchaser of the Class B Stock was First Banks, Inc., a multi-bank holding
company headquartered in St. Louis, Missouri ("First Banks"). As a result of
this transaction, First Banks became the owner of approximately 65.05% of the
then outstanding voting stock of FBA, which includes the Class B Common Stock
and the class of common stock owned by all other stockholders (referred to
herein as the "Common Stock"). The Class B Stock is generally equivalent to the
Common Stock except that it is not registered with the Securities and Exchange
Commission, not listed on any exchange and, with limited exceptions, it is not
transferable, other than to an affiliate of First Banks. In the event FBA were
to commence the payment of dividends to its shareholders, the Class B Stock
would receive dividends only to the extent that the dividends on the Common
Stock exceed $.45 per share annually. The terms of the Class B Stock allow First
Banks to purchase additional shares of Class B Stock if a sufficient number of
additional shares of Common Stock are issued to cause its ownership to fall
below 55%, at prices to be determined based on a formula related to the book
value per share of common stock. The Class B Stock is convertible into shares of
Common Stock at any time after August 31, 1999 at the option of First Banks.
<PAGE>
The Company implemented a one-for-fifteen reverse stock split effective
August 31, 1995, whereby each fifteen shares of Common Stock and Class B Common
Stock were converted into one share of Common Stock and Class B Common Stock,
respectively, and the par values of each share of stock of each class was
changed from $.01 to $.15. References in this report to either class of such
stock refer to the same after giving effect to the reverse stock split, and the
numbers of shares referred to in periods prior to the effective date of the
reverse stock split are restated in this Report to give effect to the reverse
stock split.
Following the private placement of Class B Common Stock, the Company and
the Bank began purchasing certain services and supplies, including data
processing services, internal auditing, loan review, income tax preparation and
assistance, accounting, asset/liability and investment services, loan servicing
and other management and administrative services, through its majority
stockholder, First Banks. Additional information regarding the nature of the
arrangements with First Banks appears in Note 14 to the Consolidate Financial
Statements in the 1995 Annual Report to Stockholders and is incorporated herein
by reference.
For a description of the general business of FBA during the past year, see
"Management's Discussion and Analysis - General" on page 3 of the FBA 1995
Annual Report to Stockholders, which is incorporated herein by reference.
The Company's Market Areas
The banking industry in Texas and the Company are affected by general
economic conditions at the federal and state levels and in the localities in
which operations are conducted; these general conditions include changes in
prevailing rates of interest, inflation and unemployment as well as business
trends and numerous other factors beyond the Company's control. The Texas
banking industry has undergone a series of significant changes in the past
several years, during which the Texas economy declined and the conditions of
some industries--particularly the energy and real estate industries-- severely
deteriorated, ultimately affecting large numbers of banks and savings
institutions in the state, including FBA and the Bank. These changes were
responsible in part for the entry into Texas of large banking and thrift
organizations headquartered in other regions of the United States and
contraction in the number of banking organizations based in the state, following
both federally-assisted takeovers and private acquisitions. As the Texas economy
improved beginning in the early 1990's, the trend toward consolidations and
mergers within the financial services industry has continued and accelerated.
FBA's business and operating results will continue to be affected by
changes in national economic conditions and by factors having a particular
impact on the Texas economy or that of the localities in which its banking
operations are conducted. The Company has sought to improve its prospects for
growth and future earnings by identifying potential acquisition targets with
which its operations could be effectively combined. FBA's acquisition efforts
have in the past been limited to Texas banking organizations, but purchase
prices for such organizations have increased significantly in the past several
years. Management and the Board of Directors have decided to pursue potential
banking acquisitions in other markets, particularly in California, without
ruling out future transactions in Texas. No acquisition transactions occurred in
1995.
<PAGE>
Lending Activities
Lending activities are conducted pursuant to a written loan policy which
has been adopted by the Bank. These activities are discussed more fully in the
section of the FBA 1995 Annual Report to Stockholders entitled "Management's
Discussion and Analysis" under the headings "Financial Condition and Average
Balances" and "Loans and Allowance for Possible Loan Losses." Each loan officer
has a defined lending authority, and loans made by each officer must be reviewed
by a loan committee of the Bank or the Bank's board of directors, depending on
the amount of the loan request.
Generally, loans are limited to borrowers residing or doing business in the
Bank's immediate market area. The Company offers the following types of loans:
commercial, financial, agricultural, municipal and industrial development, real
estate construction and development, commercial and residential real estate,
consumer and installment loans. The loan portfolio composition for the five
years ended December 31, 1995 is included on page 12 of the Annual Report to
Stockholders for 1995 and is incorporated herein by reference.
Investment Portfolio
The Company has established a written investment policy which has been
adopted by the Bank and is reviewed annually. The investment policy identifies
investment criteria and states specific objectives in terms of risk, interest
rate sensitivity and liquidity. Among the criteria the investment policy directs
the management of the Bank to consider are the quality, term and marketability
of the securities acquired for its investment portfolio. The Company does not
engage in the practice of trading securities for the purpose of generating
portfolio gains. A description of the investment portfolio composition is
included on pages 30 through 32 of FBA's 1995 Annual Report to Stockholders and
is incorporated herein by reference.
Deposits
The Company's deposits consist principally of core deposits from the Bank's
local market areas. The Bank does not accept brokered deposits. A table
illustrating the distribution of the Bank's deposit accounts and the weighted
average nominal interest rates on each category of deposits for the three years
ending December 31, 1995 is included on page 15 of FBA's 1995 Annual Report to
Stockholders and is incorporated herein by reference.
Competition and Branch Banking
The activities in which the Bank is engaged are highly competitive. Those
activities and the geographic markets served involve primarily competition with
other banks, some of which are affiliated with large bank holding companies.
Competition among financial institutions is based upon interest rates offered on
deposit accounts, interest rates charged on loans and other credit and service
charges, the quality of services rendered, the convenience of banking facilities
and, in the case of loans to large commercial borrowers, relative lending
limits.
<PAGE>
In addition to competing with other banks within its primary service areas,
the Bank also competes with other financial intermediaries, such as thrifts,
credit unions, industrial loan associations, securities firms, insurance
companies, small loan companies, finance companies, mortgage companies, real
estate investment trusts, certain governmental agencies, credit organizations
and other enterprises. Additional competition for depositors' funds comes from
United States Government securities, private issuers of debt obligations and
suppliers of other investment alternatives for depositors. Many of the Company's
non-bank competitors are not subject to the same extensive federal regulations
that govern bank holding companies and federally-insured banks and state
regulations governing state-chartered banks. As a result, such non-bank
competitors may have certain advantages over the Company in providing some
services.
The trend in the Bank's markets has been for multi-bank holding companies
to acquire independent banks and thrifts. The Company believes it will continue
to face competition in the acquisition of banks and thrifts from bank holding
companies. Many of the financial institutions with which the Company competes
are larger than the Company and have substantially greater resources available
for making acquisitions.
Subject to regulatory approval, both commercial banks and thrift
institutions situated in Texas are permitted to establish branches throughout
the state, thereby creating the potential for additional competition in the
services areas of the Bank.
Supervision and Regulation
General
The Company and the Bank are extensively regulated under federal and state
law. These laws and regulations are intended to protect depositors, not
stockholders. To the extent that the following information describes statutory
or regulatory provisions, it is qualified in its entirety by reference to the
particular statutory and regulatory provisions. Changes in applicable laws or
regulations may have a material effect on the business and prospects of the
Company. The operations of the Company may be affected by legislative changes
and by the policies of various regulatory authorities. The Company is unable to
predict the nature or the extent of the effects on its business and earnings
that fiscal or monetary policies, economic controls or new federal or state
legislation may have in the future.
FBA is a registered bank holding company under the Bank Holding Company Act
of 1956, as amended (the "BHC Act") and, as such, is subject to regulation,
supervision and examination by the Board of Governors of the Federal Reserve
System (the "FRB"). FBA's majority stockholder, First Banks, is both a
registered bank holding company and a registered savings and loan holding
company as defined in the Home Owners' Loan Act of 1934, as amended and, as
such, is subject to regulations, supervision and examination by the Office of
Thrift Supervision ("OTS"). FBA is required to file annual reports with the FRB
and to provide the FRB such additional information as they may require.
<PAGE>
The Bank is subject to supervision and regulation by the Office the
Comptroller of the Currency (the "OCC") and the Federal Deposit Insurance
Corporation ("FDIC"), which provides deposit insurance to the Bank.
Recent and Pending Legislation
The enactment of the legislation described below has significantly affected
the banking industry generally and will have an ongoing effect on the Company
and the Bank in the future.
Financial Institutions Reform, Recovery, and Enforcement Act of 1989. The
Financial Institutions Reform, Recovery, and Enforcement Act of 1989 ("FIRREA")
reorganized and reformed the regulatory structure applicable to financial
institutions generally. Among other things, FIRREA enhanced the supervisory and
enforcement powers for the federal bank regulatory agencies; required insured
financial institutions to guaranty repayment of losses incurred by the FDIC in
connection with the failure of an affiliated financial institution; required
financial institutions to provide their primary federal regulator with notice,
under certain circumstances, of changes in senior management and broadened
authority for bank holding companies to acquire savings institutions.
Under FIRREA, federal bank regulators were granted expanded enforcement
authority over "institution-affiliated parties" (i.e., officers, directors,
controlling stockholders, as well as attorneys, appraisers or accountants who
knowingly or recklessly participate in wrongful action likely to have an adverse
effect on an insured institution). Federal banking regulators have greater
flexibility to bring enforcement actions against insured institutions and
institution-affiliated parties, including cease and desist orders, prohibition
orders, civil money penalties, termination of insurance and the imposition of
operating restrictions and capital plan requirements. In general, these
enforcement actions may be initiated for violations of laws and regulations and
unsafe or unsound practices. Since the enactment of FIRREA, the federal bank
regulators have significantly increased the use of written agreements to correct
compliance deficiencies with respect to applicable laws and regulations and to
ensure safe and sound practices. Violations of such written agreements are
grounds for initiation of cease-and-desist proceedings. FIRREA granted the FDIC
back-up enforcement authority to recommend enforcement action to an appropriate
federal banking agency and to bring such enforcement action against a financial
institution or an institution-affiliated party if such federal banking agency
fails to follow the FDIC's recommendation. In addition, FIRREA generally
requires public disclosure of final enforcement actions by the federal banking
agencies.
FIRREA also established a cross guarantee provision ("Cross Guarantee")
pursuant to which the FDIC may recover from a depository institution losses that
the FDIC incurs in providing assistance to, or paying off the depositors of, any
of such depository institution's affiliated insured banks or thrifts. The Cross
Guarantee thus enables the FDIC to assess a holding company's healthy Bank
Insurance Fund (the "BIF") members and Savings Association Insurance Fund (the
"SAIF") members for the losses of any of such holding company's failed BIF and
SAIF members. Cross Guarantee liabilities are generally superior in priority to
obligations of the depository institution to its stockholders due solely to
their status as stockholders and obligations to other affiliates. Cross
Guarantee liabilities are generally subordinated to deposit liabilities, secured
<PAGE>
obligations or any other general or senior liabilities, and any obligations
subordinated to depositors or other general creditors.
FIRREA requires a financial institution or holding company to give 30 days'
prior written notice to its primary federal regulator of any proposed director
or senior executive officer if the institution has been chartered or has
undergone a change in control within the preceding two years or is not in
compliance with the minimum capital requirements or otherwise is in a troubled
condition. The regulator then has the opportunity to disapprove the proposed
appointment. The federal banking agencies have adopted rules to implement the
foregoing provisions that broadly define "senior executive officer" to include
the president, chief financial officer, chief lending officer, chief investment
officer, general counsel, or their functional equivalents, or any individual who
exercises significant influence over, or participates in, major policy making
decisions without regard to title, salary or compensation. The term "senior
executive officer" also includes any employee of another entity hired to perform
the functions of positions listed above. The term "troubled condition" refers to
a financial institution: (i) that has received a composite rating of 4 or 5
(i.e., one of the two lowest examination ratings) in its most recent
examination; (ii) that is the subject of a capital directive or formal
enforcement action or proceeding or written agreement entered into with the
federal banking agency relating to safety or soundness or financial viability;
or (iii) that is informed in writing by such agency that it has been deemed to
be in troubled condition.
The Federal Deposit Insurance Corporation Improvement Act of 1991. The
Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") was
adopted to recapitalize the BIF and impose certain supervisory and regulatory
reforms on insured depository institutions. FDICIA includes provisions, among
others, to: (i) increase the FDIC's line of credit with the U.S. Treasury in
order to provide the FDIC with additional funds to cover the losses of federally
insured banks; (ii) reform the deposit insurance system, including the
implementation of risk-based deposit insurance premiums; (iii) establish a
format for closer monitoring of financial institutions to enable prompt
corrective action by banking regulators when a financial institution begins to
experience financial difficulty; (iv) establish five capital levels for
financial institutions ("well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized" and "critically
undercapitalized") that would impose more scrutiny and restrictions on less
capitalized institutions; (v) require the banking regulators to set operational
and managerial standards for all insured depository institutions and holding
companies, including limits on excessive compensation to executive officers,
directors, employees and principal stockholders, and establish standards for
loans secured by real estate; (vi) adopt certain accounting reforms and require
annual on-site examinations of federally insured institutions, including the
ability to require independent audits of banks and thrifts; (vii) revise
risk-based capital standards to ensure that they (a) take adequate account of
interest-rate changes, concentration of credit risk and the risks of
nontraditional activities, and (b) reflect the actual performance and expected
risk of loss of multi-family mortgages; and (viii) restrict state-chartered
banks from engaging in activities not permitted for national banks unless they
are adequately capitalized and have FDIC approval. Further, FDICIA permits the
FDIC to make special assessments on insured depository institutions, in amounts
determined by the FDIC to be necessary to give it adequate assessment income to
repay amounts borrowed from the U.S. Treasury and other sources or for any other
purpose the FDIC deems necessary. FDICIA also grants authority to the FDIC to
<PAGE>
establish semiannual assessment rates on BIF and SAIF member banks so as to
maintain these funds at the designated reserve ratios.
As noted above, FDICIA authorizes and, under certain circumstances,
requires the federal banking agencies to take certain actions against
institutions that fail to meet certain capital-based requirements. Under FDICIA,
the federal banking agencies are required to establish five levels of insured
depository institutions based on leverage limit and risk-based capital
requirements established for institutions subject to their jurisdiction, plus,
in their discretion, individual additional capital requirements for such
institutions. Under the final rules that have been adopted by each of the
federal banking agencies, an institution will be designated: (i)
well-capitalized if the institution has a total risk-based capital ratio of 10%
or greater, a core risk-based capital ratio of 6% or greater, and a leverage
ratio of 5% or greater, and the institution is not subject to an order, written
agreement, capital directive, or prompt corrective action directive to meet and
maintain a specific capital level for any capital measure; (ii) adequately
capitalized if the institution has a total risk-based capital ratio of 8% or
greater, a core risk-based capital ratio of 4% or greater, and a leverage ratio
of 4% or greater (or a leverage ratio of 3% or greater if the institution is
rated composite 1 in its most recent report of examination); (iii)
undercapitalized if the institution has a total risk-based capital ratio that is
less than 8%, a core risk-based capital ratio that is less than 4%, or a
leverage ratio that is less than 4% (or a leverage ratio that is less than 3% if
the institution is rated composite 1 in its most recent report of examination);
(iv) significantly undercapitalized if the institution has a total risk-based
capital ratio that is less than 6%, a core risk-based capital ratio that is less
than 3%, or a leverage ratio that is less than 3%; and (v) critically
undercapitalized if the institution has a ratio of tangible equity to total
assets that is equal to or less than 2%.
Undercapitalized institutions are required to submit capital restoration
plans to the appropriate federal banking agency and are subject to certain
operational restrictions. Moreover, companies controlling an undercapitalized
institution are required to guarantee the subsidiary institution's compliance
with the capital restoration plan subject to an aggregate limitation of the
lesser of 5% of the institution's assets or the amount of the capital deficiency
when the institution first failed to meet the plan.
Significantly or critically undercapitalized institutions and
undercapitalized institutions that fail to submit or comply with acceptable
capital restoration plans will be subject to regulatory sanctions. A forced sale
of shares or merger, restriction on affiliate transactions and restrictions on
rates paid on deposits are required to be imposed by the banking agency unless
it is determined that they would not further capital improvement. FDICIA
generally requires the appointment of a conservator or receiver within 90 days
after an institution became critically undercapitalized. The federal banking
agencies have adopted uniform procedures for the issuance of directives by the
appropriate federal banking agency. Under these procedures, an institution will
generally be provided advance notice when the appropriate federal banking agency
proposes to impose one or more of the sanctions set forth above. These
procedures provide an opportunity for the institutions to respond to the
proposed agency action or, where circumstances warrant immediate agency action,
an opportunity for administrative review of the agency's action.
<PAGE>
As described under "Management's Discussion and Analysis - Capital" on
pages 15 and 16 of FBA's 1995 Annual Report to Stockholders, the Bank was
adequately capitalized as of December 31, 1995.
Pursuant to FDICIA, the federal banking agencies adopted real estate
lending guidelines pursuant to which each insured depository institution is
required to adopt and maintain written real estate lending policies in
conformity with the prescribed guidelines. Under these guidelines, each
institution is expected to set loan to value ratios not exceeding the
supervisory limits set forth in the guidelines. A loan to value ratio is
generally defined as the total loan amount divided by the appraised value of the
property at the time the loan is originated. The guidelines require that the
institution's real estate policy also require proper loan documentation, and
that it establish prudent underwriting standards.
The FDICIA also contained the Truth in Savings Act, which requires clear
and uniform disclosure of the rates and interest payable on deposit accounts by
depository institutions and the fees assessable against deposit accounts, so
that consumers can make a meaningful comparison between the competing claims of
financial institutions with regard to deposit accounts and products.
Riegel-Neal Interstate Banking and Branching Efficiency Act of 1994. In
September 1994, Congress enacted the Riegel-Neal Interstate Banking and
Branching Efficiency Act of 1994 (the "Interstate Act"). Beginning in September
1995, bank holding companies have a right to expand, by acquiring existing
banks, into all states, even those which had theretofore restricted entry. The
legislation also provides that, subject to future action by individual states, a
holding company will have the right, commencing in 1997, to convert the banks
which its owns in different states to branches of a single bank. A state is
permitted to "opt out" of the law which will permit conversion of separate banks
to branches, but is not permitted to "opt out" of the law allowing bank holding
companies from other states to enter the state. The State of Texas adopted
"opt-out" legislation in 1995 which has the effect of delaying, or possibly
preventing permanently, the conversion of banks in Texas to branches of banks
headquartered in other states. The Interstate Act also establishes limits on
acquisitions by large banking organizations, providing that no acquisition may
be undertaken if it would result in the organization having deposits exceeding
either 10% of all bank deposits in the United States or 30% of the bank deposits
in the state in which the acquisition would occur.
Pending Legislation. Because of concerns relating to competitiveness and
the safety and soundness of the banking industry, Congress is considering a
number of wide-ranging proposals for altering the structure, regulation and
competitive relationships of the nation's financial institutions. Among such
bills are proposals to merge the BIF and the SAIF insurance funds, to eliminate
the federal thrift charter, to alter the statutory separation of commercial and
investment banking and to further expand the powers of banks, bank holding
companies and competitors of banks. It cannot be predicted whether or in what
form any of these proposals will be adopted or the extent to which the business
of the Company may be affected thereby.
<PAGE>
Bank and Bank Holding Company Regulation
BHC Act. Under the BHC Act, the activities of a bank holding company are
limited to businesses so closely related to banking, managing or controlling
banks as to be a proper incident thereto. The Company is also subject to capital
requirements applied on a consolidated basis in a form substantially similar to
those required of the Bank. The BHC Act also requires a bank holding company to
obtain approval from the FRB before: (i) acquiring, directly or indirectly,
ownership or control of any voting shares of another bank or bank holding
company if, after such acquisition, it would own or control more than 5% of such
shares (unless it already owns or controls the majority of such shares); (ii)
acquiring all or substantially all of the assets of another bank or bank holding
company; or (iii) merging or consolidating with another bank holding company.
The FRB will not approve any acquisition, merger or consolidation that would
have a substantially anticompetitive result, unless the anticompetitive effects
of the proposed transaction are clearly outweighed by a greater public interest
in meeting the convenience and needs of the community to be served. The FRB also
considers capital adequacy and other financial and managerial factors in
reviewing acquisitions or mergers.
The BHC Act also prohibits a bank holding company, with certain limited
exceptions: (i) from acquiring or retaining direct or indirect ownership or
control of more than 5% of the voting shares of any company which is not a bank
or bank holding company; or (ii) from engaging directly or indirectly in
activities other than those of banking, managing or controlling banks, or
providing services for its subsidiaries. The principal exceptions to these
prohibitions involve certain non-bank activities which, by statute or by FRB
regulation or order, have been identified as activities closely related to the
business of banking or of managing or controlling banks. In making this
determination, the FRB considers whether the performance of such activities by a
bank holding company can be expected to produce benefits to the public such as
greater convenience, increased competition or gains in efficiency in resources,
which can be expected to outweigh the risks of possible adverse effects such as
decreased or unfair competition, conflicts of interest or unsound banking
practices. FIRREA, which is described in more detail above, made a significant
addition to this list of permitted non-bank activities for bank holding
companies by providing that bank holding companies may acquire thrift
institutions upon approval by the FRB and the applicable regulatory authority
for the thrift institutions.
Insurance of Accounts. The FDIC provides insurance to deposit accounts at
the Bank to a maximum of $100,000 for each insured depositor. Through December
31, 1992, all FDIC-insured institutions, whether members of the BIF, the SAIF or
both, paid the same premium (23 cents per $100 of domestic deposits) under a
flat-rate system mandated by law. FDICIA required the FDIC to raise the reserves
of the BIF and the SAIF, implement a risk-related premium system and adopt a
long-term schedule for recapitalizing the BIF. Effective January 1, 1993, the
FDIC amended its regulations regarding insurance premiums to provide that a bank
or thrift would pay an insurance assessment within a range of 23 cents to 31
cents per $100 of domestic deposits, depending on its risk classification.
The FDIC has recently adopted an amendment to the BIF risk-based assessment
schedule which effectively eliminated deposit insurance assessments for most
commercial banks and other depository institutions with deposits insured by the
<PAGE>
BIF. At the same time, the FDIC has indicated it anticipates that the assessment
rate for SAIF-insured institutions in even the lowest risk-based premium
category will not fall below the current 0.23% of insured deposits before the
year 2002. Under the FDIC amendment, the assessment rates for BIF-insured
institutions range from 0.27% of insured deposits for the most financially
troubled BIF members to 0% of deposits for most well-capitalized institutions,
including over 90% of BIF-insured institutions. The FDIC amendment became
effective on January 1, 1996, and will remain in effect at least through June
30, 1996. The FDIC amendment continues a substantial disparity in the deposit
insurance premiums paid by BIF and SAIF members and may place institutions with
significant SAIF-insured deposits at a significant competitive disadvantage
relative to institutions that have little or no SAIF-insured deposits. As of
December 31, 1995 the Bank's premium rate was .04%.
Regulations Governing Capital Adequacy. The federal bank regulatory
agencies use capital adequacy guidelines in their examination and regulation of
bank holding companies and banks. If the capital falls below the minimum levels
established by these guidelines, the bank holding company or bank may be denied
approval to acquire or establish additional banks or nonbank businesses or to
open facilities.
The FRB, the FDIC and the OCC adopted risk-based capital guidelines for
banks and bank holding companies, and the OTS has adopted similar guidelines for
thrifts. The risk-based capital guidelines are designed to make regulatory
capital requirements more sensitive to differences in risk profile among banks
and bank holding companies, to account for off-balance sheet exposure and to
minimize disincentives for holding liquid assets. Assets and off-balance sheet
items are assigned to broad risk categories, each with appropriate weights. The
resulting capital ratios represent capital as a percentage of total
risk-weighted assets and off-balance sheet items. The FRB has noted that bank
holding companies contemplating significant expansion programs should not allow
expansion to diminish their capital ratios and should maintain ratios well in
excess of the minimums. Under these guidelines, all bank holding companies and
federally regulated banks must maintain a minimum risk-based total capital ratio
equal to 8% of which at least 4% must be Tier 1 capital. Pursuant to FDICIA,
banking regulators are to revise the risk-based capital standards to take into
account interest rate risk, concentrating of credit risk and the risks of
nontraditional activities and multi-family mortgages.
The FRB also has implemented a leverage ratio, which is Tier 1 capital to
total assets, to be used as a supplement to the risk-based guidelines. The
principal objective of the leverage ratio is to place a constraint on the
maximum degree to which a bank holding company may leverage its equity capital
base. The FRB requires a minimum leverage ratio of 3%. For all but the most
highly-rated bank holding companies and for bank holding companies seeking to
expand, however, the FRB expects that additional capital sufficient to increase
the ratio by at least 100 to 200 basis points will be maintained.
As described in the 1995 Annual Report to Stockholders under the heading
"Management's Discussion and Analysis - Capital," the Bank was adequately
capitalized as of December 31, 1995.
<PAGE>
Management of the Company believes that the risk-weighting of assets and
the risk-based capital guidelines do not have a material adverse impact on the
Company's operations or on the operations of the Bank. The requirement of
deducting certain intangibles in computing capital ratios contained in the
guidelines, however, could adversely affect the ability of the Company to make
acquisitions in the future in transactions that would be accounted for using the
purchase method of accounting.
As more fully described under "Management's Discussion and Analysis -
Capital" on page 15 of the Company's 1995 Annual Report to Stockholders, on
April 1, 1995 a new regulation became effective which limits the amount of net
deferred tax assets that the Company and the Bank may include in regulatory
capital. The change in regulation limits the amount of net deferred tax assets
that are included in Tier 1 capital, excluding any amounts applicable to the net
fair value adjustment for securities available-for-sale, to the lesser of the
amount of net deferred tax assets that the entity expects to realize over the
next twelve month period or 10% of its Tier 1 capital. The remaining amounts of
the net deferred tax assets, as adjusted, of $11.4 million and $9.2 million for
FBA and the Bank, respectively, have been subtracted from stockholders' equity
in arriving at Tier 1 capital at December 31, 1995. While this change has a
negative impact on the regulatory capital position of the Company and the Bank,
they remain adequately capitalized at December 31, 1995.
Community Reinvestment Act. The Community Reinvestment Act of 1977 (the
"CRA") requires that, in connection with examinations of financial institutions
within their jurisdiction, the federal banking regulators must evaluate the
record of the financial institutions in meeting the credit needs of their local
communities, including low and moderate income neighborhoods, consistent with
the safe and sound operation of those banks. These factors are also considered
in evaluating mergers, acquisitions and applications to open a branch or
facility. The CRA is likely to be the subject of regulatory reform in the next
few years, and proposed rules have been published for comment by the four
federal banking regulatory agencies. Although it is not possible to predict the
extent to which the CRA will be modified, these changes may affect the process
by which a financial institution, such as the Company and the Bank, is able to
grow through acquisitions or establishing new branches.
Regulations Governing Extensions of Credit. The Bank is subject to certain
restrictions imposed by the Federal Reserve Act on extensions of credit to FBA
or its subsidiaries and affiliates, or investments in their securities and on
the use of their securities as collateral for loans to any borrowers. These
regulations and restrictions may limit the Company's ability to obtain funds
from the Bank for its cash needs, including funds for acquisitions and for
payment of dividends, interest and operating expenses. Further, under the BHC
Act and certain regulations of the FRB, a bank holding company and its
subsidiaries are prohibited from engaging in certain tie-in arrangements in
connection with any extension of credit, lease or sale of property or furnishing
of services. For example, the Bank may generally not require a customer to
obtain other services from the Bank or any other affiliated bank or the Company,
and may not require the customer to promise not to obtain other services from a
competitor, as a condition to an extension of credit to the customer.
<PAGE>
The Bank is also subject to certain restrictions imposed by the Federal
Reserve Act on extensions of credit to executive officers, directors, principal
stockholders or any related interest of such persons. Extensions of credit (i)
must be made on substantially the same terms, including interest rates and
collateral as, and following credit underwriting procedures that are not less
stringent than, those prevailing at the time for comparable transactions with
persons not covered and who are not employees; and (ii) must not involve more
than the normal risk of repayment or present other unfavorable features. The
Bank is also subject to certain lending limits and restrictions on overdrafts to
such persons. A violation of these restrictions may result in the assessment of
substantial civil monetary penalties on the Bank or any officer, director,
employee, agent or other person participating in the conduct of the affairs of
the Bank or the imposition of a cease and desist order.
Reserve Requirements. The FRB requires all depository institutions to
maintain reserves against their transaction accounts and non-personal time
deposits. Reserves of 3% must be maintained against total transaction accounts
of $51.9 million or less (subject to adjustment by the FRB) and an initial
reserve of $1,557,000 plus 10% (subject to adjustment by the FRB to a level
between 8% and 14%) must be maintained against that portion of total transaction
accounts in excess of such amount. The balances maintained to meet the reserve
requirements imposed by the FRB may be used to satisfy liquidity requirements.
Institutions are authorized to borrow from the Federal Reserve Bank
"discount window," but FRB regulations require institutions to exhaust other
reasonable alternative sources of funds, including FHLB advances, before
borrowing from the Federal Reserve Bank.
Federal Home Loan Bank System. The Bank is a member of the Federal Home
Loan Bank System ("FHLB System"). The FHLB System consists of twelve regional
Federal Home Loan Banks ("FHLBs"), each subject to supervision and regulation by
the Federal Housing Finance Board, an independent agency created by FIRREA. The
FHLBs provide a central credit facility primarily for member institutions. The
Bank is required to acquire and hold shares of capital stock in an FHLB in an
amount at least equal to 1% of the aggregate principal amount of its unpaid
residential mortgage loans and similar obligations at the beginning of each
year, or 1/20th of its advances (borrowings) from the FHLB, whichever is
greater. The Bank was in compliance with these regulations at December 31, 1995,
with an investment of $4.2 million in stock of the FHLB of Dallas.
Restrictions on Thrift Acquisitions. FBA is prohibited from acquiring,
without prior approval of the Director of the OTS, (i) control of any savings
institution or savings and loan holding company or substantially all the assets
thereof; or (ii) more than 5% of the voting shares of a savings institution or
holding company which is not a subsidiary. Furthermore, such an acquisition
would require FBA itself to become registered as a savings and loan holding
company subject to all applicable regulations of the OTS.
Dividends. The Company's primary source of funds in the future is the
dividends, if any, paid by the Bank. The ability of the Bank to pay dividends is
limited by federal laws, by the regulations promulgated by the bank regulatory
<PAGE>
agencies and by principles of prudent bank management. In addition, the amount
of dividends that the Bank may pay to the Company is limited by the provisions
of First Bank's credit agreement with a group of unaffiliated lenders, which
imposes certain minimum capital requirements. Additional information concerning
limitations on the Bank's ability to pay dividends appears in Note 13 to the
Consolidated Financial Statements of FBA, which are contained in the 1995 Annual
Report to Stockholders.
Usury Laws. The maximum legal rate of interest which the Bank may charge on
a loan depends on a variety of factors such as the type of borrower, the purpose
of the loan, the amount of the loan and the date the loan is made. There are
several state and federal statutes which set maximum legal rates of interest for
various kinds of loans. If a loan qualifies under more than one statute, a bank
may often charge the highest rate for which the loan is eligible.
Monetary Policy and Economic Control
The commercial banking business is affected not only by general economic
conditions, but also by the monetary policies of the FRB. Changes in the
discount rate on member bank borrowing, availability of borrowing at the
"discount window," open market operations, the imposition of changes in reserve
requirements against member bank deposits and assets of foreign branches, and
the imposition of and changes in reserve requirements against certain borrowings
by banks and their affiliates are some of the instruments of monetary policy
available to the FRB. These monetary policies are used in varying combinations
to influence overall growth and distributions of bank loans, investments and
deposits, and this use may affect interest rates charged on loans or paid on
deposits. The monetary policies of the FRB have had a significant effect on the
operating results of commercial banks and are expected to do so in the future.
The monetary policies of the FRB are influenced by various factors, including
inflation, unemployment, short-term and long-term changes in the international
trade balance and in the fiscal policies of the U.S. Government. Future monetary
policies and the effect of such policies on the future business and earnings of
the Company cannot be predicted.
Employment
As of March 13, 1996 the Company employed 83 persons, none of whom were
covered by a collective bargaining agreement. The Company considers its employee
relations to be good.
Item 2. Properties
The Company's administrative offices are located at a building owned by,
and serving as headquarters of the Bank located at 8820 Westheimer Road,
Houston, Texas. The Bank also occupies six branch locations, of which three are
owned. The following table presents information about the locations owned by the
Bank.
<PAGE>
Location Approximate Square Feet Space Occupied by the Bank
321 N. Central Expressway 51,200 10,800
McKinney, Texas
2010 N. Main Street 17,100 17,100
Houston, Texas
2101 Gateway Drive 7,800 7,800
Irving, Texas
8820 Westheimer Road 30,400 30,400
Houston, Texas
The Bank leases its two remaining locations, the Allen Parkway Branch in
Houston in a multistory office building at 2929 Allen Parkway where it occupies
4,900 square feet, and a free-standing building containing approximately 5,600
square feet located at 9605 Abrams Road in Dallas. The Bank leases additional
tracts of land used for parking and drive-in facilities. The Company believes
that these premises are adequate for its present operations. Aggregate annual
rental payments for all leased premises during the fiscal year ended December
31, 1995, net of rental income, were $253,000.
Item 3. Legal Proceedings
As described in note 15 to the consolidated financial statements contained
in FBA's 1995 Annual Report to Stockholders, which is incorporated herein by
reference, there are various claims and pending actions against FBA and the
Bank. Many of such actions are routine and incidental to their businesses,
including a number of lender liability claims filed against the Bank in defense
of suits brought by the Bank to collect loans and otherwise enforce their rights
under loan documents. Nevertheless, it is the opinion of management of FBA that
the ultimate liability, if any, resulting from such claims and pending actions
will not have a material adverse effect on the financial position, results of
operations or liquidity of FBA.
Item 4. Submission of Matters to a Vote of Security Holders
None.
<PAGE>
PART II
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters
Market Information
FBA has two classes of common stock. The Common Stock is listed on the New
York Stock Exchange ("NYSE") under the symbol "FBA." All of the Class B Stock
was issued and sold on August 31, 1994 in a private placement and is not
registered with the Securities and Exchange Commission nor listed or traded in
any market. See "Item 1, Business--General." Continued listing of the Company's
Common Stock on the NYSE is subject to various requirements, including the
financial eligibility and distribution requirements of the NYSE.
Information regarding the number of stockholders and the market prices for
Common Stock since January 1, 1994 is set forth on page 47 of the FBA 1995
Annual Report to Stockholders under the caption "Common Stock" and is
incorporated herein by reference.
Dividends
The Company has not paid any dividends on its Common Stock in recent years.
As a bank holding company, the ability of FBA to pay dividends is limited by
regulatory requirements and by the receipt of dividend payments from the Bank
(which are also subject to regulatory requirements). The Bank has been prevented
from paying dividends due to the inadequacy of earnings in recent years and a
deficiency in retained earnings. See Note 2 to the Consolidated Financial
Statements of the Company, which appears at page 30 of FBA's 1995 Annual Report
to Stockholders.
Item 6. Selected Financial Data
The information required by this item is incorporated herein by reference
from page 2 of FBA's 1995 Annual Report to Stockholders under the caption
"Selected Consolidated and Other Financial Data."
Item 7. Management's Discussion and Analysis of Financial Condition and
Results Of Operations
The information required by this item is incorporated herein by reference
from pages 3 through 20 of FBA's 1995 Annual Report to Stockholders under the
caption "Management's Discussion and Analysis".
Item 8. Financial Statements and Supplementary Data
The consolidated financial statements of FBA are incorporated herein by
reference from pages 21 through 45 of FBA's 1995 Annual Report to Stockholders
under the captions "Independent Auditors' Report," "Consolidated Balance
<PAGE>
Sheets," "Consolidated Statements of Operations," "Consolidated Statements of
Changes in Stockholders' Equity," "Consolidated Statements of Cash Flows" and
"Notes to Consolidated Financial Statements." Pursuant to Rule 14a-3(b)(1) under
the Securities Exchange Act of 1934, the Company is including herein the
separate report of Deloitte & Touche LLP, its predecessor accountant, with
regard to 1993 financial statements; such report appears on the following page.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of First Banks America, Inc.
Dallas, Texas
We have audited the consolidated statements of operations, changes in
stockholders'equity and cash flows of First Banks America, Inc. (formerly known
as BancTEXAS Group Inc.) and subsidiaries (the "Company") for the year ended
December 31, 1993. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on the
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of the Company's operations and
cash flows for the year ended December 31, 1993 in conformity with generally
accepted accounting principles.
During 1993, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 109 "Accounting for Income Taxes" and SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities."
/s/Deloitte & Touche LLP
- -------------------------
Deloitte & Touche LLP
March 18, 1994
Dallas Texas
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Effective September 23, 1994, the Board of Directors appointed KPMG Peat
Marwick LLP as the Independent Certified Public Accountants for FBA, replacing
Deloitte & Touche LLP. There were no disagreements with the predecessor auditors
to be reported. This change was reported in a Form 8-K filed on September 27,
1994.
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
Board of Directors
As of March 22, 1996 the Board of Directors consisted of six members, who
are identified in the following table. Each of the directors was elected or
appointed to serve a one-year term and until his successor has been duly
qualified for office.
<TABLE>
<CAPTION>
Name Age Director Principal Occupation During Last Five Years and Directorships of
Since Public Companies
- -------------------------- ------- ------------- -------------------------------------------------------------------
<S> <C> <C> <C>
Allen H. Blake 53 1994 Vice President, Chief Financial Officer and Secretary of FBA
since 1994; director of First Commercial Bancorp, Inc. since
1995; Senior Vice President of First Banks since 1992; Secretary
and Director of First Banks since 1988; joined First Banks as
Vice President and Chief Financial Officer in 1984.
Charles A. Crocco, Jr. 57 1988 Partner in the law firm of Crocco & De Maio, P.C., New York City
(1) since 1968; director of The Hallwood Group Incorporated (merchant
banking) since January 1981; director of Showbiz Pizza Time, Inc.
since January 1988.
James F. Dierberg 58 1994 Chairman of the Board of Directors, Chief Executive Officer and
President of FBA since 1995; Chairman of the Board and Chief
Executive Officer of First Banks since 1988; director of First
Banks since 1979; President of First Banks, 1979-1992 and
1994-present; director of First Commercial Bancorp, Inc. since
1995.
Edward T. Story, Jr. (1) 52 1987 President and Chief Executive Officer of SOCO International,
Inc., a subsidiary of Snyder Oil Corporation, engaged in
international oil and gas operations, since 1991; from 1990 until
1991, Chairman of Thaitex Petroleum Company; from 1981 to 1990,
Vice Chairman and Chief Financial Officer of Conquest Exploration
Company; director of Hi-Lo Automotive, Inc. since 1987; director
of Territorial Resources, Inc. since 1992; director of Command
Petroleum Limited since 1993; director of Hallwood Realty
Corporation since 1995; director of New Concept Technologies
International Limited and of Snyder Oil Corporation beginning in
1996.
<PAGE>
Mark T. Turkcan 40 1994 Senior Vice President (Retail Banking), First Banks, since 1994;
Vice President (Mortgage Banking), First Banks, since 1990;
joined First Banks when Clayton Savings and Loan Association, St.
Louis, Missouri (now First Bank A Savings Bank), for whom Mr.
Turkcan was employed in various capacities since 1985, was
acquired by First Banks in 1990.
Donald W. Williams 48 1995 Senior Vice President, Chief Credit Officer of First Banks and
executive officer of various subsidiaries of First Banks since
1993; Senior Vice President in charge of commercial credit
approval, commercial loan operations, international operations
and the credit department of Mercantile Bank of St. Louis, N.A.
from 1989 until 1993.
</TABLE>
(1) Member of the Audit Committee.
Executive Officers
The executive officers of the Company as of March 22, 1996 were as follows:
Name Age Office(s) held
- --------------- ------- ------------------------------------------------------
James F. Dierberg 58 Chairman of the Board, Chief Executive Officer and
President.
Allen H. Blake 53 Chief Financial Officer and Secretary.
David F. Weaver 48 Executive Vice President of FBA since January, 1995;
Chairman of the Board, Chief Executive Officer and
President of BankTEXAS N.A. since 1994; President
of BankTEXAS Houston N.A. from 1988 until the bank
became part of BankTEXAS N.A. as a result of merger.
The executive officers were each elected by the Board of Directors to the
office indicated. There is no family relationship between any of the nominees
for director, directors or executive officers of the Company or its
subsidiaries.
<PAGE>
Item 11. Executive Compensation
The following table sets forth certain information regarding compensation
earned during the year endedDecember 31, 1995, and specified information with
respect to the two preceding years, by the former chief executive officer,
Nathan C. Collins, and the other most highly compensated executive officer of
FBA. Mr. Collins ceased to be an officer of FBA on January 2, 1995 and received
a severance payment in the amount of $500,000 on January 2, 1995.
James F. Dierberg became the Chief Executive Officer and President of the
Company on January 2, 1995, and Allen H. Blake became the Company's Chief
Financial Officer on September 30, 1994, and the Secretary on December 1, 1994.
Neither Mr. Dierberg nor Mr. Blake receives any compensation directly from
either the Company or the Bank. The Company has entered into various contracts
with First Banks, of which Messrs. Dierberg and Blake are directors and
executive officers, pursuant to which services are provided to the Company and
the Bank (see "Item 13. Certain Relationships and Related Transactions" for
additional information regarding contracts with First Banks).
No information is included in the table with respect to executive officers
whose combined salary and bonus did not exceed $100,000 in any year covered by
the table.
SUMMARY COMPENSATION TABLE FOR YEAR ENDED DECEMBER 31, 1995
Salary All Other
Name and Principal Position Year (1) Bonus Compensation (2)
- ------------------------------- -----------------------------------------------
Nathan C. Collins, Chairman of 1995 $0 $0 $500,000
the Board, President & Chief
Executive Officer 1994 200,000 0 750
1993 250,000 0 899
David F. Weaver, Executive 1995 $107,500 $0 $3,225
Vice President; Chairman of
the Board, Chief Executive 1994 107,500 0 538
Officer and President of
BankTEXAS N.A. 1993 107,500 0 840
(1) The total of all other annual compensation for each of the named officers
is less than the amount required to be reported, which is the lesser of (a)
$50,000 or (b) ten percent (10%) of the total of the annual salary and
bonus paid to that person.
(2) All items reported are FBA's matching contributions to the 401(k) Plan for
the year indicated, with the exception of the severance payment to Mr.
Collins described above.
<PAGE>
Stock Option Exercises and Values
The following table indicates the number of options, if any, exercised by
the executive officers named in the preceding table during the year ended
December 31, 1995 and the number and value of options held by them as of
December 31, 1995. All options shown are presently exercisable. FBA does not
have any outstanding stock appreciation rights.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND YEAR-END VALUES
Shares Number of Value of
Acquired Securities Unexercised
on Value Underlying In-the-Money
Exercise Realized Unexercised Options Options at
Name (#) ($)(1) at 12/31/95 (#) 2/31/95 ($)(2)
- -------------------------------------------------------------------------------
Nathan C. Collins 0 0 46,666 shares $396,661
David F. Weaver 5,000 56,250 0 $ 0
(1) Value realized is before applicable taxes, based on the difference between
exercise prices and closing prices on the dates of exercise.
(2) Value is based upon the difference between exercise prices and the closing
price of FBA Common Stock on December 31, 1995.
FBA has omitted from this Report tables which would disclose information
regarding stock options granted during 1995 and Long Term Incentive Plan awards.
No options were granted in 1995, and FBA does not currently have any Long Term
Incentive Plan.
Director Compensation
None of the four directors of FBA who are also executive officers of First
Banks (Messrs. Dierberg, Blake, Turkcan and Williams) receives any compensation
from FBA for service as a director, nor do they participate in any compensation
plan of FBA. With regard to compensation in 1995, the following discussion is
applicable to the remaining two directors of FBA (Messrs. Crocco and Story), who
are not employees or executive officers of FBA and do not have any position as
directors, officers or employees of First Banks. First Banks, of which Messrs.
Dierberg, Blake, Turkcan and Williams are executive officers and Messrs.
Dierberg and Blake are directors, provides various services to FBA and the Bank
for which it is compensated (see "Item 13. Certain Relationships and Related
Transactions").
The 1993 Directors' Stock Bonus Plan (the "Stock Bonus Plan") provides for
annual grants of Common Stock to the non-employee directors of FBA. Directors'
compensation expense of $27,000 was recorded relating to this plan for the year
ended December 31, 1995. The Stock Bonus Plan is self-operative, and the
timing, amounts, recipients and terms of individual grants are determined
<PAGE>
automatically. On July 1 of each year, each non-employee director will
automatically receive a grant of 500 shares of Common Stock. Future grants under
the plan would apply equally to current directors and to any individual who
becomes a director of FBA in the future. The maximum number of plan shares that
may be issued shall not exceed 16,666 shares. The plan will expire on July 1,
2001.
In 1995, FBA discontinued its noncontributory defined benefit pension plan
(the "Directors' Retirement Plan") covering non-employee directors of the
holding company, which had been adopted in 1993. In connection with
discontinuance of this plan, the Company recorded income of $179,000, which
represented the nonvested portion of benefits which had accrued.
Compensation Committee Interlocks and Insider Participation
The Board of Directors does not have a Compensation Committee, and the
entire Board performs responsibilities which would otherwise be assigned to that
committee. Messrs. Dierberg and Blake are the only officers of FBA or its
subsidiaries who participate as members of the Board of Directors in
deliberations regarding executive officer compensation. As noted above, they do
not receive any compensation from FBA for their services as officers and
directors. First Banks, of which Messrs. Dierberg, Blake, Turkcan and Williams
are executive officers and Messrs. Dierberg and Blake are directors, provides
various services to FBA and the Bank for which it is compensated (see "Item 13.
Certain Relationships and Related Transactions").
Employee Benefit Plans
FBA maintains various employee benefit plans. Directors are not eligible to
participate in such plans except the 1990 Stock Option Plan and the 1993
Directors' Stock Bonus Plan unless they are also employees of FBA or one of its
subsidiaries. Although Messrs. Blake and Dierberg are executive officers, they
are not participants in any employee benefit plans of FBA.
Pension Plan. The Employees Retirement Plan (the "Pension Plan") is a
noncontributory, defined benefit plan for all eligible officers and employees of
FBA and its subsidiaries. Benefits under the Pension Plan are based upon annual
base salaries and years of service and are payable only upon retirement or
disability and, in some instances, at death. An employee is eligible to
participate in the Pension Plan after completing one year of employment if he or
she was hired before attaining age 60, is at least 21 years of age and worked
1,000 hours or more in the first year of employment. A participant who has
fulfilled the eligibility and tenure requirements will receive, upon reaching
the normal retirement age of 65, monthly benefits based upon average monthly
compensation during the five consecutive calendar years out of his or her last
ten calendar years that provided the highest average compensation.
During 1994, the Company discontinued the accumulation of benefits under
the Pension Plan. While the Pension Plan will continue in existence and provide
benefits which have been accumulated, no additional benefits have accrued to
participants in 1995, and no new participants will become eligible for benefits
thereunder.
<PAGE>
The following table sets forth, based upon certain assumptions, the
approximate annual benefits payable under the Pension Plan at normal retirement
age to persons retiring with the indicated average base salaries and years of
credited service:
Remuneration (1) Years of Credited Service (2)
- ------------------------------------------------------------------------------
10 15 20 25 30 35
$100,000 $14,700 $22,050 $29,400 $36,750 $44,100 $51,450
$150,000 (3) 22,200 33,300 44,400 55,550 66,600 77,700
(1) Benefits payable under the Pension Plan are determined based upon
compensation levels prior to the discontinuance of the accumlation of
benefits in 1994
(2) Benefits shown are computed based on straight life annuities with a 10-year
guarantee and are not subject to deduction for social security, but are
subject to withholding for federal income tax purposes.
(3) Maximum annual retirement income of $120,000 is permitted under the
Internal Revenue Code, as amended; the maximum compensation allowed for
retirement benefit computations is $150,000.
The credited years of service under the Pension Plan at December 31, 1995,
for the two executive officers named in the Summary Compensation Table are as
follows:
Credited Years
of Service at
Name of Individual December 31, 1995
- -----------------------------------------------------------
Nathan C. Collins 7
David F. Weaver 7
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth, as of March 19, 1996, certain information
with respect to the beneficial ownership of Common Stock and Class B Common
Stock by each person known to the Company to be the beneficial owner of more
than five percent of the outstanding shares of either class of stock, by each
director, by certain executive officers and by all executive officers and
directors of FBA as a group:
Name of Relationship to the Number of Shares and Percent
Beneficial Owner Company Nature of Beneficial of
Beneficial Ownership (1)(2) Class
- -------------------------------------------------------------------------------
First Banks, Inc. 5% Stockholder 2,500,000 (3)(4) 100
135 North Meramec
Clayton, Missouri
63105
Allen H. Blake Director, Chief -0- *
Financial Officer
and Secretary
Charles A. Crocco,. Director 8,272 (5) *
Jr.
James F. Dierberg Chairman of the 2,500,000 (3)(4) 100
Board of Directors,
Chief Executive
Officer and President
Edward T. Story, Director 8,182 (6) *
Jr.
Mark T. Turkcan Director -0- *
David F. Weaver Executive Vice President 6,692 (7) *
President, BancTEXAS;
Chairman of the Board,
Chief Executive
Officer and President,
BankTEXAS N.A.
Donald W. Williams Director 133 *
All executive officers 23,279 Common Stock 1.75%of
and directors as a Common
group (7 persons) Stock
100% of
2,500,000 Class B Common Stock Class B
Common
Stock
--------------------------
* Less than one percent.
(1) The shares shown as beneficially owned by First Banks and James F. Dierberg
comprise 100% of the outstanding shares of Class B Common Stock; for all
other persons listed, the shares and percentages reflected are Common
Stock. Each share of Common Stock and Class B Common Stock is entitled to
one vote on matters subject to stockholder vote.
<PAGE>
(2) With respect to Messrs. Crocco and Story, the indicated numbers of shares
include shares subject to vested stock options granted under the 1990 Stock
Option Plan. All of the options reflected in the table are vested and may
be exercised at any time.
(3) The controlling shareholders of First Banks are (i) Mary W. Dierberg and
James F.Dierberg,II, trustees under the living trust of James F. Dierberg,
II, dated July 24, 1989; (ii) Mary W. Dierberg and Michael James Dierberg,
trustees under the living trust of Michael James Dierberg, dated July 24,
1989; (iii) Mary W. Dierberg and Ellen C. Dierberg, trustees under the
living trust of Ellen C. Dierberg, dated July 17, 1992; (iv) James F.
Dierberg, trustee of the James F. Dierberg living trust, dated October 8,
1985; and (v) First Trust (Mary W. Dierberg and First Bank-Missouri,
Trustees) established U/I James F. Dierberg, dated December 12, 1992.
Mr. James F. Dierberg and Mrs. Mary W. Dierberg are husband and wife, and
Messrs. James F. Dierberg, II, Michael James Dierberg and Miss Ellen C.
Dierberg are their children.
(4) Due to the relationships among James F. Dierberg, Mary W. Dierberg,
First Bank-Missouri and the three children of James F.and Mary W. Dierberg,
Mr. Dierberg is deemed to share voting and investment power over all of
the outstanding voting stock of First Banks, which in turn exercises voting
and investment power over the 2,500,000 shares of Class B Common Stock of
FBA.
(5) Mr. Crocco has a vested option covering 6,666 shares; he owns directly
1,606 shares.
(6) Mr. Story has a vested option covering 6,666 shares; he owns directly 1,516
shares.
(7) Mr. Weaver directly owns all of the shares shown.
Item 13. Certain Relationships and Related Transactions
The Bank had in 1995, and it may have in the future, loan transactions in
the ordinary course of business with directors of FBA and their respective
affiliates. These loan transactions have been and will be on the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with unaffiliated persons and did not involve more than
the normal risk of collectibility or present other unfavorable features. At
December 31, 1995, such loans totalled $32,059 and represented .09% of
stockholders' equity. None of the indebtedness has been classified in any manner
by regulatory authorities or charged-off by the Bank. The Bank does not extend
credit to officers of FBA or of the Bank, except extensions of credit secured by
mortgages on personal residences, loans to purchase automobiles and personal
credit card accounts.
As discussed under "Item 1. Business," First Banks became the largest
stockholder of FBA in August, 1994. Following that transaction, the Company
began purchasing certain services and supplies from or through First Banks.
In December 1994, the Board of Directors of the Bank approved data
processing and management fee agreements with First Banks. Under the data
processing agreement, a subsidiary of First Banks began providing data
processing and various related services to FBA in February 1995. The fees for
such services are significantly lower than FBA has previously paid a
non-affiliated vendor. The management fee agreement provides that FBA will
compensate First Banks on an hourly basis for its use of personnel for various
functions including internal auditing, loan review, income tax preparation and
assistance, accounting, asset/liability and investments services, loan servicing
and other management and administrative services. Hourly rates for such services
compare favorably with those for similar services from unrelated sources, as
well as the internal costs of FBA personnel which were used previously, and FBA
estimates that the aggregate cost for the services will be significantly more
economical than those previously incurred by FBA. Total fees paid under these
agreements were $796,000 in 1995.
<PAGE>
Certain of the directors and officers of FBA and their respective
affiliates have deposit accounts with the Bank. It is the Bank's policy not to
permit any officers or directors of BancTEXAS or their affiliates to overdraw
their respective deposit accounts unless that person has been previously
approved for overdraft protection under a plan whereby a credit limit has been
established in accordance with the Bank's standard credit criteria.
During 1995 the Bank engaged in a series of repurchase transactions with
Edward T. Story, Jr., a director of the Company. These transactions are
short-term in nature and involve the deposit with the Bank of U.S. government
securities, subject to agreements to repurchase. The principal amounts of the
repurchase transactions have varied and the largest principal amount of any
transaction in 1995 was $95,292.54. All of the transactions with Mr. Story have
been at market interest rates and, in the opinion of management, have been on
terms as favorable to the Bank as are available in transactions with
unaffiliated persons.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) 1. Financial Statements and Supplementary Data: The financial statements
filed as part of this Report are listed under Item 8.
2. Financial Statement Schedules: These schedules are omitted for the
reason that they are not required or are not applicable.
3. Exhibits: The exhibits are listed in the index of exhibits required by
Item 601 of Regulation S-K at Item (c) below and are incorporated herein
by reference.
(b) Reports on Form 8-K
None.
(c) The index of required exhibits is included beginning on page 28 of this
Report.
<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 America, Inc.
By: /s/ James F. Dierberg
-----------------------------
Chairman of the Board,
President and Chief Executive Officer
March 27, 1996
By: /s/ Allen H. Blake
------------------------------
Chief Financial Officer and Principal
Accounting Officer
March 27, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed by the following persons on behalf of the Registrant and
in the capacities and on the date indicated.
Signatures Title Date
/s/ James F. Dierberg Director March 27, 1996
- --------------------------
James F. Dierberg
/s/ Allen H. Blake Director March 27, 1996
- --------------------------
Allen H. Blake
/s/ Charles A. Crocco, Jr. Director March 27, 1996
- --------------------------
Charles A. Crocco, Jr.
/s/ Edward T. Story, Jr. Director March 27, 1996
- --------------------------
Edward T. Story, Jr.
/s/ Mark T. Turkcan Director March 27, 1996
- --------------------------
Mark T. Turkcan
/s/ Donald W. Williams Director March 27, 1996
- --------------------------
Donald W. Williams
<PAGE>
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- -------------------------------------------------------------------------------
3(a) Restated Certificate of Incorporation of the Company effective August 31,
1995 (filed as Exhibit 3(a) to Quarterly Report on Form 10-Q for the
quarter ended September 30, 1995 and incorporated herein by reference).
3(b) Amended and Restated Bylaws of the Company (as amended April 21, 1995)
(filed as Exhibit 3(b) to Quarterly Report on Form 10-Q for the quarter
ended March 31, 1995 and incorporated herein by reference).
4(a) Indenture, dated as of May 15, 1981, among CSWI International Finance N.V.,
the Company and Bankers Trust Company (will be filed upon request pursuant
to Item 601(b)(4)(iii) of Regulation S-K).
4(b) Specimen Stock Certificate for Common Stock (filed as Exhibit 1.01 to the
Company's Amendment No. 1 to Form 8-A on Form 8, dated September 4, 1987,
and incorporated herein by reference).
10(a)* BancTEXAS Group Inc. 1990 Stock Option Plan (as amended July 22, 1993)
(filed as Exhibit 10(c) to the Company's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1993, and incorporated herein by reference).
10(b)Agreement Concerning Warrants dated as of November 30, 1990, executed by
and between the Federal Deposit Insurance Corporation and the Company
(filed as Exhibit 10(h) to the Company's Annual Report on Form 10-K for the
year ended December 31, 1990, and incorporated herein by reference).
10(c)* BancTEXAS Group Inc. Directors' Retirement Plan dated March 18, 1993
(filed as Exhibit 10(i) to the Company's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1993 and incorporated herein by reference).
10(d)* 1993 Directors' Stock Bonus Plan (filed as Exhibit 10(k) to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1993 and
incorporated herein by reference).
10(e)Stock Purchase and Operating Agreement by and between First Banks, Inc., a
Missouri Corporation and the Company, dated May 19, 1994 (filed as Exhibit
10(d) to the Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1994 and incorporated herein by reference).
10(f)* Management Agreement by and between First Banks, Inc. and the Company's
subsidiary BankTEXAS N.A., dated November 17, 1994 (filed as Exhibit 10(h)
to the Annual Report on Form 10-K for the year ended December 31, 1994 and
incorporated herein by reference).
<PAGE>
10(g)* Data Processing Agreement by and between FirstServ, Inc.(a subsidiary of
First Banks, Inc.) and the Company's subsidiary BankTEXAS N.A., dated
December 1, 1994 (filed as Exhibit 10(i) to the Annual Report on Form 10-K
for the year ended December 31, 1994 and incorporated herein by reference).
10(h)* Financial Management Policy by and between First Banks, Inc. and the
Company, dated September 15, 1994 (filed as Exhibit 10(j) to the Annual
Report on Form 10-K for the year ended December 31, 1994 and incorporated
herein by reference).
10(i)* Federal Funds Agency Agreement by and between First Banks, Inc. and the
Company, dated September 15, 1994 (filed as Exhibit 10(k) to the Annual
Report on Form 10-K for the year ended December 31, 1994 and incorporated
herein by reference).
10(j)*
Funds Management Policy by and between First Banks, Inc. and BancTEXAS,
N.A., dated September 15, 1994 (filed as Exhibit 10(l) to the Annual Report
on Form 10-K for the year ended December 31, 1994 and incorporated herein
by reference).
13 1995 Annual Report to Stockholders -- filed herewith. Portions not
specifically incorporated by reference in this Report are not deemed
"filed" for the purposes of the Securities Exchange Act of 1934.
21 Subsidiaries of the Company -- filed herewith.
23(a) Consent of KPMG Peat Marwick LLP--filed herewith.
23(b) Consent of Deloitte & Touche LLP--filed herewith.
27 Financial Data Schedule.
*Exhibits designated by an asterisk in this Index to Exhibits relate to
management contracts and/or compensatory plans or arrangements.
<PAGE>
EXHIBIT 13
<PAGE>
<PAGE>
Annual Report
First Banks America, Inc.
<PAGE>
First Banks America, Inc.
Table of Contents
Page
Letter to Shareholders.............................................. 1
Selected Consolidated and Other Financial Data...................... 2
Management's Discussion and Analysis................................ 3
Quarterly Condensed Financial Data - Unaudited...................... 20
Independent Auditors' Report........................................ 21
Financial Statements:
Consolidated Balance Sheets......................................... 22
Consolidated Statements of Operations............................... 24
Consolidated Statements of Changes in Stockholders' Equity.......... 25
Consolidated Statements of Cash Flows............................... 26
Notes to Consolidated Financial Statements.......................... 27
Management.......................................................... 45
Investor Information................................................ 45
<PAGE>
First Banks America, Inc.
Letter to Shareholders
To Our Shareholders, Customers and Friends:
It has been a challenging year for our Company as we worked diligently to
enhance the performance of our organization for both the benefit of our
customers and our shareholders. We are pleased with the accomplishments made in
1995 in several facets, and have dealt aggressively to overcome the problems the
Company has faced in recent years.
For example, asset quality problems began to surface early in the year in the
indirect automobile loan portfolio which resulted in mounting past-due loans and
subsequent charge-offs. As this trend became apparent, the Company conducted an
extensive review of the entire loan portfolio and recorded a third quarter
provision of $3.8 million for possible future loan losses. Therefore, operating
results for 1995 reflect a sharply higher provision for possible loan losses of
$5.83 million compared to $1.26 million for 1994. Loans past due over 30 days to
90 days increased in 1995 to $6.65 million from $1.37 million in 1994. Loan
charge-offs increased to $4.07 million from $2.26 million for the years ended
1995 and 1994, respectively. At year-end, the allowance for possible loan losses
was $5.23 million, or 2.71% of total loans, compared to $2.76 million, or 1.36%
of total loans in 1994. As an additional step to reverse current trends, the
Company has reviewed all existing underwriting procedures and criteria, and has
instituted stricter guidelines to ensure the appropriate level of risk on
incremental credits.
To expedite the process of returning the Company to consistent profitability,
the Company also took measures in 1995 to improve its performance in net
interest income. Although significant progress has been made toward reducing
noninterest expenses, the Company accelerated efforts to restructure the
securities portfolio electing to sell $48.9 million of securities. This action
triggered the realization of related deferred losses on futures contracts which
had been used to hedge the portfolio, and resulted in a nonrecurring after tax
loss of $2.1 million. However, more important to our future profitability and
performance, this action also served to strengthen the Company's capital
position and eliminated a significant impediment to earnings.
The restructuring of the securities portfolio and the recognition of the special
provision for possible loan losses were the primary factors contributing to the
net loss of $3.82 million for the year ended December 31, 1995 compared to the
net loss of $905,000 for the year ended December 31, 1994. However, these same
actions have led to a greater confidence in the Company's ability to move
forward.
We now envision a Company that is better positioned to achieve consistent
profitability, planned growth, superior service levels and quality banking
products that compete effectively in today's markets. As a part of this vision,
the Company completed a reverse stock split in August and changed its name to
First Banks America, Inc. which met with the overwhelming approval of our
shareholders. We have begun the year 1996 with a renewed enthusiasm to return
the Company's asset quality to more acceptable levels and to continue to focus
on the progress made toward effectively controlling noninterest expense. We are
emphasizing our corporate banking activities and related sources of revenues,
and are introducing new products and services into the market which are meeting
both the demands and needs of our valued customers.
I would like to take this opportunity to extend our sincerest appreciation for
the dedication of our employees, the loyalty of our customers and the support of
our shareholders. It is our pledge to each of you that First Banks America, Inc.
will maintain the momentum we have established toward meeting our long-term
objective of progressive and profitable growth.
Sincerely,
/s/James F. Dierberg
- --------------------
James F. Dierberg
Chairman of the Board, President
and Chief Executive Officer
March 8, 1996
<PAGE>
First Banks America, Inc.
Selected Consolidated and Other Financial Data
<TABLE>
<CAPTION>
The following table presents selected consolidated financial information for First Banks America, Inc. and
subsidiaries, formerly BancTEXAS Group Inc., (FBA or the Company) for each of the years in the five-year period
ended December 31, 1995.
Year ended December 31,
-----------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
(dollars expressed in thousands, except per share data)
Income statement data:
<S> <C> <C> <C> <C> <C>
Interest income $ 22,427 22,649 21,966 24,735 23,742
Interest expense 11,218 11,072 9,750 11,229 13,226
Net interest income 11,209 11,577 12,216 13,506 10,516
Provision for possible loan losses 5,826 1,258 490 507 934
Income (loss) from operations
before extraordinary items (3,820) (905) 219 702 (3,504)
Net income (loss) (3,820) (905) 219 1,064 (3,039)
Per share data:
Income (loss) from operations (.94) (.37) .14 .46 (2.75)
Net income (loss) (.94) (.37) .14 .69 (2.39)
Dividends paid 0 0 0 0 0
Balance sheet data:
Assets 296,583 331,790 368,608 322,769 290,817
Loans, net of unearned discount 192,573 203,314 167,732 174,695 183,371
Allowance for possible loan losses 5,228 2,756 2,637 3,044 4,479
Deposits 249,263 241,570 242,897 270,730 251,586
Long-term debt 1,054 1,054 1,054 1,066 1,066
Stockholders' equity 35,258 39,714 14,952 14,107 13,013
Book value per common share 9.22 10.26 11.46 11.02 10.23
Financial ratios:
Return on average assets (1.20)% (.25)% .07% .34% (1.13)%
Return on average equity 10.10) (.66) 1.49 7.90 (20.94)
Average equity as a percent of
average assets 11.88 6.80 4.40 4.28 5.38
Asset quality ratios:
Allowance for possible loan losses
to total loans 2.71% 1.36% 1.57% 1.74% 2.44%
Allowance for possible loan losses
to nonperforming loans 952.28 940.61 423.95 213.46 106.57
Nonperforming assets to total
assets .53 .61 1.25 2.10 3.87
Nonperforming assets to loans
and foreclosed property .81 .90 2.22 3.69 5.83
Other statistics:
Number of employees (at year-end) 76 154 164 170 172
</TABLE>
<PAGE>
Management's Discussion and Analysis
General
FBA is a registered bank holding company incorporated in Delaware. At
December 31, 1995, FBA had $296.6 million in total assets; $192.6 million in
total loans, net of unearned discount; $249.3 million in total deposits and
$35.3 million in total stockholders' equity. FBA operates through its subsidiary
bank, BankTEXAS N.A. (Bank).
Through the Bank's six banking locations in Houston, Dallas, McKinney and
Irving, Texas, FBA offers a broad range of commercial and personal banking
services, including certificates of deposit, individual retirement and other
time deposit accounts, checking and other demand deposit accounts, interest
checking accounts, savings accounts and money market accounts. Loans include
commercial and industrial, commercial and residential real estate, real estate
construction and development and consumer loans. Other financial services
include automatic teller machines, credit related insurance and safe deposit
boxes.
FBA's management philosophy is to centralize overall corporate policies,
procedural and administrative functions and to provide operational support
functions for the Bank. Primary responsibility for managing the Bank remains
with its officers and directors.
On August 31, 1994, FBA issued and sold 2,500,000 shares of Class B Common
Stock (Class B Stock) in a private placement in exchange for $30 million in
cash. This increased the capital of FBA to levels in excess of regulatory
requirements. As a result of this transaction, the purchaser of the Class B
Stock, First Banks, Inc. (First Banks) became the owner of approximately 65.05%
of the outstanding voting stock of FBA at August 31, 1994 (see Note 2 to the
accompanying consolidated financial statements).
In 1995, FBA implemented a one-for-fifteen reverse stock split, whereby
each 15 shares of outstanding Common Stock and Class B Stock were converted into
one share of Common Stock and Class B Stock, respectively. For consistency, the
numbers of shares referred to throughout this Annual Report are restated when
necessary to give effect to the reverse split.
Financial Condition and Average Balances
FBA's average total assets were $318.1 million, $363.7 million and $333.6
million for the years ended December 31, 1995, 1994 and 1993, respectively. The
decrease in total average assets of $45.6 million for 1995 and the increase in
total average assets of $30.1 million for 1994 are primarily attributable to
changes in loans and investment securities during those periods.
Loans, net of unearned discount, averaged $205.3 million, $182.9 million
and $171.9 million for the years ended December 31, 1995, 1994 and 1993,
respectively. The increase in average loans for 1994 reflects the Company's
emphasis on indirect automobile lending. As more fully discussed in Net Interest
Income and Comparison of Results of Operations for 1995 and 1994, during the
second quarter of 1995, FBA elected to reduce the level of originations of
indirect automobile loans. Accordingly, indirect automobile loans, which
initially increased from $147.7 million at December 31, 1994 to $159.5 million
at June 30, 1995, subsequently decreased to $130.3 million at December 31, 1995.
At the same time, FBA expanded its corporate banking activities resulting in the
commercial and real estate construction loan portfolios increasing to $41.1
million at December 31, 1995, from $32.3 million and $28.3 million at June 30,
1995 and December 31, 1994, respectively.
Investment securities increased by $9.1 million to an average of $141.7
million for the year ended December 31, 1994, from $132.6 million for 1993. This
was the result of an investment strategy which FBA implemented during 1992
whereby funds were borrowed, principally through repurchase agreements and
advances from the Federal Home Loan Bank (FHLB), which were in turn used to
purchase investment securities. This strategy resulted in a corresponding
increase in average short-term borrowings for these same periods. As more fully
discussed in the Net Interest Income section of the Annual Report, this strategy
resulted in a declining net interest income and net interest margin during 1993,
1994 and 1995.
Recognizing the need to improve the net interest income and net interest
margin, during 1994 FBA commenced the process of restructuring its investment
portfolio. The restructuring process consisted initially of hedging the existing
investment security portfolio in an attempt to reduce the overall interest rate
risk to a more acceptable level. At the same time, FBA began disposing of
securities which had greater interest rate risk and reducing the level of
short-term borrowings. Remaining funds generated in this process were invested
in shorter-term securities which generally have less interest rate risk. The
restructuring of the investment security portfolio was completed during 1995 and
resulted in a reduction in the average balance of investment securities of $67.0
million to $74.7 million from $141.7 million for the years ended December 31,
1995 and 1994, respectively. The average balance of short-term borrowings,
decreased by $59.3 million to $30.4 million from $89.7 million for the years
ended December 31, 1995 and 1994, respectively.
<PAGE>
<TABLE>
<CAPTION>
Stockholders' equity increased $20.3 million over these periods from $15.0 million at December 31, 1993 to
$35.3 million at December 31, 1995. The increase is attributable to the sale of $30.0 million of Class B Stock.
The following table sets forth certain information relating to FBA's average balance sheet, and reflects the
average yield earned on interest-bearing assets, the average cost of interest-bearing liabilities and the
resulting net interest income for the periods indicated.
Years ended December 31,
------------------------
1995 1994 1993
---- ---- ----
Interest Interest Interest
Average income/ Average Average income/ Average Average income/ Average
balance expense rate balance expense rate balance expense rate
------- ------- ---- ------- ------- ---- ------- ------- ----
(dollars expressed in thousands)
Earning assets:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Time deposits with banks $ 4,693 319 6.80% $ 5,379 269 5.00% $ 825 31 3.76%
Investment securities (2) (3) 74,687 4,473 5.99 141,720 6,965 4.91 132,563 6,650 5.02
Federal funds sold and securities
purchased under agreements to
resell 2,961 173 5.84 4,817 219 4.55 4,517 133 2.94
Loans (1) (2) 205,288 17,462 8.51 182,922 15,196 8.31 171,889 15,152 8.82
------- ------ ------- ------ ------- ------
Total earning assets 287,629 22,427 7.80 334,838 22,649 6.76 309,794 21,966 7.09
------ ------ ------
Nonearning assets:
Cash and due from banks 10,770 9,782 8,253
Premises and equipment 6,522 11,110 11,452
Other assets 16,667 10,584 6,977
Allowance for possible loan
losses (3,451) (2,607) (2,894)
Total assets $ 318,137 $363,707 333,582
========= ======== =======
Interest-bearing liabilities:
Interest-bearing demand and
savings deposits $ 79,633 2,481 3.12% $ 83,381 2,195 2.63% $ 88,986 2,268 2.55%
Time deposits of $100 or more 23,305 1,300 5.58 19,918 852 4.28 33,035 1,226 3.71
Other time deposits 98,067 5,148 5.25 92,126 4,073 4.42 92,648 4,183 4.51
------ ----- ------ ----- ------ -----
Total interest-bearing deposits 201,005 8,929 4.44 195,425 7,120 3.64 214,669 7,677 3.58
Federal funds purchased, short-
term borrowings and Federal
Home Loan Bank advances (3) 30,437 2,194 7.21 89,699 3,857 4.30 55,576 1,978 3.56
Long-term debt 1,054 95 9.01 1,054 95 9.01 1,055 95 9.00
----- ----- ----- ---- ----- -----
Total interest-bearing labilities 232,496 11,218 4.83 286,178 11,072 3.87 271,300 9,750 3.59
------ ------ -----
Non-interest-bearing liabilities:
Demand deposits 44,251 49,125 45,106
Other liabilities 3,584 3,683 2,498
----- ----- -----
Total liabilities 280,331 338,986 318,904
Stockholders' equity 37,806 24,721 14,678
------ ------ ------
Total liabilities and
stockholders' equity $ 318,137 $363,707 $333,582
========= ======== ========
Net interest income $ 11,209 $ 11,577 $ 12,216
========= ========= ========
Interest rate spread 2.97% 2.89% 3.50%
Net interest margin 3.90 3.46 3.94
==== ==== ====
</TABLE>
_______________
(1) Nonaccrual loans are included in the average loan amounts.
(2) FBA has no tax-exempt income.
(3) Includes the effects of interest rate exchange agreements.
<PAGE>
<TABLE>
<CAPTION>
The following table indicates the changes in interest income and interest expense which are attributable to
changes in average volume and changes in average rates, in comparison with the same period in the preceding
year. The change in interest due to the combined rate/volume variance has been allocated to rate and volume
changes in proportion to the dollar amounts of the change in each.
December 31, 1995 compared December 31, 1994 compared
to December 31, 1994 to December 31, 1993
-------------------- --------------------
Net Net
Volume Rate Change Volume Rate Change
------ ---- ------ ------ ---- ------
(dollars expressed in thousands)
Earning assets:
<S> <C> <C> <C> <C> <C> <C>
Time deposits with banks $ (38) 88 50 225 13 238
Investment securities (1) (2) (3,790) 1,298 (2,492) 461 (146) 315
Federal funds sold and
securities purchased under
agreements to resell (98) 52 (46) 9 77 86
Loans (2) 1,893 373 2,266 936 (892) 44
-- ----- --- ----- --- ---- --
Total interest income (2,033) 1,811 (222) 1,631 (948) 683
------ ----- ---- ----- ---- ---
Interest-bearing funds:
Interest-bearing demand
and savings deposits (103) 389 286 (144) 71 (73)
Time deposits of $100 or more 161 287 448 (541) 167 (374)
Other time deposits 275 800 1,075 (24) (86) (110)
Short-term borrowings (1) (3,400) 1,737 (1,663) 1,403 476 1,879
Long-term debt 0 0 0 0 0 0
- - - - - -
Total interest expense (3,067) 3,213 146 694 628 1,322
------ ----- --- --- --- -----
Net interest income $ 1,034 (1,402) (368) 937 (1,576) (639)
======== ====== ==== === ====== ====
</TABLE>
________________________
(1) Includes the effects of interest rate exchange agreements.
(2) FBA has no tax-exempt income.
Net Interest Income
The primary source of FBA's income is net interest income, which is the
difference between the interest earned on assets and the interest paid on
liabilities. Net interest income was $11.2 million, or 3.90% of average earning
assets, for the year ended December 31, 1995, compared with $11.6 million, or
3.46% of average earning assets, and $12.2 million, or 3.94% of average earning
assets, for the years ended December 31, 1994 and 1993, respectively.
With the general decline in interest rates during 1993, the yield on FBA's
loan portfolio decreased from 9.85% in 1992 to 8.82% in 1993. Because FBA's loan
portfolio consists predominately of automobile loans, which are generally fixed
rate loans with relatively short average lives, as new loans were originated
they were generally at rates below those of the existing portfolio. In addition,
during this time, FBA was selling its excess loan originations, primarily from
loans which were seasoned six to nine months. Since in a declining rate
environment the rates on these loans tended to be somewhat higher than those on
newly originated loans, this had the effect of reducing the average portfolio
yield at a more rapid rate than would have occurred if loans were not sold. In
1994, as interest rates increased, FBA found that its ability to sell loans had
decreased substantially. Furthermore, intense competition for automobile loans,
particularly with nonbank entities, caused market rates to increase more slowly
than interest rates in general. As more fully discussed in the Comparison of
Results of Operations for 1995 and 1994, tightened underwriting standards within
indirect automobile lending also contributed to reduced levels of new loan
originations during the second half of 1995. Consequently, the amounts and rates
at which new loans were originated were each less than anticipated. The
combination of this trend and the continued repayments of the older loans,
caused the yield on the loan portfolio to increase by 20 basis points to 8.51%
for the year ended December 31, 1995, compared with 8.31% and 8.82% for the year
ended December 31, 1994 and 1993, respectively, at the same time.
At the same time, FBA's cost of interest-bearing deposits, the principal
source of funding for the loan portfolio, increased by 80 basis points to 4.44%
for the year ended December 31, 1995, from 3.64% and 3.58% for the years ended
December 31, 1994 and 1993, respectively.
<PAGE>
Realizing the need to provide other sources of net interest income, FBA
began following an investment strategy in 1992 whereby funds were borrowed,
principally as advances and short-term repurchase agreements from the FHLB,
which were invested in mortgage-backed securities. This generated an incremental
spread, thereby enhancing income. In order to limit the amount of interest rate
exposure in this strategy, the majority of the securities acquired had
adjustable rates. All of the adjustable rate securities acquired were based on
the Eleventh District Cost of Funds Index (COFI), which by its nature is an
index which generally reacts more slowly to interest rate changes than more
frequently used indices. Consequently, as rates declined in 1992 and 1993, this
index decreased more slowly than interest rates generally, causing the spread
between these investments and the corresponding cost of funds to widen. This
contributed significantly to the net interest margin for 1992. However, as the
interest rate declines slowed in 1993 and rates increased in 1994, this
contribution to net interest margin was substantially reduced. The following is
a comparison of the yield earned on the investment portfolio and the cost of
short-term borrowings for the years ended December 31:
Years ended December 31,
------------------------
1995 1994 1993
---- ---- ----
Average yield on investments 5.99% 4.91% 5.02%
Average cost of borrowings 7.21 4.30 3.56
---- ---- ----
Interest spread (1.22)% .61% 1.46%
===== === ====
Although a substantial portion of the investment portfolio was funded from
other sources, this decreasing interest spread on that portion funded from
short-term borrowings was a significant factor in the decline in net interest
margin during 1994. Furthermore, as the investment securities portfolio
increased, the portion of this portfolio which was funded with borrowed funds
increased.
Concerned that further increases in interest rates might cause the interest
spread on these securities to become negative, in September 1994, FBA began the
process of restructuring its investment portfolio. The restructuring process
included sales of investment securities of $48.9 million and $113.9 million,
resulting in net losses of $3.0 million and $7.1 million for the years ended
December 31, 1995 and 1994, respectively. While this had a substantial negative
impact on results of operations for those years, it has positioned FBA's
investment portfolio for improved performance in future years.
The average yield on investments and average cost of borrowings for the
year ended December 31, 1995 also reflect the impact of the
"quasi-reorganization." As more fully discussed in Note 2 to the accompanying
consolidated financial statements, in accordance with the accounting provisions
applicable to a quasi-reorganization, the assets and liabilities of FBA were
adjusted to fair values as of December 31, 1994. This resulted in the yield on
investment securities and cost of related borrowings to be adjusted to market
rates at December 31, 1994.
Comparison of Results of Operations for 1995 and 1994
Net Loss
Net loss for the year ended December 31, 1995 was $3.82 million in
comparison to a net loss of $905,000 for the same period in 1994. As more fully
discussed below, the operating results for 1995 reflect an after tax loss of
$2.1 million incurred in connection with the repositioning of FBA's investment
portfolio and a sharply higher provision for possible loan losses in comparison
to the preceding year. As previously discussed, net interest income was $11.2
million, or 3.90% of average earning assets, for 1995, compared to $11.6
million, or 3.46% of average earning assets, for 1994.
Provision for Possible Loan Losses
The provision for possible loan losses was $5.83 million and $1.26 million
for the years ended December 31, 1995 and 1994, respectively. Net loan
charge-offs were $3.35 million and $1.14 million for the years ended December
31, 1995 and 1994, respectively. As a result of the increased provision for
possible loan losses, the allowance for loan losses was $5.23 million, or 2.71%
of total loans, net of unearned discount, at December 31, 1995, compared to
$2.76 million, or 1.36% of total loans, at December 31, 1994. Loans which were
either 90 days or more past due and still accruing interest or on nonaccrual
status totaled $1.07 million at December 31, 1995, representing a relatively
modest .55% of total loans at that date. However, loans which were between 30
and 89 days past due were $6.65 million, or 3.45% of total loans, net of
unearned discount, at December 31, 1995, in comparison to $1.37 million, or .67%
of total loans, net of unearned discount, at December 31, 1994.
<PAGE>
The increase in the provision for possible loan losses is attributable to
the increased level of loan charge-offs and loans past due over 30 days within
the automobile loan portfolio and management's evaluation of the quality of the
loans in that portfolio. Because of the increased loan charge-offs and loans
past due over 30 days, FBA conducted an extensive internal review of the reasons
for the losses and increasing level of loans past due over 30 days. As a result
of the review, FBA increased its collection efforts and has implemented more
stringent lending practices, including regular reviews of new loans originated
and strict adherence to approved policies and practices. In addition, the level
of loan charge-offs is partly due to a change in the practice and timing of
recording such charge-offs. Previously, FBA charged-off the remaining balance of
a loan after reducing that amount by the estimated value of the collateral even
if the collateral was not yet in its possession. Commencing in the second
quarter of 1995, FBA charges-off a loan when it becomes 120 days or more past
due, regardless of whether the collateral is in its possession. When the
collateral is subsequently received, the charged-off amount is adjusted for the
value of the collateral.
<TABLE>
<CAPTION>
Noninterest Income and Expense
The following table summarizes noninterest income and noninterest expense for the years ended December 31,
1995 and 1994, respectively.
Increase (Decrease)
-------------------
1995 1994 Amount Percent
---- ---- ------ -------
(dollars expressed in thousands)
Noninterest income:
Service charges on deposit accounts
<S> <C> <C> <C> <C>
and customer service fees $ 1,458 1,596 (138) (8.6)%
Gains on sale of loans - 38 (38) -
Loan servicing fees 159 290 (131) (45.2)
Other income 1,253 572 681 119.1
----- --- ---
2,870 2,496 374 15.0
====
Gain (loss) on sales of securities (2,996) (7,007) 4,011
------ ------ -----
Total noninterest income (loss) $ (126) (4,511) 4,385
========= ====== =====
Noninterest expense:
Salaries and employee benefits $ 4,029 8,911 (4,882) (54.8)%
Occupancy, net of rental income 1,274 1,321 (47) (3.6)
Furniture and equipment 663 843 (180) (21.4)
Federal Deposit Insurance
Corporation premiums 313 684 (371) (54.2)
Postage, printing and supplies 303 554 (251) (45.3)
Legal, examination and
professional fees 1,354 1,203 151 12.6
Data processing 664 890 (226) (25.4)
Communications 553 503 50 9.9
Losses and expenses on foreclosed property 176 192 (16) (8.3)
Other 1,831 1,073 758 70.6
----- ----- ---
Total noninterest expense $ 11,160 16,174 (5,014) (31.0)
========= ====== ====== =====
</TABLE>
Noninterest Income
Noninterest income improved to a loss of $126,000 from a loss of $4.5
million for the years ended December 31, 1995 and 1994, respectively. As more
fully discussed in the Net Interest Income and Interest Rate Risk Management
sections of the Annual Report, the losses in noninterest income for 1995 and
1994 are attributable to sales of investment securities resulting in a net loss
of $3.0 million and $7.0 million for the years ended December 1, 1995 and 1994,
respectively.
Service charges on deposit accounts decreased by $138,000 to $1.46 million
from $1.60 million for the years ended December 31, 1995 and 1994, respectively.
The decrease is primarily attributable to FBA's decision to waive the customary
service charges on deposit accounts for one month. FBA elected to waive these
charges as a result of any disruption customers may have incurred during the
conversion of data processing and centralization of other operating functions
to First Banks' systems and procedures.
<PAGE>
Loan servicing fees decreased to $159,000 from $290,000 for the years ended
December 31, 1995 and 1994, respectively. The decrease is due to a reduction in
the amount of loans serviced for others to $8 million at December 31, 1995 from
$21 million at December 31, 1994. Loans serviced for others consist of
automobile loans which were sold with servicing retained by FBA. The increase in
interest rates throughout 1994 and early 1995 made the sale of loans at prices
acceptable to FBA difficult, and consequently the amount of such sales decreased
significantly during that time. FBA's decision to reduce the overall volume of
new loan originations in 1995 and retain the remaining production in its loan
portfolio eliminated any further loan sales.
Other income increased by $678,000 to $1.25 million from $572,000 for the
years ended December 31, 1995 and 1994, respectively. Other income for the year
ended December 31, 1995 includes a nonrecurring benefit of $179,000 from the
termination of the Directors' Retirement Plan. The Directors' Retirement Plan
was terminated by the Board of Directors on September 11, 1995. The income
represents the nonvested portion previously expensed by FBA under the plan. In
addition, other income for the year ended December 31, 1995 includes $802,000
which was previously maintained in a trust. The trust was established during
1990 and subsequently funded by FBA to provide limited protection against
personal claims being taken or threatened against FBA's officers and directors
as well as to provide for potential costs of litigation. Prior to FBA's
affiliation with First Banks, officer and director liability insurance was not
available to FBA at an economically feasible price. Considering the cost of such
insurance, certain legal claims pending against FBA at that time and the
potential for additional claims, FBA elected to establish and fund this trust.
Since officer and director coverage is now available at a reasonable price
through First Banks, the trust fund is no longer necessary and, accordingly, was
terminated, at which time the funds were returned to FBA. Offsetting the
increase in other income for the year ended December 31, 1995 in comparison to
1994 is a $255,000 legal settlement received and recorded as income during 1994.
The legal settlement related to a lawsuit filed against the Federal Deposit
Insurance Corporation (FDIC) regarding the closure of FBA's former subsidiary,
BankTEXAS Dallas N.A.
Noninterest Expense
Noninterest expense decreased by $5.0 million to $11.2 million from $16.2
million for the years ended December 31, 1995 and 1994, respectively. While
there were significant expense reductions in most functional areas of FBA, the
largest decrease is related to salaries and employee benefits.
The decrease in salaries and employee benefits of $4.9 million to $4.0
million from $8.9 million for the years ended December 31, 1995 and 1994,
respectively, relates primarily to reductions in staff. FBA's staff was reduced
to 67 full-time employees at December 31, 1995, from 142 and 162 full-time
employees at December 31, 1994 and 1993, respectively. The components of the
decrease were as follows:
Decrease
----------
1995 1994 Amount Percent
---- ---- ------ -------
(dollars expressed in thousands)
Salaries and wages ........................ $3,022 5,346 (2,324) (43.5)%
Payroll taxes ............................. 286 418 (132) (31.6)
Employee benefits ......................... 648 980 (332) (33.9)
Severance benefits ........................ 73 430 (357) (83.0)
Nonrecurring benefits accruals ............ 0 1,737 (1,737) 0
----- ----- ------
Total salaries and employee benefits . $4,029 8,911 (4,882) (54.8)
====== ===== ====== =====
However, a portion of this decrease resulted from the performance of
certain functions and the centralization of certain operations with First Banks
for which fees were paid in lieu of direct salary and benefit payments. The
Company incurred both nonrecurring costs incurred in connection with the
conversion and centralization of data processing and certain operating functions
to First Banks' systems and procedures and the ongoing fees paid to First Banks
for management services. The management fees paid to First Banks were $796,000
and $14,000 for the years ended December 31, 1995 and 1994, respectively. This
resulted in an increase in other expenses of $758,000 to $1.8 million from $1.1
million for the years ended December 31, 1995 and 1994, respectively.
Another factor contributing to the decrease in noninterest expense was a
reduction in FDIC deposit insurance premiums. As more fully described in the
Regulation and Supervision section of Management's Discussion and Analysis, on
August 8, 1995, the FDIC voted to reduce the deposit insurance premiums paid by
most members of the Bank Insurance Fund (BIF). The reduction in the BIF rates,
which was effective June 1, 1995, reduced FBA's FDIC insurance premium expense
by approximately $371,000 to $313,000 from $684,000 for the years ended December
31, 1995 and 1994, respectively.
<PAGE>
Income Taxes
The accompanying consolidated statement of operations reflects a deferred
income tax benefit of $2.1 million for the year ended December 31, 1995. This
compares to a $9.5 million deferred income tax benefit for the same period in
1994. At December 31, 1995 and 1994, the accompanying consolidated balance
sheets include a deferred tax asset, net of deferred tax liabilities, of $13.2
million and $11.2 million, respectively. The deferred tax asset valuation
allowance was $2.7 million at December 31, 1995 and 1994. As more fully
discussed in Note 9 to the consolidated financial statements, during 1994, FBA's
valuation reserve was reduced to $2.7 million which contributed to the
recognition of a deferred income tax benefit of $9.5 million. There were no
adjustments to the deferred tax asset valuation allowance during 1995. FBA's
management believes it is more likely than not that its operating results will
be increased to a level that permits utilization of all or a substantial portion
of net deferred tax assets including utilization of net operating loss
carryforwards.
Comparison of Results of Operations for 1994 and 1993
Net Loss
Net loss for the year ended December 31, 1994 was $905,000, compared with
net income of $219,000 for the year ended December 31, 1993. The results of
operations for 1994 were significantly affected by the decline in net interest
income to $11.6 million or 3.46% of average earning assets, for 1994, compared
to $12.2 million, or 3.94% of average earning assets, for 1993. In addition, in
connection with the restructuring of its investment portfolio, the Company
incurred a net loss on sales of securities of $7.0 million in 1994. The
magnitude of these were partially offset by several other factors, some of which
were nonrecurring.
Provision for Possible Loan Losses
The provision for possible loan losses was $1.3 million for the year ended
December 31, 1994, compared to $490,000 for 1993. Net loan charge-offs increased
to $1.1 million for 1994, compared to $897,000 for 1993. Loans which were either
90 days or more past due and still accruing interest or on nonaccrual status
totaled $476,000 at December 31, 1994, or .23% of total loans, net of unearned
discount. Loans which were over 30 to 90 days past due were $1.4 million, or
.67% of total loans, net of unearned discount, at December 31, 1994, in
comparison to $1.6 million, or .94% of total loans, net of unearned discount, at
December 31, 1993. Considering the increase in total loans and the level of
loans past due over 30 days in 1994, management assessed the adequacy of the
allowance for possible loan losses and determined that it would be prudent to
strengthen it through the additional provision.
Noninterest Income and Expense
The following table summarizes noninterest income and noninterest expense
for the years ended December 31, 1994 and 1993, respectively.
Increase (Decrease)
-------------------
1994 1993 Amount Percent
---- ---- ------ -------
(dollars expressed in thousands)
Noninterest income:
Service charges on deposit accounts
and customer service fees .......... $ 1,596 1,716 (120) (7.0)%
Gains on sale of loans ............... 38 698 (660) (94.6)
Loan servicing fees .................. 290 201 89 44.3
Other income ......................... 572 210 362 172.4
--- --- ---
2,496 2,825 (329) (11.6)
=====
Gain (loss) on sales of securities ... (7,007) 243 (7,250)
------ --- ------
Total noninterest income (loss) $(4,511) 3,068 (7,579)
======= ===== ======
<PAGE>
Increase (Decrease)
-------------------
1994 1993 Amount Percent
---- ---- ------ -------
(dollars expressed in thousands)
Noninterest expense:
Salaries and employee benefits ........... $ 8,911 6,483 2,428 37.5%
Occupancy, net of rental income .......... 1,321 1,348 (27) (2.0)
Furniture and equipment .................. 843 919 (76) (8.3)
Federal Deposit Insurance
Corporation premiums ................... 684 754 (70) (9.3)
Postage, printing and supplies ........... 554 461 93 20.2
Legal, examination and professional fees . 1,203 1,580 (377) (23.9)
Data processing .......................... 890 911 (21) (2.3)
Communications ........................... 503 599 (96) 16.0
Losses and expenses on foreclosed property 192 166 26 15.7
Litigation settlement expense ............ - 592 (592) -
Other .................................... 1,073 762 311 40.8
----- --- ---
Total noninterest expense ...... $16,174 14,575 1,599 11.0
======= ====== ===== ====
Noninterest Income
Noninterest income decreased to a loss of $4.5 million from income of $3.1
million for the years ended December 31, 1994 and 1993, respectively. As
previously discussed in the Net Interest Income section of the Annual Report,
the loss in noninterest income for 1994 is attributable to sales of securities
which resulted in a net loss of $7.0 million for the year ended December 31,
1994.
Service charges on deposit accounts decreased approximately $120,000, or
7.0% in 1994 compared with 1993. In 1992, FBA had tightened its policy of
verifying the credit history of new deposit customers to reduce its exposure to
losses from checks drawn on accounts with insufficient funds. At the same time,
service charge increases were instituted in several areas, principally affecting
demand deposit accounts. While this resulted in an immediate increase in service
charge income, gradually those customers who customarily maintained relatively
small accounts, and therefore incurred larger service charges relative to the
amount of funds on deposit, began changing their account relationships. Many of
those with funds in other accounts transferred sufficient funds to their demand
accounts to reduce the amount of the service charges. Others who did not have
those funds available closed their accounts. This resulted in a net reduction of
the number of customer accounts serviced by FBA during this period, but an
increase in the average balance of the remaining accounts.
In 1993, FBA realized gains of $698,000 from the sale of loans, primarily
the sale of automobile loans originated which exceeded the capacity of the loan
portfolio. As interest rates increased in 1994, FBA's ability to sell these
loans was substantially reduced, and the gains on such sales decreased to
$38,000. In connection with these loan sales, FBA retained the related servicing
rights. FBA received only a portion of the annual servicing fees in 1993 on
those loans sold during the year, but a full year's fees in 1994. Consequently,
income from servicing loans for others increased from $201,000 in 1993 to
$290,000 in 1994.
The increase in other noninterest income for the year ended December 31,
1994 related principally to the receipt of $255,000 in settlement of litigation
relating to the closure of BankTEXAS Dallas N.A. in 1990.
Noninterest Expense
Total noninterest expense was $16.2 million for the year ended December 31,
1994, compared with $14.6 million for the year ended December 31, 1993. Included
in 1994 expenses were several nonrecurring charges reflecting changes initiated
during the year by FBA. These included: (a) accruals of $430,000 for severance
benefits relating to the realignment of staffing levels; (b) an increase in the
expense for the defined benefit pension plan of $839,000 for which the
accumulation of benefits was discontinued in 1994; and (c) an accrual of
$898,000 for the unfunded liability relating to the post-retirement medical
benefits plan.
<PAGE>
Because most of the effects of these nonrecurring charges were reflected as
personnel expenses, these expenses increased to $8.9 million for the year ended
December 31, 1994, compared with $6.5 million for the year ended December 31,
1993, an increase of $2.4 million, or 37.5%. The components of this increase
were as follows:
Increase
--------
1994 1993 Amount Percent
---- ---- ------ -------
(dollars expressed in thousands)
Salaries and wages ...................... $5,346 5,224 122 2.3%
Payroll taxes ........................... 418 408 10 2.5
Employee benefits ....................... 980 816 164 20.1
Severance benefits ...................... 430 35 395
Nonrecurring benefits accruals .......... 1,737 0 1,737
----- ----- -----
Total salaries and employee benefits $8,911 6,483 2,428 37.5
====== ===== ===== ====
Occupancy expense, net of rental income, decreased to $1.32 million for the
year ended December 31, 1994 from $1.35 million for the year ended December 31,
1993. This decrease primarily resulted from rental income of the McKinney
building by unrelated tenants, which increased to $286,000 for the year ended
December 31, 1994 from $245,000 for the year ended December 31, 1993, an
increase of 16.7%. This increase in rental income was partially offset by rent
expense on FBA's Abrams facility, which was opened in September 1993.
Expenses related to furniture and equipment decreased in 1994 to $843,000
from $919,000 for 1993, a decrease of $76,000, or 8.3%. In the past, FBA leased
substantial portions of the equipment required for bank operations. Most of
these leases expired during 1993 and 1994 and were not renewed. As the leases
expired, FBA purchased that equipment which was still required for operations,
if the equipment was serviceable and the cost was reasonable. Other equipment
was acquired as necessary. Consequently, rent expense on equipment leases
decreased from $255,000 for the year ended December 31, 1993 to $157,000 for the
year ended December 31, 1994.
Legal, examination and professional fees decreased to $1.20 million for the
year ended December 31, 1994 from $1.58 million for the year ended December 31,
1993, a decrease of $377,000, or 23.9%. In 1993, FBA settled a class action
lawsuit relating to a 1984 private placement of common stock. The cost of this
settlement was reflected as a separate expense during the year ended December
31, 1993. In addition, in February 1994, the court ruled in favor of FBA in a
lawsuit in which claims of lender liability had been asserted. While this
litigation is being appealed by the plaintiffs, the legal fees required to
defend FBA's position in connection with this action, as well as the class
action, were substantially reduced in 1994.
Other noninterest expenses increased to $1.07 million for the year ended
December 31, 1994, compared with $762,000 for the year ended December 31, 1993,
an increase of $311,000, or 40.8%. Included in other expenses for 1994 was a
nonrecurring charge of $295,000 incurred in connection with a change in the
Company's vendors single interest insurance policies relating to its indirect
automobile lending program. In addition, during the year ended December 31,
1993, FBA reversed approximately $354,000 of estimated accrued costs relating to
the closure of BankTEXAS Dallas N. A., FBA's former subsidiary, that were no
longer considered necessary.
Income Taxes
Following the completion of the private placement of Class B Stock in
August 1994, FBA analyzed its deferred income tax assets and liabilities, and
particularly the probability of their utilization. Because of the history of
FBA, the ability of FBA to consistently generate sufficient taxable income to
realize the benefits of the various tax attributes which were available to it
was uncertain in 1993. For this reason, FBA had fully reserved its net deferred
tax assets in 1993. With the receipt of the additional capital from the private
placement, and the cash proceeds therefrom, it was determined that the ability
of FBA to generate future taxable income was substantially enhanced. Although
the nature of the transaction caused the imposition of certain limitations under
the Internal Revenue Code, which will result in the expiration of a portion of
the tax attributes before they can be utilized, the analysis indicates that a
substantial portion remains which can be utilized. As a result of this analysis,
FBA reduced the valuation allowance established in connection with the deferred
tax assets. This contributed to the recognition of a credit for deferred income
taxes for the year ended December 31, 1994 of $9.46 million.
Investment Securities
FBA classifies the securities within its investment portfolio as held to
maturity or available for sale. FBA does not engage in the trading of investment
securities. As more fully described in the Net Interest Income section of the
Annual Report and Note 3 of the accompanying consolidated financial statements,
<PAGE>
during 1994 management conducted a review of its investment portfolio and
practices. As a result of the review, it was decided to reclassify the remaining
securities within the held-to-maturity portfolio to available for sale and to
substantially restructure the available-for-sale securities portfolio. As more
fully described in the Net Interest Income and Interest Rate Risk Management
sections hereof and Notes 1 and 16 of the accompanying consolidated financial
statements, the restructuring of the investment security portfolio was completed
during 1995.
Loans and Allowance for Possible Loan Losses
Interest earned on the loan portfolio is the primary source of income for
FBA. Loans, net of unearned discount, represented 64.9% of total assets as of
December 31, 1995, as compared to 61.3% as of December 31, 1994. As of December
31, 1995, total loans, net of unearned discount were $192.6 million, a decrease
of $10.7 million from $203.3 million at December 31, 1994. As previously
discussed in the Financial Condition and Average Balances section of
Management's Discussion and Analysis, this decrease is attributable to the
decrease in indirect automobile loans, which was partially offset by increases
in commercial and financial and real estate construction and development loans.
For 1994, total loans, net of unearned discount, increased by $35.6 million. The
growth was primarily attributable to indirect automobile loans.
FBA sold loans totaling $55.6 million during 1994. Loans serviced for
investors was $8 million and $21 million at December 31, 1995 and 1994,
respectively. During 1994 and 1993, FBA originated FHA Title I home improvement
residential mortgage loans which were held for resale to investors. There were
no loans sold or held for sale during the year ended December 31, 1995.
<TABLE>
<CAPTION>
The following table shows the composition of the loan portfolio by major category and the percent of each to
the total portfolio as of the dates presented:
December 31,
------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ ------- ------ ------- ------ -------
(dollars expressed in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial and financial $ 15,055 7.8% $ 14,556 7.4% $ 7,653 5.2% $ 11,576 6.8% $14,133 7.7%
Real estate construction
and development 26,048 13.5 13,793 7.0 9,072 6.2 7,117 4.2 4,116 2.2
Real estate mortgage 12,572 6.5 14,796 7.6 12,862 8.8 18,646 11.0 27,133 14.8
Consumer and installment,
net of unearned discount 138,898 72.2 2,916 78.0 117,116 79.8 132,356 78.0 137,98 75.3
------- ---- ------- ---- ------- ---- ------- ---- ------- ----
Total loans,
excluding
loans held
for sale 192,573 100.0% 196,061 100.0% 146,703 100.0% 169,695 100.0% 183,371 100.0%
===== ===== ===== ===== =====
Loans held for sale:
Consumer 0 6,578 15,429 5,000 0
FHA Title I Home
Improvement 0 675 5,600 0 0
------- --- ----- - -
Total loans $ 192,573 $ 203,314 $ 167,732 $ 174,695 $ 183,371
========== ========== ========== ========== =========
Loans at December 31, 1995 mature as follows:
Over one year
through five years Over five years
------------------ ---------------
One year Fixed Floating Fixed Floating
or less rate rate rate rate Total
-------- ----- ------- ----- ------- -----
(dollars expressed in thousands)
Commercial and financial $ 4,957 4,591 5,282 202 23 15,055
Real estate construction
and development 20,830 42 5,167 9 - 26,048
Real estate mortgage 2,588 1,242 4,691 3,509 542 12,572
Consumer and installment 7,295 116,912 182 14,509 0 138,898
------ ------- ----- ------ ---- -------
Total loans, excluding
loans held for sale $ 35,670 122,787 15,322 18,229 565 192,573
======== ======= ====== ====== === =======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
The following table is a summary of loan loss experience for the five years ended December 31, 1995:
December 31,
------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
(dollars expressed in thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of year ............ $2,756 2,637 3,044 4,479 5,666
------ ----- ----- ----- -----
Loans charged off:
Commercial and financial ............ -- (7) (268) (801) (846)
Real estate construction and
development ....................... (2) 0 0 0 --
Real estate mortgage ................ (57) (375) (8) (409) (1,103)
Consumer and installment ............ (4,010) (1,876) (1,622) (2,347) (2,543)
------ ------ ------ ------ ------
Total charge-offs .............. (4,069) (2,258) (1,898) (3,557) (4,492)
------ ------ ------ ------ ------
Recoveries of loans previously
charged off:
Commercial and financial ............ 129 184 164 324 499
Real estate construction and
development ....................... 1 - - - -
Real estate mortgage ................ 35 258 154 251 715
Consumer and installment ............ 550 677 683 1,040 1,157
----- ----- ----- ----- -----
Total recoveries ............... 715 1,119 1,001 1,615 2,371
----- ----- ----- ----- -----
Net charge-offs ................ (3,354) (1,139) (897) (1,942) (2,121)
Provision for possible loan losses ...... 5,826 1,258 490 507 934
----- ----- --- --- ---
Balance at end of year .................. $5,228 2,756 2,637 3,044 4,479
====== ===== ===== ===== =====
Loans outstanding:
Average ............................. 205,288 182,922 171,889 183,315 187,962
End of period ...................... 192,573 203,314 167,732 174,695 183,371
Ratio of allowance for possible
loan losses to loans outstanding:
Average ........................ 2.55% 1.51% 1.53% 1.66% 2.38%
End of period ................ 2.71 1.36 1.57 1.74 2.44
Ratio of net charge-offs to average
loans outstanding ................ 1.63 .62 .52 1.06 1.13
==== === === ==== ====
Allocation of allowance for possible
loan losses at end of period:
Commercial and financial .......... $ 409 197 229 456 1,162
Real estate construction
and development ................. 707 187 237 71 132
Real estate mortgage ............. 344 201 720 1,003 1,023
Consumer and installment ......... 3,768 2,171 1,451 1,514 2,162
----- ----- ----- ----- -----
Total ......................... $5,228 2,756 2,637 3,044 4,479
====== ===== ===== ===== =====
Percent of categories to loans,
net of unearned discount:
Commercial and financial .......... 7.8% 7.1% 4.6% 6.6% 7.7%
Real estate construction and
development ..................... 13.5 6.8 5.4 4.1 2.2
Real estate mortgage .............. 6.5 7.3 7.7 10.7 14.8
Consumer and installment .......... 72.2 75.2 69.8 75.7 75.3
Loans held for sale ............... 0 3.6 12.5 2.9 0
----- --- ---- --- -
Total .......................... 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
</TABLE>
<PAGE>
Nonperforming assets include nonaccrual loans and foreclosed property. The
following table presents the categories of nonperforming assets for the past
five years:
December 31,
------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
(dollars expressed in thousands)
Nonperforming loans ............... $ 549 293 622 1,426 4,203
Foreclosed property, net .......... 1,013 1,553 3,171 5,211 6,882
----- ----- ----- ----- -----
Total nonperforming assets .. $ 1,562 1,846 3,793 6,637 11,085
======== ===== ===== ===== ======
Loans, net of unearned discount .. $192,573 203,314 167,732 174,695 183,371
======== ======= ======= ======= =======
Loans past due:
Over 30 days to 90 days ....... 6,649 1,368 1,571 1,462 2,106
Over 90 days and still accruing 517 183 803 149 160
-- ----- ----- ----- ----- -----
Total past-due loans ....... $ 7,166 1,551 2,374 1,611 2,266
======= ===== ===== ===== =====
Allowance for possible loan losses
to loans ...................... 2.71% 1.36% 1.57% 1.74% 2.44%
Nonperforming loans to loans ...... .29 .14 .37 .82 2.29
Allowance for possible loan losses
to nonperforming loans ........ 952.28 940.61 423.95 213.46 106.57
Nonperforming assets to total loans
and foreclosed property ....... .81 .90 2.22 3.69 5.83
=== === ==== ==== ====
As of December 31, 1995 and 1994, approximately $5.2 million and $2.5
million, respectively, of loans not included in the table above were identified
by management as having potential credit problems which raised doubts as to the
ability of the borrowers to comply with the present loan repayment terms.
FBA's credit management policy and procedures focuses on identifying and
managing credit exposure. FBA utilizes a lender-initiated system of rating
credits, which is subsequently tested by internal loan review and bank
regulators. Adversely rated credits are included on a watch list, and are
reviewed at least every four months. Loans may be added to the watch list for
reasons which are temporary and correctable, such as the absence of current
financial statements of the borrower, or a deficiency in loan documentation.
Other loans are added as soon as any problem is detected which might affect the
borrower's ability to meet the terms of the loan. This could be initiated by the
delinquency of a scheduled loan payment, a deterioration in the borrower's
financial condition identified in a review of periodic financial statements, a
decrease in the value of the collateral securing the loan, or a change in the
economic environment within which the borrower operates.
In addition to the rating system, the credit administration coordinates the
periodic credit reviews and provides management with information on risk levels,
trends, delinquencies and portfolio concentrations.
The allowance for possible loan losses is based on past loan loss
experience, FBA management's evaluation of the quality of the loans in the
portfolio and the anticipated effect of national and local economic conditions
relative to the ability of loan customers to repay. Each month, the allowance
for possible loan losses is reviewed relative to the watch list and other data
to determine its adequacy. The provision for possible loan losses is
management's estimate of the amount necessary to maintain the allowance at a
level consistent with this evaluation. As adjustments to the allowance for
possible loan losses are considered necessary, they are reflected in the
consolidated statements of income.
FBA does not lend funds for foreign loans. Additionally, FBA does not have
any concentrations of loans exceeding 10% of total loans which are not otherwise
disclosed in the loan portfolio composition table and Note 4 to the accompanying
consolidated financial statements. FBA does not have any amount of
interest-bearing assets which would have been included in nonaccrual, past due
or restructured loans if such assets were loans.
<PAGE>
Deposits
Deposits are the primary source of funds for FBA. FBA's deposits consist
principally of core deposits from its local market areas. FBA does not accept
brokered deposits. The following table sets forth the distribution of FBA's
average deposit accounts at the dates indicated and the weighted average
interest rates by category of deposit:
Years ended December 31,
------------------------
1995 1994 1993
---- ---- ----
Balance Rate Balance Rate Balance Rate
------- ---- ------- ---- ------- ----
(dollars expressed in thousands)
Non-interest-bearing demand $ 44,251 0% $ 49,125 0% $ 45,10 -%
Interest-bearing demand 22,718 2.00 24,677 2.01 24,076 1.94
Savings 56,915 3.56 8,704 2.90 64,910 2.78
Time deposits of $100
or more 23,305 5.58 19,918 4.28 33,035 3.71
Other time 98,067 5.25 92,126 4.42 92,648 4.51
------ ==== ------ ==== ------ ====
Total average deposits $245,256 $244,550 $259,775
======== ======== ========
The following table presents the maturity structure of domestic
certificates of deposit of $100,000 and over
at December 31, 1995, 1994 and 1993:
December 31,
------------
1995 1994 1993
---- ---- ----
(dollars expressed in thousands)
3 months or less ....... $ 7,247 10,016 2,882
Over 3 through 6 months 3,850 3,857 9,615
Over 6 through 12 months 4,769 1,919 1,546
Over 12 months ......... 7,643 7,271 7,669
-- ------ ----- -----
Total . $23,509 23,063 21,712
======= ====== ======
Capital On August 31, 1994, FBA issued and sold for $30 million in a
private placement 2,500,000 shares of Class B Common Stock to First Banks. The
Class B Common Stock is generally equivalent to FBA's Common Stock, except that
it is not registered or transferable by First Banks, other than to an affiliated
entity, and has dividend rights which are junior to those of FBA's Common Stock.
From the net proceeds of this private placement, after issuance expenses of
$377,000, $3.8 million and $17.0 million were contributed to the capital of the
Bank during 1995 and 1994, respectively. The remainder is held by FBA for future
use in connection with acquisitions or other corporate purposes. First Banks
owns 65.41% of the total outstanding voting stock of FBA at December 31, 1995.
In January 1995, the Board of Directors authorized the purchase of up to
194,517 shares of common stock for treasury. Shares purchased during 1995
totaled 79,603, at an aggregate cost of $828,000.
Risk-based capital guidelines for financial institutions are designed to
relate regulatory capital requirements to the risk profiles of the specific
institutions and to provide more uniform requirements among the various
regulators. FBA and the Bank are required to maintain a minimum risk-based
capital to risk-weighted assets ratio of 8.0%, with at least 4.0% being "Tier 1"
capital. Tier 1 capital is composed of total stockholders' equity excluding the
net fair value adjustment for securities available for sale and less net
deferred tax assets in excess of specified parameters as more fully described
below. In addition, a minimum leverage ratio (Tier 1 capital to total assets) of
3.0% plus an additional cushion of 100 to 200 basis points is expected.
At December 31, 1995 and 1994, FBA's and the Bank's capital ratios were as
follows:
Risk-Based Capital Ratios
-------------------------
Total Tier 1 Leverage Ratio
----- ------ --------------
1995 1994 1995 1994 1995 1994
---- ---- ---- ---- ---- ----
FBA 11.69% 17.50% 10.43% 16.28% 8.38% 11.97%
Bank 8.01 9.25 6.74 8.04 5.38 5.82
==== ==== ==== ==== ==== ====
<PAGE>
On April 1, 1995, a new capital regulation became effective which limits
the amount of net deferred tax assets that FBA and the Bank may include in
regulatory capital. A deferred tax asset arises as a result of an expense
recorded currently in the financial statements which will not become a tax
deduction until some time in the future, such as the allowance for possible loan
losses, income which may be recognized for tax purposes before it is recorded in
the financial statements, or tax benefits which may be available in the future
for which there is no corresponding financial statement benefit, such as tax
loss carryforwards. The change in regulation limits the amount of net deferred
tax assets, excluding any amounts applicable to the net fair value adjustment
for securities available for sale, that are included in Tier 1 capital to the
lesser of the amount of net deferred tax assets that the entity expects to
realize over the next twelve-month period or 10% of its Tier 1
capital.
The new capital regulation affects regulatory capital for both FBA and the
Bank as their net deferred tax assets, as adjusted, exceed the lesser of the
amount expected to be realized over the next twelve-month period or 10% of Tier
1 capital. The amounts expected to be realized over the next twelve months for
FBA and the Bank have been estimated at $1.9 million and $768,000, respectively,
and are included in Tier 1 capital as these amounts are less than 10% of their
Tier 1 capital. The remaining amounts of the net deferred tax assets, as
adjusted, of $11.4 million and $9.2 million for FBA and the Bank, respectively,
have been subtracted from stockholders' equity in arriving at Tier 1 capital at
December 31, 1995.
Interest Rate Risk Management
In financial institutions, the maintenance of a satisfactory level of net
interest income is a primary factor in achieving acceptable income levels.
However, the maturity and repricing characteristics of the institution's loan
and investment portfolios, relative to those within its deposit structure, may
differ significantly. Furthermore, the ability of borrowers to repay loans and
depositors to withdraw funds prior to stated maturity dates introduces divergent
option characteristics which operate primarily as interest rates change. This
causes various elements of the institution's balance sheet to react in different
manners and at different times relative to changes in interest rates, thereby
leading to increases or decreases in net interest income over time. Depending
upon the nature and velocity of interest rate movements and their effect on the
specific components of the institution's balance sheet, the effects on net
interest income can be substantial. Consequently, a fundamental requirement in
managing a financial institution is establishing effective control of the
exposure of the institution to changes in interest rates.
FBA manages its interest rate risk by: (1) maintaining an Asset Liability
Committee (ALCO) responsible to FBA's Board of Directors to review the overall
interest rate risk management activity and approve actions taken to reduce risk;
(2) maintaining an effective monitoring mechanism to determine FBA's exposure to
changes in interest rates; (3) coordinating the lending, investing and
deposit-generating functions to control the assumption of interest rate risk;
and (4) employing various off-balance-sheet financial instruments to offset
inherent interest rate risk when it becomes excessive. The objective of these
procedures is to limit the adverse impact which changes in interest rates may
have on net interest income.
The ALCO has overall responsibility for the effective management of
interest rate risk and the approval of policy guidelines. The ALCO includes the
Chairman and Chief Executive Officer, the senior executives of investments,
credit, retail banking and finance, and certain other officers. The ALCO is
supported by the Asset Liability Management Group which monitors interest rate
risk, prepares analyses for review by the ALCO and implements actions which are
either specifically directed by the ALCO or established by policy guidelines. To
measure the effect of interest rate changes, FBA recalculates its net income
over a one-year horizon on a pro forma basis assuming instantaneous, permanent
parallel and non-parallel shifts in the yield curve, in varying amounts both
upward and downward.
During 1994, FBA expanded its use of off-balance-sheet derivative financial
instruments to assist in the management of interest rate sensitivity. These
off-balance-sheet derivative financial instruments are utilized to modify the
repricing, maturity and option characteristics of on-balance-sheet assets and
liabilities. As more fully described in Notes 1 and 16 to the accompanying
consolidated financial statements, FBA holds off-balance-sheet derivative
financial instruments, generally limited to interest rate cap agreements and
interest rate futures contracts. The use of such derivative financial
instruments is strictly limited to reducing the interest rate exposure of FBA.
<PAGE>
Derivative financial instruments held by FBA for purposes of managing
interest rate risk are summarized as follows:
December 31,
--------------
1995 1994
Notional Credit Notional Credit
amount exposure amount exposure
------ -------- ------ --------
(dollars expressed in thousands)
Interest rate futures contracts $ - - 768,000 -
Interest rate cap agreements 10,000 291 10,000 577
====== === ====== ===
The notional amounts of derivative financial instruments do not represent
amounts exchanged by the parties and, therefore, are not a measure of FBA's
credit exposure through its use of derivative financial instruments. The amounts
exchanged are determined by reference to the notional amounts and the other
terms of the derivatives. FBA sold interest rate futures contracts and purchased
options on interest rate futures contracts to hedge the interest rate risk of
its available-for-sale securities portfolio. Interest rate futures contracts are
commitments to either purchase or sell designated financial instruments at a
future date for a specified price and may be settled in cash or through delivery
of such financial instruments. Options on interest rate futures contracts confer
the right to purchase or sell financial futures contracts at a specified price
and are settled in cash.
During 1995, as interest rates declined, FBA incurred losses on the
interest rate futures contracts. The losses incurred on the interest rate
futures contracts were partially offset by gains in the available-for-sale
securities portfolio. The overall net loss in net market value of these
positions is attributable to an increase in the projected prepayments of
principal underlying the available-for-sale securities portfolio. These
increased prepayment projections disproportionately shortened the expected lives
of the available-for-sale securities portfolio in comparison to the effective
maturity created with the hedge position. As a result, beginning in the second
quarter of 1995, FBA began to reduce its hedge position to coincide with the
current expected life of the available-for-sale securities portfolio by
decreasing the number of outstanding interest rate futures contracts. FBA
continued to reduce its hedge position during the third and fourth quarters of
1995 as a result of the further declines in interest rates. In addition, on
November 3, 1995, upon sales of $48.9 million of securities, which marked the
completion of the restructuring of the available-for-sale securities portfolio,
the remaining outstanding interest rate futures contracts were closed.
For 1995, FBA incurred a net loss on interest rate futures contracts of
$5.95 million, of which $806,000 was amortized to income as a yield adjustment
to the investment security portfolio and $5.14 million was included in the cost
basis in determining the gain or loss upon the sale of the securities.
At December 31, 1994, the unamortized balance of net deferred gains on
interest rate futures contracts of $866,000 was applied to the carrying value of
the available-for-sale securities portfolio as part of the mark-to-market
valuation.
FBA also has an interest rate cap agreement to limit the interest expense
associated with certain of its interest-bearing liabilities. In exchange for an
initial fee, the interest rate cap agreement entitles FBA to receive interest
payments when a specified index rate exceeds a predetermined rate. The agreement
outstanding at December 31, 1995 effectively limits the interest rate to 5.0% on
$10 million of interest-bearing liabilities from October 15, 1997 to May 15,
2000. At December 31, 1995 and 1994, the unamortized costs were $465,000 and
$577,000, respectively, and were included in other assets. There are no amounts
receivable under the agreement.
<PAGE>
<TABLE>
<CAPTION>
In addition to the simulation model employed by FBA, a more traditional interest rate sensitivity position
is prepared and reviewed in conjunction with the results of the simulation model. The following table presents
the projected maturities and periods to repricing of FBA's rate sensitive assets and liabilities as of December
31, 1995, adjusted to account for anticipated prepayments:
Over three Over six
Three through through Over one Over
months six twelve through five
Immediate or less months months five years years Total
--------- ------- ------ ------ ---------- ----- -----
(dollars expressed in thousands)
Interest-earning assets:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Loans(1) $ 11,912 21,838 30,772 45,662 80,404 1,985 192,573
Investment securities 4,928 34,409 - - - - 39,337
Federal funds sold 4,800 - - - - - 4,800
Receivable from sale of investment
securities - 4,915 - - - - 4,915
Interest-bearing deposits with
other financial institutions 11,050 0 0 0 0 0 11,050
------ ----- ----- ----- ----- ---- -------
Total interest-earning assets 32,690 61,162 30,772 45,662 80,404 1,985 252,675
------ ------ ------ ------ ------ ----- -------
Interest-bearing liabilities:
Interest-bearing demand accounts - 7,826 4,865 3,172 2,327 2,961 21,151
Money market demand accounts 32,209 - - - - - 32,209
Savings accounts - 3,542 2,917 2,501 3,542 8,335 20,837
Time deposits - 44,086 17,033 26,051 38,074 0 125,244
Other borrowed funds 1,063 271 1,328 3,369 1,749 0 7,780
----- ------ ------ ------ ----- ----- -------
Total interest-bearing liabilities 33,272 55,725 26,143 35,093 45,692 11,296 207,221
------ ------ ------ ------ ------ ------ -------
Interest-sensitivity gap:
Periodic $ (582) 5,437 4,629 10,569 34,712 (9,311) 45,454
======
Cumulative (582) 4,855 9,484 20,053 54,765 45,454
==== ===== ===== ====== ====== ======
Ratio of interest-sensitive assets
to interest-sensitive liabilities:
Periodic 0.98% 1.10% 1.18% 1.30% 1.76% 0.18% 1.22%
====
Cumulative 0.98 1.05 1.08 1.13 1.28 1.22
==== ==== ==== ==== ==== ====
</TABLE>
______________________
(1) Loans presented net of unearned discount
Management makes certain assumptions in preparing the table above. These
assumptions include: loans will repay at historic repayment speeds;
mortgage-backed securities, included in investment securities, will repay at
projected repayment speeds; interest-bearing demand accounts and savings
accounts are interest-sensitive at a rate of 37% and 17%, respectively, of the
remaining balance for each period presented; and fixed maturity deposits will
not be withdrawn prior to maturity.
At December 31, 1995, FBA was asset-sensitive on a cumulative basis through
the twelve-month time horizon by $20.1 million, or 6.76% of total assets. This
compares to a liability-sensitive position on a cumulative basis over the same
time horizon of $24.8 million, or 7.5% of total assets as of December 31, 1994.
The net change of $44.9 million in the twelve-month cumulative position during
1995 is primarily attributable to the reduction of short-term borrowings and the
shortening of the average life of the investment portfolio.
The interest-sensitivity position is one of several measurements of the
impact of interest rate changes on net interest income. Its usefulness in
assessing the effect of potential changes in net interest income varies with the
constant change in the composition of FBA's assets and liabilities. For this
reason, FBA places greater emphasis on a simulation model for monitoring its
interest rate risk exposure.
<PAGE>
Liquidity
The liquidity of FBA and the Bank is the ability to maintain a cash flow
which is adequate to fund operations and meet obligations and other commitments
on a timely basis. The Bank receives funds for liquidity from customer deposits,
loan payments, maturities, and sales of investments and earnings. In addition,
the Bank may avail itself of more volatile sources of funds through issuance of
certificates of deposit in denominations of $100,000 or more, federal funds
borrowed, securities sold under agreements to repurchase and borrowings from the
FHLB. The aggregate funds acquired from these more volatile sources were $29.9
million and $66.7 million at Decembe 31, 1995 and 1994, respectively. The
decrease is attributable to the repayment of certain borrowings from the
proceeds received upon sales of investment securities.
Management believes the available liquidity and operating results of the
Bank will be sufficient to provide funds for growth and to meet FBA's operating
and debt service requirements both on a short-term and long-term basis.
Regulation and Supervision
FBA and the Bank are extensively regulated under federal and state law.
These laws and regulations are intended to protect depositors, not stockholders.
In December 1991, the Federal Deposit Insurance Corporation Improvement Act
(FDICIA) was enacted; it included many significant provisions that affect FBA's
and the Bank's operations. The Act established new and expanded reporting and
auditing standards, expanded regulatory supervision and established new consumer
provisions.
On August 8, 1995, the FDIC voted to reduce the deposit insurance premiums
paid by most members of the BIF. Under the reduced assessment rate schedule for
the BIF, the best-rated institutions will pay an annual rate of four cents per
$100.00 of assessable deposits, down from the previous rate of 23 cents per
$100.00. The reduction in the BIF was effective June 1, 1995. The Bank is a
member of the BIF and was assessed four cents per $100.00 of assessable
deposits. As a result of the continued improvement in the capitalization of the
FDIC's BIF, the assessment for the best rated BIF members was further reduced to
the statutory annual minimum payment of $2,000, effective January 1, 1996. The
weakest BIF institutions will continue to pay to 27 cents per $100.00 of
assessable deposits.
Effect of New Accounting Standards
FBA adopted the provisions of SFAS 114, Accounting by Creditors for
Impairment of a Loan and SFAS 118, Accounting by Creditors for Impairment of a
Loan - Income Recognition and Disclosures, which amends SFAS 114, on January 1,
1995. SFAS 114 defines the recognition criterion for loan impairment and the
measurement methods for certain impaired loans and loans whose terms have been
modified in troubled-debt restructurings. SFAS 118 amends SFAS 114 to allow a
creditor to use existing methods for recognizing interest income on an impaired
loan. FBA has elected to continue to use its existing method for recognizing
interest on impaired loans. The implementation of these statements did not have
a material effect on FBA's financial position and resulted in no additional
provision for possible loan losses.
During October 1995, the FASB issued SFAS 123, Accounting for Stock-Based
Compensation. SFAS 123 encourages companies to adopt a new accounting method in
1996 based on the estimated fair value of stock options. FBA intends to comply
with the expanded footnote disclosures in 1996, but does not expect to adopt the
new accounting method for stock options.
Effects of Inflation
Financial institutions are less affected by inflation than other types of
companies. Financial institutions make relatively few significant asset
acquisitions which are directly affected by changing prices. Instead, the assets
and liabilities are primarily monetary in nature. Consequently, interest rates
are more significant to the performance of financial institutions than the
effect of general inflation levels. While a relationship exists between the
inflation rate and interest rates, FBA believes this is generally manageable
through its asset/liability management program.
<PAGE>
1995
----
4th 3rd 2nd 1st
Quarter Quarter Quarter Quarter
------- ------- ------- -------
(dollars in thousands, except
per share data)
Interest income ............................. $ 5,123 5,591 5,964 5,749
Interest expense ............................ 2,577 2,933 2,931 2,777
----- ----- ----- -----
Net interest income .................... 2,546 2,658 3,033 2,972
Provision for possible loan losses .......... 301 4,425 650 450
----- ----- ---- ----
Net interest income after provision
for possible loan losses ........... 2,245 (1,767) 2,383 2,522
Noninterest income:
Securities gains (losses) ................. (2,897) (99) 0 0
Other ..................................... 413 685 489 1,283
----- --- --- -----
Total noninterest income (loss) ....... (2,484) 586 489 1,283
Noninterest expense ......................... 2,550 2,599 2,806 3,205
----- ----- ----- -----
Income (loss) before income tax
(benefit) expense ........... (2,789) (3,780) 66 600
Income tax (benefit) expense ................ (1,248) (1,061) 18 208
------ ------ -- ---
Net income (loss) .............. $(1,541) (2,719) 48 392
======= ====== == ===
Net income (loss) per share ................. $ (.38) (.67) .01 .10
======= ==== === ===
1994
----
4th 3rd 2nd 1st
Quarter Quarter Quarter Quarter
------- ------- ------- --------
(dollars in thousands, except per
share data)
Interest income ............................. $ 5,603 5,903 5,715 5,428
Interest expense ............................ 2,473 3,049 2,965 2,585
----- ----- ----- -----
Net interest income ................ 3,130 2,854 2,750 2,843
Provision for possible loan losses .......... 653 455 75 75
----- ----- ----- -----
Net interest income after provision
for possible loan losses ........ 2,477 2,399 2,675 2,768
Noninterest income:
Securities gains (losses) ................ 48 (7,055) 0 0
Other .................................... 516 564 785 631
----- ------ ----- ----
Total noninterest income (loss). 564 (6,491) 785 631
Noninterest expense ......................... 3,562 5,606 3,417 3,589
----- ----- ----- -----
Income (loss) before income tax
(benefit) expense ............ (521) (9,698) 43 (190)
Income tax (benefit) expense ................ (252) (9,209) 0 0
---- ------ - -
Net income (loss) .............. $ (269) (489) 43 (190)
======= ==== == ====
Net income (loss) per share ................. $ (.07) (.21) .02 (.12)
======= ==== === ====
<PAGE>
First Banks America, Inc.
Independent Auditors' Report
KPMG Peat Marwick LLP
The Board of Directors and Stockholders
First Banks America, Inc.:
We have audited the accompanying consolidated balance sheets of First Banks
America, Inc. and subsidiaries (the Company) as of December 31, 1995 and 1994,
and the related consolidated statements of operations, changes in stockholders'
equity and cash flows for each of the years in the two-year period ended
December 31, 1995. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit. The
accompanying consolidated financial statements of the Company for the year ended
December 31, 1993 were audited by other auditors whose report thereon dated
March 18, 1994 included an explanatory paragraph describing the Company's
adoption of Statement of Financial Accounting Standards (SFAS) No. 109,
Accounting for Income Taxes, and SFAS No. 115, Accounting for Certain
Investments in Debt and Equity Securities, in 1993.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the 1995 and 1994 consolidated financial statements referred to
above present fairly, in all material respects, the financial position of the
Company as of December 31, 1995 and 1994, and the results of their operations
and their cash flows for the years then ended in conformity with generally
accepted accounting principles.
/s/KPMG Peat Marwick LLP
- ------------------------
St. Louis, Missouri
March 8, 1996
<PAGE>
Consolidated Balance Sheets
(dollars expressed in thousands, except per share data)
December 31,
------------
Assets 1995 1994
------ ---- ----
Cash and cash equivalents:
Cash and due from banks ...............................$ 25,072 14,029
Interest-bearing deposits with other financial
institutions with maturities of three months or less 11,050 25,042
Federal funds sold .................................... 4,800 8,000
----- -----
Total cash and cash equivalents ..... 40,922 47,071
------ ------
Investment securities available for sale, at fair value ... 39,337 61,400
Loans:
Commercial and financial .............................. 15,055 14,556
Real estate construction and development .............. 26,048 13,793
Real estate mortgage .................................. 12,673 14,796
Consumer and installment .............................. 141,757 157,570
Loans held for sale ................................... 0 7,253
------- -----
Total loans ......................... 195,533 207,968
Unearned discount ..................................... (2,960) (4,654)
Allowance for possible loan losses .................... (5,228) (2,756)
------ ------
Net loans ........................... 187,345 200,558
------- -------
Bank premises and equipment, net of
accumulated depreciation .............................. 6,454 6,511
Receivable from sale of investment securities ............. 4,915 -
Accrued interest receivable ............................... 665 1,146
Foreclosed property, net .................................. 1,013 1,553
Deferred tax assets ....................................... 14,605 12,517
Other assets .............................................. 1,327 1,034
------- -------
Total assets ........................$296,583 331,790
======== =======
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
First Banks America, Inc.
Consolidated Balance Sheets, Continued
(dollars expressed in thousands, except per share data)
December 31,
------------
Liabilities 1995 1994
----------- ---- ----
Deposits:
Demand:
Non-interest-bearing $ 49,822 45,418
Interest-bearing 21,151 24,678
Savings 53,046 54,377
Time deposits:
Time deposits of $100 or more 23,509 23,063
Other time deposits 101,735 94,034
------- ------
Total deposits 249,263 241,570
Federal funds purchased - 4,800
Securities sold under agreements to repurchase 711 19,433
Other short-term borrowings 352 809
Federal Home Loan Bank advances 5,663 19,412
Deferred tax liabilities 1,362 1,299
Accrued and other liabilities 2,920 3,699
Long-term debt 1,054 1,054
----- -----
Total liabilities 261,325 292,076
------- -------
Stockholders' Equity
Common stock:
Common stock, $.15 par value; 10,866,667 shares
authorized at December 31, 1995 and 1994;
1,401,901 and 1,322,298 issued and outstanding,
respectively, at December 31, 1995 and
1,370,268 shares issued and outstanding
at December 31, 1994 210 206
Class B common stock, $.15 par value; 4,000,000
shares authorized; 2,500,000 shares issued and
outstanding at December 31, 1995 and 1994 375 375
Capital surplus 39,271 39,133
Retained earnings (deficit) since elimination of
accumulated deficit of $259,117 effective
December 31, 1994 3,820) -
Common treasury stock, at cost; 79,603 shares
at December 31, 1995 (828) -
Net fair value adjustment for securities available for sale 50 0
-- -
Total stockholders' equity 35,258 39,714
------ ------
Total liabilities and stockholders' equity $ 296,583 331,790
========= =======
<PAGE>
First Banks America, Inc.
Consolidated Statements of Operations
(dollars expressed in thousands, except per share data)
<TABLE>
<CAPTION>
Years ended December 31,
------------------------
1995 1994 1993
---- ---- ----
Interest income:
<S> <C> <C> <C>
Interest and fees on loans $ 17,462 15,196 15,152
Investment securities 4,473 6,965 6,650
Federal funds sold and other 492 488 164
------ ------ ------
Total interest income 22,427 22,649 21,966
------ ------ ------
Interest expense:
Deposits:
Interest-bearing demand 455 495 466
Savings 2,026 1,700 1,802
Time deposits of $100 or more 1,300 852 1,226
Other time deposits 5,148 4,073 4,183
Securities sold under agreements to repurchase,
federal funds purchased and other borrowings 934 2,682 1,845
Federal Home Loan Bank advances 1,260 1,175 133
Long-term debt 95 95 95
------ ------ -----
Total interest expense 11,218 11,072 9,750
------ ------ -----
Net interest income 11,209 11,577 12,216
Provision for possible loan losses 5,826 1,258 490
------ ------ ------
Net interest income after provision for possible loan losses 5,383 10,319 11,726
------ ------ ------
Noninterest income:
Service charges on deposit accounts 1,458 1,596 1,716
Loan sales and servicing income 159 328 899
Other income 1,253 572 210
Gain (loss) on sales of securities, net (2,996) (7,007) 243
------ ------ ---
Total noninterest income (loss) (126) (4,511) 3,068
----- ------ -----
Noninterest expense:
Salaries and employee benefits 4,029 8,911 6,483
Occupancy, net of rental income 1,274 1,321 1,348
Furniture and equipment 663 843 919
Federal Deposit Insurance Corporation premiums 313 684 754
Postage, printing and supplies 303 554 461
Legal, examination and professional fees 1,354 1,203 1,580
Data processing 664 890 911
Communications 553 503 599
Losses and expenses on foreclosed property, net 176 192 166
Litigation settlement expense - - 592
Other 1,831 1,073 762
------ ----- ------
Total noninterest expense 11,160 16,174 14,575
------ ------ ------
Income (loss) before provision for income tax benefit (5,903) (10,366) 219
Provision for income tax benefit (2,083) (9,461) -
------ ------ ------
Net income (loss) $ (3,820) (905) 219
====== ==== ===
Earnings (loss) per common share $ (.94) (.38) .14
==== ==== ===
Weighted average common stock and common stock
equivalents outstanding (in thousands) 4,052 2,397 1,544
===== ===== =====
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<PAGE>
First Banks America, Inc.
Consolidated Statements of Changes in Stockholders' Equity
Three years ended December 31, 1995
(dollars expressed in thousands, except per share data)
<TABLE>
<CAPTION>
Net fair
value
adjustment Total
Class B Retained for securities stock-
Common common Capital earnings Treasury available holders'
stock stock surplus (deficit) stock for sale equity
----- ----- ------- --------- ----- -------- ------
Consolidated balances,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
December 31, 1992 $ 192 - 272,346 (258,431) - - 14,107
Year ended December 31, 1993:
Consolidated net income - - - 219 - 219
Exercise of stock options 4 - 82 - - - 86
Compensation paid in stock - - 67 - - 67
Shares issuable in settlement
of litigation - - 540 - - - 540
Net fair value adjustment for
securities available for sale 0 0 0 0 0 (67) (67)
- - - - - --- ---
Consolidated balances,
December 31, 1993 196 - 273,035 (258,212) - (67) 14,952
Year ended December 31, 1994:
Consolidated net loss - - - (905) - - (905)
Exercise of stock options 6 - 130 - - - 136
Compensation paid in stock - - 67 - - - 67
Proceeds received from sale of
2,500,000 shares of Class
B common stock - 375 29,248 - - - 29,623
Issuance of shares in connection
with litigation 4 - (4) - - - -
Net fair value adjustment for
securities available for sale - - - - - (1,018) (1,018)
Effect of quasi-reorganization
effective December 31, 1994 0 0 (263,343) 259,117 0 1,085 (3,141)
- - -------- ------- - ----- ------
Consolidated balances,
December 31, 1994 206 375 39,133 - - - 39,714
Year ended December 31, 1995:
Consolidated net loss - - - (3,820) - - (3,820)
Exercise of stock options 4 - 111 - - - 115
Compensation paid in stock - - 27 - - - 27
Repurchases of common stock - - - - (828) - (828)
Net fair value adjustment for
securities available for sale 0 0 0 0 0 50 50
- - - - - -- --
Consolidated balances,
December 31, 1995 $ 210 375 39,271 (3,820) (828) 50 35,258
=== ==== ===== === ====== ====== ==== == ======
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<PAGE>
First Banks America, Inc.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Years ended December 31,
------------------------
1995 1994 1993
---- ---- ----
(dollars expressed in thousands)
Cash flows from operating activities:
<S> <C> <C> <C>
Net income (loss) $(3,820) (905) 219
Adjustments to reconcile net income to cash provided
by operating activities:
Depreciation, amortization, and accretion 337 1,298 1,621
Originations and purchases of loans held for sale - (42,205) (20,597)
Proceeds from the sale of loans held for sale - 55,587 37,917
Provision for possible loan losses 5,826 1,258 490
Provision for income taxes (2,083) (9,461) -
(Gain) loss on sales of securities, net 2,996 7,007 (243)
(Increase) decrease in accrued interest receivable 481 101 (62)
Interest accrued on liabilities 11,218 11,072 9,750
Payments of interest on liabilities (11,142) (10,994) (9,839)
Other operating activities, net (860) 2,547 (742)
-------- ------- ------
Net cash provided by operating activities 2,953 15,305 18,514
-------- ------- ------
Cash flows from investing activities:
Sales of investment securities 70,995 106,845 15,142
Maturities of investment securities 54,380 24,345 62,929
Purchases of investment securities (104,753) (41,562) (125,170)
Net (increase) decrease in loans 6,469 (51,184) (11,194)
Recoveries of loans previously charged-off 715 1,119 1,001
Purchases of bank premises and equipment (489) (264) (615)
Other investing activities (5,671) 1,313 1,437
------ ----- -----
Net cash provided by (used in) investing activities 21,646 40,612 (56,470)
------ ------ -------
Cash flows from financing activities:
Other increases (decreases) in deposits:
Demand and savings deposits (454) (4,166) (7,989)
Time deposits 8,147 2,839 (19,844)
Increase (decrease) in federal funds purchased and other
short-term borrowings (5,257) 4,513 (269)
Increase (decrease) in Federal Home Loan Bank advances (13,749) 8,494 10,906
Increase (decrease) in securities sold under agreements to repurchase (18,722) (75,775) 62,738
Net proceeds from issuance and sale of Class B common stock - 29,623 -
Repurchase of common stock for treasury (828) - -
Proceeds from exercise of stock options 115 136 86
--- --- --
Net cash provided by (used in) financing activities (30,748) (34,336) 45,628
------- ------- ------
Net increase (decrease) in cash and cash equivalents (6,149) 21,581 7,672
Cash and cash equivalents, beginning of year 47,071 25,490 17,818
------ ------ ------
Cash and cash equivalents, end of year $ 40,922 47,071 25,490
======== ====== ======
Noncash investing and financing activities:
Loans transferred to foreclosed real estate $ 203 - -
Loans to facilitate sale of foreclosed real estate - 123 358
Investment securities transferred to available for sale - 107,200 43,707
Loans transferred from loans held for sale 7,253 - -
Receivable from sale of investment securities 4,915 - -
===== ======== ======
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<PAGE>
First Banks America, Inc.
Consolidated Statements of Financial statements
(1) Summary of Significant Accounting Policies
The accompanying consolidated financial statements of First Banks America,
Inc. and subsidiaries, formerly BancTEXAS Group Inc. (FBA or the Company), have
been prepared in accordance with generally accepted accounting principles and
conform to practices prevalent among financial institutions. The following is a
summary of the more significant policies followed by FBA:
Business FBA provides a full range of banking services to individual and
corporate customers through its subsidiary bank, BankTEXAS N.A. (the Bank),
located in Houston, Dallas, McKinney and Irving, Texas. FBA and the Bank are
subject to regulations of various federal agencies and undergo periodic
examinations by these regulatory agencies.
Basis of Presentation
The consolidated financial statements of FBA have been prepared in
accordance with generally accepted accounting principles and conform to
predominant practices within the banking industry. Management of FBA has made a
number of estimates and assumptions relating to the reporting of assets and
liabilities and the disclosure of contingent assets and liabilities to prepare
the consolidated financial statements in conformity with generally accepted
accounting principles. Actual results could differ from those estimates.
As discussed in Note 2, the Board of Directors of FBA elected to implement
an accounting adjustment referred to as a "quasi-reorganization," effective
December 31, 1994. In accordance with accounting provisions applicable to a
quasi-reorganization, the assets and liabilities of FBA were adjusted to their
fair values and the accumulated deficit was eliminated as of December 31, 1994.
On August 23, 1995, the Common and Class B Common Stock stockholders of FBA
approved a reverse stock split. The reverse split converted 15 shares of Common
stock or Class B Common Stock (Class B Stock) into one share of Common Stock or
Class B Stock, respectively. Accordingly, all per share amounts, as well as
ending and average common shares data, have been restated to reflect the
one-for-15 reverse stock split.
Principles of Consolidation
The consolidated financial statements include the accounts of the parent
company and its subsidiaries, all of which are wholly owned. All significant
intercompany accounts and transactions have been eliminated.
Cash and Cash Equivalents
The Bank maintains deposit balances with various banks which are necessary
for check collection and account activity charges. Cash in excess of immediate
requirements is invested on a daily basis in federal funds or interest-bearing
deposits with other financial institutions. Cash, due from banks, federal funds
sold, and interest-bearing deposits with original maturities of three months or
less are considered to be cash and cash equivalents for purposes of the
consolidated statements of cash flows.
The Bank is required to maintain certain daily reserve balances in
accordance with regulatory requirements. These reserve balances were $1.7
million and $2.8 million at December 31, 1995 and 1994, respectively.
Investment Securities
FBA adopted the provisions of Statement of Financial Accounting Standards
(SFAS) No. 115, Accounting for Certain Investments in Debt and Equity Securities
(SFAS 115), at December 31, 1993. Under SFAS 115, FBA classifies the debt and
equity securities within its investment portfolio at the time of purchase as
being held to maturity or available for sale. This classification is made at the
time of purchase, except for the reclassification of investment securities in
September 1994 described in Note 3. At December 31, 1995 and 1994, all
investment securities are classified as available for sale. FBA does not engage
in the trading of investment securities.
Investment securities designated as held to maturity are those debt
securities which FBA has the positive intent and ability to hold until maturity.
Held-to-maturity securities are stated at amortized cost, in which the
amortization of premiums and accretion of discounts are recognized over the
contractual maturities or estimated lives of the individual securities, adjusted
for anticipated prepayments, using the level yield method.
Investment securities classified as available for sale are those debt and
equity securities for which FBA has no immediate plan to sell, but which may be
sold in the future if circumstances warrant. Available-for-sale securities are
stated at current fair value. Realized gains and losses are included in other
noninterest income upon commitment to sell, based on the amortized cost of the
individual security sold. Unrealized holding gains and losses are recorded, net
of related income tax effects, in a separate component of stockholders' equity.
All previous fair value adjustments included in stockholders' equity are
reversed upon sale.
<PAGE>
Loans Held for Portfolio
Loans held for portfolio are carried at cost, adjusted for amortization of
premiums and accretion of discounts using a method which approximates the level
yield method. Interest and fees on loans are recognized as income using the
interest method. Loans held for portfolio are stated at cost as FBA has the
ability and it is management's intention to hold them to maturity.
The accrual of interest on loans is discontinued when it appears that
interest or principal may not be paid in a timely manner in the normal course of
business. Generally, payments received on nonaccrual loans are recorded as
principal reductions. Interest income is recognized after all principal has been
repaid or an improvement in the condition of the loan has occurred which would
warrant resumption of interest accruals.
FBA adopted the provisions of SFAS 114, Accounting by Creditors for
Impairment of a Loan and SFAS 118, Accounting by Creditors for Impairment of a
Loan - Income Recognition and Disclosures, which amends SFAS 114, on January 1,
1995. SFAS 114 defines the recognition criterion for loan impairment and the
measurement methods for certain impaired loans and loans whose terms have been
modified in troubled-debt restructurings. SFAS 118 amends SFAS 114 to allow a
creditor to use existing methods for recognizing interest income on an impaired
loan. FBA has elected to continue to use its existing method for recognizing
interest on impaired loans. The implementation of these statements did not have
a material effect on FBA's financial position and resulted in no additional
provision for possible loan losses.
Loans Held for Sale
Loans held for sale are carried at the lower of cost or market value which
is determined on an individual loan basis. Gains or losses on the sale of loans
held for sale are determined on a specific identification method.
Loan Servicing Income
Loan servicing income represents fees earned for servicing indirect
automobile loans owned by investors. The fees are generally calculated on the
outstanding principal balance of the loans serviced and are recorded as income
when earned.
Allowance for Possible Loan Losses
The allowance for possible loan losses is maintained at a level considered
adequate to provide for potential losses. The provision for possible loan losses
is based on a periodic analysis of the loans held for portfolio and held for
sale by management, considering, among other factors, current economic
conditions, loan portfolio composition, past loan loss experience, independent
appraisals, loan collateral and payment experience. In addition to the allowance
for estimated losses on impaired loans, an overall unallocated allowance is
established to provide for unidentified credit losses which are inherent in the
portfolio. As adjustments become necessary, they are reflected in the results of
operations in the periods in which they become known.
Bank Premises and Equipment
Bank premises and equipment are stated at cost less accumulated
depreciation and amortization. Depreciation is computed primarily using the
straight-line method over the estimated useful lives of the related assets.
Amortization of leasehold improvements is calculated using the straight-line
method over the shorter of the useful life of the improvement or term of the
lease. Bank premises and improvements are depreciated over 40 years and
equipment over two to ten years.
As discussed in Note 2, effective December 31, 1994, the Board of Directors
of FBA elected to implement a quasi-reorganization pursuant to which the assets
and liabilities of FBA were adjusted to their fair values. As a result of this,
the carrying values of the office properties were reduced by $4.4 million. Prior
to December 31, 1994, office properties, furniture and equipment were stated at
cost, in accordance with applicable requirements.
Foreclosed Property
Foreclosed property, consisting of real estate acquired through foreclosure
or deed in lieu of foreclosure and other repossessed assets, is stated at the
lower of fair value less applicable selling costs or cost at the time the
property is acquired. The excess of cost over fair value of the property at the
date of acquisition is charged to the allowance for possible loan losses.
Income Taxes
FBA and its subsidiaries join in filing consolidated federal income tax
returns. Each subsidiary pays its allocation of federal income taxes to FBA, or
receives payment from FBA to the extent that tax benefits are realized. Separate
state franchise tax returns are filed in Texas, Delaware and Nevada for the
appropriate entities.
<PAGE>
Effective January 1 1993, FBA adopted SFAS No. 109, Accounting for Income
Taxes (SFAS 109). SFAS 109 requires a change from the deferred method of
accounting for income taxes, pursuant to Accounting Principles Board Opinion No.
11 (APB 11), to the asset and liability method of accounting for income taxes.
Under the asset and liability method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases and operating loss carryforwards. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled.
Upon adoption of SFAS 109, there was no one-time cumulative effect of this
change in accounting for income taxes at that date, because a valuation reserve
was established in an amount equal to the net deferred tax asset. However, as a
result of the private placement of Class B Stock during the year ended December
31, 1994 described in Note 2, the probability of the realization of the net
deferred tax assets was substantially increased. Therefore, a credit for income
taxes of $2.1 million and $9.5 million was recorded for the years ended December
31, 1995 and 1994, respectively.
Securities Sold Under Agreements to Repurchase
FBA enters into sales of securities under agreements to repurchase at a
specified future date. Such repurchase agreements are considered financing
agreements and, accordingly, the obligation to repurchase assets sold is
reflected as a liability in the consolidated balance sheets. Repurchase
agreements are collateralized by debt and mortgage-backed securities.
Financial Instruments
A financial instrument is defined as cash, evidence of an ownership
interest in an entity, or a contract that conveys or imposes on an entity the
contractual right or obligation to either receive or deliver cash or another
financial instrument. During 1994, the FASB issued SFAS No. 119, Disclosure
about Derivative Financial Instruments and Fair Value of Financial Instruments
(SFAS 119). SFAS 119 requires disclosures about the amounts, nature, and terms
of derivative financial instruments that are not subject to SFAS No. 105,
Disclosure of Information about Financial Instruments with Off-Balance-Sheet
Risk and Financial Instruments with Concentrations of Credit Risk (SFAS 105).
SFAS 119 requires that a distinction be made between financial instruments held
or issued for trading purposes and financial instruments held or issued for
purposes other than trading. FBA implemented SFAS 119 on December 31, 1994,
which resulted in no effect on the consolidated financial statements other than
the additional disclosure requirements presented in Note 16.
Financial Instruments With Off-Balance-Sheet Risk
FBA uses financial instruments to reduce the interest rate risk arising
from its financial assets and liabilities. These instruments involve, in varying
degrees, elements of interest rate risk and credit risk in excess of the amount
recognized in the consolidated balance sheets. "Interest rate risk" is defined
as the possibility that interest rates may move unfavorably from the perspective
of FBA. The risk that a counterparty to an agreement entered into by FBA may
default is defined as "credit risk." These financial instruments include
interest rate futures contracts and interest rate cap agreements.
FBA is party to commitments to extend credit and commercial and standby
letters of credit in the normal course of business to meet the financing needs
of its customers. These commitments involve, in varying degrees, elements of
interest rate risk and credit risk in excess of the amount recognized in the
consolidated balance
sheets.
Interest Rate Futures Contracts
Interest rate futures contracts were utilized to manage the interest rate
risk of the available-for-sale securities portfolio. Gains and losses on
interest rate futures, which qualify as hedges, were deferred. Amortization of
the net deferred gains or losses was applied to the interest income of the
available-for-sale securities portfolio using the straight-line method. The net
deferred gains and losses were applied to the carrying value of the
available-for-sale securities portfolio as part of the mark to market valuation.
When the hedged assets were sold, the related gain or loss of the interest rate
futures contract was immediately recognized in the consolidated statements of
operations.
Interest Rate Cap Agreements
FBA enters into interest rate cap agreements to manage interest rate risk.
The purpose of this is to reduce the future impact of unfavorable interest rate
fluctuations on certain of FBA's interest-bearing liabilities. Interest rate cap
<PAGE>
agreements are accounted for on an accrual basis with the net interest
differential being recognized as an adjustment to interest expense of the
related liability. Premiums and fees paid upon the purchase of interest rate cap
agreements are amortized to interest expense over the life of the agreements
using the interest method. In the event of early termination of an interest rate
cap agreement, the net proceeds received or paid are deferred and amortized over
the shorter of the remaining contract life or the maturity of the related
liability. If however, the amount of the underlying hedged liability is repaid,
then the gain or loss on the agreement is recognized immediately in the
consolidated statements of operations. The unamortized premiums and fees paid
are included in other assets in the accompanying consolidated balance sheets.
Earnings (Loss) Per Share
Earnings (loss) per share is calculated by dividing net income (loss) by
the weighted average number of common shares and common stock equivalents
outstanding which consists of stock options and warrants to purchase common
stock.
Reclassifications
Certain 1994 and 1993 amounts have been reclassified to conform with the
1995 presentation.
(2) Financial Restructuring
On August 31, 1994, FBA issued and sold for $30 million in a private
placement 2,500,000 shares of Class B Stock to First Banks, Inc. (First Banks),
a multibank holding company headquartered in St. Louis, Missouri. The Class B
Stock is generally equivalent to FBA's other class of common stock (the"Common
Stock"), except that it is not registered or transferable by First Banks, other
than to an affiliated entity, and has dividend rights which are junior to those
of FBA's Common Stock. From the net proceeds of this private placement, after
issuance expenses of $377,000, $3.8 million and $17.0 million were contributed
to the capital of the Bank as of December 31, 1995 and 1994, respectively. The
remainder is held by FBA for future use in connection with acquisitions or other
corporate purposes. As a result of this transaction, First Banks owned 65.41% of
the total outstanding voting stock as of December 31, 1995.
Recognizing the substantial transition which FBA had experienced in recent
years, culminating in the sale of the Class B Stock, the Board of Directors
elected to implement a quasi-reorganization, effective December 31, 1994. This
resulted in restating the carrying values of assets and liabilities to their
current fair values, and eliminating the deficit which had accumulated over many
years. The principal adjustments necessary to revalue the balance sheet were the
reduction in the value of office properties by $4.4 million and an increase in
deferred tax assets of $1.2 million. These adjustments resulted in a net
reduction of consolidated stockholders' equity, but did not affect the results
of operations or cash flow for the year ended December 31, 1994. At the same
time, the accumulated deficit of $259.1 million and the net fair value
adjustment for securities available for sale of $1.1 million were eliminated by
a reduction in capital surplus. Management determined that in view of the many
changes which had occurred within FBA, the factors which gave rise to the losses
which accumulated were eliminated. Consequently, the quasi-reorganization
established a more appropriate basis upon which to evaluate the financial
position and results of operations of FBA in the future.
(3) Investment Securities
During 1994, management reviewed its portfolio of mortgage-backed
securities, and the methods which it was employing to fund those securities, in
the context of the rapidly increasing interest rate environment which existed
most of the year. As a result of this review, FBA determined that its original
intent to hold the majority of these securities to maturity was no longer
appropriate. In September 1994, FBA transferred investment securities with an
amortized cost of $107.2 million from held to maturity to available for sale.
The market valuation account, for the securities reclassified to available for
sale was adjusted by $5.4 million, representing a decrease in the recorded
balance of such securities to their fair value on that date, the deferred tax
asset of $1.5 million was recorded to reflect the tax effect of the market
valuation account adjustment, and the net decrease resulting from the
reclassification of $3.9 million was reflected within a separate component of
stockholders' equity.
As part of the financial restructuring discussed in Note 2, the carrying
values of the investment portfolio were restated to current fair values at
December 31, 1994. This adjustment eliminated FBA's net fair value adjustment
for securities available for sale of $1.1 million. As of December 31, 1995 and
1994, all of the securities in the investment portfolio were classified as
available for sale.
<PAGE>
<TABLE>
<CAPTION>
The amortized cost, gross unrealized holding gains, gross unrealized holding losses and estimated fair value
of investment securities at December 31, 1995 and 1994 were as follows:
Gross Gross
Amortized unrealized unrealized Estimated
cost holding gains holding losses fair value
--------- ------------- -------------- ----------
(dollars expressed in thousands)
December 31, 1995:
Available for sale:
U.S. Government agencies
and corporations:
<S> <C> <C> <C> <C>
Mortgage-backed securities $ 11,105 65 (1) 11,169
Other 23,179 50 (44) 23,185
Federal Home Loan Bank and
Federal Reserve Bank stock 4,983 0 0 4,983
----- - - -----
Total $ 39,267 115 (45) 39,337
========= === === ======
December 31, 1994:
Available for sale:
U.S. Government agencies
and corporations:
Mortgage-backed securities $ 52,938 - - 52,938
Other 300 - - 300
Federal Home Loan Bank and
Federal Reserve Bank stock 8,162 - - 8,162
Total $ 61,400 0 0 61,400
========= = = ======
</TABLE>
<TABLE>
<CAPTION>
The amortized cost of securities, by contractual maturity, at December 31, 1995 are presented below. The
expected maturities of mortgage-backed securities differ from contractual maturities since the borrowers have the
right to call or prepay the obligations with or without prepayment penalties.
Over one Over five Weighted
One year through through Over average
or less five years ten years ten years yield
------- ---------- --------- --------- -----
(dollars expressed in thousands)
U.S. government agencies
and corporations:
<S> <C> <C> <C> <C> <C>
Mortgage-backed securities $ - - - 11,105 7.60%
Other 22,891 288 - - 5.87
Federal Home Loan Bank and
Federal Reserve Bank stock
(no stated maturity) 4,983 0 0 0 6.38
------- - - - ----
Total $ 27,874 288 - 11,105 6.42
========== === ====== ====
Weighted average yield 5.94% 7.48% 0 7.60%
==== ==== = ====
</TABLE>
Proceeds from sales of securities were $76.0 million, $106.8 million and
$15.1 million for the years ended December 31, 1995, 1994 and 1993,
respectively. Gross gains of $2.2 million, $48,000 and $243,000 were realized
for the years ended December 31, 1995, 1994 and 1993, respectively. No losses
were realized for the years ended December 31, 1995 and 1993. Gross losses of
$7.1 million were realized for the year ended December 31, 1994. The net gains
on sales of securities were offset by the recognition of $5.1 million of hedging
losses during 1995.
<PAGE>
The Bank maintains investments in the Federal Home Loan Bank (FHLB) and the
Federal Reserve Bank (FRB). These investments are recorded at cost, which
represents redemption value. The investment in FHLB stock is maintained at a
minimum amount equal to the greater of 1% of the aggregate outstanding balance
of loans secured by residential real estate, or 5% of advances from the FHLB.
The investment in the FRB stock is maintained at a minimum of 6% of the Bank's
capital stock and capital surplus.
Investment securities with a carrying value of approximately $30.8 million
and $40.0 million at December 31, 1995 and 1994, respectively, were pledged in
connection with deposits of public and trust funds, securities sold under
agreements to repurchase and for other purposes as required by law.
(4) Loans and Allowance for Possible Loan Losses
Included in the loan portfolio were $6.6 million of installment loans and
$675,000 of mortgage loans at December 31, 1994 that were classified as held for
sale. There were no loans held for sale at December 31, 1995.
Changes in the allowance for possible loan losses for the years ended
December 31, were as follows:
1995 1994 1993
---- ---- ----
(dollars expressed in thousands)
Balance, January 1 ....................... $ 2,756 2,637 3,044
------- ----- -----
Loans charged-off ........................ (4,069) (2,258) (1,898)
Recoveries of loans previously charged-off 715 1,119 1,001
----- ----- -----
Net loans charged-off ....... (3,354) (1,139) (897)
------ ------ ----
Provision charged to operations .......... 5,826 1,258 490
----- ----- ---
Balance, December 31 ..................... $ 5,228 2,756 2,637
======= ===== =====
At December 31, 1995 and 1994, FBA had $549,000 and $293,000, respectively,
of loans on nonaccrual status. Interest on nonaccrual loans, which would have
been recorded under the original terms of the loans, was $93,000, $15,000 and
$54,000 for the years ended December 31, 1995, 1994 and 1993, respectively. Of
this amount, $70,000, $14,000 and $2,000 was actually recorded as interest
income on such loans in 1995, 1994 and 1993, respectively.
At December 31, 1995, FBA had $1.6 million of impaired loans, which is
represented by certain loans on nonaccrual status and consumer installment loans
60 days or more past due. The impaired loans had no specific reserves at
December 31, 1995. The average recorded investment in impaired loans since the
adoption of SFAS 114 and SFAS 118 on January 1, 1995 was $1.6 million.
FBA's primary market areas are the regions around Houston, Dallas and Ft.
Worth, Texas. At December 31, 1995, approximately 57% of the total loan
portfolio and 43% of the commercial, financial and agricultural loan portfolio
were to borrowers within this region. In the past, these areas have been heavily
influenced by the energy sector of the economy, particularly the oil and gas
industry. Problems which surfaced in this area in recent years have tended to
cause the economic base to broaden, contributing to a more stable lending
environment. FBA does not have any loans directly related to the energy segment
of the economy.
Indirect automobile lending constituted the only significant concentration
of credit risk. Financial instruments related to indirect automobile financing,
including loans and unfunded loan commitments, comprised approximately 65% and
82% of all loans and unfunded loan commitments at December 31, 1995 and 1994,
respectively.
In general, FBA is a secured lender. At December 31, 1995, approximately
99% of the loan portfolio was secured. Collateral is required in accordance with
the normal credit evaluation process based upon the creditworthiness of the
customer and the credit risk associated with the particular transaction.
<PAGE>
(5) Bank Premises and Equipment
As part of the financial restructuring discussed in Note 2, effective
December 31, 1994, carrying values of FBA's bank premises and equipment were
adjusted to their current fair values and the balance of accumulated
depreciation was eliminated. As a result of this procedure, total office
properties, net of accumulated depreciation, were reduced by an aggregate of
$4.4 million.
Bank premises and equipment were comprised of the following at December 31:
1995 1994
---- ----
(dollars expressed in thousands)
Land ..................................... $2,424 1,806
Buildings and improvements ............... 3,139 3,732
Furniture, fixtures and equipment ........ 1,435 928
Construction in progress ................. 0 45
----- -----
Total .......................... 6,998 6,511
Less accumulated depreciation ............ 544 0
----- -----
Bank premises and equipment, net $6,454 6,511
===== =====
Depreciation expense for the years ended December 31, 1995, 1994 and 1993
totaled $543,518, $728,181 and $822,709, respectively.
FBA leases land, office properties and some items of equipment under
operating leases which expire between 1995 and 2019. Certain of the leases
contain renewal options and escalation clauses. Total rental expense was
$537,000, $589,000 and $397,000 for the years ended December 31, 1995, 1994 and
1993, respectively. Future minimum lease payments under noncancellable operating
leases extend through 2019 as follows:
(dollars expressed in thousands)
Year ending December 31:
1996 $ 256
1997 256
1998 214
1999 152
2000 148
Thereafter 2,640
-----
Total minimum lease payments $ 3,666
========
FBA owns its banking facility located in McKinney, Texas. The building has
approximately 51,200 square feet, 10,800 square feet of which is occupied by the
Bank. The remaining space is leased to unrelated parties. Total rental income
was $284,000, $286,000 and $245,000 for the years ended December 31, 1995, 1994
and 1993, respectively.
(6) Short-Term Borrowings
FBA satisfies its short-term borrowing requirements through the use of
federal funds purchased and securities sold under agreements to repurchase,
generally on a daily basis. Repurchase agreements are borrowings which have a
maturity of less than one year. Investment securities and interest-bearing
deposits with the FHLB of $1.2 million and $17.4 million at December 31, 1995
and 1994, respectively, are pledged as collateral for these short-term
borrowings. The securities underlying the agreements are book entry securities
and were delivered, by appropriate entry, to an unaffiliated bank. Other
short-term borrowings include notes payable to the Federal Reserve Bank for
treasury, tax and loan deposits and various other borrowings that have
maturities of less than one year.
<PAGE>
<TABLE>
<CAPTION>
Information relating to these short-term borrowings for the years ended December 31 is provided below:
1995 1994 1993
---- ---- ----
(dollars expressed in thousands)
Securities sold under agreements to repurchase:
<S> <C> <C> <C>
Average daily balance $ 14,857 65,226 51,991
Maximum month-end balance 30,046 111,588 95,208
Weighted average interest rate at year-end 4.70% 6.35% 3.33%
Federal funds purchased and other
short-term borrowings:
Average daily balance $ 1,592 2,011 819
Maximum month-end balance 3,631 5,609 1,227
Weighted average interest rate at year-end 5.15% 6.36% 2.73%
(7) Federal Home Loan Bank Advances
Advances from the FHLB at December 31 are as follows:
1995 1994
---- ----
(dollars expressed in thousands)
Amortizing advances maturing in:
1995 $ - 5,032
1998 2,852 3,673
Single payment advances maturing in:
1995 - 7,868
1996 2,811 2,839
---- ----- -----
Total advances $ 5,663 19,412
========= ======
Weighted average interest rate 4.52% 7.47%
==== ====
</TABLE>
Investment securities of $8.1 million and $22.6 million at December 31,
1995 and 1994, respectively, were pledged as collateral for these advances.
(8) Long-Term Debt
At December 31, 1995 and 1994, a subsidiary of FBA had outstanding $1.1
million of 9% convertible subordinated debentures due May 15, 1996. These
debentures are guaranteed by FBA and are convertible into common stock of FBA at
$6,093.75 per share. At December 31, 1995 and 1994, FBA had reserved 173 shares
of its common stock for conversion of these debentures.
(9) Income Taxes
As discussed in Note 1, FBA adopted SFAS 109 effective January 1, 1993.
There was no one-time cumulative effect of this change in accounting for income
taxes because a valuation reserve was established in an amount equal to the net
deferred tax asset.
Total income tax benefits of $2.1 million for the year ended December 31,
1995 were allocated to operations. Total income tax benefits for the year ended
December 31, 1994 were allocated $9.5 million to operations, $535,000 to
stockholders' equity for the tax effect of unrealized holding losses on
available-for-sale securities and $1.2 million to the tax effect of the
quasi-reorganization.
Income tax benefit for the years ended December 31 consists of:
1995 1994 1993
---- ---- ----
(dollars expressed in thousands)
Current income tax expense (benefit):
Federal $ 0 0 0
State 0 0 0
----- ----- -----
0 0 0
Deferred income tax expense (benefit):
Federal (2,083) (9,461) 0
State 0 0 0
------ ------ -----
(2,083) (9,461) 0
------ ------ -----
Total $(2,083) (9,461) 0
======= ====== =====
<PAGE>
<TABLE>
<CAPTION>
The effective rates of federal income taxes for the years ended December 31 differ from statutory rates of
taxation as follows:
1995 1994 1993
---- ---- ----
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
(dollars expressed in thousands)
Income (loss) before provision
<S> <C> <C> <C> <C> <C> <C>
for income tax benefit $ (5,903) $(10,366) $ 219
======== ======== =======
Tax at federal income tax rate $ (2,066) (35.0)% $ (3,628) (35.0)% $ 77 35.0%
Reasons for difference in federal
income tax and effective rate:
Change in the deferred tax
valuation allowance - - (35,559) (343.0) (3,904) (1,782.6)
Change in tax attributes avail-
able to be carried forward - - 29,586 285.4 3,827 1,747.6
Other (17) (.3) 140 1.4 0 0
------ --- ------- ----- ----- ------
Tax at effective rate $ (2,083) (35.3)% $ (9,461) (91.2)% $ 0 0%
======== ===== ======== ===== ===== ======
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are as follows:
December 31,
------------
1995 1994
---- ----
(dollars expressed
in thousands)
Deferred tax assets:
Allowance for possible loan losses .................. $ 1,830 965
Foreclosed property ................................. 1,733 1,923
Book losses on investment securities not
currently allowable for tax purposes .............. 328 1,431
Postretirement medical plan ......................... 359 372
Quasi-reorganization adjustment of bank premises .... 1,477 1,527
Other ............................................... 162 328
Net operating loss carryforwards .................... 11,447 8,702
------ -----
Gross deferred tax assets ..................... 17,336 15,248
Valuation allowance ................................. (2,731) (2,731)
------ ------
Net deferred tax assets ....................... 14,605 12,517
------ ------
Deferred tax liabilities:
Bank premises and equipment ......................... 902 706
Safe harbor leases .................................. 280 499
Other ............................................... 180 94
------- ------
Gross deferred tax liabilities ................ 1,362 1,299
------- ------
Net deferred tax assets ....................... $ 13,243 11,218
======== ======
Changes to the deferred tax assets valuation allowance for the years ended
December 31 were as follows:
1995 1994 1993
---- ---- ----
(dollars expressed in thousands)
Balance, January 1 ............................. $ 2,731 38,290 42,194
Current year deferred provision, change in
deferred tax valuation allowance ............ 0 (35,559) (3,904)
----- ------- ------
Deferred tax assets valuation allowance,
December 31 ................................. $ 2,731 2,731 38,290
======= ===== ======
Subsequently recognized tax benefits relating to the valuation allowance
for deferred tax assets as of December 31, 1994 will be credited directly to
capital surplus under the terms of the quasi-reorganization described in Note 2
and the provisions of SFAS 109.
With the completion of the sale of the Class B Stock described in Note 2,
the Internal Revenue Code (IRC) provides that the net operating loss
carryforwards generated prior to the transaction are subject to an annual
limitation for all subsequent tax years. This annual limitation is $1.4 million.
The amount of the limitation is equal to the total value of FBA stock issued and
<PAGE>
outstanding immediately prior to the acquisition multiplied by the federal
long-term tax-exempt rate at the time. If taxable income for a post-transaction
year does not equal or exceed the annual limitation, the unused limitation is
carried forward to increase the limitation amount for the succeeding years until
the excess limitation is utilized. This does not affect the original expiration
dates of the net operating loss. The order in which the attributes can be
utilized is specified in the IRC.
Subsequent to the completion of the private placement of Class B Stock, a
detailed analysis of the net operating loss and tax credit carryforwards was
performed. A large portion of the net operating losses and all of the tax credit
carryforwards will expire prior to their utilization, and were therefore removed
from the analysis. This is reflected in the reduction in the valuation
allowance. After giving effect to the applicable limitations in the IRC, for
federal income tax purposes, FBA had net operating loss (NOL) carryforwards of
approximately $32.7 million available to offset future taxable income. These NOL
carryforwards expire as
follows:
(dollars expressed in thousands)
Year ending December 31:
1996 $ 858
1998 4,140
1999 2,241
2000 103
2001 through 2010 25,363
---------
Total NOL carryforwards $ 32,705
=========
The remaining net deferred tax assets were reevaluated to determine whether
it is more likely than not that the deferred tax assets will be recognized in
the future. With the completion of the private placement of Class B Stock and
the receipt of the resulting cash proceeds of $30 million, FBA is capable of
pursuing acquisitions, expanding its services and reducing its reliance on
borrowed funds. FBA and First Banks have formulated a plan to further reduce
operating costs and expand into other revenue-generating areas. First Banks is
providing certain services at substantially reduced costs such as data
processing, item processing, loan servicing, commercial non-credit services,
accounting and tax assistance and various insurance programs. By utilizing the
services and personnel available from First Banks, implementation of various
other cost reduction plans, and pursuing its acquisition objectives, FBA's
management believes it is more likely than not that its income will be increased
to a level that permits utilization of all or a substantial portion of net
deferred tax assets including NOL carryforwards. Taking all positive and
negative criteria into consideration, it was determined that the allowance
established should be $2.7 million.
(10) Employee Benefit Plans
Pension Plan
FBA has a noncontributory defined benefit pension plan covering
substantially all officers and employees. Under the plan, retirement benefits
are computed primarily based on the years of service and the highest five-year
average salary during the last ten years of service. It is the policy of FBA to
fund the net periodic pension cost, but not less than the minimum required nor
greater than the maximum deductible contribution determined in accordance with
applicable income tax regulations. During 1994, FBA discontinued the
accumulation of benefits under the plan. As a result of this change, total
expense with respect to the defined benefit pension plan was $1.1 million for
the year ended December 31, 1994. Contributions to the plan were $512,000 and
$268,000 for plan years 1994 and 1993, respectively. No contributions were made
to the pension plan during 1995.
The following table shows the plan's funded status as follows:
January 1,
----------
1995 1994
---- ----
(dollars expressed
in thousands)
Actuarial present value of benefit obligations:
Vested benefits ........................................ $ 7,539 7,435
Nonvested benefits ..................................... 44 73
----- -----
Accumulated benefit obligations .......... 7,583 7,508
Effect of projected future compensation levels ........... 0 0
----- -----
Projected benefit obligation ............................. 7,583 7,508
Plan assets at fair value ................................ 8,928 7,882
----- -----
Plan assets (in excess of) deficient from projected
benefit obligation .................................... (1,345) (374)
====== ====
Unrecognized net loss from past experience different
from that assumed and effects of changes in assumptions 872 0
------ ----
Prepaid pension cost ..................... $ (473) (374)
======= ====
Net periodic pension expense (income) cost for the years ended December 31
included the following:
1995 1994 1993
---- ---- ----
(dollars expressed in thousands)
Service cost - benefits earned during the period . $ - 289 262
Interest cost on projected benefit obligation .... 550 572 563
Actual return on assets .......................... (1,517) 161 (832)
Net amortization and deferral .................... 868 42 47
----- ----- ----
Net periodic pension expense (income) $ (99) 1,064 40
===== ===== ==
The weighted average assumed discount rate used in determining the
actuarial present value of the projected benefit obligation was 7.00%, 7.00% and
7.75% on January 1, 1995, 1994 and 1993, respectively. Prior to the
discontinuation of accumulation of benefits under this plan, the projected rate
of increase in future salary levels was 4.5% in 1994 and 1993. The expected
long-term rate of return on assets used in determining the net pension cost was
8.5% for 1995, 8.0% for 1994 and 8.5% for 1993. The plan assets consist of money
market funds, bank-managed common trust funds and corporate securities.
Employees 401(k) Plan
FBA has a 401(k) plan which constitutes a qualified cash or deferred profit
sharing plan under Section 401(k) of the IRC of 1986. The 401(k) plan is
administered by a committee appointed by the Board of Directors of FBA. The
assets of the 401(k) plan are held and managed under a trust agreement with the
trust department of an unaffiliated bank.
Prior to the year ended December 31, 1994, FBA contributed between 10% and
20% of the amount of employee contributions with a maximum contribution of 5% of
each employee's salary. In connection with the discontinuation of benefits
accumulation in the defined benefit pension plan in 1994 discussed above, FBA
increased its matching contribution for the 401(k) plan to 50% of employee
contributions, retaining the maximum contribution of 5% of each employee's
salary. Contributions by participating employees pursuant to the terms of the
401(k) plan are automatically fully vested and nonforfeitable. Funds contributed
to the 401(k) plan by FBA for the account of a participating employee become
vested and nonforfeitable after the employee has completed five years of service
with FBA. FBA accrued $41,000, $25,000 and $24,000 for contributions to the
401(k) plan for the years ended December 31, 1995, 1994 and 1993, respectively.
Postretirement Benefits Other than Pensions
FBA makes certain health care and life insurance benefits available for
substantially all of its retired employees, a portion of the cost of which is
paid by FBA. The estimated cost of such postretirement benefits is accrued as an
expense during the period of the employees' active service to FBA. In 1993, FBA
recognized $120,000 as an expense for postretirement health care and life
insurance benefits. During 1994, FBA reevaluated the cost of this plan and
changed it to provide FBA contributions for coverage only to those individuals
receiving benefits on August 31, 1994. Employees retiring after that date would
be allowed to purchase coverage, but must pay the entire cost associated with
such coverage. As a result of this change, the unfunded accumulated
postretirement benefit obligations were reduced from approximately $1.6 million
at December 31, 1993 to $898,000 at the date of the change. This amount was then
accrued as an expense. The following table sets forth the postretirement benefit
plan's accumulated obligation at December 31, 1995 and 1994:
1995 1994
---- ----
(dollars expressed in
thousands)
Retirees .............................................. $871 863
Fully eligible plan participants ...................... 0 0
Other active plan participants......................... 0 0
--- ---
Accumulated postretirement benefit obligation 871 863
Fair value of plan assets ............................. - 0
--- ---
Accumulated postretirement benefit obligations
in excess of plan assets ............... 871 863
Unrecognized prior service cost ....................... 71 77
Unrecognized net gain (loss) .......................... (16) 34
Unrecognized transition obligation .................... 0 0
--- ----
Accrued postretirement benefit cost .......... $926 974
=== ====
<PAGE>
Net postretirement benefit cost for the years ended December 31 consisted
of the following components:
1995 1994 1993
(dollars expressed in thousands)
Service cost - benefits earned during the period .. $ - 46 46
Interest cost on accumulated postretirement benefit
obligation ...................................... 67 89 106
Amortization of transition obligation ............. 6 59 67
-- --- ---
Total net postretirement benefit cost 73 194 219
Curtailment gain under SFAS 106 ................... - (97) 0
Recognition of transition obligation .............. - 898 0
-- --- ---
Total expense ........................ $73 995 219
== === ===
As of December 31, 1995, a health care cost trend assumption is not
relevant to the calculation of accumulated postretirement benefit obligation
since active employees are no longer covered and for retired employees the
employer's share of the of the medical premium is fixed at the time of
retirement and is not affected by and is not affected by premium increases due
to inflation. The assumed discount rate used in determing the accumulated post
retirement benefit obligation was 7% for 1995 and 7.5% for 1994.
(11) Director Benefit Plans
Stock Bonus Plan
The 1993 Directors' Stock Bonus Plan provides for annual grants of FBA
common stock to the non-employee directors of FBA. Directors' compensation of
$27,000, $67,000 and $67,000 annually was recorded relating to this plan for the
years ended December 31, 1995, 1994 and 1993, respectively. These amounts
represented the market values of the 1,000, 2,500 and 2,500 shares granted
annually for the years ended December 31, 1995, 1994 and 1993, respectively,
under the Stock Bonus Plan.
The plan is self-operative, and the timing, amounts, recipients and terms
of individual grants are determined automatically. On July 1 of each year, each
nonemployee director automatically receives a grant of 500 shares of common
stock. The maximum number of plan shares that may be issued shall not exceed
16,667 shares. The plan will expire on July 1, 2001.
Directors' Retirement Plan
In 1993, FBA adopted a noncontributory defined benefit pension plan
covering non-employee directors of FBA. Under the plan, retirement benefits are
primarily a function of years of service as a director. During 1994, coverage
under the plan was extended to include nonemployee directors of the Bank. On
September 11, 1995, FBA's and the Bank's Board of Directors discontinued the
Directors' Retirement Plan and, accordingly, reversed to income $179,000, which
represents the nonvested portion of benefits accrued under the plan.
The following table shows the plan's funded status at December 31:
1995 1994
---- ----
(dollars expressed
in thousands)
Actuarial present value of benefit obligations:
Vested benefits .............................................. $67 218
Nonvested benefits ........................................... 0 0
-- ---
Accumulated benefit obligation ....................... 67 218
Effect of projected future compensation levels ................. 0 0
-- ---
Projected benefit obligation ......................... 67 218
Plan assets at fair value ...................................... 0 0
-- ---
Plan assets in deficit of projected benefit obligation 67 218
Unrecognized net loss from past experience different
from that assumed and effects of changes in assumptions ...... 6 15
Unrecognized prior service cost ................................ 0 (110)
- ----
Accrued pension cost ................................. $73 123
=== ===
<PAGE>
Net periodic pension cost for the years ended December 31 included the
following:
1995 1994 1993
---- ---- ----
(dollars expressed in thousands)
Service cost - benefits earned during the period $15 33 29
Interest cost on projected benefit obligation .. 13 14 11
Actual return on assets ........................ -- -- --
Net amortization and deferral .................. 12 18 18
-- -- --
Net periodic pension cost ... $40 65 58
=== == ==
The weighted average assumed discount rate used in determining the
actuarial present value of the projected benefit obligation was 7%, 8% and 7%
for the years ended December 31, 1995, 1994 and 1993, respectively.
(12) Commitments and Contingencies
FBA is a party to commitments to extend credit and commercial and standby
letters of credit in the normal course of business to meet the financing needs
of its customers. These instruments involve, to varying degrees, elements of
credit risk and interest rate risk in excess of the amount recognized in the
consolidated balance sheets. The interest rate risk associated with these credit
commitments relates primarily to the commitments to originate fixed-rate loans.
The credit risk amounts are equal to the contractual amounts, assuming that the
amounts are fully advanced and that, in accordance with the requirements of SFAS
105, collateral or other security is of no value. FBA uses the same credit
policies in granting commitments and conditional obligations as it does for
on-balance- sheet items.
Commitments to extend credit at December 31 are as follows:
1995 1994
---- ----
(dollars expressed in thousands)
Credit card commitments $ 1,022 2,251
Other loan commitments 41,323 22,193
Standby letters of credit 0 70
====== ======
Credit card and other loan commitments are agreements to lend to a customer
as long as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. Each customer's creditworthiness is
evaluated on a case-by-case basis. The amount of collateral obtained, if deemed
necessary upon extension of credit, is based on credit evaluation of the
customer. Collateral held varies but may include accounts receivable, inventory,
property, plant, equipment, income-producing commercial properties and single
family residential properties. Collateral is generally required except for
consumer credit card commitments.
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. The letters of credit
are primarily issued to support private borrowing arrangements and commercial
transactions. Most letters of credit extend for less than one year. The credit
risk involved in issuing letters of credit is essentially the same as that
involved in extending loan facilities to customers. The Bank holds marketable
securities, certificates of deposit, inventory or other assets as collateral
supporting those commitments for which collateral is deemed necessary as the
commitments are issued.
(13) Stockholders' Equity
Stock Options
On April 19, 1990, the Board of Directors FBA adopted the 1990 Stock Option
Plan (1990 Plan). The 1990 Plan currently provides that no more than 200,000
shares of common stock will be available for stock options. One-fourth of each
stock option becomes exercisable at the date of the grant and at each
anniversary date of the grant. The options expire ten years from the date of the
grant. There were no options granted during the year three years ended December
31, 1995.
<PAGE>
<TABLE>
<CAPTION>
At December 31, 1995, there were 36,833 shares available for future stock options and 67,500 shares of
common stock reserved for the exercise of outstanding options. Transactions relating to the 1990 Plan for the
years ended December 31 were as follows:
1995 1994 1993
---- ---- ----
Average Average Average
option option option
Amount price Amount price Amount price
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Outstanding options, January 1 98,133 $ 3.75 133,700 $ 3.75 156,667 $ 3.75
Options exercised (30,633) 3.75 (35,567) 3.75 (22,967) 3.75
------- ------- -------
Outstanding options, December 31 67,500 3.75 98,133 3.75 133,700 3.75
====== ==== ====== ==== ======= ====
Options exercisable, December 31 67,500 98,133 133,283
====== ====== =======
</TABLE>
Warrants
In connection with a previous restructuring of FBA, warrants to purchase
common stock were granted certain directors and the Federal Deposit Insurance
Corporation (FDIC). At December 31, 1995, FBA has warrants outstanding to
purchase 196,999 shares of common stock. The exercise prices of these warrants
are $81.15 for 65,663 shares and $.75 for 131,336 shares. These warrants have
antidilution protection and will expire on July 17, 2007. FBA has reserved
shares of its common stock equal to the aggregate amount of all warrants
outstanding.
Distribution of Earnings of Bank
The distribution of earnings of the Bank has been restricted by various
state and federal regulations, as well as the accumulated deficit which was
eliminated by the quasi-reorganization described in Note 2. Because of these
limitations, the Bank has been precluded from the payment of any dividends in
the past. As a result of the capital contributed to the Bank following the
private placement of Class B common stock and the quasi-reorganization described
in Note 2, the Bank may be allowed to pay dividends in the future from any
earnings accumulated after January 1, 1995, subject to applicable regulatory
limitations. As of December 31, 1995, the Bank had a retained deficit of $3.8
million which had accumulated after January 1, 1995.
(14) Transactions With Related Parties
Following the private placement of Class B common stock described in Note
2, FBA began purchasing certain services and supplies from or through its
majority shareholder, First Banks. First Banks' majority ownership of FBA could
result in operating results and financial position of FBA which differ from
those that would be obtained if FBA's relationship with First Banks did not
exist.
In December 1994, the Board of Directors of the Bank approved a data
processing agreement and a management fee agreement with First Banks. Under the
data processing agreement, a subsidiary of First Banks provides data processing
and various related services to FBA. The fees for such services are
significantly lower than FBA was paying its non-affiliated vendors. The
management fee agreement provides that FBA compensate First Banks on an hourly
basis for its use of personnel for various functions including internal
auditing, loan review, income tax preparation and assistance, accounting,
asset/liability and investment services, loan servicing and other management and
administrative services. Hourly rates for such services compare favorably with
those for similar services from unrelated sources, as well as the internal costs
of FBA personnel which were used previously, and it is estimated that the
aggregate cost for the services are significantly more economical than those
previously incurred by FBA separately. Fees paid under these agreements were
$796,000 and $14,000 for the years ended December 31, 1995 and 1994,
respectively.
As more fully described in Note 3, FBA sold an aggregate of $113.9 million
in investment securities in September 1994, of which $60.1 million were sold to
a subsidiary of First Banks at fair value.
Outside of normal customer relationships, no directors, executive officers
or stockholders holding over 5% of FBA's voting stock, and no corporations or
firms with which such persons or entities are associated, currently maintain or
have maintained, any significant business or personal relationships with FBA or
its subsidiaries, other than that which arises by virtue of such position or
ownership interest in FBA, except as described above.
(15) Litigation
In 1993, FBA settled a class action lawsuit relating to a private placement
of common stock which it had completed in 1984. As a result of this settlement,
<PAGE>
FBA issued to the plaintiffs 26,667 shares of its common stock and conveyed
other consideration having a cost to FBA of approximately $52,000. The total
cost of this settlement, $592,000, was reflected as an expense for the year
ended December 31, 1993.
There are several other claims and legal actions pending against FBA and/or
the Bank with regard to matters arising out of the conduct of their businesses.
It is the opinion of management, in consultation with legal counsel, that the
ultimate liability, if any, resulting from such claims and legal actions will
not materially affect the financial condition, results of operations or
liquidity of FBA or the Bank.
(16) Interest Rate Risk Management and Derivative Financial Instruments
With Off-Balance Sheet Risk
FBA manages its interest rate risk by: (1) maintaining an Asset Liability
Committee (ALCO) responsible to FBA's Board of Directors to review the overall
interest rate risk management activity and approve actions taken to reduce risk;
(2) maintaining an effective monitoring mechanism to determine FBA's exposure to
changes in interest rates; (3) coordinating the lending, investing and
deposit-generating functions to control the assumption of interest rate risk;
and (4) employing various off-balance-sheet financial instruments to offset
inherent interest rate risk when it becomes excessive. The objective of these
procedures is to limit the adverse impact which changes in interest rates may
have on net interest income.
The ALCO has overall responsibility for the effective management of
interest rate risk and the approval of policy guidelines. The ALCO includes the
Chairman and Chief Executive Officer, the senior executives of investments,
credit, retail banking and finance, and certain other officers. The ALCO is
supported by the Asset Liability Management Group which monitors interest rate
risk, prepares analyses for review by the ALCO and implements actions which are
either specifically directed by the ALCO or established by policy guidelines. To
measure the effect of interest rate changes, FBA recalculates its net income
over a one-year horizon on a pro forma basis assuming instantaneous, permanent
parallel and non-parallel shifts in the yield curve, in varying amounts both
upward and downward.
During 1994, FBA expanded its use of off-balance-sheet derivative financial
instruments to assist in the management of interest rate sensitivity. These
off-balance-sheet derivative financial instruments are utilized to modify the
repricing, maturity and option characteristics of on-balance-sheet assets and
liabilities. As more fully described in Note 1 to the accompanying consolidated
financial statements, FBA holds off-balance-sheet derivative financial
instruments, generally limited to interest rate cap agreements and interest rate
futures contracts. The use of such derivative financial instruments is limited
to reducing the interest rate exposure of FBA.
Derivative financial instruments held by FBA for purposes of managing
interest rate risk are summarized as follows:
December 31,
------------
1995 1994
---- ----
Notional Credit Notional Credit
amount amount amount amount
------ ------ ------ ------
(dollars expressed in thousands)
Interest rate futures contracts $ -- -- 768,000 --
Interest rate cap agreements .. 10,000 291 10,000 577
====== === ====== ===
The notional amounts of derivative financial instruments do not represent
amounts exchanged by the parties and therefore are not a measure of FBA's credit
exposure through its use of derivative financial instruments. The amounts
exchanged are determined by reference to the notional amounts and the other
terms of the derivatives.
FBA is exposed to credit risk in the event of nonperformance by
counterparties to derivative financial instruments but does not expect the
failure of any counterparties in meeting their obligations. Where appropriate,
master netting agreements are arranged or collateral is obtained in the form of
cash or rights to securities. The credit exposure of derivative financial
instruments is the positive fair value of the instruments, net of the fair value
of collateral received.
FBA sold interest rate futures contracts and purchased options on interest
rate futures contracts to hedge the interest rate risk of its available-for-sale
securities portfolio. Interest rate futures contracts are commitments to either
purchase or sell designated financial instruments at a future date for a
specified price and may be settled in cash or through delivery of such financial
instruments. Options on interest rate futures contracts confer the right to
purchase or sell financial futures contracts at a specified price and are
settled
in cash.
<PAGE>
During 1995, as interest rates declined, FBA incurred losses on the
interest rate futures contracts. The losses incurred on the interest rate
futures contracts were partially offset by gains in the available-for-sale
securities portfolio. The overall net loss in net market value of these
positions is attributable to an increase in the projected prepayments of
principal underlying the available-for-sale securities portfolio. These
increased prepayment projections disproportionately shortened the expected lives
of the available-for-sale securities portfolio in comparison to the effective
maturity created with the hedge position. As a result, beginning in the second
quarter of 1995, FBA began to reduce its hedge position to coincide with the
current expected life of the available-for-sale securities portfolio by
decreasing the number of outstanding interest rate futures contracts. FBA
continued to reduce its hedge position during the third and fourth quarters of
1995 as a result of the further declines in interest rates. In addition, during
the fourth quarter of 1995, upon sales of $48.9 million of investment
securities, the remaining outstanding interest rate futures contracts were
closed.
For 1995, FBA incurred a net loss on interest rate futures contracts of
$5.95 million, of which $806,000 was amortized to income as a yield adjustment
to the investment security portfolio and $5.14 million was included in the cost
basis in determining the gain or loss upon the sale of securities. At December
31, 1994, the unamortized balance of net deferred gains on interest rate futures
contracts of $866,000 was applied to the carrying value of the
available-for-sale securities portfolio as part of the mark-to-market valuation.
FBA purchased an interest rate cap agreement to limit the interest expense
associated with certain of its interest-bearing liabilities. In exchange for an
initial fee, the interest rate cap agreement entitles FBA to receive interest
payments when a specified index rate exceeds a predetermined rate. The agreement
outstanding at December 31, 1995 and 1994 effectively limits the interest rate
to 5.0% on $10 million of interest-bearing liabilities from October 15, 1997 to
May 15, 2000. At December 31, 1995 and 1994, the unamortized costs were $465,000
and $577,000, respectively, and were included in other assets. There are no
amounts receivable under
the agreement.
(17) Fair Value of Financial Instruments
Fair values for financial instruments are management's estimate of the
values at which the instruments could be exchanged in a transaction between
willing parties. These estimates are subjective and may vary significantly from
amounts that would be realized in actual transactions. In addition, other
significant assets are not considered financial assets including deferred tax
assets and premises and equipment. Further, the tax ramifications related to the
realization of the unrealized gains and losses can have a significant effect on
the fair value estimates and have not been considered in any of the estimates.
The estimated fair values of FBA's financial instruments at December 31
were as follows:
December 31, 1995 December 31, 1994
----------------- -----------------
Carrying Estimated Carrying Estimated
amount fair value amount fair value
------ ---------- ------ ----------
(dollars expressed in thousands)
Assets:
Cash and cash equivalents ...... $ 40,922 40,922 47,071 47,071
Investment securities .......... 39,337 39,337 60,514 60,514
Net loans ...................... 187,345 189,294 200,558 200,558
Accrued interest receivable .... 665 665 1,146 1,146
Liabilities:
Demand and savings deposits .... 124,019 124,019 124,473 124,473
Time deposits .................. 125,244 126,150 117,097 117,097
Accrued interest payable ....... 792 792 716 716
Securities sold under agreements
to repurchase, federal funds
purchased and other borrowings . 1,063 1,063 24,233 24,233
FHLB advances .................. 5,663 5,602 19,412 19,412
Long-term debt ................. 1,054 1,054 1,054 1,054
Off balance sheet:
Interest rate cap agreement .... 465 291 577 577
Interest rate futures contracts -- -- 886 886
Unfunded loan commitments ...... -- -- -- --
<PAGE>
The following methods and assumptions were used in estimating fair values
for financial instruments.
Financial Assets:
Cash and cash equivalents and accrued interest receivable: The carrying
values reported in the consolidated balance sheets approximate fair value.
Investment securities: Fair value for securities available for sale were
the amounts reported in the consolidated balance sheets. If quoted market prices
were not available, fair values were based upon quoted market prices of
comparable instruments.
Net loans: The fair values for most loans held for investment were
estimated utilizing discounted cash flow calculations that applied interest
rates currently being offered for similar loans to borrowers with similar risk
profiles. The fair value of loans held for sale, which were the amounts on the
consolidated balance sheets, were based on quoted market prices where available.
If quoted market prices were not available, fair values were based upon quoted
market prices of comparable instruments. The carrying values for loans are net
of the allowance for possible loan losses and unearned discount.
Financial Liabilities:
Deposits: The fair value disclosed for deposits generally payable on demand
(i.e., non-interest-bearing and interest-bearing demand, savings and money
market accounts) were considered equal to their respective carrying amounts as
reported in the consolidated balance sheets. The fair value disclosed for demand
deposits does not include the benefit that results from the low-cost funding
provided by deposit liabilities compared to the cost of borrowing funds in the
market. Fair values for certificates of deposit were estimated using a
discounted cash flow calculation that applied interest rates currently being
offered on similar certificates to a schedule of aggregated monthly maturities
of time deposits.
FHLB advances: Fair values for FHLB advances were estimated using a
discounted cash flow calculation that applied interest rates currently being
offered on similar advances. Borrowings and accrued interest payable: The
carrying values reported in the consolidated balance sheets approximate fair
value.
Off-Balance Sheet:
Interest rate futures contracts: The fair values for interest rate futures
contracts were based upon quoted market prices. The fair value of these
contracts has been reflected in the consolidated balance sheets in the carrying
value of the securities available-for-sale portfolio as part of the mark to
market valuation.
Interest rate cap agreement: The fair value of the interest rate cap
agreement is estimated by comparison to market rates quoted on new agreements
with similar creditworthiness. Unfunded loan commitments: The majority of the
commitments to extend credit and commercial and standby letters of credit
contain variable interest rates and credit deterioration clauses and, therefore,
the carrying value of these credit commitments approximates fair value.
(18) Parent Company Only Financial Information
Condensed Balance Sheets
December 31,
--------------
1995 1994
---- ----
(dollars expressed
in thousands)
Assets:
Cash .................................................. $ 8,541 575
Mortgage-backed and other securities available for sale -- 12,803
Investment in subsidiaries ............................ 25,386 25,481
Deferred tax assets ................................... 3,435 3,499
Other assets .......................................... 71 46
------ ------
Total assets .................................. $37,433 42,404
======= ======
Liabilities and stockholders' equity:
Payable to subsidiaries ............................... $ 1,819 1,789
Accrued and other liabilities ......................... 356 901
----- -----
Total liabilities ............................. 2,175 2,690
Stockholders' equity .................................. 35,258 39,714
------ ------
Total liabilities and stockholders' equity .... $37,433 42,404
======= ======
<PAGE>
Condensed Statements of Operations
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
1995 1994 1993
---- ---- ----
(dollars expressed in thousands)
Income:
<S> <C> <C> <C>
Interest ........................................... $ 315 498 684
Gain (loss) on sale of securities, net ............. - (661) 15
Other .............................................. 0 35 (40)
--- --- ---
315 (128) 659
--- ---- ---
Expense:
Interest ........................................... 140 451 601
Provision for possible loan losses ................. - 24 --
Litigation settlement expense ...................... -- -- 592
Reversal of estimated costs of former subsidiary ... -- -- (804)
Other .............................................. 32 453 220
--- --- ---
172 928 609
--- --- ---
Income (loss) before income tax (benefit) expense 143 (1,056) 50
Provision for income tax (benefit) expense ........... 68 (3,527) 0
--- ------ ---
Income (loss) before equity in undistributed
income (loss) of subsidiaries .............. 75 2,471 50
Equity in undistributed income (loss) of subsidiaries (3,895) (3,376) 169
------ ------ ---
Net income (loss) ............................ $(3,820) (905) 219
======= ==== ===
Condensed Statements of Cash Flows
Year ended December 31,
-----------------------
1995 1994 1993
---- ---- ----
(dollars expressed in thousands)
Operating activities:
Net income (loss) ........................................... $(3,820) (905) 219
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Credit for deferred income taxes ......................... -- (3,527) --
Equity in undistributed loss (income) of subsidiaries .... 3,895 3,376 (169)
Other, net ............................................... (552) 1,277 (354)
----- ----- ----
Net cash provided by (used in) operations .......... (477) 221 (304)
---- --- ----
Investing activities:
Purchase of investment securities ........................... (21,191) (12,803) (3,612)
Proceeds from maturity of investment securities ............. 8,345 -- 3,020
Proceeds from sales of investment securities ................ 25,752 12,873 1,037
Capital contributions to subsidiaries ....................... (3,750) (17,000) --
Other, net .................................................. 0 0 100
------ ------ ---
Net cash provided by (used in) investing activities 9,156 (16,930) 545
----- ------- ---
Financing activities:
Net proceeds from issuance and sale of Class B common stock . - 29,623 --
Exercise of stock options ................................... 115 136 86
Repurchase of common stock for treasury ..................... (828) -- --
Net decrease in federal funds purchased and securities
sold under agreements to repurchase ...................... 0 (12,675) (731)
----- ------- ----
Net cash provided by (used in) financing activities (713) 17,084 (645)
----- ------ ----
Net increase (decrease) in cash and cash equivalents 7,966 375 (404)
Cash and cash equivalents at beginning of year ................ 575 200 604
----- --- ---
Cash and cash equivalents at end of year ...................... $ 8,541 575 200
======== === ===
Supplemental disclosure of cash paid for interest ............. $ 110 428 564
======== === ===
Supplemental disclosure of noncash investing
and financing activities - transfer of investment
securities to available for sale ............................ $ 0 0 13,541
======= = ======
</TABLE>
<PAGE>
FIRST BANKS AMERICA, INC.
MANAGEMENT
Directors of First Banks America, Inc.
Allen H. Blake Vice President, Chief Financial Officer and Secretary,
First Banks America, Inc., Houston, Texas; Senior Vice
President, Chief Financial Officer and Secretary, First
Banks, Inc., St. Louis, Missouri.
Charles A. Crocco, Partner in the law firm of Crocco & De Maio, P.C., New
Jr. York, New York.
James F. Dierberg Chairman of the Board, President and Chief Executive
Officer of First Banks America, Inc., Houston, Texas;
Chairman of the Board, President and Chief Executive
Officer, First Banks, Inc., St. Louis, Missouri.
Edward T. Story, President and Chief Executive Officer of SOCO
Jr. International, Inc., an international oil and gas
exploration and production company headquartered in
Houston, Texas.
Mark T. Turkcan Senior Vice President, Retail Banking, First Banks, Inc.,
St. Louis, Missouri.
Donald W. Williams Senior Vice President, Chief Credit Officer, First Banks,
Inc., St. Louis, Missouri.
Executive Officers of First Banks America, Inc.
James F. Dierberg Chairman of the Board, President and Chief Executive
Officer
David F. Weaver Executive Vice President
Allen H. Blake Vice President, Chief Financial Officer and Secretary
Senior Officers of BankTEXAS N.A.
David F. Weaver Chairman of the Board, President and Chief Executive
Officer
Kathryn Aderman Vice President of Administration and Human Resources
Arved E. White Senior Vice President and Chief Lending Officer
Investor Information
Form 10-K
FBA's Annual Report on Form 10-K, as filed with the Securities and Exchange
Commission, is available without charge to any stockholder upon request.
Requests should be directed to Kathryn Aderman, Assistant Secretary, First Banks
America, Inc., P.O. Box 630369, Houston, Texas 77263-0369.
Common Stock
The common stock of FBA is traded on the New York Stock Exchange with the
ticker symbol "FBA" and is frequently reported in newspapers of general
circulation with the symbol "FBKSAM " and in the Wall Street Journal with the
symbol "FBA." As of December 31, 1995, there were approximately 1,495 record
holders of common stock.
Common stock price range:
1995 1994
---- ----
High Low High Low
---- --- ---- ---
First quarter $ 18-3/4 12-3/16 26-1/4 20-5/8
Second quarter 16-7/8 12-3/16 22-1/2 18-3/4
Third quarter 16-7/8 10-7/8 20-5/8 15
Fourth quarter 13-3/4 9 16-7/8 13-1/8
Common Stock Transfer Agent
Information and Registrar
For information concerning
First Banks America, Inc. contact:
David F. Weaver Allen H. Blake Chemical Bank
Executive Vice President Vice President, Chief Securityholder
P.O. Box 630369 and Secretary 450 West 33rd Street
Houston, Texas 77263-0369 111901 Olive Boulevard 8th Floor
Telephone: 713/954-2400 St. Louis, Missouri 63141 New York, New York 10001
Telephone: 314/995-8700 Telephone:1-800-635-9270
<PAGE>
EXHIBIT 21
<PAGE>
EXHIBIT 21
First Banks America, Inc.
Significant Subsidiaries
The following is a list of all subsidiaries of the Company and the
jurisdiction of incorporation or organization. BankTEXAS National Association is
wholly-owned by Sundowner Corporation, and Sundowner Corporation and CSWI
International Finance N. V. are each wholly owned by First Banks America, Inc.
Name of Subsidiary Jurisdiction of Incorporation or Organization
------------------------------------------------------------------------------
CSWI International Finance, N.V. Netherlands Antilles
Sundowner Corporation Nevada
BankTEXAS National Association United States
<PAGE>
EXHIBIT 23(a)
<PAGE>
EXHIBIT 23(a)
Independent Auditors' Consent
The Board of Directors
First Banks America, Inc.:
We consent to incorporation by reference in the registration statement (No.
33-42607) on Form S-8 of First Bank America, Inc. of our report dated March 8,
1996, relating to the consolidated balance sheets of First Banks America, Inc.
and subsidiaries as of December 31, 1995 and 1994, and the related consolidated
statements of operations, changes in stockholders' equity, and cash flows for
eacah of the years in the two-year period ended December 31, 1995, which report
appears in the December 31, 1995 annual report on Form 10-K of First Banks
America, Inc.
/s/KPMG Peat Marwick LLP
- ------------------------
KPMG Peat Marwick LLP
St. Louis, Missouri
March 27, 1996
<PAGE>
EXHIBIT 23(b)
<PAGE>
EXHIBIT 23(b)
Independent Auditors' Consent
The Board of Directors
First Banks America, Inc.
We consent to incorporation by reference in Registration Statement No. 33-42607
of First Banks America, Inc. (formerly known as BancTEXAS Group Inc.) on Form
S-8 of our report dated March 18, 1994, appearing in this Annual Report on Form
10-K of First Banks America, Inc. for the year ended December 31, 1995.
/s/Deloitte & Touche LLP
- ------------------------
Deloitte & Touche LLP
Dallas, Texas
March 21, 1996
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000310979
<NAME> First Banks America, Inc.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Dec-31-1995
<PERIOD-START> Jan-01-1995
<PERIOD-END> Dec-31-1995
<CASH> 25,072
<INT-BEARING-DEPOSITS> 11,050
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 39,337
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 192,572
<ALLOWANCE> (5,228)
<TOTAL-ASSETS> 296,583
<DEPOSITS> 249,263
<SHORT-TERM> 6,726
<LIABILITIES-OTHER> 4,282
<LONG-TERM> 1,054
0
0
<COMMON> 585
<OTHER-SE> 34,673
<TOTAL-LIABILITIES-AND-EQUITY> 296,583
<INTEREST-LOAN> 17,462
<INTEREST-INVEST> 4,473
<INTEREST-OTHER> 492
<INTEREST-TOTAL> 22,427
<INTEREST-DEPOSIT> 8,929
<INTEREST-EXPENSE> 11,218
<INTEREST-INCOME-NET> 11,209
<LOAN-LOSSES> 5,826
<SECURITIES-GAINS> (2,996)
<EXPENSE-OTHER> 11,160
<INCOME-PRETAX> (5,903)
<INCOME-PRE-EXTRAORDINARY> (5,903)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,820)
<EPS-PRIMARY> (.94)
<EPS-DILUTED> (.94)
<YIELD-ACTUAL> 3.90
<LOANS-NON> 549
<LOANS-PAST> 517
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 5,200
<ALLOWANCE-OPEN> 2,756
<CHARGE-OFFS> (4,069)
<RECOVERIES> 715
<ALLOWANCE-CLOSE> 5,228
<ALLOWANCE-DOMESTIC> 5,228
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
