SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
,
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act
of 1934
Date of Report (Date of earliest event reported): March 19, 1999 (March 4, 1999)
FIRST BANKS AMERICA, INC.
-------------------------
(Exact name of registrant as specified in its charter)
Delaware
--------
(State or other jurisdiction of incorporation)
0-8937 75-1604965
------ ----------
(Commissioner File Number) (IRS Employer Identification No.)
135 N. Meramec, Clayton, Missouri 63105
---------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (314) 854-4600
Not Applicable
--------------
(Former name or former address, if changed since last report)
<PAGE>
Item 2. Acquisition or Disposition of Assets
On March 4, 1999, First Banks America, Inc. (FBA) completed its
acquisition of Redwood Bancorp (Redwood) and its wholly owned subsidiary,
Redwood Bank, effective March 3, 1999. Pursuant to the Agreement and Plan of
Reorganization, the shareholder of Redwood received $26.0 million in cash.
Redwood currently operates as a wholly owned subsidiary of FBA. The transaction
was accounted for using the purchase method of accounting.
FBA funded the acquisition from the proceeds from the sale of
investment securities available for sale. These securities were purchased from
the remaining proceeds from First America Capital Trust's, a wholly trust
subsidiary of FBA, issuance of cumulative trust preferred securities in July
1998.
There were no material relationships between Redwood, or any of its
affiliates, directors or officers, or any associates of any such directors or
officers, and the Registrant, or any of its affiliates, directors or officers,
or any associates of any such directors or officers.
Item 7. Financial Statements and Exhibits
a) Financial Statements of Business Acquired
Pursuant to the requirements of Article 3 of Regulation S-X, the
following consolidated financial statements for Redwood have been included in
this filing or incorporated herein by reference as noted:
1. Consolidated Statements of Condition as of December 31, 1998
(unaudited) and December 31, 1997 - filed herewith.
2. Consolidated Statements of Operations for years ended December
31, 1998 (unaudited) and December 31, 1997 - filed herewith.
3. Consolidated Statements of Stockholders' Equity and
Comprehensive Income for the years ended December 31, 1998
(unaudited) and 1997 - filed herewith.
4. Consolidated Statements of Cash Flows for the years ended
December 31, 1998 (unaudited) and December 31, 1997 - filed
herewith.
5. Audited Consolidated Financial Statements as of and for the years
ended December 31, 1997 and 1996 and related report of
Independent Auditors.
(b) Pro Forma Financial Information
1. Pro Forma Combined Condensed Balance Sheet as of December 31,1998
(unaudited) - filed herewith.
2. Pro Forma Consolidated Condensed Statement of Income for the year
ended December 31, 1998 and 1997 (unaudited) - filed herewith.
3. Notes to Pro Forma Combined Condensed Financial Statements -
filed herewith.
(c) Exhibits
The following exhibit are incorporated herein by reference:
Exhibit No. Exhibit
2 Agreement and Plan of Reorganization, dated September 3, 1998, by
and among FBA, Empire Holdings, Inc. and Redwood Bancorp, dated
September 3, 1998 (filed as Exhibit 2 to the Report on Form 8-K,
dated September 21, 1998 and incorporated herein by reference).
<PAGE>
Item 7(a)
Financial Statements of Business Acquired
<PAGE>
REDWOOD BANCORP AND SUBSIDIARIES
Consolidated Statements of Financial Condition
<TABLE>
<CAPTION>
December 31,
---------------------------
1998 1997
---- ----
(unaudited)
ASSETS
------
<S> <C> <C>
Cash and due from banks...................................................... $ 6,014,396 8,672,217
Federal funds sold........................................................... -- 1,200,000
Investment securities:
Held-to-maturity.......................................................... 10,908,100 4,228,570
Available-for-sale........................................................ 21,343,582 14,489,971
Loans, net................................................................... 132,092,293 109,483,706
Bank premises and equipment, net............................................. 1,127,229 796,241
Interest receivable.......................................................... 1,191,320 921,150
Goodwill..................................................................... 3,784,695 3,964,918
Other assets................................................................. 2,235,151 1,715,421
-------------- -------------
Total assets........................................................ $ 178,696,766 145,472,194
============== =============
LIABILITIES AND SHAREHOLDER'S EQUITY
------------------------------------
Liabilities:
Deposits.................................................................. $ 157,960,012 126,772,656
Interest payable and other liabilities.................................... 1,353,477 1,227,427
-------------- -------------
Total liabilities................................................... 159,313,489 128,000,083
-------------- -------------
Shareholder's equity:
Common stock, $3.33 par value; authorized 1,000,000
shares; issued and outstanding 250,000 shares in
1998 and 1997.......................................................... 832,500 832,500
Surplus................................................................... 10,642,469 10,639,969
Retained earnings......................................................... 7,908,808 5,988,022
Accumulated other comprehensive income (loss)............................. (500) 11,620
-------------- -------------
Total shareholder's equity.......................................... 19,383,277 17,472,111
-------------- -------------
Total liabilities and shareholder's equity.......................... $ 178,696,766 145,472,194
============== =============
</TABLE>
<PAGE>
REDWOOD BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years ended December 31,
------------------------
1998 1997
---- ----
(unaudited)
Interest income:
<S> <C> <C>
Interest and fees on loans................................................ $ 11,507,954 10,417,676
Interest on federal funds sold............................................ 195,438 243,921
Interest on investment securities......................................... 1,428,914 1,018,486
-------------- --------------
Total interest income............................................... 13,132,306 11,680,083
Interest expense............................................................. 4,884,560 3,863,742
-------------- --------------
Net interest income before provision for loan losses................ 8,247,746 7,816,341
Provision for loan losses.................................................... -- --
-------------- --------------
Net interest income after provision for loan losses................. 8,247,746 7,816,341
-------------- --------------
Noninterest income:
Customer service fees..................................................... 248,624 372,429
Other.... .................................................................. 801,530 28,317
-------------- --------------
Total noninterest income............................................ 1,050,154 400,746
-------------- --------------
Noninterest expense:
Salaries and employee benefits............................................ 3,266,189 3,362,288
Occupancy and equipment................................................... 1,065,196 933,728
Deposit insurance and regulatory assessments.............................. 35,962 35,220
Professional services..................................................... 241,736 82,729
Insurance................................................................. 128,139 143,729
Data processing........................................................... 222,882 216,326
Forms and supplies........................................................ 122,090 105,065
Telecommunication and postage............................................. 170,890 147,366
Corporate expenses........................................................ 84,000 56,000
Goodwill amortization..................................................... 180,224 180,224
Other.... .................................................................. 467,111 378,166
-------------- --------------
Total noninterest expense........................................... 5,984,419 5,640,841
-------------- --------------
Income before income tax expense.................................... 3,313,481 2,576,246
Income tax expense........................................................... 1,392,695 1,155,851
-------------- --------------
Net income.......................................................... $ 1,920,786 1,420,395
============== ==============
Net income per share--basic................................................... $ 7.68 5.68
============== ==============
Net income per share--diluted................................................. $ 7.68 5.68
============== ==============
Weighted average common stock outstanding.................................... 250,000 250,000
============== ==============
</TABLE>
<PAGE>
REDWOOD BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY AND COMPREHENSIVE INCOME
For the years ended December 31, 1998 (unaudited) and 1997
<TABLE>
<CAPTION>
Accumu-
lated other
Compre- compre-
Common stock hensive Retained hensive
Shares Amount Surplus Income Earnings Income Total
------ ------ ------- ------ -------- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996..... 250,000 $ 832,500 10,639,969 4,567,627 (96,917) 15,943,179
Year ended December 31, 1997:
Comprehensive income:
Net income.................. -- -- -- 1,420,395 1,420,395 -- 1,420,395
Other comprehensive
income -- unrealized
losses on securities...... -- -- -- 108,537 -- 108,537 108,537
----------
Comprehensive income...... -- -- -- 1,528,932 -- -- --
--------- --------- ----------- ========= ---------- --------- -----------
Balance, December 31, 1997..... 250,000 832,500 10,639,969 5,988,022 11,620 17,472,111
Year ended December 31, 1998
(unaudited):
Comprehensive income:
Net income.................. -- -- -- 1,920,786 1,920,786 -- 1,920,786
Other comprehensive
Income -- unrealized
losses on securities...... -- -- -- (12,120) -- (12,120) (12,120)
----------
Comprehensive income...... -- -- -- 1,908,666 -- -- --
==========
Contribution of capital........ -- -- 2,500 -- -- 2,500
--------- --------- ----------- ---------- --------- -----------
Balance, December 31, 1998.... 250,000 $ 832,500 10,642,469 7,908,808 (500) 19,383,277
========= ========= =========== ========== ========= ===========
</TABLE>
<PAGE>
REDWOOD BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended December 31,
------------------------
1998 1997
---- ----
(unaudited)
Cash flows from operating activities:
<S> <C> <C>
Net income..................................................................... $ 1,920,786 1,420,395
Reconciliation to net cash provided
by operating activities:
Deferred income tax........................................................ (536,220) 826,000
Depreciation and leasehold
amortization............................................................. 269,521 212,703
Amortization and accretion of
premiums and discounts................................................... (293,185) (219,090)
Goodwill amortization...................................................... 180,224 180,224
Net increase (decrease) in
deferred loan fees....................................................... (21,371) (6,734)
Increase (decrease) in interest receivable
and other assets......................................................... 216,963 (63,513)
Increase (decrease) in interest
payable and other liabilities............................................ 126,136 489,710
Gain on sale of other real estate owned.................................... -- (12,084)
------------ ------------
Net cash provided by operating activities................................ 1,862,854 2,827,611
------------ ------------
Cash flows from investing activities:
Purchase of:
Held-to-maturity securities.................................................. (12,694,302) (5,000,000)
Available-for-sale securities................................................ (56,075,062) (9,970,184)
Proceeds from:
Maturities of held-to-maturity securities.................................... 6,033,163 3,041,583
Maturities of available-for-sale securities.................................. 49,484,631 5,134,262
Loan originations and purchases, net of
repayments and participations................................................ (23,938,874) (8,608,504)
Purchase of bank premises and equipment........................................ (756,026) (223,820)
Proceeds from sale of other real estate owned.................................. -- 138,262
------------ ------------
Net cash used in investing activities.................................... (37,946,470) (15,488,401)
------------ -----------
Cash flows from financing activities:
Net change in deposits......................................................... 31,189,515 9,392,901
Net change in other borrowings................................................. 1,036,280 --
------------ ------------
Net cash provided by financing activities................................ 32,225,795 9,392,901
------------ ------------
Net decrease in cash and cash equivalents................................ (3,857,821) (3,267,889)
Cash and cash equivalents at beginning of year.................................... 9,872,217 13,140,106
------------ ------------
Cash and cash equivalents at end of year.......................................... $ 6,014,396 9,872,217
============ ============
Other cash flow information:
Interest paid.................................................................. $ 4,647,111 3,824,888
Income taxes paid.............................................................. 1,435,872 260,000
============ ============
</TABLE>
<PAGE>
Redwood Bancorp and Subsidiaries
San Francisco, California
Consolidated Financial Statements
December 31, 1997 and 1996
(With Independent Auditors' Report Thereon)
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
March 19, 1999
We consent to the use in this current report on Form 8-K under the Securities
Exchange Act of 1934 of First Banks America, Inc. of our report dated June 19,
1998 on our audit of the consolidated financial statements of Redwood Bancorp as
of and for years ended December 31, 1997 and 1996.
/s/Pricewaterhousecoopers LLP
- ----------------------------
Pricewaterhousecoopers LLP
<PAGE>
REDWOOD BANCORP AND SUBSIDIARIES
Report of Independent Accountants
Shareholder and Board of Directors of
Redwood Bancorp and Subsidiaries:
We have audited the consolidated statements of financial condition of
Redwood Bancorp and its subsidiaries (the Company) as of December 31, 1997 and
1996, and the related consolidated statements of operations, shareholder's
equity, and cash flows for the years then ended. 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 audits.
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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
the Redwood Bancorp and its subsidiaries at December 31, 1997 and 1996, and the
results of its operations and its cash flows for the years then ended, in
conformity with generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
----------------------------
San Francisco, California
June 19, 1998
<PAGE>
REDWOOD BANCORP AND SUBSIDIARIES
Consolidated Statements of Financial Condition
<TABLE>
<CAPTION>
December 31,
-------------------
1997 1996
---- ----
ASSETS
------
<S> <C> <C>
Cash and due from banks......................................................... $ 8,672,217 8,140,106
Federal funds sold.............................................................. 1,200,000 5,000,000
Investment securities:
Held-to-maturity............................................................. 4,228,570 2,249,207
Available-for-sale........................................................... 14,489,971 9,347,368
Loans, net...................................................................... 109,483,706 100,994,646
Bank premises and equipment, net................................................ 796,241 785,118
Interest receivable............................................................. 921,150 804,215
Goodwill........................................................................ 3,964,918 4,145,142
Other assets.................................................................... 1,715,421 2,594,849
------------- ------------
Total assets........................................................... $ 145,472,194 134,060,651
============= ===========
LIABILITIES AND SHAREHOLDER'S EQUITY
------------------------------------
Liabilities:
Deposits..................................................................... $ 126,772,656 117,379,755
Interest payable and other liabilities....................................... 1,227,427 737,717
Other borrowings............................................................. -- --
------------- ------------
Total liabilities...................................................... 128,000,083 118,117,472
------------- ------------
Shareholder's equity:
Common stock, $3.33 par value; authorized 1,000,000
shares; issued and outstanding 250,000 shares in
1997 and 1996............................................................. 832,500 832,500
Surplus...................................................................... 10,639,969 10,639,969
Retained earnings............................................................ 5,988,022 4,567,627
Unrealized gain/loss on investment securities available-for-sale............. 11,620 (96,917)
------------- ------------
Total shareholder's equity............................................. 17,472,111 15,943,179
------------- ------------
Total liabilities and shareholder's equity............................. $ 145,472,194 134,060,651
============= ============
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
<PAGE>
REDWOOD BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years ended
December 31,
------------
1997 1996
---- ----
Interest income:
<S> <C> <C>
Interest and fees on loans....................................................... $ 10,417,676 8,791,684
Interest on federal funds sold................................................... 243,921 232,516
Interest on investment securities................................................ 1,018,486 967,244
Interest on deposits in other financial institutions............................. -- 13,572
------------- ------------
Total interest income...................................................... 11,680,083 10,005,01
Interest expense.................................................................... 3,863,742 3,442,833
------------- ------------
Net interest income before provision for loan losses....................... 7,816,341 6,562,183
Provision for loan losses........................................................... -- --
Net interest income after provision for loan losses........................ 7,816,341 6,562,183
------------ ------------
Noninterest income:
Customer service fees............................................................ 372,429 363,706
Other.... ....................................................................... 28,317 30,247
------------- ------------
Total noninterest income................................................... 400,746 393,953
------------- ------------
Noninterest expense:
Salaries and employee benefits................................................... 3,362,288 3,085,229
Occupancy and equipment.......................................................... 933,728 966,284
Deposit insurance and regulatory assessments..................................... 35,220 35,371
Professional services............................................................ 82,729 166,700
Insurance........................................................................ 143,729 147,695
Data processing.................................................................. 216,326 221,279
Forms and supplies............................................................... 105,065 101,007
Telecommunication and postage.................................................... 147,366 150,085
Corporate expenses............................................................... 56,000 57,000
Goodwill amortization............................................................ 180,224 180,224
Other.... ....................................................................... 378,166 311,541
------------- ------------
Total noninterest expense.................................................. 5,640,841 5,422,415
------------- ------------
Income before income taxes................................................. 2,576,246 1,533,721
Income tax expense (benefit)........................................................ 1,155,851 (1,773,000)
------------- ----------
Net income................................................................. $ 1,420,395 3,306,721
============= ============
Net income per share-- basic........................................................ $ 5.68 13.23
============= ============
Net income per share-- diluted...................................................... $ 5.68 13.23
============= ============
Weighted average common stock outstanding........................................... $ 250,000 250,000
============= ============
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
<PAGE>
REDWOOD BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
For the years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
Unrealzied
Gain/Loss
on
Investment
Securities
Common stock Retained Available-
Shares Amount Surplus Earnings For-Sale Total
------ ------ ------- -------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995..... 250,000 $ 832,500 10,639,969 1,260,906 55,971 12,789,346
Net Income.................. -- -- -- 3,306,721 -- 3,306,721
Change in unrealized gain/
loss on available-for-
sale securities........... -- -- -- -- (152,888) (152,888)
--------- --------- ------------ ---------- --------- ------------
Balance, December 31, 1996..... 250,000 832,500 10,639,969 4,567,627 (96,917) 15,943,179
Net Income.................. -- -- -- 1,420,395 -- 1,420,395
Change in unrealized gain/
loss on available-for-
sales securities.......... -- -- -- -- 108,537 108,537
--------- --------- ------------ ---------- --------- ------------
Balance, December 31, 1997..... 250,000 $ 832,500 10,639,969 5,988,022 11,620 17,472,111
========= ========= ============ ========== ========= ============
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
<PAGE>
REDWOOD BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended
December 31,
-------------------
1997 1996
---- ----
Cash flows from operating activities:
<S> <C> <C>
Net income....................................................................... $ 1,420,395 3,306,721
Reconciliation to net cash provided
by operating activities:
Deferred income tax.......................................................... 826,000 (1,982,000)
Depreciation and leasehold
amortization............................................................... 212,703 225,429
Amortization and accretion of
premiums and discounts..................................................... (219,090) (185,772)
Goodwill amortization........................................................ 180,224 180,224
Net increase (decrease) in
deferred loan fees......................................................... (6,734) 81,407
Increase in interest receivable
and other assets........................................................... (63,513) (3,752)
Increase (decrease) in interest
payable and other liabilities.............................................. 489,710 (144,076)
Gain on sale of other real estate owned...................................... (12,084) --
------------ ----------
Net cash provided by operating activities................................ 2,827,611 1,478,181
------------ ----------
Cash flows from investing activities:
Purchase of:
Held-to-maturity securities.................................................... (5,000,000) (2,940,333)
Available-for-sale securities.................................................. (9,970,184) (7,455,899)
Proceeds from:
Maturities of held-to-maturity securities...................................... 3,041,583 2,181,859
Maturities of available-for-sale securities.................................... 5,134,262 9,670,112
Net change in interest-earning deposits
in other financial institutions................................................ -- 322,520
Loan originations and purchases, net of
repayments and participations.................................................. (8,608,504) (21,611,266)
Purchase of bank premises and equipment.......................................... (223,820) (165,133)
Proceeds from sale of other real estate owned.................................... 138,262 --
------------ -----------
Net cash used in investing activities........................................ (15,488,401) (19,998,140)
------------ -----------
Cash flows from financing activities:
Net change in deposits........................................................... 9,392,901 13,237,354
Net change in other borrowings................................................... -- --
----------- -----------
Net cash provided by financing activities.................................... 9,392,901 13,237,354
----------- -----------
Net decrease in cash and cash equivalents.................................... (3,267,889) (5,282,605)
Cash and cash equivalents at beginning of year...................................... 13,140,106 18,422,711
------------ -----------
Cash and cash equivalents at end of year............................................ $ 9,872,217 13,140,106
============ ===========
Other cash flow information:
Interest paid.................................................................... $ 3,824,888 3,436,800
============ ===========
Income taxes paid................................................................ $ 260,000 211,500
============ ===========
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
<PAGE>
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Redwood Bancorp (Bancorp or the Company) is owned by Empire Holdings,
Inc., a wholly owned subsidiary of Empire Holdings, Ltd., a closely held bank
holding company with no other significant operations. Redwood Bank (the Bank) is
Bancorp's principal subsidiary and the primary operating entity of the
consolidated group. All intercompany transactions have been eliminated.
NATURE OF OPERATIONS
Bancorp operates four branches in the San Francisco Bay Area. Bancorp's
primary source of revenue is through providing commercial and real estate loans
to customers, who are predominantly small and middle-market businesses. The cost
of funds relates to various deposit products offered to these same businesses
and individuals.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of certain assets and certain
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of certain revenues and
certain expenses during the reporting period. Actual results could differ from
those estimates.
CASH EQUIVALENTS
For the purposes of reporting cash flows, cash equivalents include
federal funds sold. Generally, federal funds are sold for one-day periods.
Substantially all cash equivalents held in other financial institutions exceed
existing deposit insurance coverage.
INTEREST-EARNING DEPOSITS IN OTHER FINANCIAL INSTITUTIONS
Interest-earning deposits in other financial institutions generally
have one year original maturities and no individual deposit exceeds $100,000.
Accordingly, these deposits are recorded at cost, which approximates market.
INVESTMENT SECURITIES:
Bancorp classifies and accounts for debt and equity securities as
follows:
* Held-to-Maturity -- Debt securities that management has the positive
intent and ability to hold until maturity are classified as
held-to-maturity and are carried at their remaining unpaid principal
balance, net of unamortized premiums or unaccreted discounts. Premiums
are amortized and discounts are accreted using the level interest yield
method over the estimated remaining term of the underlying security.
* Trading Securities -- Debt and equity securities that are bought and
held principally for the purpose of selling them in the near term are
classified as trading securities and reported at market value, with
unrealized gain and loss included in earnings. The Bank held no
trading securities during 1997 and 1996.
* Available-For-Sale -- Debt and equity securities that will be held for
indefinite periods of time, including securities that may be sold in
response to changes in market interest or prepayment rates, needs for
liquidity and changes in the availability of and the yield of
alternative investments are classified as available-for-sale. After
amortization or accretion of any premiums or discounts, these assets
are carried at market value. Market value is determined using published
quotes as of the close of business. Unrealized gains and losses are
excluded from earnings and reported net of tax as a separate component
of stockholders' equity until realized.
Realized gains and losses on held-to-maturity and available-for-sale
securities are computed using the specific identification method using amortized
cost.
<PAGE>
LOANS
Loans held for investment are carried at amortized cost. Bancorp's loan
portfolio consists of commercial, installment, real estate construction and
other real estate loans generally collateralized by first and second deeds of
trust on real estate, business assets, or personal property.
Interest income is accrued daily on the outstanding loan balances using
the simple interest method. Loans are generally placed on nonaccrual status when
the borrowers are past due 90 days and when payment in full of principal or
interest is not expected. At the time a loan is placed on nonaccrual status, any
interest income previously accrued but not collected is reversed.
Bancorp charges loan origination and commitment fees. Net loan
origination fees are deferred and amortized to interest income over the life of
the loan on a method that produces a level yield. Loan commitment fees related
to lines of credit are amortized to interest income over the commitment period.
If a loan is paid-off prior to maturity, the remaining unamortized deferred fee
is immediately recognized to interest income.
ALLOWANCE FOR LOAN LOSSES
An allowance for loan losses is maintained at a level deemed
appropriate by management to provide for known and unidentified losses in the
loan portfolio. The allowance is based upon management's assessment of various
factors affecting the collectibility of the loans and commitments to extend
credit, including current and projected economic conditions, past credit
experience, delinquency status, the value of the underlying collateral, if any,
and the continuing review of the portfolio of loans and commitments.
The allowance for loan losses is based on estimates, and ultimate
losses may vary from the current estimates. These estimates are reviewed
periodically and, as adjustments become necessary, they are reported in earnings
in the periods in which they become known.
A loan is considered impaired based on current information and events,
if it is probable that the Bancorp will be unable to collect the scheduled
payments of principal or interest when due according to the contractual terms of
the loan agreement. The allowance for losses on impaired loans is measured under
one of three prescribed methods. Since most of the Bancorp's loans are
collateral dependent, the calculation of the allowance on impaired loans is
generally based on the fair value of the collateral. Income recognition on
impaired loans conforms to the method the Bancorp uses for income recognition on
nonaccrual loans.
BANK PREMISES AND EQUIPMENT
Bank premises and equipment are stated at cost less accumulated
depreciation and amortization. Depreciation and amortization are computed on the
straight-line basis over the shorter of the estimated useful lives of the assets
or the term of the lease.
OTHER REAL ESTATE OWNED
Other real estate owned consists of properties acquired through
foreclosure and is stated at the lower of cost or fair market value less
estimated costs to sell. Estimated losses that result from the ongoing periodic
valuation of these properties are charged to current earnings with a provision
for losses on foreclosed property in the period in which they are identified.
Operating expenses of such properties, net of related income, are included in
other expenses.
INCOME TAXES
Bancorp is included in the consolidated federal income tax returns of
Empire Holdings, Inc. and files its own state income tax returns. Income taxes
have been computed on the separate results of Bancorp based on the provisions of
its tax sharing agreements with Empire Holdings, Inc. These agreements generally
provide that Bancorp will be charged or reimbursed based on the tax effect of
its earnings or losses in the combined and consolidated tax returns.
<PAGE>
Deferred income taxes reflect the estimated future tax effects of
temporary differences between amount of assets and liabilities for financial
reporting purposes and such amounts as measured by tax laws and regulations.
GOODWILL
Goodwill represents the excess of the purchase price over the estimated
fair value of identifiable net assets associated with the purchase of Bancorp in
March 1980. Goodwill is being amortized over 40 years on a straight-line basis.
PER SHARE DATA
Net income per share is stated in accordance with SFAS No. 128,
Earnings Per Share. Basic net income per share is computed by dividing net
income available to common shareholders (the numerator) by the weighted average
number of common shares outstanding during the year (denominator). Diluted net
income per share is computed by dividing diluted net income available to common
shareholders by the weighted average number of common shares and common
equivalent shares outstanding. There were no common equivalent shares
outstanding during 1997 and 1996.
(2) INVESTMENT SECURITIES
The amortized cost and estimated market values of investment securities
at December 31, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
1997
-----------------------------------------------------
Unrealized Unrealized Market
Cost gains losses value
---- ----- ------ -----
Held-to-maturity:
<S> <C> <C> <C> <C>
U.S. Government Agencies........................ $ 4,228,570 754 -- 4,229,324
------------- --------- -------- -------------
4,228,570 754 -- 4,229,324
------------- --------- -------- -------------
Available-for-sale:
U.S. Treasury Securities........................ 2,000,348 1,527 -- 2,001,875
U.S. Government Agencies........................ 12,478,003 10,093 -- 12,488,096
------------- --------- -------- -------------
14,478,351 11,620 -- 14,489,971
------------- --------- -------- -------------
$ 18,706,921 12,374 -- 18,719,295
============= ========= ======== =============
1996
---------------------------------------------------
Unrealized Unrealized Market
Cost gains losses value
---- ----- ------ -----
Held-to-maturity:
U.S. Treasury Securities........................ $ 979,385 3,256 -- 982,641
U.S. Government Agencies........................ 1,269,822 -- (4,280) 1,265,542
------------- --------- --------- -------------
2,249,207 3,256 (4,280) 2,248,183
------------- --------- --------- -------------
Available-for-sale:
U.S. Treasury Securities........................ 1,999,864 1,387 -- 2,001,251
U.S. Government Agencies........................ 7,444,421 -- (98,304) 7,346,117
------------- --------- ------- -------------
9,444,285 1,387 (98,304) 9,347,368
------------- --------- --------- -------------
$ 11,693,492 4,643 (102,584) 11,595,551
============= ========= ========= =============
At December 31, 1997 and 1996, securities with carrying amounts of
$6,992,099 and $8,965,398 were pledged to secure public deposits.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
The amortized cost and estimated market value of investment securities
at December 31, 1997 by contractual maturity, is as follows:
Amortized Market
cost value
--------- ------
Held-to-maturity:
<S> <C> <C>
Over five through ten years.................................................. $ 3,000,000 3,007,454
Over ten years............................................................... 1,228,570 1,221,870
-------------- --------------
4,228,570 4,229,324
Available for Sale:
One year or less............................................................. 7,992,634 7,997,174
Over one through five years.................................................. 5,983,500 5,988,494
Over five through ten years.................................................. 502,217 504,303
-------------- --------------
14,478,351 14,489,971
-------------- --------------
$ 18,706,921 18,719,295
============== ==============
(3) LOANS AND ALLOWANCE FOR LOAN LOSSES
The loan portfolio at December 31, 1997 and 1996 consisted of the following:
1997 1996
---- ----
Commercial...................................................................... $ 12,219,400 12,600,149
Real estate--mortgage........................................................... 80,168,678 69,257,087
Real estate--construction....................................................... 10,566,258 11,557,092
Installment and other loans..................................................... 8,193,617 8,258,278
Acceptances of other banks...................................................... -- 999,855
-------------- --------------
111,147,953 102,672,461
Less:
Deferred loan fees.......................................................... (477,622) (484,356)
Allowance for loan losses................................................... (1,186,625) (1,193,459)
-------------- --------------
$ 109,483,706 100,994,646
============== ==============
Bancorp concentrates its lending activities in commercial loans and
real estate loans made primarily to businesses and individuals within the San
Francisco Bay Area.
The change in the allowance for loan losses for the years ended
December 31, 1997 and 1996 are as follows:
1997 1996
---- ----
Balance at beginning of year.................................................... $ 1,193,459 1,210,127
Provision for loan losses....................................................... -- --
Loans charged off............................................................... (13,249) (38,170)
Recoveries...................................................................... 6,415 21,502
-------------- --------------
Balance at end of year.......................................................... $ 1,186,625 1,193,459
============== ==============
</TABLE>
At December 31, 1997 and 1996, loans on nonaccrual status totaled
$1,354,003 and $2,470,127. Foregone interest on these loans for 1997 and 1996
were $123,941 and $230,667.
At December 31, 1997 and 1996, the recorded investment in loans for
which impairment has been recognized in accordance with SFAS No. 114 totaled
$641,431 and $626,689 with a corresponding valuation allowance of $103,792 and
$239,176, respectively. The average recorded investment in impaired loans in
1997 and 1996 was $634,060 and $370,845, respectively. From the time each loan
was classified as impaired, no interest income was recognized on such loans in
1997 or 1996.
At December 31, 1997 and 1996, loans pledged to secure public deposits
were $322,660 and $425,394, respectively.
<PAGE>
(4) BANK PREMISES AND EQUIPMENT
<TABLE>
<CAPTION>
Bank premises and equipment at December 31, 1997 and 1996 consisted of
the following:
1997 1996
---- ----
<S> <C> <C>
Land............................................................................ $ 228,923 228,923
Building........................................................................ 661,392 672,368
Furniture and fixtures.......................................................... 447,662 696,769
Equipment....................................................................... 1,515,192 2,424,191
Leasehold improvements.......................................................... 1,872,058 1,830,899
-------------- --------------
4,725,227 5,853,150
Less accumulated depreciation and amortization................................. (3,928,986) (5,068,032)
-------------- --------------
$ 796,241 785,118
============== ==============
Depreciation and amortization expense for the year ended December 31,
1997 and 1996 were $212,697 and $225,429.
</TABLE>
(5) DEPOSITS
<TABLE>
<CAPTION>
At December 31, 1997 and 1996, deposits consisted of the following:
1997 1996
---- ----
<S> <C> <C>
Noninterest-bearing demand...................................................... $ 27,427,159 27,115,692
Savings and interest-bearing demand............................................. 55,152,181 50,545,444
Certificates of deposit issued in amounts less than $100,000.................... 26,936,714 26,246,053
Certificates of deposit of $100,000 or more..................................... 17,256,602 13,472,566
-------------- --------------
Total.................................................................. $ 126,772,656 117,379,755
============== ==============
The maturity of certificates accounts are as follows:
1998................................................. $ 39,545,316
1999................................................. 3,829,000
2000................................................. 479,000
2001................................................. 120,000
2002 and thereafter......................................... 220,000
--------------
$ 44,193,316
==============
</TABLE>
<PAGE>
(6) INCOME TAXES
<TABLE>
<CAPTION>
The components of the provision (benefit) for federal and state income
taxes are as follows:
1997 1996
---- ----
Currently payable:
<S> <C> <C>
Federal...................................................................... $ 30,851 23,000
State ....................................................................... 265,000 186,000
------------ ------------
Total.................................................................. 295,851 209,000
------------ ------------
Deferred:
Federal...................................................................... 19,000 27,000
State........................................................................ (45,000) 14,000
Reduction of income tax due to utilization of
net operating loss carryforward............................................ 886,000 514,000
Reduction in valuation allowance............................................. -- (2,537,000)
------------ -----------
Total.................................................................. 860,000 (1,982,000)
------------ ------------
Income tax expense (benefit).................................... $ 1,155,851 (1,773,000)
============ ============
Reconciliation of the statutory tax rate to the effective tax rate is
as follows:
1997 1996
---- ----
Statutory federal tax rate...................................................... 35.0% 35.0%
State tax, net of federal income tax effect..................................... 5.6% 8.9%
Reduction in deferred tax asset valuation allowance............................. -- (165.4)%
Other, net...................................................................... 4.3% 5.9%
------- -------
44.9% (115.6)%
======= =======
The components of net deferred income tax assets and liabilities as of
December 31 are as follows:
1997 1996
---- ----
Allowance for loan losses....................................................... $ 237,000 239,000
Fixed assets.................................................................... 148,000 147,000
Deferred loan fees.............................................................. 20,000 32,000
Net operating loss carryforward................................................. 803,000 1,689,000
State tax, net of federal income tax effect..................................... 196,000 151,000
AMT credit carryforward......................................................... 53,000 34,000
Other..... ..................................................................... 3,000 (6,000)
------------ -----------
Total deferred tax assets.............................................. $ 1,460,000 2,286,000
============ ===========
</TABLE>
As of December 31, 1997, Bancorp had federal net operating loss
carryforwards of $2,363,000 available to reduce future financial statement
income based on the provisions of its tax sharing, agreement with Empire
Holdings, Inc. In addition, Bancorp is a member of the Empire Holdings, Inc. and
subsidiaries consolidated tax return filing group.
<PAGE>
As of December 31, 1997, the Empire Holdings consolidated group had
federal net operating loss carryforwards available, on a tax basis, to reduce
future taxable income as follows:
Net Operating Expiration
loss carryover date
---- --------- ----
$ 70,000....................................... 2002
2,846, 000....................................... 2003
245,000....................................... 2004
3,000....................................... 2005
658,000....................................... 2006
5,000....................................... 2007
164,000....................................... 2008
26,000....................................... 2009
------------- ----
$ 4,017,000
============
(7) EMPLOYEE BENEFIT PLAN
Bancorp has a 401(k) savings plan covering substantially all employees
of Bancorp. Under the provisions of the plan, employees who elect to participate
are allowed to make "deferred contributions" (as defined in the Plan Agreement)
of up to 15% of their annual salary. In addition, the Bank will make matching
contributions equal to 50% of each employee's elective deferral and at year end
1% of the employee's annual salary. Contributions by Bancorp for the year ended
December 31, 1997 and 1996 amounted to $107,200 and $104,954, respectively.
(8) RELATED PARTY TRANSACTIONS
In the ordinary course of business, the Bancorp has made loans and
advances under lines of credit to directors and officers and their related
interests. An analysis of loans to related parties for 1997 and 1996 are shown
below:
1997 1996
---- ----
Balance, beginning of year........................ $ -- 100,000
Advances.......................................... -- 886,000
Payments.......................................... -- (986,000)
-------- --------
Balance, end of year.............................. -- --
======== ========
(9) COMMITMENTS AND CONTINGENCIES
The Bank is required by federal regulations to maintain certain minimum
average balances with the Federal Reserve Bank, based primarily on the Bank's
daily demand deposit balances. Required deposits held with the Federal Reserve
Bank as of December 31, 1997 and 1996 were $1,479,000 and $1,482,000, and the
Bank had a balance of $6,213,000 and $5,177,000 with the Federal Reserve Bank at
these dates.
Bancorp has entered into various noncancellable operating lease
arrangements for three branch offices. Future minimum lease payments as of
December 31, 1997 are as follows:
Future
minimum
lease payments
--------------
1998...................................... $ 385,683
1999...................................... 19,400
-----------
$ 405,083
===========
Certain of the leases contain renewal options and rent escalation
clauses based upon certain economic indices. Net rental expense for bank
premises and equipment under operating leases for the year ended December 31,
1997 and 1996 was $477,398 and $475,395.
<PAGE>
Bancorp is involved in legal actions arising from normal business
activities. Management, upon the advice of legal counsel handling such actions,
believes that the ultimate resolution of these actions will not have a material
effect on the financial position of Bancorp.
FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
Bancorp is a party to financial instruments with off-balance sheet risk
in the normal course of business to meet the financing needs of its customers.
To date, these financial instruments include commitments to extend credit which
involve elements of credit and interest rate risk in excess of the amount
recognized in the statement of financial position.
Commitments to extend credit 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. The Bank evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by the Bancorp upon commitments to extend credit, is based on
management's credit evaluation of the counter-party. Collateral held varies but
usually consists of residential and commercial property.
Standby letters of credit are performance assurances made on behalf of
customers who have a contractual obligation to produce or deliver goods or
services or otherwise perform. Credit risk in these transactions arises from the
possibility that a customer may not be able to repay the Bank if the letter of
credit is drawn upon. As with commitments to extend credit, the Bank evaluates
each customer's creditworthiness on a case-by-case basis.
At December 31, 1997 and 1996, Bancorp had $18,883,206 and $16,244,782
of commitments to extend credit and $366,968 and $226,968 in standby letters of
credit.
(10) REGULATORY CAPITAL REQUIREMENTS
The Bank is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could have a direct
material effect on the Bank's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the Bank
must meet specific capital guidelines that involve quantitative measures of the
Bank's assets, liabilities, and certain off-balance sheet items as calculated
under regulatory accounting practices. The Bank's capital amounts and
classification are also subject to qualitative judgments by the regulators about
components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Bank to maintain minimum amounts and ratios (set forth in
the table below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to average
assets (as defined). Management believes, as of December 31, 1997, that the Bank
meets all capital adequacy requirements to which it is subject.
<PAGE>
The following table sets forth the regulatory capital position of the
Bank as of December 31, 1997 and 1996 (in thousands):
<TABLE>
<CAPTION>
To be well-
capitalized under
For capital prompt corrective
Actual adequacy purposes action provisions
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
As of December 31, 1997:
Total Capital (to Risk Weighted
<S> <C> <C> <C> <C> <C> <C>
Assets............................. $13,803 12.0% >$ 9,237 >8.0% >$ 11,546 >10.0%
Tier I Capital (to Risk Weighted
Assets)............................ 12,617 10.9% 4,618 4.0% 6,928 6.0%
Tier I Capital (to Average
Assets)............................ 12,617 9.0% 5,611 4.0% 7,014 5.0%
As of December 31, 1996:
Total Capital (to Risk Weighted
Assets)............................ 11,514 10.6% 8,663 8.0% 10,829 10.0%
Tier I Capital (to Risk Weighted
Assets)............................ 10,320 9.5% 4,331 4.0% 6,497 6.0%
Tier I Capital (to Average
Assets)............................ 10,320 8.5% 4,837 4.0% 6,046 5.0%
</TABLE>
As of December 31, 1997 and 1996, the regulatory capital position of
Bancorp approximated the Bank's.
As of December 31, 1997, the Bank was categorized as "well-capitalized"
under the regulatory framework for prompt corrective action. To be categorized
as "well-capitalized," the Bank must maintain minimum total risk-based, Tier I
risk-based, Tier I leverage ratios as set forth in the table, and not be subject
to a capital directive.
In addition, the California State Banking Department limits the amount
of dividends that can be paid without its prior approval for all state chartered
banks. The limitation for a given year is the lesser of the Bank's retained
earnings or its net income for the last three fiscal years, less the amount of
any distributions made by the Bank's during such period. As of December 31,
1997, the Bank could pay dividends of up to $4,829,074 without prior approval.
Lastly, in September 1992, Bancorp entered into an agreement with the
Federal Reserve Bank whereby Bancorp cannot pay dividends unless the Bank
maintains a Tier 1 capital ratio of at least 7.0%, a Tier 1 risk-based capital
ratio of at least 4% and a total risk-based capital ratio of 8%.
(11) FAIR VALUES OF FINANCIAL INSTRUMENTS
Fair value estimates are determined as of a specific date in time
utilizing quoted market prices, where available, or various assumptions and
estimates. As the assumptions underlying these estimates change, the fair value
of the financial instruments will change. The use of assumptions and various
valuation techniques, as well as the absence of secondary markets for certain
financial instruments, will likely reduce the comparability of fair value
disclosures between financial institutions. Additionally, Bancorp has not
disclosed highly subjective values of other nonfinancial instruments.
Accordingly, the aggregate fair value amounts presented do not represent and
should not be construed to represent the full underlying value of the Bank.
The methods and assumptions used to estimate the fair values of each
class of financial instruments are as follows:
Cash and Cash Equivalents
The carrying value of cash and cash equivalents approximates fair value
due to the relatively short term nature of these instruments.
<PAGE>
Interest Earning Deposits in Other Financial Institutions
The carrying value of interest earning deposits in other financial
institutions approximates fair value due to the short term nature of all such
deposits in the Bancorp's portfolio.
Investment Securities
Fair value of securities and investments is based on quoted market
prices. If quoted market prices are not available, fair values are based on
quoted market prices of comparable instruments.
Loans Receivable
In order to determine the fair values for loans, the loan portfolio was
segmented based on loan type, credit quality and repricing characteristics. For
certain variable rate loans with no significant credit concerns and frequent
pricing, estimated fair values are based on the carrying values. The fair values
of other loans are estimated using discounted cash flow analyses. The discount
rates used in these analyses are generally based on origination rates for
similar loans of comparable credit quality. Maturity estimates of installment
loans are based on historical experience with prepayments.
Deposits
The fair values for deposits, subject to immediate withdrawal such as
interest and noninterest bearing, and savings deposit accounts, are equal to the
amount payable on demand at the reporting date (i.e., their carrying amount on
the balance sheet). Fair values for fixed rate certificates of deposits are
estimated by discounting future cash flows using interest rates currently
offered on time deposits with similar remaining maturities.
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
----------------- -----------------
Carrying Fair Carrying Fair
amount value amount value
------ ----- ------ -----
Financial assets:
<S> <C> <C> <C> <C>
Cash and cash equivalents..................... $ 9,872,217 9,872,217 13,140,106 13,140,106
Investment securities......................... 18,718,541 18,719,295 11,596,575 11,595,551
Loans receivable, net......................... 109,483,706 109,442,971 100,994,646 100,924,569
-------------- --------------- -------------- ---------------
$ 138,074,464 138,034,483 125,731,327 125,660,226
============== =============== ============== ===============
Financial liabilities:
Deposits...................................... $ 126,772,656 126,832,967 117,379,755 117,420,827
============== =============== ============== ===============
</TABLE>
<PAGE>
(12) PARENT COMPANY ONLY CONDENSED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
The financial statements of Bancorp (parent company only) follow:
1997 1996
---- ----
Balance Sheets
<S> <C> <C>
Cash............................................................................ $ 307 567
Investment in subsidiaries...................................................... 16,594,254 14,369,612
Deferred tax assets............................................................. 877,550 1,573,000
------------- -------------
Total assets........................................................... $ 17,472,111 15,943,179
============= =============
Shareholder's equity:
Common stock................................................................. $ 832,500 832,500
Surplus...................................................................... 10,639,969 10,639,969
Retained earnings............................................................ 5,988,022 4,567,627
Accumulated other comprehensive income (loss), net of tax.................... 11,620 (96,917)
------------- --------------
Total shareholder's equity...................................................... $ 17,472,111 15,943,179
============= =============
Income Statements
Expenses:
Goodwill amortization........................................................ $ (180,224) (180,224)
------------- -------------
Total expenses............................................................... (180,224) (180,224)
-------------- --------------
Loss before taxes and equity in undistributed net income of subsidiaries........ (180,224) (180,224)
Income tax benefit.............................................................. -- 1,573,000
------------- -------------
Income (loss) before equity in undistributed net income of subsidiaries......... (180,224) 1,392,776
Equity in undistributed net income of subsidiaries.............................. 1,600,619 1,913,945
------------- -------------
Net Income...................................................................... $ 1,420,395 3,306,721
============= =============
1997 1996
---- ----
Statements of Cash Flows
Cash flows--operating activities:
Net Income................................................................... $ 1,420,395 3,306,721
Reconciliation of net income to net cash from operations:
Equity in undistributed net income of subsidiaries......................... (1,600,619) (1,913,945)
Goodwill amortization...................................................... 180,224 180,224
Deferred income tax........................................................ 695,450 (1,573,000)
------------- -------------
Operating cash flows, net....................................................... 695,450 --
------------- -------------
Cash flows--investing activities:
Capital contribution to the subsidiaries..................................... (695,710) --
------------- -------------
Investing cash flows, net................................................ (695,710) --
------------- -------------
Net decrease in cash............................................................ (260) --
Cash at beginning of the year................................................... 567 567
------------- -------------
Cash at end of the year......................................................... $ 307 567
============= =============
</TABLE>
<PAGE>
(13) SUBSEQUENT EVENT
On June 8, 1998, the sole shareholder of Bancorp signed an Agreement in
Principle to sell all of Bancorp's outstanding shares to First Banks America
Inc. The transaction is expected to be completed in the fourth quarter of 1998,
subject to regulatory approval.
<PAGE>
Item 7(b)
Pro Forma Financial Statements
<PAGE>
PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma combined condensed balance sheet as of
December 31, 1998 and unaudited pro forma combined condensed statements of
operations for the years ended December 31, 1998 and 1997, have been prepared to
reflect the effects on the historical results of FBA of the acquisition of
Redwood and its wholly owned subsidiary, Redwood Bank. The unaudited pro forma
combined condensed balance sheet has been prepared as if the acquisition of
Redwood occurred on December 31, 1998. The unaudited pro forma combined
condensed statements of operations have been prepared assuming the acquisition
of Redwood occurred on January 1, 1998. In addition, the unaudited pro forma
combined condensed statements of operations reflect the acquisitions of Surety
Bank, completed on December 1, 1997, and of the minority stockholders' interest
in the net assets of First Commercial Bancorp, Inc. and its wholly owned
subsidiary, First Commercial Bank (FCB), completed on February 2, 1998, as if
the transactions occurred on January 1, 1997. The unaudited pro forma combined
condensed statements of operations for the year ended December 31, 1997 also
reflect the restatement of FBA's results of operations for its acquisition of
First Banks' interest in FCB completed on February 2, 1998. The pro forma
financial information set forth below is unaudited and not necessarily
indicative of the results that will occur in the future.
<TABLE>
<CAPTION>
Unaudited Pro Forma Combined Condensed Balance Sheet (1)
December 31, 1998
------------------------------------------------------
Pro Forma
Adjustments - Pro Forma
FBA Redwood Redwood Combined
--- ------- ------- --------
(dollars expressed in thousands, except per share data)
Assets
------
Cash and cash equivalents:
<S> <C> <C> <C> <C> <C>
Cash and due from banks.................................... $ 34,312 6,014 -- 40,326
Interest bearing deposits.................................. 1,001 -- -- 1,001
Federal funds sold......................................... 11,000 -- -- 11,000
--------- -------- -------- --------
Total cash and cash equivalents........................ 46,313 6,014 -- 52,327
--------- -------- -------- --------
Investment securities:
Available for sale, at fair value.......................... 114,937 21,344 (26,000) (7) 110,281
Held to maturity........................................... 2,026 10,908 -- 12,934
--------- -------- -------- --------
Total investment securities............................ 116,963 32,252 (26,000) 123,215
--------- -------- -------- --------
Loans:
Commercial and financial................................... 140,151 16,179 -- 156,330
Real estate construction and development................... 161,696 17,029 -- 178,725
Real estate mortgage....................................... 155,443 89,129 1,781 (6) 246,353
Consumer and other......................................... 61,907 11,467 -- 73,374
--------- -------- -------- --------
Total loans............................................ 519,197 133,804 1,781 654,782
Unearned discount.......................................... (2,794) (456) -- (3,250)
Allowance for possible loan losses......................... (12,127) (1,256) -- (13,383)
--------- -------- -------- --------
Net loans.............................................. 504,276 132,092 1,781 638,149
--------- -------- -------- --------
Bank premises and equipment, net.............................. 11,542 1,127 425 (6) 13,094
Intangibles associated with the purchase of subsidiaries...... 8,405 3,785 5,190 (6) 17,380
Foreclosed property, net...................................... 161 156 -- 317
Deferred tax assets........................................... 12,121 597 -- 12,718
Other assets.................................................. 20,216 2,674 -- 22,890
--------- -------- -------- --------
Total assets........................................... $ 719,997 178,697 (18,501) 880,090
========= ======== ======== ========
Liabilities
-----------
Deposits:
Demand:
Non-interest-bearing..................................... $ 105,949 33,595 -- 139,544
Interest-bearing......................................... 72,662 26,742 -- 99,404
Savings.................................................... 179,152 34,471 -- 213,623
Time deposits:
Time deposits of $100 or more............................ 52,132 25,101 -- 77,233
Other time deposits...................................... 189,252 38,051 -- 227,303
--------- -------- -------- --------
Total deposits......................................... 599,147 157,960 -- 757,107
Short-term borrowings......................................... 4,141 -- -- 4,141
Deferred tax liabilities...................................... 1,392 -- 779 (6) 2,171
Accrued expenses and other liabilities........................ 5,317 1,354 -- 6,671
--------- -------- -------- --------
Total liabilities...................................... 609,997 159,314 779 770,090
--------- -------- -------- --------
Guaranteed preferred beneficial interests in FBA's
subordinated debentures.................................... 44,155 -- -- 44,155
--------- -------- -------- --------
Stockholders' Equity
--------------------
Common stock:
Common stock............................................... 581 833 (833) (6) 581
Class B common stock....................................... 375 -- -- 375
Capital surplus............................................... 68,743 10,642 (10,642) (6) 68,743
Retained earnings............................................. 5,693 7,909 (7,909) (6) 5,693
Treasury stock................................................ (10,088) -- -- (10,088)
Accumulated other comprehensive income........................ 541 (1) 1 (6) 541
--------- -------- -------- --------
Total stockholders' equity............................. 65,845 19,383 (19,383) 65,845
--------- -------- -------- --------
Total liabilities and stockholders' equity............. $ 719,997 178,697 (18,604) 880,090
========= ======== ======== ========
</TABLE>
See notes to pro forma combined condensed financial statements.
<PAGE>
<TABLE>
<CAPTION>
Unaudited Pro Forma Combined Condensed Statement of Operations (1)
For year ended December 31, 1998
--------------------------------
Pro Forma
Adjustments - Pro Forma
FBA Redwood Redwood Combined
--- ------- ------- --------
(dollars expressed in thousands, except per share data)
Interest income:
<S> <C> <C> <C> <C> <C> <C>
Interest and fees on loans........................ $ 45,118 11,508 (356) (6) 56,270
Investment securities............................. 8,103 1,429 (1,235) (7) 8,297
Federal funds sold and other...................... 1,206 195 -- 1,401
--------- ------- --------- --------
Total interest income......................... 54,427 13,132 (1,591) 65,968
--------- ------- --------- --------
Interest expense:
Interest on deposits.............................. 21,606 4,878 -- 26,484
Note payable and other borrowings................. 1,622 6 -- 1,628
--------- ------- --------- --------
Total interest expense........................ 23,228 4,884 -- 28,112
--------- ------- --------- --------
Net interest income........................... 31,199 8,248 (1,591) 37,856
Provision for possible loan losses................... 900 -- -- 900
--------- ------- --------- --------
Net interest income after provision
for possible loan losses.................... 30,299 8,248 (1,591) 36,956
--------- ------- --------- --------
Noninterest income:
Service charges on deposit accounts .............. 2,935 249 -- 3,184
Other income...................................... 1,440 801 -- 2,241
--------- ------- --------- --------
Total noninterest income...................... 4,375 1,050 -- 5,425
--------- ------- --------- --------
Noninterest expense:
Salary and employee benefits...................... 8,203 3,266 -- 11,469
Occupancy, furniture and equipment................ 3,999 1,065 17 (6) 5,081
Other noninterest expense......................... 14,270 1,653 353 (6) 16,276
--------- ------- --------- --------
Total noninterest expense..................... 26,472 5,984 370 32,826
--------- ------- --------- --------
Income before provision for income tax expense 8,202 3,314 (1,961) 9,555
Provision for income tax expense (benefit)........... 3,592 1,393 (810) (6) 4,175
--------- ------- --------- --------
Net income.................................... $ 4,610 1,921 (1,151) 5,380
========= ======= ========= ========
Weighted average common stock outstanding
(in thousands).............................. 5,140 -- -- 5,140
========= ======= ========= ========
Earnings per common share:
Basic............................................. $ 0.90 1.05 (8)
Diluted........................................... 0.90 1.05 (8)
==== ====
</TABLE>
See notes to pro forma combined condensed financial statements.
<PAGE>
<TABLE>
<CAPTION>
Unaudited Pro Forma Combined Condensed Statement of Operations (1)
For the year ended December 31, 1997
------------------------------------
Pro Forma Pro Forma
Adjustments- Pro Forma Adjustments- Pro Forma
FBA Surety FCB & Surety Combined Redwood Redwood Combined
---- ------ ------------ ------- ------- -------- ---------
(dollars expressed in thousands, except per share data)
Interest income:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest and fees on loans............. $ 33,393 4,338 -- 37,731 10,418 (356) (6) 47,793
Investment securities.................. 7,870 699 -- 8,569 1,018 (1,235) (7 8,352
Federal funds sold..................... 1,254 -- -- 1,254 244 -- 1,498
-------- ------- ------- ------- ------- -------- --------
Total interest income.............. 42,517 5,037 -- 47,554 11,680 (1,591) 57,643
-------- ------- ------- ------- ------- -------- --------
Interest expense:
Interest on deposits................... 16,716 2,297 -- 19,013 3,863 -- 22,876
Note payable and other borrowings...... 2,439 16 (504)(3,5) 1,951 1 -- 1,952
-------- ------- ------- ------- ------- ------- --------
Total interest expense............. 19,155 2,313 (504) 20,964 3,864 -- 24,828
-------- ------- ------- ------- ------- -------- --------
Net interest income................ 23,362 2,724 504 26,590 7,816 (1,591) 32,815
Provision for possible loan losses........ 2,000 255 -- 2,255 -- -- 2,255
-------- ------- ------- ------- ------- -------- --------
Net interest income after provision
for possible loan losses......... 21,362 2,469 504 24,335 7,816 (1,591) 30,560
-------- ------- ------- ------- ------- -------- --------
Noninterest income:
Service charges on deposit accounts.... 2,239 369 -- 2,608 373 -- 2,981
Other income........................... 1,048 952 (20) (4) 1,980 28 -- 2,008
-------- ------- ------- ------- ------- ----- --------
Total noninterest income........... 3,287 1,321 (20) 4,588 401 -- 4,989
-------- ------- ------- ------- ------- -------- --------
Noninterest expense:
Salary and employee benefits........... 6,226 2,151 -- 8,377 3,362 -- 11,739
Occupancy, furniture and equipment..... 3,315 360 8 (4) 3,683 1,150 17 (6) 4,850
Other noninterest expense.............. 8,136 1,580 293 (2,4) 10,009 1,129 353 (6) 11,491
-------- ------- ------- ------- ------- -------- --------
Total noninterest expense.......... 17,677 4,091 301 22,069 5,641 370 28,080
-------- ------- ------- ------- ------- -------- --------
Income (loss) before provision for
income tax expense (benefit)
and minority interest in income
of subsidiary. 6,972 (301) 183 6,854 2,576 (1,961) 7,469
Provision for income tax expense (benefit) 3,145 (120) 167 3,192 1,156 (810) (6) 3,538
-------- -------- ------- ------- ------- ------- --------
Income before minority interest in
income of subsidiary............. 3,827 (181) 16 3,662 1,420 (1,151) 3,931
Minority interest in income of subsidiary. (294) -- 294 (2) -- -- -- --
-------- ------- ------- ------- ------- ------- --------
Net income......................... $ 3,533 (181) 310 3,662 1,420 (1,151) 3,931
======== ======= ======= ======= ======= ======== ========
Weighted average common stock equivalents
outstanding (in thousands)............. 4,069 265 (8) 1,093 (8) 5,427 -- -- 5,427
======== ======= ======= ======= ======= ======== ========
Earnings per common share:
Basic.................................. $ 0.87 0.67 (8) 0.72 (8)
Diluted................................ 0.86 0.67 (8) 0.72 (8)
==== ==== ====
</TABLE>
See notes to pro forma combined condensed financial statements.
<PAGE>
Notes to Pro Forma Combined Condensed Financial Statements
(1) The unaudited pro forma combined condensed balance sheet has been
prepared based on the historical financial statements of FBA and Redwood
as if the pending acquisition of Redwood had occurred on December 31,
1998. The unaudited pro forma combined condensed statements of operations
set forth the results of operations of FBA as if the pending acquisition
of Redwood had occurred as of January 1, 1997. In addition, the unaudited
pro forma combined condensed statements of operations reflect the
acquisitions of Surety Bank and of the minority stockholders' interest in
the net assets of FCB as if these transactions were completed on January
1, 1997. The unaudited pro forma combined condensed statements of
operations for the year ended December 31, 1997 also reflect the
restatement of FBA's results of operations for its acquisition of First
Banks' interest in FCB completed on February 2, 1998. No adjustments have
been made for any operational synergies that may occur as a result of
these transactions. The pro forma financial information is unaudited and
not necessarily indicative of the results that will occur in the future.
Acquisition of the Minority Stockholders' Interest in FCB:
(2) The application of the purchase method of accounting gives rise to
purchase adjustments to reflect the fair value of assets acquired and
liabilities assumed. Intangibles associated with the purchase of
subsidiaries includes $1.63 million of goodwill for the acquisition of
the minority stockholders' interest in the net assets of FCB. This amount
represents the difference between the minority stockholders' interest in
the net assets of FCB as of February 2, 1998 of $2.85 million and the
estimated market value of that interest. The pro forma combined condensed
statements of operations have been adjusted to include the amortization
of goodwill generated by this transaction, amortized over a 15 year
period using the straight-line method, and the elimination of minority
interest in income of subsidiary.
(3) The pro forma combined condensed statements of operations have been
adjusted to reflect the reduction in interest expense from the exchange
of $10 million of the promissory note payable to First Banks, Inc. (First
Banks Note), majority owner of FBA's voting stock, for 804,000 shares of
FBA common stock as of February 2, 1998. The First Banks Note carries an
interest rate equal to 25 basis points below the prime rate. During 1998
and 1997, the average prime rate of interest was approximately 8.35% and
8.375%, respectively.
Acquisition of Surety:
(4) Intangibles associated with the purchase of subsidiaries include $2.77
million in goodwill generated by the transaction between FBA and Surety,
representing the difference between the purchase price and the fair value
of the net assets acquired. The fair value of the net assets acquired
reflects increases of $200,000 and $210,000 relating to bank premises and
mortgage servicing rights (MSRs), respectively, offset by the accrual of
$389,000 in estimated acquisition costs. The deferred tax effects of
these adjustments were recorded using an effective tax rate of 35%. The
pro forma combined condensed statements of operations for the year ended
December 31, 1997 have been adjusted to include the amortization of
goodwill generated by the transaction, amortized over a 15 year period
using the straight-line method, and the additional depreciation and
amortization relating to the increases in bank premises and MSRs.
(5) The pro forma combined condensed statements of operations for the year
ended December 31, 1997 have been adjusted to reflect the amount of
interest expense which would have been paid on the advance under the
First Banks Note to fund the cash portion of the acquisition. The First
Banks Note carries an interest rate equal to 25 basis points below the
prime rate. During 1997, the average prime rate of interest was
approximately 8.375%.
Acquisition of Redwood:
(6) Intangibles associated with the purchase of subsidiaries include $9.1
million in goodwill generated by the transaction between FBA and Redwood,
<PAGE>
representing the difference between the purchase price and the fair value
of the net assets acquired. The $9.1 million of goodwill includes $3.8
million of goodwill existing on Redwood's consolidated statements of
condition prior to its acquisition by FBA. The fair value of the net
assets acquired reflects increases of $1.8 million and $425,000 relating
to loans and bank premises, respectively. The deferred tax effects of
these adjustments were recorded using an effective tax rate of 35%. The
pro forma combined condensed statements of operations for the year ended
December 31, 1998 and 1997 have been adjusted to include the amortization
of goodwill generated by this transaction, amortized over a 15 year
period using the straight-line method, and the additional amortization
and depreciation relating to the increases in loans and bank premises.
(7) The pro forma combined condensed statements of operations for the years
ended December 31, 1998 and 1997 have been adjusted to reflect the
reduction in interest income as the acquisition of Redwood was funded
through the sale of investment securities.
Earnings Per Share:
(8) Basic pro forma earnings per share (EPS) for the years ended December 30,
1998 and 1997 were calculated based upon FBA's weighted average shares
outstanding plus 264,621 shares assumed to be issued in the transaction
between FBA and Surety, and 289,552 and 804,000 assumed to be issued in the
acquisition of the minority stockholders' interest in the net assets of
FCB. Diluted pro forma EPS for the years ended December 30, 1998 and 1997
were calculated similar to basic EPS, except for the additional common
shares that would have been outstanding had the dilutive average common
stock options of 8,000 and 27,000 for the years ended December 31, 1998 and
1997, respectively, been issued.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
Dated: March 19, 1999
FIRST BANKS AMERICA, INC.
By:/s/ Allen H. Blake
---------------------
Allen H. Blake
Executive Vice President and Chief
Operating and Financial
