SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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 No.)
135 North Meramec Avenue, Clayton, Missouri 63105
-------------------------------------------------
(address of principal executive offices) (Zip Code)
(314) 854-4600
--------------
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(Former name, former address, and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No ____
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Outstanding at
Class April 30, 1999
----- --------------
Common Stock, $.15 par value 3,220,801
Class B Common Stock, $.15 par value 2,500,000
<PAGE>
<TABLE>
<CAPTION>
First Banks America, Inc.
INDEX
Page
PART I FINANCIAL INFORMATION
<S> <C> <C>
Item 1. Financial Statements:
Consolidated Balance Sheets as of March 31, 1999
and December 31, 1998.................................................. -1-
Consolidated Statements of Income for the three
months ended March 31, 1999 and 1998................................... -3-
Consolidated Statements of Changes in Stockholders' Equity and
Comprehensive Income for the three months ended March 31,
1999 and 1998 and the nine months ended
December 31, 1998...................................................... -4-
Consolidated Statements of Cash Flows for the three months
ended March 31, 1999 and 1998.......................................... -5-
Notes to Consolidated Financial Statements................................. -6-
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................................... -12-
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K........................................... -22-
SIGNATURES................................................................................... -23-
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
FIRST BANKS AMERICA, INC.
Consolidated Balance Sheets (unaudited)
(dollars expressed in thousands, except per share data)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
---- ----
ASSETS
------
Cash and cash equivalents:
<S> <C> <C>
Cash and due from banks............................................... $ 31,032 34,312
Interest-bearing deposits with other financial institutions
with maturities of three months or less............................. 507 1,001
Federal funds sold.................................................... 1,000 11,000
------------ ------------
Total cash and cash equivalents................................. 32,539 46,313
------------ ------------
Investment securities:
Available for sale, at fair value..................................... 116,513 114,937
Held to maturity, at amortized cost (fair value of $1,987 and
$2,013 at March 31, 1999 and December 31, 1998,
respectively)....................................................... 2,019 2,026
------------ ------------
Total investment securities..................................... 118,532 116,963
------------ ------------
Loans:
Commercial and financial.............................................. 162,360 140,151
Real estate construction and development.............................. 208,834 161,696
Real estate mortgage.................................................. 248,186 155,443
Consumer and installment.............................................. 72,105 61,907
------------ ------------
Total loans..................................................... 691,485 519,197
Unearned discount..................................................... (1,641) (2,794)
Allowance for possible loan losses.................................... (14,037) (12,127)
------------ ------------
Net loans....................................................... 675,807 504,276
------------ ------------
Bank premises and equipment, net of
accumulated depreciation............................................ 12,941 11,542
Intangibles associated with the purchase of subsidiaries................. 16,061 8,405
Accrued interest receivable.............................................. 4,922 4,443
Other real estate........................................................ 223 161
Deferred tax assets...................................................... 12,304 12,121
Other assets............................................................. 16,647 15,773
------------ ------------
Total assets.................................................... $ 889,976 719,997
============ ============
</TABLE>
<PAGE>
FIRST BANKS AMERICA, INC.
Consolidated Balance Sheets (unaudited)
(dollars expressed in thousands, except per share data)
(continued)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
---- ----
LIABILITIES
-----------
Deposits:
Demand:
<S> <C> <C>
Non-interest-bearing................................................ $ 123,575 105,949
Interest-bearing.................................................... 70,987 72,662
Savings................................................................ 261,868 179,152
Time:
Time deposits of $100 or more....................................... 76,176 52,132
Other time deposits................................................. 222,782 189,252
------------ ------------
Total deposits.................................................... 755,388 599,147
Short-term borrowings...................................................... 15,401 4,141
Accrued interest payable................................................... 1,484 538
Deferred tax liabilities................................................... 1,370 1,722
Accrued expenses and other liabilities..................................... 5,523 4,449
------------ ------------
Total liabilities................................................. 779,166 609,997
------------ ------------
Guaranteed preferred beneficial interest in First Banks
America, Inc. subordinated debenture................................... 44,171 44,155
------------ ------------
STOCKHOLDERS' EQUITY
--------------------
Common Stock:
Common stock, $0.15 par value; 6,666,666 shares
authorized; 3,872,697 shares issued................................... 581 581
Class B common stock, $.15 par value; 4,000,000 shares
authorized; 2,500,000 shares issued and outstanding................... 375 375
Capital surplus............................................................ 68,743 68,743
Retained earnings since elimination of accumulated deficit
of $259,117 effective December 31, 1994................................ 7,324 5,693
Common treasury stock, at cost; 651,896 shares and 651,867
shares at March 31, 1999 and December 31, 1998,
respectively........................................................... (10,089) (10,088)
Accumulated other comprehensive income (loss).............................. (295) 541
------------ ------------
Total stockholders' equity........................................ 66,639 65,845
------------ ------------
Total liabilities and stockholders' equity........................ $ 889,976 719,997
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
FIRST BANKS AMERICA, INC.
Consolidated Statements of Income (unaudited)
(dollars expressed in thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended
March 31,
----------------------
1999 1998
---- ----
Interest income:
<S> <C> <C>
Interest and fees on loans................................................ $ 12,869 10,568
Investment securities..................................................... 1,828 2,033
Federal funds sold and other.............................................. 98 395
---------- ---------
Total interest income................................................. 14,795 12,996
---------- ---------
Interest expense:
Deposits:
Interest-bearing demand................................................. 268 349
Savings................................................................. 1,806 1,454
Time deposits of $100 or more........................................... 741 775
Other time deposits..................................................... 2,579 2,784
Promissory note payable and other borrowings.............................. 108 537
---------- ---------
Total interest expense................................................ 5,502 5,899
---------- ---------
Net interest income................................................... 9,293 7,097
Provision for possible loan losses........................................... 90 300
---------- ---------
Net interest income after provision for loan losses................... 9,203 6,797
---------- ---------
Noninterest income:
Service charges on deposit accounts and customer service fees............. 730 739
Gain on sales of securities, net.......................................... 86 92
Other income.............................................................. 339 319
---------- ---------
Total noninterest income.............................................. 1,155 1,150
---------- ---------
Noninterest expense:
Salaries and employee benefits............................................ 2,295 2,135
Occupancy, net of rental income........................................... 561 491
Furniture and equipment................................................... 402 347
Advertising and business development...................................... 64 98
Postage, printing and supplies............................................ 185 167
Data processing fees...................................................... 719 475
Legal, examination and professional fees.................................. 1,103 890
Communications............................................................ 154 200
Loss on sale of other real estate, net of expenses........................ -- 157
Amortization of intangibles associated with the purchase of
subsidiaries............................................................ 202 133
Guaranteed preferred debenture............................................ 993 --
Other..................................................................... 828 964
---------- ---------
Total noninterest expense............................................. 7,506 6,057
---------- ---------
Income before provision for income tax expense........................ 2,852 1,890
Provision for income tax expense............................................. 1,221 790
---------- ---------
Net income............................................................ $ 1,631 1,100
========== =========
Earnings per common share:
Basic................................................................. $ 0.29 0.22
Diluted............................................................... 0.28 0.22
========== =========
Weighted average shares of common stock outstanding.......................... 5,721 4,911
========== =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
FIRST BANKS AMERICA, INC.
Consolidated Statements of Changes in Stockholders' Equity
and Comprehensive Income (unaudited) Three months
ended March 31, 1999 and 1998 and nine months ended December 31, 1998
(dollars expressed in thousands, except per share data)
<TABLE>
<CAPTION>
Accu-
mulated
other
compre- Total
Class B Compre- Common hensive stock-
Common common Capitalhensive Retained treasury income holders'
stock stock surplusincome earnings stock (loss) equity
----- ----- ------------- -------- ----- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Consolidated balances, January 1, 1998........... $ 322 375 47,329 1,083 (4,350) 332 45,091
Three months ended March 31, 1998:
Comprehensive income:
Net income.................................. -- -- -- 1,100 1,100 -- -- 1,100
Other comprehensive income, net of tax (1) -
Unrealized gains on securities, net of
reclassification adjustment (2)......... -- -- -- 106 -- -- 106 106
------
Comprehensive income........................ 1,206
======
Issuance of common stock for purchase
accounting acquisition of FCB............... 43 -- 2,965 -- -- -- 3,008
Conversion of promissory note payable......... 121 -- 9,879 -- -- -- 10,000
Repurchases of common stock................... -- -- -- -- (2,464) -- (2,464)
------- ---- ------- ----- ------ ---- -------
Consolidated balances, March 31, 1998............ 486 375 60,173 2,183 (6,814) 438 56,841
Nine months ended December 31, 1998:
Comprehensive income:
Net income.................................. -- -- -- 3,510 3,510 -- -- 3,510
Other comprehensive income, net of tax (1) -
Unrealized gains on securities, net of
reclassification adjustment (2)......... -- -- -- 103 -- -- 103 103
------
Comprehensive income........................ 3,613
======
Exercise of stock options..................... -- -- 13 -- -- -- 13
Redemption of stock options................... -- -- (48) -- -- -- (48)
Compensation paid in stock.................... -- -- 27 -- -- -- 27
Conversion of 12% convertible debentures...... 95 -- 8,578 -- -- -- 8,673
Repurchases of common stock................... -- -- -- -- (3,274) -- (3,274)
------- ---- ------- ----- ------- ---- -------
Consolidated balances, December 31, 1998......... 581 375 68,743 5,693 (10,088) 541 65,845
Three months ended March 31, 1999:
Comprehensive income:
Net income.................................. -- -- -- 1,631 1,631 -- -- 1,631
Other comprehensive income, net of tax (1) -
Unrealized losses on securities, net of
reclassification adjustment (2)......... -- -- -- (836) -- -- (836) (836)
------
Comprehensive income........................ 795
======
Repurchases of common stock................... -- -- -- -- (1) -- (1)
------- ---- ------- ----- ------- ---- -------
Consolidated balances, March 31, 1999............ $ 581 375 68,743 7,324 (10,089) (295) 66,639
======= ==== ======= ===== ======= ==== =======
- ---------------------
(1) Components of other comprehensive income are shown net of tax.
(2) Disclosure of reclassification adjustment:
Three months Nine months
ended March 31, ended
1999 1998 December 31, 1998
---- ---- -----------------
Unrealized gains (losses) arising during the period............... $ (780) 166 265
Less: reclassification adjustment for gains included in net income 56 60 162
-------- --- ---
Unrealized gains (losses) on securities........................... $ (836) 106 103
======= === ===
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
FIRST BANKS AMERICA, INC.
Consolidated Statements of Cash Flows (unaudited)
(dollars expressed in thousands)
<TABLE>
<CAPTION>
Three months ended
March 31,
----------------------
1999 1998
---- ----
Cash flows from operating activities:
<S> <C> <C>
Net income............................................................................. $ 1,631 1,100
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and accretion, net........................................ 449 467
Provision for possible loan losses................................................... 90 300
Provision for income tax expense..................................................... 1,221 790
Payments of income taxes............................................................. (66) (196)
Gain on sales of securities, net..................................................... (86) (92)
Decrease in accrued interest receivable.............................................. 439 967
Interest accrued on liabilities...................................................... 5,502 5,899
Payments of interest on liabilities.................................................. (5,503) (5,345)
Other operating activities, net...................................................... (998) 550
--------- ---------
Net cash provided by operating activities.......................................... 2,679 4,440
--------- ---------
Cash flows from investing activities:
Cash (paid) received for acquired entities, net of cash and
cash equivalents received (paid).................................................... (17,244) 3,241
Proceeds from sales of investment securities available for sale........................ 21,097 --
Maturities of investment securities available for sale................................. 16,194 32,850
Maturities of investment held to maturity.............................................. 6 --
Purchases of investment securities available for sale.................................. (7,297) (25,399)
Net (increase) decrease in loans....................................................... (34,403) 15,739
Recoveries of loans previously charged off............................................. 834 530
Purchases of bank premises and equipment............................................... (173) (807)
Proceeds from sales of other real estate............................................... 120 230
Other investing activities, net........................................................ (143) (11)
--------- ---------
Net cash provided by (used in) investing activities................................ (21,009) 26,373
--------- ---------
Cash flows from financing activities:
Other increases (decreases) in deposits:
Demand and savings deposits.......................................................... 1,135 (1,452)
Time deposits........................................................................ (7,838) 10,321
Increase in federal funds purchased and other short-term borrowings.................... 12,200 --
Decrease in Federal Home Loan Bank advances............................................ -- (291)
(Decrease) increase in securities sold under agreements to repurchase.................. (940) 57
Decrease in promissory note payable.................................................... -- 5,026
Repurchases of common stock for treasury............................................... (1) (2,464)
--------- ---------
Net cash provided financing activities............................................. 4,556 11,197
--------- ---------
Net (decrease) increase in cash and cash equivalents............................... (13,774) 42,010
Cash and cash equivalents, beginning of period............................................ 46,313 35,162
--------- ---------
Cash and cash equivalents, end of period.................................................. $ 32,539 77,172
========= =========
Non-cash investing and financing activities:
Loans transferred to other real estate................................................. $ -- 245
Issuance of common stock for purchase accounting acquisition........................... -- 3,008
Conversion of promissory note payable to common stock.................................. -- 10,000
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
FIRST BANKS AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Basis of Presentation
The accompanying consolidated financial statements of First Banks
America, Inc. (FBA or the Company) are unaudited and should be read in
conjunction with the consolidated financial statements contained in the 1998
annual report on Form 10-K. In the opinion of management, all adjustments,
consisting of normal recurring accruals considered necessary for a fair
presentation of the results of operations for the interim periods presented
herein, have been included. Operating results for the three month period ended
March 31, 1999 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1999.
The consolidated financial statements include the accounts of FBA and
its subsidiaries, all of which are wholly owned. All significant intercompany
accounts and transactions have been eliminated. Certain reclassifications of
1998 amounts have been made to conform with the 1999 presentation.
FBA is majority owned by First Banks, Inc., St. Louis, Missouri (First
Banks). At March 31, 1999 and December 31, 1998, First Banks' ownership interest
in FBA was 82.34% and 76.84%, respectively.
FBA operates through three banking subsidiaries, First Bank Texas N.A.,
headquartered in Houston, Texas (FB Texas), First Bank of California,
headquartered in Roseville, California (FB California) and Redwood Bancorp,
headquartered in San Francisco, California (Redwood). Redwood operates through
its wholly owned subsidiary, Redwood Bank, headquartered in San Francisco,
California (Redwood Bank). FB Texas, FB California and Redwood Bank are
collectively referred to as the Subsidiary Banks.
(2) Transactions with Related Parties
FBA purchases certain services and supplies from or through First
Banks. FBA's financial position and operating results could significantly differ
from those that would be obtained if FBA's relationship with First Banks did not
exist.
First Banks provides management services to FBA and its Subsidiary
Banks. Management services are provided under a management fee agreement whereby
FBA compensates First Banks on an hourly basis for its use of personnel for
various functions including internal audit, loan review, income tax preparation
and assistance, accounting, asset/liability and investment services, loan
servicing and other management and administrative services. Fees paid under this
agreement were $682,000 and $440,000 for the three months ended March 31, 1999
and 1998, respectively. Fees payable to First Banks generally increase as FBA
expands through acquisitions and internal growth, reflecting the higher levels
of service needed to operate the Subsidiary Banks. The fees for management
services are at least as favorable as could have been obtained from unaffiliated
third parties.
Because of the affiliation with First Banks and the geographic
proximity of certain of their offices, FBA shares the cost of certain personnel
and services used by FBA and First Banks. This includes the salaries and
benefits of certain loan and administrative personnel. The allocation of the
shared costs are charged and/or credited under the terms of cost sharing
agreements entered into in 1996. Management anticipates Redwood Bank will
execute a similar cost sharing agreement in 1999. Because this involves
distributing essentially fixed costs over a larger asset base, it allows each
bank to receive the benefit of personnel and services at a reduced cost. Fees
paid under these agreements were $212,000 and $256,000 for the three months
ended March 31, 1999 and 1998, respectively.
<PAGE>
First Services L.P., a limited partnership indirectly owned by First
Banks' Chairman and his children through its general partners and limited
partners, provides data processing and various related services to FB Texas and
FB California under the terms of data processing agreements. Fees paid under
these agreements were $686,000 and $429,000 for the three months ended March 31,
1999 and 1998, respectively. Fees payable to First Services L.P. generally
increase as FBA expands through acquisitions and internal growth, reflecting the
higher levels of service needed to operate the Subsidiary Banks. The fees paid
for data processing services are at least as favorable as could have been
obtained from unaffiliated third parties.
First Brokerage of America, L.L.C. (First Brokerage), a limited
liability company, whose members are the trusts of the children of First Banks'
Chairman, provides back-office support and product support for FBA's brokerage
and insurance operations. For the three months ended March 31, 1999, FBA and
First Brokerage received commissions of approximately $73,000 and $31,000,
respectively, from unaffiliated third-party companies from the sale of these
products to customers of FBA.
FBA's Subsidiary Banks had $89.4 million and $86.2 million in whole
loans and loan participations outstanding at March 31, 1999 and December 31,
1998, respectively, that were purchased from banks affiliated with First Banks.
In addition, FBA's Subsidiary Banks had sold $209.0 million and $182.9 million
in whole loans and loan participations to affiliates of First Banks at March 31,
1999 and December 31, 1998, respectively. These loans and loan participations
were acquired and sold at interest rates and terms prevailing at the dates of
their purchase or sale and under standards and policies followed by FBA's
Subsidiary Banks.
FBA has a $20.0 million revolving note payable from First Banks (Note
Payable). The borrowings under the Note Payable bear interest at an annual rate
of one-quarter percent less than the "Prime Rate" as reported in the Wall Street
Journal. The outstanding principal balance and accrued interest under the Note
Payable are due and payable on October 31, 2001. There were no amounts
outstanding under the Note Payable at March 31, 1999 and December 31, 1998. The
interest expense under the Note Payable was $272,000 for the three months ended
March 31, 1998.
In connection with FBA's acquisition of First Commercial Bancorp, Inc.
(FCB) and its wholly-owned subsidiary, First Commercial Bank (First Commercial),
FBA issued a convertible debenture to First Banks of $6.5 million plus accrued
interest. This debenture replaced similar FCB debentures previously owned by
First Banks. On December 4, 1998, First Banks converted the $6.5 million
principal and $2.4 million accrued and unpaid interest into 629,557 shares of
FBA common stock. The related interest expense associated with this debenture
was $210,000 for the three months ended March 31, 1998.
(3) Regulatory Capital
FBA and the Subsidiary Banks are subject to various regulatory capital
requirements administered by the federal and state banking agencies. Failure to
meet minimum capital requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken, could have a
direct material effect on FBA's financial statements. Under capital adequacy
guidelines and the regulatory framework for Prompt Corrective Action, the
Subsidiary Banks must meet specific capital guidelines that involve quantitative
measures of assets, liabilities, and certain off-balance-sheet items as
calculated under regulatory accounting practices. Capital amounts and
classifications are also subject to qualitative judgments by the regulators
about components, risk weighting and other factors.
Quantitative measures established by regulations to ensure capital
adequacy require FBA and the Subsidiary Banks to maintain certain minimum
capital ratios. FBA and the Subsidiary Banks are required to maintain a minimum
risk-based capital to risk-weighted assets ratio of 8.00%, with at least 4.00%
being "Tier 1" capital (as defined in the regulations). In addition, a minimum
leverage ratio (Tier 1 capital to average assets) of 3.00% plus an additional
cushion of 100 to 200 basis points is expected. In order to be considered well
<PAGE>
capitalized under Prompt Corrective Action provisions, a bank is required to
maintain a risk-weighted asset ratio of at least 10.00%, a Tier 1 to
risk-weighted asset ratio of at least 6.00%, and a leverage ratio of at least
5.00%. As of December 31, 1997, the date of the most recent notification from
FBA's primary regulator, FB Texas and FB California were categorized as well
capitalized under the regulatory framework for Prompt Corrective Action.
Management believes, as of March 31, 1999, FBA and the Subsidiary Banks were
well capitalized.
At March 31, 1999 and December 31, 1998, FBA's and the Subsidiary
Banks' capital ratios were as follows:
<TABLE>
<CAPTION>
Risk-based capital ratios
-------------------------
Total Tier 1 Leverage Ratio
----- ------ ---------------
1999 1998 1999 1998 1999 1998
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
FBA 12.62% 16.66% 8.38% 11.51% 9.45% 10.25%
FB Texas 11.02 11.37 9.76 10.11 9.20 9.15
FB California 10.92 10.63 9.66 9.37 8.94 8.34
Redwood Bank (1) 10.92 -- 9.98 -- 8.30 --
---------------
(1) Redwood Bank was acquired by FBA on March 4, 1999.
</TABLE>
(4) Acquisitions
On March 4, 1999, FBA completed its acquisition of Redwood and its
wholly-owned subsidiary, Redwood Bank, for cash consideration of $26.0 million.
The acquisition was accounted for using the purchase method of accounting. The
excess of the cost over the fair value of the net assets acquired was $9.4
million and is being amortized over 15 years. The acquisition was funded from
available proceeds from the sale of the 8.50% Cumulative Trust Preferred
Securities completed in July 1998. Redwood is headquartered in San Francisco,
California and operates four banking locations in the San Francisco Bay area.
Redwood had $183.9 million in total assets, $134.4 million in loans, net of
unearned discount, $32.4 in investment securities and $162.9 million in deposits
at the acquisition date.
The following information presents unaudited pro forma condensed
results of operations of FBA for the three months ended March 31, 1999 and 1998,
combined with the acquisition of Redwood, as if FBA had completed the
transaction on January 1, 1998.
<TABLE>
<CAPTION>
March 31,
------------------
1999 1998
---- ----
(dollars expressed in thousands,
except per share data)
<S> <C> <C>
Net interest income........................................... $ 10,159 8,728
Provision for possible loan losses............................ 300 300
Net income.................................................... 1,644 1,142
========= ========
Weighted average shares of common stock
outstanding (in thousands)............................... 5,721 5,300
========= ========
Earnings per common share:
Basic.................................................... $ 0.29 0.22
Diluted.................................................. 0.29 0.22
========= ========
</TABLE>
<PAGE>
The unaudited pro forma condensed results of operations reflect the
application of the purchase method of accounting for Redwood and certain other
assumptions. Purchase accounting adjustments have been applied to loans,
investment securities, bank premises and equipment, deferred tax assets and
liabilities and excess cost required to reflect the assets acquired and
liabilities assumed at fair value. The resulting premiums and discounts are
amortized or accreted to income consistent with the accounting policies of FBA.
The unaudited pro forma condensed results of operations do not reflect the
acquisition of Pacific Bay Bank completed on February 2, 1998 as it did not have
a material impact on the results of operations for the three months ended March
31, 1998.
(5) Business Segment Results
FBA's business segments are its Subsidiary Banks. The reportable
business segments are consistent with the management structure of FBA, the
Subsidiary Banks and the internal reporting system that monitors performance.
Through the respective branch networks, the Subsidiary Banks provide
similar products and services in their defined geographic areas. The products
and services offered include a broad range of commercial and personal banking
services, including certificates of deposit, individual retirement and other
time deposit accounts, checking and other demand deposit accounts, interest
checking accounts, savings accounts and money market accounts. Loans include
commercial and financial, commercial and residential real estate, real estate
construction and development and consumer loans. Other financial services
include mortgage banking, credit and debit cards, discount brokerage,
credit-related insurance, automatic teller machines, telephone account access,
safe deposit boxes, trust and private banking services and cash management
services. The revenues generated by each business segment consist primarily of
interest income, generated from the loan and investment security portfolios, and
service charges and fees, generated from the deposit products and services. The
geographic areas include Houston, Dallas, Irving and McKinney, Texas (FB Texas)
and the San Francisco - Sacramento corridor of northern California (FB
California and Redwood Bank). The products and services are offered to customers
primarily within their respective geographic areas, with the exception of loan
participations executed between the Subsidiary Banks and other banks affiliated
with First Banks. There are no foreign operations.
<PAGE>
The business segment results are summarized below and are consistent
with FBA's internal reporting system which is consistent, in all material
respects, with generally accepted accounting principles and practices
predominant in the banking industry. The balance sheet information is presented
as of March 31, 1999 and December 31, 1998, and the statement of income
information is presented for the three months ended March 31, 1999 and 1998,
respectively. The business segment results include Redwood Bank, which was
acquired on March 4, 1999, for the period subsequent to the acquisition date.
<TABLE>
<CAPTION>
FB California Redwood Bank (1)
------------------------------- ----------------------------
March 31, December 31, March 31, December 31,
1999 1998 1999 1998
---- ---- ---- ----
(dollars expressed in thousands)
Balance sheet information:
<S> <C> <C> <C>
Investment securities.......................... $ 45,837 53,449 32,891 --
Loans, net of unearned discount................ 327,589 314,977 138,601 --
Total assets................................... 404,343 410,110 194,084 --
Deposits....................................... 348,218 363,422 67,160 --
Stockholders' equity........................... 42,960 42,825 25,593 --
========== ========== =========== ==========
FB California Redwood Bank (1)
Three months ended Three months ended
March 31, March 31,
----------------------- --------------------
1999 1998 1999 1998
---- ---- ---- ----
(dollars expressed in thousands)
Income statement information:
Interest income................................ $ 8,000 7,757 1,180 --
Interest expense............................... 3,079 3,316 442 --
---------- ---------- ----------- ----------
Net interest income......................... 4,921 4,441 738 --
Provision for possible loan losses............. 60 150 -- --
---------- ---------- ----------- ----------
Net interest income after provision
for possible loan losses.................. 4,861 4,291 738 --
---------- ---------- ----------- ----------
Noninterest income............................. 609 713 26 --
Noninterest expense............................ 3,699 3,730 438 --
---------- ---------- ----------- ----------
Net income before income tax expense........ 1,771 1,274 326 --
Provision for income tax expense............... 787 535 164 --
---------- ---------- ----------- ----------
Net income.................................. $ 984 739 162 --
========== ========== =========== ==========
</TABLE>
- -----------------
(1) Redwood Bank was acquired by FBA on March 4, 1999.
(2) Corporate and other includes $645,000 of guaranteed preferred debenture
expense, after applicable income tax benefit of $348,000, for the three
months ended March 31, 1999.
<PAGE>
<TABLE>
<CAPTION>
FB Texas Corporate and other Consolidated Total
-------------------------- ---------------------------- ------------------------------
March 31, December 31, March 31, December 31, March 31, December 31,
1999 1998 1999 1998 1999 1998
---- ---- ---- ---- ---- ----
(dollars expressed in thousands)
<S> <C> <C> <C> <C> <C> <C>
35,917 59,914 3,887 3,573 118,532 116,936
221,150 201,426 2,504 -- 689,844 516,403
284,592 300,984 6,957 8,903 889,976 719,997
245,377 264,425 (5,367) (28,700) 755,388 599,147
30,397 30,249 (32,311) (7,229) 66,639 65,845
=========== ========== =========== ========== =========== ===========
FB Texas Corporate and other Consolidated Total
--------------------- ----------------------- ------------------------
Three months ended Three months ended Three months ended
March 31, March 31, March 31,
--------------------- ----------------------- ------------------------
1999 1998 1999 (2) 1998 1999 1998
---- ---- ---- ---- ---- ----
(dollars expressed in thousands)
5,542 5,237 73 2 14,795 12,996
2,162 2,100 (181) 483 5,502 5,899
----------- ---------- ----------- ---------- ----------- -----------
3,380 3,137 254 (481) 9,293 7,097
30 150 -- -- 90 300
----------- ---------- ----------- ---------- ----------- -----------
3,350 2,987 254 (481) 9,203 6,797
----------- ---------- ----------- ---------- ----------- -----------
543 379 (23) 58 1,155 1,150
2,279 2,203 1,090 124 7,506 6,057
----------- ---------- ----------- ---------- ----------- -----------
1,614 1,163 (859) (547) 2,852 1,890
555 410 (285) (155) 1,221 790
----------- ---------- ----------- ---------- ----------- -----------
1,059 753 (574) (392) 1,631 1,100
=========== ========== =========== ========== =========== ===========
</TABLE>
<PAGE>
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations
The discussion set forth in Management's Discussion and Analysis of
Financial Condition and Results of Operations contains certain forward looking
statements with respect to the financial condition, results of operations and
business of FBA. These forward looking statements are subject to certain risks
and uncertainties, not all of which can be predicted or anticipated. Factors
that may cause actual results to differ materially from those contemplated by
the forward looking statements herein include market conditions as well as
conditions specifically affecting the banking industry generally and factors
having a specific impact on FBA including but not limited to fluctuations in
interest rates and in the economy; the impact of laws and regulations applicable
to FBA and changes therein; competitive conditions in the markets in which FBA
conducts its operations, including competition from banking and non-banking
companies with substantially greater resources than FBA, some of which may offer
and develop products and services not offered by FBA; and the ability of FBA to
respond to changes in technology, including effects of the Year 2000 problem.
With regard to FBA's efforts to grow through acquisitions, factors that could
affect the accuracy or completeness of forward looking statements contained
herein include the potential for higher than acceptable operating costs arising
from the geographic dispersion of the offices of FBA, as compared with
competitors operating solely in contiguous markets; the competition of larger
acquirers with greater resources than FBA; fluctuations in the prices at which
acquisition targets may be available for sale and in the market for FBA's
securities; and the potential for difficulty or unanticipated costs in realizing
the benefits of particular acquisition transactions. Additional factors
potentially affecting the Company's results were identified in the Annual Report
on Form 10-K filed with the Securities and Exchange Commission.
General
FBA is a registered bank holding company, incorporated in Delaware and
headquartered in Clayton, Missouri. At March 31, 1999, FBA had approximately
$890.0 million in total assets; $689.8 million in total loans, net of unearned
discount; $755.4 million in total deposits; and $66.6 million in total
stockholders' equity. FBA operates through its Subsidiary Banks.
Through the Subsidiary Banks' six locations in Texas and 14 locations
in the San Francisco - Sacramento corridor of northern California, 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 financial, real estate
construction and development, commercial and residential real estate and
consumer loans. Other financial services include mortgage banking, credit and
debit cards, discount brokerage, credit-related insurance, automatic teller
machines, telephone account access, safe deposit boxes, trust and private
banking services and cash management services.
The following table lists the Subsidiary Banks at March 31, 1999:
<TABLE>
<CAPTION>
Loans, net of
Number of Total unearned Total
locations assets discount deposits
--------- ------ -------- --------
(dollars expressed in thousands)
<S> <C> <C> <C> <C>
FB California................... 10 $ 404,343 327,589 348,218
FB Texa......................... 6 284,592 221,150 245,377
Redwood Bank.................... 4 194,084 138,601 167,160
</TABLE>
<PAGE>
Financial Condition
FBA's total assets were $890.0 million and $720.0 million at March 31,
1999 and December 31, 1998, respectively. The increase in total assets from
December 31, 1998 is primarily attributable to FBA's acquisition of Redwood,
which provided total assets of $183.9 million.
Results of Operations
Net Income
Net income was $1.6 million, or $0.28 per share on a diluted basis, for
the three months ended March 31, 1999, compared to $1.1 million, or $0.22 per
share on a diluted basis, for the same period in 1998. The improved operating
results of FBA reflect the improved performance of both FB Texas and FB
California. FB Texas' net income increased to $1.1 million from $753,000 for the
three months ended March 31, 1999 and 1998, respectively. FB California recorded
net income of $984,000 for the three months ended March 31, 1999, in comparison
to $739,000 for the same period in 1998. The results for the first quarter of
1998 include a charge of $225,000, net of tax, or $0.05 per share on a diluted
basis, in settlement of certain litigation at FB Texas. Excluding this charge,
earnings per share on a diluted basis for the first quarter of 1998 would have
been $0.27.
Net Interest Income
Net interest income was $9.3 million, or 5.44% of average
interest-earning assets, for the three months ended March 31, 1999, compared to
$7.1 million, or 4.77% of average interest-earning assets, for the same period
in 1998. The improved net interest income is primarily attributable to the net
interest-earning assets provided by the acquisitions of Pacific Bay Bank and
Redwood, and a reduction of interest expense attributable to: the effect of the
exchange of $10.0 million of the Note Payable for common stock; the repayment of
all borrowings outstanding under the Note Payable in July 1998; and the
conversion of a debenture in December 1998. The improved net interest income was
partially offset by a reduction in the yield on the loan portfolio from 9.78% to
9.20% at March 31, 1999 and 1998, respectively. This reduction results from the
overall decline in prime rate experienced during the fourth quarter of 1998.
<PAGE>
The following table sets forth certain information relating to FBA's
average balance sheets, and reflects the average yield earned on
interest-earning assets, the average cost of interest-bearing liabilities and
the resulting net interest income for the three month periods ended March 31:
<TABLE>
<CAPTION>
1999 1998
------------------------- --------------------------
Interest Interest
Average income/ Yield/ Average income/ Yield/
balance expense rate balance expense rate
------- ------- ---- ------- ------- ----
(dollars expressed in thousands)
Assets
------
Earning assets:
<S> <C> <C> <C> <C> <C> <C>
Loans (1)(2)(3).......................... $ 567,101 12,869 9.20% $ 438,421 10,568 9.78%
Investment securities (3)................ 118,265 1,828 6.27 136,501 2,033 6.04
Federal funds sold and other............. 7,721 98 5.15 28,062 395 5.71
--------- ------ ---------- ------
Total earning assets............... 693,087 14,795 8.66 602,984 12,996 8.74
------ ------
Nonearning assets........................... 82,394 62,166
--------- ----------
Total assets....................... $ 775,481 $ 665,150
========= ==========
Liabilities and Stockholders' Equity
------------------------------------
Interest-bearing liabilities:
Interest-bearing demand deposits......... $ 72,191 268 1.51% $ 73,291 349 1.93%
Savings deposits......................... 204,270 1,806 3.59 151,237 1,454 3.90
Time deposits of $100 or more............ 57,420 741 5.23 51,594 775 6.09
Other time deposits...................... 201,375 2,579 5.19 205,975 2,784 5.48
--------- ------ --------- ------
Total interest-bearing deposits.... 535,256 5,394 4.09 482,097 5,362 4.51
Promissory note payable and
short-term borrowings ................. 7,481 108 5.85 24,602 537 8.85
--------- ------ --------- ------
Total interest-bearing liabilities. 542,737 5,502 4.11 506,699 5,899 4.72
------ ------
Noninterest-bearing liabilities:
Demand deposits.......................... 104,133 91,230
Other liabilities........................ 54,138 12,360
--------- ---------
Total liabilities.................. 701,008 610,289
Stockholders' equity........................ 74,473 54,861
--------- ---------
Total liabilities and
stockholders' equity............. $ 775,481 $ 665,150
========= ==========
Net interest income......................... 9,293 7,097
====== ======
Net interest margin......................... 5.44% 4.77%
===== ====
- ---------------
(1) Nonaccrual loans are included in the average loan amounts.
(2) Includes the effects of interest rate exchange agreements.
(3) FBA has no tax exempt income.
</TABLE>
<PAGE>
Provision for Possible Loan Losses
The provision for possible loan losses was $90,000 and $300,000 for the
three months ended March 31, 1999 and 1998, respectively. The decrease in the
provision for possible loan losses for the first quarter of 1999, compared to
the same period in 1998, is primarily attributable to improved asset quality of
FBA's loan portfolio, as determined by management's review and evaluation of the
credit quality of the loans in the portfolio, and management's assessment of the
adequacy of the allowance for possible loan losses.
Net loan recoveries were $354,000 for the three months ended March 31,
1999, compared to net loan charge-offs of $529,000 for the same period in 1998.
The overall improvement is primarily attributable to improved asset quality
reflected in a decrease in the amount of loans requiring charge-off accompanied
by an increase in the collection of previously charged-off loans. See "--Lending
and Credit Management" for a summary of nonperforming loans and a summary of
loan loss experience.
Noninterest Income
Noninterest income was $1.2 million for the three months ended March
31, 1999 and 1998. Noninterest income consists primarily of service charges on
deposit accounts and customer service fees.
Service charges on deposit accounts and customer service fees remained
relatively stable with a slight decrease to $730,000 for the three months ended
March 31, 1999, in comparison to $739,000 for the same period in 1998. The
slight decrease is reflective of a reduced level of non-sufficient funds fees
earned on commercial accounts, offset primarily by an increase in interchange
income associated with automatic teller machine services and credit cards.
Noninterest Expense
Noninterest expense was $7.5 million for the three months ended March
31, 1999, compared to $6.1 million for the same period in 1998. The increase is
primarily attributable to the guaranteed preferred debenture expense of $993,000
associated with the formation of First America Capital Trust (FACT) and FACT's
issuance of Cumulative Trust Preferred Securities. Contributing further to the
increase is the noninterest expense of Pacific Bay Bank and, to a lesser degree,
Redwood, subsequent to their respective acquisition dates.
Data processing fees increased to $719,000 for the three months ended
March 31, 1999, in comparison to $475,000 for the same period in 1998. The
increase in data processing fees is attributable to growth and technological
advancements consistent with FBA's product and service offerings and expenses
associated with FBA's Year 2000 program.
Legal, examination and professional fees increased to $1.1 million for
the three months ended March 31, 1999 from $890,000 for the same period in 1998.
The increase in legal, examination and professional fees reflects FBA's
increased reliance on outside professionals associated with Year 2000
activities. In addition, as further discussed in Note 2 to the accompanying
financial statements, the fees paid to First Banks for management services have
increased to $682,000 for the three months ended March 31, 1999, in comparison
to $440,000 for the same period in 1998. This increase results from FBA's
continued expansion through acquisitions and internal growth, reflecting the
higher levels of service needed to operate the Subsidiary Banks.
On July 21, 1998, FACT, a newly-formed Delaware business trust
subsidiary of FBA, issued 1.84 million shares of 8.50% Cumulative Trust
Preferred Securities (FACT Preferred Securities) at $25.00 per share in an
underwritten public offering, and issued 56,908 shares of common securities to
FBA at $25.00 per share. FBA owns all of FACT's common securities. The gross
proceeds of the offering were used by FACT to purchase $47.4 million of 8.50%
Subordinated Debentures (Subordinated Debentures) from FBA, maturing on June 30,
2028. The Subordinated Debentures are the sole asset of FACT. In connection with
the issuance of the FACT Preferred Securities, FBA made certain guarantees and
commitments that, in the aggregate, constitute a full and unconditional
<PAGE>
guarantee by FBA of the obligations of FACT under the FACT Preferred Securities.
FBA's proceeds from the issuance of the Subordinated Debentures, net of
underwriting fees and offering expenses, were approximately $44.0 million.
Guaranteed preferred debenture expense was $993,000 for the three months ended
March 31, 1999 and is recorded as noninterest expense in the accompanying
consolidated financial statements.
Lending and Credit Management
Interest earned on the loan portfolio is the primary source of income
of FBA. Total loans, net of unearned discount, represented 77.5% and 71.7% of
total assets as of March 31, 1999 and December 31, 1998, respectively. Total
loans, net of unearned discount, were $689.8 million and $516.4 million at March
31, 1999 and December 31, 1998, respectively. The increase in loans, as
summarized on the consolidated balance sheet, is attributable to the acquisition
of Redwood, and to the continued expansion of the corporate lending function of
FBA. The expansion has generated growth in the commercial and financial, real
estate construction and development and commercial real estate mortgage loan
portfolios. Offsetting the growth in corporate lending is the continuing
decrease in FB Texas' consumer indirect automobile loan portfolio.
FBA's nonperforming loans consist of loans on nonaccrual status and
loans on which the original terms have been restructured. The following is a
summary of nonperforming assets and past due loans at the dates indicated:
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
---- ----
(dollars expressed in thousands)
Nonperforming assets:
<S> <C> <C>
Nonperforming loans............................................... $ 6,952 8,632
Other real estate................................................. 223 161
----------- ----------
Total nonperforming assets.................................. $ 7,175 8,793
=========== ==========
Loans past due and still accruing:
Over 30 days to 90 days........................................... $ 7,771 6,269
Over 90 days...................................................... 261 306
----------- ----------
Total past due loans........................................ $ 8,032 6,575
=========== ==========
Loans, net of unearned discount..................................... $ 689,844 516,403
=========== ==========
Asset quality ratios:
Allowance for possible loan losses to loans....................... 2.03% 2.35%
Nonperforming loans to loans ..................................... 1.01 1.67
Allowance for possible loan losses to
nonperforming loans ........................................... 201.91 140.49
Nonperforming assets to loans and other real estate............... 1.04 1.70
=========== =========
</TABLE>
Nonperforming loans, consisting of loans on nonaccrual status and
restructured loans, were $7.0 million at March 31, 1999, in comparison to $8.6
million at December 31, 1998. The decrease from December 31, 1998 to March 31,
1999 is a result of a reduction in loans on nonaccrual status and continued
aggressive collection efforts. Nonperforming loans were $7.0 million and $6.0
million at March 31, 1999 and 1998, respectively. The increase from March 31,
1998 to March 31, 1999 is primarily attributable to the loans obtained through
the acquisitions of Pacific Bay Bank in February 1998 and Redwood in March 1999,
and the overall growth of FBA's loan portfolio. The acquired allowances for
possible loan losses of Pacific Bay Bank and Redwood totaled $885,000 and $1.5
million at the respective acquisition dates.
<PAGE>
Impaired loans, consisting of loans on a nonaccrual status and indirect
consumer and installment loans 60 days or more past due, were $7.2 million and
$9.0 million at March 31, 1999 and December 31, 1998, respectively.
The following is a summary of the loan loss experience:
<TABLE>
<CAPTION>
Three months ended
March 31,
---------------------
1999 1998
---- ----
(dollars expressed in thousands)
<S> <C> <C>
Allowance for possible loan losses, beginning of period............... $ 12,127 11,407
Acquired allowances for possible loan losses.......................... 1,466 885
--------- --------
13,593 12,292
--------- --------
Loans charged-off..................................................... (480) (1,059)
Recoveries of loans previously charged-off............................ 834 530
--------- --------
Net loan (charge-offs) recoveries..................................... 354 (529)
--------- --------
Provision for possible loan losses.................................... 90 300
--------- --------
Allowance for possible loan losses, end of period..................... $ 14,037 12,063
========= ========
</TABLE>
The allowance for possible loan losses is monitored on a monthly basis.
Each month, the credit administration department provides FBA's management with
detailed lists of loans on the watch list and summaries of the entire loan
portfolio of each Subsidiary Bank by risk rating. These are coupled with
analyses of changes in the risk profiles of the portfolios, changes in past due
and nonperforming loans and changes in watch list and classified loans over
time. In this manner, the overall increases or decreases in the levels of risk
in the portfolios are monitored continually. Factors are applied to the loan
portfolios for each category of loan risk to determine acceptable levels of
allowance for possible loan losses. These factors are derived primarily from the
actual loss experience of the Subsidiary Banks and from published national
surveys of norms in the industry. The calculated allowances required for the
portfolios are then compared to the actual allowance balances to determine the
provisions necessary to maintain the allowances at appropriate levels. In
addition, management exercises judgment in its analysis of determining the
overall level of the allowance for possible losses. In its analysis, management
considers the change in the portfolio, including growth and composition, and the
economic conditions of the regions in which FBA operates.
Based on this quantitative and qualitative analysis, the allowance for
possible loan losses is adjusted. Such adjustments are reflected
in the consolidated statements of income.
Interest Rate Risk Management
FBA utilizes off-balance-sheet derivative financial instruments to
assist in the management of interest rate sensitivity and to modify the
repricing, maturity and option characteristics of on-balance-sheet assets and
liabilities. Derivative financial instruments held by FBA for purposes of
managing interest rate risk are summarized as follows:
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
------------------ ---------------------
Notional Credit Notional Credit
amount exposure amount exposure
------ -------- ------ --------
(dollars expressed in thousands)
<S> <C> <C> <C> <C>
Interest rate swap agreements............ $ 65,000 230 65,000 667
Interest rate cap agreement.............. 10,000 102 10,000 135
</TABLE>
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 and the other terms of the derivatives are determined by reference to
the notional amounts and the other terms of the derivatives. The credit exposure
represents the accounting loss FBA would incur in the event the counterparties
failed completely to perform according to the terms of the derivative financial
instruments and the collateral was of no value.
<PAGE>
During 1998, FBA entered into $65.0 million notional amount of interest
rate swap agreements (Swap Agreements) to effectively lengthen the repricing
characteristics of certain interest-earning assets to correspond more closely
with its funding source with the objective of stabilizing cash flow, and
accordingly, net interest income, over time. The Swap Agreements provide for FBA
to receive a fixed rate of interest and pay an adjustable rate equivalent to the
90-day London Interbank Offering Rate. The terms of the Swap Agreements provide
for FBA to pay quarterly and receive payment semi-annually. The amount
receivable by FBA under the Swap Agreements was $377,000 and $820,000 at March
31, 1999 and December 31, 1998, respectively, and the amount payable by FBA
under the Swap Agreements was $147,000 and 153,000 at March 31, 1999 and
December 31, 1998, respectively. The maturity dates, notional amounts, interest
rates paid and received and fair values of the Swap Agreements outstanding as of
March 31, 1999 were as follows:
<TABLE>
<CAPTION>
Notional Interest rate Interest rate
Maturity Date amount paid received Fair value
------------- ------ ---- -------- ----------
(dollars expressed in thousands)
<S> <C> <C> <C> <C> <C> <C>
June 11, 2002........................... $ 15,000 5.00% 6.00% $ 157
September 16, 2002...................... 20,000 5.00 5.36 (183)
September 18, 2002...................... 30,000 5.00 5.33 (310)
--------- -------
$ 65,000 5.00 5.49 $ (336)
========= ==== ==== ======
</TABLE>
FBA has a $10.0 million interest rate cap agreement outstanding to
limit the interest expense associated with certain interest-bearing liabilities.
At March 31, 1999 and December 31, 1998, the unamortized cost of this agreement
were $102,000 and $130,000, respectively, and were included in other assets. The
net amount due to FBA under this agreement was $5,000 at December 31, 1998.
There was no amount net amount due to FBA at March 31, 1999.
Year 2000 Compatibility
FBA and the Subsidiary Banks are subject to risks associated with the
"Year 2000" problem, a term which refers to uncertainties about the ability of
various data processing hardware and software systems to interpret dates
correctly surrounding the beginning of the Year 2000. Financial institutions are
particularly vulnerable to Year 2000 issues because of heavy reliance in the
industry on electronic data processing and funds transfer systems.
As described in Note 2 to the accompanying consolidated financial
statements, data processing services are provided to FBA by First Services, L.P.
under the terms of data processing agreements. To address the Year 2000 problem,
FBA, working jointly with First Banks, has established a dedicated team to
coordinate the overall Year 2000 Preparedness Program (Program) under the
guidelines of the Comprehensive Year 2000 Plan (Plan) as approved by the Board
of Directors. The Plan summarizes each major phase of the Program and the
estimated costs to remediate and test systems in preparation for the Year 2000.
The Plan addresses both Information Technology (IT) projects, such as data
processing and data network, and non-IT projects, such as building facilities
and security. The major phases of the Program are awareness, assessment,
remediation, validation and implementation.
The awareness phase included a company-wide campaign to communicate the
Year 2000 problem and the potential ramifications to the organization.
Concurrent with this phase, the Year 2000 Program Team (Team) began the
assessment phase of the Program. The assessment phase included the inventorying
of systems that may be impacted by the Year 2000 problem. The business use of
each inventoried item was analyzed and prioritized from critical to
non-critical, based upon the perceived adverse effect on the financial condition
of FBA in the event of a loss or interruption in the use of each system. The
awareness and assessment phases of the Program were completed as scheduled.
FBA's critical systems are purchased from industry-known vendors. Such
systems are generally used in their standard configuration, that is, with minor
modification. Focusing on these critical systems, FBA continues to closely
review and monitor the Year 2000 progress as reported by each vendor, and has
tested, in most cases, on a system separate from the on-line production system.
The review and testing of critical data processing service providers was
substantially complete as of March 31, 1999.
<PAGE>
For the critical systems that have been modified, the vendors provided
remediation for such systems that were not otherwise reported as "Year
2000-ready." As the remediation phase was completed within the stated deadline,
FBA did not invoke any remediation contingency efforts.
Concurrent with the completion of the remediation phase of the Program,
FBA commenced the final analysis of the validation phase for critical systems,
including remediated systems provided by third party vendors. This portion of
the Program was substantially complete as of December 31, 1998.
FBA, along with First Banks, has accelerated the replacement of its
existing teller system (ISC), since certain functions of ISC were not Year 2000
compliant. Planning for the replacement of ISC has been underway for several
years with the primary objectives of adding functionality to meet expanding
product and service offerings and improving efficiency in serving customers. As
the newly selected teller system (CFI) also provided a solution for the Year
2000 problem, the overall implementation schedule was accelerated. Recognizing
the heightened risks of deploying the CFI system within the narrowed timeline
created by the Year 2000 issue, emphasis was first given to the Year 2000
solution for ISC, with simultaneous deployment of CFI occurring throughout 1999
and early 2000. The testing of the Year 2000 solution for ISC has been completed
and will be installed throughout FBA's branch network by June 30, 1999.
The testing of CFI was completed by December 31, 1998. The CFI system
was installed in selected bank test locations of First Banks during the fourth
quarter of 1998. Management anticipates FB Texas will be converted to CFI during
the second quarter of 1999 while FB California's conversion will take place
throughout the remainder of 1999. Management does not anticipate that Redwood
Bank will convert to CFI in 1999. The estimated cost of the teller replacement
is $1.4 million and will be charged to expense over a 60-month period upon
installation at each branch location. First Banks is also upgrading its local
area network-based systems, networks and core processor, and has purchased
certain item processing equipment, as the previous equipment, which is fully
depreciated, was not Year 2000 compliant. FBA's portion of the cost of these
upgrades and the item processing equipment will be included in the billings
under the terms of certain data processing and management services agreements.
See Note 2 to the accompanying consolidated financial statements for a further
discussion of transactions with related parties.
The final phase of the Program is the implementation of remediated and
other systems into the operating environment of FBA and First Banks. The final
phase of the Program is scheduled to be completed by June 30, 1999.
FBA has also assessed the Year 2000 risks relating to its lines of
business separate from its dependence on data processing. The assessment
includes a review of larger commercial loan and deposit customers to ascertain
their overall preparedness regarding Year 2000 risks. The process requires
lending and other banking officers to meet with certain of their customers to
review and assess their overall preparedness for Year 2000 risks. While the
process of evaluating the potential adverse effects of Year 2000 risks on these
customers revealed no probable adverse effect to FBA, it is not possible to
quantify the overall potential adverse effects to FBA resulting from the failure
of these customers, or other customers not meeting the review criteria, to
adequately prepare for the Year 2000. The failure of a commercial bank customer
to adequately prepare for Year 2000 could have a significant adverse effect on
such customer's operations and profitability, in turn inhibiting its ability to
repay loans in accordance with their terms or requiring the use of its deposited
funds. FBA continues to review and structure certain funding sources to
facilitate the Subsidiary Banks' liquidity requirements under varying cash flow
assumptions. In addition, Year 2000 risks associated with adversely rated
credits are monitored more frequently in conjunction with the internal watch
list review committee meetings, while new credit relationships include
parameters to assess and evaluate Year 2000 risks at the time of the initial
credit decision.
<PAGE>
The Plan also provides for the identification and communication with
significant non-data processing third party vendors regarding their preparedness
for Year 2000 risks. While the results of this process have not revealed any
quantifiable loss to FBA, the absence of certain basic services such as
telecommunications, electric power and service provided by other financial
institutions and governmental agencies would have a serious impact on the
operations of FBA. FBA has developed processes to monitor significant non-data
processing third party vendors regarding their preparedness for Year 2000 risks.
The total cost of the Program is currently estimated at $2.3 million,
comprised of capital improvements of $1.4 million and direct expenses
reimbursable to First Services L.P. of $900,000. The capital improvements, as
previously discussed, will be charged to expense in the form of depreciation
expense or lease expense, generally over a period of 60 months. FBA incurred
direct expenses related to the Program of approximately $135,000 for the three
months ended March 31, 1999 and $180,000 for the year ended December 31, 1998.
In addition, FBA is estimating direct expenses of $585,000 for the duration of
the Program. The acquisition of Redwood is not expected to have a significant
impact on the total cost of FBA's Program. The total cost could vary
significantly from those currently estimated for unforeseen circumstances that
could develop in carrying out the Program.
Concurrent with the development and execution of the Plan is the
evolution of FBA's Year 2000 Contingency Plan (Contingency Plan). The
Contingency Plan is intended to be an evolving document changing and developing
to reflect the results, progress and current status of the Program. The
Contingency Plan includes the remediation and business resumption procedures for
common systems, coordinated by the Team, and departmental specific systems,
coordinated by the appropriate departmental manager and the assigned Team
member. The Contingency Plan addresses a variety of issues including critical
systems, credit risk, liquidity, loan and deposit customers, facilities,
supplies and computer back-up locations. Additionally, FBA has developed
business resumption plans for each functional area deemed to be critical to the
operations of FBA. These business resumption plans also serve as evolving
documents and will continue to be modified to appropriately address Year 2000
risks associated with the individual needs and responsibilities of each of these
critical functional areas.
While FBA is making a substantial effort to become Year 2000 compliant,
there is no assurance the Year 2000 problem will not have a material adverse
effect on its financial condition or results of operations.
Liquidity
The liquidity of FBA and the Subsidiary Banks is the ability to
maintain a cash flow which is adequate to fund operations, service debt
obligations and meet obligations and other commitments on a timely basis. The
Subsidiary Banks receive funds for liquidity from customer deposits, loan
payments, maturities of loans and investments, sales of investments and from
earnings. In addition, FBA and the Subsidiary Banks may avail themselves of more
volatile sources of funds through the issuance of certificates of deposit in
denominations of $100,000 or more, federal funds borrowed, securities sold under
agreements to repurchase and borrowings from the Federal Home Loan Bank. The
aggregate funds acquired from these more volatile sources were $91.6 million and
$56.3 million at March 31, 1999 and December 31, 1998, respectively.
<PAGE>
The following table presents the maturity structure of volatile funds,
which consists of certificates of deposit of $100,000 or more and other
short-term borrowings, at March 31, 1999.
(dollars expressed in thousands)
Three months or less......................... $ 43,995
Over three months through six months......... 16,817
Over six months through twelve months........ 20,948
Over twelve months........................... 9,817
-----------
Total.................................. $ 91,577
===========
In addition to these more volatile sources of funds, FBA has borrowed
from First Banks under the Note Payable. Borrowings under the Note Payable have
been utilized to facilitate the funding of FBA's acquisitions, support the
possible repurchases of common stock from time to time and for other corporate
purposes. There were no amounts outstanding under the Note Payable at March 31,
1999 and December 31, 1998.
Management believes the available liquidity and operating results of
the Subsidiary Banks 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.
Effect of New Accounting Standards
In June 1998, the FASB issued SFAS No. 133 -- Accounting for Derivative
Instruments and Hedging Activities (SFAS 133). SFAS 133 establishes accounting
and reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. SFAS 131
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. If certain conditions are met, a derivative may be specifically
designated as a hedge in one of three categories. The accounting for changes in
the fair value of a derivative (that is, gains and losses) depends on the
intended use of the derivative and the resulting designation. Under SFAS 133, an
entity that elects to apply hedge accounting is required to establish, at the
inception of the hedge, the method it will use for assessing the effectiveness
of the hedging derivative and the measurement approach for determining the
ineffective aspect of the hedge. Those methods must be consistent with the
entity's approach to managing risk. SFAS 133 applies to all entities and is
effective for all fiscal quarters of fiscal years beginning after June 15, 1999.
Initial application should be as of the beginning of an entity's fiscal quarter;
on that date, hedging relationships must be designated and documented pursuant
to the provisions of SFAS 133. Earlier application of all of the provisions is
encouraged but is permitted only as of the beginning of any fiscal quarter that
begins after the issuance date of SFAS 133. Additionally, SFAS 133 should not be
applied retroactively to financial statements of prior periods. FBA is currently
evaluating SFAS 133 to determine its potential impact on the consolidated
financial statements.
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Report on Form 8-K
(a) The exhibits are numbered in accordance with the Exhibit Table of Item
601 of Regulation S-K.
Exhibit
Number Description
------ -----------
10(a) Employment Agreement by and between Redwood Bank
and Anthony S. Dee, and joined in by First Banks
America, Inc., dated September 3, 1998
11 Calculations of Earnings Per Share
27 Article 9 - Financial Data Schedule (EDGAR only)
(b) A current report on Form 8-K was filed by FBA on March 19, 1999. Item 2
of the Report describes the acquisition of Redwood Bancorp by First
Banks America, Inc. which was completed on March 4, 1999. In addition,
Item 7 of the Report presents financial statements of the acquired
entity and pro forma financial information of the combined group.
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
Registrant
Date: May 12, 1999 By: /s/James F. Dierberg
--------------------
James F. Dierberg
Chairman, President and
Chief Executive Officer
Date: May 12, 1999 By: /s/ Allen H. Blake
-----------------------
Allen H. Blake
Executive Vice President,
Chief Financial Officer,
Chief Operating Officer
and Secretary
(Principal Financial Officer)
<PAGE>
Exhibit 10(a)
EMPLOYMENT AGREEMENT
This is an Employment Agreement dated as of September 3, 1998, by and
between Redwood Bank, a banking corporation chartered by the State of California
("Redwood"), and Mr. Anthony S. Dee (the "Executive"). First Banks America,
Inc., a Delaware corporation ("FBA") joins in this Agreement for the purpose of
evidencing its acceptance of and consent to the terms hereof and for purposes of
agreeing to Section 15 and 22 hereof.
In consideration of the mutual covenants and agreements set forth
herein, Redwood and the Executive hereby agree as follows:
1. This Agreement is being entered into by the parties in contemplation
of the pending change in control of Redwood, in a transaction in which the
parent company of Redwood, Redwood Bancorp, a California corporation, is to be
merged with a subsidiary of FBA (the "Merger"). The Executive has been employed
by Redwood since March 1984. If the Merger is consummated, this Agreement is
intended by the parties to govern the employment relationship between Redwood
and the Executive from and after the effective date of the Merger (the
"Effective Date") and, together with the Indemnification Agreement referred to
in Section 14 hereof, to supersede and replace any and all agreements,
understandings and arrangements existing among Redwood Bancorp, Redwood and the
Executive. If and only if the Merger is consummated, subject to Section 10(c)
hereof, this Agreement shall become effective on the Effective Date without the
necessity of further action by any of the parties. If the Merger shall not have
been consummated on or before April 30, 1999, then this Agreement shall be null
and void, and the relationship among Redwood Bancorp, Redwood and the Executive
shall continue to be governed by any previously existing agreements,
understandings and arrangements. The Executive acknowledges that he has had the
opportunity to review and understand this Agreement, including the release
provisions in Sections 10 through 13 hereof, and he has consulted with legal
counsel of his own choice concerning the meaning and effects of this Agreement.
2. Upon the terms and conditions set forth in this Agreement, beginning
on the Effective Date, Redwood agrees to employ the Executive, and the Executive
agrees to be employed by Redwood, as its President and Chief Executive Officer.
In that capacity, the Executive shall be responsible for the direction and
management of Redwood, subject to the oversight and supervision of Redwood's
Board of Directors.
<PAGE>
3. The Executive's compensation during the term of this Agreement shall
consist of (i) a base salary (the "Base Salary"); (ii) participation in employee
benefit plans maintained by or on behalf of Redwood; and (iii) participation in
a bonus plan as provided in the Annual Bonus Plan attached hereto as Exhibit A.
The Base Salary shall be equal to $150,000.00 per year and shall be payable in
accordance with the normal payroll policies and procedures of Redwood as the
same may exist from time to time. The Executive shall also be reimbursed for
reasonable business expenses incurred in the performance of his duties in
accordance with Redwood's normal policies, upon submission of written accounting
for such expenses in conformity with Redwood's regular procedures therefor. The
Base Salary may not be reduced during the term of this Agreement unless the
Board of Directors of Redwood and the Executive mutually agree in writing to
such a reduction. For so long as he is employed pursuant to this Agreement, the
Executive shall be entitled to participate in any and all employee benefit plans
and arrangements which are available generally to the executives or employees of
Redwood, as the same may be amended from time to time, and the Executive shall
have the additional benefits described on Exhibit B attached hereto. In that
regard, the Executive has had the opportunity to obtain information about such
plans and arrangements as they now exist and to ask any questions which he deems
appropriate.
4. The Executive's employment by Redwood shall be for a term of three
years beginning on the Effective Date, subject to possible earlier termination
pursuant to Section 6 hereof.
5. For the purposes of this Agreement:
(a) the term "Cause" means the occurrence of any of the following with
respect to the Executive: (i) commission of fraud or any crime involving moral
turpitude resulting in a material adverse effect on Redwood; (ii) dishonest,
deceitful or fraudulent conduct involving willful disregard of the best
interests of Redwood, resulting in a material adverse effect on Redwood; or
(iii) a determination by any federal or state regulatory authority having
jurisdiction over Redwood or Redwood Bancorp that the Executive should be
removed or prohibited from acting as an officer of Redwood or should be
prohibited from acting as an officer of an insured institution;
(b) the term "Good Reason" means (i) a material diminution in the job
responsibilities of the Executive or a negative change in the Executive's title;
(ii) the relocation of the principal office of Redwood outside of the San
Francisco, California metropolitan area; (iii) the breach by FBA of its
obligations in Section 5.05 of the Agreement and Plan of Reorganization of even
date herewith by and among FBA, Redwood Bancorp and Empire Holdings, Inc.,
pursuant to which the Merger is to be consummated; or (iv) the consummation by
Redwood of a merger, reorganization, consolidation or other similar transaction,
unless Redwood is the surviving entity in the transaction; and
(c) the term "Change of Control" means (i) a sale of the capital stock
of Redwood or a merger, combination or similar reorganization transaction, in
either case after which FBA is no longer the direct or indirect owner of more
than 50% of the voting stock of Redwood, or a similar transaction involving FBA
or the capital stock of FBA after which First Banks, Inc. is no longer the
direct or indirect owner of more than 50% of the voting stock of FBA; or (ii) a
sale of all or substantially all of the assets of Redwood, FBA or First Banks,
Inc. in a transaction or a series of transactions.
<PAGE>
6. (a) In the event that the Executive's employment is terminated by
Redwood without Cause or is terminated by the Executive for Good Reason, or a
Change of Control occurs, or in the event of the Executive's permanent
disability or legal incompetence (such that he is unable to perform his
responsibilities as President and Chief Executive Officer of Redwood for a
period of ninety (90) consecutive days and his employment is terminated), or the
Executive's death, then Redwood shall be obligated to pay to the Executive as
severance pay (i) a lump sum payment in an amount equal to the full amount of
the Executive's Base Salary for the remaining term of his employment under this
Agreement (or, at the option of the Executive, monthly payments of Base Salary,
with a portion thereof being contributed to the Executive's account in a 401(k)
plan available to Redwood's employees); (ii) a lump sum payment equal to the
actual bonus awarded by Redwood to the Executive for 1998 (the "1998 Bonus")
multiplied by the number of full calendar years after 1998 during the remaining
term of this Agreement (including for this purpose the year in which the
termination, Change of Control, death or expiration of the 90-day period
occurs), plus, if the Executive has been employed hereunder for a portion of the
year 2002 at the time such event occurs, a fraction of the 1998 Bonus
corresponding to the portion of year 2002 that the Executive is employed by
Redwood; and (iii) premiums for health insurance for the Executive for the
remaining term of his employment under this Agreement, which payment may be
discontinued if the Executive becomes covered by health insurance in connection
with subsequent employment. Any amounts otherwise payable hereunder in
connection with the Executive's death or disability shall be reduced by amounts,
if any, payable to the Executive or his representative from the proceeds of life
insurance and disability insurance provided for the benefit of the Executive by
Redwood or FBA.
(b) In the event that the Executive's employment is terminated by
Redwood for Cause or is voluntarily terminated by the Executive (other than for
Good Reason), then the Executive shall not be entitled to any form of additional
compensation, except as provided in subsection (d).
(c) Redwood shall be obligated to give the Executive thirty (30) days
prior written notice of any termination without Cause, and the Executive shall
be obligated to give Redwood thirty (30) days prior written notice of his
resignation. No prior written notice shall be required in connection with
termination of this Agreement by Redwood for Cause, but Redwood shall endeavor
in such event to give notice which is reasonable under the circumstances.
(d) In the case of a voluntary resignation by the Executive (other than
for Good Reason) for which Redwood is given adequate notice in accordance with
subsection (c) hereof (but not a termination by Redwood for Cause or a
resignation without adequate notice), the Executive shall also be entitled to
receive as additional compensation a bonus amount determined by applying (i) a
percentage equal to the percentage of the Previous Bonus Pool (as defined in the
Annual Bonus Plan) awarded to the Executive in the preceding year to (ii)
fifteen percent (15%) of the net earnings of Redwood for the portion of the year
ending on the last day of the month preceding the month in which such
resignation occurs, determined using the same methodology as is used to
determine Applicable Net Earnings pursuant to the Annual Bonus Plan.
<PAGE>
7. While the Executive is employed pursuant to this Agreement, he shall
devote all of his business time, attention and energies to the affairs of
Redwood and use his best efforts to promote the interests of Redwood and perform
the duties for which he is responsible. During the term of this Agreement, the
Executive shall not, without the express approval of the Board of Directors of
Redwood, directly or indirectly, alone or with any other person or entity,
engage in the San Francisco, California metropolitan area in any business
involving banking or any business competitive with the banking business nor
shall he disclose to any person any secret, proprietary or confidential
information regarding Redwood or its customers or prospective customers, except
as required by applicable law or legal process or as requested by regulatory
authorities having jurisdiction over Redwood.
8. All letters, memoranda, documents, customer lists, manuals,
handbooks, procedures and marketing or other similar materials created or
received by the Executive or of which he has become aware while an employee of
Redwood (whether prior or subsequent to the date of this Agreement or the
Effective Date) are the property of Redwood and shall be treated by the
Executive as confidential, except as required by applicable law or legal process
or as requested by regulatory authorities having jurisdiction over Redwood. If
the Executive is required by law or legal process to disclose information
identified in Sections 7 or 8 of this Agreement, he shall, prior to such
disclosure and promptly after receiving notice of such requirement, notify
Redwood and FBA thereof and cooperate with any reasonable effort made by them to
resist or limit such disclosure. In the event of any termination of the
Executive's employment, he shall promptly return to Redwood all documents and
materials referred to above, including all copies and extracts of same and all
representations thereof in the form of computer media. In the event of a breach
or threatened breach of the provisions of this Section 8, Redwood shall be
entitled, in addition to the recovery of any damages to which it may be entitled
under applicable law, to an injunction restraining the Executive from using or
disclosing, in whole or in part, any of such documents or materials.
9. Redwood is authorized to withhold from any amounts payable to the
Executive all federal, state, city or other taxes as required by applicable laws
or regulations.
10. (a) In consideration of the agreement of Redwood to employ the
Executive on the terms hereof, the Executive hereby fully and forever
irrevocably and unconditionally releases, acquits, and discharges Redwood and
Redwood Bancorp from any and all charges, complaints, claims, liabilities,
obligations, promises, agreements, damages, actions, causes of action, suits,
rights, demands, costs, losses, debts and expenses (including attorneys' fees
and costs actually incurred), of any nature, known or unknown, suspected or
unsuspected, disclosed and undisclosed, that may or might exist, arising out of
or in connection with his employment with Redwood and/or Redwood Bancorp prior
to the date hereof, excluding those referred to in subsection (b).
(b) The release set forth in subsection (a) hereof does not extend to
claims (i) the Executive may have to seek indemnification from Redwood or
Redwood Bancorp for costs and expenses incurred by the Executive in responding
to or defending claims made by third parties against him by reason of the fact
that he was an employee of Redwood and/or Redwood Bancorp prior to the Effective
Date, (ii) under any directors' and officers' liability insurance policy by
which the Executive is covered, or (iii) for compensation and benefits accrued
in the ordinary course of Redwood's business but unpaid as of the Effective
Date.
<PAGE>
(c) The Executive agrees that, in the event that a claim arises in his
favor after the date hereof and on or before the Effective Date which the
Executive does not wish to release, the Executive shall provide to FBA a written
notice thereof prior to the Effective Date, and the Executive shall have the
option to accept the benefits of this Agreement, in which case any such claim
shall be deemed fully and completely released, or to terminate this Agreement by
giving written notice of such termination to Redwood and FBA, in which event the
Executive shall not be entitled to any of the benefits hereof. The failure of
the Executive to notify FBA on or before the Effective Date of any such claim
(whether or not discovered or disclosed to the Executive) shall constitute a
release of any such claim that has accrued on or before the Effective Date, as
provided in the first sentence of subsection (a).
11. The Executive warrants that the release hereby granted will, except
as provided in Section 10(b), dispose of all liability of Redwood and Redwood
Bancorp to the Executive, his heirs and assigns, and to any other person or
entity that might now or in the future have a claim as a result of matters
relating to or arising from the Executive's employment with Redwood and/or
Redwood Bancorp prior to the Effective Date.
12. The Executive acknowledges and agrees that there is a risk that
subsequent to the execution of this Agreement, he will incur or suffer other
loss or damage which is in some way caused by or which relates in some way to
his employment with Redwood and/or Redwood Bancorp prior to the Release Date (as
such term is defined in Section 13) or after such date and prior to the
Effective Date, but which is unknown and unanticipated as of the date hereof and
the Release Date. The Executive assumes these risks and acknowledges the release
hereby granted shall apply to all unknown or unanticipated claims which relate
to or arise out of the Executive's employment with Redwood and/or Redwood
Bancorp prior to the Effective Date. As a consequence thereof, the Executive
hereby expressly waives all rights and benefits he may enjoy under the
provisions of Section 1542 of the California Civil Code, which reads as follows:
"A general release does not extend to claims which the
creditor does not know or suspect to exist in his favor at the
time of executing the release, which if known by him must have
materially affected his settlement with the debtor."
13. By signing this Agreement, the Executive acknowledges and agrees
that:
(a) he has been afforded a 21-day period to negotiate, review and
consider the release hereby granted, he has had the opportunity to consult with
legal counsel of his choice before signing it, and he has in fact done so;
(b) he has carefully read and understands the terms of the release, he
has signed it freely and voluntarily, and he understands that he has
relinquished all rights which he may have under the labor, employment and
discrimination statutes and regulations, including but not limited to the Age
Discrimination in Employment Act, The Older Worker Benefits Protection Act and
any similar rights afforded to him under any state law and regulations,
including but not limited to the California Fair Employment and Housing Act; and
<PAGE>
(c) he understands that he may revoke the release granted hereby within
seven days following the date hereof by giving a written notice of such
revocation to Redwood and FBA in compliance with Section 16 hereof. Such
revocation shall cancel and terminate all provisions of this Agreement,
including those pertaining to the Executive's employment by Redwood after the
Effective Date. If no written notice of revocation is given within seven days
after the date hereof, the release shall become effective on the following
business day (the "Release Date"), without any further action by any party.
14. This Agreement and the Indemnification Agreement among FBA, the
Executive and certain other parties, which is to be executed at the closing of
the Merger, together constitute the entire agreement among the parties and
supersedes and cancels any and all prior discussions, negotiations,
undertakings, and other agreements and arrangements among the parties relating
to the subject matter hereof.
15. Redwood and FBA shall indemnify the Executive to the maximum extent
permitted by applicable laws and regulations against expenses (including
reasonable attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by the Executive in connection with any
threatened or pending action, suit or proceeding (including without limitation
administrative proceedings) to which the Executive is made a party by reason of
his position as an officer or agent of Redwood or FBA subsequent to the
Effective Date or by reason of his service at the request of Redwood or FBA
subsequent to the Effective Date; provided, that in order to be entitled to the
indemnification contemplated by this Section 15, the Executive shall have
promptly notified Redwood and FBA in writing of the existence of any claim for
which indemnification is sought and the indemnifying parties shall have been
given the opportunity to assume the defense thereof; and provided further, that
a failure to notify Redwood or FBA promptly shall not relieve either party of
the obligation to indemnify unless the failure results in actual prejudice to
such party. The Executive shall have the right to employ separate counsel in any
proceeding subject to this section, but the fees and expenses of such counsel
shall be solely at the expense of the Executive unless the Executive and the
indemnifying party shall have been advised in writing by counsel selected by the
indemnifying party that an actual conflict of interest exists between the
interests of the indemnifying party and those of the Executive such that such
counsel is precluded from representing both parties in the proceeding.
16. Any notice, demand, request or other communication to be given
hereunder shall be deemed to have been duly given if given in writing and
personally delivered or sent by overnight delivery service or United States
mail, registered or certified, postage prepaid, with return receipt requested,
to the following addresses:
If to Redwood: Redwood Bank
735 Montgomery Street
San Francisco, California 94111
Attention: Chairman of the Board
<PAGE>
with a copy to: First Banks America, Inc.
11901 Olive Boulevard
Creve Coeur, Missouri 63141
Attention: Allen H. Blake, Vice President
If to FBA: First Banks America, Inc.
11901 Olive Boulevard
Creve Coeur, Missouri 63141
Attention: Allen H. Blake, Vice President
If to the Executive: Anthony S. Dee
787 26th Avenue
San Francisco, California 94121
17. No provision of this Agreement may be waived except by written
notice signed by the party granting the waiver. The failure of any party at any
time to require performance of any provision hereof shall in no manner affect
the right at a later time to enforce the same. This Agreement may not be amended
or modified except by a written document duly executed by the parties hereto.
18. This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original and all of which shall be deemed one and the
same instrument.
19. This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their successors and assigns, but this Agreement shall
not be assigned by either party, by operation of law or otherwise, without the
prior written consent of the other party.
20. This Agreement shall be governed by the laws of the State of
California.
21. If any provision of this Agreement is held to be illegal, invalid
or unenforceable, such provision shall be severable, and this Agreement shall be
construed and enforced as if such illegal, invalid or unenforceable provision
never comprised a part hereof, and the remaining provisions hereof shall remain
in full force and effect and shall not be affected by the illegal, invalid or
unenforceable provision or by its severance.
22. The parties agree that, except for the right of Redwood to seek and
obtain injunctive relief pursuant to Section 8 hereof, any controversy or claim
arising out of or relating to this Agreement or the breach of any provision
hereof shall be resolved by binding arbitration administered in the City of San
Francisco, California by the American Arbitration Association (the "AAA") in
accordance with the terms of the Commercial Arbitration Rules of the AAA.
Judgment upon an award rendered by the arbitrators in any proceeding may be
entered in any court having jurisdiction. In any proceeding to enforce this
Agreement, the prevailing party shall be entitled to recover from the adverse
party the prevailing party's reasonable costs incurred in connection with the
proceeding, including reasonable attorneys' fees and expenses. The parties
intend that this agreement to arbitrate shall be specifically enforceable.
<PAGE>
EXECUTED as of the date first above written.
REDWOOD BANK ANTHONY S. DEE
By: /s/David Curry /s/ Anthony S. Dee
- ------------------ ------------------
Its: Senior Vice President
FIRST BANKS AMERICA, INC.
/s/ Allen H. Blake
- -------------------
By: Allen H. Blake
Its: Vice President
<PAGE>
EXHIBIT A
Annual Bonus Plan
Redwood Bank
This Plan is established by Redwood Bank (the "Bank") as a means of
providing additional incentives for the three senior officers of the Bank listed
below (the "Participants") to contribute to the growth, earnings and overall
financial performance of the Bank:
Name Title
Anthony S. Dee President and Chief Executive Officer
David T. Currie Senior Vice President and Chief Credit Officer
Susan Chase Senior Vice President and Chief Financial Officer
In the first quarter of each year beginning in the year 2000 and,
unless extended, ending in the year 2002, the Bank will set aside as a Bonus
Pool, from the net earnings of the Bank after income taxes for the preceding
year, as determined by the Board of Directors of the Bank in accordance with
generally accepted accounting principles consistently applied, except as
otherwise provided herein ("Applicable Net Earnings"), an amount equal to
fifteen percent (15%) of Applicable Net Earnings. Subject to the limitations set
forth herein, the amounts of bonuses payable to Messrs. Dee and Currie and Ms.
Chase shall be determined by Mr. Dee's discretion (or the discretion of his
successor), in consultation with the Bank's Board of Directors. The amounts
awarded shall be set forth in resolutions adopted by the Board of Directors
prior to April 1, and the amounts so determined shall be paid to the
Participants by the Bank on or before April 1.
If the Bonus Pool determined in any year pursuant to the formula
described above would be less than fifty percent (50%) of the amount actually
constituting the Bonus Pool in the previous year, including calendar year 1998
(the "Previous Bonus Pool"), then the amount of the Bonus Pool to be determined
(the "New Bonus Pool") shall equal the lesser of fifty percent (50%) of the
Previous Bonus Pool or thirty percent (30%) of Applicable Net Earnings.
In the event that one or more of the Participants has previously
received a bonus for such year pursuant to Section 6(a) or 6(d) of the
Participant's Employment Agreement, then the amount of the New Bonus Pool shall
be reduced by the amount that would otherwise be awarded to such Participant(s)
if such Participant(s) were to receive the same percentage of the New Bonus Pool
as the percentage of the Previous Bonus Pool received by such Participant(s).
<PAGE>
The calculation of Applicable Net Earnings hereunder shall be subject
to the following requirements:
(1) There shall be excluded from the calculation the effect of
any non-recurring adjustment of Redwood's Allowance for Loan
Losses made to conform Redwood's method for determining the
Allowance to that used by FBA in applying numerical factors to
each category of loans; and
(2) Provisions for income taxes shall be determined as if
Redwood Bank were not part of a consolidated group.
<PAGE>
EXHIBIT B
ADDITIONAL BENEFITS
The following benefits are available to the Executive in lieu of
vacation, club dues and automobile benefits (if any) available generally to
executives or employees of Redwood:
1. Six (6) weeks of paid vacation per calendar year, accruing as of
January 1 of each year. At the end of each calendar year, any or all unused
vacation days may, at the option of the Executive, be "cashed out" for an
equivalent payment at the rate of Executive's Base Salary, based on a 12-month
year and 4-week months. All unused vacation not "cashed out" may be carried over
to subsequent years until used or "cashed out." Upon termination for any reason,
all unused vacation will be "cashed out."
2. Redwood will pay monthly dues, plus food and beverage minimums, at
Lake Merced Golf and Country Club and Marin Country Club. All rights of
membership in both clubs are acknowledged to belong to the Executive.
3. Redwood will purchase a new automobile for the Executive's use in
September, 2000, or at such later time as the Executive may elect, and every
three years (or at such later time as the Executive may elect) thereafter, at a
cost at least equivalent to the cost of a new model of Executive's then-current
automobile. Upon the termination of Executive's employment for any reason, the
Executive shall have the option to purchase the automobile at its then net book
value, using a useful life of three years to determine applicable depreciation.
Redwood shall pay for all maintenance of the automobile and for the Executive's
business-related parking.
<PAGE>
Exhibit 11
<TABLE>
<CAPTION>
The following is a reconciliation of the numerators and denominators of
the basic and diluted EPS computations for the periods indicated:
Income Shares Per share
(numerator) (denominator) amount
----------- ------------- ------
(dollars expressed in thousands, except per share data)
Three months ended March 31, 1999:
<S> <C> <C> <C>
Basic EPS - income available to common stockholders..... $ 1,631 5,721 $ 0.29
=======
Effect of dilutive securities - stock options........... -- 5
------- ------
Diluted EPS - income available to common stockholders... $ 1,631 5,726 $ 0.28
======= ====== =======
Three months ended March 31, 1998:
Basic EPS - income available to common stockholders..... $ 1,100 4,911 $ 0.22
=======
Effect of dilutive securities - stock options........... -- 13
------- ------
Diluted EPS - income available to common stockholders... $ 1,100 4,924 $ 0.22
======= ====== =======
</TABLE>
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<NAME> First Banks America, Inc.
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0
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