UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHNGTON, D. C. 20549
FORM 10-K/A
(Mark one)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 0-8937
First Banks America, Inc.
(Exact name of registrant as specified in its charter)
Delaware 75-1604965
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
135 North Meramec Clayton, Missouri 63105
(Address of principal executive offices) (Zip Code)
(314) 854-4600
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of class which registered
-------------- ----------------
Common Stock, $0.15 Par Value Per Share New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
8.50% Cumulative Trust Preferred Securities (issued by New York Stock Exchange
First America Capital Trust, a wholly owned trust subsidiary of First Banks
America, Inc.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X NO _
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant, based on the closing price of the Common Stock on the New York Stock
Exchange on March 18, 1999 was $18,835,196. For purposes of this computation,
officers, directors and 5% beneficial owners of the registrant are deemed to be
affiliates. Such determination should not be deemed an admission that such
directors, officers or 5% beneficial owners are, in fact, affiliates of the
registrant.
As of March 18, 1999, 3,220,830 shares of the registrant's Common Stock, $0.15
par value, and 2,500,000 shares of the registrant's Class B Common Stock, $0.15
par value, were outstanding.
Documents incorporated by reference: None
<PAGE>
The registrant is filing this amendment to correct an error which appears in the
original Form 10-K. Specifically, in the table in Note 19 (Business Segment
Results) to the consolidated financial statements of First Banks America, Inc.,
certain figures reported as "Total Assets" and "Deposits" were transposed. This
error was corrected in the published 1998 Annual Report distributed to
stockholders and in Note 19 to the consolidated financial statements which
appear in this Form 10-K/A.
<PAGE>
Item 8. Financial Statements and Supplemental Data
FIRST BANKS AMERICA, INC.
INDEPENDENT AUDITORS' REPORT
KPMG LLP
The Board of Directors and Stockholders
First Banks America, Inc.:
We have audited the accompanying consolidated balance sheets of First
Banks America, Inc. and subsidiaries (the Company) as of December 31, 1998 and
1997, and the related consolidated statements of income, changes in
stockholders' equity and comprehensive income, and cash flows for each of the
years in the three-year period ended December 31, 1998. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of First Banks
America, Inc. and subsidiaries as of December 31, 1998 and 1997, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1998 in conformity with generally accepted accounting
principles.
/s/KPMG LLP
-----------
St. Louis, Missouri
March 17, 1999
<PAGE>
FIRST BANKS AMERICA, INC.
CONSOLIDATED BALANCE SHEETS
(dollars expressed in thousands, except per share data)
<TABLE>
<CAPTION>
December 31,
------------------
1998 1997
---- ----
ASSETS
Cash and cash equivalents:
<S> <C> <C>
Cash and due from banks............................................................. $ 34,312 32,257
Interest-bearing deposits with other financial institutions
with maturities of three months or less.......................................... 1,001 690
Federal funds sold................................................................... 11,000 2,215
---------- --------
Total cash and cash equivalents................................................. 46,313 35,162
---------- --------
Investment securities:
Available for sale, at fair value.................................................... 114,937 148,181
Held to maturity, at amortized cost (fair value of $2,013 at December 31, 1998)...... 2,026 --
--------- --------
Total investments............................................................... 116,963 148,181
---------- --------
Loans:
Commercial and financial............................................................ 140,151 109,763
Real estate construction and development............................................. 161,696 93,454
Real estate mortgage................................................................. 155,443 149,951
Consumer and installment............................................................ 61,907 75,023
Loans held for sale................................................................. -- 5,708
---------- --------
Total loans.................................................................... 519,197 433,899
Unearned discount.................................................................... (2,794) (2,444)
Allowance for possible loan losses.................................................. (12,127) (11,407)
---------- --------
Net loans...................................................................... 504,276 420,048
---------- --------
Bank premises and equipment, net of accumulated depreciation........................... 11,542 10,697
Intangibles associated with the purchase of subsidiaries................................ 8,405 7,189
Accrued interest receivable............................................................. 4,443 4,819
Other real estate ...................................................................... 161 601
Deferred tax assets..................................................................... 12,121 14,164
Other assets............................................................................ 15,773 2,803
---------- --------
Total assets................................................................... $ 719,997 643,664
========== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
FIRST BANKS AMERICA, INC.
CONSOLIDATED BALANCE SHEETS, CONTINUED
(dollars expressed in thousands, except per share data)
<TABLE>
<CAPTION>
December 31,
-----------------
1998 1997
---- ----
LIABILITIES
Deposits:
Demand:
<S> <C> <C>
Non-interest-bearing ........................................................... $ 105,949 97,393
Interest-bearing................................................................ 72,662 73,199
Savings........................................................................... 179,152 147,623
Time deposits:
Time deposits of $100 or more................................................... 52,132 52,472
Other time deposits............................................................. 189,252 185,840
--------- --------
Total deposits............................................................... 599,147 556,527
Short-term borrowings................................................................. 4,141 3,687
Promissory note payable............................................................... -- 14,900
Accrued interest payable.............................................................. 538 4,185
Deferred tax liabilities.............................................................. 1,722 1,092
Payable to former shareholders of Surety Bank......................................... -- 3,829
Accrued expenses and other liabilities................................................ 4,449 5,058
12% convertible debentures ........................................................... -- 6,500
Minority interest in subsidiary....................................................... -- 2,795
----------- --------
Total liabilities............................................................ 609,997 598,573
----------- --------
Guaranteed preferred beneficial interest in First Banks
America, Inc. subordinated debenture.............................................. 44,155 --
----------- --------
STOCKHOLDERS' EQUITY
Common stock:
Common stock, $0.15 par value; 6,666,666 shares authorized at December 31,
1998 and 1997; 3,872,697 shares and 2,144,865 shares
issued at December 31, 1998 and 1997, respectively.............................. 581 322
Class B common stock, $0.15 par value; 4,000,000
shares authorized; 2,500,000 shares issued and
outstanding at December 31, 1998 and 1997....................................... 375 375
Capital surplus....................................................................... 68,743 47,329
Retained earnings since elimination of accumulated deficit
of $259,117 effective December 31, 1994........................................... 5,693 1,083
Common treasury stock, at cost; 651,867 shares and 386,458
shares at December 31, 1998 and 1997, respectively................................ (10,088) (4,350)
Accumulated other comprehensive income................................................ 541 332
---------- --------
Total stockholders' equity................................................... 65,845 45,091
---------- --------
Total liabilities and stockholders' equity................................... $ 719,997 643,664
========== ========
</TABLE>
<PAGE>
FIRST BANKS AMERICA, INC.
CONSOLIDATED STATEMENTS OF INCOME
(dollars expressed in thousands, except per share data)
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------
1998 1997 1996
---- ---- ----
Interest income:
<S> <C> <C> <C>
Interest and fees on loans.................................................. $ 45,118 33,393 25,137
Investment securities....................................................... 8,103 7,870 6,257
Federal funds sold and other................................................ 1,206 1,254 1,988
-------- ------- --------
Total interest income.................................................. 54,427 42,517 33,382
-------- ------- --------
Interest expense:
Deposits:
Interest-bearing demand................................................... 1,274 1,398 756
Savings................................................................... 6,304 3,747 2,819
Time deposits of $100 or more............................................. 2,932 2,144 2,008
Other time deposits....................................................... 11,096 9,427 8,353
Promissory note payable and other borrowings................................ 1,622 2,439 1,597
-------- ------- --------
Total interest expense................................................. 23,228 19,155 15,533
-------- ------- --------
Net interest income.................................................... 31,199 23,362 17,849
Provision for possible loan losses.............................................. 900 2,000 2,405
-------- ------- --------
Net interest income after provision
for possible loan losses............................................. 30,299 21,362 15,444
-------- ------- --------
Noninterest income:
Service charges on deposit accounts and customer service fees............... 2,935 2,239 2,258
Other income................................................................ 1,099 972 1,142
Gain on sales of securities, net............................................ 341 76 185
-------- ------- --------
Total noninterest income............................................... 4,375 3,287 3,585
-------- ------- --------
Noninterest expense:
Salaries and employee benefits.............................................. 8,203 6,226 5,249
Occupancy, net of rental income............................................. 2,291 2,166 1,832
Furniture and equipment..................................................... 1,708 1,149 1,003
Advertising and business development........................................ 616 234 51
Postage, printing and supplies.............................................. 752 496 744
Legal, examination and professional fees.................................... 4,325 3,241 2,777
Data processing............................................................. 2,042 1,084 735
Amortization of intangibles associated with the purchase of subsidiaries.... 596 220 34
Communications.............................................................. 720 673 623
(Gain) loss on sale of other real estate, net of expenses................... 34 (350) 1,148
Guaranteed preferred debenture expense...................................... 1,758 -- --
Other....................................................................... 3,427 2,538 3,541
-------- ------- --------
Total noninterest expense.............................................. 26,472 17,677 17,737
-------- ------- --------
Income before provision for income tax expense
and minority interest in income of subsidiary...................... 8,202 6,972 1,292
Provision for income tax expense................................................ 3,592 3,145 470
-------- ------- --------
Income before minority interest in income of subsidiary................ 4,610 3,827 822
Minority interest in income of subsidiary....................................... -- 294 131
-------- ------- --------
Net income ............................................................ $ 4,610 3,533 691
======== ======= ========
Earnings per common share:
Basic....................................................................... $ 0.90 0.87 0.16
Diluted..................................................................... 0.90 0.86 0.16
======== ======= ========
Weighted average common stock outstanding (in thousands)........................ 5,140 4,069 4,225
======== ======= ========
</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
Three years ended December 31, 1998
(dollars expressed in thousands, except per share data)
<TABLE>
<CAPTION>
Accu-
mulated
other Total
Class B Compre- Retained Common compre- stock-
Common common Capital hensive earnings treasury hensive holders'
stock stock surplus income (deficit) stock income equity
----- ----- ------- ------ --------- ----- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Consolidated balances,
January 1, 1996.................. $280 375 45,871 (4,814) (828) 81 40,965
Year ended December 31, 1996:
Comprehensive income:
Net income...................... -- -- -- 691 691 -- -- 691
Other comprehensive income,
net of tax-(1)
Unrealized losses on securities,
net of reclassification
adjustment(2)................. -- -- -- (17) -- -- (17) (17)
------
Comprehensive income............ 674
======
Exercise of stock options........ 2 -- 36 -- -- -- 38
Compensation paid in stock....... -- -- 10 -- -- -- 10
Repurchase of outstanding warrants -- -- (1,281) -- -- -- (1,281)
Repurchases of common stock...... -- -- -- -- (2,010) -- (2,010)
Pre-merger transactions of FCB... -- -- (1,774) 1,673 -- (100) (201)
---- ---- ------- ----- ------ ----- ------
Consolidated balances,
December 31, 1996................ 282 375 42,862 (2,450) (2,838) (36) 38,195
Year ended December 31, 1997:
Comprehensive income:
Net income...................... -- -- -- 3,533 3,533 -- -- 3,533
Other comprehensive income,
net of tax-(1)
Unrealized gains on securities,
net of reclassification
adjustment(2).................. -- -- -- 368 -- -- 368 368
------
Comprehensive income............ 3,901
=====
Issuance of common stock
for purchase accounting
acquisition of Surety Bank.... 40 -- 4,723 -- -- -- 4,763
Exercise of stock options........ -- -- 15 -- -- -- 15
Redemption of stock options...... -- -- (290) -- -- -- (290)
Compensation paid in stock....... -- -- 13 -- -- -- 13
Repurchases of common stock...... -- -- -- -- (1,512) -- (1,512)
Pre-merger transactions of FCB... -- -- 6 -- -- -- 6
---- ---- ------ ----- ------ ----- ------
Consolidated balances,
December 31, 1997................ 322 375 47,329 1,083 (4,350) 332 45,091
Year ended December 31, 1998:
Comprehensive income:
Net income...................... -- -- -- 4,610 4,610 -- -- 4,610
Other comprehensive income,
net of tax-(1)
Unrealized gains on securities,
net of reclassification
adjustment(2)................. -- -- -- 209 -- -- 209 209
-----
Comprehensive income............ 4,819
=====
Issuance of common stock
for purchase accounting
acquisition of FCB........... 43 -- 2,965 -- -- -- 3,008
Exercise of stock options........ -- -- 13 -- -- -- 13
Redemption of stock options...... -- -- (48) -- -- -- (48)
Compensation paid in stock....... -- -- 27 -- -- -- 27
Conversion of promissory
note payable.................. 121 -- 9,879 -- -- -- 10,000
Conversion of 12%
convertible debentures........ 95 -- 8,578 -- -- -- 8,673
Repurchases of common stock...... -- -- -- -- (5,738) -- (5,738)
---- ---- ------ ----- ------ ----- ------
Consolidated balances,
December 31, 1998................ $581 375 68,743 5,693 (10,088) 541 65,845
==== ===== ====== ====== ======= ===== ======
<PAGE>
- ----------------------------
(1) Components of other comprehensive income are shown net of tax.
(2) Disclosure of reclassification adjustment:
Three years ended December 31,
------------------------------
1998 1997 1996
---- ---- ----
Unrealized gains arising during the period.......................................... $431 417 103
Less: reclassification adjustment for gains included in net income.................. 222 49 120
---- ---- ----
Unrealized gains (losses) on securities............................................. $209 368 (17)
==== ==== ====
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
FIRST BANKS AMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars expressed in thousands)
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------------
1998 1997 1996
---- ---- ----
Cash flows from operating activities:
<S> <C> <C> <C>
Net income............................................................. $ 4,610 3,533 691
Adjustments to reconcile net income to cash provided
by operating activities:
Depreciation, amortization and accretion, net...................... 1,658 1,169 153
Provision for possible loan losses................................. 900 2,000 2,405
Provision for income tax expense................................... 3,592 3,145 470
Payments of income taxes........................................... (797) (1,943) --
Gain on sales of securities, net................................... (341) (76) (185)
(Increase) decrease in accrued interest receivable................. 456 (1,274) (852)
Interest accrued on liabilities.................................... 23,228 19,155 15,533
Payments of interest on liabilities................................ (24,594) (16,972) (14,913)
Other operating activities, net.................................... 1,154 (29) 274
---------- ------- --------
Net cash provided by operating activities.................... 9,866 8,708 3,576
---------- ------- --------
Cash flows from investing activities:
Cash paid for acquired entities, net of cash and cash equivalents
received............................................................. 3,241 3,072 10,715
Proceeds from sales of investment securities........................... 27,211 11,073 20,564
Maturities of investment securities available for sale................. 64,934 91,362 248,107
Purchases of investment securities available for sale.................. (57,830) (112,730) (256,304)
Purchases of investment securities held to maturity.................... (2,033) -- --
Net increase in loans.................................................. (59,478) (44,872) (17,093)
Recoveries of loans previously charged-off............................. 2,470 2,288 2,439
Purchases of bank premises and equipment............................... (1,768) (822) (240)
Proceeds from sales of other real estate............................... 1,441 1,500 2,805
Other investing activities............................................. (14,465) (259) 968
---------- ------- --------
Net cash provided by (used in) investing activities.......... (36,277) (49,388) 11,961
---------- ------- --------
Cash flows from financing activities: Other increases (decreases) in deposits:
Demand and savings deposits.......................................... 22,983 34,675 (20,290)
Time deposits........................................................ (15,524) (1,540) (20,341)
Decrease in federal funds purchased and other short-term borrowings.... -- -- (352)
Decrease in Federal Home Loan Bank advances............................ (585) (1,122) (3,957)
Increase (decrease) in securities sold under agreements to repurchase.. 1,039 1,836 (324)
(Decrease) increase in promissory note payable......................... (4,900) 900 12,946
Decrease in payable to former shareholders of Surety Bank.............. (3,829) -- --
Proceeds from issuance of guaranteed preferred subordinated debenture.. 44,124 -- --
Repurchase of common stock for treasury and warrant.................... (5,738) (1,512) (3,291)
Repurchase of stock option............................................. (8) (290) --
Proceeds from exercise of stock options................................ -- 15 38
Pre-merger transactions of FCB......................................... -- 6 3,218
---------- ------- --------
Net cash provided by (used in) financing activities.......... 37,562 32,968 (32,353)
---------- ------- --------
Net increase (decrease) in cash and cash equivalents......... 11,151 (7,712) (16,816)
Cash and cash equivalents, beginning of year............................... 35,162 42,874 59,690
---------- ------- --------
Cash and cash equivalents, end of year..................................... $ 46,313 35,162 42,874
========== ======= ========
Noncash investing and financing activities:
Loans transferred to other real estate................................. $ 680 585 1,385
Issuance of common stock in purchase accounting acquisition............ 3,008 4,763 --
Conversion of promissory note payable to common stock.................. 10,000 -- --
Conversion of 12% convertible debentures and accrued interest payable
to common stock, net of unamortized deferred acquisition costs....... 8,673 -- --
Pre-merger transaction of FCB - exchange of common
stock for dividend payable........................................... $ -- -- 643
========== ======= ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
FIRST BANKS AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements of First Banks
America, Inc. and subsidiaries (FBA or the Company) have been prepared in
accordance with generally accepted accounting principles and conform to
practices prevalent among financial institutions. The following is a summary of
the more significant accounting policies followed by FBA:
Basis of Presentation. The consolidated financial statements of FBA
have been prepared in accordance with generally accepted accounting principles
and conform to predominant practices within the banking industry. Management of
FBA has made a number of estimates and assumptions relating to the reporting of
assets and liabilities and the disclosure of contingent assets and liabilities
to prepare the consolidated financial statements in conformity with generally
accepted accounting principles. Actual results could differ from those
estimates. Certain 1997 and 1996 amounts have been reclassified to conform with
the 1998 presentation.
The Board of Directors of FBA elected to implement an accounting
adjustment referred to as a "quasi-reorganization," effective December 31, 1994.
In accordance with accounting provisions applicable to a quasi-reorganization,
the assets and liabilities of FBA were adjusted to fair value and the
accumulated deficit was eliminated as of December 31, 1994.
Restatement. Effective February 2, 1998, FBA completed its acquisition
of First Commercial Bancorp, Inc. (FCB) and FCB's wholly owned subsidiary, First
Commercial Bank (First Commercial), in a transaction accounted for as a
combination of entities under common control. First Banks, Inc., St. Louis,
Missouri (First Banks), owned a majority interest in both FBA and FCB.
The consolidated financial statements give retroactive effect to the
transaction and, as a result, the consolidated balance sheets, statements of
income and statements of cash flows are presented as if the combining entities
had been consolidated for all periods presented which are subsequent to First
Banks' acquisition of FCB on August 23, 1995. The consolidated statements of
stockholders' equity reflect the accounts of FBA as if the common stock issued
to First Banks in exchange for its majority interest in FCB had been outstanding
for all periods subsequent to August 23, 1995. First Banks' ownership interest
in FCB was approximately 96.1% from August 23, 1995 to May 1996 and 61.5% from
June 1996 to February 2, 1998. The remaining interest in FCB acquired by FBA is
reflected in the consolidated financial statements as minority interest for the
period from August 23, 1995 to February 2, 1998. First Banks owned 76.8% of FBA
as of December 31, 1998.
Principles of Consolidation. The consolidated financial statements
include the accounts of the parent company and its subsidiaries, all of which
are wholly owned. All significant intercompany accounts and transactions have
been eliminated. FBA operates through two banking subsidiaries, First Bank of
California, headquartered in Roseville, California (FB California) and First
Bank Texas National Association, headquartered in Houston, Texas (FB Texas),
collectively referred to as the Subsidiary Banks.
Cash and Cash Equivalents. Cash, due from banks, federal funds sold,
and interest-bearing deposits with maturities of three months or less are
considered to be cash and cash equivalents for purposes of the consolidated
statements of cash flows.
The Subsidiary Banks are required to maintain certain daily reserve
balances in accordance with regulatory requirements. These reserve balances were
$9.1 million and $4.6 million at December 31, 1998 and 1997, respectively.
Investment Securities. The classification of investment securities as
available for sale or held to maturity is determined at the date of purchase.
FBA does not engage in the trading of investment securities.
Investment securities classified as available for sale are those debt
and equity securities for which FBA has no immediate plan to sell, but which may
be sold in the future if circumstances warrant. Available for sale securities
are stated at current fair value. Realized gains and losses are included in
noninterest income upon commitment to sell, based on the amortized cost of the
individual security sold. Unrealized gains and losses are recorded, net of
related income tax effects, in a separate component of stockholders' equity. All
previous fair value adjustments included in stockholders' equity are reversed
upon sale.
Investment securities designated as held to maturity are those debt
securities which FBA has the positive intent and ability to hold until maturity.
<PAGE>
Held to maturity securities are stated at amortized cost, in which the
amortization of premiums and accretion of discounts are recognized over the
contractual maturities or estimated lives of the individual securities, adjusted
for anticipated prepayments, using the level-yield method.
Loans. Loans held for portfolio are carried at cost, adjusted for
amortization of premiums and accretion of discounts using the interest method.
Interest and fees on loans are recognized as income using the interest method.
Loans held for portfolio are stated at cost as FBA has the ability and it is
management's intention to hold them to maturity.
The accrual of interest on loans is discontinued when it appears that
interest or principal may not be paid in a timely manner in the normal course of
business. Generally, payments received on nonaccrual and impaired loans are
recorded as principal reductions. Interest income is recognized after all
principal has been repaid or an improvement in the condition of the loan has
occurred which would warrant resumption of interest accruals.
A loan is considered impaired when it is probable a creditor will be
unable to collect all amounts due, both principal and interest, according to the
contractual terms of the loan agreement. When measuring impairment, the expected
future cash flows of an impaired loan are discounted at the loan's effective
interest rate. Alternatively, impairment is measured by reference to an
observable market price, if one exists, or the fair value of the collateral for
a collateral-dependent loan. Regardless of the historical measurement method
used, FBA measures impairment based on the fair value of the collateral when
foreclosure is probable. Additionally, impairment of a restructured loan is
measured by discounting the total expected future cash flows at the loan's
effective rate of interest as stated in the original loan agreement. FBA
continues to use its existing nonaccrual methods for recognizing interest income
on impaired loans.
Loans Held For Sale. Mortgage loans held for sale are carried at the
lower of cost or market value which is determined on an individual loan basis.
Gains or losses on the sale of loans held for sale are determined on a specific
identification method.
Allowance for Possible Loan Losses. The allowance for possible loan
losses is maintained at a level considered adequate to provide for potential
losses. The provision for possible loan losses is based on a periodic analysis
of the loans by management, considering, among other factors, current economic
conditions, loan portfolio composition, past loan loss experience, independent
appraisals, loan collateral and payment experience. In addition to the allowance
for estimated losses on impaired loans, an overall unallocated allowance is
established to provide for unidentified credit losses which are inherent in the
portfolio. As adjustments become necessary, they are reflected in the results of
operations in the periods in which they become known.
Bank Premises and Equipment. Bank premises and equipment are stated at
cost less accumulated depreciation and amortization. Depreciation is computed
primarily using the straight-line method over the estimated useful lives of the
related assets. Amortization of leasehold improvements is calculated using the
straight-line method over the shorter of the useful life of the improvement or
term of the lease. Bank premises and improvements are depreciated over 15 to 29
years and equipment over two to ten years.
Intangibles Associated With the Purchase of Subsidiaries. The excess of
cost over net assets acquired of purchased subsidiaries is amortized using the
straight-line method over the estimated periods to be benefited, which has been
estimated at 15 years.
Other Real Estate. Other real estate, consisting of real estate
acquired through foreclosure or deed in lieu of foreclosure, is stated at the
lower of fair value less applicable selling costs. The excess of cost over fair
value of the property at the date of acquisition is charged to the allowance for
possible loan losses. Subsequent reductions in carrying value, to reflect
current fair value or costs incurred in maintaining the properties are charged
to expense as incurred.
Income Taxes. FBA and its subsidiaries file a consolidated federal
income tax return. Each subsidiary pays its allocation of federal income taxes
to FBA, or receives payment from FBA to the extent that tax benefits are
realized. Separate state franchise tax returns are filed in Texas and Delaware
for the appropriate entities. FBA and its subsidiaries join in filing Illinois
and California unitary income tax returns with First Banks, as First Banks'
ownership is greater than 50%.
Financial Instruments. A financial instrument is defined as cash,
evidence of an ownership interest in an entity, or a contract that conveys or
imposes on an entity the contractual right or obligation to either receive or
deliver cash or another financial instrument.
Financial Instruments With Off-Balance-Sheet Risk. FBA uses financial
instruments to reduce the interest rate risk arising from its financial assets
and liabilities. These instruments involve, in varying degrees, elements of
<PAGE>
interest rate risk and credit risk in excess of the amount recognized in the
consolidated balance sheets. "Interest rate risk" is defined as the possibility
that interest rates may move unfavorably from the perspective of FBA. The risk
that a counterparty to an agreement entered into by FBA may default is defined
as "credit risk."
FBA is party to commitments to extend credit and commercial and standby
letters of credit in the normal course of business to meet the financing needs
of its customers. These commitments involve, in varying degrees, elements of
interest rate risk and credit risk in excess of the amount recognized in the
consolidated balance sheets.
Interest Rate Swap Agreements. Interest rate swap agreements are
accounted for on an accrual basis with the net interest differential being
recognized as an adjustment to interest expense of the related liability. In the
event of early termination of these derivative financial instruments, the net
proceeds received or paid are deferred and amortized over the shorter of the
remaining contract life of the derivative financial instrument or the maturity
of the related liability. If, however, the amount of the underlying liability is
repaid, then the gains or losses on the agreements are recognized immediately in
the consolidated statements of income.
Interest Rate Cap Agreements. Interest rate cap agreements are
accounted for on an accrual basis with the net interest differential being
recognized as an adjustment to interest expense of the related liability.
Premiums and fees paid upon the purchase of interest rate cap agreements are
amortized to interest expense over the life of the agreements using the interest
method. In the event of early termination of an interest rate cap agreement, the
net proceeds received or paid are deferred and amortized over the shorter of the
remaining contract life or the maturity of the related liability. If, however,
the amount of the underlying liability is repaid, then the gains or losses on
the agreements are recognized immediately in the consolidated statements of
income. The unamortized premiums and fees paid are included in other assets in
the accompanying consolidated balance sheets.
Earnings Per Common Share. Basic EPS is computed by dividing the income
available to common stockholders (the numerator) by the weighted average number
of common shares outstanding (the denominator) during the year. The computation
of diluted EPS is similar except the denominator is increased to include the
number of additional common shares that would have been outstanding if the
dilutive potential shares had been issued. In addition, in computing the
dilutive effect of convertible securities, the numerator is adjusted to add back
(a) any convertible preferred dividends and (b) the after-tax amount of interest
recognized in the period associated with any convertible debt.
(2) ACQUISITIONS
On November 1, 1996, FBA completed its acquisition of Sunrise Bancorp,
a California corporation (Sunrise), and its wholly owned subsidiary, Sunrise
Bank, in exchange for $17.5 million in cash. At the time of the transaction,
Sunrise had $110.8 million in total assets, $45.5 million in cash and cash
equivalents and investment securities, $61.1 million in total loans, net of
unearned discount, and $91.1 million in total deposits. The acquisition was
funded from available cash and borrowings of $14.0 million under a promissory
note payable (Note Payable) to First Banks.
On December 1, 1997, FBA completed its acquisition of Surety Bank in
exchange for 264,622 shares of FBA common stock and cash of $3.8 million. The
cash portion of this transaction, which was paid to the former shareholders of
Surety Bank in January 1998, was funded by an advance under the Note Payable. At
the time of the transaction, Surety had $72.8 million in total assets, $14.9
million in cash and cash equivalents and investment securities, $54.4 million in
total loans, net of unearned discount, and $67.5 million in total deposits.
Sunrise was merged into a wholly owned subsidiary of FBA. Sunrise Bank
and Surety Bank were merged into FB California. The acquisitions of Sunrise and
Surety Bank were accounted for under the purchase method of accounting and,
accordingly, the consolidated financial statements include the financial
position and results of operations for the period subsequent to the acquisition
dates, and the assets acquired and liabilities assumed were recorded at fair
value at the acquisition date. The excess of the cost over the fair value of the
net assets acquired was $3.2 million and $2.8 million for Sunrise and Surety
Bank, respectively, and is being amortized over 15 years.
On February 2, 1998, FBA completed its acquisition of Pacific Bay Bank
in exchange for cash of $4.2 million. This transaction was funded by an advance
under the Note Payable. At the time of the transaction, Pacific Bay Bank had
$38.3 million in total assets, $7.4 million in cash and cash equivalents, $29.7
million in total loans, net of unearned discount, and $35.2 million in total
deposits. The excess of the cost over the fair value of the net assets acquired
was $1.5 million and is being amortized over 15 years.
On February 2, 1998, FBA and FCB were merged. Under the terms of the
Agreement and Plan of Merger (Agreement), FCB was merged into FBA, and FCB's
wholly owned subsidiary, First Commercial Bank, was merged into FB California.
The FCB shareholders received .8888 shares of FBA common stock for each share of
FCB common stock that they held. In total, FCB shareholders received
<PAGE>
approximately 751,728 shares of FBA common stock. The transaction also provided
for First Banks to receive 804,000 shares of FBA common stock in exchange for
$10.0 million of the Note Payable. In addition, FCB's 12% convertible debentures
of $6.5 million, which were owned by First Banks, were exchanged for a similar
convertible debenture of FBA.
FCB had six banking offices located in Sacramento, Roseville (2), San
Francisco, Concord and Campbell, California. At February 2, 1998, FCB had total
assets of $192.5 million, $64.4 million in investment securities, $118.9 million
in total loans, net of unearned discount, and $173.1 million in total deposits.
First Banks owned a majority interest in both FBA and FCB. Consistent
with the accounting treatment for a combination of entities under common
control, the merger was accounted for by FBA as follows:
o First Banks' interest in FCB was accounted for by FBA at First Banks'
historical cost. First Banks' historical cost basis in FCB was
determined under the purchase method of accounting, effective upon
First Banks' acquisition of First Commercial on August 23, 1995.
Accordingly, the consolidated financial statements of First Banks
include the financial position and results of operations for the
periods subsequent to the acquisition date, and the assets acquired and
liabilities assumed were recorded at fair value at the acquisition
date.
o Effective with the merger, because the two entities were under the
common control of First Banks, the consolidated financial statements of
FBA were restated to reflect First Banks' interest in the financial
condition and results of operations of FCB for the periods subsequent
to August 23, 1995.
o The amount attributable to the interest of the minority shareholders in
the fair value of the net assets of FCB was accounted for by FBA under
the purchase method of accounting. Accordingly, such amount was
reflected by FBA at fair value, as determined by the market value of
FBA common stock exchanged for the minority interest pursuant to the
Agreement.
On March 4, 1999, FBA completed its acquisition of Redwood Bancorp and
its wholly-owned subsidiary, Redwood Bank, for cash consideration of $26.0
million. Redwood Bank is headquartered in San Francisco, California and operates
four banking locations in the San Francisco Bay area. Redwood Bank had $183.9
million in total assets, $134.4 million in loans, net of unearned discount,
$34.4 in investment securities and $162.9 million in deposits at the acquisition
date. Redwood Bank is operating as a subsidiary of FBA. The acquisition was
funded from available proceeds from the sale of the 8.50% Guaranteed Preferred
Beneficial Interest in First Banks America, Inc. Subordinated Debenture
(Preferred Securities) completed in July 1998.
The following information presents unaudited pro forma condensed
results of operations of FBA, combined with the acquisitions of Surety Bank and
Redwood Bancorp, as if FBA had completed the transactions on January 1, 1997. In
addition, the minority shareholders' interest in the net assets of FCB is
presented as if FBA had acquired such interest on January 1, 1997.
<TABLE>
<CAPTION>
December 31,
-----------------------
1998 1997
---- ----
(dollars expressed in thousands,
except per share data)
<S> <C> <C>
Net interest income.................................................. $ 37,856 32,314
Provision for possible loan losses................................... 900 2,255
Net income .......................................................... 5,354 3,895
========== =======
Weighted average shares of common stock outstanding (in thousands).. 5,140 5,427
========== =======
Earnings per common share:
Basic............................................................. $ 1.04 0.72
Diluted........................................................... 1.04 0.71
========== =======
</TABLE>
The unaudited pro forma condensed results of operations reflect the
application of the purchase method of accounting and certain other assumptions.
Purchase accounting adjustments have been applied to investment securities, bank
premises and equipment, deferred tax assets and liabilities and excess cost 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 as it was not
material.
<PAGE>
(3) INVESTMENTS IN DEBT AND EQUITY SECURITIES
Securities Available for Sale. The amortized cost, contractual
maturity, unrealized gains and losses and fair value of investment securities
available for sale at December 31, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
Maturity
-------------------------------- Total
After amor- Gross
1 Year 1-5 5-10 10 tized unrealized Weighted
-------------- Fair average
or less years years years cost Gains Losses value yield
------- ----- ----- ----- ---- ----- ------ ----- -----
(dollars expressed in thousands)
December 31, 1998:
Carrying value:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury.................. $ 31,030 15,137 -- -- 46,167 483 -- 46,650 6.03 %
U.S. government agencies and
corporations:
Mortgage-backed......... 2,199 7,202 6,728 15,683 31,812 199 (23) 31,988 6.19
Other................... 4,503 16,529 4,995 3,490 29,517 175 -- 29,692 5.98
Equity investments in other
Financial institutions...... 3,600 -- -- -- 3,600 -- -- 3,600 8.04
Federal Home Loan Bank and
Federal Reserve Bank stock
(no stated maturity)........ 3,007 -- -- -- 3,007 -- -- 3,007 6.36
-------- ------- ------ ---- -------- --- ---- ------- ----
Total.............. $ 44,339 38,868 11,723 19,173 114,103 857 (23) 114,937 6.13
======== ======== ====== ====== ======== === ==== ======= ====
Market value:
Debt securities................ $ 37,980 39,323 11,768 19,259
Equity securities.............. 6,607 -- -- --
-------- ------- ------ ------
Total.............. $ 44,587 39,323 11,768 19,259
======== ======= ====== ======
Weighted average yield............ 6.20% 5.77% 6.52% 6.49%
======== === === ===== ======
December 31, 1997:
Carrying value:
U.S. Treasury.................. $ 21,061 56,249 -- -- 77,310 498 (1) 77,807 6.04%
U.S. government agencies and
corporations:
Mortgage-backed......... -- 14,059 47 6,755 20,861 38 (28) 20,871 6.03
Other................... 8,488 34,974 -- -- 43,462 41 (38) 43,465 6.15
Federal Home Loan Bank and
Federal Reserve Bank stock
(no stated maturity)........ 6,038 -- -- -- 6,038 -- -- 6,038 5.87
-------- ------- --- ----- ------- --- ---- ------- ----
Total.............. $ 35,587 105,282 47 6,755 147,671 577 (67) 148,181 6.07
======== ======= === ===== ======= === ==== ======= ====
Market value:
Debt securities................ $ 29,575 105,728 47 6,793
Equity securities.............. 6,038 -- -- --
-------- ------- --- -----
Total.............. $ 35,613 105,728 47 6,793
======== ======= === =====
Weighted average yield............ 5.87% 6.06% 6.56% 7.23%
==== ==== ==== ====
Securities Held to Maturity. The amortized cost, contractual maturity,
unrealized gains and losses and fair value of investment securities held to
maturity at December 31, 1998 were as follows:
Maturity Total
After amor- Gross
1 Year 1-5 5-10 10 tized unrealized Weighted
--------------- Fair average
or less years years years cost Gains Losses value yield
------- ----- ----- ----- ---- ----- ------ ----- -----
(dollars expressed in thousands)
December 31, 1998:
Carrying value...................:
U.S. Government agencies and
corporations:
Mortgage-backed....... $ -- -- -- 2,026 2,026 -- (13) 2,013 6.41%
======== ==== ===== ===== ====== ====== ===== ===== ====
Market value:
Debt securities................ $ -- -- -- 2,013
======= ===== ===== =====
Weighted average yield............ --% --% -- % 6.41%
======= ===== ======== =====
</TABLE>
<PAGE>
Proceeds from sales of available-for-sale investment securities were
$27.2 million, $11.1 million and $20.6 million for the years ended December 31,
1998, 1997 and 1996, respectively. Gross gains of $341,000, $76,000 and $185,000
were realized on those sales for the years ended December 31, 1998, 1997 and
1996, respectively. No losses were realized on those sales for the years ended
December 31, 1998, 1997 and 1996.
The Subsidiary Banks maintain investments in the Federal Home Loan Bank
(FHLB) and the Federal Reserve Bank (FRB). These investments are recorded at
cost, which represents redemption value. The investment in FHLB stock is
maintained at a minimum amount equal to the greater of 1% of the aggregate
outstanding balance of loans secured by residential real estate, or 5% of
advances from the FHLB. The investment in FRB stock is maintained at a minimum
of 6% of the Subsidiary Banks' capital stock and capital surplus.
Investment securities with a carrying value of approximately $25.4
million and $22.5 million at December 31, 1998 and 1997, respectively, were
pledged in connection with deposits of public and trust funds, securities sold
under agreements to repurchase and for other purposes as required by law.
(4) LOANS AND ALLOWANCE FOR POSSIBLE LOAN LOSSES
Changes in the allowance for possible loan losses for the years ended
December 31 were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
(dollars expressed in thousands)
<S> <C> <C> <C>
Balance, January 1........................................... $11,407 10,744 10,616
Acquired allowance for possible loan losses.................. 885 30 2,338
------- ------- -------
12,292 10,774 12,954
------- ------- -------
Loans charged-off............................................ (3,535) (3,655) (7,054)
Recoveries of loans previously charged-off................... 2,470 2,288 2,439
------- ------- -------
Net loans charged-off.................................... (1,065) (1,367) (4,615)
------- ------- -------
Provision charged to operations.............................. 900 2,000 2,405
------- ------- -------
Balance, December 31......................................... $12,127 11,407 10,744
======= ======= =======
</TABLE>
At December 31, 1998 and 1997, FBA had $8.6 million and $2.8 million,
respectively, of loans on nonaccrual status. Interest on nonaccrual loans which
would have been recorded under the original terms of the loans was $802,000,
$385,000 and $476,000 for the years ended December 31, 1998, 1997 and 1996,
respectively. Of these amounts, $173,000, $297,000 and $256,000 was actually
recorded as interest income on such loans in 1998, 1997 and 1996, respectively.
At December 31, 1998 and 1997, FBA had $9.0 million and $3.3 million of
impaired loans, consisting of $8.6 million and $2.8 million of loans on
nonaccrual status and $400,000 and $500,000 of consumer installment loans 60
days or more past due, respectively. There were no specific reserves at December
31, 1998 and 1997 relating to impaired loans. The allowance for possible loan
losses includes $2.3 million and $850,000 related to impaired loans at December
31, 1998 and 1997, respectively. For the years ended December 31, 1998, 1997 and
1996, the average recorded investment in impaired loans was $6.6 million, $3.7
million and $5.1 million, respectively; and $173,000, $297,000, and $315,000,
respectively, of interest income was recognized on loans using a cash-basis
method of accounting.
FBA's primary market areas are the San Francisco - Sacramento corridor
of northern California and Houston, Dallas, Irving and McKinney, Texas. At
December 31, 1998, approximately 54.8% of the total loan portfolio and 60.6% of
the commercial and financial loan portfolio were to borrowers within these
regions.
In general, FBA is a secured lender. At December 31, 1998,
approximately 97.7% of the loan portfolio was secured. Collateral is required in
accordance with the normal credit evaluation process based upon the
creditworthiness of the customer and the credit risk associated with the
particular transaction.
<PAGE>
(5) BANK PREMISES AND EQUIPMENT
Bank premises and equipment were comprised of the following at December 31:
<TABLE>
<CAPTION>
1998 1997
---- ----
(dollars expressed in thousands)
<S> <C> <C>
Land............................................................. $ 4,114 4,114
Buildings and improvements....................................... 6,324 5,684
Furniture, fixtures and equipment................................ 4,457 4,384
Construction in progress......................................... 480 387
-------- -------
Total........................................................ 15,375 14,569
Less accumulated depreciation ................................... 3,833 3,872
-------- -------
Bank premises and equipment, net............................. $ 11,542 10,697
======== =======
</TABLE>
Depreciation expense for the years ended December 31, 1998, 1997 and
1996 totaled $1.1 million, $851,000 and $858,000, respectively.
<PAGE>
FBA leases land, office properties and some items of equipment under
operating leases. Certain of the leases contain renewal options and escalation
clauses. Total rent expense was $1.1 million, $1.0 million and $826,000 for the
years ended December 31, 1998, 1997 and 1996, respectively. Future minimum lease
payments under noncancellable operating leases extend through 2019 as follows:
(dollars expressed
in thousands)
Year ending December 31:
1999.................................................. $ 1,245
2000.................................................. 923
2001.................................................. 635
2002.................................................. 468
2003.................................................. 389
Thereafter............................................ 2,136
-------
Total minimum lease payments................ $ 5,796
=======
FBA leases to unrelated parties a portion of its owned banking
facilities. Total rental income was $956,000, $762,000 and $428,000 for the
years ended December 31, 1998, 1997 and 1996, respectively.
(6) PROMISSORY NOTE PAYABLE
FBA had borrowed $14.9 million under a $20.0 million revolving Note Payable from
First Banks as of December 31, 1997. 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 and accrued
interest under the Note Payable are due and payable on October 31, 2001. The
interest expense under the Note Payable was $599,000, $1.2 million and $194,000
for the years ended December 31, 1998, 1997 and 1996, respectively. There was no
amounts outstanding under the Note Payable at December 31, 1998. The accrued and
unpaid interest under the Note Payable was $1.4 million at December 31, 1997.
As more fully discussed in Note 2 to the consolidated financial
statements, FBA exchanged 804,000 shares of common stock for $10.0 million of
principal outstanding under the Note Payable. The remaining principal and
accrued interest under the Note Payable was repaid in full from the proceeds of
the Preferred Securities.
The average balance and maximum balance outstanding during the years
ended December 31 were as follows:
1998 1997
---- ----
(dollars expressed in thousands)
Average balance............................... $ 7,770 14,367
Maximum month-end balance .................... 17,964 14,900
The average rates paid on notes payable outstanding during the years
ended December 31, 1998, 1997, and 1996 were 7.7%, 8.2% and 8.3%, respectively.
(7) 12% CONVERTIBLE DEBENTURES
As more fully described in Note 2 to the consolidated financial
statements, FBA issued to First Banks a $6.5 million 12% convertible debenture
in exchange for similar convertible debentures of FCB. The principal and any
accrued but unpaid interest thereon was convertible at any time prior to
maturity, at the option of First Banks, into FBA common stock at $14.06 per
share. On December 4, 1998, First Banks elected to convert the $6.5 million
principal and $2.4 million accrued and unpaid interest into 629,557 shares of
FBA common stock.
The interest expense under the convertible debenture was $724,000,
$791,000 and $793,000 for the years ended December 31, 1998, 1997 and 1996,
respectively. Accrued and unpaid interest on the debenture was $1.6 million at
December 31, 1997.
<PAGE>
(8) GUARANTEED PREFERRED BENEFICIAL INTEREST IN FIRST BANKS AMERICA, INC.
SUBORDINATED DEBENTURE
On July 21, 1998, First America Capital Trust (First Capital), a
newly-formed Delaware business trust subsidiary of FBA, issued 1.84 million
shares of Preferred Securities at $25 per share in an underwritten public
offering, and issued 56,908 shares of common securities to FBA at $25 per share.
FBA owns all of First Capital's common securities. The gross proceeds of the
offering were used by First Capital to purchase $47.4 million of 8.50%
Subordinated Debentures (Subordinated Debentures) from FBA, maturing on June 30,
2028. The maturity date may be shortened to a date not earlier than June 30,
2003. The Subordinated Debentures are the sole asset of First Capital. FBA made
certain guarantees and commitments relating to the Preferred Securities. FBA's
proceeds from the issuance of the Subordinated Debentures to First Capital, net
of underwriting fees and offering expenses, were $44.0 million. Distributions
payable on the Preferred Securities were $1.8 million for the year ended
December 31, 1998 and are included in noninterest expense in the consolidated
financial statements.
(9) INCOME TAXES
Income tax expense (benefit) for the years ended December 31 consists
of:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
(dollars expressed in thousands)
Current income tax expense (benefit):
<S> <C> <C> <C>
Federal................................................ $ 315 947 (509)
State.................................................. 501 383 2
------- ------ ------
816 1,330 (507)
------- ------ -------
Deferred income tax expense:
Federal................................................ 2,630 1,356 23
State.................................................. 114 55 588
------- ------ ------
2,744 1,411 611
------- ------ ------
Change in valuation allowance.............................. 32 404 366
------- ------ ------
Total............................................... $ 3,592 3,145 470
======= ====== ======
</TABLE>
The effective rates of federal income taxes for the years ended
December 31 differ from statutory rates of taxation as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------------- -------------------- -----------------
Amount Percent Amount Percent Amount Percent
(dollars expressed in thousands)
Income before provision for
<S> <C> <C> <C> <C> <C> <C>
income tax expense............... $ 8,202 $6,972 $ 1,292
======= ====== =======
Tax expense at federal
income tax rate.................. $ 2,871 35.0% 2,440 35.0% 452 35.0%
Effects of differences in
tax reporting:
Change in the deferred tax
valuation allowance............. 32 0.4 404 5.8 366 28.3
Change in tax attributes
available to be carried
forward........................ -- -- -- -- (605) (46.8)
State income taxes............... 400 4.9 285 4.1 385 29.8
Other............................ 289 3.5 16 0.2 (128) (9.9)
------- ------ -------- ----- ------- -----
Income tax expense
at effective rate........... $ 3,592 43.8% $3,145 45.1% $ 470 36.4%
======= ====== ====== ===== ======= =====
</TABLE>
<PAGE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are as follows:
<TABLE>
<CAPTION>
December 31,
-------------------
1998 1997
---- ----
(dollars expressed in thousands)
Deferred tax assets:
<S> <C> <C>
Allowance for possible loan losses........................................... $ 4,323 3,971
Other real estate............................................................ 599 677
Alternative minimum tax credit............................................... 876 736
Postretirement medical plan.................................................. 233 247
Quasi-reorganization adjustment of bank premises............................. 1,327 1,377
Other........................................................................ 1,171 1,104
Net operating loss carryforwards............................................. 10,664 13,092
-------- -------
Gross deferred tax assets.............................................. 19,193 21,204
Valuation allowance.......................................................... (7,072) (7,040)
-------- -------
Deferred tax assets.................................................... 12,121 14,164
-------- -------
Deferred tax liabilities:
FHLB stock dividends......................................................... 203 409
Bank premises and equipment.................................................. 1,145 533
Other ....................................................................... 374 150
-------- -------
Deferred tax liabilities............................................... 1,722 1,092
-------- -------
Net deferred tax assets................................................ $ 10,399 13,072
======== =======
</TABLE>
The realization of FBA's net deferred tax assets is based on the
expectation of future taxable income and the utilization of tax planning
strategies. Based on these factors, management believes it is more likely than
not that FBA will realize the recognized net deferred tax asset of $10.4
million. The net change in the valuation allowance, related to deferred tax
assets, was an increase of $32,000 for the year ended December 31, 1998. The
increase was comprised of the establishment of additional valuation reserves
resulting from net operating losses at FCB.
Changes to the deferred tax asset valuation allowance for the years
ended December 31 were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
(dollars expressed in thousands)
<S> <C> <C> <C>
Balance, January 1......................................... $7,040 6,579 5,554
Current year deferred provision, change in
deferred tax valuation allowance........................ 32 404 366
Purchase acquisitions...................................... -- 57 659
------ ----- -----
Balance, December 31....................................... $7,072 7,040 6,579
====== ===== =====
</TABLE>
The valuation allowance for deferred tax assets at December 31, 1998
and 1997 includes $716,000, which when recognized, will be credited to
intangibles associated with the purchase of subsidiaries. The valuation
allowance for deferred tax assets at December 31, 1998 and 1997 includes $6.0
million, which when recognized, will be credited to capital surplus under the
terms of the quasi-reorganizations implemented for FBA and FCB as of December
31, 1994 and 1996, respectively. At December 31, 1998, FBA has separate
limitation year (SRLY) net operating loss carryforwards (NOLs) of $20.3 million
and alternative minimum tax credits of $736,000. Their utilization is subject to
annual limitations. Additionally, FBA had SRLY NOLs of $10.2 million and
alternative minimum tax credits of $140,000 which are not subject to annual
limitations.
The NOLs for FBA at December 31, 1998 expire as follows:
(dollars expressed in thousands)
Year ending December 31:
1999............................................ $ 4,883
2000............................................ 103
2001............................................ 1,667
2002............................................ 2,316
2003 through 2018............................... 21,498
---------
Total....................................... $ 30,467
=========
<PAGE>
(10) EARNINGS PER COMMON SHARE
The following is a reconciliation of the numerators and denominators of the
basic and diluted EPS computations for the periods indicated:
<TABLE>
<CAPTION>
Income Shares Per share
(numerator) (denominator) amount
----------- ------------- ------
(dollars expressed in thousands, except per share data)
Year ended December 31, 1998:
<S> <C> <C> <C>
Basic EPS - income available to common stockholders............. $4,610 5,140 $ 0.90
======
Effect of dilutive securities - stock options................... -- 8
------ ------
Diluted EPS - income available to common stockholders........... $4,610 5,148 $ 0.90
====== ====== ======
Year ended December 31, 1997:
Basic EPS - income available to common stockholders............. $3,533 4,069 $ 0.87
======
Effect of dilutive securities - stock options................... -- 27
------ ------
Diluted EPS - income available to common stockholders........... $3,533 4,096 $ 0.86
====== ====== ======
Year ended December 31, 1996:
Basic EPS - income available to common stockholders............. $ 691 4,225 $ 0.16
======
Effect of dilutive securities:
Stock options........................................... -- 61
Warrants................................................ -- 91
------ ------
Diluted EPS - income available to common stockholders........... $ 691 4,377 $ 0.16
====== ====== ======
</TABLE>
(11) EMPLOYEE BENEFIT PLANS
401(K) Plan. FBA has a savings and incentive plan covering
substantially all employees. Under the plan, employer matching contributions are
determined annually by FBA's Board of Directors. Employee contributions are
limited to 15% of the employee's annual compensation not to exceed $10,000 for
1998. Total employer contributions under the plan were $106,000, $63,000 and
$40,000 for the years ended December 31, 1998, 1997 and 1996, respectively. The
plan assets are held and managed under a trust agreement with the trust
department of an affiliated bank.
Pension Plan. FBA has a noncontributory defined benefit pension plan
covering substantially all officers and employees. The accumulation of benefits
under the plan were discontinued during 1994. During 1998, 1997 and 1996, no
contributions were made to the pension plan and FBA did not incur any
expenditures associated with the pension plan. FBA is in the process of
terminating this plan and does not expect to incur a significant gain or loss.
(12) DIRECTORS' STOCK BONUS PLAN
The 1993 Directors' Stock Bonus Plan provides for annual grants of FBA
common stock to the nonemployee directors of FBA. Directors' compensation of
$27,000, $13,000 and $10,000 was recorded relating to this plan for the years
ended December 31, 1998, 1997 and 1996, respectively. These amounts represented
the market values of the 1,500, 1,000 and 1,000 shares granted for the years
ended December 31, 1998, 1997 and 1996, respectively.
The plan is self-operative, and the timing, amounts, recipients and
terms of individual grants are determined automatically. On July 1 of each year,
each nonemployee director automatically receives a grant of 500 shares of common
stock. The maximum number of plan shares that may be issued shall not exceed
16,667 shares, and 8,167 shares were available to be issued at December 31,
1998. The plan will expire on July 1, 2001.
<PAGE>
(13) COMMITMENTS AND CONTINGENCIES
FBA is a party to commitments to extend credit and commercial and
standby letters of credit in the normal course of business to meet the financing
needs of its customers. These instruments involve, to varying degrees, elements
of credit risk and interest rate risk in excess of the amount recognized in the
consolidated balance sheets. The interest rate risk associated with these credit
commitments relates primarily to the commitments to originate fixed-rate loans.
The credit risk amounts are equal to the contractual amounts, assuming the
amounts are fully advanced and the collateral or other security is of no value.
FBA uses the same credit policies in granting commitments and conditional
obligations as it does for on-balance-sheet items.
Commitments to extend credit at December 31 were as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
(dollars expressed in thousands)
<S> <C> <C>
Credit card commitments................................................... $ 1,850 1,978
Other loan commitments.................................................... 260,661 237,973
Standby letters of credit................................................. 370 2,173
========= =========
</TABLE>
Credit card and other loan commitments are agreements to lend to a
customer as long as there is no violation of any condition established in the
contract. Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since many of the commitments are
expected to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. Each customer's creditworthiness
is evaluated on a case-by-case basis. The amount of collateral obtained, if
deemed necessary upon extension of credit, is based on credit evaluation of the
customer. Collateral held varies but may include accounts receivable, inventory,
property, plant, equipment, income-producing commercial properties or single
family residential properties. Collateral is generally required except for
consumer credit card commitments. Standby letters of credit are conditional
commitments issued to guarantee the performance of a customer to a third party.
The letters of credit are primarily issued to support private borrowing
arrangements and commercial transactions. Most letters of credit extend for less
than one year. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan facilities to customers.
Upon issuance of the commitments, FBA holds marketable securities, certificates
of deposit, inventory or other assets as collateral supporting those commitments
for which collateral is deemed necessary.
(14) STOCKHOLDERS' EQUITY
Classes of Common Stock. FBA is majority owned by First Banks. First
Banks owned 2,500,000 shares of the Class B common stock and 1,895,733 shares of
the common stock, which represented 76.84% of the outstanding voting stock of
FBA at December 31, 1998. Accordingly, First Banks has effective control over
the management and policies of FBA and the election of its directors. In
addition, on February 17, 1999, First Banks completed its purchase of 314,848
shares of common stock, pursuant to a tender offer which commenced on January 4,
1999. The tender offer increased First Banks' ownership interest to 82.3% of the
outstanding voting stock of FBA.
As of December 31, 1998, FBA had issued and outstanding 3,220,830
shares and 2,500,000 shares of Common Stock and Class B Common Stock,
respectively. The rights of Class B Common Stock are in most respects equivalent
to the rights associated with the Common Stock, except the Common Stock has a
dividend preference over the Class B Common Stock, and the Class B Common Stock
is unregistered and transferable only in certain limited circumstances. The
outstanding shares of Class B Common Stock are convertible after August 31,
1999, at the option of the holder, into an equal number of shares of Common
Stock. Each share of Common Stock and Class B Common Stock is entitled to one
vote in the election of directors of FBA and in other matters on which a vote of
stockholders is taken.
Issuance of Common Stock. During 1998 and 1997, FBA issued 2,185,285
shares and 264,622 shares, respectively, of common stock as follows:
<TABLE>
<CAPTION>
Common shares issued
--------------------
1998
----
<S> <C>
Acquisition of FCB.................................................... 751,728
Conversion of Note Payable............................................ 804,000
Conversion of 12% convertible debenture............................... 629,557
---------
2,185,285
1997
----
Acquisition of Surety Bank............................................ 264,622
=========
</TABLE>
<PAGE>
Stock Options. On April 19, 1990, the Board of Directors of FBA adopted
the 1990 Stock Option Plan (1990 Plan). The 1990 Plan currently provides that no
more than 200,000 shares of common stock will be available for stock options.
One-fourth of each stock option becomes exercisable at the date of the grant and
at each anniversary date of the grant. The options expire ten years from the
date of the grant. There were no options granted under this plan during the
three years ended December 31, 1998.
At December 31, 1998, there were 36,833 shares available for future
stock options and 6,667 shares of common stock reserved for the exercise of
outstanding options. Transactions relating to the 1990 Plan for the years ended
December 31 are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ------------------- -----------------
Average Average Average
option option option
Amount price Amount price Amount price
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
Outstanding options, January 1....... 13,334 $ 3.75 57,500 $ 3.75 67,500 $ 3.75
Options exercised and redeemed....... (6,667) 3.75 (44,166) 3.75 (10,000) 3.75
--------- ------- --------
Outstanding options, December 31..... 6,667 3.75 13,334 3.75 57,500 3.75
========= ==== ======= ======= ======== ======
Options exercisable, December 31..... 6,667 13,334 57,500
========= ======= ========
</TABLE>
Warrants. In connection with a previous restructuring of FBA, a warrant
to purchase common stock was granted to the Federal Deposit Insurance
Corporation (FDIC). On October 1, 1996, FBA purchased the outstanding warrant to
acquire 131,336 shares of FBA common stock at $0.75 per share from the FDIC for
an aggregate amount of $1.28 million.
The purchase of the warrant was applied as a reduction of capital surplus.
Distribution of Earnings of the Subsidiary Banks. The Subsidiary Banks
are restricted by various state and federal regulations as to the amount of
dividends which are available for payment of dividends to FBA. Under the most
restrictive of these requirements, the future payment of dividends from the
Subsidiary Banks is limited to approximately $4.0 million at December 31, 1998,
unless prior permission of the regulatory authorities is obtained.
(15) 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 management and investment services,
loan servicing and other management and administrative services. Fees paid under
this agreement were $2.1 million, $1.4 million and $1.3 million for the years
ended December 31, 1998, 1997 and 1996, respectively. The fees paid for
management services are at least as favorable as could have been obtained from
an unaffiliated third party.
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 during 1996. 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 $1.1 million, $709,000 and $412,000 for the years ended December
31, 1998, 1997 and 1996, respectively.
Effective April 1, 1997, First Services L.P., a limited partnership
indirectly owned by First Banks' Chairman and his children through its general
partners and limited partners, began providing data processing and various
related services to FBA under the terms of data processing agreements.
Previously, these services were provided by a subsidiary of First Banks. Fees
paid under these agreements were $1.9 million, $1.0 million and $692,000 for the
years ended December 31, 1998, 1997 and 1996, respectively. The fees paid for
data processing services are at least as favorable as could have been obtained
from an unaffiliated third party.
FBA's Subsidiary Banks had $86.2 million and $66.9 million in whole
loans and loan participations outstanding at December 31, 1998 and 1997,
respectively, that were purchased from banks affiliated with First Banks. In
addition, FBA's Subsidiary Banks had sold $182.9 million and $54.7 million in
whole loans and loan participations to affiliates of First Banks at December 31,
1998 and 1997, 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.
<PAGE>
As more fully discussed in Note 6 to the consolidated financial
statements, as of December 31, 1997, FBA had borrowings of $14.9 million from
First Banks under a $20 million Note Payable. There were no amounts outstanding
under the Note Payable at December 31, 1998.
As more fully discussed in Notes 2 and 7 to the consolidated financial
statements, in 1995, First Banks purchased $6.5 million of 12% convertible
debentures of FCB. These debentures, which were exchanged for a similar
debenture of FBA in February 1998, were converted into 629,557 shares of FBA
common stock on December 4, 1998.
Outside of normal customer relationships, no directors, executive
officers or stockholders holding over 5% of FBA's voting stock, and no
corporations or firms with which such persons or entities are associated,
currently maintain or have maintained, any significant business or personal
relationships with FBA or its subsidiaries, other than that which arises by
virtue of such position or ownership interest in FBA, except as described above.
(16) INTEREST RATE RISK MANAGEMENT AND DERIVATIVE FINANCIAL INSTRUMENTS WITH
OFF-BALANCE-SHEET RISK
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.
The use of such derivative financial instruments is strictly limited to
reducing the interest rate exposure of FBA. Derivative financial instruments
held by FBA for purposes of managing interest rate risk are summarized as
follows:
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
------------------ -------------------
Notional Credit Notional Credit
amount amount amount amount
------ ------ ------ ------
(dollars expressed in thousands)
<S> <C>
Interest rate swap agreements............ $ 65,000 -- -- --
Interest rate cap agreement.............. 10,000 55 10,000 222
</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.
During 1998, FBA entered into $65 million notional amount interest rate
swap agreements (Swap Agreements) to effectively shorten the repricing
characteristics of certain interest-bearing liabilities to correspond more
closely with its assets, with the objective of stabilizing 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 (LIBOR). The terms of the Swap Agreements provide for FBA to pay
quarterly and receive payment semi-annually. The net amount due to FBA under the
Swap Agreements was $669,000 at December 31, 1998. The maturity dates, notional
amounts, interest rates paid and received, and fair values of interest rate swap
agreements outstanding as of December 31, 1998 were as follows:
<TABLE>
<CAPTION>
Notional Interest rate Interest rate Fair value
Maturity Date amount paid received gain
------------- ------ ---- -------- ----
(dollars expressed in thousands)
<S> <C> <C> <C> <C>
June 11, 2002........................... $ 15,000 5.24% 6.00% $ 363
September 16, 2002...................... 20,000 5.22 5.36 87
September 18, 2002...................... 30,000 5.23 5.33 92
-------- ------
$ 65,000 5.23 5.56 $ 542
======== ==== ==== ======
</TABLE>
FBA has an interest rate cap agreement outstanding to limit the
interest expense associated with certain interest-bearing liabilities. At
December 31, 1998 and 1997, the unamortized cost of this agreement was $130,000
and $242,000, respectively, and were included in other assets. The net amount
due to FBA under this agreement was $5,000 and $8,000 at December 31, 1998 and
1997, respectively.
<PAGE>
(17) FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair values of financial instruments are management's estimate of the
values at which the instruments could be exchanged in a transaction between
willing parties. These estimates are subjective and may vary significantly from
amounts that would be realized in actual transactions. In addition, other
significant assets are not considered financial assets including deferred tax
assets and bank premises and equipment. Further, the tax ramifications related
to the realization of the unrealized gains and losses can have a significant
effect on the fair value estimates and have not been considered in any of the
estimates.
The estimated fair value of FBA's financial instruments at December 31
were as follows:
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
--------------------- ------------------------
Carrying Estimated Carrying Estimated
amount fair value amount fair value
------ ---------- ------ ----------
(dollars expressed in thousands)
Financial assets:
<S> <C> <C> <C> <C>
Cash and cash equivalents............. $ 46,313 46,313 35,162 35,162
Investment securities:
Available for sale................. 114,937 114,937 148,181 148,181
Held to maturity................... 2,026 2,013 -- --
Net loans............................. 504,276 506,672 420,048 421,874
Accrued interest receivable........... 4,443 4,443 4,819 4,819
========= ========= ======= =======
Financial liabilities:
Demand and savings deposits........... $ 357,763 357,763 318,215 318,215
Time deposits......................... 241,384 242,857 238,312 239,344
Accrued interest payable.............. 538 538 4,185 4,185
12% convertible debentures............ -- -- 6,500 6,500
Preferred Securities.................. 44,155 47,159 -- --
Borrowings............................ 4,141 4,141 18,587 18,587
========= ========= ======= =======
Off-balance-sheet:
Interest rate swap and cap agreements. $ 130 597 242 222
Unfunded loan commitments............. -- -- -- --
========= ========= ======= =======
</TABLE>
The following methods and assumptions were used in estimating the fair
value of financial instruments:
Financial Assets:
Cash and cash equivalents and accrued interest receivable: The carrying
values reported in the consolidated balance sheets approximate fair value.
Investment securities: Fair value for securities available for sale are
the amounts reported in the consolidated balance sheets. Fair value for
securities held to maturity are based on quoted market prices where available.
If quoted market prices were not available, fair values were based upon quoted
market prices of comparable instruments.
Net loans: The fair value for most loans was estimated utilizing
discounted cash flow calculations that applied interest rates currently being
offered for similar loans to borrowers with similar risk profiles. The carrying
values for loans are net of the allowance for possible loan losses and unearned
discount.
Financial Liabilities:
Deposits: The fair value disclosed for deposits generally payable on
demand (i.e., non-interest-bearing and interest-bearing demand, savings and
money market accounts) are considered equal to their respective carrying amounts
as reported in the consolidated balance sheets. The fair value disclosed for
demand deposits does not include the benefit that results from the low-cost
funding provided by deposit liabilities compared to the cost of borrowing funds
in the market. The fair value for certificates of deposit was estimated
utilizing a discounted cash flow calculation that applied interest rates
currently being offered on similar certificates to a schedule of aggregated
monthly maturities of time deposits.
Preferred Securities: Fair value is based on quoted market prices.
Borrowings, 12% convertible debentures and accrued interest payable:
The carrying values reported in the consolidated balance sheets approximate fair
value.
<PAGE>
Off-Balance-Sheet:
Interest rate swap and cap agreements: The fair value of the interest
rate swap and cap agreements are estimated by comparison to market rates quoted
on new agreements with similar terms and creditworthiness.
Unfunded loan commitments: The majority of the commitments to extend
credit and commercial and standby letters of credit contain variable interest
rates and credit deterioration clauses and, therefore, the carrying value of
these credit commitments approximates fair value.
(18) 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 8.0%, with at least 4.0%
being "Tier 1" capital (as defined in the regulations). In addition, a minimum
leverage ratio (Tier 1 capital to total assets) of 3.0% plus an additional
cushion of 100 to 200 basis points is expected. In order to be considered well
capitalized under Prompt Corrective Action provisions, a bank is required to
maintain a risk weighted asset ratio of at least 10.0%, a Tier 1 to
risk-weighted assets ratio of at least 6.0%, and a leverage ratio of at least
5.0%. As of December 31, 1997, the date of the most recent notification from
FBA's primary regulator, the Subsidiary Banks were categorized as well
capitalized under the regulatory framework for Prompt Corrective Action.
Management believes, as of December 31, 1998, FBA and the Subsidiary Banks were
well capitalized.
At December 31, 1998 and 1997, FBA's and the Subsidiary Banks' capital
ratios were as follows:
<TABLE>
<CAPTION>
Risk-Based Capital Ratios
--------------------------------------------
Total Tier 1 Leverage Ratio
------------------ ----------------- ----------------
1998 1997 1998 1997 1998 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
FBA............................. 16.66% 6.88% 11.51% 5.62% 10.25% 4.96%
FB California................... 10.63 13.03 9.37 11.77 8.34 13.80
FB Texas........................ 11.37 12.26 10.11 11.00 9.15 8.90
First Commercial (1)............ -- 11.25 -- 9.98 -- 7.96
</TABLE>
----------------
(1) First Commercial was merged into FB California on February 2, 1998.
(19) BUSINESS SEGMENT RESULTS
FBA has defined its business segments to be the 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 network, the Subsidiary Banks provide
similar products and services in two 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 automatic teller machines, telephone account access, cash management
services, credit related insurance and safe deposit boxes. 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
are defined to be Houston, Dallas, Irving and McKinney, Texas and the San
Francisco - Sacramento corridor of northern California. 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. See Note 15 to the
consolidated financial statements. There are no foreign operations.
<PAGE>
The business segment results shown below are consistent with FBA's
internal reporting system which is consistent, in all material respects, with
generally accepted accounting principles and practices prominent in the banking
industry. Such principles and practices are summarized in Note 1 to the
consolidated financial statements.
<TABLE>
<CAPTION>
FB California FB Texas
------------------------------- ------------------------------
1998 1997 1996 1998 1997 1996
---- ---- ---- ---- ---- ----
(dollars expressed in thousands)
Balance sheet information:
<S> <C> <C> <C> <C> <C> <C>
Investment securities....................... $ 53,449 83,165 73,292 59,914 65,016 51,847
Loans, net of unearned discount............. 314,977 255,114 156,303 201,426 176,341 180,068
Total assets................................ 410,110 370,917 257,834 300,984 267,152 266,571
Deposits.................................... 363,422 325,562 223,435 264,425 231,175 233,710
Stockholders' equity........................ 42,825 40,176 29,696 30,249 29,761 26,773
========== ========= ========= ========= ======== ========
Income statement information:
Interest income:
Loans, external customers................ $ 22,540 16,233 9,538 12,411 14,456 15,421
Loans, other operating segments
and affiliates of First Banks.......... 5,390 1,183 -- 4,777 1,521 178
Investment securities.................... 4,131 4,293 3,030 3,852 3,576 3,049
Other.................................... 483 707 621 674 546 1,355
---------- --------- --------- --------- -------- --------
Total interest income................ 32,544 22,416 13,189 21,714 20,099 20,003
---------- --------- --------- --------- -------- --------
Interest expense:
Deposits................................. 13,254 8,640 5,154 8,742 8,093 8,822
Other.................................... 101 89 14 158 286 464
---------- ---------- --------- --------- -------- --------
Total interest expense............... 13,355 8,729 5,168 8,900 8,379 9,286
---------- ---------- --------- --------- -------- --------
Net interest income.................. 19,189 13,687 8,021 12,814 11,720 10,717
Provision for possible loan losses.......... 565 500 1,405 335 1,500 1,000
---------- ---------- --------- --------- -------- --------
Net interest income after provision
for possible loan losses........... 18,624 13,187 6,616 12,479 10,220 9,717
---------- --------- --------- --------- -------- --------
Noninterest income.......................... 2,732 1,847 1,813 1,790 1,901 1,888
Noninterest expense(1)...................... 15,548 10,356 8,634 8,749 6,960 8,501
---------- --------- --------- --------- -------- --------
Net income before income taxes....... 5,808 4,678 (205) 5,520 5,161 3,104
Provision (benefit) for income taxes........ 2,736 2,027 (208) 1,888 1,815 1,168
Income (loss) before minority
interest in income of subsidiary... 3,072 2,651 3 3,632 3,346 1,936
Minority interest income of subsidiary...... -- -- -- -- -- --
---------- --------- --------- --------- -------- --------
Net income........................... $ 3,072 2,651 3 3,632 3,346 1,936
========== ========= ========= ========= ======== ========
</TABLE>
- -----------------
(1) Corporate and other includes $1.8 million of guaranteed preferred debenture
expense for the year ended December 31, 1998 (see Note 8 to the
consolidated financial statements).
<PAGE>
<TABLE>
<CAPTION>
Corporate and other Consolidated Total
-------------------------------------------- ------------------------------------
1998 1997 1996 1998 1997 1996
---- ---- ---- ---- ---- ----
(dollars expressed in thousands)
<S> <C> <C> <C> <C> <C> <C>
3,573 -- -- 116,936 148,181 125,139
-- -- -- 516,403 431,455 336,371
8,903 5,595 4,682 719,997 643,664 529,087
(28,700) (210) (1,203) 599,147 556,527 455,492
(7,229) (24,846) (18,274) 65,845 45,091 38,195
========= ======== ========= ========= ========= ========
-- -- -- 34,951 30,689 24,959
-- -- -- 10,167 2,704 178
120 1 178 8,103 7,870 6,257
49 1 12 1,206 1,254 1,988
--------- ------- --------- --------- --------- --------
169 2 190 54,427 42,517 33,382
--------- ------- --------- --------- --------- --------
(390) (17) (40) 21,606 16,716 13,936
1,363 2,064 1,119 1,622 2,439 1,597
--------- ------- --------- --------- --------- --------
973 2,047 1,079 23,228 19,155 15,533
--------- ------- --------- --------- --------- --------
(804) (2,045) (889) 31,199 23,362 17,849
-- -- -- 900 2,000 2,405
--------- ------- --------- --------- --------- --------
(804) (2,045) (889) 30,299 21,362 15,444
--------- ------- --------- --------- --------- --------
(147) (461) (116) 4,375 3,287 3,585
2,175 361 602 26,472 17,677 17,737
--------- ------- --------- --------- --------- --------
(3,126) (2,867) (1,607) 8,202 6,972 1,292
(1,032) (697) (490) 3,592 3,145 470
(2,094) (2,170) (1,117) 4,610 3,827 822
-- 294 131 -- 294 131
--------- ------- --------- --------- -------- --------
(2,094) (2,464) (1,248) 4,610 3,533 691
========= ======= ========= ========= ======== ========
</TABLE>
<PAGE>
(20) PARENT COMPANY ONLY FINANCIAL INFORMATION
Condensed Balance Sheets
<TABLE>
<CAPTION>
December 31,
------------
1998 1997
---- ----
(dollars expressed in thousands)
Assets:
<S> <C> <C>
Cash deposited in subsidiary banks...................................... $ 31,306 1,075
Investment securities................................................... 5,023 --
Investment in subsidiaries.............................................. 73,074 68,095
Deferred tax assets..................................................... 2,192 3,532
Other assets............................................................ 2,349 659
---------- --------
Total assets.................................................... $ 113,944 73,361
========== ========
Liabilities and stockholders' equity:
Promissory note payable................................................. $ -- 14,900
12% convertible debentures.............................................. -- 6,500
Subordinated debenture payable to First Capital......................... 47,423 --
Accrued and other liabilities........................................... 676 6,870
---------- --------
Total liabilities............................................... 48,099 28,270
Stockholders' equity...................................................... 65,845 45,091
---------- --------
Total liabilities and stockholders' equity...................... $ 113,944 73,361
========== ========
</TABLE>
Condensed Statements of Income
<TABLE>
<CAPTION>
Years ended December 31,
1998 1997 1996
(dollars expressed in thousands)
Income:
<S> <C> <C> <C>
Dividends from subsidiaries.................................... $ 4,750 1,625 --
Other.......................................................... 711 31 219
------- ------ -------
Total income............................................ 5,461 1,656 219
------- ------ -------
Expense:
Interest....................................................... 1,363 2,064 1,138
Other.......................................................... 2,475 686 505
------- ------ -------
Total expense........................................... 3,838 2,750 1,643
------- ------ -------
Income (loss) before income tax benefit................. 1,623 (1,094) (1,424)
Income tax benefit............................................... (1,032) (686) (492)
------- ------ -------
Income (loss) before equity in undistributed
income of subsidiaries................................ 2,655 (408) (932)
Equity in undistributed income of subsidiaries................... 1,955 3,941 1,623
------- ------ -------
Net income.............................................. $ 4,610 3,533 691
======= ====== =======
</TABLE>
<PAGE>
Condensed Statements of Cash Flows
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------------
1998 1997 1996
---- ---- ----
(dollars expressed in thousands)
Operating activities:
<S> <C> <C> <C>
Net income.................................................... $ 4,610 3,533 691
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Equity in undistributed income of subsidiaries............. (1,955) (3,941) (1,623)
Dividends from subsidiaries................................ 4,750 1,625 --
Other, net................................................. (3,231) (4,169) (2,008)
---------- ------- -------
Net cash provided by (used in) operating activities.. 4,174 (2,952) (2,940)
---------- ------- -------
Investing activities:
Purchase of investment securities............................. (3,600) -- (12,618)
Investment in common securities of First Capital.............. (1,423) -- --
Proceeds from maturity of investment securities............... -- -- 7,152
Proceeds from sales of investment securities.................. -- -- 4,496
Capital contributions to subsidiaries......................... -- -- (17,052)
(Decrease) increase in payable to former shareholders
of Surety Bank............................................. (3,829) 3,829 --
Pre-merger transactions of FCB................................ -- -- (1,938)
Net cash provided by (used in) investing activities.. (8,852) 3,829 (19,960)
---------- --------- -------
Financing activities:
Increase (decrease) in promissory note payable................ (4,900) 900 14,000
Increase in subordinated debenture............................ 45,547 -- --
Exercise of stock options..................................... -- 15 38
Repurchase of common stock for treasury....................... (5,738) (1,512) (2,010)
Pre-merger transactions of FCB................................ -- (7) 2,933
---------- --------- -------
Net cash provided by (used in) financing activities.. 34,909 (604) 14,961
---------- ------- -------
Net increase (decrease) in cash and cash equivalents. 30,231 273 (7,939)
Cash and cash equivalents at beginning of year.................. 1,075 802 8,741
---------- --------- -------
Cash and cash equivalents at end of year........................ $ 31,306 1,075 802
========== ========= =======
Noncash investing and financing activities:
Issuance of common stock in purchase accounting acquisition... $ 3,008 4,763 --
Conversion of promissory note payable to common stock......... 10,000 -- --
Conversion of 12% convertible debentures and accrued interest
payable to common stock.................................... 8,673 -- --
Cash paid for interest........................................ 1,867 -- 475
Pre-merger transaction of FCB - exchange of common stock
for dividend payable....................................... -- -- 643
========== ========= =======
</TABLE>
(21) CONTINGENT LIABILITIES
In the ordinary course of business, there are various legal proceedings
pending against FBA and/or the Subsidiary Banks. Management, in consultation
with legal counsel, is of the opinion the ultimate resolution of these
proceedings will have no material effect on the financial condition or results
of operations of FBA or the Subsidiary Banks.
(22) SUBSEQUENT EVENT
As more fully described in Note 2 to the consolidated financial
statements, on March 4, 1999, FBA completed its acquisition of Redwood Bancorp
and its wholly owned subsidiary, Redwood Bank, for cash consideration of $26.0
million. Redwood Bank is headquartered in San Francisco, California and operates
four banking locations in the San Francisco Bay area. Redwood Bank had $183.9
million in total assets, $134.4 million in loans, net of unearned discount,
$32.4 million in investment securities and $162.9 million in deposits at the
acquisition date. Redwood Bank is operating as a subsidiary of FBA.
<PAGE>
Supplementary Financial Information regarding First Banks America, Inc.
is incorporated herein by reference from page 22 of the 1998 Annual Report in
the form the same appears as Exhibit 13 to the Form 10-K.
<PAGE>
INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION
23(a) Consent of KPMG LLP
<PAGE>
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
First Banks America, Inc.
By: /s/Allen H. Blake
---------------------
Allen H. Blake
Chief Financial Officer and
Principal Accounting Officer
May 26, 1999
<PAGE>
EXHIBIT 23(a)
The Board of Directors
First Banks America, Inc.
We consent to incorporation by reference in the registration statement (No,
33-42607) on Form S-8 of First Banks America, Inc. and subsidiaries of our
report dated March 17, 1999, relating to the consolidated balance sheets of
First Banks America, Inc. and subsidiaries as of December 31, 1998 and 1997 and
the related consolidated statements of income, stockholders' equity and
comprehensive income and cash flows for each of the years in the three-year
period ended December 31, 1998 which report appears in the December 31, 1998
annual report on Form 10-K/A of First Banks America, Inc.
/s/KPMG LLP
-----------
St. Louis, Missouri
May 26, 1999
