SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-8937
------
FIRST BANKS AMERICA, INC.
-------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 75-1604965
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
135 North Meramec Avenue, Clayton, Missouri 63105
-------------------------------------------------
(address of principal executive offices) (Zip Code)
(314) 854-4600
--------------
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(Former name, former address, and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No ____
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Outstanding at
Class July 31, 1999
----- -------------
Common Stock, $0.15 par value 3,207,801
Class B Common Stock, $0.15 par value 2,500,000
<PAGE>
FIRST BANKS AMERICA, INC.
<TABLE>
INDEX
<CAPTION>
Page
PART I FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets as of June 30, 1999
<S> <C> <C> <C>
and December 31, 1998............................................................ -1-
Consolidated Statements of Income for the three and six
months ended June 30, 1999 and 1998.............................................. -3-
Consolidated Statements of Changes in Stockholders' Equity and
Comprehensive Income for the six months ended June 30, 1999
and 1998 and the six months ended
December 31, 1998................................................................ -4-
Consolidated Statements of Cash Flows for the six months
ended June 30, 1999 and 1998..................................................... -5-
Notes to Consolidated Financial Statements......................................... -6-
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.............................................. -13-
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders................................ -24-
Item 6. Exhibits and Reports on Form 8-K................................................... -24-
SIGNATURES........................................................................................... -25-
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
FIRST BANKS AMERICA, INC.
Consolidated Balance Sheets (unaudited)
(dollars expressed in thousands, except per share data)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
---- ----
ASSETS
------
Cash and cash equivalents:
<S> <C> <C>
Cash and due from banks................................................... $ 26,051 34,312
Interest-bearing deposits with other financial institutions
with maturities of three months or less................................. 1,122 1,001
Federal funds sold........................................................ 13,000 11,000
------------ ---------
Total cash and cash equivalents....................................... 40,173 46,313
------------ ---------
Investment securities:
Available for sale, at fair value......................................... 84,990 114,937
Held to maturity, at amortized cost (fair value of $1,922
and $2,013 at June 30, 1999 and December 31, 1998,
respectively)........................................................... 2,012 2,026
------------ ---------
Total investment securities........................................... 87,002 116,963
------------ ---------
Loans:
Commercial and financial.................................................. 173,020 140,151
Real estate construction and development.................................. 214,088 161,696
Real estate mortgage...................................................... 252,697 155,443
Consumer and installment.................................................. 53,969 61,907
------------ ---------
Total loans........................................................... 693,774 519,197
Unearned discount......................................................... (1,748) (2,794)
Allowance for possible loan losses........................................ (14,383) (12,127)
------------ ---------
Net loans............................................................. 677,643 504,276
------------ ---------
Bank premises and equipment, net of
accumulated depreciation................................................ 12,815 11,542
Intangibles associated with the purchase of subsidiaries..................... 16,644 8,405
Accrued interest receivable.................................................. 5,870 4,443
Other real estate............................................................ 90 161
Deferred tax assets.......................................................... 11,956 12,121
Other assets................................................................. 19,712 15,773
------------ ---------
Total assets.......................................................... $ 871,905 719,997
============ =========
</TABLE>
<PAGE>
FIRST BANKS AMERICA, INC.
Consolidated Balance Sheets (unaudited)
(dollars expressed in thousands, except per share data)
(continued)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
---- ----
LIABILITIES
-----------
Deposits:
Demand:
<S> <C> <C>
Non-interest-bearing....................................................... $ 121,458 105,949
Interest-bearing........................................................... 70,553 72,662
Savings..................................................................... 239,787 179,152
Time deposits:
Time deposits of $100 or more.............................................. 85,497 52,132
Other time deposits........................................................ 228,352 189,252
----------- ----------
Total deposits........................................................... 745,647 599,147
Short-term borrowings........................................................... 7,379 4,141
Accrued interest payable........................................................ 1,633 538
Deferred tax liabilities........................................................ 1,478 1,722
Accrued expenses and other liabilities.......................................... 3,673 4,449
----------- ----------
Total liabilities........................................................ 759,810 609,997
----------- ----------
Guaranteed preferred beneficial interest in First Banks
America, Inc. subordinated debenture....................................... 44,186 44,155
----------- ----------
STOCKHOLDERS' EQUITY
--------------------
Common Stock:
Common stock, $0.15 par value; 6,666,666 shares
authorized; 3,872,697 shares issued........................................ 581 581
Class B common stock, $0.15 par value; 4,000,000 shares
authorized; 2,500,000 shares issued and outstanding........................ 375 375
Capital surplus................................................................. 69,070 68,743
Retained earnings since elimination of accumulated deficit
of $259,117, effective December 31, 1994.................................... 9,383 5,693
Common treasury stock, at cost; 666,896 shares and 651,867
shares at June 30, 1999 and December 31, 1998,
respectively................................................................ (10,358) (10,088)
Accumulated other comprehensive income (loss)................................... (1,142) 541
----------- ----------
Total stockholders' equity............................................... 67,909 65,845
----------- ----------
Total liabilities and stockholders' equity............................... $ 871,905 719,997
=========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
FIRST BANKS AMERICA, INC.
Consolidated Statements of Income (unaudited)
(dollars expressed in thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
----------------- -----------------
1999 1998 1999 1998
---- ---- ---- ----
Interest income:
<S> <C> <C> <C> <C>
Interest and fees on loans................................................ $ 15,715 11,002 28,584 21,570
Investment securities..................................................... 1,600 2,122 3,428 4,155
Federal funds sold and other.............................................. 126 277 224 672
-------- ------- ------- --------
Total interest income................................................. 17,441 13,401 32,236 26,397
-------- ------- ------- --------
Interest expense:
Deposits:
Interest-bearing demand................................................. 285 334 553 683
Savings................................................................. 2,143 1,495 3,949 2,949
Time deposits of $100 or more........................................... 899 786 1,640 1,561
Other time deposits..................................................... 2,821 2,891 5,400 5,675
Promissory note payable and other borrowings.............................. 358 529 466 1,066
-------- ------- ------- --------
Total interest expense................................................ 6,506 6,035 12,008 11,934
-------- ------- ------- --------
Net interest income................................................... 10,935 7,366 20,228 14,463
Provision for possible loan losses........................................... 123 200 213 500
-------- ------- ------- --------
Net interest income after provision for possible loan losses.......... 10,812 7,166 20,015 13,963
-------- ------- ------- --------
Noninterest income:
Service charges on deposit accounts and customer service fees............. 900 604 1,630 1,343
Gain on sales of securities, net.......................................... 88 9 174 101
Other income.............................................................. 516 266 855 585
-------- ------- ------- --------
Total noninterest income.............................................. 1,504 879 2,659 2,029
-------- ------- ------- --------
Noninterest expense:
Salaries and employee benefits............................................ 2,907 2,156 5,202 4,291
Occupancy, net of rental income........................................... 800 575 1,361 1,066
Furniture and equipment................................................... 446 480 848 827
Advertising and business development...................................... 99 272 163 370
Postage, printing and supplies............................................ 202 239 387 406
Data processing fees...................................................... 837 431 1,556 906
Legal, examination and professional fees.................................. 1,144 1,179 2,247 2,069
Communications............................................................ 146 227 300 427
(Gain) loss on sales of other real estate, net of expenses................ 7 (70) 7 87
Amortization of intangibles associated with the purchase of
subsidiaries............................................................ 306 155 508 288
Guaranteed preferred debenture............................................ 993 -- 1,986 --
Other..................................................................... 796 697 1,624 1,661
-------- ------- ------- --------
Total noninterest expense............................................. 8,683 6,341 16,189 12,398
-------- ------- ------- --------
Income before provision for income tax expense........................ 3,633 1,704 6,485 3,594
Provision for income tax expense............................................. 1,574 683 2,795 1,473
-------- ------- ------- --------
Net income............................................................ $ 2,059 1,021 3,690 2,121
======== ======= ======= ========
Earnings per common share:
Basic................................................................. $ 0.36 0.20 0.65 0.42
Diluted............................................................... 0.36 0.20 0.64 0.42
======== ======= ====== =======
Weighted average shares of common stock outstanding (in thousands)........... 5,713 5,206 5,717 5,059
======== ======= ======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
FIRST BANKS AMERICA, INC.
Consolidated Statements of Changes in Stockholders' Equity
and Comprehensive Income (unaudited)
Six months ended June 30, 1999 and 1998
and six months ended December 31, 1998
(dollars expressed in thousands, except per share data)
<TABLE>
<CAPTION>
Accu-
mulated
other
compre- Total
Class B Compre- Common hensive stock-
Common common Capital hensive Retained treasury income holders'
stock stock surplus income earnings stock (loss) equity
----- ----- ------------- -------- ----- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated balances, January 1, 1998........... $ 322 375 47,329 1,083 (4,350) 332 45,091
Six months ended June 30, 1998:
Comprehensive income:
Net income.................................. -- -- -- 2,121 2,121 -- -- 2,121
Other comprehensive income, net of tax -
Unrealized gains on securities, net of
reclassification adjustment (1)......... -- -- -- 14 -- -- 14 14
------
Comprehensive income........................ 2,135
======
Issuance of common stock for purchase
accounting acquisition of FCB............... 43 -- 2,965 -- -- -- 3,008
Conversion of promissory note payable......... 121 -- 9,879 -- -- -- 10,000
Repurchases of common stock................... -- -- -- -- (3,806) -- (3,806)
------- ---- ------- ----- ------ ------ -------
Consolidated balances, June 30, 1998............. 486 375 60,173 3,204 (8,156) 346 56,428
Six months ended December 31, 1998:
Comprehensive income:
Net income.................................. -- -- -- 2,489 2,489 -- -- 2,489
Other comprehensive income, net of tax -
Unrealized gains on securities, net of
reclassification adjustment (1)......... -- -- -- 195 -- -- 195 195
------
Comprehensive income........................ 2,684
======
Exercise of stock options..................... -- -- 13 -- -- -- 13
Redemption of stock options................... -- -- (48) -- -- -- (48)
Compensation paid in stock.................... -- -- 27 -- -- -- 27
Conversion of 12% convertible debentures...... 95 -- 8,578 -- -- -- 8,673
Repurchases of common stock................... -- -- -- -- (1,932) -- (1,932)
------- ---- ------- ----- ------ ------ -------
Consolidated balances, December 31, 1998......... 581 375 68,743 5,693 (10,088) 541 65,845
Six months ended June 30, 1999:
Comprehensive income:
Net income.................................. -- -- -- 3,690 3,690 -- -- 3,690
Other comprehensive income, net of tax -
Unrealized losses on securities, net of
reclassification adjustment (1)......... -- -- -- (1,683) -- -- (1,683) (1,683)
------
Comprehensive income........................ 2,007
======
Reduction of valuation reserve................ -- -- 327 -- -- -- 327
Repurchases of common stock................... -- -- -- -- (270) -- (270)
------- ---- ------- ----- ------ ------ -------
Consolidated balances, June 30, 1999............. $ 581 375 69,070 9,383 (10,358) (1,142) 67,909
======= ==== ======= ===== ======= ======= =======
- ---------------------
</TABLE>
(1) Disclosure of reclassification adjustment:
<TABLE>
<CAPTION>
Six months Six months
ended June 30, ended
--------------
1999 1998 December 31, 1998
---- ---- -----------------
<S> <C> <C> <C>
Unrealized gains (losses) arising during the period............... $(1,570) 80 351
Less: reclassification adjustment for gains included in net income 113 66 156
------- --- ---
Unrealized gains (losses) on securities........................... $(1,683) 14 195
======= === ===
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
FIRST BANKS AMERICA, INC.
Consolidated Statements of Cash Flows (unaudited)
(dollars expressed in thousands)
<TABLE>
<CAPTION>
Six months ended
June 30,
------------------
1999 1998
---- ----
Cash flows from operating activities:
<S> <C> <C>
Net income......................................................................... $ 3,690 2,121
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and accretion, net.................................... 1,036 861
Provision for possible loan losses............................................... 213 500
Provision for income tax expense................................................. 2,795 1,473
Payments of income taxes......................................................... (941) (495)
Gain on sales of securities, net................................................. (174) (101)
(Increase) decrease in accrued interest receivable............................... (538) 697
Interest accrued on liabilities.................................................. 12,008 11,934
Payments of interest on liabilities.............................................. (11,860) (12,819)
Other operating activities, net.................................................. (5,353) (32)
---------- -------
Net cash provided by operating activities...................................... 876 4,139
---------- -------
Cash flows from investing activities:
Cash (paid) received for acquired entities, net of cash and
cash equivalents received (paid)................................................. (17,244) 3,241
Proceeds from sales of investment securities available for sale.................... 54,414 13,027
Maturities of investment securities available for sale............................. 19,118 44,724
Maturities of investment securities held to maturity............................... 14 --
Purchases of investment securities available for sale.............................. (13,897) (40,197)
Net increase in loans.............................................................. (36,933) (10,522)
Recoveries of loans previously charged off......................................... 1,375 1,063
Purchases of bank premises and equipment........................................... (379) (1,417)
Proceeds from sales of other real estate........................................... 283 830
Other investing activities, net.................................................... (292) (14,205)
---------- -------
Net cash provided by (used in) investing activities............................ 6,459 (3,456)
---------- -------
Cash flows from financing activities:
Other (decreases) increases in deposits:
Demand and savings deposits...................................................... (23,497) (10,143)
Time deposits.................................................................... 7,053 4,898
Increase in federal funds purchased................................................ 5,000 1,300
Decrease in Federal Home Loan Bank advances........................................ -- (585)
(Decrease) increase in securities sold under agreements to repurchase.............. (1,761) 1,006
Increase in promissory note payable................................................ -- 6,200
Decrease in payable to former shareholders of Surety Bank.......................... -- (3,829)
Repurchases of common stock for treasury........................................... (270) (3,806)
---------- -------
Net cash used in financing activities.......................................... (13,475) (4,959)
---------- -------
Net decrease in cash and cash equivalents...................................... (6,140) (4,276)
Cash and cash equivalents, beginning of period........................................ 46,313 35,162
---------- -------
Cash and cash equivalents, end of period.............................................. $ 40,173 30,886
========== =======
Noncash investing and financing activities:
Loans transferred to other real estate............................................. $ 31 462
Reduction of valuation reserve..................................................... 327 --
Issuance of common stock in purchase accounting acquisition........................ -- 3,008
Conversion of promissory note payable to common stock.............................. -- 10,000
========== =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
FIRST BANKS AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Basis of Presentation
The accompanying consolidated financial statements of First Banks
America, Inc. (FBA or the Company) are unaudited and should be read in
conjunction with the consolidated financial statements contained in the 1998
annual report on Form 10-K. In the opinion of management, all adjustments,
consisting of normal recurring accruals considered necessary for a fair
presentation of the results of operations for the interim periods presented
herein, have been included. Operating results for the six month period ended
June 30, 1999 are not necessarily indicative of the results that may be expected
for the year ending December 31, 1999.
The consolidated financial statements include the accounts of FBA and
its subsidiaries, all of which are wholly owned. All significant intercompany
accounts and transactions have been eliminated. Certain reclassifications of
1998 amounts have been made to conform with the 1999 presentation.
FBA is majority owned by First Banks, Inc., St. Louis, Missouri (First
Banks). At June 30, 1999 and December 31, 1998, First Banks' ownership interest
in FBA was 82.56% and 76.84%, respectively.
FBA operates through three banking subsidiaries, First Bank Texas N.A.,
headquartered in Houston, Texas (FB Texas), First Bank of California,
headquartered in Roseville, California (FB California) and Redwood Bancorp,
headquartered in San Francisco, California (Redwood). Redwood operates through
its wholly owned subsidiary, Redwood Bank, headquartered in San Francisco,
California (Redwood Bank). FB Texas, FB California and Redwood Bank are
collectively referred to as the Subsidiary Banks.
(2) Transactions with Related Parties
FBA purchases certain services and supplies from or through First
Banks. FBA's financial position and operating results could significantly differ
from those that would be obtained if FBA's relationship with First Banks did not
exist.
First Banks provides management services to FBA and certain of its
Subsidiary Banks. Management services are provided under a management fee
agreement whereby FBA compensates First Banks on an hourly basis for its use of
personnel for various functions including internal audit, loan review, income
tax preparation and assistance, accounting, asset/liability and investment
services, loan servicing and other management and administrative services. Fees
paid under this agreement were $724,000 and $1.4 million for the three and six
months ended June 30, 1999, in comparison to $576,000 and $1.0 million for the
three and six months ended June 30, 1998, respectively. Fees payable to First
Banks generally increase as FBA expands through acquisitions and internal
growth, reflecting the higher levels of service needed to operate the Subsidiary
Banks. The fees for management services are at least as favorable as could have
been obtained from unaffiliated third parties.
Because of the affiliation with First Banks and the geographic
proximity of certain of their offices, FBA shares the cost of certain personnel
and services used by FBA and First Banks. This includes the salaries and
benefits of certain loan and administrative personnel. The allocation of the
shared costs are charged and/or credited under the terms of cost sharing
agreements entered into in 1996. Management anticipates Redwood Bank will
execute a similar cost sharing agreement in 1999. Because this involves
distributing essentially fixed costs over a larger asset base, it allows each
bank to receive the benefit of personnel and services at a reduced cost. Fees
paid under these agreements were $220,000 and $432,000 for the three and six
months ended June 30, 1999, and $268,000 and $524,000 for the same periods in
1998, respectively.
<PAGE>
First Services L.P., a limited partnership indirectly owned by First
Banks' Chairman and his children through its general partners and limited
partners, provides data processing and various related services to FB Texas and
FB California under the terms of data processing agreements. Fees paid under
these agreements were $740,000 and $1.4 million for the three and six months
ended June 30, 1999, and $382,000 and $811,000 for the same periods in 1998,
respectively. Fees payable to First Services L.P. generally increase as FBA
expands through acquisitions and internal growth, reflecting the higher levels
of service needed to operate the Subsidiary Banks. The fees paid for data
processing services are at least as favorable as could have been obtained from
unaffiliated third parties.
First Brokerage of America, L.L.C. (First Brokerage), a limited
liability company, whose shareholders are the trusts of the children of First
Banks' Chairman, provides back-office support and product support for FBA's
brokerage and insurance operations. For the three and six months ended June 30,
1999, FBA received commissions from First Brokerage of approximately $51,000 and
$128,000, respectively, and First Brokerage received commissions from
unaffiliated third-party companies of approximately $22,000 and $55,000,
respectively, from unaffiliated third-party companies from the sale of these
products to customers of FBA.
FBA's Subsidiary Banks had $106.5 million and $86.2 million in whole
loans and loan participations outstanding at June 30, 1999 and December 31,
1998, respectively, that were purchased from banks affiliated with First Banks.
In addition, FBA's Subsidiary Banks had sold $238.6 million and $182.9 million
in whole loans and loan participations to affiliates of First Banks at June 30,
1999 and December 31, 1998, respectively. These loans and loan participations
were acquired and sold at interest rates and terms prevailing at the dates of
their purchase or sale and under standards and policies followed by FBA's
Subsidiary Banks.
FBA has a $20.0 million revolving note payable from First Banks (Note
Payable). The borrowings under the Note Payable bear interest at an annual rate
of one-quarter percent less than the "Prime Rate" as reported in the Wall Street
Journal. The outstanding principal balance and accrued interest under the Note
Payable are due and payable on October 31, 2001. In July 1998, FBA repaid all
outstanding borrowings under the Note Payable and has not utilized the Note
Payable since that time. The interest expense under the Note Payable was
$274,000 and $546,000 for the three and six months ended June 30, 1998,
respectively.
In connection with FBA's acquisition of First Commercial Bancorp, Inc.
(FCB) and its wholly-owned subsidiary, First Commercial Bank (First Commercial),
FBA issued a convertible debenture to First Banks of $6.5 million plus accrued
interest. This debenture replaced similar FCB debentures previously owned by
First Banks. On December 4, 1998, First Banks converted the $6.5 million
principal and $2.4 million accrued and unpaid interest into 629,557 shares of
FBA common stock. The related interest expense associated with this debenture
was $194,000 and $404,000 for the three and six months ended June 30, 1998,
respectively.
(3) Regulatory Capital
FBA and the Subsidiary Banks are subject to various regulatory capital
requirements administered by the federal and state banking agencies. Failure to
meet minimum capital requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken, could have a
direct material effect on FBA's financial statements. Under capital adequacy
guidelines and the regulatory framework for Prompt Corrective Action, the
Subsidiary Banks must meet specific capital guidelines that involve quantitative
measures of assets, liabilities and certain off-balance-sheet items as
calculated under regulatory accounting practices. Capital amounts and
classifications are also subject to qualitative judgments by the regulators
about components, risk weightings and other factors.
<PAGE>
Quantitative measures established by regulations to ensure capital
adequacy require FBA and the Subsidiary Banks to maintain certain minimum
capital ratios. FBA and the Subsidiary Banks are required to maintain a minimum
risk-based capital to risk-weighted assets ratio of 8.00%, with at least 4.00%
being "Tier 1" capital (as defined in the regulations). In addition, a minimum
leverage ratio (Tier 1 capital to average assets) of 3.00% plus an additional
cushion of 100 to 200 basis points is expected. In order to be considered well
capitalized under Prompt Corrective Action provisions, a bank is required to
maintain a risk-weighted asset ratio of at least 10.00%, a Tier 1 to
risk-weighted asset ratio of at least 6.00%, and a leverage ratio of at least
5.00%. As of March 31, 1999, the date of the most recent notification from FBA's
primary regulator, FB Texas and FB California were categorized as well
capitalized under the regulatory framework for Prompt Corrective Action.
Management believes, as of June 30, 1999, FBA and the Subsidiary Banks were well
capitalized.
At June 30, 1999 and December 31, 1998, FBA's and the Subsidiary Banks'
capital ratios were as follows:
<TABLE>
<CAPTION>
Risk-based capital ratios
Total Tier 1 Leverage Ratio
----- ------ --------------
1999 1998 1999 1998 1999 1998
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
FBA 12.91% 16.66% 8.76% 11.51% 8.06% 10.25%
FB Texas 11.81 11.37 10.56 10.11 9.72 9.15
FB California 11.11 10.63 9.84 9.37 9.28 8.34
Redwood Bank (1) 11.66 -- 10.72 -- 9.50 --
---------------
(1) Redwood Bank was acquired by FBA on March 4, 1999.
</TABLE>
(4) Acquisitions
On March 4, 1999, FBA completed its acquisition of Redwood and its
wholly-owned subsidiary, Redwood Bank, for cash consideration of $26.0 million.
The acquisition was accounted for using the purchase method of accounting. The
excess of the cost over the fair value of the net assets acquired was $9.5
million and is being amortized over 15 years. The acquisition was funded from
available proceeds from the sale of the 8.50% Cumulative Trust Preferred
Securities completed in July 1998. Redwood is headquartered in San Francisco,
California and operates four banking locations in the San Francisco Bay area.
Redwood had $183.9 million in total assets, $134.4 million in loans, net of
unearned discount, $32.4 in investment securities and $162.9 million in deposits
at the acquisition date.
<PAGE>
The following information presents unaudited pro forma condensed
results of operations of FBA for the six months ended June 30, 1999 and 1998,
combined with the acquisition of Redwood, as if FBA had completed the
transaction on January 1, 1998.
<TABLE>
<CAPTION>
June 30,
------------------
1999 1998
---- ----
(dollars expressed in thousands,
except per share data)
<S> <C> <C>
Net interest income........................................... $ 21,394 17,715
Provision for possible loan losses............................ 423 516
Net income.................................................... 3,702 2,365
========= ========
Weighted average shares of common stock
outstanding (in thousands)............................... 5,717 5,253
========= ========
Earnings per common share:
Basic.................................................... $ 0.65 0.45
Diluted.................................................. 0.64 0.45
========= ========
</TABLE>
The unaudited pro forma condensed results of operations reflect the
application of the purchase method of accounting for Redwood and certain other
assumptions. Purchase accounting adjustments have been applied to loans,
investment securities, bank premises and equipment, deferred tax assets and
liabilities and excess cost required to reflect the assets acquired and
liabilities assumed at fair value. The resulting premiums and discounts are
amortized or accreted to income consistent with the accounting policies of FBA.
The unaudited pro forma condensed results of operations do not reflect the
acquisition of Pacific Bay Bank completed on February 2, 1998 as it did not have
a material impact on the results of operations for the six months ended June 30,
1998.
(5) Earnings Per Common Share
The following is a reconciliation of the numerators and denominators of
the basic and diluted earnings per share (EPS) computations for the periods
indicated:
<TABLE>
<CAPTION>
Income Shares Per share
(numerator) (denominator) amount
---------- ------------- ------
(dollars expressed in thousands, except per share data)
Three months ended June 30, 1999:
<S> <C> <C> <C>
Basic EPS - income available to common stockholders..... $ 2,059 5,713 $ 0.36
=======
Effect of dilutive securities - stock options........... -- 7
------- ------
Diluted EPS - income available to common stockholders... $ 2,059 5,720 $ 0.36
======= ====== =======
Three months ended June 30, 1998:
Basic EPS - income available to common stockholders..... $ 1,021 5,206 $ 0.20
=======
Effect of dilutive securities - stock options........... -- 13
------- ------
Diluted EPS - income available to common stockholders... $ 1,021 5,219 $ 0.20
======= ====== =======
Six months ended June 30, 1999:
Basic EPS - income available to common stockholders..... $ 3,690 5,717 $ 0.65
=======
Effect of dilutive securities - stock options........... -- 7
------- ------
Diluted EPS - income available to common stockholders... $ 3,690 5,724 $ 0.64
======= ====== =======
Six months ended June 30, 1998:
Basic EPS - income available to common stockholders..... $ 2,121 5,059 $ 0.42
=======
Effect of dilutive securities - stock options........... -- 13
------- ------
Diluted EPS - income available to common stockholders... $ 2,121 5,072 $ 0.42
======= ====== =======
</TABLE>
<PAGE>
(6) Business Segment Results
FBA's business segments are its Subsidiary Banks. The reportable
business segments are consistent with the management structure of FBA, the
Subsidiary Banks and the internal reporting system that monitors performance.
Through the respective branch networks, the Subsidiary Banks provide
similar products and services in their defined geographic areas. The products
and services offered include a broad range of commercial and personal banking
services, including certificates of deposit, individual retirement and other
time deposit accounts, checking and other demand deposit accounts, interest
checking accounts, savings accounts and money market accounts. Loans include
commercial and financial, commercial and residential real estate, real estate
construction and development and consumer loans. Other financial services
include mortgage banking, credit and debit cards, discount brokerage,
credit-related insurance, automatic teller machines, telephone account access,
safe deposit boxes, trust and private banking services and cash management
services. The revenues generated by each business segment consist primarily of
interest income, generated from the loan and investment security portfolios, and
service charges and fees, generated from the deposit products and services. The
geographic areas include Houston, Dallas, Irving and McKinney, Texas (FB Texas)
and northern California (FB California and Redwood Bank). The products and
services are offered to customers primarily within their respective geographic
areas, with the exception of loan participations executed between the Subsidiary
Banks and other banks affiliated with First Banks. There are no foreign
operations.
The business segment results are summarized as follows and are
consistent with FBA's internal reporting system, which is consistent, in all
material respects, with generally accepted accounting principles and practices
predominant in the banking industry. The balance sheet information is presented
as of June 30, 1999 and December 31, 1998, and the statement of income
information is presented for the three and six months ended June 30, 1999 and
1998, respectively. The business segment results include Redwood Bank, which was
acquired on March 4, 1999, for the period subsequent to the acquisition date.
<PAGE>
<TABLE>
<CAPTION>
FB California Redwood Bank (1)
---------------------------- --------------------------
June 30, December 31, June 30, December 31,
1999 1998 1999 1998
---- ---- ---- ----
(dollars expressed in thousands)
Balance sheet information:
<S> <C> <C> <C>
Investment securities.......................... $ 29,566 53,449 19,865 --
Loans, net of unearned discount................ 331,707 314,977 142,409 --
Total assets................................... 396,656 410,110 190,879 --
Deposits....................................... 349,254 363,422 163,688 --
Stockholders' equity........................... 43,709 42,825 25,870 --
========== ========== =========== ==========
FB California Redwood Bank (1)
---------------------- -------------------
Three months ended Three months ended
June 30, June 30,
----------------------- ---------------------
1999 1998 1999 1998
---- ---- ---- ----
(dollars expressed in thousands)
Income statement information:
Interest income................................ $ 8,132 8,117 3,750 --
Interest expense............................... 2,996 3,436 1,393 --
---------- ---------- ----------- ----------
Net interest income......................... 5,136 4,681 2,357 --
Provision for possible loan losses............. 20 150 73 --
---------- ---------- ----------- ----------
Net interest income after provision
for possible loan losses.................. 5,116 4,531 2,284 --
---------- ---------- ----------- ----------
Noninterest income............................. 815 616 177 --
Noninterest expense............................ 3,926 4,077 1,469 --
---------- ---------- ----------- ----------
Net income before income tax expense........ 2,005 1,070 992 --
Provision for income tax expense............... 866 432 480 --
---------- ---------- ----------- ----------
Net income.................................. $ 1,139 638 512 --
========== ========== =========== ==========
FB California Redwood Bank (1)
--------------------------- -------------------------
Six months ended Six months ended
June 30, June 30,
--------------------------- -------------------------
1999 1998 1999 1998
---- ---- ---- ----
(dollars expressed in thousands)
Income statement information:
Interest income................................ $ 16,132 15,874 4,930 --
Interest expense............................... 6,075 6,752 1,835 --
---------- ---------- ----------- ----------
Net interest income......................... 10,057 9,122 3,095 --
Provision for possible loan losses............. 80 300 73 --
---------- ---------- ----------- ----------
Net interest income after provision
for possible loan losses.................. 9,977 8,822 3,022 --
---------- ---------- ----------- ----------
Noninterest income............................. 1,424 1,329 203 --
Noninterest expense............................ 7,625 7,807 1,907 --
---------- ---------- ----------- ----------
Net income before income tax expense........ 3,776 2,344 1,318 --
Provision for income tax expense............... 1,653 967 644 --
---------- ---------- ----------- ----------
Net income.................................. $ 2,123 1,377 674 --
========== ========== =========== ==========
</TABLE>
- -----------------
(1) Redwood Bank was acquired by FBA on March 4, 1999.
(2) Corporate and other includes $645,000 and $1.3 million of guaranteed
preferred debenture expense, after applicable income tax benefit of
$348,000 and $695,000, for the three and six months ended June 30, 1999.
<PAGE>
<TABLE>
<CAPTION>
FB Texas Corporate and other Consolidated total
--------------------------- ----------------------------- -----------------------------
June 30, December 31, June 30, December 31, June 30, December 31,
1999 1998 1999 1998 1999 1998
---- ---- ---- ---- ---- ----
(dollars expressed in thousands)
<S> <C> <C> <C> <C> <C> <C>
33,777 59,914 3,794 3,600 87,002 116,963
217,908 201,426 2 -- 692,026 516,403
277,114 300,984 7,256 8,903 871,905 719,997
238,118 264,425 (5,413) (28,700) 745,647 599,147
30,091 30,249 (31,761) (7,229) 67,909 65,845
========== ========== =========== ========== =========== =========
FB Texas Corporate and other Consolidated total
---------------------------- ----------------------------- -------------------------------
Three months ended Three months ended Three months ended
June 30, June 30, June 30,
--------------------------- ------------------------------ -------------------------------
1999 1998 1999 (2) 1998 1999 1998
---- ---- ---- ---- ---- ----
(dollars expressed in thousands)
5,481 5,286 78 (2) 17,441 13,401
2,163 2,132 (46) 467 6,506 6,035
---------- ---------- ------------ ---------- ----------- -----------
3,318 3,154 124 (469) 10,935 7,366
30 50 -- -- 123 200
---------- ---------- ----------- ---------- ----------- -----------
3,288 3,104 124 (469) 10,812 7,166
---------- ---------- ----------- ----------- ----------- -----------
513 373 (1) (110) 1,504 879
2,231 2,185 1,057 79 8,683 6,341
---------- ---------- ----------- ---------- ----------- -----------
1,570 1,292 (934) (658) 3,633 1,704
541 444 (313) (193) 1,574 683
---------- ---------- ----------- ----------- ----------- -----------
1,029 848 (621) (465) 2,059 1,021
========== ========== =========== ========== =========== ===========
FB Texas Corporate and other Consolidated total
-------------------------- ----------------------------- ------------------------------
Six months ended Six months ended Six months ended
June 30, June 30, June 30,
--------------------------- ------------------------------ ------------------------------
1999 1998 1999 (2) 1998 1999 1998
---- ---- ---- ---- ---- ----
(dollars expressed in thousands)
11,023 10,523 151 -- 32,236 26,397
4,325 4,232 (227) 950 12,008 11,934
----------- ---------- ----------- ---------- ----------- -----------
6,698 6,291 378 (950) 20,228 14,463
60 200 -- -- 213 500
----------- ---------- ----------- ---------- ----------- -----------
6,638 6,091 378 (950) 20,015 13,963
----------- ---------- ----------- ----------- ----------- -----------
1,056 752 (24) (52) 2,659 2,029
4,510 4,388 2,147 203 16,189 12,398
----------- ---------- ----------- ---------- ----------- -----------
3,184 2,455 (1,793) (1,205) 6,485 3,594
1,096 854 (598) (348) 2,795 1,473
----------- ---------- ----------- ---------- ----------- -----------
2,088 1,601 (1,195) (857) 3,690 2,121
=========== ========== =========== ========== =========== ===========
</TABLE>
<PAGE>
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations
The discussion set forth in Management's Discussion and Analysis of
Financial Condition and Results of Operations contains certain forward looking
statements with respect to the financial condition, results of operations and
business of FBA. These forward looking statements are subject to certain risks
and uncertainties, not all of which can be predicted or anticipated. Factors
that may cause actual results to differ materially from those contemplated by
the forward looking statements herein include market conditions as well as
conditions specifically affecting the banking industry generally and factors
having a specific impact on FBA including but not limited to fluctuations in
interest rates and in the economy; the impact of laws and regulations applicable
to FBA and changes therein; competitive conditions in the markets in which FBA
conducts its operations, including competition from banking and non-banking
companies with substantially greater resources than FBA, some of which may offer
and develop products and services not offered by FBA; and the ability of FBA to
respond to changes in technology, including effects of the Year 2000 problem.
With regard to FBA's efforts to grow through acquisitions, factors that could
affect the accuracy or completeness of forward looking statements contained
herein include the potential for higher than acceptable operating costs arising
from the geographic dispersion of the offices of FBA, as compared with
competitors operating solely in contiguous markets; the competition of larger
acquirers with greater resources than FBA; fluctuations in the prices at which
acquisition targets may be available for sale and in the market for FBA's
securities; and the potential for difficulty or unanticipated costs in realizing
the benefits of particular acquisition transactions. Additional factors
potentially affecting the Company's results were identified in the Annual Report
on Form 10-K filed with the Securities and Exchange Commission.
General
FBA is a registered bank holding company, incorporated in Delaware and
headquartered in Clayton, Missouri. At June 30, 1999, FBA had approximately
$871.9 million in total assets; $692.0 million in total loans, net of unearned
discount; $745.6 million in total deposits; and $67.9 million in total
stockholders' equity. FBA operates through its Subsidiary Banks.
Through the Subsidiary Banks' six locations in Texas and 14 locations
in the San Francisco - Sacramento corridor of northern California, FBA offers a
broad range of commercial and personal banking services including certificates
of deposit, individual retirement and other time deposit accounts, checking and
other demand deposit accounts, interest checking accounts, savings accounts and
money market accounts. Loans include commercial and financial, commercial and
residential real estate, real estate construction and development and consumer
loans. Other financial services include mortgage banking, credit and debit
cards, discount brokerage, credit-related insurance, automatic teller machines,
telephone account access, safe deposit boxes, trust and private banking services
and cash management services.
The following table lists the Subsidiary Banks at June 30, 1999:
<TABLE>
<CAPTION>
Loans, net of
Number of Total unearned Total
locations assets discount deposits
--------- ------ -------- --------
(dollars expressed in thousands)
<S> <C> <C> <C> <C>
FB California.................... 10 $ 396,656 331,707 349,254
FB Texas ........................ 6 277,114 217,908 238,118
Redwood Bank..................... 4 190,879 142,409 163,688
</TABLE>
<PAGE>
Financial Condition
FBA's total assets were $871.9 million and $720.0 million at June 30,
1999 and December 31, 1998, respectively. The increase in total assets is
primarily attributable to FBA's acquisition of Redwood, which provided assets of
$183.9 million, and internal loan growth primarily concentrated in the areas of
commercial and financial, real estate construction and development and real
estate mortgage. Offsetting this increase and providing an additional source of
funds for the loan growth was a reduction in investment securities of $30.0
million to $87.0 million at June 30, 1999 from $117.0 million at December 31,
1998. Total deposits, excluding the deposits provided by the acquisition of
Redwood, decreased by $16.4 million, while short-term borrowings increased by
$3.2 million to $7.4 million at June 30, 1999 from $4.1 million at December 31,
1998.
During the six months ended June 30, 1999, FBA purchased $270,000 of
its common stock for treasury. FBA utilized available cash to fund its
repurchase of common stock. In 1998, the Board of Directors authorized the
purchase of an additional 5% of its common stock for treasury. FBA has purchased
an aggregate total of 666,896 common shares for treasury as of June 30, 1999 and
could purchase approximately 150,000 additional shares under the existing
authorization.
Results of Operations
Net Income
Net income was $2.1 million, or $0.36 per share on a diluted basis, for
the three months ended June 30, 1999, in comparison to $1.0 million, or $0.20
per share on a diluted basis, for the same period in 1998. For the six months
ended June 30, 1999 and 1998, net income was $3.7 million, or $0.64 per share on
a diluted basis, and $2.1 million, or $0.42 per share on a diluted basis,
respectively. The earnings progress was primarily driven by increased interest
income generated by the acquisition of Redwood and by loan growth in both the
California and Texas markets, coupled with continued improvement in asset
quality, resulting in a reduced provision for loan losses. As previously
mentioned, the loan growth was funded through a reduction in investment
securities, and is reflective of FBA's lending strategy which focuses on further
diversifying the Company's loan portfolios.
Offsetting the increase in net income for the six months ended June 30,
1999 are increased operating expenses. The increased operating expenses are
primarily attributable to the guaranteed preferred debenture expense associated
with the formation of First America Capital Trust (FACT) in July 1998 and FACT's
issuance of Cumulative Trust Preferred Securities, operating expenses of Redwood
subsequent to the acquisition date and increased data processing fees.
Net Interest Income
Net interest income was $10.9 million, or 5.46% of average
interest-earning assets, for the three months ended June 30, 1999, in comparison
to $7.4 million, or 4.81% of average interest-earning assets, for the same
period in 1998. For the six months ended June 30, 1999 and 1998, net interest
income was $20.2 million, or 5.45% of average interest-earning assets, in
comparison to $14.5 million, or 4.79% of average interest-earning assets,
respectively. The improved net interest income is primarily attributable to the
net interest-earning assets provided by the acquisitions of First Commercial
Bancorp, Inc., Pacific Bay Bank and Redwood and internal loan growth.
Contributing further to the improved net interest income is the effect of (a)
the exchange of $10.0 million of the Note Payable for common stock; (b) the
repayment of all borrowings outstanding under the Note Payable in July 1998; (c)
the conversion of a debenture in December 1998 and (d) the earnings impact of
the interest rate swap agreements entered into in 1998.
Although net interest margin improved, the yield on the loan portfolio
declined to 9.13% and 9.18% from 9.66% and 9.72% for the three and six months
ended June 30, 1999 and 1998, respectively. This reduction primarily results
from the overall decline in the prime lending rate experienced during the latter
part of 1998. The effect of the reduced yield on the loan portfolio was
partially mitigated by the earnings impact of the interest rate swap agreements
and a reduced rate paid on interest-bearing liabilities. For the six months
ended June 30, 1999 and 1998, the overall rate paid on the deposit portfolio was
<PAGE>
4.04% and 4.49%, respectively, representing FBA's gradual realignment of the
portfolio, while the overall rate paid on promissory notes payable and
short-term borrowings was 5.29% and 8.14%, respectively, reflecting the exchange
and repayment of the Note Payable and the debenture conversion.
The following table sets forth certain information relating to FBA's
average balance sheets, and reflects the average yield earned on
interest-earning assets, the average cost of interest-bearing liabilities and
the resulting net interest income for the three and six month periods ended June
30:
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
---------------------------------------------- -------------------------------------------
1999 1998 1999 1998
---------------------- ---------------------- --------------------- ------------------
Interest Interest Interest Interest
Average income/ Yield/ Average income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
balance expense rate balance expense rate balance expense rate balance expense rate
(dollars expressed in thousands)
Assets
------
Interest-earning assets:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans(1)(2)(3)................ $690,199 15,715 9.13% $456,869 11,002 9.66% $628,205 28,584 9.18% $ 447,717 21,570 9.72%
Investment securities(3)...... 101,681 1,600 6.31 137,702 2,122 6.18 110,189 3,428 6.27 137,095 4,155 6.11
Federal funds sold and other.. 10,917 126 4.63 19,797 277 5.61 9,445 224 4.78 23,875 672 5.68
-------- ------- ------ ------- ------- ------ -------- ------
Total interest-earning
assets..................... 802,797 17,441 8.71 614,368 13,401 8.75 747,839 32,236 8.69 608,687 26,397 8.75
------- ------- ------ ------
Nonearning assets................ 85,850 66,127 79,921 64,186
-------- ------- ------- --------
Total assets................ $888,647 $680,495 $827,760 $672,873
======== ======== ======== ========
Liabilities and Stockholders' Equity
- ------------------------------------
Interest-bearing liabilities:
Interest-bearing demand
deposits..................... $ 84,133 285 1.36% $ 74,360 334 1.80% $ 79,987 553 1.39% $ 73,829 683 1.87%
Savings deposits.............. 237,084 2,143 3.63 153,917 1,495 3.89 218,676 3,949 3.64 152,560 2,949 3.90
Time deposits of $100 or more. 69,514 899 5.19 53,809 786 5.86 63,287 1,640 5.23 52,713 1,561 5.97
Other time deposits........... 226,319 2,821 5.00 211,170 2,891 5.49 213,807 5,400 5.09 208,582 5,675 5.49
-------- ------- -------- ------- ------- ------ -------- ------
Total interest-bearing
deposits.................. 617,050 6,148 4.00 493,256 5,506 4.48 575,757 11,542 4.04 487,684 10,868 4.49
Promissory notes payable and
short term-borrowings........ 28,139 358 5.10 25,797 529 8.23 17,775 466 5.29 26,398 1,066 8.14
-------- ------- ------- ------- ------- ------ -------- ------
Total interest-bearing
liabilities.............. 645,189 6,506 4.04 519,053 6,035 4.66 593,532 12,008 4.08 514,082 11,934 4.68
------- ------- ------ ------
Noninterest-bearing liabilities:
Demand deposits............... 119,033 96,188 111,782 93,753
Other liabilities............. 55,690 8,968 55,130 9,463
-------- ------- ------- --------
Total liabilities........... 819,912 624,209 760,444 617,298
Stockholders' equity............. 68,735 56,286 67,316 55,575
-------- ------- ------- --------
Total liabilities and
stockholders' equity..... $888,647 $680,495 $827,760 $672,873
======== ======== ======== ========
Net interest income.............. 10,935 7,366 20,228 14,463
======== ======= ====== ======
Net interest margin.............. 5.46% 4.81% 5.45% 4.79%
==== ==== ==== ====
</TABLE>
- -------------
(1) Nonaccrual loans are included in the average loan amounts.
(2) Includes the effects of interest rate exchange agreements.
(3) FBA has no tax exempt income.
Provision for Possible Loan Losses
The provision for possible loan losses was $123,000 and $213,000 for
the three and six months ended June 30, 1999, compared to $200,000 and $500,000
for the same periods in 1998. The decrease in the provision for possible loan
losses is primarily attributable to improved asset quality as determined by
management's review and evaluation of the credit quality of the loans in the
portfolio, and management's assessment of the adequacy of the allowance for
possible loan losses. For the six months ended June 30, 1999, nonperforming
assets decreased by $3.4 million from $8.8 million at December 31, 1998 to $5.4
million at June 30, 1999, resulting in a reduced ratio of nonperforming loans to
loans of 1.67% at December 31, 1998 and 0.76% at June 30, 1999.
<PAGE>
FBA's loan loss experience for the three and six months ended June 30,
1999 further contributed to the reduced provision for possible loan losses. Net
loan recoveries were $223,000 and $577,000 for the three and six months ended
June 30, 1999, in comparison to net loan charge-offs of $418,000 and $947,000
for the same periods in 1998. The overall improvement results from improved
asset quality reflected in a decrease in the amount of loans requiring
charge-off accompanied by an increase in the collection of previously
charged-off loans. The acquisitions of Redwood, completed on March 4, 1999, and
Pacific Bay Bank, completed on February 2, 1998, provided $1.5 million and
$885,000, respectively, in additional allowance for possible loan losses.
Tables summarizing nonperforming assets, past due loans and charge-off
experience are presented under "--Lending and Credit Management" of this Form
10-Q.
Noninterest Income
Noninterest income was $1.5 million and $2.7 million for the three and
six months ended June 30, 1999, in comparison to $879,000 and $2.0 million for
the same periods in 1998, respectively. Noninterest income consists primarily of
service charges on deposit accounts and customer service fees, and other income.
Service charges on deposit accounts and customer service fees increased
to $900,000 and $1.6 million for the three and six months ended June 30, 1999,
from $604,000 and $1.3 million for the same periods in 1998, respectively. This
increase is primarily attributable to: (a) the acquisitions of Redwood and
Pacific Bay Bank; (b) increased utilization of commercial banking services by
FBA's customers; and (c) increased interchange income associated with automatic
teller machine services and debit and credit cards.
Other income was $516,000 and $855,000 for the three and six months
ended June 30, 1999, in comparison to $266,000 and $585,000 for the same periods
in 1998, respectively. The increase is primarily attributable to increased
income earned on FBA's investment in bank owned life insurance (BOLI),
established in April 1998. For the six months ended June 30, 1999 and 1998, BOLI
income totaled $318,000 and $101,000, respectively. In addition, FBA's expansion
of its discount brokerage and private banking and trust services contributed to
the overall increase in other income.
Noninterest Expense
Noninterest expense was $8.7 million and $16.2 million for the three
and six months ended June 30, 1999, in comparison to $6.3 million and $12.4
million for the same periods in 1998, respectively. The increase is reflective
of: (a) the guaranteed preferred debenture expense associated with the formation
of FACT and FACT's issuance of Cumulative Trust Preferred Securities; (b) the
noninterest expense of Redwood and Pacific Bay Bank; (c) increased data
processing fees primarily associated with FBA's Year 2000 Program; and (d) FBA's
continuing expansion of its corporate lending, retail banking and specialized
services development staff, including the necessary operational support,
associated with the expansion of its product and service offerings. The overall
increase in noninterest expense is partially offset by a reduction in
advertising and business development expenses and communications expenses, and
is consistent with management's continued efforts to more effectively and
efficiently monitor and manage these expenditures.
Data processing fees increased to $837,000 and $1.6 million for the
three and six months ended June 30, 1999, from $431,000 and $906,000 for the
same periods in 1998. The increased data processing fees are attributable to
growth and technological advancements consistent with FBA's product and service
offerings, increased expenses attributable to communication data lines related
to the expansion of the branch infrastructure and expenses associated with FBA's
Year 2000 Program.
<PAGE>
Amortization of intangibles associated with the purchase of
subsidiaries increased to $306,000 and $508,000 for the three and six months
ended June 30, 1999, from $155,000 and $288,000 for the same periods in 1998.
This increase is attributable to the acquisitions of Redwood, completed in March
1999, and Pacific Bay Bank, completed in February 1998.
On July 21, 1998, FACT, a newly-formed Delaware business trust
subsidiary of FBA, issued 1.84 million shares of 8.50% Cumulative Trust
Preferred Securities (FACT Preferred Securities) at $25.00 per share in an
underwritten public offering, and issued 56,908 shares of common securities to
FBA at $25.00 per share. FBA owns all of FACT's common securities. The primary
purposes of the offering were to raise capital with which to fund acquisitions
and to repay the Note Payable. The gross proceeds of the offering were used by
FACT to purchase $47.4 million of 8.50% Subordinated Debentures (Subordinated
Debentures) from FBA, maturing on June 30, 2028. The Subordinated Debentures are
the sole asset of FACT. In connection with the issuance of the FACT Preferred
Securities, FBA made certain guarantees and commitments that, in the aggregate,
constitute a full and unconditional guarantee by FBA of the obligations of FACT
under the FACT Preferred Securities. FBA's proceeds from the issuance of the
Subordinated Debentures, net of underwriting fees and offering expenses, were
approximately $44.0 million. Guaranteed preferred debenture expense was $993,000
and $2.0 million for the three and six months ended June 30, 1999 and is
recorded as noninterest expense in the accompanying consolidated statements of
income.
Lending and Credit Management
Interest earned on the loan portfolio is the primary source of income
of FBA. Total loans, net of unearned discount, represented 79.4% and 71.7% of
total assets as of June 30, 1999 and December 31, 1998, respectively. Total
loans, net of unearned discount, were $692.0 million and $516.4 million at June
30, 1999 and December 31, 1998, respectively. The increase in loans, as
summarized on the consolidated balance sheets, is attributable to the
acquisition of Redwood and the growth of the commercial and financial,
commercial real estate and real estate construction and development loan
portfolios, partially offset by a continuing decline in FB Texas' consumer
indirect automobile loan portfolio. FBA's corporate lending function continues
to focus its efforts toward further redistribution of the Company's loan
portfolios. Commensurate with the growth in corporate lending and FBA's
prescribed credit exposure guidelines for extending credit to an individual
borrower, loan participations sold to and purchased from banks affiliated with
First Banks have increased to $238.6 million and $106.5 million, respectively,
from $182.9 million and $86.2 million, respectively, at June 30, 1999 and
December 31, 1998. See Note 2 to the accompanying consolidated financial
statements for a further discussion of transactions with related parties.
FBA's nonperforming loans consist of loans on nonaccrual status and
loans on which the original terms have been restructured. The following is a
summary of nonperforming assets and past due loans at the dates indicated:
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
---- ----
(dollars expressed in thousands)
Nonperforming assets:
<S> <C> <C>
Nonperforming loans............................................... $ 5,289 8,632
Other real estate................................................. 90 161
----------- ----------
Total nonperforming assets.................................. $ 5,379 8,793
=========== ==========
Loans past due and still accruing:
Over 30 days to 90 days........................................... $ 4,840 6,269
Over 90 days...................................................... 1,632 306
-- ----------- ----------
Total past due loans......................................... 6,472 6,575
=========== ==========
Loans, net of unearned discount..................................... $ 692,026 516,403
=========== ==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
---- ----
Asset quality ratios:
<S> <C> <C>
Allowance for possible loan losses to loans....................... 2.08% 2.35%
Nonperforming loans to loans ..................................... 0.76 1.67
Allowance for possible loan losses to
nonperforming loans ........................................... 271.94 140.49
Nonperforming assets to loans and other real estate............... 0.78 1.70
======== ========
</TABLE>
Nonperforming loans, consisting of loans on nonaccrual status and
restructured loans, were $5.3 million at June 30, 1999, in comparison to $8.6
million at December 31, 1998. The decrease is a result of: (a) a reduction of
$3.3 million relating to loans on nonaccrual status; (b) continued aggressive
collection efforts; and (c) management's continued efforts to effectively
monitor and manage the loan portfolios of acquired entities. The acquired
allowances for possible loan losses of Pacific Bay Bank and Redwood totaled
$885,000 and $1.5 million at the respective acquisition dates.
Impaired loans, consisting of loans on nonaccrual status and indirect
consumer and installment loans 60 days or more past due, were $5.4 million and
$9.0 million at June 30, 1999 and December 31, 1998, respectively.
The following is a summary of loan loss experience for the three and
six months ended June 30:
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
----------------- -----------------
1999 1998 1999 1998
---- ---- ---- ----
(dollars expressed in thousands)
<S> <C> <C> <C> <C>
Allowance for possible loan losses, beginning of period................ $ 14,037 12,063 12,127 11,407
Acquired allowances for possible loan losses........................ -- -- 1,466 885
---------- --------- --------- -------
14,037 12,063 13,593 12,292
---------- --------- --------- -------
Loans charged-off................................................... (318) (951) (798) (2,010)
Recoveries of loans previously charged-off.......................... 541 533 1,375 1,063
---------- --------- --------- -------
Net loan (charge-offs) recoveries................................... 223 (418) 577 (947)
---------- --------- --------- -------
Provision for possible loan losses.................................. 123 200 213 500
---------- --------- --------- -------
Allowance for possible loan losses, end of period...................... $ 14,383 11,845 14,383 11,845
========== ========= ========= =======
</TABLE>
The allowance for possible loan losses is monitored on a monthly basis.
Each month, the credit administration department provides FBA's management with
detailed lists of loans on the watch list and summaries of the entire loan
portfolio of each Subsidiary Bank by risk rating. These are coupled with
analyses of changes in the risk profiles of the portfolios, changes in past due
and nonperforming loans and changes in watch list and classified loans over
time. In this manner, the overall increases or decreases in the levels of risk
in the portfolios are monitored continually. Factors are applied to the loan
portfolios for each category of loan risk to determine acceptable levels of
allowance for possible loan losses. These factors are derived primarily from the
actual loss experience of the Subsidiary Banks and from published national
surveys of norms in the industry. The calculated allowances required for the
portfolios are then compared to the actual allowance balances to determine the
provisions necessary to maintain the allowances at appropriate levels. In
addition, management exercises judgment in its analysis of determining the
overall level of the allowance for possible losses. In its analysis, management
considers the change in the portfolio, including growth and composition, and the
economic conditions of the regions in which FBA operates.
Based on this quantitative and qualitative analysis, the allowance for
possible loan losses is adjusted. Such adjustments are reflected in the
consolidated statements of income.
<PAGE>
Interest Rate Risk Management
FBA utilizes off-balance-sheet derivative financial instruments to
assist in the management of interest rate sensitivity and to modify the
repricing, maturity and option characteristics of on-balance-sheet assets and
liabilities. Derivative financial instruments held by FBA for purposes of
managing interest rate risk are summarized as follows:
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
---------------------- ----------------------
Notional Credit Notional Credit
amount exposure amount exposure
------ -------- ------ --------
(dollars expressed in thousands)
Interest rate swap agreements - pay
<S> <C>
adjustable rate, receive adjustable rate.... $ 75,000 -- -- --
Interest rate swap agreements - pay
adjustable rate, receive fixed rate......... 65,000 678 65,000 667
Interest rate cap agreement................... 10,000 74 10,000 135
====== ==== ====== ===
</TABLE>
The notional amounts of derivative financial instruments do not
represent amounts exchanged by the parties and, therefore, are not a measure of
FBA's credit exposure through its use of derivative financial instruments. The
amounts and the other terms of the derivatives are determined by reference to
the notional amounts and the other terms of the derivatives. The credit exposure
represents the accounting loss FBA would incur in the event the counterparties
failed completely to perform according to the terms of the derivative financial
instruments and the collateral was of no value.
During 1998, FBA entered into $65.0 million notional amount of interest
rate swap agreements to effectively lengthen the repricing characteristics of
certain interest-earning assets to correspond more closely with its funding
source with the objective of stabilizing cash flow, and accordingly, net
interest income, over time. The swap agreements provide for FBA to receive a
fixed rate of interest and pay an adjustable rate of interest 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 amount
receivable by FBA under the swap agreements was $820,000 at June 30, 1999 and
December 31, 1998, and the amount payable by FBA under the swap agreements was
$142,000 and $153,000 at June 30, 1999 and December 31, 1998, respectively.
During May 1999, FBA entered into $75.0 million notional amount of
interest rate swap agreements with the objective of stabilizing the net interest
margin during the six-month period surrounding the Year 2000 century date
change. The swap agreements provide for FBA to receive an adjustable rate of
interest equivalent to the daily weighted average 30-day LIBOR and pay an
adjustable rate of interest equivalent to the daily weighted average prime
lending rate minus 2.665%. The terms of the swap agreements, which have an
effective date of October 1, 1999 and a maturity date of March 31, 2000, provide
for FBA to pay and receive interest on a monthly basis.
<PAGE>
The maturity dates, notional amounts, interest rates paid and received
and fair values of the swap agreements outstanding as of June 30, 1999 were as
follows:
<TABLE>
<CAPTION>
Notional Interest rate Interest rate
Maturity Date amount paid received Fair value
------------- ------ ---- -------- ----------
(dollars expressed in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
March 31, 2000 (1)...................... $ 50,000 --% --% $ 37
March 31, 2000 (1)...................... 25,000 -- -- 19
June 11, 2002........................... 15,000 5.10 6.00 (72)
September 16, 2002...................... 20,000 5.16 5.36 (496)
September 18, 2002...................... 30,000 5.18 5.33 (771)
---------- -------
$ 140,000 5.16 5.49 $(1,283)
========== ==== ==== =======
</TABLE>
-----------------
(1) These interest rate swap agreements will become effective on October 1,
1999.
FBA has a $10.0 million interest rate cap agreement outstanding to
limit the interest expense associated with certain interest-bearing liabilities.
At June 30, 1999 and December 31, 1998, the unamortized costs of this agreement
were $74,000 and $130,000, respectively, and were included in other assets. The
net amount due to FBA under this agreement was $5,000 at December 31, 1998.
There was no amount net amount due to FBA at June 30, 1999.
Year 2000 Compatibility
FBA and the Subsidiary Banks are subject to risks associated with the
"Year 2000" issue, a term which refers to uncertainties about the ability of
various data processing hardware and software systems to interpret dates
correctly surrounding the beginning of the Year 2000. Financial institutions are
particularly vulnerable to Year 2000 issues because of heavy reliance in the
industry on electronic data processing and funds transfer systems.
As described in Note 2 to the accompanying consolidated financial
statements, data processing services are provided to FBA by First Services, L.P.
under the terms of data processing agreements. To address the Year 2000 issue,
FBA, working jointly with First Banks, has established a dedicated team to
coordinate the overall Year 2000 Preparedness Program (Program) under the
guidelines of the Comprehensive Year 2000 Plan (Plan) as approved by the Board
of Directors. The Plan summarizes each major phase of the Program and the
estimated costs to remediate and test systems in preparation for the Year 2000.
The Plan addresses both Information Technology (IT) projects, such as data
processing and data network, and non-IT projects, such as building facilities
and security. The major phases of the Program are awareness, assessment,
remediation, validation and implementation.
The awareness phase included a company-wide campaign to communicate the
Year 2000 issue and the potential ramifications to the organization. Concurrent
with this phase, the Year 2000 Program Team (Team) began the assessment phase of
the Program. The assessment phase included the inventorying of systems that may
be impacted by the Year 2000 issue. The business use of each inventoried item
was analyzed and prioritized from critical to non-critical, based upon the
perceived adverse effect on the financial condition of FBA in the event of a
loss or interruption in the use of each system. The awareness and assessment
phases of the Program were completed as scheduled.
FBA's critical systems are purchased from industry-known vendors. Such
systems are generally used in their standard configuration, that is, with minor
modification. Focusing on these critical systems, FBA continues to closely
review and monitor the Year 2000 progress as reported by each vendor, and has
tested, in most cases, on a system separate from the on-line production system.
The review and testing of critical data processing service providers was
substantially complete as of March 31, 1999.
<PAGE>
For the critical systems that have been modified, the vendors provided
remediation for such systems that were not otherwise reported as "Year
2000-ready." As the remediation phase was completed within the stated deadline,
FBA did not invoke any remediation contingency efforts.
Concurrent with the completion of the remediation phase of the Program,
FBA commenced the final analysis of the validation phase for critical systems,
including remediated systems provided by third party vendors. This portion of
the Program was substantially complete as of December 31, 1998.
FBA, along with First Banks, has accelerated the replacement of its
existing teller system (ISC), since certain functions of ISC were not Year 2000
compliant. Planning for the replacement of ISC has been underway for several
years with the primary objectives of adding functionality to meet expanding
product and service offerings and improving efficiency in serving customers. As
the newly selected teller system (CFI) also provided a solution for the Year
2000 problem, the overall implementation schedule was accelerated. Recognizing
the heightened risks of deploying the CFI system within the narrowed timeline
created by the Year 2000 issue, emphasis was first given to the Year 2000
solution for ISC, with simultaneous deployment of CFI occurring throughout 1999.
The testing of the Year 2000 solution for ISC was completed and ISC was upgraded
throughout FBA's branch network by June 30, 1999, thereby maintaining compliance
with appropriate regulatory guidelines associated with Year 2000.
The testing of CFI was completed by December 31, 1998. The CFI system
was installed in selected bank test locations of First Banks during the fourth
quarter of 1998. FB Texas was converted to CFI during the second quarter of 1999
and FB California's conversion will be completed during the third quarter of
1999. Redwood Bank will not convert to CFI in 1999. The estimated cost of the
teller replacement is $1.4 million and will be charged to expense over a
60-month period upon installation at each branch location. First Banks is also
upgrading its local area network-based systems, networks and core processor, and
has purchased certain item processing equipment, as the previous equipment,
which is fully depreciated, was not Year 2000 compliant. FBA's portion of the
cost of these upgrades and the item processing equipment will be included in the
billings under the terms of existing data processing and management services
agreements. See Note 2 to the accompanying consolidated financial statements for
a further discussion of transactions with related parties.
The final phase of the Program was the implementation of remediated and
other systems into the operating environment of FBA and First Banks. With the
final phase of the Program substantially completed by June 30, 1999, FBA
continues to focus its efforts on overall contingency planning and specific Year
2000 event preparation.
FBA has also assessed the Year 2000 risks relating to its lines of
business separate from its dependence on data processing. The assessment
includes a review of larger commercial loan and deposit customers to ascertain
their overall preparedness regarding Year 2000 risks. The process requires
lending and other banking officers to periodically meet with certain of their
customers to review and assess their overall preparedness for Year 2000 risks.
While the process of evaluating the potential adverse effects of Year 2000 risks
on these customers revealed no probable adverse effect to FBA, it is not
possible to quantify the overall potential adverse effects to FBA resulting from
the failure of these customers, or other customers not meeting the review
criteria, to adequately prepare for the Year 2000. The failure of a commercial
bank customer to adequately prepare for Year 2000 could have a significant
adverse effect on such customer's operations and profitability, in turn
inhibiting its ability to repay loans in accordance with their terms or
requiring the use of its deposited funds. FBA continues to review and structure
certain funding sources to facilitate the Subsidiary Banks' liquidity
requirements under varying cash flow assumptions. In addition, Year 2000 risks
associated with adversely rated credits are monitored more frequently in
conjunction with the internal watch list review committee meetings, while new
credit relationships include parameters to assess and evaluate Year 2000 risks
at the time of the initial credit decision.
<PAGE>
The Plan also provides for the identification and communication with
significant non-data processing third party vendors regarding their preparedness
for Year 2000 risks. While the results of this process have not revealed any
quantifiable loss to FBA, the absence of certain basic services such as
telecommunications, electric power and service provided by other financial
institutions and governmental agencies would have a serious impact on the
operations of FBA. FBA has developed processes to monitor significant non-data
processing third party vendors regarding their preparedness for Year 2000 risks.
The total cost of the Program is currently estimated at $2.3 million,
comprised of capital improvements of $1.4 million and direct expenses
reimbursable to First Services L.P. of $900,000. The capital improvements, as
previously discussed, will be charged to expense in the form of depreciation
expense or lease expense, generally over a period of 60 months. FBA incurred
direct expenses related to the Program of approximately $135,000 and $270,000
for the three and six months ended June 30, 1999, respectively, and $180,000 for
the year ended December 31, 1998. In addition, FBA is estimating direct expenses
of $450,000 for the duration of the Program. The acquisition of Redwood is not
expected to have a significant impact on the total cost of FBA's Program. The
total cost could vary significantly from those currently estimated for
unforeseen circumstances that could develop in carrying out the Program.
Concurrent with the development and execution of the Plan is the
evolution of FBA's Year 2000 Contingency Plan (Contingency Plan). The
Contingency Plan is intended to be an evolving document changing and developing
to reflect the results, progress and current status of the Program. The
Contingency Plan addresses a variety of issues including critical and common
systems, credit risk, liquidity, loan and deposit customers, facilities,
supplies and computer back-up locations. Additionally, FBA has developed
business resumption plans and process resumption test plans for each functional
area deemed to be critical to the operations of FBA. These business resumption
plans, collectively with the Contingency Plan, also serve as evolving documents
and will continue to be modified to appropriately address Year 2000 risks
associated with the individual needs and responsibilities of each of these
critical functional areas based upon the results of the process resumption
testing efforts.
While FBA is making a substantial effort to become Year 2000 compliant,
there is no assurance the Year 2000 issue will not have a material adverse
effect on its financial condition or results of operations.
Liquidity
The liquidity of FBA and the Subsidiary Banks is the ability to
maintain a cash flow which is adequate to fund operations, service debt
obligations and meet obligations and other commitments on a timely basis. The
Subsidiary Banks receive funds for liquidity from customer deposits, loan
payments, maturities of loans and investments, sales of investments and from
earnings. In addition, FBA and the Subsidiary Banks may avail themselves of more
volatile sources of funds through the issuance of certificates of deposit in
denominations of $100,000 or more, federal funds borrowed, securities sold under
agreements to repurchase and borrowings from the Federal Home Loan Bank. The
aggregate funds acquired from these more volatile sources were $92.9 million and
$56.3 million at June 30, 1999 and December 31, 1998, respectively.
<PAGE>
The following table presents the maturity structure of volatile funds,
which consists of certificates of deposit of $100,000 or more and short-term
borrowings, at June 30, 1999.
(dollars expressed
in thousands)
Three months or less..................................... $ 34,586
Over three months through six months..................... 13,845
Over six months through twelve months.................... 27,012
Over twelve months....................................... 17,433
-----------
Total.............................................. $ 92,876
===========
In addition to these more volatile sources of funds, FBA has previously
borrowed from First Banks under the Note Payable. Borrowings under the Note
Payable have been utilized to facilitate the funding of FBA's acquisitions,
support the possible repurchases of common stock from time to time and for other
corporate purposes. There were no amounts outstanding under the Note Payable at
June 30, 1999 and December 31, 1998.
Management believes the available liquidity and operating results of
the Subsidiary Banks will be sufficient to provide funds for growth and to
permit the distribution of dividends to FBA sufficient to meet FBA's operating
and debt service requirements both on a short-term and long-term basis and to
pay the dividends on the FACT Preferred Securities.
Effect of New Accounting Standards
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133 -- Accounting for
Derivative Instruments and Hedging Activities (SFAS 133). SFAS 133 establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities.
SFAS 133 requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. If certain conditions are met, a derivative may be specifically
designated as a hedge in one of three categories. The accounting for changes in
the fair value of a derivative (that is, gains and losses) depends on the
intended use of the derivative and the resulting designation. Under SFAS 133, an
entity that elects to apply hedge accounting is required to establish, at the
inception of the hedge, the method it will use for assessing the effectiveness
of the hedging derivative and the measurement approach for determining the
ineffective aspect of the hedge. Those methods must be consistent with the
entity's approach to managing risk. SFAS 133 applies to all entities. In June
1999, the FASB issued SFAS No. 137 - Accounting for Derivative Instruments and
Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133,
an Amendment of FASB Statement No. 133, which defers the effective date of SFAS
133 from fiscal years beginning after June 15, 1999 to fiscal years beginning
after June 15, 2000. Initial application should be as of the beginning of an
entity's fiscal quarter; on that date, hedging relationships must be designated
and documented pursuant to the provisions of SFAS 133, as amended. Earlier
application of all of the provisions is encouraged but is permitted only as of
the beginning of any fiscal quarter that begins after the issuance date of SFAS
133, as amended. Additionally, SFAS 133, as amended, should not be applied
retroactively to financial statements of prior periods. FBA is currently
evaluating the requirements of SFAS 133, as amended, to determine its potential
impact on the consolidated financial statements.
<PAGE>
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
An Annual Meeting of Stockholders was held on June 9, 1999. The seven
directors of FBA were elected, with the vote totals indicated in the following
table:
Name of Director For Withheld
---------------- --- --------
Allen H. Blake 5,603,656 21,864
Charles A. Crocco, Jr. 5,603,833 21,687
James F. Dierberg 5,601,099 24,421
Albert M. Lavezzo 5,603,760 21,760
Ellen D. Schepman 5,602,665 22,855
Edward T. Story, Jr. 5,582,252 43,268
Donald W. Williams 5,602,913 22,607
An amendment to the Restated Certificate of Incorporation of First
Banks America, Inc., eliminating a provision that authorized the issuance of up
to 3,000,000 shares of preferred stock, was approved and adopted with the vote
totals indicated below:
Broker
For Against Abstain Non-Votes
--- ------- ------- ---------
Shares Voted 5,041,166 10,153 4,139 570,062
Item 6. Exhibits and Reports on Form 8-K
(a) The exhibits are numbered in accordance with the Exhibit Table of Item
601 of Regulation S-K.
Exhibit
Number Description
------ -----------
3(a) Restated Certificate of Incorporation of the
Company effective August 31, 1995 (filed as
Exhibit 3(a) to Quarterly Report on Form
10-Q for the quarter ended September 30,
1995 and incorporated herein by reference).
3(b) Amended and Restated Bylaws of the Company
(as amended April 21, 1995) (filed as
Exhibit 3(b) to Quarterly Report on Form
10-Q for the quarter ended March 31, 1995
and incorporated herein by reference).
3(c) Certificate of Amendment of the Restated
Certificate of Incorporation of the Company
effective June 16, 1999 (filed herewith).
27 Article 9 - Financial Data Schedule (EDGAR
only).
(b) FBA filed no reports on Form 8-K during the three months ended June 30,
1999.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRST BANKS AMERICA, INC.
Registrant
Date: August 2, 1999 By: /s/ James F. Dierberg
-------------------------------
James F. Dierberg
Chairman, President and
Chief Executive Officer
Date: August 2, 1999 By: /s/ Allen H. Blake
-------------------------------
Allen H. Blake
Executive Vice President,
Chief Financial Officer,
Chief Operating Officer
and Secretary
(Principal Financial Officer)
<PAGE>
EXHIBIT 3(c)
CERTIFICATE OF AMENDMENT
OF THE RESTATED CERTIFICATE OF INCORPORATION
FIRST BANKS AMERICA, INC.
First Banks America, Inc., a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware, does
hereby certify as follows:
FIRST: That at a meeting of the Board of Directors of First Banks
America, Inc. (the "Corporation"), resolutions were duly adopted setting forth a
proposed amendment of the Restated Certificate of Incorporation of the
Corporation, declaring said amendment to be advisable and calling a meeting of
the stockholders of the Corporation for consideration thereof. The resolution
setting forth the proposed amendments is as follows:
RESOLVED: That Article FOURTH of the Restated Certificate of
Incorporation of First Banks America, Inc., is amended to read in its entirety
as follows:
FOURTH: (A) The total number of shares of all classes of
capital stock which the Corporation shall have authority to issue is
ten million six hundred sixty-six thousand six hundred sixty-six
(10,666,666) shares consisting of (a) six million six hundred sixty-six
thousand six hundred sixty-six (6,666,666) shares of a class designated
Common Stock, par value $0.15 per share ("Common Stock"), and (b) four
million (4,000,000) shares of a class designated Class B Common Stock,
par value $0.15 per share ("Class B Common Stock").
(B) The designations and the powers, preferences, rights,
qualifications, limitations, and restrictions of the Common Stock and
the Class B Common Stock are as follows:
1. Provisions Relating to the Common Stock and the Class
B Common Stock.
(a) General. Except as otherwise provided herein, or as
otherwise provided by applicable law, all shares of Common Stock and
Class B Common Stock shall have identical rights and privileges in
every respect.
(b) Voting. The Common Stock and the Class B Common Stock
shall each be fully voting stock entitled to one vote per share with
respect to the election of directors and for all other purposes. The
holders of Common Stock and Class B Common Stock shall, unless
otherwise required by law or by another provision of this Certificate
of Incorporation, vote as a single class on all matters. In all
elections for directors of the Corporation, each stockholder shall have
the right to cast as many votes in the aggregate as shall equal the
number of voting shares held by such stockholder in the Corporation,
multiplied by the number of directors to be elected by the class to
which such stockholder belongs at such election, and each stockholder
may cast the whole number of votes, either in person or by proxy, for
one candidate or distribute them among two or more candidates.
<PAGE>
(c) Dividends. Subject to the limitations prescribed herein,
holders of Common Stock and Class B Common Stock shall participate
equally in any dividends (whether payable in cash, stock or property)
when and as declared by the Board of Directors of the Corporation out
of the assets of the Corporation legally available therefor and the
Corporation shall treat the Common Stock and Class B Common Stock
identically in respect of any subdivisions or combinations (for
example, if the Corporation effects a two-for-one stock split with
respect to the Common Stock, it shall at the same time effect a
two-for-one stock split with respect to the Class B Common Stock);
provided, however, that (i) with respect to dividends payable in cash
by the Corporation, the holders of Class B Common Stock shall
participate equally per share only if and to the extent such cash
dividends exceed $0.45 per share on the Common Stock per calendar year
(for example, if the Board of Directors declares and the Corporation
pays a dividend of $0.75 per share of Common Stock for a given calendar
year, holders of Class B Common Stock shall be entitled to a dividend
of $0.30 per share); and (ii) dividends payable in shares of Common
Stock (or rights to subscribe for or purchase shares of Common Stock or
securities or indebtedness convertible into shares of Common Stock)
shall be paid only on shares of Common Stock and dividends payable in
shares of Class B Common Stock (or rights to subscribe for or purchase
shares of Class B Common Stock or securities or indebtedness
convertible into shares of Class B Common Stock) shall be paid only on
shares of Class B Common Stock (for example, if the Board of Directors
declares and the Corporation pays a five percent (5%) stock dividend on
the Common Stock, payable in shares of Common Stock, at the same time
the Board of Directors shall declare and the Corporation shall pay a
five percent (5%) stock dividend on the Class B Common Stock payable in
shares of Class B Common Stock).
(d) Liquidation. In the event the Corporation is liquidated,
dissolved or wound up, whether voluntarily or involuntarily, the
holders of the Common Stock and the Class B Common Stock shall
participate equally in any distribution.
(e) Voluntary Conversion of Class B Common Stock. (i)
Conversion Rights. Each share of Class B Common Stock may be converted
into one (1) share of Common Stock at the option of any holder thereof
at any time after the fifth (5th) anniversary of the date of its
issuance by the Corporation. For the foregoing purpose, a share of
Class B Common Stock issued as a stock dividend or pursuant to a stock
split, reclassification or other combination, shall be deemed to have
been issued on the date of the share of Class B Common Stock with
respect to which it is so issued.
(ii) Conversion Procedures. Any holder of Class B Common Stock
desiring to exercise such holder's option to convert such Class B
Common Stock in accordance with the foregoing shall surrender the
certificate or certificates representing the Class B Common Stock to be
converted, duly endorsed to the Corporation or in blank, at the
principal executive office of the Corporation, and shall give written
notice to the Corporation at such office that such holder elects to
convert the number of shares represented by such certificate or
certificates, or a specified number thereof. As promptly as practicable
after the surrender for conversion of any Class B Common Stock, the
Corporation shall execute and deliver or cause to be executed and
delivered to the holder of such Class B Common Stock certificates
representing the shares of Common Stock issuable upon such conversion.
In case any certificate or certificates representing shares of Class B
Common Stock shall be surrendered for conversion for only a part of the
shares represented thereby, the Corporation shall execute and deliver
to the holders of the certificate or certificates for shares of Class B
Common Stock so surrendered a new certificate or certificates
<PAGE>
representing the shares of Class B Common Stock not converted, dated
the same date as the certificate or certificates representing the
Common Stock. Shares of the Class B Common Stock converted as
aforesaid shall be deemed to have been converted immediately prior
to the close of business on the date such shares are duly surrendered
for conversion, and the person or persons entitled to receive the
shares of Common Stock issuable upon such conversion shall be treated
for all purposes as the record holder or holders of such shares of
Common Stock as of such date.
(iii) Recapitalization, Consolidation, or Merger of the
Corporation. In the event that the Corporation shall be recapitalized,
consolidated with, or merged with or into any other corporation (a
"Reorganization") and the terms thereof shall provide (i) that the
Class B Common Stock shall remain outstanding after such Reorganization
and (ii) for any change in or conversion of the Common Stock, then the
terms of such Reorganization shall include a provision to the effect
that each share of Class B Common Stock after such Reorganization shall
thereafter be entitled to receive upon conversion the same kind and
amount of securities or assets as shall be distributable upon such
Reorganization with respect to one share of Common Stock.
(iv) Reservation of Shares. The Corporation shall at all times
reserve and keep available out of its authorized but unissued shares of
Common Stock, solely for the purpose of effecting the conversion of
Class B Common Stock as herein provided, such number of shares of
Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding shares of Class B Common Stock and shall
take all such corporate action as may be necessary to assure that such
shares of Common Stock may be validly and legally issued upon
conversion of all of the outstanding shares of Class B Common Stock;
and if, at any time the number of authorized but unissued shares of
Common Stock shall not be sufficient to effect the conversion of the
Class B Common Stock, the Corporation shall take such corporate action
as may be necessary to increase its authorized but unissued shares of
Common Stock to such number of shares as shall be sufficient for such
purpose.
(v) Retirement of Shares. Shares of Class B Common Stock which
have been issued and have been converted into Common Stock,
repurchased, or reacquired in any other manner by the Corporation shall
not be reissued.
(f) Mandatory Conversion of Class B Common Stock. If, at any
time while there are shares of Class B Common Stock issued and
outstanding, it shall be determined by the Board of Directors, in its
sole discretion, that legislation or regulations are enacted or any
judicial or administrative determination is made which would prohibit
the listing, quotation or trading of the Common Stock on the New York
Stock Exchange or the National Association of Securities Dealers
Automated Quotation System, or would otherwise have a material adverse
effect on the Corporation, in any such case due to the Corporation
having more than one class of common shares outstanding, then the Board
of Directors may by resolution convert all outstanding shares of Class
B Common Stock into shares of Common Stock on a share-for-share basis.
To the extent practicable, notice of such conversion of Class B Common
Stock specifying the date fixed for said conversion shall be mailed,
postage pre-paid, at least ten (10) days but not more than thirty (30)
days prior to said conversion date to the holders of record of Common
Stock and Class B Common Stock at their respective addresses as the
same shall appear on the books of the Corporation; provided, however,
that no failure or inability to provide such notice shall limit the
authority or ability of the Board of Directors to convert all
outstanding shares of Class B Common Stock into shares of Common Stock.
Immediately prior to the close of business on said conversion date (or,
<PAGE>
if said conversion date is not a business day, on the next succeeding
business day) each outstanding share of Class B Common Stock shall
thereupon automatically be converted into a share of Common Stock
and each certificate theretofore representing shares of Class B Common
Stock shall thereupon and thereafter represent a like number of shares
of Common Stock.
(g) Class Voting Under Certain Circumstances. None of the
provisions hereof affecting the powers, preferences, rights,
qualifications, limitations or restrictions of the Class B Common Stock
may be amended or repealed unless, in addition to any other vote
required by law or this Certificate of Incorporation, such amendment
shall be approved by the affirmative vote of the holders of a majority
of the shares of the Common Stock then outstanding, voting as a
separate class.
2. General. Subject to the foregoing provisions of this
Certificate of Incorporation, the Corporation may issue shares of its
Common Stock and Class B Common Stock from time to time for such
consideration (not less than the par value thereof) as may be fixed by
the Board of Directors of the Corporation, which is expressly
authorized to fix the same in its absolute and uncontrolled discretion,
subject to the foregoing conditions. Shares so issued for which the
consideration shall have been paid or delivered to the Corporation
shall be deemed fully paid stock and shall not be liable to any further
call or assessment thereon, and the holders of such shares shall not be
liable for any further payments in respect of such shares.
SECOND: That thereafter, an annual meeting of the stockholders of the
Corporation was duly called and held, upon notice in accordance with Section 222
of the General Corporation Law of the State of Delaware, at which meeting the
necessary number of shares as required by statute were voted in favor of the
amendments.
THIRD: That said amendments were duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, First Banks America, Inc. has caused this
Certificate to be signed by James F. Dierberg, Chairman of the Board
of Directors, Chief Executive Officer and President and Allen H. Blake,
Secretary, this 16th day of June, 1999.
First Banks America, Inc.
By:/s/James F. Dierberg
-----------------------
James F. Dierberg
Chairman of the Board of Directors,
Chief Executive Officer
and President
Attest:
/s/Allen H. Blake
- -----------------
Allen H. Blake
Secretary
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