UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _______ to ________
Commission File No. 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 Identification No.)
incorporation or organization)
135 North Meramec, Clayton, Missouri 63105
(Address of principal executive offices) (Zip Code)
(314) 854-4600
(Registrant's telephone number, including area code)
--------------------------------------------------
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 practical date.
Shares outstanding
Class at April 30, 2000
----- ------------------
Common Stock, $0.15 par value 3,101,934
Class B Common Stock, $0.15 par value 2,500,000
<PAGE>
FIRST BANKS AMERICA, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
<S> <C>
CONSOLIDATED BALANCE SHEETS......................................................... 1
CONSOLIDATED STATEMENTS OF INCOME................................................... 3
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME........................................................ 4
CONSOLIDATED STATEMENTS OF CASH FLOWS............................................... 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.......................................... 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS....................................................... 11
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.......................... 19
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS................................................................... 20
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.................................................... 20
SIGNATURES.......................................................................................... 21
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
FIRST BANKS AMERICA, INC.
CONSOLIDATED BALANCE SHEETS - (UNAUDITED)
(dollars expressed in thousands, except per share data)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
---- ----
ASSETS
------
Cash and cash equivalents:
<S> <C> <C>
Cash and due from banks........................................................... $ 42,555 35,644
Interest-bearing deposits with other financial institutions
with maturities of three months or less........................................ 384 122
Federal funds sold................................................................ 60,100 8,800
----------- ---------
Total cash and cash equivalents.............................................. 103,039 44,566
----------- ---------
Investment securities:
Available for sale, at fair value................................................. 112,925 90,658
Held to maturity, at amortized cost (fair value of $1,741 and $1,757 at
March 31, 2000 and December 31, 1999, respectively)............................ 1,873 1,880
----------- ---------
Total investment securities.................................................. 114,798 92,538
----------- ---------
Loans:
Commercial and financial.......................................................... 228,066 216,780
Real estate construction and development.......................................... 201,668 204,832
Real estate mortgage.............................................................. 310,978 272,700
Consumer and installment.......................................................... 40,109 40,514
----------- ---------
Total loans.................................................................. 780,821 734,826
Unearned discount................................................................. (2,526) (2,563)
Allowance for loan losses......................................................... (15,631) (14,611)
----------- ---------
Net loans.................................................................... 762,664 717,652
----------- ---------
Bank premises and equipment, net of accumulated depreciation.......................... 13,440 13,261
Intangibles associated with the purchase of subsidiaries.............................. 21,712 16,579
Accrued interest receivable........................................................... 6,691 6,244
Other real estate .................................................................... 75 60
Deferred tax assets................................................................... 15,485 11,125
Other assets.......................................................................... 24,384 18,682
----------- ---------
Total assets................................................................. $ 1,062,288 920,707
=========== =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
FIRST BANKS AMERICA, INC.
CONSOLIDATED BALANCE SHEETS, CONTINUED - (UNAUDITED)
(dollars expressed in thousands, except per share data)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
---- ----
LIABILITIES
-----------
Deposits:
Demand:
<S> <C> <C>
Non-interest-bearing ........................................................... $ 145,483 128,137
Interest-bearing................................................................ 83,792 74,858
Savings........................................................................... 270,767 242,543
Time deposits:
Time deposits of $100 or more................................................... 115,743 94,967
Other time deposits............................................................. 289,152 239,518
----------- ---------
Total deposits............................................................... 904,937 780,023
Note payable.......................................................................... 9,200 --
Short-term borrowings................................................................. 13,176 14,940
Accrued interest payable.............................................................. 2,879 1,989
Deferred tax liabilities.............................................................. 2,372 2,043
Accrued expenses and other liabilities................................................ 10,336 4,995
----------- ---------
Total liabilities............................................................ 942,900 803,990
----------- ---------
Guaranteed preferred beneficial interest in First Banks
America, Inc. subordinated debentures............................................. 44,233 44,218
----------- ---------
STOCKHOLDERS' EQUITY
--------------------
Common stock:
Common stock, $0.15 par value; 6,666,666 shares authorized at March 31, 2000
and December 31, 1999; 3,874,697 shares issued at March 31, 2000 and
December 31, 1999............................................................... 581 581
Class B common stock, $0.15 par value; 4,000,000 shares
authorized at March 31, 2000 and December 31, 1999;
2,500,000 shares issued and outstanding at
March 31, 2000 and December 31, 1999............................................ 375 375
Capital surplus....................................................................... 69,760 69,760
Retained earnings since elimination of accumulated deficit
of $259,117 effective December 31, 1994........................................... 18,172 15,163
Common treasury stock, at cost; 773,396 shares and 724,396
shares at March 31, 2000 and December 31, 1999, respectively...................... (12,249) (11,369)
Accumulated other comprehensive loss.................................................. (1,484) (2,011)
----------- ---------
Total stockholders' equity................................................... 75,155 72,499
----------- ---------
Total liabilities and stockholders' equity................................... $ 1,062,288 920,707
=========== =========
</TABLE>
<PAGE>
FIRST BANKS AMERICA, INC.
CONSOLIDATED STATEMENTS OF INCOME - (UNAUDITED)
(dollars expressed in thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended
March 31,
------------------
2000 1999
---- ----
Interest income:
<S> <C> <C>
Interest and fees on loans............................................................ $ 17,919 12,869
Investment securities................................................................. 1,536 1,828
Federal funds sold and other.......................................................... 519 98
---------- ---------
Total interest income............................................................ 19,974 14,795
---------- ---------
Interest expense:
Deposits:
Interest-bearing demand............................................................. 319 268
Savings............................................................................. 2,351 1,806
Time deposits of $100 or more....................................................... 994 741
Other time deposits................................................................. 3,811 2,579
Promissory note payable and short-term borrowings..................................... 154 108
--------- ---------
Total interest expense........................................................... 7,629 5,502
--------- ---------
Net interest income.............................................................. 12,345 9,293
Provision for loan losses................................................................. 342 90
--------- ---------
Net interest income after provision for loan losses.............................. 12,003 9,203
--------- ---------
Noninterest income:
Service charges on deposit accounts and customer service fees......................... 882 730
(Loss) gain on sales of securities, net............................................... (177) 86
Other income.......................................................................... 442 339
--------- ---------
Total noninterest income......................................................... 1,147 1,155
--------- ---------
Noninterest expense:
Salaries and employee benefits........................................................ 3,102 2,295
Occupancy, net of rental income....................................................... 742 561
Furniture and equipment............................................................... 441 402
Advertising and business development.................................................. 68 64
Postage, printing and supplies........................................................ 195 185
Data processing fees.................................................................. 944 719
Legal, examination and professional fees.............................................. 1,203 1,103
Communications........................................................................ 132 154
Gain on sales of other real estate, net of expenses................................... (14) --
Amortization of intangibles associated with the purchase of subsidiaries.............. 307 202
Guaranteed preferred debentures....................................................... 993 993
Other................................................................................. 595 828
--------- ---------
Total noninterest expense........................................................ 8,708 7,506
--------- ---------
Income before provision for income tax expense................................... 4,442 2,852
Provision for income tax expense.......................................................... 1,433 1,221
--------- ---------
Net income ...................................................................... $ 3,009 1,631
========= =========
Earnings per common share:
Basic................................................................................. $ 0.53 0.29
Diluted............................................................................... 0.53 0.28
========= =========
Weighted average common stock outstanding (in thousands).................................. 5,630 5,721
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
FIRST BANKS AMERICA, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME - (UNAUDITED)
Three months ended March 31, 2000 and 1999 and
nine months ended December 31, 1999
(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
----- ----- ------- ------ -------- ----- ------ ------
Consolidated balances,
<S> <C> <C> <C> <C> <C> <C> <C>
December 31, 1998.................... $ 581 375 68,743 5,693 (10,088) 541 65,845
Three months ended March 31, 1999:
Comprehensive income:
Net income.......................... -- -- -- 1,631 1,631 -- -- 1,631
Other comprehensive income, net
of tax - unrealized losses on
securities, net of reclassi-
fication adjustment (1)........... -- -- -- (836) -- -- (836) (836)
-----
Comprehensive income................ 795
=====
Repurchases of common stock.......... -- -- -- -- (1) -- (1)
----- --- ------ ------ ------- ------ ------
Consolidated balances, March 31, 1999... 581 375 68,743 7,324 (10,089) (295) 66,639
Nine months ended December 31, 1999:
Comprehensive income:
Net income.......................... -- -- -- 7,839 7,839 -- -- 7,839
Other comprehensive income, net
of tax - unrealized losses on
securities, net of reclassi-
fication adjustment (1)........... -- -- -- (1,716) -- -- (1,716) (1,716)
-----
Comprehensive income................ 6,123
=====
Reduction of deferred tax asset
valuation allowance............... -- -- 981 -- -- -- 981
Compensation paid in stock........... -- -- 36 -- -- -- 36
Repurchases of common stock.......... -- -- -- -- (1,280) -- (1,280)
----- --- ------ ------ ------- ------ ------
Consolidated balances,
December 31, 1999................... 581 375 69,760 15,163 (11,369) (2,011) 72,499
Three months ended March 31, 2000:
Comprehensive income:
Net income.......................... -- -- -- 3,009 3,009 -- -- 3,009
Other comprehensive income, net
of tax - unrealized gains on
securities, net of reclassi-
fication adjustment (1)........... -- -- -- 527 -- -- 527 527
-----
Comprehensive income................ 3,536
=====
Repurchases of common stock.......... -- -- -- -- (880) -- (880)
----- --- ------ ------ ------- ------ ------
Consolidated balances, March 31, 2000... $ 581 375 69,760 18,172 (12,249) (1,484) 75,155
===== === ====== ====== ======= ====== ======
</TABLE>
(1) Disclosure of reclassification adjustment:
<TABLE>
<CAPTION>
Three months ended Nine months ended
March 31, December 31,
---------------- -----------------
2000 1999 1999
---- ---- ----
<S> <C> <C> <C>
Unrealized gains (losses) arising during the period................................ $ 412 (780) (1,659)
Less reclassification adjustment for (losses) gains included in net income......... (115) 56 57
------- ----- -------
Unrealized gains (losses) on investment securities................................ $ 527 (836) (1,716)
======= ===== ======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
FIRST BANKS AMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS - (UNAUDITED)
(dollars expressed in thousands)
<TABLE>
<CAPTION>
Three months ended
March 31,
-----------------
2000 1999
---- ----
Cash flows from operating activities:
<S> <C> <C>
Net income............................................................................ $ 3,009 1,631
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation, amortization and accretion, net..................................... 542 449
Provision for loan losses......................................................... 342 90
Provision for income tax expense.................................................. 1,433 1,221
Payments of income taxes.......................................................... (160) (66)
Loss (gain) on sales of securities, net........................................... 177 (86)
Decrease in accrued interest receivable........................................... 219 439
Interest accrued on liabilities................................................... 7,629 5,502
Payments of interest on liabilities............................................... (7,253) (5,503)
Other operating activities, net................................................... (830) (998)
---------- ---------
Net cash provided by operating activities................................... 5,108 2,679
---------- ---------
Cash flows from investing activities:
Cash paid for acquired entities, net of cash and cash equivalents received............ (2,709) (17,244)
Proceeds from sales of investment securities.......................................... 4,592 21,097
Maturities of investment securities available for sale................................ 30,754 16,194
Maturities of investment securities held to maturity.................................. 6 6
Purchases of investment securities available for sale................................. (28,194) (7,297)
Net increase in loans................................................................. (5,819) (34,403)
Recoveries of loans previously charged-off............................................ 521 834
Purchases of bank premises and equipment.............................................. (711) (173)
Proceeds from sales of other real estate.............................................. 74 120
Other investing activities, net....................................................... (172) (143)
---------- ---------
Net cash used in investing activities....................................... (1,658) (21,009)
---------- ---------
Cash flows from financing activities:
Other increases (decreases) in deposits:
Demand and savings deposits......................................................... 9,873 1,135
Time deposits....................................................................... 38,594 (7,838)
(Decrease) increase in federal funds purchased and other short-term borrowings........ (6,000) 12,200
Increase (decrease) in securities sold under agreements to repurchase................. 4,236 (940)
Increase in promissory note payable................................................... 9,200 --
Repurchases of common stock for treasury.............................................. (880) (1)
---------- ---------
Net cash provided by financing activities................................... 55,023 4,556
---------- ---------
Net increase (decrease) in cash and cash equivalents........................ 58,473 (13,774)
Cash and cash equivalents, beginning of period............................................ 44,566 46,313
---------- ---------
Cash and cash equivalents, end of period.................................................. $ 103,039 32,539
========== =========
Noncash investing and financing activities:
Loans transferred to other real estate................................................ $ 75 --
========== =========
</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. and subsidiaries (FBA or the Company) are unaudited and should be
read in conjunction with the consolidated financial statements contained in the
1999 Annual Report on Form 10-K. The consolidated financial statements have been
prepared in accordance with generally accepted accounting principles and conform
to predominant practices within the banking industry. Management of FBA has made
a number of estimates and assumptions relating to the reporting of assets and
liabilities and the disclosure of contingent assets and liabilities to prepare
the consolidated financial statements in conformity with generally accepted
accounting principles. In the opinion of management, all adjustments, consisting
of normal recurring accruals considered necessary for a fair presentation of the
results of operations for the interim periods presented herein, have been
included. Operating results for the three months ended March 31, 2000 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2000.
The consolidated financial statements include the accounts of the
parent company and its subsidiaries, all of which are wholly owned. All
significant intercompany accounts and transactions have been eliminated. Certain
reclassifications of 1999 amounts have been made to conform with the 2000
presentation.
FBA is majority owned by First Banks, Inc., St. Louis, Missouri (First
Banks). Accordingly, First Banks has effective control over the management and
policies of FBA and the election of its directors. At March 31, 2000 and
December 31, 1999, First Banks' ownership interest in FBA was 84.10% and 83.37%,
respectively.
FBA operates through four wholly owned banking subsidiaries: First Bank
Texas N.A., headquartered in Houston, Texas (FB Texas); First Bank of
California, headquartered in Roseville, California (FB California); Redwood
Bank, headquartered in San Francisco, California (Redwood Bank); and Lippo Bank,
headquartered in San Francisco, California (Lippo Bank), collectively referred
to as the Subsidiary Banks.
(2) ACQUISITIONS
On February 29, 2000, FBA completed its acquisition of Lippo Bank, San
Francisco, California, in exchange for $17.2 million in cash. Lippo Bank
operates three banking locations in San Francisco, San Jose and Los Angeles,
California. The acquisition was funded from available cash of $9.2 million and
from an advance of $8.0 million under FBA's $20.0 million revolving note payable
to First Banks (Note Payable) as further discussed in Note 4 to the consolidated
financial statements. At the time of the transaction, Lippo Bank had $85.3
million in total assets, $40.9 million in loans, net of unearned discount, $37.4
million in investment securities and $76.4 million in total deposits. This
transaction was accounted for using the purchase method of accounting. The
excess of the cost over the fair value of the net assets acquired was
approximately $5.5 million and is being amortized over 15 years. Lippo Bank will
be merged into FB California.
(3) EARNINGS PER COMMON SHARE
The following is a reconciliation of the numerators and denominators
of the basic and diluted EPS computations for the periods indicated:
<TABLE>
<CAPTION>
Income Shares Per share
(numerator) (denominator) amount
----------- ------------- ------
(dollars expressed in thousands, except per share data)
Three months ended March 31, 2000:
<S> <C> <C> <C>
Basic EPS-- income available to common stockholders.......... $3,009 5,630 $ 0.53
======
Effect of dilutive securities-- stock options................ -- 5
------ ------
Diluted EPS-- income available to common stockholders........ $3,009 5,635 $ 0.53
====== ====== ======
Three months ended March 31, 1999:
Basic EPS-- income available to common stockholders.......... $1,631 5,721 $ 0.29
======
Effect of dilutive securities-- stock options................ -- 5
------ ------
Diluted EPS-- income available to common stockholders........ $1,631 5,726 $ 0.28
====== ====== ======
</TABLE>
<PAGE>
(4) 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. In addition, fees payable to First Banks, its affiliates and 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.
First Banks provides management services to FBA and its Subsidiary
Banks. Management services are provided under management fee agreements whereby
FBA compensates First Banks on an hourly basis for its use of personnel for
various functions including internal audit, loan review, income tax preparation
and assistance, accounting, asset/liability management and investment services,
loan servicing and other management and administrative services. Fees paid under
these agreements were $828,000 and $682,000 for the three months ended March 31,
2000 and 1999, respectively. The fees paid 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 California 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 is charged and/or credited under the terms of cost sharing
agreements. 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 $190,000 and
$212,000 for the three months ended March 31, 2000 and 1999, respectively.
First Services L.P., a limited partnership indirectly owned by First
Banks' Chairman and his adult children, 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 $841,000 and
$686,000 for the three months ended March 31, 2000 and 1999, respectively. The
fees paid for data processing services are at least as favorable as could have
been obtained from unaffiliated third parties.
FBA's Subsidiary Banks had $82.7 million and $88.2 million in whole
loans and loan participations outstanding at March 31, 2000 and December 31,
1999, respectively, that were purchased from banks affiliated with First Banks.
In addition, FBA's Subsidiary Banks had sold $314.0 million and $302.9 million
in whole loans and loan participations to affiliates of First Banks at March 31,
2000 and December 31, 1999, 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 to First Banks. The
borrowings under the Note Payable bear interest at an annual rate of one-quarter
percent less than the "Prime Rate" as reported in the Wall Street Journal. The
outstanding principal and accrued interest under the Note Payable is due and
payable on October 31, 2001. At March 31, 2000, the outstanding borrowings under
the Note Payable were $9.2 million. There were no amounts outstanding under the
Note Payable at December 31, 1999. The interest expense incurred by FBA on the
Note Payable was $61,000 for the three months ended March 31, 2000.
(5) 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 consolidated financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
FBA and 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.
Quantitative measures established by regulation to ensure capital
adequacy require FBA and the Subsidiary Banks to maintain minimum amounts and
ratios of total and Tier I capital (as defined in the regulations) to
risk-weighted assets, and of Tier I capital to average assets. Management
believes, as of March 31, 2000, FBA and the Subsidiary Banks were each well
capitalized.
<PAGE>
As of March 31, 2000, the most recent notification from FBA's primary
regulator categorized FBA and the Subsidiary Banks as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized, FBA and the Subsidiary Banks must maintain minimum total
risk-based, Tier I risk-based and Tier I leverage ratios as set forth in the
following table.
At March 31, 2000 and December 31, 1999, FBA's and the Subsidiary
Banks' required and actual capital ratios were as follows:
<TABLE>
<CAPTION>
To be well
Actual For capital capitalized under
--------------------------
March 31, December 31, adequacy prompt corrective
2000 1999 purposes action provisions
---- ---- -------- -----------------
Total capital (to risk-weighted assets):
<S> <C> <C> <C> <C>
FBA.................................. 11.81% 13.08% 8.0% 10.0%
FB Texas............................. 12.25 12.42 8.0 10.0
FB California........................ 11.03 10.81 8.0 10.0
Redwood Bank......................... 11.09 11.17 8.0 10.0
Lippo Bank (1)....................... 13.61 -- 8.0 10.0
Tier 1 capital (to risk-weighted assets):
FBA.................................. 8.29% 9.34% 4.0% 6.0%
FB Texas............................. 11.00 11.17 4.0 6.0
FB California........................ 9.77 9.56 4.0 6.0
Redwood Bank......................... 9.97 10.15 4.0 6.0
Lippo Bank (1)....................... 12.36 -- 4.0 6.0
Tier 1 capital (to average assets):
FBA.................................. 7.95% 8.94% 3.0% 5.0%
FB Texas............................. 10.27 10.39 3.0 5.0
FB California........................ 9.69 9.95 3.0 5.0
Redwood Bank......................... 8.47 8.48 3.0 5.0
Lippo Bank (1)....................... 7.93 -- 3.0 5.0
</TABLE>
- ----------------
(1) Lippo Bank was acquired by FBA on February 29, 2000.
(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, brokerage services,
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
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.
The business segment results are summarized as follows and are
consistent with FBA's internal reporting system and, in all material respects,
with generally accepted accounting principles and practices predominant in the
banking industry.
<PAGE>
<TABLE>
<CAPTION>
FB California Redwood Bank (1) Lippo Bank (2)
-------------------------- ---------------------------- --------------
March 31, December 31, March 31, December 31, March 31,
2000 1999 2000 1999 2000
---- ---- ---- ---- ----
(dollars expressed in thousands)
Balance sheet information:
<S> <C> <C> <C> <C> <C>
Investment securities....................... $ 25,142 20,743 27,485 37,539 31,944
Loans, net of unearned discount............. 380,446 379,632 142,228 138,902 41,148
Total assets................................ 471,257 431,838 193,928 199,988 98,355
Deposits.................................... 406,058 367,563 167,110 173,703 76,431
Stockholders' equity........................ 49,191 47,990 24,612 24,275 17,273
========== ========== ========== ========== ==========
FB California Redwood Bank (1) Lippo Bank (2)
---------------------- ------------------- --------------
Three months ended Three months ended Month ended
March 31, March 31, March 31,
---------------------- ------------------- --------------
2000 1999 2000 1999 2000
---- ---- ---- ---- ----
(dollars expressed in thousands)
Income statement information:
Interest income............................. $ 9,758 8,000 3,933 1,180 534
Interest expense............................ 3,511 3,079 1,574 442 216
---------- ---------- ---------- ---------- ----------
Net interest income.................. 6,247 4,921 2,359 738 318
Provision for loan losses................... 90 60 132 -- --
---------- ---------- ---------- ---------- ----------
Net interest income after
provision for loan losses.......... 6,157 4,861 2,227 738 318
---------- ---------- ---------- ---------- ----------
Noninterest income.......................... 676 609 (118) 26 116
Noninterest expense......................... 3,615 3,699 1,500 438 442
---------- ---------- ---------- ---------- ----------
Income before provision (benefit)
for income tax expense............. 3,218 1,771 609 326 (8)
Provision (benefit) for income tax expense.. 1,270 787 324 164 (7)
---------- ---------- ---------- ---------- ----------
Net income........................... $ 1,948 984 285 162 (1)
========== ========== ========== ========== ==========
</TABLE>
- -----------------
(1) Redwood Bank was acquired by FBA on March 4, 1999.
(2) Lippo Bank was acquired by FBA on February 29, 2000 and will be merged into
FB California during the second quarter of 2000.
(3) Corporate and other includes $645,000 of guaranteed preferred debentures
expense, after applicable income tax benefit of $348,000 for the three
months ended March 31, 2000 and 1999.
<PAGE>
<TABLE>
<CAPTION>
FB Texas Corporate and other (3) Consolidated total
------------------------------- ------------------------------- -----------------------------
March 31, December 31, March 31, December 31, March 31, December 31,
2000 1999 2000 1999 2000 1999
---- ---- ---- ---- ---- ----
(dollars expressed in thousands)
<S> <C> <C> <C> <C> <C> <C>
26,152 30,439 4,075 3,817 114,798 92,538
214,473 213,731 -- (2) 778,295 732,263
291,625 278,988 7,123 9,893 1,062,288 920,707
255,517 244,248 (179) (5,491) 904,937 780,023
30,827 30,338 (46,748) (30,104) 75,155 72,499
========== ========= ========= ======== ========== =========
FB Texas Corporate and other (3) Consolidated total
---------------------- -------------------------- -------------------------
Three months ended Three months ended Three months ended
March 31, March 31, March 31,
---------------------- -------------------------- -------------------------
2000 1999 2000 1999 2000 1999
---- ---- ---- ---- ---- ----
(dollars expressed in thousands)
5,668 5,542 81 73 19,974 14,795
2,289 2,162 39 (181) 7,629 5,502
---------- --------- --------- -------- ---------- --------
3,379 3,380 42 254 12,345 9,293
120 30 -- -- 342 90
---------- --------- --------- -------- ---------- --------
3,259 3,350 42 254 12,003 9,203
---------- --------- --------- -------- ---------- --------
491 543 (18) (23) 1,147 1,155
2,109 2,279 1,042 1,090 8,708 7,506
---------- --------- --------- -------- ---------- --------
1,641 1,614 (1,018) (859) 4,442 2,852
587 555 (741) (285) 1,433 1,221
---------- --------- --------- -------- ---------- --------
1,054 1,059 (277) (574) 3,009 1,631
========== ========= ========= ======== ========== ========
</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 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; the ability of FBA to control
the composition of the loan portfolio without adversely affecting interest
income; and the ability of FBA to respond to changes in technology. 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. Readers of the Form 10-Q should therefore
not place undue reliance on forward-looking statements.
General
FBA is a registered bank holding company incorporated in Delaware and
headquartered in St. Louis County, Missouri. At March 31, 2000, FBA had $1.06
billion in total assets, $778.3 million in total loans, net of unearned
discount, $904.9 million in total deposits and $75.2 million in total
stockholders' equity. FBA operates through four wholly owned bank subsidiaries,
First Bank Texas N.A., headquartered in Houston, Texas (FB Texas); First Bank of
California, headquartered in Roseville, California (FB California); Redwood
Bank, headquartered in San Francisco, California (Redwood Bank); and Lippo Bank,
headquartered in San Francisco, California (Lippo Bank), collectively referred
to as the Subsidiary Banks.
Through the Subsidiary Banks' 17 banking locations in northern
California, one banking location in southern California and six banking
locations in the greater Houston and Dallas, Texas areas, FBA offers a broad
range of commercial and personal banking services, including certificate of
deposit accounts, individual retirement and other time deposit accounts,
checking and other demand deposit accounts, interest checking accounts, savings
accounts and money market accounts. 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, brokerage services, credit-related insurance, automatic teller
machines, telephone banking, safe deposit boxes, trust and private banking
services and cash management services.
FBA centralizes overall corporate policies, procedural and
administrative functions and operational support functions for the Subsidiary
Banks. Primary responsibility for managing the Subsidiary Banks remains with the
officers and directors.
The following table summarizes selected data about the Subsidiary Banks
at March 31, 2000:
<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................................. 11 $ 471,257 380,446 406,058
FB Texas...................................... 6 291,625 214,473 255,517
Redwood Bank.................................. 4 193,928 142,228 167,110
Lippo Bank.................................... 3 98,355 41,148 76,431
=== ========= ======= =======
</TABLE>
<PAGE>
Financial Condition
FBA's total assets were $1.06 billion and $920.7 million at March 31,
2000 and December 31, 1999, respectively. The increase in total assets is
primarily attributable to FBA's acquisition of Lippo Bank, which provided assets
of $85.3 million. Offsetting this increase and providing an additional source of
funds for continued internal loan growth was a reduction in investment
securities of $15.1 million, after consideration of the investment securities of
$37.4 million provided by Lippo Bank, to $114.8 million at March 31, 2000 from
$92.5 million at December 31, 1999. In addition, total deposits, excluding the
deposits provided by the acquisition of Lippo Bank, increased by $48.5 million
to $904.9 million at March 31, 2000. The funds generated from the deposit growth
were temporarily invested in cash and cash equivalents. Furthermore, FBA's note
payable increased to $9.2 million at March 31, 2000 and is reflective of FBA's
advance under its $20 million revolving note payable to First Banks utilized to
fund the Lippo Bank acquisition. See Notes 2 and 4 to the accompanying
consolidated financial statements.
During the three months ended March 31, 2000, FBA purchased $880,000 of
its common stock for treasury at an average cost of $17.95 per share. FBA
utilized available cash to fund its repurchases of common stock. In 1998, FBA's
Board of Directors authorized a fourth stock repurchase program allowing for the
purchase of an additional 5% of common stock for treasury representing
approximately 261,418 shares of common stock. At March 31, 2000, FBA has
purchased an aggregate total of 773,396 common shares for treasury and could
purchase approximately 43,000 additional shares under the existing
authorization. In addition, on April 28, 2000, FBA's Board of Directors approved
a fifth stock repurchase program allowing for the repurchase of an additional 5%
of common stock for treasury representing 277,891 shares of common stock.
Results of Operations
Net Income
Net income was $3.01 million, or $0.53 per share on a diluted basis,
for the three months ended March 31, 2000, compared to $1.63 million, or $0.28
per share on a diluted basis, for the comparable period in 1999. The earnings
progress was primarily driven by increased net interest income generated from
the acquisitions of Lippo Bank and Redwood Bank, an increase in interest rates
and internal loan growth. In addition, FB California's net income increased by
$900,000 to $1.9 million from $984,000 for the three months ended March 31, 2000
and 1999, respectively. This increase is reflective of the progress FBA has made
in the last year in assimilating the cultures of several acquired banks into FB
California to create a single effective banking franchise.
The increase in net interest income for the three months ended March
31, 2000 was partially offset by increased operating expenses and an increase in
the provision for loan losses as further discussed under "--Provision for Loan
Losses." The increased operating expenses are primarily attributable to the
operating expenses of Lippo Bank and Redwood Bank subsequent to their respective
acquisition dates, increased salaries and employee benefit expenses, increased
data processing fees and increased amortization of intangibles associated with
the purchase of subsidiaries.
Net Interest Income
Net interest income was $12.3 million, or 5.59% of average
interest-earning assets, for the three months ended March 31, 2000, in
comparison to $9.3 million, or 5.44% of average interest-earning assets, for the
comparable period in 1999. The improved net interest income is primarily
attributable to the net interest-earning assets provided by the acquisitions of
Lippo Bank and Redwood Bank, internal loan growth and an increase in the prime
lending rate.
The improved yield earned on the interest-earning assets was partially
offset by an increased rate paid on interest-bearing liabilities. For the three
months ended March 31, 2000 and 1999, the aggregate weighted average rate paid
on the deposit portfolio was 4.33% and 4.09%, respectively, reflecting FBA's
increased rates paid to provide a funding source for continued loan growth, an
increase in interest-bearing deposits provided by the acquisitions of Lippo Bank
and Redwood Bank and internal growth. In addition, the aggregate weighted
average rate paid on promissory notes payable and short-term borrowings was
5.78% and 5.85%, respectively, reflecting an increase in the average balance of
the revolving note payable to First Banks utilized to fund the acquisition of
Lippo Bank. The revolving note payable bears interest at one quarter percent
less than the prime lending rate and represents a higher-cost funding source,
thus contributing to the increase in the aggregate weighted average rate paid on
these financial instruments.
<PAGE>
The following table sets forth certain information relating to FBA's
average balance sheets, and reflects the average yield earned on
interest-bearing assets, the average cost of interest-bearing liabilities and
the resulting net interest income for the periods indicated.
<TABLE>
<CAPTION>
Three months ended March 31,
----------------------------------------------------------
2000 1999
----------------------------- --------------------------
Interest Interest
Average income/ Yield/ Average income/ Yield/
balance expense rate balance expense rate
------- ------- ---- ------- ------- ----
(dollars expressed in thousands)
ASSETS
------
Interest-earning assets:
<S> <C> <C> <C> <C> <C> <C>
Loans (1) (2) (3) (4)................................... $ 752,852 17,919 9.57% $567,101 12,869 9.20%
Investment securities (3) .............................. 97,890 1,536 6.31 118,265 1,828 6.27
Federal funds sold...................................... 36,315 503 5.57 7,285 87 4.84
Other .................................................. 685 16 9.39 436 11 10.23
--------- ------- -------- ------
Total interest-earning assets...................... 887,742 19,974 9.05 693,087 14,795 8.66
------- ------
Nonearning assets........................................... 88,023 82,394
--------- --------
Total assets....................................... $ 975,765 $775,481
========= ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
--------------------
Interest-bearing liabilities:
Interest-bearing demand deposits........................ $ 90,182 319 1.42% $ 72,191 268 1.51%
Savings deposits........................................ 241,412 2,351 3.92 204,270 1,806 3.59
Time deposits of $100 or more........................... 74,520 994 5.36 57,420 741 5.23
Other time deposits..................................... 288,660 3,811 5.31 201,375 2,579 5.19
--------- ------- -------- ------
Total interest-bearing deposits.................... 694,774 7,475 4.33 535,256 5,394 4.09
Promissory note payable and short-term borrowings....... 10,712 154 5.78 7,481 108 5.85
--------- ------- -------- ------
Total interest-bearing liabilities................. 705,486 7,629 4.35 542,737 5,502 4.11
------- ------
Noninterest-bearing liabilities:
Demand deposits......................................... 135,097 104,133
Other liabilities....................................... 59,726 54,138
--------- --------
Total liabilities.................................. 900,309 701,008
Stockholders' equity........................................ 75,456 74,473
--------- --------
Total liabilities and stockholders' equity......... $ 975,765 $775,481
========= ========
Net interest income......................................... 12,345 9,293
======= ======
Interest rate spread........................................ 4.70 4.55
Net interest margin......................................... 5.59% 5.44%
==== ====
</TABLE>
- ------------------------
(1) For purposes of these computations, nonaccrual loans are included in the
average loan amounts.
(2) Interest income on loans includes loan fees.
(3) FBA has no tax-exempt income.
(4) Includes the effects of interest rate exchange agreements.
<PAGE>
Provision for Loan Losses
The provision for loan losses was $342,000 and $90,000 for the three
months ended March 31, 2000 and 1999, respectively. The increase in the
provision for loan losses is primarily attributable to the continued growth and
changing composition of the loan portfolio combined with an increase in loan
charge-offs and a reduction in loan recoveries. Loan charge-offs were $642,000
for the three months ended March 31, 2000, in comparison to $480,000 for the
comparable period in 1999. This increase in loan charge-offs is reflective of
overall growth, both internal and through acquisitions, in the loan portfolio
and increased risk associated with the continued change in the composition of
the loan portfolio. For the three months ended March 31, 2000, loan charge-offs
included a charge-off of $457,000 on a single loan purchased from an affiliated
bank. Loan recoveries decreased to $521,000 for the three months ended March 31,
2000 from $834,000 for the comparable period in 1999, reflecting lower
charge-off experience in recent years, which reduced the amount of recovery
opportunities. The acquisitions of Lippo Bank, completed on February 29, 2000,
and Redwood Bank, completed on March 4, 1999, provided $799,000 and $1.5
million, respectively, in additional allowance for loan losses.
Tables summarizing nonperforming assets, past due loans and charge-off
and recovery experience are presented under "--Loans and Allowance for Loan
Losses."
Noninterest Income
Noninterest income was $1.1 million and $1.2 million for the three
months ended March 31, 2000 and 1999, respectively. Noninterest income consists
primarily of service charges on deposit accounts and customer service fees.
Service charges on deposit accounts and customer service fees increased
to $882,000 from $730,000 for the three months ended March 31, 2000 and 1999,
respectively. The increase in service charges corresponds to the increase in
deposit balances provided by internal growth, the acquisitions of Lippo Bank and
Redwood Bank and the additional services available and utilized by FBA's
expanding base of retail and corporate customers.
Noninterest income for the three months ended March 31, 2000 also
included a net loss on the sale of available-for-sale investment securities of
$177,000, in comparison to a net gain on the sale of available-for-sale
investment securities of $86,000 for the comparable period in 1999. The net loss
resulted from sales of certain investment securities held by acquired
institutions that did not meet FBA's overall investment objectives, whereas the
net gain resulted from sales of certain investment securities to facilitate the
funding of FBA's loan growth.
Other income was $442,000 and $339,000 for the three months ended March
31, 2000 and 1999, respectively. The primary components of the increase are
attributable to increased income earned on FBA's investment in bank-owned life
insurance and increased earnings associated with FBA's official check processing
program. Under this program, FBA earns a fee based upon the amount of official
checks issued and outstanding.
Noninterest Expense
Noninterest expense increased by $1.2 million to $8.7 million from $7.5
million for the three months ended March 31, 2000 and 1999, respectively. The
increase is reflective of: (a) the noninterest expense of Lippo Bank and Redwood
Bank subsequent to their respective acquisition dates, including certain
nonrecurring expenses associated with those acquisitions; (b) increased salaries
and employee benefit expenses; (c) increased data processing fees; and (d)
increased amortization of intangibles associated with the purchase of
subsidiaries. The overall increase in noninterest expense was partially offset
by a decrease in other expense.
Salaries and employee benefits were $3.1 million and $2.3 million for
the three months ended March 31, 2000 and 1999, respectively. The increase is
attributable to the acquisitions of Lippo Bank and Redwood Bank and is also
reflective of the competitive environment in the employment market that has
resulted in a higher demand for limited resources, thus escalating industry
salary and employee benefit costs associated with employing and retaining
qualified personnel.
Data processing fees were $944,000 and $719,000 for the three months
ended March 31, 2000 and 1999, respectively. The increased data processing fees
are attributable to growth and technological advancements consistent with FBA's
product and services offerings, upgrades to technological equipment, networks
and communication channels and external third-party data processing fees
associated with Lippo Bank.
<PAGE>
Amortization of intangibles associated with the purchase of
subsidiaries increased by $105,000 to $307,000 from $202,000 for the three
months ended March 31, 2000 and 1999, respectively. The increase is attributable
to the amortization of the cost in excess of the fair value of the net assets
acquired of Lippo Bank and Redwood Bank, which were acquired in February 2000
and March 1999, respectively.
Other expense decreased by $233,000 to $595,000 from $828,000 for the
three months ended March 31, 2000 and 1999, respectively. Other expense is
comprised of numerous general administrative expenses including but not limited
to travel, meals and entertainment, freight and courier services, correspondent
bank charges and sales taxes. The overall decrease in such expenditures is
reflective of management's continued efforts to control these costs.
Provision for Income Tax Expense
The provision for income tax expense was $1.4 million and $1.2 million
for the three months ended March 31, 2000 and 1999, representing an effective
income tax rate of 32.7% and 42.8%, respectively. The decrease in the effective
income tax rate is primarily attributable to a reduction in the deferred tax
asset valuation reserve of $404,000 related to the utilization of net operating
losses associated with a previously acquired entity.
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. The use of such derivative financial instruments is strictly
limited to reducing the interest rate exposure of FBA. Derivative financial
instruments held by FBA for purposes of managing interest rate risk are
summarized as follows:
<TABLE>
<CAPTION>
March 31, 2000 December 31, 1999
------------------ --------------------
Notional Credit Notional Credit
amount exposure amount exposure
------ -------- ------ --------
(dollars expressed in thousands)
Interest rate swap agreements - pay
<S> <C> <C> <C> <C>
adjustable rate, receive fixed rate......... $120,000 177 120,000 614
Interest rate swap agreements - pay
adjustable rate, receive adjustable rate.... -- -- 75,000 --
Interest rate cap agreement................... 10,000 4 10,000 26
======== ==== ======== =====
</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 held to support the credit exposure was of no
value.
During 1998, FBA entered into $65.0 million notional amount 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. These swap agreements initially provided 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). In March 2000,
the terms of the swap agreements were modified such that FBA currently pays an
adjustable rate of interest equivalent to the daily weighted average prime
lending rate minus 2.705%. The terms of these swap agreements provide for FBA to
pay quarterly and receive payment semiannually. The amount receivable by FBA
under these swap agreements was $374,000 and $805,000 at March 31, 2000 and
December 31, 1999, respectively, and the amount payable by FBA under these swap
agreements was $187,000 and $185,000 at March 31, 2000 and December 31, 1999,
respectively.
During May 1999, FBA entered into $75.0 million notional amount
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. These swap agreements provided 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 these swap agreements, which had an
effective date of October 1, 1999 and a maturity date of March 31, 2000,
provided for FBA to pay and receive interest on a monthly basis. In January
2000, FBA determined these swap agreements were no longer necessary based upon
the results of the Year 2000 century date change and terminated these agreements
at a cost of $23,000.
<PAGE>
During September 1999, FBA entered into $55.0 million notional amount
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. These swap agreements provide for
FBA to receive a fixed rate of interest and pay an adjustable rate of interest
equivalent to the weighted average prime lending rate minus 2.70%. The terms of
these swap agreements provide for FBA to pay and receive interest on a quarterly
basis. The amount receivable by FBA under these swap agreements was $38,000 at
March 31, 2000 and December 31, 1999, and the amount payable by FBA under these
swap agreements was $48,000 and $44,000 at March 31, 2000 and December 31, 1999,
respectively.
The maturity dates, notional amounts, interest rates paid and received
and fair value of interest rate swap agreements outstanding as of March 31, 2000
and December 31, 1999 were as follows:
<TABLE>
<CAPTION>
Notional Interest rate Interest rate Fair value
Maturity date amount paid received gain (loss)
------------- -------- ----------- ------------- -----------
(dollars expressed in thousands)
March 31, 2000:
<S> <C> <C> <C> <C>
September 27, 2001....................... $ 40,000 6.30% 6.14% (497)
September 27, 2001....................... 15,000 6.30 6.14 (186)
June 11, 2002............................ 15,000 6.30 6.00 (362)
September 16, 2002....................... 20,000 6.30 5.36 (826)
September 18, 2002....................... 30,000 6.30 5.33 (1,268)
--------- --------
$ 120,000 6.30 5.79 $ (3,139)
========= ====== ====== ========
December 31, 1999:
March 31, 2000 .......................... $ 50,000 5.84% 6.45% $ 12
March 31, 2000 .......................... 25,000 5.84 6.45 6
September 27, 2001....................... 40,000 5.80 6.14 (365)
September 27, 2001....................... 15,000 5.80 6.14 (137)
June 11, 2002............................ 15,000 6.12 6.00 (291)
September 16, 2002....................... 20,000 6.12 5.36 (751)
September 18, 2002....................... 30,000 6.14 5.33 (1,157)
--------- --------
$ 195,000 5.93 6.04 $ (2,683)
========= ====== ====== ========
</TABLE>
In the event of early termination of the interest rate swap agreements,
the net proceeds received or paid are deferred and amortized over the shorter of
the remaining contract life or the maturity of the related asset. If, however,
the amount of the underlying asset is repaid, then the fair value gains or
losses on the interest rate swap agreements are recognized immediately in the
consolidated statements of income.
FBA has a $10.0 million interest rate cap agreement outstanding to
limit the interest expense associated with certain interest-bearing liabilities.
The interest rate cap agreement has a maturity date of May 15, 2000. At March
31, 2000, there were no unamortized costs associated with this agreement. At
December 31, 1999, the unamortized costs associated with this agreement were
$19,000 and were included in other assets. The net amount due to FBA under this
agreement was $4,000 and $7,000 at March 31, 2000 and December 31, 1999,
respectively.
Loans and Allowance for Loan Losses
Interest earned on the loan portfolio represents the principal source
of income for FBA and its Subsidiary Banks. Interest and fees on loans were
89.7% and 87.0% of total interest income for the three months ended March 31,
2000 and 1999, respectively. Total loans, net of unearned discount, were $778.3
million, or 73.3% of total assets, at March 31, 2000, compared to $732.3
million, or 79.5% of total assets, at December 31, 1999. The increase in loans,
as summarized on the consolidated balance sheets, is primarily attributable to
the acquisition of Lippo Bank, which provided loans, net of unearned discount,
of $40.9 million, and the continued growth of the commercial and financial and
commercial real estate mortgage 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 were $314.0 million and $82.7 million at March
31, 2000, respectively, in comparison to $302.9 million and $88.2 million at
December 31, 1999, respectively. See Note 2 to the accompanying consolidated
financial statements for a further discussion of transactions with related
parties.
<PAGE>
FBA's nonperforming assets include nonaccrual loans, restructured loans
and other real estate. The following table presents the categories of
nonperforming assets and certain ratios as of the dates indicated:
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
---- ----
(dollars expressed in thousands)
<S> <C> <C>
Nonperforming loans........................................................ $ 2,947 3,337
Other real estate, net..................................................... 75 60
---------- --------
Total nonperforming assets........................................ $ 3,022 3,397
========== ========
Loans, net of unearned discount............................................ $ 778,295 732,263
========== ========
Loans past due:
Over 30 days to 90 days................................................ $ 5,872 2,696
Over 90 days and still accruing........................................ 1,260 2,944
---------- --------
Total past-due loans.............................................. $ 7,132 5,640
========== ========
Allowance for loan losses to loans......................................... 2.01% 2.00%
Nonperforming loans to loans............................................... 0.38 0.46
Allowance for loan losses to nonperforming loans........................... 530.40 437.85
Nonperforming assets to loans and other real estate........................ 0.39 0.46
========== ========
</TABLE>
Nonperforming loans, consisting of loans on nonaccrual status and
certain restructured loans, were $2.9 million at March 31, 2000, in comparison
to $3.3 million at December 31, 1999. The decrease in nonperforming loans
primarily results from a decline in nonaccrual loans at FB California, and from
FBA's continued aggressive collection efforts and management's continued efforts
to effectively monitor and manage the loan portfolios of acquired entities. In
addition, the improvement in the ratio of the allowance for loan losses to
nonperforming loans is attributable to the decline in nonperforming loans
coupled with an increase in the allowance for loan losses.
Impaired loans, consisting of loans on nonaccrual status and indirect
consumer and installment loans 60 days or more past due, were $3.1 million and
$3.6 million at March 31, 2000 and December 31, 1999, respectively.
The following table presents a summary of loan loss experience for the
periods indicated:
<TABLE>
<CAPTION>
Three months ended
March 31,
--------------------
2000 1999
---- ----
(dollars expressed in thousands)
<S> <C> <C>
Allowance for loan losses, beginning of period............................. $ 14,611 12,127
Acquired allowances for loan losses.................................... 799 1,466
---------- --------
15,410 13,593
---------- --------
Loans charged-off...................................................... (642) (480)
Recoveries of loans previously charged-off............................. 521 834
---------- --------
Net loan (charge-offs) recoveries...................................... (121) 354
---------- --------
Provision for loan losses.............................................. 342 90
---------- --------
Allowance for loan losses, end of period................................... $ 15,631 14,037
========== ========
</TABLE>
<PAGE>
The allowance for 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 combined 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 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 losses. In its analysis, management considers the change in
the portfolio, including growth, composition and the ratio of net loans to total
assets, and the economic conditions of the regions in which FBA operates. Based
on this quantitative and qualitative analysis, the allowance for loan losses is
adjusted. Such adjustments are reflected in the consolidated statements of
income.
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 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 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,
borrowings from the Federal Home Loan Banks and other borrowings, including the
revolving Note Payable. The aggregate funds acquired from these more volatile
sources were $138.1 million and $109.9 million at March 31, 2000 and December
31, 1999, respectively.
The following table presents the maturity structure of volatile funds,
which consists of certificates of deposit of $100,000 or more, the revolving
Note Payable and other short-term borrowings, at March 31, 2000:
March 31, 2000
--------------
(dollars expressed in thousands)
3 months or less.......................... $ 61,228
Over 3 through 6 months................... 29,949
Over 6 through 12 months.................. 29,234
Over 12 months............................ 17,708
----------
Total................................... $ 138,119
==========
FBA has periodically borrowed from First Banks under the revolving Note
Payable. Borrowings under the revolving Note Payable have been utilized to
facilitate the funding of FBA's acquisitions (including Lippo Bank), support
repurchases of common stock from time to time and for other corporate purposes.
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 principal and accrued interest under the Note Payable are due and
payable on October 31, 2001. At March 31, 2000, the outstanding borrowings under
the Note Payable were $9.2 million. There were no amounts outstanding under the
Note Payable at December 31, 1999.
In 1999, FB Texas and FB California established borrowing relationships
with the Federal Reserve Banks in their respective districts. These borrowing
relationships, which are secured by commercial loans, provide an additional
liquidity facility that may be utilized for contingency purposes. At March 31,
2000, FBA's borrowing capacity under these agreements was approximately $284.2
million. In addition, the Subsidiary Banks' borrowing capacity through their
relationships with the Federal Home Loan Banks was approximately $34.3 million
at March 31, 2000.
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 its operating and
debt service requirements, both on a short-term and long-term basis, and to pay
the distributions on the FACT Preferred Securities.
<PAGE>
Year 2000 Compatibility
FBA and the Subsidiary Banks were subject to risks associated with the
"Year 2000" issue, a term which referred 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
were particularly vulnerable to Year 2000 issues because of heavy reliance in
the industry on electronic data processing and funds transfer systems.
FBA successfully completed all phases of its Year 2000 program
(Program) within the appropriate timeframes established by the regulatory
agencies. In addition, FBA did not encounter any significant business
disruptions or processing problems as a result of the Year 2000 century date
change. Furthermore, management is unaware of any Year 2000 issues encountered
by FBA's more significant borrowers and vendors that would inhibit their ability
to repay obligations or provide goods or services. The total cost of the Program
was $2.2 million, comprised of capital improvements of $1.4 million and direct
expenses reimbursable to First Services L.P. of $774,000. The capital
improvements are being 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 $51,000 and $135,000 for the
three months ended March 31, 2000 and 1999, respectively, and $540,000 for the
year ended December 31, 1999.
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.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
At December 31, 1999, FBA's risk management program's simulation model
indicated a loss of projected net interest income in the event of a decline in
interest rates. While a decline in interest rates of less than 100 basis points
was projected to have a minimal impact on the earnings of FBA, a decline in
interest rates of 100 basis points indicated a projected pre-tax loss equivalent
to approximately 8.0% of net interest income based on assets and liabilities at
December 31, 1999. At March 31, 2000, FBA remains in an "asset-sensitive"
position and thus, remains subject to a higher level of risk in a declining
interest-rate environment. FBA's asset-sensitive position, coupled with the
recent increases in the prime lending rate, is reflected in FBA's increased net
interest income for the three months ended March 31, 2000 as further discussed
under "--Results of Operations." During the three months ended March 31, 2000,
FBA's asset-sensitive position and overall susceptibility to market risks have
not changed significantly.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
Since 1996, the former majority owner of Lippo Bank and various
entities with which he is associated, including Lippo Bank, have been a subject
of federal investigations involving alleged financial improprieties with respect
to federal election campaign laws. These alleged improprieties relate to various
transactions occurring between 1988 and 1996, particularly with respect to the
1996 U.S. Presidential campaign. Lippo Bank, which has cooperated with
authorities conducting the investigations, has been informed that in the event
other persons or entities, which are the principal focus of the investigations,
are charged in connection with these alleged improprieties, it may also be
charged in either civil or criminal proceedings. All of the matters under
investigation occurred years before FBA's acquisition of Lippo Bank in February
2000. In the course of negotiating the acquisition of Lippo Bank, FBA was
informed of the ongoing investigations and their potential outcome, and took
steps to protect itself against financial loss from this matter. These included
establishment of an accrual for anticipated legal defense costs and an escrow
arrangement pursuant to which Lippo Bank's former majority owner is required to
indemnify FBA for certain costs. FBA, with the advice of legal counsel, believes
that if any charges were to be instituted, the resolution thereof would not have
a material adverse financial effect on FBA.
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
-------------- -----------
27 Article 9 - Financial Data Schedule
(EDGAR only)
(b) FBA filed no reports on Form 8-K during the three months ended March 31,
2000.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
FIRST BANKS AMERICA, INC.
By: /s/ James F. Dierberg
-----------------------------------------
James F. Dierberg
Chairman of the Board of Directors,
President and Chief Executive Officer
May 10, 2000 (Principal Executive Officer)
By: /s/ Frank H. Sanfilippo
-----------------------------------------
Frank H. Sanfilippo
Executive Vice President and
Chief Financial Officer
May 10, 2000 (Principal Financial and
Accounting Officer)
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