SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for use of the Commission only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant toss.240.14a-11(c) orss.240.14a-12
First Banks America, Inc.
-------------------------
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[X] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
John S. Daniels
Attorney at Law
6440 North Central Expressway
Suite 503
Dallas, Texas 75206
September 11, 2000
Securities and Exchange Commission
450 Fifth Street, N. W.
Washington, D. C. 20549
Re: First Banks America, Inc. ("Registrant") definitive proxy materials for
Annual Meeting of Stockholders on October 11, 2000
Ladies and Gentlemen:
Enclosed on behalf of my client, the Registrant, is a copy of the
definitive Proxy Statement and form of proxy, in the form that such materials
are first being mailed to the Registrant's stockholders on September 11, 2000.
Also enclosed with this filing is a Schedule 14A Information Sheet setting forth
certain required information. No fee is enclosed because a fee was paid upon the
filing of preliminary proxy materials on August 24, 2000.
Six copies of the definitive Proxy Statement and form of proxy are being
filed with the New York Stock Exchange, the only national securities exchange
upon which securities of the REgistrant are listed and registered.
Please contact the undersigned if you require any additional information
regarding this filing.
Sincerely,
/s/ John S. Daniels
-------------------
<PAGE>
First Banks America, Inc.
135 North Meramec
Clayton, Missouri 63105
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held Wednesday, October 11, 2000
To the Stockholders of First Banks America, Inc.:
Notice is hereby given that the 2000 Annual Meeting of Stockholders
(the "Annual Meeting") of First Banks America, Inc., a Delaware corporation
("FBA"), will be held at 135 North Meramec, Clayton, Missouri, on Wednesday,
October 11, 2000 at 4:00 p.m., local time, for the following purposes:
(1) To approve the acquisition of First Bank & Trust, a
California banking corporation owned by FBA's parent, First Banks,
Inc., and the related issuance of 6,530,769 shares of FBA common stock
to First Banks, Inc.;
(2) To elect seven directors to serve until the next Annual
Meeting and until their successors have been duly elected and
qualified; and
(3) To transact any and all other business as may properly be
presented at the meeting and any adjournment(s) thereof.
The Board of Directors has fixed the close of business on August 15,
2000 as the record date for the determination of stockholders entitled to notice
of and to vote at the Annual Meeting and any adjournment(s) thereof. The stock
transfer books will not be closed. A list of stockholders entitled to vote at
the meeting will be available for examination at FBA's main office for ten (10)
days prior to the meeting.
You are cordially invited to attend the Annual Meeting. However,
whether or not you plan to be present, we urge you to promptly mark, sign, date
and return the accompanying proxy in the enclosed, self-addressed, stamped
envelope, so that your shares may be voted in accordance with your wishes.
We will return your proxy to you if you request us to do so in the
manner described on page 2 of the enclosed Proxy Statement. Prompt response by
our stockholders will reduce the time and expense of solicitation.
By Order of the Board of Directors,
Clayton, Missouri /s/ ALLEN H. BLAKE,
-------------------
September 11, 2000 Secretary
<PAGE>
First Banks America, Inc.
135 North Meramec
Clayton, Missouri 63105
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
To Be Held on Wednesday, October 11, 2000
SOLICITATION AND REVOCABILITY OF PROXIES
This Proxy Statement is being furnished to stockholders of First Banks
America, Inc., a Delaware corporation ("FBA"), in connection with the
solicitation by the Board of Directors of FBA of proxies to be voted at the 2000
Annual Meeting of Stockholders (the "Annual Meeting") to be held on Wednesday,
October 11, 2000, at the time and place and for the purposes set forth in the
accompanying Notice of Annual Meeting of Stockholders, and at any adjournment(s)
thereof. This Proxy Statement and the enclosed form of proxy are first being
mailed to the stockholders on or about September 11, 2000.
The accompanying form of proxy is designed to permit each holder of
FBA's common stock, par value $.15 per share ("common stock"), (1) to vote for
or against the acquisition of First Bank & Trust, a California bank currently
owned by FBA's parent, First Banks, Inc., pursuant to an Agreement and Plan of
Reorganization, as amended, and the related issuance of 6,530,769 shares of
common stock to First Banks, Inc., as described herein (see the discussion under
the caption "PROPOSAL NUMBER 1"); (2) to vote for or withhold voting for any or
all of the seven nominees for director of FBA listed on the proxy (see "PROPOSAL
NUMBER 2"; and (3) to authorize the named proxies to vote in their discretion
with respect to any other proposal properly presented at the Annual Meeting.
As of August 15, 2000, the record date for determining the stockholders
entitled to vote at the Annual Meeting ("Record Date"), there were 5,587,934
shares of voting stock outstanding, consisting of 3,087,934 shares of common
stock and 2,500,000 shares of Class B common stock. 2,210,581 of the outstanding
shares of common stock and all of the outstanding shares of Class B common stock
are owned by First Banks, Inc., a Missouri corporation ("First Banks"). Each
share of common stock and of Class B common stock is entitled to one vote in the
election of each director. By virtue of its ownership of the common stock and
Class B common stock referred to above, First Banks controlled 84.33% of all
shares entitled to vote at the Annual Meeting as of the record date.
First Banks is owned by trusts created and administered by and for the
benefit of James F. Dierberg and members of his immediate family. Mr. Dierberg
is the Chairman of the Board, Chief Executive Officer and President of FBA. Mr.
Dierberg is also Chairman of the Board and Chief Executive Officer of First
Banks. The other executive officers and directors of FBA were the record holders
of 34,738 shares of common stock as of the Record Date.
<PAGE>
When a stockholder's proxy specifies a choice with respect to a voting
matter, the shares will be voted accordingly. If no such specification is made,
the accompanying form of proxy will be voted at the Annual Meeting and any
adjournment(s) thereof FOR the acquisition of First Bank & Trust, FOR the
election of the nominees listed herein under the caption "ELECTION OF DIRECTORS"
and at the discretion of the proxies on any other business which may be properly
presented at the Annual Meeting and any adjournment(s) thereof.
FBA encourages the personal attendance of stockholders at the Annual
Meeting, and execution of the accompanying proxy will not affect a stockholder's
right to attend the Annual Meeting and to vote in person. Any stockholder giving
a proxy has the right to revoke it by giving written notice of revocation to the
Secretary of FBA at its principal executive offices at any time before the proxy
is voted, or by executing and delivering a later-dated proxy, or by attending
the Annual Meeting and voting his or her shares in person. No such notice of
revocation or later-dated proxy, however, will be effective until received by
FBA at or prior to the Annual Meeting. Revocation will not affect a vote on any
matters taken prior to receipt of the revocation. Mere attendance at the Annual
Meeting will not revoke the proxy.
The total cost of the solicitation of proxies pursuant to this Proxy
Statement will be borne by FBA. Proxies may be solicited by directors, officers
and employees of FBA without special remuneration. Banks, brokerage houses and
other custodians, nominees and fiduciaries who forward soliciting material to
the beneficial owners of shares of common stock entitled to vote at the meeting
will be reimbursed by FBA for their out-of-pocket expenses incurred in this
connection. In addition to the mails and other delivery services, proxies may be
solicited by personal interviews, telephone or telegraph.
The Annual Report to Stockholders covering FBA's fiscal year ended
December 31, 1999, including audited financial statements, has been previously
mailed to stockholders. The Annual Report does not form any part of the proxy
solicitation material. Additional copies of the 1999 Annual Report to
Stockholders may be obtained without charge upon oral or written request to
Allen H. Blake, Secretary, First Banks America, Inc., 135 North Meramec,
Clayton, Missouri 63105, telephone number (314) 854-4600.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
SUMMARY OF THE ACQUISITION..................................................................................... 5
The Companies............................................................................................. 5
Structure of the Acquisition and Issuance of Common Stock................................................. 6
Reasons for the Acquisition............................................................................... 6
Vote Required for Approval................................................................................ 6
Recommendation of FBA's Board of Directors................................................................ 6
Opinion of the Financial Advisor to FBA's Special Committee............................................... 7
Conditions to Consummation of the Acquisition............................................................. 7
Termination of the Acquisition Agreement.................................................................. 7
Reimbursement of Certain Expenses......................................................................... 8
Accounting Treatment of the Transaction................................................................... 8
Regulatory Approvals Required to Consummate the Acquisition............................................... 8
Forward-looking Statements in this Proxy Statement........................................................ 8
VOTING SECURITIES AND PRINCIPAL STOCKHOLDERS................................................................... 9
General................................................................................................... 9
Security Ownership of Management and of Controlling Stockholder........................................... 10
SELECTED CONSOLIDATED AND OTHER FINANCIAL DATA OF FBA.......................................................... 12
SELECTED AND OTHER FINANCIAL DATA OF FIRST BANK & TRUST........................................................ 14
PROPOSAL NUMBER 1.............................................................................................. 15
APPROVAL OF ACQUISITION OF FIRST BANK & TRUST.................................................................. 15
Background of and Reasons for the Transaction............................................................. 15
Consideration of the Transaction.......................................................................... 17
Opinion of the Financial Advisor to the Special Committee................................................. 19
ACQUISITION OF FIRST BANK & TRUST.............................................................................. 23
Terms of the Acquisition.................................................................................. 23
Regulatory Approvals...................................................................................... 23
Accounting Treatment...................................................................................... 24
THE ACQUISITION AGREEMENT...................................................................................... 25
The Acquisition........................................................................................... 25
Representations and Warranties............................................................................ 25
Conditions to Consummation of the Acquisition............................................................. 26
Conduct of Business Pending the Acquisition............................................................... 27
Additional Agreements..................................................................................... 28
Termination; Damages...................................................................................... 29
Amendment and Waiver...................................................................................... 29
Expenses.............................................................................................. 29
BUSINESS OF FBA AND FIRST BANK & TRUST......................................................................... 30
PRO FORMA FINANCIAL INFORMATION................................................................................. 31
FINANCIAL STATEMENTS OF FIRST BANK & TRUST...................................................................... 39
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS-FIRST BANK & TRUST................................................ 57
FBA FORM 10-Q - JUNE 30, 2000.................................................................................. 78
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
PROPOSAL NUMBER 2......................................................................................... 104
ELECTION OF DIRECTORS..................................................................................... 104
Nominees......................................................................................... 104
Executive Officers............................................................................... 106
Committees and Meetings of the Board of Directors................................................ 106
Director Compensation............................................................................ 107
Family Relationships............................................................................. 107
Certain Relationships and Related Transactions................................................... 107
EXECUTIVE COMPENSATION.................................................................................... 108
Summary Compensation Table....................................................................... 108
STOCK PERFORMANCE GRAPH................................................................................... 109
EMPLOYEE BENEFIT PLANS.................................................................................... 110
COMPENSATION COMMITTEE REPORT............................................................................. 111
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION............................................... 113
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE................................................... 114
INDEPENDENT AUDITORS...................................................................................... 114
OTHER BUSINESS............................................................................................ 114
INCORPORATION OF INFORMATION BY REFERENCE................................................................. 115
STOCKHOLDER PROPOSALS..................................................................................... 115
</TABLE>
APPENDIX A-1 - AGREEMENT AND PLAN OF REORGANIZATION
APPENDIX A-2 - AMENDMENT TO AGREEMENT AND PLAN OF REORGANIZATION
APPENDIX B - OPINION OF BAXTER, FENTRISS AND COMPANY
<PAGE>
SUMMARY OF THE ACQUISITION
This summary highlights selected information from this Proxy Statement
and may not contain all of the information that is important to you. We
encourage you to carefully read this entire Proxy Statement, including the
appendices, and the other documents we refer to for a more complete
understanding of the acquisition of First Bank & Trust, described in more detail
under the heading "PROPOSAL NUMBER 1." In addition, we incorporate by reference
important business and financial information about FBA into this Proxy
Statement.
The Companies
FBA is a bank holding company based in St. Louis, Missouri. More than
84% of the voting stock of FBA is owned by First Banks, Inc., also a bank
holding company (described below); accordingly, First Banks, Inc. controls FBA.
To avoid confusion, we refer throughout this Proxy Statement to First Banks,
Inc. as "First Banks" and First Banks America, Inc. as "FBA."
FBA conducts business through three bank subsidiaries located in
Northern California and Texas. As of June 30, 2000, FBA had total stockholders'
equity of $77.5 million, total assets of $1.07 billion, total net loans of
$812.7 million and total deposits of $918.3 million. A description of FBA's
business appears in the Annual Report on Form 10-K for the year ended December
31, 1999, one of the documents incorporated by reference in this Proxy
Statement.
Redwood Bank, one of FBA's subsidiaries, is based in San Francisco,
California and will merge with First Bank & Trust (described below) when the
acquisition is completed and change its name to "First Bank & Trust." In related
transactions, we also plan to merge FBA's other bank subsidiaries (First Bank of
California and First Bank Texas N.A.) into Redwood, so that all of FBA's banking
business will then be conducted through a single bank, which will be known as
"First Bank & Trust" and will initially have 45 offices in California and 6
offices in Texas.
First Banks is the controlling stockholder of FBA and the sole
stockholder of First Bank & Trust. As of June 30, 2000, First Banks had total
stockholders' equity of $322.0 million, total assets of $5.18 billion, total net
loans of $4.33 billion and total deposits of $4.46 billion. As a result of the
acquisition, First Banks will receive 6,530,769 shares of common stock,
increasing its percentage ownership of FBA's voting stock to approximately
92.76%.
First Bank & Trust is based in Newport Beach, California and will merge
into Redwood, but the resulting bank will retain the corporate name "First Bank
& Trust." As of June 30, 2000, First Bank & Trust had total stockholders' equity
of $101.6 million, total assets of $1.0 billion, total net loans of $799.2
million and total deposits of $875.0 million. Financial statements and other
information about First Bank & Trust appears in this Proxy Statement under the
captions "BUSINESS OF FIRST BANK & TRUST," "PRO FORMA FINANCIAL INFORMATION,"
"SELECTED AND OTHER FINANCIAL DATA," "FINANCIAL STATEMENTS OF FIRST BANK &
TRUST" and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS-FIRST BANK & TRUST."
<PAGE>
Structure of the Acquisition and Issuance of Common Stock (see page 23)
FBA and Redwood Bank have entered into an agreement with First Banks
and First Bank & Trust, providing for the acquisition of First Bank & Trust
through a merger of First Bank & Trust into Redwood. The agreement, as amended,
provides that First Banks will receive 6,530,769 shares of common stock in
exchange for all of the stock in First Bank & Trust. We urge you to read the
acquisition agreement and the amendment, which are attached as Appendix A-1 and
A-2, respectively, to this Proxy Statement, carefully and in their entirety.
Reasons for the Acquisition (see page 15)
FBA's Board of Directors believes that the acquisition of First Bank &
Trust will improve our banking operations and efficiencies by having all of our
affiliated banking offices in California operate as a single bank. This should
eliminate customer confusion from the overlap of affiliated banking offices in
the same markets and promote better identification of our branches and services
by existing and potential customers. We also expect to gain efficiencies by the
elimination of duplicate systems and combining our lending authority in a single
bank as the operations of First Bank & Trust and our other separate banks are
combined.
Vote Required for Approval
The holders of a majority of the outstanding shares of common stock
represented at the meeting must approve the acquisition and the related issuance
of common stock to First Banks. Because First Banks already owns approximately
84.33% of FBA's outstanding voting stock and intends to vote in favor of the
acquisition, its approval is assured.
You are entitled to cast one vote per share of common stock you owned
as of August 15, 2000, the record date.
Recommendation of FBA's Board of Directors (see page 17)
Because of First Banks' control of FBA, the Board of Directors of FBA
appointed a Special Committee, consisting of the three directors who are not
affiliated with First Banks, to consider the terms of the acquisition agreement
and make a recommendation to the Board of Directors regarding the acquisition.
After consulting with an independent financial advisor, the members of the
Special Committee unanimously approved the acquisition agreement, as amended,
and recommended that the Board of Directors also do so. The Board of Directors
unanimously approved the acquisition agreement, as amended, and recommends that
the stockholders vote in favor of the acquisition and the related issuance of
common stock to First Banks.
<PAGE>
Opinion of the Financial Advisor to FBA's Special Committee (See page 19)
The Special Committee retained Baxter, Fentriss and Company as its
financial advisor to assist the Special Committee in evaluating the acquisition,
including the appropriate ratio of shares of FBA common stock to be issued to
First Banks in exchange for the stock of First Bank & Trust. Baxter Fentriss
delivered an opinion to the Special Committee that, as of the date of the
opinion and based on the procedures followed, factors considered and assumptions
made by Baxter Fentriss, and subject to the limitations set forth in the
opinion, the acquisition was fair to the stockholders of FBA from a financial
point of view. The complete opinion of Baxter Fentriss is attached as Appendix B
to this Proxy Statement. We urge you to read it in its entirety.
Conditions to Consummation of the Acquisition (see page 26)
The obligations of the parties to the agreement to consummate the
acquisition are subject to the prior satisfaction or waiver of a number of
conditions. The following conditions, among others, must be satisfied or waived
before consummation of the acquisition:
o the acquisition and the related issuance of common stock to First Banks
must be approved by FBA's stockholders;
o the acquisition must be permissible under applicable laws, rules and
regulations;
o all necessary governmental approvals must be obtained, including those
of federal and state banking regulatory agencies;
o no injunction or order preventing consummation of the acquisition may
be in effect;
o the representations and warranties made by the parties in the
acquisition agreement must be true and correct except where the
failure to be so true and correct would not have a material
adverse effect;
o the parties must comply with their respective agreements in the
acquisition agreement;
o the Special Committee must have received the fairness opinion from
Baxter Fentriss, and it must not have been withdrawn.
Termination of the Acquisition Agreement (see page 29)
The acquisition agreement may be terminated before the completion of
the acquisition by all of the parties or by either FBA and Redwood, on one hand,
or First Banks and First Bank & Trust, on the other hand, if:
o the conditions to completion of the acquisition would not be satisfied
because of either a breach of the agreement by the other, which is
not cured within ten business days of receipt of written notice of such
breach;
o the merger is not completed by March 31, 2001;
o a final court order prohibiting the merger is issued and is not
appealable; or
<PAGE>
o the FBA stockholders do not approve the acquisition.
Reimbursement of Certain Expenses (see page 29)
If one of the parties breaches the acquisition agreement and, as a
result, the other party terminates the agreement, the non-breaching party would
have the right to obtain reimbursement for expenses incurred in pursuing the
transaction, up to a ceiling of $100,000.
Accounting Treatment of the Transaction (see page 24)
Because FBA and First Bank & Trust are under the common control of
First Banks, we intend to account for the acquisition as a combination of
entities under common control, resulting in a restatement of our consolidated
financial statements as if the acquisition occurred at the beginning of the
earliest period presented in the financial statements.
Regulatory Approvals Required to Consummate the Acquisition (see page 23)
In order for First Bank & Trust to merge with Redwood, it is first
necessary to apply for and obtain the approval of the Federal Deposit Insurance
Corporation and the Commissioner of Financial Institutions of the State of
California, both of which have regulatory responsibility for the operations of
First Bank & Trust and Redwood. We have filed applications with both agencies
and expect to receive approval of the applications, but there is no assurance
that they will be approved or when decisions will be made.
Forward-looking Statements in this Proxy Statement
This Proxy Statement and the documents incorporated by reference
contain some forward-looking statements within the "safe harbor" provisions of
the Private Securities Litigation Reform Act of 1995 with respect to FBA's
financial condition, results of operations and business and on the expected
impact of the merger on our financial performance. Words such as "anticipates,"
"expects," "intends," "plans," "believes," "seeks," "estimates" and similar
expressions identify forward-looking statements. These forward-looking
statements are not guarantees of future performance and are subject to risks and
uncertainties that could cause actual results to differ materially from the
results contemplated by the forward-looking statements. In evaluating the
acquisition, you should carefully consider the discussions of such risks and
uncertainties that appear on page 3 of FBA's Annual Report to Stockholders for
the year ended December 31, 1999, which was previously mailed to stockholders,
and on page 12 of the Quarterly Report on Form 10-Q for the six months ended
June 30, 2000 (included on pages 78 through 103). Portions of both documents are
incorporated by reference in this Proxy Statement.
<PAGE>
VOTING SECURITIES AND PRINCIPAL STOCKHOLDERS
General
Only holders of record of outstanding shares of common stock and Class
B common stock as of the Record Date are entitled to notice of, and to vote, in
person or by proxy, at the Annual Meeting and any adjournment(s) thereof. As of
the Record Date, there were issued and outstanding 3,087,934 shares of common
stock and 2,500,000 shares of Class B common stock.
Holders of shares of common stock and Class B common stock are entitled
to one vote for each share held of record on the Record Date. Holders of common
stock and Class B common stock are permitted to exercise cumulative voting in a
contested election of directors. This means that, if there are more nominees for
director than positions to be elected, each holder would be permitted to cast as
many votes as equals the product of the number of directors to be elected (i.e.,
seven at the Annual Meeting) times the number of shares held by such holder, and
to cast all these votes for one candidate or to divide the votes among two or
more candidates in any amounts chosen by the stockholder. First Banks would also
have the right to utilize cumulative voting with respect to its shares of common
stock and Class B common stock. The proxy holders authorized to vote in favor of
nominees listed herein under the caption "ELECTION OF DIRECTORS" will be
permitted to vote cumulatively in the absence of instructions to the contrary.
The presence, in person or by proxy, of the holders of a majority of
the issued and outstanding shares of voting stock, including the common stock
and the Class B common stock, is necessary to constitute a quorum to transact
business at the Annual Meeting and any adjournment(s) thereof.
On each proposed action, proxies marked as withheld votes or
abstentions and broker non-votes will not be voted but will be treated as
present and entitled to vote. Such proxies will therefore have the same effect
as votes against the proposed action.
<PAGE>
Security Ownership of Management and of Controlling Stockholder
The following table sets forth as of the Record Date certain
information with respect to the beneficial ownership of common stock and Class B
common stock by each person known to FBA to be the beneficial owner of more than
five percent of the outstanding shares of either class of stock, by each
director, by executive officers and by all executive officers and directors as a
group:
<TABLE>
<CAPTION>
Title of Name of Beneficial Owner Number of Shares and Nature of Percent of
Class Beneficial Ownership Class
<S> <C> <C> <C>
Class B Stock First Banks, Inc. 2,500,000 (1)(2)(3) 100.0%
135 N. Meramec
Clayton, Missouri 63105
Class B Stock James F. Dierberg 2,500,000 (1)(2)(3) 100.0
Common Stock First Banks, Inc. 2,210,581 (1)(2)(3) 71.6
Common Stock James F. Dierberg 2,210,581 (1)(2)(3) 71.6
Common Stock Allen H. Blake 0 0
Common Stock Charles A. Crocco, Jr. 7,772 (4) *
Common Stock Albert M. Lavezzo 10,210 (4) *
Common Stock Terrance M. McCarthy 2,000 (4) *
Common Stock Frank H. Sanfilippo 0 0
Common Stock Ellen D. Schepman 1,000 (2)(3)(4) *
Common Stock Edward T. Story, Jr. 10,682 (4) *
Common Stock David F. Weaver 2,974 (4) *
Common Stock Donald W. Williams 100 (4) *
All executive officers 2,245,319 shares 72.7% of
and directors as a group common stock common stock
(10 persons)
100% of
2,500,000 shares Class B
Class B stock stock
</TABLE>
<PAGE>
* Less than one percent.
(1) The shares shown as beneficially owned by First Banks and James F. Dierberg
comprise 100% of the outstanding shares of Class B Stock and 71.6% of the
outstanding shares of common stock. Each share of common stock and Class B
stock is entitled to one vote on matters subject to stockholder vote. All
of the shares of Class B stock and common stock owned by First Banks are
pledged to secure a loan to First Banks from a group of unaffiliated
lenders. The related credit agreement contains customary provisions which
could ultimately result in transfer of such shares if First Banks were to
default in the repayment of the loan and such default were not cured, or
other arrangements satisfactory to the lenders were not made, by First
Banks.
(2) The controlling stockholders of First Banks are (i) the James F. Dierberg,
II Family Trust, dated December 30, 1992; (ii) Mary W. Dierberg and Michael
James Dierberg, trustees under the living trust of Michael James Dierberg,
dated July 24, 1989; (iii) the Ellen C. Dierberg Family Trust, dated
December 30, 1992; (iv) James F. Dierberg, trustee of the James F. Dierberg
living trust, dated October 8, 1985; (v) the Michael J. Dierberg Family
Trust, dated December 30, 1992; and (vi) First Trust (Mary W. Dierberg
and First Bank, Trustees) established U/I James F. Dierberg, dated
December 12, 1992. Mr. James F. Dierberg and Mrs. Mary W. Dierberg are
husband and wife, and Messrs. James F. Dierberg, II, Michael James Dierberg
and Mrs. Ellen D. Schepman are their adult children.
(3) Due to the relationships among James F. Dierberg, Mary W. Dierberg, First
Bank and the three adult children of James F. and Mary W. Dierberg, Mr.
Dierberg is deemed to share voting and investment power over all of the
outstanding voting stock of First Banks, which in turn exercises voting
and investment power over the shares of common stock and Class B stock
attributed to it in the table.
(4) All of the shares attributed in the table to Messrs. Crocco, Lavezzo,
McCarthy, Story, Weaver and Williams and Mrs. Schepman are owned by them
directly.
<PAGE>
FIRST BANKS AMERICA, INC.
Selected Consolidated and Other Financial Data (1)
The selected consolidated financial data set forth below, insofar as it
relates to the five years ended December 31, 1999, is derived from the audited
consolidated financial statements of First Banks America, Inc. and subsidiaries
(FBA or the Company). The data for the six month periods ended June 30, 2000 and
1999 has been derived from unaudited interim financial statements. However, in
the opinion of management, such unaudited interim financial statements include
all adjustments (consisting of normal recurring accruals) necessary to fairly
present the data for such periods. The results of operations for the six month
period ended June 30, 2000 are not necessarily indicative of the results that
will be achieved for the full year. Such data is qualified by reference to the
consolidated financial statements of FBA incorporated by reference herein and
should be read in conjunction with such consolidated financial statements and
related notes thereto and "Management's Discussion and Analysis of Financial
Condition and Results of Operations," which is also incorporated by reference.
<PAGE>
<TABLE>
<CAPTION>
Six months ended
June 30, Year ended December 31, (1)
---------------- ----------------------------------------------
2000 1999 1999 1998 1997 1996 1995
---- ---- ---- ---- ---- ---- ----
(dollars expressed in thousands, except per share data)
Income Statement Data:
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income.................................... $ 42,335 32,236 68,955 54,408 42,517 33,382 26,556
Interest expense................................... 16,367 12,008 25,531 23,209 19,155 15,533 13,134
---------- -------- ------- ------- ------- ------- -------
Net interest income............................ 25,968 20,228 43,424 31,199 23,362 17,849 13,422
Provision for loan losses...................... 712 213 393 900 2,000 2,405 6,416
---------- -------- ------- ------- ------- ------- -------
Net interest income after provision
for loan losses.............................. 25,256 20,015 43,031 30,299 21,362 15,444 7,006
Noninterest income............................. 2,628 2,659 5,595 4,375 3,287 3,585 129
Noninterest expense............................ 18,575 16,189 32,830 26,472 17,677 17,737 14,148
---------- -------- ------- ------- ------- ------- -------
Income (loss) before provision (benefit)
for income tax expense
and minority interest in (income)
loss of subsidiary........................... 9,309 6,485 15,796 8,202 6,972 1,292 (7,013)
Provision (benefit) for income tax expense..... 3,412 2,795 6,326 3,592 3,145 470 (2,188)
---------- -------- ------- ------- ------- ------- -------
Income (loss) before minority interest in
(income) loss of subsidiary.................. 5,897 3,690 9,470 4,610 3,827 822 (4,825)
Minority interest in (income)
loss of subsidiary.......................... -- -- -- -- (294) (131) 11
---------- -------- ------- ------- ------- ------- -------
Net income (loss).............................. $ 5,897 3,690 9,470 4,610 3,533 691 (4,814)
========== ======== ======= ======= ======= ======= =======
Dividends:
Common stock................................... $ -- -- -- -- -- -- --
Ratio of total dividends declared to net income --% --% --% --% --% --% --%
Per Share Data:
Book value per common share.................... $ 13.87 11.90 12.83 11.51 11.88 10.52 10.72
Earnings (loss) per common share:
Basic........................................ 1.05 0.65 1.66 0.90 0.87 0.16 (1.19)
Diluted...................................... 1.05 0.64 1.66 0.90 0.86 0.16 (1.19)
Weighted average shares of common
stock outstanding............................ 5,612 5,717 5,704 5,140 4,069 4,225 4,032
Period-end shares of common stock outstanding.. 5,586 5,706 5,650 5,721 3,796 3,632 3,822
Balance Sheet Data (at year-end):
Investment securities.......................... $ 111,049 87,002 92,538 116,963 148,181 125,139 113,586
Loans, net of unearned discount................ 812,723 692,026 732,263 516,403 431,455 336,371 266,588
Total assets................................... 1,074,157 871,905 920,707 719,997 643,664 529,087 468,486
Total deposits................................. 918,304 745,647 780,023 599,147 556,527 455,942 405,427
Promissory note payable ....................... 4,200 -- -- -- 14,900 14,000 1,054
Guaranteed preferred beneficial interest
in First Banks America, Inc.
subordinated debentures...................... 44,249 44,186 44,218 44,155 -- -- --
Stockholders' equity........................... 77,484 67,909 72,499 65,845 45,091 38,195 40,965
Earnings Ratios:
Return on average total assets (4)............. 1.16% 0.90% 1.09% 0.67% 0.65% 0.15% (1.28)%
Return on average stockholders' equity (4)..... 15.58 11.05 13.66 8.10 8.90 1.71 (12.06)
Asset Quality Ratios:
Allowance for loan losses to loans............. 2.04 2.08 2.00 2.35 2.64 3.19 3.98
Nonperforming loans to loans (2)............... 0.67 0.76 0.46 1.67 0.66 0.88 1.90
Allowance for loan losses to
nonperforming loans (2)...................... 305.83 271.94 437.85 140.49 400.81 363.10 209.18
Nonperforming assets to loans
and other real estate (3).................... 0.67 0.78 0.46 1.70 0.80 1.17 2.78
Net loan recoveries (charge-offs)
to average loans (4)......................... 0.12 0.19 0.09 (0.23) (0.40) (1.69) (1.45)
Capital Ratios:
Average stockholders' equity to
average total assets......................... 7.48 8.13 7.98 8.25 7.34 8.86 10.64
Total risk-based capital ratio................. 11.97 12.91 13.08 16.66 6.88 6.62 9.64
Leverage ratio................................. 7.93 8.06 8.94 10.25 14.96 4.46 5.98
</TABLE>
<PAGE>
------------------------------
(1) The comparability of the selected data presented is affected by FBA's
acquisitions of Lippo Bank, Redwood Bancorp, Pacific Bay Bank, Surety Bank
and Sunrise Bank of California on February 29, 2000, March 4, 1999,
February 2, 1998, December 1, 1997 and November 1, 1996, respectively.
These acquisitions were accounted for as purchases and, accordingly, the
selected data includes the financial position and results of operations of
each acquired entity only for the periods subsequent to its respective date
of acquisition. In addition, on February 2, 1998, FBA completed its
acquisition of First Commercial Bancorp, Inc. and its wholly owned
subsidiary, First Commercial Bank. As discussed in Note 2 to the
consolidated financial statements, the selected data has been restated to
reflect First Banks, Inc.'s interest in First Commercial Bancorp, Inc. for
the periods subsequent to August 23, 1995, the date on which First Banks,
Inc. acquired its initial interest in First Commercial Bancorp, Inc.
(2) Nonperforming loans consist of nonaccrual loans and certain loans with
restructured terms.
(3) Nonperforming assets consist of nonperforming loans and other real estate.
(4) Ratios for the six-month periods are annualized.
<PAGE>
FIRST BANK & TRUST
Selected and Other Financial Data
The selected financial data set forth below, insofar as it relates to the
year ended December 31, 1999, is derived from the audited financial statements
of First Bank & Trust (FB&T or the Company). The data for the six-month periods
ended June 30, 2000 and 1999 and for the four years ended December 31, 1998 has
been derived from unaudited financial statements. However, in the opinion of
management, such unaudited financial statements include all adjustments
(consisting of normal recurring accruals) necessary to fairly present the data
for such periods. The results of operations for the six-month period ended June
30, 2000 are not necessarily indicative of results that will be achieved for the
full year.
<TABLE>
<CAPTION>
Six months ended
June 30, Year ended December 31,
---------------- ----------------------------------------------
2000 1999 1999 1998 1997 1996 1995
---- ---- ---- ---- ---- ---- ----
unaudited) (unaudited)
----------------- ----------------------------------------------
(dollars expressed in thousands, except per share data)
Income Statement Data:
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income...................................... $ 39,305 28,355 63,765 54,425 42,646 34,579 23,785
Interest expense..................................... 15,863 11,989 25,708 26,086 20,405 13,662 9,274
-------- ------- ---------- ---------- ---------- ------ -------
Net interest income.............................. 23,442 16,366 38,057 28,339 22,241 20,917 14,511
Provision for loan losses........................ 740 950 3,790 850 2,000 4,474 711
-------- ------- ------- ------- ------- ------- -------
Net interest income after provision
for loan losses................................ 22,702 15,416 34,267 27,489 20,241 16,443 13,800
Noninterest income............................... 3,037 2,268 4,285 3,481 2,182 2,599 1,190
Noninterest expense.............................. 14,454 12,129 25,633 22,489 14,632 16,639 10,052
-------- ------- ------- ------- ------- ------- -------
Income before provision for income tax........... 11,285 5,555 12,919 8,481 7,791 2,403 4,938
Provision (benefit) for income tax expense....... 4,492 2,410 5,221 3,539 1,111 (1,521) 803
-------- ------- ------- ------- ------- ------- -------
Net income....................................... $ 6,793 3,145 7,698 4,942 6,680 3,924 4,135
======== ======= ======= ======= ======= ======= =======
Dividends:
Common stock..................................... $ 1.48 0.53 0.85 0.85 0.32 1.70 --
Ratio of total dividends declared to net income.. 103.05% 100.20% 51.96% 80.94% 22.46% 203.87% --%
Per Share Data:
Book value per common share...................... $ 21.50 15.85 21.59 15.99 11.58 10.38 11.55
Earnings (loss) per common share:
Basic.......................................... 1.44 0.67 1.63 1.05 1.42 0.83 0.88
Diluted........................................ 1.44 0.67 1.63 1.05 1.42 0.83 0.88
Weighted average shares of
common stock outstanding....................... 4,725 4,701 4,713 4,701 4,701 4,701 4,701
Period-end shares of common stock outstanding.... 4,725 4,701 4,725 4,701 4,701 4,701 4,701
Balance Sheet Data (at period-end):
Investment securities............................ $ 97,214 91,870 103,636 134,203 224,618 80,676 45,339
Loans, net of unearned discount.................. 799,226 587,181 736,828 573,562 385,251 310,930 385,900
Total assets..................................... 1,000,541 750,678 944,229 792,981 672,410 472,801 457,248
Total deposits................................... 875,048 646,463 804,976 701,406 598,560 400,388 369,448
Stockholder's equity............................. 101,581 74,510 102,014 75,165 54,438 48,776 54,310
Earnings Ratios:
Return on average total assets (1)............... 1.41% 0.83% 0.93% 0.70% 1.25% 0.95% 1.49%
Return on average stockholder's equity (1)....... 13.21 8.45 8.94 8.12 13.01 7.41 11.31
Asset Quality Ratios:
Allowance for loan losses to loans............... 2.13 2.03 2.11 2.24 2.38 2.71 3.57
Nonperforming loans to loans (2)................. 1.05 3.00 1.75 2.86 2.07 6.66 3.96
Allowance for loan losses to
nonperforming loans (2)........................ 202.09 67.87 120.72 78.11 115.13 40.59 90.11
Nonperforming assets to loans
and other real estate (3)...................... 1.08 3.01 1.80 2.99 2.49 7.67 4.34
Capital Ratios:
Average stockholder's equity
to average total assets........................ 10.67 9.85 9.73 8.58 9.60 12.78 13.16
Total risk-based capital ratio................... 10.96 10.36 10.96 10.39 12.71 16.45 19.56
Leverage ratio................................... 8.97 8.05 8.57 7.60 7.70 11.43 20.56
</TABLE>
------------------------------
(1) Ratios for the six-month periods are annualized.
(2) Nonperforming loans consist of nonaccrual loans and certain loans with
restructured terms.
(3) Nonperforming assets consist of nonperforming loans and other real estate.
<PAGE>
PROPOSAL NUMBER 1:
APPROVAL OF ACQUISITION
OF FIRST BANK & TRUST
Background of and Reasons for the Transaction
FBA emphasizes the acquisition of other financial institutions as a
means of accelerating its growth to significantly expand its presence in a given
market, to increase the extent of its market area or to enter new market areas.
Following its recapitalization in 1994, FBA sought to increase its Texas
franchise by acquiring other financial institutions in the major metropolitan
areas of Texas, principally the Houston and Dallas markets. However, prices in
Texas rapidly escalated beyond the levels that FBA considered economically
desirable, causing FBA to explore acquisitions in other markets.
In 1995, FBA's controlling stockholder, First Banks, began acquiring
financial institutions primarily in southern California, where acquisition
pricing was substantially more favorable. Upon determining that in the short-run
it would not be able to identify acquisition candidates in Texas at attractive
prices, FBA turned to northern California in 1996 with the acquisition of
Sunrise Bancorp, Inc., Roseville, California. Between 1997 and February 2000,
FBA completed four more acquisitions in northern California, increasing its
franchise there to seventeen banking locations and $742 million in total assets.
In order to distinguish the California operations of First Banks from
those of FBA and permit economies of scale within the market areas they had
entered, First Banks and FBA generally separated the acquisitions along
geographic lines. First Banks acquired financial institutions in southern and
central California generally along the Pacific Coastline from Orange County
through Santa Barbara County. On the other hand, FBA acquired financial
institutions in northern California, principally along the corridor from San
Francisco through Sacramento. Although there were two areas in which branches of
First Bank of California, FBA's northern California bank, overlapped market
areas with those of First Bank & Trust, First Banks' southern California bank,
these did not pose significant problems. However, with FBA's acquisition of
Lippo Bank in February 2000, it became apparent that this demarcation could not
easily be preserved. In addition to its principal office in San Francisco,
approximately four blocks from Redwood Bank, Lippo Bank had a branch in San
Jose, approximately six blocks from an office of First Bank & Trust, as well as
approximately three miles from a branch of First Bank of California in Campbell,
California. In addition, Lippo Bank had a branch in Los Angeles, where all the
affiliated branches were First Bank & Trust offices.
<PAGE>
Consequently, the acquisition of First Bank & Trust by FBA (the
"Acquisition"), and the related mergers of First Bank & Trust, First Bank of
California and First Bank Texas N.A. with and into a single bank, is primarily
intended to eliminate the confusion that may arise where branches of different
affiliated banks operate within a single market, and to facilitate more
efficient and effective operations than is possible through the separate
entities as they exist currently. Although economies will result from the
combination, cost reductions are not the primary objective. The principal
benefits of the proposed transactions are:
o Eliminate market confusion and improve customer identification of
banking offices that operate within the same or contiguous markets
such as:
- San Francisco, where there are two branches of First Bank of
California and one branch of Redwood Bank within approximately
six miles;
- San Jose and Campbell, where there are two branches of First Bank
of California and one branch of First Bank & Trust within
approximately three miles;
- Walnut Creek and Campbell, where there is a First Bank & Trust
branch and a branch of First Bank of California, within
approximately five miles; and
- Los Angeles, which has one branch of First Bank of California
among numerous First Bank & Trust branches.
o Enhance customer convenience by facilitating transactions through
more branches;
o Eliminate the necessity of participating larger loans between the
four banks involved in the proposed acquisition and the related
transactions;
o Reduce administrative effort caused by maintaining separate banks,
such as:
- Separate accounting records and financial reporting;
- Inter-company record keeping and billing required for personnel,
services and supplies used by different banks;
- Consolidation of investment portfolio and asset/liability
management for more effective management and control; and
- More efficient use of marketing and advertising resulting from the
use of a common corporate name.
It has not been feasible to incorporate Redwood Bank's offices and
systems into those of First Banks since it was acquired by FBA in 1999, but this
will be possible when the Acquisition is completed. While not solely the result
of the proposed transactions, certain economies will result from the combination
of Redwood Bank into the First Banks corporate systems and procedures. These
include reduction of expenses associated with:
o Accounting, finance and human resources administration;
o Data processing, item processing and technological services;
o Internal audit and loan review;
o Credit administration and loan servicing; and
o Purchasing of office supplies, insurance and banking services.
<PAGE>
For the foregoing reasons, First Banks suggested to the Board of Directors
of FBA that an acquisition of First Bank & Trust would be beneficial,
particularly in conjunction with the mergers of FBA's separate banks into a
single bank.
Consideration of the Transaction
At its regular meeting on January 28, 2000, the Board of Directors of FBA
discussed the suggestion by First Banks that FBA consider the possibility of the
acquisition by FBA of First Bank & Trust. The members of the FBA Board
recognized that market confusion had arisen as the result of redundancy of
branches of FBA and First Bank & Trust in the northern California market and
that the possible combination of FBA and First Bank & Trust would help eliminate
these redundancies, as well as result in certain benefits and efficiencies. The
Board reacted favorably to the possibility of this combination. Taking into
account First Banks' position as a controlling stockholder of both FBA and First
Bank & Trust, the Board determined that it would not be appropriate for
directors who are affiliated with First Banks to participate in the
consideration or negotiation of the potential transaction on FBA's behalf.
Therefore, at the January 28, 2000 Board meeting, the FBA Board appointed a
special committee comprised of three members of the FBA Board who are not
officers or employees of FBA or otherwise affiliated with First Banks, namely
Messrs. Charles A. Crocco, Jr., Albert M. Lavezzo and Edward T. Story, Jr. (the
"Special Committee"). The Board empowered the Special Committee to retain
advisors which the Special Committee decided it needed to assist it in the
process of analyzing a possible acquisition of First Bank & Trust and to
determine whether, and if so on what terms, such a transaction should be
undertaken.
In March 2000, the Special Committee retained James S. Ryan, III of Jackson
Walker, L.L.P. as counsel to the Special Committee and in early May 2000, the
Special Committee retained Baxter Fentriss and Company ("Baxter Fentriss") as
its independent financial advisor to work with the Special Committee and Mr.
Ryan in evaluating a possible transaction. Prior to the Special Committee's
formal retention of Baxter Fentriss, the Special Committee and Mr. Ryan met by
telephone on March 24 and 27, 2000 with Mr. James Baxter of Baxter Fentriss to
discuss the procedures to be followed by the Special Committee and its financial
advisor in reviewing financial and other information about First Bank & Trust
and in undertaking the necessary financial analyses in order for the Special
Committee to consider whether the proposed transaction should be pursued,
consistent with the interests of the holders of FBA common stock. Shortly
thereafter, the Special Committee began to accumulate financial and other
information regarding First Bank & Trust and FBA and requested that management
of FBA prepare pro forma financial information reflecting the effect of
combining FBA and First Bank & Trust. The Special Committee shared the
information it accumulated, including the financial information that was
prepared for it, with Baxter Fentriss, and Baxter Fentriss also requested and
received additional financial information from First Banks.
On April 28, 2000, the members of the Special Committee met by telephone
with Mr. Blake and Mr. Ryan. At this meeting, the Special Committee discussed
with Mr. Blake the status of the financial information that the Special
Committee had requested be prepared for its review and consideration, possible
timing of the transaction, potential benefits of the transaction, including
elimination of redundancy of branches and potential use of tax-loss
carry-forwards as part of the business combination and the status of other
transactions then under consideration by FBA.
<PAGE>
On May 22, 2000, a meeting of the Special Committee was held with Mr.
Crocco and Mr. Lavezzo meeting in person with Mr. Baxter, and Mr. Blake was also
present for portions of the meeting to provide information requested by the
Special Committee. Mr. Story participated by telephone and Mr. Ryan also was
joined into the meeting by telephone after the meeting commenced. At this
meeting, the members of the Special Committee reviewed in detail with Mr. Baxter
a report prepared by Baxter Fentriss. Based on its analysis of the information
provided to the Special Committee by FBA, as well as the contents of Baxter
Fentriss' report, the members of the Special Committee determined that an
acquisition by FBA of First Bank & Trust would be in the best interest of FBA
and its stockholders and FBA should propose to acquire First Bank & Trust by
issuing 1.4703 shares of common stock for each outstanding share of First Bank &
Trust common stock. This proposal was then presented to Mr. Blake for
consideration by First Banks.
First Banks agreed to the financial terms proposed. The members of the
Special Committee and First Bank & Trust requested their respective legal
counsel to prepare a form of acquisition agreement and other appropriate legal
documents to evidence the transaction. First Bank & Trust's counsel prepared and
distributed a proposed agreement with the same financial terms as had been
approved by the Special Committee. The proposed agreement was reviewed and
ultimately approved by the Special Committee after recommended revisions were
made.
On June 15, 2000, the members of the Special Committee attended a special
meeting of the FBA Board of Directors. At that meeting, the members of the
Special Committee recommended that the entire FBA Board approve the proposed
acquisition by FBA of First Bank & Trust. Following discussion, the full FBA
Board of Directors approved unanimously an Agreement and Plan of Reorganization
(the "Acquisition Agreement") and authorized its submission to FBA's
stockholders for their consideration and approval.
The First Bank & Trust Board of Directors held a special meeting to discuss
the Aquisition Agreement. Following discussion, the full Board of Directors
unanimously approved the Aquistion Agreement. The First Banks Board of Directors
unaninously approved the Acquisition Agareement at a regular Board of Directors
meeting.
FBA and First Banks jointly issued a press release announcing the signing
of the Acquisition Agreement and the general terms of the Acquisition on June
29, 2000.
During the week of August 14, 2000, in connection with its final due
diligence review related to delivery of its fairness opinion, Mr. Baxter of
Baxter Fentriss, in discussions with FBA's management, ascertained that certain
matters that it had anticipated in its valuation report to the Special Committee
had either occurred differently than planned or, as of August 2000, were planned
to occur in a different manner. The changes that Baxter Fentriss considered were
as follows:
o First Banks' provision of approximately $14 million to First Bank &
Trust to fund the acquisition by First Bank & Trust of Bank of Ventura
was to be structured as an advance to First Bank & Trust rather than as
a contribution to capital, as originally had been anticipated;
o Dividend payments from First Bank & Trust to its parent, First Banks,
were approximately $4 million lower than expected; and
<PAGE>
o FBA had purchased fewer shares of FBA common stock under its stock
repurchase program than originally had been anticipated.
Mr. Baxter contacted the members of the Special Committee to make them
aware of these changes. The members of the Special Committee and Baxter Fentriss
agreed that Baxter Fentriss should revise its report to the Special Committee.
Baxter Fentriss revised its report to take into account the changes previously
noted and delivered the revised report to the members of the Special Committee.
On August 18, 2000, a telephonic meeting of the Special Committee was held, with
each of the members of the Special Committee participating. Other persons
attending the meeting were Mr. Baxter and Mr. Ryan, as well as Mr. Blake, Frank
Sanfilippo and Lisa Vansickle of FBA's management, who were available to answer
the Special Committee's questions. Mr. Baxter reviewed with the Special
Committee the contents of the revised Baxter Fentriss report. Based on its
analysis of the information provided by Baxter Fentriss and FBA management, the
members of the Special Committee altered their recommendation to approve the
Acquisition to reflect that the number of shares of FBA common stock to be
issued for each outstanding share of First Bank & Trust common stock would be
reduced to 1.3821.
The members of the Special Committee and First Bank & Trust instructed
their respective counsel to prepare an appropriate amendment to the Acquisition
Agreement (the "Amendment"). The Special Committee's altered recommendation was
delivered to the other members of the FBA Board of Directors, and each member of
the FBA Board of Directors signed a written consent of directors approving the
reduction in the number of shares of FBA common stock to be issued in the
Acquisition. The Amendment was executed by the parties effective August 18,
2000.
Opinion of the Financial Advisor to the Special Committee
Baxter Fentriss has acted as financial advisor to the Special Committee of
the Board of Directors of FBA in connection with the Acquisition. On August 18,
2000, Baxter Fentriss delivered to the Special Committee of the Board of
Directors of FBA its opinion that as of such date, and on the basis of matters
referred to herein, the Acquisition is fair, from a financial point of view, to
the holders of common stock. In rendering its opinion, Baxter Fentriss consulted
with the management of FBA and First Bank & Trust; reviewed drafts of the Proxy
Statement and the Acquisition Agreement as amended, and certain
publicly-available information on the parties; and reviewed certain additional
materials made available by the management of the respective banks.
In addition, Baxter Fentriss discussed with the management of FBA and First
Bank & Trust their respective businesses and outlook. No limitations were
imposed by FBA's or First Bank & Trust's Boards of Directors upon Baxter
Fentriss with respect to the investigation made or procedures followed by it in
rendering its opinion. The full text of Baxter Fentriss' written opinion is
attached as Appendix B to this Proxy Statement and should be read in its
entirety with respect to the procedures followed, assumptions made, matters
considered, and qualifications and limitations on the review undertaken by
Baxter Fentriss in connection therewith.
<PAGE>
Baxter Fentriss' opinion is directed to the Special Committee and is
directed only to the fairness, from a financial point of view, of the
Acquisition to stockholders of FBA. It does not address FBA's or First Bank &
Trust's underlying business decision to effect the Acquisition, nor does it
constitute a recommendation to any FBA stockholder as to how such stockholder
should vote with respect to the Acquisition at the Meeting or as to any other
matter.
Baxter Fentriss' opinion was one of many factors taken into consideration
by the Special Committee in making its determination to approve the Acquisition
Agreement, and the receipt of Baxter Fentriss' opinion is a condition precedent
to FBA consummating the Acquisition. The opinion of Baxter Fentriss does not
address the relative merits of the Acquisition as compared to any alternative
business strategies that might exist for FBA or the effect of any other business
combination in which FBA might engage.
Baxter Fentriss, as part of its investment banking business, is continually
engaged in the valuation of financial institutions and their securities in
connection with mergers and acquisitions and valuations for estate, corporate
and other purposes. Baxter Fentriss is a nationally recognized advisor to firms
in the financial services industry on mergers and acquisitions. The Special
Committee selected Baxter Fentriss as its financial advisor after taking
numerous factors into consideration including Baxter Fentriss' stature as an
investment banking firm focusing on bank and thrift transactions, the firm's
extensive experience and expertise in transactions similar to the Acquisition
and the Special Committee's assessment of the value of the services to be
provided in relation to the fees that would be payable by FBA. Baxter Fentriss
is not affiliated with FBA or First Bank & Trust. Baxter Fentriss has
represented from time to time certain financial institutions that have
ultimately been merged with or acquired by one of the parties to this
transaction. Baxter Fentriss has been engaged, independently, to represent
Commercial Bank of San Francisco and Bank of Ventura which presently have
pending transactions with one of the parties to the Acquisition Agreement.
In connection with rendering its opinion to the Special Committee, Baxter
Fentriss performed a variety of financial analyses. In conducting its analyses
and arriving at its opinion as expressed herein, Baxter Fentriss considered such
financial and other factors as it deemed appropriate under the circumstances
including the following: (i) the historical and current financial condition and
results of operations of FBA and First Bank & Trust including interest income,
interest expense, noninterest income, noninterest expense, earnings, book value,
returns on assets and equity, capitalization, the reserve for loan losses and
possible tax consequences resulting from the Acquisition; (ii) the business
prospects of FBA and First Bank & Trust; (iii) the economies of FBA's and First
Bank & Trust's respective market areas; (iv) the historical and current market
for FBA common stock; and, (v) the nature and terms of certain other merger
transactions that it believed to be relevant. Baxter Fentriss also considered
its assessment of general economic, market, financial and regulatory conditions
and trends, as well as its knowledge of the financial institutions industry, its
experience in connection with similar transactions, its knowledge of securities
valuation generally, and its knowledge of merger transactions in California.
In connection with rendering its opinion, Baxter Fentriss reviewed (i) the
Acquisition Agreement as amended; (ii) drafts of this Proxy Statement; (iii) the
Annual Reports to stockholders, including the audited financial statements of
FBA for the years ended December 31, 1999 and 1998; (iv) consolidated reports of
condition ("call reports") on First Bank & Trust filed with the FDIC for the
years ended December 31, 1999 and 1998; (v) budgeted financial information for
<PAGE>
the year ending December 31, 2000 for FBA and First Bank & Trust; and (vi)
certain additional financial and operating information with respect to the
business, operations and prospects of FBA and First Bank & Trust as it deemed
appropriate. Baxter Fentriss also (a) held discussions with members of senior
management of FBA and First Bank & Trust regarding the historical and current
business operation, financial condition and future prospects of their respective
companies; (b) compared the results of operations of FBA and First Bank & Trust
with those of certain banking companies that it deemed to be relevant; (c)
analyzed the pro forma financial impact of the Acquisition on FBA, (d) analyzed
the pro forma financial impact of the Acquisition on First Bank & Trust; and (e)
conducted such other studies, analyses, inquiries and examinations as Baxter
Fentriss deemed appropriate.
The preparation of a fairness opinion involves various determinations as to
the most appropriate and relevant methods of financial analysis and the
application of those methods to the particular circumstances and, therefore,
such an opinion is not readily susceptible to partial analysis or summary
description. Moreover, the evaluation of fairness, from a financial point of
view, of the Acquisition to holders of common stock was to some extent a
subjective one based on the experience and judgment of Baxter Fentriss and not
merely the result of mathematical analysis of financial data. Accordingly,
notwithstanding the separate factors summarized below, Baxter Fentriss believes
that its analyses must be considered as a whole and that selecting portions of
its analyses and of the factors considered by it, without considering all
analyses and factors, could create an incomplete view of the evaluation process
underlying its opinion. The ranges of valuations resulting from any particular
analysis described below should not be taken to be Baxter Fentriss' view of the
actual value of FBA or First Bank & Trust.
In performing its analyses, Baxter Fentriss made numerous assumptions with
respect to industry performance, business and economic conditions and other
matters, many of which are beyond the control of FBA or First Bank & Trust. The
analyses performed by Baxter Fentriss are not necessarily indicative of actual
values or future results, which may be significantly more or less favorable than
suggested by such analyses. Additionally, analyses relating to the values of
businesses do not purport to be appraisals or to reflect the prices at which
businesses actually may be sold. In rendering its opinion, Baxter Fentriss
assumed that, in the course of obtaining the necessary regulatory approvals for
the Acquisition, no conditions will be imposed that will have a material adverse
effect on the contemplated benefits of the Acquisition, on a pro forma basis, to
FBA or First Bank & Trust.
The following is a summary of selected analyses performed by Baxter
Fentriss in connection with its opinion.
o Actual Relative Contribution Analysis. Baxter Fentriss compared
ownership projected to be received in the Acquisition, versus the
projected relative equity, tangible equity, earnings, cash earnings and
customer base to be made by each institution to the combined entity.
FBA is projected to contribute 43.44% of the equity, 42.23% of the
tangible equity, 47.45% of the earnings, 48.38% of the cash earnings,
and 50.00% of the customer base.
o Pro Forma Impact Analysis. Baxter Fentriss used long term forecasts for
each institution to evaluate the pro forma impact on book value and
earnings within a range of relative ownership levels.
<PAGE>
o Discounted Cash Flow - Net Present Value Analysis. Baxter Fentriss
performed a discounted cash flow analysis to determine hypothetical
relative present values for each institution as a long term investment.
A long term forecast for each institution was developed. From this
forecast, appropriate cash flows, dividends and terminal values were
extracted. These cash flows were then discounted using a range of
appropriate discount rates and the present value of these cash flows
were added together to determine the net present value of each
institution.
o Liquidation Analysis. Baxter Fentriss estimated values based upon the
liquidation of the assets and liabilities of each institution. In this
analysis, it was assumed that fixed assets and loans could be
liquidated at stated book value and that there were no extraordinary
off-balance-sheet items that would cause a significant change in the
overall valuation, that securities were liquidated at market value
while core deposits were sold at a premium (both of which were impacted
for taxes). No adjustments were made for illiquidity.
o Comparables Analysis. Baxter Fentriss analyzed other merger of equal
transactions to determine average pricing statistics base upon the
relative contribution of each institution. Such statistical analysis
was then applied to this transaction.
Using publicly available information on FBA and First Bank & Trust and
applying the capital guidelines of banking regulators, Baxter Fentriss' analysis
indicated that the Acquisition would not materially dilute the capital and
earnings capacity of FBA and would, therefore, likely not be opposed by the
banking regulatory agencies from a capital perspective.
Baxter Fentriss has relied, without any independent verification, upon the
accuracy and completeness of all financial and other information reviewed.
Baxter Fentriss has assumed that all estimates, including those as to possible
economies of scale, were reasonably prepared by management, and reflect their
best current judgments. Baxter Fentriss did not make an independent appraisal of
the assets or liabilities of either FBA or First Bank & Trust, and has not been
furnished such an appraisal.
No company or transaction used as a comparison in the above analysis is
identical to FBA, First Bank & Trust, or the Acquisition. Accordingly, an
analysis of the results of the foregoing necessarily involves complex
considerations and judgments concerning differences in financial and operating
characteristics of the companies and other factors that could affect the public
trading value of the companies used for comparison in the above analysis.
Baxter Fentriss has been, or will be, paid (i) an advisory fee of $10,000,
(ii) a Fairness Opinion Fee of $45,000, (iii) a fee in the amount of $14,000 in
connection with preparing the revised report to the Special Committee, and (iv)
reasonable out-of-pocket expenses for its services. FBA has agreed to indemnify
Baxter Fentriss against certain liabilities, including certain liabilities under
federal securities laws.
<PAGE>
ACQUISITION OF FIRST BANK & TRUST
Terms of the Acquisition
The following information summarizing the material terms of the
Acquisition, insofar as it relates to matters contained in the Acquisition
Agreement and the Amendment, is qualified in its entirety by reference to such
agreements, copies of which are attached hereto as Appendix A-1 and Appendix
A-2, respectively, and incorporated herein by reference. The Amendment made only
two changes in the Acquisition Agreement, reducing the number of shares of FBA
common stock to be issued to First Banks and updating a provision regarding the
timing of the fairness opinion received from Baxter Fentriss. In the remainder
of this Proxy Statement, the term "Revised Agreement" means the Acquisition
Agreement as amended by the Amendment.
The Revised Agreement provides for the merger of First Bank & Trust with
and into Redwood. Upon consummation of the Acquisition, the assets and
liabilities of First Bank & Trust will be transferred by operation of law to
Redwood and each outstanding share of First Bank & Trust Common will be
converted into the right to receive 1.3821 shares of common stock. The surviving
bank will adopt the name "First Bank & Trust."
FBA contemplates that, at approximately the same time as the Acquisition is
consummated, its two other bank subsidiaries, First Bank of California ("First
Bank-California") and First Bank Texas N.A. ("First Bank-Texas"), will also be
merged into Redwood, and all of FBA's banking operations will be combined in a
single bank owned by FBA, which will be known as First Bank & Trust. When these
transactions are completed, First Bank & Trust will have its headquarters in San
Francisco and operate 45 branch offices in California and 6 branch offices in
Texas.
Regulatory Approvals
The Acquisition, as well as the subsequent mergers of First Bank-California
and First Bank-Texas into Redwood, are subject to the prior approval of the
Federal Deposit Insurance Corporation (the "FDIC") and the Commissioner of
Financial Institutions of the State of California (the "Commissioner") in
accordance with applicable federal and California banking statutes and
regulations. An application was submitted to the FDIC for approval of the
Acquisition and the mergers of First Bank-California and First Bank-Texas on
July 14, 2000. Three separate applications, including one covering the
Acquisition, were submitted to the Commissioner on July 14, 2000.
An application to the FDIC is required under the Bank Merger Act (the
"Merger Act"). The application is subject to a review which takes into
consideration, among other factors, the financial and managerial resources and
future prospects of the merging banks and the convenience and needs of the
communities to be served. The Merger Act prohibits the approval of a merger (i)
if it would result in a monopoly or be in furtherance of any combination or
conspiracy to monopolize or attempt to monopolize the business of banking in any
part of the United States or (ii) if its effect would be to lessen competition
substantially in any part of the country or tend to create a monopoly, or if it
<PAGE>
would in any other manner be a restraint of trade, unless the FDIC finds that
anticompetitive effects of a proposed merger are clearly outweighed by the
public interest and probable effects of the transaction in meeting the
convenience and needs of the communities to be served. The FDIC has the
authority to disapprove an application if it concludes that the combined entity
would have an inadequate capital position or if the acquiring organization does
not meet the requirements of the Community Reinvestment Act, as amended. Under
the Merger Act, the Acquisition may not be consummated until the expiration of a
waiting period following FDIC approval, during which time the U.S. Department of
Justice has the right to challenge a merger on antitrust grounds.
The California Financial Code provides that the Commissioner shall approve
a merger application unless he finds that (1) the effect of an acquisition would
be to substantially lessen competition, (2) the financial condition of the
acquirer is such as might jeopardize the financial stability of the acquired
bank or prejudice the interests of the depositors, creditors or stockholders of
the acquired bank or the acquirer, or (3) the proposed acquisition is unfair,
unjust or inequitable to the acquired bank or the acquirer. The Commissioner may
impose such conditions as he deems reasonable, necessary or advisable in the
public interest.
Because all of the banks involved in the Acquisition and the mergers of
First Bank-California and First Bank-Texas are currently owned and controlled by
First Banks, FBA does not believe that the applications present competitive or
other regulatory issues and anticipates the necessary approvals will be granted
during the third or fourth quarters of 2000, but there is no assurance that such
approvals will be forthcoming or the timing thereof. Delay in the receipt of
regulatory approvals would cause a delay in the realization of the benefits
contemplated from the Acquisition and the mergers of First Bank-California and
First Bank-Texas.
Accounting Treatment
It is anticipated that the Acquisition, when consummated, will be accounted
for under the prescribed accounting method for combinations of entities under
common control, which is similar to the "Pooling of Interests" method. Because
FBA & First Bank & Trust are entities under common control, generally accepted
accounting principles require us to restate the consolidated financial
statements of FBA as if the Acquisition occurred at the beginning of the
earliest period presented.
<PAGE>
THE ACQUISITION AGREEMENT
The following is a summary of all material provisions of the Acquisition
Agreement, which is attached as Appendix A-1 to this Proxy Statement, and the
Amendment dated August 18, 2000, which is attached as Appendix A-2. Such
documents are incorporated herein by reference, and this summary is qualified in
its entirety by reference to the Acquisition Agreement.
The Acquisition
The Acquisition Agreement provides that, following the approval and
adoption of the Acquisition by the stockholders of FBA, the grant of all
required regulatory approvals and the satisfaction or waiver of the other
conditions to the Acquisition, First Bank & Trust will be merged with and into
Redwood. The Acquisition will become effective at the Effective Time, and the
capital stock of First Bank & Trust will be converted into common stock, as
discussed elsewhere herein. See "ACQUISITION OF FIRST BANK & TRUST--Terms of the
Acquisition."
Representations and Warranties
Representations and Warranties of FBA and Redwood. The Acquisition
Agreement contains representations and warranties of FBA and Redwood made to
First Banks and First Bank & Trust including, but not limited to: (i) the
organization and related corporate status of FBA and Redwood; (ii) the
authorization, execution, delivery and enforceability of the Acquisition
Agreement; (iii) the delivery to First Banks of FBA's financial statements; (iv)
the material accuracy, as of the dates of the Acquisition Agreement and of this
Proxy Statement, of information provided by FBA and Redwood, and the material
compliance with law of the form of documents which FBA and Redwood are
responsible for filing with any governmental entity in connection with the
Acquisition; (v) the filing of all tax returns, fairly reflecting the
information required to be presented therein, and the adequacy of all provisions
for accrued, unpaid taxes in accordance with generally accepted accounting
principles; (vi) the incurrence by FBA and its subsidiaries of any fees for
brokers or finders in connection with the Acquisition; (vii) the adequacy of
FBA's allowance for loan losses; (viii) except as otherwise disclosed, the
absence since March 31, 2000 of changes or other events requiring disclosure to
make FBA's financial statements not misleading or involving a material adverse
change in the financial condition, the results of operations or the business of
Redwood; (ix) the absence of material litigation against FBA and its
subsidiaries except as otherwise disclosed; (x) identification of FBA's
subsidiaries; (xi) the absence of any regulatory actions against FBA or any of
its subsidiaries; (xii) identification of all of its properties, contracts,
employee arrangements and other agreements meeting certain criteria specified in
the Acquisition Agreement; (xiii) proper accounting for the securities in FBA's
investment portfolio; (xiv) the status of the loans in FBA's loan portfolio and
the documentation relating thereto; (xv) legal title to FBA's properties and the
existence and nature of insurance relating thereto; (xvi) the nature and status
of any loans, contracts and other arrangements with any of FBA's officers,
directors or employees or any of their related interests; and (xvii) the conduct
of FBA as it relates to various environmental laws and regulations.
<PAGE>
Representations and Warranties of First Banks and First Bank & Trust. The
Acquisition Agreement contains representations and warranties of First Banks and
First Bank & Trust made to FBA generally including, but not limited to: (i) the
organization and related corporate status of First Banks and First Bank & Trust;
(ii) the authorization, execution, delivery and enforceability of the
Acquisition Agreement; (iii) the delivery to FBA of certain of First Bank &
Trust's financial statements; (iv) the material accuracy, as of the dates of the
Acquisition Agreement and of this Proxy Statement, of information provided by
First Banks and First Bank & Trust, and the material compliance with law of the
form of documents which First Banks and First Bank & Trust are responsible for
filing with any governmental entity in connection with the Acquisition; (v) the
filing of all tax returns, fairly reflecting the information required to be
presented therein, and the adequacy of all provisions for accrued, unpaid taxes
in accordance with generally accepted accounting principles; (vi) the incurrence
by First Banks and First Bank & Trust of any fees for brokers or finders in
connection with the Acquisition; (vii) the adequacy of First Bank & Trust's
allowance for loan losses; (viii) except as disclosed, the absence since March
31, 2000 of changes or other events involving a material adverse change in the
financial condition, the results of operations or the business of First Bank &
Trust; (ix) the absence of material litigation against First Bank & Trust except
as disclosed to FBA; (x) the absence of any regulatory actions against First
Bank & Trust; (xi) identification of all of its properties, contracts, employee
arrangements and other agreements meeting certain criteria specified in the
Acquisition Agreement; (xii) proper accounting for the securities in First Bank
& Trust's investment portfolio; (xiii) the status of the loans in First Bank &
Trust's loan portfolio and the documentation relating thereto; (xiv) legal title
to properties of First Bank & Trust and the existence and nature of insurance
relating thereto; (xv) the nature and status of any loans, contracts and other
arrangements with officers, directors or employees of First Bank & Trust or any
of their related interests; and (xvi) the conduct of First Bank & Trust as it
relates to various environmental laws and regulations.
Conditions to the Consummation of the Acquisition
Conditions to the Obligations of All of the Parties to Effect the
Acquisition. The obligations of the parties to the Acquisition Agreement to
effect the Acquisition are subject to various conditions (which may be waived),
including, in addition to other customary closing conditions, the following:
(i) The stockholders of FBA shall have approved the Acquisition;
(ii) All necessary governmental approvals for the Acquisition shall have
been obtained, and any waiting periods imposed by any applicable law or
regulation for the consummation of the Acquisition shall have expired; and
(iii) There shall not be any injunction or restraining order preventing the
consummation of the Acquisition in effect, nor shall any proceeding by any
governmental entity seeking the same be pending, nor shall the Acquisition
be illegal under any applicable law.
<PAGE>
Conditions to the Obligations of FBA and Redwood to Effect the Acquisition.
The obligations of FBA and Redwood to effect the Acquisition are subject to the
fulfillment or waiver at or prior to the Effective Time of the following
additional conditions:
(i) As of the closing date of the Acquisition, the representations and
warranties of First Banks and First Bank & Trust set forth in the
Acquisition Agreement shall be true in all material respects;
(ii) First Banks and First Bank & Trust shall have performed in all
material respects their obligations under the Acquisition Agreement;
(iii) FBA shall have received certain documents required to be delivered by
First Bank & Trust, including certificates relating to the legal status of
First Bank & Trust and a legal opinion from counsel to First Banks; and
(iv) The Special Committee shall have received an opinion from Baxter
Fentriss and Company to the effect that the transactions contemplated by
the Acquisition Agreement are fair to the stockholders of FBA from a
financial point of view, and such opinion shall not have been withdrawn.
Conditions to the Obligations of First Banks and First Bank & Trust to
Effect the Acquisition. The obligations of First Banks and First Bank & Trust to
effect the Acquisition are subject to the fulfillment or waiver prior to the
Effective Time of the following additional conditions:
(i) As of the closing date, the representations and warranties of FBA and
Redwood set forth in the Acquisition Agreement shall be true in all
material respects;
(ii) FBA shal have performed in all material respects its obligations
under the Acquisition Agreement; and
(iii) First Banks and First Bank & Trust shall have received certain
documents required to be delivered by FBA and Redwood, including
certificates relating to the legal status of FBA and a legal opinion from
counsel to FBA.
Conduct of Business Pending the Acquisition
Pursuant to the terms of the Acquisition Agreement, the parties are
generally required to conduct their respective businesses only in the ordinary
and usual course consistent with past practices. Furthermore, the Acquisition
Agreement contains certain specific restrictions upon the conduct of each
company's business pending the Acquisition. In particular, the Acquisition
Agreement provides that neither FBA nor First Bank & Trust will, except as
otherwise disclosed: (i) declare or pay any dividend or make any other
distribution to stockholders, whether in cash, stock or other property; or (ii)
effect a reclassification, recapitalization, split-up, exchange of shares,
readjustment or other similar change in or to any capital stock, or otherwise
reorganize or recapitalize. First Bank & Trust is also prohibited from (i)
borrowing funds or guaranteeing the obligations of others, except in the
ordinary course of business, (ii) issuing capital stock or securities
convertible into capital stock, and (iii) redeeming or purchasing its capital
stock.
The Acquisition Agreement further provides that without the prior written
consent of the other party, FBA and First Bank & Trust will not: (i) grant any
increase (other than ordinary and normal increases consistent with past
practices) in the compensation payable or to become payable to officers or
employees, grant any stock options or, except as required by law, adopt or make
any change in any employee benefit plan, agreement, payment or arrangement made
to, for or with any such officers or employees; (ii) make or commit to make any
new loan or letter of credit or any new or additional discretionary advance
<PAGE>
under any existing line of credit, except in the ordinary course of business;
(iii) enter into any agreement, contract or commitment having a term in excess
of three months other than letters of credit, loan agreements, deposit
agreements, and other lending, credit and deposit agreements and documents made
in the ordinary course of business; (iv) except in the ordinary course of
business, place on any of its assets or properties any mortgage, pledge, lien,
charge, or other encumbrance; (v) except in the ordinary course of business,
cancel or accelerate any material indebtedness owing to such entity or any
claims which such entity may possess, or waive any material rights of
substantial value; (vi) sell or otherwise dispose of any real property or any
material amount of any tangible or intangible personal property, other than
properties acquired in foreclosure or otherwise in the ordinary collection of
indebtedness; (vii) violate any law, statute, rule, governmental regulation or
order, which violation might have a material adverse effect on such entity's
business, financial condition, or earnings; (viii) increase or decrease the rate
of interest paid on time deposits or on certificates of deposit, except in a
manner consistent with past practices.
The parties to the Acquisition Agreement are also required to use their
respective best efforts to perform and fulfill all conditions and obligations to
be performed or fulfilled under the Acquisition Agreement and to effect the
Acquisition in accordance with the terms and provisions thereof. The Acquisition
Agreement requires each party to furnish to the other in a timely manner all
information, data and documents requested to obtain any necessary regulatory or
other approvals of the Acquisition and to deliver monthly unaudited consolidated
balance sheets and profit and loss statements prepared for internal use, Reports
of Condition and Income for each quarterly period completed prior to the Closing
Date, and all other financial reports or statements submitted to regulatory
authorities.
Additional Agreements
Additional Covenants of FBA, Redwood and First Bank & Trust. The
Acquisition Agreement contains additional covenants of each of FBA, Redwood and
First Bank & Trust to, among other things: (i) allow the other party reasonable
access to its books, records and properties; (ii) consult with one another as to
the form of any press release or other public disclosures related to the
Acquisition; (iii) promptly notify the other party in the event of any breach of
the Acquisition Agreement and use its best efforts to prevent or remedy such a
breach; (iv) use its best efforts to perform and fulfill its obligations under
the Acquisition Agreement; and (v) maintain the confidentiality of information
received from the other party.
Additional Covenants of FBA. The Acquisition Agreement requires FBA to
prepare, file and distribute this Proxy Statement and to hold a meeting of the
stockholders of FBA to vote on the Acquisition and to use its best efforts to
obtain the approval of the Acquisition by the stockholders of FBA.
Additional Covenants of First Banks and First Bank & Trust. The Acquisition
Agreement contains additional covenants of First Banks and First Bank & Trust,
among other things: (i) to cooperate in the preparation and filing of the Proxy
Statement and in calling and holding the Annual Meeting; and (ii) to obtain any
necessary consents for the Acquisition under applicable leases, licenses,
contracts and other instruments.
<PAGE>
Termination; Damages
Termination. The Acquisition Agreement may be terminated at any time prior
to the closing date, either before or after approval by the stockholders of FBA,
by the mutual consent of the parties; or by either FBA or First Banks at any
time (i) if the other party materially breaches any of its representations,
warranties and agreements made under the Acquisition Agreement and the breach is
not cured within 30 days after written notice has been provided to the breaching
party; (ii) the conditions to the obligations of a party are not satisfied or
waived prior to the closing date and if the applicable 30-day cure period has
lapsed, after written notice has been provided by such party to the other party;
or (iii) the Effective Time has not occurred prior to March 31, 2001.
In addition, the Acquisition Agreement will be deemed to have terminated if
regulatory approval of the Acquisition has been finally denied. Either party may
terminate the Acquisition Agreement if the other party becomes a party to or
subject to any new or amended written agreement, memorandum, cease and desist
order seeking or imposing civil money penalties or other written regulatory
enforcement action or formal legal proceeding of any federal or state regulatory
authority.
Damages. The Acquisition Agreement provides that a party breaching any of
its obligations or failing to consummate the Acquisition for any reason other
than the failure of the other party to perform its obligations or the fact that
one or more of the conditions to such party's obligation to consummate the
Acquisition shall not have been satisfied, may be liable to the other party for
damages, which would be measured by the out-of-pocket expenses of the
non-breaching party incurred in connection with the Acquisition Agreement,
including any fees paid to third parties. The amount of such damages are limited
by the Acquisition Agreement to a maximum of $100,000.
Amendment and Waiver
The Acquisition Agreement may be amended at any time by all of the parties
thereto, and each party may extend the time for performance of the obligations
of the other parties, waive inaccuracies in representations and warranties and
waive compliance with any agreements or conditions contained in the Acquisition
Agreement.
Expenses
Whether or not the Acquisition is consummated, all costs and expenses
incurred in connection with the Acquisition Agreement and the transactions
contemplated thereby will be paid by the party incurring such expense, except as
otherwise provided with respect to damages recoverable by a party due to a
breach of the Acquisition Agreement by the other party. See "--Additional
Agreements--Termination; Damages."
<PAGE>
BUSINESS OF FBA AND FIRST BANK & TRUST
FBA is a registered bank holding company incorporated in Delaware and
headquartered in St. Louis County, Missouri. At June 30, 2000, FBA had $1.07
billion in total assets, $812.7 million in total loans, net of unearned
discount, $918.3 million in total deposits and $77.5 million in total
stockholders' equity. FBA operates through three wholly owned bank subsidiaries,
First Bank-Texas, First Bank- California and Redwood.
First Bank & Trust is a California bank headquartered in Newport Beach,
California. At June 30, 2000, First Bank & Trust had $1.0 billion in total
assets, $799.2 million in total loans, net of unearned discount, $875.0 million
in total deposits and $101.6 million in total stockholder's equity. For the six
months ended June 30, 2000, First Bank & Trust's net income was $6.8 million,
compared to $3.1 million for the comparable period in 1999. For the year ended
December 31, 1999, net income was $7.7 million, compared to $4.9 million in 1998
and $6.7 million in 1997.
Through their respective banking locations (FBA has 6 banking offices in
Texas and 17 in California, First Bank & Trust has 26 banking offices in
California), FBA and First Bank & Trust offer 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, financial and agricultural, real estate
construction and development, commercial and residential real estate, commercial
leasing, trade finance, consumer and installment, student and Small Business
Administration 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.
<PAGE>
PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma combined condensed balance sheet as
of June 30, 2000 and the unaudited pro forma combined condensed statements of
income for the six months ended June 30, 2000 and 1999, and for the years ended
December 31, 1999, 1998 and 1997, have been prepared to reflect the effects on
the historical results of FBA of the proposed acquisition of FB&T as described
above. The proposed acquisition will be accounted for as a combination of
entities under common control. Therefore, the unaudited pro forma combined
condensed balance sheet and statements of income give retroactive effect to the
transaction and are presented as if the combining entities had been consolidated
for all periods presented. The pro forma financial information set forth below
is unaudited and not necessarily indicative of the results that will occur in
the future.
<TABLE>
<CAPTION>
Unaudited Pro Forma Combined Condensed Balance Sheet
June 30, 2000 (a)
------------------------------------------------------------
Pro Forma Pro Forma
FBA FB&T Adjustments Combined
--- ---- ----------- ---------
(dollars expressed in thousands, except per share data)
Assets
------
Cash and cash equivalents:
<S> <C> <C> <C> <C>
Cash and due from banks....................... $ 35,436 38,349 -- 73,785
Interest-bearing deposits..................... 1,761 921 -- 2,682
Federal funds sold............................ 54,100 12,700 -- 66,800
----------- ---------- --------- -----------
Total cash and cash equivalents......... 91,297 51,970 -- 143,267
----------- ---------- --------- -----------
Investment securities:
Available for sale, at fair value............. 109,185 97,214 -- 206,399
Held to maturity, at amortized cost........... 1,864 -- -- 1,864
----------- ---------- --------- -----------
Total investment securities............. 111,049 97,214 -- 208,263
----------- ---------- --------- -----------
Loans:
Commercial and financial...................... 239,564 226,126 -- 465,690
Real estate construction and development...... 214,072 185,462 -- 399,534
Real estate mortgage.......................... 330,320 373,941 -- 704,261
Consumer and installment...................... 31,422 15,919 -- 47,341
----------- ---------- --------- -----------
Total loans............................. 815,378 801,448 -- 1,616,826
Unearned discount............................. (2,655) (2,222) -- (4,877)
Allowance for loan losses..................... (16,567) (16,988) -- (33,555)
----------- ---------- --------- -----------
Net loans............................... 796,156 782,238 -- 1,578,394
----------- ---------- --------- -----------
Bank premises and equipment, net................. 13,315 13,813 -- 27,128
Intangibles associated with the
purchase of subsidiaries...................... 21,483 15,067 -- 36,550
Accrued interest receivable...................... 8,096 7,055 -- 15,151
Other real estate................................ -- 220 -- 220
Deferred tax assets.............................. 15,214 15,719 30,933
Other assets..................................... 17,547 17,245 -- 34,792
----------- ---------- --------- -----------
Total assets............................ $ 1,074,157 1,000,541 -- 2,074,698
=========== ========== ========= ===========
</TABLE>
See notes to pro forma combined condensed financial statements.
<PAGE>
<TABLE>
<CAPTION>
Unaudited Pro Forma Combined Condensed Balance Sheet (continued)
June 30, 2000
------------------------------------------------------------
Pro Forma Pro Forma
FBA FB&T Adjustments Combined
--- ---- ----------- ---------
(dollars expressed in thousands, except per share data)
Liabilities
-----------
Deposits:
Demand:
<S> <C> <C> <C> <C>
Noninterest-bearing deposits................ $ 153,132 193,815 -- 346,947
Interest-bearing deposits................... 84,291 61,951 -- 146,242
Savings....................................... 272,202 299,435 -- 571,637
Time deposits:
Time deposits of $100 or more............... 116,099 91,767 -- 207,866
Other time deposits......................... 292,580 228,080 -- 520,660
----------- ---------- --------- -----------
Total deposits.......................... 918,304 875,048 1,793,352
Note payable..................................... 4,200 -- -- 4,200
Short-term borrowings............................ 19,069 16,913 -- 35,982
Accrued interest payable......................... 2,913 1,809 -- 4,722
Deferred tax liabilities......................... 2,189 1,700 -- 3,889
Accrued expenses and other liabilities........... 5,749 3,490 -- 9,239
----------- ---------- --------- -----------
Total liabilities....................... 952,424 898,960 -- 1,851,384
----------- ---------- --------- -----------
Guaranteed preferred beneficial interest
in First Banks America, Inc.
subordinated debentures....................... 44,249 -- -- 44,249
----------- ---------- --------- -----------
Stockholders' Equity
--------------------
Common stock - FBA............................... 582 -- 980 (a) 1,562
Common stock - FB&T.............................. -- 23,627 (23,627) (a) --
Class B common stock - FBA....................... 375 -- -- 375
Capital surplus - FBA............................ 69,784 -- 91,733 (a) 161,517
Capital surplus - FB&T........................... -- 69,086 (69,086) (a) --
Retained earnings................................ 21,060 9,727 -- 30,787
Common treasury stock, at cost................... (12,633) -- -- (12,633)
Accumulated other comprehensive loss............. (1,684) (859) -- (2,543)
----------- ---------- --------- ------------
Total stockholders' equity.............. 77,484 101,581 -- 179,065
----------- ---------- --------- -----------
Total liabilities and
stockholders' equity................ $ 1,074,157 1,000,541 -- 2,074,698
=========== ========== ========= ===========
Book value per common share:
June 30, 2000................................. $ 13.87 21.50 -- 14.78
=========== ========== ========= ==========
December 31, 1999............................. 12.83 21.59 -- 14.33
=========== ========== ========= ==========
Pro forma equivalent book value per common share:
June 30, 2000............................... $ -- -- -- 20.43
=========== ========== ========= ==========
December 31, 1999........................... -- -- -- 19.81
=========== ========== ========= ==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Unaudited Pro Forma Combined Condensed Statement of Income
Six months ended June 30, 2000
-----------------------------------------------------------
Pro Forma Pro Forma
FBA FB&T Adjustments Combined
--- ---- ----------- --------
(dollars expressed in thousands, except per share data)
Interest income:
<S> <C> <C> <C> <C>
Interest and fees on loans.................... $ 37,559 35,236 -- 72,795
Investment securities......................... 3,421 3,175 -- 6,596
Federal funds sold and other.................. 1,355 894 -- 2,249
---------- -------- --------- -----------
Total interest income................... 42,335 39,305 -- 81,640
---------- -------- --------- -----------
Interest expense:
Deposits:
Interest-bearing demand.................... 660 500 -- 1,160
Savings.................................... 4,904 6,208 -- 11,112
Time deposits of $100 or more.............. 2,070 824 -- 2,894
Other time deposits........................ 8,312 7,811 -- 16,123
Promissory note payable and
short-term borrowings....................... 421 520 -- 941
---------- -------- --------- -----------
Total interest expense.................. 16,367 15,863 -- 32,230
---------- -------- --------- -----------
Net interest income..................... 25,968 23,442 -- 49,410
Provision for loan losses........................ 712 740 -- 1,452
---------- -------- --------- -----------
Net interest income after
provision for loan losses............. 25,256 22,702 -- 47,958
---------- -------- --------- -----------
Noninterest income:
Service charges on deposit accounts
and customer service fees................... 1,838 1,695 -- 3,533
Gain (loss) on sales of securities, net....... (177) 556 -- 379
Other income.................................. 967 786 -- 1,753
---------- -------- --------- -----------
Total noninterest income................ 2,628 3,037 -- 5,665
---------- -------- --------- -----------
Noninterest expense:
Salaries and employee benefits................ 6,661 5,675 401 (b) 12,737
Occupancy, net of rental income............... 1,619 2,287 -- 3,906
Furniture and equipment....................... 985 877 -- 1,862
Advertising and business development.......... 236 220 -- 456
Postage, printing and supplies................ 393 366 -- 759
Data processing fees.......................... 1,951 1,406 -- 3,357
Legal, examination and professional fees...... 2,476 1,297 (401) (b) 3,372
Communications................................ 260 224 -- 484
Gain on sales of other real estate,
net of expenses............................. (33) (122) -- (155)
Amortization of intangibles associated
with the purchase of subsidiaries........... 645 696 -- 1,341
Guaranteed preferred debentures............... 1,971 -- -- 1,971
Other......................................... 1,411 1,528 -- 2,939
---------- -------- --------- -----------
Total noninterest expense............... 18,575 14,454 -- 33,029
---------- -------- --------- -----------
Income before provision for
income tax expense.................... 9,309 11,285 -- 20,594
Provision for income tax expense................. 3,412 4,492 -- 7,904
---------- -------- --------- -----------
Net income.............................. $ 5,897 6,793 -- 12,690
========== ======== ========= ===========
Earnings per common share:
Basic......................................... $ 1.05 1.44 -- 1.05
Diluted....................................... 1.05 1.44 -- 1.05
========== ======== ========= ===========
Weighted average common stock
outstanding (in thousands).................... $ 5,612 4,725 -- 12,143
========== ======== ========= ===========
Pro forma equivalent earnings per common share:
Basic......................................... $ -- -- -- 1.45
Diluted....................................... -- -- -- 1.45
========== ======== ========= ===========
</TABLE>
See notes to pro forma combined condensed financial statements.
<PAGE>
<TABLE>
<CAPTION>
Unaudited Pro Forma Combined Condensed Statement of Income
Six months ended June 30, 1999
-------------------------------------------------------------
Pro Forma Pro Forma
FBA FB&T Adjustments Combined
--- ---- ----------- --------
(dollars expressed in thousands, except per share data)
Interest income:
<S> <C> <C> <C> <C>
Interest and fees on loans.................... $ 28,584 24,934 -- 53,518
Investment securities......................... 3,428 3,289 -- 6,717
Federal funds sold and other.................. 224 132 -- 356
---------- -------- --------- -----------
Total interest income................... 32,236 28,355 -- 60,591
---------- -------- --------- -----------
Interest expense:
Deposits:
Interest-bearing demand.................... 553 271 -- 824
Savings.................................... 3,949 4,431 -- 8,380
Time deposits of $100 or more.............. 1,640 1,540 -- 3,180
Other time deposits........................ 5,400 5,352 -- 10,752
Promissory note payable and
short-term borrowings....................... 466 395 -- 861
---------- -------- --------- -----------
Total interest expense.................. 12,008 11,989 -- 23,997
---------- -------- --------- -----------
Net interest income..................... 20,228 16,366 -- 36,594
Provision for loan losses........................ 213 950 -- 1,163
---------- -------- --------- -----------
Net interest income after
provision for loan losses............. 20,015 15,416 -- 35,431
---------- -------- --------- -----------
Noninterest income:
Service charges on deposit accounts
and customer service fees................... 1,630 1,411 -- 3,041
Gain on sales of securities, net.............. 174 311 -- 485
Other income.................................. 855 546 -- 1,401
---------- -------- --------- -----------
Total noninterest income................ 2,659 2,268 -- 4,927
---------- -------- --------- -----------
Noninterest expense:
Salaries and employee benefits................ 5,202 4,599 406 (b) 10,207
Occupancy, net of rental income............... 1,361 1,812 -- 3,173
Furniture and equipment....................... 848 724 -- 1,572
Advertising and business development.......... 163 130 -- 293
Postage, printing and supplies................ 387 257 -- 644
Data processing fees.......................... 1,556 1,172 -- 2,728
Legal, examination and professional fees...... 2,247 1,007 (406) (b) 2,848
Communications................................ 300 227 -- 527
(Gain) loss on sales of other real estate,
net of expenses............................. 7 (86) -- (79)
Amortization of intangibles associated
with the purchase of subsidiaries........... 508 525 -- 1,033
Guaranteed preferred debentures............... 1,986 -- -- 1,986
Other......................................... 1,624 1,762 -- 3,386
---------- -------- --------- -----------
Total noninterest expense............... 16,189 12,129 -- 28,318
---------- -------- --------- -----------
Income before provision for
income tax expense.................... 6,485 5,555 -- 12,040
Provision for income tax expense................. 2,795 2,410 -- 5,205
---------- -------- --------- -----------
Net income.............................. $ 3,690 3,145 -- 6,835
========== ======== ========= ===========
Earnings per common share:
Basic......................................... $ 0.65 0.67 -- 0.56
Diluted....................................... 0.64 0.67 -- 0.56
========== ======== ========= ===========
Weighted average common stock
outstanding (in thousands).................... $ 5,717 4,701 -- 12,248
========== ======== ========= ===========
Pro forma equivalent earnings per common share:
Basic......................................... $ -- -- -- 0.77
Diluted....................................... -- -- -- 0.77
========== ======== ========= ===========
</TABLE>
See notes to pro forma combined condensed financial statements.
<PAGE>
<TABLE>
<CAPTION>
Unaudited Pro Forma Combined Condensed Statement of Income
Year ended December 31, 1999
-----------------------------------------------------------
Pro Forma Pro Forma
FBA FB&T Adjustments Combined
--- ---- ----------- --------
(dollars expressed in thousands, except per share data)
Interest income:
<S> <C> <C> <C> <C>
Interest and fees on loans.................... $ 61,748 56,531 -- 118,279
Investment securities......................... 6,310 6,443 -- 12,753
Federal funds sold and other.................. 897 791 -- 1,688
---------- -------- --------- -----------
Total interest income................... 68,955 63,765 -- 132,720
---------- -------- --------- -----------
Interest expense:
Deposits:
Interest-bearing demand.................... 1,168 885 -- 2,053
Savings.................................... 8,365 8,781 -- 17,146
Time deposits of $100 or more.............. 3,513 2,770 -- 6,283
Other time deposits........................ 11,803 11,923 -- 23,726
Promissory note payable and
short-term borrowings....................... 682 1,349 -- 2,031
---------- -------- --------- -----------
Total interest expense.................. 25,531 25,708 -- 51,239
---------- -------- --------- -----------
Net interest income..................... 43,424 38,057 -- 81,481
Provision for loan losses........................ 393 3,790 -- 4,183
---------- -------- --------- -----------
Net interest income after
provision for loan losses............. 43,031 34,267 -- 77,298
---------- -------- --------- -----------
Noninterest income:
Service charges on deposit accounts
and customer service fees................... 3,264 2,946 -- 6,210
Gain on sales of securities, net.............. 174 311 -- 485
Other income.................................. 2,157 1,028 -- 3,185
---------- -------- --------- -----------
Total noninterest income................ 5,595 4,285 -- 9,880
---------- -------- --------- -----------
Noninterest expense:
Salaries and employee benefits................ 10,940 10,071 878 (b) 21,889
Occupancy, net of rental income............... 2,788 4,192 -- 6,980
Furniture and equipment....................... 1,712 1,520 -- 3,232
Advertising and business development.......... 478 341 -- 819
Postage, printing and supplies................ 818 544 -- 1,362
Data processing fees.......................... 3,214 2,356 -- 5,570
Legal, examination and professional fees...... 4,576 2,055 (878) (b) 5,753
Communications................................ 620 478 -- 1,098
Gain on sales of other real estate,
net of expenses............................. (438) (282) -- (720)
Amortization of intangibles associated
with the purchase of subsidiaries........... 1,138 1,158 -- 2,296
Guaranteed preferred debentures............... 3,966 -- -- 3,966
Other......................................... 3,018 3,200 -- 6,218
---------- -------- --------- -----------
Total noninterest expense............... 32,830 25,633 -- 58,463
---------- -------- --------- -----------
Income before provision for
income tax expense.................... 15,796 12,919 -- 28,715
Provision for income tax expense................. 6,326 5,221 -- 11,547
---------- -------- --------- -----------
Net income.............................. $ 9,470 7,698 -- 17,168
========== ======== ========= ===========
Earnings per common share:
Basic......................................... $ 1.66 1.63 -- 1.40
Diluted....................................... 1.66 1.63 -- 1.40
========== ======== ========= ===========
Weighted average common stock
outstanding (in thousands).................... $ 5,704 4,713 -- 12,235
========== ======== ========= ===========
Pro forma equivalent earnings per common share:
Basic......................................... $ -- -- -- 1.93
Diluted....................................... -- -- -- 1.93
========== ======== ========= ===========
</TABLE>
See notes to pro forma combined condensed financial statements.
<PAGE>
<TABLE>
<CAPTION>
Unaudited Pro Forma Combined Condensed Statement of Income
Year ended December 31, 1998
-------------------------------------------------------------
Pro Forma Pro Forma
FBA FB&T Adjustments Combined
--- ---- ----------- --------
(dollars expressed in thousands, except per share data)
Interest income:
<S> <C> <C> <C> <C>
Interest and fees on loans.................... $ 45,099 43,252 -- 88,351
Investment securities......................... 8,103 10,391 -- 18,494
Federal funds sold and other.................. 1,206 782 -- 1,988
---------- -------- --------- -----------
Total interest income................... 54,408 54,425 -- 108,833
---------- -------- --------- -----------
Interest expense:
Deposits:
Interest-bearing demand.................... 1,274 447 -- 1,721
Savings.................................... 6,304 8,810 -- 15,114
Time deposits of $100 or more.............. 2,932 3,796 -- 6,728
Other time deposits........................ 11,096 12,234 -- 23,330
Promissory note payable and
short-term borrowings....................... 1,603 799 -- 2,402
---------- -------- --------- -----------
Total interest expense.................. 23,209 26,086 -- 49,295
---------- -------- --------- -----------
Net interest income..................... 31,199 28,339 -- 59,538
Provision for loan losses........................ 900 850 -- 1,750
---------- -------- --------- -----------
Net interest income after
provision for loan losses............. 30,299 27,489 -- 57,788
---------- -------- --------- -----------
Noninterest income:
Service charges on deposit accounts
and customer service fees................... 2,935 2,231 -- 5,166
Gain on sales of securities, net.............. 341 358 -- 699
Other income.................................. 1,099 892 -- 1,991
---------- -------- --------- -----------
Total noninterest income................ 4,375 3,481 -- 7,856
---------- -------- --------- -----------
Noninterest expense:
Salaries and employee benefits................ 8,203 8,176 1,086 (b) 17,465
Occupancy, net of rental income............... 2,291 3,364 -- 5,655
Furniture and equipment....................... 1,708 1,441 -- 3,149
Advertising and business development.......... 616 562 -- 1,178
Postage, printing and supplies................ 752 643 -- 1,395
Data processing fees.......................... 2,042 1,696 -- 3,738
Legal, examination and professional fees...... 4,325 2,388 (1,086) (b) 5,627
Communications................................ 720 595 -- 1,315
(Gain) loss on sales of other real estate,
net of expenses............................. 34 (127) -- (93)
Amortization of intangibles associated
with the purchase of subsidiaries........... 596 450 -- 1,046
Guaranteed preferred debentures............... 1,758 -- -- 1,758
Other......................................... 3,427 3,301 -- 6,728
---------- -------- --------- -----------
Total noninterest expense............... 26,472 22,489 -- 48,961
---------- -------- --------- -----------
Income before provision for
income tax expense.................... 8,202 8,481 -- 16,683
Provision for income tax expense................. 3,592 3,539 -- 7,131
---------- -------- --------- -----------
Net income.............................. $ 4,610 4,942 -- 9,552
========== ======== ========= ===========
Earnings per common share:
Basic......................................... $ 0.90 1.05 -- 0.82
Diluted....................................... 0.90 1.05 -- 0.82
========== ======== ========= ===========
Weighted average common stock
outstanding (in thousands).................... $ 5,140 4,701 -- 11,671
========== ======== ========= ===========
Pro forma equivalent earnings per common share:
Basic......................................... $ -- -- -- 1.13
Diluted....................................... -- -- -- 1.13
========== ======== ========= ===========
</TABLE>
See notes to pro forma combined condensed financial statements.
<PAGE>
<TABLE>
<CAPTION>
Unaudited Pro Forma Combined Condensed Statement of Income
Year ended December 31, 1997
-------------------------------------------------------------
Pro Forma Pro Forma
FBA FB&T Adjustments Combined
--- ---- ----------- --------
(dollars expressed in thousands, except per share data)
Interest income:
<S> <C> <C> <C> <C>
Interest and fees on loans.................... $ 33,393 31,699 -- 65,092
Investment securities......................... 7,870 8,360 -- 16,230
Federal funds sold and other.................. 1,254 2,587 -- 3,841
---------- -------- --------- -----------
Total interest income................... 42,517 42,646 -- 85,163
---------- -------- --------- -----------
Interest expense:
Deposits:
Interest-bearing demand.................... 1,398 327 -- 1,725
Savings.................................... 3,747 4,005 -- 7,752
Time deposits of $100 or more.............. 2,144 3,090 -- 5,234
Other time deposits........................ 9,427 12,474 -- 21,901
Promissory note payable and
short-term borrowings....................... 2,439 509 -- 2,948
---------- -------- --------- -----------
Total interest expense.................. 19,155 20,405 -- 39,560
---------- -------- --------- -----------
Net interest income..................... 23,362 22,241 -- 45,603
Provision for loan losses........................ 2,000 2,000 -- 4,000
---------- -------- --------- -----------
Net interest income after
provision for loan losses............. 21,362 20,241 -- 41,603
---------- -------- --------- -----------
Noninterest income:
Service charges on deposit accounts
and customer service fees................... 2,239 1,781 -- 4,020
Gain on sales of securities, net.............. 76 -- -- 76
Other income.................................. 972 401 -- 1,373
---------- -------- --------- -----------
Total noninterest income................ 3,287 2,182 -- 5,469
---------- -------- --------- -----------
Noninterest expense:
Salaries and employee benefits................ 6,226 5,567 709 (b) 12,502
Occupancy, net of rental income............... 2,166 3,045 -- 5,211
Furniture and equipment....................... 1,149 1,023 -- 2,172
Advertising and business development.......... 234 195 -- 429
Postage, printing and supplies................ 496 490 -- 986
Data processing fees.......................... 1,084 710 -- 1,794
Legal, examination and professional fees...... 3,241 1,139 (709) (b) 3,671
Communications................................ 673 490 -- 1,163
Gain on sales of other real estate,
net of expenses............................. (350) (404) -- (754)
Amortization of intangibles associated
with the purchase of subsidiaries........... 220 (38) -- 182
Other......................................... 2,538 2,415 -- 4,953
---------- -------- --------- -----------
Total noninterest expense............... 17,677 14,632 -- 32,309
---------- -------- --------- -----------
Income before provision for income
tax expense and minority interest
in income of subsidiary............... 6,972 7,791 -- 14,763
Provision for income tax expense................. 3,145 1,111 -- 4,256
---------- -------- --------- -----------
Income before minority interest
in income of subsidiary............... 3,827 6,680 -- 10,507
Minority interest in income of subsidiary........ 294 -- -- 294
---------- -------- --------- -----------
Net income.............................. $ 3,533 6,680 -- 10,213
========== ======== ========= ===========
Earnings per common share:
Basic......................................... $ 0.87 1.42 -- 0.96
Diluted....................................... 0.86 1.42 -- 0.96
========== ======== ========= ===========
Weighted average common stock
outstanding (in thousands).................... $ 4,069 4,701 -- 10,600
========== ======== ========= ===========
Pro forma equivalent earnings per common share:
Basic......................................... $ -- -- -- 1.33
Diluted....................................... -- -- -- 1.33
========== ======== ========= ===========
</TABLE>
See notes to pro forma combined condensed financial statements.
<PAGE>
Notes to Pro Forma Combined Condensed Financial Statements
(a) Stockholders' equity has been adjusted to reflect the merger of
FBA and FB&T for the issuance of 6,530,769 shares of FBA common
stock to First Banks in exchange for 4,725,396 shares of FB&T
common stock owned by First Banks, resulting in an exchange ratio
equivalent to 1.3821.
(b) Salaries and employee benefits and legal, examination and
professional fees have been adjusted to reflect the elimination of
intercompany transactions under the cost sharing agreements
between FBA and First Banks. These cost sharing agreements are
further discussed in Note 11 to FB&T's accompanying financial
statements.
<PAGE>
FINANCIAL STATEMENTS OF FIRST BANK & TRUST
FIRST BANK & TRUST
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholder
First Bank & Trust:
We have audited the accompanying balance sheet of First Bank & Trust
(the Company) as of December 31, 1999, and the related statements of income,
changes in stockholder's equity and comprehensive income, and cash flows for the
year ended December 31, 1999. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of First Bank & Trust
as of December 31, 1999, and the results of its operations and its cash flows
for the year ended December 31, 1999 in conformity with generally accepted
accounting principles.
/s/ KPMG LLP
------------
St. Louis, Missouri
August 4, 2000
<PAGE>
FIRST BANK & TRUST
BALANCE SHEETS
(dollars expressed in thousands, except per share data)
<TABLE>
<CAPTION>
June 30, December 31,
-------- -----------------------
2000 1999 1998
---- ---- ----
(unaudited) (unaudited)
ASSETS
------
Cash and cash equivalents:
<S> <C> <C> <C>
Cash and due from banks.............................................. $ 38,349 26,987 34,037
Interest-bearing deposits with other financial institutions
with maturities of three months or less........................... 921 1,043 2,573
Federal funds sold................................................... 12,700 27,500 12,300
----------- ---------- ---------
Total cash and cash equivalents................................. 51,970 55,530 48,910
----------- ---------- ---------
Investment securities:
Available for sale, at fair value.................................... 97,214 103,636 134,203
----------- ---------- ---------
Loans:
Commercial and financial............................................. 226,126 211,182 195,027
Real estate construction and development............................. 185,462 172,251 129,835
Real estate mortgage................................................. 373,941 334,429 239,456
Consumer and installment............................................. 15,919 20,597 10,230
----------- ---------- ---------
Total loans..................................................... 801,448 738,459 574,548
Unearned discount.................................................... (2,222) (1,631) (986)
Allowance for loan losses............................................ (16,988) (15,581) (12,820)
----------- ---------- ---------
Net loans....................................................... 782,238 721,247 560,742
----------- ---------- ---------
Bank premises and equipment, net of accumulated depreciation............. 13,813 13,284 9,480
Intangibles associated with the purchase of
assets and the assumption of liabilities............................. 15,067 15,764 12,282
Accrued interest receivable.............................................. 7,055 6,269 5,495
Other real estate ....................................................... 220 329 774
Deferred tax assets...................................................... 15,719 14,717 8,131
Other assets............................................................. 17,245 13,453 12,964
----------- ---------- ---------
Total assets.................................................... $1,000,541 944,229 792,981
=========== ========== =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
FIRST BANK & TRUST
BALANCE SHEETS, CONTINUED
(dollars expressed in thousands, except per share data)
<TABLE>
<CAPTION>
June 30, December 31,
-------- -----------------------
2000 1999 1998
---- ---- ----
(unaudited) (unaudited)
LIABILITIES
-----------
Deposits:
Demand:
<S> <C> <C> <C>
Non-interest-bearing .............................................. $ 193,815 172,997 136,261
Interest-bearing................................................... 61,951 72,185 42,294
Savings.............................................................. 299,435 229,856 237,326
Time deposits:
Time deposits of $100 or more...................................... 91,767 94,526 71,429
Other time deposits................................................ 228,080 235,412 214,096
----------- ---------- ---------
Total deposits.................................................. 875,048 804,976 701,406
Short-term borrowings.................................................... 16,913 29,617 9,915
Accrued interest payable................................................. 1,809 1,721 672
Deferred tax liabilities................................................. 1,700 1,122 1,263
Accrued expenses and other liabilities................................... 3,490 4,779 4,560
----------- ---------- ---------
Total liabilities............................................... 898,960 842,215 717,816
----------- ---------- ---------
STOCKHOLDER'S EQUITY
--------------------
Common stock, $5.00 stated value; 20,000,000 shares authorized;
4,725,396 shares issued and outstanding at June 30, 2000
and December 31, 1999; 4,700,796 shares
issued and outstanding at December 31, 1998 ......................... 23,627 23,627 23,504
Capital surplus.......................................................... 69,086 69,086 44,345
Retained earnings........................................................ 9,727 9,934 6,236
Accumulated other comprehensive (loss) income............................ (859) (633) 1,080
----------- ---------- ---------
Total stockholder's equity...................................... 101,581 102,014 75,165
----------- ---------- ---------
Total liabilities and stockholder's equity...................... $1,000,541 944,229 792,981
=========== ========== =========
</TABLE>
<PAGE>
FIRST BANK & TRUST
STATEMENTS OF INCOME
(dollars expressed in thousands, except per share data)
<TABLE>
<CAPTION>
Six months ended Years ended
June 30, December 31,
-------------------- -------------------------
2000 1999 1999 1998 1997
---- ---- ---- ---- ----
(unaudited) (unaudited)
Interest income:
<S> <C> <C> <C> <C> <C>
Interest and fees on loans................................... $ 35,236 24,934 56,531 43,252 31,699
Investment securities........................................ 3,175 3,289 6,443 10,391 8,360
Federal funds sold and other................................. 894 132 791 782 2,587
-------- ------- ------- ------- -------
Total interest income................................... 39,305 28,355 63,765 54,425 42,646
-------- ------- ------- ------- -------
Interest expense:
Deposits:
Interest-bearing demand.................................... 500 271 885 447 327
Savings.................................................... 6,208 4,431 8,781 8,810 4,005
Time deposits of $100 or more.............................. 824 1,540 2,770 3,796 3,090
Other time deposits........................................ 7,811 5,352 11,923 12,234 12,474
Short-term borrowings........................................ 520 395 1,349 799 509
-------- ------- ------- ------- -------
Total interest expense.................................. 15,863 11,989 25,708 26,086 20,405
-------- ------- ------- ------- -------
Net interest income..................................... 23,442 16,366 38,057 28,339 22,241
Provision for loan losses........................................ 740 950 3,790 850 2,000
-------- ------- ------- ------- -------
Net interest income after
provision for loan losses............................. 22,702 15,416 34,267 27,489 20,241
-------- ------- ------- ------- -------
Noninterest income:
Service charges on deposit accounts
and customer service fees.................................. 1,695 1,411 2,946 2,231 1,781
Gains on sales of securities, net............................ 556 311 311 358 --
Other income................................................. 786 546 1,028 892 401
-------- ------- ------- ------- -------
Total noninterest income................................ 3,037 2,268 4,285 3,481 2,182
-------- ------- ------- ------- -------
Noninterest expense:
Salaries and employee benefits............................... 5,675 4,599 10,071 8,176 5,567
Occupancy, net of rental income.............................. 2,287 1,812 4,192 3,364 3,045
Furniture and equipment...................................... 877 724 1,520 1,441 1,023
Advertising and business development......................... 220 130 341 562 195
Postage, printing and supplies............................... 366 257 544 643 490
Data processing fees......................................... 1,406 1,172 2,356 1,696 710
Legal, examination and professional fees..................... 1,297 1,007 2,055 2,388 1,139
Communications............................................... 224 227 478 595 490
Gain on sales of other real estate, net of expenses.......... (122) (86) (282) (127) (404)
Amortization of intangibles associated
with the purchase of assets and
the assumption of liabilities.............................. 696 525 1,158 450 (38)
Other........................................................ 1,528 1,762 3,200 3,301 2,415
-------- ------- ------- ------- -------
Total noninterest expense............................... 14,454 12,129 25,633 22,489 14,632
-------- ------- ------- ------- -------
Income before provision for income tax expense.......... 11,285 5,555 12,919 8,481 7,791
Provision for income tax expense................................. 4,492 2,410 5,221 3,539 1,111
-------- ------- ------- ------- -------
Net income ............................................. $ 6,793 3,145 7,698 4,942 6,680
======== ======= ======= ======= =======
Earnings per common share:
Basic........................................................ $ 1.44 0.67 1.63 1.05 1.42
Diluted...................................................... 1.44 0.67 1.63 1.05 1.42
======== ======= ======= ======= =======
Weighted average common stock outstanding (in thousands)......... 4,725 4,701 4,713 4,701 4,701
======== ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
FIRST BANK & TRUST
STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY AND COMPREHENSIVE INCOME
Six months ended June 30, 2000 and three years ended December 31, 1999
(dollars expressed in thousands, except per share data)
<TABLE>
<CAPTION>
Accu-
mulated
other
compre- Total
Compre- hensive stock-
Common Capital hensive Retained income holders'
stock surplus income earnings (loss) equity
----- ------- ------ -------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Balances, January 1, 1997 (unaudited)................... $23,504 25,089 114 70 48,777
Year ended December 31, 1997 (unaudited):
Comprehensive income:
Net income.......................................... -- -- 6,680 6,680 -- 6,680
Other comprehensive income, net of tax-
unrealized gains on securities, net
of reclassification adjustment(1)................ -- -- 481 -- 481 481
------
Comprehensive income................................ 7,161
======
Dividends paid ...................................... -- -- (1,500) -- (1,500)
------ ------ ------ ------ -------
Balances, December 31, 1997 (unaudited)................. 23,504 25,089 5,294 551 54,438
Year ended December 31, 1998 (unaudited):
Comprehensive income:
Net income.......................................... -- -- 4,942 4,942 -- 4,942
Other comprehensive income, net of tax-
unrealized gains on securities, net
of reclassification adjustment(1)................. -- -- 529 -- 529 529
------
Comprehensive income................................ 5,471
======
Merger of Republic Bank.............................. -- 19,256 -- -- 19,256
Dividends paid....................................... -- -- (4,000) -- (4,000)
------ ------ ------ ------ -------
Balances, December 31, 1998 (unaudited)................. 23,504 44,345 6,236 1,080 75,165
Year ended December 31, 1999:
Comprehensive income:
Net income.......................................... -- -- 7,698 7,698 -- 7,698
Other comprehensive income, net of tax-
unrealized losses on securities, net
of reclassification adjustment(1)................. -- -- (1,713) -- (1,713) (1,713)
------
Comprehensive income................................ 5,985
======
Merger of Century Bank............................... -- 21,500 -- -- 21,500
Capital contribution from First Banks................ -- 3,000 -- -- 3,000
Merger of CCB Bancorp, Inc........................... 123 241 -- -- 364
Dividends paid....................................... -- -- (4,000) -- (4,000)
------ ------ ------ ------ -------
Balances, December 31, 1999............................. 23,627 69,086 9,934 (633) 102,014
Six months ended June 30, 2000 (unaudited):
Comprehensive income:
Net income.......................................... -- -- 6,793 6,793 -- 6,793
Other comprehensive income, net of tax-
unrealized losses on securities, net
of reclassification adjustment(1)................. -- -- (226) -- (226) (226)
------
Comprehensive income................................ 6,567
======
Dividends paid....................................... -- -- (7,000) -- (7,000)
------ ------ ------ ------ -------
Balances, June 30, 2000 (unaudited)..................... $23,627 69,086 9,727 (859) 101,581
======= ====== ====== ====== =======
</TABLE>
<PAGE>
(1) Disclosure of reclassification adjustment:
<TABLE>
<CAPTION>
Six months ended June 30, Three years ended December 31,
------------------------- ------------------------------
2000 1999 1999 1998 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Unrealized gains (losses) arising during the period............... $ 135 (1,098) (1,511) 762 485
Less reclassification adjustment for gains included in net income. 361 202 202 233 4
------- ------- ------ ----- -----
Unrealized (losses) gains on investment securities................ $ (226) (1,300) (1,713) 529 481
======= ======= ====== ===== =====
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
FIRST BANK & TRUST
STATEMENTS OF CASH FLOWS
(dollars expressed in thousands)
<TABLE>
<CAPTION>
Six months ended Years ended
June 30, December 31,
-------------------- --------------------------
2000 1999 1999 1998 1997
---- ---- ---- ---- ----
(unaudited) (unaudited)
Cash flows from operating activities:
<S> <C> <C> <C> <C> <C>
Net income................................................... $ 6,793 3,145 7,698 4,942 6,680
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation, amortization and accretion, net............ 1,370 1,315 3,133 1,822 (254)
Provision for loan losses................................ 740 950 3,790 850 2,000
Provision for income tax expense......................... 4,492 2,410 5,221 3,539 1,111
Payments of income taxes................................. (5,046) (2,268) (4,810) (3,934) (1,465)
Gains on sales of investment securities, net............. (556) (311) (311) (358) --
(Increase) decrease in accrued interest receivable....... (786) 124 165 159 (2,171)
Interest accrued on liabilities.......................... 15,863 11,989 25,708 26,086 20,405
Payments of interest on liabilities...................... (15,775) (11,574) (25,175) (27,023) (20,374)
Other operating activities, net.......................... (4,673) (279) (1,740) (740) (1,539)
-------- ------- -------- -------- --------
Net cash provided by operating activities.......... 2,422 5,501 13,679 5,343 4,393
-------- ------- -------- -------- --------
Cash flows from investing activities:
Cash received for acquired and merged entities,
net of cash and cash equivalents paid...................... -- -- 43,786 29,653 81,531
Proceeds from sales of investment securities................. 5,346 31,333 30,631 52,572 --
Maturities of investment securities.......................... 10,231 9,208 23,535 100,415 120,537
Purchases of investment securities........................... (8,950) (94) (172) (54,497) (262,936)
Net increase in loans........................................ (63,912) (16,461) (68,582) (90,435) (80,559)
Recoveries of loans previously charged-off................... 1,961 917 3,124 1,803 3,337
Purchases of bank premises and equipment..................... (1,200) (461) (3,898) (4,259) (1,605)
Proceeds from sales of other real estate..................... 451 924 2,002 1,456 3,787
Other investing activities, net.............................. (277) (219) (489) (200) (9,542)
-------- ------- -------- -------- --------
Net cash (used in) provided by investing activities (56,350) 25,147 29,937 36,208 (145,450)
-------- ------- -------- -------- --------
Cash flows from financing activities:
Other (decreases) increases in deposits:
Demand and savings deposits................................ 80,163 (16,905) (22,206) 33,221 116,844
Time deposits.............................................. (10,091) (38,038) (23,492) (63,054) (1,406)
(Decrease) increase in short-term borrowings................. (12,704) 14,275 19,702 (4,589) (2,618)
Capital contributions from First Banks....................... -- -- 3,000 -- --
Capital distribution from Century Bank to First Banks........ -- -- (10,000) -- --
Dividends paid............................................... (7,000) (2,500) (4,000) (4,000) (1,500)
-------- ------- -------- -------- --------
Net cash provided by (used in)
financing activities............................. 50,368 (43,168) (36,996) (38,422) 111,320
-------- ------- -------- --------- --------
Net (decrease) increase in cash
and cash equivalents............................. (3,560) (12,520) 6,620 3,129 29,737
Cash and cash equivalents, beginning of period................... 55,530 48,910 48,910 45,781 75,518
-------- ------- -------- -------- --------
Cash and cash equivalents, end of period ........................ $ 51,970 36,390 55,530 48,910 45,781
======== ======= ======== ======== ========
Noncash investing and financing activities:
Merger of Century Bank....................................... $ -- -- 21,500 -- --
Merger of Republic Bank...................................... -- -- -- 19,256 --
Merger of CCB Bancorp, Inc................................... -- -- 364 -- --
Loans transferred to other real estate....................... 220 104 1,275 -- 1,666
======== ======= ======= ======== =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
FIRST BANK & TRUST
NOTES TO FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements of First Bank & Trust (FB&T or
the Company) have been prepared in accordance with generally accepted accounting
principles and conform to practices prevalent among financial institutions. The
following is a summary of the more significant accounting policies followed by
FB&T:
Basis of Presentation. The financial statements of FB&T have been
prepared in accordance with generally accepted accounting principles and conform
to predominant practices within the banking industry. Management of FB&T 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 financial statements in conformity with generally accepted
accounting principles. Actual results could differ from those estimates. The
downstream merger of CCB Bancorp, Inc. (CCB) with and into FB&T has been
reflected in the statement of stockholder's equity and comprehensive income, and
reflects FB&T's issuance of common stock in exchange for the net assets of CCB.
While this transaction qualifies as a combination of entities under common
control, the financial statements have not been restated to reflect the
historical financial results of CCB as it did not have substantive business
operations. The financial statements and amounts presented as of and for the
year ended December 31, 1999 have been audited. The financial statements and
amounts presented as of and for the years ended December 31,1998 and 1997 are
unaudited.
Organization. FB&T is wholly owned by First Banks, Inc, a multi-bank
holding company headquartered in St. Louis, Missouri (First Banks). Accordingly,
First Banks has effective control over the management and policies of FB&T and
the election of its directors. Previously, FB&T was owned by CCB, a second-tier,
single-bank holding company that was 100% owned by First Banks. On July 7, 1999,
First Banks completed a downstream merger of CCB with and into FB&T. FB&T
operates 26 banking locations in the counties of Los Angeles, Orange, Ventura
and Santa Barbara, California, as well as branches in San Jose and Walnut Creek,
in Northern California. The banking operations at the branch locations are all
similar and are treated as one business segment.
Cash and Cash Equivalents. Cash, due from banks, federal funds sold,
and interest-bearing deposits with maturities of three months or less are
considered to be cash and cash equivalents for purposes of the statements of
cash flows.
FB&T is required to maintain certain daily reserve balances in
accordance with regulatory requirements. These reserve balances maintained in
accordance with such requirements were $430,000 and $11.1 million at December
31, 1999 and 1998, respectively.
Investment Securities. The classification of investment securities as
available for sale or held to maturity is determined at the date of purchase.
FB&T does not engage in the trading of investment securities.
Investment securities designated as available for sale are those debt
and equity securities for which FB&T has no immediate plan to sell, but which
may be sold in the future if circumstances warrant. Available-for-sale
securities are stated at current fair value. Realized gains and losses are
included in noninterest income upon commitment to sell, based on the amortized
cost of the individual security sold. Unrealized gains and losses are recorded,
net of related income tax effects, in accumulated other comprehensive income.
All previous fair value adjustments included in accumulated other comprehensive
income are reversed upon sale.
Investment securities designated as held to maturity are those debt
securities that FB&T has the positive intent and ability to hold until maturity.
Held-to-maturity securities are stated at amortized cost, in which the
amortization of premiums and accretion of discounts are recognized over the
contractual maturities or estimated lives of the individual securities, adjusted
for anticipated prepayments, using the level-yield method.
Loans. Loans are carried at cost, adjusted for amortization of premiums
and accretion of discounts using the interest method. Interest and fees on loans
are recognized as income using the interest method. Loan origination fees are
deferred and accreted over the estimated life of the loans using the interest
method. Loans are stated at cost as FB&T has the ability and it is management's
intention to hold them to maturity.
The accrual of interest on loans is discontinued when it appears that
interest or principal may not be paid in a timely manner in the normal course of
business. Generally, payments received on nonaccrual and impaired loans are
recorded as principal reductions. Interest income is recognized after all
principal has been repaid or an improvement in the condition of the loan has
occurred which would warrant resumption of interest accruals.
<PAGE>
A loan is considered impaired when it is probable that FB&T will be
unable to collect all amounts due, both principal and interest, according to the
contractual terms of the loan agreement. When measuring impairment, the expected
future cash flows of an impaired loan are discounted at the loan's effective
interest rate. Alternatively, impairment is measured by reference to an
observable market price, if one exists, or the fair value of the collateral for
a collateral-dependent loan. Regardless of the historical measurement method
used, FB&T measures impairment based on the fair value of the collateral when
foreclosure is probable. Additionally, impairment of a restructured loan is
measured by discounting the total expected future cash flows at the loan's
effective rate of interest as stated in the original loan agreement. FB&T uses
its existing nonaccrual methods for recognizing interest income on impaired
loans.
Allowance for Loan Losses. The allowance for loan losses is maintained
at a level considered adequate to provide for losses. The provision for loan
losses is based on a periodic analysis of the loans by management, considering,
among other factors, current economic conditions, loan portfolio composition,
past loan loss experience, independent appraisals, loan collateral and payment
experience. In addition to the allowance for estimated losses on impaired loans,
an overall unallocated allowance is established to provide for unidentified
credit losses which are inherent in the portfolio. As changes become necessary,
they are reflected in the statements of income in the periods in which they
become known.
Bank Premises and Equipment. Bank premises and equipment are stated at
cost less accumulated depreciation and amortization. Depreciation is computed
primarily using the straight-line method over the estimated useful lives of the
related assets. Amortization of leasehold improvements is calculated using the
straight-line method over the shorter of the useful life of the improvement or
term of the lease. Bank premises and improvements are depreciated over five to
40 years and equipment over three to seven years.
Intangibles Associated With the Purchase of Assets and the Assumption
of Liabilities. Intangibles associated with the purchase of assets and the
assumption of liabilities include the excess of cost over net assets acquired.
The excess of cost over net assets acquired is amortized using the straight-line
method over the estimated periods to be benefited, which has generally been
estimated at 15 years.
Other Real Estate. Other real estate, consisting of real estate
acquired through foreclosure or deed in lieu of foreclosure, is stated at the
lower of cost or fair value less applicable selling costs. The excess of cost
over fair value of the property at the date of acquisition is charged to the
allowance for loan losses. Subsequent reductions in carrying value, to reflect
current fair value or costs incurred in maintaining the properties, are charged
to expense as incurred.
Income Taxes. FB&T joins in filing a consolidated federal income tax
and unitary or consolidated state income tax returns in California, Illinois and
Missouri with First Banks and its eligible subsidiaries. FB&T pays its
allocation of federal income taxes to First Banks, or receives payment from
First Banks to the extent tax benefits are realized.
Financial Instruments. A financial instrument is defined as cash,
evidence of an ownership interest in an entity, or a contract that conveys or
imposes on an entity the contractual right or obligation to either receive or
deliver cash or another financial instrument.
Financial Instruments With Off-Balance-Sheet Risk. FB&T uses financial
instruments to reduce the interest rate risk arising from its financial assets
and liabilities. These instruments involve, in varying degrees, elements of
interest rate risk and credit risk in excess of the amount recognized in the
balance sheets. "Interest rate risk" is defined as the possibility that interest
rates may move unfavorably from the perspective of FB&T. The risk that a
counterparty to an agreement entered into by FB&T may default is defined as
"credit risk."
FB&T is party to commitments to extend credit and commercial and
standby letters of credit in the normal course of business to meet the financing
needs of its customers. These commitments involve, in varying degrees, elements
of interest rate risk and credit risk in excess of the amount recognized in the
balance sheets.
Interest Rate Swap Agreements. Interest rate swap agreements are
accounted for on an accrual basis with the net interest differential being
recognized as an adjustment to interest income of the related asset. Premiums
and fees paid upon the purchase of interest rate swap agreements are amortized
over the life of the agreements using the interest method. 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
of the interest rate swap agreement or the maturity of the related asset. If,
however, the amount of the underlying asset is repaid, then the gains or losses
on the agreements are recognized immediately in the statements of income.
<PAGE>
Earnings Per Common Share. Basic earnings per common share (EPS) is
computed by dividing the income available to common stockholders (the numerator)
by the weighted average number of common shares outstanding (the denominator)
during the year. The computation of diluted EPS is similar except the
denominator is increased to include the number of additional common shares that
would have been outstanding if the dilutive potential shares had been issued. In
addition, in computing the dilutive effect of convertible securities, the
numerator is adjusted to add back (a) any convertible preferred dividends and
(b) the after-tax amount of interest recognized in the period associated with
any convertible debt. FB&T has no potentially dilutive securities.
(2) ACQUISITIONS
During 1997, FB&T completed its assumption of the deposits and purchase
of selected assets of three banking locations of Highland Federal Savings Bank,
F.S.B. The transaction resulted in the acquisition of $82.8 million in deposits.
The excess of the cost over the fair value of the net assets acquired was $1.4
million and is being amortized over 10 years.
During March, 1998, FB&T completed its assumption of the deposits and
purchase of selected assets of the Solvang, California banking location of Bank
of America. The transaction resulted in the acquisition of approximately $15.5
million in deposits and one branch office. The excess of the cost over the fair
value of the net assets acquired was $1.8 million and is being amortized over 15
years.
During September, 1998, First Banks completed its acquisition of
Republic Bank, Torrance, California, in exchange for $19.3 million in cash. Upon
consummation of the acquisition, Republic Bank was immediately merged into FB&T.
On August 31, 1999, First Banks completed its acquisition of Century
Bank, Beverly Hills, California, in exchange for $31.5 million in cash. Century
Bank was merged into FB&T, effective December 31, 1999.
On September 17, 1999, FB&T completed its assumption of the deposits
and certain liabilities and the purchase of selected assets of the Malibu,
California branch office of Brentwood Bank of California. The transaction
resulted in the acquisition of approximately $17.3 million of deposits and one
branch office. The excess of the cost over the fair value of the net assets
acquired was $325,000 and is being amortized over 15 years.
(3) INVESTMENTS IN DEBT AND EQUITY SECURITIES
Securities Available for Sale. The amortized cost, contractual
maturity, gross unrealized gains and losses and fair value of investment
securities available for sale at December 31, 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
Maturity Total
---------------------------------------
After amor- Gross Weighted
1 Year 1-5 5-10 10 tized unrealized Fair average
-------------
or less years years years cost Gains Losses value yield
------- ----- ----- ----- ---- ----- ------ ----- -----
(dollars expressed in thousands)
December 31, 1999:
Carrying value:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury............... $ -- 20,033 -- -- 20,033 38 (17) 20,054 6.20%
U.S. Government agencies
and corporations:
Mortgage-backed....... 590 -- 2,136 21,590 24,316 -- (455) 23,861 6.42
Other................... 39,359 4,968 6,585 3,490 54,402 -- (825) 53,577 5.99
Foreign debt securities..... 2,995 -- -- -- 2,995 286 -- 3,281 9.42
Federal Home Loan Bank stock
(no stated maturity)........ 2,863 -- -- -- 2,863 -- -- 2,863 5.47
--------- -------- ------- ------- ------- ----- ----- ------
Total................. $ 45,807 25,001 8,721 25,080 104,609 324 (1,297) 103,636 6.22
========= ======== ======= ======= ======= ===== ====== =======
Market value:
Debt securities............. $ 43,148 24,998 8,297 24,330
Equity securities........... 2,863 -- -- --
--------- -------- ------- -------
Total................. $ 46,011 24,998 8,297 24,330
========= ======== ======= =======
Weighted average yield......... 6.11% 6.20% 6.34% 6.53%
========== ========= ======== ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
December 31, 1998:
Carrying value:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury............... $ 1,201 45,493 -- -- 46,694 1,120 -- 47,814 6.03%
U.S. Government agencies
and corporations:
Mortgage-backed....... -- 1,330 2,550 28,925 32,805 167 (40) 32,932 6.40
Other................... 8,515 30,075 7,494 3,490 49,574 398 (11) 49,961 5.87
Federal Home Loan Bank stock
(no stated maturity).... 3,496 -- -- -- 3,496 -- -- 3,496 6.50
--------- -------- ------- ------- ------- ----- ----- ------
Total................. $ 13,212 76,898 10,044 32,415 132,569 1,685 (51) 134,203 6.07
========= ======== ======= ======= ======= ===== ===== =======
Market value:
Debt securities............. $ 9,736 78,357 10,081 32,533
Equity securities........... 3,496 -- -- --
--------- -------- ------- -------
Total................. $ 13,232 78,357 10,081 32,533
========= ======== ======= =======
Weighted average yield......... 5.56% 5.98% 6.38% 6.40%
========== ========= ======== ========
</TABLE>
Proceeds from sales of available-for-sale investment securities were
$30.6 million and $52.6 million for the years ended December 31, 1999 and 1998,
respectively. Gross gains of $311,000 and $358,000 were realized on those sales
for the years ended December 31, 1999 and 1998, respectively. There were no
losses realized on those sales for the years ended December 31, 1999 and 1998.
There were no sales of available-for-sale investment securities in 1997.
FB&T maintains an investment in the Federal Home Loan Bank (FHLB). This
investment is recorded at cost, which represents redemption value. The
investment in FHLB stock is maintained at a minimum amount equal to the greater
of 1% of the aggregate outstanding balance of loans secured by residential real
estate, or 5% of advances from the FHLB.
Investment securities with a carrying value of approximately $25.2
million and $53.8 million at December 31, 1999 and 1998, respectively, were
pledged in connection with deposits of public and trust funds, securities sold
under agreements to repurchase and for other purposes as required by law.
(4) LOANS AND ALLOWANCE FOR LOAN LOSSES
Changes in the allowance for loan losses for the years ended December
31 were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
(dollars expressed in thousands)
<S> <C> <C> <C>
Balance, January 1........................................... $12,820 9,179 8,412
Acquired allowance for loan losses........................... 1,542 2,315 --
------- ------- -------
14,362 11,494 8,412
------- ------- -------
Loans charged-off............................................ (5,695) (1,327) (4,570)
Recoveries of loans previously charged-off................... 3,124 1,803 3,337
------- ------- -------
Net (charge-offs) recoveries............................. (2,571) 476 (1,233)
------- ------- -------
Provision charged to operations.............................. 3,790 850 2,000
------- ------- -------
Balance, December 31......................................... $15,581 12,820 9,179
======= ======= =======
</TABLE>
At December 31, 1999 and 1998, FB&T had $9.9 million and $11.6 million,
respectively, of loans on nonaccrual status. Interest on nonaccrual loans which
would have been recorded under the original terms of the loans was $1.7 million,
$874,000 and $842,000 for the years ended December 31, 1999, 1998 and 1997,
respectively. Of these amounts, $746,000, $701,000 and $660,000 was actually
recorded as interest income on such loans in 1999, 1998 and 1997, respectively.
At December 31, 1999 and 1998, FB&T had $12.9 million and $16.4 million
of impaired loans, including $9.9 million and $11.6 million of loans on
nonaccrual status, respectively. At December 31, 1999 and 1998, impaired loans
also include $3.0 million and $4.8 million of restructured loans. The allowance
for loan losses included an allocation of approximately $2.8 million and $3.3
million related to impaired loans at December 31, 1999 and 1998, respectively.
The average recorded investment in impaired loans was $15.0 million, $10.7
million and $13.5 million for the years ended December 31, 1999, 1998 and 1997,
respectively. The amount of interest income recognized using a cash basis method
of accounting during the time those loans were impaired was $989,000, $1.2
million and $1.1 million in 1999, 1998 and 1997, respectively.
<PAGE>
Real estate lending constituted the only significant concentration of
credit risk. Real estate loans comprised approximately 68.8% and 64.4% of the
loan portfolio at December 31, 1999 and 1998, respectively.
FB&T is, in general, a secured lender. At December 31, 1999 and 1998,
approximately 96.6% and 94.0%, respectively, of the loan portfolio was secured.
Collateral is required in accordance with the normal credit evaluation process
based upon the creditworthiness of the customer and the credit risk associated
with the particular transaction.
(5) BANK PREMISES AND EQUIPMENT
Bank premises and equipment were comprised of the following at December
31:
<TABLE>
<CAPTION>
1999 1998
---- ----
(dollars expressed in thousands)
<S> <C> <C>
Land...................................................................... $ 2,650 1,065
Buildings and improvements................................................ 12,985 10,020
Furniture, fixtures and equipment......................................... 7,991 6,184
Construction in progress.................................................. 366 336
-------- -------
Total............................................................... 23,992 17,605
Less accumulated depreciation ............................................ 10,708 8,125
-------- -------
Bank premises and equipment, net.................................... $ 13,284 9,480
======== =======
</TABLE>
Depreciation expense for the years ended December 31, 1999, 1998 and
1997 totaled $1.9 million, $798,000 and $586,000, respectively.
FB&T leases land, office properties and some items of equipment under
operating leases. Certain of the leases contain renewal options and escalation
clauses. Total rent expense was $2.9 million, $2.6 million and $2.4 million for
the years ended December 31, 1999, 1998 and 1997, respectively. Future minimum
lease payments under noncancellable operating leases extend through 2010 as
follows:
<TABLE>
<CAPTION>
(dollars expressed in thousands)
Year ending December 31:
<S> <C> <C>
2000..................................................... $ 3,634
2001..................................................... 2,800
2002..................................................... 2,309
2003..................................................... 2,206
2004..................................................... 1,840
Thereafter............................................... 3,404
--------
Total future minimum lease payments............ $ 16,193
========
</TABLE>
FB&T leases to unrelated parties a portion of its owned banking
facilities. Total rental income was $658,000, $296,000 and $281,000 for the
years ended December 31, 1999, 1998 and 1997, respectively.
(6) SHORT-TERM BORROWINGS
Short-term borrowings were comprised of the following at December 31:
<TABLE>
<CAPTION>
1999 1998
---- ----
(dollars expressed in thousands)
<S> <C>
Federal funds purchased.............................................. $ 19,300 --
Securities sold under agreements to repurchase....................... 9,773 9,371
FHLB borrowings...................................................... 544 544
--------- --------
Short-term borrowings............................................ $ 29,617 9,915
========= ========
</TABLE>
The average balance of short-term borrowings was $27.2 million and
$16.7 million, respectively, and the maximum month-end balance of short-term
borrowings was $51.5 million and $35.9 million, respectively, for the years
ended December 31, 1999 and 1998. The average rates paid on short-term
borrowings during the years ended December 31, 1999, 1998 and 1997 were 4.96%,
4.78% and 4.35%, respectively. The assets underlying the short-term borrowings
are under FB&T's control.
<PAGE>
(7) INCOME TAXES
Income tax expense (benefit) attributable to income from continuing
operations for the years ended December 31 consists of:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
(dollars expressed in thousands)
Current income tax expense:
<S> <C> <C> <C>
Federal................................................ $ 4,044 2,798 (268)
State.................................................. 1,047 773 305
------- ------ ------
Deferred income tax expense:
Federal................................................ 216 (93) 2,941
State.................................................. 217 136 33
------- ------ ------
Change in valuation allowance............................... (303) (75) (1,900)
------- ------ ------
Total.................................................. $ 5,221 3,539 1,111
======= ====== ======
</TABLE>
The effective rates of federal income taxes for the years ended
December 31 differ from statutory rates of taxation as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------------- -------------------- ----------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
(dollars expressed in thousands)
Income before provision for
<S> <C> <C> <C> <C>
income tax expense.......... $ 12,919 $8,481 <C> $ 7,791
======== ====== =======
Tax expense at federal
income tax rate............. $ 4,522 35.0% 2,968 35.0% 2,727 35.0%
Effects of differences in
tax reporting:
State income taxes............. 821 6.4 591 7.0 220 2.8
Change in the deferred tax
valuation allowance......... (303) (2.3) (75) (0.9) (1,900) (24.4)
Amortization of intangibles
associated with the purchase
of assets and the assumption
of liabilities.............. 186 1.4 (27) (0.3) (40) (0.5)
Other.......................... (5) (0.1) 82 0.9 104 1.4
--------- ------ ------ ----- ------- -----
Income tax expense
at effective rate......... $ 5,221 40.4% $3,539 41.7% $ 1,111 14.3%
======== ====== ====== ===== ======= =====
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are as follows:
<TABLE>
<CAPTION>
December 31,
-------------------
1999 1998
---- ----
(dollars expressed in thousands)
Deferred tax assets:
<S> <C> <C>
Net operating loss carryforwards............................................. $ 14,668 5,194
Allowance for loan losses.................................................... 6,149 4,439
Alternative minimum tax credit............................................... 916 916
Depreciation on bank premises and equipment.................................. 412 --
Net fair value adjustment for securities available for sale.................. 341 --
Other real estate............................................................ -- 80
Disallowed losses on investment securities................................... -- 24
Other........................................................................ 336 695
-------- -------
Gross deferred tax assets.............................................. 22,822 11,348
Valuation allowance.......................................................... (8,105) (3,217)
-------- -------
Deferred tax assets, net of valuation allowance........................ 14,717 8,131
-------- -------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
December 31,
----------------
1999 1998
---- ----
(dollars expressed in thousands)
Deferred tax liabilities:
<S> <C> <C>
FHLB stock dividends......................................................... 483 549
Disallowed losses on investment securities.................................. 250 --
Depreciation on bank premises and equipment.................................. -- 132
State income taxes........................................................... 31 --
Net fair value adjustment for securities available for sale.................. -- 582
Other........................................................................ 358 --
-------- -------
Deferred tax liabilities............................................... 1,122 1,263
-------- -------
Net deferred tax assets................................................ $ 13,595 6,868
======== =======
</TABLE>
The realization of FB&T's net deferred tax assets is based on the
availability of carrybacks to prior taxable periods, the expectation of future
taxable income and the utilization of tax planning strategies. Based on these
factors, management believes it is more likely than not that FB&T will realize
the recognized net deferred tax asset of $13.6 million. The net change in the
valuation allowance, related to deferred tax assets, was an increase of $4.9
million for the year ended December 31, 1999. The increase was comprised of the
reversal of valuation reserves of $303,000 resulting from the utilization of net
operating loss carryforwards (NOLs) and an addition to valuation reserves of
$5.2 million related to the downstream merger of CCB with and into FB&T on July
7, 1999.
Changes to the deferred tax asset valuation allowance for the years
ended December 31 were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
(dollars expressed in thousands)
<S> <C> <C> <C> <C>
Balance, January 1...................................... $3,217 3,292 5,192
Current year deferred provision, change in
deferred tax valuation allowance...................... (303) (75) (1,900)
Merger of CCB Bancorp, Inc.............................. 5,191 -- --
------ ----- -----
Balance, December 31....................................... $8,105 3,217 3,292
====== ===== =====
</TABLE>
At December 31, 1999 and 1998, for federal income tax purposes, FB&T had
NOLs of approximately $41.9 million and $14.8 million, respectively.
The NOLs for FB&T at December 31, 1999 expire as follows:
<TABLE>
<CAPTION>
(dollars expressed in thousands)
Year ending December 31:
<S> <C> <C>
2003........................................................... $ 1,178
2004........................................................... 2,987
2005........................................................... 14,770
2006........................................................... 409
2007........................................................... 5,240
2008 through 2018.............................................. 17,325
---------
Total...................................................... $ 41,909
=========
</TABLE>
(8) EMPLOYEE BENEFIT PLAN
401(K) Plan. FB&T's profit-sharing plan is a self-administered savings
and incentive plan covering substantially all employees. Under the plan,
employer matching contributions are determined annually by First Banks' Board of
Directors. Employee contributions are limited to 15% of the employee's annual
compensation not to exceed $10,000 for 1999. Total employer contributions under
the plan were $119,000, $96,000 and $60,000 for the years ended December 31,
1999, 1998 and 1997, respectively. The plan assets are held and managed under a
trust agreement with the trust department of an affiliated bank.
<PAGE>
(9) CREDIT COMMITMENTS
FB&T is a party to commitments to extend credit and commercial and
standby letters of credit in the normal course of business to meet the financing
needs of its customers. These instruments involve, to varying degrees, elements
of credit risk and interest rate risk in excess of the amount recognized in the
balance sheets. The interest rate risk associated with these credit commitments
relates primarily to the commitments to originate fixed-rate loans. The credit
risk amounts are equal to the contractual amounts, assuming the amounts are
fully advanced and the collateral or other security is of no value. FB&T uses
the same credit policies in granting commitments and conditional obligations as
it does for on-balance-sheet items.
Commitments to extend credit at December 31 were as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
(dollars expressed in thousands)
<S> <C> <C>
Commitments to extend credit........................................ $ 251,440 193,357
Commercial and standby letters of credit............................ 9,703 3,147
--------- ---------
$ 261,143 196,504
========= =========
</TABLE>
Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. Each customer's creditworthiness is
evaluated on a case-by-case basis. The amount of collateral obtained, if deemed
necessary upon extension of credit, is based on management's credit evaluation
of the counterparty. Collateral held varies but may include accounts receivable,
inventory, property, plant, equipment, income-producing commercial properties or
single family residential properties. Collateral is generally required except
for consumer credit card commitments.
Commercial and standby letters of credit are conditional commitments
issued to guarantee the performance of a customer to a third party. The letters
of credit are primarily issued to support private borrowing arrangements and
commercial transactions. Most letters of credit extend for less than one year.
The credit risk involved in issuing letters of credit is essentially the same as
that involved in extending loan facilities to customers. Upon issuance of the
commitments, FB&T holds marketable securities, certificates of deposit,
inventory or other assets as collateral supporting those commitments for which
collateral is deemed necessary.
(10) STOCKHOLDER'S EQUITY
Common Stock. At December 31, 1999, First Banks owned 4,725,396 shares
of FB&T's common stock, which represented 100% of the outstanding voting stock
of FB&T. Accordingly, First Banks has effective control over the management and
policies of FB&T and the election of its directors. Previously, FB&T was owned
by CCB, a second-tier, single-bank holding company that was 100% owned by First
Banks. At December 31, 1998, CCB owned 4,700,796 shares of FB&T's common stock,
which represented 100% of the then outstanding voting stock of FB&T. On July 7,
1999, First Banks completed a downstream merger of CCB with and into FB&T in
exchange for 24,600 shares of FB&T common stock.
Distribution of Earnings. FB&T is restricted by various state and
federal regulations as to the amount of dividends which are available for
payment to First Banks. Under the most restrictive of these requirements, the
future payment of dividends by FB&T to First Banks is limited to approximately
$3.7 million at December 31, 1999, unless prior permission of the regulatory
authorities is obtained.
(11) TRANSACTIONS WITH RELATED PARTIES
FB&T purchases certain services and supplies from or through First
Banks. FB&T's financial position and operating results could significantly
differ from those that would be obtained if FB&T's relationship with First Banks
did not exist.
<PAGE>
First Banks provides management services to FB&T. Management services
are provided under management fee agreements whereby FB&T 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 $1.6 million, $1.1 million and $648,000 for the years ended
December 31, 1999, 1998 and 1997, 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 offices, FB&T shares the cost of certain personnel
and services used by FB&T 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 entered into during 1996. Because this involves distributing
essentially fixed costs over a larger asset base, it allows each bank to receive
the benefit of personnel and services at a reduced cost. The net fees received
by FB&T under these agreements were $1.3 million, $1.5 million and $1.1 million
for the years ended December 31, 1999, 1998 and 1997, 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&T under the terms of data processing agreements. Fees
paid under these agreements were $2.3 million, $1.6 million and $417,000 for the
years ended December 31, 1999, 1998 and 1997, respectively. The fees paid for
data processing services are at least as favorable as could have been obtained
from unaffiliated third parties.
FB&T had $135.3 million and $73.0 million in whole loans and loan
participations outstanding at December 31, 1999 and 1998, respectively, that
were purchased from banks affiliated with First Banks. In addition, FB&T had
sold $56.2 million and $53.2 million in whole loans and loan participations to
affiliates of First Banks at December 31, 1999 and 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 FB&T.
Outside of normal customer relationships, no directors, executive
officers or stockholders holding over 5% of FB&T's voting stock, and no
corporations or firms with which such persons or entities are associated,
currently maintain or have maintained, any significant business or personal
relationships with FB&T, other than that which arises by virtue of such position
or ownership interest in FB&T, except as described above.
(12) INTEREST RATE RISK MANAGEMENT / DERIVATIVE FINANCIAL INSTRUMENTS WITH
OFF-BALANCE-SHEET RISK
FB&T 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 FB&T.
Derivative financial instruments held by FB&T for purposes of managing
interest rate risk are summarized as follows:
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
------------------- -------------------
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.................... $115,000 479 75,000 521
Interest rate swap agreements - pay
adjustable rate, receive adjustable rate............... 75,000 -- -- --
======== ==== ======= =====
</TABLE>
The notional amounts of derivative financial instruments do not
represent amounts exchanged by the parties and, therefore, are not a measure of
FB&T'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 FB&T would incur in the event the counterparties
failed completely to perform according to the terms of the derivative financial
instruments and the collateral was of no value.
<PAGE>
During 1998, FB&T entered into $40.0 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. These swap agreements initially
provided for FB&T 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 FB&T
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 FB&T to pay quarterly and receive payment semiannually. The amount
receivable by FB&T under these swap agreements was $598,000 and $602,000 at
December 31, 1999 and 1998, respectively, and the amount payable by FB&T under
these swap agreements was $109,000 and $81,000 at December 31, 1999 and 1998,
respectively.
During May 1999, FB&T 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 transition. These
swap agreements provided for FB&T 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 FB&T to pay
and receive interest on a monthly basis. In January 2000, FB&T determined these
swap agreements were no longer necessary based upon the results of the Year 2000
transition and, as such, FB&T terminated these agreements resulting in a cost of
$23,000.
During September 1999, FB&T entered into $75.0 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. These swap agreements provide for
FB&T 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 FB&T to pay and receive interest on a
quarterly basis. The amount receivable by FB&T under these swap agreements was
$51,000 at December 31, 1999 and the amount payable by FB&T under these swap
agreements was $61,000 at December 31, 1999.
During 1999, the net interest income realized on the interest rate swap
agreements was $68,000, in comparison to net interest expense of $36,000
realized on the interest rate swap agreements in 1998.
The maturity dates, notional amounts, interest rates paid and received
and fair value of interest rate swap agreements outstanding as of December 31,
1999 and 1998 were as follows:
<TABLE>
<CAPTION>
Notional Interest rate Interest rate Fair value
Maturity date amount paid received gain (loss)
------------- -------- ----------- ------------- -----------
(dollars expressed in thousands)
December 31, 1999:
<S> <C> <C> <C> <C>
March 31, 2000........................... $ 75,000 5.84% 6.45% $ 19
September 27, 2001....................... 75,000 5.80 6.14 (685)
September 18, 2002....................... 40,000 6.14 5.33 (1,543)
--------- --------
$ 190,000 5.88 6.09 $ (2,209)
========= ====== ====== ========
December 31, 1998:
September 18, 2002....................... 40,000 5.23% 5.33% $ 123
========= ==== ==== ========
</TABLE>
(13) FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of financial instruments is management's estimate of the
values at which the instruments could be exchanged in a transaction between
willing parties. These estimates are subjective and may vary significantly from
amounts that would be realized in actual transactions. In addition, other
significant assets are not considered financial assets including deferred tax
assets and bank premises and equipment and intangibles associated with the
purchase of assets and the assumption of liabilities. Further, the tax
ramifications related to the realization of the unrealized gains and losses can
have a significant effect on the fair value estimates and have not been
considered in any of the estimates.
<PAGE>
The estimated fair value of FB&T's financial instruments at December 31
were as follows:
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
--------------------------- -------------------------
Carrying Estimated Carrying Estimated
amount fair value amount fair value
------ ---------- ------ ----------
(dollars expressed in thousands)
Financial assets:
<S> <C> <C> <C> <C>
Cash and cash equivalents................. $ 55,530 55,530 48,910 48,910
Investment securities available for sale.. 103,636 103,636 134,203 134,203
Net loans................................. 721,247 718,315 560,742 562,351
Accrued interest receivable............... 6,269 6,269 5,495 5,495
========== ========= ======== ========
Financial liabilities:
Demand and savings deposits............... $ 475,038 475,038 415,881 415,881
Time deposits............................. 329,938 329,938 285,525 286,900
Short-term borrowings..................... 29,617 29,617 9,915 9,915
Accrued interest payable.................. 1,721 1,721 672 672
========== ========= ======== ========
Off-balance-sheet:
Interest rate swap agreements............. $ 479 (2,209) 521 123
Credit commitments........................ -- -- -- --
========== ========= ======== ========
</TABLE>
The following methods and assumptions were used in estimating the fair
value of financial instruments:
Financial Assets:
Cash and cash equivalents, investment securities and accrued interest
receivable: The carrying values reported in the balance sheets approximate fair
value.
Net loans: The fair value of most loans was estimated utilizing
discounted cash flow calculations that applied interest rates currently being
offered for similar loans to borrowers with similar risk profiles. The carrying
value of loans is net of the allowance for loan losses and unearned discount.
Financial Liabilities:
Deposits: The fair value disclosed for deposits generally payable on
demand (i.e., non-interest-bearing and interest-bearing demand, savings and
money market accounts) is considered equal to their respective carrying amounts
as reported in the balance sheets. The fair value disclosed for demand deposits
does not include the benefit that results from the low-cost funding provided by
deposit liabilities compared to the cost of borrowing funds in the market. The
fair value disclosed for certificates of deposit was estimated utilizing a
discounted cash flow calculation that applied interest rates currently being
offered on similar certificates to a schedule of aggregated monthly maturities
of time deposits.
Short-term borrowings and accrued interest payable: The carrying values
reported in the balance sheets approximate fair value.
Off-Balance-Sheet:
Interest rate swap agreements: The fair value of the interest rate swap
agreements is estimated by comparison to market rates quoted on new agreements
with similar terms and creditworthiness.
Credit commitments: The majority of the commitments to extend credit
and commercial and standby letters of credit contain variable interest rates and
credit deterioration clauses and, therefore, the carrying value of these credit
commitments reported in the balance sheets approximates fair value.
<PAGE>
(14) REGULATORY CAPITAL
FB&T is 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 FB&T's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, FB&T 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 FB&T 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 December 31, 1999, FB&T
was well capitalized.
As of December 31, 1999, the most recent notification from FB&T's
primary regulator categorized FB&T as well capitalized under the regulatory
framework for prompt corrective action. To be categorized as well capitalized,
FB&T must maintain minimum total risk-based, Tier I risk-based and Tier I
leverage ratios
as set forth in the following table.
At December 31, 1999 and 1998, FB&T's required and actual capital
ratios were as follows:
<TABLE>
<CAPTION>
To be well
capitalized under
Actual For capital prompt corrective
------------------
1999 1998 adequacy purposes action provisions
---- ---- ----------------- -----------------
<S> <C> <C> <C> <C>
Total capital (to risk-weighted assets).. 10.96% 10.39% 8.0% 10.0%
Tier 1 capital (to risk-weighted assets). 9.70% 9.13% 4.0% 6.0%
Tier 1 capital (to average assets)....... 8.57% 7.60% 3.0% 5.0%
</TABLE>
(15) CONTINGENT LIABILITIES
In the ordinary course of business, there are various legal proceedings
pending against FB&T. Management, in consultation with legal counsel, is of the
opinion the ultimate resolution of these proceedings will have no material
effect on the financial condition or results of operations of FB&T.
(16) SUBSEQUENT EVENT
On June 29, 2000, First Banks and First Banks America, Inc. (FBA), a
second-tier bank holding company that is approximately 84.33% owned by First
Banks, executed a definitive agreement providing for the acquisition of FB&T by
FBA. Under the terms of the agreement, First Banks will exchange all of the
outstanding stock of FB&T for approximately 6.5 million shares of common stock
of FBA, which will increase First Banks' ownership percentage of FB&T to
approximately 92.8%. This transaction will allow First Banks and FB&T to merge
their California and Texas interests. FB&T and FBA's wholly-owned bank
subsidiaries, First Bank of California and First Bank Texas N.A., will merge
with and into FBA's wholly-owned bank subsidiary, Redwood Bank. The combined
bank will then be renamed First Bank & Trust. FB&T expects this transaction,
which is subject to regulatory and shareholder approval, will be completed
during the fourth quarter of 2000.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS-FIRST BANK & TRUST
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 FB&T. 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 FB&T, including but not limited to fluctuations in interest
rates and in the economy; the impact of laws and regulations applicable to FB&T
and changes therein; competitive conditions in the markets in which FB&T
conducts its operations, including competition from banking and non-banking
companies with substantially greater resources than FB&T, some of which may
offer and develop products and services not offered by FB&T; the ability of FB&T
to control the composition of the loan portfolio without adversely affecting
interest income; and, the ability of FB&T to respond to changes in technology.
General
FB&T is organized as a California state-chartered bank headquartered in
Newport Beach, California. At June 30, 2000, FB&T had $1.0 billion in total
assets, $799.2 million in total loans, net of unearned discount, $875.0 million
in total deposits and $101.6 million in total stockholder's equity. For the six
months ended June 30, 2000, FB&T's net income was $6.8 million, compared to $2.5
million for the comparable period in 1999. For the year ended December 31, 1999,
net income was $7.7 million, compared to $4.9 million in 1998 and $6.7 million
in 1997.
Through its 26 banking locations in California, FB&T 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, financial and agricultural,
real estate construction and development, commercial and residential real
estate, commercial leasing, trade finance, consumer and installment, student and
Small Business Administration 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.
FB&T is wholly owned by First Banks, Inc., St. Louis, Missouri (First
Banks). Accordingly, First Banks has effective control over the management and
policies of FB&T and the election of its directors. As further discussed in Note
10 to the accompanying financial statements, on July 7, 1999, First Banks
completed a downstream merger of CCB Bancorp, Inc. (CCB), FB&T's previous owner,
with and into FB&T.
Acquisitions and Mergers
During the three years ended December 31, 1999, FB&T completed two
mergers and four branch office purchases. These transactions, as more fully
described in Note 2 to the accompanying consolidated financial statements, are
summarized as follows:
<TABLE>
<CAPTION>
Loans, net of Number of
Total unearned Investment banking
Entity Date assets discount securities Deposits locations
------ ---- ------ -------- ---------- -------- ---------
(dollars expressed in thousands)
1999
----
Brentwood Bank of California
<S> <C> <C> <C> <C> <C> <C>
Malibu, California branch office (1) September 17, 1999 $ 23,600 6,300 -- 17,300 1
Century Bank
Beverly Hills, California (2) December 31, 1999 156,000 94,800 26,100 132,000 6
-------- -------- ------- ------- ---
$179,600 101,100 26,100 149,300 7
======== ======== ======= ======== ===
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Loans, net of Number of
Total unearned Investment banking
Entity Date assets discount securities Deposits locations
------ ---- ------ -------- ---------- -------- ---------
(dollars expressed in thousands)
1998
----
Republic Bank
<S> <C> <C> <C> <C> <C> <C> <C>
Torrance, California (3) September 15, 1998 $124,100 97,900 7,500 117,200 3
Bank of America
Solvang, California
branch office (1) March 19, 1998 15,500 -- -- 15,500 1
-------- -------- ------- -------- ---
$139,600 97,900 7,500 132,700 4
======== ======== ======= ======== ===
1997
----
Highland Federal Savings Bank,
F.S.B. Woodland Hills, California
branch office (4) September 30, 1997 42,500 100 -- 42,400 1
Highland Federal Savings Bank,
F.S.B. Long Beach, California
branch offices (4) March 31, 1997 40,500 100 -- 40,400 2
-------- -------- ------- -------- ---
$ 83,000 200 -- 82,800 3
======== ======== ======= ======== ===
</TABLE>
-------------------------
(1) The Malibu branch office of Brentwood Bank of California and the Solvang
branch office of Bank of America were acquired by FB&T through a purchase
of certain assets and assumption of deposit liabilities of the branch
office. Total assets consist primarily of cash received upon assumption of
the deposit liabilities and selected loans.
(2) Century Bank was acquired by First Banks on August 31, 1999 and merged into
FB&T on December 31, 1999.
(3) Republic Bank was acquired by First Banks on September 15, 1998 and
simultaneously merged into FB&T.
(4) The Woodland Hills branch office and the Long Beach branch offices of
Highland Federal Savings Bank, F.S.B. were acquired by FB&T through a
purchase of certain assets and assumption of deposit liabilities of
the branch offices. Total assets consist primarily of cash received upon
assumption of deposit liabilities and selected loans.
Financial Condition and Average Balances
FB&T's average total assets were $969.1 million and $761.8 million for
the six months ended June 30, 2000 and 1999, respectively, and $830.4 million,
$709.2 million and $535.0 million for the years ended December 31, 1999, 1998
and 1997, respectively. The increase of $138.7 million in total average assets
for the six months ended June 30, 2000 and the increase of $121.2 million in
total average assets for 1999 are primarily attributable to the merger of
Century Bank, which provided assets of $156.0 million, and internal loan growth.
Offsetting this increase and providing an additional source of funds for the
loan growth were reductions in average investment securities of $7.0 million and
$64.8 million, respectively, to $99.8 million at June 30, 2000 and $106.8
million at December 31, 1999 from $171.6 million at December 31, 1998. The
increase of $174.2 million in total average assets for 1998 is primarily
attributable to the merger of Republic Bank, which provided assets of
approximately $124.1 million, and internal loan growth.
Loans, net of unearned discount, averaged $758.2 million and $578.4
million for the six months ended June 30, 2000 and 1999, respectively, and
$635.8 million, $469.7 million and $326.6 million for the years ended December
31, 1999, 1998 and 1997, respectively. Over the last three years, FB&T has
continued to focus on expanding its commercial and financial and commercial real
estate banking activities through internal growth and mergers and acquisitions.
Investment securities averaged $99.8 million and $111.3 million for the
six months ended June 30, 2000 and 1999, respectively, and $106.8 million,
$171.6 million and $138.2 million for the years ended December 31, 1999, 1998
and 1997, respectively. The average balance of investment securities decreased
by $7.0 million for the six months ended June 30, 2000 and by $64.8 million for
the year ended December 31, 1999. These decreases are primarily attributable to
the liquidation of investment securities necessary to provide an additional
source of funds for FB&T's loan growth. The average investment securities for
1998 increased $33.4 million from 1997 as excess funds acquired from several
branch purchases were invested until needed for future loan growth.
Deposits are the primary funding source for FB&T and are acquired from
a broad base of local markets, including both individual and corporate
<PAGE>
customers. Deposits averaged $836.7 million and $661.7 million for the six
months ended June 30, 2000 and 1999, respectively, and $708.0 million, $625.3
million and $466.4 million for the years ended December 31, 1999, 1998 and 1997,
respectively. The increases are primarily attributable to the mergers and
acquisitions completed during the respective periods. A summary of the
composition of deposits is presented under "--Deposits."
Stockholder's equity averaged $103.4 million and $75.0 million for the
six months ended June 30, 2000 and 1999, respectively, and $86.1 million, $60.9
million and $51.3 million for the years ended December 31, 1999, 1998 and 1997,
respectively. The increase for 2000 is primarily attributable to the merger of
Century Bank in late 1999, which increased capital surplus by $21.5 million
reflecting the merger of entities under common control, and net income of $6.8
million offset by a $226,000 reduction in accumulated other comprehensive income
and dividends of $7.0 million paid to First Banks during the six months ended
June 30, 2000. The increase for 1999 is primarily attributable to net income of
$7.7 million and the merger of Century Bank. The increase was partially offset
by a $1.7 million reduction in accumulated other comprehensive income resulting
from the change in unrealized gains and losses on available-for-sale investment
securities, and dividends of $4.0 million paid to First Banks during the year
ended December 31, 1999. The increase for 1998 was primarily attributable to net
income of $4.9 million and the merger of Republic Bank. The increase was
partially offset by dividends of $4.0 million paid to First Banks during the
year ended December 31, 1998.
The following tables set forth certain information relating to FB&T'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>
Six months ended June 30,
--------------------------------------------------------------------------
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)................ $ 758,247 35,236 9.35% $ 578,368 24,934 8.69%
Investment securities (3) ........... 99,794 3,175 6.40 111,297 3,289 5.96
Federal funds sold and other......... 30,046 894 5.98 5,595 132 4.76
---------- ---------- ----------- ---------
Total interest-earning
assets........................... 888,087 39,305 8.90 695,260 28,355 8.22
---------- ---------
Nonearning assets....................... 81,029 66,568
---------- -----------
Total assets....................... $ 969,116 $ 761,828
=========== ===========
LIABILITIES AND
STOCKHOLDER'S EQUITY
--------------------
Interest-bearing liabilities:
Interest-bearing demand
deposits........................... $ 68,734 500 1.46% $ 42,509 271 1.29%
Savings deposits..................... 278,778 6,208 4.48 225,023 4,431 3.97
Time deposits of $100
or more............................ 35,144 824 4.72 60,036 1,540 5.17
Other time deposits.................. 283,490 7,811 5.54 207,542 5,352 5.20
---------- ---------- ----------- ---------
Total interest-bearing
deposits ....................... 666,146 15,343 4.63 535,110 11,594 4.37
Short-term borrowings............... 19,663 520 5.32 17,231 395 4.62
---------- ---------- ----------- ---------
Total interest-bearing
liabilities..................... 685,809 15,863 4.65 552,341 11,989 4.38
---------- ---------
Noninterest-bearing liabilities:
Demand deposits...................... 170,556 126,585
Other liabilities.................... 9,367 7,888
---------- -----------
Total liabilities.................. 865,732 686,814
Stockholder's equity.................... 103,384 75,014
---------- -----------
Total liabilities and
stockholder's equity............ $ 969,116 $ 761,828
========== ===========
Net interest income..................... 23,442 16,366
========== =========
Interest rate spread.................... 4.25 3.84
Net interest margin..................... 5.31 4.75
</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) FB&T has no tax-exempt income.
(4) Includes the effects of interest rate exchange agreements.
<PAGE>
<TABLE>
<CAPTION>
Years ended December 31,
1999 1998 1997
---------------------------- ----------------------------- --------------------------
Interest Interest Interest
Average income/ Yield/ Average income/ Yield/ Average income/ Yield/
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>
Loans (1) (2) (3) (4).... $ 635,793 56,531 8.89% $ 469,744 43,252 9.21% $ 326,573 31,699 9.71%
Investment
securities (3)........ 106,774 6,443 6.03 171,622 10,391 6.05 138,189 8,360 6.05
Federal funds sold
and other............. 15,753 791 5.02 15,191 782 5.15 47,552 2,587 5.44
---------- ------- ---------- ------- --------- -------
Total interest-earning
assets................ 758,320 63,765 8.41 656,557 54,425 8.29 512,314 42,646 8.32
------- ------- -------
Nonearning assets........... 72,056 52,675 22,701
---------- ---------- ---------
Total assets ............ $ 830,376 $ 709,232 $535,015
========== ========== =========
LIABILITIES AND
STOCKHOLDER'S EQUITY
--------------------
Interest-bearing liabilities:
Interest-bearing demand
deposits .............. $ 52,339 885 1.69% $ 33,382 447 1.34% $ 23,027 327 1.42%
Savings deposits......... 222,097 8,781 3.95 197,010 8,810 4.47 97,801 4,005 4.10
Time deposits of $100
or more ............... 54,756 2,770 5.06 65,324 3,796 5.81 54,116 3,090 5.71
Other time deposits...... 232,361 11,923 5.13 220,779 12,234 5.54 215,546 12,474 5.79
---------- -------- ---------- -------- --------- -------
Total interest-bearing
deposits .............. 561,553 24,359 4.34 516,495 25,287 4.90 390,490 19,896 5.10
Short-term borrowings.... 27,194 1,349 4.96 16,704 799 4.78 11,697 509 4.35
---------- -------- ---------- -------- --------- -------
Total interest-bearing
liabilities............ 588,747 25,708 4.37 533,199 26,086 4.89 402,187 20,405 5.07
-------- -------- -------
Noninterest-bearing
liabilities:
Demand deposits.......... 146,464 108,827 75,949
Other liabilities........ 9,101 6,341 5,541
---------- ---------- ---------
Total liabilities........ 744,312 648,367 483,677
Stockholder's equity........ 86,064 60,865 51,338
---------- ---------- ---------
Total liabilities
and stockholder's
equity................. $ 830,376 $ 709,232 $ 535,015
========== ========== =========
Net interest income......... 38,057 28,339 22,241
======== ======== =======
Interest rate spread........ 4.04 3.40 3.25
Net interest margin......... 5.02 4.32 4.34
</TABLE>
<PAGE>
The following table indicates the changes in interest income and
interest expense which are attributable to changes in average volume and changes
in average rates, in comparison with the preceding year. The change in interest
due to the combined rate/volume variance has been allocated to rate and volume
changes in proportion to the dollar amounts of the change in each.
<TABLE>
<CAPTION>
Increase (decrease) attributable to change in:
---------------------------------------------------------------------------------
June 30, 2000 compared December 31, 1999 compared December 31, 1998 ompared
to June 30, 1999 to December 31, 1998 to December 31, 1997
------------------------ --------------------------- --------------------------
Net Net Net
Volume Rate Change Volume Rate Change Volume Rate Change
------ ---- ------ ------ ---- ------ ------ ---- ------
(dollars expressed in thousands)
Earning assets:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans (1) (2) (3) (4)......... $ 8,280 2,022 10,302 14,828 (1,549) 13,279 13,261 (1,708) 11,553
Investment securities (3)..... (638) 524 (114) (3,914) (34) (3,948) 2,031 -- 2,031
Federal funds sold and other.. 720 42 762 29 (20) 9 (1,674) (131) (1,805)
------- -------- ------- ------- ------- ------ ------ ------ --------
Total interest income... 8,362 2,588 10,950 10,943 (1,603) 9,340 13,618 (1,839) 11,779
------- -------- ------- ------- ------- ------ ------ ------ --------
Interest-bearing liabilities:
Interest-bearing demand
deposits.................... 189 40 229 300 138 438 139 (19) 120
Savings deposits.............. 1,156 621 1,777 1,056 (1,085) (29) 4,412 393 4,805
Time deposits of $100 or more. (592) (124) (716) (571) (455) (1,026) 651 55 706
Other time deposits........... 2,086 373 2,459 622 (933) (311) 302 (542) (240)
Short-term borrowings......... 60 65 125 519 31 550 236 54 290
------- -------- ------- ------- ------- ------ ------ ------ --------
Total interest expense.. 2,899 975 3,874 1,926 (2,304) (378) 5,740 (59) 5,681
------- -------- ------- ------- ------- ------ ------ ------ --------
Net interest income..... $ 5,463 1,613 7,076 9,017 701 9,718 7,878 (1,780) 6,098
======= ======== ======= ======= ======= ====== ====== ====== ========
</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) FB&T has no tax-exempt income.
(4) Includes the effect of interest rate exchange agreements.
Net Interest Income
The primary source of FB&T's income is net interest income, which is
the difference between the interest earned on its interest-earning assets and
the interest paid on its interest-bearing liabilities.
For the six months ended June 30, 2000, net interest income was $23.4
million, or 5.31% of average interest-earning assets, compared with $16.4
million, or 4.75% of average interest-earning assets for the six months ended
June 30, 1999, respectively. For the year ended December 31, 1999, net interest
income was $38.1 million, or 5.02% of average interest-earning assets, compared
with $28.3 million, or 4.32% of average interest-earning assets, and $22.2
million, or 4.34% of average interest-earning assets, for the years ended
December 31, 1998 and 1997, respectively. The improved net interest income is
primarily attributable to the net interest-earning assets provided by the
aforementioned mergers, internal loan growth and an improved earning asset and
funding mix. Higher yielding average loan balances as a percent of earning
assets were 85.4% for the six months ended June 30, 2000 and 83.8% during 1999,
as compared to 71.5% and 63.7% for 1998 and 1997, respectively. The overall
funding mix improved as non-interest bearing demand deposits and lower cost
interest-bearing demand and savings deposits comprised a larger portion of total
deposits in 2000 and 1999 versus 1998 and 1997. The improved interest-bearing
deposit mix is demonstrated in the cost of interest-bearing liabilities which
was 4.65% for the six months ended June 30, 2000 and 4.37% for 1999 versus 4.89%
and 5.07% for 1998 and 1997, respectively.
<PAGE>
Interest Rate Risk Management
For financial institutions, the maintenance of a satisfactory level of
net interest income is a primary factor in achieving acceptable income levels.
However, the maturity and repricing characteristics of the institution's loan
and investment portfolios, relative to those within its deposit structure, may
differ significantly. These characteristics are influenced by the nature of the
loan and deposit markets within which such institution operates, as well as its
objectives for business development within those markets at any point in time.
In addition, the ability of borrowers to repay loans and depositors to withdraw
funds prior to stated maturity dates introduces divergent option characteristics
which operate primarily as interest rates change. These factors cause various
elements of the institution's balance sheet to react in different manners and at
different times relative to changes in interest rates, thereby leading to
increases or decreases in net interest income over time. Depending upon the
nature and velocity of interest rate movements and their effect on the specific
components of the institution's balance sheet, the effects on net interest
income can be substantial. Consequently, a fundamental requirement in managing a
financial institution is establishing effective control over the exposure of the
institution to changes in interest rates.
FB&T manages its interest rate risk by: (1) maintaining an Asset
Liability Committee ("ALCO") responsible to FB&T's Board of Directors to review
the overall interest rate risk management activity and approve actions taken to
reduce risk; (2) maintaining an effective simulation model to determine FB&T's
exposure to changes in interest rates; (3) coordinating the lending, investing
and deposit-generating functions to control the assumption of interest rate
risk; and (4) employing various off-balance-sheet financial instruments to
offset inherent interest rate risk when it becomes excessive. The objective of
these procedures is to limit the adverse impact which changes in interest rates
may have on net interest income.
The ALCO has overall responsibility for the effective management of
interest rate risk and the approval of policy guidelines. The ALCO includes the
Chairman, President and Chief Executive Officer, the senior executives of
investments, credit, banking support and finance, and certain other officers of
First Banks. The ALCO is supported by the Asset Liability Management Group which
monitors interest rate risk, prepares analyses for review by the ALCO and
implements actions which are either specifically directed by the ALCO or
established by policy guidelines.
The objective and primary focus of interest sensitivity management is
to optimize earnings results, while managing, within internal policy
constraints, interest rate risk. FB&T's policy on rate sensitivity is to manage
exposure to potential risks associated with changing interest rates by
maintaining a balance sheet posture in which annual net interest income is not
significantly impacted by reasonably possible near-term changes in interest
rates. To measure the effect of interest rate changes, FB&T calculates its net
income over two one-year horizons on a pro forma basis. The analysis assumes
various scenarios for increases and decreases in interest rates including both
instantaneous and gradual and parallel and non-parallel shifts in the yield
curve, in varying amounts. For purposes of arriving at reasonably possible
near-term changes in interest rates, FB&T includes scenarios based on actual
changes in interest rates, which have occurred over a two-year period,
simulating both a declining and rising interest rate scenario. Consistent with
the table presented below, which indicates FB&T is "asset-sensitive," FB&T's
simulation model indicates a loss of projected net interest income should
interest rates decline. While a decline in interest rates of less than 100 basis
points has a minimal impact on the earnings of FB&T, a decline in interest rates
of 100 basis points indicates a projected pre-tax loss equivalent to
approximately 7.1% of net interest income based on assets and liabilities at
December 31, 1999.
FB&T 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 FB&T. Derivative financial
instruments held by FB&T for purposes of managing interest rate risk are
summarized as follows:
<TABLE>
<CAPTION>
June 30, 2000 December 31, 1999 December 31, 1998
------------------- ------------------- -------------------
Notional Credit Notional Credit Notional Credit
amount amount amount exposure amount exposure
------ ------ ------ -------- ------ --------
(dollars expressed in thousands)
Interest rate swap agreements - pay
<S> <C> <C> <C> <C> <C> <C>
adjustable rate, receive fixed rate..... $ 115,000 509 115,000 479 75,000 521
Interest rate swap agreements - pay
adjustable rate, receive adjustable rate -- -- 75,000 -- -- --
========= ===== ======== ==== ======= =====
</TABLE>
The notional amounts of derivative financial instruments do not
represent amounts exchanged by the parties and, therefore, are not a measure of
FB&T'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
<PAGE>
represents the accounting loss FB&T 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, FB&T entered into $40.0 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. These swap agreements initially
provided for FB&T 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 FB&T
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 FB&T to pay quarterly and receive payment semiannually. The amount
receivable by FB&T under these swap agreements was $598,000 at June 30, 2000 and
December 31, 1999, and $602,000 at December 31, 1998. The amount payable by FB&T
under these swap agreements was $83,000, $109,000 and $81,000 at June 30, 2000
and December 31, 1999 and 1998, respectively.
During May 1999, FB&T 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 transition. These
swap agreements provided for FB&T 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 FB&T to pay
and receive interest on a monthly basis. In January 2000, FB&T determined these
swap agreements were no longer necessary based upon the results of the Year 2000
transition and, as such, FB&T terminated these agreements resulting in a cost of
$23,000.
During September 1999, FB&T entered into $75.0 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. These swap agreements provide for
FB&T 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 FB&T to pay and receive interest on a
quarterly basis. The amount receivable by FB&T under these swap agreements was
$51,000 at June 30, 2000 and December 31, 1999, and the amount payable by FB&T
under these swap agreements was $57,000 and $61,000 at June 30, 2000 and
December 31, 1999, respectively.
During the six months ended June 30, 2000, the net interest expense
realized on the interest rate swap agreements was $280,000. During 1999, the net
interest income realized on the interest rate swap agreements was $68,000, in
comparison to net interest expense of $36,000 realized on the interest rate swap
agreements in 1998.
The maturity dates, notional amounts, interest rates paid and received
and fair value of interest rate swap agreements outstanding as of December 31,
1999 and 1998 were as follows:
<TABLE>
<CAPTION>
Notional Interest rate Interest rate Fair value
Maturity date amount paid received gain (loss)
------------- -------- ----------- ------------- -----------
(dollars expressed in thousands)
June 30, 2000:
<S> <C> <C> <C> <C>
September 27, 2001....................... $ 75,000 6.80 6.14 (869)
September 18, 2002....................... 40,000 6.80 5.33 (1,540)
--------- --------
$ 115,000 6.80 5.86 $ (2,409)
========= ====== ====== ========
December 31, 1999:
March 31, 2000........................... $ 75,000 5.84% 6.45% $ 19
September 27, 2001....................... 75,000 5.80 6.14 (685)
September 18, 2002....................... 40,000 6.14 5.33 (1,543)
--------- --------
$ 190,000 5.88 6.09 $ (2,209)
========= ====== ====== ========
December 31, 1998:
September 18, 2002....................... 40,000 5.23% 5.33% $ 123
========= ==== ==== ========
</TABLE>
<PAGE>
As more fully described in Note 1 to the accompanying financial
statements, 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 statements of income.
In addition to the simulation model employed by FB&T, a more
traditional interest rate sensitivity position is prepared and reviewed in
conjunction with the results of the simulation model. The following table
presents the projected maturities and periods to repricing of FB&T's rate
sensitive assets and liabilities as of December 31, 1999, adjusted to account
for anticipated prepayments:
<TABLE>
<CAPTION>
Over Over
three six Over
Three through through one Over
months six twelve through five
or less months months five years years Total
------- ------ ------ ---------- ----- -----
(dollars expressed in thousands)
Interest-earning assets:
<S> <C> <C> <C> <C> <C> <C>
Loans (1)....................................... $ 527,146 51,747 88,773 65,888 3,274 736,828
Investment securities........................... 9,210 4,930 36,466 35,896 17,135 103,636
Federal funds sold and other.................... 28,193 250 -- 100 -- 28,543
--------- --------- --------- --------- -------- ---------
Total interest-earning assets................. 564,549 56,927 125,238 101,884 20,409 869,007
Effect of interest rate swap agreements......... (115,000) -- -- 115,000 -- --
--------- --------- --------- --------- -------- ---------
Total interest-earning assets after the effect
of interest rate swap agreements............ $ 449,549 56,927 125,238 216,884 20,409 869,007
========= ========= ========= ========= ======== =========
Interest-bearing liabilities:
Interest-bearing demand accounts................ $ 26,708 16,603 10,828 7,940 10,106 72,185
Money market demand accounts.................... 103,562 -- -- -- -- 103,562
Savings accounts................................ 21,470 17,681 15,155 21,470 50,518 126,294
Time deposits................................... 123,688 71,489 90,471 44,263 26 329,938
Other borrowed funds............................ 29,073 -- -- 544 -- 29,617
--------- --------- --------- --------- -------- ---------
Total interest-bearing liabilities............ $ 304,501 105,773 116,454 74,218 60,650 661,596
========= ========= ========= ========= ======== =========
Interest-sensitivity gap:
Periodic........................................ $ 145,048 (48,846) 8,784 142,666 (40,241) 207,411
=========
Cumulative...................................... 145,048 96,202 104,986 247,652 207,411
========= ========= ========= ========= ========
Ratio of interest-sensitive assets
to interest-sensitive liabilities:
Periodic...................................... 1.48 0.54 1.08 2.92 0.34 1.31
=========
Cumulative.................................... 1.48 1.23 1.20 1.41 1.31
========= ========= ========= ========= ========
</TABLE>
----------------------
(1) Loans are presented net of unearned discount.
Management made certain assumptions in preparing the table above. These
assumptions included: (a) Loans will repay at projected repayment speeds; (b)
mortgage-backed securities, included in investment securities, will repay at
projected repayment speeds; (c) interest-bearing demand accounts and savings
accounts are interest-sensitive at rates ranging from 11% to 37% and 12% to 40%,
respectively, of the remaining balance for each period presented; and (d) fixed
maturity deposits will not be withdrawn prior to maturity. A significant
variance in actual results from one or more of these assumptions could
materially affect the results reflected in the table.
At December 31, 1999 and 1998, FB&T's asset-sensitive position on a
cumulative basis through the twelve-month time horizon was $105.0 million, or
11.1% of total assets, and $91.9 million, or 11.6% of total assets,
respectively. The asset-sensitive position is attributable to the composition of
the loan and investment security portfolios as compared to the deposit base. The
increase for 1999 is primarily attributable to the overall increase in
interest-earning assets relative to the increase in interest-bearing liabilities
as further discussed under "--Financial Condition and Average Balances" and
"--Net Interest Income."
The interest-sensitivity position is one of several measurements of the
impact of interest rate changes on net interest income. Its usefulness in
assessing the effect of potential changes in net interest income varies with the
constant change in the composition of FB&T's assets and liabilities and changes
in interest rates. For this reason, FB&T places greater emphasis on a simulation
model for monitoring its interest rate risk exposure.
<PAGE>
Comparison of Results of Operations for the Six Months Ended June 30, 2000 and
1999
Net Income. Net income was $6.8 million, or $1.44 per share on a
diluted basis, for the six months ended June 30, 2000, compared to $3.1 million,
or $0.67 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 merger of Century Bank, completed in December 1999, increased
yields on earning assets, internal loan growth and increased noninterest income.
As more fully discussed under "--Financial Condition and Average Balances" and
"--Net Interest Income," net interest income increased by $7.1 million to $23.4
million, or 5.31% of average interest-earning assets, from $16.4 million, or
4.75% of average interest-earnings assets, for the six months ended June 30,
2000 and 1999, respectively.
The improvement in net income was partially offset by an increase in
operating expenses of $2.3 million to $14.5 million from $12.1 million for the
six months ended June 30, 2000 and 1999, respectively. The increased operating
expenses reflect the operating expenses of Century Bank and Brentwood Bank of
California subsequent to their acquisition and merger dates, increased salaries
and employee benefits, increased data processing fees and increased amortization
of intangibles associated with the purchase of assets and the assumption of
liabilities.
Provision for Loan Losses. The provision for loan losses was $740,000
and $950,000 for the six months ended June 30, 2000 and 1999, respectively. The
decrease in the provision for 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 loan losses. Nonperforming assets decreased by
$4.6 million to $8.6 million at June 30, 2000 from $13.2 million at December 31,
1999, resulting in a reduced ratio of nonperforming loans to loans from 1.75% at
December 31, 1999 to 1.05% at June 30, 2000. See "--Loans and Allowance for Loan
Losses" for a further discussion of FB&T's policies and practices of monitoring
and maintaining the allowance for loan losses.
FB&T's loan loss experience further supported the decrease in the
provision for loan losses. For the six months ended June 30, 2000, net loan
recoveries were $668,000, in comparison to net loan charge-offs of $1.8 for the
six months ended June 30, 1999. The overall improvement in FB&T's loan loss
experience is primarily attributable to improved asset quality reflected in a
decrease in the amount of loans requiring charge-off accompanied by an increase
in the collection of previously charged-off loans. The acquisition of Century
Bank provided $1.5 million in additional allowance for loan losses at its merger
date.
Noninterest Income and Expense. The following table summarizes
noninterest income and noninterest expense for the six months ended June 30,
2000 and 1999:
<TABLE>
<CAPTION>
Increase (decrease)
-------------------
2000 1999 Amount Percent
---- ---- ------ -------
(dollars expressed in thousands)
Noninterest income:
Service charges on deposit accounts
<S> <C> <C> <C> <C>
and customer service fees........................ $ 1,695 1,411 284 20.13%
Gains on sales of securities, net.................. 556 311 245 78.78
Other income....................................... 786 546 240 43.96
-------- ------- --------
Total noninterest income....................... $ 3,037 2,268 769 33.91
======== ======= ======== ========
Noninterest expense:
Salaries and employee benefits .................... $ 5,675 4,599 1,076 23.40%
Occupancy, net of rental income ................... 2,287 1,812 475 26.21
Furniture and equipment ........................... 877 724 153 21.13
Advertising and business development............... 220 130 90 69.23
Postage, printing and supplies..................... 366 257 109 42.41
Data processing fees............................... 1,406 1,172 234 19.97
Legal, examination and professional fees........... 1,297 1,007 290 28.80
Communications..................................... 224 227 (3) (1.32)
Gain on sales of other real estate,
net of expenses................................ (122) (86) (36) 41.86
Amortization of intangibles associated
with the purchase of assets and
the assumption of liabilities.................... 696 525 171 32.57
Other.............................................. 1,528 1,762 (234) (13.28)
-------- ------- --------
Total noninterest expense...................... $ 14,454 12,129 2,325 19.17
======== ======= ======== ========
</TABLE>
<PAGE>
Noninterest Income. Noninterest income was $3.0 million for the six
months ended June 30, 2000, compared to $2.3 million for the comparable period
in 1999. Noninterest income consists primarily of service charges on deposit
accounts, customer service fees and other income.
Service charges on deposit accounts and customer service fees increased
to $1.7 million for the six months ended June 30, 2000, from $1.4 million for
the comparable period in 1999. The increase in service charges corresponds to:
(a) the increase in deposit balances provided by internal growth; (b) the merger
of Century Bank and the acquisition of Brentwood Bank of California: (c)
increased fee income resulting from revisions of customer service charge rates
effective April 1, 1999 and enhanced control of fee waivers; and, (d) the
additional services available and utilized by FB&T's expanding base of retail
and corporate customers.
Other income was 786,000 and $546,000 for the six months ended June 30,
2000 and 1999, respectively. The largest single driver of this variance was
income from bank-owned life insurance, which increased $52,000. The remaining
increase was due to smaller, various sources of miscellaneous income.
Noninterest income for the six months ended June 30, 2000 and 1999 also
included $556,000 and $311,000, respectively, of net gains on sales of
investment securities. The net gains in 2000 resulted from sales of certain
investment securities held by Century Bank that did not meet FB&T's overall
investment objectives, whereas the net gains in 1999 resulted from sales of
certain investment securities to facilitate the funding of FB&T's loan growth.
Noninterest Expense. Noninterest expense was $14.5 million for the six
months ended June 30, 2000, compared to $12.1 million for the comparable period
in 1999. The increase is reflective of: (a) the noninterest expenses of Century
Bank and Brentwood Bank of California, including certain nonrecurring expenses;
(b) increased data processing fees; (c) increased amortization of intangibles
related to the purchase of assets and the assumption of liabilities; and, (d)
FB&T'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.
Salaries and employee benefits increased by $1.1 million to $5.7
million from $4.6 million for the six months ended June 30, 2000 and 1999,
respectively. The increase is attributable to the merger of Century 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.
Occupancy, net of rental income, and furniture and equipment expense
was $2.3 million and $877,000 for the six months ended June 30, 2000, in
comparison to $1.8 million and $724,000 for the comparable period in 1999,
respectively. The increase is primarily attributable to the additional branch
facilities associated with Century Bank and Brentwood Bank of California, the
relocation of certain branches and increased depreciation expense associated
with numerous capital expenditures made throughout 1999, including the
implementation of FB&T's new teller system.
Data processing fees were $1.4 million and $1.2 million for the six
months ended June 30, 2000 and 1999, respectively, and were paid to First
Services L.P., an affiliate of First Banks. As more fully described in Note 11
to the accompanying financial statements, First Services L.P. provides data
processing and various related services to FB&T. The increased data processing
fees are attributable to growth and technological advancements consistent with
FB&T's product and service offerings and upgrades to technological equipment,
networks and communication channels.
Intangibles associated with the purchase of assets and the assumption
of liabilities are amortized to expense on a straight-line basis generally over
15 years. The increase for the six months ended June 30, 2000 is attributable to
the amortization of the cost in excess of the fair value of the net assets
acquired of Century Bank, which was acquired by First Banks in August 1999 and
merged into FB&T in December 1999, and Brentwood Bank of California, which was
acquired by FB&T in September 1999.
Comparison of Results of Operations for the Years Ended December 31, 1999 and
1998
Net Income. Net income was $7.7 million, or $1.63 per share on a
diluted basis, for the year ended December 31, 1999, compared to $4.9 million,
or $1.05 per share on a diluted basis, for 1998. The improved operating results
for 1999 are primarily attributable to increased net interest income generated
from the acquisitions and mergers of Century Bank, completed in December 1999,
Brentwood Bank of California, completed in September 1999, and Republic Bank,
completed in September 1998, increased yields on earning assets, internal loan
growth and increased noninterest income. As more fully discussed under
"--Financial Condition and Average Balances" and "--Net Interest Income," net
interest income increased by $9.8 million to $38.1 million, or 5.02% of average
interest-earning assets, from $28.3 million, or 4.32% of average
interest-earnings assets, for the years ended December 31, 1999 and 1998,
respectively.
The improvement in net income was partially offset by an increased
provision for loan losses and increased operating expenses. The increased
operating expenses primarily resulted from: (a) increased salaries and employee
benefits; (b) increased data processing fees; (c) the operating expenses of
<PAGE>
Century Bank, Brentwood Bank of California and Republic Bank subsequent to their
respective acquisition and merger dates; and, (d) amortization of intangibles
associated with the purchase of assets and the assumption of liabilities. As
more fully discussed below, the overall increase in these operating expenses was
partially offset by a reduction in advertising and business development,
postage, printing and supplies, and communications expenses.
Provision for Loan Losses. The provision for loan losses was $3.8
million and $850,000 for the years ended December 31, 1999 and 1998,
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 loans charged-off. Net loan charge-offs
were $2.6 million for the year ended December 31, 1999, in comparison to net
loan recoveries of $476,000 for the year ended December 31, 1998. The increase
in net loan charge-offs is reflective of overall growth in the loan portfolio
and the charge-off of certain loans obtained through the aforementioned mergers
and acquisitions. The mergers of Century Bank and Republic Bank provided $1.5
million and $2.3 million, respectively, in additional allowance for loan losses
at their respective acquisition and merger dates. See "--Loans and Allowance for
Loan Losses" for a further discussion of FB&T's policies and practices of
monitoring and maintaining the allowance for loan losses.
Noninterest Income and Expense. The following table summarizes
noninterest income and noninterest expense for the years ended December 31, 1999
and 1998:
<TABLE>
<CAPTION>
Increase (decrease)
-------------------
1999 1998 Amount Percent
---- ---- ------ -------
(dollars expressed in thousands)
Noninterest income:
Service charges on deposit accounts
<S> <C> <C> <C> <C>
and customer service fees........................ $ 2,946 2,231 715 32.05%
Gains on sales of securities, net.................. 311 358 (47) (13.13)
Other income ...................................... 1,028 892 136 15.25
-------- ------- --------
Total noninterest income....................... $ 4,285 3,481 804 23.10
======== ======= ======== ========
Noninterest expense:
Salaries and employee benefits .................... $ 10,071 8,176 1,895 23.18%
Occupancy, net of rental income ................... 4,192 3,364 828 24.61
Furniture and equipment ........................... 1,520 1,441 79 5.48
Advertising and business development............... 341 562 (221) (39.32)
Postage, printing and supplies..................... 544 643 (99) (15.40)
Data processing fees............................... 2,356 1,696 660 38.92
Legal, examination and professional fees........... 2,055 2,388 (333) (13.94)
Communications..................................... 478 595 (117) (19.66)
Gain on sales of other real estate,
net of expenses................................ (282) (127) (155) 122.05
Amortization of intangibles associated
with the purchase of assets and
the assumption of liabilities.................... 1,158 450 708 157.33
Other.............................................. 3,200 3,301 (101) 3.06
-------- ------- --------
Total noninterest expense...................... $ 25,633 22,489 3,144 13.98
======== ======= ======== ========
</TABLE>
Noninterest Income. Noninterest income was $4.3 million for the year
ended December 31, 1999, compared to $3.5 million for 1998. Noninterest income
consists primarily of service charges on deposit accounts, customer service fees
and other income.
Service charges on deposit accounts and customer service fees increased
to $2.9 million for 1999, from $2.2 million for 1998. The increase in service
charges corresponds to: (a) the increase in deposit balances provided by
internal growth; (b), the acquisitions of Century Bank, Brentwood Bank of
California and Republic Bank; (c) increased fee income resulting from revisions
of customer service charge rates effective April 1, 1999 and enhanced control of
fee waivers; (d) the additional services available and utilized by FB&T's
expanding base of retail and corporate customers; and (e) increased interchange
income associated with automated teller machine services and debit and credit
cards.
Other income was $1.0 million and $892,000 for the years ended December
31, 1999 and 1998, respectively. The primary component of the increase relates
to the income earned on FB&T's investment in bank-owned life insurance, which
increased to $533,000 from $437,000 for the years ended December 31, 1999 and
1998, respectively.
Noninterest income for 1999 and 1998 also included $311,000 and
$358,000, respectively, of net gains on sales of investment securities. The
gains resulted from sales of certain available-for-sale investment securities to
facilitate the funding of FB&T's loan growth.
<PAGE>
Noninterest Expense. Noninterest expense was $25.6 million for the year
ended December 31, 1999, compared to $22.5 million for 1998. The increase is
reflective of: (a) the noninterest expense of Century Bank, Brentwood Bank of
California and Republic Bank, including certain nonrecurring expenses associated
with those acquisitions and mergers; (b) increased data processing fees
primarily attributable to FB&T's Year 2000 Program; (c) increased amortization
of intangibles related to the purchase of assets and the assumption of
liabilities; and, (d) FB&T'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 for 1999 was
partially offset by a reduction in advertising and business development,
postage, printing and supplies, and communications expenses, and is consistent
with management's continued efforts to more effectively manage these
expenditures.
Salaries and employee benefits increased by $1.9 million to $10.1
million from $8.2 million for the years ended December 31, 1999 and 1998,
respectively. The increase is attributable to both the aforementioned
acquisitions and mergers and FB&T's continued commitment to expanding its
commercial and retail business development capabilities associated with the
expansion and delivery of its products and services. The overall increase also
reflects 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.
Data processing fees were $2.4 million and $1.7 million for 1999 and
1998, of which $2.3 million and $1.6 million were paid to First Services L.P.,
an affiliate of First Banks. As more fully described in Note 11 to the
accompanying financial statements, First Services L.P. provides data processing
and various related services to FB&T. The increased data processing fees are
attributable to growth and technological advancements consistent with FB&T's
product and service offerings, increased expenses attributable to communication
data lines related to the expansion of the branch infrastructure and expenses
associated with FB&T's Year 2000 Program. As discussed under "--Year 2000
Compatibility," FB&T incurred direct expenses of $360,000 and $130,000 in 1999
and 1998, respectively, with respect to the Year 2000 project.
Intangibles associated with the purchase of assets and the assumption
of liabilities are amortized to expense on a straight-line basis generally over
15 years. The increase for 1999 is attributable to the amortization of the cost
in excess of the fair value of the net assets acquired of Century Bank,
Brentwood Bank of California and Republic Bank.
Comparison of Results of Operations for the Years Ended December 31, 1998 and
1997
Net Income. Net income was $4.9 million, or $1.05 per share on a
diluted basis, for the year ended December 31, 1998, compared to $6.7 million or
$1.42 per share on a diluted basis, for 1997. As previously discussed, net
interest income increased by $6.1 million to $28.3 million, or 4.32% of average
interest-earning assets, from $22.2 million, or 4.34% of average
interest-earnings assets, for the years ended December 31, 1998 and 1997,
respectively. In addition, the provision for loan losses declined by $1.2
million and noninterest income increased by $1.3 million. Offsetting these
benefits to net income was an increase of $7.9 million in operating expenses and
a significant increase in the effective income tax rate from 14.2% to 41.7%. The
increased tax rate resulted from a $1.9 million reduction in the deferred tax
asset valuation allowance in 1997 that did not reoccur in 1998.
Provision for Loan Losses. The provision for loan losses was $850,000
and $2.0 million for the years ended December 31, 1998 and 1997, respectively.
Supporting the decrease in the provision for loan losses were net recoveries of
$476,000 for 1998, compared to $1.2 million of net charge-offs for 1997. See
"--Loans and Allowance for Loan Losses" for a further discussion of FB&T's
policies and practices of monitoring and maintaining the allowance for loan
losses.
<PAGE>
Noninterest Income and Expense. The following table summarizes
noninterest income and noninterest expense for the years ended December 31, 1998
and 1997:
<TABLE>
<CAPTION>
Increase (decrease)
-------------------
1998 1997 Amount Percent
---- ---- ------ -------
(dollars expressed in thousands)
Noninterest income:
Service charges on deposit accounts
<S> <C> <C> <C> <C>
and customer service fees........................ $ 2,231 1,781 450 25.27%
Gains on sales of securities, net.................. 358 -- 358 100.00
Other income ...................................... 892 401 491 122.44
-------- ------- -------
Total noninterest income....................... $ 3,481 2,182 1,299 59.53
======== ======= ======= =========
Noninterest expense:
Salaries and employee benefits .................... $ 8,176 5,567 2,609 46.87%
Occupancy, net of rental income ................... 3,364 3,045 319 10.48
Furniture and equipment ........................... 1,441 1,023 418 40.86
Advertising and business development............... 562 195 367 188.21
Postage, printing and supplies..................... 643 490 153 31.22
Data processing fees............................... 1,696 710 986 138.87
Legal, examination and professional fees........... 2,388 1,139 1,249 109.66
Communications..................................... 595 490 105 21.43
Gain on sales of other real estate,
net of expenses.................................. (127) (404) 277 (68.56)
Amortization of intangibles associated
with the purchase of assets and
the assumption of deposits....................... 450 (38) 488 (1,284.21)
Other.............................................. 3,301 2,415 886 36.69
-------- ------- -------
Total noninterest expense...................... $ 22,489 14,632 7,857 53.70
======== ======= ======= =========
</TABLE>
Noninterest Income. Noninterest income, which consists primarily of
service charges on deposit accounts and customer service fees, totaled $3.5
million and $2.2 million for the years ended December 31, 1998 and 1997,
respectively.
Service charges on deposit accounts and customer service fees increased
to $2.2 million for 1998, from $1.8 million for 1997. The increase is primarily
attributable to the acquisitions of the three Highland Federal Woodland Hills
and Long Beach offices in 1997, the Bank of America Solvang branch office in
March of 1998, and Republic Bank in September of 1998, and the increase of
commercial and retail banking services utilized by FB&T's expanding base of
retail and corporate customers.
Other income was $892,000 and $401,000 for the years ended December 31,
1998 and 1997, respectively. The increase is primarily attributable to $437,000
of income earned on FB&T's investment in bank-owned life insurance. Due to the
timing of the original investment in late 1997, there was only $14,000 of income
in 1997 on this product.
Noninterest income for 1998 also includes $358,000 of net gains on
sales of securities. The gains resulted from the sales of certain
available-for-sale securities to provide funds for FB&T's loan growth.
Noninterest Expense. Noninterest expense was $22.5 million for the year
ended December 31, 1998, compared to $14.6 million for 1997. The increase is
attributable to the noninterest expense of Republic Bank and the four branch
offices acquired during this period, along with the expansion of FB&T's
commercial lending capabilities.
Specifically, salaries and employee benefits increased by $2.6 million
to $8.2 million from $5.6 million for the years ended December 31, 1998 and
1997, respectively. The increase is attributable to the acquisitions of Republic
Bank and the four branch offices, and the expansion of FB&T's commercial and
retail business development staff and related support personnel.
Occupancy expenses, net of rental income, and furniture and equipment
expense increased $319,000 and $418,000, respectively, over 1997 due to the
expansion of the commercial and retail network of branch facilities.
Advertising and business development increased by $367,000 to $562,000
from $195,000 for 1998 and 1997, respectively. The additional costs were
incurred to facilitate the further development of FB&T's franchise and expanding
base of products and services.
Legal, examination and professional fees increased to $2.4 million from
$1.1 million for 1998 and 1997, respectively. As more fully described in Note 11
to the accompanying financial statements, legal, examination and professional
fees include various fees paid to related parties since FB&T utilizes First
Banks and certain of its affiliates in providing selected services to FB&T.
FB&T's overall asset growth and expansion of its product and service offerings
has required additional service and support. The fees paid for these services
are at least as favorable as could have been obtained from unaffiliated third
parties.
<PAGE>
Data processing fees were $1.7 million and $710,000 for 1998 and 1997,
of which $1.6 million and $417,000 was paid to First Services L.P., an affiliate
of First Banks. As more fully described in Note 11 to the accompanying financial
statements, First Services L.P. provides data processing and various related
services to FB&T. The increase in data processing fees is attributable to the
overall growth of FB&T, the enhancement of systems to support existing and
developing product and service offerings, the costs of converting the acquired
branches, and the additional costs associated with the Year 2000 project. As
discussed under "--Year 2000 Compatibility," FB&T incurred direct expenses of
$130,000 in 1998 with respect to the Year 2000 project.
The increase for 1998 in amortization of intangibles associated with
the purchase of assets and the assumption of liabilities is attributable to the
deposit premiums paid on the aforementioned branch purchases and the merger of
Republic Bank.
Other expense was $3.3 million and $2.4 million for 1998 and 1997,
respectively. The increase of $900,000 is primarily attributable to the
aforementioned mergers and acquisitions, the settlement of certain litigation
and increased payments made to third parties on behalf of escrow and title
account holders.
Investment Securities
FB&T classifies the securities within its investment portfolio as held
to maturity or available for sale. FB&T does not engage in the trading of
investment securities. As more fully described in Notes 1 and 3 to the
accompanying financial statements of FB&T, the investment security portfolio
consists entirely of securities designated as available for sale. The investment
security portfolio was $97.2 million at June 30, 2000 and $103.6 million at
December 31, 1999 compared to $134.2 million and $224.6 million at December 31,
1998 and 1997, respectively. See, "--Financial Condition and Average Balances"
for further discussion of the investment security portfolio.
The following table shows the composition of the investment security
portfolio, at amortized cost, by major category as of the dates presented:
<TABLE>
<CAPTION>
June 30, December 31, December 31,
2000 1999 1998
---- ---- ----
(dollars expressed in thousands)
<S> <C> <C> <C>
U.S. Treasury........................ $ 19,986 20,033 46,694
U.S. Government agencies
and corporations:
Mortgage-backed.................. 22,444 24,316 32,805
Other............................ 54,934 54,402 49,574
Foreign debt securities.............. -- 2,995 --
Federal Home Loan Bank stock......... 1,172 2,863 3,496
----------- ----------- -----------
Total........................ $ 98,536 104,609 132,569
=========== =========== ===========
</TABLE>
Loans and Allowance for Loan Losses
Interest earned on the loan portfolio represents the principal source
of income for FB&T. Interest and fees on loans were 89.6%, 87.9%, 88.7%, 79.5%
and 74.3% of total interest income for the six months ended June 30, 2000 and
1999, and for the years ended December 31, 1999, 1998 and 1997, respectively.
Loans, net of unearned discount, represented 79.9% and 78.0% of total assets as
of June 30, 2000 and December 31, 1999, compared to 72.3% and 57.2% as of
December 31, 1998 and 1997, respectively. At June 30, 2000 and December 31, 1999
and 1998, total loans, net of unearned discount, were $799.2 million, $736.8
million and $573.6 million, increases of $413.9 million, $351.5 million and
$188.3 million, respectively, from $385.3 million at December 31, 1997. FB&T
views the quality, yield and growth of the loan portfolio to be instrumental
elements in its growth and profitability.
The increases in loans from 1997 to 2000 are attributable to the loans
provided by the mergers of Republic Bank and Century Bank, and the growth of the
commercial and financial, real estate construction and development and real
estate mortgage loan portfolios, partially offset by a decrease in the consumer
and installment portfolio.
FB&T's lending strategy stresses quality, growth and diversification by
collateral, geography and industry. A common credit underwriting structure is in
place throughout FB&T. The commercial lenders focus principally on small to
middle-market companies. Retail lenders focus principally on residential loans,
including home equity loans, automobile financing and other consumer financing
needs arising out of FB&T's branch banking network.
<PAGE>
Commercial and financial loans include loans that are made primarily
based on the borrowers' general credit strength and ability to generate
repayment cash flows from income sources even though such loans and bonds may
also be secured by real estate or other assets. Real estate construction and
development loans, primarily relating to residential properties and smaller
commercial properties, represent interim financing secured by real estate under
construction. Real estate mortgage loans consist primarily of loans secured by
single-family, owner-occupied properties and various types of commercial
properties on which the income from the property is the intended source of
repayment. Consumer and installment loans are loans to individuals and consist
primarily of loans secured by automobiles.
The following table shows the composition of the loan portfolio by
major category and the percent of each category to the total portfolio as of the
dates presented:
<TABLE>
<CAPTION>
June 30, 2000
-------------------------
Amount Percent
------ -------
(dollars expressed
in thousands)
<S> <C> <C>
Commercial and financial............................................... $ 226,126 28.3%
Real estate construction and development............................... 185,462 23.2
Real estate mortgage................................................... 373,941 46.8
Consumer and installment, net of unearned discount..................... 13,697 1.7
----------- -----
Total loans....................................................... $ 799,226 100.0%
=========== =====
</TABLE>
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
---------------- ---------------- ---------------- --------------- ----------------
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ ------- ------ ------- ------ -------
(dollars expressed in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial and
financial........ $211,182 28.7% $195,027 34.0% $107,403 27.9% $59,154 19.0% $ 60,488 16.4%
Real estate
construction and
development...... 172,251 23.4 129,835 22.6 52,466 13.6 20,809 6.7 25,867 7.0
Real estate mortgage.. 334,429 45.4 239,456 41.7 220,824 57.3 222,433 71.5 269,824 73.1
Consumer and
installment, net
of unearned
discount........... 18,966 2.5 9,244 1.7 4,558 1.2 8,534 2.8 13,083 3.5
------- ---- --------- ----- -------- ---- ------- ---- -------- ----
Total loans,
excluding
loans held
for sale..... 736,828 100.0% 573,562 100.0% 385,251 100.0% 310,930 100.0% 369,262 100.0%
========= ===== ======== ===== ======== ===== ======= ===== ======== =====
Loans held for sale... -- -- -- -- 16,638
------- -------- -------- -------- --------
Total loans..... $736,828 $573,562 $385,251 $310,930 $385,900
======== ======== ======== ======== ========
</TABLE>
Loans at December 31, 1999 mature as follows:
<TABLE>
<CAPTION>
Over one year
through five years Over five years
------------------ ---------------
One year Fixed Floating Fixed Floating
or less rate rate rate rate Total
------- ---- ---- ---- ---- -----
(dollars expressed in thousands)
<S> <C> <C> <C> <C> <C> <C>
Commercial and financial................. $ 189,702 11,632 7,376 2,245 227 211,182
Real estate construction
and development..................... 163,585 32 8,634 -- -- 172,251
Real estate mortgage..................... 239,552 36,591 37,429 17,429 3,428 334,429
Consumer and installment,
net of unearned discount............ 6,810 11,272 -- 814 70 18,966
--------- --------- -------- --------- -------- ---------
Total loans......................... $ 599,649 59,527 53,439 20,488 3,725 736,828
========= ========= ======== ========= ======== =========
</TABLE>
<PAGE>
The following table is a summary of loan loss experience for the periods
indicated:
<TABLE>
<CAPTION>
Six months ended
June 30, Year ended December 31,
------------------- --------------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
---- ---- ---- ---- ---- ---- ----
(dollars expressed in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at beginning of year... $ 15,581 12,820 12,820 9,179 8,412 13,765 15,880
Acquired allowances for
loan losses.............. -- -- 1,542 2,315 -- -- 3,155
-------- ------- ------- ------- --------- -------- --------
15,581 12,820 14,362 11,494 8,412 13,765 19,035
-------- ------- ------- ------- --------- -------- --------
Loans charged off:
Commercial and financial.. (1,249) (2,272) (5,121) (883) (192) (2,723) (301)
Real estate construction
and development......... -- -- -- -- -- (263) (456)
Real estate mortgage...... (7) (183) (221) (385) (4,284) (7,676) (5,831)
Consumer and installment.. (38) (283) (353) (59) (94) (520) (64)
-------- ------- -------- ------- --------- -------- --------
Total loans charged-off. (1,294) (2,738) (5,695) (1,327) (4,570) (11,182) (6,652)
-------- ------- -------- ------- --------- -------- --------
Recoveries of loans previously
charged off:
Commercial and financial. 1,623 307 1,238 1,043 262 124 194
Real estate construction
and development......... 3 179 261 -- 115 -- 12
Real estate mortgage..... 308 388 1,539 699 2,880 1,140 441
Consumer and installment. 27 43 86 61 80 91 24
-------- ------- -------- ------- --------- -------- --------
Total recoveries
of loans previously
charged off........... 1,961 917 3,124 1,803 3,337 1,355 671
-------- ------- -------- ------- --------- -------- --------
Net loan recoveries
(charge-offs)......... 667 (1,821) (2,571) 476 (1,233) (9,827) (5,981)
-------- ------- -------- ------- --------- -------- --------
Provision for loan losses...... 740 950 3,790 850 2,000 4,474 711
-------- ------- -------- ------- --------- -------- --------
Balance at end of year......... $ 16,988 11,949 15,581 12,820 9,179 8,412 13,765
======== ======= ======== ======= ========= ======== ========
Loans outstanding:
Average.................. $758,247 578,368 635,793 469,744 326,573 337,772 214,561
End of period............ 799,226 587,181 736,828 573,562 385,251 310,930 385,900
Ratio of allowance for loan
losses to loans outstanding:
Average..................... 2.24% 2.07% 2.45% 2.73% 2.81% 2.49% 6.42%
End of period............... 2.13 2.03 2.11 2.24 2.38 2.71 3.57
Ratio of net loan recoveries
(charge-offs) to average
loans outstanding........... 0.09 (0.31) (0.40) 0.10 (0.38) (2.91) (2.79)
========= ======== ========== ======== ========= ========= =========
Allocation of allowance
for loan losses at end
of period:
Commercial and financial..... $ 6,165 3,770 5,654 4,045 2,704 2,442 3,267
Real estate construction
and development........... 3,284 2,954 3,012 3,169 1,299 824 1,219
Real estate mortgage......... 5,138 3,680 4,712 3,948 3,329 2,532 5,188
Consumer and installment..... 1,087 1,015 997 1,089 925 1,851 2,618
Unallocated.................. 1,314 530 1,206 569 922 763 1,473
-------- ------- -------- ------- --------- -------- --------
Total .................. $ 16,988 11,949 15,581 12,820 9,179 8,412 13,765
======== ======= ======== ======= ========= ======== ========
Percent of categories
to loans, net of
unearned discount:
Commercial and financial.... 28.3% 32.0% 28.7% 34.0% 27.9% 19.0% 15.7%
Real estate construction
and development........... 23.2 23.3 23.4 22.6 13.6 6.7 6.7
Real estate mortgage........ 46.8 40.7 45.4 41.7 57.3 71.5 69.9
Consumer and installment.... 1.7 4.0 2.5 1.7 1.2 2.8 3.4
Loans held for sale......... -- -- -- -- -- -- 4.3
-------- ------- -------- ------- --------- -------- --------
Total................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
======== ======= ======== ======= ========= ======== ========
</TABLE>
<PAGE>
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>
June 30, December 31,
--------------- ---------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
---- ---- ---- ---- ---- ---- ----
(dollars expressed in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Nonperforming loans................. $ 8,406 17,607 12,907 16,412 7,973 20,723 15,275
Other real estate, net.............. 220 40 329 774 1,653 3,370 1,520
--------- -------- --------- -------- --------- -------- --------
Total nonperforming assets.... $ 8,626 17,647 13,236 17,186 9,626 24,093 16,795
========= ======== ========= ======== ========= ======== ========
Loans, net of unearned discount..... $ 799,226 587,181 736,828 573,562 385,251 310,930 385,900
========= ======== ========= ======== ========= ======== ========
Loans past due:
Over 30 days to 90 days......... $ 9,880 6,621 3,588 11,228 1,807 4,167 7,989
Over 90 days and still accruing. 399 2,373 1,682 510 156 264 4,494
--------- -------- --------- -------- --------- -------- --------
Total past-due loans.......... $ 10,279 8,994 7,176 11,738 1,963 4,431 12,483
========= ======== ========= ======== ========= ======== ========
Allowance for loan losses to loans.. 2.13% 2.03% 2.11% 2.24% 2.38% 2.71% 3.57%
Nonperforming loans to loans........ 1.05 3.00 1.75 2.86 2.07 6.66 3.96
Allowance for loan losses
to nonperforming loans........ 202.09 67.87 120.72 78.11 115.13 40.59 90.11
Nonperforming assets to loans
and other real estate......... 1.08 3.01 1.80 2.99 2.49 7.67 4.34
========= ======== ========= ======== ========= ======== ========
</TABLE>
Nonperforming loans, consisting of loans on nonaccrual status and
certain restructured loans, were $8.4 million and $12.9 million at June 30, 2000
and December 31, 1999, respectively, in comparison to $16.4 million at December
31, 1998. The decrease in nonperforming loans primarily results from continued
aggressive collection efforts and management's continued efforts to effectively
monitor and manage the loan portfolios of acquired entities. The increase in
nonperforming loans at December 31, 1998 was primarily attributable to certain
loans obtained through the merger of Republic Bank and the deterioration of a
few large credit relationships. The overall decrease in nonperforming loans
subsequent to December 31, 1998 has resulted in an improved ratio of the
allowance for loan losses to nonperforming loans. This ratio increased to
202.09% and 120.72% at June 30, 2000 and December 31, 1999, respectively, from
67.87% and 78.11% at June 30, 1999 and December 31, 1998, respectively.
FB&T's credit management policy and procedures focus on identifying,
measuring and controlling credit exposure. These procedures employ a
lender-initiated system of rating credits, which is ratified in the loan
approval process and subsequently tested in internal loan reviews, external
audits and regulatory bank examinations. The system requires rating all loans at
the time they are originated, except for homogeneous categories of loans, such
as residential real estate mortgage loans and indirect automobile loans. These
homogeneous loans are assigned an initial rating based on FB&T's experience with
each type of loan. Adjustments to these ratings are based on payment experience
subsequent to their origination.
Adversely rated credits, including loans requiring close monitoring
which would not normally be considered criticized credits by regulators, are
included on a monthly loan watch list. Loans may be added to the watch list for
reasons which are temporary and correctable, such as the absence of current
financial statements of the borrower, or a deficiency in loan documentation.
Other loans are added whenever any adverse circumstance is detected which might
affect the borrower's ability to meet the terms of the loan. This could be
initiated by the delinquency of a scheduled loan payment, a deterioration in the
borrower's financial condition identified in a review of periodic financial
statements, a decrease in the value of the collateral securing the loan, or a
change in the economic environment within which the borrower operates. Loans on
the watch list require periodic detailed loan status reports prepared by the
responsible officer, which are discussed in formal meetings with loan review and
credit administration staff members. Downgrades of loan risk ratings may be
initiated by the responsible loan officer at any time. However, upgrades of risk
ratings may only be made with the concurrence of selected loan review and credit
administration staff members generally at the time of the formal watch list
review meetings.
Each month, the credit administration department provides FB&T's
management with detailed lists of loans on the watch list and summaries of the
entire loan portfolio of by risk rating. These are coupled with analyses of
changes in the risk profile of the portfolio, 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
portfolio are monitored continually. Factors are applied to the loan portfolio
for each category of loan risk to determine an acceptable level of allowance for
loan losses. These factors are derived primarily from actual loss experience and
from published national surveys of norms in the industry. The calculated
<PAGE>
allowance required for the portfolio is then compared to the actual allowance
balance to determine the provision necessary to maintain the allowance at an
appropriate level. In addition, management exercises judgment in its analysis of
determining the overall level of the allowance for loan 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 FB&T operates. Based on this quantitative and qualitative
analysis, provisions are made to the allowance for loan losses. Such provisions
are reflected in the statement of income.
FB&T does not engage in lending in foreign countries or based on
activities in foreign countries. Additionally, FB&T does not have any
concentrations of loans exceeding 10% of total loans that are not otherwise
disclosed in the loan portfolio composition table and Note 4 to the accompanying
financial statements. FB&T does not have a material amount of interest-earning
assets that would have been included in nonaccrual, past due or restructured
loans if such assets were loans.
Deposits
Deposits are the primary source of funds for FB&T. FB&T's deposits
consist principally of core deposits from its local market areas, including both
individual and corporate customers. The following table sets forth the
distribution of FB&T's average deposit accounts at the dates indicated and the
weighted average interest rates paid on each category of deposit:
<TABLE>
<CAPTION>
June 30, 2000
----------------------------------------
Percent
of
Amount deposits Rate
------ -------- ----
(dollars expressed in thousands)
<S> <C> <C> <C>
Noninterest-bearing demand.................. $ 170,556 20.38% --%
Interest-bearing demand..................... 68,734 8.21 1.46
Savings .................................... 278,778 33.32 4.48
Time deposits of $100 or more............... 35,144 4.20 4.72
Other time.................................. 283,490 33.89
---------- ------- -------
Total average deposits............... $ 836,702 100.00% 5.54
========== ====== =======
</TABLE>
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------------------------
1999 1998 1997
---------------------- ------------------------- ------------------------
Percent Percent Percent
of of of
Amount deposits Rate Amount deposits Rate Amount deposits Rate
------ -------- ---- ------ -------- ---- ------ -------- ----
(dollars expressed in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Noninterest-bearing demand...... $146,464 20.69% --% $ 108,827 17.40% --% $ 75,949 16.28% --%
Interest-bearing demand......... 52,339 7.39 1.69 33,382 5.34 1.34 23,027 4.94 1.42
Savings......................... 222,097 31.37 3.95 197,010 31.51 4.47 97,801 20.97 4.10
Time deposits of $100 or more... 54,756 7.73 5.06 65,324 10.45 5.81 54,116 11.60 5.71
Other time...................... 232,361 32.82 5.13 220,779 35.30 5.54 215,546 46.21 5.79
-------- ------- ===== --------- ------ --------- -------
Total average deposits...... $708,017 100.00% $ 625,322 100.00% $ 466,439 100.00%
======== ====== ========= ====== ========= ======
</TABLE>
Noninterest-bearing demand, interest-bearing demand and savings have no
stated maturity. The maturity distribution of time deposits of $100,000 or more
and other time is presented in the interest rate sensitivity table under
"--Interest Rate Risk Management."
Capital and Dividends
Dividends. The ability of FB&T to pay dividends to First Banks is
limited by federal laws, by regulations promulgated by the bank regulatory
agencies and by principles of prudent bank management. Additional information
concerning limitations on the ability of FB&T to pay dividends appears in Note
10 to the accompanying financial statements.
Regulatory Capital. FB&T is subject to certain regulatory capital
requirements administered by the Federal Deposit Insurance Corporation (FDIC).
As more fully discussed in Note 14 to the accompanying financial statements,
failure to meet these minimum capital requirements can initiate certain
mandatory, and possibly additional discretionary, actions by regulatory agencies
that, if undertaken, could have a direct material effect on FB&T's financial
statements. Management believes as of June 30, 2000, December 31, 1999 and 1998,
FB&T was "well capitalized" as defined by the FDIC Improvement Act of 1991.
<PAGE>
Liquidity
The liquidity of FB&T 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. FB&T receives funds for liquidity from
customer deposits, loan payments, maturities of loans and investments, sales of
investments and earnings. In addition, FB&T may avail itself 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 $108.7 million at
June 30, 2000, and $124.1 million and $81.3 million at December 31, 1999 and
1998, respectively.
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, 2000 and December 31, 1999 and 1998:
<TABLE>
<CAPTION>
June 30, December 31, December 31,
2000 1999 1998
---- ---- ----
(dollars expressed in thousands)
<S> <C> <C> <C> <C>
3 months or less..................... $ 44,266 72,991 29,693
Over 3 through 6 months.............. 19,568 17,916 22,889
Over 6 through 12 months............. 27,195 22,989 23,680
Over 12 months....................... 17,651 10,247 5,082
----------- ----------- -----------
Total............................ $ 108,680 124,143 81,344
=========== =========== ===========
</TABLE>
In addition, in 1999, FB&T established a borrowing relationship with
the Federal Reserve Bank in San Francisco. This borrowing relationship, which is
secured by commercial loans, provides an additional liquidity facility that may
be utilized for contingency purposes. At June 30, 2000 and December 31, 1999,
FB&T's borrowing capacity under this agreement was approximately $384.1 million
and $347.5 million, respectively. In addition, FB&T's borrowing capacity through
its relationship with the Federal Home Loan Bank was approximately $39.9 million
and $35.1 million at June 30, 2000 and December 31, 1999, respectively.
Management believes the available liquidity and operating results of
FB&T will be sufficient to provide funds for growth and to permit the
distribution of dividends to First Banks.
Year 2000 Compatibility
FB&T was 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.
As more fully discussed in Note 11 to the accompanying financial
statements, data processing services are provided to FB&T by First Services,
L.P. under the terms of data processing agreements. To address the Year 2000
issue, FB&T, working jointly with First Banks, 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 summarized each major phase of the Program and the
estimated costs to remediate and test systems in preparation for the Year 2000.
The Plan addressed both Information Technology (IT) projects, such as data
processing and data network applications, and non-IT projects, such as building
facilities and security systems. The major phases of the Program were awareness,
assessment, remediation, validation and implementation.
FB&T'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, FB&T closely reviewed and
monitored the Year 2000 progress as reported by each vendor and tested, in most
cases, on a system separate from the on-line production system. For the critical
systems that were 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, FB&T did not invoke any remediation
contingency efforts.
FB&T, along with First Banks, 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 had 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
<PAGE>
the new teller system (CFI) also provided a solution for the Year 2000 problem,
the overall implementation schedule was accelerated. The CFI system installation
was completed during the third quarter of 1999. The cost of the teller
replacement to FB&T was $1.4 million and is being charged to expense over a
60-month period. First Banks also upgraded its local area network-based systems,
networks and core processor, and purchased certain item processing equipment, as
the previous equipment, which was fully depreciated, was not Year 2000
compliant. The cost of these upgrades and the item processing equipment are
being charged to FB&T under the terms of certain data processing and management
services agreements. See Note 11 to the accompanying financial statements for a
further discussion of transactions with related parties.
FB&T successfully completed all phases of the Program within the
appropriate timeframes established by the regulatory agencies. In addition, FB&T
did not encounter any significant business disruptions or processing problems as
a result of the Year 2000 transition. Furthermore, management is unaware of any
Year 2000 issues encountered by FB&T'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 for FB&T was $1.9 million, comprised of
capital improvements of $1.4 million and direct expenses reimbursable to First
Services L.P. of $525,000. The capital improvements, as previously discussed,
are being charged to expense in the form of depreciation expense or lease
expense, generally over a period of 60 months. FB&T incurred direct expenses
related to the Program of approximately $35,000 for the six months ended June
30, 2000 and $360,000 and $130,000 for the years ended December 31, 1999 and
1998, respectively.
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.
In June 2000, the FASB issued SFAS No. 138 - Accounting for Derivative
Instruments and Hedging Activities, an Amendment of FASB Statement No. 133,
which addresses a limited number of issues causing implementation difficulties
for numerous entities that apply SFAS 133, as amended. SFAS 138 amends the
accounting and reporting standards of SFAS 133, as amended, for certain
derivative instruments, certain hedging activities and for decisions made by the
FASB relating to the Derivatives Implementation Group (DIG) process.
FB&T is currently evaluating the requirements of SFAS 133, as amended,
to determine its potential impact on the financial statements.
Effects of Inflation
Financial institutions are less affected by inflation than other types
of companies. Financial institutions make relatively few significant asset
acquisitions that are directly affected by changing prices. Instead, the assets
and liabilities are primarily monetary in nature. Consequently, interest rates
are more significant to the performance of financial institutions than the
effect of general inflation levels. While a relationship exists between the
inflation rate and interest rates, FB&T believes this is generally manageable
through its asset-liability management program.
<PAGE>
FIRST BANK & TRUST
QUARTERLY CONDENSED FINANCIAL DATA - UNAUDITED
<TABLE>
<CAPTION>
1999 Quarter Ended
----------------------------------------------------
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
(dollars in thousands, except per share data)
<S> <C> <C> <C> <C>
Interest income......................................... $ 14,341 14,014 15,766 19,644
Interest expense......................................... 6,199 5,790 6,231 7,488
---------- -------- ------- -------
Net interest income............................. 8,142 8,224 9,535 12,156
Provision for loan losses................................ 300 650 840 2,000
---------- -------- ------- -------
Net interest income after
provision for loan losses..................... 7,842 7,574 8,695 10,156
---------- -------- ------- -------
Noninterest income:
Gains on sales of securities.......................... 282 29 -- --
Other................................................. 886 1,071 882 1,135
---------- -------- ------- -------
Total noninterest income........................ 1,168 1,100 882 1,135
---------- -------- ------- -------
Noninterest expense...................................... 6,077 6,052 6,290 7,214
---------- -------- ------- -------
Income before income tax expense................ 2,933 2,622 3,287 4,077
Income tax expense....................................... 1,263 1,147 1,290 1,521
---------- -------- ------- -------
Net income...................................... $ 1,670 1,475 1,997 2,556
========== ======== ======= =======
Earnings per common share:
Basic................................................. $ 0.36 0.31 0.42 0.54
Diluted............................................... 0.36 0.31 0.42 0.54
========== ======== ======= =======
1998 Quarter Ended
----------------------------------------------------
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
(dollars in thousands, except per share data)
Interest income......................................... $ 12,398 12,979 14,103 14,945
Interest expense......................................... 6,494 6,473 6,343 6,776
--------- --------- ------- --------
Net interest income............................. 5,904 6,506 7,760 8,169
Provision for loan losses................................ 200 150 150 350
--------- ---------- ------- --------
Net interest income after
provision for loan losses..................... 5,704 6,356 7,610 7,819
--------- --------- ------- --------
Noninterest income:
Gains on sales of securities.......................... -- 156 202 --
Other................................................. 703 710 752 958
--------- --------- ------- --------
Total noninterest income........................ 703 866 954 958
--------- --------- ------- --------
Noninterest expense...................................... 4,714 5,463 5,597 6,715
--------- --------- ------- --------
Income before income tax expense................ 1,693 1,759 2,967 2,062
Income tax expense....................................... 510 721 1,191 1,117
--------- --------- ------- --------
Net income...................................... $ 1,183 1,038 1,776 945
========= ========= ======= ========
Earnings per common share:
Basic................................................. $ 0.25 0.22 0.38 0.20
Diluted............................................... 0.25 0.22 0.38 0.20
========= ========= ======= =======
</TABLE>
<PAGE>
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 June 30, 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
incorporation or organization) (I.R.S. Employer Identification No.)
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 July 31, 2000
----- ------------------
Common Stock, $0.15 par value 3,085,934
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 - (UNAUDITED):
<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............................................. 12
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.......................... 21
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.................................................... 22
SIGNATURES.......................................................................................... 23
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
FIRST BANKS AMERICA, INC.
CONSOLIDATED BALANCE SHEETS - (UNAUDITED)
(dollars expressed in thousands, except per share data)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
---- ----
ASSETS
------
Cash and cash equivalents:
<S> <C> <C>
Cash and due from banks........................................................... $ 35,436 35,644
Interest-bearing deposits with other financial institutions
with maturities of three months or less........................................ 1,761 122
Federal funds sold................................................................ 54,100 8,800
----------- ---------
Total cash and cash equivalents.............................................. 91,297 44,566
----------- ---------
Investment securities:
Available for sale, at fair value................................................. 109,185 90,658
Held to maturity, at amortized cost (fair value of $1,742 and $1,757
at June 30, 2000 and December 31, 1999, respectively).......................... 1,864 1,880
----------- ---------
Total investment securities.................................................. 111,049 92,538
----------- ---------
Loans:
Commercial and financial.......................................................... 239,564 216,780
Real estate construction and development.......................................... 214,072 204,832
Real estate mortgage.............................................................. 330,320 272,700
Consumer and installment.......................................................... 31,422 40,514
----------- ---------
Total loans.................................................................. 815,378 734,826
Unearned discount................................................................. (2,655) (2,563)
Allowance for loan losses......................................................... (16,567) (14,611)
----------- ---------
Net loans.................................................................... 796,156 717,652
----------- ---------
Bank premises and equipment, net of accumulated depreciation.......................... 13,315 13,261
Intangibles associated with the purchase of subsidiaries.............................. 21,483 16,579
Accrued interest receivable........................................................... 8,096 6,244
Deferred tax assets................................................................... 15,214 11,125
Other assets.......................................................................... 17,547 18,742
----------- ---------
Total assets................................................................. $ 1,074,157 920,707
=========== =========
</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>
June 30, December 31,
2000 1999
---- ----
LIABILITIES
-----------
Deposits:
Demand:
<S> <C> <C>
Non-interest-bearing ........................................................... $ 153,132 128,137
Interest-bearing................................................................ 84,291 74,858
Savings........................................................................... 272,202 242,543
Time deposits:
Time deposits of $100 or more................................................... 116,099 94,967
Other time deposits............................................................. 292,580 239,518
----------- ---------
Total deposits............................................................... 918,304 780,023
Note payable.......................................................................... 4,200 --
Short-term borrowings................................................................. 19,069 14,940
Accrued interest payable.............................................................. 2,913 1,989
Deferred tax liabilities.............................................................. 2,189 2,043
Accrued expenses and other liabilities................................................ 5,749 4,995
----------- ---------
Total liabilities............................................................ 952,424 803,990
----------- ---------
Guaranteed preferred beneficial interest in First Banks
America, Inc. subordinated debentures............................................. 44,249 44,218
----------- ---------
STOCKHOLDERS' EQUITY
--------------------
Common stock:
Common stock, $0.15 par value; 6,666,666 shares authorized;
3,881,363 sharesand 3,874,697 shares issued
at June 30, 2000 and December 31, 1999, respectively............................ 582 581
Class B common stock, $0.15 par value; 4,000,000 shares
authorized; 2,500,000 shares issued and outstanding............................. 375 375
Capital surplus....................................................................... 69,784 69,760
Retained earnings since elimination of accumulated deficit
of $259,117 effective December 31, 1994........................................... 21,060 15,163
Common treasury stock, at cost; 795,429 shares and 724,396
shares at June 30, 2000 and December 31, 1999, respectively....................... (12,633) (11,369)
Accumulated other comprehensive loss.................................................. (1,684) (2,011)
----------- ----------
Total stockholders' equity................................................... 77,484 72,499
----------- ---------
Total liabilities and stockholders' equity................................... $ 1,074,157 920,707
=========== =========
</TABLE>
<PAGE>
FIRST BANKS AMERICA, INC.
CONSOLIDATED STATEMENTS OF INCOME - (UNAUDITED)
(dollars expressed in thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
--------------------- --------------
2000 1999 2000 1999
---- ---- ---- ----
Interest income:
<S> <C> <C> <C> <C>
Interest and fees on loans.............................................. $19,640 15,715 37,559 28,584
Investment securities................................................... 1,885 1,600 3,421 3,428
Federal funds sold and other............................................ 836 126 1,355 224
------- ------- ------- -------
Total interest income.............................................. 22,361 17,441 42,335 32,236
------- ------- ------- -------
Interest expense:
Deposits:
Interest-bearing demand............................................... 341 285 660 553
Savings............................................................... 2,553 2,143 4,904 3,949
Time deposits of $100 or more......................................... 1,076 899 2,070 1,640
Other time deposits................................................... 4,501 2,821 8,312 5,400
Promissory note payable and short-term borrowings....................... 267 358 421 466
------- ------- ------- -------
Total interest expense............................................. 8,738 6,506 16,367 12,008
------- ------- ------- -------
Net interest income................................................ 13,623 10,935 25,968 20,228
Provision for loan losses................................................... 370 123 712 213
------- ------- ------- -------
Net interest income after provision for loan losses................ 13,253 10,812 25,256 20,015
------- ------- ------- -------
Noninterest income:
Service charges on deposit accounts and customer service fees........... 956 900 1,838 1,630
Gain (loss) on sales of securities, net................................. -- 88 (177) 174
Other income............................................................ 525 516 967 855
------- ------- ------- -------
Total noninterest income........................................... 1,481 1,504 2,628 2,659
------- ------- ------- -------
Noninterest expense:
Salaries and employee benefits.......................................... 3,559 2,907 6,661 5,202
Occupancy, net of rental income......................................... 877 800 1,619 1,361
Furniture and equipment................................................. 544 446 985 848
Advertising and business development.................................... 168 99 236 163
Postage, printing and supplies.......................................... 198 202 393 387
Data processing fees.................................................... 1,007 837 1,951 1,556
Legal, examination and professional fees................................ 1,273 1,144 2,476 2,247
Communications.......................................................... 128 146 260 300
(Gain) loss on sales of other real estate, net of expenses.............. (19) 7 (33) 7
Amortization of intangibles associated with the purchase
of subsidiaries....................................................... 338 306 645 508
Guaranteed preferred debentures......................................... 978 993 1,971 1,986
Other................................................................... 816 796 1,411 1,624
------- ------- ------- -------
Total noninterest expense.......................................... 9,867 8,683 18,575 16,189
------- ------- ------- -------
Income before provision for income tax expense..................... 4,867 3,633 9,309 6,485
Provision for income tax expense............................................ 1,979 1,574 3,412 2,795
------- ------- ------- -------
Net income ........................................................ $ 2,888 2,059 5,897 3,690
======= ======= ======= =======
Earnings per common share:
Basic................................................................... $ 0.52 0.36 1.05 0.65
Diluted................................................................. 0.52 0.36 1.05 0.64
======= ======= ======= =======
Weighted average common stock outstanding (in thousands).................... 5,595 5,713 5,612 5,717
======= ======= ======= =======
</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, 2000 and 1999
and six 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> <C> <C> <C>
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 deferred tax asset
valuation allowance............... -- -- 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
Six months ended December 31, 1999:
Comprehensive income:
Net income.......................... -- -- -- 5,780 5,780 -- -- 5,780
Other comprehensive income,
net of tax - unrealized losses
on securities, net of
reclassification adjustment (1)... -- -- -- (869) -- -- (869) (869)
-----
Comprehensive income................ 4,911
=====
Reduction of deferred tax asset
valuation allowance............... -- -- 654 -- -- -- 654
Compensation paid in stock........... -- -- 36 -- -- -- 36
Repurchases of common stock.......... -- -- -- -- (1,011) -- (1,011)
----- --- ------ ------ ------ ------ ------
Consolidated balances,
December 31, 1999.................... 581 375 69,760 15,163 (11,369) (2,011) 72,499
Six months ended June 30, 2000:
Comprehensive income:
Net income.......................... -- -- -- 5,897 5,897 -- -- 5,897
Other comprehensive income,
net of tax - unrealized gains
on securities, net of
reclassification adjustment (1)... -- -- -- 327 -- -- 327 327
-----
Comprehensive income................ 6,224
=====
Exercise of stock options............ 1 -- 24 -- -- -- 25
Repurchases of common stock.......... -- -- -- -- (1,264) -- (1,264)
----- --- ------ ------ ------ ------ ------
Consolidated balances, June 30, 2000.... $ 582 375 69,784 21,060 (12,633) (1,684) 77,484
===== === ====== ====== ======== ====== ======
</TABLE>
<PAGE>
(2) Disclosure of reclassification adjustment:
<TABLE>
<CAPTION>
Three months ended Six months ended Six months ended
June 30, June 30, December 31,
--------------- ----------------
2000 1999 2000 1999 1999
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Unrealized (losses) gains arising during the period............... $(200) (790) 212 (1,570) (869)
Less reclassification adjustment for gains (losses)
included in net income.......................................... -- 57 (115) 113 --
----- ----- ------ ------ -----
Unrealized (losses) gains on investment securities................ $(200) (847) 327 (1,683) (869)
===== ===== ====== ====== =====
</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,
-----------------------
2000 1999
---- ----
Cash flows from operating activities:
<S> <C> <C>
Net income............................................................................ $ 5,897 3,690
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation, amortization and accretion, net..................................... 1,195 1,036
Provision for loan losses......................................................... 712 213
Provision for income tax expense.................................................. 3,412 2,795
Payments of income taxes.......................................................... (1,533) (941)
Loss (gain) on sales of securities, net........................................... 177 (174)
Increase in accrued interest receivable........................................... (1,186) (538)
Interest accrued on liabilities................................................... 16,367 12,008
Payments of interest on liabilities............................................... (15,957) (11,860)
Other operating activities, net................................................... 986 (5,353)
---------- ---------
Net cash provided by operating activities................................... 10,070 876
---------- ---------
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 54,414
Maturities of investment securities available for sale................................ 52,080 19,118
Maturities of investment securities held to maturity.................................. 15 14
Purchases of investment securities available for sale................................. (45,913) (13,897)
Net increase in loans................................................................. (40,330) (36,933)
Recoveries of loans previously charged-off............................................ 1,170 1,375
Purchases of bank premises and equipment.............................................. (963) (379)
Proceeds from sales of other real estate.............................................. 168 283
Other investing activities, net....................................................... (348) (292)
---------- ---------
Net cash (used in) provided by investing activities......................... (32,238) 6,459
---------- ---------
Cash flows from financing activities:
Other increases (decreases) in deposits:
Demand and savings deposits.......................................................... 19,456 (23,497)
Time deposits........................................................................ 42,378 7,053
(Decrease) increase in federal funds purchased and other short-term borrowings........ (9,000) 5,000
Increase (decrease) in securities sold under agreements to repurchase................. 13,129 (1,761)
Increase in promissory note payable................................................... 4,200 --
Repurchases of common stock for treasury.............................................. (1,264) (270)
---------- ---------
Net cash provided by (used in) financing activities......................... 68,899 (13,475)
---------- ---------
Net increase (decrease) in cash and cash equivalents........................ 46,731 (6,140)
Cash and cash equivalents, beginning of period............................................ 44,566 46,313
---------- ---------
Cash and cash equivalents, end of period.................................................. $ 91,297 40,173
========== =========
Noncash investing and financing activities:
Loans transferred to other real estate................................................ 75 31
Reduction of deferred tax asset valuation allowance.................................. -- 327
========== ========
</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 and six months ended June 30, 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 June 30, 2000 and December
31, 1999, First Banks' ownership interest in FBA was 84.33% and 83.37%,
respectively.
FBA operates through three wholly owned banking subsidiaries: First
Bank Texas N.A., headquartered in Houston, Texas (FB Texas); First Bank of
California, headquartered in Sacramento, California (FB California); and Redwood
Bank, headquartered in San Francisco, California (Redwood 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
operated 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 $90.0 million revolving note payable
to First Banks (Note Payable) as further discussed in Note 4 to the accompanying
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 $5.6 million and is being amortized over 15 years.
Lippo Bank was merged into FB California on May 31, 2000.
On June 27, 2000, FBA and Commercial Bank of San Francisco (Commercial
Bank) executed a definitive agreement providing for the acquisition of
Commercial Bank, San Francisco, California, by FBA. Under the terms of the
agreement, the shareholders of Commercial Bank will receive $17.75 per share in
cash, or a total of approximately $29.5 million. Commercial Bank operates one
branch office in the San Francisco financial district. At June 30, 2000,
Commercial Bank had $178.4 million in total assets, $97.4 million in loans, net
of unearned discount, $63.8 million in investment securities and $132.7 million
in deposits. FBA expects this transaction, which is subject to regulatory
approvals and the approval of Commercial Bank shareholders, will be completed
during the first quarter of 2001.
On June 29, 2000, FBA and First Banks executed a definitive agreement
providing for the acquisition of First Banks' wholly owned subsidiary, First
Bank & Trust, headquartered in Newport Beach, California (FB&T), by FBA. Under
the terms of the agreement, First Banks will exchange all of the outstanding
stock of FB&T for approximately 6.9 million shares of common stock of FBA, which
<PAGE>
will increase First Banks' ownership percentage of FBA to approximately 93.0%.
This transaction and related internal reorganizations will allow FBA and First
Banks to merge their Texas and California interests. FB&T operates 26 banking
locations in the counties of Los Angeles, Orange, Ventura and Santa Barbara,
California as well as branches in San Jose and Walnut Creek, in Northern
California. At June 30, 2000, FB&T had $1.0 billion in total assets, $799.2
million in loans, net of unearned discount, $97.2 million in investment
securities and $875.0 million in deposits. FBA expects this transaction, which
is subject to regulatory and shareholder approvals, will be completed during the
fourth quarter of 2000.
The following unaudited pro forma combined condensed results of
operations for the six months ended June 30, 2000 and 1999, and for the year
ended December 31, 1999, have been prepared to reflect the effects on the
historical results of FBA of the proposed acquisition of FB&T as described
above. The proposed acquisition will be accounted for as a combination of
entities under common control. Therefore, the unaudited pro forma combined
condensed results of operations give retroactive effect to the transaction and
are presented as if the combining entities had been consolidated for all periods
presented. The pro forma results of operations set forth below are unaudited and
not necessarily indicative of the results that will occur in the future.
<TABLE>
<CAPTION>
Six months ended Year ended
June 30, December 31,
--------------------- ----------------
2000 1999 1999
---- ---- ----
(dollars expressed in thousands,
except per share data)
<S> <C> <C> <C>
Net interest income................................................ $49,410 36,594 81,481
======= ======= ========
Net income......................................................... $12,691 6,555 17,599
======= ======= ========
Earnings Per Share:
Basic............................................................ $ 1.01 0.52 1.39
Diluted.......................................................... 1.01 0.52 1.39
======= ======= ========
</TABLE>
(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 June 30, 2000:
<S> <C> <C> <C>
Basic EPS-- income available to common stockholders.......... $2,888 5,595 $ 0.52
======
Effect of dilutive securities-- stock options................ -- --
------ ------
Diluted EPS-- income available to common stockholders........ $2,888 5,595 $ 0.52
====== ====== ======
Three months ended June 30, 1999:
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
====== ====== ======
Six months ended June 30, 2000:
Basic EPS-- income available to common stockholders.......... $5,897 5,612 $ 1.05
======
Effect of dilutive securities-- stock options................ -- 3
------ ------
Diluted EPS-- income available to common stockholders........ $5,897 5,615 $ 1.05
====== ====== ======
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
====== ====== ======
</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 $872,000 and $1.7 million for the three and six months
ended June 30, 2000, and $724,000 and $1.4 million for the comparable periods in
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 with 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 $211,000 and $401,000 for the three
and six months ended June 30, 2000, and $220,000 and $432,000 for the comparable
periods in 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 $859,000 and $1.7
million for the three and six months ended June 30, 2000, and $740,000 and $1.4
million for the comparable periods in 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 $98.2 million and $88.2 million in whole
loans and loan participations outstanding at June 30, 2000 and December 31,
1999, respectively, that were purchased from banks affiliated with First Banks.
In addition, FBA's Subsidiary Banks had sold $322.1 million and $302.9 million
in whole loans and loan participations to affiliates of First Banks at June 30,
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 had a $20.0 million revolving Note Payable to First Banks on which
the outstanding principal and accrued interest under the Note Payable were due
and payable on October 31, 2001. On June 30, 2000, FBA and First Banks renewed
this Note Payable, increasing the commitment to $90.0 million and extending the
maturity date to June 30, 2005. 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. At June 30, 2000, the outstanding
borrowings under the Note Payable were $4.2 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 $153,000 and $214,000 for the three and
six months ended June 30, 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.
<PAGE>
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 June 30, 2000, FBA and the Subsidiary Banks were each well
capitalized under the applicable regulations.
As of June 30, 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 June 30, 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
--------------------------
June 30, December 31, adequacy prompt corrective
2000 1999 purposes action provisions
---- ---- -------- -----------------
Total capital (to risk-weighted assets):
<S> <C> <C> <C> <C>
FBA.................................. 11.97% 13.08% 8.0% 10.0%
FB Texas............................. 12.04 12.42 8.0 10.0
FB California........................ 11.72 10.81 8.0 10.0
Redwood Bank......................... 11.55 11.17 8.0 10.0
Tier 1 capital (to risk-weighted assets):
FBA.................................. 8.64% 9.34% 4.0% 6.0%
FB Texas............................. 10.78 11.17 4.0 6.0
FB California........................ 10.46 9.56 4.0 6.0
Redwood Bank......................... 10.34 10.15 4.0 6.0
Tier 1 capital (to average assets):
FBA.................................. 7.93% 8.94% 3.0% 5.0%
FB Texas............................. 10.32 10.39 3.0 5.0
FB California........................ 9.72 9.95 3.0 5.0
Redwood Bank......................... 9.17 8.48 3.0 5.0
</TABLE>
(6) BUSINESS SEGMENT RESULTS
FBA's business segments are its Subsidiary Banks. The reportable
business segments are consistent with the management structure of FBA and the
Subsidiary Banks, the internal reporting system that monitors performance and,
in all material respects, generally accepted accounting principles and practices
predominant in the banking industry.
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:
<PAGE>
<TABLE>
<CAPTION>
FB California (1) Redwood Bank (2)
-------------------------- -------------------------
June 30, December 31, June 30, December 31,
2000 1999 2000 1999
---- ---- ---- ----
(dollars expressed in thousands)
Balance sheet information:
<S> <C> <C> <C> <C>
Investment securities................................ $ 54,250 20,743 21,242 37,539
Loans, net of unearned discount...................... 445,681 379,632 143,866 138,902
Total assets......................................... 566,314 431,838 199,256 199,988
Deposits............................................. 488,729 367,563 172,369 173,703
Stockholders' equity................................. 66,373 47,990 24,893 24,275
======== ========= ========= =========
FB California (1) Redwood Bank (2)
---------------------------- -------------------------
Three months ended Three months ended
June 30, June 30,
---------------------------- -------------------------
2000 1999 2000 1999
---- ---- ---- ----
(dollars expressed in thousands)
Income statement information:
Interest income...................................... $ 12,329 8,132 3,951 3,750
Interest expense..................................... 4,622 2,996 1,534 1,393
-------- --------- --------- ---------
Net interest income........................... 7,707 5,136 2,417 2,357
Provision for loan losses............................ 45 20 150 73
-------- --------- --------- ---------
Net interest income after
provision for loan losses................... 7,662 5,116 2,267 2,284
-------- --------- --------- ---------
Noninterest income................................... 931 815 69 177
Noninterest expense.................................. 5,225 3,926 1,433 1,469
-------- --------- --------- ---------
Income (loss) before provision (benefit)
for income tax expense...................... 3,368 2,005 903 992
Provision (benefit) for income tax expense........... 1,314 866 477 480
-------- --------- --------- ----------
Net income.................................... $ 2,054 1,139 426 512
======== ========= ========= ==========
FB California (1) Redwood Bank (2)
-------------------------- -------------------------
Six months ended Six months ended
June 30, June 30,
---------------------------- -------------------------
2000 1999 2000 1999
---- ---- ---- ----
(dollars expressed in thousands)
Income statement information:
Interest income...................................... $ 22,621 16,132 7,884 4,930
Interest expense..................................... 8,349 6,075 3,108 1,835
-------- --------- --------- ---------
Net interest income........................... 14,272 10,057 4,776 3,095
Provision for loan losses............................ 135 80 282 73
-------- --------- --------- ---------
Net interest income after
provision for loan losses................... 14,137 9,977 4,494 3,022
-------- --------- --------- ---------
Noninterest income................................... 1,723 1,424 (49) 203
Noninterest expense.................................. 9,282 7,625 2,933 1,907
-------- --------- --------- ---------
Income (loss) before provision (benefit)
for income tax expense...................... 6,578 3,776 1,512 1,318
Provision (benefit) for income tax expense........... 2,577 1,653 801 644
-------- --------- --------- ----------
Net income.................................... $ 4,001 2,123 711 674
======== ========= ========= ==========
</TABLE>
<PAGE>
-----------------
(1) Lippo Bank was acquired by FBA on February 29, 2000 and merged into FB
California on May 31, 2000.
(2) Redwood Bank was acquired by FBA on March 4,1999.
(3) Corporate and other includes $636,000 and $1.3 million of guaranteed
preferred debentures expense, after applicable income tax benefit of
$342,000 and $670,000, for the three and six months ended June 30, 2000,
and $645,000 and $1.3 million of guaranteed preferred debentures expense,
after applicable income tax benefit of $348,000 and $695,000, for the
comparable periods in 1999, respectively.
<PAGE>
<TABLE>
<CAPTION>
FB Texas Corporate and other (3) Consolidated total
------------------------------ ------------------------------- ----------------------------
June 30, December 31, June 30, December 31, June 30, December 31,
2000 1999 2000 1999 2000 1999
---- ---- ---- ---- ---- ----
(dollars expressed in thousands)
<S> <C> <C> <C> <C> <C> <C>
31,605 30,439 3,952 3,817 111,049 92,538
222,995 213,731 181 (2) 812,723 732,263
303,570 278,988 5,017 9,893 1,074,157 920,707
257,542 244,248 (336) (5,491) 918,304 780,023
30,111 30,338 (43,893) (30,104) 77,484 72,499
========== ========= ========= ======== ========== =========
FB Texas Corporate and other (3) Consolidated total
------------------------------ ------------------------------- ---------------------------
Three months ended Three months ended Three months ended
June 30, June 30, June 30,
------------------------------ ------------------------------- ---------------------------
2000 1999 2000 1999 2000 1999
---- ---- ---- ---- ---- ----
(dollars expressed in thousands)
5,990 5,481 91 78 22,361 17,441
2,431 2,163 151 (46) 8,738 6,506
---------- --------- --------- -------- ---------- --------
3,559 3,318 (60) 124 13,623 10,935
175 30 -- -- 370 123
---------- --------- --------- -------- ---------- --------
3,384 3,288 (60) 124 13,253 10,812
---------- --------- --------- -------- ---------- --------
495 513 (14) (1) 1,481 1,504
2,196 2,231 1,013 1,057 9,867 8,683
---------- --------- --------- -------- ---------- --------
1,683 1,570 (1,087) (934) 4,867 3,633
570 541 (382) (313) 1,979 1,574
---------- --------- --------- -------- ---------- --------
1,113 1,029 (705) (621) 2,888 2,059
========== ========= ========= ======== ========== ========
FB Texas Corporate and other (3) Consolidated total
--------------------------- ------------------------------- ---------------------------
Six months ended Six months ended Six months ended
June 30, June 30, June 30,
--------------------------- ------------------------------- ---------------------------
2000 1999 2000 1999 2000 1999
---- ---- ---- ---- ---- ----
(dollars expressed in thousands)
11,658 11,023 172 151 42,335 32,236
4,720 4,325 190 (227) 16,367 12,008
---------- --------- --------- -------- ---------- --------
6,938 6,698 (18) 378 25,968 20,228
295 60 -- -- 712 213
---------- --------- --------- -------- ---------- --------
6,643 6,638 (18) 378 25,256 20,015
---------- --------- --------- -------- ---------- --------
986 1,056 (32) (24) 2,628 2,659
4,305 4,510 2,055 2,147 18,575 16,189
---------- --------- --------- -------- ---------- --------
3,324 3,184 (2,105) (1,793) 9,309 6,485
1,157 1,096 (1,123) (598) 3,412 2,795
---------- --------- --------- -------- ---------- --------
2,167 2,088 (982) (1,195) 5,897 3,690
========== ========= ========= ======== ========== ========
</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 June 30, 2000, FBA had $1.07
billion in total assets, $812.7 million in total loans, net of unearned
discount, $918.3 million in total deposits and $77.5 million in total
stockholders' equity. FBA operates through three wholly owned bank subsidiaries,
First Bank Texas N.A., headquartered in Houston, Texas (FB Texas); First Bank of
California, headquartered in Sacramento, California (FB California); and Redwood
Bank, headquartered in San Francisco, California (Redwood Bank), collectively
referred to as the Subsidiary Banks.
Through the Subsidiary Banks' 17 banking locations in California and
six banking locations in the greater Houston and Dallas, Texas metropolitan
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 June 30, 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.................... 13 $ 566,314 445,681 488,729
FB Texas......................... 6 303,570 222,995 257,542
Redwood Bank..................... 4 199,256 143,866 172,369
==== ========= ======= =======
</TABLE>
<PAGE>
Financial Condition
FBA's total assets were $1.07 billion and $920.7 million at June 30, 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
$18.9 million, after consideration of the $37.4 million of investment securities
provided by Lippo Bank, to $111.0 million at June 30, 2000. Total deposits,
excluding the $76.4 million of deposits provided by the acquisition of Lippo
Bank, increased by $61.9 million to $918.3 million at June 30, 2000. The funds
generated from the deposit growth were temporarily invested in cash and cash
equivalents. In addition, short-term borrowings increased by $4.1 million to
$19.1 million at June 30, 2000, reflecting an increase of $13.2 million in
retail repurchase agreements offset by a decrease of $9.0 million in federal
funds purchased. Furthermore, FBA's note payable increased to $4.2 million at
June 30, 2000 and is reflective of FBA's $8.0 million advance under its $90.0
million revolving note payable to First Banks utilized to fund the Lippo Bank
acquisition. This increase was partially offset by repayments on the note
payable during the six months ended June 30, 2000. See Notes 2 and 4 to the
accompanying consolidated financial statements.
During the three and six months ended June 30, 2000, FBA purchased $384,000
and $1.3 million of its common stock for treasury at an average cost of $17.42
per share and $17.80 per share, respectively. 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 June 30, 2000, FBA has purchased an aggregate total
of 795,429 common shares for treasury and could purchase approximately 21,449
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 $2.89 million, or $0.52 per share on a diluted basis, for
the three months ended June 30, 2000, in comparison to $2.1 million, or $0.36
per share on a diluted basis, for the comparable period in 1999. For the six
months ended June 30, 2000 and 1999, net income was $5.90 million, or $1.05 per
share on a diluted basis, and $3.70 million, or $0.64 per share on a diluted
basis, respectively. The earnings progress was primarily driven by increased net
interest income generated from the acquisition of Redwood Bank, increased yields
on earning assets and internal loan growth. In addition, FB California's net
income increased to $2.1 million and $4.0 million for the three and six months
ended June 30, 2000, in comparison to $1.1 million and $2.1 million for the
comparable periods in 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 and six months ended June
30, 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 benefits expenses, increased
data processing fees and increased amortization of intangibles associated with
the purchase of subsidiaries.
Net Interest Income
Net interest income was $13.6 million, or 5.70% of average interest-earning
assets, for the three months ended June 30, 2000, in comparison to $10.9
million, or 5.46% of average interest-earning assets, for the comparable period
in 1999. For the six months ended June 30, 2000 and 1999, net interest income
was $26.0 million, or 5.65% of average interest-earning assets, in comparison to
$20.2 million, or 5.45% 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 Lippo Bank and Redwood
Bank, internal loan growth and increases in the prime lending rate.
<PAGE>
The improved yield earned on the interest-earning assets was partially
offset by an increased rate paid on interest-bearing liabilities. For the three
and six months ended June 30, 2000, the aggregate weighted average rate paid on
the deposit portfolio increased to 4.50% and 4.42%, respectively, from 4.00% and
4.04% for the comparable periods in 1999, reflecting FBA's increased rates paid
to provide a funding source for continued loan growth. In addition, the
aggregate weighted average rate paid on promissory notes payable and short-term
borrowings for the three and six months ended June 30, 2000 increased to 6.62%
and 6.28%, respectively, from 5.10% and 5.29% for the comparable periods in
1999, 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 (which has increased during the six months ended June 30, 2000) and
represents a higher-cost funding source, thus contributing to the increase in
the aggregate weighted average rate paid on these financial instruments.
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 June 30, Six months ended June 30,
--------------------------------------------- -------------------------------------------
2000 1999 2000 1999
---------------------- ---------------------- --------------------- ----------------------
Interest Interest Interest Interest
Average income/ Yield/ Average income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
balance expens 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>
Loans (1)(2)(3)(4)........... $ 794,161 19,640 9.95% $690,199 15,715 9.13%$ 773,506 37,559 9.76% $628,205 28,584 9.18%
Investment securities (3).... 112,523 1,885 6.74 101,681 1,600 6.31 105,206 3,421 6.54 110,189 3,428 6.27
Federal funds sold .......... 53,369 819 6.17 10,547 126 4.79 44,842 1,322 5.93 9,046 214 4.77
Other........................ 1,066 17 6.41 370 -- -- 876 33 7.58 399 10 5.05
---------- ------ ------- ------ ---------- ------ --------- ------
Total interest-
earning assets.......... 961,119 22,361 9.36 802,797 17,441 8.71 924,430 42,335 9.21 747,839 32,236 8.69
------ ------ ------ ------
Nonearning assets............... 99,319 85,850 93,672 79,921
---------- ------- ---------- ---------
Total assets............... $1,060,438 $888,647 $1,018,102 $827,760
========== ======== ========== =========
Liabilities and
Stockholders' Equity
--------------------
Interest-bearing liabilities:
Interest-bearing
demand deposits............ $ 97,495 341 1.41% $ 84,133 285 1.36%$ 93,839 660 1.41% $ 79,987 553 1.39%
Savings deposits............. 255,887 2,553 4.01 237,084 2,143 3.63 248,650 4,904 3.97 218,676 3,949 3.64
Time deposits of $100 or more 78,949 1,076 5.48 69,514 899 5.19 76,735 2,070 5.42 63,287 1,640 5.23
Other time deposits.......... 325,021 4,501 5.57 226,319 2,821 5.00 306,812 8,312 5.45 213,807 5,400 5.09
---------- ------- ------- ----- ---------- ------ -------- ------
Total interest-
bearing deposits........ 757,352 8,471 4.50 617,050 6,148 4.00 726,036 15,946 4.42 575,757 11,542 4.04
Promissory notes payable and
short-term borrowings....... 16,231 267 6.62 28,139 358 5.10 13,472 421 6.28 17,775 466 5.29
---------- ------- ------- ------ ---------- ------ -------- ------
Total interest-bearing
liabilities............. 773,583 8,738 4.54 645,189 6,506 4.04 739,508 16,367 4.45 593,532 12,008 4.08
------- ------ ------ ------
Noninterest-bearing liabilities:
Demand deposits.............. 148,240 119,033 141,669 111,782
Other liabilities............ 61,831 55,690 60,805 55,130
---------- ------- ---------- --------
Total liabilities.......... 983,654 819,912 941,982 760,444
Stockholders' equity............ 76,784 68,735 76,120 67,316
---------- ------- ---------- --------
Total liabilities and
stockholders' equity.... $1,060,438 $888,647 $1,018,102 $ 827,760
========== ======== ========== =========
Net interest income............. 13,623 10,935 25,968 20,228
======= ======= ====== ======
Interest rate spread............ 4.82 4.67 4.76 4.61
Net interest margin............. 5.70% 5.46% 5.65% 5.45%
==== ==== ==== ====
</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 $370,000 and $712,000 for the three and
six months ended June 30, 2000, in comparison to $123,000 and $213,000 for the
comparable periods in 1999, respectively. The increase in the provision for loan
losses reflects continued growth in the loan portfolio, both internal and
through acquisitions; increased risk associated with the continued changing
composition of the loan portfolio; an increase in nonperforming assets; and, a
reduction in loan recoveries for the six months ended June 30, 2000. Loan
charge-offs were $83,000 and $725,000 for the three and six months ended June
30, 2000, in comparison to $318,000 and $798,000 for the comparable periods in
1999. For the six months ended June 30, 2000, loan charge-offs included a
charge-off of $457,000 on a single loan purchased from an affiliated bank. Loan
recoveries were $649,000 and $1.2 million for the three and six months ended
June 30, 2000, in comparison to $541,000 and $1.4 million for the comparable
periods 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 $1.5 million and $2.6 million for the three and six
months ended June 30, 2000, in comparison to $1.5 million and $2.7 million for
the comparable periods in 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
$956,000 and $1.8 million for the three and six months ended June 30, 2000, in
comparison to $900,000 and $1.6 million for the comparable periods in 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 six months ended June 30, 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 $88,000 and $174,000 for the three and six months ended June 30, 1999,
respectively. The net loss in 2000 resulted from sales of certain investment
securities held by acquired institutions that did not meet FBA's overall
investment objectives, whereas the net gains in 1999 resulted from sales of
certain investment securities to facilitate the funding of FBA's loan growth.
Other income was $525,000 and $967,000 for the three and six months ended
June 30, 2000, in comparison to $516,000 and $855,000 for the comparable periods
in 1999, respectively. The primary components of the increase are the increased
income earned on FBA's investment in bank-owned life insurance and earnings
associated with FBA's International Banking Division, which was initially
acquired in conjunction with the Lippo Bank acquisition and has subsequently
been expanded to offer these services to FBA's entire customer base.
Noninterest Expense
Noninterest expense was $9.9 million and $18.6 million for the three and
six months ended June 30, 2000, in comparison to $8.7 million from $16.2 million
for the comparable periods in 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 benefits expenses;
(c) increased data processing fees; and (d) increased amortization of
intangibles associated with the purchase of subsidiaries.
Salaries and employee benefits were $3.6 million and $6.7 million for the
three and six months ended June 30, 2000, in comparison to $2.9 million and $5.2
million for the comparable periods in 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.
<PAGE>
Data processing fees were $1.0 million and $2.0 million for the three and
six months ended June 30, 2000, in comparison to $837,000 and $1.6 million for
the comparable periods in 1999, respectively. The increased data processing fees
are attributable to growth and technological advancements consistent with FBA's
product and services offerings, and upgrades to technological equipment,
networks and communication channels.
Amortization of intangibles associated with the purchase of subsidiaries
was $338,000 and $645,000 for the three and six months ended June 30, 2000, in
comparison to $306,000 and $508,000 for the comparable periods in 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 was $816,000 and $1.4 million for the three and six months
ended June 30, 2000, in comparison to $796,000 and $1.6 million for the
comparable periods in 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 for the six months ended
June 30, 2000 is reflective of management's continued efforts to control these
costs.
Provision for Income Tax Expense
The provision for income tax expense was $2.0 million and $3.4 million for
the three and six months ended June 30, 2000, representing an effective income
tax rate of 40.7% and 36.7%, respectively, in comparison to $1.6 million and
$2.8 million, representing an effective income tax rate of 43.3% and 43.1% for
the comparable periods in 1999, 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>
June 30, 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.................... $120,000 634 120,000 614
Interest rate swap agreements - pay
adjustable rate, receive adjustable rate............... -- -- 75,000 --
Interest rate cap agreement.............................. -- -- 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 $808,000 and $805,000 at June 30, 2000 and December 31, 1999,
respectively, and the amount payable by FBA under these swap agreements was
$170,000 and $185,000 at June 30, 2000 and December 31, 1999, respectively.
<PAGE>
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 transition and terminated these agreements at a
cost of $23,000.
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
June 30, 2000 and December 31, 1999, and the amount payable by FBA under these
swap agreements was $42,000 and $44,000 at June 30, 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 June 30, 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)
June 30, 2000:
<S> <C> <C> <C> <C>
September 27, 2001....................... $ 40,000 6.80% 6.14% $ (464)
September 27, 2001....................... 15,000 6.80 6.14 (174)
June 11, 2002............................ 15,000 6.80 6.00 (330)
September 16, 2002....................... 20,000 6.80 5.36 (754)
September 18, 2002....................... 30,000 6.80 5.33 (1,155)
--------- --------
$ 120,000 6.80 5.79 $ (2,877)
========= ====== ====== ========
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 had 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 matured on May 15, 2000. 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
$7,000 at December 31, 1999.
<PAGE>
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
87.8% and 90.1% of total interest income for the three months ended June 30,
2000 and 1999, respectively, and 88.7% for the six months ended June 30, 2000
and 1999. Total loans, net of unearned discount, were $812.7 million, or 75.7%
of total assets, at June 30, 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. This increase was partially offset by a
decrease in the consumer and installment loan portfolio, which is primarily
comprised of indirect automobile loans, to $31.4 million at June 30, 2000 from
$40.5 million at December 31, 1999. Such decrease is consistent with
management's efforts to reduce the indirect loan portfolio. 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 $322.1 million and $98.2
million at June 30, 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.
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>
June 30, December 31,
2000 1999
---- ----
(dollars expressed in thousands)
<S> <C> <C>
Nonperforming loans........................................................ $ 5,417 3,337
Other real estate, net..................................................... -- 60
---------- --------
Total nonperforming assets........................................ $ 5,417 3,397
========== ========
Loans, net of unearned discount............................................ $ 812,723 732,263
========== ========
Loans past due:
Over 30 days to 90 days................................................ $ 5,922 2,696
Over 90 days and still accruing........................................ 73 2,944
---------- --------
Total past-due loans.............................................. $ 5,995 5,640
========== ========
Allowance for loan losses to loans......................................... 2.04% 2.00%
Nonperforming loans to loans............................................... 0.67 0.46
Allowance for loan losses to nonperforming loans........................... 305.83 437.85
Nonperforming assets to loans and other real estate........................ 0.67 0.46
========== ========
</TABLE>
Nonperforming loans, consisting of loans on nonaccrual status and
certain restructured loans, were $5.4 million at June 30, 2000, in comparison to
$3.3 million at December 31, 1999. The increase in nonperforming loans is
primarily related to a single loan in the amount of $2.4 million at FB Texas
that was placed on nonaccrual in May 2000. FBA recently initiated foreclosure
proceedings with respect to this relationship and is in the process of
liquidating the underlying collateral in settlement of this loan. In addition,
the decline in the ratio of the allowance for loan losses to nonperforming loans
is attributable to the increase in nonperforming loans, partially offset by 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 $5.5 million and
$3.6 million at June 30, 2000 and December 31, 1999, respectively.
<PAGE>
The following table presents a summary of loan loss experience for the
periods indicated:
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
---------------------- -------------------
2000 1999 2000 1999
---- ---- ---- ----
(dollars expressed in thousands)
<S> <C> <C> <C> <C>
Allowance for loan losses, beginning of period............ $ 15,631 14,037 14,611 12,127
Acquired allowances for loan losses................... -- -- 799 1,466
--------- -------- --------- --------
15,631 14,037 15,410 13,593
--------- -------- --------- --------
Loans charged-off..................................... (83) (318) (725) (798)
Recoveries of loans previously charged-off............ 649 541 1,170 1,375
--------- -------- --------- --------
Net loan recoveries................................... 566 223 445 577
--------- -------- --------- --------
Provision for loan losses............................. 370 123 712 213
--------- -------- --------- --------
Allowance for loan losses, end of period.................. $ 16,567 14,383 16,567 14,383
========= ======== ========= ========
</TABLE>
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 loan 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, provisions are
made to the allowance for loan losses. Such provisions 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 $139.6 million and $109.9 million at June 30, 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 June 30, 2000:
(dollars expressed in thousands)
3 months or less.......................... $ 66,291
Over 3 through 6 months................... 27,391
Over 6 through 12 months.................. 31,216
Over 12 months............................ 14,470
----------
Total................................... $ 139,368
==========
<PAGE>
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.
As further discussed in Note 4 to the accompanying consolidated financial
statements, the increase to $90.0 million of the maximum amount available under
the Note Payable is intended to provide FBA with sufficient additional liquidity
to pursue acquisition opportunities. 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 is due and payable on June 30, 2005. At June 30, 2000, the
outstanding borrowings under the Note Payable were $4.2 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 June 30,
2000 and December 31, 1999, FBA's borrowing capacity under these agreements was
approximately $280.9 million and $255.4 million, respectively. In addition, the
Subsidiary Banks' borrowing capacity through their relationships with the
Federal Home Loan Banks was approximately $20.5 million and $35.3 million at
June 30, 2000 and December 31, 1999, respectively.
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.
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 $3,000 and $54,000 for the
three and six months ended June 30, 2000, and $135,000 and $270,000 for the
comparable periods in 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.
<PAGE>
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.
In June 2000, the FASB issued SFAS No. 138 - Accounting for Derivative
Instruments and Hedging Activities, an Amendment of FASB Statement No. 133,
which addresses a limited number of issues causing implementation difficulties
for numerous entities that apply SFAS 133, as amended. SFAS 138 amends the
accounting and reporting standards of SFAS 133, as amended, for certain
derivative instruments, certain hedging activities and for decisions made by the
FASB relating to the Derivatives Implementation Group (DIG) process.
FBA is currently evaluating the requirements of SFAS 133, as amended,
to determine its potential impact on the consolidated financial statements.
<PAGE>
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 June 30, 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
increases in the prime lending rate throughout the last six months, is reflected
in FBA's increased net interest income for the three and six months ended June
30, 2000 as further discussed under "--Results of Operations." During the three
and six months ended June 30, 2000, FBA's asset-sensitive position and overall
susceptibility to market risks have not changed materially.
<PAGE>
PART II - OTHER INFORMATION
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
-------------- -----------
10(cc) Promissory note payable to First Banks, Inc.
dated June 30, 2000 - filed herewith.
10(dd) Agreement and Plan of Reorganization by and
between First Banks America, Inc. and
Commercial Bank of San Francisco, dated
June 27, 2000 - filed herewith.
10(ee) Agreement and Plan of Reorganization by and
among First Banks America, Inc., Redwood Bank,
First Banks, Inc. and First Bank & Trust,
dated June 29, 2000 - 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, 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
August 7, 2000 (Principal Executive Officer)
By: /s/Frank H. Sanfilippo
--------------------------------------------
Frank H. Sanfilippo
Executive Vice President and
Chief Financial Officer
August 7, 2000 (Principal Financial and
Accounting Officer)
<PAGE>
PROPOSAL NUMBER 2:
ELECTION OF DIRECTORS
The Board of Directors recommends that the stockholders vote to re-elect
Messrs. Blake, Crocco, Dierberg, Lavezzo, Story and Williams and Mrs. Schepman
as directors, each for a one-year term.
Nominees
As of the Record Date, the Board of Directors consisted of seven members,
who are identified in the following table which sets forth the information
indicated as of that date. Each of the directors was elected or appointed to
serve a one-year term and until his successor has been duly qualified for
office.
Name Age Director Since
Allen H. Blake 57 1994
Charles A. Crocco, Jr. (1) 62 1988
James F. Dierberg (2) 63 1994
Albert M. Lavezzo (1) 63 1998
Ellen D. Schepman (2) 26 1999
Edward T. Story, Jr. (1) 56 1987
Donald W. Williams 52 1995
-----------------------------------
(1) Member of the Audit Committee.
(2) Mrs. Schepman is the adult daughter of James F. Dierberg; see "Family
Relationships."
Allen H. Blake has been Executive Vice President of FBA since 1998, its
Chief Operating Officer since 1999 and Secretary since 1994; he also served as
FBA's Chief Financial Officer from 1994 until 1999. Mr. Blake has been the
President of First Banks since October, 1999, its Chief Operating Officer since
1998 and its Secretary since 1988. He previously served as Executive Vice
President and Chief Financial Officer of First Banks from 1996 until September,
1999 and its Senior Vice President from 1992 to 1996.
Charles A. Crocco, Jr. has pracaticed law in the New York City Area since
1970. He has been Counsel to the law firm of Crocco & De Maio, P.C., Mount
Kisco, New York since April, 2000. He previously was Counsel to Jackson & Nash,
LLP in New York City from January, 1999 until April, 2000, Counsel to Crocco &
De Maio in 1998, and a Partner in Crocco & De Maio, P.C. prior to 1998. Mr.
Crocco is also a director of The Hallwood Group Incorporated, a merchant banking
firm.
James F. Dierberg has been the Chairman of the Board of Directors, Chief
Executive Officer and President of FBA since 1994 and the Chairman of the Board
and Chief Executive Officer of First Banks since 1988. Mr. Dierberg has also
been a director of First Banks since 1979 and its President from 1979 until 1992
and from 1994 to October, 1999.
<PAGE>
Albert M. Lavezzo has been President and Chief Operating Officer of the law
firm of Favaro, Lavezzo, Gill, Caretti & Heppell, Vallejo, California, since
1974. Mr. Lavezzo was the Chairman of the Board of Directors of Surety Bank in
Vallejo, California for 15 years prior to its acquisition by FBA in 1997 and is
the President of North Bay Exchange Co., Inc.
Ellen D. Schepman has been a Retail Marketing Officer of First Banks since
May, 1999. She was a Retail Marketing Specialist with First Bank & Trust from
1997 to May, 1999. Prior to 1996, Mrs. Schepman was a full-time student.
Edward T. Story, Jr. has been the President, Chief Executive Officer and a
Director of SOCO International, plc, a corporation engaged in international oil
and gas operations, since 1991. Mr. Story is also a Director of Cairn Energy
plc, Hallwood Realty Corporation, Santa Fe Snyder Corporation and Sen Hong
Resources, Ltd.
Donald W. Williams has been Executive Vice President and Chief Credit
Officer of First Banks since 1996. He served as Senior Vice President and Chief
Credit Officer of First Banks from 1993 until 1996, and as a Director of First
Commercial Bancorp, Inc. from 1995 until its merger into FBA in 1998.
Although FBA does not anticipate that any nominee will refuse or be unable
to serve as a director of FBA, the persons named in the enclosed form of proxy
intend, if any nominee becomes unavailable, to vote the shares represented by
the proxy for the election of such other person or persons as may be nominated
or designated by management, unless they are directed by proxy to do otherwise.
Assuming the presence of a quorum, the seven nominees receiving the largest
number of the votes cast, including those cast by holders of the common stock
and the Class B common stock represented at the Annual Meeting, will be elected
as directors. FBA's By-Laws require that any nominations by a stockholder comply
with certain procedural and disclosure requirements, including advance written
notice to the Secretary of FBA.
<PAGE>
Executive Officers
<TABLE>
<CAPTION>
The executive officers of FBA as of the Record Date were as follows:
------------------------------------- ------- ----------------------------------------------------------------------
Name Age Office(s) held
------------------------------------- ------- ----------------------------------------------------------------------
------------------------------------- ------- ----------------------------------------------------------------------
<S> <C> <C>
James F. Dierberg 63 Chairman of the Board, Chief Executive Officer and President.
------------------------------------- ------- ----------------------------------------------------------------------
------------------------------------- ------- ----------------------------------------------------------------------
Allen H. Blake 57 Executive Vice President, Chief Operating Officer and Secretary.
------------------------------------- ------- ----------------------------------------------------------------------
------------------------------------- ------- ----------------------------------------------------------------------
Frank H. Sanfilippo 37 Executive Vice President and Chief Financial Officer since
September, 1999.
------------------------------------- ------- ----------------------------------------------------------------------
------------------------------------- ------- ----------------------------------------------------------------------
Terrance M. McCarthy 46 Chairman of the Board, President and Chief Executive Officer of
First Bank of California since 1998, and Redwood Bank since March,
2000, both of which are wholly owned subsidiaries of FBA.
------------------------------------- ------- ----------------------------------------------------------------------
------------------------------------- ------- ----------------------------------------------------------------------
David F. Weaver 53 Executive Vice President of FBA since 1995; Chairman of the Board
and Chief Executive Officer of First Bank Texas N.A., a wholly-owned
subsidiary of FBA, since 1994; President of First Bank Texas N.A.
since 1988.
------------------------------------- ------- ----------------------------------------------------------------------
</TABLE>
The executive officers were each elected by the Board of Directors to the
office indicated.
Committees and Meetings of the Board of Directors
Three members of the Board of Directors of FBA serve on the Audit
Committee; there are no other committees of the Board. The duties of the Audit
Committee include the making of recommendations to the Board of Directors for
engaging and discharging FBA's independent auditors; reviewing and approving the
engagement of the independent auditors for audit and nonaudit services and
considering the independence of the auditors prior to engaging them; reviewing
with the independent auditors the fee, scope and timing of the audit and
nonaudit services; reviewing the completed audit with the independent auditors
regarding the conduct of the audit, accounting adjustments, recommendations for
improving internal controls and any other significant findings during the audit;
meeting periodically with management and internal audit and loan review staff to
discuss planning, scheduling and the extent and nature of internal audit and
loan review procedures to be performed and the results therefrom; accounting and
financial controls; reviewing internal accounting and auditing procedures with
FBA's financial staff; and initiating and supervising any special investigations
it deems necessary.
<PAGE>
Board and Committee Meetings. The Board of Directors held four meetings in
1999, including regular and special meetings, and there were meetings of the
Audit Committee. During 1999, all directors of FBA attended more than 75% of the
aggregate of the number of meetings of the Board of Directors and the meetings
held by all committees of the Board of Directors on which they served.
Director Compensation
Directors who are not officers of FBA or affiliated with First Banks
("Unaffiliated Directors," consisting in 1999 of Messrs. Crocco, Lavezzo and
Story) were paid fees of $2,000 for each meeting of the Board of Directors
attended and fees of $500 for each committee meeting attended in 1999. For their
services as directors, Messrs. Crocco, Story and Lavezzo each received $10,000
in 1999, and Mrs. Schepman, who is a Retail Marketing Officer of First Banks,
but not an officer of FBA, received $8,000 for her service as director. Mr.
Lavezzo also received $6,000 for services as a member of the Board of Directors
of First Bank of California.
Messrs. Crocco, Lavezzo and Story and Mrs. Schepman also participate in the
1993 Directors' Stock Bonus Plan (the "Stock Bonus Plan"), which provides for
annual grants of 500 shares of common stock to each eligible director. The
maximum number of shares that may be issued may not exceed 16,667 shares, and
the plan will expire on July 1, 2001. Directors' compensation expense of $36,000
was incurred in 1999 in connection with the Stock Bonus Plan.
None of the three directors of FBA who are also executive officers of First
Banks (Messrs. Dierberg, Blake and Williams) receives any compensation from FBA
or its subsidiaries (the "Subsidiary Banks") for service as a director, nor do
they participate in the Stock Bonus Plan or any other compensation plan of FBA
or the Subsidiary Banks. First Banks, of which Messrs. Dierberg, Blake and
Williams are executive officers and Messrs. Dierberg and Blake are directors,
provides various services to FBA and the Subsidiary Banks for which it is
compensated (see "Compensation Committee Interlocks and Insider Participation").
Family Relationships
Mrs. Schepman is the adult daughter of Mr. Dierberg; except for that
relationship, there is no family relationship between any of the nominees for
director, directors or executive officers of FBA or its subsidiaries.
Certain Relationships and Related Transactions
The Subsidiary Banks have had in the past, and may have in the future, loan
transactions in the ordinary course of business with directors of FBA or their
affiliates. These loan transactions have been and will be on the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with unaffiliated persons and did not and will not
involve more than the normal risk of collectibility or present other unfavorable
features. The Subsidiary Banks do not extend credit to officers of FBA or of the
Subsidiary Banks, except extensions of credit secured by mortgages on personal
residences, loans to purchase automobiles and personal credit card accounts.
Certain of the directors and officers of FBA and their affiliates have
deposit accounts with the Subsidiary Banks. It is the policy of the Subsidiary
Banks not to permit any officers or directors of the Subsidiary Banks or their
affiliates to overdraw their deposit accounts unless that person has been
previously approved for overdraft protection under a plan whereby a credit limit
has been established in accordance with the standard credit criteria of the
Subsidiary Banks.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth certain information regarding compensation
earned during the year ended December 31, 1999, and specified information with
respect to the two preceding years, by Messrs. McCarthy and Weaver, the only
executive officers of FBA whose annual compensation in 1999 from FBA or the
Subsidiary Banks exceeded $100,000.
Although Mr. Dierberg, Mr. Blake and Mr. Sanfilippo are executive officers
of FBA, they do not receive any compensation directly from either FBA or the
Subsidiary Banks. FBA and the Subsidiary Banks have entered into various
contracts with First Banks, of which Messrs. Dierberg, Blake and Sanfilippo are
executive officers and Messrs. Dierberg and Blake are directors, pursuant to
which services are provided to FBA and the Subsidiary Banks (see "Compensation
Committee Interlocks and Insider Participation" for additional information
regarding contracts with First Banks).
<PAGE>
SUMMARY COMPENSATION TABLE FOR YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
Name and Principal Position Year Salary (1) Bonus All Other Compensation (2)
----------------------------------------------- ---------- -------------- ------------ -----------------------------
----------------------------------------------- ---------- -------------- ------------ -----------------------------
<S> <C> <C> <C> <C>
Terrance M. McCarthy, 1999 147,500 20,000 4,950
Chairman of the Board, President
and Chief Executive Officer of 1998 121,580 27,000 4,458
First Bank of California and Redwood Bank
1997 118,140 10,000 3,844
----------------------------------------------- ---------- -------------- ------------ -----------------------------
----------------------------------------------- ---------- -------------- ------------ -----------------------------
David F. Weaver, 1999 127,000 20,450 3,686
Executive Vice President;
Chairman of the Board, President and 1998 116,200 20,000 3,400
Chief Executive Officer of First Bank Texas
1997 103,750 22,000 3,144
----------------------------------------------- ---------- -------------- ------------ -----------------------------
</TABLE>
------------------------------------
(1) The total of all other annual compensation for each of the named officers
is less than the amount required to be reported, which is the lesser of (a)
$50,000 or (b) ten percent (10%) of the total of the annual salary and
bonus paid to that person.
(2) All items reported are FBA's matching contributions to the 401(k) Plan for
the year indicated.
FBA has omitted from this Proxy Statement tables which would disclose
information regarding stock options granted during 1999, stock options exercised
during 1999 and long term incentive plan awards. No options were granted to or
exercised by executive officers in 1999, and FBA does not have a long term
incentive plan.
STOCK PERFORMANCE GRAPH
The following graph sets forth a comparison of the cumulative total
shareholder returns of common stock, the New York Stock Exchange Market Value
Index and the Index of Regional Banks located in the Southwest published by
Media General Financial Services ("MGFS"), for the five year period from
December 31, 1994 through December 31, 1999. FBA's common stock and the
securities of 37 other banks are currently included in the MGFS index. The graph
and the table which follows are based on the assumption that the value of the
investment in FBA common stock and in each index was $100 at December 31, 1994
and that all dividends were reinvested (FBA did not pay any dividends during the
period).
<PAGE>
[Stock performance graph]
<TABLE>
<CAPTION>
----------------------------- ------------- ------------- ------------- ------------- ------------- -------------
12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
-------- -------- -------- -------- -------- --------
----------------------------- ------------- ------------- ------------- ------------- ------------- -------------
----------------------------- ------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
FBA 100.00 93.33 77.14 176.67 148.57 139.05
----------------------------- ------------- ------------- ------------- ------------- ------------- -------------
----------------------------- ------------- ------------- ------------- ------------- ------------- -------------
NYSE Market
Value Index 100.00 129.66 156.20 205.49 244.52 267.75
----------------------------- ------------- ------------- ------------- ------------- ------------- -------------
----------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Media General Southwest
Banks 100.00 139.63 175.54 278.51 245.03 220.65
----------------------------- ------------- ------------- ------------- ------------- ------------- -------------
</TABLE>
EMPLOYEE BENEFIT PLANS
FBA maintains various employee benefit plans. Directors are not eligible to
participate in such plans except the 1993 Directors' Stock Bonus Plan unless
they are also employees of FBA or one of its subsidiaries. Although Messrs.
Dierberg, Blake and Sanfilippo are executive officers, they are not participants
in any employee benefit plans of FBA.
Prior to 1995, FBA maintained a noncontributory defined benefit plan for
eligible officers and employees (the "Pension Plan"). No additional benefits
have accrued to participants since 1994, and no new participants have become
eligible for benefits since 1994. Benefits under the Pension Plan are based upon
annual base salaries and years of service as of 1994 and are payable only upon
retirement or disability and, in some instances, at death. As of December 31,
1999, Mr. Weaver would be eligible to receive annual benefits of approximately
$11,000 upon retirement at age 65.
<PAGE>
COMPENSATION COMMITTEE REPORT
The Compensation Committee of FBA is comprised of its entire Board of
Directors. Four of the current directors, including Mr. Dierberg, who is
Chairman of the Board, Chief Executive Officer and President, and Mr. Blake, who
is Executive Vice President, Chief Operating Officer and Secretary, are
affiliated with First Banks, which is compensated for their services on an
hourly basis under the provisions of a management fee agreement between FBA and
First Banks. None of the current directors has ever been compensated by FBA or
its subsidiary banks as an executive officer.
The Compensation Committee considers the levels and components of executive
compensation relative to those generally available in its market place, to the
overall long-term objectives of FBA and to the interest of its stockholders. By
maintaining appropriate balance in these factors, the Compensation Committee
believes that it will be most effective in attracting and retaining
well-qualified executives who will be capable of contributing to the success of
FBA and enhancing the value of FBA to its stockholders.
The paramount objective of FBA is building the long-term value of the
stockholders' investment, within the framework of operating its subsidiary
financial institutions in a safe and sound manner. This is accomplished by
achieving substantial improvements and consistency in earnings, strengthening
the subsidiary banking franchises, and entering into strategic,
economically-viable acquisitions of other financial institutions. Consequently,
the compensation of executives should be structured to attract individuals
capable of contributing to the achievement of these objectives and to align the
welfare of those individuals with that of the stockholders.
The Compensation Committee periodically reviews the various components of
FBA's executive compensation programs. The individual components of compensation
to executives are evaluated taking into consideration the factors discussed
below. However, the Compensation Committee does not give specific weights to
particular factors and subjectively adjusts the compensation levels of the
executive officers based, in part, on non-quantifiable considerations. The
compensation adjustments, while influenced by the evaluation factors, are not
determined by applying a mathematical formula to any individual performance
measurements.
Base Salary. In determining the appropriate base salaries of its executive
officers, the Compensation Committee evaluates the performance of FBA,
considering general business and industry conditions, among other factors, and
the contributions of specific executives toward that performance. Particular
measurements to which the Compensation Committee assigns significance are net
income, earnings per share, expense control, net interest margin and regulatory
exam results. The Compensation Committee also evaluates each officer's areas of
responsibility and FBA's performance in those areas. Finally, FBA considers the
level of compensation paid comparable executives by other financial institutions
of comparable size in its market places.
Bonus. The Compensation Committee may elect to award bonuses to selected
executive officers based largely upon the same criteria as the evaluations of
base salaries, emphasizing the need to maintain competitive compensation
packages and the desire to recognize outstanding performance by the officers.
<PAGE>
Stock Option Program. The Compensation Committee recognizes that one way to
align the interests of FBA's executive officers with those of its stockholders
is the encouragement of ownership of FBA stock through stock options granted
under its 1990 Stock Option Plan. Under this Plan, executive officers are
eligible to receive stock options from time to time, giving them the right to
purchase shares of common stock at a specified price in the future. Considering
the number of options granted prior to 1993, the Compensation Committee has
elected not to grant any additional options since that time.
Along with the need to improve operating results, FBA evaluated its
management structure, recognizing the additional management resources available
from First Banks. This evaluation resulted in a realignment of FBA's executive
officers; two of the three current executive officers, Messrs. Dierberg and
Blake, do not receive any compensation from FBA (see "COMPENSATION COMMITTEE
INTERLOCKS AND INSIDER PARTICIPATION").
The Compensation Committee reviewed the performance of FBA for 1999
relative to its net income, earnings per share, external growth, business
development and asset quality. Net income for the year ended December 31, 1999
was $9.47 million (as compared to $4.61 million in 1998), while diluted earnings
per share totaled $1.66 (as compared to $0.90 in 1998). FBA's total assets
increased to $920.7 million at December 31, 1999 from $720.0 million at December
31, 1998, reflecting both external growth through acquisitions and expanded
business development efforts. Additionally, nonperforming assets totaled $3.40
million and $8.79 million at December 31, 1999 and 1998, respectively.
The Compensation Committee determined that improvement had been achieved in
the performance measurement area, that significant inroads were accomplished in
enhancing FBA's banking franchises and its prospects for progressive and
profitable growth, and that these improvements should be recognized in terms of
compensation. As a result, the Compensation Committee concluded that an increase
in Mr. McCarthy's and Mr. Weaver's base compensation was warranted and that a
bonus comparable to that awarded in the prior year was appropriate.
COMPENSATION OF CHIEF EXECUTIVE OFFICER. As noted above, Mr. Dierberg, the
Chief Executive Officer of FBA, does not receive any compensation from FBA,
First Bank-Texas or First Bank-California. First Banks receives fees from FBA
pursuant to data processing and management fee agreements (see "COMPENSATION
COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION").
The foregoing Report has been presented by the entire Board of Directors
consisting of Messrs. Blake, Crocco, Dierberg, Lavezzo, Story and Williams and
Mrs. Schepman.
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND
INSIDER PARTICIPATION
Messrs. Dierberg and Blake, who are executive officers of FBA but do not
receive any compensation for their services as such, are also members of the
Board of Directors and executive officers of First Banks. First Banks does not
have a Compensation Committee, but its Board of Directors performs the functions
of such a committee. Except for the foregoing, no executive officer of FBA
served during 1999 as a member of the Compensation Committee, or any other
committee performing comparable functions, or as a director, of another entity
any of whose executive officers or directors served on FBA's Compensation
Committee.
FBA purchases certain services and supplies from or through First Banks.
FBA's financial position and operating results could significantly differ from
those that would be obtained if FBA's relationship with First Banks did not
exist.
First Banks provides management services to FBA and its Subsidiary Banks.
Management services are provided under a management fee agreement whereby FBA
compensates First Banks on an hourly basis for its use of personnel for various
functions including internal audit, loan review, income tax preparation and
assistance, accounting, asset/liability management and investment services, loan
servicing and other management and administrative services. Fees paid under this
agreement were $2.9 million, $2.1 million and $1.4 million for the years ended
December 31, 1999, 1998 and 1997, respectively. The fees paid for management
services are at least as favorable as could have been obtained from an
unaffiliated third party.
Because of the affiliation with First Banks and the geographic proximity of
certain of their offices, FBA shares the cost of certain personnel and services
with First Banks. This includes the salaries and benefits of certain loan and
administrative personnel. The allocation of the shared costs are charged and/or
credited under the terms of cost sharing agreements entered into during 1996.
Because this involves distributing essentially fixed costs over a larger asset
base, it allows each bank to receive the benefit of personnel and services at a
reduced cost. Fees paid under these agreements were $896,000, $1.1 million and
$709,000 for the years ended December 31, 1999, 1998 and 1997, 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 FBA under the terms of data processing agreements. Fees paid under
these agreements were $2.9 million, $1.9 million and $1.0 million for the years
ended December 31, 1999, 1998 and 1997, respectively. The fees paid for data
processing services are at least as favorable as could have been obtained from
an unaffiliated third party.
<PAGE>
FBA's Subsidiary Banks had $88.2 million and $86.2 million in whole loans
and loan participations outstanding at December 31, 1999 and 1998, respectively,
that were purchased from banks affiliated with First Banks. In addition, FBA's
Subsidiary Banks had sold $302.9 million and $182.9 million in whole loans and
loan participations to affiliates of First Banks at December 31, 1999 and 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.
SECTION 16(a) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the executive officers and
directors of FBA, and persons who beneficially own more than ten percent of a
registered class of its equity securities, to file reports of ownership and
changes in ownership with the Securities and Exchange Commission and the New
York Stock Exchange. Based upon a review of the reports received by FBA and the
written representations from certain reporting persons that no Forms 5 were
required for such persons, FBA believes that during the year ended December 31,
1999, all executive officers, directors and ten percent beneficial owners
complied with the applicable filing requirements.
INDEPENDENT AUDITORS
KPMG LLP ("KPMG") served as independent public accountant for the year
ended December 31, 1999 and has been selected by the Board of Directors to serve
for the current year. Representatives of KPMG are expected to be present at the
Annual Meeting, and such representatives will have the opportunity to make a
statement if they desire to do so and will be available to respond to
appropriate questions.
OTHER BUSINESS
Management knows of no other business to be presented at the Annual
Meeting. If, however, other matters should properly be presented at the Annual
Meeting or any adjournment(s) thereof, the person or persons voting the proxy
will vote as in his discretion he may deem appropriate.
<PAGE>
INCORPORATION OF INFORMATION BY REFERENCE
This Proxy Statement incorporates information from FBA's Annual Report to
Stockholders for the year ended December 31, 1999, which was previously mailed
to stockholders, and from the Quarterly Report on Form 10-Q for the quarter
ended June 30, 2000, included as pages 78 through 103 of this Proxy Statement.
The information so incorporated consists of the following portions of such
documents:
Annual Report to Stockholders
- Selected Consolidated and Other Financial Data (page 2)
- Management's Discussion and Analysis of Financial Data and Results
of Operations (pages 3 through 24)
- Independent Auditors' Report (page 52)
- Financial Statements (pages 26 through 51 )
STOCKHOLDER PROPOSALS
Pursuant to Rule 14a-8 under the Securities Exchange Act of 1934, as
amended, stockholders may present proper proposals for inclusion in FBA's proxy
statement for consideration at its Annual Meeting of Stockholders by submitting
proposals to FBA in a timely manner. In order to be eligible for the proxy
statement for the 2001 Annual Meeting of Stockholders, a stockholder proposal
must be received by FBA a reasonable time before FBA begins to print and mail
its proxy materials. To present a matter for consideration at an annual meeting
(as distinguished from seeking to include the proposal in FBA's proxy
statement), a stockholder must comply with FBA's Bylaws by giving proper written
notice to the Secretary of FBA not earlier than 14 days nor more than 50 days
prior to the meeting.
By Order of the Board of Directors,
Clayton, Missouri /s/ ALLEN H. BLAKE
------------------
September 11, 2000 Secretary
<PAGE>
Appendix A-1
AGREEMENT AND PLAN OF REORGANIZATION
by and among
FIRST BANKS AMERICA, INC.,
a Delaware corporation,
REDWOOD BANK,
a California banking corporation,
FIRST BANKS, INC.,
a Missouri corporation
and
FIRST BANK & TRUST,
a California banking corporation
June 29, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE I - TERMS OF THE MERGER & CLOSING; EXCHANGE OF SHARES
<S> <C> <C> <C>
Section 1.01. The Merger........................................................................... 1
Section 1.02. Effect of the Merger................................................................. 1
Section 1.03. Conversion of Shares................................................................. 1
Section 1.04. The Closing.......................................................................... 2
Section 1.05. The Closing Date..................................................................... 2
Section 1.06. Actions At Closing................................................................... 2
Section 1.07. Exchange Procedures................................................................... 3
ARTICLE II - REPRESENTATIONS AND WARRANTIES OF FIRST BANKS AND FIRST BANK & TRUST
Section 2.01. Organization and Capital Stock; Standing and Authority................................ 3
Section 2.02. Authorization; No Defaults............................................................ 4
Section 2.03. First Bank & Trust Subsidiaries....................................................... 4
Section 2.04. Financial Information................................................................. 4
Section 2.05. Absence of Changes.................................................................... 5
Section 2.06. Regulatory Enforcement Matters........................................................ 5
Section 2.07. Tax Matters........................................................................... 5
Section 2.08. Litigation............................................................................ 5
Section 2.09. Properties, Contracts, Employee Benefit Plans and Other Agreements.................... 5
Section 2.10. Reports............................................................................... 6
Section 2.11. Investment Portfolio.................................................................. 6
Section 2.12. Loan Portfolio........................................................................ 7
Section 2.13. Employee Matters and ERISA............................................................ 7
Section 2.14. Title to Properties; Insurance........................................................ 7
Section 2.15. Compliance with Laws.................................................................. 8
Section 2.16. Brokerage............................................................................. 8
Section 2.17. No Undisclosed Liabilities............................................................ 8
Section 2.18. Statements True and Correct........................................................... 8
Section 2.19. Commitments and Contracts............................................................. 9
Section 2.20. Material Interest of Certain Persons.................................................. 9
Section 2.21. Conduct to Date....................................................................... 9
Section 2.22. Environmental Matters.................................................................10
</TABLE>
<PAGE>
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF FBA AND REDWOOD
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Section 3.01. Organization and Capital Stock....................................................... 11
Section 3.02. Authorization; No Defaults........................................................... 12
Section 3.03. FBA Subsidiaries..................................................................... 12
Section 3.04. Financial Information................................................................ 13
Section 3.05. Absence of Changes................................................................... 13
Section 3.06. Regulatory Enforcement Matters....................................................... 13
Section 3.07. Tax Matters.......................................................................... 13
Section 3.08. Litigation........................................................................... 14
Section 3.09. Properties, Contracts, Employee Benefit Plans and Other Agreements................... 14
Section 3.10. Reports.............................................................................. 15
Section 3.11. Investment Portfolio................................................................. 15
Section 3.12. Loan Portfolio....................................................................... 15
Section 3.13. Employee Matters and ERISA........................................................... 16
Section 3.14. Title to Properties; Insurance....................................................... 16
Section 3.15. Compliance with Laws................................................................. 16
Section 3.16. Brokerage............................................................................ 17
Section 3.17. No Undisclosed Liabilities........................................................... 17
Section 3.18. Statements True and Correct.......................................................... 17
Section 3.19. Commitments and Contracts............................................................ 17
Section 3.20. Material Interest of Certain Persons................................................. 18
Section 3.21. Conduct to Date...................................................................... 18
Section 3.22. Environmental Matters.................................................................19
ARTICLE IV - AGREEMENTS OF FIRST BANKS AND FIRST BANK & TRUST
Section 4.01. Business in Ordinary Course.......................................................... 20
Section 4.02. Breaches............................................................................. 21
Section 4.03. Submission to FBA's Stockholders..................................................... 21
Section 4.04. Consummation of Agreement............................................................ 22
Section 4.05. Access to Information................................................................ 22
Section 4.06. Consents to Contracts and Leases..................................................... 22
Section 4.07. Subsequent Financial Statements...................................................... 22
</TABLE>
<PAGE>
ARTICLE V - AGREEMENTS OF FBA AND REDWOOD
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Section 5.01. Business in Ordinary Course.......................................................... 23
Section 5.02. Regulatory Approvals................................................................. 24
Section 5.03. Breaches............................................................................. 24
Section 5.04. Consummation of Agreement............................................................ 24
Section 5.05. Access to Information................................................................ 24
Section 5.06. Proxy Statement and Stockholders' Meeting............................................ 25
Section 5.07. Subsequent Financial Statements.......................................................25
ARTICLE VI - CONDITIONS PRECEDENT TO THE MERGER
Section 6.01. Conditions to the Obligations of FBA and Redwood..................................... 26
Section 6.02. Conditions to the Obligations of First Banks and First Bank & Trust................. 26
ARTICLE VII - TERMINATION
Section 7.01. Mutual Agreement..................................................................... 27
Section 7.02. Breach of Agreements................................................................. 27
Section 7.03. Failure of Conditions................................................................ 27
Section 7.04. Denial of Regulatory Approval........................................................ 28
Section 7.05. Regulatory Enforcement Matters....................................................... 28
Section 7.06. Unilateral Termination............................................................... 28
Section 7.07. Damages and Limitation on Damages.................................................... 28
ARTICLE VIII - GENERAL PROVISIONS
Section 8.01. Confidential Information............................................................. 29
Section 8.02. Publicity............................................................................ 29
Section 8.03. Return of Documents.................................................................. 29
Section 8.04. Notices.............................................................................. 29
Section 8.05. Nonsurvival of Representations, Warranties and Agreements............................ 31
Section 8.06. Costs and Expenses................................................................... 31
Section 8.07. Entire Agreement..................................................................... 31
Section 8.08. Headings and Captions................................................................ 31
Section 8.09. Waiver, Amendment or Modification.................................................... 31
Section 8.10. Rules of Construction................................................................ 31
Section 8.11. Counterparts......................................................................... 31
Section 8.12. Successors and Assigns............................................................... 31
Section 8.13. Governing Law........................................................................ 31
Signatures............................................................................................. 32
</TABLE>
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Merger, dated as of June 29, 2000, is by and
among First Banks America, Inc., a bank holding company organized as a Delaware
corporation ("FBA"), Redwood Bank, a California banking corporation ("Redwood"),
First Banks, Inc., a bank holding company organized as a Missouri corporation
("First Banks") and First Bank & Trust, a California banking corporation ("First
Bank &Trust"). FBA is a majority owned subsidiary of First Banks, Redwood is a
wholly-owned indirect subsidiary of FBA, and First Bank & Trust is a wholly
owned subsidiary of First Banks. This Agreement and Plan of Merger is
hereinafter referred to as the "Agreement."
In consideration of the mutual representations, warranties, agreements
and covenants contained herein, FBA, Redwood, First Banks and First Bank & Trust
hereby agree as follows:
ARTICLE I
TERMS OF THE MERGER & CLOSING; EXCHANGE
OF SHARES
Section 1.01. The Merger. Pursuant to the terms and provisions of this
Agreement and an Agreement of Merger in the form of Exhibit A attached hereto
(the "Merger Agreement") to be executed by the parties thereto promptly
following the receipt of all regulatory approvals referred to in Sections 6.01
and 6.02 hereof, First Bank & Trust shall merge with and into Redwood, and
Redwood will be the surviving corporation but will change its corporate name
from and after the merger (the "Merger") to "First Bank & Trust." In this
Agreement, the term "First Bank & Trust" refers to the existing bank which is a
party to this Agreement and not to the surviving corporation of the Merger.
Section 1.02. Effect of the Merger. The Merger shall have all of the
effects provided by applicable corporate law, this Agreement and the Merger
Agreement. The separate corporate existence of First Bank & Trust shall cease on
consummation of the Merger and be combined in Redwood.
Section 1.03. Conversion of Shares.
(a) At the Effective Time, each share of common stock, stated value
$5.00 per share, of First Bank & Trust ("FB&T Common") issued and outstanding
immediately prior to the Effective Time shall be converted into the right to
receive 1.4703 shares of common stock, par value $.15 per share, of FBA ("FBA
Common Stock"); provided, however, that (i) no fractional shares of FBA Common
Stock shall be issued as a result of the Merger, but cash shall be paid in lieu
thereof as provided in Section 1.07 hereof; and (ii) each share of FB&T Common
<PAGE>
held in the treasury of First Bank & Trust or by any direct or indirect
subsidiary of First Bank & Trust immediately prior to the Effective Time shall
be canceled.
(b) At the Effective Time, by virtue of the Merger and without any
action on the part of the holders thereof, all of the shares of FB&T Common
shall cease to be outstanding and be canceled. Upon the surrender of any
certificate or certificates which immediately prior to the Effective Time
represented outstanding shares of FB&T Common, each holder thereof shall cease
to have any rights with respect to such shares, except the right of the holder
to receive (i) a new certificate representing the number of whole shares of FBA
Common Stock, and (ii) the amount of cash in lieu of fractional shares, if any,
into which the shares of FB&T Common represented by the certificate have been
converted.
Section 1.04. The Closing. The closing of the Merger (the "Closing")
shall take place at the location mutually agreeable to the parties hereto at
10:00 a.m. local time on the Closing Date described in Section 1.05 of this
Agreement.
Section 1.05. The Closing Date. At FBA's election, the Closing shall
take place on either (i) one of the last five (5) business days of the month, or
(ii) the first business day of the month following the month, or (iii) the first
business day of the first month of the next calendar quarter following the
month, in each case, during which each of the conditions in Sections 6.01 and
6.02 is satisfied or waived by the appropriate party or on such other date as
First Bank & Trust and FBA may agree (the "Closing Date"). The Merger shall be
effective at the time determined by the Department of Financial Institutions
(the "DFI") of the State of California (the "Effective Time").
Section 1.06. Actions At Closing. (a) At the Closing, First Bank
and First Bank & Trust shall deliver to FBA:
(i) certificates signed by appropriate officers of each entity stating
that (A) each of the representations and warranties contained in
Article II is true and correct in all material respects (except for
those made as of a specified date) at the time of the Closing, with the
same force and effect as if such representations and warranties had
been made at the Closing, and (B) all of the conditions set forth in
Section 6.01 have been satisfied or waived as provided therein;
(ii) certified copies of the resolutions of their respective Boards of
Directors, establishing the requisite approvals under applicable
corporate law of this Agreement and the Merger;
(iii) evidence satisfactory to FBA that First Banks and First Bank &
Trust are in good standing; and
(iv) a legal opinion from counsel for First Bank & Trust regarding this
Agreement and the transactions contemplated hereby, in form reasonably
satisfactory to FBA and its counsel.
<PAGE>
At the Closing, FBA and Redwood shall deliver to First Banks:
(i) certificates signed by appropriate officers of each entity stating
that (A) each of the representations and warranties contained in
Article III is true and correct in all material respects at the time of
the Closing (except for those made as of a specified date), with the
same force and effect as if such representations and warranties had
been made at the Closing, and (B) all of the conditions set forth in
Section 6.02 have been satisfied or waived as provided therein;
(ii) certified copies of the resolutions of the Boards of Directors of
each entity, establishing the requisite approvals under applicable
corporate law of this Agreement, the Merger and the other transactions
contemplated hereby;
(iii) evidence satisfactory to First Banks that FBA and Redwood are in
good standing; and
(iv) a legal opinion from counsel for FBA regarding this Agreement and
the transactions contemplated hereby, in form reasonably satisfactory
to First Banks and its counsel.
Section 1.07. Exchange Procedures. At the Closing, First Banks shall
surrender to FBA a certificate or certificates evidencing First Banks' ownership
of the outstanding FB&T Common, duly endorsed or accompanied by executed stock
powers, and FBA shall issue to First Banks one or more certificates evidencing
the appropriate number of shares of FBA Common, together with cash in lieu of
any fractional shares. Such certificates shall bear any appropriate legends
restricting the transfer of the shares evidenced thereby in accordance with
applicable securities laws.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF FIRST BANKS
AND FIRST BANK & TRUST
First Banks and First Bank & Trust represent and warrant to FBA as
follows:
Section 2.01. Organization and Capital Stock; Standing and Authority.
(a) First Banks and First Bank & Trust are corporations duly organized,
validly existing and in good standing under the laws of the States of Missouri
and California, respectively. Each of such corporations has the power to own all
of its property and assets, to incur all of its liabilities and to carry on its
business as now conducted.
<PAGE>
(b) As of the date hereof, the authorized capital stock of First Bank &
Trust consists of 20,000,000 shares of FB&T Common, of which 4,725,396 are
outstanding, duly and validly issued, fully paid and non-assessable. None of the
outstanding shares of FB&T Common has been issued in violation of any preemptive
rights.
(c) There are no shares of capital stock or other equity securities of
First Bank & Trust issued or outstanding and no outstanding options, warrants,
rights to subscribe for, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into or exchangeable for,
shares of the capital stock of First Bank & Trust or contracts, commitments,
understandings or arrangements by which First Bank & Trust is or may be
obligated to issue additional shares of its capital stock.
(d) First Bank & Trust holds a current valid license to engage in the
commercial banking business at its banking offices in California, and First
Banks and First Bank & Trust are in material compliance with all agreements,
understandings and orders of the Federal Reserve Board, the Federal Deposit
Insurance Corporation ("FDIC"), the DFI and other regulatory authorities having
jurisdiction over their business, assets and properties. Neither the scope of
the business of First Bank & Trust nor the location of its properties requires
it to be licensed to do business in any jurisdiction other than the State of
California. The deposits of First Bank & Trust are insured by the FDIC to the
maximum extent permitted by applicable law and regulation. First Banks is a bank
holding company registered pursuant to the Bank Holding Company Act, as amended.
Section 2.02. Authorization; No Defaults. The Boards of Directors of
First Banks and First Bank & Trust have by all requisite action approved this
Agreement and the Merger and authorized the execution and delivery hereof on
behalf of such corporations and the performance of their respective obligations
hereunder. First Banks, in its capacity as the sole holder of outstanding
capital stock of First Bank & Trust, has approved this Agreement and the Merger.
Nothing in the Articles of Incorporation or Bylaws of First Banks or First Bank
& Trust or any other agreement, instrument, decree, proceeding, law or
regulation (except as specifically referred to in or contemplated by this
Agreement) by or to which either entity is bound or subject would prohibit or
inhibit either of such corporations from consummating this Agreement and the
Merger on the terms and conditions herein contained. This Agreement has been
duly and validly executed and delivered by First Banks and First Bank & Trust
and constitutes a legal, valid and binding obligation of each of them,
enforceable against them in accordance with its terms. Neither First Banks nor
First Bank & Trust is in default under nor in violation of any provision of its
articles of incorporation, bylaws, or any promissory note, indenture or any
evidence of indebtedness or security therefor, lease, contract, purchase or
other material commitment or agreement.
Section 2.03. First Bank & Trust Subsidiaries. First Bank & Trust has
no direct or indirect subsidiaries, it is not a party to any partnership or
joint venture and it does not own any equity interest in any other entity.
<PAGE>
Section 2.04. Financial Information. The year-end and quarter-end
Reports of Condition and Reports of Income of First Bank & Trust for 1999 and
for the three month period ended March 31, 2000, respectively, as filed with the
FDIC (such financial statements and notes collectively referred to herein as the
"FB&T Financial Statements"), have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis (except as
disclosed therein and except for regulatory reporting differences required for
First Bank & Trust's reports) and fairly present the consolidated financial
position and the consolidated results of operations, changes in shareholders'
equity and cash flows of First Bank & Trust as of the dates and for the periods
indicated.
Section 2.05. Absence of Changes. Since March 31, 2000 there has not
been any material adverse change in the financial condition, the results of
operations or the business or prospects of First Bank & Trust, nor have there
been any events or transactions having such a material adverse effect which
should be disclosed in order to make the FB&T Financial Statements not
misleading. Since March 31, 2000 there has been no material adverse change in
the financial condition, the results of operations or the business of First Bank
& Trust, except for changes disclosed in its Reports of Condition and Income
filed with the FDIC since such date.
Section 2.06. Regulatory Enforcement Matters. Neither First Banks nor
First Bank & Trust is subject to, nor has either of them received any notice or
advice that it may become subject to, any order, agreement, memorandum of
understanding or other regulatory enforcement action or proceeding with or by
any federal or state agency charged with the supervision or regulation of banks
or engaged in the insurance of bank deposits or any other governmental agency
having supervisory or regulatory authority over either of them.
Section 2.07. Tax Matters. First Bank & Trust has filed all federal,
state and local income, franchise, excise, sales, use, real and personal
property and other tax returns required to be filed. All such returns fairly
reflect the information required to be presented therein. All provisions for
accrued but unpaid taxes contained in the FB&T Financial Statements were made in
accordance with generally accepted accounting principles and in the aggregate do
not materially fail to provide for potential tax liabilities.
Section 2.08. Litigation. Except as disclosed in Section 2.08 of that
certain document delivered by First Banks and First Bank & Trust to FBA entitled
"FB&T Disclosure Schedule" and executed by both First Bank & Trust and FBA
concurrently with the execution and delivery of this Agreement (the "FB&T
Disclosure Schedule"), there is no litigation, claim or other proceeding
involving an amount in controversy in excess of $100,000 pending or, to the
knowledge of First Bank & Trust, threatened against it, or to which the property
of First Bank & Trust is or would be subject.
<PAGE>
Section 2.09. Properties, Contracts, Employee Benefit Plans and Other
Agreements. Section 2.09 of the FB&T Disclosure Schedule specifically identifies
the following:
(a) all real property owned by First Bank & Trust and the principal
buildings and structures located thereon and each lease of real property to
which First Bank & Trust is a party, identifying the parties thereto, the annual
rental payable, the expiration date thereof and a brief description of the
property covered;
(b) all loan and credit agreements, conditional sales contracts or
other title retention agreements or security agreements relating to money
borrowed by First Bank & Trust, exclusive of deposit agreements with customers
entered into in the ordinary course of business, agreements for the purchase of
federal funds and repurchase agreements;
(c) all agreements, loans, contracts, guaranties, letters of credit,
lines of credit or commitments of First Bank & Trust not referred to elsewhere
in this Section 2.09 which:
(i) (except for loans, loan commitments or lines of credit)
involve payment by First Bank & Trust of more than $200,000;
$200,000;
(ii) involve payments based on profits of First Bank & Trust;
(iii) relate to the future purchase of goods or services in excess
of the requirements of its respective business at current
levels or for normal operating purposes;
(iv) were not made in the ordinary course of business; or
(v) materially affect the business or financial condition of
First Bank & Trust;
(d) all leases, subleases or licenses with respect to real or personal
property, whether as lessor, lessee, licensor or licensee, with annual rental or
other payments due thereunder in excess of $100,000; and
(e) all agreements for the employment, retention or engagement, or with
respect to the severance, of any officer, employee, agent, consultant or other
person or entity which by its terms is not terminable by First Bank & Trust on
thirty (30) days written notice or less without any payment by reason of such
termination.
Copies of each document, plan or contract identified in Section 2.09 of
the FB&T Disclosure Schedule have been made available for inspection by FBA and
shall remain available at all times prior to the Closing Date.
<PAGE>
Section 2.10. Reports. First Bank & Trust has filed all reports and
statements, together with any amendments required to be made with respect
thereto, required to be filed with the Board of Governors of the Federal Reserve
System (the "Federal Reserve Board"), the DFI, the FDIC and all other
governmental authorities with jurisdiction over First Bank & Trust. As of the
dates indicated thereon, each of such reports and documents, including any
financial statements, exhibits and schedules thereto, complied in all material
respects with the relevant statutes, rules and regulations enforced or
promulgated by the regulatory authority with which they were filed, and did not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
Section 2.11. Investment Portfolio. All United States Treasury
securities, obligations of other United States Government agencies and
corporations, obligations of States and political subdivisions of the United
States and other investment securities held by First Bank & Trust, as reflected
in the latest consolidated balance sheet of First Bank & Trust included in the
FB&T Financial Statements, are carried in accordance with generally accepted
accounting principles.
Section 2.12. Loan Portfolio. (a)(i) All loans and discounts reflected
in the FB&T Financial Statements at March 31, 2000 or which were or will be
entered into after March 31, 2000 but before the Closing Date were and will be
made in all material respects for good, valuable and adequate consideration in
the ordinary course of business, in accordance in all material respects with
sound lending practices, and they are not subject to any material known
defenses, setoffs or counterclaims, including without limitation any such as are
afforded by usury or truth in lending laws, except as may be provided by
bankruptcy, insolvency or similar laws or by general principles of equity; (ii)
the notes and other evidences of indebtedness evidencing such loans and all
forms of pledges, mortgages and other collateral documents and security
agreements are and will be in all material respects enforceable, valid, true and
genuine and what they purport to be; and (iii) First Bank & Trust has complied
and will through the Closing Date comply with all laws and regulations relating
to such loans, or to the extent there has not been such compliance, such failure
to comply will not materially interfere with the collection of any loan.
(b) All loans and loan commitments extended by First Bank & Trust and
any extensions, renewals or continuations of such loans and loan commitments
were made in accordance with its customary lending standards in the ordinary
course of business. Such loans are evidenced by appropriate and sufficient
documentation based upon customary and ordinary past practices. The reserve for
loan losses reflected in the FB&T Financial Statements as of March 31, 2000 is
adequate in all material respects under the requirements of generally accepted
accounting principles to provide for losses on loans outstanding as of March 31,
2000.
<PAGE>
Section 2.13. Employee Matters and ERISA.
(a) First Bank & Trust has not entered into any collective bargaining
agreement with any labor organization with respect to any group of employees,
and to the knowledge of First Bank & Trust there is no present effort nor
existing proposal to attempt to unionize any group of its employees.
(b) All arrangements of First Bank & Trust relating to employees,
including all benefit plans and deferred compensation, bonus, stock or incentive
plans for the benefit of current or former employees (the "FB&T Employee Plans")
are administered by First Banks. All costs, liabilities and obligations arising
from the FB&T Employee Plans are properly reflected in accordance with generally
accepted accounting principles in the FB&T Financial Statements.
Section 2.14. Title to Properties; Insurance. (i) First Bank & Trust
has marketable title, insurable at standard rates, free and clear of all liens,
charges and encumbrances (except taxes which are a lien but not yet payable and
liens, charges or encumbrances reflected in the FB&T Financial Statements and
easements, rights-of-way, and other restrictions which are not material, and
further excepting in the case of other Real Estate Owned ("OREO"), as such real
estate is internally classified on the books of First Bank & Trust, rights of
redemption under applicable law), to all of their real properties; (ii) all
leasehold interests for real property and any material personal property used by
First Bank & Trust in its business are held pursuant to lease agreements which
are valid and enforceable in accordance with their terms; (iii) all such
properties comply in all material respects with all applicable private
agreements, zoning requirements and other governmental laws and regulations
relating thereto, and there are no condemnation proceedings pending or, to the
knowledge of First Bank & Trust, threatened with respect to any of such
properties; (iv) First Bank & Trust has valid title or other ownership rights
under licenses to all material intangible personal or intellectual property used
by First Bank & Trust in its business, free and clear of any material claim,
defense or right of any other person or entity, subject only to rights of the
licensors pursuant to applicable license agreements, which rights do not
materially and adversely interfere with the use of such property; and (v) all
material insurable properties owned or held by First Bank & Trust are adequately
insured by financially sound and reputable insurers in such amounts and against
fire and other risks insured against by extended coverage and public liability
insurance, as is customary with bank holding companies of similar size.
Section 2.15. Compliance with Laws. First Bank & Trust has all
licenses, franchises, permits and other governmental authorizations that are
legally required to enable it to conduct its business in all material respects,
is qualified to conduct business in every jurisdiction in which such
qualification is legally required, and it is in compliance in all material
respects with all applicable laws and regulations.
<PAGE>
Section 2.16. Brokerage. Neither First Bank nor First Bank & Trust has
incurred any claims or obligations for brokerage commissions, finders' fees,
financial advisory fees, investment banking fees or similar compensation in
connection with the transactions contemplated by this Agreement.
Section 2.17. No Undisclosed Liabilities. First Bank & Trust does not
have any material liability, whether known or unknown, asserted or unasserted,
absolute or contingent, accrued or unaccrued, liquidated or unliquidated, and
whether due or to become due (and there is no past or present fact, situation,
circumstance, condition or other basis for any present or future action, suit or
proceeding, hearing, charge, complaint, claim or demand against First Bank &
Trust giving rise to any such liability), except (i) liabilities reflected in
the FB&T Financial Statements and (ii) liabilities of the same type incurred in
the ordinary course of business of First Bank & Trust since March 31, 2000.
Section 2.18. Statements True and Correct. None of the information
supplied or to be supplied by First Banks or First Bank & Trust for inclusion in
any document to be filed with the Securities and Exchange Commission ("SEC") or
any banking or other regulatory authority in connection with the transactions
contemplated hereby will, at the respective times such documents are filed, and,
in the case of the Proxy Statement (as defined in Section 5.07), when mailed to
the stockholders of FBA and at the time of the Stockholders' Meeting (as defined
in Section 5.07), be false or misleading with respect to any material fact, or
omit to state any material fact necessary in order to make the statements
therein not misleading or required to be stated in order to correct any
statement in an earlier communication. All documents that First Banks or First
Bank & Trust is responsible for filing with the SEC or any other regulatory
authority in connection with the transactions contemplated hereby will comply in
all material respects with the provisions of applicable law and the applicable
rules and regulations thereunder.
Section 2.19. Commitments and Contracts. Except as disclosed in Section
2.19 of the FB&T Disclosure Schedule (and with a true and correct copy of the
document or other item in question having been made available to FBA for
inspection), First Bank & Trust is not a party or subject to any of the
following (whether written or oral, express or implied):
(i) any agreement, arrangement or commitment not made in the ordinary
course of business;
(ii) any agreement, indenture or other instrument not reflected in the
FB&T Financial Statements relating to the borrowing of money or the
guarantee by First Bank & Trust of any obligation, other than (A) trade
payables or instruments related to transactions entered into in the
ordinary course of business, such as deposits, federal funds borrowings
and repurchase agreements, or (B) agreements, indentures or instruments
providing for annual payments of less than $75,000; or
<PAGE>
(iii) any contract containing covenants limiting the ability of First
Bank & Trust to compete in any line of business or with any person or
containing any restriction of the geographical area in which, or method
by which, First Bank & Trust may carry on its business.
Section 2.20. Material Interest of Certain Persons. (a) Except as
disclosed in Section 2.20 of the FB&T Disclosure Schedule, no officer or
director of First Bank & Trust or any "associate" (as such term is defined in
Rule 14a-1 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act")) of any such officer or director, has any material interest in any
contract or property (real or personal, tangible or intangible), used in or
pertaining to the business of First Bank & Trust.
(b) All outstanding loans from First Bank & Trust to any of their
officers, directors, employees or any associate or related interest of any such
persons were approved by or reported to the Board of Directors in accordance
with all applicable laws and regulations.
Section 2.21. Conduct to Date. Except as disclosed in Section 2.21 of
the FB&T Disclosure Schedule, from and after March 31, 2000 through the date of
this Agreement, First Bank & Trust has not:
(i) failed to conduct its business in the ordinary and usual course
consistent with past practices;
(ii) issued, sold, granted, conferred or awarded any common or other
stock, or any corporate debt securities which would be classified under
generally accepted accounting principles applied on a consistent basis
as long-term debt on the balance sheets of First Bank & Trust;
(iii) effected any stock split or adjusted, combined, reclassified or
otherwise changed its capitalization;
(iv) declared, set aside or paid any dividend or other distribution in
respect of its capital stock, or purchased, redeemed, retired,
repurchased, or exchanged, or otherwise directly or indirectly acquired
or disposed of any of its capital stock;
(v) incurred any material obligation or liability (absolute or
contingent), except normal trade or business obligations or liabilities
incurred in the ordinary course of business, or subjected to lien any
of its assets or properties other than in the ordinary course of
business consistent with past practice;
(vi) discharged or satisfied any material lien or paid any material
obligation or liability (absolute or contingent), other than in the
ordinary course of business;
<PAGE>
(vii) sold, assigned, transferred, leased, exchanged, or otherwise
disposed of any of its properties or assets other than for a fair
consideration in the ordinary course of business;
(viii) except as required by contract or law, (A) increased the rate of
compensation of, or paid any bonus to, any of its directors, officers,
or other employees, except merit or promotion increases in accordance
with existing policy and consistent with past practices, (B) entered
into any new, or amended or supplemented any existing, employment,
management, consulting, deferred compensation, severance or other
similar contract, (C) entered into, terminated or substantially
modified any of the Employee Plans or (D) agreed to do any of the
foregoing;
(ix) suffered any material damage, destruction, or loss, whether as the
result of fire, explosion, earthquake, accident, casualty, labor
trouble, requisition, or taking of property by any regulatory
authority, flood, windstorm, embargo, riot, act of God or the enemy, or
other casualty or event, and whether or not covered by insurance;
(x) canceled or compromised any debt, except for debts charged off or
compromised in accordance with past practice;
(xi) entered into any material transaction, contract or commitment
outside the ordinary course of its business; or
(xii) made or guaranteed any loan to any of the FB&T Employee Plans.
Section 2.22. Environmental Matters. As used in this Agreement,
"Environmental Laws" means all local, state and federal environmental, health
and safety laws and regulations in all jurisdictions in which First Bank & Trust
has done business or owned, leased or operated property, including, without
limitation, the Federal Resource Conservation and Recovery Act, the Federal
Comprehensive Environmental Response, Compensation and Liability Act, the
Federal Clean Water Act, the Federal Clean Air Act, and the Federal Occupational
Safety and Health Act.
Neither the conduct nor operation of First Bank & Trust nor any
condition of any property presently or previously owned, leased or operated by
First Bank & Trust violates or violated any Environmental Law in any respect
material to the business of First Bank & Trust, and no condition or event has
occurred with respect to any of them or any property that, with notice or the
passage of time, or both, would constitute a violation material to the business
of First Bank & Trust of any Environmental Law or obligate (or potentially
obligate) First Bank & Trust to remedy, stabilize, neutralize or otherwise alter
the environmental condition of any property, where the aggregate cost of such
actions would be material to First Bank & Trust. Except as may be disclosed in
Section 2.22 of the FB&T Disclosure Schedule, First Bank & Trust has not
received notice from any person or entity that First Bank & Trust, or the
operation or condition of any property ever owned, leased or operated by it, are
or were in violation of any Environmental Law, or that First Bank & Trust is
<PAGE>
responsible (or potentially responsible) for remedying, or the cleanup of, any
pollutants, contaminants, or hazardous or toxic wastes, substances or materials
at, on or beneath any such property.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF FBA
AND REDWOOD
FBA and Redwood represent and warrant to First Banks as follows:
Section 3.01. Organization and Capital Stock.
(a) FBA and Redwood are corporations duly organized, validly existing
and in good standing under the laws of the States of Delaware and California,
respectively. Each of such corporations has the corporate power to own all of
its property and assets, to incur all of its liabilities and to carry on its
business as now being conducted.
(b) As of the date hereof, the authorized capital stock of FBA consists
of 6,666,666 shares of FBA Common Stock, of which 3,085,934 are outstanding,
duly and validly issued, fully paid and non-assessable; and 4,000,000 shares of
FBA Class B Stock, par value $.15 per share ("FBA Class B Stock"), of which
2,500,000 are outstanding, duly and validly issued, fully paid and
non-assessable. None of the outstanding shares of FBA Common Stock or FBA Class
B Stock has been issued in violation of any preemptive rights.
(c) Except as disclosed in Section 3.01 of that certain document
delivered by FBA to First Banks entitled the "FBA Disclosure Schedule" and
executed by both FBA and First Banks concurrently with the execution and
delivery of this Agreement (the "FBA Disclosure Schedule"), there are no shares
of capital stock or other equity securities of FBA issued or outstanding and no
outstanding options, warrants, rights to subscribe for, calls or commitments of
any character whatsoever relating to, or securities or rights convertible into
or exchangeable for, shares of the capital stock of FBA or contracts,
commitments, understandings or arrangements by which FBA is or may be obligated
to issue additional shares of its capital stock.
(d) As of the date hereof, the authorized capital stock of Redwood
consists of 1,000,000 shares of common stock, $3.33 par value ("Redwood
Common"), of which 465,000 are outstanding, duly and validly issued, fully paid
and non-assessable. All of such outstanding shares are owned by Redwood Bancorp,
a California corporation which is a subsidiary of FBA. None of the outstanding
shares of Redwood Common has been issued in violation of any preemptive rights.
Redwood has no outstanding stock options, warrants, rights to subscribe for,
calls or commitments of any character whatsoever relating to, or securities or
rights convertible into or exchangeable for, shares of the capital stock of
Redwood or contracts, commitments, understandings or arrangements by which
Redwood is or may be obligated to issue additional shares of its capital stock.
Section 3.02. Authorization; No Defaults. The Boards of Directors of
FBA and Redwood have by all requisite action approved this Agreement and the
Merger and authorized the execution and delivery hereof on behalf of such
corporations and the performance of their respective obligations hereunder.
Nothing in the Certificate of Incorporation of FBA, the Articles of
Incorporation of Redwood, the Bylaws of either corporation, or any other
agreement, instrument, decree, proceeding, law or regulation (except as
specifically referred to in or contemplated by this Agreement) by or to which
FBA or Redwood is bound or subject would prohibit or inhibit FBA or Redwood from
consummating this Agreement and the Merger on the terms and conditions herein
contained. This Agreement has been duly and validly executed and delivered by
FBA and Redwood and constitutes a legal, valid and binding obligation of each of
them, enforceable against them in accordance with its terms. FBA and its
subsidiaries are neither in default under nor in violation of any provision of
their respective articles or certificates of incorporation, bylaws, or any
promissory note, indenture or any evidence of indebtedness or security therefor,
lease, contract, purchase or other commitment or any other agreement which is
material to FBA and its subsidiaries taken as a whole.
<PAGE>
Section 3.03. FBA Subsidiaries. Each of FBA's direct and indirect
subsidiaries (hereinafter referred to singly as an "FBA Subsidiary" and
collectively as the "FBA Subsidiaries"), the names and jurisdictions of
incorporation of which are disclosed in Section 3.03 of the FBA Disclosure
Schedule, is duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation, and each of the FBA Subsidiaries
has the corporate power to own its properties and assets, to incur its
liabilities and to carry on its business as now being conducted. The number of
issued and outstanding shares of capital stock of each FBA Subsidiary and the
ownership of such shares is set forth in Section 3.03 of the FBA Disclosure
Schedule. All of such shares are owned by FBA or an FBA Subsidiary, free and
clear of all liens, encumbrances, rights of first refusal, options or other
restrictions. There are no options, warrants or rights outstanding to acquire
any capital stock of any FBA Subsidiary, and no person or entity has any other
right to purchase or acquire any unissued shares of stock of any FBA Subsidiary,
nor does any FBA Subsidiary have any obligation of any nature with respect to
its unissued shares of stock. Except as disclosed in Section 3.03 of the FBA
Disclosure Schedule, neither FBA nor any FBA Subsidiary is a party to any
partnership or joint venture or owns an equity interest in any other business or
enterprise.
Section 3.04. Financial Information. All of (i) the audited
consolidated balance sheets of FBA and the FBA Subsidiaries as of December 31,
1999 and related consolidated income statements and statements of changes in
shareholders' equity and of cash flows for the three years ended December 31,
1999, together with the notes thereto, included in FBA's Annual Report on Form
10-K for the year ended December 31, 1999, as currently on file with the SEC;
(ii) the unaudited consolidated balance sheets of FBA and the FBA Subsidiaries
as of March 31, 2000 and related consolidated income statements and statements
of changes in shareholders' equity and of cash flows for the three months ended
March 31, 2000, together with the notes thereto, included in FBA's Quarterly
Report on Form 10-Q for the three months ended March 31, 2000 as currently filed
with the SEC; and (iii) the year-end and quarter-end Reports of Condition and
Reports of Income of Redwood, First Bank of California and First Bank Texas
N.A., respectively, for 1999 and for the three month period ended March 31,
2000, as filed with the appropriate federal regulatory agencies (such financial
statements and notes collectively referred to herein as the "FBA Financial
Statements"), have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis (except as disclosed therein
and except for regulatory reporting differences required for reports of the
banks) and fairly present the consolidated financial position and the
consolidated results of operations, changes in shareholders' equity and cash
flows of the respective entity and its consolidated subsidiaries as of the dates
and for the periods indicated.
Section 3.05. Absence of Changes. Since March 31, 2000 there has not
been any material adverse change in the financial condition, the results of
operations or the business or prospects of FBA and its subsidiaries taken as a
whole, nor have there been any events or transactions having such a material
adverse effect which should be disclosed in order to make the FBA Financial
Statements not misleading. Since March 31, 2000 there has been no material
adverse change in the financial condition, the results of operations or the
business of Redwood, except for changes as are disclosed in its Reports of
Condition and Income filed with the FDIC since such date.
Section 3.06. Regulatory Enforcement Matters. Neither FBA nor any FBA
Subsidiary is subject to, nor has it received any notice or advice that it may
become subject to, any order, agreement, memorandum of understanding or other
regulatory enforcement action or proceeding with or by any federal or state
agency charged with the supervision or regulation of banks or bank holding
companies or engaged in the insurance of bank deposits or any other governmental
agency having supervisory or regulatory authority with respect to FBA or any of
the FBA Subsidiaries.
Section 3.07. Tax Matters. FBA and the FBA Subsidiaries have filed all
federal, state and local income, franchise, excise, sales, use, real and
personal property and other tax returns required to be filed. All such returns
fairly reflect the information required to be presented therein. All provisions
for accrued but unpaid taxes contained in the FBA Financial Statements were made
in accordance with generally accepted accounting principles and in the aggregate
do not materially fail to provide for potential tax liabilities.
Section 3.08. Litigation. Except as disclosed in Section 3.08 of the
FBA Disclosure Schedule, there is no litigation, claim or other proceeding
involving an amount in controversy in excess of $100,000 pending or, to the
knowledge of FBA or Redwood, threatened against FBA or any of the FBA
Subsidiaries, or of which the property of FBA or any of the FBA Subsidiaries is
or would be subject.
<PAGE>
Section 3.09. Properties, Contracts, Employee Benefit Plans and Other
Agreements. Section 3.09 of the FBA Disclosure Schedule specifically identifies
the following:
(a) all real property owned by FBA or any FBA Subsidiary and the
principal buildings and structures located thereon and each lease of real
property to which FBA or any FBA Subsidiary is a party, identifying the parties
thereto, the annual rental payable, the expiration date thereof and a brief
description of the property covered;
(b) all loan and credit agreements, conditional sales contracts or
other title retention agreements or security agreements relating to money
borrowed by FBA or an FBA Subsidiary, exclusive of deposit agreements with
customers entered into in the ordinary course of business, agreements for the
purchase of federal funds and repurchase agreements;
(c) all agreements, loans, contracts, leases, guaranties, letters of
credit, lines of credit or commitments of FBA or any FBA Subsidiary not referred
to elsewhere in this Section 3.09 which:
(i) (except fo loans, loan commitments or lines of
credit) involve payment by FBA or any FBA Subsidiary
of more than $200,000;
(ii) involve payments based on profits of FBA or any FBA
Subsidiary;
(iii) relate to the future purchase of goods or services in
excess of the requirements of its respective business
at current levels or for normal operating purposes;
(iv) were not made in the ordinary course of business; or
(v) materially affect the business or financial condition
of FBA or any FBA Subsidiary;
(d) all leases, subleases or licenses with respect to real or personal
property, whether as lessor, lessee, licensor or licensee, with annual rental or
other payments due thereunder in excess of $100,000; and
(e) all agreements for the employment, retention or engagement, or with
respect to the severance, of any officer, employee, agent, consultant or other
person or entity which by its terms is not terminable by FBA or an FBA
Subsidiary on thirty (30) days written notice or less without any payment by
reason of such termination.
Copies of each document, plan or contract identified in Section 3.09 of
the FBA Disclosure Schedule have been made available for inspection by First
Banks and shall remain available at all times prior to the Closing Date.
Section 3.10. Reports. FBA and the FBA Subsidiaries have filed all
reports and statements, together with any amendments required to be made with
respect thereto, required to be filed with the SEC, the Federal Reserve Board,
the DFI, the FDIC and all other governmental authorities with jurisdiction over
FBA or any FBA Subsidiary. As of the dates indicated thereon, each of such
reports and documents, including any financial statements, exhibits and
schedules thereto, complied in all material respects with the relevant statutes,
rules and regulations enforced or promulgated by the regulatory authority with
which they were filed, and did not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading.
Section 3.11. Investment Portfolio. All United States Treasury
securities, obligations of other United States Government agencies and
corporations, obligations of States and political subdivisions of the United
States and other investment securities held by FBA or an FBA Subsidiary, as
reflected in the latest consolidated balance sheets of FBA included in the FBA
Financial Statements, are carried in accordance with generally accepted
accounting principles.
<PAGE>
Section 3.12. Loan Portfolio. (a)(i) All loans and discounts reflected
in the FBA Financial Statements at March 31, 2000 or which were or will be
entered into after March 31, 2000 but before the Closing Date were and will be
made in all material respects for good, valuable and adequate consideration in
the ordinary course of business, in accordance in all material respects with
sound lending practices, and they are not subject to any material known
defenses, setoffs or counterclaims, including without limitation any such as are
afforded by usury or truth in lending laws, except as may be provided by
bankruptcy, insolvency or similar laws or by general principles of equity; (ii)
the notes and other evidences of indebtedness evidencing such loans and all
forms of pledges, mortgages and other collateral documents and security
agreements are and will be in all material respects enforceable, valid, true and
genuine and what they purport to be; and (iii) FBA and the FBA Subsidiaries have
complied and will through the Closing Date comply with all laws and regulations
relating to such loans, or to the extent there has not been such compliance,
such failure to comply will not materially interfere with the collection of any
loan. All loans and loan commitments extended by the FBA Subsidiaries and any
extensions, renewals or continuations of such loans and loan commitments were
made in accordance with their customary lending standards in the ordinary course
of business. Such loans are evidenced by appropriate and sufficient
documentation based upon customary and ordinary past practices. The reserve for
loan losses reflected in the FBA Financial Statements as of March 31, 2000 is
adequate in all material respects under the requirements of generally accepted
accounting principles to provide for losses on loans outstanding as of March 31,
2000.
Section 3.13. Employee Matters and ERISA.
(a) Neither FBA nor any FBA Subsidiary has entered into any collective
bargaining agreement with any labor organization with respect to any group of
employees of FBA or any FBA Subsidiary, and to the knowledge of FBA there is no
present effort nor existing proposal to attempt to unionize any group of
employees of FBA or any FBA Subsidiary.
(b) All arrangements of FBA and the FBA Subsidiaries relating to
employees, including all benefit plans and deferred compensation, bonus, stock
or incentive plans for the benefit of current or former employees (the "FBA
Employee Plans") are administered by First Banks. All costs, liabilities and
obligations arising from the FBA Employee Plans are properly reflected in
accordance with generally accepted accounting principles in the FBA Financial
Statements.
Section 3.14. Title to Properties; Insurance. (i) FBA and the FBA
Subsidiaries have marketable title, insurable at standard rates, free and clear
of all liens, charges and encumbrances (except taxes which are a lien but not
yet payable and liens, charges or encumbrances reflected in the FBA Financial
Statements and easements, rights-of-way, and other restrictions which are not
material, and further excepting in the case of other Real Estate Owned ("OREO"),
as such real estate is internally classified on the books of FBA and the FBA
Subsidiaries, rights of redemption under applicable law) to all of their real
properties; (ii) all leasehold interests for real property and any material
personal property used by FBA or a FBA Subsidiary in its business are held
pursuant to lease agreements which are valid and enforceable in accordance with
their terms; (iii) all such properties comply in all material respects with all
applicable private agreements, zoning requirements and other governmental laws
and regulations relating thereto, and there are no condemnation proceedings
pending or, to the knowledge of FBA, threatened with respect to any of such
properties; (iv) FBA and the FBA Subsidiaries have valid title or other
ownership rights under licenses to all material intangible personal or
intellectual property used by FBA or any FBA Subsidiary in its business, free
and clear of any material claim, defense or right of any other person or entity,
subject only to rights of the licensors pursuant to applicable license
agreements, which rights do not materially and adversely interfere with the use
of such property; and (v) all material insurable properties owned or held by FBA
or a FBA Subsidiary are adequately insured by financially sound and reputable
insurers in such amounts and against fire and other risks insured against by
extended coverage and public liability insurance, as is customary with bank
holding companies of similar size.
Section 3.15. Compliance with Laws. FBA and the FBA Subsidiaries have
all licenses, franchises, permits and other governmental authorizations that are
legally required to enable them to conduct their respective businesses in all
material respects, are qualified to conduct business in every jurisdiction in
which such qualification is legally required and are in compliance in all
material respects with all applicable laws and regulations.
Section 3.16. Brokerage. Except for fees payable by FBA to Baxter
Fentriss and Company, neither FBA nor any FBA Subsidiary has incurred any claims
or obligations for brokerage commissions, finders' fees, financial advisory
fees, investment banking fees or similar compensation in connection with the
transactions contemplated by this Agreement.
<PAGE>
Section 3.17. No Undisclosed Liabilities. Neither FBA nor any FBA
Subsidiary has any material liability, whether known or unknown, asserted or
unasserted, absolute or contingent, accrued or unaccrued, liquidated or
unliquidated, and whether due or to become due (and there is no past or present
fact, situation, circumstance, condition or other basis for any present or
future action, suit or proceeding, hearing, charge, complaint, claim or demand
against FBA or any FBA Subsidiary giving rise to any such liability), except for
(i) liabilities reflected in the FBA Financial Statements, and (ii) liabilities
of the same type incurred in the ordinary course of business of FBA and the FBA
Subsidiaries since March 31, 2000.
Section 3.18. Statements True and Correct. None of the information
supplied or to be supplied by FBA or Redwood for inclusion in any document to be
filed with the SEC or any banking or other regulatory authority in connection
with the transactions contemplated hereby will, at the respective times such
documents are filed, and, in the case of the Proxy Statement, when mailed to the
stockholders of FBA and at the time of the Stockholders' Meeting, be false or
misleading with respect to any material fact, or omit to state any material fact
necessary in order to make the statements therein not misleading or required to
be stated in order to correct any statement in an earlier communication. All
documents that FBA or Redwood is responsible for filing with the SEC or any
other regulatory authority in connection with the transactions contemplated
hereby will comply as to form in all material respects with the provisions of
applicable law and the applicable rules and regulations thereunder.
Section 3.19. Commitments and Contracts. Except as disclosed in Section
3.19 of the FBA Disclosure Schedule (and with a true and correct copy of the
document or other item in question having been made available to First Bank &
Trust for inspection), neither FBA nor any FBA Subsidiary is a party or subject
to any of the following (whether written or oral, express or implied):
(i) any agreement, arrangement or commitment not made in the ordinary
course of business;
(ii) any agreement, indenture or other instrument not reflected in the
FBA Financial Statements relating to the borrowing of money or the
guarantee by FBA or any FBA Subsidiary of any obligation, other than
(A) trade payables or instruments related to transactions entered into
in the ordinary course of business, such as deposits, federal funds
borrowings and repurchase agreements or (B) agreements, indentures or
instruments providing for annual payments of less than $75,000; or
(iii) any contract containing covenants which limit the ability of FBA
to compete in any line of business or with any person or containing any
restriction of the geographical area in which, or method by which, FBA
or any FBA Subsidiary may carry on its business.
Section 3.20. Material Interest of Certain Persons. (a) Except as
disclosed in Section 3.20 of the FBA Disclosure Schedule, no officer or director
of FBA or any "associate" (as such term is defined in Rule 14a-1 under the
Exchange Act) of any such officer or director, has any material interest in any
contract or property (real or personal, tangible or intangible), used in or
pertaining to the business of FBA or an FBA Subsidiary.
<PAGE>
(b) All outstanding loans from FBA or any FBA Subsidiary to any of
their officers, directors, employees or any associate or related interest of any
such persons were approved by or reported to the Board of Directors in
accordance with all applicable laws and regulations.
Section 3.21. Conduct to Date. Except as disclosed in Section 3.21 of
the FBA Disclosure Schedule, from and after March 31, 2000 through the date of
this Agreement, neither FBA nor any FBA Subsidiary has:
(i) failed to conduct its business in the ordinary and usual course
consistent with past practices;
(ii) issued, sold, granted, conferred or awarded any common or other
stock, or any corporate debt securities which would be classified under
generally accepted accounting principles applied on a consistent basis
as long-term debt on the balance sheets of FBA or an FBA Subsidiary;
(iii) effected any stock split or adjusted, combined, reclassified or
otherwise changed its capitalization;
(iv) declared, set aside or paid any dividend or other distribution in
respect of its capital stock, or purchased, redeemed, retired,
repurchased, or exchanged, or otherwise directly or indirectly acquired
or disposed of any of its capital stock;
(v) incurred any material obligation or liability (absolute or
contingent), except normal trade or business obligations or liabilities
incurred in the ordinary course of business, or subjected to lien any
of its assets or properties other than in the ordinary course of
business consistent with past practice;
(vi) discharged or satisfied any material lien or paid any material
obligation or liability (absolute or contingent), other than in the
ordinary course of business;
(vii) sold, assigned, transferred, leased, exchanged, or otherwise
disposed of any of its properties or assets other than for a fair
consideration in the ordinary course of business;
(viii) except as required by contract or law, (A) increased the rate of
compensation of, or paid any bonus to, any of its directors, officers,
or other employees, except merit or promotion increases in accordance
with existing policy, (B) entered into any new, or amended or
supplemented any existing, employment, management, consulting, deferred
compensation, severance or other similar contract, (C) entered into,
terminated or substantially modified any of the Employee Plans or (D)
agreed to do any of the foregoing;
<PAGE>
(ix) suffered any material damage, destruction, or loss, whether as the
result of fire, explosion, earthquake, accident, casualty, labor
trouble, requisition, or taking of property by any regulatory
authority, flood, windstorm, embargo, riot, act of God or the enemy, or
other casualty or event, and whether or not covered by insurance;
(x) canceled or compromised any debt, except for debts charged off or
compromised in accordance with past practice;
(xi entered into any material transaction, contract or commitment
outside the ordinary course of its business; or
(xii) made or guaranteed any loan to any of the Employee Plans.
Section 3.22. Environmental Matters. As used in this Agreement,
"Environmental Laws" means all local, state and federal environmental, health
and safety laws and regulations in all jurisdictions in which FBA or any FBA
Subsidiary has done business or owned, leased or operated property, including,
without limitation, the Federal Resource Conservation and Recovery Act, the
Federal Comprehensive Environmental Response, Compensation and Liability Act,
the Federal Clean Water Act, the Federal Clean Air Act, and the Federal
Occupational Safety and Health Act.
Neither the conduct nor operation of FBA or any FBA Subsidiary nor any
condition of any property presently or previously owned, leased or operated by
any of them on their own behalf or in a fiduciary capacity violates or violated
any Environmental Law in any respect material to the business of FBA and the FBA
Subsidiaries, taken as a whole, and no condition or event has occurred with
respect to any of them or any property that, with notice or the passage of time,
or both, would constitute a violation material to the business of FBA and the
FBA Subsidiaries, taken as a whole, of any Environmental Law or obligate (or
potentially obligate) FBA or any FBA Subsidiary to remedy, stabilize, neutralize
or otherwise alter the environmental condition of any property, where the
aggregate cost of such actions would be material to FBA and the FBA
Subsidiaries, taken as a whole. Except as may be disclosed in Section 3.22 of
the FBA Disclosure Schedule, neither FBA nor any FBA Subsidiary has received
notice from any person or entity that FBA or any FBA Subsidiary, or the
operation or condition of any property ever owned, leased or operated by any of
them on their own behalf or in a fiduciary capacity, are or were in violation of
any Environmental Law, or that FBA or any FBA Subsidiary is responsible (or
potentially responsible) for remedying, or the cleanup of, any pollutants,
contaminants, or hazardous or toxic wastes, substances or materials at, on or
beneath any such property.
<PAGE>
ARTICLE IV
AGREEMENTS OF FIRST BANKS AND FIRST BANK & TRUST
Section 4.01. Business in Ordinary Course. First Banks and First Bank &
Trust agree that, from the date of this Agreement until the earlier of the
Closing Date or the earlier termination of this Agreement in accordance with its
terms:
(a) First Bank & Trust shall carry on its business and the discharge or
incurrence of obligations and liabilities only in the usual, regular and
ordinary course of business as heretofore conducted, and by way of amplification
and not limitation, First Bank & Trust will not:
(i) declare or pay any dividend or make any other distribution to
stockholders, whether in cash, stock or other property; or
(ii) issue any Common Stock or other capital stock or any options,
warrants, or other rights to subscribe for or purchase Common Stock or
any other capital stock or any securities convertible into or
exchangeable for any capital stock; or
(iii) directly or indirectly redeem, purchase or otherwise acquire any
capital stock of First Bank & Trust; or
(iv) effect a reclassification, recapitalization, splitup, exchange of
shares, readjustment or other similar change in or to any capital
stock, or otherwise reorganize or recapitalize; or
(v) change its articles of incorporation or association or bylaws, nor
enter into any agreement to merge or consolidate with, or sell a
significant portion of its assets to, any person or entity.
(b) First Bank & Trust will not, without the prior written consent of
FBA, from and after the date hereof:
(i) grant any increase (other than ordinary and normal increases
consistent with past practices) in the compensation payable or to
become payable to officers or salaried employees, grant any stock
options or, except as required by law, adopt or make any change in any
bonus, insurance, pension, or other FB&T Employee Plan, agreement,
payment or arrangement made to, for or with any of such officers or
employees; or
(ii) borrow or agree to borrow any amount of funds except in the
ordinary course of business, or directly or indirectly guarantee or
agree to guarantee any obligations of others; or
<PAGE>
(iii) make or commit to make any new loan or letter of credit or any
new or additional discretionary advance under any existing line of
credit, except in the ordinary course of business in compliance with
applicable laws, regulations and lending policies of the entity making
the loan or advance; or
(iv) enter into any agreement, contract or commitment having a term in
excess of three (3) months other than letters of credit, loan
agreements, deposit agreements, and other lending, credit and deposit
agreements and documents made in the ordinary course of business; or
(v) except in the ordinary course of business, place on any of its
assets or properties any mortgage, pledge, lien, charge, or other
encumbrance; or
(vi) except in the ordinary course of business, cancel or accelerate
any material indebtedness owing to First Bank & Trust or any claims
which First Bank & Trust may possess, or waive any material rights of
substantial value; or
(vii) sell or otherwise dispose of any real property or any material
amount of any tangible or intangible personal property, other than
properties acquired in foreclosure or otherwise in the ordinary
collection of indebtedness; or
(viii) violate any law, statute, rule, governmental regulation or
order, which violation might have a material adverse effect on the
business, financial condition, or earnings of First Bank & Trust; or
(ix) increase or decrease the rate of interest paid on time deposits or
on certificates of deposit, except in a manner consistent with past
practices.
(c) First Bank & Trust shall not, without the prior written consent of
FBA, engage in any transaction or take any action that would render untrue in
any material respect any of the representations and warranties of First Bank &
Trust contained in Article II hereof, if such representations and warranties
were given immediately following such transaction or action.
Section 4.02. Breaches. First Banks and First Bank & Trust shall, in
the event either has knowledge of the occurrence, or impending or threatened
occurrence, of any event or condition which would cause or constitute a breach
(or would have caused or constituted a breach had such event occurred or been
known prior to the date hereof) of any of its representations or agreements
contained or referred to herein, give prompt written notice thereof to FBA and
use their best efforts to prevent or promptly remedy the same.
<PAGE>
Section 4.03. Submission to FBA's Stockholders. First Banks and First
Bank & Trust shall cooperate with FBA in the preparation and filing of the Proxy
Statement described in Section 5.07 and will provide to FBA accurate and
complete information, data and documents requested by FBA in connection with the
preparation and filing of the Proxy Statement.
Section 4.04. Consummation of Agreement. First Banks and First Bank &
Trust shall use their best efforts to perform and fulfill all conditions and
obligations on their parts to be performed or fulfilled under this Agreement and
to effect the Merger in accordance with the terms and provisions hereof. First
Banks and First Bank & Trust shall furnish to FBA in a timely manner all
information, data and documents requested by FBA as may be required to obtain
any necessary regulatory or other approvals of the Merger and shall cooperate
fully with FBA in seeking such approvals and in consummating the transactions
contemplated by this Agreement. Promptly following the receipt of all required
regulatory approvals, First Bank & Trust shall execute the Merger Agreement,
revised if necessary to comply with any requirements imposed in connection with
such regulatory approvals.
Section 4.05. Access to Information. First Bank & Trust shall permit
FBA reasonable access, in a manner which will avoid undue disruption or
interference with First Bank & Trust's normal operations, to its properties, and
First Bank & Trust shall disclose and make available to FBA all books,
documents, papers and records relating to the assets, stock ownership,
properties, operations, obligations and liabilities of First Bank & Trust
including, but not limited to, all books of account (including the general
ledger), tax records, minute books of directors' and stockholders' meetings,
organizational documents, material contracts and agreements, loan files, filings
with any regulatory authority, accountants' workpapers (if available and subject
to the accountants' consent), litigation files, plans affecting employees, and
any other business activities or prospects in which FBA may have a reasonable
and legitimate interest in furtherance of the transactions contemplated by this
Agreement. FBA will hold any such information which is nonpublic in confidence
in accordance with the provisions of Section 8.01 hereof.
Section 4.06. Consents to Contracts and Leases. First Bank & Trust
shall use its best efforts to obtain all consents with respect to interests of
First Bank & Trust in material leases, licenses, contracts, instruments and
rights, if any, which require the consent of another person for the consummation
of the Merger.
Section 4.07. Subsequent Financial Statements. As soon as available
after the date hereof, First Bank & Trust shall deliver to FBA the monthly
unaudited consolidated balance sheets and profit and loss statements of First
Bank & Trust prepared for its internal use, the Report of Condition and Income
of First Bank & Trust for each quarterly period completed prior to the Closing,
and all other financial reports or statements submitted to regulatory
authorities after the date hereof, to the extent permitted by law (collectively,
the "Subsequent FB&T Financial Statements"). The Subsequent FB&T Financial
Statements shall be prepared on a basis consistent with past accounting
practices, shall fairly present the financial condition and results of
<PAGE>
operations for the dates and periods presented and shall not include any
material assets or omit to state any material liabilities, absolute or
contingent, or other facts, which inclusion or omission would render such
financial statements misleading in any material respect.
ARTICLE V
AGREEMENTS OF FBA AND REDWOOD
Section 5.01. Business in Ordinary Course. FBA and Redwood agree that
from the date of this Agreement until the Closing Date or the earlier
termination of this Agreement in accordance with its terms, except for the
actions described in Section 5.01 of the FBA Disclosure Schedule:
(a) FBA and the FBA Subsidiaries shall carry on their business and the
discharge or incurrence of their obligations and liabilities only in the usual,
regular and ordinary course of business, as heretofore conducted, and by way of
amplification and not limitation, FBA and the FBA Subsidiaries will not:
(i) declare or pay any dividend or make any other distribution to
stockholders, whether in cash, stock or other
property; or
(ii) effect a reclassification, recapitalization, splitup, exchange of
shares, readjustment or other similar change in or to any capital
stock, or otherwise reorganize or recapitalize.
(b) FBA and the FBA Subsidiaries will not, without the prior written
consent of First Banks, from and after the date hereof:
(i) grant any increase (other than ordinary and normal increases
consistent with past practices) in the compensation payable or to
become payable to officers or salaried employees, grant any stock
options or, except as required by law, adopt or make any change in any
bonus, insurance, pension, or other FBA Employee Plan, agreement,
payment or arrangement made to, for or with any of such officers or
employees; or
(ii) make or commit to make any new loan or letter of credit or any new
or additional discretionary advance under any existing line of credit,
except in the ordinary course of business in compliance with applicable
laws, regulations and lending policies of the entity making the loan or
advance; or
(iii) enter into any agreement, contract or commitment having a term in
excess of three (3) months other than letters of credit, loan
agreements and other agreements and documents made in the ordinary
course of business; or
<PAGE>
(iv) except in the ordinary course of business, place on any of its
assets or properties any mortgage, pledge, lien, charge, or other
encumbrance; or
(v) except in the ordinary course of business, cancel or accelerate any
material indebtedness owing to FBA or an FBA Subsidiary or any claims
which FBA or any FBA Subsidiary may possess, or waive any material
rights of substantial value; or
(vi) sell or otherwise dispose of any real property or any material
amount of any tangible or intangible personal property, other than
properties acquired in foreclosure or otherwise in the ordinary
collection of indebtedness; or
(vii) violate any law, statute, rule, governmental regulation or order,
which violation might have a material adverse effect on the business,
financial condition, or earnings of FBA and the FBA Subsidiary
Subsidiaries, taken as a whole; or
(viii) increase or decrease the rate of interest paid on time deposits
or on certificates of deposit, except in a manner consistent with past
practices.
(c) FBA and the FBA Subsidiaries shall not, without the prior written
consent of First Bank & Trust, engage in any transaction or take any action that
would render untrue in any material respect any of the representations and
warranties of FBA contained in Article III hereof, if such representations and
warranties were given immediately following such transaction or action.
Section 5.02. Regulatory Approvals. FBA and Redwood shall file or cause
to be filed all regulatory applications required in order to consummate the
Merger, including but not limited to the necessary applications for the prior
approval of the Federal Reserve Board. FBA shall keep First Banks reasonably
informed as to the status of such applications and make available to First
Banks, upon reasonable request, copies of such applications and any
supplementally filed materials.
Section 5.03. Breaches. FBA shall, in the event it has knowledge of the
occurrence, or impending or threatened occurrence, of any event or condition
which would cause or constitute a breach (or would have caused or constituted a
breach had such event occurred or been known prior to the date hereof) of any of
its representations or agreements contained or referred to herein, give prompt
written notice thereof to First Banks and use its best efforts to prevent or
promptly remedy the same.
Section 5.04. Consummation of Agreement. FBA and Redwood shall use
their best efforts to perform and fulfill all conditions and obligations on
their parts to be performed or fulfilled under this Agreement and to effect the
Merger in accordance with the terms and conditions of this Agreement. Promptly
following the approval of the Merger by FBA's stockholders, FBA shall cause its
subsidiary, Redwood Bancorp, to approve the Merger in its capacity as the sole
shareholder of Redwood (or FBA will do so if FBA shall have become Redwood's
sole shareholder prior to such time). Promptly following the receipt of all
<PAGE>
required regulatory approvals, Redwood shall execute the Merger Agreement,
revised if necessary to comply with any requirements imposed in connection with
such regulatory approvals.
Section 5.05. Access to Information. FBA and Redwood shall permit First
Banks reasonable access, in a manner which will avoid undue disruption or
interference with their normal operations, to its properties, and FBA and
Redwood shall disclose and make available to First Banks all books, documents,
papers and records relating to the assets, stock ownership, properties,
operations, obligations and liabilities of FBA and the FBA Subsidiaries
including, but not limited to, all books of account (including the general
ledger), tax records, minute books of directors' and stockholders' meetings,
organizational documents, material contracts and agreements, loan files, filings
with any regulatory authority, accountants' workpapers (if available and subject
to the accountants' consent), litigation files, plans affecting employees, and
any other business activities or prospects in which First Banks may have a
reasonable and legitimate interest in furtherance of the transactions
contemplated by this Agreement. First Banks will hold any such information which
is nonpublic in confidence in accordance with the provisions of Section 8.01
hereof.
Section 5.06. Proxy Statement and Stockholders' Meeting. (a) FBA shall
promptly (i) prepare and file with the SEC, as soon as reasonably practicable, a
Proxy Statement (the "Proxy Statement") for a meeting of the stockholders of FBA
to be held as soon as reasonably practicable (the "Stockholders' Meeting"); (ii)
hold the Stockholders' Meeting; and (iii) use its best efforts to obtain the
approval of this Agreement and the Merger by the stockholders of FBA. The
Special Committee of the Board of Directors of FBA established to consider the
transactions contemplated by this Agreement shall recommend such approval to
FBA's stockholders, and the Board of Directors shall adopt the same
recommendation and cause the Proxy Statement to be mailed to FBA's stockholders
and use its best efforts to obtain such stockholder approval; provided, however,
that neither the Special Committee nor the Board of Directors of FBA shall be
obligated to make such recommendation if, having consulted and considered the
advice of outside legal counsel, the Special Committee or the Board of Directors
have reasonably determined in good faith that the making of such recommendation
would constitute a breach of the fiduciary duties of the members of the Board of
Directors or of the Special Committee of the Board of Directors under applicable
law.
(b) FBA and Redwood shall cooperate and use their best efforts (i) to
prepare all documentation, to effect all filings and to obtain all permits,
consents, approvals and authorizations of all third parties, regulatory
authorities and other authorities necessary to consummate the transactions
contemplated by this Agreement, and (ii) to cause the Merger to be consummated
as expeditiously as reasonably practicable.
Section 5.07. Subsequent Financial Statements. As soon as available
after the date hereof, FBA shall deliver to First Banks the monthly unaudited
consolidated balance sheets and profit and loss statements of FBA and Redwood
prepared for their internal use, Quarterly Reports on Form 10-Q for FBA as filed
with the SEC, the Report of Condition and Income of Redwood for each quarterly
period completed prior to the Closing, and all other financial reports or
statements submitted to regulatory authorities after the date hereof, to the
<PAGE>
extent permitted by law (collectively, the "Subsequent FBA Financial
Statements"). The Subsequent FBA Financial Statements shall be prepared on a
basis consistent with past accounting practices, shall fairly present the
financial condition and results of operations for the dates and periods
presented and shall not include any material assets or omit to state any
material liabilities, absolute or contingent, or other facts, which inclusion or
omission would render such financial statements misleading in any material
respect.
ARTICLE VI
CONDITIONS PRECEDENT TO THE MERGER
6.01 Conditions to the Obligations of FBA and Redwood. The obligations
of FBA and Redwood to effect the Merger and the other transactions contemplated
by this Agreement shall be subject to the satisfaction (or waiver by FBA) prior
to or on the Closing Date of the following conditions:
(a) the representations and warranties made by First Banks and First
Bank & Trust in this Agreement shall be true in all material respects on and as
of the Closing Date (except for those made as of a specified date) with the same
effect as though such representations and warranties had been made or given on
and as of the Closing Date;
(b) First Banks and First Bank & Trust shall have performed and
complied in all material respects with all of its obligations and agreements
required to be performed prior to the Closing Date;
(c) no temporary restraining order, preliminary or permanent injunction
or other order issued by any court of competent jurisdiction or other legal
restraint or prohibition preventing the consummation of the Merger shall be in
effect, nor shall any proceeding by any regulatory authority or other person
seeking any of the foregoing be pending. There shall not be any action taken, or
any statute, rule, regulation or order enacted, entered, enforced or deemed
applicable to the Merger which makes the consummation of the Merger illegal;
(d) all necessary approvals, consents and authorizations required by
law for consummation of the Merger, including the requisite approval of the
stockholders of FBA and all legally required regulatory approvals, shall have
been obtained, and all waiting periods required by law shall have expired;
(e) FBA shall have received all documents required to be received from
First Banks and First Bank & Trust on or prior to the Closing Date, all in form
and substance reasonably satisfactory to FBA; and
(f) the Special Committee of the Board of Directors of FBA shall have
received within thirty (30) days after the date of this Agreement a fairness
opinion of the financial advisor to the Special Committee to the effect that the
transactions contemplated by this Agreement are fair to the stockholders of FBA
from a financial point of view, and such fairness opinion shall not have been
withdrawn.
Section 6.02. Conditions to the Obligations of First Banks and First
Bank & Trust. The obligations of First Banks and First Bank & Trust to effect
the Merger and the other transactions contemplated by this Agreement shall be
subject to the satisfaction (or waiver by First Banks) prior to or on the
Closing Date of the following conditions:
(a) the representations and warranties made by FBA and Redwood in this
Agreement shall be true in all material respects on and as of the Closing Date
(except for those made as of a specified date) with the same effect as though
such representations and warranties had been made or given on the Closing Date;
(b) FBA shall have performed and complied in all material respects with
all of its obligations and agreements hereunder required to be performed prior
to the Closing Date;
(c) no temporary restraining order, preliminary or permanent injunction
or other order issued by any court of competent jurisdiction or other legal
restraint or prohibition preventing the consummation of the Merger shall be in
effect, nor shall any proceeding by any bank regulatory authority or other
person seeking any of the foregoing be pending. There shall not be any action
taken, or any statute, rule, regulation or order enacted, entered, enforced or
deemed applicable to the Merger which makes the consummation of the Merger or
the other transactions contemplated hereby illegal;
(d) all necessary approvals, consents and authorizations required by
law for consummation of the Merger, including the requisite approval of the
stockholders of FBA and all legally required regulatory approvals, shall have
been obtained, and all waiting periods required by law shall have expired; and
(e) First Banks shall have received all documents required to be
received from FBA and Redwood on or prior to the Closing Date, all in form and
substance reasonably satisfactory to First Banks.
<PAGE>
ARTICLE VII
TERMINATION
Section 7.01. Mutual Agreement. This Agreement may be terminated by the
mutual written agreement of the parties at any time prior to the Closing Date,
regardless of whether approval of this Agreement and the Merger by the
stockholders of FBA shall have been previously obtained.
Section 7.02. Breach of Agreements. In the event that there is a
material breach of any of the representations and warranties or agreements of
First Banks or First Bank & Trust, on the one hand, or FBA or Redwood, on the
other hand, which breach is not cured within thirty days after notice to cure
such breach is given to the breaching party by the non-breaching party, then the
non-breaching party, regardless of whether approval of this Agreement and the
Merger by the stockholders of FBA shall have been previously obtained, may
terminate and cancel this Agreement by providing written notice of such action
to the other parties hereto.
Section 7.03. Failure of Conditions. In the event that any of the
conditions to the obligations of a party are not satisfied or waived on or prior
to the Closing Date, and if any applicable cure period provided in Section 7.02
hereof has lapsed, then such party may, regardless of whether approval of the
transactions contemplated by this Agreement by the stockholders of FBA shall
have been previously obtained, terminate and cancel this Agreement by delivery
of written notice of such action to the other parties.
Section 7.04. Denial of Regulatory Approval. If any regulatory
application filed pursuant to Section 5.02 hereof should be finally denied or
disapproved by a regulatory authority, then this Agreement thereupon shall be
deemed terminated and cancelled; provided, however, that a request for
additional information or undertaking by FBA, as a condition for approval, shall
not be deemed to be a denial or disapproval so long as FBA diligently provides
the requested information or undertaking. In the event an application is denied
pending an appeal, petition for review or similar such act on the part of FBA
(hereinafter referred to as the "Appeal"), then the application will be deemed
denied unless FBA prepares and timely files and continues to pursue an Appeal
seeking the necessary approval. In the event that, as a condition of any
required regulatory approval, FBA would be required to change its business or
operations in a manner material and adverse to FBA, then this Agreement may be
terminated by either party by giving written notice to the other party.
Section 7.05. Regulatory Enforcement Matters. (a) In the event that
First Banks or First Bank & Trust shall become a party or subject to any
material written agreement, memorandum of understanding, cease and desist order,
imposition of civil money penalties or other regulatory enforcement action or
proceeding with any regulatory authority after the date of this Agreement, then
FBA may terminate this Agreement by giving written notice of such termination to
First Banks.
<PAGE>
(b) In the event that FBA or any FBA Subsidiary shall become a party or
subject to any material written agreement, memorandum of understanding, cease
and desist order, imposition of civil money penalties or other regulatory
enforcement action or proceeding with any regulatory authority after the date of
this Agreement, then First Banks may terminate this Agreement by giving written
notice of such termination to FBA.
Section 7.06. Unilateral Termination. If the Closing Date does not
occur on or prior to March 31, 2001, then this Agreement may be terminated by
any party by giving written notice to the other party.
Section 7.07. Damages and Limitation on Damages. In the event that
either FBA or First Bank & Trust shall have (i) breached any provision of this
Agreement and the other party shall have properly terminated this Agreement
pursuant to Section 7.02; or (ii) failed or refused to consummate the Merger for
any reason other than (A) the failure of the other party to perform its
obligations as set forth in this Agreement or (B) the fact that one or more of
the conditions to such party's obligations to consummate the Merger set forth in
Article VI hereof shall not have been satisfied, then the party breaching this
Agreement or failing or refusing to consummate the Merger shall be liable to the
other party (the "Non-Breaching Party") for damages in the amount of all
out-of-pocket costs and expenses incurred by the Non-Breaching Party in
connection with this Agreement and the transactions contemplated hereby,
including the fees and expenses paid to third parties, but the amount of any
recovery shall be limited to a maximum of $100,000.
ARTICLE VIII
GENERAL PROVISIONS
8.01 Confidential Information. The parties acknowledge the confidential
and proprietary nature of the "Information" (as herein defined) which has
heretofore been exchanged and which will be received from each other hereunder
and agree to hold and keep the same confidential. Such Information will include
any and all financial, technical, commercial, marketing, customer or other
information concerning the business, operations and affairs of a party that may
be provided to the others, irrespective of the form of the communications, by
such party's employees or agents. Such Information shall not include information
which is or becomes generally available to the public other than as a result of
a disclosure by a party or its representatives in violation of this Agreement.
The parties agree that the Information will be used solely for the purposes
contemplated by this Agreement and that such Information will not be disclosed
to any person other than employees and agents of a party who are directly
involved in implementing the Merger, who shall be informed of the confidential
nature of the Information and directed individually to abide by the restrictions
set forth in this Section 8.01. The Information shall not be used in any way
detrimental to a party, including use directly or indirectly in the conduct of
the other party's business or any business or enterprise in which such party may
have an interest, now or in the future, and whether or not now in competition
with such other party. Neither FBA nor First Bank & Trust will purchase or sell
any security issued by the other party for so long as this Agreement remains in
effect.
Section 8.02. Publicity. FBA and First Bank & Trust shall cooperate
with each other in the development and distribution of all news releases and
other public disclosures concerning this Agreement and the Merger. Neither party
shall issue any news release or make any other public disclosure without the
prior consent of the other party, unless such is required by law upon the
written advice of counsel or is in response to published newspaper or other mass
media reports regarding the transaction contemplated hereby, in which latter
event the parties shall consult with each other to the extent practicable
regarding such responsive disclosure.
Section 8.03. Return of Documents. Upon termination of this Agreement
without the Merger becoming effective, each party shall deliver to the others
originals and all copies of all Information made available to such party and
will not retain any copies, extracts or other reproductions, in whole or in
part, of such Information.
Section 8.04. Notices. Any notice or other communication shall be in
writing and shall be deemed to have been given or made on the date of delivery,
in the case of hand delivery, or three (3) business days after deposit in the
United States Registered Mail, postage prepaid, or upon receipt if transmitted
by facsimile telecopy or any other means, addressed (in any case) as follows:
(a) if to FBA: Special Committee of the Board of Directors
First Banks America, Inc.
c/o Albert M. Lavezzo
Favaro, Lavezzo, Gill Caretti & Heppell
300 Tuolumne Street, Suite A
Vallejo, California 94590
Facsimile: (707) 552-8913
<PAGE>
and
First Banks America, Inc.
Attention: Frank Sanfilippo
Chief Financial Officer
11901 Olive Boulevard
Creve Coeur, Missouri 63141
Facsimile: (314) 567-8769
with a copy to: James S. Ryan
Jackson Walker L.L.P.
901 Main Street, Suite 6000
Dallas, Texas 75202
Facsimile: (214) 953-5736
(b) if to Redwood: Redwood Bank
Attention: Terrance M. McCarthy, President
735 Montgomery Street
San Francisco, California 94111
(c) if to First Banks or First Bank & Trust:
First Banks, Inc.
Attention: Allen H. Blake, President
11701 Olive Boulevard
Creve Coeur, Missouri 63141
Facsimile: (314) 995-8769
with a copy to: John S. Daniels
Attorney at Law
7502 Greenville Avenue, Suite 500
Dallas, Texas 75231
Facsimile: (214) 890-4003
or to such other address as any party may from time to time designate by notice
to the others.
Section 8.05. Nonsurvival of Representations, Warranties and
Agreements. No representation, warranty or agreement contained in this Agreement
shall survive the Closing Date, and, except for the provisions of Sections 7.07,
8.01, 8.03 and 8.06 hereof, no provisions hereof shall survive the earlier
termination of this Agreement.
Section 8.06. Costs and Expenses. Except as may be otherwise provided
herein, each party shall pay its own costs and expenses incurred in connection
with this Agreement and the matters contemplated hereby, including without
limitation all fees and expenses of attorneys, accountants, brokers, financial
advisors and other professionals.
Section 8.07. Entire Agreement. This Agreement constitutes the entire
agreement among the parties and supersedes and cancels any and all prior
discussions, negotiations, undertakings, agreements in principle and other
agreements among the parties relating to the subject matter hereof.
Section 8.08. Headings and Captions. The captions of Articles and
Sections hereof are for convenience only and shall not control or affect the
meaning or construction of any of the provisions of this Agreement.
<PAGE>
Section 8.09. Waiver, Amendment or Modification. The conditions of this
Agreement which may be waived may only be waived by a written instrument
delivered to the other party. The failure of any party at any time or times to
require performance of any provision hereof shall in no manner affect the right
at a later time to enforce the same. This Agreement may not be amended or
modified except by a written document duly executed by the parties hereto.
Section 8.10. Rules of Construction. Unless the context otherwise
requires: (a) a term has the meaning assigned to it; (b) an accounting term not
otherwise defined has the meaning assigned to it in accordance with generally
accepted accounting principles; (c) "or" is not exclusive; and (d) words in the
singular may include the plural and in the plural include the singular.
Section 8.11. Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original and all of which shall
be deemed one and the same instrument.
Section 8.12. Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and assigns. There shall be no third party beneficiaries hereof.
Section 8.13. Governing Law. This Agreement shall be governed by the
laws of the State of California and any applicable federal laws and regulations.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed
by their respective officers thereunto duly authorized, all as of the date first
written above.
FIRST BANKS AMERICA, INC.
By: /s/ Frank H. Sanfilippo
---------------------------
Its: Chief Financial Officer
REDWOOD BANK
By: /s/ Terrance M. McCarthy
--------------------------
Its: President
FIRST BANKS, INC.
By: /s/ Allen H. Blake
--------------------------
Its: President
FIRST BANK & TRUST
By: /s/ Allen H. Blake
---------------------------
Its: Vice President
<PAGE>
EXHIBIT A
AGREEMENT OF MERGER
This Agreement of Merger is entered into between First Bank & Trust, a
California corporation ("Merging Corporation"), and Redwood Bank, a California
corporation ("Surviving Corporation").
1. Merging Corporation shall be merged into Surviving Corporation.
2. The outstanding shares of Surviving Corporation shall remain
outstanding and shall not be affected by the merger.
3. Each outstanding share of Merging Corporation shall be converted
into the right to receive shares of common stock, par value $.15 per share, of
First Banks America, Inc., a Delaware corporation which is the parent of
Surviving Corporation; provided, however, that FBA shall pay cash in lieu of
fractional shares, if any, that would otherwise be issued.
4. Until amended in accordance with applicable law, the Articles of
Incorporation and Bylaws of Surviving Corporation remain the same as those of
the Surviving Corporation immediately prior to the merger.
5. The effect of the merger shall be as prescribed by law; the
effective date of the merger shall be at the time when a copy of this Agreement,
certified by the Secretary of State of the State of California, is filed with
the Commissioner of Financial Institutions of the State of California pursuant
to Section 4887(b) of the California Financial Code.
In Witness Whereof, the parties have executed this Agreement as of ,
2000.
FIRST BANK & TRUST REDWOOD BANK
-------------------------- ----------------------------
President President
-------------------------- ----------------------------
Secretary Secretary
<PAGE>
Appendix A-2
AMENDMENT TO
AGREEMENT AND PLAN OF REORGANIZATION
This is an Amendment to the Agreement and Plan of Reorganization, dated
as of June 29, 2000 (the "Agreement"), by and among First Banks America, Inc., a
bank holding company organized as a Delaware corporation ("FBA"), Redwood Bank,
a California banking corporation ("Redwood"), First Banks, Inc., a bank holding
company organized as a Missouri corporation ("First Banks") and First Bank &
Trust, a California banking corporation ("First Bank &Trust"). Capitalized terms
used but not defined herein shall have the meanings given to such terms in the
Agreement.
WHEREAS, on June 29, 2000 the parties entered into the Agreement; and
WHEREAS, the parties have agreed that the Agreement should be amended
with respect to the number of shares of FBA Common Stock into which each share
of FB&T Common is to be converted;
NOW, THEREFORE, the Agreement is hereby amended as follows:
1. Section 1.03(a) of the Agreement is amended to read in its entirety
as follows:
"(a) At the Effective Time, each share of common stock, stated
value $5.00 per share, of First Bank & Trust ("FB&T Common") issued and
outstanding immediately prior to the Effective Time shall be converted into the
right to receive 1.3821 shares of common stock, par value $.15 per share, of FBA
("FBA Common Stock"); provided, however, that (i) no fractional shares of FBA
Common Stock shall be issued as a result of the Merger, but cash shall be paid
in lieu thereof as provided in Section 1.07 hereof; and (ii) each share of FB&T
Common held in the treasury of First Bank & Trust or by any direct or indirect
subsidiary of First Bank & Trust immediately prior to the Effective Time shall
be canceled."
2. Section 6.01(f) of the Agreement is amended to read in its entirety
as follows:
"(f) the Special Committee of the Board of Directors of FBA
shall have received a fairness opinion of the financial advisor to the Special
Committee to the effect that the transactions contemplated by this Agreement are
fair to the stockholders of FBA from a financial point of view, and such
fairness opinion shall not have been withdrawn."
3. Except as set forth above, all of the provisions of the Agreement
shall remain in full force and effect.
<PAGE>
IN WITNESS WHEREOF, effective August 18, 2000, the parties have caused
this Amendment to be signed by their respective duly authorized officers.
FIRST BANKS AMERICA, INC. FIRST BANKS, INC.
By: /s/ Frank H. Sanfilippo By: /s/ Allen H. Blake
-------------------------------- -----------------------------
Its: Chief Financial Officer Is: President
-------------------------------- -----------------------------
REDWOOD BANK FIRST BANK & TRUST
By: /s/ Terrance M. McCarthy By: /s/Allen H. Blake
------------------------------- -----------------------------
Its: President Its: Vice President
------------------------------ -----------------------------
<PAGE>
Appendix B
August 18, 2000
Special Committee of the Board of Directors
First Banks America, Inc.
135 North Meramec Avenue
St. Louis, MO 63105-3761
Dear Members of the Special Committee of the Board:
First Banks America, Inc. ("FBA"), Redwood Bank ("Redwood"), a wholly-owned
subsidiary of FBA, First Banks, Inc. ("First Banks") and First Bank & Trust
("First Bank & Trust") have entered into an agreement providing for the merger
of First Bank & Trust with and into Redwood (the "Merger"). The terms of the
Merger are set forth in the Agreement and Plan of Reorganization as amended (the
"Agreement").
The terms of the Merger provide that each common share of First Bank & Trust
will be converted into the right to receive 1.3821 shares of common stock of
FBA; provided, however, that no fractional shares of FBA Common Stock will be
issued as a result of the Merger, but cash shall be paid in lieu thereof (the
"Transaction").
You have asked our opinion as to whether the proposed transactions pursuant to
the terms of the Agreement are fair to the respective stockholders of FBA from a
financial point of view.
In rendering our opinion, we have reviewed certain publicly available business
and financial information relating to FBA and First Bank & Trust, as well the
Agreement as amended and drafts of the Proxy Statement. We have also reviewed
certain other information, including financial forecasts, provided to us by FBA
and First Bank & Trust, and have discussed the business and prospects of FBA and
First Bank & Trust with management, as well as other matters that may be
relevant.
In addition, we have, among other things: (a) to the extent deemed relevant,
analyzed selected public information of certain other financial institutions and
compared FBA and First Bank and Trust from a financial point of view to the
other financial institutions; (b) compared the terms of the Merger with the
terms of certain other comparable transactions to the extent information
concerning such transactions was publicly available; (c) made such other
analyses and examinations as we deemed necessary.
<PAGE>
We have not independently verified the financial and other information
concerning FBA or First Bank & Trust, or other data which we have considered in
our review. We have assumed the accuracy and completeness of all such
information; however, we have no reason to believe that such information is not
accurate and complete. Our conclusion is rendered on the basis of securities
market conditions prevailing as of the date hereof and on the conditions and
prospects, financial and otherwise, of FBA and First Bank & Trust as they exist
and are known to us as of March 31, 2000.
We have acted as financial advisor to the Special Committee of the Board of
Directors of FBA in connection with the Merger and will receive from FBA a fee
for our services, none of which is contingent upon the consummation of the
Merger.
It is understood that this opinion may be included in its entirety in any
communication by FBA or the Special Committee of the Board of Directors to the
stockholders of FBA. The opinion may not, however, be summarized, excerpted from
or otherwise publicly referred to without our prior written consent.
Based on the foregoing, and subject to the limitations described above, we are
of the opinion that the Transaction is fair to the shareholders of FBA from a
financial point of view.
Sincerely,
/s/ Baxter Fentriss and Company
-------------------------------
<PAGE>
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
PROXY
FIRST BANKS AMERICA, INC.
Annual Meeting of Stockholders --October 4, 2000
The undersigned hereby appoints Allen H. Blake and Donald W. Williams,
and each of them, with full power of substitution, the attorney and
proxy of the undersigned to attend the Annual Meeting of Stockholders
of First Banks America, Inc. to be held in Clayton, Missouri on October
4, 2000, at 4:00 p.m. local time and at any adjournment thereof, and to
vote the stock of the undersigned with all powers the undersigned would
possess if present upon the following matters and upon any other
business that may properly come before the meeting or any adjournment
thereof.
The proxy when properly executed will be voted as specified herein. If
no specification is made with respect to any particular proposal, it is
the intention of the proxies to vote FOR each of the following
proposals.
SEE REVERSE SIDE
<PAGE>
<TABLE>
<CAPTION>
COMMON
--------------------------
<S> <C> <C>
1. To approve the acquisition of 2. Election of Directors 3. In their discretion, upon any
First Bank & Trust and the related other matters which may properly
issuance of shares of First Banks FOR AGAINST WITHHOLD come before the meeting or any
America, Inc. common stock to all all all adjournments thereof, hereby
First Banks, Inc. nominees nominees nominees revoking any proxy heretofore
given by the undersigned for such
FOR AGAINST ABSTAIN meeting.
Acquisition Acquisition Acquisition
------------------------------------
Signature
NOMINEES: Allen H. Blake, Charles A.
Crocco, Jr., James F. Dierberg,
Albert M. Lavezzo, Ellen D. Schepman,
Edward T. Story, Jr., Donald W.
Williams
------------------------------------
INSTRUCTION: To withhold authority Signature if owned jointly
to vote for any individual nominee,
write that nominee's name below:
Date:
-------------------------------
</TABLE>
