UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1999
[ ] 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)
------------------------------
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of class which registered
-------------- ----------------
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $0.15 Par Value Per Share New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
8.50% Cumulative Trust Preferred Securities
(issued by First America Capital Trust New York Stock Exchange
and guaranteed by its parent,
First Banks America, Inc.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--------- ---------
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendments to this Form 10-K. [ X ]
The aggregate market value of the voting stock held by non-affiliates
of the registrant, based on the closing price of the Common Stock on the New
York Stock Exchange on March 20, 2000 was $15,957,370. For purposes of this
computation, officers, directors and 5% beneficial owners of the registrant are
deemed to be affiliates. Such determination should not be deemed an admission
that such directors, officers or 5% beneficial owners are, in fact, affiliates
of the registrant.
As of March 20, 2000, there were 3,103,301 shares of the registrant's
Common Stock, $0.15 par value, and 2,500,000 shares of the registrant's Class B
Common Stock, $0.15 par value, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Shareholders for the year ended
December 31, 1999 are incorporated by reference into Parts I, II and IV of this
report.
<PAGE>
PART I
The following portions of the 1999 Annual Report to Stockholders ("1999
Annual Report") of First Banks America, Inc. ("FBA" or the "Company") are
incorporated by reference in this report:
<TABLE>
<CAPTION>
Page(s) in 1999
Section Annual Report
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Management's Discussion and Analysis of
<S> <C> <C>
Financial Condition and Results of Operations 3 - 22
Selected Consolidated and Other Financial Data 2
Consolidated Financial Statements 25 - 49
Supplementary Financial Data 23
Range of Prices of Common Stock and Preferred Securities 51
</TABLE>
Except for the parts of the 1999 Annual Report expressly incorporated
by reference, such report is not deemed filed with the Securities and Exchange
Commission.
Information appearing in this report, in documents incorporated by
reference herein and in documents subsequently filed with the Securities and
Exchange Commission which are not statements of historical fact may include
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 Annual Report should therefore not place undue
reliance on forward-looking statements.
Item 1. Business
General. FBA, incorporated in Delaware in 1978, is headquartered in St. Louis,
Missouri and is a registered bank holding company under the Bank Holding Company
Act of 1956, as amended ("BHC Act"). The principal function of the Company is to
assist management of its banking subsidiaries.
At December 31, 1999, FBA had $920.7 million in total assets $732.3
million in loans, net of unearned discount, $780.0 million in total deposits and
$72.5 million in total stockholders' equity. FBA operates through its wholly
owned subsidiary bank holding companies and financial institutions ("Subsidiary
Banks") as follows:
First Bank Texas N.A., headquartered in Houston, Texas ("FB Texas");
First Bank of California, headquartered in Roseville, California
("FB California"); and
Redwood Bank, headquartered in San Francisco, California.
<PAGE>
In 1994, FBA sold 2,500,000 shares of Class B common stock ("Class B
Stock") for $30 million cash in a private placement to First Banks, Inc., a
multi-bank holding company headquartered in Clayton, Missouri ("First Banks").
As a result, First Banks became the owner of approximately 65% of the
then-outstanding voting stock of FBA, which includes the Class B Stock and the
class of common stock owned by all other stockholders (referred to herein as the
"Common Stock"). The Class B Stock has the same voting rights per share as the
Common Stock, and the two classes of stock are generally equivalent except the
Class B Stock is not registered with the Securities and Exchange Commission, not
listed on any exchange and, with limited exceptions, is not transferable, other
than to an affiliate of First Banks. In the event FBA were to commence the
payment of dividends to its stockholders, the Class B Stock would receive
dividends only to the extent that dividends on the Common Stock exceed $0.45 per
share annually. The terms of the Class B Stock allow First Banks to purchase
additional shares of Class B Stock through August 31, 2001 if a sufficient
number of additional shares of Common Stock are issued to cause First Banks'
voting power to fall below 55%, at prices to be determined based on a formula
related to the book value per share of common stock. The Class B Stock is
convertible into shares of Common Stock at the option of First Banks.
On February 2, 1998, FBA completed its acquisition of First Commercial
Bancorp, Inc. ("FCB"), Sacramento, California, as described further in the
Management's Discussion and Analysis of Financial Condition and Results of
Operations section of the 1999 Annual Report and in Note 2 to the Consolidated
Financial Statements, both of which are incorporated herein by reference. In
connection with the acquisition of FCB, FBA issued approximately 1,555,700
shares of Common Stock, of which 1,266,176 shares were issued to First Banks.
FBA also issued to First Banks a convertible debenture in the principal amount
of $6.5 million ("Debenture") in exchange for outstanding debentures of FCB. On
December 4, 1998, First Banks elected to convert the $6.5 million principal and
$2.4 million accrued and unpaid interest of the Debenture into 629,557 shares of
Common Stock. In addition, on February 17, 1999, First Banks completed its
purchase of 314,848 shares of common stock, pursuant to a tender offer which
commenced on January 4, 1999. This tender offer increased First Banks' ownership
interest in FBA to 82.3% of the outstanding voting stock of FBA. At December 31,
1999, First Banks' ownership interest in FBA was 83.4%.
For the three years ended December 31, 1999, FBA completed four
acquisitions. These transactions provided total assets of $487.5 million and 13
banking locations. For a description of recent acquisitions and the Company's
acquisition policies, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Acquisitions" and Note 2 to the
Consolidated Financial Statements of the 1999 Annual Report which is
incorporated herein by reference.
Through the Subsidiary Banks' 14 banking locations in northern
California and six banking locations in the greater Houston and Dallas, Texas
areas, FBA offers a broad range of commercial and personal banking services,
including certificate of deposit accounts, individual retirement and other time
deposit accounts, checking and other demand deposit accounts, interest checking
accounts, savings accounts and money market accounts. Loans include commercial
and financial, commercial and residential real estate, real estate construction
and development and consumer loans. Other financial services include mortgage
banking, credit and debit cards, brokerage services, credit-related insurance,
automatic teller machines, telephone banking, safe deposit boxes, trust and
private banking services and cash management services.
FBA centralizes overall corporate policies, procedural and
administrative functions and operational support functions for the Subsidiary
Banks. Primary responsibility for managing the Subsidiary Banks remains with the
officers and directors.
The following summarizes selected data about the Subsidiary Banks at
December 31, 1999:
<TABLE>
<CAPTION>
Loans, net of
Number of Total unearned Total
Locations assets discount deposits
--------- ------ -------- --------
(dollars expressed in thousands)
<S> <C> <C> <C> <C>
FB California................. 10 $ 431,838 379,632 367,563
FB Texas...................... 6 278,988 213,731 244,248
Redwood Bank.................. 4 199,988 138,902 173,703
</TABLE>
<PAGE>
As of March 20, 2000, the total Common Stock and Class B Stock owned by
First Banks constituted approximately 84.07% of the outstanding voting stock of
FBA. Accordingly, First Banks exercises control over the management and policies
of FBA and the election of its officers and directors.
FBA and the Subsidiary Banks purchase certain services and supplies,
including data processing services, internal audit, loan review, income tax
preparation and assistance, accounting, asset/liability management and
investment services, loan servicing and other management and administrative
services, through its majority stockholder, First Banks. Additional information
regarding the nature of the arrangements with First Banks appears in Note 15 to
the Consolidated Financial Statements incorporated herein by reference.
Further discussion of the business operations of FBA and the Subsidiary
Banks and the Company's policies is set forth in the Management's Discussion and
Analysis of Financial Condition and Results of Operations section of the 1999
Annual Report which is incorporated herein by reference.
Competition and Branch Banking. The activities in which the Subsidiary Banks are
engaged are highly competitive. Those activities and the geographic markets
served primarily involve competition with other banks, some of which are
affiliated with large regional or national holding companies. Competition among
financial institutions is based upon interest rates offered on deposit accounts,
interest rates charged on loans and other credit and service charges, the
quality of services rendered, the convenience of banking facilities and, in the
case of loans to large commercial borrowers, relative lending limits.
In addition to competing with other banks within their primary service
areas, the Subsidiary Banks also compete with other financial intermediaries,
such as credit unions, industrial loan associations, securities firms, insurance
companies, small loan companies, finance companies, mortgage companies, real
estate investment trusts, certain governmental agencies, credit organizations
and other enterprises. Additional competition for depositors' funds comes from
United States Government securities, private issuers of debt obligations and
suppliers of other investment alternatives for depositors. Many of the Company's
non-bank competitors are not subject to the same extensive federal regulations
that govern bank holding companies and federally-insured banks and state
regulations governing state-chartered banks. As a result, such non-bank
competitors may have certain advantages over the Company in providing some
services.
The trend in Texas and California has been for multi-bank holding
companies to acquire independent banks and thrifts in communities throughout
these states. The Company believes it will continue to face competition in the
acquisition of such banks and thrifts from bank holding companies based in those
states and from bank holding companies based in other states under interstate
banking laws. Many of the financial institutions with which the Company competes
are larger than the Company and have substantially greater resources available
for making acquisitions.
Subject to regulatory approval, commercial banks situated in Texas and
California are permitted to establish branches throughout their respective
states, thereby creating the potential for additional competition in the
Subsidiary Banks' service areas.
<PAGE>
Supervision and Regulation
General. The Company and the Subsidiary Banks are extensively regulated under
federal and state laws designed primarily to protect depositors and customers of
the Subsidiary Banks. To the extent this discussion refers to statutory or
regulatory provisions, it is not intended to summarize all of such provisions
and is qualified in its entirety by reference to the relevant statutory and
regulatory provisions. Changes in applicable laws, regulations or regulatory
policies may have a material effect on the business and prospects of the
Company. The Company is unable to predict the nature or extent of the effects on
its business and earnings that new federal and state legislation or regulation
may have. The enactment of the legislation described below has significantly
affected the banking industry generally and is likely to have ongoing effects on
the Company and the Subsidiary Banks in the future.
FBA is a registered bank holding company under the BHC Act and, as
such, is subject to regulation, supervision and examination by the Board of
Governors of the Federal Reserve System ("FRB"). FBA is required to file annual
reports with the FRB and to provide to the FRB additional information as it may
require.
FB Texas is a national bank and is therefore subject to supervision,
regulation and examination by the Office of the Comptroller of the Currency
("OCC"), while FB California and Redwood Bank are chartered by the State of
California and are subject to supervision, regulation and examination by the
California Department of Financial Institutions. The Subsidiary Banks are also
regulated by the Federal Deposit Insurance Corporation ("FDIC"), which provides
deposit insurance of up to $100,000 for each insured depositor.
Bank Holding Company Regulation. The Company's activities and those of its
subsidiaries have in the past been limited to the business of banking and
activities "closely related" or "incidental" to banking. Under the
Gramm-Leach-Bliley Act, which was enacted in November 1999 and is discussed
below, bank holding companies now have the opportunity to seek broadened
authority, subject to limitations on investment, to engage in activities that
are "financial in nature" if its subsidiary depository institutions are well
capitalized, well managed and have at least a satisfactory rating under the
Community Reinvestment Act (discussed briefly below).
FBA is also subject to capital requirements applied on a consolidated
basis which are substantially similar to those required of the Subsidiary Banks
(briefly summarized below). The BHC Act also requires a bank holding company to
obtain approval from the FRB before: (i) acquiring, directly or indirectly,
ownership or control of any voting shares of another bank or bank holding
company if, after such acquisition, it would own or control more than 5% of such
shares (unless it already owns or controls a majority of such shares); (ii)
acquiring all or substantially all of the assets of another bank or bank holding
company; or (iii) merging or consolidating with another bank holding company.
The FRB will not approve any acquisition, merger or consolidation that would
have a substantially anti-competitive result, unless the anti-competitive
effects of the proposed transaction are clearly outweighed by a greater public
interest in meeting the convenience and needs of the community to be served. The
FRB also considers capital adequacy and other financial and managerial factors
in reviewing acquisitions and mergers.
Safety and Soundness and Similar Regulations. The Company is subject to various
regulations and regulatory policies directed at the financial soundness of the
Subsidiary Banks. These include, but are not limited to, the FRB's source of
strength policy, which obligates a bank holding company such as FBA to provide
financial and managerial strength to the Subsidiary Banks; restrictions on the
nature and size of certain transactions between a bank holding company and its
subsidiary depository institutions; and restrictions on extensions of credit by
the Subsidiary Banks to executive officers, directors, principal stockholders
and the related interests of such persons.
Regulatory Capital Standards. The federal bank regulatory agencies have adopted
substantially similar risk-based and leverage capital guidelines for banking
organizations. Risk-based capital ratios are determined by classifying assets
and specified off-balance-sheet financial instruments into weighted categories,
with higher levels of capital being required for categories deemed to represent
greater risk. FRB policy also provides that banking organizations generally, and
in particular those that are experiencing internal growth or actively making
acquisitions, are expected to maintain capital positions that are substantially
above the minimum supervisory levels, without significant reliance on intangible
assets.
<PAGE>
Under the risk-based capital standard, the minimum consolidated ratio
of total capital to risk-adjusted assets required for bank holding companies is
8%. At least one-half of the total capital must be composed of common equity,
retained earnings, qualifying noncumulative perpetual preferred stock, a limited
amount of qualifying cumulative perpetual preferred stock and minority interests
in the equity accounts of consolidated subsidiaries, less certain items such as
goodwill and certain other intangible assets ("Tier 1 capital"). The remainder
may consist of qualifying hybrid capital instruments, perpetual debt, mandatory
convertible debt securities, a limited amount of subordinated debt, preferred
stock that does not qualify as Tier 1 capital and a limited amount of loan and
lease loss reserves ("Tier 2 capital").
In addition to the risk-based standard, the Company is subject to
minimum requirements with respect to the ratio of its Tier 1 capital to its
average assets less goodwill and certain other intangible assets (the "Leverage
Ratio"). Applicable requirements provide for a minimum Leverage Ratio of 3% for
bank holding companies that have the highest supervisory rating, while all other
bank holding companies must maintain a minimum Leverage Ratio of at least 4% to
5%.
The OCC and the FDIC have established capital requirements for banks
under their respective jurisdictions that are consistent with those imposed by
the FRB on bank holding companies. Information regarding FBA and the Subsidiary
Banks under the federal capital requirements is contained in Note 18 to the
Consolidated Financial Statements and is incorporated herein by reference.
Prompt Corrective Action. The FDIC Improvement Act requires the federal bank
regulatory agencies to take prompt corrective action in respect to depository
institutions that do not meet minimum capital requirements. A depository
institution's status under the prompt corrective action provisions will depend
upon how its capital levels compare to various relevant capital measures and
other factors as established by regulation.
The federal regulatory agencies have adopted regulations establishing
relevant capital measures and relevant capital levels. Under the regulations, a
bank will be: (i) "well capitalized" if it has a total capital ratio of 10% or
greater, a Tier 1 capital ratio of 6% or greater and a Leverage Ratio of 5% or
greater and is not subject to any order or written directive by any such
regulatory authority to meet and maintain a specific capital level for any
capital measure; (ii) "adequately capitalized" if it has a total capital ratio
of 8% or greater, a Tier 1 capital ratio of 4% or greater and a Leverage Ratio
of 4% or greater (3% in certain circumstances); (iii) "undercapitalized" if it
has a total capital ratio of less than 8%, a Tier 1 capital ratio of less than
4% or a Leverage Ratio of less than 4% (3% in certain circumstances); (iv)
"significantly undercapitalized" if it has a total capital ratio of less than
6%, a Tier 1 capital ratio of less than 3% or a Leverage Ratio of less than 3%;
and (v) "critically undercapitalized" if its tangible equity is equal to or less
than 2% of average quarterly tangible assets. A depository institution's primary
federal regulatory agency is authorized to lower the institution's capital
category under certain circumstances. The banking agencies are permitted to
establish individualized minimum capital requirements exceeding the general
requirements described above. Generally, a bank which does not maintain the
status of "well capitalized" or "adequately capitalized" will be subject to
restrictions and limitations on its business that are progressively more severe.
A bank is prohibited from making any capital distribution (including
payment of a dividend) or paying any management fee to its holding company if
the bank would thereafter be "undercapitalized." "Undercapitalized" depository
institutions are subject to limitations on, among other things, asset growth,
acquisitions, branching, new lines of business, acceptance of brokered deposits
and borrowings from the Federal Reserve System, and they are required to submit
a capital restoration plan that includes a guarantee from the institution's
holding company. "Significantly undercapitalized" depository institutions may be
subject to a number of requirements and restrictions, including orders to sell
sufficient voting stock to become "adequately capitalized," requirements to
reduce total assets and cessation of receipt of deposits from correspondent
banks. "Critically undercapitalized" institutions are subject to the appointment
of a receiver or conservator.
Dividends. FBA's primary source of funds in the future is the dividends, if any,
paid by the Subsidiary Banks. The ability of the Subsidiary Banks to pay
dividends is limited by federal laws, by regulations promulgated by the bank
regulatory agencies and by principles of prudent bank management. The amount of
dividends the Subsidiary Banks may pay to the Company is also limited by First
Banks' credit agreement with a group of unaffiliated financial institutions.
Additional information concerning limitations on the ability of the Subsidiary
Banks to pay dividends appears in Note 14 to the Consolidated Financial
Statements and is incorporated herein by reference.
<PAGE>
Customer Protection. The Subsidiary Banks are also subject to consumer laws and
regulations intended to protect consumers in transactions with depository
institutions, as well as other laws or regulations affecting customers of
financial institutions generally. These laws and regulations mandate various
disclosure requirements and substantively regulate the manner in which financial
institutions must deal with their customers. The Subsidiary Banks are required
to comply with numerous regulations in this regard and are subject to periodic
examinations with respect to their compliance with the requirements.
Community Reinvestment Act. The Community Reinvestment Act of 1977 ("CRA")
requires that, in connection with examinations of financial institutions within
their jurisdiction, the federal banking regulators must evaluate the record of
the financial institutions in meeting the credit needs of their local
communities, including low and moderate income neighborhoods, consistent with
the safe and sound operation of those banks. These factors are also considered
in evaluating mergers, acquisitions and other applications to expand.
The Gramm-Leach-Bliley Act. The activities of bank holding companies have
historically been limited to the business of banking and activities "closely
related" or "incidental" to banking. The enactment in November 1999 of the
Gramm-Leach-Bliley Act will relax the previous limitations and permit some bank
holding companies to engage in a broader range of financial activities. Bank
holding companies may elect to become financial holding companies that may
affiliate with securities firms and insurance companies and engage in other
activities that are financial in nature. In addition to lending, activities that
will be deemed "financial in nature" include securities underwriting, dealing in
or making a market in securities, sponsoring mutual funds and investment
companies, insurance underwriting and agency activities, merchant banking
activities and other activities which the FRB determines to be closely related
to banking. A bank holding company may become a financial holding company only
if each of its subsidiary banks is well capitalized and well managed and has a
rating of satisfactory or higher under CRA. A bank holding company that ceases
to be in compliance with those requirements may be required to stop engaging in
specified activities. Any bank holding company that does not elect to become a
financial holding company will remain subject to current restrictions.
Under the new legislation, the FRB will have supervisory authority over
each parent company and limited authority over its subsidiaries. The
determination of which federal regulatory agency is given primary authority over
a subsidiary of a financial holding company will depend on the types of
activities conducted by the subsidiary. In that regard, broker-dealer
subsidiaries will be regulated primarily by securities regulators and insurance
subsidiaries will primarily be regulated by insurance authorities. Implementing
regulations under the Gramm-Leach-Bliley Act have not yet been promulgated, and
FBA is not able to predict the likely extent of the impact of the legislation.
Reserve Requirements; Federal Reserve System and Federal Home Loan Bank System.
The FRB requires all depository institutions to maintain reserves against their
transaction accounts and non-personal time deposits. The balances maintained to
meet the reserve requirements imposed by the FRB may be used to satisfy
liquidity requirements. Institutions are authorized to borrow from the Federal
Reserve Bank "discount window," but FRB regulations require institutions to
exhaust other reasonable alternative sources of funds, including advances from
Federal Home Loan Banks ("FHLBs"), before borrowing from the Federal Reserve
Bank.
Certain of the Subsidiary Banks are members of the Federal Reserve
System (FB Texas) and the Federal Home Loan Bank System (FB Texas and FB
California) and are required to hold investments in regional banks within those
systems. The Subsidiary Banks were in compliance with these requirements at
December 31, 1999, with investments of $1.4 million in stock of the FHLB of
Dallas held by FB Texas, $1.3 million in stock of the FHLB of San Francisco held
by FB California, and $863,000 in stock of the Federal Reserve Bank of Dallas
held by FB Texas.
Monetary Policy and Economic Control. The commercial banking business is
affected not only by legislation, regulatory policies and general economic
conditions, but also by the monetary policies of the FRB. Changes in the
discount rate on member bank borrowings, the availability of credit at the
"discount window," open market operations, the imposition of changes in reserve
<PAGE>
requirements against deposits and assets of foreign branches, and the imposition
of and changes in reserve requirements against certain borrowings by banks and
their affiliates are some of the instruments of monetary policy available to the
FRB. These monetary policies are used in varying combinations to influence
overall growth and distributions of bank loans, investments and deposits, and
this use may affect interest rates charged on loans or paid on liabilities. The
monetary policies of the FRB have had a significant effect on the operating
results of commercial banks and are expected to do so in the future. Such
policies are influenced by various factors, including inflation, unemployment,
short-term and long-term changes in the international trade balance and in the
fiscal policies of the U.S. Government. Future monetary policies and the effect
of such policies on the future business and earnings of the Company or the
Subsidiary Banks cannot be predicted.
Employment
As of March 20, 2000, the Company employed approximately 195 employees.
None of the employees are subject to a collective bargaining agreement. The
Company considers its relationships with its employees to be good.
Executive Officers of the Registrant
Information regarding executive officers is contained in Item 10 of
Part III hereof (pursuant to General Instruction G) and is incorporated herein
by this reference.
Item 2. Properties
FBA's executive office is located at the executive office owned by
First Banks at 135 North Meramec, Clayton, Missouri 63105. The headquarters of
the Subsidiary Banks are (i) in the case of FB Texas, in a building leased by FB
Texas located at 8828 Westheimer, Houston, Texas; (ii) in the case of FB
California, in a building owned by FB California located at 1625 Douglas
Boulevard, Roseville, California; (iii) in the case of Redwood Bank, in a
building leased by Redwood Bank located at 735 Montgomery Street, San Francisco,
California. In addition to those offices, as of March 20, 2000, the Subsidiary
Banks do business at 17 branch offices in Texas and California, of which 6 are
owned and 11 are leased.
FBA considers the properties at which it does business to be in good
condition, suitable for the business conducted at each location. To the extent
that its properties or those acquired in connection with the acquisition of
other entities provide space in excess of that effectively utilized in the
operations of the Subsidiary Banks, FBA seeks to lease or sub-lease any excess
space to third parties. Additional information regarding the premises and
equipment utilized by the Subsidiary Banks appears in Note 5 to the Consolidated
Financial Statements incorporated herein by reference.
Item 3. Legal Proceedings
There are various claims and pending actions against FBA and the
Subsidiary Banks in the ordinary course of business. It is the opinion of
management of FBA, in consultation with legal counsel, the ultimate liability,
if any, resulting from such claims and pending actions will have no material
adverse effect on the financial position or results of operations of FBA.
Item 4. Submission of Matters to a Vote of Security Holders
None.
<PAGE>
PART II
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters
Market Information. FBA has two classes of common stock. The Common Stock is
listed on the New York Stock Exchange ("NYSE") under the symbol "FBA." All of
the Class B Stock was issued to First Banks in 1994 in a private placement, and
is not listed or traded. See "Item 1, Business - General." Continued listing of
the Common Stock on the NYSE is subject to various requirements, including the
financial eligibility and distribution requirements of the NYSE.
Information regarding the number of stockholders and the market prices
for Common Stock since January 1, 1999 is set forth under the caption "Investor
Information" of the 1999 Annual Report and is incorporated herein by reference.
Dividends. In recent years, the Company has not paid any dividends on its Common
Stock. The ability of a bank holding company such as FBA to pay dividends is
limited by regulatory requirements and by the receipt of dividend payments from
the Subsidiary Banks, which are also subject to regulatory requirements. See
Note 14 to the Consolidated Financial Statements.
Item 6. Selected Financial Data
The information required by this item is incorporated herein by
reference from page 2 of the 1999 Annual Report under the caption "Selected
Consolidated and Other Financial Data."
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The information required by this item is incorporated herein by
reference from pages 3 through 22 of the 1999 Annual Report under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Item 7a. Quantitative and Qualitative Disclosure About Market Risk
The information required by this item is incorporated herein by
reference from page 9 of the 1999 Annual Report under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Interest Rate Risk Management."
Item 8. Financial Statements and Supplementary Data
The consolidated financial statements of FBA are incorporated herein by
reference from pages 25 through 49 of the 1999 Annual Report under the captions
"Consolidated Balance Sheets," "Consolidated Statements of Income,"
"Consolidated Statements of Changes in Stockholders' Equity and Comprehensive
Income," "Consolidated Statements of Cash Flows," "Notes to Consolidated
Financial Statements" and "Independent Auditors' Report."
Supplementary Financial Information regarding FBA is incorporated
herein by reference from page 23 of the 1999 Annual Report under the caption
"Quarterly Condensed Financial Data - Unaudited."
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant Board of Directors
The Board of Directors consisting of seven members, is identified in
the following table. Each of the directors was elected or appointed to serve a
one-year term and until his/her successor has been duly qualified for office.
<TABLE>
<CAPTION>
Director Principal Occupation(s) During Last Five Years
Name Age Since and Directorships of Public Companies
---- --- ----- -------------------------------------
<S> <C> <C> <C>
James F. Dierberg (1) 62 1994 Chairman of the Board of Directors, President and Chief Executive
Officer of FBA since 1994; Chairman of the Board and Chief
Executive Officer of First Banks since 1988; Director of First
Banks since 1979; President of First Banks from 1979 to 1992 and
from 1994 to October 1999; Trustee of First Preferred Capital Trust
and First America Capital Trust since 1997 and 1998, respectively.
Allen H. Blake 57 1994 Executive Vice President, Chief Operating Officer and Secretary of
FBA since 1998; Vice President, Chief Operating Officer and
Secretary of FBA from 1994 to 1998; Chief Financial Officer of FBA
from 1994 to September 1999; President of First Banks since
October 1999; Executive Vice President and Chief Financial Officer
of First Banks from 1996 to September 1999; Chief Operating
Officer of First Banks since 1998; Senior Vice President and Chief
Financial Officer of First Banks from 1992 to 1996; Secretary of
First Banks since 1988; Director and Executive Vice President of
FCB from 1995 until its merger into FBA in February 1998; Trustee
of First Preferred Capital Trust and First America Capital Trust
since 1997 and 1998, respectively.
Charles A. Crocco, Jr. (2) 61 1988 Counsel to the law firm of Jackson & Nash, LLP., New York, New
York since 1999; Partner in the law firm of Crocco & De Maio,
P.C., New York, New York from 1993 to 1999; Director of The
Hallwood Group Incorporated (merchant banking).
Albert M. Lavezzo (2) 63 1998 President and Chief Operating Officer of the law firm of Favaro,
Lavezzo, Gill, Caretti & Heppell, Vallejo, California, a
professional legal corporation, since 1974; Former Chairman of the
Board of Directors of Surety Bank (15 years); Director of FB
California; President of North Bay Exchange Co., Inc.
Ellen D. Schepman (1) 25 1999 Retail Marketing Officer of First Banks since May 1999; Retail
Marketing Specialist, First Bank & Trust (FB&T), a wholly owned
subsidiary of First Banks, from 1997 to May 1999; various
capacities, including Retail Marketing Trainee, Employee Recruiter
and Credit Analyst, First Bank, a wholly owned subsidiary of First
Banks, from 1996 to 1997.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Edward T. Story, Jr. (2) 56 1987 President, Chief Executive Officer and Director of SOCO
International, plc, Comfort, Texas, a corporation listed on the
London Stock Exchange and engaged in international oil and gas
operations, since 1991; Director of Cairn Energy plc, Hallwood
Realty Corporation, Santa Fe Snyder Corporation and Sen Hong
Resources, Ltd.
Donald W. Williams 52 1995 Executive Vice President and Chief Credit Officer of First Banks
since 1996; Senior Vice President and Chief Credit Officer of
First Banks from 1993 to April 1996; Director of FCB from 1995
until its merger into FBA in February 1998; Director of First
Bank, a wholly owned subsidiary of First Banks, FB Texas, FB&T and
FB California; Chairman of the Board of Directors of First Capital
Group, Inc., Redwood Bank and Lippo Bank.
</TABLE>
- ----------------------------------
(1) Member of the Audit Committee.
(2) Mrs. Schepman is the daughter of Mr. James F. Dierberg. See Item 12
Security Ownership of Certain Beneficial Owners and Management.
<PAGE>
Executive Officers
The executive officers of the Company, each of whom were elected to the
office(s) indicated by the Board of Directors, as of March 20, 2000 were as
follows:
<TABLE>
<CAPTION>
Principal Occupation(s)
Name Age Current FBA Office(s) Held During Last Five Years
---- --- -------------------------- ----------------------
<S> <C> <C>
James F. Dierberg 62 Chairman of the Board, President See Item 10 - "Directors and Executive
and Chief Executive Officer. Officers of the Registrant - Board of
Directors."
Allen H. Blake 57 Executive Vice President, Chief See Item 10 - "Directors and Executive
Operating Officer and Secretary. Officers of the Registrant - Board of
Directors."
Frank H. Sanfilippo 37 Executive Vice President and Chief Executive Vice President and Chief
Financial Officer. Financial Officer of First Banks since
September 1999; Executive Vice President
and Chief Financial Officer of FBA since
September 1999; Director, Executive Vice
President, Chief Financial Officer,
Secretary and Treasurer of First Bank since
September 1999; Senior Vice President
and Director of Management Accounting
of Mercantile Bancorporation, Inc., St.
Louis, Missouri, from 1998 to September
1999; Vice President and Chief Financial
Officer - Mercantile Bank Operations
Division, from 1996 to 1997; Vice
President and Assistant Controller of
Mercantile Bank N.A. from 1994 to 1996.
Terrance M. McCarthy 45 Executive Vice President; Chairman Executive Vice President of FBA since
of the Board of Directors, 1998; Chairman of the Board of Directors,
President and Chief Executive President and Chief Executive Officer of
Officer of FB California; Director, FB California since 1998; Director,
President and Chief Executive President and Chief Executive Officer of
Officer of Redwood Bank and Lippo Redwood Bank and Lippo Bank since March
Bank. 2000; Chief Credit Officer of FB
California from 1998 to Septemer 1999;
Chief Credit Officer of FB&T from 1995 to
1998.
David F. Weaver 52 Executive Vice President; Chairman Executive Vice President of FBA since
of the Board, President and Chief 1995; Chairman of the Board of Directors,
Executive Officer of FB Texas. President and Chief Executive Officer of
FB Texas since 1994.
</TABLE>
Except for the relationship of Mrs. Schepman and Mr. Dierberg described
above, there are no family relationships between any of the nominees for
director, directors or executive officers of the Company or its subsidiaries.
<PAGE>
Section 16(a) Beneficial Ownership Reporting Compliance
To the Company's knowledge, no director, executive officer or
shareholder of the Company, subject, in their capacity as such, to the reporting
obligations set forth in Section 16 of the Securities Exchange Act of 1934, as
amended ("Exchange Act") has failed to file on a timely basis reports required
by Section 16(a) of the Exchange Act during the year ended December 31, 1999.
Item 11. Executive Compensation
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 Mr. McCarthy and Mr.
Weaver, who are the only executive officers of FBA whose annual compensation in
1999 from FBA or the Subsidiary Banks exceeded $100,000.
Neither Mr. Dierberg, Mr. Blake nor Mr. Sanfilippo receives any
compensation directly from either the Company or the Subsidiary Banks. The
Company and the Subsidiary Banks have entered into various contracts with First
Banks, of which Messrs. Dierberg, Blake and Sanfilippo are directors and/or
executive officers, pursuant to which services are provided to the Company and
the Subsidiary Banks (see "Compensation Committee Interlocks and Insider
Participation" for additional information regarding contracts with First Banks).
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
All Other
Name and Principal Position(s) Year Salary (1)Bonus Compensation (2)
------------------------------ ---- --------------- ----------------
<S> <C> <C> <C> <C>
Terrance M. McCarthy 1999 $ 147,500 20,000 4,950
Executive Vice President; 1998 121,580 27,000 4,458
Chairman of the Board of Directors, 1997 118,140 10,000 3,844
President and Chief Executive Officer
of FB California and Redwood Bank
David F. Weaver 1999 127,000 20,450 3,686
Executive Vice President; 1998 116,200 20,000 3,400
Chairman of the Board of Directors, 1997 103,750 22,000 3,144
President and Chief Executive Officer
of FB Texas
</TABLE>
- ---------------------
(1) The total of all other annual compensation for the named officer 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 report tables that would disclose information
regarding stock options granted during 1999, stock options exercised during 1998
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.
Compensation of Directors. Directors who are not officers of FBA or affiliated
with First Banks ("Unaffiliated Directors," consisting in 1999 of Messrs.
Crocco, Story and Lavezzo) were paid a fee of $2,000 for each meeting of the
Board of Directors attended and a fee of $500 for each committee meeting
attended. For their service as directors in 1999, Messrs. Crocco, Story and
Lavezzo each received $10,000. In addition, Mrs. Schepman, who serves as a
Retail Marketing Officer of First Banks, but who is not an officer of FBA,
received $8,000 for her service as a director in 1999. Furthermore, Mr. Lavezzo
received $6,000 as a member of the Board of Directors of FB California.
<PAGE>
Messrs. Crocco, Story and Lavezzo and Mrs. Schepman also participate in
the 1993 Directors' Stock Bonus Plan ("Stock Bonus Plan"), which provides for an
annual grant of 500 shares of Common Stock to each such director. Future grants
would apply equally to current directors and to any individual who becomes a
director of FBA in the future. The maximum number of shares that may be issued
will 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) receive any compensation from
FBA or 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, McCarthy, Sanfilippo 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").
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 separate
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 similar functions, or as a director of another entity, any of whose
executive officers or directors served on the Board of Directors of FBA.
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 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 $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
unaffiliated third parties.
Because of the affiliation with First Banks and the geographic
proximity of certain of their offices, FBA shares the cost of certain personnel
and services used by FBA and First Banks. This includes the salaries and
benefits of certain loan and administrative personnel. The allocation of the
shared costs 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. 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 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 $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 unaffiliated third parties.
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.
<PAGE>
As more fully discussed in Note 6 to the Consolidated Financial
Statements of the 1999 Annual Report, FBA has $20.0 million revolving note
payable to First Banks. There were no amounts outstanding under the Note Payable
at December 31, 1999 and 1998.
Employee Benefit Plans. FBA maintains various employee benefit plans. Directors
are not eligible to participate in such plans except the 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.
The Employees Retirement Plan ("Pension Plan") is a noncontributory,
defined benefit plan for all eligible officers and employees of FBA and its
subsidiaries. During 1994, the Company discontinued the accumulation of benefits
under the Pension Plan. While the Pension Plan continues in existence and
provides benefits which had then accumulated, no additional benefits have
accrued to participants since 1994, and no new participants will become eligible
for benefits thereafter.
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. A participant who fulfilled the eligibility
and tenure requirements prior to the discontinuation of accumulation of benefits
will receive, upon reaching the normal retirement age of 65, monthly benefits
based upon average monthly compensation during the five consecutive calendar
years out of his or her last ten calendar years prior to 1994 that provided the
highest average compensation.
As of December 31, 1999, Mr. Weaver would be eligible to receive annual
benefits of approximately $11,000 upon retirement at age 65.
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth, as of March 20, 2000, certain
information with respect to the beneficial ownership of Common Stock and Class B
Stock by each person known to the Company to be the beneficial owner of more
than five percent of the outstanding shares of either class of stock, by each
director and executive officer and by all executive officers and directors as a
group:
<TABLE>
<CAPTION>
Title of Name of Number of Shares and Nature Percent of
Class Beneficial Owner of Beneficial Ownership Class
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class B Stock First Banks, Inc. 2,500,000 (1)(2)(3) 100.0
135 North 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) 70.2
Common Stock James F. Dierberg 2,210,581 (1)(2)(3) 70.2
Common Stock Allen H. Blake --0-- --
Common Stock Charles A. Crocco, Jr. 7,272 (4) (*)
Common Stock Albert M. Lavezzo 9,710 (4) (*)
Common Stock Terrance M. McCarthy 2,000 (4) (*)
Common Stock Frank H. Sanfilippo --0-- --
Common Stock Ellen D. Schepman 500 (2)(3)(4) (*)
Common Stock Edward T. Story, Jr. 10,182 (5) (*)
Common Stock David F. Weaver 2,974 (4) (*)
Common Stock Donald W. Williams 100 (4) (*)
All executive officers 2,243,319 shares 71.2% of
and directors as a Common Stock Common Stock
group (10 persons)
2,500,000 shares 100% of
Class B Stock Class B Stock
</TABLE>
- ------------------------
(*) 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
70.2% 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, Weaver and Williams and Mrs. Schepman are owned by them
directly.
(5) The shares attributed to Mr. Story include shares subject to currently
exercisable stock options granted under FBA's 1990 Stock Option Plan. Mr.
Story has an option covering 6,666 shares; he owns directly 3,516 shares.
<PAGE>
Item 13. Certain Relationships and Related Transactions
Outside of normal customer relationships, no directors, executive
officers or stockholders holding over 5% of FBA's voting stock, and no
corporations or firms with which such persons or entities are associated,
currently maintain or have maintained since the beginning of the last full
fiscal year, any significant business or personal relationships with FBA or its
subsidiaries, other than that which arises by virtue of such position or
ownership interest in FBA or its subsidiaries, except as set forth in Item 11 -
"Executive Compensation - Compensation of Director," or as described in the
following paragraphs.
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 respective
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 respective 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.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1. Financial Statements and Supplemental Data - The
financial statements and supplemental data filed as
part of this Report are listed under Item 8.
2. Financial Statement Schedules - These schedules are
omitted for the reason they are not required or are not
applicable.
3. Exhibits - The exhibits are listed in the index of
exhibits required by Item 601 of Regulation S-K at Item
(c) below and are incorporated herein by reference.
(b) Reports on Form 8-K.
FBA filed no reports on Form 8-K during the quarter
ended December 31, 1999.
(c) The index of required exhibits is included beginning on page
19 of this Report.
<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
(Principal Executive Officer)
By: /s/ Frank H. Sanfilippo
---------------------------
Frank H. Sanfilippo
Executive Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)
March 27, 2000
<TABLE>
<CAPTION>
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed by the following persons on behalf of the Registrant
and in the capacities and on the date indicated.
Signatures Title Date
--------------------------------------------------------------------------------------------------------------
<S> <C> <C>
/s/ James F. Dierberg Director March 27, 2000
----------------------------------
James F. Dierberg
/s/ Allen H. Blake Director March 27, 2000
----------------------------------
Allen H. Blake
/s/ Charles A. Crocco, Jr. Director March 27, 2000
----------------------------------
Charles A. Crocco, Jr.
/s/ Albert M. Lavezzo Director March 27, 2000
------------------------------------------
Albert M. Lavezzo
/s/ Ellen D. Schepman Director March 27, 2000
------------------------------------------
Ellen D. Schepman
/s/ Edward T. Story, Jr. Director March 27, 2000
------------------------------------------
Edward T. Story, Jr.
/s/ Donald W. Williams Director March 27, 2000
------------------------------------------
Donald W. Williams
</TABLE>
<PAGE>
INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
3(a) Restated Certificate of Incorporation of the Company
effective August 31, 1995 (filed as Exhibit 3(a) to the
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1995 and incorporated herein by reference).
3(b) Amended and Restated Bylaws of the Company (as amended
April 21, 1995) (filed as Exhibit 3(b) to the Quarterly
Report on Form 10-Q for the quarter ended March 31, 1995
and incorporated herein by reference).
3(c) Certificate of Amendment of the Restated Certificate of
Incorporation of the Company effective June 16, 1999
(filed as Exhibit 3(c) to the Quarterly Report on Form
10-Q for the quarter ended June 30, 1999 and incorporated
herein by reference).
4(a) Specimen Stock Certificate for Common Stock (filed as
Exhibit 1.01 to the Company's Amendment No. I to Form 8-A
on Form 8, dated September 4, 1987, and incorporated
herein by reference).
4(b) The Company agrees to furnish to the Securities and
Exchange Commission upon request pursuant to Item
601(b)(4)(iii) of Regulation S-K, copies of instruments
defining the rights of holders of long term debt of the
Company and its subsidiaries.
4(c) Agreement as to Expenses and Liabilities (incorporated
herein by reference to Exhibit 4(a) to the Company's
Registration Statement on Form S-2, file number
333-58355, dated July 1, 1998).
4(d) Preferred Securities Guarantee Agreement (incorporated
herein by reference to Exhibit 4(b) to the Company's
Registration Statement on Form S-2, file number
333-58355, dated July 1, 1998).
4(e) Indenture (incorporated herein by reference to Exhibit
4(c) to the Company's Registration Statement on Form S-2,
file number 333-58355, dated July 1, 1998).
4(f) Amended and Restated Trust Agreement (incorporated herein
by reference to Exhibit 4(d) to the Company's
Registration Statement on Form S-2, file number
333-58355, dated July 1, 1998).
10(a)* BancTEXAS Group Inc. 1990 Stock Option Plan (as amended
July 22, 1993) (filed as Exhibit 10(c) to the Quarterly
Report on Form 10-Q for the quarter ended June 30, 1993,
and incorporated herein by reference).
10(b)* 1993 Directors' Stock Bonus Plan (filed as Exhibit 10(k)
to the Quarterly Report on Form 10-Q for the quarter
ended June 30, 1993 and incorporated herein by
reference).
10(c) Stock Purchase and Operating Agreement by and between
First Banks, Inc., a Missouri Corporation and the
Company, dated May 19, 1994 (filed as Exhibit 10(d) to
the Quarterly Report on Form 10-Q for the quarter ended
June 30, 1994 and incorporated herein by reference).
10(d)* Management Agreement by and between First Banks, Inc. and
BankTEXAS N.A., dated November 17, 1994 (filed as
Exhibit 10(h) to the Annual Report on Form 10-K for the
year ended December 31, 1994 and incorporated herein by
reference).
<PAGE>
10(e)* Data Processing Agreement by and between First Serv,
Inc. (a subsidiary of First Banks, Inc.) and BankTEXAS
N.A., dated December 1, 1994 (filed as Exhibit 10(i) to
the Annual Report on Form 10-K for the year ended
December 31, 1994 and incorporated herein by
reference).
10(f)* Financial Management Policy by and between First Banks,
Inc. and the Company, dated September 15, 1994 (filed
as Exhibit 10(m) to the Annual Report on Form 10-K for
the year ended December 31, 1994 and incorporated herein
by reference).
10(g)* Federal Funds Agency Agreement by and between First
Banks, Inc. and the Company, dated September 15, 1994
(filed as Exhibit 10(k) to the Annual Report on Form 10-K
or the year ended December 31, 1994 and incorporated
herein by reference).
10(h)* Funds Management Policy by and between First Banks,
Inc. and BankTEXAS, N.A., dated September 15, 1994
(filed as Exhibit 10(i) to the Annual Report on Form 10-K
for the year ended December 31, 1994 and incorporated
herein by reference).
10(i)* Management Services Agreement by and between First Banks,
Inc. and Sunrise Bank of California dated December 16,
1996 (filed as Exhibit 10(j) to the Annual Report on Form
10-K for the year ended December 31, 1996 and
incorporated herein by reference).
10(j)* Service Agreement by and between First Serv, Inc. and
Sunrise Bank of California (relating to data processing
services) dated November 21, 1996 (filed as Exhibit 10(k)
to the Annual Report on Form 10-K for the year ended
December 31, 1996 and incorporated herein by reference).
10(k)* Federal Funds Agency Agreement by and between First
Banks, Inc. and Sunrise Bank of California dated November
19, 1996 (filed as Exhibit 10(l) to the Annual Report on
Form 10-K for the year ended December 31, 1996 and
incorporated herein by reference).
10(l)* Funds Management Policy by and between First Banks, Inc.
and Sunrise Bank of California dated November 19, 1996
(filed as Exhibit 10(m) to the Annual Report on Form 10-K
for the year ended December 31, 1996 and incorporated
herein by reference).
10(m) Agreement and Plan of Merger by and between FBA and
Pacific Bay Bank dated September 22, 1997 (filed as
Exhibit 2(b) to the Quarterly Report on Form 10-Q for the
quarter ended September 30, 1997 and incorporated herein
by reference).
10(n) Agreement and Plan of Merger by and between FBA and FCB
dated October 3, 1997 (filed as Exhibit 2(c) to the
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1997 and incorporated herein by reference).
10(o) Promissory note payable to First Banks, Inc. dated
November 4, 1997 (filed as Exhibit 10(o) to the Quarterly
Report on Form 10-Q for the quarter ended September 30,
1997 and incorporated herein by reference).
10(p)* Cost sharing agreement by and among First Bank & Trust,
Sunrise Bank of California, Sundowner Corporation and
First Banks America, Inc. (filed as Exhibit 10(q) to the
Annual Report on Form 10-K for the year ended December
31, 1997 and incorporated herein by reference).
10(q)* Service Agreement by and between First Services, L.P.
and BankTEXAS N.A., dated April 1, 1997 (filed as Exhibit
10(r) to the Annual Report on Form 10-K for the year
ended December 31, 1997 and incorporated herein by
reference).
<PAGE>
10(r)* Service Agreement by and between First Services, L.P. and
First Bank of California, dated April 1, 1997 (filed as
Exhibit 10(s) to the Annual Report on Form 10-K for the
year ended December 31, 1997 and incorporated herein by
reference).
10(s) Agreement and Plan of Reorganization by and among FBA,
Empire Holdings, Inc., and Redwood Bancorp, dated
September 3, 1998 (filed as Exhibit 2 to the Report on
Form 8-K, dated September 21, 1998 and incorporated
herein by reference).
10(t) Brokerage Service / Lease Agreement by and between
BankTEXAS, N.A. and First Brokerage America, L.L.C.,
dated June 1, 1998 (incorporated herein by reference to
the Company's Registration Statement on Form S-2, file
number 333-58355, dated July 1, 1998).
10(u)* Employment agreement by and between Redwood Bank and
Anthony S. Dee, and joined in by First Banks America,
Inc., dated September 3, 1998 (filed as Exhibit 10(a) to
the Quarterly Report on Form 10-Q for the quarter ended
March 31, 1999 and incorporated herein by reference).
10(v)* Management Services Agreement by and between First Banks,
Inc. and Redwood Bank, dated June 1, 1999 (filed as
Exhibit 10(x) to the Quarterly Report on Form 10-Q for
the quarter ended September 30, 1999 and incorporated
herein by reference).
10(w) Brokerage Service Agreement by and between First Bank of
California and First Brokerage America, L.L.C., dated
July 1, 1999 (filed as Exhibit 10(y) to the Quarterly
Report on Form 10-Q for the quarter ended September 30,
1999 and incorporated herein by reference).
10(x)* Service Agreement by and between First Bank of
California, First Brokerage America, L.L.C. and BTI
Insurance Agency, Inc. d/b/a BTI Coastal Insurance
Agency, Inc. (filed as Exhibit 10(z) to the Quarterly
Report on Form 10-Q for the quarter ended September 30,
1999 and incorporated herein by reference).
10(y) Brokerage Service Agreement by and between First Bank
Texas N.A. and First Brokerage America, L.L.C., dated
July 1, 1999 (filed as Exhibit 10(aa) to the Quarterly
Report on Form 10-Q for the quarter ended September 30,
1999 and incorporated herein by reference).
10(z)* Service Agreement by and between First Bank Texas N.A.,
First Brokerage America, L.L.C. and BTI Insurance Agency,
Inc. (filed as Exhibit 10(bb) to the Quarterly Report
on Form 10-Q for the quarter ended September 30, 1999 and
incorporated herein by reference).
10(aa)* Federal Funds Agency Agreement by and between First
Banks, Inc. and Redwood Bank, dated May 26, 1999 (filed
as Exhibit 10(cc) to the Quarterly Report on Form 10-Q
for the quarter ended September 30, 1999 and incorporated
herein by reference).
10(bb)* Resignation and General Release Agreement among Anthony
S. Dee, Redwood Bank, First Banks America, Inc. and its
affiliates, dated March 12, 2000 - filed herewith.
13 1999 Annual Report to Stockholders filed herewith.
Portions not specifically incorporated by reference in
this Report are not deemed "filed" for the purposes of
the Securities Exchange Act of 1934 - filed herewith.
21 Subsidiaries of the Company - filed herewith.
23(a) Consent of KPMG LLP - filed herewith.
27 Financial Data Schedule (Edgar only).
* Exhibits designated by an asterisk in this Index to Exhibits relate to
management contracts and/or compensatory plans or arrangements.
<PAGE>
Exhibit 10(bb)
RESIGNATION AND GENERAL RELEASE
1. Anthony S. Dee ("Dee") hereby voluntarily resigns his employment
with Redwood Bank, a California banking corporation ("Redwood"), a wholly-owned
subsidiary of First Banks America, Inc. ("First Banks") effective as of the
close of business on February 29, 2000 (the "Resignation Date"). For and in
consideration of the promise by First Banks, to pay Dee the sum of $790,000.00,
less all applicable withholdings, and sell the Automobile (as defined herein) to
Dee, all on the terms and conditions hereafter set forth, Dee, his agents,
family members, attorneys, insurers, and his or their respective heirs, personal
representatives, successors and assigns (herein sometimes collectively called
the "Dee Parties") hereby irrevocably and unconditionally release and forever
discharge Redwood, First Banks, First Banks, Inc., and all affiliates,
subsidiaries, and related entities, and their owners, directors, officers,
employees, agents, and all parties acting by, through, under, or in concert with
any of them (collectively referred to as "First Banks Parties") or any of them,
from and against any and all manner of actions, liability, causes of action,
claims, demands, contracts, injuries, punitive damages, attorney's fees,
equitable relief, back pay, commissions, claims for personal injury, emotional
distress, discrimination, and/or mental anguish, claims for vacation pay, sick
pay, pension contributions or benefits, or any other employee benefits, and
claims and demands of every other kind and nature whatsoever, known or unknown,
which any of the Dee Parties now may have or hold or at any time heretofore had
or held, arising out of, existing by reason of, resulting from, or based upon:
(1) any fact existing from the beginning of Dee's employment with Redwood or any
of the First Banks Parties to the date hereof, (2) Dee's employment with any of
the First Banks Parties, or the separation therefrom, (3) any employment
practice, custom or policy of any of the First Banks Parties, (4) that certain
employment agreement between Dee and Redwood dated September 3, 1998 (the
"Agreement"), (5) that certain Agreement and Plan of Reorganization among First
Banks, Empire Holdings, Inc. and Redwood Bancorp dated September 3, 1998 (the
"Purchase Agreement"), and (6) any injury sustained or suffered by Dee during
the course of or by reason of his employment with any of the First Banks
Parties.
2. In exchange for the promises made by Dee in this Release, the First
Bank Parties hereby irrevocably and unconditionally release and forever
discharge Dee from and against any and all manner of actions, liability, causes
of action, claims, demands, contracts, injuries, punitive damages, attorney's
fees, equitable relief and claims and demands of every other kind and nature
whatsoever, which any of the First Bank Parties now may have or hold or at any
time heretofore had or held, arising out of, existing by reason of, resulting
from, or based upon any action taken by Dee in the ordinary course and scope of
his employment with Redwood prior to the date hereof and about which Redwood has
knowledge as of the Resignation Date, to the extent that such action was taken
by Dee in good faith and in a manner Dee reasonably believed to be in or not
opposed to the best interests of the First Bank Parties (the "Released Claims").
Notwithstanding anything herein to the contrary, the First Bank Parties do not
hereby waive any rights or claims that (i) are not Released Claims, (ii) relate
to criminal conduct, or (iii) arise after the Resignation Date, and any such
claims are not being released pursuant to the terms of this Release. In
addition, notwithstanding the foregoing, Dee acknowledges and agrees that he is
not being released or discharged from his obligations with respect to the
repayment of any personal loans or other indebtedness to which he may be liable
to the First Bank Parties.
3. Dee only shall be entitled to the payment referred to in Paragraph 1
above and to purchase the Automobile as set forth in Paragraph 8, if he executes
this Resignation and General Release ("Release") within twenty-one (21) days of
his receipt and does not thereafter revoke within the revocation period provided
herein. If Dee does not sign and deliver this Release to First Banks within
<PAGE>
twenty-one (21) days of receipt or if Dee signs this Release and thereafter
revokes, he shall be entitled to no payments or other consideration whatsoever.
Provided Dee signs and delivers this Release within twenty-one (21) days and
does not thereafter revoke, the payment referred to above shall be made within
fifteen (15) days after Redwood receives this signed Release, and the sale of
the Automobile shall be completed as set forth in Paragraph 8.
4. Dee acknowledges and agrees that the claims released and discharged
hereby include, but are not limited to claims that have been or could be
asserted under: (a) the common law of the State of California; (b) the
California Labor Code; (c) Title VII of the Civil Rights act of 1964, as
amended, 42 U.S.C.ss. 2000e et seq.; (d) the California Fair Employment and
Housing Act, Cal. Govt. Codess. 12900 et seq.; (e) the Consolidated Omnibus
Budget Reconciliation Act of 1985 (COBRA), as amended, 26 U.S.C.ss. 4980B; (f)
the Age Discrimination in Employment Act of 1967, as amended, 29 U.S.C.ss. 621
et seq., including the Older Workers Benefit Protection Act; (g) the Employee
Retirement Income Security Act of 1974, as amended, 29 U.S.C.ss. 1001 et seq.;
(h) the Civil Rights Act of 1866, as amended, 42 U.S.C.ss. 1981 et seq.; (i) the
Fair Labor Standards Act, 29 U.S.C.ss. 201 et seq.; (j) the Americans with
Disabilities Act, 42 U.S.C.ss. 12101 et seq.; (k) the Civil Rights Act of 1991,
Public Law 102-166 (105 Stat. 1071); (l) the Wage Orders of the California
Industrial Welfare Commission; (m) any other federal, state or local law,
constitution, regulation, ordinance, decision or common law claim concerning
employment discrimination or termination of employment; (n) any and all claims
for personal injury, emotional distress, libel, slander, defamation, and other
physical, economic, or emotional injury; and (o) all claims for attorney's fees
and costs.
This Release extends to damage claims of every nature and kind
whatsoever, known or unknown, suspected or unsuspected, which have occurred or
accrued up to and including the date set forth below, and all rights under
Section 1542 of the California Civil Code are hereby expressly waived. Section
1542 provides:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR
DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF
EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE
MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR.
Dee does not hereby waive any rights or claims which may arise after
this Release is signed. Dee specifically waives and releases any and all rights
which he may have under the terms of the Agreement and the Purchase Agreement.
Dee acknowledges the Agreement shall hereafter be of no further force or effect.
<PAGE>
5. All payments, promises and other consideration furnished by the
parties hereunder are made for purposes of settlement and compromise only, and
without an admission of liability, wrongdoing or fault on behalf of such
parties, all of whom expressly deny any liability or wrongdoing.
6. Dee shall keep, and Dee shall advise his agents to keep, the fact
and terms of this Release completely confidential and shall not disclose
information concerning this Release to anyone; provided, however, that Dee may
disclose such information to members of his immediate family if they agree to
and in fact do keep such information confidential and not disclose the same to
anyone. Dee specifically agrees not to disparage the ownership, management,
employees, or business of Redwood, First Banks or any of the First Banks Parties
in any manner. Dee shall hereafter keep and hold in strictest confidence all
confidential information or trade secrets of Redwood, First Banks or any of the
First Banks Parties which Dee learned of or became aware of during the course of
his employment with Redwood, which are not generally known or capable of being
known through the exercise of reasonable due diligence outside of the First Bank
Parties, and which have been the subject of reasonable efforts by the First Bank
Parties to protect their secrets, including, but not limited to, such
information concerning: (1) any of the First Banks Parties' computer programs
and data processing methods; (2) financial data concerning any of the First
Banks Parties; (3) any of the First Banks Parties' pricing or marketing
strategies; (4) any of the First Banks Parties' customers or employees; and (5)
the First Banks Parties' business methods and techniques.
7. The current members of Redwood's Board of Directors and Allen H.
Blake shall not disparage Dee following his resignation of employment.
8. In addition to the consideration to be paid to Dee described in
Paragraph 1 hereto, provided that Dee signs this Release within the twenty-one
(21) day period described herein and does not thereafter revoke it, Redwood
hereby agrees to sell to Dee that certain Mercedes Benz 1998 320E sedan, VIN#
WDBJF65F5WA471372 (the "Automobile"), for $12,000.00 which shall be payable by
certified check or money order. The parties acknowledge that the Automobile is
being sold "as is", and that Dee shall be responsible for the payment of all
related sales or transfer taxes and all related license and title fees, charges
and assessments. The purchase and sale of the Automobile shall take place within
fifteen (15) days after Redwood receives this signed Release.
9. Dee acknowledges that he has been advised to consult an attorney for
advice regarding the effect of this Release before signing it. Dee also
acknowledges that he was advised that he could take up to twenty-one (21) days
to study this Release before signing it and that he has the right to revoke it
for seven (7) days after signing by providing written notice of revocation to
Redwood.
10. Dee shall also be entitled to receive a "cash-out" of his accrued
but unused vacation, which as of the Resignation Date equals five (5) days pay
or $2,885.
11. If, after the Resignation Date, Donald W. Williams, Allen H. Blake
or John Kitson (the "First Bank Representatives") disclose any of the documents
which are attached hereto as Exhibits A-1 thru A-4 (collectively, the
"Documents"), to a state or federal banking regulatory agency or representative,
the First Bank Representative making such disclosure will disclose all of the
Documents to such regulatory agency or representative.
12. Redwood shall undertake the defense of and indemnify Dee for any
liability relating to his service as an employee, officer or director of Redwood
on the same basis as is provided for in the certificate of incorporation or
bylaws of Redwood and consistent with applicable law, and Dee agrees to be
reasonably available to assist Redwood and its affiliates in connection with any
such real or asserted liability against him or Redwood and its affiliates.
13. Dee agrees that this Release is binding upon and inures to the
benefit of the administrators, personal representatives, legatees, heirs,
successors, and assigns of Dee, the Dee Parties, and the First Banks Parties.
14. Dee acknowledges that he has read the entire contents of the
foregoing, fully understands all of its terms, and is voluntarily executing the
same with full knowledge of its significance. This Release shall become
enforceable seven (7) days after execution.
15. In the event of any litigation between the parties relating to this
Release and their rights hereunder, the prevailing party shall be entitled to
recover all litigation costs and reasonable attorneys' fees and expenses from
the non-prevailing party.
[Remainder of page intentionally left blank]
<PAGE>
16. This Release may be executed in two or more counterparts, each of
which shall be deemed an original and all of which together shall be considered
one and the same agreement.
ANTHONY DEE REDWOOD BANK
/s/ Anthony S. Dee By: /s/ John G. Kitson
- --------------------------------------- -----------------------------
Date: March 2, 2000 Its: Senior Vice President
- --------------------------------------- ----------------------------
Date: March 2, 2000
-----------------------------
FIRST BANKS AMERICA, INC.
By: /s/ John G. Kitson
-----------------------------
Its: Senior Vice President
-----------------------------
Date: March 2, 2000
<PAGE>
Exhibit 13
FIRST BANKS AMERICA, INC.
1999 ANNUAL REPORT
<PAGE>
FIRST BANKS AMERICA, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
LETTER TO SHAREHOLDERS.............................................................................. 1
SELECTED CONSOLIDATED AND OTHER FINANCIAL DATA...................................................... 2
MANAGEMENT'S DISCUSSION AND ANALYSIS................................................................ 3
QUARTERLY CONDENSED FINANCIAL DATA - UNAUDITED...................................................... 23
INDEPENDENT AUDITORS' REPORT........................................................................ 24
FINANCIAL STATEMENTS:
CONSOLIDATED BALANCE SHEETS.................................................................... 25
CONSOLIDATED STATEMENTS OF INCOME.............................................................. 27
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME..................................................................... 28
CONSOLIDATED STATEMENTS OF CASH FLOWS.......................................................... 29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS..................................................... 30
DIRECTORS AND SENIOR MANAGEMENT..................................................................... 50
INVESTOR INFORMATION................................................................................ 51
</TABLE>
<PAGE>
To Our Valued Shareholders, Customers and Friends:
First Banks America had another outstanding year! The Company
reported record earnings of $9.5 million in comparison to $4.6 million in
1998. Earnings per share, on a diluted basis, improved from $0.90 in 1998
to $1.66, representing an increase of 84%. The consummation of the
Redwood Bancorp acquisition in March of 1999 contributed $1.6 million
toward the earnings increase and strengthened our presence in the San
Francisco Bay area. The Redwood acquisition and internal growth increased
the Company's total assets at December 31, 1999 to $921 million, up from
$297 million at the end of 1995, as originally reported.
First Banks America has also completed its acquisition of Lippo
Bank on February 29, 2000. Lippo Bank has approximately $85 million in
total assets and operates three offices in San Francisco, San Jose and
Los Angeles, California. In addition to expanding our California
franchise, Lippo brings certain international banking capabilities, such
as import / export letters of credit and related inventory financing.
We hope to further develop this market niche and provide these services
to our existing customer base.
Our primary objective of achieving progressive and profitable
growth remains unchanged, and the key driver of this growth is net
interest income. Continued emphasis on our commercial and commercial real
estate lending strengths increased average loans, net of unearned
discount, over $200 million, or 43.7%. While yields on our overall loan
portfolio declined, the mix of deposits and rates paid on those balances
were successfully managed. The combination of these factors led to an
increased net interest rate margin of 5.51%, in comparison to 5.03% in
1998 and 3.90% in 1995, as originally reported.
Credit quality is at its strongest level ever. Nonperforming
loans represented only 0.46% of loans, net of unearned discount, at the
end of 1999 and the Company enjoyed net recoveries to average loans of
0.09% during the year.
We continue to emphasize our personalized service in our retail
and commercial lines of business. Our community bank focus should allow
us to retain a competitive advantage in the midst of further industry
consolidation and the related customer dislocation. The product mix
available to our customers continues to expand and should allow us to
continue our strong asset and earnings growth.
In closing, I would like to extend my sincere appreciation for
the dedication of our employees, the loyalty of our customers and the
continued support of our shareholders.
Sincerely,
James F. Dierberg
Chairman of the Board, President
and Chief Executive Officer
<PAGE>
<TABLE>
<CAPTION>
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).
Such data is qualified by reference to the consolidated financial statements of FBA included 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."
Year ended December 31,(1)
-------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(dollars expressed in thousands, except per share data)
Income Statement Data:
<S> ................................................. <C> <C> <C> <C> <C>
Interest income ................................. $ 68,955 54,408 42,517 33,382 26,556
Interest expense ................................ 25,531 23,209 19,155 15,533 13,134
-------- -------- -------- -------- --------
Net interest income ............................. 43,424 31,199 23,362 17,849 13,422
Provision for possible loan losses .............. 393 900 2,000 2,405 6,416
-------- -------- -------- -------- --------
Net interest income after provision for
possible loan losses ......................... 43,031 30,299 21,362 15,444 7,006
Noninterest income .............................. 5,595 4,375 3,287 3,585 129
Noninterest expense ............................. 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 ................... 15,796 8,202 6,972 1,292 (7,013)
Provision (benefit) for income tax expense ...... 6,326 3,592 3,145 470 (2,188)
-------- -------- -------- -------- --------
Income (loss) before minority interest in
(income) loss of subsidiary ................... 9,470 4,610 3,827 822 (4,825)
Minority interest in (income) loss of subsidiary. -- -- (294) (131) 11
-------- -------- -------- -------- --------
Net income (loss) ............................... $ 9,470 4,610 3,533 691 (4,814)
======== ======== ======== ======== ========
Dividends:
Common stock .................................... $ -- -- -- -- --
Ratio of total dividends declared to net income.. --% --% --% --% --%
Per Share Data:
Earnings (loss) per common share:
Basic ......................................... $ 1.66 0.90 0.87 0.16 (1.19)
Diluted ....................................... 1.66 0.90 0.86 0.16 (1.19)
Weighted average shares of common stock
outstanding ................................... 5,704 5,140 4,069 4,225 4,032
Balance Sheet Data (at year-end):
Investment securities ........................... $ 92,538 116,963 148,181 125,139 113,586
Loans, net of unearned discount ................. 732,263 516,403 431,455 336,371 266,588
Total assets .................................... 920,707 719,997 643,664 529,087 468,486
Total deposits .................................. 780,023 599,147 556,527 455,942 405,427
Promissory note payable ......................... -- -- 14,900 14,000 1,054
Guaranteed preferred beneficial interest in
First Banks America, Inc. subordinated
debentures ..................................... 44,218 44,155 -- -- --
Stockholders' equity ............................ 72,499 65,845 45,091 38,195 40,965
Earnings Ratios:
Return on average total assets .................. 1.09% 0.67% 0.65% 0.15% (1.28)%
Return on average stockholders' equity .......... 13.66 8.10 8.90 1.71 (12.06)
Asset Quality Ratios:
Allowance for possible loan losses to loans ..... 2.00 2.35 2.64 3.19 3.98
Nonperforming loans to loans (2) ................ 0.46 1.67 0.66 0.88 1.90
Allowance for possible loan losses to
nonperforming loans (2) ...................... 437.85 140.49 400.81 363.10 209.18
Nonperforming assets to loans and other
real estate (3) ............................... 0.46 1.70 0.80 1.17 2.78
Net loan recoveries (charge-offs) to
average loans ................................ 0.09 (0.23) (0.40) (1.69) (1.45)
Capital Ratios:
Average stockholders' equity to average
total assets ................................. 7.98 8.25 7.34 8.86 10.64
Total risk-based capital ratio .................. 13.08 16.66 6.88 6.62 9.64
Leverage ratio .................................. 8.94 10.25 14.96 4.46 5.98
- ------------------------------
(1) The comparability of the selected data presented is affected by FBA's acquisitions of Redwood Bancorp, Pacific Bay Bank,
Surety Bank and Sunrise Bank of California on 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.
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The discussion set forth in the Letter to Shareholders and 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 Annual Report should therefore not place undue
reliance on forward-looking statements.
Company Profile
FBA is a registered bank holding company incorporated in Delaware and
headquartered in St. Louis County, Missouri. At December 31, 1999, FBA had
$920.7 million in total assets, $732.3 million in total loans, net of unearned
discount, $780.0 million in total deposits and $72.5 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 Roseville, California (FB California) and Redwood
Bank, headquartered in San Francisco, California (Redwood Bank), collectively
referred to as the Subsidiary Banks.
Through the Subsidiary Banks' fourteen banking locations in northern
California and six banking locations in the greater Houston and Dallas, Texas
areas, FBA offers a broad range of commercial and personal banking services,
including certificate of deposit accounts, individual retirement and other time
deposit accounts, checking and other demand deposit accounts, interest checking
accounts, savings accounts and money market accounts. Loans include commercial
and financial, commercial and residential real estate, real estate construction
and development and consumer loans. Other financial services include mortgage
banking, credit and debit cards, brokerage services, credit-related insurance,
automatic teller machines, telephone banking, safe deposit boxes, trust and
private banking services and cash management services.
FBA centralizes overall corporate policies, procedural and
administrative functions and operational support functions for the Subsidiary
Banks. Primary responsibility for managing the Subsidiary Banks remains with the
officers and directors.
The following table recaps selected data about the Subsidiary Banks at
December 31, 1999:
<TABLE>
<CAPTION>
Loans, net of
Number of Total unearned Total
Locations assets discount deposits
--------- ------ -------- --------
(dollars expressed in thousands)
<S> <C> <C> <C> <C>
FB California.................... 10 $ 431,838 379,632 367,563
FB Texas ........................ 6 278,988 213,731 244,248
Redwood Bank..................... 4 199,988 138,902 173,703
</TABLE>
FBA is majority owned by First Banks, Inc., St. Louis, Missouri (First
Banks). As discussed in Note 14 to the accompanying consolidated financial
statements, on February 17, 1999, First Banks completed its purchase of 314,848
shares of common stock pursuant to a tender offer, which increased First Banks'
ownership interest in FBA to 82.34% of the outstanding voting stock of FBA from
76.84% at December 31, 1998. At December 31, 1999, First Banks owned 2,500,000
shares of the Class B common stock and 2,210,581 shares of the common stock,
which represented 83.37% of the outstanding voting stock of FBA. Accordingly,
First Banks has effective control over the management and policies of FBA and
the election of its directors.
<PAGE>
As more fully discussed under "--Financial Condition and Average
Balances" and in Note 8 to the accompanying consolidated financial statements,
on July 21, 1998, First America Capital Trust (FACT), a newly formed Delaware
statutory business trust subsidiary of FBA, issued 1.84 million shares of 8.50%
Guaranteed Preferred Beneficial Interests in FBA's Subordinated Debentures (FACT
Preferred Securities) for $46.0 million. The FACT Preferred Securities are
publicly held and traded on the New York Stock Exchange and have no voting
rights except in certain limited circumstances. Distributions on the preferred
securities are payable quarterly in arrears on March 31, June 30, September 30
and December 31 of each year.
General
FBA believes in order for a financial institution to prosper in the
current environment of rapid restructuring and consolidation in the banking
industry, and intense competition both within the industry and from non-banking
entities, it must achieve a size sufficient to enable it to take advantage of
many of the efficiencies available to its much larger competitors. FBA further
believes failure to achieve this growth would place FBA at a competitive
disadvantage relative to those larger competitors with respect to its costs of
operation which, over time, will be an increasingly difficult obstacle to
overcome. FBA projects internal growth alone will not be sufficient to advance
FBA to the size which is necessary within an acceptable time frame and,
accordingly, views a combination of internal growth and acquisitions as the
means by which FBA will achieve its growth objectives.
Although FBA originally viewed Texas, particularly the Dallas and
Houston areas, as its primary acquisition area, during 1995 and 1996, prices for
acquisitions escalated sharply in those areas. Acquisitions at the prices
required to successfully consummate these transactions would have caused
substantial diminution in the economic benefits which FBA envisioned would be
available in its acquisition program. This diminution in benefits resulted in
FBA's evaluation of California for acquisition candidates, where acquisition
pricing was considerably more favorable, and subsequently led to FBA's
acquisition of Sunrise Bank of California, Roseville, California (Sunrise Bank)
in November 1996 and Surety Bank, Vallejo, California in December 1997, as well
as the acquisitions of First Commercial Bancorp, Inc., Sacramento, California,
(FCB), the holding company parent of First Commercial Bank (First Commercial),
Pacific Bay Bank, San Pablo, California (Pacific Bay Bank) in February 1998 and
Redwood Bank, San Francisco, California in March 1999.
While this acquisition strategy was in process, FBA was also building
the infrastructure necessary to accomplish its objectives for internal growth.
This included significantly expanding the commercial and financial, commercial
real estate and real estate construction business development staff, enhancing
the retail service delivery organization and systems, improving overall asset
quality and changing the composition of the loan portfolio. Prior to 1995, FBA's
lending strategy had been focused on consumer lending, particularly indirect
automobile lending. As of June 30, 1995, consumer loans, net of unearned
discount, constituted 80.1% of FBA's loan portfolio, while commercial and
financial, commercial real estate and real estate construction loans constituted
17.4% of the portfolio. However, in 1995, FBA began experiencing substantial
asset quality problems within the indirect automobile loan portfolio, resulting
in provisions for possible loan losses of $5.83 million in 1995 and $1.25
million in 1996. Furthermore, indirect automobile lending is an extremely
competitive market in which the interest yields available to lenders are
substantially less than other types of lending and not sufficient to compensate
lenders for losses of that magnitude. Consequently, with the expansion of its
business development staff, FBA began building its portfolio of commercial and
financial, commercial real estate and real estate construction loans while
allowing its portfolio of indirect automobile loans to decrease. By December 31,
1999, commercial and financial, commercial real estate and real estate
construction loans had increased to 87.2% of the portfolio, while consumer
loans, net of unearned discount, had decreased to 5.2% of the loan portfolio.
Although significant expenses were incurred by FBA in the amalgamation
of newly acquired entities into its corporate culture and systems, and in the
expansion of its organizational capabilities, the earnings of the acquired
entities and the improved net interest income resulting from the transition in
the composition of the loan portfolio have contributed to improving net income
during 1999 and 1998. For the years ended December 31, 1999 and 1998, net income
was $9.47 million and $4.61 million, respectively, compared with $3.53 million
in 1997 and $691,000 in 1996.
Acquisitions
In enhancing its banking franchise, FBA places emphasis upon acquiring
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 or noncontiguous market areas. After an
acquisition is consummated, FBA expects to enhance the franchise of the acquired
entity by supplementing the marketing and business development efforts to
broaden the customer bases, strengthening particular segments of the business or
filling voids in the overall market coverage. In addition, the acquisition
program enables FBA to further leverage the operational support services
available to it through First Banks and its affiliates and to provide the
products and services typically available only through such a larger
organization. FBA has utilized cash, voting stock, borrowings and the issuance
of additional securities to meet its growth objectives under the acquisition
program.
<PAGE>
Although FBA has in the past issued voting stock as consideration in
some acquisitions, the recent acquisitions, including Redwood Bancorp, have been
for cash, and FBA's present policy is to seek cash transactions. FBA's ability
to consummate additional acquisitions will be dependent, in part, on its access
to cash resources with which to fund such transactions, and the maintainance of
capital levels which are adequate to satisfy regulatory requirements and
internal policies.
During the three years ended December 31, 1999, FBA completed four
acquisitions. As demonstrated below, FBA's acquisitions during the three years
ended December 31, 1999 have primarily served to diversify its market areas by
establishing the Company's presence in northern California. 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
------ ---- ------ -------- ---------- -------- ---------
1999
<S> <C> <C> <C> <C> <C> <C>
Redwood Bancorp
San Francisco, California March 4, 1999 $183,900 134,400 34,400 162,900 4
======== ======== ======= ======== =
1998
First Commercial Bancorp, Inc.
Sacramento, California (1) (2) February 2, 1998 $192,500 118,900 64,400 173,100 6
Pacific Bay Bank
San Pablo, California (2) February 2, 1998 38,300 29,700 232 35,200 1
-------- -------- ------- -------- -
$230,800 148,600 64,632 208,300 7
======== ======== ======= ======== =
1997
Surety Bank
Vallejo, California (2) December 1, 1997 $ 72,800 54,400 11,800 67,500 2
======== ======== ======= ======== =
- ---------------
</TABLE>
(1) First Commercial Bancorp, Inc. was merged into a wholly owned subsidiary of
FBA.
(2) First Commercial Bancorp, Inc.'s wholly owned banking subsidiary, First
Commercial Bank, Pacific Bay Bank and Surety Bank were merged into FB
California.
Except for the acquisitions of First Commercial Bancorp, Inc. (FCB) and
its wholly owned subsidiary, First Commercial Bank (First Commercial), and
Surety Bank, these acquisitions were funded by FBA from available cash reserves,
proceeds from the sales and maturities of available-for-sale investment
securities, borrowings under FBA's $20.0 million revolving note payable from
First Banks (Note Payable) and the proceeds of the FACT Preferred Securities.
As more fully discussed in Note 2 to the accompanying consolidated
financial statements, FCB was acquired by FBA in an exchange of FBA common stock
for FCB common stock. The 49% cash portion of the acquisition of Surety Bank was
funded from available cash. The remaining 51% was acquired through an exchange
of shares of FBA common stock.
On February 29, 2000, FBA completed its acquisition of Lippo Bank, San
Francisco, California, in exchange for $17.2 million in cash. Lippo Bank
operates three banking locations in San Francisco, San Jose and Los Angeles,
California. The acquisition was funded from available cash of $9.2 million and
an advance under the Note Payable of $8.0 million. 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 deposits at the acquisition date. Lippo Bank will be merged
into FB California.
<PAGE>
Restatement To Reflect Reorganization
In connection with FBA's acquisition of FCB and its wholly owned
subsidiary, First Commercial, on February 2, 1998, FBA's financial information
for the period from August 23, 1995 to February 2, 1998 has been restated to
include the ownership interest of First Banks, FBA's majority owner, in FCB
consistent with the accounting treatment applicable to entities under common
control. First Banks' ownership interest in FCB was approximately 96.1% from
August 23, 1995 to May 1996 and 61.5% from June 1996 to February 2, 1998. The
remaining interest in FCB acquired by FBA is reflected in the accompanying
consolidated financial statements of FBA as minority interest for the period
from August 23, 1995 to February 2, 1998. Accordingly, Management's Discussion
and Analysis of Financial Condition and Results of Operations and the
accompanying consolidated financial statements of FBA are presented as if FBA
and FCB had been consolidated for all periods after August 23, 1995.
Financial Condition and Average Balances
FBA's average total assets were $868.9 million, $690.4 million and
$540.8 million for the years ended December 31, 1999, 1998 and 1997,
respectively. The increase of $178.5 million in total average assets for 1999 is
primarily attributable to the acquisition of Redwood Bancorp, which provided
total assets of $183.9 million. The increase of $149.6 million in total average
assets for 1998 is primarily attributable to the acquisitions of Pacific Bay
Bank and Surety Bank, which provided total assets of $38.3 million and $72.8
million, respectively, internal loan growth and the issuance of the FACT
Preferred Securities. From the proceeds of the FACT Preferred Securities
offering, $26.0 million was invested in short-term interest-bearing deposits at
December 31, 1998, which was subsequently utilized to fund the acquisition of
Redwood. Offsetting this increase and providing an additional source of funds
for the loan growth was a reduction in average investment securities of $2.8
million to $132.7 million for December 31, 1998 from $129.9 million for December
31, 1997.
Loans, net of unearned discount, averaged $669.0 million, $465.5
million and $343.3 million for the years ended December 31, 1999, 1998 and 1997,
respectively. Over the last three years, FBA has continued to focus on expanding
its commercial and financial and commercial real estate banking activities
through internal growth and acquisition. As more fully discussed under
"--General and Net Interest Income," during the second quarter of 1995, FBA
elected to reduce the level of originations of indirect automobile loans.
Accordingly, indirect automobile loans, which initially increased to $159.5
million at June 30, 1995, have subsequently decreased to $28.6 million, $50.3
million and $61.4 million at December 31, 1999, 1998 and 1997, respectively.
Investment securities averaged $101.6 million, $132.7 million and
$129.9 million for the years ended December 31, 1999, 1998 and 1997,
respectively. The average balance of investment securities decreased by $31.1
million for the year ended December 31, 1999. This decrease is primarily
attributable to the liquidation of investment securities necessary to provide an
additional source of funds for FBA's loan growth. The decrease was partially
offset by the investment securities obtained in conjunction with the acquisition
of Redwood. The average balance of investment securities for 1998 remained
relatively constant with 1997.
Deposits are the primary funding source for FBA and are acquired from a
broad base of local markets, including both individual and corporate customers.
Deposits averaged $731.5 million, $585.3 million and $461.3 million for the
years ended December 31, 1999, 1998 and 1997, respectively. The increases are
primarily attributable to the acquisitions completed during the respective
periods and the expansion of the deposit product and service offerings available
to FBA's customer base. A summary of the composition of deposits is presented
under "--Deposits."
During July 1998, FACT issued 1.84 million shares of FACT Preferred
Securities at $25.00 per share in an underwritten public offering. FBA made
certain guarantees and commitments relating to the FACT Preferred Securities.
FBA's proceeds from the issuance of the FACT Preferred Securities, net of
underwriting fees and offering expenses, were approximately $44.0 million. The
FACT Preferred Securities have no voting rights except under certain limited
circumstances. Distributions on the FACT Preferred Securities are payable
quarterly in arrears on March 31, June 30, September 30 and December 31 of each
year. Distributions payable on the FACT Preferred Securities were $4.0 million
and $1.8 million for the years ended December 31, 1999 and 1998, respectively,
and are recorded as noninterest expense in the accompanying consolidated
financial statements. Proceeds from the offering were used to repay outstanding
indebtedness to First Banks under the Note Payable, support possible repurchases
of common stock from time to time and for general corporate purposes. The
remaining proceeds were temporarily invested in interest-bearing deposits and
were used to fund the acquisition of Redwood completed in March 1999.
Stockholders' equity averaged $69.3 million, $56.9 million and $39.7
million for the years ended December 31, 1999, 1998 and 1997, respectively. The
increase for 1999 is primarily attributable to net income of $9.5 million and a
reduction of the deferred tax valuation reserve of $981,000. The increase was
partially offset by a $2.6 million reduction in accumulated other comprehensive
<PAGE>
income resulting from the change in unrealized gains and losses on
available-for-sale investment securities, and repurchases of $1.3 million of
common stock for treasury during the year ended December 31, 1999. The increase
for 1998 was primarily attributable to net income, the conversion of $10.0
million of the Note Payable into common stock, the issuance of common stock in
connection with the acquisitions of Surety Bank and the publicly owned portion
of FCB, and the conversion of the $6.5 million of subordinated debentures and
the related accrued but unpaid interest of $2.4 million. The increase was
partially offset by repurchases of $5.7 million of common stock for treasury
during the year ended December 31, 1998.
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>
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)..... $ 668,970 61,748 9.23% $ 465,539 45,099 9.69% $343,329 33,393 9.73%
Investment securities (3). 101,629 6,310 6.21 132,673 8,103 6.11 129,865 7,870 6.06
Federal funds sold ....... 17,105 860 5.03 19,801 1,078 5.44 22,058 1,196 5.42
Other..................... 743 37 4.98 2,447 128 5.23 1,019 58 5.69
--------- ------ --------- ------ -------- ------
Total interest-
earning assets....... 788,447 68,955 8.75 620,460 54,408 8.77 496,271 42,517 8.57
--------- ------ --------- ------ -------- ------
Nonearning assets.......... 80,422 69,946 44,498
--------- --------- --------
Total assets.......... $ 868,869 $ 690,406 $540,769
========= ========= ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
--------------------
Interest-bearing liabilities:
Interest-bearing demand
deposits ............... $ 83,069 1,168 1.41% $ 73,689 1,274 1.73% $ 66,687 1,398 2.10%
Savings deposits........... 227,773 8,365 3.67 161,362 6,304 3.91 108,430 3,747 3.46
Time deposits of $100
or more................. 67,489 3,513 5.21 51,546 2,932 5.69 39,126 2,144 5.48
Other time deposits........ 232,528 11,803 5.08 203,626 11,096 5.45 168,795 9,427 5.59
--------- ------ --------- ------ -------- ------
Total interest-
bearing deposits...... 610,859 24,849 4.07 490,223 21,606 4.41 383,038 16,716 4.36
Promissory note payable
and short-term borrowings. 12,322 682 5.53 19,596 1,603 8.18 26,755 2,439 9.12
--------- ------ --------- ------ -------- ------
Total interest-
bearing liabilities.... 623,181 25,531 4.10 509,819 23,209 4.55 409,793 19,155 4.67
-------- ------ -------- ------ -------- ------
Noninterest-bearing
liabilities:
Demand deposits.......... 120,623 95,095 78,222
Other liabilities........ 55,718 28,557 13,043
--------- --------- --------
Total liabilities...... 799,522 633,471 501,058
Stockholders' equity........ 69,347 56,935 39,711
--------- --------- --------
Total liabilities
and stockholders'
equity............... $ 868,869 $ 690,406 $540,769
========= ========= ========
Net interest income......... 43,424 31,199 23,362
======== ======== =======
Interest rate spread........ 4.65 4.22 3.90
Net interest margin......... 5.51 5.03 4.71
==== ==== ====
</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>
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:
------------------------------------------------------------------
December 31, 1999 compared December 31, 1998 compared
to December 31, 1998 to December 31, 1997
----------------------------- -------------------------
Net Net
Volume Rate Change Volume Rate Change
------ ---- ------ ------ ---- ------
(dollars expressed in thousands)
Earning assets:
<S> <C> <C> <C> <C> <C> <C>
Loans (1) (2) (3) (4).................. $ 18,881 (2,232) 16,649 11,843 (137) 11,706
Investment securities (3).............. (1,924) 131 (1,793) 169 64 233
Federal funds sold..................... (140) (78) (218) (122) 4 (118)
Other.................................. (85) (6) (91) 74 (4) 70
-------- ------- ------- ------ ------ ------
Total interest income............ 16,732 (2,185) 14,547 11,964 (73) 11,891
-------- ------- ------- ------ ------ ------
Interest-bearing liabilities:
Interest-bearing demand deposits....... 149 (255) (106) 183 (307) (124)
Savings deposits....................... 2,468 (407) 2,061 2,019 538 2,557
Time deposits of $100 or more.......... 845 (264) 581 703 85 788
Other time deposits.................... 1,498 (791) 707 1,883 (214) 1,669
Promissory note payable and
short-term borrowings................ (492) (429) (921) (604) (232) (836)
-------- ------- ------- ------ ------ ------
Total interest expense........... 4,468 (2,146) 2,322 4,184 (130) 4,054
-------- ------- ------- ------ ------ ------
Net interest income.............. $ 12,264 (39) 12,225 7,780 57 7,837
======== ======= ======= ====== ====== ======
</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 effect of interest rate exchange agreements.
Net Interest Income
The primary source of FBA's income is net interest income, which is the
difference between the interest earned on its interest-assets and the interest
paid on its interest-bearing liabilities. FBA's loan portfolio, which represents
its primary interest-earning asset and source of net interest income, previously
consisted primarily of fixed rate indirect automobile loans. In 1995,
recognizing that the profitability of its indirect automobile loan portfolio,
which comprised 74.0% of the loan portfolio as of June 30, 1995, was decreasing,
FBA commenced a defined strategy to diversify its loan portfolio with the
objective of improving its net interest income. As more fully discussed under
"--Acquisitions" and "--Financial Condition and Average Balances," the strategy
included enhanced corporate business development efforts within the existing
franchise of FB Texas, expansion into northern California and continued growth
through additional acquisitions.
For the year ended December 31, 1999, net interest income was $43.4
million, or 5.51% of average interest-earning assets, compared with $31.2
million, or 5.03% of average interest-earning assets, and $23.4 million, or
4.71% 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
acquisitions, internal loan growth and the repositioned loan portfolio of FB
Texas. Contributing further to the improved net interest income was the effect
of the exchange of $10.0 million of the Note Payable for common stock in
February 1998, the repayment of all borrowings outstanding under the Note
Payable in July 1998 and the conversion of the outstanding debenture, including
the related accrued interest, in December 1998.
Although the net interest rate margin improved, the yield on the loan
portfolio declined to 9.23% for the year ended December 31, 1999 in comparison
to 9.69% and 9.73% for the years ended December 31, 1998 and 1997, respectively.
This reduction primarily results from the overall decline in prevailing interest
rates that occurred during the latter part of 1998. In addition, increased
competition within the market areas served by FBA has led to reduced lending
rates. The effect of the reduced yield on the loan portfolio was partially
mitigated by the earnings impact of the interest rate swap agreements and a
reduced rate paid on interest-bearing liabilities. For the years ended December
31, 1999, 1998 and 1997, the aggregate weighted rate paid on the deposit
portfolio was 4.07%, 4.41% and 4.36%, respectively, representing FBA's ongoing
realignment of the portfolio, while the aggregate weighted rate paid on the
promissory note payable and short-term borrowings was 5.53%, 8.18% and 9.12%,
respectively, reflecting the exchange and repayment of the Note Payable and the
debenture conversion.
<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.
FBA manages its interest rate risk by: (1) maintaining an Asset
Liability Committee ("ALCO") responsible to FBA'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 FBA'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.
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. FBA'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, FBA 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, FBA 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 FBA is "asset-sensitive," FBA'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 FBA, a decline in interest rates
of 100 basis points indicates a projected pre-tax loss of net income equivalent
to approximately 8.0% of net interest income based on assets and liabilities at
December 31, 1999.
FBA utilizes off-balance-sheet derivative financial instruments to
assist in the management of interest rate sensitivity and to modify the
repricing, maturity and option characteristics of on-balance-sheet assets and
liabilities. The use of such derivative financial instruments is strictly
limited to reducing the interest rate exposure of FBA. Derivative financial
instruments held by FBA for purposes of managing interest rate risk are
summarized as follows:
<TABLE>
<CAPTION>
December 31, 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......... $120,000 614 65,000 667
Interest rate swap agreements - pay
adjustable rate, receive adjustable rate.... 75,000 -- -- --
Interest rate cap agreement................... 10,000 26 10,000 132
======== ==== ====== ===
</TABLE>
<PAGE>
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 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 FBA to receive a
fixed rate of interest and pay an adjustable rate of interest equivalent to the
90-day London Interbank Offering Rate (LIBOR). The terms of these swap
agreements provide for FBA to pay quarterly and receive payment semi-annually.
The amount receivable by FBA under these swap agreements was $805,000 and
$820,000 at December 31, 1999 and 1998, respectively, and the amount payable by
FBA under these swap agreements was $185,000 and $153,000 at December 31, 1999
and 1998, respectively.
During May 1999, FBA entered into $75.0 million notional amount of
interest rate swap agreements with the objective of stabilizing the net interest
margin during the six-month period surrounding the Year 2000 century date
change. These swap agreements provided for FBA to receive an adjustable rate of
interest equivalent to the daily weighted average 30-day LIBOR and pay an
adjustable rate of interest equivalent to the daily weighted average prime
lending rate minus 2.665%. The terms of these swap agreements, which had an
effective date of October 1, 1999 and a maturity date of March 31, 2000,
provided for FBA to pay and receive interest on a monthly basis. In January
2000, FBA determined these swap agreements were no longer necessary based upon
the results of the Year 2000 century date change and terminated these agreements
at a cost of $23,000.
During September 1999, FBA entered into $55.0 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
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
December 31, 1999 and the amount payable by FBA under these swap agreements was
$44,000 at December 31, 1999.
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 .......................... $ 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)
========= ==== ==== =======
December 31, 1998:
June 11, 2002............................ $ 15,000 5.24% 6.00% $ 363
September 16, 2002....................... 20,000 5.22 5.36 87
September 18, 2002....................... 30,000 5.23 5.33 92
--------- --------
$ 65,000 5.23 5.56 $ 542
========= ==== ==== ========
</TABLE>
FBA has a $10.0 million interest rate cap agreement outstanding to
limit the interest expense associated with certain interest-bearing liabilities.
The interest rate cap agreement has a maturity date of May 15, 2000. At December
31, 1999 and 1998, the unamortized costs of this agreement were $19,000 and
$130,000, respectively, and were included in other assets. The net amount due to
FBA under this agreement was $7,000 and $2,000 at December 31, 1999 and 1998,
respectively.
<PAGE>
As more fully described in Note 1 to the accompanying consolidated
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 consolidated statements of income.
In addition to the simulation model employed by FBA, 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 FBA'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)....................................... $ 503,043 52,944 77,945 93,592 4,739 732,263
Investment securities........................... 34,124 2,361 23,308 9,818 22,927 92,538
Federal funds sold and other.................... 8,922 -- -- -- -- 8,922
--------- ------- ------- ------- ------- -------
Total interest-earning assets................. 546,089 55,305 101,253 103,410 27,666 833,723
Effect of interest rate swap agreements......... (120,000) -- -- 120,000 -- --
--------- ------- ------- ------- ------- -------
Total interest-earning assets after the effect
of interest rate swap agreements............ $ 426,089 55,305 101,253 223,410 27,666 833,723
========= ======= ======= ======= ======= =======
Interest-bearing liabilities:
Interest-bearing demand accounts................ $ 27,698 17,217 11,229 8,234 10,480 74,858
Money market demand accounts.................... 111,054 -- -- -- -- 111,054
Savings accounts................................ 22,353 18,408 15,779 22,353 52,596 131,489
Time deposits................................... 67,279 74,835 140,297 52,066 8 334,485
Other borrowed funds............................ 14,940 -- -- -- -- 14,940
--------- ------- ------- -------- ------- -------
Total interest-bearing liabilities............ $ 243,324 110,460 167,305 82,653 63,084 666,826
========= ======= ======= ======= ======= =======
Interest-sensitivity gap:
Periodic........................................ $ 182,765 (55,155) (66,052) 140,757 (35,418) 166,897
=======
Cumulative...................................... 182,765 127,610 61,558 202,315 166,897
========= ======= ======= ======= =======
Ratio of interest-sensitive assets to
interest-sensitive liabilities:
Periodic...................................... 1.75 0.50 0.61 2.70 0.44 1.25
=======
Cumulative.................................... 1.75 1.36 1.12 1.34 1.25
========= ======= ======= ======= =======
</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, FBA's asset-sensitive position on a
cumulative basis through the twelve-month time horizon was $61.6 million, or
6.7% of total assets, and $85.2 million, or 11.8% 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 decrease for
1999 is primarily attributable to the interest rate swap agreements entered into
in June 1998, September 1998 and September 1999.
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 FBA's assets and liabilities and changes
in interest rates. For this reason, FBA places greater emphasis on a simulation
model for monitoring its interest rate risk exposure.
<PAGE>
Comparison of Results of Operations for the Years Ended December 31, 1999 and
1998
Net Income. Net income was $9.5 million, or $1.66 per share on a
diluted basis, for the year ended December 31, 1999, compared to $4.61 million,
or $0.90 per share on a diluted basis, for 1998. FBA's improved operating
results reflect the improved performance of both FB California and FB Texas,
increased net income generated from the acquisition of Redwood and continued
improvement in asset quality, resulting in a reduced provision for loan losses.
FB California recorded net income of $6.3 million for the year ended
December 31, 1999, in comparison to $3.1 million for 1998. FB Texas' net income
increased to $4.0 million in 1999 from $3.6 million for 1998. These increases
were primarily a result of improved net interest income. As more fully discussed
under "--Financial Condition and Average Balances" and "--Net Interest Income,"
net interest income increased by $12.2 million to $43.4 million, or 5.51% of
average interest-earning assets, from $31.2 million, or 5.03% of average
interest-earnings assets, for the years ended December 31, 1999 and 1998,
respectively.
The improvement in net income was partially offset by increased
operating expenses which resulted primarily from the guaranteed preferred
debenture expense associated with the FACT Preferred Securities, increased data
processing fees, operating expenses of Redwood subsequent to the acquisition
date and amortization of intangibles associated with the purchase of
subsidiaries. As more fully discussed under "--Financial Condition and Average
Balances" and Note 8 to the accompanying consolidated financial statements, FBA
issued the FACT Preferred Securities in July 1998.
Provision for Possible Loan Losses. The provision for possible loan
losses was $393,000 and $900,000 for the years ended December 31, 1999 and 1998,
respectively. The decrease in the provision for possible loan losses is
primarily attributable to improved asset quality as determined by management's
review and evaluation of the credit quality of the loans in the portfolio, and
management's assessment of the adequacy of the allowance for possible loan
losses. Nonperforming assets decreased by $5.4 million to $3.4 million from $8.8
million at December 31, 1999 and 1998, respectively, resulting in a reduced
ratio of nonperforming loans to loans from 1.67% at December 31, 1998 to 0.46%
at December 31, 1999. See "--Loans and Allowance for Possible Loan Losses" for a
further discussion of FBA's policies and practices of monitoring and maintaining
the allowance for possible loan losses.
FBA's loan loss experience further supported the decrease in the
provision for possible loan losses. For the year ended December 31, 1999, net
loan recoveries were $625,000, in comparison to net loan charge-offs of $1.1
million and $1.4 million for the years ended December 31, 1998 and 1997,
respectively. The overall improvement in FBA'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 acquisitions of Redwood and Pacific Bay Bank
provided $1.5 million and $885,000, respectively, in additional allowance for
possible loan losses at their respective acquisition dates.
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........................ $ 3,264 2,935 329 11.21%
Other income ...................................... 2,157 1,099 1,058 96.27
Gains on sales of securities, net.................. 174 341 (167) (48.97)
-------- ------- --------
Total noninterest income....................... $ 5,595 4,375 1,220 27.89
======== ======= ======== ==========
Noninterest expense:
Salaries and employee benefits .................... $ 10,940 8,203 2,737 33.37%
Occupancy, net of rental income ................... 2,788 2,291 497 21.69
Furniture and equipment ........................... 1,712 1,708 4 0.23
Advertising and business development............... 478 616 (138) (22.40)
Postage, printing and supplies..................... 818 752 66 8.78
Data processing fees............................... 3,214 2,042 1,172 57.39
Legal, examination and professional fees........... 4,576 4,325 251 5.80
Communications..................................... 620 720 (100) (13.89)
(Gain) loss on sales of other real estate,
net of expenses.................................. (438) 34 (472) (1,388.24)
Amortization of intangibles associated with the
purchase of subsidiaries......................... 1,138 596 542 90.94
Guaranteed preferred debentures.................... 3,966 1,758 2,208 125.60
Other.............................................. 3,018 3,427 (409) (11.93)
-------- ------- --------
Total noninterest expense...................... $ 32,830 26,472 6,358 24.02
======== ======= ======== ==========
</TABLE>
<PAGE>
Noninterest Income. Noninterest income was $5.6 million for the year
ended December 31, 1999, compared to $4.4 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 $3.3 million for 1999, from $2.9 million for 1998. The increase in service
charges corresponds to the increase in deposit balances provided by internal
growth, the acquisitions of Redwood and Pacific Bay Bank and the additional
services available and utilized by FBA's expanding base of retail and corporate
customers.
Other income was $2.2 million and $1.1 million for the years ended
December 31, 1999 and 1998, respectively. The primary component of the increase
consists of $795,000 relating to a recovery on a loan of an acquired bank that
had been fully charged-off prior to the date of acquisition. In addition, the
income earned on FBA's investment in bank-owned life insurance, established in
April 1998, increased to $689,000 from $411,000 for the years ended December 31,
1999 and 1998, respectively. Finally, FBA's expansion of its brokerage services
further contributed to the overall increase in other income.
Noninterest income for 1999 and 1998 also included $174,000 and
$341,000, respectively, of net gains on sales of securities. The gains resulted
from sales of certain available-for-sale securities to facilitate the funding of
FBA's loan growth.
Noninterest Expense. Noninterest expense was $32.8 million for the year
ended December 31, 1999, compared to $26.5 million for 1998. The increase is
reflective of: (a) the guaranteed preferred debentures expense associated with
the FACT Preferred Securities; (b) the noninterest expense of Redwood and
Pacific Bay Bank, including certain nonrecurring expenses associated with those
acquisitions; (c) increased data processing fees primarily attributable to FBA's
Year 2000 Program; (d) increased amortization of intangibles related to the
purchase of subsidiaries; and, (e) FBA's continuing expansion of its corporate
lending, retail banking and specialized services development staff, including
the necessary operational support, associated with the expansion of its product
and service offerings. The overall increase in noninterest expense for 1999 was
partially offset by a reduction in advertising and business development and
communications expense, and is consistent with management's continued efforts to
more effectively manage these expenditures. Specifically, salaries and employee
benefits increased by $2.7 million to $10.9 million from $8.2 million for the
years ended December 31, 1999 and 1998, respectively. The increase is
attributable to both the acquisitions of Redwood and Pacific Bay Bank and FBA's
continued commitment to expanding its commercial and retail business development
capabilities associated with 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 $3.2 million and $2.0 million for 1999 and 1998, of which $2.9 million and
$1.9 million were paid to First Services L.P., an affiliate of First Banks. As
more fully described in Note 15 to the accompanying consolidated financial
statements, First Services L.P. provides data processing and various related
services to FBA and the Subsidiary Banks. The increased data processing fees are
attributable to growth and technological advancements consistent with FBA's
product and service offerings, increased expenses attributable to communication
data lines related to the expansion of the branch infrastructure and expenses
associated with FBA's Year 2000 Program. As discussed under, "--Year 2000
Compatibility," FBA incurred direct expenses of $540,000 and $180,000 in 1999
and 1998, respectively, with respect to the Year 2000 project. Intangibles
associated with the purchase of subsidiaries 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 Redwood, which was acquired in March 1999, and Pacific
Bay Bank and the minority shareholders of FCB, which were both acquired in
February 1998. Noninterest expense also includes $4.0 million and $1.8 million
of guaranteed preferred debenture expense for the years ended December 31, 1999
and 1998, respectively. As more fully discussed under "--Financial Condition and
Average Balances" and Note 8 to the accompanying consolidated financial
statements, FBA issued FACT Preferred Securities during July 1998.
Comparison of Results of Operations for the Years Ended December 31, 1998 and
1997
Net Income. Net income was $4.61 million, or $0.90 per share on a
diluted basis, for the year ended December 31, 1998, compared to $3.53 million
or $0.86 per share on a diluted basis, for 1997. The improved operating results
of FBA reflect the improved performance of both FB California and FB Texas. FB
California recorded net income of $3.1 million for the year ended December 31,
1998, in comparison to $2.7 million for 1997. FB Texas' net income increased to
$3.6 million from $3.3 million for the years ended December 31, 1998 and 1997,
respectively. These increases were primarily a result of improved net interest
income. As previously discussed, net interest income increased by $7.8 million
to $31.2 million, or 5.03% of average interest-earning assets, from $23.4
million, or 4.71% of average interest-earnings assets, for the years ended
December 31, 1998 and 1997, respectively.
<PAGE>
Offsetting the increase in net income for 1998 were the additional
costs associated with Surety Bank's and Pacific Bay Bank's data processing and
back-office conversions to FBA's systems and procedures completed during
February and May 1998, respectively, and an after tax charge of $225,000 in
settlement of certain litigation. In addition, noninterest expense also includes
$1.8 million of guaranteed preferred debenture expense for 1998. As more fully
discussed under "--Financial Condition and Average Balances" and Note 8 of the
accompanying consolidated financial statements, FBA issued the FACT Preferred
Securities during July 1998.
Provision for Possible Loan Losses. The provision for possible loan
losses was $900,000 and $2.0 million for the years ended December 31, 1998 and
1997, respectively. The provision for possible loan losses for 1998 is primarily
attributable to loan growth, in contrast to 1997, which was provided to support
the changing composition of the loan portfolio from one with a significant
preponderance in indirect automobile loans, to one having substantial portions
of commercial and financial, real estate construction and development and
commercial real estate loans. See "--Loans and Allowance for Possible Loan
Losses" for a further discussion of FBA's policies and practices of monitoring
and maintaining the allowance for possible loan losses.
Supporting the decrease in the provision for possible loan losses is
the reduction in net loan charge-offs to $1.1 million for 1998, compared to $1.4
million for 1997. In addition, the net loan charge-offs in 1998 related
primarily to the loan portfolio obtained through the acquisition of Pacific Bay
Bank. The related acquired allowance for possible loan losses for Pacific Bay
Bank was $885,000 at the acquisition date.
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........................ $ 2,935 2,239 696 31.09%
Other income ...................................... 1,099 972 127 13.07
Gains on sales of securities, net.................. 341 76 265 348.68
-------- ------- -------
Total noninterest income....................... $ 4,375 3,287 1,088 33.10
======== ======= ======= =======
Noninterest expense:
Salaries and employee benefits .................... $ 8,203 6,226 1,977 31.75%
Occupancy, net of rental income ................... 2,291 2,166 125 5.77
Furniture and equipment ........................... 1,708 1,149 559 48.65
Advertising and business development............... 616 234 382 163.25
Postage, printing and supplies..................... 752 496 256 51.61
Data processing fees............................... 2,042 1,084 958 88.38
Legal, examination and professional fees........... 4,325 3,241 1,084 33.45
Communications..................................... 720 673 47 6.98
(Gain) loss on sales of other real estate,
net of expenses.................................. 34 (350) 384 (109.71)
Amortization of intangibles associated with the
purchase of subsidiaries......................... 596 220 376 170.91
Guaranteed preferred debenture..................... 1,758 -- 1,758 --
Other.............................................. 3,427 2,538 889 35.03
-------- ------- -------
Total noninterest expense...................... $ 26,472 17,677 8,795 49.75
======== ======= ======= =======
</TABLE>
Noninterest Income. Noninterest income, which consists primarily of
service charges on deposit accounts and customer service fees, totaled $4.4
million and $3.3 million for the years ended December 31, 1998 and 1997,
respectively.
Service charges on deposit accounts and customer service fees increased
to $2.9 million for 1998, from $2.2 million for 1997. The increase is primarily
attributable to the acquisitions of Surety Bank and Pacific Bay Bank, and the
increase of commercial and retail banking services utilized by FBA's expanding
base of retail and corporate customers.
Other income was $1.1 million and $972,000 for the years ended December
31, 1998 and 1997, respectively. The increase is primarily attributable to
income earned on FBA's investment in BOLI. The BOLI income totaled $411,000 for
the period from the time of investment, April 1998, through December 31, 1998.
Noninterest income for 1998 also includes $341,000 of net gains on
sales of securities. The gains resulted from the sales of certain
available-for-sale securities to provide funds for FBA's loan growth.
<PAGE>
Noninterest Expense. Noninterest expense was $26.5 million for the year
ended December 31, 1998, compared to $17.7 million for 1997. The increase is
attributable to the noninterest expense of Surety Bank and Pacific Bay Bank,
nonrecurring expenses associated with those acquisitions, the additional
noninterest expense attributable to FBA's expansion of its corporate lending and
retail banking functions and the issuance of the FACT Preferred Securities.
Specifically, salaries and employee benefits increased by $2.0 million
to $8.2 million from $6.2 million for the years ended December 31, 1998 and
1997, respectively. The increase is attributable to both the acquisitions of
Surety Bank and Pacific Bay Bank and the expansion of FBA's commercial and
retail business development staff and related support personnel.
Contrary to the overall increase in noninterest expense resulting from
the aforementioned acquisitions was occupancy, net of rental income, which
remained relatively constant at $2.3 million and $2.2 million for the years
ended December 31, 1998 and 1997, respectively. Offsetting the cost of the
additional facilities provided by acquisitions was additional rental income from
increased subleasing of excess space within FBA's banking premises, relocation
of certain California branches and reductions in expenses related to
centralization of recently acquired entities' functions into FBA's systems.
Advertising and business development increased by $382,000 to $616,000
from $234,000 for 1998 and 1997, respectively. The additional costs were
incurred to facilitate the further development of FBA's franchise and expanding
base of products and services.
Legal, examination and professional fees increased to $4.3 million from
$3.2 million for 1998 and 1997, respectively. As more fully described in Note 15
to the accompanying consolidated financial statements, legal, examination and
professional fees include various fees since FBA utilizes First Banks and
certain of its affiliates in providing selected services to FBA and the
Subsidiary Banks. FBA'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.
Data processing fees were $2.0 million and $1.1 million for 1998 and
1997, of which $1.9 million and $722,000 was paid to First Services L.P., an
affiliate of First Banks. As more fully described in Note 15 to the accompanying
consolidated financial statements, First Services L.P. provides data processing
and various related services to FBA and the Subsidiary Banks. The increase in
data processing fees is attributable to the overall growth of FBA, the
enhancement of systems to support existing and developing product and service
offerings and the additional costs associated with the Year 2000 project. As
discussed under, "--Year 2000 Compatibility," FBA incurred direct expenses of
$180,000 in 1998 with respect to the Year 2000 project.
Intangibles associated with the purchase of subsidiaries are amortized
to expense on a straight-line basis over approximately 15 years. The increase
for 1998 is attributable to the amortization of the cost in excess of the fair
value of the net assets acquired of Surety Bank, which was acquired in December
1997, Pacific Bay Bank and the minority shareholders of FCB, which were both
acquired in February 1998.
Noninterest expense also includes $1.8 million of guaranteed preferred
debenture expense for 1998. As more fully discussed under "--Financial Condition
and Average Balances" and Note 8 to the accompanying consolidated financial
statements, FBA issued the FACT Preferred Securities in July 1998.
Other noninterest expense for 1998 includes a $350,000 charge in
settlement of certain litigation.
Investment Securities
FBA classifies the securities within its investment portfolio as held
to maturity or available for sale. FBA does not engage in the trading of
investment securities. As more fully described in Notes 1 and 3 to the
accompanying consolidated financial statements of FBA, the investment security
portfolio consists primarily of securities designated as available for sale. The
investment security portfolio was $92.5 million at December 31, 1999 compared to
$117.0 million and $148.2 million at December 31, 1998 and 1997, respectively.
See, "--Financial Condition and Average Balances" for further discussion of the
investment security portfolio.
Loans and Allowance for Possible Loan Losses
Interest earned on the loan portfolio represents the principal source
of income for FBA and its Subsidiary Banks. Interest and fees on loans were
89.5%, 82.9% and 78.5% of total interest income for the years ended December 31,
1999, 1998 and 1997, respectively. Loans, net of unearned discount, represented
79.5% of total assets as of December 31, 1999, compared to 71.7% and 67.0% as of
December 31, 1998 and 1997, respectively. At December 31, 1999 and 1998, total
loans, net of unearned discount, were $732.3 million and $516.4 million,
increases of $300.8 million and $84.9 million, respectively, from $431.5 million
at December 31, 1997. FBA views the quality, yield and growth of the loan
portfolio to be instrumental elements in its growth and profitability.
<PAGE>
The increases in loans from 1997 to 1999 are attributable to the loans
provided by the acquisitions of Redwood, Pacific Bay Bank and Surety Bank, and
the growth of the commercial and financial, real estate construction and
development and real estate mortgage loan portfolios, partially offset by the
decrease in the consumer and installment portfolio, which is primarily comprised
of indirect automobile loans.
The following table summarizes the changes in the loan portfolio for
the periods indicated:
<TABLE>
<CAPTION>
Increase (decrease)
------------------------------------
For the years ended December 31,
------------------------------------
1999 1998 1997
---- ---- ----
(dollars expressed in thousands)
Loans provided by acquisition:
<S> <C> <C> <C>
Redwood....................................................... $ 134,400 -- --
Pacific Bay Bank.............................................. -- 29,700 --
Surety Bank................................................... -- -- 54,400
Internal loan volume increase (decrease):
Commercial lending............................................ 119,200 86,400 71,200
Indirect automobile lending................................... (21,800) (14,400) (28,600)
Other......................................................... (15,900) (16,800) (1,900)
---------- ------- -------
Total increase in loans,
net of unearned discount............................... $ 215,900 84,900 95,100
========== ======= =======
(Decrease) increase in potential problem loans (1)............... $ (3,000) 1,600 (7,300)
========== ======= =======
</TABLE>
- --------------
(1) Potential problem loans include indirect automobile loans 60 days or more
past due, loans on nonaccrual status and other loans identified by
management as having potential credit problems.
FBA's lending strategy stresses quality, growth and diversification by
collateral, geography and industry. A common credit underwriting structure is in
place throughout FBA. 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 FBA's branch banking network.
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. Loans held for sale are generally
fixed and adjustable rate residential loans pending sale in the secondary
mortgage market in the form of a mortgage-backed security, or to various private
third-party investors.
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>
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........ $216,780 29.6% $140,151 27.1% $109,763 25.8% $ 80,781 24.0% $ 48,807 18.3%
Real estate construction
and development.............. 204,832 28.0 161,696 31.3 93,454 22.0 58,045 17.3 30,142 11.3
Real estate mortgage............ 272,700 37.2 155,443 30.1 149,951 35.2 93,864 27.9 45,530 17.1
Consumer and installment,
net of unearned discount..... 37,951 5.2 59,113 11.5 72,579 17.0 103,681 30.8 142,109 53.3
-------- ----- -------- ----- -------- ---- -------- ----- -------- -----
Total loans, excluding
loans held for sale..... 732,263 100.0% 516,403 100.0% 425,747 100.0% 336,371 100.0% 266,588 100.0%
===== ===== ===== ===== =====
Loans held for sale............. -- -- 5,708 -- --
-------- ------- -------- -------- --------
Total loans............... $732,263 $516,403 $431,455 $336,371 $266,588
======== ======== ======== ======== ========
</TABLE>
<PAGE>
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................. $ 179,905 29,574 6,866 435 -- 216,780
Real estate construction
and development........................ 198,657 67 5,577 194 337 204,832
Real estate mortgage..................... 148,658 17,370 28,173 17,027 61,472 272,700
Consumer and installment,
net of unearned discount............... 8,353 25,887 348 3,363 -- 37,951
--------- ------- ------- ------- ------- --------
Total loans......................... $ 535,573 72,898 40,964 21,019 61,809 732,263
========= ======= ======= ======= ======= ========
<PAGE>
</TABLE>
The following table is a summary of loan loss experience for the five
years ended December 31, 1999:
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(dollars expressed in thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of year............... $12,127 11,407 10,744 10,616 2,756
Acquired allowances for possible
loan losses............................. 1,466 885 30 2,338 4,797
------- -------- ------- ------ -------
13,593 12,292 10,774 12,954 7,553
------- -------- ------- ------ -------
Loans charged off:
Commercial and financial................ (337) (1,464) (966) (2,286) --
Real estate construction
and development..................... (228) -- (15) (164) (2)
Real estate mortgage.................... (365) (1,031) (244) (786) (153)
Consumer and installment................ (482) (1,040) (2,430) (3,818) (4,018)
------- -------- ------- ------ -------
Total loans charged-off............. (1,412) (3,535) (3,655) (7,054) (4,173)
------- -------- ------- ------ -------
Recoveries of loans previously charged off:
Commercial and financial................ 963 1,314 926 1,271 223
Real estate construction
and development..................... 139 219 68 15 1
Real estate mortgage.................... 206 213 195 109 36
Consumer and installment................ 729 724 1,099 1,044 560
------- -------- ------- ------ -------
Total recoveries of loans previously
charged off....................... 2,037 2,470 2,288 2,439 820
------- -------- ------- ------ -------
Net loan recoveries (charge-offs)... 625 (1,065) (1,367) (4,615) (3,353)
------- -------- ------- ------ -------
Provision for possible loan losses......... 393 900 2,000 2,405 6,416
------- -------- ------- ------ -------
Balance at end of year..................... $14,611 12,127 11,407 10,744 10,616
======= ======== ======= ====== =======
Loans outstanding:
Average................................. $668,970 465,539 343,329 273,063 230,451
End of period........................... 732,263 516,403 431,455 336,371 266,588
Ratio of allowance for possible
loan losses to loans outstanding:
Average............................. 2.18% 2.60% 3.32% 3.93% 4.61%
End of period....................... 2.00 2.35 2.64 3.19 3.98
Ratio of net loan recoveries (charge-offs)
to average loans outstanding............ 0.09 (0.23) (0.40) (1.69) (1.45)
======= ======== ======= ====== =======
Allocation of allowance for possible
loan losses at end of period:
Commercial and financial................ $ 4,397 3,368 2,552 3,417 2,534
Real estate construction and development 3,570 3,813 1,680 1,320 1,835
Real estate mortgage.................... 3,693 2,039 3,536 3,645 2,210
Consumer and installment................ 936 1,077 1,539 2,362 4,037
Unallocated............................. 2,015 1,830 2,100 -- --
------- -------- ------- ------ -------
Total .............................. $14,611 12,127 11,407 10,744 10,616
======= ======== ======= ====== =======
Percent of categories to loans,
net of unearned discount:
Commercial and financial................ 29.6% 27.1% 25.4% 24.0% 18.3%
Real estate construction and development 28.0 31.3 21.7 17.3 11.3
Real estate mortgage.................... 37.2 30.1 34.8 27.9 17.1
Consumer and installment................ 5.2 11.5 16.8 30.8 53.3
Loans held for sale..................... -- -- 1.3 -- --
------- -------- ------- ------ -------
Total............................... 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>
December 31,
-----------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(dollars expressed in thousands)
<S> <C> <C> <C> <C> <C>
Nonperforming loans......................... $ 3,337 8,632 2,846 2,959 5,075
Other real estate, net...................... 60 161 601 977 2,393
--------- --------- --------- --------- --------
Total nonperforming assets............ $ 3,397 8,793 3,447 3,936 7,468
========= ========= ========= ========= ========
Loans, net of unearned discount............. $ 732,263 516,403 431,455 336,371 266,588
========= ========= ========= ========= ========
Loans past due:
Over 30 days to 90 days.................. $ 2,696 6,269 7,866 7,302 9,664
Over 90 days and still accruing.......... 2,944 306 1,158 615 2,766
--------- --------- --------- --------- --------
Total past-due loans.................. $ 5,640 6,575 9,024 7,917 12,430
========= ========= ========= ========= ========
Allowance for possible loan losses
to loans................................. 2.00% 2.35% 2.64% 3.19% 3.98%
Nonperforming loans to loans................ 0.46 1.67 0.66 0.88 1.90
Allowance for possible loan losses
to nonperforming loans................... 437.85 140.49 400.81 363.10 209.18
Nonperforming assets to loans
and other real estate.................... 0.46 1.70 0.80 1.17 2.78
========= ========= ========= ========= ========
</TABLE>
Nonperforming loans, consisting of loans on nonaccrual status and
certain restructured loans, were $3.3 million at December 31, 1999 in comparison
to $8.6 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 and the indirect consumer installment portfolio. The increase
in nonperforming loans at December 31, 1998 was primarily attributable to the
loans obtained through the acquisition of Pacific Bay Bank and the overall
growth of FBA's loan portfolio, principally within the commercial and financial,
real estate construction and development and commercial real estate portfolios.
As of December 31, 1999, 1998 and 1997, $4.0 million, $1.7 million and
$5.9 million, respectively, of loans not included in the table above were
identified by management as having potential credit problems which raised doubt
as to the ability of the borrowers to comply with the present loan repayment
terms. These loans totaled $13.0 million and $17.1 million at December 31, 1996
and 1995, respectively.
FBA'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 FBA'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 FBA's
management with detailed lists of loans on the watch list and summaries of the
entire loan portfolio of each Subsidiary Bank by risk rating. These are coupled
with analyses of changes in the risk profiles of the portfolios, changes in
past-due and nonperforming loans and changes in watch list and classified loans
<PAGE>
over time. In this manner, the overall increases or decreases in the levels of
risk in the portfolios are monitored continually. Factors are applied to the
loan portfolios for each category of loan risk to determine acceptable levels of
allowance for possible loan losses. These factors are derived primarily from the
actual loss experience of the Subsidiary Banks and from published national
surveys of norms in the industry. The calculated allowances required for the
portfolios are then compared to the actual allowance balances to determine the
provisions necessary to maintain the allowances at appropriate levels. In
addition, management exercises judgment in its analysis of determining the
overall level of the allowance for possible losses. In its analysis, management
considers the change in the portfolio, including growth, composition and the
ratio of net loans to total assets, and the economic conditions of the regions
in which FBA operates. Based on this quantitative and qualitative analysis, the
allowance for possible loan losses is adjusted. Such adjustments are reflected
in the consolidated statements of income.
FBA does not engage in lending in foreign countries or based on
activities in foreign countries. Additionally, FBA 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
consolidated financial statements. FBA 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 the Subsidiary Banks.
FBA's deposits consist principally of core deposits from its Subsidiary Banks'
local market areas, including both individual and corporate customers. The
following table sets forth the distribution of FBA's average deposit accounts at
the dates indicated and the weighted average interest rates on each category of
deposit:
<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> <C> <C>
Noninterest-bearing demand...... $120,623 16.49% --% $ 95,095 16.25% --% $ 78,222 16.96% --%
Interest-bearing demand......... 83,069 11.36 1.41 73,689 12.59 1.73 66,687 14.46 2.10
Savings......................... 227,773 31.14 3.67 161,362 27.57 3.91 108,430 23.51 3.46
Time deposits of $100 or more... 67,489 9.23 5.21 51,546 8.81 5.69 39,126 8.48 5.48
Other time...................... 232,528 31.78 5.08 203,626 34.78 5.45 168,795 36.59 5.59
-------- ------- ===== --------- ------ ==== --------- ------- ====
Total average deposits....... $731,482 100.00% $ 585,318 100.00% $ 461,260 100.00%
======== ====== ========= ====== ========= ======
</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
In December 1997, FBA issued 264,622 shares of common stock in
connection with its acquisition of Surety Bank, resulting in an increase in
stockholders' equity of $4.8 million. The increase represents the fair value of
the net assets exchanged for FBA common stock, as determined by the market value
of FBA common stock at the execution date of the agreement.
In February 1998, FBA completed its acquisition of FCB. As more fully
described under "--Acquisitions" and in Note 2 to the accompanying consolidated
financial statements, in connection with the acquisition, FBA issued
approximately 1,555,728 shares of common stock, of which 1,266,176 shares were
issued to First Banks, resulting in an increase to stockholders' equity of $13.0
million. The consolidated statements of changes in stockholders' equity and
comprehensive income reflect the accounts of FBA as if the common stock issued
to acquire First Banks' interest in FCB had been outstanding since August 23,
1995.
In December 1998, First Banks exercised its right to acquire 629,557
shares of FBA common stock by converting an outstanding convertible debenture
and the related accrued but unpaid interest of $6.5 million and $2.3 million,
respectively. As more fully discussed under "--Acquisitions" and in Notes 2 and
7 to the accompanying consolidated financial statements, in connection with
FBA's acquisition of FCB, FBA issued to First Banks a convertible debenture
totaling $6.5 million and assumed the related accrued but unpaid interest of
$2.4 million associated with similar outstanding debentures of FCB owned by
First Banks. This transaction resulted in an increase in stockholders' equity of
$8.7 million.
The Board of Directors has authorized the purchase of up to a
cumulative total of 816,906 shares of common stock for treasury during 1995
<PAGE>
through 1999. At December 31, 1999 and 1998, the aggregate shares purchased for
treasury were 724,396 and 651,867, at an aggregate cost of $11.4 million and
$10.1 million, respectively. In addition, at December 31, 1999, FBA could
purchase approximately 90,000 additional shares under the existing
authorization.
As more fully discussed in Note 18 to the accompanying consolidated
financial statements, management believes as of December 31, 1999 and 1998, FBA
and the Subsidiary Banks each were "well capitalized" as defined by the Federal
Deposit Insurance Corporation Improvement Act of 1991.
As more fully discussed under "--Financial Condition and Average
Balances" and Note 18 to the accompanying consolidated financial statements, in
July 1998, FBA formed FACT for the purpose of issuing $46.0 million of FACT
Preferred Securities. FBA received the proceeds, issued a subordinated debenture
to FACT and made certain guarantees and commitments relating to the FACT
Preferred Securities. For regulatory reporting purposes, the FACT Preferred
Securities are eligible for inclusion in FBA's Tier 1 capital.
Liquidity
The liquidity of FBA and the Subsidiary Banks is the ability to
maintain a cash flow which is adequate to fund operations, service debt
obligations and meet obligations and other commitments on a timely basis. The
Subsidiary Banks receive funds for liquidity from customer deposits, loan
payments, maturities of loans and investments, sales of investments and
earnings. In addition, FBA and the Subsidiary Banks may avail themselves of more
volatile sources of funds through the issuance of certificates of deposit in
denominations of $100,000 or more, federal funds borrowed, securities sold under
agreements to repurchase and borrowings from the Federal Home Loan Banks. The
aggregate funds acquired from these more volatile sources were $109.9 million
and $56.3 million at December 31, 1999 and 1998, respectively. The increase in
such funds for 1999 is primarily attributable to an 82.2% increase in
certificates of deposit in denominations of $100,000 or more which were acquired
in conjunction with the Redwood acquisition.
The following table presents the maturity structure of volatile funds,
which consists of certificates of deposit of $100,000 or more and other
short-term borrowings, at December 31, 1999:
December 31, 1999
-----------------
(dollars expressed in thousands)
3 months or less.................. $ 37,648
Over 3 through 6 months........... 24,620
Over 6 through 12 months.......... 37,010
Over 12 months.................... 10,629
---------
Total........................... $ 109,907
=========
In addition to these more volatile sources of funds, FBA has previously
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, support the possible repurchases of common stock from time to time
and for other corporate purposes. The borrowings under the Note Payable bear
interest at an annual rate of one-quarter percent less than the "Prime Rate" as
reported in The Wall Street Journal. The principal and accrued interest under
the Note Payable are due and payable on October 31, 2001. There were no amounts
outstanding under the Note Payable at December 31, 1999 and 1998. At December
31, 1997, $14.9 million was outstanding under the Note Payable. In connection
with FBA's acquisition of FCB, $10.0 million of the outstanding balance was
exchanged for 804,000 shares of FBA common stock, and the remaining balance was
repaid in full from the proceeds from the issuance of the FACT Preferred
Securities.
Furthermore, in 1999, FB Texas and FB California established borrowing
relationships with the Federal Reserve Bank 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
December 31, 1999, FBA's borrowing capacity under these agreements was
approximately $255.4 million. In addition, the Subsidiary Banks' borrowing
capacity through their relationships with the Federal Home Loan Banks was
approximately $35.3 million at December 31, 1999.
Management believes the available liquidity and operating results of
the Subsidiary Banks will be sufficient to provide funds for growth and to
permit the distribution of dividends to FBA sufficient to meet FBA's operating
and debt service requirements, both on a short-term and long-term basis, and to
pay the distributions on the FACT Preferred Securities.
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.
<PAGE>
As more fully discussed in Note 15 to the accompanying consolidated
financial statements, data processing services are provided to FBA by First
Services, L.P. under the terms of data processing agreements. To address the
Year 2000 issue, FBA, working jointly with First Banks, 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.
FBA's critical systems are purchased from industry-known vendors. Such
systems are generally used in their standard configuration, that is, with minor
modification. Focusing on these critical systems, FBA 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, FBA did not invoke any remediation
contingency efforts.
FBA, 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
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 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 FBA under the terms of certain data processing and management services
agreements. See Note 15 to the accompanying consolidated financial statements
for a further discussion of transactions with related parties.
FBA successfully completed all phases of the 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, as previously discussed,
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 $540,000 and $180,000 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. FBA is currently
evaluating the requirements of SFAS 133, as amended, to determine its potential
impact on the consolidated financial statements.
<PAGE>
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, FBA believes this is generally manageable
through its asset-liability management program.
<PAGE>
FIRST BANKS AMERICA, INC.
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.......................................... $ 14,795 17,441 18,028 18,691
Interest expense......................................... 5,502 6,506 6,640 6,883
---------- -------- ------- --------
Net interest income............................. 9,293 10,935 11,388 11,808
Provision for possible loan losses....................... 90 123 90 90
---------- -------- ------- --------
Net interest income after provision
for possible loan losses...................... 9,203 10,812 11,298 11,718
---------- -------- ------- --------
Noninterest income:
Gains on sales of securities.......................... 86 88 -- --
Other................................................. 1,069 1,416 1,169 1,767
---------- -------- ------- --------
Total noninterest income........................ 1,155 1,504 1,169 1,767
---------- -------- ------- --------
Noninterest expense...................................... 7,506 8,683 8,379 8,262
---------- -------- ------- --------
Income before income tax expense................ 2,852 3,633 4,088 5,223
Income tax expense....................................... 1,221 1,574 1,699 1,832
---------- -------- ------- --------
Net income...................................... $ 1,631 2,059 2,389 3,391
========== ======== ======= ========
Earnings per common share:
Basic................................................. $ 0.29 0.36 0.42 0.60
Diluted............................................... 0.28 0.36 0.42 0.60
========== ======== ======= ========
1998 Quarter Ended
---------------------------------------------------
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
(dollars in thousands, except per share data)
Interest income.......................................... $ 12,996 13,401 14,247 13,764
Interest expense......................................... 5,899 6,035 5,752 5,523
--------- --------- ------- --------
Net interest income............................. 7,097 7,366 8,495 8,241
Provision for possible loan losses....................... 300 200 225 175
--------- --------- ------- --------
Net interest income after provision
for possible loan losses...................... 6,797 7,166 8,270 8,066
--------- --------- ------- --------
Noninterest income:
Gains on sales of securities.......................... 92 9 240 --
Other................................................. 1,058 870 1,067 1,039
--------- --------- ------- --------
Total noninterest income........................ 1,150 879 1,307 1,039
--------- --------- ------- --------
Noninterest expense...................................... 6,057 6,341 6,932 7,142
--------- --------- ------- --------
Income before income tax expense................ 1,890 1,704 2,645 1,963
Income tax expense....................................... 790 683 1,125 994
--------- --------- ------- --------
Net income...................................... $ 1,100 1,021 1,520 969
========= ========= ======= ========
Earnings per common share:
Basic................................................. $ 0.22 0.20 0.30 0.18
Diluted............................................... 0.22 0.20 0.30 0.18
========= ========= ======= ========
</TABLE>
<PAGE>
FIRST BANKS AMERICA, INC.
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
First Banks America, Inc.:
We have audited the accompanying consolidated balance sheets of First
Banks America, Inc. and subsidiaries (the Company) as of December 31, 1999 and
1998, and the related consolidated statements of income, changes in
stockholders' equity and comprehensive income, and cash flows for each of the
years in the three-year period ended December 31, 1999. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of First Banks
America, Inc. and subsidiaries as of December 31, 1999 and 1998, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1999 in conformity with generally accepted accounting
principles.
/s/ KPMG LLP
------------
St. Louis, Missouri
March 15, 2000
<PAGE>
FIRST BANKS AMERICA, INC.
CONSOLIDATED BALANCE SHEETS
(dollars expressed in thousands, except per share data)
<TABLE>
<CAPTION>
December 31,
-----------------
1999 1998
---- ----
ASSETS
------
Cash and cash equivalents:
<S> <C> <C>
Cash and due from banks............................................................ $ 35,644 34,312
Interest-bearing deposits with other financial institutions
with maturities of three months or less......................................... 122 1,001
Federal funds sold................................................................. 8,800 11,000
---------- ---------
Total cash and cash equivalents............................................... 44,566 46,313
---------- ---------
Investment securities:
Available for sale, at fair value.................................................. 90,658 114,937
Held to maturity, at amortized cost (fair value of $1,757 and $2,013 at
December 31, 1999 and 1998, respectively)....................................... 1,880 2,026
---------- ---------
Total investment securities................................................... 92,538 116,963
---------- ---------
Loans:
Commercial and financial........................................................... 216,780 140,151
Real estate construction and development........................................... 204,832 161,696
Real estate mortgage............................................................... 272,700 155,443
Consumer and installment........................................................... 40,514 61,907
---------- ---------
Total loans................................................................... 734,826 519,197
Unearned discount.................................................................. (2,563) (2,794)
Allowance for possible loan losses................................................. (14,611) (12,127)
---------- ---------
Net loans..................................................................... 717,652 504,276
---------- ---------
Bank premises and equipment, net of accumulated depreciation........................... 13,261 11,542
Intangibles associated with the purchase of subsidiaries............................... 16,579 8,405
Accrued interest receivable............................................................ 6,244 4,443
Other real estate ..................................................................... 60 161
Deferred tax assets.................................................................... 11,125 12,121
Other assets........................................................................... 18,682 15,773
---------- ---------
Total assets.................................................................. $ 920,707 719,997
========== =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
FIRST BANKS AMERICA, INC.
CONSOLIDATED BALANCE SHEETS, CONTINUED
(dollars expressed in thousands, except per share data)
<TABLE>
<CAPTION>
December 31,
------------------
1999 1998
---- ----
LIABILITIES
-----------
Deposits:
Demand:
<S> <C> <C>
Non-interest-bearing ............................................................ $ 128,137 105,949
Interest-bearing................................................................. 74,858 72,662
Savings............................................................................ 242,543 179,152
Time deposits:
Time deposits of $100 or more.................................................... 94,967 52,132
Other time deposits.............................................................. 239,518 189,252
---------- ---------
Total deposits................................................................ 780,023 599,147
Short-term borrowings.................................................................. 14,940 4,141
Accrued interest payable............................................................... 1,989 538
Deferred tax liabilities............................................................... 2,043 1,722
Accrued expenses and other liabilities................................................. 4,995 4,449
---------- ---------
Total liabilities............................................................. 803,990 609,997
---------- ---------
Guaranteed preferred beneficial interest in First Banks
America, Inc. subordinated debentures.............................................. 44,218 44,155
---------- ---------
STOCKHOLDERS' EQUITY
--------------------
Common stock:
Common stock, $0.15 par value; 6,666,666 shares
authorized at December 31, 1999 and 1998;
3,874,697 shares and 3,872,697 shares issued
at December 31, 1999 and 1998, respectively...................................... 581 581
Class B common stock, $0.15 par value; 4,000,000
shares authorized; 2,500,000 shares issued and
outstanding at December 31, 1999 and 1998........................................ 375 375
Capital surplus........................................................................ 69,760 68,743
Retained earnings since elimination of accumulated deficit
of $259,117 effective December 31, 1994............................................ 15,163 5,693
Common treasury stock, at cost; 724,396 shares and 651,867
shares at December 31, 1999 and 1998, respectively................................. (11,369) (10,088)
Accumulated other comprehensive income (loss).......................................... (2,011) 541
---------- ---------
Total stockholders' equity.................................................... 72,499 65,845
---------- ---------
Total liabilities and stockholders' equity.................................... $ 920,707 719,997
========== =========
</TABLE>
<PAGE>
FIRST BANKS AMERICA, INC.
CONSOLIDATED STATEMENTS OF INCOME
(dollars expressed in thousands, except per share data)
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------
1999 1998 1997
---- ---- ----
Interest income:
<S> <C> <C> <C>
Interest and fees on loans.................................................. $ 61,748 45,099 33,393
Investment securities....................................................... 6,310 8,103 7,870
Federal funds sold and other................................................ 897 1,206 1,254
-------- --------- ---------
Total interest income.................................................. 68,955 54,408 42,517
-------- --------- ---------
Interest expense:
Deposits:
Interest-bearing demand................................................... 1,168 1,274 1,398
Savings................................................................... 8,365 6,304 3,747
Time deposits of $100 or more............................................. 3,513 2,932 2,144
Other time deposits....................................................... 11,803 11,096 9,427
Promissory note payable and short-term borrowings........................... 682 1,603 2,439
-------- --------- ---------
Total interest expense................................................. 25,531 23,209 19,155
-------- --------- ---------
Net interest income.................................................... 43,424 31,199 23,362
Provision for possible loan losses.............................................. 393 900 2,000
-------- --------- ---------
Net interest income after provision
for possible loan losses............................................. 43,031 30,299 21,362
-------- --------- ---------
Noninterest income:
Service charges on deposit accounts and customer service fees............... 3,264 2,935 2,239
Gains on sales of securities, net........................................... 174 341 76
Other income................................................................ 2,157 1,099 972
-------- --------- ---------
Total noninterest income............................................... 5,595 4,375 3,287
-------- --------- ---------
Noninterest expense:
Salaries and employee benefits.............................................. 10,940 8,203 6,226
Occupancy, net of rental income............................................. 2,788 2,291 2,166
Furniture and equipment..................................................... 1,712 1,708 1,149
Advertising and business development........................................ 478 616 234
Postage, printing and supplies.............................................. 818 752 496
Data processing fees........................................................ 3,214 2,042 1,084
Legal, examination and professional fees.................................... 4,576 4,325 3,241
Communications.............................................................. 620 720 673
(Gain) loss on sales of other real estate, net of expenses.................. (438) 34 (350)
Amortization of intangibles associated with the purchase of subsidiaries.... 1,138 596 220
Guaranteed preferred debentures............................................. 3,966 1,758 --
Other....................................................................... 3,018 3,427 2,538
-------- --------- ---------
Total noninterest expense.............................................. 32,830 26,472 17,677
-------- --------- ---------
Income before provision for income tax expense
and minority interest in income of subsidiary........................ 15,796 8,202 6,972
Provision for income tax expense................................................ 6,326 3,592 3,145
-------- --------- ---------
Income before minority interest in income of subsidiary................ 9,470 4,610 3,827
Minority interest in income of subsidiary....................................... -- -- 294
-------- --------- ---------
Net income ............................................................ $ 9,470 4,610 3,533
======== ========= =========
Earnings per common share:
Basic....................................................................... $ 1.66 0.90 0.87
Diluted..................................................................... 1.66 0.90 0.86
======== ========= =========
Weighted average common stock outstanding (in thousands)........................ 5,704 5,140 4,069
======== ========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
FIRST BANKS AMERICA, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
Three years ended December 31, 1999
(dollars expressed in thousands, except per share data)
<TABLE>
<CAPTION>
Accu-
mulated
other
compre- Total
Class B Compre- Retained Common hensive stock-
Common common Capital hensive earnings treasury income holders'
stock stock surplus income (deficit) stock (loss) equity
----- ----- ------- ------ --------- ----- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Consolidated balances, January 1, 1997.. $ 282 375 42,862 (2,450) (2,838) (36) 38,195
Year ended December 31, 1997:
Comprehensive income:
Net income.......................... -- -- -- 3,533 3,533 -- -- 3,533
Other comprehensive income,
net of tax- unrealized gains
on securities, net of
reclassification adjustment(1)..... -- -- -- 368 -- -- 368 368
-----
Comprehensive income................. 3,901
=====
Issuance of common stock for
purchase accounting
acquisition of Surety Bank........ 40 -- 4,723 -- -- -- 4,763
Exercise of stock options............ -- -- 15 -- -- -- 15
Redemption of stock options.......... -- -- (290) -- -- -- (290)
Compensation paid in stock........... -- -- 13 -- -- -- 13
Repurchases of common stock.......... -- -- -- -- (1,512) -- (1,512)
Pre-merger transactions of FCB....... -- -- 6 -- -- -- 6
----- --- ----- ------ ------ ------ ------
Consolidated balances,
December 31, 1997.................... 322 375 47,329 1,083 (4,350) 332 45,091
Year ended December 31, 1998:
Comprehensive income:
Net income.......................... -- -- -- 4,610 4,610 -- -- 4,610
Other comprehensive income,
net of tax-unrealized gains
on securities, net of
reclassification adjustment(1)..... -- -- -- 209 -- -- 209 209
-----
Comprehensive income................ 4,819
=====
Issuance of common stock for
purchase accounting
acquisition of FCB................. 43 -- 2,965 -- -- -- 3,008
Exercise of stock options............ -- -- 13 -- -- -- 13
Redemption of stock options.......... -- -- (48) -- -- -- (48)
Compensation paid in stock........... -- -- 27 -- -- -- 27
Conversion of promissory
note payable....................... 121 -- 9,879 -- -- -- 10,000
Conversion of 12% convertible
debentures........................ 95 -- 8,578 -- -- -- 8,673
Repurchases of common stock.......... -- -- -- -- (5,738) -- (5,738)
----- --- ----- ------ ------ ------ ------
Consolidated balances,
December 31, 1998................... 581 375 68,743 5,693 (10,088) 541 65,845
Year ended December 31, 1999:
Comprehensive income:
Net income.......................... -- -- -- 9,470 9,470 -- -- 9,470
Other comprehensive income, net
of tax-unrealized losses on
securities, net of
reclassification adjustment(1).... -- -- -- (2,552) -- -- (2,552) (2,552)
-----
Comprehensive income................. 6,918
=====
Reduction of deferred tax asset
valuation allowance............... -- -- 981 -- -- -- 981
Compensation paid in stock........... -- -- 36 -- -- -- 36
Repurchases of common stock.......... -- -- -- -- (1,281) -- (1,281)
----- --- ----- ------ ------ ------ ------
Consolidated balances,
December 31, 1999.................... $ 581 375 69,760 15,163 (11,369) (2,011) 72,499
===== === ====== ====== ====== ====== ======
</TABLE>
<PAGE>
- --------------------------------
(1) Disclosure of reclassification adjustment:
<TABLE>
<CAPTION>
Three years ended December 31,
------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Unrealized (losses) gains arising during the period................................. $(2,439) 431 417
Less reclassification adjustment for gains included in net income................... 113 222 49
------- ---- ----
Unrealized (losses) gains on investment securities.................................. $(2,552) 209 368
======= ==== ====
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
FIRST BANKS AMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars expressed in thousands)
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------
1999 1998 1997
---- ---- ----
Cash flows from operating activities:
<S> <C> <C> <C>
Net income..................................................................... $ 9,470 4,610 3,533
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation, amortization and accretion, net................................ 1,936 1,658 1,169
Provision for possible loan losses........................................... 393 900 2,000
Provision for income tax expense............................................. 6,326 3,592 3,145
Payments of income taxes..................................................... (1,102) (797) (1,943)
Gains on sales of securities, net............................................ (174) (341) (76)
(Increase) decrease in accrued interest receivable........................... (853) 456 (1,274)
Interest accrued on liabilities.............................................. 25,532 23,228 19,155
Payments of interest on liabilities.......................................... (25,028) (24,594) (16,972)
Other operating activities, net.............................................. (3,717) 1,181 (29)
-------- --------- ---------
Net cash provided by operating activities.......................... 12,783 9,893 8,708
-------- --------- ---------
Cash flows from investing activities:
Cash (paid) received for acquired entities, net of
cash and cash equivalents received (paid).................................. (17,244) 3,241 3,072
Proceeds from sales of investment securities................................. 30,260 27,211 11,073
Maturities of investment securities available for sale....................... 110,869 64,934 91,362
Maturities of investment securities held to maturity......................... 143 -- --
Purchases of investment securities available for sale........................ (88,536) (57,830) (112,730)
Purchases of investment securities held to maturity.......................... -- (2,033) --
Net increase in loans........................................................ (77,922) (59,478) (44,872)
Recoveries of loans previously charged-off................................... 2,037 2,470 2,288
Purchases of bank premises and equipment..................................... (1,819) (1,768) (822)
Proceeds from sales of other real estate.................................... 866 1,441 1,500
Other investing activities, net.............................................. (635) (14,465) (259)
-------- --------- ---------
Net cash used in investing activities.............................. (41,981) (36,277) (49,388)
-------- --------- ---------
Cash flows from financing activities:
Other (decreases) increases in deposits:
Demand and savings deposits................................................ (9,757) 22,983 34,675
Time deposits.............................................................. 27,689 (15,524) (1,540)
Increase in federal funds purchased and other short-term borrowings.......... 11,000 -- --
Decrease in Federal Home Loan Bank advances.................................. -- (585) (1,122)
(Decrease) increase in securities sold under agreements to repurchase........ (200) 1,039 1,836
(Decrease) increase in promissory note payable............................... -- (4,900) 900
Decrease in payable to former shareholders of Surety Bank.................... -- (3,829) --
Proceeds from issuance of guaranteed preferred subordinated debenture........ -- 44,124 --
Repurchases of common stock for treasury..................................... (1,281) (5,738) (1,512)
Redemption of stock options.................................................. -- (48) (290)
Exercise of stock options.................................................... -- 13 15
Pre-merger transactions of FCB............................................... -- -- 6
-------- --------- ---------
Net cash provided by financing activities.......................... 27,451 37,535 32,968
-------- --------- ---------
Net (decrease) increase in cash and cash equivalents............... (1,747) 11,151 (7,712)
Cash and cash equivalents, beginning of year..................................... 46,313 35,162 42,874
-------- --------- ---------
Cash and cash equivalents, end of year........................................... $ 44,566 46,313 35,162
======== ========= =========
Noncash investing and financing activities:
Loans transferred to other real estate....................................... $ 167 680 585
Reduction of deferred tax valuation reserve.................................. 981 -- --
Compensation paid in stock................................................... 36 27 13
Issuance of common stock in purchase accounting acquisition.................. -- 3,008 4,763
Conversion of promissory note payable to common stock........................ -- 10,000 --
Conversion of 12% convertible debentures and accrued interest payable
to common stock, net of unamortized deferred acquisition costs............. -- 8,673 --
======== ========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
FIRST BANKS AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements of First Banks
America, Inc. and subsidiaries (FBA or the Company) have been prepared in
accordance with generally accepted accounting principles and conform to
practices prevalent among financial institutions. The following is a summary of
the more significant accounting policies followed by FBA:
Basis of Presentation. The consolidated financial statements of FBA
have been prepared in accordance with generally accepted accounting principles
and conform to predominant practices within the banking industry. Management of
FBA has made a number of estimates and assumptions relating to the reporting of
assets and liabilities and the disclosure of contingent assets and liabilities
to prepare the consolidated financial statements in conformity with generally
accepted accounting principles. Actual results could differ from those
estimates.
Restatement. Effective February 2, 1998, FBA completed its acquisition
of First Commercial Bancorp, Inc. (FCB) and FCB's wholly owned subsidiary, First
Commercial Bank (First Commercial), in a transaction accounted for as a
combination of entities under common control. First Banks, Inc., St. Louis,
Missouri (First Banks), owned a majority interest in both FBA and FCB.
The consolidated financial statements give retroactive effect to the
transaction and, as a result, the consolidated balance sheets, statements of
income and statements of cash flows are presented as if the combining entities
had been consolidated for all periods presented that are subsequent to First
Banks' acquisition of FCB on August 23, 1995. The consolidated statements of
changes in stockholders' equity and comprehensive income reflect the accounts of
FBA as if the common stock issued to First Banks in exchange for its majority
interest in FCB had been outstanding for all periods subsequent to August 23,
1995. First Banks' ownership interest in FCB was approximately 96.1% from August
23, 1995 to May 1996 and 61.5% from June 1996 to February 2, 1998. The remaining
interest in FCB acquired by FBA is reflected in the consolidated financial
statements as minority interest for the period from August 23, 1995 to February
2, 1998.
Principles of Consolidation. The consolidated financial statements
include the accounts of the parent company and its subsidiaries, all of which
are wholly owned. All significant intercompany accounts and transactions have
been eliminated. Certain reclassifications of 1998 and 1997 amounts have been
made to conform with the 1999 presentation.
FBA is majority owned by First Banks. Accordingly, First Banks has
effective control over the management and policies of FBA and the election of
its directors. On February 17, 1999, First Banks completed its purchase of
314,848 shares of common stock pursuant to a tender offer which commenced on
January 4, 1999. The tender offer increased First Banks' ownership interest in
FBA to 82.34% of the outstanding voting stock of FBA from 76.84% at December 31,
1998. First Banks' ownership interest in FBA at December 31, 1999 was 83.37%.
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 Roseville, California (FB California) and Redwood
Bank, headquartered in San Francisco, California (Redwood Bank), collectively
referred to as the Subsidiary Banks.
Cash and Cash Equivalents. Cash, due from banks, federal funds sold,
and interest-bearing deposits with maturities of three months or less are
considered to be cash and cash equivalents for purposes of the consolidated
statements of cash flows.
The Subsidiary Banks are required to maintain certain daily reserve
balances in accordance with regulatory requirements. These reserve balances
maintained in accordance with such requirements were $4.0 million and $9.1
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.
FBA does not engage in the trading of investment securities.
Investment securities designated as available for sale are those debt
and equity securities for which FBA has no immediate plan to sell, but which may
be sold in the future if circumstances warrant. Available-for-sale securities
are stated at current fair value. Realized gains and losses are included in
noninterest income upon commitment to sell, based on the amortized cost of the
individual security sold. Unrealized gains and losses are recorded, net of
related income tax effects, in accumulated other comprehensive income. All
previous fair value adjustments included in accumulated other comprehensive
income are reversed upon sale.
<PAGE>
Investment securities designated as held to maturity are those debt
securities that FBA 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 FBA has the ability and it is management's
intention to hold them to maturity.
The accrual of interest on loans is discontinued when it appears that
interest or principal may not be paid in a timely manner in the normal course of
business. Generally, payments received on nonaccrual and impaired loans are
recorded as principal reductions. Interest income is recognized after all
principal has been repaid or an improvement in the condition of the loan has
occurred which would warrant resumption of interest accruals.
A loan is considered impaired when it is probable that FBA will be
unable to collect all amounts due, both principal and interest, according to the
contractual terms of the loan agreement. When measuring impairment, the expected
future cash flows of an impaired loan are discounted at the loan's effective
interest rate. Alternatively, impairment is measured by reference to an
observable market price, if one exists, or the fair value of the collateral for
a collateral-dependent loan. Regardless of the historical measurement method
used, FBA measures impairment based on the fair value of the collateral when
foreclosure is probable. Additionally, impairment of a restructured loan is
measured by discounting the total expected future cash flows at the loan's
effective rate of interest as stated in the original loan agreement. FBA uses
its existing nonaccrual methods for recognizing interest income on impaired
loans.
Allowance for Possible Loan Losses. The allowance for possible loan
losses is maintained at a level considered adequate to provide for probable
losses. The provision for possible loan losses is based on a periodic analysis
of the loans by management, considering, among other factors, current economic
conditions, loan portfolio composition, past loan loss experience, independent
appraisals, loan collateral and payment experience. In addition to the allowance
for estimated losses on impaired loans, an overall unallocated allowance is
established to provide for unidentified credit losses which are inherent in the
portfolio. As adjustments become necessary, they are reflected in the results of
operations in the periods in which they become known.
Bank Premises and Equipment. Bank premises and equipment are stated at
cost less accumulated depreciation and amortization. Depreciation is computed
primarily using the straight-line method over the estimated useful lives of the
related assets. Amortization of leasehold improvements is calculated using the
straight-line method over the shorter of the useful life of the improvement or
term of the lease. Bank premises and improvements are depreciated over five to
40 years and equipment over three to seven years.
Intangibles Associated With the Purchase of Subsidiaries. Intangibles
associated with the purchase of subsidiaries include excess of cost over net
assets acquired. The excess of cost over net assets acquired of purchased
subsidiaries is amortized using the straight-line method over the estimated
periods to be benefited, which has been estimated at 15 years.
Other Real Estate. Other real estate, consisting of real estate
acquired through foreclosure or deed in lieu of foreclosure, is stated at the
lower of 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 possible loan losses. Subsequent reductions in carrying value, to
reflect current fair value or costs incurred in maintaining the properties, are
charged to expense as incurred.
Income Taxes. FBA and its subsidiaries filed a consolidated federal
income tax return through February 19, 1999. Each subsidiary paid its allocation
of federal income taxes to FBA, or received payment from FBA to the extent tax
benefits were realized. Subsequent to February 19, 1999, FBA and its
subsidiaries join in filing a consolidated federal and Missouri income tax
return with First Banks, as First Banks' ownership of FBA exceeded 80%. FBA and
its subsidiaries pay their allocation of federal income taxes to First Banks, or
receive payment from First Banks to the extent tax benefits are realized. FBA
and its subsidiaries join in filing Illinois and California unitary income tax
returns with First Banks, as First Bank's ownership of FBA is greater than 50%.
Separate state franchise tax returns are filed in Texas and Delaware for the
appropriate entities.
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.
<PAGE>
Financial Instruments With Off-Balance-Sheet Risk. FBA uses financial
instruments to reduce the interest rate risk arising from its financial assets
and liabilities. These instruments involve, in varying degrees, elements of
interest rate risk and credit risk in excess of the amount recognized in the
consolidated balance sheets. "Interest rate risk" is defined as the possibility
that interest rates may move unfavorably from the perspective of FBA. The risk
that a counterparty to an agreement entered into by FBA may default is defined
as "credit risk."
FBA is party to commitments to extend credit and commercial and standby
letters of credit in the normal course of business to meet the financing needs
of its customers. These commitments involve, in varying degrees, elements of
interest rate risk and credit risk in excess of the amount recognized in the
consolidated balance sheets.
Interest Rate Swap and Cap Agreements. Interest rate swap and cap
agreements are accounted for on an accrual basis with the net interest
differential being recognized as an adjustment to interest income or interest
expense of the related asset or liability. Premiums and fees paid upon the
purchase of interest rate swap and cap agreements are amortized over the life of
the agreements using the interest method. In the event of early termination of
these derivative financial instruments, the net proceeds received or paid are
deferred and amortized over the shorter of the remaining contract life of the
derivative financial instrument or the maturity of the related asset or
liability. If, however, the amount of the underlying asset or liability is
repaid, then the gains or losses on the agreements are recognized immediately in
the consolidated statements of income. The unamortized premiums and fees paid
are included in other assets in the accompanying consolidated balance sheets.
Earnings Per Common Share. Basic 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.
(2) ACQUISITIONS
On December 1, 1997, FBA completed its acquisition of Surety Bank,
Vallejo, California, in exchange for 264,622 shares of FBA common stock and cash
of $3.8 million. The cash portion of this transaction, which was paid to the
former shareholders of Surety Bank in January 1998, was funded by an advance
under the Note Payable. At the time of the transaction, Surety Bank had $72.8
million in total assets, $14.9 million in cash and cash equivalents and
investment securities, $54.4 million in total loans, net of unearned discount,
and $67.5 million in total deposits. Surety Bank was merged into FB California.
The excess of the cost over the fair value of the net assets acquired was $2.8
million and is being amortized over 15 years.
On February 2, 1998, FBA completed its acquisition of Pacific Bay Bank,
San Pablo, California, in exchange for cash of $4.2 million. This transaction
was funded from an advance under FBA's $20.0 million revolving note payable from
First Banks (Note Payable). At the time of the transaction, Pacific Bay Bank had
$38.3 million in total assets, $7.4 million in cash and cash equivalents, $29.7
million in total loans, net of unearned discount, and $35.2 million in total
deposits. The excess of the cost over the fair value of the net assets acquired
was $1.5 million and is being amortized over 15 years.
On February 2, 1998, FBA and FCB were merged. Under the terms of the
Agreement and Plan of Merger (Agreement), FCB was merged into FBA, and FCB's
wholly owned subsidiary, First Commercial, was merged into FB California. The
FCB shareholders received .8888 shares of FBA common stock for each share of FCB
common stock they held. In total, FCB shareholders received approximately
751,728 shares of FBA common stock. The transaction also provided for First
Banks to receive 804,000 shares of FBA common stock in exchange for $10.0
million of the Note Payable. In addition, FCB's 12% convertible debentures of
$6.5 million, which were owned by First Banks, were exchanged for a similar
convertible debenture of FBA. FCB had six banking offices located in Sacramento,
Roseville (2), San Francisco, Concord and Campbell, California. At February 2,
1998, FCB had total assets of $192.5 million, $64.4 million in investment
securities, $118.9 million in total loans, net of unearned discount, and $173.1
million in total deposits.
First Banks owned a majority interest in both FBA and FCB. Consistent
with the accounting treatment for a combination of entities under common
control, the merger was accounted for by FBA as follows:
>> First Banks' interest in FCB was accounted for by FBA at First Banks'
historical cost. First Banks' historical cost basis in FCB was
determined under the purchase method of accounting, effective upon
First Banks' acquisition of First Commercial on August 23, 1995.
Accordingly, the consolidated financial statements of First Banks
include the financial position and results of operations for the
periods subsequent to the acquisition date, and the assets acquired and
liabilities assumed were recorded at fair value at the acquisition
date.
<PAGE>
>> Effective with the merger, because the two entities were under the
common control of First Banks, the consolidated financial statements of
FBA were restated to reflect First Banks' interest in the financial
condition and results of operations of FCB for the periods subsequent
to August 23, 1995.
>> The amount attributable to the interest of the minority shareholders in
the fair value of the net assets of FCB was accounted for by FBA under
the purchase method of accounting. Accordingly, such amount was
reflected by FBA at fair value, as determined by the market value of
FBA's common stock exchanged for the minority interest pursuant to the
Agreement.
On March 4, 1999, FBA completed its acquisition of Redwood Bancorp
(Redwood) and its wholly owned subsidiary, Redwood Bank, in exchange for $26.0
million in cash. The acquisition was funded from available proceeds from the
sale of the 8.50% Cumulative Trust Preferred Securities (Preferred Securities)
completed in July 1998. Redwood Bank is headquartered in San Francisco,
California and operates four banking locations in the San Francisco Bay area.
Redwood Bank had $183.9 million in total assets, $134.4 million in loans, net of
unearned discount, $34.4 in investment securities and $162.9 million in deposits
at the acquisition date. The excess of the cost over the fair value of the net
assets acquired was $9.5 million and is being amortized over 15 years.
The acquisitions of Surety Bank, Pacific Bay Bank and Redwood were
accounted for using the purchase method of accounting and, accordingly, the
consolidated financial statements include the financial position and results of
operations for the period subsequent to the respective acquisition dates, and
the assets acquired and liabilities assumed were recorded at fair value at the
acquisition dates.
The following information presents unaudited pro forma condensed
results of operations of FBA, combined with the acquisition of Redwood, as if
FBA had completed the transaction on January 1, 1998.
<TABLE>
<CAPTION>
Years ended December 31,
------------------------
1999 1998
---- ----
(dollars expressed in thousands,
except per share data)
<S> <C> <C>
Net interest income.................................................. $ 44,761 37,856
Provision for possible loan losses................................... 603 900
Net income .......................................................... 9,482 5,354
========== =======
Weighted average shares of common stock outstanding (in thousands)... 5,704 5,140
========== =======
Earnings per common share:
Basic............................................................. $ 1.66 1.04
Diluted........................................................... 1.66 1.04
========== ======
</TABLE>
The unaudited pro forma condensed results of operations reflect the
application of the purchase method of accounting and certain other assumptions.
Purchase accounting adjustments have been applied to investment securities, bank
premises and equipment, deferred tax assets and liabilities and excess cost to
reflect the assets acquired and liabilities assumed at fair value. The resulting
premiums and discounts are amortized or accreted to income consistent with the
accounting policies of FBA. The unaudited pro forma condensed results of
operations do not reflect the acquisition of Pacific Bay Bank as this
acquisition did not have a material impact on FBA's results of operations for
the periods presented.
On February 29, 2000, FBA completed its acquisition of Lippo Bank, San
Francisco, California, in exchange for $17.2 million in cash. Lippo Bank
operates three banking locations in San Francisco, San Jose and Los Angeles,
California. The acquisition was funded from available cash of $9.2 million and
from an advance of $8.0 million under the Note Payable. 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 $4.0 million and is being amortized over
15 years. Lippo Bank will be merged into FB California.
<PAGE>
(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.................. $ 6,009 103 -- -- 6,112 11 (3) 6,120 6.06%
U.S. Government agencies
and corporations:
Mortgage-backed......... 4,614 -- 4,648 12,357 21,619 3 (422) 21,200 6.34
Other................... 37,414 -- -- 20,765 58,179 4 (2,225) 55,958 6.05
Equity investments in other
financial institutions...... 4,249 -- -- -- 4,249 -- (434) 3,815 7.57
Federal Home Loan Bank and
Federal Reserve Bank stock
(no stated maturity)........ 3,565 -- -- -- 3,565 -- -- 3,565 5.69
--------- -------- ------- ------- ------- ----- ------ -------
Total.............. $ 55,851 103 4,648 33,122 93,724 18 (3,084) 90,658 6.17
========= ======== ======= ======= ======= ===== ====== ======= ====
Market value:
Debt securities................ $ 47,966 102 4,566 30,644
Equity securities.............. 7,380 -- -- --
--------- -------- ------- -------
Total.............. $ 55,346 102 4,566 30,644
========= ======== ======= =======
Weighted average yield............ 5.88% 5.89% 6.29% 6.62%
========= ======== ======= =======
December 31, 1998:
Carrying value:
U.S. Treasury.................. $ 31,030 15,137 -- -- 46,167 483 -- 46,650 6.03%
U.S. Government agencies
and corporations:
Mortgage-backed......... 2,199 7,202 6,728 15,683 31,812 199 (23) 31,988 6.19
Other................... 4,503 16,529 4,995 3,490 29,517 175 -- 29,692 5.98
Equity investments in other
financial institutions...... 3,600 -- -- -- 3,600 -- -- 3,600 8.04
Federal Home Loan Bank and
Federal Reserve Bank stock
(no stated maturity)........ 3,007 -- -- -- 3,007 -- -- 3,007 6.36
--------- -------- ------- ------- ------- ----- ------ -------
Total.............. $ 44,339 38,868 11,723 19,173 114,103 857 (23) 114,937 6.13
========= ======== ======= ======= ======= ===== ====== ======= ====
Market value:
Debt securities................ $ 37,980 39,323 11,768 19,259
Equity securities.............. 6,607 -- -- --
--------- -------- ------- -------
Total.............. $ 44,587 39,323 11,768 19,259
========= ======== ======= =======
Weighted average yield............ 6.20% 5.77% 6.52% 6.49%
========= ======== ======= =======
</TABLE>
<PAGE>
Securities Held to Maturity. The amortized cost, contractual maturity,
gross unrealized gains and losses and fair value of investment securities held
to maturity 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:
U.S. Government agencies
and corporations:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage-backed......... $ -- -- -- 1,880 1,880 -- (123) 1,757 6.26%
========= ======== ======= ======= ======= ===== ===== ====== ====
Market value:
Debt securities................ $ -- -- -- 1,757
========= ======= ======= =======
Weighted average yield............ --% --% --% 6.26%
========= ======= ====== =======
December 31, 1999:
Carrying value:
U.S. Government agencies
and corporations:
Mortgage-backed......... $ -- -- -- 2,026 2,026 -- (13) 2,013 6.41%
========= ======== ======= ======= ======= ===== ===== ====== ====
Market value:
Debt securities............... $ -- -- -- 2,013
========= ======== ======= =======
Weighted average yield............ --% --% --% 6.41%
========= ======= ====== ========
</TABLE>
Proceeds from sales of available-for-sale investment securities were
$30.3 million, $27.2 million and $11.1 million for the years ended December 31,
1999, 1998 and 1997, respectively. Gross gains of $174,000, $341,000 and $76,000
were realized on those sales for the years ended December 31, 1999, 1998 and
1997, respectively. No losses were realized on those sales for the years ended
December 31, 1999, 1998 and 1997.
Certain of the Subsidiary Banks maintain investments in the Federal
Home Loan Bank (FHLB) and the Federal Reserve Bank (FRB). These investments are
recorded at cost, which represents redemption value. The investment in FHLB
stock is maintained at a minimum amount equal to the greater of 1% of the
aggregate outstanding balance of loans secured by residential real estate, or 5%
of advances from the FHLB. FB California and FB Texas are members of the FHLB
system. The investment in FRB stock is maintained at a minimum of 6% of the
Subsidiary Banks' capital stock and capital surplus. FB Texas is a member of the
FRB system.
Investment securities with a carrying value of approximately $38.1
million and $25.4 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.
<PAGE>
(4) LOANS AND ALLOWANCE FOR POSSIBLE LOAN LOSSES
Changes in the allowance for possible loan losses for the years ended
December 31 were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
(dollars expressed in thousands)
<S> <C> <C> <C> <C>
Balance, January 1........................................... $12,127 11,407 10,744
Acquired allowance for possible loan losses.................. 1,466 885 30
------- ------- -------
13,593 12,292 10,774
------- ------- -------
Loans charged-off............................................ (1,412) (3,535) (3,655)
Recoveries of loans previously charged-off................... 2,037 2,470 2,288
------- ------- -------
Net loan recoveries (charge-offs)........................ 625 (1,065) (1,367)
------- ------- -------
Provision charged to operations.............................. 393 900 2,000
------- ------- -------
Balance, December 31......................................... $14,611 12,127 11,407
======= ======= =======
</TABLE>
At December 31, 1999 and 1998, FBA had $3.3 million and $8.6 million,
respectively, of loans on nonaccrual status. Interest on nonaccrual loans which
would have been recorded under the original terms of the loans was $747,000,
$802,000 and $385,000 for the years ended December 31, 1999, 1998 and 1997,
respectively. Of these amounts, $508,000, $173,000 and $297,000 was actually
recorded as interest income on such loans in 1999, 1998 and 1997, respectively.
At December 31, 1999 and 1998, FBA had $3.5 million and $9.0 million of
impaired loans, respectively, consisting of $3.3 million and $8.6 million of
loans on nonaccrual status and $229,000 and $400,000 of consumer installment
loans 60 days or more past due, respectively. There were no specific reserves at
December 31, 1999 and 1998 relating to impaired loans. The allowance for
possible loan losses includes $954,000 and $2.3 million related to impaired
loans at December 31, 1999 and 1998, respectively. The average recorded
investment in impaired loans was $5.9 million, $6.6 million and $3.7 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 $375,000, $173,000 and $297,000 in 1999, 1998
and 1997, respectively.
FBA's primary market areas are northern California and Houston, Dallas,
Irving and McKinney, Texas. At December 31, 1999 and 1998, approximately 62.1%
and 54.8% of the total loan portfolio and 63.1% and 60.6% of the commercial and
financial loan portfolio, respectively, were to borrowers within these regions.
Real estate lending constituted the only other significant
concentration of credit risk. Real estate loans comprised approximately 65.2%
and 61.4% of the loan portfolio at December 31, 1999 and 1998, respectively.
FBA is, in general, a secured lender. At December 31, 1999 and 1998,
approximately 97.8% and 97.7%, 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............................................................. $ 4,343 4,114
Buildings and improvements....................................... 9,714 6,324
Furniture, fixtures and equipment................................ 6,881 4,457
Construction in progress......................................... 116 480
-------- -------
Total........................................................ 21,054 15,375
Less accumulated depreciation ................................... 7,793 3,833
-------- -------
Bank premises and equipment, net............................. $ 13,261 11,542
======== =======
</TABLE>
<PAGE>
Depreciation expense for the years ended December 31, 1999, 1998 and
1997 totaled $1.3 million, $1.1 million and $851,000, respectively.
FBA leases land, office properties and some items of equipment under
operating leases. Certain of the leases contain renewal options and escalation
clauses. Total rent expense was $1.5 million, $1.1 million and $1.0 million for
the years ended December 31, 1999, 1998 and 1997, respectively. Future minimum
lease payments under noncancellable operating leases extend through 2019 as
follows:
<TABLE>
<CAPTION>
(dollars expressed in thousands)
Year ending December 31:
<S> <C> <C>
2000..................................................... $ 1,532
2001..................................................... 1,237
2002..................................................... 1,062
2003..................................................... 980
2004..................................................... 438
Thereafter............................................... 2,841
--------
Total future minimum lease payments............ $ 8,090
========
</TABLE>
FBA leases to unrelated parties a portion of its owned banking
facilities. Total rental income was $905,000, $956,000 and $762,000 for the
years ended December 31, 1999, 1998 and 1997, respectively.
(6) PROMISSORY NOTE PAYABLE
FBA has a $20.0 million revolving Note Payable to First Banks. The
borrowings under the Note Payable bear interest at an annual rate of one-quarter
percent less than the "Prime Rate" as reported in the Wall Street Journal. The
outstanding principal and accrued interest under the Note Payable is due and
payable on October 31, 2001. In July 1998, FBA repaid all outstanding borrowings
under the Note Payable and has not utilized the Note Payable since that time.
The interest expense under the Note Payable was $599,000 and $1.2 million for
the years ended December 31, 1998 and 1997, respectively.
As more fully discussed in Note 2 to the consolidated financial
statements, FBA exchanged 804,000 shares of common stock for $10.0 million of
principal outstanding under the Note Payable. The remaining principal and
accrued interest under the Note Payable was repaid in full from the proceeds of
the Preferred Securities.
The average balance and maximum balance outstanding during the years
ended December 31 were as follows:
1999 1998
---- ----
(dollars expressed in thousands)
Average balance............................. $ -- 7,770
Maximum month-end balance .................. -- 17,964
======== ======
The average rates paid on notes payable outstanding during the years
ended December 31, 1998 and 1997 were 7.7% and 8.2%, respectively.
(7) 12% CONVERTIBLE DEBENTURE
As more fully described in Note 2 to the consolidated financial
statements, FBA issued to First Banks a $6.5 million 12% convertible debenture
in exchange for similar convertible debentures of FCB. The principal and any
accrued but unpaid interest thereon was convertible at any time prior to
maturity, at the option of First Banks, into FBA common stock at $14.06 per
share. On December 4, 1998, First Banks elected to convert the $6.5 million
principal and $2.4 million accrued and unpaid interest into 629,557 shares of
FBA common stock. The interest expense under the convertible debenture was
$724,000 and $791,000 for the years ended December 31, 1998 and 1997,
respectively.
<PAGE>
(8) GUARANTEED PREFERRED BENEFICIAL INTEREST IN FIRST BANKS AMERICA, INC.
SUBORDINATED DEBENTURE
On July 21, 1998, First America Capital Trust (FACT), a newly formed
Delaware business trust subsidiary of FBA, issued 1.84 million shares of 8.50%
Cumulative Trust Preferred Securities at $25 per share in an underwritten public
offering, and issued 56,908 shares of common securities to FBA at $25 per share.
FBA owns all of FACT's common securities. The gross proceeds of the offering
were used by FACT to purchase $47.4 million of 8.50% Subordinated Debentures
(Subordinated Debentures) from FBA, maturing on June 30, 2028. The maturity date
may be shortened to a date not earlier than June 30, 2003 or extended to a date
not later than June 30, 2037 if certain conditions are met. The Subordinated
Debentures are the sole asset of FACT. In connection with the issuance of the
FACT Preferred Securities, FBA made certain guarantees and commitments that, in
the aggregate, constitute a full and unconditional guarantee by FBA of the
obligations of FACT under the FACT Preferred Securities. FBA's proceeds from the
issuance of the Subordinated Debentures to FACT, net of underwriting fees and
offering expenses, were $44.0 million. Distributions payable on the FACT
Preferred Securities were $4.0 million and $1.8 million for the years ended
December 31, 1999 and 1998, respectively, and are included in noninterest
expense in the consolidated financial statements.
<PAGE>
(9) INCOME TAXES
Income tax expense 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................................................ $ 63 315 947
State.................................................. 920 501 383
------- ------ ------
983 816 1,330
------- ------ ------
Deferred income tax expense:
Federal................................................ 5,218 2,630 1,356
State.................................................. 125 114 55
------- ------ ------
5,343 2,744 1,411
------- ------ ------
Change in valuation allowance............................... -- 32 404
------- ------ ------
Total............................................... $ 6,326 3,592 3,145
======= ====== ======
</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> <C> <C>
income tax expense.......... $ 15,796 $8,202 $ 6,972
======== ====== =======
Tax expense at federal
income tax rate............. $ 5,529 35.0% 2,871 35.0% 2,440 35.0%
Effects of differences in tax
reporting:
Change in the deferred tax
valuation allowance......... -- -- 32 0.4 404 5.8
State income taxes............. 679 4.3 400 4.9 285 4.1
Amortization of intangibles
associated with the purchase
of subsidiaries............. 398 2.5 209 2.5 77 1.1
Other.......................... (280) (1.8) 80 1.0 (61) (0.9)
-------- ------ ------ ----- ------- -----
Income tax expense
at effective rate......... $ 6,326 40.0% $3,592 43.8% $ 3,145 45.1%
======== ====== ====== ===== ======= =====
</TABLE>
<PAGE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are as follows:
<TABLE>
<CAPTION>
December 31,
1999 1998
---- ----
(dollars expressed in thousands)
Deferred tax assets:
<S> <C> <C>
Net operating loss carryforwards............................................. $ 7,179 10,664
Allowance for possible loan losses........................................... 5,528 4,323
Quasi-reorganization adjustment of bank premises............................. 1,276 1,327
Alternative minimum tax credit............................................... 1,115 876
Net fair value adjustment for securities available for sale.................. 1,073 --
Other real estate............................................................ -- 599
Other........................................................................ 329 1,404
-------- -------
Gross deferred tax assets.............................................. 16,500 19,193
Valuation allowance.......................................................... (5,375) (7,072)
-------- -------
Deferred tax assets, net of valuation allowance........................ 11,125 12,121
-------- -------
Deferred tax liabilities:
Depreciation on bank premises and equipment.................................. 1,479 1,145
FHLB stock dividends......................................................... 249 203
Other ....................................................................... 315 374
-------- -------
Deferred tax liabilities............................................... 2,043 1,722
-------- -------
Net deferred tax assets................................................ $ 9,082 10,399
======== =======
</TABLE>
The realization of FBA's net deferred tax assets is based on the
expectation of future taxable income and the utilization of tax planning
strategies. Based on these factors, management believes it is more likely than
not that FBA will realize the recognized net deferred tax asset of $9.1 million.
The net change in the valuation allowance, related to deferred tax assets, was a
decrease of $1.7 million for the year ended December 31, 1999. The decrease was
comprised of the reversal of valuation reserves resulting from the utilization
of net operating losses at FB California.
<PAGE>
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>
Balance, January 1......................................... $7,072 7,040 6,579
Current year deferred provision, change in
deferred tax valuation allowance........................ -- 32 404
Reduction attributable to utilization of
deferred tax assets:
Adjustment to capital surplus......................... (981) -- --
Adjustment to intangibles associated with the
purchase of subsidiaries............................ (716) -- --
Purchase acquisitions...................................... -- -- 57
------ ----- -----
Balance, December 31....................................... $5,375 7,072 7,040
====== ===== =====
</TABLE>
The valuation allowance for deferred tax assets at December 31, 1998
included $716,000 that was recognized in 1999 and credited to intangibles
associated with the purchase of subsidiaries. The valuation allowance for
deferred tax assets at December 31, 1999 and 1998 includes $5.0 million and $6.0
million, respectively, which when recognized, will be credited to capital
surplus under the terms of the quasi-reorganizations implemented for FBA and FCB
as of December 31, 1994 and 1996, respectively.
At December 31, 1999, FBA has separate return limitation year (SRLY)
net operating loss carryforwards (NOLs) of $18.3 million and alternative minimum
tax credits of $937,000. Their utilization is subject to annual limitations.
Additionally, FBA had SRLY NOLs of $2.2 million and alternative minimum tax
credits of $178,000, which are not subject to annual limitations.
The NOLs for FBA at December 31, 1999 expire as follows:
(dollars expressed in thousands)
Year ending December 31:
2000............................................. $ 103
2001............................................. 1,667
2002............................................. 5,884
2003............................................. 1,362
2004............................................. 856
2005 through 2018................................ 10,640
---------
Total........................................ $ 20,512
=========
(10) EARNINGS PER COMMON SHARE
The following is a reconciliation of the numerators and denominators of
the basic and diluted EPS computations for the periods indicated:
<TABLE>
<CAPTION>
Income Shares Per share
(numerator) (denominator) amount
----------- ------------- ------
(dollars expressed in thousands, except per share data)
Year ended December 31, 1999:
<S> <C> <C> <C>
Basic EPS - income available to common stockholders.......... $9,470 5,704 $ 1.66
======
Effect of dilutive securities - stock options................ -- 5
------ ------
Diluted EPS - income available to common stockholders........ $9,470 5,709 $ 1.66
====== ====== ======
Year ended December 31, 1998:
Basic EPS - income available to common stockholders.......... $4,610 5,140 $ 0.90
======
Effect of dilutive securities - stock options................ -- 8
------ ------
Diluted EPS - income available to common stockholders........ $4,610 5,148 $ 0.90
====== ====== ======
Year ended December 31, 1997:
Basic EPS - income available to common stockholders........... $3,533 4,069 $ 0.87
======
Effect of dilutive securities - stock options................. -- 27
------ ------
Diluted EPS - income available to common stockholders......... $3,533 4,096 $ 0.86
====== ====== ======
</TABLE>
<PAGE>
(11) EMPLOYEE BENEFIT PLANS
401(K) Plan. FBA'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 FBA's 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 $199,000, $106,000 and $63,000 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.
Pension Plan. Previously, FBA had a noncontributory defined benefit
pension plan covering substantially all officers and employees. In conjunction
with the acquisition of FBA by First Banks, the accumulation of benefits under
the plan were discontinued during 1994. While the plan continues in existence
and provides benefits, which had then accumulated, no additional benefits have
accrued to participants since 1994, and no new participants will become eligible
for benefits thereafter. During 1999, 1998 and 1997, no contributions were made
to the pension plan and FBA did not incur any expenditures associated with the
pension plan.
(12) DIRECTORS' STOCK BONUS PLAN
The 1993 Directors' Stock Bonus Plan provides for annual grants of FBA
common stock to the nonemployee directors of FBA. Directors' compensation of
$36,000, $27,000 and $13,000 was recorded relating to this plan for the years
ended December 31, 1999, 1998 and 1997, respectively. These amounts represented
the market values of the 2,000, 1,500 and 1,000 shares granted for the years
ended December 31, 1999, 1998 and 1997, respectively.
The plan is self-operative, and the timing, amounts, recipients and
terms of individual grants are determined automatically. On July 1 of each year,
each nonemployee director automatically receives a grant of 500 shares of common
stock. The maximum number of plan shares that may be issued shall not exceed
16,667 shares, and 6,167 shares were available to be issued at December 31,
1999. The plan will expire on July 1, 2001.
(13) CREDIT COMMITMENTS
FBA is a party to commitments to extend credit and commercial and
standby letters of credit in the normal course of business to meet the financing
needs of its customers. These instruments involve, to varying degrees, elements
of credit risk and interest rate risk in excess of the amount recognized in the
consolidated balance sheets. The interest rate risk associated with these credit
commitments relates primarily to the commitments to originate fixed-rate loans.
The credit risk amounts are equal to the contractual amounts, assuming the
amounts are fully advanced and the collateral or other security is of no value.
FBA uses the same credit policies in granting commitments and conditional
obligations as it does for on-balance-sheet items.
Commitments to extend credit at December 31 were as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
(dollars expressed in thousands)
<S> <C> <C>
Commitments to extend credit.............................................. $ 286,738 262,511
Commercial and standby letters of credit.................................. 5,719 370
--------- ---------
$ 292,457 262,881
========= =========
</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.
<PAGE>
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, FBA holds marketable securities, certificates of deposit, inventory
or other assets as collateral supporting those commitments for which collateral
is deemed necessary.
(14) STOCKHOLDERS' EQUITY
Classes of Common Stock. FBA is majority owned by First Banks. At
December 31, 1999, First Banks owned 2,500,000 shares of the Class B common
stock and 2,210,581 shares of the common stock, which represented 83.37% of the
outstanding voting stock of FBA. Accordingly, First Banks has effective control
over the management and policies of FBA and the election of its directors.
As of December 31, 1999, FBA had issued and outstanding 3,150,301
shares and 2,500,000 shares of common stock and Class B common stock,
respectively. The rights of Class B common stock are in most respects equivalent
to the rights associated with the common stock, except the common stock has a
dividend preference over the Class B common stock, and the Class B common stock
is unregistered and transferable only in certain limited circumstances. The
outstanding shares of Class B common stock are convertible after August 31,
1999, at the option of the holder, into an equal number of shares of common
stock. Each share of common stock and Class B common stock is entitled to one
vote in the election of directors of FBA and in other matters on which a vote of
stockholders is taken.
Issuance of Common Stock. During 1999 and 1998, FBA issued 2,000 shares
and 2,190,008 shares of common stock, respectively, as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Acquisition of FCB............................................ -- 751,728
Conversion of Note Payable.................................... -- 804,000
Conversion of 12% convertible debenture....................... -- 629,557
Directors' stock bonus plan................................... 2,000 1,500
Exercise of stock options..................................... -- 3,223
----- ---------
2,000 2,190,008
===== =========
</TABLE>
Stock Options. On April 19, 1990, the Board of Directors of FBA adopted
the 1990 Stock Option Plan (1990 Plan). The 1990 Plan currently provides that no
more than 200,000 shares of common stock will be available for stock options.
One-fourth of each stock option becomes exercisable at the date of the grant and
at each anniversary date of the grant. The options expire ten years from the
date of the grant. There were no options granted under this plan during the
three years ended December 31, 1999.
At December 31, 1999, there were 36,833 shares available for future
stock options and 6,667 shares of common stock reserved for the exercise of
outstanding options. Transactions relating to the 1990 Plan for the years ended
December 31 are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------------- -------------------- -----------------
Average Average Average
option option option
Amount price Amount price Amount price
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Outstanding options, January 1....... 6,667 $ 3.75 13,334 $ 3.75 57,500 $ 3.75
Options exercised and redeemed....... -- 3.75 (6,667) 3.75 (44,166) 3.75
--------- ------- --------
Outstanding options, December 31..... 6,667 3.75 6,667 3.75 13,334 3.75
========= ==== ======= ======= ======== ======
Options exercisable, December 31..... 6,667 6,667 13,334
========= ======= ========
</TABLE>
Distribution of Earnings of the Subsidiary Banks. The Subsidiary Banks
are restricted by various state and federal regulations as to the amount of
dividends which are available for payment of to FBA. Under the most restrictive
of these requirements, the future payment of dividends from the Subsidiary Banks
is limited to approximately $7.3 million at December 31, 1999, unless prior
permission of the regulatory authorities is obtained.
<PAGE>
(15) TRANSACTIONS WITH RELATED PARTIES
FBA purchases certain services and supplies from or through First
Banks. FBA's financial position and operating results could significantly differ
from those that would be obtained if FBA's relationship with First Banks did not
exist.
First Banks provides management services to FBA and its Subsidiary
Banks. Management services are provided under 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 $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
unaffiliated third parties.
Because of the affiliation with First Banks and the geographic
proximity of certain of their offices, FBA shares the cost of certain personnel
and services used by FBA and First Banks. This includes the salaries and
benefits of certain loan and administrative personnel. The allocation of the
shared costs 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. 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 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 $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 unaffiliated third parties.
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. As
more fully discussed in Note 6 to the consolidated financial statements, FBA has
a revolving Note Payable from First Banks. There were no amounts outstanding
under the Note Payable at December 31, 1999 and 1998.
As more fully discussed in Notes 2 and 7 to the consolidated financial
statements, in 1995, First Banks purchased $6.5 million of 12% convertible
debentures of FCB. These debentures, which were exchanged for a similar
debenture of FBA in February 1998, were converted into 629,557 shares of FBA
common stock in December 1998.
Outside of normal customer relationships, no directors, executive
officers or stockholders holding over 5% of FBA's voting stock, and no
corporations or firms with which such persons or entities are associated,
currently maintain or have maintained, any significant business or personal
relationships with FBA or its subsidiaries, other than that which arises by
virtue of such position or ownership interest in FBA, except as described above.
<PAGE>
(16) INTEREST RATE RISK MANAGEMENT / DERIVATIVE FINANCIAL INSTRUMENTS WITH
OFF-BALANCE-SHEET RISK
FBA utilizes off-balance-sheet derivative financial instruments to
assist in the management of interest rate sensitivity and to modify the
repricing, maturity and option characteristics of on-balance-sheet assets and
liabilities. The use of such derivative financial instruments is strictly
limited to reducing the interest rate exposure of FBA.
Derivative financial instruments held by FBA for purposes of managing
interest rate risk are summarized as follows:
<TABLE>
<CAPTION>
December 31, 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.................... $120,000 614 65,000 667
Interest rate swap agreements - pay
adjustable rate, receive adjustable rate............... 75,000 -- -- --
Interest rate cap agreement.............................. 10,000 26 10,000 132
======== ==== ====== ===
</TABLE>
The notional amounts of derivative financial instruments do not
represent amounts exchanged by the parties and, therefore, are not a measure of
FBA's credit exposure through its use of derivative financial instruments. The
amounts and the other terms of the derivatives are determined by reference to
the notional amounts and the other terms of the derivatives. The credit exposure
represents the accounting loss FBA would incur in the event the counterparties
failed completely to perform according to the terms of the derivative financial
instruments and the collateral was of no value.
During 1998, FBA entered into $65.0 million notional amount of interest
rate swap agreements to effectively lengthen the repricing characteristics of
certain interest-earning assets to correspond more closely with its funding
source with the objective of stabilizing cash flow, and accordingly, net
interest income, over time. These swap agreements provide for FBA to receive a
fixed rate of interest and pay an adjustable rate of interest equivalent to the
90-day London Interbank Offering Rate (LIBOR). The terms of these swap
agreements provide for FBA to pay quarterly and receive payment semiannually.
The amount receivable by FBA under these swap agreements was $805,000 and
$820,000 at December 31, 1999 and 1998, respectively, and the amount payable by
FBA under these swap agreements was $185,000 and $153,000 at December 31, 1999
and 1998, respectively.
During May 1999, FBA entered into $75.0 million notional amount of
interest rate swap agreements with the objective of stabilizing the net interest
margin during the six-month period surrounding the Year 2000 century date
change. These swap agreements provided for FBA to receive an adjustable rate of
interest equivalent to the daily weighted average 30-day LIBOR and pay an
adjustable rate of interest equivalent to the daily weighted average prime
lending rate minus 2.665%. The terms of these swap agreements, which had an
effective date of October 1, 1999 and a maturity date of March 31, 2000,
provided for FBA to pay and receive interest on a monthly basis. In January
2000, FBA determined these swap agreements were no longer necessary based upon
the results of the Year 2000 century date change and, as such, FBA terminated
these agreements resulting in a cost of $23,000.
During September 1999, FBA entered into $55.0 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
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
December 31, 1999 and the amount payable by FBA under these swap agreements was
$44,000 at December 31, 1999.
During 1999, the net interest income realized on the interest rate swap
agreements was $158,000, in comparison to net interest expense of $19,000
realized on the interest rate swap agreements in 1998.
<PAGE>
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 .......................... $ 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)
========= ====== ====== ========
December 31, 1998:
June 11, 2002............................ $ 15,000 5.24% 6.00% $ 363
September 16, 2002....................... 20,000 5.22 5.36 87
September 18, 2002....................... 30,000 5.23 5.33 92
--------- --------
$ 65,000 5.23 5.56 $ 542
========= ====== ====== ========
</TABLE>
FBA has a $10.0 million interest rate cap agreement outstanding to
limit the interest expense associated with certain interest-bearing liabilities.
The interest rate cap agreement has a maturity date of May 15, 2000. At December
31, 1999 and 1998, the unamortized cost of this agreement were $19,000 and
$130,000, respectively, and were included in other assets. The net amount due to
FBA under this agreement was $7,000 and $2,000 at December 31, 1999 and 1998,
respectively.
(17) 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 subsidiaries. Further, the tax ramifications related to the
realization of the unrealized gains and losses can have a significant effect on
the fair value estimates and have not been considered in any of the estimates.
The estimated fair value of FBA's financial instruments at December 31
were as follows:
<TABLE>
<CAPTION>
December 31, 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............... $ 44,566 44,566 46,313 46,313
Investment securities:
Available for sale................... 90,658 90,658 114,937 114,937
Held to maturity..................... 1,880 1,757 2,026 2,013
Net loans............................... 717,652 715,257 504,276 506,672
Accrued interest receivable............. 6,244 6,244 4,443 4,443
======== ========= ======== ========
Financial liabilities:
Demand and savings deposits............. $ 445,538 445,538 357,763 357,763
Time deposits........................... 334,485 334,485 241,384 242,857
Accrued interest payable................ 1,989 1,989 538 538
FACT Preferred Securities............... 44,218 40,710 44,155 47,159
Short-term borrowings................... 14,940 14,940 4,141 4,141
======== ========= ======== ========
Off-balance-sheet:
Interest rate swap and cap agreements... $ 640 (2,683) 802 542
Credit commitments...................... -- -- -- --
======== ========= ======== ========
</TABLE>
<PAGE>
The following methods and assumptions were used in estimating the fair
value of financial instruments:
Financial Assets:
Cash and cash equivalents and accrued interest receivable: The carrying
values reported in the consolidated balance sheets approximate fair value.
Investment securities: The fair value of securities available for sale
is the amount reported in the consolidated balance sheets. The fair value of
securities held to maturity is based on quoted market prices where available. If
quoted market prices were not available, the fair value was based upon quoted
market prices of comparable instruments.
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 possible loan losses and unearned
discount.
Financial Liabilities:
Deposits: The fair value disclosed for deposits generally payable on
demand (i.e., non-interest-bearing and interest-bearing demand, savings and
money market accounts) is considered equal to their respective carrying amounts
as reported in the consolidated balance sheets. The fair value disclosed for
demand deposits does not include the benefit that results from the low-cost
funding provided by deposit liabilities compared to the cost of borrowing funds
in the market. The fair value 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.
FACT Preferred Securities: The fair value is based on quoted market
prices.
Short-term borrowings and accrued interest payable: The carrying values
reported in the consolidated balance sheets approximate fair value.
Off-Balance-Sheet:
Interest rate swap and cap agreements: The fair value of the interest
rate swap and cap 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 consolidated balance sheets approximates fair value.
(18) REGULATORY CAPITAL
FBA and the Subsidiary Banks are subject to various regulatory capital
requirements administered by the federal and state banking agencies. Failure to
meet minimum capital requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken, could have a
direct material effect on FBA's consolidated financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
FBA and the Subsidiary Banks must meet specific capital guidelines that involve
quantitative measures of assets, liabilities and certain off-balance-sheet items
as calculated under regulatory accounting practices. Capital amounts and
classifications are also subject to qualitative judgments by the regulators
about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require FBA and the Subsidiary Banks to maintain minimum amounts and
ratios of total and Tier I capital (as defined in the regulations) to
risk-weighted assets, and of Tier I capital to average assets. Management
believes, as of December 31, 1999, FBA and the Subsidiary Banks were each well
capitalized.
As of December 31, 1999, 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.
<PAGE>
At December 31, 1999 and 1998, FBA's and the Subsidiary Banks' 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
---- ---- ----------------- -----------------
Total capital (to risk-weighted assets):
<S> <C> <C> <C> <C>
FBA.................................. 13.08% 16.66% 8.0% 10.0%
FB California........................ 10.81 10.63 8.0 10.0
FB Texas............................. 12.42 11.37 8.0 10.0
Redwood Bank (1)..................... 11.17 -- 8.0 10.0
Tier 1 capital (to risk-weighted assets):
FBA.................................. 9.34 11.51 4.0 6.0%
FB California........................ 9.56 9.37 4.0 6.0
FB Texas............................. 11.17 10.11 4.0 6.0
Redwood Bank (1)..................... 10.15 -- 4.0 6.0
Tier 1 capital (to average assets):
FBA.................................. 8.94 10.25 3.0 5.0%
FB California........................ 9.95 8.34 3.0 5.0%
FB Texas............................. 10.39 9.15 3.0 5.0
Redwood Bank (1)..................... 8.48 -- 3.0 5.0
</TABLE>
----------------
(1) Redwood Bank was acquired by FBA on March 4, 1999.
(19) BUSINESS SEGMENT RESULTS
FBA's business segments are its Subsidiary Banks. The reportable
business segments are consistent with the management structure of FBA, the
Subsidiary Banks and the internal reporting system that monitors performance.
Through the respective branch networks, the Subsidiary Banks provide similar
products and services in their defined geographic areas. The products and
services offered include a broad range of commercial and personal banking
services, including certificates of deposit, individual retirement and other
time deposit accounts, checking and other demand deposit accounts, interest
checking accounts, savings accounts and money market accounts. Loans include
commercial and financial, commercial and residential real estate, real estate
construction and development and consumer loans. Other financial services
include mortgage banking, credit and debit cards, brokerage services,
credit-related insurance, automatic teller machines, telephone account access,
safe deposit boxes, trust and private banking services and cash management
services. The revenues generated by each business segment consist primarily of
interest income, generated from the loan and investment security portfolios, and
service charges and fees, generated from the deposit products and services. The
geographic areas include Houston, Dallas, Irving and McKinney, Texas (FB Texas)
and northern California (FB California and Redwood Bank). The products and
services are offered to customers primarily within their respective geographic
areas, with the exception of loan participations executed between the Subsidiary
Banks and other banks affiliated with First Banks. See Note 15 to the
consolidated financial statements.
The business segment results are summarized as follows and are
consistent with FBA's internal reporting system and, in all material respects,
with generally accepted accounting principles and practices predominant in the
banking industry. Such principles and practices are summarized in Note 1 to the
consolidated financial statements. There are no foreign operations.
<PAGE>
<TABLE>
<CAPTION>
FB California Redwood Bank (1)
------------------------------- -----------------------
1999 1998 1997 1999 1998 1997
---- ---- ---- ---- ---- ----
(dollars expressed in thousands)
Balance sheet information:
<S> <C> <C> <C> <C> <C> <C>
Investment securities....................... $ 20,743 53,449 83,165 37,539 -- --
Loans, net of unearned discount............. 379,632 314,977 255,114 138,902 -- --
Total assets................................ 431,838 410,110 370,917 199,988 -- --
Deposits.................................... 367,563 363,422 325,562 173,703 -- --
Stockholders' equity........................ 47,990 42,825 40,176 24,275 -- --
========== ========= ========= ========= ======== ========
Income statement information:
Interest income............................. $ 33,928 32,517 22,416 12,724 -- --
Interest expense............................ 12,285 13,328 8,729 4,846 -- --
---------- --------- --------- --------- -------- --------
Net interest income.................. 21,643 19,189 13,687 7,878 -- --
Provision for possible loan losses.......... 110 565 500 193 -- --
---------- ---------- --------- --------- -------- --------
Net interest income after provision
for possible loan losses........... 21,533 18,624 13,187 7,685 -- --
---------- --------- --------- --------- -------- --------
Noninterest income.......................... 3,881 2,732 1,847 318 -- --
Noninterest expense......................... 15,109 15,548 10,356 4,860 -- --
---------- --------- --------- --------- -------- --------
Income before provision (benefit) for
income tax expense and minority
interest in income of subsidiary... 10,305 5,808 4,678 3,143 -- --
Provision (benefit) for income tax expense.. 3,972 2,736 2,027 1,501 -- --
---------- --------- --------- --------- -------- --------
Income (loss) before minority
interest in income of subsidiary... 6,333 3,072 2,651 1,642 -- --
Minority interest in income of subsidiary... -- -- -- -- -- --
---------- --------- --------- --------- -------- --------
Net income........................... $ 6,333 3,072 2,651 1,642 -- --
========== ========= ========= ========= ======== ========
</TABLE>
- -----------------
(1) Redwood Bank was acquired by FBA on March 4, 1999.
(2) Corporate and other includes $2.6 million and $1.3 million of guaranteed
preferred debenture expense, after applicable income tax benefit of $1.4
million and $700,000 for the years ended December 31, 1999 and 1998,
respectively. See Note 8 to the consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
FB Texas Corporate and other (2) Consolidated total
- --------------------------------- ----------------------------------- ---------------------------
1999 1998 1997 1999 1998 1997 1999 1998 1997
- ---- ---- ---- ---- ---- ---- ---- ---- ----
(dollars expressed in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
30,439 59,914 65,016 3,817 3,600 -- 92,538 116,963 148,181
213,731 201,426 176,341 (2) -- -- 732,263 516,403 431,455
278,988 300,984 267,152 9,893 8,903 5,595 920,707 719,997 643,664
244,248 264,425 231,175 (5,491) (28,700) (210) 780,023 599,147 556,527
30,338 30,249 29,761 (30,104) (7,229) (24,846) 72,499 65,845 45,091
======== ======== ========= ========= ========= ======== ========= ========= ========
21,990 21,721 20,099 313 170 2 68,955 54,408 42,517
8,705 8,907 8,379 (305) 974 2,047 25,531 23,209 19,155
- -------- -------- --------- ---------- --------- -------- --------- --------- --------
13,285 12,814 11,720 618 (804) (2,045) 43,424 31,199 23,362
90 335 1,500 -- -- -- 393 900 2,000
- -------- -------- --------- --------- --------- -------- --------- --------- --------
13,195 12,479 10,220 618 (804) (2,045) 43,031 30,299 21,362
- -------- -------- --------- --------- --------- -------- --------- --------- --------
1,950 1,790 1,901 (554) (147) (461) 5,595 4,375 3,287
9,050 8,749 6,960 3,811 2,175 361 32,830 26,472 17,677
- -------- -------- --------- --------- --------- -------- --------- --------- --------
6,095 5,520 5,161 (3,747) (3,126) (2,867) 15,796 8,202 6,972
2,090 1,888 1,815 (1,237) (1,032) (697) 6,326 3,592 3,145
- -------- -------- --------- --------- --------- -------- --------- --------- --------
4,005 3,632 3,346 (2,510) (2,094) (2,170) 9,470 4,610 3,827
-- -- -- -- -- 294 -- -- 294
- -------- -------- --------- --------- --------- -------- --------- --------- --------
4,005 3,632 3,346 (2,510) (2,094) (2,464) 9,470 4,610 3,533
======== ======== ========= ========= ========= ======== ========= ========= ========
</TABLE>
<PAGE>
(20) PARENT COMPANY ONLY FINANCIAL INFORMATION
Following are condensed balances sheets of First Banks America, Inc. as
of December 31, 1999 and 1998, and condensed statements of income and cash flows
for the years ended December 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
CONDENSED BALANCE SHEETS
December 31,
------------------------
1999 1998
---- ----
(dollars expressed in thousands)
Assets
------
<S> <C> <C>
Cash deposited in subsidiary banks.................................... $ 8,079 31,306
Investment securities................................................. 5,239 5,023
Investment in subsidiaries............................................ 102,764 73,074
Deferred tax assets................................................... 1,885 2,192
Other assets.......................................................... 3,225 2,349
---------- ---------
Total assets.................................................. $ 121,192 113,944
========== =========
Liabilities and Stockholders' Equity
------------------------------------
Subordinated debentures payable to FACT............................... $ 47,423 47,423
Accrued expenses and other liabilities................................ 1,270 676
---------- ---------
Total liabilities............................................. 48,693 48,099
Stockholders' equity.................................................. 72,499 65,845
---------- ---------
Total liabilities and stockholders' equity.................... $ 121,192 113,944
========== =========
</TABLE>
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF INCOME
Years ended December 31,
---------------------------------
1999 1998 1997
---- ---- ----
(dollars expressed in thousands)
Income:
<S> <C> <C> <C>
Dividends from subsidiaries.................................... $ 5,000 4,750 1,625
Other.......................................................... 744 711 31
-------- ------ --------
Total income............................................ 5,744 5,461 1,656
-------- ------ --------
Expense:
Interest....................................................... -- 1,363 2,064
Other.......................................................... 4,492 2,475 686
-------- ------ --------
Total expense........................................... 4,492 3,838 2,750
-------- ------ --------
Income (loss) before income tax benefit................. 1,252 1,623 (1,094)
Income tax benefit............................................... (1,238) (1,032) (686)
-------- ------ --------
Income (loss) before equity in undistributed
income of subsidiaries................................ 2,490 2,655 (408)
Equity in undistributed income of subsidiaries................... 6,980 1,955 3,941
-------- ------ --------
Net income.............................................. $ 9,470 4,610 3,533
======== ====== ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF CASH FLOWS
Years ended December 31,
---------------------------------
1999 1998 1997
---- ---- ----
(dollars expressed in thousands)
Cash flows from operating activities:
<S> <C> <C> <C>
Net income.................................................... $ 9,470 4,610 3,533
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in undistributed income of subsidiaries............. (6,980) (1,955) (3,941)
Dividends from subsidiaries................................ 5,000 4,750 1,625
Other, net................................................. (4,787) 956 (370)
---------- ------- -------
Net cash provided by operating activities............ 2,703 8,361 847
---------- ------- -------
Cash flows from investing activities:
Acquisition of subsidiaries................................... (26,000) (4,200) (3,800)
Purchase of investment securities............................. (649) (3,600) --
Investment in common securities of FACT....................... -- (1,423) --
Return of subsidiary capital.................................. 2,000 -- --
(Decrease) increase in payable to former shareholders
of Surety Bank............................................. -- (3,829) 3,829
---------- --------- -------
Net cash (used in) provided by investing activities.. (24,649) (13,052) 29
---------- --------- -------
Cash flows from financing activities:
Decrease (increase) in promissory note payable................ -- (4,900) 900
Increase in subordinated debenture............................ -- 45,547 --
Exercise of stock options..................................... -- 13 15
Repurchase of common stock for treasury....................... (1,281) (5,738) (1,512)
Pre-merger transactions of FCB................................ -- -- (6)
---------- --------- -------
Net cash (used in) provided by financing activities.. (1,281) 34,922 (603)
---------- ------- -------
Net (decrease) increase in cash and cash equivalents. (23,227) 30,231 273
Cash and cash equivalents, beginning of year.................... 31,306 1,075 802
---------- --------- -------
Cash and cash equivalents, end of year.......................... $ 8,079 31,306 1,075
========== ========= =======
Noncash investing and financing activities:
Reduction of deferred tax valuation reserve................... $ 981 -- --
Issuance of common stock in purchase accounting acquisition... -- 3,008 4,763
Conversion of promissory note payable to common stock......... -- 10,000 --
Conversion of 12% convertible debentures and accrued interest
payable to common stock.................................... -- 8,673 --
Cash paid for interest........................................ -- 1,867 --
========== ========= =======
</TABLE>
(21) CONTINGENT LIABILITIES
In the ordinary course of business, there are various legal proceedings
pending against FBA and/or the Subsidiary Banks. Management, in consultation
with legal counsel, is of the opinion the ultimate resolution of these
proceedings will have no material effect on the financial condition or results
of operations of FBA or the Subsidiary Banks.
(22) SUBSEQUENT EVENT
On February 29, 2000, FBA completed its acquisition of Lippo Bank, San
Francisco, California, in exchange for $17.2 million in cash. Lippo Bank
operates three banking locations in San Francisco, San Jose and Los Angeles,
California. The acquisition was funded from available cash of $9.2 million and
from an advance under the Note Payable of $8.0 million. 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 $4.0 million and is being amortized over
15 years. Lippo Bank will be merged into FB California.
<PAGE>
<TABLE>
<CAPTION>
DIRECTORS AND SENIOR MANAGEMENT
Directors of First Banks America, Inc.
<S> <C> <C>
James F. Dierberg Chairman of the Board, President and Chief Executive Officer, First Banks America, Inc., St.
Louis, Missouri; Chairman of the Board and Chief Executive Officer, First Banks, Inc., St.
Louis, Missouri.
Allen H. Blake Executive Vice President, Chief Operating Officer and Secretary, First Banks America, Inc., St.
Louis, Missouri; President, Chief Operating Officer and Secretary, First Banks, Inc., St.
Louis, Missouri.
Charles A. Crocco, Jr. Counsel to the law firm of Jackson & Nash, LLP., New York, New York.
Albert M. Lavezzo President and Chief Operating Officer of the law firm of Favaro, Lavezzo, Gill, Caretti &
Heppell, Vallejo, California.
Ellen D. Schepman Retail Marketing Officer, First Banks, Inc., St. Louis, Missouri.
Edward T. Story, Jr. President and Chief Executive Officer of SOCO International, plc, Comfort, Texas.
Donald W. Williams Executive Vice President and Chief Credit Officer, First Banks, Inc., St. Louis, Missouri.
Executive Officers of First Banks America, Inc.
James F. Dierberg Chairman of the Board, President and Chief Executive Officer
Allen H. Blake Executive Vice President, Chief Operating Officer and Secretary
Terrance M. McCarthy Executive Vice President
Frank H. Sanfilippo Executive Vice President and Chief Financial Officer
David F. Weaver Executive Vice President
Directors and Senior Officers of First Bank Texas N.A.
David F. Weaver Chairman of the Board, President and Chief Executive Officer
Alan J. Cott Director and Senior Vice President, Commercial Lending - Houston
Christopher A. Hopkins Director and Senior Vice President, Commercial Lending - Dallas
Joseph Milcoun, Jr. Director, Senior Vice President, Retail Banking
Monica J. Rinehart Secretary, Vice President and Controller
Donald W. Williams Director
Directors and Senior Officers of First Bank of California
Terrance M. McCarthy Chairman of the Board, President and Chief Executive Officer
James E. Culleton Director and Secretary
Peter A. Goetze Vice President, Retail Banking
Albert M. Lavezzo Director
Kathryn L. Perrine Vice President and Chief Financial Officer
Gary M. Sanders Director and Executive Vice President
Fred K. Sibley Director
Donald W. Williams Director
Directors and Senior Officers of Redwood Bank
Donald W. Williams Chairman of the Board
Susan J. Chase Director
David T. Currie Director
Patrick S. Day Director
Terrance M. McCarthy Director, President and Chief Executive Officer
Robert A. McKerroll Director
Kerry C. Smith Director
</TABLE>
<PAGE>
INVESTOR INFORMATION
FBA's Annual Report on Form 10-K, as filed with the Securities and
Exchange Commission, is available without charge to any stockholder upon
request. Requests should be directed, in writing, to Frank H. Sanfilippo, First
Banks America, Inc., 11901 Olive Boulevard, Creve Coeur, Missouri 63141.
Common Stock
The common stock of FBA is traded on the New York Stock Exchange with
the ticker symbol "FBA" and is frequently reported in newspapers of general
circulation with the symbol "FBKSAM" and in the Wall Street Journal with the
symbol "FBA." As of March 20, 2000, there were approximately 1,370 registered
common stockholders of record. This number does not include any persons or
entities that hold their stock in nominee or "street" name through various
brokerage firms. The high and low common stock prices for 1999 and 1998 are
summarized as follows:
<TABLE>
<CAPTION>
1999 1998
------------------ ------------------
High Low High Low
<S> <C> <C> <C> <C>
First quarter............................. $ 20.63 18.75 25.19 21.31
Second quarter............................ 18.63 17.50 25.13 19.13
Third quarter............................. 18.19 16.88 21.00 16.50
Fourth quarter............................ 18.25 16.63 19.50 16.75
</TABLE>
Preferred Securities
The Preferred Securities of FBA, which were issued on July 21, 1998,
are traded on the New York Stock Exchange with the ticker symbol "FBAPrt." As of
March 20, 2000, there were approximately 271 record holders of Preferred
Securities. This number does not include any persons or entities that hold their
preferred securities in nominee or "street" name through various brokerage
firms. The high and low Preferred Securities prices and the dividends declared
for 1999 and 1998 are summarized as follows:
<TABLE>
<CAPTION>
1999 Dividend
-----------------
High Low declared
---- --- --------
<S> <C> <C> <C>
First quarter.......................................... $ 26.25 24.75 .53125
Second quarter......................................... 26.25 24.31 .53125
Third quarter.......................................... 25.25 22.50 .53125
Fourth quarter......................................... 24.50 21.94 .53125
----------
$ 2.12500
==========
1998 Dividend
-----------------
High Low declared
---- --- ---------
Third quarter.......................................... $ 25.75 24.19 .40729
Fourth quarter......................................... 26.25 24.50 .53125
----------
$ .93854
==========
</TABLE>
<TABLE>
<CAPTION>
For information concerning FBA, please contact:
<S> <C>
David F. Weaver Frank H. Sanfilippo
Executive Vice President Executive Vice President and
P. O. Box 630369 Chief Financial Officer
Houston, Texas 77263-0369 11901 Olive Boulevard
Telephone - (713) 954-2400 Creve Coeur, Missouri 63141
Telephone - (314) 995-8700
Transfer Agents:
Common Stock: Preferred Securities:
ChaseMellon Shareholder Services, L.L.C. State Street Bank and Trust Company
85 Challenger Road Corporate Trust Department
Overpect Centre P. O. Box 778
Ridgefield Park, New Jersey 07666 Boston, Massachusetts 02102-0778
Telephone - (888) 213-0965 Telephone - (800) 531-0368
www.chasemellon.com www.statestreet.com
</TABLE>
<PAGE>
EXHIBIT 21
FIRST BANKS AMERICA, INC.
Significant Subsidiaries
The following is a list of all subsidiaries of the Company and the
jurisdiction of incorporation or organization. First Bank Texas N.A. (formerly
BankTEXAS National Association), First Bank of California and Redwood Bank are
wholly owned by First Banks America, Inc.
Jurisdiction of Incorporation
Name of Subsidiary of Organization
------------------ ---------------
First Bank Texas N.A. United States
First Bank of California California
Redwood Bank California
<PAGE>
EXHIBIT 23(a)
The Board of Directors
First Banks America, Inc.
We consent to incorporation by reference in the registration statement (No.
33-42607) on Form S-8 of First Banks America, Inc. and subsidiaries of our
report dated March 15, 2000, relating to the consolidated balance sheets of
First Banks America, Inc. and subsidiaries as of December 31, 1999 and 1998 and
the related consolidated statements of income, stockholders' equity and
comprehensive income and cash flows for each of the years in the three-year
period ended December 31, 1999 which report appears in the December 31, 1999
annual report on Form 10-K of First Banks America, Inc.
/s/ KPMG LLP
------------
St. Louis, Missouri
March 27, 2000
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000310979
<NAME> First Banks America, Inc.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-START> Jan-01-1999
<PERIOD-END> Dec-31-1999
<CASH> 35,644
<INT-BEARING-DEPOSITS> 122
<FED-FUNDS-SOLD> 8,800
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 90,658
<INVESTMENTS-CARRYING> 1,880
<INVESTMENTS-MARKET> 1,757
<LOANS> 732,263
<ALLOWANCE> 14,611
<TOTAL-ASSETS> 920,707
<DEPOSITS> 780,023
<SHORT-TERM> 14,940
<LIABILITIES-OTHER> 9,027
<LONG-TERM> 44,218
0
0
<COMMON> 956
<OTHER-SE> 71,543
<TOTAL-LIABILITIES-AND-EQUITY> 920,707
<INTEREST-LOAN> 61,748
<INTEREST-INVEST> 6,310
<INTEREST-OTHER> 897
<INTEREST-TOTAL> 68,955
<INTEREST-DEPOSIT> 24,849
<INTEREST-EXPENSE> 25,531
<INTEREST-INCOME-NET> 43,424
<LOAN-LOSSES> 393
<SECURITIES-GAINS> 174
<EXPENSE-OTHER> 32,830
<INCOME-PRETAX> 15,796
<INCOME-PRE-EXTRAORDINARY> 15,796
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,470
<EPS-BASIC> 1.66
<EPS-DILUTED> 1.66
<YIELD-ACTUAL> 8.75
<LOANS-NON> 3,337
<LOANS-PAST> 2,944
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 7,300
<ALLOWANCE-OPEN> 12,127
<CHARGE-OFFS> 1,412
<RECOVERIES> 2,037
<ALLOWANCE-CLOSE> 14,611
<ALLOWANCE-DOMESTIC> 12,596
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2,015
</TABLE>
