SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-20632
FIRST BANKS, INC.
-----------------
(Exact name of registrant as specified in its charter)
MISSOURI 43-1175538
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
135 NORTH MERAMEC, CLAYTON, MISSOURI 63105
------------------------------------------
(address of principal executive offices) (Zip Code)
(314) 854-4600
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Outstanding at
Class July 31, 1998
----- -------------
Common Stock, $250.00 par value 23,661
<PAGE>
First Banks, Inc.
INDEX
Page
PART I FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets as of June 30, 1998
and December 31, 1997..................................... -1-
Consolidated Statements of Income for the three and six
months ended June 30, 1998 and 1997....................... -3-
Consolidated Statements of Changes in Stockholders' Equity
for the six months ended June 30, 1997 and 1998
and the six months ended December 31, 1997................ -4-
Consolidated Statements of Cash Flows for the six
months ended June 30, 1998 and 1997....................... -5-
Notes to Consolidated Financial Statements.................. -6-
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... -9-
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.............................-17-
Signatures ............................................................ -18-
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
FIRST BANKS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(dollars expressed in thousands, except per share data)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
---- ----
(unaudited)
ASSETS
------
Cash and cash equivalents:
<S> <C> <C>
Cash and due from banks............................................... $ 134,230 142,125
Interest-bearing deposits with other financial
institutions - with maturities of three months or less.............. 2,147 2,840
Federal funds sold.................................................... 32,000 23,515
----------- ----------
Total cash and cash equivalents............................ 168,377 168,480
----------- ----------
Investment securities:
Trading, at fair value................................................ 4,502 3,110
Available for sale, at fair value..................................... 639,457 773,271
Held to maturity, at amortized cost (fair value
of $19,844 and $19,835 at June 30, 1998 and
December 31,1997, respectively)..................................... 19,129 19,149
----------- ----------
Total investment securities................................ 663,088 795,530
----------- ----------
Loans:
Commercial, financial and agricultural................................ 729,412 621,618
Real estate construction and development.............................. 531,881 413,107
Real estate mortgage.................................................. 1,589,218 1,629,115
Consumer and installment.............................................. 286,495 287,752
Loans held for sale................................................... 103,417 59,081
----------- ----------
Total loans................................................ 3,240,423 3,010,673
Unearned discount..................................................... (8,183) (8,473)
Allowance for possible loan losses.................................... (55,591) (50,509)
----------- ----------
Net loans.................................................. 3,176,649 2,951,691
----------- ----------
Bank premises and equipment, net of
accumulated depreciation and amortization............................. 58,980 51,505
Intangibles associated with the purchase
of subsidiaries....................................................... 28,036 25,835
Mortgage servicing rights, net of amortization........................... 10,044 9,046
Accrued interest receivable.............................................. 28,155 28,358
Other real estate........................................................ 5,815 7,324
Deferred income taxes.................................................... 45,879 43,355
Other assets............................................................. 90,440 83,890
----------- ----------
Total assets.............................................. $ 4,275,463 4,165,014
=========== ==========
</TABLE>
<PAGE>
FIRST BANKS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(dollars expressed in thousands, except per share data)
(continued)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
---- ----
(unaudited)
LIABILITIES
-----------
Deposits:
Demand:
<S> <C> <C>
Non-interest-bearing............................................ $ 478,771 485,222
Interest-bearing................................................ 336,726 348,080
Savings........................................................... 1,066,572 947,029
Time:
Time deposits of $100 or more................................... 237,849 219,417
Other time deposits............................................. 1,663,854 1,684,847
----------- -----------
Total deposits.......................................... 3,783,772 3,684,595
Other borrowings...................................................... 63,086 54,153
Notes payable......................................................... 51,048 55,144
Accrued interest payable.............................................. 9,694 9,976
Deferred income taxes................................................. 12,058 9,029
Accrued and other liabilities......................................... 12,637 20,990
Minority interest in subsidiaries..................................... 15,457 16,407
----------- -----------
Total liabilities....................................... 3,947,752 3,850,294
----------- -----------
Guaranteed preferred beneficial interests in
First Banks, Inc. subordinated debenture............................ 83,236 83,183
----------- -----------
STOCKHOLDERS' EQUITY
--------------------
Preferred stock:
Class A, convertible, adjustable rate, $20.00 par value; 750,000
shares authorized; 641,082 shares issued and outstanding....... 12,822 12,822
Class B, adjustable rate, $1.50 par value; 200,000 shares
authorized; 160,505 shares issued and outstanding.............. 241 241
Common stock, $250.00 par value; 25,000 shares
authorized; 23,661 shares issued and outstanding................... 5,915 5,915
Capital surplus....................................................... 1,979 3,978
Retained earnings..................................................... 213,057 199,143
Accumulated other comprehensive income................................ 10,461 9,438
----------- -----------
Total stockholders' equity.............................. 244,475 231,537
----------- -----------
Total liabilities and stockholders' equity.............. $ 4,275,463 4,165,014
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
FIRST BANKS, INC. AND SUBSIDIARIES
Consolidated Statements of Income (unaudited)
(dollars expressed in thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
------------------ -----------------
1998 1997 1998 1997
Interest income:
<S> <C> <C> <C> <C>
Interest and fees on loans........................................ $ 69,432 62,873 136,170 123,097
Investment securities............................................. 10,654 8,499 21,710 16,480
Federal funds sold and other...................................... 854 1,407 1,990 2,502
--------- -------- -------- --------
Total interest income....................................... 80,940 72,779 159,870 142,079
--------- -------- -------- --------
Interest expense:
Deposits:
Interest-bearing demand......................................... 1,329 1,400 2,803 2,805
Savings......................................................... 10,232 5,641 19,785 11,039
Time deposits of $100 or more................................... 3,331 2,596 6,375 4,868
Other time deposits............................................. 23,715 23,844 47,732 47,029
Securities sold under agreements to repurchase.................... 550 423 1,075 742
Interest rate exchange agreements, net ........................... 991 1,176 1,980 2,383
Notes payable and other borrowings................................ 973 158 1,972 1,128
--------- -------- -------- --------
Total interest expense...................................... 41,121 35,238 81,722 69,994
--------- -------- -------- --------
Net interest income......................................... 39,819 37,541 78,148 72,085
--------- -------- -------- --------
Provision for possible loan losses..................................... 1,850 3,175 3,950 6,025
--------- -------- -------- --------
Net interest income after provision
for possible loan losses.................................. 37,969 34,366 74,198 66,060
--------- -------- -------- --------
Noninterest income:
Service charges on deposit accounts and
customer service fees.......................................... 3,514 3,010 6,889 5,968
Credit card fees.................................................. 750 686 1,612 1,460
Loan servicing fees, net.......................................... 404 441 703 864
Gain on mortgage loans sold and held for sale..................... 863 87 1,901 208
Gain on sales of securities, net.................................. 164 -- 256 --
Gain on trading securities, net................................... 586 22 644 22
Other income...................................................... 2,076 1,460 4,146 2,394
--------- -------- -------- --------
Total noninterest income.................................... 8,357 5,706 16,151 10,916
--------- -------- -------- --------
Noninterest expense:
Salaries and employee benefits.................................... 14,391 10,571 27,270 20,928
Occupancy, net of rental income................................... 2,717 2,610 5,140 5,213
Furniture and equipment........................................... 2,039 1,885 3,626 4,050
Postage, printing and supplies.................................... 1,543 1,021 2,949 2,241
Data processing fees.............................................. 2,988 2,392 5,954 3,521
Legal, examination and professional fees.......................... 1,274 1,066 2,330 2,169
Credit card expenses.............................................. 770 821 1,562 1,640
Communications.................................................... 766 566 1,492 1,255
Advertising and business development expense...................... 1,791 965 2,656 1,613
Losses and expenses on other real estate, net of gains............ 281 (20) 661 93
Guaranteed preferred debenture expense............................ 2,021 2,121 4,042 3,379
Other expenses.................................................... 4,456 3,784 9,414 6,833
--------- -------- -------- --------
Total noninterest expense................................... 35,037 27,782 67,096 52,935
--------- -------- -------- --------
Income before provision for income taxes and minority
interest in income of subsidiaries....................... 11,289 12,290 23,253 24,041
Provision for income taxes............................................. 4,134 4,051 8,390 7,765
--------- -------- -------- --------
Income before minority interest in income of subsidiaries... 7,155 8,239 14,863 16,276
Minority interest in income of subsidiaries............................ 279 376 621 577
--------- -------- -------- --------
Net income.................................................. 6,876 7,863 14,242 15,699
Preferred stock dividends.............................................. 131 1,209 328 2,488
--------- -------- -------- --------
Net income available to common shareholders................. $ 6,745 6,654 13,914 13,211
========= ======== ======== ========
Earnings per share:
Basic............................................................. $ 285.02 281.23 588.03 558.33
Diluted........................................................... 274.34 267.97 568.22 534.73
========= ======== ======== ========
Weighted average shares of common stock outstanding.................... 23,661 23,661 23,661 23,661
========= ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
FIRST BANKS, INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity (unaudited)
(dollars expressed in thousands, except per share data)
Six month periods ended June 30, 1998 and 1997 and six month
period ended December 31, 1997
<TABLE>
<CAPTION>
Class C Accu-
preferred Adjustable rate mulated
stock, preferred stock other Total
---------------
increasing Class A Compre- compre- stock-
rate, conver- Common Capital hensive Retained hensive holders'
redeemable tible Class B stock surplus income earnings income equity
---------- ----- ------- ----- ------- ------ -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Consolidated balances, January 1, 1997........... $ 53,887 12,822 241 5,915 3,289 171,182 4,053 251,389
Six months ended June 30, 1997:
Comprehensive income:
Net income................................ -- -- -- -- -- $15,699 15,699 -- 15,699
Other comprehensive income, net of tax (1) -
Unrealized gains on securities, net of
reclassification adjustment (2) ...... -- -- -- -- -- 3,607 -- 3,607 3,607
-------
Comprehensive income...................... -- -- -- -- -- $19,306
=======
Class C preferred stock dividends,
$.56 per share........................... -- -- -- -- -- (2,159) -- (2,159)
Class A preferred stock dividends,
$.30 per share........................... -- -- -- -- -- (321) -- (321)
Class B preferred stock dividends,
$.03 per share........................... -- -- -- -- -- (7) -- (7)
Purchase and retirement of Class C shares...... (6,575) -- -- -- (155) -- -- (6,730)
Effect of capital stock transactions of
majority-owned subsidiary................. -- -- -- -- (282) -- -- (282)
-------- ----- ---- ---- ------ -------- ----- -------
Consolidated balances, June 30, 1997............. 47,312 12,822 241 5,915 2,852 184,394 7,660 261,196
Six months ended December 31, 1997:
Comprehensive income:
Net income................................ -- -- -- -- -- $ 17,328 17,328 -- 17,328
Other comprehensive income, net of tax (1) -
Unrealized gains on securities, net of
reclassification adjustment (2)....... -- -- -- -- -- 1,778 -- 1,778 1,778
-------
Comprehensive income....................... -- -- -- -- -- $ 19,106
========
Class C preferred stock dividends,
$1.69 per share.......................... -- -- -- -- -- (2,120) -- (2,120)
Class A preferred stock dividends,
$.90 per share........................... -- -- -- -- -- (449) -- (449)
Class B preferred stock dividends,
$.08 per share........................... -- -- -- -- -- (10) -- (10)
Purchase and retirement of Class C shares.... (199) -- -- -- (6) -- -- (205)
Redemption of Class C preferred shares....... (47,113) -- -- -- -- -- -- (47,113)
Effect of capital stock transactions of
majority-owned subsidiary................. -- -- -- -- 1,132 -- -- 1,132
-------- ----- --- ---- ----- ------- ------ -------
Consolidated balances, December 31,1997.......... -- 12,822 241 5,915 3,978 199,143 9,438 231,537
Six months ended June 30, 1998: Comprehensive income:
Net income................................ -- -- -- -- -- $ 14,242 14,242 -- 14,242
Other comprehensive income, net of tax (1) -
Unrealized gains on securities, net of
reclassification adjustment (2)....... -- -- -- -- -- 1,023 -- 1,023 1,023
--------
Comprehensive income...................... -- -- -- -- -- $ 15,265
========
Class A preferred stock dividends,
$.30 per share........................... -- -- -- -- -- (321) -- (321)
Class B preferred stock dividends,
$.03 per share........................... -- -- -- -- -- (7) -- (7)
Effect of capital stock transactions of
majority-owned subsidiary................. -- -- -- -- (1,999) -- -- (1,999)
-------- ----- --- ---- ------ ------ ------ --------
Consolidated balances, June 30, 1998............. $ -- 12,822 241 5,915 1,979 213,057 10,461 244,475
======== ====== === ===== ====== ======= ====== ========
</TABLE>
- ---------------
(1) Components of other comprehensive income are shown net of tax.
(2) Disclosure of reclassification amount:
<TABLE>
<CAPTION>
Six months ended Six months ended
June 30, December 31,
-------------- -----------
1998 1997 1997
---- ---- ----
<S> <C> <C> <C>
Unrealized gains arising during the period.............................................. $1,279 3,607 4,113
Less: reclassification adjustment for gains included
in net income...................................................................... 256 -- 2,335
------ ----- -----
Unrealized gain on securities........................................................... $1,023 3,607 1,778
====== ===== =====
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
FIRST BANKS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (unaudited)
(dollars expressed in thousands, except per share data)
<TABLE>
<CAPTION>
Six months ended
June 30,
-------------------
1998 1997
---- ----
Cash flows from operating activities:
<S> <C> <C>
Net income................................................................... $ 14,242 15,699
Adjustments to reconcile net income to net cash (used in) provided
by operating activities:
Depreciation and amortization of bank premises and equipment............. 2,519 2,938
Amortization, net of accretion........................................... 5,210 1,685
Originations and purchases of loans held for sale........................ (239,632) (55,669)
Proceeds from sales of loans held for sale .............................. 195,617 54,952
Provision for possible loan losses....................................... 3,950 6,025
Provision for income taxes............................................... 8,390 7,765
Payments of income taxes................................................. (9,862) (5,035)
Decrease (increase) in accrued interest receivable ...................... 801 (3,504)
Net increase in trading securities....................................... (1,392) (2,298)
Interest accrued on liabilities.......................................... 81,722 73,373
Payments of interest on liabilities...................................... (82,068) (74,348)
Other operating activities, net.......................................... (10,676) (2,875)
Minority interest in income of subsidiaries.............................. 621 577
---------- --------
Net cash (used in) provided by operating activities................. (30,558) 19,285
---------- --------
Cash flows from investing activities:
Cash and cash equivalents received from acquisitions, net of cash paid....... 16,895 40,361
Sale of investment securities available for sale............................. 42,558 --
Maturities of investment securities available for sale....................... 230,922 205,734
Maturities of investment securities held to maturity......................... 1,074 1,207
Purchases of investment securities available for sale........................ (139,067) (197,044)
Purchases of investment securities held to maturity.......................... (1,091) (654)
Net increase in loans........................................................ (161,963) (103,828)
Recoveries of loans previously charged-off................................... 4,384 5,550
Purchases of bank premises and equipment..................................... (9,811) (2,601)
Other investing activities................................................... (2,930) 2,901
---------- --------
Net cash used in investing activities............................... (19,029) (48,374)
---------- --------
Cash flows from financing activities:
Other increases (decreases) in deposits:
Demand and savings deposits.............................................. 73,905 53,224
Time deposits............................................................ (25,389) 16,228
Decrease in Federal Home Loan Bank advances.................................. (1,514) (36,401)
Increase in other borrowings................................................. 10,447 11,980
Decrease in notes payable.................................................... (7,637) (68,675)
Purchase and retirement of Class C preferred stock........................... -- (6,575)
Proceeds from issuance of guaranteed preferred
subordinated debenture................................................... -- 83,086
Payment of preferred stock dividends......................................... (328) (2,485)
---------- --------
Net cash provided by financing activities .......................... 49,484 50,382
---------- --------
Net increase (decrease) in cash and cash equivalents ............... (103) 21,293
Cash and cash equivalents, beginning of period ................................... 168,480 227,954
---------- --------
Cash and cash equivalents, end of period.......................................... $ 168,377 249,247
========== ========
Noncash investing and financing activities:
Loans transferred to other real estate....................................... $ 1,808 2,303
========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
FIRST BANKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Basis of Presentation
The accompanying consolidated financial statements of First Banks, Inc.
and subsidiaries (First Banks) are unaudited and should be read in conjunction
with the consolidated financial statements contained in the 1997 annual report
on Form 10-K. In the opinion of management, all adjustments, consisting of
normal recurring accruals considered necessary for a fair presentation of the
results of operations for the interim periods presented herein, have been
included. Operating results for the three and six month periods ended June 30,
1998 are not necessarily indicative of the results that may be expected for any
other interim period or for the year ending December 31, 1998.
First Banks' primary subsidiaries (Subsidiary Banks) are:
First Bank, headquartered in St. Louis County, Missouri (First Bank).
First Banks America, Inc., headquartered in St. Louis County,
Missouri (FBA), and its wholly owned subsidiaries:
BankTEXAS N.A., headquartered in Houston, Texas (BankTEXAS).
First Bank of California, headquartered in Roseville, California
(FB California).
CCB Bancorp, Inc., headquartered in Newport Beach, California (CCB),
and its wholly owned subsidiary:
First Bank & Trust, headquartered in Newport Beach, California
(FB&T).
First Banks' ownership interest in FBA was 72.6% and 65.9% at June 30,
1998 and December 31, 1997, respectively.
The consolidated financial statements include the accounts of First
Banks, Inc. and its subsidiaries, net of minority interests. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Certain reclassifications of 1997 amounts have been made to conform with the
1998 presentation.
(2) Mergers and Acquisitions
On June 8, 1998, FBA executed an Agreement in Principle to acquire
Redwood Bancorp, and its wholly-owned subsidiary, Redwood Bank, for cash
consideration of $26.0 million. Redwood Bank is headquartered in San Francisco,
California and operates four banking locations in the San Francisco Bay area.
Redwood Bank had $153.8 million in total assets, $119.4 million in loans, net of
unearned discount, and $139.0 million in deposits at June 30, 1998. FBA
anticipates that the transaction, which is subject to various conditions, will
be completed by the end of the fourth quarter.
On February 2, 1998, FBA completed its merger with First Commercial
Bancorp, Inc. (FCB). FCB's wholly owned subsidiary, First Commercial Bank (First
Commercial), was also merged into FB California. In the transaction, FCB
shareholders received .8888 shares of FBA common stock for each share of FCB
common stock that they held. In total, FCB shareholders received approximately
752,000 shares of FBA common stock in the transaction. The transaction provided
for First Banks to receive 804,000 shares of FBA common stock in exchange for
$10.0 million of FBA's note payable to First Banks, and for the exchange of FCB
convertible debentures of $6.5 million, which are owned by First Banks, for
comparable debentures of FBA. The merger of FBA and FCB did not have a
significant impact on the operations of First Banks.
The transaction was accounted for as a business combination of entities
under common control. Accordingly, FBA assumed First Banks' 61.48% interest in
FCB at its historical cost basis. The remaining 38.52%, or minority interest,
<PAGE>
owned by unaffiliated parties was recorded at fair value. The excess of the cost
over the fair value of the minority interest's share in the fair value of the
net assets acquired was $1.6 million and is being amortized over 15 years.
On February 2, 1998, FBA completed its acquisition of Pacific Bay Bank,
San Pablo, California (Pacific Bay). Under the terms of the Pacific Bay
Agreement, Pacific Bay shareholders received $14.00 per share in cash for their
stock, an aggregate of $4.2 million. The 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 $1.5 million and is being amortized over 15 years. This
transaction was funded from an advance under First Banks' credit agreement with
a group of unaffiliated financial institutions.
Pacific Bay operates a banking office in San Pablo, California and a
loan production office in Lafayette, California. At February 2, 1998, Pacific
Bay had total assets of $38.3 million, investment securities of $232,000, loans,
net of unearned discount, of $29.7 million and deposits of $35.2 million.
Pacific Bay was merged into FB California.
On March 19, 1998, First Banks completed its assumption of the deposits
and purchase of selected assets of the Solvang, California banking location of
Bank of America. The transaction resulted in the acquisition of approximately
$15.5 million in deposits and one office which will operate as a branch of FB&T.
The excess of the cost over the fair value of the net assets acquired was $1.8
million and is being amortized over 15 years.
(3) Regulatory Capital
First Banks 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 First Banks' and the Subsidiary Banks'
financial statements. Under capital adequacy guidelines and the regulatory
framework for Prompt Corrective Action, the Subsidiary Banks must meet specific
capital guidelines that involve quantitative measures of the Subsidiary Banks'
assets, liabilities and certain off-balance-sheet items as calculated under
regulatory accounting practices. The Subsidiary Banks' capital amounts and
classification are also subject to qualitative judgments by the regulators about
components, risk weightings and other factors.
Quantitative measures established by regulations to ensure capital
adequacy require the Subsidiary Banks to maintain certain minimum ratios. The
Subsidiary Banks are required to maintain a minimum risk-based capital to
risk-weighted assets ratio of 8.0%, with at least 4.0% being "Tier 1" capital
(as defined in the regulations). In addition, a minimum leverage ratio (Tier 1
capital to average assets) of 3.0% plus an additional cushion of 100 to 200
basis points is expected. In order to be considered well capitalized under
Prompt Corrective Action provisions, a bank is required to maintain a risk
weighted asset ratio of at least 10%, a Tier 1 to risk weighted assets ratio of
at least 6%, and a leverage ratio of at least 5%. As of December 31, 1997, the
date of the most recent notification from First Banks' primary regulator, each
of the Subsidiary Banks was categorized as well capitalized under the regulatory
framework for Prompt Corrective Action.
At June 30, 1998 and December 31, 1997, First Banks' and the Subsidiary
Banks' capital ratios were as follows:
<TABLE>
<CAPTION>
Risk based capital ratios
-------------------------
Total Tier 1 Leverage Ratio
----- ------ --------------
1998 1997 1998 1997 1998 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
First Banks...................... 9.96% 10.26% 8.61% 8.78% 6.78% 6.80%
First Bank....................... 10.51 10.78 9.26 9.52 7.33 7.19
FB&T............................. 11.00 12.71 9.74 11.45 7.07 7.70
BankTEXAS........................ 12.48 12.26 11.23 11.00 9.27 8.90
FB California.................... 11.35 13.03 11.09 11.77 8.06 13.80
First Commercial (1)............. -- 11.25 -- 9.98 -- 7.96
</TABLE>
- ----------
(1) Merged into FB California effective February 2, 1998.
<PAGE>
(4) Cumulative Trust Preferred Securities of First America Capital Trust
During July 1998, First America Capital Trust (First Capital), a
newly-formed Delaware business subsidiary of FBA, issued 1.84 million shares of
8.50% Cumulative Trust Preferred Securities (Preferred Securities) at $25.00 per
share in an underwritten public offering. FBA made certain guarantees and
commitments relating to the Preferred Securities. FBA's proceeds from the
issuance of the Preferred Securities, net of underwriting fees and offering
expenses, were approximately $44.0 million. Distributions payable on the
Preferred Securities will be payable quarterly in arrears on March 31, June 30,
September 30 and December 31 of each year commencing September 30, 1998. The
distributions will be recorded as a noninterest expense in the consolidated
financial statements.
The proceeds from the offering will be used to repay outstanding
indebtedness under First Banks' note payable to a group of unaffiliated banks,
for acquisitions (including the pending acquisition of Redwood Bancorp) and for
general corporate purposes. Available proceeds will be temporarily invested in
short-term securities.
<PAGE>
Item 2: Management's Discussion and Analysis of
Financial Condition and Results of Operations
The discussion herein contains certain forward looking statements
regarding the financial condition, results of operations and business of First
Banks. These forward looking statements are subject to 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 such forward looking
statements include general market conditions, conditions affecting the banking
industry generally and factors having a specific impact on First Banks,
including but not limited to fluctuations in interest rates and in the economy;
the impact of laws and regulations applicable to First Banks and changes
therein; competitive conditions in the markets in which First Banks and the
Subsidiary Banks conduct their operations; and the ability of the Company to
respond to changes in technology. Additional factors potentially affecting First
Banks' results were identified in the Annual Report on Form 10-K filed with the
Securities and Exchange Commission. Readers should not place undue reliance on
any forward looking statements herein.
General
First Banks is a registered bank holding company, incorporated in
Missouri in 1978 and headquartered in St. Louis County, Missouri. At June 30,
1998, First Banks had $4.28 billion in total assets; $3.23 billion in total
loans, net of unearned discount; $3.78 billion in total deposits; and $244
million in total stockholders' equity.
Through the Subsidiary Banks, First Banks offers a broad range of
commercial and personal banking services including certificate of deposit
accounts, individual retirement and other time deposit accounts, checking and
other demand deposit accounts, interest checking accounts, savings accounts and
money market accounts. Loans include commercial, financial, agricultural, real
estate construction and development, commercial and residential real estate and
consumer and installment loans. Other financial services include mortgage
banking, discount brokerage, credit-related insurance, automatic teller
machines, safe deposit boxes, cash management, lockbox and trust services
offered by certain Subsidiary Banks.
<TABLE>
<CAPTION>
The following table lists the Subsidiary Banks at June 30, 1998:
Number Loans, net
of of unearned Total
Subsidiary Banks locations Total assets discount deposits
---------------- --------- ------------ -------- --------
(dollars expressed in thousands)
<S> <C> <C> <C> <C>
First Bank.............................. 98 $ 2,897,457 2,288,800 2,602,307
FBA:
BankTEXAS............................ 6 268,434 177,418 231,359
FB California........................ 11 401,841 291,774 355,084
CCB:
FB&T................................. 18 694,617 475,283 610,798
</TABLE>
Financial Condition
First Banks' total assets increased by $110 million to $4.28 billion
from $4.17 billion at June 30, 1998 and December 31, 1997, respectively. This
increase is primarily attributable to the increase in deposits of $100 million
to $3.78 billion from $3.68 billion at June 30, 1998 and December 31, 1997,
respectively. The funds generated by the increase in deposits along with the
funds provided by the decrease in investment securities of $132 million during
the same period were primarily utilized to fund loan growth of $230 million.
<PAGE>
Results of Operations
Net Income
Net income for the three months ended June 30, 1998 was $6.9 million,
compared to $7.9 million for the same period in 1997. While net income
decreased, earnings per share on a diluted basis increased to $274.34 from
$267.97 for the three months ended June 30, 1998 and 1997, respectively. Net
income for the six months ended June 30, 1998 and 1997 was $14.2 million and
$15.7 million, or $568.22 and $534.73 per share on a diluted basis,
respectively. The increase in earnings per share reflects the effect of the
redemption of First Banks' Class C preferred stock in December 1997, and the
resulting reduction of First Banks' quarterly dividend requirement by
approximately $1.2 million and $2.4 million for the three and six month periods
ended June 30, 1998, respectively. However, the funds required for the
redemption were borrowed, resulting in an increase in interest expense of
$900,000 and $1.9 million for the three and six month periods ended June 30,
1998, respectively. Since the Class C dividend requirement is not deducted in
the determination of net income, whereas interest expense is, the effect of this
was to reduce 1998 net income by $585,000 and $1.24 million for the three and
six month periods, respectively, when compared to the same periods in 1997.
The results for the three and six month periods ended June 30, 1998
include the additional costs associated with Surety Bank's and Pacific Bay
Bank's data processing and back-office conversions to First Banks' systems and
procedures. Surety Bank, Vallejo, California, and Pacific Bay Bank, San Pablo,
California, were acquired in December 1997 and February 1998, respectively.
Net Interest Income
Net interest income (expressed on a tax-equivalent basis) improved to
$40.1 million, or 4.07% of average interest earning assets, for the three months
ended June 30, 1998, from $35.6 million, or 4.10% of average interest earning
assets, for the same period in 1997. For the six months ended June 30, 1998 and
1997, net interest income (expressed on a tax-equivalent basis) was $78.6
million, or 4.06%, and $69.2 million, or 4.04%, of average interest earning
assets, respectively.
The increased net interest income for 1998 is attributable to the
increase in average interest-earning assets of $459.4 million and $453.4 million
for the three and six month periods ended June 30, 1998, respectively, compared
to the same periods in 1997. The increase is attributable to loans which
increased on average by $352.0 million and $304.1 million for the three and six
month periods ended June 30, 1998, respectively, over the same periods in 1997.
Contributing further to the improved net interest income was the decrease in the
cost of interest-bearing liabilities to 4.81% and 4.86% for the three and six
month periods ended June 30, 1998, compared to 4.94% and 4.91% for the same
periods in 1997, respectively. This reflects the continual process of realigning
the deposit portfolios of acquired entities and the overall increase in the
percentage of demand deposits and savings deposits to total deposits.
Offsetting the increase in net interest income is the amortization and
periodic costs of hedging the interest rate risk position of First Banks. The
cost of hedging totaled $991,000 and $2.0 million for the three and six month
periods ended June 30, 1998, compared to $1.2 million and $2.4 million for the
same periods in 1997. The decrease in the cost of hedging for 1998 is
attributable to the reduced level of interest rate risk resulting from the
realignment of the loan portfolio, combined with the gradual changes in the
composition of the investment securities portfolios from mortgage-backed
securities to U.S. Treasury and generic U.S. government agencies securities, and
changes in the composition of interest-bearing liabilities.
<PAGE>
The following table sets forth, on a tax-equivalent basis, certain
information relating to First Banks' average balance sheet, and reflects the
average yield earned on interest-earning assets, the average cost of
interest-bearing liabilities and the resulting net interest income for the three
and six month periods ended June 30:
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
---------------------------------------------- ---------------------------------------------
1998 1997 1998 1997
--------------------- ---------------------- ---------------------- --------------------
Interest Interest Interest Interest
Average income/ Yield/ Average income/Yield/ Average income/Yield/ Average income/Yield/
balance expense rate balance expense rate balance expense rate balance expense rate
------------------- ------- ------------ ------- ------- ---- ------- ------- ----
(dollars expressed in thousands)
Assets
------
Interest-earning assets:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans....................... $3,170,735 69,507 8.79% $2,818,728 62,957 8.96% $3,102,837136,322 8.86%$2,798,761 123,277 8.88%
Investment securities....... 712,523 10,809 6.08 564,395 8,633 6.14 727,515 22,005 6.10 559,550 16,752 6.04
Federal funds sold and other 61,897 854 5.53 102,653 1,407 5.50 72,611 1,990 5.53 91,263 2,502 5.53
---------- ------- ---------- ------ ---------- ------ ---------- -------
Total interest-earning
assets................ 3,945,155 81,170 8.25 3,485,776 72,997 8.40 3,902,963 160,317 8.28 3,449,574 142,531 8.33
------- ------ ------- -------
Nonearning assets.............. 303,401 219,363 298,518 226,733
---------- ---------- ---------- ----------
Total assets............ $4,248,556 $3,705,139 $4,201,481 $3,676,307
========== ========== ========== ==========
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Interest-bearing demand
deposits.................. $ 353,276 1,329 1.51% $ 330,058 1,400 1.71% $ 351,974 2,803 1.61% $ 332,005 2,805 1.70%
Savings deposits............ 1,031,642 10,232 3.98 685,316 5,641 3.31 999,149 19,785 3.99 683,355 11,039 3.26
Time deposits of $100
or more (1)............... 230,423 3,446 6.00 182,833 2,708 5.96 220,327 6,594 6.04 174,037 5,085 5.89
Other time deposits (1)..... 1,707,704 24,567 5.77 1,696,548 24,882 5.90 1,719,013 49,444 5.80 1,686,728 49,138 5.87
---------- ------- ---------- ------ ---------- ------ ---------- ------
Total interest-bearing
deposits.............. 3,323,045 39,574 4.78 2,894,755 34,631 4.81 3,290,463 78,626 4.82 2,876,125 68,067 4.77
Notes payable and other (1). 103,393 1,547 6.00 137,421 2,728 7.98 103,458 3,096 6.03 138,889 5,306 7.70
---------- ------- ---------- ------ ---------- ------ ---------- -------
Total interest-bearing
liabilities........... 3,426,438 41,121 4.81 3,032,176 37,359 4.94 3,393,921 81,722 4.86 3,015,014 73,373 4.91
------- ------ ------ -------
Noninterest-bearing liabilities:
Demand deposits............. 454,792 382,355 442,112 372,741
Other liabilities........... 127,397 37,684 128,217 37,163
---------- ---------- ---------- ----------
Total liabilities....... 4,008,627 3,452,215 3,964,250 3,424,918
Stockholders' equity........... 239,929 252,924 237,231 251,389
---------- ---------- ---------- ----------
Total liabilities and
stockholders' equity.. $4,248,556 $3,705,139 $4,201,481 $3,676,307
========== ========== ========== ==========
Net interest income............ 40,049 35,638 78,595 69,158
======= ====== ====== =======
Net interest margin............ 4.07% 4.10% 4.06% 4.04%
==== ==== ==== ====
- ------------
(1) Includes the effects of interest rate exchange agreements.
</TABLE>
<PAGE>
18
Provision for Possible Loan Losses
The provision for possible loan losses was $1.9 million and $4.0
million for the three and six month periods ended June 30, 1998, compared to
$3.2 million and $6.0 million for the same periods in 1997, respectively. The
decrease in the provision for possible loan losses is primarily attributable to
loan loss experience. For the six months ended June 30, 1998, First Banks
experienced net loan recoveries of $247,000, in comparison to net loan
charge-offs of $5.1 million for the same period in 1997. The acquisition of
Pacific Bay provided $885,000 in additional allowance for possible loan losses.
Tables summarizing nonperforming assets, past due loans and charge-off
experience are presented under "--Lending and Credit Management" of this Form
10-Q.
Noninterest Income
Noninterest income was $8.4 million and $16.2 million for the three and
six month periods ended June 30, 1998, respectively, compared to $5.7 million
and $10.9 million for the same period in 1997. The largest component of
noninterest income is service charges on deposit accounts and other non-yield
customer service fees.
Service charges on deposit accounts and customer service fees were $3.5
million and $6.9 million for the three and six month periods ended June 30,
1998, respectively, compared to $3.0 million and 6.0 million for the same
periods in 1997. The increase in service charges corresponds to the increase in
deposit balances provided both by internal growth and the acquisitions of Surety
Bank and Pacific Bay.
The gain on mortgage loans sold and held for sale increased to $863,000
and $1.9 million for the three and six month periods ended June 30, 1998, from
$87,000 and $208,000 for the same periods in 1997, respectively. This increase
is attributable to an increased volume of loans held for sale precipitated by
the increased demand for fixed rate residential mortgage loans and the overall
expansion of First Banks' mortgage banking activities in California.
Other income was $2.1 million and $4.2 million for the three and six
month periods ended June 30, 1998, compared to $1.5 million and $2.4 million for
the same periods in 1997. The primary component of the increase is $761,000 and
$1.4 million recognized as income on a bank-owned life insurance policy for the
three and six month periods ended June 30, 1998, respectively.
Noninterest Expense
Noninterest expense was $35.0 million and $67.1 million for the three
and six month periods ended June 30, 1998, respectively, compared to $27.8
million and $52.9 million for the same periods in 1997. The increase in
noninterest expense is attributable to the acquisitions of Surety Bank and
Pacific Bay and the continued expansion of First Banks' commercial and retail
functions within existing markets.
Salaries and employee benefits have increased to $14.4 million and
$27.3 million for the three and six month periods ended June 30, 1998, from
$10.6 million and $20.9 million for the same periods in 1997. The increase is
attributable to the newly acquired banks and First Banks' continued commitment
to expanding its commercial and retail business development capabilities.
Data processing fees for the three and six month periods ended June 30,
1998 were $3.0 million and $6.0 million, compared to $2.4 million and $3.5
million for the same periods in 1997, respectively. Effective April 1, 1997,
First Services, L.P., a limited partnership indirectly owned by First Banks'
Chairman and his immediate family, began providing data processing and related
services for First Banks. These services were previously provided by FirstServ,
Inc. a wholly owned subsidiary of First Banks. As a result, expenses related to
data processing and related services were recorded in various noninterest
expense categories for the periods prior to April 1, 1997. Subsequent to that
date, these expenses are reflected as data processing expenses.
<PAGE>
Other noninterest expense for the six months ended June 30, 1998
includes $1.1 million representing a one-time charitable contribution to the
Affordable Housing Assistance Program. In addition, the Subsidiary Banks settled
two lawsuits resulting in approximately $500,000 being charged to other
noninterest expense during the six month period ended June 30, 1998.
Lending and Credit Management
Interest earned on the loan portfolio is the primary source of income
of First Banks. Total loans, net of unearned discount, represented 75.6% and
72.1% of total assets as of June 30, 1998 and December 31, 1997, respectively.
Total loans, excluding loans held for sale and net of unearned discount,
increased by $185.7 million to $3.13 billion at June 30, 1998, from $2.94
billion at December 31, 1997. The increase reflects continued growth within
corporate lending of $225.8 million, offset by the decrease of the residential
mortgage and consumer and installment loan portfolios of $74.9 million and
$968,000, respectively, at June 30, 1998 in comparison to December 31, 1997.
These decreases are attributable to the reductions of new loan origination
volumes that are held for investment and the continued repayment of principal on
the existing portfolios.
<TABLE>
<CAPTION>
The following is a summary of nonperforming assets by category:
June 30, December 31,
1998 1997
---- ----
(dollars expressed in thousands)
<S> <C> <C>
Commercial, financial and agricultural....................................... $ 7,875 6,025
Real estate construction and development..................................... 5,102 4,097
Real estate mortgage......................................................... 23,522 19,305
Consumer and installment..................................................... 91 94
---------- -----------
Total nonperforming loans........................................... 36,590 29,521
Other real estate............................................................ 5,815 7,324
---------- -----------
Total nonperforming assets.......................................... $ 42,405 36,845
========== ===========
Loans, net of unearned discount.............................................. $3,232,240 3,002,200
========== ===========
Loans past due 90 days or more
and still accruing........................................................ $ 2,738 2,725
========== ===========
Asset Quality Ratios:
Allowance for possible loan losses to loans .............................. 1.72% 1.68%
Nonperforming loans to loans.............................................. 1.13 0.98
Allowance for possible loan losses
to nonperforming loans................................................. 151.93 171.10
Nonperforming assets to loans and other real estate....................... 1.31 1.22
========== ===========
</TABLE>
Nonperforming loans, consisting of loans on nonaccrual status and
restructured loans, were $36.6 million at June 30, 1998 in comparison to $29.5
million at December 31, 1997. The increase is primarily attributable to the
modest increase in corporate banking loans, including commercial and financial,
construction and commercial real estate loans, and the loans obtained through
the acquisition of Pacific Bay. The acquired allowance for possible loan losses
totaled $885,000 at the acquisition date.
Impaired loans, consisting of nonaccrual loans, were $33.8 million and
$24.1 million at June 30, 1998 and December 31, 1997, respectively.
<PAGE>
<TABLE>
<CAPTION>
The following is a summary of loan loss experience for the three and
six month periods ended June 30:
Three months ended Six months ended
June 30, June 30,
-------------- -----------------
1998 1997 1998 1997
---- ---- ---- ----
(dollars expressed in thousands)
Allowance for possible loan losses,
<S> <C> <C> <C> <C>
beginning of period.................................................. $ 54,043 47,523 50,509 46,781
Acquired allowances for possible loan losses............................. -- -- 885 --
-------- -------- ------- --------
54,043 47,523 51,394 46,781
-------- -------- ------- --------
Loans charged-off........................................................ (2,082) (5,907) (4,138) (10,648)
Recoveries of loans previously charged-off............................... 1,780 2,917 4,385 5,550
-------- -------- ------- --------
Net loan (charge-offs) recoveries................................... (302) (2,990) 247 (5,098)
--------- -------- ------- --------
Provision for possible loan losses....................................... 1,850 3,175 3,950 6,025
-------- -------- ------- --------
Allowance for possible loan losses, end of period........................ $ 55,591 47,708 55,591 47,708
======== ======== ======= ========
</TABLE>
The allowance for possible loan losses is monitored on a monthly basis.
Each month, credit administration provides First Banks' management with detailed
lists of loans on the watch list and summaries of the entire loan portfolio of
each Subsidiary Bank by risk rating. These are coupled with analyses of changes
in the risk profiles of the portfolios, changes in past due and nonperforming
loans and changes in watch list and classified loans over time. In this manner,
the overall increases or decreases in the levels of risk in the portfolios are
monitored continually. Factors are applied to the loan portfolios for each
category of loan risk to determine acceptable levels of allowance for possible
loan losses. These factors are derived primarily from the actual loss experience
of the Subsidiary Banks and from published national surveys of norms in the
industry. The calculated allowances required for the portfolios are then
compared to the actual allowance balances to determine the provisions necessary
to maintain the allowances at appropriate levels. In addition, management
exercises judgment in its analysis of determining the overall level of the
allowance for possible losses. In its analysis, management considers the change
in the portfolio, including growth and composition, and the economic conditions
of the regions in which First Banks 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.
Interest Rate Risk Management
<TABLE>
<CAPTION>
Derivative financial instruments held by First Banks for purposes of
managing interest rate risk are summarized as follows:
June 30, 1998 December 31, 1997
---------------------- --------------------
Notional Credit Notional Credit
amount exposure amount exposure
------ -------- ------ --------
(dollars expressed in thousands)
<S> <C> <C>
Interest rate swap agreement.................. $ 15,000 57 -- --
Interest rate floor agreements................ 70,000 5 70,000 26
Interest rate cap agreement................... 10,000 131 10,000 222
Forward commitments to sell
mortgage-backed securities.................. 78,000 -- 60,000 --
</TABLE>
The notional amounts of derivative financial instruments do not
represent amounts exchanged by the parties and, therefore, are not a measure of
First Banks' credit exposure through its use of derivative financial
instruments. The amounts exchanged are determined by reference to the notional
amounts and the other terms of the derivatives.
First Bank utilizes interest rate swap agreements to alter the
repricing characteristics of certain interest-bearing liabilities to correspond
more closely with its assets, with the objective of stabilizing net interest
<PAGE>
income over time. The utilization of swaps decreased with the change in the
composition of the balance sheet, resulting in no open swap agreements as of
December 31, 1997. The net interest expense for these agreements, consisting
solely of amortization of deferred losses, was $2.0 million and $1.5 million for
the six month periods ended June 30, 1998 and 1997, respectively. Deferred
losses on terminated swap agreements are being amortized over the remaining life
of the swap agreement. If all or any portion of the underlying liabilities are
repaid, the related deferred losses are charged to operations. At June 30, 1998
and December 31, 1997, the unamortized balance of these deferred losses were
$7.4 million and $9.4 million, respectively.
In June 1998, First Bank entered into a $15.0 million interest rate
swap agreement (Swap Agreement) to effectively shorten the repricing
characteristics of certain interest-bearing liabilities to correspond more
closely with its assets, with the objective of stabilizing net interest income
over time. The Swap Agreement, which matures on June 11, 2002, provides for
First Bank to receive a fixed rate of interest of 5.99% and pay an adjustable
rate equivalent to the 90 day London interbank offering rate (LIBOR). The net
amount due to First Bank under the Swap Agreement was $2,000 at June 30, 1998.
First Banks has interest rate cap and floor agreements outstanding to
limit the interest expense associated with certain interest-bearing liabilities.
At June 30, 1998 and December 31, 1997, the unamortized costs for these
agreements were $224,000 and $290,000, respectively, and were included in other
assets.
Derivative financial instruments issued by First Banks consist of
commitments to originate fixed-rate loans. Commitments to originate fixed-rate
loans consist primarily of residential real estate loans. These loan
commitments, net of estimated underwriting fallout, and loans held for sale are
hedged with forward contracts to sell mortgage-backed securities.
Liquidity
The liquidity of First Banks and its Subsidiary Banks is the ability to
maintain a cash flow which is adequate to fund operations, service debt
obligations and meet other commitments on a timely basis. The primary sources of
funds for liquidity are derived from customer deposits, loan payments,
maturities, sales of investments and earnings.
In addition, First Banks and its Subsidiary Banks may avail themselves
of more volatile sources of funds through issuance of certificates of deposit in
denominations of $100,000 or more, federal funds borrowed, securities sold under
agreements to repurchase and other borrowings, including First Banks' $90
million credit agreement with a group of unaffiliated financial institutions.
The aggregate funds acquired from those sources were $352.0 million at June 30,
1998 and $328.7 million at December 31, 1997.
At June 30, 1998, First Banks' more volatile sources of funds mature as
follows:
(dollars expressed in
thousands)
Three months or less.......................... $ 149,694
Over three months through six months.......... 41,044
Over six months through twelve months......... 74,043
Over twelve months............................ 87,202
---------
Total....................................... $ 351,983
=========
Management believes the future earnings of its Subsidiary Banks will be
sufficient to provide funds for growth and to permit the distribution of
dividends to First Banks sufficient to meet First Banks' operating and debt
service requirements both on a short-term and long-term basis and to pay the
dividends on the Preferred Securities.
<PAGE>
Year 2000
First Banks and the Subsidiary Banks are subject to risks associated
with the "Year 2000" problem, a term which refers to uncertainties about the
ability of various data processing hardware and software systems to interpret
dates correctly after the beginning of the Year 2000. Generally, most software
used by First Banks is purchased from outside vendors. Consequently, First Banks
has been working with these vendors to determine whether these issues are being
adequately addressed. First Banks has been developing testing procedures and
schedules to verify the ability of equipment and software to handle Year 2000
issues. This testing will be implemented during the third and fourth quarters of
1998. Certain equipment known to be incompatible with Year 2000 is scheduled for
replacement during the fourth quarter of 1998 and first quarter of 1999.
First Banks' process of evaluating potential effects of Year 2000
issues on customers of the Subsidiary Banks is in its early stages, and it is
therefore impossible to quantify the potential adverse effects of incompatible
systems on customers of the Subsidiary Banks. The failure of a commercial bank
customer to prepare adequately for Year 2000 compatibility could have a
significant adverse effect on such customer's operations and profitability, in
turn inhibiting its ability to repay loans in accordance with their terms or
requiring the use of its deposited funds. Until sufficient information is
accumulated from customers of the banks to enable First Banks to assess the
degree to which customers' operations are susceptible to potential problems,
First Banks will be unable to quantify the potential effect on its commercial
customers. In addressing the uncertainty, First Banks has revised its
methodology with respect to the adequacy of its allowance for possible loan
losses to include an allocation for the estimated risks associated with the Year
2000 issue.
Effects of New Accounting Standards
First Banks adopted the provisions of Statement of Financial
Accounting Standards (SFAS) No. 130 - Reporting Comprehensive Income (SFAS 130)
retroactively on January 1, 1998. SFAS 130 established standards for reporting
and displaying income and its components (revenues, gains, and losses) in a full
set of general purpose financial statements. The statement requires all items
that are required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. Comparative financial
statements provided for earlier periods have been restated to reflect the
application of SFAS 130. The implementation of SFAS 130 did not have material
impact on First Banks' consolidated financial statements.
During 1997, the FASB issued SFAS No. 131 - Disclosures about Segments
of an Enterprise and Related Information. The statement establishes standards
for the way public business enterprises report information about operating
segments in annual financial statements and requires those enterprises to report
selected information about operating segments in interim financial reports
issued to shareholders. Additionally, the statement establishes standards for
related disclosures about products and services, geographic areas, and major
customers superseding SFAS No. 14 - Financial Reporting for Segments of a
Business Enterprise. First Banks is currently evaluating information required in
the statement and believes expanded disclosure information will be required to
be included in First Banks' consolidated financial statements for fiscal years
beginning after December 15, 1997.
In June 1998, the FASB issued SFAS No. 133 - Accounting for Derivative
Instruments and Hedging Activities (SFAS 133). SFAS 133 establishes standards
for derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. It requires an entity to recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. SFAS 133 is effective for
all fiscal years beginning after June 15, 1999. Earlier application of SFAS 133
is encouraged but should not be applied retroactively to financial statements of
prior periods. First Banks is currently evaluating the requirements and impact
of SFAS 133.
Part II- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) These Exhibits are numbered in accordance with the Exhibit Table of Item
601 of Regulation S-K.
Exhibit
Number Description
------ -----------
11 Calculations of Earnings Per Share.
27 Article 9 - Financial Data Schedule (EDGAR only)
(b) First Banks filed no reports on Form 8-K during the three month period
ended June 30, 1998.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRST BANKS, INC.
Registrant
Date: August 13, 1998 By: /s/ James F. Dierberg
---------------------
James F. Dierberg
Chairman, President and
Chief Executive Officer
Date: August 13, 1998 By: /s/ Allen H. Blake
------------------
Allen H. Blake
Executive Vice President
and Chief Financial Officer
(Principal Financial Officer)
<PAGE>
Exhibit 11
The following is a reconciliation of the numerators and denominators of
the basic and diluted EPS computations for the periods indicated:
<TABLE>
<CAPTION>
Income Shares Per-share
(numerator) (denominator) Amount
----------- ------------- ------
(dollars expressed in thousands, except per share data)
Three months ended June 30, 1998:
<S> <C> <C> <C>
Basic EPS-income available to common stockholders......... $ 6,745 23,661 $ 285.02
========
Effect of dilutive securities:
Class A convertible preferred stock..................... 128 1,389
-------- --------
Diluted EPS-income available to common stockholders....... $ 6,873 25,050 $ 274.34
======== ======== ========
Three months ended June 30, 1997:
Basic EPS-income available to common stockholders......... $ 6,654 23,661 $ 281.23
========
Effect of dilutive securities:
Class A convertible preferred stock..................... 128 1,645
-------- --------
Diluted EPS-income available to common stockholders....... $ 6,782 25,306 $ 267.97
======== ======== ========
Six months ended June 30, 1998:
Basic EPS-income available to common stockholders......... $ 13,914 23,661 $ 588.03
========
Effect of dilutive securities:
Class A convertible preferred stock..................... 321 1,389
-------- --------
Diluted EPS-income available to common stockholders....... $ 14,235 25,050 $ 568.22
======== ======== ========
Six months ended June 30, 1997:
Basic EPS-income available to common stockholders......... $ 13,211 23,661 $ 558.33
========
Effect of dilutive securities:
Class A convertible preferred stock..................... 321 1,645
-------- --------
Diluted EPS-income available to common stockholders....... $ 13,532 25,306 $ 534.73
======== ======== ========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000710507
<NAME> First Banks, Inc.
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-START> Jan-01-1998
<PERIOD-END> Jun-30-1998
<CASH> 134,230
<INT-BEARING-DEPOSITS> 2,147
<FED-FUNDS-SOLD> 32,000
<TRADING-ASSETS> 4,502
<INVESTMENTS-HELD-FOR-SALE> 639,457
<INVESTMENTS-CARRYING> 19,129
<INVESTMENTS-MARKET> 0
<LOANS> 3,232,240
<ALLOWANCE> (55,591)
<TOTAL-ASSETS> 4,275,463
<DEPOSITS> 3,783,772
<SHORT-TERM> 63,086
<LIABILITIES-OTHER> 49,846
<LONG-TERM> 134,284
0
13,063
<COMMON> 5,915
<OTHER-SE> 225,497
<TOTAL-LIABILITIES-AND-EQUITY> 4,275,463
<INTEREST-LOAN> 136,170
<INTEREST-INVEST> 21,710
<INTEREST-OTHER> 1,990
<INTEREST-TOTAL> 159,870
<INTEREST-DEPOSIT> 76,695
<INTEREST-EXPENSE> 81,722
<INTEREST-INCOME-NET> 78,148
<LOAN-LOSSES> 3,950
<SECURITIES-GAINS> 256
<EXPENSE-OTHER> 67,096
<INCOME-PRETAX> 23,253
<INCOME-PRE-EXTRAORDINARY> 23,253
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,242
<EPS-PRIMARY> 588.03
<EPS-DILUTED> 568.22
<YIELD-ACTUAL> 8.25
<LOANS-NON> 33,800
<LOANS-PAST> 2,738
<LOANS-TROUBLED> 830
<LOANS-PROBLEM> 24,271
<ALLOWANCE-OPEN> 50,509
<CHARGE-OFFS> (4,138)
<RECOVERIES> 4,385
<ALLOWANCE-CLOSE> 55,591
<ALLOWANCE-DOMESTIC> 55,951
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 5,749
</TABLE>
