UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _______ to ________
Commission File No. 0-20632
FIRST BANKS, INC.
(Exact name of registrant as specified in its charter)
MISSOURI 43-1175538
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
135 North Meramec, Clayton, Missouri 63105
(Address of principal executive offices) (Zip Code)
(314) 854-4600
(Registrant's telephone number, including area code)
--------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--------- --------
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practical date.
Shares outstanding
Class at July 31, 2000
----- ------------------
Common Stock, $250.00 par value 23,661
<PAGE>
FIRST BANKS, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS - (UNAUDITED):
<S> <C>
CONSOLIDATED BALANCE SHEETS......................................................... 1
CONSOLIDATED STATEMENTS OF INCOME................................................... 3
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME........................................................ 4
CONSOLIDATED STATEMENTS OF CASH FLOWS............................................... 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.......................................... 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS........................................................ 12
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.......................... 23
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K..................................................... 24
SIGNATURES ...................................................................................... 25
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
FIRST BANKS, INC.
CONSOLIDATED BALANCE SHEETS - (UNAUDITED)
(dollars expressed in thousands, except per share data)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
---- ----
ASSETS
------
Cash and cash equivalents:
<S> <C> <C>
Cash and due from banks....................................................... $ 137,265 126,720
Interest-bearing deposits with other financial institutions
with maturities of three months or less..................................... 3,424 1,674
Federal funds sold............................................................ 19,100 42,500
------------ -----------
Total cash and cash equivalents..................................... 159,789 170,894
------------ -----------
Investment securities:
Available for sale, at fair value............................................. 414,978 430,093
Held to maturity, at amortized cost (fair value of $21,302 and
$21,476 at June 30, 2000 and December 31, 1999, respectively)............... 21,342 21,554
------------ -----------
Total investment securities......................................... 436,320 451,647
------------ -----------
Loans:
Commercial, financial and agricultural........................................ 1,284,606 1,086,919
Real estate construction and development...................................... 816,687 795,081
Real estate mortgage.......................................................... 1,996,265 1,851,569
Consumer and installment...................................................... 195,930 233,374
Loans held for sale........................................................... 40,067 37,412
------------ -----------
Total loans......................................................... 4,333,555 4,004,355
Unearned discount............................................................. (7,162) (8,031)
Allowance for loan losses..................................................... (77,822) (68,611)
------------ -----------
Net loans........................................................... 4,248,571 3,927,713
------------ -----------
Bank premises and equipment, net of accumulated
depreciation and amortization................................................. 80,922 75,647
Intangibles associated with the purchase of subsidiaries........................... 47,995 46,085
Accrued interest receivable........................................................ 37,331 33,491
Deferred income taxes.............................................................. 63,930 51,972
Other assets....................................................................... 105,614 110,298
------------ -----------
Total assets........................................................ $ 5,180,472 4,867,747
============ ===========
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
<PAGE>
FIRST BANKS, INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED) - (UNAUDITED)
(dollars expressed in thousands, except per share data)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
---- ----
LIABILITIES
-----------
Deposits:
Demand:
<S> <C> <C>
Non-interest-bearing........................................................ $ 649,606 606,064
Interest-bearing............................................................ 396,400 415,113
Savings....................................................................... 1,269,595 1,198,314
Time:
Time deposits of $100 or more............................................... 353,839 339,214
Other time deposits......................................................... 1,787,013 1,693,109
------------ -----------
Total deposits........................................................... 4,456,453 4,251,814
Short-term borrowings.............................................................. 150,812 73,554
Note payable....................................................................... 58,500 64,000
Accrued interest payable........................................................... 13,067 11,607
Deferred income taxes.............................................................. 10,639 6,582
Accrued expenses and other liabilities............................................. 29,124 25,616
Minority interest in subsidiary.................................................... 12,142 12,058
------------ -----------
Total liabilities........................................................ 4,730,737 4,445,231
------------ -----------
Guaranteed preferred beneficial interests in:
First Banks, Inc. subordinated debentures..................................... 83,446 83,394
First Banks America, Inc. subordinated debentures............................. 44,249 44,217
------------ ------------
Total guaranteed preferred beneficial interests in
subordinated debentures.............................................. 127,695 127,611
------------ ------------
STOCKHOLDERS' EQUITY
--------------------
Preferred stock:
$1.00 par value, 5,000,000 shares authorized, no shares issued
and outstanding at June 30, 2000 and December 31, 1999...................... -- --
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.................................................................... 2,989 3,318
Retained earnings.................................................................. 299,190 270,259
Accumulated other comprehensive income............................................. 883 2,350
------------ -----------
Total stockholders' equity............................................... 322,040 294,905
------------ -----------
Total liabilities and stockholders' equity............................... $ 5,180,472 4,867,747
============ ===========
</TABLE>
<PAGE>
FIRST BANKS, INC.
CONSOLIDATED STATEMENTS OF INCOME - (UNAUDITED)
(dollars expressed in thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
------------------ -------------------
2000 1999 2000 1999
---- ---- ---- ----
Interest income:
<S> <C> <C> <C> <C>
Interest and fees on loans....................................... $ 96,148 78,964 185,826 153,639
Investment securities............................................ 7,149 6,445 14,019 14,107
Federal funds sold and other..................................... 864 232 2,033 455
-------- ------ -------- --------
Total interest income........................................ 104,161 85,641 201,878 168,201
-------- ------ -------- --------
Interest expense:
Deposits:
Interest-bearing demand........................................ 1,420 1,182 2,885 2,296
Savings........................................................ 12,434 11,085 24,070 22,014
Time deposits of $100 or more.................................. 2,840 2,691 5,855 5,466
Other time deposits............................................ 26,315 19,831 50,222 40,961
Interest rate exchange agreements, net........................... -- 1,305 -- 2,588
Short-term borrowings............................................ 1,406 1,420 2,515 2,259
Note payable..................................................... 1,356 636 2,511 1,532
-------- ------ -------- --------
Total interest expense....................................... 45,771 38,150 88,058 77,116
-------- ------ -------- --------
Net interest income.......................................... 58,390 47,491 113,820 91,085
Provision for loan losses............................................. 3,620 3,373 7,202 5,863
-------- ------ -------- --------
Net interest income after provision for loan losses.......... 54,770 44,118 106,618 85,222
-------- ------ -------- --------
Noninterest income:
Service charges on deposit accounts and customer service fees.... 4,872 4,475 9,464 8,357
Gain on mortgage loans sold and held for sale.................... 1,876 1,502 3,268 3,834
Net gain on sales of available-for-sale securities............... -- 115 379 792
Net loss on trading securities................................... -- -- -- (303)
Other............................................................ 4,723 7,423 7,924 10,438
-------- ------ -------- --------
Total noninterest income..................................... 11,471 13,515 21,035 23,118
-------- ------ -------- --------
Noninterest expense:
Salaries and employee benefits................................... 18,346 15,569 35,237 30,071
Occupancy, net of rental income.................................. 3,433 2,959 6,655 5,842
Furniture and equipment.......................................... 2,998 2,098 5,673 3,999
Postage, printing and supplies................................... 1,075 1,011 2,183 2,153
Data processing fees............................................. 5,474 4,687 10,663 9,223
Legal, examination and professional fees......................... 1,014 1,922 2,003 3,242
(Gain) loss on sales of other real estate, net of expenses....... (45) 39 (224) (14)
Guaranteed preferred debentures.................................. 2,998 3,014 6,012 6,028
Other............................................................ 6,624 5,949 11,508 12,191
-------- ------ -------- --------
Total noninterest expense.................................... 41,917 37,248 79,710 72,735
-------- ------ -------- --------
Income before provision for income taxes and minority
interest in income of subsidiary........................... 24,324 20,385 47,943 35,605
Provision for income taxes............................................ 9,197 7,465 17,741 13,103
-------- ------ -------- --------
Income before minority interest in income of subsidiary...... 15,127 12,920 30,202 22,502
Minority interest in income of subsidiary............................. 455 361 943 672
-------- ------ -------- --------
Net income................................................... 14,672 12,559 29,259 21,830
Preferred stock dividends............................................. 132 132 328 328
-------- ------ -------- --------
Net income available to common stockholders.................. $ 14,540 12,427 28,931 21,502
======== ====== ======== ========
Earnings per common share:
Basic............................................................ $ 614.51 525.23 1,222.71 908.75
Diluted.......................................................... 594.12 505.15 1,182.47 877.36
======== ====== ======== ========
Weighted average shares of common stock outstanding................... 23,661 23,661 23,661 23,661
======== ====== ======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
<PAGE>
FIRST BANKS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME - (UNAUDITED)
Six months ended June 30, 2000 and 1999 and six months ended December 31, 1999
(dollars expressed in thousands, except per share data)
<TABLE>
<CAPTION>
Accu-
Adjustable rate mulated
preferred stock other Total
------------------
Class A Compre- compre- stock-
conver- Common Capital hensiveRetained hensive holders'
tible Class B stock surplus income earnings income equity
----- ------- ----- ------- ------ -------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Consolidated balances, December 31, 1998......... $12,822 241 5,915 780 231,867 11,738 263,363
Six months ended June 30, 1999:
Comprehensive income:
Net income................................. -- -- -- -- 21,830 21,830 -- 21,830
Other comprehensive income, net of tax
Unrealized losses on securities, net of
reclassification adjustment (1)........ -- -- -- -- (4,916) -- (4,916) (4,916)
------
Comprehensive income....................... 16,914
======
Class A preferred stock dividends,
$0.50 per share............................ -- -- -- -- (321) -- (321)
Class B preferred stock dividends,
$0.04 per share............................ -- -- -- -- (7) -- (7)
Effect of capital stock transactions of
majority-owned subsidiary................. -- -- -- (3,040) -- -- (3,040)
Reclassification of retained earnings........ -- -- -- 5,000 (5,000) -- --
Reduction of deferred tax asset
valuation reserve........................ -- -- -- 270 -- -- 270
------ ---- ----- ------ ------- ----- -------
Consolidated balances, June 30, 1999............. 12,822 241 5,915 3,010 248,369 6,822 277,179
Six months ended December 31, 1999:
Comprehensive income:
Net income................................. -- -- -- -- 22,348 22,348 -- 22,348
Other comprehensive income, net of tax
Unrealized losses on securities, net of
reclassification adjustment (1)........ -- -- -- -- (4,472) -- (4,472) (4,472)
------
Comprehensive income....................... 17,876
======
Class A preferred stock dividends,
$0.70 per share............................ -- -- -- -- (448) -- (448)
Class B preferred stock dividends,
$0.07 per share............................ -- -- -- -- (10) -- (10)
Effect of capital stock transactions of
majority-owned subsidiary................. -- -- -- (233) -- -- (233)
Reduction of deferred tax asse
valuation allowance........................ -- -- -- 541 -- -- 541
------ ---- ----- ----- ------- ----- -------
Consolidated balances, December 31, 1999......... 12,822 241 5,915 3,318 270,259 2,350 294,905
Six months ended June 30, 2000:
Comprehensive income:
Net income................................. -- -- -- -- 29,259 29,259 -- 29,259
Other comprehensive income, net of tax
Unrealized losses on securities, net of
reclassification adjustment (1)........ -- -- -- -- (1,467) -- (1,467) (1,467)
------
Comprehensive income....................... 27,792
======
Class A preferred stock dividends,
$0.50 per share............................ -- -- -- -- (321) -- (321)
Class B preferred stock dividends,
$0.04 per share............................ -- -- -- -- (7) -- (7)
Effect of capital stock transactions of
majority-owned subsidiary................. -- -- -- (329) -- -- (329)
------- ----- ---- ----- ------- ------ -------
Consolidated balances, June 30, 2000............. $12,822 241 5,915 2,989 299,190 883 322,040
======= ===== ===== ===== ======= ====== =======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
-------------------------
(1) Disclosure of reclassification adjustment:
Three months ended Six months ended Six months ended
June 30, June 30, December 31,
----------------- --------------- ------------
2000 1999 2000 1999 1999
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Unrealized losses arising during the period....................... $ (613) (2,467) (1,221) (4,401) (4,473)
Less reclassification adjustment for gains included in net income. -- 76 246 515 (1)
------- ------- ----- ----- -----
Unrealized losses on securities................................... $ (613) (2,543) (1,467) (4,916) (4,472)
======= ======= ====== ====== ======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
FIRST BANKS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS - (UNAUDITED)
(dollars expressed in thousands)
<TABLE>
<CAPTION>
Six months ended
June 30,
------------------
2000 1999
Cash flows from operating activities:
<S> <C> <C>
Net income........................................................................... $ 29,259 21,830
Adjustments to reconcile net income to net cash (used in) provided by
operating activities:
Depreciation and amortization of bank premises and equipment....................... 4,578 3,293
Amortization, net of accretion..................................................... 3,801 6,379
Originations and purchases of loans held for sale.................................. (238,508) (297,565)
Proceeds from the sale of loans held for sale...................................... 185,316 352,434
Provision for loan losses.......................................................... 7,202 5,863
Provision for income taxes......................................................... 17,741 13,103
Payments of income taxes........................................................... (5,382) (11,547)
Increase in accrued interest receivable............................................ (3,295) (2,462)
Net decrease in trading securities................................................. -- 3,425
Interest accrued on liabilities.................................................... 88,058 77,116
Payments of interest on liabilities................................................ (87,088) (73,901)
Gain on sale of branch facility.................................................... (1,355) (4,473)
Net gain on sales of available-for-sale investment securities...................... (379) (792)
Other operating activities, net.................................................... (12,080) 874
Minority interest in income of subsidiary.......................................... 943 672
-------- -------
Net cash (used in) provided by operating activities.............................. (11,189) 94,249
-------- -------
Cash flows from investing activities:
Cash paid for acquired entities, net of cash and cash equivalents received........... (2,709) (17,245)
Proceeds from sales of investment securities available for sale...................... 8,148 88,714
Maturities of investment securities available for sale............................... 191,276 85,650
Maturities of investment securities held to maturity................................. 679 1,503
Purchases of investment securities available for sale................................ (149,971) (15,029)
Purchases of investment securities held to maturity.................................. (489) (1,982)
Net increase in loans................................................................ (254,431) (120,721)
Recoveries of loans previously charged-off........................................... 6,180 4,206
Purchases of bank premises and equipment............................................. (10,039) (8,904)
Other investing activities........................................................... 2,183 (3,668)
-------- -------
Net cash (used in) provided by investing activities.............................. (209,173) 12,524
-------- -------
Cash flows from financing activities:
Increase (decrease) in demand and savings deposits................................... 55,340 (83,907)
Increase in time deposits............................................................ 81,595 26,221
Increase in federal funds purchased.................................................. 36,100 --
Decrease in Federal Home Loan Bank advances.......................................... -- (50,000)
Increase in securities sold under agreements to repurchase........................... 41,158 6,524
Decrease in note payable............................................................. (5,500) (2,048)
Payment of preferred stock dividends................................................. (328) (328)
Sale of branch deposits.............................................................. 892 (48,979)
-------- --------
Net cash provided by (used in) financing activities.............................. 209,257 (152,517)
-------- --------
Net decrease in cash and cash equivalents........................................ (11,105) (45,744)
Cash and cash equivalents, beginning of period............................................ 170,894 214,762
-------- --------
Cash and cash equivalents, end of period.................................................. $159,789 169,018
======== ========
Noncash investing and financing activities:
Loans transferred to other real estate............................................... $ 1,081 1,189
Loans held for sale transferred to available-for-sale investment securities.......... 7,186 --
Loans held for sale transferred to loans............................................. 46,153 9,206
======== ========
</TABLE>
The accompanying notes are an integral part of the 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 or the Company) are unaudited and should be read
in conjunction with the consolidated financial statements contained in the 1999
Annual Report on Form 10-K. The consolidated financial statements have been
prepared in accordance with generally accepted accounting principles and conform
to practices prevalent among financial institutions. Management of First Banks
has made a number of estimates and assumptions relating to the reporting of
assets and liabilities and the disclosure of contingent assets and liabilities
to prepare the consolidated financial statements in conformity with generally
accepted accounting principles. In the opinion of management, all adjustments,
consisting of normal recurring accruals considered necessary for a fair
presentation of the results of operations for the interim periods presented
herein, have been included. Operating results for the three and six months ended
June 30, 2000 are not necessarily indicative of the results that may be expected
for the year ending December 31, 2000.
The consolidated financial statements include the accounts of First
Banks, Inc. and its subsidiaries, net of minority interest, as more fully
described below. All significant intercompany accounts and transactions have
been eliminated. Certain reclassifications of 1999 amounts have been made to
conform with the 2000 presentation.
First Banks operates through its subsidiary bank holding companies and
financial institutions (collectively referred to as the Subsidiary Banks) and
through its non-banking subsidiary, First Capital Group, Inc., as follows:
First Bank, headquartered in St. Louis County, Missouri (First Bank);
First Bank & Trust, headquartered in Newport Beach, California (FB&T);
First Capital Group, Inc., headquartered in Albuquerque, New Mexico (FCG);
First Banks America, Inc., headquartered in St. Louis County, Missouri
(FBA), and its wholly owned subsidiaries:
First Bank Texas N.A., headquartered in Houston, Texas (FB Texas);
First Bank of California, headquartered in Sacramento, California
(FB California); and
Redwood Bank, headquartered in San Francisco, California.
The Subsidiary Banks and FCG are wholly owned by their respective
parent companies except FBA, which was 84.33% and 83.37% owned by First Banks at
June 30, 2000 and December 31, 1999, respectively.
(2) ACQUISITIONS
On February 29, 2000, FBA completed its acquisition of Lippo Bank, San
Francisco, California, in exchange for $17.2 million in cash. Lippo Bank
operated three banking locations in San Francisco, San Jose and Los Angeles,
California. The acquisition was funded from available cash. At the time of the
transaction, Lippo Bank had $85.3 million in total assets, $40.9 million in
loans, net of unearned discount, $37.4 million in investment securities and
$76.4 million in total deposits. This transaction was accounted for using the
purchase method of accounting. The excess of the cost over the fair value of the
net assets acquired was approximately $5.6 million and is being amortized over
15 years. Lippo Bank was merged into FB California on May 31, 2000.
On February 29, 2000, First Banks completed its acquisition of certain
assets and liabilities of FCG, Albuquerque, New Mexico, in exchange for $65.1
million in cash. FCG is a leasing company that specializes in commercial leasing
and operates a multi-state leasing business. The acquisition was funded from
available cash. At the time of the transaction, FCG had $64.6 million in total
assets, consisting almost solely of commercial leases, net of unearned income.
The premium paid on the lease portfolio acquired was $1.5 million and is being
amortized as a yield adjustment over approximately four years. FCG operates as a
direct subsidiary of First Banks, Inc.
<PAGE>
On March 21, 2000, First Banks executed a definitive agreement
providing for the acquisition of Bank of Ventura, headquartered in Ventura,
California, by First Banks. Under the terms of the agreement, the shareholders
of Bank of Ventura will receive $25.52 per share, subject to adjustment for
earnings from March 1, 2000 through the month prior to closing. At June 30,
2000, Bank of Ventura had $65.5 million in total assets, $38.6 million in loans,
net of unearned discount, $16.7 million in investment securities and $59.3
million in deposits. First Banks expects this transaction, which is subject to
the approval of Bank of Ventura shareholders, will be completed during the third
quarter of 2000.
On June 27, 2000, FBA and Commercial Bank of San Francisco (Commercial
Bank) executed a definitive agreement providing for the acquisition of
Commercial Bank, San Francisco, California, by FBA. Under the terms of the
agreement, the shareholders of Commercial Bank will receive $17.75 per share in
cash, or a total of approximately $29.5 million. Commercial Bank operates one
branch office in the San Francisco financial district. At June 30, 2000,
Commercial Bank had $178.4 million in total assets, $97.4 million in loans, net
of unearned discount, $63.8 million in investment securities and $132.7 million
in deposits. FBA expects this transaction, which is subject to regulatory
approvals and the approval of Commercial Bank shareholders, will be completed
during the first quarter of 2001.
On June 29, 2000, First Banks and FBA executed a definitive agreement
providing for the acquisition of First Banks' wholly owned subsidiary, FB&T, by
FBA. Under the terms of the agreement, First Banks will exchange all of the
outstanding stock of FB&T for approximately 6.5 million shares of common stock
of FBA, which will increase First Banks' ownership percentage of FBA to
approximately 93.0%. This transaction and related internal reorganizations will
allow First Banks and FBA to merge their Texas and California interests. FB&T
operates 26 banking locations in the counties of Los Angeles, Orange, Ventura
and Santa Barbara, California as well as branches in San Jose and Walnut Creek,
in Northern California. First Banks expects this transaction, which is subject
to regulatory and shareholder approvals, will be completed during the fourth
quarter of 2000.
(3) EARNINGS PER 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 in thousands, except for per share data)
Three months ended June 30, 2000:
<S> <C> <C> <C>
Basic EPS - income available to common stockholders............. $ 14,540 23,661 $ 614.51
==========
Effect of dilutive securities:
Class A convertible preferred stock........................... 128 1,028
--------- -------
Diluted EPS - income available to common stockholders........... $ 14,668 24,689 $ 594.12
========= ======= ==========
Three months ended June 30, 1999:
Basic EPS - income available to common stockholders............. $ 12,427 23,661 $ 525.23
==========
Effect of dilutive securities:
Class A convertible preferred stock........................... 128 1,194
--------- -------
Diluted EPS - income available to common stockholders........... $ 12,555 24,855 $ 505.15
========= ======= ==========
Six months ended June 30, 2000:
Basic EPS - income available to common stockholders............. $ 28,931 23,661 $ 1,222.71
==========
Effect of dilutive securities:
Class A convertible preferred stock........................... 321 1,076
--------- -------
Diluted EPS - income available to common stockholders........... $ 29,252 24,737 $ 1,182.47
========= ======= ==========
Six months ended June 30, 1999:
Basic EPS - income available to common stockholders............. $ 21,502 23,661 $ 908.75
==========
Effect of dilutive securities:
Class A convertible preferred stock........................... 321 1,212
--------- -------
Diluted EPS - income available to common stockholders........... $ 21,823 24,873 $ 877.36
========= ======= ==========
</TABLE>
<PAGE>
(4) TRANSACTIONS WITH RELATED PARTIES
First Brokerage America, L.L.C., a limited liability corporation which
is indirectly owned by First Banks' Chairman and members of his immediate
family, received approximately $565,000 and $1.1 million for the three and six
months ended June 30, 2000, and $507,000 and $924,000 for the comparable periods
in 1999, respectively, in commissions paid by unaffiliated third-party
companies. The commissions received were primarily in connection with the sales
of annuities and securities and other insurance products to individuals,
including customers of the Subsidiary Banks.
First Services, L.P., a limited partnership indirectly owned by First
Banks' Chairman and his adult children, provides data processing services and
operational support for First Banks, Inc. and its Subsidiary Banks. Fees paid
under agreements with First Services, L.P. were $4.7 million and $9.2 million
for the three and six months ended June 30, 2000, and $4.1 million and $8.2
million for the comparable periods in 1999, respectively. During the three
months ended June, 2000 and 1999, First Services, L.P. paid First Banks $435,000
and $269,000, respectively, and during the six months ended June 30, 2000 and
1999, First Services, L.P. paid First Banks $889,000 and $484,000, respectively,
in rental fees for the use of data processing and other equipment owned by First
Banks. The fees paid by First Banks for data processing services and the rental
fees charged by First Banks are at least as favorable as could have been
obtained from unaffiliated third parties.
(5) 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' financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt corrective
action, First Banks 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 First Banks and the Subsidiary Banks to maintain minimum
amounts and ratios of total and Tier I capital (as defined in the regulations)
to risk-weighted assets, and of Tier I capital to average assets. Management
believes, as of June 30, 2000, First Banks and the Subsidiary Banks were each
well capitalized under the applicable regulations.
As of June 30, 2000, the most recent notification from First Banks'
primary regulator categorized First Banks and the Subsidiary Banks as well
capitalized under the regulatory framework for prompt corrective action. To be
categorized as well capitalized, First Banks and the Subsidiary Banks must
maintain minimum total risk-based, Tier I risk-based and Tier I leverage ratios
as set forth in the table below.
At June 30, 2000 and December 31, 1999, First Banks' and the Subsidiary
Banks' required and actual capital ratios were as follows:
<TABLE>
<CAPTION>
To be well
Actual capitalized under
-----------------------
June 30, December 31, For capital prompt corrective
2000 1999 adequacy purposes action provisions
---- ---- ----------------- -----------------
Total capital (to risk-weighted assets):
<S> <C> <C> <C> <C>
First Banks............................. 10.26% 10.05% 8.0% 10.0%
First Bank.............................. 10.69 10.60 8.0 10.0
FB&T.................................... 10.96 10.96 8.0 10.0
FB California........................... 11.72 10.81 8.0 10.0
FB Texas................................ 12.04 12.42 8.0 10.0
Redwood Bank............................ 11.55 11.17 8.0 10.0
Tier 1 capital (to risk-weighted assets):
First Banks............................. 8.49% 8.00% 4.0% 6.0%
First Bank.............................. 9.44 9.35 4.0 6.0
FB&T.................................... 9.70 9.70 4.0 6.0
FB California........................... 10.46 9.56 4.0 6.0
FB Texas................................ 10.78 11.17 4.0 6.0
Redwood Bank............................ 10.34 10.15 4.0 6.0
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
To be well
Actual capitalized under
-----------------------
June 30, December 31, For capital prompt corrective
2000 1999 adequacy purposes action provisions
---- ---- ----------------- -----------------
Tier 1 capital (to average assets):
<S> <C> <C> <C> <C>
First Banks............................. 7.80% 7.14% 3.0% 5.0%
First Bank.............................. 8.50 8.10 3.0 5.0
FB&T.................................... 8.97 8.57 3.0 5.0
FB California........................... 9.72 9.95 3.0 5.0
FB Texas................................ 10.32 10.39 3.0 5.0
Redwood Bank............................ 9.17 8.48 3.0 5.0
</TABLE>
(6) BUSINESS SEGMENT RESULTS
First Banks' business segments are First Bank, FB California, Redwood
Bank, FB Texas and FB&T. The reportable business segments are consistent with
the management structure of First Banks and the Subsidiary Banks, the internal
reporting system that monitors performance and, in all material respects,
generally accepted accounting principles and practices predominant in the
banking industry.
Through the respective branch networks, First Bank, FB California,
Redwood Bank, FB Texas and FB&T provide similar products and services in four
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, financial and agricultural,
real estate construction and development, commercial and residential real
estate, commercial leasing, trade finance, consumer and installment, student and
Small Business Administration loans. Other financial services include mortgage
banking, debit and credit cards, brokerage services, credit-related insurance,
automatic teller machines, telephone account access, safe deposit boxes, trust
and private banking services and cash management services. The revenues
generated by each business segment consist primarily of interest income,
generated from the loan and investment security portfolios, and service charges
and fees, generated from the deposit products and services. The products and
services are offered to customers primarily within their respective geographic
areas, with the exception of loan participations executed between the Subsidiary
Banks.
The business segment results are summarized as follows:
<PAGE>
<TABLE>
<CAPTION>
First Bank FB California (1) Redwood Bank (2)
----------------------- ---------------------- ----------------------
June 30, December 31, June 30, December 31, June 30, December 31,
2000 1999 2000 1999 2000 1999
---- ---- ---- ---- ---- ----
(dollars expressed in thousands)
Balance sheet information:
<S> <C> <C> <C> <C> <C> <C>
Investment securities............................ $ 215,426 241,624 54,250 20,743 21,242 37,539
Loans, net of unearned discount.................. 2,714,862 2,527,649 445,681 379,632 143,866 138,902
Total assets..................................... 3,150,764 3,028,046 566,314 431,838 199,256 199,988
Deposits......................................... 2,675,427 2,689,671 488,729 367,563 172,369 173,703
Stockholders' equity............................. 274,267 263,466 66,373 47,990 24,893 24,275
========= ======== ======== ======= ======= =======
First Bank FB California (1) Redwood Bank (2)
--------------------- --------------------- --------------------
Three months ended Three months ended Three months ended
June 30, June 30, June 30,
--------------------- --------------------- --------------------
2000 1999 2000 1999 2000 1999
---- ---- ---- ---- ---- ----
Income statement information:
Interest income.................................. $ 61,869 54,418 12,329 8,132 3,951 3,750
Interest expense................................. 28,268 25,645 4,622 2,996 1,534 1,393
--------- -------- -------- ------- ------- -------
Net interest income......................... 33,601 28,773 7,707 5,136 2,417 2,357
Provision for loan losses........................ 3,150 2,600 45 20 150 73
--------- -------- -------- ------- ------- -------
Net interest income after
provision for loan losses................. 30,451 26,173 7,662 5,116 2,267 2,284
--------- -------- -------- ------- ------- -------
Noninterest income............................... 8,971 11,207 931 815 69 177
Noninterest expense.............................. 22,120 19,102 5,225 3,926 1,433 1,469
--------- -------- -------- ------- ------- -------
Income (loss) before provision
(benefit) for income taxes and
minority interest in income of
subsidiary................................ 17,302 18,278 3,368 2,005 903 992
Provision (benefit) for income taxes............. 6,097 6,019 1,314 866 477 480
--------- -------- -------- ------- ------- -------
Income (loss) before minority
interest in income of subsidiary.......... 11,205 12,259 2,054 1,139 426 512
Minority interest in income of subsidiary........ -- -- -- -- -- --
--------- -------- -------- ------- ------- -------
Net income.................................. $ 11,205 12,259 2,054 1,139 426 512
========= ======== ======== ======= ======= =======
First Bank FB California (1) Redwood Bank (2)
--------------------- --------------------- -------------------
Six months ended Six months ended Six months ended
June 30, June 30, June 30,
--------------------- --------------------- -------------------
2000 1999 2000 1999 2000 1999
---- ---- ---- ---- ---- ----
Income statement information:
Interest income.................................. $ 120,627 107,591 22,621 16,132 7,884 4,930
Interest expense................................. 54,520 52,176 8,349 6,075 3,108 1,835
--------- ------- ------- ------- ------- -------
Net interest income......................... 66,107 55,415 14,272 10,057 4,776 3,095
Provision for loan losses........................ 5,750 4,700 135 80 282 73
--------- ------- ------- ------- ------- -------
Net interest income after
provision for loan losses................. 60,357 50,715 14,137 9,977 4,494 3,022
--------- ------- ------- ------- ------- ------
Noninterest income............................... 15,965 18,795 1,723 1,424 (49) 203
Noninterest expense.............................. 41,926 38,122 9,282 7,625 2,933 1,907
--------- ------- ------- ------- ------- -------
Income (loss) before provision
(benefit) for income taxes and
minority interest in income of
subsidiary................................ 34,396 31,388 6,578 3,776 1,512 1,318
Provision (benefit) for income taxes............. 11,930 10,517 2,577 1,653 801 644
--------- ------- ------- ------- ------- ------
Income (loss) before minority
interest in income of subsidiary.......... 22,466 20,871 4,001 2,123 711 674
Minority interest in income of subsidiary........ -- -- -- -- -- --
--------- ------- ------- ------- ------- ------
Net income.................................. $ 22,466 20,871 4,001 2,123 711 674
========= ======= ======= ======= ======= ======
</TABLE>
----------------
(1) Lippo Bank was acquired by FBA on February 29, 2000 and merged into FB
California on May 31, 2000.
(2) Redwood Bank was acquired by FBA on March 4, 1999.
(3) Corporate and other includes $2.0 million and $3.9 million of guaranteed
preferred debenture expense, after applicable income tax benefit of $1.0
million and $2.1 million for the three and six months ended June 30, 2000
and 1999. In addition, corporate and other includes FCG and holding company
expenses.
<PAGE>
<TABLE>
<CAPTION>
Corporate, other and
FB Texas FB&T intercompany reclassifications (3) Consolidated totals
------------------------ ------------------------ ------------------------------------- -------------------
June 30, December 31, June 30, December 31, June 30, December 31, June 30, December 31,
2000 1999 2000 1999 2000 1999 2000 1999
---- ---- ---- ---- ---- ---- ---- ----
(dollars expressed in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
31,605 30,439 97,214 103,636 16,583 17,666 436,320 451,647
222,995 213,731 799,226 736,828 (237) (418) 4,326,393 3,996,324
303,570 278,988 1,000,541 944,013 (39,973) (15,126) 5,180,472 4,867,747
257,542 244,248 875,048 804,976 (12,662) (28,347) 4,456,453 4,251,814
30,111 30,338 101,581 102,014 (175,185) (173,178) 322,040 294,905
====== ======= ======== ======= ======== ======== ======== =======
Corporate, other and
FB Texas First Bank & Trust intercompany Consolidated totals
---------------------- ---------------------- reclassifications (3) --------------------
---------------------
Three months ended Three months ended Three months ended Three months ended
June 30, June 30, June 30, June 30,
---------------------- ---------------------- --------------------- --------------------
2000 1999 2000 1999 2000 1999 2000 1999
---- ---- ---- ---- ---- ---- ---- ----
5,990 5,481 20,391 14,014 (369) (154) 104,161 85,641
2,431 2,163 8,356 5,790 560 163 45,771 38,150
------ ------- -------- ------ -------- -------- -------- -------
3,559 3,318 12,035 8,224 (929) (317) 58,390 47,491
175 30 100 650 -- -- 3,620 3,373
------ ------- -------- ------ -------- -------- -------- -------
3,384 3,288 11,935 7,574 (929) (317) 54,770 44,118
------ ------- -------- ------ -------- -------- -------- -------
495 513 1,302 1,121 (297) (318) 11,471 13,515
2,196 2,231 7,582 6,673 3,361 3,847 41,917 37,248
------ ------- -------- ------ -------- -------- -------- -------
1,683 1,570 5,655 2,022 (4,587) (4,482) 24,324 20,385
570 541 2,270 937 (1,531) (1,378) 9,197 7,465
------ ------- -------- ------ -------- -------- -------- -------
1,113 1,029 3,385 1,085 (3,056) (3,104) 15,127 12,920
-- -- -- -- 455 361 455 361
------ ------- -------- ------ -------- -------- -------- -------
1,113 1,029 3,385 1,085 (3,511) (3,465) 14,672 12,559
====== ======= ======== ====== ======== ======== ======== =======
Corporate, other
FB Texas First Bank & Trust and intercompany Consolidated totals
----------------------- ----------------------- reclassifications (3) -------------------
---------------------
Six months ended Six months ended Six months ended Six months ended
June 30, June 30, June 30, June 30,
----------------------- ----------------------- --------------------- -------------------
2000 1999 2000 1999 2000 1999 2000 1999
---- ---- ---- ---- ---- ---- ---- ----
11,658 11,023 39,305 28,355 (217) 170 201,878 168,201
4,720 4,325 15,864 11,989 1,497 716 88,058 77,116
------ ------- -------- ------ -------- -------- -------- -------
6,938 6,698 23,441 16,366 (1,714) (546) 113,820 91,085
295 60 740 950 -- -- 7,202 5,863
------ ------- -------- ------ -------- -------- -------- -------
6,643 6,638 22,701 15,416 (1,714) (546) 106,618 85,222
------ ------- -------- ------ -------- -------- -------- -------
986 1,056 3,183 2,364 (773) (724) 21,035 23,118
4,305 4,510 14,598 13,225 6,666 7,346 79,710 72,735
------ ------- -------- ------ -------- -------- -------- -------
3,324 3,184 11,286 4,555 (9,153) (8,616) 47,943 35,605
1,157 1,096 4,492 2,060 (3,216) (2,867) 17,741 13,103
------ ------- -------- ------ -------- -------- -------- -------
2,167 2,088 6,794 2,495 (5,937) (5,749) 30,202 22,502
-- -- -- -- 943 672 943 672
------ ------- -------- ------ -------- -------- -------- -------
2,167 2,088 6,794 2,495 (6,880) (6,421) 29,259 21,830
====== ======= ======== ====== ======== ======== ======== =======
</TABLE>
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The discussion set forth in Management's Discussion and Analysis of
Financial Condition and Results of Operations contains certain forward-looking
statements with respect to the financial condition, results of operations and
business of First Banks. 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 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 conducts its operations,
including competition from banking and non-banking companies with substantially
greater resources than First Banks, some of which may offer and develop products
and services not offered by First Banks; the ability of First Banks to control
the composition of the loan portfolio without adversely affecting interest
income; and the ability of First Banks to respond to changes in technology. With
regard to First Banks' 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 First Banks, as compared with
competitors operating solely in contiguous markets; the competition of larger
acquirers with greater resources than First Banks, fluctuations in the prices at
which acquisition targets may be available for sale and in the market for First
Banks' securities; and the potential for difficulty or unanticipated costs in
realizing the benefits of particular acquisition transactions. Readers of the
Form 10-Q should therefore not place undue reliance on forward-looking
statements.
General
First Banks is a registered bank holding company incorporated in
Missouri and headquartered in St. Louis County, Missouri. At June 30, 2000,
First Banks had $5.18 billion in total assets, $4.33 billion in total loans, net
of unearned discount, $4.46 billion in total deposits and $322.0 million in
total stockholders' equity. First Banks operates through its subsidiary bank
holding companies and financial institutions (collectively referred to as the
Subsidiary Banks) and through its non-banking subsidiary, First Capital Group,
Inc., as follows:
First Bank, headquartered in St. Louis County, Missouri (First Bank);
First Bank & Trust, headquartered in Newport Beach, California (FB&T);
First Capital Group, Inc., headquartered in Albuquerque, New Mexico (FCG);
First Banks America, Inc., headquartered in St. Louis County, Missouri
(FBA), and its wholly owned subsidiaries:
First Bank Texas N.A., headquartered in Houston, Texas (FB Texas);
First Bank of California, headquartered in Sacramento, California
(FB California); and
Redwood Bank, headquartered in San Francisco, California.
The Subsidiary Banks and FCG are wholly owned by their respective
parent companies except FBA, which was 84.33% and 83.37% owned by First Banks at
June 30, 2000 and December 31, 1999, respectively.
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 and agricultural,
real estate construction and development, commercial and residential real
estate, commercial leasing, trade finance, consumer and installment, student and
Small Business Administration loans. Other financial services include mortgage
banking, credit and debit cards, brokerage services, credit-related insurance,
automatic teller machines, telephone banking, safe deposit boxes, trust and
private banking services and cash management services.
First Banks 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.
<PAGE>
The following table summarizes selected data about the Subsidiary Banks
at June 30, 2000:
<TABLE>
<CAPTION>
Loans, net of
Number of Total unearned Total
Subsidiary Banks locations assets discount deposits
---------------- --------- ------ -------- --------
(dollars expressed in thousands)
<S> <C> <C> <C> <C>
First Bank.................................. 87 $ 3,150,764 2,714,862 2,675,427
FB&T ....................................... 26 1,000,541 799,226 875,048
FBA:
FB California.......................... 13 566,314 445,681 488,729
FB Texas............................... 6 303,570 222,995 257,542
Redwood Bank........................... 4 199,256 143,866 172,369
</TABLE>
Financial Condition
First Banks' total assets increased by $310.0 million to $5.18 billion
from $4.87 billion at June 30, 2000 and December 31, 1999, respectively. As
discussed in Note 2 to the accompanying consolidated financial statements, the
acquisitions of Lippo Bank and FCG provided assets of $85.3 million and $64.6
million, respectively. Loans, net of unearned discount, excluding the loans
acquired from Lippo Bank and FCG, increased by $180.2 million, which is further
discussed under "--Loans and Allowance for Loan Losses." Offsetting the overall
increase in total assets and providing an additional source of funds for
continued internal loan growth was a reduction in investment securities of $52.7
million, which was partially offset by $37.4 million of investment securities
acquired from Lippo Bank, to $436.3 million at June 30, 2000. Total deposits,
excluding the $76.4 million of deposits provided by the acquisition of Lippo
Bank, increased by $128.2 million to $4.46 billion at June 30, 2000. The funds
generated from the deposit growth were primarily utilized to fund internal loan
growth and the acquisition of the FCG leases. In addition, short-term borrowings
increased by $77.3 million to $150.8 million at June 30, 2000, reflecting
increases of $36.1 million and $36.9 million in federal funds purchased and
retail repurchase agreements, respectively.
Results of Operations
Net Income
Net income was $14.7 million and $29.3 million for the three and six
months ended June 30, 2000, in comparison to $12.6 million and $21.8 million for
the comparable periods in 1999. A significant element in the earnings progress
was increased net interest income generated from the acquisitions of Lippo Bank,
FCG, Century Bank and Redwood Bank, the continued change in the composition of
the loan portfolio, increased yields on earning assets and internal loan growth.
The overall loan growth was primarily funded through internal deposit growth.
The increase in net income was partially offset by a reduced level of
noninterest income, an increased provision for loan losses, as discussed under
"--Loans and Allowance for Loan Losses," and an increase in operating expenses
of $4.7 million and $7.0 million for the three and six months ended June 30,
2000 in comparison to the comparable periods in 1999, respectively. The reduced
level of noninterest income resulted primarily from a reduction in non-recurring
gains on sales of branch facilities. The increased operating expenses reflect
the operating expenses of Lippo Bank, FCG, Century Bank and Redwood Bank
subsequent to their respective acquisition dates, increased salaries and
employee benefits expenses, increased data processing fees and increased
amortization of intangibles associated with the purchase of subsidiaries. This
increase was partially offset by a reduction in legal, examination and
professional fees.
Net Interest Income
Net interest income (expressed on a tax equivalent basis) improved to
$58.6 million, or 4.94% of interest-earning assets, for the three months ended
June 30, 2000, from $47.7 million, or 4.51% of interest-earning assets, for the
comparable period in 1999. For the six months ended June 30, 2000 and 1999, net
interest income (expressed on a tax-equivalent basis) was $114.2 million, or
4.90%, and $91.5 million, or 4.40% of interest-earning assets, respectively. The
improved net interest income is primarily attributable to the net
interest-earning assets provided by the aforementioned acquisitions, internal
loan growth and increases in the prime-lending rate. For the three and six
months ended June 30, 2000, average loans increased by $482.7 million and $471.9
<PAGE>
million, respectively. During the period from July 1, 1999 through June 30,
2000, the Board of Governors of the Federal Reserve System increased the
discount rate three times, resulting in multiple increases in the prime rate of
interest from 8.00% to 9.50%. This is reflected not only in the rate of interest
earned on loans that are indexed to the prime rate, but also in other assets and
liabilities which either have variable or adjustable rates, or which matured or
repriced during this period. Although the cost of interest-bearing liabilities
has also increased, it has been less dramatic than the earnings on
interest-earning assets, contributing to an improvement in net interest margins.
This is further discussed under "--Interest Rate Risk Management."
For the three and six months ended June 30, 2000, the aggregate
weighted average rate paid on the deposit portfolio increased to 4.52% and
4.42%, respectively, from 4.21% and 4.31% for the comparable periods in 1999,
reflecting First Banks' increased rates paid to provide a funding source for
continued loan growth. In addition, the aggregate weighted average rate on the
note payable increased to 7.95% and 7.55% for the three and six months ended
June 30, 2000, respectively, from 6.05% and 6.24% for the comparable periods in
1999, reflecting an increase in market rates on these financial instruments.
First Banks' $100.0 million revolving line of credit with a group of
unaffiliated banks (Note Payable) bears interest at the lead bank's corporate
base rate or, at the option of First Banks, at the Eurodollar Rate plus a margin
determined by the outstanding balance and First Banks' profitability. Thus, the
Note Payable represents a relatively high-cost funding source, so that increased
advances under the Note Payable have the effect of increasing the weighted
average rate of non-deposit liabilities.
<PAGE>
The following table sets forth, on a tax-equivalent basis, certain
information relating to First Banks' average balance sheets, and reflects the
average yield earned on interest-earning assets, the average cost of
interest-bearing liabilities and the resulting net interest income for the
periods indicated.
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
---------------------------------------------- -----------------------------------------------
2000 1999 2000 1999
---------------------- --------------------- ---------------------- ----------------------
Interest Interest Interest Interest
Average income/ Yield/ Average income/ Yield/ Average income/ Yield/ Average income/ Yield/
balance 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 (1)(2)(3)(4).......... $4,274,961 96,234 9.05% $3,792,234 78,991 8.35% $4,180,776 185,987 8.95% $3,708,908 153,752 8.36%
Investment securities (4)... 440,008 7,277 6.65 434,288 6,578 6.08 440,405 14,279 6.52 472,566 14,385 6.14
Federal funds sold.......... 54,152 817 6.07 13,137 217 6.63 67,737 1,943 5.77 13,995 410 5.91
Other....................... 2,739 47 6.90 1,743 15 3.45 2,485 90 7.28 1,408 45 6.45
---------- ------- ---------- ------ ---------- ------ ---------- -------
Total interest-earning
assets................ 4,771,860 104,375 8.80 4,241,402 85,801 8.11 4,691,403 202,299 8.67 4,196,877 168,592 8.10
------- ------ ------- -------
Nonearning assets.............. 345,751 337,342 348,529 340,373
---------- ---------- ---------- ----------
Total assets........... $5,117,611 $4,578,744 $5,039,932 $4,537,250
========== ========== ========== ==========
Liabilities and Stockholders' Equity
------------------------------------
Interest-bearing liabilities:
Interest-bearing deposits:
Interest-bearing demand
deposits................ $ 421,937 1,420 1.35% $ 388,317 1,182 1.22% 422,512 2,885 1.37% $ 379,746 2,296 1.22%
Savings deposits.......... 1,257,448 12,434 3.98 1,233,559 11,085 3.60 1,241,385 24,070 3.90 1,222,916 22,014 3.63
Time deposits of $100
or more (3)............. 210,945 2,841 5.42 211,042 2,834 5.39 223,941 5,855 5.26 212,252 5,752 5.46
Other time deposits (3)... 1,939,657 26,314 5.46 1,598,543 20,916 5.25 1,893,330 50,222 5.33 1,608,657 43,130 5.41
---------- ------- ---------- ------ ---------- ------ ---------- -------
Total interest-bearing
deposits.............. 3,829,987 43,009 4.52 3,431,461 36,017 4.21 3,781,168 83,032 4.42 3,423,571 73,192 4.31
Short-term borrowings (3)... 105,033 1,406 5.38 113,120 1,393 4.94 96,109 2,515 5.26 98,188 2,391 4.91
Note payable................ 68,611 1,356 7.95 49,054 740 6.05 66,869 2,511 7.55 49,527 1,533 6.24
---------- ------- ---------- ------ ---------- ------ ---------- -------
Total interest-bearing
liabilities........... 4,003,631 45,771 4.60 3,593,635 38,150 4.26 3,944,146 88,058 4.49 3,571,286 77,116 4.35
------- ------ ------ -------
Noninterest-bearing liabilities:
Demand deposits............. 617,501 534,472 602,459 521,461
Other liabilities........... 179,961 174,456 187,437 173,033
---------- ---------- ---------- ----------
Total liabilities...... 4,801,093 4,302,563 4,734,042 4,265,780
Stockholders' equity........... 316,518 276,181 305,890 271,470
---------- ---------- ---------- ----------
Total liabilities and
stockholders' equity.. $5,117,611 $4,578,744 $5,039,932 $4,537,250
========== ========== ========== ==========
Net interest income............ 58,604 47,651 114,241 91,476
======= ====== ======= =======
Interest rate spread........... 4.20 3.85 4.18 3.75
Net interest margin............ 4.94% 4.51% 4.90% 4.40%
==== ==== ==== ====
</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) Includes the effects of interest rate exchange agreements.
(4) Information is presented on a tax-equivalent basis assuming a tax rate of
35%. The tax-equivalent adjustments were approximately $214,000 and
$421,000 for the three and six months ended June 30, 2000, and $160,000
and $391,000 for the comparable periods in 1999, respectively.
<PAGE>
Provision for Loan Losses
The provision for loan losses was $3.6 million and $7.2 million for the
three and six months ended June 30, 2000, in comparison to $3.4 million and $5.9
million for the comparable periods in 1999, respectively. The increase in the
provision for loan losses is primarily attributable to the overall growth, both
internal and through acquisitions, and increased risk associated with the
continued changing composition of the loan portfolio. Loan charge-offs were $1.8
million and $5.0 million for the three and six months ended June 30, 2000,
respectively, in comparison to $5.6 million and $7.5 million for the comparable
periods in 1999. The decrease in loan charge-offs is indicative of the generally
strong economic conditions prevalent in First Banks' markets, as well as a
decline in nonperforming assets and management's continued efforts to
effectively monitor and manage its loan portfolio. For the six months ended June
30, 2000, loan charge-offs include a charge-off of $1.6 million on a single
loan. Loan recoveries increased to $2.1 million and $6.2 million for the three
and six months ended June 30, 2000, respectively, from $2.0 million and $4.2
million for the comparable periods in 1999 reflecting continued aggressive
collection efforts. The acquisitions of Lippo Bank, completed on February 29,
2000, and Redwood Bank, completed on March 4, 1999, provided $799,000 and $1.5
million, respectively, in additional allowance for loan losses.
Tables summarizing nonperforming assets, past-due loans and charge-off
and recovery experience are presented under "--Loans and Allowance for Loan
Losses."
Noninterest Income
Noninterest income was $11.5 million and $21.0 million for the three
and six months ended June 30, 2000, in comparison to $13.5 million and $23.1
million for the comparable periods in 1999. Noninterest income consists
primarily of service charges on deposit accounts and customer service fees,
mortgage banking revenues and other income.
Service charges on deposit accounts and customer service fees were $4.9
million and $9.5 million for the three and six months ended June 30, 2000, in
comparison to $4.5 million and $8.4 million for the comparable periods in 1999,
respectively. The increase in service charges and customer service fees is
attributable to (a) increased deposit balances provided by internal growth; (b)
the acquisitions of Lippo Bank, Century Bank and Redwood Bank; (c) additional
products and services available and utilized by First Banks' expanding base of
retail and commercial customers; (d) increased fee income resulting from
revisions of customer service charge rates effective April 1, 1999 and enhanced
control of fee waivers; and (e) increased income associated with automatic
teller machine services and debit and credit cards.
The gain on mortgage loans sold and held for sale was $1.9 million and
$3.3 million for the three and six months ended June 30, 2000, in comparison to
$1.5 million and $3.8 million for the comparable periods in 1999, respectively.
The overall decrease for the six months ended June 30, 2000 is primarily
attributable to a reduced volume of loans originated and sold commensurate with
the increases in mortgage loan rates experienced in recent months.
The net gain on sales of available-for-sale securities was $379,000 for
the six months ended June 30, 2000, compared with net gains of $115,000 and
$792,000 for the three and six months ended June 30, 1999, respectively. These
gains primarily resulted from sales of available-for-sale securities necessary
to facilitate the funding of First Banks' loan growth. The decrease in the net
gains reflects the sales, at a loss, of certain investment securities that did
not meet First Banks' overall investment objectives.
The net loss on trading securities of $303,000 for the six months ended
June 30, 1999 resulted from the termination of First Banks' trading division,
effective December 31, 1998, and the liquidation of all trading securities
during the first quarter of 1999.
Other income was $4.7 million and $7.9 million for the three and six
months ended June 30, 2000, in comparison to $7.4 million and $10.4 million for
the comparable periods in 1999. The reduction in other income is almost solely
attributable to non-recurring gains on branch divestitures. During the three
months ended June 30, 2000, First Banks divested one of its branch locations in
central Illinois, resulting in a pre-tax gain of $1.4 million, net of related
expenses. In the same period in 1999, six branch offices in central and northern
Illinois were divested, resulting in a pre-tax gain of $4.4 million, net of
related expenses. The reduction in these gains were partially offset by
increased income earned on First Banks' investment in bank-owned life insurance,
rental income associated with FCG's leasing activities and increased rental fees
received from First Services, L.P. for the use of data processing and other
equipment owned by First Banks. The increase in such fees is commensurate with
the replacement of First Banks' teller system and certain other technological
upgrades, including local and wide area network-based systems, networks, core
processors and item processing equipment that were replaced in 1999 in
conjunction with Year 2000 compliance preparations. See Note 4 to the
accompanying consolidated financial statements for further information regarding
transactions with related parties.
<PAGE>
Noninterest Expense
Noninterest expense was $41.9 million and $79.7 million for the three
and six months ended June 30, 2000, in comparison to $37.2 million and $72.7
million for the comparable periods in 1999. The increase reflects: (a) the
noninterest expense of Lippo Bank, FCG, Century Bank and Redwood Bank subsequent
to their respective acquisition dates, including certain nonrecurring expenses
associated with those acquisitions; (b) increased salaries and employee benefits
expenses; (c) increased data processing fees; (d) increased amortization of
intangibles associated with the purchase of subsidiaries; and (e) increased
expenses associated with First Banks' internal restructuring process. The
overall increase in noninterest expense was partially offset by a decrease in
legal, examination and professional fees.
During 1999, First Banks began an internal restructuring process
designed to better position the Company for future growth and opportunities
expected to become available as consolidation and changes continue in the
delivery of financial services. The magnitude of this project was extensive and
covered almost every area within First Banks. The primary objectives of the
restructuring process were: (a) to redesign the corporate organization to
provide clearer lines of authority which are more conducive to the effective
delivery of services to customers; (b) to enhance First Banks' technological
strength to enable it to more effectively and efficiently provide the products,
services and delivery channels necessary to remain competitive in the financial
services industry of the future; (c) to establish the infrastructure necessary
to better support the service delivery and business development efforts, and to
provide more efficient, better quality services to customers; (d) to increase
the depth and abilities of all levels of management and supervision within First
Banks to lead its efforts to accomplish its corporate objectives; and (e) to
improve internal monitoring systems in order to better assess the progress of
all areas of First Banks in achieving its corporate objectives. Although these
efforts have primarily led to increased capital expenditures and noninterest
expenses in the short-term as further discussed below, First Banks anticipates
they will lead to more effective internal growth, more efficient operations and
improved profitability over the long term.
Salaries and employee benefits were $18.3 million and $35.2 million for
the three and six months ended June 30, 2000, in comparison to $15.6 million and
$30.1 million for the comparable periods in 1999, respectively. The increase is
attributable to the aforementioned acquisitions and is also reflective of the
competitive environment in the employment market that has resulted in a higher
demand for limited resources, thus escalating industry salary and employee
benefit costs associated with employing and retaining qualified personnel. In
addition, the increase includes various additions to staff to enhance executive
and senior management expertise, improve technological support and strengthen
centralized operational functions.
Occupancy, net of rental income, and furniture and equipment expense
totaled $6.4 million and $12.3 million for the three and six months ended June
30, 2000, in comparison to $5.1 million and $9.8 million for the comparable
periods in 1999, respectively. The increase is primarily attributable to the
aforementioned acquisitions, the relocation of certain California and Texas
branches and increased depreciation expense associated with numerous capital
expenditures made throughout 1999, including the implementation of First Banks'
new teller system. This increase has been partially offset by selective
elimination of 15 branch offices by sales, mergers or closures during 1999 and
2000.
Data processing fees were $5.5 million and $10.7 million for the three
and six months ended June 30, 2000, in comparison to $4.7 million and $9.2
million for the comparable periods in 1999, respectively. The increased data
processing fees are attributable to growth and technological advancements
consistent with First Banks' product and service offerings and upgrades to
technological equipment, networks and communication channels.
Legal, examination and professional fees were $1.1 million and $2.0
million for the three and six months ended June 30, 2000, in comparison to $1.9
million and $3.2 million for the comparable periods in 1999, respectively. The
decrease in these fees is primarily attributable to a decline in First Banks'
utilization of external consultants who provided assistance throughout 1999
associated with the development and expansion of selected business initiatives.
In addition, the decrease is also reflective of the settlement of certain
litigation completed in 1999.
Other expense was $6.6 million and $11.5 million for the three and six
months ended June 30, 2000, in comparison to $5.9 million and $12.2 million for
the comparable periods in 1999, respectively. Other expense is comprised of
numerous general administrative expenses including but not limited to travel,
meals and entertainment, insurance, FDIC premiums, communications, advertising
and business development, freight and courier services, correspondent bank
charges, amortization of intangibles associated with the purchase of
subsidiaries, miscellaneous losses and recoveries and sales taxes. The overall
decrease in such expenditures for the six months ended June 30, 2000 is a
function of: (a) recoveries from loans of acquired entities that had been fully
charged-off prior to the acquisition dates; (b) management's continued efforts
<PAGE>
to control these costs; and (c) reduced fraud losses. Offsetting the overall
decrease in other expenses in 2000 was an increase of $285,000 in amortization
of intangibles associated with the purchase of subsidiaries, which is directly
associated with the completion of the aforementioned acquisitions; increases in
freight and courier services; and a $300,000 provision for an estimated loss on
leasing equipment associated with a previously acquired entity.
Interest Rate Risk Management
First Banks 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 First Banks. Derivative
financial instruments held by First Banks for purposes of managing interest rate
risk are summarized as follows:
<TABLE>
<CAPTION>
June 30, 2000 December 31, 1999
---------------------- ----------------------
Notional Credit Notional Credit
amount exposure amount exposure
------ -------- ------ --------
(dollars expressed in thousands)
Interest rate swap agreements - pay
<S> <C> <C> <C> <C>
adjustable rate, receive adjustable rate............ $ -- -- 500,000 --
Interest rate swap agreements - pay
adjustable rate, receive fixed rate................. 455,000 3,339 455,000 3,349
Interest rate floor agreements.......................... 35,000 9 35,000 13
Interest rate cap agreements............................ -- -- 10,000 26
Forward commitments to sell
mortgage-backed securities.......................... 39,000 -- 33,000 --
========= ====== ======= ======
</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 and the other terms of the derivatives are determined
by reference to the notional amounts and other terms of the derivatives. The
credit exposure represents the accounting loss First Banks 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, First Banks entered into $280.0 million notional amount
interest rate swap agreements. The swap agreements effectively lengthen the
repricing characteristics of certain interest-earning assets to correspond more
closely with its funding source with the objective of stabilizing cash flow, and
accordingly, net interest income, over time. The swap agreements initially
provided for First Banks to receive a fixed rate of interest and pay an
adjustable rate equivalent to the 90-day London Interbank Offering Rate (LIBOR).
In March 2000, the terms of the swap agreements were modified such that First
Banks currently pays an adjustable rate of interest equivalent to the daily
weighted average prime lending rate minus 2.705%. The terms of the swap
agreements provide for First Banks to pay quarterly and receive payment
semiannually. The amount receivable by First Banks under the swap agreements was
$4.1 million at June 30, 2000 and December 31, 1999, and the amount payable by
First Banks under the swap agreements was $748,000 and $770,000 at June 30, 2000
and December 31, 1999, respectively.
During May 1999, First Banks entered into $500.0 million notional
amount interest rate swap agreements with the objective of stabilizing the net
interest margin during the six-month period surrounding the Year 2000 century
date change. The swap agreements provided for First Banks to receive an
adjustable rate of interest equivalent to the daily weighted average 30-day
LIBOR and pay an adjustable rate of interest equivalent to the daily weighted
average prime lending rate minus 2.665%. The terms of the swap agreements, which
had an effective date of October 1, 1999 and a maturity date of March 31, 2000,
provided for First Banks to pay and receive interest on a monthly basis. In
January 2000, First Banks determined these swap agreements were no longer
necessary based upon the results of the Year 2000 transition and terminated
these agreements at a cost of $150,000.
During September 1999, First Banks entered into $175.0 million notional
amount interest rate swap agreements to effectively lengthen the repricing
characteristics of certain interest-earning assets to correspond more closely
with its funding source with the objective of stabilizing cash flow, and
accordingly, net interest income, over time. The swap agreements provide for
First Banks to receive a fixed rate of interest and pay an adjustable rate
equivalent to the weighted average prime lending rate minus 2.70%. The terms of
the swap agreements provide for First Banks to pay and receive interest on a
quarterly basis. The amount receivable by First Banks under the swap agreements
was $119,000 at June 30, 2000 and December 31, 1999, and the amount payable by
First Banks under the swap agreements was $132,000 and $141,000 at June 30, 2000
and December 31, 1999, respectively.
<PAGE>
The maturity dates, notional amounts, interest rates paid and received,
and fair values of interest rate swap agreements outstanding as of June 30, 2000
and December 31, 1999 were as follows:
<TABLE>
<CAPTION>
Notional Interest rate Interest rate Fair value
Maturity date amount paid received gain (loss)
------------- ------ ---- -------- -----------
(dollars expressed in thousands)
June 30, 2000:
<S> <C> <C> <C> <C> <C> <C>
September 27, 2001.............................. $ 75,000 6.80% 6.14% $ (869)
September 27, 2001.............................. 45,000 6.80 6.14 (521)
September 27, 2001.............................. 40,000 6.80 6.14 (464)
September 27, 2001.............................. 15,000 6.80 6.14 (174)
June 11, 2002................................... 15,000 6.80 6.00 (330)
September 16, 2002.............................. 175,000 6.80 5.36 (6,568)
September 16, 2002.............................. 20,000 6.80 5.36 (754)
September 18, 2002.............................. 40,000 6.80 5.33 (1,540)
September 18, 2002.............................. 30,000 6.80 5.33 (1,155)
---------- ---------
$ 455,000 6.80 5.68 $ (12,375)
========== ===== ===== =========
December 31, 1999:
March 31, 2000.................................. $ 350,000 5.84% 6.45% $ 87
March 31, 2000.................................. 75,000 5.84 6.45 19
March 31, 2000.................................. 50,000 5.84 6.45 12
March 31, 2000.................................. 25,000 5.84 6.45 6
September 27, 2001.............................. 75,000 5.80 6.14 (685)
September 27, 2001.............................. 45,000 5.80 6.14 (411)
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.............................. 175,000 6.12 5.36 (6,574)
September 16, 2002.............................. 20,000 6.12 5.36 (751)
September 18, 2002.............................. 40,000 6.14 5.33 (1,543)
September 18, 2002.............................. 30,000 6.14 5.33 (1,157)
---------- ---------
$ 955,000 5.91 6.08 $ (11,790)
========== ===== ===== =========
</TABLE>
In the event of early termination of the interest rate swap agreements,
the net proceeds received or paid are deferred and amortized over the shorter of
the remaining contract life or the maturity of the related asset. If, however,
the amount of the underlying asset is repaid, then the fair value gains or
losses on the interest rate swap agreements are recognized immediately in the
consolidated statements of income.
First Banks also utilizes interest rate floor agreements to limit the
interest expense associated with the net interest expense of certain interest
rate swap agreements. At June 30, 2000 and December 31, 1999, the unamortized
costs of these agreements were $9,000 and $32,000, 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 were
$45.7 million and $31.5 million at June 30, 2000 and December 31, 1999,
respectively. These net loan commitments and loans held for sale are hedged with
forward contracts to sell mortgage-backed securities of $39.0 million and $33.0
million at June 30, 2000 and December 31, 1999, respectively. Gains and losses
from forward contracts are deferred and included in the cost basis of loans held
for sale. At June 30, 2000 and December 31, 1999, the net unamortized gains were
$186,000 and $838,000, respectively. Such gains were applied to the carrying
value of the loans held for sale as part of the lower of cost or market
valuation.
Loans and Allowance for Loan Losses
Interest earned on the loan portfolio represents the principal source
of income for First Banks and its Subsidiary Banks. Interest and fees on loans
were 92.3% and 92.0% of total interest income for the three and six months ended
June 30, 2000, in comparison to 92.2% and 91.3% for the comparable periods in
1999, respectively. Total loans, net of unearned discount, increased $330.0
million to $4.33 billion, or 83.5% of total assets, at June 30, 2000, compared
to $4.00 billion, or 82.1% of total assets, at December 31, 1999. The increase
in loans, as summarized on the consolidated balance sheets, is primarily
attributable to the acquisitions of Lippo Bank and FCG, which provided loans,
net of unearned discount, of $40.9 million and $64.6 million, respectively, and
the continued growth and diversification of the commercial, financial and
agricultural and commercial real estate mortgage loan portfolios. This increase
was partially offset by a decline in the consumer and installment portfolio of
<PAGE>
$37.4 million reflecting reductions in new loan volumes and the repayment of
principal on the existing portfolio. This is consistent with First Banks'
objectives of de-emphasizing indirect automobile lending and expanding
commercial lending.
Nonperforming assets include nonaccrual loans, restructured loans and
other real estate. The following table presents the categories of nonperforming
assets and certain ratios as of the dates indicated:
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
---- ----
(dollars expressed in thousands)
Commercial, financial and agricultural:
<S> <C> <C>
Nonaccrual..................................................... $ 14,824 18,397
Restructured terms............................................. 22 29
Real estate construction and development:
Nonaccrual..................................................... 2,392 1,886
Real estate mortgage:
Nonaccrual..................................................... 16,398 16,414
Restructured terms............................................. 2,971 2,979
Consumer and installment:
Nonaccrual..................................................... 208 32
----------- ----------
Total nonperforming loans.................................. 36,815 39,737
Other real estate................................................... 1,903 2,129
----------- ----------
Total nonperforming assets................................ $ 38,718 41,866
=========== ==========
Loans, net of unearned discount..................................... $ 4,326,393 3,996,324
=========== ==========
Loans past due 90 days or more and still accruing................... $ 3,477 5,844
=========== ==========
Allowance for loan losses to loans.................................. 1.80% 1.72%
Nonperforming loans to loans........................................ 0.85 0.99
Allowance for loan losses to nonperforming loans.................... 211.39 172.66
Nonperforming assets to loans and other real estate................. 0.89 1.05
=========== ==========
</TABLE>
Nonperforming loans (also considered impaired loans), consisting of
loans on nonaccrual status and certain restructured loans, were $36.8 million at
June 30, 2000 in comparison to $39.7 million at December 31, 1999. The decrease
in nonperforming loans is almost solely attributable to a decrease in nonaccrual
loans of $2.9 million, continued aggressive collection efforts and management's
continued efforts to effectively monitor and manage the loan portfolios of
acquired entities.
The following table presents a summary of loan loss experience for the
periods indicated:
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
---------------------- --------------
2000 1999 2000 1999
---- ---- ---- ----
(dollars expressed in thousands)
<S> <C> <C> <C> <C>
Allowance for loan losses, beginning of period.............. $ 73,859 65,239 68,611 60,970
Acquired allowances for loan losses.................... -- -- 799 1,466
--------- -------- -------- --------
73,859 65,239 69,410 62,436
--------- -------- -------- --------
Loans charged-off...................................... (1,756) (5,617) (4,970) (7,528)
Recoveries of loans previously charged-off............. 2,099 1,982 6,180 4,206
--------- -------- -------- --------
Net loan recoveries (charge-offs)...................... 343 (3,635) 1,210 (3,322)
--------- -------- -------- --------
Provision for loan losses.............................. 3,620 3,373 7,202 5,863
--------- -------- -------- --------
Allowance for loan losses, end of period.................... $ 77,822 64,977 77,822 64,977
========= ======== ======== ========
</TABLE>
The allowance for loan losses is monitored on a monthly basis. Each
month, the credit administration department 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 combined with
analyses of changes in the risk profiles of the portfolios, changes in past due
and nonperforming loans and changes in watch list and classified loans over
time. In this manner, the overall increases or decreases in the levels of risk
in the portfolios are monitored continually. Factors are applied to the loan
portfolios for each category of loan risk to determine acceptable levels of
allowance for loan losses. These factors are derived primarily from the actual
<PAGE>
loss experience of the Subsidiary Banks and from published national surveys of
norms in the industry. The calculated allowances required for the portfolios are
then compared to the actual allowance balances to determine the provisions
necessary to maintain the allowances at appropriate levels. In addition,
management exercises judgment in its analysis of determining the overall level
of the allowance for loan losses. In its analysis, management considers the
change in the portfolio, including growth, composition and the ratio of net
loans to total assets, and the economic conditions of the regions in which First
Banks operates. Based on this quantitative and qualitative analysis, provisions
are made to the allowance for loan losses. Such provisions are reflected in the
consolidated statements of income.
Liquidity
The liquidity of First Banks 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, First Banks and the Subsidiary Banks may avail themselves
of more volatile sources of funds through the issuance of certificates of
deposit in denominations of $100,000 or more, federal funds borrowed, securities
sold under agreements to repurchase, borrowings from the Federal Home Loan Banks
and other borrowings, including the Note Payable. The aggregate funds acquired
from these more volatile sources were $563.2 million and $476.8 million at June
30, 2000 and December 31, 1999, respectively.
The following table presents the maturity structure of volatile funds,
which consists of certificates of deposit of $100,000 or more, short-term
borrowings and the Note Payable, at June 30, 2000:
<TABLE>
<CAPTION>
(dollars expressed in thousands)
<S> <C>
Three months or less.......................................................... $ 344,648
Over three months through six months.......................................... 69,448
Over six months through twelve months......................................... 85,925
Over twelve months............................................................ 63,130
---------
Total.................................................................. $ 563,151
=========
</TABLE>
In addition to these more volatile sources of funds, in 1999, First
Bank, FB&T, FB California and FB Texas established borrowing relationships with
the Federal Reserve Banks in their respective districts. These borrowing
relationships, which are secured by commercial loans, provide an additional
liquidity facility that may be utilized for contingency purposes. At June 30,
2000 and December 31, 1999, First Banks' borrowing capacity under these
agreements was approximately $1.29 billion and $1.67 billion, respectively. In
addition, the Subsidiary Banks' borrowing capacity through their relationships
with the Federal Home Loan Banks was approximately $318.2 million at June 30,
2000 and $395.9 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 First Banks sufficient to meet its
operating and debt service requirements, both on a short-term and long-term
basis.
Year 2000 Compatibility
First Banks 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.
First Banks successfully completed all phases of its Year 2000 program
(Program) within the appropriate timeframes established by the regulatory
agencies. In addition, First Banks 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 First Banks' 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 $14.9 million, comprised of capital improvements of $12.3 million
and direct expenses reimbursable to First Services, L.P. of $2.6 million. The
capital improvements are being charged to expense in the form of depreciation
expense or lease expense, generally over a period of 60 months. First Banks
incurred direct expenses related to the Program of approximately $15,000 and
$195,000 for the three and six months ended June 30, 2000, and $450,000 and
$900,000 for the comparable periods in 1999, respectively, and $1.8 million for
the year ended December 31, 1999.
<PAGE>
Effects of New Accounting Standards
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133 -- Accounting for
Derivative Instruments and Hedging Activities (SFAS 133). SFAS 133 establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities.
SFAS 133 requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. If certain conditions are met, a derivative may be specifically
designated as a hedge in one of three categories. The accounting for changes in
the fair value of a derivative (that is, gains and losses) depends on the
intended use of the derivative and the resulting designation. Under SFAS 133, an
entity that elects to apply hedge accounting is required to establish, at the
inception of the hedge, the method it will use for assessing the effectiveness
of the hedging derivative and the measurement approach for determining the
ineffective aspect of the hedge. Those methods must be consistent with the
entity's approach to managing risk. SFAS 133 applies to all entities.
In June 1999, the FASB issued SFAS No. 137 -- Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133, an Amendment of FASB Statement No. 133, which defers the
effective date of SFAS 133 from fiscal years beginning after June 15, 1999 to
fiscal years beginning after June 15, 2000. Initial application should be as of
the beginning of an entity's fiscal quarter; on that date, hedging relationships
must be designated and documented pursuant to the provisions of SFAS 133, as
amended. Earlier application of all of the provisions is encouraged but is
permitted only as of the beginning of any fiscal quarter that begins after the
issuance date of SFAS 133, as amended. Additionally, SFAS 133, as amended,
should not be applied retroactively to financial statements of prior periods.
In June 2000, the FASB issued SFAS No. 138 - Accounting for Derivative
Instruments and Hedging Activities, an Amendment of FASB Statement No. 133,
which addresses a limited number of issues causing implementation difficulties
for numerous entities that apply SFAS 133, as amended. SFAS 138 amends the
accounting and reporting standards of SFAS 133, as amended, for certain
derivative instruments, certain hedging activities and for decisions made by the
FASB relating to the Derivatives Implementation Group (DIG) process.
First Banks is currently evaluating the requirements of SFAS 133, as
amended, to determine its potential impact on the consolidated financial
statements.
<PAGE>
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
At December 31, 1999, First Banks' risk management program's simulation
model indicated a loss of projected net interest income in the event of a
decline in interest rates. While a decline in interest rates of less than 100
basis points was projected to have a minimal impact on the earnings of First
Banks, a decline in interest rates of 100 basis points indicated a projected
pre-tax loss equivalent to approximately 7.1% of net interest income based on
assets and liabilities at December 31, 1999. At June 30, 2000, First Banks
remains in an "asset-sensitive" position and thus, remains subject to a higher
level of risk in a declining interest-rate environment. First Banks'
asset-sensitive position, coupled with increases in the prime lending rate
experienced throughout the last six months, is reflected in First Banks'
increased net interest income for the three and six months ended June 30, 2000
as further discussed under "--Results of Operations." During the three and six
months ended June 30, 2000, First Banks' asset-sensitive position and overall
susceptibility to market risks have not changed materially.
<PAGE>
Part II - OTHER INFORMATION
ITEM 6- EXHIBITS AND REPORTS ON FORM 8-K
(a) The exhibits are numbered in accordance with the Exhibit Table of Item 601
of Regulation S-K.
Exhibit Number Description
-------------- -----------
27 Article 9 - Financial Data Schedule (EDGAR only)
(b) First Banks filed no reports on Form 8-K during the three months ended June
30, 2000.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section of 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, INC.
By: /s/ James F. Dierberg
--------------------------------------
James F. Dierberg
Chairman of the Board of Directors
and Chief Executive Officer
August 8, 2000 (Principal Executive Officer)
By: /s/ Frank H. Sanfilippo
---------------------------------------
Frank H. Sanfilippo
Executive Vice President and
Chief Financial Officer
August 8, 2000 (Principal Financial and
Accounting Officer)
