UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _______ to ________
Commission File No. 0-20632
FIRST BANKS, INC.
(Exact name of registrant as specified in its charter)
MISSOURI 43-1175538
(State or other jurisdiction of
incorporation or organization) (I.R.S. Employer Identification No.)
135 North Meramec, Clayton, Missouri 63105
(Address of principal executive offices) (Zip Code)
(314) 854-4600
(Registrant's telephone number, including area code)
--------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--------- ----------
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practical date.
Shares outstanding
Class at April 30, 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:
<S> <C>
CONSOLIDATED BALANCE SHEETS......................................................... 1
CONSOLIDATED STATEMENTS OF INCOME................................................... 3
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME........................................................ 4
CONSOLIDATED STATEMENTS OF CASH FLOWS............................................... 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.......................................... 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS....................................................... 11
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.......................... 20
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS................................................................... 21
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.................................................... 21
SIGNATURES ....................................................................................... 22
</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>
March 31, December 31,
2000 1999
---- ----
ASSETS
------
Cash and cash equivalents:
<S> <C> <C>
Cash and due from banks....................................................... $ 126,128 126,720
Interest-bearing deposits with other financial institutions
with maturities of three months or less..................................... 2,118 1,674
Federal funds sold............................................................ 81,600 42,500
------------ -----------
Total cash and cash equivalents..................................... 209,846 170,894
------------ -----------
Investment securities:
Available for sale, at fair value............................................. 424,240 430,093
Held to maturity, at amortized cost (fair value of $21,204 and
$21,476 at March 31, 2000 and December 31, 1999, respectively).............. 21,362 21,554
------------ -----------
Total investment securities......................................... 445,602 451,647
------------ -----------
Loans:
Commercial, financial and agricultural........................................ 1,223,258 1,086,919
Real estate construction and development...................................... 816,366 795,081
Real estate mortgage.......................................................... 1,927,978 1,851,569
Consumer and installment...................................................... 212,155 233,374
Loans held for sale........................................................... 48,836 37,412
------------ -----------
Total loans......................................................... 4,228,593 4,004,355
Unearned discount............................................................. (6,289) (8,031)
Allowance for loan losses..................................................... (73,859) (68,611)
------------ -----------
Net loans........................................................... 4,148,445 3,927,713
------------ -----------
Bank premises and equipment, net of accumulated
depreciation and amortization................................................. 78,516 75,647
Intangibles associated with the purchase of subsidiaries........................... 49,088 46,085
Accrued interest receivable........................................................ 31,658 33,491
Deferred income taxes.............................................................. 63,803 51,972
Other assets....................................................................... 107,885 110,298
------------ -----------
Total assets........................................................ $ 5,134,843 4,867,747
============ ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
FIRST BANKS, INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED) - (UNAUDITED)
(dollars expressed in thousands, except per share data)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
---- ----
LIABILITIES
-----------
Deposits:
Demand:
<S> <C> <C>
Non-interest-bearing........................................................ $ 625,626 606,064
Interest-bearing............................................................ 409,261 415,113
Savings....................................................................... 1,272,108 1,198,314
Time:
Time deposits of $100 or more............................................... 349,774 339,214
Other time deposits......................................................... 1,803,542 1,693,109
------------ -----------
Total deposits........................................................... 4,460,311 4,251,814
Short-term borrowings.............................................................. 98,612 73,554
Note payable....................................................................... 74,000 64,000
Accrued interest payable........................................................... 12,205 11,607
Deferred income taxes.............................................................. 11,355 6,582
Accrued expenses and other liabilities............................................. 30,515 25,616
Minority interest in subsidiary.................................................... 11,951 12,058
------------ -----------
Total liabilities........................................................ 4,698,949 4,445,231
------------ -----------
Guaranteed preferred beneficial interests in:
First Banks, Inc. subordinated debentures..................................... 83,420 83,394
First Banks America, Inc. subordinated debentures............................. 44,233 44,217
------------ -----------
Total guaranteed preferred beneficial interests in
subordinated debentures.............................................. 127,653 127,611
------------ -----------
STOCKHOLDERS' EQUITY
--------------------
Preferred stock:
$1.00 par value, 5,000,000 shares authorized, no shares issued
and outstanding at March 31, 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.................................................................... 3,117 3,318
Retained earnings.................................................................. 284,650 270,259
Accumulated other comprehensive income............................................. 1,496 2,350
------------ -----------
Total stockholders' equity............................................... 308,241 294,905
------------ -----------
Total liabilities and stockholders' equity............................... $ 5,134,843 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
March 31,
-------------------
2000 1999
---- ----
Interest income:
<S> <C> <C>
Interest and fees on loans........................................................... $89,678 74,675
Investment securities................................................................ 6,870 7,662
Federal funds sold and other......................................................... 1,169 223
------- ---------
Total interest income............................................................ 97,717 82,560
------- ---------
Interest expense:
Deposits:
Interest-bearing demand............................................................ 1,465 1,114
Savings............................................................................ 11,636 10,929
Time deposits of $100 or more...................................................... 3,015 2,775
Other time deposits................................................................ 23,907 21,130
Interest rate exchange agreements, net............................................... -- 1,283
Short-term borrowings................................................................ 1,109 839
Note payable......................................................................... 1,155 896
------- ---------
Total interest expense........................................................... 42,287 38,966
------- ---------
Net interest income.............................................................. 55,430 43,594
Provision for loan losses................................................................. 3,582 2,490
------- ---------
Net interest income after provision for loan losses.............................. 51,848 41,104
------- ---------
Noninterest income:
Service charges on deposit accounts and customer service fees........................ 4,592 3,882
Gain on mortgage loans sold and held for sale........................................ 1,392 2,332
Net gain on sales of available-for-sale securities................................... 379 677
Net loss on trading securities....................................................... -- (303)
Other................................................................................ 3,201 3,015
------- ---------
Total noninterest income......................................................... 9,564 9,603
------- ---------
Noninterest expense:
Salaries and employee benefits....................................................... 16,891 14,502
Occupancy, net of rental income...................................................... 3,222 2,883
Furniture and equipment.............................................................. 2,675 1,901
Postage, printing and supplies....................................................... 1,108 1,142
Data processing fees................................................................. 5,189 4,536
Legal, examination and professional fees............................................. 989 1,320
Gain on sales of other real estate, net of expenses.................................. (179) (53)
Guaranteed preferred debentures...................................................... 3,014 3,014
Other................................................................................ 4,884 6,242
------- ---------
Total noninterest expense........................................................ 37,793 35,487
------- ---------
Income before provision for income taxes and minority interest
in income of subsidiary........................................................ 23,619 15,220
Provision for income taxes................................................................ 8,544 5,638
------- ---------
Income before minority interest in income of subsidiary.......................... 15,075 9,582
Minority interest in income of subsidiary................................................. 488 311
------- ---------
Net income....................................................................... 14,587 9,271
Preferred stock dividends................................................................. 196 196
------- ---------
Net income available to common stockholders...................................... $14,391 9,075
======= =========
Earnings per common share:
Basic................................................................................ 608.21 383.52
Diluted.............................................................................. 589.52 372.57
======== =========
Weighted average shares of common stock outstanding....................................... 23,661 23,661
======= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
FIRST BANKS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME - (UNAUDITED)
Three months ended March 31, 2000 and 1999 and
nine months ended December 31, 1999
(dollars expressed in thousands, except per share data)
<TABLE>
<CAPTION>
Accu-
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
Three months ended March 31, 1999:
Comprehensive income:
Net income................................. -- -- -- -- 9,271 9,271 -- 9,271
Other comprehensive income, net of tax
Unrealized losses on securities, net of
reclassification adjustment (1)........ -- -- -- -- (2,373) -- (2,373) (2,373)
------
Comprehensive income....................... 6,898
======
Class A preferred stock dividends,
$0.30 per share............................ -- -- -- -- (192) -- (192)
Class B preferred stock dividends,
$0.03 per share............................ -- -- -- -- (4) -- (4)
Effect of capital stock transactions of
majority-owned subsidiaries............... -- -- -- (2,965) -- -- (2,965)
Reclassification of retained earnings........ -- -- -- 5,000 (5,000) -- --
------- ----- ----- ----- ------- ------ -------
Consolidated balances, March 31, 1999............ 12,822 241 5,915 2,815 235,942 9,365 267,100
Nine months ended December 31, 1999:
Comprehensive income:
Net income................................. -- -- -- -- 34,907 34,907 -- 34,907
Other comprehensive income, net of tax
Unrealized losses on securities, net of
reclassification adjustment (1)........ -- -- -- -- (7,015) -- (7,015) (7,015)
------
Comprehensive income....................... 27,892
======
Class A preferred stock dividends,
$0.90 per share............................ -- -- -- -- (577) -- (577)
Class B preferred stock dividends,
$0.08 per share............................ -- -- -- -- (13) -- (13)
Effect of capital stock transactions of
majority-owned subsidiaries............... -- -- -- (308) -- -- (308)
Reduction of deferred tax asset
valuation allowance........................ -- -- -- 811 -- -- 811
----- ---- ----- ----- ------- ----- -------
Consolidated balances, December 31, 1999......... 12,822 241 5,915 3,318 270,259 2,350 294,905
Three months ended March 31, 2000:
Comprehensive income:
Net income................................. -- -- -- -- 14,587 14,587 -- 14,587
Other comprehensive income, net of tax
Unrealized losses on securities, net of
reclassification adjustment (1)........ -- -- -- -- (854) -- (854) (854)
------
Comprehensive income....................... 13,733
======
Class A preferred stock dividends,
$0.30 per share............................ -- -- -- -- (192) -- (192)
Class B preferred stock dividends,
$0.03 per share............................ -- -- -- -- (4) -- (4)
Effect of capital stock transactions of
majority-owned subsidiary................. -- -- -- (201) -- -- (201)
------- ----- ----- ----- ------- ------ -------
Consolidated balances, March 31, 2000............ $12,822 241 5,915 3,117 284,650 1,496 308,241
======= ===== ===== ===== ======= ====== =======
</TABLE>
<PAGE>
- -------------------------
(1) Disclosure of reclassification adjustment:
<TABLE>
<CAPTION>
Three months ended Nine months ended
March 31, December 31,
---------------- ------------
2000 1999 1999
---- ---- ----
<S> <C> <C> <C>
Unrealized losses arising during the period............................................ $ (608) (1,934) (6,940)
Less reclassification adjustment for gains included in net income...................... 246 439 75
------ ----- -----
Unrealized losses on securities........................................................ $ (854) (2,373) (7,015)
====== ====== ======
</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>
Three months ended
March 31,
------------------
2000 1999
---- ----
Cash flows from operating activities:
<S> <C> <C>
Net income........................................................................... $ 14,587 9,271
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization of bank premises and equipment....................... 2,220 1,596
Amortization, net of accretion..................................................... 1,841 3,066
Originations and purchases of loans held for sale.................................. (94,450) (167,385)
Proceeds from the sale of loans held for sale...................................... 62,671 168,532
Provision for loan losses.......................................................... 3,582 2,490
Provision for income taxes......................................................... 8,544 5,638
Refunds (payments) of income taxes................................................. 75 (1,491)
Decrease in accrued interest receivable............................................ 2,499 1,557
Net decrease in trading securities................................................. -- 3,425
Interest accrued on liabilities.................................................... 42,287 38,966
Payments of interest on liabilities................................................ (42,203) (35,861)
Gain on sale of branch facility.................................................... -- (247)
Other operating activities, net.................................................... (5,711) (221)
Minority interest in income of subsidiary.......................................... 488 311
-------- -------
Net cash (used in) provided by operating activities.............................. (3,570) 29,647
-------- -------
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 49,467
Maturities of investment securities available for sale............................... 135,151 54,682
Maturities of investment securities held to maturity................................. 670 998
Purchases of investment securities available for sale................................ (109,481) (7,297)
Purchases of investment securities held to maturity.................................. (489) (1,982)
Net increase in loans................................................................ (155,830) (42,308)
Recoveries of loans previously charged-off........................................... 4,081 2,224
Purchases of bank premises and equipment............................................. (5,247) (6,717)
Other investing activities........................................................... 1,316 (5,543)
-------- -------
Net cash (used in) provided by investing activities.............................. (124,390) 26,279
-------- -------
Cash flows from financing activities:
Increase (decrease) in demand and savings deposits................................... 42,873 (37,729)
Increase in time deposits............................................................ 89,177 2,311
Decrease in Federal Home Loan Bank advances.......................................... -- (50,000)
Increase (decrease) in securities sold under agreements to repurchase................ 25,058 (3,955)
Increase (decrease) in notes payable................................................. 10,000 (48)
Sale of branch deposits.............................................................. -- (2,854)
Payment of preferred stock dividends................................................. (196) (196)
-------- -------
Net cash provided by (used in) financing activities.............................. 166,912 (92,471)
-------- -------
Net increase (decrease) in cash and cash equivalents............................. 38,952 (36,545)
Cash and cash equivalents, beginning of period............................................ 170,894 214,762
-------- -------
Cash and cash equivalents, end of period.................................................. $209,846 178,217
======== =======
Noncash investing and financing activities:
Loans transferred to other real estate............................................... $ 558 317
Loans held for sale transferred to loans............................................. 21,568 6,007
======== =======
</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 months ended March
31, 2000 are not necessarily indicative of the results that may be expected for
the year ending December 31, 2000.
The consolidated financial statements include the accounts of 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 Roseville, California
(FB California);
Redwood Bank, headquartered in San Francisco, California; and
Lippo Bank, headquartered in San Francisco, California.
The Subsidiary Banks and FCG are wholly owned by their respective
parent companies except FBA, which was 84.10% and 83.37% owned by First Banks at
March 31, 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
operates 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 $5.5 million and is being amortized over
15 years. Lippo Bank will be merged into FB California.
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>
(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 March 31, 2000:
<S> <C> <C> <C>
Basic EPS - income available to common stockholders............. $ 14,391 23,661 $ 608.21
==========
Effect of dilutive securities:
Class A convertible preferred stock........................... 192 1,076
--------- -------
Diluted EPS - income available to common stockholders........... $ 14,583 24,737 $ 589.52
========= ======= ==========
Three months ended March 31, 1999:
Basic EPS - income available to common stockholders............. $ 9,075 23,661 $ 383.52
==========
Effect of dilutive securities:
Class A convertible preferred stock........................... 192 1,212
--------- -------
Diluted EPS - income available to common stockholders........... $ 9,267 24,873 $ 372.57
========= ======= ==========
</TABLE>
(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 $530,000 and $379,000 for the three months ended
March 31, 2000 and 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 $4.5 million and $4.1 million
for the three months ended March 31, 2000 and 1999, respectively. During the
three months ended March 31, 2000 and 1999, First Services, L.P. paid First
Banks $454,000 and $215,000, 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 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 March 31, 2000, First Banks and the Subsidiary Banks were each
well capitalized.
As of March 31, 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.
<PAGE>
At March 31, 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
-----------------------
March 31, 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............................. 10.04% 10.05% 8.0% 10.0%
First Bank.............................. 10.55 10.60 8.0 10.0
FB&T.................................... 11.79 10.96 8.0 10.0
FB California........................... 11.03 10.81 8.0 10.0
FB Texas................................ 12.25 12.42 8.0 10.0
Redwood Bank............................ 11.09 11.17 8.0 10.0
Lippo Bank (1).......................... 13.61 -- 8.0 10.0
Tier 1 capital (to risk-weighted assets):
First Banks............................. 8.15% 8.00% 4.0% 6.0%
First Bank.............................. 9.30 9.35 4.0 6.0
FB&T.................................... 10.53 9.70 4.0 6.0
FB California........................... 9.77 9.56 4.0 6.0
FB Texas................................ 11.00 11.17 4.0 6.0
Redwood Bank............................ 9.97 10.15 4.0 6.0
Lippo Bank (1).......................... 12.36 -- 4.0 6.0
Tier 1 capital (to average assets):
First Banks............................. 7.57% 7.14% 3.0% 5.0%
First Bank.............................. 8.51 8.10 3.0 5.0
FB&T.................................... 9.46 8.57 3.0 5.0
FB California........................... 9.69 9.95 3.0 5.0
FB Texas................................ 10.27 10.39 3.0 5.0
Redwood Bank............................ 8.47 8.48 3.0 5.0
Lippo Bank (1).......................... 7.93 -- 3.0 5.0
</TABLE>
-------------------------
(1) Lippo Bank was acquired by FBA on February 29, 2000.
(6) BUSINESS SEGMENT RESULTS
First Banks' business segments are First Bank, FB California, Redwood
Bank, Lippo Bank, FB Texas and FB&T. The reportable business segments are
consistent with the management structure of First Banks, the Subsidiary Banks
and the internal reporting system that monitors performance.
Through the respective branch networks, First Bank, FB California,
Redwood Bank, Lippo 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 and financial,
commercial and residential real estate, real estate construction and development
and consumer 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.
<PAGE>
The business segment results are summarized as follows and are
consistent with First Banks' internal reporting system and, in all material
respects, with generally accepted accounting principles and practices
predominant in the banking and mortgage banking industries.
<TABLE>
<CAPTION>
First Bank FB California Redwood Bank (1) Lippo Bank (2)
------------------------- ---------------------- ---------------------- --------------
March 31, December 31, March 31, December 31, March 31, December 31, March 31,
2000 1999 2000 1999 2000 1999 2000
---- ---- ---- ---- ---- ---- ----
(dollars expressed in thousands)
Balance sheet information:
<S> <C> <C> <C> <C> <C> <C> <C>
Investment securities................ $ 222,652 241,624 25,142 20,743 27,485 37,539 31,944
Loans, net of unearned discount...... 2,705,376 2,527,649 380,446 379,632 142,228 138,902 41,148
Total assets......................... 3,136,666 3,028,046 471,257 431,838 193,928 199,988 98,355
Deposits............................. 2,738,103 2,689,671 406,058 367,563 167,110 173,703 76,431
Stockholders' equity................. 268,639 263,466 49,191 47,990 24,615 24,275 17,273
========= ======== ======= ======= ======= ======= ======
First Bank FB California Redwood Bank (1) Lippo Bank (2)
---------------------- ------------------ ------------------ ----------------
Three months ended Three Months ended Three months ended Month ended
March 31, March 31, March 31, March 31,
---------------------- ------------------ ------------------ ----------------
2000 1999 2000 1999 2000 1999 2000
---- ---- ---- ---- ---- ---- ----
Income statement information:
Interest income...................... $ 58,758 53,173 9,758 8,000 3,933 1,180 534
Interest expense..................... 26,252 26,531 3,511 3,079 1,574 442 216
-------- -------- ------- ------- ------- ------- ------
Net interest income............. 32,506 26,642 6,247 4,921 2,359 738 318
Provision for loan losses............ 2,600 2,100 90 60 132 -- --
-------- -------- ------- ------- ------- ------- ------
Net interest income after
provision for loan losses..... 29,906 24,542 6,157 4,861 2,227 738 318
-------- -------- ------- ------- ------- ------- ------
Noninterest income................... 6,994 7,588 676 609 (118) 26 116
Noninterest expense.................. 19,806 19,020 3,615 3,699 1,500 438 442
-------- -------- ------- ------- ------- ------- ------
Income (loss) before provision
(benefit) for income taxes
and minority interest in
income of subsidiary......... 17,094 13,110 3,218 1,771 609 326 (8)
Provision (benefit) for income taxes. 5,833 4,498 1,270 787 324 164 (7)
-------- -------- ------- ------- ------- ------- ------
Income (loss) before
minority interest in
income of subsidiary......... 11,261 8,612 1,948 984 285 162 (1)
Minority interest in income
of subsidiary................ -- -- -- -- -- -- --
-------- -------- ------- ------- ------- ------- ------
Net income...................... $ 11,261 8,612 1,948 984 285 162 (1)
======== ======== ======= ======= ======= ======= ======
</TABLE>
- -----------------
(1) Redwood Bank was acquired by FBA on March 4, 1999.
(2) Lippo Bank was acquired by FBA on February 29, 2000 and will be merged into
FB California during the second quarter of 2000.
(3) Corporate and other includes $2.0 million of guaranteed preferred
debenture expense, after applicable income tax benefit of $1.0 million for
the three months ended March 31, 2000 and 1999, respectively. In addition,
corporate and other includes FCG.
<PAGE>
<TABLE>
<CAPTION>
Corporate, other
and intercompany
FB Texas First Bank & Trust reclassifications (3) Consolidated totals
------------------------ ------------------------ -------------------------- ------------------------
March 31, December 31, March 31, December 31, March 31, December 31, March 31, December 31,
2000 1999 2000 1999 2000 1999 2000 1999
---- ---- ---- ---- ---- ---- ---- ----
(dollars expressed in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
26,152 30,439 95,330 103,636 16,897 17,666 445,602 451,647
214,473 213,731 739,040 736,828 (407) (418) 4,222,304 3,996,324
291,625 278,988 970,805 944,013 (27,793) (15,126) 5,134,843 4,867,747
255,517 244,248 839,754 804,976 (22,662) (28,347) 4,460,311 4,251,814
30,827 30,338 103,245 102,014 (185,549) (173,178) 308,241 294,905
======= ======= ======= ======= ======== ======== ======== =========
Corporate, other
and intercompany
FB Texas First Bank & Trust reclassifications (3) Consolidated totals
---------------------- ---------------------- ------------------------ -------------------
Three months ended Three months ended Three months ended Three months ended
March 31, March 31, March 31, March 31,
---------------------- ---------------------- ------------------------ --------------------
2000 1999 2000 1999 2000 1999 2000 1999
---- ---- ---- ---- ---- ---- ---- ----
5,668 5,542 18,914 14,341 152 324 97,717 82,560
2,289 2,162 7,508 6,199 937 553 42,287 38,966
------ ------- ------- ------ -------- -------- -------- -------
3,379 3,380 11,406 8,142 (785) (229) 55,430 43,594
120 30 640 300 -- -- 3,582 2,490
------ ------- ------- ------ -------- -------- -------- -------
3,259 3,350 10,766 7,842 (785) (229) 51,848 41,104
------ ------- ------- ------ -------- -------- -------- -------
491 543 1,881 1,243 (476) (406) 9,564 9,603
2,109 2,279 7,016 6,552 3,305 3,499 37,793 35,487
------ ------- ------- ------ -------- -------- -------- -------
1,641 1,614 5,631 2,533 (4,566) (4,134) 23,619 15,220
587 555 2,222 1,123 (1,685) (1,489) 8,544 5,638
------ ------- ------- ------ -------- -------- -------- -------
1,054 1,059 3,409 1,410 (2,881) (2,645) 15,075 9,582
-- -- -- -- 488 311 488 311
------ ------- ------- ------ -------- -------- -------- -------
1,054 1,059 3,409 1,410 (3,369) (2,956) 14,587 9,271
====== ======= ======= ====== ======== ======== ======== =======
</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 March 31, 2000,
First Banks had $5.13 billion in total assets, $4.22 billion in total loans, net
of unearned discount, $4.46 billion in total deposits and $308.2 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 Roseville, California
(FB California);
Redwood Bank, headquartered in San Francisco, California; and
Lippo Bank, headquartered in San Francisco, California.
The Subsidiary Banks and FCG are wholly owned by their respective
parent companies except FBA, which was 84.10% and 83.37% owned by First Banks at
March 31, 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, 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 March 31, 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 $ 3,136,666 2,705,376 2,738,103
FB&T ....................................... 27 970,805 739,040 839,754
FBA:
FB California.......................... 11 471,257 380,446 406,058
FB Texas............................... 6 291,625 214,473 255,517
Redwood Bank........................... 4 193,928 142,228 167,110
Lippo Bank............................. 3 98,355 41,148 76,431
</TABLE>
Financial Condition
First Banks' total assets increased by $260.0 million to $5.13 billion
from $4.87 billion at March 31, 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 $40.9
million and $66.1 million of loans acquired from Lippo Bank and FCG,
respectively, increased by $119.0 million, which is further discussed under
"--Loans and Allowance for Loan Losses." Total deposits, excluding the deposits
provided by the acquisition of Lippo Bank, increased by $132.1 million to $4.46
billion at March 31, 2000. The funds generated from the deposit growth were
primarily utilized to fund internal loan growth and the acquisition of the FCG
leases, with the remainder temporarily invested in cash and cash equivalents. In
addition, short-term borrowings and note payable increased to $98.6 million and
$74.0 million at March 31, 2000, respectively.
Results of Operations
Net Income
Net income was $14.6 million for the three months ended March 31, 2000,
compared to $9.3 million for the comparable period in 1999. The earnings
progress was primarily driven by 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, an increase in
interest rates and internal loan growth. As previous mentioned, the loan growth
was primarily funded through internal deposit growth.
The increase in net income was partially offset by an increased
provision for loan losses, as discussed under "--Loans and Allowance for Loan
Losses," and an increase in operating expenses of $2.3 million to $37.8 million
from $35.5 million for the three months ended March 31, 2000 and 1999,
respectively. The increased operating expenses are reflective of the operating
expenses of Lippo Bank, FCG, Century Bank and Redwood Bank subsequent to their
respective acquisition dates, increased salaries and employee benefit expenses,
increased data processing fees and increased amortization of intangibles
associated with the purchase of subsidiaries.
Net Interest Income
Net interest income (expressed on a tax equivalent basis) improved to
$55.6 million, or 4.85% of interest-earning assets, for the three months ended
March 31, 2000, from $43.8 million, or 4.28% of interest-earning assets, for the
comparable period in 1999. The improved net interest income is primarily
attributable to the net interest-earning assets provided by the aforementioned
acquisitions, internal loan growth and an increase in the prime-lending rate.
For the three months ended March 31, 2000, loans, on average, increased by
$461.0 million from the comparable period in 1999. Contributing further to the
improved net interest income is the reduced aggregate weighted average rate paid
on interest-bearing liabilities. For the three months ended March 31, 2000 and
1999, respectively, the aggregate weighted average rate paid on the deposit
portfolio decreased to 4.31% from 4.41%, reflecting First Banks' continual
process of realigning the deposit portfolios of acquired entities, competitive
pricing and enhanced products and services. This decrease was partially offset
by an increase in the weighted average rates paid on short-term borrowings and
notes payable and other to 5.12% and 7.13% for the three months ended March 31,
2000, respectively, from 4.86% and 6.43% for the comparable period in 1999,
respectively, reflecting an increase in the average balance of these financial
instruments.
<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>
For the three months ended March 31,
-----------------------------------------------------
2000 1999
------------------------ ------------------------
Interest Interest
Average income/ Yield/ Average income/ Yield/
balance expense rate balance expense rate
------- ------- ---- ------- ------- -----
(dollars expressed in thousands)
ASSETS
------
Interest-earning assets:
<S> <C> <C> <C> <C> <C> <C>
Loans (1) (2) (3)(4) ................................. $4,086,591 89,753 8.83% $3,625,581 74,761 8.36%
Investment securities (4) ............................ 440,803 7,002 6.39 510,844 7,807 6.20
Federal funds sold.................................... 81,320 1,126 5.57 14,854 193 5.27
Other................................................. 2,231 43 7.75 1,074 30 11.33
---------- ------- ---------- -------
Total interest-earning assets.................... 4,610,945 97,924 8.54 4,152,353 82,791 8.09
------- -------
Nonearning assets......................................... 351,309 343,402
---------- ----------
Total assets..................................... $4,962,254 $4,495,755
========== ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY
--------------------
Interest-bearing liabilities:
Interest-bearing deposits:
Interest-bearing demand deposits................... $ 423,088 1,465 1.39% $ 371,174 1,114 1.22%
Savings deposits................................... 1,225,323 11,636 3.82 1,212,273 10,929 3.66
Time deposits of $100 or more (3).................. 236,937 3,014 5.12 213,461 2,918 5.54
Other time deposits (3)............................ 1,847,003 23,908 5.21 1,618,772 22,214 5.57
---------- ------- ---------- -------
Total interest-bearing deposits.................. 3,732,351 40,023 4.31 3,415,680 37,175 4.41
Short-term borrowings (3)............................. 87,183 1,109 5.12 83,256 998 4.86
Notes payable and other............................... 65,126 1,155 7.13 50,001 793 6.43
---------- ------- ---------- -------
Total interest-bearing liabilities............... 3,884,660 42,287 4.38 3,548,937 38,966 4.45
------- -------
Noninterest-bearing liabilities:
Demand deposits....................................... 587,417 508,451
Other liabilities..................................... 194,914 171,607
---------- ----------
Total liabilities................................ 4,666,991 4,228,995
Stockholders' equity...................................... 295,263 266,760
---------- ----------
Total liabilities and stockholders' equity....... $4,962,254 $4,495,755
========== ==========
Net interest income....................................... 55,637 43,825
======= =======
Interest rate spread...................................... 4.16 3.64
Net interest margin....................................... 4.85% 4.28%
==== ====
</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 $207,000 and
$231,000 for the three months ended March 31, 2000 and 1999, respectively.
Provision for Loan Losses
The provision for loan losses was $3.6 million and $2.5 million for the
three months ended March 31, 2000 and 1999, respectively. The increase in the
provision for loan losses is primarily attributable to the continued growth and
changing composition of the loan portfolio. Loan charge-offs were $3.2 million
for the three months ended March 31, 2000, in comparison to $1.9 million for the
comparable period in 1999. This increase in loan charge-offs is reflective of
overall growth, both internal and through acquisitions, in the loan portfolio
and increased risk associated with the continued change in the composition of
the loan portfolio. For the three months ended March 31, 2000, loan charge-offs
include a charge-off of $1.6 million on a single loan. Loan recoveries increased
to $4.1 million for the three months ended March 31, 2000 from $2.2 million for
the comparable period in 1999 reflecting management's 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.
<PAGE>
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 $9.6 million for the three months ended March
31, 2000 and 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 increased
by $700,000 to $4.6 million from $3.9 million for the three months ended March
31, 2000 and 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 interchange
income associated with automatic teller machine services and debit and credit
cards.
The gain on mortgage loans sold and held for sale decreased $900,000 to
$1.4 million from $2.3 million for the three months ended March 31, 2000 and
1999, respectively. This decrease is primarily attributable to a reduced volume
of loans originated and sold commensurate with the increase in mortgage loan
rates experienced during the first quarter of 2000.
The net gain on sales of available-for-sale securities was $379,000 and
$677,000 for the three months ended March 31, 2000 and 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
gain reflects the sales of certain investment securities held by acquired
institutions that did not meet First Banks' overall investment objectives, which
resulted in a loss upon liquidation of these investment securities.
The net loss on trading securities of $303,000 for the three months
ended March 31, 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 $3.2 million for the three months ended March 31, 2000
in comparison to $3.0 million for the comparable period in 1999. The primary
components of the increase are attributable to income earned on First Banks'
investment in bank-owned life insurance 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.
Noninterest Expense
Noninterest expense increased to $37.8 million for the three months
ended March 31, 2000 from $35.5 million for the comparable period in 1999. The
increase is reflective of: (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 benefit expenses; (c) increased data processing
fees; and (d) increased amortization of intangibles associated with the purchase
of subsidiaries. The overall increase in noninterest expense was partially
offset by decreases in legal, examination and professional fees and other
expense.
Salaries and employee benefits were $16.9 million and $14.5 million for
the three months ended March 31, 2000 and 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.
<PAGE>
Occupancy, net of rental income, and furniture and equipment expense
were $3.2 million and $2.7 million for the three months ended March 31, 2000,
respectively, in comparison to $2.9 million and $1.9 million for the comparable
period 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.
Data processing fees were $5.2 million and $4.5 million for the three
months ended March 31, 2000 and 1999, respectively. The increased data
processing fees are attributable to growth and technological advancements
consistent with First Banks' product and service offerings, upgrades to
technological equipment, networks and communication channels and external
third-party data processing fees associated with Lippo Bank.
Legal, examination and professional fees decreased by $331,000 to
$989,000 from $1.3 million for the three months ended March 31, 2000 and 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 decreased by $1.3 million to $4.9 million from $6.2
million for the three months ended March 31, 2000 and 1999, respectively. Other
expense is comprised of numerous general administrative expenses including but
not limited to travel, meals and entertainment, 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 decrease in such expenditures is a function of: (a) reduced fraud
losses; (b) recoveries from loans of acquired entities that had been fully
charged-off prior to the acquisition dates; and (c) management's continued
efforts to control these costs. Offsetting the overall decrease in other
expenses was an increase of $174,000 in amortization of intangibles associated
with the purchase of subsidiaries, which is directly associated with the
completion of the aforementioned acquisitions.
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>
March 31, 2000 December 31, 1999
---------------------- --------------------
Notional Credit Notional Credit
amount exposure amount exposure
------ -------- ------ --------
(dollars expressed in thousands)
Interest rate swap agreements - pay
<S> <C> <C> <C> <C>
adjustable rate, receive adjustable rate............ $ -- -- 500,000 --
Interest rate swap agreements - pay
adjustable rate, receive fixed rate................. 455,000 40 455,000 3,349
Interest rate floor agreements.......................... 35,000 11 35,000 13
Interest rate cap agreements............................ 10,000 4 10,000 26
Forward commitments to sell
mortgage-backed securities.......................... 29,000 -- 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.
<PAGE>
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
$853,000 and $4.1 million at March 31, 2000 and December 31, 1999, respectively,
and the amount payable by First Banks under the swap agreements was $779,000 and
$770,000 at March 31, 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 century date change 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 March 31, 2000 and December 31, 1999, and the amount payable by
First Banks under the swap agreements was $153,000 and $141,000 at March 31,
2000 and December 31, 1999, respectively.
The maturity dates, notional amounts, interest rates paid and received,
and fair values of interest rate swap agreements outstanding as of March 31,
2000 and December 31, 1999 were as follows:
<TABLE>
<CAPTION>
Notional Interest rate Interest rate Fair value
Maturity date amount paid received gain (loss)
------------- ------ ---- -------- -----------
(dollars expressed in thousands)
March 31, 2000:
<S> <C> <C> <C> <C> <C> <C>
September 27, 2001.............................. $ 75,000 6.30% 6.14% $ (932)
September 27, 2001.............................. 45,000 6.30 6.14 (559)
September 27, 2001.............................. 40,000 6.30 6.14 (497)
September 27, 2001.............................. 15,000 6.30 6.14 (186)
June 11, 2002................................... 15,000 6.30 6.00 (362)
September 16, 2002.............................. 175,000 6.30 5.36 (7,229)
September 16, 2002.............................. 20,000 6.30 5.36 (826)
September 18, 2002.............................. 40,000 6.30 5.33 (1,691)
September 18, 2002.............................. 30,000 6.30 5.33 (1,268)
---------- ----------
$ 455,000 6.30 5.68 $ (13,550)
========== ===== ===== =========
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>
<PAGE>
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 cap and floor agreements to
limit the interest expense associated with certain interest-bearing liabilities
and the net interest expense of certain interest rate swap agreements,
respectively. At March 31, 2000 and December 31, 1999, the unamortized costs of
these agreements were $11,000 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
$34.1 million and $31.5 million at March 31, 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 $29.0 million and $33.0
million at March 31, 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 March 31, 2000 and December 31, 1999, the net unamortized gains
were $562,000 and $838,000, respectively. Such gains and losses 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 91.8% and 90.4% of total interest income for the three months ended March
31, 2000 and 1999, respectively. Total loans, net of unearned discount,
increased $220.0 million to $4.22 billion, or 82.2% of total assets, at March
31, 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 of 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 $86.5 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 increasing
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>
March 31, December 31,
2000 1999
---- ----
(dollars expressed in thousands)
Commercial, financial and agricultural:
<S> <C> <C>
Nonaccrual........................................................ $ 14,797 18,397
Restructured terms................................................ 22 29
Real estate construction and development:
Nonaccrual........................................................ 975 1,886
Real estate mortgage:
Nonaccrual........................................................ 15,053 16,414
Restructured terms................................................ 2,981 2,979
Consumer and installment:
Nonaccrual........................................................ 456 32
--------- ---------
Total nonperforming loans..................................... 34,284 39,737
Other real estate...................................................... 1,752 2,129
--------- ---------
Total nonperforming assets................................... $ 36,036 41,866
========= =========
Loans, net of unearned discount........................................ 4,222,304 3,996,324
========= =========
Loans past due 90 days or more and still accruing...................... 3,143 5,844
========= =========
Allowance for loan losses to loans..................................... 1.75% 1.72%
Nonperforming loans to loans........................................... 0.81 0.99
Allowance for loan losses to nonperforming loans....................... 215.43 172.66
Nonperforming assets to loans and other real estate.................... 0.85 1.05
========== ========
</TABLE>
<PAGE>
Nonperforming loans (also considered impaired loans), consisting of
loans on nonaccrual status and certain restructured loans, were $34.3 million at
March 31, 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 $5.4 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
March 31,
-------------------
2000 1999
---- ----
(dollars expressed in thousands)
<S> <C> <C>
Allowance for loan losses, beginning of period........................... $ 68,611 60,970
Acquired allowances for loan losses................................. 799 1,466
--------- ---------
69,410 62,436
-------- ---------
Loans charged-off................................................... (3,214) (1,911)
Recoveries of loans previously charged-off.......................... 4,081 2,224
--------- ---------
Net loan recoveries................................................. 867 313
--------- ---------
Provision for loan losses........................................... 3,582 2,490
--------- ---------
Allowance for loan losses, end of period................................. $ 73,859 65,239
========= =========
</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
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, the
allowance for loan losses is adjusted. Such adjustments 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 First Banks' $100 million Credit Agreement. The
aggregate funds acquired from these more volatile sources were $522.4 million
and $476.8 million at March 31, 2000 and December 31, 1999, respectively.
The following table presents the maturity structure of volatile funds,
which consists of certificates of deposit of $100,000 or more, short-term
borrowings and the note payable, at March 31, 2000:
<TABLE>
<CAPTION>
March 31, 2000
--------------
(dollars expressed in thousands)
<S> <C>
Three months or less.......................................................... $ 287,989
Over three months through six months.......................................... 93,823
Over six months through twelve months......................................... 80,108
Over twelve months............................................................ 60,466
---------
Total.................................................................. $ 522,386
=========
</TABLE>
<PAGE>
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 March 31,
2000, First Banks' borrowing capacity under these agreements was approximately
$1.25 billion. In addition, the Subsidiary Banks' borrowing capacity through
their relationships with the Federal Home Loan Banks was approximately $306.6
million at March 31, 2000.
Management believes the available liquidity and operating results of
the Subsidiary Banks will be sufficient to provide funds for growth and to
permit the distribution of dividends to 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 $180,000 and
$450,000 for the three months ended March 31, 2000 and 1999, respectively and
$1.8 million for the year ended December 31, 1999.
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. 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 March 31, 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 the recent increases in the prime lending
rate, is reflected in First Banks' increased net interest income for the three
months ended March 31, 2000 as further discussed under "--Results of
Operations." During the three months ended March 31, 2000, First Banks'
asset-sensitive position and overall susceptibility to market risks have not
changed significantly.
<PAGE>
Part II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
Since 1996, the former majority owner of Lippo Bank and various
entities with which he is associated, including Lippo Bank, have been a subject
of federal investigations involving alleged financial improprieties with respect
to federal election campaign laws. These alleged improprieties relate to various
transactions occurring between 1988 and 1996, particularly with respect to the
1996 U.S. Presidential campaign. Lippo Bank, which has cooperated with
authorities conducting the investigations, has been informed that in the event
other persons or entities, which are the principal focus of the investigations,
are charged in connection with these alleged improprieties, it may also be
charged in either civil or criminal proceedings. All of the matters under
investigation occurred years before FBA's acquisition of Lippo Bank in February
2000. In the course of negotiating the acquisition of Lippo Bank, FBA was
informed of the ongoing investigations and their potential outcome, and took
steps to protect itself against financial loss from this matter. These included
establishment of an accrual for anticipated legal defense costs and an escrow
arrangement pursuant to which Lippo Bank's former majority owner is required to
indemnify FBA for certain costs. FBA, with the advice of legal counsel, believes
that if any charges were to be instituted, the resolution thereof would not have
a material adverse financial effect on FBA.
ITEM 6- EXHIBITS AND REPORTS ON FORM 8-K
(a) The exhibits are numbered in accordance with the Exhibit Table of Item 601
of Regulation S-K.
Exhibit Number Description
-------------- -----------
27 Article 9 - Financial Data Schedule (EDGAR only)
(b) First Banks filed no reports on Form 8-K during the three months ended March
31, 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
May 10, 2000 (Principal Executive Officer)
By: /s/ Frank H. Sanfilippo
---------------------------------------
Frank H. Sanfilippo
Executive Vice President and
Chief Financial Officer
May 10, 2000 (Principal Financial and
Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000710507
<NAME> First Banks, Inc.
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> Dec-31-2000
<PERIOD-START> Jan-01-2000
<PERIOD-END> Mar-31-2000
<CASH> 126,128
<INT-BEARING-DEPOSITS> 2,118
<FED-FUNDS-SOLD> 81,600
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 424,240
<INVESTMENTS-CARRYING> 21,362
<INVESTMENTS-MARKET> 21,204
<LOANS> 4,222,304
<ALLOWANCE> 73,859
<TOTAL-ASSETS> 5,134,843
<DEPOSITS> 4,460,311
<SHORT-TERM> 98,612
<LIABILITIES-OTHER> 140,026
<LONG-TERM> 127,653
0
13,063
<COMMON> 5,915
<OTHER-SE> 289,263
<TOTAL-LIABILITIES-AND-EQUITY> 5,134,843
<INTEREST-LOAN> 89,678
<INTEREST-INVEST> 6,870
<INTEREST-OTHER> 1,169
<INTEREST-TOTAL> 97,717
<INTEREST-DEPOSIT> 40,023
<INTEREST-EXPENSE> 42,287
<INTEREST-INCOME-NET> 55,430
<LOAN-LOSSES> 3,582
<SECURITIES-GAINS> 379
<EXPENSE-OTHER> 37,793
<INCOME-PRETAX> 23,619
<INCOME-PRE-EXTRAORDINARY> 23,619
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,587
<EPS-BASIC> 608.21
<EPS-DILUTED> 589.52
<YIELD-ACTUAL> 8.54
<LOANS-NON> 31,281
<LOANS-PAST> 3,143
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 73,349
<ALLOWANCE-OPEN> 68,611
<CHARGE-OFFS> 3,214
<RECOVERIES> 4,081
<ALLOWANCE-CLOSE> 73,859
<ALLOWANCE-DOMESTIC> 64,434
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 9,425
</TABLE>
