UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _______ to ________
Commission File No. 0-20632
FIRST BANKS, INC.
(Exact name of registrant as specified in its charter)
MISSOURI 43-1175538
(State or other jurisdiction (I.R.S. Employer Identification No.)
of 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)
--------------------------
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- -------------------
None N/A
Securities registered pursuant to Section 12(g) of the Act:
9.25% Cumulative Trust Preferred Securities
(issued by First Preferred Capital Trust and guaranteed
by its parent, First Banks, Inc.)
(Title or class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--------- ---------
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendments to this Form 10-K. [ X ]
None of the voting stock of the Company is held by non-affiliates. All
of the voting stock of the Company is owned by various trusts which were created
by and for the benefit of Mr. James F. Dierberg, the Company's Chairman of the
Board of Directors and Chief Executive Officer, and members of his immediate
family.
At March 20, 2000, there were 23,661 shares of the registrant's common
stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Shareholders for the year ended
December 31, 1999 are incorporated by reference into Parts I, II and IV of this
report.
<PAGE>
PART I
The following portions of the 1999 Annual Report to Stockholders ("1999
Annual Report") of First Banks, Inc. ("First Banks" or the "Company") are
incorporated by reference in this report:
<TABLE>
<CAPTION>
Page(s) in 1999
Section Annual Report
------- -------------
Management's Discussion and Analysis of
<S> <C> <C>
Financial Condition and Results of Operations 3 - 31
Selected Consolidated and Other Financial Data 2
Consolidated Financial Statements 34 - 62
Supplementary Financial Data 32
Range of Prices of Preferred Securities 65
</TABLE>
Except for the parts of the 1999 Annual Report expressly incorporated
by reference, such report is not deemed filed with the Securities and Exchange
Commission.
Information appearing in this report, in documents incorporated by
reference herein and in documents subsequently filed with the Securities and
Exchange Commission which are not statements of historical fact may include
forward-looking statements with respect to the financial condition, results of
operations and business of 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
Annual Report should therefore not place undue reliance on forward-looking
statements.
Item 1. Business
General. First Banks, incorporated in Missouri in 1978, is headquartered in St.
Louis, Missouri and is a registered bank holding company under the Bank Holding
Company Act of 1956, as amended ("BHC Act"). The principal function of the
Company is to assist management of its banking subsidiaries.
At December 31, 1999, First Banks had $4.87 billion in total assets,
$4.00 billion in total loans, net of unearned discount, $4.25 billion in total
deposits and $294.9 million in total stockholders' equity. First Banks operates
through its subsidiary bank holding companies and financial institutions
("Subsidiary Banks") as follows:
First Bank, headquartered in St. Louis County, Missouri ("First Bank");
First Bank & Trust, headquartered in Newport Beach, California ("FB&T");
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"); and,
Redwood Bank, headquartered in San Francisco, California.
<PAGE>
The Subsidiary Banks are wholly owned by their respective parent
companies except FBA, which was 76.8% owned by First Banks at December 31, 1998.
On February 17, 1999, First Banks completed its purchase of 314,848 shares of
FBA common stock pursuant to a tender offer that increased First Banks'
ownership interest in FBA to 82.3% of the outstanding voting stock of FBA. At
December 31, 1999, First Banks' ownership interest in FBA was 83.4%.
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.
The following table summarizes selected data about the Subsidiary Banks
at December 31, 1999:
<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 $ 3,028,046 2,527,649 2,689,671
FB&T............................................ 28 944,013 736,828 804,976
FBA:
FB California............................... 10 431,838 379,632 367,563
FB Texas.................................... 6 278,988 213,731 244,248
Redwood Bank................................ 4 199,988 138,902 173,703
</TABLE>
The voting stock of First Banks is owned by various trusts which were
created by and are administered by and for the benefit of Mr. James F. Dierberg,
First Banks' Chairman of the Board and Chief Executive Officer, and members of
his immediate family. Accordingly, Mr. Dierberg controls the management and
policies of First Banks and the election of its directors. The Preferred
Securities are publicly held and listed on the Nasdaq Stock Market's National
Market system. The Preferred Securities have no voting rights except in certain
limited circumstances.
At December 31, 1999, the Company, Mr. Dierberg and an affiliate of Mr.
Dierberg own 18.08%, 0.20% and 4.33%, respectively, of the outstanding shares of
common stock of Southside Bancshares Corporation ("Southside") located in St.
Louis, Missouri.
Further discussion of the business operations of First Banks and the
Subsidiary Banks and the Company's policies are set forth in the Management's
Discussion and Analysis of Financial Condition and Results of Operations section
of the 1999 Annual Report which is incorporated herein by reference.
Acquisitions. Prior to 1994, First Banks' acquisitions had been concentrated
within the market areas of eastern Missouri and central and southern Illinois.
The premiums required to successfully pursue acquisitions escalated sharply in
1993, reducing the economic viability of many potential acquisitions in that
area. Recognizing this, First Banks began to expand the geographic area in which
it approached acquisition candidates. While First Banks was successful in making
acquisitions in Chicago and northern Illinois, it became apparent that
acquisition pricing, in Chicago and other areas being considered, was comparable
to that of First Banks' eastern Missouri and central and southern Illinois
acquisition area. As a result, while First Banks continued to pursue
acquisitions within these areas, it turned much of its attention to institutions
which could be acquired at more attractive prices which were within major
metropolitan areas outside of these market areas. This led to the acquisition of
FB Texas in 1994, which had offices in Dallas and Houston, Texas, and numerous
acquisitions of financial institutions that had offices in Los Angeles, Orange
County, Santa Barbara, San Francisco, San Jose and Sacramento, California during
the past five years ended December 31, 1999.
<PAGE>
For the three years ended December 31, 1999, First Banks completed five
acquisitions and four branch office purchases. These transactions provided total
assets of $697.4 million and 21 banking locations. For a description of these
acquisitions, see "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Acquisitions" and Note 2 to the Consolidated
Financial Statements of the 1999 Annual Report.
Market Area. As of December 31, 1999, the Subsidiary Banks' 135 banking
facilities were located throughout eastern Missouri and in Illinois, Texas and
California. First Banks' primary market area is the St. Louis, Missouri
metropolitan area. First Banks' second and third largest market areas are
central and southern Illinois and southern and northern California,
respectively. First Banks also has locations in the Houston, Dallas, Irving and
McKinney, Texas metropolitan areas, rural eastern Missouri and the greater
Chicago, Illinois metropolitan area.
The following table lists the market areas in which the Subsidiary
Banks operate, total deposits, deposits as a percentage of total deposits and
number of locations as of December 31, 1999:
<TABLE>
<CAPTION>
Total Deposits Number
deposits as a percentage of
Geographic area (in millions) of total deposits locations
--------------- ----------- ------------------ ---------
<S> <C> <C> <C>
St. Louis, Missouri metropolitan area (1).......................... $ 987.9 23.2% 29
Rural eastern Missouri (1)......................................... 394.3 9.3 15
Central and southern Illinois (1).................................. 984.9 23.2 42
Northern Illinois (1).............................................. 300.0 7.1 2
Texas (2).......................................................... 238.7 5.6 6
Southern and central California (3)................................ 763.2 17.9 27
Northern California (4)............................................ 583.0 13.7 14
--------- ----- -----
Total deposits................................................. $ 4,252.0 100.0% 135
========= ===== =====
</TABLE>
------------------------
(1) First Bank operates in the St. Louis metropolitan area, in rural eastern
Missouri, in central and southern Illinois and in northern Illinois,
including Chicago.
(2) FB Texas operates in the Houston, Dallas, Irving and McKinney
metropolitan areas.
(3) FB&T operates in the greater Los Angeles metropolitan area, including
Orange County, California. Three of the branches are also located in
Santa Barbara County, California.
(4) FB&T, FB California and Redwood Bank operate in northern California,
including the greater San Francisco, San Jose and Sacramento metropolitan
areas.
Competition and Branch Banking. The activities in which the Subsidiary Banks
engage are highly competitive. Those activities and the geographic markets
served primarily involve competition with other banks, some of which are
affiliated with large regional or national holding companies. Competition among
financial institutions is based upon interest rates offered on deposit accounts,
interest rates charged on loans and other credit and service charges, the
quality of services rendered, the convenience of banking facilities and, in the
case of loans to large commercial borrowers, relative lending limits.
In addition to competing with other banks within their primary service
areas, the Subsidiary Banks also compete with other financial intermediaries,
such as thrifts, credit unions, industrial loan associations, securities firms,
insurance companies, small loan companies, finance companies, mortgage
companies, real estate investment trusts, certain governmental agencies, credit
organizations and other enterprises. Additional competition for depositors'
funds comes from United States Government securities, private issuers of debt
obligations and suppliers of other investment alternatives for depositors. Many
of the Company's non-bank competitors are not subject to the same extensive
federal regulations that govern bank holding companies and federally-insured
banks and state regulations governing state-chartered banks. As a result, such
non-bank competitors may have certain advantages over the Company in providing
some services.
The trend in Missouri, Illinois, Texas and California has been for
multi-bank holding companies to acquire independent banks and thrifts in
communities throughout these states. The Company believes it will continue to
face competition in the acquisition of such banks and thrifts from bank holding
companies based in those states and from bank holding companies based in other
states under interstate banking laws. Many of the financial institutions with
which the Company competes are larger than the Company and have substantially
greater resources available for making acquisitions.
<PAGE>
Subject to regulatory approval, commercial banks situated in Missouri,
Illinois, Texas and California are permitted to establish branches throughout
their respective states, thereby creating the potential for additional
competition in the Subsidiary Banks' service areas.
Supervision and Regulation
General. The Company and the Subsidiary Banks are extensively regulated under
federal and state laws designed primarily to protect depositors and customers of
the Subsidiary Banks. To the extent this discussion refers to statutory or
regulatory provisions, it is not intended to summarize all of such provisions
and is qualified in its entirety by reference to the relevant statutory and
regulatory provisions. Changes in applicable laws, regulations or regulatory
policies may have a material effect on the business and prospects of the
Company. The Company is unable to predict the nature or extent of the effects on
its business and earnings that new federal and state legislation or regulation
may have. The enactment of the legislation described below has significantly
affected the banking industry generally and is likely to have ongoing effects on
the Company and the Subsidiary Banks in the future.
The Company is a registered bank holding company under the BHC Act and,
as such, is subject to regulation, supervision and examination by the Board of
Governors of the Federal Reserve System ("FRB"). First Banks is required to file
annual reports with the FRB and to provide to the FRB additional information as
it may require.
First Bank is chartered by the State of Missouri and is subject to
supervision, regulation and examination by the State of Missouri Division of
Finance. FB&T, FB California and Redwood Bank are chartered by the State of
California and are subject to supervision, regulation and examination by the
California Department of Financial Institutions. FB Texas is a national bank and
is therefore subject to supervision, regulation and examination by the Office of
the Comptroller of the Currency ("OCC"). The Subsidiary Banks are also regulated
by the Federal Deposit Insurance Corporation ("FDIC"), which provides deposit
insurance of up to $100,000 for each insured depositor.
Bank Holding Company Regulation. The Company's activities and those of its
subsidiaries have in the past been limited to the business of banking and
activities "closely related" or "incidental" to banking. Under the
Gramm-Leach-Bliley Act, which was enacted in November 1999 and is discussed
below, bank holding companies now have the opportunity to seek broadened
authority, subject to limitations on investment, to engage in activities that
are "financial in nature" if its subsidiary depository institutions are well
capitalized, well managed and have at least a satisfactory rating under the
Community Reinvestment Act (discussed briefly below).
First Banks is also subject to capital requirements applied on a
consolidated basis which are substantially similar to those required of the
Subsidiary Banks (briefly summarized below). The BHC Act also requires a bank
holding company to obtain approval from the FRB before: (i) acquiring, directly
or indirectly, ownership or control of any voting shares of another bank or bank
holding company if, after such acquisition, it would own or control more than 5%
of such shares (unless it already owns or controls a majority of such shares);
(ii) acquiring all or substantially all of the assets of another bank or bank
holding company; or (iii) merging or consolidating with another bank holding
company. The FRB will not approve any acquisition, merger or consolidation that
would have a substantially anti-competitive result, unless the anti-competitive
effects of the proposed transaction are clearly outweighed by a greater public
interest in meeting the convenience and needs of the community to be served. The
FRB also considers capital adequacy and other financial and managerial factors
in reviewing acquisitions and mergers.
Safety and Soundness and Similar Regulations. The Company is subject to various
regulations and regulatory policies directed at the financial soundness of the
Subsidiary Banks. These include, but are not limited to, the FRB's source of
strength policy, which obligates a bank holding company such as First Banks to
provide financial and managerial strength to the Subsidiary Banks; restrictions
on the nature and size of certain transactions between a bank holding company
and its subsidiary depository institutions; and restrictions on extensions of
credit by the Subsidiary Banks to executive officers, directors, principal
stockholders and the related interests of such persons.
Regulatory Capital Standards. The federal bank regulatory agencies have adopted
substantially similar risk-based and leverage capital guidelines for banking
organizations. Risk-based capital ratios are determined by classifying assets
and specified off-balance-sheet financial instruments into weighted categories,
with higher levels of capital being required for categories deemed to represent
greater risk. FRB policy also provides that banking organizations generally, and
in particular those that are experiencing internal growth or actively making
acquisitions, are expected to maintain capital positions that are substantially
above the minimum supervisory levels, without significant reliance on intangible
assets.
<PAGE>
Under the risk-based capital standard, the minimum consolidated ratio
of total capital to risk-adjusted assets required for bank holding companies is
8%. At least one-half of the total capital must be composed of common equity,
retained earnings, qualifying noncumulative perpetual preferred stock, a limited
amount of qualifying cumulative perpetual preferred stock and minority interests
in the equity accounts of consolidated subsidiaries, less certain items such as
goodwill and certain other intangible assets ("Tier 1 capital"). The remainder
may consist of qualifying hybrid capital instruments, perpetual debt, mandatory
convertible debt securities, a limited amount of subordinated debt, preferred
stock that does not qualify as Tier 1 capital and a limited amount of loan and
lease loss reserves ("Tier 2 capital").
In addition to the risk-based standard, the Company is subject to
minimum requirements with respect to the ratio of its Tier 1 capital to its
average assets less goodwill and certain other intangible assets (the "Leverage
Ratio"). Applicable requirements provide for a minimum Leverage Ratio of 3% for
bank holding companies that have the highest supervisory rating, while all other
bank holding companies must maintain a minimum Leverage Ratio of at least 4% to
5%.
The OCC and the FDIC have established capital requirements for banks
under their respective jurisdictions that are consistent with those imposed by
the FRB on bank holding companies. Information regarding First Banks and the
Subsidiary Banks under the federal capital requirements is contained in Note 19
to the Consolidated Financial Statements and is incorporated herein by
reference.
Prompt Corrective Action. The FDIC Improvement Act requires the federal bank
regulatory agencies to take prompt corrective action in respect to depository
institutions that do not meet minimum capital requirements. A depository
institution's status under the prompt corrective action provisions will depend
upon how its capital levels compare to various relevant capital measures and
other factors as established by regulation.
The federal regulatory agencies have adopted regulations establishing
relevant capital measures and relevant capital levels. Under the regulations, a
bank will be: (i) "well capitalized" if it has a total capital ratio of 10% or
greater, a Tier 1 capital ratio of 6% or greater and a Leverage Ratio of 5% or
greater and is not subject to any order or written directive by any such
regulatory authority to meet and maintain a specific capital level for any
capital measure; (ii) "adequately capitalized" if it has a total capital ratio
of 8% or greater, a Tier 1 capital ratio of 4% or greater and a Leverage Ratio
of 4% or greater (3% in certain circumstances); (iii) "undercapitalized" if it
has a total capital ratio of less than 8%, a Tier 1 capital ratio of less than
4% or a Leverage Ratio of less than 4% (3% in certain circumstances); (iv)
"significantly undercapitalized" if it has a total capital ratio of less than
6%, a Tier 1 capital ratio of less than 3% or a Leverage Ratio of less than 3%;
and (v) "critically undercapitalized" if its tangible equity is equal to or less
than 2% of average quarterly tangible assets. A depository institution's primary
federal regulatory agency is authorized to lower the institution's capital
category under certain circumstances. The banking agencies are permitted to
establish individualized minimum capital requirements exceeding the general
requirements described above. Generally, a bank which does not maintain the
status of "well capitalized" or "adequately capitalized" will be subject to
restrictions and limitations on its business that are progressively more severe.
A bank is prohibited from making any capital distribution (including
payment of a dividend) or paying any management fee to its holding company if
the bank would thereafter be "undercapitalized." "Undercapitalized" depository
institutions are subject to limitations on, among other things, asset growth,
acquisitions, branching, new lines of business, acceptance of brokered deposits
and borrowings from the Federal Reserve System, and they are required to submit
a capital restoration plan that includes a guarantee from the institution's
holding company. "Significantly undercapitalized" depository institutions may be
subject to a number of requirements and restrictions, including orders to sell
sufficient voting stock to become "adequately capitalized," requirements to
reduce total assets and cessation of receipt of deposits from correspondent
banks. "Critically undercapitalized" institutions are subject to the appointment
of a receiver or conservator.
<PAGE>
Dividends. First Banks' primary source of funds in the future is the dividends,
if any, paid by the Subsidiary Banks. The ability of the Subsidiary Banks to pay
dividends is limited by federal laws, by regulations promulgated by the bank
regulatory agencies and by principles of prudent bank management. The amount of
dividends the Subsidiary Banks may pay to the Company is also limited by First
Banks' credit agreement with a group of unaffiliated financial institutions.
Additional information concerning limitations on the ability of the Subsidiary
Banks to pay dividends appears in Note 20 to the Consolidated Financial
Statements and is incorporated herein by reference.
Customer Protection. The Subsidiary Banks are also subject to consumer laws and
regulations intended to protect consumers in transactions with depository
institutions, as well as other laws or regulations affecting customers of
financial institutions generally. These laws and regulations mandate various
disclosure requirements and substantively regulate the manner in which financial
institutions must deal with their customers. The Subsidiary Banks are required
to comply with numerous regulations in this regard and are subject to periodic
examinations with respect to their compliance with the requirements.
Community Reinvestment Act. The Community Reinvestment Act of 1977 ("CRA")
requires that, in connection with examinations of financial institutions within
their jurisdiction, the federal banking regulators must evaluate the record of
the financial institutions in meeting the credit needs of their local
communities, including low and moderate income neighborhoods, consistent with
the safe and sound operation of those banks. These factors are also considered
in evaluating mergers, acquisitions and other applications to expand.
The Gramm-Leach-Bliley Act. The activities of bank holding companies have
historically been limited to the business of banking and activities "closely
related" or "incidental" to banking. The enactment in November 1999 of the
Gramm-Leach-Bliley Act will relax the previous limitations and permit some bank
holding companies to engage in a broader range of financial activities. Bank
holding companies may elect to become financial holding companies that may
affiliate with securities firms and insurance companies and engage in other
activities that are financial in nature. In addition to lending, activities that
will be deemed "financial in nature" include securities underwriting, dealing in
or making a market in securities, sponsoring mutual funds and investment
companies, insurance underwriting and agency activities, merchant banking
activities and other activities which the FRB determines to be closely related
to banking. A bank holding company may become a financial holding company only
if each of its subsidiary banks is well capitalized and well managed and has a
rating of satisfactory or higher under CRA. A bank holding company that ceases
to be in compliance with those requirements may be required to stop engaging in
specified activities. Any bank holding company that does not elect to become a
financial holding company will remain subject to current restrictions.
Under the new legislation, the FRB will have supervisory authority over
each parent company and limited authority over its subsidiaries. The
determination of which federal regulatory agency is given primary authority over
a subsidiary of a financial holding company will depend on the types of
activities conducted by the subsidiary. In that regard, broker-dealer
subsidiaries will be regulated primarily by securities regulators and insurance
subsidiaries will primarily be regulated by insurance authorities. Implementing
regulations under the Gramm-Leach-Bliley Act have not yet been promulgated, and
First Banks is not able to predict the likely extent of the impact of the
legislation.
Reserve Requirements; Federal Reserve System and Federal Home Loan Bank System.
The FRB requires all depository institutions to maintain reserves against their
transaction accounts and non-personal time deposits. The balances maintained to
meet the reserve requirements imposed by the FRB may be used to satisfy
liquidity requirements. Institutions are authorized to borrow from the Federal
Reserve Bank "discount window," but FRB regulations require institutions to
exhaust other reasonable alternative sources of funds, including advances from
Federal Home Loan Banks ("FHLBs"), before borrowing from the Federal Reserve
Bank.
Certain of the Subsidiary Banks are members of the Federal Reserve
System (First Bank and FB Texas) and the Federal Home Loan Bank System (First
Bank, FB Texas, FB&T, and FB California) and are required to hold investments in
regional banks within those systems. The Subsidiary Banks were in compliance
with these requirements at December 31, 1999, with investments of $10.3 million
in stock of the FHLB of Des Moines held by First Bank, $1.4 million in stock of
<PAGE>
the FHLB of Dallas held by FB Texas, $2.9 million and $1.3 million in stock of
the FHLB of San Francisco held by FB&T and FB California, respectively, $4.9
million in stock of the Federal Reserve Bank of St. Louis held by First Bank,
and $863,000 in stock of the Federal Reserve Bank of Dallas held by FB Texas.
Monetary Policy and Economic Control. The commercial banking business is
affected not only by legislation, regulatory policies and general economic
conditions, but also by the monetary policies of the FRB. Changes in the
discount rate on member bank borrowings, the availability of credit at the
"discount window," open market operations, the imposition of changes in reserve
requirements against deposits and assets of foreign branches, and the imposition
of and changes in reserve requirements against certain borrowings by banks and
their affiliates are some of the instruments of monetary policy available to the
FRB. These monetary policies are used in varying combinations to influence
overall growth and distributions of bank loans, investments and deposits, and
this use may affect interest rates charged on loans or paid on liabilities. The
monetary policies of the FRB have had a significant effect on the operating
results of commercial banks and are expected to do so in the future. Such
policies are influenced by various factors, including inflation, unemployment,
short-term and long-term changes in the international trade balance and in the
fiscal policies of the U.S. Government. Future monetary policies and the effect
of such policies on the future business and earnings of the Company or the
Subsidiary Banks cannot be predicted.
Employees
As of March 20, 2000, the Company employed approximately 1,670
employees. None of the employees are subject to a collective bargaining
agreement. The Company considers its relationships with its employees to be
good.
Executive Officers of the Registrant
Information regarding executive officers is contained in Item 10 of
Part III hereof (pursuant to General Instruction G) and is incorporated herein
by this reference.
Item 2. Properties
The Company owns the office building which houses the principal place
of business of the Company, which is located at 135 North Meramec, Clayton,
Missouri 63105. The property is in good condition and consists of approximately
41,763 square feet, of which approximately 3,115 square feet is currently leased
to others. Of First Banks' other 134 branch offices and facilities, 81 are
located in buildings owned by First Banks and 53 are located in leased
facilities.
The Company considers the properties at which it does business to be in
good condition, suitable for the business conducted at each location. To the
extent that its properties or those acquired in connection with the acquisition
of other entities provide space in excess of that effectively utilized in the
operations of the Subsidiary Banks, the Company seeks to lease or sub-lease any
excess space to third parties. Additional information regarding the premises and
equipment utilized by the Subsidiary Banks appears in Note 5 to the Consolidated
Financial Statements incorporated herein by reference.
Item 3. Legal Proceedings
There are various claims and pending actions against First Banks and
the Subsidiary Banks in the ordinary course of business. It is the opinion of
management of First Banks, in consultation with legal counsel, the ultimate
liability, if any, resulting from such claims and pending actions will have no
material adverse effect on the financial position or results of operations of
First Banks.
Item 4. Submission of Matters to a Vote of Security Holders
None.
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Market Information. There is no established public trading market for First
Banks' common stock. All of First Banks' common stock is owned by various trusts
created by and for the benefit of Mr. James F. Dierberg, the Company's Chairman
of the Board and Chief Executive Officer, and members of his immediate family.
Dividends. In recent years, the Company has paid minimal dividends on its Class
A Convertible Adjustable Rate Preferred Stock and its Class B Non-Convertible
Adjustable Rate Preferred Stock, and has paid no dividends on its Common Stock.
The ability of a bank holding company such as First Banks to pay dividends is
limited by regulatory requirements and by the receipt of dividend payments from
the Subsidiary Banks, which are also subject to regulatory requirements. See
Note 20 to the Consolidated Financial Statements.
Item 6. Selected Financial Data
The information required by this item is incorporated herein by
reference from page 2 of the 1999 Annual Report under the caption "Selected
Consolidated and Other Financial Data."
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The information required by this item is incorporated herein by
reference from pages 3 through 31 of the 1999 Annual Report under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Item 7a. Quantitative and Qualitative Disclosures About Market Risk
The information required by this item is incorporated herein by
reference from page 14 of the 1999 Annual Report under the caption "Management's
Discussion and Analysis - Interest Rate Risk Management."
Item 8. Financial Statements and Supplementary Data
The consolidated financial statements of First Banks are incorporated
herein by reference from pages 34 through 62 of the 1999 Annual Report under the
captions "Consolidated Balance Sheets," "Consolidated Statements of Income,"
"Consolidated Statements of Changes in Stockholders' Equity and Comprehensive
Income," "Consolidated Statements of Cash Flows," "Notes to Consolidated
Financial Statements" and "Independent Auditors' Report."
Supplementary Financial Information regarding First Banks is
incorporated herein by reference from page 32 of the 1999 Annual Report under
the caption "Quarterly Condensed Financial Data - Unaudited."
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
Board of Directors
The Board of Directors, consisting of four members, is identified in
the following table. Each of the directors was elected or appointed to serve a
one-year term and until his successor has been duly qualified for office.
<TABLE>
<CAPTION>
Director Principal Occupation(s) During Last Five Years
Name Age Since and Directorships of Public Companies
---- --- ----- -------------------------------------
<S> <C> <C> <C>
James F. Dierberg 62 1979 Chairman of the Board of Directors and Chief Executive Officer of
the Company since 1988; President of the Company from 1979 to 1992
and from 1994 to October 1999; Chairman of the Board of Directors,
President and Chief Executive Officer of FBA since 1994; Trustee of
First Preferred Capital Trust and First America Capital Trust since
1997 and 1998, respectively.
Allen H. Blake 57 1988 President of the Company since October 1999; Executive Vice
President and Chief Financial Officer of the Company from 1996 to
September 1999; Chief Operating Officer of the Company since 1998;
Senior Vice President and Chief Financial Officer of the Company
from 1992 to 1996; Secretary of the Company since 1988; Director,
Executive Vice President, Chief Operating Officer and Secretary of
FBA since 1998; Chief Financial Officer of FBA from 1994 to
September 1999; Director, Senior Vice President and Secretary of
FBA from 1994 to 1998; Director and Executive Vice President of
FCB from 1995 until its merger into FBA in 1998; Trustee of First
Preferred Capital Trust and First America Capital Trust since 1997
and 1998, respectively.
Donald Gunn, Jr. (1) 64 1992 Director of the Company; Practicing Attorney and Shareholder in
the law firm of Gunn & Gunn, P.C., St. Louis, Missouri.
George J. Markos (1) 51 1992 Director of the Company; President of Profit Management Systems,
Richardson, Texas, a company that provides consulting services
primarily to banks, savings and loans and related businesses,
including the Company.
</TABLE>
- -----------------------
(1) Member of the Audit Committee.
<PAGE>
Executive Officers
The executive officers of the Company, each of whom were elected to the
office(s) indicated by the Board of Directors, as of March 20, 2000 were as
follows:
<TABLE>
<CAPTION>
Current First Banks Principal Occupation(s)
-------------------
Name Age Office(s) Held During Last Five Years
---- --- -------------- ----------------------
<S> <C> <C>
James F. Dierberg 62 Chairman of the Board of Directors See Item 10 - "Directors and Executive
and Chief Executive Officer. Officers of the Registrant - Board of
Directors."
Allen H. Blake 57 President, Chief Operating Officer See Item 10 - "Directors and Executive
and Secretary. Officers of the Registrant - Board of
Directors."
Michael F. Hickey 42 Executive Vice President and Chief Executive Vice President and Chief
Information Officer; Director of Information Officer of First Banks since
First Bank; President of First November 1999; Director of First Bank
Services, L.P. since November of 1999; President of
First Services, L.P. since November of
1999; Vice President - Senior Group
Manager of Information Systems,
Mercantile Bank, St. Louis, Missouri,
from 1996 to November 1999; Group Manager
of Information Systems, Mercantile Bank,
from 1992 to 1996.
Terrance M. McCarthy 45 Executive Vice President; Executive Mr. McCarthy has been employed in various
Vice President of FBA; Chairman of executive capacities with First Banks
the Board of Directors, President since 1995.
and Chief Executive Officer of FB
California; Director, President and
Chief Executive Officer of Red-
wood Bank and Lippo Bank.
Frank H. Sanfilippo 37 Executive Vice President and Chief Executive Vice President and Chief
Financial Officer. Financial Officer of FBA since September
1999; Director, Executive Vice President,
Chief Financial Officer, Secretary and
Treasurer of First Bank since September
1999; Senior Vice President and Director
of Management Accounting of Mercantile
Bancorporation, Inc., St. Louis, Missouri,
from 1998 to September 1999; Vice
President and Chief Financial Officer -
Mercantile Bank Operations Division, from
1996 to 1997; Vice President and Assistant
Comptroller of Mercantile Bank N.A. from
1994 to 1996.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
John A. Schreiber 49 Executive Vice President; Chairman Mr. Schreiber has been employed in
of the Board of Directors, various executive capacities with First
President and Chief Executive Banks since 1992.
Officer of First Bank.
Mark T. Turkcan 44 Executive Vice President - Consumer Mr. Turkcan has been employed in various
Lending and Mortgage Banking; executive capacities with First Banks
Director and Executive Vice since 1994.
President of First Bank.
Donald W. Williams 52 Executive Vice President and Chief Mr. Williams has been employed in various
Credit Officer; Director, Executive executive capacities with First Banks
Vice President and Chief Credit since 1993.
Officer of FBA; Director and
Executive Vice President of First
Bank; Director of FB Texas, FB&T
and FB California; Chairman of the
Board of Directors of First Capital
Group, Inc., Redwood Bank and Lippo
Bank.
</TABLE>
Section 16(a) Beneficial Ownership Reporting Compliance
To the Company's knowledge, no director, executive officer or
shareholder of the Company, subject, in their capacity as such, to the reporting
obligations set forth in Section 16 of the Securities Exchange Act of 1934, as
amended ("Exchange Act") has failed to file on a timely basis reports required
by Section 16(a) of the Exchange Act during the year ended December 31, 1999.
<PAGE>
Item 11. Executive Compensation
The following table sets forth certain information regarding
compensation earned by the named executive officers for the years ended December
31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
--------------------------
All Other
Name and Principal Position(s) Year Salary Bonus Compensation (1)
------------------------------ ---- ------ ----- ----------------
<S> <C> <C> <C> <C>
James F. Dierberg 1999 $ 543,000 20,000 5,000
Chairman of the Board of Directors 1998 536,000 0 5,000
and Chief Executive Officer 1997 492,000 0 4,750
Allen H. Blake 1999 204,800 20,000 5,000
President and 1998 157,300 40,000 5,000
Chief Operating Officer 1997 147,500 30,000 4,750
John A. Schreiber 1999 208,750 36,600 5,000
Executive Vice President 1998 181,900 40,000 5,000
1997 166,250 30,000 4,750
Mark T. Turkcan 1999 156,250 15,000 4,956
Executive Vice President 1998 140,800 15,000 4,725
Consumer Lending and Mortgage Banking 1997 133,750 15,000 4,012
Donald W. Williams 1999 208,750 35,000 5,000
Executive Vice President 1998 182,600 40,000 5,000
and Chief Credit Officer 1997 166,250 40,000 4,750
</TABLE>
- -----------------------
(1) All other compensation reported represents First Banks' matching
contributions to the 401(k) Plan for the year indicated.
Employment Agreements. Messrs. Schreiber and Williams are parties to employment
agreements with the Company and First Bank. In most respects, the two contracts
are identical. The term of each contract is one year, and each is automatically
renewable for additional one-year periods. As part of the annual renewal
process, the base salary payable under each employment agreement is reviewed and
may be adjusted at the discretion of the Board of Directors of the Company. The
base salary paid to each of Messrs. Schreiber and Williams pursuant to their
respective employment agreements is set forth in the salary column of the
Summary Compensation Table.
Both employment contracts provide for a bonus of up to twenty percent
(20%) of the employee's annual base salary, with the exact percentage to be
determined by the Chairman of the Board of the Company if the employee meets the
criteria set by the Company and First Bank at the beginning of each contract
year. Each annual bonus is payable within ninety (90) days after the close of
the year to which it relates. In addition, each employee is entitled to
participate in the 401(k) Plan, the Company's health insurance plan and in such
other additional benefit plans which the Company may adopt for its employees.
Under the terms of the employment contracts, if either Mr. Schreiber or
Mr. Williams is terminated for a reason other than retirement, death,
"disability" or for "cause," as those terms are defined in the employment
agreements, or are terminated due to a change in control of the Company, each
such individual will be entitled to receive two years base salary. Should either
Mr. Schreiber or Mr. Williams voluntarily terminate employment with the Company
and First Bank, he would be entitled to receive the balance of his base salary
for that year or a minimum of six months salary, provided that neither would be
permitted to accept a position with any bank or trust company for the duration
of that year. Finally, in the event of the death of either Mr. Schreiber or Mr.
Williams, their respective employment agreements provide that their estates
would be entitled to receive compensation that would have been payable to the
employee during the month of his death, and his monthly salary for the twelve
month period following the date of his death.
<PAGE>
Compensation of Directors. Only those directors who are not employees of the
Company or any of its subsidiaries receive remuneration for their services as
directors. Such non-employee directors (currently only Messrs. Donald Gunn and
George Markos) receive a retainer of $1,000 per quarter and a fee of $500 per
Board meeting attended. No directors are compensated for attendance at Audit
Committee meetings, which is the only committee of the Board of Directors.
Messrs. Gunn and Markos each received $6,000 in director's fees during 1999.
In addition to Board meeting fees, during 1999, the Company paid Mr.
Markos, directly or indirectly, consulting fees in the amount of $2,000
exclusive of reimbursement for his travel expenses. It is anticipated Mr. Markos
will continue to provide consulting services to the Company during the current
fiscal year.
During 1999, the Company paid approximately $245,000 in legal fees to a
law firm of which Mr. Donald Gunn, one of the Company's directors, is a
shareholder. It is anticipated Mr. Gunn's law firm will continue to provide
legal services to the Company during the current fiscal year.
Executive officers of the Company who are also directors of the Company
do not receive remuneration other than salaries and bonuses for serving on the
Board of Directors.
Compensation Committee Interlocks and Insider Participation. Messrs. Dierberg
and Blake, who are executive officers of the Company, are also members of the
Board of Directors and executive officers of FBA. FBA does not have a
compensation committee, but its Board of Directors performs the functions of
such a committee. Except for the foregoing, no executive officer of First Banks
served during 1999 as a member of the compensation committee, or any other
committee performing similar functions, or as a director of another entity, any
of whose executive officers or directors served on the Board of Directors of
First Banks.
During 1999, 1998 and 1997, Tidal Insurance Limited (Tidal), a
corporation owned indirectly by First Banks' Chairman and his children, received
approximately $316,000, $280,000 and $214,000, respectively, in insurance
premiums for accident, health and life insurance policies purchased by loan
customers of First Banks. The insurance policies are issued by an unaffiliated
company and subsequently ceded to Tidal. First Banks believes the premiums paid
by the loan customers of First Banks are comparable to those that such loan
customers would have paid if the premiums were subsequently ceded to an
unaffiliated third-party insurer.
During 1999, 1998 and 1997, First Securities America, Inc. (FSA), a
trust established and administered by and for the benefit of First Banks'
Chairman and members of his immediate family, received approximately $194,000,
$265,000 and $206,000, respectively, in commissions and insurance premiums for
policies purchased by First Banks or customers of the Subsidiary Banks from
unaffiliated, third-party insurors to which First Banc Insurors placed such
policies. The insurance premiums on which the aforementioned commissions were
earned were competitively bid and First Banks deems the commissions FSA earned
from unaffiliated third-party companies to be comparable to those that would
have been earned by an unaffiliated third-party agent.
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 $2.3 million, $1.8 million and $707,000 for the
years ended December 31, 1999, 1998 and 1997, 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 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 $16.4 million, $12.2 million and
$6.4 million for the years ended December 31, 1999, 1998 and 1997, respectively.
During 1999, 1998 and 1997, First Services, L.P. paid First Banks $1.2 million,
$799,000 and $1.1 million, 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.
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth, as of March 20, 2000, certain
information with respect to the beneficial ownership of all classes of voting
capital stock of the Company by each person known to the Company to be the
beneficial owner of more than five percent of the outstanding shares of the
respective classes of stock:
<TABLE>
<CAPTION>
Percent of
Number of Total
Title of Class Shares Percent Voting
and Name of Owner Owned of Class Power
----------------- ----- -------- -----
Common Stock ($250.00 Par value)
- --------------------------------
<S> <C> <C> <C>
James F. Dierberg II Family Trust (1)...................... 7,714.677(2) 32.605% *
Michael J. Dierberg Family Trust (1)....................... 4,255.319(2) 17.985% *
Ellen C. Dierberg Family Trust (1)......................... 7,714.676(2) 32.605% *
Michael J. Dierberg Irrevocable Trust (1) ................. 3,459.358(2) 14.621% *
First Trust (Mary W. Dierberg and First Bank
Trustees) (1).......................................... 516.830(3) 2.184% *
Class A Convertible Adjustable Rate Preferred Stock
- ---------------------------------------------------
($20.00 par value)
- ------------------
James F. Dierberg, Trustee of the James F. Dierberg
Living Trust (1)....................................... 641,082(4)(5) 100% 77.7%
Class B Non-Convertible Adjustable Rate Preferred Stock
- -------------------------------------------------------
($1.50 par value)
- -----------------
James F. Dierberg, Trustee of the James F. Dierberg
Living Trust (1)........................................... 160,505(5) 100% 19.4%
All executive officers and directors
other than Mr. James F. Dierberg
and members of his immediate family........................... 0 0% 0.0%
</TABLE>
- --------------------
* Represents less than 1.0%
(1) Each of the above-named trustees and beneficial owners are United States
citizens, and the business address for each such individual is 135 North
Meramec Avenue, Clayton, Missouri 63105. Mr. James F. Dierberg, the
Company's Chairman of the Board and Chief Executive Officer, and Mrs.
Mary W. Dierberg, are husband and wife, and Messrs. James F. Dierberg II,
Michael J. Dierberg and Mrs. Ellen D. Schepman, formerly Ellen C.
Dierberg, are their adult children.
(2) Due to the relationship between Mr. James F. Dierberg, his wife and their
children, Mr. Dierberg is deemed to share voting and investment power
over the Company's common stock.
(3) Due to the relationship between Mr. James F. Dierberg, his wife and
First Bank, Mr. Dierberg is deemed to share voting and investment power
over these shares.
(4) Convertible into common stock, based on the appraised value of the common
stock at the date of conversion. Assuming an appraised value of the
common stock equal to the book value, the number of shares of common
stock into which the Class A Preferred Stock is convertible at December
31, 1999 is 1,212, which shares are not included in the above table.
(5) Sole voting and investment power.
<PAGE>
Item 13. Certain Relationships and Related Transactions
Outside of normal customer relationships, no directors or officers of
the Company, no shareholders holding over five percent (5.0%) of the Company's
voting securities and no corporations or firms with which such persons or
entities are associated, maintain or have maintained since the beginning of the
last full fiscal year, any significant business or personal relationship with
the Company or its subsidiaries, other than that which by virtue of such
position or ownership interest in the Company or its subsidiaries, except as set
forth in Item 11 - "Executive Compensation - Compensation of Directors," or as
described in the following paragraphs.
The Subsidiary Banks have had in the past, and may have in the future,
loan transactions in the ordinary course of business with directors of First
Banks or their affiliates. These loan transactions have been and will be on the
same terms, including interest rates and collateral, as those prevailing at the
time for comparable transactions with unaffiliated persons and did not and will
not involve more than the normal risk of collectibility or present other
unfavorable features. The Subsidiary Banks do not extend credit to officers of
First Banks or of the Subsidiary Banks, except extensions of credit secured by
mortgages on personal residences, loans to purchase automobiles and personal
credit card accounts.
Certain of the directors and officers of First Banks and their
respective affiliates have deposit accounts with the Subsidiary Banks. It is the
policy of the Subsidiary Banks not to permit any officers or directors of the
Subsidiary Banks or their affiliates to overdraw their respective deposit
accounts unless that person has been previously approved for overdraft
protection under a plan whereby a credit limit has been established in
accordance with the standard credit criteria of the Subsidiary Banks.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1. Financial Statements and Supplemental Data - The
financial statements and supplemental data filed as
part of this Report are listed under Item 8.
2. Financial Statement Schedules - These schedules are
omitted for the reason they are not required or are not
applicable.
3. Exhibits - The exhibits are listed in the index of
exhibits required by Item 601 of Regulation S-K at Item
(c) below and are incorporated herein by reference.
(b) Reports on Form 8-K.
First Banks filed no reports on Form 8-K during the
quarter ended December 31, 1999.
(c) The index of required exhibits is included beginning on page
18 of this Report.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
FIRST BANKS, INC.
By: /s/ James F. Dierberg
----------------------
James F. Dierberg
Chairman of the Board of Directors
and Chief Executive Officer
(Principal Executive Officer)
By: /s/ Frank H. Sanfilippo
------------------------
Frank H. Sanfilippo
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
By: /s/ Lisa K. Vansickle
----------------------
Lisa K. Vansickle
Vice President and Controller
(Principal Accounting Officer)
Date: March 27, 2000
<TABLE>
<CAPTION>
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed by the following persons on behalf of the Registrant
and in the capacities and on the date indicated.
Signatures Title Date
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
/s/ James F. Dierberg Director March 27, 2000
-------------------------------------------
James F. Dierberg
/s/ Allen H. Blake Director March 27, 2000
------------------------------------------
Allen H. Blake
/s/ Donald J. Gunn, Jr. Director March 27, 2000
------------------------------------------
Donald J. Gunn, Jr.
</TABLE>
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description
------ -----------
3.1 Restated Articles of Incorporation of the Company, as amended
(incorporated herein by reference to Exhibit 3(i) to the Company's
Annual Report on Form 10-K for the year ended December 31, 1993).
3.2 Bylaws of the Company (incorporated herein by reference to
Exhibit 3.2 to Amendment No. 2 to the Company's Registration
Statement on Form S-1 (File No. 33-50576) dated September 15, 1992).
4.1 Reference is made to Article III of the Company's Restated
Articles of Incorporation (incorporated herein by reference to
Exhibit 3.1 of the Company's Annual Report on Form 10-K for the year
ended December 31, 1997).
4.2 The Company agrees to furnish to the Securities and Exchange
Commission upon request pursuant to Item 601(b)(4)(iii) of
Regulation S-K, copies of instruments defining the rights of holders
of long term debt of the Company and its subsidiaries.
4.3 Agreement As To Expenses and Liabilities (incorporated herein by
reference to Exhibit 4(a) to the Company's Report on Form 10-Q for
the quarter ended March 31, 1997).
4.4 Preferred Securities Guarantee Agreement (incorporated herein by
reference to Exhibit 4(b) to the Company's Report on Form 10-Q for
the quarter ended March 31, 1997).
4.5 Indenture (incorporated herein by reference to Exhibit 4(c) to the
Company's Report on Form 10-Q for the quarter ended March 31, 1997).
4.6 Amended and Restated Trust Agreement (incorporated herein by
reference to Exhibit 4(d) to the Company's Report on Form 10-Q for
the quarter ended March 31, 1997).
10.1 Shareholders' Agreement by and among James F. Dierberg, II and
Mary W. Dierberg, Trustees under Living Trust of James F.
Dierberg II, dated July 24, 1989, Michael James Dierberg and
Mary W. Dierberg, Trustees under the Living Trust of Michael
James Dierberg, dated July 24, 1989; Ellen C. Dierberg and Mary W.
Dierberg, Trustees under Living Trust of Ellen C. Dierberg dated
July 17, 1992, and First Banks, Inc. (incorporated herein by
reference to Exhibit 10.3 to the Company's Registration Statement on
Form S-1, File No 33-50576, dated August 6, 1992).
10.2 Comprehensive Banking System License and Service Agreement
dated as of July 24, 1991, by and between the Company and
FiServ CIR, Inc. (incorporated herein by reference to Exhibit
10.4 to the Company's Registration Statement on Form S-1, File
No. 33-50576, dated August 6, 1992).
10.4* Employment Agreement by and among the Company, First Bank and
John A. Schreiber, dated September 21, 1992 (incorporated herein
by reference to Exhibit 10(iii)(A) to the Company's Form 10-K for
the year ended December 31, 1993).
10.5* Employment Agreement by and among the Company, First Bank and
Donald W. Williams dated March 22, 1993 (incorporated herein
by reference to Exhibit 10(iii)(A) to the Company's Form 10-K for
the year ended December 31, 1993).
<PAGE>
10.6 $100,000,000 Amended and Restated Secured Credit Agreement,
dated as of August 25, 1999, among First Banks, Inc. and
Mercantile Bank National Association, American National Bank
and Trust Company of Chicago, Harris Trust and Savings Bank,
the Frost National Bank, Norwest Bank Minnesota, National
Association and Mercantile Bank National Association, as Agent
(incorporated herein by reference to Exhibit 10.6 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1999).
10.7 Stock Purchase and Operating Agreement by and between the
Company and BancTEXAS Group, Inc., dated May 19, 1994
(incorporated herein by reference to Exhibit 2 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1994).
10.8* Service Agreement by and between First Services, L.P. and
First Bank dated April 1, 1997 (incorporated herein by
reference to Exhibit 10.8 of the Company's Annual Report on
Form 10-K for the year ended December 31, 1997).
10.9* Service Agreement by and between First Services, L.P. and
First Bank & Trust dated April 1, 1997 (incorporated herein
by reference to Exhibit 10.9 of the Company's Annual Report
on Form 10-K for the year ended December 31, 1997).
10.10* Service Agreement by and between First Services, L.P. and
BankTEXAS N.A. dated April 1, 1997 (incorporated herein by
reference to Exhibit 10.10 of the Company's Annual Report on
Form 10-K for the year ended December 31, 1997).
10.11* Management Services Agreement by and between First Banks, Inc.
and Redwood Bank, dated June 1, 1999 (incorporated herein by
reference to Exhibit 10.11 to the Company's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1999).
13.1 The Company's 1999 Annual Report to Shareholders filed
herewith. Portions not specifically incorporated by
reference in this Report are not deemed "filed" for the
purposes of the Securities Exchange Act of 1934 - filed
herewith.
21.1 Subsidiaries of the Company - filed herewith.
27.1 Financial Data Schedule (EDGAR only).
- -------------------
* Exhibits designated by an asterisk in the Index to Exhibits relate to
management contracts and/or compensatory plans or arrangements.
<PAGE>
Exhibit 13.1
FIRST BANKS, INC.
1999 ANNUAL REPORT
<PAGE>
FIRST BANKS, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
LETTER TO SHAREHOLDERS.............................................................................. 1
SELECTED CONSOLIDATED AND OTHER FINANCIAL DATA...................................................... 2
MANAGEMENT'S DISCUSSION AND ANALYSIS................................................................ 3
QUARTERLY CONDENSED FINANCIAL DATA - UNAUDITED...................................................... 32
INDEPENDENT AUDITORS' REPORT........................................................................ 33
FINANCIAL STATEMENTS:
CONSOLIDATED BALANCE SHEETS.................................................................... 34
CONSOLIDATED STATEMENTS OF INCOME.............................................................. 36
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME.................................................................. 37
CONSOLIDATED STATEMENTS OF CASH FLOWS.......................................................... 38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS..................................................... 39
DIRECTORS AND SENIOR MANAGEMENT..................................................................... 63
INVESTOR INFORMATION................................................................................ 65
</TABLE>
<PAGE>
To Our Valued Shareholders, Customers and Friends:
First Banks, Inc. is pleased to report our accomplishments for 1999.
Net income increased 32% in 1999 to $44.2 million from $33.5 million in 1998.
Earnings per share, on a diluted basis, were $1,775.47 in comparison to
$1,337.09 in 1998. The improved earnings were primarily driven by strong revenue
gains that were a product of an improved earning asset and funding mix, the
addition of Redwood Bancorp and Century Bank and gains on the sale of
non-strategic branches. The revenue gains were partially offset by an increased
provision for possible loan losses due to strong loan growth and by increased
operating expenses as we continue to invest in personnel and technology, thereby
better serving our customer base.
First Banks' strategic objective of generating progressive and
profitable growth continued during the past year. Total assets increased to
$4.87 billion at December 31, 1999, an increase of $313 million over 1998. Our
continued emphasis in developing our existing franchise drove this growth.
Indicative of this development is the growth of the loan portfolio, which
increased by $416 million during 1999.
Facilitating the development of First Banks' presence in our target
market areas were the acquisitions of Redwood Bancorp and Century Bank,
providing total assets of $184 million and $156 million, respectively, and ten
banking locations in key California markets. In addition, First Banks is pleased
to report the completion of the acquisitions of Lippo Bank and certain assets
and liabilities of First Capital Group, Inc. on February 29, 2000. Lippo Bank
provides three additional locations in California, approximately $85 million in
assets and certain international business banking capabilities, such as
import/export letters of credit. First Capital Group, Inc. specializes in
commercial equipment leasing and had approximately $64.5 million in net leases
at the acquisition date. We are excited about these new organizations and
welcome their management, staff and customers to our family.
In closing, I would like to extend my sincere appreciation for the
dedication of our employees, and the continued support of our customers and
investors.
Sincerely,
James F. Dierberg
Chairman of the Board and Chief Executive Officer
<PAGE>
FIRST BANKS, INC.
Selected Consolidated and Other Financial Data (1)
The selected consolidated financial data set forth below, insofar as it
relates to the five years ended December 31, 1999, is derived from the audited
consolidated financial statements of First Banks, Inc. and subsidiaries (First
Banks or the Company). Such data is qualified by reference to the consolidated
financial statements of First Banks included herein and should be read in
conjunction with such consolidated financial statements and related notes
thereto and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
<TABLE>
<CAPTION>
Year ended December 31, (1)
---------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(dollars expressed in thousands, except per share data)
Income Statement Data:
<S> <C> <C> <C> <C> <C>
Interest income................................... $ 353,082 327,860 295,101 266,021 261,621
Interest expense.................................. 158,701 162,179 148,831 141,670 144,945
---------- -------- -------- --------- ---------
Net interest income............................... 194,381 165,681 146,270 124,351 116,676
Provision for possible loan losses................ 13,073 9,000 11,300 11,494 10,361
---------- -------- -------- --------- ---------
Net interest income after provision
for possible loan losses........................ 181,308 156,681 134,970 112,857 106,315
Noninterest income................................ 41,650 36,497 25,697 20,721 19,407
Noninterest expense............................... 150,807 138,704 110,287 105,741 91,566
---------- -------- -------- --------- ---------
Income before provision for income taxes
and minority interest in (income) loss
of subsidiaries................................. 72,151 54,474 50,380 27,837 34,156
Provision for income taxes........................ 26,313 19,693 16,083 6,960 11,038
---------- -------- -------- --------- ---------
Income before minority interest in (income) loss
of subsidiaries................................. 45,838 34,781 34,297 20,877 23,118
Minority interest in (income) loss
of subsidiaries................................. (1,660) (1,271) (1,270) (659) 1,353
---------- -------- -------- --------- ---------
Net income........................................ $ 44,178 33,510 33,027 20,218 24,471
========== ======== ======== ========= =========
Dividends:
Preferred stock................................... $ 786 786 5,067 5,728 5,736
Common stock...................................... -- -- -- -- --
Ratio of total dividends declared to net income... 1.78% 2.35% 15.34% 28.33% 23.44%
Per Share Data:
Earnings per common share:
Basic........................................... $ 1,833.91 1,383.04 1,181.69 612.46 791.82
Diluted......................................... 1,775.47 1,337.09 1,134.28 596.83 759.09
Weighted average common stock outstanding......... 23,661 23,661 23,661 23,661 23,661
Balance Sheet Data (at year-end):
Investment securities............................. $ 451,647 534,796 795,530 552,801 508,323
Loans, net of unearned discount................... 3,996,324 3,580,105 3,002,200 2,767,969 2,744,219
Total assets...................................... 4,867,747 4,554,810 4,165,014 3,689,154 3,622,962
Total deposits.................................... 4,251,814 3,939,985 3,684,595 3,238,567 3,183,691
Notes payable..................................... 64,000 50,048 55,144 76,330 88,135
Guaranteed preferred beneficial interests
in First Banks, Inc. and First Banks
America, Inc. subordinated debentures........... 127,611 127,443 83,183 -- --
Common stockholders' equity....................... 281,842 250,300 218,474 184,439 166,542
Total stockholders' equity........................ 294,905 263,363 231,537 251,389 234,605
Earnings Ratios:
Return on average total assets.................... 0.95% 0.78% 0.87% 0.57% 0.70%
Return on average total stockholders' equity...... 15.79 13.64 12.91 8.43 10.79
Asset Quality Ratios:
Allowance for possible loan losses to loans....... 1.72 1.70 1.68 1.69 1.92
Nonperforming loans to loans (2).................. 0.99 1.22 0.80 1.09 1.44
Allowance for possible loan losses to
nonperforming loans (2)......................... 172.66 140.04 209.88 154.55 133.70
Nonperforming assets to loans and
other real estate (3)........................... 1.05 1.32 1.04 1.47 1.71
Net loan charge-offs to average loans............. 0.22 0.05 0.27 0.72 0.41
Capital Ratios:
Average total stockholders' equity to
average total assets............................ 6.00 5.73 6.70 6.79 6.49
Total risk-based capital ratio.................... 10.05 10.28 10.26 9.23 9.34
Leverage ratio.................................... 7.14 7.77 6.80 5.99 5.32
</TABLE>
------------------------------
(1) The comparability of the selected data presented is affected by the
acquisitions of ten banks and three thrifts during the five-year period
ended December 31, 1999. These acquisitions were accounted for as purchases
and, accordingly, the selected data includes the financial position and
results of operations of each acquired entity only for the periods
subsequent to its respective date of acquisition.
(2) Nonperforming loans consist of nonaccrual loans and certain loans with
restructured terms.
(3) Nonperforming assets consist of nonperforming loans and other real estate.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The discussion set forth in the Letter to Shareholders and Management's
Discussion and Analysis of Financial Condition and Results of Operations
contains certain forward-looking statements with respect to the financial
condition, results of operations and business of 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 Annual Report should therefore not
place undue reliance on forward-looking statements.
Company Profile
First Banks is a registered bank holding company incorporated in
Missouri and headquartered in St. Louis County, Missouri. At December 31, 1999,
First Banks had $4.87 billion in total assets, $4.00 billion in total loans, net
of unearned discount, $4.25 billion in total deposits and $294.9 million in
total stockholders' equity. First Banks operates through its subsidiary bank
holding companies and financial institutions (collectively referred to as the
Subsidiary Banks) as follows:
First Bank, headquartered in St. Louis County, Missouri (First Bank);
First Bank & Trust, headquartered in Newport Beach, California (FB&T);
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); and,
Redwood Bank, headquartered in San Francisco, California.
The Subsidiary Banks are wholly owned by their respective parent
companies except FBA, which was 76.8% owned by First Banks at December 31, 1998.
On February 17, 1999, First Banks completed its purchase of 314,848 shares of
FBA common stock pursuant to a tender offer. The tender offer increased First
Banks' ownership interest in FBA to 82.3% of the outstanding voting stock of
FBA. First Banks' ownership interest in FBA at December 31, 1999 was 83.4%.
As discussed under "--Acquisitions," in February 1998, First Commercial
Bancorp, Inc. (FCB), a majority-owned subsidiary of First Banks, was acquired by
FBA and its subsidiary bank, First Commercial Bank (First Commercial), was
merged into FB California. The acquisition of FCB and First Commercial by FBA
and FB California, respectively, did not have a material impact on the financial
condition or results of operations of First Banks.
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 recaps selected data about the Subsidiary Banks at
December 31, 1999:
<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 $ 3,028,046 2,527,649 2,689,671
FB&T ....................................... 28 944,013 736,828 804,976
FBA:
FB California.......................... 10 431,838 379,632 367,563
FB Texas............................... 6 278,988 213,731 244,248
Redwood Bank........................... 4 199,988 138,902 173,703
</TABLE>
The voting stock of First Banks is owned by various trusts which were
created by and are administered by and for the benefit of Mr. James F. Dierberg,
First Banks' Chairman of the Board and Chief Executive Officer, and members of
his immediate family. Accordingly, Mr. Dierberg controls the management and
policies of First Banks and the election of its directors.
As more fully described under "--Financial Condition and Average
Balances" and in Note 9 to the accompanying consolidated financial statements,
in February 1997, First Preferred Capital Trust (FPCT), a newly formed Delaware
statutory business trust subsidiary of First Banks, issued 3.45 million shares
of 9.25% Guaranteed Preferred Beneficial Interests in First Banks' Subordinated
Debentures (FPCT Preferred Securities) for $86.25 million. In addition, in July
1998, First America Capital Trust (FACT), a newly formed Delaware business trust
subsidiary of FBA, issued 1.84 million shares of 8.50% Guaranteed Preferred
Beneficial Interests in FBA's Subordinated Debentures (FACT Preferred
Securities) for $46.0 million. The FPCT Preferred Securities and the FACT
Preferred Securities are publicly held and traded on the Nasdaq Stock Market's
National Market System and the New York Stock Exchange, respectively. These
preferred securities have no voting rights except in certain limited
circumstances. Distributions on these preferred securities are payable quarterly
in arrears on March 31, June 30, September 30 and December 31 of each year.
General
In the development of its banking franchise, First Banks has
traditionally placed primary emphasis upon acquiring other financial
institutions as a means of achieving its growth objectives. Acquisitions may
serve to enhance its presence in a given market, to expand the extent of its
market area or to enter new or noncontiguous markets. However, because First
Banks has historically used cash in its acquisitions, the characteristics of the
acquisition arena at any given point in time may place it at a competitive
disadvantage relative to other acquirers offering stock transactions. This is
the result of the market attractiveness of other financial institutions' stock,
the advantages of tax-free exchanges to the selling shareholders, and the
financial reporting flexibility inherent in structuring stock transactions.
Consequently, First Banks' acquisition activities are somewhat sporadic, in
which multiple transactions are consummated in a particular period, followed by
substantially less active acquisition periods. Furthermore, the intangible
assets recorded in conjunction with such acquisitions create an immediate
reduction in regulatory capital. This reduction, as required by regulatory
policy, provides further financial disincentives to paying large premiums in
cash acquisitions.
Recognizing these facts, First Banks has followed certain patterns in
its acquisitions. First, it tends to acquire several smaller institutions,
sometimes over an extended period of time, rather than a single larger one. This
is attributable to the constraints imposed by the amount of funds required for a
larger transaction, as well as the opportunity to minimize the aggregate premium
required through smaller individual transactions. Secondly, in some
acquisitions, First Banks may acquire institutions having more significant
problems, which reduces their attractiveness to other potential acquirers, and
therefore reduces the amount of acquisition premiums required. Finally, First
Banks realizes that various acquisition markets may become so competitive at
times, that cash transactions are not economically viable, thereby requiring it
to pursue its acquisition strategy in other geographic areas, or pursue internal
growth more aggressively. These patterns have been evident in First Banks'
growth during the five years ended December 31, 1999.
During 1994 and 1995, First Banks completed twelve acquisitions which
provided an aggregate of $1.96 billion in total assets and 43 locations.
Relative to the entire organization, these acquisitions represented an increase
in First Banks' total assets of 78% over the same two-year time period. These
acquisitions provided First Banks with access into several new major market
areas and, accordingly, an attractive opportunity for future growth and
profitability. As acquisition pricing in these areas escalated dramatically, the
level of acquisition activity decreased from 1996 through 1999. For a summary of
acquisitions completed during the three years ended December 31, 1999, see
<PAGE>
"--Acquisitions" and Note 2 to the accompanying consolidated financial
statements. During the past three years, management has continued to meld
acquired entities into its operations, systems and culture, and achieve the
efficiencies and opportunities envisioned when the entities were acquired. Many
of the acquired institutions exhibited elements of financial distress prior to
their acquisitions which contributed to marginal earnings performance.
Generally, these elements were the result of asset quality problems and/or high
overhead expenses.
Following acquisition, the most immediate tasks included the
improvement of asset quality and the elimination of unnecessary expenses.
Although many improvements were instituted shortly after acquisition, many of
the problems which existed were indigenous, requiring a much longer time period
to resolve. This involved not only many problem assets, which had no apparent
short-term solution, but also other elements of expense, such as: (1)
maintaining, repairing and, in some cases, refurbishing bank premises
necessitated by the deferral of such projects by the acquired entities; (2)
renegotiating or subleasing long-term leases which provided space in excess of
that necessary for banking activities and/or rates in excess of current market
rates; (3) relocating of branch offices which were not adequate, conducive or
convenient for banking operations; and (4) managing lawsuits that existed with
respect to acquired entities to minimize the overall cost of negotiation,
settlement or litigation.
However, the process which was required after acquisition was not only
one of reducing expenses and improving asset quality, but the combining of
separate and distinct entities together to form cohesive organization groups
with common objectives and focus. This involved a significant post-acquisition
investment of resources by First Banks to reorganize staff, recruit personnel
where needed, and establish the direction and focus necessary for the combined
entities to take advantage of the opportunities available to them. While this
contributed to the increases in noninterest expense during the five years ended
December 31, 1999, it also resulted in the creation of new banking entities
which were unlike any of the merged entities individually. These banks were able
to convey a consistent image and quality of service, provide a complete array of
financial products to their customers and compete effectively in their
marketplaces, even in the presence of other financial institutions with much
greater resources.
While some of these activities did not contribute to reductions of
noninterest expense, they contributed to the commercial and retail business
development efforts of the banks, and ultimately to their overall profile to
improve future profitability. The contribution to consolidated net income for
California (FB&T, FB California and Redwood Bank), Texas (FB Texas) and Missouri
and Illinois (First Bank) is reflected in the following table:
<TABLE>
<CAPTION>
California Texas Missouri and Illinois
--------------------- -------------------- ---------------------
1999 1998 1997 1999 1998 1997 1999 1998 1997
---- ---- ---- ---- ---- ---- ---- ---- ----
(dollars expressed in thousands)
Year ended December 31:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity in income of subsidiaries.... $14,275 7,168 7,488 3,303 2,303 1,675 40,737 33,271 31,686
Average investment in subsidiaries.. 156,235 91,243 76,330 24,682 23,389 25,178 252,146 232,518 220,134
Return on average investment........ 9.14% 7.86% 9.81% 13.38% 9.85% 6.65% 16.16% 14.31% 14.39%
</TABLE>
Anticipating that increasing acquisition pricing would eventually make
growth solely by acquisition economically less viable, and recognizing that
rapid consolidation within the banking industry would create new business
development opportunities, beginning in 1993, First Banks began a continuing
program of substantial enhancement of its capabilities to achieve and manage
internal growth. This program required significant increases in the resources
dedicated to commercial and retail business development, financial service
product line and delivery systems, branch development and training, advertising
and marketing programs and administrative and operational support. These efforts
were manifested during this period in various changes within the organization.
The enhanced business development resources of First Banks assisted in
the realignment of certain acquired loan portfolios, which were skewed toward
loan types which reflected the abilities and experiences of the management of
the acquired entities. This was particularly evident in acquisitions of savings
banks, which had portfolios heavily concentrated in single family and/or
multi-family residential real estate lending, and in FB Texas, which had a
portfolio consisting primarily of indirect automobile loans. In order to achieve
a more diversified portfolio, to address asset quality issues in the portfolios
and to achieve a higher interest yield on the loan portfolio, a substantial
portion of the loans which were acquired during this time were reduced through
payments, refinancing with other financial institutions, charge-offs, and, in
two instances, sales of loans. As a result, the portfolio of one-to-four family
residential real estate loans, after reaching a maximum of $1.20 billion at
December 31, 1995, was reduced to $1.06 billion at December 31, 1996, $915.2
million at December 31, 1997, $739.4 million at December 31, 1998 and $720.6
million at December 31, 1999. Similarly, the portfolio of consumer and
installment loans, net of unearned discount, the majority of which is indirect
automobile loans, decreased from $413.6 million at December 31, 1995, to $333.3
million, $279.3 million, $274.4 million and $225.3 million at December 31, 1996,
1997, 1998 and 1999, respectively.
<PAGE>
As these components of the loan portfolio decreased, they were replaced
with more diversified, better quality and higher yielding loans that were
internally generated by the business development function. With the
acquisitions, the business development function was expanded into the new market
areas in which First Banks was then operating. Consequently, in spite of
relatively large reductions in acquired portfolios, the aggregate loan
portfolio, net of unearned discount, increased from $2.74 billion at December
31, 1995 to $2.77 billion, $3.00 billion, $3.58 billion and $4.00 billion at
December 31, 1996, 1997, 1998 and 1999, respectively.
While this restructuring of the loan portfolio was occurring, First
Banks was also changing the composition of its deposits. Several of the
institutions which First Banks has acquired since 1990 were savings banks.
Traditionally, savings banks have placed greater reliance on time deposits as a
source of funding than their commercial banking counterparts. Although time
deposits are generally a stable source of funds, they are typically the highest
cost deposits available, the depositors tend to be relatively sensitive to
interest rates in the market, and frequently the customers have no other banking
relationships with the financial institution. These characteristics suggest that
many of these customers move their deposits between financial institutions
readily and have limited loyalty to any particular institution. Consequently,
First Banks' deposit development programs have been directed toward increased
transaction accounts, such as demand and savings accounts, rather than time
deposits, and have emphasized attracting more than one account relationship with
customers by cross selling them through packaging various account types and
offering incentives to deposit customers on other deposit or non-deposit
services. In addition, commercial borrowers are encouraged to maintain their
operating deposit accounts with First Banks. As a result, the net growth in
deposits has been focused in transaction accounts rather than time accounts. At
December 31, 1995 and 1996, total time deposits were $1.80 billion and $1.81
billion, or 56.4% and 55.9% of total deposits, respectively. Although total
deposits have continued to increase, average time deposits have remained
relatively constant at $1.90 billion, but have decreased to 46.7% of total
deposits at December 31, 1999.
As further discussed under "--Net Interest Income, Comparison of
Results of Operations for 1999 and 1998, and Comparison of Results of Operations
for 1998 and 1997," the simultaneous growth by acquisition of financial
institutions and the building of the infrastructure necessary to achieve
significant internal growth has had an adverse impact on the operating results
of First Banks. However, despite the significant expenses First Banks incurred
in the amalgamation of the acquired entities into its corporate culture and
systems, and in the expansion of its organizational capabilities, the earnings
of the acquired entities and the improved net interest income resulting from the
transition in the composition of the loan and deposit portfolios have
contributed to improving net income during 1999 and 1998. For the years ended
December 31, 1999 and 1998, net income was $44.2 million and $33.5 million,
respectively, compared with $33.0 million, $20.2 million and $24.5 million in
1997, 1996 and 1995, respectively. While First Banks anticipates certain
short-term adverse effects on its operating results associated with
acquisitions, as evidenced in recent years, management believes the long-term
benefits of First Banks' acquisition program exceed the short-term issues
encountered with selected acquisitions. As such, in addition to concentrating on
internal growth through continued efforts to further develop its corporate
infrastructure and product and service offerings, First Banks expects to
continue to identify and pursue opportunities for growth through acquisitions
within its primary market areas.
Acquisitions
In enhancing its banking franchise, First Banks places emphasis upon
acquiring other financial institutions as a means of accelerating its growth to
significantly expand its presence in a given market, to increase the extent of
its market area or to enter new or noncontiguous market areas. After an
acquisition is consummated, First Banks expects to enhance the franchise of the
acquired entity by supplementing the marketing and business development efforts
to broaden the customer bases, strengthening particular segments of the business
or filling voids in the overall market coverage. First Banks has utilized cash,
borrowings, FBA's voting stock and the issuance of additional securities to meet
its growth objectives under the acquisition program.
<PAGE>
During the three years ended December 31, 1999, First Banks completed
five acquisitions and four branch office purchases. As demonstrated below, First
Banks' acquisitions during this period have primarily served to increase its
presence in markets that were originally entered into during 1995. These
transactions, as more fully described in Note 2 to the accompanying consolidated
financial statements, are summarized as follows:
<TABLE>
<CAPTION>
Loans, net of Number of
Total unearned Investment banking
Entity Date assets discount securities Deposits locations
------ ---- ------ -------- ---------- -------- ---------
(dollars expressed in thousands)
1999
- ----
Brentwood Bank of California
<S> <C> <C> <C> <C> <C>
Malibu, California
branch office (1) September 17, 1999 $ 23,600 6,300 -- 17,300 1
Century Bank
Beverly Hills, California (2) August 31, 1999 156,000 94,800 26,100 132,000 6
Redwood Bancorp
San Francisco, California (3) March 4, 1999 183,900 134,400 34,400 162,900 4
-------- -------- ------- -------- ---
$363,500 235,500 60,500 312,200 11
======== ======== ======= ======== ===
1998
- ----
Republic Bank
Torrance, California (2) September 15, 1998 $124,100 97,900 7,500 117,200 3
Bank of America
Solvang, California
branch office (1) March 19, 1998 15,500 -- -- 15,500 1
Pacific Bay Bank
San Pablo, California (4) February 2, 1998 38,300 29,700 232 35,200 1
-------- -------- ------- -------- ---
$177,900 127,600 7,732 167,900 5
======== ======== ======= ======== ===
1997
- ----
Surety Bank
Vallejo, California (4) December 1, 1997 $ 72,800 54,400 11,800 67,500 2
Highland Federal
Savings Bank, F.S.B.
Woodland Hills, California
branch office (5) September 30, 1997 42,500 100 -- 42,400 1
Highland Federal Savings Bank,
F.S.B. Long Beach, California
branch offices (5) March 31, 1997 40,500 100 -- 40,400 2
-------- -------- ------- -------- ---
$155,800 54,600 11,800 150,300 5
======== ======== ======= ======== ===
</TABLE>
- -------------------------
(1) The Malibu branch office of Brentwood Bank of California and the Solvang
branch office of Bank of America were acquired by FB&T through a purchase
of certain assets and assumption of deposit liabilities of the branch
office. Total assets consist primarily of cash received upon assumption of
the deposit liabilities and selected loans.
(2) Century Bank and Republic Bank were merged into FB&T.
(3) Redwood Bancorp is a wholly owned subsidiary of FBA. Redwood Bancorp
operates through its wholly owned subsidiary bank, Redwood Bank.
(4) Pacific Bay Bank and Surety Bank were merged into FB California.
(5) The Woodland Hills branch office and the Long Beach branch offices of
Highland Federal Savings Bank, F.S.B. were acquired by FB&T through a
purchase of certain assets and assumption of deposit liabilities of the
branch offices. Total assets consist primarily of cash received upon
assumption of deposit liabilities and selected loans.
<PAGE>
Except for the acquisition of Surety Bank, these acquisitions were
funded by First Banks from available cash reserves, proceeds from the sales and
maturities of available-for-sale investment securities, borrowings under First
Banks' credit agreement with a group of unaffiliated banks (Credit Agreement)
and the proceeds of the preferred securities.
As more fully discussed in Note 2 to the accompanying consolidated
financial statements, the 49% cash portion of the acquisition of Surety Bank was
funded from available cash. The remaining 51% was acquired through an exchange
of shares of FBA common stock. In February 1998, FCB was acquired by FBA in an
exchange of FBA common stock for FCB common stock. In connection with this
transaction, FCB was merged into a wholly owned subsidiary of FBA, First
Commercial was merged into FB California and First Banks' ownership interest in
FBA increased.
On February 29, 2000, First Banks 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 deposits at the acquisition date. Lippo Bank will be merged
into FB California.
On February 29, 2000, First Banks completed its acquisition of certain
assets and liabilities of First Capital Group, Inc., Albuquerque, New Mexico
(FCG), 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, of $64.5 million. FCG is operating as a direct
subsidiary of First Banks, Inc.
Financial Condition and Average Balances
First Banks' average total assets were $4.66 billion for the year ended
December 31, 1999, compared to $4.29 billion and $3.82 billion for the years
ended December 31, 1998 and 1997, respectively. Total assets at December 31,
1999 were $4.87 billion, an increase of $312.9 million, or 6.87%, over total
assets of $4.55 billion at December 31, 1998.
The increase of $377.6 million in total average assets for 1999 is
primarily attributable to: (a) the acquisitions of Redwood and Century Bank,
which provided total assets of $183.9 million and $156.0 million, respectively;
(b) the purchase of the deposit accounts of the Malibu, California banking
location of Brentwood Bank of California; (c) internal loan growth resulting
from the continued expansion and development of the business development staff;
and (d) the issuance of the FACT Preferred Securities. The increase in assets
for 1999 was primarily funded by an increase in total average deposits of $283.3
million to $4.06 billion at December 31, 1999, an increase in average short-term
borrowings of $26.2 million and a decrease in average investment securities of
$221.3 million. Similarly, the increase in assets for 1998 was funded by an
increase in average total deposits of $427.7 million to $3.78 billion at
December 31, 1998, from $3.35 billion at December 31, 1997, and a decrease in
average investment securities of $58.0 million during 1998. The increase in
deposits for 1998 is attributable to the acquisitions of Republic Bank, Pacific
Bay Bank, the purchase of the deposit accounts of the Solvang, California
banking location of Bank of America and internal deposit growth of $92.1
million.
Loans, net of unearned discount, averaged $3.81 billion, $3.25 billion
and $2.85 billion for the years ended December 31, 1999, 1998 and 1997,
respectively. As summarized under "--Acquisitions," the acquisitions completed
during 1999 and 1998 provided loans, net of unearned discount, of $235.5 million
and $127.6 million, respectively. In addition to growth provided by these
acquisitions, for 1999, $363.4 million of net loan growth was provided by
corporate banking business development, consisting of an increase of $148.3
million of commercial, financial and agricultural loans, $31.5 million of real
estate construction and land development loans and $183.6 million of commercial
real estate loans. These increases were partially offset by continuing
reductions in residential real estate loans of $126.4 million and in consumer
and installment loans, net of unearned discount, which consist primarily of
indirect automobile loans, of $56.3 million. These changes are the result of the
focus which First Banks has placed on its business development efforts and the
portfolio repositioning which began in 1995. This repositioning provided for
substantially all of the conforming residential mortgage loan production of
First Banks to be sold in the secondary mortgage market and the origination of
indirect automobile loans to be substantially reduced. Tables summarizing the
composition of the loan portfolio are presented under "--Lending and Allowance
for Possible Loan Losses."
<PAGE>
Investment securities averaged $454.4 million, $675.7 million and
$617.7 million for the years ended December 31, 1999, 1998 and 1997,
respectively. The average balance of investment securities decreased by $221.3
for the year ended December 31, 1999. This decrease is primarily attributable to
the liquidation of certain acquired investment securities and sales of
investment securities necessary to provide an additional source of funds for
First Banks' loan growth. The decrease was partially offset by the investment
securities obtained in conjunction with the acquisitions of Redwood and Century
Bank and retained in First Banks' portfolio.
Deposits are the primary funding source for First Banks and are
acquired from a broad base of local markets, including both individual and
corporate customers. Deposits averaged $4.06 billion, $3.78 billion and $3.35
billion for the years ended December 31, 1999, 1998 and 1997, respectively. The
increases are primarily attributable to the acquisitions completed during the
respective periods and the expansion of the deposit product and service
offerings available to First Banks' customer base. The overall increase was
partially offset by the divestiture of certain branches in 1999, which resulted
in a reduction in First Bank's deposit base of approximately $54.8 million. A
summary of the composition of deposits is presented under "--Deposits."
During July 1998, FACT issued 1.84 million shares of FACT Preferred
Securities at $25 per share in an underwritten public offering. Proceeds from
FACT's offering, net of underwriting fees and offering expenses, were
approximately $44.0 million and were used to reduce borrowings, to support
possible repurchases of FBA's common stock from time to time and for general
corporate purposes. The remaining proceeds were temporarily invested by FBA in
interest-bearing deposits and were used to fund the acquisition of Redwood. In
addition, in February 1997, FPCT issued 3.45 million shares of FPCT Preferred
Securities at $25 per share in an underwritten public offering. The proceeds
from FPCT's offering, net of underwriting fees and offering expenses, were $83.1
million and were used to reduce borrowings, for purchases of shares of Class C
9.00% Increasing Rate, Redeemable, Cumulative Preferred Stock (Class C Preferred
Stock) and for various short-term investments.
Stockholders' equity averaged $279.8 million, $245.6 million and $255.9
million for the years ended December 31, 1999, 1998 and 1997, respectively. The
increase for 1999 is primarily attributable to net income of $44.2 million and a
reduction of the deferred tax valuation reserve of $811,000 relating to the
utilization of tax net operating losses incurred by certain Subsidiary Banks
prior to completing quasi-reorganizations. The increase was partially offset by
a $9.4 million reduction in other comprehensive income, resulting from the
change in unrealized gains and losses on available-for-sale investment
securities, and repurchases by FBA of common stock for treasury during the year
ended December 31, 1999. The increase for 1998 was primarily attributable to net
income and First Banks' continued practice of retaining most of its net income
to further support future growth. In addition, in December 1997, First Banks
redeemed all of its remaining outstanding Class C Preferred Stock for $47.1
million. The effect of the redemption was a reduction of First Banks' total
stockholders' equity, and consequently regulatory capital, by the amount of the
redemption. However, the structure of the FPCT Preferred Securities and the FACT
Preferred Securities described above satisfies the regulatory requirements for
inclusion in First Banks' capital base, subject to certain limitations, in a
manner similar to the Class C Preferred Stock.
<PAGE>
The following table sets forth, on a tax-equivalent basis, certain
information relating to First Banks' average balance sheet, and reflects the
average yield earned on interest-earning assets, the average cost of
interest-bearing liabilities and the resulting net interest income for the
periods indicated.
<TABLE>
<CAPTION>
For the years ended December 31,
---------------------------------------------------------------------------------
1999 1998 1997
------------------------ ---------------------- ------------------------
Interest Interest Interest
Average income/ Yield/ Average income/ Yield/ Average income/ Yield/
balance expense rate balance expense rate balance expense rate
------- ------- ---- ------- ------- ---- ------- ------- ----
(dollars expressed in thousands)
ASSETS
------
Interest-earning assets:
Loans: (1) (2) (3)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Taxable............................ $3,805,351 322,703 8.48% $3,243,183 283,661 8.75% $2,837,190 252,089 8.89%
Tax-exempt (4)..................... 7,157 775 10.83 7,536 794 10.54 8,967 1,042 11.62
Investment securities:
Taxable............................ 435,189 26,206 6.02 657,385 39,898 6.07 598,660 35,248 5.89
Tax-exempt (4)..................... 19,247 1,442 7.49 18,318 1,515 8.27 19,056 1,552 8.15
Federal funds sold.................... 49,464 2,617 5.29 46,509 2,630 5.65 125,825 5,322 4.23
Other................................. 1,878 115 6.12 2,853 170 5.96 12,138 757 6.24
---------- ------- ---------- ------- --------- ------
Total interest-earning assets.... 4,318,286 353,858 8.19 3,975,784 328,668 8.27 3,601,836 296,010 8.22
------- ------- -------
Nonearning assets......................... 344,942 309,811 215,890
---------- ---------- ---------
Total assets..................... $4,663,228 $4,285,595 $3,817,726
========== ========== ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY
--------------------
Interest-bearing liabilities:
Interest-bearing deposits:
Interest-bearing demand deposits... $ 391,892 5,098 1.30% $ 357,463 5,135 1.44% $ 332,712 5,648 1.70%
Savings deposits................... 1,220,425 44,101 3.61 1,076,524 42,591 3.96 761,052 27,383 3.60
Time deposits of $100 or more (3).. 230,520 12,480 5.41 212,691 12,442 5.85 183,223 11,008 6.01
Other time deposits (3)............ 1,668,698 89,173 5.34 1,669,638 95,577 5.72 1,681,014 100,954 6.01
---------- ------- ---------- ------- ---------- -------
Total interest-bearing deposits.. 3,511,535 150,852 4.30 3,316,316 155,745 4.70 2,958,001 144,993 4.90
Short-term borrowings (3)............. 87,374 4,220 4.83 61,178 2,959 4.84 75,016 2,463 3.28
Notes payable and other............... 56,376 3,629 6.44 50,718 3,475 6.85 17,883 1,375 7.69
---------- ------- ---------- ------- ---------- ------
Total interest-bearing
liabilities.................... 3,655,285 158,701 4.34 3,428,212 162,179 4.73 3,050,900 148,831 4.88
------- ------- -------
Noninterest-bearing liabilities:
Demand deposits....................... 552,029 463,939 394,580
Other liabilities..................... 176,102 147,849 116,359
---------- ---------- ----------
Total liabilities................ 4,383,416 4,040,000 3,561,839
Stockholders' equity...................... 279,812 245,595 255,887
---------- ---------- ----------
Total liabilities and
stockholders' equity........... $4,663,228 $4,285,595 $3,817,726
========== ========== ==========
Net interest income....................... 195,157 166,489 147,179
======= ======= =======
Interest rate spread...................... 3.85 3.54 3.34
Net interest margin....................... 4.52% 4.19% 4.09%
==== ==== ====
</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 $776,000, $808,000
and $909,000 for the years ended December 31, 1999, 1998 and 1997,
respectively.
<PAGE>
The following table indicates, on a tax-equivalent basis, the changes
in interest income and interest expense which are attributable to changes in
average volume and changes in average rates, in comparison with the preceding
year. The change in interest due to the combined rate/volume variance has been
allocated to rate and volume changes in proportion to the dollar amounts of the
change in each.
<TABLE>
<CAPTION>
Increase (decrease) attributable to change in:
----------------------------------------------------------------
December 31, 1999 compared December 31, 1998 compared
to December 31, 1998 to December 31, 1997
---------------------------- -------------------------
Net Net
Volume Rate Change Volume Rate Change
------ ---- ------ ------ ---- ------
(dollars expressed in thousands)
Interest earned on:
Loans: (1) (2) (3)
<S> <C> <C> <C> <C> <C> <C>
Taxable........................... $ 48,009 (8,967) 39,042 35,476 (3,904) 31,572
Tax-exempt (4).................... (41) 22 (19) (157) (91) (248)
Investment securities:
Taxable........................... (13,366) (326) (13,692) 3,545 1,105 4,650
Tax-exempt (4).................... 74 (147) (73) (60) 23 (37)
Federal funds sold................... 161 (174) (13) (5,759) 3,067 (2,692)
Other................................ (59) 4 (55) (554) (33) (587)
-------- ------ ------ ------ ------ ------
Total interest income......... 34,778 (9,588) 25,190 32,491 167 32,658
-------- ------ ------ ------ ------ ------
Interest paid on:
Interest-bearing demand deposits..... 480 (517) (37) 486 (999) (513)
Savings deposits..................... 5,445 (3,935) 1,510 12,252 2,956 15,208
Time deposits of $100 or more (3).... 1,007 (969) 38 1,718 (284) 1,434
Other time deposits (3).............. (54) (6,350) (6,404) (661) (4,716) (5,377)
Short-term borrowings (3)............ 1,267 (6) 1,261 (314) 810 496
Notes payable and other.............. 371 (217) 154 2,233 (133) 2,100
-------- ------ ------ ------ ------- ------
Total interest expense........ 8,516 (11,994) (3,478) 15,714 (2,366) 13,348
-------- ------- ------ ------ ------ ------
Net interest income........... $ 26,262 2,406 28,668 16,777 2,533 19,310
======== ======= ====== ====== ====== ======
</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 effect of interest rate exchange agreements.
(4) Information is presented on a tax-equivalent basis assuming a tax rate
of 35%.
Net Interest Income
The primary source of First Banks' income is net interest income, which
is the difference between the interest earned on its interest-earning assets and
the interest paid on its interest-bearing liabilities. Net interest income
(expressed on a tax-equivalent basis) improved to $195.2 million, or 4.52% of
average interest-earning assets, for the year ended December 31, 1999, from
$166.5 million, or 4.19% of interest-earning assets, and $147.2 million, or
4.09% of interest-earning assets, for the years ended December 31, 1998 and
1997, respectively. The improved net interest income is primarily attributable
to the net interest-earning assets provided by the acquisitions of Century Bank,
Redwood, Pacific Bay Bank and Republic Bank, internal loan growth and a
reduction in the overall cost of deposits. As further discussed under
"--Financial Condition and Average Balances," average total loans, net of
unearned discount, increased by $561.8 million to $3.81 billion for the year
ended December 31, 1999 from $3.25 billion and $2.85 billion for years ended
December 31, 1998 and 1997, respectively. Contributing further to the improved
net interest income was the effect of: (a) the reduction of First Bank's deposit
base associated with the divested branches, which was primarily concentrated in
certificates of deposit; and (b) a decrease in the cost of interest-bearing
liabilities to 4.34% from 4.73% and 4.88% for the years ended December 31, 1999,
1998 and 1997, respectively.
Although the net interest rate margin improved, the yield on the loan
portfolio declined to 8.48% for the year ended December 31, 1999 in comparison
to 8.75% and 8.89% for the years ended December 31, 1998 and 1997, respectively.
This reduction primarily results from the overall decline in prevailing interest
rates that occurred during the latter part of 1998. In addition, increased
competition within the market areas served by First Banks has led to reduced
lending rates. The effect of the reduced yield on the loan portfolio was
partially mitigated by the earnings impact of the interest rate swap agreements
and a reduced rate paid on interest-bearing liabilities. For the years ended
December 31, 1999, 1998 and 1997, the aggregate weighted rate paid on the
deposit portfolio was 4.30%, 4.70% and 4.90%, respectively, representing First
Banks' ongoing realignment of the portfolio.
<PAGE>
During the three years ended December 31, 1999, First Banks' net
interest income and net interest rate margin have continued to improve. However,
during 1996 and 1995, the net interest rate margin fell below average for
commercial banks. During periods of rapid growth through cash acquisitions, the
net interest margin frequently decreases because the reduction of interest
income on internally generated funds used in acquisitions and the interest
expense on debt incurred in the transactions offsets a portion of the net
interest income of the entities acquired. As a result, during this period,
interest-earning assets increase more rapidly than net interest income,
contributing to a lower net interest margin. In addition, since 1990, First
Banks has acquired ten thrifts in various transactions. The regulatory
requirements and the historic customer bases of thrifts tend to result in
balance sheets which are predominantly comprised of residential mortgage loans,
frequently supplemented by mortgage-backed securities, for interest-earning
assets, and certificates of deposit as a primary source of funds. Because of the
competitive, homogeneous nature of residential mortgage loans and certificates
of deposit, the interest rate spreads between them tend to be narrower than
other types of loans and funding sources.
First Banks' average yield on residential real estate loans and average
cost of certificates of deposit, compared to those of other segments of its loan
portfolio and interest-bearing deposits, respectively, were as follows:
<TABLE>
<CAPTION>
Interest
Average Percent of income/ Yield/
balances total expense rate
-------- ----- ------- ----
(dollars expressed in thousands)
Year ended December 31, 1999:
<S> <C> <C> <C> <C>
Residential mortgage loans...................... $ 797,137 20.91% $ 61,505 7.72%
Other loans..................................... 3,015,371 79.09 261,973 8.69
----------- ------- ---------
Total loans................................. $ 3,812,508 100.00% $ 323,478 8.48
=========== ======= ========= ====
Certificates of deposit......................... $ 1,899,218 54.09% $ 101,653 5.35%
Other interest-bearing deposits................. 1,612,317 45.91 49,199 3.05
----------- ------- ---------
Total interest-bearing deposits............. $ 3,511,535 100.00% $ 150,852 4.30
=========== ====== ========= ====
Year ended December 31, 1998:
Residential mortgage loans...................... $ 928,805 28.57% $ 74,792 8.05%
Other loans..................................... 2,321,914 71.43 209,663 9.03
----------- ------- ---------
Total loans................................. $ 3,250,719 100.00% $ 284,455 8.75
=========== ====== ========= ====
Certificates of deposit......................... $ 1,882,329 56.76% $ 108,019 5.74%
Other interest-bearing deposits................. 1,433,987 43.24 47,726 3.33
----------- ------- ---------
Total interest-bearing deposits............. $ 3,316,316 100.00% $ 155,745 4.70
=========== ====== ========= ====
Year ended December 31, 1997:
Residential mortgage loans...................... $ 1,025,442 36.03% $ 83,248 8.12%
Other loans..................................... 1,820,715 63.97 169,883 9.33
----------- ------- ---------
Total loans................................. $ 2,846,157 100.00% $ 253,131 8.89
=========== ====== ========= ====
Certificates of deposit......................... $ 1,864,237 63.02% $ 111,962 6.01%
Other interest-bearing deposits................. 1,093,764 36.98 33,031 3.02
----------- ------- ---------
Total interest-bearing deposits............. $ 2,958,001 100.00% $ 144,993 4.90
=========== ====== ========= ====
</TABLE>
In addition to the narrow interest rate spread between the yield on
residential mortgage loans and the rates paid on certificates of deposit,
residential mortgage loans introduce various prepayment alternatives for
borrowers which, when combined with inexpensive refinancing opportunities,
accelerate principal repayments in periods of declining interest rates, thereby
exacerbating their inherent interest rate risk.
In order to enhance its net interest income through increased yields on
its loan portfolio and to reduce the interest rate risk associated with
residential mortgage loans, First Banks has reduced its reliance on residential
mortgage loans within its portfolio. This change in the portfolio composition
required the concurrent internal generation of other types of loans,
particularly commercial, financial and agricultural, real estate construction
and development, and commercial real estate loans, a process that had previously
been initiated. This process focused on continuing to build this business
development function, as well as the control and servicing staff necessary to
support it. As the growth of other loans developed, First Banks expanded its
sale of conforming residential mortgage loans in the secondary market to include
essentially all new loan production.
<PAGE>
In order to limit its interest rate risk, First Banks expanded its risk
management capabilities to improve its risk measurement techniques and reporting
and increase its risk control alternatives. This included initiating a program
of using derivative financial instruments to reduce interest rate exposure.
First Banks uses a combination of interest rate swap, floor and cap agreements
to reduce its exposure and although these financial instruments are effective in
reducing interest rate risk, the expense associated with them has had an overall
negative impact on net interest income. As discussed under "--Interest Rate Risk
Management," for 1999, the increase in the cost of such financial instruments is
reflective of the liquidation of a portion of the underlying interest-bearing
liabilities, primarily associated with the branch divestitures, which resulted
in the additional recognition of a portion of the related deferred losses on the
previously terminated interest rate swap agreements. The following table
summarizes the cost of the interest rate swap, floor and cap agreements for the
periods indicated:
<TABLE>
<CAPTION>
Reduction of
Reduction of net interest
net interest income margin (1)
-------------------------------- --------------
(dollars expressed in thousands) (expressed in
basis points)
Year ended December 31:
<S> <C> <C> <C>
1999............................................... $ 5,397 0.12
1998............................................... 3,810 0.10
1997............................................... 6,574 0.18
</TABLE>
- ------------------------
(1) Effect on net interest margin is expressed as a reduction of net interest
income divided by average interest-earning assets.
Interest Rate Risk Management
For financial institutions, the maintenance of a satisfactory level of
net interest income is a primary factor in achieving acceptable income levels.
However, the maturity and repricing characteristics of the institution's loan
and investment portfolios, relative to those within its deposit structure, may
differ significantly. These characteristics are influenced by the nature of the
loan and deposit markets within which such institution operates, as well as its
objectives for business development within those markets at any point in time.
In addition, the ability of borrowers to repay loans and depositors to withdraw
funds prior to stated maturity dates introduces divergent option characteristics
which operate primarily as interest rates change. These factors cause various
elements of the institution's balance sheet to react in different manners and at
different times relative to changes in interest rates, thereby leading to
increases or decreases in net interest income over time. Depending upon the
nature and velocity of interest rate movements and their effect on the specific
components of the institution's balance sheet, the effects on net interest
income can be substantial. Consequently, a fundamental requirement in managing a
financial institution is establishing effective control of the exposure of the
institution to changes in interest rates.
First Banks manages its interest rate risk by: (1) maintaining an Asset
Liability Committee ("ALCO") responsible to First Banks' Board of Directors to
review the overall interest rate risk management activity and approve actions
taken to reduce risk; (2) maintaining an effective simulation model to determine
First Banks' exposure to changes in interest rates; (3) coordinating the
lending, investing and deposit-generating functions to control the assumption of
interest rate risk; and (4) employing various off-balance-sheet financial
instruments to offset inherent interest rate risk when it becomes excessive. The
objective of these procedures is to limit the adverse impact which changes in
interest rates may have on net interest income.
The ALCO has overall responsibility for the effective management of
interest rate risk and the approval of policy guidelines. The ALCO includes the
Chairman and Chief Executive Officer, the senior executives of investments,
credit, banking support and finance, and certain other officers. The ALCO is
supported by the Asset Liability Management Group which monitors interest rate
risk, prepares analyses for review by the ALCO and implements actions which are
either specifically directed by the ALCO or established by policy guidelines.
The objective and primary focus of interest sensitivity management is
to optimize earnings results, while managing, within internal policy
constraints, interest rate risk. First Banks' policy on rate sensitivity is to
manage exposure to potential risks associated with changing interest rates by
maintaining a balance sheet posture in which annual net interest income is not
significantly impacted by reasonably possible near-term changes in interest
rates. To measure the effect of interest rate changes, First Banks calculates
its net income over two one-year horizons on a pro forma basis. The analysis
<PAGE>
assumes various scenarios for increases and decreases in interest rates
including both instantaneous and gradual and parallel and non-parallel shifts in
the yield curve, in varying amounts. For purposes of arriving at reasonably
possible near-term changes in interest rates, First Banks includes scenarios
based on actual changes in interest rates, which have occurred over a two-year
period, simulating both a declining and rising interest rate scenario.
Consistent with the table presented below, which indicates First Banks is
"asset-sensitive," First Banks' simulation model indicates a loss of projected
net income should interest rates decline. While a decline in interest rates of
less than 100 basis points has a minimal impact on the earnings of First Banks,
a decline in interest rates of 100 basis points indicates a projected pre-tax
loss of net income equivalent to approximately 7.1% of net interest income based
on assets and liabilities at December 31, 1999.
As previously discussed, 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>
December 31,
---------------------------------------------------
1999 1998
------------------------ -------------------------
Notional Credit Notional Credit
amount exposure amount exposure
------ -------- ------ --------
(dollars expressed in thousands)
Interest rate swap agreements - pay
<S> <C> <C> <C> <C>
adjustable rate, receive adjustable rate............ $ 500,000 -- -- --
Interest rate swap agreements - pay
adjustable rate, receive fixed rate................. 455,000 3,349 280,000 3,526
Interest rate floor agreements.......................... 35,000 13 70,000 29
Interest rate cap agreements............................ 10,000 26 10,000 132
Forward commitments to sell
mortgage-backed securities.......................... 33,000 -- 95,000 237
========= ====== ======= ======
</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.
Previously, First Banks utilized interest rate swap agreements to
extend the repricing characteristics of certain interest-bearing liabilities to
more closely correspond with its assets, with the objective of stabilizing cash
flow, and accordingly, net interest income, over time. These swap agreements
were terminated in July 1995, November 1996 and July 1997 due to a change in the
composition of First Banks' balance sheet. The change in the composition of the
balance sheet was primarily driven by the significant decline in interest rates
experienced during 1995, which caused an increase in the principal prepayments
of residential mortgage loans. The net interest expense associated with these
agreements, consisting primarily of amortization of deferred losses, was $5.7
million, $3.7 million and $6.4 million for the years ended December 31, 1999,
1998 and 1997, respectively. The deferred losses on terminated swap agreements
were amortized over the remaining lives of the agreements, unless the underlying
liabilities were repaid, in which case the deferred losses were immediately
charged to operations. There were no remaining unamortized deferred losses on
the terminated swap agreements at December 31, 1999. The unamortized balance of
these losses was $5.7 million and $9.4 million at December 31, 1998 and 1997,
respectively, and was included in other assets.
During 1998, First Banks entered into $280.0 million notional amount of
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 provide 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). 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 and $4.2 million at December 31, 1999 and 1998, respectively, and
the amount payable by First Banks under the swap agreements was $770,000 and
$640,000 at December 31, 1999 and 1998, respectively.
<PAGE>
During May 1999, First Banks entered into $500.0 million notional
amount of interest rate swap agreements with the objective of stabilizing the
net interest margin during the six-month period surrounding the Year 2000
century date change. 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 of interest rate swap agreements to effectively lengthen the repricing
characteristics of certain interest-earning assets to correspond more closely
with its funding source with the objective of stabilizing cash flow, and
accordingly, net interest income, over time. 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 December 31, 1999 and the amount payable by First Banks under
the swap agreements was $141,000 at December 31, 1999.
The maturity dates, notional amounts, interest rates paid and received,
and fair values of interest rate swap agreements outstanding as of December 31,
1999 and 1998 were as follows:
<TABLE>
<CAPTION>
Notional Interest rate Interest rate Fair value
Maturity date amount paid received gain (loss)
------------- ------ ---- -------- -----------
(dollars expressed in thousands)
December 31, 1999:
<S> <C> <C> <C> <C>
March 31, 2000.................................. $ 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)
========== ===== ===== =========
December 31, 1998:
June 11, 2002................................... 15,000 5.24 6.00 $ 363
September 16, 2002.............................. 175,000 5.22 5.36 761
September 16, 2002.............................. 20,000 5.22 5.36 87
September 18, 2002.............................. 40,000 5.23 5.33 123
September 18, 2002.............................. 30,000 5.23 5.33 92
---------- ---------
$ 280,000 5.23 5.48 $ 1,426
========== ===== ===== =========
</TABLE>
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 December 31, 1999 and 1998, the unamortized costs of these
agreements were $32,000 and $159,000, respectively, and were included in other
assets.
As more fully described in Note 1 to the accompanying consolidated
financial statements, in the event of early termination of the interest rate
swap agreements, the net proceeds received or paid are deferred and amortized
over the shorter of the remaining contract life or the maturity of the related
asset. If, however, the amount of the underlying asset is repaid, then the fair
value gains or losses on the interest rate swap agreements are recognized
immediately in the consolidated statements of income.
<PAGE>
As discussed under "--Mortgage Banking Activities," derivative
financial instruments issued by First Banks consist of commitments to originate
fixed-rate loans. Commitments to originate fixed-rate loans consist primarily of
residential real estate loans. These loan commitments, net of estimated
underwriting fallout, and loans held for sale are hedged with forward contracts
to sell mortgage-backed securities.
In addition to the simulation model employed by First Banks, a more
traditional interest rate sensitivity position is prepared and reviewed in
conjunction with the results of the simulation model. The following table
presents the projected maturities and periods to repricing of First Banks' rate
sensitive assets and liabilities as of December 31, 1999, adjusted to account
for anticipated prepayments:
<TABLE>
<CAPTION>
Over three Over six
Three through through Over one
months six twelve through Over five
or less months months five years years Total
------- ------ ------ ---------- ----- -----
(dollars expressed in thousands)
Interest-earning assets:
<S> <C> <C> <C> <C> <C> <C> <C>
Loans (1).................................. $2,362,848 265,534 489,082 843,979 34,881 3,996,324
Investment securities...................... 154,056 22,272 97,498 109,598 68,223 451,647
Federal funds sold......................... 42,500 -- -- -- -- 42,500
Interest-bearing deposits with other
financial institutions................... 1,324 250 -- 100 -- 1,674
----------- -------- --------- --------- --------- ----------
Total interest-earning assets.......... 2,560,728 288,056 586,580 953,677 103,104 4,492,145
Effect of interest rate swap agreements.... (455,000) -- -- 455,000 -- --
----------- -------- --------- --------- --------- ----------
Total interest-earning assets
after the effect of interest
rate swap agreements................ $2,105,728 288,056 586,580 1,408,677 103,104 4,492,145
========== ======== ========= ========= ========= ==========
Interest-bearing liabilities:
Interest-bearing demand accounts........... $ 153,592 95,476 62,267 45,662 58,116 415,113
Savings accounts........................... 115,973 95,507 81,863 115,973 272,879 682,195
Money market demand accounts............... 516,119 -- -- -- -- 516,119
Time deposits.............................. 413,602 455,947 776,916 385,135 723 2,032,323
Other borrowed funds....................... 137,010 -- -- 544 -- 137,554
----------- -------- --------- -------- --------- ----------
Total interest-bearing liabilities..... $ 1,336,296 646,930 921,046 547,314 331,718 3,783,304
=========== ======== ========= ======== ========= ==========
Interest sensitivity gap:
Periodic.................................. $ 769,432 (358,874) (334,466) 861,363 (228,614) 708,841
==========
Cumulative................................ 769,432 410,558 76,092 937,455 708,841
=========== ======== ========= ======== =========
Ratio of interest-sensitive assets
to interest-sensitive liabilities:
Periodic................................. 1.58 0.45 0.64 2.57 0.31 1.19
=====
Cumulative............................... 1.58 1.21 1.03 1.27 1.19
====== ===== ==== ==== ====
</TABLE>
- -----------------------
(1) Loans are presented net of unearned discount.
<PAGE>
Management made certain assumptions in preparing the table above.
These assumptions included: Loans will repay at projected repayment speeds;
mortgage-backed securities, included in investment securities, will repay at
projected repayment speeds; interest-bearing demand accounts and savings
accounts are interest-sensitive at rates ranging from 11% to 37% and 12% to 40%
, respectively, of the remaining balance for each period presented; and fixed
maturity deposits will not be withdrawn prior to maturity. A significant
variance in actual results from one or more of these assumptions could
materially affect the results reflected in the table.
At December 31, 1999 and 1998, First Banks' asset-sensitive position on
a cumulative basis through the twelve-month time horizon was $76.1 million, or
1.56% of total assets, and $333.2 million, or 7.32% of total assets,
respectively. The asset sensitive position is attributable to the composition of
the loan and investment security portfolios as compared to the deposit base. The
decrease for 1999 is primarily attributable to the interest rate swap agreements
entered into in June 1998, September 1998 and September 1999.
The interest sensitivity position is one of several measurements of the
impact of interest rate changes on net interest income. Its usefulness in
assessing the effect of potential changes in net interest income varies with the
constant change in the composition of First Banks' assets and liabilities and
changes in interest rates. For this reason, First Banks places greater emphasis
on a simulation model for monitoring its interest rate risk exposure.
Mortgage Banking Activities
The mortgage banking activities of First Banks consist of the
origination, purchase and servicing of residential mortgage loans. Generally,
First Banks sells its production of residential mortgage loans in the secondary
loan markets. Servicing rights are retained with respect to conforming
fixed-rate residential mortgage loans. Other loans, including adjustable-rate
and nonconforming residential mortgage loans, are sold on a servicing released
basis.
For the three years ended December 31, 1999, 1998 and 1997, First Banks
originated and purchased loans for resale totaling $452.9 million, $628.5
million and $174.3 million and sold loans totaling $507.1 million, $521.0
million and $148.4 million, respectively. The origination and purchase of
residential mortgage loans and the related sale of the loans provides First
Banks with additional sources of income including the gain realized upon sale,
the interest income earned while the loan is held awaiting sale and the ongoing
loan servicing fees from the loans sold with servicing rights retained. Mortgage
loans serviced for investors aggregated $957 million, $923 million and $784
million at December 31, 1999, 1998 and 1997, respectively.
The gain on mortgage loans originated for resale, including loans sold
and held for sale, was $6.9 million, $5.6 million and $716,000 for the years
ended December 31, 1999, 1998 and 1997, respectively. These gains, net of
losses, are determined on a lower of cost or market basis and are realized at
the time of sale. The cost basis reflects: (1) adjustments of the carrying
values of loans held for sale to the lower of cost, adjusted to include the cost
of hedging the loans held for sale, or current market values; and (2)
adjustments for any gains or losses on loan commitments for which the interest
rate has been established, net of anticipated underwriting "fallout," adjusted
for the cost of hedging these loan commitments. The increases for 1999 and 1998
are attributable to First Banks' continued expansion of its mortgage banking
activities into the California and Texas markets and the related additional
volume of nonconforming loans prominent in that market.
The interest income on loans held for sale was $4.9 million for the
year ended December 31, 1999 in comparison to $6.8 million and $3.2 million for
the years ended December 31, 1998 and 1997, respectively. The amount of interest
income realized on loans held for sale is a function of the average balance of
loans held for sale, the period for which the loans are held and the prevailing
interest rates when the loans are made. The average balance of loans held for
sale was $79.1 million, $102.7 million and $35.4 million for the years ended
December 31, 1999, 1998 and 1997, respectively. On an annualized basis, the
yield on the portfolio of loans held for sale was 6.19%, 6.62% and 7.07% for the
years ended December 31, 1999, 1998 and 1997, respectively. This compares with
First Banks' cost of funds, as a percentage of average interest-bearing
liabilities, of 4.34%, 4.73% and 4.88% for the years ended December 31, 1999,
1998 and 1997, respectively.
Mortgage loan servicing fees are reported net of amortization of
mortgage servicing rights, interest shortfall and mortgage-backed security
guarantee fee expense. Loan servicing fees, net, were $657,000, $1.0 million and
$1.6 million for the years ended December 31, 1999, 1998 and 1997, respectively.
The decrease in loan servicing fees is primarily attributable to increased
amortization of mortgage servicing rights attributable to high refinancing
activity; and First Banks' strategy of selling the new production of
adjustable-rate and nonconforming residential mortgage loans on a servicing
released basis. In addition, mortgage-backed security expense increased by
$333,000 to $1.2 million from $867,000 for the years ended December 31, 1999 and
1998, respectively, reflecting the increased level of serviced loans sold into
the secondary market in the form of securities. Interest shortfall is the
difference between the interest collected from a loan-servicing customer upon
prepayment of the loan and a full month's interest that is required to be
remitted to the security owner.
<PAGE>
As described under "--Interest Rate Risk Management," First Banks'
interest rate risk management policy provides certain hedging parameters to
reduce the interest rate risk exposure arising from changes in loan prices from
the time of commitment until the sale of the security or loan. To reduce this
exposure, First Banks uses forward commitments to sell fixed-rate
mortgage-backed securities at a specified date in the future. At December 31,
1999, 1998 and 1997, First Banks had $31.5 million, $103.1 million and $67.4
million, respectively, of loans held for sale and related commitments, net of
committed loan sales and estimated underwriting fallout, of which $33.0 million,
$95.0 million and $60.0 million, respectively, were hedged through the use of
such forward commitments.
Comparison of Results of Operations for 1999 and 1998
Net Income. Net income was $44.2 million, or $1,775.47 per share on a
diluted basis, for the year ended December 31, 1999, compared to $33.5 million,
or $1,337.09 per share on a diluted basis, for 1998. The improved operating
results for 1999 as compared to 1998 are primarily attributable to First Banks'
efforts to realign the composition of the loan portfolio through further
diversification and growth; the improvement in the composition of the
interest-earning assets and interest-bearing liabilities; the results of the
acquisitions of Century Bank and Redwood; and, the divestiture of certain branch
facilities. As previously discussed under "--Financial Condition and Average
Balances" and "--Net Interest Income," net interest income improved to $195.2
million, or 4.52% of average interest-earning assets, from $166.5 million, or
4.19% of average interest-earning assets, for 1999 and 1998, respectively.
The improvement in net income was partially offset by an increased
provision for possible loan losses and an increase in operating expenses. As
previously discussed under "--General" and as more fully described below, the
increased operating expenses are reflective of: the additional cost of the FACT
Preferred Securities issued by FBA in July 1998; the continuing expansion of
commercial and retail banking activities; the acquisitions of Century Bank and
Redwood; increased legal, examination and professional fees; and increased data
processing fees primarily associated with Year 2000 activities.
Provision for Possible Loan Losses. The provision for possible loan
losses was $13.1 million and $9.0 million for the years ended December 31, 1999
and 1998, respectively. The increase in the provision for possible loan losses
for 1999 is primarily attributable to the continued growth and changing
composition of the loan portfolio combined with an increase in loans
charged-off. Net loan charge-offs were $8.4 million for the year ended December
31, 1999, compared to $1.7 million for 1998. The increase in net loan
charge-offs is reflective of overall growth in the loan portfolio and increased
risk associated with the continued change in the composition of the loan
portfolio. In addition, as further discussed under "--Loans and Allowance for
Possible Loan Losses," nonperforming assets have, in general, increased at
December 31, 1999 and 1998, in comparison to previous periods. The allowances
for possible loan losses of Redwood and Century Bank at their dates of
acquisition added approximately $3.0 million to First Banks' consolidated
allowance for possible loan losses.
The following table represents a summary of loan loss experience and
nonperforming assets by geographic area for the years ended December 31, 1999
and 1998:
<TABLE>
<CAPTION>
Missouri and
California Texas Illinois Total
------------- ------------- ----------------- --------------
1999 1998 1999 1998 1999 1998 1999 1998
---- ---- ---- ----- ---- ---- ---- ----
(dollars expressed in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total loans...................... $1,255,362 888,540 213,731 201,426 2,527,231 2,490,139 3,996,324 3,580,105
Total assets..................... 1,575,997 1,203,319 288,723 311,732 3,003,027 3,039,759 4,867,747 4,554,810
Provision for possible
loan losses................... 4,093 1,415 90 335 8,890 7,250 13,073 9,000
Net loan (charge-offs)
recoveries.................... (2,524) (344) 578 (245) (6,494) (1,150) (8,440) (1,739)
Net loan (charge-offs)
recoveries as a percentage
of average loans.............. (0.23)% (0.05)% 0.27% (0.13)% (0.26)% (0.05)% (0.22) (0.05)%
Nonperforming loans.............. $ 16,204 24,954 40 90 23,493 18,494 39,737 43,538
Nonperforming assets............. 16,593 25,889 40 90 25,233 21,268 41,866 47,247
</TABLE>
<PAGE>
Noninterest Income and Expense. The following table summarizes
noninterest income and noninterest expense for the years ended December 31, 1999
and 1998:
<TABLE>
<CAPTION>
December 31, Increase (decrease)
---------------- -------------------
1999 1998 Amount %
---- ---- ------ ------
(dollars expressed in thousands)
Noninterest income:
<S> <C> <C> <C> <C>
Service charges on deposit accounts and customer service fees.... $ 17,676 14,876 2,800 18.82%
Credit card fees................................................. 409 2,999 (2,590) (86.36)
Loan servicing fees, net......................................... 657 1,017 (360) (35.40)
Gain on mortgage loans sold and held for sale.................... 6,909 5,563 1,346 24.20
Net gain on sales of available-for-sale securities............... 791 1,466 (675) (46.04)
Net (loss) gain on trading securities............................ (303) 607 (910) (149.92)
Gain on sales of branches, net of expenses....................... 4,406 -- 4,406 --
Other............................................................ 11,105 9,969 1,136 11.40
--------- -------- -------
Total noninterest income................................... $ 41,650 36,497 5,153 14.12
========= ======== ======= =======
Noninterest expense:
Salaries and employee benefits.................................. $ 61,524 55,907 5,617 10.05%
Occupancy, net of rental income................................. 12,518 11,037 1,481 13.42
Furniture and equipment......................................... 8,520 8,122 398 4.90
Federal Deposit Insurance Corporation premiums.................. 1,310 1,370 (60) (4.38)
Postage, printing and supplies.................................. 4,244 5,230 (986) (18.85)
Data processing fees............................................ 18,567 13,917 4,650 33.41
Legal, examination and professional fees........................ 9,109 5,326 3,783 71.03
Credit card..................................................... 667 3,396 (2,729) (80.36)
Communications.................................................. 2,488 2,874 (386) (13.43)
Advertising and business development............................ 3,734 4,668 (934) (20.01)
(Gain) losses on sales of other real estate, net of expenses... (622) 81 (703) (867.90)
Guaranteed preferred debentures................................. 12,050 9,842 2,208 22.43
Other........................................................... 16,698 16,934 (236) (1.39)
--------- -------- -------
Total noninterest expense.................................. $ 150,807 138,704 12,103 8.73
========= ======== ======= =======
</TABLE>
Noninterest Income. Noninterest income was $41.7 million for the year
ended December 31, 1999, compared to $36.5 million for 1998. 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
to $17.7 million for 1999, from $14.9 million for 1998. The increase in service
charges and customer service fees is attributable to (a) increased deposit
balances provided by internal growth; (b) the acquisitions of Century Bank,
Redwood, Pacific Bay Bank and Republic 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. As described below, this
increase was partially offset by the foregone revenue associated with the
divestiture of certain branches in 1999, which resulted in a reduction in First
Bank's deposit base of approximately $54.8 million.
Credit card fees declined to $409,000 for 1999, from $3.0 million for
1998. The reduction in such fees is primarily attributable to First Banks'
liquidation of its merchant credit card processing operation effective December
31, 1998.
As more fully described under "--Mortgage Banking Activities," First
Banks' mortgage banking revenues consist primarily of loan servicing fees, net,
and gain on mortgage loans sold and held for sale. Loan servicing fees, net,
decreased to $657,000 from $1.0 million for the years ended December 31, 1999
and 1998, respectively. The decrease in loan servicing fees is primarily
attributable to aggregate increases of $698,000 in additional amortization of
mortgage servicing rights, interest shortfall and mortgage-backed security
expense. This decrease was partially offset by an increase in loan servicing
fees resulting from the increase in the portfolio of loans serviced for others.
The gain on mortgage loans sold and held for sale increased to $6.9 million from
$5.6 million for 1999 and 1998, respectively. This increase is attributable to
an increased volume of loans sold and held for sale including fixed rate
residential mortgage loans, which are sold on a servicing retained basis, and
adjustable-rate and non-conforming residential mortgage loans, which are sold on
a servicing released basis.
<PAGE>
Net gain on sales of available-for-sale securities was $791,000 and
$1.5 million for the years ended December 31, 1999 and 1998, respectively. These
gains resulted from sales of available-for-sale securities necessary to
facilitate the funding of loan growth.
Net loss on sales of trading securities was $303,000 for the year ended
December 31, 1999, in comparison to a net gain of $607,000 for the comparable
period in 1998. The loss for 1999 resulted from the termination of First Banks'
trading division, effective December 31, 1998, and the liquidation of all
trading portfolio securities.
The gain on sales of branches, net of expenses of $4.4 million resulted
from the divestiture of seven branches in the central and northern Illinois
market areas.
Other income was $11.1 million and $10.0 million for the years ended
December 31, 1999 and 1998, respectively. The primary components of the increase
are attributable to increased income earned on First Banks' investment in bank
owned life insurance (BOLI) and expanded brokerage and private banking and trust
services. The BOLI income increased to $3.9 million for 1999, in comparison to
$3.1 million for 1998. This increase is primarily attributable to twelve months
of earnings on FBA's investment in BOLI in 1999, in comparison to nine months of
earnings in 1998. In addition, private banking and trust services income
increased to $1.8 million for 1999 from $1.4 million for 1998 due to the
continued expansion of these services primarily in the California and Texas
market areas.
Noninterest Expense. Noninterest expense increased to $150.8 million
for the year ended December 31, 1999 from $138.7 million for 1998. The increase
is reflective of: (a) the acquisitions of Century Bank, Redwood, Pacific Bay
Bank and Republic Bank; (b) increased data processing fees primarily associated
with First Banks' Year 2000 Program: (c) increased legal, examination and
professional fees and (d) FBA's issuance of the FACT Preferred Securities in
July 1998. The overall increase in noninterest expense was partially offset by a
decline in credit card expenses and a reduction in advertising and business
development expenses, postage, printing and supplies expenses and communications
expenses, and is consistent with management's efforts to more effectively manage
these expenditures.
Specifically, salaries and employee benefits increased by $5.6 million
to $61.5 million from $55.9 million for the years ended December 31, 1999 and
1998, respectively. The increase is attributable to the newly acquired banks and
First Banks' continued commitment to expanding its commercial, mortgage banking
and retail business development capabilities associated with the expansion and
delivery of its products and services. The overall increase also reflects the
competitive environment in the employment market that has resulted in a higher
demand for limited resources, thus escalating industry salary and employee
benefit costs.
Data processing fees were $18.6 million and $13.9 million for 1999 and
1998 respectively. As more fully discussed in Note 17 to the accompanying
consolidated financial statements, First Services, L.P., a limited partnership
indirectly owned by First Banks' Chairman and his children, provides data
processing and various related services to First Banks and the Subsidiary Banks
under the terms of data processing agreements. The increase in data processing
fees is attributable to growth and technological advancements consistent with
First Banks' product and service offerings, increased expenses attributable to
communication data lines related to the expansion of the branch network
infrastructure and expenses associated with the Year 2000 Program.
Legal, examination and professional fees increased by $3.8 million to
$9.1 million in 1999, from $5.3 million in 1998. The increase in such fees is
primarily attributable to First Banks' expanded utilization of external
consultants in conjunction with the development and expansion of selected
business initiatives. Contributing further to the overall increase were
increased legal expenditures associated with the settlement of certain
litigation.
Credit card expenses declined by $2.7 million to $667,000 from $3.4
million for the years ended December 31, 1999 and 1998, respectively. As
previously discussed, this decline is primarily due to First Banks' liquidation
of its merchant credit card processing operation, effective December 31, 1998.
Guaranteed preferred debentures increased by $2.2 million to $12.1
million from $9.8 million for the years ended December 31, 1999 and 1998,
respectively. The increase for 1999 is attributable to FBA's issuance of the
FACT Preferred Securities in July 1998 as described in Note 9 to the
accompanying consolidated financial statements.
<PAGE>
Comparison of Results of Operations for 1998 and 1997
Net Income. Net income for the year ended December 31, 1998 was $33.5
million, compared to $33.0 million for 1997. Earnings per common share were
$1,337.09 per share and $1,134.28 per share, on a diluted basis, for the years
ended December 31, 1998 and 1997, respectively. The increase in diluted earnings
per share primarily reflects the effect of the redemption of First Banks' Class
C Preferred Stock in 1997, and the resulting reduction of First Banks' dividend
requirement for the year ended December 31, 1998. Dividends paid on the Class C
Preferred Stock totaled $4.3 million for 1997. The funds required for the
redemption were borrowed, resulting in an increase in interest expense of $3.4
million for 1998. Since the Class C Preferred Stock dividend requirement is not
deducted in the determination of net income, whereas interest expense is, the
effect of this was to reduce 1998 net income by $2.2 million, compared to 1997.
The overall improvement in operating results for 1998, as compared to
1997, is attributable to the improvement in the composition of interest-earning
assets and interest-bearing liabilities and noninterest income. As previously
discussed under "--Financial Condition and Average Balances" and "--Net Interest
Income," net interest income improved to $166.5 million, or 4.19% of
interest-earning assets, from $147.2 million, or 4.09% of interest-earning
assets, for 1998 and 1997, respectively. This improvement, coupled with improved
noninterest income, was substantially offset by increased noninterest expense.
During 1998, noninterest expense increased to $138.7 million, or 3.24% of
average total assets, from $110.3 million, or 2.89% of average total assets, for
1997. As previously discussed under "--General" and as more fully described
below, the increase in noninterest expense of $28.4 million, or 0.66% of total
average assets, reflects the additional costs of acquired entities and the
continued investment in improving First Banks' technology and franchise to
achieve planned growth.
Provision for Possible Loan Losses. The provision for possible loan
losses was $9.0 million for the year ended December 31, 1998, compared to $11.3
million for 1997. Net loan charge-offs were $1.7 million for the year ended
December 31, 1998, compared to $7.6 million for 1997. The increased provision
for possible loan losses for 1998 is primarily attributable to the continued
growth and changing composition of the portfolio. As the portfolio has changed
from one with a significant preponderance in residential real estate loans, to
one having substantial portions of commercial, financial and agricultural loans,
real estate construction and development loans and commercial real estate loans,
the credit risk profile of the portfolio increases. Typically, residential real
estate lending has resulted in relatively minor credit losses. However,
commercial lending carries with it greater credit risk which, although managed
through appropriate loan policies and procedures, underwriting and credit
administration, must be recognized through adequate allowances for possible loan
losses. Associated with the increased level of commercial lending activities is
the increase in nonperforming and other problem loans of $12.8 million as of
December 31, 1998, compared to December 31, 1997. The increase is primarily
attributable to two loans totaling $6.0 million and the acquisitions of Republic
Bank and Pacific Bay Bank.
The following is a summary of loan loss experience and nonperforming
assets by geographic area for the years ended December 31, 1998 and 1997:
<TABLE>
<CAPTION>
Missouri and
California Texas Illinois Total
------------- ------------- --------------- ---------------
1998 1997 1998 1997 1998 1997 1998 1997
---- ---- ---- ---- ---- ---- ---- ----
(dollars expressed in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total loans...................... $ 888,540 640,366 201,426 176,341 2,490,139 2,185,493 3,580,105 3,002,200
Total assets..................... 1,203,319 1,042,979 311,732 271,686 3,039,759 2,850,349 4,554,810 4,165,014
Provision for possible
loan losses.................... 1,415 2,500 335 1,500 7,250 7,300 9,000 11,300
Net loan charge-offs............. 344 1,510 245 1,091 1,150 5,001 1,739 7,602
Net loan charge-offs
as a percentage
of average loans............... 0.05% 0.30% 0.13% 0.63% 0.05% 0.23% 0.05% 0.27%
Nonperforming loans.............. $ 24,954 5,548 90 211 18,494 18,307 43,538 24,066
Nonperforming assets............. 25,889 7,717 90 296 21,268 23,377 47,247 31,390
</TABLE>
<PAGE>
Noninterest Income and Expense. The following table summarizes
noninterest income and noninterest expense for the years ended December 31, 1998
and 1997:
<TABLE>
<CAPTION>
December 31, Increase (decrease)
---------------- -------------------
1998 1997 Amount %
---- ---- ------ ------
(dollars expressed in thousands)
Noninterest income:
<S> <C> <C> <C> <C>
Service charges on deposit accounts and customer service fees... $ 14,876 12,491 2,385 19.09%
Credit card fees................................................ 2,999 2,914 85 2.92
Loan servicing fees, net........................................ 1,017 1,628 (611) (37.53)
Gain on mortgage loans sold and held for sale................... 5,563 716 4,847 676.96
Trust and brokerage fees........................................ 1,506 893 613 68.65
Net gain on sales of securities................................. 2,073 2,456 (383) (15.59)
Other........................................................... 8,463 4,599 3,864 84.02
--------- -------- -------
Total noninterest income................................... $ 36,497 25,697 10,800 42.03
========= ======== ======= ========
Noninterest expense:
Salaries and employee benefits.................................. $ 55,907 43,011 12,896 29.98%
Occupancy, net of rental income................................. 11,037 10,617 420 3.96
Furniture and equipment......................................... 8,122 7,618 504 6.62
Federal Deposit Insurance Corporation premiums.................. 1,370 804 566 70.40
Postage, printing and supplies.................................. 5,230 4,187 1,043 24.91
Data processing fees............................................ 13,917 8,450 5,467 64.70
Legal, examination and professional fees........................ 5,326 4,587 739 16.11
Credit card..................................................... 3,396 3,343 53 1.59
Communications.................................................. 2,874 2,611 263 10.07
Advertising and business development............................ 4,668 4,054 614 15.15
Losses and expenses on other real estate, net of gains.......... 81 (331) 412 (124.47)
Guaranteed preferred debentures................................. 9,842 7,322 2,520 34.42
Other........................................................... 16,934 14,014 2,920 20.84
--------- -------- -------
Total noninterest expense.................................. $ 138,704 110,287 28,417 25.77
========= ======== ======= ========
</TABLE>
Noninterest Income. Noninterest income was $36.5 million for the year
ended December 31, 1998, compared to $25.7 million for 1997. The increase is
primarily attributable to core operating units of First Banks which realized
improved service charges on deposit accounts and customer service fees, gains on
mortgage loans sold and held for sale and trust and brokerage fees.
Service charges on deposit accounts and customer service fees increased
to $14.9 million from $12.5 million for the years ended December 31, 1998 and
1997, respectively. The increase in service charges corresponds to the increase
in deposit balances provided by internal growth, the acquisitions of Surety
Bank, Pacific Bay Bank and Republic Bank and the additional services available
and utilized by First Banks' commercial customers.
As more fully described under "--Mortgage Banking Activities," First
Banks' mortgage banking revenues consist primarily of loan servicing fees, net,
and gain on mortgage loans sold and held for sale. Loan servicing fees, net,
decreased to $1.0 from $1.6 for the years ended December 31, 1998 and 1997,
respectively. The decrease in loan servicing fees is primarily attributable to
aggregate increases of $827,000 consisting of additional amortization of
mortgage servicing rights and increased interest shortfall and mortgage-backed
security expense. Offsetting the decrease was the increase in loan servicing
fees resulting from the increase in the portfolio of loans serviced for others.
The gain on mortgage loans sold and held for sale increased to $5.6
million from $716,000 for 1998 and 1997, respectively. This increase is
attributable to an increased volume of loans sold and held for sale including
fixed rate residential mortgage loans, which are sold on a servicing retained
basis, and adjustable-rate and non-conforming residential mortgage loans, which
are sold on a servicing released basis.
The gain on sales of securities was $2.1 and $2.5 million for the years
ended December 31, 1998 and 1997, respectively. For 1998, the gains resulted
from sales of available-for-sale securities to facilitate the funding of loan
growth. The gain on sale of securities for 1997 is primarily attributable to the
sales of certain residual securities that had been acquired by First Banks
through an acquisition completed in 1995.
<PAGE>
Other income was $8.5 million and $4.6 million for the years ended
December 31, 1998 and 1997, respectively. The primary component of the increase
consists of $3.1 million of income earned on a BOLI policy entered into in 1998.
The BOLI balance was $75.7 million at December 31, 1998 and is included in other
assets. As more fully described in Note 17 to the accompanying consolidated
financial statements, other noninterest income also includes rental fees of
$799,000 and $1.1 million for 1998 and 1997, respectively, paid by First
Services, L.P. for the use of data processing and other equipment owned by First
Banks. In addition, noninterest income includes $1.6 million from the repayment
of an acquired loan in excess of First Banks' historical cost basis.
Noninterest Expense. Noninterest expense increased to $138.7 million
for the year ended December 31, 1998 from $110.3 million for 1997. The most
significant changes in noninterest expense were increases in salaries and
employee benefits, data processing fees and guaranteed preferred debentures
expense.
Salaries and employee benefits have increased to $55.9 million from
$43.0 million for the years ended December 31, 1998 and 1997, respectively. The
increase is attributable to the newly acquired banks and First Banks' continued
commitment to expanding its commercial, mortgage banking and retail business
development capabilities.
Data processing fees for the year ended December 31, 1998 were $13.9
million, compared to $8.5 million for 1997. Effective April 1, 1997, First
Services, L.P., a limited partnership indirectly owned by First Banks' Chairman
and his immediate family, began providing data processing and related services
for First Banks. FirstServ, Inc. (First Serv), a wholly owned subsidiary of
First Banks, previously provided these services. As a result, expenses related
to data processing and related services were recorded in various noninterest
expense categories for the periods prior to April 1, 1997. Subsequent to that
date, these expenses are reflected as data processing expenses. The increase for
1998 is primarily attributable to the additional services provided by First
Services, L.P. to meet the increasing technology requirements of the banking
industry and the additional costs associated with the data processing
conversions of newly acquired entities and system upgrades. The Year 2000 costs
billed from First Services, L.P. were $600,000 for 1998.
Contributing further to the increase in noninterest expense is the
guaranteed preferred debenture expense. For the years ended December 31, 1998
and 1997, the cost was $9.8 million and $7.3 million, respectively. The increase
for 1998 is attributable to FBA's issuance of the FACT Preferred Securities in
July 1998 (as described in Note 9 to the accompanying consolidated financial
statements) and First Banks' issuance of similar securities in February 1997.
Advertising and business development also increased to $4.7 million
from $4.1 million for the years ended December 31, 1998 and 1997, respectively.
The increase is attributable to programs instituted in prior years and First
Banks' continued commitment to expand its presence in each of its market areas.
In addition, other noninterest expense for 1998 includes a $1.1 million
charitable contribution to the Affordable Housing Assistance Program and a
$500,000 charge in settlement of two lawsuits.
Investment Securities
First Banks classifies the securities within its investment portfolio
as held to maturity or available for sale. First Banks no longer engages in the
trading of investment securities. As more fully described in Notes 1 and 3 to
the accompanying consolidated financial statements of First Banks, the
investment security portfolio consists primarily of securities designated as
available for sale. The investment security portfolio was $451.6 million at
December 31, 1999 compared to $534.8 million and $795.5 million at December 31,
1998 and 1997, respectively. See, "--Financial Condition and Average Balances"
for further discussion of the investment security portfolio.
Loans and Allowance for Possible Loan Losses
Interest earned on the loan portfolio represents the principal source
of income for First Banks and its Subsidiary Banks. Interest and fees on loans
were 91.5%, 86.7% and 85.7% of total interest income for the years ended
December 31, 1999, 1998 and 1997, respectively. Loans, net of unearned discount,
represented 82.1% of total assets as of December 31, 1999, compared to 78.6% and
72.1% of total assets at December 31, 1998 and 1997, respectively. Total loans,
net of unearned discount, increased $420.0 million for the year ended December
31, 1999 to $4.00 billion, and $580.0 million for the year ended December 31,
1998 to $3.58 billion. First Banks views the quality, yield and growth of the
loan portfolio to be instrumental elements in its growth and profitability.
As summarized in the composition of the loan portfolio table, during
the five years ended December 31, 1999, total loans, net of unearned discount,
increased 46.0% from $2.74 billion at December 31, 1995 to $4.00 billion at
<PAGE>
December 31, 1999. As discussed under "--General," in 1993, First Banks began a
process of substantially enhancing its capabilities to achieve and manage
internal growth. A key element of this process was the expansion of the
corporate business development staff which is responsible for the internal
development of both loan and deposit relationships with commercial customers.
These customers require loans categorized by type of collateral as commercial,
financial and agricultural loans, real estate construction and land development
loans and commercial real estate loans.
While this process was occurring, in order to achieve more
diversification, a higher level of interest yield and a reduction in interest
rate risk within its loan portfolio, First Banks also focused on repositioning
its portfolio. As the corporate business development effort continued to
originate a substantial volume of new loans, substantially all of the conforming
residential mortgage loan production of First Banks has been sold in the
secondary mortgage market, and the origination of indirect automobile loans has
been substantially reduced. This allowed First Banks to fund part of the growth
in corporate lending through its reductions in residential real estate and
indirect automobile lending.
In addition, First Banks' acquisitions added substantial portfolios of
new loans. However, many of these portfolios, particularly the acquisitions
completed in 1995, contained significant loan problems. As First Banks resolved
the asset quality issues, the portfolios of the acquired entities tended to
decline because many of the resources which would otherwise be directed toward
generating new loans were concentrated on improving or eliminating existing
relationships.
A summary of the effects of these factors on the loan portfolio for the
four years ended December 31, 1999 is as follows:
<TABLE>
<CAPTION>
Increase (decrease)
-----------------------------------------------
for the year ended December 31,
-----------------------------------------------
1999 1998 1997 1996
---- ---- ---- ----
(dollars expressed in thousands)
Internal loan volume increase (decrease):
<S> <C> <C> <C> <C>
Commercial lending............................. $ 363,486 633,660 378,882 209,251
Residential real estate lending................ (126,418) (152,849) (144,707) (164,400)
Consumer lending, net of unearned discount..... (56,349) (30,506) (54,305) (82,231)
Loans provided by acquisitions...................... 235,500 127,600 54,361 61,130
--------- ---------- --------- ---------
Total increase in loans,
net of unearned discount.................... $ 416,219 577,905 234,231 23,750
========= ========== ========== =========
Increase (decrease) in potential problem loans (1).. $ 11,200 12,800 (9,800) (25,500)
========= ========== ========= =========
</TABLE>
- ---------------------
(1) Potential problem loans include nonperforming loans and other loans
identified by management as having potential credit problems.
First Banks' lending strategy stresses quality, growth and
diversification by collateral, geography and industry. A common credit
underwriting structure is in place throughout First Banks. The commercial
lenders focus principally on small to middle-market companies. Retail lenders
focus principally on residential loans, including home equity loans, automobile
financing and other consumer financing needs arising out of First Banks' branch
banking network.
Commercial, financial and agricultural loans include loans that are
made primarily based on the borrowers' general credit strength and ability to
generate repayment cash flows from income sources even though such loans may
also be secured by real estate or other assets. Real estate construction and
development loans, primarily relating to residential properties and smaller
commercial properties, represent interim financing secured by real estate under
construction. Real estate mortgage loans consist primarily of loans secured by
single-family, owner-occupied properties and various types of commercial
properties on which the income from the property is the intended source of
repayment. Consumer and installment loans are loans to individuals and consist
primarily of loans secured by automobiles. Loans held for sale are primarily
fixed and adjustable rate residential loans pending sale in the secondary
mortgage market in the form of a mortgage-backed security, or to various private
third-party investors.
<PAGE>
The following table shows the composition of the loan portfolio by
major category and the percent of each category to the total portfolio as of the
dates presented:
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------------------------------
1999 1998 1997 1996 1995
-------------- ------------- ------------- ------------ -----------
Amount % Amount % Amount % Amount % Amount %
------ - ------ - ------ - ------ - ------ -
(dollars expressed in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial, financial
and agricultural...................... $1,086,919 27.4% $ 920,007 26.7% $ 621,618 21.1% $ 457,186 16.7% $ 364,018 13.5%
Real estate construction
and development....................... 795,081 20.1 720,910 20.9 413,107 14.0 289,378 10.5 209,802 7.8
Real estate mortgage:
One-to-four-family
residential loans.................. 720,630 18.2 739,442 21.5 915,205 31.1 1,059,770 38.7 1,199,491 44.4
Other real estate loans............. 1,130,939 28.6 789,735 22.9 713,910 24.3 600,810 21.9 512,264 19.0
Consumer and installment, net of
unearned discount................... 225,343 5.7 274,392 8.0 279,279 9.5 333,340 12.2 413,609 15.3
---------- ----- ---------- ----- ---------- ----- --------- ----- ---------- -----
Total loans, excluding
loans held for sale......... 3,958,912 100.0% 3,444,486 100.0% 2,943,119 100.0% 2,740,484 100.0% 2,699,184 100.0%
===== ===== ===== ===== =====
Loans held for sale..................... 37,412 135,619 59,081 27,485 45,035
---------- ---------- ---------- --------- ----------
Total loans.................... $3,996,324 $3,580,105 $3,002,200 $2,767,969 $2,744,219
========== ========== ========== ========== ==========
</TABLE>
Loans at December 31, 1999 mature as follows:
<TABLE>
<CAPTION>
Over one year
through five
years Over five years
----------------- ---------------
One year Fixed Floating Fixed Floating
or less rate rate rate rate Total
-------- ---- ---- ---- ---- -----
(dollars expressed in thousands)
<S> <C> <C> <C> <C> <C> <C>
Commercial, financial and agricultural.................... $ 904,017 142,382 30,007 10,286 227 1,086,919
Real estate construction and development.................. 765,037 8,776 19,758 1,173 337 795,081
Real estate mortgage...................................... 889,691 433,884 281,482 176,901 69,611 1,851,569
Consumer and installment, net of unearned discount........ 54,334 164,078 513 6,348 70 225,343
Loans held for sale....................................... 37,412 -- -- -- -- 37,412
----------- -------- -------- ------- ------ ---------
Total loans...................................... $ 2,650,491 749,120 331,760 194,708 70,245 3,996,324
=========== ======== ======== ======= ====== =========
</TABLE>
<PAGE>
The following table is a summary of loan loss experience for the five
years ended December 31, 1999:
<TABLE>
<CAPTION>
December 31,
------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(dollars expressed in thousands)
<S> <C> <C> <C> <C> <C>
Allowance for possible loan losses,
beginning of period................................ $ 60,970 50,509 46,781 52,665 28,410
Acquired allowances for possible loan losses......... 3,008 3,200 30 2,338 24,655
---------- ---------- ---------- --------- --------
63,978 53,709 46,811 55,003 53,065
---------- ---------- ---------- --------- --------
Loans charged-off:
Commercial, financial and agricultural........... (10,855) (3,908) (2,308) (8,918) (2,337)
Real estate construction and development......... (577) (185) (2,242) (1,241) (275)
Real estate mortgage............................. (2,561) (2,389) (6,250) (10,308) (5,948)
Consumer and installment......................... (3,728) (3,701) (6,032) (8,549) (7,060)
---------- ---------- ---------- --------- --------
Total.................................... (17,721) (10,183) (16,832) (29,016) (15,620)
---------- ---------- ---------- --------- --------
Recoveries of loans previously charged-off:
Commercial, financial and agricultural........... 3,602 3,417 2,146 2,642 1,714
Real estate construction and development......... 849 342 269 495 666
Real estate mortgage............................. 2,357 2,029 3,666 3,255 290
Consumer and installment......................... 2,473 2,656 3,149 2,908 2,189
---------- ---------- ---------- --------- ---------
Total.................................... 9,281 8,444 9,230 9,300 4,859
---------- ---------- ---------- --------- ---------
Net loans charged-off.................... (8,440) (1,739) (7,602) (19,716) (10,761)
---------- ---------- ---------- --------- ---------
Provision for possible loan losses................... 13,073 9,000 11,300 11,494 10,361
---------- ---------- ---------- --------- ---------
Allowance for possible loan losses, end of period.... $ 68,611 60,970 50,509 46,781 52,665
========== ========== ========== ========= =========
Loans outstanding:
Average.......................................... $3,812,508 3,250,719 2,846,157 2,726,297 2,598,936
End of period.................................... 3,996,324 3,580,105 3,002,200 2,767,969 2,744,219
End of period, excluding loans held for sale..... 3,958,912 3,444,486 2,943,119 2,740,484 2,699,184
========== ========== ========== ========= =========
Ratio of allowance for possible loan
losses to loans outstanding:
Average..................................... 1.80% 1.88% 1.77% 1.72% 2.03%
End of period............................... 1.72 1.70 1.68 1.69 1.92
End of period, excluding
loans held for sale....................... 1.73 1.77 1.72 1.71 1.95
Ratio of net charge-offs
to average loans outstanding................... 0.22 0.05 0.27 0.72 0.41
Ratio of current year recoveries to
preceding year's total charge-offs............ 91.14 50.17 31.81 59.54 72.57
========== ========== ========== ========= ==========
Allocation of allowance for possible
loan losses at end of period:
Commercial, financial and agricultural........... $ 24,898 19,239 14,879 13,579 12,501
Real estate construction and development......... 13,264 15,073 7,148 4,584 4,665
Real estate mortgage............................. 20,750 18,774 18,317 14,081 19,849
Consumer and installment......................... 4,390 5,180 5,089 10,296 10,016
Unallocated...................................... 5,309 2,704 5,076 4,241 5,634
---------- ---------- ---------- --------- ----------
Total.................................... $ 68,611 60,970 50,509 46,781 52,665
========== ========== ========== ========= ==========
Percent of categories to loans,
net of unearned discount:
Commercial, financial and agricultural........... 27.20% 25.70% 20.71% 16.52% 13.27%
Real estate construction and development......... 19.90 20.14 13.76 10.45 7.65
Real estate mortgage............................. 46.33 42.71 54.26 60.00 62.49
Consumer and installment......................... 5.64 7.66 9.30 12.04 14.95
Loans held for sale.............................. 0.93 3.79 1.97 0.99 1.64
---------- ---------- ---------- --------- ---------
Total.................................... 100.00% 100.00% 100.00% 100.00% 100.00%
========== ========== ========== ========= =========
</TABLE>
<PAGE>
Nonperforming assets include nonaccrual loans, restructured loans and
other real estate. The following table presents the categories of nonperforming
assets and certain ratios as of the dates indicated:
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(dollars expressed in thousands)
Commercial, financial and agricultural:
<S> <C> <C> <C> <C> <C>
Nonaccrual....................................... $ 18,397 15,385 4,017 4,113 9,930
Restructured terms............................... 29 -- -- 130 --
Real estate construction and development:
Nonaccrual....................................... 1,886 3,858 4,097 817 2,002
Real estate mortgage:
Nonaccrual....................................... 16,414 18,858 10,402 24,486 27,159
Restructured terms............................... 2,979 5,221 5,456 278 --
Consumer and installment:
Nonaccrual....................................... 32 216 94 440 300
Restructured terms............................... -- -- -- 5 --
----------- --------- --------- --------- ---------
Total nonperforming loans.................. 39,737 43,538 24,066 30,269 39,391
Other real estate.................................... 2,129 3,709 7,324 10,607 7,753
----------- --------- --------- --------- ---------
Total nonperforming assets................. $ 41,866 47,247 31,390 40,876 47,144
=========== ========= ========= ========= =========
Loans, net of unearned discount...................... $ 3,996,324 3,580,105 3,002,200 2,767,969 2,744,219
=========== ========= ========= ========= =========
Loans past due 90 days or more and still accruing.... $ 5,844 4,674 2,725 3,779 8,474
=========== ========= ========= ========= =========
Allowance for possible loan losses to loans.......... 1.72% 1.70% 1.68% 1.69% 1.92%
Nonperforming loans to loans......................... 0.99 1.22 0.80 1.09 1.44
Allowance for possible loan losses to
nonperforming loans.............................. 172.66 140.04 209.88 154.55 133.70
Nonperforming assets to loans and
other real estate................................ 1.05 1.32 1.04 1.47 1.71
=========== ========= ========== ========= =========
</TABLE>
Nonperforming loans (also considered impaired loans), consisting of
loans on nonaccrual status and certain restructured loans, were $39.7 million at
December 31, 1999 in comparison to $43.5 million at December 31, 1998. The
decrease in nonperforming loans in 1999 primarily results from continued
aggressive collection efforts and management's continued efforts to effectively
monitor and manage the loan portfolios of acquired entities. As previously
discussed, certain acquired loan portfolios, particularly those acquired during
1994 and 1995, exhibited varying degrees of distress prior to their purchase by
First Banks. While these problems had been identified and considered in the
acquisition pricing, the acquisitions led to an increase in nonperforming assets
and problem loans (as defined below) to $95.0 million at December 31, 1995 from
$41.3 million at December 31, 1994. As First Banks worked to correct these asset
quality problems, such assets were reduced to $59.3 million at December 31,
1997. At December 31, 1998, nonperforming assets and problem loans increased to
$68.5 million. The increase for 1998 was primarily attributable to two
commercial loans totaling $6.0 million, net of charge-off, the acquisitions of
Republic Bank and Pacific Bay Bank and the overall growth of the loan portfolio,
principally within commercial, financial and agricultural, real estate
construction and development and commercial real estate loans. While
nonperforming assets and problem loans have, in general, increased in 1998 and
1999, First Banks does not believe such increases to be indicative of distress
or negative trends within any of the major loan concentration areas.
As of December 31, 1999, 1998, 1997, 1996 and 1995, $36.3 million,
$21.3 million, $27.9 million, $31.5 million and $47.9 million, respectively, of
loans not included in the table above were identified by management as having
potential credit problems (problem loans) which raised doubt as to the ability
of the borrowers to comply with the present loan repayment terms.
First Banks' credit management policy and procedures focus on
identifying, measuring and controlling credit exposure. These procedures employ
a lender-initiated system of rating credits, which is ratified in the loan
approval process and subsequently tested in internal loan reviews, external
audits and regulatory bank examinations. The system requires rating all loans at
<PAGE>
the time they are originated, except for homogeneous categories of loans, such
as residential real estate mortgage loans, indirect automobile loans and credit
card loans. These homogeneous loans are assigned an initial rating based on
First Banks' experience with each type of loan. Adjustments to these ratings are
based on payment experience subsequent to their origination.
Adversely rated credits, including loans requiring close monitoring
which would not normally be considered criticized credits by regulators, are
included on a monthly loan watch list. Loans may be added to the watch list for
reasons which are temporary and correctable, such as the absence of current
financial statements of the borrower or a deficiency in loan documentation.
Other loans are added whenever any adverse circumstance is detected which might
affect the borrower's ability to meet the terms of the loan. This could be
initiated by the delinquency of a scheduled loan payment, a deterioration in the
borrower's financial condition identified in a review of periodic financial
statements, a decrease in the value of the collateral securing the loan, or a
change in the economic environment within which the borrower operates. Loans on
the watch list require periodic detailed loan status reports prepared by the
responsible officer, which are discussed in formal meetings with loan review and
credit administration staff members. Downgrades of loan risk ratings may be
initiated by the responsible loan officer at any time. However, upgrades of risk
ratings may only be made with the concurrence of selected loan review and credit
administration staff members generally at the time of the formal watch list
review meetings.
Each month, the credit administration department provides First Banks'
management with detailed lists of loans on the watch list and summaries of the
entire loan portfolio of each Subsidiary Bank by risk rating. These are coupled
with analyses of changes in the risk profiles of the portfolios, changes in past
due and nonperforming loans and changes in watch list and classified loans over
time. In this manner, the overall increases or decreases in the levels of risk
in the portfolios are monitored continually. Factors are applied to the loan
portfolios for each category of loan risk to determine acceptable levels of
allowance for possible loan losses. These factors are derived primarily from the
actual loss experience of the Subsidiary Banks and from published national
surveys of norms in the industry. The calculated allowances required for the
portfolios are then compared to the actual allowance balances to determine the
provisions necessary to maintain the allowances at appropriate levels. In
addition, management exercises judgment in its analysis of determining the
overall level of the allowance for possible 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 possible loan losses is adjusted. Such
adjustments are reflected in the consolidated statements of income.
First Banks does not engage in lending in foreign countries or based on
activities in foreign countries. Additionally, First Banks does not have any
concentrations of loans exceeding 10% of total loans that are not otherwise
disclosed in the loan portfolio composition table and Note 4 to the accompanying
consolidated financial statements. First Banks does not have a material amount
of interest-earning assets that would have been included in nonaccrual, past due
or restructured loans if such assets were loans.
Deposits
Deposits are the primary source of funds for the Subsidiary Banks.
First Banks' deposits consist principally of core deposits from its Subsidiary
Banks' local market areas, including individual and corporate customers. The
following table sets forth the distribution of First Banks' average deposit
accounts at the dates indicated and the weighted average interest rates on each
category of deposit:
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------------------------------------
1999 1998 1997
-------------------------- -------------------------- --------------------------
Percent Percent Percent
of of of
Amount deposits Rate Amount deposits Rate Amount deposits Rate
------ -------- ---- ------ -------- ---- ------ -------- ----
(dollars expressed in thousands)
<S> <C> <C> <C> <C> <C> <C>
Noninterest-bearing demand....... $ 552,029 13.59% --% $ 463,939 12.27% --% $ 394,580 11.77% --%
Interest-bearing demand......... 391,892 9.65 1.30 357,463 9.45 1.44 332,712 9.92 1.70
Savings......................... ,220,425 30.03 3.61 1,076,524 28.48 3.96 761,052 22.70 3.60
Time deposits of $100 or more... 230,520 5.67 5.41 212,691 5.63 5.85 183,223 5.47 6.01
Other time...................... 1,668,698 41.06 5.34 1,669,638 44.17 5.72 1,681,014 50.14 6.01
---------- ------ ==== ---------- ------- ==== ---------- ----- ====
Total average deposits.... $4,063,564 100.00% $3,780,255 100.00% $3,352,581 100.00%
========== ====== ========== ====== ========== ======
</TABLE>
<PAGE>
Capital and Dividends
Historically, First Banks has accumulated capital to support its
acquisitions by retaining most of its earnings. The Company pays relatively
small dividends on the Class A convertible, adjustable rate preferred stock and
the Class B adjustable rate preferred stock, totaling $786,000 for the years
ended December 31, 1999, 1998 and 1997. The dividends paid on the Class C
Preferred Stock, which was redeemed in December 1997, were $4.28 million for the
year ended December 31, 1997. First Banks has never paid, and has no present
intention to pay, dividends on its common stock.
As more fully discussed in Note 19 to the accompanying consolidated
financial statements, management believes as of December 31, 1999 and 1998,
First Banks and the Subsidiary Banks were "well capitalized" as defined by the
Federal Deposit Insurance Corporation Improvement Act of 1991.
As more fully discussed under "--Company Profile," "--Financial
Condition and Average Balances," and Note 9 to the accompanying consolidated
financial statements, in February 1997 and July 1998, First Banks and FBA formed
FPCT and FACT for the purpose of issuing $86.25 million of FPCT Preferred
Securities and $46.0 of FACT Preferred Securities, respectively. For regulatory
reporting purposes, the FPCT Preferred Securities and the FACT Preferred
Securities are eligible for inclusion, subject to certain limitations, in First
Banks' Tier 1 capital.
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 $476.8 million
and $391.4 million at December 31, 1999 and 1998, respectively.
The following table presents the maturity structure of volatile funds,
which consists of certificates of deposit of $100,000 or more, short-term
borrowings and the note payable, at December 31, 1999:
<TABLE>
<CAPTION>
December 31, 1999
-----------------
(dollars expressed in thousands)
<S> <C>
Three months or less................................................... $ 254,255
Over three months through six months................................... 72,488
Over six months through twelve months.................................. 106,893
Over twelve months..................................................... 43,132
---------
Total......................................................... $ 476,768
=========
</TABLE>
In addition to these more volatile sources of funds, in 1999, First
Bank, FB&T, FB California and FB Texas have established borrowing relationships
with the Federal Reserve Bank in their respective districts. These borrowing
relationships, which are secured by commercial loans, provide an additional
liquidity facility that may be utilized for contingency purposes. At December
31, 1999, First Banks' borrowing capacity under these agreements was
approximately $1.67 billion. In addition, the Subsidiary Banks' borrowing
capacity through their relationships with the Federal Home Loan Banks was
approximately $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 First
Banks' operating and debt service requirements, both on a short-term and
long-term basis, and to pay the dividends on the FPCT Preferred Securities and
the FACT Preferred Securities.
<PAGE>
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.
As more fully discussed in Note 17 to the accompanying consolidated
financial statements, data processing services are provided to First Banks by
First Services, L.P. under the terms of data processing agreements. To address
the Year 2000 issue, First Banks, working jointly with First Services, L.P.,
established a dedicated team to coordinate the overall Year 2000 Preparedness
Program (Program) under the guidelines of the Comprehensive Year 2000 Plan
(Plan) as approved by the Board of Directors. The Plan summarized each major
phase of the Program and the estimated costs to remediate and test systems in
preparation for the Year 2000. The Plan addressed both Information Technology
(IT) projects, such as data processing and data network applications, and non-IT
projects, such as building facilities and security systems. The major phases of
the Program were awareness, assessment, remediation, validation and
implementation.
First Banks' critical systems are purchased from industry-known
vendors. Such systems are generally used in their standard configuration, that
is, with minor modification. Focusing on these critical systems, First Banks
closely reviewed and monitored the Year 2000 progress as reported by each vendor
and tested, in most cases, on a system separate from the on-line production
system. For the critical systems that were modified, the vendors provided
remediation for such systems that were not otherwise reported as "Year 2000
ready." As the remediation phase was completed within the stated deadline, First
Banks did not invoke any remediation contingency efforts.
First Banks accelerated the replacement of its existing teller system
(ISC), since certain functions of ISC were not Year 2000 compliant. Planning for
the replacement of ISC had been underway for several years with the primary
objectives of adding functionality to meet expanding product and service
offerings and improving efficiency in serving customers. As the new teller
system (CFI) also provided a solution for the Year 2000 problem, the overall
implementation schedule was accelerated. The CFI system installation was
completed during the fourth quarter of 1999. In conjunction with the teller
replacement, First Banks also upgraded its local area network-based systems,
networks and core processor, and purchased certain item processing equipment, as
the previous equipment, which was fully depreciated, was not Year 2000
compliant. The cost of the teller replacement, the upgrades and the item
processing equipment was $12.3 million and is being charged to expense over 60
months.
First Banks successfully completed all phases of the 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, as previously discussed, 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
$1.8 million and $650,000 for the years ended December 31, 1999 and 1998,
respectively.
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
<PAGE>
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.
Effects of Inflation
Financial institutions are less affected by inflation than other types
of companies. Financial institutions make relatively few significant asset
acquisitions that are directly affected by changing prices. Instead, the assets
and liabilities are primarily monetary in nature. Consequently, interest rates
are more significant to the performance of financial institutions than the
effect of general inflation levels. While a relationship exists between the
inflation rate and interest rates, First Banks believes this is generally
manageable through its asset-liability management program.
<PAGE>
FIRST BANKS, INC.
QUARTERLY CONDENSED FINANCIAL DATA - UNAUDITED
<TABLE>
<CAPTION>
1999 Quarter Ended
---------------------------------------------------
March 31 June 30 September 30 December 31
--------- ------- ------------ -----------
(dollars expressed in thousands)
<S> <C> <C> <C> <C>
Interest income.............................................. $ 82,560 85,641 89,045 95,836
Interest expense............................................. 38,966 38,150 39,544 42,041
--------- --------- --------- --------
Net interest income................................... 43,594 47,491 49,501 53,795
Provision for possible loan losses........................... 2,490 3,373 2,880 4,330
--------- --------- --------- --------
Net interest income after provision
for possible loan losses............................ 41,104 44,118 46,621 49,465
Noninterest income........................................... 9,603 13,515 9,021 9,511
Noninterest expense.......................................... 35,487 37,248 37,515 40,557
--------- --------- --------- --------
Income before provision for income taxes and
minority interest in income of subsidiaries......... 15,220 20,385 18,127 18,419
Provision for income taxes................................... 5,638 7,465 6,689 6,521
--------- --------- --------- --------
Income before minority interest in
income of subsidiaries.............................. 9,582 12,920 11,438 11,898
Minority interest in income of subsidiaries.................. 311 361 416 572
--------- --------- --------- --------
Net income............................................ $ 9,271 12,559 11,022 11,326
========= ========= ========= ========
Earnings per share:
Basic.................................................... $ 383.52 525.23 457.54 467.62
Diluted.................................................. 372.57 505.15 444.11 456.94
========= ========= ========= ========
1998 Quarter Ended
--------------------------------------------------
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
(dollars expressed in thousands)
Interest income.............................................. $ 78,930 80,940 83,756 84,234
Interest expense............................................. 40,601 41,121 40,302 40,155
--------- --------- --------- --------
Net interest income................................... 38,329 39,819 43,454 44,079
Provision for possible loan losses........................... 2,100 1,850 2,275 2,775
--------- --------- --------- --------
Net interest income after provision
for possible loan losses............................ 36,229 37,969 41,179 41,304
Noninterest income........................................... 7,794 8,357 9,000 11,346
Noninterest expense.......................................... 32,059 35,037 36,106 35,502
--------- --------- --------- --------
Income before provision for income taxes and
minority interest in income of subsidiaries......... 11,964 11,289 14,073 17,148
Provision for income taxes................................... 4,256 4,134 5,079 6,224
--------- --------- --------- --------
Income before minority interest in
income of subsidiaries.............................. 7,708 7,155 8,994 10,924
Minority interest in income of subsidiaries.................. 342 279 407 243
--------- --------- --------- --------
Net income............................................ $ 7,366 6,876 8,587 10,681
========= ========= ========= ========
Earnings per share:
Basic.................................................... $ 302.99 285.02 354.65 440.38
Diluted.................................................. 293.85 274.34 343.73 428.42
========= ========= ========= ========
</TABLE>
<PAGE>
FIRST BANKS, INC.
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
First Banks, Inc.:
We have audited the accompanying consolidated balance sheets of First Banks,
Inc. and subsidiaries (the Company) as of December 31, 1999 and 1998, and the
related consolidated statements of income, changes in stockholders' equity and
comprehensive income and cash flows for each of the years in the three-year
period ended December 31, 1999. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above, present
fairly, in all material respects, the financial position of First Banks, Inc.
and subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1999, in conformity with generally accepted accounting
principles.
/s/ KPMG LLP
------------
St. Louis, Missouri
March 15, 2000
<PAGE>
FIRST BANKS, INC.
CONSOLIDATED BALANCE SHEETS
(dollars expressed in thousands, except per share data)
<TABLE>
<CAPTION>
December 31,
-------------------------
1999 1998
---- ----
ASSETS
------
Cash and cash equivalents:
<S> <C> <C>
Cash and due from banks....................................................... $ 126,720 174,329
Interest-bearing deposits with other financial institutions
with maturities of three months or less..................................... 1,674 3,733
Federal funds sold............................................................ 42,500 36,700
------------ -----------
Total cash and cash equivalents..................................... 170,894 214,762
------------ -----------
Investment securities:
Trading, at fair value........................................................ -- 3,425
Available for sale, at fair value............................................. 430,093 509,695
Held to maturity, at amortized cost (fair value of $21,476 and
$22,568 at December 31, 1999 and 1998, respectively)........................ 21,554 21,676
------------ -----------
Total investment securities......................................... 451,647 534,796
------------ -----------
Loans:
Commercial, financial and agricultural........................................ 1,086,919 920,007
Real estate construction and development...................................... 795,081 720,910
Real estate mortgage.......................................................... 1,851,569 1,529,177
Consumer and installment...................................................... 233,374 282,549
Loans held for sale........................................................... 37,412 135,619
------------ -----------
Total loans......................................................... 4,004,355 3,588,262
Unearned discount............................................................. (8,031) (8,157)
Allowance for possible loan losses............................................ (68,611) (60,970)
------------ -----------
Net loans........................................................... 3,927,713 3,519,135
------------ -----------
Bank premises and equipment, net of accumulated
depreciation and amortization................................................. 75,647 63,848
Intangibles associated with the purchase of subsidiaries........................... 46,085 36,534
Mortgage servicing rights, net of amortization..................................... 8,665 9,825
Accrued interest receivable........................................................ 33,491 28,465
Other real estate.................................................................. 2,129 3,709
Deferred income taxes.............................................................. 51,972 46,848
Other assets....................................................................... 99,504 96,888
------------ -----------
Total assets........................................................ $ 4,867,747 4,554,810
============ ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
FIRST BANKS, INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(dollars expressed in thousands, except per share data)
<TABLE>
<CAPTION>
December 31,
------------------------
1999 1998
---- ----
LIABILITIES
-----------
Deposits:
Demand:
<S> <C> <C>
Non-interest-bearing........................................................ $ 606,064 561,383
Interest-bearing............................................................ 415,113 377,435
Savings....................................................................... 1,198,314 1,198,567
Time:
Time deposits of $100 or more............................................... 339,214 219,996
Other time deposits......................................................... 1,693,109 1,582,604
------------ -----------
Total deposits........................................................... 4,251,814 3,939,985
Short-term borrowings.............................................................. 73,554 121,331
Note payable....................................................................... 64,000 50,048
Accrued interest payable........................................................... 11,607 5,817
Deferred income taxes.............................................................. 6,582 10,920
Accrued expenses and other liabilities............................................. 25,616 20,652
Minority interest in subsidiary.................................................... 12,058 15,251
------------ -----------
Total liabilities........................................................ 4,445,231 4,164,004
------------ -----------
Guaranteed preferred beneficial interests in:
First Banks, Inc. subordinated debentures..................................... 83,394 83,288
First Banks America, Inc. subordinated debentures............................. 44,217 44,155
------------ -----------
Total guaranteed preferred beneficial interests in
subordinated debentures.............................................. 127,611 127,443
------------ -----------
STOCKHOLDERS' EQUITY
--------------------
Preferred stock:
$1.00 par value, 5,000,000 shares authorized, no shares issued
and outstanding at December 31, 1999 and 1998............................... -- --
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.................................................................... 3,318 780
Retained earnings.................................................................. 270,259 231,867
Accumulated other comprehensive income............................................. 2,350 11,738
------------ -----------
Total stockholders' equity............................................... 294,905 263,363
------------ -----------
Total liabilities and stockholders' equity............................... $ 4,867,747 4,554,810
============ ===========
</TABLE>
<PAGE>
FIRST BANKS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(dollars expressed in thousands, except per share data)
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------
1999 1998 1997
---- ---- ----
Interest income:
<S> <C> <C> <C>
Interest and fees on loans.............................................. $ 323,207 284,177 252,766
Investment securities:
Taxable............................................................... 26,206 39,898 35,248
Nontaxable............................................................ 937 985 1,008
Federal funds sold and other............................................ 2,732 2,800 6,079
--------- -------- ---------
Total interest income............................................... 353,082 327,860 295,101
--------- -------- ---------
Interest expense:
Deposits:
Interest-bearing demand............................................... 5,098 5,135 5,648
Savings............................................................... 44,101 42,591 27,383
Time deposits of $100 or more......................................... 11,854 12,024 10,386
Other time deposits................................................... 84,639 92,305 95,244
Interest rate exchange agreements, net.................................. 5,397 3,810 6,574
Short-term borrowings................................................... 3,983 2,903 2,103
Note payable............................................................ 3,629 3,411 1,493
--------- -------- ---------
Total interest expense.............................................. 158,701 162,179 148,831
--------- -------- ---------
Net interest income................................................. 194,381 165,681 146,270
Provision for possible loan losses........................................... 13,073 9,000 11,300
--------- -------- ---------
Net interest income after provision for possible loan losses........ 181,308 156,681 134,970
--------- -------- ---------
Noninterest income:
Service charges on deposit accounts and customer service fees........... 17,676 14,876 12,491
Credit card fees........................................................ 409 2,999 2,914
Loan servicing fees, net................................................ 657 1,017 1,628
Gain on mortgage loans sold and held for sale........................... 6,909 5,563 716
Net gain on sales of available-for-sale securities...................... 791 1,466 2,335
Net (loss) gain on trading securities................................... (303) 607 121
Gain on sales of branches, net of expenses.............................. 4,406 -- --
Other................................................................... 11,105 9,969 5,492
--------- -------- ---------
Total noninterest income............................................ 41,650 36,497 25,697
--------- -------- ---------
Noninterest expense:
Salaries and employee benefits.......................................... 61,524 55,907 43,011
Occupancy, net of rental income......................................... 12,518 11,037 10,617
Furniture and equipment................................................. 8,520 8,122 7,618
Federal Deposit Insurance Corporation premiums.......................... 1,310 1,370 804
Postage, printing and supplies.......................................... 4,244 5,230 4,187
Data processing fees.................................................... 18,567 13,917 8,450
Legal, examination and professional fees................................ 9,109 5,326 4,587
Credit card............................................................. 667 3,396 3,343
Communications.......................................................... 2,488 2,874 2,611
Advertising and business development.................................... 3,734 4,668 4,054
(Gain) loss on sales of other real estate, net of expenses.............. (622) 81 (331)
Guaranteed preferred debentures......................................... 12,050 9,842 7,322
Other................................................................... 16,698 16,934 14,014
--------- -------- ---------
Total noninterest expense........................................... 150,807 138,704 110,287
--------- -------- ---------
Income before provision for income taxes and minority interest
in income of subsidiary.......................................... 72,151 54,474 50,380
Provision for income taxes................................................... 26,313 19,693 16,083
--------- -------- ---------
Income before minority interest in income of subsidiary............. 45,838 34,781 34,297
Minority interest in income of subsidiary.................................... 1,660 1,271 1,270
-------- -------- ---------
Net income.......................................................... 44,178 33,510 33,027
Preferred stock dividends.................................................... 786 786 5,067
--------- -------- ---------
Net income available to common stockholders......................... $ 43,392 32,724 27,960
======== ======== =========
Earnings per common share:
Basic................................................................... $1,833.91 1,383.04 1,181.69
Diluted................................................................. 1,775.47 1,337.09 1,134.28
========= ======== =========
Weighted average shares of common stock outstanding.......................... 23,661 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
Three years ended December 31, 1999
(dollars expressed in thousands, except per share data)
<TABLE>
<CAPTION>
Class C Accu-
preferred Adjustable rate mulated
stock, preferred stock other Total
---------------
increasing Class A Compre- compre- stock-
rate, conver- Common Capital hensive Retained hensive holders'
redeemable tible Class B stock surplus income earnings income equity
---------- ----- ------- ----- ------- ------ -------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Consolidated balances, January 1, 1997........... $ 53,887 12,822 241 5,915 3,289 171,182 4,053 251,389
Year ended December 31, 1997:
Comprehensive income:
Net income................................. -- -- -- -- -- 33,027 33,027 -- 33,027
Other comprehensive income, net of tax
Unrealized gains on securities, net of
reclassification adjustment (1).......... -- -- -- -- -- 5,385 -- 5,385 5,385
-------
Comprehensive income....................... 38,412
=======
Class C preferred stock dividends,
$2.25 per share............................ -- -- -- -- -- (4,280) -- (4,280)
Class A preferred stock dividends,
$1.20 per share............................ -- -- -- -- -- (769) -- (769)
Class B preferred stock dividends,
$0.11 per share............................ -- -- -- -- -- (17) -- (17)
Purchase and retirement of Class C
preferred stock........................... (6,774) -- -- -- (161) -- -- (6,935)
Redemption of Class C preferred stock........ (47,113) -- -- -- -- -- -- (47,113)
Effect of capital stock transactions of
majority-owned subsidiaries............... -- -- -- -- 850 -- -- 850
------- ------ ---- ----- ------ ------- ------ -------
Consolidated balances, December 31, 1997......... -- 12,822 241 5,915 3,978 199,143 9,438 231,537
Year ended December 31, 1998:
Comprehensive income:
Net income................................. -- -- -- -- -- 33,510 33,510 -- 33,510
Other comprehensive income, net of tax
Unrealized gains on securities, net of
reclassification adjustment (1).......... -- -- -- -- -- 2,300 -- 2,300 2,300
-------
Comprehensive income....................... 35,810
=======
Class A preferred stock dividends,
$1.20 per share............................ -- -- -- -- -- (769) -- (769)
Class B preferred stock dividends,
$0.11 per share............................ -- -- -- -- -- (17) -- (17)
Effect of capital stock transactions of
majority-owned subsidiaries............... -- -- -- -- (3,198) -- -- (3,198)
-------- ------ ---- ----- ------ ------- ------ -------
Consolidated balances, December 31, 1998......... -- 12,822 241 5,915 780 231,867 11,738 263,363
Year ended December 31, 1999:
Comprehensive income:
Net income................................. -- -- -- -- -- 44,178 44,178 -- 44,178
Other comprehensive income, net of tax
Unrealized losses on securities, net of
reclassification adjustment (1).......... -- -- -- -- -- (9,388) -- (9,388) (9,388)
-------
Comprehensive income....................... 34,790
=======
Class A preferred stock dividends,
$1.20 per share............................. -- -- -- -- -- (769) -- (769)
Class B preferred stock dividends,
$0.11 per share............................ -- -- -- -- -- (17) -- (17)
Effect of capital stock transactions of
majority-owned subsidiary................. -- -- -- -- (3,273) -- -- (3,273)
Reclassification of retained earnings........ -- -- -- -- 5,000 (5,000) -- --
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
======== ====== ==== ===== ====== ======= ====== =======
</TABLE>
<PAGE>
- -------------------------
(1) Disclosure of reclassification adjustment:
<TABLE>
<CAPTION>
Three years ended December 31, 1999
-----------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Unrealized (losses) gains arising during the period.................................... $(8,874) 3,253 6,903
Less reclassification adjustment for gains included in net income...................... 514 953 1,518
------- ----- -----
Unrealized (losses) gains on securities................................................ $(9,388) 2,300 5,385
======= ===== =====
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
FIRST BANKS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars expressed in thousands)
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------
1999 1998 1997
---- ---- ----
Cash flows from operating activities:
<S> <C> <C> <C>
Net income................................................................. $ 44,178 33,510 33,027
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization of bank premises and equipment............. 7,609 5,293 5,687
Amortization, net of accretion........................................... 12,632 10,494 9,512
Originations and purchases of loans held for sale........................ (452,941) (628,544) (174,330)
Proceeds from the sale of loans held for sale............................ 507,077 520,994 148,350
Provision for possible loan losses....................................... 13,073 9,000 11,300
Provision for income taxes............................................... 26,313 19,693 16,083
Payments of income taxes................................................. (23,904) (16,091) (17,976)
Decrease (increase) in accrued interest receivable....................... (3,164) 256 (5,107)
Net decrease (increase) in trading securities............................ 3,425 (315) (3,110)
Interest accrued on liabilities.......................................... 158,701 162,368 148,831
Payments of interest on liabilities...................................... (154,056) (167,090) (149,380)
Other operating activities, net.......................................... (7,201) (5,582) (7,284)
Minority interest in income of subsidiary................................ 1,660 1,271 1,270
-------- ------- --------
Net cash provided by (used in) operating activities.................... 133,402 (54,743) 16,873
-------- ------- --------
Cash flows from investing activities:
Cash (paid) received for acquired entities, net of
cash and cash equivalents received (paid).............................. (15,961) 29,339 84,556
Proceeds from sales of investment securities available for sale............ 63,938 136,042 20,930
Maturities of investment securities available for sale..................... 350,940 395,961 447,547
Maturities of investment securities held to maturity....................... 2,708 2,314 1,804
Purchases of investment securities available for sale...................... (288,023) (167,082) (686,474)
Purchases of investment securities held to maturity........................ (2,627) (4,910) (844)
Net increase in loans...................................................... (268,238) (443,741) (174,804)
Recoveries of loans previously charged-off................................. 9,281 8,444 9,230
Purchases of bank premises and equipment................................... (17,099) (14,851) (6,413)
Other investing activities................................................. (10) (13,919) (54,681)
-------- ------- --------
Net cash used in investing activities.................................. (165,091) (72,403) (359,149)
-------- ------- --------
Cash flows from financing activities:
Decrease (increase) in demand and savings deposits......................... (72,895) 258,757 304,193
Increase (decrease) in time deposits....................................... 144,499 (171,207) (8,348)
Decrease (increase) in Federal Home Loan Bank advances..................... (50,000) 48,485 (37,218)
Increase in securities sold under agreements to repurchase................. 2,223 18,692 21,390
Increase (decrease) in notes payable....................................... 13,952 (24,637) (21,186)
Purchase and retirement of Class C preferred stock......................... -- -- (54,048)
Proceeds from issuance of guaranteed preferred subordinated debentures..... -- 44,124 83,086
Sale of branch deposits.................................................... (49,172) -- --
Payment of preferred stock dividends....................................... (786) (786) (5,067)
-------- ------- --------
Net cash (used in) provided by financing activities.................... (12,179) 173,428 282,802
-------- ------- --------
Net (decrease) increase in cash and cash equivalents................... (43,868) 46,282 (59,474)
Cash and cash equivalents, beginning of year.................................... 214,762 168,480 227,954
-------- ------- --------
Cash and cash equivalents, end of year.......................................... $170,894 214,762 168,480
======== ======= ========
Noncash investing and financing activities:
Loans transferred to other real estate..................................... $ 4,039 3,067 4,295
Loans exchanged for and transferred to available-for-sale
investment securities.................................................. -- 65,361 --
Loans held for sale exchanged for and transferred to
available-for-sale investment securities............................... 3,985 23,898 --
Loans held for sale transferred to loans................................... 32,982 -- --
======== ======= ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
FIRST BANKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements of First Banks, Inc.
and subsidiaries (First Banks or the Company) have been prepared in accordance
with generally accepted accounting principles and conform to practices prevalent
among financial institutions. The following is a summary of the more significant
accounting policies followed by First Banks:
Basis of Presentation. The consolidated financial statements of First
Banks have been prepared in accordance with generally accepted accounting
principles and conform to predominant practices within the banking industry.
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. Actual
results could differ from those estimates.
Principles of Consolidation. 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 1998 and
1997 amounts have been made to conform with the 1999 presentation.
First Banks operates through its subsidiary bank holding companies and
financial institutions (collectively referred to as the Subsidiary Banks) as
follows:
First Bank, headquartered in St. Louis County, Missouri (First Bank);
First Bank & Trust, headquartered in Newport Beach, California (FB&T);
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); and,
Redwood Bank, headquartered in San Francisco, California.
The Subsidiary Banks are wholly owned by their respective parent
companies except FBA, which was 76.8% owned by First Banks at December 31, 1998.
On February 17, 1999, First Banks completed its purchase of 314,848 shares of
FBA common stock pursuant to a tender offer to purchase up to 400,000 shares of
FBA common stock. The tender offer increased First Banks' ownership interest in
FBA to 82.3% of the outstanding voting stock of FBA. First Banks' ownership
interest in FBA at December 31, 1999 was 83.4%.
On February 2, 1998, First Commercial Bancorp, Inc., a majority-owned
subsidiary of First Banks, was acquired by FBA and its subsidiary bank, First
Commercial Bank, was merged into FB California. The combination of these
entities did not have a material impact on the financial condition or results of
operations of First Banks.
Cash and Cash Equivalents. Cash, due from banks, federal funds sold,
and interest-bearing deposits with original maturities of three months or less
are considered to be cash and cash equivalents for purposes of the consolidated
statements of cash flows.
The Subsidiary Banks are required to maintain certain daily reserve
balances on hand in accordance with regulatory requirements. These reserve
balances maintained in accordance with such requirements were $10.8 million and
$49.4 million at December 31, 1999 and 1998, respectively.
Investment Securities. The classification of investment securities as
trading, available for sale or held to maturity is determined at the date of
purchase. Investment securities designated as trading, which include any
security held for near term sale, are valued at fair value. Realized and
unrealized gains and losses are included in noninterest income.
Investment securities designated as available for sale, which include
any security that First Banks has no immediate plan to sell but which may be
sold in the future under different circumstances, are stated at fair value.
Realized gains and losses are included in noninterest income upon commitment to
sell, based on the amortized cost of the individual security sold. Unrealized
gains and losses are recorded, net of related income tax effects, in accumulated
other comprehensive income. All previous fair value adjustments included in the
separate component of accumulated other comprehensive income are reversed upon
sale.
<PAGE>
Investment securities designated as held to maturity, which include any
security that First Banks has the positive intent and ability to hold to
maturity, are stated at cost, net of amortization of premiums and accretion of
discounts computed on the level-yield method taking into consideration the level
of current and anticipated prepayments.
Loans Held for Portfolio. Loans held for portfolio are carried at cost,
adjusted for amortization of premiums and accretion of discounts using the
interest method. Interest and fees on loans are recognized as income using the
interest method. Loan origination fees are deferred and accreted over the
estimated life of the loans using the interest method. Loans held for portfolio
are stated at cost as First Banks has the ability and it is management's
intention to hold them to maturity.
The accrual of interest on loans is discontinued when it appears that
interest or principal may not be paid in a timely manner in the normal course of
business. Generally, payments received on nonaccrual and impaired loans are
recorded as principal reductions. Interest income is recognized after all
principal has been repaid or an improvement in the condition of the loan has
occurred which would warrant resumption of interest accruals.
A loan is considered impaired when it is probable that First Banks will
be unable to collect all amounts due, both principal and interest, according to
the contractual terms of the loan agreement. When measuring impairment, the
expected future cash flows of an impaired loan are discounted at the loan's
effective interest rate. Alternatively, impairment is measured by reference to
an observable market price, if one exists, or the fair value of the collateral
for a collateral-dependent loan. Regardless of the historical measurement method
used, First Banks measures impairment based on the fair value of the collateral
when foreclosure is probable. Additionally, impairment of a restructured loan is
measured by discounting the total expected future cash flows at the loan's
effective rate of interest as stated in the original loan agreement. First Banks
uses its existing nonaccrual methods for recognizing interest income on impaired
loans.
Loans Held for Sale. Mortgage loans held for sale are carried at the
lower of cost or market value which is determined on an individual loan basis.
Gains or losses on the sale of loans held for sale are determined on a specific
identification method.
Loan Servicing Income. Loan servicing income represents fees earned for
servicing real estate mortgage loans owned by investors, net of federal agency
guarantee fees, interest shortfall and amortization of the cost of mortgage
servicing rights. Such fees are generally calculated on the outstanding
principal balance of the loans serviced and are recorded as income when earned.
Allowance for Possible Loan Losses. The allowance for possible loan
losses is maintained at a level considered adequate to provide for probable
losses. The provision for possible loan losses is based on a periodic analysis
of the loans held for portfolio and held for sale, considering, among other
factors, current economic conditions, loan portfolio composition, past loan loss
experience, independent appraisals, loan collateral and payment experience. In
addition to the allowance for estimated losses on impaired loans, an overall
unallocated allowance is established to provide for unidentified credit losses
which are inherent in the portfolio. As adjustments become necessary, they are
reflected in the results of operations in the periods in which they become
known.
Bank Premises and Equipment. Bank premises and equipment are stated at
cost less accumulated depreciation and amortization. Depreciation is computed
primarily using the straight-line method over the estimated useful lives of the
related assets. Amortization of leasehold improvements is calculated using the
straight-line method over the shorter of the useful life of the improvement or
term of the lease. Bank premises and improvements are depreciated over five to
40 years and equipment over three to seven years.
Intangibles Associated With the Purchase of Subsidiaries. Intangibles
associated with the purchase of subsidiaries include excess of cost over net
assets acquired. The excess of cost over net assets acquired of purchased
subsidiaries is amortized using the straight-line method over the estimated
periods to be benefited, which range from approximately 10 to 15 years. First
Banks reviews intangible assets for impairment whenever events or changes in
circumstances indicate the carrying value may not be recoverable over the
original estimated life. As adjustments become necessary, they are reflected in
the results of operations in the periods in which they become known.
Mortgage Servicing Rights. Mortgage servicing rights are amortized in
proportion to the related estimated net servicing income on a disaggregated,
discounted basis over the estimated lives of the related mortgages considering
the level of current and anticipated repayments, which range from five to 12
years.
<PAGE>
Other Real Estate. Other real estate, consisting of real estate
acquired through foreclosure or deed in lieu of foreclosure, is stated at the
lower of cost or fair value less applicable selling costs. The excess of cost
over fair value of the property at the date of acquisition is charged to the
allowance for possible loan losses. Subsequent reductions in carrying value, to
reflect current fair value or costs incurred in maintaining the properties, are
charged to expense as incurred.
Income Taxes. First Banks, Inc. and its eligible subsidiaries file a
consolidated federal income tax return and unitary or consolidated state income
tax returns in California, Illinois and Missouri. In addition, First Banks is
subject to a financial institutions tax which is based on income.
Financial Instruments. A financial instrument is defined as cash,
evidence of an ownership interest in an entity, or a contract that conveys or
imposes on an entity the contractual right or obligation to either receive or
deliver cash or another financial instrument.
Financial Instruments With Off-Balance-Sheet Risk. First Banks utilizes
financial instruments to reduce the interest rate risk arising from its
financial assets and liabilities. These instruments involve, in varying degrees,
elements of interest rate risk and credit risk in excess of the amount
recognized in the consolidated balance sheets. "Interest rate risk" is defined
as the possibility that interest rates may move unfavorably from the perspective
of First Banks. The risk that a counterparty to an agreement entered into by
First Banks may default is defined as "credit risk."
First Banks is party to commitments to extend credit and commercial and
standby letters of credit in the normal course of business to meet the financing
needs of its customers. These commitments involve, in varying degrees, elements
of interest rate risk and credit risk in excess of the amount recognized in the
consolidated balance sheets.
Interest Rate Swap, Floor and Cap Agreements. Interest rate swap, floor
and cap agreements are accounted for on an accrual basis with the net interest
differential being recognized as an adjustment to interest income or interest
expense of the related asset or liability. Premiums and fees paid upon the
purchase of interest rate swap, floor and cap agreements are amortized over the
life of the agreements using the interest method. In the event of early
termination of these derivative financial instruments, the net proceeds received
or paid are deferred and amortized over the shorter of the remaining contract
life of the derivative financial instrument or the maturity of the related asset
or liability. If, however, the amount of the underlying hedged asset or
liability is repaid, then the gains or losses on the agreements are recognized
immediately in the consolidated statements of income. The unamortized premiums,
fees paid and deferred losses on early terminations are included in other assets
in the accompanying consolidated balance sheets.
Forward Contracts to Sell Mortgage-Backed Securities. Gains and losses
on forward contracts to sell mortgage-backed securities, which qualify as
hedges, are deferred. The net unamortized balance of such deferred gains and
losses is applied to the carrying value of the loans held for sale as part of
the lower of cost or market valuation.
Earnings Per Common Share. Basic EPS is computed by dividing the income
available to common stockholders (the numerator) by the weighted average number
of common shares outstanding (the denominator) during the year. The computation
of dilutive EPS is similar except the denominator is increased to include the
number of additional common shares that would have been outstanding if the
dilutive potential shares had been issued. In addition, in computing the
dilutive effect of convertible securities, the numerator is adjusted to add
back: (a) any convertible preferred dividends and (b) the after-tax amount of
interest recognized in the period associated with any convertible debt.
(2) ACQUISITIONS AND DIVESTITURES
On December 1, 1997, FBA completed its acquisition of Surety Bank,
Vallejo, California, in exchange for 264,622 shares of FBA common stock and cash
of $3.8 million. The cash portion of this transaction, which was paid to the
former shareholders of Surety Bank in January 1998, was funded by available
cash. At the time of the transaction, Surety Bank had $72.8 million in total
assets, $14.9 million in cash and cash equivalents and investment securities,
$54.4 million in total loans, net of unearned discount, and $67.5 million in
total deposits. Surety Bank was merged into FB California. The excess of the
cost over the fair value of the net assets acquired was $2.8 million and is
being amortized over 15 years.
During 1997, First Banks completed its assumption of the deposits and
purchase of selected assets of three banking locations of Highland Federal
Savings Bank, F.S.B. The transaction resulted in the acquisition of $82.8
million in deposits. The banking locations operate as branches of FB&T. The
excess of the cost over the fair value of the net assets acquired was $1.4
million and is being amortized over 10 years.
<PAGE>
On February 2, 1998, FBA completed its acquisition of Pacific Bay Bank,
San Pablo, California (Pacific Bay), in exchange for cash of $4.2 million. This
transaction was funded from an advance under First Banks' credit agreement with
a group of unaffiliated financial institutions. At the time of the transaction,
Pacific Bay had $38.3 million in total assets, $7.4 million in cash and cash
equivalents, $29.7 million in total loans, net of unearned discount, and $35.2
million in total deposits. The excess of the cost over the fair value of the net
assets acquired was $1.5 million and is being amortized over 15 years.
On March 19, 1998, First Banks completed its assumption of the deposits
and purchase of selected assets of the Solvang, California banking location of
Bank of America. The transaction resulted in the acquisition of approximately
$15.5 million in deposits and one office that operates as a branch of FB&T. The
excess of the cost over the fair value of the net assets acquired was $1.8
million and is being amortized over 15 years.
On September 15, 1998, First Banks completed its acquisition of
Republic Bank in exchange for $19.3 million in cash. The transaction was funded
from available cash of $3.3 million and borrowings of $16.0 million under First
Banks' credit agreement with a group of unaffiliated financial institutions. At
the time of the transaction, Republic Bank had $124.1 million in total assets,
$97.9 million in loans, net of unearned discount, and $117.2 million in
deposits. Republic Bank, previously headquartered in Torrance, California, was
merged into and operates as branch offices of FB&T. The excess of the cost over
the fair value of the net assets acquired was $10.2 million and is being
amortized over 15 years.
On March 4, 1999, FBA completed its acquisition of Redwood Bancorp
(Redwood) and its wholly owned subsidiary, Redwood Bank, in exchange for $26.0
million in cash. The acquisition was funded from available proceeds from FBA's
sale of 8.50% Guaranteed Preferred Beneficial Interest in FBA's Subordinated
Debentures completed in July 1998. Redwood Bank is headquartered in San
Francisco, California and operates four banking locations in the San Francisco
Bay area. At the time of the transaction, Redwood Bank had $183.9 million in
total assets, $134.4 million in loans, net of unearned discount, $34.4 million
in investment securities and $162.9 million in deposits. The excess of the cost
over the fair value of the net assets acquired was $9.5 million and is being
amortized over 15 years.
In March and April 1999, First Bank completed its divestiture of seven
branches in the northern and central Illinois market areas, resulting in a
reduction of the deposit base of approximately $54.8 million and a pre-tax gain
of $4.4 million recorded in other income.
On August 31, 1999, First Banks completed its acquisition of Century
Bank, Beverly Hills, California, in exchange for $31.5 million in cash. The
transaction was funded from borrowings under First Banks' credit agreement with
a group of unaffiliated financial institutions. At the time of the transaction,
Century Bank had $156.0 million in total assets, $94.8 million in loans, net of
unearned discount, $26.1 million in investment securities and $132.0 million in
total deposits. Century Bank, previously headquartered in Beverly Hills,
California, was merged into and operates as branch offices of FB&T. The excess
of the cost over the fair value of the net assets acquired was $4.5 million and
is being amortized over 15 years.
On September 17, 1999, FB&T completed its assumption of the deposits
and certain liabilities and the purchase of selected assets of the Malibu,
California branch office of Brentwood Bank of California. The transaction
resulted in the acquisition of approximately $17.3 million of deposits and one
branch office that operates as a branch of FB&T. The excess of the cost over the
fair value of the net assets acquired was $325,000 and is being amortized over
15 years.
The aforementioned acquisition transactions were accounted for using
the purchase method of accounting and, accordingly, the consolidated financial
statements include the financial position and results of operations for the
period subsequent to the respective acquisition dates, and the assets acquired
and liabilities assumed were recorded at fair value at the acquisition dates.
Due to the immaterial effect on previously reported financial information, pro
forma disclosures have not been prepared for the aforementioned transactions.
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 $4.0 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 First Capital Group, Inc., Albuquerque, New Mexico
(FCG), 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, of $64.5 million. The premium paid on the lease
portfolio acquired was $1.5 million and is being amortized as a yield adjustment
over approximately 4 years. FCG is operating as a direct subsidiary of First
Banks, Inc.
<PAGE>
(3) INVESTMENTS IN DEBT AND EQUITY SECURITIES
Securities Available for Sale. The amortized cost, contractual
maturity, gross unrealized gains and losses and fair value of investment
securities available for sale at December 31, 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
Maturity Total
---------------------------------------
After amor- Gross Weighted
1 Year 1-5 5-10 10 tized unrealized Fair average
-------------
or less years years years cost Gains Losses value yield
------- ----- ----- ----- ---- ----- ------ ----- -----
(dollars expressed in thousands)
December 31, 1999:
Carrying value:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury.................. $ 21,036 29,240 -- -- 50,276 58 (45) 50,289 6.10%
U.S. Government agencies
and corporations:
Mortgage-backed............. 12,489 2,274 20,946 98,935 134,644 20 (1,540) 133,124 6.64
Other....................... 144,185 26,073 13,170 24,256 207,684 4 (3,607) 204,081 6.02
Foreign debt securities........ 2,995 -- -- -- 2,995 286 -- 3,281 9.42
Equity investments in other
financial institutions....... 9,605 -- -- -- 9,605 8,492 (434) 17,663 8.53
Federal Home Loan Bank and
Federal Reserve Bank stock
(no stated maturity)......... 21,655 -- -- -- 21,655 -- -- 21,655 6.07
--------- -------- ------- ------- ------- ------ ------ -------
Total................. $ 211,965 57,587 34,116 123,191 426,859 8,860 (5,626) 430,093 6.26
========= ======== ======= ======= ======= ====== ====== ======= ======
Market value:
Debt securities................ $ 177,426 57,448 32,998 119,621
Equity securities.............. 42,600 -- -- --
--------- -------- ------- -------
Total................. $ 220,026 57,448 32,998 119,621
========= ======== ======= =======
Weighted average yield............ 6.00% 6.44% 6.26% 6.79%
========= ======== ======= =======
December 31, 1998:
Carrying value:
U.S. Treasury.................. $ 54,288 84,990 -- -- 139,278 2,312 -- 141,590 5.98%
U.S. Government agencies
and corporations:
Mortgage-backed............. 11,642 27,334 32,352 113,912 185,240 1,082 (171) 186,151 6.35
Other....................... 16,893 78,047 35,524 6,980 137,444 1,060 (15) 138,489 6.07
Equity investments in other
financial institutions....... 8,805 -- -- -- 8,805 14,061 -- 22,866 4.75
Federal Home Loan Bank and
Federal Reserve Bank stock
(no stated maturity)......... 20,599 -- -- -- 20,599 -- -- 20,599 6.36
--------- -------- ------- ------- ------- ------ ----- -------
Total................. $ 112,227 190,371 67,876 120,892 491,366 18,515 (186) 509,695 6.14
========= ======== ======= ======= ======= ====== ===== ======= ======
Market value:
Debt securities................ $ 83,324 193,231 68,135 121,540
Equity securities.............. 43,465 -- -- --
--------- -------- ------- -------
Total................. $ 126,789 193,231 68,135 121,540
========= ======== ======= =======
Weighted average yield............ 5.92% 5.96% 6.36% 6.51%
========= ======== ======= =======
</TABLE>
<PAGE>
Securities Held to Maturity. The amortized cost, contractual maturity,
gross unrealized gains and losses and fair value of investment securities held
to maturity at December 31, 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
Maturity Total
---------------------------------------
After amor- Gross Weighted
1 Year 1-5 5-10 10 tized unrealized Fair average
--------------
or less years years years cost Gains Losses value yield
------- ----- ----- ----- ---- ----- ------ ----- -----
(dollars expressed in thousands)
December 31, 1999:
Carrying value:
U.S. Government agencies
and corporations:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage-backed............. $ -- -- -- 2,355 2,355 -- (155) 2,200 6.28%
State and political
subdivisions................ 506 11,196 5,322 1,965 18,989 275 (198) 19,066 5.05
Other.......................... -- 210 -- -- 210 -- -- 210 6.92
--------- -------- ------- ------- ------- ----- ----- ------
Total................. $ 506 11,406 5,322 4,320 21,554 275 (353) 21,476 5.22
========= ======== ======= ======= ======= ===== ===== ====== ======
Market value:
Debt securities................ $ 512 11,505 5,125 4,334
========= ======= ======= =======
Weighted average yield............ 5.09% 4.97% 4.55% 6.62%
========= ======== ======= =======
December 31, 1998:
Carrying value:
U.S. Government agencies
and corporations:
Mortgage-backed............. $ -- -- -- 2,507 2,507 -- (13) 2,494 6.41%
State and political
subdivisions................ 776 7,323 8,700 2,085 18,884 897 -- 19,781 5.38
Other.......................... 75 210 -- -- 285 8 -- 293 6.68
--------- -------- ------- ------- ------- ----- ----- ------
Total................. $ 851 7,533 8,700 4,592 21,676 905 (13) 22,568 5.51
========= ======== ======= ======= ======= ===== ===== ====== ======
Market value:
Debt securities................ $ 862 7,777 8,986 4,943
========= ======== ======= ======
Weighted average yield............ 5.21% 5.43% 4.96% 6.69%
========= ======= ====== ======
</TABLE>
Proceeds from sales of trading investment securities were $2.9 million,
$311 million and $215 million for the years ended December 31, 1999, 1998 and
1997, respectively. There were no gross gains realized on these sales for the
year ended December 31, 1999. Gross gains of $879,000 and $233,000 were realized
on these sales for the years ended December 31, 1998 and 1997, respectively.
Gross losses of $303,000, $234,000 and $122,000 were realized on these sales for
the years ended December 31, 1999, 1998 and 1997, respectively.
Proceeds from sales of available-for-sale investment securities were
$63.9 million, $136.0 million and $20.9 million for the years ended December 31,
1999, 1998 and 1997, respectively. Gross gains of $791,000, $1.5 million and
$2.3 million were realized on these sales. There were no losses realized on
these sales in 1999, 1998 and 1997.
Proceeds from calls of held-to-maturity investment securities were
$20,000 for the year ended December 31, 1999. Gross losses of $1,200 were
realized on these called securities for the year ended December 31, 1999.
Certain of the Subsidiary Banks maintain investments in the Federal
Home Loan Bank (FHLB) and/or the Federal Reserve Bank (FRB). These investments
are recorded at cost, which represents redemption value. The investment in FHLB
stock is maintained at a minimum amount equal to the greater of 1% of the
aggregate outstanding balance of the applicable Subsidiary Bank's loans secured
by residential real estate, or 5% of advances from the FHLB to each Subsidiary
Bank. First Bank, FB&T, FB California and FB Texas are members of the FHLB
system. The investment in FRB stock is maintained at a minimum of 6% of the
applicable Subsidiary Bank's capital stock and capital surplus. First Bank and
FB Texas are members of the FRB system.
Investment securities with a carrying value of approximately $222.3
million and $263.0 million at December 31, 1999 and 1998, respectively, were
pledged in connection with deposits of public and trust funds, securities sold
under agreements to repurchase and for other purposes as required by law.
<PAGE>
(4) LOANS AND ALLOWANCE FOR POSSIBLE LOAN LOSSES
Changes in the allowance for possible loan losses for the years ended
December 31 were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
(dollars expressed in thousands)
<S> <C> <C> <C>
Balance, January 1............................................. $ 60,970 50,509 46,781
Acquired allowances for possible loan losses................... 3,008 3,200 30
-------- -------- ---------
63,978 53,709 46,811
-------- -------- ---------
Loans charged-off.............................................. (17,721) (10,183) (16,832)
Recoveries of loans previously charged-off..................... 9,281 8,444 9,230
-------- -------- ---------
Net loans charged-off.......................................... (8,440) (1,739) (7,602)
-------- -------- ---------
Provision charged to operations................................ 13,073 9,000 11,300
-------- -------- ---------
Balance, December 31........................................... $ 68,611 60,970 50,509
======== ======== =========
</TABLE>
At December 31, 1999 and 1998, First Banks had $36.7 million and $38.3
million, respectively, of loans on nonaccrual status. Interest on nonaccrual
loans, which would have been recorded under the original terms of the loans, was
$5.8 million, $4.5 million and $4.7 million for the years ended December 31,
1999, 1998 and 1997, respectively. Of these amounts, $2.7 million, $1.9 million
and $2.0 million was actually recorded as interest income on such loans in 1999,
1998 and 1997, respectively.
At December 31, 1999 and 1998, First Banks had $39.7 million and $43.5
million of impaired loans, including $36.7 million and $38.3 million of loans on
nonaccrual status, respectively. At December 31, 1999 and 1998, impaired loans
also include $3.0 million and $5.2 million of restructured loans. There were no
specific reserves at December 31, 1999 and 1998 relating to impaired loans. The
allowance for possible loan losses includes $8.2 million and $8.3 million
related to impaired loans at December 31, 1999 and 1998, respectively. The
average recorded investment in impaired loans was $53.7 million, $35.7 million
and $28.3 million for the years ended December 31, 1999, 1998 and 1997,
respectively. The amount of interest income recognized using a cash basis method
of accounting during the time these loans were impaired was $2.8 million, $2.3
million and $2.4 million in 1999, 1998 and 1997, respectively.
First Banks' primary market areas are the states of Missouri, Illinois,
Texas and California. At December 31, 1999 and 1998, approximately 90% and 89%
of the total loan portfolio and 88% and 91% of the commercial and financial loan
portfolio, respectively, were to borrowers within these regions.
Real estate lending constituted the only other significant
concentration of credit risk. Real estate loans comprised approximately 67% of
the loan portfolio at December 31, 1999 and 1998, of which 33% and 38%,
respectively, were consumer related in the form of residential real estate
mortgages and home equity lines of credit.
First Banks is, in general, a secured lender. At December 31, 1999 and
1998, 97% and 96% of the loan portfolio was secured. Collateral is required in
accordance with the normal credit evaluation process based upon the
creditworthiness of the customer and the credit risk associated with the
particular transaction.
(5) MORTGAGE BANKING ACTIVITIES
At December 31, 1999 and 1998, First Banks serviced loans for others
amounting to $957 million and $923 million, respectively. Borrowers' escrow
balances held by First Banks on such loans were $1.0 million and $1.2 million at
December 31, 1999 and 1998, respectively.
Changes in mortgage servicing rights, net of amortization, for the
years ended December 31 were as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
(dollars expressed in thousands)
<S> <C> <C>
Balance, January 1................................................... $ 9,825 9,046
Originated mortgage servicing rights................................. 1,670 2,195
Purchases of mortgage servicing rights............................... -- 893
Amortization......................................................... (2,830) (2,309)
-------- --------
Balance, December 31................................................. $ 8,665 9,825
======== ========
</TABLE>
<PAGE>
(6) BANK PREMISES AND EQUIPMENT
Bank premises and equipment were comprised of the following at December
31:
<TABLE>
<CAPTION>
1999 1998
---- ----
(dollars expressed in thousands)
<S> <C> <C>
Land................................................................ $ 17,582 15,703
Buildings and improvements........................................... 52,491 49,082
Furniture, fixtures and equipment.................................... 55,344 42,161
Leasehold improvements............................................... 11,635 8,657
Construction in progress............................................. 2,896 3,466
-------- -------
Total............................................................ 139,948 119,069
Less accumulated depreciation and amortization....................... 64,301 55,221
-------- -------
Bank premises and equipment, net................................. $ 75,647 63,848
======== =======
</TABLE>
Depreciation expense for the years ended December 31, 1999, 1998 and
1997 totaled $7.6 million, $5.3 million and $5.7 million, respectively.
First Banks leases land, office properties and some items of equipment
under operating leases. Certain of the leases contain renewal options and
escalation clauses. Total rent expense was $7.4 million, $5.3 million and $5.0
million for the years ended December 31, 1999, 1998 and 1997, respectively.
Future minimum lease payments under noncancellable operating leases extend
through 2084 as follows:
<TABLE>
<CAPTION>
(dollars expressed in thousands)
Year ending December 31:
<S> <C> <C>
2000.................................................................. $ 6,242
2001................................................................... 4,892
2002................................................................... 3,766
2003................................................................... 3,460
2004................................................................... 2,442
Thereafter............................................................. 18,939
-------
Total future minimum lease payments................................ $39,741
=======
</TABLE>
First Banks leases to unrelated parties a portion of its owned banking
facilities. Total rental income was $2.6 million, $2.5 million and $2.3 million
for the years ended December 31, 1999, 1998 and 1997, respectively.
(7) SHORT-TERM BORROWINGS
Short-term borrowings were comprised of the following at December 31:
<TABLE>
<CAPTION>
1999 1998
---- ----
(dollars expressed in thousands)
<S> <C> <C>
Securities sold under agreements to repurchase....................... $ 73,010 70,787
FHLB borrowings...................................................... 544 50,544
--------- --------
Short-term borrowings............................................ $ 73,554 121,331
========= ========
</TABLE>
The average balance of short-term borrowings was $87.4 million and
$61.2 million, respectively, and the maximum month-end balance of short-term
borrowings was $176.4 million and $113.0 million, respectively, for the years
ended December 31, 1999 and 1998. The average rates paid on short-term
borrowings during the years ended December 31, 1999, 1998 and 1997 were 4.83%,
4.84% and 3.28%, respectively. With the exception of the securities underlying
the FHLB borrowings, which are under the control of the FHLB, the securities
underlying the short-term borrowings are under First Banks' control.
<PAGE>
(8) NOTE PAYABLE
First Banks has a $100.0 million revolving line of credit with a group
of unaffiliated banks (Credit Agreement). The Credit Agreement, dated August 25,
1999, replaced a similar revolving credit agreement dated August 26, 1998.
Interest under the Credit Agreement is payable on a monthly basis at the lead
bank's corporate base rate or, at the option of First Banks, is payable at the
Eurodollar Rate plus a margin based upon the outstanding loans and First Banks'
profitability. The interest rate for borrowings under the Credit Agreement was
7.60% at December 31, 1999, or the applicable Eurodollar Rate plus a margin of
1.00%. Amounts may be borrowed under the Credit Agreement until August 24, 2000,
at which time the principal and accrued interest is due and payable.
Loans under the Credit Agreement are secured by all of the stock of the
Subsidiary Banks, which is owned by First Banks. Under the Credit Agreement,
there were outstanding borrowings of $64.0 million at December 31, 1999. There
were outstanding borrowings of $50.0 million under the previous credit agreement
at December 31, 1998.
The Credit Agreement requires maintenance of certain minimum capital
ratios for each of the Subsidiary Banks. In addition, it prohibits the payment
of dividends on First Banks' common stock. At December 31, 1999 and 1998, First
Banks and the Subsidiary Banks were in compliance with all restrictions and
requirements of the respective credit agreements.
The average balance and maximum month-end balance of the note payable
for the years ended December 31 were as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
(dollars expressed in thousands)
<S> <C> <C>
Average balance........................................................... $ 56,376 50,718
Maximum month-end balance................................................. 75,000 55,096
======== ======
</TABLE>
The average rates paid on the note payable during the years ended
December 31, 1999, 1998 and 1997 were 6.44%, 6.85% and 7.69%, respectively.
(9) GUARANTEED PREFERRED BENEFICIAL INTERESTS IN FIRST BANKS' AND FBA'S
SUBORDINATED DEBENTURES
On February 4, 1997, First Preferred Capital Trust (FPCT), a newly
formed Delaware business trust subsidiary of First Banks, issued 3.45 million
shares of 9.25% cumulative trust preferred securities (FPCT Preferred
Securities) at $25 per share in an underwritten public offering, and issued
106,702 shares of common securities to First Banks at $25 per share. First Banks
owns all of FPCT's common securities. The gross proceeds of the offering were
used by FPCT to purchase $88.9 million of 9.25% Subordinated Debentures (First
Banks Subordinated Debentures) from First Banks, maturing on March 31, 2027. The
maturity date may be shortened to a date not earlier than March 31, 2002 or
extended to a date not later than March 31, 2046 if certain conditions are met.
The First Banks Subordinated Debentures are the sole asset of FPCT. In
connection with the issuance of the FPCT Preferred Securities, First Banks made
certain guarantees and commitments that, in the aggregate, constitute a full and
unconditional guarantee by First Banks of the obligations of FPCT under the FPCT
Preferred Securities. First Banks' proceeds from the issuance of the First Banks
Subordinated Debentures to FPCT, net of underwriting fees and offering expenses,
were $83.1 million. Distributions payable on the FPCT Preferred Securities were
$8.0 million, $8.0 million and $7.3 million for the years ended December 31,
1999, 1998 and 1997, respectively, and are included in noninterest expense in
the consolidated financial statements.
On July 21, 1998, First America Capital Trust (FACT), a newly formed
Delaware business trust subsidiary of FBA, issued 1.84 million shares of 8.50%
cumulative trust preferred securities (FACT Preferred Securities) at $25 per
share in an underwritten public offering, and issued 56,908 shares of common
securities to FBA at $25 per share. FBA owns all of FACT's common securities.
The gross proceeds of the offering were used by FACT to purchase $47.4 million
of 8.50% Subordinated Debentures (FBA Subordinated Debentures) from FBA,
maturing on June 30, 2028. The maturity date may be shortened to a date not
earlier than June 30, 2003 or extended to a date not later than June 30, 2037 if
certain conditions are met. The FBA Subordinated Debentures are the sole asset
of FACT. In connection with the issuance of the FACT Preferred Securities, FBA
made certain guarantees and commitments that, in the aggregate, constitute a
full and unconditional guarantee by FBA of the obligations of FACT under the
FACT Preferred Securities. FBA's proceeds from the issuance of the FBA
Subordinated Debentures to FACT, net of underwriting fees and offering expenses,
were $44.0 million. Distributions payable on the FACT Preferred Securities were
$4.0 million and $1.8 million for the years ended December 31, 1999 and 1998,
respectively, and are included in noninterest expense in the consolidated
financial statements.
<PAGE>
(10) INCOME TAXES
Income tax expense attributable to income from continuing operations
for the years ended December 31 consists of:
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------
1999 1998 1997
---- ---- ----
(dollars expressed in thousands)
Current income tax expense:
<S> <C> <C> <C>
Federal.................................................... $19,731 16,801 15,062
State...................................................... 2,247 1,292 169
------- ------ ------
21,978 18,093 15,231
------- ------ ------
Deferred income tax expense:
Federal.................................................... 5,056 1,895 2,608
State...................................................... 14 273 24
------- ------ ------
5,070 2,168 2,632
------- ------ ------
Reduction in valuation allowance............................... (735) (568) (1,780)
------- ------ ------
Total.................................................. $26,313 19,693 16,083
======= ====== ======
</TABLE>
The effective rates of federal income taxes for the years ended
December 31 differ from statutory rates of taxation as follows:
<TABLE>
<CAPTION>
Years ended December 31,
----------------------------------------------------------
1999 1998 1997
----------------- -------------- -----------------
Percent Percent Percent
of of of
pretax pretax pretax
Amount income Amount income Amount income
------ ------ ------ ------ ------ ------
(dollars expressed in thousands)
Income before provision for income taxes and
<S> <C> <C> <C> <C> <C> <C>
minority interest in income of subsidiary.... $ 72,151 $54,474 $ 50,380
======== ======= ========
Provision for income taxes calculated
at federal statutory income tax rates........ $ 25,253 35.0% $19,066 35.0% $ 17,633 35.0%
Effects of differences in tax reporting:
Tax-exempt interest income, net of
tax preference adjustment................ (439) (0.6) (461) (0.9) (507) (1.0)
State income taxes........................... 1,470 2.0 1,018 1.9 126 0.3
Amortization of intangibles associated
with the purchase of subsidiaries........ 1,261 1.8 864 1.6 754 1.5
Change in deferred valuation allowance....... (735) (1.0) (568) (1.0) (1,780) (3.5)
Other, net................................... (497) (0.7) (226) (0.4) (143) (0.4)
-------- ----- ------- ----- -------- ----
Provision for income taxes............. $ 26,313 36.5% $19,693 36.2% $ 16,083 31.9%
======== ===== ======= ===== ======== ====
</TABLE>
<PAGE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities, including
amounts attributable to entities acquired in purchase transactions, are as
follows:
<TABLE>
<CAPTION>
December 31,
------------
1999 1998
---- ----
(dollars expressed in thousands)
Deferred tax assets:
<S> <C> <C>
Allowance for possible loan losses.............................. $ 27,071 22,596
Net operating loss carryforwards................................ 30,792 31,311
Alternative minimum tax credits................................. 2,841 2,612
Disallowed losses on investment securities...................... 2,443 2,266
Other real estate............................................... 15 1,228
Other........................................................... 3,556 4,014
-------- --------
Gross deferred tax assets................................... 66,718 64,027
Valuation allowance............................................. (14,746) (17,179)
-------- --------
Deferred tax assets, net of valuation allowance............. 51,972 46,848
-------- --------
Deferred tax liabilities:
Depreciation on bank premises and equipment..................... 3,332 2,707
Net fair value adjustment for securities available for sale..... 1,132 6,414
FHLB stock dividends............................................ 1,094 1,114
State taxes..................................................... 591 518
Other........................................................... 433 167
-------- --------
Deferred tax liabilities.................................... 6,582 10,920
-------- --------
Net deferred tax assets..................................... $ 45,390 35,928
======== ========
</TABLE>
The realization of First Banks' net deferred tax assets is based on the
availability of carrybacks to prior taxable periods, the expectation of future
taxable income and the utilization of tax planning strategies. Based on these
factors, management believes it is more likely than not that First Banks will
realize the recognized net deferred tax asset of $45.4 million. The net change
in the valuation allowance, related to deferred tax assets, was a decrease of
$2.4 million for the year ended December 31, 1999. The decrease consisted of a
reduction of $600,000 related to the recognition of deferred tax assets for
certain loans and other real estate, and utilization of NOL carryforwards.
Changes to the deferred tax asset valuation allowance for the years
ended December 31 were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
(dollars expressed in thousands)
<S> <C> <C> <C>
Balance, beginning of year......................................... $ 17,179 17,747 19,527
Current year deferred provision.................................... (735) (568) (1,780)
Reduction attributable to utilization of deferred tax assets:
Adjustment to capital surplus................................... (811) -- --
Adjustment to intangibles associated with
the purchase of subsidiaries................................. (887) -- --
-------- ------- -------
Balance, end of year............................................... $ 14,746 17,179 17,747
======== ======= =======
</TABLE>
The valuation allowance for deferred tax assets at December 31, 1998
included $887,000 that was recognized in 1999 and credited to intangibles
associated with the purchase of subsidiaries. The valuation allowance for
deferred tax assets at December 31, 1999 and 1998 includes $1.3 million and $2.0
million, respectively, which when recognized, will be credited to intangibles
associated with the purchase of subsidiaries. In addition, the valuation
allowance for deferred tax assets at December 31, 1999 and 1998 includes $5.0
million and $6.0 million, respectively, which when recognized, will be credited
to capital surplus under the terms of the quasi-reorganizations implemented for
FBA and FCB as of December 31, 1994 and 1996, respectively.
At December 31, 1999 and 1998, the accumulation of prior years'
earnings representing tax bad debt deductions of First Bank and FB&T were
approximately $30.8 million. If these tax bad debt reserves were charged for
losses other than bad debt losses, First Bank and FB&T would be required to
recognize taxable income in the amount of the charge. It is not contemplated
that such tax-restricted retained earnings will be used in a manner that would
create federal income tax liabilities.
At December 31, 1999 and 1998, for federal income taxes purposes, First
Banks had net operating loss (NOL) carryforwards of approximately $67.5 million
and $59.0 million, respectively, exclusive of the NOL carryforwards available to
FBA as further described below.
<PAGE>
The NOL carryforwards for First Banks expire as follows:
<TABLE>
<CAPTION>
(dollars expressed in thousands)
Year ending December 31:
<S> <C> <C>
2003................................................. $ 6,781
2004................................................. 3,015
2005................................................. 14,802
2006................................................. 458
2007................................................. 12,287
2008 - 2018.......................................... 30,123
---------
Total............................................ $ 67,466
=========
</TABLE>
At December 31, 1999 and 1998, for federal income tax purposes, FBA had
NOL carryforwards of approximately $20.5 million and $30.5 million,
respectively. With the completion of the acquisitions of FBA and FCB and their
subsequent merger, the NOL carryforwards generated prior to the transactions are
subject to an annual limitation in subsequent tax years. The following schedule
reflects the NOL carryforwards that will be available to offset future taxable
income of FBA and do not affect the taxable income of First Banks. The NOL
carryforwards at December 31, 1999 expire as follows:
<TABLE>
<CAPTION>
(dollars expressed in thousands)
Year ending December 31:
<S> <C> <C>
2000................................................... $ 103
2001................................................... 1,667
2002................................................... 5,884
2003................................................... 1,362
2004................................................... 856
2005 - 2018............................................ 10,640
--------
$ 20,512
========
</TABLE>
(11) 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)
Year ended December 31, 1999:
<S> <C> <C> <C>
Basic EPS - income available to common stockholders............. $ 43,392 23,661 $ 1,833.91
==========
Effect of dilutive securities:
Class A convertible preferred stock........................... 769 1,212
--------- -------
Diluted EPS - income available to common stockholders........... $ 44,161 24,873 $ 1,775.47
========= ======= ==========
Year ended December 31, 1998:
Basic EPS - income available to common stockholders............. $ 32,724 23,661 $ 1,383.04
==========
Effect of dilutive securities:
Class A convertible preferred stock........................... 769 1,389
--------- -------
Diluted EPS - income available to common stockholders........... $ 33,493 25,050 $ 1,337.09
========= ======= ==========
Year ended December 31, 1997:
Basic EPS - income available to common stockholders............. $ 27,960 23,661 $ 1,181.69
==========
Effect of dilutive securities:
Class A convertible preferred stock........................... 769 1,645
Subsidiary bank stock options................................. (25) --
--------- -------
Diluted EPS - income available to common stockholders........... $ 28,704 25,306 $ 1,134.28
========= ======= ==========
</TABLE>
<PAGE>
(12) INTEREST RATE RISK MANAGEMENT / DERIVATIVE FINANCIAL INSTRUMENTS
WITH OFF-BALANCE- SHEET RISK
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 risk exposure of First Banks.
Derivative financial instruments held by First Banks for purposes of
managing interest rate risk are summarized as follows:
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------
1999 1998
---------------------- ----------------------
Notional Credit Notional Credit
amount exposure amount exposure
------ -------- ------ --------
(dollars expressed in thousands)
Interest rate swap agreements - pay
<S> <C> <C> <C> <C>
adjustable rate, receive adjustable rate........ $ 500,000 -- -- --
Interest rate swap agreements - pay
adjustable rate, receive fixed rate............. 455,000 3,349 280,000 3,526
Interest rate floor agreements.................... 35,000 13 70,000 29
Interest rate cap agreements...................... 10,000 26 10,000 132
Forward commitments to sell
mortgage-backed securities...................... 33,000 -- 95,000 237
========== ======= ========= ======
</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 the 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 was of no value.
Previously, First Banks utilized interest rate swap agreements to
extend the repricing characteristics of certain interest-bearing liabilities to
more closely correspond with its assets, with the objective of stabilizing cash
flow, and accordingly, net interest income, over time. These swap agreements
were terminated in July 1995, November 1996 and July 1997 due to a change in the
composition of First Banks' balance sheet. The change in the composition of the
balance sheet was primarily driven by the significant decline in interest rates
experienced during 1995, which caused an increase in the principal prepayments
of residential mortgage loans. The net interest expense associated with these
agreements, consisting primarily of amortization of deferred losses, was $5.7
million, $3.7 million and $6.4 million for the years ended December 31, 1999,
1998 and 1997, respectively. The deferred losses on terminated swap agreements
were amortized over the remaining lives of the agreements, unless the underlying
liabilities were repaid, in which case the deferred losses were immediately
charged to operations. There were no remaining unamortized deferred losses on
the terminated swap agreements at December 31, 1999. The unamortized balance of
these losses was $5.7 million and $9.4 million at December 31, 1998 and 1997,
respectively, and was included in other assets.
During 1998, First Banks entered into $280.0 million notional amount of
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 provide 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). 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 and $4.2 million at December 31, 1999 and 1998, respectively, and
the amount payable by First Banks under the swap agreements was $770,000 and
$640,000 at December 31, 1999 and 1998, respectively.
During May 1999, First Banks entered into $500.0 million notional
amount of interest rate swap agreements with the objective of stabilizing the
net interest margin during the six-month period surrounding the Year 2000
century date change. 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, as
such, First Banks terminated these agreements resulting in a cost of $150,000.
<PAGE>
During September 1999, First Banks entered into $175.0 million notional
amount of interest rate swap agreements to effectively lengthen the repricing
characteristics of certain interest-earning assets to correspond more closely
with its funding source with the objective of stabilizing cash flow, and
accordingly, net interest income, over time. 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 December 31, 1999 and the amount payable by First Banks under
the swap agreements was $141,000 at December 31, 1999.
The maturity dates, notional amounts, interest rates paid and received,
and fair values of interest rate swap agreements outstanding as of December 31,
1999 and 1998 were as follows:
<TABLE>
<CAPTION>
Notional Interest rate Interest rate Fair value
Maturity date amount paid received gain (loss)
------------- ------ ---- -------- -----------
(dollars expressed in thousands)
December 31, 1999:
<S> <C> <C> <C> <C> <C> <C>
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)
========== ====== ===== ========
December 31, 1998:
June 11, 2002................................ $ 15,000 5.24% 6.00% $ 363
September 16, 2002........................... 175,000 5.22 5.36 761
September 16, 2002........................... 20,000 5.22 5.36 87
September 18, 2002........................... 40,000 5.23 5.33 123
September 18, 2002........................... 30,000 5.23 5.33 92
---------- --------
$ 280,000 5.23 5.48 $ 1,426
========== ====== ===== ========
</TABLE>
First Banks also has interest rate cap and floor agreements to limit
the interest expense associated with certain of its interest-bearing liabilities
and the net interest expense of certain interest rate swap agreements,
respectively. At December 31, 1999 and 1998, the unamortized costs of these
agreements were $32,000 and $159,000, 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
$31.5 million and $103.1 million at December 31, 1999 and 1998, respectively.
These net loan commitments and loans held for sale are hedged with forward
contracts to sell mortgage-backed securities of $33.0 million and $95.0 million
at December 31, 1999 and 1998, respectively. Gains and losses from forward
contracts are deferred and included in the cost basis of loans held for sale. At
December 31, 1999, the net unamortized gains were $838,000, in comparison to net
unamortized losses of $237,000 at December 31, 1998. 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.
<PAGE>
(13) CREDIT COMMITMENTS
First Banks is a party to commitments to extend credit and commercial
and standby letters of credit in the normal course of business to meet the
financing needs of its customers. These instruments involve, to varying degrees,
elements of credit risk and interest rate risk in excess of the amount
recognized in the consolidated balance sheets. The interest rate risk associated
with these credit commitments relates primarily to the commitments to originate
residential fixed-rate loans. As more fully discussed in Note 12 to the
accompanying consolidated financial statements, the interest rate risk of the
commitments to originate fixed-rate loans has been hedged with forward contracts
to sell mortgage-backed securities. The credit risk amounts are equal to the
contractual amounts, assuming the amounts are fully advanced and the collateral
or other security is of no value. First Banks uses the same credit policies in
granting commitments and conditional obligations as it does for on-balance-sheet
items.
Commitments to extend credit at December 31 were as follows:
<TABLE>
<CAPTION>
December 31,
------------
1999 1998
---- ----
(dollars expressed in thousands)
<S> <C> <C>
Commitments to extend credit.......................................... $ 1,310,249 1,189,950
Commercial and standby letters of credit.............................. 64,455 62,096
----------- ---------
$ 1,374,704 1,252,046
=========== =========
</TABLE>
Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. Each customer's creditworthiness is
evaluated on a case-by-case basis. The amount of collateral obtained, if deemed
necessary upon extension of credit, is based on management's credit evaluation
of the counterparty. Collateral held varies but may include accounts receivable,
inventory, property, plant, equipment, income-producing commercial properties or
single family residential properties. Collateral is generally required except
for consumer credit card commitments.
Commercial and standby letters of credit are conditional commitments
issued to guarantee the performance of a customer to a third party. The letters
of credit are primarily issued to support public and private borrowing
arrangements, including commercial paper, bond financing and similar
transactions. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan facilities to customers.
Upon issuance of the commitments, First Banks generally holds real property as
collateral supporting those commitments for which collateral is deemed
necessary.
(14) FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of financial instruments is management's estimate of the
values at which the instruments could be exchanged in a transaction between
willing parties. These estimates are subjective and may vary significantly from
amounts that would be realized in actual transactions. In addition, other
significant assets are not considered financial assets including the mortgage
banking operation, deferred tax assets, bank premises and equipment and
intangibles associated with the purchase of subsidiaries. Further, the tax
ramifications related to the realization of the unrealized gains and losses can
have a significant effect on the fair value estimates and have not been
considered in any of the estimates.
<PAGE>
The estimated fair value of First Banks' financial instruments at
December 31 were as follows:
<TABLE>
<CAPTION>
1999 1998
------------------------- ------------------------
Carrying Estimated Carrying Estimated
value fair value value fair value
----- ---------- ----- ----------
Financial assets:
<S> <C> <C> <C> <C>
Cash and cash equivalents.................... $ 170,894 170,894 214,762 214,762
Investment securities:
Trading.................................... -- -- 3,425 3,425
Available for sale......................... 430,093 430,093 509,695 509,695
Held to maturity........................... 21,554 21,476 21,676 22,568
Net loans.................................... 3,927,713 3,908,065 3,519,135 3,532,393
Accrued interest receivable.................. 33,491 33,491 28,465 28,465
========== ========== ========== ==========
Financial liabilities:
Deposits:
Demand:
Non-interest-bearing.................... $ 606,064 606,064 561,383 561,383
Interest-bearing........................ 415,113 415,113 377,435 377,435
Savings and money market................ 1,198,314 1,198,314 1,198,567 1,198,567
Time deposits........................... 2,032,323 2,032,323 1,802,600 1,813,305
Short-term borrowings........................ 73,554 73,554 121,331 121,331
Note payable................................. 64,000 64,000 50,048 50,048
Accrued interest payable..................... 11,607 11,607 5,817 5,817
Guaranteed preferred beneficial interests
in subordinated debentures................. 127,611 127,391 127,443 137,722
========== ========== ========== ==========
Off-balance-sheet:
Interest rate swap, cap and floor agreements. $ 3,388 (11,790) 3,687 1,426
Forward contracts to sell mortgage-backed
securities................................. -- 793 -- 506
Credit commitments......................... -- -- -- --
========== ========== ========== ==========
</TABLE>
The following methods and assumptions were used in estimating the fair
value of financial instruments:
Financial Assets:
Cash and cash equivalents and accrued interest receivable: The carrying
values reported in the consolidated balance sheets approximate fair value.
Investment securities: The fair value of trading securities and
securities available for sale is the amounts reported in the consolidated
balance sheets. The fair value of securities held to maturity is based on quoted
market prices where available. If quoted market prices are not available, the
fair value is based upon quoted market prices of comparable instruments.
Net loans: The fair value of most loans held for portfolio was
estimated utilizing discounted cash flow calculations that applied interest
rates currently being offered for similar loans to borrowers with similar risk
profiles. The fair value of loans held for sale, which is the amounts reported
in the consolidated balance sheets, is based on quoted market prices where
available. If quoted market prices are not available, the fair value is based
upon quoted market prices of comparable instruments. The carrying value of loans
is net of the allowance for possible loan losses and unearned discount.
Financial Liabilities:
Deposits: The fair value disclosed for deposits generally payable on
demand (i.e., non-interest-bearing and interest-bearing demand, savings and
money market accounts) is considered equal to their respective carrying amounts
as reported in the consolidated balance sheets. The fair value disclosed for
demand deposits does not include the benefit that results from the low-cost
funding provided by deposit liabilities compared to the cost of borrowing funds
in the market. The fair value disclosed for certificates of deposit was
estimated utilizing a discounted cash flow calculation that applied interest
rates currently being offered on similar certificates to a schedule of
aggregated monthly maturities of time deposits.
<PAGE>
FPCT and FACT Preferred Securities: The fair value is based on quoted
market prices.
Short-term borrowings, note payable and accrued interest payable: The
carrying value reported in the consolidated balance sheets approximates fair
value.
Off-Balance-Sheet:
Interest rate swap, cap and floor agreements: The fair value of the
interest rate swap, cap and floor agreements is estimated by comparison to
market rates quoted on new agreements with similar terms and creditworthiness.
Forward contracts to sell mortgage-backed securities: The fair value of
forward contracts to sell mortgage-backed securities is based upon quoted market
prices. The fair value of these contracts has been reflected in the consolidated
balance sheets in the carrying value of the loans held for sale portfolio as
part of the lower of cost or market valuation.
Credit commitments: The majority of the commitments to extend credit
and commercial and standby letters of credit contain variable interest rates and
credit deterioration clauses and, therefore, the carrying value of these credit
commitments reported in the consolidated balances sheets approximates fair
value.
(15) EMPLOYEE BENEFITS
First Banks' profit-sharing plan is a self-administered savings and
incentive plan covering substantially all employees. Under the plan,
employer-matching contributions are determined annually by First Banks' Board of
Directors. Employee contributions are limited to 15% of the employee's annual
compensation, not to exceed $10,000 for 1999. Total employer contributions under
the plan were $863,000, $648,000 and $506,000 for the years ended December 31,
1999, 1998 and 1997, respectively. The plan assets are held and managed under a
trust agreement with First Bank's trust department.
(16) PREFERRED STOCK
First Banks had two classes of preferred stock outstanding during the
years ended December 31, 1999 and 1998, and three classes of preferred stock
outstanding during the year ended December 31, 1997.
On September 15, 1992, First Banks issued and sold 2.2 million shares
of Class C 9.0% cumulative, increasing rate, redeemable, preferred stock (Class
C Preferred Stock). On December 1, 1997, First Banks redeemed all of the
remaining outstanding Class C Preferred Stock for $47.1 million. The effect of
the redemption was a reduction of First Banks' total stockholders' equity, and
consequently regulatory capital, by the amount of the redemption. However, the
structure of the FPCT Preferred Securities and the FACT Preferred Securities, as
described in Note 9 to the consolidated financial statements, satisfies the
regulatory requirements to be included in First Banks' capital base in a manner
similar to the Class C Preferred Stock. Dividends on the Class C Preferred Stock
were 9% through November 30, 1997.
The holders of the Class A and Class B preferred stock have full voting
rights. Dividends on the Class A and Class B preferred stock are adjustable
quarterly based on the highest of the Treasury Bill Rate or the Ten Year
Constant Maturity Rate for the two-week period immediately preceding the
beginning of the quarter. This rate shall not be less than 6.0% nor more than
12.0% on the Class A preferred stock, or less than 7.0% nor more than 15.0% on
the Class B preferred stock.
The Class A preferred stock is convertible into shares of common stock
at a rate based on the ratio of the par value of the preferred stock to the
current market value of the common stock at the date of conversion, to be
determined by independent appraisal at the time of conversion. Shares of Class A
preferred stock may be redeemed by First Banks at any time at 105.0% of par
value. The Class B preferred stock may not be redeemed or converted. The
redemption of any issue of preferred stock requires the prior approval of the
Federal Reserve Board.
The annual dividend rates on each class of preferred stock for the
years ended December 31 were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Class A preferred stock.............................. 6.0 6.0 6.0
Class B preferred stock.............................. 7.0 7.0 7.0
Class C preferred stock.............................. -- -- 9.0
</TABLE>
<PAGE>
(17) TRANSACTIONS WITH RELATED PARTIES
Outside of normal customer relationships, no directors or officers of
First Banks, no stockholders holding over 5% of First Banks' voting securities
and no corporations or firms with which such persons or entities are associated
currently maintain or have maintained, since the beginning of the last full
fiscal year, any significant business or personal relationship with First Banks
or its subsidiaries, other than such as arises by virtue of such position or
ownership interest in First Banks or its subsidiaries, except as described in
the following paragraphs.
During 1999, 1998 and 1997, Tidal Insurance Limited (Tidal), a
corporation owned indirectly by First Banks' Chairman and his children, received
approximately $316,000, $280,000 and $214,000, respectively, in insurance
premiums for accident, health and life insurance policies purchased by loan
customers of First Banks. The insurance policies are issued by an unaffiliated
company and subsequently ceded to Tidal. First Banks believes the premiums paid
by the loan customers of First Banks are comparable to those that such loan
customers would have paid if the premiums were subsequently ceded to an
unaffiliated third-party insurer.
During 1999, 1998 and 1997, First Securities America, Inc. (FSA), a
trust established and administered by and for the benefit of First Banks'
Chairman and members of his immediate family, received approximately $194,000,
$265,000 and $206,000, respectively, in commissions and insurance premiums for
policies purchased by First Banks or customers of the Subsidiary Banks from
unaffiliated, third-party insurors to which First Banc Insurors placed such
policies. The insurance premiums on which the aforementioned commissions were
earned were competitively bid, and First Banks deems the commissions FSA earned
from unaffiliated third-party companies to be comparable to those that would
have been earned by an unaffiliated third-party agent.
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 $2.3 million, $1.8 million and $707,000 for the
years ended December 31, 1999, 1998 and 1997, 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 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 $16.4 million, $12.2 million and
$6.4 million for the years ended December 31, 1999, 1998 and 1997, respectively.
During 1999, 1998 and 1997, First Services, L.P. paid First Banks $1.2 million,
$799,000 and $1.1 million, 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.
(18) CAPITAL STOCK OF FIRST BANKS AMERICA, INC.
First Banks owned 2,500,000 shares of FBA's Class B common stock and
2,210,581 shares of FBA's common stock at December 31, 1999, representing 83.37%
of FBA's outstanding voting stock. In comparison, First Banks owned 2,500,000
shares of FBA's Class B common stock and 1,895,733 shares of FBA's common stock
at December 31, 1998, representing 76.84% of FBA's outstanding voting stock. The
increase for 1999 is attributable to First Banks' purchase, on February 17,
1999, of 314,848 shares of FBA common stock pursuant to a tender offer. This
tender offer increased First Banks' ownership interest in FBA to 82.34% of FBA's
outstanding voting stock. FBA's common stock is publicly traded on the New York
Stock Exchange.
On February 2, 1998, FBA and FCB were merged. Under the terms of the
Agreement and Plan of Merger (Agreement), FCB was merged into FBA, and First
Commercial Bank was merged into FB California. The FCB shareholders received
0.8888 shares of FBA common stock for each share of FCB common stock they held.
In total, FCB shareholders received approximately 751,728 shares of FBA common
stock, of which 462,176 shares were issued to First Banks. The transaction also
provided for First Banks to receive 804,000 shares of FBA common stock in
exchange for $10.0 million advanced to FBA under a promissory note payable. In
addition, FCB's convertible debentures of $6.5 million, which were owned by
First Banks, were exchanged for a comparable debenture in FBA. Such debenture
was subsequently converted into 629,557 shares of FBA common stock, effective
December 4, 1998. The merger of FBA and FCB did not have a material impact on
the financial condition or results of operations of First Banks.
<PAGE>
(19) 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 December 31, 1999, First Banks and the Subsidiary Banks were
each well capitalized.
As of December 31, 1999, 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 December 31, 1999 and 1998, First Banks' and the Subsidiary Banks'
required and actual capital ratios were as follows:
<TABLE>
<CAPTION>
To be well
capitalized under
Actual For capital prompt corrective
-----------------
1999 1998 adequacy purposes action provisions
---- ---- ----------------- -----------------
Total capital (to risk-weighted assets):
<S> <C> <C> <C> <C>
First Banks............................. 10.05% 10.28% 8.0% 10.0%
First Bank.............................. 10.60 10.01 8.0 10.0
FB&T.................................... 10.96 10.39 8.0 10.0
FB California........................... 10.81 10.63 8.0 10.0
FB Texas................................ 12.42 11.37 8.0 10.0
Redwood Bank (1)........................ 11.17 -- 8.0 10.0
Tier 1 capital (to risk-weighted assets):
First Banks............................. 8.00 9.03 4.0 6.0%
First Bank.............................. 9.35 8.75 4.0 6.0
FB&T.................................... 9.70 9.13 4.0 6.0
FB California........................... 9.56 9.37 4.0 6.0
FB Texas................................ 11.17 10.11 4.0 6.0
Redwood Bank (1)........................ 10.15 -- 4.0 6.0
Tier 1 capital (to average assets):
First Banks............................. 7.14 7.77 3.0 5.0%
First Bank.............................. 8.10 7.46 3.0 5.0
FB&T.................................... 8.57 7.60 3.0 5.0
FB California........................... 9.95 8.34 3.0 5.0
FB Texas................................ 10.39 9.15 3.0 5.0
Redwood Bank (1)........................ 8.48 -- 3.0 5.0
</TABLE>
- -------------------------
(1) Redwood Bank was acquired by FBA on March 4, 1999.
<PAGE>
(20) DISTRIBUTION OF EARNINGS OF THE SUBSIDIARY BANKS
The Subsidiary Banks are restricted by various state and federal
regulations, as well as by the terms of the Credit Agreement described in Note 8
to the accompanying consolidated financial statements, as to the amount of
dividends which are available for payment to First Banks, Inc. Under the most
restrictive of these requirements, the future payment of dividends from the
Subsidiary Banks is limited to approximately $62.4 million at December 31, 1999,
unless prior permission of the regulatory authorities and/or the lending banks
is obtained.
(21) 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, the Subsidiary Banks and the internal
reporting system that monitors performance.
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 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 geographic areas include Missouri and Illinois (First
Bank), southern California (FB&T), northern California (FB California and
Redwood Bank) and Houston, Dallas, Irving and McKinney Texas (FB Texas). 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 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. Such principles and
practices are summarized in Note 1 to the consolidated financial statements.
First Banks has no foreign operations.
<PAGE>
<TABLE>
<CAPTION>
First Bank FB California FB Texas
--------------------------- ---------------------- ---------------------
1999 1998 1997 1999 1998 1997 1999 1998 1997
---- ---- ---- ---- ---- ---- ---- ---- ----
(dollars expressed in thousands)
Balance sheet information:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment securities................. $ 241,624 264,364 401,450 20,743 53,449 83,165 30,439 59,914 65,016
Loans, net of unearned discount....... 2,527,649 2,490,556 2,185,494 379,632 314,977 255,114 213,731 201,426 176,341
Total assets.......................... 3,028,046 3,024,600 2,843,577 431,838 410,110 370,917 278,988 300,984 267,152
Deposits.............................. 2,689,671 2,659,030 2,559,968 367,563 363,422 325,562 244,248 264,425 231,175
Stockholders' equity.................. 263,466 243,673 228,422 47,990 42,825 40,176 30,338 30,249 29,761
========== ========= ======== ======= ======= ======= ======= ======== =======
Income statement information:
Interest income....................... $ 221,195 219,609 210,710 33,928 32,517 22,416 21,990 21,721 20,099
Interest expense...................... 105,231 111,656 110,799 12,285 13,328 8,729 8,705 8,907 8,379
---------- -------- -------- ------- ------- ------- ------- -------- -------
Net interest income.............. 115,964 107,953 99,911 21,643 19,189 13,687 13,285 12,814 11,720
Provision for possible loan losses.... 8,890 7,250 7,300 110 565 500 90 335 1,500
---------- -------- -------- ------- ------- ------- ------- -------- -------
Net interest income
after provision
for possible loan losses....... 107,074 100,703 92,611 21,533 18,624 13,187 13,195 12,479 10,220
---------- -------- -------- ------- ------- ------- ------- -------- -------
Noninterest income.................... 32,260 29,582 21,149 3,881 2,732 1,847 1,950 1,790 1,901
Noninterest expense................... 77,786 79,748 66,570 15,109 15,548 10,356 9,050 8,749 6,960
---------- --------- -------- ------- ------- ------- ------- -------- -------
Income (loss) before provision
(benefit) for income taxes
and minority interest in
income ofsubsidiary............ 61,548 50,537 47,190 10,305 5,808 4,678 6,095 5,520 5,161
Provision (benefit) for income taxes.. 20,811 17,238 15,504 3,972 2,736 2,027 2,090 1,888 1,815
---------- --------- -------- ------- ------- ------- ------- -------- -------
Income (loss) before
minority interest in income
of subsidiary.................. 40,737 33,299 31,686 6,333 3,072 2,651 4,005 3,632 3,346
Minority interest in income
of subsidiary.................. -- -- -- -- -- -- -- -- --
---------- -------- -------- ------- ------- ------- ------- -------- -------
Net income....................... $ 40,737 33,299 31,686 6,333 3,072 2,651 4,005 3,632 3,346
========== ======== ======== ======= ======= ======= ======= ======== =======
</TABLE>
- -----------------
(1) Includes $12.1 million, $9.8 million and $7.3 million of guaranteed
preferred debenture expense for the years ended December 31, 1999, 1998 and
1997, respectively. See Note 9 to the consolidated financial statements.
(2) Redwood Bank was acquired by FBA on March 4, 1999.
<PAGE>
<TABLE>
<CAPTION>
Corporate, other and
Redwood Bank (2) First Bank & Trust intercompany reclassifications Consolidated Totals
---------------------- ---------------------- ------------------------------ -----------------------
1999 1998 1997 1999 1998 1997 1999 1998 1997 1999 1998 1997
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
(dollars expressed in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
37,539 -- -- 103,636 134,203 224,618 17,666 22,866 21,281 451,647 534,796 795,530
138,902 -- -- 736,828 573,562 385,251 (418) (416) -- 3,996,324 3,580,105 3,002,200
199,988 -- -- 944,013 793,217 672,410 (15,126) 25,899 10,958 4,867,747 4,554,810 4,165,014
173,703 -- -- 804,976 701,406 598,560 (28,347) (48,298) (30,670) 4,251,814 3,939,985 3,684,595
24,275 -- -- 102,014 75,165 54,438 (173,178) (128,549) (121,260) 294,905 263,363 231,537
======= ===== ====== ======= ======= ======= ======== ======== ======== ========= ========= =========
12,724 -- -- 63,765 54,424 42,645 (520) (411) (769) 353,082 327,860 295,101
4,846 -- -- 25,708 26,085 20,404 1,926 2,203 520 158,701 162,179 148,831
------- ----- ------ ------- ------- ------- -------- -------- -------- --------- -------- --------
7,878 -- -- 38,057 28,339 22,241 (2,446) (2,614) (1,289) 194,381 165,681 146,270
193 -- -- 3,790 850 2,000 -- -- -- 13,073 9,000 11,300
------- ----- ------ ------- ------- ------- -------- -------- -------- --------- -------- --------
7,685 -- -- 34,267 27,489 20,241 (2,446) (2,614) (1,289) 181,308 156,681 134,970
------- ----- ------ ------- ------- ------- -------- -------- -------- --------- --------- --------
318 -- -- 4,625 3,800 3,269 (1,384) (1,407) (2,469) 41,650 36,497 25,697
4,860 -- -- 25,973 22,808 15,720 18,029(1) 11,851(1) 10,681(1) 150,807 138,704 110,287
------- ----- ------ ------- ------- ------- -------- -------- -------- --------- -------- --------
3,143 -- -- 12,919 8,481 7,790 (21,859) (15,872) (14,439) 72,151 54,474 50,380
1,501 -- -- 4,790 3,539 1,111 (6,851) (5,708) (4,374) 26,313 19,693 16,083
------- ----- ------ ------- ------- ------ -------- -------- -------- --------- -------- --------
1,642 -- -- 8,129 4,942 6,679 (15,008) (10,164) (10,065) 45,838 34,781 34,297
-- -- -- -- -- -- 1,660 1,271 1,270 1,660 1,271 1,270
------ ----- ------ ------- ------- ------ -------- -------- -------- -------- -------- --------
1,642 -- -- 8,129 4,942 6,679 (16,668) (11,435) (11,335) 44,178 33,510 33,027
======= ===== ====== ======= ======= ====== ======== ======== ======== ======== ======== ========
</TABLE>
<PAGE>
(22) PARENT COMPANY ONLY FINANCIAL INFORMATION
Following are condensed balance sheets of First Banks, Inc. as of
December 31, 1999 and 1998, and condensed statements of income and statements of
cash flows for the years ended December 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
CONDENSED BALANCE SHEETS
December 31,
------------
1999 1998
---- ----
(dollars expressed in thousands)
Assets
------
<S> <C> <C>
Cash deposited in subsidiary banks........................................... $ 4,347 4,775
Investment securities........................................................ 13,848 19,317
Investment in subsidiaries................................................... 429,255 375,018
Other assets................................................................. 12,278 12,205
---------- ---------
Total assets........................................................... $ 459,728 411,315
========== =========
Liabilities and Stockholders' Equity
------------------------------------
Note payable................................................................ $ 64,000 50,048
Subordinated debentures payable to FPCT..................................... 88,918 88,918
Accrued expenses and other liabilities...................................... 11,905 8,986
---------- ---------
Total liabilities..................................................... 164,823 147,952
Stockholders' equity........................................................ 294,905 263,363
---------- ---------
Total liabilities and stockholders' equity............................ $ 459,728 411,315
========== =========
</TABLE>
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------
1999 1998 1997
---- ---- ----
(dollars expressed in thousands)
Income:
<S> <C> <C> <C>
Dividends from subsidiaries........................................ $ 25,250 23,000 17,221
Management fees from subsidiaries.................................. 12,977 10,154 9,010
Other.............................................................. 1,313 2,796 3,094
--------- ------ -------
Total income................................................... 39,540 35,950 29,325
--------- ------ -------
Expense:
Interest........................................................... 3,628 3,411 8,815
Salaries and employee benefits..................................... 8,999 7,307 7,072
Legal, examination and professional fees........................... 7,006 1,988 1,765
Other.............................................................. 12,947 12,639 5,221
--------- ------ -------
Total expense.................................................. 32,580 25,345 22,873
--------- ------ -------
Income before benefit for income taxes and
equity in undistributed earnings of subsidiaries............ 6,960 10,605 6,452
Benefit for income taxes............................................. (5,649) (3,999) (2,831)
--------- ------ -------
Income before equity in undistributed earnings of subsidiaries. 12,609 14,604 9,283
Equity in undistributed earnings of subsidiaries..................... 31,569 18,906 23,744
--------- ------ -------
Net income..................................................... $ 44,178 33,510 33,027
========= ====== =======
</TABLE>
<PAGE>
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended December 31,
------------------------------
1999 1998 1997
---- ---- ----
(dollars expressed in thousands)
Cash flows from operating activities:
<S> <C> <C> <C>
Net income...................................................... $ 44,178 33,510 33,027
Adjustments to reconcile net income to net cash provided by
operating activities:
Net income of subsidiaries.................................. (56,676) (42,107) (41,015)
Dividends from subsidiaries................................. 25,250 23,000 17,221
Other, net.................................................. 1,900 4,963 (2,773)
--------- -------- -------
Net cash provided by operating activities................ 14,652 19,366 6,460
--------- -------- -------
Cash flows from investing activities:
(Increase) decrease in investment securities.................... (100) 3,000 (3,000)
Investment in common securities of FPCT......................... -- -- (2,668)
Acquisitions of subsidiaries.................................... (31,500) (31,586) --
Capital contributions to subsidiaries........................... (3,000) -- (190)
Return of subsidiary capital.................................... 10,000 -- 2,000
Decrease (increase) in advances to subsidiaries................. -- 14,900 (121)
Other, net...................................................... (3,646) (3,350) (6,659)
--------- -------- -------
Net cash used in investing activities.................... (28,246) (17,036) (10,638)
--------- -------- -------
Cash flows from financing activities:
Increase (decrease) in note payable............................. 13,952 (5,096) (21,186)
Increase in FPCT subordinated debentures........................ -- -- 88,918
Payment of preferred stock dividends............................ (786) (786) (5,066)
Purchase and retirement of Class C Preferred Stock.............. -- -- (54,048)
--------- -------- -------
Net cash provided by (used in) financing activities...... 13,166 (5,882) 8,618
--------- -------- -------
Net (decrease) increase in cash and cash equivalents..... (428) (3,552) 4,440
Cash and cash equivalents, beginning of year...................... 4,775 8,327 3,887
--------- -------- -------
Cash and cash equivalents, end of year............................ $ 4,347 4,775 8,327
========= ======== =======
Noncash investing activities:
Reduction of deferred tax valuation reserve..................... $ 811 -- --
========= ======== =======
</TABLE>
(23) CONTINGENT LIABILITIES
In the ordinary course of business, there are various legal proceedings
pending against First Banks and/or the Subsidiary Banks. Management, in
consultation with legal counsel, is of the opinion the ultimate resolution of
these proceedings will have no material effect on the financial condition or
results of operations of First Banks or the Subsidiary Banks.
(24) SUBSEQUENT EVENTS
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 $4.0 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 First Capital Group, Inc., Albuquerque, New Mexico
(FCG), 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, of $64.5 million. The premium paid on the lease
portfolio acquired was $1.5 million and is being amortized as a yield adjustment
over approximately 4 years. FCG is operating as a direct subsidiary of First
Banks, Inc.
<PAGE>
<TABLE>
<CAPTION>
DIRECTORS AND SENIOR MANAGEMENT
First Banks, Inc.
<S> <C> <C>
James F. Dierberg Chairman of the Board and Chief Executive Officer
Allen H. Blake Director, President and Chief Operating Officer
Donald J. Gunn Director, Attorney-At-Law, Gunn and Gunn, Creve Coeur, Missouri
Michael F. Hickey Executive Vice President and Chief Information Officer
George J. Markos Director, President, Profit Management Systems, Richardson, Texas
Frank H. Sanfilippo Executive Vice President and Chief Financial Officer
John A. Schreiber Executive Vice President
Mark T. Turkcan Executive Vice President, Consumer Lending and Mortgage Banking
Lisa K. Vansickle Vice President and Controller
Donald W. Williams Executive Vice President and Chief Credit Officer
First Banks America, Inc.
James F. Dierberg Chairman of the Board, President and Chief Executive Officer
Allen H. Blake Director, Executive Vice President, Chief Operating Officer and Secretary
Charles A. Crocco, Jr. Director, Counsel to the law firm of Jackson & Nash, LLP, New York, New York
Albert M. Lavezzo Director, President and Chief Operating Officer of the law firm of Favaro, Lavezzo, Gill,
Caretti & Heppell, Vallejo, California
Terrance M. McCarthy Executive Vice President
Frank H. Sanfilippo Executive Vice President and Chief Financial Officer
Ellen D. Schepman Director, Retail Marketing Officer, First Banks, Inc., St. Louis, Missouri
Edward T. Story, Jr. Director, President and Chief Executive Officer of SOCO International, plc, Comfort, Texas
David F. Weaver Executive Vice President
Donald W. Williams Director, Executive Vice President and Chief Credi Officer, First Banks, Inc., St. Louis,
Missouri
First Bank
John A. Schreiber Chairman of the Board, President and Chief Executive Officer
Douglas R. Distler Director, Senior Vice President and Regional President
Michael F. Hickey Director, Executive Vice President, Chief Information Officer
Frank H. Sanfilippo Director, Executive Vice President, Chief Financial Officer, Secretary and Treasurer
Donald W. Williams Director and Executive Vice President
Mark T. Turkcan Director and Executive Vice President
First Bank & Trust
Fred D. Jensen Chairman of the Board, President and Chief Executive Officer
Karkutla "Bala" Balkrishna Director, Senior Vice President-Commercial Banking
Norman O. Broyer Director, Senior Vice President and Chief Credit Officer
Tom LaCroix Director, Senior Vice President-Commercial Banking
Timothy M. Marme Director, Central Coast Regional President
Kathryn L. Perrine Director, Senior Vice President and Chief Financial Officer
Alan G. Rye Director, Senior Vice President-Commercial Real Estate
Donald W. Williams Director
</TABLE>
<PAGE>
DIRECTORS AND SENIOR MANAGEMENT (CONTINUED)
<TABLE>
<CAPTION>
First Bank of California
<S> <C> <C>
Terrance M. McCarthy Chairman of the Board, President and Chief Executive Officer
James E. Culleton Director and Secretary
Peter A. Goetze Vice President, Retail Banking
Albert M. Lavezzo Director
Kathryn L. Perrine Vice President and Chief Financial Officer
Gary M. Sanders Director and Executive Vice President
Fred K. Sibley Director
Donald W. Williams Director
First Bank Texas N.A.
David F. Weaver Chairman of the Board, President and Chief Executive Officer
Alan J. Cott Director and Senior Vice President, Commercial Lending - Houston
Christopher A. Hopkins Director and Senior Vice President, Commercial Lending - Dallas
Joseph Milcoun, Jr. Director and Senior Vice President, Retail Banking
Monica J. Rinehart Director, Controller and Secretary
Donald W. Williams Director
Redwood Bank
Donald W. Williams Chairman of the Board
Susan J. Chase Director and Chief Financial Officer
David T. Currie Director and Chief Credit Officer
Patrick S. Day Director
Terrance M. McCarthy Director, President and Chief Executive Officer
Robert A. McKerroll Director
Kerry C. Smith Director
</TABLE>
<PAGE>
INVESTOR INFORMATION
Stock Quotation Symbol
NASDAQ National Market System:
First Preferred Capital Trust
FBNKO
<TABLE>
<CAPTION>
Market price (1) Dividend
---------------- --------
1999 High Low declared
---- ---- --- --------
<S> <C> <C> <C>
First Quarter...................... $ 27.25 25.13 $ .578125
Second Quarter..................... 27.00 25.25 .578125
Third Quarter...................... 26.63 24.94 .578125
Fourth Quarter..................... 26.00 23.88 .578125
-----------
$ 2.312500
Market price (1) Dividend
------------------ --------
1998 High Low declared
---- ---- --- --------
First Quarter...................... $ 27.88 26.75 $ .578125
Second Quarter..................... 27.25 26.00 .578125
Third Quarter...................... 27.75 25.25 .578125
Fourth Quarter..................... 26.75 25.50 .578125
-----------
$ 2.312500
</TABLE>
- -------------------
(1) Per NASDAQ National Market System.
Distributions are payable quarterly in arrears on March 31, June 30,
September 30 and December 31.
A copy of the First Banks, Inc. Annual Report on Form 10-K, as filed
with the Securities and Exchange Commission, may be obtained without charge upon
written request. Please direct your request to the following address.
<TABLE>
<CAPTION>
<S> <C> <C>
Frank H. Sanfilippo State Street Bank and Trust Company
Executive Vice President and Corporate Trust Department
Chief Financial Officer P. O. Box 778
First Banks, Inc. Boston, Massachusetts 02102-0778
11901 Olive Boulevard Telephone (800) 531-0368
Creve Coeur, Missouri 63141 www.statestreet.com
Telephone (314) 995-8700
</TABLE>
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<NAME> First Banks, Inc.
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