SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-20632
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FIRST BANKS, INC.
(Exact name of registrant as specified in its charter)
MISSOURI 43-1175538
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
135 NORTH MERAMEC, CLAYTON, MISSOURI 63105
(address of principal executive offices) (Zip Code)
(314) 854-4600
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes __X_ No ____
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Outstanding at
Class April 30, 1996
----- --------------
Common Stock, $250.00 par value 23,660.86
First Banks, Inc.
INDEX
Page
PART I FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets as of March 31, 1996
and December 31, 1995 -2-
Consolidated Statements of Income for the three
months ended March 31, 1996 and 1995 -4-
Consolidated Statements of Cash Flows for the three months
ended March 31, 1996 and 1995 -5-
Note to Consolidated Financial Statements -6-
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations -7-
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K -15-
Signatures -16-
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
FIRST BANKS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets (unaudited)
(dollars expressed in thousands, except per share data)
March 31, December 31,
1996 1995
---- ----
ASSETS
------
Cash and cash equivalents:
Cash and due from banks $118,906 128,553
Interest-bearing deposits with other financial institutions-
with maturities of three months or less 6,928 16,860
Federal funds sold 53,050 53,800
--------- -------
Total cash and cash equivalents 178,884 199,213
--------- -------
Investment securities:
Available for sale, at fair value 494,814 471,791
Held to maturity, at amortized cost (estimated fair
value of $30,112 and $37,021 at March 31, 1996
and December 31,1995, respectively) 29,711 36,532
-------- --------
Total investment securities 524,525 508,323
------- ---------
Loans:
Commercial, financial and agricultural 362,406 351,420
Municipal and industrial development 12,233 12,598
Real estate construction and development 216,484 209,802
Real estate mortgage 1,690,364 1,715,052
Consumer and installment 395,913 419,894
Loans held for sale 46,108 45,035
---------- ----------
Total loans 2,723,508 2,753,801
Unearned discount (8,699) (9,582)
Allowance for possible loan losses (50,045) (52,665)
---------- ----------
Net loans 2,664,764 2,691,554
--------- ---------
Bank premises and equipment, net of accumulated depreciation 49,588 50,278
Intangibles associated with the purchase of subsidiaries 23,235 23,841
Purchased mortgage servicing rights, net of amortization 11,612 12,122
Accrued interest receivable 21,188 22,027
Receivable from sales of investment securities - 41,265
Other real estate owned 8,005 7,753
Deferred income taxes 45,077 41,576
Other assets 23,809 25,010
---------- ---------
Total assets $3,550,687 3,622,962
========= =========
FIRST BANKS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets (unaudited)
(dollars expressed in thousands, except per share data)
(continued)
March 31, December 31,
1996 1995
---- ----
LIABILITIES
-----------
Deposits:
Demand:
Non-interest bearing $ 375,044 389,658
Interest bearing 303,326 307,584
Savings 696,709 690,902
Time:
Time deposits of $100 or more 179,965 201,025
Other time deposits 1,593,618 1,594,522
--------- ---------
Total deposits 3,148,662 3,183,691
Federal Home Loan Bank advances 9,626 49,883
Federal funds purchased 5,000 3,000
Securities sold under agreements to repurchase 20,168 17,180
Other borrowings 1,125 1,478
Notes payable 80,899 88,135
Accrued interest payable 10,100 10,726
Deferred income taxes 11,471 6,517
Accrued and other liabilities 13,385 15,310
Minority interest in subsidiaries 12,405 12,437
---------- ---------
Total liabilities ,312,841 3,388,357
--------- ---------
STOCKHOLDERS' EQUITY
Preferred stock:
Class C 9.00% increasing rate, redeemable, cumulative,
$1.00 par value $25.00 stated value; 5,000,000 shares;
authorized; 2,200,000 shares issued and outstanding 55,000 55,000
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 4,273 4,307
Retained earnings 159,694 156,692
Net fair value adjustment for securities available for sale (99) (372)
---------- ---------
Total stockholders' equity 237,846 234,605
---------- ---------
Total liabilities and stockholders' equity $3,550,687 3,622,962
========== =========
See accompanying note to consolidated financial statements
FIRST BANKS, INC. AND SUBSIDIARIES
Consolidated Statements of Income (unaudited)
(dollars expressed in thousands, except per share data)
Three months ended
March 31,
---------
1996 1995
---- ----
Interest income:
Interest and fees on loans $58,288 49,081
Investment securities 6,842 10,927
Federal funds sold and other 1,526 574
-------- --------
Total interest income 66,656 60,582
-------- --------
Interest expense:
Deposits:
Interest-bearing demand 1,286 1,308
Savings 5,795 5,262
Time deposits of $100 or more 2,534 1,418
Other time deposits 22,450 16,269
Federal Home Loan Bank advances 885 4,174
Securities sold under agreements to repurchase 207 1,153
Interest rate exchange agreements, net 1,810 1,630
Notes payable and other 1,584 2,043
-------- ------
Total interest expense 36,551 33,257
-------- ------
Net interest income 30,105 27,325
Provision for possible loan losses 3,104 1,366
-------- -------
Net interest income after provision for possible loan losses 27,001 25,959
-------- ------
Noninterest income:
Service charges on deposit accounts and customer service fees 3,128 2,346
Credit card fees 599 523
Loan servicing fees, net 626 956
Gain (loss) on mortgage loans sold and held for sale 103 (81)
Gain (loss) on sale of securities, net 116 1,692
Other income 547 1,624
-------- ------
Total noninterest income 5,119 7,060
-------- ------
Noninterest expense:
Salaries and employee benefits 10,333 8,492
Occupancy, net of rental income 2,293 1,884
Furniture and equipment 1,876 1,520
Federal Deposit Insurance Corporation premiums 902 1,577
Postage, printing and supplies 1,372 1,177
Data processing fees 1,209 1,300
Legal, examination and professional fees 1,476 1,000
Credit card expenses 725 414
Communications 645 547
Advertising 536 416
Losses and expenses on foreclosed real estate, net of gains 350 294
Other expenses 3,320 2,597
-------- -------
Total noninterest expense 25,037 21,218
-------- -------
Income before provision for income taxes and minority
interest in income of subsidiaries 7,083 11,801
Provision for income taxes 2,564 4,089
--------- -------
Income before minority interest in income of subsidiaries 4,519 7,712
Minority interest in income of subsidiaries 82 139
--------- -------
Net income 4,437 7,573
Preferred stock dividends 1,434 1,434
--------- -------
Net income available to common shareholders $ 3,003 6,139
======== =======
Earnings per share:
Primary $ 126.93 259.47
Fully Diluted 125.52 246.28
======== =======
Weighted average shares of common stock outstanding 23,661 23,661
======== =======
See accompanying note to consolidated financial statements
FIRST BANKS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(dollars expressed in thousands, except per share data)
Three months ended
March 31,
-----------------------
1996 1995
---- ----
Cash flows from operating activities:
Net income $ 4,437 7,573
Adjustments to reconcile net income to net cash:
Depreciation and amortization of bank premises and equipment 2,719 1,235
Amortization, net of accretion 168 1,019
Originations and purchases of loans held for sale (27,061) (3,121)
Proceeds from sales of loans held for sale 25,156 7,533
Provisions for possible loan losses 3,104 1,366
Provisions for income taxes currently payable 2,564 4,089
Payments of income taxes (2,275) (140)
(Increase) decrease in accrued interest receivable 839 1,173
Interest accrued on liabilities 36,918 33,257
Payments of interest on liabilities (37,544) (32,412)
Other (444) (1,976)
Minority interest in income of subsidiaries 82 139
-------- ----------
Net cash provided by (used in) operating activities 8,663 19,735
-------- ----------
Cash flows from investing activities:
Cash paid for acquired entities, net of cash and cash equivalents received . - 4,586
Sales of securities of acquired entities - 64,652
Other sales of investment securities 42,621 70,324
Maturities of investment securities 108,797 48,707
Purchases of investment securities (125,875) (125,721)
Purchases of mortgage servicing rights (25) (423)
Net (increase) decrease in loans 21,499 (71,481)
Recoveries of loans previously charged-off 1,127 988
Purchases of bank premises and equipment (884) (2,401)
Other investing activities 3,070 3,633
---------- ----------
Net cash provided by (used in) investing activities 50,330 (7,136)
---------- ----------
Cash flows from financing activities:
Other increases (decreases) in deposits:
Demand and savings deposits (13,066) (74,809)
Time deposits (21,963) 28,549
Increase (decrease) in Federal funds purchased 2,000 (17,600)
Increase (decrease) in Federal Home Loan Bank advances (40,257) 77,298
Increase (decrease) in securities sold under agreements to repurchase 2,988 (32,757)
Increase (decrease) in notes payable and other borrowings (7,590) (615)
Payment of preferred stock dividends (1,434) (1,434)
--------- ----------
Net cash provided by (used in) financing activities (79,322) (21,368)
--------- ----------
Net increase (decrease) in cash and cash equivalents (20,329) (8,769)
Cash and cash equivalents, beginning of period 199,213 131,296
--------- ---------
Cash and cash equivalents, end of period $ 178,884 122,527
========= =========
Noncash investing and financing activities:
Loans transferred to foreclosed real estate $ 2,244 464
Loans to facilitate sale of foreclosed real estate 110 18
========= =========
See accompanying note to consolidated financial statements
FIRST BANKS, INC.
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Basis of Presentation
The accompanying consolidated financial statements of First Banks, Inc.
and subsidiaries (First Banks) are unaudited and should be read in conjunction
with the consolidated financial statements contained in the 1995 annual report
on Form 10K. In the opinion of management, all adjustments, consisting of normal
recurring accruals considered necessary for a fair presentation of the results
of operations for the interim periods presented herein, have been included.
Operating results for the three month period ended March 31, 1996 are not
necessarily indicative of the results that may be expected for any other interim
period or for the year ending December 31, 1996.
First Banks' primary subsidiaries (Subsidiary Banks) are:
First Bank, headquartered in St. Louis County, Missouri (First
Bank (Missouri))
First Bank, headquartered in O'Fallon, Illinois (First Bank (Illinois)
First Bank FSB, headquartered in St. Louis County, Missouri (First
Bank FSB) First Banks
America, Inc., headquartered in Houston, Texas (FBA)
CCB Bancorp, Inc., headquartered in Irvine, California (CCB)
First Commercial Bancorp, Inc., headquartered in Sacramento,
California (FCB)
St. Charles Federal Savings and Loan Association, headquartered in
St. Charles, Missouri (St. Charles Federal).
CCB, a wholly owned bank holding company subsidiary, operates through
First Bank & Trust, headquartered in Irvine, California (FB&T) and Queen City
Bank, N.A., headquartered in Long Beach, California (QCB). On January 16, 1996,
La Cumbre Federal Savings Bank F.S.B., previously operating as a thrift
subsidiary of CCB, was merged into FB&T. In addition, on April 15, 1996, QCB was
merged into FB&T. The mergers of these entities did not have a significant
impact on the operations of First Banks.
FBA, a majority owned bank holding company subsidiary, operates through
BankTEXAS N.A., headquartered in Houston, Texas. First Banks' ownership interest
in FBA was 65.54% and 65.41% at March 31, 1996 and December 31, 1995,
respectively.
FCB, a majority owned bank holding company subsidiary, operates through
First Commercial Bank, headquartered in Sacramento, California. First Banks'
ownership interest in FCB was 93.29% at March 31, 1996 and December 31, 1995.
The consolidated financial statements include the accounts of First
Banks, Inc. and its subsidiaries, net of minority interests. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Certain reclassifications of 1995 amounts have been made to conform with the
1996 presentation.
Item 2: Management's Discussion and Analysis of
Financial Condition and Results of Operations
General
First Banks is a registered bank holding company, incorporated in
Missouri in 1978 and headquartered in St. Louis County, Missouri. At March 31,
1996, First Banks had $3.55 billion in total assets; $2.71 billion in total
loans, net of unearned discount; $3.15 billion in total deposits; and $238
million in total stockholders' equity.
Through the Subsidiary Banks, First Banks offers a broad range of
commercial and personal banking services including certificate of deposit
accounts, individual retirement and other time deposit accounts, checking and
other demand deposit accounts, interest checking accounts, savings accounts and
money market accounts. Loans include commercial, financial, agricultural,
municipal and industrial development, real estate construction and development,
residential real estate and consumer and installment loans. Other financial
services include mortgage banking, discount brokerage, credit-related insurance,
automatic teller machines, safe deposit boxes, and trust services offered by
certain Subsidiary Banks.
The following table lists the Subsidiary Banks at March 31, 1996 ranked
by asset size:
Loans, net of
Percent of No. of unearned Total
Subsidiary Banks ownership locations Total Assets discounts deposits
- ---------------- --------- --------- ------------ --------- --------
(dollars expressed in thousands)
First Bank FSB 100.00% 40 $1,040,839 854,193 917,960
First Bank (Missouri) 100.00% 29 812,703 609,262 727,860
First Bank (Illinois) 100.00% 28 783,352 565,361 716,142
CCB 100.00% 14 429,071 355,824 349,679
FBA 65.54% 6 293,906 180,696 247,231
FCB 93.29% 7 157,899 83,276 146,149
St. Charles Federal 100.00% 1 79,427 66,009 65,310
Financial Condition
First Banks' total assets decreased by $72 million to $3.55 billion
from $3.62 billion at March 31, 1996 and December 31, 1995, respectively. The
decrease is primarily attributable to the reduction in cash and cash equivalents
of $20 million and the settlement in January 1996 of the sale of $41 million of
investment securities carried as a receivable at December 31, 1995. The proceeds
from the reduction in total assets were utilized to reduce Federal Home Loan
Bank advances and fund the planned reduction of time deposits of $100,000 or
more.
Results of Operations
Net Income
Net income was $4.4 million for the three months ended March 31, 1996,
compared to $7.6 million for the same period in 1995. Included in income for
1995 were net securities gains of $1.7 million and non-recurring income from the
termination of a self-insurance trust of $802,000. In addition, the operating
results for 1996 reflect the immediate negative effect on earnings of the seven
acquisitions completed during 1995. First Banks is restructuring the composition
of acquired assets and liabilities, working to improve the quality of the
acquired loans, building loan loss reserves to First Banks' standards, and
integrating these entities into its systems and cultures. First Banks expects
this re-engineering process to be substantially completed during 1996.
Net Interest Income
Net interest income (expressed on a tax equivalent basis) was $30.4
million, or 3.64% of average interest earning assets, for the three months ended
March 31, 1996, compared to $27.7 million, or 3.55% of average interest earning
assets, for the same period in 1995. The increased net interest income for 1996
is primarily attributable to the increase in average interest-earning assets
provided primarily by acquisitions and internal loan growth. The increase was
partially offset by the interest expense on the debt incurred in First Banks'
acquisition program and the costs associated with the use of derivative
financial instruments in the management of First Banks' interest rate risk
exposure. The expense of such derivative financial instruments was $2.4 million
and $1.6 million for the three months ended March 31, 1996 and 1995,
respectively.
The decrease in net interest income as a percent of interest-earning
assets is primarily due to the asset composition of certain acquired entities,
which included lower yielding residential mortgage loans and mortgage-backed
securities, and the deposit composition of certain acquired entities, which
relied heavily on brokered and institutional deposits.
The following table sets forth, on a tax-equivalent basis, certain
information relating to First Banks' average balance sheet, and reflects the
average yield earned on interest-earning assets, the average cost of
interest-bearing liabilities and the resulting net interest income for the three
month periods ended March 31:
1996 1995
---- ----
Interest Interest
Average income/ Yield Average income/ Yield/
balance expense rate balance expense rate
------- ------- ---- ------- ------- ----
(dollars expressed in thousands)
Assets
Interest-earning assets:
Loans $2,723,406 58,410 8.58% $2,377,861 49,215 8.28%
Investment securities 502,486 7,022 5.59 695,476 11,122 6.40
Federal funds sold and other 114,134 1,525 5.34 39,709 574 5.78
--------- ----- ---------- ------
Total interest-earning assets 3,340,026 66,957 8.02 3,113,046 60,911 7.83
------ ------
Nonearning assets 224,191 211,040
-------- ----------
Total assets $3,564,217 $3,324,086
========= ==========
Liabilities and Stockholders' Equity Interest-bearing liabilities:
Interest-bearing demand deposits $ 305,766 1,286 1.68% $ 287,234 1,308 1.82%
Savings deposits 690,643 5,795 3.36 599,382 5,221 3.48
Time deposits of $100 or more 184,091 2,714 5.90 116,777 1,566 5.36
Other time deposits 1,602,120 24,019 6.00 1,337,766 16,163 4.83
--------- ------- --------- ------
Total interest-bearing
deposits 2,782,620 33,814 4.86 2,341,159 24,259 4.14
Federal funds purchased,
repurchase agreements and
Federal Home Loan Bank advances 61,944 1,167 7.54 397,012 7,733 7.79
Notes payable and other 87,040 1.570 7.22 68,928 1,266 7.34
---------- ------- --------- -----
Total interest-bearing
liabilities 2,931,604 36,551 4.99 2,807,099 33,257 4.74
------- ------
Noninterest-bearing liabilities:
Demand deposits 360,698 271,679
Other liabilities 36,618 24,917
---------- ---------
Total liabilities 3,328,920 3,103,695
Stockholders' equity 235,297 220,391
---------- ---------
Total liabilities and
stockholders' equity $3,564,217 $3,324,086
========= =========
Net interest income 30,406 27,655
======= ======
Net interest margin 3.64% 3.55%
==== ====
Provision for Possible Loan Losses
The provision for possible loan losses was $3.1 million compared to
$1.4 million for the three months ended March 31, 1996 and 1995, respectively.
The increase reflects the increase in net loan charge-offs to $5.7 million from
$852,000 for the three months ended March 31, 1996 and 1995, respectively, as
well as internal loan growth between the periods presented. The increase in net
loan charge-offs was primarily attributable to loans included in acquired
portfolios and reductions in the amount of recoveries received on previously
charged-off loans. Tables summarizing nonperforming assets, past due loans and
charge-off experience are presented in the "Lending and Credit Management"
section of this Form 10Q.
Noninterest Income
Noninterest income decreased by $2.0 million to $5.1 million from $7.1
million for the three months ended March 31, 1996 and 1995, respectively. The
decrease is primarily attributable to net securities gains of $1.7 million and
non-recurring income from the termination of a self-insurance trust of $802,000
included in other income for the 1995 period, partially offset by the additional
noninterest income generated from the seven acquisitions completed throughout
1995.
An increase of $858,000 for the three month period ended March 31,
1996, compared to the same period in 1995, in service charges, customer service
fees and credit card fees relate primarily to the aforementioned acquisitions
completed during 1995.
Loan servicing fees decreased to $626,000 from $956,000 for the three
months ended March 31, 1996 and 1995, respectively, from the sale of $427
million of mortgage loan servicing rights during July 1995.
Noninterest income also includes net security gains of $116,000 and
$1.7 million for three months ended March 31, 1996 and 1995, respectively. The
securities sold were classified as available for sale within the investment
security portfolio. Gross gains and losses were $134,000 and $18,000,
respectively, for the three months ended March 31, 1996. For the three months
ended March 31, 1995, the gross gains and losses were $5.6 million and 3.9
million, respectively.
Noninterest Expense
Noninterest expense was $25.0 million for the three months ended March
31, 1996, compared to $21.2 million for the same period in 1995. The increase is
primarily attributable to incremental operating expenses of the seven
acquisitions completed throughout 1995. In particular, salaries and employee
benefits increased by $1.8 million to $10.3 million from $8.5 million for the
three months ended March 31, 1996 and 1995, respectively. In addition, occupancy
and furniture and equipment expenses increased by $800,000 to $4.2 million from
$3.4 million for the three months ended March 31, 1996 and 1995, respectively.
Contributing further to the overall increase in noninterest expense
were the legal, examination and professional fees which totaled $1.5 million for
the three months ended March 31, 1996, compared to $1.0 million for the same
period in 1995. This increase is consistent with the overall growth of the
organization, as well as the additional accounting and auditing fees associated
with the external financial reporting requirements of First Banks' majority
owned subsidiaries, FBA and FCB.
Offsetting the increase in noninterest expense was the reduction in
Federal Deposit Insurance Corporation (FDIC) premiums by $675,000 to $902,000
from $1.6 million for the three months ended March 31, 1996 and 1995,
respectively. On August 8, 1995, the FDIC voted to reduce the deposit insurance
premiums paid by most members of the Bank Insurance Fund (BIF) and to keep
existing assessment rates intact for members of the Savings Association
Insurance Fund (SAIF). Under the reduced assessment rate schedule for the BIF,
the best-rated institutions will pay an annual rate of four cents per $100.00 of
assessable deposits, down from the previous rate of 23 cents per $100.00. The
SAIF members will continue to pay the 23 cents per $100.00 of assessable
deposits. The reduction in the BIF was effective June 1, 1995. In addition, as a
result of the continued improvement in the capitalization of the FDIC's BIF, the
assessment for the best rated BIF members was further reduced to the statutory
annual minimum payment of $2,000, effective January 1, 1996. The weakest BIF and
SAIF institutions will continue to pay 27 cents and 31 cents per $100.00 of
assessable deposits, respectively. First Banks' BIF depository institutions are
First Bank (Missouri), First Bank (Illinois), First Bank & Trust, BankTEXAS
N.A., and First Commercial Bank. As a result of acquisitions and mergers, First
Banks' BIF depository institutions also have a total of approximately $350
million of SAIF-insured deposits. First Banks' SAIF depository institutions are
First Bank FSB and St. Charles Federal which will continue to be assessed 23
cents per $100.00 of assessable deposits. First Banks' SAIF depository
institutions also have, as a result of acquisitions and mergers, a total of
approximately $20 million of BIF-insured deposits.
In response to concerns that the insurance premium disparity between
the BIF and the SAIF could have a negative effect on SAIF-insured institutions
and the SAIF, legislation has been introduced in Congress to, among other
things, eliminate the deposit insurance premium disparity by merging the BIF and
SAIF, and utilize BIF assessments to help fund debt service on certain Financing
Corporation (FICO) bonds. A merger of the BIF and the SAIF would, under
previously proposed legislation, entail a one-time special assessment on
SAIF-insured deposits that may be as high as 0.85% of SAIF-insured deposits. In
the event a special assessment is required as previously proposed, First Banks
estimates that the Subsidiary Banks with SAIF-insured deposits would be required
to pay approximately $11.0 million. However, it cannot be predicted whether,
when or in what form any such legislation will be enacted, or what effect such
legislation will ultimately have on First Banks.
Lending and Credit Management
Interest earned on the loan portfolio is the primary source of income
of First Banks. Total loans, net of unearned discount, represented 76% of total
assets as of March 31, 1996 and December 31, 1995. Total loans, excluding loans
held for sale and net of unearned discount, decreased by $30 million to $2.67
billion at March 31, 1996 from $2.70 billion at December 31, 1995. The decrease
reflects First Banks' decision to sell substantially all of its new originations
of fixed and adjustable rate residential loans into the secondary market, as
well as the reduction of its portfolio of indirect automobile loans at FBA
resulting from the institution of more stringent credit standards in July 1995.
The following is a summary of nonperforming assets by category:
March 31, December 31,
1996 1995
---- ----
(dollars expressed in thousands)
Commercial, financial and agricultural $ 7,773 9,930
Real estate construction and development 1,808 2,002
Real estate mortgage 31,857 27,159
Consumer and installment 211 300
---------- ---------
Total nonperforming loans 41,649 39,391
Other real estate 8,005 7,753
---------- ---------
Total nonperforming assets $ 49,654 47,144
========= =========
Loans, net of unearned discount $2,714,809 2,744,219
========= =========
Loans past due 90 days or more and still accruing $ 4,324 8,474
========= =========
Allowance for possible loan losses to loans 1.84% 1.92%
Nonperforming loans to loans 1.53 1.44
Allowance for possible loan losses to nonperforming loans 120.15 133.70
Nonperforming assets to loans and foreclosed assets 1.82 1.71
========= =========
Impaired loans, consisting of certain nonaccrual loans and consumer and
installment loans 60 days or more past due, were $27.8 million and $31.5 million
at March 31, 1996 and December 31, 1995, respectively.
The following is a summary of the loan loss experience for the three month
periods ended March 31:
1996 1995
---- ----
(dollars expressed in thousands)
Allowance for possible loan losses, beginning of period $ 52,665 28,410
Acquired allowances for possible loan losses - 12,077
------- ------
52,665 40,487
Loans charged-off (6,851) (1,840)
Recoveries of loans previously charged-off 1,127 988
------- ------
Net loan (charge-offs) recoveries (5,724) (852)
------- ------
Provision for possible loan losses 3,104 1,366
------- ------
Allowance for possible loan losses, end of period $ 50,045 41,001
====== ======
The allowance for possible loan losses is based on past loan loss
experience, on management's evaluation of the quality of the loans in the
portfolio and on the anticipated effect of national and local economic
conditions relative to the ability of loan customers to repay. Each quarter, the
allowance for possible loan losses is revised relative to First Banks' internal
watch list and other data utilized to determine its adequacy. The provision for
possible loan losses is management's estimate of the amount necessary to
maintain the allowance at a level consistent with this evaluation. As
adjustments to the allowance for possible loan losses are considered necessary,
they are reflected in the results of operations.
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. Furthermore, 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. This causes 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 amount 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 monitoring mechanism 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, retail banking 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. To
measure the effect of interest rate changes, First Banks recalculates its net
income over a one-year horizon on a pro forma basis assuming instantaneous,
permanent parallel and non-parallel shifts in the yield curve, in varying
amounts both upward and downward.
Derivative financial instruments held by First Banks for purposes of
managing interest rate risk are summarized as follows:
March 31, 1996 December 31,1995
-------------- ----------------
Notional Credit Notional Credit
amount exposure amount exposure
------ -------- ------ --------
(dollars expressed in thousands)
Interest rate swap agreements $145,000 - 145,000 -
Interest rate floor agreements 105,000 195 105,000 608
Interest rate cap agreements 30,000 402 30,000 292
Forward commitments to sell
mortgage-backed securities 62,000 266 42,000 -
The notional amounts of derivative financial instruments do not
represent amounts exchanged by the parties and, therefore, are not a measure of
First Banks' credit exposure through its use of derivative financial
instruments. The amounts exchanged are determined by reference to the notional
amounts and the other terms of the derivatives.
Prior to 1996, First Banks sold interest rate futures contracts and
purchased options on interest rate futures contracts to hedge the interest rate
risk of its available for sale securities portfolio. The unamortized balance of
net deferred losses on interest rate futures contracts of $4.0 million and $4.6
million at March 31, 1996 and December 31, 1995, respectively, was applied to
the carrying value of the available for sale securities portfolio as part of the
mark-to-market valuation.
Interest rate swap agreements are utilized to extend the repricing
characteristics of certain interest-bearing liabilities to correspond more
closely with the assets of First Banks, with the objective of stabilizing net
interest income over time. The net interest expense for these agreements was
$1.7 million and $1.6 million for the three months ended March 31, 1996 and
1995, respectively. The maturity dates, notional amounts, interest rates paid
and received, and fair values of interest rate swap agreements outstanding as of
the dates indicated are summarized as follows:
March 31, 1996:
Notional Interest Rate
-------------
Maturity date Amount Paid Received Fair Value
------------- ------ ---- -------- ----------
(dollars expressed in thousands)
September 30, 1997 $ 35,000 7.038% 5.437% $ (677)
December 8, 1997 15,000 7.904 5.293 (540)
September 30, 1999 35,000 7.318 5.437 (1,472)
September 30, 2001 35,000 7.647 5.437 (2,302)
January 30, 2005 25,000 8.127 5.500 (2,736)
------- ------
$145,000 7.530 5.433 $(7,727)
======== ===== ===== ======
December 31, 1995:
Notional Interest Rate
-------------
Maturity date Amount Paid Received Fair Value
------------- ------ ---- -------- ----------
(dollars expressed in thousands)
September 30, 1997 $ 35,000 7.038% 5.688% $ (932)
December 8, 1997 15,000 7.904 5.813 (711)
September 30, 1999 35,000 7.318 5.568 (2,073)
September 30, 2001 35,000 7.647 5.688 (3,207)
January 30, 2005 25,000 8.127 5.938 (3,703)
------- ------
$145,000 7.530 5.744 $(10,626)
======= ===== ===== ========
During 1995, First Banks shortened the effective maturity of its
interest-bearing liabilities through the termination of $225 million of interest
rate swap agreements at a loss of $13.5 million. This loss has been deferred and
is being amortized over the remaining lives of the swap agreements. At March 31,
1996 and December 31, 1995, the unamortized balance of this loss was $10.7
million and $11.7 million, respectively, and was included in other assets.
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 March 31, 1996 and December 31, 1995, the unamortized costs for
these agreements were $613,000 and $685,000, respectively, and were included in
other assets. The net interest expense of the interest rate cap and floor
agreements were $72,000 and $66,000 for the three months ended March 31, 1996
and 1995, respectively. There are no amounts receivable under these agreements.
Derivative financial instruments issued by First Banks consist of
commitments to originate fixed-rate loans. Commitments to originate fixed-rate
loans consist primarily of residential real estate loans. These loan
commitments, net of estimated underwriting fallout, and loans held for sale are
hedged with forward contracts to sell mortgage-backed securities.
Liquidity
The liquidity of First Banks and its Subsidiary Banks is the ability to
maintain a cash flow which is adequate to fund operations, service its debt
obligations and meet other commitments on a timely basis. The primary sources of
funds for liquidity are derived from customer deposits, loan payments,
maturities, sales of investments and earnings.
In addition, First Banks and its Subsidiary Banks may avail themselves
of more volatile sources of funds through issuance of certificates of deposit in
denominations of $100,000 or more, federal funds borrowed, securities sold under
agreements to repurchase, borrowings from the Federal Home Loan Bank (FHLB), and
other borrowings, including First Banks' $90 million credit agreement with a
group of unaffiliated financial institutions. The aggregate funds acquired from
those sources were $296 million at March 31, 1996 and $359 million at December
31, 1995. The decrease is primarily attributable to the reduction in FHLB
advances to $9.6 million from $49.9 million at March 31, 1996 and December 31,
1995, respectively, and notes payable which decreased to $80.9 million from
$88.1 million at March 31, 1996 and December 31, 1995, respectively. The funds
utilized to reduce FHLB advances were obtained from the proceeds of sales of
investment securities, which settled in January 1996, and from the funds
generated from the planned reduction within the residential real estate loan
portfolio. The funds utilized to reduce notes payable of First Banks, Inc. were
obtained from the dividends from the Subsidiary Banks and available liquidity.
At March 31, 1996, First Banks' more volatile sources of funds mature
as follows:
(dollars expressed in thousands)
Three months or less $165,795
Over three months through six months 47,610
Over six months through twelve months 49,132
Over twelve months 33,121
--------
Total $295,658
========
Management believes the future earnings of its Subsidiary Banks will be
sufficient to provide funds for growth and to permit the distribution of
dividends to First Banks sufficient to meet First Banks' operating and debt
service requirements both on a short-term and long-term basis and to pay the
dividends on the Class C 9% Increasing Rate, Redeemable, Cumulative Preferred
Stock (Class C Shares).
Capital
Risk-based capital guidelines for financial institutions are designed
to relate regulatory capital requirements to the risk profiles of the specific
institutions and to provide more uniform requirements among the various
regulators. First Banks and the Subsidiary Banks are required to maintain a
minimum risk-based capital to risk-weighted assets ratio of 8.00%, with at least
4.00% being "Tier 1" capital. Tier 1 capital is composed of common stockholders'
equity, qualifying perpetual preferred stock and minority interests in equity
accounts of consolidated subsidiaries, less intangibles associated with the
purchase of subsidiaries, net losses on financial futures contracts deferred for
financial reporting purposes, and the excess of net deferred tax assets, as
defined by regulation. Tier 1 capital also excludes the fair value adjustment
for available for sale investment securities except for CCB and FCB, which are
required to reflect such adjustment by regulation of the State Banking
Department of California. In addition, a minimum leverage ratio (Tier 1 capital
to total assets) of 3.00% plus an additional cushion of 100 to 200 basis points
is expected. All classes of First Banks' preferred stock qualify as Tier 1
capital under the risk-based guidelines.
At March 31, 1996 and December 31, 1995, First Banks' and the Subsidiary
Banks' capital ratios were as follows:
Risk based capital ratios
-------------------------
Total Tier 1 Leverage Ratio
----- ------ --------------
1996 1995 1996 1995 1996 1995
---- ---- ---- ---- ---- ----
First Banks 9.58% 9.34% 8.09% 7.77% 5.57% 5.32%
First Bank FSB 11.63 11.90 10.56 10.80 6.58 6.74
First Bank (Illinois) 12.19 12.91 10.94 11.66 7.32 7.22
First Bank (Missouri) 10.42 10.03 9.17 8.78 7.05 7.01
FBA 13.42 11.69 12.15 10.43 8.74 8.38
CCB 15.68 15.25 14.39 13.96 10.25 9.58
FCB 3.77 4.99 2.46 3.68 1.49 2.14
St. Charles Federal 18.47 18.95 17.92 18.46 8.91 8.73
FCB's capital is classified as "critically undercapitalized" for regulatory
purposes, subjecting it to the Prompt Corrective Action provisions of the
Financial Institutions Reform, Recovery and Enforcement Act of 1989. These
provisions require FCB to seek additional capital or face the possible
imposition of a conservatorship or receivership within 90 days. Accordingly, FCB
commenced an offering to its existing shareholders, other than First Banks, of
$5.0 million of newly-issued common stock. First Banks has committed that it
will purchase in the offering, as a stand-by purchaser, such number of shares of
common stock as may be required to bring FCB into compliance with federal and
state capital requirements. The risk based total and Tier 1 capital ratios and
leverage ratio for First Commercial Bank were 11.50%, 10.20% and 6.16%
respectively, at March 31, 1996 and is considered "adequately captialized" for
regulatory purposes.
Effects of New Accounting Standards
First Banks adopted the provisions of Statement of Financial Accounting
Standards (SFAS) 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of (SFAS 121), on January 1, 1996. SFAS 121
established accounting standards for the impairment of long-lived assets,
certain identifiable intangibles, and goodwill related to those assets to be
held and used and for long-lived assets and certain identifiable intangibles to
be disposed of.
SFAS 121 requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. In performing the review for recoverability, the entity
should estimate the future cash flows expected to result from the use of the
asset and its eventual disposition. If the sum of the expected future cash flows
(undiscounted and without interest charges) is less than the carrying amount of
the asset, an impairment loss is recognized. Otherwise, an impairment loss is
not recognized. Measurement of an impairment loss for long-lived assets and
identifiable intangibles that an entity expects to hold and use should be based
on the fair value of the asset.
First Banks adopted the provisions of SFAS 122, Accounting for Mortgage
Servicing Rights (SFAS 122), on January 1, 1996. SFAS 122 amends SFAS 65,
Accounting for Certain Mortgage Banking Activities. SFAS 122 requires that a
mortgage banking enterprise recognize as separate assets rights to service
mortgage loans for others, however those servicing rights are acquired.
A mortgage banking enterprise that acquires mortgage servicing rights
through either the purchase or origination of mortgage loans and sells or
securitizes those loans with servicing rights retained should allocate the total
cost of the mortgage loans to the servicing rights and the loans (without the
mortgage servicing rights), based on their relative fair values if it is
practicable to estimate those fair values. If it is not practicable to estimate
the fair values of the mortgage servicing rights and the mortgage loans (without
the mortgage servicing rights), the entire cost of purchasing or originating the
loans should be allocated to the mortgage loans (without the mortgage servicing
rights) and no cost should be allocated to the mortgage servicing rights.
SFAS 122 requires that a mortgage banking enterprise assess its
capitalized mortgage servicing rights for impairment based on the fair value of
those rights. The entity should stratify its mortgage servicing rights that are
capitalized after the adoption of this statement based on one or more of the
predominate risk characteristics of the underlying loans. Impairment should be
recognized through a valuation allowance for each impaired stratum.
The implementation of SFAS 121 and SFAS 122 did not have a material effect
on First Banks' consolidated financial statements.
Part II- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) These Exhibits are numbered in accordance with the Exhibit Table of Item
601 of Regulation S-K.
Exhibit
Number Description
11 Calculations of Earnings per Common Share
27 Financial Data Schedule of First Banks, Inc. for the period
ended March 31, 1996 (EDGAR only)
(b) First Banks, Inc. filed no current Reports on Form 8-K during the three
months ended March 31, 1996.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRST BANKS, INC.
Registrant
Date: May 10, 1996 By: /s/ James F. Dierberg
---------------------
James F. Dierberg
Chairman, President and
Chief Executive Officer
Date: May 10, 1996 By: /s/ Allen H. Blake
-------------------
Allen H. Blake
Senior Vice President
and Chief Financial Officer
(Principal Financial Officer)
Exhibit 11
Exhibit 11
FIRST BANKS, INC.
Calculation of Earnings per Share
For the Three Months Ended
March 31
--------------------------
1996 1995
---- ----
Average shares outstanding:
Class C preferred stock 2,200,000 2,200,000
Class A preferred stock 641,082 641,082
Class B preferred stock 160,505 160,505
Common Stock 23,661 23,661
=========== ==========
Net income $ 4,437,304 7,573,354
Preferred stock dividends:
Class C preferred stock (1,237,500) (1,237,500)
Class A preferred stock (192,325) (192,325)
Class B preferred stock (4,213) (4,213)
------------ ----------
Income available to common stockholders $ 3,003,266 $ 6,139,316
----------- ----------
Primary earnings per share $ 126.93 259.47
=========== ==========
Fully diluted earnings per share:
Dividends per share:
Class C preferred stock $ 0.5625 $0.5625
Class A preferred stock 0.3000 0.3000
Class B preferred stock 0.0262 0.0262
=========== ==========
Class A preferred stock outstanding 641,082 641,082
Book value/share of common stock, beginning of year $ 7,175.7308 6,307.8434
Dilution of common equity upon exercise of options and
warrants of subsidiary bank (40.9851) (48.7696)
------------ ------------
$ 7,134.7457 6,259.0738
=========== ===========
Common stock issuable upon conversion 1,797 2,048
Shares of common stock outstanding 23,661 23,661
------------ ----------
25,458 25,709
============ ===========
Net income $ 4,437,304 7,573,354
Class C preferred dividends (1,237,500) (1,237,500)
Class B preferred dividends (4,213) (4,213)
------------ -----------
Fully-diluted net income $ 3,195,591 6,331,641
============ ===========
Fully-diluted earnings per share $ 125.52 246.28
============ ===========