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, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-20632
FIRST BANKS, INC.
-----------------
(Exact name of registrant as specified in its charter)
MISSOURI 43-1175538
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
135 NORTH MERAMEC, CLAYTON, MISSOURI 63105
--------------------------------------------
(address of principal executive offices) (Zip Code)
(314) 854-4600
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Outstanding at
Class April 30, 1998
----- --------------
Common Stock, $250.00 par value 23,661
First Banks, Inc.
INDEX
Page
PART I FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets as of March 31, 1998
and December 31, 1997.........................................-1-
Consolidated Statements of Income for the three
months ended March 31, 1998 and 1997..........................-3-
Consolidated Statements of Changes in Stockholders' Equity
for the three months ended March 31, 1997 and 1998
and the nine months ended December 31, 1997...................-4-
Consolidated Statements of Cash Flows for the three
months ended March 31, 1998 and 1997..........................-5-
Notes to Consolidated Financial Statements......................-6-
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...........................-8-
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K................................-16-
Signatures.................................................................-17-
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,
ASSETS 1998 1997
------ ---- ----
Cash and cash equivalents:
Cash and due from banks............................................... $ 169,310 142,125
Interest-bearing deposits with other financial
institutions - with maturities of three months or less............... 3,901 2,840
Federal funds sold ................................................... 121,950 23,515
----------- ----------
Total cash and cash equivalents........................... 295,161 168,480
----------- ----------
Investment securities:
Trading, at fair value................................................ 5,566 3,110
Available for sale, at fair value..................................... 707,399 773,271
Held to maturity, at amortized cost (estimated fair value of
$20,052 and $19,835 at March 31, 1998 and
December 31,1997, respectively)..................................... 19,289 19,149
----------- ----------
Total investment securities .............................. 732,254 795,530
----------- ----------
Loans:
Commercial, financial and agricultural................................ 656,340 621,618
Real estate construction and development ............................. 446,306 413,107
Real estate mortgage.................................................. 1,602,919 1,629,115
Consumer and installment ............................................. 281,588 287,752
Loans held for sale................................................... 115,094 59,081
----------- ----------
Total loans .............................................. 3,102,247 3,010,673
Unearned discount .................................................... (8,202) (8,473)
Allowance for possible loan losses ................................... (54,043) (50,509)
----------- ----------
Net loans ................................................ 3,040,002 2,951,691
----------- ----------
Bank premises and equipment, net of
accumulated depreciation and amortization............................. 54,622 51,505
Intangibles associated with the purchase
of subsidiaries ...................................................... 28,715 25,835
Mortgage servicing rights, net of amortization .......................... 9,109 9,046
Accrued interest receivable ............................................. 27,601 28,358
Other real estate........................................................ 7,802 7,324
Deferred income taxes ................................................... 45,794 43,355
Other assets ............................................................ 82,352 83,890
----------- ----------
Total assets ............................................. $ 4,323,412 4,165,014
=========== ==========
FIRST BANKS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets (unaudited)
(dollars expressed in thousands, except per share data)
(continued)
March 31, December 31,
1998 1997
---- ----
LIABILITIES
-----------
Deposits:
Demand:
Non-interest-bearing ........................................... $ 497,181 485,222
Interest-bearing ............................................... 349,056 348,080
Savings .......................................................... 1,017,561 947,029
Time:
Time deposits of $100 or more .................................. 243,360 219,417
Other time deposits ............................................ 1,717,644 1,684,847
----------- -----------
Total deposits ........................................ 3,824,802 3,684,595
Other borrowings...................................................... 65,414 54,153
Notes payable......................................................... 53,597 55,144
Accrued interest payable.............................................. 10,186 9,976
Deferred income taxes................................................. 11,738 9,029
Accrued and other liabilities......................................... 20,222 20,990
Minority interest in subsidiaries..................................... 16,006 16,407
----------- -----------
Total liabilities ..................................... 4,001,965 3,850,294
----------- -----------
Guaranteed preferred beneficial interest in
..........................First Banks, Inc. subordinated debenture 83,209 83,183
----------- -----------
STOCKHOLDERS' EQUITY
--------------------
Preferred stock:
Class A, convertible, adjustable rate, $20.00 par value; 750,000
shares authorized; 641,082 shares issued and outstanding ....... 12,822 12,822
Class B, adjustable rate, $1.50 par value; 200,000 shares
authorized; 160,505 shares issued and outstanding .............. 241 241
Common stock, $250.00 par value; 25,000 shares
authorized; 23,661 shares issued and outstanding ................. 5,915 5,915
Capital surplus ...................................................... 2,518 3,978
Retained earnings .................................................... 206,312 199,143
Accumulated other comprehensive income................................ 10,430 9,438
----------- -----------
Total stockholders' equity ............................ 238,238 231,537
----------- -----------
Total liabilities and stockholders' equity ............ $ 4,323,412 4,165,014
=========== ===========
See accompanying notes 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,
1998 1997
---- ----
Interest income:
Interest and fees on loans.............................................................. $ 66,738 60,224
Investment securities................................................................... 11,056 7,981
Federal funds sold and other............................................................ 1,136 1,095
-------- --------
Total interest income............................................................. 78,930 69,300
-------- --------
Interest expense:
Deposits:
Interest-bearing demand............................................................... 1,474 1,405
Savings............................................................................... 9,553 5,398
Time deposits of $100 or more......................................................... 3,044 2,272
Other time deposits................................................................... 24,017 23,185
Federal Home Loan Bank advances......................................................... 25 273
Securities sold under agreements to repurchase.......................................... 525 319
Interest rate exchange agreements, net ................................................. 989 1,207
Notes payable and other borrowings...................................................... 974 697
-------- --------
Total interest expense............................................................ 40,601 34,756
-------- --------
Net interest income............................................................... 38,329 34,544
-------- --------
Provision for possible loan losses........................................................... 2,100 2,850
-------- --------
Net interest income after provision
for possible loan losses........................................................ 36,229 31,694
-------- --------
Noninterest income:
Service charges on deposit accounts and
customer service fees................................................................ 3,375 2,958
Credit card fees........................................................................ 862 774
Loan servicing fees, net................................................................ 299 422
Gain on mortgage loans sold and held for sale........................................... 1,038 121
Gain on sale of securities, net......................................................... 92 --
Gain on trading securities, net......................................................... 58 --
Other income............................................................................ 2,070 934
-------- --------
Total noninterest income.......................................................... 7,794 5,209
-------- --------
Noninterest expenses:
Salaries and employee benefits.......................................................... 12,879 10,357
Occupancy, net of rental income......................................................... 2,423 2,603
Furniture and equipment................................................................. 1,587 2,165
Federal Deposit Insurance Corporation premiums.......................................... 375 22
Postage, printing and supplies.......................................................... 1,406 1,220
Data processing fees.................................................................... 2,966 1,128
Legal, examination and professional fees................................................ 1,056 1,103
Credit card expenses.................................................................... 792 819
Communications.......................................................................... 726 689
Advertising and business development expense............................................ 865 648
Losses and expenses on foreclosed real estate, net of gains............................. 380 113
Guaranteed preferred debenture expense.................................................. 2,021 1,258
Other expenses.......................................................................... 4,583 3,027
-------- --------
Total noninterest expenses........................................................ 32,059 25,152
Income before provision for income taxes and minority interest in
income of subsidiaries....................................................... 11,964 11,751
Provision for income taxes................................................................... 4,256 3,714
-------- --------
Income before minority interest in income of subsidiaries......................... 7,708 8,037
Minority interest in income of subsidiaries.................................................. 342 201
-------- --------
Net income........................................................................ 7,366 7,836
Preferred stock dividends.................................................................... 197 1,279
-------- --------
Net income available to common shareholders....................................... $ 7,169 6,557
======== ========
Earnings per share:
Basic................................................................................... $ 302.99 277.11
Diluted................................................................................. 293.85 266.69
======== ========
Weighted average shares of common stock outstanding.......................................... 23,661 23,661
======== ========
See accompanying notes to consolidated financial statements
FIRST BANKS, INC. AND SUBSIDIARIES
Consolidated Statement of Changes in Stockholders' Equity (unaudited)
Three months ended March 31, 1998 and 1997
and nine months ended December 31, 1997
(dollars expressed in thousands, except per share data)
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'
iredeemable tible Class B stock surplus income earnings Income equity
----------- ----- ------- ----- ------- ------ ------- ------ ------
Consolidated balances, January 1, 1997........... $53,887 12,822 241 5,915 3,289 171,182 4,053 251,389
Three months ended March 31, 1997:
Comprehensive income:
Net income.................................. -- -- -- -- -- $ 7,836 7,836 -- 7,836
Other comprehensive income, net of tax (1) -
Unrealized losses on securities, net of
reclassification adjustment (2)......... -- -- -- -- -- (808) -- (808) (808)
---------
Comprehensive income........................ -- -- -- -- -- $ 7,028
========
Class C preferred stock dividends, $.56 per share -- -- -- -- -- (1,082) -- (1,082)
Class A preferred stock dividends, $.30 per share -- -- -- -- -- (192) -- (192)
Class B preferred stock dividends, $.03 per share -- -- -- -- -- (4) -- (4)
Purchase and retirement of Class C shares..... (5,987) -- -- -- (141) -- -- (6,128)
Effect of capital stock transactions of
majority -owned subsidiary.................. -- -- -- -- (39) -- -- (39)
------- ----- --- ----- ----- -------- ------ -------
Consolidated balances March 31, 1997............. 47,900 12,822 241 5,915 3,109 177,740 3,245 250,972
Nine months ended December 31, 1997: Comprehensive income:
Net income.................................. -- -- -- -- -- $ 25,191 25,191 -- 25,191
Other comprehensive income, net of tax (1) -
Unrealized gains on securities, net of
reclassification adjustment (2)......... -- -- -- -- -- 6,193 -- 6,193 6,193
--------
Comprehensive income........................ -- -- -- -- -- $ 31,384
========
Class C preferred stock dividends, $1.69 per share -- -- -- -- -- (3,198) -- (3,198)
Class A preferred stock dividends, $.90 per share -- -- -- -- -- (577) -- (577)
Class B preferred stock dividends, $.08 per share -- -- -- -- -- (13) -- (13)
Purchase and retirement of Class C Shares..... (787) -- -- -- (20) -- -- (807)
Redemption of Class C preferred shares........ (47,113) -- -- -- -- -- 889
Effect of capital stock transactions of....... -- -- -- -- 889 -- -- 889
------- ----- --- ----- ----- -------- ------ -------
Consolidated balances December 31, 1997.......... -- 12,822 241 5,915 3,978 199,143 9,438 231,537
Three months ended March 31, 1998:
Comprehensive income:
Net income.................................. -- -- -- -- -- $ 7,366 7,366 -- 7,366
Other comprehensive income net of tax (1) -
Unrealized gains on securities, net of
reclassification adjustment (2)......... -- -- -- -- -- 992 -- 922 922
--------
Comprehensive income........................ -- -- -- -- -- $ 8,358
========
Class A preferred stock dividends, $.30 per share -- -- -- -- -- (193) -- (193)
Class B preferred stock dividends, $.03 per hare -- -- -- -- -- (4) -- (4)
Effect of capital stock transactions of
majority-owned subsidiary................... -- -- -- -- (1,460) -- -- (1,460)
------- ----- --- ----- ------ -------- ------ ------
Consolidated balances March 31, 1998............. $ -- 12,822 241 5,915 2,518 206,312 10,430 238,238
======= ====== === ===== ====== ======== ====== =======
Three months ended Nine months ended
March 31. December 31,
1997 1998 1997
---- ---- ----
Disclosure of reclassification amount:
Unrealized gains (losses) arising during the period...................... $(808) 1,084 8,528
Less: reclassification adjustment for gains included in net income....... -- 92 2,335
------ ------ -----
Unrealized gain (loss) on securities..................................... $808 992 6,193
====== ====== =====
- ----------
(1) Components of other comprehensive income are shown net of tax.
(2) Represents the net display with gross amount and reclassification adjustment
included on the face of the statement.
See accompanying notes to consolidated financial statements.
FIRST BANKS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (unaudited)
(dollars expressed in thousands, except per share data)
Three months ended
March 31,
---------------------
1998 1997
---- ----
Cash flows from operating activities:
Net income............................................................. $ 7,366 7,836
Adjustments to reconcile net income to net cash (used in) provided
by operating activities:
Depreciation and amortization of bank premises
and equipment..................................................... 1,245 1,472
Amortization, net of accretion..................................... 2,580 740
Originations and purchases of loans held for sale.................. (102,010) (20,196)
Proceeds from sales of loans held for sale ........................ 46,525 19,324
Provision for possible loan losses................................. 2,100 2,850
Provision for income taxes......................................... 4,256 3,714
Payments of income taxes........................................... (2,149) (3,000)
Decrease (increase) in accrued interest receivable ................ 848 (431)
Net increase in trading securities................................. (2,456) --
Interest accrued on liabilities.................................... 40,601 36,014
Payments of interest on liabilities................................ (40,455) (36,873)
Other, net......................................................... 1,254 (2,527)
Minority interest in income of subsidiaries........................ 342 201
-------- --------
Net cash (used in) provided by operating activities........... (39,953) 9,124
-------- --------
Cash flows from investing activities:
Cash and cash equivalents received from acquisitions, net of cash paid. 16,895 40,362
Maturities of investment securities available for sale................. 145,989 126,113
Maturities of investment securities held to maturity................... 641 807
Purchases of investment securities available for sale.................. (78,547) (154,147)
Purchases of investment securities held to maturity.................... (800) (287)
Net increase in loans.................................................. (9,814) (43,079)
Recoveries of loans previously charged-off ............................ 2,605 2,633
Purchases of bank premises and equipment............................... (4,180) (1,034)
Other investing activities............................................. (1,982) 1,229
-------- --------
Net cash provided by investing activities..................... 70,807 (27,403)
-------- --------
Cash flows from financing activities:
Other increases (decreases) in deposits:
Demand and savings deposits........................................ 55,634 (37,240)
Time deposits...................................................... 33,912 36,426
Decrease in Federal Home Loan Bank advances............................ (1,220) (16,251)
Increase in other borrowings........................................... 9,246 14,239
Decrease in notes payable.............................................. (1,548) (66,116)
Purchase and retirement of Class C preferred stock..................... -- (5,987)
Proceeds from sale of cumulative preferred trust
securities, net of issuance costs................................... -- 83,086
Payment of preferred stock dividends................................... (197) (1,279)
-------- --------
Net cash provided by financing activities .................... 95,827 6,878
-------- --------
Net increase (decrease) in cash and cash equivalents ......... 126,681 (11,401)
Cash and cash equivalents, beginning of period ............................. 168,480 227,954
-------- --------
Cash and cash equivalents, end of period.................................... $295,161 216,553
======== ========
Noncash investing and financing activities:
Loans transferred to foreclosed real estate............................ $ 1,613 1,084
Loans transferred to held for sale..................................... -- 2,234
======== ========
See accompanying notes to consolidated financial statements.
FIRST BANKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Basis of Presentation
The accompanying consolidated financial statements of First Banks, Inc.
and subsidiaries (First Banks) are unaudited and should be read in conjunction
with the consolidated financial statements contained in the 1997 annual report
on Form 10-K. In the opinion of management, all adjustments, consisting of
normal recurring accruals considered necessary for a fair presentation of the
results of operations for the interim periods presented herein, have been
included. Operating results for the three month period ended March 31, 1998 are
not necessarily indicative of the results that may be expected for any other
interim period or for the year ending December 31, 1998.
First Banks' primary subsidiaries (Subsidiary Banks) are:
First Bank, headquartered in St. Louis County, Missouri (First Bank).
First Banks America, Inc., headquartered in St.Louis County, Missouri
(FBA), and its wholly owned subsidiaries:
BankTEXAS N.A., headquartered in Houston, Texas (BankTEXAS).
First Bank of California, headquartered in Roseville, California
(FB California).
CCB Bancorp, Inc., headquartered in Irvine, California (CCB), and its
wholly owned subsidiary, First Bank & Trust, headquartered
in Irvine, California (FB&T).
First Banks' ownership interest in FBA was 71.84% and 65.85% at March
31, 1998 and December 31, 1997, respectively.
The consolidated financial statements include the accounts of First
Banks, Inc. and its subsidiaries, net of minority interest. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Certain reclassifications of 1997 amounts have been made to conform with the
1998 presentation.
(2) Mergers and Acquisitions
On February 2, 1998, FBA completed its merger with First Commercial
Bancorp, Inc. (FCB), and FCB's wholly owned subsidiary, First Commercial Bank
(First Commercial), was merged into FB California. In the transaction, the FCB
shareholders received .8888 shares of FBA common stock for each share of FCB
common stock that they held. In total, FCB shareholders received approximately
752,000 shares of FBA common stock in the transaction. The transaction provided
for First Banks to receive 804,000 shares of FBA common stock in exchange for
$10.0 million of FBA's note payable to First Banks, and for the exchange of FCB
convertible debentures of $6.5 million, which are owned by First Banks, for
comparable debentures of FBA. The Agreement was negotiated and approved by
special committees of the Boards of Directors of FCB and FBA. These special
committees were comprised solely of independent directors of the two respective
Boards of Directors. The merger of FBA and FCB did not have a significant impact
on the operations of First Banks.
The transaction was accounted for as a business combination of entities
under common control. Accordingly, FBA assumed First Banks' 61.48% interest in
FCB at its historical cost basis. The remaining 38.52%, or minority interest,
owned by unaffiliated parties was recorded at fair value. The excess of the cost
over the fair value of the minority interest's share in the net assets acquired
was $1.6 million and is being amortized over 15 years.
On February 2, 1998, FBA completed its acquisition of Pacific Bay Bank,
San Pablo, California (Pacific Bay). Under the terms of the Pacific Bay
Agreement, Pacific Bay shareholders received $14.00 per share in cash for their
stock, an aggregate of $4.2 million. The transaction was accounted for using the
purchase method of accounting. The excess of the cost over the fair value of the
net assets acquired was $1.5 million and is being amortized over 15 years. This
transaction was funded from an advance under First Banks' credit agreement with
a group of unaffiliated financial institutions.
Pacific Bay operates a banking office in San Pablo, California and a
loan production office in Lafayette, California. At February 2, 1998, Pacific
Bay had total assets of $38.3 million, investment securities of $232,000, loans,
net of unearned discount, of $29.7 million and deposits of $35.2 million.
Pacific Bay was merged into FB California.
On March 19, 1998, First Banks completed its assumption of the deposits
and purchase of selected assets of the Solvang, California banking location of
Bank of America. The transaction resulted in the acquisition of approximately
$15.5 million in deposits and one office which will operate as a branch of FB&T.
The excess of the cost over the fair value of the net assets acquired was $1.8
million and is being amortized over 15 years.
(3) Regulatory Capital
First Banks and the Subsidiary Banks are subject to various regulatory
capital requirements administered by the federal and state banking agencies.
Failure to meet minimum capital requirements can initiate certain mandatory and
possibly additional discretionary actions by regulators that, if undertaken,
could have a direct material effect on First Banks' and the Subsidiary Banks'
financial statements. Under capital adequacy guidelines and the regulatory
framework for Prompt Corrective Action, the Subsidiary Banks must meet specific
capital guidelines that involve quantitative measures of the Subsidiary Banks'
assets, liabilities, and certain off-balance-sheet items as calculated under
regulatory accounting practices. The Subsidiary Banks' capital amounts and
classification are also subject to qualitative judgments by the regulators about
components, risk weightings and other factors.
Quantitative measures established by regulations to ensure capital
adequacy require the Subsidiary Banks to maintain certain minimum ratios. The
Subsidiary Banks are required to maintain a minimum risk-based capital to
risk-weighted assets ratio of 8.0%, with at least 4.0% being "Tier 1" capital
(as defined in the regulations) and a minimum leverage ratio (Tier 1 capital to
total assets) of 3.0%. An additional cushion of 100 to 200 basis points is
required to be considered well capitalized. As of December 31, 1996, the date of
the most recent notification from First Banks' primary regulator, each of the
Subsidiary Banks was categorized as well capitalized under the regulatory
framework for Prompt Corrective Action. Management believes that, as of March
31, 1998, all of the Subsidiary Banks are well capitalized as defined by the
Federal Deposit Insurance Corporation Improvement Act of 1991.
At March 31, 1998 and December 31, 1997, First Banks' and the
Subsidiary Banks' capital ratios were as follows:
Risk based capital ratios
Total Tier 1 Leverage Ratio
----- ------ --------------
1998 1997 1998 1997 1998 1997
---- ---- ---- ---- ---- ----
First Banks...................... 10.14% 10.26% 8.72% 8.78% 6.72% 6.80%
First Bank....................... 10.53 10.78 9.28 9.52 7.30 7.19
FB&T............................. 12.14 12.71 10.88 11.45 7.14 7.70
BankTEXAS........................ 12.99 12.26 11.73 11.00 9.24 8.90
FB California.................... 13.18 12.19 11.91 10.93 11.12 10.40
First Commercial (1)............. -- 11.89 -- 10.61 -- 8.43
- ----------
(1) Merged into FB California effective February 2, 1998.
Item 2: Management's Discussion and Analysis of
Financial Condition and Results of Operations
The discussion herein contains certain forward looking statements
regarding the financial condition, results of operations and business of First
Banks. These forward looking statements are subject to risks and uncertainties,
not all of which can be predicted or anticipated. Factors that may cause actual
results to differ materially from those contemplated by such forward looking
statements include general market conditions, conditions affecting the banking
industry generally and factors having a specific impact on First Banks,
including but not limited to fluctuations in interest rates and in the economy;
the impact of laws and regulations applicable to First Banks and changes
therein; competitive conditions in the markets in which First Banks and the
Subsidiary Banks conduct their operations; and the ability of First Banks to
respond to changes in technology. Additional factors potentially affecting First
Banks' results were identified in the Annual Report on Form 10-K filed with the
Securities and Exchange Commission. Readers should not place undue reliance on
any forward looking statements herein.
General
First Banks is a registered bank holding company, incorporated in
Missouri in 1978 and headquartered in St. Louis County, Missouri. At March 31,
1998, First Banks had $4.32 billion in total assets; $3.09 billion in total
loans, net of unearned discount; $3.82 billion in total deposits; and $238.2
million in total stockholders' equity.
Through the Subsidiary Banks, First Banks offers a broad range of
commercial and personal banking services including certificate of deposit
accounts, individual retirement and other time deposit accounts, checking and
other demand deposit accounts, interest checking accounts, savings accounts and
money market accounts. Loans include commercial, financial, agricultural, real
estate construction and development, commercial and residential real estate and
consumer and installment loans. Other financial services include mortgage
banking, discount brokerage, credit-related insurance, automatic teller
machines, safe deposit boxes, cash management, lockbox and trust services
offered by certain Subsidiary Banks.
The following table lists the Subsidiary Banks at March 31, 1998:
Loans, net
No. of of unearned Total
Subsidiary Banks locations Total assets discount deposits
- ---------------- --------- ------------ -------- --------
(dollars expressed in thousands)
First Bank.............................. 98 $ 2,906,712 2,260,547 2,614,890
FBA:
BankTEXAS............................ 6 271,902 173,386 235,215
FB California........................ 11 415,806 270,713 365,405
CCB:
FB&T................................. 18 709,191 389,398 627,882
Financial Condition
First Banks' total assets increased by $150 million to $4.32 billion
from $4.17 billion at March 31, 1998 and December 31, 1997, respectively. This
increase is primarily attributable to the increase in deposits of $140 million
to $3.82 billion from $3.68 billion at March 31, 1998 and December 31, 1997,
respectively. The funds generated by the increase in deposits along with the
funds provided by the decrease in investment securities of $63.3 million during
the same period were primarily utilized to fund loan growth of $91.8 million.
The remaining funds generated were temporarily invested in Federal funds sold.
Results of Operations
Net Income
Net income for the three months ended March 31, 1998 was $7.37 million,
compared to $7.84 million for the same period in 1997. While net income
decreased, earnings per share on a diluted basis increased to $293.85 from
$266.69 for the three months ended March 31, 1998 and 1997, respectively. The
increase in earnings per share reflects the effect of the redemption of First
Banks' Class C preferred stock in December 1997, and the resulting reduction of
First Banks quarterly dividend requirement by approximately $1.2 million. The
funds required for the redemption were borrowed, resulting in an increase in
interest expense of $1.0 million for the three months ended March 31, 1998,
compared to the same period in 1997.
Net Interest Income
Net interest income (expressed on a tax-equivalent basis) improved to
$38.5 million, or 4.05% of average interest-earning assets, for the three months
ended March 31, 1998, from $33.5 million, or 3.98% of average interest-earning
assets, for the same period in 1997.
The increased net interest income for 1998 is attributable to the
increase in average interest-earning assets of $446.8 million for the three
month period ended March 31, 1998, compared to the same period in 1997. The
increase is attributable to loans which increased on average by $255.3 million
for the three month period ended March 31, 1998, over the same period in 1997.
Contributing further to the improved net interest income is the increase in the
yield on the loan portfolio to 8.93% for the three month period ended March 31,
1998, compared to 8.80% for the same period in 1997. The improved yield reflects
the continual process of realigning the loan portfolio from residential real
estate loans to other types of loans, such as commercial and construction loans,
which generally provide a higher level of net interest income.
Offsetting the increase in net interest income is the amortization and
periodic costs of hedging the interest rate risk position of First Banks. The
cost of hedging totaled $989,000 for the three month period ended March 31,
1998, compared $1.2 million for the same period in 1997. The decrease in the
cost of hedging for the three months of 1998 compared with the same period in
1997 is attributable to the reduced level of interest rate risk resulting from
the realignment of the loan portfolio, combined with the gradual changes in the
composition of the investment securities portfolios, from mortgage-backed
securities to U.S. Treasury and generic U.S. government agencies securities, and
the distribution of interest-bearing liabilities.
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:
Three months ended March 31,
1998 1997
---------------------------- -----------------------------
Interest Interest
Average income/ Yield/ Average income/ Yield/
balance expense rate balance expense rate
------- ------- ---- ------- ------- ----
(dollars expressed in thousands)
Assets
------
Interest-earning assets:
Loans........................................... $ 3,033,759 66,815 8.93% $ 2,778,505 60,320 8.80%
Investment securities........................... 742,338 11,196 6.12 554,464 8,119 5.94
Federal funds sold and other.................... 83,896 1,136 5.49 80,208 1,095 5.54
----------- ------- ------------ -------
Total interest-earning assets............... 3,859,993 79,147 8.32 3,413,177 69,534 8.26
------- -------
Nonearning assets.................................. 293,435 234,780
----------- ------------
Total assets....................................... $ 4,153,428 $ 3,647,957
----------- ------------
Liabilities and Stockholders' Equity
------------------------------------
Interest-bearing liabilities:
Interest-bearing demand deposits................ $ 350,580 1,474 1.71% 333,941 1,405 1.71%
Savings deposits................................ 966,069 9,553 4.01 682,041 5,398 3.21
Time deposits of $100 or more................... 210,119 3,148 6.08 165,195 2,272 5.58
Other time deposits............................. 1,730,597 24,877 5.83 1,676,720 24,392 5.90
----------- ------- --------- -------
Total interest-bearing deposits.................... 3,257,365 39,052 4.86 2,857,897 33,467 4.75
Federal Home Loan Bank advances,
notes payable and other....................... 103,496 1,549 6.07 140,614 2,547 7.35
----------- ------- ----------- -------
Total interest-bearing liabilities.......... 3,360,861 40,601 4.90 2,998,511 36,014 4.87
------- -------
Noninterest-bearing liabilities:
Demand deposits................................. 429,015 363,014
Other liabilities............................... 129,149 36,617
------------ -----------
Total liabilities........................... 3,919,025 3,398,142
Stockholders' equity............................... 234,403 249,815
------------- -----------
Total liabilities and
stockholders' equity..................... $ 4,153,428 $ 3,647,957
============ ===========
Net interest income......................... 38,546 33,520
====== ======
Net interest margin......................... 4.05% 3.98%
==== =====
Provision for Possible Loan Losses
The provision for possible loan losses was $2.1 million compared to
$2.9 million for the three months ended March 31, 1998 and 1997, respectively.
The decrease in the provision for possible loan losses is primarily attributable
to an improvement in the overall credit quality of the existing loan portfolio
and the loan loss experience for the periods. For the three months ended March
31, 1998, First Banks experienced net loan recoveries of $549,000, in comparison
to net loan charge-offs of $2.1 million for the same period in 1997. The
acquisition of Pacific Bay provided $885,000 in additional allowance for
possible loan losses.
Tables summarizing nonperforming assets, past due loans and charge-off
experience are presented under "--Lending and Credit Management" of this Form
10-Q.
Noninterest Income
Noninterest income was $7.8 million for the three month period ended
March 31, 1998 in comparison to $5.2 million for the same period in 1997.
Noninterest income consists primarily of service charges on deposit accounts and
other non-yield customer service fees.
Service charges on deposit accounts and customer service fees were
$3.38 million for the three month period ended March 31, 1998 compared to $2.96
million for the same period in 1997. The increase in service charges corresponds
to the increase in deposit balances provided both by internal growth and the
acquisitions of Surety Bank and Pacific Bay.
The gain on mortgage loans sold and held for sale increased $879,000 to
$1.0 million from $121,000 for the three months ended March 31, 1998 and 1997,
respectively. This increase is attributable to an increased volume of loans held
for sale precipitated by the increased demand for fixed rate residential
mortgage loans and the overall expansion of First Banks' mortgage banking
activities in California.
Other income was $2.1 million for the three months ended March 31, 1998
in comparison to $934,000 for the same period in 1997. The primary component of
the increase is $638,000 recognized as income on a bank-owned life insurance
policy.
Noninterest Expense
Noninterest expense was $32.1 million and $25.2 million for the three
month periods ended March 31, 1998 and 1997, respectively. The increase in
noninterest expense is attributable to the acquisitions of Surety Bank and
Pacific Bay and the continued expansion of First Banks' commercial and retail
functions within existing markets.
Salaries and employee benefits have increased to $12.9 million for the
three months ended March 31, 1998 from $10.4 million for the same period in
1997. The increase is attributable to the newly acquired banks and First Banks'
continued commitment to expanding its commercial and retail business development
capabilities.
Data processing fees for the three months ended March 31, 1998 were
$3.0 million compared to $1.1 million for the same period in 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. These services were previously provided by
First Serv, Inc. a wholly owned subsidiary of First Banks. As a result, expenses
related to data processing and related services were recorded in various
noninterest expense categories for the period prior to April 1, 1997. Subsequent
to that date, these expenses are reflected as data processing expenses.
On February 4, 1997, First Preferred Capital Trust (First Capital), a
newly-formed Delaware business trust subsidiary of First Banks, issued 3.45
million shares of 9.25% Cumulative Trust Preferred Securities (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 First Capital's common securities. The gross proceeds of the
offering were used by First Capital to purchase $88,917,550 of 9.25%
Subordinated Debentures (Subordinated Debentures) from First Banks. The
Subordinated Debentures are the sole asset of First Capital. In connection with
the issuance of the 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 First Capital under the Preferred
Securities. First Banks' proceeds from the issuance of the Subordinated
Debentures to First Capital, net of underwriting fees and offering expenses,
were $83.1 million. Guaranteed preferred debenture expense was $2.0 million and
$1.3 million for the three month periods ended March 31, 1998 and 1997,
respectively, and is recorded as noninterest expense in the accompanying
consolidated financial statements.
Other noninterest expense for the three months ended March 31, 1998
includes $1.1 million representing a one-time charitable contribution to the
Affordable Housing Assistance Program. In addition, during the first quarter of
1998, the Subsidiary Banks settled two lawsuits which had been outstanding for
several years. In conjunction with these settlements, approximately $500,000 was
charged to other noninterest expense.
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 71.6% and
72.1% of total assets as of March 31, 1998 and December 31, 1997, respectively.
Total loans, excluding loans held for sale and net of unearned discount,
increased by $35.8 million to $2.98 billion at March 31, 1998 from $2.94 billion
at December 31, 1997. The increase reflects continued growth within corporate
lending of $87.2 million, offset by the decrease of the residential mortgage and
consumer and installment loan portfolios of $45.4 million and $5.9 million,
respectively, at March 31, 1998 in comparison to December 31, 1997. These
decreases are attributable to the reductions of new loan origination volumes
that are held for investment and the continued repayment of principal on the
existing portfolios.
The following is a summary of nonperforming assets by category:
March 31, December 31,
1998 1997
---- ----
(dollars expressed in thousands)
Commercial, financial and agricultural.......................... $ 5,248 4,017
Real estate construction and development........................ 4,530 4,097
Real estate mortgage............................................ 18,967 15,858
Consumer and installment........................................ 166 94
----------- -----------
Total nonperforming loans.............................. 28,911 24,066
Other real estate............................................... 7,802 7,324
----------- -----------
Total nonperforming assets............................. $ 36,713 31,390
=========== ===========
Loans, net of unearned discount................................. $ 3,094,045 3,002,200
=========== ===========
Loans past due 90 days or more
and still accruing........................................... $ 4,352 2,725
=========== ===========
Asset Quality Ratios:
Allowance for possible loan losses to loans ................. 1.75% 1.68%
Nonperforming loans to loans................................. 0.93 0.80
Allowance for possible loan losses
to nonperforming loans.................................... 186.93 209.88
Nonperforming assets to loans and other real estate.......... 1.18 1.04
=========== ===========
Nonperforming loan, consisting of loans on nonaccrual status and
restructured loans, were $28.9 million at March 31, 1998 in comparison to $24.1
million at December 31, 1997. The increase is primarily attributable to the
loans obtained through the acquisition of Pacific Bay. The acquired allowance
for possible loan losses totaled $885,000 at the acquisition date.
Impaired loans, consisting of nonaccrual loans, were $26.1 million and
$19.7 million at March 31, 1998 and December 31, 1997, respectively.
The following is a summary of loan loss experience for the three month
period ended March 31:
1998 1997
---- ----
(dollars expressed in thousands)
Allowance for possible loan losses,
beginning of period......................................................... $ 50,509 46,781
Acquired allowances for possible loan losses.................................... 885 --
--------- ---------
51,394 46,781
Loans charged-off............................................................... (2,056) (4,741)
Recoveries of loans previously charged-off...................................... 2,605 2,633
--------- ---------
Net loan (charge-offs) recoveries.......................................... 549 (2,108)
--------- ----------
Provision for possible loan losses.............................................. 2,100 2,850
--------- ---------
Allowance for possible loan losses, end of period............................... $ 54,043 47,523
========= =========
The allowance for possible loan losses is monitored on a monthly basis.
Each month, credit administration provides First Banks' management with detailed
lists of loans on the watch list and summaries of the entire loan portfolio of
each Subsidiary Bank by risk rating. These are coupled with analyses of changes
in the risk profiles of the portfolios, changes in past due and nonperforming
loans and changes in watch list and classified loans over time. In this manner,
the overall increases or decreases in the levels of risk in the portfolios are
monitored continually. Factors are applied to the loan portfolios for each
category of loan risk to determine acceptable levels of allowance for possible
loan losses. These factors are derived primarily from the actual loss experience
of the Subsidiary Banks and from published national surveys of norms in the
industry. The calculated allowances required for the portfolios are then
compared to the actual allowance balances to determine the provisions necessary
to maintain the allowances at appropriate levels. In addition, management
exercises judgment in its analysis of determining the overall level of the
allowance for possible losses. In its analysis, management considers the change
in the portfolio, including growth and composition, and the economic conditions
of the regions in which First Banks operates. Based on this quantitative and
qualitative analysis, the allowance for possible loan losses is adjusted. Such
adjustments are reflected in the consolidated statements of income.
Interest Rate Risk Management
Derivative financial instruments held by First Banks for purposes of
managing interest rate risk are summarized as follows:
March 31, 1998 December 31, 1997
---------------------- --------------------
Notional Credit Notional Credit
amount exposure amount exposure
------ -------- ------ --------
(dollars expressed in thousands)
Interest rate floor agreements................ $ 70,000 1 70,000 26
Interest rate cap agreements.................. 10,000 146 10,000 222
Forward commitments to sell
mortgage-backed securities.................. 78,000 508 60,000 --
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.
First Banks utilized interest rate swap agreements to extend the
repricing characteristics of certain interest-bearing liabilities to correspond
more closely with its assets, with the objective of stabilizing net interest
income over time. The utilization of swaps decreased with the change in the
composition of the balance sheet, resulting in no open swap agreements as of
December 31, 1997. The net interest expense for these agreements, consisting
solely of amortization of deferred losses, was $975,000 and $1.2 million for the
three month periods ended March 31, 1998 and 1997, respectively. Deferred losses
on terminated swap agreements are being amortized over the remaining lives of
the respective swap agreements. If all or any portion of the underlying
liabilities are repaid, the related deferred losses are charged to operations.
At March 31, 1998 and December 31, 1997, the unamortized balance of these
deferred losses were $8.4 million and $9.4 million, respectively.
First Banks has interest rate cap and floor agreements outstanding to
limit the interest expense associated with certain interest-bearing liabilities.
At March 31, 1998 and December 31, 1997, the unamortized costs for these
agreements were $257,000 and $290,000, respectively, and were included in other
assets.
Derivative financial instruments issued by First Banks consist of
commitments to originate fixed-rate loans. Commitments to originate fixed-rate
loans consist primarily of residential real estate loans. These loan
commitments, net of estimated underwriting fallout, and loans held for sale are
hedged with forward contracts to sell mortgage-backed securities.
Liquidity
The liquidity of First Banks and its Subsidiary Banks is the ability to
maintain a cash flow which is adequate to fund operations, service debt
obligations and meet other commitments on a timely basis. The primary sources of
funds for liquidity are derived from customer deposits, loan payments,
maturities, sales of investments and earnings.
In addition, First Banks and its Subsidiary Banks may avail themselves
of more volatile sources of funds through issuance of certificates of deposit in
denominations of $100,000 or more, federal funds borrowed, securities sold under
agreements to repurchase and other borrowings, including First Banks' $90
million credit agreement with a group of unaffiliated financial institutions.
The aggregate funds acquired from those sources were $362.4 million at March 31,
1998 and $328.7 million at December 31, 1997.
At March 31, 1998, First Banks' more volatile sources of funds mature
as follows:
(dollars expressed
in thousands)
Three months or less............................ $ 154,963
Over three months through six months............ 50,169
Over six months through twelve months........... 57,666
Over twelve months.............................. 99,573
---------
Total......................................... $ 362,371
=========
Management believes the future earnings of its Subsidiary Banks will be
sufficient to provide funds for growth and to permit the distribution of
dividends to First Banks sufficient to meet First Banks' operating and debt
service requirements both on a short-term and long-term basis and to pay the
dividends on the Preferred Securities.
Effects of New Accounting Standards
First Banks adopted the provisions of the Statement on Financial
Accounting Standards (SFAS) No. 130 - Reporting Comprehensive Income (SFAS 130)
retroactively on January 1, 1998. SFAS 130 established standards for reporting
and displaying income and its components (revenues, gains and losses) in a full
set of general purpose financial statements. The statement requires all items
that are required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. Comparative financial
statements provided for earlier periods have been restated to reflect the
application of SFAS 130. The implementation of SFAS 130 did not have a material
impact on First Banks' consolidated financial statements.
During 1997, the FASB issued SFAS No. 131 - Disclosures about Segments
of an Enterprise and Related Information. The statement establishes standards
for the way public business enterprises report information about operating
segments in annual financial statements and requires those enterprises report
selected information about operating segments in interim financial reports
issued to shareholders. Additionally, the statement establishes standards for
related disclosures about products and services, geographic areas, and major
customers superseding SFAS No. 14 - Financial Reporting for Segments of a
Business Enterprise. First Banks is currently evaluating information required in
the statement and believes expanded disclosure information will be required to
be included in First Banks' consolidated financial statements for fiscal years
beginning after December 15, 1997.
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 Calculation of Earnings per Share.
27 Financial Data Schedule (EDGAR only).
(b) First Banks filed no reports on Form 8-K during the three month period
ended March 31, 1998.
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 8, 1998 By: /s/ James F. Dierberg
---------------------
James F. Dierberg
Chairman, President and
Chief Executive Officer
Date: May 8, 1998 By: /s/ Allen H. Blake
------------------
Allen H. Blake
Executive Vice President
and Chief Financial Officer
(Principal Financial Officer)
Exhibit 11
The following is a reconciliation of the numerators and denominators of
the basic and diluted EPS computations for the periods indicated:
Income Shares Per share
(numerator) (denominator) amount
----------- ------------- ------
(dollars in thousands, except per share data)
Quarter ended March 31, 1998:
Basic EPS-income available to common stockholders......... $ 7,169 23,661 $ 302.99
==========
Effect of dilutive securities:
Class A convertible preferred stock..................... 192 1,389
-------- --------
Diluted EPS-income available to common stockholders....... $ 7,361 25,050 $ 293.85
======== ======== ==========
Quarter ended March 31, 1997:
Basic EPS-income available to common stockholders......... $ 6,557 23,661 $ 277.11
==========
Effect of dilutive securities:
Class A convertible preferred stock..................... 192 1,645
-------- --------
Diluted EPS-income available to common stockholders....... $ 6,749 25,306 $ 266.69
======== ======== ==========