EXHIBIT 99.3
PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma combined condensed balance sheet
as of September 30, 2004 and unaudited pro forma combined condensed
statements of income for the nine months ended September 30, 2004 and for
the year ended December 31, 2003 have been prepared to reflect the effects
on the historical results of First Banks, Inc. ("First Banks" or the
"Company") of the acquisition of Hillside Investors, Ltd. and its
wholly-owned banking subsidiary, CIB Bank, headquartered in Hillside,
Illinois ("Hillside"), that was completed on November 30, 2004. The
unaudited pro forma combined condensed balance sheet has been prepared as if
the acquisition of Hillside had occurred on September 30, 2004. The
unaudited pro forma combined condensed statements of income for the nine
months ended September 30, 2004 and for the year ended December 31, 2003
have been prepared assuming the acquisition of Hillside had occurred on
January 1, 2003. The pro forma financial information is unaudited and not
necessarily indicative of the combined financial position or results of
operations that would have occurred had the acquisition been completed as of
the beginning of the applicable period presented, nor is it indicative of
the combined financial position or results of operations of future periods.
PRO FORMA COMBINED CONDENSED BALANCE SHEET (UNAUDITED)
SEPTEMBER 30, 2004
-------------------------------------------------------------------------------------------
CANRON MICR, ADJUSTED PRO FORMA PRO FORMA
FIRST BANKS HILLSIDE CORPORATION INC. HILLSIDE ADJUSTMENTS COMBINED
----------- -------- ----------- ---- -------- ----------- --------
(DOLLARS EXPRESSED IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
ASSETS
------
Cash and cash equivalents:
Cash and due from banks............ $ 152,184 14,904 (688) (55) 14,161 (11,695)(a,b,c,m) 154,650
Short-term investments............. 115,736 97,616 -- (579) 97,037 -- 212,773
---------- --------- --------- -------- --------- -------- ---------
Total cash and cash equivalents.. 267,920 112,520 (688) (634) 111,198 (11,695) 367,423
---------- --------- --------- -------- --------- -------- ---------
Investment securities:
Available for sale................. 1,246,595 389,854 -- -- 389,854 17,592 (b,d) 1,654,041
Held to maturity................... 26,273 16,067 -- -- 16,067 (16,067)(d) 26,273
---------- --------- --------- -------- --------- -------- ---------
Total investment securities...... 1,272,868 405,921 -- -- 405,921 1,525 1,680,314
---------- --------- --------- -------- --------- -------- ---------
Loans:
Commercial, financial and
agricultural..................... 1,438,183 181,475 -- -- 181,475 (12,834)(e,f) 1,606,824
Real estate construction and
development...................... 1,227,553 92,234 -- -- 92,234 (7,774)(e,f) 1,312,013
Real estate mortgage............... 2,715,869 451,236 -- -- 451,236 (18,172)(e,f) 3,148,933
Lease financing.................... 7,541 -- -- -- -- -- 7,541
Consumer and installment........... 53,912 481 -- -- 481 -- 54,393
Loans held for sale................ 128,801 -- -- -- -- 12,916 (f) 141,717
---------- ---------- --------- -------- --------- -------- ---------
Total loans...................... 5,571,859 725,426 -- -- 725,426 (25,864) 6,271,421
Unearned discount.................. (10,236) (685) -- -- (685) 8,180 (g) (2,741)
Allowance for loan losses.......... (127,970) (38,115) -- -- (38,115) 10,164 (e,f) (155,921)
---------- --------- --------- -------- --------- -------- ---------
Net loans........................ 5,433,653 686,626 -- -- 686,626 (7,520) 6,112,759
---------- --------- --------- -------- --------- -------- ---------
Derivative instruments.................. 12,159 3,035 -- -- 3,035 (361)(h) 14,833
Bank premises and equipment, net........ 133,580 11,875 -- (284) 11,591 125 (i) 145,296
Goodwill................................ 151,783 2,156 -- (2,156) -- 5,021 (c) 156,804
Bank-owned life insurance............... 101,041 -- -- -- -- -- 101,041
Deferred income taxes................... 97,469 -- -- -- -- 11,974 (j) 109,443
Assets of companies held for disposal... -- 12,684 (13,656) -- (972) 972 (m) --
Other assets............................ 103,484 21,413 -- (1,414) 19,999 11,296 (j,k) 134,779
---------- --------- --------- -------- --------- -------- ---------
Total assets..................... $7,573,957 1,256,230 (14,344) (4,488) 1,237,398 11,337 8,822,692
========== ========= ========= ======== ========= ======== =========
LIABILITIES
-----------
Deposits:
Noninterest-bearing demand......... $1,120,630 57,241 -- -- 57,241 1,660 (m) 1,179,531
Interest-bearing demand............ 842,913 23,928 -- -- 23,928 -- 866,841
Savings............................ 2,174,209 195,594 -- -- 195,594 -- 2,369,803
Time deposits of $100 or more...... 515,780 283,729 -- -- 283,729 570 (l) 800,079
Other time deposits................ 1,474,274 582,550 -- -- 582,550 -- 2,056,824
---------- --------- --------- -------- --------- -------- ---------
Total deposits................... 6,127,806 1,143,042 -- -- 1,143,042 2,230 7,273,078
Other borrowings........................ 550,262 36,062 -- -- 36,062 -- 586,324
Note payable............................ -- -- -- -- -- 15,000 (a) 15,000
Subordinated debentures................. 232,311 -- -- -- -- 41,238 (b) 273,549
Deferred income taxes................... 23,824 -- -- -- -- -- 23,824
Liabilities of companies held for
disposal.............................. -- 10,181 (10,181) -- -- -- --
Accrued expenses and other liabilities.. 50,403 11,652 -- (489) 11,163 -- 61,566
---------- --------- --------- --------- --------- -------- ---------
Total liabilities................ 6,984,606 1,200,937 (10,181) (489) 1,190,267 58,468 8,233,341
---------- --------- ---------- --------- --------- -------- ---------
STOCKHOLDERS' EQUITY
--------------------
Preferred stock......................... 13,063 -- -- -- -- -- 13,063
Common stock............................ 5,915 -- (5) -- (5) 5 (c) 5,915
Additional paid-in capital.............. 5,910 103,139 (5,895) -- 97,244 (97,244) (c) 5,910
Retained earnings (deficit)............. 559,210 (47,106) 1,737 (3,999) (49,368) 49,368 (c) 559,210
Accumulated other comprehensive income
(loss)................................ 5,253 (740) -- -- (740) 740 (c) 5,253
---------- --------- --------- --------- --------- -------- ---------
Total stockholders' equity....... 589,351 55,293 (4,163) (3,999) 47,131 (47,131) 589,351
---------- --------- --------- --------- --------- -------- ---------
Total liabilities and
stockholders' equity........... $7,573,957 1,256,230 (14,344) (4,488) 1,234,498 11,337 8,822,692
========== ========= ========= ========= ========= ======== =========
See notes to pro forma combined condensed financial statements.
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 2004
-------------------------------------------------------------------------------------------
CANRON MICR, ADJUSTED PRO FORMA PRO FORMA
FIRST BANKS HILLSIDE CORPORATION INC. HILLSIDE ADJUSTMENTS COMBINED
----------- -------- ----------- ---- -------- ----------- --------
(DOLLARS EXPRESSED IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Interest income:
Interest and fees on loans........... $ 254,176 39,368 -- -- 39,368 (834)(g) 292,710
Investment securities................ 37,098 5,656 -- -- 5,656 -- 42,754
Short-term investments............... 899 503 -- -- 503 -- 1,402
--------- --------- ---------- ---------- --------- -------- ---------
Total interest income............ 292,173 45,527 -- -- 45,527 (834) 336,866
--------- --------- ---------- ---------- --------- -------- ---------
Interest expense:
Deposits............................. 51,727 22,703 -- -- 22,703 -- 74,430
Note payable and other borrowings.... 3,781 1,202 -- -- 1,202 240 (a) 5,223
Subordinated debentures.............. 10,798 -- -- -- -- 1,900 (b) 12,698
--------- --------- ---------- ---------- --------- -------- ---------
Total interest expense........... 66,306 23,905 -- -- 23,905 2,140 92,351
--------- --------- ---------- ---------- --------- -------- ---------
Net interest income.............. 225,867 21,622 -- -- 21,622 (2,974) 244,515
Provision for loan losses............... 23,250 5,244 -- -- 5,244 -- 28,494
--------- --------- ---------- ---------- --------- -------- ---------
Net interest income after
provision for loan losses...... 202,617 16,378 -- -- 16,378 (2,974) 216,021
--------- --------- ---------- ---------- --------- -------- ---------
Noninterest income:
Service charges on deposit accounts
and customer service fees.......... 28,578 1,299 -- -- 1,299 -- 29,877
Gain on mortgage loans sold and held
for sale........................... 12,866 -- -- -- -- -- 12,866
Net gain on sales of available-for-
sale investment securities......... 257 -- -- -- -- -- 257
Other income......................... 20,944 2,411 -- (863) 1,548 -- 22,492
--------- --------- ---------- ---------- --------- -------- ---------
Total noninterest income......... 62,645 3,710 -- (863) 2,847 -- 65,492
--------- --------- ---------- ---------- --------- -------- ---------
Noninterest expense:
Salaries and employee benefits....... 85,825 6,352 -- -- 6,352 -- 92,177
Occupancy, net of rental income...... 13,744 1,414 -- -- 1,414 -- 15,158
Furniture and equipment.............. 12,802 574 -- -- 574 -- 13,376
Information technology fees.......... 23,965 1,432 -- -- 1,432 -- 25,397
Other noninterest expense............ 30,062 15,199 -- -- 15,199 1,303 (k) 46,564
--------- --------- ---------- ---------- --------- -------- ---------
Total noninterest expense........ 166,398 24,971 -- -- 24,971 1,303 192,672
--------- --------- ---------- ---------- --------- -------- ---------
Income (loss) from continuing
operations before provision
(benefit) for income taxes..... 98,864 (4,883) -- (863) (5,746) (4,277) 88,841
Provision (benefit) for income taxes.... 34,844 -- -- (304) (304) (3,838)(j) 30,702
--------- --------- ---------- ---------- --------- -------- ---------
Income (loss) from continuing
operations..................... 64,020 (4,883) -- (559) (5,442) (439) 58,139
Discontinued operations:
Income (loss) from discontinued
operations, net of tax......... -- 3,876 (3,658) -- 218 (218) --
--------- --------- --------- ---------- --------- -------- ---------
Net income (loss)................ 64,020 (1,007) (3,658) (559) (5,224) (657) 58,139
Preferred stock dividends............... 524 -- -- -- -- -- 524
--------- --------- --------- ---------- --------- -------- ---------
Net income (loss) available to
common stockholders............ $ 63,496 (1,007) (3,658) (559) (5,224) (657) 57,615
========= ========= ========= ========== ========= ======== =========
Weighted average common stock
outstanding........................... 23,661 23,661
========= =========
Basic earnings per common share......... $2,683.56 2,435.02
========= =========
Diluted earnings per common share....... $2,642.12 2,399.38
========= =========
See notes to pro forma combined condensed financial statements.
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME (UNAUDITED)
YEAR ENDED DECEMBER 31, 2003
---------------------------------------------------------------------------------------
CANRON MICR, ADJUSTED PRO FORMA PRO FORMA
FIRST BANKS HILLSIDE CORPORATION INC. HILLSIDE ADJUSTMENTS COMBINED
----------- -------- ----------- ---- -------- ----------- --------
(DOLLARS EXPRESSED IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Interest income:
Interest and fees on loans........... $ 355,472 80,626 -- -- 80,626 (630)(g) 435,468
Investment securities................ 34,179 6,609 -- -- 6,609 -- 40,788
Short-term investments............... 1,502 464 -- -- 464 -- 1,966
--------- --------- ---------- ---------- --------- -------- --------
Total interest income............ 391,153 87,699 -- -- 87,699 (630) 478,222
--------- --------- ---------- ---------- --------- -------- --------
Interest expense:
Deposits............................. 83,119 35,280 -- -- 35,280 -- 118,399
Note payable and other borrowings.... 3,028 2,227 -- -- 2,227 320 (a) 5,575
Subordinated debentures.............. 17,879 -- -- -- -- 2,600 (b) 20,479
--------- --------- ---------- ---------- --------- -------- --------
Total interest expense........... 104,026 37,507 -- -- 37,507 2,920 144,453
--------- --------- ---------- ---------- --------- -------- --------
Net interest income.............. 287,127 50,192 -- -- 50,192 (3,550) 333,769
Provision for loan losses............... 49,000 113,183 -- -- 113,183 -- 162,183
--------- --------- ---------- ---------- --------- -------- --------
Net interest income after
provision for loan losses...... 238,127 (62,991) -- -- (62,991) (3,550) 171,586
--------- --------- ---------- ---------- --------- -------- --------
Noninterest income:
Service charges on deposit accounts
and customer service fees.......... 36,113 2,017 -- -- 2,017 -- 38,130
Gain on mortgage loans sold and held
for sale........................... 15,645 -- -- -- -- -- 15,645
Net gain on sales of available-for-
sale investment securities......... 8,761 -- -- -- -- -- 8,761
Other income......................... 27,189 2,440 -- (1,122) 1,318 -- 28,507
--------- --------- ---------- ---------- --------- -------- --------
Total noninterest income......... 87,708 4,457 -- (1,122) 3,335 -- 91,043
--------- --------- ---------- ---------- --------- -------- --------
Noninterest expense:
Salaries and employee benefits....... 95,441 9,873 -- -- 9,873 -- 105,314
Occupancy, net of rental income...... 20,940 1,666 -- -- 1,666 -- 22,606
Furniture and equipment.............. 18,286 747 -- -- 747 -- 19,033
Information technology fees.......... 32,136 2,379 -- -- 2,379 -- 34,515
Goodwill and intangible assets
impairment......................... -- 14,359 -- -- 14,359 -- 14,359
Other noninterest expense............ 60,266 16,538 -- -- 16,538 1,628 (k) 78,432
--------- --------- ---------- ---------- --------- -------- --------
Total noninterest expense........ 227,069 45,562 -- -- 45,562 1,628 274,259
--------- --------- ---------- ---------- --------- -------- --------
Income (loss) from continuing
operations before provision
(benefit) for income taxes..... 98,766 (104,096) -- (1,122) (105,218) (5,178) (11,630)
Provision (benefit) for income taxes.... 35,955 (11,068) -- (393) (11,461) (32,295)(j) (7,801)
--------- --------- ---------- ---------- --------- -------- --------
Income (loss) from continuing
operations..................... 62,811 (93,028) -- (729) (93,757) 27,117 (3,829)
Discontinued operations:
Income (loss) from discontinued
operations, net of tax......... -- (4,068) 4,409 -- 341 (772) (431)
--------- --------- ---------- ---------- --------- -------- --------
Net income (loss)................ 62,811 (97,096) 4,409 (729) (93,416) 26,345 (4,260)
Preferred stock dividends............... 786 -- -- -- -- -- 786
--------- --------- ---------- ---------- --------- -------- --------
Net income (loss) available to
common stockholders............ $ 62,025 (97,096) 4,409 (729) (93,416) 26,345 (5,046)
========= ========= ========== ========== ========= ======== ========
Weighted average common stock
outstanding........................... 23,661 23,661
========= ========
Basic earnings (loss) per common share.. $2,621.39 (213.27)
========= ========
Diluted earnings (loss) per common
share................................ $2,588.31 (213.27)
========= ========
See notes to pro forma combined condensed financial statements.
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
(1) BASIS OF PRO FORMA PRESENTATION
The unaudited pro forma combined condensed balance sheet has been
prepared based on the historical financial statements of First Banks and
Hillside as if the acquisition of Hillside had occurred on September 30,
2004. The unaudited pro forma combined condensed statements of income for
the nine months ended September 30, 2004 and for the year ended December 31,
2003 set forth the results of operations of First Banks as if the
acquisition of Hillside had occurred as of January 1, 2003 based on the
historical results of operations of First Banks and Hillside. No adjustments
have been made for any operational synergies that may occur as a result of
these transactions. Certain amounts reflected in Hillside's historical
consolidated financial statements have been reclassified to conform to First
Banks' financial statement presentation. The pro forma financial information
is unaudited and not necessarily indicative of the combined financial
position or results of operations that would have occurred had the
acquisition been completed as of the beginning of the applicable period
presented, nor is it indicative of the combined financial position or
results of operations of future periods.
As further described in Note 1 and Note 8 to the Hillside
consolidated financial statements included herein as Exhibit 99.2 to the
Current Report on Form 8-K/A, Canron Corporation ("Canron") and MICR, Inc.
("MICR") represent companies held for disposition that were acquired by
Hillside in partial or full satisfaction of loans, primarily through
foreclosure. Pursuant to the Stock Purchase Agreement by and among First
Banks, The San Francisco Company, CIB Marine Bancshares, Inc., Hillside and
CIB Bank dated August 12, 2004, CIB Marine Bancshares, Inc. purchased Canron
and MICR from Hillside on November 30, 2004 in accordance with the terms of
the Stock Purchase Agreement. Consequently, the unaudited pro forma combined
condensed financial statements reflect the reversal of the financial
condition and results of operations of Canron and MICR from Hillside's
consolidated financial statements.
(2) PRO FORMA ADJUSTMENTS
The acquisition of Hillside was accounted for using the purchase
method of accounting. The application of the purchase method of accounting
gives rise to purchase accounting adjustments (net of related income tax
effects) to reflect the estimated fair value of the assets acquired and the
liabilities assumed. Goodwill associated with the purchase of Hillside,
which is not deductible for tax purposes, was approximately $30.4 million,
representing the difference between the purchase price of $67.4 million in
cash and the fair value of the assets acquired and liabilities assumed. The
acquisition was funded by First Banks through the issuance of additional
subordinated debentures and borrowings under the Company's revolving line of
credit with a group of unaffiliated financial institutions ("Credit
Agreement"). The pro forma combined condensed statements of income for the
nine months ended September 30, 2004 and for the year ended December 31,
2003 have been adjusted to reflect the increase in interest expense
associated with the subordinated debentures and borrowings.
The pro forma adjustments included in the unaudited pro forma combined
condensed financial information are as follows:
(a) Reflects a $15.0 million advance drawn under First Banks' Credit
Agreement on November 30, 2004. The Credit Agreement provides a
$75.0 million revolving credit line and a $25.0 million letter of
credit facility. Interest is payable on outstanding principal loan
balances at a floating rate equal to either the lender's prime
rate or, at First Banks' option, the London Interbank Offering
Rate plus a margin determined by the outstanding loan balances and
First Banks' net income for the preceding four calendar quarters.
If the loan balances outstanding under the revolving credit line
are accruing at the prime rate, interest is paid monthly. If the
loan balances outstanding under the revolving credit line are
accruing at the London Interbank Offering Rate, interest is
payable based on the one, two, three or six-month London Interbank
Offering Rate, as selected by First Banks. Amounts may be borrowed
under the Credit Agreement until August 11, 2005, at which time
the principal and interest outstanding is due and payable.
Interest expense attributable to the $15.0 million advance drawn
to partially fund the acquisition was $240,000 for the nine months
ended September 30, 2004, and $320,000 for the year ended December
31, 2003. The advance bears a rate of interest equal to the London
Interbank Offering
Rate plus a margin determined by the outstanding loan balances and
the Company's net income for the preceding four calendar quarters.
(b) Reflects the issuance, on November 23, 2004, of $41.2 million of
variable rate subordinated debentures associated with the issuance
of $41.2 million of variable rate trust preferred securities by
First Bank Statutory Trust III, a newly formed Delaware statutory
trust affiliate of the Company ("FBST III"). FBST III issued
40,000 shares of variable rate trust preferred securities at
$1,000 per share in a private placement, and issued 1,238 shares
of common securities to First Banks at $1,000 per share. First
Banks owns all of the common securities of FBST III. The gross
proceeds of the offering were used by FBST III to purchase $41.2
million of variable rate subordinated debentures from First Banks.
The subordinated debentures are the sole asset of FBST III. In
connection with the issuance of the FBST III 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 FBST III under the FBST III preferred
securities. Proceeds from the issuance of the subordinated
debentures to FBST III, net of underwriting expenses, were $41.2
million. The distribution rate on the FBST III securities is
equivalent to the three-month London Interbank Offering Rate plus
218.0 basis points, and is payable quarterly in arrears. Interest
expense associated with the issuance of the variable rate
subordinated debentures by First Banks to FBST III was $566,000
and $785,000 for the nine months ended September 30, 2004 and the
year ended December 31, 2003, respectively.
In a similar transaction, on September 20, 2004, First Bank
Statutory Trust II ("FBST II"), a newly formed Delaware statutory
trust affiliate of the Company, issued 20,000 shares of variable
rate trust preferred securities at $1,000 per share in a private
placement, and issued 619 shares of common securities to First
Banks at $1,000 per share. First Banks owns all of the common
securities of FBST II. The gross proceeds of the offering were
used by FBST II to purchase $20.6 million of variable rate
subordinated debentures from First Banks, maturing on September
20, 2034. The maturity date of the subordinated debentures may be
shortened, at the option of First Banks, to a date not earlier
than September 20, 2009, if certain conditions are met. The
subordinated debentures are the sole asset of FBST II. In
connection with the issuance of the FBST II 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 FBST II under the FBST II preferred
securities. Proceeds from the issuance of the subordinated
debentures to FBST II, net of offering expenses, were $20.6
million. The distribution rate on the FBST II securities is
equivalent to the three-month London Interbank Offering Rate plus
205.0 basis points, and is payable in arrears beginning December
20, 2004. At September 30, 2004, the subordinated debentures
issued by FBST II are reflected in First Banks' historical balance
sheet. However, the pro forma adjustments to the statements of
income reflect the interest expense associated with the issuance
of the variable rate subordinated debentures by First Banks to
FBST II, which was $1.4 million and $1.8 million for the nine
months ended September 30, 2004 and the year ended December 31,
2003, respectively.
(c) Reflects First Banks' acquisition of Hillside in exchange for
$67.4 million in cash, resulting in preliminary goodwill (prior to
the application of purchase accounting adjustments) of $20.3
million, representing the purchase price of $67.4 million less the
historical basis of the net assets acquired and liabilities
assumed of $47.1 million. Preliminary goodwill was then adjusted
to reflect the assets acquired and liabilities assumed at their
estimated fair values as follows:
(d) Reflects the transfer of Hillside's held-to-maturity
investment securities portfolio to First Banks'
available-for-sale investment securities portfolio and
corresponding adjustment to estimated fair value.
(e) Reflects the reclassification of specific reserves of $20.4
million that had been allocated within Hillside's allowance
for loan losses to loans to conform to First Banks' allowance
for loan and lease loss methodology. First Banks' allowance
for loan and lease loss methodology is based upon a risk
rating system that applies loss factors to individual loans
and homogenous pools of loans based upon risk ratings
assigned to determine acceptable levels of the allowance for
loan losses. Consequently, First Banks reduced the individual
balances of the loans by the amount of
the specific reserves that Hillside had allocated within it
allowance for loan losses. The reclassification of the
specific reserves had no impact on the net loan balances of
the combined entity.
(f) Reflects the transfer of $18.3 million of Hillside's
nonperforming loans to loans held for sale and a
corresponding charge of $5.4 million to the allowance for
loan losses to reduce the loans held for sale to the
estimated fair value, net of broker costs, that is expected
to be realized at the time of the sale. While Hillside had
utilized a long-term workout strategy to address certain
nonperforming assets, First Banks' strategy is to dispose of
problem assets in a more accelerated manner. Accordingly,
First Banks elected to hold for sale a portion of the problem
assets acquired from Hillside and is actively marketing these
assets through an independent third party. The adjustment
also reflects an increase to the allowance for loan losses in
the amount of $15.7 million to reflect additional reserves
associated with the loans transferred to loans held for sale
and the application of First Banks' loss factors to
Hillside's loan portfolio risk ratings, reflecting the use by
First Banks of potential strategies for more rapid
disposition and recovery of certain acquired classified and
nonperforming assets.
(g) Reflects the adjustment of loans, net of unearned discount,
to estimated fair value based upon current interest rates
being offered on similar loan products and services. This
adjustment will be amortized as a reduction of interest
income over the remaining estimated life of the acquired loan
portfolio. Amortization of the loan premium was $1.1 million
and $1.4 million for the nine months ended September 30, 2004
and the year ended December 31, 2003, respectively.
(h) Reflects the adjustment of derivative instruments,
specifically interest rate swap agreements, to estimated fair
value based upon First Banks' liquidation of the acquired
derivative instruments shortly after completion of the
acquisition.
(i) Reflects (1) a write-down in the amount of $420,000 of
furniture, fixtures and equipment, primarily bank signage,
computer hardware and computer software, that will not be
utilized by the combined entity in future operations; and (2)
an increase of $545,000 to bank premises to reflect the
estimated fair value based upon independent third-party
appraisal valuations.
(j) The tax adjustments were calculated utilizing a federal
effective income tax rate of 35% and a blended state income
tax rate of 7%. These adjustments reflect the following:
(1) the recognition of $34.6 million of net deferred tax
assets associated with Hillside's temporary book and tax
differences. The most significant components of the net
deferred tax assets relate to the allowance for loan
losses ($16.0 million) and net operating loss
carryforwards ($16.3 million);
(2) the establishment of a $1.9 million net deferred tax
liability associated with First Banks' purchase
accounting adjustments to reflect Hillside's assets
acquired and liabilities assumed at their estimated fair
values;
(3) the establishment of a $20.8 million deferred tax
valuation allowance recorded to reflect limitations on
the utilization of the net deferred tax assets. Among
these limitations is the restriction that any built-in
loss (when fair value is less than the tax basis) that
existed on the date of acquisition, if realized within
the first five years subsequent to the date of
acquisition, will be disallowed and must be carried
forward and subjected to rules similar to the rules for
carrying forward net operating losses. Subsequent
reductions in the valuation allowance will be credited
to intangibles associated with the purchase of
subsidiaries;
(4) The recognition of federal and state benefits for income
taxes in the amounts of $3.8 million for the nine months
ended September 30, 2004 and $32.3 million for the year
ended December 31, 2003. The benefit for income taxes
recorded for the nine months ended September 30, 2004
reflects a benefit of $1.8 million associated with First
Banks' purchase
accounting adjustments to reflect the assets acquired
and liabilities assumed at their estimated fair values
and a $2.0 million additional benefit associated with
Hillside's reversal of $2.0 million of excess tax
reserves for the nine months ended September 30, 2004.
The benefit for income taxes recorded for the year ended
December 31, 2003 reflects a benefit of $2.4 million
associated with First Banks' purchase accounting
adjustments to reflect the assets acquired and
liabilities assumed at their estimated fair values, and
the reversal of Hillside's $29.9 million deferred tax
asset valuation allowance. The reversal of Hillside's
deferred tax asset valuation allowance is reflective of
the fact that Hillside will be joining in filing a
consolidated tax return with First Banks and therefore,
will be able to recognize the tax benefit associated
with its reported net loss of $97.1 million for the year
ended December 31, 2003.
(k) Reflects (1) a write-down in the amount of $283,000 of other
real estate to estimated fair value; (2) a write-down in the
amount of $220,000 of other assets to estimated fair value;
(3) the write-off of Hillside's core deposit intangibles in
the amount of $785,000 and the reversal of amortization of
core deposit intangibles in the amount of $197,000 and
$372,000 for the nine months ended September 30, 2004 and the
year ended December 31, 2003, respectively; and (4) the
establishment of core deposit intangibles in the amount of
$14.0 million based on the estimated future economic benefit
resulting from the deposits of the acquired customer base,
adjusted for estimated attrition. The core deposit
intangibles will be amortized on a straight-line basis over
seven years. Amortization of core deposit intangibles was
$1.5 million and $2.0 million for the nine months ended
September 30, 2004 and the year ended December 31, 2003,
respectively.
(l) Reflects the adjustment of time deposits greater than
$100,000 or more to estimated fair value based upon First
Banks' liquidation of the acquired derivative instruments
that previously hedged a portion of time deposits greater
than $100,000 or more shortly after completion of the
acquisition.
(m) Reflects the reversal of elimination entries attributable to
Canron and MICR that were recorded by Hillside in conjunction
with Hillside's consolidation of these entities into its
consolidated financial statements. The elimination entries
have been reversed to reflect the purchase of Canron and MICR
by CIB Marine Bancshares, Inc. at the acquisition date.
(3) PRO FORMA EARNINGS PER SHARE
Basic and diluted pro forma earnings per share (EPS) for the nine
months ended September 30, 2004 and for the year ended December 31, 2003
were calculated based upon First Banks' weighted average common stock
outstanding. EPS was computed based on the historical net income of First
Banks, income from continuing operations of Hillside and the impact of
purchase accounting adjustments, net of related income tax effects.