UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2001
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _______ to ________
Commission File No. 0-8937
FIRST BANKS AMERICA, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 75-1604965
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
135 North Meramec, Clayton, Missouri 63105
(Address of principal executive offices) (Zip code)
(314) 854-4600
(Registrant's telephone number, including area code)
-------------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
------- -------
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practical date.
Shares outstanding
Class at July 31, 2001
----- ----------------
Common Stock, $0.15 par value 9,566,303
Class B Common Stock, $0.15 par value 2,500,000
First Banks America, Inc.
Table of Contents
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements - (Unaudited):
Consolidated Balance Sheets..................................................... 1
Consolidated Statements of Income............................................... 3
Consolidated Statements of Changes in Stockholders' Equity
and Comprehensive Income.................................................... 4
Consolidated Statements of Cash Flows........................................... 5
Notes to Consolidated Financial Statements...................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................................... 12
Item 3. Quantitative and Qualitative Disclosures about Market Risk...................... 24
PART II. OTHER INFORMATION
Item 4. Submission of matters to a vote of security holders............................. 25
Item 6. Exhibits and Reports on Form 8-K................................................ 26
SIGNATURES...................................................................................... 27
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
First Banks America, Inc.
Consolidated Balance Sheets - (Unaudited)
(dollars expressed in thousands, except per share data)
June 30, December 31,
2001 2000
---- ----
ASSETS
------
Cash and cash equivalents:
Cash and due from banks........................................................... $ 76,947 96,934
Interest-bearing deposits with other financial institutions
with maturities of three months or less........................................ 2,560 3,101
Federal funds sold................................................................ 104,700 53,175
----------- ---------
Total cash and cash equivalents.............................................. 184,207 153,210
----------- ---------
Investment securities:
Available for sale, at fair value................................................. 201,249 330,557
Held to maturity, at amortized cost (fair value of $4,352 and
$4,615 at June 30, 2001 and December 31, 2000, respectively)................... 4,300 4,662
----------- -------
Total investment securities.................................................. 205,549 335,219
----------- ---------
Loans:
Commercial and financial.......................................................... 720,530 686,426
Real estate construction and development.......................................... 418,153 444,218
Real estate mortgage.............................................................. 887,329 883,103
Consumer and installment.......................................................... 33,120 50,247
----------- ---------
Total loans.................................................................. 2,059,132 2,063,994
Unearned discount................................................................. (5,837) (5,317)
Allowance for loan losses......................................................... (34,586) (37,930)
----------- ---------
Net loans.................................................................... 2,018,709 2,020,747
----------- ---------
Derivative instruments................................................................ 12,437 --
Bank premises and equipment, net of depreciation and amortization..................... 40,616 45,526
Intangibles associated with the purchase of subsidiaries, net of amortization......... 74,113 74,609
Accrued interest receivable........................................................... 17,450 20,048
Deferred tax assets................................................................... 40,504 45,308
Other assets.......................................................................... 40,639 46,712
----------- ---------
Total assets................................................................. $ 2,634,224 2,741,379
=========== =========
The accompanying notes are an integral part of the consolidated financial statements.
First Banks America, Inc.
Consolidated Balance Sheets, Continued - (Unaudited)
(dollars expressed in thousands, except per share data)
June 30, December 31,
2001 2000
---- ----
LIABILITIES
-----------
Deposits:
Demand:
Non-interest-bearing............................................................ $ 417,876 475,785
Interest-bearing................................................................ 229,114 195,585
Savings........................................................................... 747,984 766,587
Time deposits:
Time deposits of $100 or more................................................... 308,295 301,649
Other time deposits............................................................. 520,703 566,750
----------- ---------
Total deposits............................................................... 2,223,972 2,306,356
Note payable.......................................................................... 53,300 98,000
Short-term borrowings................................................................. 61,540 57,585
Accrued interest payable.............................................................. 12,300 8,434
Deferred tax liabilities.............................................................. 9,688 5,525
Accrued expenses and other liabilities................................................ 9,455 24,290
----------- ---------
Total liabilities............................................................ 2,370,255 2,500,190
----------- ---------
Guaranteed preferred beneficial interest in First Banks
America, Inc. subordinated debentures............................................. 44,311 44,280
----------- ---------
STOCKHOLDERS' EQUITY
--------------------
Common stock:
Common stock, $0.15 par value; 15,000,000 shares authorized;
9,610,703 shares issued at June 30, 2001 and December 31, 2000.................. 1,442 1,442
Class B common stock, $0.15 par value; 4,000,000 shares
authorized; 2,500,000 shares issued and outstanding at
June 30, 2001 and December 31, 2000............................................. 375 375
Capital surplus....................................................................... 154,494 153,929
Retained earnings since elimination of accumulated deficit
effective December 31, 1994....................................................... 55,960 40,894
Common treasury stock, at cost; 44,400 shares and 4,500 shares
at June 30, 2001 and December 31, 2000, respectively.............................. (940) (76)
Accumulated other comprehensive income................................................ 8,327 345
----------- ---------
Total stockholders' equity................................................... 219,658 196,909
----------- ---------
Total liabilities and stockholders' equity................................... $ 2,634,224 2,741,379
=========== =========
First Banks America, Inc.
Consolidated Statements of Income - (Unaudited)
(dollars expressed in thousands, except per share data)
Three months ended Six months ended
June 30, June 30,
--------------------- -------------------
2001 2000 2001 2000
---- ---- ---- ----
Interest income:
Interest and fees on loans.............................................. $47,437 37,868 96,317 72,795
Investment securities................................................... 3,626 3,470 8,739 6,596
Federal funds sold and other............................................ 1,234 1,414 2,064 2,249
------- ------ ------- ------
Total interest income.............................................. 52,297 42,752 107,120 81,640
------- ------ ------- ------
Interest expense:
Deposits:
Interest-bearing demand............................................... 916 548 1,841 1,160
Savings............................................................... 7,289 5,977 15,104 11,112
Time deposits of $100 or more......................................... 4,328 1,484 8,786 2,894
Other time deposits................................................... 7,676 8,546 16,113 16,123
Note payable............................................................ 1,030 153 2,867 214
Short-term borrowings................................................... 485 386 1,208 727
------- ------ ------- ------
Total interest expense............................................. 21,724 17,094 45,919 32,230
------- ------ ------- ------
Net interest income................................................ 30,573 25,658 61,201 49,410
Provision for loan losses................................................... 820 470 910 1,452
------- ------ ------- ------
Net interest income after provision for loan losses................ 29,753 25,188 60,291 47,958
------- ------ ------- ------
Noninterest income:
Service charges on deposit accounts and customer service fees........... 2,097 1,834 4,257 3,533
(Loss) gain on sales of securities, net................................. (13) -- (187) 379
Gain on derivative instruments, net..................................... 2,587 -- 2,887 --
Other income............................................................ 1,672 917 3,765 1,753
------- ------ ------- ------
Total noninterest income........................................... 6,343 2,751 10,722 5,665
------- ------ ------- ------
Noninterest expense:
Salaries and employee benefits.......................................... 8,266 6,493 16,378 12,737
Occupancy, net of rental income......................................... 2,458 2,007 4,987 3,906
Furniture and equipment................................................. 940 997 1,852 1,862
Postage, printing and supplies.......................................... 382 393 801 759
Data processing fees.................................................... 2,330 1,739 4,805 3,357
Legal, examination and professional fees................................ 2,318 1,794 4,741 3,372
Amortization of intangibles associated with the purchase of subsidiaries 1,387 686 2,761 1,341
Guaranteed preferred debentures......................................... 975 978 1,950 1,971
Other................................................................... 4,204 2,331 6,954 3,724
------- ------ ------- ------
Total noninterest expense.......................................... 23,260 17,418 45,229 33,029
------- ------ ------- ------
Income before provision for income tax expense and cumulative
effective of change in accounting principle...................... 12,836 10,521 25,784 20,594
Provision for income tax expense............................................ 5,037 4,249 10,259 7,904
------- ------ ------- ------
Income before cumulative effective of change in
accounting principle............................................. 7,799 6,272 15,525 12,690
Cumulative effect of change in accounting principle, net of tax............. -- -- 459 --
------- ------ ------- ------
Net income......................................................... $ 7,799 6,272 15,066 12,690
======= ====== ======= ======
Earnings per common share:
Basic:
Income before cumulative effective of change in accounting principle.. $ 0.65 0.52 1.29 1.05
Cumulative effect of change in accounting principle, net of tax....... -- -- (0.04) --
------- ------ ------- ------
Basic................................................................. $ 0.65 0.52 1.25 1.05
======= ====== ======= ======
Diluted:
Income before cumulative effective of change in accounting principle.. $ 0.65 0.52 1.29 1.04
Cumulative effect of change in accounting principle, net of tax....... -- -- (0.04) --
------- ------ ------- ------
Diluted............................................................... $ 0.65 0.52 1.25 1.04
======= ====== ======= ======
Weighted average common stock outstanding (in thousands).................... 12,067 12,126 12,082 12,143
======= ====== ======= ======
The accompanying notes are an integral part of the consolidated financial statements.
First Banks America, Inc.
Consolidated Statements of Changes in Stockholders' Equity and Comprehensive Income - (Unaudited)
Six months ended June 30, 2001 and 2000 and six months ended December 31, 2000
(dollars expressed in thousands, except per share data)
Accu-
mulated
other
compre- Total
Class B Compre- Common hensive stock-
Common common Capital hensive Retained treasury income holders'
stock stock surplus income earnings stock (loss) equity
----- ----- ------- ------ -------- ----- ------ ------
Consolidated balances,
December 31, 1999.................... $1,441 375 161,613 25,097 (11,369) (2,644) 174,513
Six months ended June 30, 2000:
Comprehensive income:
Net income.......................... -- -- -- 12,690 12,690 -- -- 12,690
Other comprehensive income,
net of tax - unrealized gains
on securities, net of
reclassification adjustment (1)... -- -- -- 101 -- -- 101 101
------
Comprehensive income................ 12,791
======
Exercise of stock options............ 1 -- 24 -- -- -- 25
Repurchases of common stock.......... -- -- -- -- (1,264) -- (1,264)
Pre-merger transactions of FB&T...... -- -- -- (7,000) -- -- (7,000)
------ --- ------- ------ ------- ------ -------
Consolidated balances, June 30, 2000.... 1,442 375 161,637 30,787 (12,633) (2,543) 179,065
Six months ended December 31, 2000:
Comprehensive income:
Net income.......................... -- -- -- 15,107 15,107 -- -- 15,107
Other comprehensive income,
net of tax - unrealized gains
on securities, net of
reclassification adjustment (1)... -- -- -- 2,888 -- -- 2,888 2,888
------
Comprehensive income................ 17,995
======
Compensation paid in stock........... -- -- 36 -- -- -- 36
Repurchases of common stock.......... -- -- -- -- (190) -- (190)
Retirement and reissuance
of treasury stock................. -- -- (12,747) -- 12,747 -- --
Pre-merger transactions of FB&T...... -- -- 5,003 (5,000) -- -- 3
------ --- ------- ------ ------- ------ -------
Consolidated balances,
December 31, 2000.................... 1,442 375 153,929 40,894 (76) 345 196,909
Six months ended June 30, 2001:
Comprehensive income:
Net income.......................... -- -- -- 15,066 15,066 -- -- 15,066
Other comprehensive income,
net of tax:
Unrealized gains on securities,
net of reclassification
adjustment (1).................. -- -- -- 2,085 -- -- 2,085 2,085
Derivative instruments:
Cumulative effect of change
in accounting principle....... -- -- -- 4,950 -- -- 4,950 4,950
Current period transactions..... -- -- -- 2,745 -- -- 2,745 2,745
Reclassification to earnings.... -- -- -- (1,798) -- -- (1,798) (1,798)
------
Comprehensive income................ 23,048
======
Reduction of deferred tax asset
valuation reserve................... -- -- 565 -- -- -- 565
Repurchases of common stock.......... -- -- -- -- (864) -- (864)
------ --- ------- ------ ------- ------ -------
Consolidated balances, June 30, 2001.... $1,442 375 154,494 55,960 (940) 8,327 219,658
====== === ======= ====== ======= ====== =======
- --------------------------------------
(1) Disclosure of reclassification adjustment:
Three months ended Six months ended Six months ended
June 30, June 30, December 31,
------------------ ---------------- ---------------
2001 2000 2001 2000 2000
---- ---- ---- ---- ----
Unrealized gains (losses) arising during the period............... $ 53 (248) 1,964 347 2,757
Less reclassification adjustment for (losses) gains
included in net income....................................... (8) -- (121) 246 (131)
----- ---- ----- --- -----
Unrealized gains (losses) on investment securities................ $ 61 (248) 2,085 101 2,888
===== ==== ===== === =====
The accompanying notes are an integral part of the consolidated financial statements.
First Banks America, Inc.
Consolidated Statements of Cash Flows - (Unaudited)
(dollars expressed in thousands)
Six months ended
June 30,
-------------------
2001 2000
Cash flows from operating activities:
Net income............................................................................ $ 15,066 12,690
Adjustments to reconcile net income to cash provided by operating activities:
Cumulative effect of change in accounting principle, net of tax................... 459 --
Depreciation, amortization and accretion, net..................................... 3,758 2,583
Provision for loan losses......................................................... 910 1,452
Provision for income tax expense.................................................. 10,259 7,904
Payments of income taxes.......................................................... (3,571) (6,578)
Loss (gain) on sales of securities, net........................................... 187 (379)
Gain on derivative instruments, net............................................... (2,887) --
Decrease (increase) in accrued interest receivable................................ 2,598 (1,972)
Interest accrued on liabilities................................................... 45,919 32,230
Payments of interest on liabilities............................................... (42,053) (31,732)
Other operating activities, net................................................... (12,859) (3,709)
---------- --------
Net cash provided by operating activities................................... 17,786 12,489
---------- --------
Cash flows from investing activities:
Cash paid for acquired entities, net of cash and cash equivalents received............ -- (2,709)
Proceeds from sales of investment securities available for sale....................... 55,903 8,148
Maturities of investment securities available for sale................................ 126,318 64,099
Maturities of investment securities held to maturity.................................. 370 15
Purchases of investment securities available for sale................................. (48,589) (54,862)
Proceeds from termination of swap agreements.......................................... 2,659 --
Net increase in loans................................................................. (415) (104,242)
Recoveries of loans previously charged-off............................................ 1,543 3,131
Purchases of bank premises and equipment.............................................. (731) (2,163)
Proceeds from sales of other real estate.............................................. 11 619
Other investing activities, net....................................................... (614) (622)
---------- --------
Net cash provided by (used in) investing activities......................... 136,455 (88,586)
---------- --------
Cash flows from financing activities:
Other (decreases) increases in deposits:
Demand and savings deposits......................................................... (42,983) 99,619
Time deposits....................................................................... (38,652) 32,287
Decrease in federal funds purchased................................................... -- (25,500)
Increase in securities sold under agreements to repurchase............................ 3,955 19,726
Advances drawn on note payable........................................................ -- 9,200
Repayments of note payable............................................................ (44,700) (5,000)
Repurchases of common stock for treasury.............................................. (864) (1,264)
Pre-merger transactions of FB&T....................................................... -- (7,000)
---------- --------
Net cash (used in) provided by financing activities......................... (123,244) 122,068
---------- --------
Net increase in cash and cash equivalents................................... 30,997 45,971
Cash and cash equivalents, beginning of period............................................ 153,210 97,296
---------- --------
Cash and cash equivalents, end of period.................................................. $ 184,207 143,267
---------- --------
Noncash investing and financing activities:
Loans transferred to other real estate................................................ $ -- 295
Reduction of deferred tax asset valuation reserve..................................... 565 --
========== ========
The accompanying notes are an integral part of the consolidated financial statements.
First Banks America, Inc.
Notes to Consolidated Financial Statements
(1) Basis of Presentation
The consolidated financial statements of First Banks America, Inc. and
subsidiaries (FBA or the Company) are unaudited and should be read in
conjunction with the consolidated financial statements contained in the 2000
Annual Report on Form 10-K. The consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America and conform to predominant practices within the banking
industry. Management of FBA has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare the consolidated financial
statements. In 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 and six months ended June 30, 2001 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2001.
The consolidated financial statements include the accounts of the
parent company and its subsidiaries, all of which are wholly owned. All
significant intercompany accounts and transactions have been eliminated. Certain
reclassifications of 2000 amounts have been made to conform to the 2001
presentation.
FBA is majority owned by First Banks, Inc., St. Louis, Missouri (First
Banks). Accordingly, First Banks has effective control over the management and
policies of FBA and the election of its directors. First Banks' ownership
interest in FBA was 93.16% and 92.86% at June 30, 2001 and December 31, 2000,
respectively.
FBA operates through its wholly owned subsidiary bank holding company,
The San Francisco Company (SFC), which is headquartered in San Francisco,
California, and SFC's wholly owned subsidiary bank, First Bank & Trust (FB&T),
which is also headquartered in San Francisco, California.
(2) Acquisition of First Bank & Trust / Restatement of Financial
Information
Effective October 31, 2000, FBA completed its acquisition of First Bank
& Trust in a transaction accounted for as a combination of entities under common
control. FBA acquired First Bank & Trust from First Banks. Prior to the
acquisition, First Banks owned 84.42% of the outstanding common stock of FBA and
all of the outstanding common stock of First Bank & Trust.
The consolidated financial statements at June 30, 2000, and for the
three and six months then ended, give retroactive effect to this transaction
and, as a result, the consolidated balance sheets, statements of income and
statements of cash flows are presented as if the combining entities had been
consolidated for all periods subsequent to First Banks' acquisition of First
Bank & Trust on March 15, 1995. The consolidated statements of changes in
stockholders' equity and comprehensive income reflect the accounts of FBA as if
the common stock, excluding the treasury shares, issued to First Banks in
exchange for its interest in First Bank & Trust had been outstanding for all
periods subsequent to March 15, 1995.
(3) Acquisitions
On May 23, 2001, FBA and Charter Pacific Bank (Charter Pacific)
executed a definitive agreement providing for the acquisition of Charter Pacific
by FBA. Under the terms of the agreement, the shareholders of Charter Pacific
will receive $3.80 per share in cash, or a total of approximately $21.4 million,
subject to a $0.20 per share escrow relating to certain potential litigation
costs. Charter Pacific is headquartered in Agoura Hills, California, and has one
other branch office in Beverly Hills, California. At June 30, 2001, Charter
Pacific had $107.6 million in total assets, $71.4 million in loans, net of
unearned discount, $10.7 million in investment securities and $94.0 million in
deposits. FBA expects this transaction, which is subject to regulatory approvals
and the approval of Charter Pacific's shareholders, will be completed during the
third quarter of 2001.
On June 22, 2001, FBA and BYL Bancorp (BYL) executed a definitive
agreement providing for the acquisition of BYL and its wholly owned banking
subidiary, BYL Bank Group, by FBA. Under the terms of the agreement, the
shareholders of BYL will receive $18.50 per share in cash, or a total of
approximately $52.0 million. BYL Bank is headquartered in Orange, California,
and has six other branches located in Orange and Riverside counties. At June 30,
2001, BYL had $278.2 million in total assets, $151.2 million in loans, net of
unearned discount, $12.3 million in investment securities and $246.1 million in
deposits. FBA expects this transaction, which is subject to regulatory approvals
and the approval of BYL's shareholders, will be completed during the fourth
quarter of 2001.
(4) Derivative Instruments and Hedging Activities
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133 -- Accounting for
Derivative Instruments and Hedging Activities (SFAS 133). In June 1999 and June
2000, the FASB issued SFAS No. 137 - Accounting for Derivative Instruments and
Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133,
an Amendment of FASB Statement No. 133, and SFAS No. 138 - Accounting for
Derivative Instruments and Hedging Activities, an Amendment of FASB Statement
No. 133, respectively. SFAS 133, as amended, establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. SFAS 133,
as amended, requires an entity to recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. If certain conditions are met, a derivative may be specifically
designated as a hedge in one of three categories. The accounting for changes in
the fair value of a derivative (that is, gains and losses) depends on the
intended use of the derivative and the resulting designation. Under SFAS 133, as
amended, an entity that elects to apply hedge accounting is required to
establish, at the inception of the hedge, the method it will use for assessing
the effectiveness of the hedging derivative and the measurement approach for
determining the ineffective aspect of the hedge. Those methods must be
consistent with the entity's approach to managing risk.
FBA utilizes derivative instruments and hedging activities to assist in
the management of interest rate sensitivity and to modify the repricing,
maturity and option characteristics of certain assets and liabilities. FBA uses
such derivative instruments solely to reduce its interest rate risk exposure.
The following is a summary of FBA's accounting policies for derivative
instruments and hedging activities under SFAS 133, as amended.
Interest Rate Swap Agreements - Cash Flow Hedges. Interest rate swap
agreements designated as cash flow hedges are accounted for at fair value. The
effective portion of the change in the cash flow hedge's gain or loss is
initially reported as a component of other comprehensive income and subsequently
reclassified into noninterest income when the underlying transaction affects
earnings. The ineffective portion of the change in the cash flow hedge's gain or
loss is recorded in noninterest income on each monthly measurement date. The
swap agreements are accounted for on an accrual basis with the net interest
differential being recognized as an adjustment to interest income or interest
expense of the related asset or liability being hedged.
Interest Rate Swap Agreements - Fair Value Hedges. Interest rate swap
agreements designated as fair value hedges are accounted for at fair value.
Changes in the fair value of the swap agreements are recognized currently in
noninterest income. The change in the fair value of the underlying hedged item
attributable to the hedged risk adjusts the carrying amount of the underlying
hedged item and is also recognized currently in noninterest income. All changes
in fair value are measured on a monthly basis. The swap agreements are accounted
for on an accrual basis with the net interest differential being recognized as
an adjustment to interest income or interest expense of the related asset or
liability.
Interest Rate Cap and Floor Agreements. Interest rate cap and floor
agreements are accounted for at fair value. Changes in the fair value of
interest rate cap and floor agreements are recognized in earnings on each
monthly measurement date.
On January 1, 2001, FBA implemented SFAS 133, as amended. The
implementation of SFAS 133, as amended, resulted in an increase in derivative
instruments of $6.9 million, an increase in deferred tax liabilities of $2.7
million and an increase in other comprehensive income of $5.0 million. In
addition, FBA recorded a cumulative effect of change in accounting principle of
$459,000, net of taxes of $247,000, as a reduction of net income.
(5) Earnings Per Common Share
The following is a reconciliation of the numerators and denominators of
the basic and diluted earnings per share (EPS) computations for the periods
indicated:
Income Shares Per share
(numerator) (denominator) amount
----------- ------------- ------
(in thousands, except per share data)
Three months ended June 30, 2001:
Basic EPS-- income before cumulative effect.................. $ 7,799 12,067 $ 0.65
Cumulative effect of change in accounting principle,
net of tax................................................ -- -- --
------- ------ -------
Basic EPS - income available to common stockholders.......... 7,799 12,067 0.65
-- -- --
------- ------ -------
Diluted EPS-- income available to common stockholders........ $ 7,799 12,067 $ 0.65
======= ====== =======
Three months ended June 30, 2000:
Basic EPS-- income available to common stockholders.......... $ 6,272 12,126 $ 0.52
Effect of dilutive securities-- stock options................ -- -- --
------- ------ -------
Diluted EPS-- income available to common stockholders........ $ 6,272 12,126 $ 0.52
======= ====== =======
Six months ended June 30, 2001:
Basic EPS-- income before cumulative effect.................. $15,525 12,082 $ 1.29
Cumulative effect of change in accounting principle,
net of tax................................................ (459) -- (0.04)
------- ------ -------
Basic EPS - income available to common stockholders.......... 15,066 12,082 1.25
------- ------ -------
-- -- --
Diluted EPS-- income available to common stockholders........ $15,066 12,082 $ 1.25
======= ====== =======
Six months ended June 30, 2000:
Basic EPS-- income available to common stockholders.......... $12,690 12,143 $ 1.05
Effect of dilutive securities-- stock options................ -- 3 (0.01)
------- ------ -------
Diluted EPS-- income available to common stockholders........ $12,690 12,146 $ 1.04
======= ====== =======
(6) Transactions with Related Parties
FBA purchases certain services and supplies from or through First
Banks, its affiliates and First Services, L.P. FBA's financial position and
operating results could significantly differ from those that would be obtained
if FBA's relationship with First Banks did not exist. In addition, fees payable
to First Banks, its affiliates and First Services, L.P. generally increase as
FBA expands through acquisitions and internal growth, reflecting the higher
levels of service needed to operate its subsidiaries.
First Banks provides management services to FBA and FB&T. Management
services are provided under management fee agreements whereby FBA compensates
First Banks for its use of personnel for various functions including internal
audit, loan review, income tax preparation and assistance, accounting,
asset/liability management and investment services, loan servicing and other
management and administrative services. Fees paid under these agreements were
$1.9 million and $3.6 million for the three and six months ended June 30, 2001,
and $1.3 million and $2.6 million for the comparable periods in 2000,
respectively.
First Services L.P., a limited partnership indirectly owned by First
Banks' Chairman and his adult children, provides data processing services and
various related services to FBA and FB&T under the terms of data processing
agreements. Fees paid under these agreements were $2.8 million and $4.8 million
for the three and six months ended June 30, 2001, and $1.6 million and $3.1
million for the comparable periods in 2000, respectively.
FB&T had $95.4 million and $108.2 million in whole loans and loan
participations outstanding at June 30, 2001 and December 31, 2000, respectively,
that were purchased from First Bank, a wholly owned subsidiary of First Banks.
In addition, FB&T had sold $178.0 million and $146.1 million in whole loan and
loan participations to First Bank at June 30, 2001 and December 31, 2000,
respectively.
FBA has a $100.0 million revolving note payable from First Banks on
which the outstanding principal and accrued interest under the note payable are
due and payable on June 30, 2005. The borrowings under the note payable bear
interest at an annual rate of one-quarter percent less than the "Prime Rate" as
reported in the Wall Street Journal. The amounts outstanding under the note
payable at June 30, 2001 and December 31, 2000, were $53.3 million and $98.0
million, respectively. The interest expense under the note payable was $1.0
million and $2.9 million for the three and six months ended June 30, 2001, and
$153,000 and $214,000 for the comparable periods in 2000, respectively.
(7) Regulatory Capital
FBA and its 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 FBA's consolidated financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
FBA and its subsidiary banks must meet specific capital guidelines that involve
quantitative measures of assets, liabilities and certain off-balance-sheet items
as calculated under regulatory accounting practices. Capital amounts and
classifications are also subject to qualitative judgments by the regulators
about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require FBA and its subsidiary banks to maintain minimum amounts and
ratios of total and Tier I capital (as defined in the regulations) to
risk-weighted assets, and of Tier I capital to average assets. Management
believes, as of June 30, 2001, FB&T was well capitalized under the applicable
regulations. At June 30, 2001 and December 31, 2000, FBA's total capital ratio
fell below the well-capitalized level, however, FBA remained adequately
capitalized. FBA's reduction in the total capital ratio is primarily
attributable to the acquisitions of Millennium Bank and SFC in December 2000,
which added total assets of approximately $300.8 million. The sizable increase
in FBA's total capital ratio during the six months ended June 30, 2001 is
primarily attributable to increased earnings.
As of June 30, 2001, the most recent notification from FBA's primary
regulator categorized FBA and FB&T as adequately capitalized and well
capitalized, respectively, under the regulatory framework for prompt corrective
action. To be categorized as well capitalized, FBA and FB&T must maintain
minimum total risk-based, Tier I risk-based and Tier I leverage ratios as set
forth in the following table.
At June 30, 2001 and December 31, 2000, FBA's, FB&T's and Bank of San
Francisco's (BSF) required and actual capital ratios were as follows:
To be well
Actual For capital capitalized under
------------------------
June 30, December 31, adequacy prompt corrective
2001 2000 purposes action provisions
---- ---- -------- -----------------
Total capital (to risk-weighted assets):
FBA................................ 8.62% 8.01% 8.0% 10.0%
FB&T............................... 10.70 10.58 8.0 10.0
BSF (1)............................ -- 22.38 8.0 10.0
Tier 1 capital (to risk-weighted assets):
FBA................................ 7.36 6.76 4.0 6.0
FB&T............................... 9.45 9.32 4.0 6.0
BSF (1)............................ -- 21.42 4.0 6.0
Tier 1 capital (to average assets):
FBA................................ 7.01 7.34 3.0 5.0
FB&T............................... 8.73 9.27 3.0 5.0
BSF (1)............................ -- 22.00 3.0 5.0
--------------------------
(1) BSF was acquired by FBA on December 31, 2000. FB&T merged with BSF
on March 29, 2001, and BSF was renamed First Bank & Trust.
(8) Business Segment Results
FBA's business segments are the parent company (which includes
intercompany eliminations) and FB&T. The reportable business segments are
consistent with the management structure of FBA and the internal reporting
system that monitors performance.
Through its branch network, FB&T provides similar products and services
in its defined geographic areas. The products and services offered include a
broad range of commercial and personal banking products, including demand,
savings, money market and time deposit accounts. In addition, FB&T markets
combined basic services for various customer groups, including packaged accounts
for more affluent customers, and sweep accounts, lock-box deposits and cash
management products for commercial customers. FB&T also offers both consumer and
commercial loans. Consumer lending includes residential real estate, home equity
and installment lending. Commercial lending includes commercial, financial and
agricultural loans, real estate construction and development loans, commercial
real estate loans, commercial leasing and trade financing.
Other financial services include mortgage banking, debit cards,
brokerage services, credit-related insurance, automated teller machines,
telephone banking, safe deposit boxes and trust and private banking services.
The revenues generated by FB&T consist primarily of interest income, generated
from the loan and investment security portfolios, and service charges and fees,
generated from the deposit products and services. The geographic areas include
Houston, Dallas, Irving and McKinney, Texas and southern and northern
California. The products and services are offered to customers primarily within
their respective geographic areas, with the exception of loan participations
executed between FB&T and First Bank. See Note 6 to the consolidated financial
statements.
The business segment results are consistent with FBA's internal
reporting system and, in all material respects, with accounting principles
generally accepted in the United States of America and practices predominate in
the banking industry.
The business segment results are summarized as follows:
FB&T (1) Corporate and other (2) Consolidated totals
---------------------- ----------------------- ---------------------
June 30, December 31, June 30, December 31, June 30, December 31,
2001 2000 2001 2000 2001 2000
---- ---- ---- ---- ---- ----
(dollars expressed in thousands)
Balance sheet information:
Investment securities....................... $ 203,610 330,478 1,939 4,741 205,549 335,219
Loans, net of unearned discount............. 2,053,295 2,058,628 -- 49 2,053,295 2,058,677
Total assets................................ 2,628,378 2,733,545 5,846 7,834 2,634,224 2,741,379
Deposits.................................... 2,224,079 2,306,469 (107) (113) 2,223,972 2,306,356
Stockholders' equity........................ 316,647 333,186 (96,989) (136,277) 219,658 196,909
========== ========= ======= ======== ========= =========
FB&T (1) Corporate and other (2) Consolidated totals
-------------------- ----------------------- ------------------
Three months ended Three months ended Three months ended
June 30, June 30, June 30,
-------------------- -------------------- ------------------
2001 2000 2001 2000 2001 2000
---- ---- ---- ---- ---- ----
(dollars expressed in thousands)
Income statement information:
Interest income............................. $ 52,339 42,661 (42) 91 52,297 42,752
Interest expense............................ 20,712 16,943 1,012 151 21,724 17,094
-------- ------ ------ ------ ------- ------
Net interest income................... 31,627 25,718 (1,054) (60) 30,573 25,658
Provision for loan losses................... 820 470 -- -- 820 470
-------- ------ ------ ------ ------- ------
Net interest income after
provision for loan losses........... 30,807 25,248 (1,054) (60) 29,753 25,188
-------- ------ ------ ------ ------- ------
Noninterest income.......................... 6,343 2,797 -- (46) 6,343 2,751
Noninterest expense......................... 22,171 16,436 1,089 982 23,260 17,418
-------- ------ ------ ------ ------- ------
Income (loss) before provision
(benefit)for income tax expense..... 14,979 11,609 (2,143) (1,088) 12,836 10,521
Provision (benefit) for income tax expense.. 5,772 4,631 (735) (382) 5,037 4,249
-------- ------ ------ ------ ------- ------
Net income (loss)..................... $ 9,207 6,978 (1,408) (706) 7,799 6,272
======== ====== ====== ====== ======= ======
FB&T (1) Corporate and other (2) Consolidated totals
-------------------- ----------------------- -------------------
Six months ended Six months ended Six months ended
June 30, June 30, June 30,
------------------- ----------------------- -------------------
2001 2000 2001 2000 2001 2000
---- ---- ---- ---- ---- ----
(dollars expressed in thousands)
Income statement information:
Interest income............................. $107,078 81,468 42 172 107,120 81,640
Interest expense............................ 43,052 32,041 2,867 189 45,919 32,230
-------- ------ ------ ------ ------- ------
Net interest income................... 64,026 49,427 (2,825) (17) 61,201 49,410
Provision for loan losses................... 910 1,452 -- -- 910 1,452
-------- ------ ------ ------ ------- ------
Net interest income after
provision for loan losses........... 63,116 47,975 (2,825) (17) 60,291 47,958
-------- ------ ------ ------ ------- ------
Noninterest income.......................... 10,853 5,843 (131) (178) 10,722 5,665
Noninterest expense......................... 42,963 31,118 2,266 1,911 45,229 33,029
-------- ------ ------ ------ ------- ------
Income (loss) before provision
(benefit) for income tax expense
and cumulative effect of change
in accounting principle............. 31,006 22,700 (5,222) (2,106) 25,784 20,594
Provision (benefit) for income tax expense.. 12,056 9,027 (1,797) (1,123) 10,259 7,904
-------- ------ ------ ------ ------- ------
Income (loss) before cumulative effect
of change in accounting principle... 18,950 13,673 (3,425) (983) 15,525 12,690
Cumulative effect of change in
accounting principle, net of tax......... 459 -- -- -- 459 --
-------- ------ ------ ------ ------- ------
Net income (loss)..................... $ 18,491 13,673 (3,425) (983) 15,066 12,690
======== ====== ====== ====== ======= ======
- -----------------
(1) Includes BSF, which was acquired by FBA on December 31, 2000. FB&T merged with BSF on March 29, 2001, and BSF was renamed
First Bank & Trust.
(2) Corporate and other includes $634,000 and $1.3 million of guaranteed preferred debentures expense, after applicable income tax
benefit of $341,000 and $650,000 for the three and six months ended June 30, 2001, and $636,000 and $1.3 million of guaranteed
preferred debentures expense, after applicable income tax benefit of $342,000 and $670,000, for the comparable periods in 2000,
respectively.
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations
The discussion set forth in Management's Discussion and Analysis of
Financial Condition and Results of Operations contains certain forward-looking
statements with respect to our financial condition, results of operations and
business. These forward-looking statements are subject to certain risks and
uncertainties, not all of which can be predicted or anticipated. Factors that
may cause actual results to differ materially from those contemplated by the
forward-looking statements herein include market conditions as well as
conditions affecting the banking industry generally and factors having a
specific impact on us, including but not limited to fluctuations in interest
rates and in the economy; the impact of laws and regulations applicable to us
and changes therein; the impact of accounting pronouncements applicable to us
and changes therein; competitive conditions in the markets in which we conduct
our operations, including competition from banking and non-banking companies
with substantially greater resources than us, some of which may offer and
develop products and services not offered by us; our ability to control the
composition of our loan portfolio without adversely affecting interest income;
and our ability to respond to changes in technology. With regard to our efforts
to grow through acquisitions, factors that could affect the accuracy or
completeness of forward-looking statements contained herein include the
potential for higher than anticipated operating costs arising from the
geographic dispersion of our offices, as compared with competitors operating
solely in contiguous markets; the competition of larger acquirers with greater
resources than us; fluctuations in the prices at which acquisition targets may
be available for sale and in the market for our securities; and the potential
for difficulty or unanticipated costs in realizing the benefits of particular
acquisition transactions. Readers of our Form 10-Q should therefore not place
undue reliance on forward-looking statements.
General
We are a registered bank holding company incorporated in Delaware and
headquartered in St. Louis County, Missouri. Through the operation of our
subsidiaries, we offer a broad array of financial services to consumer and
commercial customers. We currently operate one banking subsidiary that has 49
branch offices in California and Texas. At June 30, 2001, we had total assets of
$2.63 billion, loans, net of unearned discount, of $2.05 billion, total deposits
of $2.22 billion and total stockholders' equity of $219.7 million.
We operate through our subsidiary bank holding company, The San
Francisco Company, or SFC, which is headquartered in San Francisco, California,
and our subsidiary bank, First Bank & Trust, or FB&T, which is also
headquartered in San Francisco, California. Our subsidiaries are wholly owned by
their respective parent companies.
We offer a broad range of commercial and personal banking services,
including demand, savings, money market and time deposit accounts. In addition,
we market combined basic services for various customer groups, including
packaged accounts for more affluent customers, and sweep accounts, lock-box
deposits and cash management products for commercial customers. We also offer
both consumer and commercial loans. Consumer lending includes residential real
estate, home equity and installment lending. Commercial lending includes
commercial, financial and agricultural loans, real estate construction and
development loans, commercial real estate loans, commercial leasing and trade
financing. Other financial services include mortgage banking, debit cards,
brokerage services, credit-related insurance, automated teller machines,
telephone banking, safe deposit boxes, escrow and bankruptcy deposit services,
stock option services and trust and private banking services.
Primary responsibility for managing FB&T rests with the officers and
directors. However, we centralize overall corporate policies, procedures and
administrative functions and provide operational support functions for our
subsidiaries. This practice allows us to achieve various operating efficiencies
while allowing our subsidiary banking units to focus on customer service.
Financial Condition
Our total assets were $2.63 billion and $2.74 billion at June 30, 2001
and December 31, 2000, respectively. The decrease in total assets is primarily
attributable to an anticipated level of attrition associated with our
acquisitions of Commercial Bank of San Francisco, Millennium Bank and Bank of
San Francisco, which were completed during the fourth quarter of 2000. Loans,
net of unearned discount, decreased by $5.4 million, which is further discussed
under "--Loans and Allowance for Loan Losses." Investment securities decreased
by $129.7 million to $205.5 million at June 30, 2001 from $335.2 million at
December 31, 2000. We attribute the decrease in investment securities primarily
to the decline in deposits, the liquidation of certain investment securities
acquired through acquisitions that did not meet our investment objectives and a
higher than normal level of investment security calls experienced during the six
months ended June 30, 2001. A portion of the funds generated from the reduction
of investment securities were reinvested in investment securities, and the
remaining funds were temporarily invested in cash and cash equivalents,
resulting in an increase of $51.5 million in federal funds sold to $104.7
million at June 30, 2001. Offsetting these reductions in assets was an increase
in derivative instruments of $12.4 million, resulting solely from the
implementation of Statement of Financial Accounting Standards, or SFAS, No. 133,
Accounting for Derivative Instruments and Hedging Activities, as amended by SFAS
No. 137 - Accounting for Derivative Instruments and Hedging Activities -
Deferral of the Effective Date of FASB Statement No. 133, an Amendment of FASB
Statement No. 133, and SFAS No. 138 - Accounting for Derivative Instruments and
Hedging Activities, an Amendment of FASB Statement No. 133. Total deposits
decreased by $82.4 million to $2.22 billion at June 30, 2001 from $2.31 billion
at December 31, 2000, which reflects an anticipated level of attrition
associated with our acquisitions in the fourth quarter of 2000 and continued
aggressive competition within our market areas. In addition, our note payable
decreased by $44.7 million to $53.3 million at June 30, 2001 from $98.0 million
at December 31, 2000. The reduction of our note payable was funded with
dividends from FB&T and a capital reduction of $23.0 million that was recorded
in conjunction with the merger of our former subsidiary, First Bank & Trust,
with Bank of San Francisco, effective March 29, 2001. In conjunction with this
merger, Bank of San Francisco was renamed First Bank & Trust. Furthermore,
accrued expenses and other liabilities decreased by $14.8 million to $9.5
million at June 30, 2001 from $24.3 million at December 31, 2000. We attribute
this decrease primarily to our quarterly tax payments and the timing of certain
other routine payments.
During the three and six months ended June 30, 2001, we purchased
$49,000 and $864,000 of our common stock at an average cost of $21.72 per share
and $21.62 per share, respectively. We utilized available cash and the proceeds
from sales of available-for-sale investment securities to fund our repurchases
of common stock. Our Board of Directors, through various resolutions passed from
1995 to 2000, has authorized the purchase of up to a cumulative total of
1,094,797 shares of common stock. As of June 30, 2001, we had purchased a total
of 847,857 shares of common stock held for treasury. On October 31, 2000, we
issued 803,429 treasury shares to First Banks in conjunction with our
acquisition of First Bank & Trust. At June 30, 2001, we could purchase
approximately 247,000 additional shares under the existing authorization.
Results of Operations
Net Income
Net income was $7.8 million, or $0.65 per share on a diluted basis, for
the three months ended June 30, 2001, in comparison to $6.3 million, or $0.52
per share on a diluted basis, for the comparable period in 2000. For the six
months ended June 30, 2001 and 2000, net income was $15.1 million, or $1.25 per
share on a diluted basis, and $12.7 million, or $1.04 per share on a diluted
basis, respectively. The implementation of SFAS No. 133, as amended, on January
1, 2001, resulted in the recognition of a cumulative effect of change in
accounting principle of $459,000, net of tax, which reduced net income.
Excluding this item, net income was $15.5 million, or $1.29 per share on a
diluted basis, for the six months ended June 30, 2001. The earnings progress for
the first six months of 2001 was primarily driven by increased net interest
income and noninterest income offset by higher operating expenses, an increased
provision for loan losses in the second quarter as further discussed under
"--Provision for Loan Losses," and the impact of a change in accounting
principle. The increased net interest income was generated through internal loan
growth and our acquisitions of Lippo Bank, Bank of Ventura, Commercial Bank of
San Francisco, Millennium Bank and Bank of San Francisco, completed during 2000.
However, the improvement in net interest income for the three and six months
ended June 30, 2001, was partially offset by six reductions in the prime lending
rate that occurred during the first and second quarters of 2001.
The improvement in net interest income and noninterest income for the
three and six months ended June 30, 2001, was partially offset by increased
operating expenses. The increased operating expenses are primarily attributable
to the operating expenses of the aforementioned acquisitions; increased salaries
and employee benefit expenses; increased data processing fees; increased legal,
examination and professional fees; increased amortization of intangibles
associated with the purchase of the aforementioned banks; and a charge to other
expense associated with the establishment of a specific reserve on an unfunded
letter of credit.
Net Interest Income
Net interest income was $30.6 million, or 5.18% of average
interest-earning assets, for the three months ended June 30, 2001, in comparison
to $25.7 million, or 5.52% of average interest-earning assets, for the
comparable period in 2000. For the six months ended June 30, 2001 and 2000, net
interest income was $61.2 million, or 5.20% of average interest-earning assets,
in comparison to $49.4 million, or 5.48% of average interest-earning assets,
respectively. We credit the improved net interest income for the three and six
months ended June 30, 2001, primarily to the net interest-earning assets
provided by our acquisitions completed during 2000 and earnings on interest rate
swap agreements that we entered into in conjunction with our risk management
program.
Average loans, net of unearned discount, increased by $500.0 million to
$2.07 billion for the three months ended June 30, 2001 from $1.57 billion for
the comparable period in 2000. For the six months ended June 30, 2001 and 2000,
average loans, net of unearned discount, were $2.06 million and $1.53 million,
respectively. The yield on our loan portfolio decreased to 9.21% and 9.44% for
the three and six months ended June 30, 2001, respectively, in comparison to
9.73% and 9.56% for the comparable periods in 2000. This was a major contributor
to the decline in our net interest rate margin for the three and six months
ended June 30, 2001 of 34 basis points and 28 basis points, respectively, from
the comparable periods in 2000. We attribute the decline in yields and our net
interest rate margin primarily to the continued decreases in the prime lending
rate. During the period from December 31, 2000 through June 30, 2001, the Board
of Governors of the Federal Reserve System decreased the targeted Federal funds
rate six times, resulting in six decreases in the prime rate of interest from
9.50% to 6.75%. This is reflected not only in the rate of interest earned on
loans that are indexed to the prime rate, but also in other assets and
liabilities which either have variable or adjustable rates, or which matured or
repriced during this period. As further discussed under "--Interest Rate Risk
Management," the reduced level of interest income earned on our loan portfolio
as a result of declining interest rates was partially mitigated by the earnings
associated with our interest rate swap agreements. For the three and six months
ended June 30, 2001, these agreements provided income of $2.4 million and $3.0
million, respectively, in comparison to expense of $436,000 and $625,000
incurred for the comparable periods in 2000.
For the three and six months ended June 30, 2001, the aggregate
weighted average rate paid on our deposit portfolio was 4.48% and 4.67%,
respectively, compared to 4.62% and 4.52% for the comparable periods in 2000.
The overall increase for the six months ended June 30, 2001, reflects increased
rates paid by us to attract and retain deposits as a result of generally
increasing interest rates during the first six months of 2000 and the high level
of competition within our market areas. We attribute the decline for the three
months ended June 30, 2001, primarily to rates paid on savings deposits, which
have continued to decline in conjunction with the prime rate reductions as
previously discussed. In addition, the aggregate weighted average rate paid on
our note payable and short-term borrowings decreased to 5.52% from 6.00% for the
three months ended June 30, 2001 and 2000, respectively, and increased to 6.43%
for the six months ended June 30, 2001 from 5.71% for the comparable period in
2000. Amounts outstanding under our $100.0 million revolving note payable to
First Banks bear interest at an annual rate of one-quarter percent less than the
"Prime Rate" as reported in the Wall Street Journal. Thus, our revolving note
payable represents a relatively high-cost funding source, although it has been
mitigated by the continued reductions in the prime lending rate, as increased
advances under the revolving note payable have the effect of increasing the
weighted average rate of non-deposit liabilities. During 2000, we utilized the
note payable to fund our acquisitions of Commercial Bank of San Francisco,
Millennium Bank and Bank of San Francisco, thus resulting in a significantly
higher level of borrowings occurring during the fourth quarter of 2000.
The following table sets forth certain information relating to our
average balance sheets, and reflects the average yield earned on
interest-earning assets, the average cost of interest-bearing liabilities and
the resulting net interest income for the periods indicated.
Three months ended June 30, Six months ended June 30,
---------------------------------------------- ----------------------------------------------
2001 2000 2001 2000
---------------------- ---------------------- ------------------- -------------------------
Interest Interest Interest Interest
Average income/ Yield/ Average income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
balance expense rate balance expense rate balance expense rate balance expense rate
(dollars expressed in thousands)
Assets
------
Interest-earning assets:
Loans (1)(2)(3)(4)........... $2,065,353 47,437 9.21% $1,565,972 37,868 9.73% $2,058,289 96,317 9.44% $1,531,853 72,795 9.56%
Investment securities (3).... 203,921 3,626 7.13 210,770 3,469 6.62 237,239 8,739 7.43 205,004 6,595 6.47
Federal funds sold and other. 98,591 1,234 5.02 91,532 1,415 6.22 77,793 2,064 5.35 75,631 2,250 5.98
---------- ------ ---------- ------ ---------- ------- ---------- ------
Total interest-earning
assets.................. 2,367,865 52,297 8.86 1,868,274 42,752 9.20 2,373,321 107,120 9.10 1,812,488 81,640 9.06
------ ------ ------- ------
Nonearning assets............... 273,075 180,055 272,134 174,702
---------- ---------- ---------- ----------
Total assets............... $2,640,940 $2,048,329 $2,645,455 $1,987,190
Liabilities and
Stockholders' Equity
--------------------
Interest-bearing liabilities:
Interest-bearing
demand deposits............ $ 218,770 916 1.68% $ 163,472 548 1.35% $ 213,124 1,841 1.74% $ 162,585 1,160 1.43%
Savings deposits............. 749,565 7,289 3.90 553,633 5,977 4.34 742,188 15,104 4.10 527,434 11,112 4.24
Time deposits of $100
or more.................... 306,976 4,328 5.66 110,263 1,484 5.41 302,379 8,786 5.86 111,877 2,894 5.20
Other time deposits (4)...... 535,825 7,676 5.75 613,683 8,546 5.60 550,809 16,113 5.90 590,347 16,123 5.49
---------- ------ ---------- ------ ---------- ------- ---------- ------
Total interest-bearing
deposits................. 1,811,136 20,209 4.48 1,441,051 16,555 4.62 1,808,500 41,844 4.67 1,392,243 31,289 4.52
Note payable and
short-term borrowings....... 110,100 1,515 5.52 36,116 539 6.00 127,756 4,075 6.43 33,128 941 5.71
---------- ------ ---------- ------ ---------- ------- ---------- ------
Total interest-bearing
liabilities............. 1,921,236 21,724 4.54 1,477,167 17,094 4.65 1,936,256 45,919 4.78 1,425,371 32,230 4.55
------ ------ ------ ------
Noninterest-bearing liabilities:
Demand deposits.............. 408,763 321,431 411,843 312,174
Other liabilities............ 89,212 71,344 85,403 71,570
---------- ---------- ---------- ----------
Total liabilities.......... 2,419,211 1,869,942 2,433,502 1,809,115
Stockholders' equity............ 221,729 178,387 211,953 178,075
---------- ---------- ---------- ----------
Total liabilities and
stockholders' equity.... $2,640,940 $2,048,329 $2,645,455 $1,987,190
========== ========== ========== ==========
Net interest income............. 30,573 25,658 61,201 49,410
====== ====== ====== ======
Interest rate spread............ 4.32 4.55 4.32 4.51
Net interest margin............. 5.18% 5.52% 5.20% 5.48%
==== ==== ==== ====
- -------------------------
(1) For purposes of these computations, nonaccrual loans are included in the average loan amounts.
(2) Interest income on loans includes loan fees.
(3) FBA has no tax-exempt income.
(4) Includes the effects of interest rate exchange agreements.
Provision for Loan Losses
The provision for loan losses was $820,000 and $910,000 for the three
and six months ended June 30, 2001, in comparison to $470,000 and $1.5 million
for the comparable periods in 2000, respectively. We attribute the change in the
provision for loan losses primarily to an increase in net loan charge-offs. Loan
charge-offs were $3.6 million and $5.8 million for the three and six months
ended June 30, 2001, in comparison to $178,000 and $2.0 million for the
comparable periods in 2000. The increase in loan charge-offs reflects a $1.4
million charge-off on a single credit relationship, a $675,000 charge-off with
respect to a loan in an acquired portfolio as well as the recent general slow
down in economic conditions prevalent within our markets. Loan recoveries were
$717,000 and $1.5 million for the three and six months ended June 30, 2001, in
comparison to $839,000 and $3.1 million for the comparable periods in 2000. Loan
recoveries for the six months ended June 30, 2000 included a recovery of $1.3
million on a single credit relationship. Past-due loans have increased during
the three and six months ended June 30, 2001, and we anticipate these trends
will continue in the near future. However, we believe these trends represent
normal cyclical trends experienced within the banking industry during times of
economic slow down. Management considered these trends in its overall assessment
of the adequacy of the allowance for loan losses.
Tables summarizing nonperforming assets, past-due loans and charge-off
and recovery experience are presented under "--Loans and Allowance for Loan
Losses."
Noninterest Income
Noninterest income was $6.3 million and $10.7 million for the three and
six months ended June 30, 2001, in comparison to $2.8 million and $5.7 million
for the comparable periods 2000, respectively. Noninterest income consists
primarily of service charges on deposit accounts and customer service fees, net
gains on derivative instruments and other income.
Service charges on deposit accounts and customer service fees increased
to $2.1 million and $4.3 million for the three and six months ended June 30,
2001, from $1.8 million and $3.5 million for the comparable periods in 2000,
respectively. We attribute the increase in service charges and customer service
fees to:
>> increased deposit balances provided by internal growth;
>> our acquisitions completed during 2000;
>> additional products and services available and utilized by our
expanding base of retail and corporate customers;
>> increased fee income resulting from revisions of customer service
charge rates, effective June 1, 2000, and enhanced control of fee
waivers; and
>> increased income associated with automated teller machine services
and debit cards.
The net gain on derivative instruments of $2.6 million and $2.9 million
for the three and six months ended June 30, 2001, respectively, primarily
results from the termination of certain interest rate swap agreements in April
and June 2001 to adjust the internal rate hedge position consistent with the
changes in portfolio structure and mix. In addition, the net gain reflects
changes in the fair value of our interest rate cap agreements, interest rate
floor agreements and fair value hedges, and results from the implementation of
SFAS No. 133, as amended, on January 1, 2001. See "--Interest Rate Risk
Management" and Note 3 to our consolidated financial statements.
Other income was $1.7 million and $3.8 million for the three and six
months ended June 30, 2001, in comparison to $917,000 and $1.8 million for the
comparable periods in 2000, respectively. We attribute the primary components of
the increase to:
>> our acquisitions completed during 2000;
>> increased earnings associated with our international banking
products, which were initially offered in March 2000;
>> increased brokerage revenue associated with the stock option
services acquired in conjunction with our acquisition of Bank
of San Francisco;
>> increased earnings associated with our official check processing
program, in which we earn a fee based upon the amount of official
checks issued and outstanding; and,
>> income of approximately $300,000 and $600,000 for the three and
six months ended June 30, 2001, respectively, associated with
equipment leasing activities that were acquired in conjunction
with our acquisition of Bank of San Francisco in December 2000.
Noninterest Expense
Noninterest expense was $23.3 million and $45.2 million for the three
and six months ended June 30, 2001, in comparison to $17.4 million and $33.0
million for the comparable periods in 2000, respectively. The increase reflects:
>> the noninterest expense of our acquisitions completed during 2000,
including certain nonrecurring expenses associated with those
acquisitions;
>> increased salaries and employee benefit expenses;
>> increased data processing fees;
>> increased legal, examination and professional fees;
>> increased amortization of intangibles associated with our
acquisitions completed during 2000; and
>> increased other expense.
Salaries and employee benefits were $8.3 million and $16.4 million for
the three and six months ended June 30, 2001, in comparison to $6.5 million and
$12.8 million for the comparable periods in 2000, respectively. We primarily
associate the increase with our 2000 acquisitions. However, the increase also
reflects the competitive environment in the employment market that has resulted
in a higher demand for limited resources, thus escalating industry salary and
employee benefit costs associated with employing and retaining qualified
personnel. In addition, the increase includes various additions to our staff to
enhance management expertise.
Data processing fees were $2.3 million and $4.8 million for the three
and six months ended June 30, 2001, in comparison to $1.7 million and $3.4
million for the comparable periods in 2000, respectively. As more fully
described in Note 6 to our consolidated financial statements, First Services,
L.P. provides data processing and various related services to FB&T and us. We
attribute the increased data processing fees to growth and technological
advancements consistent with our product and services offerings, continued
upgrades to technological equipment, networks and communication channels, and
certain nonrecurring expenses associated with the data processing conversions of
Redwood Bank, Commercial Bank of San Francisco, and Bank of San Francisco,
completed in February 2001, March 2001 and June 2001, respectively.
Legal, examination and professional fees were $2.3 million and $4.7
million for the three and six months ended June 30, 2001, in comparison to $1.8
million and $3.4 million for comparable periods in 2000, respectively. The
increase in these fees is primarily attributable to our expanded utilization of
legal and professional services in conjunction with general corporate
activities, commercial loan documentation, collection efforts and an increase in
management fees paid to First Banks for various corporate services. See Note 6
to our consolidated financial statements for a further discussion of these
transactions with related parties.
Amortization of intangibles associated with the purchase of
subsidiaries was $1.4 million and $2.8 million for the three and six months
ended June 30, 2001, in comparison to $686,000 and $1.3 million for the
comparable periods in 2000, respectively. The increase for 2001 is primarily
attributable to amortization of the cost in excess of the fair value of the net
assets acquired of the five acquisitions that we completed during 2000.
Other expense was $4.2 million and $7.0 million for the three and six
months ended June 30, 2001, in comparison to $2.3 million and $3.7 million for
the comparable periods in 2000, respectively. Other expense encompasses numerous
general and administrative expenses including but not limited to travel, meals
and entertainment, insurance, freight and courier services, correspondent bank
charges, miscellaneous losses and recoveries, memberships and subscriptions,
transfer agent fees and sales taxes. We primarily attribute the overall increase
in other expense to the continued growth and expansion of our banking franchise
and a $1.2 million charge in June 2001, associated with the establishment of a
specific reserve on an unfunded letter of credit. In addition, increased losses
attributable to certain fraudulent customer activities and a reduced level of
recoveries of loans of acquired entities that had been fully charged-off prior
to the acquisition dates further contributed to the overall increase in other
expense.
Provision for Income Tax Expense
The provision for income tax expense was $5.0 million and $10.3 million
for the three and six months ended June 30, 2001, representing an effective
income tax rate of 39.2% and 39.8%, respectively, in comparison to $4.2 million
and $7.9 million, representing an effective income tax rate of 40.4% and 38.4%
for the comparable periods in 2000, respectively. The increase in the effective
income tax rate for the six months ended June 30, 2001 reflects:
>> the increase in amortization of intangibles associated with the
purchase of subsidiaries, which is not deductible for tax
purposes; and
>> a reduction of the deferred tax asset valuation reserve of
$404,000 related to the utilization of net operating losses
associated with a previously acquired entity, which was recorded
in March 2000.
Interest Rate Risk Management
We utilize derivative financial instruments and hedging activities to
assist in our management of interest rate sensitivity by modifying the
repricing, maturity and option characteristics of certain assets and
liabilities. The derivative instruments we hold are summarized as follows:
June 30, 2001 December 31, 2000
------------------- ----------------------
Notional Credit Notional Credit
amount exposure amount exposure
------ -------- ------ --------
(dollars expressed in thousands)
Cash flow hedges..................................... $ 630,000 581 535,000 1,112
Fair value hedges.................................... 54,900 947 -- --
Interest rate floor agreements....................... 175,000 3,339 -- --
Interest rate cap agreement.......................... 150,000 658 150,000 1,251
========== ===== ======= =====
The notional amounts of derivative financial instruments do not
represent amounts exchanged by the parties and, therefore, are not a measure of
our credit exposure through our use of these instruments. The credit exposure
represents the accounting loss we would incur in the event the counterparties
failed completely to perform according to the terms of the derivative financial
instruments and the collateral held to support the credit exposure was of no
value.
During the three and six months ended June 30, 2001, the net interest
income realized on our derivative financial instruments was $2.4 million and
$3.0 million, in comparison to net interest expense of $436,000 and $625,000
realized on our derivative financial instruments for the comparable periods in
2000.
Cash Flow Hedges
During 1998, we entered into $105.0 million notional amount of interest
rate swap agreements to effectively lengthen the repricing characteristics of
certain interest-earning assets to correspond more closely with their funding
source with the objective of stabilizing cash flow, and accordingly, net
interest income, over time. The swap agreements, which had been designated as
cash flow hedges, provided for us to receive a fixed rate of interest and pay an
adjustable rate of interest equivalent to the daily weighted average prime
lending rate minus 2.705%. The terms of the swap agreements provide for us to
pay quarterly and receive payment semiannually. In June 2001, we terminated
these swap agreements, which would have expired in 2002, in order to
appropriately modify our overall hedge position in accordance with our risk
management program. In conjunction with the termination of these swap
agreements, we recorded a gain on derivative instruments of $1.4 million.
During September 1999, we entered into $130.0 million notional amount
of interest rate swap agreements to effectively lengthen the repricing
characteristics of certain interest-earning assets to correspond more closely
with their funding source with the objective of stabilizing cash flow, and
accordingly, net interest income, over time. The swap agreements, which had been
designated as cash flow hedges, provided for us to receive a fixed rate of
interest and pay an adjustable rate of interest equivalent to the weighted
average prime lending rate minus 2.70%. The terms of the swap agreements
provided for us to pay and receive interest on a quarterly basis. In April 2001,
we terminated these swap agreements, which would have expired in September 2001,
in order to lengthen the period covered by the swaps. In conjunction with the
termination of these swap agreements, we recorded a gain on derivative
instruments of $731,000.
During September 2000, March 2001 and April 2001, we entered into
$300.0 million, $200.0 million and $130.0 million notional amount, respectively,
of interest rate swap agreements to effectively lengthen the repricing
characteristics of certain interest-earning assets to correspond more closely
with their funding source with the objective of stabilizing cash flow, and
accordingly, net interest income, over time. The swap agreements, which have
been designated as cash flow hedges, provide for us to receive a fixed rate of
interest and pay an adjustable rate of interest equivalent to the weighted
average prime lending rate minus either 2.70% or 2.82%. The terms of the swap
agreements provide for us to pay and receive interest on a quarterly basis. The
amount receivable by us under the swap agreements was $2.7 million and $621,000
at June 30, 2001 and December 31, 2000, respectively, and the amount payable by
us under the swap agreements was $2.1 million and $623,000 at June 30, 2001 and
December 31, 2000, respectively.
The maturity dates, notional amounts, interest rates paid and received
and fair value of our interest rate swap agreements designated as cash flow
hedges as of June 30, 2001 and December 31, 2000 were as follows:
Notional Interest rate Interest rate Fair
Maturity date amount paid received value
------------- ------ ---- -------- -----
(dollars expressed in thousands)
June 30, 2001:
September 20, 2004....................... $ 300,000 4.05% 6.78% 12,317
March 21, 2005........................... 200,000 3.93 5.24 (1,855)
April 2, 2006............................ 130,000 3.93 5.45 (1,390)
--------- --------
$ 630,000 3.99 6.02 $ 9,072
========= ==== ==== ========
December 31, 2000:
September 27, 2001....................... $ 130,000 6.80% 6.14% $ 49
June 11, 2002............................ 15,000 6.80 6.00 7
September 16, 2002....................... 20,000 6.80 5.36 (184)
September 18, 2002....................... 70,000 6.80 5.33 (690)
September 20, 2004....................... 300,000 6.80 6.78 8,434
--------- --------
$ 535,000 6.80 6.35 $ 7,616
========= ==== ==== ========
Fair Value Hedges
During January 2001, we entered into $54.9 million notional amount of
interest rate swap agreements to effectively shorten the repricing
characteristics of certain interest-bearing liabilities with the objective of
stabilizing net interest income over time. The swap agreements, which have been
designated as fair value hedges, provide for us to receive a fixed rate of
interest and pay an adjustable rate of interest equivalent to the three-month
London Interbank Offering Rate. The terms of the swap agreements provide for us
to pay and receive interest on a quarterly basis. The amount receivable and
payable by us under the swap agreements was $1.4 million and $608,000 at June
30, 2001, respectively.
The maturity dates, notional amounts, interest rates paid and received
and fair value of our interest rate swap agreements designated as fair value
hedges as of June 30, 2001 were as follows:
Notional Interest rate Interest rate Fair
Maturity date amount paid received value
------------- ------ ---- -------- -----
(dollars expressed in thousands)
June 30, 2001:
January 9, 2004.......................... $ 10,000 4.80% 5.37% $ (13)
January 9, 2006.......................... 44,900 4.80 5.51 (618)
--------- --------
$ 54,900 4.80 5.48 $ (631)
========= ==== ==== ========
Interest Rate Floor Agreements
During January 2001 and March 2001, we entered into $100.0 million and
$75.0 million notional amount, respectively, of four-year interest rate floor
agreements to further stabilize net interest income in the event of a falling
rate scenario. The interest rate floor agreements provide for us to receive a
quarterly adjustable rate of interest equivalent to the differential between the
three-month London Interbank Offering Rate and the strike prices of 5.50% or
5.00%, respectively, should the three-month London Interbank Offering Rate fall
below the respective strike prices. At June 30, 2001, the carrying value of the
interest rate floor agreements, which is included in derivative instruments in
the consolidated balance sheet at fair value, was $3.3 million.
Interest Rate Cap Agreement
In conjunction with the interest rate swap agreements that we entered
into in September 2000, we also entered into a four-year $150.0 million notional
amount interest rate cap agreement to limit the net interest expense associated
with our interest rate swap agreements in the event of a rising rate scenario.
The interest rate cap agreement provides for us to receive a quarterly
adjustable rate of interest equivalent to the differential between the
three-month London Interbank Offering Rate and the strike price of 7.50% should
the three-month London Interbank Offering Rate exceed the strike price. At June
30, 2001 and December 31, 2000, the carrying value of this interest rate cap
agreement, which is included in derivative instruments in the consolidated
balance sheet, was $658,000 and $1.3 million, respectively.
Pledged Collateral
At June 30, 2001, we had pledged investment securities available for
sale with a carrying value of $1.0 million in connection with our interest rate
swap agreements. In addition, at June 30, 2001, we had accepted investment
securities with a fair value of $17.8 million as collateral in connection with
our interest rate swap agreements. We are permitted by contract to sell or
repledge the collateral accepted from our counterparties, however, at June 30,
2001, we had not sold or repledged any of this collateral.
Loans and Allowance for Loan Losses
Interest earned on our loan portfolio represents our principal source
of income. Interest and fees on loans were 90.7% and 88.6% of total interest
income for the three months ended June 30, 2001 and 2000, respectively, and
89.9% and 89.2% for the six months ended June 30, 2001 and 2000, respectively.
Total loans, net of unearned discount, were $2.05 billion, or 77.9% of total
assets, at June 30, 2001, compared to $2.06 billion, or 75.1% of total assets,
at December 31, 2000. The decrease in loans, as summarized on our consolidated
balance sheets, is primarily attributable to an anticipated amount of attrition
associated with our acquisitions completed during the fourth quarter of 2000,
current economic conditions prevalent in our markets, an increased level of loan
participations sold to First Bank and the continued decline in our existing
indirect automobile portfolio. Commensurate with our prescribed credit exposure
guidelines for extending credit to an individual borrower, loan participations
sold to and purchased from First Bank were $178.0 million and $95.4 million at
June 30, 2001, respectively, in comparison to $146.1 million and $108.2 million
at December 31, 2000, respectively. See Note 6 to the consolidated financial
statements for a further discussion of transactions with related parties.
Nonperforming assets include nonaccrual loans, restructured loans and
other real estate. The following table presents the categories of nonperforming
assets and certain ratios as of the dates indicated:
June 30, December 31,
2001 2000
---- ----
(dollars expressed in thousands)
Nonperforming loans........................................................ $ 14,679 15,005
Other real estate.......................................................... 547 694
----------- ---------
Total nonperforming assets........................................ $ 15,226 15,699
=========== =========
Loans, net of unearned discount............................................ $ 2,053,295 2,058,677
=========== =========
Loans past due:
Over 30 days to 90 days................................................ $ 14,331 12,387
Over 90 days and still accruing........................................ 5,538 985
----------- ---------
Total past-due loans.............................................. $ 19,869 13,372
=========== =========
Allowance for loan losses to loans......................................... 1.68% 1.84%
Nonperforming loans to loans............................................... 0.71 0.73
Allowance for loan losses to nonperforming loans........................... 235.62 252.78
Nonperforming assets to loans and other real estate........................ 0.74 0.76
=========== =========
Nonperforming loans (also considered impaired loans), consisting of
loans on nonaccrual status and certain restructured loans, were $14.7 million at
June 30, 2001, in comparison to $15.0 million at December 31, 2000. While
nonperforming loans have remained relatively consistent at June 30, 2001 and
December 31, 2000, past-due loans have increased to $19.9 million at June 30,
2001 from $13.4 million at December 31, 2000. We attribute these trends to be
reflective of cyclical trends experienced within the banking industry as a
result of economic slow down. Consistent with the recent general economic slow
down experienced within our primary markets, we anticipate this trend will
continue in the upcoming months.
The following table is a summary of our loan loss experience for the
periods indicated:
Three months ended Six months ended
June 30, June 30,
-------------------- ----------------
2001 2000 2001 2000
(dollars expressed in thousands)
Allowance for loan losses, beginning of period............ $ 36,678 32,424 37,930 30,192
Acquired allowances for loan losses....................... -- -- -- 799
--------- ------ ------ ------
36,678 32,424 37,930 30,991
--------- ------ ------ ------
Loans charged-off......................................... (3,629) (178) (5,797) (2,019)
Recoveries of loans previously charged-off................ 717 839 1,543 3,131
--------- ------ ------ ------
Net loan (charge-offs) recoveries......................... (2,912) 661 (4,254) 1,112
--------- ------ ------ ------
Provision for loan losses................................. 820 470 910 1,452
--------- ------ ------ ------
Allowance for loan losses, end of period.................. $ 34,586 33,555 34,586 33,555
========= ====== ====== ======
The allowance for loan losses is monitored on a monthly basis. Each
month, the credit administration department provides management with detailed
lists of loans on the watch list and summaries of the entire loan portfolio of
FB&T by risk rating. These are coupled with analyses of changes in the risk
profile of the portfolio, changes in past due and nonperforming loans and
changes in watch list and classified loans over time. In this manner, we
continually monitor the overall increases or decreases in the level of risk in
the portfolio. Factors are applied to the loan portfolio for each category of
loan risk to determine acceptable levels of allowance for loan losses. We derive
these factors primarily from the actual loss experience of FB&T and from
published national surveys of norms in the industry. The calculated allowance
required for the portfolio is then compared to the actual allowance balance to
determine the provision necessary to maintain the allowance at an appropriate
level. In addition, management exercises a certain degree of judgment in its
analysis of the overall adequacy of the allowance for loan losses. In its
analysis, management considers the change in the portfolio, including growth,
composition, nonperforming loans, the ratio of net loans to total assets, and
the economic conditions of the regions in which we operate. Based on this
quantitative and qualitative analysis, provisions are made to our allowance for
loan losses. Such provisions are reflected in our consolidated statements of
income.
Liquidity
Our liquidity and the liquidity of FB&T 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. FB&T receives funds for liquidity from
customer deposits, loan payments, maturities of loans and investments, sales of
investments and earnings. In addition, we may avail ourselves of other sources
of funds by issuing certificates of deposit in denominations of $100,000 or
more, borrowing federal funds, selling securities sold under agreements to
repurchase and utilizing borrowings from the Federal Home Loan Bank and other
borrowings, including our revolving note payable to First Banks. The aggregate
funds acquired from these sources were $423.1 million and $457.2 million at June
30, 2001 and December 31, 2000, respectively.
The following table presents the maturity structure of these other
sources of funds, which consists of certificates of deposit of $100,000 or more,
the revolving note payable and other short-term borrowings, at June 30, 2001:
(dollars expressed in thousands)
3 months or less.......................... $ 157,921
Over 3 through 6 months................... 59,639
Over 6 through 12 months.................. 85,322
Over 12 months............................ 120,253
----------
Total................................... $ 423,135
==========
We have periodically borrowed from First Banks under our revolving note
payable. Borrowings under the revolving note payable have been utilized to
facilitate the funding of our acquisitions, support repurchases of common stock
from time to time and for other corporate purposes. Borrowings under the
revolving note payable bear interest at an annual rate of one-quarter percent
less than the "Prime Rate" as reported in the Wall Street Journal. The principal
and accrued interest under the revolving note payable is due and payable on June
30, 2005. At June 30, 2001 and December 31, 2000, there were $53.3 million and
$98.0 million in advances outstanding under the revolving note payable.
In 1999, FB&T established a borrowing relationship with the Federal
Reserve Bank of San Francisco. This borrowing relationship, which is secured by
commercial loans, provides an additional liquidity facility that may be utilized
for contingency purposes. At June 30, 2001 and December 31, 2000, the borrowing
capacity under this agreement was approximately $862.7 million and $756.4
million, respectively. In addition, FB&T's borrowing capacity through its
relationship with the Federal Home Loan Bank was approximately $5.9 million and
$20.4 million at June 30, 2001 and December 31, 2000, respectively.
Management believes the available liquidity and operating results of
FB&T will be sufficient to provide funds for growth and to permit the
distribution of dividends to us sufficient to meet our operating and debt
service requirements, both on a short-term and long-term basis, and to pay the
dividends on the trust preferred securities issued by our financing subsidiary,
First America Capital Trust.
Effect of New Accounting Standards
In September 2000, the FASB issued SFAS No. 140 -- Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,
a replacement of FASB Statement 125. SFAS 140 revises the standards for
accounting for securitizations and other transfers of financial assets and
collateral and requires certain disclosures. SFAS 140 provides accounting and
reporting standards for transfers and servicing of financial assets and
extinguishments of liabilities which are based on the consistent application of
a financial-components approach. SFAS 140 is effective for transfers and
servicing of financial assets and extinguishments of liabilities occurring after
March 31, 2001, and is effective for recognition and reclassification of
collateral and for disclosures relating to securitization transactions and
collateral for fiscal years ending after December 15, 2001. On December 31,
2000, we implemented the disclosure requirements of SFAS 140, which did not have
a material effect on our consolidated financial statements. We have evaluated
the additional requirements of SFAS 140 to determine their potential impact on
our consolidated financial statements and do not believe they will have a
material effect on our consolidated financial statements.
In July 2001, the FASB issued SFAS No. 141 -- Business Combinations,
and SFAS No. 142 -- Goodwill and Other Intangible Assets. SFAS 141 requires that
the purchase method of accounting be used for all business combinations
initiated after June 30, 2001 as well as all purchase method business
combinations completed after June 30, 2001. SFAS 141 also specifies criteria
intangible assets acquired in a purchase method business combination must meet
to be recognized and reported apart from goodwill noting that any purchase price
allocable to an assembled workforce may not be accounted for separately. SFAS
142 will require that goodwill and intangible assets with indefinite useful
lives no longer be amortized, but instead tested for impairment at least
annually in accordance with the provisions of SFAS 142. SFAS 142 will also
require that intangible assets with definite useful lives be amortized over
their respective estimated useful lives to their estimated residual values, and
reviewed for impairment in accordance with SFAS No. 121 -- Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. The
amortization of goodwill ceases upon adoption of SFAS 142, which for calendar
year-end companies, will be January 2, 2002. We are currently evaluating the
requirements of SFAS 141 and SFAS 142 to determine their potential impact on our
consolidated financial statements.
Item 3 - Quantitative and Qualitative Disclosures about Market Risk
At December 31, 2000, our risk management program's simulation model
indicated a loss of projected net interest income in the event of a decline in
interest rates. While a decline in interest rates of less than 100 basis points
was projected to have a relatively minimal impact on our net interest income, an
instantaneous, parallel decline in the interest yield curve of 100 basis points
indicated a pre-tax projected loss of approximately 7.5% of net interest income.
An instantaneous, parallel shift in the yield curve of 200 basis points and 300
basis points indicated a pre-tax projected loss of approximately 10.5% and 14.8%
of net interest income, respectively, based on assets and liabilities at
December 31, 2000. At June 30, 2001, we remain in an "asset-sensitive" position
and thus, remain subject to a higher level of risk in a declining interest-rate
environment, as experienced during the first six months of 2001. Although we do
not anticipate that instantaneous shifts in the yield curve as projected in our
simulation model are likely, these are indications of the effects that changes
in interest rates would have over time. Our asset-sensitive position, coupled
with reductions in the prime lending rate throughout the last six months, is
reflected in our reduced net interest rate margin for the three and six months
ended June 30, 2001 as further discussed under "--Results of Operations." During
the three and six months ended June 30, 2001, our asset-sensitive position and
overall susceptibility to market risks have not changed materially.
PART II - OTHER INFORMATION
Item 2 - Submission of Matters to a Vote of Security Holders
Our Annual Meeting of Stockholders was held on May 30, 2001, and
continued in an adjourned meeting on June 27, 2001. Our seven directors were
reelected, with the vote totals indicated in the following table:
Name of Director For Withheld
---------------- --- --------
Allen H. Blake 11,931,711 8,784
Charles A. Crocco, Jr. 11,934,709 5,786
James F. Dierberg 11,935,405 5,090
Albert M. Lavezzo 11,935,205 5,290
Ellen D. Schepman 11,931,542 8,953
Edward T. Story, Jr. 11,934,711 5,784
Donald W. Williams 11,932,033 8,462
Item 6 - Exhibits and Reports on Form 8-K
(a) The exhibits are numbered in accordance with the Exhibit Table of Item 601
of Regulation S-K.
Exhibit Number Description
-------------- -----------
10(a) Agreement and Plan of Reorganization by
and among First Banks, America, Inc.,
First Bank & Trust, BYL Bancorp and BYL
Bank Group, dated June 22, 2001 - filed
herewith.
(b) FBA filed no reports on Form 8-K during the three months ended
June 30, 2001.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
FIRST BANKS AMERICA, INC.
By: /s/ James F. Dierberg
---------------------------------------------
James F. Dierberg
Chairman of the Board of Directors,
President and Chief Executive Officer
August 15, 2001 (Principal Executive Officer)
By: /s/ Allen H. Blake
---------------------------------------------
Allen H. Blake
Executive Vice President and
Chief Financial Officer
August 15, 2001 (Principal Financial and
Accounting Officer)
EXHIBIT 10(a)
AGREEMENT AND PLAN OF REORGANIZATION
by and among
FIRST BANKS AMERICA, INC.,
a Delaware corporation,
FIRST BANK & TRUST,
a California banking corporation,
BYL BANCORP,
a California corporation
and
BYL BANK GROUP,
a California banking corporation
June 22, 2001
TABLE OF CONTENTS
ARTICLE I TERMS OF THE MERGER & CLOSING, EXCHANGE OF SHARES
Section 1.01 The Merger....................................................................1
Section 1.02 Effects of the Mergers........................................................1
Section 1.03 Conversion of Shares..........................................................1
Section 1.04 The Closing...................................................................2
Section 1.05 The Closing Date..............................................................2
Section 1.06 Actions At Closing............................................................2
Section 1.07 Exchange Procedures; Surrender of Certificates................................3
ARTICLE II REPRESENTATIONS AND WARRANTIES OF BANCORP AND BANK
Section 2.01 Organization and Capital Stock; Standing and Authority........................3
Section 2.02 Authorization; No Defaults....................................................4
Section 2.03 Subsidiaries..................................................................4
Section 2.04 Financial Information.........................................................4
Section 2.05 Absence of Changes............................................................5
Section 2.06 Regulatory Enforcement Matters................................................5
Section 2.07 Tax Matters...................................................................5
Section 2.08 Litigation....................................................................5
Section 2.09 Properties, Contracts, Employee Benefit Plans and Other Agreements............5
Section 2.10 Reports.......................................................................6
Section 2.11 Investment Portfolio..........................................................7
Section 2.12 Loan Portfolio................................................................7
Section 2.13 Employee Matters and ERISA....................................................7
Section 2.14 Title to Properties; Licenses, Insurance......................................8
Section 2.15 Environmental Matters.........................................................9
Section 2.16 Compliance with Laws and Regulations..........................................9
Section 2.17 Brokerage.....................................................................9
Section 2.18 No Undisclosed Liabilities....................................................9
Section 2.19 Statements True and Correct...................................................9
Section 2.20 Commitments and Contracts....................................................10
Section 2.21 Material Interest of Certain Persons.........................................10
Section 2.22 Conduct to Date..............................................................10
ARTICLE III REPRESENTATIONS AND WARRANTIES OF FBA AND FB&T
Section 3.01 Organization.................................................................11
Section 3.02 Authorization................................................................11
Section 3.03 Financial Information........................................................11
Section 3.04 Absence of Changes...........................................................12
Section 3.05 Litigation; Proceedings......................................................12
Section 3.06 Statements True and Correct..................................................12
Section 3.07 Access to Funds..............................................................12
Section 3.08 Regulatory Approvals.........................................................12
ARTICLE IV AGREEMENTS OF BANCORP AND BANK
Section 4.01 Business in Ordinary Course..................................................12
Section 4.02 Breaches.....................................................................14
Section 4.03 Submission to Shareholders...................................................14
Section 4.04 Consummation of Agreement....................................................14
Section 4.05 Environmental Reports........................................................14
TABLE OF CONTENTS
Section 4.06 Access to Information........................................................15
Section 4.07 Consents of Third Parties....................................................15
Section 4.08 Subsequent Financial Statements..............................................15
Section 4.09 Merger of Banks..............................................................15
ARTICLE V AGREEMENTS OF FBA AND FB&T
Section 5.01 Regulatory Approvals.........................................................15
Section 5.02 Breaches.....................................................................15
Section 5.03 Consummation of Agreement....................................................16
Section 5.04 Employee Benefits............................................................16
Section 5.05 Indemnification and Insurance................................................16
Section 5.06 Access to Information........................................................17
Section 5.07 Conduct of Business..........................................................17
ARTICLE VI CONDITIONS PRECENDENT TO THE MERGER
Section 6.01 Conditions to the Obligations of FBA and FB&T................................17
Section 6.02 Conditions to the Obligations of Bancorp and Bank............................18
ARTICLE VII TERMINATION
Section 7.01 Mutual Agreement.............................................................18
Section 7.02 Breach of Agreements.........................................................18
Section 7.03 Failure of Conditions........................................................18
Section 7.04 Denial of Regulatory Approval................................................18
Section 7.05 Environmental Reports........................................................19
Section 7.06 Regulatory Enforcement Matters...............................................19
Section 7.07 Unilateral Termination.......................................................19
Section 7.08 Liquidated Damages...........................................................19
Section 7.09 Acquisition Proposal.........................................................19
Section 7.10 Break-up Fee.................................................................19
ARTICLE VIII GENERAL PROVISIONS
Section 8.01 Confidential Information.....................................................21
Section 8.02 Publicity....................................................................21
Section 8.03 Return of Documents..........................................................21
Section 8.04 Notices......................................................................21
Section 8.05 Nonsurvival of Representations, Warranties and Agreements....................23
Section 8.06 Costs and Expenses...........................................................23
Section 8.07 Entire Agreement.............................................................23
Section 8.08 Headings and Captions........................................................23
Section 8.09 Waiver, Amendment or Modification............................................23
Section 8.10 Rules of Construction........................................................24
Section 8.11 Counterparts.................................................................24
Section 8.12 Successors and Assigns.......................................................24
Section 8.13 Governing Law................................................................24
AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization, dated as of June 22, 2001,
is by and among First Banks America, Inc., a bank holding company organized as a
Delaware corporation ("FBA"), First Bank & Trust, a California banking
corporation which is a wholly-owned subsidiary of FBA ("FB&T"), BYL Bancorp, a
bank holding company organized as a California corporation ("Bancorp"), and BYL
Bank Group, a California banking corporation which is a wholly-owned subsidiary
of Bancorp ("Bank"). This Agreement and Plan of Reorganization is hereinafter
referred to as the "Agreement."
In consideration of the mutual representations, warranties, agreements
and covenants contained herein, FBA, FB&T, Bancorp and Bank hereby agree as
follows:
ARTICLE I
TERMS OF THE MERGER & CLOSING; EXCHANGE OF SHARES
Section 1.01 The Merger. FBA will organize an interim subsidiary
("Newco") and, subject to the receipt of required regulatory approvals and the
satisfaction or waiver of the conditions set forth in ARTICLE VI of this
Agreement, FBA will cause Newco to merge with and into Bancorp (the "Merger")
pursuant to the California General Corporation Law ("Corporate Law") and an
Agreement of Merger in the form attached hereto as Exhibit A (the "Merger
Agreement"). This Agreement also contemplates that, immediately following the
Effective Time (as defined in Section 1.05 hereof), the Bank Merger (as defined
in Section 4.09) will occur pursuant to an Agreement of Merger in the form
attached hereto as Exhibit B.
Section 1.02 Effects of the Mergers.
(a) The Merger and the Bank Merger shall have all of the effects
provided by Corporate Law and this Agreement. The separate corporate existence
of Newco shall cease on consummation of the Merger and be combined in Bancorp,
and the separate corporate existence of Bank shall cease on consummation of the
Bank Merger and be combined in FB&T.
(b) The Articles of Incorporation of Bancorp from and after the
Effective Time shall be as stated on Exhibit A attached hereto. The Bylaws of
Bancorp from and after the Effective Time shall be the same as the Bylaws of
Newco immediately prior to the Effective Time, except that the name of the
corporation shall be amended to read "BYL Bancorp." The directors and officers
of Bancorp from and after the Effective Time shall be the persons serving as the
directors and officers of Newco immediately prior to the Effective Time.
Section 1.03 Conversion of Shares.
(a) At the Effective Time, subject to the remaining provisions of this
Section 1.03 requiring that a portion of the consideration otherwise payable
upon consummation of the Merger be held in escrow, each share of common stock of
Bancorp ("Bancorp Common") issued and outstanding immediately prior to the
Effective Time shall be converted into the right to receive $18.50 (the "Per
Share Merger Price"); provided, however, that shares of Bancorp Common held in
the treasury of Bancorp or by any direct or indirect subsidiary of Bancorp
immediately prior to the Effective Time shall be canceled at the Effective Time.
(b) The stock transfer books of Bancorp shall be closed, and no share
transfers will be permitted after the Effective Time. At the Effective Time, by
virtue of the Merger and without any action on the part of the holders thereof,
all of the shares of Bancorp Common shall cease to be outstanding and be
canceled, and certificates previously representing shares of Bancorp Common
shall thereafter represent solely the right to receive the consideration payable
pursuant to this Agreement.
(c) If holders of Bancorp Common are entitled to require appraisal of
their shares under applicable Corporate Law, shares held by a dissenting holder
who has perfected the right to obtain an appraisal of his shares shall not be
converted as described in this Section 1.030, but from and after the Effective
Time shall represent only the right to receive such consideration as may be
determined pursuant to applicable Corporate Law; provided, however, that each
share of Bancorp Common outstanding immediately prior to the Effective Time and
held by a dissenting holder who after the Effective Time shall withdraw his
demand for appraisal or lose his right of appraisal shall thereafter have only
such rights as are provided under applicable Corporate Law.
(d) Any options to purchase shares of Bancorp Common which are
outstanding immediately prior to the Effective Time and exercisable at a price
less than the Per Share Merger Price ("Bancorp Options") may be surrendered to
Bancorp as of the Effective Time. FBA shall pay for each share of Bancorp Common
covered by such a surrendered option an amount equal to the difference between
the Per Share Merger Price and the exercise price per share of the options
surrendered. All options to acquire shares of Bancorp Common that are not
exercised or surrendered in accordance with the preceding sentence shall be
canceled as of the Effective Time.
(e) At the Effective Time, the outstanding shares of common stock of
Newco shall be converted into an equal number of shares of Bancorp Common, so
that immediately following the Effective Time, the number of outstanding shares
of common stock of Bancorp shall be equal to the number of outstanding shares of
common stock of Newco immediately prior to the Merger.
Section 1.04 The Closing. The closing of the Merger (the
"Closing") shall take place at the location mutually agreeable to the parties
hereto at 10:00 a.m. local time on the Closing Date described in Section 1.05 of
this Agreement.
Section 1.05 The Closing Date. At FBA's election, the Closing
shall take place on either (i) one of the last five (5) business days of the
month or (ii) the first business day of the month following the month, in either
case, during which each of the conditions in Section 6.01 and Section 6.02 is
satisfied or waived by the appropriate party, or on such other date as Bancorp
and FBA may agree (the "Closing Date"). The Merger shall be effective upon the
filing of the Merger Agreement with the Secretary of State of the State of
California in accordance with Corporate Law (the "Effective Time").
Section 1.06 Actions At Closing.
(a) At the Closing, Bancorp shall deliver to FBA:
(i) certified copies of the Articles of Incorporation
and Bylaws of Bancorp and the Articles of Incorporation and Bylaws of
each of its subsidiaries;
(ii) certificates signed by the Presidents of Bancorp
and Bank stating that (A) each of the representations and warranties
contained in Section 6.01 is true and correct in all material respects
at the time of the Closing with the same force and effect as if such
representations and warranties had been made at the Closing, and (B)
all of the conditions set forth in Section 6.01 have been satisfied or
waived as provided therein;
(iii) certified copies of resolutions of the Boards of
Directors of Bancorp and Bank and of the shareholders of Bancorp,
establishing the requisite approvals under applicable Corporate Law of
this Agreement, the Merger and the other transactions contemplated
hereby;
(iv) tax clearance certificates issued by the Franchise
Tax Board of the State of California with respect to Bancorp and each
of its subsidiaries, dated a recent date, stating that all taxes
imposed under the Bank and Corporation Law on such corporations have
been paid or adequately secured; and
(v) a legal opinion from counsel for Bancorp and Bank
with respect to the matters listed in Exhibit C hereto, in form
reasonably satisfactory to FBA and its counsel.
(b) At the Closing, FBA shall deliver to Bancorp:
(i) certificates signed by the Presidents of FBA and FB&T
stating that (A) each of the representations and warranties contained
in ARTICLE II is true and correct in all material respects at the time
of the Closing with the same force and effect as if such
representations and warranties had been made at the Closing, and (B)
all of the conditions set forth in Section 6.01 have been satisfied or
waived as provided therein;
(ii) certified copies of resolutions of the Boards of
Directors of FBA and FB&T, establishing the requisite approvals under
applicable Corporate Law of this Agreement, the Merger and the
other transactions contemplated hereby; and
(iii) a legal opinion from counsel for FBA and FB&T with
respect to the matters listed in Exhibit D hereto, in form reasonably
satisfactory to Bancorp and its counsel.
Section 1.07 Exchange Procedures; Surrender of Certificates. As
soon as reasonably practicable after the Effective Time, FBA shall cause to be
mailed to each record holder of shares of Bancorp Common a letter of transmittal
in form reasonably satisfactory to Bancorp (which shall specify that delivery
shall be effected, and risk of loss and title to certificates shall pass, only
upon proper delivery of the certificates to FBA and shall be in such form and
have such other provisions as FBA may reasonably specify) and instructions for
use in effecting the surrender of certificates, and FBA shall promptly pay the
appropriate consideration to former holders of Bancorp Common who make proper
delivery of certificates or comply with FBA's reasonable instructions and
requirements with respect to any certificate that has been lost or stolen.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF BANCORP AND BANK
Bancorp and Bank each represent and warrant to FBA and FB&T as follows:
Section 2.01 Organization and Capital Stock; Standing and
Authority.
(a) Bancorp and Bank are corporations duly organized, validly existing
and in good standing under the laws of California. Each of such corporations has
the power to own all of its property and assets, to incur all of its liabilities
and to carry on its business as now conducted.
(b) As of the date hereof, the authorized capital stock of Bancorp
consists of 50,000,000 shares of Bancorp Common, of which 2,542,835 are
outstanding, and 25,000,000 shares of Preferred Stock, none of which is
outstanding. All of the outstanding shares of Bancorp Common are duly and
validly issued, fully paid and non-assessable. Except as disclosed in (a) of
that certain document delivered by Bancorp to FBA entitled the "Disclosure
Schedule" and executed by Bancorp, Bank, FBA and FB&T concurrently with the
execution and delivery of this Agreement (the "Disclosure Schedule"), each
certificate representing shares of Bancorp Common issued in replacement of any
certificate theretofore issued by it which was claimed by the record holder
thereof to have been lost, stolen or destroyed was issued only upon receipt of
an affidavit of lost stock certificate and a bond sufficient to indemnify
Bancorp against any claim that may be made against it on account of the alleged
loss, theft or destruction of a certificate or the issuance of a replacement
certificate.
(c) As of the date hereof, the authorized capital stock of Bank
consists of 6,666,666 shares of common stock ("Bank Common"), of which 100 are
outstanding, duly and validly issued, fully paid and non-assessable, and
1,000,000 shares of Preferred Stock, none of which is outstanding. None of the
outstanding shares of Bank Common has been issued in violation of any preemptive
rights.
(d) Except as disclosed in Section 2.01(d) of the Disclosure Schedule,
there are no shares of capital stock or other equity securities of Bancorp or
Bank issued or outstanding and no outstanding options, warrants, rights to
subscribe for, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into or exchangeable for, shares of capital
stock of Bancorp or Bank or contracts, commitments, understandings or
arrangements by which either of them is or may be obligated to issue additional
shares of capital stock.
(e) Bank holds a current valid license to engage in the commercial
banking business at its banking offices in California, and, except as disclosed
in Section 2.01(e) of the Disclosure Schedule, Bancorp and Bank are in material
compliance with all agreements, understandings and orders of the Federal Reserve
Board, the Federal Deposit Insurance Corporation ("FDIC") and other regulatory
authorities having jurisdiction over their business, assets and properties.
Neither the scope of the business of Bank nor the location of its properties
requires it to be licensed to do business in any jurisdiction other than the
State of California. The deposits of Bank are insured by the FDIC to the maximum
extent permitted by applicable laws and regulations. Bancorp is a bank holding
company registered pursuant to the Bank Holding Company Act, as amended.
Section 2.02 Authorization; No Defaults. The Boards of Directors
of Bancorp and Bank have by all requisite action approved this Agreement, the
Merger and the Bank Merger, and they have authorized the execution and delivery
hereof and thereof on behalf of such corporations by duly authorized officers
and the performance of their respective obligations thereunder. Bancorp, in its
capacity as the sole holder of outstanding capital stock of Bank, has approved
this Agreement, the Merger and the Bank Merger. Nothing in the Articles of
Incorporation or Bylaws of Bancorp or Bank or any other agreement, instrument,
decree, proceeding, law or regulation (except as specifically referred to in
this Agreement) by or to which either entity is bound or subject would prohibit
or inhibit either of such corporations from consummating this Agreement, the
Merger and the Bank Merger on the terms and conditions herein contained. This
Agreement has been duly and validly executed and delivered by Bancorp and Bank
and constitutes a legal, valid and binding obligation of each of them,
enforceable against them in accordance with its terms. Neither Bancorp nor Bank
is in default under nor in violation of any provision of its Articles of
Incorporation, Bylaws or any promissory note, indenture or any evidence of
indebtedness or security therefor, lease, contract, purchase or other material
commitment or agreement.
Section 2.03 Subsidiaries. Each of Bancorp's direct and indirect
subsidiaries (hereinafter referred to singly as a "Bancorp Subsidiary" and
collectively as the "Bancorp Subsidiaries"), the names and jurisdictions of
incorporation of which are listed in Section 2.03 of the Disclosure Schedule, is
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, and each of the Bancorp Subsidiaries has the
corporate power to own its properties and assets, to incur its liabilities and
to carry on its business as now being conducted. The number of issued and
outstanding shares of capital stock of each Bancorp Subsidiary and the ownership
of such shares is set forth in Section 2.03 of the Disclosure Schedule, and all
of such shares are owned by Bancorp or a Bancorp Subsidiary, free and clear of
all liens, encumbrances, rights of first refusal, options or other restrictions
of any nature whatsoever, except as disclosed in Section 2.03 of the Disclosure
Schedule. There are no options, warrants or rights outstanding to acquire any
capital stock of any Bancorp Subsidiary, and no person or entity has any other
right to purchase or acquire any unissued shares of stock of any Bancorp
Subsidiary, nor does any Bancorp Subsidiary have any obligation of any nature
with respect to its unissued shares of stock. Except as disclosed in Section
2.03 of the Disclosure Schedule, neither Bancorp nor any Bancorp Subsidiary is a
party to any partnership or joint venture or owns an equity interest in any
other business or enterprise.
Section 2.04 Financial Information. The audited consolidated
balance sheets of Bancorp and the Bancorp Subsidiaries as of December 31, 2000
and related consolidated income statements and statements of changes in
shareholders' equity and of cash flows for the three years ended December 31,
2000, together with the notes thereto, included in Bancorp's Annual Report on
Form 10-K for the year ended December 31, 2000 as currently on file with the
Securities and Exchange Commission (the "SEC"); the unaudited consolidated
balance sheets of Bancorp and the Bancorp Subsidiaries as of March 31, 2001 and
related consolidated income statements and statements of changes in
shareholders' equity and of cash flows for the three months ended March 31,
2001, together with the notes thereto, included in Bancorp's Quarterly Report on
Form 10-Q for the three months ended March 31, 2001 as currently on file with
the SEC; and the year-end and quarter-end Reports of Condition and Reports of
Income of Bank for 2000 and for the three month period ending March 31, 2001, as
filed with the FDIC (such financial statements and notes collectively referred
to herein as the "Bancorp Financial Statements"), have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis (except as disclosed therein and except for regulatory reporting
differences required in Bank's reports) and fairly present the consolidated
financial position and the consolidated results of operations, changes in
shareholders' equity and cash flows of the respective entity and its respective
consolidated subsidiaries as of the dates and for the periods indicated.
Section 2.05 Absence of Changes. Except as disclosed in Section
2.05 of the Disclosure Schedule, since December 31, 2000 there has not been any
material adverse change in the financial condition, the results of operations or
the business or prospects of Bancorp and the Bancorp Subsidiaries taken as a
whole, nor have there been any events or transactions having such a material
adverse effect which should be disclosed in order to make the Bancorp Financial
Statements not misleading. Since December 11, 2000, there has been no material
adverse change in the financial condition, the results of operations or the
business or prospects of Bancorp or Bank except for any such changes as are
disclosed in Bancorp Financial Statements filed since such date.
Section 2.06 Regulatory Enforcement Matters. Except as disclosed
in Section 2.06 of the Disclosure Schedule, neither Bancorp nor any Bancorp
Subsidiary is subject to, or has been informed that it may become subject to,
any order, agreement, memorandum of understanding or other regulatory
enforcement action or proceeding with or by any federal or state agency charged
with the supervision or regulation of banks or bank holding companies or engaged
in the insurance of bank deposits or any other governmental agency having
supervisory or regulatory authority with respect to Bancorp or any of the
Bancorp Subsidiaries.
Section 2.07 Tax Matters.
(a) Bancorp and the Bancorp Subsidiaries have filed all federal, state,
local and foreign income, franchise, excise, sales, use, real and personal
property and other tax returns required to be filed. All such returns fairly
reflect the information required to be presented therein. All provisions for
accrued but unpaid taxes contained in the Bancorp Financial Statements were made
in accordance with generally accepted accounting principles and in the aggregate
do not materially fail to provide for potential tax liabilities.
(b) Bancorp has not (i) executed an extension or waiver that is
currently in effect with respect to any statute of limitations on the assessment
or collection of any tax; (ii) entered into any tax sharing or tax allocation
agreement or been a part of a consolidated group filing a consolidated tax
return (other than a group of which Bancorp is the parent); (iii) become liable
for a tax of any other person or entity pursuant to Treasury Regulation 1.1502-6
(or any similar provision of state, local or foreign laws) as a transferee or
successor or by contract or otherwise; or (iv) made any payment, become
obligated to make any payment or been party to a contract or agreement that
would obligate it to make any payment that would be disallowed as a deduction
under Section 280G or 162(m) of the Internal Revenue Code of 1986, as amended
(the "Code").
(c) There has not been an ownership change of Bancorp, as defined in
Section 382(g) of the Code, that occurred during or after any taxable period in
which Bancorp incurred a net operating loss that carries over to any taxable
period ending after December 31, 2000.
(d) All material elections with respect to taxes affecting Bancorp have
been and will be timely made.
Section 2.08 Litigation. Except as disclosed in Section 2.08 of
the Disclosure Schedule, there is no litigation, claim or other proceeding
pending or, to the best of the knowledge of Bancorp and Bank, threatened against
Bancorp or any of the Bancorp Subsidiaries, or of which the property of Bancorp
or any of the Bancorp Subsidiaries is or would be subject.
Section 2.09 Properties, Contracts, Employee Benefit Plans and
Other Agreements. Section 2.09 of the Disclosure Schedule specifically
identifies the following:
(a) all real property owned by Bancorp or any Bancorp Subsidiary and
the principal buildings and structures located thereon, together with a legal
description of such real estate, and each lease of real property to which
Bancorp or any Bancorp Subsidiary is a party, identifying the parties thereto,
the annual rental payable, the expiration date thereof and a brief description
of the property covered;
(b) all loan and credit agreements, conditional sales contracts or
other title retention agreements or security agreements relating to money
borrowed by Bancorp or a Bancorp Subsidiary, exclusive of deposit agreements
with customers of Bank entered into in the ordinary course of business,
agreements for the purchase of federal funds and repurchase agreements;
(c) all agreements, loans, contracts, leases, guaranties, letters of
credit, lines of credit or commitments of Bancorp or any Bancorp Subsidiary not
referred to elsewhere in this Section 2.09 which:
(i) involve payment by Bancorp or any Bancorp Subsidiary of
more than $200,000 (other than loans, loan commitments or letters of
credit);
(ii) involve payments based on profits of Bancorp or any Bancorp
Subsidiary;
(iii) relate to the future purchase of goods or services in
excess of the requirements of its respective business at current levels
or for normal operating purposes;
(iv) were not made in the ordinary course of business;
(v) materially affect the business or financial condition of
Bancorp or any Bancorp Subsidiary; or
(vi) require the consent or approval of any third party for
the Merger and the Bank Merger to be consummated.
(d) all contracts, agreements, plans and arrangements by which any
profit sharing, group insurance, hospitalization, stock option, pension,
retirement, bonus, deferred compensation, stock bonus, stock purchase,
collective bargaining agreements, contracts or arrangements under which
pensions, deferred compensation or other retirement benefits is being paid, or
plans or arrangements established or maintained, sponsored or undertaken by
Bancorp or any Bancorp Subsidiary for the benefit of officers, directors or
employees, including each trust or other agreement with any custodian or any
trustee for funds held under any such agreement, plan or arrangement, and in
respect to any of them, the latest reports or forms, if any, filed with the
Department of Labor and Pension Benefit Guaranty Corporation under ERISA (as
defined below), any current financial or actuarial reports and any currently
effective IRS private ruling or determination letters obtained by or for the
benefit of Bancorp or any Bancorp Subsidiary;
(e) all leases, subleases or licenses with respect to real or personal
property, whether as lessor, lessee, licensor or licensee, with annual rental or
other payments due thereunder in excess of $60,000;
(f) all agreements for the employment, retention or engagement, or with
respect to the severance, of any officer, employee, agent, consultant or other
person or entity which by its terms is not terminable by Bancorp or a Bancorp
Subsidiary on thirty (30) days written notice or less without any payment by
reason of such termination; and
(g) the name and annual salary as of January 1, 2001 of each director
or employee of Bancorp or any Bancorp Subsidiary with a salary in excess of
$125,000.
Copies of each document, plan or contract identified in Section 2.09 of
the Disclosure Schedule are appended to such Schedule and are hereby
incorporated in and constitute a part of the Disclosure Schedule.
Section 2.10 Reports. Bancorp and the Bancorp Subsidiaries have
filed all reports and statements, together with any amendments required to be
made with respect thereto, required to be filed with the SEC, the Board of
Governors of the Federal Reserve System (the "Federal Reserve Board"), the
Department of Financial Institutions of the State of California, the FDIC or any
other governmental authority with jurisdiction over Bancorp or any Bancorp
Subsidiary. As of the dates indicated thereon, each of such reports and
documents, including any financial statements, exhibits and schedules thereto,
complied in all material respects with the relevant statutes, rules and
regulations enforced or promulgated by the regulatory authority with which they
were filed, and were accurate and complete in all material respects.
Section 2.11 Investment Portfolio. All United States Treasury
securities, obligations of other United States Government agencies and
corporations, obligations of States and political subdivisions of the United
States and other investment securities held by Bancorp or any Bancorp
Subsidiary, as reflected in the latest consolidated balance sheet of Bancorp
included in the Bancorp Financial Statements, are carried in accordance with
generally accepted accounting principles.
Section 2.12 Loan Portfolio.
(a) All loans and discounts reflected in the Bancorp Financial
Statements as of March 31, 2001 or which were or will be entered into after
March 31, 2001 but before the Closing Date were and will be made for good,
valuable and adequate consideration in the ordinary course of the business of
Bancorp and the Bancorp Subsidiaries, in accordance with Bancorp's or the
Bancorp Subsidiaries' written lending policies, and they are not subject to any
known defenses, setoffs or counterclaims, including without limitation as are
afforded by usury or truth in lending laws, except as provided by bankruptcy,
insolvency or similar laws or by general principles of equity;
(b) the notes and other evidences of indebtedness evidencing such loans
and all forms of pledges, mortgages and other collateral documents and security
agreements are and will be in all material respects enforceable, valid, true and
genuine and what they purport to be;
(c) Except as disclosed in Section 2.12(c) of the Disclosure Schedule,
Bancorp and the Bancorp Subsidiaries have complied and will through the Closing
Date comply with all laws and regulations relating to such loans, or to the
extent there has not been such compliance, such failure to comply will not
materially interfere with the collection of any loan. All loans and loan
commitments extended by Bank and any extensions, renewals or continuations of
such loans and loan commitments were made in accordance with its customary
lending standards in the ordinary course of business. Such loans are evidenced
by appropriate and sufficient documentation based upon customary and ordinary
past practices of Bank; and
(d) Except as disclosed in Section 2.12(d) of the Disclosure Schedule,
the reserve for loan losses reflected in the Bancorp Financial Statements as of
March 31, 2001 is adequate under the requirements of generally accepted
accounting principles to provide for losses on loans outstanding as of March 31,
2001.
Section 2.13 Employee Matters and ERISA.
(a) Except as disclosed in Section 2.13(a) of the Disclosure Schedule,
neither Bancorp nor any Bancorp Subsidiary has entered into any collective
bargaining agreement with any labor organization with respect to any group of
employees of Bancorp or any Bancorp Subsidiary, and there is no present effort
nor existing proposal to attempt to unionize any group of employees of Bancorp
or any Bancorp Subsidiary.
(b) (i) Bancorp and the Bancorp Subsidiaries have been and are in
compliance with all applicable laws respecting employment and employment
practices, terms and conditions of employment and wages and hours, including,
without limitation, any laws respecting employment discrimination and
occupational safety and health requirements, and neither Bancorp nor any Bancorp
Subsidiary is engaged in any unfair labor practice; (ii) there is no unfair
labor practice complaint against Bancorp or any Bancorp Subsidiary pending or,
to the best of Bancorp's knowledge, threatened before the National Labor
Relations Board; (iii) there is no labor dispute, strike, slowdown or stoppage
actually pending or threatened against or directly affecting Bancorp or any
Bancorp Subsidiary; and (iv) neither Bancorp nor any Bancorp Subsidiary has
experienced any work stoppage or other material labor difficulty during the past
five years.
(c) Except as disclosed in Section 2.13(c) of the Disclosure Schedule,
neither Bancorp nor any Bancorp Subsidiary maintains, contributes to or
participates in or has any liability under any employee benefit plans, as
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), or any nonqualified employee benefit plans or deferred
compensation, bonus, stock or incentive plans, or other employee benefit or
fringe benefit programs for the benefit of former or current employees of
Bancorp or any Bancorp Subsidiary (collectively, the "Employee Plans"). No
present or former employee of Bancorp or any Bancorp Subsidiary has been charged
with breaching nor has breached a fiduciary duty under any Employee Plan.
Neither Bancorp nor any Bancorp Subsidiary participates in, nor has it in the
past five years participated in, nor has it any present or future obligation or
liability under, any multiemployer plan (as defined at Section 3(37) of ERISA).
Except as separately disclosed in Section 2.13(c) of the Disclosure Schedule,
neither Bancorp nor any Bancorp Subsidiary maintains, contributes to, or
participates in any plan that provides health, major medical, disability, life
insurance, severance, salary continuation or other benefits to one or more
former employees or consultants.
(d) All liabilities of the Employee Plans have been funded on the basis
of consistent methods in accordance with sound actuarial assumptions and
practices, and no Employee Plan, at the end of any plan year, or at March 31,
2001 had an accumulated funding deficiency. No actuarial assumptions have been
changed since the last written report of actuaries on the Employee Plans. All
insurance premiums (including premiums to the Pension Benefit Guaranty
Corporation) have been paid in full, subject only to normal retrospective
adjustments in the ordinary course. Except as reflected in the Bancorp Financial
Statements, Bancorp and the Bancorp Subsidiaries have no contingent or actual
liabilities under Title IV of ERISA. No accumulated funding deficiency (within
the meaning of Section 302 of ERISA or Section 412 of the Code has been incurred
with respect to any Employee Plan, whether or not waived. No reportable event
(as defined in Section 4043 of ERISA) has occurred with respect to any Employee
Plan as to which a notice would be required to be filed with the Pension Benefit
Guaranty Corporation. No claim is pending, threatened or imminent with respect
to any Employee Plan (other than a routine claim for benefits for which plan
administrative review procedures have not been exhausted) for which Bancorp or
any Bancorp Subsidiary would be liable, except as is reflected in the Bancorp
Financial Statements. Bancorp and the Bancorp Subsidiaries have no liability for
excise taxes under Sections 4971, 4975, 4976, 4977, 4979 or 4980B of the Code or
for a fine under Section 502 of ERISA with respect to any Employee Plan. All
Employee Plans have in all material respects been operated, administered and
maintained in accordance with the terms thereof and in compliance with the
requirements of all applicable laws, including, without limitation, ERISA.
Section 2.14 Title to Properties; Licenses; Insurance.
(a) Bancorp and the Bancorp Subsidiaries have marketable title,
insurable at standard rates, free and clear of all liens, charges and
encumbrances (except taxes which are a lien but not yet payable and liens,
charges or encumbrances reflected in the Bancorp Financial Statements and
easements, rights-of-way, and other restrictions which are not material, and
further excepting in the case of other Real Estate Owned, as such real estate is
internally classified on the books of Bancorp or any Bancorp Subsidiary, rights
of redemption under applicable law), to all of their real properties;
(b) all leasehold interests for real property and any material personal
property used by Bancorp or a Bancorp Subsidiary in its business are held
pursuant to lease agreements which are valid and enforceable in accordance with
their terms;
(c) all such properties comply in all material respects with all
applicable private agreements, zoning requirements and other governmental laws
and regulations relating thereto, and there are no condemnation proceedings
pending or threatened with respect to any of such properties;
(d) Except as disclosed in Section 2.14(d) of the Disclosure Schedule,
Bancorp and the Bancorp Subsidiaries have valid title or other ownership rights
under licenses to all material intangible personal or intellectual property used
by Bancorp or any Bancorp Subsidiary in its business, free and clear of any
material claim, defense or right of any other person or entity, subject only to
rights of the licensors pursuant to applicable license agreements, which rights
do not materially and adversely interfere with the use of such property; and
(e) Bancorp and the Bancorp Subsidiaries carry the property, liability,
worker' compensation and such other types of insurance with coverage amounts as
is set forth in Section 2.14(e) of the Disclosure Schedule. Valid and
enforceable policies are outstanding and duly in force and will remain duly in
force through the Effective Time. Neither Bancorp nor any Bancorp Subsidiary has
received notice or other communication from the issuer of any such insurance
policy canceling or amending such policy or threatening to do so.
Section 2.15 Environmental Matters. As used in this Agreement,
"Environmental Laws" means all local, state and federal environmental, health
and safety laws and regulations in all jurisdictions in which Bancorp or any
Bancorp Subsidiary has done business or owned, leased or operated property,
including, without limitation, the Federal Resource Conservation and Recovery
Act, the Federal Comprehensive Environmental Response, Compensation and
Liability Act, the Federal Clean Water Act, the Federal Clean Air Act, and the
Federal Occupational Safety and Health Act.
Neither the conduct nor operation of Bancorp or any Bancorp Subsidiary
nor any condition of any property presently or previously owned, leased or
operated by any of them on their own behalf or in a fiduciary capacity violates
or violated any Environmental Law in any respect material to the business of
Bancorp and the Bancorp Subsidiaries, taken as a whole, and no condition or
event has occurred with respect to any of them or any property that, with notice
or the passage of time, or both, would constitute a violation material to the
business of Bancorp and the Bancorp Subsidiaries, taken as a whole, of any
Environmental Law or obligate (or potentially obligate) Bancorp or any Bancorp
Subsidiary to remedy, stabilize, neutralize or otherwise alter the environmental
condition of any property, where the aggregate cost of such actions would be
material to Bancorp and the Bancorp Subsidiaries, taken as a whole. Neither
Bancorp nor any Bancorp Subsidiary has received notice from any person or entity
that Bancorp or any Bancorp Subsidiary, or the operation or condition of any
property ever owned, leased or operated by any of them on their own behalf or in
a fiduciary capacity, are or were in violation of any Environmental Law, or that
Bancorp or any Bancorp Subsidiary is responsible (or potentially responsible)
for remedying, or the cleanup of, any pollutants, contaminants, or hazardous or
toxic wastes, substances or materials at, on or beneath any such property.
Section 2.16 Compliance with Laws and Regulations. Bancorp and the
Bancorp Subsidiaries have all licenses, franchises, permits and other
governmental authorizations that are necessary to enable them to conduct their
respective businesses, are qualified to conduct business in every jurisdiction
in which such qualification is legally required and are in compliance in all
material respects with all applicable laws, ordinances and regulations.
Section 2.17 Brokerage. Except for fees payable by Bancorp to
Endicott Financial Advisors, L.L.C., there are no claims or agreements for
brokerage commissions, investment banking fees, financial advisory fees,
finders' fees or similar compensation in connection with the transactions
contemplated by this Agreement payable by Bancorp or any Bancorp Subsidiary.
Section 2.18 No Undisclosed Liabilities. Neither Bancorp nor any
Bancorp Subsidiary has any material liability, whether known or unknown,
asserted or unasserted, absolute or contingent, accrued or unaccrued, liquidated
or unliquidated, and whether due or to become due (and there is no past or
present fact, situation, circumstance, condition or other basis for any present
or future action, suit or proceeding, hearing, charge, complaint, claim or
demand against Bancorp or any Bancorp Subsidiary giving rise to any such
liability), except (i) liabilities reflected in the Bancorp Financial Statements
and (ii) liabilities of the same types incurred in the ordinary course of
business since March 31, 2001.
Section 2.19 Statements True and Correct. None of the information
supplied or to be supplied by Bancorp for inclusion in any document to be filed
with the SEC or any banking or other regulatory authority in connection with the
transactions contemplated hereby, at the respective times such documents are
filed, and, in the case of the Proxy Statement (as defined in Section 4.03),
when first mailed to the stockholders of Bancorp and at the time of the
Shareholder' Meeting (as defined in Section 4.03), will be false or misleading
with respect to any material fact, omit to state any material fact necessary in
order to make the statements therein not misleading or omit to state any
material fact required to be stated in order to correct any statement in any
earlier communication with respect to the solicitation of any proxy for the
Shareholders' Meeting. All documents that Bancorp is responsible for filing with
the SEC or any banking or other regulatory authority in connection with the
transactions contemplated hereby will comply in all material respects with the
provisions of applicable law and the applicable rules and regulations
thereunder.
Section 2.20 Commitments and Contracts. Except as disclosed in
Section 2.20 of the Disclosure Schedule (and with a true and correct copy of the
document or other item in question having been made available to FBA for
inspection), neither Bancorp nor any Bancorp Subsidiary is a party or subject to
any of the following (whether written or oral, express or implied):
(a) any agreement, arrangement or commitment not made in the
ordinary course of business;
(b) any agreement, indenture or other instrument not reflected
in the Bancorp Financial Statements relating to the borrowing of money by
Bancorp or a Bancorp Subsidiary or the guarantee by Bancorp or a Bancorp
Subsidiary of any obligation (except trade payables or instruments related
to transactions entered into in the ordinary course of business by Bancorp
or a Bancorp Subsidiary, such as deposits, federal funds borrowings and
repurchase agreements), other than agreements, indentures or instruments
providing for annual payments of less than $50,000; or
(c) any contract containing covenants which limit the ability of
Bancorp or any Bancorp Subsidiary to compete in any line of business or with any
person or containing any restriction of the geographical area in which, or
method by which, Bancorp or any Bancorp Subsidiary may carry on its business.
Section 2.21 Material Interest of Certain Persons.
(a) Except as disclosed in Section 2.21(a) of the Disclosure
Schedule, no officer or director of Bancorp or Bank or any "associate" (as such
term is defined in Rule 14a-1 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) of any such officer or director has any material
interest in any contract or property (real or personal, tangible or intangible),
used in or pertaining to the business of Bancorp or any Bancorp Subsidiary.
(b) All outstanding loans from Bancorp or any Bancorp Subsidiary
to any present officer, director, employee or any associate or related interest
of any person referred to in subsection (a) were approved by or reported to the
Board of Directors of the applicable entity in accordance with all applicable
laws and regulations.
Section 2.22 Conduct to Date. From and after December 31, 2000
through the date of this Agreement, except as disclosed in Section 2.22 of the
Disclosure Schedule, neither Bancorp nor any Bancorp Subsidiary has done the
following:
(a) failed to conduct its business in the ordinary and usual
course consistent with past practices;
(b) issued, sold, granted, conferred or awarded any common or
other stock, or any corporate debt securities properly classified under
generally accepted accounting principles applied on a consistent basis as
long-term debt on the balance sheets of Bancorp or Bank;
(c) effected any stock split or adjusted, combined, reclassified
or otherwise changed its capitalization;
(d) declared, set aside or paid any cash or stock dividend or
other distribution in respect of its capital stock, or purchased, redeemed,
retired, repurchased, or exchanged, or otherwise directly or indirectly
acquired or disposed of any of its capital stock;
(e) incurred any material obligation or liability (absolute or
contingent), except normal trade or business obligations or liabilities incurred
in the ordinary course of business, or subjected to lien any of its assets or
properties other than in the ordinary course of business consistent with past
practice;
(f) discharged or satisfied any material lien or paid any material
obligation or liability (absolute or contingent), other than in accordance with
its terms in the ordinary course of business;
(g) sold, assigned, transferred, leased, exchanged, or otherwise
disposed of any of its properties or assets other than for a fair consideration
in the ordinary course of business;
(h) except as required by contract, (A) increased the rate of
compensation of, or paid any bonus to, any of its directors, officers, or other
employees, except merit or promotion increases in accordance with existing
policy, (B) entered into any new, or amended or supplemented any existing,
employment, management, consulting, deferred compensation, severance or other
similar contract, except as described in Section 5.04(c)and Section 5.04(d) of
the Disclosure Schedule, (C) entered into, terminated or substantially
modified any of the Employee Plans or (D) agreed to do any of the foregoing;
(i) suffered any material damage, destruction or loss, whether as
the result of fire, explosion, earthquake, accident, casualty, labor trouble,
taking of property by any governmental authority, flood, windstorm, embargo,
riot, act of God, act of war or other casualty or event, whether or not covered
by insurance;
(j) canceled or compromised any debt, except for debts charged off
or compromised in accordance with past practice;
(k) entered into any material transaction, contract or commitment
outside the ordinary course of its business; or
(l) made or guaranteed any loan to any of the Employee Plans.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF FBA AND FB&T
FBA and FB&T each represents and warrants to Bancorp as follows:
Section 3.01 Organization. FBA and FB&T are corporations duly
organized, validly existing and in good standing under the laws of the States of
Delaware and California, respectively. Each of such corporations has the power
to own all of its property and assets, to incur all of its liabilities and to
carry on its business as now conducted.
Section 3.02 Authorization. The Boards of Directors of FBA and
FB&T have by all requisite action approved this Agreement, the Merger and the
Bank Merger and authorized the execution hereof on behalf of each corporation by
duly authorized officers and the performance of their respective obligations
hereunder. FBA, in its capacity as the sole holder of outstanding capital stock
of FB&T, has approved this Agreement, the Merger and the Bank Merger. Nothing in
the Certificate of Incorporation of FBA, the Articles of Incorporation of FB&T,
or the Bylaws of either entity or any other agreement, instrument, decree,
proceeding, law or regulation (except as specifically referred to in this
Agreement) by or to which FBA or FB&T is bound or subject prohibits or inhibits
either of them from consummating this Agreement, the Merger and the Bank Merger
on the terms and conditions herein contained. This Agreement has been duly and
validly executed and delivered by FBA and FB&T and constitutes a legal, valid
and binding obligation of each of them, enforceable against them in accordance
with its terms.
Section 3.03 Financial Information. The audited consolidated
balance sheets of FBA and its subsidiaries as of December 31, 2000 and related
consolidated statements of income and statements of changes in stockholders'
equity and of cash flows for the three years ended December 31, 2000, together
with the notes thereto, included in FBA's Annual Report on Form 10-K for the
year ended December 31, 2000 as currently on file with the SEC, and the
unaudited consolidated balance sheets of FBA and its consolidated subsidiaries
as of March 31, 2001 and related consolidated statements of income and
statements of changes in stockholders' equity and of cash flows for the three
months ended March 31, 2001, together with the notes thereto, included in FBA's
Quarterly Report on Form 10-Q for the three months ended March 31, 2001 as
currently on file with the SEC have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis (except as
disclosed therein) and fairly present the consolidated financial position and
the consolidated results of operations, changes in shareholders' equity and cash
flows of the FBA and its consolidated subsidiaries as of the dates and for the
periods indicated.
Section 3.04 Absence of Changes. Since December 31, 2000 there has
not been any material adverse change in the financial condition, the results of
operations or the business or prospects of FBA and its subsidiaries taken as a
whole, that would reasonably be expected to adversely affect FBA's ability to
consummate the transactions contemplated by this Agreement.
Section 3.05 Litigation; Proceedings. There is no litigation,
claim or other proceeding pending or, to the best of the knowledge of FBA or
FB&T, threatened, that would prohibit either of them from consummating the
transactions contemplated by this Agreement. There is no regulatory proceeding
pending or, to the best knowledge of FBA or FB&T, threatened, that would
prohibit either of them from consummating the transactions contemplated by this
Agreement.
Section 3.06 Statements True and Correct. None of the information
supplied or to be supplied by FBA or FB&T for inclusion in any document to be
filed with any regulatory authority in connection with the transactions
contemplated hereby will, at the respective times such documents are filed be
false or misleading with respect to any material fact, or omit to state any
material fact necessary in order to make the statements therein not misleading.
All documents that FBA and FB&T are responsible for filing with any other
regulatory authority in connection with the transactions contemplated hereby
will comply with applicable laws, rules and regulations.
Section 307 Access to Funds. As of the date of this Agreement,
FBA has, and on the Closing Date it will have, access to sufficient funds to
enable it to pay all of the consideration contemplated to be paid in connection
with the Merger and all fees and expenses contemplated by this Agreement payable
by FBA.
Section 3.08 Regulatory Approvals. Neither FBA nor FB&T is aware
of any fact or circumstance related to their respective business operations that
cause either of them to believe that FBA and FB&T will not be able to obtain the
regulatory approvals necessary for the consummation of the transactions
contemplated by this Agreement.
ARTICLE IV
AGREEMENTS OF BANCORP AND BANK
Section 4.01 Business in Ordinary Course. Bancorp and Bank agree
that, from the date of this Agreement until the earlier of the Closing Date or
the termination of this Agreement in accordance with its terms:
(a) Bancorp and the Bancorp Subsidiaries shall continue to carry
on their business and the discharge or incurrence of obligations and liabilities
only in the usual, regular and ordinary course of business, as heretofore
conducted, and by way of amplification and not limitation, Bancorp and each
Bancorp Subsidiary will not:
(i) declare or pay any dividend or make any other
distribution to shareholders, whether in cash, stock or other property,
except for dividends of Bancorp Subsidiaries payable to Bancorp or a
Bancorp Subsidiary; or
(ii) issue any Bancorp Stock or other capital stock or
any options, warrants, or other rights to subscribe for or purchase
Bancorp Stock or any other capital stock or any securities convertible
into or exchangeable for any capital stock (except for the issuance
of Bancorp Common in accordance with the terms of convertible
securities, exchangeable securities or Bancorp Options identified in
Section 2.01(d) of the Disclosure Schedule); or
(iii) directly or indirectly redeem, purchase or otherwise
acquire any Common Stock or any other capital stock of Bancorp or any
Bancorp Subsidiary; or
(iv) effect a reclassification, recapitalization, splitup,
exchange of shares, readjustment or other similar change in or to any
capital stock, or otherwise reorganize or recapitalize; or
(v) change its certificate or articles of incorporation,
as the case may be, or bylaws, nor enter into any agreement to merge or
consolidate with, or sell a significant portion of its assets to, any
person or entity.
(b) Bancorp and each Bancorp Subsidiary will not, without the
prior written consent of FBA:
(i) grant any increase (other than ordinary and normal
increases consistent with past practices) in the compensation payable
or to become payable to officers or salaried employees, grant any stock
options or, except as required by law or as described in Section
5.04(c) of the Disclosure Schedule, adopt or make any change in any
bonus, insurance, pension, or other Employee Plan, agreement, payment
or arrangement made to, for or with any of such officers or employees;
(ii) borrow or agree to borrow any amount of funds except
in the ordinary course of business, or directly or indirectly guarantee
or agree to guarantee any obligations of others;
(iii) make or commit to make any new loan or letter of
credit or any new or additional discretionary advance under any
existing line of credit, in principal amounts in excess of $1,000,000
or that would increase the aggregate credit outstanding to any one
borrower (or group of affiliated borrowers) to more than $2,000,000
(excluding for this purpose any accrued interest or overdrafts);
(iv) purchase or otherwise acquire any investment
security for its own account having an average remaining life to
maturity greater than five years or any asset-backed securities other
than those issued or guaranteed by the Government National Mortgage
Association, the Federal National Mortgage Association or the Federal
Home Loan Mortgage Corporation;
(v) enter into any agreement, contract or commitment
having a term in excess of three (3) months other than letters of
credit, loan agreements, credit and deposit agreements and documents,
in each case in the ordinary course of business;
(vi) except in the ordinary course of business, place on
any of its assets or properties any mortgage, pledge, lien, charge, or
other encumbrance;
(vii) except in the ordinary course of business, cancel or
accelerate any material indebtedness owing to Bancorp or a Bancorp
Subsidiary or any claim which Bancorp or any Bancorp Subsidiary may
possess, or waive any material rights of substantial value;
(viii) sell or otherwise dispose of any real property or
any material amount of any tangible or intangible personal property,
other than properties acquired in foreclosure or otherwise in the
ordinary collection of indebtedness;
(ix) foreclose upon or otherwise take title to or
possession or control of any real property without first obtaining a
phase one environmental report thereon which indicates that the
property is free of pollutants, contaminants or hazardous or toxic
waste materials; provided, however, that a report shall not be required
with respect to single family, non-agricultural residential property
of one acre or less to be foreclosed upon unless the entity proposing
to acquire the property has reason to believe that such property might
contain any such waste materials or otherwise might be contaminated;
(x) commit any act or fail to do any act which will cause
a breach of any agreement, contract or commitment and which will have
a material adverse effect on the business, financial condition or
earnings of Bancorp or a Bancorp Subsidiary;
(xi) violate any law, statute, rule, governmental
regulation or order, which violation might have a material adverse
effect on the business, financial condition, or earnings of Bancorp or
a Bancorp Subsidiary;
(xii) purchase any single piece of real or personal
property or make any other single capital expenditure where the amount
paid or committed therefor is in excess of $75,000; or
(xiii) increase or decrease the rate of interest paid on
time deposits, except in a manner consistent with past practices.
(c) Bancorp and the Bancorp Subsidiaries shall not, without the
prior written consent of FBA, engage in any transaction or take any
action that would render untrue in any material respect any of the
representations and warranties of Bancorp and Bank contained in
ARTICLE II hereof, if such representations and warranties were given
immediately following such transaction or action.
(d) Bancorp shall promptly notify FBA of the occurrence of any
matter or event known to and directly involving Bancorp that is
materially adverse to the business, operations, properties, assets, or
condition (financial or otherwise) of Bancorp and the Bancorp
Subsidiaries, taken as a whole.
(e) Bancorp shall not solicit or encourage, or, except to the
extent determined by Bancorp's Board of Directors, after consulting
with outside counsel, to be required by applicable law, hold
discussions or negotiations with or provide information to any person
or entity in connection with any proposal for the acquisition of all
or a substantial portion of the business, assets, shares of Bancorp
Common or other securities or assets of Bancorp or any Bancorp
Subsidiary (an "Acquisition Proposal"). Bancorp shall promptly advise
FBA of its receipt of any Acquisition Proposal and the substance
thereof.
Section 4.02 Breaches. Bancorp and Bank shall, in the event either
has knowledge of the occurrence, or impending or threatened occurrence, of any
event or condition which would cause or constitute a breach (or would have
caused or constituted a breach had such event occurred or been known prior to
the date hereof) of any of its representations or agreements contained or
referred to herein, give prompt written notice thereof to FBA and use their best
efforts to prevent or promptly remedy the same.
Section 4.03 Submission to Shareholders. Bancorp shall as soon as
practicable (i) prepare and file with the SEC a Proxy Statement for a meeting of
its shareholders (such meeting together with any adjournments is referred to as
the "Shareholders' Meeting") for approval of this Agreement and the Merger (the
"Proxy Statement") and (ii) promptly cause the Shareholders' Meeting to be duly
called and held. Unless the Board of Directors of Bancorp shall have determined,
after consulting with outside counsel, that it is required by applicable
Corporate Law and fiduciary principles not to do so, Bancorp's Board of
Directors shall unanimously recommend to Bancorp's shareholders the approval of
this Agreement and the Merger, cause the Proxy Statement to be mailed to
Bancorp's shareholders and use its best efforts to obtain such shareholder
approval.
Section 4.04 Consummation of Agreement. Bancorp and Bank shall
perform and fulfill all conditions and obligations on their respective parts to
be performed or fulfilled pursuant to this Agreement and to effect the Merger
and the Bank Merger in accordance with the terms and provisions hereof. Bancorp
and Bank shall furnish to FBA in a timely manner all information, data and
documents reasonably requested by FBA and shall cooperate fully with FBA and
FB&T in seeking such approvals and in consummating the transactions contemplated
by this Agreement.
Section 4.05 Environmental Reports. Bancorp and Bank shall provide
to FBA, as soon as reasonably practical, but not later than forty five (45) days
after the date hereof, a report of a phase one environmental investigation on
all real property owned, leased or operated by Bancorp or any Bancorp Subsidiary
as of the date hereof (other than space in retail and similar establishments
leased by Bancorp for automatic teller machines), and within ten (10) days after
the acquisition or lease of any real property acquired or leased by Bancorp or
any Bancorp Subsidiary after the date hereof (other than space in retail and
similar establishments leased or operated for automatic teller machines), except
as otherwise provided in Section 4.01(b)(ix) If required by the phase one
investigation, in FBA's reasonable opinion, Bancorp shall obtain and provide to
FBA a report of a phase two investigation on properties requiring such
additional study. FBA shall have fifteen (15) business days from the receipt of
any such phase two report to notify Bancorp of any objection to the contents of
such report. Should the cost of taking all remedial and corrective actions and
measures with respect to any real property owned by Bancorp or any Bancorp
Subsidiary (i) required by applicable law or (ii) recommended or suggested by
such report or prudent in light of serious life, health or safety concerns, in
the aggregate, exceed the sum of $400,000 as reasonably estimated by an
environmental expert retained for such purpose by FBA and reasonably acceptable
to Bancorp, or if the cost of such actions and measures cannot be so reasonably
estimated by such expert to be $400,000 or less with a reasonable degree of
certainty, then FBA shall have the right pursuant to Section 7.05 hereof, for a
period of ten (10) business days following receipt of such estimate or
indication that the cost of such actions and measures can not be so reasonably
estimated, to terminate this Agreement, which shall be FBA's sole remedy in such
event.
Section 4.06 Access to Information. Bancorp and Bank shall permit
FBA reasonable access, in a manner which will avoid undue disruption or
interference with their normal operations, to their properties and shall cause
the Bancorp Subsidiaries to provide to FBA comparable access to their
properties. Bancorp and Bank shall disclose and make available to FBA all books,
documents, papers and records relating to the assets, stock ownership,
properties, operations, obligations and liabilities of Bancorp and the Bancorp
Subsidiaries including, but not limited to, all books of account (including the
general ledger), tax records, minute books of directors' and shareholders'
meetings, organizational documents, material contracts and agreements, loan
files, filings with any regulatory authority, accountants' workpapers (if
available and subject to the respective independent accountants' consent),
litigation files, plans affecting employees, and any other business activities
or prospects in which FBA may have a reasonable and legitimate interest in
furtherance of the transactions contemplated by this Agreement. However, Bancorp
and Bank shall not be required to disclose or make available to FBA any
documents or minutes that discuss FBA and the rights of Bancorp and Bank under
the terms of this Agreement. FBA will hold any such information which is
nonpublic in confidence in accordance with the provisions of Section 8.01
hereof.
Section 4.07 Consents of Third Parties. Bancorp and Bank shall use
their best efforts to obtain all consents of third parties necessary or
desirable for the consummation of the transactions contemplated by this
Agreement.
Section 4.08 Subsequent Financial Statements. As soon as available
after the date hereof, Bancorp shall deliver to FBA the monthly unaudited
consolidated balance sheets and profit and loss statements of Bancorp prepared
for its internal use, the Report of Condition and Income of Bank for each
quarterly period completed prior to the Closing, and all other financial reports
or statements submitted to regulatory authorities after the date hereof, to the
extent permitted by law (collectively, the "Subsequent Bancorp Financial
Statements"). The Subsequent Bancorp Financial Statements shall be prepared on a
basis consistent with past accounting practices, shall fairly present the
financial condition and results of operations for the dates and periods
presented and shall not include any material assets or omit to state any
material liabilities, absolute or contingent, or other facts, which inclusion or
omission would render such financial statements misleading in any material
respect.
Section 4.09 Merger of Banks. Bancorp and Bank shall cooperate
with FBA, execute such documents and file such applications and notices as may
be required or desirable in order to enable Bank to enter into and consummate a
merger with FB&T (the "Bank Merger"), to be effective immediately following the
Effective Time or as soon thereafter as practicable.
ARTICLE V
AGREEMENTS OF FBA AND FB&T
Section 5.01 Regulatory Approvals. FBA and FB&T promptly shall
file all regulatory applications required in order to consummate the Merger and
the Bank Merger, including but not limited to the necessary applications for the
prior approval of the Federal Reserve Board. FBA shall keep Bancorp reasonably
informed as to the status of such applications and make available to Bancorp,
upon reasonable request, copies of such applications and any supplementally
filed materials.
Section 5.02 Breaches. FBA and FB&T shall, in the event either has
knowledge of the occurrence, or impending or threatened occurrence, of any event
or condition which would cause or constitute a breach (or would have caused or
constituted a breach had such event occurred or been known prior to the date
hereof) of any of its representations or agreements contained or referred to
herein, give prompt written notice thereof to Bancorp and use their best efforts
to prevent or promptly remedy the same.
Section 5.03 Consummation of Agreement. FBA and FB&T shall use
their best efforts to perform and fulfill all conditions and obligations on
their parts to be performed or fulfilled under this Agreement and to effect the
Merger and the Bank Merger in accordance with the terms and conditions of this
Agreement.
Section 5.04 Employee Benefits.
(a) FBA shall provide the benefits described in this Section 5.04 with
respect to each person who remains an employee of Bancorp or a Bancorp
Subsidiary following the Closing Date (each a "Continued Employee"). Subject to
FBA's ongoing right to adopt subsequent amendments or modifications of any plan
referred to in this Section 5.04 or to terminate any such plan, in FBA's sole
discretion, each Continued Employee shall be entitled, as a new employee of a
subsidiary of FBA, to participate in such employee benefit plans, as defined in
Section 3(3) of ERISA, or any non-qualified employee benefit plans or deferred
compensation, stock option, bonus or incentive plans, or other employee benefit
or fringe benefit programs as may be in effect generally for employees of all of
FBA's subsidiaries (the "FBA Plans"), if and as a Continued Employee shall be
eligible and, if required, selected for participation therein under the terms
thereof and otherwise shall not be participating in a similar plan which is
maintained by Bancorp after the Effective Time. Bancorp employees shall
participate therein on the same basis as similarly situated employees of other
subsidiaries of FBA. All such participation shall be subject to the terms of
such plans as may be in effect from time to time, and this Section 5.04 shall
not give Continued Employees any rights or privileges superior to those of other
employees of subsidiaries of FBA. FBA may terminate or modify all Employee
Plans, and FBA's obligation under this Section 5.04 shall not be deemed or
construed so as to provide duplication of similar benefits but, subject to that
qualification, FBA shall credit each Continued Employee with his or her term of
service with Bancorp, for purposes of vesting and any age or period of service
requirements for commencement of participation with respect to any FBA Plan in
which Continued Employees may participate. Nothing in this Agreement shall
obligate FBA, Bancorp or any other entity to employ any person or to continue to
employ any person for any period of time.
(b) Following the consummation of the Merger, FBA will cause Bancorp
and FB&T to perform all of their obligations pursuant to the agreements
identified in Section 5.04(c) of the Disclosure Schedule relating to severance
obligations and payments required to be made upon a change of control.
(c) Following the consummation of the Merger, FBA will provide, or
cause Bancorp to provide, the benefits set forth in Section 5.04(c) of the
Disclosure Schedule with respect to the employees of Bancorp and the Bancorp
Subsidiaries.
(d) Following the consummation of the Merger, FBA will pay, or cause
Bancorp to pay, to the employees to be listed in a supplement to Section 5.04(d)
of the Disclosure Schedule, which supplement is to be delivered by Bancorp to
FBA within 30 days of the date of this Agreement, the retention bonuses listed
on Schedule 5.04(d) of the Disclosure Schedule.
Section 5.05 Indemnification and Insurance.
(a) For five years after the Closing Date, FBA shall cause Bancorp to
indemnify, defend and hold harmless the present and former officers, directors,
employees and agents of Bancorp and the Bancorp Subsidiaries (each, an
"Indemnified Party") against all losses, expenses, claims, damages or
liabilities arising out of actions or omissions related to their positions at
Bancorp or a Bancorp Subsidiary occurring on or prior to the Closing Date
(including, without limitation, the transactions contemplated by this Agreement)
to the extent permitted by applicable Corporate Laws and required by Bancorp's
Articles of Incorporation as in effect on March 31, 2001.
(b) If after the Closing Date Bancorp or its successors or assigns (i)
shall consolidate with or merge into any other corporation or entity and shall
not be the continuing or surviving entity of such consolidation or merger, or
(ii) shall transfer all or substantially all of its properties and assets to any
individual, corporation or other entity, then and in each such case, FBA shall
cause Bancorp's successors and assigns to assume any remaining obligations set
forth in this Section 5.05. If Bancorp shall liquidate, dissolve or otherwise
wind up its business, then FBA shall indemnify, defend and hold harmless each
Indemnified Party to the same extent and on the same terms that Bancorp was so
obligated pursuant to this Section 5.05.
(c) BYL shall be permitted to maintain up to $3 million in aggregate
directors' and officers' liability insurance coverage for acts or omissions
occurring prior to the Effective Time by persons who are currently covered by
the directors' and officers' liability insurance policy maintained by BYL and to
purchase an extension of the claims reporting period for the policy providing
such coverage for a period of four years following the Effective Date. The total
premium for the four-year extension of the claims reporting period shall not
exceed $40,000.
Section 5.06 Access to Information. FBA and FB&T shall disclose
and make available to Bancorp all books, documents, papers and records relating
to the assets, stock ownership, properties, operations, obligations and
liabilities of FBA and FB&T including, but not limited to, all books of account
(including the general ledger), tax records, minute books of directors' and
shareholders' meetings, organizational documents, material contracts and
agreements, loan files, filings with any regulatory authority, accountants'
workpapers (if available and subject to the respective independent accountants'
consent), litigation files, plans affecting employees, and any other business
activities or prospects in which FBA may have a reasonable and legitimate
interest in furtherance of the transactions contemplated by this Agreement.
However, FBA and FB&T shall not be required to disclose or make available to
Bancorp any documents or minutes that discuss Bancorp or Bank and the rights of
FBA and FB&T under the terms of this Agreement. Bancorp will hold any such
information which is nonpublic in confidence in accordance with the provisions
of Section 8.01 hereof.
Section 5.07 Conduct of Business. From the date of this Agreement
until the Effective Time, FBA and FB&T will conduct their respective businesses
in accordance with safe and sound business practices.
ARTICLE VI
CONDITIONS PRECEDENT TO THE MERGER
Section 6.01 Conditions to the Obligations of FBA and FB&T. The
obligations of FBA and FB&T to effect the Merger and the other transactions
contemplated by this Agreement shall be subject to the satisfaction (or waiver
by FBA and FB&T) prior to or on the Closing Date of the following conditions:
(a) the representations and warranties made by Bancorp and Bank in this
Agreement shall be true in all material respects on and as of the Closing Date
with the same effect as though such representations and warranties had been made
or given on and as of the Closing Date;
(b) Bancorp and Bank shall have performed and complied in all material
respects with all of its obligations and agreements required to be performed
prior to the Closing Date;
(c) no temporary restraining order, preliminary or permanent injunction
or other order issued by any court of competent jurisdiction or other legal
restraint or prohibition preventing the consummation of the Merger or the Bank
Merger shall be in effect, nor shall any proceeding by any regulatory authority
or other person seeking any of the foregoing be pending. There shall not be any
action taken, or any statute, rule, regulation or order enacted, entered,
enforced or deemed applicable to the Merger or the Bank Merger which makes the
consummation thereof illegal;
(d) all necessary approvals, consents and authorizations required by
law for consummation of the Merger, including the requisite approvals of the
shareholders of Bancorp and all legally required regulatory approvals, shall
have been obtained, and all waiting periods required by law shall have expired;
(e) FBA shall have received the environmental reports required by
Section 4.05 hereof and shall not have elected pursuant to Section 7.05 hereof
to terminate this Agreement;
(f) FBA shall have received all documents required to be received from
Bancorp, including without limitation the consents referred to in Section 4.07,
on or prior to the Closing Date, all in form and substance reasonably
satisfactory to FBA; and
(g) the Bank Merger shall have been authorized by all necessary
parties, and any regulatory approvals required in connection therewith shall
have been granted.
Section 6.02 Conditions to the Obligations of Bancorp and Bank.
The obligations of Bancorp and Bank to effect the Merger and the other
transactions contemplated by this Agreement shall be subject to the satisfaction
(or waiver by Bancorp and Bank) prior to or on the Closing Date of the following
conditions:
(a) the representations and warranties made by FBA and FB&T in this
Agreement shall be true in all material respects on and as of the Closing Date
with the same effect as though such representations and warranties had been made
or given on the Closing Date;
(b) FBA shall have performed and complied in all material respects with
all of its obligations and agreements hereunder required to be performed prior
to the Closing Date;
(c) no temporary restraining order, preliminary or permanent injunction
or other order issued by any court of competent jurisdiction or other legal
restraint or prohibition preventing the consummation of the Merger shall be in
effect, nor shall any proceeding by any bank regulatory authority or other
person seeking any of the foregoing be pending. There shall not be any action
taken, or any statute, rule, regulation or order enacted, entered, enforced or
deemed applicable to the Merger or the Bank Merger which makes the consummation
thereof illegal;
(d) all necessary approvals, consents and authorizations required by
law for consummation of the Merger, including the requisite approvals of the
shareholders of Bancorp and all legally required regulatory approvals, shall
have been obtained, and all waiting periods required by law shall have expired;
and
(e) Bancorp shall have received all documents required to be received
from FBA on or prior to the Closing Date, all in form and substance reasonably
satisfactory to Bancorp.
ARTICLE VII
TERMINATION
Section 7.01 Mutual Agreement. This Agreement may be terminated by
the mutual written agreement of the parties at any time prior to the Closing
Date, regardless of whether approval of this Agreement and the Merger by the
shareholders of Bancorp shall have been previously obtained.
Section 7.02 Breach of Agreements. In the event that there is a
material breach of any of the representations and warranties or agreements of
FBA or FB&T, on one hand, or Bancorp or Bank, on the other hand, which breach is
not cured within thirty (30) days after notice to cure such breach is given to
the breaching party by the non-breaching party, then the non-breaching parties,
regardless of whether approval of this Agreement and the Merger by the
shareholders of Bancorp shall have been previously obtained, may terminate and
cancel this Agreement by providing written notice of such action to the other
parties. FBA and FB&T acknowledge that the institution by PBOC Holdings, Inc.
("PBOC") or People's Bank of California ("People's Bank") or any of their
respective successors of any legal proceedings against Bancorp or Bank related
to the transactions contemplated by the Agreement and Plan of Reorganization
dated as of November 1, 2000 between PBOC, People's Bank, Bancorp and Bank shall
not constitute a material breach of the representations and warranties of
Bancorp or Bank contained in this Agreement, entitling FBA and FB&T to terminate
this Agreement.
Section 7.03 Failure of Conditions. In the event that any of the
conditions to the obligations of a party are not satisfied or waived on or prior
to the Closing Date, and if any applicable cure period provided in Section 7.02
hereof has lapsed, then such party may, regardless of whether approval of the
transactions contemplated by this Agreement by the shareholders of Bancorp shall
have been previously obtained, terminate and cancel this Agreement by delivery
of written notice of such action to the other parties.
Section 7.04 Denial of Regulatory Approval. If any regulatory
application filed pursuant to Section 5.01 hereof should be finally denied or
disapproved by a regulatory authority, then this Agreement thereupon shall be
deemed terminated and canceled; provided, however, that a request for additional
information or undertaking by FBA, as a condition for approval, shall not be
deemed to be a denial or disapproval so long as FBA diligently provides the
requested information or undertaking. In the event an application is denied
pending an appeal, petition for review or similar such act on the part of FBA
(hereinafter referred to as the "Appeal"), then the application will be deemed
denied unless FBA prepares and timely files and continues to pursue an Appeal
seeking the necessary approval.
Section 7.05 Environmental Reports. FBA may terminate this
Agreement to the extent provided in Section 4.05 by giving written notice of
such termination to Bancorp.
Section 7.06 Regulatory Enforcement Matters. In the event that
Bancorp or any Bancorp Subsidiary shall become a party or subject to any
material written agreement, memorandum of understanding, cease and desist order,
imposition of civil money penalties or other regulatory enforcement action or
proceeding with any regulatory authority after the date of this Agreement, then
FBA may terminate this Agreement by giving written notice of such termination to
Bancorp; provided, however, that the matters identified in Section 2.06 of the
Disclosure Schedule shall not be a basis of such a termination.
Section 7.07 Unilateral Termination. If the Closing Date shall not
have occurred on or prior to the day which is 240 days after the date of this
Agreement, then this Agreement may be terminated by any party by giving written
notice to the other parties.
Section 7.08 Liquidated Damages. In the event that either FBA or
Bancorp shall have breached any provision of this Agreement and the other party
shall have properly terminated this Agreement pursuant to Section 7.020, then
the party breaching this Agreement shall be liable to the non-breaching party
for liquidated damages in the amount of $2,500,000.00. The amount of liquidated
damages has been agreed to by the parties based upon their good faith analysis
of the range of actual damages likely to be sustained by a non-breaching party,
recognizing that the actual damages, including but not limited to fees of
attorneys and other advisers, other out-of-pocket costs, opportunity costs and
other potential direct and consequential damages would be difficult to ascertain
with certainty; that the amount of liquidated damages is a reasonable amount as
of the time this Agreement has been negotiated; and that no portion of such
damages is intended to operate as a penalty to any party.
Section 7.09 Acquisition Proposal. Bancorp may terminate this
Agreement if its Board of Directors shall have approved an Acquisition Proposal
after determining, upon the basis of the written legal advice of outside counsel
(who may be Bancorp's regular outside counsel), that such approval is required
in the exercise of its fiduciary obligations under applicable law.
Section 7.10 Break-up Fee.
(a) Bancorp hereby agrees to pay to FBA, and FBA shall be entitled to
payment of, a fee in the amount of $2,500,000.00 (the "Fee") in immediately
available funds within five (5) business days following the occurrence of a
Purchase Event (as defined herein), provided that the right to receive the Fee
shall terminate if any of the following (a "Fee Termination Event") occurs prior
to the occurrence of a Purchase Event: (i) the Effective Time of the Merger;
(ii) termination of this Agreement in accordance with the provisions hereof if
such termination occurs prior to the occurrence of a Preliminary Purchase Event
(as defined herein), except a termination by FBA pursuant to Section7.020
hereof; or (iii) the expiration of eighteen months after termination of this
Agreement if such termination follows the occurrence of a Preliminary Purchase
Event or a termination by FBA pursuant to Section 7.02 0 hereof (provided that
if a Preliminary Purchase Event continues or occurs beyond such termination, the
Fee Termination Event shall be eighteen months after the expiration of the Last
Preliminary Purchase Event but in no event more than 24 months after such
termination). The "Last Preliminary Purchase Event" shall mean the last
Preliminary Purchase Event to expire.
(b) The term "Preliminary Purchase Event" shall mean any of the
following events or transactions occurring after the date hereof:
(i) Bancorp, without having received FBA's prior written
consent, shall have entered into an agreement to engage in an
Acquisition Transaction (as defined herein) with any person (the term
"person" for purposes of this Section 7.100 having the meaning assigned
thereto in Sections 3(a)(9) and 13(d)(3) of the Exchange Act and the
rules and regulations thereunder) other than FBA or a subsidiary of FBA
(an "FBA Subsidiary"), or the Board of Directors of Bancorp shall
have approved or recommended that the shareholders of Bancorp approve
or accept any Acquisition Transaction with any person other than FBA or
an FBA Subsidiary. For purposes of this Agreement, "Acquisition
Transaction" shall mean (A) a merger, consolidation or any similar
transaction involving Bancorp or a Bancorp Subsidiary, (B) a purchase,
lease or other acquisition of all or substantially all of the assets
of Bancorp or a Bancorp Subsidiary, (C) a purchase or other
acquisition in compliance with applicable laws and regulations
(including by way of merger, consolidation, share exchange or
otherwise) of securities representing 10% or more of the voting power
of Bancorp or a Bancorp Subsidiary, or (D) any transaction
substantially similar in effect to any of the foregoing;
(ii) (A) any person (other than FBA, or an FBA
Subsidiary, James F. Dierberg ("Dierberg"), any member of Dierberg's
immediate family or any entity controlled by Dierberg or any member of
Dierberg's immediate family) shall have acquired beneficial ownership
or the right to acquire beneficial ownership of 10% or more of any
class of voting securities of Bancorp or a Bancorp Subsidiary (the term
"beneficial ownership" for purposes of this Agreement having the
meaning assigned thereto under Section 13(d) of the Exchange Act and
the rules and regulations thereunder), or (B) any group (as such term
is defined in Section 13(d) of the Exchange Act) other than a group of
which FBA or an FBA Subsidiary is a member, shall have been formed that
beneficially owns 10% or more of any class of voting securities of
Bancorp or a Bancorp Subsidiary;
(iii) any person other than FBA or an FBA Subsidiary shall
have made a bona fide proposal to Bancorp or its shareholders, by
public announcement or written communication, to engage in an
Acquisition Transaction (including, without limitation, any transaction
which any person other than FBA or an FBA Subsidiary shall have
commenced, or shall have filed a registration statement under the
Securities Act of 1933, as amended, with respect to a tender offer or
exchange offer to purchase any shares of Bancorp Common such that, upon
consummation of the offer, such person would own or control 25% or more
of the then outstanding shares of Bancorp Common (such an offer being
referred to herein as a "Tender Offer" or an "Exchange Offer,"
respectively);
(iv) after a proposal is made by a third party to Bancorp
or its shareholders to engage in an Acquisition Transaction, Bancorp
shall have breached any covenant or obligation contained in this
Agreement, such breach would entitle FBA to terminate this Agreement
under Section 7.02 of this Agreement and such breach shall not have
been cured within thirty (30) days after written notice thereof from
FBA;
(v) any person other than FBA or an FBA Subsidiary,
other than in connection with a transaction to which FBA has given its
prior written consent, shall have filed an application or notice with
a governmental authority or regulatory or administrative agency or
commission, domestic or foreign, for approval to engage in an
Acquisition Transaction; or
(vi) the holders of Bancorp Common shall not have approved
this Agreement at the meeting of shareholders held for the purpose of
voting on this Agreement, such meeting shall not have been held
or shall have been canceled or adjourned prior to termination of this
Agreement, or Bancorp's Board of Directors shall have withdrawn or
modified in a manner adverse to FBA the recommendation of Bancorp's
Board of Directors with respect to this Agreement, in each case after
any person (other than FBA or an FBA Subsidiary) shall have (A) made
or disclosed an intention to make a proposal to engage in an
Acquisition Transaction or (B) commenced a Tender Offer or an Exchange
Offer.
(c) the Term "Purchase Event" shall mean either of the following
events or transactions occurring after the date hereof:
(i) the acquisition by any person, other than FBA or an
FBA Subsidiary, alone or together with such person's affiliates and
associates, or any group (as defined in Section 13(d) of the Exchange
Act), of beneficial ownership of 25% or more of the then outstanding
voting securities of Bancorp; or
(ii) the occurrence of a Preliminary Purchase Event
described in Section 7.10(b)(i), except that the percentage referred to
in clause (C) shall be 25%.
(d) Bancorp shall notify FBA promptly in writing of its knowledge
of the occurrence of any Preliminary Purchase Event or Purchase Event,
but such notice by Bancorp shall not be a condition precedent to the
right of FBA to receive payment of the Fee.
ARTICLE VIII
GENERAL PROVISIONS
Section 8.01 Confidential Information. The parties acknowledge the
confidential and proprietary nature of the "Information" (as herein defined)
which has heretofore been exchanged and which will be received from each other
hereunder and agree to hold and keep the same confidential. Such Information
will include any and all financial, technical, commercial, marketing, customer
or other information concerning the business, operations and affairs of a party
that may be provided to the others, irrespective of the form of the
communications, by such party's employees or agents. Such Information shall not
include information which is or becomes generally available to the public other
than as a result of a disclosure by a party or its representatives in violation
of this Agreement. The parties agree that the Information will be used solely
for the purposes contemplated by this Agreement and that such Information will
not be disclosed to any person other than employees and agents of a party who
are directly involved in implementing the Merger, who shall be informed of the
confidential nature of the Information and directed individually to abide by the
restrictions set forth in this Section 8.01. The Information shall not be used
in any way detrimental to a party, including use directly or indirectly in the
conduct of the other party's business or any business or enterprise in which
such party may have an interest, now or in the future, and whether or not now in
competition with such other party. Neither FBA nor Bancorp will purchase or sell
any security issued by the other party for so long as this Agreement remains in
effect.
Section 8.02 Publicity. FBA and Bancorp shall cooperate with each
other in the development and distribution of all news releases and other public
disclosures concerning this Agreement and the Merger. No party shall issue any
news release or make any other public disclosure without the prior consent of
the other parties, unless such is required by law upon the written advice of
counsel or is in response to published newspaper or other mass media reports
regarding the transactions contemplated hereby, in which latter event the
parties shall consult with each other to the extent practicable regarding such
responsive disclosure.
Section 8.03 Return of Documents. Upon termination of this
Agreement without the Merger becoming effective, each party shall deliver to the
others originals and all copies of all Information made available to such party
and will not retain any copies, extracts or other reproductions, in whole or in
part, of such Information.
Section 8.04 Notices. Any notice or other communication shall be
in writing and shall be deemed to have been given or made on the date of
delivery, in the case of hand delivery, or three (3) business days after deposit
in the United States registered or certified mail, return receipt requested,
postage prepaid, or upon receipt if transmitted by facsimile telecopy or any
other means, addressed (in any case) as follows:
(a) if to FBA:
First Banks America, Inc.
600 James S. McDonnell Boulevard
Mail Stop 014
Hazelwood, Missouri 63042
Attention: Mr. Allen H. Blake
Facsimile: (314) 592-6627
if to FB&T:
First Bank & Trust
550 Montgomery Street
San Francisco, California 94111
Attention: Mr. Terrance M. McCarthy, President
Facsimile: (415) 782-0536
with a copy to:
John S. Daniels
Attorney at Law
6440 North Central Expressway
Suite 503
Dallas, Texas 75206
Facsimile: (214) 368-9094
(b) if to Bancorp:
BYL Bancorp
1875 N. Tustin Avenue
Orange, California 92865
Attn: Robert Ucciferri
President and Chief Executive Officer
Facsimile: (714) 685-1372
(c) if to Bank
BYL Bank Group
1875 N. Tustin Avenue
Orange, California 92865
Attn: Robert Ucciferri
President and Chief Executive Officer
Facsimile: (714) 685-1372
with a copy to:
Knecht & Hansen
1301 Dove Street
Suite 900
Newport Beach, California
Attn: Loren P. Hansen, Esq.
Facsimile: (949) 851-1732
or to such other address as any party may from time to time designate by notice
to the others.
Section 8.05 Nonsurvival of Representations, Warranties and Agreements.
Except for the agreements set forth in Section 5.04, Section 5.05, Section 8.01
and Section 8.06 hereof, no representation, warranty or agreement contained
in this Agreement shall survive the Closing. In the event that this Agreement
is terminated prior to Closing, the representations, warranties and agreements
set forth herein shall survive such termination.
Section 8.06 Costs and Expenses. Except as otherwise provided herein, each
party shall pay its own costs and expenses incurred in connection with this
Agreement and the matters contemplated hereby, including without limitation
all fees and expenses of attorneys, accountants, brokers, financial advisors and
other professionals.
Section 8.07 Entire Agreement. This Agreement, together with the Escrow
Agreement, constitutes the entire agreement among the parties and supersedes
and cancels any and all prior discussions, negotiations, undertakings,
agreements in principle and other agreements among the parties relating to the
subject matter hereof.
Section 8.08 Headings and Captions. The captions of Articles and Sections
hereof are for convenience only and shall not control or affect the meaning or
construction of any of the provisions of this Agreement.
Section 8.09 Waiver, Amendment or Modification. The conditions of this
Agreement which may be waived may only be waived by a written instrument
delivered to the other party. The failure of any party at any time or times
to require performance of any provision hereof shall in no manner affect
the right at a later time to enforce the same. This Agreement may not be
amended or modified except by a written document duly executed by the parties
hereto.
Section 8.10 Rules of Construction. Unless the context otherwise requires:
(a) a term has the meaning assigned to it; (b) an accounting term not otherwise
defined has the meaning assigned to it in accordance with generally accepted
accounting principles; (c) "or" is not exclusive; and (d) words in the singular
may include the plural and in the plural include the singular.
Section 8.11 Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original and all of which shall
be deemed one and the same instrument.
Section 8.12 Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective successors
and assigns. There shall be no third party beneficiaries hereof.
Section 8.13 Governing Law. This Agreement shall be governed by the laws
of the State of California and any applicable federal laws and regulations.
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed
by their respective officers thereunto duly authorized, all as of the date first
written above.
FIRST BANKS AMERICA, INC.
By: /s/ Allen H. Blake
------------------------------------------
Its: Executive Vice President and
Chief Operating Officer
------------------------------------------
FIRST BANK & TRUST
By: /s/ Allen H. Blake
------------------------------------------
Its: Vice President
------------------------------------------
BYL BANCORP
By: /s/ Robert Ucciferri
------------------------------------------
Its: President and Chief Executive Officer
------------------------------------------
BYL BANK GROUP
By: /s/ Robert Ucciferri
------------------------------------------
Its: President and Chief Executive Officer
------------------------------------------
EXHIBIT A
AGREEMENT OF MERGER
This Agreement of Merger is entered into between Newco, a California
corporation ("Merging Corporation"), and BYL Bancorp, a California corporation
("Surviving Corporation").
1. Merging Corporation shall be merged into Surviving
Corporation.
2. The outstanding shares of Surviving Corporation shall be
converted into the right to receive cash consideration of $ per share.
3. The outstanding shares of Merging Corporation shall be
converted into an equal number of shares of Surviving Corporation, so that
immediately following the effective time of the merger, the number of
outstanding shares of common stock of the Surviving Corporation shall be equal
to the number of outstanding shares of common stock of the Merging Corporation
immediately prior to the merger.
4. Until amended in accordance with applicable law, the Articles
of Incorporation and Bylaws of Surviving Corporation remain the same as those
of the Surviving Corporation immediately prior to the merger.
5. The effect and the effective date of the merger shall be as
prescribed by applicable law.
In Witness Whereof, the parties have executed this Agreement of Merger
as of , 2001.
NEWCO BYL BANCORP
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President President
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Secretary Secretary
EXHIBIT B
AGREEMENT OF MERGER
This Agreement of Merger is entered into between BYL Bank Group, a
California banking corporation ("Merging Corporation"), and First Bank & Trust,
a California banking corporation ("Surviving Corporation").
1. Merging Corporation shall be merged into Surviving
Corporation.
2. The outstanding shares of Surviving Corporation shall be
converted into the right to receive cash consideration of $ per share.
3. The outstanding shares of Merging Corporation shall be
converted into an equal number of shares of Surviving Corporation, so that
immediately following the effective time of the merger, the number of
outstanding shares of common stock of the Surviving Corporation shall be equal
to the number of outstanding shares of common stock of the Merging Corporation
immediately prior to the merger.
4. Until amended in accordance with applicable law, the Articles
of Incorporation and Bylaws of Surviving Corporation remain the same as those
of the Surviving Corporation immediately prior to the merger.
5. The effect and the effective date of the merger shall be as
prescribed by applicable law.
In Witness Whereof, the parties have executed this Agreement of Merger
as of , 2001.
BYL BANK GROUP FIRST BANK & TRUST
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President President
- -------------------------- --------------------------
Secretary Secretary
EXHIBIT C
Legal Opinion Matters
Bancorp and Bank
1. The due incorporation, valid existence and good standing of Bancorp
and Bank under the laws of the State of California, their corporate power and
authority to own and operate their respective properties and to carry on their
businesses as now conducted, and their corporate power and authority to enter
into the Agreement and the Merger Agreement and to consummate the transactions
contemplated thereby.
2. The due incorporation, valid existence and good standing of each of
the Bancorp Subsidiaries other than Bank, their power and authority to own and
operate their properties and the possession of all licenses, permits and
authorizations required to carry on their respective businesses as now
conducted.
3. With respect to Bancorp: (i) the number of authorized, issued and
outstanding shares of capital stock of Bancorp immediately prior to the Closing,
(ii) the nonexistence of any violation of the preemptive or subscription rights
of any person, (iii) the nonexistence of any outstanding options, warrants, or
other rights to acquire, or securities convertible into, any equity security of
Bancorp, except as set forth in Section 2.01 of the Agreement and (iv) the
nonexistence of any obligation, contingent or otherwise, to reacquire any shares
of capital stock of Bancorp.
4. With respect to each of the Bancorp Subsidiaries: (i) the number of
authorized, issued and outstanding shares of capital stock of such subsidiary;
(ii) the valid ownership by Bancorp of all outstanding shares thereof, free and
clear of any claims, interests, liens, security interests and encumbrances;
(iii) the nonexistence of any outstanding options, warrants, or other rights to
acquire, or securities convertible into, any equity security of such subsidiary;
and (iv) the nonexistence of any obligation, contingent or otherwise, to
reacquire any shares of capital stock of such subsidiary.
5. The due and proper performance of all corporate acts and other
corporate proceedings necessary or required to be taken by Bancorp and Bank to
authorize the execution, delivery and performance of the Agreement and the
Merger Agreement, the due execution and delivery of the Agreement and the Merger
Agreement by Bancorp and Bank, and the Agreement and the Merger Agreement as
valid and binding obligations of Bancorp and Bank, enforceable against them in
accordance with their respective terms (subject to the provisions of bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium or similar laws
affecting the enforceability of creditors' rights generally from time to time in
effect, and equitable principles relating to the granting of specific
performance and other equitable remedies as a matter of judicial discretion).
6. The execution of the Agreement and the Merger Agreement by Bancorp
and Bank and the consummation of the Merger do not violate or cause a default
under their respective Articles of Incorporation or Bylaws, any statute,
regulation or rule applicable to Bancorp or Bank or any judgment, order or
decree known to counsel against, or any agreement binding upon Bancorp or Bank.
7. The receipt of all required consents, approvals, orders and
authorizations of, and registrations, declaration and filings with and notices
to, any court, administrative agency and commission and other governmental
authority and instrumentality, domestic and foreign, and the approval of
Bancorp's shareholders, in connection with the execution and delivery of the
Agreement and the Merger Agreement by Bancorp, the performance of its
obligations thereunder and the consummation of the transactions contemplated
therein.
8. The nonexistence of knowledge of any material actions, suits,
proceedings, orders, investigations or claims pending or threatened against or
affecting Bancorp or any Bancorp Subsidiary which, if adversely determined,
would have a material adverse effect upon their respective properties or assets
or the consummation of the Merger.
EXHIBIT D
Legal Opinion Matters
FBA and FB&T
1. The due incorporation, valid existence and good standing of FBA and
FB&T under the laws of the States of Delaware and California, respectively,
their corporate power and authority to own and operate their respective
properties and to carry on their businesses as now conducted, and their
corporate power and authority to enter into the Agreement and the Merger
Agreement and to consummate the transactions contemplated by the Agreement and
the Merger Agreement.
2. The due incorporation or organization, valid existence and good
standing of Newco and its power and authority to enter into and consummate the
Merger Agreement.
3. The due and proper performance of all corporate acts and other
corporate proceedings necessary or required to be taken by FBA and FB&T to
authorize the execution, delivery and performance of the Agreement and the
Merger Agreement, the due execution and delivery of the Agreement and the Merger
Agreement by FBA and FB&T, and the Agreement and the Merger Agreement as the
valid and binding obligations of FBA and FB&T, enforceable against them in
accordance with their respective terms (subject to the provisions of bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium or similar laws
affecting the enforceability of creditors' rights generally from time to time in
effect, and equitable principles relating to the granting of specific
performance and other equitable remedies as a matter of judicial discretion).
4. The execution of the Agreement by FBA and FB&T and of the Merger
Agreement by Newco, and the consummation of the Merger do not violate or cause a
default under their respective Certificate or Articles of incorporation or
Bylaws, any statute, regulation or rule applicable to FBA, FB&T or Newco or any
judgment, order or decree known to counsel against, or any material agreement
known to counsel and binding upon, FBA, FB&T or Newco.
5. The receipt of all required consents, approvals, orders and
authorizations of, and registrations, declaration and filings with and notices
to, any court, administrative agency and commission and other governmental
authority and instrumentality, domestic and foreign, and every other person and
entity known by counsel to be required to be obtained or made by FBA, FB&T or
Newco in connection with the execution and delivery of the Agreement and the
Merger Agreement, the performance of their respective obligations thereunder or
the consummation of the transactions contemplated therein.
6. The nonexistence of any material actions, suits, proceedings,
orders, investigations or claims pending or threatened against or affecting FBA,
FB&T or Newco which, if adversely determined, would have a material adverse
effect upon the consummation of the Merger.