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 September 30, 2002
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _______ to ________
Commission File No. 0-20632
FIRST BANKS, INC.
(Exact name of registrant as specified in its charter)
MISSOURI 43-1175538
(State or other jurisdiction 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 October 31, 2002
----- -------------------
Common Stock, $250.00 par value 23,661
FIRST BANKS, 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....................................................... 16
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.......................... 29
ITEM 4. CONTROLS AND PROCEDURES............................................................. 30
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.................................................... 31
SIGNATURES.......................................................................................... 32
CERTIFICATIONS...................................................................................... 33 - 36
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
FIRST BANKS, INC.
CONSOLIDATED BALANCE SHEETS
(dollars expressed in thousands, except share and per share data)
September 30, December 31,
2002 2001
---- ----
(unaudited)
ASSETS
------
Cash and cash equivalents:
Cash and due from banks....................................................... $ 165,251 181,522
Interest-bearing deposits with other financial institutions
with maturities of three months or less..................................... 2,093 4,664
Federal funds sold............................................................ 79,300 55,688
------------ -----------
Total cash and cash equivalents.......................................... 246,644 241,874
------------ -----------
Investment securities:
Available for sale, at fair value............................................. 895,491 610,466
Held to maturity, at amortized cost (fair value of $20,037 and $20,812
at September 30, 2002 and December 31, 2001, respectively).................. 19,384 20,602
------------ -----------
Total investment securities.............................................. 914,875 631,068
------------ -----------
Loans:
Commercial, financial and agricultural........................................ 1,610,062 1,681,846
Real estate construction and development...................................... 983,346 954,913
Real estate mortgage.......................................................... 2,518,374 2,445,847
Consumer and installment...................................................... 98,376 124,542
Loans held for sale........................................................... 261,258 204,206
------------ -----------
Total loans.............................................................. 5,471,416 5,411,354
Unearned discount............................................................. (7,396) (2,485)
Allowance for loan losses..................................................... (109,875) (97,164)
------------ -----------
Net loans................................................................ 5,354,145 5,311,705
------------ -----------
Derivative instruments............................................................. 101,872 54,889
Bank premises and equipment, net of accumulated depreciation and amortization...... 155,419 149,604
Intangibles associated with the purchase of subsidiaries, net of amortization...... 140,259 125,440
Bank-owned life insurance.......................................................... 91,216 87,200
Accrued interest receivable........................................................ 33,953 37,349
Deferred income taxes.............................................................. 97,182 94,546
Other assets....................................................................... 35,969 44,776
------------ -----------
Total assets............................................................. $ 7,171,534 6,778,451
============ ===========
The accompanying notes are an integral part of the consolidated financial statements.
FIRST BANKS, INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(dollars expressed in thousands, except share and per share data)
September 30, December 31,
2002 2001
---- ----
(unaudited)
LIABILITIES
-----------
Deposits:
Demand:
Non-interest-bearing........................................................ $ 954,017 921,455
Interest-bearing............................................................ 765,390 629,015
Savings....................................................................... 2,026,734 1,832,939
Time:
Time deposits of $100 or more............................................... 496,118 484,201
Other time deposits......................................................... 1,783,444 1,816,294
------------ -----------
Total deposits........................................................... 6,025,703 5,683,904
Short-term borrowings.............................................................. 214,054 243,134
Note payable....................................................................... -- 27,500
Guaranteed preferred beneficial interests in:
First Banks, Inc. subordinated debentures..................................... 222,259 191,539
First Banks America, Inc. subordinated debentures............................. 45,373 44,342
Accrued interest payable........................................................... 13,466 16,006
Deferred income taxes.............................................................. 63,016 43,856
Accrued expenses and other liabilities............................................. 61,685 61,515
Minority interest in subsidiary.................................................... 19,784 17,998
------------ -----------
Total liabilities........................................................ 6,665,340 6,329,794
------------ -----------
STOCKHOLDERS' EQUITY
--------------------
Preferred stock:
$1.00 par value, 5,000,000 shares authorized, no shares issued
and outstanding at September 30, 2002 and December 31, 2001................. -- --
Class A convertible, adjustable rate, $20.00 par value, 750,000
shares authorized, 641,082 shares issued and outstanding.................... 12,822 12,822
Class B adjustable rate, $1.50 par value, 200,000 shares authorized,
160,505 shares issued and outstanding....................................... 241 241
Common stock, $250.00 par value, 25,000 shares authorized,
23,661 shares issued and outstanding.......................................... 5,915 5,915
Capital surplus.................................................................... 5,950 6,074
Retained earnings.................................................................. 419,146 389,308
Accumulated other comprehensive income............................................. 62,120 34,297
------------ -----------
Total stockholders' equity............................................... 506,194 448,657
------------ -----------
Total liabilities and stockholders' equity............................... $ 7,171,534 6,778,451
============ ===========
FIRST BANKS, INC.
CONSOLIDATED STATEMENTS OF INCOME - (UNAUDITED)
(dollars expressed in thousands, except per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
2002 2001 2002 2001
---- ---- ---- ----
Interest income:
Interest and fees on loans............................................ $ 96,080 102,181 293,904 315,098
Investment securities................................................. 9,219 6,098 24,368 20,919
Federal funds sold and other.......................................... 512 2,445 1,454 4,100
-------- ------- -------- --------
Total interest income............................................ 105,811 110,724 319,726 340,117
-------- ------- -------- --------
Interest expense:
Deposits:
Interest-bearing demand............................................. 1,786 1,892 5,739 5,372
Savings............................................................. 8,819 12,402 27,253 39,927
Time deposits of $100 or more....................................... 4,624 6,788 14,803 22,117
Other time deposits................................................. 15,986 23,486 51,837 76,629
Short-term borrowings................................................. 806 1,338 2,635 5,000
Note payable.......................................................... 309 555 839 2,328
Guaranteed preferred debentures....................................... 5,300 4,489 18,629 13,467
-------- ------- -------- --------
Total interest expense........................................... 37,630 50,950 121,735 164,840
-------- ------- -------- --------
Net interest income.............................................. 68,181 59,774 197,991 175,277
Provision for loan losses.................................................. 13,700 6,800 38,700 13,910
-------- ------- -------- --------
Net interest income after provision for loan losses.............. 54,481 52,974 159,291 161,367
-------- ------- -------- --------
Noninterest income:
Service charges on deposit accounts and customer service fees......... 8,491 5,731 21,985 16,268
Gain on mortgage loans sold and held for sale......................... 7,857 2,386 20,316 9,718
(Loss) gain on sale of credit card portfolio, net of expenses......... -- (422) -- 1,853
Net (loss) gain on sales of available-for-sale investment securities.. (2) (32) 90 (145)
Bank-owned life insurance investment income........................... 1,505 970 4,318 3,069
Net gain on derivative instruments................................... 1,963 8,915 1,714 14,401
Other................................................................. 5,662 4,298 16,417 12,580
-------- ------- -------- --------
Total noninterest income......................................... 25,476 21,846 64,840 57,744
-------- ------- -------- --------
Noninterest expense:
Salaries and employee benefits........................................ 28,350 23,092 84,506 68,889
Occupancy, net of rental income....................................... 6,302 4,163 15,938 12,379
Furniture and equipment............................................... 4,191 3,228 12,730 8,845
Postage, printing and supplies........................................ 1,346 1,270 4,205 3,528
Information technology fees........................................... 7,814 6,940 24,411 19,891
Legal, examination and professional fees.............................. 2,866 1,991 6,463 5,415
Amortization of intangibles associated with
the purchase of subsidiaries..................................... 516 1,861 1,480 5,573
Communications........................................................ 671 710 2,375 2,223
Advertising and business development.................................. 1,181 1,223 4,132 4,405
Other................................................................. 5,917 5,845 18,992 26,213
-------- ------- -------- --------
Total noninterest expense........................................ 59,154 50,323 175,232 157,361
-------- ------- -------- --------
Income before provision for income taxes, minority interest
in income of subsidiary and cumulative effect of change
in accounting principle...................................... 20,803 24,497 48,899 61,750
Provision for income taxes................................................. 7,372 9,539 17,471 24,120
-------- ------- -------- --------
Income before minority interest in income of subsidiary
and cumulative effect of change in accounting principle...... 13,431 14,958 31,428 37,630
Minority interest in income of subsidiary.................................. 437 577 1,066 1,622
-------- ------- -------- --------
Income before cumulative effect of change
in accounting principle...................................... 12,994 14,381 30,362 36,008
Cumulative effect of change in accounting principle, net of tax............ -- -- -- (1,376)
-------- ------- -------- --------
Net income....................................................... 12,994 14,381 30,362 34,632
Preferred stock dividends.................................................. 196 196 524 524
-------- ------- -------- --------
Net income available to common stockholders...................... $ 12,798 14,185 29,838 34,108
======== ======= ======== ========
Basic earnings per common share:
Income before cumulative effect of change in accounting principle..... $ 540.87 599.47 1,261.05 1,499.67
Cumulative effect of change in accounting principle, net of tax....... -- -- -- (58.16)
-------- ------- -------- --------
Basic................................................................. $ 540.87 599.47 1,261.05 1,441.51
======== ======= ======== ========
Diluted earnings per common share:
Income before cumulative effect of change in accounting principle..... $ 534.32 587.93 1,246.05 1,468.14
Cumulative effect of change in accounting principle, net of tax....... -- -- -- (58.16)
-------- ------- -------- --------
Diluted............................................................... $ 534.32 587.93 1,246.05 1,409.98
========= ======== ======== ========
Weighted average common stock outstanding.................................. 23,661 23,661 23,661 23,661
======== ======= ======== ========
The accompanying notes are an integral part of the consolidated financial statements.
FIRST BANKS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME - (UNAUDITED)
Nine Months Ended September 30, 2002 and 2001 and Three Months Ended December 31, 2001
(dollars expressed in thousands, except per share data)
Adjustable Rate Accu-
Preferred Stock mulated
------------------ Other Total
Class A Compre- Compre- Stock-
Conver- Common Capital hensive Retained hensive holders'
tible Class B Stock Surplus Income Earnings Income Equity
----- ------- ----- ------- ------ -------- ------ ------
Consolidated balances, December 31, 2000......... $12,822 241 5,915 2,267 325,580 6,021 352,846
Nine months ended September 30, 2001:
Comprehensive income:
Net income................................. -- -- -- -- 34,632 34,632 -- 34,632
Other comprehensive income, net of tax:
Unrealized gains on securities, net of
reclassification adjustment (1)........ -- -- -- -- 10,555 -- 10,555 10,555
Derivative instruments:
Cumulative effect of change in
accounting principle, net........... -- -- -- -- 9,069 -- 9,069 9,069
Current period transactions............ -- -- -- -- 34,919 -- 34,919 34,919
Reclassification to earnings........... -- -- -- -- (2,927) -- (2,927) (2,927)
------
Comprehensive income....................... 86,248
======
Class A preferred stock dividends,
$0.80 per share............................ -- -- -- -- (513) -- (513)
Class B preferred stock dividends,
$0.07 per share............................ -- -- -- -- (11) -- (11)
Effect of capital stock transactions of
majority-owned subsidiary.................. -- -- -- 259 -- -- 259
------- ----- ----- ----- ------- ------ -------
Consolidated balances, September 30, 2001........ 12,822 241 5,915 2,526 359,688 57,637 438,829
Three months ended December 31, 2001:
Comprehensive income:
Net income................................. -- -- -- -- 29,882 29,882 -- 29,882
Other comprehensive income, net of tax:
Unrealized losses on securities, net of
reclassification adjustment (1)........ -- -- -- -- (12,426) -- (12,426) (12,426)
Derivative instruments:
Current period transactions............ -- -- -- -- (7,898) -- (7,898) (7,898)
Reclassification to earnings........... -- -- -- -- (3,016) -- (3,016) (3,016)
------
Comprehensive income....................... 6,542
======
Class A preferred stock dividends,
$0.70 per share............................ -- -- -- -- (256) -- (256)
Class B preferred stock dividends,
$0.07 per share............................ -- -- -- -- (6) -- (6)
Effect of capital stock transactions of
majority-owned subsidiary.................. -- -- -- 3,548 -- -- 3,548
------- ----- ---- ----- ------- ------ ------
Consolidated balances, December 31, 2001......... 12,822 241 5,915 6,074 389,308 34,297 448,657
Nine months ended September 30, 2002:
Comprehensive income:
Net income................................. -- -- -- -- 30,362 30,362 -- 30,362
Other comprehensive income, net of tax:
Unrealized gains on securities, net of
reclassification adjustment (1)........ -- -- -- -- 7,121 -- 7,121 7,121
Derivative instruments:
Current period transactions............ -- -- -- -- 20,702 -- 20,702 20,702
------
Comprehensive income....................... 58,185
======
Class A preferred stock dividends,
$0.80 per share............................ -- -- -- -- (513) -- (513)
Class B preferred stock dividends,
$0.07 per share............................ -- -- -- -- (11) -- (11)
Effect of capital stock transactions of
majority-owned subsidiary.................. -- -- -- (124) -- -- (124)
------- ----- ---- ---- ------- ------ ------
Consolidated balances, September 30, 2002........ $12,822 241 5,915 5,950 419,146 62,120 506,194
======= ===== ===== ===== ======= ====== =======
- -------------------------
(1) Disclosure of reclassification adjustment:
Three Months Ended Nine Months Ended Three Months Ended
September 30, September 30, December 31,
----------------- ------------------ ------------------
2002 2001 2002 2001 2001
---- ---- ---- ---- ----
Unrealized (losses) gains on investment securities
arising during the period...................................... $ (500) 1,005 7,180 10,461 (163)
Less reclassification adjustment for (losses)
gains included in net income................................... (1) (21) 59 (94) 12,263
----- ----- ----- ------ ------
Unrealized (losses) gains on investment securities................ $ (499) 1,026 7,121 10,555 (12,426)
====== ===== ===== ====== =======
The accompanying notes are an integral part of the consolidated financial statements.
FIRST BANKS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS - (UNAUDITED)
(dollars expressed in thousands)
Nine Months Ended
September 30,
-----------------------
2002 2001
---- ----
Cash flows from operating activities:
Net income........................................................................... $ 30,362 34,632
Adjustments to reconcile net income to net cash used in operating activities:
Cumulative effect of change in accounting principle, net of tax.................... -- 1,376
Depreciation and amortization of bank premises and equipment....................... 13,857 8,954
Amortization, net of accretion..................................................... 11,869 6,641
Originations and purchases of loans held for sale.................................. (1,299,522) (1,088,069)
Proceeds from the sale of loans held for sale...................................... 1,092,359 982,205
Provision for loan losses.......................................................... 38,700 13,910
Provision for income taxes......................................................... 17,471 24,120
Payments of income taxes........................................................... (18,096) (21,290)
Decrease in accrued interest receivable............................................ 3,891 5,488
Interest accrued on liabilities.................................................... 121,735 164,840
Payments of interest on liabilities................................................ (125,303) (165,105)
Gain on mortgage loans sold and held for sale...................................... (20,316) (9,718)
Gain on sale of credit card portfolio, net of expenses............................. -- (1,853)
Net (gain) loss on sales of available-for-sale investment securities............... (90) 145
Net gain on derivative instruments................................................. (1,714) (14,401)
Other operating activities, net.................................................... 13,381 (18,928)
Minority interest in income of subsidiary.......................................... 1,066 1,622
---------- ----------
Net cash used in operating activities........................................... (120,350) (75,431)
---------- ----------
Cash flows from investing activities:
Cash received from acquired entities, net of cash and cash equivalents paid.......... 44,097 --
Proceeds from sales of investment securities available for sale...................... 55,130 74,991
Maturities of investment securities available for sale............................... 855,121 425,492
Maturities of investment securities held to maturity................................. 3,456 2,765
Purchases of investment securities available for sale................................ (957,312) (455,190)
Purchases of investment securities held to maturity.................................. (2,260) (240)
Proceeds from terminations of derivative instruments................................. -- 5,396
Net decrease in loans................................................................ 114,333 57,944
Recoveries of loans previously charged-off........................................... 11,692 7,202
Purchases of bank premises and equipment............................................. (13,576) (29,212)
Other investing activities, net...................................................... 8,622 3,147
---------- ----------
Net cash provided by investing activities....................................... 119,303 92,295
---------- ----------
Cash flows from financing activities:
Increase in demand and savings deposits.............................................. 213,963 148,576
Decrease in time deposits............................................................ (157,154) (95,111)
Decrease in federal funds purchased.................................................. (81,000) --
Decrease in Federal Home Loan Bank advances.......................................... (10,600) --
Increase (decrease) in securities sold under agreements to repurchase................ 44,399 (5,417)
Advances drawn on note payable....................................................... 36,500 5,000
Repayments of note payable........................................................... (64,000) (58,500)
Proceeds from issuance of guaranteed preferred subordinated debentures............... 24,233 --
Payment of preferred stock dividends................................................. (524) (524)
Other financing activities, net...................................................... -- (94)
---------- ----------
Net cash provided by (used in) financing activities............................. 5,817 (6,070)
---------- ----------
Net increase in cash and cash equivalents....................................... 4,770 10,794
Cash and cash equivalents, beginning of period............................................ 241,874 198,279
---------- ----------
Cash and cash equivalents, end of period.................................................. $ 246,644 209,073
========== ==========
Noncash investing and financing activities:
Reduction of deferred tax asset valuation reserve.................................... $ -- 565
Loans transferred to other real estate............................................... 3,584 2,821
Loans held for sale transferred to available-for-sale investment securities.......... -- 753
Loans held for sale transferred to mortgage-backed securities........................ 149,830 --
Loans held for sale transferred to loans............................................. 2,923 35,074
========== ==========
The accompanying notes are an integral part of the consolidated financial statements.
FIRST BANKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
The consolidated financial statements of First Banks, Inc. and
subsidiaries (First Banks or the Company) are unaudited and should be read in
conjunction with the consolidated financial statements contained in the 2001
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 First Banks has made a number of estimates and
assumptions relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities to prepare the consolidated
financial statements. In 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 nine months ended September 30,
2002 are not necessarily indicative of the results that may be expected for the
year ending December 31, 2002.
The consolidated financial statements include the accounts of First
Banks, Inc. and its subsidiaries, net of minority interest, as more fully
described below. All significant intercompany accounts and transactions have
been eliminated. Certain reclassifications of 2001 amounts have been made to
conform to the 2002 presentation. In particular, the guaranteed preferred
beneficial interests in First Banks, Inc. and First Banks America, Inc.
subordinated debentures have been reclassified into the liabilities section on
the consolidated balance sheets rather than presented as a separate line item
excluded from the calculation of total liabilities. Consequently, the guaranteed
preferred debentures expense has been reclassified to interest expense from
noninterest expense in the consolidated statements of income.
First Banks operates through its subsidiary bank holding companies and
subsidiary financial institutions (collectively referred to as the Subsidiary
Banks) as follows:
Union Financial Group, Ltd., headquartered in Swansea, Illinois (UFG),
and its wholly owned subsidiary:
First Bank, headquartered in St. Louis County, Missouri;
First Banks America, Inc., headquartered in San Francisco, California
(FBA), and its wholly owned subsidiary:
The San Francisco Company, headquartered in San Francisco,
California (SFC), and its wholly-owned subsidiary:
First Bank & Trust, headquartered in San Francisco,
California (FB&T).
The Subsidiary Banks are wholly owned by their respective parent
companies except FBA, which was 93.76% and 93.69% owned by First Banks at
September 30, 2002 and December 31, 2001, respectively.
(2) ACQUISITIONS AND OTHER CORPORATE TRANSACTIONS
On January 15, 2002, First Banks completed its acquisition of Plains
Financial Corporation (PFC), and its wholly owned banking subsidiary, PlainsBank
of Illinois, National Association (PlainsBank), Des Plaines, Illinois, in
exchange for $36.5 million in cash. PFC operated a total of three banking
facilities in Des Plaines, Illinois, and one banking office in Elk Grove
Village, Illinois. The acquisition was funded from borrowings under First Banks'
credit agreement with a group of unaffiliated financial institutions. At the
time of the transaction, PFC had $256.3 million in total assets, $150.4 million
in loans, net of unearned discount, $81.0 million in investment securities and
$213.4 million in deposits. This transaction was accounted for using the
purchase method of accounting. The excess of the cost over the fair value of the
net assets acquired was approximately $12.6 million and will not be amortized,
but instead will be periodically tested for impairment in accordance with the
requirements of SFAS No. 142 (as defined below). The core deposit intangibles
were approximately $2.9 million and are being amortized over seven years
utilizing the straight-line method. PFC was merged with and into UFG, and
PlainsBank was merged with and into First Bank.
On June 22, 2002, FB&T completed its assumption of the deposits and
certain liabilities and the purchase of certain assets of the Garland and
Denton, Texas branch offices of Union Planters Bank, National Association. The
transaction resulted in the acquisition of $15.3 million in deposits and one
branch office in Garland and $49.6 million in deposits and one branch office,
including a detached drive-thru facility, in Denton. The core deposit
intangibles associated with the branch purchases were $1.4 million and are being
amortized over seven years utilizing the straight-line method.
On September 17, 2002, First Banks and Allegiant Bancorp, Inc.
(Allegiant) signed an agreement and plan of exchange that provides for First
Banks to acquire Allegiant's wholly owned banking subsidiary, Bank of Ste.
Genevieve (BSG). BSG operates two locations in Ste. Genevieve, Missouri, and
reported total assets of $111.1 million and total deposits of $91.1 million at
September 30, 2002. Under the terms of the agreement, First Banks will acquire
BSG in exchange for approximately 974,150 shares of Allegiant common stock that
are currently held by First Banks. The transaction, which is subject to
regulatory approvals, is expected to be completed during the fourth quarter of
2002. First Banks will continue to own approximately 232,000 shares of Allegiant
common stock subsequent to completion of the transaction.
On September 23, 2002, First Banks and FBA signed an agreement and plan
of merger pursuant to which First Banks will acquire all of FBA's outstanding
capital stock that is not already owned by First Banks for a price of $40.54 per
share. At September 30, 2002, FBA had 801,453 shares, or approximately 6.24% of
its outstanding stock, held publicly. First Banks owned the other 93.76%. The
merger agreement provides for the merger of FBA Acquisition Corporation with and
into FBA. Upon consummation of the merger, the legal existence of FBA
Acquisition Corporation and FBA will be combined and FBA will become a wholly
owned subsidiary of First Banks. At that time, FBA will be merged with and into
First Banks. The transaction, which is subject to shareholder approval, is
expected to be completed in December 2002.
(3) IMPLEMENTATION OF ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 142 -- Goodwill and Other
Intangible Assets. SFAS No. 142 requires 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 No. 142.
SFAS No. 142 also requires 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. 144 --
Accounting for the Impairment or Disposal of Long-Lived Assets, as discussed
below. The amortization of goodwill ceased upon adoption of SFAS No. 142, which
for calendar year-end companies was January 1, 2002.
On January 1, 2002, First Banks adopted SFAS No. 142. At the date of
adoption, First Banks had unamortized goodwill of $115.9 million and core
deposit intangibles of $9.6 million, which were subject to the transition
provisions of SFAS No. 142. Under SFAS No. 142, First Banks continues to
amortize, on a straight-line basis, its core deposit intangibles and goodwill
associated with purchases of branch offices. Goodwill associated with the
purchase of subsidiaries will no longer be amortized, but instead, will be
tested annually for impairment following First Banks' existing methods of
measuring and recording impairment losses.
First Banks completed the transitional goodwill impairment test
required under SFAS No. 142, to determine the potential impact, if any, on the
consolidated financial statements. The results of the transitional goodwill
impairment testing did not identify any goodwill impairment losses.
Intangible assets associated with the purchase of subsidiaries, net of
amortization, were comprised of the following at September 30, 2002 and December
31, 2001:
September 30, 2002 December 31, 2001
---------------------------- ----------------------------
Gross Gross
Carrying Accumulated Carrying Accumulated
Amount Amortization Amount Amortization
------ ------------ ------ ------------
(dollars expressed in thousands)
Amortized intangible assets:
Core deposit intangibles.............. $ 13,871 (1,372) 9,580 --
Goodwill associated with
purchases of branch offices......... 2,210 (684) 2,210 (576)
--------- ------- ------- -------
Total............................ $ 16,081 (2,056) 11,790 (576)
========= ======= ======= =======
Unamortized intangible assets:
Goodwill associated with the
purchase of subsidiaries............ $ 126,234 114,226
========= =======
Amortization of intangibles associated with the purchase of
subsidiaries and branch offices was $516,000 and $1.5 million for the three and
nine months ended September 30, 2002, respectively, and $1.9 million and $5.6
million for the comparable periods in 2001. Amortization of intangibles
associated with the purchase of subsidiaries, including amortization of core
deposit intangibles and branch purchases, has been estimated through 2007 in the
following table, and does not take into consideration any potential future
acquisitions or branch purchases.
(dollars expressed
in thousands)
Year ending December 31:
2002 (1)..................................... $ 1,996
2003......................................... 2,064
2004......................................... 2,064
2005......................................... 2,064
2006......................................... 2,064
2007......................................... 2,064
-------
Total..................................... $12,316
=======
----------------------------
(1) Includes $1.5 million of amortization for the nine months ended
September 30, 2002.
Changes in the carrying amount of goodwill for the three and nine
months ended September 30, 2002 were as follows:
Three Months Ended September 30, 2002 Nine Months Ended September 30, 2002
------------------------------------- ------------------------------------
First Bank FB&T Total First Bank FB&T Total
---------- ---- ----- ---------- ---- -----
(dollars expressed in thousands)
Balance, beginning of period............ $ 31,173 96,623 127,796 19,165 96,695 115,860
Goodwill acquired during period......... -- -- -- 12,577 -- 12,577
Acquisition-related adjustments......... -- -- -- (569) -- (569)
Amortization - purchases of
branch offices....................... -- (36) (36) -- (108) (108)
-------- ------- ------- ------- ------ -------
Balance, end of period.................. $ 31,173 96,587 127,760 31,173 96,587 127,760
======== ======= ======= ======= ====== =======
The following is a reconciliation of reported net income to net income
adjusted to reflect the adoption of SFAS No. 142, as if it had been implemented
on January 1, 2001:
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- ------------------------
2002 2001 2002 2001
---- ---- ---- ----
(dollars expressed in thousands)
Net income:
Reported net income........................... $12,994 14,381 30,362 34,632
Add back - goodwill amortization.............. -- 1,815 -- 5,438
------- ------- -------- --------
Adjusted net income......................... $12,994 16,196 30,362 40,070
======= ======= ======== ========
Basic earnings per share:
Reported net income........................... $540.87 599.47 1,261.05 1,441.51
Add back - goodwill amortization.............. -- 76.74 -- 229.86
------- ------- -------- --------
Adjusted net income......................... $540.87 676.21 1,261.05 1,671.37
======= ======= ======== ========
Diluted earnings per share:
Reported net income........................... $534.32 587.93 1,246.05 1,409.98
Add back - goodwill amortization.............. -- 74.26 -- 221.50
------- ------- -------- --------
Adjusted net income......................... $534.32 662.19 1,246.05 1,631.48
======= ======= ======== ========
In August 2001, the FASB issued SFAS No. 144 -- Accounting for the
Impairment or Disposal of Long-Lived Assets. SFAS No. 144 supersedes SFAS No.
121 -- Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of. SFAS No. 144 addresses financial accounting and
reporting for the impairment or disposal of long-lived assets and requires that
one accounting model be used for long-lived assets to be disposed of by sale,
whether previously held and used or newly acquired. SFAS No. 144 broadens the
presentation of discontinued operations to include more disposal transactions.
Therefore, the accounting for similar events and circumstances will be the same.
The provisions of SFAS No. 144 are effective for financial statements issued for
fiscal years beginning after December 15, 2001, and interim periods within those
fiscal years, with early application encouraged. The provisions of SFAS No. 144
generally are to be applied prospectively. On January 1, 2002, First Banks
implemented SFAS No. 144, which did not have a material effect on the
consolidated financial statements.
On October 1, 2002, the FASB issued SFAS No. 147 -- Acquisitions of
Certain Financial Institutions, an amendment of SFAS No. 72 -- Accounting for
Certain Acquisitions of Banking or Thrift Institutions and SFAS No. 144 --
Accounting for the Impairment or Disposal of Long-Lived Assets and FASB
Interpretation No. 9 -- Applying APB Opinions No. 16 and 17 When a Savings and
Loan Association or a Similar Institution Is Acquired in a Business Combination
Accounted for by the Purchase Method. SFAS No. 147 addresses the financial
accounting and reporting for the acquisition of all or part of a financial
institution, except for transactions between two or more mutual enterprises.
SFAS No. 147 removes acquisitions of financial institutions, other than
transactions between two or more mutual enterprises, from the scope of SFAS No.
72. SFAS No. 147 also provides guidance on the accounting for impairment or
disposal of acquired long-term customer-relationship intangible assets,
including those acquired in transactions between two or more mutual enterprises.
The provisions of SFAS No. 147 are effective for acquisitions on or after
October 1, 2002. On October 1, 2002, FBI implemented SFAS No. 147, which did not
have a material effect on the consolidated financial statements.
(4) MORTGAGE SERVICING RIGHTS
Mortgage servicing rights are amortized in proportion to the related
estimated net servicing income on a disaggregated, discounted basis over the
estimated lives of the related mortgages considering the level of current and
anticipated repayments, which range from five to 10 years. The weighted average
amortization period of the mortgage servicing rights is approximately seven
years.
Changes in mortgage servicing rights, net of amortization, for the
periods indicated were as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- ------------------
2002 2001 2002 2001
---- ---- ---- ----
(dollars expressed in thousands)
Balance, beginning of period........................... $12,354 8,629 10,125 7,048
Originated mortgage servicing rights................... 1,998 1,402 5,958 4,693
Amortization........................................... (984) (965) (2,715) (2,675)
------- ------ ------- ------
Balance, end of period................................. $13,368 9,066 13,368 9,066
======= ====== ======= ======
Amortization of mortgage servicing rights, as it relates to the balance
at September 30, 2002 of $13.4 million, has been estimated through 2006 in the
following table:
(dollars expressed
in thousands)
Year ending December 31:
2002 (1)........................................... $ 3,699
2003............................................... 3,946
2004............................................... 3,758
2005............................................... 3,662
2006............................................... 1,095
-------
Total........................................... $16,160
=======
--------------------------------
(1) Includes $2.7 million of amortization for the nine months ended
September 30, 2002.
(5) EARNINGS PER COMMON SHARE
The following is a reconciliation of the numerators and denominators of
basic and diluted earnings per share (EPS) computations for the periods
indicated:
Income Shares Per Share
(numerator) (denominator) Amount
----------- ------------- ------
(dollars in thousands, except per share data)
Three months ended September 30, 2002:
Basic EPS - income before cumulative effect..................... $ 12,798 23,661 $ 540.87
Cumulative effect of change in accounting principle, net of tax. -- -- --
--------- ------- ----------
Basic EPS - income available to common stockholders............. 12,798 23,661 540.87
Effect of dilutive securities:
Class A convertible preferred stock........................... 192 650 (6.55)
--------- ------- ----------
Diluted EPS - income available to common stockholders........... $ 12,990 24,311 $ 534.32
========= ======= ==========
Three months ended September 30, 2001:
Basic EPS - income before cumulative effect..................... $ 14,185 23,661 $ 599.47
Cumulative effect of change in accounting principle, net of tax. -- -- --
--------- ------- ----------
Basic EPS - income available to common stockholders............. 14,185 23,661 599.47
Effect of dilutive securities:
Class A convertible preferred stock........................... 192 791 (11.54)
--------- ------- ----------
Diluted EPS - income available to common stockholders........... $ 14,377 24,452 $ 587.93
========= ======= ==========
Nine months ended September 30, 2002:
Basic EPS - income before cumulative effect..................... $ 29,838 23,661 $ 1,261.05
Cumulative effect of change in accounting principle, net of tax. -- -- --
--------- ------- ----------
Basic EPS - income available to common stockholders............. 29,838 23,661 1,261.05
Effect of dilutive securities:
Class A convertible preferred stock........................... 513 696 (15.00)
--------- ------- ----------
Diluted EPS - income available to common stockholders........... $ 30,351 24,357 $ 1,246.05
========= ======= ==========
Nine months ended September 30, 2001:
Basic EPS - income before cumulative effect..................... $ 35,484 23,661 $ 1,499.67
Cumulative effect of change in accounting principle, net of tax. (1,376) -- (58.16)
--------- ------- ----------
Basic EPS - income available to common stockholders............. 34,108 23,661 1,441.51
Effect of dilutive securities:
Class A convertible preferred stock........................... 513 893 (31.53)
--------- ------- ----------
Diluted EPS - income available to common stockholders........... $ 34,621 24,554 $ 1,409.98
========= ======= ==========
(6) TRANSACTIONS WITH RELATED PARTIES
First Brokerage America, L.L.C., a limited liability corporation which
is indirectly owned by First Banks' Chairman and members of his immediate
family, received approximately $918,000 and $2.7 million for the three and nine
months ended September 30, 2002, and $600,000 and $2.0 million for the
comparable periods in 2001, respectively, in commissions paid by unaffiliated
third-party companies. The commissions received were primarily in connection
with the sales of annuities, securities and other insurance products to
customers of the Subsidiary Banks.
First Services, L.P., a limited partnership indirectly owned by First
Banks' Chairman and his adult children, provides information technology and
various related services to First Banks, Inc. and its Subsidiary Banks. Fees
paid under agreements with First Services, L.P. were $6.6 million and $20.3
million for the three and nine months ended September 30, 2002, and $6.0 million
and $16.9 million for the comparable periods in 2001, respectively. During the
three months ended September 30, 2002 and 2001, First Services, L.P. paid First
Banks $993,000 and $516,000, respectively, and during the nine months ended
September 30, 2002 and 2001, First Services, L.P. paid First Banks $2.9 million
and $1.5 million, respectively, in rental fees for the use of data processing
and other equipment owned by First Banks.
(7) REGULATORY CAPITAL
First Banks and the Subsidiary Banks are subject to various regulatory
capital requirements administered by the federal and state banking agencies.
Failure to meet minimum capital requirements can initiate certain mandatory and
possibly additional discretionary actions by regulators that, if undertaken,
could have a direct material effect on First Banks' financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt corrective
action, First Banks and the Subsidiary Banks must meet specific capital
guidelines that involve quantitative measures of assets, liabilities and certain
off-balance-sheet items as calculated under regulatory accounting practices.
Capital amounts and classifications are also subject to qualitative judgments by
the regulators about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require First Banks and the Subsidiary Banks to maintain minimum
amounts and ratios of total and Tier I capital (as defined in the regulations)
to risk-weighted assets, and of Tier I capital to average assets. Management
believes, as of September 30, 2002, First Banks and the Subsidiary Banks were
each well capitalized under the applicable regulations.
As of September 30, 2002, the most recent notification from First
Banks' primary regulator categorized First Banks and the Subsidiary Banks as
well capitalized and FBA as adequately capitalized under the regulatory
framework for prompt corrective action. To be categorized as well capitalized,
First Banks and the Subsidiary Banks must maintain minimum total risk-based,
Tier I risk-based and Tier I leverage ratios as set forth in the table below.
At September 30, 2002 and December 31, 2001, First Banks' and the
Subsidiary Banks' required and actual capital ratios were as follows:
Actual To Be Well
-------------------------- Capitalized Under
September 30, December 31, For Capital Prompt Corrective
2002 2001 Adequacy Purposes Action Provisions
---- ---- ----------------- -----------------
Total capital (to risk-weighted assets):
First Banks............................. 10.97% 10.53% 8.0% 10.0%
First Bank.............................. 10.49 10.14 8.0 10.0
FB&T.................................... 10.43 11.27 8.0 10.0
Tier 1 capital (to risk-weighted assets):
First Banks............................. 7.79 7.57 4.0 6.0
First Bank.............................. 9.23 8.89 4.0 6.0
FB&T.................................... 9.17 10.02 4.0 6.0
Tier 1 capital (to average assets):
First Banks............................. 6.86 7.24 3.0 5.0
First Bank.............................. 7.82 8.67 3.0 5.0
FB&T.................................... 8.59 9.47 3.0 5.0
(8) BUSINESS SEGMENT RESULTS
First Banks' business segments are its Subsidiary Banks. The reportable
business segments are consistent with the management structure of First Banks,
the Subsidiary Banks and the internal reporting system that monitors
performance.
Through the respective branch networks, the Subsidiary Banks provide
similar products and services in their defined geographic areas. The products
and services offered include a broad range of commercial and personal deposit
products, including demand, savings, money market and time deposit accounts. In
addition, the Subsidiary Banks 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. The Subsidiary Banks 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, asset-based loans, commercial leasing and trade financing.
Other financial services include mortgage banking, debit cards,
brokerage services, credit-related insurance, internet banking, automated teller
machines, telephone banking, safe deposit boxes, escrow and bankruptcy deposit
services, stock option services and trust, private banking and institutional
money management services. The revenues generated by each business segment
consist primarily of interest income, generated from the loan and investment
security portfolios, and service charges and fees, generated from the deposit
products and services. The geographic areas include eastern Missouri, Illinois,
southern and northern California and Houston, Dallas, Irving, McKinney and
Denton, Texas. The products and services are offered to customers primarily
within their respective geographic areas, with the exception of loan
participations executed between the Subsidiary Banks.
The business segment results are consistent with First Banks' internal
reporting system and, in all material respects, with accounting principles
generally accepted in the United States of America and practices predominant in
the banking industry.
The business segment results are summarized as follows:
First Bank FB&T
---------------------------- -------------------------
September 30, December 31, September 30,December 31,
2002 2001 2002 2001
---- ---- ---- ----
(dollars expressed in thousands)
Balance sheet information:
Investment securities........................................... $ 498,927 245,365 393,543 368,207
Loans, net of unearned discount................................. 3,164,965 3,086,023 2,310,588 2,323,263
Intangibles associated with the purchase
of subsidiaries, net of amortization......................... 36,572 22,287 103,687 103,153
Total assets.................................................... 4,063,159 3,707,081 3,135,105 3,057,920
Deposits........................................................ 3,468,026 3,142,676 2,582,612 2,555,396
Note payable.................................................... -- -- -- --
Stockholders' equity............................................ 370,842 321,336 396,298 398,713
========== ========= ========= =========
First Bank FB&T
-------------------------- ----------------------
Three Months Ended Three Months Ended
September 30, September 30,
-------------------------- ----------------------
2002 2001 2002 2001
---- ---- ---- ----
Income statement information:
Interest income................................................. $ 58,046 59,779 47,653 50,773
Interest expense................................................ 19,802 27,266 12,276 18,818
---------- --------- --------- ---------
Net interest income........................................ 38,244 32,513 35,377 31,955
Provision for loan losses....................................... 6,500 4,800 7,200 2,000
---------- --------- --------- ---------
Net interest income after provision for loan losses........ 31,744 27,713 28,177 29,955
---------- --------- --------- ---------
Noninterest income.............................................. 19,309 13,187 6,617 9,023
Noninterest expense............................................. 35,756 26,943 22,223 22,383
---------- --------- --------- ---------
Income before provision for income taxes
and minority interest in income of subsidiary............ 15,297 13,957 12,571 16,595
Provision for income taxes...................................... 4,967 4,922 4,695 6,751
---------- --------- --------- ---------
Income before minority interest in income of subsidiary.... 10,330 9,035 7,876 9,844
Minority interest in income of subsidiary....................... -- -- -- --
---------- --------- --------- ---------
Net income................................................. $ 10,330 9,035 7,876 9,844
========== ========= ========= ========
First Bank FB&T
--------------------------- ---------------------
Nine Months Ended Nine Months Ended
September 30, September 30,
--------------------------- ---------------------
2002 2001 2002 2001
---- ---- ---- ----
Income statement information:
Interest income................................................. $ 177,682 182,765 141,787 157,851
Interest expense................................................ 63,817 88,563 38,704 61,870
---------- --------- --------- ---------
Net interest income........................................ 113,865 94,202 103,083 95,981
Provision for loan losses....................................... 16,000 11,000 22,700 2,910
---------- --------- --------- ---------
Net interest income after provision for loan losses........ 97,865 83,202 80,383 93,071
---------- --------- --------- ---------
Noninterest income.............................................. 48,996 38,992 17,416 19,876
Noninterest expense............................................. 107,189 75,810 65,056 65,346
---------- --------- --------- ---------
Income before provision for income taxes, minority
interest in income of subsidiary and cumulative
effect of change in accounting principle................. 39,672 46,384 32,743 47,601
Provision for income taxes...................................... 12,900 16,249 12,317 18,807
---------- --------- --------- ---------
Income before minority interest in income of
subsidiary and cumulative effect of change in
accounting principle..................................... 26,772 30,135 20,426 28,794
Minority interest in income of subsidiary....................... -- -- -- --
---------- --------- --------- ---------
Income before cumulative effect of change in
accounting principle..................................... 26,772 30,135 20,426 28,794
Cumulative effect of change in accounting principle, net of tax. -- (917) -- (459)
---------- --------- --------- ---------
Net income................................................. $ 26,772 29,218 20,426 28,335
========== ========= ========= =========
- ---------------------------
(1) Corporate and other includes $5.3 million and $4.5 million of guaranteed preferred debenture expense for the three months ended
September 30, 2002 and 2001, respectively. The applicable income tax benefit associated with the guaranteed preferred debentures
expense was $1.9 million and $1.6 million for the three months ended September 30, 2002 and 2001, respectively. For the nine
months ended September 30, 2002 and 2001, respectively, corporate and other includes $18.6 million and $13.5 million of
guaranteed preferred debenture expense. The applicable income tax benefit associated with the guaranteed preferred debentures
expense was $6.5 million and $4.7 million for the nine months ended September 30, 2002 and 2001, respectively. In addition,
corporate and other includes holding company expenses.
Corporate, Other and
Intercompany Reclassifications (1) Consolidated Totals
----------------------------------- ------------------------------------
September 30, December 31, September 30, December 31,
2002 2001 2002 2001
---- ---- ---- ----
(dollars expressed in thousands)
22,405 17,496 914,875 631,068
(11,533) (417) 5,464,020 5,408,869
-- -- 140,259 125,440
(26,730) 13,450 7,171,534 6,778,451
(24,935) (14,168) 6,025,703 5,683,904
-- 27,500 -- 27,500
(260,946) (271,392) 506,194 448,657
========= ======== ========= =========
Corporate, Other and
Intercompany Reclassifications (1) Consolidated Totals
---------------------------------- --------------------------------
Three Months Ended Three Months Ended
September 30, September 30,
---------------------------------- --------------------------------
2002 2001 2002 2001
---- ---- ---- ----
112 172 105,811 110,724
5,552 4,866 37,630 50,950
--------- -------- --------- ---------
(5,440) (4,694) 68,181 59,774
-- -- 13,700 6,800
--------- -------- --------- ---------
(5,440) (4,694) 54,481 52,974
--------- -------- --------- ---------
(450) (364) 25,476 21,846
1,175 997 59,154 50,323
--------- -------- --------- ---------
(7,065) (6,055) 20,803 24,497
(2,290) (2,134) 7,372 9,539
--------- -------- --------- ---------
(4,775) (3,921) 13,431 14,958
437 577 437 577
--------- -------- --------- ---------
(5,212) (4,498) 12,994 14,381
========= ======== ========= =========
Corporate, Other and
Intercompany Reclassifications (1) Consolidated Totals
---------------------------------- --------------------------------
Nine Months Ended Nine Months Ended
September 30, September 30,
------------------------------- --------------------------------
2002 2001 2002 2001
---- ---- ---- ----
257 (499) 319,726 340,117
19,214 14,407 121,735 164,840
--------- -------- --------- ---------
(18,957) (14,906) 197,991 175,277
-- -- 38,700 13,910
--------- -------- --------- ---------
18,957 (14,906) 159,291 161,367
--------- -------- --------- ---------
(1,572) (1,124) 64,840 57,744
2,987 16,205 175,232 157,361
--------- -------- --------- ---------
(23,516) (32,235) 48,899 61,750
(7,746) (10,936) 17,471 24,120
--------- -------- --------- ---------
(15,770) (21,299) 31,428 37,630
1,066 1,622 1,066 1,622
--------- -------- --------- ---------
(16,836) (22,921) 30,362 36,008
-- -- -- (1,376)
--------- -------- --------- ---------
(16,836) (22,921) 30,362 34,632
========= ======== ========= =========
(9) GUARANTEED PREFERRED BENEFICIAL INTERESTS IN SUBORDINATED DEBENTURES
On April 10, 2002, First Bank Capital Trust (FBCT), a newly-formed
Delaware business trust subsidiary of First Banks, issued 25,000 shares of
variable rate cumulative trust preferred securities at $1,000 per share in a
private placement offering, and issued 774 shares of common securities to First
Banks at $1,000 per share. First Banks owns all of the common securities of
FBCT. The gross proceeds of the offering were used by FBCT to purchase $25.8
million of variable rate junior subordinated debentures from First Banks,
maturing on April 22, 2032. The maturity date of the subordinated debentures may
be shortened to a date not earlier than April 22, 2007, if certain conditions
are met. The subordinated debentures are the sole asset of FBCT. In connection
with the issuance of the FBCT preferred securities, First Banks made certain
guarantees and commitments that, in the aggregate, constitute a full and
unconditional guarantee by First Banks of the obligations of FBCT under the FBCT
preferred securities. First Banks' proceeds from the issuance of the
subordinated debentures to FBCT, net of offering expenses, were $24.2 million,
and were used to reduce indebtedness currently outstanding under First Banks'
revolving credit line with a group of unaffiliated financial institutions. The
distribution rate on the FBCT securities is equivalent to the six-month London
Interbank Offering Rate plus 387.5 basis points, and is payable semi-annually in
arrears on April 22 and October 22, beginning on October 22, 2002. Distributions
on FBCT's preferred securities were $437,000 and $828,000 for the three and nine
months ended September 30, 2002.
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, including the negative impact on the economy resulting
from the events of September 11, 2001 in New York City and Washington D.C. and
the national response to those events as well as the threat of future terrorist
activities, potential wars and/or military actions related hereto, and domestic
responses to terrorism or threats of terrorism; 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 Missouri 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 banking subsidiaries with 151 branch
offices throughout California, Illinois, Missouri and Texas. At September 30,
2002, we had total assets of $7.17 billion, loans, net of unearned discount, of
$5.46 billion, total deposits of $6.03 billion and total stockholders' equity of
$506.2 million.
Through our subsidiary banks, we offer a broad range of commercial and
personal deposit products, 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,
asset-based loans, commercial leasing and trade financing. Other financial
services include mortgage banking, debit cards, brokerage services,
credit-related insurance, internet banking, automated teller machines, telephone
banking, safe deposit boxes, escrow and bankruptcy deposit services, stock
option services and trust, private banking and institutional money management
services.
We operate through two subsidiary banks and three subsidiary bank
holding companies as follows:
Union Financial Group, Ltd., or UFG, headquartered in Swansea,
Illinois, and its wholly owned subsidiary:
First Bank, headquartered in St. Louis County, Missouri;
First Banks America, Inc., or FBA, headquartered in San Francisco,
California and its wholly owned subsidiary:
The San Francisco Company, or SFC, headquartered in San Francisco,
California, and its wholly owned subsidiary:
First Bank & Trust, or FB&T, headquartered in San Francisco,
California.
Our subsidiary banks are wholly owned by their respective parent
companies. We owned 93.76% and 93.69% of FBA at September 30, 2002 and December
31, 2001, respectively.
Primary responsibility for managing our subsidiary banking units rests
with the officers and directors of each unit. However, in keeping with our
policy, 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 $7.17 billion and $6.78 billion at September 30,
2002 and December 31, 2001, respectively. The increase in total assets is
primarily attributable to our acquisition of Plains Financial Corporation, or
PFC, in January 2002, which provided total assets of $256.3 million as well as
our acquisition of the Denton and Garland, Texas branch offices of Union
Planters Bank, National Association, or UPB, completed on June 22, 2002, which
provided assets of approximately $63.7 million. The increase in total assets was
partially offset by lower loan demand and an anticipated level of attrition
associated with our acquisitions of Charter Pacific Bank, BYL Bancorp and UFG,
completed during the fourth quarter of 2001, and of PFC. Federal funds sold
increased by $23.6 million due to the investment of excess funds resulting from
reduced loan demand primarily due to economic conditions. Investment securities
increased $283.8 million to $914.9 million at September 30, 2002 from $631.1
million at December 31, 2001. We attribute the increase in investment securities
primarily to the purchase of available-for-sale investment securities of $1.11
billion as well as the $81.0 million of investment securities acquired in
conjunction with our acquisition of PFC, offset by maturities of
available-for-sale investment securities of $855.1 million. Derivative
instruments increased $47.0 million due to the purchase of three interest rate
swap agreements in May and June 2002 and mark-to-market adjustments required
under Statement of Financial Accounting Standards, or SFAS, No. 133, Accounting
for Derivative Instruments and Hedging Activities, which was implemented in
January 2001. See further discussion under "--Interest Rate Risk Management." In
addition, intangibles associated with the purchase of subsidiaries increased
$14.8 million, which reflects core deposit intangibles and goodwill associated
with our acquisition of PFC as well as core deposit intangibles associated with
our branch purchases of UPB as further discussed in Note 2 to our consolidated
financial statements. The overall increase in assets was also due to the
increase in loans, net of unearned discount, of $55.2 million, which is further
discussed under "--Loans and Allowance for Loan Losses." Total deposits
increased by $341.8 million to $6.03 billion at September 30, 2002 from $5.68
billion at December 31, 2001. The increase primarily reflects deposits of $213.4
million acquired in our PFC acquisition and $64.9 million acquired in our branch
purchases in addition to an increase in savings accounts due primarily to
general economic conditions. The increase was offset by an anticipated level of
attrition associated with our acquisitions and continued aggressive competition
within our market areas. In addition, certain large commercial accounts,
particularly related to real estate title and escrow business, sharply reduced
their deposit levels in 2002, reflecting their reduced business activity as a
result of general economic conditions. Short-term borrowings decreased $29.1
million to $214.1 million at September 30, 2002 from $243.1 million at December
31, 2001, primarily due to a reduction in federal funds purchased. Our note
payable decreased by $27.5 million due to repayments primarily funded through
dividends from our subsidiaries and the issuance of $25.0 million of additional
trust preferred securities as more fully described in Note 9 to our consolidated
financial statements offset by a $36.5 million advance utilized to fund our
acquisition of PFC in January 2002. Guaranteed preferred beneficial interests in
subordinated debentures increased $31.8 million due to the additional trust
preferred securities and increased amortization of deferred issuance costs.
Results of Operations
Net Income
Net income was $13.0 million and $30.4 million for the three and nine
months ended September 30, 2002, respectively, compared to $14.4 million and
$34.6 million for the comparable periods in 2001. Results for 2002 reflect
increased net interest income and noninterest income, offset by higher operating
expenses and increased provisions for loan losses, reflecting the current
economic environment and increased loan charge-off, delinquency and
nonperforming trends. See further discussion under "-- Provision for Loan
Losses." The implementation of SFAS No. 142, Goodwill and Other Intangible
Assets, on January 1, 2002, resulted in the discontinuation of amortization of
certain intangibles associated with the purchase of subsidiaries. As more fully
described in Note 3 to our consolidated financial statements, if we had
implemented SFAS No. 142 at the beginning of 2001, net income for the three and
nine months ended September 30, 2001 would have increased $1.8 million and $5.4
million, respectively. In addition, the implementation of SFAS No. 133, on
January 1, 2001, resulted in the recognition of a cumulative effect of change in
accounting principle of $1.4 million, net of tax, which reduced net income in
2001. Excluding this item, net income would have been $36.0 million for the nine
months ended September 30, 2001. The accounting for derivatives under the
requirements of SFAS No. 133 will continue to have an impact on future financial
results as further discussed above and under "--Noninterest Income."
The overall increase in operating expenses for 2002, as further
discussed under "--Noninterest Expense," was partially offset by the
discontinuation of amortization of certain intangibles associated with the
purchase of subsidiaries in accordance with the implementation of SFAS No. 142.
Amortization of intangibles for the three and nine months ended September 30,
2002 was $516,000 and $1.5 million, respectively, compared to $1.9 million and
$5.6 million for the comparable periods in 2001. The higher operating expenses
and increased provisions for loan losses were partially offset by increased net
interest income and noninterest income as further discussed under "--Net
Interest Income" and "--Noninterest Income."
Net Interest Income
Net interest income (expressed on a tax equivalent basis) increased to
$68.6 million, or 4.24% of average interest-earning assets, for the three months
ended September 30, 2002, from $60.0 million, or 4.42% of average
interest-earning assets, for the comparable period in 2001. For the nine months
ended September 30, 2002 and 2001, net interest income (expressed on a tax
equivalent basis) was $199.1 million, or 4.23% of average interest-earning
assets, and $175.9 million, or 4.40% of average interest-earning assets,
respectively. We credit the increased net interest income primarily to the net
interest-earning assets provided by our acquisitions completed during the fourth
quarter of 2001 and in January 2002 as well as earnings on our interest rate
swap agreements that we entered into in conjunction with our interest rate risk
management program. As further discussed under "--Interest Rate Risk
Management," for the three and nine months ended September 30, 2002, these
agreements provided net interest income of $14.2 million and $38.0 million,
respectively, in comparison to $7.1 million and $12.8 million for the comparable
periods in 2001. The increase in net interest income, however, was partially
offset by reductions in prevailing interest rates during 2001, generally weaker
loan demand and overall economic conditions, resulting in the decline in our net
interest margin. Guaranteed preferred debentures expense was $5.3 million and
$18.6 million for the three and nine months ended September 30, 2002,
respectively, compared to $4.5 million and $13.5 million for the comparable
periods in 2001. The increase for 2002 is primarily attributable to the issuance
of trust preferred securities by our financing subsidiaries. In November 2001,
First Preferred Capital Trust III issued $55.2 million of trust preferred
securities and in April 2002, First Bank Capital Trust issued $25.8 million of
trust preferred securities. The overall increase also reflects a change in
estimate regarding the period over which the deferred issuance costs are being
amortized partially offset by the earnings associated with our interest rate
swap agreements entered into in May and June 2002 as further discussed under
"--Interest Rate Risk Management."
Average loans, net of unearned discount, were $5.36 billion and $5.42
billion for the three and nine months ended September 30, 2002, respectively, in
comparison to $4.83 billion and $4.84 billion for the comparable periods in
2001. The yield on our loan portfolio, however, decreased to 7.12% and 7.26% for
the three and nine months ended September 30, 2002, respectively, in comparison
to 8.40% and 8.72% for the comparable periods in 2001. This was a major
contributor to the decline in our net interest margin of 18 basis points and 17
basis points for the three and nine months ended September 30, 2002,
respectively, from the comparable periods in 2001. We attribute the decline in
yields and our net interest margin primarily to the decreases in prevailing
interest rates throughout 2001. During the period from January 1, 2001 through
December 31, 2001, the Board of Governors of the Federal Reserve System
decreased the targeted Federal funds rate 11 times, resulting in 11 decreases in
the prime rate of interest from 9.50% to 4.75%. 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 discussed above, the
reduced level of interest income earned on our loan portfolio as a result of
declining interest rates and increased competition within our market areas was
partially mitigated by the earnings associated with our interest rate swap
agreements.
For the three and nine months ended September 30, 2002, the aggregate
weighted average rate paid on our deposit portfolio decreased to 2.44% and
2.67%, respectively, compared to 4.09% and 4.51% for the comparable periods in
2001. We attribute the decline primarily to rates paid on savings and time
deposits, which have continued to decline in conjunction with the interest rate
reductions previously discussed. The decrease in rates paid for the three and
nine months ended September 30, 2002 is a result of generally decreasing
interest rates during 2001. However, the competitive pressures on deposits
within our market areas precluded us from fully reflecting the general interest
rate decreases in our deposit pricing and still providing an adequate funding
source for loans.
The aggregate weighted average rate paid on our note payable was 21.37%
and 4.69% for the three and nine months ended September 30, 2002, respectively,
compared to 7.09% and 6.84% for the comparable periods in 2001. The increase in
the weighted average rate paid for the three months ended September 30, 2002
primarily reflects increased commitment, arrangement and other fees paid during
the third quarter to renew our secured credit agreement. Due to the small
average balance outstanding on our note payable during the three months ended
September 30, 2002, the timing of the recognition of these fees results in a
disproportionate weighted average rate paid for the period. The overall decline
for the nine months ended September 30, 2002 is reflective of the current rate
environment. Amounts outstanding under our $90.0 million line of credit with a
group of unaffiliated financial institutions bear interest at the lead bank's
corporate base rate or, at our option, at the Eurodollar rate plus a margin
determined by the outstanding balance and our profitability. Thus, our revolving
credit line represents a relatively high-cost funding source as increased
advances have the effect of increasing the weighted average rate of non-deposit
liabilities. The overall cost of this funding source, however, has been
significantly mitigated by the reductions in the prime lending rate during 2001
and in the outstanding balance of the note payable in 2002. During 2001, our
note payable was fully repaid from the proceeds of the trust preferred
securities issued by First Preferred Capital Trust III. However, on December 31,
2001, we obtained a $27.5 million advance to fund our acquisition of UFG and in
January 2002, we utilized the note payable to fund our acquisition of PFC. The
note was fully repaid in September 2002. The aggregate weighted average rate
paid on our short-term borrowings also declined for the three and nine months
ended September 30, 2002, as compared to the comparable periods in 2001,
reflecting reductions in the current interest rate environment.
The aggregate weighted average rate paid on our guaranteed preferred
debentures declined to 7.88% and 9.80% for the three and nine months ended
September 30, 2002, respectively, from 9.74% and 9.85% for the comparable
periods in 2001. The decreased rates primarily reflect the earnings impact of
our interest rate swap agreements into in May and June 2002. The decline was
partially offset by the additional expense of our trust preferred securities
issued in November 2001 and April 2002 as well as a change in estimate regarding
the period over which the deferred issuance costs associated with these
obligations are being amortized.
The following table sets forth, on a tax-equivalent basis, 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 September 30, Nine Months Ended September 30,
------------------------------------------------- -----------------------------------------------
2002 2001 2002 2001
------------------------- --------------------- ---------------------- ----------------------
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).......... $5,361,625 96,236 7.12% $4,828,254 102,244 8.40% $5,415,946 294,274 7.26% $4,836,210 315,305 8.72%
Investment securities (4)... 938,971 9,479 4.01 414,968 6,216 5.94 766,146 25,123 4.38 424,200 21,288 6.71
Federal funds sold
and other.............. 115,703 512 1.76 137,255 2,445 7.07 115,477 1,454 1.68 84,093 4,100 6.52
---------- ------- ---------- ------- ---------- ------- ---------- -------
Total interest-earning
assets............... 6,416,299 106,227 6.57 5,380,477 110,905 8.18 6,297,569 320,851 6.81 5,344,503 340,693 8.52
------- ------- ------- -------
Nonearning assets.............. 694,685 552,684 676,661 529,260
---------- ---------- ---------- ----------
Total assets........... $7,110,984 $5,933,161 $6,974,230 $5,873,763
========== ========== ========== ==========
Liabilities and
Stockholders' Equity
--------------------
Interest-bearing liabilities:
Interest-bearing deposits:
Interest-bearing demand
deposits................ $ 774,144 1,786 0.92% $ 515,406 1,892 1.46% $ 721,982 5,739 1.06% $ 482,891 5,372 1.49%
Savings deposits.......... 1,999,395 8,819 1.75 1,551,180 12,402 3.17 1,947,271 27,253 1.87 1,485,391 39,927 3.59
Time deposits of $100
or more (3)............. 500,657 4,624 3.66 520,594 6,788 5.17 501,054 14,803 3.95 524,974 22,117 5.63
Other time deposits (3)... 1,810,274 15,986 3.50 1,738,050 23,486 5.36 1,811,532 51,837 3.83 1,776,272 76,629 5.77
---------- ------- ---------- ------- ---------- ------- ---------- -------
Total interest-bearing
deposits............. 5,084,470 31,215 2.44 4,325,230 44,568 4.09 4,981,839 99,632 2.67 4,269,528 144,045 4.51
Short-term borrowings....... 195,465 806 1.64 151,823 1,338 3.50 187,634 2,635 1.88 161,755 5,000 4.13
Notes payable............... 5,738 309 21.37 31,059 555 7.09 23,904 839 4.69 45,521 2,328 6.84
Guaranteed preferred
debentures (3)......... 266,817 5,300 7.88 182,924 4,489 9.74 254,044 18,629 9.80 182,860 13,467 9.85
---------- ------- ---------- ------- ---------- ------- ---------- -------
Total interest-bearing
liabilities.......... 5,552,490 37,630 2.69 4,691,036 50,950 4.31 5,447,421 121,735 2.99 4,659,664 164,840 4.73
------- ------- ------- -------
Noninterest-bearing liabilities:
Demand deposits............. 912,807 725,624 916,822 718,468
Other liabilities........... 152,086 105,114 141,769 105,929
---------- --------- ---------- ----------
Total liabilities...... 6,617,383 5,521,774 6,506,012 5,484,061
Stockholders' equity........... 493,601 411,387 468,218 389,702
---------- ---------- ---------- ----------
Total liabilities and
stockholders' equity. $7,110,984 $5,933,161 $6,974,230 $5,873,763
========== ========== ========== ==========
Net interest income............ 68,597 59,955 199,116 175,853
======= ======= ======= =======
Interest rate spread........... 3.88 3.87 3.82 3.79
Net interest margin (5)........ 4.24% 4.42% 4.23% 4.40%
===== ==== ===== ====
- --------------------
(1) For purposes of these computations, nonaccrual loans are included in the average loan amounts.
(2) Interest income on loans includes loan fees.
(3) Interest income and interest expense include the effects of interest rate swap agreements.
(4) Information is presented on a tax-equivalent basis assuming a tax rate of 35%. The tax-equivalent adjustments were approximately
$416,000 and $1.1 million for the three and nine months ended September 30, 2002, and $181,000 and $576,000 for the comparable
periods in 2001, respectively.
(5) Net interest margin is the ratio of net interest income (expressed on a tax-equivalent basis) to average interest-earning
assets.
Provision for Loan Losses
The provision for loan losses was $13.7 million and $38.7 for the three
and nine months ended September 30, 2002, respectively, compared to $6.8 million
and $13.9 million for the comparable periods in 2001. The increase in the
provision for loan losses reflects a higher level of problem loans and related
loan charge-offs and past due loans resulting from the economic conditions
within our markets. Net loan charge-offs were $7.6 million and $27.4 million for
the three and nine months ended September 30, 2002, respectively, in comparison
to $3.2 million and $14.8 million for the comparable periods in 2001. The
increase in net loan charge-offs reflects the general slowdown in economic
conditions prevalent within our markets as well as an aggregate of $15.0 million
of loan charge-offs on five large credit relationships, representing nearly 55%
of loan charge-offs in 2002. Loan recoveries were $3.4 million and $11.7 for the
three and nine months ended September 30, 2002, respectively, in comparison to
$3.4 million and $7.2 million for the comparable periods in 2001. In addition,
nonperforming assets and loans past due 90 days or more and still accruing have
increased to $110.1 million at September 30, 2002 from $86.8 million at December
31, 2001, and are expected remain at these higher-than-normal levels in the near
future. 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 $25.5 million and $64.8 million for the three
and nine months ended September 30, 2002, respectively, in comparison to $21.8
million and $57.7 million for the comparable periods in 2001. Noninterest income
consists primarily of service charges on deposit accounts and customer service
fees, mortgage-banking revenues, bank-owned life insurance investment income,
net gains on derivative instruments and other income.
Service charges on deposit accounts and customer service fees were $8.5
million and $22.0 million for the three and nine months ended September 30,
2002, respectively, in comparison to $5.7 million and $16.3 million for the
comparable periods in 2001. We attribute the increase in service charges and
customer service fees to:
>> our acquisitions completed during 2001 and 2002;
>> additional products and services available and utilized by our
expanding base of consumer and commercial customers;
>> increased fee income resulting from revisions of customer service
charge rates, effective July 1, 2002, and enhanced control of fee
waivers; and
>> increased income associated with automated teller machine
services and debit cards.
The gain on mortgage loans sold and held for sale was $7.9 million and
$20.3 million for the three and nine months ended September 30, 2002,
respectively, in comparison to $2.4 million and $9.7 million for the comparable
periods in 2001. The overall increase is primarily attributable to a significant
increase in the volume of loans originated and sold commensurate with the
reductions in mortgage loan rates experienced in 2001 as well as the continued
expansion of our mortgage banking activities.
During the nine months ended September 30, 2001, we recorded a $1.9
million pre-tax gain on the sale of our credit card portfolio, net of expenses.
The sale of this portfolio was consistent with our strategic decision to exit
this product line and enter into an agent relationship with a larger credit card
service provider.
Bank-owned life insurance investment income was $1.5 million and $4.3
million for the three and nine months ended September 30, 2002, respectively, in
comparison to $970,000 and $3.1 million for the comparable periods in 2001. The
increase for 2002 reflects changes in the portfolio mix of the underlying
investments which improved our return on this product as well as the
reinvestment of earnings.
The net gain on derivative instruments was $2.0 million and $1.7
million for the three and nine months ended September 30, 2002, respectively, in
comparison to $8.9 million and $14.4 million for the comparable periods in 2001.
The decrease in income from derivative instruments reflects $3.8 million of
gains resulting from the termination of certain interest rate swap agreements
during the second quarter of 2001, the sale of our interest rate floor
agreements in November 2001 and changes in the fair value of our interest rate
cap agreements and fair value hedges.
Other income was $5.7 million and $16.4 million for the three and nine
months ended September 30, 2002, respectively, in comparison to $4.3 million and
$12.6 million for the comparable periods in 2001. We attribute the primary
components of the increase to:
>> our acquisitions completed during 2001 and 2002;
>> increased portfolio management fee income associated our
Institutional Money Management division;
>> increased earnings associated with our international banking
products;
>> increased rental income associated with our commercial leasing
activities;
>> increased rental fees from First Services, L.P. for the use of
data processing and other equipment owned by First Banks (see
Note 6 to our consolidated financial statements); and
>> a gain of approximately $448,000 in March 2002 on the sale of
certain operating lease equipment associated with equipment
leasing activities that we acquired in conjunction with our
acquisition of Bank of San Francisco in December 2000; offset by
>> the write-down of approximately $943,000 on certain equipment
associated with our commercial leasing operation in June 2002.
Noninterest Expense
Noninterest expense was $59.2 million and $175.2 million for the three
and nine months ended September 30, 2002, respectively, in comparison to $50.3
million and $157.4 million for the comparable periods in 2001. The increase for
the nine months ended September 30, 2002 reflects the noninterest expense of our
acquisitions completed during 2001 and 2002, including certain nonrecurring
expenses associated with those acquisitions as well as increased salaries and
employee benefit expenses, occupancy and furniture and equipment expenses and
information technology fees, offset by a decline in amortization of intangibles
associated with the purchase of subsidiaries and other expense.
Salaries and employee benefits were $28.4 million and $84.5 million for
the three and nine months ended September 30, 2002, respectively, in comparison
to $23.1 million and $68.9 million for the comparable periods in 2001. We
primarily associate the increase with our 2001 and 2002 acquisitions and higher
commissions paid to mortgage loan originators due to increased loan volume.
However, the increase also reflects higher salary and employee benefit costs
associated with employing and retaining qualified personnel. In addition, the
increase includes various additions to staff throughout 2001 to enhance senior
management expertise and expand our product lines.
Occupancy, net of rental income, and furniture and equipment expense
totaled $10.5 million and $28.7 million for the three and nine months ended
September 30, 2002, respectively, in comparison to $7.4 million and $21.2
million for the comparable periods in 2001. We primarily attribute the increase
to our aforementioned acquisitions, including certain nonrecurring expenses
associated with lease obligation terminations, the relocation of certain
branches and operational areas, increased depreciation expense associated with
numerous capital expenditures and the continued expansion and renovation of
various corporate and branch offices, including our facility that houses our
centralized operations and certain corporate administrative functions.
Information technology fees were $7.8 million and $24.4 million for the
three and nine months ended September 30, 2002, respectively, in comparison to
$6.9 million and $19.9 million for the comparable periods in 2001. As more fully
described in Note 6 to our consolidated financial statements, First Services,
L.P. provides information technology and operational support services to our
subsidiaries and us. We attribute the increased fees to growth and technological
advancements consistent with our product and service offerings, continued
expansion and upgrades to technological equipment, networks and communication
channels and certain nonrecurring expenses associated with the data processing
conversions of UFG and PFC, completed in the first quarter of 2002, and of the
Denton and Garland, Texas branch purchases, completed in the second quarter of
2002.
Legal, examination and professional fees were $2.9 million and $6.5
million for the three and nine months ended September 30, 2002, respectively, in
comparison to $2.0 million and $5.4 million for the comparable periods in 2001.
We primarily attribute the increase in these fees to the continued expansion of
overall corporate activities, the ongoing professional services utilized by
certain of our acquired entities and increased legal fees associated with
commercial loan documentation, collection efforts, expanded corporate activities
and certain defense litigation particularly related to acquired entities.
Amortization of intangibles associated with the purchase of
subsidiaries was $516,000 and $1.5 million for the three and nine months ended
September 30, 2002, respectively, in comparison to $1.9 million and $5.6 million
for the comparable periods in 2001. As more fully discussed in Note 3 to our
consolidated financial statements, the significant decrease for 2002 is
attributable to the implementation of SFAS No. 142 in January 2002.
Other expense was $5.9 million and $19.0 million for the three and nine
months ended September 30, 2002, respectively, in comparison to $5.8 million and
$26.2 million for the comparable periods in 2001. Other expense encompasses
numerous general and administrative expenses including 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 attribute the majority of the decrease
in other expense for the nine months ended September 30, 2002 to a $11.5 million
nonrecurring litigation settlement charge in June 2001 associated with a lawsuit
brought by an unaffiliated bank against one of our subsidiaries and certain
individuals related to allegations arising from the employment by our subsidiary
of individuals previously employed by the plaintiff bank, as well as the conduct
of those individuals while employed by the plaintiff bank. The overall decrease
was offset by expenses associated with our acquisitions completed during 2001
and 2002 as well as the continued growth and expansion of our banking franchise.
Provision for Income Taxes
The provision for income taxes was $7.4 million and $17.5 million for
the three and nine months ended September 30, 2002, representing an effective
income tax rate of 35.4% and 35.7%, respectively, in comparison to $9.5 million
and $24.1 million, representing an effective income tax rate of 38.9% and 39.1%
for the comparable periods in 2001, respectively. The decrease in the effective
income tax rate for 2002 reflects the significant decline in amortization of
intangibles associated with the purchase of subsidiaries, in accordance with the
requirements of SFAS No. 142, which is not deductible for tax purposes.
Interest Rate Risk Management
We utilize derivative financial instruments 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:
September 30, 2002 December 31, 2001
----------------------- -----------------------
Notional Credit Notional Credit
Amount Exposure Amount Exposure
------ -------- ------ --------
(dollars expressed in thousands)
Cash flow hedges..................................... $1,050,000 1,883 900,000 1,764
Fair value hedges.................................... 387,450 7,866 200,000 6,962
Interest rate cap agreements......................... 450,000 426 450,000 2,063
Interest rate lock commitments....................... 106,000 -- 88,000 --
Forward commitments to sell
mortgage-backed securities....................... 243,000 -- 209,000 --
========== ===== ======= =====
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 nine months ended September 30, 2002, the net
interest income realized on our derivative financial instruments was $14.2
million and $38.0 million, respectively, in comparison to $7.1 million and $12.8
million for the comparable periods in 2001. The increase is primarily due to
interest income associated with the additional swap agreements entered into
during May and June 2002 as well as the decline in prevailing interest rates. In
addition, we realized a net gain on derivative instruments, which is included in
noninterest income, of $2.0 million and $1.7 million for the three and nine
months ended September 30, 2002, respectively, in comparison to $8.9 million and
$14.4 million for the comparable periods in 2001. The net decrease in income
from 2001 reflects $3.8 million of gains resulting from the termination of
certain interest rate swap agreements during the second quarter of 2001, the
sale of our interest rate floor agreements in November 2001 and changes in the
fair value of our interest rate cap agreements and fair value hedges.
Cash Flow Hedges
During September 2000, March 2001, April 2001 and March 2002, we
entered into $600.0 million, $200.0 million, $175.0 million and $150.0 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
underlying hedged assets are certain loans within our commercial loan portfolio.
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 2.70%, 2.82%, 2.82%
and 2.80%, respectively. The terms of the swap agreements provide for us to pay
and receive interest on a quarterly basis. In November 2001, we terminated $75.0
million notional amount of the swap agreements originally entered into in April
2001, which would have expired in April 2006, in order to appropriately modify
our overall hedge position in accordance with our interest rate risk management
program. We recorded a pre-tax gain of $2.6 million in conjunction with the
termination of these swap agreements. The amount receivable by us under the swap
agreements was $3.0 million and $2.9 million at September 30, 2002 and December
31, 2001, respectively, and the amount payable by us was $1.1 million at
September 30, 2002 and December 31, 2001.
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 September 30, 2002 and December 31, 2001 were as follows:
Notional Interest Rate Interest Rate Fair
Maturity Date Amount Paid Received Value
------------- ------ ---- -------- -----
(dollars expressed in thousands)
September 30, 2002:
March 14, 2004.................................. $ 150,000 1.95% 3.93% $ 4,357
September 20, 2004.............................. 600,000 2.05 6.78 53,927
March 21, 2005.................................. 200,000 1.93 5.24 14,043
April 2, 2006................................... 100,000 1.93 5.45 9,054
---------- ---------
$1,050,000 2.00 5.95 $ 81,381
========== ===== ===== =========
December 31, 2001:
September 20, 2004.............................. $ 600,000 2.05% 6.78% $ 40,980
March 21, 2005.................................. 200,000 1.93 5.24 4,951
April 2, 2006................................... 100,000 1.93 5.45 2,305
---------- ---------
$ 900,000 2.01 6.29 $ 48,236
========== ===== ===== =========
Fair Value Hedges
We entered into the following interest rate swap agreements, designated
as fair value hedges, to effectively shorten the repricing characteristics of
certain interest-bearing liabilities to correspond more closely with their
funding source with the objective of stabilizing net interest income over time:
>> During January 2001, we entered into $50.0 million notional
amount of three-year interest rate swap agreements and $150.0
million notional amount of five-year interest rate swap
agreements that 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 underlying hedged
liabilities are a portion of other time deposits. The terms of
the swap agreements provide for us to pay interest on a quarterly
basis and receive interest on a semiannual basis. The amount
receivable by us under the swap agreements was $2.5 million and
$5.2 million at September 30, 2002 and December 31, 2001,
respectively, and the amount payable by us under the swap
agreements was $868,000 and $1.2 million at September 30, 2002
and December 31, 2001, respectively.
>> During May 2002 and June 2002, we entered into $55.2 million and
$86.3 million notional amount, respectively, of interest rate
swap agreements that 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 plus 2.30% and 2.75%,
respectively. In addition, during June 2002, FBA entered into
$46.0 million notional amount of interest rate swap agreements
that 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 plus 1.97%. The underlying hedged
liabilities are our guaranteed preferred beneficial interests in
First Banks, Inc. subordinated debentures and First Banks
America, Inc. subordinated debentures. The terms of the swap
agreements provide for us to pay and receive interest on a
quarterly basis. There were no amounts receivable or payable by
us at September 30, 2002.
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 September 30, 2002 and December 31, 2001 were as follows:
Notional Interest Rate Interest Rate Fair
Maturity Date Amount Paid Received Value
------------- ------ ---- -------- -----
(dollars expressed in thousands)
September 30, 2002:
January 9, 2004................................. $ 50,000 1.86% 5.37% $ 2,221
January 9, 2006................................. 150,000 1.86 5.50 13,406
March 31, 2027.................................. 86,250 4.61 9.25 (220)
June 30, 2028................................... 46,000 3.83 8.50 336
December 31, 2031............................... 55,200 4.16 9.00 4,060
---------- --------
$ 387,450 3.03 7.17 $ 19,803
========== ===== ===== ========
December 31, 2001:
January 9, 2004................................. $ 50,000 2.48% 5.37% $ 1,761
January 9, 2006................................. 150,000 2.48 5.50 3,876
---------- --------
$ 200,000 2.48 5.47 $ 5,637
========== ===== ===== ========
Interest Rate Cap Agreements
In conjunction with the interest rate swap agreements maturing
September 20, 2004, we also entered into $450.0 million notional amount of
four-year interest rate cap agreements 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 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 price of 7.50% should
the three-month London Interbank Offering Rate exceed the strike price. At
September 30, 2002 and December 31, 2001, the carrying value of these interest
rate cap agreements, which is included in derivative instruments in the
consolidated balance sheets, was $426,000 and $2.1 million, respectively.
Pledged Collateral
At September 30, 2002 and December 31, 2001, we had pledged investment
securities available for sale with a carrying value of $5.9 million and $1.1
million, respectively, in connection with our interest rate swap agreements. In
addition, at September 30, 2002, and December 31, 2001, we had accepted, as
collateral in connection with our interest rate swap agreements, cash of $97.5
million and $4.9 million, respectively. At December 31, 2001, we had also
accepted investment securities with a fair value of $53.9 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 September 30, 2002 and December 31, 2001, we had not done so.
Interest Rate Lock Commitments/Forward Commitments to Sell Mortgage-Backed
Securities
Derivative financial instruments issued by us consist of interest rate
lock commitments to originate fixed-rate loans. Commitments to originate
fixed-rate loans consist primarily of residential real estate loans. These net
loan commitments and loans held for sale are hedged with forward contracts to
sell mortgage-backed securities.
Loans and Allowance for Loan Losses
Interest earned on our loan portfolio represents the principal source
of income for our subsidiary banks. Interest and fees on loans were 90.8% and
91.9% of total interest income for the three and nine months ended September 30,
2002, respectively, in comparison to 92.3% and 92.6% for the comparable periods
in 2001. Total loans, net of unearned discount, increased $55.2 million to $5.46
billion, or 76.2% of total assets, at September 30, 2002, compared to $5.41
billion, or 79.8% of total assets, at December 31, 2001. Exclusive of our
acquisition of PFC, which provided loans, net of unearned discount, of $150.4
million, loans decreased $95.2 million at September 30, 2002 compared to
December 31, 2001. The decrease primarily results from declines in our
commercial, financial and agricultural portfolio due to an anticipated amount of
attrition associated with our acquisitions completed during the fourth quarter
of 2001 and the first quarter of 2002, as well as current economic conditions
prevalent within our markets. In addition, our consumer and installment
portfolio, net of unearned discount, decreased to $91.0 million at September 30,
2002 from $122.1 million at December 31, 2001. This decrease reflects continued
reductions in new loan volumes and the repayment of principal on our existing
portfolio, and is also consistent with our objectives of de-emphasizing consumer
lending and expanding commercial lending. The decrease in loans was offset by a
$57.1 million increase in loans held for sale, which is primarily attributable
to increased volumes resulting from the current interest rate environment.
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:
September 30, December 31,
2002 2001
---- ----
(dollars expressed in thousands)
Commercial, financial and agricultural:
Nonaccrual..................................................... $ 37,413 19,326
Real estate construction and development:
Nonaccrual..................................................... 25,645 3,270
Real estate mortgage:
Nonaccrual..................................................... 32,943 41,898
Restructured terms............................................. 1,956 2,013
Consumer and installment:
Nonaccrual..................................................... 1,276 794
Restructured terms............................................. -- 7
----------- ----------
Total nonperforming loans.................................. 99,233 67,308
Other real estate................................................... 3,125 4,316
----------- ----------
Total nonperforming assets................................. $ 102,358 71,624
=========== ==========
Loans, net of unearned discount..................................... $ 5,464,020 5,408,869
=========== ==========
Loans past due 90 days or more and still accruing................... $ 7,778 15,156
=========== ==========
Ratio of:
Allowance for loan losses to loans............................. 2.01% 1.80%
Nonperforming loans to loans................................... 1.82 1.24
Allowance for loan losses to nonperforming loans............... 110.72 144.36
Nonperforming assets to loans and other real estate............ 1.87 1.32
=========== ==========
Nonperforming loans, consisting of loans on nonaccrual status and
certain restructured loans, were $99.2 million at September 30, 2002, in
comparison to $67.3 million at December 31, 2001. The increase in nonperforming
loans is primarily attributable to general economic conditions as well as the
addition of a $16.1 million borrowing relationship to nonaccrual real estate
construction and development loans during the second quarter of 2002. The
relationship relates to a residential and recreational development project that
had significant financial difficulties and experienced inadequate project
financing, project delays and weak project management. This relationship had
previously been on nonaccrual status and was removed from nonaccrual status
during the third quarter of 2001 due to financing being recast with a new
borrower, who appeared able to meet ongoing developmental expectations.
Subsequent to that time, the new borrower has encountered internal management
problems, which have negatively impacted and further delayed development of the
project. Loan charge-offs also increased significantly to $11.0 million and
$39.0 million for the three and nine months ended September 30, 2002,
respectively, from $6.6 million and $22.0 million for the comparable periods in
2001, primarily due to the general slowdown in economic conditions as well as
charge-offs aggregating $15.0 million on five large credit relationships,
representing nearly 55% of loan charge-offs in 2002. We attribute the higher
trends in nonperforming and delinquent loans and charge-offs to economic
conditions in our markets. Consistent with the general economic slow down
experienced within our primary markets, we anticipate this trend will continue
in the near future.
The following table is a summary of our loan loss experience for the
periods indicated:
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -------------------
2002 2001 2002 2001
---- ---- ---- ----
(dollars expressed in thousands)
Allowance for loan losses, beginning of period.............. $ 103,794 77,141 97,164 81,592
Acquired allowances for loan losses......................... -- -- 1,366 --
--------- ------- ------- -------
103,794 77,141 98,530 81,592
--------- ------- ------- -------
Loans charged-off........................................... (11,014) (6,620) (39,047) (21,956)
Recoveries of loans previously charged-off.................. 3,395 3,427 11,692 7,202
--------- ------- ------- -------
Net loan charge-offs........................................ (7,619) (3,193) (27,355) (14,754)
--------- ------- ------- -------
Provision for loan losses................................... 13,700 6,800 38,700 13,910
--------- ------- ------- -------
Allowance for loan losses, end of period.................... $ 109,875 80,748 109,875 80,748
========= ======= ======= =======
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
each subsidiary bank by risk rating. These are coupled with analyses of changes
in the risk profiles of the portfolios, changes in past-due and nonperforming
loans and changes in watch list and classified loans over time. In this manner,
we continually monitor the overall increases or decreases in the levels of risk
in the portfolios. Factors are applied to the loan portfolios for each category
of loan risk to determine acceptable levels of allowance for loan losses. We
derive these factors from the actual loss experience of our subsidiary banks and
from published national surveys of norms in the industry. The calculated
allowances required for the portfolios are then compared to the actual allowance
balances to determine the provisions necessary to maintain the allowances at
appropriate levels. In addition, management exercises 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, 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 the allowance for
loan losses. Such provisions are reflected in our consolidated statements of
income.
Liquidity
Our liquidity and the liquidity of our subsidiary banks is the ability
to maintain a cash flow, which is adequate to fund operations, service debt
obligations and meet other commitments on a timely basis. Our subsidiary banks
receive 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
under agreements to repurchase and utilizing borrowings from the Federal Home
Loan Banks and other borrowings, including our revolving credit line. The
aggregate funds acquired from these sources were $710.2 million and $754.8
million at September 30, 2002 and December 31, 2001, 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,
short-term borrowings and our revolving note payable, at September 30, 2002:
(dollars expressed in thousands)
Three months or less.......................................................... $345,099
Over three months through six months.......................................... 100,119
Over six months through twelve months......................................... 131,532
Over twelve months............................................................ 133,422
--------
Total.................................................................. $710,172
========
In addition to these sources of funds, our subsidiary banks have
established borrowing relationships with the Federal Reserve Banks in their
respective districts. These borrowing relationships, which are secured by
commercial loans, provide an additional liquidity facility that may be utilized
for contingency purposes. At September 30, 2002 and December 31, 2001, the
borrowing capacity of our subsidiary banks under these agreements was
approximately $1.19 billion and $1.21 billion, respectively. In addition, our
subsidiary banks' borrowing capacity through their relationships with the
Federal Home Loan Banks was approximately $387.3 million and $234.6 million at
September 30, 2002 and December 31, 2001, respectively. Exclusive of the Federal
Home Loan Bank advances outstanding at First Bank of $10.0 million and $20.1
million at September 30, 2002 and December 31, 2001, respectively, our
subsidiaries had no amounts outstanding under either of these agreements at
September 30, 2002 and December 31, 2001, however, under a separate Federal Home
Loan Bank agreement, FB&T had advances outstanding of $10.0 million and $10.5
million at September 30, 2002 and December 31, 2001, respectively.
Management believes the available liquidity and operating results of
our subsidiary banks 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
subsidiaries, First Preferred Capital Trust I, First Preferred Capital Trust II,
First Preferred Capital Trust III and First Bank Capital Trust, and FBA's
financing subsidiary, First America Capital Trust.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
At December 31, 2001, 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 6.1% of net interest income,
based on assets and liabilities at December 31, 2001. At September 30, 2002, we
remain in an "asset-sensitive" position and thus, remain subject to a higher
level of risk in a declining interest rate environment. 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 prevailing interest rates throughout 2001, is reflected in
our reduced net interest margin for the three and nine months ended September
30, 2002 as compared to the comparable periods in 2001 and further discussed
under "--Results of Operations." During the three and nine months ended
September 30, 2002, our asset-sensitive position and overall susceptibility to
market risks have not changed materially.
ITEM 4 - CONTROLS AND PROCEDURES
Within the 90-day period prior to the filing date of this report, our
Chief Executive Officer and Chief Financial Officer evaluated the effectiveness
of our "disclosure controls and procedures" (as defined in rules 13a-14(c) and
15d-14(c) under the Securities Exchange Act of 1934) and concluded on the basis
of the evaluation that, as of the date of such evaluation, our disclosure
controls and procedures were effective. There have been no significant changes
in internal controls or in other factors that could significantly affect
internal controls subsequent to the date of that evaluation.
Part II - OTHER INFORMATION
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
-------------- -----------
10.1 $110,000,000 Secured Credit Agreement,
dated as of August 22, 2002, among
First Banks, Inc. and Wells Fargo
Bank Minneapolis, National Association,
American National Bank & Trust Company
of Chicago, The Northern Trust Company,
Union Bank of California N.A., SunTrust
Bank, Nashville and Fifth Third Bank -
incorporated herein by reference to
Exhibit B to the Company's Schedule
13-E, dated October 8, 2002.
(b) We filed no reports on Form 8-K for the three months ended September 30,
2002.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
FIRST BANKS, INC.
November 12, 2002 By: /s/ James F. Dierberg
------------------------------------------
James F. Dierberg
Chairman of the Board of Directors
and Chief Executive Officer
(Principal Executive Officer)
November 12, 2002 By: /s/ Allen H. Blake
------------------------------------------
Allen H. Blake
President and Chief Financial Officer
(Principal Financial and
Accounting Officer)
CERTIFICATION
REQUIRED BY RULES 13A-14 AND 15D-14
UNDER THE SECURITIES EXCHANGE ACT OF 1934
I, James F. Dierberg, certify that:
1. I have reviewed this quarterly report on Form 10-Q of First Banks, Inc.
(the "registrant");
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "evaluation date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the evaluation date.
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 12, 2002
FIRST BANKS, INC.
By: /s/ James F. Dierberg
--------------------------------------
James F. Dierberg
Chairman of the Board of Directors
and Chief Executive Officer
(Principal Executive Officer)
CERTIFICATION
REQUIRED BY RULES 13A-14 AND 15D-14
UNDER THE SECURITIES EXCHANGE ACT OF 1934
I, Allen H. Blake, certify that:
1. I have reviewed this quarterly report on Form 10-Q of First Banks, Inc.
(the "registrant");
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "evaluation date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the evaluation date.
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 12, 2002
FIRST BANKS, INC.
By: /s/ Allen H. Blake
--------------------------------------------
Allen H. Blake
President and Chief Financial Officer
(Principal Financial and Accounting
Officer)
CERTIFICATION OF PERIODIC REPORT
I, James F. Dierberg, Chairman of the Board of Directors and Chief
Executive Officer of First Banks, Inc. (the Company), certify, pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:
(1) the Quarterly Report on Form 10-Q of the Company for the quarterly
period ended September 30, 2002 (the Report) fully complies with the
requirements of Sections 13(a) or 15(d) of the Securities Exchange Act of 1934;
and
(2) the information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.
Dated: November 12, 2002 /s/ James F. Dierberg
----------------------------------------
James F. Dierberg
Chairman of the Board of Directors
and Chief Executive Officer
CERTIFICATION OF PERIODIC REPORT
I, Allen H. Blake, President and Chief Financial Officer of First
Banks, Inc. (the Company), certify, pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:
(1) the Quarterly Report on Form 10-Q of the Company for the quarterly
period ended September 30, 2002 (the Report) fully complies with the
requirements of Sections 13(a) or 15(d) of the Securities Exchange Act of 1934;
and
(2) the information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.
Dated: November 12, 2002 /s/ Allen H. Blake
---------------------------------------------
Allen H. Blake
President and Chief Financial Officer