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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, 2003
[ ] 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 by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act).
Yes No X
--------- ---------
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, 2003
----- -------------------
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....................................................... 14
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
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,
2003 2002
---- ----
(unaudited)
ASSETS
------
Cash and cash equivalents:
Cash and due from banks....................................................... $ 176,090 194,519
Interest-bearing deposits with other financial institutions
with maturities of three months or less..................................... 5,367 832
Federal funds sold............................................................ 141,200 7,900
------------ -----------
Total cash and cash equivalents.......................................... 322,657 203,251
------------ -----------
Investment securities:
Available for sale, at fair value............................................. 871,281 1,120,894
Held to maturity, at amortized cost (fair value of $12,813 and $16,978
at September 30, 2003 and December 31, 2002, respectively).................. 12,363 16,426
------------ -----------
Total investment securities.............................................. 883,644 1,137,320
------------ -----------
Loans:
Commercial, financial and agricultural........................................ 1,435,756 1,443,016
Real estate construction and development...................................... 1,081,576 989,650
Real estate mortgage.......................................................... 2,490,255 2,444,122
Lease financing............................................................... 79,334 126,738
Consumer and installment...................................................... 78,879 86,763
Loans held for sale........................................................... 280,830 349,965
------------ -----------
Total loans.............................................................. 5,446,630 5,440,254
Unearned discount............................................................. (8,967) (7,666)
Allowance for loan losses..................................................... (110,734) (99,439)
------------ -----------
Net loans................................................................ 5,326,929 5,333,149
------------ -----------
Derivative instruments............................................................. 68,399 97,887
Bank premises and equipment, net of accumulated
depreciation and amortization................................................. 143,317 152,418
Goodwill........................................................................... 143,368 140,112
Bank-owned life insurance.......................................................... 96,266 92,616
Accrued interest receivable........................................................ 31,302 35,638
Deferred income taxes.............................................................. 88,409 92,157
Other assets....................................................................... 64,630 58,252
------------ -----------
Total assets............................................................. $ 7,168,921 7,342,800
============ ===========
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,
2003 2002
---- ----
(unaudited)
LIABILITIES
-----------
Deposits:
Demand:
Non-interest-bearing........................................................ $ 1,041,154 986,674
Interest-bearing............................................................ 841,960 819,429
Savings....................................................................... 2,179,305 2,176,616
Time:
Time deposits of $100 or more............................................... 413,786 469,904
Other time deposits......................................................... 1,546,014 1,720,197
------------ -----------
Total deposits........................................................... 6,022,219 6,172,820
Other borrowings................................................................... 270,716 265,644
Note payable....................................................................... 31,000 7,000
Guaranteed preferred beneficial interests in
subordinated debentures....................................................... 205,380 270,039
Accrued interest payable........................................................... 9,329 11,751
Deferred income taxes.............................................................. 43,685 61,204
Accrued expenses and other liabilities............................................. 44,135 35,301
------------ -----------
Total liabilities........................................................ 6,626,464 6,823,759
------------ -----------
STOCKHOLDERS' EQUITY
--------------------
Preferred stock:
$1.00 par value, 5,000,000 shares authorized, no shares issued
and outstanding............................................................. -- --
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
Additional paid-in capital......................................................... 5,910 5,910
Retained earnings.................................................................. 480,596 433,689
Accumulated other comprehensive income............................................. 36,973 60,464
------------ -----------
Total stockholders' equity............................................... 542,457 519,041
------------ -----------
Total liabilities and stockholders' equity............................... $ 7,168,921 7,342,800
============ ===========
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,
------------------ -----------------
2003 2002 2003 2002
---- ---- ---- ----
Interest income:
Interest and fees on loans............................................ $ 88,504 96,080 268,796 293,904
Investment securities................................................. 7,176 9,219 24,007 24,368
Federal funds sold and other.......................................... 345 512 1,099 1,454
-------- -------- -------- --------
Total interest income............................................ 96,025 105,811 293,902 319,726
-------- -------- -------- --------
Interest expense:
Deposits:
Interest-bearing demand............................................. 1,195 1,786 4,346 5,739
Savings............................................................. 5,520 8,819 18,091 27,253
Time deposits of $100 or more....................................... 3,028 4,624 10,049 14,803
Other time deposits................................................. 8,865 15,986 32,147 51,837
Other borrowings...................................................... 550 806 1,671 2,635
Note payable.......................................................... 388 309 574 839
Guaranteed preferred debentures....................................... 3,399 5,300 13,768 18,629
-------- -------- -------- --------
Total interest expense........................................... 22,945 37,630 80,646 121,735
-------- -------- -------- --------
Net interest income.............................................. 73,080 68,181 213,256 197,991
Provision for loan losses.................................................. 15,000 13,700 36,000 38,700
-------- -------- -------- --------
Net interest income after provision for loan losses.............. 58,080 54,481 177,256 159,291
-------- -------- -------- --------
Noninterest income:
Service charges on deposit accounts and customer service fees......... 9,175 8,491 26,824 21,985
Gain on mortgage loans sold and held for sale......................... 12,425 7,857 33,161 20,316
Net gain (loss) on sales of available-for-sale investment securities.. 266 (2) 6,832 90
Bank-owned life insurance investment income........................... 1,325 1,505 4,029 4,318
Net (loss) gain on derivative instruments............................. (383) 1,963 43 1,714
Other................................................................. 3,375 5,662 12,370 16,417
-------- -------- -------- --------
Total noninterest income......................................... 26,183 25,476 83,259 64,840
-------- -------- -------- --------
Noninterest expense:
Salaries and employee benefits........................................ 29,422 28,350 90,281 84,506
Occupancy, net of rental income....................................... 4,916 6,302 15,399 15,938
Furniture and equipment............................................... 4,610 4,191 13,714 12,730
Postage, printing and supplies........................................ 1,311 1,346 3,909 4,205
Information technology fees........................................... 8,126 7,814 24,568 24,411
Legal, examination and professional fees.............................. 1,781 2,866 5,552 6,463
Amortization of intangibles associated with
the purchase of subsidiaries........................................ 658 516 1,848 1,480
Communications........................................................ 677 671 1,950 2,375
Advertising and business development.................................. 762 1,181 2,996 4,132
Other................................................................. 8,208 5,917 23,990 18,992
-------- -------- -------- --------
Total noninterest expense........................................ 60,471 59,154 184,207 175,232
-------- -------- -------- --------
Income before provision for income taxes and
minority interest in income of subsidiary.................... 23,792 20,803 76,308 48,899
Provision for income taxes................................................. 10,092 7,372 28,877 17,471
-------- -------- -------- --------
Income before minority interest in income of subsidiary ......... 13,700 13,431 47,431 31,428
Minority interest in income of subsidiary.................................. -- 437 -- 1,066
-------- -------- -------- --------
Net income....................................................... 13,700 12,994 47,431 30,362
Preferred stock dividends.................................................. 196 196 524 524
-------- -------- -------- --------
Net income available to common stockholders...................... $ 13,504 12,798 46,907 29,838
======== ======== ======== ========
Basic earnings per common share............................................ $ 570.75 540.87 1,982.48 1,261.05
======== ======== ======== ========
Diluted earnings per common share.......................................... $ 565.09 534.32 1,954.63 1,246.05
======== ======== ======== ========
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, 2003 and 2002 and Three Months Ended December 31, 2002
(dollars expressed in thousands, except per share data)
Adjustable Rate Accu-
Preferred Stock mulated
------------------ Other Total
Class A Additional Compre- Compre- Stock-
Conver- Common Paid-In hensive Retained hensive holders'
tible Class B Stock Capital Income Earnings Income Equity
----- ------- ----- ------- ------ -------- ------ ------
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
Three months ended December 31, 2002:
Comprehensive income:
Net income................................. -- -- -- -- 14,805 14,805 -- 14,805
Other comprehensive income, net of tax:
Unrealized gains on securities, net of
reclassification adjustment (1)........ -- -- -- -- 1,788 -- 1,788 1,788
Derivative instruments:
Current period transactions............ -- -- -- -- (3,444) -- (3,444) (3,444)
-------
Comprehensive income....................... -- -- -- -- 13,149
=======
Class A preferred stock dividends,
$0.40 per share............................ -- -- -- -- (256) -- (256)
Class B preferred stock dividends,
$0.04 per share............................ -- -- -- -- (6) -- (6)
Effect of capital stock transactions of
majority-owned subsidiary.................. -- -- -- (40) -- -- (40)
------- --- ----- ----- ------- ------- -------
Consolidated balances, December 31, 2002......... 12,822 241 5,915 5,910 433,689 60,464 519,041
Nine months ended September 30, 2003:
Comprehensive income:
Net income................................. -- -- -- -- 47,431 47,431 -- 47,431
Other comprehensive income, net of tax:
Unrealized losses on securities, net of
reclassification adjustment (1)........ -- -- -- -- (9,335) -- (9,335) (9,335)
Derivative instruments:
Current period transactions............ -- -- -- -- (14,156) -- (14,156) (14,156)
-------
Comprehensive income....................... 23,940
=======
Class A preferred stock dividends,
$0.80 per share............................ -- -- -- -- (513) -- (513)
Class B preferred stock dividends,
$0.07 per share............................ -- -- -- -- (11) -- (11)
------- --- ---- ----- ------- ------- -------
Consolidated balances, September 30, 2003........ $12,822 241 5,915 5,910 480,596 36,973 542,457
======= === ===== ===== ======= ======= =======
- -------------------------
(1) Disclosure of reclassification adjustment:
Three Months Ended Nine Months Ended Three Months Ended
September 30, September 30, December 31,
------------------- -----------------
2003 2002 2003 2002 2002
---- ---- ---- ---- ----
Unrealized (losses) gains on investment securities
arising during the period..................................... $(2,874) (500) (4,894) 7,180 1,788
Less reclassification adjustment for gains (losses)
included in net income........................................ 173 (1) 4,441 59 --
------- ---- ------ ----- -----
Unrealized (losses) gains on investment securities................ $(3,047) (499) (9,335) 7,121 1,788
======= ==== ====== ===== =====
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,
--------------------------
2003 2002
---- ----
Cash flows from operating activities:
Net income........................................................................... $ 47,431 30,362
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization of bank premises and equipment....................... 14,596 13,857
Amortization, net of accretion..................................................... 20,599 11,869
Originations and purchases of loans held for sale.................................. (1,815,712) (1,299,522)
Proceeds from the sale of loans held for sale...................................... 1,679,908 1,092,359
Provision for loan losses.......................................................... 36,000 38,700
Provision for income taxes......................................................... 28,877 17,471
Payments of income taxes........................................................... (27,441) (18,096)
Decrease in accrued interest receivable............................................ 5,023 3,891
Interest accrued on liabilities.................................................... 80,646 121,735
Payments of interest on liabilities................................................ (83,212) (125,303)
Gain on mortgage loans sold and held for sale...................................... (33,161) (20,316)
Net gain on sales of available-for-sale investment securities...................... (6,832) (90)
Net gain on derivative instruments................................................. (43) (1,714)
Other operating activities, net.................................................... 993 13,381
Minority interest in income of subsidiary.......................................... -- 1,066
---------- ----------
Net cash used in operating activities........................................... (52,328) (120,350)
---------- ----------
Cash flows from investing activities:
Cash received for acquired entities, net of cash
and cash equivalents............................................................... 14,870 44,097
Proceeds from sales of investment securities available for sale...................... 152,776 55,130
Maturities of investment securities available for sale............................... 1,001,496 855,121
Maturities of investment securities held to maturity................................. 4,143 3,456
Purchases of investment securities available for sale................................ (744,314) (957,312)
Purchases of investment securities held to maturity.................................. (103) (2,260)
Net (increase) decrease in loans..................................................... (3,863) 114,333
Recoveries of loans previously charged-off........................................... 17,024 11,692
Purchases of bank premises and equipment............................................. (4,213) (13,576)
Other investing activities, net...................................................... 11,165 8,622
---------- ----------
Net cash provided by investing activities....................................... 448,981 119,303
---------- ----------
Cash flows from financing activities:
Increase in demand and savings deposits.............................................. 28,967 213,963
Decrease in time deposits............................................................ (269,674) (157,154)
Decrease in federal funds purchased.................................................. (55,000) (81,000)
Decrease in Federal Home Loan Bank advances.......................................... (3,548) (10,600)
(Decrease) increase in daily securities sold under agreements to repurchase.......... (37,928) 44,399
Increase in term securities sold under agreements to repurchase...................... 100,000 --
Advances drawn on note payable....................................................... 34,500 36,500
Repayments of note payable........................................................... (10,500) (64,000)
Proceeds from issuance of guaranteed preferred beneficial interests
in subordinated debentures......................................................... 68,710 24,233
Payments for redemption of guaranteed preferred beneficial
interests in subordinated debentures............................................... (132,250) --
Payments of preferred stock dividends................................................ (524) (524)
---------- ----------
Net cash (used in) provided by financing activities............................. (277,247) 5,817
---------- ----------
Net increase in cash and cash equivalents....................................... 119,406 4,770
Cash and cash equivalents, beginning of period............................................ 203,251 241,874
---------- ----------
Cash and cash equivalents, end of period.................................................. $ 322,657 246,644
========== ==========
Noncash investing and financing activities:
Loans transferred to other real estate............................................... $ 11,999 3,584
Loans held for sale transferred to loans............................................. 66,482 2,923
========== ==========
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 2002
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 conformity with accounting principles generally accepted
in the United States of America. Actual results could differ from those
estimates. 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, 2003 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2003.
The consolidated financial statements include the accounts of First
Banks, Inc. and its subsidiaries. All significant intercompany accounts and
transactions have been eliminated. Certain reclassifications of 2002 amounts
have been made to conform to the 2003 presentation.
First Banks operates through its wholly owned subsidiary bank holding
company, The San Francisco Company (SFC), headquartered in San Francisco,
California, and SFC's wholly owned subsidiary bank, First Bank, headquartered in
St. Louis County, Missouri.
(2) ACQUISITIONS, ACQUISITION AND INTEGRATION COSTS AND OTHER CORPORATE
TRANSACTIONS
On March 31, 2003, First Banks completed its acquisition of Bank of
Ste. Genevieve, Ste. Genevieve, Missouri, from Allegiant Bancorp, Inc.
(Allegiant) in exchange for approximately 974,150 shares of Allegiant common
stock that were previously held by First Banks. The purpose of the acquisition
was to further expand the Company's Midwest banking franchise. First Banks
continued to own approximately 232,000 shares, or approximately 1.52% of the
issued and outstanding shares of Allegiant common stock subsequent to the
acquisition. On October 27, 2003, First Banks contributed all of these shares to
a charitable foundation as further described in Note 13 to the consolidated
financial statements. At the time of the acquisition, Bank of Ste. Genevieve had
$115.1 million in total assets, $42.9 million in loans, net of unearned
discount, $797,000 in investment securities, $93.7 million in deposits and
operated two banking locations. The transaction was accounted for using the
purchase method of accounting. First Banks recorded a gain of $6.3 million on
the exchange of the common stock and goodwill of approximately $3.4 million,
which is not expected to be deductible for tax purposes. The core deposit
intangibles, which are expected to be deductible for tax purposes, were
approximately $3.5 million and are being amortized over seven years utilizing
the straight-line method. Bank of Ste. Genevieve was merged with and into First
Bank. Due to the immaterial effect on previously reported financial information,
pro forma disclosures have not been presented for the aforementioned
transaction.
On March 31, 2003, First Banks completed the merger of its two
wholly-owned bank subsidiaries, First Bank and First Bank & Trust, to allow
certain administrative and operational economies not available while the two
banks maintained separate charters.
First Banks accrues certain costs associated with its acquisitions as
of the respective consummation dates. Essentially all of these accrued costs
relate either to adjustments to the staffing levels of the acquired entities or
to the anticipated termination of information technology or item processing
contracts of the acquired entities prior to their stated contractual expiration
dates. The most significant costs incurred relate to salary continuation
agreements, or other similar agreements, of executive management and certain
other employees of the acquired entities that were in place prior to the
acquisition dates. These agreements provide for payments over various time
periods generally ranging from two to 15 years and are triggered as a result of
the change in control of the acquired entity. Other severance benefits for
employees that are terminated in conjunction with the integration of the
acquired entities into First Banks' existing operations are normally paid to the
recipients within 90 days of the applicable consummation date. The accrued
severance balance of $1.6 million identified in the following table is comprised
of contractual obligations under salary continuation agreements to 11
individuals with remaining terms ranging from three months to approximately 13
years. As the obligation to make payments under these agreements is accrued at
the consummation dates, such payments do not have any impact on the consolidated
statements of income.
A summary of the cumulative acquisition and integration costs
attributable to the Company's acquisitions, which were accrued as of the
consummation dates of the respective acquisitions, is listed below. These
acquisition and integration costs are reflected in accrued and other liabilities
in the consolidated financial statements.
Information
Severance Technology Fees Total
--------- --------------- -----
(dollars expressed in thousands)
Balance at December 31, 2002............................ $ 2,351 28 2,379
Nine Months Ended September 30, 2003:
Amounts accrued at acquisition date................... 100 350 450
Reversal to goodwill.................................. (39) (108) (147)
Payments.............................................. (781) (270) (1,051)
-------- ------ -------
Balance at September 30, 2003........................... $ 1,631 -- 1,631
======== ====== =======
First Banks also incurs costs associated with acquisitions that are
expensed in the consolidated statements of income. These costs relate
exclusively to additional costs incurred in conjunction with the data processing
conversions of the respective entities.
(3) INTANGIBLE ASSETS ASSOCIATED WITH THE PURCHASE OF SUBSIDIARIES, NET OF
AMORTIZATION
Intangible assets associated with the purchase of subsidiaries, net of
amortization, were comprised of the following at September 30, 2003 and December
31, 2002:
September 30, 2003 December 31, 2002
---------------------------- ----------------------------
Gross Gross
Carrying Accumulated Carrying Accumulated
Amount Amortization Amount Amortization
------ ------------ ------ ------------
(dollars expressed in thousands)
Amortized intangible assets:
Core deposit intangibles.............. $ 17,391 (3,611) 13,871 (1,869)
Goodwill associated with
purchases of branch offices......... 2,210 (826) 2,210 (718)
--------- ------- ------- -------
Total............................ $ 19,601 (4,437) 16,081 (2,587)
========= ======= ======= =======
Unamortized intangible assets:
Goodwill associated with the
purchase of subsidiaries............ $ 141,984 138,620
========= =======
Amortization of intangibles associated with the purchase of
subsidiaries and branch offices was $658,000 and $1.8 million for the three and
nine months ended September 30, 2003, respectively, and $516,000 and $1.5
million for the comparable periods in 2002. Amortization of intangibles
associated with the purchase of subsidiaries, including amortization of core
deposit intangibles and branch purchases, has been estimated through 2008 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:
2003 (1)........................................... $ 2,504
2004............................................... 2,632
2005............................................... 2,632
2006............................................... 2,632
2007............................................... 2,632
2008............................................... 2,632
---------
Total........................................... $ 15,664
=========
--------------------
(1)Includes $1.8 million of amortization for the nine months ended September 30, 2003.
Changes in the carrying amount of goodwill for the three and nine
months ended September 30, 2003 and 2002 were as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- -------------------
2003 2002 2003 2002
---- ---- ---- ----
(dollars expressed in thousands)
Balance, beginning of period.............................. $ 142,167 127,796 140,112 115,860
Goodwill acquired during period........................... -- -- 1,026 12,577
Acquisition-related adjustments........................... 1,237 -- 2,338 (569)
Amortization - purchases of branch offices................ (36) (36) (108) (108)
--------- -------- -------- --------
Balance, end of period.................................... $ 143,368 127,760 143,368 127,760
========= ======== ======== ========
(4) MORTGAGE BANKING ACTIVITIES
At September 30, 2003 and December 31, 2002, First Banks serviced loans
for others amounting to $1.20 billion and $1.29 billion, respectively.
Borrowers' escrow balances held by First Banks on such loans were $2.4 million
and $517,000 at September 30, 2003 and December 31, 2002, respectively. Mortgage
servicing rights are amortized in proportion to the related estimated net
servicing income on a basis that approximates the disaggregated, discounted
basis over the estimated lives of the related mortgages considering the level of
current and anticipated repayments, which range from five to ten years. The
weighted average amortization period of the mortgage servicing rights is
approximately five 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,
---------------------- -------------------
2003 2002 2003 2002
---- ---- ---- ----
(dollars expressed in thousands)
Balance, beginning of period................................ $ 16,979 12,354 14,882 10,125
Originated mortgage servicing rights........................ 3,125 1,998 7,619 5,958
Amortization................................................ (3,278) (984) (5,675) (2,715)
Impairment valuation allowance.............................. (800) -- (800) --
Reversal of impairment valuation allowance.................. 166 -- 166 --
-------- ------- ------- -------
Balance, end of period...................................... $ 16,192 13,368 16,192 13,368
======== ======= ======= =======
The fair value of mortgage servicing rights was approximately $18.3
million and $19.5 million at September 30, 2003 and 2002, respectively, and
$17.2 million at December 31, 2002. The excess of the fair value of mortgage
servicing rights over the carrying value was approximately $2.1 million and $6.1
million at September 30, 2003 and 2002, respectively, and $2.3 million at
December 31, 2002. The decline in the excess of the fair value of mortgage
servicing rights over the carrying value represents the declining mortgage
interest rate environment in 2002 and 2003 that resulted in a significant
increase in the number of mortgages being prepaid or refinanced. During the
three and nine months ended September 30, 2003, First Banks recognized
impairment of $800,000 through a valuation allowance associated with a decline
in the fair value of an individual mortgage servicing rights stratum below its
carrying value. Subsequently, First Banks reversed $166,000 of this valuation
allowance based upon an increase in the fair value of the mortgage servicing
rights stratum above the carrying value, net of the valuation allowance. At
September 30, 2003, the fair value of mortgage servicing rights exceeded the net
carrying value by approximately $2.1 million.
Amortization of mortgage servicing rights, as it relates to the balance
at September 30, 2003 of $16.2 million, has been estimated through 2008 in the
following table:
(dollars expressed in thousands)
Year ending December 31:
2003 (1)........................................... $ 1,301
2004............................................... 4,716
2005............................................... 4,365
2006............................................... 3,730
2007............................................... 2,186
2008............................................... 528
--------
Total (2)....................................... $ 16,826
========
----------------------------
(1) Excludes $5.7 million of amortization for the nine months
ended September 30, 2003.
(2) The total mortgage servicing rights to be amortized to
expense excludes the impairment valuation allowance, which
was $634,000 at September 30, 2003.
(5) EARNINGS PER COMMON SHARE
The following is a reconciliation of the numerators and denominators of
the basic and diluted earnings per share (EPS) computations for the periods
indicated:
Income Shares Per Share
(numerator) (denominator) Amount
----------- ------------- ------
(dollars in thousands, except per share data)
Three months ended September 30, 2003:
Basic EPS - income available to common stockholders............. $ 13,504 23,661 $ 570.75
Effect of dilutive securities:
Class A convertible preferred stock........................... 192 577 (5.66)
--------- ------- ----------
Diluted EPS - income available to common stockholders........... $ 13,696 24,238 $ 565.09
========= ======= ==========
Three months ended September 30, 2002:
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
========= ======= ==========
Nine months ended September 30, 2003:
Basic EPS - income available to common stockholders............. $ 46,907 23,661 $ 1,982.48
Effect of dilutive securities:
Class A convertible preferred stock........................... 513 600 (27.85)
--------- ------- ----------
Diluted EPS - income available to common stockholders........... $ 47,420 24,261 $ 1,954.63
========= ======= ==========
Nine months ended September 30, 2002:
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
========= ======= ==========
(6) TRANSACTIONS WITH RELATED PARTIES
First Title Guarantee LLC (First Title), a corporation established and
administered by and for the benefit of First Banks' Chairman and members of his
immediate family, received approximately $128,000 and $379,000 for the three and
nine months ended September 30, 2003, and $116,000 and $284,000 for the
comparable periods in 2002, respectively, in commissions for policies purchased
by First Banks or customers of First Bank from unaffiliated, third-party
insurors. The insurance premiums on which the aforementioned commissions were
earned were competitively bid, and First Banks deems the commissions First Title
earned from unaffiliated third-party companies to be comparable to those that
would have been earned by an unaffiliated third-party agent.
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 $795,000 and $2.3 million for the three and nine
months ended September 30, 2003, and $918,000 and $2.7 million for the
comparable periods in 2002, 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 First Bank.
First Services, L.P., a limited partnership indirectly owned by First
Banks' Chairman and members of his immediate family, provides information
technology and various related services to First Banks, Inc. and First Bank.
Fees paid under agreements with First Services, L.P. were $6.9 million and $20.6
million for the three and nine months ended September 30, 2003, and $6.6 million
and $20.3 million for the comparable periods in 2002, respectively. During the
three months ended September 30, 2003 and 2002, First Services, L.P. paid First
Banks $985,000 and $993,000, respectively, and during the nine months ended
September 30, 2003 and 2002, First Services, L.P. paid First Banks $3.2 million
and $2.9 million, respectively, in rental fees for the use of data processing
and other equipment owned by First Banks.
During 2002, First Capital America, Inc., a corporation owned by First
Banks' Chairman and members of his immediate family, received approximately $1.0
million of origination and servicing fees associated with commercial leases
originated and serviced for First Bank by the employees of First Capital
America, Inc. Effective January 1, 2003, this relationship was discontinued.
First Bank has had in the past, and may have in the future, loan
transactions in the ordinary course of business with its directors or their
affiliates. These loan transactions have been on the same terms, including
interest rates and collateral, as those prevailing at the time for comparable
transactions with unaffiliated persons and did not involve more than the normal
risk of collectibility or present other unfavorable features. Loans to
directors, their affiliates and executive officers of First Banks, Inc. were
approximately $17.8 million and $12.8 million at September 30, 2003 and December
31, 2002, respectively. First Bank does not extend credit to its officers or to
officers of First Banks, Inc., except for extensions of credit secured by
mortgages on personal residences, loans to purchase automobiles, overdraft
protection lines and personal credit card accounts.
(7) REGULATORY CAPITAL
First Banks and its subsidiary bank 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 its subsidiary bank 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 its subsidiary bank 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, 2003, First Banks and its subsidiary bank were
each well capitalized under the applicable regulations.
As of September 30, 2003, the most recent notification from First
Banks' primary regulator categorized First Banks and its subsidiary bank as well
capitalized under the regulatory framework for prompt corrective action. To be
categorized as well capitalized, First Banks and its subsidiary bank 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, 2003 and December 31, 2002,
First Banks' and its subsidiary bank's required and actual capital ratios were
as follows:
Actual To Be Well
--------------------------- Capitalized Under
September 30, December 31, For Capital Prompt Corrective
2003 2002 Adequacy Purposes Action Provisions
---- ---- ----------------- -----------------
Total capital (to risk-weighted assets):
First Banks............................. 10.24% 10.68% 8.0% 10.0%
First Bank.............................. 10.69 10.75 8.0 10.0
First Bank & Trust (1).................. -- 10.18 8.0 10.0
Tier 1 capital (to risk-weighted assets):
First Banks............................. 8.33 7.47 4.0 6.0
First Bank.............................. 9.43 9.49 4.0 6.0
First Bank & Trust (1).................. -- 8.93 4.0 6.0
Tier 1 capital (to average assets):
First Banks............................. 7.36 6.45 3.0 5.0
First Bank.............................. 8.31 7.79 3.0 5.0
First Bank & Trust (1) ................. -- 8.26 3.0 5.0
---------------------------
(1) First Bank & Trust was merged with and into First Bank on March 31, 2003.
(8) BUSINESS SEGMENT RESULTS
First Banks' business segment is its subsidiary bank. The reportable
business segment is consistent with the management structure of First Banks, the
subsidiary bank and the internal reporting system that monitors performance.
Through its branch network, First Bank provides similar products and
services in its 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, First Bank
markets combined basic services for various customer groups, including packaged
accounts for more affluent customers, and sweep accounts, lock-box deposits and
cash management products for commercial customers. First Bank also offers both
consumer and commercial loans. Consumer lending includes residential real
estate, home equity and installment lending. Commercial lending includes
commercial, financial and agricultural loans, real estate construction and
development loans, commercial real estate loans, asset-based loans 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 and trust, private banking and
institutional money management services. The revenues generated by First Bank
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 First Bank's respective geographic areas.
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:
Corporate, Other
and Intercompany
First Bank Reclassifications (1) Consolidated Totals
----------------------------- --------------------------- ----------------------------
September 30, December 31, September 30, December 31, September 30, December 31,
2003 2002 (2) 2003 2002 2003 2002
---- -------- ---- ---- ---- ----
(dollars expressed in thousands)
Balance sheet information:
Investment securities................... $ 878,535 1,114,479 5,109 22,841 883,644 1,137,320
Loans, net of unearned discount......... 5,437,663 5,432,589 -- (1) 5,437,663 5,432,588
Goodwill................................ 143,368 140,112 -- -- 143,368 140,112
Total assets............................ 7,159,679 7,357,155 9,242 (14,355) 7,168,921 7,342,800
Deposits................................ 6,029,052 6,189,928 (6,833) (17,108) 6,022,219 6,172,820
Note payable............................ -- -- 31,000 7,000 31,000 7,000
Guaranteed preferred beneficial
interests in subordinated debentures.. -- -- 205,380 270,039 205,380 270,039
Stockholders' equity.................... 779,864 777,548 (237,407) (258,507) 542,457 519,041
=========== ========= ======== ======== ========= =========
Corporate, Other
and Intercompany
First Bank Reclassifications (1) Consolidated Totals
---------------------------- -------------------------- ----------------------------
Three Months Ended Three Months Ended Three Months Ended
September 30, September 30, September 30,
---------------------------- -------------------------- ----------------------------
2003 2002 (2) 2003 2002 2003 2002
---- -------- ---- ---- ---- ----
Income statement information:
Interest income......................... $ 96,053 105,699 (28) 112 96,025 105,811
Interest expense........................ 19,166 32,078 3,779 5,552 22,945 37,630
----------- --------- -------- -------- --------- ---------
Net interest income................ 76,887 73,621 (3,807) (5,440) 73,080 68,181
Provision for loan losses............... 15,000 13,700 -- -- 15,000 13,700
----------- --------- -------- -------- --------- ---------
Net interest income after provision
for loan losses.................. 61,887 59,921 (3,807) (5,440) 58,080 54,481
Noninterest income...................... 26,133 25,926 50 (450) 26,183 25,476
Noninterest expense..................... 58,612 57,979 1,859 1,175 60,471 59,154
----------- --------- -------- -------- --------- ---------
Income before provision for income
taxes and minority interest
in income of subsidiary.......... 29,408 27,868 (5,616) (7,065) 23,792 20,803
Provision for income taxes.............. 12,040 9,662 (1,948) (2,290) 10,092 7,372
----------- --------- -------- -------- --------- ---------
Income before minority interest in
income of subsidiary............. 17,368 18,206 (3,668) (4,775) 13,700 13,431
Minority interest in income
of subsidiary.................... -- -- -- 437 -- 437
----------- --------- -------- -------- --------- ---------
Net income......................... $ 17,368 18,206 (3,668) (5,212) 13,700 12,994
=========== ========= ======== ======== ========= =========
Corporate, Other
and Intercompany
First Bank Reclassifications (1) Consolidated Totals
---------------------------- -------------------------- ----------------------------
Nine Months Ended Nine Months Ended Nine Months Ended
September 30, September 30, September 30,
---------------------------- -------------------------- ----------------------------
2003 2002 (2) 2003 2002 2003 2002
---- -------- ---- ---- ---- ----
Income statement information:
Interest income......................... $ 293,749 319,469 153 257 293,902 319,726
Interest expense........................ 66,448 102,521 14,198 19,214 80,646 121,735
----------- --------- -------- -------- --------- ---------
Net interest income................ 227,301 216,948 (14,045) (18,957) 213,256 197,991
Provision for loan losses............... 36,000 38,700 -- -- 36,000 38,700
----------- -------- -------- -------- --------- ---------
Net interest income after
provision for loan losses........ 191,301 178,248 (14,045) (18,957) 177,256 159,291
Noninterest income...................... 77,122 66,412 6,137 (1,572) 83,259 64,840
Noninterest expense..................... 180,422 172,245 3,785 2,987 184,207 175,232
----------- --------- -------- -------- --------- ---------
Income before provision
for income taxes
and minority interest in
income of subsidiary............. 88,001 72,415 (11,693) (23,516) 76,308 48,899
Provision for income taxes.............. 32,933 25,217 (4,056) (7,746) 28,877 17,471
-------- --------- -------- -------- --------- ---------
Income before minority interest
in income of subsidiary.......... 55,068 47,198 (7,637) (15,770) 47,431 31,428
Minority interest in income
of subsidiary...................... -- -- -- 1,066 -- 1,066
----------- --------- -------- -------- --------- ---------
Net income......................... $ 55,068 47,198 (7,637) (16,836) 47,431 30,362
=========== ========= ======== ======== ========= =========
- ----------------
(1) Corporate and other includes $3.4 million and $5.3 million of guaranteed preferred debentures expense for the three months
ended September 30, 2003 and 2002, respectively. The applicable income tax benefit associated with the guaranteed preferred
debentures expense was $1.2 million and $1.9 million for the three months ended September 30, 2003 and 2002, respectively.
For the nine months ended September 30, 2003 and 2002, corporate and other includes $13.8 million and $18.6 million of
guaranteed preferred debenture expense, respectively. The applicable income tax benefit associated with the guaranteed
preferred debentures expense was $4.8 million and $6.5 million for the nine months ended September 30, 2003 and 2002,
respectively. In addition, corporate and other includes holdingcompany expenses.
(2) First Bank & Trust was merged with and into First Bank on March 31, 2003 as further described in Note 2 to the accompanying
consolidated financial statements. Accordingly, the 2002 amounts have been restated to reflect this combination of entities
under common control.
(9) GUARANTEED PREFERRED BENEFICIAL INTERESTS IN SUBORDINATED DEBENTURES
On March 20, 2003, First Bank Statutory Trust (FBST), a newly formed
Connecticut statutory trust subsidiary of First Banks, issued 25,000 shares of
8.10% cumulative trust preferred securities at $1,000 per share in a private
placement, and issued 774 shares of common securities to First Banks at $1,000
per share. First Banks owns all of the common securities of FBST. The gross
proceeds of the offering were used by FBST to purchase $25.0 million of 8.10%
junior subordinated debentures from First Banks, maturing on March 20, 2033. The
maturity date of the subordinated debentures may be shortened to a date not
earlier than March 20, 2008, if certain conditions are met. The subordinated
debentures are the sole asset of FBST. In connection with the issuance of the
FBST preferred securities, First Banks made certain guarantees and commitments
that, in the aggregate, constitute a full and unconditional guarantee by First
Banks of the obligations of FBST under the FBST preferred securities. First
Banks' proceeds from the issuance of the subordinated debentures to FBST, net of
offering expenses, were $24.5 million. Distributions on FBST's preferred
securities are payable quarterly in arrears, beginning March 31, 2003, and are
included in interest expense in the consolidated statements of income.
Distributions on FBST's preferred securities were $518,000 and $1.1 million for
the three and nine months ended September 30, 2003, respectively.
On April 1, 2003, First Preferred Capital Trust IV (First Preferred
IV), a newly formed Delaware business trust subsidiary of First Banks, issued
1.84 million shares of 8.15% cumulative trust preferred securities at $25 per
share in an underwritten public offering, and issued 56,908 shares of common
securities to First Banks at $25 per share. First Banks owns all of First
Preferred IV's common securities. The gross proceeds of the offering were used
by First Preferred IV to purchase approximately $47.4 million of 8.15%
subordinated debentures from First Banks, maturing on June 30, 2033. The
maturity date may be shortened to a date not earlier than June 30, 2008, if
certain conditions are met. The subordinated debentures are the sole asset of
First Preferred IV. In connection with the issuance of the preferred securities,
First Banks made certain guarantees and commitments that, in the aggregate,
constitute a full and unconditional guarantee by First Banks of the obligations
of First Preferred IV under the First Preferred IV preferred securities. First
Banks' proceeds from the issuance of the subordinated debentures to First
Preferred IV, net of underwriting fees and offering expenses, were approximately
$44.2 million. Distributions on First Preferred IV's preferred securities are
payable quarterly in arrears, beginning on June 30, 2003, and are included in
interest expense in the consolidated statements of income. Distributions on
First Preferred IV's preferred securities were $937,000 and $1.9 million for the
three and nine months ended September 30, 2003, respectively. First Banks
utilized the entire net proceeds of the offering to redeem $88.9 million of
9.25% trust preferred securities issued by First Preferred Capital Trust in
1997. The remaining funds necessary for the redemption were provided from
available cash of approximately $20.2 million and the net proceeds of $24.5
million from FBST's issuance of additional trust preferred securities as
described above.
On June 30, 2003, First Banks completed its redemption in full of the
$47.2 million of 8.50% trust preferred securities issued by First America
Capital Trust (FACT) in 1998. The funds necessary for the redemption were
provided from available cash of $12.7 million and an advance of $34.5 million on
First Banks' revolving credit line with a group of unaffiliated financial
institutions.
(10) CONTINGENT LIABILITIES
In October 2000, First Banks entered into two continuing guaranty
contracts. For value received, and for the purpose of inducing a pension fund
and its trustees and a welfare fund and its trustees (the Funds) to conduct
business with Missouri Valley Partners, Inc. (MVP), First Bank's institutional
investment management subsidiary, First Banks irrevocably and unconditionally
guaranteed payment of and promised to pay to each of the Funds any amounts up to
the sum of $5,000,000 to the extent MVP is liable to the Funds for a breach of
the Investment Management Agreements (including the Investment Policy Statement
and Investment Guidelines), by and between MVP and the Funds and/or any
violation of the Employee Retirement Income Security Act by MVP resulting in
liability to the Funds. The guaranties are continuing guaranties of all
obligations that may arise for transactions occurring prior to termination of
the Investment Management Agreements and are co-existent with the term of the
Investment Management Agreements. The Investment Management Agreements have no
specified term but may be terminated at any time upon written notice by the
Trustees or, at First Banks' option, upon thirty days written notice to the
Trustees. In the event of termination of the Investment Management Agreements,
such termination shall have no effect on the liability of First Banks with
respect to obligations incurred before such termination. The obligations of
First Banks are joint and several with those of MVP. First Banks does not have
any recourse provisions that would enable it to recover from third parties any
amounts paid under the contracts nor does First Banks hold any assets as
collateral that, upon occurrence of a required payment under the contract, could
be liquidated to recover all or a portion of the amount(s) paid. At September
30, 2003 and December 31, 2002, First Banks had not recorded a liability for the
obligations associated with these guaranty contracts, as the likelihood that
First Banks will be required to make payments under the contracts is remote.
(11) OTHER BORROWINGS
Other borrowings were comprised of the following at September 30, 2003
and December 31, 2002:
September 30, December 31,
2003 2002
--------------- --------------
(dollars expressed in thousands)
Federal funds purchased....................................... $ -- 55,000
Securities sold under agreements to repurchase:
Daily..................................................... 158,716 196,644
Term...................................................... 100,000 --
Federal Home Loan Bank borrowings............................. 12,000 14,000
----------- ---------
Total other borrowings.................................. $ 270,716 265,644
=========== =========
In the third quarter of 2003, First Banks entered into $100.0 million
of term securities sold under agreements to repurchase. On July 30, 2003, First
Banks entered into a $50 million five-year reverse repurchase agreement under a
master repurchase agreement. Interest is paid quarterly and is equivalent to the
three-month London Interbank Offering Rate minus 0.68% plus a floating amount
equal to the differential between the three-month London Interbank Offering Rate
and the strike price of 3.50%, if the three-month London Interbank Offering Rate
exceeds 3.50%. On August 13, 2003, First Banks entered into an additional $50
million five-year reverse repurchase agreement under a master repurchase
agreement. Interest is paid quarterly and is equivalent to the three-month
London Interbank Offering Rate minus 0.565% plus a floating amount equal to the
differential between the three-month London Interbank Offering Rate and the
strike price of 3.00%, if the three-month London Interbank Offering Rate exceeds
3.00%. The underlying securities associated with the reverse repurchase
agreements are mortgage-backed securities and are not under First Banks'
physical control.
(12) NOTE PAYABLE
On August 14, 2003, First Banks entered into a revolving credit line
with a group of unaffiliated financial institutions (Credit Agreement). The
Credit Agreement, dated August 14, 2003, replaced a similar revolving credit
agreement dated August 22, 2002. The Credit Agreement provides a $60.0 million
revolving credit line and a $20.0 million letter of credit facility. Interest is
payable on outstanding principal loan balances at a floating rate equal to
either the lender's prime rate or, at First Banks' option, the London Interbank
Offering Rate plus a margin determined by the outstanding loan balances and
First Banks' net income for the preceding four calendar quarters. If the loan
balances outstanding under the revolving credit line are accruing at the prime
rate, interest is paid monthly. If the loan balances outstanding under the
revolving credit line are accruing at the London Interbank Offering Rate,
interest is payable based on the one, two, three or six-month London Interbank
Offering Rate, as selected by First Banks. Amounts may be borrowed under the
Credit Agreement until August 12, 2004, at which time the principal and interest
outstanding is due and payable. There were outstanding loan balances under the
Credit Agreement at September 30, 2003 of $31.0 million. Outstanding loan
balances under the previous credit agreement were $7.0 million at December 31,
2002.
The Credit Agreement requires First Banks to comply with various
covenants, including maintenance of certain minimum capital ratios for First
Banks and its subsidiary bank, certain maximum nonperforming asset ratios for
First Banks and its subsidiary bank and a minimum return on assets ratio for
First Banks. In addition, it prohibits the payment of dividends on First Banks'
common stock. Loans under the Credit Agreement are secured by First Banks'
ownership interest in the capital stock of its subsidiaries.
(13) SUBSEQUENT EVENT
On October 27, 2003, First Banks contributed 231,779 shares of
Allegiant common stock with a fair value of $5.1 million to The Dierberg
Foundation, a charitable trust created by and for the benefit of First Banks'
Chairman and members of his immediate family. In conjunction with this
transaction, First Banks recorded charitable contribution expense of $5.1
million, which was partially offset by a gain on the contribution of these
available-for-sale investment securities of $2.3 million, representing the
difference between the cost basis and the fair value of the common stock on the
date of the contribution. In addition, First Banks recorded a tax benefit of
$2.5 million associated with this transaction. The contribution of this stock
eliminated First Banks' investment in Allegiant.
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 threat of future terrorist activities,
existing and potential wars and/or military actions related thereto, 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; the credit risk associated with consumers who may not
repay loans; the geographic dispersion of our offices; the impact our hedging
activities may have on our operating results; the highly regulated environment
in which we operate; 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 competition of larger acquirers with greater resources; fluctuations
in the prices at which acquisition targets may be available for sale; the impact
of making acquisitions without using our common stock; and possible asset
quality issues, unknown liabilities or integration issues with the businesses
that we have acquired. We do not have a duty to and will not update these
forward-looking statements. 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 operate through our wholly owned subsidiary bank
holding company, The San Francisco Company, or SFC, headquartered in San
Francisco, California, and its wholly owned subsidiary bank, First Bank,
headquartered in St. Louis County, Missouri. First Bank currently operates 151
branch offices throughout California, Illinois, Missouri and Texas. At September
30, 2003, we had total assets of $7.17 billion, loans, net of unearned discount,
of $5.44 billion, total deposits of $6.02 billion and total stockholders' equity
of $542.5 million.
Through our subsidiary bank, 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 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 and
trust, private banking and institutional money management services.
Primary responsibility for managing our subsidiary banking unit rests
with its officers and directors. However, in keeping with our policy, we
centralize overall corporate policies, procedures and administrative functions
and provide operational support functions for our subsidiary bank. This practice
allows us to achieve various operating efficiencies while allowing our
subsidiary bank officers and directors to focus on customer service.
Financial Condition
Our total assets were $7.17 billion and $7.34 billion at September 30,
2003 and December 31, 2002, respectively. The decrease in total assets is
primarily attributable to weak loan demand and an anticipated level of attrition
associated with low deposit rates offset by our acquisition of Bank of Ste.
Genevieve on March 31, 2003, which provided assets of $115.1 million. Federal
funds sold increased by $133.3 million due to the investment of excess funds
resulting from reduced loan demand and maturities of investment securities.
Investment securities decreased $253.7 million to $883.6 million at September
30, 2003 from $1.14 billion at December 31, 2002 primarily due to $1.01 billion
of maturities of investment securities, $152.8 million of sales of
available-for-sale investment securities and $17.9 million relating to the
exchange of Allegiant Bancorp, Inc., or Allegiant, common stock for a 100%
ownership interest in Bank of Ste. Genevieve, offset by purchases of investment
securities of $744.4 million and $797,000 in investment securities acquired with
Bank of Ste. Genevieve. The net proceeds associated with the decline in
investment securities were utilized primarily to fund our reduction in total
deposits as further discussed below. The decrease in our assets was partially
offset by an increase in loans, net of unearned discount, of $5.1 million, which
is further discussed under "--Loans and Allowance for Loan Losses." Our
derivative financial instruments declined to $68.4 million from $97.9 million,
consistent with a decline in the fair value of certain derivative financial
instruments and the call of a $46.0 million interest rate swap agreement by the
counterparty, offset by three additional interest rate swap agreements
aggregating $271.0 million that we entered into in 2003 as further discussed
under "--Interest Rate Risk Management." In addition, other assets increased
$6.4 million to $64.6 million at September 30, 2003 from $58.3 million at
December 31, 2002. This increase primarily results from a $2.9 million net
increase in other real estate as further discussed under "--Loans and Allowance
for Loan Losses," and a $1.3 million increase in mortgage servicing rights.
Total deposits decreased by $150.6 million to $6.02 billion at
September 30, 2003 from $6.17 billion at December 31, 2002. The decrease
primarily reflects an anticipated level of attrition associated with low deposit
rates and continued aggressive competition within our market areas offset by the
$93.7 million of deposits that we acquired from Bank of Ste. Genevieve. Other
borrowings increased $5.1 million to $270.7 million at September 30, 2003 from
$265.6 million at December 31, 2002. We attribute this increase to $100.0
million of term securities sold under agreements to repurchase that we entered
into during the third quarter of 2003, as further discussed in Note 11 to our
consolidated financial statements, offset by a $55.0 million reduction in
federal funds purchased and a $37.9 million reduction in daily securities sold
under agreements to repurchase. Our note payable was fully repaid in February
2003 through dividends from our subsidiaries. However, on June 30, 2003, we
obtained a $34.5 million advance to partially fund the redemption of $46.0
million of trust preferred securities.
Guaranteed preferred beneficial interests in subordinated debentures
decreased $64.7 million primarily due to the redemption of $86.3 million of
trust preferred securities issued by First Preferred Capital Trust and $46.0
million of trust preferred securities issued by First America Capital Trust,
partially offset by the additional trust preferred securities issued by First
Bank Statutory Trust on March 20, 2003 and First Preferred Capital Trust IV on
April 1, 2003, as more fully described in Note 9 to our consolidated financial
statements and under "--Interest Rate Risk Management." Deferred income taxes
payable decreased by $17.5 million to $43.7 million at September 30, 2003 from
$61.2 million at December 31, 2002. We attribute this decrease to reductions in
unrealized gains/losses on available-for-sale investment securities and
derivative financial instruments. Furthermore, accrued expenses and other
liabilities increased $8.8 million to $44.1 million at September 30, 2003
compared to $35.3 million at December 31, 2002. The increase primarily reflects
an increase in accrued real estate and income taxes and lease termination
obligations as well as the timing of certain payments. Accumulated other
comprehensive income decreased $23.5 million to $37.0 million at September 30,
2003 from $60.5 million at December 31, 2002. This decrease is comprised of $9.3
million associated with the change in unrealized gains on available-for-sale
investment securities as accounted for under SFAS No. 115, including a $6.3
million reversal of the unrealized gain attributable to the exchange of the
Allegiant common stock as further discussed in Note 2 to our consolidated
financial statements and a $14.2 million decrease associated with our derivative
financial instruments as accounted for under SFAS No. 133.
Results of Operations
Net Income
Net income was $13.7 million and $47.4 million for the three and nine
months ended September 30, 2003, respectively, compared to $13.0 million and
$30.4 million for the comparable periods in 2002. Results for the three months
ended September 30, 2003 reflect increased net interest income and noninterest
income, offset by slightly higher operating expenses, an increased provision for
loan losses and an increase in the effective tax rate. The increase for the nine
months ended September 30, 2003 over the comparable period in 2002 is primarily
attributable to increased net interest income resulting from reduced deposit
rates and earnings on interest rate swap agreements in association with our
interest rate risk management program, increased gains on mortgage loans sold
and held for sale, a gain relating to the partial exchange of our investment in
Allegiant for a 100% ownership interest in Bank of Ste. Genevieve as further
described in Note 2 to our consolidated financial statements partially offset by
increased provisions for state income taxes attributable to higher taxable
income and the 2003 merger of our two bank charters, which resulted in increased
taxable income allocations in states where we file separate state tax returns.
The increase in earnings in 2003 continues to reflect our adaptation to the
current interest rate environment and weak economic conditions that have
prevailed over the last two years. Our ongoing efforts to maintain an acceptable
net interest margin in the current low interest rate environment, improve our
noninterest income, address credit losses and control operating expenses are
reflected in our financial performance. Higher-than-historical levels of loan
charge-offs, loan delinquencies and nonperforming loans led to increased
provisions for loan losses during 2002. These nonperforming trends remain at
elevated levels in 2003, thus contributing to continued higher-than-normal
provisions for loan losses, primarily attributable to charge-offs concentrated
within our commercial leasing portfolio. We continue to monitor our loan and
leasing portfolios and focus on asset quality and related challenges stemming
from the current economic environment, including weak loan demand and lower
prevailing interest rates.
Noninterest income was $26.2 million and $83.3 million for the three
and nine months ended September 30, 2003, respectively, in comparison to $25.5
million and $64.8 million for the comparable periods in 2002. The increase in
noninterest income is primarily due to a $6.3 million gain on the exchange of
common stock of Allegiant held by us for a 100% ownership interest in Bank of
Ste. Genevieve, as further described in Note 2 to our consolidated financial
statements. The increase also reflects increased gains on mortgage loans sold
and held for sale, resulting from growth of our mortgage banking activities as
well as high volumes of new originations and refinancings related to overall
reductions in mortgage loan rates, and increased service charges on deposit
accounts and customer service fees.
Operating expenses were $60.5 million and $184.2 million for the three
and nine months ended September 30, 2003, respectively, compared to $59.2
million and $175.2 million for the comparable periods in 2002. The increased
operating expenses in 2003 primarily result from increased salaries and employee
benefit expenses associated with our 2002 and 2003 acquisitions, increased
commissions paid to mortgage loan originators due to continued high loan
volumes, and write-downs on operating leases associated with our commercial
leasing business. These higher operating expenses, exclusive of the operating
leases, are reflective of recently completed acquisitions and ongoing
investments made in conjunction with the execution of our overall business plan.
Net Interest Income
Net interest income (expressed on a tax equivalent basis) increased to
$73.4 million, or 4.49% of average interest-earning assets, for the three months
ended September 30, 2003, from $68.6 million, or 4.24% of average
interest-earning assets, for the comparable period in 2002. For the nine months
ended September 30, 2003 and 2002, net interest income (expressed on a tax
equivalent basis) was $214.3 million, or 4.43% of average interest-earning
assets, and $199.1 million, or 4.23% of average interest-earning assets,
respectively. We credit the increased net interest income primarily to reduced
deposit rates, earnings on our interest rate swap agreements that we entered
into in conjunction with our interest rate risk management program, which
mitigate the effects of decreasing interest rates, and a $61.3 million net
reduction in our outstanding trust preferred securities. As further discussed
under "--Interest Rate Risk Management," our derivative financial instruments
used to hedge our interest rate risk contributed $17.3 million and $48.1 million
to net interest income for the three and nine months ended September 30, 2003,
respectively, compared to $14.2 million and $38.0 million for the comparable
periods in 2002. In addition, earning assets increased as a result of our
acquisitions of Bank of Ste. Genevieve in March 2003, which provided assets of
$115.1 million, and Plains Financial Corporation in January 2002 and two Texas
branch purchases in June 2002, which provided assets of $256.3 million and $63.7
million, respectively. Furthermore, during the second quarter of 2003, we
redeemed $132.3 million of our trust preferred securities that had been issued
during 1997 and 1998. As more fully described in Note 9 to our consolidated
financial statements, in March 2003, First Bank Statutory Trust issued $25.0
million of trust preferred securities in a private placement and in April 2003,
First Preferred Capital Trust IV issued $46.0 million of trust preferred
securities in an underwritten public offering. These transactions, coupled with
the use of additional derivative financial instruments, have allowed us to
reduce our overall expense associated with the utilization of trust preferred
securities, thereby improving our overall financial performance; however,
prevailing low interest rates, generally weak loan demand and overall economic
conditions continue to exert pressure on our net interest margin.
Average loans, net of unearned discount, were $5.42 billion and $5.39
billion for the three and nine months ended September 30, 2003, respectively,
compared to $5.36 billion and $5.42 billion for the comparable periods in 2002.
Additionally, the yield on our loan portfolio decreased to 6.48% and 6.67% for
the three and nine months ended September 30, 2003, respectively, compared to
7.12% and 7.26% for the comparable periods in 2002. We attribute the decline in
the average balance and yields primarily to general economic conditions
resulting in continued weak loan demand and lower prevailing interest rates. 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.
Average deposits increased to $6.05 billion and $6.06 billion for the
three and nine months ended September 30, 2003, respectively, from $6.00 billion
and $5.90 billion for the comparable periods in 2002. For the three and nine
months ended September 30, 2003, the aggregate weighted average rate paid on our
deposit portfolio decreased to 1.48% and 1.71%, respectively, from 2.44% and
2.67% for the comparable periods in 2002. We attribute the decline in rates paid
for the three and nine months ended September 30, 2003 primarily to rates paid
on our savings and time deposits, which have continued to decline in conjunction
with the interest rate reductions previously discussed. The decline also
reflects our continued efforts to restructure the composition of our deposit
base as the majority of our deposit development programs are directed toward
increased transactional accounts, such as demand and savings accounts, rather
than time deposits, and emphasize attracting more than one account relationship
with customers. Demand and savings deposits increased to $4.06 billion and $3.99
billion for the three and nine months ended September 30, 2003, respectively,
from $3.69 billion and $3.59 billion for the comparable periods in 2002, whereas
time deposits declined to $1.99 billion and $2.07 billion for the three and nine
months ended September 30, 2003, respectively, from $2.31 billion for the
comparable periods in 2002.
The aggregate weighted average rate paid on our note payable was 4.80%
and 6.33% for the three and nine months ended September 30, 2003, respectively,
compared to 21.37% and 4.69% for the comparable periods in 2002. Due to lower
average balances outstanding on our note payable during the three months ended
June 30, 2003 and September 30, 2002, the timing of commitment, arrangement and
other renewal fees recognized resulted in a disproportionate weighted average
rates paid for those periods. At December 31, 2002, our note payable had an
outstanding balance of $7.0 million, which was fully repaid from available cash
in February 2003. On June 30, 2003, we obtained a $34.5 million advance to fund
the redemption of our trust preferred securities issued by First America Capital
Trust in 1998, as further described in Note 9 to our consolidated financial
statements. At September 30, 2003, our note payable had an outstanding balance
of $31.0 million. Amounts outstanding under our $60.0 million line of credit
with a group of unaffiliated financial institutions bear interest at a floating
rate equal to either the lender's prime rate or, at First Banks' option, the
London Interbank Offering Rate plus a margin determined by the outstanding loan
balances and 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 and in the outstanding balance of our note
payable. The aggregate weighted average rate paid on our other borrowings also
declined for the three and nine months ended September 30, 2003, from the
comparable periods in 2002, reflecting the current interest rate environment.
The aggregate weighted average rate paid on our other borrowings was 0.88% and
1.11% for the three and nine months ended September 30, 2003, respectively,
compared to 1.64% and 1.88% for the comparable periods in 2002.
Guaranteed preferred debentures expense was $3.4 million and $13.8
million for the three and nine months ended September 30, 2003, respectively,
compared to $5.3 million and $18.6 million for the comparable periods in 2002.
As previously discussed and as more fully described in Note 9 to our
consolidated financial statements, the decrease for 2003 primarily reflects the
redemption of $132.3 million of outstanding trust preferred securities, the
issuance of $71.0 million of trust preferred securities at lower interest rates
and earnings associated with our interest rate swap agreements entered into in
May and June of 2002 and in March and April of 2003 as further discussed under
"--Interest Rate Risk Management." The aggregate weighted average rate paid on
our guaranteed preferred debentures declined to 6.65% and 7.24% for the three
and nine months ended September 30, 2003, respectively, from 7.88% and 9.80% for
the comparable periods in 2002.
The following table sets forth, on a tax-equivalent basis, certain
information relating to First Banks' 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 three
and nine months ended September 30, 2003 and 2002:
Three Months Ended September 30, Nine Months Ended September 30,
------------------------------------------------- -----------------------------------------------
2003 2002 2003 2002
------------------------ ---------------------- ---------------------- -----------------------
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)........... $5,420,342 88,588 6.48% $5,361,625 96,236 7.12% $5,391,656 269,128 6.67% $5,415,946 294,274 7.26%
Investment securities (4).... 920,242 7,409 3.19 938,971 9,479 4.01 940,835 24,723 3.51 766,146 25,123 4.38
Federal funds sold and other. 145,589 345 0.94 115,703 512 1.76 133,474 1,099 1.10 115,477 1,454 1.68
---------- ------ ---------- ------- ---------- ------- ---------- -------
Total interest-earning
assets................ 6,486,173 96,342 5.89 6,416,299 106,227 6.57 6,465,965 294,950 6.10 6,297,569 320,851 6.81
------ ------- ------- -------
Nonearning assets.............. 692,415 694,685 709,182 676,661
---------- ---------- ---------- ----------
Total assets............ $7,178,588 $7,110,984 $7,175,147 $6,974,230
========== ========== ========== ==========
Liabilities and
Stockholders' Equity
--------------------
Interest-bearing liabilities:
Interest-bearing deposits:
Interest-bearing demand
deposits................. $ 851,014 1,195 0.56% $ 774,144 1,786 0.92% $ 852,663 4,346 0.68% $ 721,982 5,739 1.06%
Savings deposits........... 2,152,529 5,520 1.02 1,999,395 8,819 1.75 2,145,089 18,091 1.13 1,947,271 27,253 1.87
Time deposits of $100
or more.................. 413,724 3,028 2.90 500,657 4,624 3.66 429,995 10,049 3.12 501,054 14,803 3.95
Other time deposits (3).... 1,575,197 8,865 2.23 1,810,274 15,986 3.50 1,640,299 32,147 2.62 1,811,532 51,837 3.83
---------- ------ ---------- ------- ---------- ------- ---------- -------
Total interest-bearing
deposits.............. 4,992,464 18,608 1.48 5,084,470 31,215 2.44 5,068,046 64,633 1.71 4,981,839 99,632 2.67
Other borrowings............. 246,790 550 0.88 195,465 806 1.64 200,428 1,671 1.11 187,634 2,635 1.88
Note payable (5)............. 32,091 388 4.80 5,738 309 21.37 12,131 574 6.33 23,904 839 4.69
Guaranteed preferred
debentures (3)............. 202,808 3,399 6.65 266,817 5,300 7.88 254,400 13,768 7.24 254,044 18,629 9.80
---------- ------ ---------- ------- ---------- ------- ---------- -------
Total interest-bearing
liabilities........... 5,474,153 22,945 1.66 5,552,490 37,630 2.69 5,535,005 80,646 1.95 5,447,421 121,735 2.99
------ ------- ------- -------
Noninterest-bearing liabilities:
Demand deposits.............. 1,054,587 912,807 992,043 916,822
Other liabilities............ 106,835 152,086 113,298 141,769
---------- ---------- ---------- ----------
Total liabilities....... 6,635,575 6,617,383 6,640,346 6,506,012
Stockholders' equity........... 543,013 493,601 534,801 468,218
---------- ---------- ---------- ----------
Total liabilities and
stockholders' equity.. $7,178,588 $7,110,984 $7,175,147 $6,974,230
========== ========== ========== ==========
Net interest income............ 73,397 68,597 214,304 199,116
====== ======= ======= =======
Interest rate spread........... 4.23 3.88 4.15 3.82
Net interest margin (6)........ 4.49% 4.24% 4.43% 4.23%
==== ===== ==== ====
- --------------------
(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 $317,000 and $1.0 million for the three and nine months ended September 30, 2003, and $416,000 and
$1.1 million for the comparable periods in 2002, respectively.
(5) Interest expense on the note payable includes commitment, arrangement and renewal fees.
(6) 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 $15.0 million and $36.0 million for
the three and nine months ended September 30, 2003, respectively, compared to
$13.7 million and $38.7 million for the comparable periods in 2002. Net loan
charge-offs were $12.1 million and $25.5 million for the three and nine months
ended September 30, 2003, respectively, compared to $7.6 million and $27.4
million for the comparable periods in 2002. Beginning in late 2001, we
experienced a higher level of problem loans and related loan charge-offs and
past due loans resulting from the economic conditions within our markets,
additional problems identified in two acquired loan portfolios and continuing
deterioration in our commercial leasing portfolio, particularly the segment of
the portfolio relating to the airline industry. These factors necessitated
higher provisions for loan losses than in prior periods. We experienced further
deterioration in our commercial leasing portfolio in 2003, contributing to
continued higher-than-historical provisions for loan losses. Net loan
charge-offs for the nine months ended September 30, 2003 included net
charge-offs of $14.6 million associated with our commercial leasing portfolio
and were primarily concentrated in four equipment leases aggregating $8.5
million, none of which were related to the airline industry. In addition, we
recorded a charge-off of $4.1 million on one significant borrowing relationship.
Nonperforming assets at September 30, 2003 decreased slightly to $81.3 million
from $82.8 million at December 31, 2002 and $102.4 million at September 30,
2002. In recognition of these and other factors, our allowance for loan losses
increased to $110.7 million at September 30, 2003, compared to $99.4 million at
December 31, 2002 and $109.9 million at September 30, 2002. Management expects
nonperforming assets to remain at the higher levels recently experienced and
considers 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 $26.2 million and $83.3 million for the three
and nine months ended September 30, 2003, respectively, in comparison to $25.5
million and $64.8 million for the comparable periods in 2002. Noninterest income
consists primarily of service charges on deposit accounts and customer service
fees, mortgage-banking revenues, net gains on sales of available-for-sale
investment securities, investment income on bank owned life insurance and other
income.
Service charges on deposit accounts and customer service fees were $9.2
million and $26.8 million for the three and nine months ended September 30,
2003, respectively, in comparison to $8.5 million and $22.0 million for the
comparable periods in 2002. We attribute the increase in service charges and
customer service fees to:
>> our acquisitions completed during 2002 and 2003;
>> additional products and services available and utilized by retail
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 $12.4 million and
$33.2 million for the three and nine months ended September 30, 2003,
respectively, in comparison to $7.9 million and $20.3 million for the comparable
periods in 2002. The increase reflects continued growth of our mortgage banking
activities as well as overall reductions in mortgage loan rates which resulted
in higher volumes of new originations and refinancings.
In the first quarter of 2003, we recorded a $6.3 million gain on the
exchange of 974,150 shares of our Allegiant common stock for a 100% ownership
interest in Bank of Ste. Genevieve as further discussed in Note 2 to our
consolidated financial statements. The net gains on sales of available-for-sale
investment securities of $266,000 and $6.8 million for the three and nine months
ended September 30, 2003 also reflect sales of certain available-for-sale equity
securities.
We recorded a net loss on derivative instruments of $383,000 for the
three months ended September 30, 2003 and a net gain of $43,000 for the nine
months ended September 30, 2003, compared to net gains of $2.0 million and $1.7
million for the three and nine months ended September 30, 2002, respectively,
reflecting changes in the fair value of our interest rate cap agreements and
fair value hedges. The net loss in 2003 also reflects the discontinuation of
hedge accounting treatment on two interest rate swap agreements that mature in
January 2004, resulting from the loss of our highly correlated hedge positions
between the swap agreements and the underlying hedged liabilities as further
discussed under "--Interest Rate Risk Management."
Bank-owned life insurance investment income was $1.3 million and $4.0
million for the three and nine months ended September 30, 2003, respectively, in
comparison to $1.5 million and $4.3 million for the comparable periods in 2002.
The decrease for 2003 reflects a reduced return on this product primarily
associated with the reduced interest rate environment and overall market
conditions.
Other income was $3.4 million and $12.4 million for the three and nine
months ended September 30, 2003, respectively, in comparison to $5.7 million and
$16.4 million for the comparable periods in 2002. We attribute the primary
components of the decrease in 2003 to:
>> a decline of approximately $4.4 million in loan servicing fees
that is primarily attributable to increased amortization of
mortgage servicing rights, impairment on mortgage servicing
rights and a higher level of interest shortfall, which equals the
difference between the interest collected from a loan-servicing
customer upon prepayment of the loan and a full month's interest
that is required to be remitted to the security owner. This
decline partially offsets continued growth of our mortgage
banking activities due to overall reductions in mortgage loan
rates and higher origination and refinancing volumes;
>> a gain of approximately $448,000 recorded 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;
>> a decline of approximately $262,000 in brokerage revenue
primarily associated with overall market conditions and reduced
customer demand;
>> a decline of approximately $345,000 in rental income associated
with our reduced commercial leasing activities; partially offset
by
>> a decrease in net losses of approximately $291,000 associated
with the sale of repossessed assets, primarily related to leasing
equipment associated with our commercial leasing business;
>> increased rental fees from First Services, L.P. of approximately
$335,000 for the use of data processing and other equipment owned
by First Banks;
>> increased portfolio management fee income of approximately
$273,000 associated with our Institutional Money Management
division;
>> increased earnings associated with our international banking
products; and
>> our acquisitions completed during 2002 and 2003.
Noninterest Expense
Noninterest expense was $60.5 million and $184.2 million for the three
and nine months ended September 30, 2003, respectively, compared to $59.2
million and $175.2 million for the comparable periods in 2002. The increase in
2003 reflects the noninterest expense of our acquisitions completed during 2002
as well as general increases in salaries and employee benefit expenses,
occupancy and furniture and equipment expenses and other expense, offset by
declines in legal, examination and professional fees, advertising and business
development and communications expenses.
Salaries and employee benefits were $29.4 million and $90.3 million for
the three and nine months ended September 30, 2003, respectively, in comparison
to $28.4 million and $84.5 million for the comparable periods in 2002. We
attribute the overall increase to the increase in salary and benefit expenses
associated with our acquisitions in 2002 and 2003 and increased commissions paid
to mortgage loan originators due to continued higher loan volumes which were
partially offset by staff realignments surrounding our core business strategies.
However, the increase also reflects generally higher salary and employee benefit
costs associated with employing and retaining qualified personnel.
Occupancy, net of rental income, and furniture and equipment expense
totaled $9.5 million and $29.1 million for the three and nine months ended
September 30, 2003, respectively, compared to $10.5 million and $28.7 million
for the comparable periods in 2002. These expenses remain at higher levels and
are primarily attributable to acquisitions, technology expenditures for
equipment, continued expansion and renovation of various corporate and branch
offices, the relocation of certain branches and operational areas and increased
depreciation expense associated with capital expenditures. Included in these
expenses are a $1.0 million lease termination obligation incurred in the second
quarter of 2003 associated with the relocation of our San Francisco-based loan
administration department to southern California and a $1.4 million lease buyout
obligation incurred in the third quarter of 2002 on a California facility
acquired through a previous acquisition.
Information technology fees were $8.1 million and $24.6 million for the
three and nine months ended September 30, 2003, respectively, in comparison to
$7.8 million and $24.4 million for the comparable periods in 2002. 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. For 2003, the slight increase in fees is attributed to
growth and technological advancements consistent with our product and service
offerings, continued expansion and upgrades to technological equipment, networks
and communication channels, partially offset by expense reductions resulting
from the data processing conversions of our acquisitions completed in 2002.
Legal, examination and professional fees were $1.8 million and $5.6
million for the three and nine months ended September 30, 2003, respectively,
compared to $2.9 million and $6.5 million for the comparable periods in 2002.
Our professional fees decreased approximately $1.1 million for the nine months
ended September 30, 2003 in comparison to the comparable period in 2002, due
primarily to various fees paid in 2002 related to our commercial leasing
portfolio. This decrease was partially offset by a slight increase in other
legal, examination and professional fees, due to 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 $658,000 and $1.8 million for the three and nine months ended
September 30, 2003, respectively, in comparison to $516,000 and $1.5 million for
the comparable periods in 2002. The increase is solely attributable to core
deposit intangibles associated with our 2002 and 2003 acquisitions.
Communications and advertising and business development expenses have
decreased to $1.4 million and $4.9 million for the three and nine months ended
September 30, 2003, respectively, from $1.9 million and $6.5 million for the
comparable periods in 2002. Our continued efforts to reduce these expenses
through renegotiation of contracts, reductions in the level of advertising and
promotional activities and ongoing cost containment efforts have all contributed
to the overall decline in these expenditures in 2003.
Other expense was $8.2 million and $24.0 million for the three and nine
months ended September 30, 2003, respectively, in comparison to $5.9 million and
$19.0 million for the comparable periods in 2002. 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 increase
in other expense for the nine months ended September 30, 2003, compared to the
comparable period in 2002, to:
>> increased write-downs of $3.8 million on various operating leases
associated with our commercial leasing business, which were
primarily a result of reductions in estimated residual values.
These write-downs were $5.2 million and $1.4 million for the nine
months ended September 30, 2003 and 2002, respectively;
>> increased other real estate expenditures of approximately $1.5
million, including gains and losses on sales of other real estate
properties. The majority of these increased expenditures are
associated with the operation of a residential and recreational
development property transferred to other real estate in January
2003;
>> expenses associated with our acquisitions completed during 2002
and in 2003; and
>> continued growth and expansion of our banking franchise;
partially offset by
>> reductions in various expenses, primarily including travel, meals
and entertainment, director's fees, and transfer agent fees,
associated with economies achieved from completion of our
purchase of the minority interest in First Banks America, Inc. on
December 31, 2002, resulting in the elimination of the
requirements for separate public financial reporting of this
subsidiary.
Provision for Income Taxes
The provision for income taxes was $10.1 million and $28.9 million for
the three and nine months ended September 30, 2003, representing an effective
income tax rate of 42.4% and 37.8%, respectively. This compares to $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. We
attribute the increase in the effective tax rate in 2003 to higher taxable
income and the merger of our two bank charters, which has resulted in higher
taxable income allocations in states where we file separate state tax returns.
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, 2003 December 31, 2002
----------------------- ----------------------
Notional Credit Notional Credit
Amount Exposure Amount Exposure
------ -------- ------ --------
(dollars expressed in thousands)
Cash flow hedges..................................... $1,250,000 2,890 1,050,000 2,179
Fair value hedges.................................... 326,200 9,823 301,200 11,449
Interest rate cap agreements......................... 450,000 -- 450,000 94
Interest rate lock commitments....................... 42,900 -- 89,000 --
Forward commitments to sell
mortgage-backed securities......................... 133,500 -- 235,000 --
========== ====== ========= =======
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, 2003, the net
interest income realized on our derivative financial instruments was $17.3
million and $48.1 million, respectively, in comparison to $14.2 million and
$38.0 million for the comparable periods in 2002. The increase is primarily due
to interest income associated with the additional swap agreements entered into
during March, April and July 2003 as well as the decline in prevailing interest
rates. In addition, we realized a net loss on derivative instruments, which is
included in noninterest income, of $383,000 for the three months ended September
30, 2003 and a net gain of $43,000 for the nine months ended September 30, 2003,
compared to net gains of $2.0 million and $1.7 million for the three and nine
months ended September 30, 2002, respectively, which reflects changes in the
fair value of our interest rate cap agreements, fair value hedges and the
underlying hedged liabilities.
Cash Flow Hedges
During September 2000, March 2001, April 2001, March 2002 and July
2003, we entered into $600.0 million, $200.0 million, $175.0 million, $150.0
million and $200.0 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%, 2.80% and 2.85%, 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 $175.0
million 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. The
amount receivable by us under the swap agreements was $3.9 million at September
30, 2003 and $3.1 million at December 31, 2002. The amount payable by us under
the swap agreements was $1.0 million at September 30, 2003 and $888,000 at
December 31, 2002.
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, 2003 and December 31, 2002 were as follows:
Notional Interest Rate Interest Rate Fair
Maturity Date Amount Paid Received Value
------------- ------ ---- -------- -----
(dollars expressed in thousands)
September 30, 2003:
March 14, 2004.................................. $ 150,000 1.20% 3.93% $ 1,913
September 20, 2004.............................. 600,000 1.30 6.78 30,821
March 21, 2005.................................. 200,000 1.18 5.24 10,680
April 2, 2006................................... 100,000 1.18 5.45 8,176
July 31, 2007................................... 200,000 1.15 3.08 2,535
---------- ---------
$1,250,000 1.24 5.49 $ 54,125
========== ===== ===== =========
December 31, 2002:
March 14, 2004.................................. $ 150,000 1.45% 3.93% $ 4,130
September 20, 2004.............................. 600,000 1.55 6.78 48,891
March 21, 2005.................................. 200,000 1.43 5.24 13,843
April 2, 2006................................... 100,000 1.43 5.45 9,040
---------- ---------
$1,050,000 1.50 5.95 $ 75,904
========== ===== ===== =========
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 our 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 at September 30, 2003 and $5.2 million at December 31,
2002. The amount payable by us under the swap agreements was
$518,000 and $821,000 at September 30, 2003 and December 31,
2002, respectively. In September 2003, we discontinued hedge
accounting treatment on the $50.0 million notional amount of
three-year swap agreements entered into in January 2001 due to
the loss of our highly correlated hedge positions between the
swap agreements and the underlying hedged liabilities.
Consequently, the related basis adjustment of the underlying
hedged liabilities in the amount of $1.3 million will be recorded
as a reduction of interest expense over the remaining weighted
average maturity of the underlying hedged liabilities, which is
approximately three months. For the three and nine months ended
September 30, 2003, we recorded $670,000 as a reduction of
interest expense associated with the discontinuation of hedge
accounting treatment on these swap agreements.
>> During May 2002, we entered into $55.2 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
2.30%. During June 2002, we entered into $86.3 million and $46.0
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 2.75% and 1.97%,
respectively. The underlying hedged liabilities are a portion of
our guaranteed preferred beneficial interest in our 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, 2003 or
December 31, 2002. The $86.3 million notional amount interest
rate swap agreement was called by its counterparty in November
2002 resulting in final settlement of this swap agreement in
December 2002. In addition, the $46.0 million notional amount
interest rate swap agreement was called by its counterparty on
May 14, 2003 resulting in final settlement of this swap agreement
on June 30, 2003. There was no gain or loss recorded as a result
of these transactions.
>> On March 31, 2003 and April 10, 2003, we entered into $25.0
million and $46.0 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
2.55%. The underlying hedged liabilities are a portion of our
guaranteed preferred beneficial interests in our 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, 2003.
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, 2003 and December 31, 2002 were as follows:
Notional Interest Rate Interest Rate Fair
Maturity Date Amount Paid Received Value
------------- ------ ---- -------- -----
(dollars expressed in thousands)
September 30, 2003:
January 9, 2004.................................. $ 50,000 1.11% 5.37% $ 578
January 9, 2006.................................. 150,000 1.11 5.51 12,050
December 31, 2031................................ 55,200 3.40 9.00 3,732
March 20, 2033................................... 25,000 3.65 8.10 (667)
June 30, 2033.................................... 46,000 3.68 8.15 (881)
--------- --------
$ 326,200 2.05 6.65 $ 14,812
========= ===== ===== ========
December 31, 2002:
January 9, 2004.................................. $ 50,000 1.76% 5.37% $ 1,972
January 9, 2006.................................. 150,000 1.76 5.51 13,476
June 30, 2028.................................... 46,000 3.77 8.50 495
December 31, 2031................................ 55,200 4.10 9.00 4,688
--------- --------
$ 301,200 2.49 6.58 $ 20,631
========= ===== ===== ========
Interest Rate Cap Agreements
In conjunction with the interest rate swap agreements designated as
cash flow hedges that mature on 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, 2003 and December 31, 2002, the
carrying value of these interest rate cap agreements, which is included in
derivative instruments in the consolidated balance sheets, was $0 and $94,000,
respectively.
Pledged Collateral
At September 30, 2003 and December 31, 2002, we had pledged investment
securities available for sale with a carrying value of $5.2 million and $5.8
million, respectively, in connection with our interest rate swap agreements. In
addition, at September 30, 2003, and December 31, 2002, we had accepted, as
collateral in connection with our interest rate swap agreements, cash of $68.8
million and $99.1 million, respectively.
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 bank. Interest and fees on loans were 92.2% and
91.5% of total interest income for the three and nine months ended September 30,
2003, respectively, in comparison to 90.8% and 91.9% for the comparable periods
in 2002. Total loans, net of unearned discount, increased $5.1 million to $5.44
billion, or 75.9% of total assets, at September 30, 2003, compared to $5.43
billion, or 74.0% of total assets, at December 31, 2002. Exclusive of our
acquisition of Bank of Ste. Genevieve, which provided loans, net of unearned
discount, of $42.9 million, loans, net of unearned discount, decreased $37.8
million at September 30, 2003 compared to December 31, 2002. This decrease in
total loans, net of unearned discount, is primarily attributable to:
>> continued weak loan demand from our commercial customers, which
is indicative of the current economic conditions prevalent within
most of our markets;
>> a decline of $7.3 million experienced in our commercial,
financial and agricultural portfolio due to an anticipated amount
of attrition associated with our acquisitions completed during
2002 and general runoff of balances within this portfolio;
>> a continued decline of $ 47.4 million in our lease financing
portfolio consistent with the discontinuation of our New Mexico
based leasing operation during 2002, the transfer of all
responsibilities for the existing portfolio to a new leasing
staff in St. Louis, Missouri and a change in our overall business
strategy with respect to leasing activities. Additionally, during
the nine months ended September 30, 2003, we recorded net loan
charge-offs of $14.6 million associated with this portfolio,
which further contributed to the overall decline; and
>> a decline of $69.1 million in loans held for sale resulting
primarily from the timing of loan sales in the secondary mortgage
market; partially offset by
>> an increase of $91.9 million in our real estate construction and
development portfolio resulting primarily from seasonal increases
on existing and available credit lines; and
>> an increase of $46.1 million in our real estate mortgage
portfolio primarily associated with management's business
strategy decision to retain a portion of our new loan production
in our real estate mortgage portfolio due primarily to continued
weak loan demand in other sectors of our loan portfolio as
previously discussed.
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,
2003 2002
---- ----
(dollars expressed in thousands)
Commercial, financial and agricultural:
Nonaccrual..................................................... $ 22,190 15,787
Real estate construction and development:
Nonaccrual..................................................... 7,030 23,378
Real estate mortgage:
One-to-four family residential:
Nonaccrual..................................................... 18,799 14,833
Restructured................................................... 13 15
Multi-family residential loans:
Nonaccrual..................................................... 815 772
Commercial real estate loans:
Nonaccrual..................................................... 13,131 8,890
Restructured................................................... -- 1,907
Lease financing:
Nonaccrual..................................................... 8,449 8,723
Consumer and installment:
Nonaccrual..................................................... 410 860
----------- ----------
Total nonperforming loans.................................. 70,837 75,165
Other real estate................................................... 10,507 7,609
----------- ----------
Total nonperforming assets................................. $ 81,344 82,774
=========== ==========
Loans, net of unearned discount..................................... $ 5,437,663 5,432,588
=========== ==========
Loans past due 90 days or more and still accruing................... $ 7,407 4,635
=========== ==========
Ratio of:
Allowance for loan losses to loans............................. 2.04% 1.83%
Nonperforming loans to loans................................... 1.30 1.38
Allowance for loan losses to nonperforming loans............... 156.32 132.29
Nonperforming assets to loans and other real estate............ 1.49 1.52
========== ==========
Nonperforming loans, consisting of loans on nonaccrual status and
certain restructured loans, were $70.8 million at September 30, 2003, in
comparison to $75.2 million at December 31, 2002. Loan charge-offs were $18.8
million and $42.5 million for the three and nine months ended September 30,
2003, respectively, compared to $11.0 million and $39.0 million for the
comparable periods in 2002. As previously discussed, during the nine months
ended September 30, 2003, we experienced further deterioration within our
commercial leasing portfolio which is reflected in net loan charge-offs of $14.6
million and nonperforming loans associated with this portfolio decreasing by
$274,000. Additionally, in January 2003, we foreclosed on a residential and
recreational development property that had previously been on nonaccrual status
due to significant financial difficulties, inadequate project financing, project
delays and weak project management. Consequently, other real estate increased to
$10.5 million at September 30, 2003 from $7.6 million at December 31, 2002, and
nonperforming real estate construction and development loans declined, down
$16.3 million from December 31, 2002. Our allowance for loan losses as a
percentage of loans, net of unearned discount, increased to 2.04% at September
30, 2003 from 1.83% at December 31, 2002, and our allowance for loan losses as a
percentage of nonperforming loans increased to 156.32% at September 30, 2003
from 132.29% at December 31, 2002. While we believe we were successful in
addressing the asset quality problems experienced in 2002, we continue to
closely monitor our loan and leasing portfolios. We anticipate the higher trends
in nonperforming and delinquent loans recently experienced will continue in the
near future and primarily attribute them to the current economic conditions
experienced in our primary market areas.
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 by
risk rating. These are coupled with analyses of changes in the risk profile of
the portfolio, changes in past-due and nonperforming loans and changes in watch
list and classified loans over time. In this manner, we continually monitor the
overall increases or decreases in the level of risk in the portfolio. Factors
are applied to the loan portfolio for each category of loan risk to determine an
acceptable level of allowance for loan losses. We derive these factors from our
actual loss experience and from published national surveys of norms in the
industry. The calculated allowance required for the portfolio is then compared
to the actual allowance balance to determine the provisions necessary to
maintain the allowance at an appropriate level. In addition, management
exercises a certain degree of judgment in its analysis of the overall adequacy
of the allowance for loan losses. In its analysis, management considers the
change in the portfolio, including growth, composition, 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.
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,
--------------------- ----------------------
2003 2002 2003 2002
---- ---- ---- ----
(dollars expressed in thousands)
Allowance for loan losses, beginning of period..... $ 107,848 103,794 99,439 97,164
Acquired allowances for loan losses................ -- -- 757 1,366
--------- -------- -------- -------
107,848 103,794 100,196 98,530
--------- -------- -------- -------
Loans charged-off.................................. (18,821) (11,014) (42,486) (39,047)
Recoveries of loans previously charged-off......... 6,707 3,395 17,024 11,692
--------- -------- -------- -------
Net loan charge-offs............................... (12,114) (7,619) (25,462) (27,355)
--------- -------- -------- -------
Provision for loan losses.......................... 15,000 13,700 36,000 38,700
--------- -------- -------- -------
Allowance for loan losses, end of period........... $ 110,734 109,875 110,734 109,875
========= ======== ======== =======
Liquidity
Our liquidity and the liquidity of our subsidiary bank is the ability
to maintain a cash flow that is adequate to fund operations, service debt
obligations and meet other commitments on a timely basis. Our subsidiary bank
receives funds for liquidity from customer deposits, loan payments, maturities
of loans and investments, sales of investments and earnings. In addition, we may
avail ourselves of other sources of funds by issuing certificates of deposit in
denominations of $100,000 or more, borrowing federal funds, selling securities
under agreements to repurchase and utilizing borrowings from the Federal Home
Loan Bank and other borrowings, including our revolving credit line. The
aggregate funds acquired from these sources were $715.5 million and $742.5
million at September 30, 2003 and December 31, 2002, 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
and other borrowings, including our note payable, at September 30, 2003:
Certificates of Deposit Other
of $100,000 or More Borrowings Total
------------------- ---------- -----
(dollars expressed in thousands)
Three months or less................................... $114,091 163,716 277,807
Over three months through six months................... 59,254 -- 59,254
Over six months through twelve months.................. 107,617 31,000 138,617
Over twelve months..................................... 132,824 107,000 239,824
-------- -------- --------
Total............................................. $413,786 301,716 715,502
======== ======== ========
In addition to these sources of funds, our subsidiary bank has
established a borrowing relationship with the Federal Reserve Bank. This
borrowing relationship, which is secured by commercial loans, provides an
additional liquidity facility that may be utilized for contingency purposes. At
September 30, 2003 and December 31, 2002, the borrowing capacity of our
subsidiary bank under the agreement was approximately $913.1 million and $1.22
billion, respectively. In addition, our subsidiary bank's borrowing capacity
through its relationship with the Federal Home Loan Bank was approximately
$417.8 million and $223.6 million at September 30, 2003 and December 31, 2002,
respectively. Exclusive of the Federal Home Loan Bank advances outstanding of
$12.0 million and $14.0 million at September 30, 2003 and December 31, 2002,
respectively, our subsidiary bank had no amounts outstanding under either of
these agreements at September 30, 2003 and December 31, 2002.
In connection with our normal operations, we enter into various other
commitments and obligations such as long-term leasing arrangements, primarily of
bank premises, and certificates of deposit. The required payments under such
commitments and other obligations at September 30, 2003 were as follows:
Over 1 Year
Less than But Less Than Over
1 Year 5 Years 5 Years Total
------ ------- ------- -----
(dollars expressed in thousands)
Operating leases................................. $ 2,609 24,782 23,493 50,884
Certificates of deposit.......................... 1,273,421 685,983 396 1,959,800
Guaranteed preferred beneficial interest
in subordinated debentures.................. -- -- 205,380 205,380
Federal Home Loan Bank borrowings................ 5,000 6,000 1,000 12,000
========== ======= ======= =========
Management believes the available liquidity and operating results of
our subsidiary bank 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 II, First Preferred Capital Trust
III, First Preferred Capital Trust IV, First Bank Capital Trust and First Bank
Statutory Trust.
Effects of New Accounting Standards
In June 2002, the Financial Accounting Standards Board, or FASB, issued
SFAS No. 146-- Accounting for Costs Associated with Exit or Disposal Activities.
SFAS No. 146 nullifies Emerging Issues Task Force, or EITF, Issue No. 94-3--
Liability Recognition for Certain Employee Termination Benefits and Other Costs
to Exit an Activity (including Certain Costs Incurred in a Restructuring). The
provisions of SFAS No. 146 are effective for exit or disposal activities that
are initiated after December 31, 2002, with early application encouraged. On
January 1, 2003, we implemented SFAS No. 146, which did not have a material
effect on our consolidated financial statements.
In November 2002, the FASB issued FASB Interpretation No. 45 --
Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others, an interpretation of FASB
Statements No. 5, 57, and 107 and rescission of FASB Interpretation No. 34. This
interpretation elaborates on the disclosures to be made by a guarantor in its
interim and annual financial statements about its obligations under certain
guarantees that it has issued. It also clarifies that a guarantor is required to
recognize, at the inception of a guarantee, a liability for the fair value of
the obligation undertaken in issuing the guarantee. The initial recognition and
measurement provisions of this Interpretation are applicable on a prospective
basis to guarantees issued or modified after December 31, 2002, irrespective of
the guarantor's fiscal year-end. The disclosure requirements are effective for
financial statements of interim or annual periods ending after December 15,
2002. On December 31, 2002, we implemented FASB Interpretation No. 45, which did
not have a material effect on our consolidated financial statements other than
the additional disclosure requirements.
On April 30, 2003, the FASB issued SFAS No. 149 -- Amendment of
Statement 133 on Derivative Instruments and Hedging Activities. SFAS No. 149
amends and clarifies financial accounting and reporting for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities under SFAS No. 133. SFAS No. 149 is
effective for contracts entered into or modified after September 30, 2003, and
for hedging relationships designated after June 30, 2003. All provisions of SFAS
No. 149 are required to be applied prospectively. We have evaluated the
requirements of SFAS No. 149 and believe such requirements will not have a
material effect on our consolidated financial statements.
On May 15, 2003, the FASB issued SFAS No. 150 -- Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity. SFAS
No. 150 improves the accounting for certain financial instruments that, under
previous guidance, issuers could account for as equity as it requires that those
instruments be classified as liabilities in statements of financial position.
Most of the guidance in SFAS No. 150 is effective for all financial instruments
entered into or modified after May 31, 2003, and otherwise is effective at the
beginning of the first interim period beginning after June 15, 2003. For private
companies, mandatorily redeemable financial instruments were initially subject
to the provisions of SFAS No. 150 for the fiscal period beginning after December
15, 2003. However, on November 7, 2003, the FASB elected to defer this effective
date of mandatorily redeemable financial instruments of certain private
companies to fiscal periods beginning after December 15, 2004. Furthermore, the
FASB elected to indefinitely defer the effective date of the provisions of SFAS
No. 150 for certain mandatoriy redeemable noncontrolling interests. We have
evaluated the requirements of SFAS No. 150 and believe such requirements will
not have a material effect on our consolidated financial statements.
In January 2003, the FASB issued FASB Interpretation No. 46 --
Consolidation of Variable Interest Entities, an interpretation of ARB No. 51.
This Interpretation is intended to achieve more consistent application of
consolidation policies to variable interest entities and, thus to improve
comparability between enterprises engaged in similar activities even if some of
those activities are conducted through variable interest entities. Including the
assets, liabilities, and results of activities of variable interest entities in
the consolidated financial statements of their primary beneficiaries will
provide more complete information about the resources, obligations, risks and
opportunities of the consolidated enterprise. This Interpretation applies
immediately to variable interest entities created after January 31, 2003, and to
variable interest entities in which an enterprise obtains an interest after that
date. Initially, it applied in the first fiscal year or interim period beginning
after June 15, 2003, to variable interest entities in which an enterprise holds
a variable interest that it acquired before February 1, 2003; however, on
September 17, 2003, the FASB deferred this effective date until the end of the
first interim or annual period ending after December 15, 2003. This
Interpretation applies to public enterprises as of the beginning of the
applicable interim or annual period, and it applies to nonpublic enterprises as
of the end of the applicable annual period. This Interpretation may be applied
prospectively with a cumulative-effect adjustment as of the date on which it is
first applied or by restating previously issued financial statements for one or
more years with a cumulative-effect adjustment as of the beginning of the first
year restated.
The Company has several statutory and business trusts, some of which
were formed subsequent to January 31, 2003, for the sole purpose of issuing
trust preferred securities as further described in Note 9 to our accompanying
consolidated financial statements. We currently believe the continued
consolidation of these trusts is appropriate under Interpretation No. 46.
However, the application of Interpretation No. 46 to these types of trusts is an
emerging issue, and a possible unintended consequence of Interpretation No. 46
is the deconsolidation of these types of trusts. The Company is currently
evaluating the impact that deconsolidation of these trusts would have on its
consolidated financial statements.
In July 2003, the Board of Governors of the Federal Reserve System
issued a supervisory letter instructing bank holding companies to continue to
include the trust preferred securities in their Tier I capital for regulatory
capital purposes, subject to applicable limits, until notice is given to the
contrary. The Federal Reserve intends to review the regulatory implications of
any accounting treatment changes and, if necessary or warranted, provide further
appropriate guidance. There can be no assurance that the Federal Reserve will
continue to allow bank holding companies to include trust preferred securities
in their Tier I capital for regulatory capital purposes.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
At December 31, 2002, our risk management program's simulation model
indicated a loss of projected net interest income in the event of a decline in
interest rates. We are "asset-sensitive," indicating that our assets would
generally reprice with changes in rates more rapidly than our liabilities. While
a decline in interest rates of less than 100 basis points was projected to have
a relatively minimal impact on our net interest income, an instantaneous,
parallel decline in the interest yield curve of 100 basis points indicated a
pre-tax projected loss of approximately 7.3% of net interest income, based on
assets and liabilities at December 31, 2002. At September 30, 2003, 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 income
associated with our interest rate swap agreements offset by reductions in
prevailing interest rates throughout 2002 and 2003, is reflected in our net
interest margin for the three and nine months ended September 30, 2003 as
compared to the comparable periods in 2002 and further discussed under
"--Results of Operations." During the three and nine months ended September 30,
2003, 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
-------------- -----------
10.27 Secured Credit Agreement ($60,000,000
Revolving Loan Facility and $20,000,000
Letter of Credit Facility), dated as of
August 14, 2003, among First Banks, Inc. and
Wells Fargo Bank, National Association, as
Agent, Bank One, LaSalle Bank National
Association, The Northern Trust Company,
Union Bank of California, N.A., Fifth Third
Bank (Chicago) and U.S. Bank National
Association - filed herewith.
31 Rule 13a-14(a) / 15d-14(a) Certifications -
filed herewith.
32 Section 1350 Certifications - filed herewith.
(b) We filed a Current Report on Form 8-K on July 31, 2003. Item 12 of the
report referenced a press release announcing First Banks, Inc.'s
financial results for the three and six months ended June 30, 2003. A
copy of the press release was included as Exhibit 99.4.
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 13, 2003 By: /s/ Allen H. Blake
--------------------------------------------
Allen H. Blake
President, Chief Executive Officer and
Chief Financial Officer
(Principal Executive Officer and
Principal Financial and
Accounting Officer)
EXHIBIT 31
CERTIFICATIONS REQUIRED BY
RULE 13a-14(a) (17 CFR 240.13a-14(a))
OR RULE 15d-14(a) (17 CFR 240.15d-14(a))
OF THE SECURITIES EXCHANGE ACT OF 1934
I, Allen H. Blake, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q (the "Report") of First
Banks, Inc. (the "Registrant");
2. Based on my knowledge, this 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
Report;
3. Based on my knowledge, the financial statements, and other financial
information included in this 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 Report;
4. The Registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Registrant and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, 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 Report is being prepared;
b) Evaluated the effectiveness of the Registrant's disclosure controls
and procedures and presented in this Report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this Report based on such evaluation; and
c) Disclosed in this Report any change in the Registrant's internal
control over financial reporting that occurred during the Registrant's
most recent fiscal quarter that has materially affected, or is
reasonably likely to materially affect, the Registrant's internal
control over financial reporting; and
5. The Registrant's other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the Registrant's auditors and the audit committee of the Registrant's board
of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the Registrant's ability to
record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the Registrant's internal
control over financial reporting.
Date: November 13, 2003 By: /s/ Allen H. Blake
-----------------------------------------
Allen H. Blake
President, Chief Executive Officer and
Chief Financial Officer
(Principal Executive Officer and
Principal Financial and Accounting
Officer)
EXHIBIT 32
CERTIFICATIONS REQUIRED BY
RULE 13a-14(b) (17 CFR 240.13a-4(b))
OR RULE 15d-14(b) (17 CFR 240.15d-14(b))
AND SECTION 1350 OF CHAPTER 63 OF
TITLE 18 OF THE UNITED STATES CODE (18 U.S.C. 1350)
I, Allen H. Blake, President, Chief Executive Officer 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, 2003 (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.
Date: November 13, 2003 By: /s/ Allen H. Blake
----------------------------------------
Allen H. Blake
President, Chief Executive Officer
and Chief Financial Officer
(Principal Executive Officer
and Principal Financial and
Accounting Officer)
SECURED CREDIT AGREEMENT
($60,000,000 Revolving Loan Facility and $20,000,000 Letter of Credit Facility)
dated as of August 14, 2003
among
FIRST BANKS, INC.
and
THE LENDERS SIGNATORY HERETO
and
WELLS FARGO BANK, NATIONAL ASSOCIATION
as Agent
WELLS FARGO BANK, NATIONAL ASSOCIATION
as Sole Lead Arranger and Sole Book Runner
TABLE OF CONTENTS
ARTICLE I. DEFINITIONS AND ACCOUNTING TERMS..................................................................1
Section 1.01 Defined Terms...............................................................................1
Section 1.02 Accounting Terms............................................................................8
ARTICLE II. AMOUNT AND TERMS OF REVOLVING LOAN AND LETTER OF CREDIT FACILITIES................................9
Section 2.01 Advances....................................................................................9
Section 2.02 Interest...................................................................................10
Section 2.03 Margin and L/C Margin......................................................................12
Section 2.04 Payments...................................................................................13
Section 2.05 Revolving Loan Commitment Fee..............................................................13
Section 2.06 Termination or Reduction of the Commitments................................................13
Section 2.07 Voluntary Prepayments......................................................................13
Section 2.08 Computation of Interest and Fees...........................................................14
Section 2.09 Making of Payments.........................................................................14
Section 2.10 Payment on Nonbusiness Days................................................................14
Section 2.11 Use of Proceeds............................................................................14
Section 2.12 Fees on Advances and Indemnity.............................................................14
Section 2.13 Capital Adequacy...........................................................................16
Section 2.14 Failure of Any Lender to Make Advances.....................................................16
Section 2.15 Issuance of Letters of Credit..............................................................17
Section 2.16 Payment of Amounts Drawn Under Letters of Credit...........................................17
Section 2.17 Special Account............................................................................18
Section 2.18 Authorization for Borrowing................................................................19
Section 2.19 Letter of Credit Fees......................................................................19
Section 2.20 Termination or Reduction of Letter of Credit Commitment....................................20
ARTICLE III. CONDITIONS PRECEDENT.............................................................................20
Section 3.01 Initial Conditions Precedent...............................................................20
Section 3.02 Conditions Precedent to All Advances.......................................................21
ARTICLE IV. REPRESENTATIONS AND WARRANTIES...................................................................22
Section 4.01 Corporate Existence and Power..............................................................22
Section 4.02 Authorization of Borrowing; No Conflict as to Law or Agreements............................22
Section 4.03 Legal Agreements...........................................................................22
Section 4.04 Subsidiaries...............................................................................23
Section 4.05 Financial Condition........................................................................23
Section 4.06 Adverse Change.............................................................................23
Section 4.07 Litigation.................................................................................23
Section 4.08 Regulation U...............................................................................23
Section 4.09 Taxes......................................................................................23
Section 4.10 Titles.....................................................................................23
Section 4.11 ERISA......................................................................................23
Section 4.12 Regulatory Matters.........................................................................23
ARTICLE V. AFFIRMATIVE COVENANTS............................................................................24
Section 5.01 Reporting Requirements.....................................................................24
Section 5.02 Books and Records; Inspection and Examination..............................................25
Section 5.03 Compliance with Laws.......................................................................26
Section 5.04 Payment of Taxes and Other Claims..........................................................26
Section 5.05 Operations.................................................................................26
Section 5.06 Insurance..................................................................................26
Section 5.07 Preservation of Corporate Existence........................................................26
Section 5.08 Additional Collateral......................................................................26
Section 5.09 Notice of Acquisition......................................................................27
ARTICLE VI. NEGATIVE COVENANTS...............................................................................27
Section 6.01 Liens......................................................................................27
Section 6.02 Indebtedness...............................................................................27
Section 6.03 Guaranties.................................................................................28
Section 6.04 Dividends..................................................................................28
Section 6.05 Consolidation and Merger...................................................................28
Section 6.06 Subordinated Debt..........................................................................28
Section 6.07 Restrictions on Nature of Business.........................................................28
Section 6.08 Negative Pledges; Subsidiary Restrictions..................................................29
Section 6.09 Issuance of Additional Stock...............................................................29
Section 6.10 Regulatory Matters.........................................................................27
ARTICLE VII. FINANCIAL COVENANTS..............................................................................29
Section 7.01 Total Risk Based Capital Ratio.............................................................29
Section 7.02 Tier I Risk Based Capital Ratio............................................................29
Section 7.03 Leverage Ratio.............................................................................29
Section 7.04 Minimum Return on Assets...................................................................30
Section 7.05 Maximum Non-Performing Assets..............................................................30
Section 7.06 Allowance for Loan and Lease Losses........................................................30
ARTICLE VIII. EVENTS OF DEFAULT, RIGHTS AND REMEDIES...........................................................30
Section 8.01 Events of Default..........................................................................30
Section 8.02 Rights and Remedies........................................................................33
Section 8.03 Offset.....................................................................................33
ARTICLE IX. THE AGENT........................................................................................34
Section 9.01 Authorization..............................................................................34
Section 9.02 Distribution of Payments and Proceeds......................................................34
Section 9.03 Expenses...................................................................................35
Section 9.04 Payments Received Directly by Lenders......................................................35
Section 9.05 Indemnification............................................................................35
Section 9.06 Limitations on Agent's Power...............................................................35
Section 9.07 Exculpation................................................................................36
Section 9.08 Agent and Affiliates.......................................................................36
Section 9.09 Credit Investigation.......................................................................36
Section 9.10 Resignation................................................................................36
Section 9.11 Assignments................................................................................37
Section 9.12 Participations.............................................................................38
Section 9.13 Disclosure of Information..................................................................38
ARTICLE X. MISCELLANEOUS....................................................................................39
Section 10.01 No Waiver; Cumulative Remedies.............................................................39
Section 10.02 Amendments, Etc............................................................................39
Section 10.03 Notice.....................................................................................39
Section 10.04 Costs and Expenses.........................................................................39
Section 10.05 Indemnification by Borrower................................................................40
Section 10.06 Execution in Counterparts..................................................................40
Section 10.07 Binding Effect, Assignment.................................................................41
Section 10.08 Governing Law..............................................................................41
Section 10.09 Consent to Jurisdiction/Jury Waiver........................................................41
Section 10.10 Severability of Provisions.................................................................41
Section 10.11 Prior Agreements...........................................................................41
Section 10.12 Headings...................................................................................41
Section 10.13 No Oral Agreements.........................................................................41
Exhibit A -- Revolving Loan Commitment Amounts
Exhibit B -- Borrower's Pledge Agreement
Exhibit C -- Compliance Certificate
Exhibit D1 -- Application for Standby Letter of Credit
Exhibit D2 -- Standby Letter of Credit Agreement
Exhibit E -- San Francisco Company Guaranty
Exhibit F -- San Francisco Company Security Agreement
Exhibit G -- Note
Exhibit H -- Permissible Securities
Exhibit I -- Notice of Permitted Acquisition
Schedule 4.04 -- Subsidiaries
Schedule 4.07 -- Litigation
Schedule 6.01 -- Existing Liens
Schedule 6.02 -- Indebtedness
Schedule 6.03 -- Guaranties
SECURED CREDIT AGREEMENT
THIS SECURED CREDIT AGREEMENT dated as of August 14, 2003, is
entered into by and among FIRST BANKS, INC., a Missouri corporation
("Borrower"), the financial institutions that have executed this Agreement as
lenders (each individually a "Lender" and collectively the "Lenders"), and WELLS
FARGO BANK, NATIONAL ASSOCIATION, a national banking association, as Agent.
WITNESSETH THAT:
WHEREAS Borrower, certain of the Lenders (the "Original Lenders")
and the Agent's affiliate, Wells Fargo Bank Minnesota, National Association,
were party to a Secured Credit Agreement dated as of August 23, 2001 (the
"Original Credit Agreement") pursuant to which the Lenders had severally made
available to Borrower a revolving credit facility in the aggregate amount of One
Hundred Twenty Million Dollars ($120,000,000);
WHEREAS Borrower, the Original Lenders, and Agent were party to a
Secured Credit Agreement dated as of August 22, 2002 (the "Existing Credit
Agreement") pursuant to which the Original Credit Agreement was restated and
superceded and pursuant to which Lender and Original Lenders severally made
available to Borrower a revolving credit facility in the amount of Ninety
Million Dollars ($90,000,000) and a revolving letter of credit facility in the
amount of Twenty Million Dollars ($20,000,000);
WHEREAS, Borrower has requested that Lenders severally make
available a new revolving credit facility in the amount of Sixty Million Dollars
($60,000,000) and a revolving letter of credit facility in the amount of Twenty
Million Dollars ($20,000,000);
WHEREAS Borrower, the Lenders and Agent desire to enter into this
Secured Credit Agreement in replacement of the Existing Credit Agreement,
thereby making available to Borrower the requested revolving credit and letter
of credit facilities; and
WHEREAS the Lenders are willing severally to provide such
revolving credit and letter of credit facilities to Borrower, subject to the
terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, the parties hereto hereby agree as follows:
ARTICLE I.
DEFINITIONS AND ACCOUNTING TERMS
Section 1.01. Defined Terms. As used in this Agreement, the
--------------
following terms have the following meanings (terms defined in the singular to
have the same meaning when used in the plural and vice versa):
"Advance" means an advance by the Lenders to the Borrower
pursuant to Article II.
"Additional Lender" means a financial institution that becomes a
Lender pursuant to the procedures set forth in Section 9.11.
"Affiliate" means any Person (1) which directly or indirectly
controls, or is controlled by, or is under common control with, the
Borrower or any Subsidiary; (2) which directly or indirectly
beneficially owns or holds five percent (5%) or more of any class of
voting stock of Borrower or any Subsidiary; or (3) five percent (5%)
or more of the voting stock of which is directly or indirectly
beneficially owned or held by Borrower or any Subsidiary. The term
"Control" for the purposes of this Agreement means the possession,
directly or indirectly, of the power to direct or cause the direction
of the management and policies of a Person, whether through the
ownership of voting securities, by contract, or otherwise. For the
purposes of the foregoing definition, a shareholder of Borrower shall
not be deemed to be directly or indirectly controlling or controlled
by the Borrower or a Subsidiary, provided the person in question will
not receive any proceeds from the Loans.
"Agent" means Wells Fargo Bank, National Association, acting in
its capacity as Agent pursuant to Article IX hereof, or any duly
appointed successor.
"Agreement" means this Secured Credit Agreement, as amended,
supplemented or modified from time to time.
"Bank Business Day" means a day other than a Saturday, Sunday,
United States national holiday or other day on which banks in
Minnesota are permitted or required by law to close.
"Bank Subsidiary" means any direct or indirect Subsidiary of the
Borrower which is a bank or thrift institution, including, without
limitation the financial institutions listed in Schedule 4.04 hereof
and, beginning one year following the acquisition thereof, any bank or
thrift institution subsequently becoming a direct or indirect
Subsidiary of the Borrower.
"Base Rate" means the rate of interest publicly announced from
time to time by the Agent as its "prime" or "base" rate or, if the
Agent ceases to announce a rate so designated, any similar successor
rate designated by the Agent. Each change in the Base Rate shall be
effective on the day the change in the "prime" or "base" rate is
announced within Agent.
"Borrower" has the meaning assigned to such term in the preamble
of this Agreement.
"Borrower Pledge Agreement" means the collateral pledge agreement
in the form of Exhibit B pledging to the Agent for the ratable benefit
of the Lenders all of the stock of San Francisco Company.
"Borrowing" means a borrowing under Article II consisting of
Advances made to the Borrower by each of the Lenders severally.
"Capitalized Lease" of a Person means any lease of property by
such Person as lessee which would be capitalized on a balance sheet of
such Person prepared in accordance with GAAP.
"Collateral" means the Borrower's Special Account and all
property which is subject or is to be subject to the Liens granted by
the Borrower Pledge Agreement and the San Francisco Company Security
Agreement.
"Commitments" means the several revolving credit commitments of
the Lenders in the aggregate original principal amount of Sixty
Million Dollars ($60,000,000), as such amount may be reduced from time
to time pursuant to Section 2.06 hereof. When used with reference to a
particular Lender, "Commitment" means that Lender's obligation to make
Advances in an aggregate amount equal to its Commitment Amount.
"Commitment Amount" means, with respect to each Lender, the
amount set forth opposite that Lender's name on Exhibit A, as that
amount may be adjusted from time to time pursuant to Section 2.06 or
any assignment made pursuant to Section 9.11.
"Compliance Certificate" means a certificate in substantially the
form of Exhibit C, or such other form as the Borrower and the Required
Lenders may from time to time agree upon in writing, executed by the
Chief Financial Officer of the Borrower and one (1) additional officer
of the Borrower identified on the signature page to the certificate
attached hereto as Exhibit C, stating (i) that any financial
statements delivered therewith have been prepared in accordance with
GAAP, subject to year-end audit adjustments, (ii) whether or not such
officer has knowledge of the occurrence of any Default or Event of
Default and stating in reasonable details the facts with respect to
such Default or Event of Default, (iii) all relevant facts in
reasonable detail to evidence, and the computations as to, whether or
not the Borrower is in compliance with the Financial Covenants, and
(iv) all relevant facts in reasonable detail to evidence, and the
computations as to, whether or not the Borrower is in compliance with
the other covenants.
"Default" means any of the events specified in Section 8.01,
whether or not any requirement for the giving of notice, the lapse of
time, or both, or any other condition, has been satisfied.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time, and the regulations and published
interpretations thereof.
"ERISA Affiliate" means any trade or business (whether or not
incorporated) which together with the Borrower would be treated as a
single employer under Section 4001 of ERISA.
"Equity Capital" of a Bank Subsidiary means the aggregate of its
perpetual preferred stock (and related surplus), common stock, surplus
(excluding all surplus related to perpetual preferred stock),
undivided profits and capital reserves, plus its net unrealized
holding gains (or minus its net realized holding losses) on
available-for-sale securities.
"Eurodollar Business Day" means a Bank Business Day on which
dealings in U.S. dollar deposits are carried on in the London
interbank market.
"Eurodollar Rate" means the annual rate equal to the sum of (i)
the rate obtained by dividing (a) the rate (rounded up to the nearest
1/16 of 1%) determined by the Agent as of 11:00 a.m. London, England
time on the second Eurodollar Business Day prior to the date such rate
is to become effective to be the average rate at which U.S. dollar
deposits are offered or available to banks in the London interbank
market for funds to be made available on the first day of any Interest
Period in an amount approximately equal to the amount for which a
Eurodollar Rate quotation has been requested and maturing at the end
of such Interest Period, by (b) a percentage equal to 100% minus the
Federal Reserve System reserve requirement (expressed as a percentage)
applicable to such deposits, and (ii) the applicable Margin. In making
such determination, the Agent shall utilize Telerate page 3750 under
the heading "British Bankers Association LIBOR rates" in the column
designated "USD," as published by Bridge Information Systems, Inc., or
such other comparable source as may be available to the Agent in the
event such Telerate page is no longer published or readily available.
"Eurodollar Rate Funding" means a Borrowing or any portion
thereof, or any other portion of the principal balance of the Notes,
that bears interest at a Eurodollar Rate.
"Event of Default" means any of the events specified in Section
8.01, provided that any requirement for the giving of notice, the
lapse of time, or both, or any other applicable condition, has been
satisfied.
"Existing Credit Agreement" has the meaning assigned to such term
in the recitals to this Agreement.
"Federal Funds Rate" means at any time an interest rate per annum
equal to the weighted average of the rates for overnight federal funds
transactions with members of the Federal Reserve System arranged by
federal funds brokers, as published for such day by the Federal
Reserve Bank of New York, or, if such rate is not so published for any
day which is a Bank Business Day, the average, determined by the
Agent, of the quotations for such day for such transactions received
by the Agent from three federal funds brokers of recognized standing
selected by it, it being understood that the Federal Funds Rate for
any day which is not a Bank Business Day shall be the Federal Funds
Rate for the next preceding Bank Business Day.
"Financial Covenants" means any covenant contained in Article
VII.
"First Bank" means First Bank, a Missouri state bank.
"Floating Rate" means, at any time, an annual rate equal to the
greater of:
(i) the Base Rate; or
(ii) the Federal Funds Rate, plus 50 basis points (0.50%);
The Floating Rate shall change when and as the Base Rate or Federal
Funds Rate changes.
"Funded Debt" of the Borrower means (without duplication) (i) all
indebtedness of the Borrower for borrowed money; (ii) indebtedness
evidenced by bonds, notes or similar written debt instruments; and
(iii) the face amount of all letters of credit and bankers'
acceptances issued for the account of the Borrower, and without
duplication, all drafts drawn thereunder; provided, however, that in
-------- -------
no event shall any calculation of Funded Debt include Subordinated
Debt or debt of the type referred to in Section 6.02(b) or 6.02(c).
"Funded Debt Ratio" means the ratio of Funded Debt to Net Income
of the Borrower for the most recent period of four fiscal quarters.
"GAAP" means generally accepted accounting principles applied on
a basis consistent with the accounting practices applied in the
financial statements described in Section 4.05.
"Interest Period" means, with respect to any Eurodollar Rate
Funding (except as provided below on the Closing Date of this
Agreement), a period of one, two, three or six months beginning on a
Eurodollar Business Day, as elected by the Borrower. Each Interest
Period shall end on the day in the final month of such Interest Period
that immediately precedes the date which numerically corresponds to
the first day of such Interest Period, except that (i) if such final
month has no numerically corresponding day, then the Interest Period
shall end on the last Eurodollar Business Day of such month, and (ii)
if an Interest Period would otherwise end on a day which is not a
Eurodollar Business Day, such Interest Period shall end on the next
following Eurodollar Business Day, unless such next following
Eurodollar Business Day is the first Eurodollar Business Day of a
month, in which case such Interest Period shall end on the next
preceding Eurodollar Business Day.
"L/C Application" means an Application for Standby Letter of
Credit in the form attached hereto as Exhibit D1, and the master
Standby Letter of Credit Agreement in the form of Exhibit D2, which is
incorporated into such Application by reference.
"L/C Margin" means an amount determined under Section 2.03 that
is charged pursuant to Section 2.19(a).
"Lender" or "Lenders" has the meaning assigned to such term in
the preamble to this Agreement.
"Leverage Ratio" shall be defined and calculated in accordance
with Federal Reserve Board Regulation Y in the case of the Borrower
and in accordance with Section 38 of the Federal Deposit Insurance Act
in the case of a Bank Subsidiary.
"Letter of Credit" has the meaning given in Section 2.15.
"Letter of Credit Commitment" means Agent's commitment to issue
Letters of Credit as provided in Section 2.15.
"Lien" means any mortgage, deed of trust, lien, pledge, security
interest or other charge or encumbrance, of any kind whatsoever,
including but not limited to the interest of the lessor or titleholder
under any Capitalized Lease, title retention contract or similar
agreement.
"Loan Documents" means this Agreement, the Notes, the Borrower
Pledge Agreement, the San Francisco Company Guarantee and the San
Francisco Company Security Agreement, as each may be renewed,
extended, amended, rearranged, restructured, restated, replaced or
otherwise modified from time to time.
"Margin" means an amount determined pursuant to Section 2.03 that
is added to other amounts to determine a Eurodollar Rate.
"Multiemployer Plan" means a Plan described in Section 4001(a)(3)
of ERISA which covers employees of the Borrower or any of its
Affiliates.
"Net Income" has the meaning assigned to such term by GAAP,
without reference to extraordinary items or adjustments caused solely
by changes in applicable accounting principles.
"Non-Performing Assets" of a Bank Subsidiary means the sum of:
(i) all loans and leases classified as past due 90 days or more and
still accruing interest; (ii) all loans classified as "non-accrual"
and no longer accruing interest; (iii) all loans and leases classified
as "restructured loans and leases"; and (iv) all other "Non-Performing
Assets," as reported in the then most recent call report of such Bank
Subsidiary.
"Note" has the meaning set forth in Section 2.01.
"Obligations" means all debts, liabilities, obligations,
covenants and duties of the Borrower arising under any of the Loan
Documents, whether direct or indirect, absolute or contingent, due or
to become due, and whether now existing or hereafter arising.
"Obligations of Reimbursement" has the meaning given in Section
2.16(a).
"PBGC" means the Pension Benefit Guaranty Corporation or any
entity succeeding to any or all of its functions under ERISA.
"Percentage" means, with respect to each Lender, the percentage
so designated next to such Lender's name in Exhibit A, as such
percentage may be adjusted from time to time pursuant to Section 9.11.
"Permitted Acquisition" means the acquisition by the Borrower or
any of its Subsidiaries of stock or other equity interests in any
other Person, the consolidation or merger of any other Person into the
Borrower or any of its Subsidiaries, or the transfer of any assets of
any other Person to the Borrower or any of its Subsidiaries outside
the ordinary course of business, in each case so long as:
(i) no Default or Event of Default is continuing at the time of
such acquisition, consolidation, merger or transfer, or
would be caused by such acquisition, consolidation, merger
or transfer;
(ii) all authorizations of governmental agencies, bodies or
authorities which are necessary to approve the acquisition
have been obtained and are in full force and effect, or will
be obtained contemporaneously with the making of any Advance
for such purpose, and no further approval, consent, order or
authorization of or designation, registration, declaration
or filing with any governmental authority is required in
connection therewith;
(iii) in the case of any consolidation or merger, the continuing
or surviving corporation shall be controlled by the Borrower
immediately following the transaction; provided, however,
-------- -------
that (A) a Subsidiary may merge with and into the Borrower
or another Subsidiary, but (B) under no circumstances may
the Borrower merge into or consolidate with any Subsidiary;
and
(iv) any notice required in connection with such acquisition
pursuant to Section 5.09 shall have been timely given.
"Person" means an individual, partnership, corporation, business
trust, joint stock company, trust, unincorporated association, joint
venture, governmental authority, or other juridical entity of whatever
nature.
"Plan" means any employee benefit or other plan established,
maintained, or to which contributions have been made by the Borrower
or any ERISA Affiliate.
"Primary Equity Capital" of an entity means the aggregate of the
allowance for loan and lease losses of such entity, as reported in the
most recent Form 10-Q or Form 10-K filed by the Borrower with the
Securities and Exchange Commission, plus the Equity Capital of such
entity.
"Prohibited Transaction" means any transaction prohibited by
Section 406 of ERISA or Section 4975 of the Internal Revenue Code, as
amended from time to time.
"Reportable Event" means any of the events set forth in Section
4043 of ERISA.
"Required Lenders" means Lenders (including, where relevant,
Additional Lenders) having an aggregate Percentage of 66 2/3% or more.
"Return on Assets" of a Person means the percentage determined by
dividing the Net Income of such Person for the four calendar quarters
immediately preceding the date of determination by its total average
assets during such period. The total average assets of a Person shall
be as reported in quarterly financial statements for such period or,
in the case of a Bank Subsidiary, in its four most recent quarterly
call reports.
"Revolving Credit Termination Date" means August 12, 2004.
"San Francisco Company" means The San Francisco Company, a
Delaware corporation.
"San Francisco Company Guarantee" means the Guaranty in the form
of Exhibit E to this Agreement, whereby San Francisco Company
guarantees to the Lenders payment of the Obligations.
"San Francisco Company Security Agreement" means the San
Francisco Company Security Agreement in the form of Exhibit F,
pledging to the Agent for the ratable benefit of the Lenders all of
the stock of First Bank.
"Subordinated Debt" means indebtedness of the Borrower or any of
its Subsidiaries which is subordinated in right of payment to all
indebtedness of the Borrower to any Lender, on terms that have been
approved in writing by the Required Lenders and that have been noted
by appropriate legend on all instruments evidencing the Subordinated
Debt.
"Subsidiary" means, as to Borrower, any corporation with total
assets exceeding $1,000,000 of which shares of stock having ordinary
voting power (other than stock having such power only by reason of the
happening of a contingency) to elect a majority of the board of
directors or other managers of such corporation are at the time owned,
or the management of which corporation is otherwise controlled,
directly or indirectly through one or more intermediaries, or both, by
the Borrower or a Subsidiary of Borrower.
"Tier I Risk Based Capital Ratio" shall be defined and calculated
in accordance with Federal Reserve Board Regulation Y in the case of
the Borrower and in accordance with Section 38 of the Federal Deposit
Insurance Act in the case of a Bank Subsidiary.
"Total Risk Based Capital Ratio" shall be defined and calculated
in accordance with Federal Reserve Board Regulation Y in the case of
the Borrower and in accordance with Section 38 of the Federal Deposit
Insurance Act in the case of a Bank Subsidiary.
Section 1.02. Accounting Terms. All accounting terms not
------------------
specifically defined herein shall be construed in accordance with GAAP
consistent with those applied in the preparation of the financial statements and
reports referred to in Section 4.05, and all financial data submitted pursuant
to this Agreement shall be prepared in accordance with such principles.
ARTICLE II.
AMOUNT AND TERMS OF REVOLVING LOAN AND LETTER OF CREDIT FACILITIES
Section 2.01 Advances.
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(a) Each Lender agrees, severally but not jointly, on the terms
and subject to the conditions hereinafter set forth, to make Advances
to the Borrower from time to time during the period from the date
hereof to and including the Revolving Credit Termination Date in an
aggregate amount not to exceed at any time outstanding that Lender's
Commitment Amount. The total amount of the Advances outstanding at any
time hereunder shall not exceed the Commitments. Within the limits of
the Commitments, the Borrower may borrow, prepay pursuant to Section
2.07 and reborrow under this Section 2.01. The Advances made by each
Lender shall be evidenced by and repayable in accordance with a single
promissory note of the Borrower (a "Note") payable to the order of
that Lender, substantially in the form of Exhibit G hereto, dated the
date hereof. The Notes shall bear interest on the unpaid principal
amount thereof from the date thereof until paid as set forth in
Section 2.02.
(b) Each Borrowing under this Section 2.01 shall occur following
written or telephonic request to the Agent from the Borrower, any
telephonic request to be confirmed by fax in such form as the Borrower
and the Agent may agree. Each such notice or request shall specify (i)
the date of the requested Borrowing, (ii) the amount thereof, and
(iii) if any portion of such Borrowing will bear interest at a
Eurodollar Rate, the Interest Period selected by the Borrower with
respect thereto. Such notice or request must be received by the Agent
not later than 1:00 p.m. (Minneapolis time) on the Bank Business Day
prior to the day on which such Borrowing is to occur or, if all or any
portion of the Borrowing will bear interest at a Eurodollar Rate, not
later than three Eurodollar Business Days prior to the date on which
such Borrowing is to occur. Upon receiving a request for a Borrowing
under this Section 2.01, and in any event not later than 2:00 p.m.
(Minneapolis time) on the day that the request is received, the Agent
will notify the Lenders of the amount of the requested Borrowing, the
amount of each Lender's Advance with respect thereto, and, if
applicable, the fact that the Borrower has elected a Eurodollar Rate
and the Interest Period selected by the Borrower. Upon fulfillment of
the applicable conditions set forth in Article III, each Lender shall
remit its Percentage of the requested Borrowing to the Agent in
immediately available funds. So long as a Lender receives notice of
the requested Borrowing prior to 2:00 p.m. (Minneapolis time) on the
date the request is received, that Lender will make its Advance with
respect to that Borrowing available to the Agent by wire transfer of
immediately available funds to the Agent not later than 11:00 a.m.
(Minneapolis time) on the date called for in such notice. If payment
is not made by a Lender when due hereunder interest on the unpaid
amount shall accrue from and including the due date to the date of
payment at the Base Rate, and shall be payable on demand. Prior to
12:00 noon (Minneapolis time) on the day of the requested Borrowing,
the Agent shall disburse such funds by wire transferring the same to
an account designated by the Borrower at First Bank or in such other
manner as the Agent and the Borrower may from time to time agree in
writing. The Agent shall have no obligation to disburse the requested
Borrowing if any condition set forth in Article III has not been
satisfied on the day of the requested Borrowing. Each Borrowing shall
be in the amount of $1,000,000 or an integral multiple of $100,000
greater than $1,000,000. The Borrower shall promptly confirm each
telephonic request for an Advance by executing and delivering an
appropriate confirmation certificate to the Agent. The Borrower shall
be obligated to repay all Advances made to it notwithstanding the fact
that the person requesting the same was not in fact authorized so to
do. Any request for an Advance shall be deemed to be a representation
that the statements set forth in Article IV are correct except to the
extent that the same relate specifically to an earlier date.
(c) In the event that any one or more Lenders' obligations to
make Advances at the Eurodollar Rate are suspended pursuant to Section
2.02(d) following a request for a Borrowing that specifies that a
Eurodollar Rate is to apply, such Lenders shall nevertheless be
obliged to fund their respective Advances, and such Advances shall
bear interest at the Floating Rate until they are repaid or until such
Lenders may again make, maintain or fund Advances at the Eurodollar
Rate and the Borrower requests pursuant to Section 2.02(b) that a
Eurodollar Rate be applicable to such Advances.
Section 2.02 Interest
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(a) Floating Rate. Unless the Borrower elects a Eurodollar Rate
pursuant to Section 2.01(b) or subsection (b) of this Section, the
principal balance of the Notes shall bear interest at the Floating
Rate.
(b) Conversion of Principal to Eurodollar Rates. At the election
of the Borrower, which may be exercised from time to time, the
Borrower may request in writing or by telephone that a Eurodollar Rate
be applicable for the portion of the outstanding principal balance of
the Notes (including any Advance requested or to be requested) and for
the Interest Period indicated by the Borrower in its request. The
portion of the outstanding balance of the Notes for which a Eurodollar
Rate is requested must, on the first day of the applicable Interest
Period, either (A) bear interest at the Floating Rate, or (B) bear
interest at a Eurodollar Rate with respect to which the Interest
Period expires on such first day. A request for a Eurodollar Rate must
be received by the Agent before 1:00 p.m. (Minneapolis time) on the
day three Eurodollar Business Days before the first day of the
proposed Interest Period. Upon receiving a request for a Eurodollar
Rate, and in any event not later than the close of business on the day
that the request is received, the Agent will notify the Lenders of the
principal amount to be subject to such Eurodollar Rate and the
Interest Period applicable thereto. Not later than 4:00 p.m.
(Minneapolis time) on the second Eurodollar Business Day prior to the
date on which such Eurodollar Rate is to become effective, the Agent
will notify the Lenders and the Borrower of the interest rate to be
applicable thereto. Following a request for a Eurodollar Rate under
this Section or Section 2.01, the Eurodollar Rate as determined
hereunder shall be the interest rate applicable for the proposed
Interest Period to the portion of the outstanding principal balance of
the Notes to which the quotation related, subject to fluctuations in
the applicable Margin (and the remaining part of the principal balance
of the Notes, if any, shall continue to bear interest at the rate or
rates previously applicable to such amounts). At the termination of
such Interest Period, the interest rate applicable to the portion of
the principal balance of the Notes to which the Eurodollar Rate
quotation was applicable shall revert to the Floating Rate unless a
new Eurodollar Rate quotation is requested by the Borrower in
accordance with this paragraph.
(c) Setting and Notice of Rates. The Eurodollar Rate applicable
to each Eurodollar Rate Funding shall be determined by the Agent
between the opening of business and 11:00 a.m. (Minneapolis time) on
the second Eurodollar Business Day prior to the beginning of the
applicable Interest Period. Promptly following such determination, the
Agent shall give notice thereof (which may be by telephone if promptly
confirmed by fax) to the Borrower and each Lender. Each such
determination of the applicable Eurodollar Rate shall be conclusive
and binding upon the parties hereto, in the absence of demonstrable
error. The Agent, upon written request of the Borrower or any Lender,
shall deliver to the Borrower or such requesting Lender a statement
showing the computations used by the Agent in determining the
applicable Eurodollar Rate hereunder.
(d) Limitations on Eurodollar Rate Fundings. In no event shall
more than six Eurodollar Rate Fundings be outstanding at any one time.
In no event may the Borrower request a Eurodollar Rate Funding if,
after giving effect to such Eurodollar Rate Funding, the Borrower
would be required to prepay the Eurodollar Rate Funding in order to
pay the principal amount of the Advances on the Revolving Credit
Termination Date. In no event may the Borrower rescind any request for
a Eurodollar Rate Funding once made. Notwithstanding anything to the
contrary in this Agreement, the Agent and the Lenders shall have no
obligation to honor any request for a Eurodollar Rate Funding if a
Default or Event of Default has occurred and is continuing when such
request is made or on the first day of the Interest Period applicable
thereto. If on or prior to the first day of any Interest Period the
Agent reasonably determines (which determination shall be conclusive)
that by reason of circumstances affecting the relevant market,
adequate and reasonable means do not exist for ascertaining the
Eurodollar Rate for such Interest Period, or the Required Lenders
reasonably determine (which determination shall be conclusive) and
notify the Agent that the Eurodollar Rate will not adequately and
fairly reflect the cost to the Lenders of funding the requested
Eurodollar Rate Funding for such Interest Period, then the Agent shall
give the Borrower prompt notice thereof specifying the amounts or
periods, and so long as such condition remains in effect, the Lenders
shall be under no obligation to fund any Eurodollar Rate Fundings and
the Borrower shall, on the last day(s) of the then current Interest
Period(s) for the outstanding Eurodollar Rate Fundings, either prepay
such Eurodollar Rate Fundings or convert such Eurodollar Rate Fundings
into Floating Rate Borrowings in accordance with the terms of this
Agreement. Notwithstanding any other provision of this Agreement, in
the event that it becomes unlawful for any Lender to make, maintain,
or fund Advances at the Eurodollar Rate hereunder, then such Lender
shall promptly notify the Borrower thereof and such Lender's
obligation to make, maintain or fund Advances at the Eurodollar Rate
shall be suspended until such time as such Lender may again make,
maintain, and fund Advances at the Eurodollar Rate. If the obligation
of any Lender to make, maintain or fund Advances at the Eurodollar
Rate shall be suspended pursuant to this subsection 2.02(d), such
Lender's affected Advances shall be automatically converted into
Floating Rate Advances on the last day(s) of the then current Interest
Period(s) for the affected Advances.
(e) Records. Absent error, the records of the Agent shall be
conclusive evidence as to the amount of each Eurodollar Rate Funding
and the interest rate and Interest Period applicable thereto.
(f) Default Interest. Upon the occurrence of any Default or Event
of Default, and so long as such Default or Event of Default continues
without written waiver thereof by the Required Lenders, each Note
shall bear interest at an annual rate that shall be four percent
(4.00%) plus the annual rate at which interest would otherwise accrue
on that Note. Accrual of interest at such increased rate shall not be
deemed a waiver or excuse of any such Default or Event of Default.
Section 2.03 Margin and L/C Margin.
---------------------
(a) Generally. The Margin and the L/C Margin through and
including the first adjustment occurring as specified below shall be
1.00% and 1.125% respectively. Beginning with the receipt by the
Lenders of the financial statements and Compliance Certificate for the
period ending September 30, 2003, the Margin and the L/C Margin shall
be adjusted each quarter on the basis of the Funded Debt Ratio as at
the end of the previous fiscal quarter, in accordance with the
following table:
Funded Debt Ratio Margin in Basis Points L/C Margin in Basis Points
----------------- ---------------------- --------------------------
1.75 to 1.00 or more 125.0 137.5
1.00 to 1.00 or more, but less 112.5 125.0
than 1.75 to 1.00
Less than 1.00 to 1.00 100.0 112.5
Reductions and increases in the Margin and L/C Margin will be made
quarterly on the first day of the month following the date the
Borrower's financial statements and Compliance Certificate required
under Section 5.01 are due. Notwithstanding the foregoing, (i) if the
Borrower fails to deliver any financial statements or Compliance
Certificates when required under Section 5.01, the Agent may (and,
upon request of the Required Lenders, shall), by notice to the
Borrower, increase the Margin and L/C Margin to the highest rates set
forth above until such time as the Agent has received all such
financial statements and Compliance Certificates, and (ii) no
reduction in the Margin or the L/C Margin will be made if a Default or
an Event of Default has occurred and is continuing at the time that
such reduction would otherwise be made.
(b) Adjustments. If, upon receipt of the Borrower's audited
financial statements with respect to any fiscal year of the Borrower,
the Margin or L/C Margin is determined to be higher than that based on
the Borrower's interim financial statements as of the end of such
fiscal year, and the Borrower is thus determined to have underpaid
interest or Letter of Credit Fees since the adjustment date following
the end of such fiscal year, the Borrower shall pay such amount on
demand. If, upon such receipt, the Margin or L/C Margin is determined
to be lower than that based on the Borrower's interim financial
statements as of the end of such fiscal year, and the Borrower is thus
determined to have overpaid interest or Letter of Credit Fees since
the adjustment date following the end of such fiscal year, the Lenders
shall credit such overpayment, first, as a prepayment of accrued but
unpaid interest on the Notes, and, second, as a prepayment of interest
thereafter accruing on the Notes.
Section 2.04 Payments.
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(a) Interest. Interest accruing on the principal balance of the
Notes shall be due and payable as follows:
(i) Interest accruing on the principal balance of the Notes at
the Floating Rate each calendar quarter shall be due and
payable on the last day of that calendar quarter, with the
first quarterly payment of interest due on the last day of
September, 2003; and the last payment of interest shall be
due on the Revolving Credit Termination Date.
(ii) Interest on each Eurodollar Rate Funding shall be due and
payable on the last day of the applicable Interest Period
or, if such Interest Period is six months, on the last day
of the third month during such Interest Period, and on the
last day of such Interest Period.
(b) Principal. The principal balance of the Notes shall be due
and payable in full on the Revolving Credit Termination Date.
Section 2.05 Revolving Loan Commitment Fee. The Borrower shall
-----------------------------
pay to the Agent, for the benefit of the Lenders, a commitment fee at an annual
rate equal to 22.5 basis points (.225%) applied to the aggregate daily average
unused amount of the Commitment Amounts. This commitment fee shall be due and
payable quarterly in arrears, with the first payment due September 30, 2003 for
the period from the Closing Date through September 30, 2003, and payments due
quarterly thereafter. Any such commitment fee remaining unpaid on the Revolving
Credit Termination Date shall be due and payable on that date.
Section 2.06 Termination or Reduction of the Commitments. The
---------------------------------------------
Borrower may at any time and from time to time upon 10 calendar days' prior
notice to the Agent permanently terminate the Commitments in whole or
permanently reduce the Commitments in part, without penalty or premium, provided
that (i) the Commitments may not be terminated while any Advances remain
outstanding, (ii) each partial reduction shall be in the amount of $1,000,000 or
a multiple thereof, (iii) any partial reduction of the Commitments shall be pro
rata as to each Lender in accordance with that Lender's Percentage, and (iv) no
reduction shall reduce the Commitments to an amount less than the aggregate
amount of the Advances outstanding at the time.
Section 2.07 Voluntary Prepayments. The Borrower may prepay the
----------------------
portion of the principal balance of the Notes bearing interest at a Floating
Rate (the "Floating Rate Portion") in whole or in part, at any time and from
time to time; provided that (i) prepayment of any Lender's Note must be
accompanied by pro rata prepayment of each other Lender's Note, (ii) any
prepayment of the full amount of any Note shall include accrued interest
thereon, and (iii) each partial prepayment of the Floating Rate Portion of the
Notes shall be in the principal amount of $1,000,000 or an integral multiple of
$100,000 greater than $1,000,000.
The Borrower may prepay the portion of the principal balance of
the Notes bearing interest at a Eurodollar Rate (the "Eurodollar Rate Portion")
in whole or in part, at any time from time to time; provided that (i) prepayment
of any Lender's Note must be accompanied by pro rata prepayment of each other
Lender's Note, (ii) any prepayment of the full amount of any Note shall include
accrued interest thereon, (iii) each partial prepayment of the Eurodollar Rate
Portion of the Notes shall be in the principal amount of $1,000,000 or an
integral multiple of $100,000 greater than $1,000,000, (iv) any prepayment of
the Eurodollar Rate Portion of the Notes shall be made only upon three Bank
Business Days' notice to the Agent, and (v) if the prepayment is made on a date
other than the last day of the applicable Interest Period, such prepayment must
be accompanied by a written agreement from Borrower to reimburse the Lenders for
any amounts due to the Lenders pursuant to Section 2.12(b).
Section 2.08 Computation of Interest and Fees. Interest under the
--------------------------------
Notes and all fees under the Agreement shall be computed on the basis of actual
number of days elapsed in a year of 360 days.
Section 2.09 Making of Payments. All payments of principal and
------------------
interest under the Notes and of the fees hereunder shall be made to the Agent in
immediately available funds. Payments received after 2:00 p.m. (Minneapolis
time) on any day shall be deemed received on the next succeeding Bank Business
Day. The Borrower and the Lenders agree that the amount shown on the books and
records of the Agent as being the principal balance of each Lender's Note shall
be prima facie evidence of such principal amount. Upon Agent's receipt of
written request by Borrower, the Borrower authorizes the Agent to charge against
any account the Borrower may maintain with Wells Fargo Bank, National
Association, an amount equal to the accrued interest and fees from time to time
due and payable to the Agent under the Notes or hereunder, or (at the option of
the Required Lenders) to make an Advance in such amount.
Section 2.10 Payment on Nonbusiness Days. Payments of interest on
---------------------------
Eurodollar Fundings shall be governed by Section 2.04(a)(ii). With respect to
all other payments to be made hereunder or under the Notes, whenever such
payments shall be stated to be due on a day other than a Bank Business Day, such
payment may be made on the next succeeding Bank Business Day, and such extension
of time shall in each case be included in the computation of payment of interest
on such Note or the fees hereunder, as the case may be.
Section 2.11 Use of Proceeds. The proceeds of the Advances shall
---------------
be used by the Borrower (i) for its general corporate purposes, (ii) to
refinance existing indebtedness under the Existing Credit Agreement, and (iii)
for Permitted Acquisitions.
Section 2.12 Fees on Advances and Indemnity. In addition to any
-------------------------------
interest payable on Advances made hereunder and any fees or other amounts
payable hereunder, the Borrower agrees:
(a) If at any time the enactment of any new generally applicable
law, rule or regulation or the issuance of a generally applicable
interpretation or administration thereof by any governmental authority
(including, without limitation, Regulation D of the Federal Reserve
Board):
(i) shall subject any Lender to any tax, duty or other charges
(including but not limited to any tax designed to discourage
the purchase or acquisition of foreign securities or debt
instruments by United States nationals) with respect to this
Agreement, or shall materially change the basis of taxation
of payments to any Lender of the principal of or interest on
any portion of the principal balance of the Notes bearing
interest at a Eurodollar Rate (except for the imposition of
or changes in respect of the rate of tax on the overall net
income of that Lender); or
(ii) shall impose or deem applicable or increase any reserve,
special deposit or similar requirement against assets of,
deposits with or for the account of, or credit extended by
any Lender because of any portion of the principal balance
of any Note bearing interest at a Eurodollar Rate;
and the result of any of the foregoing would be to increase the cost
to that Lender of making or maintaining any such portion or to reduce
any sum received or receivable by that Lender with respect to such
portion, then, within 30 days after demand by any Lender specifying
the basis of the Lender's assertion in reasonable detail, the Borrower
shall pay that Lender such additional amount or amounts as will
compensate that Lender for such increased cost or reduction; provided,
however, that no amount shall be payable by Borrower if the reason for
the additional charges, reserves, special deposit or similar
requirements against a particular Lender arises from a change in the
status of the Lender, rather than from the imposition of such
requirements against commercial lending institutions generally.
(b) The Borrower shall also compensate any Lender, upon written
request by that Lender (which request shall set forth the basis for
requesting such amounts), for all losses and expenses in respect of
any interest or other consideration paid by that Lender to lenders of
funds borrowed by it or deposited with it to maintain any portion of
the principal balance of any Note at a Eurodollar Rate which that
Lender may sustain to the extent not otherwise compensated for
hereunder and not mitigated by the reemployment of such funds to the
extent such loss or expense arises (i) as a consequence of any failure
by the Borrower to make any payment when due of any amount due
hereunder in connection with any Eurodollar Rate Fundings, (ii) due to
any failure of the Borrower to borrow or convert any Eurodollar Rate
Fundings on a date specified therefor in a notice thereof, or (iii)
due to any payment or prepayment of any Eurodollar Rate Funding on a
date other than the last day of the applicable Interest Period for
such Eurodollar Rate Funding. A certificate as to any such loss or
expense (including calculations, in reasonable detail, showing how
that Lender computed such loss or expense) shall be promptly submitted
by that Lender to the Borrower. Such loss or expense may be computed
as though that Lender acquired deposits in the London interbank market
to fund that portion of the principal balance whether or not that
Lender actually did so.
(c) A notice from any Lender under this Section claiming
compensation and setting forth the additional amount or amounts to be
paid to it hereunder shall be conclusive in the absence of error. In
determining any such amount, a Lender may use any reasonable averaging
and attribution methods.
Section 2.13 Capital Adequacy. If any Lender determines at any
-----------------
time that its Return has been reduced as a result of any Capital Adequacy Rule
Change, that Lender may require the Borrower to pay it the amount necessary to
restore its Return to what it would have been had there been no Capital Adequacy
Rule Change. For purposes of this Section:
(a) "Return", for any period, means the percentage determined by
dividing (i) the sum of interest and ongoing fees earned by a Lender
under this Agreement during such period, by (ii) the average capital
that Lender is required to maintain during such period as a result of
its being a party to this Agreement, as reasonably determined in good
faith by that Lender based upon its total capital requirements
pursuant to the Capital Adequacy Rules then in effect. Return may be
calculated for each calendar quarter and for the shorter period
between the end of a calendar quarter and the date of termination in
whole of this Agreement.
(b) "Capital Adequacy Rule" means any law, rule, regulation or
guideline regarding capital adequacy that applies to any Lender, or
the interpretation thereof by any governmental or regulatory authority
with supervisory authority over such Lender. Capital Adequacy Rules
include rules requiring financial institutions to maintain total
capital in amounts based upon percentages of outstanding loans,
binding loan commitments and letters of credit.
(c) "Capital Adequacy Rule Change" means any change applicable to
banks generally in any Capital Adequacy Rule occurring after the date
of this Agreement, but the term does not include any changes in
applicable requirements that at the date hereof are scheduled to take
place under the existing Capital Adequacy Rules or any increases in
the capital that any Lender is required to maintain to the extent that
the increases are required due to a regulatory authority's action
affecting only that Lender.
(d) For purposes of this Section, "Lender" includes (but is not
limited to) the Agent, the Lenders, as defined elsewhere in this
Agreement, any assignee of any interest of any Lender hereunder and
any participant in the loans made hereunder.
The initial notice sent by a Lender shall be sent as promptly as practicable
after that Lender learns that its Return has been reduced, shall include a
demand for payment of the amount necessary to restore that Lender's Return for
the quarter in which the notice is sent, and shall state in reasonable detail
the cause for the reduction in its Return and its calculation of the amount of
such reduction. Thereafter, that Lender may send a new notice during each
calendar quarter setting forth the calculation of the reduced Return for that
quarter and including a demand for payment of the amount necessary to restore
its Return for that quarter.
Section 2.14. Failure of Any Lender to Make Advances. Should any
--------------------------------------
Lender default in making an Advance, the other Lenders shall not be released
from their several obligations to make Advances as agreed hereunder, and, in the
event such defaulting Lender is the Agent, the other Lenders shall forthwith
appoint one of themselves to act as Agent. However, such default shall not
obligate any of the Lenders to increase their Commitment Amounts. Without
limiting any other remedies to which the Borrower may be entitled, Borrower
shall be released from all liability to pay such defaulting Lender any accrued
or future fees under Section 2.05 and the other obligations of the Borrower to
such defaulting Lender under the Loan Documents, except the obligation to repay
the outstanding Revolving Loans theretofore made by such Lender and interest
accrued thereon as provided in the Loan Documents, shall terminate; provided,
--------
however, once such default is cured, then such defaulting Lender shall,
- -------
subsequent thereto, have all rights under the Loan Documents.
Section 2.15. Issuance of Letters of Credit.
-----------------------------
(a) The Agent will issue one or more letters of credit for the
account of the Borrower (each a "Letter of Credit") from time to time
during the period from the date hereof until the Revolving Credit
Termination Date, in an aggregate amount at any time outstanding not
to exceed $20,000,000. Each Letter of Credit, if any, shall be issued
pursuant to a separate L/C Application entered into by the Borrower as
applicant, completed in a manner satisfactory to the Agent and
delivered to the Agent at least five Bank Business Days prior to the
date such Letter of Credit is to be issued. The terms and conditions
set forth in each such L/C Application shall supplement the terms and
conditions hereof, but in the event of inconsistency between the terms
of any such L/C Application and the terms hereof, the terms hereof
shall control.
(b) Each Lender shall be deemed to hold a participation interest
in each Letter of Credit equal to that Lender's Percentage of the face
amount of that Letter of Credit. If the Agent makes any payment
pursuant to the terms of any Letter of Credit and is not promptly
reimbursed, the Agent may request that each Lender pay such Lender's
Percentage of the unreimbursed amount. Upon receipt of any such
request prior to 1:00 p.m. (Minneapolis time) on a Bank Business Day,
the recipient shall be unconditionally and irrevocably obligated to
pay its Percentage of the unreimbursed amount to the Agent in
immediately available funds prior to 3:00 p.m. (Minneapolis time) on
such date. Notices received after 1:00 P.M. (Minneapolis time) shall
be deemed to have been received on the following Bank Business Day. If
payment is not made by a Lender when due hereunder, interest on the
unpaid amount shall accrue from and including the date of the Agent's
request to the date of payment at the Base Rate. After making any
payment to the Agent under this subsection in connection with a
particular Letter of Credit, a Lender shall be entitled to participate
to the extent of its Percentage in the related reimbursements and any
interest thereon received by the Agent from the Borrower or otherwise.
Upon receiving any such reimbursement, the Agent will distribute to
each Lender its Percentage of such reimbursement and any interest
thereon.
(c) No Letter of Credit shall be issued with an expiry date later
than 90 days after the Revolving Credit Termination Date.
(d) Any request for the issuance of a Letter of Credit under this
Section 2.15 shall be deemed to be a representation that the
statements set forth in Article IV hereof are correct except to the
extent that the same relate specifically to an earlier date.
Section 2.16. Payment of Amounts Drawn Under Letters of Credit.
------------------------------------------------
The Borrower agrees to pay the Agent any and all amounts required to be paid
under the applicable L/C Application, when and as required to be paid thereby,
including the amounts designated below, when and as designated:
(a) The Borrower hereby agrees to pay the Agent on the day a
draft is honored under any Letter of Credit a sum equal to all amounts
drawn under such Letter of Credit plus any and all reasonable charges
and expenses that the Agent may pay or incur relative to such draw,
plus interest on all such amounts, charges and expenses as set forth
below (all such amounts are hereinafter referred to, collectively, as
the "Obligation of Reimbursement").
(b) The Borrower hereby agrees to pay the Agent on demand
interest on all amounts, charges and expenses payable by the Borrower
to the Agent under this Section 2.16, accrued from the date any such
draft is paid, or any such charge or expense is paid or incurred, by
the Agent until payment in full by the Borrower at the Floating Rate.
(c) Upon the occurrence of any Default or Event of Default, and
so long as any such Default or Event of Default continues without
written waiver thereof by the Required Lenders, the rate of interest
on all amounts, charges and expenses payable by the Borrower to the
Agent under this Section 2.16 shall be four percent (4.00%) plus the
Floating Rate.
Section 2.17. Special Account.
---------------
(a) If the Commitments are terminated in whole pursuant to
Section 2.06, if an Event of Default shall occur, and in any event on
the Revolving Credit Termination Date, the Borrower shall pay the
Agent in immediately available funds, for deposit in a deposit account
established for the sole purpose of holding such funds, an amount
equal to the maximum aggregate amount available to be drawn under all
Letters of Credit then outstanding, assuming compliance with all
conditions for drawing thereunder (the "Maximum Reimbursement
Obligation"). Alternatively, the Borrower may transfer to the Agent
cash and Permissible Securities for deposit in a securities account
established for the sole purpose of holding such funds, of an
aggregate Collateral Value equal to the Maximum Reimbursement
Obligation; provided, however, that if the Borrower wishes to transfer
-------- -------
Permissible Securities in lieu of cash, it must simultaneously deliver
to the Agent such account and control agreements and such other
documents as the Agent may reasonably determine are necessary in order
to establish and perfect the security interest referred to in
subsection (c), below. Any such deposit account or securities account
shall be referred to herein as the "Special Account."
(b) "Permissible Securities" means securities described in
Exhibit H, and the "Collateral Value" of a Permissible Security is its
market value, as reasonably determined by the Agent, multiplied by the
percentage determined pursuant to Exhibit H. The "Collateral Value" of
cash is its face value.
(c) The Borrower hereby grants to the Agent, for the benefit of
the Lenders, a security interest in the Special Account and all funds
and Permissible Securities held therein from time to time and all
proceeds thereof, as security for the payment of all Obligations. Any
interest earned on funds and Permissible Securities deposited in the
Special Account shall be credited to the Special Account. Amounts on
deposit in the Special Account may be applied by the Agent at any time
or from time to time to the Borrower's Obligation of Reimbursement or
any other Obligations, in the Agent's sole discretion, and shall not
be subject to withdrawal by the Borrower so long as the Agent
maintains a security interest therein. The Agent agrees to transfer
any balance of cash or Permisssible Securities in the Special Account
to the Borrower at such time as the Obligations have been paid in
full.
Section 2.18. Authorization for Borrowing. In the event that the
---------------------------
Borrower shall be obligated to make any payment pursuant to Section 2.16(a) or
any payment or transfer of securities pursuant to Section 2.17, and shall not
have made other arrangements for payment or transfer of securities as of the due
date, then the Agent will initiate a Borrowing in an amount not to exceed the
amount available to be borrowed pursuant to Section 2.01 without request from
the Borrower and use the proceeds to satisfy such payment obligation. The
procedure for such Borrowing, and the Agent's and Lenders' rights and
Obligations with respect thereto, shall be in all respects identical to those
applicable to a Borrowing initiated by the Borrower pursuant to Section 2.01,
and such Borrowing shall not itself cause a Default or Event of Default. Such
Borrowing shall bear interest at the Floating Rate.
Section 2.19. Letter of Credit Fees. The Borrower agrees to
----------------------
pay fees as follows:
(a) Letter of Credit Fees. The Borrower agrees to pay the Agent
for the benefit of the Lenders a fee with respect to each Letter of
Credit, if any, accruing on a daily basis and computed at an annual
rate equal to the L/C Margin of the aggregate amount that may then be
drawn on all issued and outstanding Letters of Credit from and
including the date of issuance of each such Letter of Credit until
such date as each such Letter of Credit shall terminate by its terms
or be fully drawn, due and payable quarterly in arrears on the last
day of each calendar quarter, commencing September 30, 2003, and on
the date when the last Letter of Credit expires or is fully drawn. The
foregoing fee shall be in addition to any and all fees, commissions
and charges of the Agent with respect to or in connection with any
such Letter of Credit. Upon the occurrence of any Default or Event of
Default, and so long as such Default or Event of Default continues
without written waiver thereof by the Required Lenders, the annual
rate at which such fee accrues shall be four percent (4.00%) plus the
L/C Margin. Accrual of such fee at such increased rate shall not be
deemed a waiver or excuse of any such Default or Event of Default.
(b) Letter of Credit Administrative Fees. The Borrower agrees to
pay the Agent, on demand, the administrative fees charged by the Agent
in connection with issuing Letters of Credit, honoring drafts under
Letters of Credit, amendments thereto, transfers thereof and all other
activity with respect to Letters of Credit at the then-current rates
published by the Agent for such services rendered on behalf of
customers of the Agent generally and provided to the Borrower.
(c) Letter of Credit Commitment Fee. The Borrowers shall pay to
Agent for the benefit of Lenders a commitment fee at an annual rate
equal to 22.5 basis points (.225%) applied to the aggregate daily
average unused amount of the Letter of Credit Commitment Amount. The
commitment fee shall be due and payable quarterly in arrears with the
first quarterly payment due September 30, 2003. Any such commitment
fee remaining unpaid on the Revolving Credit Termination Date shall be
due and payable on that date.
Section 2.20 Termination or Reduction of Letter of Credit
--------------------------------------------------
Commitment. The Borrower may at any time and from time to time upon ten (10)
- ----------
calendar days' prior notice to Agent, permanently terminate the Letter of Credit
Commitment in whole or permanently reduce the Letter of Credit Commitment in
part, without penalty or premium, provided that (i) Letter of Credit Commitment
shall in all events be terminated in full if the Commitments are terminated in
full pursuant to Section 2.06, (ii) each partial reduction shall be in the
amount of $1,000,000.00 or a multiple thereof, and (iii) no reduction shall
reduce the Letter of Credit Commitment to an amount less than the aggregate
amount of all outstanding Letters of Credit at that time.
ARTICLE III.
CONDITIONS PRECEDENT
Section 3.01 Initial Conditions Precedent. The obligation of the
----------------------------
Lenders to make any Advance and the obligation of the Agent to issue any Letter
of Credit are subject to the condition precedent that the Agent shall have
received on or before the day of the first Advance or issuance all of the
following, each dated (unless otherwise indicated) as of the date hereof, in
form and substance satisfactory to each Lender:
(a) The Notes, properly executed on behalf of the Borrower.
(b) Current searches of appropriate filing offices showing that
(i) no state or federal tax liens have been filed and remain in effect
against any of the Borrower, First Bank or San Francisco Company, (ii)
no financing statements have been filed and remain in effect against
any of the Borrower First Bank or San Francisco Company except
financing statements perfecting only Liens permitted under Section
6.01, and (iii) no judgment liens are in effect against any of the
Borrower or First Bank or San Francisco Company.
(c) Separate certificates of the secretaries of the Borrower and
San Francisco Company certifying, in the case of each such
corporation, (i) that the execution, delivery and performance of the
Loan Documents and other documents contemplated hereunder to which
such corporation is a party have been duly approved by all necessary
action of the Board of Directors of such corporation, and attaching
true and correct copies of the applicable resolutions granting such
approval, (ii) that attached to such certificate are true and correct
copies of the articles of incorporation and bylaws of such
corporation, together with such copies, and (iii) the names of the
officers of such corporation who are authorized to sign the Loan
Documents and other documents contemplated hereunder to which such
corporation is a party, including, with respect to the Borrower,
requests for Advances and L/C Applications, together with the true
signatures of such officers. The Agent and the Lenders may
conclusively rely on each such certificate until they shall receive a
further certificate of the Secretary or Assistant Secretary of the
applicable corporation canceling or amending the prior certificate and
submitting the signatures of the officers named in such further
certificate.
(d) A certificate of good standing of the Borrower, San Francisco
Company and First Bank, dated not more than twenty (20) days before
the date of the first Advance.
(e) A signed copy of an opinion of counsel for the Borrower and
its Subsidiaries, addressed to the Lenders as to matters referred to
in Sections 4.01, 4.02, 4.03 and 4.07, and as to such other matters as
the Lenders may reasonably request, with that opinion being subject to
customary assumptions and limitations and reasonably acceptable to
each Lender's counsel. In the case of Section 4.07, the opinion may be
to the best knowledge of such counsel, and, in the case of Section
4.03, insofar as it relates to enforcement of remedies, it may be
subject to applicable bankruptcy, insolvency, reorganization or
similar laws affecting the rights of creditors generally from time to
time, and to usual equity principles.
(f) The Borrower Pledge Agreement, duly executed by the Borrower.
(g) Certificates representing, in the aggregate, all of the
issued and outstanding capital stock of San Francisco Company and one
blank stock power executed by Borrower for each such certificate.
(h) The San Francisco Company Security Agreement, duly executed
by San Francisco Company.
(i) Certificates representing, in the aggregate, all of the
issued and outstanding capital stock of First Bank and one blank stock
power executed by San Francisco Company for each such certificate.
(j) The San Francisco Company Guarantee, duly executed by San
Francisco Company.
(k) Evidence that all of the Borrower's obligations under the
Existing Credit Agreement have been paid and discharged in full, or
will be so paid and discharged from proceeds of the first Borrowing.
It is acknowledged that Agent currently maintains possession of the documents
described in subsections (g) and (i) pursuant to the Existing Credit Agreement;
and that such possession will satisfy the requirements of such subsections.
Section 3.02 Conditions Precedent to All Advances. The obligation
------------------------------------
of each Lender to make any Advance (including the initial Advance) and the
obligation of the Agent to issue any Letter of Credit shall be subject to the
further conditions precedent that on the date of such Advance:
(a) The representations and warranties contained in Article IV
are correct on and as of the date of such Advance as though made on
and as of such date, except to the extent that such representations
and warranties relate solely to an earlier date.
(b) No event has occurred and is continuing, or would result from
such Advance, which constitutes a Default or an Event of Default.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to the Lenders as follows:
Section 4.01 Corporate Existence and Power. The Borrower and each
-----------------------------
of its Subsidiaries (i) is a corporation duly incorporated, validly existing and
in good standing under the laws of the state of its incorporation, and is duly
licensed or qualified to transact business in all jurisdictions where the
character of the property owned or leased or the nature of the business
transacted by it makes such licensing or qualification necessary and where
failure to be so licensed or qualified would have a materially adverse impact on
its business or properties; (ii) is in compliance with the requirements of
applicable laws and regulations, the noncompliance with which would materially
and adversely affect its business or financial condition; and (iii) has all
requisite power and authority to conduct its business, to own its properties and
to execute and deliver, and to perform all of its obligations under, the Loan
Documents.
Section 4.02 Authorization of Borrowing; No Conflict as to Law
---------------------------------------------------
or Agreements. The execution, delivery and performance by the Borrower and each
- -------------
of its Subsidiaries of the Loan Documents to which it is a party and the
Borrowings and requests for Letters of Credit from time to time hereunder have
been duly authorized by all necessary corporate action and do not and will not
(i) require any consent or approval of the stockholders of the Borrower or any
of its Subsidiaries, or any authorization, consent or approval by any
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, except such as have already been obtained, (ii) violate any
provision of any law, rule or regulation (including, without limitation,
Regulation X of the Board of Governors of the Federal Reserve System) or of any
order, writ, injunction or decree presently in effect having applicability to
the Borrower or any of its Subsidiaries or of the Articles of Incorporation or
Bylaws of the Borrower or any of its Subsidiaries, (iii) result in a breach of
or constitute a default under any indenture or loan or credit agreement or any
other material agreement, lease or instrument to which the Borrower or any of
its Subsidiaries is a party or by which it or its properties may be bound or
affected, or (iv) result in, or require, the creation or imposition of any Lien
or other charge or encumbrance of any nature upon or with respect to any of the
properties now owned or hereafter acquired by the Borrower or any of its
Subsidiaries.
Section 4.03 Legal Agreements. This Agreement and the other Loan
----------------
Documents to which it is a party constitute, the legal, valid and binding
obligations of the Borrower and each of its Subsidiaries, as applicable,
enforceable against each such party in accordance with their respective terms.
Section 4.04 Subsidiaries. Except as listed in Schedule 4.04, as
------------
of the date of this Agreement the Borrower has no direct or indirect
Subsidiaries. The percentage of the capital stock of each Subsidiary owned by
the Borrower or by one or more other Subsidiaries is as set forth in Schedule
4.04.
Section 4.05 Financial Condition. The Borrower has heretofore
--------------------
furnished to the Lenders its audited financial statements as of December 31,
2002, and call reports of the Bank Subsidiaries dated as of June 30, 2003. Those
financial statements fairly present the financial condition of the Borrower and
its Subsidiaries on the dates thereof and the results of their operations and
cash flows for the periods then ended, and were prepared in accordance with
GAAP, subject, in the case of the interim financial statements, to year-end
audit adjustments.
Section 4.06 Adverse Change. There has been no material adverse
--------------
change in the business, properties or condition (financial or otherwise) of the
Borrower or its Subsidiaries since the date of the latest financial statements
referred to in Section 4.05.
Section 4.07 Litigation. Except as disclosed in Schedule 4.07, as
----------
of the date of this Agreement, there are no actions, suits or proceedings
pending or, to the knowledge of the Borrower, threatened against or affecting
the Borrower or any of its Subsidiaries or the properties of the Borrower or any
of its Subsidiaries before any court or governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign, which, if
determined adversely to the Borrower or any of its Subsidiaries, would have a
material adverse effect on the financial condition, properties, or operations of
the Borrower or any of its Subsidiaries.
Section 4.08 Regulation U. No part of the proceeds of any Advance
------------
will be used by the Borrower or any Bank Subsidiary directly or indirectly, (i)
to purchase or carry any margin stock (as defined in Regulation U of the Board
of Governors of the Federal Reserve System; herein, the "Board") or to extend
credit to others for the purpose of purchasing or carrying any margin stock or
(ii) for any purpose which entails a violation of, or which is inconsistent
with, the provisions of Regulation U issued by the Board.
Section 4.09 Taxes. The Borrower and each of its Subsidiaries has
-----
paid or caused to be paid to the proper authorities when due all federal, state
and local taxes required to be withheld by it. The Borrower and each of its
Subsidiaries has filed all federal, state and local tax returns which to the
knowledge of the officers of the Borrower are required to be filed, and the
Borrower and each of its Subsidiaries has paid or caused to be paid to the
respective taxing authorities all taxes as shown on said returns or on any
assessment received by it to the extent such taxes have become due, other than
taxes whose amount, applicability or validity is being contested in good faith
by appropriate proceedings and for which the Borrower or its Subsidiary, as
applicable, has provided adequate reserves in accordance with GAAP.
Section 4.10 Titles. The Borrower or its Subsidiaries, as
------
applicable, have good title to each of the material properties and assets
reflected in the latest balance sheet referred to in Section 4.05.
Section 4.11 ERISA. As of the date of this Agreement, no Plan
-----
established or maintained by the Borrower or any ERISA Affiliate that is subject
to Part 3 of Subtitle B of Title I of ERISA had an accumulated funding
deficiency (as such term is defined in Section 302 of ERISA) in excess of
$1,000,000 as of the last day of the most recent fiscal year of such Plan ended
prior to the date hereof, and no liability to the Pension Benefit Guaranty
Corporation or the Internal Revenue Service in excess of such amount has been,
or is expected by the Borrower or any ERISA Affiliate to be, incurred with
respect to any Plan of the Borrower or any ERISA Affiliate. Neither the Borrower
nor any of its Subsidiaries has any contingent liability with respect to any
post-retirement benefit under a Welfare Plan as described in Section 3(1) of
ERISA, other than liability for continuation coverage described in Part 6 of
Subtitle B of Title I of ERISA.
Section 4.12 Regulatory Matters. Borrower is registered as a bank
------------------
holding company under the Bank Holding Company Act, as amended ("BHCA"). First
Bank is an "insured depository institution" as defined in the Federal Deposit
Insurance Act, as amended ("FDIA"), and the applicable regulations thereunder
and the deposits of First Bank are insured by the Bank Insurance Fund of the
Federal Deposit Insurance Corporation to the maximum extent permitted under the
FDIA.
ARTICLE V.
AFFIRMATIVE COVENANTS
So long as any Note or L/C Application or any other Obligation
hereunder shall remain unpaid, any Commitments shall be outstanding or the Agent
shall have any obligation to issue Letters of Credit, the Borrower will comply,
and will cause each of its Subsidiaries to comply, with the following
requirements, unless the Required Lenders shall otherwise consent in writing:
Section 5.01 Reporting Requirements. The Borrower will deliver to
----------------------
each Lender:
(a) As soon as available, and in any event within 90 days after
the end of each fiscal year of the Borrower, a copy of the annual
audit report of the Borrower with the unqualified opinion of
independent certified public accountants selected by the Borrower and
to which the Agent and the Required Lenders do not reasonably object.
(b) As soon as available, and in any event within 45 days after
the end of each fiscal quarter of the Borrower, a copy of the
Borrower's Form 10Q filed with the SEC with respect to such fiscal
quarter.
(c) As soon as available, and in any event within 90 days after
the end of each fiscal year of the Borrower, the Complete Annual
Report of Domestic Holding Companies (FRY-6 Report) required by the
Federal Reserve Bank of St. Louis.
(d) As soon as available, and in any event no later than 45 days
after the end of each calendar quarter, the complete FRY-9LP and
FRY-9C reports required to be filed by the Borrower and its
Subsidiaries quarterly with the Federal Reserve Banks of the districts
where they are located.
(e) As soon as available, and in any event within 45 days after
the end of each calendar quarter, the complete call report prepared by
each Bank Subsidiary at the end of such calendar quarter in compliance
with the requirements of any federal or state regulatory agency which
has authority to examine such Bank Subsidiary, prepared in accordance
with the requirements imposed by the applicable regulatory authorities
and applied on a basis consistent with the accounting practices
reflected in any previous call reports and similar statements
delivered to the Agent prior to the date of this Agreement.
(f) As soon as available, and in any event within 45 days after
the end of each calendar quarter, a Compliance Certificate, duly
executed by the chief financial officer of the Borrower and one (1)
additional officer of the Borrower identified on the signature page of
the form of certificate attached hereto as Exhibit C.
(g) Unless covered by insurance, promptly after the Borrower
learns of the commencement thereof, notice in writing of all
litigation and of all proceedings before any governmental or
regulatory agency which, if determined adversely to the Borrower or
any of its Subsidiaries, would have a material adverse effect on the
financial condition, properties or operations of the Borrower and its
Subsidiaries, taken as a whole.
(h) As promptly as practicable (but in any event not later than
five business days) after the Borrower or an executive officer of any
of its Subsidiaries obtains knowledge of the occurrence of any Default
or Event of Default, notice of such occurrence, together with a
detailed statement by a responsible officer of the Borrower of the
steps being taken by the Borrower to cure the effect of such event.
(i) Promptly upon the filing thereof, copies of all registration
statements and all annual and quarterly reports which the Borrower or
any Subsidiary of the Borrower shall have filed with the Securities
and Exchange Commission.
(j) Such other information respecting the financial condition and
results of operations of the Borrower or any of its Subsidiaries as
any Lender may from time to time reasonably request.
Section 5.02 Books and Records; Inspection and Examination. The
----------------------------------------------
Borrower and each of its Subsidiaries will keep accurate books of record and
account for itself in which true and complete entries will be made in accordance
with GAAP and, upon request of any Lender, will give any representative of that
Lender reasonable access to, and permit such representative to examine, copy or
make extracts from, any and all books, records and documents in its possession,
to inspect any of its properties and to discuss its affairs, finances and
accounts with any of its principal officers, all at such times during normal
business hours and as often as any Lender may reasonably request; provided,
--------
however, that with respect to the loans made by any Bank Subsidiary, a Lender
- -------
may only review and make copies of summaries of the watch lists prepared on a
quarterly basis and loan credit reports; review of specific loan accounts and
loan review reports may be requested by any Lender, whereupon the Borrower and
such Lender shall within 10 days agree to the number of such accounts and
reports that are reasonable and appropriate to review; provided further,
-----------------
however, that during the continuance of any Default or Event of Default, there
- -------
shall be no restrictions upon the scope of the review, inspection and
reproduction rights of the Lenders concerning the loans of any Subsidiary.
Section 5.03 Compliance with Laws. The Borrower and each of its
---------------------
Subsidiaries will comply with the requirements of applicable laws and
regulations, the noncompliance with which would materially and adversely affect
its business or the financial condition of the Borrower or any of its
Subsidiaries.
Section 5.04 Payment of Taxes and Other Claims. The Borrower and
---------------------------------
each of its Subsidiaries will pay or discharge, when due, (a) all taxes,
assessments and governmental charges levied or imposed upon it or upon its
income or profits, or upon any properties belonging to it, prior to the date on
which penalties attach thereto, (b) all federal, state and local taxes required
to be withheld by it, and (c) all lawful claims for labor, materials and
supplies which, if unpaid, might by law become a Lien or charge upon any
properties of the Borrower or any of its Subsidiaries; provided, that neither
the Borrower nor any of its Subsidiaries shall be required to pay any such tax,
assessment, charge or claim whose amount, applicability or validity is being
contested in good faith by appropriate proceedings and for which the Borrower or
its Subsidiary, as applicable, has provided adequate reserves in accordance with
GAAP.
Section 5.05 Operations. The Borrower will, and will cause each
----------
of its Subsidiaries to, operate and maintain its business and property in the
ordinary course in a prudent manner consistent with sound banking practices and
in such a manner that the performance by the Borrower of its Obligations
hereunder is not jeopardized or impaired.
Section 5.06 Insurance. The Borrower and each of its Subsidiaries
---------
will obtain and maintain insurance with insurers believed by it to be
responsible and reputable, in such amounts and against such risks as the
Borrower considers prudent and economical. Without limiting the foregoing, the
Borrower will cause the Bank Subsidiaries to maintain blanket bond coverage,
property and casualty coverage, and errors and omissions coverage as customary
for banks.
Section 5.07 Preservation of Corporate Existence. The Borrower
------------------------------------
and each of its Subsidiaries will preserve and maintain its corporate existence
and all of its material rights, privileges and franchises; provided, however,
-------- -------
that neither the Borrower nor its Subsidiaries shall be required to preserve any
of its rights, privileges and franchises if its Board of Directors shall
determine that the preservation thereof is no longer desirable in the conduct of
its business and that the loss thereof is not disadvantageous in any material
respect to any Lender as a holder of a Note.
Section 5.08. Additional Collateral. The Borrower will deliver,
----------------------
and cause San Francisco Company to deliver, to the Agent any shares of capital
stock of any FDIC-insured financial institution or its holding company acquired
in whole or in part with the proceeds of Advances if either (A) 20 percent or
more of any class of the voting securities of such entity are acquired
(including for such purpose any such voting securities then owned by Borrower
and any Subsidiary), or (B) the Borrower's investment therein is $2 million or
more (including for such purpose any outstanding investment theretofore made);
provided, however, that the Borrower need not deliver such shares if such entity
- -------- -------
is immediately merged with or consolidated into a Subsidiary. Any shares of
capital stock so delivered shall constitute additional collateral under the
Borrower Pledge Agreement (if delivered by the Borrower) or the San Francisco
Company Security Agreement (if delivered by San Francisco Company). The Borrower
need not deliver to the Agent any shares of capital stock of any FDIC-insured
financial institution or its holding company acquired in whole or in part with
the proceeds of Advances unless and until it either has acquired 20 percent or
more of any class of the voting securities or its investment therein becomes at
least $1 million or more; however the Borrower will not, and will not permit San
Francisco Company to, grant any security interest in such shares to any third
party.
Section 5.09 Notice of Acquisition. At or before the time the
----------------------
Borrower or a Subsidiary enters into a definitive agreement in connection with a
Permitted Acquisition of an entity whose assets are equal to or in excess of
$500,000,000 or that is subject to a regulatory order or agreement, the Borrower
will notify the Agent of such acquisition in writing. The notice shall be
accompanied by a Schedule in the form of Exhibit I, duly completed and executed
on behalf of the Borrower, demonstrating that such Permitted Acquisition will
not result in an Event of Default.
ARTICLE VI.
NEGATIVE COVENANTS
So long as any Note or any other Obligation shall remain unpaid,
any Commitments shall be outstanding, or the Agent shall have any obligation to
issue Letters of Credit, the Borrower will comply, and will cause each of its
Subsidiaries to comply, with the following covenants unless the Required Lenders
shall otherwise consent in writing:
Section 6.01 Liens. The Borrower will not create, incur, assume
-----
or suffer to exist, or permit San Francisco Company to create, incur, assume or
suffer to exist, any Lien or other charge or encumbrance of any nature on any of
the Collateral, now owned or hereafter acquired, or assign or otherwise convey
any right to receive income with respect to the Collateral or give its consent
to the subordination of any right or claim of the Borrower to any right or claim
of any other Person.
Section 6.02 Indebtedness. Neither the Borrower nor any of its
------------
Subsidiaries that are not Bank Subsidiaries will incur, create, assume or permit
to exist any indebtedness or liability on account of deposits or advances or any
indebtedness for borrowed money, or any other indebtedness or liability
evidenced by notes, bonds, debentures or similar obligations, except:
(a) Indebtedness to the Lenders under the Notes.
(b) Indebtedness of the Borrower or its Subsidiaries listed in
Schedule 6.02 hereto, and any extensions or renewals thereof.
(c) Indebtedness of the Borrower or any of its Subsidiaries that
may be treated as regulatory capital, or that is issued to provide a
source of repayment of securities that may be treated as regulatory
capital, of the Borrower or such Subsidiary.
(d) Subordinated Debt, or renewals or extensions thereof.
(e) Indebtedness not otherwise permitted under this Section 6.02,
so long as all such indebtedness does not exceed $5,000,000 in the
aggregate outstanding at any one time.
Section 6.03 Guaranties. Neither the Borrower nor any of its
----------
Subsidiaries will assume, guarantee, endorse or otherwise become directly or
contingently liable in connection with any obligations of any other Person,
except:
(a) The endorsement of negotiable instruments by the Borrower or
any of its Subsidiaries for deposit or collection or similar
transactions in the ordinary course of business.
(b) Guaranties, endorsements and other direct or contingent
liabilities in connection with the obligations of other Persons in
existence on the date hereof and listed in Schedule 6.03 hereto.
(c) Letters of credit and other obligations in the nature of
guaranties incurred by the Bank Subsidiaries in the ordinary course of
their banking businesses.
(d) Guaranties of obligations permitted by Section 6.02(c).
(e) Other assumptions, guarantees, endorsements and similar
liabilities in connection with obligations of other Persons, not in
excess of $5,000,000 in the aggregate outstanding at any one time.
Section 6.04 Dividends. The Borrower will not pay dividends, or
---------
make any payments on account of the purchase, redemption or other retirement of
any of its common stock, or make any distribution in respect thereof, directly
or indirectly (any such payment or distribution being a "shareholder
distribution"). The Borrower will not make any shareholder distribution with
respect to any of its preferred stock in excess of $1,000,000 in the aggregate
during any period of 12 consecutive months.
Section 6.05 Consolidation and Merger. Neither the Borrower nor
------------------------
any of its Subsidiaries will consolidate with or merge into any Person, or
permit any other Person to merge into it, or acquire (in a transaction analogous
in purpose or effect to a consolidation or merger) all or substantially all of
the assets of any other Person, except that the foregoing shall not prohibit any
Permitted Acquisition.
Section 6.06 Subordinated Debt. Neither the Borrower nor any of
------------------
its Subsidiaries will (i) make any payment of, or acquire, any Subordinated Debt
except as expressly permitted by the subordination provision thereof; (ii) give
security for all or any part of such Subordinated Debt; (iii) amend or cancel
the subordination provisions of such Subordinated Debt; (iv) take or omit to
take any action as a result of which the subordination of such Subordinated Debt
or any part thereof to the Notes might be terminated, impaired or adversely
affected; or (v) omit to give the Lenders prompt written notice of any default
under any agreement or instrument relating to such Subordinated Debt by reason
whereof such Subordinated Debt might become or be declared to be immediately due
and payable.
Section 6.07 Restrictions on Nature of Business. The Borrower
------------------------------------
will not, and will not permit any of its Subsidiaries to, change the nature of
its business substantially, and will not engage, or permit any of its
Subsidiaries to engage, in any line of business if, as a result thereof, the
business of the Borrower and its Subsidiaries, taken as a whole, would not be
predominantly the banking and thrift business (including activities deemed
closely related to banking and/or thrift business by applicable regulatory
authorities) as currently constituted.
Section 6.08 Negative Pledges; Subsidiary Restrictions. The
--------------------------------------------
Borrower will not, and will not permit any Subsidiary (including Bank
Subsidiaries) to, enter into any agreement, bond, note or other instrument with
or for the benefit of any Person other than the Lenders which would (i) prohibit
the Borrower or such Subsidiary from granting, or otherwise limit the ability of
the Borrower or such Subsidiary to grant, to the Lenders any Lien on any assets
or properties of the Borrower or such Subsidiary (it being agreed, however, that
nothing herein shall preclude the Bank Subsidiaries from granting security
interests to secure deposits), or (ii) require the Borrower or such Subsidiary
to grant a Lien to any other Person if the Borrower or such Subsidiary grants
any Lien to the Lenders. Except pursuant to any applicable law or regulation,
the Borrower will not permit any Subsidiary to place or allow any restriction,
directly or indirectly, on the ability of such Subsidiary to (a) pay dividends
or any distributions on or with respect to such Subsidiary's capital stock or
(b) make loans or other cash payments to the Borrower.
Section 6.09 Issuance of Additional Stock. Neither the Borrower
-----------------------------
nor any Subsidiary whose shares are pledged pursuant to either the Borrower
Pledge Agreement or the San Francisco Company Security Agreement will (and
Borrower will not permit any of the same) to issue any additional shares of
capital stock unless such additional shares are immediately pledged pursuant to
the Borrower Pledge Agreement or the San Francisco Company Security Agreement,
as applicable.
Section 6.10 Regulatory Matters. Borrower shall not cease to be
-------------------
registered as a bank holding company under the BHCA. First Bank shall not cease
to be an insured depository institution as defined in the FDIA nor shall its
deposits cease to be insured by the Bank Insurance Fund of the Federal Deposit
Insurance Corporation to the maximum extent permitted under the FDIA.
ARTICLE VII.
FINANCIAL COVENANTS
Section 7.01 Total Risk Based Capital Ratio. The Borrower shall
-------------------------------
maintain on a consolidated basis, and shall cause each Bank Subsidiary to
maintain, its Total Risk Based Capital Ratio at not less than 10%, determined as
of each quarter end.
Section 7.02 Tier I Risk Based Capital Ratio. The Borrower shall
-------------------------------
maintain on a consolidated basis, and shall cause each Bank Subsidiary to
maintain, its Tier I Risk Based Capital Ratio at not less than 6%, determined as
of each quarter end.
Section 7.03 Leverage Ratio. The Borrower shall maintain on a
---------------
consolidated basis, and shall cause each Bank Subsidiary to maintain, a minimum
Tier I Leverage Ratio of not less than 5%, determined as of each quarter end.
Section 7.04 Minimum Return on Assets. The Borrower will maintain
------------------------
(on a consolidated basis) its Return on Assets, determined as of each calendar
quarter end, at not less than .70%.
Section 7.05 Maximum Non-Performing Assets.
-----------------------------
(a) The Borrower will maintain on a consolidated basis, its
Non-Performing Assets at an amount not greater than 25% of its Primary
Equity Capital, determined as of each calendar quarter end.
(b) The Borrower will cause First Bank to maintain its
Non-Performing Assets at an amount not greater than 15 percent of its
Primary Equity Capital, determined as of each quarter end. For
purposes of this Section 7.05(b), First Bank's Non-Performing Asset
known as the Lake of the Ozarks Development in an amount not in excess
of $12 million shall not be treated as a Non-Performing Asset.
Section 7.06 Allowance for Loan and Lease Losses. The Borrower
------------------------------------
will cause the Bank Subsidiaries to maintain their combined allowance for loan
and lease losses at not less than 100% of their combined Non-Performing Assets.
The Bank Subsidiaries' allowance for loan or lease losses at any time shall be
the amount set forth in the most recent Form 10-Q or 10-K filed by the Borrower
with the Securities and Exchange Commission (or any successor report).
ARTICLE VIII.
EVENTS OF DEFAULT, RIGHTS AND REMEDIES
Section 8.01 Events of Default. "Event of Default", wherever used
-----------------
herein, means any one of the following events:
(a) Default in the payment of principal of any Note when the same
becomes due and payable.
(b) Default in the payment of interest on any Note or of any fees
or other amounts required to be paid under this Agreement, and the
continuance of such default for a period of ten days or more.
(c) Failure to pay when due any amount specified in Section 2.16
hereof relating to the Borrower's Obligation of Reimbursement, or
failure to pay immediately when due any amounts required to be paid
for deposit in the Special Account.
(d) Default in the performance, or breach, of any covenant or
agreement on the part of the Borrower contained in any Financial
Covenant or in Article VI hereof.
(e) Default in a material respect in the performance, or breach,
of any covenant or agreement of the Borrower in this Agreement (other
than a covenant or agreement a default in whose performance or whose
breach is elsewhere specifically dealt with in this Section), and the
continuance of such default or breach for a period of 30 days after
the date on which an executive officer of the Borrower or any of its
Subsidiaries first obtains knowledge of such default or breach.
(f) Any representation or warranty made by the Borrower in this
Agreement or by the Borrower (or any of its officers) or any of its
Subsidiaries (or any of its officers) in any other Loan Document,
certificate, instrument, or statement contemplated by or made or
delivered pursuant to or in connection with this Agreement, shall
prove to have been incorrect or misleading in any material respect
when made.
(g) A default under any bond, debenture, note or other evidence
of indebtedness of the Borrower or any of its Subsidiaries in excess
of $2,000,000 (other than to the Lenders) or under any indenture or
other instrument under which any such evidence of indebtedness has
been issued or by which it is governed where a party thereto has the
right to accelerate any indebtedness owing thereunder to such party
from the Borrower or any of its Subsidiaries as a result of such
default, or any default by the Borrower or any of its Subsidiaries in
the payment of required principal or interest under any of the
foregoing agreements or instruments.
(h) An event of default shall occur under any security agreement,
mortgage, deed of trust, assignment or other instrument or agreement
directly or indirectly securing any obligations of the Borrower
hereunder or under any Note or under any guaranty of such obligations.
(i) Default in the payment of any amount in excess of $2,000,000
owed by the Borrower or any of its Subsidiaries to any Lender other
than hereunder or under the Notes and the expiration of the applicable
period of grace, if any, with respect thereto; provided, however, that
-------- -------
if such default shall be cured by the Borrower or its Subsidiary, as
applicable, as may be permitted by the terms of such indebtedness, or
waived by the Lender holding such indebtedness, in each case prior to
the commencement of any action under Section 8.02, then the Event of
Default hereunder by reason of such default shall be deemed likewise
to have been thereupon cured or waived.
(j) The Borrower or any of its Subsidiaries shall be adjudicated
a bankrupt or insolvent, or admit in writing its inability to pay its
debts as they mature, or make an assignment for the benefit of
creditors; or the Borrower or any of its Subsidiaries shall apply for
or consent to the appointment of any receiver, trustee, or similar
officer for it or for all or any substantial part of its property; or
such receiver, trustee or similar officer shall be appointed without
the application or consent of the Borrower or its Subsidiary, as
applicable and such appointment shall continue undischarged for a
period of 30 days; or the Borrower or any of its Subsidiaries shall
institute (by petition, application, answer, consent or otherwise) any
bankruptcy, insolvency, reorganization, arrangement, readjustment of
debt, dissolution, liquidation or similar proceeding relating to it
under the laws of any jurisdiction; or any such proceeding shall be
instituted (by petition, application or otherwise) against the
Borrower or any of its Subsidiaries and shall continue without
dismissal for a period of 30 days; or any judgment, writ, warrant of
attachment or execution or similar process shall be issued or levied
against a substantial part of the property of the Borrower or any of
its Subsidiaries and such judgment, writ, or similar process shall not
be released, vacated or fully bonded within 30 days after its issue or
levy.
(k) A petition shall be filed by the Borrower or any of its
Subsidiaries under the United States Bankruptcy Code naming the
Borrower or any of its Subsidiaries as debtor; or an involuntary
petition shall be filed against the Borrower or any of its
Subsidiaries under the United States Bankruptcy Code, and such
petition shall not have been dismissed within 45 days after the
Borrower of the applicable Subsidiary has received notice of such
filing; or an order for relief shall be entered in any case under the
United States Bankruptcy Code naming the Borrower or any of its
Subsidiaries as debtor.
(l) The rendering against the Borrower or any of its Subsidiaries
of a final judgment, decree or order for the payment of money in
excess of $10,000,000 and the continuance of such judgment, decree or
order unsatisfied and in effect for any period of 30 consecutive days
without a stay of execution or other similar relief.
(m) A writ of attachment, garnishment, levy or similar process
shall be issued against or served upon the Agent or any Lender with
respect to (i) any property of the Borrower or any of its Subsidiaries
in the possession of the Agent or such Lender, or (ii) any
indebtedness of the Agent or such Lender to the Borrower or any of its
Subsidiaries, and the same shall not be lifted within 30 days.
(n) A trustee shall have been appointed by an appropriate United
States District Court to administer any Plan, or the Pension Benefit
Guaranty Corporation shall have instituted proceedings to terminate
any Plan or to appoint a trustee to administer any Plan, or withdrawal
liability shall have been asserted against the Borrower or any ERISA
Affiliate by a Multiemployer Plan; or the Borrower or any ERISA
Affiliate shall have incurred liability to the Pension Benefit
Guaranty Corporation, the Internal Revenue Service, the Department of
Labor or Plan participants in excess of $2,000,000 with respect to any
Plan; or any Reportable Event that the Required Lenders may determine
in good faith might constitute grounds for the termination of any
Plan, for the appointment by the appropriate United States District
Court of a trustee to administer any Plan or for the imposition of
withdrawal liability with respect to a Multiemployer Plan, shall have
occurred and be continuing 30 days after written notice to such effect
shall have been given to the Borrower by the Lenders.
(o) The issuance against the Borrower or any Subsidiary of the
Borrower (including without limitation, any Bank Subsidiary) of any
informal or formal administrative action, temporary or permanent, by
any federal or state regulatory agency having jurisdiction or control
over the Borrower or such Subsidiary, such action taking the form of,
but not limited to: (i) any directive citing conditions or activities
deemed to be unsafe or unsound or breaches of fiduciary duty or law or
regulation; (ii) a memorandum of understanding; (iii) a cease and
desist order; (iv) the termination of insurance coverage of customer
deposits by the Federal Deposit Insurance Corporation; (v) the
suspension or removal of an executive officer or director, or the
prohibition of participation by any others in the business affairs of
the Borrower or such Subsidiary; (vi) a capital maintenance agreement;
or (vii) any other regulatory action, agreement or understanding
involving safety or soundness issues with respect to the Borrower or
such Subsidiary.
(p) James F. Dierberg, Mary W. Dierberg, members of their
immediate family, and trusts, partnerships and other organizations of
which they have effective voting control shall cease to own in the
aggregate at least 51% of the voting shares of the Borrower.
Section 8.02 Rights and Remedies. Upon the occurrence of an Event
-------------------
of Default or at any time thereafter until such Event of Default is cured to the
written satisfaction of the Required Lenders, the Agent may, with the consent of
the Required Lenders, and shall, upon written request of the Required Lenders:
(a) By notice to the Borrower, declare the Commitments and the
Agent's obligation to issue Letters of Credit to be terminated,
whereupon the same shall forthwith terminate.
(b) By notice to the Borrower, declare the entire unpaid
principal amount of the Notes then outstanding, all interest accrued
and unpaid thereon, and all other amounts payable under this Agreement
to be forthwith due and payable, whereupon the Notes, all such accrued
interest and all such amounts shall become and be forthwith due and
payable, without presentment, demand, protest or further notice of any
kind, all of which are hereby expressly waived by the Borrower.
(c) By notice to the Borrower, require the Borrower to pay to the
Agent in immediately available funds, for deposit in the Special
Account, an amount equal to the maximum aggregate amount available to
be drawn under all Letters of Credit then outstanding.
(d) Without notice to the Borrower and without further action,
apply (and direct each Lender to apply) any and all money owing by any
Lender to the Borrower to the payment of the Notes then outstanding,
including interest accrued thereon, and of all other Obligations.
(e) Exercise any other rights and remedies available to the Agent
and the Lenders by law or agreement.
Notwithstanding the foregoing, upon the occurrence of an Event of Default
described in Section 8.01(j) or (k) hereof, the entire unpaid principal amount
of the Notes then outstanding, all interest accrued and unpaid thereon, and all
other Obligations shall be immediately due and payable without presentment,
demand, protest or notice of any kind.
Section 8.03 Offset. In addition to the remedies set forth in
------
Section 8.02, upon the occurrence of any Event of Default and thereafter while
the same be continuing, the Borrower hereby irrevocably authorizes each Lender
to set off any Obligations owed to such Lender against all deposits and credits
of the Borrower with, and any and all claims of the Borrower against, such
Lender. Such right shall exist whether or not such Lender shall have made any
demand hereunder or under any other Loan Document, whether or not the
Obligations, or any part thereof, or deposits and credits held for the account
of the Borrower is or are matured or unmatured, and regardless of the existence
or adequacy of any collateral, guaranty or any other security, right or remedy
available to such Lender or Lenders. Each Lender agrees that, as promptly as is
reasonably possible after the exercise of any such setoff right, it shall notify
the Borrower of its exercise of such setoff right; provided, however, that the
-------- -------
failure of such Lender to provide such notice shall not affect the validity of
the exercise of such setoff rights.
ARTICLE IX.
THE AGENT
Section 9.01 Authorization. Each Lender and the holder of each
-------------
Note irrevocably appoints and authorizes the Agent to act on behalf of such
Lender or holder to the extent provided herein or in any document or instrument
delivered hereunder or in connection herewith, and to take such other action as
may be reasonably incidental thereto.
Section 9.02 Distribution of Payments and Proceeds.
-------------------------------------
(a) After deduction of any costs of collection as hereinafter
provided, the Agent shall remit to each Lender that Lender's
Percentage of all payments of principal, interest, fees and other
amounts for the account of the Lenders that are received by the Agent
under the Loan Documents. Each Lender's interest in the Loan Documents
shall be payable solely from payments, collections and proceeds
actually received by the Agent under the Loan Documents; and the
Agent's only liability to the Lenders hereunder shall be to account
for each Lender's Percentage of such payments, collections and
proceeds in accordance with this Agreement. If the Agent is ever
required for any reason to refund any such payments, collections or
proceeds, each Lender will refund to the Agent, upon demand, its
Percentage of such payments, collections or proceeds, together with
its Percentage of interest or penalties, if any, payable by the Agent
in connection with such refund. The Agent may, in its sole discretion,
make payment to the Lenders in anticipation of receipt of payment from
the Borrower. If the Agent fails to receive any such anticipated
payment from the Borrower, each Lender shall promptly refund to the
Agent, upon demand, any such payment made to it in anticipation of
payment from the Borrower, together with interest for each day on such
amount until so refunded at a rate equal to the Federal Funds Rate for
each such date.
(b) Notwithstanding the foregoing, if any Lender has wrongfully
refused to fund its Percentage of any Borrowing or other Advance as
required hereunder, or if the principal balance of any Lender's Note
is for any other reason less than its Percentage of the aggregate
principal balances of the Notes then outstanding, the Agent may remit
all payments received by it to the other Lenders until such payments
have reduced the aggregate amounts owed by the Borrower to the extent
that the aggregate amount owing to such Lender hereunder is equal to
its Percentage of the aggregate amount owing to all of the Lenders
hereunder. The provisions of this paragraph are intended only to set
forth certain rules for the application of payments, proceeds and
collections in the event that a Lender has breached its obligations
hereunder and shall not be deemed to excuse any Lender from such
obligations.
Section 9.03 Expenses. All payments, collections and proceeds
--------
received or effected by the Agent may be applied, first, to pay or reimburse the
Agent for all costs, expenses, damages and liabilities at any time incurred by
or imposed upon the Agent in connection with this Agreement or any other Loan
Document (including but not limited to all reasonable attorney's fees,
foreclosure expenses and advances made to protect the security of any
collateral). If the Agent does not receive payments, collections or proceeds
sufficient to cover any such costs, expenses, damages or liabilities within 30
days after their incurrence or imposition, each Lender shall, upon demand, remit
to the Agent its Percentage of the difference between (i) such costs, expenses,
damages and liabilities, and (ii) such payments, collections and proceeds.
Section 9.04 Payments Received Directly by Lenders. If any Lender
-------------------------------------
or other holder of a Note shall obtain any payment or other recovery (whether
voluntary, involuntary, by application of offset or otherwise) on account of
principal of or interest on any Note other than through distributions made in
accordance with Section 9.02, such Lender or holder shall promptly give notice
of such fact to the Agent and shall purchase from the other Lenders or holders
such participations in the Notes held by them as shall be necessary to cause the
purchasing Lender or holder to share the excess payment or other recovery
ratably with each of them; provided, however, that if all or any portion of the
-------- -------
excess payment or other recovery is thereafter recovered from such purchasing
Lender or holder, the purchase shall be rescinded and the purchasing Lender
restored to the extent of such recovery (but without interest thereon).
Section 9.05 Indemnification. The Agent shall not be required to
---------------
do any act hereunder or under any other document or instrument delivered
hereunder or in connection herewith or take any action toward the execution or
enforcement of the agency hereby created, or to prosecute or defend any suit in
respect of this Agreement or the Notes or any documents or instrument delivered
hereunder or in connection herewith unless indemnified to its satisfaction by
the holders of the Notes against loss, cost, liability and expense; provided,
--------
however, that no Lender shall be obligated to indemnify the Agent for any
- -------
portion of any such loss, cost, liability or expense resulting from the gross
negligence or willful misconduct of the Agent. If any indemnity furnished to the
Agent for any purpose shall, in the opinion of the Agent, be insufficient or
become impaired, the Agent may call for additional indemnity and not commence or
cease to do the acts indemnified against until such additional indemnity is
furnished.
Section 9.06 Limitations on Agent's Power. Notwithstanding any
----------------------------
other provision of this Agreement, the Agent shall not have the power, without
the consent of all of the Lenders, to (i) forgive any indebtedness of the
Borrower arising under this Agreement or the Notes, (ii) agree to reduce the
rate of interest charged under this Agreement or the commitment fees payable
under Sections 2.05 and 2.19(c), (iii) agree to extend the maturity or decrease
the amount of any payment (whether of principal, interest, fees or otherwise)
due under this Agreement or the Notes, (iv) release any Collateral from the lien
created by the Borrower Pledge Agreement or the San Francisco Company Security
Agreement, or (v) amend the definition of "Required Lenders" in Section 1.01. In
addition, in no event may the Agent increase the total Commitment Amount (being
the aggregate sum of all Commitment Amounts of all Lenders) hereunder without
the consent of all Lenders or increase or decrease the Commitment Amount of any
given Lender without the consent of that Lender.
Section 9.07 Exculpation. The Agent shall be entitled to rely
-----------
upon advice of counsel concerning legal matters, and upon this Agreement, any
Loan Document and any schedule, certificate, statement, report, notice or other
writing which it believes to be genuine or to have been presented by a proper
person. Neither the Agent nor any of its directors, officers, employees or
agents shall (a) be responsible for any recitals, representations or warranties
contained in, or for the execution, validity, genuineness, effectiveness or
enforceability of this Agreement, any Loan Document, or any other instrument or
document delivered hereunder or in connection herewith, (b) be responsible for
the validity, genuineness, perfection, effectiveness, enforceability, existence,
value or enforcement of any collateral security, (c) be under any duty to
inquire into or pass upon any of the foregoing matters, or to make any inquiry
concerning the performance by the Borrower or any other obligor of its
obligations, or (d) in any event, be liable as such for any action taken or
omitted by it or them, except for its or their own gross negligence or willful
misconduct. The agency hereby created shall in no way impair or affect any of
the rights and powers of, or impose any duties or obligations upon, the Agent in
its individual capacity.
Section 9.08 Agent and Affiliates. The Agent shall have the same
--------------------
rights and powers hereunder in its individual capacity as any other Lender, and
may exercise or refrain from exercising the same as though it were not the
Agent, and the Agent and its affiliates may accept deposits from and generally
engage in any kind of business with the Borrower as fully as if the Agent were
not the Agent hereunder.
Section 9.09 Credit Investigation. Each Lender acknowledges that
--------------------
it has made such inquiries and taken such care on its own behalf as would
have been the case had its Commitment been granted and the Advances made
directly by such Lender to the Borrower without the intervention of the Agent or
any other Lender. Each Lender agrees and acknowledges that the Agent makes no
representations or warranties about the creditworthiness of the Borrower, any
Subsidiary or any other party to this Agreement or with respect to the legality,
validity, sufficiency or enforceability of this Agreement, any Loan Document, or
any other instrument or document delivered hereunder or in connection herewith.
Section 9.10 Resignation. The Agent may resign as such at any
-----------
time upon at least 30 days' prior notice to the Borrower and the Lenders. In the
event of any resignation of the Agent, the Required Lenders shall as promptly as
practicable appoint a successor Agent. If no such successor Agent shall have
been so appointed by the Required Lenders and shall have accepted such
appointment within 30 days after the resigning Agent's giving of notice of
resignation, then the resigning Agent may, on behalf of the Lenders, appoint a
successor Agent, which shall be a commercial bank organized under the laws of
the United States of America or of any State thereof. Upon the acceptance of any
appointment as Agent hereunder by a successor Agent, such successor Agent shall
thereupon be entitled to receive from the prior Agent such documents of transfer
and assignment as such successor Agent may reasonably request and the resigning
Agent shall be discharged from its duties and obligations under this Agreement.
After any resignation pursuant to this Section, the provisions of this Section
shall inure to the benefit of the retiring Agent as to any actions taken or
omitted to be taken by it while it was an Agent hereunder.
Section 9.11 Assignments.
-----------
(a) No Lender may assign any of its rights or obligations under
any Loan Document without the prior written consent of the Borrower
and the Agent, which consent may not be unreasonably withheld;
provided, however, that the consent of the Borrower shall not be
-------- -------
required in connection with any such assignment made at any time when
a Default or an Event of Default has occurred and is continuing. Any
assignment permitted hereunder shall be by written assignment
agreement in form and substance reasonably satisfactory to Agent which
assignment agreement shall be acknowledged by both Agent and Borrower.
The aggregate principal amount of the Notes and the portion of the
Commitment Amounts so assigned in any assignment shall be not less
than $5,000,000, and the assigning Lender shall retain at least
$5,000,000 of such Notes and Commitment Amounts for its own account;
provided, however, that the foregoing restriction shall not apply to a
-------- -------
Lender assigning its entire Note and Commitment Amount to a single
institution. Simultaneously with each assignment of Notes and
Commitment Amounts, the assigning Lender shall be deemed to have
assigned a proportional share of its obligations and rights under
Section 2.15(b). If the Agent and (if applicable) the Borrower so
consent, then, from and after the effective date of any such
assignment, the assignee thereunder (an "Additional Lender") shall, to
the extent that rights and obligations hereunder have been assigned to
it pursuant to such assignment, have the rights and obligations so
assigned to it, and the assigning Lender shall, to the extent that
rights and obligations have been assigned by it pursuant to such
assignment, relinquish its rights and be released from its obligations
under this Agreement. Within five business days after any request of
the Agent following such assignment of Notes and Commitment Amounts,
the Borrower will execute and deliver to the Agent new Notes to the
order of such assignee in amounts corresponding to the interest in the
assigning Lender's rights and obligations under this Agreement
acquired by such assignee pursuant to such assignment and, if the
assigning Lender has retained an interest in such rights and
obligations, new Notes to the order of the assigning Lender in amounts
corresponding to such interests retained by it hereunder. Such new
Notes shall be in an aggregate principal amount equal to the aggregate
principal amount of the Notes to be replaced by such new Notes, shall
be dated the effective date of such assignment and shall otherwise be
in the form of the Notes to be replaced thereby. Such new Notes shall
be issued in substitution for, but not in satisfaction or payment of,
the Notes being replaced thereby. The Agent shall bear the cost of
preparation of such new Notes. Upon the issuance of such new Notes,
the term, "Note", as used herein, shall include all such new Notes
issued pursuant to this Section 9.11.
(b) Any Lender making an assignment under this Section shall pay
the Agent a transfer fee in the amount of $3,000 simultaneous with
such assignment.
(c) Notwithstanding any other provision of this Agreement, any
Lender may at any time create a security interest in all or any
portion of its rights under this Agreement and that Lender's Notes in
favor of any Federal Reserve Bank in accordance with Regulation A of
the Board of Governors of the Federal Reserve System.
(d) Except as set forth in this Section 9.11 and the following
Section 9.12, no Lender may assign any of its rights or obligations
under any Loan Document.
Section 9.12 Participations. In addition to the rights granted in
--------------
Section 9.11, each Lender may grant participations in a portion of its Notes,
Commitments and obligations under Section 2.15(b) to any institutional investor,
without the consent of the Borrower or the Agent, but only so long as (except in
the case of a participation granted to an affiliate of a Lender, in which case
the limitation and qualification set forth in clause (a) and (b) below shall not
apply):
(a) Within five Bank Business Days after granting any
participation, such Lender gives the Agent and the Borrower notice of
such participation, including the name, address and telecopier number
of the participant and the amount of the Notes and Commitments covered
by the participation; and
(b) The principal amount of the participations so granted is no
less than $5,000,000.
No holder of any such participation, other than an affiliate of
such Lender, shall be entitled to require such Lender to take or omit to take
any action hereunder, except that such Lender may agree with such participant
that such Lender will not, without such participant's consent, (i) forgive any
indebtedness of the Borrower under this Agreement or the Notes, (ii) agree to
reduce the rate of interest charged under this Agreement, or (iii) agree to
extend the final maturity of any indebtedness evidenced by the Notes, except as
expressly provided by the terms of the Loan Documents. No Lender shall, as
between the Borrower and such Lender, be relieved of any of its obligations
hereunder as a result of any such granting of a participation. The Borrower
hereby acknowledges and agrees that any participant described in this Section
will, for purposes of Section 9.04, be considered to be a Lender hereunder
(provided that such participant shall not be entitled to receive any more than
the Lender selling such participation would have received had such sale not
taken place) and may rely on, and possess all rights under, any opinions,
certificates, or other instruments or documents delivered under or in connection
with any Loan Document. Except as set forth in this Section 9.12, no Lender may
grant any participation in any Loan Document or Commitment.
Section 9.13 Disclosure of Information. The Borrower authorizes
-------------------------
each Lender and the Agent to disclose to any participant, assignee or Additional
Lender (each, a "Transferee") and any prospective Transferee any and all
financial and other information in the possession of the Agent or any Lender
concerning the Borrower which has been delivered to the Agent or such Lender by
the Borrower pursuant to this Agreement or which has been delivered to the Agent
or such Lender by the Borrower in connection with the credit evaluation of the
Borrower by the Agent or such Lender prior to entering into this Agreement;
provided, however, that prior to disclosing such information to a Transferee or
- -------- -------
prospective Transferee, the applicable Lender shall obtain from such Transferee
or prospective Transferee a confidentiality agreement agreeing that such
information shall be used only in connection with such Person's evaluation and,
if applicable, administration of its interest in this Agreement and the loans
hereunder, and shall not be disclosed to any other person, subject to exceptions
permitting disclosure to regulators and auditors, disclosure as required by law
or judicial process, and disclosure under such other limited circumstances as
that Lender and such Transferee or prospective Transferee may reasonably agree.
ARTICLE X.
MISCELLANEOUS
Section 10.01 No Waiver; Cumulative Remedies. No failure or delay
------------------------------
on the part of the Lenders in exercising any right, power or remedy under the
Loan Documents shall operate as a waiver thereof; nor shall any Lender's
acceptance of payments while any Default or Event of Default is outstanding
operate as a waiver of such Default or Event of Default, or any right, power or
remedy under the Loan Documents; nor shall any single or partial exercise of any
such right, power or remedy preclude any other or further exercise thereof or
the exercise of any other right, power or remedy under the Loan Documents. The
remedies provided in the Loan Documents are cumulative and not exclusive of any
remedies provided by law.
Section 10.02 Amendments, Etc. No amendment, modification,
----------------
termination or waiver of any provision of any Loan Document or consent to any
departure by the Borrower therefrom shall be effective unless the same shall be
in writing and signed by the Required Lenders (or, in the case of any action
described in Section 9.06, the number of Lenders specified for the applicable
action in such Section) and then such waiver or consent shall be effective only
in the specific instance and for the specific purpose for which given. No notice
to or demand on the Borrower in any case shall entitle the Borrower to any other
or further notice or demand in similar or other circumstances.
Section 10.03 Notice. Except as otherwise expressly provided
------
herein, all notices and other communications hereunder shall be in writing and
shall be (i) personally delivered, (ii) transmitted by registered mail, postage
prepaid, (iii) sent by Federal Express or similar expedited delivery service, or
(iv) transmitted by telecopy (followed, in the case of any notice from the Agent
or a Lender to the Borrower, pursuant to any of Sections 8.02(a), 8.02(b) or
8.03, by a notice transmitted by registered mail, postage prepaid), in each case
addressed to the party to whom notice is being given at its address as set forth
by its signature below, or, if telecopied, transmitted to that party at its
telecopier number set forth by its signature below; or, as to each party, at
such other address or telecopier number as may hereafter be designated in a
notice by that party to the other party complying with the terms of this
Section. All such notices or other communications shall be deemed to have been
given on (i) the date received if delivered personally, by mail, or by Federal
Express or similar expedited delivery service, or (ii) the date of transmission
if delivered by telecopy, except that notices or requests to the Agent or any
Lender pursuant to any of the provisions of Article II shall not be effective
until received.
Section 10.04 Costs and Expenses. The Borrower agrees to pay on
------------------
demand (i) all costs and expenses incurred by the Agent in connection with the
negotiation, preparation, execution, administration or amendment of the Loan
Documents and the other instruments and documents to be delivered hereunder and
thereunder, including the reasonable fees and out-of-pocket expenses of counsel
for the Agent with respect thereto, whether paid to outside counsel or allocated
by in-house counsel, and (ii) all costs and expenses incurred by the Agent or
any Lender in connection with the enforcement of the Loan Documents, including
the reasonable fees and out-of-pocket expenses of counsel for the Agent or any
Lender with respect thereto, whether paid to outside counsel or allocated by
in-house counsel.
Section 10.05 Indemnification by Borrower. The Borrower hereby
----------------------------
agrees to indemnify the Agent and the Lenders and each officer, director,
employee and agent thereof (herein individually each called an "Indemnitee" and
collectively called the "Indemnitees") from and against any and all losses,
claims, damages, reasonable expenses (including, without limitation, reasonable
attorneys' fees) and liabilities (all of the foregoing being herein called the
"Indemnified Liabilities") incurred by an Indemnitee in connection with or
arising out of the execution or delivery of this Agreement or any agreement or
instrument contemplated hereby, the performance by the parties hereto of their
respective obligations hereunder or the use of the proceeds of any Advance
(including but not limited to any such loss, claim, damage, expense or liability
arising out of any claim in which it is alleged that any "Environmental Law" has
been breached with respect to any activity or property of the Borrower), except
for any portion of such losses, claims, damages, expenses or liabilities
incurred solely as a result of the gross negligence or willful misconduct of the
applicable Indemnitee or the breach of this Agreement or any other Loan Document
by that Indemnitee. "Environmental Law" shall mean (i) any federal, state or
local law, statute, ordinance, rule, regulation, code, license, permit,
authorization, approval, consent, legal doctrine, order, directive, executive or
administrative order, judgment, decree, injunction, legal requirement or
agreement with any governmental entity relating to (A) the protection,
preservation or restoration of the environment (which includes, without
limitation, air, water vapor, surface water, groundwater, drinking water supply,
structures, soil, surface land, subsurface land, plant and animal life or any
other natural resource), or to human health or safety as it relates to hazardous
materials, or (B) the exposure to, or the use, storage, recycling, treatment,
generation, transportation, processing, handling, labeling, production, release
or disposal of, hazardous materials, in each case as amended and as now in
effect, including, without limitation, the Federal Comprehensive Environmental
Response, Compensation and Liability Act of 1980, the Superfund Amendments and
Reauthorization Act of 1986, the Federal Water Pollution Control Act of 1972,
the Federal Clean Air Act, the Federal Clean Water Act, the Federal Resource
Conservation and Recovery Act of 1976 (including, but not limited to, the
Hazardous and Solid Waste Amendments thereto and Subtitle I relating to
underground storage tanks), the Federal Solid Waste Disposal and the Federal
Toxic Substances Control Act, the Federal Insecticide, Fungicide and Rodenticide
Act, the Federal Occupational Safety and Health Act of 1970 as it relates to
hazardous materials, the Federal Hazardous Substances Transportation Act, the
Emergency Planning and Community Right-To-Know Act, the Safe Drinking Water Act,
the Endangered Species Act, the National Environmental Policy Act, the Rivers
and Harbors Appropriation Act or any so-called "Superfund" or "Superlien" law,
each as amended and as now or hereafter in effect, and (ii) any common law or
equitable doctrine (including, without limitation, injunctive relief and tort
doctrines such as negligence, nuisance, trespass and strict liability) that
imposes liability or obligations for injuries or damages due to, or threatened
as a result of the presence of or exposure to any hazardous material. If and to
the extent that the foregoing indemnity may be unenforceable for any reason, the
Borrower hereby agrees to make the maximum contribution to the payment and
satisfaction of each of the Indemnified Liabilities which is permissible under
applicable law. All obligations provided for in this Section shall survive any
termination of this Agreement.
Section 10.06 Execution in Counterparts. This Agreement and the
--------------------------
other Loan Documents may be executed in any number of counterparts, each of
which when so executed and delivered shall be deemed to be an original and all
of which counterparts of this Agreement or such other Loan Document, as the case
may be, taken together, shall constitute but one and the same instrument.
Section 10.07 Binding Effect, Assignment. The Loan Documents
----------------------------
shall be binding upon and inure to the benefit of the Borrower and the Lenders
and their respective successors and assigns, except that the Borrower shall not
have the right to assign its rights thereunder or any interest therein without
the prior written consent of each of the Lenders.
Section 10.08 Governing Law. The Loan Documents shall be governed
-------------
by, and construed in accordance with, the laws of the State of Missouri.
Section 10.09 Consent to Jurisdiction/Jury Waiver. The Borrower
-------------------------------------
and the Lenders each irrevocably (i) agree that any suit, action or other legal
proceeding arising out of or relating to this Agreement or any other Loan
Document may be brought in a court of record in Hennepin County in the State of
Minnesota or in the Courts of the United States located in such State, (ii)
consent to the jurisdiction of each such court in any suit, action or
proceeding, (iii) waive any objection which they may have to the laying of venue
of any such suit, action or proceeding in any such courts and any claim that any
such suit, action or proceeding has been brought in an inconvenient forum, and
(iv) agree that a final judgment in any such suit, action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the judgment or
in any other manner provided by law. The Borrower and Lender each waives the
right to a trial by jury in any action based on or pertaining to this Agreement.
Section 10.10 Severability of Provisions. Any provision of this
--------------------------
Agreement which is prohibited or unenforceable shall be ineffective to the
extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof.
Section 10.11 Prior Agreements. This Agreement and the other Loan
----------------
Documents and related documents described herein restate and supersede in their
entirety any and all prior agreements and understandings, oral or written,
between any of the Lenders and the Borrower.
Section 10.12 Headings. Article and Section headings in this
--------
Agreement are included herein for convenience of reference only and shall not
constitute a part of this Agreement for any other purpose.
Section 10.13 No Oral Agreements. ORAL AGREEMENTS OR COMMITMENTS
------------------
TO LOAN MONEY, EXTEND CREDIT, OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT
INCLUDING PROMISES TO EXTEND OR RENEW SUCH DEBT ARE NOT ENFORCEABLE. TO PROTECT
YOU (BORROWER) AND US (LENDERS AND AGENT) FROM MISUNDERSTANDING OR
DISAPPOINTMENT, ANY AGREEMENT WE REACH COVERING SUCH MATTERS ARE CONTAINED IN
THIS WRITING, WHICH IS THE COMPLETE AND EXCLUSIVE STATEMENT OF THE AGREEMENT
BETWEEN US, EXCEPT AS WE MAY LATER AGREE IN WRITING TO MODIFY IT.
[The balance of this page is intentionally left blank.]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed by their respective officers thereunto duly authorized as of the
date first above written.
Address: FIRST BANKS, INC.
600 James S. McDonnell Blvd.
Mail Code M1-199-014
Hazelwood, MO 63042
Attention: Allen H. Blake By /s/ Allen H. Blake
Telecopier: (314) 592-6621 -------------------------------------
Its President
---------------------------------
(Signature Page to Secured Credit Agreement Page 1 of 9)
Address: WELLS FARGO BANK, NATIONAL
MAC: N9305-071 ASSOCIATION, as Agent
Sixth Street and Marquette Avenue
Minneapolis, Minnesota 55479
Attention: Doug Gallun By /s/ Douglas A. Gallun
Telecopier: 612-667-3510 ------------------------------------
Its Vice President
--------------------------------
(Signature Page to Secured Credit Agreement Page 2 of 9)
Address: WELLS FARGO BANK, NATIONAL
MAC: N9305-071 ASSOCIATION, as a Lender
Sixth Street and Marquette Avenue
Minneapolis, Minnesota 55479
Attention: Doug Gallun By /s/ Douglas A. Gallun
Telecopier: 612-667-3510 ------------------------------------
Its Vice President
--------------------------------
Commitment Amount: $14,318,182
Percentage: 23.86364%
(Signature Page to Secured Credit Agreement Page 3 of 9)
Address: BANK ONE
120 South LaSalle Street
Chicago, Illinois 60603-3400
Attention: Thomas Hackett
Telecopier: (312) 661-9511 By /s/ Thomas H. Hackett
------------------------------------
Its First Vice President
--------------------------------
Commitment Amount: $8,863,637
Percentage: 14.77273
(Signature Page to Secured Credit Agreement Page 4 of 9)
Address: LASALLE BANK NATIONAL
One Metropolitan Square ASSOCIATION
211 North Broadway, Suite 4050
St. Louis, Missouri 63102
Attention: Robert J. Mathias By /s/ Robert J. Mathias
Telecopier: (314) 621-3947 ------------------------------------
Its Senior Banker
--------------------------------
Commitment Amount: $8,863,637
Percentage: 14.77273%
(Signature Page to Secured Credit Agreement Page 5 of 9)
Address: THE NORTHERN TRUST COMPANY
50 South LaSalle Street
Chicago, Illinois 60675
Attention: Thomas E. Bernhardt By /s/ Thomas E. Bernhardt
Telecopier: 312-557-8337 ------------------------------------
Its Vice President
--------------------------------
Commitment Amount: $7,500,000
Percentage: 12.50000%
(Signature Page to Secured Credit Agreement Page 6 of 9)
Address: UNION BANK OF CALIFORNIA, N.A.
445 South Figureroa Street
Los Angeles, California 90071
Attention: Dennis A. Cattell By /s/ Dennis A. Cattell
Telecopier: (213) 236-5548 ------------------------------------
Its Vice President
--------------------------------
Commitment Amount: $5,454,545
Percentage: 9.09091%
(Signature Page to Secured Credit Agreement Page 7 of 9)
Address: FIFTH THIRD BANK (CHICAGO)
1701 Golf Road, Tower One, Suite 700
Rolling Meadows, IL 60008
Attention: Patrick A. Horne By /s/ Patrick A. Horne
Telecopier: (847) 354-7130 ------------------------------------
Its Vice President
--------------------------------
Commitment Amount: $7,500,000
Percentage: 12.50000%
(Signature Page to Secured Credit Agreement Page 8 of 9)
Address: U.S. BANK NATIONAL ASSOCIATION
Correspondent Banking
SL-TW-11SI
7th & Washington
St. Louis, MO 63101
Attention: David C. Buettner By /s/ David C. Buettner
Telecopier: (314) 418-8394 ------------------------------------
Its Vice President
--------------------------------
Commitment Amount: $7,500,000
Percentage: 12.50000%
(Signature Page to Secured Credit Agreement Page 9 of 9)
EXHIBIT A
REVOLVING LOAN COMMITMENT AMOUNTS
- ---------------------------------------- -------------------- --------------------- ------------------------------------------
Commitment Percentage
Name Amount Amount Notice Address
- ---------------------------------------- -------------------- --------------------- ------------------------------------------
Wells Fargo Bank, National $14,318,182 23.86364% MAC N9305-071
Association, as a Bank Sixth and Marquette
Minneapolis, Minnesota 55479
Attention: Doug Gallun
Telecopier: 612-667-3510
- ---------------------------------------- -------------------- --------------------- ------------------------------------------
Bank One $8,863,637 14.77273% 120 South LaSalle Street
Chicago, Illinois 60603-3400
Attention: Sunil Mehta
Telecopier: (312) 661-9511
- ---------------------------------------- -------------------- --------------------- ------------------------------------------
LaSalle Bank National Association $8,863,637 14.77273% One Metropolitan Square
211 North Broadway, Suite 4050
St. Louis, Missouri 63102
Attention: Robert J. Mathias
Telecopier: (314) 621-3947
- ---------------------------------------- -------------------- --------------------- ------------------------------------------
The Northern Trust Company $7,500,000 12.50000% 50 South LaSalle Street
Chicago, Illinois 60675
Attention: Thomas E. Bernhardt
Telecopier: (312) 557-8337
- ---------------------------------------- -------------------- --------------------- ------------------------------------------
Union Bank of California, N.A. $5,454,545 9.09091% 445 South Figureroa Street
Los Angeles, California 90071
Attention: Dennis A. Cattell
Telecopier: (213) 236-5548
- ---------------------------------------- -------------------- --------------------- ------------------------------------------
Fifth Third Bank (Chicago) $7,500,000 12.50000% 1701 Gold Road
Tower One, Suite 700
Rolling Meadows, IL 60008
Attention: Patrick A. Horne
Telecopier: (847) 354-7130
- ---------------------------------------- -------------------- --------------------- ------------------------------------------
U.S. Bank National Association $7,500,000 12.50000% Correspondent Banking
SL-TW-11SI
7th & Washington
St. Louis, MO 63101
Attention: David C. Buettner, VP
Telecopier: (314) 418-8394
- ---------------------------------------- -------------------- --------------------- ------------------------------------------
EXHIBIT B
BORROWER PLEDGE AGREEMENT
This Agreement is made as of this 14th day of August, 2003, by and
between FIRST BANKS, INC., a Missouri Corporation ("Debtor") and WELLS FARGO
BANK, NATIONAL ASSOCIATION, a national banking association, as Agent for the
"Lenders" pursuant to the Secured Credit Agreement described below ("Secured
Party").
RECITALS
Debtor, Secured Party and certain financial institutions have executed
a secured credit agreement dated as of August 14, 2003, (the "Credit
Agreement"), pursuant to which such financial institutions (the "Lenders") have
agreed to lend up to $60,000,000 to Debtor and pursuant to which Secured Party
has agreed to issue up to $20,000,000 in face amount of standby letters of
credit for the account of Debtor.
One condition to the Lenders' and Secured Party's commitments under
the Credit Agreement is that Debtor execute, deliver and perform this Collateral
Pledge Agreement, thereby granting a security interest to Secured Party, as
agent for the Lenders, in the Collateral described herein.
Now, therefore, in consideration of the premises and the mutual
agreements herein set forth, the parties hereto hereby agree as follows:
1. Security Interest and Collateral. To secure the payment and
performance of the "Obligations," as such term is defined in the Credit
Agreement, Debtor hereby grants Secured Party (for its own account and as agent
for the Lenders) a security interest (the "Security Interest") in (i) all of the
capital stock of The San Francisco Company, a Delaware corporation, owned by
Debtor, (ii) any capital stock that Debtor may hereafter acquire and deliver to
Secured Party pursuant to Section 5.08 of the Credit Agreement, and (iii) all
proceeds of such capital stock and all other rights in connection with such
property (collectively the "Collateral").
2. Representations, Warranties and Covenants. Debtor represents,
warrants and covenants that:
(a) Debtor will join with Secured Party in taking any action
required by Secured Party in order to perfect the Security Interest
and to protect the rights and priorities of Secured Party with respect
to the Collateral. To that end, Debtor has delivered to Secured Party
certificates representing all of the shares of capital stock
constituting Collateral and executed and delivered one blank stock
power for each such certificate. Debtor will, at Secured Party's
request at any one or more times (i) duly endorse, in blank, each and
every additional security certificate and instrument constituting
Collateral by signing on such certificate or instrument or by signing
a separate document of assignment or transfer; (ii) join with Secured
Party in executing any instructions or agreements with securities
intermediaries for the purpose of obtaining control of any investment
property that may hereafter constitute Collateral; and (iii) instruct
the issuer of any security that may hereafter constitute Collateral to
register such security in the name of Secured Party.
(b) Debtor is the owner of the Collateral free and clear of all
liens, encumbrances, security interests and restrictions except the
Security Interest and any restrictive legend appearing on any security
certificate or any instrument constituting Collateral.
(c) Debtor will keep the Collateral free and clear of all liens,
encumbrances and security interests, except the Security Interest.
(d) Debtor will pay, when due, all taxes and other governmental
charges levied or assessed upon or against any Collateral.
(e) Debtor will upon receipt deliver to Secured Party all
investment property distributed on account of Collateral, such as
stock dividends and securities resulting from stock splits,
reorganizations and recapitalizations. The Security Interest shall
attach to all such proceeds.
3. Events of Default. The occurrence of any Event of Default under the
Credit Agreement shall be an Event of Default hereunder.
4. Remedies Upon Event of Default. Upon the occurrence of an Event of
Default and during the continuance thereof, Secured Party may exercise any one
or more of the rights and remedies specified in the Credit Agreement, and also
any one or more of the following rights or remedies: (i) notify the obligor on
or issuer of any Collateral or any securities intermediary to make payment to
Secured Party of any amounts due or distributable on any Collateral, (ii) in
Debtor's name or Secured Party's name enforce collection of any Collateral by
suit or otherwise, or surrender, release or exchange all or any part of it, or
compromise, extend or renew for any period any obligation evidenced by the
Collateral, (iii) receive and keep in its possession or under its control
subject to the Security Interest all proceeds of Collateral, except that any
money received from the Collateral may, at Secured Party's option, be applied in
reduction of the Obligations; (iv) exercise all voting and other rights as a
holder of any Collateral; (v) exercise and enforce any or all rights and
remedies available upon default to a secured party under the Uniform Commercial
Code, including the right to (A) order any securities intermediary to sell any
Collateral on any established market or over the counter or to cause any
Collateral to be redeemed; (B) give any transfer or redemption order to any
issuer of Collateral; or (C) offer and sell Collateral privately to purchasers
who will agree to take the Collateral for investment and not with a view to
distribution and who will agree to the imposition of restrictive legends on any
certificates representing Collateral, and the right to arrange for a sale which
would otherwise qualify as exempt from registration under the Securities Act of
1933; and if notice to Debtor of any intended disposition of Collateral or any
other intended action is required by law in a particular instance, such notice
shall be deemed commercially reasonable if given at least 10 calendar days prior
to the date of intended disposition or other action; and (vi) exercise or
enforce any or all other rights or remedies available to Secured Party by law or
agreement against any Collateral, against Debtor or against any other person or
property.
5. Secured Party's Duties. Secured Party's duty of care with respect
to Collateral in its possession (as imposed by law) shall be deemed fulfilled if
Secured Party exercises reasonable care in physically safekeeping such
Collateral, or in the case of Collateral in the custody or possession of a
securities intermediary or other third person, exercises reasonable care in the
selection of the securities intermediary or other third person and Secured Party
need not otherwise preserve, protect, insure or care for any Collateral. Secured
Party shall not be obligated to preserve any rights Debtor may have against
prior parties, to exercise at all or in any particular manner any voting rights
which may be available with respect to any Collateral, to realize on the
Collateral at all or in any particular manner or order, or to apply any cash
proceeds of Collateral in any particular order of application. Regardless of the
manner in which Secured Party chooses to exercise control over Collateral
(whether by possession, by agreement with an issuer or Securities Intermediary,
by transferring security entitlements into its own account, or otherwise),
Secured Party shall not be deemed to be under any obligation to Debtor, whether
as fiduciary, trustee, agent or otherwise, except the duty of good faith, the
duties specifically imposed upon Secured Party by this Agreement, and the duties
imposed upon it as a secured party by Articles 1, 8 and 9 of the Uniform
Commercial Code, as in effect in Missouri.
6. Miscellaneous. Any disposition of Collateral in the manner provided
in Section 4 shall be deemed commercially reasonable. This Agreement can be
waived, modified, amended, terminated or discharged, and the Security Interest
can be released, only explicitly in a writing signed by Secured Party. A waiver
signed by Secured Party shall be effective only in the specific instance and for
the specific purpose given. Mere delay or failure to act shall not preclude the
exercise or enforcement of any of Secured Party's rights or remedies. All rights
and remedies of Secured Party shall be cumulative and may be exercised
singularly or concurrently, at Secured Party's option, and the exercise or
enforcement of any one such right or remedy shall neither be a condition to nor
bar the exercise or enforcement of any other. All notices to be given to Debtor
shall be deemed sufficiently given if delivered or mailed by registered or
certified mail, postage prepaid, to Debtor at the address set forth following
its signature on the signature page of this Agreement or at the most recent
address shown on Secured Party's records. Debtor will reimburse Secured Party
for all expenses (including reasonable attorneys' fees and legal expenses)
incurred by Secured Party in the protection, defense or enforcement of the
Security Interest, including expenses incurred in any litigation or bankruptcy
or insolvency proceedings. This Agreement shall be binding upon and inure to the
benefit of Debtor and Secured Party and their successors and assigns and shall
take effect when signed by Debtor and delivered to Secured Party, and Debtor
waives notice of Secured Party's acceptance hereof. This Agreement shall be
governed by the internal laws of Missouri and, unless the context otherwise
requires, all terms used herein which are defined in Articles 1, 8 and 9 of the
Uniform Commercial Code, as in effect in Missouri, shall have the meanings
therein stated. If any provision or application of this Agreement is held
unlawful or unenforceable in any respect, such illegality or unenforceability
shall not affect other provisions or applications which can be given effect, and
this Agreement shall be construed as if the unlawful or unenforceable provision
or application had never been contained herein or prescribed hereby. All
representations and warranties contained in this Agreement shall survive the
execution, delivery and performance of this Agreement and the creation and
payment of the Obligations.
IN WITNESS WHEREOF, Debtor has executed this Agreement as of the day
first above written.
FIRST BANKS, INC.
By
--------------------------------------
Its
---------------------------------
Address:
600 James S. McDonnell Blvd.
Mail Code M1-199-014
Hazelwood, MO 63042-2302
EXHIBIT C
COMPLIANCE CERTIFICATE
This Compliance Certificate is being submitted on this ___ day of
__________________, 200__, for the quarter ending on the ___ day of
__________________, 200__, pursuant to the terms of the Secured Credit Agreement
dated as of August ___, 2003, (the "Credit Agreement"), as the same may be
thereafter amended from time to time, among Wells Fargo Bank, National
Association (the "Agent"), the Lenders that are parties thereto, and First
Banks, Inc., as Borrower. Capitalized terms used but not defined herein shall
have the meanings set forth in the Credit Agreement.
The undersigned officers of First Banks, Inc. jointly and severally
certify to the Lenders that as of the date hereof:
A. The representations and warranties contained in Article IV of the
Credit Agreement are correct as of the date hereof, except to the
extent that the same relate specifically to an earlier date;
B. No Default or Event of Default has occurred and is continuing;
C. Attached is an accurate listing of the current Subsidiaries of
First Banks, Inc.; and
D. The computation of Margin and L/C Margin and compliance with the
covenants contained in Article VII of the Credit Agreement are
supported by the following:
2.03 Funded Debt Ratio
-----------------
(i) First Banks, Inc. (consolidated)
Net Income for the quarter ended:
- --------------------------------- (2) Ratio of L/C
Funded Debt (2) to (1) Margin Margin
----------- ---------- ------ ------
$
- ---------------- ----------------
- ---------------- ----------------
- ---------------- ----------------
- ---------------- ----------------
Total Net Income $ (1) % bp bp
---------------- --------------- ---------- ------- -------
7.01 Total Risk Based Capital Ratio
------------------------------
(2)
Weighted-Risk
Assets and Off- Minimum
(1) Balance Sheet Ratio of Ratio
Total Capital Items (1) to (2) Permitted
------------- --------------- ---------- ---------
First Banks, Inc. (consolidated) % 10.0%
--------------- --------------- ---------- -----
First Bank % 10.0%
--------------- --------------- ---------- -----
7.02 Tier I Risk Based Capital Ratio
-------------------------------
(2)
Weighted-Risk
Assets and Off- Minimum
(1) Balance Sheet Ratio of Ratio
Tier I Capital Items (1) to (2) Permitted
-------------- ---------------- ---------- ---------
First Banks, Inc. (consolidated) % 6.0%
-------------- ---------------- ---------- ----
First Bank % 6.0%
-------------- ---------------- ---------- ----
7.03 Leverage Ratio
--------------
Minimum
(1) (2) Ratio of Ratio
Tier I Capital Total Assets (1) to (2) Permitted
-------------- ------------ ---------- ---------
First Banks, Inc. (consolidated) % 5.0%
--------------- ------------ ---------- ----
First Bank % 5.0%
--------------- ------------ ---------- ----
7.04 Minimum Return on Assets
------------------------
Minimum
Net Income for the quarter ended: Average Total Ratio of Ratio
- --------------------------------- Assets (2) (1) to (2) Permitted
---------- ---------- ---------
First Banks, Inc. (consolidated)
$
- ---------------- ----------------
- ---------------- ----------------
- ---------------- ----------------
- ---------------- ----------------
Total Net Income $ (1) % 0.70%
---------------- -------------- ---------- -----
7.05 Non-Performing Assets
---------------------
(1) (2) Maximum
Non-Performing Primary Equity Ratio of Ratio
Assets Capital (1) to (2) Permitted
------ ------- ---------- ---------
First Banks, Inc. (consolidated) % 25%
------------------ -------------- ---------- ---
First Bank * % 15%
------------------ -------------- ---------- ---
*Not including the Lake of the Ozarks Development asset, currently $__________; or, if the Lake of the Ozarks
---
asset is currently valued in excess of $12,000,000, including only excess of Lake of Ozarks asset over $12,000,000.
----
7.06 Allowance for Loan and Lease Losses
-----------------------------------
(1)
Allowance for (2) Minimum
Loan and Non-Performing Ratio of Ratio
Lease Losses Assets (1) to (2) Permitted
------------ ------ ---------- ---------
First Bank % 100%
------------------ -------------- ----------- ----
Signed as of the day and year first above written.
FIRST BANKS, INC.
By:
----------------------------------
Chief Executive Officer and
Chief Financial Officer
By:
----------------------------------
Senior Vice President -
Chief Accounting Officer
By:
----------------------------------
Chief Operating Officer
By:
----------------------------------
Chief Credit Officer
EXHIBIT D1
APPLICATION FOR STANDBY LETTER OF CREDIT
TO: WELLS FARGO BANK, NATIONAL ASSOCIATION
- ------------------------------------------------------------------------------------------------------------------------------------
DATE FOR WELLS FARGO'S USE ONLY LETTER OF CREDIT NO. DOCUMENT TRACK NO.
------------------------------ ----------------------------- ------------------------------ ---------------------
APPLICANT SIGNING BELOW HEREBY REQUESTS THAT WELLS FARGO BANK, NATIONAL
ASSOCIATION ("WELLS FARGO") ISSUE IN WELLS FARGO'S NAME AN IRREVOCABLE STANDBY
LETTER OF CREDIT (THE "CREDIT") ON SUBSTANTIALLY THE TERMS BELOW AND, UNLESS
OTHERWISE SPECIFIED BELOW IN SPECIAL INSTRUCTIONS, FORWARD THE CREDIT BY THE
FOLLOWING MEANS TO THE BENEFICIARY DIRECTLY OR THROUGH A BANK SELECTED BY WELLS
FARGO:
|_| FULL CABLE/TELEX |_| COURIER |_| MAIL WITH BRIEF ADVICE BY CABLE/TELEX |_| MAIL |_| OTHER:_____________________
- ----------------------------------------------------------------------- ------------------------------------------------------------
ADVISING BANK: (If left blank, Wells Fargo may select) BENEFICIARY: (Name and Address)
- ----------------------------------------------------------------------- ------------------------------------------------------------
PARTY TO BE NAMED AS REQUESTING THE CREDIT: (Name and Address) AMOUNT: (In words)
-------------------------------- ---------------------------
(In figures) (Currency)
- ----------------------------------------------------------------------- -------------------------------- ---------------------------
AVAILABILITY: Unless otherwise specified herein, the Credit is to be EXPIRATION DATE:
available with Wells Fargo's issuing office by payment of draft(s) --------------------------------------------
drawn at sight on Wells Fargo or, at Wells Fargo's option, with any
bank(s) or with a bank nominated by Wells Fargo by negotiation of
draft(s) drawn at sight on Wells Fargo. PLACE OF EXPIRATION: Unless otherwise specified herein, the
Credit is to expire at Wells Fargo's issuing office or, if
the Credit is available with any bank(s)or with a specific
bank other than Wells Fargo's issuing office, at such place
as Wells Fargo shall elect.
- ------------------------------------------------------------------------------------------------------------------------------------
DOCUMENT(S): Draft(s) are to be accompanied by: (Attached additional signed sheet(s), if necessary, and label as attachments to this
Application.)
- ------------------------------------------------------------------------------------------------------------------------------------
DRAWING(S): |_| Partial drawings are permitted. (More than one draft may be drawn and presented under the Credit.)
|_| Only one draft may be drawn and presented under the Credit, and:
|_| the draft must be for the full amount of the Credit. |_| the draft may be for less than the full amount
of the Credit.
- ------------------------------------------------------------------------------------------------------------------------------------
SPECIAL INSTRUCTIONS: (Attach additional signed sheet(s), if necessary, and label as attachments to this Application.)
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
TRANSFERABILITY: (If not checked, the Credit will not be transferable.)
|_| The Credit is to be transferable, with transfer charges for: |_| Applicant's account |_| Beneficiary's account
- ------------------------------------------------------------------------------------------------------------------------------------
INQUIRIES: Direct to: Telephone Number:
- ------------------------------------------------------------------------------------------------------------------------------------
APPLICANT'S AGREEMENT AND SIGNATURE: Applicant's signature here indicates agreement to all the terms and conditions on this
Application and Applicant's agreement that the Credit and its issuance will be governed by (1) the terms and conditions of the
Standby Letter of Credit Agreement between Applicant and Wells Fargo and/or (2) any other agreement signed by Applicant pursuant to
which the Credit is to be issued. This Application is signed by Applicant's duly authorized representative(s) on the date specified
above.
- ------------------------------------------------------------------------------------ ----------------------------------------
APPLICANT ADDRESS
- ------------------------------------------ ------------------------------------ ----------------------------------------
AUTHORIZED SIGNATURE TITLE ADDRESS
----------------------------------------- ------------------------------------ ----------------------------------------
AUTHORIZED SIGNATURE TITLE ADDRESS
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
(TO BE COMPLETED BY WELLS FARGO BANK, NATIONAL ASSOCIATION)
CREDIT ISSUANCE HAS BEEN APPROVED IN ACCORDANCE WITH WELLS FARGO'S CREDIT POLICIES AND PROCEDURES
- ------------------------------------------------------------------------------------------------------------------------------------
APPROVING OFFICER'S SIGNATURE APPROVING OFFICER'S NAME (Print) APPROVING OFFICER'S OFFICE AU MAC COMMITMENT NO.
(Print)
- ------------------------------------------------------------------------------------------------------------------------------------
PHONE AFS INTERFACE REQUIRED: STANDALONE TRANSACTION: COLLATERAL CODE PURPOSE CODE DATE
YES |_| NO |_| YES |_| NO |_|
- ------------------------------------------------------------------------------------------------------------------------------------
SPECIAL INSTRUCTIONS: (Indicate any provisions applicable to the Credit different from those on Applicant's Relationship Management
Instructions Form)
- ------------------------------------------------------------------------------------------------------------------------------------
EXHIBIT D2
STANDBY LETTER OF CREDIT AGREEMENT
To: WELLS FARGO BANK, NATIONAL ASSOCIATION
Applicant hereby requests that you, Wells Fargo Bank, National
Association ("Wells Fargo"), issue in your name one or more standby letters of
credit pursuant to Applications for the issuance of such Credits and the terms
and conditions of this Agreement. Each Credit will be issued at Applicant's
request and for its account, and, unless otherwise specifically provided in any
Loan Document, at your option. Applicant agrees that the terms and conditions in
this Agreement shall apply to each Application and the Credit issued pursuant to
each Application, and to transactions under each Application, each Credit and
this Agreement.
SECTION 1. DEFINITIONS. As used in this Agreement, the following terms
shall have the meanings set forth after each term: "Agreement" means this
---------
Standby Letter of Credit Agreement as it may be revised or amended from time to
time. "Applicant" means collectively each person and/or entity signing this
---------
Agreement as Applicant. "Application" means your printed form titled
-----------
"Application For Standby Letter of Credit" or any other form acceptable to you
on which Applicant applies for the issuance by you of a Credit and/or an
application for amendment of a Credit or any combination of such applications,
as the context may require. "Beneficiary" means the person or entity named on an
-----------
Application as the beneficiary or any transferee of such beneficiary.
"Collateral" means the Property, together with the proceeds of such Property,
----------
securing any or all of Applicant's obligations and liabilities at any time
existing under or in connection with any L/C Document and/or any Loan Document.
"Commission Fee" means the fee, computed at the commission fee rate specified by
--------------
you or specified in any Loan Document, charged by you at the time or times
specified by you on the amount of each Credit and on the amount of each increase
in a Credit for the time period each Credit is outstanding. "Credit" means an
------
instrument or document titled "Irrevocable Standby Letter of Credit" or "Standby
Letter of Credit", or any instrument or document whatever it is titled or
whether or not it is titled functioning as a standby letter of credit, issued
under or pursuant to an Application, and all renewals, extensions and amendments
of such instrument or document.. "Demand" means any sight draft, electronic or
------
telegraphic transmission or other written demand drawn or made, or purported to
be drawn or made, under or in connection with any Credit. "Document" means any
--------
instrument, statement, certificate or other document referred to in or related
to any Credit or required by any Credit to be presented with any Demand.
"Dollars" means the lawful currency at any time for the payment of public or
-------
private debts in the United States of America. "Event of Default" means any of
----------------
the events set forth in Section 13 of this Agreement.. "Expiration Date" means
----------------
the date any Credit expires. "Guarantor" means any person or entity guaranteeing
---------
the payment and/or performance of any or all of Applicant's obligations under or
in connection with any L/C Document and/or any Loan Document. "Holding Company"
---------------
means any company or other entity directly or indirectly controlling you. "L/C
---
Document" means this Agreement, each Application, each Credit, and each Demand.
- --------
"Loan Document" means each and any promissory note, loan agreement, security
--------------
agreement, pledge agreement, guarantee or other agreement or document executed
in connection with, or relating to, any extension of credit under which any
Credit is issued. "Maximum Rate" means the maximum amount of interest (as
-------------
defined by applicable laws), if any, permitted to be paid, taken, reserved,
received, collected or charged under applicable laws, as the same may be amended
or modified from time to time. "Negotiation Fee" means the fee, computed at the
---------------
negotiation fee rate specified by you or specified in any Loan Document, charged
by you on the amount of each Demand paid by you or any other bank specified by
you when each Demand is paid. "Payment Office" means the office specified by you
--------------
or specified in any Loan Document as the office where reimbursements and other
payments under or in connection with any L/C Document are to be made by
Applicant. "Prime Rate" means the rate of interest most recently announced
-----------
within Wells Fargo at its principal office as its Prime Rate, with the
understanding that the Prime Rate is one of Wells Fargo's base rates and serves
as the basis upon which effective rates of interest are calculated for those
loans making reference thereto, and is evidenced by the recording thereof after
its announcement in such internal publication or publications as Wells Fargo may
designate. "Property" means all forms of property, whether tangible or
--------
intangible, real, personal or mixed. "Rate of Exchange" means Wells Fargo's then
----------------
current selling rate of exchange in San Francisco, California for sales of the
currency of payment of any Demand, or of any fees or expenses or other amounts
payable under this Agreement, for cable transfer to the country of which such
currency is the legal tender. "UCP" means the Uniform Customs and Practice for
---
Documentary Credits, an International Chamber of Commerce publication, or any
substitution therefor or replacement thereof. "Unpaid and Undrawn Balance" means
--------------------------
at any time the entire amount which has not been paid by you under all the
Credits issued for Applicant's account, including, without limitation, the
amount of each Demand on which you have not yet effected payment as well as the
amount undrawn under all such Credits. "Wells Fargo & Company" means Wells Fargo
---------------------
& Company, a Delaware corporation.
SECTION 2. HONORING DEMANDS AND DOCUMENTS. You may receive, accept and
honor, as complying with the terms of any Credit, any Demand and any Documents
accompanying such Demand, provided that such Demand and accompanying Documents
appear on their face to comply substantially with the provisions of such Credit
and are, or appear on their face to be, signed or issued by (a) a person or
entity authorized under such Credit to draw, sign or issue such Demand and
accompanying Documents, or (b) an administrator, executor, trustee in
bankruptcy, debtor in possession, assignee for the benefit of creditors,
liquidator, receiver or other legal representative or successor in interest by
operation of law of any such person or entity.
SECTION 3. REIMBURSEMENT FOR PAYMENT OF DEMANDS. Applicant shall
reimburse you for all amounts paid by you on each Demand, including, without
limitation, all such amounts paid by you to any paying, negotiating or other
bank. If in connection with the issuance of any Credit, you agree to pay any
other bank the amount of any payment or negotiation made by such other bank
under such Credit upon your receipt of a cable, telex or other written
telecommunication advising you of such payment or negotiation, or authorize any
other bank to debit your account for the amount of such payment or negotiation,
Applicant agrees to reimburse you for all such amounts paid by you, or debited
to your account with such other bank, even if any Demand or Document specified
in such Credit fails to arrive in whole or in part or if, upon the arrival of
any such Demand or Document, the terms of such Credit have not been complied
with or such Demand or Document does not conform to the requirements of such
Credit or is not otherwise in order.
SECTION 4. FEES AND EXPENSES. Applicant agrees to pay to you (a) all
Commission Fees, Negotiation Fees, cable fees, amendment fees, non-usance fees,
and cancellation fees of, and all out-of-pocket expenses incurred by, you under
or in connection with any L/C Document, and (b) all fees and charges of banks or
other entities other than you under or in connection with any L/C Document if
any Application (i) does not indicate who will pay such fees and charges, (ii)
indicates that such fees and charges are to be paid by Applicant, or (iii)
indicates that such fees and charges are to be paid by the Beneficiary and the
Beneficiary does not, for any reason whatsoever, pay such fees or charges. There
shall be no refund of any portion of any Commission Fee in the event any Credit
is used, reduced, amended, modified or terminated before its Expiration Date.
SECTION 5. DEFAULT INTEREST. Unless otherwise specified in any Loan
Document, or on an Application and agreed to by you, all amounts to be
reimbursed by Applicant to you, and all fees and expenses to be paid by
Applicant to you, and all other amounts due from Applicant to you under or in
connection with any L/C Documents, will bear interest (to the extent permitted
by law), payable on demand, from the date you paid the amounts to be reimbursed
or the date such fees, expenses and other amounts were due until such amounts
are paid in full, at a rate per annum (computed on the basis of a 360-day year,
actual days elapsed) which is the lesser of (a) two percent (2%) above the Prime
Rate in effect from time to time, or (b) the Maximum Rate.
SECTION 6. TIME AND METHOD OF REIMBURSEMENT AND PAYMENT. Unless
otherwise specified in this Section, in any Loan Document, or on an Application
and agreed to by you, all amounts to be reimbursed by Applicant to you, all fees
and expenses to be paid by Applicant to you, and all interest and other amounts
due to you from Applicant under or in connection with any L/C Documents will be
reimbursed or paid at the Payment Office in Dollars in immediately available
funds without setoff or counterclaim (i) on demand or, (ii) at your option by
your debiting any of Applicant's accounts with you, with each such debit being
made without presentment, protest, demand for reimbursement or payment, notice
of dishonor or any other notice whatsoever, all of which are hereby expressly
waived by Applicant. Each such debit will be made at the time each Demand is
paid by you or, if earlier, at the time each amount is paid by you to any
paying, negotiating or other bank, or at the time each fee and expense is to be
paid or any interest or other amount is due under or in connection with any L/C
Documents. If any Demand or any fee, expense, interest or other amount payable
under or in connection with any L/C Documents is payable in a currency other
than Dollars, Applicant agrees to reimburse you for all amounts paid by you on
such Demand, and/or to pay you all such fees, expenses, interest and other
amounts, in one of the three following ways, as determined by you in your sole
discretion in each case: (a) at such place as you shall direct, in such other
currency; or (b) at the Payment Office in the Dollar equivalent of the amount of
such other currency calculated at the Rate of Exchange on the date determined by
you in your sole discretion; or (c) at the Payment Office in the Dollar
equivalent, as determined by you (which determination shall be deemed correct
absent manifest error), of such fees, expenses, interest or other amounts or of
the actual cost to you of paying such Demand. Applicant assumes all political,
economic and other risks of disruptions or interruptions in any currency
exchange.
SECTION 7. AGREEMENTS OF APPLICANT. Applicant agrees that (a) unless
otherwise specifically provided in any Loan Document, you shall not be obligated
at any time to issue any Credit for Applicant's account; (b) unless otherwise
specifically provided in any Loan Document, if any Credit is issued by you for
Applicant's account, you shall not be obligated to issue any further Credit for
Applicant's account or to make other extensions of credit to Applicant or in any
other manner to extend any financial consideration to Applicant; (c) you have
not given Applicant any legal or other advice with regard to any L/C Document or
Loan Document; (d) if you at any time discuss with Applicant the wording for any
Credit, any such discussion will not constitute legal or other advice by you or
any representation or warranty by you that any wording or Credit will satisfy
Applicant's needs; (e) Applicant is responsible for the wording of each Credit,
including, without limitation, any drawing conditions, and will not rely on you
in any way in connection with the wording of any Credit or the structuring of
any transaction related to any Credit; (f) Applicant, and not you, is
responsible for entering into the contracts relating to the Credits between
Applicant and the Beneficiaries and for causing Credits to be issued; (g) you
may, as you deem appropriate, modify or alter and use in any Credit the
terminology contained on the Application for such Credit; (h) unless the
Application for a Credit specifies whether the Documents to be presented with a
Demand under such Credit must be sent to you in one parcel or in two parcels or
may be sent to you in any number of parcels, you may, if you so desire, make
such determination and specify in the Credit whether such Documents must be sent
in one parcel or two parcels or may be sent in any number of parcels; (i) you
shall not be deemed Applicant's agent or the agent of any Beneficiary or any
other user of any Credit, and neither Applicant, nor any Beneficiary nor any
other user of any Credit shall be deemed your agent; (j) Applicant will promptly
examine all Documents and each Credit if and when they are delivered to
Applicant and, in the event of any claim of noncompliance of any Documents or
any Credit with Applicant's instructions or any Application, or in the event of
any other irregularity, Applicant will promptly notify you in writing of such
noncompliance or irregularity; (k) all directions and correspondence relating to
any L/C Document are to be sent at Applicant's risk; (l) if any Credit has a
provision concerning the automatic extension of its Expiration Date, you may, at
your sole option, give notice of nonrenewal of such Credit and if Applicant does
not at any time want such Credit to be renewed Applicant will so notify you at
least fifteen (15) calendar days before you are to notify the Beneficiary of
such Credit or any advising bank of such nonrenewal pursuant to the terms of
such Credit; (m) Applicant will not seek to obtain, apply for, or acquiesce in
any temporary or permanent restraining order, preliminary or permanent
injunction, permanent injunction or any other pretrial or permanent injunctive
or similar relief, restraining, prohibiting or enjoining you, any of your
correspondents or any advising, confirming, negotiating, paying or other bank
from paying or negotiating any Demand or honoring any other obligation under or
in connection with any Credit; and (n) except for Applicant's obligations
specifically affected by the actions referred to in subsection (vi) of this
Section 7(n), Applicant's obligations under or in connection with each L/C
Document and Loan Document shall be absolute, unconditional and irrevocable, and
shall be performed strictly in accordance with the terms of each such L/C
Document and Loan Document under all circumstances whatsoever, including,
without limitation, the following circumstances, the circumstances listed in
Section 12(b) through (dd) of this Agreement, and any other event or
circumstance similar to such circumstances: (A) any lack of validity or
enforceability of any L/C Document, any Loan Document, any Document or any
agreement relating to any of the foregoing; (B) any amendment of or waiver
relating to, or any consent to or departure from, any L/C Document, any Loan
Document or any Document; (C) any release or substitution at any time of any
Property held as Collateral; (D) your failure to deliver to Applicant any
Document you have received with a drawing under a Credit because doing so would,
or is likely to, violate any law, rule or regulation of any government
authority; (E) the existence of any claim, set-off, defense or other right which
Applicant may have at any time against you or any Beneficiary (or any person or
entity for whom any Beneficiary may be acting) or any other person or entity,
whether under or in connection with any L/C Document, any Loan Document, any
Document or any Property referred to in or related to any of the foregoing or
under or in connection with any unrelated transaction; (F) any breach of
contract or other dispute between or among any two or more of you, Applicant,
any Beneficiary, any transferee of any Beneficiary, any person or entity for
whom any Beneficiary or any transferee of any Beneficiary may be acting, or any
other person or entity; or (G) any delay, extension of time, renewal, compromise
or other indulgence granted or agreed to by you with or without notice to
Applicant, or Applicant's approval, in respect of any of Applicant's
indebtedness or other obligations to you under or in connection with any L/C
Document or any Loan Document.
SECTION 8. COMPLIANCE WITH LAWS AND REGULATIONS. Applicant represents
and warrants to you that no Application, Credit or transaction under any
Application and/or Credit will contravene any law or regulation of the
government of the United States or any state thereof. Applicant agrees (a) to
comply with all federal, state and foreign exchange regulations and other
government laws and regulations now or hereafter applicable to any L/C Document,
to any payments under or in connection with any L/C Document, to each
transaction under or in connection with any L/C Document, or to the import,
export, shipping or financing of the Property referred to in or shipped under or
in connection with any Credit, and (b) to reimburse you for such amounts as you
may be required to expend as a result of such laws or regulations, or any change
therein or in the interpretation thereof by any court or administrative or
government authority charged with the administration of such laws or
regulations.
SECTION 9. TAXES, RESERVES AND CAPITAL ADEQUACY REQUIREMENTS. In
addition to, and notwithstanding any other provision of any L/C Document or any
Loan Document, in the event that any law, treaty, rule, regulation, guideline,
request, order, directive or determination (whether or not having the force of
law) of or from any government authority, including, without limitation, any
court, central bank or government regulatory authority, or any change therein or
in the interpretation or application thereof, (a) does or shall subject you to
any tax of any kind whatsoever with respect to the L/C Documents, or change the
basis of taxation of payments to you of any amount payable thereunder (except
for changes in the rate of tax on your net income); (b) does or shall impose,
modify or hold applicable any reserve, special deposit, assessment, compulsory
loan, Federal Deposit Insurance Corporation insurance or similar requirement
against assets held by, deposits or other liabilities in or for the account of,
advances or loans by, other credit extended by or any other acquisition of funds
by, any of your offices; (c) does or shall impose, modify or hold applicable any
capital adequacy requirements (whether or not having the force of law); or (d)
does or shall impose on you any other condition; and the result of any of the
foregoing is (i) to increase the cost to you of issuing or maintaining any
Credit or of performing any transaction under any L/C Document, (ii) to reduce
any amount receivable by you under any L/C Document, or (iii) to reduce the rate
of return on your capital or the capital of the Holding Company to a level below
that which you or the Holding Company could have achieved but for any
imposition, modification or application of any capital adequacy requirement
(taking into consideration your policy and the policy of the Holding Company, as
the case may be, with respect to capital adequacy), and any such increase or
reduction is material (as determined by you or the Holding Company, as the case
may be, in your or the Holding Company's sole discretion); then, in any such
case, Applicant agrees to pay to you or the Holding Company, as the case may be,
such amount or amounts as may be necessary to compensate you or the Holding
Company for (A) any such additional cost, (B) any reduction in the amount
received by you under any L/C Document, or (C) to the extent allocable (as
determined by you or the Holding Company, as the case may be, in your or the
Holding Company's sole discretion) to any L/C Document, any reduction in the
rate of return on yourcapital or the capital of the Holding Company.
SECTION 10. COLLATERAL. In addition to, and not in substitution for,
any Property delivered, conveyed, transferred or assigned to you under any Loan
Document as security for any or all of Applicant's obligations and liabilities
to you at any time existing under or in connection with any L/C Document or any
Loan Document, Applicant grants to you a security interest in and to the
following Collateral, whether or not any such Collateral is in your possession
or control or the possession or control of your agents or correspondents or in
transit to, or set apart for, you or your agents or correspondents, until such
time as all Applicant's obligations and liabilities to you at any time existing
under or in connection with each L/C Document and each Loan Document have been
fully paid and discharged, all as security for such obligations and liabilities,
(a) all Applicant's property, claims, demands, right, title and interest in and
to the balance of each of Applicant's deposit accounts with you now or at any
time hereafter existing, and all evidences of such deposit accounts, (b) all
Property belonging to Applicant or in which it may have an interest, now or at
any time hereafter delivered, conveyed, transferred, assigned, pledged or paid
to you or your agents or correspondents in any manner whatsoever, whether as
security or for safekeeping or otherwise, including, without limitation, any
items received for collection or transmission, and the proceeds of such items,
whether or not such Property is in whole or in part released to Applicant on
trust or bailee receipt or otherwise, and (c) where Applicant is more than one
person or entity, all right, title and interest of each of Applicants in and to
all the Property which any of Applicants may now or hereafter obtain as security
for the obligations of any one or more of Applicants to one or more of the
others of Applicants arising under or in connection with the transaction to
which any Credit relates. Further, in addition to, and not in substitution for,
any Property delivered, conveyed, transferred or assigned to you under any Loan
Document as security for any or all of Applicant's obligations and liabilities
to you at any time existing under or in connection with any L/C Document or any
Loan Document, Applicant agrees to deliver, convey, transfer and assign to you
on demand, as security, Property of a value and character satisfactory to you,
(i) if you at any time feel insecure about Applicant's ability or willingness to
repay any amounts which you have paid or may pay in the future on any Demand or
in honoring any other of your obligations under or in connection with any
Credit, or (ii) without limiting the generality of the foregoing, if any
temporary or permanent restraining order, preliminary or permanent injunction,
or any other pretrial or permanent injunctive or similar relief is obtained
restraining, prohibiting or enjoining you, any of your correspondents, or any
advising, confirming, negotiating, paying or other bank from paying or
negotiating any Demand or honoring any other obligation under or in connection
with any Credit. Applicant agrees that the receipt by you or any of your agents
or correspondents at any time of any kind of security, including, without
limitation, cash, shall not be deemed a waiver of any of your rights or powers
under this Agreement. Applicant agrees to sign and deliver to you on demand, all
such deeds of trust, security agreements, financing statements and other
documents as you shall at any time request which are necessary or desirable (in
your sole opinion) to grant to you an effective and perfected security interest
in and to any or all of the Collateral. Applicant agrees to pay all filing and
recording fees related to the perfection of any security interest granted to you
in accordance with this Section. Applicant hereby agrees that any or all of the
Collateral may be held and disposed of as provided in this Agreement by you.
Upon any transfer, sale, delivery, surrender or endorsement of any Document or
Property which is or was part of the Collateral, Applicant will indemnify and
hold you and your agents and correspondents harmless from and against each and
every claim, demand, action or suit which may arise against you or any of your
agents or correspondents by reason of such transfer, sale, delivery, surrender
or endorsement.
SECTION 11. INDEMNIFICATION. Except to the extent caused by your lack
of good faith, and notwithstanding any other provision of this Agreement,
Applicant agrees to reimburse and indemnify you for (a) all amounts paid by you
to any Beneficiary under or in connection with any guarantee or similar
undertaking issued by such Beneficiary to a third party at Applicant's request,
whether such request is communicated directly by Applicant or through you to
such Beneficiary; and (b) all damages, losses, liabilities, actions, claims,
suits, penalties, judgments, obligations, costs or expenses, of any kind
whatsoever and howsoever caused, including, without limitation, attorneys' fees
and interest, paid, suffered or incurred by, or imposed upon, you directly or
indirectly arising out of or in connection with (i) any L/C Document, any Loan
Document, any Document or any Property referred to in or related to any Credit;
(ii) Applicant's failure to comply with any of its obligations under this
Agreement; (iii) the issuance of any Credit; (iv) the transfer of any Credit;
(v) any guarantee or similar undertaking, or any transactions thereunder, issued
by any Beneficiary to a third party at Applicant's request, whether such request
is communicated directly by Applicant or through you to such Beneficiary; (vi)
any communication made by you, on Applicant's instructions, to any Beneficiary
requesting that such Beneficiary issue a guarantee or similar undertaking to a
third party or the issuance of any such guarantee or similar undertaking; (vii)
the collection of any amounts Applicant owes to you under or in connection with
any L/C Document or any Loan Document; (viii) the foreclosure against, or other
enforcement of, any Collateral; (ix) the protection, exercise or enforcement of
your rights and remedies under or in connection with any L/C Document or any
Loan Document; (x) any court decrees or orders, including, without limitation,
temporary or permanent restraining orders, preliminary or permanent injunctions,
or any other pretrial or permanent injunctive or similar relief, restraining,
prohibiting or enjoining or seeking to restrain, prohibit or enjoin you, any of
your correspondents or any advising, confirming, negotiating, paying or other
bank from paying or negotiating any Demand or honoring any other obligation
under or in connection with any Credit; or (xi) any Credit being governed by
laws or rules other than the UCP in effect on the date such Credit is issued.
The indemnity provided in this Section will survive the termination of this
Agreement and the expiration or cancellation of any or all the Credits.
SECTION 12. LIMITATION OF LIABILITY. Notwithstanding any other
provision of this Agreement, neither you nor any of your agents or
correspondents will have any liability to Applicant for any action, neglect or
omission, if done in good faith, under or in connection with any L/C Document,
Loan Document or Credit, including, without limitation, the issuance or any
amendment of any Credit, the failure to issue or amend any Credit, or the
honoring or dishonoring of any Demand under any Credit, and such good faith
action, neglect or omission will bind Applicant. Notwithstanding any other
provision of any L/C Document, in no event shall you or your officers or
directors be liable or responsible, regardless of whether any claim is based on
contract or tort, for (a) any special, consequential, indirect or incidental
damages, including, without limitation, lost profits, arising out of or in
connection with the issuance of any Credit or any action taken or not taken by
you in connection with any L/C Document, any Loan Document, or any Document or
Property referred to in or related to any Credit; (b) the honoring of any Demand
in accordance with any order or directive of any court or government or
regulatory body or entity requiring such honor despite any temporary restraining
order, restraining order, preliminary injunction, permanent injunction or any
type of pretrial or permanent injunctive relief or any similar relief, however
named, restraining, prohibiting or enjoining such honor; (c) the dishonoring of
any Demand in accordance with any legal or other restriction in force at the
time and in the place of presentment or payment; (d) verifying the existence or
reasonableness of any act or condition referenced, or any statement made, in
connection with any drawing or presentment under any Credit; (e) the use which
may be made of any Credit; (f) the validity of any purported transfer of any
Credit or the identity of any purported transferee of any Beneficiary; (g) any
acts or omissions of any Beneficiary or any other user of any Credit; (h) the
form, validity, sufficiency, correctness, genuineness or legal effect of any
Demand or any Document, or of any signatures or endorsements on any Demand or
Document, even if any Demand or any Document should in fact prove to be in any
or all respects invalid, insufficient, fraudulent or forged; (i) payment by you
of any Demand when the Demand and any accompanying Documents appear on their
face to comply substantially with the terms of the Credit to which they relate
or dishonor by you of any Demand when the Demand and any accompanying Documents
do not strictly comply on their face with the terms of the Credit to which they
relate; (j) the failure of any Demand or Document to bear any reference or
adequate reference to the Credit to which it relates; (k) the failure of any
Document to accompany any Demand; (l) the failure of any person or entity to
note the amount of any Demand on the Credit to which it relates or on any
Document; (m) the failure of any person or entity to surrender or take up any
Credit; (n) the failure of any Beneficiary to comply with the terms of any
Credit or to meet the obligations of such Beneficiary to Applicant; (o) the
failure of any person or entity to send or forward Documents if and as required
by the terms of any Credit; (p) any errors, inaccuracies, omissions,
interruptions or delays in transmission or delivery of any messages, directions
or correspondence by mail, cable, telegraph, wireless or otherwise, whether or
not they are in cipher; (q) any notice of nonrenewal of a Credit sent by you not
being received on time or at any time by the Beneficiary of such Credit; (r) any
inaccuracies in the translation of any messages, directions or correspondence;
(s) any Beneficiary's use of the proceeds of any Demand; (t) any Beneficiary's
failure to repay to you or Applicant the proceeds of any Demand if the terms of
any Credit require such repayment; or (u) any act, error, neglect, default,
negligence, gross negligence, omission, willful misconduct, lack of good faith,
insolvency or failure in business of any of your agents or correspondents or of
any advising, confirming, negotiating, paying or other bank. The occurrence of
any one or more of the contingencies referred to in the preceding sentence shall
not affect, impair or prevent the vesting of your rights or powers under this
Agreement or any Loan Document or Applicant's obligation to make reimbursement
or payment to you under this Agreement or any Loan Document. The provisions of
this Section will survive the termination of this Agreement and any Loan
Documents and the expiration or cancellation of any or all the Credits.
SECTION 13. EVENTS OF DEFAULT. Each of the following shall constitute
an Event of Default under this Agreement: (a) Applicant's or any Guarantor's
failure to pay any principal, interest, fee or other amount when due under or in
connection with any L/C Document or any Loan Document; (b) Applicant's failure
to deliver to you Property of a value and character satisfactory to you at any
time you have demanded security from Applicant pursuant to Section 10 of this
Agreement; (c) the occurrence and continuance of any default or defined event of
default under any Loan Document or any other agreement, document or instrument
signed or made by Applicant or any Guarantor in your favor; (d) Applicant's or
any Guarantor's failure to perform or observe any term, covenant or agreement
contained in this Agreement or any Loan Document (other than those referred to
in subsections (a), (b) and (c) of this Section, or the breach of any other
obligation owed by Applicant or any Guarantor to you, and any such failure or
breach shall be impossible to remedy or shall remain unremedied for thirty (30)
calendar days after such failure or breach occurs; (e) any representation,
warranty or certification made or furnished by Applicant or any Guarantor under
or in connection with any L/C Document, any Loan Document or any Collateral, or
as an inducement to you to enter into any L/C Document or Loan Document or to
accept any Collateral, shall be materially false, incorrect or incomplete when
made; (f) any material provision of this Agreement or any Loan Document shall at
any time for any reason cease to be valid and binding on Applicant or any
Guarantor or shall be declared to be null and void, or the validity or
enforceability thereof shall be contested by Applicant, any Guarantor or any
government agency or authority, or Applicant or any Guarantor shall deny that it
has any or further liability or obligation under this Agreement or any Loan
Document; (g) Applicant's or any Guarantor's failure to pay or perform when due
any indebtedness or other obligation Applicant or such Guarantor has to any
person or entity other than you if such failure gives the payee of such
indebtedness or the beneficiary of the performance of such obligation the right
to accelerate the time of payment of such indebtedness or the performance of
such obligation; (h) any guarantee of, or any security covering, any of
Applicant's indebtedness to you arising under or in connection with any L/C
Document or any Loan Document fails to be in full force and effect at any time;
(i) any material adverse change in Applicant's or any Guarantor's financial
condition; (j) Applicant or any Guarantor suspends the transaction of its usual
business or is expelled or suspended from any exchange; (k) Applicant or any
Guarantor dies or is incapacitated; (l) Applicant or any Guarantor dissolves or
liquidates; (m) Applicant or any Guarantor is not generally paying its debts as
they become due; (n) Applicant or any Guarantor becomes insolvent, however such
insolvency may be evidenced, or Applicant or any Guarantor makes any general
assignment for the benefit of creditors; (o) a petition is filed by or against
Applicant or any Guarantor seeking Applicant's or such Guarantor's liquidation
or reorganization under the Bankruptcy Reform Act, Title 11 of the United States
Code, as amended or recodified from time to time, or a similar action is brought
by or against Applicant or any Guarantor under any federal, state or foreign
law; (p) a proceeding is instituted by or against Applicant or any Guarantor for
any relief under any bankruptcy, insolvency or other law relating to the relief
of debtors, reorganization, readjustment or extension of indebtedness or
composition with creditors; (q) a custodian or a receiver is appointed for, or a
writ or order of attachment, execution or garnishment is issued, levied or made
against, any of Applicant's or any Guarantor's Property or assets; (r) an
application is made by any of Applicant's or any Guarantor's judgment creditors
for an order directing you to pay over money or to deliver other of Applicant's
or such Guarantor's Property; or (s) any government authority or any court takes
possession of any substantial part of Applicant's or any Guarantor's Property or
assets or assumes control over Applicant's or any Guarantor's affairs.
SECTION 14. REMEDIES. Upon the occurrence and continuance of any Event
of Default all amounts paid by you on any Demand which have not previously been
repaid to you, together with all interest on such amounts, and the Unpaid and
Undrawn Balance, if any, shall automatically be owing by Applicant to you and
shall be due and payable by Applicant on demand without presentment or any other
notice of any kind, including, without limitation, notice of nonperformance,
notice of protest, protest, notice of dishonor, notice of intention to
accelerate, or notice of acceleration, all of which are expressly waived by
Applicant. Upon payment of the Unpaid and Undrawn Balance to you Applicant shall
have no further legal or equitable interest therein, and you will not be
required to segregate on your books or records the Unpaid and Undrawn Balance
paid by Applicant. After you receive the Unpaid and Undrawn Balance, you agree
to pay to Applicant, upon termination of all of your liability under all the
Credits and Demands, a sum equal to the amount which has not been drawn under
all the Credits less all amounts due and owing to you from Applicant under or in
connection with the L/C Documents and the Loan Documents. Further, upon the
occurrence and continuance of any Event of Default, you may sell immediately,
without demand for payment, advertisement or notice to Applicant, all of which
are hereby expressly waived, any and all Collateral, received or to be received,
at private sale or public auction or at brokers' board or upon any exchange or
otherwise, at your option, in such parcel or parcels, at such times and places,
for such prices and upon such terms and conditions as you may deem proper, and
you may apply the net proceeds of each sale, together with any sums due from you
to Applicant, to the payment of any and all obligations and liabilities due from
Applicant to you under or in connection with the L/C Documents and the Loan
Documents, all without prejudice to your rights against Applicant with respect
to any and all such obligations and liabilities which may be or remain unpaid.
If any such sale be at brokers' board or at public auction or upon any exchange,
you may yourself be a purchaser at such sale free from any right of redemption,
which Applicant hereby expressly waive and release. All your rights and remedies
existing under the L/C Documents and the Loan Documents are in addition to, and
not exclusive of, any rights or remedies otherwise available to you under
applicable law. In addition to any rights now or hereafter granted under
applicable law, and not by way of limitation of any such rights, upon the
occurrence and continuance of any Event of Default, Applicant hereby authorizes
you at any time or from time to time, without notice to Applicant or to any
other person (any such notice being hereby expressly waived by Applicant) and to
the extent permitted by law, to appropriate and to apply any and all Applicant's
deposits (general or special, including, without limitation, indebtedness
evidenced by certificates of deposit) with you or elsewhere, whether matured or
unmatured, and any other indebtedness at any time held or owing by you to or for
Applicant's credit or its account, against and on account of Applicant's
obligations and liabilities to you under or in connection with any of the L/C
Documents or the Loan Documents, irrespective of whether or not you shall have
made any demand for payment of any or all such obligations and liabilities or
declared any or all such obligations and liabilities to be due and payable, and
although any or all such obligations and liabilities shall be contingent or
unmatured.
SECTION 15. WAIVERS. No delay, extension of time, renewal, compromise
or other indulgence which may occur or be granted by you under any L/C Document
or any Loan Document shall impair your rights or powers under this Agreement or
any Application. You shall not be deemed to have waived any of your rights under
this Agreement or any Application unless such waiver is in writing signed by
your authorized representative. No such waiver, unless expressly provided
therein, shall be effective as to any transactions which occur subsequent to the
date of such waiver or as to the continuance of any Event of Default after such
waiver. No amendment or modification of this Agreement shall be effective unless
it is in writing signed by Applicant's and your authorized representative(s).
SECTION 16. AMENDMENTS AND MODIFICATIONS TO CREDITS. At Applicant's
verbal or written request, or with Applicant's verbal or written consent, and
without extinguishing or otherwise affecting Applicant's obligations under this
Agreement or any Loan Document, you may with respect to any Credit, in writing
or by any other action, but you will not be obligated to, (a) increase the
amount of such Credit, (b) extend the time for, and amend or modify the terms
and conditions governing, the making and honoring of any Demand or Document or
any other terms and conditions of such Credit, or (c) waive the failure of any
Demand or Document to comply with the terms of such Credit, and any Collateral
pledged or granted to you in connection with such Credit will secure Applicant's
obligations to you with respect to such Credit as amended, modified or waived.
No amendment to, or modification of, the terms of any Credit will become
effective if the Beneficiary of such Credit or any confirming bank objects to
such amendment or modification. If any Credit is amended or modified in
accordance with this Section, Applicant shall be bound by, and obligated under,
the provisions of this Agreement with respect to such Credit as so amended or
modified, and any action taken by you or any advising, confirming, negotiating,
paying or other bank in accordance with such amendment or modification.
SECTION 17. SUCCESSORS AND ASSIGNS. The terms and conditions of this
Agreement and each Application shall bind Applicant's heirs, executors,
administrators, successors and assigns, and all rights, benefits and privileges
conferred on you under or in connection with each L/C Document and each Loan
Document shall be and hereby are extended to, conferred upon and may be enforced
by your successors and assigns. Applicant will not assign this Agreement or
Applicant's obligations or liabilities to you under or in connection with any
L/C Document or Loan Document to any person or entity without your prior written
approval.
SECTION 18. GOVERNING LAW. This Agreement and each Application, and
Applicant's and your performance under this Agreement and each Application,
shall be governed by and be construed in accordance with the laws of the State
of California. Unless you otherwise specifically agree in writing, each Credit,
the opening of each Credit, the performance by you under each Credit, and the
performance by the Beneficiary and any advising, confirming, negotiating, paying
or other bank under each Credit, shall be governed by and be construed in
accordance with the UCP in force on the date of the issuance of each Credit. In
the event that any Credit issued pursuant to this Agreement states that it is
governed by the laws of a jurisdiction other than the State of California, then
your performance under such Credit shall be governed.
SECTION 19. JURISDICTION AND SERVICE OF PROCESS. Any suit, action or
proceeding against Applicant under or with respect to any L/C Document may, at
your sole option, be brought in (a) the courts of the State of California, (b)
the United States District Courts in California, (c) the courts of Applicant's
jurisdiction of incorporation or principal office, or (d) the courts of the
jurisdiction where any Beneficiary, any advising, confirming, negotiating,
paying or other bank, or any other person or entity has brought any suit, action
or proceeding against you with respect to any Credit or any Demand, and
Applicant hereby submits to the nonexclusive jurisdiction of such courts for the
purpose of any such suit, action, proceeding or judgment and waives any other
preferential jurisdiction by reason of domicile. Applicant will accept joinder
in any suit, action or proceeding brought in any court or jurisdiction against
you by any Beneficiary, any advising, confirming, negotiating, paying or other
bank or any other person or entity with respect to any Credit or any Demand.
Applicant irrevocably waives trial by jury and any objection, including, without
limitation, any objection of the laying of venue or any objection based on the
grounds of forum non conveniens, which Applicant may now or hereafter have to
the bringing of any such action or proceeding. Applicant further waives any
right to transfer or change the venue of any suit, action or proceeding brought
against Applicant by you under or in connection with any L/C Document. Applicant
irrevocably consents to the service of process in any action or proceeding in
any court by the mailing of copies thereof by registered or certified mail,
postage prepaid, to Applicant at its address specified next to its signature on
this Agreement or at such other address as Applicant shall have notified to you
in writing, such service to be effective ten (10) days after such mailing.
SECTION 20. JOINT APPLICANTS. If this Agreement is signed by more than
one person and/or entity as an Applicant, this Agreement and the Applications
shall be the joint and several agreement of all such persons and/or entities and
that all references to "Applicant" or "Applicant's" in this Agreement and the
Applications shall refer to all such persons and/or entities jointly and
severally.
SECTION 21. SEVERABILITY. Any provision of any L/C Document which is
prohibited or unenforceable in any jurisdiction shall be, only as to such
jurisdiction, ineffective to the extent of such prohibition or unenforceability,
but all the remaining provisions of such L/C Document and all the other L/C
Documents shall remain valid.
SECTION 22. HEADINGS. The headings used in this Agreement are for
convenience of reference only and shall not define or limit the provisions of
this Agreement.
SECTION 23. CREDIT AGREEMENT. This Agreement and any related
Application have been entered into pursuant to the Secured Credit Agreement
dated August 14, 2003, among Applicant, as Borrower, Wells Fargo, as Agent, and
other financial institutions (the "Credit Agreement"). For so long as the Credit
Agreement remains in effect, the provisions of Sections 4, 5, 6, 9, 10, 13, 14,
and 15 of this Agreement shall not be effective. In the event that the Credit
Agreement is terminated and any Credit remains outstanding, then the provisions
of Sections 4, 5, 6, 9, 10, 13, 14, and 15 hereof shall thereafter apply to all
outstanding Credits until the obligations of the Applicant thereunder have been
satisfied in full.
ADDITIONAL PROVISIONS APPLICABLE IF THE APPLICANT IS LOCATED IN OREGON
----------------------------------------------------------------------
Section Oregon 1. UNDER OREGON LAW, MOST AGREEMENTS, PROMISES AND
COMMITMENTS MADE BY A LENDER AFTER OCTOBER 3, 1989 CONCERNING LOANS AND OTHER
CREDIT EXTENSIONS WHICH ARE NOT FOR PERSONAL, FAMILY, OR HOUSEHOLD PURPOSES OR
SECURED SOLELY BY THE BORROWER'S RESIDENCE MUST BE IN WRITING, EXPRESS
CONSIDERATION, AND BE SIGNED BY THE LENDER TO BE ENFORCEABLE.
ADDITIONAL PROVISIONS APPLICABLE IF THE APPLICANT IS LOCATED IN WASHINGTON
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Section Washington 1. ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN
MONEY, EXTEND CREDIT OR FOREBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT
ENFORCEABLE UNDER WASHINGTON LAW.
ADDITIONAL PROVISIONS APPLICABLE IF THE APPLICANT IS LOCATED IN NEBRASKA
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Section Nebraska 1. ENFORCEABILITY OF WRITTEN TERMS ONLY. A CREDIT
AGREEMENT MUST BE IN WRITING TO BE ENFORCEABLE UNDER NEBRASKA LAW. TO PROTECT
THE PARTIES FROM ANY MISUNDERSTANDINGS OR DISAPPOINTMENTS, ANY CONTRACT,
PROMISE, UNDERTAKING OR OFFER TO FOREBEAR REPAYMENT OF MONEY OR TO MAKE ANY
OTHER FINANCIAL ACCOMMODATION IN CONNECTION WITH THIS LOAN OF MONEY OR GRANT OR
EXTENSION OF CREDIT, OR ANY AMENDMENT OF, CANCELLATION OF, WAIVER OF, OR
SUBSTITUTION FOR ANY OR ALL OF THE TERMS OR PROVISIONS OF ANY INSTRUMENT OR
DOCUMENT EXECUTED IN CONNECTION WITH THIS LOAN OF MONEY OR GRANT OR EXTENSION OF
CREDIT, MUST BE IN WRITING TO BE EFFECTIVE.
ADDITIONAL PROVISIONS APPLICABLE IF THE APPLICANT IS LOCATED IN IOWA
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Section Iowa 1. IMPORTANT: READ BEFORE SIGNING. THE TERMS OF THIS
AGREEMENT SHOULD BE READ CAREFULLY BECAUSE ONLY THOSE TERMS IN WRITING ARE
ENFORCEABLE. NO OTHER TERMS OR ORAL PROMISES NOT CONTAINED IN THIS WRITTEN
CONTRACT MAY BE LEGALLY ENFORCED. YOU MAY CHANGE THE TERMS OF THIS AGREEMENT
ONLY BY ANOTHER WRITTEN AGREEMENT.
ADDITIONAL PROVISIONS APPLICABLE IF APPLICANT IS LOCATED IN MISSOURI
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ORAL AGREEMENTS OR COMMITMENTS TO LOAN MONEY, EXTEND CREDIT, OR TO
FORBEAR FROM ENFORCING REPAYMENT OF A DEBT INCLUDING PROMISES TO EXTEND OR RENEW
SUCH DEBT ARE NOT ENFORCEABLE. TO PROTECT YOU (BORROWER) AND US (LENDERS AND
AGENT) FROM MISUNDERSTANDING OR DISAPPOINTMENT, ANY AGREEMENT WE REACH COVERING
SUCH MATTERS ARE CONTAINED IN THIS WRITING, WHICH IS THE COMPLETE AND EXCLUSIVE
STATEMENT OF THE AGREEMENT BETWEEN US, EXCEPT AS WE MAY LATER AGREE IN WRITING
TO MODIFY IT.
Section Iowa 2. By signing this Agreement, Applicant acknowledges
receipt of a copy of this Agreement.
This Agreement is signed by Applicant's duly authorized representative or representatives on the date specified below.
------------------------------------------------ -------------------------------------------------
[Applicant's Name] [Applicant's Name]
By: By:
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Title: Title:
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------------------------------------------------ -------------------------------------------------
Signature Signature
Address: Address:
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------------------------------------------------ -------------------------------------------------
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Date: Date:
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EXHIBIT E
GUARANTY
-------------, ----------
August 14, 2003
This Guaranty is made as of the above date by the undersigned, The San
Francisco Company, a Delaware corporation, in favor of Wells Fargo Bank,
National Association, a national banking association, as Agent for the "Lenders"
pursuant to the Secured Credit Agreement described below.
RECITALS
First Banks, Inc. (the "Borrower"), the Agent and certain financial
institutions have executed a secured credit agreement dated as of August 14,
2003, (the "Secured Credit Agreement"), pursuant to which such financial
institutions (the "Lenders") have agreed to lend up to $60,000,000 to the
Borrower and pursuant to which the Agent has agreed to issue up to $20,000,000
in face amount of standby letters of credit for the account of the Borrower.
One condition to the Lenders' and Agent's commitment under the Secured
Credit Agreement is that the undersigned execute, deliver and perform this
Guaranty, thereby guaranteeing the payment and performance of all debts,
liabilities and obligations of the Borrower to the Agent and the Lenders arising
out of the Secured Credit Agreement and any extensions, renewals or replacements
thereof (the "Indebtedness").
Now, therefore, in consideration of the premises, the undersigned
hereby agrees as follows:
1. No act or thing need occur to establish the liability of the
undersigned hereunder, and no act or thing, except full payment and discharge of
all Indebtedness, shall in any way exonerate the undersigned or modify, reduce,
limit, or release the liability of the undersigned hereunder.
2. This is an absolute, unconditional and continuing guaranty of
payment of the Indebtedness and shall continue to be in force and be binding
upon the undersigned, whether or not all Indebtedness is paid in full, until
this Guaranty is revoked prospectively as to future transactions, by written
notice actually received by the Agent, and such revocation shall not be
effective as to Indebtedness existing or committed for at the time of actual
receipt of such notice by the Agent, or as to any renewals, extensions and
refinancings thereof.
3. If the undersigned shall be dissolved or shall be or become
insolvent then the Agent shall have the right to declare immediately due and
payable, and the undersigned will forthwith pay to the Agent, the full amount of
all Indebtedness, whether due and payable or unmatured. If the undersigned
voluntarily commences or there is commenced involuntarily against the
undersigned a case under the United States Bankruptcy Code, the full amount of
all Indebtedness, whether due and payable or unmatured, shall be immediately due
and payable without demand or notice thereof.
4. The undersigned shall be liable for all Indebtedness, without any
limitation as to amount, plus accrued interest thereon and all attorneys' fees,
collection costs and enforcement expenses referable thereto. Indebtedness may be
created and continued in any amount, whether or not in excess of such principal
amount, without affecting or impairing the liability of the undersigned
hereunder. The Agent may apply any sums received by or available to the Agent on
account of the Indebtedness from Borrower or any other person (except the
undersigned), from their properties, out of any collateral security or from any
other source to payment of the excess. Such application of receipts shall not
reduce, affect or impair the liability of the undersigned hereunder.
5. The undersigned will not exercise or enforce any right of
contribution, reimbursement, recourse or subrogation available to the
undersigned against any person liable to payment of the Indebtedness, or as to
any collateral security therefor, unless and until all of the Indebtedness shall
have been fully paid and discharged.
6. The undersigned will pay or reimburse the Agent for all costs and
expenses (including reasonable attorneys' fees and legal expenses) incurred by
the Agent in connection with the protection, defense or enforcement of this
Guaranty in any litigation or bankruptcy or insolvency proceedings.
7. Whether or not any existing relationship between the undersigned and
Borrower has been changed or ended and whether or not this Guaranty has been
revoked, the Agent may, but shall not be obligated to, enter into transactions
resulting in the creation or continuance of Indebtedness, without any consent or
approval by the undersigned and without any notice to the undersigned. The
liability of the undersigned shall not be affected or impaired by any of the
following acts or things (which the Agent is expressly authorized to do, omit or
suffer from time to time, both before and after revocation of this Guaranty,
without notice to or approval by the undersigned): (i) any acceptance of
collateral security, guarantors, accommodation parties or sureties for any or
all Indebtedness; (ii) any one or more extensions or renewals of Indebtedness
(whether or not for longer than the original period) or any modification of the
interest rates, maturities or other contractual terms applicable to any
Indebtedness; (iii) any waiver or indulgence granted to Borrower, any delay or
lack of diligence in the enforcement of Indebtedness, or any failure to
institute proceedings, file a claim, give any required notices or otherwise
protect any Indebtedness, (iv) any full or partial release of, settlement with,
or agreement not to sue, Borrower or any other guarantor or other person liable
in respect of any Indebtedness; (v) any discharge of any evidence of
Indebtedness or the acceptance of any instrument in renewal thereof or
substitution therefor; (vi) any failure to obtain collateral security (including
rights of setoff) for Indebtedness, or to see to the proper or sufficient
creation and perfection thereof, or to establish the priority thereof, or to
protect, insure, or enforce any collateral security; or any modification,
substitution, discharge, impairment, or loss of any collateral security; (vii)
any foreclosure or enforcement of any collateral security; (viii) any transfer
of any Indebtedness or any evidence thereof; (ix) any order of application of
any payments or credits upon Indebtedness; (x) any election by the Agent under
ss. 1111(b)(2) of the United States Bankruptcy Code.
8. The undersigned waives any and all defenses, claims and discharges
of Borrower, or any other obligor, pertaining to Indebtedness, except the
defense of discharge by payment in full. Without limiting the generality of the
foregoing, the undersigned will not assert, plead or enforce against the Agent
any defense of waiver, release, discharge in bankruptcy, statute of limitations,
res judicata, statute of frauds, anti-deficiency statute, fraud, incapacity,
minority, usury, illegality or unenforceability which may be available to
Borrower or any other person liable in respect of any Indebtedness, or any
setoff available against the Agent to Borrower or any such other person, whether
or not on account of a related transaction. The undersigned expressly agrees
that the undersigned shall be and remain liable for any deficiency remaining
after foreclosure of any mortgage or security interest securing Indebtedness,
whether or not the liability of Borrower or any other obligor for such
deficiency is discharged pursuant to statute or judicial decision.
9. The undersigned waives presentment, demand for payment, notice of
dishonor or nonpayment, and protest of any instrument evidencing Indebtedness.
The Agent shall not be required first to resort for payment of the Indebtedness
to Borrower or other persons or their properties, or first to enforce, realize
upon or exhaust any collateral security for Indebtedness, before enforcing this
Guaranty.
10. If any payment applied by the Agent to Indebtedness is thereafter
set aside, recovered, rescinded or required to be returned for any reason
(including, without limitation, the bankruptcy, insolvency or reorganization of
Borrower or any other obligor), the Indebtedness to which such payment was
applied shall for the purposes of this Guaranty be deemed to have continued in
existence, notwithstanding such application, and this Guaranty shall be
enforceable as to such Indebtedness as fully as if such application had never
been made.
11. The liability of the undersigned under this Guaranty is in addition
to and shall be cumulative with all other liabilities of the undersigned to the
undersigned as guarantor or otherwise, without any limitation as to amount,
unless the instrument or agreement evidencing or creating such other liability
specifically provides to the contrary.
12. This Guaranty shall be effective upon delivery to the Agent,
without further act, condition or acceptance by the Agent, shall be binding upon
the undersigned and the successors and assigns of the undersigned and shall
inure to the benefit of the Agent and the Lenders and their respective
participants, successors and assigns. Any invalidity or unenforceability of any
provision or application of this Guaranty shall not affect other lawful
provisions and application hereof, and to this end the provisions of this
Guaranty are declared to be severable. This Guaranty may not be waived,
modified, amended, terminated, released or otherwise changed except by a writing
signed by the undersigned and the Agent. This Guaranty shall be governed by the
laws of the State of Missouri. The undersigned waives notice of the Agent's
acceptance hereof and waives the right to a trial by jury in any action based on
or pertaining to this Guaranty.
In witness whereof, the undersigned has executed this Guaranty as of
the day and year first above written.
THE SAN FRANCISCO COMPANY
By
-----------------------------------
Its
------------------------------
EXHIBIT F
SAN FRANCISCO COMPANY SECURITY AGREEMENT
This Agreement is made as of this 14th day of August, 2003, by and
between THE SAN FRANCISCO COMPANY, a Delaware Corporation ("Debtor") and WELLS
FARGO BANK, NATIONAL ASSOCIATION, a national banking association, as Agent for
the "Lenders" pursuant to the Secured Credit Agreement described below ("Secured
Party").
RECITALS
First Banks, Inc. (the "Borrower"), Secured Party and certain financial
institutions have executed a secured credit agreement dated as of August 14,
2003, (the "Credit Agreement"), pursuant to which such financial institutions
(the "Lenders") have agreed to lend up to $60,000,000 to Borrower and pursuant
to which Secured Party has agreed to issue up to $20,000,000 in face amount of
standby letters of credit for the account of Borrower.
One condition to the Lenders' and Secured Party's commitments under the
Credit Agreement is that Debtor execute, deliver and perform this Agreement,
thereby granting a security interest to Secured Party, as agent for the Lenders,
in the Collateral described herein.
Now, therefore, in consideration of the premises and the mutual
agreements herein set forth, the parties hereto hereby agree as follows:
1. Security Interest and Collateral. To secure the payment and
performance of the "Obligations," as such term is defined in the Credit
Agreement, Debtor hereby grants Secured Party (for its own account and as agent
for the Lenders) a security interest (the "Security Interest") in (i) all of the
capital stock of First Bank, a Missouri state bank, owned by Debtor, and (ii)
any capital stock that Debtor may hereafter acquire and deliver to Secured Party
pursuant to Section 5.08 of the Credit Agreement, and (iii) all proceeds of such
capital stock and all other rights in connection with such property
(collectively the "Collateral").
2. Representations, Warranties and Covenants. Debtor represents,
warrants and covenants that:
(a) Debtor will join with Secured Party in taking any action
required by Secured Party in order to perfect the Security Interest
and to protect the rights and priorities of Secured Party with respect
to the Collateral. To that end, Debtor has delivered to Secured Party
certificates representing all of the shares of capital stock
constituting Collateral and executed and delivered one blank stock
power for each such certificate. Debtor will, at Secured Party's
request at any one or more times (i) duly endorse, in blank, each and
every additional security certificate and instrument constituting
Collateral by signing on such certificate or instrument or by signing
a separate document of assignment or transfer; (ii) join with Secured
Party in executing any instructions or agreements with securities
intermediaries for the purpose of obtaining control of any investment
property that may hereafter constitute Collateral; and (iii) instruct
the issuer of any security that may hereafter constitute Collateral to
register such security in the name of Secured Party.
(b) Debtor is the owner of the Collateral free and clear of all
liens, encumbrances, security interests and restrictions except the
Security Interest and any restrictive legend appearing on any security
certificate or any instrument constituting Collateral.
(c) Debtor will keep the Collateral free and clear of all liens,
encumbrances and security interests, except the Security Interest.
(d) Debtor will pay, when due, all taxes and other governmental
charges levied or assessed upon or against any Collateral.
(e) Debtor will upon receipt deliver to Secured Party all
investment property distributed on account of Collateral, such as
stock dividends and securities resulting from stock splits,
reorganizations and recapitalizations. The Security Interest shall
attach to all such proceeds.
3. Events of Default. The occurrence of any Event of Default under the
Credit Agreement shall be an Event of Default hereunder.
4. Remedies Upon Event of Default. Upon the occurrence of an Event of
Default and during the continuance thereof, Secured Party may exercise any one
or more of the rights and remedies specified in the Credit Agreement, and also
any one or more of the following rights or remedies: (i) notify the obligor on
or issuer of any Collateral or any securities intermediary to make payment to
Secured Party of any amounts due or distributable on any Collateral, (ii)
receive and keep in its possession or under its control subject to the Security
Interest all proceeds of Collateral, except that any money received from the
Collateral may, at Secured Party's option, be applied in reduction of the
Obligations; (iii) exercise all voting and other rights as a holder of any
Collateral; (iv) exercise and enforce any or all rights and remedies available
upon default to a secured party under the Uniform Commercial Code, including the
right to (A) order any securities intermediary to sell any Collateral on any
established market or over the counter or to cause any Collateral to be
redeemed; (B) give any transfer or redemption order to any issuer of Collateral;
or (C) offer and sell Collateral privately to purchasers who will agree to take
the Collateral for investment and not with a view to distribution and who will
agree to the imposition of restrictive legends on any certificates representing
Collateral, and the right to arrange for a sale which would otherwise qualify as
exempt from registration under the Securities Act of 1933; and if notice to
Debtor of any intended disposition of Collateral or any other intended action is
required by law in a particular instance, such notice shall be deemed
commercially reasonable if given at least 10 calendar days prior to the date of
intended disposition or other action; and (v) exercise or enforce any or all
other rights or remedies available to Secured Party by law or agreement against
any Collateral, against Debtor or against any other person or property.
5. Secured Party's Duties. Secured Party's duty of care with respect to
Collateral in its possession (as imposed by law) shall be deemed fulfilled if
Secured Party exercises reasonable care in physically safekeeping such
Collateral, or in the case of Collateral in the custody or possession of a
securities intermediary or other third person, exercises reasonable care in the
selection of the securities intermediary or other third person and Secured Party
need not otherwise preserve, protect, insure or care for any Collateral. Secured
Party shall not be obligated to preserve any rights Debtor may have against
prior parties, to exercise at all or in any particular manner any voting rights
which may be available with respect to any Collateral, to realize on the
Collateral at all or in any particular manner or order, or to apply any cash
proceeds of Collateral in any particular order of application. Regardless of the
manner in which Secured Party chooses to exercise control over Collateral
(whether by possession, by agreement with an issuer or Securities Intermediary,
by transferring security entitlements into its own account, or otherwise),
Secured Party shall not be deemed to be under any obligation to Debtor, whether
as fiduciary, trustee, agent or otherwise, except the duty of good faith, the
duties specifically imposed upon Secured Party by this Agreement, and the duties
imposed upon it as a secured party by Articles 1, 8 and 9 of the Uniform
Commercial Code, as in effect in Missouri.
6. Miscellaneous. Any disposition of Collateral in the manner provided
in Section 4 shall be deemed commercially reasonable. This Agreement can be
waived, modified, amended, terminated or discharged, and the Security Interest
can be released, only explicitly in a writing signed by Secured Party. A waiver
signed by Secured Party shall be effective only in the specific instance and for
the specific purpose given. Mere delay or failure to act shall not preclude the
exercise or enforcement of any of Secured Party's rights or remedies. All rights
and remedies of Secured Party shall be cumulative and may be exercised
singularly or concurrently, at Secured Party's option, and the exercise or
enforcement of any one such right or remedy shall neither be a condition to nor
bar the exercise or enforcement of any other. All notices to be given to Debtor
shall be deemed sufficiently given if delivered or mailed by registered or
certified mail, postage prepaid, to Debtor at the address set forth following
its signature on the signature page of this Agreement or at the most recent
address shown on Secured Party's records. Debtor will reimburse Secured Party
for all expenses (including reasonable attorneys' fees and legal expenses)
incurred by Secured Party in the protection, defense or enforcement of the
Security Interest, including expenses incurred in any litigation or bankruptcy
or insolvency proceedings. This Agreement shall be binding upon and inure to the
benefit of Debtor and Secured Party and their successors and assigns and shall
take effect when signed by Debtor and delivered to Secured Party, and Debtor
waives notice of Secured Party's acceptance hereof. This Agreement shall be
governed by the internal laws of Missouri and, unless the context otherwise
requires, all terms used herein which are defined in Articles 1, 8 and 9 of the
Uniform Commercial Code, as in effect in Missouri, shall have the meanings
therein stated. If any provision or application of this Agreement is held
unlawful or unenforceable in any respect, such illegality or unenforceability
shall not affect other provisions or applications which can be given effect, and
this Agreement shall be construed as if the unlawful or unenforceable provision
or application had never been contained herein or prescribed hereby. All
representations and warranties contained in this Agreement shall survive the
execution, delivery and performance of this Agreement and the creation and
payment of the Obligations.
IN WITNESS WHEREOF, Debtor has executed this Agreement as of the day
first above written.
THE SAN FRANCISCO COMPANY
Address:
By
- -------------------------------- --------------------------------------
Its
- -------------------------------- ----------------------------------
- --------------------------------
EXHIBIT G
NOTE
$_________________ St. Louis, Missouri
August 19, 2003
For value received, the undersigned FIRST BANKS, INC., a Missouri
corporation (the "Borrower"), hereby promises to pay on the Revolving Credit
Termination Date (as defined in the Credit Agreement, defined below), to the
order of _____________, a _____________ (the "Lender"), at the office of Wells
Fargo Bank, National Association, as agent (the "Agent") at Sixth Street and
Marquette Avenue, Minneapolis, Minnesota, or at any other place designated at
any time in accordance with the Credit Agreement, in lawful money of the United
States of America and in immediately available funds, the principal sum of
_______________ Dollars ($______________) or, if less, the aggregate unpaid
principal amount of all Advances made by the Lender to the Borrower under the
Credit Agreement together with interest on the principal amount hereunder
remaining unpaid from time to time (the "Principal Balance"), computed on the
basis of the actual number of days elapsed and a 360-day year, from the date
hereof until this Note is fully paid at the rate determined from time to time
under the Credit Agreement of even date herewith (as amended, supplemented or
restated from time to time, the "Credit Agreement") by and among the Borrower,
the Lenders from time to time party thereto and Wells Fargo Bank, National
Association, as Agent for the Lenders thereunder. This Note may be prepaid only
in accordance with the Credit Agreement.
This Note is issued pursuant, and is subject, to the Credit Agreement,
which provides, among other things, for acceleration hereof. This Note is a
"Note" referred to in the Credit Agreement.
This Note is secured, among other things, pursuant to the several
security agreements delivered pursuant to the Credit Agreement, and may now or
hereafter be secured by one or more other security agreements or other
instruments or agreements.
The Borrower hereby agrees to pay all costs of collection, including
reasonable attorneys' fees and legal expenses in the event this Note is not paid
when due, whether or not legal proceedings are commenced.
Presentment or other demand for payment, notice of dishonor and protest
are expressly waived.
FIRST BANKS, INC.
By ___________________________________
Its _______________________________
EXHIBIT H
PERMISSIBLE SECURITIES
The following qualify as "Permissible Securities:"
Valuation Percentage
--------------------
A. Cash 100%
B. (x) Negotiable debt obligations issued by the U.S. Treasury Department or the
Government National Mortgage Association ("Ginnie Mae"), or (y) mortgage-backed
securities issued by Ginnie Mae (but with respect to either (x) or (y) excluding
interest only or principal only stripped securities, securities representing
residual interests in mortgage pools, and securities that are not listed on a
national securities exchange or regularly quoted in a national quotation
service) and in each case having a remaining maturity of:
(i) less than one year 100%
(ii) one year or greater but less than 10 years 98%
(iii) ten years or longer 95%
C. (x) Negotiable debt obligations issued by the Federal Home Loan Mortgage
Association ("Freddie Mac") or (y) mortgage-backed securities issued by Freddie
Mac but excluding interest only or principal only stripped securities,
securities representing residual interests in mortgage pools, and securities
that are not listed on a national securities exchange or regularly quoted in a
national quotation service. 95%
EXHIBIT I
Notice of Permitted Acquisition
This Notice is being submitted on this ___ day of ________, 200__,
pursuant to Section 5.10 of the Secured Credit Agreement dated as of August
(DATE), 2003 (the "Credit Agreement"), by and among Wells Fargo Bank, National
----
Association (the "Agent"), the Lenders that are parties thereto, and First
Banks, Inc., as Borrower. Capitalized terms used but not defined herein shall
have the meanings set forth in the Credit Agreement.
The undersigned officer of the Borrower hereby notifies the Lenders
that [the Borrower] [_________ (name of Subsidiary)] has entered into an
agreement to purchase [______% of the voting common stock] [all of the assets of
the business] [all of the assets of the ____ branch(s)] of
__________________________________ (name and organizational details of acquired
entity). A brief description of the transaction, including the form of the
acquisition, amount and nature of the consideration, and expected date of
completion, is attached to this Notice as Annex A.
The undersigned officer hereby certifies to the Lenders that:
A. The representations and warranties contained in Article IV of the
Credit Agreement are correct as of the date hereof and will be
correct after giving effect to the proposed acquisition, except
to the extent that the same relate specifically to an earlier
date; and
B. No Default or Event of Default has occurred and is continuing, or
will occur as a result of the proposed acquisition.
This will confirm that First Banks, Inc. will provide to the Agent
copies of any applications to regulatory agencies submitted in connection with
the proposed acquisition.
Signed as of the day and year first above written.
FIRST BANKS, INC.
By
--------------------------------
[name and office held]