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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 March 31, 2004
[ ] 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 April 30, 2004
----- ------------------
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......................................................... 2
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME.............................................................. 3
CONSOLIDATED STATEMENTS OF CASH FLOWS..................................................... 4
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS................................................ 5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS............................................................. 11
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK................................ 26
ITEM 4. CONTROLS AND PROCEDURES................................................................... 27
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.......................................................... 28
SIGNATURES........................................................................................... 29
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
FIRST BANKS, INC.
CONSOLIDATED BALANCE SHEETS
(dollars expressed in thousands, except share and per share data)
March 31, December 31,
2004 2003
---- ----
(unaudited)
ASSETS
------
Cash and cash equivalents:
Cash and due from banks.............................................................. $ 167,391 179,802
Short-term investments............................................................... 88,768 33,735
---------- ---------
Total cash and cash equivalents................................................. 256,159 213,537
---------- ---------
Investment securities:
Available for sale................................................................... 1,268,500 1,038,787
Held to maturity (fair value of $10,437 and $11,341, respectively)................... 10,010 10,927
---------- ---------
Total investment securities..................................................... 1,278,510 1,049,714
---------- ---------
Loans:
Commercial, financial and agricultural............................................... 1,415,246 1,407,626
Real estate construction and development............................................. 1,091,423 1,063,889
Real estate mortgage................................................................. 2,600,360 2,582,264
Lease financing...................................................................... 48,905 67,282
Consumer and installment............................................................. 69,987 71,652
Loans held for sale.................................................................. 127,150 145,746
---------- ---------
Total loans..................................................................... 5,353,071 5,338,459
Unearned discount.................................................................... (10,179) (10,384)
Allowance for loan losses............................................................ (124,871) (116,451)
---------- ---------
Net loans....................................................................... 5,218,021 5,211,624
---------- ---------
Derivative instruments.................................................................... 46,174 49,291
Bank premises and equipment, net of accumulated depreciation and amortization............. 136,422 136,739
Goodwill.................................................................................. 145,513 145,548
Bank-owned life insurance................................................................. 98,732 97,521
Deferred income taxes..................................................................... 104,391 102,844
Other assets.............................................................................. 84,431 100,122
---------- ---------
Total assets.................................................................... $7,368,353 7,106,940
========== =========
LIABILITIES
Deposits: -----------
Noninterest-bearing demand........................................................... $1,072,898 1,034,367
Interest-bearing demand.............................................................. 870,305 843,001
Savings.............................................................................. 2,164,492 2,128,683
Time deposits of $100 or more........................................................ 453,799 436,439
Other time deposits.................................................................. 1,491,822 1,519,125
---------- ---------
Total deposits.................................................................. 6,053,316 5,961,615
Other borrowings.......................................................................... 418,014 273,479
Note payable.............................................................................. 4,500 17,000
Subordinated debentures................................................................... 213,222 209,320
Deferred income taxes..................................................................... 43,208 41,683
Accrued expenses and other liabilities.................................................... 67,357 54,028
---------- ---------
Total liabilities............................................................... 6,799,617 6,557,125
---------- ---------
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......................................................................... 513,787 495,714
Accumulated other comprehensive income.................................................... 30,061 29,213
---------- ---------
Total stockholders' equity...................................................... 568,736 549,815
---------- ---------
Total liabilities and stockholders' equity...................................... $7,368,353 7,106,940
========== =========
The accompanying notes are an integral part of the consolidated financial statements.
FIRST BANKS, INC.
CONSOLIDATED STATEMENTS OF INCOME - (UNAUDITED)
(dollars expressed in thousands, except share and per share data)
Three Months Ended
March 31,
---------------------
2004 2003
---- ----
Interest income:
Interest and fees on loans......................................................... $ 84,220 90,612
Investment securities.............................................................. 11,621 8,760
Short-term investments............................................................. 286 442
-------- --------
Total interest income......................................................... 96,127 99,814
-------- --------
Interest expense:
Deposits:
Interest-bearing demand.......................................................... 967 1,673
Savings.......................................................................... 4,777 6,786
Time deposits of $100 or more.................................................... 2,956 3,685
Other time deposits.............................................................. 8,487 12,194
Other borrowings................................................................... 644 602
Note payable....................................................................... 105 136
Subordinated debentures............................................................ 3,538 5,575
-------- --------
Total interest expense........................................................ 21,474 30,651
-------- --------
Net interest income........................................................... 74,653 69,163
Provision for loan losses............................................................... 12,750 11,000
-------- --------
Net interest income after provision for loan losses........................... 61,903 58,163
-------- --------
Noninterest income:
Service charges on deposit accounts and customer service fees...................... 8,949 8,644
Gain on mortgage loans sold and held for sale...................................... 4,229 4,580
Net gain on sales of available-for-sale investment securities...................... -- 6,259
Gain on sales of branches, net of expenses......................................... 390 --
Bank-owned life insurance investment income........................................ 1,343 1,271
Other.............................................................................. 5,648 4,793
-------- --------
Total noninterest income...................................................... 20,559 25,547
-------- --------
Noninterest expense:
Salaries and employee benefits..................................................... 27,686 23,261
Occupancy, net of rental income.................................................... 4,637 4,934
Furniture and equipment............................................................ 4,413 4,569
Postage, printing and supplies..................................................... 1,322 1,306
Information technology fees........................................................ 7,996 8,033
Legal, examination and professional fees........................................... 1,563 1,606
Amortization of intangibles associated with the purchase of subsidiaries........... 658 532
Communications..................................................................... 465 605
Advertising and business development............................................... 1,281 1,309
Other.............................................................................. 2,581 7,432
-------- --------
Total noninterest expense..................................................... 52,602 53,587
-------- --------
Income before provision for income taxes...................................... 29,860 30,123
Provision for income taxes.............................................................. 11,591 11,092
-------- --------
Net income.................................................................... 18,269 19,031
Preferred stock dividends............................................................... 196 196
-------- --------
Net income available to common stockholders................................... $ 18,073 18,835
======== ========
Basic earnings per common share......................................................... $ 763.81 796.04
======== ========
Diluted earnings per common share....................................................... $ 753.93 784.29
======== ========
Weighted average shares of common stock outstanding..................................... 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)
Three Months Ended March 31, 2004 and 2003 and Nine Months Ended December 31, 2003
(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, 2002......... $12,822 241 5,915 5,910 433,689 60,464 519,041
Three months ended March 31, 2003:
Comprehensive income:
Net income................................. -- -- -- -- 19,031 19,031 -- 19,031
Other comprehensive loss, net of tax:
Unrealized losses on securities, net of
reclassification adjustment (1)........ -- -- -- -- (5,658) -- (5,658) (5,658)
Derivative instruments:
Current period transactions............ -- -- -- -- (3,624) -- (3,624) (3,624)
-------
Comprehensive income....................... 9,749
=======
Class A preferred stock dividends,
$0.30 per share............................ -- -- -- -- (192) -- (192)
Class B preferred stock dividends,
$0.03 per share............................ -- -- -- -- (4) -- (4)
------- ---- ----- ----- ------- ------- --------
Consolidated balances, March 31, 2003............ 12,822 241 5,915 5,910 452,524 51,182 528,594
Nine months ended December 31, 2003:
Comprehensive income:
Net income................................. -- -- -- -- 43,780 43,780 -- 43,780
Other comprehensive loss, net of tax:
Unrealized losses on securities, net of
reclassification adjustment (1)........ -- -- -- -- (4,328) -- (4,328) (4,328)
Derivative instruments:
Current period transactions............ -- -- -- -- (17,641) -- (17,641) (17,641)
-------
Comprehensive income....................... 21,811
=======
Class A preferred stock dividends,
$0.90 per share............................ -- -- -- -- (577) -- (577)
Class B preferred stock dividends,
$0.08 per share............................ -- -- -- -- (13) -- (13)
------- ---- ----- ----- ------- ------- --------
Consolidated balances, December 31, 2003......... 12,822 241 5,915 5,910 495,714 29,213 549,815
Three months ended March 31, 2004:
Comprehensive income:
Net income................................. -- -- -- -- 18,269 18,269 -- 18,269
Other comprehensive income, net of tax:
Unrealized gains on securities, net of
reclassification adjustment (1)........ -- -- -- -- 5,491 -- 5,491 5,491
Derivative instruments:
Current period transactions............ -- -- -- -- (4,643) -- (4,643) (4,643)
-------
Comprehensive income....................... 19,117
=======
Class A preferred stock dividends,
$0.30 per share............................ -- -- -- -- (192) -- (192)
Class B preferred stock dividends,
$0.03 per share............................ -- -- -- -- (4) -- (4)
------- ---- ----- ----- ------- ------- --------
Consolidated balances, March 31, 2004............ $12,822 241 5,915 5,910 513,787 30,061 568,736
======= ==== ===== ===== ======= ======= ========
- -------------------------
(1) Disclosure of reclassification adjustment:
Three Months Ended Nine Months Ended
March 31, December 31,
------------------ -----------------
2004 2003 2003
---- ---- ----
Unrealized gains (losses) on investment
securities arising during the period........................... $ 5,491 (1,590) (2,701)
Less reclassification adjustment for gains
included in net income......................................... -- 4,068 1,627
------- ------ ------
Unrealized gains (losses) on investment securities................ $ 5,491 (5,658) (4,328)
======= ====== ======
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)
Three Months Ended
March 31,
-------------------------
2004 2003
---- ----
Cash flows from operating activities:
Net income......................................................................... $ 18,269 19,031
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of bank premises and equipment..................... 4,810 4,781
Amortization, net of accretion................................................... 4,566 5,350
Originations and purchases of loans held for sale................................ (251,421) (555,529)
Proceeds from sales of loans held for sale....................................... 221,196 557,226
Provision for loan losses........................................................ 12,750 11,000
Provision for income taxes....................................................... 11,591 11,092
Payments of income taxes......................................................... (63) (57)
Decrease in accrued interest receivable.......................................... 2,891 4,668
Interest accrued on liabilities.................................................. 21,474 30,651
Payments of interest on liabilities.............................................. (21,581) (31,599)
Gain on mortgage loans sold and held for sale.................................... (4,229) (4,580)
Net gain on sales of available-for-sale investment securities.................... -- (6,259)
Gain on sales of branches, net of expenses....................................... (390) --
Other operating activities, net.................................................. 1,801 12,406
--------- ---------
Net cash provided by operating activities..................................... 21,664 58,181
--------- ---------
Cash flows from investing activities:
Cash received for acquired entities, net of cash
and cash equivalents paid........................................................ -- 14,870
Maturities of investment securities available for sale............................. 115,532 442,399
Maturities of investment securities held to maturity............................... 1,012 1,082
Purchases of investment securities available for sale.............................. (318,293) (193,957)
Purchases of investment securities held to maturity................................ (100) (102)
Net (increase) decrease in loans................................................... (15,460) 22,848
Recoveries of loans previously charged-off......................................... 6,164 6,237
Purchases of bank premises and equipment........................................... (4,449) (2,633)
Other investing activities, net.................................................... 11,255 2,604
--------- ---------
Net cash (used in) provided by investing activities........................... (204,339) 293,348
--------- ---------
Cash flows from financing activities:
Increase (decrease) in demand and savings deposits................................. 105,784 (64,477)
Decrease in time deposits.......................................................... (5,602) (98,022)
Decrease in federal funds purchased................................................ -- (55,000)
Increase (decrease) in securities sold under agreements to repurchase.............. 144,535 (29,301)
Repayments of note payable......................................................... (12,500) (7,000)
Proceeds from issuance of subordinated debentures.................................. -- 25,208
Sales of branches.................................................................. (6,724) --
Payment of preferred stock dividends............................................... (196) (196)
--------- ---------
Net cash provided by (used in) financing activities........................... 225,297 (228,788)
--------- ---------
Net increase in cash and cash equivalents..................................... 42,622 122,741
Cash and cash equivalents, beginning of period.......................................... 213,537 203,251
--------- ---------
Cash and cash equivalents, end of period................................................ $ 256,159 325,992
========= =========
Noncash investing and financing activities:
Loans transferred to other real estate............................................. $ 1,480 10,351
========= =========
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 2003
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 months ended March 31, 2004 are not necessarily
indicative of the results that may be expected for the year ending December 31,
2004.
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 2003 amounts
have been made to conform to the 2004 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, INTEGRATION COSTS AND OTHER CORPORATE TRANSACTIONS
On March 26, 2004, First Banks and Small Business Loan Source, Inc.
(SBLS), headquartered in Houston, Texas, entered into an Asset Purchase
Agreement that provides for First Bank to purchase substantially all of the
assets and assume certain liabilities of SBLS in exchange for cash and certain
payments contingent on future valuations. The transaction, which is subject to
approval of the Small Business Administration (SBA) and the expiration of the
waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
is expected to be completed during the second or third quarter of 2004. SBLS
reported assets of approximately $52.9 million, including $30.1 million of SBA
loans, at March 31, 2004.
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 $1.2 million identified in the following table is comprised
of contractual obligations under salary continuation agreements to 10
individuals with remaining terms ranging from one month to approximately 12
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 balance sheets.
Severance
---------
(dollars expressed
in thousands)
Balance at December 31, 2003.......................... $ 1,412
Three Months Ended March 31, 2004:
Payments............................................ (173)
--------
Balance at March 31, 2004............................. $ 1,239
========
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.
On February 6, 2004, First Bank completed its divestiture of one branch
office in regional Missouri. This branch divestiture resulted in a reduction of
the deposit base of approximately $8.4 million, and a pre-tax gain of
approximately $390,000, which is included in noninterest income.
(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 March 31, 2004 and December 31,
2003:
March 31, 2004 December 31, 2003
---------------------------- ----------------------------
Gross Gross
Carrying Accumulated Carrying Accumulated
Amount Amortization Amount Amortization
------ ------------ ------ ------------
(dollars expressed in thousands)
Amortized intangible assets:
Core deposit intangibles.............. $ 17,391 (4,856) 17,391 (4,233)
Goodwill associated with
purchases of branch offices......... 2,210 (896) 2,210 (861)
--------- ------- ------- -------
Total............................ $ 19,601 (5,752) 19,601 (5,094)
========= ======= ======= =======
Unamortized intangible assets:
Goodwill associated with the
purchase of subsidiaries............ $ 144,199 144,199
========= =======
Amortization of intangibles associated with the purchase of
subsidiaries and branch offices was $658,000 for the three months ended March
31, 2004, and $532,000 for the comparable period in 2003. Amortization of
intangibles associated with the purchase of subsidiaries, including amortization
of core deposit intangibles and branch purchases, has been estimated through
2009 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:
2004 Remaining............................ $ 1,974
2005...................................... 2,632
2006...................................... 2,632
2007...................................... 2,632
2008...................................... 2,632
2009 ..................................... 726
--------
Total.................................. $ 13,228
========
Changes in the carrying amount of goodwill for the three months ended
March 31, 2004 and 2003 were as follows:
Three Months Ended
March 31,
-----------------------
2004 2003
(dollars expressed in thousands)
Balance, beginning of period................................................... $145,548 140,112
Goodwill acquired during period................................................ -- 1,026
Amortization - purchases of branch offices..................................... (35) (36)
-------- ---------
Balance, end of period......................................................... $145,513 141,102
======== =========
(4) MORTGAGE BANKING ACTIVITIES
At March 31, 2004 and December 31, 2003, First Banks serviced loans for
others amounting to $1.17 billion and $1.22 billion, respectively. Borrowers'
escrow balances held by First Banks on such loans were $502,000 and $4.7 million
at March 31, 2004 and December 31, 2003, respectively.
Changes in mortgage servicing rights, net of amortization, for the
three months ended March 31, 2004 and 2003 were as follows:
Three Months Ended
March 31,
----------------------------
2004 2003
---- ----
(dollars expressed in thousands)
Balance, beginning of period...................................... $ 15,408 14,882
Originated mortgage servicing rights.............................. 354 1,973
Amortization...................................................... (1,802) (1,177)
-------- --------
Balance, end of period............................................ $ 13,960 15,678
======== ========
The fair value of mortgage servicing rights was approximately $16.6
million and $17.1 million at March 31, 2004 and 2003, respectively, and $18.3
million at December 31, 2003. The excess of the fair value of mortgage servicing
rights over the carrying value was approximately $2.6 million and $1.4 million
at March 31, 2004 and 2003, respectively, and $2.9 million at December 31, 2003.
Amortization of mortgage servicing rights has been estimated through
2008 in the following table:
(dollars expressed in thousands)
Year ending December 31:
2004 Remaining............................. $ 3,365
2005....................................... 4,179
2006....................................... 3,577
2007....................................... 2,167
2008....................................... 672
--------
Total................................. $ 13,960
========
(5) EARNINGS PER COMMON SHARE
The following is a reconciliation of the basic and diluted earnings per
share computations for the periods indicated:
Per Share
Income Shares Amount
------ ------ ------
(dollars in thousands, except share and per share data)
Three months ended March 31, 2004:
Basic EPS - income available to common stockholders........ $ 18,073 23,661 $ 763.81
Effect of dilutive securities:
Class A convertible preferred stock...................... 192 565 (9.88)
--------- ------- --------
Diluted EPS - income available to common stockholders...... $ 18,265 24,226 $ 753.93
========= ======= ========
Three months ended March 31, 2003:
Basic EPS - income available to common stockholders........ $ 18,835 23,661 $ 796.04
Effect of dilutive securities:
Class A convertible preferred stock...................... 192 599 (11.75)
--------- ------- --------
Diluted EPS - income available to common stockholders...... $ 19,027 24,260 $ 784.29
========= ======= ========
(6) TRANSACTIONS WITH RELATED PARTIES
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 its
subsidiaries. Fees paid under agreements with First Services, L.P. were $6.6
million and $6.7 million for the three months ended March 31, 2004 and 2003,
respectively. During the three months ended March 31, 2004 and 2003, First
Services, L.P. paid First Bank $1.1 million and $1.2 million, respectively, in
rental fees for the use of data processing and other equipment owned by First
Banks.
First Brokerage America, L.L.C., a limited liability company which is
indirectly owned by First Banks' Chairman and members of his immediate family,
received approximately $886,000 and $868,000 for the three months ended March
31, 2004 and 2003, 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 Title Guaranty LLC (First Title), a limited liability company
established and administered by and for the benefit of First Banks' Chairman and
members of his immediate family, received approximately $99,000 and $113,000 for
the three months ended March 31, 2004 and 2003, respectively, in commissions for
policies purchased by First Banks or customers of First Bank from unaffiliated,
third-party insurers. 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 Bank has had in the past, and may have in the future, loan
transactions in the ordinary course of business with its directors or
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 $24.1 million and $20.0 million at March 31, 2004 and December 31,
2003, 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 and personal
credit card accounts.
(7) REGULATORY CAPITAL
First Banks and First 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' consolidated financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt corrective
action, First Banks and First 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 First 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 March 31, 2004, First Banks and First Bank were each well
capitalized.
As of March 31, 2004, the most recent notification from First Banks'
primary regulator categorized First Banks and First Bank as well capitalized
under the regulatory framework for prompt corrective action. To be categorized
as well capitalized, First Banks and First Bank must maintain minimum total
risk-based, Tier I risk-based and Tier I leverage ratios as set forth in the
table below.
At March 31, 2004 and December 31, 2003, First Banks' and First Bank's
required and actual capital ratios were as follows:
Actual To Be Well
------------------------ Capitalized Under
March 31, December 31, For Capital Prompt Corrective
2004 2003 Adequacy Purposes Action Provisions
---- ---- ----------------- -----------------
Total capital (to risk-weighted assets):
First Banks............................. 10.50% 10.27% 8.0% 10.0%
First Bank.............................. 10.54 10.41 8.0 10.0
Tier 1 capital (to risk-weighted assets):
First Banks............................. 8.79 8.46 4.0 6.0
First Bank.............................. 9.28 9.15 4.0 6.0
Tier 1 capital (to average assets):
First Banks............................. 7.88 7.62 3.0 5.0
First Bank.............................. 8.32 8.22 3.0 5.0
(8) BUSINESS SEGMENT RESULTS
First Banks' business segment is First Bank. The reportable business
segment is consistent with the management structure of First Banks, First Bank
and the internal reporting system that monitors performance. First Bank provides
similar products and services in its defined geographic areas through its branch
network. 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
------------------------ --------------------- -----------------------
March 31, December 31, March 31, December 31, March 31, December 31,
2004 2003 2004 2003 2004 2003
---- ---- ---- ---- ---- ----
(dollars expressed in thousands)
Balance sheet information:
Investment securities................... $1,271,605 1,042,809 6,905 6,905 1,278,510 1,049,714
Loans, net of unearned discount......... 5,342,892 5,328,075 -- -- 5,342,892 5,328,075
Goodwill................................ 145,513 145,548 -- -- 145,513 145,548
Total assets............................ 7,355,910 7,097,635 12,443 9,305 7,368,353 7,106,940
Deposits................................ 6,062,427 5,977,042 (9,111) (15,427) 6,053,316 5,961,615
Note payable............................ -- -- 4,500 17,000 4,500 17,000
Subordinated debentures................. -- -- 213,222 209,320 213,222 209,320
Stockholders' equity.................... 778,594 766,397 (209,858) (216,582) 568,736 549,815
========== ========= ======== ======== ========= =========
Corporate, Other
and Intercompany
First Bank Reclassifications (1) Consolidated Totals
------------------------ --------------------- -----------------------
Three Months Ended Three Months Ended Three Months Ended
March 31, March 31, March 31,
------------------------ --------------------- -----------------------
2004 2003 2004 2003 2004 2003
---- ---- ---- ---- ---- ----
Income statement information:
Interest income......................... $ 95,987 99,528 140 286 96,127 99,814
Interest expense........................ 17,847 25,004 3,627 5,647 21,474 30,651
---------- --------- -------- --------- --------- --------
Net interest income................ 78,140 74,524 (3,487) (5,361) 74,653 69,163
Provision for loan losses............... 12,750 11,000 -- -- 12,750 11,000
---------- --------- -------- --------- --------- --------
Net interest income after provision
for loan losses.................. 65,390 63,524 (3,487) (5,361) 61,903 58,163
---------- --------- -------- --------- --------- --------
Noninterest income...................... 20,719 19,529 (160) 6,018 20,559 25,547
Noninterest expense..................... 51,517 53,215 1,085 372 52,602 53,587
---------- --------- -------- --------- --------- --------
Income before provision for
income taxes..................... 34,592 29,838 (4,732) 285 29,860 30,123
Provision for income taxes.............. 13,244 10,483 (1,653) 609 11,591 11,092
---------- --------- -------- --------- --------- --------
Net income......................... $ 21,348 19,355 (3,079) (324) 18,269 19,031
========== ========= ======== ========= ========= ========
- --------------------
(1) Corporate and other includes $2.3 million and $3.6 million of interest expense on subordinated debentures, after
applicable income tax benefits of $1.2 million and $2.0 million, for the three months ended March 31, 2004 and
2003, respectively.
(9) OTHER BORROWINGS
Other borrowings were comprised of the following at March 31, 2004 and
December 31, 2003:
March 31, December 31,
2004 2003
--------------- ----------------
(dollars expressed in thousands)
Securities sold under agreements to repurchase:
Daily............................................................... $ 161,014 166,479
Term................................................................ 250,000 100,000
Federal Home Loan Bank borrowings........................................ 7,000 7,000
--------- --------
Total other borrowings.......................................... $ 418,014 273,479
========= ========
Effective January 12, 2004, First Banks consummated a $150.0 million
three-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 0.8350% plus a floating amount equal to the differential
between the three-month London Interbank Offing Rate reset in arrears and the
strike price of 3.50%, if the three-month London Interbank Offering Rate reset
in arrears exceeds 3.50%. The underlying securities associated with the reverse
repurchase agreement are callable U. S. Government agency securities and are not
under First Banks' physical control. In conjunction with this transaction, First
Banks purchased $150.0 million of callable U. S. Government agency securities.
(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 $5.0 million 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 March 31,
2004 and December 31, 2003, 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) SUBSEQUENT EVENT
On April 9, 2004, First Banks and Continental Mortgage Corporation -
Delaware (CMC), entered into an Agreement and Plan of Reorganization that
provides for First Banks to acquire CMC and its wholly-owned banking subsidiary,
Continental Community Bank and Trust Company (CCB). CMC is headquartered in
Aurora, Illinois, and through CCB, operates two banking offices in the Chicago
suburban communities of Aurora and Villa Park. CMC reported total assets of
approximately $149.9 million, loans, net of unearned discount, of approximately
$78.1 million and total deposits of approximately $110.6 million at March 31,
2004. The transaction, which is subject to regulatory approvals, is expected to
be completed during the second or third quarter of 2004.
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 our 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 this Quarterly Report on 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 148
branch offices in California, Illinois, Missouri and Texas. At March 31, 2004,
we had total assets of $7.37 billion, loans, net of unearned discount, of $5.34
billion, total deposits of $6.05 billion and total stockholders' equity of
$568.7 million.
Through First 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 banking unit rests with the
officers and directors of each unit, but we centralize overall corporate
policies, procedures and administrative functions and provide centralized
operational support functions for our subsidiaries. This practice allows us to
achieve various operating efficiencies while allowing our banking units to focus
on customer service.
Financial Condition
Total assets were $7.37 billion and $7.11 billion at March 31, 2004 and
December 31, 2003, respectively, an increase of 3.68%. The increase in assets is
primarily attributable to increases in short-term investments, investment
securities and loans, net of unearned discount, which were primarily funded by
increased deposits and other borrowings. Short-term investments, consisting
primarily of federal funds sold, increased by $55.0 million due to the
investment of excess funds resulting from the deposit growth and an overall
decline in average loan volumes. Investment securities increased $228.8 million,
or 21.80%, to $1.28 billion at March 31, 2004 from $1.05 billion at December 31,
2003, reflecting purchases of $318.4 million and maturities of $116.5 million.
Loans, net of unearned discount, increased $14.8 million to $5.34 billion at
March 31, 2004 from $5.33 billion at December 31, 2003, and the allowance for
loan losses increased to $124.9 million at March 31, 2004 from $116.5 million at
December 31, 2003, as further discussed under "--Loans and Allowance for Loan
Losses." The overall increase in assets was partially offset by a decline in our
derivative instruments to $46.2 million from $49.3 million resulting from a
decline in the fair value of certain derivative financial instruments and the
maturity of $200.0 million notional amount of interest rate swap agreements, as
further discussed under "--Interest Rate Risk Management." In addition, other
assets decreased $15.7 million to $84.4 million at March 31, 2004 from $100.1
million at December 31, 2003. This decrease primarily results from an $8.2
million net decrease in other real estate as further discussed under "--Loans
and Allowance for Loan Losses," a $2.8 million decrease in accrued interest
receivable and a $1.4 million decrease in mortgage servicing rights. During the
first quarter of 2004, we expanded our banking franchise with the opening of two
de novo branch offices, one in West St. Louis County, Missouri and one in
Houston, Texas.
Total deposits increased by $91.7 million, or 1.54%, to $6.05 billion
at March 31, 2004 from $5.96 billion at December 31, 2003. Our deposit marketing
efforts and efforts to further develop multiple account relationships with our
customers in addition to slightly higher deposit rates on certain products have
contributed to the deposit growth, despite continued aggressive competition
within our market areas and the divestiture, in February 2004, of a Missouri
branch office with approximately $8.4 million in total deposits. The deposit mix
reflects our continued efforts to restructure the composition of our deposit
base as the majority of our deposit development programs are directed toward
increased transaction accounts, such as demand and savings accounts, rather than
higher-yielding time deposits.
Other borrowings increased $144.5 million to $418.0 million at March
31, 2004 from $273.5 million at December 31, 2003. The increase is primarily
attributable to $150.0 million of term securities sold under agreement to
repurchase that we entered into during the first quarter of 2004, as further
discussed in Note 9 to our consolidated financial statements. Our note payable
was reduced by $12.5 million during the first quarter of 2004 through internally
generated funds. Subordinated debentures increased $3.9 million to $213.2
million at March 31, 2004 from $209.3 million at December 31, 2003. This
increase is primarily attributable to an increase in the fair value of our
interest rate swap agreements that are designated as fair value hedges and
utilized to hedge certain of our subordinated debentures. In addition, the
continued amortization of debt issuance costs has also contributed to the
overall increase in our subordinated debentures during the first quarter of
2004.
Results of Operations
Net Income
Net income was $18.3 million and $19.0 million for the three months
ended March 31, 2004 and 2003, respectively. Results for the three months ended
March 31, 2004 reflect increased net interest income, reduced noninterest income
and noninterest expense and increased provisions for loan losses. Our return on
average assets and return on average stockholders' equity were 1.01% and 13.16%,
respectively, for the three months ended March 31, 2004, compared to 1.07% and
14.64%, respectively, for the comparable period in 2003. Included in the first
quarter of 2003 was a gain of $6.3 million, before applicable income taxes,
relating to the exchange of part of our investment in Allegiant Bancorp, Inc.,
or Allegiant, for a 100% ownership in Bank of Ste. Genevieve, or BSG, located in
Ste. Genevieve, Missouri. Excluding this transaction, net of the related income
taxes, net income for the first quarter of 2004 increased 22.09% over the first
quarter of 2003. The increase in earnings in 2004 continues to reflect our
adaptation to the current interest rate environment and weak economic conditions
that have prevailed in recent years. Our ongoing efforts to maintain an
acceptable net interest margin in the current low interest rate environment,
improve our noninterest income, address asset quality issues and control
operating expenses are reflected in our financial performance. We experienced
continued growth of net interest income primarily resulting from the earnings on
our interest rate swap agreements that were entered into in conjunction with our
interest rate risk management program to mitigate the effects of decreasing
interest rates as well as a $63.1 million net reduction in our subordinated
debentures during the second quarter of 2003. However, prevailing low interest
rates, generally weak loan demand and overall economic conditions continue to
exert pressure on our net interest income. Due to economic conditions within our
markets, we experienced higher-than-historical levels of loan charge-offs, loan
delinquencies and nonperforming loans in 2003, which resulted in an increased
provision for loan losses. These nonperforming trends remain at elevated levels
in the first quarter of 2004, thus contributing to a continued
higher-than-normal provision for loan losses. Other real estate owned decreased
$8.2 million during the first quarter of 2004 primarily due to the sale of a
$9.2 million residential and recreational development property that was
foreclosed on in January 2003. However, this decrease in nonperforming assets
was offset by the addition to nonperforming loans of a $13.9 million credit
relationship in the southern California region that was placed on nonaccrual
status in March 2004. On April 29, 2004, we recorded a $3.9 million charge-off
on this credit relationship as a result of workout negotiations with the
borrower and on May 7, 2004, the remaining net balance of $10.0 million was
refinanced by an independent third party, resulting in our receipt of a cash
payment on the net remaining balance of this credit relationship. 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 $20.6 million and $25.5 million for the three
months ended March 31, 2004 and 2003, respectively. The decrease is primarily
due to a $6.3 million gain recorded in the first quarter of 2003 on the exchange
of part of our investment in the common stock of Allegiant for a 100% ownership
interest in Bank of Ste. Genevieve. Excluding this transaction, noninterest
income for the first quarter of 2004 increased $1.3 million over the comparable
period in 2003. The increase is attributable to increased service charges on
deposit accounts, increased portfolio management fees associated with our
institutional money management subsidiary and decreased losses on the sale of
certain assets. This was partially offset by reduced loan servicing fees and
reduced gains on mortgage loans sold relating to the continued slowdown in the
volume of mortgage loans originated that we began to experience in the fourth
quarter of 2003. The increase also reflects a $390,000 gain, net of expenses, on
the sale of a Missouri branch banking office in February 2004.
Noninterest expense was $52.6 million and $53.6 million for the three
months ended March 31, 2004 and 2003, respectively. Our efficiency ratio, which
is defined as the ratio of noninterest expense to the sum of net interest income
and noninterest income, improved to 55.25% for the first three months of 2004
from 56.58% for the comparable period in 2003. Noninterest expense for the three
months ended March 31, 2004 reflects a $2.7 million gain recorded in February
2004 on the sale of a residential and recreational development property that was
foreclosed on in January 2003, as further discussed under "--Loans and Allowance
for Loan Losses." The decrease in noninterest expense is partially offset by a
$4.4 million increase in salary and employee benefit costs associated with
generally higher salary and employee benefit costs associated with employing and
retaining qualified personnel, offset by a decrease in the allocation of direct
loan origination costs from salaries and benefits expense to gains on loans sold
and held for sale due to the slowdown in the volume of mortgage loans originated
and sold. Noninterest expense for the three months ended March 31, 2003 includes
a $1.1 million write-down on an operating lease associated with our commercial
leasing business.
Net Interest Income
Net interest income (expressed on a tax equivalent basis) increased
7.83% to $75.0 million for the three months ended March 31, 2004 from $69.5
million for the comparable period in 2003. Net interest margin improved 20 basis
points to 4.56% for the three months ended March 31, 2004, from 4.36% for the
comparable period in 2003. We credit the increase in net interest income
primarily to lower rates on deposits and other borrowings, the earnings on our
interest rate swap agreements that were entered into in conjunction with our
interest rate risk management program to mitigate the effects of decreasing
interest rates, increased average investment securities with higher yields and a
$63.1 million net reduction in our outstanding subordinated debentures in 2003.
As further discussed under "--Interest Rate Risk Management," our derivative
financial instruments used to hedge our interest rate risk contributed $16.2
million and $15.0 million to net interest income for the three months ended
March 31, 2004 and 2003, respectively. Average interest-earning assets increased
$138.4 million to $6.61 billion for the three months ended March 31, 2004 from
$6.47 billion for the comparable period in 2003. The increase is primarily
attributable to our acquisition of BSG on March 31, 2003, which provided assets
of $115.1 million. In addition, the decline in prevailing interest rates led to
the early redemption of $136.3 million of subordinated debentures in the second
quarter of 2003 that were issued during 1997 and 1998 and the issuance of
additional subordinated debentures at lower interest rates, while providing
replacement regulatory capital through the associated trust preferred securities
issued by our financing business and statutory trusts. In March 2003, we issued
$25.8 million of subordinated debentures to First Bank Statutory Trust, and in
April 2003, we issued $47.4 million of subordinated debentures to First
Preferred Capital Trust IV. These transactions coupled with the use of
additional derivative financial instruments, have allowed us to reduce our
overall expense associated with our subordinated debentures. However, prevailing
low interest rates, generally weak loan demand, increased competition and
overall economic conditions continue to exert pressure on our net interest
margin.
Average investment securities were $1.15 billion for the three months
ended March 31, 2004, in comparison to $968.9 million for the three months ended
March 31, 2003, an increase of $185.8 million, or 19.17%. The yield on our
investment portfolio increased to 4.12% for the three months ended March 31,
2004, compared to 3.77% for the comparable period in 2003. Funds available from
maturities of investment securities in addition to funds available from deposit
growth were used to purchase additional investment securities during the first
quarter of 2004. Investment security purchases for the first quarter of 2004
included the purchase of $150.0 million of callable U.S. Government agency
securities. These securities represented the underlying securities associated
with a $150.0 million three-year reverse repurchase agreement under a master
repurchase agreement that we consummated in the first quarter of 2004, as
further described in Note 9 to our consolidated financial statements.
Average loans, net of unearned discount, were $5.33 billion for the
three months ended March 31, 2004, in comparison to $5.36 billion for the
comparable period in 2003, reflecting a decrease of $26.6 million. The yield on
our loan portfolio decreased to 6.36% for the three months ended March 31, 2004,
in comparison to 6.87% for the comparable period in 2003. We attribute the
decline in the average balance and yields primarily to increased competition and
general economic conditions within our market areas resulting in continued weak
loan demand and decreases in prevailing interest rates. The reduced level of
interest income earned on our loan portfolio was partially mitigated by the
earnings associated with our interest rate swap agreements. In addition, the
decrease in average loans is also attributable to a significant reduction in
average loans held for sale, which declined approximately $168.6 million,
resulting from a slowdown in overall loan volumes that began in the fourth
quarter of 2003 as well as management's business strategy decision in mid-2003
to retain a portion of new residential mortgage loan production in our portfolio
to offset continued weak loan demand in other sectors of our loan portfolio. As
a result of this decision, average real estate mortgage loan volumes retained in
our portfolio increased approximately $155.6 million during the first quarter of
2004 compared to the comparable period in 2003.
Average deposits decreased $89.2 million, or 1.47%, to $5.99 billion
for the three months ended March 31, 2004 from $6.08 billion for the comparable
period in 2003. For the three months ended March 31, 2004, the aggregate
weighted average rate paid on our deposit portfolio decreased 52 basis points to
1.39%, from 1.91% for the comparable period in 2003. We attribute the decline in
rates paid for the three months ended March 31, 2004 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 earnings associated
with certain of our interest rate swap agreements designated as fair value
hedges also contributed to the reduction in deposit rates paid on our time
deposits. However, the continued competitive pressures on our deposit pricing
within our market areas precluded us from fully reflecting the general interest
rate decreases in our deposit pricing while still providing an adequate funding
source for our loan portfolio. The change in average deposit mix 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. Average demand and savings deposits increased $117.3 million to $4.05
billion, or 67.60% of total average deposits, for the three months ended March
31, 2004, up from $3.94 billion, or 64.68% of total average deposits, for the
comparable period in 2003. Average total time deposits decreased $206.5 million
to $1.94 billion for the three months ended March 31, 2004, from $2.15 billion
for the comparable period in 2003.
Average other borrowings increased $207.4 million to $388.8 million for
the three months ended March 31, 2004 compared to $181.4 million for the
comparable period in 2003. The aggregate weighted average rate paid on our other
borrowings was 0.67% for the three months ended March 31, 2004, compared to
1.35% for the comparable period in 2003, reflecting reductions in the current
interest rate environment. The increase in average other borrowings is primarily
attributable to $150.0 million of term securities sold under agreement to
repurchase that we consummated during the first quarter of 2004 as further
described in Note 9 to our consolidated financial statements.
The aggregate weighted average rate paid on our note payable was 5.06%
for the three months ended March 31, 2004, compared to 14.07% for the comparable
period in 2003. The overall changes in the weighted average rates paid reflect
changing market interest rates during the periods reflected. In addition, the
higher weighted average rate paid for the three months ended March 31, 2003
primarily reflects increased commitment, arrangement and other fees paid to
amend our secured credit agreement during this time period. Amounts outstanding
under our $60.0 million revolving line of credit with a group of unaffiliated
financial institutions bear interest at the lead bank's corporate base rate or,
at our option, at the London Interbank Offering Rate plus a margin determined by
the outstanding balance and our profitability for the preceding four calendar
quarters. 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. However, the borrowing level for these
periods has been minimal.
Average subordinated debentures were $210.9 million for the three
months ended March 31, 2004 compared to $281.9 million for the three months
ended March 31, 2003. The aggregate weighted average rate paid on our
subordinated debentures was 6.75% and 8.02% for the three months ended March 31,
2004 and 2003, respectively. Interest expense on our subordinated debentures was
$3.5 million for the three months ended March 31, 2004, compared to $5.6 million
for the comparable period in 2003. As previously discussed, the decrease for
2004 primarily reflects the redemption of $136.3 million of subordinated
debentures and the issuance of $73.2 million of subordinated debentures at lower
interest rates, as well as the earnings impact of our interest rate swap
agreements as further discussed under "--Interest Rate Risk Management."
The following table sets forth, on a tax-equivalent basis, certain
information relating to our average balance sheets, and reflects the average
yield earned on interest-earning assets, the average cost of interest-bearing
liabilities and the resulting net interest income for the periods indicated:
Three Months Ended March 31,
-------------------------------------------------------
2004 2003
-------------------------- --------------------------
Interest Interest
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
------- ------- ---- ------- ------- ----
(dollars expressed in thousands)
ASSETS
------
Interest-earning assets:
Loans (1) (2) (3) (4) ................................ $5,333,353 84,328 6.36% $5,359,976 90,737 6.87%
Investment securities (4) ............................ 1,154,663 11,831 4.12 968,899 8,998 3.77
Federal funds sold and other.......................... 122,757 286 0.94 143,470 442 1.25
---------- ------- ---------- -------
Total interest-earning assets.................. 6,610,773 96,445 5.87 6,472,345 100,177 6.28
------- -------
Nonearning assets......................................... 652,521 722,465
---------- ----------
Total assets................................... $7,263,294 $7,194,810
========== ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY
--------------------
Interest-bearing liabilities:
Interest-bearing deposits:
Interest-bearing demand deposits................... $ 868,712 967 0.45% $ 840,434 1,673 0.81%
Savings deposits................................... 2,161,910 4,777 0.89 2,167,440 6,786 1.27
Time deposits of $100 or more...................... 438,418 2,956 2.71 457,368 3,685 3.27
Other time deposits (3)............................ 1,503,636 8,487 2.27 1,691,225 12,194 2.92
---------- ------- ---------- -------
Total interest-bearing deposits................ 4,972,676 17,187 1.39 5,156,467 24,338 1.91
Other borrowings...................................... 388,793 644 0.67 181,427 602 1.35
Note payable (5)...................................... 8,346 105 5.06 3,919 136 14.07
Subordinated debentures (3)........................... 210,890 3,538 6.75 281,915 5,575 8.02
---------- ------- ---------- -------
Total interest-bearing liabilities............. 5,580,705 21,474 1.55 5,623,728 30,651 2.21
------- -------
Noninterest-bearing liabilities:
Demand deposits....................................... 1,021,744 927,147
Other liabilities..................................... 102,323 116,890
---------- ----------
Total liabilities.............................. 6,704,772 6,667,765
Stockholders' equity...................................... 558,522 527,045
---------- ----------
Total liabilities and stockholders' equity..... $7,263,294 $7,194,810
========== ==========
Net interest income....................................... 74,971 69,526
======= =======
Interest rate spread...................................... 4.32 4.07
Net interest margin (6)................................... 4.56% 4.36%
===== ======
- --------------------
(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 $318,000 and $363,000 for the three months ended March 31, 2004 and 2003, 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 $12.8 million and $11.0 million for
the three months ended March 31, 2004 and 2003, respectively. Net loan
charge-offs were $5.3 million and $2.5 million for the three months ended March
31, 2004 and 2003, respectively. In 2003, we continued to experience the higher
level of problem loans and related loan charge-offs and past due loans that we
began to experience in early 2002. This was a result of economic conditions
within our markets, additional problems identified in certain 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. Nonperforming assets at March 31, 2004 increased to $90.2 million from
$86.5 million at December 31, 2003 and $86.9 million at March 31, 2003. The net
increase in nonperforming assets for the first quarter of 2004 primarily
reflects two significant changes: the sale of a residential and recreational
development property that was foreclosed on in January 2003 with a carrying
value of $9.2 million, representing approximately 83.0% of total other real
estate assets at the time of sale; partially offset by the addition of a $13.9
million credit relationship in the southern California region to nonaccrual
status. In recognition of this and other factors, our allowance for loan losses
increased to $124.9 million at March 31, 2004, compared to $116.5 million at
December 31, 2003 and $108.7 million at March 31, 2003. On April 29, 2004, we
recorded a $3.9 million charge-off on the $13.9 million credit relationship that
had been placed on nonaccrual status during the first quarter of 2004 as a
result of workout negotiations with the borrower, and on May 7, 2004, the
remaining net balance of $10.0 million was refinanced by an independent third
party, resulting in the receipt of a cash payment on the remaining net balance
of this credit relationship. However, management expects the higher levels of
nonperforming assets to remain at elevated levels throughout most of 2004 and
considers this trend 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 $20.6 million and $25.5 million for the three
months ended March 31, 2004 and 2003, respectively. 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. The
reduction experienced in the first quarter of 2004 is primarily attributable to
a $6.3 million gain recorded in March 2003 on the exchange of common stock of
Allegiant, as further discussed below. Noninterest income for the first quarter
of 2004 increased $1.3 million, or 6.59%, from the comparable period in 2003,
after excluding this nonrecurring transaction.
Service charges on deposit accounts and customer service fees were $8.9
million and $8.6 million for the three months ended March 31, 2004 and 2003,
respectively. The increase in service charges and customer service fees is
primarily attributable to our acquisition of BSG completed in March 2003,
additional products and services available and utilized by our retail and
commercial customers, and increases in non-sufficient fund and returned check
fee rates that became effective in December 2003.
The gain on mortgage loans sold and held for sale was $4.2 million and
$4.6 million for the three months ended March 31, 2004 and 2003, respectively.
The decrease primarily reflects continued slowdown in the volume of mortgage
loans originated and sold that was initially experienced in the fourth quarter
of 2003 and continued into the first quarter of 2004.
In March 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
BSG. There were no net gains on sales of available-for-sale investment
securities for the three months ended March 31, 2004.
On February 6, 2004, we sold one of our Missouri branch banking
offices, resulting in a $390,000 gain, net of expenses, upon consummation of
this transaction.
Other income was $5.6 million and $4.8 million for the three months
ended March 31, 2004 and 2003, respectively. We attribute the primary components
of the increase in 2004 to:
>> increased portfolio management fee income of $452,000 associated
with our Institutional Money Management division;
>> a decrease in net losses of $454,000 associated with the sale of
certain assets, primarily related to equipment associated with
our commercial leasing business;
>> an increase in income associated with standby letters of credit
of $177,000;
>> an increase in fees from fiduciary activities; and
>> our acquisition completed during 2003; partially offset by
>> a decline of $222,000 in rental income associated with our
reduced commercial leasing activities;
>> a decline of $208,000 in loan servicing fees. The net decrease is
attributable to increased amortization of mortgage servicing
rights and a higher level of interest shortfall, offset by an
increase in fees from loans serviced for others. Interest
shortfall is 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;
>> a decline of $61,000 in brokerage revenue primarily associated
with overall market conditions and reduced customer demand; and
>> decreased rental fees from First Services, L.P. of $38,000 for
the use of data processing and other equipment owned by First
Banks.
Noninterest Expense
Noninterest expense was $52.6 million and $53.6 million for the three
months ended March 31, 2004 and 2003, respectively, reflecting improvement in
our efficiency ratio to 55.25% for the three months ended March 31, 2004, from
56.58% for the comparable period in 2003. The decrease in noninterest expense
primarily reflects a decline in expenses and losses, net of gains, on other real
estate owned, offset by an increase in salaries and employee benefits expense.
These expenses and losses are included in other expense in our consolidated
statements of income as further discussed below.
Salaries and employee benefits were $27.7 million and $23.3 million for
the three months ended March 31, 2004 and 2003, respectively. We attribute the
overall increase to increased salary and benefit expenses associated with our
acquisition in 2003 and generally higher salary and employee benefit costs
associated with employing and retaining qualified personnel. Salaries and
employee benefits expense is reduced by an allocation of direct loan origination
costs from salaries and benefits expense to gains on mortgage loans sold and
held for sale. This allocation of direct loan origination costs decreased during
the first quarter of 2004 due to a slowdown in the volume of mortgage loans
originated and sold, management's decision to retain a portion of new mortgage
loan production in our real estate mortgage portfolio in mid-2003 and a change
in the fallout percentage applied to the allocation, thereby further
contributing to the increase in salaries and employee benefits expense.
Occupancy, net of rental income, and furniture and equipment expense
totaled $9.1 million and $9.5 million for the three months ended March 31, 2004
and 2003, respectively. The decrease is partially attributable to decreased rent
expense associated with various lease terminations in 2003, including a lease
buyout on a California branch facility recorded in the first quarter of 2003.
However, these overall expenses remain at relatively higher levels and are
attributable to acquisitions, technology expenditures for equipment, continued
expansion and renovation of various corporate and branch offices and the
relocation of certain branches and operational areas.
Information technology fees were $8.0 million for the three months
ended March 31, 2004 and 2003. As more fully described in Note 6 to our
consolidated financial statements, First Services, L.P. provides information
technology and operational support services to our subsidiaries and us. We
attribute the consistently higher level of fees 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 conversion of BSG completed in 2003.
Legal, examination and professional fees were $1.6 million for the
three months ended March 31, 2004 and 2003. The continued expansion of overall
corporate activities, the ongoing professional services utilized by certain of
our acquired entities, and increased legal fees associated with commercial loan
documentation, collection efforts and certain defense litigation costs related
to acquired entities have all contributed to the overall expense levels in 2003
and 2004.
Amortization of intangibles associated with the purchase of
subsidiaries was $658,000 and $532,000 for the three months ended March 31, 2004
and 2003, respectively. The increase is solely attributable to core deposit
intangibles associated with our acquisition of BSG in March 2003.
Communications and advertising and business development expenses
decreased to $1.7 million for the three months ended March 31, 2004, from $1.9
million for the comparable period in 2003. Our continued efforts to reduce these
expenses through renegotiation of contracts, enhanced focus on advertising and
promotional activities in markets that offer greater benefits, as well as
ongoing cost containment efforts have all contributed to the overall decline in
these expenditures.
Other expense was $2.6 million and $7.4 million for the three months
ended March 31, 2004 and 2003, respectively. 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, expenses on other real estate owned,
memberships and subscriptions, transfer agent fees and sales taxes. The decrease
is primarily attributable to:
>> a decrease of $3.6 million on expenditures and losses, net of
gains, on other real estate. In February 2004, we recorded a $2.7
million gain on the sale of a residential and recreational
development property that was transferred to other real estate in
January 2003, as further discussed under "--Loans and Allowance
for Loan Losses." Net expenditures on other real estate for the
first quarter of 2003 were $822,000 and primarily included
expenditures associated with the operation of the residential and
recreational development property that was sold in February 2004
as well as a $200,000 expenditure associated with an unrelated
residential real estate property located in the northern
California region;
>> write-downs of $1.1 million recorded in the first quarter of 2003
on various operating leases associated with our commercial
leasing business, which were primarily a result of reductions in
estimated residual values. No similar write-downs occurred in
2004;
>> a $200,000 reduction in expenditures associated with ATM repairs
and maintenance; and
>> decreased credit card expenses of $155,000 primarily associated
with the continued decline in this portfolio; partially offset by
>> expenses associated with our acquisition completed during 2003;
and
>> continued growth and expansion of our banking franchise.
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
held as of March 31, 2004 and December 31, 2003 are summarized as follows:
March 31, 2004 December 31, 2003
----------------------- -----------------------
Notional Credit Notional Credit
Amount Exposure Amount Exposure
------ -------- ------ --------
(dollars expressed in thousands)
Cash flow hedges..................................... $1,100,000 2,683 1,250,000 2,857
Fair value hedges.................................... 276,200 9,394 326,200 12,614
Interest rate cap agreements......................... 450,000 -- 450,000 --
Interest rate lock commitments....................... 25,900 -- 15,500 --
Forward commitments to sell
mortgage-backed securities......................... 66,500 -- 58,500 --
========== ====== ========= =======
The notional amounts of our 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 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 months ended March 31, 2004 and 2003, we realized net
interest income on our derivative financial instruments of $16.2 million and
$15.0 million, respectively. The increase is primarily attributable to interest
income associated with the additional swap agreements that we entered into
during March, April and July 2003 as well as the continued decline in prevailing
interest rates in 2003. In addition, we recorded net gains on derivative
instruments, which are included in noninterest income in our consolidated
statements of income, of $32,000 and $7,000 for the three months ended March 31,
2004 and 2003, respectively. The increase in 2004 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 interest rate swap agreements of $600.0 million, $200.0
million, $175.0 million, $150.0 million and $200.0 million notional amount,
respectively, 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 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. In addition, the
$150.0 million notional amount swap agreement that we entered into in March 2002
matured on March 14, 2004. The amount receivable by us under the swap agreements
was $3.7 million and $3.9 million at March 31, 2004 and December 31, 2003,
respectively, and the amount payable by us under the swap agreements was
$967,000 and $1.1 million at March 31, 2004 and December 31, 2003, respectively.
The maturity dates, notional amounts, interest rates paid and received
and fair value of our interest rate swap agreements designated as cash flow
hedges as of March 31, 2004 and December 31, 2003 were as follows:
Notional Interest Rate Interest Rate Fair
Maturity Date Amount Paid Received Value
------------- ------ ---- -------- -----
(dollars expressed in thousands)
March 31, 2004:
September 20, 2004.............................. $ 600,000 1.30% 6.78% $ 15,268
March 21, 2005.................................. 200,000 1.18 5.24 7,378
April 2, 2006................................... 100,000 1.18 5.45 6,887
July 31, 2007................................... 200,000 1.15 3.08 3,541
---------- ---------
$1,100,000 1.24 5.71 $ 33,074
========== ===== ===== =========
December 31, 2003:
March 14, 2004.................................. $ 150,000 1.20% 3.93% $ 879
September 20, 2004.............................. 600,000 1.30 6.78 23,250
March 21, 2005.................................. 200,000 1.18 5.24 8,704
April 2, 2006................................... 100,000 1.18 5.45 6,881
July 31, 2007................................... 200,000 1.15 3.08 501
---------- ---------
$1,250,000 1.24 5.49 $ 40,215
========== ===== ===== =========
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 $1.9
million and $5.2 million at March 31, 2004 and December 31, 2003,
respectively, and the amount payable by us under the swap
agreements was $394,000 and $537,000 at March 31, 2004 and
December 31, 2003, 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 $1.3 million basis
adjustment of the underlying hedged liabilities was recorded as a
reduction of interest expense over the remaining weighted average
maturity of the underlying hedged liabilities of approximately
three months.
>> 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 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 March 31,
2004 or December 31, 2003. 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.
>> During March 2003 and April 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% and 2.58%,
respectively. The underlying hedged liabilities are a portion of
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 March 31,
2004 or December 31, 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 March 31, 2004 and December 31, 2003 were as follows:
Notional Interest Rate Interest Rate Fair
Maturity Date Amount Paid Received Value
------------- ------ ---- -------- -----
(dollars expressed in thousands)
March 31, 2004:
January 9, 2006.................................. $ 150,000 1.14% 5.51% $ 9,838
December 31, 2031................................ 55,200 3.46 9.00 3,751
March 20, 2033................................... 25,000 3.71 8.10 (413)
June 30, 2033.................................... 46,000 3.74 8.15 (663)
--------- --------
$ 276,200 2.27 6.88 $ 12,513
========= ===== ===== ========
December 31, 2003:
January 9, 2004 (1).............................. $ 50,000 1.15% 5.37% $ --
January 9, 2006.................................. 150,000 1.15 5.51 9,932
December 31, 2031................................ 55,200 3.44 9.00 2,499
March 20, 2033................................... 25,000 3.69 8.10 (1,270)
June 30, 2033.................................... 46,000 3.72 8.15 (2,008)
--------- --------
$ 326,200 2.10 6.65 $ 9,153
========= ===== ===== ========
---------------
(1)Hedge accounting treatment was discontinued in September 2003 as further discussed above.
Interest Rate Cap Agreements
In conjunction with our interest rate swap agreements designated as
cash flow hedges that mature in September 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 March 31, 2004 and December 31, 2003, the carrying
value of these interest rate cap agreements, which is included in derivative
instruments in the consolidated balance sheets was zero.
Pledged Collateral
At March 31, 2004 and December 31, 2003, we had a $5.0 million letter
of credit issued on our behalf to the counterparty and had pledged investment
securities available for sale with a carrying value of $227,000 and $229,000,
respectively, in connection with our interest rate swap agreements. In addition,
at December 31, 2003, we had pledged cash of $700,000 as collateral in
connection with our interest rate swap agreements. At March 31, 2004 and
December 31, 2003, we had accepted, as collateral in connection with our
interest rate swap agreements, cash of $48.3 million and $51.3 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 First Bank. Interest and fees on loans were 87.6% and 90.8% of
total interest income for the three months ended March 31, 2004 and 2003,
respectively. Total loans, net of unearned discount, increased $14.8 million, or
0.3%, to $5.34 billion, or 72.5% of total assets, at March 31, 2004, compared to
$5.33 billion, or 75.0% of total assets, at December 31, 2003. The continued low
loan demand from our commercial customers during the first quarter of 2004,
indicative of increased competition and the current economic conditions
prevalent within most of our markets, contributed to a modest increase in total
loans. The increase in total loans, net of unearned discount, is primarily
attributable to:
>> an increase of $27.5 million in our real estate construction and
development portfolio resulting primarily from seasonal increases
on existing and available credit lines;
>> an increase of $18.1 million in our real estate mortgage
portfolio primarily associated with management's business
strategy decision in mid 2003 to retain a portion of our new loan
production in our real estate mortgage portfolio to offset
continued weak loan demand in other sectors of our loan
portfolio; and
>> an increase of $7.6 million in our commercial, financial and
agricultural portfolio; partially offset by
>> a decline of $18.6 million in loans held for sale resulting from
management's business strategy decision in mid-2003 to retain a
portion of our new residential mortgage loan production in our
portfolio, as discussed above, combined with a slowdown in
overall loan volumes experienced during the fourth quarter of
2003 and continuing in the first quarter of 2004, and the timing
of loan sales in the secondary mortgage market;
>> a continued decline of $18.4 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 resulting in reduced commercial leasing activities; and
>> continued reductions in new consumer and installment loan volumes
and the repayment of principal on our existing portfolio
consistent with our objectives of de-emphasizing consumer lending
and expanding commercial lending.
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 March 31, 2004 and December 31, 2003:
March 31, December 31,
2004 2003
---- ----
(dollars expressed in thousands)
Commercial, financial and agricultural:
Nonaccrual..................................................... $ 43,768 26,876
Real estate construction and development:
Nonaccrual..................................................... 8,052 6,402
Real estate mortgage:
One-to-four family residential:
Nonaccrual..................................................... 17,626 21,611
Restructured................................................... 13 13
Multi-family residential loans:
Nonaccrual..................................................... 207 804
Commercial real estate loans:
Nonaccrual..................................................... 14,365 13,994
Lease financing:
Nonaccrual..................................................... 3,064 5,328
Consumer and installment:
Nonaccrual..................................................... 266 336
----------- ----------
Total nonperforming loans.................................. 87,361 75,364
Other real estate................................................... 2,888 11,130
----------- ----------
Total nonperforming assets................................. $ 90,249 86,494
=========== ==========
Loans, net of unearned discount..................................... $ 5,342,892 5,328,075
=========== ==========
Loans past due 90 days or more and still accruing................... $ 2,211 2,776
=========== ==========
Ratio of:
Allowance for loan losses to loans............................. 2.34% 2.19%
Nonperforming loans to loans................................... 1.64 1.41
Allowance for loan losses to nonperforming loans............... 142.94 154.52
Nonperforming assets to loans and other real estate............ 1.69 1.62
========== ==========
Nonperforming loans, consisting of loans on nonaccrual status and
certain restructured loans, were $87.4 million at March 31, 2004, in comparison
to $75.4 million at December 31, 2003. Loan charge-offs were $11.5 million and
$8.7 million for the three months ended March 31, 2004 and 2003, respectively.
Loan charge-offs, net of recoveries, were $5.3 million and $2.5 million for the
three months ended March 31, 2004 and 2003, respectively. Other real estate
owned was $2.9 million, $11.1 million and $15.9 million at March, 31, 2004,
December 31, 2003 and March 31, 2003, respectively. Nonperforming assets,
consisting of nonperforming loans and other real estate owned were $90.2 million
at March 31, 2004, compared to $86.5 million and $86.9 million at December 31,
2003 and March 31, 2003, respectively. The net increase in nonperforming assets
in the first three months of 2004, as compared to December 31, 2003, reflects
two significant changes as follows:
>> On February 9, 2004, we sold a residential and recreational
development property that had been held as other real estate
since January 2003. Prior to foreclosure, the real estate
construction and development loan had been on nonaccrual status
due to significant financial difficulties, inadequate project
financing, project delays and weak project management. At the
time of sale, the property had a carrying value of $9.2 million,
representing approximately 83.0% of our total other real estate
assets. We recorded a gain, before applicable income taxes, of
approximately $2.7 million on the sale of this property.
>> In March 2004, we downgraded a $13.9 million commercial credit
relationship in the southern California region to nonaccrual
status, representing approximately 15.9% of nonperforming loans
at March 31, 2004. As previously discussed in "--Results of
Operations - Provision for Loan Losses," on April 29, 2004, we
recorded a $3.9 million charge-off on this credit relationship as
a result of workout negotiations with the borrower and on May 7,
2004, the remaining net balance of $10.0 million was refinanced
by an independent third party, resulting in our receipt of a cash
payment on the remaining net balance of this credit relationship.
Although the deterioration of our commercial leasing portfolio
experienced in 2002 and 2003 remains a continued focus of management, the level
of nonperforming loans related to this portfolio has declined to $3.1 million at
March 31, 2004 compared to $5.3 million and $13.3 million at December 31, 2003
and March 31, 2003, respectively. Our allowance for loan losses as a percentage
of loans, net of unearned discount, increased to 2.34% at March 31, 2004 from
2.19% at December 31, 2003, and our allowance for loan losses as a percentage of
nonperforming loans decreased to 142.94% at March 31, 2004 from 154.52% at
December 31, 2003. The allowance for loan losses was $124.9 million and $116.5
million at March 31, 2004 and December 31, 2003, respectively. As reflected in
the table below, a $1.0 million specific reserve was established in December
2003 for the estimated loss associated with a $5.3 million unfunded letter of
credit. The letter of credit was subsequently funded as a loan on January 5,
2004, and the related $1.0 million specific reserve was transferred to the
allowance for loan losses. We continue to closely monitor our loan and leasing
portfolios and address the ongoing challenges posed by the current economic
environment, including reduced loan demand within our markets and lower
prevailing interest rates. We anticipate the level of nonperforming assets to
remain at elevated levels throughout most of 2004 and consider this trend in our
overall assessment of the adequacy of the allowance for loan losses.
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 acceptable levels of allowance for loan losses. We derive
these factors from our actual loss experience and from published national
surveys of norms in the industry. In addition, a quarterly evaluation of each
lending unit is performed based on certain factors, such as lending personnel
experience, recent credit reviews, loan concentrations and other factors. The
allowance is adjusted for incremental risk factors identified for individual
segments within the loan portfolio. Based on this evaluation, additional
provisions may be required due to the perceived risk of particular portfolios.
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
three months ended March 31, 2004 and 2003:
Three Months Ended
March 31,
-----------------------
2004 2003
---- ----
(dollars expressed in thousands)
Allowance for loan losses, beginning of period............................... $ 116,451 99,439
Acquired allowance for loan losses and other adjustments (1)................. 1,000 757
--------- --------
117,451 100,196
--------- --------
Loans charged-off............................................................ (11,494) (8,737)
Recoveries of loans previously charged-off................................... 6,164 6,237
--------- --------
Net loan charge-offs......................................................... (5,330) (2,500)
--------- --------
Provision for loan losses.................................................... 12,750 11,000
--------- --------
Allowance for loan losses, end of period .................................... $ 124,871 108,696
========== ========
---------------
(1) In December 2003, we established a $1.0 million specific reserve for estimated losses on a $5.3 million
letter of credit that was recorded in accrued and other liabilities in our consolidated balance sheets.
On January 5, 2004, the letter of credit was fully funded as a loan. Consequently, the related $1.0
million specific reserve was reclassified from accrued and other liabilities to the allowance for loan
losses.
Liquidity
Our liquidity 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. First 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
$876.3 million and $726.9 million at March 31, 2004 and December 31, 2003,
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,
other borrowings and our note payable, at March 31, 2004:
Certificates of Deposit Other
of $100,000 or More Borrowings Total
------------------- ---------- -----
(dollars expressed in thousands)
Three months or less..................................... $ 120,793 161,014 281,807
Over three months through six months..................... 111,614 4,500 116,114
Over six months through twelve months.................... 69,163 -- 69,163
Over twelve months....................................... 152,229 257,000 409,229
----------- -------- --------
Total............................................... $ 453,799 422,514 876,313
=========== ======== ========
In addition to these sources of funds, First 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 March 31,
2004 and December 31, 2003, First Bank's borrowing capacity under the agreement
was approximately $848.2 million and $909.3 million, respectively. In addition,
First Bank's borrowing capacity through its relationship with the Federal Home
Loan Bank was approximately $443.4 million and $449.5 million at March 31, 2004
and December 31, 2003, respectively. Exclusive of the Federal Home Loan Bank
advances outstanding of $7.0 million at March 31, 2004 and December 31, 2003,
First Bank had no amounts outstanding under either of these borrowing
arrangements at March 31, 2004 and December 31, 2003.
In addition to our owned banking facilities, we have entered into
long-term leasing arrangements to support our ongoing activities. The required
payments under such commitments and other obligations at March 31, 2004 are as
follows:
Over 1 Year
Less than But Less Than Over
1 Year 5 Years 5 Years Total
------ ------- ------- -----
(dollars expressed in thousands)
Operating leases.................................. $ 6,423 17,848 20,975 45,246
Certificates of deposit........................... 1,211,956 733,389 276 1,945,621
Other borrowings.................................. 161,014 256,000 1,000 418,014
Note payable...................................... 4,500 -- -- 4,500
Subordinated debentures........................... -- -- 213,222 213,222
Other contractual obligations..................... 6,019 706 33 6,758
---------- ---------- --------- ---------
Total........................................ $1,389,912 1,007,943 235,506 2,633,361
========== ========== ========= =========
Management believes the available liquidity and operating results of
First 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
interest on the subordinated debentures that we issued to our affiliated
statutory and business financing trusts.
Effects of New Accounting Standards
In December 2003, the Financial Accounting Standards Board, or FASB,
issued FASB Interpretation No. 46, Consolidation of Variable Interest Entities,
an interpretation of ARB No. 51, a revision to FASB Interpretation No. 46,
Consolidation of Variable Interest Entities issued in January 2003. 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. The
provisions of this Interpretation are effective for financial statements issued
for fiscal years ending after December 15, 2003. We have several statutory and
business trusts that were formed for the sole purpose of issuing trust preferred
securities. On December 31, 2003, we implemented FASB Interpretation No. 46, as
amended, which resulted in the deconsolidation of our five statutory and
business trusts. The implementation of this Interpretation had no material
effect on our consolidated financial position or results of operations.
Furthermore, in July 2003, the Board of Governors of the Federal Reserve System,
or Board, 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. On May 6, 2004, the Board requested public comment on newly
proposed rules that would allow bank holding companies to retain trust preferred
securities in their Tier 1 capital, subject to stricter quantitative and
qualitative standards. The proposed rules would implement several significant
changes to the current regulatory capital rules. Under the proposal, the
aggregate amount of trust preferred securities and certain other core capital
elements would be limited to 25% of Tier 1 capital, net of goodwill.
Additionally, qualifying trust preferred securities and Class C minority
interest in excess of the 25% limit would be allowable in Tier 2 capital, but
limited, together with subordinated debt and limited-life preferred stock, to
50% of Tier 1 capital. The proposed rules also provide that in the last five
years before maturity of the underlying subordinated note, the associated trust
preferred securities would be treated as limited-life preferred stock, at
one-fifth amortization per year, and would be excluded from Tier 1 capital and
included in Tier 2 capital, subject, together with subordinated debt and other
limited-life preferred stock, to a limit of 50% of Tier 1 capital. The public
comment period on the newly proposed rules ends on July 11, 2004. We are
awaiting further guidance from the Board pending the outcome of the newly
proposed rules, and are continuing to evaluate the proposed changes and their
overall impact on our financial condition and results of operations. Management
expects that implementation of the Board's proposed rules, as currently stated,
would reduce our regulatory capital ratios. However, management believes our
regulatory capital levels will continue to meet the well capitalized thresholds
under the regulatory framework for prompt corrective action if the rules are
adopted in the form proposed.
In January 2004, the FASB's Derivatives Implementation Group issued
preliminary guidance on Statement of Financial Accounting Standards, or SFAS,
No. 133 Implementation Issue No. G25, or DIG Issue G25. DIG Issue G25 clarifies
the FASB's position on the ability of entities to hedge the variability in
interest receipts or overall changes in cash flows on a group of prime-rate
based loans. DIG Issue G25 indicates that an entity is unable to hedge
variability in interest receipts on a group of prime rate based loans as the
prime rate is not considered a benchmark interest rate and that an entity is
unable to hedge overall changes in cash flows as credit risk is not considered
in the hedging interest rate swap. The effective date of DIG Issue G25 is the
first day of the first fiscal quarter beginning after the cleared guidance is
posted to the FASB's website, and should be applied to all hedging relationships
as of the effective date. If a pre-existing cash flow hedging relationship has
identified the hedged transactions in a manner inconsistent with the guidance in
DIG Issue G25, the hedging relationship must be de-designated at the effective
date and any derivative gains or losses in other comprehensive income related to
the de-designated hedging relationships should be accounted for under paragraphs
31 and 32 under SFAS No. 133. Presently, we have pre-existing cash flow hedging
relationships that are inconsistent with the guidance in DIG Issue G25. As of
March 31, 2004, our other comprehensive income included a $21.5 million gain
attributable to these pre-existing cash flow hedging relationships. Pending the
outcome of DIG Issue G25, we may be required to de-designate these specific
hedging relationships and accrete this gain into noninterest income over the
remaining lives of the respective hedging relationships. The public comment
period on DIG Issue G25 ended on March 25, 2004. The FASB met on May 5, 2004 to
further discuss DIG Issue G25, including the public comment letters, and
continued these discussion at a subsequent meeting held on May 12, 2004. While
no final conclusions were reached at the May 12, 2004 meeting, the FASB has
instructed its staff to redraft DIG Issue G25 to clarify its intent and to
circulate the revision to DIG members for comment. The FASB is expected to
discuss the comments received on the revised DIG Issue G25 and possibly conclude
at its next weekly meeting. Consequently, we are currently awaiting additional
guidance from the FASB on DIG Issue G25 and are presently unable to determine
its overall impact on our consolidated financial statements or results of
operations.
In March 2004, the Securities and Exchange Commission, or SEC, issued
Staff Accounting Bulletin No. 105 -- Application of Accounting Principles to
Loan Commitments, or SAB 105, which provides guidance regarding the application
of generally accepted accounting principles to loan commitments accounted for as
derivative instruments. Through specific guidance on valuation-recognition model
inputs to measure loan commitments accounted for at fair value, SAB 105 will
limit the opportunity for recognition of an asset related to a commitment to
originate a mortgage loan that will be held for sale prior to funding. SAB 105
requires that the measurement of fair value include only differences between the
guaranteed interest rate in the loan commitment and a market interest rate,
excluding any expected future cash flows related to the customer relationship or
loan servicing. SAB 105 is effective for all mortgage loan commitments that are
accounted for as derivative instruments that are entered into after March 31,
2004, and permits continued use of previously applied accounting policies to
loan commitments entered into on or before March 31, 2004. We have evaluated the
requirements of SAB 105 and do not believe its implementation will have a
material impact on our consolidated financial statements or results of
operations.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
At December 31, 2003, 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 7.9% of net interest income, based on
assets and liabilities at December 31, 2003. At March 31, 2004, 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 months ended March 31, 2004 as compared to the
comparable period in 2003 and further discussed under "--Results of Operations."
During the three months ended March 31, 2004, 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 evaluated the effectiveness of our "disclosure controls
and procedures" (as defined in rules 13a-14(c) and 15d-14(c) under the
Securities Exchange Act of 1934) and concluded on the basis of the evaluation
that, as of the date of such evaluation, our disclosure controls and procedures
were effective. There have been no significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of that evaluation.
Part II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) The exhibits are numbered in accordance with the Exhibit Table of Item
601 of Regulation S-K.
Exhibit Number Description
-------------- -----------
10.1 AFS Customer Agreement by and between First Banks,
Inc. and Advanced Financial Solutions, Inc.,
dated January 29, 2004 - filed herewith.
10.2 Management Services Agreement by and between First
Banks, Inc. and First Bank, dated February 28, 2004
- 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 January 26, 2004. Item 12 of
the report referenced a press release announcing First Banks, Inc.'s
financial results for the three months and year ended December 31,
2003. A copy of the press release was included as Exhibit 99.1.
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.
May 14, 2004 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 10.1
AFS CUSTOMER AGREEMENT
THIS AGREEMENT is made and entered into by and between Advanced Financial
Solutions, Inc., 4344 Charter Avenue, Oklahoma City, Oklahoma, 73108,
(hereinafter referred to as "AFS"), and the CUSTOMER as identified on Schedule A
hereto.
Recitals
- --------------------------------------------------------------------------------
1. CUSTOMER wishes to obtain from AFS the right to use certain software and
documentation and may purchase associated equipment which comprise an integrated
transaction processing system (" the System") as listed on Schedule A hereto.
2. AFS is willing to provide the System upon the terms and conditions
provided herein.
3. Subsequent transactions may be consummated pursuant to the terms hereof
by the execution of additional Schedule A's (Schedule A-1, A-2, etc.) in which
case references to Schedule A herein will refer to all such additional schedules
as appropriate.
In consideration of the mutual covenants contained herein, it is agreed as
follows:
Table of Contents
- ------------ ------------------------------------- -------- -- ---------- --------------------------------------- -------
Section Title Page Section Title Page
- ------------ ------------------------------------- -------- -- ---------- --------------------------------------- -------
1 General............................ 2 1.15 Limitations of Liability............. 5
- ------------ ------------------------------------- -------- -- ---------- --------------------------------------- -------
1.1 Definitions........................ 2 2 Warranties........................... 5
- ------------ ------------------------------------- -------- -- ---------- --------------------------------------- -------
1.2 Fees............................... 2 2.1 Warranties........................... 5
- ------------ ------------------------------------- -------- -- ---------- --------------------------------------- -------
1.3 Payment............................ 2 2.2 Extent of Warranties................. 6
- ------------ ------------------------------------- -------- -- ---------- --------------------------------------- -------
1.4 Taxes.............................. 2 3 License.............................. 6
- ------------ ------------------------------------- -------- -- ---------- --------------------------------------- -------
1.5 Term and Termination............... 3 3.1 License of Software.................. 6
- ------------ ------------------------------------- -------- -- ---------- --------------------------------------- -------
1.6 Confidential Information........... 3 3.2 Documentation........................ 7
- ------------ ------------------------------------- -------- -- ---------- --------------------------------------- -------
1.7 Patent and Copyright Indemnity..... 3 3.3 Training............................. 7
- ------------ ------------------------------------- -------- -- ---------- --------------------------------------- -------
1.8 Assignment......................... 4 3.4 Implementation and Testing........... 7
- ------------ ------------------------------------- -------- -- ---------- --------------------------------------- -------
1.9 Entire Agreement................... 4 3.5 Proprietary Rights................... 7
- ------------ ------------------------------------- -------- -- ---------- --------------------------------------- -------
1.10 Modification, Amendment............ 4 3.6 Source Code Escrow................... 7
- ------------ ------------------------------------- -------- -- ---------- --------------------------------------- -------
1.11 Severability....................... 4 4 Support Services..................... 8
- ------------ ------------------------------------- -------- -- ---------- --------------------------------------- -------
1.12 Governing Law...................... 4 4.1 Software Support..................... 8
- ------------ ------------------------------------- -------- -- ---------- --------------------------------------- -------
1.13 Attorney's Fees.................... 4 4.2 Customer Obligations................. 8
- ------------ ------------------------------------- -------- -- ---------- --------------------------------------- -------
1.14 Notices............................ 4 Schedule A
- ------------ ------------------------------------- -------- -- ---------- --------------------------------------- -------
Section 1 - General
1.1 Definitions.
The capitalized terms set forth below shall have the meanings set out
herein when used in the Agreement unless the context clearly indicates a
different meaning:
Equipment -- means any equipment described in Schedule A hereto.
AFS Software -- means the AFS software products described in Schedule
A.
Software or Licensed Software -- means the AFS Software along with any
third party software described in Schedule A plus any subsequent
enhancements and/or corrections supplied by AFS.
System -- means any Equipment, Software and third party software described
in Schedule A and documentation, which together constitute an integrated
transaction processing system.
1.2 Fees.
(a) Fees for the products and services hereunder and for any associated
equipment shall be as previously agreed with AFS' authorized software marketers
or as set forth on Schedule A.
(b) The annual fee for the AFS Software support services shall be as set
forth on Schedule A. It is agreed that the cost of telephone calls pursuant to
Section 4 is the responsibility of the calling party. Support fees may be
changed upon ninety (90) days written notice, but in no event increased more
than once in any twelve (12)-month period and no more than five percent (5%) for
any one increase.
(c) CUSTOMER agrees to reimburse AFS for all reasonable out-of pocket
expenses, including, but not limited to, supplies, lodging, transportation and
meals for each AFS representative, incurred by AFS personnel in the course of
any travel necessary to their performance of any services to the benefit of and
as approved by CUSTOMER.
(d) Any services not described herein that are performed by AFS at
CUSTOMER'S request will be charged to CUSTOMER at AFS' hourly software servicing
rates then in effect.
1.3 Payment.
(a) Payment for the Licensed Software and any associated Equipment,
implementation of the System and initial training shall be made either as
previously agreed with AFS' authorized reseller or as follows: Thirty percent
(30%) upon execution of this Agreement; thirty percent (30%) upon shipment;
thirty percent (30%) upon installation, which shall occur when the System has
the ability to correctly run all diagnostic tests; and the remaining ten percent
(10%) upon CUSTOMER'S acceptance of the System.
(b) AFS shall invoice CUSTOMER for the AFS Software yearly support service
fee as per Schedule A.
(c) Payment to AFS for all invoices submitted hereunder shall be due on or
before the thirtieth (30th) day after receipt of invoice by CUSTOMER. Late
charges at the rate of eighteen percent (18%) per annum will apply to all
amounts unpaid after said date until they are fully paid.
(d) The System shall be deemed accepted and all remaining fees paid by
CUSTOMER no later than the twenty-second (22nd) business day after the System
has begun successfully capturing items in a live production environment.
1.4 Taxes.
CUSTOMER will pay all taxes (including, but not limited to any sales tax,
duties, use tax or assessments) levied against CUSTOMER or AFS by a duly
constituted taxing authority against or upon the Equipment, Software and/or
Services. CUSTOMER agrees to pay any tax for which it is responsible hereunder
or which may be levied on or assessed against CUSTOMER directly. If any such tax
is paid by AFS, CUSTOMER shall promptly reimburse AFS therefore upon
presentation to CUSTOMER of reasonable proof of payment by AFS. This does not
include any taxes based on the income or capital value of AFS for which AFS
shall be solely responsible.
1.5 Term and Termination.
(a) The Term of the Agreement shall commence on the latter of the date of
execution by AFS hereof and the date of receipt by AFS of any initial payment
hereunder (Commencement date) and shall continue in full force and effect
thereafter as long as there is any portion of the System in use by CUSTOMER
unless sooner terminated in accordance with the provisions of this Agreement.
(b) In the event of any material breach of this Agreement by either party
hereto, the other party may (reserving cumulatively all other remedies and
rights under this Agreement and in law and in equity) terminate this Agreement,
if the party in breach has not cured the breach within a reasonable time after
receiving written notice of the specific nature of the breach. In addition,
CUSTOMER may, at any time after two (2) years from the Commencement Date,
terminate this Agreement upon thirty (30) days written notice to AFS, provided
however that CUSTOMER shall receive no refund for any annual support fees paid
or incurred before the termination date.
(c) Termination of this Agreement shall not affect rights and/or
obligations of the parties which arose prior to any such termination (unless
otherwise provided herein) and such rights and/or obligations shall survive any
such termination. Upon termination for any reason, CUSTOMER shall immediately
return all AFS Software, documentation and all related materials to AFS.
1.6 Confidential Information.
(a) Each party will regard and preserve as confidential all information
related to the business of the other party and its customers and information
concerning the System, the Software and any documentation, modifications,
enhancements, updates, changes and error corrections to the Licensed Software
provided for hereunder that may be obtained or provided in connection with this
Agreement ("Confidential Information"). In no event however, shall the following
be considered "Confidential Information:" (i) information previously or
subsequently filed with any government agency and available to the public, or
(ii) information previously or subsequently published in any public medium, or
publicly available, (iii) information legally obtained from a third party who
legally obtained or developed "Confidential Information." Each party will not,
without first obtaining the other party's written consent, disclose such
information to any person, firm or enterprise other than (a) to employees, legal
counsel, accountants and other professional advisors as necessary hereunder; (b)
to regulatory officials (including, without limitation, bank examiners), having
jurisdiction over the party; and (c) as may be required by law or legal process.
(b) The provisions of confidentiality herein are substantial and material
conditions to the Agreement. All provisions of confidentiality regarding
information disclosed herein to either party shall survive this Agreement or any
License granted herein.
1.7 Patent and Copyright Indemnity.
(a) AFS shall defend any suit or proceeding brought against CUSTOMER so far
as such suit or proceeding is based on a claim that any Software used within the
scope of the license hereunder constitutes an infringement or misuse of any
patent, copyright, trademark or other proprietary right effective in the United
States, provided that AFS is notified promptly in writing of such suit or
proceeding and given full and complete authority, information and assistance (at
AFS' expense) for the defense of the same. AFS shall pay all expenses of such
suit, including attorney's fees, and all damages and costs finally awarded
therein against CUSTOMER, except that AFS shall not be responsible for any
compromise or expense made or incurred by CUSTOMER without AFS' prior consent.
(b) In the event any Software supplied by AFS is in AFS' opinion likely to
or does become the subject of such a suit or claim, AFS may procure for CUSTOMER
the right to continue using such item, replace or modify such item with items of
equal or superior functionality so that it becomes non-infringing, or remove
such item from CUSTOMER'S site. In the event any item is held to constitute an
infringement in such a suit or proceeding or its use is enjoined, AFS shall take
one of the foregoing actions. In the event of the removal of Software, AFS shall
refund to CUSTOMER an amount equal to the purchase price and/or the license fee
paid to AFS for the Software removed, less a use fee. For purposes of this
paragraph, the monthly use fee shall be computed by dividing the purchase price
and/or the license fee by 60.
(c) AFS shall not have any liability to CUSTOMER under any provision of
this article for any claim which is based upon: (1) the interconnection and/or
use of Equipment or Software in combination with software or devices not
supplied to CUSTOMER or expressly approved by AFS; (2) use of other than a
current, unaltered release of a Software program if infringement would have been
avoided by use of such release; (3) use of any item of Equipment or Software in
any manner for which the item was not designed; or (4) Software modified by
CUSTOMER or others without the consent of AFS.
(d) THE FOREGOING STATES AFS' LIABILITY AND CUSTOMER'S ENTIRE REMEDY
ARISING FROM INFRINGEMENT.
1.8 Assignment.
The rights granted herein shall not be assigned, in whole or in part,
by CUSTOMER without the written consent of AFS, except in the case of
acquisition, merger or in connection with the sale of a substantial portion of
CUSTOMER'S assets and if the successor or assignee accepts in writing the
CUSTOMER'S obligations hereunder.
1.9 Entire Agreement.
The terms and conditions of any and all Schedules and agreed change orders
to this Agreement are incorporated herein by this reference and constitute a
part of this Agreement as if fully set forth herein. This Agreement, together
with all Schedules and agreed change orders, constitutes the entire Agreement
between the parties and supersedes all previous agreements, promises and
representations, whether written or oral, between the parties with respect to
the subject matter hereof. The terms and conditions of this Agreement shall be
binding upon any permitted successors and/or assigns of the parties.
1.10 Modification, Amendment, Supplement or Waiver.
(a) No modification, amendment, supplement to or waiver of this Agreement
or any of its provisions shall be binding upon the parties hereto unless made in
writing and duly signed by the party against whom it is to be enforced.
(b) A failure or delay of either party to this Agreement to enforce at any
time any of the provisions of this Agreement, or to exercise any option which is
herein provided, or to require at any time performance of any of the provisions
hereof, shall not be construed to be a waiver of such provision of this
Agreement.
1.11 Severability.
In the event one or more of the provisions of this Agreement shall for any
reason be held to be invalid, illegal or unenforceable, the remaining provisions
of the Agreement shall be unimpaired, and the invalid, illegal or unenforceable
provision shall be replaced by a mutually acceptable provision, which, being
valid, legal and enforceable, comes closest to the intention of the parties
underlying the invalid, illegal or unenforceable provisions. If no mutually
acceptable provision can be agreed, then the remaining provisions of the
contract shall be construed consistent with the remaining expressed intent of
the parties.
1.12 Governing Law.
This Agreement shall be governed by, construed and enforced under, and
subject to, the laws of the State of Oklahoma.
1.13 Attorney's Fees.
In the event that any suit or action is brought to enforce the provisions
of this Agreement, the prevailing party shall be entitled to expenses and court
costs related to the litigation including, but not limited to, a reasonable
attorney's fee.
1.14 Notices.
Any notices or other communications required or permitted to be given or
delivered under this Agreement shall be in writing (unless otherwise
specifically provided herein) and shall be deemed sufficient when delivered
personally or three (3) days after it is mailed by certified or registered mail,
postage prepaid, return receipt requested to the addresses as set forth on
Schedule A hereto, or to such other address or addressee as either party may
from time to time designate to the other by written notice in the fashion as
provided herein.
1.15 Limitations of Liability.
(a) Circumstances may arise where, because of a default or other liability
of AFS, CUSTOMER is entitled to recover damages from AFS. Regardless of the
basis on which CUSTOMER is entitled to claim damages, AFS is liable only for:
(1) Payments referred to in the patent and copyright terms described
above in Section 1.7; or
(2) The amount of any other actual losses or damages, up to a
cumulative maximum of the greater of (i) the sum of Fifty
Thousand Dollars ($50,000.00) and (ii) the sum paid for AFS
Software hereunder, regardless of the number or basis of any
claim or claims.
(b) Items for Which We Are Not Liable.
Under no circumstances is AFS liable for any of the following:
(1) Third party claims against CUSTOMER for losses or damages
(other than under the first two items listed in Section
1.15(a) above);
(2) Loss of, or damage to records or data; or
(3) Punitive, exemplary, indirect, consequential (including lost
profits or savings) or incidental damages, even if AFS is
informed of their possibility.
No action, regardless of form, arising out of this Agreement may
be brought more than one (1) year after the cause of action has arisen.
Section 2 - Warranties
2.1 Warranties.
AFS hereby represents and warrants as follows:
(a) The Licensed Software is free from material defects in workmanship and
design for a period of one (1) year following installation.
(b) AFS has full authority to enter this Agreement and to consummate the
transaction contemplated herein. This Agreement is not in conflict with any
other Agreement to which AFS is a party or by which it may be bound.
(c) AFS shall furnish the System, the documentation and other materials
hereunder free of all liens, claims, encumbrances and other restrictions that
would interfere with CUSTOMER'S intended licensed use of the System and
Software. CUSTOMER shall quietly and peacefully possess the System,
documentation and other materials provided hereunder subject to and in
accordance with the provisions of this Agreement.
(d) All Support Services provided by AFS hereunder will be performed in a
timely and professional manner.
(e) No portion of the Software, the Software as a whole, the Software as
used in combination with other elements of the System or any use or operation of
the foregoing infringes directly or contributorily upon any other patent or
copyright, trade secret or other intellectual property rights of third parties.
(f) Upon full payment for the AFS Software, Equipment and License, CUSTOMER
shall acquire good and marketable title to the Equipment and quiet use and
possession of the AFS Software, free and clear of any lien, encumbrance or
security interest. CUSTOMER claims no ownership of title to the Software and,
upon AFS' request, agrees to execute an acknowledgment of such fact.
(g) All changes, enhancements, updates, modifications and error corrections
made to the Licensed Software by AFS will run on and with the CUSTOMER'S
equipment, provided that CUSTOMER has installed all previously provided AFS
changes, enhancements, updates, modifications and error corrections in the
manner instructed by AFS. CUSTOMER'S sole remedy under this warranty is limited
to the correction by AFS of any program or documentation errors at no additional
charge to CUSTOMER.
(h) All AFS Software listed herein is specified as "Year 2000 Compliant",
meaning that it is capable of correctly recognizing, receiving, interpreting,
processing and exchanging data before, on and after January 1, 2000. AFS is not
providing any Year 2000 testing, conversion or assessment pursuant to this
Agreement other than as specifically set forth herein. AFS does not warrant the
compliance or connectability of any other software or hardware.
2.2 Extent of Warranty.
THE WARRANTIES GIVEN HEREIN ARE IN LIEU OF ALL OTHER WARRANTIES, EXPRESS OR
IMPLIED, INCLUDING IMPLIED WARRANTIES OF MERCHANTABILITY OR OF FITNESS FOR A
PARTICULAR PURPOSE.
(a) Misuse, accident, unauthorized modification, improper maintenance by
CUSTOMER, or failure caused by a product for which AFS is not responsible, may
void the warranties.
(b) AFS does not warrant uninterrupted or error-free operation of a Product
or Service.
Section 3 - License
3.1 License of Software.
Subject to the provisions hereof AFS grants to CUSTOMER a personal,
non-transferable and non-exclusive right to use the Software in accordance with
the following license provisions:
(a) The AFS Software is licensed solely for use on identified
reader/sorter(s). The AFS Software is licensed and priced on the basis of the
number of reader/sorters installed per site and the document per minute (DPM)
speed of the reader/sorters to which the computers are connected. If the number
of reader/sorters and/or the document per minute speed of the reader/sorters is
upgraded, an upgraded license must be ordered. This License is expressly limited
to use by CUSTOMER and entities directly owned or controlled by CUSTOMER. Use
for any other entities or purposes requires additional license(s) and
alternative pricing.
(b) The AFS Software contains proprietary and confidential trade secret
information of AFS. AFS retains all title to the AFS Software and all copies
thereof, and no title to the AFS Software or any intellectual property in the
AFS Software is being transferred. In the event that CUSTOMER sells the
Equipment on which the AFS Software was originally installed, CUSTOMER may not
transfer or assign the license to the AFS Software unless the purchaser signs a
written assignment with AFS and pays AFS its then current standard transfer fee.
(c) Except for backup or archival purposes, the Software shall not be
copied. All permitted copies shall contain all copyright and other proprietary
notices or legends contained in the Software when delivered. The Software shall
not be modified, reverse assembled or decompiled and no attempt shall be made to
derive source code from the Software.
(d) AFS, acting for itself and/or its Licensors, or its Licensors, in the
event AFS does not so act, may seek to (1) enforce any provision of the Software
License granted hereunder (2) enjoin uses by CUSTOMER which are beyond the scope
of the Software License granted hereunder and (3) enforce any other right and
seek any remedy available at law or in equity. In the event of a material breach
by CUSTOMER that has not been cured as provided in Section 1.5, AFS shall be, in
addition to any other available remedies, entitled to terminate the Software
license. Upon termination of the license under this Agreement for any reason,
CUSTOMER shall promptly return all copies of the Software, documentation and
related materials to AFS at the sole cost and expense of CUSTOMER.
(e) In the event that the Software is being licensed to the U.S. Federal
Government, the Software is licensed in accordance with the applicable U.S.
federal procurement regulations covering commercial/restricted rights software.
(f) CUSTOMER shall comply with all export and re-export restrictions and
regulations of the U.S. Department of Commerce or other applicable U.S. agency.
The Software shall not be transferred to a prohibited country or otherwise in
violation of any such restrictions or regulations.
3.2 Documentation.
(a) Upon delivery of the Equipment and AFS Software to CUSTOMER, AFS shall
also deliver its standard operational instructions and documentation, sufficient
to enable CUSTOMER'S personnel and employees to use and operate the Equipment
and Software supplied by AFS involved at each site.
(b) AFS shall not charge CUSTOMER any additional amount for the initial
documentation provided herein other than the fees described in Section 1.2.
(c) It is further acknowledged herein by CUSTOMER that all documentation
referenced herein is Confidential Information subject to the exclusions of
Section 1.6, unless designated otherwise in writing by AFS and CUSTOMER shall
maintain the confidential nature of the documentation as provided in said
section.
3.3 Training.
If indicated on Schedule A, training shall be conducted pursuant to this
Section. AFS shall provide sufficient initial training to two of CUSTOMER'S
personnel and employees for the purpose of enabling them to understand and
properly operate the System. Additionally, AFS shall provide sufficient initial
training to one of CUSTOMER'S personnel designated as the System Administrator.
The System Administrator training shall include but not be limited to system
security, adding, deleting, authorizing users, communications, and hardware
failure contingency processing. Initial training shall be provided at the AFS
Academy or other agreed location, at the sole option of AFS, with CUSTOMER to
pay all its own travel expenses and training fees, if applicable. The dates of
such training shall coincide with installation of the AFS Software. If the
training is conducted at a location other than the AFS Academy, CUSTOMER agrees
to reimburse AFS for all reasonable out-of-pocket expenses, including, but not
limited to, supplies, lodging, transportation and meals incurred by AFS
personnel in the course of any travel necessary for their performance of the
above training as approved by CUSTOMER.
3.4 Implementation and Testing.
(a) If indicated on Schedule A, Implementation and Testing shall be
performed pursuant to this section. AFS shall have responsibility for
implementing the Software so that it is fully operational. The responsibilities
of AFS shall include installing the Equipment supplied by AFS and Software
(described in Schedule A), performing the initial testing of the System as a
whole, and providing documentation and initial training. CUSTOMER'S
responsibilities for implementation shall be those necessary to enable AFS to
perform its responsibilities under this Agreement.
(b) CUSTOMER agrees to reimburse AFS for all reasonable out-of-pocket
expenses including, but not limited to, supplies, lodging, transportation and
meals incurred by AFS personnel in the course of any travel necessary for their
performance of the above Implementation and testing services as approved by
CUSTOMER.
3.5 Proprietary Rights.
CUSTOMER understands that all modifications, enhancements, updates,
changes, and error corrections to the Licensed Software provided hereunder are
and shall remain the property of AFS. CUSTOMER further understands that all
described changes, modifications, enhancements, updates and error corrections
provided hereunder are "Licensed Software."
3.6 Source Code Escrow.
If indicated on Schedule A, AFS shall, after installation, enroll CUSTOMER,
at CUSTOMER'S sole cost, in it's Source Code Escrow Program whereby a copy of
the Source Code for the AFS Software shall be held for the benefit of CUSTOMER
should CUSTOMER have a current, fully paid support agreement with AFS and
should:
(a) AFS cease doing business with no successor entity assuming AFS'
obligations, or
(b) Cease support services for the Software with no successor entity
assuming AFS' obligations.
A copy of the confirmation of CUSTOMER'S enrollment shall be furnished to
CUSTOMER within twenty (20) days after CUSTOMER'S payment of the escrow charges.
Section 4 - Support Services
4.1 Software Support.
If indicated on Schedule A:
(a) AFS agrees to correct, as soon as reasonably possible after it is
notified thereof by telephone or in writing by CUSTOMER, any material defect in
the Licensed Software.
(b) AFS agrees to provide, at no additional cost to CUSTOMER and as soon as
reasonably possible, software changes and documentation necessary to make
functions performed by the Licensed Software conform to changes in the legal and
regulatory requirements governing performance of those functions.
(c) AFS agrees to provide telephone assistance to CUSTOMER'S personnel from
8:00 a.m. to 5:00 p.m., CST, Monday through Friday (except for Federal Reserve
banking holidays) for routine calls and twenty four hours a day, seven days a
week for emergency calls and/or for problems preventing production running of
the System.
(d) AFS will not provide any support services for CUSTOMER'S Equipment
and/or Computers under this Agreement.
(e) AFS will provide CUSTOMER with the latest enhancements and corrections
to the Software at no charge, as they become generally available. CUSTOMER shall
be responsible for any additional third-party software and/or hardware costs,
onsite AFS support fees and any associated travel expenses with respect to any
such enhancements and corrections and their installation.
4.2 CUSTOMER Obligations.
(a) CUSTOMER agrees to add all AFS-provided enhancements to the Licensed
Software in the manner instructed by AFS within thirty (30) days from the date
of receipt from AFS and to add all error corrections to the Licensed Software in
the manner instructed by AFS within fourteen (14) days from the date of receipt
from AFS.
(b) CUSTOMER agrees promptly to provide to AFS whatever written
documentation AFS may reasonably request for the purpose of identifying and
resolving problems associated with CUSTOMER'S use of the Licensed Software.
(c) CUSTOMER agrees not to materially modify the System or its
configuration without the express, written approval of AFS.
(d) CUSTOMER'S failure to fulfill any of the obligations set forth in
paragraphs 4.2(a), (b) and (c) above may, at AFS' option, relieve AFS of all
support liability regarding the accuracy or performance of the Licensed Software
caused by such failure or failures.
IN WITNESS WHEREOF, the Parties hereto, each acting under due and proper
authority, have executed Schedule A hereto as of the date thereupon written.
SCHEDULE A
TO AFS CUSTOMER AGREEMENT
ImageVisionTM
Item Name Total Cost
- ----------------------------------------------------------------------------------------------------------------------
AFS Software (includes any manuals, specifications and documentation) (X)Yes ( ) No
QTY
St. Louis - Attachment 1 $ 1,747,500.00
- ----------------------------------------------- --------------
Santa Ana - Attachment 2 $ 25,000.00
- ----------------------------------------------- -------------
Chicago - Attachment 3 $ 20,000.00
- ----------------------------------------------- -------------
Peoria - Attachment 4 $ -
- ----------------------------------------------- -------------
Vallejo - Attachment 5 $ -
- ----------------------------------------------- -------------
Houston - Attachment 6 $ 20,000.00
- ----------------------------------------------- -------------
AFS Software Subtotal $ 1,812,500.00
--------------
Third Party Software
(X) Yes ( ) No
St. Louis - Attachment 1 $ 650,000.00
- ----------------------------------------------- --------------
Equipment & Associated Software (X) Yes ( ) No
St. Louis - Exhibit 1 $1,255,681.00
- ----------------------------------------------- -------------
Santa Ana - Exhibit 2 $ 448,466.00
- ----------------------------------------------- -------------
Chicago - Exhibit 3 $ 137,127.00
- ----------------------------------------------- -------------
Peoria - Exhibit 4 $ 190,288.00
- ----------------------------------------------- -------------
Vallejo - Exhibit 5 $ 191,759.00
- ----------------------------------------------- -------------
Houston - Exhibit 6 $ 205,630.00
- ----------------------------------------------- -------------
Equipment & Associated SW Subtotal $ 2,428,951.00
--------------
Other ( ) Yes (X) No
*Training (X) Yes, see section 3.3 ( ) No
SCHEDULE A
TO AFS CUSTOMER AGREEMENT
Item Name Total Cost
- --------------------------------------------------------------------------------------------------------------
*Implementation/Testing (X) Yes, see section 3.4 ( ) No
St. Louis - Attachment 1 $ 534,400.00
- ------------------------------------------------- ------------
Santa Ana - Attachment 2 $ 37,700.00
- ------------------------------------------------- ------------
Chicago - Attachment 3 $ 32,700.00
- ------------------------------------------------- ------------
Peoria - Attachment 4 $ 7,700.00
- ------------------------------------------------- ------------
Vallejo - Attachment 5 $ 7,700.00
- ------------------------------------------------- ------------
Houston - Attachment 6 $ 33,700.00
- ------------------------------------------------- ------------
Services Subtotal $ 653,900.00
---------------
Contract Subtotal $ 5,545,351.00
---------------
Discount $ (1,930,222.00)
---------------
*Contract Total $ 3,615,129.00
---------------
*This contract price does not include travel & living expenses, transportation and any applicable taxes.
These expenses will be billed at actual cost unless otherwise agreed.
**Shipping: All risk of loss passes to CUSTOMER when goods are FOB at point of shipping. AFS shall advance
all shipping and associated costs and CUSTOMER agrees to reimburse AFS for same. If CUSTOMER desires
insurance coverage on the goods while in transit, it must notify AFS in writing of the amount of coverage
required and agree to reimburse AFS for the costs or make arrangements directly with the carrier.
***In order to minimize costs, AFS often books non-refundable reservations. CUSTOMER agrees to pay for
the cost of any reservations lost or any rescheduling fees incurred due to a delay that is the result of
CUSTOMER'S request or fault.
Support (X) Yes, see section 4 ( ) No
St. Louis - Attachment 1 $ 402,522.00
- ------------------------------------------------- ------------
Santa Ana - Attachment 2 $ 4,500.00
- ------------------------------------------------- ------------
Chicago - Attachment 3 $ 3,600.00
- ------------------------------------------------- ------------
Peoria - Attachment 4 $ -
- ------------------------------------------------- ------------
Vallejo - Attachment 5 $ -
- ------------------------------------------------- ------------
Houston - Attachment 6 $ 3,600.00
- ------------------------------------------------- ------------
Annual Support Total $ 414,222.00
--------------
SCHEDULE A
TO AFS CUSTOMER AGREEMENT
Additional Terms and Conditions
- --------------------------------------------------------------------------------
The following terms and conditions supersede any conflicting provisions in the
AFS Customer Agreement with respect to the transactions described herein:
1. Section 4.1(e) of the Agreement is revised to read as follows and the
following new 4.1(f) is added to read as follows:
"(e) AFS will provide CUSTOMER with the latest enhancements and corrections to
the Software at a charge of Ten Dollars ($10.00) plus shipping, as they become
generally available. CUSTOMER shall be responsible for any additional
third-party software and/or hardware costs, onsite AFS support fees and any
associated travel expenses with respect to any such enhancements and corrections
and their installation. With respect to any additional third-party software that
is recommended by AFS and is installed as part of the CUSTOMER solution, AFS
will advise CUSTOMER when third-party software enhancements, corrections, or new
releases are recommended or required for the AFS Software Solution.
(f) Provided CUSTOMER has a current support agreement in effect AFS will provide
Thin Client and .Net to CUSTOMER, and the latest enhancements for Thin Client
and .Net to the Software for the products the CUSTOMER has purchased as they
become generally available pursuant to subsection (e) above."
2. Section 1.3 is deleted and replaced by the following:
"(a) Payment for the Licensed Software and any associated Equipment,
implementation of the System and initial training shall be made as follows:
Thirty percent (30%) of all sites upon execution of this Agreement; thirty
percent (30%) of each sites individual total upon shipment for that specific
site; thirty percent (30%) of each sites individual total upon installation for
that specfic site, which shall occur when the System has the ability to
correctly run all diagnostic tests at the site; and the remaining ten percent
(10%) for each upon CUSTOMER'S acceptance of the System at that site. Acceptance
shall occur when the item is capable of substantially performing in all material
respects according to the requirements of any Statement of Work or other
mutually agreed acceptance criteria. Provided that the payments during calendar
year 2004 shall in no event exceed the sum of $1.8 million dollars and any
amount in excess thereof for calendar year 2004 shall be fully paid in January
2005.
(b) AFS shall invoice CUSTOMER for the AFS Software Support Service fees as per
Schedule A. Support fees shall commence for each software product when that
product is accepted. Acceptance shall occur when the item is capable of
substantially performing in all material respects according to the requirements
of any Statement of Work or other mutually agreed acceptance criteria.
(c) Any invoices for amounts due upon execution of this Agreement shall be due
upon receipt. This Agreement is not effective until it is accepted by AFS and
the amounts due upon execution of this Agreement are received by AFS. Payment to
AFS for all other invoices submitted hereunder shall be due within 45 days after
receipt of invoice.
(d) Pricing stated on Schedule A, unless expressly stated thereon, does not
include charges for permitted taxes, shipping; nor does it include, CUSTOMER
approved travel and living expenses or additional services. These charges shall
be invoiced and paid in full within 45 days of receipt.
(e) Any additional services not covered by this Agreement must be agreed in
writing by an officer of the CUSTOMER.
3. Section 1.2 (b), (c), (d) are deleted and replaced by the following:
"(b) The annual fee for the AFS Software support services shall be as set forth
on Schedule A. It is agreed that the cost of telephone calls pursuant to Section
4 is the responsibility of the calling party. Support fees may be changed upon
ninety (90) days written notice, but in no event increased more than once in any
twelve (12)-month period and no more than five percent (5%) of the then current
annual Support Services fee for any one increase.
SCHEDULE A
TO AFS CUSTOMER AGREEMENT
Additional Terms and Conditions
- --------------------------------------------------------------------------------
(c) CUSTOMER agrees to reimburse AFS for all reasonable and necessary actual
out-of pocket expenses, including, but not limited to, supplies, lodging,
transportation and meals for each AFS representative, incurred by AFS personnel
in the course of any travel necessary to their performance of any services to
the benefit of and as approved by the Senior Vice President of Operations, or
their designee, of the CUSTOMER.
(d) Any services not described herein that are performed by AFS at CUSTOMER'S
written request will be charged to CUSTOMER at AFS' hourly software servicing
rates then in effect.
4. Section 1.7 (b) is deleted and replaced by the following:
"(b) In the event any software supplied by AFS is in AFS' opinion likely to or
does become the subject of such a suit or claim, AFS may procure for CUSTOMER
the right to continue using such item, replace or modify such item with items of
equal or superior functionality so that it becomes non-infringing, or remove
such item from CUSTOMER'S site. In the event any item is held to constitute an
infringement in such a suit or proceeding or its use is enjoined, AFS shall take
one of the foregoing actions. In the event of the removal of Software, AFS shall
refund to CUSTOMER all payments for the license or use of the software removed
received from the CUSTOMER."
5. Section 1.12, is deleted and replaced by the following: "This Agreement shall
be governed by, construed and enforced under, and subject to, the laws of the
State of Missouri."
6. The last sentence of Section 1.15(b) is deleted and replaced by the
following: "(b) No action, regardless of form, arising out of this Agreement may
be brought more than two (2) calendar years after the cause of action has
arisen."
7. Section 2.1 (g) is deleted and replaced by the following:
"(g) All changes, enhancements, updates, modifications and error corrections
made to the Licensed Software by AFS will run on and with the CUSTOMER'S
equipment, provided that CUSTOMER has installed all previously provided AFS
changes, enhancements, updates, modifications and error corrections in the
manner instructed by AFS. CUSTOMER'S sole remedy under this warranty is limited
to the prompt correction by AFS of any program or documentation errors at no
additional charge to CUSTOMER."
8. Notwithstanding any other terms herein, the licenses granted hereunder shall
be on the basis of the volumes tiers attached hereto as Exhibit A, unless
otherwise stated on this Schedule A.
9. The first sentence of Section 3.1(c) is modified as follows: "(c) Except for
backup or archival purposes and 1 test system, the Software shall not be
copied."
10. Section 3.2 (b) is deleted and replaced with the following: "(b) AFS shall
not charge CUSTOMER any additional amount for the initial 6 paper copies and
unlimited use of an electronic copy of the documentation provided herein.
Updates will be provided at no additional cost."
11. Section 3.3 is deleted and replaced with the following:
"If indicated on Schedule A, training shall be conducted pursuant to this
Section. AFS shall provide sufficient initial training of the CUSTOMER'S
personnel and employees at up to six sites for the purpose of enabling them to
understand and properly operate the System. Additionally, AFS shall provide
sufficient initial training of two of CUSTOMER'S personnel, concurrently,
designated as the System Administrator. The System Administrator training shall
include but not be limited to system security, adding, deleting, authorizing
users, communications, and hardware failure contingency processing. Initial
training shall be provided at the AFS Academy or other agreed location, at the
sole option of the CUSTOMER, with CUSTOMER to pay all its own travel expenses
and training fees, if applicable. The dates of such training shall coincide with
installation of the AFS software. If the training is conducted at a location
other than the AFS Academy, CUSTOMER agrees to reimburse AFS for all reasonable,
necessary actual out-of-pocket expenses, including, but not limited to,
SCHEDULE A
TO AFS CUSTOMER AGREEMENT
Additional Terms and Conditions
- --------------------------------------------------------------------------------
supplies, lodging, transportation and meals incurred by AFS personnel in the
course of any travel necessary for their performance of the above training as
approved by CUSTOMER."
12. Section 3.4 (b) is modified as follows: "(b) CUSTOMER agrees to reimburse
AFS for all reasonable and necessary actual out-of-pocket . . . "
13. Section 4.2 (a) is deleted and replaced with the following:
(a) "The parties recognize that AFS recommends that all AFS-provided
enhancements, updates and modifications to Licensed Software be installed by
CUSTOMER in the manner instructed by AFS within sixty (60) days from the date of
receipt from AFS and that all error corrections to the Licensed Software be
installed in the manner instructed by AFS within fourteen (14) days from the
date of receipt from AFS. CUSTOMER has requested longer periods of time to take
such actions. The parties agree that Section 4.2(a) be amended to read as
follows: "CUSTOMER agrees to add all AFS-provided enhancements, updates and
modifications to Licensed Software in the manner instructed by AFS within sixty
(60) days from the date of receipt from AFS and to add all error corrections to
the Licensed Software in the manner instructed by AFS within fourteen (14) days
from the date of receipt from AFS. CUSTOMER waives and agrees to hold AFS
harmless from any damages, costs, fees or expenses arising from CUSTOMER
electing to take a longer period of time to take any such actions than stated
above."
14. Section 2(i) is an added as follows: "(i) Survival of Warranties: The terms
contained in this Agreement shall survive the termination of this Agreement
where the context implies that such was the intent of the parties."
15. Section 5 is added as follows:
"Section 5 - Miscellaneous
5.1 Advertising.
(a) AFS may not use the CUSTOMER'S name or refer to the CUSTOMER directly or
indirectly in any advertisement, news release or release to any professional or
trade publications without the CUSTOMER'S prior written approval."
5.2 Risk of Loss.
(b) CUSTOMER shall be responsible for protecting the System from risk of loss.
In the event of such loss, the portion of the Software program(s) so lost,
damaged or destroyed, shall be replaced by AFS upon written request at no cost
to CUSTOMER. If CUSTOMER so desires re-installation support, this support will
be chargeable at AFS' hourly software servicing rates then in effect.
5.3 AFS hereby represents, covenants and warrants that no payments, whether in
the form of money, property, services, or any other forms of consideration, has
been made or will be made by AFS or on behalf of AFS for direct or indirect
benefit of any employee, officer, director or agent of the CUSTOMER, any
subsidiaries or affiliates thereof the CUSTOMER whether in connection with,
arising out of or in any way relating to the execution of this Agreement by the
CUSTOMER or any instruments relating there to by the CUSTOMER.
5.4 Informal Dispute Resolution.
Any controversy or claim arising out of or relating to this Agreement, the
breach thereof or the relationship of the parties ("Dispute") under this
Agreement shall be resolved as follows:
(a) Upon written request of either party, both parties shall appoint a
designated representative whose task it will be to meet for the purpose of
endeavoring to resolve such Dispute.
(b) The designated representatives shall meet as often as the parties reasonably
deem necessary to discuss the problem in an effort to resolve the Dispute
without the necessity of any formal proceeding.
SCHEDULE A
TO AFS CUSTOMER AGREEMENT
Additional Terms and Conditions
- --------------------------------------------------------------------------------
(c) Formal proceedings for the resolution of a Dispute may not be commenced
until the earlier of:
a. The designated representatives concluding in good faith that amicable
resolution through continued negotiation of the matter does not appear likely;
or
b. The expiration of the 21 day period immediately following the initial request
to negotiate the Dispute.
(d) Pending the outcome of the informal dispute process described in this
Section, CUSTOMER shall hold in escrow any payments that are the subject matter
of the Dispute in an interest bearing account, providing that all undisputed
amounts shall be paid in full when due. Said amount(s) shall be released by
CUSTOMER upon resolution of the Dispute in accordance with this Section. If the
Dispute is submitted to arbitration, CUSTOMER shall continue to escrow any
payments that are the subject matter of the Dispute and amounts that may become
due and payable to AFS pending the arbitrators decision in the Dispute
Resolution section herein.
5.5 Dispute Resolution.
AFS and CUSTOMER agree that if any dispute or controversy relating to this
Agreement arises between them, they will exert all possible efforts to resolve
and settle the dispute in accordance with Section 5.4. If AFS and CUSTOMER
cannot reach a mutually agreeable settlement through conciliation or mediation
within the time frame set forth in Section 5.4, they agree that any controversy
or claim arising out of or relating to this Agreement, or the breach thereof,
shall be settled by arbitration in accordance with the then existing Arbitration
Rules of the American Arbitration Association (AAA), as modified herein.
Each demand for arbitration shall describe the claim and relief sought. Disputes
will be heard and determined by a panel of three arbitrators chosen by AAA who
each are experienced and knowledgeable in the practices generally of the data
processing industry, and at least one of the arbitrators will be an attorney.
The place of arbitration shall be St. Louis, Missouri or such other place as the
parties may agree if AFS initiates arbitration and Oklahoma City, Oklahoma if
CUSTOMER initiates arbitration.
Except as set forth below, judgment upon any award of the majority of the
arbitrators shall be final, binding and conclusive and may be entered upon the
motion of either party in any court having jurisdiction thereof or having
jurisdiction over one or more of the parties or their assets. The award of the
arbitrators may grant any relief that might be granted by a court of competent
jurisdiction and shall be rendered within twenty (20) days from completion of
the Hearing, which shall commence within 60 days from the initial request for
arbitration. At the Hearing each party shall be afforded up to five (5) hours to
present its case.. Either party, before or during any arbitration, may apply to
a court of competent jurisdiction for equitable relief where such relief is
necessary to protect its interests pending completion of the arbitration.
The costs and expenses of each arbitration hereunder and their apportionment
between the parties will be determined by the arbitrators in their award or
decision.
5.6 Non-Interference
AFS hereby warrants that it will not include any computer instructions or other
items in any software whose purpose is to (1) permit unauthorized access; (2)
disable hardware; (3) improperly disable or erase software; (4) improperly erase
or alter data; or (5) perform any other action deleterious to the CUSTOMER or
its customers.
5.7 Software Escrow Currency
The Software source code that is changed will be sent for update to the "Source
Code Escrow Program" promptly with general release.
5.8 Software Availability and Frequency of Updates
AFS agrees to support the Software, including enhancements, new releases, and
corrections, for at least 6 years. AFS agrees to provide updates to the Software
at least 3 times during this period.
5.9 Customer Acceptance
SCHEDULE A
TO AFS CUSTOMER AGREEMENT
Additional Terms and Conditions
- --------------------------------------------------------------------------------
Customer Acceptance of the AFS Software installation will be in writing and
approved by the Executive Vice President and Director of Operations, the Senior
Vice President of Operations or their designee.
16. The Project Management Team, including the PM, assigned to this project
shall be sufficiently competent and capable of successfully performing their
assignment hereunder and shall have this project as a first priority until
completion.
17. Acceptance shall occur, on a per site basis, when the System at a site is
capable of performing substantially in accordance with the requirements for the
site of the mutually agreed Statement of Work (SOW). The SOW, when finally
agreed, shall become a part of this Agreement.
18. AFS agrees to fully comply with the requirements of the Escalation
Procedures as attached hereto as Exhibit B.
19. Parties agree to use their best efforts to develop and execute a mutually
agreed statement of work on or before March 31, 2004 unless otherwise agreed by
the parties. If the statement of work is not completed by such date, the parties
agree that this agreement shall terminate and the parties shall have no further
obligation to one another hereunder and all monies paid by CUSTOMER shall be
returned.
20. Notwithstanding any other provisions herein, either party may terminate this
Agreement by giving written notice of termination received by the other party on
or before February 28, 2004. If the Agreement is so terminated, AFS shall
promptly refund any funds received from CUSTOMER and the parties shall have no
further obligations hereunder.
SCHEDULE A
TO AFS CUSTOMER AGREEMENT
Notices
- --------------------------------------------------------------------------------
TO AFS: TO LICENSEE:
Attn: Rod Kroutil, CFO Attn: Allen H. Blake
Advanced Financial Solutions, Inc. First Banks, Inc.
1200 Sovereign Row 600 James S. McDonnell Blvd.
Oklahoma City, OK 73108 Hazelwood. MO 63042
Phone (405) 787-1800 Phone: (314) 592-6601
Fax: (405) 787-8833 Fax:
Escrow
- --------------------------------------------------------------------------------
Escrow [ ] Yes, we wish to enroll as a Preferred Beneficiary in the Source
Code Escrow Program provided by DSI as described in Section 3.6.
We acknowledge the cost to our institution is currently $650 per
year and will be invoiced by and paid directly to DSI. By
checking the box, we request AFS to forward an enrollment form to
the person listed directly above.
[ ] No, we do not wish to enroll in the Source Code Escrow Program at
this time.
Tax Information and Signatures Required
- --------------------------------------------------------------------------------
County and State where goods and/or services are to be provided:
- --------------------------------------------------------------------------------
If CUSTOMER is non-taxable, please provide certificate number and state below
and include copy of permit upon return of the contract:
- --------------------------------------------------------------------------------
"AFS" "CUSTOMER"
ADVANCED FINANCIAL SOLUTIONS, INC. FIRST BANKS, INC.
- ----------------------------------- -----------------------------------
By: /s/ Rodney L. Kroutil By:/s/ Terrance M. McCarthy
- ----------------------------------- -----------------------------------
Print Name: Rodney L. Kroutil Print Name: Terrance M. McCarthy
- ----------------------------------- -----------------------------------
Title: Chief Financial Officer Title: Chief Operating Officer
- ----------------------------------- -----------------------------------
Date Accepted: 1-30-04 Date: January 29, 2004
- ----------------------------------- -----------------------------------
ATTACHMENT 1 TO SCHEDULE A
ST. LOUIS LOCATION
Item Name Total Cost
- ---------------------------------------------------------------------------------------------------------------------------
AFS Software (includes any manuals, specifications and documentation) (X)Yes ( ) No
QTY
ImageVision 1, 2 and 3 Enterprise Volume License- up to
monthly volume of 8mm- $740,000 (per Exhibit A0 1 $ 520,000.00
- ------------------------------------------------------------------ ------ ------------
ImageVision DREAM- 6-8million items per month (per Exhibit A) 1 $ 75,000.00
- ------------------------------------------------------------------ ------ ------------
Fraud Control and Positve Pay Package (Fraud control includes
the following filters: High Dollar, Special Watch, New Account
Large Deposit, Non-MICR, Serial Variance, Amount Variance,
Multiple Deposits, Kiting, NSF Screening) 1 $ 85,000.00
- ------------------------------------------------------------------ ------ ------------
TellerVision API 1 $ 75,000.00
- ------------------------------------------------------------------ ------ ------------
IV Signature Verification 1 $ 35,000.00
- ------------------------------------------------------------------ ------ -----------
CMS Adjustments 1 $ 75,000.00
- ------------------------------------------------------------------ ------ ------------
Incoming Returns 1 $ 90,000.00
- ------------------------------------------------------------------ ------ ------------
Outgoing Returns 1 $ 30,000.00
- ------------------------------------------------------------------ ------ ------------
USDP-(Includes custom statement formatter, ad-hoc reprinting
from Depot, E-Statements) 1 $ 100,000.00
- ------------------------------------------------------------------ ------ ------------
CD/DVD Vision - CD Publishing, Up to 4 Writers 1 $ 25,000.00
- ------------------------------------------------------------------ ------ ------------
ImageVision Courier (enables Image Exchange directly from
IP system) 1 $ 25,000.00
- ------------------------------------------------------------------ ------ ------------
ImageVision Branch Capture 150 $ 225,000.00
- ------------------------------------------------------------------ ------ ------------
iBox (1-499 boxes) 1 $ 30,000.00
- ------------------------------------------------------------------ ------ ------------
ImageVision/Remittance - Dual Page Scanners All Types <100DPM 2 $ 10,000.00
- ------------------------------------------------------------------ ------ ------------
ImageDepot, 50 Client License 1 $ 50,000.00
- ------------------------------------------------------------------ ------ ------------
eVision, Check, 200 client license 1 $ 37,500.00
- ------------------------------------------------------------------ ------ ------------
eVision Admin, 25 client license 1 $ 15,000.00
- ------------------------------------------------------------------ ------ ------------
Home Banking API, 50 client license 1 $ 25,000.00
- ------------------------------------------------------------------ ------ ------------
Audit Service, 250-500K average items per day 1 $ 20,000.00
- ------------------------------------------------------------------ ------ ------------
Depot Express, End User is Consumer/Corporation
(Unlimited client licenses) 1 $ 5,000.00
- ------------------------------------------------------------------ ------ ------------
ScanStation, Per Scanner License - Scanner 41-80 ppm,
includes 15 indexing Station License 2 $ 30,000.00
- ------------------------------------------------------------------ ------ ------------
Image Depot, file folder, 50 client licenses 1 $ 50,000.00
- ------------------------------------------------------------------ ------ ------------
eVision, Document, 100 client licenses 1 $ 50,000.00
- ------------------------------------------------------------------ ------ ------------
COLD 1 $ 65,000.00
- ------------------------------------------------------------------ ------ ------------
AFS Software Subtotal $ 1,747,500.00
--------------
ATTACHMENT 1 TO SCHEDULE A
ST. LOUIS LOCATION
Item Name Total Cost
- ---------------------------------------------------------------------------------------------------------------------------
Third Party Software (X)Yes ( ) No
Mitek- 700 DPM Car License 6 $ 640,000.00
- ---------------------------------------------------------------- ------ ------------
CheckClear Endpoint Exchange Client Software 1 $ 10,000.00
- ---------------------------------------------------------------- ------ ------------
Third Party Software Subtotal $ 650,000.00
-------------
Equipment & Associated Software (X) Yes see exhibit 1 ( ) No $1,255,681.00
-------------
Other ( ) Yes (X) No
*Training (X) Yes, see section 3.3 ( ) No
*Implementation/Testing (X) Yes, see section 3.4 ( ) No
AFS CAR/LAR Installation Fee $ 20,000.00
- ---------------------------------------------------------------- ------------
ImageVision Beginning System Administrator: 3 days required,
1/2 day optional $ 3,200.00
- ---------------------------------------------------------------- ------------
ImageDepot Administrator: 2 days required $ 7,200.00
- ---------------------------------------------------------------- ------------
ImageVision Operator Training (per day) $ 2,000.00
- ---------------------------------------------------------------- ------------
ImageDepot Client training (per day) $ 12,000.00
- ---------------------------------------------------------------- ------------
AFS Staging Services (Qty 40) $ 20,000.00
- ---------------------------------------------------------------- ------------
ImageVision Installation and Training $ 125,000.00
- ---------------------------------------------------------------- ------------
ImageDepot Installation and Training $ 25,000.00
- ---------------------------------------------------------------- ------------
eVision Installation and Training $ 25,000.00
- ---------------------------------------------------------------- ------------
Project Management Services $ 100,000.00
- ---------------------------------------------------------------- ------------
Fraud Prevention Implementation $ 15,000.00
- ---------------------------------------------------------------- ------------
Adjustments Implementation $ 15,000.00
- ---------------------------------------------------------------- ------------
Returns Implementation $ 30,000.00
- ---------------------------------------------------------------- ------------
Statements Implementation $ 25,000.00
- ---------------------------------------------------------------- ------------
ImageExchange Implementation $ 5,000.00
- ---------------------------------------------------------------- ------------
Branch Capture Initial Implementation $ 35,000.00
- ---------------------------------------------------------------- ------------
Remittance Implementation $ 25,000.00
- ---------------------------------------------------------------- ------------
Document/COLD Archive Implementation $ 20,000.00
- ---------------------------------------------------------------- ------------
Remittance Set-Up Services: includes Single Application
Set-Up,4 Extract, Standard Reports, Testing, On-Site
Installation $ 7,500.00
- ---------------------------------------------------------------- ------------
ATTACHMENT 1 TO SCHEDULE A
ST. LOUIS LOCATION
Item Name Total Cost
- ---------------------------------------------------------------------------------------------------------------------------
On-Site Operations Training - 1 Weeks $ 7,500.00
- ---------------------------------------------------------------- ------------
Remittance System Project Management Services $ 10,000.00
- ---------------------------------------------------------------- ------------
Services Subtotal $ 534,400.00
-------------
Contract Subtotal $ 4,187,581.00
--------------
Discount $(1,402,335.00)
--------------
*Contract Total $ 2,785,246.00
--------------
*This contract price does not include travel & living expenses, transportation and any applicable taxes.
These expenses will be billed at actual cost unless otherwise agreed.
**Shipping: All risk of loss passes to CUSTOMER when goods are FOB at point of shipping. AFS shall advance
all shipping and associated costs and CUSTOMER agrees to reimburse AFS for same. If CUSTOMER desires
insurance coverage on the goods while in transit, it must notify AFS in writing of the amount of coverage
required and agree to reimburse AFS for the costs or make arrangements directly with the carrier.
***In order to minimize costs, AFS often books non-refundable reservations. CUSTOMER agrees to pay for
the cost of any reservations lost or any rescheduling fees incurred due to a delay that is the result of
CUSTOMER'S request or fault.
ATTACHMENT 1 TO SCHEDULE A
ST. LOUIS LOCATION
Item Name Total Cost
- ---------------------------------------------------------------------------------------------------------------------------
Support (X) Yes, see section 4 ( ) No
ImageVision 1, 2 and 3 Enterprise Volume License- up to
monthly volume of 8mm- $740,000 $ 93,600.00
- ----------------------------------------------------------- -----------
ImageVision DREAM- 6-8million items per month $ 13,500.00
- ----------------------------------------------------------- -----------
Fraud Control and Positve Pay Package (Fraud control
includes the following filters: High Dollar, Special
Watch, New Account Large Deposit, Non-MICR, Serial
Variance, Amount Variance, Multiple Deposits, Kiting,
NSF Screening) $ 15,300.00
- ----------------------------------------------------------- -----------
TellerVision API $ 13,500.00
- ----------------------------------------------------------- -----------
IV Signature Verification $ 6,300.00
- ----------------------------------------------------------- -----------
CMS Adjustments $ 13,500.00
- ----------------------------------------------------------- -----------
Incoming Returns $ 16,200.00
- ----------------------------------------------------------- -----------
Outgoing Returns $ 5,400.00
- ----------------------------------------------------------- -----------
USDP-(Includes custom statement formatter, ad-hoc
reprinting from Depot, E-Statements) $ 18,000.00
- ----------------------------------------------------------- -----------
CD/DVD Vision - CD Publishing, Up to 4 Writers $ 4,500.00
- ----------------------------------------------------------- -----------
ImageVision Courier (enables Image Exchange directly from
IP system) $ 4,500.00
- ----------------------------------------------------------- -----------
ImageVision Branch Capture $ 40,500.00
- ----------------------------------------------------------- -----------
iBox (1-499 boxes) $ 5,400.00
- ----------------------------------------------------------- -----------
ImageVision/Remittance - Dual Page Scanners
All Types <100DPM $ 1,800.00
- ----------------------------------------------------------- -----------
ImageDepot, 50 Client License $ 9,000.00
- ----------------------------------------------------------- -----------
eVision, Check, 200 client license $ 6,750.00
- ----------------------------------------------------------- -----------
eVision Admin, 25 client license $ 2,700.00
- ----------------------------------------------------------- -----------
Home Banking API, 50 client license $ 4,500.00
- ----------------------------------------------------------- -----------
Audit Service, 250-500K average items per day $ 3,600.00
- ----------------------------------------------------------- -----------
ScanStation, Per Scanner License - Scanner 41-80 ppm,
includes 15 indexing Station License $ 5,400.00
- ----------------------------------------------------------- -----------
Image Depot, file folder, 50 client licenses $ 9,000.00
- ----------------------------------------------------------- -----------
eVision, Document, 100 client licenses $ 9,000.00
- ----------------------------------------------------------- -----------
COLD $ 11,700.00
- ----------------------------------------------------------- -----------
Mitek- 700 DPM Car License $ 87,072.00
- ----------------------------------------------------------- -----------
CheckClear Endpoint Exchange Client Software $ 1,800.00
- ----------------------------------------------------------- -----------
Annual Support Total $ 402,522.00
--------------
Exhibit 1 - St. Louis
Description Qty Price
- -------------------------------------------------------------------------------------------------------------------
PC's and Servers
- --------------------------------------------------------------------------------
Sorter Controller, Dell Optiplex GX-260 (Desktop), Pentium 4 2.4GHz Processor,
256MB RAM, 40GB Hard Drive, Windows 2000 Professional, 17 inch Monitor 3 Customer Furnished
Speedfirst Interface Hardware kit, 2 X 10/100 Network Cards, 2 X 25
foot Crossover Cable 3 $474
Workstation, Dell Optiplex GX-260 (Mini Tower), Pentium 4 2.4GHz
Processor, 256MB RAM, 40GB Hard Drive, Windows 2000 Professional,
17 inch Monitor, Headset 8 Customer Furnished
Application Server, Dell PowerEdge 2650 Server (Rack Mount), Dual
Xeon 2.4GHz Processors, 1GB RAM, 2X18GB Hard Drives Mirrored, Windows
2000 Server 1 Customer Furnished
DMZ Server,Dell PowerEdge 2650 Server (Rack Mount), Single Xeon 2.4GHz
Processor, 1GB RAM, 2X18GB Hard Drives Mirrored, Windows 2000 Server 1 Customer Furnished
Vision Storage Unit, Dell Poweredge 2600 Server (Rack), Dual Xeon 2.4GHz
Processors, 2GB RAM, 2X18GB Hard Drives Mirrored, Windows 2000 Server 1 Customer Furnished
Vision Storage Unit, Dell Poweredge 2600 Server (Rack), Dual Xeon 2.4GHz
Processors, 2GB RAM, 2X18GB Hard Drives Mirrored, Windows 2000 Server
(test server) 1 Customer Furnished
Image Capture Unit, Dell Optiplex GX-260 (Desktop), Pentium 4 2.4GHz Processor,
256MB RAM, 40GB Hard Drive, Windows 2000 Professional, 17 inch Monitor, Rack
w/ 8-Port Power Strip, 4-Port KVM Switchbox and cables 3 Customer Furnished
Database Server, Dell PowerEdge 2600 Server (Rack), Dual Xeon 2.4GHz processors,
2GB RAM, 2X18GB Hard Drives (Mirrored), 3X73GB Hard Drives (RAID 5), Windows
2000 Server 1 Customer Furnished
Dell Poweredge 4210, 7' Equipment Rack w/ side panel kit, keyboard/
mouse drawer w/ keyboard, stabilizing feet, monitor/utility shelf w/17"Monitor,
Switchbox & Cables, Power Strip 2 Customer Furnished
Dell PC Anywhere Gateway PC: Optiplex GX-260 (Small Desktop) Pentium 4 2.4GHz
Processor, 256MB RAM, 40GB Hard Drive, Windows 2000 Professional, 17 inch
Monitor, Multitech modem, modem cable, (1) PC Anywhere host/remote license 1 Customer Furnished
Fraud
- -----
Fraud Filter Server, Dell Poweredge 2600 Server (Rack Mount), Dual Xeon 2.4GHz
processors, 2GB RAM, 18GB OS Drives, 36GB Cache Drive, Windows 2000 Server, DDS4
Tape Drive, SQL Server Software 1 Customer Furnished
Branch Capture
- --------------
Unisys Scanner: Unisys SourceNDP, MICR E13B, front & rear image, 2 output
pockets, power supply, PCMCIA card, API software, rear ink jet endorse, CCITT/
JPEG dual image, 3COM adapter card 150 $606,600
Branch Capture PC, Dell Optiplex GX-260 (Mini Tower), Pentium 4 2.4GHz Processor,
256MB RAM, 40GB Hard Drive, Windows 2000 Professional, 17 inch Monitor 150 Customer Furnished
ImageExchange
- -------------
Dell Poweredge 2600 rack mount server, Xeon 2.4GHZ single processor, 1GB, 2 x
73GB drives mirrored (RAID 1), Windows Server 2003, Dual on-board NIC's, no
keyboard/mouse, 3 year on-site warranty 1 Customer Furnished
Dell GX270 mini-tower, Xeon-2.4GHZ , 256MB, 40GB hard drive, Windows 200
Professional, 10/100 NIC keyboard, mouse, 3 year on-site warranty 1 Customer Furnished
Statements
- ----------
Network Print Server - 1 to 3 Printers, Dell Optiplex GX-260 (Mini Tower),
Pentium 4 2.4GHz Processor, 512MB RAM, 40GB Hard Drive, Windows 2000
Professional, 17 inch Monitor, 18GB Cache Drive, SCSI Card & Cable 1 Customer Furnished
Reprint Server - Dell Poweredge 1750 Server (Rack Mount), Xeon 2.4GHz
Processor, 1GB RAM, 2X73GB Hard Drives (Mirrored), 73GB Cache Drive, Windows
2000 Server 1 Customer Furnished
Exhibit 1 - St. Louis
Description Qty Price
- ------------------------------------------------------------------------------------------------------------------
Storage
- --------------------------------------------------------------------------------
Storage and back-up solution provided by customer
Rimage Perfect Image Producer Autostar II DVD/CD Publishing System w/4 Writers,
includes Control Center and Printer 1 $36,995
Additional Components
- --------------------------------------------------------------------------------
PC Anywhere Remote License version 10.5 - need 1 license per PC / server 26 Customer Furnished
Catalyst 2950G 48-port 10/100 Switch with 2 Gigabit Ports 1 Customer Furnished
Microsoft SQL Server 2000 - Open License - Per Processor 2 Customer Furnished
Microsoft SQL Server 2000 - Open License - Media Pack 1 Customer Furnished
AFS Support Services
- --------------------------------------------------------------------------------
Support services: Zetafax single line - 5 user fax software, (1) 56K external
modem, Norton Ghost back-up software (25 user), 80 GB Snap Server 1 $1,692
Scanners
- --------------------------------------------------------------------------------
Check
Unisys Scanner: Unisys SourceNDP, MICR E13B, front & rear image, 2 output
pockets, power supply, PCMCIA card, API software, rear ink jet endorse,
CCITT/JPEG dual image, 3COM adapter card 2 $8,088
Remittance Check and Coupon scanners
Unisys Scanner: Unisys SourceNDP, MICR E13B, front & rear image, 2 output
pockets, power supply, PCMCIA card, API software, rear ink jet endorse,
CCITT/JPEG dual image, OCR Reader, 3COM adapter card 3 $12,918
Remittance Document scanners
Bell & Howell 2020 duplex flatbed scanner: 76PPM, up to 400dpi, Kofax
adrenaline video accel board, Kofax SCSI cable 2 $22,072
Document Scanners
- --------------------------------------------------------------------------------
Scan Station PC, Dell Optiplex GX-260 (Mini Tower), Pentium 4 2.4GHz Processor,
256MB RAM, 40GB Hard Drive, Windows 2000 Professional, 17 inch Monitor, Headset 2 Customer Furnished
Bell & Howell 8080D duplex scanner: 80PPM, 200/400dpi scaleable, Kofax
adrenaline video processing accelerator board, Kofax 8000 series video cable 2 $43,232
E-Series Transport 1150 DPM
- --------------------------------------------------------------------------------
Dual image w/IQA - mixed bitonal/grayscale 3 $337,050
700 DPM encoder - E13B 2 $162,920
Speedfirst - Windows NT Field Upgrade 3 $23,640
Exhibit 1 - St. Louis
Description Qty Price
- ------------------------------------------------------------------------------------------------------------------
Courtesy Amount Recognition
- --------------------------------------------------------------------------------
Dell Dual Processor CAR PC, Dell Precision 450 (Desktop), Dual Xeon 2.4GHz
w/512 MB, 100TX, Windows 2000 Professional, 40GB Hard Drive 8 Customer Furnished
Dell Rackshelf 4 Customer Furnished
Dell Poweredge 4210, 7' Equipment Rack w/ side
panel kit, keyboard/mouse drawer w/ keyboard, stabilizing feet, monitor/utility
shelf w/17"Monitor, Switchbox & Cables, Power Strip 2 Customer Furnished
------------------
Exhibit 1 - St. Louis Total $1,255,681
Plus applicable freight, taxes and transport installation.
Note: AFS provides support for AFS software products only. Third party support
costs are estimates only. Actual support costs will be determined by the third
party provider(s) based on CUSTOMER's location and the coverage desired.
ATTACHMENT 2 TO SCHEDULE A
SANTA ANA LOCATION
ImageVisionTM
Item Name Total Cost
- ------------------------------------------------------------------------------------------------------------------
AFS Software (includes any manuals, specifications and documentation) (X) Yes ( ) No
QTY
iBox (1-499 boxes) additional site license 1 $15,000.00
- ------------------------------------------------------------------- ----- ----------
ImageVision/Remittance - Additional Page Scanner All Types <100DPM 2 $10,000.00
- ------------------------------------------------------------------- ----- ----------
AFS Software Subtotal $ 25,000.00
-------------
Third Party Software ( ) Yes (X) No
Equipment & Associated Software (X) Yes, see exhibit 2 ( ) No $ 448,466.00
-------------
Other ( ) Yes (X) No
*Training (X) Yes, see section 3.3 ( ) No
*Implementation/Testing (X) Yes, see section 3.4 ( ) No
Remittance Set-Up Services: includes Single Application Set-Up,4
Extract, Standard Reports, Testing, On-Site Installation $ 7,500.00
- ------------------------------------------------------------------- ----------
On-Site Operations Training - 1 Weeks $ 7,500.00
- ------------------------------------------------------------------- ----------
Remittance System Project Management Services $10,000.00
- ------------------------------------------------------------------- ----------
AFS Staging Services (Qty 15) $ 7,500.00
- ------------------------------------------------------------------- ----------
ImageVision Beginning System Administrator: 3 days required,
1/2 day optional $ 3,200.00
- ------------------------------------------------------------------- ----------
ImageVision Operator Training (per day) $ 2,000.00
- ------------------------------------------------------------------- ----------
Services Subtotal $ 37,700.00
------------
Contract Subtotal $ 511,166.00
------------
Discount $(206,669.00)
------------
*Contract Total $ 304,497.00
------------
*This contract price does not include travel & living expenses, transportation and any applicable taxes. These
expenses will be billed at actual cost unless otherwise agreed.
**Shipping: All risk of loss passes to CUSTOMER when goods are FOB at point of shipping. AFS shall advance all
shipping and associated costs and CUSTOMER agrees to reimburse AFS for same. If CUSTOMER desires insurance
coverage on the goods while in transit, it must notify AFS in writing of the amount of coverage required and
agree to reimburse AFS for the costs or make arrangements directly with the carrier.
***In order to minimize costs, AFS often books non-refundable reservations. CUSTOMER agrees to pay for the cost
of any reservations lost or any rescheduling fees incurred due to a delay that is the result of CUSTOMER'S request
or fault.
ATTACHMENT 2 TO SCHEDULE A
SANTA ANA LOCATION
Item Name Total Cost
- ------------------------------------------------------------------------------------------------------------------
Support (X) Yes, see section 4 ( ) No
iBox (1-499 boxes) additional site license $ 2,700.00
- ------------------------------------------------------------------- ----------
ImageVision/Remittance - Additional Page Scanner All Types
<100DPM $ 1,800.00
- ------------------------------------------------------------------- ----------
Annual Support Total $ 4,500.00
-----------
Exhibit 2 - Santa Ana
Description Qty Price
- ------------------------------------------------------------------------------------------------------------------
PC's and Servers
- --------------------------------------------------------------------------------
Sorter Controller, Dell Optiplex GX-260 (Desktop), Pentium 4 2.4GHz Processor,
256MB RAM, 40GB Hard Drive, Windows 2000 Professional, 17 inch Monitor 2 Customer Furnished
Speedfirst Interface Hardware kit, 2 X 10/100 Network Cards, 2 X 25 foot
Crossover Cable 2 $316
Workstation, Dell Optiplex GX-260 (Mini Tower), Pentium 4 2.4GHz Processor,
256MB RAM, 40GB Hard Drive, Windows 2000 Professional, 17 inch Monitor, Headset 8 Customer Furnished
Vision Storage Unit, Dell Poweredge 2600 Server (Rack), Dual Xeon 2.4GHz
Processors, 2GB RAM, 2X18GB Hard Drives Mirrored, Windows 2000 Server
(Hot-Swappable Server and testing Server) 1 Customer Furnished
Image Capture Unit, Dell Optiplex GX-260 (Desktop), Pentium 4 2.4GHz Processor,
256MB RAM, 40GB Hard Drive, Windows 2000 Professional, 17 inch Monitor, Rack w/
8-Port Power Strip, 4-Port KVM Switchbox and cables 2 Customer Furnished
Dell Poweredge 4210, 7' Equipment Rack w/ side panel kit, keyboard/mouse
drawer w/keyboard, stabilizing feet, monitor/utility shelf w/17"Monitor,
Switchbox & Cables, Power Strip 1 Customer Furnished
Dell PC Anywhere Gateway PC: Optiplex GX-260 (Small Desktop) Pentium 4 2.4GHz
Processor,256MB RAM, 40GB Hard Drive, Windows 2000 Professional, 17 inch
Monitor, Multitech modem, modem cable, (1) PC Anywhere host/remote license 1 Customer Furnished
Statements
- ----------
Network Print Server - 1 to 3 Printers, Dell Optiplex GX-260 (Mini Tower),
Pentium 4 2.4GHz Processor, 512MB RAM, 40GB Hard Drive, Windows 2000
Professional, 17 inch Monitor, 18GB Cache Drive, SCSI Card & Cable 1 Customer Furnished
Storage
- --------------------------------------------------------------------------------
Storage and back-up solution provided by customer
Additional Components
- --------------------------------------------------------------------------------
PC Anywhere Remote License version 10.5 - need 1 license per PC / server 16 Customer Furnished
Catalyst 2950G 48-port 10/100 Switch with 2 Gigabit Ports 1 Customer Furnished
AFS Support Services
- --------------------------------------------------------------------------------
Support services: Zetafax single line - 5 user fax software, (1) 56K external
modem, Norton Ghost back-up software (25 user), 80 GB Snap Server 1 $1,692
Scanners
- --------------------------------------------------------------------------------
Check
Unisys Scanner: Unisys SourceNDP, MICR E13B, front & rear image, 2 output
pockets, power supply, PCMCIA card, API software, rear ink jet endorse,
CCITT/JPEG dual image, 3COM adapter card 2 $8,088
Remittance Check and Coupon scanners
Unisys Scanner: Unisys SourceNDP, MICR E13B, front & rear image, 2 output
pockets, power supply, PCMCIA card, API software, rear ink jet endorse,
CCITT/JPEG dual image, OCR Reader, 3COM adapter card 3 $12,918
Remittance Document scanners
Bell & Howell 2020 duplex flatbed scanner: 76PPM, up to 400dpi, Kofax
adrenaline video accel board, Kofax SCSI cable 2 $22,072
Exhibit 2 - Santa Ana
Description Qty Price
- ------------------------------------------------------------------------------------------------------------------
E-Series Transport 1150 DPM
- --------------------------------------------------------------------------------
Dual image w/IQA - mixed bitonal/grayscale 2 $224,700
700 DPM encoder - E13B 2 $162,920
Speedfirst - Windows NT Field Upgrade 2 $15,760
------------
Exhibit 2 - Santa Ana Total $448,466
Plus applicable freight, taxes and transport installation.
Note: AFS provides support for AFS software products only. Third party support costs are estimates only. Actual
support costs will be determined by the third party provider(s) based on CUSTOMER's location and the coverage
desired.
ATTACHMENT 3 TO SCHEDULE A
CHICAGO LOCATION
ImageVisionTM
Item Name Total Cost
- ---------------------------------------------------------------------------------------------------------------------------
A Software (includes any manuals, specifications and documentation) (X) Yes ( ) No
QTY
iBox (1-499 boxes) additional site license 1 $15,000.00
- ------------------------------------------------------------------- ----- ----------
ImageVision/Remittance - Additional Page Scanner All Types <100DPM 1 $ 5,000.00
- ------------------------------------------------------------------- ----- ----------
AFS Software Subtotal $ 20,000.00
------------
Third Party Software ( ) Yes (X) No
Equipment & Associated Software (X) Yes, see exhibit 3 ( ) No $ 137,127.00
------------
Other ( ) Yes (X) No
*Training (X) Yes, see section 3.3 ( ) No
*Implementation/Testing (X) Yes, see section 3.4 ( ) No
Remittance Set-Up Services: includes Single Application Set-Up,4
Extract, Standard Reports, Testing, On-Site Installation $7,500.00
- ------------------------------------------------------------------- -----------
On-Site Operations Training - 1 Weeks $7,500.00
- ------------------------------------------------------------------- -----------
Remittance System Project Management Services $10,000.00
- ------------------------------------------------------------------- -----------
AFS Staging Services (Qty 5) $2,500.00
- ------------------------------------------------------------------- -----------
ImageVision Beginning System Administrator: 3 days required,
1/2 day optional $3,200.00
- ------------------------------------------------------------------- -----------
ImageVision Operator Training (per day) $2,000.00
- ------------------------------------------------------------------- -----------
Services Subtotal $32,700.00
------------
Contract Subtotal $189,827.00
------------
Discount $(52,726.00)
------------
*Contract Total $137,101.00
------------
*This contract price does not include travel & living expenses, transportation and any applicable taxes. These expenses
will be billed at actual cost unless otherwise agreed.
**Shipping: All risk of loss passes to CUSTOMER when goods are FOB at point of shipping. AFS shall advance all shipping
and associated costs and CUSTOMER agrees to reimburse AFS for same. If CUSTOMER desires insurance coverage on the goods
while in transit, it must notify AFS in writing of the amount of coverage required and agree to reimburse AFS for the costs
or make arrangements directly with the carrier.
***In order to minimize costs, AFS often books non-refundable reservations. CUSTOMER agrees to pay for the cost of any
reservations lost or any rescheduling fees incurred due to a delay that is the result of CUSTOMER'S request or fault.
ATTACHMENT 3 TO SCHEDULE A
CHICAGO LOCATION
Item Name Total Cost
- ---------------------------------------------------------------------------------------------------------------------
Support (X) Yes, see section 4 ( ) No
iBox (1-499 boxes) additional site license $2,700.00
- ------------------------------------------------------------------- ----------
ImageVision/Remittance - Additional Page Scanner All Types <100DPM $900.00
- ------------------------------------------------------------------- ----------
Annual Support Total $ 3,600.00
------------
Exhibit 3 - Chicago
Description Qty Price
- ------------------------------------------------------------------------------------------------------------------
PC's and Servers
- --------------------------------------------------------------------------------
Workstation, Dell Optiplex GX-260 (Mini Tower), Pentium 4 2.4GHz Processor,
256MB RAM, 40GB Hard Drive, Windows 2000 Professional, 17 inch Monitor, Headset 3 Customer Furnished
Image Capture Unit/VSU, Dell Optiplex GX-260 (Desktop), Pentium 256MB RAM,
2 x 40GB Hard Drive, Windows 2000 Professional, 17 inch Monitor, Rack w/ 8-Port
Power Strip, 4-Port KVM Switchbox and cables 1 Customer Furnished
Additional Components
- --------------------------------------------------------------------------------
PC Anywhere Remote License version 10.5 - need 1 license per PC / server 6 Customer Furnished
Catalyst 2950 24-Port 10/100 Switch 1 Customer Furnished
Storage
- --------------------------------------------------------------------------------
Storage and back-up solution provided by customer
AFS Support Services
- --------------------------------------------------------------------------------
Support services: Zetafax single line - 5 user fax software, (1) 56K external
modem, Norton Ghost back-up software (25 user), 80 GB Snap Server 1 $1,692
Scanners
- --------------------------------------------------------------------------------
Check
- -----
Unisys Scanner: Unisys SourceNDP, MICR E13B, front & rear image, 2 output
pockets, power supply, PCMCIA card, API software, rear ink jet endorse, CCITT/
JPEG dual image, 3COM adapter card 2 $8,088
Remittance Check and Coupon scanners
- ------------------------------------
Unisys Scanner: Unisys SourceNDP, MICR E13B, front & rear image, 2 output
pockets, power supply, PCMCIA card, API software, rear ink jet endorse, CCITT/
JPEG dual image, OCR Reader, 3COM adapter card 1 $4,306
Remittance Document scanners
- ----------------------------
Bell & Howell 2020 duplex flatbed scanner: 76PPM, up to 400dpi, Kofax
adrenaline video accel board, Kofax SCSI cable 1 $11,036
Unisys NDP 300
- --------------------------------------------------------------------------------
NDP300-SSA addt'l 12 pocket stacker 1 $6,595
NDP300-IQM Image Quality Monitor software 1 $995
NDP300-JPE 100DPI JPEG compression 2 $13,990
NDP300-PC3 Separate Track PC 1 $2,815
NDP300-IR Image Remittance Package, Includes: NDP300-B Console, NDP300-NPO No
Printer Option, NDP300-2FB Secondary Feeder, NDP300-RMN Rear MJE Endorser with
No Stamp, NDP300-EME E13B MICR Encoder, NDP300-SSE 12 Pockets Stacker;
NDP300-C20 Front Rear Camera, (2) NDP300-CCI CCITT Compression, NDP300-IML
Image Module with Cabinet, NDP300-FDA E13B & Dual Line OCR Reader, NDP17-MC1
17" monitor, NDP300-ICS ICS System Software, NDP300-SCH Standard Capacity
Feeder, NDP300-TCP TCP PCBA, NDP300-TNT Common API Software, NDP600-VHT
Medium Speed Video, NDP9999-IC5 Image Capture Workstation, NDP9999-INT Image
PC Interface, NDP9999-CP2 Windows 2000 Doc SW, NDP9999-TP2 Windows 2000 Doc
SW 1 $87,610
------------------
Exhibit 3 - Chicago Total $137,127
Plus applicable freight, taxes and transport installation.
Note: AFS provides support for AFS software products only. Third party support
costs are estimates only. Actual support costs will be determined by the third
party provider(s) based on CUSTOMER's location and the coverage desired.
ATTACHMENT 4 TO SCHEDULE A
PEORIA LOCATION
ImageVisionTM
Item Name Total Cost
- ------------------------------------------------------------------------------------------------------------------
AFS Software (includes any manuals, specifications and documentation) ( ) Yes (X) No
Third Party Software ( ) Yes (X) No
Equipment & Associated Software (X) Yes, see exhibit 4 ( ) No $ 190,288.00
--------------
Other ( ) Yes (X) No
*Training (X)Yes, see section 3.3 ( ) No
*Implementation/Testing (X) Yes, see section 3.4 ( ) No
ImageVision Beginning System Administrator: 3 days required,
1/2 day optional $ 3,200.00
- ------------------------------------------------------------- ------------
ImageVision Operator Training (per day) $ 2,000.00
- ------------------------------------------------------------- ------------
AFS Staging Services (5) $ 2,500.00
- ------------------------------------------------------------- ------------
Services Subtotal $ 7,700.00
------------
Contract Subtotal $ 197,988.00
--------------
Discount $ (82,730.00)
--------------
*Contract Total $ 115,258.00
--------------
*This contract price does not include travel & living expenses, transportation and any applicable taxes. These
expenses will be billed at actual cost unless otherwise agreed.
**Shipping: All risk of loss passes to CUSTOMER when goods are FOB at point of shipping. AFS shall advance all
shipping and associated costs and CUSTOMER agrees to reimburse AFS for same. If CUSTOMER desires insurance
coverage on the goods while in transit, it must notify AFS in writing of the amount of coverage required and agree
to reimburse AFS for the costs or make arrangements directly with the carrier.
***In order to minimize costs, AFS often books non-refundable reservations. CUSTOMER agrees to pay for the cost
of any reservations lost or any rescheduling fees incurred due to a delay that is the result of CUSTOMER'S request
or fault.
Support ( ) Yes, see section 4 (X) No
Exhibit 4 - Peoria
Description Qty Price
==================================================================================================================
PC's and Servers
- --------------------------------------------------------------------------------
Sorter Controller, Dell Optiplex GX-260 (Desktop), Pentium 4 2.4GHz Processor,
256MB RAM, 40GB Hard Drive, Windows 2000 Professional, 17 inch Monitor 1 Customer Furnished
Speedfirst Interface Hardware kit, 2 X 10/100 Network Cards, 2 X 25 foot
Crossover Cable 1 $158
Workstation, Dell Optiplex GX-260 (Mini Tower), Pentium 4 2.4GHz Processor,
256MBRAM, 40GB Hard Drive, Windows 2000 Professional, 17 inch Monitor, Headset 3 Customer Furnished
Image Capture Unit/VSU, Dell Optiplex GX-260 (Desktop), Pentium 4 2.4GHz
Processor, 256MB RAM, 2 x 40GB Hard Drive, Windows 2000 Professional, 17 inch
Monitor, Rack w/ 8-Port Power Strip, 4-Port KVM Switchbox and cables 1 Customer Furnished
Storage
- --------------------------------------------------------------------------------
Storage and back-up solution provided by customer
Additional Components
- --------------------------------------------------------------------------------
PC Anywhere Remote License version 10.5 - need 1 license per PC / server 6 Customer Furnished
Catalyst 2950 24-Port 10/100 Switch 1 Customer Furnished
AFS Support Services
- --------------------------------------------------------------------------------
Support services: Zetafax single line - 5 user fax software, (1) 56K external
modem, Norton Ghost back-up software (25 user), 80 GB Snap Server 1 $1,692
Scanners
- --------------------------------------------------------------------------------
Check
- -----
Unisys Scanner: Unisys SourceNDP, MICR E13B, front & rear image, 2 output
pockets, power supply, PCMCIA card, API software, rear ink jet endorse, CCITT/
JPEG dual image, 3COM adapter card 2 $8,088
E-Series Transport 800 DPM
- --------------------------------------------------------------------------------
Dual image w/IQA - mixed bitonal/grayscale 1 $91,010
700 DPM encoder - E13B 1 $81,460
Speedfirst - Windows NT Field Upgrade 1 $7,880
------------------
Exhibit 4 - Peoria Total $190,288
Plus applicable freight, taxes and transport installation.
Note: AFS provides support for AFS software products only. Third party support costs are estimates only.
Actual support costs will be determined by the third party provider(s) based on CUSTOMER's location and the
coverage desired.
ATTACHMENT 5 TO SCHEDULE A
VALLEJO LOCATION
ImageVisionTM
Item Name Total Cost
- ------------------------------------------------------------------------------------------------------------------
AFS Software (includes any manuals, specifications and documentation) (X) Yes ( ) No
Third Party Software ( ) Yes (X) No
Equipment & Associated Software (X) Yes, see exhibit 5 ( ) No $191,759.00
-------------
Other ( ) Yes (X) No
*Training (X) Yes, see section 3.3 ( ) No
*Implementation/Testing (X) Yes, see section 3.4 ( ) No
ImageVision Beginning System Administrator: 3 days required,
1/2 day optional $ 3,200.00
- ------------------------------------------------------------ ------------
ImageVision Operator Training (per day) $ 2,000.00
- ------------------------------------------------------------ ------------
AFS Staging Services (Qty 5) $ 2,500.00
- ------------------------------------------------------------ ------------
Services Subtotal $ 7,700.00
--------------
Contract Subtotal $ 199,459.00
--------------
Discount $ (83,097.00)
--------------
*Contract Total $ 116,362.00
--------------
*This contract price does not include travel & living expenses, transportation and any applicable taxes.
These expenses will be billed at actual cost unless otherwise agreed.
**Shipping: All risk of loss passes to CUSTOMER when goods are FOB at point of shipping. AFS shall advance
all shipping and associated costs and CUSTOMER agrees to reimburse AFS for same. If CUSTOMER desires
insurance coverage on the goods while in transit, it must notify AFS in writing of the amount of coverage
required and agree to reimburse AFS for the costs or make arrangements directly with the carrier.
***In order to minimize costs, AFS often books non-refundable reservations. CUSTOMER agrees to pay for
the cost of any reservations lost or any rescheduling fees incurred due to a delay that is the result of
CUSTOMER'S request or fault.
Support ( ) Yes, see section 4 (X) No
Exhibit 5 - Vallejo
Description Qty Price
==================================================================================================================
PC's and Servers
- --------------------------------------------------------------------------------
Sorter Controller, Dell Optiplex GX-260 (Desktop), Pentium 4 2.4GHz Processor,
256MB RAM, 40GB Hard Drive, Windows 2000 Professional, 17 inch Monitor 1 Customer furnished
Speedfirst Interface Hardware kit, 2 X 10/100 Network Cards, 2 X 25 foot
Crossover Cable 1 $158
Workstation, Dell Optiplex GX-260 (Mini Tower), Pentium 4 2.4GHz Processor,
256MB RAM, 40GB Hard Drive, Windows 2000 Professional, 17 inch Monitor, Headset 3 Customer furnished
Image Capture Unit/VSU, Dell OptiplexGX-260 (Desktop), Pentium 4 2.4GHz
Processor, 256MB RAM, 40GB Hard Drive, Windows 2000 Professional, 17 inch
Monitor, Rack w/ 8-Port Power Strip, 4-Port KVM Switchbox and cables 1 Customer furnished
Storage
- --------------------------------------------------------------------------------
Storage and back-up solution provided by customer
Additional Components
- --------------------------------------------------------------------------------
PC Anywhere Remote License version 10.5 - need 1 license per PC / server 6 $654
Catalyst 2950 24-Port 10/100 Switch 1 $817
AFS Support Services
- --------------------------------------------------------------------------------
Support services: Zetafax single line - 5 user fax software, (1) 56K external
modem, Norton Ghost back-up software (25 user), 80 GB Snap Server 1 $1,692
Scanners
- --------------------------------------------------------------------------------
Check
- -----
Unisys Scanner: Unisys SourceNDP, MICR E13B, front & rear image, 2 output
pockets, power supply, PCMCIA card, API software, rear ink jet endorse,
CCITT/JPEG dual image, 3COM adapter card 2 $8,088
E-Series Transport 800 DPM
- --------------------------------------------------------------------------------
Dual image w/IQA - mixed bitonal/grayscale 1 $91,010
700 DPM encoder - E13B 1 $81,460
Speedfirst - Windows NT Field Upgrade 1 $7,880
------------------
Exhibit 5 - Vallejo Total $191,759
Plus applicable freight, taxes and transport installation.
Note: AFS provides support for AFS software products only. Third party support costs are estimates only. Actual
support costs will be determined by the third party provider(s) based on CUSTOMER's location and the coverage
desired.
ATTACHMENT 6 TO SCHEDULE A
HOUSTON LOCATION
ImageVisionTM
Item Name Total Cost
- ------------------------------------------------------------------------------------------------------------------
AFS Software (includes any manuals, specifications and documentation) (X) Yes ( ) No
QTY
iBox (1-499 boxes) additional site license 1 $ 15,000.00
- ------------------------------------------------------------------ ----- ------------
ImageVision/Remittance - Additional Page Scanner All Types
<100DPM 1 $ 5,000.00
- ------------------------------------------------------------------ ----- ------------
AFS Software Subtotal $ 20,000.00
-------------
Third Party Software ( ) Yes (X) No
Equipment & Associated Software (X)Yes, see exhibit 6 ( ) No $ 205,630.00
-------------
Other ( ) Yes (X) No
*Training (X) Yes, see section 3.3 ( ) No
*Implementation/Testing (X) Yes, see section 3.4 ( ) No
Remittance Set-Up Services: includes Single Application Set-Up, 4
Extract, Standard Reports, Testing, On-Site Installation $ 7,500.00
- -------------------------------------------------------------------- ------------
On-Site Operations Training - 1 Week $ 7,500.00
- -------------------------------------------------------------------- ------------
Remittance System Project Management Services $ 10,000.00
- -------------------------------------------------------------------- ------------
ImageVision Beginning System Administrator: 3 days required,
1/2 day optional $ 3,200.00
- -------------------------------------------------------------------- ------------
ImageVision Operator Training (per day) $ 2,000.00
- -------------------------------------------------------------------- ------------
AFS Staging Services (Qty 7) $ 3,500.00
- -------------------------------------------------------------------- ------------
Services Subtotal $ 33,700.00
-------------
Contract Subtotal $ 259,330.00
-------------
Discount $ (102,665.00)
-------------
*Contract Total $ 156,665.00
-------------
*This contract price does not include travel & living expenses, transportation and any applicable taxes. These
expenses will be billed at actual cost unless otherwise agreed.
**Shipping: All risk of loss passes to CUSTOMER when goods are FOB at point of shipping. AFS shall advance all
shipping and associated costs and CUSTOMER agrees to reimburse AFS for same. If CUSTOMER desires insurance
coverage on the goods while in transit, it must notify AFS in writing of the amount of coverage required and
agree to reimburse AFS for the costs or make arrangements directly with the carrier.
***In order to minimize costs, AFS often books non-refundable reservations. CUSTOMER agrees to pay for the cost
of any reservations lost or any rescheduling fees incurred due to a delay that is the result of CUSTOMER'S
request or fault.
ATTACHMENT 6 TO SCHEDULE A
HOUSTON LOCATION
Item Name Total Cost
- ------------------------------------------------------------------------------------------------------------------
Support (X) Yes, see section 4 ( ) No
iBox (1-499 boxes) additional site license $ 2,700.00
- -------------------------------------------------------------- ------------
ImageVision/Remittance - Additional Page Scanner All Types
<100DPM $ 900.00
- -------------------------------------------------------------- ------------
Annual Support Total $ 3,600.00
-------------
Exhibit 6 Houston
Description Qty Price
==================================================================================================================
PC's and Servers
- --------------------------------------------------------------------------------
Sorter Controller, Dell Optiplex GX-260 (Desktop), Pentium 4 2.4GHz Processor,
256MB RAM, 40GB Hard Drive, Windows 2000 Professional, 17 inch Monitor 1 Customer Furnished
Speedfirst Interface Hardware kit, 2 X 10/100 Network Cards, 2 X 25 foot
Crossover Cable 1 $158
Workstation, Dell Optiplex GX-260 (Mini Tower), Pentium 4 2.4GHz Processor,
256MB RAM, 40GB Hard Drive, Windows 2000 Professional, 17 inch Monitor, Headset 3 Customer Furnished
Vision Storage Unit, Dell Poweredge 2600 Server (Rack), Dual Xeon 2.4GHz
Processors, 2GB RAM, 2X18GB Hard Drives Mirrored, Windows 2000 Server 1 Customer Furnished
Image Capture Unit, Dell Optiplex GX-260 (Desktop), Pentium 4 2.4GHz Processor,
256MB RAM, 40GB Hard Drive, Windows 2000 Professional, 17 inch Monitor, Rack w/
8-Port Power Strip, 4-Port KVM Switchbox and cables 1 Customer Furnished
Network Print Server - 1 to 3 Printers, Dell Optiplex GX-260 (Mini Tower),
Pentium 4 2.4GHz Processor, 512MB RAM, 40GB Hard Drive, Windows 2000
Professional, 17 inch Monitor, 18GB Cache Drive, SCSI Card & Cable 1 Customer Furnished
Storage
- --------------------------------------------------------------------------------
Storage and back-up solution provided by customer
Additional Components
- --------------------------------------------------------------------------------
PC Anywhere Remote License version 10.5 - need 1 license per PC / server 7 Customer Furnished
Catalyst 2950 24-Port 10/100 Switch 1 Customer Furnished
AFS Support Services
- --------------------------------------------------------------------------------
Support services: Zetafax single line - 5 user fax software, (1) 56K external
modem, NortonGhost back-up software (25 user), 80 GB Snap Server 1 $1,692
Scanners
- --------------------------------------------------------------------------------
Check
Unisys Scanner: Unisys SourceNDP, MICR E13B, front & rear image, 2 output
pockets, power supply, PCMCIA card, API software, rear ink jet endorse, CCITT/
JPEG dual image, 3COM adapter card 2 $8,088
Remittance Check and Coupon scanners
Unisys Scanner: Unisys SourceNDP, MICR E13B, front & rear image, 2 output
pockets, power supply, PCMCIA card, API software, rear ink jet endorse, CCITT/
JPEG dual image, OCR Reader, 3COM adapter card 1 $4,306
Remittance Document scanners
Bell & Howell 2020 duplex flatbed scanner: 76PPM, up to 400dpi, Kofax adrenaline
videoaccel board, Kofax SCSI cable 1 $11,036
E-Series Transport 800 DPM
- --------------------------------------------------------------------------------
Dual image w/IQA - mixed bitonal/grayscale 1 $91,010
700 DPM encoder - E13B 1 $81,460
Speedfirst - Windows NT Field Upgrade 1 $7,880
-----------------
Exhibit 6 - Houston Total $205,630
Plus applicable freight, taxes and transport installation.
Note: AFS provides support for AFS software products only. Third party support costs are estimates only.
Actua support costs will be determined by the third party provider(s) based on CUSTOMER's location and
the coverage desired.
Exhibit A - Volume Pricing
Average Additional Cost Additional Cost
ImageVision Monthly Volume License Monthly maintenance
- --------------------------------------------------------------------------------------------------------------------------------
ImageVision 1, 2 and 3 - Enterprise Volume License- Base 10 million $520,000 $7,800
12 million $100,000 $1,500
15 million $100,000 $1,500
20 million $100,000 $1,500
25 million $100,000 $1,500
30 million $100,000 $1,500
Each Add'l 5 million $100,000 $1,500
ImageVision DREAM - Enterprise Volume License- Base 10 million $75,000 $1,125
12 million $10,000 $150
15 million $10,000 $150
20 million $10,000 $150
25 million $10,000 $150
30 million $10,000 $150
Each Add'l 5 million $10,000 $150
Exhibit B
Escalation Procedures
The following Escalation Procedures shall be followed with respect to all
problems reported by the CUSTOMER.
The Codes listed below will help AFS identify a "problem" situation at
CUSTOMER's site and will allow CUSTOMER to communicate the needs of CUSTOMER's
Institution and the role AFS will play in assisting CUSTOMER in recovering from
a "problem" situation. These Procedures apply to both Hardware (regardless of
vendor) and Software problems.
CUSTOMER will assign each problem a Color Code when reporting the problem to AFS
according to the nature of the problem as determined by CUSTOMER.
o Code Red - Critical Problem - Production is halted, no workaround is
available.
o Code Yellow - Major Problem - Production is substantially hindered, site has a
mutually agreed upon workaround.
o Code Green - Minor Problem - Problem discovered causing delays in
deliverables.
Escalation Procedures for each type of problem are as follows:
------------------------- -------------------------- ---------------------------- ------------------------
Problem Type Initial Escalation Secondary Escalation Tertiary Escalation
------------------------- -------------------------- ---------------------------- ------------------------
Code Red Escalated to Director Problem unresolved in Problem unresolved
of Support or Call 60 minutes, escalated after 2 hours,
Center Supervisor Director of Support escalated to Vice
and to Director of President of
Systems Integrations. Operations. Hourly
meetings after
escalation.
------------------------- -------------------------- ---------------------------- ------------------------
Code Yellow Escalated to Director Problem unresolved Problem unresolved
of Support or Call after 5 hours, escalated after 8 hours,
Center Supervisor if to Director of Support escalated to VPO.
unresolved after 3 and Director of Meetings every 4
hours. Systems Integrations. hours after
escalation.
Resolution initially
expected within 24
hours.
------------------------- -------------------------- ---------------------------- ------------------------
Code Green Escalated to Director Problem unresolved Director of Support,
of Support or Call after 3 business days, Director of Systems
Center Supervisor if escalated to Director of Integrations and
unresolved after 24 Support and Director of VPO to review
hours. Systems Integrations. Master Issues List.
Issue added to Master Resolution initially
Issues List to be expected within 5
reviewed twice weekly. business days.
------------------------- -------------------------- ---------------------------- ------------------------
AFS After-Hours Pager Support
Escalation Procedures
o Upon receipt of the page from the AFS Answering Service, the Customer
Support Representative will call the Answering Service and confirm that
they received the page
o If the Service does not receive a confirmation phone call from the Support
Representative within 15 minutes, the Service will page the primary and
secondary pager and call the Primary CSR's cell phone
o If the Service does not receive a confirmation phone call from the CSR
within 5 minutes, they will call the Primary and Secondary cell phones
again
o If the Service does not reach either CSR by cell phone and does not receive
a confirmation phone call within 5 minutes, they will contact the Call
Center Manager
o In the event the Call Center Manager does not reply, the Service will
contact the Director of Support Services. In the event the Director of
Support Services is unavailable, the Service will contact the Chief
Operating Officer
Exhibit 10.2
MANAGEMENT SERVICES AGREEMENT
This Management Services Agreement (the Agreement) is made this 28th
day of February 2004, by and between First Bank, a Missouri banking corporation
(the "Bank") and First Banks, Inc., a Missouri corporation ("First Banks").
WHEREAS First Banks is a bank holding company that provides certain
services to its subsidiary financial institution on a centralized basis and is
willing to provide such services to the Bank, and
WHEREAS the Bank is currently operating as a commercial and retail bank
incorporated in the State of Missouri, and desires to avail itself of such
centralized services in connection with its operations,
NOW THEREFORE, First Banks and the Bank agree as follows:
SERVICES TO BE PERFORMED:
- ------------------------
First Banks shall undertake to perform certain services for the benefit
of the Bank, and any affiliates thereof, including, but not limited to those
enumerated below. These services may be provided by employees of First Banks,
any subsidiary of First Banks, or external sources retained by First Banks on
behalf of the Bank and/or its affiliates. First Banks will prepare a monthly
statement to the Bank indicating the nature of the services performed and the
fees charged for such services.
The services to be performed may be categorized as follows:
Type A Services - Type A services performed by employees of First Banks
---------------
will be billed to the Bank on the basis of actual hours required to perform the
services using standard hourly rates established for each type of service. The
hourly rates in effect as of the date of this Agreement are listed in Exhibit A.
These rates will be reviewed periodically and adjusted as necessary to reflect
First Banks' current costs in delivering the services, but may only be adjusted
once during any calendar year. The Bank will be provided at least ninety (90)
days notice prior to any change in the hourly rates to be used. The Bank may
terminate this Agreement at any time if any rate increase is deemed excessive by
the Bank's Board of Directors.
Type B Services - Type B services performed by employees of First Banks
---------------
will be billed to the Bank on a pro-rata basis of First Banks' total costs -
(e.g., Human Resources services will be billed on a pro-rata basis by allocating
such costs based upon employee headcount). Similar to the Type A costs, the Bank
may terminate the Agreement at any time if the costs for these services are
deemed excessive by the Bank's Board of Directors.
Services provided by external sources will be charged to the Bank at
First Banks' cost. Services which benefit more than one subsidiary will be
allocated between them using the basis deemed most appropriate for the
particular service and the charge for that service.
Included in the services to be provided will be the following:
Type A Services
- ---------------
1. Corporate audit:
a. Internal auditing
b. Assisting external auditors / regulators
c. Compliance and Community Reinvestment Act assistance
d. Assisting in examinations and replies to examination reports
e. Other audit activities
Type B Services
- ---------------
1. Accounting (for the Bank):
a. Regulatory examinations and compliance
b. Income tax returns and tax audits
c. Estimated tax payments and tax accruals
d. State and local taxes
e. Fixed asset records and accounting
f. General accounting assistance
g. Regulatory reporting
h. SEC reporting and compliance
i. Systems and procedures
j. Other accounting activities
2. Asset / Liability management
3. Investments
4. Planning and budgeting
5. Branch administration:
a. Marketing and business development
b. Branch operations
c. Customer service and training
d. Product development
e. Other branch administration activities
6. Purchasing and accounts payable
7. Preparation for and participation in meetings
8. Human resources:
a. Human resources administration
b. Records and compliance
c. Employee recruiting and training
d. Payroll administration and benefits
e. Other human resources activities
9. Lending:
a. Loan administration and support
b. Loan and business development
c. Loan servicing - See the separate Loan Servicing Addendum in
Exhibit B
d. Loan collection and workout
e. Other lending activities
10. Corporate loan review:
a. Internal loan review
b. Assisting external auditors / regulators
c. Assisting in examinations and replies to examination reports
d. Other internal loan review activities
In addition, First Banks will contract for certain services to be
provided to the Bank and its affiliates, which may be charged through management
fees, or through separate direct charges to the Bank. These will include
advertising and promotional expenses, property and liability insurance, certain
external legal, audit and tax assistance, and employee benefit programs.
Generally, charges for insurance and employee benefits will be made through
separate statements outside the management fee structure. Charges for other
items will usually be included in management fee statements.
Travel expenses associated with performance of management services will
be charged to the Bank based on the expense reports received from the employees.
Travel time, or other non-productive time, will not be charged to the Bank.
Activities not includable in management fees:
- --------------------------------------------
Included in First Banks' expenses are various activities which are not
to be included in the base for calculating management fees. Among these are the
following:
1. Accounting
a. Parent company accounting, including:
(1) General ledger
(2) Accounts payable and bill paying
(3) Consolidations and financial reporting
(4) Regulatory reports and examinations
(5) SEC accounting and reporting
b. Accounting, taxes and other services performed for entities not
paying management fees, such as second tier holding companies,
inactive corporations and other affiliates.
2. Mergers and acquisitions:
a. Negotiations and contracts
b. Regulatory matters and applications
c. Due diligence and analysis
d. Operations and consolidations
e. Human resources and other activities
3. Financing
a. Working with current or prospective lenders
b. Loan agreements and contracts
c. Due diligence and rating agencies
Expenses not includable in management fees:
- ------------------------------------------
Included in First Banks' expenses are various items that are not to be
included in the base for calculating management fees. Among these are the
following:
1. Interest expense - (including the dividends on trust preferred
securities)
2. Amortization of deferred intercompany gains and losses
3. Land leases for possible future bank sites
4. Legal, accounting and advertising expenses in excess of amounts charged
to the Bank and other subsidiaries on a specific basis.
5. Political and Charitable Contributions
6. Amortization of purchase adjustments and excess cost
7. Provision for income taxes
First Banks may identify other accounts or specific expense items that
are deemed inappropriate to include in the base for management fees. These
expenses may be excluded at the discretion of First Banks as identified.
BILLING OF FEES:
- ---------------
First Banks shall prepare and submit to the Bank a monthly bill for
services rendered in sufficient detail to provide the Bank a basis for
evaluating the cost / benefit of items charged. It shall be the responsibility
of First Banks to maintain time reports, worksheets and summaries supporting the
amounts billed. These will be furnished to the Bank, examiners or auditors upon
request.
Amounts billed will be payable to First Banks by a direct charge to the
Bank. Management fee statements will be provided to the Bank prior to payment.
GENERAL:
- -------
The Bank shall make available to First Banks all records, facilities
and personnel necessary to enable First Banks to perform the services required.
First Banks shall furnish the necessary forms and instructions to the Bank's
personnel. The Bank shall furnish all data, documents or input material as
required, which material shall be returned to the Bank when the services are
completed.
First Banks shall give the same care to the Bank's work as it gives to
its own work. However, First Banks does not warrant the work free of error, and
shall be liable only for First Banks' own gross negligence of willful
misconduct.
The services performed under this Agreement by First Banks will be
subject to the regulations and examination of the Federal or state agencies
having supervisory jurisdiction over the Bank and its affiliates and First Banks
to the same extent as if such services were being performed solely by the Bank
on its own premises. The provisions of this Agreement are subject to
modification, regulation or ruling of any governmental agency having
jurisdiction over the Bank or its affiliates or First Banks. Otherwise this
Agreement shall be modifiable only upon written Agreement of the parties
thereto.
First Banks will hold in confidence all information relating to the
Bank's assets, liabilities, business or affairs, or those of any of its
customers, which is received by First Banks in the course of rendering the
services hereunder. It will make the same effort to safeguard such information
as it does to protect its own proprietary data.
The term of the Agreement is for one year, but it shall be
automatically renewable for additional periods of one year each unless the Bank
shall give ninety (90) days written notice of termination prior to the end of
any term.
This Agreement shall be binding upon the parties and their successors
or assigns, and may only be amended by a writing executed by both parties.
IN WITNESS WHEREOF, the parties hereto have, by their duly authorized
officers executed this Agreement this 28th day of February 2004.
FIRST BANK FIRST BANKS, INC.
By:/s/ Terrance M. McCarthy By:/s/ Allen H. Blake
---------------------------- -------------------------------
Terrance M. McCarthy Allen H. Blake
President and President and
Chief Executive Officer Chief Executive Officer
Exhibit A
FIRST BANKS, INC.
MANAGEMENT FEE BILLING RATES - TYPE A SERVICES
FEBRUARY 28, 2004
Services Provided Rate Per Hour
----------------- -------------
Internal Audit:
Internal Audit $ 75.00
Assisting External Auditors 75.00
Compliance and CRA 75.00
Examinations / Reports 75.00
Other 75.00
Exhibit B
================================================================================
LOAN SERVICING ADDENDUM
================================================================================
This Loan Servicing Addendum is by and among First Banks, Inc., 135 North
Meramec Avenue, St. Louis, Missouri ("First Banks") and First Bank, 11901 Olive
Boulevard, Creve Coeur, Missouri (the "Bank") and is a part of the Management
Services Agreement.
SECTION 1. DEFINITIONS
- --------- -----------
For purposes hereof, the following terms shall have the following meanings:
Agreement shall mean this Loan Servicing Addendum as from time
---------
to time amended.
Business Day shall mean any day except a Saturday, Sunday or legal
-------------
holiday observed by the Bank.
Collateral shall mean any and all collateral and other security
----------
for the loans.
Loans shall mean the loans owned by the Bank.
-----
Loan Documents shall mean any and all documents evidencing any Loan
--------------
or any Collateral, including without limitation a
note, security agreement, application form,
disclosure and settlement statements, vehicle title
certificate and insurance certificate and policy.
Loan Obligor shall mean the debtor(s) under any loan.
------------
Person shall mean any individual, partnership, corporation,
------
banking association, trust, unincorporated
organization or association, and any government or
agency or political subdivision thereof.
SECTION 2. PURCHASE AND SERVICING LOANS
- --------- ----------------------------
2.01. First Banks will provide the following loan services for the
Bank:
(a) Record payments,
(b) Establish and maintain collateral files,
(c) Establish and maintain credit files,
(d) Forward duplicate credit files to the Bank,
(e) Board the loans to the computer system for the Bank,
(f) Provide follow-up on lien perfections,
(g) Provide customer service to Loan Obligor,
(h) Provide necessary loan administration reports, and
(i) Provide other services as mutually agreed to by First Banks and
and the Bank.
SECTION 3. INTERESTS OF FIRST BANKS AND THE BANK IN LOAN DOCUMENTS
- --------- -------------------------------------------------------
3.01 Legal and Equitable Title. The Bank shall hold legal title
-------------------------
title to the Loans.
3.02 Custody of Loan Documents First Banks shall hold the Loan
-------------------------
Documents as custodian for the benefit of the Bank. The Bank or its
representatives, including without limitation examiners and supervisory agents,
shall have the right (subject to limitations imposed under applicable law) at
any reasonable time during normal business hours to request and have access to
and examine the Loan Documents and any and all other books, record, documents
and information relating to any Loan, Loan Obligor or to any of the matters
covered by this Agreement and to receive copies thereof from the Bank on demand
therefore.
3.03 No Partnership First Banks and the Bank are not partners or
--------------
joint venturers, but in performing its duties hereunder First Banks is serving
as agent for the Bank.
SECTION 4. ADMINISTRATION AND SERVICING OF THE LOANS
- --------- -----------------------------------------
4.01 In General In undertaking responsibility for performance of
----------
the services specified in this Agreement, First Banks shall exercise the same
degree of care that is customary in the industry. First Banks shall be
responsible for administering the Loans in all respects consistent with
applicable laws and regulations, and for servicing the same in a manner
consistent with good servicing practice. The provisions of this Section 4.01
shall be subject to the provisions of Section 4.03(vi).
4.02 First Banks' Servicing Fee. First Banks shall receive a
-----------------------------
monthly servicing fee as specified in the Management Services Agreement.
4.03 Administration of Loans. First Banks shall manage and
-----------------------
administer the Loans pursuant to this Agreement, but the Bank agrees that:
(i) First Banks shall in good faith make all determinations as to
compliance with the terms and conditions of the Loan Documents;
(ii) First Banks shall have full power and authority to exercise in
good faith, in the name of and on behalf of the Bank, all rights
and remedies which said parties may have with respect to the
enforcement of the Loan Documents, including without limitation
the rights to demand payment of any Loan and exercise, or refrain
from exercising, any and all other rights and remedies afforded
under the Loan Documents, or which Bank may have as a matter of
law;
(iii) The Bank assumes all risk of loss in connection with the Loans;
(iv) If, from time to time, any of the Loans are endorsed, assumed,
guaranteed, insured, or covered by repurchase obligations, then
it is agreed that First Banks shall, and First Banks is
authorized to, act in good faith for the Bank with respect to
such matters;
(v) Without limiting the generality of the foregoing, First Banks is
authorized to take any and all actions deemed necessary in good
faith or appropriate in connection with any Loans, including
without limitation amending Loan Documents, waiving rights
thereunder, releasing Collateral, collecting special fees or
charges, and agreeing to substitution of personal liability;
(vi) First Banks shall not be liable to the Bank in any manner
whatsoever with respect to any Loan, or for any action or
inaction or failure to act in administering any Loan, except for
First Banks' own gross negligence or willful misconduct.
SECTION 5. REPRESENTATION AND WARRANTIES OF FIRST BANKS
- --------- --------------------------------------------
5.01 Representations and Warranties. First Banks hereby represents
------------------------------
and warrants to the Bank as follows:
(a) The execution, delivery and performance by First Banks of this
Agreement and the other documents contemplated hereby are within
the corporate powers of First Banks and have been duly authorized
by all necessary corporate action of First Banks;
(b) First Banks has in its possession all Loan Documents with respect
to each Loan and all other records required to be maintained with
respect to each Loan under First Banks and the Bank's customary
policies and procedures;
5.02. Exclusion from Representations and Warranties. First Banks
---------------------------------------------
does not make any representations or warranties to the Bank, express or implied,
with respect to the existing or future solvency or financial worth or
responsibilities of any Loan Obligor or the payment or collectibility of any
Loan or the repayment to First Banks or the Bank of any interest or other monies
in connection with First Banks' or the Bank's interest in any Loan, or (except
to the extent specifically set forth to the contrary herein) to the validity,
enforceability or legal effect of the Loan Documents or any documents or
instruments delivered in connection therewith.
SECTION 6. REPRESENTATIONS AND WARRANTIES OF THE BANK
- --------- ------------------------------------------
6.01 The Bank represents and warrants to First Banks as follows:
----------------------------------------------------------
(a) The execution, deliver and performance by the Bank of this
Agreement and the other documents contemplated hereby are
within the corporate powers of the Bank and have been duly
authorized by the appropriate credit committees of the Bank,
the Board of Directors of the Bank, and all other necessary
corporate action of the Bank;
(b) The Bank is acquiring the Loans for its own account; not as
nominee or agent, and not with a view to, or for resale in
connection with, any distribution thereof.
(c) The Bank has made its own diligent analysis with respect to
the Loans and the Bank states that it has relied solely on
its independent investigation in extending credit.
SECTION 7. MISCELLANEOUS PROVISIONS
- --------- ------------------------
7.01 Amendments and Waivers. Any provision of this Agreement may
----------------------
be amended or waived, if, but only if, such amendment or waiver is in writing
and is signed by First Banks and the Bank.
7.02 Notices. Any Notice, request, demand, consent, confirmation
-------
or other communication hereunder shall be in writing and delivered in person or
sent by telegram, telefax, telex or mail, postage prepaid, at the following
addresses, for communications hereunder by notice so given:
First Banks:
FIRST BANKS, INC.
135 North Meramec Avenue
St. Louis, Missouri 63105
Bank:
FIRST BANK
11901 Olive Boulevard
Creve Coeur, Missouri 63141
7.03 References; Headings for Convenience. Unless otherwise
------------------------------------
specified herein, all references herein to Section numbers refer to Section
numbers of this Agreement. The Section headings are furnished for the
convenience of the parties and are not to be considered in the construction or
interpretation of the Agreement.
7.04 Binding Agreement. This Agreement shall be binding upon and
------------------
inure to the benefit of First Banks, the Bank, and their respective successors
and permitted assignees.
7.05 Severability. In case any one or more of the provisions
------------
contained in this Agreement should be invalid, illegal, or unenforceable in any
respect, the validity, legality, and enforceability of the remaining provisions
contained herein shall not in any way be affected or impaired thereby.
7.06 Governing Law. This Agreement shall be governed by and
--------------
construed in accordance with the internal laws of the State of Missouri.
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: May 14, 2004 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 March 31, 2004 (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: May 14, 2004 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)