10-Q 1 p1366010q.txt
=========================================================================================== 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 period ended March 31, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934. For the transition period from to Commission File Number : 0-12499 First Financial Bancorp (Exact name of registrant as specified in its charter) California 94-28222858 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 701 South Ham Lane , Lodi, California 95242 Address of principal executive offices) (Zip Code) (209)-367-2000 (Registrant's telephone number, including area code) NA (Former name, former address and former fiscal year, if changed since last report.) 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. [X] Yes [ ] No As of May 7, 2001 there were 1,526,663 shares of Common Stock, no par value, outstanding. ===========================================================================================
FIRST FINANCIAL BANCORP FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2001 TABLE OF CONTENTS Page PART I Item 1. Consolidated Financial Statements and Notes to Consolidated Financial Statements.............................................. 1 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............................................. 7 Item 3. Quantitative and Qualitative Disclosures about Market Risk........ 12 PART II Item 1. Legal Proceedings................................................. 12 Item 2. Changes in Securities............................................. 12 Item 3. Defaults Upon Senior Securities................................... 12 Item 4. Submission of Matters to a Vote of Security Holders .............. 12 Item 5. Other Information................................................. 12 Item 6. Exhibits and Reports on Form 8-K.................................. 12 i ITEM 1. FINANCIAL STATEMENTS FIRST FINANCIAL BANCORP AND SUBSIDIARIES Consolidated Balance Sheets (Unaudited) (in thousands except share amounts)
Mar. 31, Dec. 31, Assets 2001 2000 ---------------- ---------------- Cash and due from banks $ 11,734 $ 10,909 Federal funds sold and securities purchased under resale agreements 15,437 10,115 Investment securities available for sale, at fair value 30,179 29,560 Loans held for sale 1,692 1,292 Loans, net of deferred loan fees 112,782 113,292 Less allowance for loan losses 2,684 2,499 ---------------- ---------------- Net loans 110,098 110,793 Premises and equipment, net 6,944 7,002 Accrued interest receivable 1,228 1,447 Other assets 15,070 13,946 ---------------- ---------------- Total Assets $ 192,382 $ 185,064 ================ ================ Liabilities and Stockholders' Equity Liabilities: Deposits Noninterest bearing $ 22,810 $ 24,223 Interest bearing 150,608 138,038 ---------------- ---------------- Total deposits 173,418 162,261 Accrued interest payable 319 316 Short term borrowings - 4,588 Other liabilities 1,742 1,445 ----------------- ---------------- Total liabilities 175,479 168,610 Stockholders' equity: Common stock - no par value; authorized 9,000,000 shares, issued and outstanding in 2001 and 2000, 1,526,663 and 1,526,063, respectively 9,344 9,338 Retained earnings 7,086 6,831 Accumulated other comprehensive income 473 285 ---------------- ---------------- Total stockholders' equity 16,903 16,454 ---------------- ---------------- $ 192,382 $ 185,064 ================ ================ See accompanying notes.
1 FIRST FINANCIAL BANCORP AND SUBSIDIARIES Consolidated Statements of Income (Unaudited) (in thousands except per share amounts)
Three Months Ended March 31, 2001 2000 ------ ------ Interest income: Loans, including fees $2,685 $2,564 Investment securities: Taxable 373 453 Exempt from Federal taxes 71 137 Federal funds sold 181 42 ------ ------ Total interest income 3,310 3,196 Interest expense: Deposit accounts 1,103 955 Other borrowings 3 80 ------ ------ Total interest expense 1,106 1,035 Net interest income 2,204 2,161 Provision for loan losses 190 35 ------ ------ Net interest income after provision for loan losses 2,014 2,126 Noninterest income: Gain on sale of other real estate 222 -- Service charges 333 315 Premiums and fees from SBA and mortgage operations 217 190 Miscellaneous 181 157 ------ ------ Total noninterest income 953 662 Noninterest expense: Salaries and employee benefits 1,405 1,118 Occupancy 221 201 Equipment 231 179 Other 808 841 ------ ------ Total noninterest expense 2,665 2,339 ------ ------ Income before provision for income taxes 302 449 Provision for income taxes 47 103 ------ ------ Net income $ 255 $ 346 ====== ====== Net income per share: Basic $ 0.16 $ 0.22 ====== ====== Diluted $ 0.16 $ 0.21 ====== ====== Dividends declared per share $ -- $ 0.05 ====== ====== See accompanying notes.
2 FIRST FINANCIAL BANCORP AND SUBSIDIARIES Consolidated Statements of Stockholders' Equity and Comprehensive Income (Unaudited) (in thousands except share amounts)
Three Months Ended March 31, 2001 Accumulated Common Common Other Stock Stock Comprehensive Retained Comprehensive Description Shares Amounts Income Earnings Income Total ------------------------------------- ------------ ------------ --------------- -------- ---------------- ------------ Balance at December 31, 2000 1,526,063 $ 9,338 6,831 285 16,454 Comprehensive income: Net income $ 255 255 255 --------------- Other comprehensive loss: Unrealized holding gain arising during the current period, net of tax effect of $137 188 --------------- Total other comprehensive income 188 188 188 --------------- Comprehensive income $ 443 =============== Options exercised 600 6 6 ------------ ------------ -------- ---------------- ------------ Balance at March 31, 2001 1,526,663 $ 9,344 7,086 473 16,903 ============ ============ ======== ================ ============ Three Months Ended March 31, 2000 Accumulated Common Common Other Stock Stock Comprehensive Retained Comprehensive Description Shares Amounts Income Earnings Loss Total ------------------------------------- ------------ ------------ --------------- -------- ---------------- ------------ Balance at December 31, 1999 1,433,734 $ 8,433 6,354 (266) 14,521 Comprehensive income: Net income $ 346 346 346 --------------- Other comprehensive loss: Unrealized holding losses on securities available for sale arising during the current period, (111) net of tax benefit of $81 --------------- Total other comprehensive loss (111) (111) (111) --------------- Comprehensive income $ 235 =============== Options exercised 11,300 85 85 Cash dividend (73) (73) ------------ ------------ -------- ---------------- ------------ Balance at March 31, 2000 1,445,034 $ 8,518 6,627 (377) 14,768 ============ ============ ======== ================ ============ See accompanying notes.
3 FIRST FINANCIAL BANCORP AND SUBSIDIARIES Consolidated Statements of Cash Flows (Unaudited) (in thousands) Three Months Ended March 31,
2001 2000 ------------- ------------ Cash flows from operating activities: Net income $ 255 $ 346 Adjustments to reconcile net income to net cash provided by operating activities: Increase in loans held for sale (293) (193) Gain on sale of loans (107) (80) (Decrease) increase in deferred loan income (30) 8 Depreciation and amortization 387 309 Provision for loan losses 190 35 Gain on sale of other real estate owned (222) - Decrease in accrued interest receivable 219 114 Increase (decrease) in accrued interest payable 3 (10) Increase (decrease) in other liabilities 297 (492) Increase in cash surrender value of life insurance (142) (108) (Increase) decrease in other assets (239) 711 ------------- ------------ Net cash provided by operating activities 318 640 Cash flows from investing activities: Proceeds from maturity of available-for-sale securities 7,888 1,733 Proceeds from sale of available-for-sale securities (8,104) (899) Net decrease in loans made to customers 535 1,220 Proceeds from sale of other real estate 627 10 Purchase of cash surrender value life insurance (1,500) (900) Purchases of bank premises and equipment (192) (306) ------------- ------------ Net cash (used in) provided by investing activities (746) 858 Cash flows from financing activities: Net increase in deposits 11,157 4,335 Decrease in other borrowings (4,588) (4,300) Dividends paid - (73) Proceeds from issuance of common stock 6 85 ------------ ------------ Net cash provided by financing activities 6,575 47 Net increase in cash and cash equivalents 6,147 1,545 Cash and cash equivalents at beginning of period 21,024 9,409 ------------ ------------ Cash and cash equivalents at end of period $ 27,171 $ 10,954 ============ ============ Supplemental Discolsures of Cash Flow Information: Cash paid for interest payments $ 1,103 1,045 Cash paid for taxes $ 10 120 See accompanying notes.
4 FIRST FINANCIAL BANCORP AND SUBSIDIARIES Notes to Consolidated Financial Statements March 31, 2001 and December 31, 2000 (Unaudited) (1) Summary of Significant Accounting Policies The accounting and reporting policies of First Financial Bancorp (the Company) and its subsidiaries, Bank of Lodi, N.A., (the Bank) and Western Auxiliary Corporation (WAC) conform with accounting principles generally accepted in the United States of America and prevailing practices within the banking industry. In preparing the consolidated financial statements, Management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenue and expense for the period. Actual results could differ from those estimates applied in the preparation of the consolidated financial statements. There were no new accounting standards adopted during the current period. (2) Weighted Average Shares Outstanding Per share information is based on weighted average number of shares of common stock outstanding during each three-month period after giving retroactive effect for the five percent stock dividend declared for shareholders of record May 8, 2001, payable May 22, 2001. Basic earnings per share (EPS) is computed by dividing net income available to shareholders by the weighted average common shares outstanding during the period. Diluted earnings per share is computed by dividing net income available to shareholders by the weighted average common shares outstanding during the period plus potential common shares outstanding. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company. The following table provides a reconciliation of the numerator and denominator of the basic and diluted earnings per share computation of the three month periods ending March 31, 2001 and 2000:
Income Shares Per-Share Three months ended March 31, 2001 (numerator) (denominator) Amount ----------------------------------------------------------------------------------------- Basic earnings per share $ 255,000 1,602,653 $ .16 Effect of dilutive securities - 33,377 - ------------------------------------ Diluted earnings per share $ 255,000 1,636,030 $ .16 ==================================== Income Shares Per-Share Three months ended March 31, 2000 (numerator) (denominator) Amount ----------------------------------------------------------------------------------------- Basic earnings per share $ 346,000 1,585,043 $ .22 Effect of dilutive securities - 33,852 - ------------------------------------ Diluted earnings per share $ 346,000 1,618,895 $ .21 ====================================
(3) Allowance for Loan Losses Quarter Year Ended Ended (in thousands) 3/31/01 12/31/00 -------- ---------- Balance at beginning of period $ 2,499 2,580 Loans charged off (15) (246) Recoveries 10 30 Provisions charged to operations 190 135 ------- ----- Balance at end of period $ 2,684 2,499 ======= ===== 5 (4) Basis of Presentation First Financial Bancorp is the holding company for Bank of Lodi, N.A. and Western Auxiliary Corporation. In the opinion of management, the accompanying unaudited consolidated financial statements reflect all adjustments (consisting of normal recurring accruals and other accruals as explained above) necessary for a fair presentation of financial position as of the dates indicated and results of operations for the periods shown. All material intercompany accounts and transactions have been eliminated in consolidation. In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts. The results for the three months ended March 31, 2001 are not necessarily indicative of the results which may be expected for the year ended December 31, 2001. The unaudited consolidated financial statements presented herein should be read in conjunction with the consolidated financial statements and notes included in the 2000 Annual Report to Shareholders. 6 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION Cautionary Statement for the Purposes of the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995. The Company is including the following cautionary statement to take advantage of the "Safe Harbor" provisions of the Private Securities Litigation Reform Act of 1995 for any forward-looking statement made by, or on behalf of, the Company. The factors identified in this cautionary statement are important factors (but not necessarily all important factors) that could cause actual results to differ materially from those expressed in any forward-looking statement made by, or on behalf of, the Company. Where any such forward-looking statement includes a statement of the assumptions of bases underlying such forward-looking statement, the Company cautions that, while it believes such assumptions or bases to be reasonable and makes them in good faith, assumed facts or bases almost always vary from actual results, and the differences between assumed facts or bases and actual results can be material, depending on the circumstances. Where, in any forward-looking statement, the Company expresses an expectation or belief as to future results, such expectation or belief is expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the statement of expectation or belief will result, or be achieved or accomplished. Taking into account the foregoing, such risks and uncertainties include, but are not limited to, the following factors: competitive pressure in the banking industry; changes in the interest rate environment; general economic conditions, either nationally or regionally becoming less favorable than expected and resulting in, among other things, a deterioration in credit quality and an increase in the provision for possible loan losses; changes in the regulatory environment; changes in business conditions; volatility of rate sensitive deposits; operational risks, including data processing system failures or fraud; asset/liability matching risks and liquidity risks; and changes in the securities markets. The following discussion addresses information pertaining to the financial condition and results of operations of the Company that may not be otherwise apparent from a review of the consolidated financial statements and related footnotes. It should be read in conjunction with those statements and notes found on pages 1 through 6, as well as other information presented throughout this report. Changes in Financial Condition Consolidated total assets at March 31, 2001 increased $7,318 thousand, or 4.0%, from December 31, 2000. While non-interest bearing deposits decreased by $1,413 thousand, or 5.8%, during the first quarter, interest bearing deposits increased $12,570 thousand, or 9.1%. The decrease in non-interest bearing deposits is consistent with historical trends which reflect a seasonal decline in deposits during the first quarter that is typically associated with the local agricultural industry. The increase in interest bearing deposits is the direct result of a management's desire to increase market share for deposits and to provide liquidity to meet the projected loan growth for 2001. During the first quarter of 2001, the Company experienced an increase of $4,203 thousand, or 9.5%, $1,385 thousand, or 5.2%, and $8,419 thousand, or 16.3%, in NOW accounts, savings accounts and certificates of deposit, respectively, and a decrease of $1,437 thousand, or 9.4%, in money market accounts. The increase in certificates of deposit resulted from the Company offering deposit rates at or slightly above the rates offered in its immediate market area. In addition, the new certificates of deposit are from depositors in the local markets in which the Company operates and does not consist of brokered deposits. Total gross loans decreased by $110 thousand, or 0.1%, from December 31, 2000 to March 31, 2001. The net decrease in gross loans is primarily the result of increases of $1,545 thousand, or 11.5%, $536 thousand, or 3.1%, and $400 thousand, or 31%, in commercial loans, agricultural loans and loans which were held for sale to the secondary market, respectively, combined with a decrease of $2,305 thousand, or 5.2%, in real estate loans. During the first quarter of 2001, the Company opened a Small Business Administration ("SBA") loan production office in Folsom California, moving its operations for SBA loans from its Lodi office to the Folsom area. The allowance for loan losses (the "allowance") is established through a provision for possible loan losses charged to expense. The allowance at March 31, 2001 was in excess of the December 31, 2000 allowance by $185 thousand, or 7.4%, as a result of a provision for $190 thousand combined with net charge offs of $5 thousand. Nonperforming loans decreased by $24 thousand, to $5,631 thousand at March 31, 2001. Management continues to actively work to resolve the nonperforming loans, the majority of which are secured by real estate that, in the opinion of management, are well collateralized. Management believes that the allowance at March 31, 2001 is adequate to absorb known and reasonably estimated loan losses. However, there can be no assurances that future economic events may negatively impact the Bank's borrowers, thereby causing loan losses to exceed the current allowance. 7 The following tables depict activity in the allowance for loan losses and allocation of reserves for and at the three and twelve months ended March 31, 2001 and December 31, 2000, respectively: Analysis of the Allowance for Loan Losses Quarter Year Ended Ended 3/31/01 12/31/00 ------- -------- Balance at beginning of period $2,499 2,580 Charge-offs: Commercial -- (201) Real estate -- -- Consumer (15) (45) ------ ----- Total charge-offs (15) (246) Recoveries: Commercial 2 15 Real estate -- -- Consumer 8 15 ------ ----- Total recoveries 10 30 ------ ----- Net recoveries (charge-offs) (5) (216) Provision charged to operations 190 135 ------ ----- Balance at end of period $2,684 2,499 ====== ===== Allocation of the Allowance for Loan Losses 3/31/01 3/31/01 12/31/00 12/31/00 Loan Category Amount % of Loans Amount % of Loans ------------- --------- ---------- --------- ---------- Commercial and other real estate $ 1,038 86.55% 879 86.46% Real estate construction 552 10.45% 594 10.41% Installment and other -- 3.00% 1 3.13% Unallocated 1,094 N/A 1,025 N/A --------- --------- --------- ---------- $ 2,684 100.00% 2,499 100.00% ========= ========= ========= ========== Investments Investment securities increased by $619 thousand, or 2.1%, from December 31, 2000 to March 31, 2001. The increase is primarily the result of purchases of $8,104 thousand combined with matured bonds and securities contractually called by issuers totaling $7,888 thousand. 8 Equity Consolidated equity increased by $449 thousand from December 31, 2000 to March 31, 2001. Consolidated equity represented 8.79% and 8.89% of consolidated assets at March 31, 2001 and December 31, 2000, respectively. The increase in equity during the first quarter of 2001 resulted from earnings of $255 thousand for the three months ended March 31, 2001 combined with an increase of $188 thousand to reflect the after-tax market value increase of the available-for-sale investment securities portfolio and a $6 thousand increase resulting from the exercise of stock options. The increase in the investment security portfolio's market value reflects the decrease in the level of market interest rates at March 31, 2001 compared to December 31, 2000. The total risk-based capital ratio for the Company's wholly owned subsidiary, Bank of Lodi was 11.27% at March 31, 2001 compared to 11.27% at December 31, 2000. The total risk-based capital ratio did not change during the first quarter of 2001 largely as a result of capital requirements resulting from increases in total risk-weighted assets being offset by increased earnings of the Company. For each dollar in new loans, risk-weighted assets increase by eighty cents. The Bank's leverage capital ratio was 7.99% at March 31, 2001 versus 7.99% at December 31, 2000. The capital ratios are in excess of the regulatory minimums for a well-capitalized bank. Changes in Results of Operations- Three Months ended March 31, 2001 Summary of Earnings Performance -------------------------------------------------------------------------------- For the three months ended March 31: ----------------------------------------- 2001 2000 ---- ---- Net income (in thousands) $ 255 $ 346 -------------------------------------------------------------------------------- Basic net income per share $ .16 $ .22 Diluted net income per share .16 .21 Return on average assets 0.55% 0.79% Return on average equity 6.26% 9.46% Dividend payout ratio -- 20.58% -------------------------------------------------------------------------------- Average quity to average assets 8.74% 8.34% -------------------------------------------------------------------------------- Net income for the quarter decreased $91 thousand, or 26%, compared to the first quarter of 2000. Net interest income increased by 2% as a result of an increase in interest income, which increase resulted from an increase in total average loans combined with an overall increase in the yield on earning assets, offset by an increase in interest expense, which increase resulted from an increase in total average interest bearing deposits combined with an increase in rates paid on those deposits. The provision for loan losses increased $155 thousand, or 443%. Noninterest income increased $291 thousand, or 44%, while noninterest expense increased $326 thousand, or 14%. Based upon the net income for the three months ended March 31, 2001, the Company's Board of Directors declared a 5% stock dividend payable May 22, 2001 to shareholders of record on May 8, 2001. All earnings per share amounts have been adjusted to give retroactive effect for the stock dividend. 9 Net Interest Income The following table provides a detailed analysis of the net interest spread and net interest margin for the periods indicated:
----------------------------------------------------------------------------------------------------- For the Quarter Ended For the Quarter Ended March 31, 2001 March 31, 2000 (in thousands) (in thousands) ----------------------------------------------------------------------------------------------------- Average Income/ Average Income/ Balance Expenses Yield(1) Balance Expenses Yield(1) ------- -------- -------- ------- -------- -------- Earning Assets: Investment securities (1) $ 25,318 444 7.11% $ 45,150 590 5.18% Federal funds sold 13,031 181 5.63% 2,880 42 5.76% Loans (2) 114,875 2,685 9.48% 111,250 2,564 9.14% ------- ----- ----- ------- ----- ----- $153,224 3,310 8.76% $159,280 3,196 7.96% ======= ===== ===== ======= ===== ===== Liabilities: Noninterest bearing deposits $ 22,344 -- -- $ 19,320 -- -- Savings, money market, & NOW deposits 86,709 342 1.38% 83,820 335 1.59% Time deposits 55,518 761 5.56% 51,890 620 4.74% Other borrowings 204 3 5.97% 5,336 80 6.00% ------- ----- ----- ------- ----- ----- Total Liabilities $164,775 1,106 2.72% $160,336 1,035 2.56% ------- ----- ----- ------- ----- ----- Net Interest Spread 6.04% 5.40% ===== ===== ---------------------------------------------------------------------------------------------------- Earning Income Earning Income Assets (Expense) Yield Assets (Expense) Yield ------- -------- -------- ------- -------- -------- Yield on average earning assets $153,224 3,310 8.76% $159,280 3,196 8.14% Cost of funding average earning $153,224 (1,106) (2.56%) $159,280 (1,035) (2.56%) ------- ------- ------- ------- assets Net Interest Margin $153,224 2,204 5.83% $159,280 2,161 5.40% ===== ===== ===== ===== ---------------------------------------------------------------------------------------------------- (1) Yield for period annualized on actual number of days in period and based on a 365-day year. (2) Income on tax-exempt securities has not been adjusted to a tax equivalent basis. (3) Nonaccrual loans are included in the loan totals for each period; however, only collected interest on such loans is included in interest income.
Net interest income for the first quarter of 2001 increased by $43 thousand, or 2%, over the same quarter of 2000. The net interest margin of 5.83% was an increase from the 5.40% for the first quarter of 2000, primarily as a result of an increase of $3,625 thousand, or 3.25%, in average loans which was offset by an increase of $3,628 thousand, or 6.99%, in certificates of deposit. In addition, the yield on loans and certificates of deposit increased as a result of the existing rate environments at the time the loans and certificates of deposit were originated. The average yield on the loans increased from 9.14% to 9.48% and the rate paid for certificates of deposit increased from 4.74% to 5.56% at March 31, 2000 to March 31, 2001, respectively. Nonaccrual loans at March 31, 2001 and March 31, 2000 totaled $5,631 thousand and $4,655 thousand, respectively. Interest forgone on nonaccrual loans totaled approximately $153 thousand and $71 thousand for the three months ending March 31, 2001 and 2000, respectively. 10 Average deposits for the three months ended March 31, 2001 increased by $9,541 thousand, or 6.15%, compared to the prior year quarter. Average noninterest bearing deposits have kept pace with the growth in interest bearing deposits from a year ago and to make up 13% and 12% of average total deposits at March 31, 2001 and 2000, respectively. This has helped to keep down the cost of funding earning assets. Average certificates of deposit were 32% of average deposits for the three months ended March 31, 2001 and for the same period in the prior year quarter. Provision for Loan Losses The Bank provided $190 thousand to the allowance in the first quarter of 2001 which is attributable to general loss reserves that have been established in connection with loan portfolio growth combined with management's assessment of the risks associated with the current economic environment. The allowance for loan losses is discussed above under Changes in Financial Condition. Noninterest Income Noninterest income for the first quarter of 2001 increased by $291 thousand, or 44.0%, over the same period last year. Of the increase, $222 thousand is attributable to gains resulting from the sale of real estate acquired through foreclosure. Income from the sale and servicing of loans totaled $107 thousand during the first quarter of 2001, which increased by $27 thousand, or 14.2%, compared to the prior year quarter. The increased income from the sale and servicing of loans is primarily the result of increased refinancing activity of residential mortgage loans which resulted from the recent decline in mortgage rates. Noninterest Expenses Noninterest expenses increased by $326 thousand, or 13.9%, compared to the prior year quarter. Personnel expense increased $287 thousand, or 25.7%, as a result of additions to staff during the year combined with general merit increases for existing personnel. Occupancy expense increased $20 thousand or 10.0% primarily as a result of the Company's relocation of its SBA office to Folsom, California. Equipment expense increased $52 thousand, or 29.1%, as a result of depreciation of new equipment. Other noninterest expense decreased $33 thousand, or 3.9%, primarily as a result of decreases in marketing expenses. The reduction in marketing expenses is the result of one time marketing programs initiated during the first quarter of 2000. Basis of Presentation First Financial Bancorp is the holding company for Bank of Lodi, N.A. and Western Auxiliary Corporation. In the opinion of management, the accompanying unaudited consolidated financial statements reflect all adjustments (consisting of normal recurring accruals and other accruals as explained above) necessary for a fair presentation of financial position as of the dates indicated and results of operations for the periods shown. All material intercompany accounts and transactions have been eliminated in consolidation. In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts. The results for the three months ended March 31, 2001 are not necessarily indicative of the results which may be expected for the year ended December 31, 2001. The unaudited consolidated financial statements presented herein should be read in conjunction with the consolidated financial statements and notes included in the 2000 Annual Report to Shareholders. 11 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK While there are several varieties of market risk, the market risk material to the Company and the Bank is interest rate risk. Within the context of interest rate risk, market risk is the risk of loss due to changes in market interest rates that have an adverse effect on net interest income, earnings, capital or the fair value of financial instruments. Exposure to this type of risk is a regular part of a financial institution's operations. The fundamental activities of making loans, purchasing investment securities, and accepting deposits inherently involve exposure to interest rate risk. The Company monitors the repricing differences between assets and liabilities on a regular basis and estimates exposure to net interest income, net income, and capital based upon assumed changes in the market yield curve. As of and for the three months ended March 31, 2001, there were no material changes in the market risk profile of the Company or the Bank as described in the Company's 2000 Form 10-K. PART II -- OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Not Applicable. ITEM 2. CHANGES IN SECURITIES Not Applicable. ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not Applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not Applicable ITEM 5. OTHER INFORMATION Not Applicable ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Exhibit No. Description 10 Form of Long Term Care Agreement by and between Bank of Lodi, N.A. and certain directors and executive officers. (b) Reports on Form 8-K Form 8-K dated April 24, 2001 announcing first quarter 2001 financial results and five percent stock dividend. 12 SIGNATURES Pursuant to the requirements 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 FINANCIAL BANCORP Date: May 11, 2001 /s/ Allen R. Christenson ------------ ------------------------ Allen R. Christenson Senior Vice President Chief Financial Officer 13