-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, M3TpaHopOV1MOkYKlTnzM0MW9gock7P3y5W9N/jo87cKUTzj0nNcv77h7sFYiaoZ pqvm6sY5AjrgLmthOVJtUw== 0000950005-03-000584.txt : 20030514 0000950005-03-000584.hdr.sgml : 20030514 20030513190341 ACCESSION NUMBER: 0000950005-03-000584 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20030331 FILED AS OF DATE: 20030514 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRST FINANCIAL BANCORP /CA/ CENTRAL INDEX KEY: 0000729502 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 942822858 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-16579 FILM NUMBER: 03696708 BUSINESS ADDRESS: STREET 1: 701 S HAM LN CITY: LODI STATE: CA ZIP: 95242 BUSINESS PHONE: 2093672000 MAIL ADDRESS: STREET 1: 701 S HAM LANE CITY: LODI STATE: CA ZIP: 95242 10-Q 1 p17098_10q.txt QUARTERLY REPORT ================================================================================ 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, 2003 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 Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). [ ] Yes [ X ] No As of May 5, 2003 there were 1,623,257 shares of Common Stock, no par value, outstanding. ================================================================================ FIRST FINANCIAL BANCORP FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2003 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 ............................................ 8 Item 3. Quantitative and Qualitative Disclosures about Market Risk ....... 14 Item 4. Controls and Procedures .......................................... 14 PART II Item 1. Legal Proceedings ................................................ 14 Item 2. Changes in Securities and Use of Proceeds ........................ 14 Item 3. Defaults Upon Senior Securities .................................. 14 Item 4. Submission of Matters to a Vote of Security Holders............... 14 Item 5. Other Information ................................................ 14 Item 6. Exhibits and Reports on Form 8-K ................................. 14 Signatures ................................................................. 15 Certifications ............................................................. 16 Index to Exhibits .......................................................... 18 i ITEM 1. FINANCIAL STATEMENTS FIRST FINANCIAL BANCORP AND SUBSIDIARIES Consolidated Balance Sheets (Unaudited) (in thousands except share amounts)
March 31, December 31, Assets 2003 2002 - ------ -------- -------- Cash and due from banks $ 13,897 $ 14,988 Federal funds sold and securities purchased under resale agreements 25,044 19,634 Investment securities available for sale, at fair value 28,680 33,125 Loans held for sale 5,663 7,578 Loans, net of deferred loan fees 163,625 157,147 Less allowance for loan losses 3,278 3,057 -------- -------- Net loans 160,347 154,090 Premises and equipment, net 6,598 6,745 Accrued interest receivable 848 772 Other assets 18,445 18,314 -------- -------- Total Assets $259,522 $255,246 ======== ======== Liabilities and Stockholders' Equity Liabilities: Deposits: Noninterest bearing $ 35,534 $ 34,673 Interest bearing 190,704 176,006 -------- -------- Total deposits 226,238 210,679 Accrued interest payable 158 144 Short term borrowings 5,000 14,885 Other liabilities 3,574 5,268 Obligated mandatorily redeemable capital Securities of subsidiary trust 5,000 5,000 -------- -------- Total liabilities 239,970 235,976 -------- -------- Stockholders' equity: Preferred stock - no par value; authorized 1,000,000 shares; no shares issued and outstanding -- -- Common stock - no par value; authorized 9,000,000 shares; issued and outstanding in 2003 and 2002, 1,623,257 and 1,621,837, respectively 10,161 10,143 Retained earnings 9,014 8,672 Accumulated other comprehensive income 377 455 -------- -------- Total stockholders' equity 19,552 19,270 -------- -------- $259,522 $255,246 ======== ========
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, 2003 2002 ------ ------ Interest income: Loans, including fees $2,954 $2,737 Investment securities: Taxable 252 322 Exempt from Federal taxes 37 44 Federal funds sold 33 46 ------ ------ Total interest income 3,276 3,149 Interest expense: Deposit accounts 581 994 Other borrowings 66 6 ------ ------ Total interest expense 647 1,000 Net interest income 2,629 2,149 Provision for loan losses 257 195 ------ ------ Net interest income after provision for loan 2,372 1,954 losses Noninterest income: Gain on sale of investment securities 88 262 Gain on sale of other real estate -- 22 Gain on sale of loans 306 229 Service charges 397 364 Premiums and fees from SBA and mortgage operations 129 97 Increase in cash surrender value of life insurance 142 171 Miscellaneous 116 80 ------ ------ Total noninterest income 1,178 1,225 Noninterest expense: Salaries and employee benefits 1,652 1,479 Occupancy 263 242 Equipment 303 248 Other 866 874 ------ ------ Total noninterest expense 3,084 2,843 ------ ------ Income before provision for income taxes 466 336 Provision for income taxes 124 55 ------ ------ Net income $ 342 $ 281 ====== ====== Net income per share: Basic $ 0.21 $ 0.17 ====== ====== Diluted $ 0.20 $ 0.17 ====== ======
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, 2003
Accumulated Common Common Other Stock Stock Comprehensive Retained Comprehensive Description Shares Amounts Income Earnings Income Total - ------------------------------------- ------------ ------------ --------------- ------------- ----------------- --------------- Balance at December 31, 2002 1,621,837 $ 10,143 8,672 455 19,270 Comprehensive income: Net income $ 342 342 342 --------------- Other comprehensive income: Unrealized holding loss arising during the current period, net of tax effect of $18 (26) Reclassification adjustment due to gains realized, net of tax effect of $36 (52) Total other comprehensive income, net of tax effect of $54 --------------- (78) (78) (78) --------------- Comprehensive income $ 264 =============== Options exercised 1,630 19 19 Stock repurchase (210) (1) (1) ------------ ------------ ------------- ----------------- --------------- Balance at March 31, 2003 1,623,257 $ 10,161 9,014 377 19,552 ============ ============ ============= ================= ===============
See accompanying notes. 3 FIRST FINANCIAL BANCORP AND SUBSIDIARIES Consolidated Statements of Cash Flows (Unaudited) (in thousands) Three Months Ended March 31,
2003 2002 -------- -------- Cash flows from operating activities: Net income $ 342 $ 281 Adjustments to reconcile net income to net cash provided by (used in) operating activities: (Decrease) Increase in deferred loan income (21) 16 Depreciation and amortization 459 432 Provision for loan losses 257 195 Gain on sale of available-for-sale securities (88) (262) Loan held for sale: Loans originated (16,921) (11,814) Proceeds from sale 19,142 11,229 Gain on sale of loans (306) (229) Gain on sale of other real estate owned -- (22) (Increase) decrease in accrued interest receivable (76) 243 Increase (decrease) in accrued interest payable 14 (46) Decrease in other liabilities (1,690) (568) Increase in cash surrender value of life insurance (142) (171) Decrease in other assets 96 591 -------- -------- Net cash provided by (used in) operating activities 1,066 (125) Cash flows from investing activities: Investment securities available-for-sale: Purchases -- (8,580) Proceeds from prepayments 3,203 3,681 Proceeds from maturity -- 3,500 Proceeds from sale 1,056 9,649 Increase in loans made to customers (6,566) (6,079) Proceeds from sale of other real estate -- 90 Purchases of bank premises and equipment (128) (272) -------- -------- Net cash (used in) provided by investing activities (2,435) 1,989 Cash flows from financing activities: Net increase in deposits 15,559 4,475 Proceeds from company obligated mandatorily redeemable securities of subsidiary trust -- 5,000 Decrease in short term borrowings (9,885) (4,000) Payments for repurchase of common stock (1) -- Proceeds from issuance of common stock 15 13 -------- -------- Net cash provided by financing activities 5,688 5,488 Net increase in cash and cash equivalents 4,319 7,352 Cash and cash equivalents at beginning of period 34,622 19,457 -------- -------- Cash and cash equivalents at end of period $ 38,941 $ 26,809 ======== ======== Supplemental Disclosures of Cash Flow Information: Cash paid for interest payments $ 633 1,046 Cash paid for taxes -- 262
See accompanying notes. 4 FIRST FINANCIAL BANCORP AND SUBSIDIARIES Notes to Consolidated Financial Statements March 31, 2003 and December 31, 2002 (Unaudited) (1) Summary of Significant Accounting Policies First Financial Bancorp (the "Company") operates principally as a bank holding company for its wholly owned subsidiary, Bank of Lodi, N.A. (the "Bank"). The Bank is the principal source of income for the Company. The Company also holds all of the capital stock of its other subsidiaries, Western Auxiliary Corporation and First Financial (CA) Statutory Trust I. All references herein to the "Company" include the Bank and all other subsidiaries, unless the context otherwise requires. Basis of Presentation The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, the consolidated financial statements reflect all normal recurring adjustments necessary for a fair presentation of the results for the interim periods. Certain amounts in the prior year have been reclassified to conform with the current presentation. These reclassifications have no effect on previously reported income. These statements should be read in conjunction with the audited consolidated financial statements and related notes included in the Company's 2002 Annual Report on Form 10-K. Operating results for the three months ended March 31, 2003 are not necessarily indicative of the results that may be expected for the year ending December 31, 2003. Stock Based Compensation In December 2002, the FASB issued Statement No. 148 ("Statement 148"), Accounting for Stock-Based Compensation-Transition and Disclosure-an amendment of FASB Statement No. 123. This statement amends Statement 123 to provide alternative methods of transition to a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, Statement 148 amends the disclosure requirements to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. Statement 148 is effective for fiscal years ending after December 15, 2002, and for interim periods beginning after December 15, 2002. During the first quarter of 2003, the Company adopted the fair value recognition provisions of FASB Statement No. 123, Accounting for Stock-Based Compensation (SFAS No. 123), for stock-based compensation, effective as of January 1, 2003. Under the provisions of Statement 148, the Company has adopted the prospective method whereby stock-based employee compensation costs are recognized as awards granted, modified or settled. 5 The following table presents the effect on net income and earnings per share as if the fair value based method had been applied to all outstanding and unvested awards in each period.
Three Month Period Ended March 31, 2003 2002 Net income, as reported (in thousands) $ 342,000 $ 281,000 Add: Stock based employee compensation expense included in reported net income, net of tax effects - - Deduct: Stock based employee compensation determined under fair value based method for all awards, net of tax effects (13,000) (10,000) ----------------------------------- Pro forma net income $ 329,000 $ 271,000 =================================== Earnings per share-basic As reported $ 0.21 $ 0.17 Pro-forma 0.20 0.17 Earnings per share-assuming dilution As reported $ 0.20 $ 0.17 Pro-forma 0.19 0.16
(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. 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, 2003 and 2002:
Income Shares Per-Share Three months ended March 31, 2003 (numerator) (denominator) Amount ---------------------------------------------------------- ------------------ ------------------- ---------- Basic earnings per share $ 342,000 1,623,357 $ .21 Effect of dilutive securities 72,678 - ------------------ ------------------- Diluted earnings per share $ 342,000 1,696,035 $ .20 ================== =================== Income Shares Per-Share Three months ended March 31, 2002 (numerator) (denominator) Amount ---------------------------------------------------------- ------------------ ------------------- ---------- Basic earnings per share $ 281,000 1,623,281 $ .17 Effect of dilutive securities 46,698 - ------------------ ------------------- Diluted earnings per share $ 281,000 1,669,979 $ .17 ================== ===================
(3) Allowance for Loan Losses Quarter Year Ended Ended (in thousands) 3/31/03 12/31/02 -------- ---------- Balance at beginning of period $ 3,057 2,668 Loans charged off (46) (270) Recoveries 10 34 Provisions charged to operations 257 625 ---- ---- 6 Balance at end of period $ 3,278 3,057 ===== ===== (4) Impact Of Recently Issued Accounting Standards In November 2002, the FASB issued FIN 45, which elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. It also clarifies that a guarantor is required to recognize, at the inception of the guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The initial recognition and initial measurement provisions of this Interpretation are applied prospectively to guarantees issued or modified after December 31, 2002. The adoption of these recognition provisions will result in recording liabilities associated with certain guarantees provided by the Company. These currently include standby letters of credit and first-loss guarantees on securitizations. The disclosure requirements of this Interpretation are effective for financial statements of interim or annual periods ending after December 15, 2002. The Company has adopted the provision of FIN 45 and management does not expect this Interpretation to have a material impact to the consolidated financial statements. In January 2003, the FASB issued FIN 46, which clarifies the application of Accounting Research Bulletin ("ARB") 51, consolidated financial statements, to certain entities (called variable interest entities) in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The disclosure requirements of this Interpretation are effective for all financial statements issued after January 31, 2003. The consolidation requirements apply to all variable interest entities created after January 31, 2003. In addition, public companies must apply the consolidation requirements to variable interest entities that existed prior to February 1, 2003 and remain in existence as of the beginning of annual or interim periods beginning after June 15, 2003. Management does not expect this Interpretation to have a material impact to the consolidated financial statements. 7 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. Certain statements in this Quarterly Report on Form 10-Q include forward-looking information within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to the "safe harbor" created by those sections. These forward-looking statements involve certain risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Forward-looking statements, which are based on certain assumptions and describe future plans, strategies, and expectations, are generally identifiable by the use of words such as "believe", "expect", "intend", "anticipate", "estimate", "project", "assume," "plan," "predict," "forecast" or similar expressions. These forward-looking statements relate to, among other things, expectations of the business environment in which the Company operates, projections of future performance, potential future performance, potential future credit experience, perceived opportunities in the market, and statements regarding the Company's mission and vision. The Company's actual results, performance, and achievements may differ materially from the results, performance, and achievements expressed or implied in such forward-looking statements due to a wide range of risks and uncertainties. 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; monetary and fiscal policies of the U.S. Government; changes in real estate valuations; 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; civil disturbances or terrorist threats or acts or apprehension about the possible future occurrences of acts of this type; and changes in the securities markets. In addition, other events have increased the uncertainty related to the national and California economic outlook and could have an effect on the future operations of the Company or its customers, including borrowers. The Company does not undertake, and specifically disclaims any obligation, to update any forward-looking statements to reflect occurrences or unanticipated events or circumstances after the date of such statements. Critical Accounting Policies and Estimates The Company's discussion and analysis of its financial condition and results of operations are based upon the Company's consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, income and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, the Company evaluates its estimates, including those related to the allowance for loan losses, other real estate owned, investments and income taxes. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The Company believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of its consolidated financial statements. The Company maintains an allowance for loan losses resulting from the inability to make required loan payments. If the financial conditions of the Company's customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. The Company invests in debt and equity securities. If the Company believes these securities have experienced a decline in value that is other than temporary, an investment impairment charge is recorded. Future adverse changes in market conditions or poor operating results of underlying investments could result in losses or an inability to recover the carrying value of the investments that may not be reflected in an investment's carrying value, thereby requiring an impairment charge in the future. 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 7, as well as other information presented throughout this report. 8 Changes in Financial Condition As of March 31, 2003, consolidated total assets totaled $260 million, which represents an increase of $4,276 thousand, or 1.7% above the comparable level at December 31, 2002. The increase in total assets was attributable primarily to a $15,559 thousand, or 7.4% increase in total deposits that was offset by a decrease totaling $9,885 thousand, or 66.4% in short term borrowings. The increase in total assets included an increase totaling $4,542 thousand, or 2.7%, in gross loans, a $5,410 thousand, or 27.6%, increase in federal funds sold combined with a $4,445 thousand, or 13.4%, decrease in investment securities as compared to December 31, 2002. The net increase in gross loans is primarily the result of increases of $3,674 thousand, or 5.8%, $1,424 thousand, or 10.0%, $1,251 thousand, or 4.7%, and $715 thousand, or 2.4%, in real estate loans, agricultural loans, commercial loans and SBA loans, respectively, combined with a decrease of $1,915 thousand, or 25.3%, in loans held for sale in the secondary market and a decrease of $607 thousand, or 2.6% in other loans. During the first quarter of 2003, non-interest bearing deposits increased $861 thousand, or 2.5% and interest bearing deposits increased $14,698 thousand, or 8.4%. The first quarter deposit growth consists of an increase of $7,097 thousand, or 12.8%, $2,826 thousand, or 9.3%, $2,553 thousand, or 5.0%, and $2,222 thousand, or 5.6%, in certificates of deposit, money market accounts, NOW accounts and savings accounts, respectively. Allowance for Loan Losses The allowance for loan losses (the "allowance") is established through a provision for possible loan losses charged to expense. The allowance at March 31, 2003 was in excess of the December 31, 2002 allowance by $221 thousand, or 7.2%, as a result of a provision for $257 thousand combined with net charge-offs of $36 thousand. During the first quarter, nonperforming loans increased by $300 thousand, to $2,709 thousand. 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, 2003 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. 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, 2003 and December 31, 2002, respectively: Analysis of the Allowance for Loan Losses Quarter Year Ended Ended 3/31/03 12/31/02 ------- ------- Balance at beginning of period $ 3,057 2,668 Charge-offs: Commercial (38) (178) Real estate -- (62) Consumer (8) (30) ------- ------- Total charge-offs (46) (270) Recoveries: Commercial 9 26 Real estate -- -- Consumer 1 8 ------- ------- Total recoveries 10 34 ------- ------- Net charge-offs (36) (236) Provision charged to operations 257 625 ------- ------- Balance at end of period $ 3,278 $ 3,057 ======= ======= 9 Allocation of the Allowance for Loan Losses
3/31/03 3/31/03 12/31/02 12/31/02 Loan Category Amount % of Loans Amount % of Loans - ------------- -------- ---------- -------- ---------- Commercial and other real estate $ 2,403 85.60% $ 2,182 85.77% Real estate construction 807 12.52% 807 12.38% Installment and other 68 1.88% 68 1.85% -------- ------ -------- ------ $ 3,278 100.00% $ 3,057 100.00% ======== ====== ======== ======
Investments Investment securities decreased $4,445 thousand, or 13.4%, from December 31, 2002 to March 31, 2003. This first quarter of 2003 decrease resulted primarily from prepayments of mortgage backed securities totaling $3,203 thousand and sales of investment securities totaling $1,056 thousand. The Company realized gross gains totaling $88 thousand on the sale of investment securities during the first quarter of 2003. Equity Consolidated equity increased $282 thousand from December 31, 2002 to March 31, 2003. Consolidated equity represented 7.53% and 7.55% of consolidated assets at March 31, 2003 and December 31, 2002, respectively. The increase in equity during the first quarter of 2003 resulted from earnings of $342 thousand for the three months ended March 31, 2003 and a $19 thousand increase resulting from the exercise of stock options combined with a decrease of $78 thousand to reflect the after-tax market value decrease in the available-for-sale investment securities portfolio. The decrease in the investment security portfolio's market value resulted from gains realized on the sale of investment securities combined with the effects of changes in interest rates at March 31, 2003 compared to December 31, 2002. The total risk-based capital ratio for the Company's wholly owned subsidiary, Bank of Lodi was 11.14% at March 31, 2003 compared to 11.16% at December 31, 2002. 10 Changes in Results of Operations - Three Months ended March 31, 2003 Summary of Earnings Performance
- ----------------------------------------------------- -------------------------------------------------- For the three months ended March 31: -------------------------------------------------- 2003 2002 ---- ---- Net income (in thousands) $ 342 $ 281 - ----------------------------------------------------- ------------------------- ------------------------ Basic net income per share $ .21 $ .17 Diluted net income per share .20 .17 Return on average assets 0.53% 0.51% Return on average equity 7.05% 6.27% - ----------------------------------------------------- ------------------------- ------------------------ Average equity to average assets 7.54% 8.07% - ----------------------------------------------------- ------------------------- ------------------------
Net income for the first quarter of 2003 increased $61 thousand, or 21.7%, compared to the first quarter of 2002. Net interest income increased $480 thousand, or 22.3% as a result of a $353 thousand decrease in interest expense combined with a $127 thousand increase in interest income. The provision for loan losses totaled $257 thousand representing an increase of $62 thousand, or 31.8%. Noninterest income decreased $47 thousand, or 3.8%, while noninterest expense increased $241 thousand, or 8.5%. The provision for income taxes increased $69 thousand, or 125.5%. 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, 2003 March 31, 2002 (in thousands) (in thousands) -------------------------------------- ------------------------------- -------------------------------- Average Income/ Average Income/ Balance Expenses Yield(1) Balance Expenses Yield(1) ------- -------- ----- ------- -------- ----- Earning Assets: Investment securities (2) $ 31,274 289 3.75% $ 30,074 366 4.94% Federal funds sold 10,660 33 1.26% 10,742 46 1.74% Loans (3) 167,259 2,954 7.16% 147,718 2,737 7.51% ------- ----- ----- ------- ----- ----- $ 209,193 3,276 6.35% $188,534 3,149 6.77% ========= ===== ===== ======== ===== ===== Liabilities: Noninterest bearing deposits $ 37,581 -- -- $ 29,232 -- -- Savings, money market, & NOW deposits 121,832 240 .80% 102,431 337 1.33% Time deposits 58,596 341 2.36% 70,210 657 3.80% Other borrowings 5,760 66 4.65% 422 6 5.77% ------- ----- ----- ------- ----- ----- Total Liabilities $ 223,769 647 1.17% $202,295 1,000 2.00% ========= ===== ===== ======== ===== ===== Net Interest Spread 5.18% 4.77% ===== ===== -------------------------------------- ---------- ---------- --------- ---------- ----------- --------- Earning Income Earning Income Assets (Expense) Yield Assets (Expense) Yield ------- ------- ----- ------- ------- ----- Yield on average earning assets $ 209,193 3,276 6.35% $188,534 3,149 6.77% Cost of funding average earning $ 209,193 (647) (1.25%) $188,534 (1,000) (2.15%) ----- ------- ------- ------- assets Net Interest Margin $ 209,193 2,629 5.10% $188,534 2,149 4.62% ========= ===== ===== ======== ===== ===== -------------------------------------- ---------- ---------- --------- ---------- ----------- ---------
(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. 11 Net interest income for the first quarter of 2003 increased $480 thousand, or 22.3%, over the same quarter of 2002. The increase is attributable to the effects of increases in volumes of earning assets and liabilities combined with the effects of changes in interest rates. The increase in volumes of average earning assets and liabilities resulted in an increase in net interest income totaling $332 thousand while the decline in interest rates resulted in a decrease in net interest income totaling $148 thousand when comparing the first quarter of 2003 to the same period last year. Average earning assets increased $20,659 thousand during the first quarter of 2003 as compared to the first quarter of 2002. Average loans increased $19,541 thousand and investment securities increased $1,200 thousand while federal funds sold decreased $82 thousand. The increase in the volume of average earning assets during the first quarter of 2003 as compared to the first quarter of 2002 resulted in an increase in interest income totaling $376 thousand. However, interest rates on average earning assets declined 42 basis points (from 6.77% to 6.35%) when compared to the same period in 2002, resulting in a decrease in interest income totaling $249 thousand. Average liabilities increased $21,474 thousand during the first quarter of 2003 as compared to the same period last year. Of that increase, average noninterest bearing deposits increased $8,349 thousand, NOW and money market accounts increased $12,332 thousand, savings accounts increased $7,069 thousand, other borrowings increased $5,338 thousand, while certificates of deposit decreased $11,614 thousand. The increase in average liabilities resulted in an increase in interest expense totaling $44 thousand. As a result of the declining interest rate environment, the cost of interest bearing liabilities decreased 83 basis points (from 2.00% to 1.17%) resulting in a reduction in interest expense totaling $397 thousand. Interest income is also affected by nonaccrual loan activity. Nonaccrual loans at March 31, 2003 and March 31, 2002 totaled $2,709 thousand and $3,848 thousand, respectively. Interest forgone on nonaccrual loans totaled approximately $69 thousand and $77 thousand for the three months ending March 31, 2003 and 2002, respectively. Provision for Loan Losses The provision for loan losses for the three months ended March 31, 2003 was $257 thousand compared with $195 thousand for the three months ended March 31, 2002, an increase of $62 thousand or 31.8%. As of March 31, 2003 the allowance for loan losses was $3,278 thousand or 1.9% of total loans, which compares to the allowance for loan losses of $3,057 thousand or 1.8% of total loans as of December 31, 2002. See "Allowance for Loan Losses" contained herein. As of March 31, 2003, nonperforming loans totaled $2,709 thousand or 1.6% of total loans compared to $2,409 thousand or 1.5% at December 31, 2002. No assurance can be given that nonperforming loans will not increase or that the allowance for loan losses will be adequate to cover losses inherent in the loan portfolio. Noninterest Income Noninterest income for the first quarter of 2003 decreased $47 thousand, or 3.8%, compared to the same period last year. Included in noninterest income is $88 thousand and $262 thousand attributable to gains resulting from the sale of securities during the first quarter of 2003 and 2002, respectively. While there were no other real estate sales during the first quarter of 2003, the Company realized gains from the sale of other real estate totaling $22 thousand during the first quarter of 2002. Income from the sale and servicing of loans totaled $435 thousand during the first quarter of 2003, which increased by $109 thousand, or 33.4%, 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 declines in mortgage loan rates. The increase in the cash surrender value of life insurance decreased $29 thousand, or 17.0%, during the first quarter of 2003 when compared to the same quarter in 2002. The decrease was the result of an overall decline in interests rates in 2003 as compared to the same period in 2002. The increase in the cash surrender value of life insurance is exempt from income taxes. The tax effective yield of the increase in the cash surrender value of the life insurance totaled 7.2% during the first quarter of 2003 as compared to 9.1% during the first quarter of 2002. Noninterest Expenses Noninterest expenses increased $241 thousand, or 8.5%, compared to the prior year quarter. Personnel expense increased $173 thousand, or 11.7%, as a result of additions to staff during the year combined with general merit increases for existing personnel. Occupancy expense increased $21 thousand or 8.7%, and equipment expense increased $55 thousand, or 22.2%, as a result of depreciation of new equipment and other investments in technology. The investments in technology include projects designed to improve information security, operating efficiencies and regulatory compliance in addition to product research and development. Other noninterest expense decreased $8 thousand, or 0.9%. 12 Liquidity The Company's primary sources of liquidity are the proceeds from the trust preferred securities combined with dividends from the Bank. The Company's primary uses of liquidity are associated with interest payments on the trust preferred securities, dividend payments made to shareholders and operating expenses. The Bank's liquidity is managed on a daily basis by maintaining cash, federal funds sold, and short-term investments at levels commensurate with the estimated requirements for loan demand and fluctuations in deposits. Loan demand and deposit fluctuations are affected by a number of factors, including economic conditions, seasonality of the borrowing and deposit bases, and the general level of interest rates. The Bank maintains two lines of credit with correspondent banks as a supplemental source of short-term liquidity in the event that saleable investment securities and loans or available new deposits are not adequate to meet liquidity needs. The Bank has also established reverse repurchase agreements with two brokerage firms, which allow for short-term borrowings that are secured by the Bank's investment securities. Furthermore, the Bank may also borrow on a short-term basis from the Federal Reserve in the event that other liquidity sources are not adequate. At March 31, 2003 liquidity was considered adequate, and funds available in the local deposit market and scheduled maturities of investments are considered sufficient to meet long-term liquidity needs. Compared to 2002 liquidity increased in 2003 as a result of the growth in deposit portfolio and sales and maturities of available-for-sale investment securities. 13 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, 2003, there were no material changes in the market risk profile of the Company or the Bank as described in the Company's 2002 Form 10-K. ITEM 4. CONTROLS AND PROCEDURES Disclosure Controls and Procedures Within the 90 days prior to the filing date of this report, we carried out an evaluation, under the supervision and with the participation of our management, including our President and Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934. Based on their review of our disclosure controls and procedures, the President and Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective in timely alerting them to material information relating to us that is required to be included in our periodic SEC filings. Internal Controls and Procedures There were no significant changes in internal controls or in other factors that could significantly affect these controls subsequent to the date of our evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. PART II -- OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Not Applicable. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 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. 99.1 Certification of Registrant's Chief Executive Officer Pursuant To 18 U.S.C. Section 1350 99.2 Certification of Registrant's Chief Financial Officer Pursuant To 18 U.S.C. Section 1350 (b) Reports on Form 8-K A report on Form 8-K, dated April 30, 2003, was filed under report item numbers 7 and 9, concerning First Financial Bancorp's results of operations for the first quarter of 2003. 14 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 By: Date: May 12, 2003 /s/ Allen R. Christenson ------------ ------------------------ Allen R. Christenson Senior Vice President Chief Financial Officer (Principal Accounting and Financial Officer) 15 CERTIFICATION I, Leon Zimmerman, certify that: 1. I have reviewed this quarterly report on Form 10-Q of First Financial Bancorp; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 12, 2003 /s/Leon Zimmerman ----------------- Chief Executive Officer 16 CERTIFICATION I, Allen R. Christenson, certify that: 1. I have reviewed this quarterly report on Form 10-Q of First Financial Bancorp; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 12, 2003 /s/Allen R. Christenson ----------------------- Chief Financial Officer 17 INDEX TO EXHIBITS Exhibit Description - ------- ----------- 99.1 Certification of Registrant's Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 99.2 Certification of Registrant's Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 18 EX-99.1 3 p17098_ex99-1.txt CERTIFICATION OF ZIMMERMAN Exhibit 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of First Financial Bancorp (the "Company") on Form 10-Q for the period ending March 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Leon Zimmerman, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 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. May 12, 2003 /s/Leon Zimmerman ------------------ Chief Executive Officer A signed original of this written statement required by Section 906 has been provided to First Financial Bancorp and will be retained by First Financial Bancorp and furnished to the Securities and Exchange Commission or its staff upon request. 19 EX-99.2 4 p17098_ex99-2.txt CERTIFICATION OF CHRISTENSON Exhibit 99.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of First Financial Bancorp (the "Company") on Form 10-Q for the period ending March 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Allen R. Christenson, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 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. May 12, 2003 /s/Allen R. Christenson --------------------------- Chief Financial Officer A signed original of this written statement required by Section 906 has been provided to First Financial Bancorp and will be retained by First Financial Bancorp and furnished to the Securities and Exchange Commission or its staff upon request. 20 -----END PRIVACY-ENHANCED MESSAGE-----