-----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, Oqdr8DNIjncL367avXFUJucR9cvtyfnesTzTBbenq1MpVRUMSgsOcPvIGAlGZ5WR PnJ0CsF9Q2rZGUpm6C/Evg== 0000950005-04-000476.txt : 20040514 0000950005-04-000476.hdr.sgml : 20040514 20040514172508 ACCESSION NUMBER: 0000950005-04-000476 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20040331 FILED AS OF DATE: 20040514 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: 04809065 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 p18521_10q.txt FORM 10Q ================================================================================ 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, 2004 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, 2004 there were 1,783,728 shares of Common Stock (adjusted for the 10% stock dividend declared March 25, 2004) no par value, outstanding. ================================================================================ FIRST FINANCIAL BANCORP FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2004 TABLE OF CONTENTS
Page ---- PART I Item 1. 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, Use of Proceeds and Issuer Purchases of Equity Securities............ 15 Item 3. Defaults Upon Senior Securities ............................................................ 15 Item 4. Submission of Matters to a Vote of Security Holders......................................... 15 Item 5. Other Information .......................................................................... 15 Item 6. Exhibits and Reports on Form 8-K ........................................................... 15 Signatures ................................................................................................... 16 Index to Exhibits ............................................................................................ 17
ITEM 1. FINANCIAL STATEMENTS FIRST FINANCIAL BANCORP AND SUBSIDIARIES Consolidated Balance Sheets (Unaudited) (in thousands except share amounts)
March 31, December 31, Assets 2004 2003 -------- -------- Cash and due from banks $ 15,733 $ 17,497 Federal funds sold and securities purchased under resale agreements 585 8,034 Investment securities available for sale, at fair value 81,682 90,270 Loans held for sale 3,156 3,076 Loans, net of deferred loan fees 202,383 178,711 Less allowance for loan losses 3,314 3,262 -------- -------- Net loans 199,069 175,449 Premises and equipment, net 6,780 6,903 Accrued interest receivable 1,223 1,322 Other assets 19,247 19,262 -------- -------- Total Assets $327,475 $321,813 ======== ======== Liabilities and Stockholders' Equity Liabilities: Deposits: Noninterest bearing $ 46,548 $ 47,765 Interest bearing 232,084 230,390 -------- -------- Total deposits 278,632 278,155 Accrued interest payable 181 205 Short term borrowings 18,110 14,100 Other liabilities 4,435 4,231 Junior subordinated debentures 5,155 5,155 -------- -------- Total liabilities 306,513 301,846 -------- -------- 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 2004 and 2003, 1,783,728 and 1,783,420, respectively 12,963 12,950 Retained earnings 7,571 7,004 Accumulated other comprehensive income 428 13 -------- -------- Total stockholders' equity 20,962 19,967 -------- -------- $327,475 $321,813 ======== ======== See accompanying notes.
FIRST FINANCIAL BANCORP AND SUBSIDIARIES Consolidated Statements of Income (Unaudited) (in thousands except per share amounts)
Three Months Ended March 31, 2004 2003 ------ ------ Interest income: Loans, including fees $3,124 $2,954 Investment securities: Taxable 712 252 Exempt from Federal taxes 77 37 Federal funds sold 10 33 ------ ------ Total interest income 3,923 3,276 Interest expense: Deposit accounts 640 581 Other borrowings 103 66 ------ ------ Total interest expense 743 647 Net interest income 3,180 2,629 Provision for loan losses 70 257 ------ ------ Net interest income after provision for loan losses 3,110 2,372 Noninterest income: Gain on sale of investment securities 65 88 Gain on sale of loans 144 306 Service charges 422 397 Premiums and fees from SBA and mortgage operations 110 129 Increase in cash surrender value of life insurance 158 141 Miscellaneous 86 117 ------ ------ Total noninterest income 985 1,178 Noninterest expense: Salaries and employee benefits 1,796 1,652 Occupancy 318 263 Equipment 194 303 Other 998 866 ------ ------ Total noninterest expense 3,306 3,084 ------ ------ Income before provision for income taxes 789 466 Provision for income taxes 222 124 ------ ------ Net income $ 567 $ 342 ====== ====== Net income per share: Basic $ 0.32 $ 0.19 ====== ====== Diluted $ 0.30 $ 0.18 ====== ====== See accompanying notes.
FIRST FINANCIAL BANCORP AND SUBSIDIARIES Consolidated Statements of Stockholders' Equity and Comprehensive Income (Unaudited) (in thousands except share amounts)
Three Months Ended March 31, 2004 Accumulated Common Common Other Stock Stock Comprehensive Retained Comprehensive Description Shares Amounts Income Earnings Income Total - ------------------------------------- ------------ ------------ --------------- ------------- ----------------- --------------- Balance at December 31, 2003 1,783,420 $ 12,950 7,004 13 19,967 Comprehensive income: Net income $ 567 567 567 --------------- Other comprehensive income: Unrealized holding gain arising during the current period, net of tax effect of $316 453 Reclassification adjustment due to gains realized, net of tax benefit of $27 (38) Total other comprehensive income, net of --------------- tax effect of $289 415 415 415 --------------- Comprehensive income $ 982 =============== Options exercised, including tax benefits 308 3 3 Stock-based compensation and related tax benefits 10 10 ------------ ------------ ------------- ----------------- --------------- Balance at March 31, 2004 1,783,728 $ 12,963 7,571 428 20,962 ============ ============ ============= ================= =============== See accompanying notes.
FIRST FINANCIAL BANCORP AND SUBSIDIARIES Consolidated Statements of Cash Flows (Unaudited) (in thousands) Three Months Ended March 31,
2004 2003 -------- -------- Cash flows from operating activities: Net income $ 567 $ 342 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Increase (decrease) in deferred loan income 136 (21) Depreciation and amortization 540 459 Stock-based compensation 10 -- Provision for loan losses 70 257 Gain on sale of available-for-sale securities (65) (88) Gain on sale of loans (144) (306) Decrease (increase) in accrued interest receivable 99 (76) (Decrease) increase in accrued interest payable (24) 14 Increase (decrease) in other liabilities 757 (1,690) Increase in cash surrender value of life insurance (158) (141) (Increase) decrease in other assets (713) 95 -------- -------- Net cash provided by (used in) operating activities 1,075 (1,155) Cash flows from investing activities: Investment securities available-for-sale: Purchases (290) -- Proceeds from prepayments 5,257 3,203 Proceeds from sale 4,145 1,056 Loan held for sale: Loans originated (8,109) (16,921) Proceeds from sale 8,173 19,142 Increase in loans made to customers (23,826) (6,566) Purchases of bank premises and equipment (128) (128) -------- -------- Net cash used in investing activities (14,778) (214) Cash flows from financing activities: Net increase in deposits 477 15,559 Increase (decrease) in short term borrowings 4,010 (9,885) Payments for repurchase of common stock -- (1) Proceeds from issuance of common stock 3 15 -------- -------- Net cash provided by financing activities 4,490 5,688 Net (decrease) increase in cash and cash equivalents (9,213) 4,319 Cash and cash equivalents at beginning of period 25,531 34,622 -------- -------- Cash and cash equivalents at end of period $ 16,318 $ 38,941 Supplemental Disclosures of Cash Flow Information: Cash paid for interest payments $ 767 586 Cash paid for taxes 175 -- Unrealized gain (loss) on available-for-sale securities, net of tax 453 (26) Loans transferred to other real estate owned -- 73 See accompanying notes.
FIRST FINANCIAL BANCORP AND SUBSIDIARIES Notes to Consolidated Financial Statements March 31, 2004 and December 31, 2003 (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 subsidiary, Western Auxiliary Corporation. 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 2003 Annual Report on Form 10-K. 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. (2) Outstanding Shares and Earnings Per Share On March 25, 2004, the Board of Directors of the Company declared a 10% stock dividend payable as of May 14, 2004. All share and per share amounts have been adjusted to reflect the effect of the stock dividend. 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 by the weighted average common shares outstanding during the period. Diluted earnings per share is computed by dividing net income 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 ended March 31, 2004 and 2003:
Income Shares Per-Share Three months ended March 31, 2004 (numerator) (denominator) Amount ------------------------------------------------------------------------ ----------------------------- Basic earnings per share $ 567,000 1,783,538 $ .32 Effect of dilutive securities 124,743 - ------------------ ------------------- Diluted earnings per share $ 567,000 1,908,281 $ .30 ================== ===================
Income Shares Per-Share Three months ended March 31, 2003 (numerator) (denominator) Amount ------------------------------------------------------------------------ ----------------------------- Basic earnings per share $ 342,000 1,785,693 $ .19 Effect of dilutive securities 79,946 - ------------------ ------------------- Diluted earnings per share $ 342,000 1,865,639 $ .18 ================== ===================
All share and per share data has been adjusted for the 10% stock dividend declared on March 25, 2004. (3) Allowance for Loan Losses Quarter Year Ended Ended (in thousands) 3/31/04 12/31/03 -------- -------- Balance at beginning of period $ 3,262 3,057 Loans charged off (20) (143) Recoveries 2 36 Provisions charged to operations 70 312 -------- -------- Balance at end of period $ 3,314 3,262 ======== ======= (4) Stock Based Compensation Effective as of January 1, 2003, the Company adopted the fair value recognition provisions of FASB Statement No. 148, Accounting for Stock-Based Compensation (SFAS No. 148). Under the prospective method of adoption selected by the Company, stock-based employee compensation costs are recognized as awards are granted, modified or settled. Prior to January 1, 2003, these plans were accounted for under the intrinsic value method as prescribed in APB Opinion No. 25, Accounting for Stock Issued to Employees. Under the intrinsic value method, compensation expense was recognized on the date of grant only if the market price of the underlying stock exceeded the exercise price on that date. 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, 2004 2003 -------- -------- Net income, as reported (in thousands) $ 567 $ 342 Add: Stock based employee compensation expense included in reported net income, net of tax effects 6 2 Deduct: Stock based employee compensation determined under fair value based method for all awards, net of tax effects (9) (7) --------------------- Pro forma net income $ 564 $ 337 ===================== Earnings per share-basic As reported $ 0.32 $ 0.19 Pro-forma 0.32 0.19 Earnings per share-assuming dilution As reported $ 0.30 $ 0.18 Pro-forma 0.30 0.18
All share and per share data has been adjusted for the 10% stock dividend declared on March 25, 2004. (5) Retirement Plans The Company has a supplemental retirement plan for directors and a supplemental executive retirement plan covering key executives. These plans are non-qualified defined benefit plans and are unsecured and unfunded. The Company has purchased insurance on the lives of the participants and intends to use the cash values of these policies to pay the retirement obligations. The following table sets forth the net periodic benefit cost recognized for the plans:
Three Months Ended March 31, (in thousands) 2004 2003 --------------------------- Net pension cost included the following components: Service cost-benefits earned during the period $ 21 $ 13 Interest cost on projected benefit obligation 25 16 Amortization of prior service cost 13 9 Recognized net actuarial loss 2 - --------------------------- Net periodic pension cost $ 61 $ 38 ===========================
During the three months ended March 31, 2004, the Company contributed and paid out as benefits $5.6 thousand to participants under the plans. For the year ending December 31, 2004, the Company expects to contribute and pay out as benefits $27.5 thousand to participants under the plans. (6) Impact Of Recently Issued Accounting Standards In December 2003, FASB issued Statement No. 132 (revised 2003), Employers' Disclosures about Pensions and Other Postretirement Benefits. This Statement prescribes employers' disclosures about pension plans and other postretirement benefit plans; it does not change the measurement or recognition of those plans. The Statement retains and revises the disclosure requirements contained in the original Statement 132. It also requires additional disclosures about the assets, obligations, cash flows, and net periodic benefit cost of defined benefit plans and other postretirement benefit plans. The Statement generally is effective for fiscal years ending after December 15, 2003. The Company currently does not have any postretirement benefit plans that are within the scope of the Statement. (7) Legal Proceedings On March 23, 2004, a lawsuit was filed naming First Financial Bancorp, Bank of Lodi, N.A. and certain named directors and officers of the Company. The suit is filed as a derivative action alleging various charges of breach of fiduciary duty and corporate mismanagement against the named officers and directors. The lawsuit was commenced by two shareholders on behalf of the Company. The complaint also alleges intentional and negligent breach of fiduciary duty, abuse of control, waste of corporate assets, unjust enrichment and imposition of constructive trust. The matter has been tendered to the Company's carrier for its director and officer liability insurance and the insurance company is expected to respond to the tender of defense in due course. If coverage under the policy is denied, the Company may be obligated to provide indemnification to the named officers and directors. The Company is evaluating the allegations of the Complaint and will vigorously defend them, as appropriate. If the allegations are proven, any recovery in the suit will benefit the Company. The bank is involved in various legal actions arising in the ordinary course of business. In the opinion of management, after consulting with legal counsel, the ultimate disposition of these matters will not have a material effect on the Bank's financial condition, results of operations, or liquidity. (8) Stock Repurchase Program In April 2002, the Board of Directors authorized a stock repurchase program approving the repurchase of up to $2 million of the Company's stock. The repurchase program has been extended to December 31, 2004. No stock was repurchased during the first quarter of 2004. 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; impact of litigation; the ability of management and directors to work together cooperatively and efficiently; 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. Summary The Company recorded net income of $567 thousand for the quarter ended March 31, 2004, representing an increase of $225 thousand or 65.8% over net income of $342 thousand for the same period in 2003. The increase resulted primarily from an increase in net interest income of $551 thousand which was partially offset by a decrease in noninterest income of $193 thousand and an increase in noninterest expenses of $222 thousand. Included in net income during the three month period ended March 31, 2004 were gains on the sale of investment securities totaling $65 thousand. During the same period in 2003, gains on the sale of investment securities totaled $88 thousand, a reduction of $23 thousand from the prior year. Additionally, during the three month period ended March 31, 2004, the Company incurred unanticipated costs totaling $67 thousand in response to disruptive actions initiated by three dissident directors. On March 25, 2004, the Board of Directors of the Company declared a 10% stock dividend payable as of May 14, 2004. All share and per share amounts have been adjusted to reflect the effect of the stock dividend. Changes in Financial Condition Consolidated total assets as of March 31, 2004 totaled $327 million, which represents an increase of $5,662 thousand, or 1.8% above the comparable level at December 31, 2003. The increase in total assets was attributable primarily to a $4,010 thousand, or 28.4%, increase in short term borrowings. Total gross loans increased $23,888 thousand, or 13.1% during the first quarter of 2004. The loan growth was funded by a reduction of federal funds sold of $7,449 thousand, or 92.7%, a decrease of $8,588, or 9.5%, in the investment portfolio due to prepayments of mortgage-backed securities (including CMOs) of $5,257 thousand and proceeds from the sale of securities of $4,145 thousand and an increase of $4,010 thousand, or 28.4%, in short term borrowings. The net increase in gross loans is primarily the result of increases of $20,640 thousand, or 25.5%, $3,782 thousand, or 12.5%, and $676 thousand, or 2.2%, in real estate loans, commercial loans and SBA loans, respectively, combined with decreases of $944 thousand, or 5.0%, and $324 thousand, or 14.2%, in agricultural and consumer loans, respectively. During the first quarter of 2004, non-interest bearing deposits decreased $1,217 thousand, or 2.5% and interest bearing deposits increased $1,694 thousand, or 0.7%. The first quarter deposit growth consists of increases of $1,800 thousand, or 4.0%, and $907 thousand, or 1.6% in savings and NOW accounts combined with decreases of $1,217 thousand, or 2.5%, $909 thousand, or 1.2%, and $104 thousand, or 0.2%, in non-interest bearing, certificates of deposit and money market 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, 2004 was in excess of the December 31, 2003 allowance by $52 thousand, or 1.6%, as a result of a provision for $70 thousand combined with net charge-offs of $18 thousand. During the first quarter, nonperforming loans decreased by $768 thousand, to $3,112 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, 2004 is adequate to absorb known and reasonably estimated loan losses. However, there can be no assurances that future economic events will not 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 months ended March 31, 2004 and year ended December 31, 2003, respectively: Analysis of the Allowance for Loan Losses - ----------------------------------------- Quarter Year Ended Ended 3/31/04 12/31/03 ------- ------- Balance at beginning of period $ 3,262 3,057 Charge-offs: Commercial -- (88) Consumer (20) (55) ------- ------- Total charge-offs (20) (143) Recoveries: Commercial 1 27 Consumer 1 9 ------- ------- Total recoveries 2 36 ------- ------- Net charge-offs (18) (107) Provision charged to operations 70 312 ------- ------- Balance at end of period $ 3,314 $ 3,262 ======= ======= Allocation of the Allowance for Loan Losses - -------------------------------------------
3/31/04 3/31/04 12/31/03 12/31/03 Loan Category Amount % of Loans Amount % of Loans - ------------- ------ ---------- ------ ---------- Commercial and other real estate $ 2,378 91.32% $ 2,381 89.99% Real estate construction 892 7.74% 828 8.76% Installment and other 44 0.94% 53 1.25% -------- ------- -------- ------- $ 3,314 100.00% $ 3,262 100.00% ======== ======= ======== =======
Investments - ----------- Investment securities decreased $8,588 thousand, or 9.5%, from December 31, 2003 to March 31, 2004. This first quarter of 2004 decrease resulted primarily from prepayments of mortgage-backed securities (including CMOs) totaling $5,257 thousand and sales of investment securities totaling $4,145 thousand. The Company realized gross gains totaling $65 thousand on the sale of investment securities during the first quarter of 2004 which is a decrease of $23 thousand when compared to the same period of 2003. Equity - ------ Consolidated equity increased $995 thousand from December 31, 2003 to March 31, 2004. Consolidated equity represented 6.40% and 6.20% of consolidated assets at March 31, 2004 and December 31, 2003, respectively. The increase in equity during the first quarter of 2004 resulted primarily from net income of $567 thousand for the three months ended March 31, 2004 and a $415 thousand increase resulting from the after-tax market value increase in the available-for-sale investment securities portfolio. In April 2002, the Board of Directors authorized a stock repurchase program approving the repurchase of up to $2 million of the Company's stock. The repurchase program has been extended to December 31, 2004. No stock was repurchased during the first quarter of 2004. The total risk-based capital ratio for the Company's wholly owned subsidiary, Bank of Lodi was 10.01% at March 31, 2004 compared to 10.68% at December 31, 2003. Changes in Results of Operations - Three Months ended March 31, 2004 Summary of Earnings Performance - ------------------------------- - -------------------------------------------------------------------------------- For the three months ended March 31: ---------------------------------------- ---------------------------------------- 2004 2003 ---- ---- Net income (in thousands) $ 567 $ 342 - -------------------------------------------------------------------------------- Basic net income per share $.32 $.19 Diluted net income per share .30 .18 Return on average assets 0.71% 0.56% Return on average equity 11.10% 7.02% - -------------------------------------------------------------------------------- Average equity to average assets 6.38% 7.95% - -------------------------------------------------------------------------------- Net income for the first quarter of 2004 increased $225 thousand, or 65.8%, compared to the first quarter of 2003. Net interest income increased $551 thousand, or 21.0% as a result of a $96 thousand increase in interest expense combined with a $647 thousand increase in interest income. The provision for loan losses totaled $70 thousand representing a decrease of $187 thousand, or 72.8% when compared to the first quarter of 2003. Noninterest income decreased $193 thousand, or 16.4%, while noninterest expense increased $222 thousand, or 7.2%. The provision for income taxes increased $98 thousand, or 79.0%. The return on average equity at March 31, 2004 was 11.10% compared to 7.02% at December 31, 2003. 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, 2004 March 31, 2003 (in thousands) (in thousands) ------------------------------------------------------------------------------------------------------- Average Income/ Average Income/ Balance Expense Yield(1) Balance Expense Yield(1) ------- ------- -------- ------- ------- -------- Earning Assets: Investment securities (2) $ 86,914 789 3.64% $ 31,274 289 3.75% Federal funds sold 3,292 10 1.22% 10,660 33 1.26% Loans (3) 186,008 3,124 6.74% 167,259 2,954 7.16% --------- ----- ---- --------- ----- ---- $ 276,214 3,923 5.70% $ 209,193 3,276 6.35% ========= ===== ===== ========= ===== ===== Liabilities: Noninterest bearing deposits $ 45,684 -- -- $ 34,817 -- -- Savings, money market, & NOW deposits 158,825 342 .86% 121,832 240 .79% Time deposits 71,035 298 1.68% 58,596 341 2.36% Other borrowings 20,258 103 2.04% 5,915 66 4.53% --------- ----- ---- --------- ----- ---- Total Liabilities $295,802 743 1.01% $221,160 647 1.19% ========= ===== ===== ========= ===== ===== Net Interest Spread 4.69% 5.16% ===== ===== ------------------------------------------------------------------------------------------------------- Earning Income Earning Income Assets (Expense) Yield Assets (Expense) Yield ------ --------- ----- ------ --------- ----- Yield on average earning assets $276,214 3,923 5.70% $209,193 3,276 6.35% Cost of funding average earning assets $276,214 (743) (1.08%) $209,193 (647) (1.25%) ----- ------ ----- ------ Net Interest Margin $276,214 3,180 4.62% $209,193 2,629 5.10% ===== ======= ===== ======= -------------------------------------------------------------------------------------------------------
(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 2004 increased $551 thousand, or 21.0%, when compared to the same period of 2003. 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 $497 thousand while interest rates resulted in an increase in net interest income totaling $54 thousand when comparing the first quarter of 2004 to the same period last year. Average earning assets increased $67,021 thousand during the first quarter of 2004 as compared to the first quarter of 2003. Average loans increased $18,749 thousand and investment securities increased $55,640 thousand while federal funds sold decreased $7,368 thousand. The increase in the volume of average earning assets during the first quarter of 2004 as compared to the first quarter of 2003 resulted in an increase in interest income totaling $832 thousand. However, interest rates on average earning assets declined 65 basis points (from 6.35% to 5.70%) when compared to the same period in 2003, resulting in a decrease in interest income totaling $185 thousand. Average liabilities increased $74,642 thousand during the first quarter of 2004 as compared to the same period last year. The increase consists of $25,447 thousand, $12,439 thousand, $10,867 thousand, $6,003 thousand and $5,543 thousand in money market accounts, certificates of deposit, non-interest bearing deposits, NOW and savings accounts. Other borrowings increased $14,343. The increase in average liabilities resulted in an increase in interest expense totaling $335 thousand. As a result of the declining interest rate environment, the cost of interest bearing liabilities decreased 18 basis points (from 1.19% to 1.01%) resulting in a reduction in interest expense totaling $239 thousand. Interest income is also affected by nonaccrual loan activity. Nonaccrual loans at March 31, 2004 and March 31, 2003 totaled $3,112 thousand and $2,709 thousand, respectively. Interest forgone on nonaccrual loans totaled approximately $92 thousand and $69 thousand for the three months ended March 31, 2004 and 2003, respectively. Provision for Loan Losses - ------------------------- The provision for loan losses for the three months ended March 31, 2004 was $70 thousand compared with $257 thousand for the three months ended March 31, 2003, a decrease of $187 thousand or 72.8%. As of March 31, 2004 the allowance for loan losses was $3,314 thousand or 1.6% of total loans, which compares to the allowance for loan losses of $3,262 thousand or 1.8% of total loans as of December 31, 2003. See "Allowance for Loan Losses" contained herein. As of March 31, 2004, nonperforming loans totaled $3,112 thousand or 1.5% of total loans compared to $3,880 thousand or 2.1% at December 31, 2003. 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 2004 decreased $193 thousand, or 16.4%, compared to the same period last year. Included in noninterest income is $65 thousand and $88 thousand attributable to gains resulting from the sale of securities during the first quarter of 2004 and 2003, respectively. Income from the sale and servicing of loans totaled $254 thousand during the first quarter of 2004, which decreased by $181 thousand, or 41.6%, compared to the prior year quarter. As a result of an overall increase in mortgage lending rates in 2004 as compared to the prior year, the Company experienced a decline in its residential mortgage lending activity during the first quarter of 2004. The cash surrender value of life insurance increased $17 thousand, or 12.1%, during the first quarter of 2004 when compared to the same quarter in 2003. 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 7.7% during the first quarter of 2004 as compared to 7.3% during the first quarter of 2003. Noninterest Expense - ------------------- Noninterest expense increased $222 thousand, or 7.2%, compared to the prior year quarter. The leading factors contributing to the increase in noninterest expense were reflected in increases of $144 thousand, or 8.7% in salaries and employee benefits combined with expenses totaling $67,000 associated with actions initiated by three dissident directors. The actions initiated by the dissidents represent 30.2% of the total increase in noninterest expense during 2004. The opening of the new branch in Sacramento in late 2003 accounted for over 90% of the increase in salaries and employee benefits expense. Income Taxes - ------------- In the three months ended March 31, 2004, taxes increased $98 thousand to $222 thousand from $124 thousand for the same period in 2003. The Bank's effective tax rate for the three months ended March 31, 2004 was 28.1%, compared to 26.6% for the same period in 2003. Off-Balance Sheet Commitments - ------------------------------ The following table shows the distribution of the Company's undisbursed loan commitments at the dates indicated. (in thousands) March 31, 2004 December 31, 2003 - -------------------------------------------------------------------------------- Commitments to extend credit $ 52,684 49,643 ================================================================================ Standby letters of credit $ 355 488 ================================================================================ Liquidity The Company's primary sources of liquidity are the proceeds from the junior subordinated debentures combined with dividends from the Bank. The Company's primary uses of liquidity are associated with interest payments on the junior subordinated debentures, dividend payments made to shareholders, stock repurchases and operating expenses. The Company also has liquidity available to provide capital to the Bank as needed in order to support the Bank's capital plan and growth objectives. 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, 2004, 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 2003 liquidity decreased in 2004 as a result of the growth in the loan portfolio and purchases of available-for-sale investment securities. 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, 2004, there were no material changes in the market risk profile of the Company or the Bank as described in the Company's 2003 Form 10-K. ITEM 4. CONTROLS AND PROCEDURES The Company's management evaluated, with the participation of the Company's principal executive and principal financial officers, the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as of March 31, 2004. Based on their evaluation, the Company's principal executive and principal financial officers concluded that the Company's disclosure controls and procedures were effective as of March 31, 2004. There has been no change in the Company's internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the Company's fiscal quarter ended March 31, 2004, that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting. PART II -- OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS On March 23, 2004, a lawsuit was filed naming First Financial Bancorp, Bank of Lodi, N.A. and certain named directors and officers of the Company. The suit is filed as a derivative action alleging various charges of breach of fiduciary duty and corporate mismanagement against the named officers and directors. The lawsuit was commenced by two shareholders on behalf of the Company. The complaint also alleges intentional and negligent breach of fiduciary duty, abuse of control, waste of corporate assets, unjust enrichment and imposition of constructive trust. The matter has been tendered to the Company's carrier for its director and officer liability insurance and the insurance company is expected to respond to the tender of defense in due course. If coverage under the policy is denied, the Company may be obligated to provide indemnification to the named officers and directors. The Company is evaluating the allegations of the Complaint and will vigorously defend them, as appropriate. If the allegations are proven, any recovery in the suit will benefit the Company. The bank is involved in various legal actions arising in the ordinary course of business. In the opinion of management, after consulting with legal counsel, the ultimate disposition of these matters will not have a material effect on the Bank's financial condition, results of operations, or liquidity. ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES The table below sets forth the information with respect to purchases made by or on behalf of First Financial Bancorp or any "affiliated purchaser" (as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934), of the Company's common stock during the three months ended March 31, 2004.
Total Approximate Dollar Number Value of Shares of Shares That Purchased May Yet Be as Part of Purchased Under Total Number Average Publicly Announced the Plans or of Shares Price Paid Plans or Programs(1) Period Purchased Per Share Programs (1) (in thousands) --------------------------------------------------------------------------------------------------- Month #1 -- -- -- $1,453 (January 1, 2004 to January 31, 2004) Month #2 -- -- -- $1,453 (February 1, 2004 to February 29, 2004) Month #3 -- -- -- $1,453 (March 1, 2004 to March 31, 2004) ------------------------------------------------- ------------------------------------------------- Total -- -- -- ================================================= (1) On April 4, 2002, the Company announced that the Board of Directors had approved a share repurchase program, pursuant to which up to $2 million of its common stock may be repurchased. The repurchase program is being effected from time to time, depending on market conditions and other factors, through open market purchases and privately negotiated transactions. The total remaining authorization under the repurchase program was $1,453 thousand as of April 30, 2004. The repurchase program expires December 31, 2004.
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 The exhibit list required by this item is incorporated by reference to the Index to Exhibits filed as part of this report. (b) Reports on Form 8-K During the first quarter of 2004, the Company furnished a Current Report on 8-K dated March 5, 2004 (Items 7 and 9). During the second quarter of 2004, the Company furnished a Current Report on 8-K dated April 9, 2004 (Items 7 and 9). During the second quarter of 2004, the Company furnished a Current Report on 8-K dated April 13, 2004 (Items 7 and 9). 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, 2004 /s/ Allen R. Christenson ------------ -------------------------------------------- Allen R. Christenson Executive Vice President Chief Financial Officer (Principal Accounting and Financial Officer) INDEX TO EXHIBITS Exhibit Description - ------- ----------- 31.1 Certification of Registrant's Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2 Certification of Registrant's Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.1 Certification of Registrant's Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 32.2 Certification of Registrant's Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 EX-31 2 p18521-ex31_1.txt EXHIBIT 31.1 Exhibit 31.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER I, Leon Zimmerman, certify that: 1. I have reviewed this quarterly report on Form 10-Q of First Financial Bancorp for the quarter ended March 31, 2004; 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-15(e) and 15d-15(e)) for the registrant and we 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 quarterly 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 quarterly report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) 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 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. /s/ Leon Zimmerman ----------------------------------------- Leon Zimmerman President and Chief Executive Officer (Principal Executive Officer) Dated: May 12, 2004 EX-31 3 p18521-ex31_2.txt EXHIBIT 31.2 Exhibit 31.2 CERTIFICATION OF CHIEF FINANCIAL OFFICER I, Allen R. Christenson, certify that: 1. I have reviewed this quarterly report on Form 10-Q of First Financial Bancorp for the quarter ended March 31, 2004; 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-15(e) and 15d-15(e)) for the registrant and we 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 quarterly 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 quarterly report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) 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 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. /s/ Allen R. Christenson -------------------------------------------- Allen R. Christenson Chief Financial Officer (Principal Financial and Accounting Officer) Dated: May 12, 2004 EX-32 4 p18521-ex32_1.txt EXHIBIT 32.1 Exhibit 32.1 FIRST FINANCIAL BANCORP CERTIFICATION OF CHIEF EXECUTIVE OFFICER 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, 2004, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Leon S. Zimmerman, Chief Executive Officer of the Company, hereby 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, 2004 /s/ Leon S. Zimmerman ------------------------------ Chief Executive Officer EX-32 5 p18521-ex32_2.txt EXHIBIT 32.2 Exhibit 32.2 FIRST FINANCIAL BANCORP CERTIFICATION OF CHIEF FINANCIAL OFFICER 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, 2004, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Allen R. Christenson, Chief Financial Officer of the Company, hereby 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, 2004 /s/ Allen R. Christenson ------------------------------ Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----