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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the period ended June 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from to
Commission File Number : 0-12499
First Financial Bancorp
(Exact name of registrant as specified in its charter)
California 94-28222858
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
701 South Ham Lane, Lodi, California 95242
(Address of principal executive offices) (Zip Code)
(209)-367-2000
(Registrant's telephone number, including area code)
NA
(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
[X] Yes [ ] No
As of August 4, 2000 there were 1,516,798 shares of Common Stock, no
par value, outstanding.
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FIRST FINANCIAL BANCORP
FORM 10-Q
FOR THE QUARTER AND SIX MONTH PERIOD ENDED JUNE 30, 2000
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............. 16
PART II
Item 1. Legal Proceedings...................................................... 16
Item 2. Changes in Securities.................................................. 16
Item 3. Defaults Upon Senior Securities........................................ 16
Item 4. Submission of Matters to a Vote of Security Holders ................... 16
Item 5. Other Information...................................................... 16
Item 6. Exhibits and Reports on Form 8-K....................................... 16
i
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
FIRST FINANCIAL BANCORP AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
(in thousands except share amounts)
June 30, December 31,
2000 1999
-------------- ---------------
Assets
- -----------------------------------------------------------------
Cash and due from banks $ 9,391 $ 9,309
Federal funds sold 5,500 100
Investment securities:
Available-for-sale, at fair value 35,187 36,096
Loans 116,877 112,174
Less: allowance for loan losses (2,668) (2,580)
-------------- --------------
Net loans 114,209 109,594
Bank premises and equipment, net 7,105 7,096
Accrued interest receivable 1,709 1,487
Other assets 13,108 12,652
-------------- --------------
Total Assets $ 186,209 $ 176,334
============== ==============
Liabilities and Stockholders' Equity
- -----------------------------------------------------------------
Liabilities:
Deposits:
Non-interest bearing $ 20,745 $ 21,054
Interest bearing 141,022 135,107
-------------- --------------
Total deposits 161,767 156,161
Accrued interest payable 307 304
Short term borrowings 8,347 4,300
Other liabilities 563 1,048
-------------- --------------
Total liabilities 170,984 161,813
Stockholders' equity:
Common stock - no par value; authorized 9,000,000
shares, issued and outstanding in 2000 and 1999,
1,516,798 and 1,433,734 respectively 9,250 8,433
Retained earnings 6,090 6,354
Accumulated other comprehensive loss (115) (266)
-------------- --------------
Total stockholders' equity 15,225 14,521
-------------- --------------
Total Liabilities and Stockholders' Equity $ 186,209 $ 176,334
============== ==============
<FN>
See accompanying notes.
</FN>
-1-
FIRST FINANCIAL BANCORP AND SUBSIDIARIES
Consolidated Statements of Income
(Unaudited)
(in thousands, except per share amounts)
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ -----------------------
2000 1999 2000 1999
------- ------- ------- -------
Interest income:
Loans, including fees $ 2,657 $ 2,317 $ 5,221 $ 4,563
Investment securities:
Taxable 417 555 870 1,135
Exempt from federal taxes 140 52 277 104
Federal funds sold 64 52 106 132
------- ------- ------- -------
Total interest income 3,278 2,976 6,474 5,934
Interest expense:
Deposit accounts 981 911 2,016 1,849
Short term borrowings 174 -- 174 --
------- ------- ------- -------
Total interest expense 1,155 911 2,190 1,849
------- ------- ------- -------
Net interest income 2,123 2,065 4,284 4,085
Provision for loan losses 65 101 100 201
------- ------- ------- -------
Net interest income after provision for
loan losses 2,058 1,964 4,184 3,884
Non-interest income:
Service charges 329 239 644 447
Premiums and fees from SBA and mortgage
operations 137 162 327 378
Miscellaneous 163 79 320 140
------- ------- ------- -------
Total non-interest income 629 480
1,291 965
Non-interest expense:
Salaries and employee benefits 1,119 980 2,237 1,912
Occupancy 262 186 463 385
Equipment 131 151 310 307
Other 1,007 871 1,848 1,573
------- ------- ------- -------
Total non-interest expense 2,519 2,188 4,858 4,177
------- ------- ------- -------
Income before provision for income taxes 168 256 617 672
Provision for income tax (benefit) expense (28) 78 75 221
------- ------- ------- -------
Net income $ 196 $ 178 $ 542 $ 451
Unrealized gain (loss) on available for
sale securities, net of tax 262 (181) 151 (278)
------- ------- ------- -------
Total comprehensive income (loss) 458 (3) 693 173
======= ======= ======= =======
Earnings per share:
Basic $ 0.13 $ 0.12 $ 0.36 $ 0.30
======= ======= ======= =======
Diluted $ 0.13 $ 0.11 $ 0.35 $ 0.29
======= ======= ======= =======
Dividends declared per share $ -- $ 0.05 $ -- $ 0.10
======= ======= ======= =======
See accompanying notes.
-2-
FIRST FINANCIAL BANCORP AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity and Comprehensive Income
(Unaudited)
(in thousands except share amounts)
Six Months Ended June 30, 1999
Accumulated
Common Common Other
Stock Stock Comprehensive Retained Comprehensive
Description Shares Amounts Income Earnings Income Total
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 1,349,292 $ 7,584 5,971 302 13,857
Comprehensive income:
Net income $ 451 451 451
-----------
Other comprehensive loss:
Unrealized holding losses on
securities available for sale
arising during the current
period, net of tax benefit
of $202 (278)
-----------
Total other comprehensive
loss (278) (278) (278)
-----------
Comprehensive income $ 173
===========
Options exercised 34,825 232 232
Stock dividend 40,860 (7) (7)
Cash dividend (138) (138)
-------------------------- ---------------------------------------
Balance at June 30, 1999 1,424,977 $ 7,816 6,277 24 14,117
========================== =======================================
Six Months Ended June 30, 2000
Accumulated
Common Common Other
Stock Stock Comprehensive Retained Comprehensive
Description Shares Amounts Income Earnings Income Total
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1999 1,433,734 $ 8,433 6,354 (266) 14,521
Comprehensive income:
Net income $ 542 542 542
-----------
Other comprehensive income:
Unrealized holding gains on
securities available for
sale arising during the
current period, net of tax
of $109 151
-----------
Total other comprehensive
income 151 151 151
-----------
Comprehensive income $ 693
===========
Options exercised 11,300 85 85
Stock dividend 71,764 732 (732)
Cash dividend (74) (74)
-------------------------- ---------------------------------------
Balance at June 30, 2000 1,516,798 $ 9,250 6,090 (115) 15,225
========================== =======================================
See accompanying notes.
-3-
FIRST FINANCIAL BANCORP AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
Six Months Ended June 30,
2000 1999
-------- --------
Cash flows from operating activities:
Net income $ 542 $ 451
Adjustments to reconcile net income to net cash
used in operating activities:
Increase in loans held for sale (1,270) (1,959)
Increase in deferred loan income 20 35
Depreciation & amortization 629 541
Provision for loan losses 100 201
Increase in accrued interest receivable (222) (114)
Increase (decrease) in accrued interest payable 3 (43)
Decrease in other liabilities (485) (39)
Increase in Cash Surrender Value Life Insurance (225) (77)
Decrease (increase) in other assets 443 (245)
-------- --------
Net cash used in operating activities (465) (1,249)
Cash flows from investing activities:
Proceeds from maturity of available-for-sale securities 1,954 4,279
Proceeds from sale of available-for-sale securities -- 14,450
Purchase of available-for-sale securities (899) (11,850)
Increase in loans made to customers (3,465) (8,822)
Proceeds from the sale of other real estate 10 --
Purchases of bank premises, equipment and intangible assets (417) (202)
Purchase of cash surrender value life insurance (900) --
-------- --------
Net cash used in investing activities
(3,717) (2,145)
Cash flows from financing activities:
Net increase in deposits 5,606 1,419
Increase in short term borrowings 4,047 --
Proceeds from issuance of common stock 85 232
Payment of dividends (73) (138)
Payment for fractional stock dividends (1) (7)
-------- --------
Net cash provided by financing activities
9,664 1,506
Net increase (decrease) in cash and cash equivalents 5,482 (1,888)
Cash and cash equivalents at beginning of period 9,409 12,129
-------- --------
Cash and cash equivalents at end of period $ 14,891 $ 10,241
======== ========
Supplemental Discolsures of Cash Flow Information:
Cash paid for interest payments $ 2,187 1,892
Cash paid for taxes $ 491 570
See accompanying notes.
-4-
FIRST FINANCIAL BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2000 and December 31, 1999
(1) Summary of Significant Accounting Policies
The accounting and reporting policies of First Financial Bancorp (the
Company) and its subsidiaries, Bank of Lodi, N.A., (the Bank) and Western
Auxiliary Corporation (WAC) conform with generally accepted accounting
principles and prevailing practices within the banking industry. In
preparing the consolidated financial statements, management is required to
make estimates and assumptions that affect the reported amounts of assets
and liabilities as of the date of the balance sheet and revenue and expense
for the period. Actual results could differ from those estimates applied in
the preparation of the consolidated financial statements. There were no new
accountings standards adopted during the current period.
(2) Weighted Average Shares Outstanding
Per share information is based on weighted average number of shares of
common stock outstanding during each three- and six-month periods after
giving retroactive effect for the five percent stock dividend declared for
shareholders of record May 9, 2000, payable May 23, 2000. 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.
-5-
FIRST FINANCIAL BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2000 and December 31, 1999
(2) Weighted Average Shares Outstanding (continued)
The following table provides a reconciliation of the numerator and denominator of the basic and diluted earnings
per share computation of the three and six month periods ending June 30, 2000 and 1999:
Income Shares Per-Share
Three months ended June 30, 2000 (numerator) (denominator) Amount
---------------------------------------------------------- --------------- -- --------------- --------------
Basic earnings per share $ 196,000 1,516,798 $ .13
Effect of dilutive securities - 38,022 -
--------------- ---------------
Diluted earnings per share $ 196,000 1,554,820 $ .13
=============== ===============
Income Shares Per-Share
Three months ended June 30, 1999 (numerator) (denominator) Amount
---------------------------------------------------------- --------------- -- --------------- --------------
Basic earnings per share $ 178,000 1,493,915 $ .12
Effect of dilutive securities - 69,034 -
--------------- ---------------
Diluted earnings per share $ 178,000 1,562,949 $ .11
=============== ===============
Income Shares Per-Share
Six months ended June 30, 2000 (numerator) (denominator) Amount
---------------------------------------------------------- --------------- -- --------------- --------------
Basic earnings per share $ 542,000 1,512,918 $ .36
Effect of dilutive securities - 39,075 -
--------------- ---------------
Diluted earnings per share $ 542,000 1,551,993 $ .35
=============== ===============
Income Shares Per-Share
Six months ended June 30, 1999 (numerator) (denominator) Amount
---------------------------------------------------------- --------------- -- ---------------- -------------
Basic earnings per share $ 451,000 1,482,129 $ .30
Effect of dilutive securities - 66,778 -
--------------- ----------------
Diluted earnings per share $ 451,000 1,548,907 $ .29
=============== ================
(3) Allowance for Loan Losses
The following summarizes changes in the allowance for loan losses for the six month periods ended June 30,
2000 and 1999 and the twelve month period ended December 31, 1999:
6/30/00 6/30/99 12/31/99
-------------- ------------- --------------
Balance at beginning of period $ 2,580,000 1,564,000 1,564,000
Loans charged off (23,000) (8,000) (110,000)
Recoveries 11,000 38,000 75,000
Provisions charged to operations 100,000 201,000 1,051,000
-------------- ------------- --------------
Balance at end of period $ 2,668,000 1,795,000 2,580,000
============== ============= ==============
-6-
FIRST FINANCIAL BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2000 and December 31, 1999
(4) Basis of Presentation
First Financial Bancorp is the holding company for Bank of Lodi, N.A. and
Western Auxiliary Corporation. In the opinion of management, the
accompanying unaudited consolidated financial statements reflect all
adjustments (consisting of normal recurring accruals and other accruals as
explained above) necessary for a fair presentation of financial position as
of the dates indicated and results of operations for the periods shown. All
material intercompany accounts and transactions have been eliminated in
consolidation. In preparing the financial statements, management is required
to make estimates and assumptions that affect the reported amounts. The
results for the three and six months ended June 30, 2000 are not necessarily
indicative of the results which may be expected for the year ended December
31, 2000. The unaudited consolidated financial statements presented herein
should be read in conjunction with the consolidated financial statements and
notes included in the 1999 Annual Report to Shareholders.
-7-
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Cautionary Statement for the Purposes of the Safe Harbor Provisions of the
Private Securities Litigation Reform Act of 1995.
The Company is including the following cautionary statement to take advantage of
the "Safe Harbor" provisions of the Private Securities Litigation Reform Act of
1995 for any forward-looking statement made by, or on behalf of, the Company.
The factors identified in this cautionary statement are important factors (but
not necessarily all important factors) that could cause actual results to differ
materially from those expressed in any forward-looking statement made by, or on
behalf of, the Company.
Where any such forward-looking statement includes a statement of the assumptions
of bases underlying such forward-looking statement, the Company cautions that,
while it believes such assumptions or bases to be reasonable and makes them in
good faith, assumed facts or bases almost always vary from actual results, and
the differences between assumed facts or bases and actual results can be
material, depending on the circumstances. Where, in any forward-looking
statement, the Company expresses an expectation or belief as to future results,
such expectation or belief is expressed in good faith and believed to have a
reasonable basis, but there can be no assurance that the statement of
expectation or belief will result, or be achieved or accomplished.
Taking into account the foregoing, such risks and uncertainties include, but are
not limited to, the following factors: competitive pressure in the banking
industry; changes in the interest rate environment; general economic conditions,
either nationally or regionally becoming less favorable than expected and
resulting in, among other things, a deterioration in credit quality and an
increase in the provision for possible loan losses; changes in the regulatory
environment; changes in business conditions; volatility of rate sensitive
deposits; operational risks, including data processing system failures or fraud;
asset/liability matching risks and liquidity risks; and changes in the
securities markets.
The following discussion addresses information pertaining to the financial
condition and results of operations of the Company that may not be otherwise
apparent from a review of the consolidated financial statements and related
footnotes. It should be read in conjunction with those statements and notes
found on pages 1 through 7, as well as other information presented throughout
this report.
Changes in Financial Condition
Consolidated total assets at June 30, 2000 were approximately $186 million,
which represents an increase of $9.9 million or 5.6% above the comparable level
at December 31, 1999. The increase in total assets was directly attributable to
a $5.6 million or 3.6% increase in total deposits combined with a $4.0 million,
or 94.1%, increase in short term borrowings as compared to December 31, 1999.
The growth in deposits is primarily the result of increases in Certificates of
Deposit, which include a $2 million increase in Certificates of Deposit obtained
from the State of California as part of the State's Time Certificate of Deposit
program. Compared to year-end 1999, non-interest bearing deposits decreased by
$309 thousand, or 1.5%, while interest bearing deposits increased $5.9 million,
or 4.4%. The increase in interest bearing deposits is comprised of an increase
of $7.7 million, or 2.5%, in Certificates of Deposit, which was offset by
decreases
-8-
of $1.1 million, or 1.9%, in interest bearing checking accounts and $1 million,
or 2.3%, in regular savings accounts.
The gross loan portfolio increased $4.7 million or 4.2%, from December 31, 1999
to June 30, 2000. Included in the activity for the year 2000 was the sale of
approximately $1.2 million in Small Business Administration ("SBA") and mortgage
loans which were held for sale to the secondary market at December 31, 1999. At
June 30, 2000, the Bank had $2.5 million in SBA and mortgage loans held for sale
to the secondary market.
Increases to the loan portfolio occurred in the SBA portfolio totaling $2.1
million, or 9.4%, Real Estate loans totaling $1.1 million, or 2.7%, Construction
loans totaling $1.8 million, or 13.1%, and Loans Held for Sale totaling $1.3
million, or 104.4%, respectively, during the first six months of 2000. Decreases
to the loan portfolio occurred in Agricultural loans totaling $1.3 million, or
7.3%. Commercial loans (excluding agriculture loans) and consumer loans remained
relatively flat, respectively, during the first six months of 2000.
The allowance for loan losses (the "allowance") is established through a
provision for loan losses charged to expense. The allowance at June 30, 2000 was
in excess of the December 31, 1999 allowance by $88 thousand, or 3.4%, as a
result of a provision for $100 thousand and net charge offs totaling $12
thousand. This compares to a provision of $201 thousand for the first six months
of 1999. The decreased provision is a result of the general growth of the loan
portfolio during the first six months of 2000 ($4.7 million, or 4.2%) not
occurring at the same rate as occurred during the first six months of 1999
($10.8 million, or 11.6%). At June 30, 2000, non-performing loans were $7.1
million, or 6.0% of gross loans outstanding. This compares to $2.7 million or
2.4% of gross loans outstanding at December 31, 1999. The allowance to
non-performing loan coverage ratio decreased to 0.37 times from 0.96 times.
Total portfolio delinquency at June 30, 2000 was 7.1%, compared to 3.32% at
December 31, 1999. Excluding the non-performing loans, total portfolio
delinquency at June 30, 2000 was 1.1%, compared to 0.9% at December 31, 1999.
Year-to-date interest forgone or reversed on non-accrual loans during the first
six months of 2000 totals approximately $325,000. The majority of the loans
placed on nonaccrual were internally identified as classified assets as of
December 31, 1999 and specific reserves for possible losses were established
within the allowance as of December 31, 1999. Management continues to actively
monitor the status of these nonperforming loans and as of June 30, 2000 did not
believe any material increases to the specific reserves for these nonperforming
loans as compared to December 31, 1999 was necessary. Management believes the
allowance at June 30, 2000 is adequate to absorb loan losses inherent in the
portfolio. 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.
-9-
The following tables depict activity in the allowance for loan losses and
allocation of reserves as of and for the six months and year ended June 30, 2000
and December 31, 1999, respectively:
June 30, December 31,
2000 1999
------- -------
Balance at beginning of period $ 2,580 $ 1,564
Charge-offs:
Commercial -- (90)
Real estate -- --
Consumer (23) (20)
------- -------
Total charge-offs (23) (110)
Recoveries:
Commercial 4 68
Real estate -- --
Consumer 7 7
------- -------
Total recoveries 11 75
------- -------
Net charge-offs (12) (35)
Provision charged to operations 100 1,051
------- -------
Balance at end of period $ 2,668 2,580
======= =======
Allocation of the Allowance for Loan Losses
--------------------------------------- ---------------------------------------
June 30, 2000 December 31, 1999
--------------------------------------- ---------------------------------------
Amount Amount
Loan Category (000's) % of Loans (000's) % of Loans
- ------------------------- ----------------- ----------------- ----------------- -----------------
Commercial $ 893 78.60% $ 538 79.03%
Real Estate 528 18.71% 366 18.04%
Consumer 2 2.69% 1 2.93%
Unallocated 1,245 N/A 1,675 N/A
----- ------- ------ -------
$ 2,668 100.00% $ 2,580 100.00%
====== ======= ====== =======
Investments
Investments consist of federal funds sold, money market mutual funds and
investment securities. Investment securities decreased by $909 thousand, or
2.5%, from December 31, 1999 to June 30, 2000. The decline represents matured
bonds and securities contractually called by issuers. As a result of the Bank's
projections for the funding of loans, the matured and called bonds over the
first half of 2000 were reinvested primarily in federal funds sold to avoid
market risk over the short-term before funding loans.
Equity
Consolidated equity increased by $704 thousand from December 31, 1999 to June
30, 2000. Consolidated equity represented 8.18% and 8.23% of consolidated assets
at June 30, 2000 and December 31, 1999, respectively. In addition to the
earnings of $542 thousand, equity capital increased by $85 thousand from the
exercise of stock options over the six months ended June 30,
-10-
2000 and $151 thousand to reflect the increase in the after-tax market value of
the available-for-sale investment securities portfolio. The increase in the
investment security portfolio's market value reflects the decrease in the level
of market interest rates at June 30, 2000 compared to December 31, 1999.
Year-to-date capital reductions include $73 thousand for dividend payments, $1
thousand for the cash payout for fractional shares as a result of the 5% stock
dividend declared in May 2000. The total risk-based capital ratio for the
Company's wholly owned subsidiary, Bank of Lodi was 10.56% at June 30, 2000
compared to 10.51% at December 31, 1999. The Bank's leverage capital ratio was
7.70% at June 30, 2000 versus 7.73% at December 31, 1999. The capital ratios are
in excess of the regulatory minimums for a well-capitalized bank.
Changes in Results of Operations - Three and Six Months ended June 30, 2000
Summary of Earnings Performance
------------------------------------ ----------------------------------
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------------ ----------------------------------
2000 1999 2000 1999
---------------- ------------- --------------- -------------
Earnings (in thousands) $ 196 $ 178 $ 542 $ 451
Basic earnings per share $ 0.13 $ 0.12 $0.36 $ 0.30
Diluted earnings per share $ 0.13 $ 0.11 $0.35 $ 0.29
Return on average assets 0.44% 0.43% 0.61% 0.55%
Return on average equity 5.48% 5.24% 7.69% 6.71%
Dividend payout ratio -- 38.46% -- 31.25%
Average equity to average assets 7.96% 8.22% 7.92% 8.21%
The Company reported net income of $196,000 ($.13 per share, diluted) for the
three months ended June 30, 2000, compared to $178,000 ($.11 per share, diluted)
for the same period in 1999. Net income for the six months ended June 30, 2000
was $542,000 ($.35 per share, diluted) compared to $451,000 ($.29 per share,
diluted). The increase in net income for the second quarter in 2000 when
compared to the same period one year ago is due to an increase of $58 thousand
in net interest income, a decrease of $36 thousand in the provision for loan
losses, an increase of $149 thousand in non-interest income and an increase of
$331 thousand in non-interest expense. The increase in net income during the
first six months of 2000 when compared to the same period in 1999 is due to an
increase of $199 thousand in net interest income, a decrease of $101 thousand in
the provision for loan losses, an increase of $326 thousand in non-interest
income and an increase of $681 thousand in non-interest expense.
-11-
Net Interest Income
The following tables provides a detailed analysis of the net interest spread and
net interest margin for the periods indicated:
-------------------------------------------------------------------------------------------
For the Three Months Ended June 30,
-------------------------------------------------------------------------------------------
2000 1999
-------------------------------------------- -------------------------------------------
Average Income/ Yield Average Income/ Yield
Dollars In Thousands Balance Expense (1) Balance Expense (1)
------------ ------------- ---------- ----------- ------------ -----------
Earning Assets:
Investment securities
(1)(2) $ 34,988 $ 557 6.39% $ 42,944 $ 607 5.68%
Federal funds sold 3,587 64 7.16% 4,311 52 4.78%
Loans (2)(3) 115,062 2,657 9.26% 97,220 2,317 9.56%
------------ ------------- ---------- ----------- ------------ -----------
$ 153,637 $ 3,278 8.56% $ 144,475 $ 2,976 8.26%
============ ============= ========== =========== ============ ===========
Liabilities:
Non-interest bearing
deposits $ 19,869 $ -- -- $ 19,482 $ -- --
Savings, money market,
& NOW deposits 83,404 332 1.60% 80,190 330 1.65%
Time deposits 55,538 729 5.26% 50,923 581 4.58%
Other borrowings 5,583 94 6.78%
------------ ------------- ---------- ----------- ------------ -----------
Total Liabilities $ 164,394 $ 1,155 2.82% $ 150,595 $ 911 2.43%
============ ============= ========== =========== ============ ===========
Net Interest Spread 5.74% 5.83%
========== ===========
------------ ------------- ---------- ----------- ------------ -----------
Earning Income Earning Income
Assets (Expense) Yield Assets (Expense) Yield
------------ ------------- ---------- ----------- ------------ -----------
Yield on average earning $ 153,637 $ 3,278 8.56% $ 144,475 $ 2,976 8.26%
assets
Cost of funding average
earning assets $ 153,637 (1,155) (3.02)% $ 144,475 (911) 2.53)%
------------- ---------- ------------ -----------
Net Interest Margin $ 153,637 $ 2,123 5.54% $ 144,475 $ 2,065 5.73%
============= ========== ============ ===========
<FN>
(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.
</FN>
-12-
-------------------------------------------------------------------------------------------
For the Six Months Ended June 30,
-------------------------------------------------------------------------------------------
2000 1999
-------------------------------------------- -------------------------------------------
Average Income/ Yield Average Income/ Yield
Dollars In Thousands Balance Expense (1) Balance Expense (1)
------------ ------------- ---------- ----------- ------------ -----------
Earning Assets:
Investment securities (1)
(2) $ 35,547 $ 1,147 6.47% $ 44,043 $ 1,239 5.67%
Federal funds sold 3,232 106 6.58% 5,544 132 4.79%
Loans (2) (3) 113,153 5,221 9.25% 94,706 4,563 9.72%
------------ ------------- ---------- ----------- ------------ -----------
$ 151,932 $ 6,474 8.55% $ 144,293 $ 5,934 8.29%
============ ============= ========== =========== ============ ===========
Liabilities:
Non-interest bearing
deposits $ 19,597 $ -- -- $ 18,790 $ -- --
Savings, money market, &
NOW deposits 83,612 667 1.60% 80,470 660 1.65%
Time deposits 53,713 1,349 5.03% 50,500 1,189 4.75%
Other borrowings 5,583 174 6.25% -- -- --
------------ ------------- ---------- ----------- ------------ -----------
Total Liabilities $ 162,505 $ 2,190 2.70% $ 149,760 $ 1,849 2.48%
============ ============= ========== =========== ============ ===========
Net Interest Spread 5.84% 5.81%
========== ===========
------------ ------------- ---------- ----------- ------------ -----------
Earning Income Earning Income
Assets (Expense) Yield Assets (Expense) Yield
------------ ------------- ---------- ----------- ------------ -----------
Yield on average earning $ 151,932 $ 6,474 8.55% $ 144,293 $ 5,934 8.29%
assets
Cost of funding average
earning assets $ 151,932 $ (2,190) (2.89)% $ 144,293 $ (1,849) (2.58)%
------------- ---------- ------------ -----------
Net Interest Margin $ 151,932 $ 4,284 5.66% $ 144,293 $ 4,085 5.71%
============= ========== ============ ===========
<FN>
(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.
</FN>
Interest income for the second quarter of 2000 increased by $302 thousand, or
10.1%, over the same quarter of 1999. The net interest margin of 5.54% for the
second quarter of 2000 decreased from 5.73% for the second quarter of 1999. For
the first six months of 2000, interest income increased by $540 thousand, or
9.1%, over the same period one year ago. The net interest margin of 5.66% for
the first six months of 2000 decreased from 5.71% over the same period one year
ago. Improvement in interest income was the result of the higher volume of
loans, a more
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profitable mix of investment securities, and the continued growth in
non-interest bearing deposits to help lower the cost of funding earning assets.
Conversely, the decline in the net interest margin resulted primarily from the
impact of interest forgone on nonaccrual loans combined with an increase in
Certificate of Deposit rates.
Average loans for the three months ended June 30, 2000 increased by $17.8
million, or 18.4% compared to the prior year quarter. For the first six months
of 2000, average loans increased $18.4 million, or 19.5%, compared to the first
six months of 2000. This increase has been the result of the Bank's efforts to
increase total loans. It is the intent of management to increase the total loan
to deposit ratio to 75%, which at June 30, 2000 was 72.3%. Average deposits for
the three months ended June 30, 2000 increased by $8.2 million, or 5.5%,
compared to the prior year quarter. The average rate paid on savings, money
market and NOW accounts decreased from 1.65% in the second quarter of 1999 to
1.60% for the second quarter of 2000. The average rate paid on certificates of
deposits increased, from 4.58% for the second quarter of 1999 to 5.26% for the
same quarter of 2000. For the first six months of 2000, average deposits
increased $7.2 million, or 4.8%, compared to the first six months of 2000. The
average rate paid on savings, money market and NOW accounts was 1.60% compared
to 1.65% for 1999. The average rate paid on certificates of deposit was 5.03%
compared to 4.75% for 1999.
Average non-interest bearing deposits have kept pace with the growth in interest
bearing deposits from a year ago and make up 13% of average total deposits both
for the second quarter and for the first six months of 2000. This has helped to
keep down the cost of funding earning assets. Average certificates of deposit
for the second quarter and the first six months of 2000 were 34% and 35% of
average deposits, respectively, compared to 34% for the same periods of 1999.
Provision for Loan Losses
The provision for loan losses for the three and six months ended June 30, 2000
was $65,000 and $100,000 compared with $101,000 and $201,000 for the three and
six months ended June 30, 1999. The decrease is consistent with the decrease in
the growth rate of gross loans during the first six months of 2000 as compared
to the first six months of 1999. Also see "Allowance for Loan Losses" contained
herein.
Non-interest Income
Non-interest income for the second quarter of 2000 increased by $149 thousand,
or 31.0%, over the same period last year. For the first six months of 2000,
non-interest income increased $326 thousand, or 33.8%, compared to the first six
months of 1999.
Service charge income for the second quarter increased by $90 thousand, or
37.7%, compared to the same quarter of 1999. For the first six months of 2000,
service charge income increased $197 thousand, or 44.1%, compared to the first
six months of 1999. The increases have resulted from strategic initiatives
regarding pricing and improved services which were implemented during the second
half of 1999.
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Income from the premiums and fees from SBA and mortgage operations declined by
$25 thousand, or 15.4%, compared to the prior year second quarter. For the first
six months of 2000, premiums and fees from SBA and mortgage operations decreased
$51 thousand, or 13.5%, compared to the first six months of 1999. The decrease
in income is a result of declines in total volumes of loans generated and sold,
particularly in the area of SBA loans. Furthermore, the Bank has experienced
general declines in the premiums received for sold SBA loans.
Non-interest Expenses
Non-interest expenses increased by $331 thousand, or 15.1%, compared to the
prior year quarter. For the first six months of 2000, non-interest expense
increased $681 thousand, or 16.3%, compared to the first six months of 1999. The
increase in non-interest expense results primarily from increases in salary and
benefits, legal and consulting, marketing and problem loan resolution.
For the second quarter, salary and employee benefits expense increased $139
thousand, or 14.2%, legal expenses increased $36 thousand, or 156.5%, consulting
expenses increased $38 thousand, or 80.9%, marketing expenses increased $53
thousand, or 86.9%, and problem loan resolution expenses increased $82 thousand,
or 1,366.7%, compared to the prior year.
Year to date, salary and employee benefits expense increased $325 thousand, or
17.0%, legal expenses increased $38 thousand, or 86.4%, consulting expenses
increased $82 thousand, or 98.8%, marketing expenses increased $135 thousand, or
121.6%, and problem loan resolution expenses increased $81 thousand, or 736.4%,
compared to the prior year.
Salary and employee benefits expense increased as a result of the addition of
certain staffing positions combined with general merit increases in salaries and
increased employee benefit costs. The increase in legal expense relates
primarily to ongoing corporate matters combined with costs associated with the
resolution of classified loans. The consulting expenses have related primarily
to matters regarding enhancement of noninterest income, personnel and employee
benefits and continued improvements to technology. The marketing expenses relate
to increased efforts to expand the Bank's market share through the use of
television and radio. During the first half of 2000, the bank entered into an
agreement with Mr. Stan Atkinson, a well known local television personality, to
represent the Bank as its spokesman. Management believes this arrangement with
Mr. Atkinson will greatly improve the Bank's ability to increase market share,
particularly in the greater Sacramento area.
Basis of Presentation
First Financial Bancorp is the holding company for Bank of Lodi, N.A. and
Western Auxiliary Corporation. In the opinion of management, the accompanying
unaudited consolidated financial statements reflect all adjustments (consisting
of normal recurring accruals and other accruals as explained above) necessary
for a fair presentation of financial position as of the dates indicated and
results of operations for the periods shown. All material intercompany accounts
and transactions have been eliminated in consolidation. In preparing the
financial statements, management is required to make estimates and assumptions
that affect the reported amounts. The results for the three and six months ended
June 30, 2000 are not necessarily indicative of the results which may be
expected for the year ended December 31, 2000. The unaudited consolidated
financial statements presented herein should be read in conjunction with the
consolidated financial statements and notes included in the 1999 Annual Report
to Shareholders.
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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 six months ended
June 30, 2000, there were no material changes in the market risk profile of the
Company or the Bank as described in the Company's 2000 Form 10-K.
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not Applicable.
ITEM 2. CHANGES IN SECURITIES
Not Applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
ITEM 5. OTHER INFORMATION
Not Applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. Description
----------- -----------
3(a) Articles of Incorporation, as amended, filed as
Exhibit 3.1 to the Company's General Form for
Registration of Securities on Form 10, filed on
September 21, 1983, is hereby incorporated by
reference.
3(b) Bylaws, as amended, filed as Exhibit 3(b) to the
Company's Form 10K for the year ended December 31,
1998 are hereby incorporated by reference.
4 Specimen Common Stock Certificate, filed as Exhibit
4.1 to the Company's General Form for Registration of
Securities on Form 10, filed on September 21, 1983,
is hereby incorporated by reference.
10(a) First Financial Bancorp 1991 Director Stock Option
Plan and form of Nonstatutory Stock Option Agreement,
filed as Exhibit 4.1 to the Company's Form S-8
Registration Statement (Registration No. 33-40954),
filed on May 31, 1991, is hereby incorporated by
reference.
10(b) Amendment to First Financial Bancorp 1991 Director
Stock Option Plan, filed as Exhibit 4.3 to the
Company's Post-Effective Amendment No. 1 to Form S-8
Registration Statement (Registration No. 33-40954),
filed as Exhibit 10 to the Company's Quarterly Report
on Form 10-Q for the period ended March 31, 1995, is
hereby incorporated by reference.
10(c) First Financial Bancorp 1991 Employee Stock Option
Plan and forms of Incentive Stock Option Agreement
and Nonstatutory Stock Option Agreement,
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filed as Exhibit 4.2 to the Company's Form S-8
Registration Statement (Registration No. 33-40954),
filed on May 31, 1991, is hereby incorporated by
reference.
10(d) Bank of Lodi Employee Stock Ownership Plan, filed as
Exhibit 10 to the Company's Annual Report on Form
10-K for the year ended December 31, 1992, is hereby
incorporated by reference.
10(e) First Financial Bancorp 1997 Stock Option Plan, filed
as Exhibit 10 to the Company's Quarterly Report on
Form 10-Q for the period ended September 30, 1997, is
hereby incorporated by reference.
10(f) Bank of Lodi Incentive Compensation Plan, filed as
Exhibit 10(f) to the Company's Annual Report on Form
10-K for the year ended December 31, 1997, is hereby
incorporated by reference.
10(g) First Financial Bancorp 401(k) Profit Sharing Plan,
filed as Exhibit 10(g) to the Company's Annual Report
on Form 10-K for the year ended December 31, 1997, is
hereby incorporated by reference.
10(h) Employment Agreement dated as of September 30, 1998,
between First Financial Bancorp and Leon J.
Zimmerman., filed as Exhibit 10(h) to the Company's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998, is hereby incorporated by
reference.
10(i) Executive Supplemental Compensation Agreement
effective as of April 3, 1998, between Bank of Lodi,
N.A. and Leon J. Zimmerman, filed as Exhibit 10(j) to
the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1998, is hereby
incorporated by reference.
10(j) Life Insurance Endorsement Method Split Dollar Plan
Agreement effective as of April 3, 1998, between Bank
of Lodi, N.A. and Leon J. Zimmerman, filed as Exhibit
10(l) to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1998, is hereby
incorporated by reference.
10(k) Life Insurance Endorsement Method Split Dollar Plan
Agreement effective as of April 3, 1998, between Bank
of Lodi, N.A. and David M. Philipp, filed as Exhibit
10(m) to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1998, is hereby
incorporated by reference.
10(l) Form of Director Supplemental Compensation Agreement,
effective as of April 3, 1998, as executed between
Bank of Lodi, N.A. and each of Benjamin R. Goehring,
Michael D. Ramsey, Weldon D. Schumacher and Dennis R.
Swanson, filed as Exhibit 10(n) to the Company's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998, is hereby incorporated by
reference.
10(m) Form of Life Insurance Endorsement Method Split
Dollar Plan Agreement, effective as of April 3, 1998,
as executed between Bank of Lodi, N.A. and each of
Benjamin R. Goehring, Michael D. Ramsey, Weldon D.
Schumacher and Dennis R. Swanson, filed as Exhibit
10(o) to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1998, is hereby
incorporated by reference.
10(n) Form of Director Supplemental Compensation Agreement,
effective as of April 3, 1998, as executed between
Bank of Lodi, N.A. and each of Angelo J. Anagnos,
Raymond H. Coldani, Bozant Katzakian and Frank M.
Sasaki, filed as Exhibit 10(p) to the Company's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998, is hereby incorporated by
reference.
10(o) Form of Life Insurance Endorsement Method Split
Dollar Plan Agreement, effective as of April 3, 1998,
as executed between Bank of Lodi, N.A. and each of
Angelo J. Anagnos, Raymond H. Coldani, Bozant
Katzakian and Frank M.
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Sasaki, filed as Exhibit 10(q) to the Company's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998, is hereby incorporated by
reference.
27 Financial Data Schedule (electronic submission only).
(b) Reports on Form 8-K
Form 8-K dated April 25, 2000 announcing first quarter 2000
financial results and five percent stock dividend.
Form 8-K dated August 9, 2000 announcing second quarter
2000 financial results.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRST FINANCIAL BANCORP
Date: August 11, 2000 /s/ Leon J. Zimmerman
--------------- ---------------------
Leon J. Zimmerman
President & CEO
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