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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 March 31, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the transition period from to
Commission File Number : 0-12499
First Financial Bancorp
(Exact name of registrant as specified in its charter)
California 94-28222858
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
701 South Ham Lane, Lodi, California 95242
(Address of principal executive offices) (Zip Code)
(209)-367-2000
(Registrant's telephone number, including area code)
NA
(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
[ X ] Yes [ ] No
As of May 3, 2002 there were 1,625,419 shares of Common Stock, no par
value, outstanding.
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FIRST FINANCIAL BANCORP
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2002
TABLE OF CONTENTS
Page
----
PART I
Item 1. Consolidated Financial Statements and Notes to Consolidated
Financial Statements............................................... 1
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.............................................. 7
Item 3. Quantitative and Qualitative Disclosures about Market Risk......... 12
PART II
Item 1. Legal Proceedings.................................................. 12
Item 2. Changes in Securities.............................................. 12
Item 3. Defaults Upon Senior Securities.................................... 12
Item 4. Submission of Matters to a Vote of Security Holders ............... 12
Item 5. Other Information.................................................. 12
Item 6. Exhibits and Reports on Form 8-K................................... 12
i
ITEM 1. FINANCIAL STATEMENTS
FIRST FINANCIAL BANCORP AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
(in thousands except share amounts)
March 31, December 31,
Assets 2002 2001
-------- --------
Cash and due from banks $ 14,043 $ 13,328
Federal funds sold and securities purchased under resale
agreements 12,766 6,129
Investment securities available for sale, at fair value 32,657 41,015
Loans held for sale 4,690 3,876
Loans, net of deferred loan fees 144,164 138,098
Less allowance for loan losses 2,866 2,668
-------- --------
Net loans 141,298 135,430
Premises and equipment, net 7,185 7,185
Accrued interest receivable 1,022 1,265
Other assets 17,482 17,947
-------- --------
Total Assets $231,143 $226,175
======== ========
Liabilities and Stockholders' Equity
Liabilities:
Deposits:
Noninterest bearing $ 29,540 $ 29,758
Interest bearing 176,506 171,813
-------- --------
Total deposits 206,046 201,571
Accrued interest payable 261 307
Short term borrowings -- 4,000
Other liabilities 1,866 2,434
-------- --------
Total liabilities 208,173 208,312
-------- --------
Obligated mandatorily redeemable capital
securities of subsidiary trust 5,000 --
-------- --------
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 2002 and 2001, 1,624,419
and 1,622,300, respectively 10,204 10,191
Retained earnings 7,598 7,317
Accumulated other comprehensive income 168 355
-------- --------
Total stockholders' equity 17,970 17,863
-------- --------
$231,143 $226,175
======== ========
See accompanying notes.
1
FIRST FINANCIAL BANCORP AND SUBSIDIARIES
Consolidated Statements of Income
(Unaudited)
(in thousands except per share amounts)
Three Months Ended March 31,
2002 2001
------ ------
Interest income:
Loans, including fees $2,737 $2,685
Investment securities:
Taxable 322 373
Exempt from Federal taxes 44 71
Federal funds sold 46 181
------ ------
Total interest income 3,149 3,310
Interest expense:
Deposit accounts 994 1,103
Other borrowings 6 3
------ ------
Total interest expense 1,000 1,106
Net interest income 2,149 2,204
Provision for loan losses 195 190
------ ------
Net interest income after provision for loan losses 1,954 2,014
Noninterest income:
Gain on sale of investment securities 262 --
Gain on sale of other real estate 22 222
Gain on sale of loans 229 107
Service charges 364 333
Premiums and fees from SBA and mortgage operations 97 110
Miscellaneous 251 181
------ ------
Total noninterest income 1,225 953
Noninterest expense:
Salaries and employee benefits 1,479 1,405
Occupancy 242 221
Equipment 248 231
Other 874 808
------ ------
Total noninterest expense 2,843 2,665
------ ------
Income before provision for income taxes 336 302
Provision for income taxes 55 47
------ ------
Net income $ 281 $ 255
====== ======
Net income per share:
Basic $ 0.17 $ 0.16
====== ======
Diluted $ 0.17 $ 0.16
====== ======
See accompanying notes.
2
FIRST FINANCIAL BANCORP AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity and Comprehensive Income
(Unaudited)
(in thousands except share amounts)
Three Months Ended March 31, 2002
Accumulated
Common Common Other
Stock Stock Comprehensive Retained Comprehensive
Description Shares Amounts Income Earnings Income(Loss), net Total
- ------------------------------------- ------------ ------------ --------------- ------------- ----------------- -----------
Balance at December 31, 2001 1,622,300 $ 10,191 7,317 355 17,863
Comprehensive income:
Net income $ 281 281 281
-----------
Other comprehensive loss:
Unrealized holding loss
arising during the current
period, net of tax benefit
of $22 (32)
Reclassification adjustment
due to gains realized,
net of tax effect of $107 (155)
Total other comprehensive
loss, net of tax effect -----------
of $129 (187) (187) (187)
-----------
Comprehensive income $ 94
===========
Options exercised 2,119 13 13
----------- ----------- ----------- ------------ ----------
Balance at March 31, 2002 1,624,419 $ 10,204 7,598 168 17,970
=========== =========== =========== ============ ==========
Three Months Ended March 31, 2001
Accumulated
Common Common Other
Stock Stock Comprehensive Retained Comprehensive
Description Shares Amounts Income Earnings Income Total
- ------------------------------------- ------------ ----------- --------------- ------------- ----------------- ------------
Balance at December 31, 2000 1,526,063 $ 9,338 6,831 285 16,454
Comprehensive income:
Net income $ 255 255 255
-----------
Other comprehensive income:
Unrealized holding gain
arising during the current
period, net of tax effect
of $137 188
Total other comprehensive
income, net of -----------
tax effect of $137 188 188 188
-----------
Comprehensive income $ 443
===========
Options exercised 600 6
------------ ---------- ----------- ------------ -----------
Balance at March 31, 2001 1,526,663 $ 9,344 7,086 473 16,903
============ ========== =========== ============ ===========
See accompanying notes.
3
FIRST FINANCIAL BANCORP AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
Three Months Ended March 31,
2002 2001
-------- --------
Cash flows from operating activities:
Net income $ 281 $ 255
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Loans held for sale:
Increase in loans held for sale (585) (293)
Gain on sale of loans (229) (107)
Increase (decrease) in deferred loan income 16 (30)
Depreciation and amortization 432 387
Provision for loan losses 195 190
Gain on sale of securities (262) --
Gain on sale of other real estate owned (22) (222)
Decrease in accrued interest receivable 243 219
(Decrease) increase in accrued interest payable (46) 3
(Decrease) increase in other liabilities (568) 297
Increase in cash surrender value of life insurance (171) (142)
Decrease (increase) in other assets 591 (239)
-------- --------
Net cash (used in) provided by operating activities (125) 318
Cash flows from investing activities:
Investment securities available-for-sale
Purchases (8,580) (8,104)
Proceeds from prepayments 3,681 888
Proceeds from maturity 3,500 7,000
Proceeds from sale 9,649 --
Net (increase) decrease in loans made to customers (6,079) 535
Proceeds from sale of other real estate 90 627
Purchase of cash surrender value life insurance -- (1,500)
Purchases of bank premises and equipment (272) (192)
-------- --------
Net cash provided by (used in) investing activities 1,989 (746)
Cash flows from financing activities:
Net increase in deposits 4,475 11,157
Proceeds from company obligated mandatorily redeemable
securities of subsidiary trust 5,000 --
Decrease in other borrowings (4,000) (4,588)
Proceeds from issuance of common stock 13 6
-------- --------
Net cash provided by financing activities 5,488 6,575
Net increase in cash and cash equivalents 7,352 6,147
Cash and cash equivalents at beginning of period 19,457 21,024
-------- --------
Cash and cash equivalents at end of period $ 26,809 $ 27,171
======== ========
Supplemental Disclosures of Cash Flow Information:
Cash paid for interest payments $ 1,046 1,103
Cash paid for taxes 262 10
See accompanying notes.
4
FIRST FINANCIAL BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2002 and December 31, 2001
(Unaudited)
(1) Summary of Significant Accounting Policies
The accounting and reporting policies of First Financial Bancorp (the
Company) and its subsidiaries, Bank of Lodi, N.A., (the Bank), Western
Auxiliary Corporation (WAC) and First Financial (CA) Statutory Trust I
conform with accounting principles generally accepted in the United States
of America and prevailing practices within the banking industry. In
preparing the consolidated financial statements, management is required to
make estimates and assumptions that affect the reported amounts of assets
and liabilities as of the date of the balance sheet and revenue and expense
for the period. Actual results could differ from those estimates applied in
the preparation of the consolidated financial statements.
(2) Weighted Average Shares Outstanding
Per share information is based on weighted average number of shares of
common stock outstanding during each three-month period after giving
retroactive effect for the five percent stock dividend declared for
shareholders of record May 8, 2001, payable May 22, 2001. Basic earnings
per share (EPS) is computed by dividing net income available to
shareholders by the weighted average common shares outstanding during the
period. Diluted earnings per share is computed by dividing net income
available to shareholders by the weighted average common shares outstanding
during the period plus potential common shares outstanding. Diluted
earnings per share reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or
converted into common stock or resulted in the issuance of common stock
that then shared in the earnings of the Company.
The following table provides a reconciliation of the numerator and
denominator of the basic and diluted earnings per share computation of the
three month periods ending March 31, 2002 and 2001:
Income Shares Per-Share
Three months ended March 31, 2002 (numerator) (denominator) Amount
-------------------------------------- ------------------ ------------------ ----------
Basic earnings per share $ 281,000 1,623,281 $ .17
Effect of dilutive securities - 46,698 -
------------------ ------------------
Diluted earnings per share $ 281,000 1,669,979 $ .17
================== ==================
Income Shares Per-Share
Three months ended March 31, 2001 (numerator) (denominator) Amount
-------------------------------------- ------------------ ------------------ ----------
Basic earnings per share $ 255,000 1,602,653 $ .16
Effect of dilutive securities - 33,377 -
------------------ ------------------
Diluted earnings per share $ 255,000 1,636,030 $ .16
================== ==================
(3) Allowance for Loan Losses
Quarter Year
Ended Ended
(in thousands) 3/31/02 12/31/01
------- -------
Balance at beginning of period $ 2,668 2,499
Loans charged off (8) (283)
Recoveries 11 61
Provisions charged to operations 195 391
------- -------
Balance at end of period $ 2,866 2,668
======= =======
5
(4) Trust Preferred Securities
On March 26, 2002, First Financial (CA) Statutory Trust I (Trust), a
Connecticut statutory business trust and 100%-owned finance subsidiary of
First Financial Bancorp, issued $5 million in floating rate Cumulative
Trust Preferred Securities (Securities). The securities have an initial
interest rate of 5.59% and mature on March 26, 2032, but prior redemption
is permitted under certain circumstances, such as changes in tax or
regulatory capital rules. The principal asset of the Trust is a $5.2
million floating rate subordinated debenture of the Company. The
subordinated debenture bears an initial interest rate of 5.59% and matures
March 26, 2032, subject to prior redemption under certain circumstances.
First Financial Bancorp owns all of the common securities of the Trust.
The Securities, the assets of the Trust, and the common securities issued
by the Trust are redeemable in whole or in part on or after March 26, 2007,
or at any time in whole, but not in part, from the date of issuance upon
the occurrence of certain events. The Securities are included in Tier 1
capital for regulatory capital adequacy determination purposes, subject to
certain limitations. The obligations of the Company with respect to the
issuance of the Securities constitute a full and unconditional guarantee by
the Company of the Trust's obligation with respect to the Securities.
Subject to certain exceptions and limitations, the Company may, from time
to time, defer subordinated debenture interest payments, which would result
in a deferral of distribution payments on the related Securities and, with
certain exceptions, prevent the Company from declaring or paying cash
distributions on the Company's common stock or debt securities that rank
junior to the subordinated debenture.
(5) Basis of Presentation
First Financial Bancorp is the holding company for Bank of Lodi, N.A.,
Western Auxiliary Corporation and First Financial (CA) Statutory Trust I.
In the opinion of management, the accompanying unaudited consolidated
financial statements reflect all adjustments (consisting of normal
recurring accruals and other accruals as explained above) necessary for a
fair presentation of financial position as of the dates indicated and
results of operations for the periods shown. All material intercompany
accounts and transactions have been eliminated in consolidation. In
preparing the financial statements, management is required to make
estimates and assumptions that affect the reported amounts. The results for
the three months ended March 31, 2002 are not necessarily indicative of the
results which may be expected for the year ended December 31, 2002. The
unaudited consolidated financial statements presented herein should be read
in conjunction with the consolidated financial statements and notes
included in the 2001 Annual Report to Shareholders.
(6) Impact Of Recently Issued Accounting Standards
In July 2001, the FASB issued Statement No. 141, Business Combinations, and
Statement No. 142, Goodwill and Other Intangible Assets. Statement No. 141
requires that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001 as well as all purchase method
business combinations completed after June 30, 2001. Statement No. 141 also
specifies criteria intangible assets acquired in a purchase method business
combination must meet to be recognized and reported apart from goodwill,
noting that any purchase price allocable to an assembled workforce may not
be accounted for separately. Statement No. 142 requires that goodwill and
intangible assets with indefinite useful lives no longer be amortized, but
instead tested for impairment at least annually in accordance with the
provisions of Statement No. 142. Statement No. 142 also requires that
intangible assets with definite useful lives be amortized over their
respective estimated useful lives to their estimated residual values, and
reviewed for impairment in accordance with Statement No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of.
The Company adopted the provisions of Statement No. 141 in July 2001 and
adopted Statement No. 142 on January 1, 2002. Goodwill and intangible
assets acquired in business combinations completed before July 1, 2001
continued to be amortized prior to the adoption of Statement No. 142. The
adoption of Statement No. 141 and No. 142 did not have a material impact on
the financial condition or operating results of the Company. The only
exception to Statement No. 142 is the amortization of goodwill and
intangible assets acquired under the provisions of Statement No. 72,
Accounting of Certain Acquisitions of Banking or Thrift Institutions. The
Company will continue to amortize goodwill and intangible assets acquired
in accordance with this statement.
6
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
Cautionary Statement for the Purposes of the Safe Harbor Provisions of the
Private Securities Litigation Reform Act of 1995.
The Company is including the following cautionary statement to take advantage of
the "Safe Harbor" provisions of the Private Securities Litigation Reform Act of
1995 for any forward-looking statement made by, or on behalf of, the Company.
The factors identified in this cautionary statement are important factors (but
not necessarily all important factors) that could cause actual results to differ
materially from those expressed in any forward-looking statement made by, or on
behalf of, the Company.
Where any such forward-looking statement includes a statement of the assumptions
of bases underlying such forward-looking statement, the Company cautions that,
while it believes such assumptions or bases to be reasonable and makes them in
good faith, assumed facts or bases almost always vary from actual results, and
the differences between assumed facts or bases and actual results can be
material, depending on the circumstances. Where, in any forward-looking
statement, the Company expresses an expectation or belief as to future results,
such expectation or belief is expressed in good faith and believed to have a
reasonable basis, but there can be no assurance that the statement of
expectation or belief will result, or be achieved or accomplished.
Taking into account the foregoing, such risks and uncertainties include, but are
not limited to, the following factors: competitive pressure in the banking
industry; changes in the interest rate environment; general economic conditions,
either nationally or regionally becoming less favorable than expected and
resulting in, among other things, a deterioration in credit quality and an
increase in the provision for possible loan losses; changes in the regulatory
environment; changes in business conditions; volatility of rate sensitive
deposits; operational risks, including data processing system failures or fraud;
asset/liability matching risks and liquidity risks; and changes in the
securities markets.
The following discussion addresses information pertaining to the financial
condition and results of operations of the Company that may not be otherwise
apparent from a review of the consolidated financial statements and related
footnotes. It should be read in conjunction with those statements and notes
found on pages 1 through 6, as well as other information presented throughout
this report.
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 allowances 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 6, as well as other information presented throughout
this report.
7
Changes in Financial Condition
Consolidated total assets at March 31, 2002 increased $4,968 thousand, or 2.2%,
from December 31, 2001. During the first quarter, non-interest bearing deposits
decreased $218 thousand, or 0.7% while interest bearing deposits increased
$4,693 thousand, or 2.7% resulting in an increase in total deposits of $4,475
thousand, or 2.2%. The increase in total deposits is the direct result of
management's desire to increase market share for deposits and to provide
liquidity to meet the projected growth in earning assets for 2002. During the
first quarter of 2002, the Company experienced an increase of $643 thousand, or
1.3%, $118 thousand, or 0.6%, $3,172 thousand, or 10.0%, and $760 thousand, or
1.1%, in NOW accounts, money market accounts, savings accounts and certificates
of deposit, respectively.
Total gross loans increased $6,896 thousand, or 4.8%, from December 31, 2001 to
March 31, 2002. The net increase in gross loans is the result of increases of
$4,127 thousand, or 30.1% in construction loans, $1,554 thousand, or 5.2% in SBA
loans, $898 thousand or 1.7% in real estate loans, $814 thousand, or 21.0% in
loans held for sale in the secondary market, and $569 thousand, or 3.5%, in
agricultural loans, combined with decreases of $690 thousand, or 3.1% in
commercial loans and $376 thousand, or 10.2% in consumer loans.
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, 2002 was in excess of the December 31, 2001 allowance by $198 thousand, or
7.4%, as a result of a provision for $195 thousand combined with net recoveries
of $3 thousand. Nonperforming loans increased by $602 thousand, to $3,848
thousand at March 31, 2002. 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, 2002 is adequate to absorb known and reasonably estimated
loan losses. However, there can be no assurances that future economic events may
negatively impact the Bank's borrowers, thereby causing loan losses to exceed
the current allowance.
The following tables depict activity in the allowance for loan losses and
allocation of reserves for and at the three and twelve months ended March 31,
2002 and December 31, 2001, respectively:
Analysis of the Allowance for Loan Losses
Quarter Year
Ended Ended
3/31/02 12/31/01
------- --------
Balance at beginning of period $ 2,668 2,499
Charge-offs:
Commercial -- (226)
Real estate -- --
Consumer (8) (57)
------- -------
Total charge-offs (8) (283)
Recoveries:
Commercial 9 21
Real estate -- --
Consumer 2 40
------- -------
Total recoveries 11 61
------- -------
Net recoveries (charge-offs) 3 (222)
Provision charged to operations 195 391
------- -------
Balance at end of period $ 2,866 2,668
======= =======
Allocation of the Allowance for Loan Losses
3/31/02 3/31/02 12/31/01 12/31/01
Loan Category Amount % of Loans Amount % of Loans
- ------------- ------ --------- ------ ---------
Commercial and other real estate $ 1,971 85.41% $ 2,122 87.82%
Real estate construction 820 12.31% 466 9.61%
Installment and other 75 2.28% 80 2.57%
------- ------- ------- ------
$ 2,866 100.00% $ 2,668 100.00%
======= ======= ======= =======
8
Investments
Investment securities decreased $8,358 thousand, or 20.4%, from December 31,
2001 to March 31, 2002. The decrease resulted primarily from sales of investment
securities totaling $9,649 thousand, prepayments of mortgage backed securities
totaling $3,681 thousand and maturities of securities totaling $3,500 thousand
combined with purchases of securities totaling $8,580 thousand during the first
quarter of 2002. The Company realized gross gains totaling $262 thousand on the
sale of investment securities during the first quarter of 2002.
Equity
Consolidated equity increased $107 thousand from December 31, 2001 to March 31,
2002. Consolidated equity represented 7.77% and 7.90% of consolidated assets at
March 31, 2002 and December 31, 2001, respectively. The increase in equity
during the first quarter of 2002 resulted from earnings of $281 thousand for the
three months ended March 31, 2002 and a $13 thousand increase resulting from the
exercise of stock options combined with a decrease of $187 thousand to reflect
the after-tax market value decrease in the available-for-sale investment
securities portfolio. The decrease in the investment security portfolio's market
value reflects the increase in the level of market interest rates at March 31,
2002 compared to December 31, 2001.
The total risk-based capital ratio for the Company's wholly owned subsidiary,
Bank of Lodi was 10.93% at March 31, 2002 compared to 10.24% at December 31,
2001. The total risk-based capital ratio changed during the first quarter of
2002 largely as a result of a $2 million capital contribution from the holding
company combined with the capital requirements resulting from increases in total
risk-weighted assets.
The funds for the capital contribution by the holding company were provided as a
result of a $5 million floating rate pooled trust preferred securities offering
which closed March 26, 2002. Subsequent to the issuance of the trust preferred
securities the Company announced a stock repurchase program effective through
December 31, 2002 whereby the Company, as authorized by the Board of Directors,
intends to purchase up to $2 million of the Company's stock in privately
negotiated transactions or on the open market. The Board allocated $2 million of
the proceeds from the trust preferred securities offering to be used to fund the
stock repurchase program.
Changes in Results of Operations - Three Months ended March 31, 2002
Summary of Earnings Performance
- -------------------------------------- ------------------------------------
For the three months ended March 31:
------------------------------------
2002 2001
---- ----
Net income (in thousands) $ 281 $ 255
- -------------------------------------- --------------- --------------
Basic net income per share $ .17 $ .16
Diluted net income per share .17 .16
Return on average assets 0.51% 0.55%
Return on average equity 6.27% 6.26%
- -------------------------------------- --------------- --------------
Average equity to average assets 8.07% 8.74%
- -------------------------------------- --------------- --------------
Net income for the quarter increased $26 thousand, or 10.2%, compared to the
first quarter of 2001. Net interest income decreased $55 thousand, or 2.5% as a
result of a $161 thousand decrease in interest income combined with a $106
thousand decrease in interest expense. The provision for loan losses totaled
$195 thousand representing an increase of $5 thousand, or 2.6%. Noninterest
income increased $272 thousand, or 28.5%, while noninterest expense increased
$178 thousand, or 6.7%.
During 2001, the Company's Board of Directors declared a 5% stock dividend
payable May 22, 2001 to shareholders of record on May 8, 2001. All earnings per
share amounts have been adjusted to give retroactive effect for the stock
dividend.
9
Net Interest Income
The following table provides a detailed analysis of the net interest spread and
net interest margin for the periods indicated:
- ----------------------------------------------------------------------------------------------------------------
For the Quarter Ended For the Quarter Ended
March 31, 2001 March 31, 2001
(in thousands) (in thousands)
- ----------------------------------------------------------------------------------------------------------------
Average Income/ Average Income/
Balance Expenses Yield(1) Balance Expenses Yield(1)
--------- --------- ----- --------- --------- -----
Earning Assets:
Investment securities (2) $ 30,074 366 4.94% $ 25,318 444 7.11%
Federal funds sold 10,742 46 1.74% 13,031 181 5.63%
Loans (3) 147,718 2,737 7.51% 114,875 2,685 9.48%
--------- --------- ----- ---------- ----- -----
$ 188,534 3,149 6.77% $ 153,224 3,310 8.76%
========= ========= ===== ========== ===== =====
Liabilities:
Noninterest bearing deposits $ 29,232 -- $ 22,344 -- --
Savings, money market, & NOW deposits 102,431 337 1.33% 86,709 342 1.38%
Time deposits 70,210 657 3.80% 55,518 761 5.56%
Other borrowings 422 6 5.77% 204 3 5.97%
--------- --------- ----- ---------- ----- -----
Total Liabilities $ 202,295 1,000 2.00% $ 164,775 1,106 2.72%
========= ========= ===== ========== ===== =====
Net Interest Spread 4.77% 6.04%
===== =====
- ----------------------------------------------------------------------------------------------------------------
Earning Income Earning Income
Assets (Expense) Yield Assets (Expense) Yield
--------- --------- ----- -------- --------- ------
Yield on average earning assets $188,534 3,149 6.77% $ 153,224 3,310 8.76%
Cost of funding average earning assets $188,534 (1,000) (2.15%) $ 153,224 (1,106) (2.93%)
--------- --------- ----- ---------- ----- -----
Net Interest Margin $188,534 2,149 4.62% $ 153,224 2,204 5.83%
========= ========= ===== ========== ===== =====
- ----------------------------------------------------------------------------------------------------------------
(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 2002 decreased $55 thousand, or
2.5%, over the same quarter of 2001. The decrease 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
$553 thousand while the decline in interest rates resulted in a decrease in net
interest income totaling $608 thousand when comparing the first quarter of 2002
to the same period last year.
Average earning assets increased $35,310 thousand during the first quarter of
2002 as compared to the first quarter of 2001. Of that increase, average loans
increased $32,843 thousand, investment securities increased $4,756 thousand
while federal funds sold decreased $2,289 thousand. The increase in the volume
of average earning assets during the first quarter of 2002 as compared to the
first quarter of 2001 resulted in an increase in interest income totaling $819
thousand. However, interest rates on average earning assets declined 199 basis
points during 2002 (from 8.76% to 6.77%) when compared to the same period in
2001 resulting in a decrease in interest income totaling $980 thousand.
Average liabilities increased $37,520 thousand during the first quarter of 2002
as compared to the same period last year. Of that increase, average noninterest
bearing deposits increased $6,888 thousand, NOW and money market accounts
increased $9,745 thousand, savings accounts increased $5,977 thousand,
certificates of deposit increased $14,692 thousand and other borrowings
increased $218 thousand. The increase in average liabilities resulted in an
increase in interest expense totaling $266 thousand. As a result of the
declining interest rates environment, the cost of interest bearing liabilities
decreased 72 basis points (from 2.72% to 2.00%) resulting in a reduction in
interest expense totaling $372 thousand.
Interest income is also affected by nonaccrual loan activity. Nonaccrual loans
at March 31, 2002 and March 31, 2001 totaled $3,848 thousand and $5,631
thousand, respectively. Interest forgone on nonaccrual loans totaled
approximately $77 thousand and $153 thousand for the three months ending March
31, 2002 and 2001, respectively.
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Provision for Loan Losses
The provision for loan losses for the three months ended March 31, 2002 was
$195,000 compared with $190,000 for the three months ended March 31, 2001, an
increase of $5,000 or 2.6%. See "Allowance for Loan Losses" contained herein. As
of March 31, 2002 the allowance for loan losses was $2,866 thousand or 1.9% of
total loans which compares to the allowance for loan losses of $2,668 thousand
or 1.9% as of December 31, 2001. At March 31, 2002, nonperforming loans totaled
$3,848 thousand or 2.6% of total loans and the allowance for loan losses totaled
74% of nonperforming loans. At December 31, 2001, nonperforming loans totaled
$3,246 thousand or 2.3% of total loans and the allowance for loan losses totaled
82% of nonperforming loans. 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 2002 increased $272 thousand, or
28.5%, over the same period last year. Included in other noninterest income
during the first quarter of 2002 is $262 thousand attributable to gains
resulting from the sale of securities. In addition, during the first quarter of
2002, the Company realized gains from the sale of other real estate totaling $22
thousand. During the first quarter of 2001, the Company realized gains for the
sale of other real estate totaling $222 thousand.
Income from the sale and servicing of loans totaled $326 thousand during the
first quarter of 2002, which increased by $109 thousand, or 50.2%, compared to
the prior year quarter. The increased income from the sale and servicing of
loans is primarily the result of increased refinancing activity of residential
mortgage loans which resulted from declines in mortgage loan rates combined with
the increased activity of the Company's Small Business Administration (SBA) Loan
department. The SBA department expanded its operations and established a loan
production office in Folsom, California during the first quarter of 2001.
Noninterest Expenses
Noninterest expenses increased $178 thousand, or 6.7%, compared to the prior
year quarter. Personnel expense increased $74 thousand, or 5.3%, as a result of
additions to staff during the year combined with general merit increases for
existing personnel. Occupancy expense increased $21 thousand or 9.5% primarily
as a result of the Company's relocation of its Folsom Branch to a new location.
Equipment expense increased $17 thousand, or 7.4%, as a result of depreciation
of new equipment. Other noninterest expense increased $66 thousand, or 8.2%,
primarily as a result of general increases in costs associated with supporting
the Company's continued growth.
Liquidity
The Company's primary sources of liquidity are the proceeds from the trust
preferred securities combined with dividends from the Bank. The Company's
primary uses of liquidity are associated with interest payments on the trust
preferred securities, dividend payments made to shareholders and operating
expenses.
The Bank's liquidity is managed on a daily basis by maintaining cash, federal
funds sold, and short-term investments at levels commensurate with the estimated
requirements for loan demand and fluctuations in deposits. Loan demand and
deposit fluctuations are affected by a number of factors, including economic
conditions, seasonality of the borrowing and deposit bases, and the general
level of interest rates. The Bank maintains two lines of credit with
correspondent banks as a supplemental source of short-term liquidity in the
event that saleable investment securities and loans or available new deposits
are not adequate to meet liquidity needs. The Bank has also established reverse
repurchase agreements with two brokerage firms, which allow for short-term
borrowings that are secured by the Bank's investment securities. Furthermore,
the Bank may also borrow on a short-term basis from the Federal Reserve in the
event that other liquidity sources are not adequate.
At March 31, 2002 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 2001 liquidity
increased in 2002 as a result of the issuance of the trust preferred securities,
growth in deposit portfolio and sales and maturities of available-for-sale
investment securities.
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Basis of Presentation
First Financial Bancorp is the holding company for Bank of Lodi, N.A., Western
Auxiliary Corporation and First Financial (CA) Statutory Trust I. In the opinion
of management, the accompanying unaudited consolidated financial statements
reflect all adjustments (consisting of normal recurring accruals and other
accruals as explained above) necessary for a fair presentation of financial
position as of the dates indicated and results of operations for the periods
shown. All material intercompany accounts and transactions have been eliminated
in consolidation. In preparing the financial statements, management is required
to make estimates and assumptions that affect the reported amounts. The results
for the three months ended March 31, 2002 are not necessarily indicative of the
results which may be expected for the year ended December 31, 2002. The
unaudited consolidated financial statements presented herein should be read in
conjunction with the consolidated financial statements and notes included in the
2001 Annual Report to Shareholders.
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, 2002, there were no material changes in the market risk profile of the
Company or the Bank as described in the Company's 2001 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
Not Applicable
(b) Reports on Form 8-K
Form 8-K dated March 28, 2002 announcing completion of $5
million Trust Preferred Security Transaction
Form 8-K dated April 4, 2002 announcing Stock Repurchase
Program
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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: May 10, 2002 /s/ Allen R. Christenson
------------ ------------------------
Allen R. Christenson
Senior Vice President
Chief Financial Officer
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