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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 SEPTEMBER 30, 1997
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 September 30, 1997 there were 1,332,842 shares of Common Stock, no
par value, outstanding.
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1
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FIRST FINANCIAL BANCORP
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1997
TABLE OF CONTENTS
<TABLE>
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PAGE
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PART I
<S> <C> <C>
Item 1. Financial Statements......................................... 3
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................... 6
PART II
Item 1. Legal Proceedings............................................ 11
Item 2. Changes in Securities........................................ 11
Item 3. Defaults Upon Senior Securities.............................. 11
Item 4. Submission of Matters to a Vote of Security Holders.......... 11
Item 5. Other Information............................................ 11
Item 6. Exhibits and Reports on Form 8-K............................. 11
</TABLE>
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ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
FIRST FINANCIAL BANCORP AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
SEP. 30 DEC. 31
ASSETS 1997 1996
- ------ -------- --------
<S> <C> <C>
Cash and due from banks ..................................................................... $ 7,878 $ 4,748
Federal funds sold .......................................................................... 4,800 1,100
Investment Securities:
Held-to-maturity securities at amortized cost, market value of
$1,794 and $1,888 at Sep. 30, 1997 and Dec. 31, 1996 ............................... 1,717 1,789
Available-for-sale securities, at fair value ........................................... 54,991 35,124
-------- --------
Total investments ...................................................................... 56,708 36,913
Loans ....................................................................................... 63,158 53,879
Less: allowance for loan losses ............................................................. 1,334 1,207
-------- --------
Net loans ................................................................................. 61,824 52,672
Premises and equipment, net ................................................................. 7,316 6,723
Accrued interest receivable ................................................................. 1,401 1,060
Other assets ................................................................................ 3,194 1,697
-------- --------
Total Assets ................................................................................ $143,121 $104,913
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Liabilities:
Deposits
Noninterest bearing .................................................................. $ 15,392 $ 9,066
Interest bearing ..................................................................... 113,822 83,141
--------- --------
Total Deposits .................................................................... 129,214 92,207
Accrued interest payable .......................................................... 461 324
Other liabilities ....................................................................... 783 493
------- --------
Total liabilities ................................................................. 130,458 93,024
Stockholders' equity:
Common stock - no par value; authorized 9,000,000
shares, issued and outstanding in 1997 and
1996, 1,332,842 and, 1,308,950 shares ............................................. 7,455 7,324
Retained earnings ....................................................................... 5,002 4,438
Net unrealized holding gains on available-for-sale
securities ........................................................................ 206 127
-------- --------
Total stockholders' equity ........................................................ 12,663 11,889
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .................................................. $143,121 $104,913
======== ========
</TABLE>
3
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<TABLE>
<CAPTION>
FIRST FINANCIAL BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED SEP. 30 NINE MONTHS ENDED SEP. 30
1997 1996 1997 1996
------------ ------------ ------------ ------------
(DOLLAR AMOUNTS IN THOUSANDS, (DOLLAR AMOUNTS IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS) EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans, including fees ..................................... $1,591 $1,463 $4,919 $4,194
Investment securities:
Taxable .......................................... 908 455 2,407 1,357
Exempt from Federal taxes ........................ 56 75 202 244
Federal funds sold ........................................ 78 49 280 155
------ ------ ------ ------
Total interest income ............................ 2,633 2,042 7,808 5,950
INTEREST EXPENSE:
Deposit accounts .......................................... 984 738 2,769 2,244
Other ..................................................... -- 69 -- 207
----- ------ ------ ------
Total interest expense ........................... 984 807 2,769 2,451
----- ------ ------ ------
Net interest income .............................. 1,649 1,235 5,039 3,499
Provision for loan losses .................................... -- 115 (60) 300
------ ------ ------ ------
Net interest income after provision for loan
losses........................................ 1,649 1,120 5,099 3,199
NONINTEREST INCOME:
Service charges .......................................... 192 171 574 433
Premiums and fees from SBA and mortgage operations ....... 182 125 490 339
Miscellaneous ............................................ 15 20 42 43
------ ------ ------ ------
Total noninterest income ......................... 389 316 1,106 815
NONINTEREST EXPENSE:
Salaries and employee benefits ........................... 755 544 2,311 1,642
Occupancy ................................................ 156 131 422 379
Equipment ................................................ 115 93 327 247
Other .................................................... 694 488 2,006 1,168
------ ------ ------ ------
Total noninterest expense ........................ 1,720 1,256 5,066 3,436
------ ------ ------ ------
Income before provision for income taxes ......... 318 180 1,139 578
Provision for income taxes ................................... 102 54 377 162
------ ------ ------ ------
Net Income ....................................... $ 216 $ 126 $ 762 $ 416
====== ====== ====== ======
EARNINGS PER SHARE:
Net Income ................................................... $ 0.15 $ 0.09 $ 0.55 $ 0.31
====== ====== ====== ======
</TABLE>
4
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<TABLE>
<CAPTION>
FIRST FINANCIAL BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
NINE MONTHS ENDED SEP. 30
-------------------------
1997 1996
------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income ............................................................... $ 762 $ 416
Adjustments to reconcile net income to net cash (used in) provided by
operating activities:
(Decrease) Increase in loans held for sale ..................... (1,559) 240
Increase in deferred loan income ............................... 147 58
Provision for other real estate owned losses.................... 70 33
Depreciation and amortization .................................. 787 326
Provision for loan losses ...................................... (60) 300
Provision for deferred taxes ................................... 2 (20)
Increase in accrued interest receivable ........................ (341) (102)
Increase (decrease) in accrued interest payable ................ 137 (70)
Increase in other liabilities .................................. 238 192
Increase in other assets ....................................... (320) (160)
------- -------
Net cash (used in) provided by
operating activities ................................... (137) 1,213
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturity of available-for-sale
securities ........................................................ 70 250
Proceeds from maturity of available-for-sale
securities ........................................................ 13,474 17,634
Proceeds from sale of available-for-sale securities .................. 26,000 --
Purchases of available-for-sale securities ........................... (59,210) (13,970)
Increase in loans made to customers .................................. (7,510) (4,966)
Proceeds from the sale of other real estate .......................... 227 132
Purchases of bank premises and equipment ............................. (3,024) (764)
------- -------
Net cash used in investing activities .................. (29,973) (1,684)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits ............................................. 37,007 2,108
Payments on note payable ............................................. -- (26)
Dividends paid ....................................................... (198) (196)
Proceeds received upon exercise of stock options ..................... 131 --
------- -------
Net cash provided by financing activities............... 36,940 1,886
Net increase in cash and cash equivalents ................................ 6,830 1,415
Cash and cash equivalents at beginning of period ......................... 5,848 7,788
------- -------
Cash and cash equivalents at end of period................................ $12,678 $ 9,203
======= =======
</TABLE>
5
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
CHANGES IN FINANCIAL CONDITION
Consolidated total assets at September 30, 1997 were $38.2 million above the
comparable balance at December 31, 1996. The 36% increase in assets was due
primarily to Bank of Lodi's February 22, 1997 acquisition of three branches from
Wells Fargo Bank which added $34 million to total deposits as of the closing
date. The deposit funds received in the acquisition of these branches have been
invested primarily in the bank's investment securities portfolio, which grew by
$19.8 million, or 54%, from December 31, 1996 and the bank's loan portfolio,
which grew by $9.2 million, or 17% from December 31, 1996. Bank premises and
equipment and other assets also increased primarily as a result of the branch
acquisition. Bank premises and equipment at September 30, 1997 is $593 thousand,
or 9% more than the balance at December 31, 1996. Other assets increased by $1.5
million, or 88%. Cash and due from banks increased by 66% due primarily to the
float associated with the 40% increase in deposits.
On February 22, 1997, the Company's wholly owned subsidiary, Bank of Lodi,
completed the acquisition of the Galt, Plymouth, and San Andreas, California,
branches of Wells Fargo Bank. Bank of Lodi purchased the premises and equipment
of the Plymouth and San Andreas branches and assumed the building lease for the
Galt branch. Bank of Lodi also purchased the furniture and equipment of all
three branches and paid a premium for the deposits of each branch. The total
cost of acquiring the branches, including payments to Wells Fargo Bank as well
as other direct costs associated with the purchase, was $2.86 million. The
transaction was accounted for using the purchase method of accounting.
Accordingly, the purchase price was allocated first to identifiable tangible
assets based upon those asset's fair value and then to identifiable intangible
assets based upon the asset's fair value. The excess of the purchase price over
identifiable tangible and intangible assets was allocated to goodwill.
Allocations to identifiable tangible assets, identifiable intangible assets, and
goodwill were $856 thousand, $1.98 million, and $24 thousand, respectively.
Deposits totaling $34 million were acquired in the transaction.
Total deposits were $129.2 million at September 30, 1997 compared to $92.2
million at December 31, 1996. Total deposits increased by $37 million, or 40%. A
total of $34 million in deposits were received when Bank of Lodi acquired three
branches from Wells Fargo Bank. Deposit growth in excess of the acquired
deposits is the result of both growth in the number of accounts as well as
seasonal growth in average account balances that usually begins in the third
quarter of each year. The seasonal growth is associated with agribusiness
activity in the greater Lodi area. Beyond seasonal factors, noninterest bearing
demand deposits increased by $6.3 million or 70% due to continued business
development success amd a more favorable noninterest bearing mix in the deposits
acquired from Wells Fargo Bank. Average noninterest bearing demand deposits for
the nine months ended September 30, 1997 were 11% of total average deposits
compared to 9% for the comparable prior year period. The mix of NOW and savings
acccounts also improved. NOW and Savings accounts for the nine months ended
September 30, 1997 averaged 55% of total deposits compared to 51% for the
comparable period in 1996.
The afforementioned acquisition of three branches from Wells Fargo Bank and the
resulting increase in deposits significantly increased the liquidity of Bank of
Lodi. In the weeks immediately following the acquisition, approximately one half
of the deposits acquired had been invested in US Agency securities and, to a
lesser degree, mortgage backed securities. The remaineder was invested in two
institutional money market mutual funds. The purchases of U.S. Agency securities
included both medium term notes due in four to five years and callable
securities with final maturities in three to ten years. The callable securities
have from one to three years of call protection. Mortgage backed securities
purchased were fixed-rate GNMA pass-through certificates with an average life of
approximately nine years. In addition to the investment portfollio activity,
funds were also invested in new loans to borrowers in both existing and newly
expanded market areas. Loans increased by $9.2 million, or 17% from December 31,
1996. Approximately one half of the loan growth has occured in the three months
ended September 30, 1997 due to improvement in Bank of Lodi's new and existing
market market areas as well as efforts to generate loan volume within the
greater Sacramento, California market area. Management believes that the current
liquidity position of Bank of Lodi is adequate to support future loan demand,
capital investment, and deposit activity.
6
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The allowance for loan losses at September 30, 1997 is in excess of the December
31, 1996 allowance by $127 thousand, or 11%. The principal reason for the
increase was an increase in the specific reserves for certain loans that
exhibited increased loss exposure subsequent to December 31, 1996. In addition,
unallocated reserves have been increased to establish reserves in relation to
growth in the loan portfolio. There were loan recoveries during the quarter
ended March 31, 1997 of several loans that had been charged off in previous
years totaling $341 thousand. Based upon the resulting reserve position after
recoveries and increases in specific reserves for certain loans, $80 thousand of
the reserve was reversed and credited to income in the form of a negative loan
loss provision for that quarter. After a loan loss provision of $20 thousand for
the quarter ended June 30, 1997, the provision for loan losses for the nine
months ended September 30, 1997 was negative in the amount of $60 thousand.
Nonaccrual loans decreased by $527 thousand, or 59% from December 31, 1996 to
September 30, 1997, and the allowance for loan losses nonaccrual coverage ratio
increased to 3.6 times from 1.34 times. Total nonaccrual and nonperforming loans
to total loans at September 30, 1997 were .65%, compared to 1.65% at December
31, 1996. Management believes that the allowance for loan losses at September
30, 1997 is adequate. The following tables depicts activity in the allowance for
loan losses and allocation of reserves for and at the nine and twelve months
ended September 30, 1997 and December 31, 1996, respectively:
<TABLE>
<CAPTION>
ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES
9/30/97 12/31/96
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<S> <C> <C>
Balance at beginning of period ............................................... 1,207 959
Charge-offs:
Commercial ................................................................ 198 237
Real estate ............................................................... -- --
Consumer .................................................................. 24 97
------ ------
Total charge-offs ......................................................... 222 334
Recoveries:
Commercial ................................................................ 397 260
Real estate ............................................................... -- --
Consumer .................................................................. 12 12
------ ------
Total recoveries .......................................................... 409 272
------ ------
Net charge-offs .............................................................. (346) 62
(reductions)/additions (credited to)/charged to operations ................... (60) 310
------ ------
Balance at end of period ..................................................... 1,334 1,207
====== ======
Ratio of net charge-offs to average loans outstanding ........................ (.01%) 0.11%
====== ======
</TABLE>
<TABLE>
<CAPTION>
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
9/30/97 9/30/97 12/31/96 12/31/96
LOAN CATEGORY AMOUNT % OF LOANS AMOUNT % OF LOANS
------------- ----- ---------- ----- ----------
<S> <C> <C> <C> <C>
Commercial ................................. 335 70.38% 490 91.41%
Real Estate ................................ 132 27.73% 45 8.40%
Consumer ................................... 9 1.89% 1 .19%
Unallocated ................................ 858 N/A 671 N/A
----- ---------- ----- ---------
1,334 100.00% 1,207 100.00%
===== ========== ===== =========
</TABLE>
Consolidated equity increased by $774 thousand from December 31, 1996 to
September 30, 1997. Consolidated equity represented 8.85% of consolidated assets
at September 30, 1997 compared to 11.33% at December 31, 1996. The increase in
equity from earnings of $762 thousand for the nine months ended September 30,
1997 exceeded reductions from dividend payments of $198 thousand and an increase
in equity of $79 thousand to reflect the after-tax market value appreciation of
the available-for-sale portion of the investment portfolio. The increase in
investment portfolio market value reflects the impact of falling market interest
rates during the nine months ended June 30, 1997 relative to December 31, 1996.
The risk capital position of the Company's subsidiary, Bank of Lodi, NA,
declined as a result of the afforementioned acquisition of three branches from
Wells Fargo Bank as well as
7
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overall deposit growth and increased lending. The total risk-based capital ratio
was 12.6% at June 30, 1997 compared to 17.0% at December 31, 1996. The Bank's
leverage capital ratio was 7.18% at September 30, 1997 versus 10.8% at December
31, 1996. Nothwithstanding the decline in the capital ratios, the resulting
ratios are in excess of the regulatory minimums for a well-capitalized bank.
CHANGES IN RESULTS OF OPERATION - THREE MONTHS ENDED SEPTEMBER 30, 1997
Net income for the three months ended September 30, 1997 was $216 thousand, or
$.15 per share, and represented an increase of 71% relative to the three months
ended September 30, 1996. Annualized return on average assets and equity were
.61% and 6.90%, respectively, compared to .48% and 4.40%, respectively, for the
comparable prior year quarter.
Net income excluding the amortization of goodwill and core deposit intangibles
("cash" or "tangible" earnings) for the three months ended September 30, 1997
was $286 thousand, or $.20 per share, and represented an increase of 127%
relative to the three months ended September 30, 1996. Annualized return on
average assets and equity on this basis were .81% and 9.20% compared to .48% and
4.40%, respectively, for the comparable prior year quarter. Following the
acquisition of branches from Wells Fargo Bank, "cash" earnings, "cash" return on
average assets, and "cash" return on average equity are the profitability
measures that are the most comparable to prior period measures. They are also
the most meaningful performance measures to shareholders because they measure
the Company's ability to support growth and pay dividends.
Net interest income increased by $414 thousand, or 33% as a result of the
increase in earning assets related to the acquisition of new branches and
earning asset growth subsequent to the acquisition. The provision for loan
losses declined by $115 thousand. Noninterest income increased by $73 thousand,
or 23%, while noninterest expenses increased by $464 thousand, or 37%. Based
upon the earnings for the three months ended September 30, 1997, the board of
directors of First Financial Bancorp declared a cash dividend of $.05 per share,
payable November 28, 1997, to shareholders of record November 14, 1997.
Net interest income increased by $414 thousand, or 33%, relative to the
comparable prior year quarter. Net interest margin was 5.35% for the quarter
compared to 5.35% in the prior year quarter. Average earning assets and deposits
for the three months ended September 30, 1997 increased by $31 million, or 33%,
and $33.9 million, or 36%, respectively, over the prior year quarter. Excluding
the impact of interest rate changes and changes in the mix of earning assets and
deposits, net interest income increased $392 thousand as a result of the higher
volume of average earning assets and deposits. Although asset yields for loans,
investments and federal funds sold were higher than the prior year due to a more
favorable mix of loans, a greater mix of callable agency securities in the
investment portfolio, and a higher Federal Reserve target for the federal funds
rate, total earning asset yields declined by 30 basis points. Earning assets
yielded 8.54% for the quarter compared to 8.84% in the prior year quarter. While
average loans outstanding increased 7.1% over the prior year quarter, loans as a
percentage of earning assets declined to 49% from 61% and average investments
grew as a result of the increase in average earning assets from the acquisition
of three branches in the first quarter of 1997. The mix of deposits shifted away
from higher cost certificates of deposit to lower cost noninterest bearing and
interest bearing demand deposit accounts. Average noninterest bearing deposits
to total deposits was 11% for the quarter compared to 10% in the prior year
quarter. Average certificates of deposit were 33% of average deposits and other
debt for the current quarter compared to 37% in the prior year. The mix of
deposits and other debt also improved due to the payoff of $2.6 million in
mortgage debt in November 1996. The impact of the changed earning asset mix
reduced interest income by $133 thousand for the quarter relative to the prior
year, while the changed deposit and debt mix reduced interest expense by $45
thousand. Finally, the impact of higher loan and investment portfolio rates and
lower deposit rates increased net interest income by $111 thousand.
There was no provision for loan losses for the three months ended September 30,
1997 compared to a provision of $115 thousand in the prior year quarter. As
discussed above under Changes in Financial Condition, the allowance for loan
losses at September 30, 1997 increased in comparison to December 31, 1996, due
to increases in specific reserves for certain loans for which additional loss
exposure was exhibited during 1997. The majority of these increases were made
during the first quarter. In addition, unallocated reserves are higher in
connection with the
8
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growth in the loan portfolio. The overall condition of the loan portfolio is
improved relative to the prior year and has resulted in a lower provision for
loan losses.
Noninterest income increased by $73 thousand, or 23%, reflecting increases in
both service charge income as well as income from SBA and mortgage operations.
Service charge income increased by 12% as a result of increased deposit account
and transaction volumes as well as increases in certain service charge rates
relative to the prior year quarter. Deposit account and transaction volumes
increased due to Bank of Lodi's acquisition of three branches during the first
quarter of 1997 as discussed above under Changes in Financial Condition as well
as new account activity at existing branches. SBA and mortgage income improved
by 46%. Premium income related to mortgage and SBA loan sales rose by 320% and
50%, respectively, over the prior year quarter due to favorable mortgage rates
and housing conditions and continued improvement in the climate for small
business loans as well as focused business development efforts.
Noninterest expenses increased by $464 thousand, or 37%, compared to the prior
year quarter. Salaries and benefit expenses increased due to the increased
staffing associated with three branches acquired in the first quarter of 1997 as
well as incentive compensation accruals related to increased profitability.
Occupancy expense increases reflect additional expenses associated with three
new branches. Equipment expenses also increased as a result of the new branches
as well as new information systems that went into use during June of 1996. The
former information system was nearly fully depreciated prior to its replacement,
resulting in higher depreciation costs for technology in the current year
quarter. Other noninterest expenses increased due to $120 thousand in
amortization of intangible assets acquired in Bank of Lodi's acquisition of
three branches. The acquisition by Bank of Lodi of three branches from Wells
Fargo Bank is discussed above under Changes in Financial Condition. Other
noninterest expenses also increased as a result of legal and professional costs
incurred in relation to ongoing strategic efforts for which costs are expected
to increase in following quarters.
CHANGES IN RESULTS OF OPERATION - NINE MONTHS ENDED SEPTEMBER 30, 1997
Net income for the nine months ended September 30, 1997 was $762 thousand, or
$.55 per share, and represented an increase of 83% relative to the nine months
ended September 30, 1996. Annualized return on average assets and equity were
.77% and 8.3%, respectively, compared to .53% and 4.9%, respectively, for the
comparable prior year period.
Net income excluding the amortization of goodwill and core deposit intangibles
("cash" or "tangible" earnings) for the nine months ended September 30, 1997 was
$971 thousand, or $.70 per share, and represented an increase of 133% relative
to the nine months ended September 30, 1996. Annualized return on average assets
and equity on this basis were .98% and 10.5% compared to .53% and 4.9%,
respectively, for the comparable prior year period. Following the acquisition of
branches from Wells Fargo Bank, "cash" earnings, "cash" return on average
assets, and "cash" return on average equity are the profitability measures that
are the most comparable to prior period measures. They are also the most
meaningful performance measures to shareholders because they measure the
Company's ability to support growth and pay dividends.
Net interest income increased as a result of the increase in earning assets
related to the acquisition of new branches and a widened net interest margin
which benefited from the collection of $445 thousand in nonaccrual interest on
several loans that had been charged off in previous years. Noninterest income
increased by $291 thousand, or 36%, while noninterest expenses increased by $1.6
million, or 47% due to increased operating expenses related to the acquisition
of three branches, including the related amortization of goodwill and core
deposit intangible assets.
Net interest income increased by $1.5 million, or 44%, relative to the
comparable prior year period. Net interest margin increased to 5.75% for the
period compared to 5.06% in the prior year period. During the first quarter,
interest income totaling $445 thousand was recovered and recognized for several
loans that had been charged off in previous years. Excluding the recovered
interest, net interest margin was 5.24%, or 18 basis points higher than the
prior year period. Excluding the recovered interest, the remaining increase in
net interest income of $1.1 million represents the net impact of significant
changes in the volume and mix of earning assets and deposits as well as the
general level of interest rates.
9
<PAGE>
Average earning assets and deposits for the nine months ended September 30, 1997
increased by $24.6 million, or 27%, and $26.8 million, or 29%, respectively,
over the prior year period. Excluding the impact of lower interest rates and
changes in the mix of earning assets and deposits, net interest income increased
$290 thousand as a result of the higher volume of average earning assets and
deposits. Earning assets yielded 8.91% for the period compared to 8.60% in the
prior year period. Excluding recovered interest, earning asset yields were 8.40%
or 20 basis points below the prior year period. Asset yields for loans and
investments were higher than the prior year due to a more favorable mix of loans
and a higher mix of callable agency securities in the investment portfolio.
Although average loans outstanding increased over the prior year quarter, loans
as a percentage of earning assets declined to 49% from 59% as a result of the
increase in average earning assets from the branch acquisition. The mix of
deposits shifted away from higher cost certificates of deposit to lower cost
noninterest bearing and interest bearing demand deposit accounts. Average
certificates of deposit were 34% of average deposits and other debt for the
period compared to 38% in the prior year. The mix of deposits and other debt
also improved due to the payoff of $2.6 million in mortgage debt in November
1996.
The provision for loan losses decreased by $360 thousand to a negative provision
of $60 thousand. Total recoveries of loans charged off in previous years added
$409 thousand to the allowance for loan losses during the period. Management's
analysis of the allowance for loan losses as of March 31, 1997 indicated an
overfunded condition, and $80 thousand of the reserve was credited to the
provision for loan losses at that time. A provision of $20 thousand was made
during the second quarter of 1997. As discussed above under Changes in Financial
Condition, the allowance for loan losses at September 30, 1997 increased in
comparison to December 31, 1996, due to increases in specific reserves for
certain loans for which additional loss exposure was exhibited during the
period. In addition, unallocated reserves are higher in connection with the
growth in the loan portfolio.
Noninterest income increased by $291 thousand, or 36%, reflecting increases in
both service charge income as well as income from SBA and mortgage operations.
Service charge income increased by 33% as a result of increased deposit account
and transaction volumes as well as increases in certain service charge rates.
Deposit account and transaction volumes increased due to Bank of Lodi's
acquisition of three branches as discussed above under Changes in Financial
Condition as well as new account activity at existing branches. SBA and mortgage
income improved by 45%. Premium income related to the sale of mortgage loans
increased by 73% over the prior year due to favorable mortgage rates and
improved conditions in the housing market. The majority of the improvement in
mortgage income was realized in the quarter ended September 30, 1997. Premium
income related to SBA loan sales rose by 60% over the prior year period due to
continued improvement in the climate for small business loans as well as focused
business development efforts.
Noninterest expenses increaesed by $1.6 million, or 47%, compared to the prior
year period. Salaries and benefit expenses increased due in part to incentive
compensation accruals related to increased profitability. Other noninterest
expenses increased due to the amortization of intangible assets received in Bank
of Lodi's acquisition of three branches, provisions for losses on the sale of
other real estate owned, provision for losses in connection with the reclamation
of deposit account cash items, and the accrual of legal and professional costs
associated with loan loss resolution. Equipment expenses increased as a result
of new information systems that went into use during June of 1996. The former
information system was nearly fully depreciated prior to its replacement,
resulting in higher depreciation costs for technology in the current year
period. Losses related to the disposal of other real estate owned nearly doubled
relative to the prior year period. The differences related to the afformentioned
salary and other noninterest expense items total approximately $550 thousand in
the aggregate. Excluding these items, total noninterest expenses increased by
$1.05 million, or 31%, reflecting salary and benefit expenses for the newly
acquired branches, the addition of one administrative officer, and other
operating expenses related to the expanded operational base of Bank of Lodi. The
acquisition by Bank of Lodi of three branches from Wells Fargo Bank is discussed
above under Changes in Financial Condition.
10
<PAGE>
BASIS OF PRESENTATION
First Financial Bancorp is the holding company for Bank of Lodi, N.A.. 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 nine months ended September 30, 1997 are not
necessarily indicative of the results which may be expected for the year ended
December 31, 1997. The unaudited consolidated financial statements presented
herein should be read in conjunction with the consolidated financial statements
and notes included in the 1996 Annual Report to Shareholders.
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
None
ITEM 5. OTHER INFORMATION
On October 23, 1997, the First Financial Bancorp Board of
Directors declared a cash dividend of $.05 per share, payable
November 28, 1997, to shareholders of record on November 14,
1997. This is the eleventh consecutive quarterly dividend
declared by First Financial Bancorp.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
EXHIBIT
NUMBER
-------
2 Not Applicable.
3 Registrant's current Bylaws.
10 1997 Stock Option Plan.
11
<PAGE>
11 Earnings per common and common share equivalents are
calculated by dividing net income by the weighted-average
number of common and common share equivalents outstanding
during the period. Stock options are considered common share
equivalents for this calculation. Weighted average shares used
in the computation of earnings per share for the three months
ended September 30, 1997, and 1996, were 1,403,758 and
1,370,091, respectively. Weighted average shares used in the
computation of earnings per share for the nine months ended
September 30, 1997 and 1996 were 1,385,472 and 1,364,744.
15 Not Applicable.
16 Not Applicable.
18 Not Applicable.
19 Not Applicable.
22 Notice of Annual Meeting and Proxy Statement dated April 1,
1997; filed March 31, 1997.
24 Not Applicable
27 Financial Data Schedule (electronic filing only)
28 Not Applicable
(b) REPORTS ON FORM 8-K
Not Applicable
12
<PAGE>
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 October 30, 1997 /s/ David M. Philipp
---------------- ----------------------------
David M. Philipp
Executive Vice-President
Chief Financial Officer
Corporate Secretary
13
<PAGE>
EXHIBIT 10: 1997 STOCK OPTION PLAN
FIRST FINANCIAL BANCORP
1997 STOCK OPTION PLAN
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C> <C>
1. PURPOSE........................................................................................... 17
2. DEFINITIONS....................................................................................... 17
(a) Board of Directors....................................................................... 17
(b) Change in Control ....................................................................... 17
(c) Code..................................................................................... 17
(d) Committee................................................................................ 17
(e) Company.................................................................................. 17
(f) Employee................................................................................. 1
(g) Exchange Act............................................................................. 18
(h) Exercise Price........................................................................... 18
(i) Fair Market Value........................................................................ 18
(j) ISO...................................................................................... 18
(k) Nonstatutory Option...................................................................... 2
(l) Option................................................................................... 2
(m) Optionee................................................................................. 18
(n) Plan..................................................................................... 19
(o) Service.................................................................................. 19
(p) Share.................................................................................... 19
(q) Stock.................................................................................... 19
(r) Stock Option Agreement................................................................... 19
(s) Subsidiary............................................................................... 19
(t) Substitute Option........................................................................ 19
(u) Total and Permanent Disability........................................................... 19
3. ADMINISTRATION.................................................................................... 19
(a) Committee Membership..................................................................... 19
(b) Committee Procedures..................................................................... 20
(c) Committee Responsibilities............................................................... 20
4. ELIGIBILITY....................................................................................... 21
(a) General Rules............................................................................ 21
(b) Ten-Percent Stockholders................................................................. 21
(c) Attribution Rules........................................................................ 21
(d) Outstanding Stock........................................................................ 21
5. STOCK SUBJECT TO PLAN............................................................................. 21
(a) Basic Limitation......................................................................... 21
(b) Additional Shares........................................................................ 21
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<C> <S> <C>
6. TERMS AND CONDITIONS OF OPTIONS................................................................... 22
(a) Stock Option Agreement................................................................... 22
(b) Number of Shares......................................................................... 22
(c) Exercise Price........................................................................... 22
(d) Withholding Taxes........................................................................ 22
(e) Exercisability........................................................................... 22
(f) Term..................................................................................... 23
(g) Transferability.......................................................................... 23
(h) No Rights as a Stockholder .............................................................. 23
(i) Modification, Extension and Renewal of Options........................................... 23
(j) Substitute Options....................................................................... 8
7. PAYMENT FOR SHARES................................................................................ 24
(a) General Rule............................................................................. 24
(b) Surrender of Stock....................................................................... 24
(c) Exercise/Sale............................................................................ 24
(d) Exercise/Pledge.......................................................................... 25
8. ADJUSTMENT OF SHARES.............................................................................. 25
(a) General.................................................................................. 25
(b) Reorganizations.......................................................................... 25
(c) Reservation of Rights.................................................................... 25
9. SECURITIES LAWS................................................................................... 26
10. NO RETENTION RIGHTS............................................................................... 26
11. DURATION AND AMENDMENTS........................................................................... 26
(a) Term of the Plan......................................................................... 26
(b) Right to Amend or Terminate the Plan..................................................... 26
(c) Effect of Amendment or Termination....................................................... 26
12. INFORMATION TO OPTIONEES.......................................................................... 10
</TABLE>
<PAGE>
FIRST FINANCIAL BANCORP 1997 STOCK OPTION PLAN
PURPOSE.
- -------
The purpose of the Plan is to offer selected employees, directors and
consultants an opportunity to acquire a proprietary interest in the success of
the Company, or to increase such interest, by purchasing Shares of the Company's
Common Stock. The Plan provides both for the grant of Nonstatutory Options as
well as ISOs intended to qualify under section 422 of the Code.
DEFINITIONS.
- -----------
"Board of Directors" shall mean the Board of Directors of the Company,
------------------
as constituted from time to time.
"Change in Control" shall mean the occurrence of either of the
-----------------
following events:
A change in the composition of the Board of Directors, as a
result of which fewer than one-half of the incumbent directors are
directors who either:
Had been directors of the Company 24 months prior to
such change; or
Were elected, or nominated for election, to the Board
of Directors with the affirmative votes of at least a majority
of the directors who had been directors of the Company 24
months prior to such change and who were still in office at
the time of the election or nomination; or
Any "person" (as such term is used in sections 13(d) and 14(d)
of the Exchange Act) by the acquisition or aggregation of securities is
or becomes the beneficial owner, directly or indirectly, of securities
of the Company representing 50 percent or more of the combined voting
power of the Company's then outstanding securities. For purposes of
this Paragraph (ii), the term "person" shall not include an employee
benefit plan maintained by the Company.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
----
"Committee" shall mean a committee of the Board of Directors, as
---------
described in Section 3(a), or in the absence of such a committee, the Board of
Directors.
"Company" shall mean First Financial Bancorp, a California corporation.
-------
"Employee" shall mean:
--------
Any individual who is a common-law employee of the Company
or of a Subsidiary;
A member of the Board of Directors; and
1
<PAGE>
An independent contractor who performs services for the
Company or a Subsidiary and who is not a member of the Board of
Directors.
Service as an independent contractor or member of the Board of Directors shall
be considered employment for all purposes of the Plan, except as provided in
Section 4(a).
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
------------
amended.
"Exercise Price" as specified by the Committee in the applicable Stock
--------------
Option Agreement.
"Fair Market Value" shall mean the market price of Stock, determined by
-----------------
the Committee as follows:
If Stock was traded over-the-counter on the date in question
but was not traded on the Nasdaq system or the Nasdaq National Market
System, then the Fair Market Value shall be equal to the mean between
the last reported representative bid and asked prices quoted for such
date by the principal automated inter-dealer quotation system on which
Stock is quoted or, if Stock is not quoted on any such system, by the
"Pink Sheets" published by the National Quotation Bureau, Inc.;
If Stock was traded over-the-counter on the date in question
and was traded on the Nasdaq system or the Nasdaq National Market
System, then the Fair Market Value shall be equal to the
last-transaction price quoted for such date by the Nasdaq system or the
Nasdaq National Market System;
If Stock was traded on a stock exchange on the date in
question, then the Fair Market Value shall be equal to the closing
price reported by the applicable composite-transactions report for such
date; and
If none of the foregoing provisions is applicable, then the
Fair Market Value shall be determined by the Committee in good faith on
such basis as it deems appropriate.
In all cases, the determination of Fair Market Value by the Committee shall be
conclusive and binding on all persons.
"ISO" shall mean an employee incentive stock option described in
---
Section 422(b) of the Code.
"Nonstatutory Option" shall mean a stock option not described in
-------------------
Sections 422(b) or 423(b) of the Code.
"Option" shall mean an ISO or Nonstatutory Option granted under the
------
Plan and entitling the holder to purchase Shares.
"Optionee" shall mean an individual who holds an Option.
--------
2
<PAGE>
"Plan" shall mean this First Financial Bancorp 1997 Stock Option
----
Plan, as it may be amended from time to time.
"Service" shall mean service as an Employee.
-------
"Share" shall mean one share of Stock, as adjusted in accordance with
-----
Section 8 (if applicable).
"Stock" shall mean the Common Stock of the Company.
-----
"Stock Option Agreement" shall mean the agreement between the Company
----------------------
and an Optionee which contains the terms, conditions and restrictions pertaining
to his or her Option.
"Subsidiary" shall mean Bank of Lodi, N.A. and any other corporation,
----------
if the Company and/or one or more other Subsidiaries own not less than 50
percent of the total combined voting power of all classes of outstanding stock
of such corporation. A corporation that attains the status of a Subsidiary on a
date after the adoption of the Plan shall be considered a Subsidiary commencing
as of such date.
"Substitute Option" shall mean an option described in Section 6(j).
-----------------
"Total and Permanent Disability" shall mean that the Optionee is unable
------------------------------
to engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result in
death or which has lasted, or can be expected to last, for a continuous period
of not less than one year.
ADMINISTRATION.
- --------------
Committee Membership. The Board of Directors shall have the authority
--------------------
to administer the Plan but may delegate its administrative powers under the
Plan, in whole or in part, to one or more committees of the Board of Directors.
With respect to the participation of Employees who are subject to Section 16 of
the Exchange Act, the Plan may be administered by a committee composed solely of
two or more members of the Board of Directors who qualify as "nonemployee
directors" as defined in Securities and Exchange Commission Rule 16b-3 under the
Exchange Act. With respect to the participation of Employees who may be
considered "covered employees" under Section 162(m) of the Code, the Plan may be
administered by a committee composed solely of two or more members of the Board
of Directors who qualify as "outside directors" as defined by the Internal
Revenue Service for plans intended to qualify for an exemption under Section
162(m)(4)(C) of the Code. If the committee members meet both such
qualifications, then one committee may administer the Plan both with respect to
Employees who are subject to Section 16 of the Exchange Act or who are
considered to be "covered employees" under Section 162(m) of the Code.
The Board of Directors may appoint a separate committee, consisting of
one or more members of the Board of Directors who do not meet such
qualifications. Such committee may administer the Plan with respect to Employees
who are not officers of the Company or members of
3
<PAGE>
the Board of Directors, may grant Options under the Plan to such Employees and
may determine the timing, number of Shares and other terms of such grants.
Committee Procedures. The Board of Directors shall designate one of the
--------------------
members of any Committee appointed under paragraph (a) as chairman. Any such
Committee may hold meetings at such times and places as it shall determine. The
acts of a majority of the Committee members present at meetings at which a
quorum exists, or acts reduced to or approved in writing by all Committee
members, shall be valid acts of the Committee.
Committee Responsibilities. Subject to the provisions of the Plan,
---------------------------
any such Committee shall have full authority and discretion to take the
following actions:
To interpret the Plan and to apply its provisions;
To adopt, amend or rescind rules, procedures and forms
relating to the Plan;
To authorize any person to execute, on behalf of the Company,
any instrument required to carry out the purposes of the Plan;
To determine when Options are to be granted under the Plan;
To select the Optionees;
To determine the number of Shares to be made subject to each
Option;
To prescribe the terms and conditions of each Option,
including (without limitation) the Exercise Price, to determine whether
such Option is to be classified as an ISO or as a Nonstatutory Option,
and to specify the provisions of the Stock Option Agreement relating to
such Option;
To amend any outstanding Stock Option Agreement, subject to
applicable legal restrictions and to the consent of the Optionee who
entered into such agreement;
To prescribe the consideration for the grant of each Option
under the Plan and to determine the sufficiency of such consideration;
and
To take any other actions deemed necessary or advisable for
the administration of the Plan.
All decisions, interpretations and other actions of the Committee shall be final
and binding on all Optionees, and all persons deriving their rights from an
Optionee. No member of the Committee shall be liable for any action that he or
she has taken or has failed to take in good faith with respect to the Plan or
any Option.
4
<PAGE>
ELIGIBILITY.
- -----------
General Rules. Only Employees shall be eligible for designation as
-------------
Optionees by the Committee. In addition, only Employees who are common-law
employees of the Company or a Subsidiary shall be eligible for the grant of
ISOs.
Ten-Percent Stockholders. An Employee who owns more than 10 percent of
------------------------
the total combined voting power of all classes of outstanding stock of the
Company or any of its Subsidiaries shall not be eligible for the grant of an ISO
unless:
The Exercise Price is at least 110 percent of the Fair
Market Value of a Share on the date of grant; and
Such ISO by its terms is not exercisable after the expiration
of five years from the date of grant.
Attribution Rules. For purposes of Subsection (b) above, in determining
-----------------
stock ownership, an Employee shall be deemed to own the stock owned, directly or
indirectly, by or for such Employee's brothers, sisters, spouse, ancestors and
lineal descendants. Stock owned, directly or indirectly, by or for a
corporation, partnership, estate or trust shall be deemed to be owned
proportionately by or for its stockholders, partners or beneficiaries. Stock
with respect to which such Employee holds an option shall not be counted.
Outstanding Stock. For purposes of Subsection (b) above, "outstanding
-----------------
stock" shall include all stock actually issued and outstanding immediately after
the grant. "Outstanding stock" shall not include shares authorized for issuance
under outstanding options held by the Employee or by any other person.
STOCK SUBJECT TO PLAN.
- ---------------------
Basic Limitation. Shares offered under the Plan shall be authorized but
----------------
unissued Shares. The aggregate number of Shares which is issued under the Plan
upon exercise of Options shall not exceed 393,207 Shares less the number of
Shares required for issuance pursuant to the exercise of options outstanding
under the Company's 1991 First Financial Bancorp Employee Stock Option Plan and
the Company's 1991 First Financial Bancorp Director Stock Option Plan (together,
the "Prior Plans") as of April 22, 1997, the date on which the Plan was approved
by the shareholders of the Company (the "Effective Date"). (No additional grants
shall be made under the Prior Plans after the Effective Date, although the Prior
Plans will continue to govern the respective outstanding options previously
granted under the Prior Plans.) The number of Shares which are subject to
Options outstanding at any time under the Plan shall not exceed the number of
Shares which then remain available for issuance under the Plan. The Company,
during the term of the Plan, shall at all times reserve and keep available
sufficient Shares to satisfy the requirements of the Plan.
Additional Shares. In the event that any outstanding option granted
-----------------
under this Plan, including Substitute Options, or the Prior Plans, for any
reason expires or is canceled or otherwise
5
<PAGE>
terminated, the Shares allocable to the unexercised portion of such option shall
become available for the purposes of this Plan.
TERMS AND CONDITIONS OF OPTIONS.
Stock Option Agreement. Each grant of an Option under the Plan shall be
----------------------
evidenced by a Stock Option Agreement executed by the Optionee and the Company.
Such Option shall be subject to all applicable terms and conditions of the Plan
and may be subject to any other terms and conditions which are not inconsistent
with the Plan and which the Committee deems appropriate for inclusion in a Stock
Option Agreement. The provisions of the various Stock Option Agreements entered
into under the Plan need not be identical.
Number of Shares. Each Stock Option Agreement shall specify the number
----------------
of Shares that are subject to the Option and shall provide for the adjustment of
such number in accordance with Section 8. The Stock Option Agreement shall also
specify whether the Option is an ISO or a Nonstatutory Option.
Exercise Price. Each Stock Option Agreement shall specify the Exercise
--------------
Price. The Exercise Price of an ISO shall not be less than 100 percent of the
Fair Market Value of a Share on the date of grant, except as otherwise provided
in Section 4(b) with respect to ten percent stockholders and in Section 6(j)
with respect to Substitute Options. The Exercise Price of a Nonstatutory Option
shall not be less than 85 percent of the Fair Market Value of a Share on the
date of grant, except as otherwise provided in Section 6(j) with respect to
Substitute Options. The Exercise Price shall be payable in a form described in
Section 7.
Withholding Taxes. As a condition to the exercise of an Option, the
-----------------
Optionee shall make such arrangements as the Committee may require for the
satisfaction of any federal, state, local or foreign withholding tax obligations
that arise in connection with such exercise. The Optionee shall also make such
arrangements as the Committee may require for the satisfaction of any federal,
state, local or foreign withholding tax obligations that may arise in connection
with the disposition of Shares acquired by exercising an Option. The Committee
may permit the Optionee to satisfy all or part of his or her tax obligations
related to the Option by having the Company withhold a portion of any Shares
that otherwise would be issued to him or her or by surrendering any Shares that
previously were acquired by him or her. Such Shares shall be valued at their
Fair Market Value on the date when taxes otherwise would be withheld in cash.
The payment of taxes by assigning Shares to the Company, if permitted by the
Committee, shall be subject to such restrictions as the Committee may impose.
Exercisability. Each Stock Option Agreement shall specify the date when
--------------
all or any installment of the Option is to become exercisable. The vesting of
any Option shall be determined by the Committee at its sole discretion,
provided, however, that each Option shall vest at the rate of at least 20
percent per year over the five years from the date such Option is granted, and
further provided, however, that: (i) each Stock Option Agreement may provide for
other treatment of the entire Option in the event of a Change in Control, in
accordance with Section 8(b); and (ii) in the event that an Optionee's Service
terminates, the Option shall be exercisable only to the extent the
6
<PAGE>
Option was vested as of the date of such termination, unless otherwise specified
in the Optionee's Stock Option Agreement.
Term. Each Stock Option Agreement shall specify the term of the Option.
----
The term of an ISO shall not exceed 10 years from the date of grant, except as
otherwise provided in Section 4(b). Subject to the preceding sentence, the
Committee at its sole discretion shall determine when an Option is to expire. In
the event that the Optionee's Service terminates:
As a result of such Optionee's death or Total and Permanent
Disability, the term of the Option shall expire twelve months (or such
other period specified in the Optionee's Stock Option Agreement) after
such death or Total and Permanent Disability but not later than the
original expiration date specified in the Stock Option Agreement.
As a result of termination by the Company for cause, the term
of the Option shall expire thirty days after the Company's notice or
advice of such termination is dispatched to Employee, but not later
than the original expiration date specified in the Stock Option
Agreement. For purposes of this Paragraph (ii), "cause" shall mean an
act of embezzlement, fraud, dishonesty, breach of fiduciary duty to the
Company, or the deliberate disregard of rules of the Company which
results in loss, damage or injury to the Company, the unauthorized
disclosure of any of the secrets or confidential information of the
Company, the inducement of any client or customer of the Company to
break any contract with the Company, or the inducement of any principal
for whom the Company acts as agent to terminate such agency
relationship, the engagement of any conduct which constitutes unfair
competition with the Company, the removal of Optionee from office by
any court or bank regulatory agency, or such other similar acts which
the Committee in its discretion determine to constitute good cause for
termination of Optionee's Service. As used in this Paragraph (ii),
Company includes Subsidiaries of the Company.
As a result of termination for any reason other than Total and
Permanent Disability, death or cause, the term of the Option shall
expire three months (or such other period specified in the Optionee's
Stock Option Agreement) after such termination, but not later than the
original expiration date specified in the Stock Option Agreement.
Transferability. During an Optionee's lifetime, such Optionee's ISO(s)
---------------
shall be exercisable only by him or her and shall not be transferable. An
Optionee's Nonstatutory Options shall also not be transferable during the
Optionee's lifetime. In the event of an Optionee's death, such Optionee's
Option(s) shall not be transferable other than by will, by written beneficiary
designation or by the laws of descent and distribution.
No Rights as a Stockholder. An Optionee, or a transferee of an
--------------------------
Optionee, shall have no rights as a stockholder with respect to any Shares
covered by his or her Option until the date of the issuance of a stock
certificate for such Shares. No adjustments shall be made, except as provided in
Section 8.
Modification, Extension and Renewal of Options. Within the limitations
----------------------------------------------
of the Plan, the Committee may modify, extend or renew outstanding Options or
may accept the cancellation of
7
<PAGE>
outstanding Options (to the extent not previously exercised) in return for the
grant of new Options at the same or a different price. The foregoing
notwithstanding, no modification of an Option shall, without the consent of the
Optionee, impair such Optionee's rights or increase his or her obligations under
such Option.
Substitute Options. If the Company at any time should succeed to the
------------------
business of another corporation through merger or consolidation, or through the
acquisition of stock or assets of such corporation, Options may be granted under
the Plan in substitution of options previously granted by such corporation to
purchase shares of its stock which options are outstanding at the date of the
succession ("Surrendered Options"). The Committee shall have discretion to
determine the extent to which such Substitute Options shall be granted, the
persons to receive such Substitute Options, the number of Shares to be subject
to such Substitute Options, and the terms and conditions of such Substitute
Options which shall, to the extent permissible within the terms and conditions
of the Plan, be equivalent to the terms and conditions of the Surrendered
Options. The Exercise Price may be determined without regard to Section 6(c);
provided however, that the Exercise Price of each Substitute Option shall be an
amount such that, in the sole and absolute judgment of the Committee (and if the
Substitute Options are to be ISO's, in compliance with Section 424(a) of the
Code), the economic benefit provided by such Substitute Option is not greater
than the economic benefit represented by the Surrendered Option as of the date
of the succession.
PAYMENT FOR SHARES.
- ------------------
General Rule. The entire Exercise Price of Shares issued under the Plan
------------
shall be payable in lawful money of the United States of America at the time
when such Shares are purchased, except as follows:
ISOs. In the case of an ISO granted under the Plan, payment
----
shall be made only pursuant to the express provisions of the applicable
Stock Option Agreement. However, the Committee (at its sole discretion)
may specify in the Stock Option Agreement that payment may be made
pursuant to Subsections (b), (c) or (d) below.
Nonstatutory Options. In the case of a Nonstatutory Option
--------------------
granted under the Plan, payment shall be made only pursuant to the
express provisions of the applicable Stock Option Agreement. However,
the Committee (at its sole discretion) may accept payment pursuant to
Subsections (b), (c) or (d) below.
Surrender of Stock. To the extent that this Subsection (b) is
------------------
applicable, payment may be made all or in part with Shares which have already
been owned by the Optionee or his or her representative for more than 6 months
and which are surrendered to the Company in good form for transfer. Such Shares
shall be valued at their Fair Market Value on the date when the new Shares are
purchased under the Plan.
Exercise/Sale. To the extent that this Subsection (c) is applicable,
-------------
payment may be made by the delivery (on a form prescribed by the Company) of an
irrevocable direction to a securities
8
<PAGE>
broker approved by the Company to sell Shares and to deliver all or part of the
sales proceeds to the Company in payment of all or part of the Exercise Price
and any withholding taxes.
Exercise/Pledge. To the extent that this Subsection (d) is applicable,
---------------
payment may be made by the delivery (on a form prescribed by the Company) of an
irrevocable direction to pledge Shares to a securities broker or lender approved
by the Company, as security for a loan, and to deliver all or part of the loan
proceeds to the Company in payment of all or part of the Exercise Price and any
withholding taxes.
ADJUSTMENT OF SHARES.
- --------------------
General. In the event of a subdivision of the outstanding Stock, a
-------
declaration of a dividend payable in Shares, a declaration of a dividend payable
in a form other than Shares in an amount that has a material effect on the value
of Shares, a combination or consolidation of the outstanding Stock (by
reclassification or otherwise) into a lesser number of Shares, a
recapitalization, a spinoff or a similar occurrence, the Committee shall make
appropriate adjustments in one or more of:
The number of Shares available under Section 5 for future
grants;
The limit set forth in Section 6(b);
The number of Shares covered by each outstanding Option; or
The Exercise Price under each outstanding Option.
Reorganizations. In the event that the Company is a party to a merger
---------------
or other reorganization involving a Change in Control, the outstanding Options
shall be subject to the agreement of merger or reorganization. Subject to the
provisions of Section 6(e)(i), such agreement may provide, without limitation,
for the assumption of outstanding Options by the surviving corporation or its
parent, for their continuation by the Company (if the Company is a surviving
corporation), for payment of a cash settlement equal to the difference between
the amount to be paid for one Share under such agreement and the Exercise Price,
or for the acceleration of their exercisability followed by the cancellation of
Options not exercised, in all cases without the Optionees' consent. Any
cancellation shall not occur until after such acceleration is effective and
Optionees have been notified of such acceleration and have had reasonable
opportunity to exercise their Options.
Reservation of Rights. Except as provided in this Section 8, an
---------------------
Optionee or Offeree shall have no rights by reason of any subdivision or
consolidation of shares of stock of any class, the payment of any dividend or
any other increase or decrease in the number of shares of stock of any class.
Any issue by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall not affect, and no
adjustment by reason thereof shall be made with respect to, the number or
Exercise Price of Shares subject to an Option. The grant of an Option pursuant
to the Plan shall not affect in any way the right or power of the Company to
make
9
<PAGE>
adjustments, reclassifications, reorganizations or changes of its capital or
business structure, to merge or consolidate or to dissolve, liquidate, sell or
transfer all or any part of its business or assets.
SECURITIES LAWS.
- ---------------
Shares shall not be issued under the Plan unless the issuance and
delivery of such Shares complies with (or is exempt from) all applicable
requirements of law, including (without limitation) the Securities Act of 1933,
as amended, the rules and regulations promulgated thereunder, state securities
laws and regulations, and the regulations of any stock exchange on which the
Company's securities may then be listed.
NO RETENTION RIGHTS.
- -------------------
Neither the Plan nor any Option shall be deemed to give any individual
a right to remain an employee or consultant of the Company or a Subsidiary. The
Company and its Subsidiaries reserve the right to terminate the service of any
employee or consultant at any time, with or without cause, subject to applicable
laws and a written employment agreement (if any).
DURATION AND AMENDMENTS.
- -----------------------
Term of the Plan. The Plan, as set forth herein, shall become effective
----------------
as of the Effective Date, provided that the Plan has been approved by the
shareholders of the Company in the manner required by applicable law or
regulation. The Plan shall terminate automatically on March 20, 2007, which is
ten (10) years after the Plan was adopted by the Board of Directors, and no
Options may be granted under the Plan on or after March 20, 2007. The Plan may
be terminated earlier than such date, pursuant to subsection (b) below.
Right to Amend or Terminate the Plan. The Board of Directors may amend,
------------------------------------
suspend or terminate the Plan at any time and for any reason. An amendment of
the Plan shall be subject to the approval of the Company's shareholders only to
the extent required by applicable laws or regulations.
Effect of Amendment or Termination. No Shares shall be issued or sold
----------------------------------
under the Plan after the termination thereof, except upon exercise of an Option
granted prior to such termination. The termination of the Plan, or any amendment
thereof, shall not affect any Share previously issued or any Option previously
granted under the Plan
INFORMATION TO OPTIONEES.
- ------------------------
The Company shall provide to each Optionee, at the same time and in the
same manner as provided to the shareholders of the Company, a copy of the annual
report to shareholders, containing the audited financial statements of the
Company. Upon request of any Optionee, the Company shall also provide to such
Optionee, at no charge to the Optionee, a copy of any Form 10-K Annual Report or
Form 10-Q Quarterly Report filed by the Company with the Securities and Exchange
Commission.
10
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FORM THE 9-30-97
FINANCIAL STATS AND IS QUALIFIED IN ITS ENTIRELTY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997
<PERIOD-START> JUL-O1-1997 JAN-01-1997
<PERIOD-END> SEP-30-1997 SEP-30-1997
<CASH> 7,878 7,878
<INT-BEARING-DEPOSITS> 0 0
<FED-FUNDS-SOLD> 4,800 4,800
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 54,991 54,991
<INVESTMENTS-CARRYING> 1,717 1,717
<INVESTMENTS-MARKET> 1,794 1,794
<LOANS> 63,158 63,158
<ALLOWANCE> 1,334 1,334
<TOTAL-ASSETS> 143,121 143,121
<DEPOSITS> 129,214 129,214
<SHORT-TERM> 0 0
<LIABILITIES-OTHER> 1,244 1,244
<LONG-TERM> 0 0
0 0
0 0
<COMMON> 7,455 7,455
<OTHER-SE> 5,208 5,208
<TOTAL-LIABILITIES-AND-EQUITY> 143,121 143,121
<INTEREST-LOAN> 1,591 4,919
<INTEREST-INVEST> 964 2,609
<INTEREST-OTHER> 78 280
<INTEREST-TOTAL> 2,633 7,808
<INTEREST-DEPOSIT> 984 2,769
<INTEREST-EXPENSE> 984 2,769
<INTEREST-INCOME-NET> 1,649 5,039
<LOAN-LOSSES> 0 (60)
<SECURITIES-GAINS> 0 0
<EXPENSE-OTHER> 1,720 5,066
<INCOME-PRETAX> 318 1,139
<INCOME-PRE-EXTRAORDINARY> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 216 762
<EPS-PRIMARY> .15 .55
<EPS-DILUTED> .15 .55
<YIELD-ACTUAL> 5.35 5.75
<LOANS-NON> 371 371
<LOANS-PAST> 29 29
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 0 0
<ALLOWANCE-OPEN> 1,493 1,207
<CHARGE-OFFS> 214 222
<RECOVERIES> 55 409
<ALLOWANCE-CLOSE> 1,334 1,334
<ALLOWANCE-DOMESTIC> 1,334 1,334
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 858 858
</TABLE>
