<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the period ended June 30, 1999
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from ______ to ______
Commission File Number: 0-12499
First Financial Bancorp
(Exact name of registrant as specified in its charter)
California 94-28222858
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
701 South Ham Lane, Lodi, California 95242
(Address of principal executive offices) (Zip Code)
(209) 367-2000
(Registrant's telephone number, including area code)
NA
(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
[X] Yes [_] No
As of August 13, 1999 there were 1,425,517 shares of Common Stock, no par
value, outstanding.
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<PAGE>
FIRST FINANCIAL BANCORP
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1999
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
PART I
Item 1. Financial Statements......................................................... 1
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................................ 6
Item 3. Quantitative and Qualitative Disclosures about Market Risk .................. 17
PART II
Item 1. Legal Proceedings............................................................ 17
Item 2. Changes in Securities........................................................ 17
Item 3. Defaults Upon Senior Securities.............................................. 17
Item 4. Submission of Matters to a Vote of Security Holders.......................... 17
Item 5. Other Information............................................................ 17
Item 6. Exhibits and Reports on Form 8-K............................................. 17
</TABLE>
i
<PAGE>
FIRST FINANCIAL BANCORP AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
(Dollar Amounts In Thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
---------------- -------------------
<S> <C> <C>
Assets
- -------------------------------------------------------
Cash and due from banks $ 8,241 $ 7,329
Federal funds sold 2,000 4,800
Investment securities:
Available-for-sale, at fair value 38,280 45,647
Loans 103,418 92,642
Less: allowance for loan losses (1,795) (1,564)
-------- --------
Net loans 101,623 91,078
Bank premises and equipment, net 7,072 7,261
Accrued interest receivable 1,467 1,353
Other assets 7,314 6,932
-------- --------
Total Assets $165,997 $164,400
======== ========
Liabilities and Stockholders' Equity
- -------------------------------------------------------
Liabilities:
Deposits:
Noninterest bearing $ 18,426 $ 18,535
Interest bearing 132,537 131,009
-------- --------
Total deposits 150,963 149,544
Accrued interest payable 346 389
Other liabilities 571 610
-------- --------
Total liabilities 151,880 150,543
Stockholders' equity:
Common stock - no par value; authorized 9,000,000
shares, issued and outstanding at 1999 and 1998,
1,424,977 and 1,346,442 shares, respectively 7,816 7,584
Retained earnings 6,277 5,971
Accumulated other comprehensive income 24 302
-------- --------
Total stockholders' equity 14,117 13,857
-------- --------
Total Liabilities and Stockholders' Equity $165,997 $164,400
======== ========
</TABLE>
(See notes to consolidated financial statements)
-1-
<PAGE>
FIRST FINANCIAL BANCORP AND SUBSIDIARIES
Consolidated Statements of Income
(Unaudited)
(In Thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------ ------------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Interest income:
Loans, including fees $2,317 $1,776 $4,563 $3,462
Investment securities:
Taxable 555 825 1,135 1,725
Exempt from federal taxes 52 53 104 117
Federal funds sold 52 85 132 184
------ ------ ------ ------
Total interest income 2,976 2,739 5,934 5,488
Interest expense:
Deposit accounts 911 1,061 1,849 2,026
------ ------ ------ ------
Net interest income 2,065 1,678 4,085 3,462
Provision for loan losses 101 30 201 60
------ ------ ------ ------
Net interest income after provision
for loan losses 1,964 1,648 3,884 3,402
Noninterest income:
Service charges 239 228 447 444
Premiums and fees from SBA and mortgage
operations 162 150 378 344
Miscellaneous 79 61 140 67
------ ------ ------ ------
Total noninterest income 480 439 965 855
Noninterest expense:
Salaries and employee benefits 980 821 1,912 1,724
Occupancy 186 159 385 312
Equipment 151 136 307 271
Other 871 735 1,573 1,378
------ ------ ------ ------
Total noninterest expense 2,188 1,851 4,177 3,685
------ ------ ------ ------
Income before provision for income taxes 256 236 672 572
Provision for income taxes 78 55 221 161
------ ------ ------ ------
Net income 178 181 451 411
Unrealized (loss) on available for
sale securities, net of tax (181) (15) (278) (42)
------ ------ ------ ------
Total comprehensive (loss) income $ (3) $ 166 $ 172 $ 369
====== ====== ====== ======
Earnings per share:
Basic $0.13 $0.13 $0.32 $0.30
====== ====== ====== ======
Diluted $0.12 $0.12 $0.31 $0.28
====== ====== ====== ======
Dividends declared per share $0.05 $0.05 $0.10 $0.10
====== ====== ====== ======
</TABLE>
(See notes to consolidated financial statements)
-2-
<PAGE>
FIRST FINANCIAL BANCORP AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
Six Months Ended June 30
----------------------------------
1999 1998
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 451 $ 411
Adjustments to reconcile net income to net cash
provided by operating activities:
(Increase) decrease in loans held for sale (1,959) 722
Increase in deferred loan income 35 19
Provision for other real estate owned losses -- 16
Depreciation & amortization 541 528
Provision for loan losses 201 60
Provision for deferred taxes -- (37)
(Increase) decrease in accrued interest receivable (114) 19
Decrease in accrued interest payable (43) (31)
Decrease in other liabilities (39) (423)
Increase in Cash Surrender Value Life Insurance (77) (55)
(Increase) decrease in other assets (245) 35
-------- -------
Net cash (used in) provided by operating activities (1,249) 1,264
Cash flows from investing activities:
Proceeds from maturity of held-to-maturity securities -- 10
Proceeds from maturity of available-for-sale securities 4,279 9,329
Proceeds from sale of available-for-sale securities 14,450 --
Purchase of available-for-sale securities (11,850) (4,000)
Increase in loans made to customers (8,822) (7,038)
Proceeds from the sale of other real estate -- 40
Purchases of bank premises, equipment and intangible assets (202) (187)
Purchase of Life Insurance Policy -- (4,125)
-------- -------
Net cash used in investing activities (2,145) (5,971)
Cash flows from financing activities:
Net increase in deposits 1,419 4,321
Proceeds from issuance of common stock 232 104
Payment of dividends (138) (134)
Payment for fractional stock dividends (7) --
-------- -------
Net cash provided by financing activities 1,506 4,291
Net decrease in cash and cash equivalents (1,888) (416)
Cash and cash equivalents at beginning of period 12,129 12,083
-------- -------
Cash and cash equivalents at end of period $ 10,241 $11,667
======== =======
</TABLE>
(See notes to consolidated financial statements)
-3-
<PAGE>
FIRST FINANCIAL BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1999 and December 31, 1998
(1) Summary of Significant Accounting Policies
The accounting and reporting policies of First Financial Bancorp (the
Company) and its subsidiaries, Bank of Lodi, N.A., (the Bank) and Western
Auxiliary Corporation (WAC) conform with generally accepted accounting
principles and prevailing practices within the banking industry. In
preparing the consolidated financial statements, management is required to
make estimates and assumptions that affect the reported amounts of assets
and liabilities as of the date of the balance sheet and revenue and expense
for the period. Actual results could differ from those estimates applied in
the preparation of the consolidated financial statements. The following is a
description of new accounting standards adopted during the current period.
Accounting for Mortgage-Backed Securities Retained after the Securitization
---------------------------------------------------------------------------
of Mortgage Loans Held for Sale by a Mortgage Banking Enterprise
----------------------------------------------------------------
The Company adopted Statement of Financial Accounting Standards (SFAS) No.
134, Accounting for Mortgage-Backed Securities Retained after the
Securitization of Mortgage Loans Held for Sale by a Mortgage Banking
Enterprise beginning January 1, 1999. SFAS No. 134 requires that after the
securitization of mortgage loans held for sale, an entity engaged in
mortgage banking activities classify the resulting mortgage-backed
securities or other retained interests based on its ability and intent to
sell or hold those investments. Adoption of this standard did not have a
material impact on the financial statements of the Company.
Accounting for the Costs of Computer Software Developed or Obtained for
-----------------------------------------------------------------------
Internal Use
------------
The Company adopted Statement of Position (SOP) 98-1, Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use beginning
January 1, 1999. SOP 98-1 provides guidance on accounting for the costs of
computer software developed or obtained for internal use. It specifies that
computer software meeting certain characteristics be designated as internal-
use software and sets forth criteria for expensing, capitalizing, and
amortizing certain costs related to the development or acquisition of
internal-use software. Adoption of this standard did not have a material
impact on the financial statements of the Company.
Reporting on the Costs of Start-Up Activities
---------------------------------------------
The Company adopted SOP 98-5, Reporting on the Costs of Start-Up Activities
beginning January 1, 1999. SOP 98-5 provides guidance on the financial
reporting of start-up costs and organization costs. It requires costs of
start-up activities and organization costs to be expensed as incurred.
Adoption of this standard did not have a material impact on the financial
statements of the Company.
(2) Weighted Average Shares Outstanding
Per share information is based on weighted average number of shares of
common stock outstanding during each three-month and six-month period after
giving retroactive effect for the three percent stock dividend declared for
shareholders of record June 4, 1999, payable June 18, 1999. 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.
-4-
<PAGE>
FIRST FINANCIAL BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1999 and December 31, 1998
(2) Weighted Average Shares Outstanding (continued)
The following table provides a reconciliation of the numerator and
denominator of the basic and diluted earnings per share computation of the
three and six month periods ending June 30, 1999 and 1998:
<TABLE>
<CAPTION>
Income Shares Per-Share
Three months ended June 30, 1999 (numerator) (denominator) Amount
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Basic earnings per share $178,000 1,422,776 $.13
Effect of dilutive securities -- 65,747 --
-------- ---------
Diluted earnings per share $178,000 1,488,523 $.12
======== =========
<CAPTION>
Income Shares Per-Share
Three months ended June 30, 1998 (numerator) (denominator) Amount
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Basic earnings per share $181,000 1,379,046 $.13
Effect of dilutive securities -- 87,291 --
-------- ---------
Diluted earnings per share $181,000 1,466,337 $.12
======== =========
<CAPTION>
Income Shares Per-Share
Six months ended June 30, 1999 (numerator) (denominator) Amount
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Basic earnings per share $451,000 1,411,551 $.32
Effect of dilutive securities -- 63,598 --
-------- ---------
Diluted earnings per share $451,000 1,475,149 $.31
======== =========
<CAPTION>
Income Shares Per-Share
Six months ended June 30, 1998 (numerator) (denominator) Amount
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Basic earnings per share $411,000 1,376,374 $.30
Effect of dilutive securities -- 87,900 --
-------- ---------
Diluted earnings per share $411,000 1,464,274 $.28
======== =========
</TABLE>
(3) Allowance for Loan Losses
The following summarizes changes in the allowance for loan losses for the
six month periods ended June 30, 1999 and 1998 and the twelve month period
ended December 31, 1998:
<TABLE>
<CAPTION>
6/30/99 6/30/98 12/31/98
---------- ---------- ----------
<S> <C> <C> <C>
Balance at beginning of period $1,564,000 $1,313,000 $1,313,000
Loans charged off (8,000) (58,000) (132,000)
Recoveries 38,000 43,000 133,000
Provisions charged to operations 201,000 60,000 250,000
---------- ---------- ----------
Balance at end of period $1,795,000 $1,358,000 $1,564,000
========== ========== ==========
</TABLE>
-5-
<PAGE>
FIRST FINANCIAL BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1999 and December 31, 1998
(4) Basis of Presentation
First Financial Bancorp is the holding company for Bank of Lodi, N.A. and
Western Auxiliary Corporation. In the opinion of management, the
accompanying unaudited consolidated financial statements reflect all
adjustments (consisting of normal recurring accruals and other accruals as
explained above) necessary for a fair presentation of financial position as
of the dates indicated and results of operations for the periods shown. All
material intercompany accounts and transactions have been eliminated in
consolidation. In preparing the financial statements, management is
required to make estimates and assumptions that affect the reported
amounts. The results for the three and six months ended June 30, 1999 are
not necessarily indicative of the results which may be expected for the
year ended December 31, 1999. The unaudited consolidated financial
statements presented herein should be read in conjunction with the
consolidated financial statements and notes included in the 1998 Annual
Report to Shareholders.
-6-
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Certain statements in this quarterly report on Form 10-Q include forward-looking
information within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and
are subject to the "safe harbor" created by those sections. These forward-
looking statements involve certain risks and uncertainties that could cause
actual results to differ materially from those in the forward-looking
statements. 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.
In addition, the Company has had the ongoing need to assess risks associated
with the Year 2000 ("Y2K") century date change. At this time, the Company
believes that it is in full compliance with the Federal Financial Institutions
Examination Council ("FFIEC") guidelines regarding Y2K. To date, these
guidelines have required the Company to test and validate mission critical
systems as well as perform a business impact analysis, assess the risk to core
business processes and develop a Y2K business resumption contingency plan.
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 2 through 6, as well as other information presented throughout
this report and previously filed reports.
Changes in Financial Condition
Consolidated total assets at June 30, 1999 were approximately $1.6 million or 1%
above the comparable level at December 31, 1998, reflecting a similar 1%
increase in deposits. This overall growth in deposits is attributable to the
continued efforts of the bank branches to attract new customers. Compared to
year-end 1998, noninterest bearing deposits decreased by $109,000 or 1%, while
interest bearing deposits increased $1.5 million or 1%. The increase in interest
bearing deposits is comprised of $1.2 million (3%) in interest bearing checking
accounts, $1.6 million (6%) in regular savings accounts, and $1.8 million (4%)
in certificates of deposit. However, balances in money market demand deposits
decreased $3.1 million (16%) from year-end 1998. This growth in the above
interest bearing deposits is attributable to an increase in new customers.
Management believes that the decrease in money market accounts is most likely
the result of withdrawals by depositors seeking higher yielding investments.
The gross loan portfolio increased $10.8 million or 12%, from December 31, 1998
to June 30, 1999, in spite of approximately $2.6 million in mortgage loans that
were classified as held-for-sale to the secondary market on December 31, 1998
and subsequently sold in the first quarter of 1999. At June 30, 1999, the Bank
had $660,000 in mortgage loans held for sale to the secondary market.
-7-
<PAGE>
The agriculture loan portfolio increased $4.4 million or 34% from year-end 1998.
The outstanding balances of agriculture lines of credit started to increase
towards the end of 1998 and continued throughout the first half of 1999.
Agriculture lines of credit are cyclical in nature as historically the majority
of these borrowers draw on their lines of credit in the Spring. At June 30,
1999, the outstanding balances of agricultural lines of credit totaled $7.5
million with $4.9 million available to be disbursed. Real estate increased $5.4
million or 16% and Small Business Administration ("SBA") loans increased $4.2
million or 32% from the end of 1998. The increase in SBA loans is a result of
the increased demand for real estate loans under the SBA's 504 program. The
commercial (excluding agriculture loans) and consumer loan portfolios remained
relatively flat while the construction and mortgage loan portfolios decreased
$1.2 million (10%) and $337,000 (14%), respectively, during the first six months
of 1999.
Analysis of the Allowance for Loan Losses
The allowance for loan losses (the "allowance") is established through a
provision for loan losses charged to expense. The allowance at June 30, 1999 was
in excess of the December 31, 1998 allowance by $231 thousand, or 15%, as a
result of a provision for $201 thousand and net recoveries of $30 thousand. This
compares to a provision of $60 thousand for the first six months of 1998. The
increased provision is a result of the general growth of the loan portfolio. At
June 30, 1999, nonperforming loans were $462 thousand or 0.45% of gross loans
outstanding. This compares to $439 thousand or 0.47% of gross loans outstanding
at December 31, 1998. The allowance to nonperforming loan coverage ratio
increased to 3.89 times from 3.56 times. Total portfolio delinquency at June 30,
1999 was 1.69%, compared to 1.40% at December 31, 1998. Management believes that
the allowance at June 30, 1999 is adequate to absorb loan losses inherent in the
portfolio. However, there can be no assurances that future economic events may
negatively impact the Bank's borrowers, thereby causing loan losses to exceed
the current allowance.
The following tables depict activity in the allowance for loan losses and
allocation of reserves for and at the six and twelve months ended June 30, 1999
and December 31, 1998, respectively:
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
---------- ------------
<S> <C> <C>
Balance at beginning of period $1,564 $1,313
Charge-offs:
Commercial -- (67)
Real estate -- (25)
Consumer (8) (40)
------ ------
Total charge-offs (8) (132)
Recoveries:
Commercial 34 112
Real estate -- --
Consumer 4 21
------ ------
Total recoveries 38 133
------ ------
Net recoveries 30 1
Provision charged to operations 201 250
------ ------
Balance at end of period $1,795 $1,564
====== ======
</TABLE>
-8-
<PAGE>
Allocation of the Allowance for Loan Losses
- -------------------------------------------
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
------------------------------------ ------------------------------------
Loan Category Amount (000's) % of Loans Amount (000's) % of Loans
- ------------------ -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Commercial $ 110 60.55% $ 240 63.16%
Real Estate 184 37.45% 129 33.95%
Consumer 2 3.25% 11 2.89%
Unallocated 1,499 N/A 1,184 N/A
------ ------ ------ ------
$1,795 100.00% $1,564 100.00%
====== ====== ====== ======
</TABLE>
Investments
- -----------
Investments consist of federal funds sold, money market mutual funds and
investment securities. Investment securities decreased by $5.2 million, or 19%,
from December 31, 1998 to June 30, 1999. The decline represents matured bonds
and securities contractually called by issuers. As a result of the Bank's
projections for the funding of loans, the matured and called bonds over the
first half of 1999 were reinvested primarily in money market mutual funds in
order to avoid market risk over the short-term before funding loans. As new
loans were funded, investments in money market mutual funds were decreased
resulting in a net decrease of $2.2 million or 12% from December 31, 1998. In
addition, investments in federal funds sold were also decreased to fund new
loans resulting in a decrease of $2.8 million or 58% from December 31, 1998. At
June 30, 1999, the Company held approximately $6.5 million in callable U.S.
Agency securities with a weighted average final maturity of 7 years and an
average yield of 6.62%.
Equity
- ------
Consolidated equity increased by $259 thousand from December 31, 1998 to June
30, 1999. Consolidated equity represented 8.50% and 8.43% of consolidated
assets at June 30, 1999 and December 31, 1998, respectively. In addition to the
earnings of $451 thousand, equity capital was increased by $232 thousand from
the exercise of stock options over the six months ended June 30, 1999. Year-to-
date capital reductions include $138 thousand for dividend payments, $7 thousand
for the cash payout for fractional shares as a result of the 3% stock dividend
declared in May 1999, and $278 thousand to reflect the decline in the after-tax
market value of 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 June 30, 1999 compared to
December 31, 1998.
The total risk-based capital ratio for the Company's wholly owned subsidiary,
Bank of Lodi was 10.84% at June 30, 1999 compared to 11.10% at December 31,
1998. The decrease in the total risk-based capital ratio is largely a function
of the flow of funds from lower risk-weighted investments to higher risk-
weighted loans. Loans carry a risk weight of 100% compared to an average risk-
weight of 20% for the funds used to make loans. For each dollar in new loans,
risk-weighted assets increase by eighty cents. The Bank's leverage capital ratio
was 7.65% at June 30, 1999 versus 7.35% at December 31, 1998. The capital ratios
are in excess of the regulatory minimums for a well-capitalized bank.
-9-
<PAGE>
Year 2000 Preparedness
Preparedness for the Year 2000 date change with respect to computer systems is
recognized as a serious issue throughout the banking industry. Progress reports
prepared by management are provided monthly to the Board of Directors at its
regularly scheduled meetings and to the audit committee. The potential impact of
the Year 2000 compliance issue on the financial services industry could be
material, as virtually every aspect of the industry and processing of
transactions will be affected. Due to the size of the task facing the financial
services industry and the interdependent nature of its transactions, the Company
may be adversely affected by this problem, depending on whether it and the
entities with which it does business address this issue successfully. The
impact of Year 2000 issues on the Company will depend not only on its own
corrective actions, but also on the way in which Year 2000 issues are addressed
by governmental agencies, businesses and other third parties that provide
services or data to (or receive services or data from) the Company, or whose
financial condition or operational capability is important to the Company.
The Company's State of Readiness
- --------------------------------
The Company engages the services of third-party software vendors and service
providers for substantially all of its electronic data processing. The current
focus of the Company is to continue to monitor the progress of its primary
software providers toward Year 2000 compliance as well as test and validate
software and hardware upgrades, if any, for mission-critical systems.
The Company's Year 2000 compliance program has been divided into phases, all of
them common to all sections of the process: (1) inventorying date-sensitive
information technology and other business systems; (2) assigning priorities to
identified items and assessing the efforts required for Year 2000 compliance of
those determined to be material to the Company; (3) upgrading or replacing
material items that are determined not to be Year 2000 compliant and testing
material items; (4) assessing the status of third party risks; and (5)
developing and implementing contingency and business resumption plans.
As part of the on-going supervision of the banking industry, bank regulatory
agencies are continuously surveying the Company's progression and results of
each of these phases. Monthly progress reports are provided to the Board of
Directors at regularly scheduled Board meetings.
In the first phase, the Company conducted a thorough evaluation of current
information technology systems, software and embedded technologies, resulting in
the identification of 21 Mission-Critical Systems that could be affected by Year
2000 issues. Non-information technology systems such as climate control systems,
elevators and vault security equipment, were also surveyed. This phase of the
Year 2000 process is complete.
The Bank's lending department made its own initial inquiries regarding
commercial borrower's Year 2000 compliance in 1998. As new loans are made (or
existing loans renewed), responses to inquiries are documented in the loan file
and updated as necessary. This is done in order to properly assess the state of
readiness and evaluate any potential impact to commercial borrowers that may
affect their ability to repay their loans.
In phase two of the process, results from the inventory were assessed to
determine the Year 2000 impact and what actions were required to obtain Year
2000 compliance. For the Company's mission-critical systems, actions needed
consist principally of upgrades to application versions
-10-
<PAGE>
that vendors have tested for Year 2000 compliance. The Bank's core information
system is The Phoenix Banking System (PBS) from Phoenix International Ltd.,
which was developed in the early 1990's. The Bank converted to PBS in 1996. PBS
was developed with a four-digit year field. Phoenix International Ltd. has
completed year 2000 testing on version 2.01 of PBS. No code changes to PBS were
necessary to complete those tests. Phase two of the Year 2000 process has been
completed.
The third phase includes the upgrading, replacement and/or retirement of
systems, and testing. This stage of the Year 2000 process has been substantially
completed for mission critical systems. The Company and the Bank upgraded to
version 2.01 of PBS and completed all on-site testing of mission critical
systems. Each of the upgrades, to the extent economically feasible, is run
through a test environment before it is implemented. It is also tested to see
how well it integrates with the Company's overall data processing environment.
Validation of testing by a third party was completed in April of 1999.
The fourth phase, assessing third party risks, includes the process of
identifying and prioritizing critical suppliers and customers at the direct
interface level, as well as other material relationships with third parties,
including various exchanges, clearing houses, other banks, telecommunication
companies and public utilities. This evaluation includes communicating with the
third parties about their plans and progress in addressing Year 2000 issues.
Detailed evaluations of the most critical third parties have been performed and
an initial validation process was completed in the second quarter of 1999.
Follow-up reviews are scheduled throughout the remainder of 1999.
Business Resumption and Contingency Plan
- ----------------------------------------
The final phase of the Company's Year 2000 compliance program relates to
business resumption and contingency plans. The Company maintains contingency
plans in the normal course of business designed to be deployed in the event of
various potential business interruptions. These plans have been expanded and
will be tested, to address Year 2000-specific interruptions such as power and
telecommunication infrastructure failures, and will continue to be supplemented
if and when the results of systems integration testing identify additional
business functions at risk. The Company has defined core business processes that
are dependent upon mission-critical systems and analyzed the business impact on
those processes from the failure of mission critical systems in order to develop
a more specific business resumption and contingency plan. The Board of Directors
approved the Y2K business resumption and contingency plan at its June meeting.
Specific training of personnel on the Y2K contingency plans has been scheduled
throughout the third quarter of 1999.
Costs
- -----
As the Company relies upon third-party software vendors and service providers
for substantially all of its electronic data processing, the primary cost of the
Year 2000 Project has been and will continue to be the reallocation of internal
resources and, therefore, does not represent incremental expense to the Company.
Management estimates that the incremental cost of mitigating Year 2000 risk and
third-party reviews of results will be $135 thousand ("cash budget"), and the
cost of management's time invested in this project will be approximately $30
thousand. To date, Y2K-related costs totaling $83 thousand have been paid.
Management warns that the paid costs and expenses associated with this project,
as a percentage of the total budget or the cash budget, should not be construed
as a percentage of completion.
-11-
<PAGE>
Risks
- -----
Failure to correct a material Year 2000 problem could result in an interruption
in, or a failure of, certain normal business activities or operations. The
Company believes that, with the implementation of upgraded business systems and
completion of the Year 2000 Project as scheduled, the possibility of significant
interruptions of normal operations due to the failure of those systems will be
reduced. However, the Company is also dependent upon the power and
telecommunications infrastructure within the United States, and processes large
volumes of transactions through various clearing houses and correspondent banks.
The most reasonably likely worst case scenario would be that the Company may
experience disruption in its operations if any of these third-party suppliers
reported a system failure. Although the Company's Year 2000 project will reduce
the level of uncertainty about the compliance and readiness of its material
third-party providers, due to the general uncertainty over Year 2000 readiness
of these third-party suppliers, the Company is unable to determine at this time
whether the consequences of Year 2000 failures will have a material impact.
Changes in Results of Operations
Summary of Earnings Performance
- -------------------------------
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
---------------------------------- ---------------------------------
1999 1998 1999 1998
-------------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
Earnings (in thousands) $ 178 $ 181 $ 451 $ 411
Basic earnings per share $ 0.13 $ 0.13 $ 0.32 $ 0.30
Diluted earnings per share $ 0.12 $ 0.12 $ 0.31 $ 0.28
Return on average assets 0.43% 0.48% 0.55% 0.55%
Return on average equity 5.24% 5.50% 6.71% 6.31%
Dividend payout ratio 38.46% 38.46% 31.25% 32.26%
Average equity to average assets 8.22% 8.73% 8.21% 8.69%
</TABLE>
The Company reported net income of $178,000 ($.12 per share, diluted) for the
three months ended June 30, 1999, compared to $181,000 ($.12 per share,
diluted) for the same period in 1998. Net income for the six months ended
June 30, 1999 was $451,000 ($.31 per share, diluted) compared to $411,000
($.28 per share, diluted). The decrease in net income for the second quarter in
1999 when compared to the same period one year ago is due to an increase
of $387 thousand in net interest income, an increase of $71 thousand in the
provision for loan losses, an increase of $41 thousand in noninterest income
and an increase of $337 thousand in noninterest expense. The increase in net
income during the first six months of 1999 when compared to the same period in
1998 is due to an increase of $623 thousand in net interest income, an increase
of $141 thousand in the provision for loan losses, an increase of $110
thousand in noninterest income and an increase of $492 thousand in noninterest
expense.
-12-
<PAGE>
Net Interest Income
- -------------------
The following tables provides a detailed analysis of the net interest spread and
net interest margin for the periods indicated:
<TABLE>
<CAPTION>
For the Three Months Ended June 30,
--------------------------------------------------------------------------------------------
1999 1998
------------------------------------------- -------------------------------------------
Dollars In Thousands Average Income/ Yield Average Income/ Yield
Balance Expense (1) Balance Expense (1)
------------ ------------- ----- ----------- ------------ ------
<S> <C> <C> <C> <C> <C> <C>
Earning Assets:
Investment securities
(1) (2) $ 42,944 $ 607 5.68% $ 56,282 $ 878 6.26%
Federal funds sold 4,311 52 4.78% 6,457 85 5.28%
Loans (2) (3) 97,220 2,317 9.56% 67,851 1,776 10.50%
-------- ------ ----- -------- ------- -----
$144,475 $2,976 8.26% $127,480 $ 2,739 8.41%
======== ====== ===== ======== ======= =====
Liabilities:
Noninterest bearing
deposits $ 19,482 $ -- -- $ 16,065 $ -- --
Savings, money market, &
NOW deposits 80,190 330 1.65% 75,189 442 2.36%
Time deposits 50,923 581 4.58% 45,813 619 5.42%
-------- ------ ----- -------- ------- -----
Total Liabilities $150,595 $ 911 2.43% $137,067 $ 1,061 3.10%
======== ====== ===== ======== ======= =====
Net Interest Spread 5.83% 5.31%
===== =====
--------------------------------------------------------------------------------------------
Earning Income Earning Income
Assets (Expense) Yield Assets (Expense) Yield
------------ ------------- ----- ----------- ------------ ------
Yield on average earning
assets $144,475 $2,976 8.26% $127,480 $ 2,739 8.41%
Cost of funding average
earning assets $144,475 $ (911) (2.53)% $127,480 $(1,061) (3.26)%
------ ----- ------- -----
Net Interest Margin $144,475 $2,065 5.73% $127,480 $ 1,678 5.15%
====== ===== ======= =====
</TABLE>
(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.
-13-
<PAGE>
<TABLE>
<CAPTION>
For the Six Months Ended June 30,
--------------------------------------------------------------------------------------------
1999 1998
-------------------------------------------- -------------------------------------------
Dollars In Thousands Average Income/ Yield Average Income/ Yield
Balance Expense (1) Balance Expense (1)
------------ ------------- ----- ----------- ------------ ------
<S> <C> <C> <C> <C> <C> <C>
Earning Assets:
Investment securities
(1) (2) $ 44,043 $ 1,239 5.67% $ 56,282 $1,842 6.49%
Federal funds sold 5,544 132 4.79% 6,457 184 5.73%
Loans (2) (3) 94,706 4,563 9.72% 67,851 3,462 10.33%
-------- ------- ----- -------- ------ -----
$144,293 $ 5,934 8.29% $130,590 $5,488 8.45%
======== ======= ===== ======== ====== =====
Liabilities:
Noninterest bearing
deposits $ 18,790 $ -- -- $ 15,880 $ -- --
Savings, money market, &
NOW deposits 80,470 660 1.65% 74,820 871 2.35%
Time deposits 50,500 1,189 4.75% 45,320 1,155 5.13%
-------- ------- ----- -------- ------ -----
Total Liabilities $149,760 $ 1,849 2.48% $137,067 $2,026 2.98%
======== ======= ===== ======== ====== =====
Net Interest Spread 5.81% 5.47%
===== =====
-----------------------------------------------------------------------------------------
Earning Income Earning Income
Assets (Expense) Yield Assets (Expense) Yield
-------- -------- ------- -------- --------- -------
Yield on average earning
assets $144,293 $ 5,934 8.29% $130,590 $ 5,488 8.45%
Cost of funding average
earning assets $144,293 $(1,849) (2.58)% $130,590 $(2,026) (3.13)%
------- ----- ------ -----
Net Interest Margin $144,293 $ 4,085 5.71% $130,590 $ 3,462 5.32%
======= ===== ====== =====
</TABLE>
(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.
Interest income for the second quarter of 1999 increased by $237 thousand, or
9%, over the same quarter of 1998. The net interest margin of 5.73% for the
second quarter of 1999 increased from 5.15% for the second quarter of 1998. For
the first six months of 1999, interest income increased by $446 thousand, or 8%,
over the same period one year ago. The net interest margin of 5.71% for the
first six months of 1999 increased from 5.32% over the same period one year ago.
Improvement in interest income and the net interest margin was the result of the
higher volume
-14-
<PAGE>
of earning assets, a more profitable mix of earning assets, and the continued
growth in noninterest bearing deposits to help lower the cost of funding earning
assets.
The stronger mix of earning assets is a direct result of the Company's continued
efforts to more profitably employ funds through the generation of quality loans.
Significant progress has been made at the three branches acquired from Wells
Fargo in February of 1997 and the Elk Grove branch which opened in August of
1998. No loans were acquired with the acquisition of the three branches and
deposits totaled approximately $34 million. At June 30, 1999, gross loans at
these three branches totaled $14.3 million against deposits of $41.8 million
while the Elk Grove branch had gross loans of $627 thousand and total deposits
of $771 thousand. In addition, the loan production office in Folsom, California,
which opened in January of 1998 had gross loans of $7.9 million compared to $127
thousand at June 30, 1998. Altouugh loans are competitively priced, credit
standards have not been changed. While management believes loan demand will
continue to be strong, it will be controlling loan growth through the remainder
of 1999 with a targeted loan to deposit ratio of 75%.
Average deposits for the three months ended June 30, 1999 increased by $13.5
million, or 10%, compared to the prior year quarter. The average rate paid on
savings, money market and NOW accounts decreased from 2.36% in the second
quarter of 1998 to 1.65% for the second quarter of 1999. The average rate paid
on certificates of deposits also decreased, from 5.42% for the second quarter of
1998 to 4.58% for the same quarter of 1999.
For the first six months of 1999, average deposits increased $12.7 million or 9%
compared to the first six months of 1998. The average rate paid on savings,
money market and NOW accounts was 1.65% compared to 2.35% for 1998. The average
rate paid on certificates of deposit was 4.75% compared to 5.13% for 1998.
Average noninterest bearing deposits have kept pace with the growth in interest
bearing deposits from a year ago and make up 13% of average total deposits both
for the second quarter and for the first six months of 1999. This has helped to
keep down the cost of funding earning assets. Average certificates of deposit
for the second quarter and the first six months of 1999 were 34% of average
deposits compared to 33% for the same periods of 1998.
Provision for Loan Losses
- -------------------------
The provision for loan losses for the three and six months ended June 30, 1999
was $101,000 and $201,000 compared with $30,000 and $60,000 for the three and
six months ended June 30, 1998. The increase is attributable to general loss
reserves that have been established in connection with the growth in the loan
portfolio. Also see "Allowance for Loan Losses" contained herein.
Noninterest Income
- ------------------
Non-interest income for the second quarter of 1999 increased by $41 thousand, or
9%, over the same period last year. For the first six months of 1999,
noninterest income increased $110 thousand or 13% compared to the first six
months of 1998. The most significant cause for this increase is the excess in
the cash surrender value of insurance contracts over the predetermined
profitability index that is recognized as income.
Service charge income for the second quarter increased by $11 thousand, or 5%
compared to the same quarter of 1998. For the first six months of 1999, service
charge income increased $3 thousand or 1% compared to the first six months of
1998. Although the number of checking
-15-
<PAGE>
accounts has increased, higher balances are being maintained in checking
accounts, thereby avoiding monthly service charges. The Bank plans on
implementing certain increases to service charges in August of 1999.
Income from the sale and servicing of loans increased by $12 thousand, or 8%,
compared to the prior year second quarter. For the first six months of 1999,
loan servicing income increased $34 thousand or 10% compared to the first six
months of 1998.
Noninterest Expenses
- --------------------
Non-interest expenses increased by $337 thousand, or 18%, compared to the prior
year quarter. For the first six months of 1999, noninterest expense increased
$492 thousand or 13% compared to the first six months of 1998. The increase in
noninterest expense reflects the Elk Grove branch, which did not open until the
third quarter of 1998. In addition, there were certain staffing increases, most
notably in the technology area of the Bank. Included in other noninterest
expense are expenses associated with the Year 2000 preparedness. The Company has
a total budget for the Year 2000 preparedness project of $165 thousand, of which
$135 thousand is for actual costs and expenses and the remaining $30 thousand
represents the opportunity cost of management's time needed to focus on this
issue. Approximately $64 thousand was spent in the second quarter of 1999, for
system testing and validation and development of the business resumption
contingency plan. This brings the total expenses associated with this project at
$83 thousand or 62% of the cash budget for actual expenses. Management estimates
that the Year 2000 project is 80% completed and it is anticipated that the
project will be complete in the third quarter of 1999. While the Company
believes that the budget for the Year 2000 preparedness project is adequate to
mitigate the risks with the Year 2000 problem, there can be no assurances that
the Company will not incur costs exceeding such budget.
Basis of Presentation
First Financial Bancorp is the holding company for Bank of Lodi, N.A. and
Western Auxiliary Corporation. In the opinion of management, the accompanying
unaudited consolidated financial statements reflect all adjustments (consisting
of normal recurring accruals and other accruals as explained above) necessary
for a fair presentation of financial position as of the dates indicated and
results of operations for the periods shown. All material intercompany accounts
and transactions have been eliminated in consolidation. In preparing the
financial statements, management is required to make estimates and assumptions
that affect the reported amounts. The results for the three and six months
ended June 30, 1999 are not necessarily indicative of the results which may be
expected for the year ended December 31, 1999. The unaudited consolidated
financial statements presented herein should be read in conjunction with the
consolidated financial statements and notes included in the 1998 Annual Report
to Shareholders.
-16-
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
While there are several varieties of market risk, the market risk material to
the Company and the Bank is interest rate risk. Within the context of interest
rate risk, market risk is the risk of loss due to changes in market interest
rates that have an adverse effect on net interest income, earnings, capital or
the fair value of financial instruments. Exposure to this type of risk is a
regular part of a financial institution's operations. The fundamental
activities of making loans, purchasing investment securities, and accepting
deposits inherently involve exposure to interest rate risk. The Company
monitors the repricing differences between assets and liabilities on a regular
basis and estimates exposure to net interest income, net income, and capital
based upon assumed changes in the market yield curve. As of and for the six
months ended June 30, 1999, there were no material changes in the market risk
profile of the Company or the Bank as described in the Company's 1998 Form 10-K.
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not Applicable.
ITEM 2. CHANGES IN SECURITIES
Not Applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
ITEM 5. OTHER INFORMATION
Not Applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
No. Description
------- -----------
3(a) Articles of Incorporation, as amended, filed as Exhibit 3.1
to the Company's General Form for Registration of Securities
on Form 10, filed on September 21, 1983, is hereby
incorporated by reference.
3(b) Bylaws, as amended, filed as Exhibit 3(b) to the Company's
Form 10K for the year ended December 31, 1998 are hereby
incorporated by reference.
4 Specimen Common Stock Certificate, filed as Exhibit 4.1 to
the Company's General Form for Registration of Securities on
Form 10, filed on September 21, 1983, is hereby incorporated
by reference.
10(a) First Financial Bancorp 1991 Director Stock Option Plan and
form of Nonstatutory Stock Option Agreement, filed as
Exhibit 4.1 to the Company's Form S-8 Registration Statement
(Registration No. 33-40954), filed on May 31, 1991, is
hereby incorporated by reference.
10(b) Amendment to First Financial Bancorp 1991 Director Stock
Option Plan, filed as Exhibit 4.3 to the Company's Post-
Effective Amendment No. 1 to Form S-8
-17-
<PAGE>
Registration Statement (Registration No. 33-40954), filed as
Exhibit 10 to the Company's Quarterly Report on Form 10-Q
for the period ended March 31, 1995, is hereby incorporated
by reference.
10(c) First Financial Bancorp 1991 Employee Stock Option Plan and
forms of Incentive Stock Option Agreement and Nonstatutory
Stock Option Agreement, filed as Exhibit 4.2 to the
Company's Form S-8 Registration Statement (Registration No.
33-40954), filed on May 31, 1991, is hereby incorporated by
reference.
10(d) Bank of Lodi Employee Stock Ownership Plan, filed as Exhibit
10 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1992, is hereby incorporated by
reference.
10(e) First Financial Bancorp 1997 Stock Option Plan, filed as
Exhibit 10 to the Company's Quarterly Report on Form 10-Q
for the period ended September 30, 1997, is hereby
incorporated by reference.
10(f) Bank of Lodi Incentive Compensation Plan, filed as Exhibit
10(f) to the Company's Annual Report on Form 10-K for the
year ended December 31, 1997, is hereby incorporated by
reference.
10(g) First Financial Bancorp 401(k) Profit Sharing Plan, filed as
Exhibit 10(g) to the Company's Annual Report on Form 10-K
for the year ended December 31, 1997, is hereby incorporated
by reference.
10(h) Employment Agreement dated as of September 30, 1998, between
First Financial Bancorp and Leon J. Zimmerman., filed as
Exhibit 10(h) to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1998, is hereby
incorporated by reference.
10(i) Employment Agreement dated as of September 30, 1998, between
First Financial Bancorp and David M. Philipp, filed as
Exhibit 10(i) to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1998, is hereby
incorporated by reference.
10(j) Executive Supplemental Compensation Agreement effective as
of April 3, 1998, between Bank of Lodi, N.A. and Leon J.
Zimmerman, filed as Exhibit 10(j) to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30,
1998, is hereby incorporated by reference.
10(k) Executive Supplemental Compensation Agreement effective as
of April 3, 1998, between Bank of Lodi, N.A. and David M.
Philipp, filed as Exhibit 10(k) to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30,
1998, is hereby incorporated by reference.
10(l) Life Insurance Endorsement Method Split Dollar Plan
Agreement effective as of April 3, 1998, between Bank of
Lodi, N.A. and Leon J. Zimmerman, filed as Exhibit 10(l) to
the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1998, is hereby incorporated by
reference.
10(m) Life Insurance Endorsement Method Split Dollar Plan
Agreement effective as of April 3, 1998, between Bank of
Lodi, N.A. and David M. Philipp, filed as Exhibit 10(m) to
the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1998, is hereby incorporated by
reference.
10(n) Form of Director Supplemental Compensation Agreement,
effective as of April 3, 1998, as executed between Bank of
Lodi, N.A. and each of Benjamin R. Goehring, Michael D.
Ramsey, Weldon D. Schumacher and Dennis R. Swanson, filed as
Exhibit 10(n) to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1998, is hereby
incorporated by reference.
-18-
<PAGE>
10(o) Form of Life Insurance Endorsement Method Split Dollar Plan
Agreement, effective as of April 3, 1998, as executed
between Bank of Lodi, N.A. and each of Benjamin R. Goehring,
Michael D. Ramsey, Weldon D. Schumacher and Dennis R.
Swanson, filed as Exhibit 10(o) to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30,
1998, is hereby incorporated by reference.
10(p) Form of Director Supplemental Compensation Agreement,
effective as of April 3, 1998, as executed between Bank of
Lodi, N.A. and each of Angelo J. Anagnos, Raymond H.
Coldani, Bozant Katzakian and Frank M. Sasaki, filed as
Exhibit 10(p) to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1998, is hereby
incorporated by reference.
10(q) Form of Life Insurance Endorsement Method Split Dollar Plan
Agreement, effective as of April 3, 1998, as executed
between Bank of Lodi, N.A. and each of Angelo J. Anagnos,
Raymond H. Coldani, Bozant Katzakian and Frank M. Sasaki,
filed as Exhibit 10(q) to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1998, is
hereby incorporated by reference.
11 Statement re computation of earnings per share is
incorporated herein by reference to Footnote 2 to the
consolidated financial statements included in this report.
21 Subsidiaries of the Company: The Company owns 100 percent of
the capital stock of Bank of Lodi, National Association, a
national banking association, and 100 percent of the capital
stock of Western Auxiliary Corporation.
27 Financial Data Schedule (electronic submission only).
(b) Reports on Form 8-K
Not Applicable.
-19-
<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: August 13, 1999 /s/ Leon J. Zimmerman
--------------- ---------------------
Leon J. Zimmerman
President & CEO
-20-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS DATED JUNE 30, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> APR-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 8,241
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 2,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 38,280
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 103,418
<ALLOWANCE> 1,795
<TOTAL-ASSETS> 165,997
<DEPOSITS> 150,963
<SHORT-TERM> 0
<LIABILITIES-OTHER> 917
<LONG-TERM> 0
0
0
<COMMON> 7,816
<OTHER-SE> 6,301
<TOTAL-LIABILITIES-AND-EQUITY> 165,997
<INTEREST-LOAN> 2,317
<INTEREST-INVEST> 607
<INTEREST-OTHER> 52
<INTEREST-TOTAL> 2,976
<INTEREST-DEPOSIT> 911
<INTEREST-EXPENSE> 911
<INTEREST-INCOME-NET> 2,065
<LOAN-LOSSES> 101
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,188
<INCOME-PRETAX> 256
<INCOME-PRE-EXTRAORDINARY> 256
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 178
<EPS-BASIC> .13
<EPS-DILUTED> .12
<YIELD-ACTUAL> 5.83
<LOANS-NON> 462
<LOANS-PAST> 164
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,564
<CHARGE-OFFS> 8
<RECOVERIES> 38
<ALLOWANCE-CLOSE> 1,795
<ALLOWANCE-DOMESTIC> 1,795
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,499
</TABLE>
