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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, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from to
Commission File Number : 0-12499
First Financial Bancorp
(Exact name of registrant as specified in its charter)
California 94-28222858
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
701 South Ham Lane , Lodi, California 95242
(Address of principal executive offices) (Zip Code)
(209)-367-2000
(Registrant's telephone number, including area code)
NA
(Former name, former address and former fiscal year, if changed
since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
[X] Yes [ ] No
As of November 3, 2000 there were 1,517,682 shares of Common Stock, no
par value, outstanding.
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<PAGE>
FIRST FINANCIAL BANCORP
FORM 10-Q
FOR THE QUARTER AND NINE MONTH PERIOD ENDED SEPTEMBER 30, 2000
TABLE OF CONTENTS
Page
PART I
Item 1. Consolidated Financial Statements and Notes to Consolidated
Financial Statements............................................... 1
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.............................................. 8
Item 3. Quantitative and Qualitative Disclosures about Market Risk......... 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
i
<PAGE>
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
FIRST FINANCIAL BANCORP AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
(in thousands except share amounts)
<CAPTION>
September 30, December 31,
Assets 2000 1999
----------------------------------------------------------------- ------------------ --------------------
<S> <C> <C>
Cash and due from banks $ 9,983 $ 9,309
Federal funds sold and securities purchased under resale
agreements 1,715 100
Investment securities:
Available-for-sale, at fair value 33,831 36,096
Loans 115,510 112,174
Less: allowance for loan losses (2,565) (2,580)
------------------ --------------------
Net loans 112,945 109,594
Bank premises and equipment, net 7,057 7,096
Accrued interest receivable 1,524 1,487
Other assets 13,706 12,652
------------------ --------------------
Total Assets $ 180,761 $ 176,334
================== ====================
Liabilities and Stockholders' Equity
-----------------------------------------------------------------
Liabilities:
Deposits:
Noninterest bearing $ 21,710 $ 21,054
Interest bearing 132,745 135,107
------------------ --------------------
Total deposits 154,455 156,161
Accrued interest payable 298 304
Short term borrowings 9,767 4,300
Other liabilities 627 1,048
------------------ --------------------
Total liabilities 165,147 161,813
Stockholders' equity:
Common stock - no par value; authorized 9,000,000
shares, issued and outstanding at 2000 and 1999,
1,517,682 and 1,433,734 shares, respectively 9,255 8,433
Retained earnings 6,337 6,354
Accumulated other comprehensive income (loss) 22 (266)
------------------ --------------------
Total stockholders' equity 15,614 14,521
------------------ --------------------
Total Liabilities and Stockholders' Equity $ 180,761 $ 176,334
================== ====================
<FN>
See accompanying notes.
</FN>
</TABLE>
-1-
<PAGE>
<TABLE>
FIRST FINANCIAL BANCORP AND SUBSIDIARIES
Consolidated Statements of Income
(Unaudited)
(In thousands, except per share amounts)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- -------------------------
2000 1999 2000 1999
------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
Interest income:
Loans, including fees $ 2,737 $ 2,619 $ 7,958 $ 7,182
Investment securities:
Taxable 417 516 1,287 1,651
Exempt from federal taxes 133 50 410 154
Federal funds sold and securities
purchased under resale agreements 83 41 189 173
------- ------- ------- -------
Total interest income 3,370 3,226 9,844 9,160
Interest expense:
Deposit accounts 1,083 904 3,099 2,753
Short term borrowings 142 0 316 0
------- ------- ------- -------
Total interest expense 1,225 904 3,415 2,753
------- ------- ------- -------
Net interest income 2,145 2,322 6,429 6,407
Provision for loan losses 35 200 135 401
------- ------- ------- -------
Net interest income after
provision for loan losses 2,110 2,122 6,294 6,006
Noninterest income:
Service charges 313 307 957 754
Premiums and fees from SBA and
mortgage operations 155 141 482 519
Miscellaneous 170 115 490 255
------- ------- ------- -------
Total noninterest income 638 563 1,929 1,528
Noninterest expense:
Salaries and employee benefits 1,119 1,010 3,356 2,922
Occupancy 236 217 699 602
Equipment 181 174 491 481
Other 935 873 2,783 2,446
------- ------- ------- -------
Total noninterest expense 2,471 2,274 7,329 6,451
------- ------- ------- -------
Income before provision for income taxes 277 411 894 1,083
Provision for income taxes 30 76 105 297
------- ------- ------- -------
Net income $ 247 $ 335 $ 789 $ 786
Unrealized gain (loss) on available for
sale securities, net of tax 137 (60) 288 (338)
------- ------- ------- -------
Total comprehensive income $ 384 $ 275 $ 1,077 $ 448
======= ======= ======= =======
Earnings per share:
Basic $ 0.16 $ 0.22 $ 0.52 $ 0.53
======= ======= ======= =======
Diluted $ 0.16 $ 0.21 $ 0.51 $ 0.51
======= ======= ======= =======
Dividends declared per share $ -- $ 0.05 $ -- $ 0.15
======= ======= ======= =======
<FN>
See accompanying notes.
</FN>
</TABLE>
-2-
<PAGE>
<TABLE>
FIRST FINANCIAL BANCORP AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity and Comprehensive Income
(Unaudited)
(in thousands except share amounts)
<CAPTION>
Nine Months Ended September 30, 1999
Accumulated
Common Common Other
Stock Stock Comprehensive Retained Comprehensive
Description Shares Amounts Income Earnings Income (Loss) Total
------------------------------------- ------------ ------------ --------------- -------- ---------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998 1,349,292 $ 7,584 5,971 302 13,857
Comprehensive income:
Net income $ 786 786 786
---------------
Other comprehensive loss:
Unrealized holding losses on
securities available for sale
arising during the current period,
net of tax benefit of $244 (338)
---------------
Total other comprehensive loss (338) (338) (338)
---------------
Comprehensive income $ 448
===============
Options exercised 35,365 243 243
Stock dividend 40,860 (7) (7)
Cash dividend (216) (216)
------------ ------------ -------- ---------------- ------------
Balance at September 30, 1999 1,425,517 $ 7,827 6,534 (36) 14,325
============ ============ ======== ================ ============
Nine Months Ended September 30, 2000
Accumulated
Common Common Other
Stock Stock Comprehensive Retained Comprehensive
Description Shares Amounts Income Earnings Income (Loss) Total
------------------------------------- ------------ ------------ --------------- -------- ---------------- ------------
Balance at December 31, 1999 1,433,734 $ 8,433 6,354 (266) 14,521
Comprehensive income:
Net income $ 789 789 789
---------------
Other comprehensive income:
Unrealized holding gains on
securities available for sale
arising during the current period,
net of tax of $208 288
---------------
Total other comprehensive income 288 288 288
---------------
Comprehensive income $ 1,077
===============
Options exercised 12,184 90 90
Stock dividend 71,764 732 (732)
Cash dividend (74) (74)
------------ ------------ -------- ---------------- ------------
Balance at September 30, 2000 1,517,682 $ 9,255 6,337 22 15,614
============ ============ ======== ================ ============
<FN>
See accompanying notes.
</FN>
</TABLE>
-3-
<PAGE>
<TABLE>
FIRST FINANCIAL BANCORP AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
Nine Months Ended September 30,
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 789 $ 786
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Decrease (increase) in loans held for resale 269 (2,125)
Increase in deferred loan income 63 34
Depreciation & amortization 605 820
Provision for loan losses 135 401
Increase in accrued interest receivable (37) (45)
Decrease in accrued interest payable (6) (89)
Decrease in other liabilities (421) (42)
Increase in Cash Surrender Value Life Insurance (342) (131)
Increase in other assets (191) (736)
--------------- ---------------
Net cash provided by (used in) operating activities 864 (1,127)
Cash flows from investing activities:
Proceeds from maturity of available-for-sale securities 3,835 6,161
Proceeds from sale of available-for-sale securities - 34,350
Purchase of available-for-sale securities (901) (31,350)
Increase in loans made to customers (3,818) (11,992)
Proceeds from the sale of other real estate 10 -
Purchases of bank premises, equipment and intangible assets (578) (274)
Purchase of Life Insurance Policy (900) (1,450)
--------------- ---------------
Net cash used in investing activities (2,352) (4,555)
Cash flows from financing activities:
Net (decrease) increase in deposits (1,706) 488
Increase in other borrowings 5,467 -
Proceeds from issuance of common stock 90 243
Payment of dividends (74) (216)
Payment for fractional stock dividends - (7)
--------------- ---------------
Net cash provided by financing activities 3,777 508
Net increase (decrease) in cash and cash equivalents 2,289 (5,174)
Cash and cash equivalents at beginning of period 9,409 12,129
--------------- ---------------
Cash and cash equivalents at end of period $ 11,698 $ 6,955
=============== ===============
Supplemental Disclosures of Cash Flow Information
Cash paid for interest payments $ 3,421 2,842
Cash paid for taxes $ 560 420
<FN>
See accompanying notes.
</FN>
</TABLE>
-4-
<PAGE>
FIRST FINANCIAL BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2000 and December 31, 1999
(Unaudited)
(1) Summary of Significant Accounting Policies
The accounting and reporting policies of First Financial Bancorp (the
Company) and its subsidiaries, Bank of Lodi, N.A., (the Bank) and Western
Auxiliary Corporation (WAC) conform with generally accepted accounting
principles and prevailing practices within the banking industry. In
preparing the consolidated financial statements, management is required to
make estimates and assumptions that affect the reported amounts of assets
and liabilities as of the date of the balance sheet and revenue and expense
for the period. Actual results could differ from those estimates applied in
the preparation of the consolidated financial statements. There were no new
accountings standards adopted during the current period.
(2) Weighted Average Shares Outstanding
Per share information is based on weighted average number of shares of
common stock outstanding during each three- and nine-month periods after
giving retroactive effect for the five percent stock dividend declared for
shareholders of record May 9, 2000, payable May 23, 2000. Basic earnings
per share (EPS) is computed by dividing net income available to
shareholders by the weighted average common shares outstanding during the
period. Diluted earnings per share is computed by dividing net income
available to shareholders by the weighted average common shares outstanding
during the period plus potential common shares outstanding. Diluted
earnings per share reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or
converted into common stock or resulted in the issuance of common stock
that then shared in the earnings of the Company.
-5-
<PAGE>
(2) Weighted Average Shares Outstanding (continued)
<TABLE>
The following table provides a reconciliation of the numerator and
denominator of the basic and diluted earnings per share computation of the
three and nine month periods ending September 30, 2000 and 1999:
<CAPTION>
Income Shares Per-Share
Three months ended September 30, 2000 (numerator) (denominator) Amount
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Basic earnings per share $ 247,000 1,516,798 $ 0.16
Effect of dilutive securities - 36,918 -
------------------------------
Diluted earnings per share $ 247,000 1,553,716 $ 0.16
==============================
Income Shares Per-Share
Three months ended September 30, 1999 (numerator) (denominator) Amount
-------------------------------------------------------------------------------------------------------
Basic earnings per share $ 335,000 1,496,793 $ 0.22
Effect of dilutive securities - 70,382 -
------------------------------
Diluted earnings per share $ 335,000 1,567,175 $ 0.21
==============================
Income Shares Per-Share
Nine months ended September 30, 2000 (numerator) (denominator) Amount
-------------------------------------------------------------------------------------------------------
Basic earnings per share $ 789,000 1,514,221 $ 0.52
Effect of dilutive securities - 39,335 -
------------------------------
Diluted earnings per share $ 789,000 1,553,556 $ 0.51
==============================
Income Shares Per-Share
Nine months ended September 30, 1999 (numerator) (denominator) Amount
-------------------------------------------------------------------------------------------------------
Basic earnings per share $ 786,000 1,487,034 $ 0.53
Effect of dilutive securities - 67,979 -
------------------------------
Diluted earnings per share $ 786,000 1,555,013 $ 0.51
==============================
</TABLE>
(3) Allowance for Loan Losses
<TABLE>
The following summarizes changes in the allowance for loan losses for
the nine month periods ended September 30, 2000 and 1999 and the twelve
month period ended December 31, 1999:
<CAPTION>
9/30/00 9/30/99 12/31/99
-------------- ------------- -------------
<S> <C> <C> <C>
Balance at beginning of period $ 2,580,000 1,564,000 1,564,000
Loans charged off (171,000) (29,000) (110,000)
Recoveries 21,000 53,000 75,000
Provisions charged to operations 135,000 401,000 1,051,000
-------------- ------------- -------------
Balance at end of period $ 2,565,000 1,989,000 2,580,000
============== ============= =============
</TABLE>
-6-
<PAGE>
(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 nine
months ended September 30, 2000 are not necessarily indicative of the
results which may be expected for the year ended December 31, 2000. The
unaudited consolidated financial statements presented herein should be
read in conjunction with the consolidated financial statements and
notes included in the 1999 Annual Report to Shareholders.
-7-
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Cautionary Statement for the Purposes of the Safe Harbor Provisions of the
Private Securities Litigation Reform Act of 1995.
The Company is including the following cautionary statement to take advantage of
the "Safe Harbor" provisions of the Private Securities Litigation Reform Act of
1995 for any forward-looking statement made by, or on behalf of, the Company.
The factors identified in this cautionary statement are important factors (but
not necessarily all important factors) that could cause actual results to differ
materially from those expressed in any forward-looking statement made by, or on
behalf of, the Company.
Where any such forward-looking statement includes a statement of the assumptions
of bases underlying such forward-looking statement, the Company cautions that,
while it believes such assumptions or bases to be reasonable and makes them in
good faith, assumed facts or bases almost always vary from actual results, and
the differences between assumed facts or bases and actual results can be
material, depending on the circumstances. Where, in any forward-looking
statement, the Company expresses an expectation or belief as to future results,
such expectation or belief is expressed in good faith and believed to have a
reasonable basis, but there can be no assurance that the statement of
expectation or belief will result, or be achieved or accomplished.
Taking into account the foregoing, such risks and uncertainties include, but are
not limited to, the following factors: competitive pressure in the banking
industry; changes in the interest rate environment; general economic conditions,
either nationally or regionally becoming less favorable than expected and
resulting in, among other things, a deterioration in credit quality and an
increase in the provision for possible loan losses; changes in the regulatory
environment; changes in business conditions; volatility of rate sensitive
deposits; operational risks, including data processing system failures or fraud;
asset/liability matching risks and liquidity risks; and changes in the
securities markets.
The following discussion addresses information pertaining to the financial
condition and results of operations of the Company that may not be otherwise
apparent from a review of the consolidated financial statements and related
footnotes. It should be read in conjunction with those statements and notes
found on pages 1 through 7, as well as other information presented throughout
this report.
Changes in Financial Condition
Consolidated total assets at September 30, 2000 increased approximately $4.4
million or 2.5% as compared to December 31, 1999. Gross loans increased $3.3
million or 3.0%, investment securities decreased $2.3 million or 6.3% and
federal funds sold and securities purchased under agreements to resell increased
$1.6 million or 1,615.0% at September 30, 2000 as compared to December 31, 1999.
Total deposits decreased $1.7 million or 1.1% and short term borrowings
increased $5.4 million or 127.1% at September 30, 2000 as compared to December
31, 1999.
While a primary goal of management has been to increase the ratio of loans as a
percent of total deposits, management has also strived to increase total
noninterest DDA thereby lowering the overall cost of funds. Accordingly, the
ratio of loans as a percent of total deposit has increased from 71.8% at
December 31, 1999 to 74.8% at September 30, 2000, an increase of 4.2%.
Furthermore, noninterest bearing deposits increased $656 thousand or 3.1% while
interest bearing deposits decreased $2.4 million or 1.7%.
-8-
<PAGE>
The decrease in interest bearing deposits is comprised of a $2.3 million (5.8%)
increase in interest bearing checking accounts, $3.2 million (19.0%) decrease in
money market accounts $101 thousand (0.3%) decrease in regular savings accounts
and a $1.3 million (2.7%) decrease in certificates of deposit. Managements
attributes the decrease in higher rate deposits (money market accounts and
certificates of deposits) to the overall increase in interest rates which has
drawn some customers to other depository institutions offering higher interest
rates. While the philosophy of the Company has been to offer depositors interest
rates which are competitive with its competition, the Company has not elected to
offer the highest interest rates in its market area. Instead, the Company
continues to remain focused on providing customers with quality services at
competitive rates.
The increase in gross loans consisted of increases of $2.4 million (5.7%) in
real estate loans, $1.8 million (8.2%) in Small Business Administration ("SBA")
loans, $783 thousand (5.6%) in construction loans, and $530 thousand (16.1%) in
consumer loans, combined with decreases of $1.6 million (9.6%) in agricultural
loans, $181 thousand (1.3%) in commercial loans and $269 thousand (22.2%) in
loans held for sale to the secondary market.
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 September 30,
2000 was less than the December 31, 1999 allowance by $15 thousand or 0.6%, as a
result of a provision of $135 thousand and net chargeoffs of $150 thousand. This
compares to a provision of $401 thousand for the first nine months of 1999. At
September 30, 2000, nonperforming loans were $7.7 million or 6.7% of gross loans
outstanding. This compares to $2.7 million or 2.4% of gross loans outstanding at
December 31, 1999. The allowance to nonperforming loan coverage ratio decreased
to 0.33 times at September 30, 2000 as compared to 0.96 times at December 31,
1999. Total portfolio delinquency at September 30, 2000 was 7.8%, compared to
3.3% at December 31, 1999. Excluding the nonperforming loans, total portfolio
delinquency at September 30, 2000 was 1.1%, compared to 0.9% at December 31,
1999.
Year-to-date interest forgone or reversed on nonaccrual loans during the first
nine months of 2000 totals approximately $554,000. In addition, the Bank has
expensed approximately $216,000 in legal and other out-of-pocket expenses in
actively pursuing a resolution to these nonaccrual loans.
Of the nonaccrual loans at September 30, 2000, $578,000 (7.5%) are commercial
loans, $2.9 million (38.2%) are SBA loans and $4.2 million (54.3%) are real
estate loans. The nonaccrual loans are located in various geographic areas in
which the Bank operates and are not concentrated in any one type of business or
industry. Each of the nonaccrual loans resulted from economic conditions
specific to the borrower or other events and, in the opinion of management, are
not attributable to the Bank's underwriting standards.
Management has obtained recent independent appraisals for substantially all of
the nonaccrual loans. Based upon the results of appraisals, management believes
that substantially all of those loans are adequately colaterialized. The
majority of the loans placed on nonaccrual were internally identified as problem
assets as of December 31, 1999 and specific reserves for possible losses were
established within the allowance as of December 31, 1999. Management continues
to actively monitor the status of the nonperforming loans and as of September
30, 2000 did not believe any material increases to the specific reserves for
these nonperforming loans as compared to December 31, 1999 was necessary.
Management believes the allowance at September 30, 2000 is adequate to absorb
loan losses inherent in the portfolio. However, there
-9-
<PAGE>
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 nine and twelve months ended September 30,
2000 and December 31, 1999, respectively:
September 30, December 31,
2000 1999
----------- -----------
Balance at beginning of period $ 2,580 $ 1,564
Charge-offs:
Commercial (144) (90)
Real estate - -
Consumer (27) (20)
----------- -----------
Total charge-offs (171) (110)
Recoveries:
Commercial 7 68
Real estate - -
Consumer 14 7
----------- -----------
Total recoveries 21 75
----------- -----------
Net charge-offs (150) (35)
Provision charged to operations 135 1,051
----------- -----------
Balance at end of period $ 2,565 $ 2,580
=========== ===========
<TABLE>
Allocation of the Allowance for Loan Losses
<CAPTION>
------------------------------------- -------------------------------------
September 30, 2000 December 31, 1999
------------------------------------- -------------------------------------
Amount Amount
Loan Category (000's) % of Loans (000's) % of Loans
------------------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Commercial $ 729 45.7% $ 538 79.0%
Real Estate 516 51.0% 366 18.1%
Consumer 9 3.3% 1 2.9%
Unallocated 1,311 N/A 1,675 NA
----- ------ ------ ------
$ 2,565 100.0% $ 2,580 100.0%
====== ====== ====== ======
</TABLE>
Investments
Investments consist of federal funds sold and securities purchased under
agreements to resell, money market mutual funds and investment securities.
Federal funds sold and securities purchased under agreements to resell increased
$1.6 million or 1615.0% and investment securities decreased by $2.3 million or
6.3% resulting in a net decrease in investments totaling $651 thousand or 1.8%
from December 31, 1999 to September 30, 2000. The net decline primarily
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 during the first nine months of 2000 were reinvested primarily in
federal funds sold to avoid market risk over the short-term before funding
loans.
-10-
<PAGE>
Equity
Consolidated equity increased $1.1 million or 7.5% from December 31, 1999 to
September 30, 2000. Consolidated equity represented 8.7% and 8.2% of
consolidated assets at September 30, 2000 and December 31, 1999, respectively.
In addition to the earnings of $789 thousand, equity capital was increased by
$90 thousand from the exercise of stock options over the nine months ended
September 30, 2000 and $288 thousand to reflect the increase in the after-tax
market value of the available-for-sale investment securities portfolio. The
increase in the investment security portfolio's market value reflects the
decrease in the level of market interest rates at September 30, 2000 compared to
December 31, 1999. Year-to-date capital reductions include $73 thousand for
dividend payments, $1 thousand for the cash payout for fractional shares as a
result of the 5% stock dividend declared in May 2000.
The total risk-based capital ratio for the Company's wholly owned subsidiary,
Bank of Lodi ("the Bank") was 10.88% at September 30, 2000 compared to 10.51% at
December 31, 1999. The Bank's leverage capital ratio was 7.75% at September 30,
2000 versus 7.73% at December 31, 1999. The capital ratios are in excess of the
regulatory minimums for a well-capitalized bank.
Changes in Results of Operations
Three and Nine Months Ended September 30, 2000 and 1999
<TABLE>
Summary of Earnings Performance
<CAPTION>
------------------------------------ ----------------------------------
Three Months Ended September 30, Nine Months Ended September 30,
------------------------------------ ----------------------------------
2000 1999 2000 1999
---------------- ------------- --------------- -------------
<S> <C> <C> <C> <C>
Earnings (in thousands) $ 247 $ 335 $ 789 786
Basic earnings per share $ 0.16 $ 0.22 $ 0.52 0.53
Diluted earnings per share $ 0.16 $ 0.21 $ 0.51 0.51
Return on average assets 0.54% 0.80% 0.59% 0.63%
Return on average equity 6.65% 9.52% 7.30% 7.58%
Dividend payout ratio -- 22.73% 9.62% 28.30%
Average equity to average assets 8.09% 8.37% 8.02% 8.32%
</TABLE>
The Company reported net income of $247,000 ($0.16 per share, diluted) for the
three months ended September 30, 2000, compared to $335,000 ($0.21 per share,
diluted) for the same period in 1999. Net income for the nine months ended
September 30, 2000 was $789,000 ($0.51 per share, diluted) compared to $786,000
($0.51 per share, diluted). The decrease in net income for the third quarter in
2000 when compared to the same period one year ago is due to an decrease of $177
thousand (7.6%) in net interest income, a decrease of $165 thousand (82.5%) in
the provision for loan losses, an increase of $75 thousand (13.3%) in
noninterest income and an increase of $197 thousand (8.7%) in noninterest
expense. The increase in net income during the first nine months of 2000 when
compared to the same period in 1999 is due to an increase of $22 thousand (0.3%)
in net interest income, a decrease of $266 thousand (66.3%) in the provision for
loan losses, an increase of $401 thousand (26.2%) in noninterest income, an
increase of $878 thousand (13.6%) in noninterest expense and a decrease of $192
thousand (64.6%) in the provision for income taxes.
-11-
<PAGE>
Net Interest Income
<TABLE>
The following tables provides a detailed analysis of the net interest spread and
net interest margin for the periods indicated:
<CAPTION>
-----------------------------------------------------------------------------------
For the Three Months Ended September 30,
-----------------------------------------------------------------------------------
2000 1999
------------------------------------------ --------------------------------------
Average Income/ Yield Average Income/ Yield
Dollars In Thousands Balance Expense (1) Balance Expense (1)
------------ ------------- ----------- ----------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Earning Assets:
Investment securities $ 34,414 $ 550 6.34% $ 38,156 $ 566 5.87%
(1)(2)
Federal funds sold and
securities purchased under
agreements to resell $ 5,383 83 6.12% 3,353 41 4.97%
Loans (2)(3) 116,590 2,737 9.31% 104,627 2,619 9.93%
------------ ------------- ----------- ----------- ------------ -----------
156,387 3,370 8.55% $ 146,136 $ 3,226 8.76%
============ ============= =========== =========== ============ ===========
Liabilities:
Noninterest bearing
deposits $ 21,810 $ -- -- $ 20,171 $ -- --
Interest bearing
transaction accounts 83,480 341 1.62% 82,531 343 1.65%
Time deposits 54,020 742 5.45% 50,096 561 4.44%
Other borrowings 8,318 142 6.77% -- -- --
------------ ------------- ----------- ----------- ------------ -----------
Total Liabilities $ 167,628 $ 1,225 2.90% $ 152,798 $ 904 2.35%
============ ============= =========== =========== ============ ===========
Net Interest Spread 5.65% 6.41%
=========== ===========
------------ ------------- ----------- ----------- ----------- -----------
Earning Income Earning Income
Assets (Expense) Yield Assets (Expense) Yield
------------ ------------- ----------- ----------- ------------ -----------
Yield on average
earning assets $ 156,387 $ 3,370 8.55% $ 146,136 $ 3,226 8.76%
Cost of funding average
earning assets $ 156,387 (1,225) (3.11)% $ 146,136 (904) (2.46)%
------------- ----------- ------------ -----------
Net Interest Margin $ 156,387 $ 2,145 5.44% $ 146,136 $ 2,322 6.30%
============= =========== ============ ===========
<FN>
(1) Yield for period annualized on actual number of days in period and based on
a 365-day year.
(2) Income on tax-exempt securities has not been adjusted to a tax equivalent
basis.
(3) Nonaccrual loans are included in the loan totals for each period; however,
only collected interest on such loans is included in interest income.
</FN>
</TABLE>
-12-
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
For the Nine Months Ended September 30,
------------------------------------------------------------------------------------
2000 1999
------------------------------------------ --------------------------------------
Average Income/ Yield Average Income/ Yield
Dollars In Thousands Balance Expense (1) Balance Expense (1)
------------ ------------- ---------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Earning Assets:
Investment securities
(1)(2) $ 38,321 $ 1,697 5.90% $ 40,580 $ 1,805 5.95%
Federal funds sold and
securities purchased under
agreements to resell 3,950 189 6.37% 4,823 173 4.80%
Loans (2)(3) 114,300 7,958 9.27% 98,178 7,182 9.78%
------------ ------------- ---------- ----------- ----------- ----------
$ 156,571 $ 9,844 8.38% $ 143,581 $ 9,160 8.53%
============ ============= ========== =========== =========== ==========
Liabilities:
Noninterest bearing
deposits $ 20,330 $ -- -- $ 19,250 $ -- --
Interest bearing
transaction accounts 83,570 1,008 1.61% 81,159 1,002 1.65%
Time deposits 53,820 2,091 5.18% 50,363 1,751 4.65%
Other borrowings 6,500 316 6.48% -- -- --
------------ ------------- ---------- ----------- ----------- ----------
Total Liabilities $ 164,220 $ 3,415 2.77% $ 150,772 $ 2,753 2.44%
============ ============= ========== =========== =========== ==========
Net Interest Spread 5.61% 6.09%
========== ==========
------------ ------------- ---------- ----------- ----------- ----------
Earning Income Earning Income
Assets (Expense) Yield Assets (Expense) Yield
------------ ------------- ---------- ----------- ----------- ----------
Yield on average
earning assets $ 156,571 $ 9,844 8.38% $ 143,581 $ 9,160 8.53%
Cost of funding average
earning assets $ 156,571 $ (3,415) (2.91)% $ 143,581 $ (2,753) (2.56)%
------------- ---------- ----------- ----------- ----------
Net Interest Margin $ 156,571 $ 6,429 5.47% $ 143,581 $ 6,407 5.97%
============= ========== =========== ==========
<FN>
(1) Yield for period annualized on actual number of days in period and based on
a 365-day year.
(2) Income on tax-exempt securities has not been adjusted to a tax equivalent
basis.
(3) Nonaccrual loans are included in the loan totals for each period; however,
only collected interest on such loans is included in interest income.
</FN>
</TABLE>
Interest income for the third quarter of 2000 increased $144 thousand or 4.5%
over the same quarter of 1999. The net interest margin of 5.44% for the third
quarter of 2000 decreased from 6.30% for the third quarter of 1999. For the
first nine months of 2000, interest income increased $684 thousand or 7.5% over
the same period one year ago. The net interest margin of 5.47% for the first
nine months of 2000 decreased from 5.97% over the same period one year ago.
Improvement in interest income and the decrease in the net interest margin was
the result of the
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<PAGE>
higher volume of earning assets, a more profitable mix of earning assets, an
increase in the prime lending rate and the continued growth in noninterest
bearing deposits to help lower the cost of funding earning assets. Interest
income was negatively impacted by the nonaccrual loans. For the first three
months and nine months, interest forgone on nonaccrual loans totaled $258,000
and $554,000, respectively. While management is aggressively pursuing a
resolution of the nonaccrual loans, it is uncertain whether or not any of the
forgone interest will ultimately be collected.
Average loans for the three months ended September 30, 2000 increased $12.0
million or 11.4% compared to the prior year quarter. For the first nine months
of 2000, average loans increased $16.1 million or 16.4% compared to the first
nine months of 2000. This increase has been the result of the Bank's efforts to
increase total loans. It is the intent of management to increase the total loan
to deposit ratio to 75-80%, which at September 30, 2000 was 74.8%.
Average deposits for the three months ended September 30, 2000 increased by $6.5
million or 4.3% compared to the prior year quarter. The average rate paid on
interest bearing transaction accounts decreased from 1.65% in the third quarter
of 1999 to 1.62% for the third quarter of 2000. The average rate paid on
certificates of deposits increased, from 4.44% for the third quarter of 1999 to
5.45% for the same quarter of 2000.
For the first nine months of 2000, average deposits increased $6.9 million or
4.6% compared to the first nine months of 1999. The average rate paid on
interest bearing transaction accounts was 1.61% compared to 1.65% for 1999. The
average rate paid on certificates of deposit was 5.18% compared to 4.65% for
1999. The increase in rates paid on certificates of deposit is reflective of the
overall increase in interest rates.
Average noninterest bearing deposits have kept pace with the growth in interest
bearing deposits from a year ago and make up approximately 13% of average total
deposits both for the third quarter and for the first nine months of 2000. This
has helped to keep down the cost of funding earning assets. Average certificates
of deposit for the third quarter and the first nine months of 2000 were
approximately 34% of average deposits compared to 33% for the same periods of
1999.
Average other borrowings during the three and nine month periods ended September
30, 2000 totaled $8.3 million and $6.5 million respectively. During the three
and nine month periods ended September 30, 1999 the Bank did not have any other
borrowings. The increase in other borrowings occurred as a result of
management's desire to rely on short term borrowings as a source of liquidity
versus other liquidity options (including the sale of investment securities).
Additionally, other borrowings increased as a result of the State of California
withdrawing $7 million in certificates of deposit. The State of California
withdrew the certificates of deposit as a result of concerns regarding the
Bank's level of nonperforming loans. Management anticipates regaining the
certificates of deposit once the nonperforming loans decrease to a level
acceptable to the State of Californa. For further information regarding the
nonperforming loans, see "Allowance for Loan Losses" contained herein.
Provision for Loan Losses
The provision for loan losses for the three and nine months ended September 30,
2000 was $35,000 and $135,000 compared with $200,000 and $401,000 for the three
and nine months ended September 30, 1999. The decrease is attributable to
general loss reserves that have been established based upon management's
evaluation of the risks associated with the loan portfolio. Also see "Allowance
for Loan Losses" contained herein.
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<PAGE>
Noninterest Income
Noninterest income for the third quarter of 2000 increased $75 thousand or 13.3%
over the same period last year. For the first nine months of 2000, noninterest
income increased $401 thousand or 26.2% compared to the first nine months of
1999. 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 third quarter increased $6 thousand or 2.0%
compared to the same quarter of 1999. For the first nine months of 2000, service
charge income increased $203 thousand or 26.9% compared to the first nine months
of 1999. The increases in service charges are attributable to certain increases
to service charges which were implemented in August, 1999.
Income from the sale and servicing of loans during the third quarter of 2000
increased $14 thousand or 9.9% compared to the prior year third quarter. For the
first nine months of 2000, income resulting from the sale and servicing of loans
decreased $37 thousand or 7.1% compared to the first nine months of 1999. The
increases in income resulted primarily from the increased servicing volume of
loans. During the first nine months of 2000, income for the sales and servicing
of loans has declined as a result of higher interest rates and increased
competition. As interest rates have increased, the production of new residential
family and SBA loans has declined. Additionally, with increased competition, the
Company has experienced general declines in premiums received for SBA loans.
Noninterest Expenses
Noninterest expenses increased $197 thousand or 8.7% compared to the prior year
quarter. For the first nine months of 2000, noninterest expense increased $878
thousand or 13.6% compared to the first nine months of 1999. During the third
quarter and nine months of 2000, the Company incurred expenses totaling $124,000
and $216,000, respectively, relating to activities involving the nonperforming
loans. Exclusive of these one time expenses, noninterest expenses increased
$73,000 (3.2%) and $662,000 (10.3%), respectively for the third quarter and nine
months of 2000.
For the third quarter, salary and employee benefits expense increased $109
thousand or 10.8% legal expenses decreased $5 thousand or 7.8% consulting
expenses increased $9 thousand or 17.6% marketing expenses decreased $9 thousand
or 9.8% and problem loan resolution expenses increased $115 thousand or 1,277.8%
compared to the prior year.
Year to date, salary and employee benefits expense increased $434 thousand or
14.9% legal expenses increased $33 thousand or 30.6% consulting expenses
increased $91 thousand or 67.9% marketing expenses increased $127 thousand or
62.6% and problem loan resolution expenses increased $196 thousand or 980.0%
compared to the prior year.
Salary and employee benefits expense increased as a result of the addition of
certain staffing positions combined with general merit increases in salaries and
increased employee benefit costs. The legal expense relates primarily to ongoing
corporate matters combined with costs associated with the resolution of
classified loans. The consulting expenses have related primarily to matters
regarding enhancement of noninterest income, personnel and employee benefits and
continued improvements to technology. The marketing expenses relate to increased
efforts to expand the Bank's market share through the use of television and
radio. During the first half of 2000, the bank entered into an agreement with
Mr. Stan Atkinson, a well known local television personality, to represent the
Bank as its spokesman. Management believes this arrangement with Mr. Atkinson
will greatly improve the Bank's ability to increase market share, particularly
in the greater Sacramento area.
-15-
<PAGE>
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 nine months
ended September 30, 2000 are not necessarily indicative of the results which may
be expected for the year ended December 31, 2000. The unaudited consolidated
financial statements presented herein should be read in conjunction with the
consolidated financial statements and notes included in the 1999 Annual Report
to Shareholders.
-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 nine months ended
September 30, 2000, there were no material changes in the market risk profile of
the Company or the Bank as described in the Company's 2000 Form 10-K.
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not Applicable.
ITEM 2. CHANGES IN SECURITIES
Not Applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
ITEM 5. OTHER INFORMATION
Not Applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. Description
3(a) Articles of Incorporation, as amended, filed
as Exhibit 3.1 to the Company's General Form
for Registration of Securities on Form 10,
filed on September 21, 1983, is hereby
incorporated by reference.
3(b) Bylaws, as amended, filed as Exhibit 3(b) to
the Company's Form 10K for the year ended
December 31, 1998 are hereby incorporated by
reference.
4 Specimen Common Stock Certificate, filed as
Exhibit 4.1 to the Company's General Form
for Registration of Securities on Form 10,
filed on September 21, 1983, is hereby
incorporated by reference.
10(a) First Financial Bancorp 1991 Director Stock
Option Plan and form of Nonstatutory Stock
Option Agreement, filed as Exhibit 4.1 to
the Company's Form S-8 Registration
Statement (Registration No. 33-40954), filed
on May 31, 1991, is hereby incorporated by
reference.
10(b) Amendment to First Financial Bancorp 1991
Director Stock Option Plan, filed as Exhibit
4.3 to the Company's Post-Effective
Amendment No. 1 to Form S-8 Registration
Statement (Registration No. 33-40954), filed
as Exhibit 10 to the Company's Quarterly
Report on Form 10-Q for the period ended
March 31, 1995, is hereby incorporated by
reference.
-17-
<PAGE>
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.
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<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
Form 8-K dated November 1, 2000 announcing third quarter
2000 financial results.
-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: November 13, 2000 /s/ Allen R. Christenson
----------------- ------------------------
Allen R. Christenson
Senior Vice President
Chief Financial Officer
-20-
