10-Q 1 p17544_10q.txt ================================================================================ 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, 2003 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 Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). [ ] Yes [X] No As of July 31, 2003 there were 1,629,711 shares of Common Stock, no par value, outstanding. ================================================================================ FIRST FINANCIAL BANCORP FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2003 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 ...... 14 Item 4. Controls and Procedures ......................................... 14 PART II Item 1. Legal Proceedings ............................................... 15 Item 2. Changes in Securities and Use of Proceeds ....................... 15 Item 3. Defaults Upon Senior Securities ................................. 15 Item 4. Submission of Matters to a Vote of Security Holders.............. 15 Item 5. Other Information ............................................... 15 Item 6. Exhibits and Reports on Form 8-K ................................ 15 Signatures ............................................................... 16 Index to Exhibits ........................................................ 17 ITEM 1. FINANCIAL STATEMENTS FIRST FINANCIAL BANCORP AND SUBSIDIARIES Consolidated Balance Sheets (Unaudited) (in thousands except share amounts)

See accompanying notes. 1 FIRST FINANCIAL BANCORP AND SUBSIDIARIES Consolidated Statements of Income (Unaudited) (in thousands except per share amounts)

See accompanying notes. 2 FIRST FINANCIAL BANCORP AND SUBSIDIARIES Consolidated Statements of Stockholders' Equity and Comprehensive Income (Unaudited) (in thousands except share amounts) Six Months Ended June 30, 2003

See accompanying notes. 3 FIRST FINANCIAL BANCORP AND SUBSIDIARIES Consolidated Statements of Cash Flows (Unaudited) (in thousands) Six Months Ended June 30,

4 FIRST FINANCIAL BANCORP AND SUBSIDIARIES Notes to Consolidated Financial Statements June 30, 2003 and December 31, 2002 (Unaudited) (1) Summary of Significant Accounting Policies First Financial Bancorp (the "Company") operates principally as a bank holding company for its wholly owned subsidiary, Bank of Lodi, N.A. (the "Bank"). The Bank is the principal source of income for the Company. The Company also holds all of the capital stock of its other subsidiaries, Western Auxiliary Corporation and First Financial (CA) Statutory Trust I. All references herein to the "Company" include the Bank and all other subsidiaries, unless the context otherwise requires. Basis of Presentation The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, the consolidated financial statements reflect all normal recurring adjustments necessary for a fair presentation of the results for the interim periods. Certain amounts in the prior year have been reclassified to conform with the current presentation. These reclassifications have no effect on previously reported income. These statements should be read in conjunction with the audited consolidated financial statements and related notes included in the Company's 2002 Annual Report on Form 10-K. Operating results for the three and six month periods ended June 30, 2003 are not necessarily indicative of the results that may be expected for the year ending December 31, 2003. Stock Based Compensation In December 2002, the FASB issued Statement No. 148 ("Statement 148"), Accounting for Stock-Based Compensation-Transition and Disclosure-an amendment of FASB Statement No. 123. This statement amends Statement 123 to provide alternative methods of transition to a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, Statement 148 amends the disclosure requirements to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. Statement 148 is effective for fiscal years ending after December 15, 2002, and for interim periods beginning after December 15, 2002. During the first quarter of 2003, the Company adopted the fair value recognition provisions of FASB Statement No. 123, Accounting for Stock-Based Compensation (SFAS No. 123), for stock-based compensation, effective as of January 1, 2003. Under the provisions of Statement 148, the Company has adopted the prospective method whereby stock-based employee compensation costs are recognized as awards are granted, modified or settled. 5 The following table presents the effect on net income and earnings per share as if the fair value based method had been applied to all outstanding and unvested awards in each period.

(2) Weighted Average Shares Outstanding Per share information is based on weighted average number of shares of common stock outstanding during each three and six month period. Basic earnings per share (EPS) is computed by dividing net income available to shareholders by the weighted average common shares outstanding during the period. Diluted earnings per share is computed by dividing net income available to shareholders by the weighted average common shares outstanding during the period plus potential common shares outstanding. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company. The following tables provides a reconciliation of the numerator and denominator of the basic and diluted earnings per share computation for the three and six month periods ending June 30, 2003 and 2002: Income Shares Per-Share Three months ended June 30, 2003 (numerator) (denominator) Amount -------------------------------- -------- --------- ------ Basic earnings per share $359,000 1,629,872 $ .22 Effect of dilutive securities -- 95,436 -- -------- -------- Diluted earnings per share $359,000 1,725,308 $ .21 ========= ======== Income Shares Per-Share Three months ended June 30, 2002 (numerator) (denominator) Amount -------------------------------- -------- --------- ------ Basic earnings per share $197,000 1,624,308 $ .12 Effect of dilutive securities -- 66,559 -- -------- -------- Diluted earnings per share $197,000 1,690,867 $ .12 ======== ======== 6 Income Shares Per-Share Six months ended June 30, 2003 (numerator) (denominator) Amount ---------------------------------------------------------------------------- Basic earnings per share $701,000 1,629,930 $ .43 Effect of dilutive securities -- 79,540 -- -------- -------- Diluted earnings per share $701,000 1,709,470 $ .41 ======== ======== Income Shares Per-Share Three months ended June 30, 2002 (numerator) (denominator) Amount ---------------------------------------------------------------------------- Basic earnings per share $478,000 1,625,949 $ .29 Effect of dilutive securities -- 63,059 -- -------- --------- Diluted earnings per share $478,000 1,689,008 $ .28 ======== ========= (3) Allowance for Loan Losses The following summarizes changes in the allowance for loan losses for the six month periods ended June 30, 2003 and 2002 and the twelve month period ended December 31, 2002: (in thousands) 6/30/03 6/30/02 12/31/02 ------- ------ ------ Balance at beginning of period $ 3,057 2,668 2,668 Loans charged off (119) (83) (270) Recoveries 10 19 34 Provisions charged to operations 312 376 625 ------- ------ ------ Balance at end of period $ 3,260 2,980 3,057 ======= ====== ====== (4) Impact Of Recently Issued Accounting Standards In January 2003, the FASB issued FIN 46, which clarifies the application of Accounting Research Bulletin ("ARB") 51, consolidated financial statements, to certain entities (called variable interest entities) in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The disclosure requirements of this Interpretation are effective for all financial statements issued after January 31, 2003. The consolidation requirements apply to all variable interest entities created after January 31, 2003. In addition, public companies must apply the consolidation requirements to variable interest entities that existed prior to February 1, 2003 and remain in existence as of the beginning of annual or interim periods beginning after June 15, 2003. Management does not expect this Interpretation to have a material impact to the consolidated financial statements. In May of 2003, the FASB issued Statement No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. The provisions of this Statement are effective for financial instruments entered into or modified after May 31, 2003, and otherwise are effective at the beginning of the first interim period beginning after June 15, 2003, except for mandatorily redeemable financial instruments of nonpublic entities. It is to be implemented by reporting the cumulative effect of a change in an accounting principle for financial instruments created before May 15, 2003 and still existing at the beginning of the interim period of adoption. Restatement is not permitted. Management does not expect this Statement to have a material impact to the consolidated financial statements upon adoption of the Statement on July 1, 2003. 7 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION Cautionary Statement for the Purposes of the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995. 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. Forward-looking statements, which are based on certain assumptions and describe future plans, strategies, and expectations, are generally identifiable by the use of words such as "believe", "expect", "intend", "anticipate", "estimate", "project", "assume," "plan," "predict," "forecast" or similar expressions. These forward-looking statements relate to, among other things, expectations of the business environment in which the Company operates, projections of future performance, potential future performance, potential future credit experience, perceived opportunities in the market, and statements regarding the Company's mission and vision. The Company's actual results, performance, and achievements may differ materially from the results, performance, and achievements expressed or implied in such forward-looking statements due to a wide range of risks and uncertainties. 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; monetary and fiscal policies of the U.S. Government; changes in real estate valuations; 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; civil disturbances or terrorist threats or acts or apprehension about the possible future occurrences of acts of this type; and changes in the securities markets. In addition, other events have increased the uncertainty related to the national and California economic outlook and could have an effect on the future operations of the Company or its customers, including borrowers. The Company does not undertake, and specifically disclaims any obligation, to update any forward-looking statements to reflect occurrences or unanticipated events or circumstances after the date of such statements. Critical Accounting Policies and Estimates The Company's discussion and analysis of its financial condition and results of operations are based upon the Company's consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, income and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, the Company evaluates its estimates, including those related to the allowance for loan losses, other real estate owned, investments and income taxes. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The Company believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of its consolidated financial statements. The Company maintains an allowance for loan losses resulting from the inability of borrowers to make required loan payments. If the financial conditions of the Company's customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. The Company invests in debt and equity securities. If the Company believes these securities have experienced a decline in value that is other than temporary, an investment impairment charge is recorded. Future adverse changes in market conditions or poor operating results of underlying investments could result in losses or an inability to recover the carrying value of the investments that may not be reflected in an investment's carrying value, thereby requiring an impairment charge in the future. The following discussion addresses information pertaining to the financial condition and results of operations of the Company that may not be otherwise apparent from a review of the consolidated financial statements and related footnotes. It should be read in conjunction with those statements and notes found on pages 1 through 7, as well as other information presented throughout this report. 8 Changes in Financial Condition As of June 30, 2003, consolidated total assets totaled $281 million, which represents an increase of $25,266 thousand, or 9.9% above the comparable level at December 31, 2002. The increase in total assets was attributable to a $35,860 thousand, or 17.0% increase in total deposits net of a a decrease in short term borrowings totaling $9,546 thousand, or 64.1%. During the first six months of 2003, the growth in deposits resulted primarily from an increase of $31,470 thousand, or 17.9% in interest bearing deposits combined with a $4,390 thousand or 12.7% increase in non-interest bearing deposits. The interest bearing deposit growth consisted of an increase of $19,963 thousand, or 35.9%, $4,528 thousand, or 15.0%, $3,974 thousand, or 10.0 %, and $3,005 thousand, or 5.9% in certificates of deposit, money market accounts, savings accounts and NOW accounts, respectively. The increase in total assets included an increase of $14,846 thousand, or 44.8%, in investment securities, an increase totaling $6,699 thousand, or 4.0%, in gross loans, and a $2,761 thousand, or 14.1%, increase in federal funds sold as compared to December 31, 2002. The net increase in gross loans is primarily the result of increases of $6,621 thousand, or 10.5%, $2,388 thousand, or 16.7%, and $2,260 thousand, or 8.5%, in real estate loans, agricultural loans, and commercial loans, respectively, combined with a decrease of $3,876 thousand, or 18.9%, in construction loans. Allowance for Loan Losses The allowance for loan losses (the "allowance") is established through a provision for possible loan losses charged to expense. The allowance at June 30, 2003 was in excess of the December 31, 2002 allowance by $203 thousand, or 6.6%, as a result of a provision of $312 thousand combined with net charge-offs of $109 thousand. During the first six months of 2003, nonperforming loans decreased by $359 thousand, to $2,350 thousand. Management continues to actively work to resolve the nonperforming loans, the majority of which are secured by real estate that, in the opinion of management, are well collateralized. Management believes that the allowance at June 30, 2003 is adequate to absorb known and reasonably estimated loan losses. However, there can be no assurances that future economic events may not 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, 2003 and December 31, 2002, respectively: Six Months Year Ended Ended June 30, December 31, 2003 2002 ------- ------- Balance at beginning of period $ 3,057 $ 2,668 Charge-offs: Commercial (86) (178) Real estate -- (62) Consumer (33) (30) ------- ------- Total charge-offs (119) (270) Recoveries: Commercial 9 26 Real estate -- -- Consumer 1 8 ------- ------- Total recoveries 10 34 ------- ------- Net charge-offs (109) (236) Provision charged to operations 312 625 ------- ------- Balance at end of period $ 3,260 $ 3,057 ======= ======= Allocation of the Allowance for Loan Losses

9 Investments Investment securities increased $14,486 thousand, or 44.8%, from December 31, 2002 to June 30, 2003. This increase resulted from the purchase of investment securities totaling $25,112 thousand net of prepayments on mortgage-backed securities totaling $8,389 thousand and sales of investment securities totaling $1,056 thousand. The Company realized gross gains totaling $88 thousand on the sale of investment securities during the first quarter of 2003. Equity Consolidated equity increased $547 thousand from December 31, 2002 to June 30, 2003. Consolidated equity represented 7.06% and 7.55% of consolidated assets at June 30, 2003 and December 31, 2002, respectively. The increase in equity during 2003 resulted from earnings of $701 thousand for the six months ended June 30, 2003, $93 thousand in cash received on the exercise of stock options less a $245 thousand decline in the after-tax market value of the available-for-sale investment securities portfolio. The decline in the investment security portfolio's market value resulted from gains realized on the sale of investment securities combined with the effects of changes in interest rates at June 30, 2003 compared to December 31, 2002. The total risk-based capital ratio for the Company's wholly owned subsidiary, Bank of Lodi was 11.24% at June 30, 2003 compared to 11.16% at December 31, 2002. Changes in Results of Operations - Three and Six Months ended June 30, 2003 Summary of Earnings Performance

10 Net Interest Income The following tables provides a detailed analysis of the net interest spread and net interest margin for the periods indicated:

(1) Yield for period annualized on actual number of days in period and based on a 365-day year. (2) Income on tax-exempt securities has not been adjusted to a tax equivalent basis. (3) Nonaccrual loans are included in the loan totals for each period; however, only collected interest on such loans is included in interest income. Net interest income for the first six months of 2003 increased $727 thousand, or 15.2%, over the same period of 2002. The increase is attributable to the effects of increases in volumes of earning assets and liabilities combined with the effects of decreases in the yield on average earning assets and in the cost of funding average earning assets. The increase in volumes of average earning assets and liabilities resulted in an increase in net interest income totaling $738 thousand while the decline in interest rates resulted in a decrease in net interest income totaling $11 thousand when comparing the first six months of 2003 to the same period last year. 12 Average earning assets increased $22,493 thousand during the first six months of 2003 as compared to the 2002. Average loans increased $18,770 thousand, federal funds sold increased $2,063 thousand, and investment securities increased $1,660 thousand. The increase in the volume of average earning assets during the first six months of 2003 as compared to the same period of last year resulted in an increase in interest income totaling $781 thousand. However, interest rates on average earning assets declined 63 basis points (from 6.98% to 6.35%) when compared to the same period in 2002, resulting in a decrease in interest income totaling $683 thousand. Average liabilities increased $21,132 thousand during the first six months of 2003 as compared to the same period of 2002. Of that increase, average noninterest bearing deposits increased $6,653 thousand, NOW and money market accounts increased $11,955 thousand, savings accounts increased $7,554 thousand, other borrowings increased $1,060 thousand while certificates of deposit decreased $6,090 thousand. The increase in average liabilities resulted in an increase in interest expense totaling $43 thousand. As a result of the declining interest rate environment, the cost of interest bearing liabilities decreased 72 basis points (from 1.87% to 1.16%) resulting in a reduction in interest expense totaling $672 thousand. Interest income is also affected by nonaccrual loan activity. Interest forgone or reversed on non-accrual loans during the first six months of 2003 was approximately $175 thousand. For the second quarter of 2003, interest forgone on non-accrual loans totaled $106 thousand. $23 thousand and $26 thousand of interest was collected on non-accrual loans for the second quarter of 2003 and for the first six months of 2003, respectively. Provision for Loan Losses The provision for loan losses for the three and six months ended June 30, 2003 was $55 and $312 thousand compared with $181 and $376 thousand for the three and six months ended June 30, 2002. Though the Company reduced the provision for loan loss (when compared to the prior year three and six month periods) the allowance for loan losses has remained consistent as a percentage of totals loans. As of June 30, 2003 the allowance for loan losses was $3,260 thousand or 1.9% of total loans, which compares to the allowance for loan losses of $3,057 thousand or 1.8% of total loans as of December 31, 2002. As of June 30, 2003, nonperforming loans totaled $2,350 thousand or 1.4% of total loans compared to $2,409 thousand or 1.5% at December 31, 2002. No assurance can be given that nonperforming loans will not increase or that the allowance for loan losses will be adequate to cover losses inherent in the loan portfolio. Also see "Allowance for Loan Losses" contained herein. Noninterest Income Noninterest income for the second quarter of 2003 increased by $177 thousand, or 19.3%, over the same period last year. For the first six months of 2003, non-interest income increased $130 thousand, or 6.1%, compared to the first six months of 2002. During the first quarter of 2003 the Company realized gains on the sale of investment securities totaling $88 thousand. The Company realized gains from the sale of other real estate totaling $5 thousand during the second quarter of 2003 and $22 thousand during the first quarter of 2002. Income from the sale and servicing of loans totaled $432 thousand during the second quarter of 2003, which increased by $202 thousand, or 87.8%, compared to the prior year quarter. The increased income from the sale and servicing of loans is primarily the result of increased refinancing activity of residential mortgage loans which resulted from declines in mortgage loan rates. The income recognized on the cash surrender value of life insurance decreased $54 thousand during the second quarter and year to date for 2003 when compared to the same periods in 2002. The decrease was the result of an overall decline in interest rates in 2003 as compared to the same period in 2002. The income recognized from the increase in the cash surrender value of life insurance is exempt from income taxes. The tax effective yield of the increase in the cash surrender value of the life insurance totaled 7.1% during the second quarter of 2003 as compared to 8.2% during the second quarter of 2002. For the first six months of 2003, the tax effective yield totaled 7.2% as compared to 8.7% during the same period in 2002. Noninterest Expenses Noninterest expenses increased $483 thousand, or 8.0%, compared to the first six months of 2002. Personnel expense increased $444 thousand, or 14.4%. This increase is primarily due to an increase in number of full time equivalent employees, from 116 at June 30, 2002 to 133 at June 30, 2003 combined with general merit increases for existing personnel. The increase in the Company's mortgage origination activities has also lead to increased sales commissions. Occupancy expense increased $29 thousand or 6.1% of which $21 thousand is due to increased rental expense. Equipment expense increased $36 thousand, or 9.0% due to a $20 thousand increase in depreciation expense and a $15 thousand increase in equipment maintenance expense. Other noninterest expense decreased $26 thousand, or 1.3%. Included in other noninterest expense during the second quarter of 2003 are costs totaling $94,000 associated with responding to the disruptive actions initiated by three dissident directors. Without this unanticipated expense, the increase in noninterest expense would have been 4.7% and 6.5% for the second quarter and six month period during 2003, respectively, when compared to the same period in 2002. 13 Income Taxes As a result of increases in taxable income combined with a reduction in tax exempt income, the Company's provision for income taxes during the second quarter of 2003 totaled $145,000 compared to a benefit of $1,000 during the second quarter of 2002. For the first six months of 2003, the provision for income taxes totaled $269,000 as compared to $54,000 during the same period last year. The effective tax rate for the Company during the second quarter of 2003 was 28.8% as compared to a benefit of 0.5% during the second quarter of 2002. For the first six months of 2003, the Company's effective tax rate was 27.7% as compared to 10.2% for the same period in 2002. Liquidity The Company's primary sources of liquidity are the proceeds from the trust preferred securities combined with dividends from the Bank. The Company's primary uses of liquidity are associated with interest payments on the trust preferred securities, dividend payments made to shareholders and operating expenses. Loan demand, deposit fluctuations, and investment leveraging opportunities are affected by a number of factors, including economic conditions, seasonality of the borrowing and deposit bases, and the general level of interest rates; therefore, the Bank's liquidity is actively managed on a daily basis. The sale of loans, sale of investment securities and use of borrowing facilities are all employed to maintain cash, federal funds sold, and short-term investments at levels commensurate with estimated liquidity needs. The Bank maintains two lines of credit with correspondent banks and has reverse repurchase agreements with two brokerage firms, which allow for short-term borrowings that are secured by investment securities. Finally, the Bank may also borrow on a short-term basis from the Federal Reserve in the event that the aforementioned liquidity sources are not adequate. At June 30, 2003 liquidity was considered adequate given the funds available in the local deposit market, scheduled maturities of loans and investments, and the available capacity on borrowing facilities.. Compared to 2002 liquidity increased in 2003 as a result of the growth in deposit portfolio and sales and maturities of available-for-sale investment securities. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK While there are several varieties of market risk, the market risk material to the Company and the Bank is interest rate risk. Within the context of interest rate risk, market risk is the risk of loss due to changes in market interest rates that have an adverse effect on net interest income, earnings, capital or the fair value of financial instruments. Exposure to this type of risk is a regular part of a financial institution's operations. The fundamental activities of making loans, purchasing investment securities, and accepting deposits inherently involve exposure to interest rate risk. The Company monitors the repricing differences between assets and liabilities on a regular basis and estimates exposure to net interest income, net income, and capital based upon assumed changes in the market yield curve. As of and for the three months ended March 31, 2003, there were no material changes in the market risk profile of the Company or the Bank as described in the Company's 2002 Form 10-K. ITEM 4. CONTROLS AND PROCEDURES Disclosure Controls and Procedures We carried out an evaluation, under the supervision and with the participation of our management, including our President and Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report, pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934. Based on their review of our disclosure controls and procedures, the President and Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective in timely alerting them to material information relating to us that is required to be included in our periodic SEC filings. Internal Controls and Procedures There were no changes in our internal controls over financial reporting identified in connection with the evaluation of our disclosure controls and procedures described above that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially effect, our internal controls over financial reporting. 14 PART II -- OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Not Applicable. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS Not Applicable. ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not Applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company's Annual Meeting of Stockholders was held on April 22, 2003. At this meeting 982,215 shares of the Company's common stock were represented in person or by proxy. Stockholders voted in favor of the election of ten nominees for director. The voting results for each nominee were as follows:

ITEM 5. OTHER INFORMATION Not Applicable ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits The exhibit list required by this item is incorporated by reference to the Index to Exhibits filed as part of this report. (b) Reports on Form 8-K A report on Form 8-K, dated July 8, 2003, was filed under report item numbers 7 and 9, concerning First Financial Bancorp's letter to shareholders in response to a June 23, 2003 dissident director letter. A report on Form 8-K, dated July 25, 2003, was filed under report item numbers 7 and 9, concerning First Financial Bancorp's results of operations for the three and six month periods ending June 30, 3003. A report on Form 8-K dated July 25, 2003, was filed under report item numbers 5 and 7, concerning the adoption of a Code of Conduct Policy by the Board of Directors of First Financial Bancorp and Bank of Lodi, N.A. 15 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 By: Date: August 12, 2003 /s/ Allen R. Christenson --------------- ------------------------ Allen R. Christenson Senior Vice President Chief Financial Officer (Principal Accounting and Financial Officer) INDEX TO EXHIBITS Exhibit Description 31.1 Certification of Registrant's Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2003 31.2 Certification of Registrant's Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2003 32.1 Certification of Registrant's Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 32.2 Certification of Registrant's Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 17

FIRST FINANCIAL BANCORP /CA/ 10-Q