<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-25956
FIRST PLACE FINANCIAL CORPORATION
- -----------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
A New Mexico Corporation - I.R.S. No. 85-0317365
100 East Broadway
Farmington, New Mexico 87401
- -----------------------------------------------------------------------
(Address, including ZIP Code, or registrant's executive offices)
(505) 324-9500
- -----------------------------------------------------------------------
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
- -----------------------------------------------------------------------
(Title of Class)
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 91 days
YES X NO
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
On March 5, 1997, there were 2,134,272 shares of the registrant's common
stock outstanding. The aggregate market value of the voting stock held by
non-affiliates of the registrant as of March 5, 1997, was approximately
$109,713,420.
Documents incorporated by reference: Portions of the corporation's Notice of
Annual Meeting and Proxy Statement for the annual meeting of stockholders to
be held April 23, 1997, are incorporated by reference into Part III.
<PAGE>
FORM 10-K CROSS REFERENCE INDEX
Page
PART I
Item 1 Business................................................. 3
Item 2 Properties............................................... 7
Item 3 Legal Proceedings........................................ 7
Item 4 Submission of Matters to a Vote of Security Holders...... 7
PART II
Item 5 Market for Registrant's Common Equity
and Related Stockholder Matters..................... 8
Item 6 Selected Financial Data................................. 9
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations................. 9
Item 8 Financial Statements and Supplementary Data............. 9
Item 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosures................ 9
PART III
Item 10 Directors and Executive Officers of the Registrant...... 10
Item 11 Executive Compensation.................................. 10
Item 12 Security Ownership of Certain Beneficial Owners
and Management...................................... 10
Item 13 Certain Relationships and Related Transactions.......... 10
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports on
Form 8-K............................................ 11
2
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PART I
ITEM 1. BUSINESS OF THE COMPANY
FIRST PLACE FINANCIAL CORPORATION
First Place Financial Corporation, ("First Place" or the "Company"), a New
Mexico corporation, is a multi-bank holding company located in Farmington,
New Mexico. First Place is engaged in the commercial banking business
through its wholly-owned subsidiaries First National Bank of Farmington, New
Mexico ("FNBF"), Burns National Bank of Durango, Colorado ("BNBD"), and
Western Bank, Gallup, New Mexico ("WBG") (collectively, the "Subsidiary
Banks").
On August 30, 1995, First Place acquired 100 percent of the outstanding
stock of WBG for cash and stock valued at $3,819,577 in the aggregate. WBG's
total assets on the date of acquisition were $31.0 million. The transaction
was accounted for using the purchase method of accounting; therefore, WBG's
results of operations are included from the date of acquisition. In
accordance with the purchase method of accounting, the assets and liabilities
of purchased companies are stated at estimated fair values at the date of
acquisition, and the excess of cost over fair value of net assets acquired is
amortized on the straight-line basis over 15 years.
The following table is a summary level consolidating balance sheet at
December 31, 1996 (in thousands):
<TABLE>
PARENT FNBF BNBD WBG ADJ CONSOLIDATED
------ ---- ---- --- --- ------------
<S> <C> <C> <C> <C> <C> <C>
Investments $ --- $213,034 $ 21,527 $10,126 $ --- $244,687
Loans --- 351,304 91,332 25,552 --- 468,188
Other earning assets --- 10,214 5,612 3,880 (9,480) 10,226
------- -------- -------- ------- -------- --------
Total earning assets --- 574,552 118,471 39,558 (9,480) 723,101
Allowance for loan losses --- (6,744) (1,732) (457) --- (8,933)
Other assets 66,266 68,547 13,092 6,023 (67,486) 86,442
------- -------- -------- ------- -------- --------
Total Assets $66,266 $636,355 $129,831 $45,124 $(76,966) $800,610
------- -------- -------- ------- -------- --------
------- -------- -------- ------- -------- --------
Total deposits $ --- $450,922 $100,598 $40,918 $ (4,545) $587,893
Other borrowed funds --- 130,838 15,186 --- (9,480) 136,544
------- -------- -------- ------- -------- --------
Total deposits and borrowed funds --- 581,760 115,784 40,918 (14,025) 724,437
Other liabilities 1,506 7,550 2,120 255 (18) 11,413
------- -------- -------- ------- -------- --------
Total liabilities 1,506 589,310 117,904 41,173 (14,043) 735,850
Stockholders' equity 64,760 47,045 11,927 3,951 (62,923) 64,760
------- -------- -------- ------- -------- --------
Total Liabilities and Stockholders'
Equity $66,266 $636,355 $129,831 $45,124 $(76,966) $800,610
------- -------- -------- ------- -------- --------
------- -------- -------- ------- -------- --------
</TABLE>
Each of the Subsidiary Banks engage in general commercial banking business
primarily within its respective delineated market area. The majority of the
Subsidiary Banks' loans are direct loans to individuals and businesses in
their service areas. Similarly, most of the Subsidiary Banks' deposits are
attracted from individuals and businesses in their respective areas.
3
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The Subsidiary Banks rely substantially upon local promotional activity,
personal contact by their officers, directors, employees and stockholders,
personalized service, and their reputation in their respective communities to
compete with other financial institutions.
The Bank Holding Company Act of 1956, as amended, limits the activities
which may be engaged in by First Place and its subsidiaries to certain
specific activities, including those activities which the Federal Reserve
Board may find, by order or regulation, to be so closely related to banking
or managing or controlling banks as to be a proper incident thereto. First
Place has no non-bank subsidiaries and currently engages in no other
activities permited under the Bank Holding Company Act.
FIRST NATIONAL BANK OF FARMINGTON
FNBF is a national banking association chartered under the laws of the
United States. FNBF conducts a commercial banking and trust business in
Farmington, New Mexico, and the surrounding communities of San Juan County,
New Mexico. FNBF operates at eight branch locations and operates ten
automated teller machines, five of which are located on branch premises. In
addition, during the last three years, FNBF has developed a significant
correspondent banking business which has extended its lending area throughout
New Mexico and southwest Colorado. Of the $42 million increase in FNBF's net
loans outstanding during 1996, approximately 70% was to out-of-area borrowers.
FNBF has also developed a significant check clearing business with these
correspondents. In order to meet the growing demand for this business, FNBF
opened a check processing center in Albuquerque in June 1996. As the largest
New Mexico bank not owned by an out-of-state bank holding company, FNBF has
become the primary upstream correspondent for many of the state's independent
banks.
As the bank with the largest total assets in San Juan County, FNBF
emphasizes loans to small businesses and consumers, including 15-year,
fixed-rate mortgage loans. FNBF seeks to have branch facilities strategically
located throughout the county, including one branch on the Navajo Nation.
The branches in Aztec, Bloomfield, and Shiprock have lending officers. FNBF
also offers trust services, including corporate and personal trusts as well
as cash management services and correspondent banking services to other
financial institutions.
COMPETITION
The primary competitors of FNBF are Citizens Bank, Sunwest Bank, and Animas
Credit Union, each of which has its main office in Farmington, New Mexico.
Bank of America (Albuquerque), Bank of the Southwest (Truth or Consequences),
and Centennial Savings Bank FSB (Durango, Colorado) have branches in
Farmington. Some of these competitors have other branches, and operate
automated teller machines in Farmington and San Juan County. At June 30,
1996, FNBF held approximately 58% of total commercial bank deposits in San
Juan County.
4
<PAGE>
BURNS NATIONAL BANK OF DURANGO
BNBD is a national banking association chartered under the laws of the
United States. BNBD conducts a commercial banking and trust business in
Durango and the surrounding communities of La Plata County, Colorado. BNBD
operates at three branch locations and also operates six automated teller
machines one of which is in neighboring Montezuma County.
As the second largest commercial bank in Durango, BNBD offers all types of
loans but specializes in real estate lending, particularly interim
construction loans.
COMPETITION
The primary competitors of BNBD are the First National Bank of Durango,
Norwest Bank of Durango, Centennial Savings Bank FSB, and Bank of Durango.
Bank of the Southwest (Pagosa Springs) also has a branch in Durango. At
June 30, 1996, BNBD held approximately 24% of total commercial bank deposits
in La Plata County.
WESTERN BANK GALLUP
WBG is a state bank chartered under the laws of the State of New Mexico.
WBG was incorporated in 1973 under the name Citizens Bank of Gallup, and the
name was changed to Western Bank in 1980. WBG conducts a commercial banking
business from one location in Gallup, serving the surrounding community of
McKinley County, New Mexico. WBG operates two automated teller machines.
WBG concentrates its lending activities in three principal areas:
commercial loans, real estate loans, and installment loans, with commercial
real estate and residential real estate loans making up approximately 64% of
WBG's loan portfolio.
COMPETITION
WBG's primary competitors are Sunwest Bank of Gallup, Norwest Bank of
Gallup, and Gallup Federal Savings and Loan Association. Bank of America
(Albuquerque) also has a branch in Gallup. At June 30, 1996, WBG held
approximately 14% of commercial bank deposits in McKinley County.
EMPLOYEES AND EMPLOYEE BENEFITS
First Place currently employs approximately 310 full-time equivalent
people. First Place provides a defined benefit pension plan as well as a
profit sharing plan with 401(k) provisions to its employees. First Place also
provides its employees with group medical, dental, life, and long-term
disability insurance.
5
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SUPERVISION AND REGULATION
GENERAL
First Place, as a bank holding company, is subject to the supervision of
the Federal Reserve Board ("FRB"). First Place is required to obtain the
approval of the FRB before acquiring all or substantially all of the assets
of any bank or ownership or control of the voting shares of any bank if,
after giving effect to such acquisition of shares, it would own or control
more than 5 percent of the voting shares of such bank. The Bank Holding
Company Act also provides that no application for approval by First Place to
acquire any voting shares of interest in, or all or substantially all of the
assets of, a bank located outside the State of New Mexico will be approved
unless such acquisition is specifically authorized by the laws of the state
in which such bank is located.
The Bank Holding Company Act requires First Place to file reports with the
FRB and provide additional information requested by the FRB. The FRB also
has the authority to examine First Place and each of the Subsidiary Banks
with the cost thereof to be borne by First Place, and possesses cease and
desist powers over them if their actions represent unsafe or unsound
practices. Particularly important in the FRB's evaluation of a bank holding
company is its ability to satisfy the FRB's capital adequacy guidelines.
First Place, and any subsidiary which it may acquire or organize, is
deemed to be an affiliate of the Subsidiary Banks within the meaning set
forth in the Federal Reserve Act and therefore is subject to certain
restrictions which limit the extent to which any of the Subsidiary Banks can
supply funds to it. First Place is also subject to restrictions on the
underwriting and the public sale and distribution of securities, and is
prohibited from engaging in certain tie-in arrangements in connection with
any extension of credit, sale or lease of property, or furnishing of services.
The Federal Reserve Act limits the loans and advances that banks may make
to their affiliates. For purposes of the Federal Reserve Act, the Company is
an affiliate of the Subsidiary Banks. The Subsidiary Banks may not make any
loans, extensions of credit, or advances to the Company if the aggregate
amount of such loans, extensions of credit, advances, and any repurchase
agreements and investments exceed 10% of the capital stock and surplus of the
Subsidiary Banks. Any such permitted loan or advance by the Subsidiary Banks
must be secured by collateral of a type and value set forth in the Act.
THE SUBSIDIARY BANKS
Two of the Subsidiary Banks, FNBF and BNBD, are national banks organized
under the laws of the United States. As national banks, they are subject to
regulation, supervision, and regular examination by the Office of the
Comptroller of the Currency ("OCC"). The third subsidiary bank, WBG, is a
state chartered bank and is therefore subject to federal and state statutes
applicable to banks chartered under the banking laws of New Mexico. The
bank's operations are also subject to the regulations of the FRB. All of
the Company's Subsidiary Banks are insured and are therefore subject to
regulation by the Federal Deposit Insurance Corporation ("FDIC") and the FDIC
is the primary federal supervisory authority for WBG.
6
<PAGE>
ITEM 2. PROPERTIES
First Place has its principal office at 100 East Broadway, Farmington, New
Mexico 87401, which is owned and occupied principally by FNBF. FNBF also owns
six branches and a motor bank and leases five stand-alone ATM facilities in
Farmington and surrounding communities. The WBG and BNBD main office
buildings are owned. BNBD owns a motor bank and leases a branch office and
four stand-alone ATM facilities in Durango and surrounding communities. WBG
owns one stand-alone ATM and leases one stand-alone ATM.
ITEM 3. LEGAL PROCEEDINGS
First Place and the Subsidiary Banks are not a party to any pending legal
proceedings, other than ordinary routine litigation incidental to its
business, before any court, administrative agency, or other tribunal, nor is
First Place aware of any such proceedings threatened against it. The Company
believes that none of this litigation, individually or in the aggregate, will
be material to the business of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to the vote of security holders during the fourth
quarter of 1996.
7
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Effective September, 1996, the common stock of First Place is quoted on
the NASDAQ Bulletin Board under the symbol "FPLF". The NASDAQ Bulletin Board
is only a quotation service and is not a part of the NASDAQ over-the-counter
market. Stockholders can obtain quotes on the Company's stock by contacting a
stockbroker. Prior to September, 1996, the common stock was not traded on any
exchange, nor were there any active market makers in the stock or any other
established public trading market for the stock. However, First Place
maintained an informal market for its stock and, during the relevant period,
stood ready to purchase as treasury stock shares offered at the prices listed
for 1995 and the first three quarters of 1996 in the following table:
PRICE OF COMMON STOCK
1996 1995
------ ------
First Quarter $42.27 $37.00
Second Quarter $43.79 $38.33
Third Quarter $45.05 $39.33
Fourth Quarter $50.00-56.00* $40.33
*Range of sales price obtained from an information service.
The holders of common stock of the Company are entitled to receive cash
dividends when and as declared by the Board of Directors, out of funds
legally available. Under New Mexico General Corporation Law, a corporation
may make a distribution to its stockholders if the corporation's retained
earnings equal at least the amount of the proposed distribution.
First Place, as the sole stockholder of its three Subsidiary Banks, is
entitled to the dividends when and as declared by the Subsidiary Banks'
respective Boards of Directors, out of funds legally available. As national
banks, FNBF and BNBD are subject to the dividend restrictions contained in 12
U.S.C. 60 which provides generally that a national bank may make quarterly
distributions provided they do not exceed the lesser of: (1) the bank's
retained earnings, or (2) the bank's net income for the last three fiscal
years, less the amount of any distributions made by the bank to its
stockholders during such period. The OCC may order a national bank to refrain
from making a proposed distribution when, in its opinion, the payment of such
would be an unsafe or unsound practice. Under New Mexico law, WBG, as a state
chartered bank, may only pay dividends if such dividends do not impair
capital and surplus or other reserves required under New Mexico banking law.
The following table summarizes dividends declared for 1996 and 1995:
8
<PAGE>
DIVIDENDS DECLARED PER SHARE
Increase
1996 1995 (Decrease)
---- ---- ----------
First Quarter $0.3167 $0.2500 $ 0.0667
Second Quarter 0.3200 0.2500 0.0700
Third Quarter 0.3200 0.2833 0.0367
Fourth Quarter 0.3200 0.2833 0.0367
Special Fourth Quarter 0.3600 0.3667 (0.0067)
------- ------- ---------
$1.6367 $1.4333 $ 0.2034
------- ------- ---------
------- ------- ---------
As of March 5, 1997, there were approximately 628 holders of record of
the Company's common stock.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data begins on page 14 in the Appendix.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Management's discussion and analysis is presented beginning on page 13 in
the Appendix and should be read in conjunction with the related financial
statements and notes thereto included under Item 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Company and its subsidiaries
begin on page 33 in the Appendix. The reports of the Company's independent
certified public accountants on the consolidated financial statements are
presented on pages 59 and 60 in the Appendix.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
9
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
See the Company's Proxy Statement for the annual meeting of shareholders
to be held on April 23, 1997 under the caption "Management of the Company,"
which is incorporated herein by this reference.
ITEM 11. EXECUTIVE COMPENSATION
See the Company's Proxy Statement for the annual meeting of shareholders
to be held on April 23, 1997 under the caption "Compensation of Management,"
which is incorporated herein by this reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
See the Company's Proxy Statement for the annual meeting of shareholders
to be held on April 23, 1997 under the caption "Principal Shareholders,"
which is incorporated herein by this reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTION
See the Company's Proxy Statement for the annual meeting of shareholders
to be held on April 23, 1997 under the caption "Certain Transactions By And
With Management and Others," which is incorporated herein by this reference.
10
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8K
(a) The following documents are filed or incorporated by
reference as part of this Form 10-K:
(1) Index to Financial Statements: A list of the
consolidated financial statements of the Registrant
is incorporated herein at Item 8 of this Report.
(2) Financial Statement Schedules: All schedules have been
omitted because they are not required, do not apply, or the
information is set forth either in Management's Discussion
and Analysis of Financial Condition and Results of
Operations, or are in the financial statements or notes
thereto.
(b) Reports on Form 8-K
First Place filed the folowing reports on Form 8-K during the last
quarter of 1996:
(1) Report dated November 8, 1996, regarding the Company's
financial results for the third quarter and for the nine
months ending September 30, 1996.
(2) Report dated December 23, 1996, regarding the Company's
regular quarterly dividend and special dividend.
(c) Exhibits
3(i) First Place Articles of Incorporation*
3(ii) First Place By-Laws*
21 Subsidiaries of First Place - see Item 1, Part I under the
caption "Business of the Company."
23.1 Consent of KPMG Peat Marwick LLP re: incorporation by
reference into the previously filed registration statement
on Form S-8 and this Form 10-K.
23.2 Consent of Chandler & Company LLP re: incorporation by
reference into the previously filed registration statement
on Form S-8 and this Form 10-K.
27 Financial Data Schedule.
* Incorporated herein by this reference from the Exhibits to the
Registrant's Registration Statement on Form S-4 filed with the
Commission on April 18, 1995, SEC Registration No. 33-91310.
11
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on the 19th day
of March, 1997.
First Place Financial Corporation
(Registrant)
By: /s/ Richard I. Ledbetter
-------------------------------------
Richard I. Ledbetter
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated.
By: /s/ James D. Rose
-------------------------------------
James D. Rose
President and Chief Operating Officer
(Principal Financial Officer and Principal Accounting Officer)
/s/ Marlo L. Webb Chairman of the Board
--------------------------------
Marlo L. Webb
/s/ Robert S. Culpepper Vice-Chairman of the Board
--------------------------------
Robert S. Culpepper
/s/ Tom Bolack Director
--------------------------------
Tom Bolack
/s/ Ben Heikkinen Director
--------------------------------
Ben Heikkinen
/s/ Richard I. Ledbetter Director
--------------------------------
Richard I. Ledbetter
/s/ J. Gregory Merrion Director
--------------------------------
J. Gregory Merrion
/s/ Jack M. Morgan Director
--------------------------------
Jack M. Morgan
/s/ Roy L. Owen Director
--------------------------------
Roy L. Owen
/s/ James D. Rose Director
--------------------------------
James D. Rose
/s/ Thomas C. Taylor Director
--------------------------------
Thomas C. Taylor
12
<PAGE>
APPENDIX
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following review represents management's discussion and analysis of
financial condition and results of operations for First Place Financial
Corporation ("First Place") and its three subsidiaries (the "Subsidary
Banks"): First National Bank of Farmington ("FNBF"), Burn National Bank of
Durango ("BNBD"), and Western Bank Gallup ("WBG") (collectively, the
"Company") on a consolidated basis. This review should be read in conjunction
with the consolidated financial statements and related notes. Average
balances, including such balances used in calculating certain financial
ratios, are generally comprised of average daily balances for the Company.
CONTENTS
Page
----
Financial Review . . . . . . . . . . . . . . . . . . . . . . 13
Financial Statements . . . . . . . . . . . . . . . . . . . . 33
Independent Auditors' Reports. . . . . . . . . . . . . . . . 59
(A) RESULTS OF OPERATIONS
OVERVIEW
The Company reported record net income of $9,810,000 in 1996, an increase
of 11.9% over earnings of $8,766,000 in 1995. Net income in 1996 included
$163,000 reported by WBG compared to a loss of $52,000 for the period of
August 30, 1995 through December 31, 1995 included in 1995 net income. 1995
earnings were 9.3% higher than the $8,017,000 earned in 1994. Net income per
common share was $4.56 in 1996, compared to $4.27 in 1995 and $3.98 in 1994.
Net income per share increased 6.8% from 1995 to 1996 and 7.3% from 1994 to
1995. Return on average equity was 15.9% in 1996 compared to 17.3% and 18.1%
in 1995 and 1994, respectively. 1996's record earnings reflect the continued
strong loan growth trends.
During 1996, assets of the Company grew $109,815,000, to $800,610,000, a
15.9% increase over the $690,795,000 recorded in 1995. Primarily as the
result of the Company's continued growth in its correspondent bank call
program, gross loans (net of unearned discount) increased $63,508,000, or
15.7%, in 1996 compared to an increase of $83,020,000, or 25.8%, in 1995.
13
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TABLE ONE
FIVE YEAR SUMMARY
(dollars in thousands, except earnings per share data)
<TABLE>
Year Ended December 31,
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Interest Income:
Loans, including fees $ 43,102 $ 36,037 $ 27,079 $ 21,954 $ 20,120
Taxable securities 10,050 9,849 9,833 10,008 11,543
Tax-exempt securities 2,699 2,828 1,912 929 961
Interest-bearing deposits 715 174 671 498 353
Federal funds sold 201 385 284 472 1,126
-------- -------- -------- -------- --------
Total interest income 56,767 49,273 39,779 33,861 34,103
-------- -------- -------- -------- --------
Interest Expense:
Time deposits of $100,000 and over 9,649 7,582 4,154 3,700 4,001
Other deposits 12,796 10,253 8,067 7,120 8,588
Short-term borrowings 3,224 4,053 2,117 1,136 1,538
Other borrowings 2,484 2,086 2,062 1,132 498
-------- -------- -------- -------- --------
Total interest expense 28,153 23,974 16,400 13,088 14,625
-------- -------- -------- -------- --------
Net interest income 28,614 25,299 23,379 20,773 19,478
Provision for loan losses 1,155 837 58 859 1,259
-------- -------- -------- -------- --------
Net interest income after
provision for loan losses 27,459 24,462 23,321 19,914 18,219
-------- -------- -------- -------- --------
Other Income:
Service charges on deposit accounts 2,573 2,594 2,484 2,560 2,247
Other service charges and fees 1,666 1,580 1,373 686 1,103
Investment securities gains (losses) (82) --- (395) 401 19
Other operating income 645 862 852 2,175 1,008
-------- -------- -------- -------- --------
Total other income 4,802 5,036 4,314 5,822 4,377
-------- -------- -------- -------- --------
Other Expenses:
Salaries and employee benefits 10,040 9,114 8,648 7,522 7,061
Occupancy expenses, net 2,145 1,522 1,606 1,524 1,334
Other operating expenses 6,438 6,225 5,545 5,690 5,962
-------- -------- -------- -------- --------
Total other expenses 18,623 16,861 15,799 14,736 14,357
-------- -------- -------- -------- --------
Income before income taxes 13,638 12,637 11,836 11,000 8,239
Income taxes 3,828 3,871 3,819 3,870 2,565
-------- -------- -------- -------- --------
Net Income $ 9,810 $ 8,766 $ 8,017 $ 7,130 $ 5,674
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Net Income Per Share $4.56 $4.27 $3.98 $3.55 $2.83
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Dividends Declared Per Share $1.64 $1.43 $1.23 $1.03 $0.87
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Selected statement of condition
information:
Total assets at December 31 $800,610 $690,795 $616,934 $538,884 $491,958
Long-term debt at December 31 38,492 30,572 29,755 22,832 16,597
</TABLE>
NET INTEREST INCOME
The largest component of the Company's operating income is net interest
income. Net interest income on a tax-equivalent basis is the difference
between interest earned on assets and interest paid on liabilities, with
adjustments made to compute yields on tax-exempt assets as if
14
<PAGE>
such income was fully taxable. Changes in the mix and volume of earning
assets and interest-bearing liabilities, their related yields and overall
interest rates have a major impact on earnings. Net interest income, on a
tax-equivalent basis, expressed as a percentage of average earning assets,
was 4.47% in 1996, 4.58% in 1995, and 4.78% in 1994. Tax-equivalent net
interest income was $30,287,000 in 1996, or 11.9% greater than the
$27,062,000 recorded in 1995. Tax-equivalent net interest income in 1995 was
10.2% greater than the $24,564,000 recorded in 1994. WBG's 1996 net interest
income was $1,429,000 compared to $412,000 in 1995. This trend is
attributable to the overall growth of earning assets. Average loans to total
earning assets of 64.6% in 1996 and 60.9% in 1995 was the primary contributor
to this trend.
INTEREST INCOME
Total actual interest earned on earning assets in 1996 was $56,767,000
compared to $49,273,000 in 1995 and $39,779,000 in 1994. The 15.2% increase
from 1995 to 1996 was primarily the result of the higher loan volumes
recorded in 1996. WBG's 1996 interest earned was $2,576,000 compared to 1995
reported interest income of $739,000. During 1996, the Company's principal
sources of interest income were from the funds it invests in loans,
securities, federal funds sold, and interest-bearing deposits held in other
financial institutions.
LOANS - In 1996, the average balance of loans outstanding was
$437,439,000, 21.7% greater than the average of $359,502,000 in 1995.
Average loans in 1995 were 25.7% higher than the $285,994,000 average
recorded in 1994. Loans, as a percent of average earning assets, were 64.6%
in 1996 compared to 60.9% in 1995 and 55.7% in 1994. The higher loan volumes
in 1996 resulted in a $7,668,000 increase in tax-equivalent interest income.
The average yield on loans was 9.85% in 1996 compared to 10.02% in 1995 and
9.47% in 1994. The decrease in yield on loans resulted in a decrease of
$603,000 to tax-equivalent interest income. These two factors netted together
resulted in an increase in interest income of $7,065,000 in 1996. WBG's loans
accounted for $1,588,000 of this increase.
In 1996, the Company had $1,702,000 in non-accrual loans compared to
$3,517,000 in 1995 and $140,000 in 1994. The reduction of non-accrual loans
from 1995 was primarily the result of the foreclosure of real estate
collateral which is reported in Other Real Estate Owned for 1996.
INVESTMENT PORTFOLIO - Interest on taxable investment securities
increased by $201,000 in 1996 compared to a $16,000 tax-equivalent increase
in 1995. The increase in 1996 was primarily the result of a 1.3% increase in
the average investment in such securities primarily due to the acquisition of
WBG.
Securities issued by the U.S. treasury and U.S. government agencies
comprised 42.6% of the total investment portfolio and 57.2% of the taxable
securities at December 31, 1996. These securities were 41.8% and 44.3%,
respectively, in 1995 and 1994 of the total investment portfolio.
Securities exempt from federal income tax comprised 25.5% of the investment
portfolio in 1996 compared to 25.1% in 1995 and 23.5% in 1994. Interest in
1996 on tax-exempt securities, on a tax-equivalent basis, of $4,372,000 was a
decrease of $219,000 from the $4,591,000 reported in 1995. Interest, on a
tax-equivalent basis, on tax-exempt securities in 1995 was 48.2% greater than
the $3,097,000 recorded in 1994.
15
<PAGE>
INTEREST-BEARING DEPOSITS - Average interest-bearing deposits, consisting
primarily of funds on deposit with the Federal Home Loan Bank of Dallas,
increased by $11,006,000 during 1996. This increase was due to management's
desire to maintain liquidity for loan growth and as an accommodation to our
correspondents. The Company will purchase federal funds from the
correspondents and invest these dollars in interest-bearing deposits.
Higher balances of interest- bearing deposits resulted in an increase of
$563,000 in tax-equivalent interest income while lower rates earned in 1996
resulted in a decrease of $22,000. These two factors resulted in a net
increase in tax-equivalent interest income of $541,000 in 1996.
FEDERAL FUNDS SOLD - Average federal funds sold decreased $2,998,000, or
45.2%, in 1996 compared to 1995. Average federal funds sold in 1995 declined
$1,242,000, or 15.8%, compared to 1994. The average yield decreased to 5.51%
in 1996 compared to 5.80% in 1995. The average yield was 3.60% in 1994. The
lower rates earned on federal funds sold in 1996 resulted in a decrease of
$18,000 in tax-equivalent interest income and lower balances resulted in a
decrease in tax-equivalent interest income of $166,000.
INTEREST EXPENSE
Total interest expense on interest-bearing liabilities was $28,153,000 in
1996, a 17.4% increase over the $23,974,000 recorded in 1995. Included in
1996 was $1,147,000 for WBG compared to $327,000 reported in 1995 for WBG.
Total interest expense in 1995 was 46.2% greater than the $16,400,000
recorded in 1994. Increased volume of interest-bearing liabilities was
responsible for $4,241,000 of the increased interest expense in 1996 compared
to 1995, while lower rates reduced interest expense by $62,000.
DEPOSITS - The Company's interest-bearing deposits are of three basic types:
interest-bearing demand accounts, which may be subject to a waiting period
before withdrawal, but are usually withdrawn on demand by the presentment of
checks; savings accounts, which may be subject to a waiting period or other
limitations before withdrawal, but are normally withdrawn on demand; and time
deposits, which are accepted by the Company for specific periods of time and
are subject to interest penalities if withdrawn prematurely.
The average balance of interest-bearing demand deposits was $80,703,000 in
1996, 20.2% greater than the $67,160,000 in 1995. Interest-bearing demand
deposits increased primarily as the result of the introduction of a new
"All-In-One" checking account at the FNBF in September, 1996. The new account
pays interest on all balances maintained in the account. This account
replaced the bank's regular noninterest-bearing accounts and, therefore,
necessitated the transfer of noninterest-bearing deposits to interest-bearing
deposits at the time of conversion. Average balances in 1995 were 15.7%
greater than 1994. The average rate paid by the Company on these deposits was
3.09% in 1996 compared to 2.60% in 1995 and 2.12% in 1994. The higher rates
paid on interest-bearing demand deposits in 1996 resulted in a $362,000
increase in interest expense while the higher volumes of such deposits
increased interest expense by $386,000. WBG's 1996 interest expense was
$121,000 greater than its 1995 reported expense. Average interest-bearing
demand accounts were 14.3% of total average deposits in 1996 and 1995 and
13.6% in 1994.
Savings deposits averaged $108,610,000 in 1996, a 9.8% increase over the
$98,906,000 recorded in 1995. Average savings deposits in 1995 were 8.6%
lower than 1994. The average
16
<PAGE>
rate paid on savings accounts in 1996 was 3.44% compared to 3.56% and 2.82%
in 1995 and 1994, respectively. The lower rates paid on savings accounts in
1996 resulted in a decrease of $110,000 in interest expense, while higher
volumes resulted in an increase in interest expense of $329,000. Savings
deposits averaged 19.3% of total average deposits in 1996 compared to 21.0%
in 1995 and 25.4% in 1994.
Time deposits averaged $278,346,000 in 1996, an increase of 29.1% over the
$215,610,000 recorded in 1995. This increase was primarily due to the
increased sales of the Company's two-year prime rate certificate of deposit
and the inclusion of a full year of WBG's balances. Average time deposits in
1995 were 25.7% greater than the $171,521,000 recorded in 1994. Interest paid
on time deposits in 1996 increased by $3,643,000 over 1995 primarily as a
result of higher volumes of such deposits. WBG accounted for $605,000 of this
increase. Average time deposits in 1996 comprised 49.4% of total average
deposits compared to 45.8% in 1995 and 40.2% in 1994.
Average noninterest-bearing deposits were $95,518,000 in 1996 compared to
$89,252,000 in 1995 and $88,912,000 in 1994 and decreased to 17.0% of average
total deposits in 1996 from 19.0% in 1995 and 20.8% in 1994.
SHORT-TERM BORROWINGS - Short-term borrowings include federal funds
purchased and securities sold under agreements to repurchase and generally
mature one to seven days following the date of sale. Short-term borrowings
averaged $63,959,000 in 1996, an 11.4% decrease compared to the $72,189,000
recorded in 1995. Short-term borrowings increased $19,012,000, or 35.8%, in
1995 compared to 1994. The average rate paid was 5.04% in 1996 compared to
5.61% in 1995 and 3.98% in 1994. The lower volume in 1996 accounted for
$455,000 of the decrease in interest expense compared to 1995 and lower rates
accounted for $374,000 of the total $829,000 decrease in interest expense.
LONG-TERM DEBT - The Company's long-term debt consists of advances from the
Federal Home Loan Bank in Dallas to match-fund 15-year fixed rate mortgages.
At December 31, 1996, the Company had an average of $32,418,000 of such
advances compared to $32,064,000 and $30,373,000 in 1995 and 1994,
respectively. The average rates paid during 1996, 1995, and 1994 were 5.85%,
5.79%, and 5.77%, respectively. The total amount of interest paid on these
advances in 1996 was $1,896,000 compared to $1,858,000 in 1995 and $1,754,000
in 1994.
OTHER NOTES PAYABLE - Other Notes Payable consists primarily of the
"current" portion of the Federal Home Loan Bank of Dallas advances and
treasury tax and loan note balances. In 1996, the Company had an average of
$10,712,000 in other notes payable compared to $5,000,000 in 1995 and
$4,945,000 in 1994. The average rate paid in 1996 was 5.49% compared to
4.56% in 1995 and 6.23% in 1994. The total amount of interest paid on other
notes payable was $588,000 in 1996 compared to $228,000 in 1995 and $308,000
in 1994. The higher volume in 1996 resulted in an increase of $306,000 in
interest expense and the increase in the interest rates resulted in an
increase of $54,000 in interest expense.
Table Two-Average Balance Sheets, Net Interest Income Yields and Rates, and
Table Three-Analysis of Volume and Rate Changes on Net Interest Income and
Expenses are provided to enable the reader to understand the components and
past trends of the Company's interest income and expenses. Table Two provides
an analysis of change in net interest margin on earning assets
17
<PAGE>
setting forth average assets, liabilities, and stockholders' equity;
tax-equivalent interest income and interest expense, average yields and
rates, and the net interest margin on earning assets. Table Three presents
an analysis of volume and rate changes on interest income and expenses.
TABLE TWO
AVERAGE BALANCE SHEETS, NET INTEREST INCOME, YIELDS AND RATES
Tax-equivalent basis (dollars in thousands)
<TABLE>
1996 1995 1994
--------------------------------- -------------------------------- ------------------------------
Tax Tax Tax
Average Equivalent Average Average Equivalent Average Average Equivalent Average
Balance Interest Yield/Rate Balance Interest Yield/Rate Balance Interest Yield/Rate
--------- --------- ---------- -------- --------- ---------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Loans $437,439 $43,102 9.85% $359,502 $36,037 10.02% $285,994 $27,079 9.47%
Taxable securities 167,005 10,050 6.02 164,815 9,849 5.98 159,641 9,833 6.16
Tax-exempt securities 55,017 4,372 7.95 56,715 4,591 8.10 42,260 3,097 7.33
Interest-bearing deposits 13,866 715 5.16 2,860 174 6.08 17,627 671 3.81
Federal funds sold 3,642 201 5.51 6,640 385 5.80 7,882 284 3.60
-------- ------- ------- ------- -------- -------
Total interest-earning
assets 676,969 58,440 8.63 590,532 51,036 8.64 513,404 40,964 7.98
Cash and due from banks 40,120 31,921 29,468
Premises and equipment 13,942 7,938 6,302
Other assets, net 17,892 14,528 21,315
Allowance for loan losses (8,782) (8,180) (7,215)
-------- -------- --------
Total Assets $740,141 $636,739 $563,274
-------- -------- --------
-------- -------- --------
Liabilities and Stockholders'
Equity:
Interest-bearing demand $ 80,703 2,491 3.09 $ 67,160 1,743 2.60 $ 58,051 1,228 2.12
Savings deposits 108,610 3,740 3.44 98,906 3,521 3.56 108,193 3,052 2.82
Time deposits 278,346 16,214 5.83 215,610 12,571 5.83 171,521 7,941 4.63
Federal funds purchased 11,551 612 5.30 15,934 974 6.11 4,083 147 3.60
Repurchase agreements 52,408 2,612 4.98 56,255 3,079 5.47 49,094 1,970 4.01
Long-term debt 32,418 1,896 5.85 32,064 1,858 5.79 30,373 1,754 5.77
Other notes payable 10,712 588 5.49 5,000 228 4.56 4,945 308 6.23
-------- ------- -------- ------ -------- -------
Total interest-bearing
liabilities 574,748 28,153 4.90 490,929 23,974 4.88 426,260 16,400 3.85
Noninterest-bearing demand 95,518 89,252 88,912
Other liabilities 8,158 5,869 3,675
Stockholders' equity 61,717 50,689 44,427
-------- -------- --------
Total Liabilities and
Stockholders' Equity $740,141 $636,739 $563,274
-------- -------- --------
-------- -------- --------
Interest income/earning assets 8.63 8.64 7.98
Interest expense/earning asset 4.16 4.06 3.20
---- ---- ----
Net interest margin 30,287 4.47% 27,062 4.58% 24,564 4.78%
---- ---- ----
---- ---- ----
Less FTE adjustment 1,673 1,763 1,185
------- ------- -------
Net Interest Income $28,614 $25,299 $23,379
------- ------- -------
------- ------- -------
</TABLE>
Notes:
Average balances are computed principally on the basis of daily averages.
Non-accrual loans are included in loans.
Interest income on loans includes fees on loans (in thousands) of $1,556 in
1996; $1,282 in 1995; and $1,218 in 1994.
Interest income is stated on a fully taxable equivalent basis (FTE).
The rate used for this adjustment was approximately 38%.
Net interest margin is computed by dividing net interest income
by average earning assets.
18
<PAGE>
TABLE THREE
ANALYSIS OF VOLUME AND RATE CHANGES ON NET INTEREST INCOME AND EXPENSES
Tax-equivalent basis (dollars in thousands)
<TABLE>
1996 over 1995 1995 over 1994
-------------------------- ---------------------------
Average Average Net Average Average Net
Volume Rate Change Volume Rate Change
------ ----- ------ ------- ---- ------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in
interest income:
Loans $7,668 $(603) $7,065 $ 7,293 $1,665 $ 8,958
Taxable securities 132 69 201 200 (184) 16
Tax-exempt securities (135) (84) (219) 1,145 349 1,494
Interest-bearing deposits 563 (22) 541 (1,738) 1,241 (497)
Federal funds sold (166) (18) (184) (35) 136 101
------ ----- ------ ------- ------ -------
Total 8,062 (658) 7,404 6,865 3,207 10,072
------ ----- ------ ------- ------ -------
Increase (decrease) in
interest expense:
Interest-bearing demand 386 362 748 211 304 515
Savings deposits 329 (110) 219 (229) 698 469
Time deposits 3,654 (11) 3,643 2,305 2,325 4,630
Federal funds purchased (252) (110) (362) 667 160 827
Repurchase agreements (203) (264) (467) 317 792 1,109
Long-term debt 21 17 38 98 6 104
Other notes payable 306 54 360 3 (83) (80)
------ ----- ------ ------- ------ -------
Total 4,241 (62) 4,179 3,372 4,202 7,574
------ ----- ------ ------- ------ -------
Increase (decrease) in
net interest income $3,821 $(596) $3,225 $3,493 $ (995) $ 2,498
------ ----- ------ ------- ------ -------
------ ----- ------ ------- ------ -------
</TABLE>
Notes:
Non-accrual loans are included in loans. Interest income on loans includes
fees on loans (in thousands) of $1,556 in 1996; $1,282 in 1995 and $1,218 in
1994. Interest income is stated on a fully taxable equivalent basis. The
rate used for this adjustment was approximately 38%. The rate/volume
variance is allocated based on the percentage relationship of changes in
volume and changes in rate to the total "net change".
PROVISION FOR LOAN LOSSES
In 1996, the Company provided $1,155,000 for possible loan losses, which
was $318,000 more than provided in 1995. The provision in 1995 was $837,000
compared to $58,000 in 1994. The Company received a large recovery in 1994.
During 1996, the Company had net charge-offs of $810,000 compared to $137,000
in 1995. Gross charge-offs in 1996 were $1,805,000 compared to $852,000 in
1995. Consumer net charge-offs increased $468,000 primarily due to
management's decision in 1996 to charge-off problem credits earlier in the
delinquency cycle than in prior years and a rapid increase in indirect
consumer loans during 1995. Based upon recent experience, Management
estimates gross charge-offs for 1997 of $1,700,000, broken down as follows:
Commercial - $580,000; real estate - $120,000; and consumer $1,000,000.
19
<PAGE>
OTHER INCOME
SERVICE CHARGES AND FEES AND OTHER INCOME
Service charges on deposit accounts remained flat in 1996 at $2,573,000,
compared to $2,594,000 in 1995. Included in 1996 and 1995 was $228,000 and
$77,000, respectively, attributed to the WBG acquisition. Without the
$151,000 increase due to the WBG acquisition, service charges on deposit
accounts decreased $172,000 from 1995 to 1996. This decline was primarily the
result of reductions in analysis service charges paid by commercial
customers as well as reductions in checking account service charges from
consumer accounts. The decline is service charges on consumer accounts can be
attributed to a decline in the number of low balance accounts which generally
incurred monthly service charges as well as the introduction in 1996 of the
"All-In-One" checking account at FNBF which requires a lower minimum balance
to avoid service charges. 1995 fees were up $110,000, or 4.4%, from 1994.
OTHER SERVICE CHARGES
Other service charges increased in 1996 to $1,666,000 compared to
$1,580,000 in 1995 primarily due to an increase in ATM interchange fees
received. Other service charges in 1995 were 15.1% higher than the
$1,373,000 recorded in 1994.
SECURITIES TRANSACTIONS
During 1996, the Company incurred losses of $82,000 on the sale of
investment securities. No such gains or losses were recorded in 1995. During
1994, the Company sold investment securities whose market value was $395,000
less than their recorded book value. The proceeds of these sales were
reinvested in other securities which had higher yields and maturities more
appropriate to the Company's asset/liability management plan. While the
Company does not normally maintain a trading account in the securities
market, in December 1994, it did transfer an investment security with a
recorded book value of $994,000 and a market value of $861,000 into the
trading account. A loss of $133,000 was reflected in Other Operating Expenses
for 1994.
OTHER EXPENSES
SALARIES AND BENEFITS
Salaries and benefits expense of $10,040,000 increased $926,000 in 1996, or
10.2% over the $9,114,000 recorded in 1995. 1995 salary and benefits expense
was $466,000, or 5.4% higher than 1994. The increase in 1996 resulted from
normal salary increases, a slightly higher level of full-time equivalent
employees added to support asset growth, and the acquisition of WBG, which
accounted for $420,000 of this increase. These increases were offset
somewhat by a $122,000 decrease in pension expense.
20
<PAGE>
OCCUPANCY EXPENSES
Occupancy expense was $2,145,000 in 1996 compared to $1,522,000 in 1995 and
$1,606,000 in 1994. The $623,000 increase in 1996 was primarily attributable
to increased depreciation due to the new Main Office building for BNBD which
was occupied in May, 1996 and increased depreciation at FNBF due to the
Animas Valley Mall branch which was opened in October, 1995 and various
purchases of bank and data processing equipment. Various repairs and
maintenance expenses also increased. WBG's additional expense in 1996 was
$145,000. The $84,000 reduction in expenses in 1995 was primarily the result
of decreased building depreciation as a result of the tax-free exchange of
the former BNBD's bank building, as well as reductions in building repairs
and maintenance and an increase in rental income.
OTHER OPERATING EXPENSES
Other operating expenses were $6,438,000 in 1996, a 3.4% increase over the
$6,225,000 recorded in 1995. This increase was primarily in professional
fees, up $384,000, marketing, up $169,000, and supplies, up $196,000, offset
by decreases in FDIC and other regulatory fees of $482,000 and VISA expenses
of $166,000. WBG's 1996 other operating expenses increased $458,000. Other
operating expenses of $6,225,000 in 1995 were $680,000, or 12.3% greater than
the $5,545,000 recorded in 1994. The acquisition of WBG accounted for
$261,000 of the $680,000 increase in other operating expenses in 1995. While
the Company benefitted from reduced FDIC insurance premiums in 1995, this
reduction in expenses was offset by increases in directors' deferred income
benefit expense, other loan expenses, advertising and promotion expenses,
other professional fees, ATM and data processing hardware expenses, and check
printing expenses.
PROVISION FOR TAXES
The provision for income taxes was $3,828,000 in 1996 compared to
$3,871,000 in 1995 and $3,819,000 in 1994. The effective tax rate on income
was 28.1% in 1996 compared to 30.6% in 1995 and 32.3% in 1994. The decrease
in the effective tax rate from 1995 to 1996 is primarily attributable to a
low income housing credit of $161,000 and recognition of deferred tax credits.
RETURN ON AVERAGE ASSETS AND EQUITY
The following table sets forth certain ratios for the Company
for the last three years (using average balance sheet data):
TABLE FOUR
PROFITABILITY AND EQUITY RATIOS
1996 1995 1994
---- ---- -----
Return on assets 1.33% 1.38% 1.42%
Return on stockholders' equity 15.90% 17.29% 18.05%
Stockholders' equity to assets 8.34% 7.96% 7.89%
Stockholders' dividend payout ratio 35.31% 33.94% 31.06%
21
<PAGE>
Return on assets in 1996 of 1.33% was down slightly from the 1.38% and
1.42% recorded in 1995 and 1994, respectively. Average assets increased
$103,402,000 in 1996 compared to increases of $73,465,000 in 1995 and
$67,820,000 in 1994.
Return on stockholders' equity declined 1.39 percentage points to 15.90%
in 1996 from 17.29% in 1995 and 1995 return on stockholders' equity declined
.76 percentage points from the 18.05% recorded in 1994. Average
stockholders' equity as a percent of average total assets increased to 8.34%
in 1996 compared to 7.96% and 7.89% in 1995 and 1994, respectively. The
dividend payout ratio increased to 35.31% in 1996 compared to 33.94% in
1995 and 31.06% in 1994. Dividends declared per share in 1996 increased
$.20, or 14.2%, to $1.64 per share compared to 1995.
(B) BALANCE SHEET ANALYSIS
LOANS
The Company concentrates its lending activities in five principal areas:
commercial, commercial real estate, consumer, real estate residential and
real estate construction loans. At December 31, 1996, these five categories
were 21.9%, 34.6% 17.4%, 19.2% and 6.9%, respectively, of the Company's loan
portfolio. This compares with 22.5%, 34.2%, 16.2%, 19.7% and 7.4%,
respectively, at December 31, 1995. The interest rates charged for the loans
made by the Company vary with the perceived degree of risk (both credit risk
and interest rate risk), the size and maturity of the loans, the borrower's
relationship with the Company, and the prevailing money market rates
indicative of the Company's cost of funds.
The majority of the Company's loans are direct loans made to individuals
and businesses. The Company relies substantially on local promotional
activity and personal contacts by officers, directors, and employees of the
Subsidiary Banks to compete with other financial institutions. The Company
makes loans to borrowers whose applications include a sound purpose, a viable
repayment source, and a plan of repayment established at inception and
generally backed by a secondary source of repayment.
Loan growth remained strong in 1996 with average loans as of December 31,
1996 of $437,439,000 compared to $359,502,000 in 1995 and $285,994,000 in
1994. The 21.7% increase in loans in 1996 was the result of the acquisition
of WBG and internal growth. WBG contributed approximately $16,000,000 of the
increase, while internal growth accounted for $61,937,000 compared to
internal growth of $54,832,000 recorded in 1995. Average loan growth in 1995
and 1994 was 25.7% and 24.6%, respectively. Total loans at December 31, 1996
were $468,188,000, an increase of $63,508,000, or 15.7%, compared to December
31, 1995. Total loans at December 31, 1995 were $404,680,000, an increase of
$83,020,000, as compared to 1994. Management does not anticipate that loans
will continue to increase at this rate but does expect continued loan growth
as the Company expands its correspondent banking business and continues its
emphasis on lending in the Subsidiary Bank's primary service areas. Consumer
loans, both direct and indirect, will continue to be emphasized and loans to
low and moderate-income borrowers will remain a priority. Management
anticipates real estate construction lending activity will increase in 1997.
Management does not foresee any significant changes occurring in the loan mix
in 1997.
22
<PAGE>
TABLE FIVE
LOAN PORTFOLIO COMPOSITE
(dollars in thousands)
<TABLE>
At December 31: 1996 1995 1994 1993 1992
-------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Commercial, financial and agricultural $102,610 $ 91,232 $ 63,955 $ 51,924 $ 51,881
Commercial real estate and real estate residential 252,064 218,033 186,460 141,008 112,784
Consumer 81,495 65,597 53,910 51,733 42,404
Real estate construction 32,019 29,818 17,335 9,603 6,929
-------- --------- -------- -------- --------
Total loans $468,188 $404,680 $321,660 $254,268 $213,998
-------- --------- -------- -------- --------
-------- --------- -------- -------- --------
</TABLE>
NONACCRUAL, PAST DUE, AND RESTRUCTURED LOANS
Nonperforming loans as of December 31, 1996, were $2,309,000, or .49%,
of total assets compared to $3,825,000, or .95%, of total assets at December
31, 1995. The decrease in nonperforming loans was primarily due to
foreclosure of a large real estate loan in 1996. A portion of the foreclosed
collateral is included as Other Real Estate Owned ("OREO") at December 31,
1996.
Commercial and real estate loans are reviewed on an individual basis for
reclassification to nonaccrual status when any one of the following occurs:
the loan becomes 90 days past due as to interest or principal (unless in
Management's opinion, the loan is well secured and in the process of
collection), the full and timely collection of additional interest or
principal becomes uncertain, the loan is classified as doubtful by loan
review or bank regulatory agencies, a portion of the principal balance has
been charged off, or the Company takes possession of the collateral. The
reclassification of loans to nonaccrual status does not necessarily reflect
Management's judgement as to whether they are collectible. Consumer loans
generally are not placed on non-accrual status; they are classified
substandard upon becoming 90 days past due and are charged off upon becoming
120 days past due.
While interest income is not accrued on loans reclassified to nonaccrual
status, interest income may be recognized on a cash basis if Management
expects collection in full of principal and interest. When a loan is placed
on nonaccrual status, any previously accrued but unpaid interest is reversed.
With respect to the Company's policy of placing loans 90 days or more
past due on nonaccrual status, unless the loan is well secured and in the
process of collection, a loan is considered to be in the process of
collection if, based on a probable specific event, it is expected that the
loan will be repaid or brought current. Generally, this collection period
would not exceed 30 days.
Delinquent real estate loans are not reclassified as OREO until the
Company takes title to the property, either through foreclosure or upon
receipt of a deed in lieu of foreclosure. In such situations, the secured
loan is reclassified on the balance sheet as OREO at the lesser of the fair
value of the underlying collateral less estimated selling costs or the
recorded amount of the loan.
23
<PAGE>
Management considers both the adequacy of the collateral and the other
resources of the borrower in determining the steps to be taken to collect
nonaccrual and charged-off loans. Alternatives that are considered are
foreclosure, collecting on guarantees, restructuring the loan, and collection
lawsuits.
The following table sets forth the amount of the Company's nonperforming
assets as of the dates indicated:
TABLE SIX
NONPERFORMING ASSETS
(dollars in thousands)
<TABLE>
At December 31: 1996 1995 1994 1993 1992
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $1,702 $3,517 $ 140 $ 37 $ 135
Accruing loans past due 90 days or more 256 308 143 194 157
Restructured loans (in compliance with modified terms) 351 --- --- 3 264
------ ------ ------ ------ ------
Total nonperforming loans 2,309 3,825 283 234 556
OREO and other foreclosed assets 1,995 564 737 1,432 1,707
------ ------ ------ ------ ------
Total nonperforming assets $4,304 $4,389 $1,020 $1,666 $2,263
------ ------ ------ ------ ------
------ ------ ------ ------ ------
Ratios:
Nonperforming loans to total loans 0.49% 0.95% 0.09% 0.09% 0.26%
Allowance for loan losses to nonperforming loans 386.87% 224.52% 2680.57% 2545.30% 982.37%
Nonperforming assets to total assets 0.54% 0.64% 0.17% 0.31% 0.46%
Allowance for loan losses to nonperforming assets 207.55% 195.67% 743.73% 357.50% 241.36%
</TABLE>
ALLOWANCE FOR LOAN LOSSES ACTIVITY
In determining the adequacy of the loan loss allowance, Management
relies primarily on its review of the loan portfolio, both to ascertain
whether there are probable losses to be written off and to assess the loan
portfolio in the aggregate. Problem loans are examined on an individual basis
to determine estimated probable loss. In addition, Management considers
current and projected loan mix and loan volume, historical net loan loss
experience for each loan category, and current and anticipated economic
conditions affecting each loan category. The allowance for loan losses was
1.91% of total loans at December 31, 1996 compared to 2.12% at December 31,
1995.
Management believes that the $8,933,000 allowance for loan losses at
December 31, 1996, is adequate to absorb known risks in the loan portfolio.
No assurance can be given, however, that adverse economic conditions or other
circumstances will not result in increased losses in the portfolio.
The primary risk elements considered by Management with respect to
consumer installment and residential real estate loans are lack of timely
payment and the value of the collateral. The primary risk elements
considered by Management with respect to its real estate construction loans
are the financial condition of the borrower, fluctuations in real estate
values in the Company's market areas, fluctuations in interest rates,
timeliness of payments, the availability of conventional financing, the
demand for housing in the Company's market areas, and general economic
24
<PAGE>
conditions. The primary risk elements with respect to commercial loans are
the financial condition of the borrower, general economic conditions in the
Company's market areas, the sufficiency of collateral, timeliness of
payments and, with respect to adjustable rate loans, interest rate
fluctuations.
The following table summarizes, for the years indicated, the activity in
the allowance for loan losses:
TABLE SEVEN
ALLOWANCE FOR LOAN LOSSES ACTIVITY
(dollars in thousands)
<TABLE>
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance, beginning of year $ 8,588 $ 7,586 $ 5,956 $ 5,462 $ 4,312
Provision charged to operations 1,155 837 58 859 1,259
Loans charged-off:
Commercial, financial and agricultural (378) (60) (68) (391) (697)
Commercial real estate --- --- --- (110) ---
Consumer (1,255) (705) (688) (477) (465)
Real estate residential (12) (87) --- (51) ---
Real estate construction (160) --- --- (6) ---
-------- -------- -------- -------- --------
Total loans charged-off (1,805) (852) (756) (1,035) (1,162)
-------- -------- -------- -------- --------
Recoveries:
Commercial, financial and agricultural 403 275 161 313 495
Commercial real estate 11 8 17 --- ---
Consumer 499 417 2,133 350 554
Real estate residential 82 15 17 7 4
Real estate construction --- --- --- --- ---
-------- -------- -------- -------- --------
Total recoveries 995 715 2,328 670 1,053
-------- -------- -------- -------- --------
Net loans recovered (charged-off) (810) (137) 1,572 (365) (109)
-------- -------- -------- -------- --------
Acquired in merger with Western Bank Gallup --- 302 --- --- ---
-------- -------- -------- -------- --------
Balance, end of year $ 8,933 $ 8,588 $ 7,586 $ 5,956 $ 5,462
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Average total loans $437,439 $359,502 $285,994 $229,599 $188,090
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Ratios:
Net recoveries or (charge-offs) during period
to average loans outstanding during period (0.19)% (0.04)% 0.55% (0.16)% (0.06)%
Provision for loan loss to average loans
outstanding during period 0.26% 0.23% 0.02% 0.37% 0.67%
Allowance to loans at year end 1.91% 2.12% 2.36% 2.34% 2.55%
</TABLE>
INVESTMENT SECURITIES
Average investments during 1996 were $222,022,000, an increase of
$492,000 from the $221,530,000 average in 1995. Average investments in 1995
were 9.7% higher than the $201,901,000 recorded in 1994. The December 31,
1996 investment securities balance was $244,687,000 up $26,437,000 from the
December 31, 1995 balance of $218,250,000. Of this increase, $7,664,000 was
in tax-exempt securities. Management plans to continue to look for
opportunities to increase the tax-exempt portfolio to further reduce the
Company's effective tax rate. The increase of $18,773,000 in taxable
securities was in response to pledging requirements
25
<PAGE>
to secure securities sold under agreements to repurchase and to leverage
capital through investment opportunities that would be profitable when funded
with borrowings at the FHLB, which is reported in Long-Term and Other Notes
Payable.
In December 1995, in an effort to improve the Company's liquidity
position, the investment portfolio was restructured by moving all of the
securities in the "Held-to-Maturity" portfolio to the "Available-for-Sale"
portfolio. The effect of this reclassification was an increase in net
unrealized gains of $781,000.
BANK PREMISES AND EQUIPMENT
Bank premises and equipment net of accumulated depreciation as of
December 31, 1996, was $16,223,000 compared to $11,079,000 in 1995. The
$5,144,000 increase was primarily the result of the $4,215,000 expenditure to
complete BNBD's main office building.
OTHER REAL ESTATE OWNED
The December 31, 1996 balance of OREO was $1,712,000 compared to
$564,000 at December 31, 1995, an increase of $1,148,000. This increase was
primarily due to one property. It is anticipated that this property will be
sold during 1997 with no loss anticipated.
DEPOSITS
Total deposits at December 31, 1996 were $587,893,000, compared to
$529,047,000 at December 31, 1995. This 11.1% increase followed a 20.6%
increase in 1995 compared to 1994. Noninterest-bearing demand, which was
16.1% and 20.3% of total deposits at December 31, 1996 and 1995,
respectively, decreased $12,548,000 from 1995 to 1996. This decrease was
primarily the result of the introduction of the "All-In-One" checking account
at FNBF. This product shifted noninterest-bearing consumer checking accounts
into interest-bearing accounts.
Interest-bearing demand increased $35,248,000 from $63,488,000 at
December 31, 1995 to $98,736,000 at December 31, 1996 and represented 16.8%
and 12.0% of total deposits as of year end 1996 and 1995, respectively.
Average interest-bearing deposits increased 20.2% from 1995 to 1996. This
increase was due to the shift from noninterest-bearing deposits due to the
"All-In-One" checking account and internal growth.
Average savings accounts grew from $98,906,000 in 1995 to $108,610,000
in 1996. These deposits represented 18.8% and 19.3% of total deposits at year
end 1996 and 1995, respectively.
Average time certificates increased $62,736,000 during 1996. These
deposits include time certificates, $100,000 and over, and other time
certificates. Time certificates, $100,000 and over, were 28.1% of total
deposits at December 31, 1996 and 28.5% at December 31, 1995. While these
deposits are generally more rate sensitive and therefore more likely to be
withdrawn than other deposits, the Company has found these deposits to be a
relatively stable funding source. Other time certificates were 20.2% and
20.0% of total deposits at year end 1996 and 1995, respectively. Most of the
growth in this category has come from the sale of the Company's 2-year
floating rate certificates. The rate paid on these certificates floats
monthly and is based upon
26
<PAGE>
75% of the prime rate in effect on the first of each month. This product was
introduced to help match-fund the Company's floating-rate assets. This
certificate was made available, through the first quarter of 1996, to brokers
outside of the Company's general market area to help meet current liquidity
requirements. These certificates were offered to the brokers on the same
terms, conditions, and rates as they were to other customers. As of December
31, 1996, brokers held approximately $36,321,000 of these deposits. Brokered
deposits are typically more rate sensitive than general core deposits and
therefore more likely to be withdrawn. The 2-year floating rate certificates
and time certificates, $100,000 and over, are the highest cost funding
sources for the Company and comprise a significant portion of the Company's
annual interest expense.
FEDERAL FUNDS PURCHASED
As part of its expanding correspondent bank services, the Company
routinely purchases excess federal funds from its downstream correspondents
and resells those funds as part of its own federal funds sold. In 1996, the
Company's average federal funds purchased were $11,551,000 compared to
$15,934,000 in 1995.
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Average securities sold under agreements to repurchase ("repos")
decreased by $3,847,000, or 6.8%, to $52,408,000 during 1996. At December
31, 1995, average repos were $56,255,000 compared to $49,094,000 in 1994. The
majority of the repos are sold to public entities although some corporate
customers use them as a tool in their short-term cash management strategy.
LONG-TERM AND OTHER NOTES PAYABLE
In 1992, the Company began a program of "match-funding" 15-year fixed
rate residential mortgage loans with long-term fixed rate borrowings from the
Federal Home Loan Bank in Dallas. The Company borrowed $19,972,000 and
$3,250,000 during 1996 and 1995, respectively. At December 31, 1996 and
1995, the advances outstanding from the Federal Home Loan Bank were
$49,933,000 and $36,204,000, respectively.
STOCKHOLDERS' EQUITY AND CAPITAL ADEQUACY
Total stockholders' equity at December 31, 1996 was a record
$64,760,000, up 12.1% from $57,756,000 at year-end 1995. The growth was due
primarily to record earnings. At December 31, 1996 and 1995, respectively,
the ratio of stockholders' equity to total assets was 8.09% and 8.36%. This
slight decline was due to the fact that the Company's total assets increased
at a greater rate than the increase in retained earnings.
The Company and its Subsidiary Banks exceeded required regulatory
minimums for "well-capitalized" status throughout 1996, and it is the
Company's policy to maintain this status at both the consolidated and
subsidiary bank levels.
A financial institution's risk-based capital ratio is calculated by
dividing its qualifying capital by its risk-weighted assets. Qualifying
capital is divided into two tiers. The Company's Tier 1 (or core) capital
consists of its common stockholders' equity less intangibles. Its Tier 2
(or
27
<PAGE>
supplementary) capital consists of its allowance for loan losses up to a
maximum of 1.25% of its risk-weighted assets. Tier 2 capital qualifies as
part of total capital up to a maximum of 100% of Tier 1 capital. Amounts in
excess of these limits are included in the calculation of risk-based capital
ratios as a reduction of risk-weighted assets. As of December 31, 1996, the
Company and the Subsidiary Banks generally had to have a minimum ratio of
qualifying total capital to risk-weighted assets of 8% and qualifying Tier 1
capital to risk-weighted assets of 4%. The Company's actual ratios were
13.02% and 11.76%, respectively compared to 13.57% and 12.31%, respectively,
for the same period a year ago.
In addition, bank regulators have promulgated capital leverage
guidelines designed to supplement the risk-based capital guidelines.
Banks and bank holding companies must maintain a minimum ratio of Tier 1
capital to adjusted total assets (leverage ratio). The Company's required
Tier 1 leverage ratio was 4% and its actual ratio was 7.84% and 8.06% at
December 31, 1996 and 1995, respectively.
The following table indicates the amounts of regulatory capital of the
Company.
TABLE EIGHT
REGULATORY CAPITAL
(dollars in thousands)
Total
Risk-Based Tier 1 Leverage
----------- ------ --------
December 31, 1996:
Company's 13.02% 11.76% 7.84%
Regulator minimum 8.00% 4.00% 4.00%
Company's capital $69,265 $62,586 $62,586
Regulatory minimum $42,567 $21,284 $31,937
Computed excess $26,698 $41,302 $30,649
Management believes that capital is adequate to support anticipated
growth, meet cash dividend requirements of the Company and meet the future
risk-based capital requirements of the Company and the Subsidiary Banks.
LIQUIDITY AND INTEREST RATE SENSITIVITY
Liquidity refers to the Company's ability to provide funds at an
acceptable cost to meet loan demand and deposit withdrawals, as well as
contingency plans to meet unanticipated funding needs or loss of funding
sources. These objectives can be met from either the asset or liability side
of the balance sheet.
The Company maintains an adequate liquidity position through stable core
deposits (see: "Deposits"), the usage of debt (see: "Long-Term and Other
Notes Payable"), and from a high quality investment portfolio (see: Table 11,
"Securities Maturities and Weighted Average Yields"). To enhance the Company's
ability to manage liquidity, in December 1995, the total investment
portfolio was reclassified as Securities Available-for-Sale. Maturing
balances in the loan portfolio also provide funds and, in addition, assets
may be sold to provide flexibility in managing cash flows. Additional sources
of liquidity are provided by federal fund credit lines
28
<PAGE>
carried by the Subsidiary Banks with upstream correspondents, borrowings from
the Federal Home Loan Bank, and borrowings from the Federal Reserve system.
The Company's lead Subsidiary Bank, FNBF, also routinely enhances its
liquidity through purchases of excess funds from downstream correspondent
banks. While the above-mentioned sources of liquidity are expected to
provide significant amounts of funds in the future, their mix, as well as the
possible use of other sources of funds, will depend upon future economic and
market conditions.
The securities underlying the following agreements were under the
control of the Subsidiary Banks.
TABLE NINE
SECURITIES SOLD UNDER REPURCHASE AGREEMENTS;
ORIGINAL MATURITIES LESS THAN ONE YEAR
(dollars in thousands)
1996 1995 1994
---- ---- ----
Amount outstanding at year end $68,739 $51,929 $87,680
Average outstanding during the year 52,408 56,255 49,094
Maximum outstanding at any month end 68,739 76,994 87,680
Weighted average interest rate 4.98% 5.47% 4.01%
Note: Average balances are computed principally on the basis of daily averages.
The overall liquidity of the Company is enhanced by its core deposits
which provide a relatively stable funding base. The maturity of certificates
of deposit in denominations of $100,000 or more is set forth in the following
table. While these deposits are generally considered to be more rate
sensitive than other deposits and, therefore, more likely to be withdrawn to
obtain higher yields elsewhere if available, the Company has found these
deposits to be relatively stable.
<TABLE>
TABLE TEN
CERTIFICATES OF DEPOSIT IN DENOMINATIONS OF $100,000 OR MORE
(dollars in thousands)
At December 31: 1996 1995 1994 1993 1992
-------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Time remaining until maturity:
Less than 3 months $ 21,260 $ 66,750 $ 45,944 $32,026 $32,988
3 months to 6 months 39,778 20,607 25,937 20,858 30,936
6 months to 12 months 68,059 45,167 12,547 10,320 15,405
More than 12 months 35,879 18,101 19,250 15,469 16,418
-------- -------- -------- ------- -------
Total $164,976 $150,625 $103,678 $78,673 $95,747
-------- -------- -------- ------- -------
-------- -------- -------- ------- -------
</TABLE>
29
<PAGE>
Generally, investment securities which mature within one year can be
converted to cash for liquidity needs at amounts which approximate their book
value. Securities with maturities greater than one year are more sensitive to
changes in interest rate and, therefore, their liquidation value would tend
to be more volatile relative to their book value. The following tables
summarize the investment portfolio maturities and yields at December 31, 1996
and the investment portfolio distribution for the last three years.
<TABLE>
TABLE ELEVEN
SECURITIES MATURITIES AND WEIGHTED AVERAGE YIELDS
(dollars in thousands)
Within After One Year After Five Years
One Year Through 5 Years Through 10 Years After 10 Years Total
--------------- --------------- --------------- --------------- ----------------
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
At December 31, 1996
Securities available-for-sale:
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies $37,829 5.82% $ 78,933 6.00% $11,889 6.25% $47,083 6.21% $175,734 6.03%
Obligations of states and
political subdivisions 4,206 5.03 26,696 4.69 23,370 5.09 8,100 5.67 62,372 4.99
Other securities --- --- --- --- --- --- 6,581 5.93 6,581 5.93
------- -------- ------- ------- --------
Total securities $42,035 5.74% $105,629 5.67% $35,259 5.48% $61,764 6.11% $244,687 5.77%
------- ---- -------- ---- ------- ----- ------- ----- --------
------- ---- -------- ---- ------- ----- ------- ----- --------
</TABLE>
Notes: All securities are shown at book value at year-end. Yields are
calculated based on purchase price. Mortgage-backed securities are
included with U.S. treasury securities and obligations of U.S.
government corporations and agencies. Available-for-sale securities
are shown at contractual maturities, except for securities having no
stated maturity, which are shown as due after ten years.
TABLE TWELVE
SECURITIES PORTFOLIO DISTRIBUTION
(dollars in thousands)
At December 31: 1996 1995 1994
-------- -------- --------
U.S. Treasury securities and obligations of
U.S. government corporations and agencies $175,734 $156,537 $175,943
Obligations of states and political subdivisions 62,372 54,708 55,486
Other securities 6,581 7,005 6,035
-------- -------- --------
Total securities $244,687 $218,250 $237,464
-------- -------- --------
-------- -------- --------
Loan demand also affects the Company's liquidity position. The
following tables present the maturities and sensitivity to changes in
interest rates of loans at December 31, 1996 and 1995.
30
<PAGE>
TABLE THIRTEEN
LOAN MATURITIES
(dollars in thousands)
<TABLE>
Within After One But After
One Year Within 5 Years 5 Years Total
-------- -------------- ------- -----
<S> <C> <C> <C> <C>
Loan maturities at December 31, 1996:
Loans with predetermined interest rates:
Commercial, financial and agricultural $ 7,517 $ 13,875 $ 2,963 $ 24,355
Commercial real estate 7,083 17,202 23,660 47,945
Consumer 9,466 54,326 6,118 69,910
Real estate residential 3,347 6,492 51,983 61,822
Real estate construction 4,704 1,003 2,694 8,401
-------- -------- -------- --------
32,117 92,898 87,418 212,433
-------- -------- -------- --------
Loans with floating interest rates:
Commercial, financial and agricultural 32,451 22,789 23,015 78,255
Commercial real estate 5,552 18,775 89,687 114,014
Consumer 8,000 829 2,756 11,585
Real estate residential 2,537 1,920 23,826 28,283
Real estate construction 20,085 2,118 1,415 23,618
-------- -------- -------- --------
68,625 46,431 140,699 255,755
-------- -------- -------- --------
Total loans $100,742 $139,329 $228,117 $468,188
-------- -------- -------- --------
-------- -------- -------- --------
Loan maturities at December 31, 1995:
Loans with predetermined interest rates:
Commercial, financial and agricultural $ 4,637 $ 11,536 $ 2,392 $ 18,565
Commercial real estate 5,801 23,822 19,540 49,163
Consumer 6,156 54,012 3,360 63,528
Real estate residential 4,790 10,217 43,859 58,866
Real estate construction 27,731 2,087 --- 29,818
-------- -------- -------- --------
49,115 101,674 69,151 219,940
-------- -------- -------- --------
Loans with floating interest rates:
Commercial, financial and agricultural 31,224 18,084 23,359 72,667
Commercial real estate 20,418 15,599 53,307 89,324
Consumer 425 875 769 2,069
Real estate residential 4,921 1,629 14,130 20,680
Real estate construction --- --- --- ---
-------- -------- -------- --------
56,988 36,187 91,565 184,740
-------- -------- -------- --------
Total loans $106,103 $137,861 $160,716 $404,680
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
Interest rate sensitivity is a function of the repricing characteristics
of the Company's portfolio of assets and liabilities. These repricing
characteristics are the time frames within which the interest-bearing assets
and liabilities are subject to change in interest rates either at
replacement, repricing, or maturity. Interest rate sensitivity management
focuses on the maturity of assets and liabilities and their repricing during
periods of changes in market interest rates. Interest rate sensitivity is
measured as the difference between the volume of assets and liabilities in
the Company's portfolio that are subject to repricing at various time
horizons. The differences are referred to as interest sensitivity gaps.
The principal cash requirement of the Company is dividends on common
stock when declared. A second requirement is the repayment of debt, if any.
The Company is dependent upon the payment of cash dividends by the Subsidiary
Banks to service these requirements. The Company expects that the cash
dividends paid by the Subsidiary Banks to the Company will be sufficient to
meet its cash requirements.
31
<PAGE>
OFF-BALANCE SHEET ITEMS
As of December 31, 1996, commitments to extend credit were the sole
source of financial instruments with off-balance sheet risk. The Company has
not entered into any contracts for financial derivative instruments, such as
futures, swaps, options, etc. Loan commitments (including standby letters of
credit) increased by $18,441,000, or 20.2%, to $109,792,000 in 1996 as
compared to $91,351,000 in 1995. This is an indicator of continued loan
growth and represents 23.5% of total loans outstanding at year end as
compared to 22.6% a year ago.
32
<PAGE>
FIRST PLACE FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of December 31, 1996 and 1995
(in thousands)
1996 1995
-------- --------
ASSETS
Cash and due from banks $ 49,487 $ 35,662
Interest-bearing deposits in banks 2,391 10,887
Federal funds sold 7,835 2,725
-------- --------
Total cash and cash equivalents 59,713 49,274
-------- --------
Investment securities:
Available for sale (at market value) 244,687 218,250
-------- --------
Loans 468,188 404,680
Allowance for loan losses (8,933) (8,588)
-------- --------
Total net loans 459,255 396,092
-------- --------
Bank premises and equipment, net 16,223 11,079
Other real estate owned 1,712 564
Other assets 19,020 15,536
-------- --------
Total Assets $800,610 $690,795
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing demand $ 94,907 $107,455
Interest-bearing demand 98,736 63,488
Savings 110,392 101,876
Time certificates, $100,000 and over 164,976 150,625
Other time certificates 118,882 105,603
-------- --------
Total deposits 587,893 529,047
Securities sold under agreements to repurchase 68,739 51,929
Federal funds purchased 15,785 4,365
Long term and other notes payable 52,020 38,642
Other liabilities 11,413 9,056
-------- --------
Total liabilities 735,850 633,039
-------- --------
Stockholders' equity:
Common stock, no par value:
Authorized shares - 15,000,000
Issued shares - 2,123,157 at 12/31/96
and 2,104,707 at 12/31/95 13,634 13,609
Additional paid-in-capital 124 62
Net unrealized holding gain on securities
available for sale 967 922
Retained earnings 50,035 43,689
-------- --------
64,760 58,282
Treasury stock, at cost-0 shares at
12/31/96 and 13,371 shares at 12/31/95 --- (526)
-------- --------
Total stockholders' equity 64,760 57,756
-------- --------
Total Liabilities and Stockholders' Equity $800,610 $690,795
-------- --------
-------- --------
See notes to consolidated financial statements.
33
<PAGE>
FIRST PLACE FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 1996, 1995, and 1994
<TABLE>
(in thousands, except per share data)
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Interest income:
Loans, including fees $ 43,102 $ 36,037 $ 27,079
Investment securities:
Taxable 10,050 9,849 9,833
Tax-exempt 2,699 2,828 1,912
Interest-bearing deposits 715 174 671
Federal funds sold 201 385 284
---------- ---------- ----------
Total interest income 56,767 49,273 39,779
---------- ---------- ----------
Interest expense:
Time deposits of $100,000 and over 9,649 7,582 4,154
Other deposits 12,796 10,253 8,067
Short-term borrowings 3,224 4,053 2,117
Other borrowings 2,484 2,086 2,062
---------- ---------- ----------
Total interest expense 28,153 23,974 16,400
---------- ---------- ----------
Net interest income 28,614 25,299 23,379
Provision for loan losses 1,155 837 58
---------- ---------- ----------
Net interest income after
provision for loan losses 27,459 24,462 23,321
---------- ---------- ----------
Other income:
Service charges on deposit accounts 2,573 2,594 2,484
Other service charges and fees 1,666 1,580 1,373
Investment securities gains (losses) (82) --- (395)
Other operating income 645 862 852
---------- ---------- ----------
Total other income 4,802 5,036 4,314
---------- ---------- ----------
Other expenses:
Salaries and employee benefits 10,040 9,114 8,648
Occupancy expenses, net 2,145 1,522 1,606
Other operating expenses 6,438 6,225 5,545
---------- ---------- ----------
Total other expenses 18,623 16,861 15,799
---------- ---------- ----------
Income before income taxes 13,638 12,637 11,836
Income taxes 3,828 3,871 3,819
---------- ---------- ----------
Net Income $ 9,810 $ 8,766 $ 8,017
---------- ---------- ----------
---------- ---------- ----------
Net Income Per Share $ 4.56 $ 4.27 $ 3.98
---------- ---------- ----------
---------- ---------- ----------
Weighted average shares and common
share equivalents outstanding 2,152,299 2,054,403 2,015,091
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See notes to consolidated financial statements.
34
<PAGE>
FIRST PLACE FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years Ended December 31, 1996, 1995, and 1994
(in thousands)
1996 1995 1994
-------- -------- --------
Common stock:
Balance at beginning of year $13,609 $ 9,759 $ 9,299
Issue of new common stock 635 3,850 460
Retirement of common stock (610) --- ---
------- ------- -------
Balance at end of year 13,634 13,609 9,759
------- ------- -------
Additional paid-in capital:
Balance at beginning of year 62 36 32
Additions related to sale of
common stock 62 26 4
------- ------- -------
Balance at end of year 124 62 36
------- ------- -------
Net unrealized holding gain (loss) on
securities available for sale:
Balance at beginning of year 922 (1,083) (39)
Unrealized holding gain (loss)
recorded during year 45 2,005 (1,044)
------- ------- -------
Balance at end of year 967 922 (1,083)
------- ------- -------
Retained earnings:
Balance at beginning of year 43,689 37,897 32,369
Net income 9,810 8,766 8,017
Cash dividends declared (3,464) (2,974) (2,489)
------- ------- -------
Balance at end of year 50,035 43,689 37,897
------- ------- -------
Treasury stock:
Balance at beginning of year (526) (84) ---
Acquisition of common stock for
treasury (345) (653) (1,207)
Sale and retirement of common
stock from treasury 871 211 1,123
------- ------- -------
Balance at end of year --- (526) (84)
------- ------- -------
Total stockholders' equity $64,760 $57,756 $46,525
------- ------- -------
------- ------- -------
See notes to consolidated financial statements.
35
<PAGE>
First Place Financial Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1996, 1995, and 1994
<TABLE>
(in thousands)
1996 1995 1994
-------- -------- ---------
<S> <C> <C> <C>
Cash flows from operating activities: $ 9,810 $ 8,766 $ 8,017
Net income
Adjustments to reconcile net income to
net cash provided by operations:
Amortization and accretion (154) (303) 189
Depreciation 1,167 958 935
Provision for loan losses 1,155 837 58
Provision for losses on other
real estate --- (24) ---
Increase in other assets (2,864) (775) (856)
(Decrease) increase in other
liabilities 1,954 2,684 (524)
Gain on sale of property, plant
and equipment (12) (100) ---
Gain on sale of other real estate (270) (150) (200)
Loss on sale of available-for-sale
securities 82 --- 287
Loss on sale of held-to-maturity
securities --- --- 69
Net decrease in trading securities --- 861 ---
Provision for deferred income taxes (275) (422) (145)
-------- -------- ---------
Net cash provided by operating activities 10,593 12,332 7,830
-------- -------- ---------
Cash flows from investing activities:
Proceeds from sale of available-for-sale
securities 10,464 1,327 16,960
Proceeds from maturities of available-
for-sale securities 61,373 53,546 30,670
Purchases of available-for-sale securities (98,024) (29,880) (63,900)
Proceeds from sales of held-to-maturity
securities --- --- 6,629
Proceeds from maturities of held-to-maturity
securities --- 8,180 8,187
Purchases of held-to-maturity securities --- (3,827) (46,438)
Net change in loans (66,493) (64,708) (65,501)
Proceeds on sale of property, plant and
equipment 108 417 ---
Proceeds from sale of other real estate 2,803 541 578
Acquisition of other real estate owned (1,505) --- ---
Investment in other assets --- --- (237)
Net proceeds from acquisition of subsidiary --- 2,869 ---
Purchase of property and equipment (6,407) (4,447) (1,183)
-------- -------- ---------
Net cash used by investing activities (97,681) (35,982) (114,235)
-------- -------- ---------
</TABLE>
(Continued)
See notes to consolidated financial statements.
36
<PAGE>
First Place Financial Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Years Ended December 31, 1996, 1995, and 1994
<TABLE>
(in thousands)
1996 1995 1994
------- --------- -------
<S> <C> <C> <C>
Cash flows from financing activities:
Net change in deposit accounts $31,216 $ 6,007 $ 9,414
Net change in certificates of deposit 27,630 56,840 23,010
Net change in securities sold
under agreements to repurchase 16,810 (35,751) 31,242
Net change in federal funds purchased 11,420 3,865 500
Net change in long-term and other notes
payable 13,378 55 9,370
Cash dividends paid (3,540) (2,649) (2,315)
Acquisition of treasury stock (346) (653) (1,207)
Proceeds from sale of treasury stock 872 216 1,123
Proceeds from issuance of common stock 87 174 464
------- --------- -------
Net cash provided by financing activities 97,527 28,104 71,601
------- --------- -------
Net increase (decrease) in cash and cash
equivalents 10,439 4,454 (34,804)
Cash and cash equivalents at beginning of period 49,274 44,820 79,624
------- --------- -------
Cash and cash equivalents at end of period $59,713 $49,274 $44,820
------- --------- -------
------- --------- -------
Supplemental disclosure of cash flow
information:
Cash paid during period for:
Interest $27,797 $22,329 $15,578
Taxes $ 4,183 $ 4,196 $ 4,373
Non-cash assets acquired through foreclosure $ 1,505 $ 53 $ 123
</TABLE>
See notes to consolidated financial statements.
37
<PAGE>
First Place Financial Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
First Place Financial Corporation ("First Place") is a bank holding
company whose wholly owned subsidiaries are FNBF, BNBD, and WBG (the
"Subsidiary Banks"). First Place's sources of revenue are regional
banking operations, which include commercial, personal, and mortgage
loans, deposit accounts, and trust services.
This summary of significant accounting policies of First Place and
Subsidiary Banks (the "Company") is presented to assist in understanding
the Company's consolidated financial statements. These accounting
policies, which conform to generally accepted accounting principles and to
general practices within the banking industry, have been consistently
applied in the preparation of the consolidated financial statements. The
consolidated financial statements and notes are representations of the
Company's management, who is responsible for their integrity and
objectivity.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
1. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of First
Place and its wholly-owned subsidiaries, First National Bank of
Farmington, Burns National Bank of Durango, and Western Bank, Gallup.
All significant intercompany accounts and transactions have been
eliminated.
2. TRADING SECURITIES
Securities held principally for resale in the near term are classified
as trading account securities and recorded at their fair values.
Unrealized gains and losses on trading account securities are included
immediately in other income.
3. SECURITIES HELD TO MATURITY
Securities for which the Company has the positive intent and ability to
hold to maturity are reported at cost, adjusted for premiums and
discounts that are recognized in interest income using the interest
method over the period to maturity.
4. SECURITIES AVAILABLE FOR SALE
Available-for-sale securities consist of securities not classified as
trading securities nor as held-to-maturity securities. Unrealized
holding gains and losses, net of the tax effect, on available-for-sale
securities are reported as a net amount in a separate component of
stockholders' equity until realized. Gains and losses on the sale
of available-for-sale securities are determined using the specific-
identification method. Premiums and discounts are recognized in interest
income using the interest method over the period to maturity.
38
<PAGE>
First Place Financial Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1996, 1995 and 1994
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
5. LOANS AND ALLOWANCE FOR LOAN LOSSES
The Company maintains a diversified loan portfolio consisting of
commercial, real estate and consumer loans made to customers
throughout New Mexico and southern Colorado.
Loans are reported at the principal amount outstanding, net of
deferred loan fees, premiums and discounts and the allowance for loan
losses. Interest on loans generally is calculated by using the simple
interest method on the daily balance of the principal amount
outstanding.
Loan origination and commitment fees and certain direct loan
origination costs are deferred, and the net amount is amortized as an
adjustment of the related loan's yield over the estimated life of the
loan.
Loans on which the accrual of interest has been discontinued are
designated as nonaccrual loans. Accrual of interest on loans is
generally discontinued either when reasonable doubt exists as to the
full, timely collection of interest or principal or when a loan
becomes contractually past due by 90 days or more with respect to
interest or principal. When loans are 90 days past due, but in
management's judgment are well secured and in the process of collection,
they are not classified as nonaccrual. When a loan is placed on
nonaccrual status, all interest previously accrued but not collected is
reversed. Income on such loans is then recognized only to the extent
that cash is received and where the future collection of principal is
probable. Interest accruals are resumed on such loans only when they
are brought fully current with respect to interest and principal and
when, in the judgment of management, the loans are estimated to be
fully collectible as to both principal and interest.
Income or loss from the change in the value of impaired loans is
included in the provision for loan losses in the same manner in which
impairment initially was recognized or as a reduction in the amount of
provision for loan losses that otherwise would be required. Interest
income is then recognized only to the extent that cash is received and
where the future collection of principal is probable.
The allowance for loan losses is a valuation allowance against which
loan losses are charged. The allowance represents the cumulative effect
of provisions charged to operating expense less loan charge-offs, net
of recoveries. The provision charged to operating expense for financial
reporting purposes represents management's estimate of the amount
required to provide an adequate allowance for future loan losses based
on an evaluation of the loan portfolio in light of current economic
conditions, changes in the nature and volume of the portfolio, loan
loss experience and the credit-worthiness of borrowers. Loans are
charged against the allowance for loan losses when management believes
it is unlikely that the principal will be collected. Because of
uncertainties inherent in the estimation process, management's estimate
of credit losses inherent in the loan portfolio and the related
allowance may change in the near term.
39
<PAGE>
First Place Financial Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1996, 1995 and 1994
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
6. BANK PREMISES AND EQUIPMENT
Bank premises and equipment are stated at cost less accumulated
depreciation. Depreciation is computed using both straight-line and
accelerated methods over the estimated useful lives of the related
assets. Leasehold improvements are amortized over the term of the
respective lease or the estimated useful life of the improvement,
whichever is shorter. Maintenance and repairs are charged to expense as
incurred. Renewals and betterments which materially increase the value
of the property are capitalized and depreciated over the remaining life
of the asset.
When property is sold or otherwise disposed of, the cost and related
accumulated depreciation are removed from the respective accounts and
gains and losses are recognized currently in the statement of income.
7. INCOME TAXES
Deferred income taxes have been provided for timing differences which
result from income and expense items that are recognized for financial
accounting purposes in different years than such items are recognized
for income tax purposes.
8. NET INCOME PER SHARE OF COMMON STOCK
Net income per share of common stock is based on the weighted average
number of shares outstanding during each year.
9. CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company includes cash
on hand, cash on deposit at other institutions and federal funds sold
as cash and cash equivalents.
10. STOCK OPTION PLANS
The Company accounts for its stock option plans in accordance with the
provisions of Accounting Principles Board (APB) Opinion No. 25,
ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and related interpretations.
As such, compensation expense would be recorded on the date of grant
only if the current market price of the underlying stock exceeded the
exercise price. In 1995 the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 123, ACCOUNTING
FOR STOCK-BASED COMPENSATION, which permits entities to recognize as
expense over the vesting period the fair value of all stock-based
awards on the date of grant. SFAS No. 123 also allows entities to
continue to apply the provisions of APB Opinion No. 25 and provide pro
forma net income and pro forma earnings per share disclosures for
employee stock option grants made in 1995 and future years as if the
fair-value-based method defined in SFAS No. 123 has been applied. The
Company has elected to continue to apply the provisions of APB Opinion
No. 25 and provide the pro forma disclosure provisions of SFAS No. 123.
40
<PAGE>
First Place Financial Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1996, 1995 and 1994
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
11. IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
The Company adopted the provisions of SFAS No. 121, ACCOUNTING FOR THE
IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE
DISPOSED OF, on January 1, 1996. This Statement requires that
long-lived assets and certain identifiable intangibles be reviewed for
impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. Recoverability
of assets to be held and used is measured by a comparison of the
carrying amount of an asset to future net cash flows expected to be
generated by the asset. If such assets are considered to be impaired,
the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceed fair value of the assets. Assets
to be disposed of are reported at the lower of the carrying amount or
fair value less costs to sell. Adoption of this Statement did not have
a material impact on the Company's financial position, results of
operations or liquidity.
12. TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS OF
LIABILITIES
In June 1996, the Financial Accounting Standards Board issued SFAS No.
125, ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND
EXTINGUISHMENTS OF LIABILITIES. SFAS No. 125 is effective for transfers
and servicing of financial assets and extinguishments of liabilities
occurring after December 31, 1996 and is to be applied prospectively.
This Statement provides accounting and reporting standards for
transfers and servicing of financial assets and extinguishments of
liabilities based on consistent application of a financial-components
approach that focuses on control. It distinguishes transfers of
financial assets that are sales from transfers that are secured
borrowings. Management of the Company does not expect that adoption of
SFAS No. 125 will have a material impact on the Company's financial
position, results of operations, or liquidity.
13. RECLASSIFICATION
Certain amounts in the 1995 and 1994 financial statements have been
reclassified to conform to 1996 presentation.
NOTE B - RESTRICTED CASH BALANCES
Reserves (in the form of cash on hand and deposits with the Federal
Reserve Bank) of $11,265,000 and $8,418,000 were maintained to satisfy
federal regulatory requirements at December 31, 1996 and 1995. These
reserves are included in cash and due from banks in the accompanying
statements of financial position.
41
<PAGE>
First Place Financial Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1996, 1995 and 1994
NOTE C - INVESTMENT SECURITIES
A summary of the amortized cost, approximate fair value and gross unrealized
gains and losses follows (amounts in thousands):
Investment securities available for sale:
<TABLE>
Amortized Approximate Unrealized Unrealized
cost fair value gain loss
--------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
December 31, 1996:
U.S. treasury securities $ 55,915 $ 56,371 $ 458 $ (2)
U.S. government agency
securities 47,674 47,969 295 ---
Mortgage-backed securities 71,376 71,394 529 (511)
Obligations of states and
political subdivisions 61,643 62,372 916 (187)
Other investments and
securities 6,591 6,581 --- (10)
-------- -------- ------ -----
Total $243,199 $244,687 $2,198 $(710)
-------- -------- ------ -----
-------- -------- ------ -----
December 31, 1995:
U.S. treasury securities $ 47,577 $ 47,768 $ 225 $ (34)
U.S. government agency
securities 42,938 43,212 310 (36)
Mortgage-backed securities 65,457 65,557 636 (536)
Obligations of states and
political subdivision 53,866 54,708 1,001 (159)
Other investments and
securities 6,994 7,005 11 ---
-------- -------- ------ -----
Total $216,832 $218,250 $2,183 $(765)
-------- -------- ------ -----
-------- -------- ------ -----
</TABLE>
A summary of amortized cost and approximate fair value of investment
securities classified as available for sale, by maturity at December 31,
1996 follows (amounts in thousands):
Amortized Approximate
cost fair value
--------- -----------
Less than one year $ 41,944 $ 42,035
One to five years 105,415 106,204
Five to ten years 35,014 35,258
Greater than ten years 54,819 55,183
Securities not due at a single date 6,007 6,007
-------- --------
Total $243,199 $244,687
-------- --------
-------- --------
42
<PAGE>
First Place Financial Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1996, 1995 and 1994
NOTE C - INVESTMENT SECURITIES - CONTINUED
The proceeds from sales of securities available for sale and
the gross realized gains and gross realized losses on those
sales at December 31, follow (amounts in thousands):
1996 1995 1994
---- ---- ----
Proceeds $11,459 $1,327 $16,960
Gross realized gains 10 --- 84
Gross realized losses 92 --- 256
Related income tax (benefit) (30) --- (60)
At December 31, 1996 and 1995, investment securities with a recorded value
of approximately $204,000,000 and $180,000,000, respectively, were
pledged to collateralize repurchase agreements, public or trust deposits
and other notes payable.
The Company is required to have Federal Home Loan Bank stock due to Federal
Home Loan Bank borrowings, in the amount equal to at least five percent of
the advance and standby letters of credit divided by the qualified asset
ratio. This ratio is a measurement of the Company's overall commitment to
housing finance. The Company was required to have $5,021,000 at December
31, 1996 of Federal Home Loan Bank stock. At December 31, 1996 and 1995,
$5,480,000 and $4,716,000, respectively of Federal Home Loan stock are
included in other securities.
In November 1995, the Financial Accounting Standards Board issued a GUIDE
TO IMPLEMENTATION OF STATEMENT 115 allowing a one-time reassessment of
classifications of securities. On December 1, 1995, the Company took this
opportunity to reclassify held-to-maturity securities with an amortized
cost of $120,360,000, to the available-for-sale portfolio. The effect of
this reclassification was an increase in net unrealized gains of $781,000.
NOTE D - LOANS
A summary of loans at December 31, follows (amounts in thousands):
1996 1995
---- ----
Commercial, financial and agriculture $102,610 $ 91,232
Commercial real estate 161,959 138,487
Consumer 81,495 65,597
Real estate residential 90,105 79,546
Real estate construction 32,019 29,818
-------- --------
468,188 404,680
Less allowance for loan losses 8,933 8,588
-------- --------
Total net loans $459,255 $396,092
-------- --------
-------- --------
43
<PAGE>
First Place Financial Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1996, 1995 and 1994
NOTE D - LOANS - CONTINUED
Changes in the allowance for loan losses follows (amounts in thousands):
1996 1995 1994
---- ---- ----
Balance at beginning of year $ 8,588 $ 7,586 $ 5,956
Acquired in merger with Western Bank --- 302 ---
Provision charged to operating expense 1,155 837 58
Recoveries on loans previously charged-off 995 715 2,328
Loans charged-off (1,805) (852) (756)
-------- -------- --------
Balance at end of year $ 8,933 $ 8,588 $ 7,586
-------- -------- --------
-------- -------- --------
The collateral for the specifically reviewed loan reported in 1995 was
foreclosed on in 1996 and that real estate was reported in other real
estate owned at December 31, 1996.
Loans for which the accrual of interest has been discontinued, amounted to
$1,702,000, $3,517,000, and $140,000 at December 31, 1996, 1995, and 1994,
respectively. If interest had been accrued on these loans for 1996, 1995,
and 1994, interest income would have been increased by approximately
$104,000, $58,000, and $9,000, respectively.
Certain directors, officers, and companies with which they are associated,
were customers of, and had banking transactions with, the Company in the
ordinary course of business. It is the Company's policy that all loans and
commitments to lend to officers and directors be made on substantially the
same terms, including interest rates and collateral, as those prevailing at
the time for comparable transactions with other borrowers of the Company.
The following table summarizes the activity in these loans for 1996 (in
thousands):
Balance December 31, 1995 $ 10,273
Advances/New Loans 20,103
Payments (12,812)
---------
Balance December 31, 1996 $ 17,564
---------
---------
44
<PAGE>
First Place Financial Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1996, 1995 and 1994
NOTE E - BANK PREMISES AND EQUIPMENT
The major components of Bank premises and equipment at December 31,
follow (amounts in thousands):
Estimated Lives 1996 1995
--------------- ---- ----
Land --- $ 1,870 $ 1,870
Buildings 5-40 years 13,968 10,467
Furniture and equipment 3-25 years 11,003 8,571
Leasehold improvements 5-15 years 563 292
------- -------
27,404 21,200
Less accumulated depreciation
and amortization 11,181 10,121
------- -------
Total $16,223 $11,079
------- -------
------- -------
At December 31, 1994, the Company had entered into an agreement
with outside parties to acquire, through an exchange of assets,
a new bank facility in Durango, Colorado. The exchange took
place on September 1, 1995. The acquired facility was still
under construction at December 31, 1995, and $1,385,000 was
included in buildings and $600,000 in land. This facility was
completed and occupied in May 1996. At December 31, 1996,
$5,600,000 is included in buildings.
In October 1995, the Company completed construction of a new
branch facility in Farmington, New Mexico. This branch cost
approximately $2,000,000, including capitalized interest of
$54,000.
NOTE F - LONG TERM AND OTHER NOTES PAYABLE
Long term and other notes payable, secured by investment
securities as well as certain loans from the Company's loan
portfolio at December 31, consisted of the following (amounts
in thousands):
1996 1995
---- ----
Federal Home Loan Bank advances, 5.10% to
6.825% due 1996 through 2011 $49,933 $36,204
Other notes payable 2,087 2,438
------- -------
Total $52,020 $38,642
------- -------
------- -------
45
<PAGE>
First Place Financial Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1996, 1995 and 1994
NOTE F - LONG TERM AND OTHER NOTES PAYABLE - CONTINUED
Maturities of notes payable at December 31, 1996 are as follows
(amounts in thousands):
1997 $13,528
1998 7,906
1999 4,164
2000 3,548
2001 4,326
Later Years 18,548
-------
Total $52,020
-------
-------
NOTE G - INCOME TAXES
Income tax expense consists of the following (amounts in
thousands):
1996 1995 1994
------ ------ ----
Current tax expense $4,103 $4,293 $3,964
Deferred tax expense (benefit) (275) (422) (145)
------ ------ ------
Total $3,828 $3,871 $3,819
------ ------ ------
------ ------ ------
Income tax expense differs from the expected tax expense
(computed using statutory rates) as a result of the following
(amounts in thousands):
1996 1995 1994
---- ---- ----
Computed "expected" tax expense $4,773 $4,423 $4,143
Tax benefit due to tax exempt interest (799) (836) (586)
State tax, net of federal benefit 187 320 317
Low income housing credit (161) --- ---
Other, net (172) (36) (55)
------ ------ ------
Total $3,828 $3,871 $3,819
------ ------ ------
------ ------ ------
46
<PAGE>
First Place Financial Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1996, 1995 and 1994
NOTE G - INCOME TAXES - CONTINUED
Deferred tax expense (benefit) results from timing differences in the
recognition of income and expense for income tax and financial statement
purposes. The sources of these differences and their tax effects follow
(amounts in thousands):
1996 1995 1994
------ ------ -----
Provision for loan losses $(368) $(335) $ 31
Provision for losses on other real estate (99) (16) 37
Pension expense 101 43 29
Depreciation 122 37 (15)
Deferred compensation (183) (115) (5)
Deferred loan fees 58 (62) (182)
Stock option expense (181) (111) (98)
FHLB stock dividends 152 102 72
Other, Net 123 35 (14)
----- ----- -----
Total $(275) $(422) $(145)
----- ----- -----
----- ----- -----
Deferred tax assets and liabilities as of December 31, consisted of the
following (amounts in thousands):
1996 1995 1994
------ ------ ------
Deferred tax assets:
Allowance for loan losses $2,147 $1,779 $1,444
Unrealized losses on investment
securities --- --- 643
Deferred compensation 470 287 172
Deferred loan fees 301 359 297
Other real estate owned 405 306 290
Stock option expense 430 249 138
Other 61 104 88
------ ------ ------
3,814 3,084 3,072
------ ------ ------
Deferred tax liabilities:
Unrealized gains on investment
securities 521 497 ---
Bank premises and equipment 384 262 225
Pension plan 485 384 341
FHLB stock dividends 379 227 125
Other 250 170 119
------ ------ ------
2,019 1,540 810
------ ------ ------
Net deferred tax asset, included
in other assets $1,795 $1,544 $2,262
------ ------ ------
------ ------ ------
The realization of net deferred tax assets may be based on utilization of
carrybacks to prior taxable periods, anticipation of future taxable income
and the utilization of tax planning strategies. Management has determined
that it is more likely than not that the net deferred tax asset can be
supported by carrybacks to federal taxable income in excess of $32,000,000 in
the three-year federal carryback period and by expected future taxable income
which will exceed amounts necessary to fully realize remaining deferred tax
assets.
47
<PAGE>
First Place Financial Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1996, 1995 and 1994
NOTE H - EMPLOYEE BENEFIT PLANS
The Company maintains a noncontributory defined benefit pension plan. The
plan is a qualified plan which covers substantially all employees age
twenty-one and over with one or more years of service. The Company's policy
is to fund this plan in an amount equal to or greater than the minimum
required by law, but not in excess of the maximum allowable.
Net pension costs for this plan include the following components (amounts
in thousands):
1996 1995
----- -----
Service cost of benefits earned $ 152 $ 140
Interest cost on projected benefit obligation 326 306
Return on plan assets (363) (327)
Net amortization and deferral of loss $ (19) $ (4)
----- -----
Net pension costs $ 96 $ 115
----- -----
----- -----
The following table sets forth the funded status of the pension plan (amounts
in thousands):
1996 1995
-------- --------
Actuarial present value of benefit obligations:
Vested benefit obligation $(4,072) $(3,837)
Non-vested benefit obligation (103) (80)
------ ------
Accumulated benefit obligation (4,175) (3,917)
Effect of projected future salary increases (551) (524)
------ ------
Projected benefit obligation (4,726) (4,441)
Plan assets at fair value 5,216 4,711
------ ------
Plan assets in excess of (less than) projected
benefit obligation 490 270
Unrecognized net loss from past experience
different from that assumed and effects of
changes in assumptions 1,049 1,207
Unrecognized prior service cost (117) (135)
Unrecognized net asset (209) (251)
------ ------
Prepaid (accrued) pension cost $1,213 $1,091
------ ------
------ ------
Major assumptions at year-end follow:
1996 1995
------ ------
Annual discount rate 7.5% 7.5%
Annual rate of increase in compensation levels 5.0% 5.0%
Annual expected long-term rate of return on assets 7.5% 7.5%
48
<PAGE>
First Place Financial Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1996, 1995 and 1994
NOTE H - EMPLOYEE BENEFIT PLANS - CONTINUED
Assets of the pension plan consist primarily of bank certificates of deposit,
insurance annuity contracts, mutual funds, and U.S. government and agency
obligations.
The Company also has a qualified defined contribution profit sharing plan
(with 401(k) provisions) covering substantially all employees. Matching and
voluntary contributions under the plan are provided in amounts determined by
the Company's board of directors. Total employer contributions to this plan
amounted to $240,000 in 1996 and $205,000 in 1995.
The Company has a deferred compensation program that defers a specified
portion of the compensation of certain directors and eligible employees. As
of December 31, 1996 and 1995, the Company has accrued $1,195,000 and
$914,000, respectively, for its obligations under this program. The Company's
expense was $296,000, $309,000 and $253,000 for 1996, 1995 and 1994,
respectively. For certain employees, benefits are forfeited if employment is
terminated prior to retirement for reasons other than death.
To assist in the funding of this plan, the Company purchases corporate-owned
life insurance contracts. Proceeds from the insurance policies are payable to
the Company upon the death of the employee. The cash surrender value of these
policies included in "other assets" in the consolidated statements of
financial condition was $5,335,000 and $4,551,000 as of December 31, 1996 and
1995, respectively.
NOTE I - CONTINGENCIES AND COMMITMENTS
The Company is party to litigation and claims arising in the normal course of
business. Management, after consultation with legal counsel, believes that
the liabilities, if any, arising from such litigation and claims will not be
material to the consolidated financial position.
The Company's consolidated financial statements do not reflect various
commitments and contingent liabilities which arise in the normal course of
business and which involve elements of credit risk, interest rate risk and
liquidity risk. The Company is a party to financial instruments with
off-balance sheet risk in the normal course of business to meet the financing
needs of its customers, consisting essentially of commitments to extend
credit and standby letters of credit. These instruments involve, to varying
degrees, elements of credit risk in excess of the amount recognized in the
consolidated financial statements. The contract amounts of those instruments
reflect the extent of involvement the Company has in particular classes of
financial instruments.
The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit and
standby letters of credit is represented by the contractual amount of those
instruments. The Company uses the same credit policies in making commitments
and conditional obligations as it does for on-balance sheet instruments. The
Company controls credit risk through credit approvals, limits, and monitoring
procedures.
49
<PAGE>
First Place Financial Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1996, 1995 and 1994
NOTE I - CONTINGENCIES AND COMMITMENTS - CONTINUED
Financial instruments exhibiting credit risk at December 31, 1996 and 1995
are as follows (amounts in thousands):
1996 1995
-------- -------
Commitments to extend credit $105,713 $86,543
Standby letters of credit 4,079 4,808
-------- -------
Total $109,792 $91,351
-------- -------
-------- -------
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since many of the commitments are
expected to expire without being drawn upon, the total commitment amounts do
not necessarily represent future cash requirements. The Company evaluates
each customer's credit-worthiness on a case-by-case basis. The amount of
collateral obtained, if deemed necessary by the Company upon extension of
credit, is based on management's credit evaluation of the customer.
Collateral held varies but may include accounts receivable, inventory,
property, plant and equipment, and income-producing commercial properties.
Standby letters of credit are conditional commitments issued by the Company
to guarantee the performance of a customer to a third party. The credit risk
involved in issuing letters of credit is essentially the same as that
involved in extending loans to customers.
NOTE J - CONCENTRATIONS
Substantially all of the Company's loans, commitments, and commitments to
extend credit and standby letters of credit have been granted to customers in
the Company's market area. Such customers are generally depositors of the
Company. The concentrations of credit by type of loan are set forth in Note
D. The distribution of commitments to extend credit approximates the
distribution of loans outstanding. Standby letters of credit were granted
primarily to commercial borrowers.
At December 31, 1996 the Company had sold securities under agreements to
repurchase totaling $68,739,000, with an average interest rate of 4.98
percent. Of this total, $15,400,000 was sold to San Juan County with a
maturity of one day.
Investments in state and municipal securities also involve governmental
entities within the Company's market area.
At December 31, 1996 and 1995 and at various times during the years then
ended, the Company maintained cash balances in correspondent banks in excess
of FDIC insurable limits.
50
<PAGE>
First Place Financial Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1996, 1995 and 1994
NOTE K - FAIR VALUE OF FINANCIAL INSTRUMENTS - CONTINUED
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate
that value:
CASH, DUE FROM BANKS, INTEREST BEARING DEPOSITS, FEDERAL FUNDS SOLD OR
PURCHASED, SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE, AND OTHER
LIABILITIES
For these short-term instruments, the carrying amount is a reasonable
estimate of fair value.
INVESTMENT SECURITIES
For securities, fair value equals quoted market price, if available. If a
quoted market price is not available, fair value is estimated using quoted
market prices for similar securities.
LOAN RECEIVABLES
For certain homogeneous categories of loans, such as some residential
mortgages and other consumer loans, fair value is estimated using the quoted
market prices for securities backed by similar loans, adjusted for
differences in loan characteristics. The fair value of other types of loans
is estimated by discounting the future cash flows using the current rates at
which similar loans would be made to borrowers with similar credit ratings
and for the same remaining maturities.
DEPOSIT LIABILITIES
The fair value of demand deposits and savings deposits (including certain
money market deposits) is the amount payable on demand at the reporting
date. The fair value of fixed-maturity certificates of deposit is estimated
using the rates currently offered for deposits of similar remaining
maturities.
LONG-TERM DEBT AND OTHER NOTES PAYABLE
Rates currently available to the Company for debt with similar terms and
remaining maturities are used to estimate fair value of existing debt.
COMMITMENTS TO EXTEND CREDIT, STANDBY LETTERS OF CREDIT, AND FINANCIAL
GUARANTEES WRITTEN
The estimated fair values of the Company's off-balance sheet items are not
material to the fair value of financial instruments included in the
statement of financial condition, and therefore, are not included in the
following schedule.
The fair value of commitments is estimated using the fees currently charged
to enter into similar agreements, taking into account the remaining terms
of the agreements and the present credit-worthiness of the counterparties.
For fixed-rate loan commitments, fair value also considers the difference
between current levels of interest rates and the committed rates. The fair
value of guarantees and letters of credit is based on fees currently
charged for similar agreements or on the estimated cost to terminate them
or otherwise settle the obligations with the counterparties at the
reporting date.
51
<PAGE>
First Place Financial Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1996, 1995 and 1994
NOTE K - FAIR VALUE OF FINANCIAL INSTRUMENTS - CONTINUED
The estimated fair values of the Company's financial instruments at
December 31, are as follows (amounts in thousands):
1996 1995
-------------------- --------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
-------- ---------- -------- ----------
Financial assets:
Cash and due from banks $ 49,487 $ 49,487 $ 35,662 $ 35,662
Interest bearing deposits 2,391 2,391 10,887 10,887
Federal funds sold 7,835 7,835 2,725 2,725
Investment securities
Available for sale 244,687 244,687 218,250 218,250
Net Loans 459,255 456,212 396,092 390,777
-------- ---------- -------- ----------
Total financial assets $763,655 $760,612 $663,616 $658,301
-------- ---------- -------- ----------
-------- ---------- -------- ----------
Financial liabilities:
Deposits $587,893 $588,763 $529,047 $529,483
Securities sold under
agreements to repurchase 68,739 68,739 51,929 51,929
Federal funds purchased 15,785 15,785 4,365 4,365
Other notes payable 52,020 51,293 38,642 38,714
-------- ---------- -------- ----------
Total financial liabilities $724,437 $724,580 $623,983 $624,491
-------- ---------- -------- ----------
-------- ---------- -------- ----------
NOTE L - PARENT COMPANY ONLY FINANCIAL INFORMATION
The assets of First Place consist primarily of the investment in the
Subsidiary Banks. The principal source of First Place's cash revenues are
dividends from the Subsidiary Banks. Federal and state banking laws and
regulations limit the extent to which subsidiary banks can pay dividends.
At December 31, 1996, the Subsidiary Banks had approximately $40,556,000
of retained earnings, of which $16,690,000 was available for distribution
to First Place. Dividends from the Subsidiary Banks are the source of
funds for the payment of dividends to First Place stockholders and payment
of operating costs of First Place. To the extent that the cash needs
exceed cash revenues, First Place would borrow funds or sell equity
securities.
52
<PAGE>
First Place Financial Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1996, 1995 and 1994
Condensed financial information of First Place at December 31,
follows:
BALANCE SHEETS
(in thousands)
1996 1995
------- -------
ASSETS
Cash $ 3,269 $ 2,282
Investment in subsidiary banks 62,922 56,823
Other assets 214 83
------- -------
Total Assets $66,405 $59,188
------- -------
------- -------
LIABILITIES AND STOCKHOLDERS' EQUITY
Taxes payable $ --- $ 63
Dividends payable 1,443 1,368
Other liabilities 202 1
------- -------
Total liabilities 1,645 1,432
------- -------
Stockholders' equity
Common stock, no par value:
Authorized shares 15,000,000
Issued and outstanding shares -
2,123,157 and 2,104,707 at
December 31, 1996 and 1995 13,634 13,609
Additional paid-in capital 124 62
Net unrealized holding gain on
securities available for sale 967 922
Retained earnings 50,035 43,689
Treasury stock --- (526)
------- -------
Total stockholders' equity 64,760 57,756
------- -------
Total Liabilities and Stockholders' Equity $66,405 $59,188
------- -------
------- -------
STATEMENTS OF INCOME
(in thousands)
1996 1995 1994
------- ------- -------
Administration expense $ 346 $ 309 $ 111
Interest expense --- --- ---
------- ------- -------
Loss before equity in net income
of subsidiary banks (346) (309) (111)
Equity in net income of subsidiary
banks:
Distributed 3,956 3,573 2,952
Undistributed 6,055 5,378 5,133
Income tax credits 145 124 43
------- ------- -------
Net Income $ 9,810 $ 8,766 $ 8,017
------- ------- -------
------- ------- -------
53
<PAGE>
First Place Financial Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1996, 1995 and 1994
NOTE L - PARENT COMPANY ONLY FINANCIAL INFORMATION - CONTINUED
STATEMENTS OF CASH FLOWS
(in thousands)
1996 1995 1994
------- ------- -------
Operating activities:
Net income $ 9,810 $ 8,766 $ 8,017
Adjustments to reconcile net income
to net cash provided by operating
activities:
Amortization of intangibles 7 4 5
Undistributed equity in subsidiary
earnings (6,055) (5,378) (5,133)
Decrease (increase) in other assets 133 45 511
(Increase) decrease in other
liabilities (216) (127) (554)
------- ------- -------
Net cash provided by operating activities 3,679 3,310 2,846
------- ------- -------
Investing activities:
Acquisition of subsidiary --- (120) ---
------- ------- -------
Financing activities:
Cash dividends paid (3,389) (2,649) (2,315)
Acquisitions of treasury stock (346) (653) (1,207)
Proceeds from sale and retirement
of treasury stock 872 216 1,123
Issuance of common stock 171 174 464
------- ------- -------
Net cash used by financing activities (2,692) (2,912) (1,935)
------- ------- -------
Net increase (decrease) in cash and cash
equivalents 987 278 911
Cash and cash equivalents at beginning
of year 2,282 2,004 1,093
------- ------- -------
Cash and cash equivalents at end of year $ 3,269 $ 2,282 $ 2,004
------- ------- -------
------- ------- -------
54
<PAGE>
First Place Financial Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1996, 1995 and 1994
NOTE M - COMMON STOCK AND STOCK OPTIONS
Shares of common stock at December 31, consisted of the following:
1996 1995 1994
---------- ---------- ----------
Issued:
Balance at beginning of year $2,104,707 $2,021,445 $2,007,465
Issue of new common stock 18,450 83,262 13,980
---------- ---------- ----------
Balance at end of year $2,123,157 $2,104,707 $2,021,445
---------- ---------- ----------
---------- ---------- ----------
Held as treasury stock:
Balance at beginning of year $ 13,371 $ 2,346 $ ---
Shares acquired 8,527 16,710 35,517
Shares sold/retired (21,898) (5,685) (33,171)
---------- ---------- ----------
Balance at end of year $ --- $ 13,371 $ 2,346
---------- ---------- ----------
---------- ---------- ----------
In 1992, First Place adopted the First Place Financial Corporation
Nonstatutory Stock Option Plan (the "Plan") covering key employees and
directors. Under the Plan 120,000 shares were reserved for issuance. Options
for the Plan vest at 20% per year and unexercised options expire on the fifth
anniversary of the vesting date. The plan also includes stock appreciation
rights (SARs) for key employees which are granted and exercisable in
conjunction with the options. The Company recorded expense of $352,000,
$317,000 and $282,000 during 1996, 1995, and 1994 for these SARs, and
included a related liability of $1,064,166 and $712,000 in Other Liabilities
at December 31, 1996 and 1995.
In 1996, First Place adopted the First Place Financial Corporation Second
Nonstatutory Stock Option Plan (the "Second Plan") covering officers with
specific titles and directors of subsidiary banks. Those officers who have
been granted options under the Plan shall be ineligible to participate in the
Second Plan. Under the Second Plan, 100,000 shares were reserved for
issuance. Options, for directors, vest on the first anniversary of the date
of grant and options, for officers, vest on the second anniversary. Each
option agreement shall specify the period for which the option is granted and
shall provide that the option shall expire at the end of such period not to
exceed five years.
55
<PAGE>
First Place Financial Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1996, 1995 and 1994
NOTE M - COMMON STOCK AND STOCK OPTIONS - CONTINUED
Stock option activity in the plans is summarized as follows:
1996 1995
----------------- -----------------
Number of Option Number of Option
Shares Price Shares Price
------ ------ ------ ------
Outstanding at beginning of year 90,000 $ 27 92,700 $ 27
Granted 10,700 45 3,000 39
Exercised/retired (7,200) 27-45 (5,700) 27
------ ------
Outstanding at end of year 93,500 $27-45 90,000 $27-39
------ ------
------ ------
Exercisable at end of year 62,400 $27-45 49,200 $27-39
------ ------
------ ------
The Company applies APB Opinion No. 25 in accounting for its Plans and,
accordingly, no compensation cost has been recognized for its stock options
in the financial statements. Had the Company determined compensation cost
based on the fair value at the grant date for its stock options under SFAS
No. 123, the Company's net income and earnings per share would have been
reduced to the pro forma amounts indicated below (in thousands, except per
share data):
1996 1995
------ ------
Net Income As reported $9,810 $8,766
Pro forma $9,758 $8,758
Earnings per share As reported $ 4.56 $ 4.27
Pro forma $ 4.53 $ 4.26
Pro forma net income reflects only options granted in 1996 and 1995.
Therefore, the full impact of calculating compensation cost for stock options
under SFAS No. 123 is not reflected in the pro forma net income amounts
presented above because compensation cost is reflected over the options'
vesting period of 5 years and compensation cost for options granted prior to
January 1, 1995 is not considered.
56
<PAGE>
First Place Financial Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1996, 1995 and 1994
NOTE N - CAPITAL REQUIREMENTS
The Subsidiary Banks are subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory, and possibly discretionary,
actions by regulators that, if undertaken, could have a direct material
effect on the Subsidiary Banks' financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the
Subsidiary Banks must meet specific capital guidelines that involve
quantitative measures of the Subsidiary Banks' assets, liabilities, and
certain off-balance sheet items as calculated under regulatory accounting
practices. The Subsidiary Banks' capital amounts and classifications are
also subject to qualitative judgements by the regulators about components,
risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require that the Subsidiary Banks maintain minimum amounts and ratios (set
forth in the following table) of total and Tier 1 capital to risk-weighted
assets and of Tier 1 capital to total assets.
As of December 31, 1996, the most recent notification from the Federal
Deposit Insurance Corporation categorized the Subsidiary Banks as well
capitalized under the regulatory framework for prompt corrective action.
To be categorized as well capitalized, the Subsidiary Banks must maintain
minimum total risk-based, Tier 1 risk-based, and Tier 1 leverage ratios as
set forth in the following table. There are no conditions or events since
notification that management believes have changed the Subsidiary Banks'
categories.
57
<PAGE>
First Place Financial Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1996, 1995 and 1994
At December 31, the capital ratios were (dollars in thousands):
<TABLE>
For Capital
Actual Adequacy Purposes
--------------- ------------------------------------------
1996: Amount Ratio Amount Ratio
------- ----- ------- -----
<S> <C> <C> <C> <C>
Total capital (to risk weighted assets):
Consolidated $69,265 13.02% GREATER THAN OR EQUAL TO $42,567 GREATER THAN OR EQUAL TO 8.0%
FNBF $51,314 12.68% GREATER THAN OR EQUAL TO $32,386 GREATER THAN OR EQUAL TO 8.0%
BNBD $12,273 12.28% GREATER THAN OR EQUAL TO $ 7,994 GREATER THAN OR EQUAL TO 8.0%
WBG $ 3,865 14.16% GREATER THAN OR EQUAL TO $ 2,183 GREATER THAN OR EQUAL TO 8.0%
Tier 1 capital (to risk-weighted assets):
Consolidated $62,586 11.76% GREATER THAN OR EQUAL TO $21,284 GREATER THAN OR EQUAL TO 4.0%
FNBF $46,233 11.42% GREATER THAN OR EQUAL TO $16,193 GREATER THAN OR EQUAL TO 4.0%
BNBD $11,018 11.03% GREATER THAN OR EQUAL TO $ 3,997 GREATER THAN OR EQUAL TO 4.0%
WBG $ 3,522 12.91% GREATER THAN OR EQUAL TO $ 1,092 GREATER THAN OR EQUAL TO 4.0%
Leverage ratio (Tier 1 capital to adjusted assets):
Consolidated $62,586 7.84% GREATER THAN OR EQUAL TO $31,937 GREATER THAN OR EQUAL TO 4.0%
FNBF $46,233 7.27% GREATER THAN OR EQUAL TO $25,422 GREATER THAN OR EQUAL TO 4.0%
BNBD $11,018 8.55% GREATER THAN OR EQUAL TO $ 5,157 GREATER THAN OR EQUAL TO 4.0%
WBG $ 3,522 7.86% GREATER THAN OR EQUAL TO $ 1,792 GREATER THAN OR EQUAL TO 4.0%
To Be Well
Capitalized Under
Prompt Corrective
Action Provisions
------------------------------------------
1996: Amount Ratio
------- -----
Total capital (to risk weighted assets):
GREATER THAN OR EQUAL TO Consolidated N/A
GREATER THAN OR EQUAL TO FNBF $40,483 GREATER THAN OR EQUAL TO 10.0%
GREATER THAN OR EQUAL TO BNBD $ 9,992 GREATER THAN OR EQUAL TO 10.0%
GREATER THAN OR EQUAL TO WBG $ 2,729 GREATER THAN OR EQUAL TO 10.0%
Tier 1 capital (to risk-weighted assets):
GREATER THAN OR EQUAL TO Consolidated N/A
GREATER THAN OR EQUAL TO FNBF $24,290 GREATER THAN OR EQUAL TO 6.0%
GREATER THAN OR EQUAL TO BNBD $ 5,995 GREATER THAN OR EQUAL TO 6.0%
GREATER THAN OR EQUAL TO WBG $ 1,637 GREATER THAN OR EQUAL TO 6.0%
Leverage ratio (Tier 1 capital to adjusted assets):
GREATER THAN OR EQUAL TO Consolidated N/A
GREATER THAN OR EQUAL TO FNBF $31,777 GREATER THAN OR EQUAL TO 5.0%
GREATER THAN OR EQUAL TO BNBD $ 6,446 GREATER THAN OR EQUAL TO 5.0%
GREATER THAN OR EQUAL TO WBG $ 2,240 GREATER THAN OR EQUAL TO 5.0%
</TABLE>
<TABLE>
For Capital
Actual Adequacy Purposes
--------------- ------------------------------------------
1995: Amount Ratio Amount Ratio
------- ----- ------- -----
<S> <C> <C> <C> <C>
Total capital (to risk weighted assets):
Consolidated $61,167 13.57% GREATER THAN OR EQUAL TO $36,055 GREATER THAN OR EQUAL TO 8.0%
FNBF $45,781 13.22% GREATER THAN OR EQUAL TO $27,713 GREATER THAN OR EQUAL TO 8.0%
BNBD $10,889 13.13% GREATER THAN OR EQUAL TO $ 6,634 GREATER THAN OR EQUAL TO 8.0%
WBG $ 3,596 16.88% GREATER THAN OR EQUAL TO $ 1,704 GREATER THAN OR EQUAL TO 8.0%
Tier 1 capital (to risk-weighted assets):
Consolidated $55,498 12.31% GREATER THAN OR EQUAL TO $18,028 GREATER THAN OR EQUAL TO 4.0%
FNBF $41,422 11.96% GREATER THAN OR EQUAL TO $13,856 GREATER THAN OR EQUAL TO 4.0%
BNBD $ 9,846 11.87% GREATER THAN OR EQUAL TO $ 3,317 GREATER THAN OR EQUAL TO 4.0%
WBG $ 3,329 15.62% GREATER THAN OR EQUAL TO $ 852 GREATER THAN OR EQUAL TO 4.0%
Leverage ratio (Tier 1 capital to adjusted assets):
Consolidated $55,498 8.06% GREATER THAN OR EQUAL TO $27,541 GREATER THAN OR EQUAL TO 4.0%
FNBF $41,422 7.47% GREATER THAN OR EQUAL TO $22,172 GREATER THAN OR EQUAL TO 4.0%
BNBD $ 9,846 8.63% GREATER THAN OR EQUAL TO $ 4,565 GREATER THAN OR EQUAL TO 4.0%
WBG $ 3,329 10.33% GREATER THAN OR EQUAL TO $ 1,289 GREATER THAN OR EQUAL TO 4.0%
To Be Well
Capitalized Under
Prompt Corrective
Action Provisions
------------------------------------------
1995: Amount Ratio
------- -----
Total capital (to risk weighted assets):
GREATER THAN OR EQUAL TO Consolidated N/A
GREATER THAN OR EQUAL TO FNBF $34,641 GREATER THAN OR EQUAL TO 10.0%
GREATER THAN OR EQUAL TO BNBD $ 8,292 GREATER THAN OR EQUAL TO 10.0%
GREATER THAN OR EQUAL TO WBG $ 2,131 GREATER THAN OR EQUAL TO 10.0%
Tier 1 capital (to risk-weighted assets):
GREATER THAN OR EQUAL TO Consolidated N/A
GREATER THAN OR EQUAL TO FNBF $20,785 GREATER THAN OR EQUAL TO 6.0%
GREATER THAN OR EQUAL TO BNBD $ 4,975 GREATER THAN OR EQUAL TO 6.0%
GREATER THAN OR EQUAL TO WBG $ 1,278 GREATER THAN OR EQUAL TO 6.0%
Leverage ratio (Tier 1 capital to adjusted assets):
GREATER THAN OR EQUAL TO Consolidated N/A
GREATER THAN OR EQUAL TO FNBF $27,715 GREATER THAN OR EQUAL TO 5.0%
GREATER THAN OR EQUAL TO BNBD $ 5,707 GREATER THAN OR EQUAL TO 5.0%
GREATER THAN OR EQUAL TO WBG $ 1,611 GREATER THAN OR EQUAL TO 5.0%
</TABLE>
Notes:
Tier 1 capital: Stockholders' equity minus intangibles.
Tier 2 capital: Allowance for loan losses up to 1.25% of risk-weighted
assets.
Total capital: The sum of Tier 1 plus Tier 2 capital.
Leverage ratio: Tier 1 capital divided by total adjusted assets.
58
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
First Place Financial Corporation:
We have audited the accompanying consolidated balance sheets of First Place
Financial Corporation and subsidiaries as of December 31, 1996, and the
related consolidated statements of income, stockholders' equity, and cash
flows for the year then ended. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of First
Place Financial Corporation and subsidiaries at December 31, 1996, and the
results of their operations and their cash flows for the year then ended, in
conformity with generally accepted accounting principles.
(signed) KPMG Peat Marwick LLP
Albuquerque, New Mexico
January 27, 1997
59
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
First Place Financial Corporation
We have audited the accompanying consolidated balance sheet of First Place
Financial Corporation and Subsidiaries as of December 31, 1995, and the
related consolidated statements of income, stockholders' equity, and cash
flows for each of the years in the two-year period ended December 31, 1995.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of First Place Financial Corporation and Subsidiaries as of December 31,
1995, and the consolidated results of their operations and their consolidated
cash flows for each of the years in the two-year period ended December 31,
1995, in conformity with generally accepted accounting principles.
(signed) Chandler & Company LLP
Farmington, New Mexico
February 2, 1996
60
<PAGE>
EXHIBIT INDEX
Exhibit No. Description Page No.
- ----------- ------------ --------
3(i) Articles of Incorporation of Registrant *
3(ii) Bylaws of Registrant *
21 Subsidiaries of First Place **
23.1 Consent of KPMG Peat Marwick LLP 62
23.2 Consent of Chandler & Company LLP 63
27 Financial Data Schedule 64
- -------------
* Incorporated by reference from the Exhibits to the Registrant's
Registration Statement on Form S-4, dated April 18, 1995,
Registration No. 33-91310
** Incorporated by reference from Item 1, Part I under the caption
"Business of the Company" of this Form 10-K
61
<PAGE>
The Board of Directors
First Place Financial Corporation:
We consent to incorporation by reference in the registration statement
(No. 333-12837) on Form S-8 of First Place Financial Corporation of our
report dated January 27, 1997, relating to the consolidated balance sheet of
First Place Financial Corporation and subsidiaries as of December 31, 1996,
and the related consolidated statements of income, stockholders' equity, and
cash flows for the year then ended, which report appears in the December 31,
1996, annual report on Form 10-K of First Place Financial Corporation.
(signed) KPMG Peat Marwick LLP
Albuquerque, NM
March 26, 1997
62
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
First Place Financial Corporation
We consent to the incorporation by reference in the registration statement
(No. 333-12837)on Form S-8 of First Place Financial Corporation of our
report dated February 2, 1996, relating to the consolidated balance
sheet of First Place Financial Corporation and subsidiaries as of
December 31, 1995 and the related consolidated statements of income,
stockholders' equity, and cash flows for the two years then ended, which
report appears in the December 31, 1996 annual report on Form 10-K of
First Place Financial Corporation.
(signed) Chandler & Company LLP
Farmington, New Mexico
March 26, 1997
63
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 49,487
<INT-BEARING-DEPOSITS> 2,391
<FED-FUNDS-SOLD> 7,835
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 244,687
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 468,188
<ALLOWANCE> (8,933)
<TOTAL-ASSETS> 800,610
<DEPOSITS> 587,893
<SHORT-TERM> 84,524
<LIABILITIES-OTHER> 11,413
<LONG-TERM> 52,020
0
0
<COMMON> 13,634
<OTHER-SE> 51,126
<TOTAL-LIABILITIES-AND-EQUITY> 800,610
<INTEREST-LOAN> 43,102
<INTEREST-INVEST> 12,749
<INTEREST-OTHER> 916
<INTEREST-TOTAL> 56,767
<INTEREST-DEPOSIT> 22,445
<INTEREST-EXPENSE> 28,153
<INTEREST-INCOME-NET> 28,614
<LOAN-LOSSES> 1,155
<SECURITIES-GAINS> (82)
<EXPENSE-OTHER> 18,623
<INCOME-PRETAX> 13,638
<INCOME-PRE-EXTRAORDINARY> 13,638
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,810
<EPS-PRIMARY> 4.56
<EPS-DILUTED> 4.56<F1>
<YIELD-ACTUAL> 4.47
<LOANS-NON> 1,702
<LOANS-PAST> 256
<LOANS-TROUBLED> 351
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 8,588
<CHARGE-OFFS> (1,805)
<RECOVERIES> 995
<ALLOWANCE-CLOSE> 8,933
<ALLOWANCE-DOMESTIC> 8,933
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
<FN>
<F1>DILUTION LESS THAN THREE PERCENT; THEREFORE, DILUTED CALCULATION NOT REQUIRED.
</FN>
</TABLE>
