<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 1998
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission file number 0-25956
FIRST PLACE FINANCIAL CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
New Mexico 85-0317365
- ------------------------------- -----------------
(State or other jurisdiction of (I.R.S) Employer
incorporation or organization) Identification No.
100 East Broadway
Farmington, New Mexico 87401
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(Address, including ZIP Code, or registrant's executive offices)
(505) 324-9500
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(Registrant's telephone number, including area code)
Not Applicable
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
YES X NO
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
Outstanding at
Class October 28, 1998
- ---------------------------- -----------------
<S> <C>
Common shares, no par value 2,160,122
</TABLE>
<PAGE>
FIRST PLACE FINANCIAL CORPORATION
FORM 10Q
INDEX
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets at September 30, 1998,
December 31, 1997 and September 30, 1997 3
Consolidated Statements of Income for the three months and
nine months ended September 30, 1998 and 1997 4
Consolidated Statements of Changes in Stockholders' Equity
for the nine months ended September 30, 1998 and 1997 and
year-ended December 31, 1997 5
Consolidated Statements of Cash Flows for the nine months
ended September 30, 1998 and 1997 7
Notes to the Consolidated Financial Statements 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk 17
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 19
</TABLE>
<PAGE>
FIRST PLACE FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(in thousands)
---------------------------------------------
September 30, December 31, September 30,
1998 1997 1997
(Unaudited) (Unaudited)
------------ ------------ -------------
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 76,426 $ 79,579 $ 57,183
Interest-bearing deposits 18,806 17,052 14,528
Federal funds sold 48,505 250 3,680
--------- --------- ---------
Total cash and cash equivalents 143,737 96,881 75,391
--------- --------- ---------
Investment securities:
Available for sale (at market value) 306,872 279,559 271,279
--------- --------- ---------
Loans 430,991 491,961 487,561
Allowance for loan losses (9,928) (8,722) (8,189)
--------- --------- ---------
Total net loans 421,063 483,239 479,372
--------- --------- ---------
Bank premises and equipment, net 20,056 17,510 17,247
Other real estate owned 702 1,119 1,597
Other assets 17,723 19,652 19,453
--------- --------- ---------
Total Assets $ 910,153 $ 897,960 $ 864,339
--------- --------- ---------
--------- --------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing demand $ 137,993 $ 130,501 $ 102,926
Interest-bearing demand 113,971 110,145 107,581
Savings and money market accounts 104,167 102,707 104,805
Time certificates, $100,000 and over 151,349 153,774 160,992
Other time certificates 111,157 111,619 113,200
--------- --------- ---------
Total deposits 618,637 608,746 589,504
Securities sold under agreements to repurchase 68,127 82,507 63,616
Federal funds purchased 45,488 34,845 46,130
Federal Home Loan Banks and other notes payable 91,727 88,416 84,460
Other short-term borrowings - - - 500 - - -
Other liabilities 9,315 11,115 9,952
--------- --------- ---------
Total liabilities 833,294 826,129 793,662
--------- --------- ---------
Stockholders' equity:
Common stock, no par value
Authorized shares - 5,000,000
Issued shares - 2,160,122 at 9/30/98;
2,149,497 at 12/31/97; 2,145,622 at 9/30/97 14,553 14,364 14,248
Additional paid-in capital 591 406 318
Net unrealized holding gain on securities available for sale 2,634 1,775 1,530
Retained earnings 59,081 55,286 54,581
--------- --------- ---------
Total stockholders' equity 76,859 71,831 70,677
--------- --------- ---------
Total Liabilities and Stockholders' Equity $ 910,153 $ 897,960 $ 864,339
--------- --------- ---------
--------- --------- ---------
</TABLE>
See notes to consolidated financial statements
3
<PAGE>
FIRST PLACE FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
(in thousands, except per share)
---------------------------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- -----------------------
1998 1997 1998 1997
-------- ------- ------- -------
<S> <C> <C> <C> <C>
Interest income:
Loans, including fees $ 10,739 $11,747 $33,985 $34,888
Investment securities:
Taxable 3,422 3,113 9,916 8,897
Tax-exempt 796 775 2,344 2,326
Interest-bearing deposits 822 203 1,795 457
Federal funds sold 362 93 734 236
-------- ------- ------- -------
Total interest income 16,141 15,931 48,774 46,804
-------- ------- ------- -------
Interest expense:
Time deposits $100,000 and over 2,173 2,367 6,543 7,106
Other deposits 3,503 3,593 10,625 10,733
Short-term borrowings 1,627 1,249 4,846 3,383
Other borrowings 1,441 1,200 4,089 3,176
-------- ------- ------- -------
Total interest expense 8,744 8,409 26,103 24,398
-------- ------- ------- -------
Net interest income 7,397 7,522 22,671 22,406
Provision for loan losses 420 555 1,555 1,290
-------- ------- ------- -------
Net interest income after provision for loan losses 6,977 6,967 21,116 21,116
-------- ------- ------- -------
Other income:
Service charges on deposit accounts 712 705 2,075 2,020
Other service charges and fees 442 327 1,132 1,002
Investment securities gains (losses) 4 -- 7 (129)
Other operating income 75 122 299 418
-------- ------- ------- -------
Total other income 1,233 1,154 3,513 3,311
-------- ------- ------- -------
Other expense:
Salaries and employee benefits 2,951 2,802 8,996 8,187
Occupancy expenses, net 584 551 1,622 1,691
Other operating expenses 1,931 2,011 6,202 5,453
-------- ------- ------- -------
Total other expenses 5,466 5,364 16,820 15,331
-------- ------- ------- -------
Income before income taxes 2,744 2,757 7,809 9,096
Income taxes 488 660 1,608 2,297
-------- ------- ------- -------
Net Income $ 2,256 $ 2,097 $ 6,201 $ 6,799
-------- ------- ------- -------
-------- ------- ------- -------
Earnings per common share:
Basic $ 1.04 $ 0.98 $ 2.87 $ 3.18
Diluted $ 1.03 $ 0.96 $ 2.83 $ 3.12
</TABLE>
See notes to consolidated financial statements
4
<PAGE>
FIRST PLACE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
(in thousands)
------------------------------------------------
Nine Months Ended
September 30,
------------------------------------------------
1998 1997
--------------------- ----------------------
<S> <C> <C> <C> <C>
Retained earnings:
Balance at beginning of year $ 55,286 $ 50,035
Net income 6,201 $ 6,201 6,799 $ 6,799
Cash dividends declared (2,406) (2,253)
--------- ---------
Balance at end of period 59,081 54,581
--------- ---------
Accumulated other comprehensive income:
Balance at beginning of year 1,775 967
Unrealized gains on securities
net of reclassification adjustment 859 859 563 563
--------- --------
Comprehensive income $ 7,060 $ 7,362
--------- --------
--------- --------
--------- ---------
Balance at end of period 2,634 1,530
--------- ---------
Common stock:
Balance at beginning of year 14,364 13,634
Issuance of new common stock 377 614
Retirement of common stock (188) --
--------- ---------
Balance at end of period 14,553 14,248
--------- ---------
Additional paid-in capital:
Balance at beginning of year 406 124
Additions related to sale of common stock 185 194
--------- ---------
Balance at end of period 591 318
--------- ---------
Total stockholders' equity $ 76,859 $ 70,677
--------- ---------
--------- ---------
Disclosure of reclassification amount:
Unrealized holding gains arising during period $ 837 $ 492
Less: reclassification adjustment for gains
included in net income -- --
Plus: reclassification adjustment for losses
included in net income 22 71
--------- --------
Net unrealized gains on securities $ 859 $ 563
--------- --------
--------- --------
</TABLE>
5
<PAGE>
FIRST PLACE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Year Ended December 31, 1997
<TABLE>
<CAPTION>
1997
--------------------------
<S> <C> <C>
Retained earnings:
Balance at beginning of year $ 50,035
Net income 9,094 $ 9,094
Cash dividends declared (3,843)
---------
Balance at end of period 55,286
---------
Accumulated other comprehensive income:
Balance at beginning of year 967
Unrealized gains on securities
net of reclassification adjustment 808 808
-------
Comprehensive income $ 9,902
-------
-------
---------
Balance at end of period 1,775
---------
Common stock:
Balance at beginning of year 13,634
Issuance of new common stock 730
Retirement of common stock --
---------
Balance at end of period 14,364
---------
Additional paid-in capital:
Balance at beginning of year 124
Additions related to sale of common stock 282
---------
Balance at end of period 406
---------
Total stockholders' equity $ 71,831
---------
---------
Disclosure of reclassification amount:
Unrealized holding gains arising during period $ 748
Less: reclassification adjustment for gains
included in net income --
Plus: reclassification adjustment for losses
included in net income 60
-------
Net unrealized gains on securities $ 808
-------
-------
</TABLE>
6
<PAGE>
FIRST PLACE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
(in thousands)
Nine Months Ended
September 30
--------------------------
1998 1997
---------- -----------
<S> <C> <C>
Cash flow from operating activities:
Net income $ 6,201 $ 6,799
Adjustments to reconcile net income to net cash provided by operations:
Amortization (456) (374)
Depreciation 1,334 1,104
Provision for loan losses 1,555 1,290
Decrease (increase) in other assets 480 (319)
Decrease in other liabilities (863) (624)
Gain on sale of bank premises and equipment (4) (9)
Gain on sale of other real estate (33) (274)
Writedown of other real estate 80 --
(Gain) loss on sale of available-for-sale securities (15) 129
Provision for deferred income taxes 864 (546)
--------- ---------
Net cash from operating activities 9,143 7,176
--------- ---------
Cash flows from investing activities:
Proceeds from sales of available-for-sale securities 7,852 13,039
Proceeds from maturities of available-for-sale securities 77,143 71,673
Purchases of available-for-sale securities (110,538) (110,209)
Net change in loans 60,354 (22,448)
Proceeds from the sale of bank premises and equipment 40 21
Proceeds from sale of other real estate 638 1,429
Purchase of property and equipment (3,917) (2,140)
--------- ---------
Net cash from investing activities 31,572 (48,635)
--------- ---------
Cash flows from financing activities:
Net change in deposit accounts 12,778 11,278
Net change in certificates of deposit (2,888) (9,666)
Net change in securities sold under agreements to repurchase (14,380) (5,123)
Net change in federal funds purchased 10,143 30,345
Proceeds from Federal Home Loan Bank advances 9,037 38,578
Payments on Federal Home Loan Bank advances (16,763) (5,587)
Net change in other notes payable 11,038 (550)
Cash dividends paid (3,199) (2,946)
Proceeds from issuance of common stock 375 808
--------- ---------
Net cash from financing activities 6,141 57,137
--------- ---------
Net increase in cash and cash equivalents 46,856 15,678
Cash and cash equivalents at beginning of period 96,881 59,713
--------- ---------
Cash and cash equivalents at end of period $ 143,737 $ 75,391
--------- ---------
--------- ---------
</TABLE>
See notes to consolidated financial statements
7
<PAGE>
FIRST PLACE FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
<TABLE>
<S> <C> <C>
Supplemental Disclosure of Cash Flow Information:
Cash paid during period for:
Interest 26,539 24,668
Taxes 1,212 2,086
Non-cash assets acquired through foreclosure 268 186
</TABLE>
8
<PAGE>
FIRST PLACE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED STATEMENTS
NOTE 1 - PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of First Place
Financial Corporation and its subsidiaries. Significant intercompany
accounts and transactions have been eliminated in consolidation.
The information contained in the financial statements for September 30,
1998 and September 30, 1997, was unaudited. In the opinion of management,
all adjustments necessary for a fair presentation of the results have been
made. Certain prior year amounts are reclassified to conform to current
year classifications.
NOTE 2 - RECONCILIATION OF EARNINGS PER SHARE
The following is the reconciliation of the numerator and denominator of the
basic and diluted earnings per common share computations:
<TABLE>
<CAPTION>
Basic and Diluted EPS
(in thousands, except per share data)
At September 30 1998 1997
--------------------------------------- ---------------------------------------
Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- --------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS:
Income available to
common stockholders $ 6,201 2,158,540 $ 2.87 $ 6,799 2,136,486 $ 3.18
------ ------
------ ------
Effect of dilutive
securities-options -- 31,955 -- 42,086
------- --------- ------- ---------
Diluted EPS:
Income available to
common stockholders $ 6,201 2,190,495 $ 2.83 $ 6,799 2,178,572 $ 3.12
------- --------- ------ ------- --------- ------
------- --------- ------ ------- --------- ------
</TABLE>
NOTE 3 - REPORTING COMPREHENSIVE INCOME
In June, 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 130, REPORTING
COMPREHENSIVE INCOME. SFAS No. 130 requires disclosure in the financial
statements of comprehensive income that encompasses earnings and those
items currently required to be reported directly in the equity section of
the balance sheet, such as unrealized gains and losses on
available-for-sale securities. The Consolidated Statements of Changes in
Stockholders' Equity include the disclosure of comprehensive income.
9
<PAGE>
NOTE 4 - DISCLOSURE ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED
INFORMATION
In June, 1997, the FASB issued SFAS No. 131, DISCLOSURE ABOUT SEGMENTS OF
AN ENTERPRISE AND RELATED INFORMATION. SFAS No. 131 requires disclosures
about segments of an enterprise and related information about the different
types of business activities in which an enterprise engages and the
different economic environments in which it operates. The Company operates
in a limited geographic area and reports its business activities on a
consolidated basis. The Consolidated Balance Sheets and Consolidated
Statements of Income are on pages 3 and 4, respectively.
NOTE 5 - CAPITALIZATION OF CERTAIN SOFTWARE COSTS
In March, 1998, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position (SOP) 98-1 CAPITALIZATION OF CERTAIN
SOFTWARE COSTS, which will become effective for financial statements for
calendar year 1999. SOP 98-1 requires the capitalization of certain costs
related to computer software development or obtained for internal use.
Management does not anticipate that the adoption of this SOP will be
material.
NOTE 6 - REPORTING ON THE COSTS OF START-UP ACTIVITIES
In April, 1998, the AICPA issued SOP 98-5 REPORTING ON THE COSTS OF
START-UP ACTIVITIES, which will be effective for financial statements for
fiscal years beginning after December 15, 1998. SOP 98-5 requires cost of
start-up activities and organization costs to be expensed as incurred.
Management does not anticipate that the adoption of this SOP will be
material.
NOTE 7 - ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING
ACTIVITIES
In June, 1998, the FASB issued SFAS No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES. SFAS No. 133 establishes accounting
and reporting standards for derivative instruments. This Statement is
effective for the fiscal year beginning after June 15, 1999. Management
does not anticipate that the adoption of this FASB will be material.
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
This management discussion and analysis of financial condition should be read
in conjunction with the consolidated financial statements and accompanying
notes and Form 10-K for the year-ended December 31, 1997.
Words or phrases when used in this Form 10-Q or other filings with the
Securities and Exchange Commission, such as "does not expect" and "are
expected to", or similar expressions are intended to identify
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995.
Various factors such as, national and regional economic conditions, changes
in market interest rates, credit and other risks of lending and investment
activities, and competitive and regulatory factors, could affect the
financial performance of First Place Financial Corporation and its
subsidiaries and could cause actual results for future periods to differ from
those anticipated.
OVERVIEW
First Place Financial Corporation ("First Place") and 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") combined operations
(the "Company") recorded, for the first nine months of 1998, net income of
$6,201,000, compared to net income of $6,799,000 for the first nine months of
1997. Basic and diluted earnings per share (EPS) were $2.87 and $2.83,
respectively, for the nine months ended September 30, 1998 compared to $3.18
and $3.12, respectively, for the same period a year ago. The net income for
the first nine months of 1998 decreased $598,000 from net income reported for
the first nine months of 1997 due to the net result of net interest income
increasing $265,000, other income increasing $202,000 and taxes decreasing
$689,000, offset by increases in the provision for loan losses of $265,000
and in other expenses of $1,489,000.
Net income of $2,256,000 was recorded for the third quarter of 1998, up
$159,000 from the $2,097,000 recorded for the third quarter of 1997. Basic
and diluted EPS were $1.04 and $1.03, respectively, for the three months
ended September 30, 1998 compared to $.98 and $.96, respectively, for the
same period a year ago.
On an annualized basis, the return on average assets for the first nine
months of 1998 was .91 percent and the return on average assets for the first
nine months of 1997 was 1.11 percent. On an annualized basis, the return on
average equity for the nine months of 1998 was 11.25 percent compared to
13.38 percent for the same period a year ago. For the year-ended December 31,
1997, the return on average assets and the return on average equity were
1.09 percent and 13.32 percent, respectively.
11
<PAGE>
NET INTEREST INCOME
Interest income for the nine months ended September 30, 1998, was
$48,774,000, a 4.2 percent increase over the $46,804,000 recorded for the
nine months of 1997. Loan interest income and fees decreased $903,000,
interest income on available-for-sale securities increased $1,037,000,
interest income on interest-bearing deposits in other banks increased
$1,338,000 and interest income on federal funds sold increased $498,000.
Total interest earning assets averaged $810,835,000, up $61,862,000 from
average earning assets of $748,973,000 recorded for the nine months ended
September 30, 1997. This increase was primarily due to the increase of
$24,555,000 or 9.5 percent in average available-for-sale securities,
$33,485,000 or 298.1 percent increase in average interest-bearing deposits in
other banks and average federal funds sold increase of $12,018,000 or 211.2
percent. These increases were offset by a decrease of $8,196,000 or 1.7
percent in average loans. The average yield on earning assets for the first
nine months of 1998 was 8.28 percent, compared to 8.61 percent for the like
period a year ago. The decrease in the average yield on earning assets was
primarily due to the change in the composition of average earning assets
previously discussed.
Interest income for the quarter ended September 30, 1998 was $16,141,000, a
1.3 percent increase over the $15,931,000 recorded for the third quarter of
1997.
Interest expense for the nine months ended September 30, 1998, was
$26,103,000, a 7.0 percent increase compared to $24,398,000 for the nine
months ended September 30, 1997. Average interest-bearing liabilities were
$700,565,000 for the first nine months of 1998, a 7.4 percent increase from
average interest-bearing liabilities of $652,105,000 for the first nine
months of 1997. This increase was due to the $16,832,000 increase in average
interest-bearing demand deposits, the $32,145,000 increase in average federal
funds purchased, the $5,263,000 increase in average securities sold under
agreements to repurchase and an increase in average Federal Home Loan Bank
notes and other notes payable of $20,546,000. These increases were offset
somewhat by decreases of $5,278,000 in average savings and money market
accounts and $21,048,000 in average time certificates. The average rates
paid on these liabilities for the first nine months of 1998 was 4.98 percent
compared to 5.00 percent paid for the same period a year ago.
Interest expense for the quarter ended September 30, 1998 was $8,744,000, a
4.0 percent increase, compared to $8,409,000 for the quarter ended
September 30, 1997.
Net interest income increased $265,000 for the first nine months of 1998
compared to the same period a year ago. Net interest margin, which is net
interest income expressed as a percent of total average earning assets on a
fully tax-equivalent basis, for the first nine months of 1998, was 3.98
percent, down from 4.26 percent a year ago. The decrease in the net interest
margin was primarily due to the change in the composition of average earning
assets. Average loans, which are the highest yielding earning asset, were
57.5 percent and 63.3 percent of total average earning assets as of
September 30, 1998 and 1997, respectively. The impact of this shift was offset
somewhat by an increase in the ratio of noninterest-bearing deposits to
average earning assets, which was 15.7 percent and 12.4 percent as of
September 30, 1998 and 1997, respectively.
12
<PAGE>
Net interest income decreased $125,000, or 1.7 percent, for the third quarter
of 1998 compared to the same period in 1997.
PROVISION FOR LOAN LOSSES
The 1998 year-to-date provision for loan losses was $1,555,000, an increase
of $265,000, or 20.5 percent from the year-ago period. For the third quarter
of 1998, the provision for loan losses was $420,000, down $135,000 from the
year-ago quarter. The provision increase was in response to concerns with
certain portions of the loan portfolio during the first half of 1998 as
discussed and reported in "Asset Quality" on page 15. However, the decrease
in the provision in the third quarter of 1998 compared to the third quarter
of 1997 reflects management's commitment to improving loan quality as well as
the impact of the decrease in outstanding loans.
OTHER INCOME
For the first nine months of 1998, the Company recorded other income of
$3,513,000, up $202,000 from the $3,311,000 recorded in the first nine months
of 1997. Correspondent bank service charges increased $104,000 due to
increases in correspondent bank accounts and activity; secondary mortgage fee
income increased $114,000 and ATM and credit card fees increased $100,000.
Investment security losses of $129,000 were reported for the nine months
ended September 30, 1997 while $7,000 in gains were reported for the nine
months ended September 30, 1998. These gains were offset somewhat by a
decrease in gains on the sale of other real estate owned (OREO) and other
related income of $221,000.
Other income for the third quarter of 1998 was $1,233,000, up $79,000 from
the $1,154,000 reported for the same period a year ago. This increase was
primarily due to ATM and credit card fee increases offset somewhat by OREO
income decreases.
OTHER EXPENSES
Other expenses for the nine months ended September 30, 1998 were $16,820,000,
up $1,489,000 from the $15,331,000 recorded for the same period a year ago.
This increase was primarily due to increases in salaries and benefits of
$809,000, data processing expenses of $353,000 and supplies of $111,000
offset somewhat by $172,000 decrease in legal expenses. Salaries and
benefits increased primarily due to normal salary increases and a higher
level of full-time equivalent employees added to support expansion, including
twelve staff members hired for Capital Bank, a de novo bank which is located
in Albuquerque and is a wholly owned subsidiary of the Company. Capital Bank
opened in October, 1998. The increases in data processing expenses and
supplies were primarily due to technical enhancements. The most significant
enhancements were digital check and statement imaging, local and wide-area
networks and an improved voice response system. The decrease in legal
expenses was due to improved loan quality and recoveries of legal expenses.
13
<PAGE>
Other expenses for the three months ended September 30, 1998 were $5,466,000,
up $102,000 from the $5,364,000 recorded for the same period a year ago.
This increase was primarily due to increases in salaries and benefits of
$149,000 and an increase of $142,000 in data processing expenses offset by a
$107,000 decrease in legal fees.
INCOME TAXES
Income tax expense for the first nine months of 1998 was $1,608,000, down
$689,000 from $2,297,000 recorded for the nine months of 1997. The effective
tax rates for the nine months of 1998 and 1997 were 21 percent and 25
percent, respectively.
Income tax expense for the third quarter of 1998 was $488,000, down $172,000
from $660,000 recorded in the third quarter of 1997. The effective tax rates
for the third quarter of 1998 and 1997 were 18 percent and 24 percent,
respectively.
The decrease in the effective tax rates for third quarter and nine months
ended September 30, 1998 was primarily the result of the Company's increased
investment in U.S. government and tax-exempt municipal securities.
BALANCE SHEET REVIEW
Average total assets were $910,624,000 for the first nine months of 1998
compared to $822,478,000 for the like period of 1997. Period-end assets were
$910,153,000, $897,960,000 and $864,339,000 at September 30, 1998, December
31, 1997, and September 30, 1997, respectively.
Cash and due from banks at September 30, 1998 were $76,426,000 compared to
$57,183,000 reported for the same period a year ago. This increase of
$19,243,000 consisted primarily of due from bank balances which increased
$12,640,000 from September 30, 1997 to September 30, 1998. The due from bank
balances have increased due to increased check processing for correspondent
banks. The average cash and due from banks balances for the first nine
months of 1998 were $71,141,000 compared to $45,176,000 average during the
first nine months of 1997 and $49,572,000 average for the year-ended December
31, 1997.
Interest-bearing deposits in banks, which consist of balances maintained at
Federal Home Loan Banks, increased from $14,528,000 at September 30, 1997 to
$18,806,000 at September 30, 1998. The Company deposits excess funds into
Federal Home Loan Banks in lieu of selling the funds in the federal funds
market. Federal funds sold increased $44,825,000 from September 30, 1997 to
the September 30, 1998 balance of $48,505,000.
Average available-for-sale securities at September 30, 1998 were $282,438,000
an increase of $24,557,000 from $257,881,000 reported for September 30, 1997.
This increase was primarily in taxable securities. The balance of
available-for-sale securities at September 30, 1998 was $306,872,000 up 13.1
percent from a year ago.
14
<PAGE>
Loans decreased $56,570,000 to $430,991,000 at September 30, 1998, from
$487,561,000 at September 30, 1997. Loans at September 30, 1998, decreased
$60,970,000 from December 31, 1997. This decrease was in both the commercial
and consumer categories, with the most significant decrease being in the
commercial and commercial real estate areas. The $60,970,000 decrease was
primarily attributable to payoffs of several large loans due to customers
obtaining alternative long-term financing, early payoffs due to corporate
acquisitions and a reduction in direct and indirect consumer loans which was
primarily due to enhanced underwriting standards. Management is actively
working on expanding the Company's customer base which should provide
additional lending opportunities. The October, 1998 opening of Capital Bank
will give the Company access to the Albuquerque market which has strategic
significance as the Albuquerque metropolitan area economy is the largest and
most robust economy in New Mexico.
Total deposits of $618,637,000 at September 30, 1998, increased $9,891,000
and $29,133,000 from December 31, 1997 and September 30, 1997, respectively.
Noninterest-bearing deposits of $137,993,000 at September 30, 1998, increased
$35,067,000 from the $102,926,000 reported at September 30, 1997. This
increase was primarily in correspondent bank deposit balances. The
correspondent bank balances increased due to expansion of the Company's check
processing business. Interest-bearing demand of $113,971,000 increased
$6,390,000 from the $107,581,000 reported at September 30, 1997. Savings and
money market accounts were $104,167,000 at September 30, 1998 down slightly
from the year-ago period. Time certificates decreased $11,686,000 from a year
ago to $262,506,000.
Securities sold under agreements to repurchase as of September 30, 1998, were
$68,127,000 compared to $82,507,000 as of December 31, 1997 and $63,616,000
as of September 30, 1997. Federal funds purchased were $45,488,000 as of
September 30, 1998, compared to $34,845,000 as of December 31, 1997, and
$46,130,000 as of September 30, 1997. Federal Home Loan Bank (FHLB) advances
and other notes payable were $91,727,000 as of September 30, 1998, compared
to $88,416,000 as of December 31, 1997, and $84,460,000 at September 30,
1997.
ASSET QUALITY
Nonperforming loans, OREO and other foreclosed assets are presented in the
following table:
<TABLE>
<CAPTION>
(in thousands)
-----------------------------------------------
September 30, December 31, September 30,
1998 1997 1997
------------- ------------ -------------
<S> <C> <C> <C>
Nonaccrual loans $4,056 $5,078 $2,448
Accruing loans past due 90 days or more 1,239 227 1,484
Restructured loans (in compliance with
modified terms) 3,090 29 29
OREO and other foreclosed assets 778 1,421 1,805
------ ------ ------
Total nonperforming assets $9,163 $6,755 $5,766
------ ------ ------
------ ------ ------
</TABLE>
15
<PAGE>
Restructured loans increased $3,061,000 from December 31, 1997 to
September 30, 1998. This increase was primarily attributed to a single loan.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is presented in the following table:
<TABLE>
<CAPTION>
September 30, December 31, September 30,
1998 1997 1997
------------- ------------ -------------
<S> <C> <C> <C>
Beginning balance $ 8,722 $ 8,933 $ 8,933
Provision charged to expense 1,555 2,245 1,290
Recoveries on loans previously
charged-off 661 1,086 859
Loans charged-off (1,010) (3,542) (2,893)
------- ------- -------
Balance $ 9,928 $ 8,722 $ 8,189
------- ------- -------
------- ------- -------
</TABLE>
The Company considered the allowance for loan losses at September 30, 1998,
to be adequate to absorb known risks in the loan portfolio. Year-to-date net
loan charge-offs were .08 percent of loans outstanding at September 30, 1998,
compared to .42 percent at September 30, 1997. The $1,883,000 decrease in
gross charge-offs from the same period a year ago was primarily in commercial
loans.
Based upon recent experience, management estimates gross charge-offs for 1998
of $1,700,000 broken down as follows: commercial $200,000; commercial real
estate $200,000 and consumer $1,300,000. Actual results may differ from
management's estimates.
LIQUIDITY
The Company maintains liquidity through stable deposits, the prudent usage of
debt, and from a high quality securities portfolio.
Other sources of liquidity are provided by federal funds purchased,
securities sold under repurchase agreements, borrowings from Federal Home
Loan Banks and access to the Federal Reserve for short term liquidity needs.
The Company has federal funds lines of credit of $78,000,000 as of September
30, 1998. The ratio of loans to deposits, which is a measure of liquidity,
was 69.7 percent at September 30, 1998 compared to 80.8 percent and 82.7
percent at December 31, 1997, and September 30, 1997, respectively.
Management expects that current sources of liquidity will meet funding needs
although changes in market conditions could affect their mix or could require
the use of other funding sources.
16
<PAGE>
ASSET/LIABILITY MANAGEMENT
The subsidiary banks' Asset Liability Management Committees ("ALCO") are
responsible for the identification, assessment and management of the
liquidity and interest rate risk of the respective subsidiary banks. The
ALCO has focused on maintaining acceptable liquidity levels and maintaining a
position of minimal interest rate risk exposure with an emphasis on deposit
gathering, nondeposit options such as FHLB borrowings and taking advantage of
lending opportunities.
STOCKHOLDERS' EQUITY AND CAPITAL ADEQUACY
The subsidiary banks each exceeded regulatory requirements for "well
capitalized" status as of September 30, 1998. The Company's risk-based
capital ratios at September 30, 1998, were:
Tier 1 capital (regulatory minimum = 4.00% or above) was 14.05 percent
compared to 12.00 percent at year end.
Total capital (regulatory minimum = 8.00% or above) was 15.31 percent
compared to 13.25 percent at year end.
Leverage ratio (regulatory minimum = 4.00% or above) was 8.09 percent
compared to 7.92 percent at year end.
Stockholders' equity increased 8.7 percent to $76,859,000 from a year ago
and was up $5,028,000 from year-end 1997. This growth was primarily due to
earnings retention. The ratio of stockholders' equity to total assets was
8.4 percent at September 30, 1998, compared to 8.0 percent and 8.2 percent at
December 31, 1997, and September 30, 1997, respectively.
YEAR 2000 COMPLIANCE PLAN
Many computer applications do not have the capability of recognizing the year
2000 as existing programs and hardware configurations typically use only two
digits to identify a year in the date field. The Company is actively engaged
in resolving the issues involved with the Year 2000 challenge. A team has
been formed to identify the scope of the project and address the various
issues. The Company is currently on schedule with its plan to have all
mission critical systems upgraded before the year 2000 and the majority of
the testing will be completed by December 31, 1998. The Company has assessed
the Year 2000 compliance status of third party service providers and has also
assessed the scope of the Year 2000 issue in regard to major customers and
has developed contingency plans which address the potential credit and
liquidity risks involved.
The estimated expense for the Company's Year 2000 project is not expected to
be material (approximately $200,000 for 1999 and $100,000 for 2000). The
completion dates and costs are based on management's current best estimates.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
There have been no material changes in the Company's interest rate risk
position since December 31, 1997.
17
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 3 (i). Articles of Incorporation of Registrant*
Exhibit 3(ii). Bylaws of Registrant*
Exhibit 27. Financial Data Schedule
(b) Reports on Form 8-K
(1) Report dated August 19, 1998, regarding management
promotions.
(2) Report dated October 26, 1998, regarding the press
release announcing the results for the third quarter
ended September 30, 1998, and reporting the quarterly
dividend and the third quarter 1998 shareholder letter.
- -------------------
* Incorporated by reference from Exhibits to the Registrant's Registration
Statement on Form S-4, dated April 18, 1995, Registration No. 33-91310
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRST PLACE FINANCIAL CORPORATION
---------------------------------
(Registrant)
Date: November 9, 1998 /s/ James D. Rose
---------------- -------------------------------------
President and Chief Operating Officer
19
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 76,426
<INT-BEARING-DEPOSITS> 18,806
<FED-FUNDS-SOLD> 48,505
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 306,872
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 430,991
<ALLOWANCE> 9,928
<TOTAL-ASSETS> 910,153
<DEPOSITS> 618,637
<SHORT-TERM> 113,615
<LIABILITIES-OTHER> 9,315
<LONG-TERM> 91,727<F1>
0
0
<COMMON> 14,553
<OTHER-SE> 62,306
<TOTAL-LIABILITIES-AND-EQUITY> 910,153
<INTEREST-LOAN> 33,985
<INTEREST-INVEST> 12,260
<INTEREST-OTHER> 2,529
<INTEREST-TOTAL> 48,774
<INTEREST-DEPOSIT> 17,168
<INTEREST-EXPENSE> 26,103
<INTEREST-INCOME-NET> 22,671
<LOAN-LOSSES> 1,555
<SECURITIES-GAINS> 7
<EXPENSE-OTHER> 16,820
<INCOME-PRETAX> 7,809
<INCOME-PRE-EXTRAORDINARY> 6,201
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,201
<EPS-PRIMARY> 2.87<F2>
<EPS-DILUTED> 2.83
<YIELD-ACTUAL> 3.98
<LOANS-NON> 4,056
<LOANS-PAST> 1,239
<LOANS-TROUBLED> 3,090
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 8,722
<CHARGE-OFFS> 1,010
<RECOVERIES> 661
<ALLOWANCE-CLOSE> 9,928
<ALLOWANCE-DOMESTIC> 9,928
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
<FN>
<F1>Long term and other notes payable
<F2>Basic EPS
</FN>
</TABLE>
