<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, 1997
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 6, 1998, there were 2,159,422 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 6, 1998, was approximately
$125,939,536.
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 30, 1998, are incorporated by reference into Part III.
<PAGE>
FORM 10-K CROSS REFERENCE INDEX
Page
----
PART I
Item 1 Business 3
Item 2 Properties 6
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"), 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"). First Place and the
Subsidiary Banks on a consolidated basis are the "Company".
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, 1997 (in thousands):
<TABLE>
PARENT FNBF BNBD WBG ELIM CONSOLIDATED
------ ---- ---- --- ---- ------------
<S> <C> <C> <C> <C> <C> <C>
Investments $ --- $231,626 $ 36,801 $11,132 $ --- $279,559
Loans --- 349,881 108,554 33,526 --- 491,961
Other earning assets --- 18,352 850 2,518 (4,418) 17,302
------- -------- -------- ------- -------- --------
Total earning assets --- 599,859 146,205 47,176 (4,418) 788,822
Allowance for loan losses --- (6,209) (1,934) (579) --- (8,722)
Other assets 74,118 97,641 15,140 7,005 (76,044) 117,860
------- -------- -------- ------- -------- --------
Total Assets $74,118 $691,291 $159,411 $53,602 $(80,462) $897,960
------- -------- -------- ------- -------- --------
------- -------- -------- ------- -------- --------
Total deposits $ --- $461,103 $105,536 $49,091 $ (6,984) $608,746
Other borrowed funds --- 170,254 40,432 --- (4,418) 206,268
------- -------- -------- ------- -------- --------
Total deposits and borrowed funds --- 631,357 145,968 49,091 (11,402) 815,014
Other liabilities 2,287 7,650 833 345 --- 11,115
------- -------- -------- ------- -------- --------
Total liabilities 2,287 639,007 146,801 49,436 (11,402) 826,129
Stockholders' equity 71,831 52,284 12,610 4,166 (69,060) 71,831
------- -------- -------- ------- -------- --------
Total Liabilities and Stockholders' Equity $74,118 $691,291 $159,411 $53,602 $(80,462) $897,960
------- -------- -------- ------- -------- --------
------- -------- -------- ------- -------- --------
</TABLE>
Each of the Subsidiary Banks engages 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 permitted 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. A branch office
located in Kirtland, New Mexico is scheduled to be opened in the second quarter
of 1998. In addition, FNBF has developed a significant correspondent banking
business which has extended its lending area throughout New Mexico and southwest
Colorado. Approximately 40% of the commercial and commercial real estate loans
at December 31, 1997 were to borrowers outside of San Juan County.
FNBF continues to develop a significant check clearing business with
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 and independent banks in southwest Colorado.
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 has branch facilities strategically located
throughout the county, including one branch on the Navajo Nation. All branches
accept loan applications. 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, NationsBank (formerly
Sunwest), and Animas Credit Union. Other local competition includes branches of
Bank of America (Albuquerque), Bank of the Southwest (Roswell), and Centennial
Savings Bank FSB (Durango, Colorado). Some of these competitors have several
branches and operate automated teller machines in Farmington and San Juan
County. At June 30, 1997, FNBF held approximately 58% of the total commercial
bank deposits in San Juan County.
4
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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; one of which is in Archuleta County and also operates
seven automated teller machines one of which is in neighboring Montezuma County
and one in Archuleta County.
BNBD offers all types of loans but specializes in real estate lending,
particularly interim construction loans. BNBD is the second largest commercial
bank in Durango.
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. At
June 30, 1997, BNBD held approximately 22% 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 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 65% of WBG's
loan portfolio.
COMPETITION
WBG's primary competitors are Gallup Federal Savings and Loan Association;
and branches of Norwest Bank (Albuquerque), NationsBank (Albuquerque) and Bank
of America (Albuquerque). At June 30, 1997, WBG held approximately 19% of
commercial bank deposits in McKinley County.
EMPLOYEES AND EMPLOYEE BENEFITS
First Place currently employs approximately 340 full-time equivalent
employees. 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 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
regulations, 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. 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.
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
6
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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 two in-store branch offices and three 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 its 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 1997.
7
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PART II
ITEM 5. MARKET FOR REGISTRANTS' 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 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 shares offered at the prices listed for the first three
quarters of 1996 in the following table. Since there is not an active market
for FPFC stock, the high and low bid quotations shown in the following table for
1997 may not necessarily represent actual transactions and does not include
mark-up or commission.
<TABLE>
Price of Common Stock
Bid Price
High Low
------------------
1997 1996
------------------ ------------
<S> <C> <C> <C>
First Quarter $60.00 $56.00 $42.27
Second Quarter $62.75 $58.00 $43.79
Third Quarter $64.50 $62.00 $45.05
Fourth Quarter $69.00 $64.00 $50.00-56.00*
*Range of sales price obtained from an information service.
</TABLE>
The holders of common stock of First Place 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 receive 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 Office of the Comptroller of the Currency 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.
8
<PAGE>
The following table summarizes dividends declared by First Place's Board of
Directors for 1997 and 1996:
<TABLE>
Dividends Declared Per Share
Increase
1997 1996 Decrease
------- ------- ---------
<S> <C> <C> <C>
First Quarter $0.3500 $0.3167 $0.0333
Second Quarter 0.3500 0.3200 0.0300
Third Quarter 0.3500 0.3200 0.0300
Fourth Quarter 0.3700 0.3200 0.0500
Special Fourth Quarter 0.3700 0.3600 0.0100
------- ------- -------
$1.7900 $1.6367 $0.1533
------- ------- -------
------- ------- -------
</TABLE>
As of March 6, 1998, there were approximately 642 holders of record of
First Place'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 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
Management's discussion regarding the above is presented on page 34 in
the Appendix.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Company begin on page 37
in the Appendix. The reports of the Company's independent certified accountants
on the consolidated financial statements are presented on pages 70 and 71 in the
Appendix.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
9
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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 30, 1998 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 30, 1998 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 30, 1998 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 30, 1998 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 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 following reports on Form 8-K during the last
quarter of 1997:
(1) Report dated October 24, 1997, regarding the Company's financial
results and quarterly dividend for the third quarter ending
September 30, 1997.
(2) Report dated November 19, 1997, regarding the adoption of a
Corporate Stock Repurchase Plan.
(3) Report dated December 5, 1997, regarding the notice of intent of
forming a new state chartered bank located in Albuquerque, New
Mexico.
(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 Consents of KPMG Peat Marwick LLP re: incorporation by
reference into the previously filed registration statements on
Form S-8 and this Form 10-K.
23.2 Consents of Chandler & Company LLP re: incorporation by
reference into the previously filed registration statements 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 25th day
of March, 1998.
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/ Robert S. Culpepper Chairman of the Board
---------------------------
Robert S. Culpepper
J. Gregory Merrion Vice Chairman of the Board
Tom Bolack Director
/s/ Ben Heikkinen Director
---------------------------
Ben Heikkinen
/s/ Robert M. Goodman Director
---------------------------
Robert M. Goodman
/s/ Richard I. Ledbetter Director
---------------------------
Richard I. Ledbetter
/s/ Jack M. Morgan Director
---------------------------
Jack M. Morgan
Roy L. Owen Director
/s/ James D. Rose Director
---------------------------
James D. Rose
/s/ Thomas C. Taylor Director
---------------------------
Thomas C. Taylor
/s/ Marlo L. Webb Director
---------------------------
Marlo L. Webb
12
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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 "Subsidiary Banks"):
First National Bank of Farmington ("FNBF"), Burns National Bank of Durango
("BNBD"), and Western Bank, Gallup ("WBG"). First Place and the Subsidiary
Banks on a consolidated basis are the "Company." 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.
Words or phrases when used in this Form 10-K or other filings with the
Securities and Exchange Commission, such as "does not expect," "estimate,"
"project" and "are to be 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 Company's financial performance and could cause actual
results for future periods to differ from those indicated by such forward-
looking statements.
CONTENTS
Page
Financial Review 13
Financial Statements 37
Independent Auditors' Reports 70
(A) RESULTS OF OPERATIONS
OVERVIEW
The Company reported net income of $9,094,000 in 1997, a decrease of
7.3% from earnings of $9,810,000 in 1996. Net income in 1997 and 1996 included
$221,000 and $163,000, respectively, 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. Diluted earnings per share were $4.17 in 1997, compared to
$4.59 in 1996 and $4.26 in 1995. Diluted earnings per share decreased
13
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9.2% from 1996 to 1997 and increased 7.8% from 1995 to 1996. Return on
average equity was 13.32% in 1997 compared to 15.90% and 17.29% in 1996 and
1995, respectively. The decrease of $716,000 in net income in 1997 compared
to 1996 was made up of the following: net interest income up $1,111,000;
provision for loan losses up $1,090,000; other income up $764,000; other
expenses up $2,485,000 and taxes down $984,000.
During 1997, assets of the Company grew $97,350,000 to $897,960,000, a
12.2% increase over the $800,610,000 recorded in 1996. Gross loans (net of
unearned discount) increased $23,773,000, or 5.1%, in 1997 compared to an
increase of $63,508,000, or 15.7%, in 1996.
<TABLE>
TABLE ONE
FIVE YEAR SUMMARY
(dollars in thousands, except earnings per share data)
Year Ended December 31,
1997 1996 1995 1994 1993
-------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Interest Income:
Loans, including fees $ 46,905 $43,450 $36,367 $27,355 $22,185
Taxable securities 12,243 10,050 9,849 9,833 10,008
Tax-exempt securities 3,100 2,699 2,828 1,912 929
Interest-bearing deposits 584 715 174 671 498
Federal funds sold 258 201 385 284 472
-------- ------- ------- ------- -------
Total interest income 63,090 57,115 49,603 40,055 34,092
-------- ------- ------- ------- -------
Interest Expense:
Time deposits of $100,000 and over 9,480 9,649 7,582 4,154 3,700
Other deposits 14,258 12,796 10,253 8,067 7,120
Short-term borrowings 4,772 3,224 4,053 2,117 1,136
Other borrowings 4,507 2,484 2,086 2,062 1,132
-------- ------- ------- ------- -------
Total interest expense 33,017 28,153 23,974 16,400 13,088
-------- ------- ------- ------- -------
Net interest income 30,073 28,962 25,629 23,655 21,004
Provision for loan losses 2,245 1,155 837 58 859
-------- ------- ------- ------- -------
Net interest income after provision for
loan losses 27,828 27,807 24,792 23,597 20,145
-------- ------- ------- ------- -------
Other Income:
Service charges on deposit accounts 2,715 2,573 2,594 2,484 2,560
Other service charges and fees 1,340 1,318 1,250 1,097 455
Investment securities gains (losses) (111) (82) --- (395) 401
Other operating income 1,274 645 862 852 2,175
-------- ------- ------- ------- -------
Total other income 5,218 4,454 4,706 4,038 5,591
-------- ------- ------- ------- -------
Other Expenses:
Salaries and employee benefits 11,464 10,040 9,114 8,648 7,522
Occupancy expenses, net 2,242 2,145 1,522 1,606 1,524
Other operating expenses 7,402 6,438 6,225 5,545 5,690
-------- ------- ------- ------- -------
Total other expenses 21,108 18,623 16,861 15,799 14,736
-------- ------- ------- ------- -------
Income before income taxes 11,938 13,638 12,637 11,836 11,000
Income taxes 2,844 3,828 3,871 3,819 3,870
-------- ------- ------- ------- -------
Net Income $ 9,094 $ 9,810 $ 8,766 $ 8,017 $ 7,130
-------- ------- ------- ------- -------
-------- ------- ------- ------- -------
Diluted Earnings Per Share $ 4.17 $4.59 $4.26 $3.98 $3.55
-------- ------- ------- ------- -------
-------- ------- ------- ------- -------
Dividends Declared Per Share $ 1.79 $1.64 $1.43 $1.23 $1.03
-------- ------- ------- ------- -------
-------- ------- ------- ------- -------
Selected statement of condition information:
Total assets at December 31 $897,960 $800,610 $690,795 $616,934 $538,884
Total deposits at December 31 608,746 587,893 529,047 438,716 406,292
Total equity at December 31 71,831 64,760 57,756 46,525 41,661
Long-term debt at December 31 49,763 38,492 30,572 29,755 22,832
</TABLE>
14
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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 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 percent
of average earning assets, was 4.23% in 1997, 4.52% in 1996, and 4.64% in
1995. Tax-equivalent net interest income was $31,995,000 in 1997, or 4.4%
greater than the $30,635,000 recorded in 1996. Tax-equivalent net interest
income in 1996 was 11.8% greater than the $27,392,000 recorded in 1995.
WBG's 1996 net interest income was $1,429,000 compared to $412,000 in 1995.
The $1,360,000 increase in tax-equivalent net interest income from 1996 to
1997 was attributed to a $2,449,000 increase due to volume changes net of a
$1,089,000 decrease due to rate changes.
INTEREST INCOME
Interest income earned on earning assets in 1997 was $63,090,000
compared to $57,115,000 in 1996 and $49,603,000 in 1995. The 10.5% increase
from 1996 to 1997 was primarily the result of the higher loan and taxable
securities volumes recorded in 1997. 1996 included a full year of WBG's
interest earned of $2,576,000 compared to 1995 reported interest income of
$739,000. During 1997, the Company's principal sources of interest income
were from the funds it invested in loans, securities, federal funds sold, and
interest-bearing deposits held in other financial institutions.
LOANS - In 1997, the average balance of loans outstanding was
$478,683,000, 9.4% greater than the average of $437,439,000 in 1996. Average
loans in 1996 were 21.7% higher than the $359,502,000 average recorded in
1995. Loans, as a percent of average earning assets, were 63.2% in 1997
compared to 64.6% in 1996 and 60.9% in 1995. The higher loan volumes in 1997
resulted in a $4,033,000 increase in tax-equivalent interest income. The
average yield on loans was 9.80% in 1997 compared to 9.93% in 1996 and 10.12%
in 1995. The decrease in yield on loans resulted in a decrease of $578,000
in tax-equivalent interest income. These two factors netted together
resulted in an increase in interest income of $3,455,000 in 1997.
At December 31, 1997, the Company had $5,078,000 in non-accrual loans
compared to $1,702,000 in 1996 and $3,517,000 in 1995. The reduction of
non-accrual loans from 1995 to 1996 was primary the result of the foreclosure
of real estate collateral which is reported in Other Real Estate Owned for
1996. The $3,376,000 increase in non-accrual loans from year end 1996 to year
end 1997, was primarily in real estate related loans.
INVESTMENT PORTFOLIO - Interest on taxable investment securities
increased by $2,193,000 in 1997 compared to a $201,000 tax-equivalent
increase in 1996. The increase in the average volume from 1996 to 1997
accounted for $2,010,000 of the 1997 interest increase in taxable securities
tax-equivalent income from 1996.
15
<PAGE>
Average taxable securities comprised 75.9% of the total average
investment portfolio at December 31, 1997. These average securities were
75.2% and 74.4%, respectively, in 1996 and 1995 of the total average
investment portfolio.
The investment portfolio is held as available-for-sale which provides
flexibility and liquidity; however, management does not anticipate the need
to sell securities for liquidity nor does management foresee selling
securities to recognize the current unrealized gains or losses in the
portfolio.
Average securities exempt from federal income tax comprised 24.1% of the
investment portfolio in 1997 compared to 24.8% in 1996 and 25.6% in 1995.
Interest in 1997 on tax-exempt securities, on a tax-equivalent basis, of
$5,022,000 was an increase of $650,000 from the $4,372,000 reported in 1996.
Interest, on a tax-equivalent basis, on tax-exempt securities in 1996 was
$219,000 less than the $4,591,000 recorded in 1995.
INTEREST-BEARING DEPOSITS - Average interest-bearing deposits,
consisting primarily of funds on deposit with Federal Home Loan Banks, was
$10,628,000 down $3,238,000 from the $13,866,000 1996 average. Lower
balances of interest-bearing deposits resulted in a decrease of $183,000 in
tax-equivalent interest income while higher rates earned in 1997 resulted in
an increase of $52,000. These two factors resulted in a net decrease in
tax-equivalent interest income of $131,000 in 1997 from 1996. The 1996
average was an increase of $11,006,000 from the 1995 average of $2,860,000.
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.
FEDERAL FUNDS SOLD - Average federal funds sold increased $1,039,000, or
28.5% in 1997 compared to 1996. Average federal funds sold in 1996 declined
$2,998,000, or 45.2%, compared to 1995. The average yield remained at 5.51%
in 1997 the same yield as recorded for 1996. The average yield was 5.80% in
1995. The increase in average federal funds sold in 1997 resulted in an
increase of $57,000 in tax-equivalent interest income.
INTEREST EXPENSE
Total interest expense on interest-bearing liabilities was $33,017,000
in 1997, a 17.3% increase over the $28,153,000 recorded in 1996. Total
interest expense in 1996 was 17.4% greater than the $23,974,000 recorded in
1995. Included in 1996 was $1,147,000 (twelve months) for WBG compared to
$327,000 (four months) reported in 1995 for WBG. Increased volume of
interest-bearing liabilities was responsible for $4,133,000 of the increased
interest expense in 1997 compared to 1996, while higher rates increased
interest expense by $731,000.
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
16
<PAGE>
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 penalties if
withdrawn prematurely.
The average balance of interest-bearing demand deposits was $107,131,000
in 1997, 32.8% greater than the $80,703,000 in 1996. Interest-bearing demand
deposits increased primarily as the result of the introduction of a new
"All-In-One" checking account at 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 1996 were 20.2%
greater than 1995. The average rate paid by the Company on these deposits
was 3.46% in 1997 compared to 3.09% in 1996 and 2.60% in 1995. The higher
rates paid on interest-bearing demand deposits in 1997 resulted in a $324,000
increase in interest expense while the higher volumes of such deposits
increased interest expense by $887,000. WBG's 1996 (twelve months) interest
expense was $121,000 greater than its 1995 (four months) reported expense.
Average interest-bearing demand accounts were 18.1% of total average deposits
in 1997, 14.3% in 1996 and 1995.
Savings deposits averaged $109,532,000 in 1997, a $922,000 increase over
the $108,610,000 recorded in 1996. Average savings deposits in 1996 were
9.8% higher than 1995. The average rate paid on savings accounts in 1997 was
3.56% compared to 3.44% and 3.56% in 1996 and 1995, respectively. The higher
rates paid on savings accounts in 1997 resulted in an increase of $123,000 in
interest expense, while higher volumes resulted in an increase in interest
expense of $32,000. Savings deposits averaged 18.5% of total average
deposits in 1997 compared to 19.3% in 1996 and 21.0% in 1995.
Time deposits averaged $276,036,000 in 1997, a decrease of $2,310,000
from the 1996 average of $278,346,000. The $278,346,000 1996 average was 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.
Interest expense of $16,141,000 was recorded in 1997, a decrease of $73,000
from 1996. 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 1997
comprised 46.6% of total average deposits compared to 49.4% in 1996 and 45.8%
in 1995.
Average noninterest-bearing deposits were $99,332,000 in 1997 compared
to $95,518,000 in 1996 and $89,252,000 in 1995 and was 16.8% of average total
deposits in 1997 compared to 17.0% in 1996 and 19.0% in 1995. Correspondent
bank deposits increased in 1997, such deposits were $39,857,000 and
$12,716,000 as of December 31, 1997 and 1996, respectively.
SHORT-TERM BORROWINGS - Short-term borrowings include federal funds
purchased, securities sold under agreements to repurchase and discount window
borrowings which generally mature one to seven days following the date of
sale. Short-term borrowings averaged $92,046,000 in 1997, a 43.9% increase
compared to the $63,959,000 recorded in 1996. Short-
17
<PAGE>
term borrowings decreased $8,230,000 in 1996 compared to 1995. The average
rate paid was 5.18% in 1997 compared to 5.04% in 1996 and 5.61% in 1995. The
higher volume in 1997 accounted for a $1,480,000 increase in interest expense
compared to 1996 and higher rates accounted for $68,000 of the total
$1,548,000 increase in interest expense.
LONG-TERM DEBT AND OTHER NOTES PAYABLE - The Company's long-term and
other notes payable consists primarily of advances from the Federal Home Loan
Banks and treasury tax and loan note balances. At December 31, 1997, the
Company had an average of $74,138,000 of such advances compared to
$43,130,000 and $37,064,000 in 1996 and 1995, respectively. The $31,008,000
average increase from 1996 to 1997 was used to fund 15-year fixed-rate
mortgages, to purchase securities and for short-term funding. The average
rates paid during 1997, 1996 and 1995 were 6.08%, 5.76%, and 5.63%,
respectively. The total amount of interest paid on these advances in 1997
was $4,507,000 compared to $2,484,000 in 1996 and $2,086,000 in 1995. The
higher volume in 1997 resulted in an increase of $1,870,000 in interest
expense and the increase in the interest rates resulted in an increase of
$153,000 in interest expense. These two components resulted in a total
increase in interest expense of $2,023,000 for 1997 compared to 1996.
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 Expense 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
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 expense.
18
<PAGE>
TABLE TWO
AVERAGE BALANCE SHEETS, NET INTEREST INCOME, YIELDS AND RATES
Tax-equivalent basis (dollars in thousands)
<TABLE>
1997 1996 1995
---------------------------------- --------------------------------- ---------
Tax Tax
Average Equivalent Average Average Equivalent Average Average
Balance Interest Yield/Rate Balance Interest Yield/Rate Balance
-------- ---------- ---------- -------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Assets:
Loans $478,683 $46,905 9.80% $437,439 $43,450 9.93% $359,502
Taxable securities 199,847 12,243 6.13 167,005 10,050 6.02 164,815
Tax-exempt securities 63,394 5,022 7.92 55,017 4,372 7.95 56,715
Interest-bearing deposits 10,628 584 5.50 13,866 715 5.16 2,860
Federal funds sold 4,681 258 5.51 3,642 201 5.51 6,640
------- ------- -------- ------- --------
Total interest-earning assets 757,233 65,012 8.59 676,969 58,788 8.68 590,532
------- -------
Cash and due from banks 49,572 40,120 31,921
Premises and equipment 16,853 13,942 7,938
Other assets, net 20,455 17,892 14,528
Allowance for loan losses (8,469) (8,782) (8,180)
-------- -------- --------
Total Assets $835,644 $740,141 $636,739
-------- -------- --------
-------- -------- --------
Liabilities and Stockholders' Equity:
Interest-bearing demand $107,131 3,702 3.46 $ 80,703 2,491 3.09 $ 67,160
Savings deposit 109,532 3,895 3.56 108,610 3,740 3.44 98,906
Time deposits 276,036 16,141 5.85 278,346 16,214 5.83 215,610
Federal funds purchased 25,073 1,378 5.49 11,551 612 5.30 15,934
Repurchase agreements 66,973 3,394 5.07 52,408 2,612 4.98 56,255
Long-term and other notes payable 74,138 4,507 6.08 43,130 2,484 5.76 37,064
------- ------- -------- ------- --------
Total interest-bearing liabilities 658,883 33,017 5.01 574,748 28,153 4.90 490,929
------- -------
Noninterest bearing demand 99,332 95,518 89,252
Other liabilities 9,172 8,158 5,869
Stockholders' equity 68,257 61,717 50,689
-------- -------- --------
Total Liabilities and Stockholder's Equity $835,644 $740,141 $636,739
-------- -------- --------
-------- -------- --------
Interest income/earning assets 8.59 8.68
Interest expense/earning assets 4.36 4.16
---- ----
Net interest margin 31,995 4.23% 30,635 4.52%
Less FTE adjustment 1,922 ---- 1,673 ----
------- ---- ------- ----
Net Interest Income $30,073 $28,962
------- -------
------- -------
1995
---------------------
Tax
Equivalent Average
Interest Yield/Rate
---------- ----------
<S> <C> <C>
Assets:
Loans $36,367 10.12%
Taxable securities 9,849 5.98
Tax-exempt securities 4,591 8.10
Interest-bearing deposits 174 6.08
Federal funds sold 385 5.80
-------
Total interest-earning assets 51,366 8.70
-------
Cash and due from banks
Premises and equipment
Other assets, net
Allowance for loan losses
Total Assets
Liabilities and Stockholders' Equity:
Interest-bearing demand 1,743 2.60
Savings deposit 3,521 3.56
Time deposits 12,571 5.83
Federal funds purchased 974 6.11
Repurchase agreements 3,079 5.47
Long-term and other notes payable 2,086 5.63
-------
Total interest-bearing liabilities 23,974 4.88
-------
Noninterest bearing demand
Other liabilities
Stockholders' equity
Total Liabilities and Stockholder's Equity
Interest income/earning assets 8.70
Interest expense/earning assets 4.06
----
Net interest margin 27,392 4.64%
Less FTE adjustment 1,763 ----
------- ----
Net Interest Income $25,629
-------
-------
</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 $1,682 in
1997; $1,556 in 1996; and $1,282 in 1995.
Interest income is stated on a fully tax-equivalent basis (FTE). The rate used
for this adjustment is approximately 38%.
Net interest margin is computed by dividing net interest income by average
earning assets.
19
<PAGE>
TABLE THREE
ANALYSIS OF VOLUME AND RATE CHANGES ON NET INTEREST INCOME AND EXPENSE
Tax-equivalent basis (dollars in thousands)
<TABLE>
1997 over 1996 1996 over 1995
---------------------------- ----------------------------
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 $4,033 $ (578) $3,455 $7,728 $(645) $7,083
Taxable securities 2,010 183 2,193 132 69 201
Tax-exempt securities 665 (15) 650 (135) (84) (219)
Interest-bearing deposits (183) 52 (131) 563 (22) 541
Federal funds sold 57 --- 57 (166) (18) (184)
------ ------- ------ ------ ----- ------
Total 6,582 (358) 6,224 8,122 (700) 7,422
------ ------- ------ ------ ----- ------
Increase (decrease) in interest expense:
Interest-bearing demand 887 324 1,211 386 362 748
Savings deposits 32 123 155 329 (110) 219
Time deposits (136) 63 (73) 3,654 (11) 3,643
Federal funds purchased 743 23 766 (244) (118) (362)
Repurchase agreements 737 45 782 (202) (265) (467)
Long-term and other notes payable 1,870 153 2,023 327 71 398
------ ------- ------ ------ ----- ------
Total 4,133 731 4,864 4,250 (71) 4,179
------ ------- ------ ------ ----- ------
Increase (decrease) in net interest income $2,449 $(1,089) $1,360 $3,872 $(629) $3,243
------ ------- ------ ------ ----- ------
------ ------- ------ ------ ----- ------
</TABLE>
Notes:
Non-accrual loans are included in loans.
Interest income on loans includes fees on loans (in thousands) of $1,682 in
1997; $1,556 in 1996; and $1,282 in 1995.
Interest income is stated on a fully tax-equivalent basis. The rate used for
this adjustment is 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 1997, the Company provided $2,245,000 for possible loan losses,
which was $1,090,000 more than provided in 1996. This increase was
attributable to loan growth and concern with certain portions of the loan
portfolio. These concerns were primarily related to certain large commercial
loans that were adversely graded in 1997 and for which specific reserves have
been allocated. Of these commercial loans, the specific reserves were
approximately $1,400,000 relating to loan outstandings of approximately
$7,200,000. Management is currently in the process of strengthening the loan
agreements for these specific borrowers. Management has also reviewed the
portfolio of like loans and determined that these concerns have been
addressed. During 1997, the Company had net charge-offs of $2,456,000
compared to $810,000 in 1996. Gross charge-offs in 1997 were $3,542,000
compared to $1,805,000 in 1996. The $1,667,000 increase in commercial,
financial and agricultural gross charge-offs was primarily due to one large
commercial loan charged-off in the second quarter of 1997 by FNBF. The
provision in 1996 was $1,155,000 compared to $837,000 in 1995. Based upon
recent experience, Management estimates gross charge-offs for 1998 of
$2,200,000, broken down as follows: commercial - $400,000; commercial real
estate - $200,000 and consumer - $1,600,000. Actual results may differ from
Management's estimates.
20
<PAGE>
OTHER INCOME
SERVICE CHARGES AND FEES AND OTHER INCOME
Service charges on deposit accounts increased $142,000 in 1997 to
$2,715,000, compared to $2,573,000 in 1996 and $2,594,000 in 1995. Included in
1996 and 1995 was $228,000 and $77,000, respectively, attributed to the WBG
acquisition. 1996 includes twelve months of WBG earnings compared to four full
months of earnings in 1995. Service charges on demand deposits decreased
$229,000 from 1996 to 1997. This decline in service charges 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. This decrease was offset by increases in return check fees and service
charges received from correspondent banks due to an increase in the volume of
service in this area.
OTHER SERVICE CHARGES
Other service charges increased slightly in 1997 to $1,340,000
compared to $1,318,000 in 1996. Other service charges in 1996 were 5.4% higher
than the $1,250,000 recorded in 1995.
GAINS ON SALE OF OTHER REAL ESTATE OWNED (OREO)
During 1997, the Company recorded $1,119,000 in OREO gains primarily
due to a sale of a property held by FNBF. Such gains recorded in 1996 and 1995
were $270,000 and $150,000, respectively.
SECURITIES TRANSACTIONS
During 1997 and 1996, the Company incurred losses of $111,000 and
$82,000, respectively, on the sale of investment securities. No such gains or
losses were recorded in 1995.
OTHER OPERATING INCOME
Other operating income decreased to $155,000 in 1997 compared to
$375,000 in 1996 and $712,000 in 1995. The $220,000 decrease from 1996 to 1997
was primarily due to decreased insurance income recorded in 1997. The $337,000
decrease from 1995 to 1996 was primarily due to a decrease in recoveries on
other losses and a reduction in gains on sales of fixed assets.
21
<PAGE>
OTHER EXPENSES
SALARIES AND BENEFITS
Salaries and benefits expense of $11,464,000 increased $1,424,000 in
1997, or 14.2% over the $10,040,000 recorded in 1996. 1996 salaries and
benefits expense was $926,000, or 10.2% higher than 1995. Normal salary
increases and a higher level of full-time equivalent employees (approximately 30
additional full time equivalents) added to support asset growth accounted for
$1,062,0000 of this increase.
OCCUPANCY EXPENSES
Occupancy expense was $2,242,000 in 1997 compared to $2,145,000 in
1996 and $1,522,000 in 1995. The $97,000 increase in 1997 was primarily made up
of increases in depreciation, primarily due to recording a full year of
depreciation for the new Main Office building for BNBD which was occupied in May
1996, and in utilities, cleaning and tax expense. Those increases were offset
somewhat by decreases in repair and maintenance and property insurance plus an
increase in rental income. The $623,000 increase in 1996 was primarily
attributable to increased depreciation due to the new Main Office building for
BNBD 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.
OTHER OPERATING EXPENSES
Other operating expenses were $7,402,000 in 1997, a 15.0% increase
over the $6,438,000 recorded in 1996. This increase was primarily in data
processing depreciation, up $110,000; data processing telephone line charges, up
$85,000; consultants, up $113,000; credit and collection, up $97,000;
correspondent bank charges, up $88,000; and VISA expenses, up $111,000. 1995
expenses were $6,225,000.
PROVISION FOR TAXES
The provision for income taxes was $2,844,000 in 1997 compared to
$3,828,000 in 1996 and $3,871,000 in 1995. The effective tax rate on income was
23.8% in 1997 compared to 28.1% in 1996 and 30.6% in 1995. The decrease in the
effective tax rate from 1996 to 1997 is primarily attributable to recognition of
deferred tax credits and an increase in tax-exempt income.
22
<PAGE>
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
<TABLE>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Return on assets 1.09% 1.33% 1.38%
Return on stockholders' equity 13.32% 15.90% 17.29%
Stockholders' equity to assets 8.17% 8.34% 7.96%
Stockholders' dividend payout ratio 42.26% 35.31% 33.94%
</TABLE>
Return on average assets in 1997 of 1.09% was down from the 1.33% and 1.38%
recorded in 1996 and 1995, respectively. Average assets increased $95,503,000
in 1997 compared to increases of $103,402,000 in 1996 and $73,465,000 in 1995.
Return on average stockholders' equity declined 2.58 percentage points to
13.32% in 1997 from 15.90% in 1996, and 1996 return on average stockholders'
equity declined 1.39 percentage points from the 17.29% recorded in 1995.
Average stockholders' equity as a percent of average total assets was 8.17% in
1997 compared to 8.34% and 7.96% in 1996 and 1995, respectively. The dividend
payout ratio increased to 42.26% in 1997 compared to 35.31% in 1996 and 33.94%
in 1995. Dividends declared per share in 1997 increased $.15, or 9.4%, to $1.79
per share compared to 1996 dividends declared per share of $1.64.
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, 1997, these five categories were
24.4%, 34.0%, 14.3%, 21.3% and 6.0%, respectively, of the Company's loan
portfolio. This compares with 23.4%, 34.6%, 15.9%, 19.3% and 6.8%,
respectively, at December 31, 1996. 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.
23
<PAGE>
Loan growth continued in 1997 with average loans as of December 31, 1997 of
$478,683,000 compared to $437,439,000 in 1996 and $359,502,000 in 1995. Average
loan growth in 1997, 1996 and 1995 was 9.4%, 21.7% and 25.7%, respectively.
Total loans at December 31, 1997 were $491,961,000, an increase of $23,773,000,
or 5.1%, compared to December 31, 1996. Total loans at December 31, 1996 were
$468,188,000, an increase of $63,508,000, as compared to 1995. Management
expects that loans will continue to increase but at a slower rate than past
years due to strengthening of underwriting standards and to some extent market
saturation. Consumer loans will continue to be emphasized and loans to low and
moderate-income borrowers will remain a priority. Management anticipates the
area of greatest growth potential in 1998 is real estate lending. Management
does not foresee any significant changes occurring in the loan mix in 1998.
TABLE FIVE
LOAN PORTFOLIO COMPOSITE
(dollars in thousands)
<TABLE>
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
December 31:
Commercial, financial and agricultural $120,315 $109,697 $ 96,273 $ 66,463 $ 50,856
Commercial real estate 167,136 161,959 128,105 111,027 82,833
Consumer 70,232 74,408 67,885 54,802 55,048
Real estate residential 104,816 90,105 87,501 72,033 55,928
Real estate construction 29,462 32,019 24,916 17,335 9,603
-------- -------- -------- -------- --------
Total loans $491,961 $468,188 $404,680 $321,660 $254,268
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
</TABLE>
NONACCRUAL, PAST DUE AND RESTRUCTURED LOANS
Nonperforming loans as of December 31, 1997, were $5,334,000, or 1.08%, of
total loans compared to $2,309,000, or .49%, of total loans at December 31,
1996. The increase in nonperforming loans was primarily due to increases in
real estate related non-accrual loans due to repayment capacity concerns of a
few borrowers.
Commercial and real estate loans are reviewed on an individual basis for
reclassification to nonaccrual status when any 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 reclassified 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 judgment as to
whether they are collectible. Consumer loans generally are not placed on
nonaccrual 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.
24
<PAGE>
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.
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>
1997 1996 1995 1994 1993
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
December 31:
Nonaccrual loans $5,078 $1,702 $3,517 $ 140 $ 37
Accruing loans past due 90 days or more 227 256 308 143 194
Restructured loans (in compliance with modified terms) 29 351 --- --- 3
------ ------ ------ ------ ------
Total nonperforming loans 5,334 2,309 3,825 283 234
OREO and other foreclosed assets 1,421 1,995 564 737 1,432
------ ------ ------ ------ ------
Total nonperforming assets $6,755 $4,304 $4,389 $1,020 $1,666
------ ------ ------ ------ ------
------ ------ ------ ------ ------
Ratios:
Nonperforming loans to total loans 1.08% 0.49% 0.95% 0.09% 0.09%
Allowance for loan losses to nonperforming loans 163.53% 386.87% 224.52% 2680.57% 2545.30%
Nonperforming assets to total assets 0.75% 0.54% 0.64% 0.17% 0.31%
Allowance for loan losses to nonperforming assets 129.12% 207.55% 195.67% 743.73% 357.50%
</TABLE>
Management has no potential problem loans to report as of December 31,
1997. Potential problem loans are performing loans that management has doubts
about the borrower's ability to comply with the present loan repayment terms.
These loans would be less than 90 days past due and would be accruing interest.
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
25
<PAGE>
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
1.77% of total loans at December 31, 1997 compared to 1.91% at December 31,
1996.
Management believes that the $8,722,000 allowance for loan losses at
December 31, 1997 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.
During the second quarter of 1997, a large commercial loan was
charged-off. This charged-off loan was a primary reason the commercial loan
charge-offs increased to $2,045,000 in 1997.
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 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.
26
<PAGE>
The following table summarizes, for the years indicated, the activity in
the allowance for loan losses:
TABLE SEVEN
ALLOWANCE FOR LOAN LOSS ACTIVITY
(dollars in thousands)
<TABLE>
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance at beginning of year $ 8,933 $ 8,588 $ 7,586 $ 5,956 $ 5,462
Provision charged to operations 2,245 1,155 837 58 859
Loans charged-off:
Commercial, financial and agricultural (2,045) (378) (60) (68) (391)
Commercial real estate --- --- --- --- (110)
Consumer (1,457) (1,255) (705) (688) (477)
Real estate residential (40) (12) (87) --- (51)
Real estate construction --- (160) --- --- (6)
-------- -------- -------- -------- --------
Total loans charged-off (3,542) (1,805) (852) (756) (1,035)
-------- -------- -------- -------- --------
Recoveries:
Commercial, financial and agricultural 442 403 275 161 313
Commercial real estate 1 11 8 17 ---
Consumer 619 499 417 2,133 350
Real estate residential 24 82 15 17 7
Real estate construction --- --- --- --- ---
-------- -------- -------- -------- --------
Total recoveries 1,086 995 715 2,328 670
-------- -------- -------- -------- --------
Net loans recovered (charged-off) (2,456) (810) (137) 1,572 (365)
-------- -------- -------- -------- --------
Acquired in merger with Western Bank Gallup --- --- 302 --- ---
-------- -------- -------- -------- --------
Balance at end of year $ 8,722 $ 8,933 $ 8,588 $ 7,586 $ 5,956
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Average total loans $478,683 $437,439 $359,502 $285,994 $229,599
Total loans at December 31 $491,961 $468,188 $404,680 $321,660 $254,268
Ratios:
Net recoveries or (charge-offs) during period
to average loans outstanding during period (0.51)% (0.19)% (0.04)% 0.55% (0.16)%
Provision for loan loss to average loans
outstanding during period 0.47 % 0.26 % 0.23 % 0.02% 0.37 %
Allowance to loans at year end 1.77 % 1.91 % 2.12 % 2.36% 2.34 %
</TABLE>
INVESTMENT SECURITIES
Average investments during 1997 were $263,241,000, an increase of
$41,219,000 from the $222,022,000 average in 1996. Average investments in
1996 were $492,000 higher than the $221,530,000 recorded in 1995. The
December 31, 1997 investment securities balance was $279,559,000 up
$34,872,000 from the December 31, 1996 balance of $244,687,000. Of this
increase, $2,689,000 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 $32,183,000
in taxable securities was in response to pledging requirements 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 are reported in Long-Term and Other Notes
Payable.
27
<PAGE>
BANK PREMISES AND EQUIPMENT
Bank premises and equipment net of accumulated depreciation as of
December 31, 1997, was $17,510,000 compared to $16,223,000 in 1996.
OTHER REAL ESTATE OWNED
The December 31, 1997 balance of OREO was $1,119,000 compared to
$1,712,000 at December 31, 1996, a decrease of $593,000. This decrease was
primarily due to one property which was sold during the fourth quarter of
1997.
DEPOSITS
Total deposits at December 31, 1997 were $608,746,000, compared to
$587,893,000 at December 31, 1996. This 3.5% increase followed an 11.1%
increase in 1996 compared to 1995. Average deposits for 1997 were
$592,031,000 compared to $563,177,000 and $470,928,000 for 1996 and 1995,
respectively. Noninterest-bearing demand of $130,501,000 and $94,907,000 at
December 31, 1997 and 1996 were 21.4% and 16.1% of total deposits at year-end
1997 and 1996, respectively. Noninterest-bearing demand deposits decreased
$12,548,000 from December 31, 1995 to December 31, 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. Average noninterest-bearing demand was 16.8%
and 17.0% of average total deposits at December 31, 1997 and 1996,
respectively.
Interest-bearing demand increased $11,409,000 from $98,736,000 at
December 31, 1996 to $110,145,000 at December 31, 1997 and represented 18.1%
and 16.8% of total deposits as of year end 1997 and 1996, respectively.
Average interest-bearing demand increased 32.7% from 1996 to 1997 and average
interest-bearing deposits increased 20.2% from 1995 to 1996. The 1996
increase was primarily due to the shift from noninterest-bearing deposits due
to the "All-In-One" checking account and internal growth.
Average savings accounts and money market accounts grew from
$108,610,000 in 1996 to $109,532,000 in 1997. These deposits represented
16.9% and 18.8% of total deposits at year end 1997 and 1996, respectively.
Average time deposits decreased slightly during 1997. These deposits
include time certificates, $100,000 and over, and other time certificates.
Time certificates, $100,000 and over, were 25.3% of total deposits at
December 31, 1997 and 28.1% at December 31, 1996. 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 18.3% and 20.2% of total
deposits at year end 1997 and 1996, respectively. Most of the 1996 growth in
this category came from the sale of the Company's 2-year floating rate
certificates. The rate paid on these certificates floats monthly with 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
28
<PAGE>
1996, to brokers outside 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, 1997, brokers held approximately $24,316,000
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 1997, the
Company's average federal funds purchased were $25,073,000 compared to
$11,551,000 in 1996.
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Average securities sold under agreements to repurchase ("repos")
increased $14,565,000, or 27.8%, to $66,973,000 during 1997. At December 31,
1996, average repos were $52,408,000 compared to $56,255,000 in 1995. 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
The Company utilizes the Federal Home Loan Banks as a funding source to
"match-fund" 15-year fixed rate residential mortgage loans with long-term
fixed rate borrowings; arbitrage opportunities by investing the funds in
taxable securities and for short-term funding. The Company borrowed
approximately $50,800,000 and $20,000,000 during 1997 and 1996, respectively.
At December 31, 1997 and 1996, the advances outstanding from the Federal
Home Loan Bank were $87,937,000 and $49,933,000, respectively.
STOCKHOLDERS' EQUITY AND CAPITAL ADEQUACY
Total stockholders' equity at December 31, 1997 was a record
$71,831,000, up 10.9% from $64,760,000 at year-end 1996. The growth was
primarily due to retention of earnings. At December 31, 1997 and 1996,
respectively, the ratio of stockholders' equity to total assets was 8.00% and
8.09%. 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 1997, 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
29
<PAGE>
Tier 1 (or core) capital consists of its common stockholders' equity less
intangibles. Its Tier 2 (or 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, 1997, the Company and the Subsidiary Banks had to have a
regulatory 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 13.23% and 11.98%, respectively, compared to
13.02% and 11.76%, 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 7.92% and 8.03% at December
31, 1997 and 1996, respectively.
The following table indicates the amounts of regulatory capital of the
Company:
TABLE EIGHT
REGULATORY CAPITAL
(dollars in thousands)
<TABLE>
Total
Risk-Based Tier 1 Leverage
---------- ------- --------
<S> <C> <C> <C>
At December 31,1997:
Company's 13.23% 11.98% 7.92%
Regulatory minimum 8.00% 4.00% 4.00%
Company's capital $76,189 $68,977 $68,977
Regulatory minimum $46,072 $23,036 $34,862
Computed excess $30,117 $45,941 $34,115
</TABLE>
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
30
<PAGE>
managing cash flows. Additional sources of liquidity are provided by federal
fund credit lines 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.
Short-term borrowings are made up primarily of federal funds purchased
and securities sold under agreements to repurchase. The securities
underlying the repurchase agreements were under the control of the Subsidiary
Banks.
TABLE NINE
SHORT-TERM BORROWINGS
ORIGINAL MATURITIES LESS THAN ONE YEAR
(dollars in thousands)
<TABLE>
1997 1996 1995
-------- ------- -------
<S> <C> <C> <C>
Amount outstanding at year end $117,852 $84,524 $56,294
Average outstanding for the year 92,046 63,959 72,189
Highest month-end balance for the year 117,852 84,524 83,544
Weighted average interest rate 5.18% 5.04% 5.61%
</TABLE>
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 TEN
CERTIFICATES OF DEPOSIT IN DENOMINATIONS OF $100,000 OR MORE
(dollars in thousands)
<TABLE>
1997 1996 1995 1994 1993
-------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
At December 31:
Time remaining until maturity:
Less than 3 months $ 33,322 $ 21,260 $ 66,750 $ 45,944 $32,026
3 months to 6 months 21,768 39,778 20,607 25,937 20,858
6 months to 12 months 46,959 68,059 45,167 12,547 10,320
More than 12 months 51,725 35,879 18,101 19,250 15,469
-------- -------- -------- -------- -------
Total $153,774 $164,976 $150,625 $103,678 $78,673
-------- -------- -------- -------- -------
-------- -------- -------- -------- -------
</TABLE>
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
31
<PAGE>
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, 1997 and the investment portfolio distribution for
the last three years.
TABLE ELEVEN
SECURITIES MATURITIES AND WEIGHTED AVERAGE YIELDS
(dollars in thousands)
<TABLE>
Within After One Year After 5 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, 1997:
Securities available-for-sale
U.S. treasury securities and
obligations of U.S. government
corporations and agencies $71,229 5.29% $ 74,358 6.42% $17,298 6.12% $36,105 6.49% $198,990 6.00%
Obligations of states and political
subdivisions 9,082 4.73 33,645 4.54 22,334 5.01 --- --- 65,061 4.73
Other securities --- --- --- --- --- --- 15,508 5.40 15,508 5.40
------- -------- ------- ------- --------
Total securities $80,311 5.23% $108,003 5.33% $39,632 5.50% $51,613 6.16% $279,559 5.67%
------- ----- -------- ----- ------- ----- ------- ----- -------- -----
------- ----- -------- ----- ------- ----- ------- ----- -------- -----
</TABLE>
Notes: All securities available-for-sale are shown at market value at year-end.
Yields are calculated based on amortized cost and do not include a tax-
equivalent adjustment. 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)
<TABLE>
1997 1996 1995
-------- -------- ---------
<S> <C> <C> <C>
At December 31:
U.S. treasury securities and obligations of
U.S. government corporations and agencies $198,990 $175,734 $156,537
Obligations of states and political subdivisions 65,061 62,372 54,708
Other securities 15,508 6,581 7,005
-------- -------- ---------
Total securities $279,559 $244,687 $218,250
-------- -------- ---------
-------- -------- ---------
</TABLE>
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, 1997 and 1996.
32
<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, 1997:
Loans with predetermined interest rates:
Commercial, financial and agricultural $ 16,612 $ 10,392 $ 2,159 $ 29,163
Commercial real estate 5,296 23,163 22,802 51,261
Consumer 10,201 49,993 2,321 62,515
Real estate residential 14,581 6,748 63,836 85,165
Real estate construction 3,456 2,236 1,544 7,236
-------- --------- -------- ---------
50,146 92,532 92,662 235,340
-------- --------- -------- ---------
Loans with floating interest rates:
Commercial, financial and agricultural 35,029 27,697 28,426 91,152
Commercial real estate 13,298 16,906 85,671 115,875
Consumer 908 1,877 4,932 7,717
Real estate residential 2,625 831 16,195 19,651
Real estate construction 10,087 7,335 4,804 22,226
-------- --------- -------- ---------
61,947 54,646 140,028 256,621
-------- --------- -------- ---------
Total loans $112,093 $147,178 $232,690 $491,961
-------- --------- -------- ---------
-------- --------- -------- ---------
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 39,538 22,789 23,015 85,342
Commercial real estate 5,552 18,775 89,687 114,014
Consumer 913 829 2,756 4,498
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
-------- --------- -------- ---------
-------- --------- -------- ---------
</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 First Place is dividends on common
stock when declared. A second requirement is the repayment of debt, if any.
First Place is dependent upon the payment of cash dividends by the
Subsidiary Banks to service these requirements. First Place expects that the
cash dividends paid by the Subsidiary Banks to First Place will be sufficient
to meets its cash requirements (see Note 0 - Formation of Capital Bank).
33
<PAGE>
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Interest rate risk is the potential of economic losses due to future
interest rate changes. These economic losses can be reflected as a loss of
future net interest income and/or a loss of current fair market values. The
objective is to measure the effect on net interest income and to adjust the
balance sheet to minimize the inherent risk while at the same time maximize
income. Management realizes certain risks are inherent and that the goal is
to identify and minimize the risks.
The Company's net income is dependent on its net interest income. Net
interest income is susceptible to interest rate risk to the degree that
interest-bearing liabilities mature or reprice on a different basis than
interest-earning assets. When interest-bearing liabilities mature or reprice
faster than interest-earning assets in a given period, a significant increase
in market rates of interest could adversely affect net interest income.
Similarly, when interest-earning assets mature or reprice faster than
interest-bearing liabilities, falling interest rates could result in a
decrease in net interest income.
The Company's interest rate risk management is the responsibility of the
Subsidiary Banks' Asset/Liability Management Committees (ALCOs), which report
to the Boards of Directors. These ALCOs establish policies that monitor and
coordinate sources, uses and pricing of funds. In adjusting the Company's
asset/liability position, the Subsidiary Banks and the Boards and Management
attempt to manage the interest rate risk while enhancing net interest margin.
At times, depending on the level of general interest rates, the relationship
between long and short-term interest rates, market conditions and competitive
factors, the Boards and Management may determine to increase the interest
rate risk position somewhat in order to increase the Company's net interest
margin. The Subsidiary Banks' results of operations and net portfolio values
remain vulnerable to increases in interest rates and to fluctuations in the
difference between long and short-term interest rates.
The Subsidiary Banks' Asset Liability Committees met regularly during
1997 to review interest rate risk and profitability and recommend adjustments
for consideration by the Boards of Directors. Management reviews the
Subsidiary Banks' security portfolios, formulates investment strategies, and
oversees the timing and implementation of transactions to assure attainment
of the Board's objectives in the most effective manner. Notwithstanding
interest rate risk management activities, the potential for changing interest
rates is an uncertainty that can have an adverse effect on net income.
The Subsidiary Banks utilize simulation models to analyze net interest
income sensitivity to movements in interest rates. The simulation models
project net interest income based on an immediate increase or decrease in
interest rates (rate shock) sustained over a twelve month period. The models
are based on the actual maturity and repricing characteristics of
interest-rate sensitive assets and liabilities, including loans, investment
securities, federal funds sold, interest-bearing deposits and borrowings.
The models incorporate assumptions regarding the impact of changing interest
rates on the prepayment rates of certain assets and liabilities. The
assumptions are based on historical industry standard prepayment speeds on
like assets and liabilities when
34
<PAGE>
interest rates increase or decrease by 200 basis points. The models factor in
projections for anticipated activity levels by product lines offered by the
Subsidiary Banks. The simulation models also take into account the Subsidiary
Banks' greater ability to control the rates on deposit products compared to
adjustable-rate loans which are tied to published indices.
One approach used to quantify interest rate risk is the net portfolio
value ("NPV") analysis. In essence, this analysis calculates the difference
between the present value of liabilities and the present value of expected
cash flows from assets. The following table sets forth, at December 31,
1997, an analysis of the Company's interest rate risk as measured by the
estimated changes in NPV resulting from instantaneous and sustained parallel
shifts in the yield curve of + or - 200 basis points:
<TABLE>
TABLE FOURTEEN
NET PORTFOLIO VALUE ANALYSIS
(dollars in thousands)
-200 Current +200
Basis Points Market Rates Basis Points
------------ ------------ ------------
<S> <C> <C> <C>
Securities $ 288,454 $279,559 $269,321
Other investments 17,302 17,302 17,302
Loans 490,747 481,245 470,895
Other assets 117,860 117,860 117,860
--------- -------- --------
Total assets at present value 914,363 895,966 875,378
--------- -------- --------
Deposits 610,404 607,940 605,553
Other liabilities 222,070 216,618 211,858
--------- -------- --------
Total liabilities at present value 832,474 824,558 817,411
--------- -------- --------
Present value net worth $ 81,889 $ 71,408 $ 57,967
--------- -------- --------
--------- -------- --------
</TABLE>
Certain assumptions promulgated by FDICIA and the banking industry in
assessing the interest rate risk of financial institutions were employed in
preparing data for the Company included in the preceding table. These
assumptions relate to interest rates, loan prepayment rates, non-maturity
deposit rates, and the market values of certain assets under the various
interest rate scenarios. It is also assumed that delinquency rates will not
change as a result of changes in interest rates, although there can be no
assurance that this will be the case. Even if interest rates change in the
designated amounts, there can be no assurance that the Subsidiary Banks' assets
and liabilities would perform as set forth above. In addition, a change in U.S.
Treasury rates in the designated amounts accompanied by a change in the shape of
the Treasury yield curve could cause significantly different changes to the NPV
than indicated above.
Based on the information and assumptions in effect at December 31, 1997,
management believes that a 200 basis point rate shock over a twelve month
period, up or down, would not significantly affect the Company's annualized net
interest income.
The Company does not currently engage in trading activities or use
derivative instruments to control interest rate risk. Even though such
activities may be permitted with the approval of
35
<PAGE>
the Board of Directors, the Company does not intend to engage in such
activities in the immediate future.
OFF-BALANCE SHEET ITEMS
As of December 31, 1997, the financial instruments with off-balance sheet
risk were commitments to extend credit and standby letters of credit. 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) decreased by $15,446,000, or 14.1%, to $94,346,000 in 1997 as
compared to $109,792,000 in 1996. This is an indicator of continued loan demand
and represents 19.2% of total loans outstanding at year end as compared to 23.5%
a year ago.
YEAR 2000 COMPLIANCE PLAN
The Company has adopted a Year 2000 Compliance Plan. The plan is based on
the FFIEC's recommendations as outlined in their "Year 2000 Project Management
Awareness" interagency statement issued on May 5, 1997. The Company is
seriously committed to being functionally and operationally Year 2000 compliant.
Sufficient resources have been allocated to ensure that top priority is given to
meeting the deadlines set up by FFIEC for compliance and that the project
receives the quality personnel and timely support it requires. It is not
anticipated that expenditures for Year 2000 compliance will be material to the
Company's results of operations or financial condition.
Senior management will provide the Board of Directors with quarterly
updates regarding the current status of internal systems as well as the status
of compliance of major vendors.
The Company is in the process of completing the assessment phase. The
necessary system upgrades have been identified and timelines established. All
mission critical and mission necessary system upgrades are scheduled to be
completed by December 31, 1998. Internal testing will be performed as outlined
in the Year 2000 Compliance Plan. The Company has requested vendor
certification for each system/application and plans to test each
system/application within the Company's own environment to ensure total
compatibility.
36
<PAGE>
FIRST PLACE FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of December 31, 1997 and 1996
(in thousands)
<TABLE>
1997 1996
-------- --------
ASSETS
------
<S> <C> <C>
Cash and due from banks $ 79,579 $ 49,487
Interest-bearing deposits in banks 17,052 2,391
Federal funds sold 250 7,835
-------- --------
Total cash and cash equivalents 96,881 59,713
-------- --------
Investment securities:
Available-for-sale (at market value) 279,559 244,687
-------- --------
Loans 491,961 468,188
Allowance for loan losses (8,722) (8,933)
-------- --------
Total net loans 483,239 459,255
-------- --------
Bank premises and equipment, net 17,510 16,223
Other real estate owned 1,119 1,712
Other assets 19,652 19,020
-------- --------
Total Assets $897,960 $800,610
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing demand $130,501 $ 94,907
Interest-bearing demand 110,145 98,736
Savings and money market accounts 102,707 110,392
Time certificates, $100,000 and over 153,774 164,976
Other time certificates 111,619 118,882
-------- --------
Total deposits 608,746 587,893
Securities sold under agreements to repurchase 82,507 68,739
Federal funds purchased 34,845 15,785
Other short-term borrowings 500 ---
Long-term and other notes payable 88,416 52,020
Other liabilities 11,115 11,413
-------- --------
Total liabilities 826,129 735,850
-------- --------
Stockholders' equity:
Common stock, no par value.
Authorized shares 5,000,000;
issued and outstanding shares 2,149,497
and 2,123,157 at December 31, 1997 and 1996 14,364 13,634
Additional paid-in capital 406 124
Net unrealized holding gain on securities
available-for-sale 1,775 967
Retained earnings 55,286 50,035
-------- --------
Total stockholders' equity 71,831 64,760
-------- --------
Total Liabilities and Stockholders' Equity $897,960 $800,610
-------- --------
-------- --------
</TABLE>
See notes to consolidated financial statements.
37
<PAGE>
FIRST PLACE FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 1997, 1996 and 1995
<TABLE>
(in thousands, except per share data)
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Interest income:
Loans, including fees $46,905 $43,450 $36,367
Investment securities:
Taxable 12,243 10,050 9,849
Tax-exempt 3,100 2,699 2,828
Interest-bearing deposits 584 715 174
Federal funds sold 258 201 385
------- ------- -------
Total interest income 63,090 57,115 49,603
------- ------- -------
Interest expense:
Time deposits of $100,000 and over 9,480 9,649 7,582
Other deposits 14,258 12,796 10,253
Short-term borrowings 4,772 3,224 4,053
Other borrowings 4,507 2,484 2,086
------- ------- -------
Total interest expense 33,017 28,153 23,974
------- ------- -------
Net interest income 30,073 28,962 25,629
Provision for loan losses 2,245 1,155 837
------- ------- -------
Net interest income after provision
for loan losses 27,828 27,807 24,792
------- ------- -------
Other income:
Service charges on deposit accounts 2,715 2,573 2,594
Other service charges and fees 1,340 1,318 1,250
Gains on sale of other real estate owned 1,119 270 150
Investment securities gains (losses) (111) (82) ---
Other operating income 155 375 712
------- ------- -------
Total other income 5,218 4,454 4,706
------- ------- -------
Other expenses:
Salaries and employee benefits 11,464 10,040 9,114
Occupancy expenses, net 2,242 2,145 1,522
Other operating expenses 7,402 6,438 6,225
------- ------- -------
Total other expenses 21,108 18,623 16,861
------- ------- -------
Income before income taxes 11,938 13,638 12,637
Income taxes 2,844 3,828 3,871
------- ------- -------
Net Income $ 9,094 $ 9,810 $ 8,766
------- ------- -------
------- ------- -------
Earnings per common share:
Basic $ 4.25 $ 4.65 $ 4.30
Diluted $ 4.17 $ 4.59 $ 4.26
</TABLE>
See notes to consolidated financial statements.
38
<PAGE>
FIRST PLACE FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years Ended December 31, 1997, 1996 and 1995
<TABLE>
(in thousands)
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Common stock:
Balance at beginning of year $13,634 $13,609 $ 9,759
Issuance of new common stock 730 635 3,850
Retirement of common stock --- (610) ---
------- ------- -------
Balance at end of year 14,364 13,634 13,609
------- ------- -------
Additional paid-in capital:
Balance at beginning of year 124 62 36
Additions related to sale of common stock 282 62 26
------- ------- -------
Balance at end of year 406 124 62
------- ------- -------
Net unrealized holding gain on securities
available-for-sale:
Balance at beginning of year 967 922 (1,083)
Unrealized holding gain recorded during year 808 45 2,005
------- ------- -------
Balance at end of year 1,775 967 922
------- ------- -------
Retained earnings:
Balance at beginning of year 50,035 43,689 37,897
Net income 9,094 9,810 8,766
Cash dividends declared (3,843) (3,464) (2,974)
------- ------- -------
Balance at end of year 55,286 50,035 43,689
------- ------- -------
Treasury stock:
Balance at beginning of year --- (526) (84)
Acquisition of common stock for treasury --- (345) (653)
Sale and retirement of common stock from treasury --- 871 211
------- ------- -------
Balance at end of year --- --- (526)
------- ------- -------
Total stockholders' equity $71,831 $64,760 $57,756
------- ------- -------
------- ------- -------
</TABLE>
See notes to consolidated financial statements.
39
<PAGE>
FIRST PLACE FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1997, 1996 and 1995
<TABLE>
(in thousands)
1997 1996 1995
---------- --------- ---------
<S> <C> <C> <C>
Cash flow from operating activities:
Net income $ 9,094 $ 9,810 $ 8,766
Adjustments to reconcile net income to net cash
provided by operations:
Amortization and accretion (469) (154) (303)
Depreciation 1,526 1,167 958
Provision for loan losses 2,245 1,155 837
Provision for loan losses on other real estate --- --- (24)
Increase in other assets (1,694) (2,864) (775)
(Decrease) increase in other liabilities (301) 1,954 2,684
Gain on sale of property, plant and equipment (7) (12) (100)
Gain on sale of other real estate (1,119) (270) (150)
Loss on sale of available-for-sale securities 111 82 ---
Net decrease in trading securities --- --- 861
Provision for deferred income taxes 466 (275) (422)
--------- -------- --------
Net cash provided by operating activities 9,852 10,593 12,332
--------- -------- --------
Cash flows from investing activities:
Proceeds from sale of available-for-sale securities 14,295 10,464 1,327
Proceeds from maturites of available-for-sale securities 85,852 61,373 53,546
Purchases of available-for-sale securities (133,402) (98,024) (29,880)
Proceeds from maturities of held-to-maturity securities --- --- 8,180
Purchases of held-to-maturity securities --- --- (3,827)
Net change in loans (27,083) (66,493) (64,708)
Proceeds on sale of property, plant and equipment 19 108 417
Proceeds from sale of other real estate owned 2,752 2,803 541
Acquisition of other real estate owned (186) (1,505) ---
Net proceeds from acquisition of subsidiary --- --- 2,869
Purchase of property and equipment (2,825) (6,407) (4,447)
--------- -------- --------
Net cash used by investing activities (60,578) (97,681) (35,982)
--------- -------- --------
</TABLE>
(Continued)
See notes to consolidated financial statements.
40
<PAGE>
FIRST PLACE FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Years Ended December 31, 1997, 1996 and 1995
<TABLE>
(in thousands)
1997 1996 1995
--------- -------- ---------
<S> <C> <C> <C>
Cash flows from financing activities:
Net change in deposit accounts $ 39,318 $31,216 $ 6,007
Net change in certificates of deposit (18,465) 27,630 56,840
Net change in securities sold under
agreements to repurchase 13,768 16,810 (35,751)
Net change in federal funds purchased 19,560 11,420 3,865
Net change in long-term and other notes payable 36,396 13,378 55
Cash dividends paid (3,695) (3,540) (2,649)
Acquisition of treasury stock --- (345) (653)
Proceeds from sale of treasury stock --- 871 216
Proceeds from issuance of common stock 1,012 87 174
-------- ------- --------
Net cash provided by financing activities 87,894 97,527 28,104
-------- ------- --------
Net increase in cash and cash equivalents 37,168 10,439 4,454
Cash and cash equivalents at beginning of period 59,713 49,274 44,820
-------- ------- --------
Cash and cash equivalents at end of period $ 96,881 $59,713 $ 49,274
-------- ------- --------
-------- ------- --------
Supplemental disclosure of cash flow information:
Cash paid during period for:
Interest $ 33,663 $27,797 $ 22,329
Taxes $ 2,443 $ 4,183 $ 4,196
Non-cash assets acquired through foreclosure $ 1,000 $ 2,193 $ 53
</TABLE>
41
<PAGE>
FIRST PLACE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of First Place and the
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 principals 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 principals 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. The Company had no trading
securities at December 31, 1997 and 1996.
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. The Company had no
such securities at December 31, 1997 and 1996.
42
<PAGE>
FIRST PLACE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1997, 1996 and 1995
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
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.
5. LOANS AND ALLOWANCE FOR LOAN LOSSES
The Company maintains a diversified loan portfolio consisting of
commercial, real estate and consumer loans.
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.
43
<PAGE>
FIRST PLACE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1997, 1996 and 1995
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
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.
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.
44
<PAGE>
FIRST PLACE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1997, 1996 and 1995
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
8. EARNINGS PER SHARE
The Company adopted the provisions of Statement of Financial
Accounting Standards (SFAS) No. 128, EARNINGS PER SHARE, on December
31, 1997. This Statement simplifies the standards for computing
earnings per share (EPS) previously found in Accounting Principles
Board (APB) Opinion No. 15, EARNINGS PER SHARE, and makes them
comparable to international EPS standards. It replaces the
presentation of primary EPS with a presentation of basic EPS. It also
requires dual presentation of basic and diluted EPS on the face of the
income statement for all entities with complex capital structures and
requires a reconciliation of the numerator and denominator of the
basic EPS computation to the numerator and denominator of the diluted
EPS computation.
Basic EPS excludes dilution and is computed by dividing income
available to common stockholders by the weighted-average number of
common shares outstanding for the period. Diluted EPS reflects the
potential dilution that could occur if securities or other contracts
to issue common stock were exercised or converted into common stock or
resulted in the issuance of common stock that then shared in the
earnings of the entity.
9. CASH AND CASH EQUIVALENTS
For purposes of the statements 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 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. The
Company provides the pro forma disclosure under the provisions of SFAS
No. 123.
11. IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE
DISPOSED OF
The Company reviews for impairment long-lived assets and certain
identifiable intangibles 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
45
<PAGE>
FIRST PLACE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1997, 1996 and 1995
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
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.
12. TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS
OF LIABILITIES
Effective January 1, 1997, the Company adopted certain provisions
of SFAS No. 125, ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL
ASSETS AND EXTINGUISHMENTS OF LIABILITIES. SFAS No. 125 amends
certain provisions of SFAS No. 65 and supersedes SFAS No. 122. 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. As
discussed in Note A(16), certain provisions of SFAS No. 125 related to
secured borrowings have been deferred until 1998. The adoption of
SFAS No. 125 did not have a material impact on the Company's financial
position, results of operations, or liquidity.
13. QUANTITATIVE AND QUALITATIVE DISCLOSURE
In January 1997, the Securities and Exchange Commission (SEC)
approved rule amendments regarding disclosures about derivative
financial instruments, other financial instruments and derivative
commodity instruments. The amendments require expanded disclosure of
accounting policies for derivative financial instruments in the
financial statements. The amendments also expand disclosure
requirements to include quantitative and qualitative information about
market risk inherent in market risk exposures. This disclosure can be
found in Management's Discussion and Analysis.
14. REPORTING COMPREHENSIVE INCOME
In June, 1997, the Financial Accounting Standards Board (FASB)
issued 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. SFAS
No. 130 is effective for the Company's financial statements beginning
in 1998.
46
<PAGE>
FIRST PLACE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1997, 1996 and 1995
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
15. 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. SFAS No. 131 is effective for the Company's financial
statements beginning in 1998.
16. DEFERRAL OF SFAS NO. 125
In December 1996, the FASB issued SFAS No. 127, DEFERRAL OF THE
EFFECTIVE DATE OF CERTAIN PROVISIONS OF FASB NO. 125. SFAS 127 defers
for one year the effective date of certain provisions of SFAS No. 125
to allow affected enterprises to modify information systems and
accounting processes to comply with SFAS No. 125. The delay applies
to the provisions that deal with secured borrowings and collateral, as
well as to transfers of financial assets for repurchase agreements,
dollar rolls, and securities lending. The impact of SFAS No. 127 is
not expected to be material to the consolidated financial statements.
17. RECLASSIFICATIONS
Certain amounts in the 1996 and 1995 financial statements have
been reclassified to conform to the 1997 presentation.
NOTE B - RESTRICTED CASH BALANCES
Reserves (in the form of cash on hand and deposits with the Federal Reserve
Bank) of $13,415,000 and $10,741,000 were required to be maintained to
satisfy federal regulatory requirements at December 31, 1997 and 1996.
These reserves are included in Cash and Due from Banks in the accompanying
consolidated balance sheets.
47
<PAGE>
FIRST PLACE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1997, 1996 and 1995
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, 1997:
U.S. treasury securities $ 45,006 $ 45,442 $ 436 $ --
U.S. government agency
securities 88,597 89,093 560 (64)
Mortgage-backed securities 64,252 64,455 514 (311)
Obligations of states and
political subdivisions 63,458 65,061 1,607 (4)
Other investments and
securities 15,514 15,508 --- (6)
-------- -------- ------ -----
Total $276,827 $279,559 $3,117 $(385)
-------- -------- ------ -----
-------- -------- ------ -----
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)
-------- -------- ------ -----
-------- -------- ------ -----
</TABLE>
48
<PAGE>
FIRST PLACE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1997, 1996 and 1995
NOTE C - INVESTMENT SECURITIES - CONTINUED
A summary of amortized cost and approximate fair value of investment
securities classified as available-for-sale, by maturity at December 31,
1997 follows (amounts in thousands):
<TABLE>
Amortized Approximate
cost fair value
--------- -----------
<S> <C> <C>
Less than one year $ 80,147 $ 80,311
One to five years 106,570 108,003
Five to ten years 38,582 39,632
Greater than ten years 36,014 36,105
Securities not due at a single date 15,514 15,508
-------- --------
Total $276,827 $279,559
-------- --------
-------- --------
</TABLE>
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):
<TABLE>
1997 1996 1995
------- ------- ------
<S> <C> <C> <C>
Proceeds $14,295 $10,464 $1,327
Gross realized gains 27 10 --
Gross realized losses 138 92 --
Related income tax (benefit) (39) (30) --
</TABLE>
At December 31, 1997 and 1996, investment securities with a recorded value
of approximately $231,000,000 and $204,000,000, 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 $8,088,000 at December
31, 1997 of Federal Home Loan Bank stock. At December 31, 1997 and 1996,
$9,303,000 and $5,480,000, respectively, of Federal Home Loan Bank stock
are included in other securities.
49
<PAGE>
FIRST PLACE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1997, 1996 and 1995
NOTE D - LOANS
A summary of loans at December 31 follows (amounts in thousands):
<TABLE>
1997 1996
-------- --------
<S> <C> <C>
Commercial, financial and agriculture $120,315 $109,697
Commercial real estate 167,136 161,959
Consumer 70,232 74,408
Real estate residential 104,816 90,105
Real estate construction 29,462 32,019
-------- --------
491,961 468,188
Less allowance for loan losses 8,722 8,933
-------- --------
Total net loans $483,239 $459,255
-------- --------
-------- --------
</TABLE>
Changes in the allowance for loan losses follows (amounts in thousands):
<TABLE>
1997 1996 1995
------- ------- ------
<S> <C> <C> <C>
Balance at beginning of year $ 8,933 $ 8,588 $7,586
Acquired in merger with Western Bank -- -- 302
Provision charged to operating expense 2,245 1,155 837
Recoveries on loans previously charged-off 1,086 995 715
Loans charged-off (3,542) (1,805) (852)
------- ------- ------
Balance at end of year $ 8,722 $ 8,933 $8,588
------- ------- ------
------- ------- ------
</TABLE>
Loans for which the accrual of interest has been discontinued, amounted to
$5,078,000, $1,702,000, and $3,517,000 at December 31, 1997, 1996, and
1995, respectively. If interest had been accrued on these loans for 1997,
1996, and 1995, interest income would have been increased by approximately
$329,000, $104,000, and $58,000, 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
50
<PAGE>
FIRST PLACE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1997, 1996 and 1995
NOTE D - LOANS - CONTINUED
the time for comparable transactions with other borrowers of the Company.
The following table summarizes the activity in these loans for 1997 (in
thousands):
<TABLE>
<S> <C>
Balance at December 31, 1996 $ 17,564
Advances/New Loans 11,384
Payments (11,491)
--------
Balance at December 31, 1997 $ 17,457
--------
--------
</TABLE>
NOTE E - BANK PREMISES AND EQUIPMENT
The major components of bank premises and equipment at December 31 follow
(amounts in thousands):
Estimated Lives 1997 1996
--------------- ------- -------
Land -- $ 1,870 $ 1,870
Building 5-40 years 14,740 13,968
Furniture and equipment 3-25 years 11,927 11,003
Leasehold improvements 5-15 years 746 563
------- -------
29,283 27,404
Less accumulated depreciation
and amortization 11,773 11,181
------ ------
Total $17,510 $16,223
------- -------
------- -------
51
<PAGE>
FIRST PLACE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1997, 1996 and 1995
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):
<TABLE>
1997 1996
------- -------
<S> <C> <C>
Federal Home Loan Bank advances, 5.10% to
7.13% due 1998 through 2012 $87,937 $49,933
Other notes payable 479 2,087
------- -------
Total $88,416 $52,020
------- -------
------- -------
</TABLE>
Maturities of notes payable at December 31, 1997 are as follows (amounts
in thousands):
<TABLE>
<S> <C>
1998 $38,653
1999 6,916
2000 5,989
2001 6,489
2002 4,779
Later Years 25,590
-------
Total $88,416
-------
-------
</TABLE>
NOTE G - INCOME TAXES
Income tax expense consists of the following (amounts in thousands):
<TABLE>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Current tax expense $2,378 $4,103 $4,293
Deferred tax expense (benefit) 466 (275) (422)
------ ------ ------
Total $2,844 $3,828 $3,871
------ ------ ------
------ ------ ------
</TABLE>
52
<PAGE>
FIRST PLACE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1997, 1996 and 1995
NOTE G - INCOME TAXES - CONTINUED
Income tax expense differs from the expected tax expense (computed using
statutory rates) as a result of the following (amounts in thousands):
<TABLE>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Computed "expected" tax expense $4,179 $4,773 $4,423
Tax benefit due to tax-exempt interest (968) (799) (836)
State tax, net of federal benefit 62 187 320
Low income housing credit (381) (161) ---
Other, net (48) (172) (36)
------ ------ ------
Total $2,844 $3,828 $3,871
------ ------ ------
------ ------ ------
</TABLE>
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):
<TABLE>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Provision for loan losses $ 114 $(368) $(335)
Provision for losses on other real estate 209 (99) (16)
Pension expense 46 101 43
Depreciation 110 122 37
Deferred compensation (194) (183) (115)
Deferred loan fees 93 58 (62)
Stock option expense (144) (181) (111)
FHLB stock dividends 199 152 102
Other, net 33 123 35
----- ----- -----
Total $ 466 $(275) $(422)
----- ----- -----
----- ----- -----
</TABLE>
53
<PAGE>
FIRST PLACE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1997, 1996 and 1995
NOTE G - INCOME TAXES - CONTINUED
Deferred tax assets and liabilities as of December 31 consisted of the
following (amounts in thousands):
<TABLE>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Deferred tax assets:
Allowance for loan losses $2,033 $2,147 $1,779
Deferred compensation 664 470 287
Deferred loan fees 208 301 359
Other real estate owned 196 405 306
Stock option expense 574 430 249
Other 63 61 104
------ ------ ------
3,738 3,814 3,084
------ ------ ------
Deferred tax liabilities:
Unrealized gains on investment
securities 956 521 497
Bank premises and equipment 494 384 262
Pension plan 531 485 384
FHLB stock dividends 578 379 227
Other 285 250 170
------ ------ ------
2,844 2,019 1,540
------ ------ ------
Net deferred tax asset $ 894 $1,795 $1,544
------ ------ ------
------ ------ ------
</TABLE>
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 $21,880,000
in the two-year federal carryback period and by expected future taxable
income which will exceed amounts necessary to fully realize remaining
deferred tax assets.
54
<PAGE>
FIRST PLACE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1997, 1996 and 1995
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.
The following table sets forth the funded status of the pension plan
(amounts in thousands):
<TABLE>
1997 1996
------- -------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation $(4,675) $(4,072)
Non-vested benefit obligation (93) (103)
------- -------
Accumulated benefit obligation (4,768) (4,175)
Effect of projected future salary increases (416) (551)
------- -------
Projected benefit obligation (5,184) (4,726)
Plan assets at fair value 5,543 5,216
------- -------
Plan assets in excess of (less than) projected
benefit obligation 359 490
Unrecognized net loss from past experience
different from that assumed and effects of
changes in assumptions 1,237 1,049
Unrecognized prior service cost (100) (117)
Unrecognized net asset (167) (209)
------- -------
Prepaid (accrued) pension cost $ 1,329 $ 1,213
------- -------
------- -------
</TABLE>
55
<PAGE>
FIRST PLACE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1997, 1996 and 1995
NOTE H - EMPLOYEE BENEFIT PLANS - CONTINUED
Net pension costs for this plan include the following components (amounts
in thousands):
<TABLE>
1997 1996
----- -----
<S> <C> <C>
Service cost of benefits earned $ 176 $ 152
Interest cost on projected benefit obligation 346 326
Return on plan assets (387) (363)
Net amortization and deferral of loss (19) (19)
----- -----
Net pension costs $ 116 $ 96
----- -----
----- -----
</TABLE>
Major assumptions at year-end follow:
<TABLE>
1997 1996
----- -----
<S> <C> <C>
Annual discount rate 7.25% 7.50%
Annual rate of increase in compensation levels 5.00% 5.00%
Annual expected long-term rate of return on assets 7.50% 7.50%
</TABLE>
Assets of the pension plan consist primarily of bank certificates of
deposit, insurance annuity contracts, mutual funds, and U.S. government and
agency obligations.
56
<PAGE>
FIRST PLACE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1997, 1996 and 1995
NOTE H - EMPLOYEE BENEFIT PLANS - CONTINUED
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 $255,000 in 1997 and $240,000 in 1996.
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, 1997 and 1996, the Company has accrued $1,491,000 and
$1,195,000, respectively, for its obligations under this program. The
Company's expense was $371,000, $296,000, and $309,000 for 1997, 1996 and
1995, 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 program, 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 $5,536,000 and
$5,335,000 as of December 31, 1997 and 1996, 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
57
<PAGE>
FIRST PLACE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1997, 1996 and 1995
NOTE I - CONTINGENCIES AND COMMITMENTS - CONTINUED
sheet instruments. The Company controls credit risk through credit
approvals, limits, and monitoring procedures.
Financial instruments exhibiting credit risk at December 31, 1997 and 1996
are as follows (amounts in thousands):
<TABLE>
1997 1996
------- --------
<S> <C> <C>
Commitments to extend credit $89,856 $105,713
Standby letters of credit 4,490 4,079
------- --------
Total $94,346 $109,792
------- --------
------- --------
</TABLE>
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
The majority of the Company's loans, 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
commitments to extend credit are primarily in the commercial and commercial
real estate categories. The real estate lending area is the area of
greatest concentration. This area, due to abundance of collateral,
historically has not resulted in significant losses for the Company.
58
<PAGE>
FIRST PLACE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1997, 1996 and 1995
NOTE K - FAIR VALUE OF FINANCIAL INSTRUMENTS
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 AND DUE FROM BANKS, INTEREST-BEARING DEPOSITS, FEDERAL FUNDS SOLD OR
REPURCHASED, 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
are 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
consolidated balance sheets, 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
59
<PAGE>
FIRST PLACE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1997, 1996 and 1995
NOTE K - FAIR VALUE OF FINANCIAL INSTRUMENTS - CONTINUED
agreements or on the estimated cost to terminate them or otherwise settle
the obligations with the counterparties at the reporting date.
The estimated fair value of the Company's financial instruments at December
31 are as follows (amount in thousands):
<TABLE>
1997 1996
------------------------- --------------------------
Carrying Estimated Carrying Estimated
amount fair value amount fair value
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Financial assets:
Cash and due from banks $ 79,579 $ 79,579 $ 49,487 $ 49,487
Interest-bearing deposits 17,052 17,052 2,391 2,391
Federal funds sold 250 250 7,835 7,835
Investment securities
available-for sale 279,559 279,559 244,687 244,687
Net loans 483,239 481,245 459,255 456,212
-------- -------- -------- --------
Total financial assets $859,679 $857,685 $763,655 $760,612
-------- -------- -------- --------
-------- -------- -------- --------
Financial liabilities:
Deposits $608,746 $607,940 $587,893 $588,763
Securities sold under
agreements to repurchase 82,507 82,507 68,739 68,739
Federal funds purchased 34,845 34,845 15,785 15,785
Other short-term borrowings 500 500 --- ---
Long-term and other
notes payable 88,416 87,040 52,020 51,293
-------- -------- -------- --------
Total financial liabilities $815,014 $812,832 $724,437 $724,580
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
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, 1997, the Subsidiary Banks had approximately $45,885,000 of
retained earnings, of which, $16,890,000 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.
60
<PAGE>
FIRST PLACE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1997, 1996 and 1995
NOTE L - PARENT COMPANY ONLY FINANCIAL INFORMATION - CONTINUED
Condensed financial information of First Place at December 31 follows:
<TABLE>
BALANCE SHEETS
(in thousands)
1997 1996
------- -------
<S> <C> <C>
ASSETS
Cash $ 4,555 $ 3,269
Investment in subsidiary banks 69,059 62,922
Other assets 504 214
------- -------
Total Assets $74,118 $66,405
------- -------
------- -------
LIABILITIES AND STOCKHOLDERS' EQUITY
Taxes payable $ 1 $ ---
Dividends payable 1,591 1,443
Other liabilities 695 202
------- -------
Total liabilities 2,287 1,645
------- -------
Stockholders' equity
Common stock, no par value.
Authorized shares 5,000,000;
issued and outstanding shares 2,149,497 and
2,123,157 at December 31, 1997 and 1996 14,364 13,634
Additional paid-in-capital 406 124
Net unrealized holding gain on securities
available-for-sale 1,775 967
Retained earnings 55,286 50,035
------- -------
Total stockholders' equity 71,831 64,760
------- -------
Total Liabilities and Stockholders' Equity $74,118 $66,405
------- -------
------- -------
</TABLE>
61
<PAGE>
FIRST PLACE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1997, 1996 and 1995
NOTE L - PARENT COMPANY ONLY FINANCIAL INFORMATION - CONTINUED
<TABLE>
STATEMENTS OF INCOME
(in thousands)
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Administration expense $ 70 $ 346 $ 309
------- ------- -------
Loss before equity in net income of
subsidiary banks (70) (346) (309)
Equity in net income of subsidiary banks:
Distributed 3,830 3,956 3,573
Undistributed 5,329 6,055 5,378
Income tax credits 5 145 124
------- ------- -------
Net Income $ 9,094 $ 9,810 $ 8,766
------- ------- -------
------- ------- -------
</TABLE>
62
<PAGE>
FIRST PLACE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1997, 1996 and 1995
NOTE L - PARENT COMPANY ONLY FINANCIAL INFORMATION - CONTINUED
STATEMENT OF CASH FLOWS
<TABLE>
(in thousands)
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Operating activities:
Net income $ 9,094 $ 9,810 $ 8,766
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization of intangibles 7 7 4
Undistributed equity in subsidiary earnings (5,329) (6,055) (5,378)
Decrease (increase) in other assets (448) 133 45
(Increase) decrease in other liabilities 664 19 (127)
-------- -------- --------
Net cash provided by operating activities 3,988 3,914 3,310
-------- -------- --------
Investing activities:
Purchase of property and equipment (18) --- ---
Acquisition of subsidiary --- --- (120)
-------- -------- --------
Net cash used by investing activities (18) --- (120)
-------- -------- --------
Financing activities:
Cash dividends paid (3,695) (3,540) (2,649)
Acquisitions of treasury stock --- (346) (653)
Proceeds from sale and retirement of
treasury stock --- 872 216
Issuance of common stock 1,011 87 174
-------- -------- --------
Net cash used by financing activities (2,684) (2,927) (2,912)
-------- -------- --------
Net increase in cash and cash
equivalents 1,286 987 278
Cash and cash equivalents at beginning of year 3,269 2,282 2,004
-------- -------- --------
Cash and cash equivalents at end of year $ 4,555 $ 3,269 $ 2,282
-------- -------- --------
-------- -------- --------
</TABLE>
63
<PAGE>
FIRST PLACE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1997, 1996 and 1995
NOTE M - COMMON STOCK AND STOCK OPTIONS
Shares of common stock at December 31 consisted of the following:
<TABLE>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Issued:
Balance at beginning of year 2,123,157 2,104,707 2,021,445
Issuance of new common stock 26,340 18,450 83,262
--------- --------- ---------
Balance at end of year 2,149,497 2,123,157 2,104,707
--------- --------- ---------
--------- --------- ---------
Held as treasury stock:
Balance at beginning of year --- 13,371 2,346
Shares acquired --- 8,527 16,710
Shares sold/retired --- (21,898) (5,685)
--------- --------- ---------
Balance at end of year --- --- 13,371
--------- --------- ---------
--------- --------- ---------
</TABLE>
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 $362,000, $364,000 and $317,000 during 1997, 1996 and 1995 for these
SARs. The SAR liabilities of $1,189,000 and $1,076,000 are included in
Other Liabilities at December 31, 1997 and 1996.
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 the Subsidiary Banks. Those officers who
were granted options under the Plan are 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 specifies the period for which the option is granted and
provides that the option shall expire at the end of such period, not to
exceed five years.
In 1997, First Place adopted the First Place Financial Corporation Third
Nonqualified Stock Option Plan (the "Third Plan") for eligible directors
and officers. The Third Plan will provide a means for First Place, through
the grant of stock options, to attract and retain persons of ability and
motivate these persons to exert their best efforts on behalf of the
Company. Under the Third Plan, 100,000 shares were reserved for issuance.
Each option
64
<PAGE>
FIRST PLACE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1997, 1996 and 1995
NOTE M - COMMON STOCK AND STOCK OPTIONS - CONTINUED
shall be exercisable from time-to-time over a period beginning on the date
of grant and ending on the earlier of the expiration, termination or
cancellation of the option. 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 ten years. Options under
the Third Plan issued in 1997 vest 33.33% per year and unexercised options
expire on the eighth anniversary of the grant date.
Stock option activity in the plans is summarized as follows:
<TABLE>
1997 1996
------------------------------- -------------------------------
Number of Option Number of Option
shares Price shares Price
--------------- ------------- --------------- -------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 93,500 $27-45 90,000 $ 27
Granted 76,220 45-66 10,700 45
Exercised/retired (27,015) 27-45 (7,200) 27-45
------- ------
Outstanding at end of year 142,705 $27-66 93,500 $27-45
------- ------
------- ------
Exercisable at end of year 58,560 $27-45 62,400 $27-45
------- ------
------- ------
</TABLE>
The weighted-average fair value of stock options granted during 1997, 1996
and 1995 was $557,000 for 1997 and $48,000 for 1996 using Black Scholes
option-pricing model with the following weighted-average assumptions:
<TABLE>
Granted During
-------------------------------------------------------
1997 1996 1995
---------------- ---------------- -----------
<S> <C> <C> <C>
Expected dividend yield 3% 4% 4%
Risk-free rate of return 6% 6% 6%
Expected life 1 to 5 years 1 to 5 years 5 years
Expected volatility 10% 9% 4%
</TABLE>
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 consolidated 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):
65
<PAGE>
FIRST PLACE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1997, 1996 and 1995
NOTE M - COMMON STOCK AND STOCK OPTIONS - CONTINUED
<TABLE>
1997 1996
----------- -----------
<S> <C> <C> <C>
Net income As reported $9,094 $9,810
Pro forma $9,079 $9,808
Diluted earnings per share As reported $ 4.17 $ 4.59
Pro forma $ 4.16 $ 4.58
</TABLE>
Pro forma net income reflects only options granted in 1997, 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 because compensation cost is reflected over the options' vesting
period and compensation cost for options granted prior to January 1, 1995
is not considered.
66
<PAGE>
FIRST PLACE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1997, 1996 and 1995
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 judgments 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 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, 1997, 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.
67
<PAGE>
FIRST PLACE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1997, 1996 and 1995
NOTE N - CAPITAL REQUIREMENTS - CONTINUED
At December 31 the capital ratios were (dollars in thousands):
<TABLE>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
------------------- ------------------- ----------------------
1997 Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Total capital (to risk weighted assets):
Consolidated $76,189 13.23% => $46,072 => 8.0% => N/A
FNBF $55,997 13.25% => $33,810 => 8.0% => $42,263 => 10.0%
BNBD $13,225 11.19% => $ 9,452 => 8.0% => $11,815 => 10.0%
WBG $ 4,208 12.14% => $ 2,772 => 8.0% => $ 3,465 => 10.0%
Tier 1 capital (to risk weighted assets):
Consolidated $68,977 11.98% => $23,036 => 4.0% => N/A
FNBF $50,703 12.00% => $16,905 => 4.0% => $25,358 => 6.00%
BNBD $11,742 9.94% => $ 4,726 => 4.0% => $ 7,089 => 6.00%
WBG $ 3,773 10.89% => $ 1,386 => 4.0% => $ 2,079 => 6.00%
Leverage ratio (Tier 1 capital to adjusted assets):
Consolidated $68,977 7.92% => $34,862 => 4.0% => N/A
FNBF $50,703 7.57% => $26,798 => 4.0% => $33,498 => 5.00%
BNBD $11,742 7.48% => $ 6,281 => 4.0% => $ 7,852 => 5.00%
WBG $ 3,773 7.32% => $ 2,061 => 4.0% => $ 2,576 => 5.00%
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
------------------- ------------------- ----------------------
1997 Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ ------
Total capital (to risk weighted assets):
Consolidated $69,265 13.02% => $42,567 => 8.0% => N/A
FNBF $51,314 12.68% => $32,386 => 8.0% => $40,483 => 10.0%
BNBD $12,273 12.28% => $ 7,994 => 8.0% => $ 9,992 => 10.0%
WBG $ 3,865 14.16% => $ 2,183 => 8.0% => $ 2,729 => 10.0%
Tier 1 capital (to risk weighted assets):
Consolidated $62,586 11.76% => $21,284 => 4.0% => N/A
FNBF $46,233 11.42% => $16,193 => 4.0% => $24,290 => 6.0%
BNBD $11,018 11.03% => $ 3,997 => 4.0% => $ 5,995 => 6.0%
WBG $ 3,522 12.91% => $ 1,092 => 4.0% => $ 1,637 => 6.0%
Leverage ratio (Tier 1 capital to adjusted assets):
Consolidated $62,586 8.03% => $31,937 => 4.0% => N/A
FNBF $46,233 7.53% => $25,422 => 4.0% => $31,777 => 5.0%
BNBD $11,018 8.90% => $ 5,157 => 4.0% => $ 6,446 => 5.0%
WBG $ 3,522 8.56% => $ 1,792 => 4.0% => $ 2,240 => 5.0%
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 fourth quarter average assets.
</TABLE>
68
<PAGE>
FIRST PLACE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1997, 1996 and 1995
NOTE O - FORMATION OF CAPITAL BANK, A DE NOVO STATE CHARTERED BANK
In November 1997, the Company filed notice of intent to organize Capital
Bank, a de novo state chartered bank, in Albuquerque, New Mexico. The
Company has a $10,000,000 credit facility from Frost National Bank which
will be used to capitalize Capital Bank which is scheduled to be opened by
mid-1998.
NOTE P - 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>
Basic and Diluted EPS
(in thousands, except shares and per share data)
For the Year Ended 1997 1996 1995
---------------------------------- ---------------------------------- ----------------------------------
Income Shares Per-Share Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------ --------- ----------- ------------ --------- ----------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Basic EPS:
Income available to
common stockholders $9,094 2,138,892 $4.25 $9,810 2,107,892 $4.65 $8,766 2,037,237 $4.30
----- ----- -----
----- ----- -----
Effect of dilutive
securities-options --- 42,069 --- 31,655 --- 19,454
------ --------- ----- ------ --------- ----- ------ --------- -----
Diluted EPS:
Income available to
common stockholders $9,094 2,180,961 $4.17 $9,810 2,139,547 $4.59 $8,766 2,056,691 $4.26
------ --------- ----- ------ --------- ----- ------ --------- -----
------ --------- ----- ------ --------- ----- ------ --------- -----
</TABLE>
69
<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 (the Corporation) as of December 31,
1997 and 1996, and the related consolidated statements of income, changes in
stockholders' equity, and cash flows for the years then ended. These
consolidated financial statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on these consolidated
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 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 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 financial position of First
Place Financial Corporation and subsidiaries as of December 31, 1997 and 1996,
and the results of their operations and their cash flows for the years then
ended, in conformity with generally accepted accounting principles.
(signed) KPMG Peat Marwick LLP
Albuquerque, New Mexico
January 23, 1998
70
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
First Place Financial Corporation
We have audited the accompanying consolidated statements of income,
stockholders' equity and cash flows for the year 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 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 consolidated results of
operations and the consolidated cash flows of First Place Financial
Corporation and Subsidiaries for the year ended December 31, 1995, in
conformity with generally accepted accounting principles.
(signed) Chandler & Company LLP
Farmington, New Mexico
February 2, 1996
71
<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 Consents of KPMG Peat Marwick LLP 73
23.2 Consents of Chandler & Company LLP 75
27 Financial Data Schedule 77
- -------------
* Incorporated by reference from 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.
72
<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 23, 1998, relating to the consolidated balance sheets of First
Place Financial Corporation and subsidiaries as of December 31, 1997 and
1996, and the related consolidated statements of income, changes in
stockholders' equity, and cash flows for the years then ended, which report
appears in the December 31, 1997, annual report on Form 10-K of First Place
Financial Corporation.
(signed) KPMG Peat Marwick LLP
Albuquerque, New Mexico
March 28, 1998
73
<PAGE>
The Board of Directors
First Place Financial Corporation
We consent to incorporation by reference in the registration statement (No.
333-46871) on Form S-8 of First Place Financial Corporation of our report
dated January 23, 1998, relating to the consolidated balance sheets of First
Place Financial Corporation and subsidiaries as of December 31, 1997 and
1996, and the related consolidated statements of income, changes in
stockholders' equity, and cash flows for the years then ended, which report
appears in the December 31, 1997, annual report on Form 10-K of First Place
Financial Corporation.
(signed) KPMG Peat Marwick LLP
Albuquerque, New Mexico
March 28, 1998
74
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
As independent public accountants, we consent to the incorporation by
reference of our report dated February 2, 1996, which appears in the Annual
Report on Form 10-K of First Place Financial Corporation for the year ended
December 31, 1997, into First Place Financial Corporation's previously filed
Form S-8 Registration Statement (Number 333-46871).
(signed) Chandler & Company LLP
Farmington, New Mexico
March 25, 1998
75
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
As independent public accountants, we consent to the incorporation by
reference of our report dated February 2, 1996, which appear in the Annual
Report on Form 10-K of First Place Financial Corporation for the year ended
December 31, 1997, into First Place Financial Corporation's previously filed
Form S-8 Registration Statement (Number 333-12837).
(signed) Chandler & Company LLP
Farmington, New Mexico
March 25, 1998
76
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 79,579
<INT-BEARING-DEPOSITS> 17,052
<FED-FUNDS-SOLD> 250
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 279,559
<LOANS> 491,961
<ALLOWANCE> 8,722
<TOTAL-ASSETS> 897,960
<DEPOSITS> 608,746
<SHORT-TERM> 117,852
<LIABILITIES-OTHER> 11,115
<LONG-TERM> 88,416<F1>
0
0
<COMMON> 14,364
<OTHER-SE> 57,467
<TOTAL-LIABILITIES-AND-EQUITY> 897,960
<INTEREST-LOAN> 46,905
<INTEREST-INVEST> 15,343
<INTEREST-OTHER> 842
<INTEREST-TOTAL> 63,090
<INTEREST-DEPOSIT> 23,738
<INTEREST-EXPENSE> 33,017
<INTEREST-INCOME-NET> 30,073
<LOAN-LOSSES> 2,245
<SECURITIES-GAINS> (111)
<EXPENSE-OTHER> 21,108
<INCOME-PRETAX> 11,938
<INCOME-PRE-EXTRAORDINARY> 11,938
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,094
<EPS-PRIMARY> 4.25<F2>
<EPS-DILUTED> 4.17
<YIELD-ACTUAL> 4.23
<LOANS-NON> 5,078
<LOANS-PAST> 227
<LOANS-TROUBLED> 29
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 8,933
<CHARGE-OFFS> 3,542
<RECOVERIES> 1,086
<ALLOWANCE-CLOSE> 8,722
<ALLOWANCE-DOMESTIC> 8,722
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
<FN>
<F1>LONG-TERM AND OTHER NOTES PAYABLE
<F2>BASIC EPS
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 35,662
<INT-BEARING-DEPOSITS> 10,887
<FED-FUNDS-SOLD> 2,725
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 218,250
<LOANS> 404,680
<ALLOWANCE> 8,588
<TOTAL-ASSETS> 690,795
<DEPOSITS> 529,047
<SHORT-TERM> 56,294
<LIABILITIES-OTHER> 9,056
<LONG-TERM> 38,642<F1>
0
0
<COMMON> 13,609
<OTHER-SE> 44,147
<TOTAL-LIABILITIES-AND-EQUITY> 690,795
<INTEREST-LOAN> 36,367
<INTEREST-INVEST> 12,677
<INTEREST-OTHER> 559
<INTEREST-TOTAL> 49,603
<INTEREST-DEPOSIT> 17,835
<INTEREST-EXPENSE> 23,974
<INTEREST-INCOME-NET> 25,629
<LOAN-LOSSES> 837
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 16,861
<INCOME-PRETAX> 12,637
<INCOME-PRE-EXTRAORDINARY> 12,637
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,766
<EPS-PRIMARY> 4.30<F2>
<EPS-DILUTED> 4.26
<YIELD-ACTUAL> 4.64
<LOANS-NON> 3,517
<LOANS-PAST> 308
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 7,586
<CHARGE-OFFS> 852
<RECOVERIES> 715
<ALLOWANCE-CLOSE> 8,588<F3>
<ALLOWANCE-DOMESTIC> 8,588
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
<FN>
<F1>Long term and other notes payable
<F2>Basic EPS
<F3>Includes 302 due to WBG merger
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<RESTATED>
<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> 0
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 244,687
<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<F1>
0
0
<COMMON> 13,634
<OTHER-SE> 51,126
<TOTAL-LIABILITIES-AND-EQUITY> 800,610
<INTEREST-LOAN> 43,450
<INTEREST-INVEST> 12,749
<INTEREST-OTHER> 916
<INTEREST-TOTAL> 57,115
<INTEREST-DEPOSIT> 22,445
<INTEREST-EXPENSE> 28,153
<INTEREST-INCOME-NET> 28,962
<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> 4.65<F2>
<EPS-DILUTED> 4.59
<YIELD-ACTUAL> 4.52
<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>Long term and other notes payable
<F2>Basic EPS
</FN>
</TABLE>
