<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: March 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission file number 0-25956
FIRST PLACE FINANCIAL CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
New Mexico 85-0317365
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S) Employer
incorporation or organization) Identification No.
100 East Broadway
Farmington, New Mexico 87401
----------------------------------------------------------------
(Address, including ZIP Code, or registrant's executive offices)
(505) 324-9500
----------------------------------------------------
(Registrant's telephone number, including area code)
Not Applicable
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months, and (2) has been subject
to such filing requirements for the past 90 days.
YES X NO
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
Outstanding at
Class April 28, 1999
- --------------------------- --------------
<S> <C>
Common shares, no par value 2,170,397
</TABLE>
<PAGE>
FIRST PLACE FINANCIAL CORPORATION
FORM 10Q
INDEX
<TABLE>
<CAPTION>
PAGE
PART I. FINANCIAL INFORMATION NUMBER
- ------------------------------ ------
<S> <C>
Item 1. Financial Statements:
Consolidated Balance Sheets at March 31, 1999,
December 31, 1998 and March 31, 1998 3
Consolidated Statements of Income for the three months ended
March 31, 1999 and 1998 4
Consolidated Statements of Changes in Stockholders' Equity for
the three months ended March 31, 1999 and 1998 and
year-ended December 31, 1998 5
Consolidated Statements of Cash Flows for the three months ended
March 31, 1999 and 1998 7
Notes to the Consolidated Financial Statements 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk 16
Part II. OTHER INFORMATION
- --------------------------
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
- ----------
</TABLE>
<PAGE>
FIRST PLACE FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(in thousands)
-------------------------------------------
March 31, December 31, March 31,
1999 1998 1998
ASSETS (Unaudited) (Unaudited)
----------- ----------- -----------
<S> <C> <C> <C>
Cash and due from banks $ 66,482 $ 89,982 $122,849
Interest-bearing deposits in banks 5,766 14,221 24,793
Federal funds sold 39,605 15,700 2,090
--------- -------- --------
Total cash and cash equivalents 111,853 119,903 149,732
--------- -------- --------
Investment securities:
Available for sale (at market value) 339,544 320,943 269,909
--------- -------- --------
Loans 438,783 429,665 478,331
Allowance for loan losses (9,354) (9,807) (9,169)
--------- -------- --------
Total net loans 429,429 419,858 469,162
--------- -------- --------
Bank premises and equipment, net 20,934 20,679 19,106
Other real estate owned 788 811 1,330
Other assets 20,474 19,853 18,602
--------- -------- --------
Total assets $ 923,022 $902,047 $927,841
--------- -------- --------
--------- -------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing demand deposits $ 143,116 $144,214 $144,760
Interest-bearing transaction accounts 138,869 110,604 118,424
Savings and money market accounts 114,352 109,453 110,704
Time certificates, $100,000 and over 144,110 149,500 146,569
Other time certificates 108,317 111,626 107,855
--------- -------- --------
Total deposits 648,764 625,397 628,312
Securities sold under agreements to repurchase 74,745 68,629 70,824
Federal funds purchased 37,625 44,257 56,814
Federal Home Loan Banks and other notes payable 72,888 76,546 90,359
Other liabilities 10,653 10,172 8,431
--------- -------- --------
Total liabilities 844,675 825,001 854,740
--------- -------- --------
Stockholder's equity:
Common stock, no par value.
Authorized shares - 5,000,000;
issued and outstanding shares - 2,170,397 at 3/31/99;
2,170,372 at 12/31/98; 2,159,422 at 3/31/98 14,838 14,837 14,519
Additional paid-in capital 731 731 587
Accumulated other comprehensive income 1,126 2,035 1,833
Retained earnings 61,652 59,443 56,162
--------- -------- --------
Total stockholders' equity 78,347 77,046 73,101
--------- -------- --------
Total liabilities and stockholders' equity $ 923,022 $902,047 $927,841
--------- -------- --------
--------- -------- --------
</TABLE>
See notes to consolidated financial statements
3
<PAGE>
FIRST PLACE FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
(in thousands, except per share data)
-------------------------------------
Three Months Ended
March 31,
-------------------------------------
1999 1998
---------------- ----------------
<S> <C> <C>
Interest income:
Loans, including fees $ 9,784 $ 11,623
Investment securities:
Taxable 3,765 3,245
Tax-exempt 879 775
Interest-bearing deposits 99 242
Federal funds sold 312 68
-------- --------
Total interest income 14,839 15,953
-------- --------
Interest expense:
Time deposits $100,000 and over 1,935 2,255
Other deposits 2,892 3,490
Short-term borrowings 1,222 1,457
Other borrowings 1,135 1,301
-------- --------
Total interest expense 7,184 8,503
-------- --------
Net interest income 7,655 7,450
Provision for loan losses (609) 565
-------- --------
Net interest income after provision for loan losses 8,264 6,885
-------- --------
Other income:
Service charges on deposit accounts 803 675
Other service charges and fees 473 340
Investment securities gains -- 3
Other operating income 220 110
-------- --------
Total other income 1,496 1,128
-------- --------
Other expense:
Salaries and employee benefits 3,376 3,187
Occupancy expenses, net 561 512
Other operating expenses 1,972 2,105
-------- --------
Total other expenses 5,909 5,804
-------- --------
Income before income taxes 3,851 2,209
Income taxes 830 524
-------- --------
Net Income $ 3,021 $ 1,685
-------- --------
-------- --------
Earnings per common share:
Basic $ 1.39 $ 0.78
Diluted $ 1.38 $ 0.77
</TABLE>
See notes to consolidated financial statements
4
<PAGE>
FIRST PLACE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
(in thousands)
------------------------------------------------
Three Months Ended
March 31,
------------------------------------------------
1999 1998
-------------------- --------------------
<S> <C> <C> <C> <C>
Retained earnings:
Balance at beginning of year $ 59,443 $ 55,286
Net income 3,021 $ 3,021 1,685 $ 1,685
Cash dividends declared (812) (809)
-------- --------
Balance at end of period 61,652 56,162
-------- --------
Accumulated other comprehensive income:
Balance at beginning of year 2,035 1,775
Unrealized gains (losses) on securities
net of reclassification adjustment (see disclosure) (909) (909) 58 58
------- -------
Comprehensive income $ 2,112 $ 1,743
------- -------
------- -------
-------- --------
Balance at end of period 1,126 1,833
-------- --------
Common stock:
Balance at beginning of year 14,837 14,364
Issuance of new common stock 1 343
Retirement of common stock -- (188)
-------- --------
Balance at end of period 14,838 14,519
-------- --------
Additional paid-in capital:
Balance at beginning of year 731 406
Additions related to sale of common stock -- 181
-------- --------
Balance at end of period 731 587
-------- --------
Total stockholders' equity $ 78,347 $ 73,101
-------- --------
-------- --------
Disclosure of reclassification amount:
Unrealized holding gains (losses) arising during period $ (909) $ 55
Less: reclassification adjustment for gains
included in net income -- --
Plus: reclassification adjustment for losses
included in net income -- 3
------- -------
Net unrealized gains (losses) on securities $ (909) $ 58
------- -------
------- -------
</TABLE>
See notes to consolidated financial statements
5
<PAGE>
FIRST PLACE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Year Ended December 31, 1998
<TABLE>
<CAPTION>
(in thousands)
-------------------
1998
-------------------
<S> <C>
Retained earnings:
Balance at beginning of year $55,286
Net income 8,161 $ 8,161
Cash dividends declared (4,004)
-------
Balance at end of period 59,443
-------
Accumulated other comphrensive income:
Balance at beginning of year 1,775
Unrealized gains on securities
net of reclassification adjustment 260 260
-------
Comprehensive income $ 8,421
-------
-------
-------
Balance at end of period 2,035
-------
Common stock:
Balance at beginning of year 14,363
Issuance of new common stock 662
Retirement of common stock (188)
-------
Balance at end of period 14,837
-------
Additional paid-in capital:
Balance at beginning of year 406
Additions related to sale of common stock 325
-------
Balance at end of period 731
-------
Total stockholders' equity $77,046
-------
-------
Disclosure of reclassification amount:
Unrealized holding gains arising during period $ 316
Less: reclassification adjustment for gains
included in net income 56
Plus: reclassification adjustment for losses
included in net income --
-------
Net unrealized gains on securities $ 260
-------
-------
</TABLE>
See notes to consolidated financial statements
6
<PAGE>
FIRST PLACE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
(in thousands)
Three Months Ended
March 31
--------------------------
1999 1998
--------- ---------
<S> <C> <C>
Cash flow from operating activities:
Net income $ 3,021 $ 1,685
Adjustments to reconcile net income to net cash provided by operations:
Amortization 70 (80)
Depreciation 539 411
Provision for loan losses (609) 565
Net (increase) decrease in other assets (107) 844
Net increase (decrease) in other liabilities 1,277 (1,748)
Gain on sale of property, plant and equipment (1) --
Gain on sale of other real estate -- (7)
Writedown of other real estate -- 50
Gain on sale of available-for-sale securities -- (3)
--------- ---------
Net cash from operating activities 4,190 1,717
--------- ---------
Cash flows from investing activities:
Proceeds from sales of available-for-sale securities -- 1,000
Proceeds from maturities of available-for-sale securities 22,969 20,725
Purchases of available-for-sale securities (43,065) (11,874)
Net (increase) decrease in loans (8,963) 13,246
Proceeds from the sale of bank premises and equipment 1 35
Proceeds from sale of other real estate 24 12
Purchase of bank premises and equipment (794) (2,041)
--------- ---------
Net cash from investing activities (29,828) 21,103
--------- ---------
Cash flows from financing activities:
Net increase in deposit accounts 32,066 30,536
Net decrease in certificates of deposit (8,699) (10,969)
Net increase (decrease) in securities sold under agreements to repurchase 6,116 (11,683)
Net increase (decrease) in federal funds purchased (6,632) 21,469
Proceeds from Federal Home Loan Bank advances -- 3,037
Payments on Federal Home Loan Bank advances (2,040) (1,984)
Net increase (decrease) in other notes payable (1,618) 890
Cash dividends paid (1,606) (1,601)
Proceeds from issuance of common stock 1 336
--------- ---------
Net cash from financing activities 17,588 30,031
--------- ---------
Net increase (decrease) in cash and cash equivalents (8,050) 52,851
Cash and cash equivalents at beginning of period 119,903 96,881
--------- ---------
Cash and cash equivalents at end of period $ 111,853 $ 149,732
--------- ---------
--------- ---------
</TABLE>
See notes to consolidated financial statements
7
<PAGE>
FIRST PLACE FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
<TABLE>
<S> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid during period for:
Interest $ 7,335 $ 8,522
Non-cash assets acquired through foreclosure $ -- $ 266
</TABLE>
See notes to consolidated financial statements
8
<PAGE>
FIRST PLACE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED STATEMENTS
NOTE 1 - PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of First Place
Financial Corporation and its subsidiaries. Significant intercompany
accounts and transactions have been eliminated in consolidation.
The information contained in the financial statements for March 31, 1999
and March 31, 1998, was unaudited. In the opinion of management, all
adjustments necessary for a fair presentation of the results have been
made. Certain prior year amounts are reclassified to conform to current
year classifications.
NOTE 2 - RECONCILIATION OF EARNINGS PER SHARE
The following is the reconciliation of the numerator and denominator of the
basic and diluted earnings per common share ("EPS") computations:
<TABLE>
<CAPTION>
Basic and Diluted EPS
(in thousands, except per share data)
At March 31 1999 1998
----------------------------------------- -----------------------------------------
Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- --------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS:
Income available to
common stockholders $3,021 2,170,378 $1.39 $1,685 2,156,841 $.78
----- ----
----- ----
Effect of dilutive
securities-options -- 18,837 -- 37,416
------ --------- ------ ---------
Diluted EPS:
Income available to
common stockholders $3,021 2,189,215 $1.38 $1,685 2,194,257 $.77
------ --------- ----- ------ --------- ----
------ --------- ----- ------ --------- ----
</TABLE>
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1999
This management discussion and analysis of financial condition should be read
in conjunction with the consolidated financial statements and accompanying
notes and Form 10-K for the year-ended December 31, 1998.
Words or phrases when used in this Form 10-Q or other filings with the
Securities and Exchange Commission, such as "does not expect" and "are
expected to", or similar expressions are intended to identify
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Readers should not place undue expectations on
any forward-looking statements. Such statements are only as of the date made
and will not necessarily be updated after the date of such statements.
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 First Place
Financial Corporation and its subsidiaries' financial performance and could
cause actual results for future periods to differ from those anticipated.
OVERVIEW
First Place Financial Corporation ("First Place") its wholly owned
subsidiaries, First National Bank of Farmington, New Mexico ("FNBF"), Burns
National Bank of Durango, Colorado ("BNBD"), Western Bank, Gallup, New Mexico
("WBG") and Capital Bank, Albuquerque, New Mexico ("CBA") (collectively, the
"Subsidiary Banks") and its non-bank subsidiary, FPFC Management, LLC ("LLC")
on a consolidated basis are the "Company". The Company recorded, for the
first three months of 1999, net income of $3,021,000, compared to net income
of $1,685,000 for the first three months of 1998. Basic and diluted EPS were
$1.39 and $1.38, respectively, for the three months ended March 31, 1999
compared to $.78 and $.77, respectively, for the same period a year ago. The
net income for the first three months of 1999 increased $1,336,000 from net
income reported for the first three months of 1998 due to the net result of
the $1,174,000 pre-tax decrease in the provision for loan losses, $205,000
increase in net interest income and $368,000 increase in non-interest income
offset by an increase of $105,000 in non-interest expense and an increase of
$306,000 in taxes. First quarter 1999 net income included a $183,000 loss at
CBA which opened in October, 1998.
On an annualized basis, the return on average assets for the first three
months of 1999 was 1.35 percent and the return on average assets for the
first three months of 1998 was .77 percent. On an annualized basis, the
return on average equity for the three months of 1999 was 15.76 percent
compared to 9.38 percent for the same period a year ago. For the year ended
December 31, 1998, the return on average assets and the return on average
equity were .90 percent and 10.96 percent, respectively.
10
<PAGE>
NET INTEREST INCOME AND MARGIN
Interest income for the quarter ended March 31, 1999, was $14,839,000, a 7.0
percent decrease from the $15,953,000 recorded for the first quarter of 1998.
Total interest earning assets averaged $803,277,000 for the first quarter
1999, an increase of $13,349,000 from average earning assets of $789,928,000
for the quarter ended March 31, 1998. This increase was due to the
$52,901,000 or 19.0 percent increase in average securities and an increase in
average federal funds sold of $20,593,000 offset by decreases of $50,949,000
or 10.4 percent in average loans and $9,197,000 in average interest-bearing
deposits in banks. The average yield on earning assets for the first quarter
of 1999 was 7.77 percent, compared to 8.44 percent for the like period a year
ago.
Interest expense for the quarter ended March 31, 1999, was $7,184,000 a 15.5
percent decrease compared to $8,503,000 for the quarter ended March 31, 1998.
Average interest-bearing liabilities were $683,187,000 for the first quarter
of 1999, a slight decrease from the average interest-bearing liabilities of
$689,099,000 for the first quarter of 1998. The average rate paid on these
liabilities for the first quarter of 1999 was 4.26 percent compared to 5.00
percent paid for the same period a year ago.
Net interest income increased $205,000 for the first three months of 1999
compared to the first three months of 1998. This increase was primarily due
to diligent efforts to reduce the Company's cost of funds. Net interest
margin, on a fully tax-equivalent basis, which is tax-equivalent net interest
income expressed as a percent of total average earning assets for the first
quarter of 1999, was 4.14 percent, up from 4.07 percent a year ago. Average
interest-bearing liabilities were 85.0 percent of average earning assets for
the first quarter of 1999, compared to 87.2 percent for the same period a
year ago.
PROVISION FOR LOAN LOSSES
The Company's provision for loan losses for the first quarter of 1999 was
($609,000) a decrease of $1,174,000 from the same period last year. FNBF
recorded an $800,000 reverse provision for loan losses during the first
quarter of 1999. The reverse provision was mainly due to a reduction in
adversely classified commercial and commercial real estate loans at FNBF.
OTHER INCOME
The Company recorded other income of $1,496,000 for the first three months of
1999, up $368,000 from the $1,128,000 recorded in the first three months of
1998. This increase was primarily in account analysis fees, overdraft fees,
ATM fees and an increase in other operating income due to increased cash
value of life insurance.
11
<PAGE>
OTHER EXPENSES
Other expenses for the three months ended March 31, 1999 were $5,909,000, up
$105,000 from the $5,804,000 recorded for the same period a year ago. This
increase was primarily due to increases in salaries and benefits of $189,000,
data processing expenses of $102,000, occupancy of $49,000 offset by
decreases in supplies of $93,000 and other real estate owned expenses of
$63,000. Salaries and benefits for CBA was $226,000 for the first quarter of
1999.
INCOME TAXES
The income tax expense for the first three months of 1999 was $830,000, up
$306,000 from the $524,000 recorded for the first quarter of 1998. The
effective tax rates for the first quarter of 1999 and 1998 were 22 percent
and 24 percent, respectively.
BALANCE SHEET REVIEW
Average total assets were $906,611,000 for the first three months of 1999
compared to $890,816,000 for the first three months of 1998. Period-end
assets were $923,022,000, $902,047,000 and $927,841,000 at March 31, 1999,
December 31, 1998, and March 31, 1998, respectively.
Cash and due from banks at March 31, 1999 was $66,482,000 compared to
$122,849,000 reported for the same period a year ago. This decrease of
$56,367,000 was primarily in due from bank balances which decreased
$38,849,000 from March 31, 1998 to March 31, 1999. The due from bank balances
were unusually high as of March 31, 1998. The average cash and due from banks
during the first quarter of 1999 was $71,988,000 compared to $72,737,000
average during the first quarter of 1998 and $71,848,000 average for the year
ended December 31, 1998.
Available-for-sale securities at March 31, 1999 were $339,544,000 an increase
of $69,635,000 from $269,909,000 reported for March 31, 1998. This 25.8
percent increase was partially due to the availability of funds resulting
from a decrease in loan demand.
Interest-bearing deposits in banks, which consist of balances maintained at
Federal Home Loan Banks, decreased from $24,793,000 at March 31, 1998 to
$5,766,000 at March 31, 1999. The Company deposits excess funds into Federal
Home Loan Banks in lieu of selling the funds in the federal funds market.
Federal funds sold increased from $2,090,000 at March 31, 1998 to $39,605,000
at March 31, 1999. CBA had $5,130,000 in federal funds sold at March 31, 1999.
Loans decreased $39,548,000 to $438,783,000 at March 31, 1999, from
$478,331,000 at March 31, 1998. All categories of loans decreased from March
31, 1998 to March 31, 1999. Loans at March 31, 1999, increased $9,118,000
from December 31, 1998. This increase was primarily in the commercial and
commercial real estate categories and was offset somewhat by a decrease in
the real estate construction category. Management is encouraged by the recent
level of loan demand at CBA. CBA's lending staff is currently working on
finalizing $20,000,000 of various loan transactions and management estimates
the majority of these loan requests will eventually be funded. As of March
31, 1999, CBA had $8,974,000 in outstanding loans.
12
<PAGE>
Total deposits of $648,764,000 at March 31, 1999, increased $23,367,000 and
$20,452,000 from December 31, 1998 and March 31, 1998, respectively. CBA had
$9,197,000 in total deposits at March 31, 1999. Interest-bearing transaction
accounts of $138,869,000 at March 31, 1999, increased $28,265,000 and
$20,445,000 from the December 31, 1998 and March 31, 1998 balances,
respectively. These increases were primarily in public deposit balances.
Securities sold under agreements to repurchase as of March 31, 1999, were
$74,745,000 compared to $68,629,000 as of December 31, 1998 and $70,824,000
as of March 31, 1998. Federal funds purchased were $37,625,000 as of March
31, 1999, compared to $44,257,000 as of December 31, 1998, and $56,814,000 as
of March 31, 1998.
Federal Home Loan Bank ("FHLB") advances and other notes payable were
$72,888,000 as of March 31, 1999, compared to $76,546,000 as of December 31,
1998, and $90,359,000 at March 31, 1998. The $17,471,000 decrease from March
31, 1998 compared to March 31, 1999 was due to payments on FHLB advances. No
FHLB advances were taken during the first quarter of 1999.
ASSET QUALITY
Nonperforming loans and other real estate owned ("OREO") and other foreclosed
assets are presented in the following table:
<TABLE>
<CAPTION>
(in thousands)
----------------------------------------------
March 31, December 31, March 31,
1999 1998 1998
--------- ------------ ---------
<S> <C> <C> <C>
Nonaccrual loans $ 6,156 $ 4,336 $ 5,492
Accruing loans past due 90 days or more 661 893 2,677
Restructured loans (in compliance with modified terms) 3,075 3,082 3,107
OREO and other foreclosed assets 890 898 1,570
-------- ------- --------
Total nonperforming assets $ 10,782 $ 9,209 $ 12,846
-------- ------- --------
-------- ------- --------
</TABLE>
The $1,820,000 increase from December 31, 1998 to March 31, 1999 in
nonaccrual loans was primarily in real estate related loans.
Management identified $2,432,000 of potential problem loans as of March 31,
1999. This is primarily related to two large customer relationships.
Potential problem loans are performing loans that management had doubts about
the borrower's ability to comply with the present loan repayment terms. These
loans are less than 90 days past due and are accruing interest.
13
<PAGE>
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is presented in the following table:
<TABLE>
<CAPTION>
March 31, December 31, March 31,
1999 1998 1998
--------- ------------ ---------
<S> <C> <C> <C>
Beginning balance $ 9,807 $ 8,722 $ 8,722
Provision charged to expense (609) 2,045 565
Recoveries on loans previously charged-off 425 857 306
Loans charged-off (269) (1,817) (424)
------- ------- -------
Balance $ 9,354 $ 9,807 $ 9,169
------- ------- -------
------- ------- -------
</TABLE>
The Company considered the allowance for loan losses at March 31, 1999, to be
adequate to absorb known risks in the loan portfolio. Year-to-date loan
charge-offs were .06 percent of loans outstanding at March 31, 1999, compared
to .09 percent at March 31, 1998. Year-to-date loan recoveries at March 31,
1999 were $156,000 greater than March 31, 1999 year-to-date charge-offs
primarily due to one large commercial loan recovery.
LIQUIDITY
The Company maintains an adequate liquidity position through stable deposits
generated from the Company's branches, the disciplined use of debt, and from
a high quality securities portfolio.
Other sources of liquidity are provided by federal funds purchased,
securities sold under repurchase agreements, borrowings from Federal Home
Loan Banks and access to the Federal Reserve for short term liquidity needs.
The Company has increased its federal funds lines of credit by $27,700,000
from a year ago bringing the total of such lines to $105,700,000 as of March
31, 1999. The ratio of loans to deposits, which is a measure of liquidity,
was 67.6 percent at March 31, 1999 compared to 68.7 percent and 76.1 percent
at December 31, 1998, and March 31, 1998, respectively.
While the above-mentioned sources of liquidity are expected to continue to
provide significant amounts of funds in the future, their mix, as well as the
possible use of other sources, will depend upon future economic and market
conditions.
ASSET/LIABILITY MANAGEMENT
The Company's Asset Liability Management Committee ("ALCO") is responsible
for the identification, assessment and management of the liquidity and
interest rate risk of the respective subsidiary banks. The ALCO has focused
on maintaining acceptable liquidity levels and maintaining a position of
minimal interest rate risk exposure with an emphasis on deposit gathering,
nondeposit options and taking advantage of lending opportunities.
14
<PAGE>
STOCKHOLDERS' EQUITY AND CAPITAL ADEQUACY
The subsidiary banks each exceeded regulatory requirements for "well
capitalized" status as of March 31, 1999. The Company's risk-based capital
ratios at March 31, 1999, were:
Tier 1 capital (regulatory minimum = 4.00% or above) was 14.10 percent
compared to 14.09 percent at year end.
Total capital (regulatory minimum = 8.00% or above) was 15.33 percent
compared to 15.33 percent at year end.
Leverage ratio (regulatory minimum = 4.00% or above) was 8.44 percent
compared to 8.17 percent at year end.
Stockholders' equity increased 7.2 percent to $78,347,000 from a year ago and
was up $1,301,000 from year-end 1998. This growth was primarily due to
earnings retention. The ratio of stockholders' equity to total assets was
8.49 percent at March 31, 1999, compared to 8.54 percent and 7.88 percent at
December 31, 1998, and March 31, 1998, respectively.
YEAR 2000 COMPLIANCE PLAN
The Company is actively engaged in resolving the issues involved with the
year 2000 challenge. In 1998, a team was formed to identify the scope of the
project and address the various issues. As of December 31, 1998, the Company
had substantially completed the remediation and testing of its mission
critical systems. Of 16 mission critical systems, 15 have been upgraded for
year 2000 compliance and have been successfully tested. The remaining mission
critical system is scheduled to be upgraded and tested by June 1999.
Additionally, 100 percent of all non-mission critical systems have been
upgraded, and the majority of these have also been successfully tested.
Upgrade and testing of all systems is expected to be completed by June 1999.
The Company has identified and assessed all non-computer related systems as
well. These systems include elevators, vault doors, security, physical plant
systems such as heating and cooling, electronic access, and sprinkler
systems. All are currently year 2000 compliant.
The Company has assessed the year 2000 compliance status of its third party
service providers. It is the opinion of management that all third party
vendors with which the Company has a material relationship have allocated
sufficient resources and manpower to the year 2000 project. Furthermore, the
Company has continued to reevaluate these third party service providers
through the independent review of each in accordance with guidelines
published by industry regulatory agencies.
The estimated cost for the Company's year 2000 project is not expected to be
material (approximately $200,000 for 1999 and $100,000 for 2000). The
completion dates and costs are based on management's current best estimates.
15
<PAGE>
The Company has also assessed the scope of the year 2000 issue in regard to
major customers and has developed contingency plans which address the
potential credit and liquidity risks involved. As is the case with all
financial institutions, if the Company's customers fail to address the year
2000 compliance problems within their own industries or lose confidence in
the financial industry as a whole, the Company could be materially adversely
affected.
It is management's belief that the greatest risk lies in the area of cash
availability and liquidity. The Company's contingency plans include expanding
sources of funds, increasing cash availability, and maintaining a reasonably
liquid portfolio.
The Company has developed detailed contingency plans for all mission critical
applications. Contingency plans are focused on two areas: (1) providing
uninterrupted service to our customers in the event a system malfunctions and
(2) restoring or replacing the system.
The worst case scenario for providing uninterrupted service to customers
would include the loss of power to individual branch locations. Management
will not open branch locations if there is inadequate security due to lack of
power. Based on published reports, the worst case scenario would be a four
hour power outage. If there is electrical power, all other services could be
provided using manual operating procedures.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
There have been no material changes in the Company's interest rate risk
position since December 31, 1998.
16
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 3 (i). Articles of Incorporation of Registrant*
Exhibit 3 (ii). Bylaws of Registrant*
Exhibit 27. Financial Data Schedule
(b) Reports on Form 8-K
(1) Report dated January 28, 1999, regarding the Company's
results for the year ended December 31, 1998, and reporting
the quarterly dividend payable February 1, 1999.
(2) Report dated April 23, 1999 regarding the press release
announcing first quarter 1999 earnings and the quarterly
dividend payable May 3, 1999.
(3) Report dated May 3, 1999 regarding the first quarter 1999
shareholder letter.
- -------------------------
* Incorporated by reference from Exhibits to the Registrant's Registration
Statement on Form S-4, dated April 18, 1995, Registration No. 33-91310.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRST PLACE FINANCIAL CORPORATION
---------------------------------
(Registrant)
Date: May 10, 1999 /s/ James D. Rose
--------------------- ---------------------------------
James D. Rose
President and Chief Operating Officer
18
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