<PAGE>
===============================================================================
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: SEPTEMBER 30, 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 October 25, 1999
- --------------------------- ----------------
<S> <C>
Common shares, no par value 2,217,118
</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 September 30, 1999,
December 31, 1998 and September 30, 1998 3
Consolidated Statements of Income for the three months ended
September 30, 1999 and 1998 and the nine months ended
September 30, 1999 and September 30, 1998 4
Consolidated Statements of Changes in Stockholders' Equity for
the nine months ended September 30, 1999 and 1998 and
year-ended December 31, 1998 5
Consolidated Statements of Cash Flows for the nine months ended
September 30, 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 18
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 19
SIGNATURES 20
</TABLE>
<PAGE>
FIRST PLACE FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(in thousands)
------------------------------------------------
September 30, December 31, September 30,
1999 1998 1998
ASSETS (Unaudited) (Unaudited)
------------- ------------- --------------
<S> <C> <C> <C>
Cash and due from banks $ 69,515 $ 89,982 $ 76,426
Interest-bearing deposits in banks 6,520 14,221 18,806
Federal funds sold --- 15,700 48,505
------------- ------------- --------------
Total cash and cash equivalents 76,035 119,903 143,737
------------- ------------- --------------
Investment securities:
Available for sale (at market value) 297,456 320,943 306,872
------------- ------------- --------------
Loans 435,060 429,665 430,991
Allowance for loan losses (9,235) (9,807) (9,928)
------------- ------------- --------------
Total net loans 425,825 419,858 421,063
------------- ------------- --------------
Bank premises and equipment, net 20,772 20,679 20,056
Other real estate owned 844 811 702
Other assets 28,558 19,853 17,723
------------- ------------- --------------
Total assets $849,490 $902,047 $ 910,153
============= ============= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing demand deposits $142,452 $144,214 $ 137,993
Interest-bearing transaction accounts 127,752 110,604 113,971
Savings and money market accounts 109,015 109,453 104,167
Time certificates, $100,000 and over 119,576 149,500 151,349
Other time certificates 99,567 111,626 111,157
------------- ------------- --------------
Total deposits 598,362 625,397 618,637
Securities sold under agreements to repurchase 77,613 68,629 68,127
Federal funds purchased 22,653 44,257 45,488
Federal Home Loan Banks and other notes payable 62,653 76,546 91,727
Other liabilities 8,618 10,172 9,315
------------- ------------- --------------
Total liabilities 769,899 825,001 833,294
------------- ------------- --------------
Stockholders' equity:
Common stock, no par value
Authorized shares - 5,000,000;
issued and outstanding shares - 2,217,118 at 9/30/99;
2,170,372 at 12/31/98; 2,160,122 at 9/30/98 16,489 14,837 14,553
Additional paid-in capital 1,189 731 591
Accumulated other comprehensive income (3,091) 2,035 2,634
Retained earnings 65,004 59,443 59,081
------------- ------------- --------------
Total stockholders' equity 79,591 77,046 76,859
------------- ------------- --------------
Total liabilities and stockholders' equity $849,490 $902,047 $ 910,153
============= ============= ==============
</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 Nine Months Ended
September 30, September 30,
----------------------------- ---------------------------
1999 1998 1999 1998
------------- ------------- ------------ -----------
<S> <C> <C> <C> <C>
Interest income:
Loans, including fees $10,104 $ 10,739 $ 29,956 $33,985
Investment securities:
Taxable 3,552 3,422 11,166 9,916
Tax-exempt 921 796 2,694 2,344
Interest-bearing deposits 103 822 274 1,795
Federal funds sold 148 362 623 734
------------ ------------- ------------ -----------
Total interest income 14,828 16,141 44,713 48,774
------------ ------------- ------------ -----------
Interest expense:
Time deposits $100,000 and over 1,663 2,173 5,352 6,543
Other deposits 2,733 3,503 8,486 10,625
Short-term borrowings 1,211 1,627 3,699 4,846
Other borrowings 966 1,441 3,158 4,089
------------ ------------- ------------ -----------
Total interest expense 6,573 8,744 20,695 26,103
------------ ------------- ------------ -----------
Net interest income 8,255 7,397 24,018 22,671
Provision for loan losses 140 420 (349) 1,555
------------ ------------- ------------ -----------
Net interest income after provision for loan losses 8,115 6,977 24,367 21,116
------------ ------------- ------------ -----------
Other income:
Service charges on deposit accounts 950 712 2,650 2,075
Other service charges and fees 458 442 1,350 1,132
Investment securities gains --- 4 4 7
Other operating income 93 75 657 299
------------ ------------- ------------ -----------
Total other income 1,501 1,233 4,661 3,513
------------ ------------- ------------ -----------
Other expense:
Salaries and employee benefits 3,372 2,951 10,280 8,996
Occupancy expenses, net 572 584 1,681 1,622
Other operating expenses 2,163 1,931 6,335 6,202
------------ ------------- ------------ -----------
Total other expenses 6,107 5,466 18,296 16,820
------------ ------------- ------------ -----------
Income before income taxes 3,509 2,744 10,732 7,809
Income taxes 918 488 2,722 1,608
------------ ------------- ------------ -----------
Net Income $ 2,591 $ 2,256 $ 8,010 $ 6,201
============ ============= ============ ===========
Earnings per common share:
Basic $ 1.17 $ 1.04 $ 3.67 $ 2.87
Diluted $ 1.17 $ 1.03 $ 3.64 $ 2.83
</TABLE>
See notes to consolidated financial statements
4
<PAGE>
FIRST PLACE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(unaudited)
<TABLE>
<CAPTION>
(in thousands)
----------------------------------------------------
Nine Months Ended
September 30,
----------------------------------------------------
1999 1998
---------------------- -----------------------
<S> <C> <C>
Retained earnings:
Balance at beginning of year $ 59,443 $55,286
Net income 8,010 $8,010 6,201 $ 6,201
Cash dividends declared (2,449) (2,406)
----------- -----------
Balance at end of period 65,004 59,081
----------- -----------
Accumulated other comprehensive income:
Balance at beginning of year 2,035 1,775
Unrealized (losses) gains on securities
net of reclassification adjustment (5,126) (5,126) 859 859
--------- ------------
Comprehensive income $2,884 $ 7,060
========= ============
----------- -----------
Balance at end of period (3,091) 2,634
----------- -----------
Common stock:
Balance at beginning of year 14,837 14,364
Issuance of new common stock 1,652 377
Retirement of common stock --- (188)
----------- -----------
Balance at end of period 16,489 14,553
----------- -----------
Additional paid-in capital:
Balance at beginning of year 731 406
Additions related to sale of common stock 458 185
----------- -----------
Balance at end of period 1,189 591
----------- -----------
Total stockholders' equity $ 79,591 $76,859
=========== ===========
Disclosure of reclassification amount:
Unrealized holding (losses) gains arising during period $(5,009) $ 837
Less: reclassification adjustment for gains
included in net income 117 ---
Plus: reclassification adjustment for losses
included in net income --- 22
--------- ------------
Net unrealized (losses) gains on securities $(5,126) $ 859
========= ============
</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>
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 comprehensive 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>
6
<PAGE>
FIRST PLACE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
(in thousands)
Nine Months Ended
September 30,
----------------------------------
1999 1998
----------- -----------
<S> <C> <C>
Cash flow from operating activities:
Net income $8,010 $6,201
Adjustments to reconcile net income to net cash provided by operations:
Amortization 299 (456)
Depreciation 1,640 1,334
Provision for loan losses (349) 1,555
Net (increase) decrease in other assets (5,607) 1,344
Net decrease in other liabilities (777) (863)
(Gain) loss on sale of bank premises and equipment 5 (4)
Gain on sale of other real estate (346) (33)
Writedown of other real estate --- 80
(Gain) on sale of available-for-sale securities (4) (15)
----------- -----------
Net cash from operating activities 2,871 9,143
----------- -----------
Cash flows from investing activities:
Proceeds from sales of available-for-sale securities 10,638 7,852
Proceeds from maturities of available-for-sale securities 79,532 77,143
Purchases of available-for-sale securities (75,205) (110,538)
Net (increase) decrease in loans (5,947) 60,354
Proceeds from the sale of bank premises and equipment 44 40
Proceeds from sale of other real estate 642 638
Purchase of property and equipment (1,783) (3,917)
----------- -----------
Net cash from investing activities 7,921 31,572
----------- -----------
Cash flows from financing activities:
Net increase in deposit accounts 14,952 12,778
Net decrease in certificates of deposit (41,983) (2,888)
Net increase (decrease) in securities sold under agreements to repurchase 8,984 (14,380)
Net increase (decrease) in federal funds purchased (21,604) 10,143
Proceeds from Federal Home Loan Bank advances 1,550 9,037
Payments on Federal Home Loan Bank advances (11,007) (16,763)
Net increase (decrease) in other notes payable (4,436) 11,038
Cash dividends paid (3,226) (3,199)
Proceeds from issuance of common stock 2,110 375
----------- -----------
Net cash from financing activities (54,660) 6,141
----------- -----------
Net increase (decrease) in cash and cash equivalents (43,868) 46,856
Cash and cash equivalents at beginning of period 119,903 96,881
----------- -----------
Cash and cash equivalents at end of period $76,035 $143,737
=========== ===========
</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 20,797 26,539
Taxes 1,468 1,212
Non-cash assets acquired through foreclosure 329 268
</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 September 30,
1999 and September 30, 1998, is 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 September 30 1999 1998
----------------------------------------------------------------------------------
Weighted Weighted
Income Average Shares Per-Share Income Average Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
------------- --------------- ----------- ------------ --------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS:
Income available to
common stockholders $8,010 2,183,511 $3.67 $6,201 2,158,540 $2.87
===== =====
Effect of dilutive
securities-options --- 16,313 --- 31,955
------ --------- ------ ---------
Diluted EPS:
Income available to
common stockholders $8,010 2,199,824 $3.64 $6,201 2,190,495 $2.83
====== ========= ===== ====== ========= =====
</TABLE>
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999
This management discussion and analysis of financial condition should be read
in conjunction with the consolidated financial statements and accompanying
notes contained in the Company's Form 10-K for the year ended December 31,
1998. 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".
Words or phrases when used in this Form 10-Q or other filings with the
Securities and Exchange Commission referring to future events, 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
The Company recorded, for the first nine months of 1999, net income of
$8,010,000, compared to net income of $6,201,000 for the first nine months of
1998. Basic and diluted EPS were $3.67 and $3.64, respectively, for the nine
months ended September 30, 1999 compared to $2.87 and $2.83, respectively,
for the same period a year ago. The net income for the first nine months of
1999 increased $1,809,000 from net income reported for the first nine months
of 1998 due to the net result of the $1,904,000 pre-tax decrease in the
provision for loan losses, $1,347,000 increase in net interest income and
$1,148,000 increase in non-interest income offset by an increase of
$1,476,000 in non-interest expense and an increase of $1,114,000 in taxes.
The 1999 net income included a $325,000 year-to-date loss at CBA which opened
in October, 1998.
Net income of $2,591,000 was recorded for the third quarter of 1999, up
$335,000 from the $2,256,000 recorded for the third quarter of 1998. Basic
and diluted EPS were $1.17 for the three months ended September 30, 1999
compared to $1.04 and $1.03, respectively, for the same period a year ago.
10
<PAGE>
On an annualized basis, the return on average assets for the first nine
months of 1999 was 1.20 percent and the return on average assets for the
first nine months of 1998 was .91 percent. On an annualized basis, the return
on average equity for the first nine months of 1999 was 13.69 percent
compared to 11.25 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.
NET INTEREST INCOME AND MARGIN
Interest income for the nine months ended September 30, 1999, was
$44,713,000, an 8.3 percent decrease from the $48,774,000 recorded for the
first nine months of 1998. This decrease was largely due to the $4,029,000
decrease in interest income on loans from the nine months ended September 30,
1998 compared to the like period in 1999. Total interest earning assets
averaged $789,267,000 for the first nine months of 1999, a decrease of
$21,568,000 from average earning assets of $810,835,000 for the nine months
ended September 30, 1998. This decrease was due to the $27,623,000, or 5.9
percent, decrease in average loans, a decrease in average interest-bearing
deposits of $37,095,000, or 83.0 percent and an $878,000 decrease, or 5.0
percent, in average federal funds sold, offset by an increase of $44,028,000,
or 15.6 percent, in average investment securities. The average yield on
earning assets for the first nine months of 1999 was 7.83 percent, compared
to 8.28 percent for the like period a year ago.
Interest income for the quarter ended September 30, 1999 was $14,828,000, an
8.1 percent decrease from the $16,141,000 recorded for the third quarter of
1998.
Interest expense for the nine months ended September 30, 1999, was
$20,695,000, a 20.7 percent decrease compared to $26,103,000 for the nine
months ended September 30, 1998. Average interest-bearing liabilities were
$665,352,000 for the first nine months of 1999, a 5.0 percent decrease from
average interest-bearing liabilities of $700,565,000 for the first nine
months of 1998. This decrease was largely due to decreases of $13,952,000, or
5.4 percent, in average time deposits, $17,186,000, or 32.5 percent, in
average federal funds purchased and $20,242,000, or 22.4 percent, in average
Federal Home Loan Bank advances and other notes payable. These decreases were
offset somewhat by increases of $7,630,000, or 6.2 percent, in average
interest-bearing transaction accounts, $4,725,000, or 4.5 percent, in average
savings and money market accounts and $3,812,000, or 5.3 percent, in average
securities sold under agreements to repurchase. The average rate paid on
these liabilities for the first nine months of 1999 was 4.16 percent compared
to 4.98 percent paid for the same period a year ago.
Interest expense for the quarter ended September 30, 1999 was $6,573,000 a
24.8 percent decrease from the $8,744,000 recorded for the quarter ended
September 30, 1998.
Net interest income increased $1,347,000 to $24,018,000 for the first nine
months of 1999 compared to the first nine months of 1998. 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
nine months of 1999, was 4.32 percent, up from 3.98 percent a year ago.
Average interest-bearing liabilities were 84.3 percent of average earning
assets for the first nine months of 1999, compared to 86.4 percent for the
same period a year ago.
11
<PAGE>
Net interest income increased $858,000, or 11.6 percent, for the third
quarter of 1999 compared to the same period in 1998.
PROVISION FOR LOAN LOSSES
The Company's provision for loan losses for the first nine months of 1999 was
($349,000) a decrease of $1,904,000 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 and the continued decrease in the
allowance for loan losses from December 31, 1998 to September 30, 1999 was
due to a reduction overall in classified loans in the commercial and
commercial real estate loan portfolios.
For the third quarter of 1999, the provision for loan losses was $140,000,
down $280,000 from the year-ago quarter. The provision decrease was due to
the reduction of adversely classified commercial and commercial real estate
loans.
OTHER INCOME
The Company recorded other income of $4,661,000 for the first nine months of
1999, up $1,148,000 from the $3,513,000 recorded in the first nine months of
1998. This increase was primarily in account analysis fees, which increased
$247,000, non-sufficient funds fees, which increased $236,000, ATM fees,
which increased $134,000 and other real estate owned (OREO) gains, which
increased $313,000.
Other income for the third quarter of 1999 was $1,501,000, up $268,000 from
the $1,233,000 reported for the same period a year ago. This increase was
primarily in account analysis fees and non-sufficient funds fees.
OTHER EXPENSES
Other expenses for the nine months ended September 30, 1999 were $18,296,000,
up $1,476,000 from the $16,820,000 recorded for the same period a year ago.
This increase was primarily due to increases in salaries and benefits of
$1,284,000 and data processing expenses of $328,000. Salaries and benefits
increased primarily due to normal salary increases and a higher level of
full-time equivalent employees added to support expansion. The increases in
data processing expenses were primarily due to increases in depreciation
expense due to technical enhancements.
Other expenses for the three months ended September 30, 1999 were $6,107,000,
up $641,000 from the $5,466,000 recorded for the same period a year ago. This
increase was primarily due to increases in salaries and benefits of $421,000.
12
<PAGE>
INCOME TAXES
Income tax expense for the first nine months of 1999 was $2,722,000, up
$1,114,000 from the $1,608,000, recorded for the first nine months of 1998.
The effective tax rates for the nine months of 1999 and 1998 were 25 percent
and 21 percent, respectively.
The income tax expense for the third quarter of 1999 was $918,000, up
$430,000 from $488,000 recorded in the third quarter of 1998. The effective
tax rates for the third quarter of 1999 and 1998 were 26 percent and 18
percent, respectively.
The increase in the effective tax rates for the nine months and third quarter
ended September 30, 1999 compared to the like periods a year ago was
primarily due to an increase in taxable income without a corresponding
proportionate increase in tax-exempt income and due to the fact that the 1999
low income housing tax credits remained at the 1998 level.
BALANCE SHEET REVIEW
Average total assets were $892,574,000 for the first nine months of 1999
compared to $910,624,000 for the first nine months of 1998. Period-end assets
were $849,490,000, $902,047,000 and $910,153,000 at September 30, 1999,
December 31, 1998, and September 30, 1998, respectively. CBA had $20,947,000
average total assets and $24,849,000 period-end assets at September 30, 1999.
Cash and due from banks at September 30, 1999 were $69,515,000 compared to
$76,426,000 reported for the same period a year ago. This decrease of
$6,911,000 was primarily in due from bank balances which decreased $7,349,000
from September 30, 1998 to September 30, 1999. The average cash and due from
banks during the first nine months of 1999 was $70,192,000 compared to
$71,141,000 average during the first nine months of 1998 and $71,848,000
average for the year ended December 31, 1998.
Available-for-sale securities at September 30, 1999 were $297,456,000, a
decrease of $9,416,000 from $306,872,000 reported for September 30, 1998. In
recent months, matured securities have not been replaced in response to the
decrease in time certificates of deposit.
Interest-bearing deposits in banks, which consist of balances maintained at
Federal Home Loan Banks and Bank CD's, decreased from $18,806,000 at
September 30, 1998 to $6,520,000 at September 30, 1999. At September 30,
1999, there were no federal funds sold. Federal funds sold at September 30,
1998 were $48,505,000. These decreases were in response to decreases in
short-term interest-bearing liabilities and the decrease in Federal Home Loan
Banks and other notes payable.
Loans increased $4,069,000 to $435,060,000 at September 30, 1999, from
$430,991,000 at September 30, 1998. All categories of loans, except for
residential real estate and interim construction loans, increased from
September 30, 1998 to September 30, 1999. Loans at September 30, 1999,
increased $5,395,000 from December 31, 1998. This increase was
13
<PAGE>
primarily in the commercial, commercial real estate and consumer categories
and was offset somewhat by a decrease in the residential real estate and
interim construction categories. CBA loans at September 30, 1999 were
$14,910,000. Loans at FNBF and BNBD as of September 30, 1999, decreased
$4,980,000 and $8,001,000, respectively from September 30, 1998.
Total deposits of $598,362,000 at September 30, 1999, decreased $27,035,000
and $20,275,000 from December 31, 1998 and September 30, 1998, respectively.
These decreases were primarily due to maturities of 2-year floating rate
certificates of deposit. CBA had $13,547,000 in total deposits at September
30, 1999.
Interest-bearing transaction accounts of $127,752,000 at September 30, 1999,
increased $17,148,000 and $13,781,000 from the December 31, 1998 and
September 30, 1998 balances, respectively. The $17,148,000 increase from
December 31, 1998 to September 30, 1999 was primarily in public deposit
balances.
Securities sold under agreements to repurchase as of September 30, 1999, were
$77,613,000 compared to $68,629,000 as of December 31, 1998 and $68,127,000
as of September 30, 1998.
Federal funds purchased were $22,653,000 as of September 30, 1999, compared
to $44,257,000 as of December 31, 1998, and $45,488,000 as of September 30,
1998. The Company routinely purchases excess federal funds from downstream
correspondents and, on occasion, resells those funds as part of its own
federal funds sold. These balances fluctuate based on the downstream
correspondents' liquidity.
Federal Home Loan Bank ("FHLB") advances and other notes payable were
$62,653,000 as of September 30, 1999, compared to $76,546,000 as of December
31, 1998, and $91,727,000 at September 30, 1998. The $29,074,000 decrease
from September 30, 1998 compared to September 30, 1999 was primarily due to
payments on FHLB advances and other notes payable.
ASSET QUALITY
Nonperforming loans and other real estate owned ("OREO") and other foreclosed
assets are presented in the following table:
<TABLE>
<CAPTION>
(in thousands)
------------------------------------------------------------
September 30, December 31, September 30,
1999 1998 1998
------------------- ------------------ -------------------
<S> <C> <C> <C>
Nonaccrual loans $4,515 $4,336 $4,056
Accruing loans past due 90 days or more 566 893 1,239
Restructured loans (in compliance with modified terms) 3,451 3,082 3,090
OREO and other foreclosed assets 898 898 778
------------------- ----------------- ------------------
Total nonperforming assets $9,430 $9,209 $9,163
=================== ================= ==================
</TABLE>
14
<PAGE>
Nonperforming assets at FNBF and BNBD as of September 30, 1999, increased
$85,000 and $494,000, respectively from December 31, 1998. The $494,000
increase at BNBD was primarily in the restructured loan category. These
increases in nonperforming assets at FNBF and BNBD did not require additional
provisions for loan losses during 1999.
Management identified $163,000 of potential problem loans as of September 30,
1999. 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.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is presented in the following table:
<TABLE>
<CAPTION>
(in thousands)
-----------------------------------------------------------
September 30, December 31, September 30,
1999 1998 1998
-------------------- ------------------ ------------------
<S> <C> <C> <C>
Beginning balance $ 9,807 $ 8,722 $ 8,722
Provision charged to expense (349) 2,045 1,555
Recoveries on loans previously charged-off 730 857 661
Loans charged-off (953) (1,817) (1,010)
------------------- ----------------- ------------------
Balance $ 9,235 $ 9,807 $ 9,928
=================== ================= ==================
</TABLE>
The Company considered the allowance for loan losses at September 30, 1999,
to be adequate to absorb known risks in the loan portfolio. Year-to-date loan
charge-offs were .22 percent of loans outstanding at September 30, 1999,
compared to .23 percent at September 30, 1998.
The allowance for loan losses as a percent of loans at September 30, 1999,
December 31, 1998 and September 30, 1998, was 2.12 percent, 2.28 percent and
2.30 percent, respectively.
Based on recent experience, management estimates gross charge-offs of
$1,495,000 for 1999, broken down as follows: commercial - $200,000;
commercial real estate - $345,000; residential real estate - $125,000 and
consumer - $825,000. Management expects that net charge-offs for 1999 will be
less than the $960,000 booked in 1998.
The allowance for loan losses was determined to be in compliance with
Statement of Financial Accounting Standards ("SFAS") No.5, "ACCOUNTING FOR
CONTINGENCIES" and No. 114, "ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A
LOAN" and upon review of the Financial Accounting Standards Board ("FASB")
Viewpoints article "APPLICATION OF FASB STATEMENTS 5 AND 114 TO A LOAN
PORTFOLIO" no adjustments were required.
15
<PAGE>
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
September 30, 1999. The ratio of loans to deposits, which is a measure of
liquidity, was 72.7 percent at September 30, 1999 compared to 68.7 percent
and 69.7 percent at December 31, 1998, and September 30, 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.
STOCKHOLDERS' EQUITY AND CAPITAL ADEQUACY
The Subsidiary Banks each exceeded regulatory requirements for "well
capitalized" status as of September 30, 1999. The Company's risk-based
capital ratios at September 30, 1999, were:
Tier 1 capital (regulatory minimum = 4.00% or above) was 15.20 percent
compared to 14.09 percent at year end.
Total capital (regulatory minimum = 8.00% or above) was 16.44 percent
compared to 15.33 percent at year end.
Leverage ratio (regulatory minimum = 4.00% or above) was 9.37 percent
compared to 8.17 percent at year end.
Stockholders' equity increased 3.6 percent to $79,591,000 from a year ago and
was up $2,545,000 from year-end 1998. Accumulated other comprehensive income,
which is the net of tax mark-to-market adjustments for available-for-sale
securities, was ($3,091,000), $2,035,000 and $2,634,000 at September 30,
1999, December 31, 1998 and September 30, 1998,
16
<PAGE>
respectively. The $5,126,000 decrease in comprehensive income, partially
offset by earnings retention and an increase due to the issuance of new
stock, resulted in the $2,545,000 increase from year-end 1998. The $4,176,000
decrease in comprehensive income, shown in the table on page five, was
largely due to the increase in the yield curve since December 31, 1998, which
resulted in lower market values for mortgage-backed securities and U.S.
agency securities. The ratio of stockholders' equity to total assets was 9.37
percent at September 30, 1999, compared to 8.54 percent and 8.44 percent at
December 31, 1998, and September 30, 1998, respectively.
YEAR 2000 COMPLIANCE PLAN
The Company has been actively engaged in resolving computer issues associated
with the date change from the year 1999 to the year 2000. Under the guidance
of a full-time year 2000 compliance manager, a team is working to address the
various issues. The Company has completed the remediation and testing of its
mission critical systems. Additionally, 100 percent of all non-mission
critical systems have been upgraded, and the internal testing is
substantially complete.
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. All third party vendors with which the Company has a
material relationship have represented that they have allocated sufficient
resources and manpower to the year 2000 project. Furthermore, the Company
continues 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
and factors outside management's control or current knowledge may cause such
dates and costs to differ materially from estimates.
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 liquid
securities portfolio.
In the unlikely event that a disruption does occur, 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 malfunction and (2) restoring or replacing
the system.
17
<PAGE>
Management believes that 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.
The Company has developed Event Management Plans. These plans detail the
required actions of every department and key individuals before, during and
after the date change. Employees in all areas of the Company are
participating in extensive training sessions to make sure that all are
prepared.
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.
WELLS FARGO DEFINITIVE AGREEMENT
On August 4, 1999, the Company and Wells Fargo & Company ("Wells Fargo")
signed a definitive agreement for Wells Fargo to acquire the Company. The
acquisition is scheduled to be completed early in the first quarter of next
year and is subject to the satisfaction of a number of conditions, including
receipt of regulatory approvals and approval of the shareholders of FPFC. In
the acquisition, Wells Fargo will issue 4.6 million shares of its common
stock in exchange for 100 percent of the stock of the Company.
18
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 3 (i). Amended and restated Articles of
Incorporation of Registrant
Exhibit 3 (ii). Bylaws of Registrant*
Exhibit 10. Agreement and Plan of Reorganization
by and between Registrant and
Wells Fargo & Company**
Exhibit 27. Financial Data Schedule
(b) Reports on Form 8-K
(1) Report dated July 23, 1999 (Item 5),
regarding press release announcing second
quarter 1999 earnings and quarterly
dividend.
(2) Report dated August 4, 1999 (Item 5),
regarding press release announcing execution
of Agreement and Plan of Reorganization with
Wells Fargo & Company.
(3) Report dated September 3, 1999 (Item 5),
regarding press release announcing quarterly
dividend payable November 1, 1999.
(4) Report dated October 27, 1999 (Item 5),
regarding press release announcing the
results for the third quarter ended
September 30, 1999, and reporting the
quarterly dividend and the third 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.
**Incorporated by reference from Exhibit 2.1 to the Registrant's Current Report
on Form 8K dated August 4, 1999.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRST PLACE FINANCIAL CORPORATION
------------------------------------------
(Registrant)
Date: NOVEMBER 4, 1999 /S/ JAMES D. ROSE
------------------------- ------------------------------------------
James D. Rose
President and Chief Operating Officer
20
<PAGE>
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
FIRST PLACE FINANCIAL CORPORATION
We, the undersigned, being the President and Secretary of First Place
Financial Corporation, do hereby on this date restate the Articles of
Incorporation, as amended, of First Place Financial Corporation pursuant to
the laws of the State of New Mexico:
ARTICLE I.
The name of this corporation shall be First Place Financial Corporation.
ARTICLE II.
The purposes for which the corporation is formed are:
(a) To purchase, trade for, or otherwise acquire and hold the stock
of other corporations and to perform all acts permitted for holding such
stock, including the direction of the operation of other corporations through
the ownership of stock in such corporations; to purchase, subscribe for,
acquire, own, hold, sell, exchange, assign, transfer, create security
interests in, pledge, or otherwise dispose of shares or voting trust
certificates for shares of the capital stock, or any bonds, notes,
securities, or evidences of indebtedness, created by any other corporation or
corporations organized under the laws of the state of New Mexico or any other
state, district, territory, country, nation or other government, and also
bonds or evidences of indebtedness of the United States or any state,
district, territory, dependency, municipality, or other subdivision; to issue
in exchange shares of the capital stock, bonds, notes, or other obligations
of this corporation and to exercise all rights OF ownership incident to
owners of such instruments or interests, including the right to vote on any
shares of stock or voting trusts owned by this corporation; to promote, lend
money to, and guarantee the dividends, stocks, bonds, notes, evidences of
indebtedness, contracts, or other obligations, and otherwise aid in any
lawful manner any corporation or association of which any stocks, voting
trust certificate, bonds or other evidences of indebtedness or securities are
held by this corporation, or in which this corporation shall have any
interest, and to perform all lawful acts designated to protect, promote or
improve the value of any such bonds, notes, stocks or other securities or
evidences of indebtedness held by this corporation.
(b) To engage in general financial business by purchasing, trading
for, or otherwise acquiring, creating and holding, pledging, assigning,
creating security interests and trusts with respect to selling, exchanging,
or otherwise disposing of and generally dealing in and with securities of
every kind, nature and description.
(c) To buy, or otherwise acquire, own, sell, lease or otherwise deal
in personal property, real estate, stocks, bonds, debentures and promissory
notes.
(d) To carry on any lawful business whatsoever which is calculated,
directly or indirectly, to promote the interests OF the corporation or to
enhance the value of its property, and to have and exercise all the right,
powers and privileges now or hereafter conferred by the laws of the State of
New Mexico upon corporations formed under the laws referred to herein, or any
laws amendatory thereof, supplemental thereto, or substituted therefore, and
to do any and all of the things set forth to the same extent as a natural
person might or could do.
ARTICLE III.
The total authorized capital stock of this corporation shall be five
million shares which shall have no par value and all of said stock shall be
common stock.
1
<PAGE>
ARTICLE IV.
The corporation will not commence business until consideration of the
value of not less than $l,000.00 shall be received for the issuance of shares
of stock in the corporation,
ARTICLE V.
The ownership and transfer of stock in this corporation shall be
controlled by the By-Laws of said corporation and Article VI of these
Articles. Cumulative voting shall not be used in the election of Directors or
for any other purpose.
ARTICLE VI.
The corporation shall have the right by appropriate action to impose
restrictions upon the transfer of any shares of its common stock, or any
interest therein, from time to time issued, provided that such restrictions,
or notice thereof, shall be set forth upon the face or back of the
certificates representing such shares of common stock. Preemptive rights to
any increase in common stock are expressly denied.
ARTICLE VII.
The mailing address of the initial registered office of this
corporation shall be One First Place, Farmington, New Mexico 87401 and the
street address of the initial registered office shall be One First Place,
Farmington, New Mexico 87401. The name of the initial registered agent shall
be Richard I. Ledbetter whose business address is One First Place,
FarmIngton, New Mexico 87401.
ARTICLE VIII.
(a) The number of directors constituting the initial Board of
Directors is ten (10) and the following named persons shall serve as
directors until the first annual meeting of shareholders or until their
successors are elected and qualify:
<TABLE>
<CAPTION>
NAME ADDRESS
<S> <C>
Roy Owen P.O. Box 838
Farmington, NM 87401
Clinton M. Taylor 614 Gladeview
Farmington, NM 87401
Richard I. Ledbetter 3203 Knudsen
Farmington, NM 87401
Ray L. Atchison 5802 Cedarwood Drive
Farmington, NM 87401
Robert S. Culpepper 503 N. Auburn
Farmington, NM 87401
J. Gregory Merrion P.O. Box 507
Farmington, NM 87401
Jack M. Morgan P.O. Box 2151
Farmington, NM 87401
R. F. Taft 304 N. Behrend
Farmington, NM 87401
Miriam M. Taylor 505 E. La Plata
Farmington, NM 87401
Marlo L. Webb P.O. Box 127
Farmington, NM 87401
</TABLE>
2
<PAGE>
The number of directors may be increased or decreased from time to time by
amendment to the By-Laws, but no decrease shall have the effect of shortening
the term of any incumbent director.
(b) Directors shall be divided into three (3) classes, each class
to be as nearly equal in number as possible, the term of office of directors
of the first class to expire at the first annual meeting of shareholders
after their election, that of the second class to expire at the second annual
meeting after their election, and that of the third class to expire at the
third annual meeting after their election. At each annual meeting thereafter,
Directors equal to the number whose terms expire at the time of the meeting
shall be elected to hold office until the third succeeding annual meeting.
(c) The name and address of the incorporator of this corporation
is:
Richard I. Ledbetter
3203 Knudsen
Farmington, NM 87401
ARTICLE IX.
The holders of not less than eighty percent (80%) of the
outstanding voting stock of the corporation shall be represented in person or
by proxy for the shareholders to consider any of the following transactions
in the event that eighty percent (80%) of the entire Board of Directors of
the corporation has not recommended to the stockholders of the corporation a
vote in favor of the transaction. This provision shall apply to the following
proposed transactions: (a) a merger or consolidation of the corporation or
(b) a sale, exchange or lease of all or substantially all of the assets of
the corporation to any person or entity. For purposes of this provision,
substantially all of the assets shall mean such assets having a fair market
value or book value, whichever is greater, of twenty-five percent (25%) or
more of the total assets as reflected on a balance sheet of the corporation
as of a date no earlier than forty-five (45) days prior to any such
acquisition of the corporation's assets. The affirmative vote of the holders
of not less than eighty percent (80%) of the outstanding stock of the
corporation shall be required at any meeting to approve any such transaction
or to amend or repeal the provisions of this Article IX. Except as otherwise
required by these Articles of Incorporation, other business may be conducted
at such meeting as long as the holders of a majority of the shares are
represented in person or by proxy.
IN WITNESS WHEREOF, I hereunto set my hand and seal this 4TH day of November,
1999.
/S/ JAMES D. ROSE
-------------------------------------------
James D. Rose, President
/S/ JAMES C. BRADLEY
-------------------------------------------
James C. Bradley, Secretary and Treasurer
VERIFICATION
I, THE UNDERSIGNED, BEING FIRST DULY SWORN UPON MY OATH, STATE
THAT I AM THE PRESIDENT OF FIRST PLACE FINANCIAL CORPORATION; THE AMENDED AND
RESTATED ARTICLES OF INCORPORATION HAVE BEEN DULY ADOPTED BY A RESOLUTION OF
THE BOARD OF DIRECTORS; THAT I, AS PRESIDENT, AND JAMES C. BRADLEY, AS
SECRETARY AND TREASURER, HAVE EXECUTED THE AMENDED AND RESTATED ARTICLES IN
ACCORDANCE WITH SECTION 53-13-7, NMSA 1978, AS AMENDED; AND THE INFORMATION
CONTAINED HEREIN IS TRUE AND CORRECT TO THE BEST OF MY KNOWLDGE, INFORMATION
AND BELIEF.
/S/ JAMES D. ROSE
-------------------------------------------
James D. Rose, President of First Place
Financial Corporation
State of New Mexico
3
<PAGE>
County of San Juan
Signed and sworn to before me on 4TH November, 1999 by James D.
Rose.
/S/ YVETTE SANCHEZ
-------------------------------------------
Notary Public
[SEAL]
My commission expires: AUGUST 26, 2003
---------------------
4
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 69,515
<INT-BEARING-DEPOSITS> 6,520
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 297,456
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 435,060
<ALLOWANCE> 9,235
<TOTAL-ASSETS> 849,490
<DEPOSITS> 598,362
<SHORT-TERM> 100,266
<LIABILITIES-OTHER> 8,618
<LONG-TERM> 62,653<F1>
0
0
<COMMON> 16,489
<OTHER-SE> 63,102
<TOTAL-LIABILITIES-AND-EQUITY> 849,490
<INTEREST-LOAN> 29,956
<INTEREST-INVEST> 13,860
<INTEREST-OTHER> 897
<INTEREST-TOTAL> 44,713
<INTEREST-DEPOSIT> 13,838
<INTEREST-EXPENSE> 20,695
<INTEREST-INCOME-NET> 24,018
<LOAN-LOSSES> (349)
<SECURITIES-GAINS> 4
<EXPENSE-OTHER> 18,296
<INCOME-PRETAX> 10,732
<INCOME-PRE-EXTRAORDINARY> 8,010
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,010
<EPS-BASIC> 3.67<F2>
<EPS-DILUTED> 3.64
<YIELD-ACTUAL> 4.32
<LOANS-NON> 4,515
<LOANS-PAST> 566
<LOANS-TROUBLED> 3,451
<LOANS-PROBLEM> 163
<ALLOWANCE-OPEN> 9,807
<CHARGE-OFFS> 953
<RECOVERIES> 730
<ALLOWANCE-CLOSE> 9,235
<ALLOWANCE-DOMESTIC> 9,235
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
<FN>
<F1>Long term and other notes payable
<F2>Basic Eps
</FN>
</TABLE>
