Attached files
file | filename |
---|---|
EX-3.1 - FIRST PLACE FINANCIAL CORP /DE/ | v183784_ex3-1.htm |
EX-31.1 - FIRST PLACE FINANCIAL CORP /DE/ | v183784_ex31-1.htm |
EX-32.2 - FIRST PLACE FINANCIAL CORP /DE/ | v183784_ex32-2.htm |
EX-32.1 - FIRST PLACE FINANCIAL CORP /DE/ | v183784_ex32-1.htm |
EX-31.2 - FIRST PLACE FINANCIAL CORP /DE/ | v183784_ex31-2.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For
the quarterly period ended March 31, 2010
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 0-25049
FIRST
PLACE FINANCIAL CORP.
(Exact
name of registrant as specified in its charter)
Delaware
|
34-1880130
|
(State or other jurisdiction of incorporation or organization)
|
(IRS Employer Identification Number)
|
185 E. Market Street, Warren
OH 44481
(Address
of principal executive offices)
(330)
373-1221
(Registrant’s
telephone number, including area code)
Not
Applicable
(Former
name, former address and former fiscal year, if change 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 (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 90 days.
Yes x No ¨
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate website, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).
Yes ¨ No ¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting
company. See definition of “accelerated filer”, “large accelerated
filer” and “smaller reporting company” in Rule 12b-2 of the Securities Exchange
Act.
Large
accelerated filer ¨
Accelerated filer x
Non-accelerated filer ¨
Smaller reporting company ¨
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Securities Exchange Act).
Yes ¨ No x
Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date.
16,973,270
shares of common stock outstanding as of April 30, 2010
TABLE OF
CONTENTS
Page
|
||
Number
|
||
PART
I. FINANCIAL INFORMATION
|
||
Item
1.
|
Financial
Statements
|
|
Condensed
Consolidated Statements of Financial Condition (Unaudited)
|
||
as
of March 31, 2010, and June 30, 2009
|
3
|
|
Condensed
Consolidated Statements of Income (Loss) (Unaudited)
|
||
for
the Three and Nine Months Ended March 31, 2010 and 2009
|
4
|
|
Condensed
Consolidated Statements of Changes in Shareholders’ Equity
|
||
(Unaudited)
for the Nine Months Ended March 31, 2010 and 2009
|
5
|
|
Condensed
Consolidated Statements of Cash Flows (Unaudited)
|
||
for
the Nine Months Ended March 31, 2010 and 2009
|
6
|
|
Notes
to Condensed Consolidated Financial Statements (Unaudited)
|
7-19
|
|
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and
|
|
Results
of Operations
|
20-37
|
|
Item
3.
|
Quantitative
and Qualitative Disclosures about Market Risk
|
37-38
|
Item
4.
|
Controls
and Procedures
|
38
|
PART
II. OTHER INFORMATION
|
||
Item
1.
|
Legal
Proceedings
|
39
|
Item
1A.
|
Risk
Factors
|
39
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
39
|
Item
3.
|
Defaults
Upon Senior Securities
|
39
|
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
39
|
Item
5.
|
Other
Information
|
39
|
Item
6.
|
Exhibits
|
39
|
SIGNATURES
|
40
|
2
Part
I. FINANCIAL INFORMATION
Item
1. Financial Statements
FIRST
PLACE FINANCIAL CORP. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Unaudited)
(Dollars
in thousands, except share data)
March 31, 2010
|
June 30, 2009
|
|||||||
ASSETS
|
||||||||
Cash
and due from banks
|
$ | 30,907 | $ | 38,321 | ||||
Interest-bearing
deposits in other banks
|
25,159 | 56,614 | ||||||
Trading
securities, at fair value
|
11,451 | 11,786 | ||||||
Securities
available for sale, at fair value
|
243,596 | 264,814 | ||||||
Loans
held for sale, at fair value
|
330,568 | 376,406 | ||||||
Loans
|
2,368,483 | 2,468,444 | ||||||
Less
allowance for loan losses
|
52,554 | 39,580 | ||||||
Loans,
net
|
2,315,929 | 2,428,864 | ||||||
Federal
Home Loan Bank stock
|
35,041 | 36,221 | ||||||
Premises
and equipment, net
|
49,787 | 52,222 | ||||||
Goodwill
|
885 | 885 | ||||||
Core
deposit and other intangible assets
|
8,452 | 10,639 | ||||||
Other
assets
|
156,853 | 127,695 | ||||||
Total
assets
|
$ | 3,208,628 | $ | 3,404,467 | ||||
LIABILITIES
|
||||||||
Deposits:
|
||||||||
Noninterest-bearing
checking
|
$ | 262,394 | $ | 238,417 | ||||
Interest-bearing
checking
|
260,297 | 173,376 | ||||||
Savings
|
408,172 | 400,424 | ||||||
Money
market deposit accounts
|
345,221 | 291,131 | ||||||
Certificates
of deposit
|
1,221,173 | 1,332,253 | ||||||
Total
deposits
|
2,497,257 | 2,435,601 | ||||||
Short-term
borrowings
|
63,337 | 323,458 | ||||||
Long-term
debt
|
378,878 | 335,159 | ||||||
Other
liabilities
|
4,292 | 28,770 | ||||||
Total
liabilities
|
2,943,764 | 3,122,988 | ||||||
SHAREHOLDERS'
EQUITY
|
||||||||
Preferred
stock, $.01 par value: 3,000,000 shares
authorized:
|
||||||||
Fixed
Rate Cumulative Perpetual Preferred stock, Series A, $1,000 liquidation
preference per share: 72,927 shares issued and outstanding at
March 31, 2010, and June 30, 2009
|
69,653 | 69,198 | ||||||
Common
stock, $.01 par value: 53,000,000 shares authorized, 18,114,673
shares issued
|
181 | 181 | ||||||
Additional
paid-in capital
|
218,418 | 218,310 | ||||||
Retained
(deficit) earnings
|
(4,173 | ) | 17,193 | |||||
Unearned
employee stock ownership plan (ESOP) shares
|
(2,805 | ) | (3,116 | ) | ||||
Treasury
stock, at cost: 1,141,403 shares at March 31, 2010, and June
30, 2009
|
(19,274 | ) | (19,274 | ) | ||||
Accumulated
other comprehensive income (loss)
|
2,864 | (1,013 | ) | |||||
Total
shareholders' equity
|
264,864 | 281,479 | ||||||
Total
liabilities and shareholders' equity
|
$ | 3,208,628 | $ | 3,404,467 |
See
accompanying notes to condensed consolidated financial statements
(unaudited).
3
FIRST
PLACE FINANCIAL CORP. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF INCOME (LOSS) (Unaudited)
(Dollars
in thousands, except per share data)
Three months ended
|
Nine months ended
|
|||||||||||||||
March 31,
|
March 31,
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
INTEREST
INCOME
|
||||||||||||||||
Loans,
including fees
|
$ | 35,087 | $ | 38,702 | $ | 109,130 | $ | 118,803 | ||||||||
Securities
and interest-bearing deposits:
|
||||||||||||||||
Taxable
|
2,147 | 2,679 | 6,969 | 8,053 | ||||||||||||
Tax-exempt
|
637 | 640 | 1,898 | 1,960 | ||||||||||||
Dividends
|
394 | 387 | 1,231 | 1,549 | ||||||||||||
Total
interest income
|
38,265 | 42,408 | 119,228 | 130,365 | ||||||||||||
INTEREST
EXPENSE
|
||||||||||||||||
Deposits
|
6,992 | 15,189 | 25,194 | 46,609 | ||||||||||||
Short-term
borrowings
|
514 | 1,473 | 2,831 | 4,173 | ||||||||||||
Long-term
debt
|
3,652 | 4,061 | 10,876 | 13,640 | ||||||||||||
Total
interest expense
|
11,158 | 20,723 | 38,901 | 64,422 | ||||||||||||
NET
INTEREST INCOME
|
27,107 | 21,685 | 80,327 | 65,943 | ||||||||||||
Provision
for loan losses
|
31,100 | 6,797 | 67,600 | 23,364 | ||||||||||||
NET
INTEREST INCOME (EXPENSE) AFTER PROVISION FOR LOAN LOSSES
|
(3,993 | ) | 14,888 | 12,727 | 42,579 | |||||||||||
NONINTEREST
INCOME
|
||||||||||||||||
Service
charges and fees on deposit accounts
|
2,753 | 2,675 | 9,057 | 7,278 | ||||||||||||
Net
gains on sales of securities
|
651 | 1 | 651 | 320 | ||||||||||||
Change
in fair value of trading securities
|
16 | (489 | ) | 415 | (12,353 | ) | ||||||||||
Mortgage
banking gains
|
5,845 | 6,812 | 14,586 | 10,693 | ||||||||||||
Gains
on sales of loan servicing rights
|
- | - | 689 | - | ||||||||||||
Loan
servicing income (expense)
|
699 | (1,009 | ) | 1,498 | (1,993 | ) | ||||||||||
Insurance
commission income
|
1,124 | 1,083 | 3,449 | 3,104 | ||||||||||||
Other
income
|
3,134 | 2,063 | 7,669 | 7,032 | ||||||||||||
Total
noninterest income
|
14,222 | 11,136 | 38,014 | 14,081 | ||||||||||||
NONINTEREST
EXPENSE
|
||||||||||||||||
Salaries
and employee benefits
|
11,956 | 11,382 | 32,843 | 31,818 | ||||||||||||
Occupancy
and equipment
|
3,833 | 3,639 | 11,022 | 10,421 | ||||||||||||
Professional
fees
|
954 | 823 | 2,822 | 2,485 | ||||||||||||
Loan
expenses
|
1,689 | 899 | 4,748 | 2,239 | ||||||||||||
Marketing
|
588 | 268 | 1,859 | 1,423 | ||||||||||||
Federal
deposit insurance premiums
|
1,507 | 987 | 4,258 | 2,390 | ||||||||||||
Merger,
integration and restructuring charges
|
- | - | 297 | 1,109 | ||||||||||||
Goodwill
impairment
|
- | - | - | 93,741 | ||||||||||||
Amortization
of intangible assets
|
711 | 784 | 2,188 | 2,378 | ||||||||||||
Real
estate owned expense
|
1,292 | 1,102 | 4,665 | 3,574 | ||||||||||||
Other
expense
|
4,092 | 3,116 | 11,546 | 9,381 | ||||||||||||
Total
noninterest expense
|
26,622 | 23,000 | 76,248 | 160,959 | ||||||||||||
INCOME
(LOSS) BEFORE INCOME TAX EXPENSE (BENEFIT)
|
(16,393 | ) | 3,024 | (25,507 | ) | (104,299 | ) | |||||||||
Income
tax expense (benefit)
|
(3,375 | ) | 483 | (7,168 | ) | (6,584 | ) | |||||||||
NET
INCOME (LOSS)
|
(13,018 | ) | 2,541 | (18,339 | ) | (97,715 | ) | |||||||||
Less
preferred stock dividends and discount accretion
|
1,092 | 216 | 3,273 | 216 | ||||||||||||
INCOME
(LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS
|
$ | (14,110 | ) | $ | 2,325 | $ | (21,612 | ) | $ | (97,931 | ) | |||||
Basic
income (loss) per common share
|
$ | (.85 | ) | $ | .14 | $ | (1.30 | ) | $ | (5.91 | ) | |||||
Diluted
income (loss) per common share
|
(.85 | ) | .14 | (1.30 | ) | (5.91 | ) | |||||||||
Cash
dividends declared per common share
|
- | .01 | .01 | .18 | ||||||||||||
Average
common shares outstanding - basic
|
16,622,081 | 16,569,366 | 16,607,694 | 16,558,189 | ||||||||||||
Average
common shares outstanding - diluted
|
16,622,081 | 16,569,366 | 16,607,694 | 16,558,189 |
See
accompanying notes to condensed consolidated financial statements
(unaudited).
4
FIRST
PLACE FINANCIAL CORP. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)
(Dollars
in thousands, except per share data)
Accumulated
|
||||||||||||||||||||||||||||||||
Additional
|
Retained
|
Unearned
|
Other
|
|||||||||||||||||||||||||||||
Preferred
|
Common
|
Paid-in
|
(Deficit)
|
ESOP
|
Treasury
|
Comprehensive
|
||||||||||||||||||||||||||
Stock
|
Stock
|
Capital
|
Earnings
|
Shares
|
Stock
|
Income (Loss)
|
Total
|
|||||||||||||||||||||||||
Balance
at July 1, 2008
|
$ | - | $ | 181 | $ | 214,216 | $ | 131,770 | $ | (3,531 | ) | $ | (19,274 | ) | $ | (4,395 | ) | $ | 318,967 | |||||||||||||
Comprehensive
loss
|
||||||||||||||||||||||||||||||||
Net
loss
|
(97,715 | ) | (97,715 | ) | ||||||||||||||||||||||||||||
Change
in unrealized gain on securities available for sale, net of
reclassification and tax effects
|
2,158 | 2,158 | ||||||||||||||||||||||||||||||
Loss
on termination of interest rate swaps reclassified to other comprehensive
income, net of tax
|
448 | 448 | ||||||||||||||||||||||||||||||
Total
comprehensive loss
|
(95,109 | ) | ||||||||||||||||||||||||||||||
Adjustment
to initially apply the effect of fair value accounting, net of
tax
|
188 | 188 | ||||||||||||||||||||||||||||||
Dividends
declared and paid on common shares ($.18 per share)
|
(2,865 | ) | (2,865 | ) | ||||||||||||||||||||||||||||
Commitment
to release employee stock ownership plan shares (31,171
shares)
|
(115 | ) | 311 | 196 | ||||||||||||||||||||||||||||
Commitment
to release recognition and retention plan shares (2,072
shares)
|
44 | 44 | ||||||||||||||||||||||||||||||
Issuance
of 72,927 shares of preferred stock
|
72,927 | 72,927 | ||||||||||||||||||||||||||||||
Discount
on preferred stock issued
|
(3,868 | ) | (3,868 | ) | ||||||||||||||||||||||||||||
Direct
costs incurred in connection with issuance of preferred stock and common
stock warrant
|
(8 | ) | (8 | ) | ||||||||||||||||||||||||||||
Accretion
of preferred stock discount
|
34 | (34 | ) | - | ||||||||||||||||||||||||||||
Issuance
of common stock warrant
|
3,868 | 3,868 | ||||||||||||||||||||||||||||||
Preferred
stock dividends accrued
|
(182 | ) | (182 | ) | ||||||||||||||||||||||||||||
Stock
option expense
|
218 | 218 | ||||||||||||||||||||||||||||||
Balance
at March 31, 2009
|
$ | 69,085 | $ | 181 | $ | 218,231 | $ | 31,162 | $ | (3,220 | ) | $ | (19,274 | ) | $ | (1,789 | ) | $ | 294,376 | |||||||||||||
Balance
at July 1, 2009
|
$ | 69,198 | $ | 181 | $ | 218,310 | $ | 17,193 | $ | (3,116 | ) | $ | (19,274 | ) | $ | (1,013 | ) | $ | 281,479 | |||||||||||||
Comprehensive
loss
|
||||||||||||||||||||||||||||||||
Net
loss
|
(18,339 | ) | (18,339 | ) | ||||||||||||||||||||||||||||
Change
in unrealized gain on securities available for sale, net of
reclassification and tax effects
|
3,438 | 3,438 | ||||||||||||||||||||||||||||||
Loss
on termination of interest rate swaps reclassified to other comprehensive
income, net of tax
|
439 | 439 | ||||||||||||||||||||||||||||||
Total
comprehensive loss
|
(14,462 | ) | ||||||||||||||||||||||||||||||
Adjustment
to apply the effect of Employer’s Accounting for Employee Stock Ownership
Plans, net of tax
|
76 | 76 | ||||||||||||||||||||||||||||||
Recovery
of dividends from recognition and retention plan
|
416 | 416 | ||||||||||||||||||||||||||||||
Dividends
declared and paid on common shares ($.01 per share)
|
(170 | ) | (170 | ) | ||||||||||||||||||||||||||||
Commitment
to release employee stock ownership plan shares (31,161
shares)
|
(216 | ) | 311 | 95 | ||||||||||||||||||||||||||||
Commitment
to release recognition and retention plan shares (11,624
shares)
|
53 | 53 | ||||||||||||||||||||||||||||||
Direct
costs incurred in connection with issuance of preferred stock and common
stock warrant
|
(83 | ) | (83 | ) | ||||||||||||||||||||||||||||
Accretion
of preferred stock discount
|
538 | (538 | ) | - | ||||||||||||||||||||||||||||
Preferred
stock dividends accrued
|
(2,735 | ) | (2,735 | ) | ||||||||||||||||||||||||||||
Stock
option expense
|
195 | 195 | ||||||||||||||||||||||||||||||
Balance
at March 31, 2010
|
$ | 69,653 | $ | 181 | $ | 218,418 | $ | (4,173 | ) | $ | (2,805 | ) | $ | (19,274 | ) | $ | 2,864 | $ | 264,864 |
See accompanying notes to condensed
consolidated financial statements (unaudited).
5
FIRST
PLACE FINANCIAL CORP. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars
in thousands)
Nine months ended
|
||||||||
March 31,
|
||||||||
2010
|
2009
|
|||||||
Cash
flows from operating activities:
|
||||||||
Net
cash from (used in) operating activities
|
$ | 102,307 | $ | (55,209 | ) | |||
Cash
flows from investing activities:
|
||||||||
Securities:
|
||||||||
Proceeds
from sales and redemptions
|
16,114 | 3,389 | ||||||
Proceeds
from maturities, calls and principal paydowns
|
48,703 | 53,349 | ||||||
Purchases
|
(35,905 | ) | (68,643 | ) | ||||
Net
change in interest-bearing deposits in other banks
|
31,455 | (107,225 | ) | |||||
Net
change in federal funds sold
|
- | (35,392 | ) | |||||
Net
change in loans
|
(81,445 | ) | 63,433 | |||||
Proceeds
from sales of loans
|
47,633 | 12,344 | ||||||
Proceeds
from sales of real estate owned
|
22,739 | 12,335 | ||||||
Premises
and equipment expenditures, net
|
(1,839 | ) | (3,130 | ) | ||||
Cash
paid for acquisitions, net of cash received
|
- | (1,169 | ) | |||||
Net
cash from (used in) investing activities
|
47,455 | (70,709 | ) | |||||
Cash
flows from financing activities:
|
||||||||
Net
change in deposits
|
61,645 | 180,169 | ||||||
Net
change in short-term borrowings
|
(265,994 | ) | (112,914 | ) | ||||
Proceeds
from long-term debt
|
50,000 | - | ||||||
Repayment
of long-term debt
|
(255 | ) | (310 | ) | ||||
Proceeds
from issuance of preferred stock and common stock warrant
|
- | 72,927 | ||||||
Common
dividends paid
|
(170 | ) | (2,865 | ) | ||||
Preferred
dividends paid
|
(2,735 | ) | - | |||||
Direct
costs incurred in connection with issuance of preferred stock and common
stock warrant
|
(83 | ) | (8 | ) | ||||
Recovery
of dividends from recognition and retention plan
|
416 | - | ||||||
Net
cash (used in) from financing activities
|
(157,176 | ) | 136,999 | |||||
Net
change in cash and cash equivalents
|
(7,414 | ) | 11,081 | |||||
Cash
and cash equivalents at beginning of period
|
38,321 | 59,483 | ||||||
Cash
and cash equivalents at end of period
|
$ | 30,907 | $ | 70,564 | ||||
Supplemental
cash flow information:
|
||||||||
Cash
payments of interest expense
|
$ | 45,316 | $ | 61,933 | ||||
Cash
payments (refunds) of income taxes
|
(8,395 | ) | 527 | |||||
Supplemental
noncash disclosures:
|
||||||||
Loans
securitized
|
15,953 | 21,969 | ||||||
Transfer
of loans to real estate owned
|
25,566 | 25,342 | ||||||
Transfer
of loans to real estate held for sale
|
1,767 | - | ||||||
Transfer
of loans from portfolio to loans held for sale
|
46,844 | 12,344 | ||||||
Transfer
from long-term debt to short-term borrowings
|
5,873 | 86,760 | ||||||
Allocation
of loan basis to mortgage servicing rights
|
10,382 | 8,001 | ||||||
Loans
held for sale converted to fair value
|
- | 72,341 | ||||||
Securities
available for sale converted to fair value
|
- | 24,766 |
See
accompanying notes to condensed consolidated financial statements
(unaudited).
6
FIRST
PLACE FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note
1. Significant Accounting Policies
(Dollars
in thousands)
Basis of Presentation. The
interim unaudited condensed consolidated financial statements have been prepared
in conformity with accounting principles generally accepted in the United States
of America (GAAP) for interim financial information and with the instructions to
Form 10-Q and Article 10 of Regulation S-X issued by the Securities and Exchange
Commission (SEC). The financial statements should be read in
conjunction with the audited consolidated financial statements and related notes
included in First Place Financial Corp.’s (the Company) Annual Report on Form
10-K for the year ended June 30, 2009. The interim unaudited
condensed consolidated financial statements include all adjustments, consisting
of only normal recurring items, which, in the opinion of management, are
necessary for a fair presentation of the financial condition and results of
operations for the periods presented. The results of operations for
the interim periods included in the interim unaudited condensed consolidated
financial statements are not necessarily indicative of the results that may be
expected for a full year.
Principles of Consolidation.
The interim unaudited condensed consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries, First Place Bank (the
Bank) and First Place Holdings, Inc. Active subsidiaries of the Bank
include the wholly-owned Ardent Service Corporation and two partially-owned
affiliates accounted for under the equity method, 50% owned Bercley Woods
Development Company, Ltd. and 99% owned Shiloh Springs, L.P. The Bank
also has wholly-owned subsidiaries that are currently inactive including Western
Reserve Mortgage Corporation and AutoArm, LLC. Wholly-owned
subsidiaries of First Place Holdings, Inc. include First Place Insurance Agency,
Ltd., APB Financial Group, Ltd., First Place Real Estate, Ltd. and Title Works
Agency, LLC, a 75% owned affiliate of First Place Holdings, Inc. The
investments of the Company in its wholly-owned subsidiaries, First Place Capital
Trust, First Place Capital Trust II and First Place Capital Trust III, have been
accounted for using the equity method based on their nature as trusts, which are
special purpose entities. All significant intercompany balances and
transactions have been eliminated in consolidation. The Company’s
employee benefits consulting firm, American Pension Benefits, was sold in June
2009.
Business
Segments. While the Company's chief decision-maker monitors
the revenue streams of the various Company products and services, the segments
that could be separated from the Company’s primary business of banking are not
material. Accordingly, all of the Company's financial service
operations are considered by management to be one reportable operating
segment.
Use of Estimates. The
preparation of the financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported assets and
liabilities, the 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. Areas involving the use of management’s
estimates and assumptions include the allowance for loan losses, fair values of
financial instruments, the realization of deferred tax assets, the
identification and carrying amount of impaired loans, the carrying amount and
amortization of intangible assets, the useful lives and impairment of premises
and equipment, the carrying amount of goodwill, the determination of an
other-than-temporary impairment on investments, and valuations of foreclosed
assets, mortgage servicing rights (MSRs), stock options and
securitizations. Actual results could differ from those
estimates.
Cash Flows. Cash and cash
equivalents includes cash and due from banks. Net cash flows are
reported for interest-bearing deposits in other banks, federal funds sold,
loans, deposits and short-term borrowings.
Subsequent
Events. Management has evaluated events and transactions
through the time the condensed consolidated financial statements were
issued. Financial statements are considered issued when they are
widely distributed to all shareholders and other financial statement users, or
filed with the SEC. In conjunction with applicable accounting
standards, all material subsequent events have been either recognized in the
condensed consolidated financial statements or disclosed in the notes to
condensed consolidated financial statements.
Reclassifications. Certain
items in the prior year financial statements were reclassified to conform to the
current presentation.
7
Note
2. Recent Accounting Pronouncements
In
December 2007, the Financial Accounting Standards Board (FASB) issued Accounting
Standards Codification (ASC) 805 (formerly Statement of Financial Accounting
Standards (SFAS)) No. 141(R) (revised version of SFAS No. 141), Business
Combinations. This pronouncement requires an acquirer to recognize
the assets acquired, the liabilities assumed, and any noncontrolling interest in
the acquiree at fair value as of the acquisition date. ASC 805
requires additional disclosures to improve the statement user’s ability to
evaluate the nature and financial effects of business
combinations. For the Company, it will apply to business combinations
where the acquisition date is after June 30, 2009. Since this
pronouncement will be applied prospectively, there was no impact on the
Company’s consolidated financial statements upon adoption.
In
December 2007, the FASB issued ASC 810 (formerly SFAS No. 160), Noncontrolling
Interests in Consolidated Financial Statements. This pronouncement
establishes accounting and reporting standards for the noncontrolling interest
in a subsidiary and for the deconsolidation of a subsidiary. ASC 810
clarifies that a noncontrolling interest in a subsidiary is an ownership
interest in the consolidated entity that should be reported as equity in the
consolidated financial statements. ASC 810 also requires consolidated
net income to be reported at amounts that include the amounts attributable to
both the parent and the noncontrolling interest. This pronouncement
is effective for financial statements issued for fiscal years and interim
periods beginning after December 15, 2008. The adoption of ASC 810
did not have a material impact on the Company’s consolidated financial
statements.
In March
2008, the FASB issued ASC 815 (formerly SFAS No. 161), Disclosures about
Derivative Instruments and Hedging Activities. This pronouncement
requires enhanced disclosures about: (i) how and why an entity uses derivative
instruments, (ii) how derivative instruments and related hedged items are
accounted for, and (c) how derivative instruments and related hedged items
affect an entity’s financial position, financial performance, and cash
flows. This pronouncement is effective for financial statements
issued for fiscal years and interim periods beginning after November 15,
2008. The adoption of ASC 815 did not have a material impact on the
Company’s consolidated financial statements. For more information on
the Company’s derivative instruments and hedging activities, see Note 8 - Commitments, Contingencies
and Guarantees and Note
9– Fair Value Measurement and Fair Value of Financial
Instruments.
In April
2009, the FASB issued ASC 820 (formerly Staff Position SFAS No. 157-4),
Determining Fair Value When the Volume and Level of Activity for the Asset or
Liability Have Significantly Decreased and Identifying Transactions That Are Not
Orderly. This pronouncement affirms the approach to estimating fair
value when there is no active market, clarifies and includes additional factors
for determining whether there has been a significant decrease in market
activity, eliminates the presumption that all transactions are distressed unless
otherwise proven and requires an entity to disclose any change in valuation
technique. This pronouncement became effective for interim and annual
reporting periods ending after June 15, 2009. The adoption of ASC 820
did not have a material impact on the Company’s consolidated financial
statements.
In April
2009, the FASB issued ASC 320 (formerly Staff Position SFAS No. 115-2 and SFAS
No. 124-2), Recognition and Presentation of Other-Than-Temporary
Impairment. This guidance changes the “ability and intent to hold”
provision for debt securities and states that impairment is considered to be
other than temporary if a company: (i) intends to sell the security,
(ii) more-likely-than-not will be required to sell the security before
recovering its cost, or (iii) does not expect to recover the security’s
entire amortized cost. This guidance also changes the “probability”
standard relating to the collectibility of cash flows and states that impairment
is considered to be other than temporary if the present value of cash flows
expected to be collected is less than the amortized cost (credit
loss). Other-than-temporary losses also need to be separated between
the amount related to credit loss (which is recognized in current earnings) and
the amount related to all other factors (which is recognized in other
comprehensive income). This pronouncement is effective for interim
and annual reporting periods ending after June 15, 2009. The adoption
of ASC 320 did not have a material impact on the Company’s consolidated
financial statements.
In April
2009, the FASB issued ASC 825 (formerly Staff Position SFAS No. 107-1), Interim
Disclosures about Fair Value of Financial Instruments. This
pronouncement requires disclosures about fair value of financial instruments in
interim, as well as annual financial statements, of publicly traded
companies. This position became effective for interim reporting
periods ending after June 15, 2009. The adoption of this
pronouncement did not have a material impact on the Company’s consolidated
financial statements.
8
In May
2009, the FASB issued ASC 855 (formerly SFAS No. 165), Subsequent
Events. This new pronouncement established principles and standards
related to the accounting for and disclosure of events that occur after the
balance sheet date but before the financial statements are
issued. ASC 855 requires an entity to recognize, in the financial
statements, subsequent events that provide additional information regarding
conditions that existed at the balance sheet date. Subsequent events
that provide information about conditions that did not exist at the balance
sheet date shall not be recognized in the financial statements under ASC
855. This pronouncement is effective for interim and annual financial
periods ending after June 15, 2009. The adoption of ASC 855 did not
have a material impact on the Company’s consolidated financial
statements.
In June
2009, the FASB issued ASC 105 (formerly SFAS No. 168), Generally Accepted
Accounting Principles - FASB Accounting Standards Codification™ and the
Hierarchy of Generally Accepted Accounting Principles. The
Codification™ is the source of authoritative GAAP United States generally
accepted accounting principles recognized by the FASB to be applied by
nongovernmental entities. Rules and interpretive releases of the SEC
are also sources of authoritative GAAP for SEC registrants. All
existing accounting standard documents are superseded and all other accounting
literature not included in the Codification™ is considered
nonauthoritative. The Codification™ is effective for financial
statements issued for interim and annual periods ending after September 15,
2009. The Company has made the appropriate changes to GAAP references
in the consolidated financial statements.
In August
2009, the FASB issued Accounting Standards Update (ASU) No. 2009-05, Fair Value
Measurements and Disclosures (Topic 820) – Measuring Liabilities at Fair
Value. This ASU provides amendments for fair value measurements of
liabilities. It provides clarification that in circumstances in which
a quoted price in an active market for the identical liability is not available,
a reporting entity is required to measure fair value using one or more
techniques. ASU 2009-05 also clarifies that when estimating the fair
value of a liability, a reporting entity is not required to include a separate
input or adjustment to other inputs relating to the existence of a restriction
that prevents the transfer of the liability. ASU 2009-05 was
effective October 1, 2009. The adoption of ASU 2009-05 did not have a
material impact on the Company’s consolidated financial statements.
In
September 2009, the FASB issued ASU No. 2009-12, Fair Value Measurements and
Disclosures (Topic 820) – Investments in Certain Entities that Calculate Net
Asset Value per Share (or its Equivalent). This ASU permits, as a
practical expedient, a reporting entity to measure the fair value of an
investment that is within the scope of the amendments in this ASU on the basis
of the net asset value per share of the investment (or its equivalent) if the
net asset value of the investment (or its equivalent) is calculated in a manner
consistent with the measurement principles of ASC 946 as of the reporting
entity’s measurement date. The ASU also requires disclosures by major
category of investment about the attributes of investments within the scope of
the ASU. This ASU is effective for interim and annual periods ending
after December 15, 2009. The adoption of ASU 2009-12 did not have a
material impact on the Company’s consolidated financial statements.
In
December 2009, the FASB issued ASU No. 2009-16, Transfers and Servicing (Topic
860) – Accounting for Transfers of Financial Assets (SFAS No. 166, an amendment
of FSAB No. 140). The amendments in this ASU improve financial
reporting by eliminating the exceptions for Qualifying Special-Purpose Entities
(QSPE) from the consolidation guidance and the exception that permitted sale
accounting for certain mortgage securitizations when a transferor has not
surrendered control over the transferred financial assets. In
addition, the amendments require enhanced disclosures about the risks that a
transferor continues to be exposed to as a result of continuing involvement in
transferred financial assets. Comparability and consistency in
accounting for transferred financial assets will also be improved through
clarifications of the requirements for isolation and limitations on portions of
financial assets eligible for sale accounting. This ASU is
effective for the first annual period beginning after November 15,
2009. The adoption of ASU 2009-16 is not expected to have a material
impact on the Company’s consolidated financial statements.
In
December 2009, the FASB issued ASU No. 2009-17, Consolidations (Topic 810) –
Improvements to Financial Reporting by Enterprises Involved with Variable
Interest Entities (SFAS No. 167, Amendments to FASB Interpretation No.
46(R)). ASU 2009-17 addresses the effects of eliminating the QSPE
concept from SFAS No. 140 and the transparency involved with variable interest
entities. The amendments in this ASU replace the quantitative-based
risks and rewards calculation for determining which enterprise, if any, has a
controlling financial interest in a variable interest entity with an approach
focused on identifying which enterprise has the authority to direct the
activities of a variable interest entity that most significantly impact the
entity’s economic performance and: (i) the obligation to absorb losses of the
entity or (ii) the right to receive benefits from the entity The
amendments in this ASU also require additional disclosures about an enterprise’s
involvement in variable interest entities. This ASU is effective for
interim and annual periods beginning after November 15, 2009. The
adoption of ASU 2009-17 did not have a material impact on the Company’s
consolidated financial statements.
9
In
January 2010, the FASB issued ASU No. 2010-05, Fair Value Measurements and
Disclosures (Topic 820) – Improving Disclosures about Fair Value
Measurements. This ASU amends FASB ASU Topic 820 to require reporting
entities to make new disclosures about recurring or nonrecurring fair value
measurements, including significant transfers into and out of Level 1 and Level
2 fair value measurements and information about purchases, sales, issuances, and
settlements on a gross basis in the reconciliation of Level 3 fair value
measurements. The ASU also clarifies existing fair value measurement
disclosure guidance about the level of disaggregation, inputs and valuation
techniques. Except for the detailed Level 3 roll forward disclosures,
the guidance in the ASU is effective for interim and annual reporting periods
beginning after December 15, 2009. The new disclosures about
purchases, sales, issuances and settlements in the roll forward activity for
Level 3 fair value measurements are effective for fiscal years beginning after
December 15, 2010. Early adoption is permitted. The
adoption of ASU 2010-05 did not have a material impact on the Company’s
consolidated financial statements.
Note
3. Securities
(Dollars
in thousands)
The fair
value and amortized cost of available for sale and trading securities and the
related gross unrealized gains and losses recognized in accumulated other
comprehensive income (loss) were as follows:
March 31, 2010
|
||||||||||||||||
Gross
|
Gross
|
|||||||||||||||
Fair
|
Unrealized
|
Unrealized
|
Amortized
|
|||||||||||||
Value
|
Gains
|
Losses
|
Cost
|
|||||||||||||
Debt
securities - available for sale:
|
||||||||||||||||
U.S.
Government agencies and other government sponsored
enterprises
|
$ | 8,272 | $ | 25 | $ | - | $ | 8,247 | ||||||||
Obligations
of states and political subdivisions
|
65,922 | 982 | 10 | 64,950 | ||||||||||||
Trust
preferred securities
|
10,291 | - | 2,963 | 13,254 | ||||||||||||
One-
to four-family mortgage-backed securities and collateralized mortgage
obligations issued by government sponsored enterprises
|
158,851 | 6,648 | - | 152,203 | ||||||||||||
Total
|
243,336 | 7,655 | 2,973 | 238,654 | ||||||||||||
Equity
securities - available for sale:
|
||||||||||||||||
Common
stock
|
260 | - | 37 | 297 | ||||||||||||
Total
|
260 | - | 37 | 297 | ||||||||||||
Equity
securities – trading:
|
||||||||||||||||
Mortgage-backed
securities mutual fund
|
11,451 | - | - | 11,451 | ||||||||||||
Total
|
11,451 | - | - | 11,451 | ||||||||||||
Total
securities
|
$ | 255,047 | $ | 7,655 | $ | 3,010 | $ | 250,402 |
10
June 30, 2009
|
||||||||||||||||
Gross
|
Gross
|
|||||||||||||||
Fair
|
Unrealized
|
Unrealized
|
Amortized
|
|||||||||||||
Value
|
Gains
|
Losses
|
Cost
|
|||||||||||||
Debt
securities - available for sale:
|
||||||||||||||||
U.S.
Government agencies and other government sponsored
enterprises
|
$ | 4,582 | $ | 82 | $ | - | $ | 4,500 | ||||||||
Obligations
of states and political subdivisions
|
62,946 | 496 | 1,205 | 63,655 | ||||||||||||
Trust
preferred securities
|
8,267 | - | 4,955 | 13,222 | ||||||||||||
One-
to four-family mortgage-backed securities and collateralized mortgage
obligations issued by government sponsored enterprises
|
188,722 | 5,107 | 171 | 183,786 | ||||||||||||
Total
|
264,517 | 5,685 | 6,331 | 265,163 | ||||||||||||
Equity
securities - available for sale:
|
||||||||||||||||
Common
stock
|
297 | - | - | 297 | ||||||||||||
Total
|
297 | - | - | 297 | ||||||||||||
Equity
securities – trading:
|
||||||||||||||||
Mortgage-backed
securities mutual fund
|
11,786 | - | - | 11,786 | ||||||||||||
Total
|
11,786 | - | - | 11,786 | ||||||||||||
Total
securities
|
$ | 276,600 | $ | 5,685 | $ | 6,331 | $ | 277,246 |
The
amortized cost and estimated fair value of debt securities available for sale by
remaining contractual maturity at March 31, 2010, are summarized in the
following table. Expected maturities may differ from contractual
maturities because some issuers have the right to call or prepay obligations
with or without call or prepayment penalties. Securities not due at a
single maturity date, primarily mortgage-backed securities, are shown
separately.
Amortized
|
||||||||
Fair Value
|
Cost
|
|||||||
Debt
securities available for sale:
|
||||||||
Due
in one year or less
|
$ | 3,285 | $ | 3,241 | ||||
Due
after one year through five years
|
2,758 | 2,634 | ||||||
Due
after five years through ten years
|
25,773 | 25,203 | ||||||
Due
after ten years
|
52,669 | 55,373 | ||||||
84,485 | 86,451 | |||||||
Mortgage-backed
securities and collateralized mortgage obligations
|
158,851 | 152,203 | ||||||
Total
|
$ | 243,336 | $ | 238,654 |
Debt and
mortgage-backed securities with a fair value of $218,516 as of March 31, 2010,
and $228,654 as of June 30, 2009, were pledged to secure public deposits,
repurchase agreements, borrowings from the Federal Home Loan Bank, borrowings
from the Federal Reserve Bank and for other purposes as required or permitted by
law.
A review
for other-than-temporary impairment was performed as of March 31, 2010, on the
portfolio of trust preferred securities, which had an unrealized loss of $2,963,
an improvement from the unrealized loss of $4,955 at June 30,
2009. The trust preferred securities portfolio consists of large
single issuers with investment grade credit ratings of Baa3 or higher by
Moody’s. Each of the issuers is a recipient of the U.S. Department of
the Treasury’s Troubled Asset Relief Program funding and has not deferred
interest payments on those obligations. The unrealized loss is
attributable to the historically low level of interest rates, lack of liquidity
in the trust preferred securities market and a lack of confidence in the entire
financial institution capital market. Since this variable rate
portfolio is based on three-month LIBOR, it trades at a deep discount to its
fixed rate counterparts. As interest rates return to historically
normal levels, management expects the value of this portfolio to
recover. The Company does not intend to sell these securities and it
is more-likely-than-not that it will not be required to sell them prior to their
recovery. As a result, no other-than-temporary impairment has been
recognized in the current quarter. The Company will continue to
monitor these securities and the events and conditions that have an impact on
their values and make adjustments for impairment as necessary.
11
Note
4. Loans
(Dollars
in thousands)
Loans
were as follows:
March 31,
|
June 30,
|
|||||||
2010
|
2009
|
|||||||
Mortgage
and construction loans:
|
||||||||
Permanent
financing
|
$ | 725,946 | $ | 803,555 | ||||
Construction
|
58,206 | 47,726 | ||||||
Total
|
784,152 | 851,281 | ||||||
Commercial
loans:
|
||||||||
Multifamily
real estate
|
112,115 | 111,281 | ||||||
Commercial
real estate
|
899,874 | 875,836 | ||||||
Commercial
construction
|
57,800 | 68,315 | ||||||
Commercial
non real estate
|
169,092 | 189,083 | ||||||
Total
|
1,238,881 | 1,244,515 | ||||||
Consumer
loans:
|
||||||||
Home
equity lines of credit
|
206,588 | 215,136 | ||||||
Home
equity loans
|
118,006 | 129,661 | ||||||
Automobiles
and other
|
20,856 | 27,851 | ||||||
Total
|
345,450 | 372,648 | ||||||
Total
loans
|
$ | 2,368,483 | $ | 2,468,444 |
Activity
in the allowance for loan losses was as follows:
Nine months ended
|
||||||||
March 31,
|
||||||||
2010
|
2009
|
|||||||
Balance
at beginning of period
|
$ | 39,580 | $ | 28,216 | ||||
Provision
for loan losses
|
67,600 | 23,364 | ||||||
Loans
charged-off
|
(54,928 | ) | (16,127 | ) | ||||
Recoveries
|
302 | 313 | ||||||
Balance
at end of period
|
$ | 52,554 | $ | 35,766 |
Approximately
$14,000 of the increase in net charge-offs for both the quarterly and
year-to-date periods is attributable to aggressive actions taken by management
during the current quarter to revalue approximately $60,000 in delinquent loans
secured by one- to four-family residential properties.
Impaired
loans were as follows:
March 31,
|
June 30,
|
|||||||
2010
|
2009
|
|||||||
Loans
with no allocated allowance for loan losses
|
$ | 24,980 | $ | 12,494 | ||||
Loans
with an allocated allowance for loan losses
|
66,504 | 38,397 | ||||||
Total
|
$ | 91,484 | $ | 50,891 | ||||
Amount
of allocated allowance for loan losses
|
$ | 10,036 | $ | 11,663 |
Nonperforming
loans were as follows:
March 31,
|
June 30,
|
|||||||
2010
|
2009
|
|||||||
Nonaccrual
loans
|
$ | 106,950 | $ | 92,752 | ||||
Troubled
debt restructurings accruing interest (a)
|
4,869 | 10,476 | ||||||
Total
nonperforming loans
|
$ | 111,819 | $ | 103,228 |
(a)
|
Troubled
debt restructurings accruing interest are loans that were accruing
interest at the time of restructuring and have been in compliance with
their modified terms for a period of less than six
months.
|
12
Included
in nonperforming loans at March 31, 2010 were two loans totaling $7,454 that are
subject to the borrower’s bankruptcy proceedings described below. In
the third quarter of fiscal year 2009, the Company became aware that the
collateral pledged on these loans was fraudulent and evidenced by fraudulently
altered documents. The Company requested and received assignments of
replacement collateral from the borrower which the Company now anticipates will
be set aside in a subsequent involuntary bankruptcy
proceeding. During the fourth quarter of fiscal year 2009, the
borrower stopped making payments and the Company placed these loans on
nonaccrual status. Based on the preliminary state of the bankruptcy
proceedings, the amount of any loss on the loans is not estimable at this
time. Therefore, no specific allowance or charge-off was recorded at
March 31, 2010. The Company is also considering legal action against
other parties who may have facilitated the fraudulent activity. If
the total loan balance is not realized through a combination of the bankruptcy
and legal actions, the Company would anticipate recovery on a claim filed under
the Company’s blanket bond insurance policy. The insurance company has initially
denied the claim. However, the Company intends to pursue the
settlement of this claim through negotiation and/or legal action.
Note
5. Mortgage Servicing Rights
(Dollars
in thousands)
Following
is a summary of mortgage servicing rights:
Nine months ended
|
||||||||
March 31,
|
||||||||
2010
|
2009
|
|||||||
Balance
at beginning of period
|
$ | 20,114 | $ | 14,272 | ||||
Additions
|
10,382 | 8,001 | ||||||
Net
change in valuation allowance
|
834 | (1,137 | ) | |||||
Amortization
|
(4,486 | ) | (4,142 | ) | ||||
Balance
at end of period
|
$ | 26,844 | $ | 16,994 |
The fair
value of mortgage servicing rights was $29,349 at March 31, 2010, and $22,041 at
June 30, 2009, as determined by an independent third party
appraisal.
Activity
in the valuation allowance for mortgage servicing rights was as
follows:
Nine months ended
|
||||||||
March 31,
|
||||||||
2010
|
2009
|
|||||||
Balance
at beginning of period
|
$ | 1,052 | $ | 100 | ||||
Additions
expensed
|
112 | 1,363 | ||||||
Reductions
credited to expense
|
(946 | ) | (226 | ) | ||||
Balance
at end of period
|
$ | 218 | $ | 1,237 |
Loans
serviced for others, which are not reported as assets, totaled $2,638,459 and
$2,052,135 at March 31, 2010, and June 30, 2009,
respectively. Noninterest-bearing deposits included $23,426 and
$17,892 of custodial account deposits related to loans serviced for others as of
March 31, 2010, and June 30, 2009, respectively.
13
Note
6. Short-term Borrowings and Long-term Debt
(Dollars
in thousands)
Following
is a summary of short-term borrowings and long-term debt:
March 31,
|
June 30,
|
|||||||
2010
|
2009
|
|||||||
Short-term
borrowings:
|
||||||||
Federal
Home Loan Bank advances
|
$ | 32,448 | $ | 153,993 | ||||
Securities
sold under agreements to repurchase
|
30,889 | 33,165 | ||||||
Federal
Reserve discount window borrowings
|
- | 136,300 | ||||||
Total
|
$ | 63,337 | $ | 323,458 | ||||
Long-term
debt:
|
||||||||
Federal
Home Loan Bank advances
|
$ | 267,022 | $ | 223,303 | ||||
Securities
sold under agreements to repurchase
|
50,000 | 50,000 | ||||||
Junior
subordinated debentures owed to unconsolidated subsidiary
trusts
|
61,856 | 61,856 | ||||||
Total
|
$ | 378,878 | $ | 335,159 |
The Bank
has a borrowing capacity of approximately $360,000 with the Federal Home Loan
Bank, which is collateralized by real estate, and commercial loans with a
carrying amount of approximately $1,738,000, securities with a fair value of
approximately $4,000 and the Company’s stock in the Federal Home Loan
Bank. The Bank had approximately $22,000 of borrowing capacity
available from the Federal Home Loan Bank at March 31, 2010. The Bank
also has a borrowing capacity of approximately $50,000 through the Federal
Reserve Bank discount window, collateralized by consumer loans with a carrying
amount of approximately $291,000. The Company had no Federal Reserve
Bank borrowings outstanding at March 31, 2010. In addition, the Bank
has a $10,000 unsecured line of credit with a commercial bank, all of which was
available at March 31, 2010.
Note
7. Income Taxes
(Dollars
in thousands)
The
Company’s income taxes for the three and nine months ended March 31, 2010 and
2009, were as follows:
Three months ended
|
Nine months ended
|
|||||||||||||||
March 31,
|
March 31,
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
Income
tax expense (benefit)
|
$ | (6,046 | ) | $ | 483 | $ | (9,839 | ) | $ | (6,584 | ) | |||||
Provision
for deferred tax assets
|
2,671 | - | 2,671 | - | ||||||||||||
Net
income tax expense (benefit)
|
$ | (3,375 | ) | $ | 483 | $ | (7,168 | ) | $ | (6,584 | ) |
Deferred
income taxes reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial and tax reporting
purposes. Management conducts quarterly assessments of all available
evidence to determine the amount of deferred tax assets that are
more-likely-than-not to be realized, and therefore recorded. The
available evidence used in connection with these assessments includes taxable
income in prior periods, projected future taxable income, potential tax-planning
strategies and projected future reversals of deferred tax
items. These assessments involve a certain degree of subjectivity
which may change significantly depending on the related
circumstances.
Based
upon the above assessment process, during the third quarter of fiscal 2010, the
Company recorded a $2,671 charge to income taxes to establish a valuation
allowance on its deferred tax assets that may not be realized. In
future periods, the Company anticipates that it will have an effective tax rate
near zero until such time as it is able to reverse the deferred tax asset
allowance.
14
Note
8. Commitments, Contingencies and Guarantees
(Dollars
in thousands)
The
Company regularly enters into transactions that generate off-balance sheet
risk. These transactions include commitments to originate loans,
commitments to sell loans, loans with future commitments to disburse funds such
as construction loans and lines of credit, recourse obligations for loans sold
and letters of credit. The Company enters into these transactions to
meet customer needs or to facilitate the sale of assets.
The
financial instruments with off-balance sheet risk as of March 31, 2010, were as
follows:
Contractual
|
Asset/
|
|||||||
amount
|
(liability) recorded
|
|||||||
Commitments:
|
||||||||
Commitments
to make loans
|
$ | 268,007 | $ | 1,890 | ||||
Construction
loan funds not yet disbursed
|
83,094 | - | ||||||
Unused
lines of credit and letters of credit
|
268,879 | (374 | ) | |||||
Mortgage
loan sales commitments
|
227,635 | (4,444 | ) | |||||
Mortgage-backed
securities sales commitments
|
230,840 | 398 | ||||||
Guarantees:
|
||||||||
Loans
sold with recourse
|
97,368 | (1,139 | ) | |||||
Standby
letters of credit
|
3,818 | (17 | ) |
The
Company has originated and sold certain loans for which the buyer has recourse
to the Company in the event the loans do not perform as specified in the
agreements or if there is noncompliance with the buyer’s underwriting
specifications. Depending on the agreement, recourse may be limited
to a predetermined length of time or over the entire life of the
loan. Therefore, these sold loans with limited recourse represent a
risk to the Company and a liability has been established to recognize any credit
losses. The Company also has risk associated with unused lines of
credit and letters of credit and a liability has been established to recognize
any credit losses.
Note
9. Fair Value Measurement and Fair Value of Financial
Instruments
(Dollars
in thousands)
Fair
Value Measurement
The
Company groups assets and liabilities recorded at fair value into three levels
based on the markets in which the assets and liabilities are traded and the
reliability of the assumptions used to determine fair value. A
financial instrument’s level within the fair value hierarchy is based on the
lowest level of input that is significant to the fair value measurement (with
level 1 considered highest and level 3 considered lowest). A brief
description of each level follows:
Level 1 — Valuation is based
upon quoted prices for identical instruments in active markets.
Level 2 — Valuation is based
upon quoted prices for similar instruments in active markets, quoted prices for
identical or similar instruments in markets that are not active, and model-based
valuation techniques for which all significant assumptions are observable in the
market.
Level 3 — Valuation is
generated from model-based techniques that use at least one significant
assumption not observable in the market. These unobservable
assumptions reflect estimates that market participants would use in pricing the
asset or liability. Valuation techniques include use of discounted
cash flow models and similar techniques.
15
The
following tables summarize the financial assets and liabilities measured at fair
value on a recurring basis as of March 31, 2010, and June 30, 2009, segregated
by the level of the valuation inputs within the fair value
hierarchy.
Fair value measurements at
March 31, 2010
|
||||||||||||||||
Total
|
Level 1
|
Level 2
|
Level 3
|
|||||||||||||
Assets (liabilities) measured on a recurring basis
|
||||||||||||||||
Trading
securities:
|
||||||||||||||||
Mortgage-backed
securities mutual fund
|
$ | 11,451 | $ | - | $ | 11,451 | $ | - | ||||||||
Securities
available for sale:
|
||||||||||||||||
U.S.
Government agencies and other government sponsored
enterprises
|
8,272 | - | 8,272 | - | ||||||||||||
Obligations
of states and political subdivisions
|
65,922 | - | 65,922 | - | ||||||||||||
Trust
preferred securities
|
10,291 | - | 9,826 | 465 | ||||||||||||
One-
to four-family mortgage-backed securities and collateralized mortgage
obligations issued by government sponsored enterprises
|
158,851 | - | 158,851 | - | ||||||||||||
Common
stocks
|
260 | - | 260 | - | ||||||||||||
Loans
held for sale
|
330,568 | - | 330,568 | - | ||||||||||||
Derivatives
– mortgage-backed securities sales commitments
|
398 | - | 398 | - | ||||||||||||
Derivatives
– commitments to make loans
|
1,890 | - | 1,890 | - | ||||||||||||
Derivatives
– mortgage loan sales commitments
|
(4,444 | ) | - | (4,444 | ) |
Fair value measurements at
June 30, 2009
|
||||||||||||||||
Total
|
Level 1
|
Level 2
|
Level 3
|
|||||||||||||
Assets measured on a recurring basis
|
||||||||||||||||
Trading
securities:
|
||||||||||||||||
Mortgage-backed
securities mutual fund
|
$ | 11,786 | $ | - | $ | 11,786 | $ | - | ||||||||
Securities
available for sale:
|
||||||||||||||||
U.S.
Government agencies and other government sponsored
enterprises
|
4,582 | - | 4,582 | - | ||||||||||||
Obligations
of states and political subdivisions
|
62,946 | - | 62,946 | - | ||||||||||||
Trust
preferred securities
|
8,267 | - | 7,847 | 420 | ||||||||||||
One-
to four-family mortgage-backed securities and collateralized mortgage
obligations issued by government sponsored enterprises
|
188,722 | - | 188,722 | - | ||||||||||||
Common
stocks
|
297 | - | 297 | - | ||||||||||||
Loans
held for sale
|
376,406 | - | 376,406 | - | ||||||||||||
Derivatives
– mortgage-backed securities sales commitments
|
2,544 | - | 2,544 | - | ||||||||||||
Derivatives
– commitments to make loans
|
427 | - | 427 | - |
The
following table presents additional information about assets measured at fair
value on a recurring basis using Level 3 inputs.
Nine months ended March 31,
|
||||||||
2010
|
2009
|
|||||||
Balance
at beginning of period
|
$ | 420 | $ | - | ||||
Gross
gains (losses) included in other comprehensive income
|
45 | (10 | ) | |||||
Transfer
to Level 3
|
- | 400 | ||||||
Balance
at end of period
|
$ | 465 | $ | 390 |
16
The
following tables summarize the financial assets measured at fair value on a
nonrecurring basis as of March 31, 2010, and June 30, 2009, segregated by the
level of the valuation inputs within the fair value hierarchy.
Fair value measurements at
March 31, 2010
|
||||||||||||||||
Total
|
Level 1
|
Level 2
|
Level 3
|
|||||||||||||
Assets measured on a nonrecurring basis
|
||||||||||||||||
Impaired
loans, net of allowance
|
$ | 56,468 | - | - | $ | 56,468 | ||||||||||
Real
estate owned
|
36,239 | - | - | 36,239 | ||||||||||||
Mortgage
servicing rights
|
3,333 | - | - | 3,333 |
Fair value measurements at
June 30, 2009
|
||||||||||||||||
Total
|
Level 1
|
Level 2
|
Level 3
|
|||||||||||||
Assets measured on a nonrecurring basis
|
||||||||||||||||
Impaired
loans, net of allowance
|
$ | 26,734 | - | - | $ | 26,734 | ||||||||||
Real
estate owned
|
36,790 | - | - | 36,790 | ||||||||||||
Mortgage
servicing rights
|
5,411 | - | - | 5,411 |
Securities - Securities in the
Company’s investment portfolio are recorded at fair value on a recurring basis
and certain securities are classified as trading securities. The
amount of the adjustment for the fair value of trading securities for the nine
months ended March 31, 2010, was a gain of $415, which is included in the
Condensed Consolidated Statements of Income under the caption Change in Fair
Value of Securities. Recurring Level 2 trading securities include the
Company’s investment in a mortgage-backed securities mutual fund. The
remaining securities in the Company’s investment portfolio are classified as
available for sale. Recurring Level 2 available for sale securities
include the Company’s investments in U.S. government agency obligations,
obligations of states and political subdivisions, trust preferred securities,
mortgage-backed securities, collateralized mortgage obligations and equity
securities. Recurring Level 3 available for sale securities include
the Company’s investment in one trust preferred security.
Loans held for sale - Loans held for sale
consist of residential mortgage loans originated for sale and other loans which
have been identified for sale. From time to time, loans held for sale
may also include the guaranteed portion of Small Business Administration (SBA)
loans. Interest on loans held for sale is recognized according to the
contractual terms on the loans and included in interest income. Loans
held for sale are recorded at fair value based on what secondary markets are
currently offering for loans with similar characteristics. As such,
the Company classifies loans held for sale as recurring Level 2. At
March 31, 2010, the fair value of loans held for sale exceeded the aggregate
unpaid principal balance by $7,036. The amount of the adjustment for
fair value for the nine months ended March 31, 2010, was a gain of $7,908 and is
included in the Condensed Consolidated Statements of Income under the caption
Mortgage Banking Gains.
Impaired loans - Impaired
loans are measured for impairment based on: (i) the present value of the
expected future cash flows discounted at the loan’s effective interest rate,
(ii) a loan’s observable market price, or (iii) the fair value of the collateral
if the loan is collateral dependent. For collateral-dependent loans,
the collateral had a carrying amount of $66,504, with a valuation allowance of
$10,036. The Company measures impairment on all nonaccrual loans for
which it has established specific allowances as part of the specific allocated
allowance component of the allowance for loan losses. As such, the
Company classifies impaired loans as nonrecurring Level 3. Changes in
the specifically allocated allowance are recorded within the provision for loan
losses and amounted to a net decrease of $1,627 for the nine months ended March
31, 2010.
17
Mortgage servicing rights -
Mortgage servicing rights of $26,844 represent the carrying amount of
retained servicing rights on loans sold. Servicing rights are valued
at the lower of cost or fair value and are based upon an independent third party
appraisal. Accordingly, the Company classifies the fair value portion
of its mortgage servicing rights as nonrecurring Level 3. The
carrying amount of mortgage servicing rights includes $834 in net reduction of
impairment for the nine months ended March 31, 2010, and the valuation allowance
at March 31, 2010, was $218. Mortgage servicing rights of $23,547 are
valued at amortized cost.
Real estate owned – The
Company initially records an acquired property at the fair value of the related
asset, less estimated costs to sell the property. Thereafter, if
there is a further deterioration in value, a specific valuation allowance is
established through a charge to expense. At March 31, 2010, the
Company had $39,681 of real estate owned and $3,442 of valuation allowance,
compared with $41,658 of real estate owned and $4,868 of valuation allowance at
June 30, 2009.
Mortgage banking derivatives
- The Company enters into commitments with customers to make loans as a part of
its residential lending program. These commitments are considered
derivative instruments for those loans intended to be held for
sale. The Company also enters into forward commitments for the future
delivery of residential mortgage loans when interest rate locks are entered into
in order to economically hedge the effect of changes in interest rates resulting
from its commitments to fund the loans. These forward contracts are
also derivative instruments. All derivative instruments are
recognized as either assets or liabilities at fair value in the statement of
financial condition as indicated in the preceding table on a recurring
basis. Fair value adjustments related to these mortgage banking
derivatives are recorded in current period earnings as a component of mortgage
banking gains. For the nine months ended March 31, 2010, the Company
had $946 in net losses attributed to the fair value adjustments of derivatives,
while net gains on sales of loans were $15,532. At March 31, 2010, no
derivatives were designated as cash flow hedges or fair value
hedges.
Fair
Value of Financial Instruments
The
following table shows the estimated fair value and the related carrying amount
of the Company’s financial instruments at March 31, 2010, and June 30,
2009:
March 31, 2010
|
June 30, 2009
|
|||||||||||||||
Carrying
|
Estimated
|
Carrying
|
Estimated
|
|||||||||||||
Amount
|
Fair Value
|
Amount
|
Fair Value
|
|||||||||||||
Financial
assets:
|
||||||||||||||||
Cash
and due from banks
|
$ | 30,907 | $ | 30,907 | $ | 38,321 | $ | 38,321 | ||||||||
Interest-bearing
deposits in other banks
|
25,159 | 25,159 | 56,614 | 56,614 | ||||||||||||
Trading
securities
|
11,451 | 11,451 | 11,786 | 11,786 | ||||||||||||
Securities
available for sale
|
243,596 | 243,596 | 264,814 | 264,814 | ||||||||||||
Loans
held for sale
|
330,568 | 330,568 | 376,406 | 376,406 | ||||||||||||
Loans,
net
|
2,315,929 | 2,376,270 | 2,428,864 | 2,498,517 | ||||||||||||
Federal
Home Loan Bank stock
|
35,041 | 35,041 | 36,221 | 36,221 | ||||||||||||
Derivative
assets
|
2,288 | 2,288 | 2,971 | 2,971 | ||||||||||||
Other
financial assets
|
12,247 | 12,247 | 12,629 | 12,629 | ||||||||||||
Financial
liabilities:
|
||||||||||||||||
Demand
and savings deposits
|
$ | 1,276,084 | $ | 1,276,084 | $ | 1,103,348 | $ | 1,103,348 | ||||||||
Time
deposits
|
1,221,173 | 1,234,177 | 1,332,253 | 1,345,895 | ||||||||||||
Short-term
borrowings
|
63,337 | 63,533 | 323,458 | 325,180 | ||||||||||||
Long-term
debt
|
378,878 | 401,227 | 335,159 | 355,236 | ||||||||||||
Derivative
liabilities
|
4,444 | 4,444 | - | - | ||||||||||||
Other
financial liabilities
|
2,003 | 2,003 | 9,429 | 9,429 |
The
methods and assumptions used to estimate fair value are described as
follows. Carrying amount is the estimated fair value for cash and due
from banks, interest-bearing deposits in other banks, other financial assets,
demand and savings deposits, and other financial
liabilities. Security fair values, including trust preferred
securities, are based on market prices or dealer quotes, and if no such
information is available, on the rate and term of the security and information
about the issuer. Fair value of loans held for sale and commitments
to purchase/sell/originate loans and mortgage-backed securities is based on
market quotes. For fixed rate loans or time deposits and for variable
rate loans or time deposits with infrequent repricing or repricing limits, fair
value is based on discounted cash flows using current market rates applied to
the estimated life and credit risk which is not indicative of an exit
price. Fair value of Federal Home Loan Bank (FHLB) stock is based on
the redemption value of the FHLB stock. Fair value of short-term
borrowings and long-term debt is based on current rates for similar
financing.
18
Note
10. Income (Loss) per Common Share
(Dollars
in thousands, except per share data)
The
factors used in the income (loss) per common share computation are as
follows:
Three months ended
|
Nine months ended
|
|||||||||||||||
March 31,
|
March 31,
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
Basic:
|
||||||||||||||||
Net
income (loss) attributable to common shareholders
|
$ | (14,110 | ) | $ | 2,325 | $ | (21,612 | ) | $ | (97,931 | ) | |||||
Average
common shares outstanding
|
16,973,270 | 16,973,270 | 16,973,270 | 16,973,270 | ||||||||||||
Less: Average
unearned ESOP shares
|
(287,260 | ) | (328,811 | ) | (297,737 | ) | (339,293 | ) | ||||||||
Less: Average
unearned recognition and retention plan shares
|
(63,929 | ) | (75,093 | ) | (67,839 | ) | (75,788 | ) | ||||||||
Weighted
average common shares outstanding – basic
|
16,622,081 | 16,569,366 | 16,607,694 | 16,558,189 | ||||||||||||
Basic
income (loss) per common share
|
$ | (.85 | ) | $ | .14 | $ | (1.30 | ) | $ | (5.91 | ) | |||||
Diluted:
|
||||||||||||||||
Net
income (loss) attributable to common shareholders
|
$ | (14,110 | ) | $ | 2,325 | $ | (21,612 | ) | $ | (97,931 | ) | |||||
Weighted
average common shares outstanding – basic
|
16,622,081 | 16,569,366 | 16,607,694 | 16,558,189 | ||||||||||||
Add:
Dilutive effects of assumed exercises of stock options, recognition and
retention plan shares and warrant
|
- | - | - | - | ||||||||||||
Weighted
average common shares outstanding – diluted
|
16,622,081 | 16,569,366 | 16,607,694 | 16,558,189 | ||||||||||||
Diluted
income (loss) per common share
|
$ | (.85 | ) | $ | .14 | $ | (1.30 | ) | $ | (5.91 | ) |
The
exercise prices of a number of stock options and stock grants were greater than
the average market price of the Company’s common shares or the Company was in a
net loss position and, therefore, the effect would be antidilutive to income
(loss) per common share. Stock options of 443,719 and 861,745 shares
of the Company’s common stock were not included in the computation of income
(loss) per common share during the three and nine months ended March 31, 2010
and 2009, respectively, because they were antidilutive. Stock grants
in the amount of 82,180 shares of the Company’s common stock were not included
in the computation of loss per common share during the three and nine months
ended March 31, 2010, because they were antidilutive. Stock grants in
the amount of 9,536 shares of the Company’s common stock were not included in
the computation of income (loss) per common share during the three and nine
months ended March 31, 2009, because they were antidilutive. The
warrant pertaining to the U.S. Treasury’s Capital Purchase Program, which would
result in the issuance of 3,670,822 common shares, was not included in the
computation of income (loss) per common share during the three and nine months
ended March 31, 2010 and 2009, respectively, because it was
antidilutive.
19
Item
2. Management’s Discussion and Analysis of
Financial Condition and Results of Operations
Management’s
discussion and analysis generally reviews First Place Financial Corp.’s (the
Company) consolidated financial condition and results of
operations. This review should be read in conjunction with the
condensed consolidated financial statements and footnotes.
Business
Overview
The
Company was formed as a thrift holding company as a result of the conversion of
First Place Bank (the Bank), formerly known as First Federal Savings and Loan
Association of Warren, from a federally chartered mutual savings and loan
association to a federally chartered stock savings association in December
1998. First Federal Savings and Loan Association of Warren originally
opened for business in 1922. At the time of the conversion, the
Company had total assets of approximately $610 million. During fiscal
year 2000, the Company acquired Ravenna Savings Bank with total assets of $200
million. During fiscal year 2001, the Company completed a
merger-of-equals with FFY Financial Corp. with total assets of $680
million. During fiscal year 2004, the Company acquired Franklin
Bancorp, Inc. of Southfield, Michigan with total assets of $627
million. During fiscal year 2006, the Company acquired The Northern
Savings & Loan Company of Elyria, Ohio with total assets of $360
million. During fiscal year 2007, the Company acquired seven retail
banking offices from Republic Bancorp, Inc. and Citizens Banking Corporation in
the greater Flint, Michigan area assuming $200 million in
deposits. During fiscal year 2008, the Company acquired Hicksville
Building, Loan and Savings Bank of Hicksville, Ohio with total assets of $53
million and OC Financial, Inc. of Dublin, Ohio with total assets of $68
million.
The
Company is a community-oriented financial institution engaged primarily in
gathering deposits to originate one- to four-family residential mortgage loans,
commercial and consumer loans. The Company currently operates 44
retail locations, 2 business financial service centers and 21 loan production
offices located in Ohio, Michigan, Indiana and Maryland with a concentration of
banking offices in Northeast Ohio and Southeast Michigan. In
addition, the Company owns nonbank subsidiaries that operate in the following
industries: real estate brokerage, title insurance, investment brokerage, wealth
management and general insurance.
The
Company has expanded its asset base and product offerings in order to increase
both fee income and net income. Growth has been achieved by
increasing market share in current markets, expanding into new markets in the
Midwest by opening de novo loan production and retail banking offices and
through acquisitions. The Company evaluates acquisition targets based
on the economic viability of the markets they are in, the degree to which they
can be efficiently integrated into current operations and the degree to which
they are accretive to capital and earnings.
The
Company seeks to provide a return to its shareholders through dividends and
appreciation by taking on various levels of credit risk, interest rate risk,
liquidity risk and capital risk in order to achieve profits. The goal
of achieving high levels of profitability on a consistent basis is balanced with
acceptable levels of risk in each area. The Company monitors a number
of financial measures to assess profitability and various types of
risk. Those measures include but are not limited to income (loss) per
common share, return on average assets, return on average equity, efficiency
ratio, net interest margin, noninterest expense to average assets, loans to
deposits, equity to assets, tangible equity to tangible assets, nonperforming
loans to total loans, nonperforming assets to total assets, allowance for loan
losses to total loans, allowance for loan losses to nonperforming loans and net
portfolio value.
Forward-Looking
Statements
When used
in this Form 10-Q, or in future filings with the Securities and Exchange
Commission (SEC), in press releases or other public or shareholder
communications, or in oral statements made with the approval of an authorized
executive officer, the words or phrases “will likely result,” “expect,” “will
continue,” “anticipate,” “estimate,” “project,” “believe,” “should,” “may,”
“will,” “plan,” or variations of such terms or similar expressions are intended
to identify “forward-looking statements” within the meaning of the Private
Securities Litigation Reform Act of 1995. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors,
which may cause the Company’s actual results to be materially different from
those indicated. Such statements are subject to certain risks and
uncertainties, including changes in economic conditions in the market areas the
Company conducts business that could materially impact credit quality trends,
changes in laws, regulations or policies of regulatory agencies, fluctuations in
interest rates, demand for loans in the market areas the Company conducts
business, and competition, that could cause actual results to differ materially
from historical earnings and those presently anticipated or
projected. The Company wishes to caution readers not to place undue
reliance on any such forward-looking statements, which speak only as of the date
made. The Company undertakes no obligation to publicly release the
result of any revisions that may be made to any forward-looking statements to
reflect events or circumstances after the date of such statements or to reflect
the occurrence of anticipated or unanticipated events.
20
Financial
Condition
General. Assets
totaled $3.209 billion at March 31, 2010, representing a decrease of $195
million, or 5.8%, from $3.404 billion at June 30, 2009. The reduction
was due primarily to decreases of $100 million in portfolio loans, $46 million
in loans held for sale, $31 million in interest-bearing deposits in other banks
and $22 million in securities. Total liabilities decreased by $179
million to $2.944 billion at March 31, 2010, compared to June 30, 2009, due
primarily to a decrease of $260 million in short-term borrowings, partially
offset by increases of $61 million in deposits and $44 million in long-term
debt. Total equity was $265 million at March 31, 2010, representing a
decrease of $17 million, primarily due to the Company’s net loss of $18 million
for the nine months ended March 31, 2010.
The
following table presents certain components of the balance sheet and selected
financial ratios that are indicative of the Company’s financial condition at
March 31, 2010, and June 30, 2009.
Financial
Condition
(Dollars
in thousands)
March 31,
|
June 30,
|
Increase (Decrease)
|
||||||||||||||
2010
|
2009
|
Amount
|
Percent
|
|||||||||||||
Loans
|
$ | 2,368,483 | $ | 2,468,444 | $ | (99,961 | ) | (4.0 | )% | |||||||
Assets
|
3,208,628 | 3,404,467 | (195,839 | ) | (5.8 | ) | ||||||||||
Deposits
|
2,497,257 | 2,435,601 | 61,656 | 2.5 | ||||||||||||
Equity
|
264,864 | 281,479 | (16,615 | ) | (5.9 | ) | ||||||||||
Selected financial ratios
|
||||||||||||||||
Loans
to deposits
|
94.84 | % | 101.35 | % | ||||||||||||
Equity
to assets
|
8.25 | 8.27 | ||||||||||||||
Tangible
equity to tangible assets
|
7.99 | 7.96 | ||||||||||||||
Nonperforming
loans to total loans
|
4.72 | 4.18 | ||||||||||||||
Nonperforming
assets to total assets
|
4.61 | 4.11 | ||||||||||||||
Allowance
for loan losses to total loans
|
2.22 | 1.60 | ||||||||||||||
Allowance
for loan losses to nonperforming loans
|
47.00 | 38.34 |
Securities. The
Company’s securities decreased $22 million to $255 million at March 31, 2010,
from $277 million at June 30, 2009. During the first nine months of
fiscal year 2010, the Company sold $16 million in securities, purchased $36
million in securities and received principal paydowns on mortgage-backed
securities of $40 million.
Significant
reductions in securities are not likely as the Company intends to maintain a
reasonable level of securities to provide adequate liquidity and in order to
have securities available to pledge to secure public deposits, repurchase
agreements and other types of transactions. Fluctuations in the
market value of securities held by the Company relate primarily to changes in
interest rates, and management believes, at the date of this report, that all
declines in market value in the securities portfolio are temporary.
Loans Held for Sale. The Company
engages in mortgage banking as part of an overall strategy to deliver loan
products to customers. As a result, the Company sells most fixed-rate
residential loans originated and a portion of its adjustable-rate residential
loans originated. During the quarter ended March 31, 2010, the
Company sold $326 million in loans compared with sales of $638 million for the
quarter ended March 31, 2009. For the nine months ended March 31,
2010, the Company sold $1.334 billion in loans compared with sales of $1.135
billion for the nine months ended March 31, 2009. The Company was
able to increase the level of sales activity during the first nine months of
fiscal year 2010 compared to the same period in the prior year as a result of
continued favorable long-term interest rates and the addition of experienced
loan officers.
21
Loans
held for sale totaled $331 million at March 31, 2010, compared to $377 million
at June 30, 2009, representing a decrease of $46 million, or
12.2%. The decrease in loans held for sale was due primarily to a
decrease in the volume of mortgage loan originations from $637 million for the
quarter ended June 30, 2009, to $391 million for the quarter ended March 31,
2010. The decrease in mortgage loan originations was due to a lower
volume of refinanced loans. The Company anticipates that it will
continue to sell a majority of the one- to four-family residential loans that it
originates.
Loans. The loan
portfolio totaled $2.368 billion at March 31, 2010, representing a decrease of
$100 million, or 4.0%, from $2.468 billion at June 30, 2009. The
reduction in the loan portfolio was due to decreases of $67 million, or 7.9%, in
mortgage and construction loans, $6 million, or .5%, in commercial loans and $27
million, or 7.3%, in consumer loans. The decrease in all categories
of loans was the result of deteriorating economic conditions, the tightening of
credit underwriting standards during the first nine months of fiscal year 2010
and charged off loans. During the quarter ended March 31, 2010, the
mix of the loan portfolio did not change significantly as commercial loans
accounted for 52.3% of the loan portfolio, mortgage and construction loans
accounted for 33.1% and consumer loans accounted for 14.6%. The
Company anticipates that the volume of the loan portfolio will remain level or
decrease slightly during the remainder of fiscal year 2010 and the mix of the
loan portfolio will remain relatively unchanged from the mix at March 31,
2010.
Delinquent
Loans. Delinquent loans are comprised of loans past due 30 to
89 days and loans on nonaccrual status. The following table shows
delinquent loans for each of the past five quarters.
Delinquent
Loans
(Dollars
in thousands)
March 31,
|
December 31,
|
September 30,
|
June 30,
|
March 31,
|
||||||||||||||||
2010
|
2009
|
2009
|
2009
|
2009
|
||||||||||||||||
Loans
past due 30 – 89 days:
|
||||||||||||||||||||
Mortgage
and construction
|
$ | 22,579 | $ | 25,181 | $ | 28,264 | $ | 29,086 | $ | 26,443 | ||||||||||
Commercial
|
16,180 | 8,440 | 24,477 | 15,226 | 29,323 | |||||||||||||||
Consumer
|
4,738 | 5,032 | 5,874 | 4,559 | 5,873 | |||||||||||||||
Total
loans past due 30 – 89 days
|
43,497 | 38,653 | 58,615 | 48,871 | 61,639 | |||||||||||||||
Loans
on nonaccrual status:
|
||||||||||||||||||||
Mortgage
and construction
|
56,130 | 65,990 | 61,833 | 48,999 | 38,061 | |||||||||||||||
Commercial
|
41,324 | 52,387 | 42,983 | 35,756 | 19,988 | |||||||||||||||
Consumer
|
9,496 | 15,546 | 14,968 | 13,998 | 11,141 | |||||||||||||||
Total
nonaccrual loans
|
106,950 | 133,923 | 119,784 | 98,753 | 69,190 | |||||||||||||||
Total
delinquent loans
|
$ | 150,447 | $ | 172,576 | $ | 178,399 | $ | 147,624 | $ | 130,829 | ||||||||||
Delinquent
loans to total loans
|
6.35 | % | 7.13 | % | 7.28 | % | 5.98 | % | 5.17 | % |
The
decrease in delinquent loans during the current quarter was due primarily to
higher net charge-offs and a decrease in the level of new delinquent loans
compared with prior quarters in the current fiscal year.
22
Nonperforming Assets and Troubled
Debt Restructurings. Nonperforming assets consist of
nonperforming loans and real estate owned. The following table shows
total nonperforming loans and nonperforming assets, the allowance for loan
losses and selected asset quality ratios for the past five
quarters.
Nonperforming
Assets and Allowance for Loan Losses
(Dollars
in thousands)
March 31,
|
December 31,
|
September 30,
|
June 30,
|
March 31,
|
||||||||||||||||
2010
|
2009
|
2009
|
2009
|
2009
|
||||||||||||||||
Nonperforming
assets:
|
||||||||||||||||||||
Nonaccrual
loans
|
$ | 106,950 | $ | 133,923 | $ | 119,784 | $ | 98,753 | $ | 69,190 | ||||||||||
Troubled
debt restructurings accruing interest (a)
|
4,869 | 4,119 | 6,956 | 4,475 | - | |||||||||||||||
Total
nonperforming loans
|
111,819 | 138,042 | 126,740 | 103,228 | 69,190 | |||||||||||||||
Real
estate owned
|
36,239 | 30,726 | 33,123 | 36,790 | 34,969 | |||||||||||||||
Total
nonperforming assets
|
$ | 148,058 | $ | 168,768 | $ | 159,863 | $ | 140,018 | $ | 104,159 | ||||||||||
Allowance
for loan losses
|
$ | 52,554 | $ | 52,473 | $ | 50,643 | $ | 39,580 | $ | 35,766 | ||||||||||
Selected asset quality
ratios
|
||||||||||||||||||||
Nonperforming
loans to total loans
|
4.72 | % | 5.70 | % | 5.17 | % | 4.18 | % | 2.74 | % | ||||||||||
Nonperforming
assets to total assets
|
4.61 | 5.18 | 4.93 | 4.11 | 3.08 | |||||||||||||||
Allowance
for loan losses to total loans
|
2.22 | 2.17 | 2.07 | 1.60 | 1.41 | |||||||||||||||
Allowance
for loan losses to nonperforming loans
|
47.00 | 38.01 | 39.96 | 38.34 | 51.69 |
(a)
|
Troubled
debt restructurings accruing interest are loans that were accruing
interest at the time of restructuring and have been in compliance with
their modified terms for a period of less than six
months.
|
The $26
million decrease in nonperforming loans during the current quarter was due to
decreases of $10 million in mortgage and construction loans, $11 million in
commercial loans and $6 million in consumer loans, partially offset by an
increase of $1 million in troubled debt restructurings accruing
interest. The decrease in nonperforming loans resulted from higher
net charge-offs and a decrease in the level of new nonperforming loans compared
with prior quarters in the current fiscal year. Of the total
nonperforming loans at March 31, 2010, 89% were secured by real
estate. Real estate loans are generally well secured and if these
loans default, the majority of the loan balance, net of any charge-offs, is
usually recovered by liquidating the real estate.
Included
in nonperforming loans at March 31, 2010, were two loans totaling $7 million
that are subject to the borrower’s bankruptcy proceedings described
below. In the third quarter of fiscal year 2009, the Company became
aware that the collateral pledged on these loans was fraudulent and evidenced by
fraudulently altered documents. The Company requested and received
assignments of replacement collateral from the borrower, which the Company now
anticipates will be set aside in a subsequent involuntary bankruptcy
proceeding. During the fourth quarter of fiscal year 2009, the
borrower stopped making payments and the Company placed these loans on
nonaccrual status. Based on the preliminary state of the bankruptcy
proceedings, the amount of any loss on the loans is not estimable at this
time. Therefore, no specific allowance or charge-off was recorded at
March 31, 2010. The Company is also considering legal action against
other parties who may have facilitated the fraudulent activity. If
the total loan balance is not realized through a combination of the bankruptcy
and legal actions, the Company would anticipate recovery on a claim filed under
the Company’s blanket bond insurance policy. The insurance company
has initially denied the claim. However, the Company intends to
pursue the settlement of this claim through negotiation and/or legal
action.
23
In the
normal course of business, the Company continually works with borrowers in
various stages of delinquency. When deemed beneficial for the
borrower and the Company, concessions are made through modifications of current
loan terms with the intention of maximizing the amounts collected on the
loans. These modified loans which are shown in the table below are
considered troubled debt restructurings under current accounting
guidance. Troubled debt restructurings on nonaccrual status and
troubled debt restructurings accruing interest are classified as nonperforming
loans. In the current recessionary economy, these restructurings have
become more prevalent.
Troubled
Debt Restructurings
(Dollars
in thousands)
March 31,
|
December 31,
|
September 30,
|
June 30,
|
March 31,
|
||||||||||||||||
2010
|
2009
|
2009
|
2009
|
2009
|
||||||||||||||||
Troubled
debt restructurings on nonaccrual status
|
$ | 9,463 | $ | 13,063 | $ | 6,956 | $ | 6,051 | $ | 1,984 | ||||||||||
Troubled
debt restructurings accruing interest (a)
|
4,869 | 4,119 | 6,956 | 4,475 | - | |||||||||||||||
Performing
troubled debt restructurings (b)
|
6,419 | 3,759 | 916 | 1,300 | 1,303 | |||||||||||||||
Total
troubled debt restructurings
|
$ | 20,751 | $ | 20,941 | $ | 14,828 | $ | 11,826 | $ | 3,287 |
(a)
|
Troubled
debt restructurings accruing interest are loans that were accruing
interest at the time of restructuring and have been in compliance with
their modified terms for a period of less than six
months.
|
(b)
|
Performing
troubled debt restructurings are loans that have been in compliance with
their modified terms for a period of at least six, but less than twelve
months.
|
Allowance for Loan
Losses. The allowance for loan losses represents management’s
estimate of credit losses inherent in the loan portfolio at each balance sheet
date. All lending activity contains associated risks of loan losses,
although the Company has not engaged in a material fashion in high risk products
such as subprime loans. Each quarter management analyzes the adequacy
of the allowance for loan losses based on a review of the loans in the portfolio
along with an analysis of external factors and historical delinquency and loss
trends. The allowance is developed through four specific components;
(i) the specific allowance for loans subject to individual analysis, (ii) the
allowance for classified loans not otherwise subject to individual analysis,
(iii) the allowance for non-classified loans (primarily homogenous loans), and
(iv) the remaining unallocated balance.
Classified
loans with a balance of $1 million or greater are subject to individual analysis
for impaired loans. Loan classifications are those used by regulators
consisting of (in order of increasing deterioration) Other Assets Especially
Mentioned, Substandard, Doubtful, and Loss. In evaluating each of
these loans for impairment, the measure of expected loss is based on (i) the
present value of the expected future cash flows discounted at the loan’s
effective interest rate, (ii) a loan’s observable market price, or (iii) the
fair value of the collateral if the loan is collateral dependent.
Classified
assets under the $1 million threshold are segregated into twelve loan pools with
similar risk characteristics (one- to four-family, construction, home equity,
etc.). Historic loss rate factors are developed for each loan pool
and the classification with the most recent loss experience is given the most
weight. The factors are used to estimate losses and determine an
allowance for each loan pool and classification.
For the
remaining non-classified loans, a historic net charge-off factor is applied to
each of the twelve loan segments.
The
remaining unallocated allowance relates to other potential risks inherent in the
loan portfolio. Management determines this component using judgment about
qualitative issues as the other three components of the allowance capture those
risks that lend themselves to quantitative analysis.
Each
quarter, management evaluates trends in regional economic conditions that have
the potential to impair the repayment of the loans currently in the Company’s
portfolio. These factors include, but are not limited to, trends in
unemployment, foreclosure and bankruptcy filings, delinquencies, nonperforming
and criticized loans, and charge-offs. The Company believes these metrics
assist in the identification and measurement of losses inherent in the loan
portfolio that have not yet been identified through management’s routine
delinquency monitoring. Based on the direction of these trends, an
appropriate allowance will be quantified.
24
In an
effort to limit the Company’s exposure to real estate related losses, multiple
reviews of credit scores were performed on existing home equity lines over the
past year. In instances where the score had fallen below a
satisfactory level, caps were placed on the lines or the lines were frozen at
their current balance in order to limit exposure in a deteriorating
situation.
Based on
the variables involved and the fact that management must make judgments about
outcomes that are uncertain, the determination of the allowance for loan losses
is considered a critical accounting policy.
The
allowance for loan losses was $53 million at March 31, 2010, up from $40 million
at June 30, 2009, and $36 million at March 31, 2009. Net charge-offs
for the quarter ended March 31, 2010, were $31 million, representing an increase
of $26 million from net charge-offs of $5 million for the quarter ended March
31, 2009. Net charge-offs for the nine months ended March 31, 2010,
were $55 million, representing an increase of $39 million from net charge-offs
of $16 million for the nine months ended March 31,
2009. Approximately $14 million of the increase in net charge-offs
for both the quarterly and year-to-date periods is attributable to aggressive
actions taken by management during the current quarter to revalue approximately
$60 million in delinquent loans secured by one-to four-family residential
properties. Net charge-offs to average loans increased to 5.26% for
the quarter ended March 31, 2010, from .72% for the quarter ended March 31,
2009. Net charge-offs to average loans increased to 2.99% for the
nine months ended March 31, 2010, from .80% for the nine months ended March 31,
2009. The mix and composition of portfolio loans and nonperforming
loans changes from period to period. The ratio of the allowance for
loan losses to nonperforming loans at March 31, 2010, decreased from March 31,
2009, while the ratio of the allowance for loan losses to total loans at March
31, 2010, increased from March 31, 2009. The allowance for loan
losses to nonperforming loans was 47.00% at March 31, 2010, compared with 38.34%
at June 30, 2009, and 51.69% at March 31, 2009. The ratio of the
allowance for loan losses to total loans for the Company was 2.22% at March 31,
2010, compared with 1.60% at June 30, 2009, and 1.41% at March 31,
2009. The ratio of nonperforming loans to total loans was 4.72% at
March 31, 2010, compared with 4.18% at June 30, 2009, and 2.74% at March 31,
2009.
Real Estate
Owned. At March 31, 2010, the Company’s real estate owned
(REO) consisted of 257 repossessed properties with a net book value of $36
million. When a property is acquired, any initial loss is recorded as
a charge to the allowance for loan losses before being transferred from the loan
portfolio to REO. The Company initially records an acquired property
at the fair value of the related asset, less estimated costs to sell the
property. Thereafter, if there is a further deterioration in value, a
specific valuation allowance is established and charged to
expense. The costs to carry REO are charged to expense as
incurred.
Real Estate Held for
Investment. At March 31, 2010, the Company’s real estate held
for investment (REH) consisted of 25 repossessed properties with a net book
value of $8 million. Selected properties are transferred to REH, due
primarily to their ability to generate cash flow from rent
receipts. When a property is acquired, any initial loss is recorded
as a charge to the allowance for loan losses before being transferred from the
loan portfolio to REH. The Company initially records an acquired
property at the fair value of the related asset. The Company also
depreciates REH properties using the straight-line method based on the estimated
useful lives of the assets. Thereafter, if there is a further
deterioration in value, a specific valuation allowance is established through a
charge to expense. The costs to carry REH are charged to expense as
incurred.
Deposits. Total deposits were
$2.497 billion at March 31, 2010, representing an increase of $61 million, or
2.5%, compared to $2.436 billion at June 30, 2009. The increase in
deposits was due primarily to an increase of $85 million in the Company’s retail
branch network, partially offset by a decrease of $24 million in certificates of
deposit obtained through brokers. The increase in retail deposits was
due primarily to increases of $97 million in public funds obtained through
participation in a national referral program and $35 million in public funds of
the State of Ohio, partially offset by a decrease of $47 million in other retail
deposits due to the maturity of higher rate certificates of
deposit. The Company’s participation in a national referral program
brought in approximately $50 million in checking accounts and $47 million in
certificates of deposit during the nine months ended March 31,
2010. The public funds obtained in the national referral program had
similar or lower interest rates than those offered in the Company’s retail
branch network and are not considered brokered deposits. The Company
considers brokered deposits to be an element of a diversified funding strategy
and an alternative to borrowings. Management regularly compares rates
to determine the most economical source of funding. The Company will
continue to consider brokered funds as a funding alternative and as a source of
short-term liquidity, but not as the primary source of funding to support
growth. The Company’s brokered deposit balance cannot exceed
approximately $231 million without the prior approval of its primary regulator,
the Office of Thrift Supervision (OTS). The Company is currently able
to raise $57 million through brokered deposits without prior approval of the
OTS.
25
The
Company participates in the Certificate of Deposit Account Registry Service
(CDARS) program, a network of financial institutions that exchange funds among
members in order to ensure Federal Deposit Insurance Corporation (FDIC)
insurance coverage on customer deposits above the single institution
limit. These deposits are considered brokered deposits and are
included in the brokered deposit totals above. Using a sophisticated
matching system, funds are exchanged on a dollar-for-dollar basis, so that the
equivalent of an original deposit comes back to the originating
institution. Included in certificates of deposit at March 31, 2010,
is a CDARS balance of $74 million, representing a decrease of $37 million from
$111 million at June 30, 2009. With the increase in deposit
insurance, many customers have opted to return to the traditional deposit
accounts.
Short-term Borrowings and Long-term
Debt. During the first nine months of fiscal year 2010,
short-term borrowings decreased $260 million to $63 million at March 31, 2010,
from $323 million at June 30, 2009. The decrease in short-term
borrowings was due primarily to an increase in deposits. Further, the
decreases in loans held for sale and the loan portfolio also reduced the need
for short-term funding. During the first nine months of fiscal year
2010, long-term debt increased $44 million to $379 million at March 31, 2010,
from $335 million at June 30, 2009. The increase in long-term debt
was due to proceeds of $50 million from new long-term debt, partially offset by
a $6 million transfer from long-term debt to short-term
borrowings. The $50 million in new long-term debt included fixed-rate
advances from the Federal Home Loan Bank with original maturities ranging from
38 months to 60 months at rates ranging from 1.71% to 2.69%, with a weighted
average rate of 2.18%. The Company uses short-term borrowings and
long-term debt as part of its liquidity, cash flow, and asset/liability
management in conjunction with a diversified funding
strategy. Short-term borrowings and long-term debt are alternatives
to raising cash through deposit growth and are used when they offer a favorable
alternative to deposits in terms of rate, maturity or
volume. Currently, the parent holding company may not incur
additional debt without OTS approval. For additional information on
short-term borrowings and long-term debt, see Note 6 – Short-Term Borrowings and
Long-Term Debt in the Notes to Condensed Consolidated
Financial Statements and the discussion under the heading Liquidity and Cash
Flows.
Capital
Resources. During the first nine months of fiscal year 2010,
total shareholders’ equity decreased by $17 million, or 5.9%, to $265 million at
March 31, 2010, from $282 million at June 30, 2009. The decrease was
primarily composed of the net loss of $18 million and $3 million in dividends
paid on the Company’s preferred stock, partially offset by an increase of $4
million in unrealized gains on securities available for sale. Total
equity to total assets was 8.25% at March 31, 2010, down from 8.27% at June 30,
2009. Tangible equity to tangible assets was 7.99% at March 31, 2010,
up from 7.96% at June 30, 2009.
In
connection with the issuance of the preferred stock and common stock warrant to
the Treasury in 2009, the ability to declare or pay dividends on the Company’s
common shares is limited to $.085 per share per quarter, and only if all
dividends have been paid on the Series A preferred shares. The
Company’s ability to pay dividends on common shares is further limited by
restrictions of the OTS as described under the heading Liquidity and Cash
Flows. In addition, the Company’s ability to repurchase common
shares is subject to the approval of the Treasury, provided there are no
payments in arrears on the Series A preferred share dividends.
The OTS
regulations require savings institutions to maintain certain minimum levels of
regulatory capital. Additionally, the regulations establish a
framework for the classification of savings institutions into five categories:
well-capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized and critically undercapitalized. At March 31, 2010,
the Bank’s capital levels exceeded the levels required to be
well-capitalized. A comparison between the Bank’s actual capital
ratios to the ratios required to be well-capitalized under OTS regulations at
March 31, 2010, and June 30, 2009 is presented below.
Actual ratios
|
Actual ratios
|
Well-capitalized
|
||||||||||
at March 31, 2010
|
at June 30, 2009
|
ratios
|
||||||||||
Total
risk-based capital ratio
|
13.03 | % | 12.37 | % | 10.00 | % | ||||||
Tier
1 risk-based capital ratio
|
11.78 | 11.23 | 6.00 | |||||||||
Tangible
equity ratio
|
8.67 | 8.16 | 5.00 |
26
Off-balance
Sheet Arrangements
See Note 8 - Commitments, Contingencies
and Guarantees in the Notes to Condensed Consolidated
Financial Statements for a discussion of off-balance sheet
arrangements.
Results
of Operations
Comparison
of the Three and Nine Months Ended March 31, 2010 and 2009
The
following table presents the Company’s results of operations and selected
financial ratios for the three and nine months ended March 31, 2010 and
2009.
Results
of Operations
(Dollars
in thousands, except per share data)
Three months ended
|
Nine months ended
|
|||||||||||||||
March 31,
|
March 31,
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
Net
income (loss)
|
$ | (13,018 | ) | $ | 2,541 | $ | (18,339 | ) | $ | (97,715 | ) | |||||
Income
(loss) attributable to common shareholders
|
(14,110 | ) | 2,325 | (21,612 | ) | (97,931 | ) | |||||||||
Diluted
income (loss) per common share
|
(.85 | ) | .14 | (1.30 | ) | (5.91 | ) | |||||||||
Selected financial ratios
|
||||||||||||||||
Return
on average assets
|
(1.64 | )% | .31 | % | (.76 | )% | (3.91 | )% | ||||||||
Return
on average equity
|
(19.28 | ) | 4.46 | (8.82 | ) | (45.73 | ) | |||||||||
Net
interest margin, fully taxable-equivalent
|
3.70 | 2.85 | 3.58 | 2.89 | ||||||||||||
Efficiency
ratio
|
63.87 | 69.33 | 63.86 | 198.25 | ||||||||||||
Noninterest
expense to average assets
|
3.36 | 2.80 | 3.15 | 6.44 |
Summary. Net loss
for the quarter ended March 31, 2010, was $13.0 million, compared with net
income of $2.5 million for the quarter ended March 31, 2009. The
decrease in results was due primarily to an increase of $24.3 million in the
provision for loan losses, partially offset by an increase of $5.4 million in
net interest income and a reduction of $3.9 million in income
taxes. Included in income taxes for the current quarter is a $2.7
million charge recorded to establish a valuation allowance on deferred tax
assets. In future periods, the Company anticipates that it will have
an effective tax rate near zero until such time as it is able to reverse the
deferred tax asset allowance. After deducting preferred stock
dividends and discount accretion of $1.1 million from the net loss of $13.0
million, the loss attributable to common shareholders was $14.1
million.
Net loss
for the nine months ended March 31, 2010, was $18.3 million compared with a net
loss of $97.7 million for the nine months ended March 31, 2009. The
overriding factor for the nine months ended March 31, 2009, was the goodwill
impairment charge of $92.1 million after tax. Excluding the after-tax
goodwill impairment charge, net loss for the nine months ended March 31, 2010,
increased $12.7 million compared to the same period in the prior
year. The increase in net loss was due primarily to increases of
$44.2 million in the provision for loan losses and $9.0 million in noninterest
expense, partially offset by increases of $14.4 million in net interest income
and $23.9 in noninterest income. The increase in net interest income
was due to a reduction of $25.5 million in interest expense, partially offset by
a decline of $11.1 million in interest income. The increase in
noninterest income was due primarily to the prior period charge of $12.4 million
for the decline in the fair value of securities, including Fannie Mae preferred
stock, which the Company has since sold, and a mortgage-backed securities mutual
fund, along with increases of $3.9 million in mortgage banking gains and $3.5
million in loan servicing income. The preferred stock dividends and
discount accretion of $3.3 million, in addition to the net loss of $18.3
million, resulted in a loss attributable to common shareholders of $21.6
million.
The
current economic conditions continued to significantly affect the banking
industry and the Company’s financial results for the third quarter and first
nine months of fiscal year 2010. The provision for loan losses
increased 357.6% for the quarter ended March 31, 2010, compared to the same
period in the prior year. For the nine months ended March 31, 2010,
the provision for loan losses increased 189.3% compared to the same period in
the prior year. The ratio of nonperforming loans to total loans
increased to 4.72% at March 31, 2010, compared with 4.18% at June 30,
2009. The allowance for loan losses to total loans was 2.22% at March
31, 2010, compared with 1.60% at June 30, 2009.
27
Explanation of Certain Non-GAAP
Measures. This Form 10-Q contains
certain financial information determined by methods other than
GAAP. Specifically, the Company has provided financial measures that
are based on core results rather than net income (loss). Ratios and
other financial measures with the word “core” in their title were computed using
core results rather than net income (loss). Core income excludes
merger, integration and restructuring charges, goodwill impairment,
extraordinary income or expense, income or expense from discontinued operations,
and income, charges, gains and losses that are not reflective of ongoing
operations or that the Company does not expect to reoccur. In
addition to core results, the Company has provided the non-GAAP measure of fully
taxable equivalent net interest income, which includes an adjustment to interest
income earned on tax-free loans and securities to make them comparable to
interest-earning assets that are fully taxable. Management believes
that this information is useful to both investors and to management and can aid
in understanding the Company’s current performance, performance trends and
financial condition. While core income can be useful in evaluating
current performance and projecting current trends into the future, management
does not believe that core income is a substitute for GAAP net income
(loss). Investors and others are encouraged to use core results as a
supplemental tool for analysis and not as a substitute for GAAP net income
(loss). The Company’s non-GAAP measures may not be comparable to the
non-GAAP numbers of other companies. In addition, future results of
operations may include nonrecurring items that would not be included in core
results.
For the
quarters ended March 31, 2010 and 2009, there were no differences between net
income (loss) and core income (loss). For the nine months ended March
31, 2010, the core loss excludes merger, integration and restructuring charges
of $.2 million after tax. For the nine months ended March 31, 2009,
the core loss excludes merger, integration and restructuring charges of $.7
million after tax and goodwill impairment of $92.1 million after
tax. A reconciliation of net income (loss) to the non-GAAP measure of
core income (loss), along with selected core financial ratios is shown
below.
Results
of Core Operations
(Dollars
in thousands, except per share data)
Three months ended
|
Nine months ended
|
|||||||||||||||
March 31,
|
March 31,
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
Reconciliation
of net income (loss) to core income (loss)
(non-GAAP)
|
||||||||||||||||
Net
income (loss)
|
$ | (13,018 | ) | $ | 2,541 | $ | (18,339 | ) | $ | (97,715 | ) | |||||
Goodwill
impairment, net of tax
|
- | - | - | 92,139 | ||||||||||||
Merger,
integration and restructuring charges, net of tax
|
- | - | 193 | 721 | ||||||||||||
Core
income (loss)
|
(13,018 | ) | 2,541 | (18,146 | ) | (4,855 | ) | |||||||||
Preferred
stock dividends and discount accretion
|
1,092 | 216 | 3,273 | 216 | ||||||||||||
Core
income (loss) attributable to common shareholders
|
$ | (14,110 | ) | $ | 2,325 | $ | (21,419 | ) | $ | (5,071 | ) | |||||
Core
income (loss) per common share
|
$ | (.85 | ) | $ | .14 | $ | (1.29 | ) | $ | (.31 | ) | |||||
|
||||||||||||||||
Selected
core financial ratios
|
||||||||||||||||
Return
on average assets
|
(1.64 | )% | .31 | % | (.75 | )% | (.19 | )% | ||||||||
Return
on average equity
|
(19.28 | ) | 4.46 | (8.73 | ) | (2.27 | ) | |||||||||
Net
interest margin, fully taxable equivalent
|
3.70 | 2.85 | 3.58 | 2.89 | ||||||||||||
Efficiency
ratio
|
63.87 | 69.33 | 63.61 | 81.43 | ||||||||||||
Noninterest
expense to average assets
|
3.36 | 2.80 | 3.14 | 2.64 |
The
reasons for the changes in core results, core results attributable to common
shareholders and the selected core financial ratios for the three and nine
months ended March 31, 2010, compared with the three and nine months ended March
31, 2009, are not significantly different from the reasons used to describe
changes in the GAAP results and financial ratios for the same
periods.
28
Net Interest
Income. The following tables provide important information on
factors impacting net interest income and should be reviewed in conjunction with
this discussion of net interest income. Interest income and the
resulting yields in the following table are stated on a fully taxable equivalent
basis. Therefore, they will vary slightly form interest income in the
Condensed Consolidated Statements of Income.
Average
Balances, Interest and Yields/Rates
(Dollars in
thousands)
Three months ended
March 31, 2010
|
Three months ended
March 31, 2009
|
|||||||||||||||||||||||
Average
|
Average
|
|||||||||||||||||||||||
Balance
|
Interest
|
Yield/rate
|
Balance
|
Interest
|
Yield/rate
|
|||||||||||||||||||
ASSETS
|
||||||||||||||||||||||||
Interest-earning
assets:
|
||||||||||||||||||||||||
Loans
and loans held for sale
|
$ | 2,642,503 | $ | 35,123 | 5.39 | % | $ | 2,730,074 | $ | 38,735 | 5.75 | % | ||||||||||||
Securities
and interest-bearing deposits
|
335,067 | 3,103 | 3.70 | 374,827 | 3,640 | 3.88 | ||||||||||||||||||
Federal
Home Loan Bank stock
|
35,041 | 394 | 4.56 | 36,221 | 387 | 4.33 | ||||||||||||||||||
Total
interest-earning assets
|
3,012,611 | 38,620 | 5.20 | 3,141,122 | 42,762 | 5.52 | ||||||||||||||||||
Noninterest-earning
assets:
|
||||||||||||||||||||||||
Cash
and due from banks
|
45,711 | 45,431 | ||||||||||||||||||||||
Allowance
for loan losses
|
(58,528 | ) | (34,959 | ) | ||||||||||||||||||||
Other
assets
|
213,359 | 180,375 | ||||||||||||||||||||||
Total
assets
|
$ | 3,213,153 | $ | 3,331,969 | ||||||||||||||||||||
LIABILITIES
|
||||||||||||||||||||||||
Interest-bearing
liabilities:
|
||||||||||||||||||||||||
Deposits:
|
||||||||||||||||||||||||
Interest-bearing
checking accounts
|
$ | 250,397 | 136 | .22 | $ | 166,548 | 189 | .46 | ||||||||||||||||
Savings
and money market deposit accounts
|
750,137 | 1,205 | .65 | 678,196 | 2,250 | 1.35 | ||||||||||||||||||
Certificates
of deposit
|
1,226,709 | 5,651 | 1.87 | 1,492,659 | 12,750 | 3.46 | ||||||||||||||||||
Total
deposits
|
2,227,243 | 6,992 | 1.27 | 2,337,403 | 15,189 | 2.64 | ||||||||||||||||||
Borrowings:
|
||||||||||||||||||||||||
Short-term
borrowings
|
84,477 | 514 | 2.47 | 149,816 | 1,473 | 3.99 | ||||||||||||||||||
Long-term
debt
|
367,026 | 3,652 | 4.04 | 357,847 | 4,061 | 4.60 | ||||||||||||||||||
Total
interest-bearing liabilities
|
2,678,746 | 11,158 | 1.69 | 2,845,066 | 20,723 | 2.95 | ||||||||||||||||||
Noninterest-bearing
liabilities:
|
||||||||||||||||||||||||
Noninterest-bearing
checking accounts
|
247,710 | 229,367 | ||||||||||||||||||||||
Other
liabilities
|
12,882 | 26,381 | ||||||||||||||||||||||
Total
liabilities
|
2,939,338 | 3,100,814 | ||||||||||||||||||||||
Shareholders’
equity
|
273,815 | 231,155 | ||||||||||||||||||||||
Total
liabilities and shareholders’ equity
|
$ | 3,213,153 | $ | 3,331,969 | ||||||||||||||||||||
Fully
taxable equivalent net interest income
|
27,462 | 22,039 | ||||||||||||||||||||||
Interest
rate spread
|
3.51 | 2.57 | ||||||||||||||||||||||
Net
interest margin, fully taxable equivalent
|
3.70 | 2.85 | ||||||||||||||||||||||
Average
interest-earning assets to average
|
||||||||||||||||||||||||
interest-bearing
liabilities
|
112.46 | 110.41 | ||||||||||||||||||||||
Taxable
equivalent adjustment
|
355 | 354 | ||||||||||||||||||||||
Net
interest income
|
$ | 27,107 | $ | 21,685 |
29
Average
Balances, Interest and Yields/Rates
(Dollars
in thousands)
Nine months ended
March 31, 2010
|
Nine months ended
March 31, 2009
|
|||||||||||||||||||||||
Average
|
Average
|
|||||||||||||||||||||||
Balance
|
Interest
|
Yield/rate
|
Balance
|
Interest
|
Yield/rate
|
|||||||||||||||||||
ASSETS
|
||||||||||||||||||||||||
Interest-earning
assets:
|
||||||||||||||||||||||||
Loans
and loans held for sale
|
$ | 2,693,365 | $ | 109,241 | 5.40 | % | $ | 2,713,207 | $ | 118,903 | 5.84 | % | ||||||||||||
Securities
and interest-bearing deposits
|
303,791 | 9,815 | 4.31 | 340,590 | 11,320 | 4.43 | ||||||||||||||||||
Federal
Home Loan Bank stock
|
35,076 | 1,231 | 4.68 | 36,069 | 1,308 | 4.83 | ||||||||||||||||||
Total
interest-earning assets
|
3,032,232 | 120,287 | 5.28 | 3,089,866 | 131,531 | 5.67 | ||||||||||||||||||
Noninterest-earning
assets:
|
||||||||||||||||||||||||
Cash
and due from banks
|
46,589 | 43,395 | ||||||||||||||||||||||
Allowance
for loan losses
|
(52,936 | ) | (33,941 | ) | ||||||||||||||||||||
Other
assets
|
196,760 | 231,274 | ||||||||||||||||||||||
Total
assets
|
$ | 3,222,645 | $ | 3,330,594 | ||||||||||||||||||||
LIABILITIES
|
||||||||||||||||||||||||
Interest-bearing
liabilities:
|
||||||||||||||||||||||||
Deposits:
|
||||||||||||||||||||||||
Interest-bearing
checking accounts
|
$ | 205,123 | 283 | .18 | $ | 161,732 | 647 | .53 | ||||||||||||||||
Savings
and money market deposit accounts
|
741,639 | 3,845 | .69 | 720,343 | 9,495 | 1.76 | ||||||||||||||||||
Certificates
of deposit
|
1,216,530 | 21,066 | 2.31 | 1,367,226 | 36,467 | 3.55 | ||||||||||||||||||
Total
deposits
|
2,163,292 | 25,194 | 1.55 | 2,249,301 | 46,609 | 2.76 | ||||||||||||||||||
Borrowings:
|
||||||||||||||||||||||||
Short-term
borrowings
|
165,720 | 2,831 | 2.28 | 140,296 | 4,173 | 3.97 | ||||||||||||||||||
Long-term
debt
|
347,677 | 10,876 | 4.18 | 397,386 | 13,640 | 4.58 | ||||||||||||||||||
Total
interest-bearing liabilities
|
2,676,689 | 38,901 | 1.94 | 2,786,983 | 64,422 | 3.08 | ||||||||||||||||||
Noninterest-bearing
liabilities:
|
||||||||||||||||||||||||
Noninterest-bearing
checking accounts
|
250,923 | 231,445 | ||||||||||||||||||||||
Other
liabilities
|
18,186 | 27,521 | ||||||||||||||||||||||
Total
liabilities
|
2,945,798 | 3,045,949 | ||||||||||||||||||||||
Shareholders’
equity
|
276,847 | 284,645 | ||||||||||||||||||||||
Total
liabilities and shareholders’ equity
|
$ | 3,222,645 | $ | 3,330,594 | ||||||||||||||||||||
Fully
taxable equivalent net interest income
|
81,386 | 67,109 | ||||||||||||||||||||||
Interest
rate spread
|
3.34 | 2.59 | ||||||||||||||||||||||
Net
interest margin, fully taxable equivalent
|
3.58 | 2.89 | ||||||||||||||||||||||
Average
interest-earning assets to average
|
||||||||||||||||||||||||
interest-bearing
liabilities
|
113.28 | 110.87 | ||||||||||||||||||||||
Taxable
equivalent adjustment
|
1,059 | 1,166 | ||||||||||||||||||||||
Net
interest income
|
$ | 80,327 | $ | 65,943 |
30
Net
interest income for the quarter ended March 31, 2010, totaled $27.1 million, an
increase of $5.4 million or 25.0% from $21.7 million for the quarter ended March
31, 2009. The improvement reflected an 85 basis point increase in the
net interest margin to 3.70% for the current quarter from 2.85% for the same
quarter in the prior year. Net interest income for the nine months
ended March 31, 2010, totaled $80.3 million, an increase of $14.4 million or
21.8% from $65.9 million for the nine months ended March 31,
2009. The improvement reflected a 69 basis point increase in the net
interest margin to 3.58% for the nine months ended March 31, 2010, from 2.89%
for the nine months ended March 31, 2009. The increase in the net
interest margin for the three and nine months ended March 31, 2010, was due
primarily to lower funding costs as higher costing certificates of deposit
originated in prior periods continue to mature and reprice at current market
rates. In addition, since June 30, 2009, borrowings with higher interest rates
have matured, thereby contributing to the improvement.
The net
interest margin has continued to be affected by the Federal Reserve’s response
to the national credit crisis – the continued historically low, targeted federal
funds rate that ranges from zero to 25 basis points. With
approximately 88% of the Company’s interest-earning assets in loans and the mix
of loans in the portfolio changing to include a greater percentage of commercial
loans, many of which carry yields based on a variable rate index, the yield on
interest-earning assets declined 32 and 39 basis points for the three and nine
months ended March 31, 2010, respectively, compared with the same periods in the
prior year.
The
Federal Reserve’s rate reductions also had an impact on the liability side of
the balance sheet. The average rate paid on interest-bearing
liabilities was 1.69% for the quarter ended March 31, 2010, compared to 2.95%
for the same quarter in the prior year, a decrease of 126 basis
points. Deposits were approximately 83% of interest-bearing
liabilities and experienced cost reductions of 137 basis points for the quarter
ended March 31, 2010, compared to the same quarter in the prior
year. For the nine months ended March 31, 2010, the average rate paid
on interest-bearing liabilities was 1.94% compared to 3.08% for the same period
in the prior year, a decrease of 114 basis points. For the nine
months ended March 31, 2010, deposits were approximately 81% of interest-bearing
liabilities and experienced cost reductions of 121 basis points compared to the
same period in the prior year. The decrease in the average cost of
deposits was due to the continued low interest rates, influenced by government
monetary policy, which resulted in certificates of deposit and nonmaturity
deposit accounts repricing at much lower interest rates. In the prior
year, the mix within deposits shifted to the higher paying certificates of
deposit, as customers were unsatisfied with savings and money market
rates. During that time, and as a result of the national credit
crisis, higher-than-market rates were offered by other financial institutions
across the Company’s footprint, thereby keeping the Company’s certificate rates
somewhat higher than the Company would have normally paid.
Provision for Loan
Losses. The provision for loan losses represents the charge to
income necessary to adjust the allowance for loan losses to an amount that
represents management’s assessment of the estimated credit losses inherent in
the loan portfolio. For a more detailed discussion of management’s
assessment of the allowance for loan losses, see Allowance for Loan Losses
section under Financial
Condition in Management’s Discussion and
Analysis of this Form 10-Q.
The
following table presents the Company’s provision for loan losses and net
charge-offs for the three and nine months ended March 31, 2010 and 2009, along
with the ratio of net charge-offs to average loans.
Three months ended
|
Nine months ended
|
|||||||||||||||||||||||||||||||
March 31,
|
March 31,
|
|||||||||||||||||||||||||||||||
Increase
|
Increase
|
|||||||||||||||||||||||||||||||
2010
|
2009
|
Amount
|
Percent
|
2010
|
2009
|
Amount
|
Percent
|
|||||||||||||||||||||||||
(Dollars in thousands)
|
||||||||||||||||||||||||||||||||
Provision
for loan losses
|
$ | 31,100 | $ | 6,797 | $ | 24,303 | 357.6 | % | $ | 67,600 | $ | 23,364 | $ | 44,236 | 189.3 | % | ||||||||||||||||
Net
charge-offs
|
31,019 | 4,609 | 26,410 | 573.0 | 54,626 | 15,815 | 38,811 | 245.4 | ||||||||||||||||||||||||
Excess
provision for loan losses
over net charge-offs
|
$ | 81 | $ | 2,188 | $ | 12,974 | $ | 7,549 | ||||||||||||||||||||||||
Net
charge-offs to average
loans
|
5.26 | % | .72 | % | 2.99 | % | .80 | % |
31
Nonperforming
loans decreased $26.2 million or 19.0% during the current quarter to $111.8
million at March 31, 2010. The allowance for loan losses was
increased to a level deemed adequate by management, after review, to cover the
current estimated credit losses inherent in the loan portfolio. The
allowance for loan losses to total loans increased from 1.60% at June 30, 2009,
to 2.22% at March 31, 2010.
Noninterest
Income. Noninterest income totaled $14.2 million for the
quarter ended March 31, 2010, compared with $11.1 million in the same quarter in
the prior year. The increase in the current quarter over the prior
year quarter was due primarily to increases of $1.7 million in loan servicing
income, $.7 million in net gains on sales of securities, $.5 million in the fair
value of securities and $1.1 million in other income. These increases
were partially offset by a decrease of $1.0 million in mortgage banking
gains.
Noninterest
income totaled $38.0 million for the nine months ended March 31, 2010, compared
with $14.1 million for the nine months ended March 31, 2009. The
increase for the first nine months of fiscal year 2010 over the same period in
the prior year was due primarily to the prior year charge of $12.4 million for
the decline in the fair value of Fannie Mae preferred stock, which the Company
has since sold, and a mortgage-backed securities mutual fund. This
prior year charge, along with current period increases of $3.9 million in
mortgage banking gains, $3.5 million in loan servicing income and $1.8 million
in service charges and fees on deposit accounts, made up the majority of the
increase in noninterest income for the nine months ended March 31, 2010, over
the same period in the prior year.
Effective
July 1, 2008, the Company elected to account for certain equity investments and
a mortgage-backed securities mutual fund at fair value under ASC
820. There was no impact to adopting fair value for these securities
as of July 1, 2008, as the Company had previously recorded them at fair value on
June 30, 2008, under the other-than-temporary impairment
guidelines. The $12.4 million decline in the fair value of securities
for the nine months ended March 31, 2009, was due primarily to a decline in the
fair value of Fannie Mae preferred stock and, to a lesser extent, the decline in
the fair value of the mutual fund investment. The decline in the fair
value of Fannie Mae preferred stock was caused by government actions placing
Fannie Mae under conservatorship and suspending future dividends. All
Fannie Mae preferred stock was sold during fiscal year 2009. The
decline in the value of the mutual fund investment was due to increases in the
spreads between the yield of the underlying mortgage-backed securities and
treasury yields related to credit quality concerns.
Mortgage
banking gains decreased 14.2% or $1.0 million to $5.8 million for the quarter
ended March 31, 2010, compared with $6.8 million for the quarter ended March 31,
2009. The decrease was due primarily to the lower volume of sold
loans, $326 million in the current quarter, compared with $638 million for the
same quarter in the prior year. The decline in volume was partially
offset by the margin on sold loans averaging 180 basis points for the current
quarter compared with 107 basis points for the same quarter in the prior
year. For the nine months ended March 31, 2010, mortgage banking
gains increased 36.4%, or $3.9 million, to $14.6 million compared with $10.7
million for the nine months ended March 31, 2009. The increase was
due primarily to the higher volume of sold loans, $1.334 billion for the nine
months ended March 31, 2010, compared with $1.135 billion for the same period in
the prior year. In addition, the margin on sold loans averaged 109
basis points for the nine months ended March 31, 2010, compared with 94 basis
points for the same period in the prior year. The level of loan
originations, sales and gains on the sales of loans are all results that tend to
vary inversely with interest rates. Loan activity tends to increase
as interest rates decrease and to decrease as interest rates
increase. In conjunction with favorable long-term mortgage interest
rates during the three and nine month periods ended March 31, 2010, the Company
was able to increase mortgage banking activity levels by selectively adding
experienced, successful loan officers and by concentrating on servicing
customers seeking to refinance their existing homes. For the quarter
ended March 31, 2010, 36% of the loans sold also included the sale of the
mortgage servicing rights (MSRs) on those loans compared with 26% for the same
quarter in the prior year. For the nine months ended March 31, 2010,
35% of the loans sold also included the sale of MSRs on those loans compared
with 34% for the same period in the prior year. As a result of the
continued low interest rate environment, the Company anticipates that the value
of its MSRs on sold loans with historically low interest rates will increase in
the future due to the change in value that is related to a possible rise in
interest rates and the related decline in prepayment speeds.
Loan
servicing income is composed of the current fees generated from the servicing of
sold loans less the current amortization of MSRs and the adjustment for any
change in the allowance for impairment of MSRs, which are valued at the lower of
cost or market. The valuation of MSRs is a critical accounting policy
and the Company utilizes the services of an independent firm to determine market
value. Both the amortization and the valuation of MSRs are sensitive
to movements in interest rates. Amortization and impairment valuation
allowances both tend to increase as rates fall and tend to decrease as rates
rise. However, the level of amortization is a function of interest
rates over the period while the level of impairment valuation allowances is a
function of interest rates at the end of the period. During the past
two years, both short-term and long-term interest rates have varied
significantly and have not moved in tandem, resulting in significant shifts in
the shape and slope of the yield curve. The level and variability in
interest rates over that period have resulted in significant variations in loan
servicing income, including changes in the level of impairment of
MSRs. The table below shows how the change in the valuation of MSRs
has impacted loan servicing income over the periods indicated.
32
Three months ended
|
Nine months ended
|
|||||||||||||||
March 31,
|
March 31,
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
(Dollars in thousands)
|
||||||||||||||||
Loan
servicing income (expense):
|
||||||||||||||||
Loan
servicing revenue, net of amortization
|
$ | 329 | $ | (1,235 | ) | $ | 664 | $ | (856 | ) | ||||||
MSRs
valuation recovery (loss)
|
370 | 226 | 834 | (1,137 | ) | |||||||||||
Total
loan servicing income (expense)
|
$ | 699 | $ | (1,009 | ) | $ | 1,498 | $ | (1,993 | ) |
For both
the three and nine month periods ended March 31, 2010, the increase in loan
servicing income was primarily due to the reduction in impairment of
MSRs. The decrease in impairment in the three and nine month periods
ended March 31, 2010, was primarily due to a significantly greater portion of
the portfolio comprised of loans with interest rates at 5.50% or lower compared
to the same periods in the prior year. This shift extended the
anticipated life and earnings potential of the portfolio. At March
31, 2010, there was $.2 million of allowance for impairment of
MSRs.
Over the
past several years, the volume and dollar value of MSRs has been growing more
rapidly than total assets on a percentage basis. As a result, the
Company’s exposure to volatility in mortgage banking revenue has also
increased. In order to reduce exposure to volatility due to rapid
payoffs or impairment, the Company sold MSRs in fiscal year 2008 and fiscal year
2006. There were no sales of MSRs in the three month period ended
March 31, 2010. The $.7 million gain on sale of MSRs in the first
nine months of fiscal year 2010 represented the final resolution of
contingencies related to the 2008 and 2006 sales of MSRs.
The
Company monitors the level of its investment in MSRs in relation to its other
activities in order to limit its exposure to significant fluctuations in loan
servicing income. In addition, the Company may sell MSRs in the
future depending on the size of the servicing asset relative to total assets and
based on the current market for the sale of MSRs.
Service
charges and fees on deposit accounts increased $.1 million, or 2.9%, to $2.8
million for the quarter ended March 31, 2010, compared with $2.7 million for the
quarter ended March 31, 2009. For the nine months ended March 31,
2010, service charges and fees on deposit accounts increased $1.8 million, or
24.4%, to $9.1 million compared with $7.3 million for the nine months ended
March 31, 2009. For both the three and nine month periods ended March
31, 2010, the increase was due primarily to the impact of overdraft fee
income.
Net gains
on sales of securities were $.7 million for the three months ended March 31,
2010, compared to nominal gains in the same quarter of the prior
year. Net gains on sales of securities increased $.4 million to $.7
million for the nine months ended March 31, 2010, compared with net gains of $.3
million for the nine months ended March 31, 2009. Securities may be
sold to respond to liquidity needs, to impact interest rate risk, to maximize
total returns on securities or to minimize losses on securities in anticipation
of changes in interest rates. However, the purchase and sale of
securities do play a significant part in managing the overall liquidity, credit
and interest rate risk of the Company.
Noninterest Expense.
Noninterest expense for the quarter ended March 31, 2010, was $26.6
million, representing an increase of $3.6 million, or 15.7%, compared with $23.0
million for the same quarter in the prior year. The increase in
noninterest expense was due primarily to increases of $.6 million in salaries
and employee benefits, $.8 million in loan expenses, $.5 million in FDIC
premiums and $1.0 million in other expenses. Annualized noninterest
expense to average assets increased to 3.36% for the quarter ended March 31,
2010, from 2.80% for the same quarter in the prior year. There were
no differences between noninterest expense and core noninterest expense for the
quarters ended March 31, 2010 and 2009.
33
Noninterest
expense for the first nine months of fiscal year 2010 was $76.2 million,
representing a decrease of $84.7 million, or 52.6%, compared with $161.0 million
for the same period in the prior year. The primary cause of the
decrease in noninterest expense was the prior year pre-tax goodwill impairment
charge of $93.7 million. The remaining portion of the change in
noninterest expense was due primarily to increases of $1.0 million in salaries
and employee benefits, $2.5 million in loan expenses, $1.9 million in FDIC
premiums and $1.1 million in real estate owned expense, partially offset by a
decrease of $.8 million in merger, integration and restructuring
charges. The increase in loan expenses was due primarily to an
increase in costs related to a higher volume of mortgage loan originations and
nonperforming loans. Annualized noninterest expense to average assets
decreased to 3.15% for the nine months ended March 31, 2010, from 6.44% for the
same period in the prior year. Core noninterest expense for the nine
months ended March 31, 2010, excludes $.3 million in merger, integration and
restructuring charges. For the nine months ended March 31, 2009, core
noninterest expense excludes the $93.7 million charge for goodwill impairment
and $1.1 million in merger, integration and restructuring
charges. Core noninterest expense for the nine months ended March 31,
2010, was $75.9 million, representing an increase of $9.8 million, or 14.9%,
over core noninterest expense of $66.1 million for the same period in the prior
year. The increase was due primarily to increases in salaries and
employee benefits, loan expenses, FDIC premiums and real estate owned
expense. Core noninterest expense to average assets increased to
3.14% for the nine months ended March 31, 2010, from 2.64% for the same period
in the prior year.
Income Taxes. An
income tax benefit of $3.4 million was recorded for the quarter ended March 31,
2010, attributable to a pre-tax loss of $16.4 million, compared with income tax
expense of $.5 million for the quarter ended March 31, 2009, attributable to the
pre-tax income of $3.0 million. The income tax benefit of $3.4
million is comprised of a $6.1 million benefit due to the pre-tax loss for the
current quarter and a $2.7 million charge to establish a valuation allowance on
deferred tax assets that may not be realized. In future periods, the
Company anticipates that it will have an effective tax rate near zero until such
time as it is able to reverse the allowance. For the nine months
ended March 31, 2010, the Company recorded an income tax benefit of $7.2
million, consisting of a $9.9 million benefit attributable to the pre-tax loss
of $25.5 million and the $2.7 million charge discussed above. This
compares with an income tax benefit of $6.6 million for the nine months ended
March 31, 2009, attributable to the pre-tax loss of $104.3 million.
The
Company ordinarily applies an annual effective tax rate, which is an annual
forecast of tax expense or benefit as a percentage of expected full year pre-tax
income or loss (an annual effective tax rate approach). Under this
approach, a company would record income tax expense or benefit based on the
application of the most recent estimated annual effective tax rate to a
company’s pre-tax income or loss for the interim period. The Company
generates an annual effective tax rate that is less than the statutory rate of
35% due to benefits resulting from tax-exempt interest, excludible dividend
income, and tax benefits associated with Low Income Housing Tax Credit, where
such benefits are relatively consistent from year to year regardless of the
level of pre-tax income. The Company used the annual effective tax
rate approach for the three and nine month periods ended March 31,
2009.
Due to
the consistent level of tax benefits that reduce the Company’s tax rate below
the 35% statutory rate and the difficulty in projecting annual pre-tax income
for the fiscal year ending June 30, 2010, management expects that
the discrete method, (based on the period’s actual income tax
calculation), will provide a more accurate correlation to year-to-date
results. Accordingly, the income tax benefits recognized for the
three and nine month periods ended March 31, 2010, are based on actual results
and tax benefits generated in those periods, net of any valuation allowance
adjustments required for deferred tax assets.
Liquidity
and Cash Flows
Liquidity
is the Company’s ability to generate adequate cash flows to meet the demands of
its customers and provide adequate flexibility for the Company to take advantage
of market opportunities. Cash is used to fund loans, purchase
investments, fund the maturity of liabilities, and, at times, to fund deposit
outflows and operating activities. The Company’s principal sources of
funds are deposits; amortization, prepayments and sales of loans; maturities,
sales and principal receipts from securities; borrowings; the issuance of debt
or equity securities and operations. Managing liquidity entails
balancing the need for cash or the ability to borrow against the objectives of
maximizing profitability and minimizing interest rate risk. The most
liquid types of assets typically carry the lowest yields.
Since the
conservatorship of Fannie Mae and Freddie Mac in September 2008 and the series
of financial dilemmas at a national level that transpired thereafter, the
condition of the financial markets has deteriorated. From a liquidity
standpoint, the government’s support of the secondary mortgage market has
allowed the mortgage banking activity of the Company to continue
uninhibited. As of March 31, 2010, the government ended their support
of the secondary mortgage market. Management does not anticipate that
this will have a material impact on the Company’s mortgage banking
activity. Mortgage originations totaled $1.361 billion for the first
nine months of fiscal year 2010, while loans sold were $1.334 billion, a 98%
turnover rate. With the continued historically low mortgage rates,
refinance activity has been robust, and the Company expects to continue to
originate and sell loans at a turnover rate of 80% or higher. Should
there be any inability to sell or securitize loan originations resulting from
deteriorating market conditions, the Company may opt to curtail
originations.
34
The
following table summarizes the Company’s potential cash available as measured by
liquid assets and borrowing capacity at March 31, 2010, and June 30,
2009.
March 31, 2010
|
June 30, 2009
|
|||||||
(Dollars in thousands)
|
||||||||
Cash
and unpledged securities
|
$ | 76,023 | $ | 149,236 | ||||
Additional
borrowing capacity at the Federal
|
||||||||
Home
Loan Bank
|
21,942 | - | ||||||
Unsecured
line of credit with a commercial bank
|
10,000 | - | ||||||
Additional
borrowing capacity at the Federal
|
||||||||
Reserve
Bank
|
50,000 | 24,759 | ||||||
Potential
cash available as measured by liquid assets and borrowing
capacity
|
$ | 157,965 | $ | 173,995 |
The
Company’s cash and unpledged securities are available to meet cash
needs. Unpledged securities can be sold or pledged to secure
additional borrowings. Since June 30, 2009, the Federal Reserve Bank
has reduced the availability of funds to banks and in the near future will
extend credit only in emergency funding situations. To bolster
liquidity, the Company has participated in a national public funds referral
program which has generated approximately $97 million of funds since December
2009. These funds are not considered brokered
deposits. Management receives reports on liquidity on a regular basis
and considers the level of liquidity in setting both loan and deposit
rates. In addition to the sources of funds listed above, the Company
has the ability to raise additional funds by increasing deposit rates relative
to competition in national markets, by accelerating the sales of loans held for
sale, or by selling loans currently held in the loan
portfolio. Deposits raised in national markets include brokered
deposits. Brokered deposits are a secondary source of liquidity and
can be used as an alternative to local deposits when national rates are lower
than local deposit rates. Unlike correspondent banking relationships
which have tightened in the current market, brokered deposits have continued to
offer funds at competitive rates. The Company’s brokered deposit
balance cannot exceed approximately $231 million without the prior approval of
the OTS. At March 31, 2010, the Company had $174 million of brokered
deposits and currently has the capacity to raise another $57 million without
prior approval of the OTS. Under its current liquidity guidelines of
limiting total borrowings to 30% of assets, the Company could raise additional
funds through overnight borrowings. The Company’s access to funds of
up to $59 million of senior unsecured debt issuances guaranteed under the FDIC’s
Temporary Liquidity Guarantee Program expired October 31,
2009. Management believes that the current and potential resources
mentioned are adequate to meet liquidity needs in the foreseeable
future.
The
parent holding company, as a thrift holding company, has more limited sources of
liquidity. In addition to its existing liquid assets, it can raise
funds in the securities markets through debt or equity offerings or it can
receive dividends from its subsidiaries. Any debt offerings or cash
dividends of the parent holding company require the prior approval of the
OTS. Cash can be used by the parent holding company to make
acquisitions, pay quarterly interest payments on its Junior Subordinated
Debentures, pay dividends on the perpetual preferred stock issued to the
Treasury, pay dividends to common shareholders and to fund operating
expenses. At March 31, 2010, the parent holding company had cash and
unpledged securities of $27 million available to meet cash
needs. Annual debt service on the Junior Subordinated Debentures is
approximately $3 million. Annual dividends on the perpetual preferred
stock are approximately $4 million. Banking regulations limit the
amount of dividends that can be paid to the parent holding company by the Bank
without prior approval of the OTS. Generally, the Bank may pay
dividends without prior approval as long as the dividend is not more than the
total of the current calendar year-to-date earnings plus any earnings from the
previous two years not already paid out in dividends, and as long as the Bank
would remain well capitalized after the dividend payment. As of March
31, 2010, the Bank can pay no dividends to the parent holding company without
OTS approval. Future dividend payments by the Bank to the parent
holding company would be based upon future earnings or the approval of the
OTS.
At March
31, 2010, the Company had $50 million of repurchase agreements from various
financial institutions. These financial institutions are evaluated
with regard to their financial stability before entering into the repurchase
transaction and are evaluated on a regular basis until the repurchase agreement
matures. The Company’s repurchase agreements are collateralized by
available for sale securities held by the other financial institutions which had
a fair value of approximately $60 million at March 31, 2010.
35
Critical
Accounting Policies
The
Company follows financial accounting and reporting policies that are in
accordance with GAAP and conform to general practices within the banking
industry. Some of these accounting policies require management to
make estimates and judgments about matters that are
uncertain. Application of assumptions that differ from those used by
management could have a material impact on the Company’s financial condition or
results of operations. These policies are considered critical
accounting policies and include those used to determine the adequacy of the
allowance for loan losses, the valuation of the MSRs, other-than-temporary
impairment of securities, goodwill impairment and income taxes. These
policies and related assumptions, estimates and disclosures are determined by
management and reviewed periodically with the Audit Committee of the Board of
Directors. Management believes that the judgments, estimates and
assumptions used in the preparation of the consolidated financial statements are
appropriate given the factual circumstances at the time. Details of
the policies and the nature of the assumptions and estimates are presented
below.
Allowance for Loan
Losses. Management considers the policies related to the
allowance for loan losses as the most critical to financial statement
presentation. The allowance for loan losses includes activity related
to allowances calculated in accordance with generally accepted accounting
principles relating to receivables and contingencies. The allowance
for loan losses represents management’s estimate of credit losses inherent in
the loan portfolio at each balance sheet date. Each quarter
management analyzes the adequacy of the allowance based on a review of the loans
in the portfolio along with an analysis of external factors. Loans
are reviewed individually, or in the case of small homogeneous loans, in the
aggregate, by applying a factor based on historical loss
experience. An allowance is established for probable credit losses on
impaired loans. Nonperforming commercial loans exceeding policy
thresholds are regularly reviewed to identify impairment. A loan is
impaired when, based on current information and events, it is probable that the
Company will not be able to collect all amounts contractually
due. Measuring impairment of a loan requires judgment and estimates,
and the eventual outcomes may differ from those estimates. Impairment
is measured primarily based upon the fair value of collateral, if the loan is
collateral dependent, or alternatively, the present value of expected future
cash flows from the loan discounted at the loan’s effective
rate. When the selected measure is less than the recorded investment
in the loans impairment has occurred. This review includes historical
data, the ability of the borrower to meet the terms of the loan, an evaluation
of the collateral securing the loan, various collection strategies and other
factors relevant to the loan or loans. External factors considered
include but are not limited to economic conditions, current interest rates,
trends in the borrower’s industry and the market for various types of
collateral. In addition, overall information about the loan portfolio
or segments of the portfolio is considered, including delinquency statistics and
workout experience based on factors such as historical loss experience, the
nature and volume of the portfolio, loan concentrations, specific problem loans
and current economic conditions. As a result, determining the
appropriate level for the allowance for loan losses involves not only evaluating
the current financial situation of individual borrowers or groups of borrowers
but also current predictions about future cash flows that could change before an
actual loss is determined. Based on the variables involved and the
fact that management must make judgments about outcomes that are uncertain, the
determination of the allowance for loan losses is considered to be a critical
accounting policy.
One of
the tools utilized by management to determine the appropriate level for the
allowance for loan losses is the grading of individual loans according to the
severity of the credit issues. The most serious grading a loan can
receive is to be classified as a loss. A loan classified in the loss
grade would be 100% reserved and would be subject to charge-off. The
next most serious grade is identified as doubtful. At March 31, 2010,
the Company had $27.3 million of loans classified as doubtful. If all
of these loans were to deteriorate and become classified as a loss, the
allowance for loan losses would need to potentially increase by $23.0 million,
depending on collateral values.
Mortgage Servicing
Rights. MSRs represent the value of retained servicing rights
on loans sold. When loans are sold or securitized and the MSRs are
retained, the initial servicing right is recorded at its fair
value. The basis assigned to MSRs is amortized in proportion to and
over the life of the net revenue anticipated to be received from servicing the
loan. MSRs are valued at the lower of amortized cost or estimated
fair value. Fair value is measured by stratifying the portfolio of
MSRs into groups of loans with similar risk characteristics. When the
amortized cost of a group of loans exceeds the fair value, an allowance for
impairment is recorded to reduce the value of the MSRs to fair
value. Fair value for each group of loans is determined quarterly by
obtaining an appraisal from an independent third party. That
appraisal is based on a modeling process in conjunction with information on
recent bulk and flow sales of MSRs. Some of the assumptions used in
the modeling process are prepayment speeds, delinquency rates, servicing costs,
periods to hold idle cash, returns currently available on idle cash, and a
discount rate, which takes into account the current rate of return anticipated
by holders of MSRs. The process of determining the fair value of MSRs
involves a number of judgments and estimates including the way loans are
grouped, the estimation of the various assumptions used by recent buyers and a
projection of how those assumptions may change in the future. The
most important variable in valuing MSRs is the level of interest
rates. Long-term interest rates are the primary determinant of
prepayment speeds while short-term interest rates determine the return available
on idle cash. The process of estimating the value of MSRs is further
complicated by the fact that short-term and long-term interest rates may change
in a similar magnitude and direction or may change independent of each
other.
36
Loan
prepayment speeds have varied significantly over the past two years and could
continue to vary in the future. In addition, any of the other
variables mentioned above could change over time. Therefore, the
valuation of MSRs is, and is expected to continue to be, a critical accounting
policy where the results are based on estimates that are subject to change over
time and can have a significant financial impact on the Company.
Other-than-temporary Impairment of
Securities. The Company monitors securities in its portfolio
for other-than-temporary impairment. The Company considers various
factors in determining if impairment is other-than-temporary, including but not
limited to the length of time and extent the security’s fair value has been less
than cost, the financial condition and external credit ratings of the issuer,
and general market conditions. The Company also determines whether it
does not intend to sell and whether it is more likely than not that it will not
be required to sell the securities prior to their recovery. In
determining if impairment is other-than-temporary in nature, the Company must
use certain judgments and assumptions in interpreting market data for the
likelihood of recovery in fair value. Securities are written down to
fair value when a decline in fair value is other-than-temporary. When
applicable, other-than-temporary valuation losses on securities are reported in
the Condensed Consolidated Statements of Income under the Noninterest Income
caption “Other-than-temporary impairment of securities.”
Goodwill
Impairment. The Company annually reviews recorded goodwill for
impairment during the fourth fiscal quarter. However, if an event
occurs or circumstances change that would more likely than not reduce the fair
value of the Company or its reporting units below its carrying amount, then
goodwill is tested between annual tests. The Company follows a
two-step process to test for impairment. The first step, used to
identify potential impairment, compares the fair value of the Company with its
carrying amount, including goodwill. If fair value exceeds the
carrying amount, goodwill is considered not impaired, and the second step of the
impairment test is unnecessary. The second step, used to measure the
amount of impairment loss, compares the implied fair value of the Company’s
goodwill with the carrying amount of that goodwill. The implied fair
value of goodwill is determined in the same manner as the amount of goodwill
recognized in a business combination is determined. If the carrying
amount of goodwill exceeds the implied fair value of that goodwill, an
impairment loss is recognized in an amount equal to that excess, but limited to
the carrying amount of the goodwill. Goodwill impairment is reported
in the Condensed Consolidated Statements of Income under the Noninterest Expense
caption “Goodwill impairment.”
Income Taxes. The
Company conducts quarterly assessments to determine the amount of deferred tax
assets that are more-likely-than-not to be realized, and therefore
recorded. The available evidence used in connection with these
assessments includes taxable income in prior periods, projected future taxable
income, potential tax-planning strategies and projected future reversals of
deferred tax items. These assessements involve a degree of
subjectivity which may undergo significant change. For further
information on the Company’s accounting for income taxes, see Note 7 – Income Taxes in the
Notes to Condensed Consolidated
Financial Statements.
Item
3. Quantitative
and Qualitative Disclosures about Market Risk
Asset/Liability
Management and Market Risk
The
Company, like other financial institutions, is subject to market
risk. Market risk is the type of risk that occurs when a company
suffers economic loss due to changes in the market value of various types of
assets or liabilities. As a financial institution, the Company makes
a profit by accepting and managing various risks such as credit risk and
interest rate risk. Interest rate risk is the Company’s primary
market risk. It is the risk that occurs when changes in market
interest rates will result in a reduction in net interest income or net interest
margin because interest-earning assets and interest-bearing liabilities mature
at different intervals and reprice at different
times. Asset/liability management is the measurement and analysis of
the Company’s exposure to changes in net interest income due to changes in
interest rates. The objective of the Company’s asset/liability
management function is to balance the goal of maximizing net interest income
with the control of risks in the areas of liquidity, safety, capital adequacy
and earnings volatility. In general, the Company’s customers seek
loans with long-term fixed rates and deposit products with shorter maturities,
which creates a mismatch of asset and liability maturities. The
Company’s primary strategy to counteract this mismatch is to sell the majority
of long-term fixed-rate loans within 45 days after they are
closed. The Company manages this risk and other aspects of interest
rate risk on a continuing basis through a number of functions including review
of monthly financial results, rate setting, cash forecasting and planning,
budgeting and an Asset/Liability Committee.
37
On a
quarterly basis, the Asset/Liability Committee reviews the results of an
interest rate risk model that forecasts changes in net interest income and net
portfolio value (NPV), based on one or more interest rate
scenarios. NPV is the market value of financial assets less the
market value of financial liabilities. NPV is performed as of a
single point in time and does not include estimates of future business
volumes. The model combines detailed information on existing assets
and liabilities with an interest rate forecast, loan prepayment speed
assumptions and assumptions about how those assets and liabilities will react to
changes in interest rates. These assumptions are inherently
uncertain, and as a result, the model cannot precisely measure net interest
income or precisely predict the impact of fluctuations in interest rates on net
interest income. Actual results will differ from simulated results
due to timing, customer product and term selection, magnitude and frequency of
interest rate changes as well as differences in how interest rates change at
various points along the yield curve.
The
results below indicate how NPV would change based on various changes in interest
rates. The projections as of March 31, 2010, and June 30, 2009, are
based on an immediate change in interest rates and assume that short-term and
long-term interest rates change by the same magnitude and in the same
direction.
Basis point
|
NPV ratio (a)
|
NPV ratio (a)
|
||||||
change in rates
|
March 31, 2010
|
June 30, 2009
|
||||||
+ 200
|
11.09 | % | 10.86 | % | ||||
+ 100
|
10.29 | 10.28 | ||||||
No change
|
9.19 | 9.29 | ||||||
- 100
|
8.50 | 8.50 | ||||||
- 200
|
8.21 | 8.19 |
(a)
|
The
NPV ratio is the market value of financial assets less the market value of
financial liabilities, divided by the market value of financial
assets.
|
The
change in the NPV ratio is a long-term measure of what might happen to the
market value of financial assets and liabilities over time if interest rates
experienced an immediate change and the Company did not change existing
strategies. The actual results could be better or worse based on
changes in interest rate risk strategies. The above results at March
31, 2010, indicate that the Company would continue to benefit in a rising
interest rate environment. The Company has experienced a decrease in
its exposure to falling interest rates for the same comparable
periods. Based on the current Federal Funds rate, at a range from
zero to 25 basis points, a 100 basis point or more decrease in rates is highly
unlikely. The NPV ratio for no change in rates has decreased ten
basis points at March 31, 2010, compared to June 30, 2009. This model
indicates theoretical results given various changes in the level of interest
rates but no change in the shape of the yield curve. The Company also
has exposure to changes in the shape of the yield curve. The results
of the projections are within parameters established by the Board of
Directors.
In
addition to the risk of changes in net interest income, the Company is exposed
to interest rate risk related to loans held for sale and loan
commitments. This is the risk that occurs when changes in interest
rates will reduce gains or result in losses on the sale of residential mortgage
loans that the Company has committed to originate but has not yet contracted to
sell. The Company hedges this risk by executing commitments to sell
loans or mortgage-backed securities based on the volume of committed loans that
are likely to close. Additionally, MSRs act as a hedge against rising
rates, as they become more valuable in a rising rate environment, offsetting the
decline in the value of loan commitments or loans held for sale in a rising rate
environment.
Item
4. Controls
and Procedures
The
Company’s management is responsible for establishing and maintaining effective
disclosure controls and procedures, as defined under Rules 13a-15(e) and
15d-15(e) of the Securities Exchange Act of 1934. As of March 31,
2010, an evaluation was performed under the supervision and with the
participation of management, including the Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of the
Company’s disclosure controls and procedures. This evaluation
included consideration of the disagreement with the prior independent registered
public accounting firm over the severity of an internal control deficiency over
financial reporting that the Company reported in its Annual Report on Form 10-K
for the year ended June 30, 2009. The Company disclosed in the Annual
Report on Form 10-K that additional verification procedures were implemented
which provided improved internal control over financial
reporting. Management is continuing to monitor, evaluate and test the
operating effectiveness of these additional verification
controls. Based on the current evaluation, management concluded that
disclosure controls and procedures were effective as of March 31,
2010. There were no changes in the Company’s internal control over
financial reporting that occurred during the quarter ended March 31, 2010, that
have materially adversely affected, or are reasonably likely to materially
adversely affect, the Company’s internal control over financial
reporting.
38
PART
II. OTHER
INFORMATION
Item
1. Legal
Proceedings
From time
to time, the Company is involved either as a plaintiff or defendant in various
legal proceedings that arise during the normal course of
business. Currently, the Company is not involved in any material
legal proceedings, the outcome of which would have a material impact on the
financial condition of the Company.
Item
1A. Risk
Factors
Information
concerning risk factors is incorporated herein by reference to the Company’s
Annual Report on Form 10-K for the year ended June 30, 2009, filed with the
Securities and Exchange Commission on September 14, 2009.
Item
2. Unregistered
Sales of Equity Securities and Use of Proceeds – Not applicable.
Item
3. Defaults
Upon Senior Securities – Not applicable.
Item
4. Submission
of Matters to a Vote of Security Holders - Not applicable.
Item
5. Other
Information – Not applicable.
Item
6. Exhibits
The
following exhibits are filed as part of this Form 10-Q, and this list
constitutes the Exhibit Index:
Exhibit
|
||||
Number
|
Document
|
Reference
|
||
3.1
|
Bylaws
of First Place Financial Corp.
|
Filed
herewith
|
||
31.1
|
Certification
of Chief Executive Officer Pursuant to Rule13a-14(a) or
|
Filed
herewith
|
||
15(d) – 14(a) of the Securities
Exchange Act of 1934, as adopted
|
||||
pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
||||
31.2
|
Certification
of Chief Financial Officer Pursuant to Rule13a-14(a) or
|
Filed
herewith
|
||
15(d) – 14(a) of the Securities
Exchange Act of 1934, as adopted
|
||||
pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
||||
32.1
|
Chief
Executive Officer’s Certification Pursuant to 18 U.S.C. Section
1350,
|
Filed
herewith
|
||
as Adopted Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
|
||||
32.2
|
Chief
Financial Officer’s Certification Pursuant to 18 U.S.C. Section
1350,
|
Filed
herewith
|
||
|
as Adopted Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
|
|
39
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 CORP.
|
||||
Date:
May 7, 2010
|
/s/ Steven R. Lewis
|
/s/ David W. Gifford
|
||
Steven
R. Lewis
|
David
W. Gifford
|
|||
President
and Chief Executive Officer
|
Chief
Financial Officer
|
40