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First Place Reports Net Income of $1.6M for Quarter
WARREN, Ohio -- First Place Financial Corp. (Nasdaq:FPFC), a diversified financial services company that serves northeastern Ohio and southeastern Michigan, reported fiscal 2005 second quarter earnings of $1.6 million Thursday.In that quarter, which ended Dec. 31, 2004, First Place also took an after-tax charge of $3.4 million "to reflect other than temporary impairment of Fannie Mae and Freddie Mac preferred stock" it holds, the company said.Its second quarter income compares with the $4.8 million net earnings its fiscal first quarter and $4.3 million in earnings in fiscal 2004's second quarter.Second-quarter core earnings, which exclude the $3.4 million impairment charge, were $5 million, an increase of 6.1% over core earnings the first quarter and 16.5% over the same quarter in fiscal 2004, the company reported.Delinquencies, nonperforming loans and year-to-date charge-offs at Dec. 31 were all below levels from a year earlier despite a 68% increase in loans.First Place Financial Corp.'s board of directors Jan. 18 declared a 14-cent per share cash dividend payable Feb. 10 to shareholders of record Jan. 27. Diluted earnings per share were 11 cents for the second quarter compared with 33 cents the first quarter and 34 cents the second quarter of fiscal 2004.The noncash charge of $5.2 million had an after-tax effect on net income of $3.4 million, 23 cents per diluted share. Core earnings were $5 million, a 6.1% increase over core earnings of $4.8 million the preceding quarter and a 16.5% increase over the $4.3 million reported the second quarter of 2004.The first six months of fiscal 2005 include the full results of the Franklin Bank Division of First Place Financial Corp., acquired last May 28. So the earnings report First Place released yesterday includes comparisons of the current and preceding quarter which both include the impact of Franklin and comparisons with the same quarter in the previous year, First Place noted.For the six months ended Dec. 31, First Place recorded net income of $6.4 million, or 44 cents per diluted share, compared with $8.8 million, or 69 cents per diluted share, for the six months ended Dec. 31, 2003.Core earnings were $9.8 million for the first half of fiscal 2005 compared with core earnings of $8.8 million for the first half of fiscal 2004. Diluted core earnings per share were 67 cents the first half of fiscal 2005 compared with 69 cents the first half of fiscal 2004.Commenting on these results, Steven R. Lewis, president and chief executive officer, said, "Our growth in core earnings validates the decision to acquire Franklin last year. The acquisition has diversified assets and added low cost funding resulting in increased net interest income. With the second full quarter of Franklin results included in our performance, we are experiencing the benefits of a more diversified revenue stream, an expanded geographic footprint, and an increased share of earnings from stable sources including net interest income and service charges. Unfortunately, these excellent core results come at the same time as a significant noncash impairment charge. While Freddie Mac and Fannie Mae securities continue to be rated as investment grade quality, we believe that taking an impairment charge at this time would be the conservative thing to do, given the market value of these preferred stocks over the recent past and the prospects for appreciation in the near term."RevenuesNoninterest income for the second quarter was $1.1 million compared with $5.3 million the first quarter. The reason for the decrease was the other-than-temporary impairment charge of $5.2 million on Freddie Mac and Fannie Mae securities. Noninterest income excluding impairment charges was $6.3 million, an increase of $19.4% over $5.3 million the first quarter.First Place recorded this impairment charge, it said, based on the likelihood that changes in interest rates would result in recovery of impairment in a reasonable period of time, its confidence in predicting interest rates, its assessment of news stories about these agencies, credit ratings of the securities, the length of time these securities have been impaired, and the political climate in which these agencies operate.Based on all of these uncertainties, First Place said it "chose to take a conservative position in projecting the timing of recovery of impairment which resulted in recording other-than-temporary impairment under generally accepted accounting principles."First Place's practice has been to record the securities in its "available for sale portfolio," it said. As a result, First Place said, "they have been valued at market value through charges to other comprehensive income and recording this other-than-temporary impairment will not have any effect on total capital."In addition, First Place's decision "will not result in any cash expenditure currently or in the future." These securities had a cost basis of $20.8 million and were written down to the current market value of $15.6 million, resulting in a $5.2 million pretax write-down.Said Lewis, "These securities were purchased in 2001 and carry variable rates of interest. They were originally purchased to protect the company against rising interest rates. We believe that these securities will increase in value going forward because we believe in the long-term viability of Freddie Mac and Fannie Mae and that the securities will benefit from rising interest rates. However, we decided to be conservative and recognize the impairment at this time because there are always uncertainties in predicting future events, especially in predicting the timing of changes in interest rates."Service charges for the quarter were $2.5 million, up 21.1% from the preceding quarter and 88.6% from the year-earlier quarter. The increases resulted from raising service charges on deposit accounts and fees recognized on letters of credit. Income from mortgage banking, consisting of net gains on sale of loans and loan servicing income, was $1.8 million for the quarter, up 147.9% from the preceding quarter and down 30.6% from the year-earlier quarter. Second-quarter net interest income increased 4.4% over the previous quarter, reaching $17.5 million as a result of 4.2% growth in average earning assets, and a stable net interest margin of 3.30%, unchanged from the preceding quarter.Mortgage-Banking and LendingLewis continued, "Our Midwest expansion strategy is working successfully. We have continued to open loan- production offices in high-potential markets, and we have already converted two into full-service offices utilizing our 'bank-within-a-bank' concept. We have opened four new loan production offices since February 2004: Grand Blanc, Mich., Northville, Mich., Jackson, Mich., and Indianapolis, Ind. The increasing number of loan- production offices contributes to the stability of our residential mortgage originations and the growth in our commercial loan portfolio despite the fact that the Federal Reserve has raised interest rates five times over the past six months."Mortgage originations for the second quarter totaled $333.9 million, compared with $338.9 million the first quarter and $239.5 million for the year-earlier quarter. Gains on the sale of loans were $1.7 million compared with $700,000 the previous quarter and $1.2 million for the same quarter in the preceding year.Gains on the sale of loans were at low levels because of rates rising the second quarter of calendar 2004. Rates have been more stable the second half of calendar 2004, resulting in a higher level of gains on the sale of loans. Loan servicing income was $88,000, compared with a loss of $21,000 for the preceding quarter and a gain of $1.4 million in the second quarter of fiscal 2004. Loan servicing income included a $39,000 recovery of mortgage servicing rights impairment charges compared with an increase of $182,000 in the impairment allowance in the first quarter of fiscal 2005 and a recovery of $1.6 million in the second quarter of the preceding year.Noninterest ExpenseNoninterest expense for the second quarter was $14.9 million, an increase of 0.6% from the $14.8 million reported for the linked quarter and an increase of 36.5% from the year-earlier quarter.Lewis commented, "Our modest expense growth reflects the progress we have made in improving the efficiency of back- office operations since the Franklin acquisition. We continue to control expenses and see an opportunity to support continued growth in assets without proportional increases in expenses." The efficiency ratio was 79.18% for the current quarter compared with 66.51% for the linked quarter and 60.20% for the second quarter of fiscal 2004. (A bank's efficiency ratio measures how much it spent to bring in revenues. An efficiency ratio of 60.2% translates into spending 60.2 cents to bring in a dollar in revenue.)This significant increase, First Place said, results from the $5.2 million impairment charge. The core efficiency ratio, which excludes the impairment charge, was 61.93% for the quarter compared with the core efficiency ratio of 66.51% for the linked quarter and the core efficiency ratio of 60.20% for the second quarter of fiscal 2004. The improvement in the core efficiency ratio from the linked quarter reflects the positive trend in noninterest income along with effective control of noninterest expense.Asset QualityOf asset quality, Lewis said, "Our detailed due diligence relating to the Franklin acquisition has allowed us to maintain asset delinquencies and nonperforming loans at historically stable levels in absolute dollars. Although commercial loans now constitute a larger percentage of our portfolio, we have not experienced a decline in asset quality. We continue to work through our existing portfolio of nonperforming assets with expectations of continued progress."During the quarter, net charge-offs were $800,000, or 0.2% of average loans, compared with $400,000 or 0.15% for the year earlier quarter. For the six months ending Dec. 31, net charge-offs were $600,000 or 0.08% of average loans compared with 0.19% for the same period in the preceding year. The provision for loan losses was $1.4 million compared with $300,000 for the preceding quarter and $700,000 in the second quarter of fiscal 2004. The growth in the provision reflects growth in the loan portfolio and a normal level of net charge-offs after experiencing net recoveries of $200,000 in the first quarter of fiscal 2005.Delinquent loans were $18.7 million or 1.08% of total loans at Dec 31, compared with 1.17% at June 30, 2004, and 1.84% at Dec. 31, 2003. Nonperforming loans were $11.6 million or 0.67% of total loans at Dec. 31., down from 0.78% at June 30, 2004, and 1.37% at Dec. 31, 2003. The loan loss allowance increased to $17.6 million at Dec. 31, compared with $16.5 million at June 30, 2004, and $10.8 million Dec. 31, 2003.The ratio of the allowance for loan losses to nonperforming loans was 151.01% Dec. 31, compared with 142.01% at June 30, 2004, and 76.30% at Dec. 31, 2003. The ratio of the allowance to total loans declined to 1.02% at Dec. 31, compared with 1.10% at June 30, 2004, and 1.05% at Dec. 31, 2003. This decline is consistent with the declines in delinquencies, nonperforming loans and charge-offs as a percent of total loans, First Place said.Balance Sheet ActivityAssets totaled $2.4 billion at Dec. 31, an increase of 6.2%, or $138.2 million, from June 30, 2004. Portfolio loans totaled $1.7 billion at Dec. 31, a 15.4% increase from $1.5 billion at June 30, 2004. Of this total, commercial loans increased $125.4 million, or 26.2%, to $604.1 million. Commercial loans constitute 34.9% of the loan portfolio.Mortgage loans increased $69.2 million, or 8.5%, to $879.3 million. The increase in the mortgage loan portfolio came overwhelmingly from adjustable-rate mortgages, reflecting customers' preferences, Lewis noted.Consumer loans increased by $37 million, or 17.5%, to $248.7 million. More than 90% of consumer loans are secured by single family residences, First Place reported. These loans include home equity loans, home equity lines, and second mortgages.Deposits were $1.6 billion at Dec. 31, an increase of $29.6 million or 1.9% from June 30, 2004. The Franklin acquisition added proportionally more lower-cost core deposits to the deposit mix; noninterest-bearing deposits represent 15.1% of the deposit portfolio and certificates of deposit represent 39.5% of total deposits.Shareholders' equity remains "strong" at Dec. 31 at $227.8 million, or 9.55% of total assets, First Place said. As part of its capital management strategy, the company repurchased 187,400 shares the first six months of fiscal 2005 and has a program in place that authorizes the repurchase up to 279,000 shares over the next three months.Visit First Place Financial at www.firstplace.net"