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First Place to restate 2010 annual report



Published: Wed, December 8, 2010 @ 12:00 a.m.

By Grace Wyler

gwyler@vindy.com

WARREN

Plagued by bad commercial loans and facing increased scrutiny from federal regulators, the parent company of First Place Bank plans to restate its 2010 annual report with a $14 million increase in loan losses.

The move, announced Monday night, is an attempt to mollify regulators’ concerns over the way First Place Financial Corp. accounts for its troubled- debt restructurings.

An October audit by the Office of Thrift Supervision, which oversees community banking, found that First Place’s previously reported results did not account for downgrades in the bank’s commercial real-estate-loan portfolio and increases in the company’s troubled-debt restructurings.

As a result, the OTS determined that First Place had understated its loan-loss allowance for the fiscal year ending June 30.

The OTS audit indicates that federal regulators are taking a more-stringent approach to annual examinations, said Steven Lewis, First Place chief executive. First Place’s amended 2010 financial results will reflect the OTS’ “more conservative approach” to accounting for loan losses, he said.

“This is a clear message that they want to see more conservatism,” Lewis said. “But I don’t think the results are an indictment to say we weren’t handling things well — it’s just a difference in where we thought the allowance should be.”

In the restated 2010 results, the company’s allowance for loan losses will be about $60 million, up from $46 million reported in the earlier results, First Place said in a news release.

Net losses will increase from $31.2 million, or $2.14 per share, to about $45.2 million, or $2.98 per share.

Nonperforming loans are expected to be between $120 million and $130 million, up from the previously reported $98 million. The provision for loan losses will increase from $86.6 million to about $100.6 million.

Troubled-debt restructurings will be about $70 million, up from $18 million, reflecting increased conservatism in determining when loan restructurings should be classified as troubled debt.

First Place plans to continue to apply these conservative accounting policies in 2011, Lewis said. He added that the bank continues to struggle with asset quality in its southeastern Michigan commercial-loan portfolio, calling it “the singular biggest issue the company is facing today.”

On a more positive note, First Place said it expects to report a profit for the quarter ending Sept. 30. The company has refrained from filing these quarterly results until the OTS findings are addressed.

Net income for last quarter will be about $360,000, according to the release. Common-share holders, however, will see a loss of about $740,000, or 0.04 cent per share, after deductions, for preferred-stock dividends and discount accretion.

The quarterly allowance for loan losses is expected to be about $60 million, or 2.63 percent of the total loan portfolio. Loan-loss provisions will be about $14 million.

Pointing to strong performances in mortgage banking and net interest income last quarter, Lewis said he is optimistic about the bank’s future profitability.

“I have high hopes that the December quarter will also be in the black,” he said. “Internally, the bank is performing on all eight cylinders.”

First Place expects to file the amended annual report and its September quarterly earnings results before Dec. 31.

The company’s stock rose 31 cents Tuesday to close at $2.48.


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