By Jamison Cocklin
If approved, Michigan-based Talmer Bank and Trust will acquire First Place Bank and its 41 retail branches throughout Northeast Ohio and Michigan in yet another regional banking consolidation that will find Talmer assuming a coveted piece of market share in Youngstown and expanding to four states.
In a move announced Oct. 29, Talmer agreed to purchase all the bank’s assets through a $45 million all-stock deal with its parent company, First Place Financial Corp.
Officials at FPFC, which also filed for Chapter 11 bankruptcy Oct. 29, say the holding company had little choice after it worked for more than a year to meet a slew of demands from federal regulators.
In 2011, the bank agreed to a cease-and-desist order after regulators conducted a series of examinations that found the bank to be holding an excessive amount of impaired loans and inadequate capital levels that would protect it against potentially devastating losses.
“We needed to find someone to purchase the bank and infuse it with capital,” said FPFC spokeswoman Debra Bish. “There were not enough pillars at the holding company to pay off its debts, either.”
Under the terms of the order, which gave regulators broad oversight of FPFC’s daily operations, the company was barred from incurring more debt. It also was limited in increasing assets beyond the $3.1 billion it had on hand at the time.
That left FPFC unable to reconcile its flagrant loan portfolio, which had been deteriorating since 2008 when declining commercial real-estate values in Michigan upended its balance sheet.
At the same time, FPFC was holding $62 million in debt from a series of high-risk bonds it issued in 2003 and 2005. The terms of those bonds, and the pressures weighing on both the bank and the holding company, eventually made it impossible to pay the hundreds of investors holding those securities.
Moreover, in 2009, FPFC was handed $72.9 million worth of funds from the government’s Troubled Asset Relief Program, passed in 2008 to help avert deeper losses at financial institutions and bolster ailing banks such as First Place.
The company has yet to repay the bailout money.
In a move to capitalize the bank and protect itself against the default on its bonds and federal commitments, FPFC was forced to file for bankruptcy and seek out a bidder interested in its entire franchise.
This led the company to seek assistance with the global investment bank Keefe Bruyette & Woods, which managed to seek out 44 organizations with an interest in all or some of FPFC’s assets.
After consideration, First Place’s board selected Talmer Bancorp as the best solution to strengthen the bank’s capital base and help it to meet the requirements outlined by the cease-and-desist order, Bish said.
First Place Bank will not be affected by its parent company’s bankruptcy. It will retain its brand name and continue processing loan applications, funding commitments and serving customers under services fully insured by the Federal Deposit Insurance Corp.
But if the federal bankruptcy court and regulators approve the acquisition, Talmer will assume all of First Place Bank’s assets, from its properties all the way down to the commercial loans and residential mortgages it holds, which makes it difficult to believe there will be no changes at the bank.
“We don’t expect significant changes in products or services,” said Shellie Maitre, chief marketing officer at Talmer. “In fact, we hope to expand the lending activities, especially to small businesses served by First Place Bank.”
Considered extremely well-capitalized for a bank of its size, Talmer has $2.24 billion in assets and $360 million in equity on its balance sheet. An additional $153 million has been committed to Talmer by its investors.
The bank bears a close resemblance to First Place, Maitre said. Currently, it has 45 retail branches in three states and relies on a diverse mix of loans across all categories as its main profit engine. Both banks use a similar operating system to conduct business.
Initially, Talmer committed about $205 million in capital to First Place, but Maitre said in an email that the bank anticipates making $250 million available if the deal is approved. She added that Talmer will replace the seven board members at First Place expected to depart after the acquisition. FPFC will keep only three existing members.
In the week since the announcement, shareholders at First Place have seen their equity wiped out. Common stock at the bank plunged from about 18 cents in over-the-counter trading last week, to only a penny Thursday, with millions of shares dumped in less than a week.
On Wednesday, the U.S. Bankruptcy Court in Delaware imposed an order severely restricting any further trading of equity interests in FPFC. As proceedings continue to take place, with a sale hearing not scheduled until Dec. 7, First Place shareholders will gain little, as most of the proceeds from the asset sale likely will go to the company’s creditors.