By Jamison Cocklin
First Place Financial Corp., the holding company of First Place Bank, has filed for Chapter 11 bankruptcy in Delaware and announced Monday an early agreement with Michigan-based Talmer Bancorp, which offered an initial bid of $45 million for the company’s stock.
Bank officials insist that First Place customers will be unaffected, as the holding company is separate from the bank. They said deposits are still insured by the Federal Deposit Insurance Corp. and no branches will be closed as a result of the early agreement, which is still subject to approval in bankruptcy court, a process the company expects to take 60 to 90 days.
The announcement comes after years of failure to file accurate quarterly and annual earnings statements with regulators and a listing balance sheet fraught with impaired real-estate loans, mainly stemming from a Michigan portfolio where the mortgage market took a deep hit during the financial crisis.
As a result of the troubled assets, in July 2011, federal regulators imposed cease-and-desist orders on First Place Financial Corp. and First Place Bank, requiring the bank to raise its capital level to 8.5 percent and its risk-based capital level to 12 percent by the end of that year.
“The agreement right now will keep the bank’s name, its charter and management team,” said First Place spokeswoman Debra Bish. “I can’t disclose the time line, but our intent following the cease-and-desist order was to increase our capital levels, and that’s what this bankruptcy and agreement will accomplish.”
Talmer Bancorp, the holding company of Talmer Bank and Trust, with $2.24 billion in assets and 45 branches in Michigan, Wisconsin and Illinois, has agreed to provide $200 million in needed capital to First Place Bank to help it meet the regulatory requirements.
Still, the agreement will need to be approved in a U.S. Bankruptcy Court in Wilmington, Del., where other qualified bidders will be given an opportunity to submit competing bids for the bank stock being sold, a step that also would require such a company to recapitalize the bank.
In Talmer’s case, its initial bid makes it the stalking-horse bidder, a method that allows First Place to protect itself against low-ball bids and select a company willing to set the bar. Should another bidder beat Talmer’s sale price, First Place would be required to pay a $5 million fee to the Michigan-based company for making the stalking-horse bid.
In filing for Chapter 11 protection, FPFC listed $175.3 million in assets and $64.5 million in total debts. In all, the bankruptcy filing constitutes $46.4 million worth of default on loans and debt securities, according to a filing with the Securities and Exchange Commission on Monday.
When asked if bankruptcy proceedings will lead to FPFC liquidating and dissolving completely or simply restructuring, Bish said it was too early to tell. She said it depends on what the company’s creditors approve and the nature of the proceedings.
Court documents list one company, based in Texas, as the only entity holding more than 5 percent of FPFC’s voting shares, and the largest unsecured creditors are company trusts.
Financial markets were closed Monday because of Hurricane Sandy, and it remains unclear how the announcement will affect shareholders. The company’s stock already is distressed, trading at 79 cents on the NASDAQ last Friday.
“There isn’t a whole lot of upside for the stock from here, but it might not even move that much,” said bank analyst Matthew Schultheis with the brokerage firm Boenning & Scattergood in Pennsylvania. “I don’t know how bad or how quickly the market will react.”
In any event, Schultheis said bankruptcy proceedings likely would be a “convoluted legal train wreck,” with creditors scrambling for their stake in the company.
“There’s a number of things that can happen. You can basically renegotiate with your debt holders and sell certain assets. It wipes out equity holders, and the debt holders get control and you come out with a new company,” he said. “Or you can end up selling the subsidiary bank and get rid of the broken assets. Whoever has debt at the holding company gets claim on the proceeds from the asset sale at the bank.”
Bish would not comment on a likely outcome, but she added that Talmer has no footprint in Ohio, which means First Place’s 41 retail branches would be appealing to the Michigan-based company. First Place is Youngstown’s fourth-largest bank, with nearly $1 billion in deposits at the end of June.
“It’s important for our customers, employees and all other constituents to know that First Place Bank, which operates separately from the holding company, is not part of the Chapter 11 process,” said Samuel Roth, chairman of FPFC. “We will continue to process loan applications, fund commitments and conduct all other banking operations as we do every day.”
The bank also is seeking a new chief executive officer after Louis J. Dunham, who was named interim CEO in June, was not approved by regulators on Oct. 24. Bish said a search is under way for his replacement.