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First Place shares hit low
Bank works with regulators on new capital plans
By Karl Henkel
WARREN
First Place Financial Corp. shares plummeted to a record low after the corporation and its subsidiary, First Place Bank, received cease-and-desist orders from the Office of Thrift Supervision.
Shares dropped 28 cents, or 22 percent, by closing Wednesday to an all-time low of $1 per share after the disclosure, which will place restrictions and timetables on First Place and will not allow it to pay dividends.
First Place first went public Jan. 4, 1999.
“Dealing with our problem assets over the past several years has been our No. 1 priority and recently accelerating this process has required the extensive use of capital,” said Stephen Lewis, president and CEO of First Place, in a release.
“We have been working with our regulators on our capital plan that ... identifies specific sources and methods for raising additional capital.”
First Place Bank representatives declined to comment further.
The OTS, when contacted by The Vindicator, said it does not comment on specific cease-and-desist letters.
A banking industry professional, however, told The Vindicator the cease-and-desist order won’t compromise the bank’s ability to continue business.
“I wouldn’t automatically view it as a death sentence, but it is serious,” said Catherine Ghiglieri, former Texas Banking Commissioner, who has more than 25 years of bank regulatory experience.
“I don’t think the cease-and-desist orders have the same stigma that they used to.”
The order will restrict the ability for the corporation to raise the capital needed to cover the bank’s potential loan losses.
It also states the corporation will have to submit a plan to the OTS by Aug. 31 that will reduce the risks of its current debt levels and address the company’s cash-flow needs.
It cannot renew or enter into any new contracts with directors or officers without OTS approval.
In addition, the corporation will not be allowed to incur or pay interest on any new debt or increase current lines of credit in order to increase capital.
“They’ll have to raise capital,” Ghiglieri said. “But it can’t be in the form of debt.”
The most likely way to raise capital, Ghiglieri said, is through a common-stock sale.
First Place will have to increase its core capital ratio to at least 8.5 percent and its risk-based ratio to at least 12 percent.
Those percentages, according to Ghiglieri are slightly higher than that of well-capitalized banks, which normally are required to have at least 6 percent and 10 percent, respectively.
The reason, said Michael Richards, a Montana-based banking expert, is potentially because of bad loans.
“They may be required to increase capital if regulators think the risk may be too high,” he said.
This isn’t the first time the bank has been in hot water over loan allowances.
The OTS previously took enforcement action against the bank in March 2011 requiring it to improve the condition of its loan portfolio and boost its allowance for loan losses.
First Place has also received multiple notifications from Nasdaq because of delayed filings of three quarterly reports.
The bank previously said it had a meeting scheduled with Nasdaq to stave off potential delisting, but did not provide further details.
Ghiglieri said that many banks are going through similar situations like First Place, which are centered in an area with high unemployment and high foreclosure rates.
“It used to be that banks could make loans and sell them on the secondary market to get them off their balance sheet,” she said.
“Now banks can only make loans that their capital base can support. And this is exacerbated because a lot of banks have had difficulties because people have stopped paying their loans.”