UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

FORM 10-K

 

x		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended June 30, 2010

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from  to 

Commission File Number 0-25049

 

(Exact Name of Registrant as Specified in Its Charter)

Delaware		34-1880130
(State or Other Jurisdiction of Incorporation)		(IRS Employer Identification Number)

185 E. Market Street, Warren, OH 44481		(330) 373-1221
(Address of Principal Executive Offices)		(Registrant’s Telephone Number, Including Area Code)

 

Securities Registered Pursuant to Section 12(b) of the Act:

Title of Each Class		Name of Exchange on Which Registered
Common Stock, par value $0.01 per share		The NASDAQ Stock Market

Securities Registered Pursuant to Section 12(g) of the Act: None

 

Indicate by check mark if the registrant is a well-know seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes o No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).Yes o No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one)

Large Accelerated Filer o		Accelerated Filer o
Non-Accelerated Filer x		Smaller Reporting Company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act.): Yes o No x

The aggregate market value of the voting common stock held by non-affiliates of the registrant was $41 million based upon the last sales price as of December 31, 2009. (The exclusion from such amount of the market value of the shares owned by any person shall not be deemed an admission by the registrant that such person is an affiliate of the registrant.)

As of August 31, 2010, the registrant had 16,974,056 shares of Common Stock issued and outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Part III of Form 10-K — Proxy Statement for Annual Meeting of Shareholders which will be filed within 120 days after the end of the fiscal year covered by this Form 10-K.

PART I

Throughout this Form 10-K report, references to “First Place,” “we,” “our,” “us,” “the Company” and similar terms refer to the consolidated entity consisting of First Place Financial Corp. and its subsidiaries. First Place Financial Corp. refers solely to the parent holding company, and “the Bank” refers to First Place Financial Corp.’s subsidiary, First Place Bank. Additionally, we have provided the following list of commonly used acronyms and abbreviations to assist the reader. The acronyms and abbreviations identified below are used throughout this Form 10-K report.

ARM: Adjustable Rate Mortgage.

ARRA: American Recovery and Reinvestment Act
  of 2009.

CAP: Capital Assistance Program.

CPP: Capital Purchase Program.

CPR: Constant Prepayment Rate.

CRA: Community Reinvestment Act.

ESOP: Employee Stock Ownership Plan.

FASB: Financial Accounting Standards Board.

FDIC: Federal Deposit Insurance Corporation.

FHLB: Federal Home Loan Bank.

FICO: Financing Corporation.

FIRREA: Financial Institutions Reform, Recovery
  and Enforcement Act.

GAAP: U.S. generally accepted accounting
  principles.

HOLA: Home Owners’ Loan Act.

LIBOR: London Interbank Offered Rate.

MSRs: Mortgage servicing rights.

N/A: Not applicable.

NASDAQ: National Association of Securities Dealers
  Automated Quotation.

N/M: Not meaningful.

OTS: Office of Thrift Supervision.

RRP: Recognition and Retention Plan.

SEC: Securities and Exchange Commission.

TARP: Troubled Asset Relief Program.

Treasury: United States Department of the
  Treasury.

Forward-Looking Statements

When used in this Form 10-K report, in future filings with the SEC, in press releases or other public or shareholder communications, or in oral statements made with the approval of an authorized executive officer, the words or phrases “will likely result,” “are expect to,” “will continue,” “is anticipated,” “estimate,” “project,” “believe,” “should,” “may,” “will,” “plan,” or variations of such terms or similar expressions are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause our actual results to be materially different from those indicated. Such statements are subject to certain risks and uncertainties, including changes in economic conditions in the market areas we conduct business, which could materially impact credit quality trends; changes in laws, regulations or policies of regulatory agencies; fluctuations in interest rates; demand for loans in the market areas we conduct business; and competition, that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. We caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. We undertake no obligation to publicly release the result of any revisions that may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.

Item 1.

Business

General:  First Place Financial Corp. was formed as a thrift holding company as a result of the conversion of First Place Bank, formerly known as First Federal Savings and Loan Association of Warren, from a federally chartered mutual savings and loan association to a federally chartered stock savings association in December 1998. First Federal Savings and Loan Association of Warren originally opened for business in 1922. At the time of the conversion, we had total assets of $610 million.

During fiscal year 2000, we acquired Ravenna Savings Bank with total assets of $200 million. During fiscal 2001, we completed a merger-of-equals with FFY Financial Corp. with total assets of $680 million. During fiscal 2004, we acquired Franklin Bancorp, Inc. with total assets of $627 million.

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On June 27, 2006, we acquired The Northern Savings & Loan Company of Elyria, Ohio (“Northern”) and converted it from an Ohio chartered stock savings association to a federally chartered stock savings association. Northern opened for business in 1920. At the time of the merger, Northern had total assets of $360 million. On July 25, 2006, the Company’s two federally chartered savings association subsidiaries, Northern and First Place Bank, merged into a single federal savings association with the name First Place Bank.

On April 27, 2007, the Bank acquired seven retail banking offices in the greater Flint, Michigan area from Republic Bancorp, Inc. and Citizens Banking Corporation. The Bank assumed $200 million in deposits, and received $29 million in consumer loans and fixed assets, and $164 million in cash.

On October 31, 2007, we acquired Hicksville Building, Loan and Savings Bank of Hicksville, Ohio (“HBLS Bank”). As of the acquisition date, HBLS Bank had total assets of $53 million (including $33 million in loans), $40 million in deposits and $9 million in long-term debt. On November 26, 2007, the Company’s two federally chartered savings association subsidiaries, HBLS Bank and First Place Bank, merged into a single federal savings association with the name First Place Bank. On July 9, 2010, we sold our Hicksville branch.

On June 30, 2008, we acquired OC Financial, Inc. of Dublin, Ohio (“OC Financial”), the holding company for Ohio Central Savings (“OC Bank”). As of June 30, 2008, OC Financial had total assets of $68 million (including $42 million in loans), $44 million in deposits and $10 million in long-term debt. On July 11, 2008, the Company’s two federally chartered savings association subsidiaries, Ohio Central and First Place Bank, merged into a single federal savings association with the name First Place Bank.

For additional information on acquisitions and divestitures, see Note 2 (“Acquisitions and Divestures”) in the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K report.

As of June 30, 2010, the Company had $3.153 billion in total assets and operated 43 retail locations, 2 business financial service centers and 20 loan production offices through the Bank.

We offer a wide variety of business and retail banking products, as well as a full range of insurance and investment services. We conduct our business primarily through the Bank. The Bank’s principal business consists of accepting retail and business deposits from the general public and investing these funds primarily in one- to four-family residential mortgage, home equity, multifamily, commercial real estate, commercial and construction loans. The holding company structure provides us with greater flexibility to diversify our business activities through existing or newly formed subsidiaries, or through acquisitions or mergers with other financial institutions, as well as other companies. First Place Financial Corp. has two wholly-owned subsidiaries, First Place Bank and First Place Holdings, Inc. The Bank has one active wholly-owned subsidiary, Ardent Service Corporation, which currently operates as a management company to manage the rental or sale of certain properties obtained from borrowers through foreclosure or the transfer of deeds in lieu of foreclosure. Wholly-owned subsidiaries of First Place Holdings, Inc. include First Place Insurance Agency, Ltd., and First Place Real Estate, Ltd. First Place Holdings, Inc. also has a 75% interest in Title Works Agency, LLC. In addition, First Place Financial Corp. has several wholly-owned subsidiary trusts, which are special purpose entities accounted for using the equity method. These trusts include First Place Capital Trust, First Place Capital Trust II and First Place Capital Trust III.

No individual nonbanking affiliate accounts for more than 1.9% of total revenue or 0.1% of total assets. These nonbanking affiliates are managed to contribute to our profitability and provide a comprehensive line of financial products to our customers so that we can achieve synergies between the banking and nonbanking affiliates. These synergies include the referral of customers between bank and nonbank affiliates, and efficiencies in the use of shared resources. Based on the relative size and importance of the banking affiliate to the Company as a whole, we conduct our business as a single segment. Therefore, the following discussion focuses primarily on the Bank.

Our internet site, www.firstplacebank.com, contains an Investor Relations section that provides access to annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements, Director and Officer Reports on Form(s) 3, 4, and 5 and amendments to those documents filed or furnished

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pursuant to the Securities Exchange Act of 1934, as amended, (“Exchange Act”) free of charge, as soon as reasonably practicable after we have filed these documents with, or furnished them to, the SEC. In addition, our filings with the SEC may be read and copied at the SEC Public Reference Room at 105 F Street N.E., NW Washington, DC 20549. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. These filings are also available on the SEC’s website at www.sec.gov free of charge, as soon as reasonably practicable after we have filed the above referenced reports.

Market area:  Headquartered in Warren, Ohio, approximately halfway between Cleveland, Ohio and Pittsburgh, Pennsylvania, we operate a community-oriented savings institution in three Midwest markets. In the Mahoning Valley region of Eastern Ohio, the Bank currently operates 21 retail locations in Trumbull, Mahoning and Portage counties. In the Cleveland metropolitan area of Northeastern Ohio, the Bank operates seven retail locations in Lorain County, and one retail location and two business financial centers in Cuyahoga County. In Southeastern Michigan between the Detroit and Flint metropolitan areas, the Bank operates 13 retail locations. The Bank also operates one retail location in Central Ohio in Franklin County. In addition, the Company, through the Bank, operates 20 loan production offices of which ten are located throughout Ohio, seven are located in Michigan, two are located in Indiana and one is located in Rockville, Maryland.

Ohio loan production offices are located in Akron, Boardman, Cincinnati, Dayton, Howland, Hudson, Mount Vernon, Newark and Toledo. The Michigan loan production offices are located in Chelsea, East Lansing, Grand Blanc, Grandville, Holland, Northville and Traverse City. The Indiana loan production offices are located in Carmel and Indianapolis. The Maryland loan production office is located in Rockville. These offices, along with business financial centers in Solon and North Olmsted, Ohio, provide us with access to many of the larger growing markets in Ohio, Michigan, Indiana and Maryland. The majority of the business generated in these locations is mortgage banking activity, which provides fee income to supplement the net interest margin we earn on traditional spread-based lending. However, we also originate commercial loans through loan production offices, and have expanded this business over the past several years. These strategies also result in generating loans over a larger geographic area which reduces our exposure to downturns in specific local economies.

Competition:  We face significant competition in offering financial services to customers. Both Northeastern Ohio and Southeastern Michigan have a high density of locations offering financial services similar to what we offer to our customers. Many of these locations are branches of significantly larger institutions that have greater financial resources than the Company, and all of which are competitors to varying degrees. Competition for loans comes principally from savings banks, savings and loan associations, commercial banks, mortgage banking companies, credit unions, insurance companies and other financial service companies. The most direct competition for deposits has historically come from savings and loan associations, savings banks, commercial banks and credit unions. Additional competition for deposits comes from nondepository competitors such as the mutual fund industry, securities and brokerage firms and insurance companies.

Lending activities

Summary:  The loan portfolio totaled $2.335 billion at June 30, 2010, representing a decrease of $133 million, or 5.4%, from $2.468 billion at June 30, 2009. The decrease in all loan categories was the result of weak economic conditions, the tightening of credit underwriting standards and charge-offs. Prior to fiscal 2007, the largest component of our loan portfolio had been first mortgage loans secured by one- to four-family residences. However, from 2007 through 2010, our commercial loans have grown to become the largest component, representing 51.8% of the total loan portfolio at June 30, 2010. We anticipate that commercial loans will continue to be the largest component of our loan portfolio during fiscal 2011.

Currently, one- to four-family lending activity is driven by our mortgage banking strategy of selling most of the fixed-rate loan production in the secondary market in order to minimize investment in long-term, fixed-rate assets that have the potential to expose us to long-term interest rate risk. We also sell the majority of adjustable-rate mortgage loans. Government-sponsored entity eligible loan production is primarily sold to

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Fannie Mae and Freddie Mac. Federal Housing Administration, Veterans Affairs and other loans that do not qualify for sale to those government-sponsored entities are sold to private buyers, primarily other financial institutions.

The Company also originates multifamily, commercial real estate, commercial, construction and consumer loans, which typically have higher yields than traditional one- to four-family loans. Most of these loans are retained for the loan portfolio to help us to increase loan yields and diversify our loan portfolio.

Loan Portfolio Composition:  Table 1 shows the composition of the loan portfolio in dollar amounts and in percentages as of the dates indicated. The table does not include loans held for sale.

TABLE 1. LOAN PORTFOLIO

June 30, (Dollars In thousands)		2010								2009								2008								2007								2006
		Amount				Percent				Amount				Percent				Amount				Percent				Amount				Percent				Amount				Percent
Residential real estate:
Permanent financing		$	720,846				30.9	%		$	803,555				32.5	%		$	935,285				35.3	%		$	984,135				39.2	%		$	950,133				40.4	%
Construction			63,036				2.7				47,726				1.9				79,725				3.0				95,653				3.8				173,778				7.4
Total			783,882				33.6				851,281				34.4				1,015,010				38.3				1,079,788				43.0				1,123,911				47.8
Commercial:
Multifamily real estate			107,501				4.6				111,281				4.5				103,699				3.9				134,308				5.4				106,999				4.5
Commercial real estate			900,973				38.6				875,836				35.5				815,384				30.8				565,342				22.5				429,694				18.3
Commercial construction			47,478				2.0				68,315				2.8				104,275				3.9				96,768				3.9				75,491				3.2
Commercial non-real estate			153,603				6.6				189,083				7.7				210,772				8.0				250,475				10.0				243,945				10.4
Total			1,209,555				51.8				1,244,515				50.5				1,234,130				46.6				1,046,893				41.8				856,129				36.4
Consumer:
Home equity lines of credit			205,133				8.8				215,136				8.7				196,862				7.4				187,305				7.5				191,658				8.2
Home equity			117,565				5.0				129,661				5.3				163,132				6.2				180,868				7.2				170,189				7.2
Automobiles and other			18,682				0.8				27,851				1.1				39,643				1.5				12,838				0.5				8,897				0.4
Total			341,380				14.6				372,648				15.1				399,637				15.1				381,011				15.2				370,744				15.8
Total loans			2,334,817				100.0	%			2,468,444				100.0	%			2,648,777				100.0	%			2,507,692				100.0	%			2,350,784				100.0	%
Less allowance for loan losses			45,675								39,580								28,216								25,851								22,319
Loans, net		$	2,289,142							$	2,428,864							$	2,620,561							$	2,481,841							$	2,328,465

Loan Originations:  We currently originate residential real estate loans and other loans through our network of loan production offices located in Ohio, Michigan, Indiana and Maryland, two business financial centers in Solon and North Olmsted, and to a lesser extent our retail network. The majority of these offices are located outside of the counties where we have retail locations, which allows us to geographically diversify our loan production and portfolio. A high volume of residential real estate originations is a key component for this strategy to be profitable. For the fiscal year ended June 30, 2010, we originated $1.889 billion in residential real estate loans through our retail and wholesale mortgage banking operations. These originations represented a decrease of $21 million, or 1.1%, from $1.910 billion for fiscal 2009. The level of residential real estate loan originations in 2010 was down slightly from the record level in fiscal 2009. The volume of refinance activity is very sensitive to long-term interest rates and will be one of the primary factors that determine the level of residential real estate loan originations in fiscal 2011.

From fiscal 2007 through fiscal 2010, we have been expanding commercial lending more rapidly than residential mortgage lending. During 2006, residential mortgage loans increased due primarily to the acquisition of Northern Savings and Loan, as their loan portfolio was predominantly residential real estate loans. Commercial loans are generally real estate based, but also include loans for the purchase of other assets, such as plant and equipment and to finance working capital. Consumer loans are primarily home equity lines of credit and home equity loans.

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The ability to originate fixed-rate or adjustable-rate loans is dependent on customer demand for these loans, which is influenced by the current and expected future levels of short-term and long-term interest rates. Loans we originate are underwritten using our policies and procedures, which are described in more detail below.

Maturities and Sensitivities of Loans to Changes in Interest Rates:  Table 2 shows the scheduled repayments of the loan portfolio in the maturity category in which the payment is due. Demand loans and other loans having no stated schedule of repayments or no stated maturity are reported as due in one year or less. The table does not include potential prepayments or enforcement of due-on-sale clauses.

TABLE 2. MATURITIES AND SENSITIVITIES OF LOANS
TO CHANGES IN INTEREST RATES

June 30, 2010 (In thousands)		Residential Real Estate Loans				Commercial Loans				Consumer Loans				Total Loans
Amounts due:
Within one year		$	88,880			$	457,350			$	30,571			$	576,801
After one year:
More than one year to five years			89,363				517,381				47,045				653,789
More than five years			605,639				234,824				263,764				1,104,227
Total due after June 30, 2011			695,002				752,205				310,809				1,758,016
Total amount due		$	783,882			$	1,209,555			$	341,380			$	2,334,817

Table 3 shows the dollar amount of total loans contractually due after June 30, 2011, and whether such loans have fixed or adjustable interest rates.

TABLE 3. LOAN AMOUNTS CONTRACTUALLY DUE AFTER JUNE 30, 2011

June 30, 2010 (In thousands)		Residential Real Estate Loans				Commercial Loans				Consumer Loans				Total Amount Contractually Due
Fixed rate loans		$	285,804			$	226,593			$	78,477			$	590,874
Adjustable rate loans			409,198				525,612				232,332				1,167,142
Total amount due		$	695,002			$	752,205			$	310,809			$	1,758,016

Residential Real Estate Lending:  We currently offer both fixed-rate and adjustable-rate mortgage loans with maturities up to 40 years secured by one- to four-family residences that are located in our primary market area or the market area serviced by our loan production offices. Mortgage loans with maturities greater than 30 years and most mortgage loans with maturities between 15 and 30 years are sold in the secondary market. One- to four-family mortgage loan originations are generally obtained through our loan originators from existing or previous customers and through referrals from local builders, real estate brokers and attorneys. We also purchase mortgage loans from correspondent banks in Ohio and Illinois and private mortgage brokers. The purchased loans are typically underwritten to Fannie Mae, Freddie Mac and Ginnie Mae standards. For fiscal year 2010, we purchased approximately $339 million in mortgage loans, substantially all of which were sold in the secondary mortgage market. Advertising is used to expand the potential customer base beyond our past and present customers and those referred to us by others. At June 30, 2010, one- to four-family mortgage loans totaled $721 million, or 30.9%, of total loans.

The mortgage loans that we originate have generally been priced competitively with current market rates for such loans. We currently offer a number of ARM loans with terms of up to 30 years and interest rates that adjust at scheduled intervals based on the product selected. These interest rates can adjust annually, or remain fixed for an initial period of three, five or seven years and thereafter adjust annually. The interest rates for ARM loans are generally indexed to the one-year U.S. Treasury Index or the one year LIBOR rate. The ARM loans generally provide for periodic (not more than 2%) and overall (not more than 6%) caps on the increase or decrease in the interest rate at any adjustment date and over the life of the loan.

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Because the majority of loans originated and retained in the residential portfolio are adjustable-rate one- to four-family mortgage loans, we limit our exposure to fluctuations in interest income due to rising interest rates. However, adjustable-rate loans generally pose credit risks not inherent in fixed-rate loans, primarily because as interest rates rise, the underlying payments of the borrower rise, thereby increasing the potential for default. Periodic and lifetime caps on interest rate increases help to reduce the credit risks associated with adjustable-rate loans but also limit the interest rate sensitivity of such loans. We require that adjustable-rate loans held in the loan portfolio have payments sufficient to amortize the loan over its term and the loans do not have negative principal amortization.

We generally originate one- to four-family residential mortgage loans in amounts up to 95% of the lower of the appraised value or the purchase price of the property securing the loan. Private mortgage insurance or Federal Housing Administration and Veteran Affairs guarantees are required for such loans with a loan-to-value ratio of greater than 85%. We require fire, casualty, and, where appropriate, flood insurance on properties securing real estate loans.

Construction Lending:  We make loans to individuals for the construction of their residences, as well as to builders and developers for the construction of one- to four-family residences and the development of one- to four-family lots. We also make construction loans for commercial real estate. Construction loans secured by one- to four-family residential real estate totaled $63 million, or 2.7% of total loans at June 30, 2010. Construction loans secured by commercial real estate totaled $47 million, or 2.0% of total loans at June 30, 2010.

Construction loans to individuals for their residences are structured to be converted to permanent loans at the end of the construction phase, which typically lasts six months. These construction loans have rates and terms that are similar to other one- to four-family loans offered by the Company, except that during the construction phase, the borrower pays interest only and the maximum loan-to-value ratio is 95% on an as-completed basis. On construction loans exceeding an 80% loan-to-value ratio, private mortgage insurance is required, thus reducing credit exposure. Residential construction loans are generally underwritten based on the same credit guidelines used for originating permanent residential loans. In addition, we perform a review of the construction plans to verify that the borrower will be able to complete the residence with the funds available.

Construction loans to builders of one- to four-family residences require the payment of interest only for up to 18 months and have terms of up to 18 months. These loans may provide for the payment of loan fees and interest from loan proceeds and usually have an adjustable-rate of interest. We also make loans to builders for the purpose of developing one- to four-family homes and home sites. These loans typically have terms of one to two years and have an adjustable-rate of interest. The maximum loan-to-value ratio is 80% for such loans. The principal on these loans is typically paid down as home sites are sold according to a predetermined release price.

Construction loans on multifamily and commercial real estate projects may be secured by apartments, strip shopping centers, small office buildings, industrial, or other property and are structured to be converted to permanent loans at the end of the construction phase, which generally lasts up to 12 months. These construction loans have rates and terms that are similar to other permanent multifamily or commercial real estate loans offered by us, except that during the construction phase, the borrower pays interest only. These loans generally provide for the payment of interest and loan fees from loan proceeds.

Construction and development loans are made principally through continued business relationships with developers and builders who have previously borrowed from us, as well as new referrals from existing customers and walk-in customers. The application process includes a submission of accurate plans, specifications and costs of the project to be constructed or developed. These items are used as a basis to determine the appraised value of the subject property. The term of these loans may range from 6 to 24 months, and typically, fees and interest are paid from the proceeds of the loan. Loans are based on the lesser of current appraised value of the land plus building, and/or the cost of construction.

Because of the uncertainties inherent in estimating development and construction costs, and the market for the project upon completion, it is relatively difficult to ascertain accurately the total loan funds required to complete a project, the related loan-to-value ratios and the likelihood of ultimate success of the project.

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Therefore, we require pro forma cash flow analysis, debt service coverage ratios and verification of construction progress prior to authorizing a construction draw and require mechanics’ lien waivers and other documents to protect and verify our lien position. Construction and development loans to borrowers other than owner-occupants also involve many of the same risks discussed below regarding multifamily and commercial real estate loans and tend to be more sensitive to general economic conditions than many other types of loans. Also, the funding of loan fees and interest during the construction phase makes monitoring a project’s progress particularly important, as early warning signals of project difficulties may not be present.

Multifamily Lending:  We originate multifamily loans, which are held in the portfolio and are primarily secured by apartment buildings. Multifamily loans generally are balloon loans with terms ranging from five to ten years and amortization based on 15 to 25 year terms. Rates on multifamily loans are both fixed and adjustable. The terms on fixed-rate loans are generally limited to five years. Adjustable-rate multifamily loans are reset to a stated margin over an independent index. Multifamily lending rates are typically higher than rates charged on one- to four-family residential properties. Multifamily loans are generally written in amounts up to 80% of the lesser of the appraised value or purchase price of the underlying property. At June 30, 2010, multifamily loans totaled $108 million, or 4.6% of total loans.

Multifamily loans generally present a higher level of risk than loans secured by one- to four-family residences due to several factors, including the concentration of principal in a limited number of loans and borrowers, the effects of general economic conditions on income producing properties and the increased complexity of evaluating and monitoring these types of loans. Furthermore, the repayment of loans secured by multifamily properties is typically dependent upon the successful operation of the related real estate project. If the cash flow from the project is reduced, the borrower’s ability to repay the loan may be impaired. In most instances, the risk level is mitigated by obtaining individual guarantees, which may increase the level of collateral supporting the loan.

Commercial Real Estate Lending:  We originate owner-occupied and non-owner-occupied commercial real estate loans, which we generally hold in our portfolio. These loans are primarily secured by strip shopping centers, small office buildings, warehouses, and other industrial and business properties. Commercial real estate loans generally are balloon loans with terms ranging from five to ten years and amortization based on 15 to 25 year terms. Rates on commercial real estate loans are both fixed and adjustable. The terms on fixed-rate loans are generally limited to five years. Adjustable-rate commercial real estate loans are reset to a stated margin over an independent index. Commercial real estate loans are generally written in amounts up to 80% of the lesser of the appraised value or purchase price of the underlying property. Commercial real estate loans totaled $901 million, or 38.6% of total loans at June 30, 2010.

Commercial real estate loans generally present a higher level of risk than loans secured by one- to four-family residences. This greater risk is due to several factors, including the concentration of principal in a limited number of loans and borrowers, the effects of general economic conditions on income producing properties and the increased complexity of evaluating and monitoring these types of loans. Furthermore, the repayment of loans secured by commercial real estate properties is typically dependent upon the successful operation of the related real estate project. If the cash flow from the project is reduced, the borrower’s ability to repay the loan may be impaired. In most instances, the risk level is mitigated by individual guarantees of the loan and/or additional collateral pledged to secure the loan. These loans generally offer a higher interest rate due to the increased credit risk. Despite the risks inherent in commercial real estate lending, we anticipate that commercial real estate loans will continue to represent a significant portion of total loans. The performance of this portfolio, however, will be closely monitored for any indications of weaknesses.

Commercial Non-Real Estate Lending:  Commercial non-real estate loans totaled $154 million, or 6.6% of total loans at June 30, 2010. Commercial loan originations are primarily term loans and lines of credit to closely-held small and medium size businesses operating in our primary market area. We intend to continue to expand commercial lending operations in our primary and contiguous market areas.

Unlike one- to four-family mortgage loans, which generally are made on the basis of the borrower’s ability to make repayment from his or her employment and which are secured by real property whose value tends to be more easily ascertainable, commercial loans are of higher risk and typically are made on the basis of the

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borrower’s ability to make repayment from the cash flow of the borrower’s business. As a result, the availability of funds for the repayment of commercial loans may be substantially dependent on the success of the business itself. Further, any collateral securing commercial loans in general may depreciate over time, may be difficult to appraise and may fluctuate in value based on the success of the business. As a result, we strive to obtain additional security through a personal guarantee from the business owner(s). We believe that the credit and underwriting policies currently in place provide a reasonable basis upon which to evaluate these risks and to continue to extend credit of this type.

Consumer Lending:  Consumer loans totaled $341 million, or 14.6% of total loans at June 30, 2010, and consisted of home equity lines of credit, home equity loans, new and used automobile loans, and secured and unsecured personal loans. Such loans are generally originated in our primary market area.

Home equity lines of credit and home equity loans comprise the majority of consumer loan balances and totaled $323 million at June 30, 2010. We offer variable-rate home equity lines of credit and fixed-rate home equity loans based on the borrower’s equity in the home and their ability to make repayment from their employment. Generally, these loans, when combined with the balance of prior mortgage liens, may not exceed 80% of the appraised value of the property at the time of the loan commitment. These loans are secured by a subordinate lien on the underlying real estate. We hold the first mortgage on a majority of the properties securing these loans. Since fiscal 2007, management reduced our exposure to potential future losses in our home equity lines of credit portfolio by eliminating open credit line availability to certain borrowers. These reductions in credit line availability were based on borrower’s credit scores and/or declines in real estate collateral values.

Sale of Residential Real Estate Loans:  We engage in mortgage banking as part of an overall strategy to deliver loan products to customers. As a result, we sell most fixed-rate residential loans and a portion of our adjustable-rate residential loans originated. During fiscal 2010, we originated $1.889 billion in one-to four-family residential loans through our retail and wholesale mortgage banking operations and sold $1.911 billion. This compares to originations of $1.910 billion and sales of $1.568 billion in fiscal 2009. We were able to increase sales activity during fiscal 2010, as a result of continued favorable long-term interest rates.

To reduce the interest rate risk associated with commitments made to borrowers for mortgage loans that have not yet been closed and that we intend to sell in the secondary markets, we may enter into commitments to sell loans or mortgage-backed securities, considered to be derivatives, to limit our exposure to potential movements in market interest rates. We monitor our interest rate risk position daily to maintain coverage ranging from 40% to 100% of our loan commitments made to borrowers.

Loan commitments are generally made for periods of 60 days or less. As of June 30, 2010, over 90% of our fixed-rate commitments to make loans are one- to four-family residential loan commitments that have interest rates ranging from 3.88% to 7.25%. As of June 30, 2010, the mortgage-backed securities sales commitments, which have similar interest rates and maturities as the one- to four-family residential loan commitments, have remaining contractual maturities of less than 90 days.

As indicated previously, derivative instruments are used to mitigate the interest rate risk associated with commitments to make mortgage loans we intend to sell. We also enter into contracts for the future delivery of residential mortgage loans when interest rate locks are entered into in order to economically hedge potential adverse effects of changes in interest rates. These contracts are also derivative instruments. Derivative instruments are recognized as either assets or liabilities at fair value in the statement of financial condition.

Loan Servicing Activities:  Servicing mortgage loans for investors involves a contractual right to receive a fee for processing and administering loan payments on mortgage loans that are not owned by the Company and are not included on its balance sheet. This processing involves collecting monthly mortgage payments on behalf of investors, reporting information to those investors on a timely basis and maintaining custodial escrow accounts for the payment of principal and interest to investors, and property taxes and insurance premiums on behalf of borrowers. At June 30, 2010, we had approximately 18,000 loans serviced for others totaling $2.859 billion.

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As compensation for our mortgage servicing activities, we receive servicing fees, usually 0.25% to 0.50% per annum of the loan balances serviced, plus any late charges collected from the delinquent borrowers and other fees incidental to the services provided. In the event of a default by the borrower, we receive no servicing fees until the default is cured. In times when interest rates are rising or at high levels, servicing mortgage loans can represent a steady source of noninterest income and can, at times, offset decreases in mortgage banking gains. Conversely, in times when interest rates are falling or at very low levels, servicing mortgage loans can become unprofitable due to the rapid payoff of loans, which results in impairment of MSRs for the remaining portfolio or the rapid amortization of servicing rights for the loans paying off.

We monitor the level of our investment in MSRs in relation to our other mortgage banking activities in order to limit our exposure to significant fluctuations in loan servicing income. Over the past several years, the volume and dollar amount of MSRs has been growing more rapidly than total assets on a percentage basis. As a result, our exposure to volatility in mortgage banking gains has also increased. In order to reduce exposure to volatility resulting from rapid payoffs or impairment, we sold MSRs in fiscal years 2008 and 2006. There were no sales of MSRs in fiscal years 2010 and 2009. In the future, we may sell MSRs depending on the size of the MSR portfolio relative to total assets and current market conditions.

Loan Approval Procedures and Authority:  The Board of Directors establishes the lending policies and loan approval limits of the Company. In accordance with those policies, the Board of Directors has designated certain officers to consider and approve loans within their designated authority as established by the Board.

Loan authorities are defined by the loan policy adopted by the Board. Currently, lending authorities for one- to four-family residential real estate loans are assigned to individuals in varying amounts up to $0.8 million based on experience and the level of responsibility of the individual within the Company. The maximum loan that may be approved by any one member of the Senior Loan Committee is $2 million and the majority of the committee members have authority up to $1 million. Speculative construction or acquisition and development loans may be authorized only by designated senior officers. Responsibility for approval of consumer loans is assigned to individuals in varying amounts based on experience and the level of responsibility of the individual within the Company. Currently, the maximum loan approval for a secured consumer loan is $2 million and for an unsecured consumer loan is $50 thousand. The lending policy considers the potential borrower’s aggregate credit exposure in determining the authorization required for commercial loan approvals. In addition, we have established a maximum credit exposure of $17 million to any single borrower. Loans to borrowers with aggregate credit exposure in excess of $6 million require the approval of three members of the Director’s Loan Committee plus a majority of the Senior Loan Committee. Loans to borrowers with aggregate credit exposure from $2 million to $6 million require the approval of four members of the Senior Loan Committee, one of which must be the Chief Executive Officer or the Chief Operating Officer. During fiscal year 2008, management instituted an additional review measure requiring Senior Loan Committee review and approval of senior officers with that level of individual lending authority for loans to borrowers with aggregate exposure from $1 million to $2 million.

A credit report is ordered and certain other information is verified by an independent credit agency for loans originated by the Company. Additional financial information may be required based on the information received from the credit agency or for certain types of loans. An appraisal of real estate intended to secure a proposed loan generally is required to be performed by outside appraisers or the Company’s staff appraisers. Our policy is to obtain hazard insurance on mortgage loans and flood insurance when necessary and in some cases to require borrowers to make payments to a mortgage escrow account for the payment of property taxes and insurance premiums.

Asset Quality

Delinquent Loans:  Delinquent loans are comprised of loans past due 30 to 89 days and loans on nonaccrual status. Reports on delinquent loans are generated monthly and reviewed by management and the Board of Directors. Collection procedures for delinquent loans vary depending on the nature of the loan, period and cause of delinquency and whether the borrower is habitually delinquent. When a loan becomes 90 days past due, it is generally our policy to stop accruing interest and place the loan on nonaccrual status. In addition, we initiate foreclosure proceedings against any real property that secures the loan. If the loan is secured by personal property, action is taken to secure, obtain title to and take possession of the collateral. Generally, the

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collateral is liquidated and guarantees against the borrower are pursued. If a foreclosure action is instituted and the loan is not brought current, paid in full, or refinanced before the foreclosure sale, the property securing the loan generally is sold at foreclosure and, if purchased by us, becomes real estate owned.

Table 4 shows the composition of our delinquent loans and delinquent loans as a percentage of total loans as of the dates indicated. The amounts presented represent the total remaining principal balances of the related loans, rather than the actual payment amounts overdue.

TABLE 4. DELINQUENT LOANS

June 30, (Dollars in thousands)		2010				2009				2008				2007				2006
Loans Past Due 30 – 89 Days:
Residential real estate		$	22,321			$	29,086			$	16,970			$	10,856			$	6,300
Commercial			7,244				15,226				14,628				5,356				3,481
Consumer			6,677				4,559				3,457				3,772				969
Total loans past due 30 – 89 days			36,242				48,871				35,055				19,984				10,750
Nonaccrual Loans:
Residential real estate			52,406				48,999				32,028				20,071				8,929
Commercial			31,489				35,756				9,880				8,782				3,800
Consumer			8,972				13,998				7,684				4,552				3,057
Total nonaccrual loans			92,867				98,753				49,592				33,405				15,786
Total delinquent loans			129,109				147,624				84,647				53,389				26,536
Delinquent loans to total loans			5.53	%			5.98	%			3.20	%			2.13	%			1.13	%

The decrease in delinquent loans during fiscal 2010 was due primarily to higher charge-offs and a decrease in the level of new delinquent loans. Our delinquent loans have decreased for three consecutive quarters and at June 30, 2010, were at their lowest level since March 31, 2009.

Classified Assets:  Federal regulations and our internal policies require that an internal asset classification system be used as a means of reporting problem and potential problem assets. In accordance with regulatory guidelines, we currently classify problem and potential problem assets as “Other Assets Especially Mentioned,” “Substandard,” “Doubtful” or “Loss” assets. An asset is considered Substandard if it is inadequately protected by the current net worth and paying capacity of the obligor or the collateral pledged, if any. Substandard assets include those characterized by the distinct possibility that some loss will be sustained if the deficiencies are not corrected. Assets classified as Doubtful have all of the weaknesses inherent in those classified Substandard with the added characteristic that the weaknesses present, on the basis of currently existing facts, conditions and values, make the collection or liquidation in full highly questionable. Assets classified as Loss are those considered uncollectible and of such little value that their continuance as assets, without the establishment of a specific loss allowance, is not warranted. Assets that do not currently possess a sufficient degree of risk to warrant classification in one of the aforementioned categories but possess weaknesses are designated Other Assets Especially Mentioned.

When we classify one or more assets, or portions thereof, as Substandard or Doubtful, our policy requires us to establish an allowance for probable loan losses in an amount deemed prudent as long as the loss of principal is probable and estimable. When one or more assets, or portions thereof, are classified as Loss, we are required either to establish a specific allowance for losses equal to 100% of the amount of the assets so classified or to charge off such amount. A specific allowance may be established prior to the loan being charged off where there exist some circumstances that make determining the amount of the loss difficult. Examples are a litigation process such as a foreclosure or bankruptcy that may get delayed and result in a lessening of collateral value due to physical deterioration. Additional examples are potential recovery under an insurance claim, divorce, medical hardship, loss of employment, or death. Loans are charged off when deemed to be uncollectible.

Our determination as to the classification of the Company’s assets and the amount of its valuation allowances is subject to review by the OTS, which can order the establishment of additional general or specific loss allowances. The OTS has adopted an interagency policy which is consistent with the SEC’s guidance

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regarding the allowance for loan losses. The OTS policy provides guidance for financial institutions on both the responsibilities of management for the assessment and establishment of a prudent but not excessive allowance for loan losses in accordance with GAAP and guidance for banking agency examiners to use in determining the adequacy of general valuation guidelines. Generally, the policy statement recommends that institutions have effective systems and controls to identify, monitor and address the allowance for loan losses; that management has analyzed and documented all significant factors that affect the collectability of the portfolio in a reasonable manner; and that management has established acceptable allowance for loan losses evaluation and disclosure processes that meet the objectives set forth in the policy statement. While we believe that we have established an adequate allowance for probable loan losses, there can be no assurance that regulators, in reviewing our loan portfolio, will not request a material change in the allowance for loan losses, thereby significantly affecting our financial condition and results of operations at that time. Although we believe that adequate specific and general loan loss allowances have been established, future provisions will depend upon events such as loan growth, portfolio diversification and changes in the borrower’s financial condition, and as such, further changes to the level of allocated and unallocated loan loss allowances may become necessary.

We review and classify assets in accordance with the guidelines described above, and the Board of Directors reviews the results of our reports. Table 5 shows the composition of our classified loans as of the dates indicated.

TABLE 5. CLASSIFIED LOANS

June 30, (In thousands)		2010				2009				2008				2007
Classified Loans:
Other Assets Especially Mentioned:
Residential real estate		$	—			$	—			$	134			$	343
Commercial			92,177				75,319				48,475				37,492
Consumer			—				—				9				119
Total other assets especially mentioned			92,177				75,319				48,618				37,954
Substandard:
Residential real estate			60,027				27,674				20,925				13,881
Commercial			85,892				73,066				42,335				16,063
Consumer			10,445				8,244				4,630				2,882
Total substandard			156,364				108,984				67,890				32,826
Doubtful:
Residential real estate			7,400				13,147				6,432				7,749
Commercial			4,709				4,827				5,762				3,723
Consumer			2,036				4,021				1,408				1,536
Total doubtful			14,145				21,995				13,602				13,008
Loss:
Residential real estate			—				92				92				30
Commercial			—				—				—				—
Consumer			—				10				10				10
Total loss			—				102				102				40
Total classified loans		$	262,686			$	206,400			$	130,212			$	83,828

The increase of $47 million, or 44.7%, in substandard loans was a result of credit deterioration in loans secured by one- to four-family residential properties and the commercial loan portfolio.

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Nonperforming Assets:  Nonperforming assets consist of nonperforming loans and real estate owned. Table 6 shows the composition of our nonperforming assets and selected asset quality ratios, and the extent to which nonperforming assets changed over the past five years.

TABLE 6. NONPERFORMING ASSETS

June 30, (Dollars in thousands)		2010				2009				2008				2007				2006
Nonperforming assets:
Residential real estate loans		$	52,406			$	48,999			$	32,028			$	20,071			$	9,353
Commercial loans			31,489				35,756				9,880				8,782				3,800
Consumer loans			8,972				13,998				7,684				4,552				3,057
Total nonaccrual loans			92,867				98,753				49,592				33,405				16,210
Troubled debt restructurings performing less than six months			5,253				4,475				1,130				557				561
Total nonperforming loans			98,120				103,228				50,722				33,962				16,771
Real estate owned			33,693				36,790				23,695				6,716				3,924
Total nonperforming assets		$	131,813			$	140,018			$	74,417			$	40,678			$	20,695
Nonperforming loans to total loans			4.20	%			4.18	%			1.91	%			1.35	%			0.71	%
Nonperforming assets to total assets			4.18				4.11				2.23				1.26				0.66

The decrease in nonperforming loans resulted from our efforts to resolve problem assets as rapidly as possible, along with a decrease in the level of new nonperforming loans. Of the total nonperforming loans at June 30, 2010, 95% were secured by real estate. Real estate loans are generally well secured and if these loans should default, the majority of the loan balance, net of any charge-offs, is usually recovered by liquidating the real estate.

At the end of fiscal 2009, we disclosed the possibility of incurring a loss on a $7 million lending relationship involving fraudulent collateral. The outstanding balance, which had been included in nonperforming loans, has been resolved through a combination of recovery on an insurance policy and a charge-off. No further losses on that lending relationship are anticipated.

In the normal course of business, we work closely with borrowers in various stages of delinquency to understand their financial difficulties, identify viable solutions and minimize the potential for loss. In that regard, we have modified the terms of select loans to maximize their collectability. These modified loans are considered troubled debt restructurings under current accounting guidance. Troubled debt restructurings on nonaccrual status are classified as nonperforming loans. Troubled debt restructurings accruing interest are loans that were accruing interest at the time of restructuring and have been in compliance with their modified terms for a period of less than six months. These restructured loans that are accruing interest are also classified as nonperforming loans. In the current recessionary economy, troubled debt restructurings have become more prevalent.

Real Estate Owned:  Assets acquired through foreclosure or received from the borrower in full or partial settlement of a loan obligation are initially recorded at fair value less estimated selling costs. If a subsequent deterioration in value occurs, a specific valuation allowance is established with a corresponding charge to expense. Costs to carry foreclosed assets after they are initially recorded are expensed as incurred. At June 30, 2010, our real estate owned consisted of 247 repossessed properties with a net carrying amount of $34 million, down from $37 million at June 30, 2009. During fiscal 2010, $33 million in properties were acquired, $28 million were sold and the valuation allowance increased by $8 million.

Real Estate Held for Investment:  Select properties acquired through foreclosure or deed in lieu of foreclosure are transferred to real estate held for investment, due primarily to their ability to generate cash flow from rent receipts. At June 30, 2010, real estate held for investment consisted of 25 repossessed properties with a net carrying amount of $5 million, down from $7 million at June 30, 2009. The decrease was due to the sale of two properties.

Allowance for Loan Losses:  The allowance for loan losses represents our estimate of probable losses in the loan portfolio as of the balance sheet date. All lending activity contains inherent risk of loss; however, we

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have not originated or purchased a material amount of high risk products such as subprime loans. We establish the level of the allowance based on: probable loss exposure on impaired loans; the amount and composition of classified loans; the level and mix of nonclassified loans; historic loss rates and loss given default ratios, and other asset quality trends in the portfolio. The allowance consists of four specific components: (i) a specific allowance allocated to loans subject to individual analysis, (ii) an allowance allocated to classified loans not otherwise subject to individual analysis, (iii) an allowance allocated to nonclassified loans, and (iv) an unallocated balance. Homogeneous loans, such as residential real estate and consumer loans, are individually evaluated for loss potential when they become 180 days delinquent. Any loan balance in excess of the underlying collateral value, less cost to sell the collateral, is charged off against the allowance for loan losses. Loans may be charged off at an earlier date if the collection of principal and interest is considered doubtful. Commercial loans are individually evaluated for charge off based on delinquency and classification status. Table 7 presents changes in the allowance for loan losses for the periods indicated.

TABLE 7. ALLOWANCE FOR LOAN LOSSES

Years Ended June 30, (Dollars in thousands)		2010				2009				2008				2007				2006
Balance at beginning of period		$	39,580			$	28,216			$	25,851			$	22,319			$	18,266
Provision for loan losses			86,600				42,984				16,467				7,391				5,875
Allowances acquired through mergers			—				—				398				—				525
Charge-offs:
Residential real estate			22,672				9,458				5,117				1,415				1,004
Commercial			46,749				17,486				5,382				1,825				1,599
Consumer			11,521				5,165				4,376				1,152				519
Total charge-offs			80,942				32,109				14,875				4,392				3,122
Recoveries:
Residential real estate			61				143				97				205				82
Commercial			165				168				172				204				525
Consumer			211				178				106				124				168
Total recoveries			437				489				375				533				775
Net charge-offs			80,505				31,620				14,500				3,859				2,347
Balance at end of period		$	45,675			$	39,580			$	28,216			$	25,851			$	22,319
Allowance for loan losses to total loans			1.96	%			1.60	%			1.07	%			1.03	%			0.95	%
Allowance for loan losses to nonperforming loans			46.55				38.34				55.63				76.12				133.08
Net charge-offs to average loans			3.34				1.22				0.56				0.16				0.12

Table 8 shows the amount of allowance allocated to each of our loan categories, the unallocated portion of the allowance and the percent of each loan category to total loans at the dates indicated. For reporting purposes, the allowance for loan losses is allocated across our loan products. However, the entire allowance is available to absorb any credit loss without restriction.

TABLE 8. ALLOCATION OF ALLOWANCE FOR LOAN LOSSES

June 30, (Dollars in thousands)		2010								2009								2008								2007								2006
		Amount				Percent				Amount				Percent				Amount				Percent				Amount				Percent				Amount				Percent
Residential real estate		$	12,466				33.6	%		$	11,486				34.4	%		$	10,635				38.3	%		$	7,694				43.0	%		$	4,898				47.8	%
Commercial			20,941				51.8				19,780				50.5				10,809				46.6				12,474				41.8				10,762				36.4
Consumer			7,777				14.6				7,703				15.1				2,671				15.1				2,136				15.2				1,782				15.8
Unallocated allowance			4,491				—				611				—				4,101				—				3,547				—				4,877				—
Total allowance for loan losses		$	45,675				100.0	%		$	39,580				100.0	%		$	28,216				100.0	%		$	25,851				100.0	%		$	22,319				100.0	%

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Investment Activities

The Board of Directors approves the investment policies for the Company. The policies generally provide that investment decisions will be made based on the safety of the investment, liquidity needs, interest rate risk characteristics and, to a lesser extent, potential return on the investments. The Board of Directors also monitors the investment activities of the Company. In pursuing these objectives, we consider the ability of an investment to provide earnings consistent with its risk-weighting for regulatory capital purposes, quality, maturity, marketability and risk diversification. We evaluate investment activities for safety and soundness and adherence to policies. In accordance with these investment policies, we do not purchase mortgage-related securities that are deemed to be “high risk,” or purchase bonds that are not rated investment grade.

Mortgage-backed securities are created by the pooling of mortgages and issuance of a security. Mortgage-backed securities typically represent a participation interest in a pool of single-family or multifamily mortgages. Investments in mortgage-backed securities involve a risk that actual principal prepayments will be greater or less than estimated prepayments over the life of the security. Prepayment estimates for mortgage-backed securities are prepared at purchase to ensure that prepayment assumptions are reasonable considering the underlying collateral for the mortgage-backed securities at issue and current mortgage interest rates and to determine the yield and estimated maturity of the mortgage-backed security portfolio. Prepayments that are faster than anticipated may shorten the life of the security and may result in faster amortization of any premiums paid and thereby reduce the net yield on such securities. During periods of declining mortgage interest rates, refinancing generally increases and accelerates the prepayment of the underlying mortgages and the related security.

Securities:  Securities totaled $250 million at June 30, 2010, down $27 million from $277 million at June 30, 2009. Table 9 shows the composition of the securities portfolio in dollar amounts and in percentages at the dates indicated.

TABLE 9. SECURITIES

June 30, (Dollars in thousands)		2010								2009								2008
		Amount				Percent				Amount				Percent				Amount				Percent
Debt securities – available for sale:
U.S. Government agencies and other government sponsored enterprises		$	8,262				3.3	%		$	4,582				1.6	%		$	41,232				14.5	%
Obligations of states and political subdivisions			65,643				26.3				62,946				22.8				66,519				23.4
Trust preferred securities			10,418				4.2				8,267				3.0				10,520				3.7
One- to four-family mortgage-backed securities and collateralized mortgage obligations issued by government-sponsored enterprises			153,601				61.6				188,722				68.2				137,927				48.5
Total			237,924				95.4				264,517				95.6				256,198				90.1
Equity securities – available for sale:
Common stock			260				0.1				297				0.1				3,369				1.2
Fannie Mae and Freddie Mac preferred stock			—				—				—				—				9,257				3.2
Total			260				0.1				297				0.1				12,626				4.4
Total securities available for sale			238,184				95.5				264,814				95.7				268,824				94.5
Equity securities – trading
Mortgage-backed securities mutual fund			11,358				4.5				11,786				4.3				15,609				5.5
Total			11,358				4.5				11,786				4.3				15,609				5.5
Total securities		$	249,542				100.0	%		$	276,600				100.0	%		$	284,433				100.0	%

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Table 10 presents certain information regarding the amortized cost, weighted-average yields and contractual maturities of the debt securities in the available-for-sale securities portfolio.

TABLE 10. DEBT SECURITIES AVAILABLE FOR SALE

June 30, 2010 (Dollars in thousands)		One Year or Less								More than One Year to Five Years								More than Five Years to Ten Years								More than Ten Years								Total
		Amortized Cost				Weighted- average Yield				Amortized Cost				Weighted- average Yield				Amortized Cost				Weighted- average Yield				Amortized Cost				Weighted- average Yield				Amortized Cost				Weighted- average Yield
U.S. government agencies and other government sponsored enterprises		$	—				—	%		$	—				—	%		$	8,247				3.11	%		$	—				—	%		$	8,247				3.11	%
Obligations of states and political subdivisions(a)			2,830				4.61				3,624				4.91				16,206				5.51				41,869				6.16				64,529				5.86
Trust preferred securities			—				—				—				—				—				—				13,264				1.31				13,264				1.31
One- to four-family mortgage-backed securities and collateralized mortgage obligations issued by government sponsored enterprises			—				—				1,452				4.79				13,865				4.92				130,240				4.50				145,557				4.54
Total debt securities available for sale		$	2,830				4.61	%		$	5,076				4.88	%		$	38,318				4.78	%		$	185,373				4.65	%		$	231,597				4.67	%

Sources of Funds

Summary:  Our primary sources of funds are deposits, principal and interest payments on loans and securities, borrowings, repurchase agreements and funds generated from operations of the Bank. The Bank also has access to advances from the FHLB and the FRB. Contractual loan payments are a relatively stable source of funds, while deposit inflows and outflows and loan prepayments are significantly influenced by general market interest rates and economic conditions. Borrowings may be used on a short-term basis for liquidity purposes or on a long-term basis to fund asset growth.

Deposits:  We offer a variety of deposit accounts consisting of noninterest-bearing and interest-bearing checking accounts, savings accounts, money market deposit accounts and certificates of deposit. We also offer Individual Retirement Accounts and other qualified plan accounts. Interest-bearing accounts provide a range of interest rates and various terms up to 60 months.

We consider core deposits, consisting of noninterest-bearing and interest-bearing checking accounts, savings accounts, and money market deposit accounts, to be a significant component of our deposits. We monitor activity on these core deposits and, based on historical experience and pricing strategy, believe we will continue to retain a large portion of such accounts. We are currently not limited with respect to the rates we may offer on deposit products. We believe we are competitive in the types of accounts and interest rates we have offered on our deposit products. We regularly evaluate the internal cost of funds, surveys rates offered by competitors, review cash flow requirements for lending and liquidity, and execute rate changes when necessary as part of our asset/liability management, profitability and growth objectives.

The flow of deposits is influenced significantly by general economic conditions, changes in money market rates, prevailing interest rates and competition. Our deposits are obtained predominantly from the areas in which our retail offices are located. We rely primarily on customer service, long-standing relationships and other banking services, including loans, to attract and retain these deposits. However, market interest rates and rates offered by competing financial institutions affect our ability to attract and retain deposits. We use traditional means of advertising our deposit products, including radio and print media.

In addition to retail core deposits and certificates of deposit, other sources of funds include wholesale and brokered deposits. Wholesale deposits include public funds obtained through our participation in a national referral program and public funds from the State of Ohio. At June 30, 2010, wholesale deposits totaled $116 million. Brokered deposits include funds obtained through brokers, and our participation in the

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Certificate of Deposit Account Registry Service (“CDARS”) program. The CDARS program involves a network of financial institutions that exchange funds among members in order to ensure FDIC insurance coverage on customer deposits above the single institution limit. Using a sophisticated matching system, funds are exchanged on a dollar-for-dollar basis, so that the equivalent of an original deposit comes back to the originating institution. At June 30, 2010, brokered deposits totaled $160 million.

We consider brokered deposits to be an element of a diversified funding strategy. As an alternative to borrowings, we regularly compare interest rates to determine the most economical source of funding. We anticipate that we will continue to consider using brokered funds as a source of short-term liquidity, but not as the primary source of funding to support growth. Currently, the OTS, our primary regulator, has limited our brokered deposits to approximately $231 million.

Table 11 presents the factors that contributed to the change in total deposits for the periods indicated.

TABLE 11. DEPOSITS

June 30, (In thousands)		2010				2009				2008
Balance at beginning of year		$	2,435,601			$	2,369,092			$	2,240,696
Merger with HBLS Bank			—				—				39,970
Merger with OC Financial			—				—				44,185
Net deposits (withdrawals)			(738	)			17,205				(26,310	)
Interest credited on deposit accounts			35,228				49,304				70,551
Total increase in deposit accounts			34,490				66,509				128,396
Balance at end of year		$	2,470,091			$	2,435,601			$	2,369,092

Borrowings:  We obtain advances from the FHLB and FRB, which are collateralized by blanket pledges of one- to four-family residential loans, multifamily loans and commercial real estate loans; consumer loans; a pledge of specific securities and our stock in the FHLB. Funds are also obtained through reverse repurchase agreements with primary broker/dealers and with certain business customers. Advances from the FHLB and FRB are made pursuant to several different credit programs, each of which has its own interest rate and maturity. The maximum amount that the FHLB will advance to member institutions, including the Company, for purposes of other than meeting withdrawals, fluctuates from time to time in accordance with the policies of the FHLB and collateral available to secure loans. At June 30, 2010, our FHLB advances totaled $273 million and we have additional borrowing capacity of $51 million based on collateral pledged. The Bank has a borrowing capacity of $50 million with the FRB through its discount window, all of which was available at June 30, 2010.

At June 30, 2010, we had a $10 million unsecured line of credit with a commercial bank, all of which was available.

As of June 30, 2010, we sponsored three affiliated trusts, First Place Capital Trust, First Place Capital Trust II and First Place Capital Trust III (collectively the “Trust Affiliates”), that issued $60 million of Guaranteed Capital Trust Securities (“Trust Preferred Securities”). In connection with these transactions, we issued $62 million of Junior Subordinated Deferrable Interest Debentures (“Junior Debentures”) to the Trust Affiliates. The Trust Affiliates were formed for the purpose of issuing Trust Preferred Securities to third-party investors and investing the proceeds from the sale of these capital securities solely in our Junior Debentures. The Junior Debentures held by each Trust Affiliate are the sole assets of that trust. The proceeds received from the Trust Affiliates were used for acquisitions, to increase the capital of the Bank and for general corporate purposes.

With the consent of the OTS, First Place Financial Corp. may continue to increase borrowings in the future to fund asset growth and, as a result, may experience an increase in funding costs.

Personnel

As of June 30, 2010, we had approximately 839 full-time and 101 part-time employees. The employees are not represented by a collective bargaining unit.

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FEDERAL AND STATE TAXATION

Federal Taxation

Summary:  The Company and all of its subsidiaries, except First Place Capital Trust, First Place Capital Trust II and First Place Capital Trust III, file a consolidated federal income tax return using a June 30 fiscal year-end. First Place Capital Trust, First Place Capital Trust II and First Place Capital Trust III file separate trust returns for federal income tax purposes.

Our annual effective tax rate is generally less than the federal statutory rate of 35%, primarily because we generate income from investments in tax-advantaged assets such as certain tax-exempt securities and company-owned life insurance, and earn credits associated with investments in low-income housing projects. We are subject to federal income taxation in the same manner as other corporations with certain exceptions, particularly the Bank’s reserve for bad debts discussed below.

We also conduct periodic assessments of deferred tax assets to determine if it is more-likely-than-not that they will be realized. In making these assessments we consider taxable income in prior periods, projected future taxable income, potential tax-planning strategies and projected future reversals of deferred tax items. These assessments involve a certain degree of subjectivity which may change significantly depending on the related circumstances. During fiscal 2010, we established a valuation allowance on our deferred tax assets. In future periods, we anticipate that the Company will have a minimal tax provision until such time as we are able to reverse the deferred tax asset valuation allowance.

The following discussion of tax matters is intended only as a summary and does not purport to be a comprehensive description of the tax rules applicable to the Company.

Bad Debt Reserve:  Historically, savings institutions, such as the Bank, that met certain definitional tests primarily related to their assets and the nature of their business (“qualifying thrifts”) were permitted to establish a reserve for bad debts based on a percentage of taxable income and to make annual additions thereto, which were deducted in arriving at taxable income.

In August 1996, provisions repealing the above thrift bad debt rules were passed by Congress as part of “The Small Business Job Protection Act of 1996”. These rules eliminated the percentage of taxable income method for making additions to the tax bad debt reserves for all thrifts for tax years beginning after December 31, 1995. For each taxable year beginning after December 31, 1995, the Bank’s bad debt deduction has been equal to its net charge-offs.

The rules required that all thrift institutions recapture their bad debt reserves that exceeded the balance in the base year, which was the last taxable year beginning before January 1, 1988. The Bank has paid taxes on the recaptured bad debt reserves that were recorded after December 31, 1987. The unrecaptured base year reserves are generally not subject to recapture as long as the thrift continues to carry on the business of banking. However, certain events could result in the recapture of these reserves into taxable income. Events that would result in taxation of these reserves include failure to qualify as a bank for tax purposes, distributions in complete or partial liquidation, stock redemptions, excess distributions to shareholders (described immediately below) or a change in federal tax law. Distributions to First Place Financial Corp. paid out of the Bank’s current or accumulated earnings and profits, as calculated for federal income tax purposes, will not be considered to result in a distribution from the Bank’s bad debt reserve. Any distributions in excess of current or accumulated earnings and profits of the Bank would reduce amounts allocated to the Bank’s bad debt reserve and would create a tax liability for the Bank. The amount of additional taxable income created by such a distribution is an amount that, when reduced by the tax attributable to the income, is equal to the amount of the distribution. Thus, if the Bank makes a distribution that reduces the amount allocated to its bad debt reserve, then approximately one and one-half times the amount used would be includible in gross income for federal income tax purposes, assuming a 35% corporate income tax rate (exclusive of state and local taxes). The Bank does not intend to make distributions that would result in a recapture of any portion of its bad debt reserve.

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Corporate Alternative Minimum Tax:  The Internal Revenue Code of 1986, as amended, imposes a tax on alternative minimum taxable income (“AMTI”) at a rate of 20%. Only 90% of AMTI can be offset by net operating loss carryovers. However, as provided in the Job Creation and Worker Assistance Act of 2002, this 90% limitation does not apply to net operating losses originated in tax years ending during calendar years 2001 and 2002. We currently have no net operating loss carryovers that were originated in those tax years. AMTI is increased by an amount equal to 75% of the amount by which the Company’s adjusted current earnings exceeds its AMTI (determined without regard to this preference and prior to reduction for net operating losses).

Dividends Received Deduction and Other Matters:  We may exclude from our income 100% of dividends received from the Bank or any other wholly-owned corporate affiliate as members of the same affiliated group of corporations.

Ohio Taxation

Businesses in Ohio are generally subject to the Ohio commercial activity tax, or alternatively, the Ohio franchise tax for financial institutions and their affiliates. In addition, businesses that supply goods or some types of services to businesses or consumers as end users are responsible for collecting sales and use taxes and remitting those taxes to the appropriate taxing authorities.

Franchise Tax:  First Place Financial Corp., First Place Holdings, Inc. and all other nonbanking Ohio affiliates are subject to the Ohio corporation franchise tax. The tax is measured by both net income and net worth, with the resulting tax liability being the greater of: (i) 5.1% on the first $50 thousand of computed Ohio taxable income and 8.5% of computed Ohio taxable income in excess of $50 thousand or (ii) 0.40% of taxable net worth. Under these alternative measures of computing tax liability, the states to which total net income and total net worth are apportioned or allocated are determined by complex formulas.

Certain holding companies, such as First Place Financial Corp., will qualify for complete exemption from the net worth tax if certain conditions related to subsidiaries subject to Ohio taxation are met. We will most likely meet these conditions, and thus, calculate our Ohio franchise tax on the net income basis.

The Bank is a financial institution for State of Ohio tax purposes. As such, it is subject to the Ohio corporation franchise tax on financial institutions, which is imposed annually at a rate of 1.3% of the Bank’s apportioned book net worth, determined in accordance with GAAP, less certain deductions. As a qualified “financial institution,” the Bank is not subject to any tax based upon net income or net profits imposed by the State of Ohio.

Commercial Activity Tax:  As a qualified exempt financial institution, the Bank and its affiliates are not subject to this tax.

Taxation by States Other Than Ohio

Delaware:  As a Delaware holding company, First Place Financial Corp. is exempted from Delaware corporate income tax but is required to file an annual report with, and pay an annual franchise tax to, the State of Delaware.

Michigan:  The Bank is subject to taxation in Michigan for income allocated to Michigan based on applicable Michigan apportionment rules. Effective January 1, 2008, Michigan replaced the Michigan Single Business Tax with the Michigan Business Tax. The Michigan Business Tax for financial institutions is a tax on net capital at a rate of 0.235%. The tax base is the Bank’s equity, determined in accordance with GAAP, less goodwill related to transactions occurring after July 1, 2007. The net capital tax is determined on a unitary group basis and is subject to a single sales factor apportionment.

Indiana:  The Bank has loan production offices in Carmel and Indianapolis, which are subject to apportioned income tax in Indiana.

Maryland:  The Bank has a loan production office in Rockville, which is subject to apportioned income tax in Maryland.

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Municipal Taxation

The Bank is exempt from municipal income taxes in Ohio, Michigan and Indiana. Other affiliates are subject to municipal income taxes at varying rates in the cities in which they operate.

REGULATION AND SUPERVISION

Summary:  The Bank is subject to extensive regulation, examination and supervision by the OTS, as its chartering agency, and the FDIC, as the deposit insurer. The Bank is a member of the FHLB and FRB systems. The Bank’s deposit accounts are insured up to applicable limits by the FDIC through the Deposit Insurance Fund. The Bank must file reports with the OTS and the FDIC concerning its activities and financial condition in addition to obtaining regulatory approvals prior to entering into certain transactions such as mergers with, or acquisitions of, other financial institutions. There are periodic examinations by the OTS and the FDIC to test the Bank’s compliance with various regulatory requirements. This regulation and supervision establishes a comprehensive framework of activities in which an institution can engage and is intended primarily for the protection of the insurance fund and depositors. The regulatory structure also gives the regulatory authorities extensive discretion in connection with their supervisory and enforcement activities and examination policies, including policies with respect to the classification of assets and the establishment of adequate allowances for loan losses for regulatory purposes. Various legislation including proposals to change substantially the financial institution regulatory system and to expand or contract the powers of banking institutions and bank holding companies, is from time to time introduced in Congress. Any change in such law, regulation or policies, whether by the OTS, the FDIC, successor regulatory agencies or the Congress, could have a material adverse impact on the Company, and the Bank and their operations. Under the holding company form of organization, we are also currently required to file certain reports with, and otherwise comply with the rules and regulations of the OTS and of the SEC under the federal securities laws.

Selected regulatory requirements applicable to First Place Financial Corp. and the Bank are discussed below. However, the description of statutory provisions and regulations applicable to savings institutions and their holding companies set forth in this Form 10-K does not purport to be a complete description of such statutes and regulations and their effects on the Bank and/or First Place Financial Corp.

New Federal Legislation:  The recently enacted Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) will significantly change the current bank regulatory structure and affect the lending, investment, trading and operating activities of financial institutions and their holding companies. The Dodd-Frank Act will eliminate our current primary federal regulator, the OTS, which will be replaced by the Office of the Comptroller of the Currency (the primary federal regulator for national banks). The Dodd-Frank Act also authorizes the Federal Reserve Board to supervise and regulate all savings and loan holding companies, including First Place, in addition to bank holding companies that it currently regulates. As a result, the Federal Reserve Board’s current regulations applicable to bank holding companies, including holding company capital requirements, will apply to savings and loan holding companies like First Place. These capital requirements are substantially similar to the capital requirement currently applicable to the Bank, as described in “Federal Savings Institution Regulation — Insurance of Deposit Accounts.” The Dodd-Frank Act also requires the Federal Reserve Board to set minimum capital levels for bank holding companies that are as stringent as those required for the insured depository subsidiaries, and the components of Tier 1 capital would be restricted to capital instruments that are currently considered to be Tier 1 capital for insured depository institutions. Under the Dodd-Frank Act, the proceeds of trust preferred securities are excluded from Tier 1 capital unless such securities were issued prior to May 19, 2010, by bank or savings and loan holding companies with less than $15 billion of assets. This exclusion does not apply to debt or equity instruments issued to the United States or any agency thereof pursuant to the Act prior to October 4, 2010. The legislation also establishes a floor for capital of insured depository institutions that cannot be lower than the standards in effect today, and directs the federal banking regulators to implement new leverage and capital requirements within 18 months that take into account off-balance sheet activities and other risks, including risks relating to securitized products and derivatives.

The Dodd-Frank Act also creates a new Consumer Financial Protection Bureau with broad powers to supervise and enforce consumer protection laws. The Consumer Financial Protection Bureau has broad rulemaking authority for a wide range of consumer protection laws that apply to all banks and savings

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institutions such as the Bank, including the authority to prohibit “unfair, deceptive or abusive” acts and practices. The Consumer Financial Protection Bureau has examination and enforcement authority over all banks and savings institutions with more than $10 billion in assets. Banks and savings institutions with $10 billion or less in assets will be examined by their applicable bank regulators. The new legislation also weakens the federal preemption available for national banks and federal savings associations, and gives state attorneys general the ability to enforce applicable federal consumer protection laws.

The legislation also broadens the base for FDIC insurance assessments. Assessments will now be based on the average consolidated total assets less tangible equity capital of a financial institution. The Dodd-Frank Act also permanently increases the maximum amount of deposit insurance for banks, savings institutions and credit unions to $250,000 per depositor, retroactive to January 1, 2008, and noninterest-bearing transaction accounts have unlimited deposit insurance through December 31, 2013. Lastly, the Dodd-Frank Act will increase stockholder influence over boards of directors by requiring companies to give stockholders a non-binding vote on executive compensation and so-called “golden parachute” payments, and by authorizing the SEC to promulgate rules that would allow stockholders to nominate their own candidates using a company’s proxy materials. The legislation also directs the Federal Reserve Board to promulgate rules prohibiting excessive compensation paid to bank holding company executives, regardless of whether the company is publicly traded.

It is difficult to predict at this time what impact the new legislation and implementing regulations will have on community banks, such as the Bank, including the lending and credit practices of such banks. Moreover, many of the provisions of the Dodd-Frank Act will not take effect for at least a year, and the legislation requires various federal agencies to promulgate numerous and extensive implementing regulations over the next several years. Although the substance and scope of these regulations cannot be determined at this time, it is expected that the legislation and implementing regulations, particularly those provisions relating to the new Consumer Financial Protection Bureau, will increase our operating and compliance costs.

Federal Savings Institution Regulation

Business Activities:  The activities of federal savings institutions are governed by the HOLA, as amended and, in certain respects, the Federal Deposit Insurance Act (“FDI Act”) and the regulations issued by the agencies to implement these statutes. These laws and regulations delineate the nature and extent of the activities in which federal associations may engage. For example, certain lending activities of federal associations, such as commercial, non-residential real property loans and consumer loans, are limited to a specified percentage of the institution’s capital or assets.

Loans-to-One Borrower:  Under the HOLA, savings institutions are generally subject to the national bank limit on loans to one borrower. Generally, this limit is 15% of a bank’s unimpaired capital and surplus, plus an additional 10% of unimpaired capital and surplus, if such loan is secured by readily marketable collateral, which is defined to include certain financial instruments. At June 30, 2010, the Bank was in compliance with this regulation.

Qualified Thrift Lender Test:  To be a qualified thrift lender, an institution must either meet the HOLA qualified thrift lender test or the Internal Revenue Code Domestic Building and Loan Association test. Under the qualified thrift lender test, an institution must hold qualified thrift investments equal to at least 65% of its portfolio assets. Portfolio assets are total assets minus goodwill and other intangible assets, office property, and specified liquid assets not exceeding 20% of total assets. Qualified thrift investments are primarily residential mortgages and related investments, including certain residential mortgage-backed and related securities. An institution must meet the test at least nine out of the last twelve months to maintain its qualified thrift lender status. A savings association that fails the qualified thrift lender test must either convert to a bank charter or operate under certain restrictions. As of June 30, 2010, the Bank met the qualified thrift lender test.

Limitation on Capital Distributions:  OTS regulations impose limitations upon all capital distributions by savings institutions, such as cash dividends, payments to repurchase or otherwise acquire its shares, payments to shareholders of another institution in a cash-out merger and other distributions charged against capital. The rule establishes three tiers of institutions, which are based primarily on an institution’s capital level. An institution that exceeds all fully phased-in capital requirements before and after a proposed capital distribution

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(Tier 1 Bank) and that has not been advised by the OTS that it is in need of more than normal supervision, could, after prior notice, but without obtaining approval of the OTS, make capital distributions during a calendar year equal to the greater of: (i) 100% of its net earnings to date during the calendar year plus the amount that would reduce by one-half its “surplus capital ratio” (the excess capital over its fully phased-in capital requirements) at the beginning of the calendar year or (ii) 75% of its net earnings for the previous four quarters. Any additional capital distributions would require prior regulatory approval. In the event the Bank’s capital fell below its regulatory requirements or the OTS notified it that it was in need of more than normal supervision, the Bank’s ability to make capital distributions could be restricted. In addition, the OTS could prohibit a proposed capital distribution by any institution, which would otherwise be permitted by the regulation, if the OTS determines that such distribution would constitute an unsafe or unsound practice.

Under OTS capital distribution regulations, an application to and the prior approval of the OTS is required before an institution makes a capital distribution if: (i) the institution does not meet certain criteria for “expedited treatment” for applications under the regulations, (ii) the total capital distributions by the institution for the calendar year exceed net income for that year plus the amount of retained net income for the preceding two years, (iii) the institution would be undercapitalized following the distribution or (iv) the distribution would otherwise be contrary to a statute, regulation or agreement with the OTS. If an application is not required, the institution may still need to give advance notice to the OTS of the capital distribution.

As of June 30, 2010, the Bank can not pay dividends to First Place Financial Corp. without the prior written approval of the OTS. Future dividend payments by the Bank to First Place Financial Corp. would be based upon future earnings and the approval of the OTS.

As a result of the issuance of the preferred stock and common stock warrant to the U.S. Treasury in fiscal 2009, the ability to declare or pay dividends on our common shares is limited to $0.085 per share per quarter, and only if all dividends have been paid on the Series A Preferred shares. In addition, our ability to repurchase common shares is restricted by the approval of the Treasury and the OTS, provided there are no payments in arrears on the Series A Preferred share dividends.

Liquidity:  Current regulation requires that the Bank maintain sufficient liquidity to assure safe and sound operation. As this is a subjective requirement, management monitors its cash needs on a daily basis. At June 30, 2010, we considered the liquidity position of the Bank to be adequate to meet operating needs.

Assessments:  Savings institutions are required by regulation to pay assessments to the OTS to fund the agency’s operations. The general assessment, paid on a semi-annual basis, is based upon our total assets, including consolidated subsidiaries, as reported in the latest quarterly Thrift Financial Report, our financial condition and the complexity of our loan portfolio and operations. At June 30, 2010, we were current on all assessments due to the OTS.

Branching:  OTS regulations permit federally-chartered savings associations to branch nationwide under certain conditions. Generally, federal savings associations may establish interstate networks and geographically diversify their loan portfolios and lines of business. The OTS authority preempts any state law purporting to regulate branching by federal savings associations.

Transactions with Related Parties:  The authority of the Bank to engage in transactions with related parties or “affiliates” (i.e., any company that controls or is under common control with an institution, including the Company and any non-savings institution subsidiaries that the Company may establish) is limited by Sections 23A and 23B of the Federal Reserve Act (“FRA”). Section 23A restricts the aggregate amount of covered transactions with any individual affiliate to 10% of the capital and surplus of the savings institution and also limits the aggregate amount of transactions with all affiliates to 20% of the savings institution’s capital and surplus. Certain transactions with affiliates are required to be secured by collateral in an amount and of a type described in Section 23A and the purchase of low quality assets from affiliates are generally prohibited. Section 23B generally requires that certain transactions with affiliates, including loans and asset purchases, must be on terms and under circumstances, including credit standards, that are substantially the same or at least as favorable to the institution as those prevailing at the time for comparable transactions with

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non-affiliated companies. A savings association also is prohibited from extending credit to any affiliate engaged in activities not permitted for a bank holding company and may not purchase the securities of an affiliate (other than a subsidiary).

Section 22(h) of the FRA restricts a savings association with respect to loans to directors, executive officers and principal shareholders. Under Section 22(h), loans to directors, executive officers and shareholders who control, directly or indirectly, 10% or more of voting securities of a savings association, and certain related interests of any of the foregoing, may not exceed, together with all other outstanding loans to such persons and affiliated entities, the savings association’s total unimpaired capital and unimpaired surplus. Section 22(h) also prohibits loans above amounts prescribed by the appropriate federal banking agency to directors, executive officers, and shareholders who directly or indirectly control 10% or more of voting securities of a stock savings association, and their respective related interests, unless such loan is approved in advance by a majority of the board of directors of the savings association. Any “interested” director may not participate in the voting. The loan amount (which includes all other outstanding loans to such person) as to which such prior board of director approval is required, is the greater of $25 thousand or 5% of capital and surplus. Furthermore, any loan, when aggregated with all other extensions of credit to that person, which exceeds $500 thousand, must receive prior approval by the board. Further, pursuant to Section 22(h), loans to directors, executive officers and principal shareholders must be made on terms substantially the same as offered in comparable transactions to other persons except for extensions of credit made pursuant to a benefit or compensation program that is widely available to the institution’s employees and does not give preference to insiders over other employees. Section 22(g) of the FRA places additional limitations on loans to executive officers.

Enforcement:  Under the FDI Act, the OTS has primary enforcement responsibility over savings institutions and has the authority to bring action against all “institution-affiliated parties,” including shareholders, and any attorneys, appraisers or accountants who knowingly or recklessly participate in a wrongful action likely to have an adverse effect on an insured institution. Formal enforcement action may range from the issuance of a supervisory directive, or cease-and-desist order, to removal of officers or directors, receivership, conservatorship or termination of deposit insurance. Civil penalties apply to a wide range of violations and can amount to $25 thousand per day, or $1 million or 1% of total assets, whichever is less per day in especially egregious cases. Under the FDI Act, the FDIC has the authority to recommend to the Director of the OTS that enforcement action be taken with respect to a particular savings institution. If action is not taken by the Director, the FDIC has authority to take such action under certain circumstances. Federal and state law also establishes criminal penalties for certain violations.

Standards for Safety and Soundness:  The FDI Act requires each federal banking agency to prescribe for all insured depository institutions standards relating to, among other things, internal controls, information systems and audit systems, loan documentation, credit underwriting, interest rate risk exposure, asset growth, compensation, fees and benefits and such other operational and managerial standards as the agency deems appropriate. The federal banking agencies have adopted final regulations and Interagency Guidelines Establishing Standards for Safety and Soundness (“Guidelines”) to implement these safety and soundness standards. The Guidelines set forth the safety and soundness standards that the federal banking agencies use to identify and address problems at insured depository institutions before capital becomes impaired. The Guidelines address internal controls and information systems; internal audit system; credit underwriting; loan documentation; interest rate risk exposure; asset growth; asset quality; earnings; compensation, fees and benefits. If the appropriate federal banking agency determines that an institution fails to meet any standard prescribed by the Guidelines, the agency may require the institution to submit to the agency an acceptable plan to achieve compliance with the standard, as required by the FDI Act. The final regulations establish deadlines for the submission and review of such safety and soundness compliance plans.

Capital Requirements:  The OTS capital regulations require savings institutions to meet three capital standards: (i) a 1.5% tangible capital standard, (ii) a 4% leverage (core capital) standard and (iii) an 8% risk-based capital standard. However, the minimum leverage standard is decreased to 3% for institutions with the highest rating on the CAMELS financial institutions rating system. In addition, the prompt corrective action standards discussed below also establish, in effect, a minimum 2% tangible capital standard, a

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4% leverage (“core capital”) standard (3% for institutions receiving the highest CAMELS rating), and, together with the risk-based capital standard itself, a 4% Tier I risk-based capital standard. Core capital is defined as common shareholders’ equity (including retained earnings), certain non-cumulative perpetual preferred stock and related surplus, minority interests in equity accounts of consolidated subsidiaries less intangibles other than certain mortgage servicing rights and credit card relationships. The OTS regulations require that, in meeting the leverage, tangible and risk-based capital standards, institutions generally must deduct investments in and loans to subsidiaries engaged in activities not permissible for a national bank.

The risk-based capital standard for savings institutions requires the maintenance of total capital (which is defined as core capital and supplementary capital) to risk-weighted assets of 8%. In determining the amount of risk-weighted assets, all assets, including certain off-balance sheet assets, are multiplied by a risk-weight of 0% to 100%, as assigned by OTS capital regulation based on the risks OTS believes are inherent in the type of asset. The components of core capital are equivalent to those discussed earlier under the 3% leverage standard. The components of supplementary capital currently include cumulative preferred stock, long-term perpetual preferred stock, mandatory convertible securities, subordinated debt and intermediate preferred stock and, within specified limits, the allowance for loan losses. Overall, the amount of supplementary capital included as part of total capital cannot exceed 100% of core capital.

The OTS regulatory capital requirements also incorporate an interest rate risk component. Savings institutions with “above normal” interest rate risk exposure are subject to a deduction from total capital for purposes of calculating their risk-based capital requirements. For the present time, the OTS has deferred implementation of the interest rate risk component.

Prompt Corrective Regulatory Action:  Under the OTS prompt corrective action regulations, the OTS is required to take certain supervisory actions against undercapitalized institutions, the severity of which depends upon the institution’s degree of capitalization. Generally, a savings institution that has a total risk-based capital ratio of less than 8.0% or a leverage ratio or a Tier 1 risk-based capital ratio that is less than 4.0% is considered to be undercapitalized. A savings institution that has a total risk-based capital ratio less than 6.0%, a Tier 1 risk-based capital ratio or a leverage ratio that is less than 3.0% is considered to be “significantly undercapitalized” and a savings institution that has a tangible capital to assets ratio equal to or less than 2.0% is deemed to be “critically undercapitalized.” Subject to a narrow exception, the banking regulator is required to appoint a receiver or conservator for an institution that is critically undercapitalized. The regulation also provides that a capital restoration plan must be filed with the OTS within 45 days of the date an association receives notice that it is “undercapitalized,” “significantly undercapitalized” or “critically undercapitalized.” Compliance with the plan must be guaranteed by any parent holding company. In addition, numerous mandatory supervisory actions may become immediately applicable to the institution depending upon its category, including, but not limited to, increased monitoring by regulators, restrictions on growth and capital distributions and limitations on expansion. The OTS could also take any one of a number of discretionary supervisory actions, including the issuance of a capital directive and the replacement of senior executive officers and directors.

At June 30, 2010, the Bank was considered well capitalized under the regulatory framework for prompt corrective action.

Insurance of Deposit Accounts:  The Dodd-Frank Act permanently increased the maximum amount of deposit insurance for banks, savings institution and credit unions to $250,000 per depositor. Noninterest-bearing transaction accounts have unlimited deposit insurance through December 31, 2013. Under the FDIC’s risk-based assessment system, insured institutions are assigned to one of the four risk categories based on supervisory evaluations, regulatory capital levels and certain other risk factors. An institution is assigned an assessment rate from 7 to 77.5 basis points based upon the risk category to which it is assigned.

The FDIC is authorized to set the reserve ratio for the Deposit Insurance Fund annually between 1.15% and 1.5% of estimated insured deposits. The Dodd-Frank Act mandates that the statutory minimum reserve ratio of the Deposit Insurance Fund increase from 1.15% to 1.35% of insured deposits by September 30, 2020. Banks with assets of less than $10 billion are exempt from any additional assessments necessary to increase the reserve fund above 1.15%. As part of a plan to restore the reserve ratio to 1.15%, in 2009, the FDIC imposed

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a special emergency assessment on all insured institutions equal to five basis points of assets less Tier 1 capital as of June 30, 2009, payable on September 30, 2009, in order to cover losses to the Deposit Insurance Fund resulting from bank failures. The Bank recorded an expense of $1.6 million during the quarter ended June 30, 2009, to reflect the special assessment. In addition, the FDIC increased its quarterly deposit insurance assessment rates and amended the method by which rates are calculated.

In addition, in lieu of further special assessments, the FDIC required all insured depository institutions to prepay on December 30, 2009, their estimated quarterly risk-based assessments for the fourth quarter of 2009, and for all of 2010, 2011, and 2012. Estimated assessments for the fourth quarter of 2009 and for all of 2010 were based upon the assessment rate in effect on September 30, 2009, with 3 basis points added for the 2011 and 2012 assessment rates. In addition, a 5% annual growth in the assessment base was assumed. Prepaid assessments are to be applied against the actual quarterly assessments until exhausted, and may not be applied to any special assessments that may occur in the future. Any unused prepayments will be returned to the institution on June 30, 2013. On December 30, 2009, the Bank prepaid approximately $22 million in estimated assessment fees. Because the prepaid assessments represent the prepayment of future expense, they do not affect the Bank’s capital (the prepaid asset will have a risk-weighting of 0%) or tax obligations.

Insurance of deposits may be terminated by the FDIC upon a finding that an institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC. We do not currently know of any practice, condition or violation that may lead to termination of our deposit insurance.

In addition to the FDIC assessments, the FICO is authorized to impose and collect, with the approval of the FDIC, assessments for anticipated payments, issuance costs and custodial fees on bonds issued by the FICO in the 1980’s to recapitalize the former Federal Savings and Loan Insurance Corporation. The bonds issued by FICO are due to mature in 2017 through 2019. For the quarter ended June 30, 2010, the annualized FICO assessment was approximately one basis point for each $100 thousand in domestic deposits maintained at an institution.

Community Reinvestment Act:  Under the CRA, as implemented by OTS regulations, a savings association has a continuing and affirmative obligation consistent with its safe and sound operation to help meet the credit needs of its entire community, including low and moderate income neighborhoods. The CRA does not establish specific lending requirements or programs for financial institutions nor does it limit an institution’s discretion to develop the types of products and services that it believes are best suited to its particular community, consistent with the CRA. The CRA requires the OTS, in connection with its examination of a savings institution, to assess the institution’s record of meeting the credit needs of its community and to take such record into account in its evaluation of certain applications by such institution. The FIRREA amended the CRA to require the OTS to provide a written evaluation of an institution’s CRA performance utilizing a four-tiered descriptive rating system, which replaced the five-tiered numerical rating system. The Bank’s latest CRA ratings received from the OTS were both “Satisfactory.”

Federal Home Loan Bank System:  The Bank is a member of the FHLB System. The FHLB provides a central credit facility primarily for member institutions. FHLB programs provide members with a readily available, competitively-priced source of funding, which can be used for a wide array of asset/liability management purposes. As members of the FHLB, the Bank is required to acquire and hold shares of capital stock in the FHLB in an amount at least equal to 1% of the aggregate principal amount of its unpaid residential mortgage loans and similar obligations at the beginning of each year, or 5% of its advances from the FHLB or $500 thousand, whichever is greater. The Bank was in compliance with this requirement at June 30, 2010. FHLB advances must be secured by specified types of collateral.

The FHLB System is required to provide funds for the resolution of insolvent thrifts and to contribute funds for affordable housing programs. These requirements could reduce the amount of dividends that FHLB regions pay to their members and could also result in the FHLB regions imposing a higher rate of interest on advances to their members. If dividends were reduced, our net interest income would likely also be reduced.

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Federal Reserve System:  The Federal Reserve Board regulations require savings institutions to maintain reserves against their transaction accounts. At June 30, 2010, the Bank was in compliance with the Federal Reserve Board regulation. Required reserves must be maintained in the form of vault cash, an account at a Federal Reserve Bank or a pass-through account as defined by the Federal Reserve Board. In October 2008, the FRB began paying interest on required reserve balances and excess balances. At this time, we do not know how long the FRB will continue to pay interest on account balances. FHLB System members are also authorized to borrow from the Federal Reserve “discount window.”

Holding Company Regulation:  First Place Financial Corp. is a thrift holding company within the meaning of the HOLA. As such, we are subject to OTS regulations, examinations, supervision and reporting requirements. In addition, the OTS has enforcement authority over the Company and its non-savings institution subsidiaries. Among other things, this authority permits the OTS to restrict or prohibit activities that are determined to be a serious risk to the subsidiary savings institution.

As a thrift holding company, we are subject to extensive limitations on the types of business activities in which we can engage. The HOLA limits the activities of a thrift holding company and its non-insured institution subsidiaries primarily to activities permissible for bank holding companies under Section 4(c)(8) of the Bank Holding Company Act, as amended, subject to the prior approval of the OTS, and to other activities authorized by OTS regulations.

The HOLA prohibits a thrift holding company, directly or indirectly, or through one or more subsidiaries or through one or more transactions, from acquiring or retaining, by purchase or otherwise, more than 5% of the voting stock of a savings association or of a thrift holding company (of which neither were already subsidiaries) except with the prior written approval of the Director of the OTS. The HOLA also prohibits a thrift holding company from acquiring more than 5% of a company engaged in activities other than those authorized for thrift holding companies by the HOLA; or acquiring or retaining control of a depository institution that is not insured by the FDIC. In evaluating applications by holding companies to acquire savings institutions, the OTS must consider the financial and managerial resources and future prospects of the holding company, the potential effect on the acquiree savings institution involved, the effect of the acquisition on the risk to the Deposit Insurance Fund, the convenience and needs of the community and certain competitive factors.

Federal Securities Laws:  Our common stock and warrants have been registered with the SEC under the Exchange Act. We are subject to the information, proxy solicitation, insider trading restrictions and other requirements under the Exchange Act.

Financial Modernization Act of 1999:  The Gramm-Leach-Bliley Financial Modernization Act of 1999 (“Modernization Act”) allows bank holding companies meeting management, capital and CRA standards to engage in a substantially broader range of nonbanking activities than was permissible prior to enactment, including insurance underwriting and making merchant banking investments in commercial and financial companies. In addition, the Modernization Act allows insurers and other financial services companies to acquire banks, removes various restrictions that applied to bank holding company ownership of securities firms and mutual fund advisory companies and establishes the overall regulatory structure applicable to bank holding companies that also engage in insurance and securities operations.

The Modernization Act also modified other current financial laws, including laws related to financial privacy and community reinvestment. The financial privacy provisions generally prohibit financial institutions, including the Company and the Bank, from disclosing nonpublic personal financial information to nonaffiliated third parties unless customers have the opportunity to “opt out” of the disclosure. Further, the statute requires explanations to consumers on policies and procedures regarding the disclosure of such nonpublic personal information, and the statute affects how consumer information is transmitted through diversified financial companies and conveyed to outside vendors.

International Money Laundering Abatement and Financial Anti-Terrorism Act of 2001:  The USA Patriot Act of 2001 was enacted on October 26, 2001 and was renewed in substantially the same form on March 9, 2006. This act contains the International Money Laundering Abatement and Financial Anti-Terrorism Act of 2001 (“IMLAFA”). IMLAFA contains anti-money laundering measures affecting

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insured depository institutions, broker-dealers and certain other financial institutions. IMLAFA requires U.S. financial institutions to adopt new policies and procedures to combat money laundering and grants the Secretary of the Treasury broad authority to establish regulations and to impose requirements and restrictions on financial institutions’ operations.

Sarbanes-Oxley Act of 2002:  The Sarbanes-Oxley Act implements a broad range of corporate governance and accounting measures for public companies designed to promote honesty, transparency and timeliness in reporting and better protect investors from corporate wrongdoing. The Sarbanes-Oxley Act applies generally to all companies, both U.S. and non-U.S., that file or are required to file periodic reports with the SEC, under the Exchange Act.

The Sarbanes-Oxley Act includes specific additional disclosure requirements and corporate governance rules. The Sarbanes-Oxley Act represents significant federal involvement in matters traditionally left to state regulatory systems, such as the regulation of the accounting profession, and to state corporate law, such as the relationship between a board of directors and management and between a board of directors and its committees. Additionally, the Sarbanes-Oxley Act includes a requirement that management report on the effectiveness of internal controls over financial reporting and that auditors opine on management’s evaluation of internal controls, expanded disclosure requirements for corporate insiders and disclosure of a code of ethics.

Furthermore, the National Association of Securities Dealers has also implemented corporate governance rules, which implement the mandates of the Sarbanes-Oxley Act. The National Association of Securities Dealers rules include, among other things: (i) ensuring that a majority of the board of directors are independent of management, (ii) establishing and publishing a code of conduct for directors, officers and employees, and (iii) requiring shareholder approval of all new stock option plans and all material modifications. These rules affect us because our common stock is listed on The NASDAQ Global Select Market under the symbol “FPFC.”

Emergency Economic Stabilization Act of 2008:  On October 3, 2008, Congress passed the Emergency Economic Stabilization Act of 2008 (“Act”), which provides the Secretary of the Treasury with broad authority to implement certain actions to help restore stability and liquidity to the United States financial markets. One of the provisions included in the Act is the TARP, or more specifically, the Treasury’s CPP, which provides direct equity investment of perpetual preferred stock by the Treasury in qualified financial institutions. On March 13, 2009, we participated in the Treasury’s CPP and completed the issuance of $73 million of Series A perpetual preferred stock and related common stock warrant under the CPP. As a recipient of government funding under the CPP, we must comply with the executive compensation and corporate governance standards imposed by the ARRA for as long as the Treasury holds the above securities.

U.S. Department of the Treasury’s Capital Assistance Program:  On February 20, 2009, the Treasury announced its CAP under which the Treasury made capital available to financial institutions through the Treasury’s purchase of cumulative mandatorily convertible preferred stock. The preferred shares will mandatorily convert to common stock after seven years. Prior to that time, the preferred shares are convertible in whole or part at the discretion of the institution, subject to the approval of the institution’s primary federal regulator. Institutions that have received an investment from the Treasury under the CPP may use proceeds from CAP to redeem preferred shares issued in the CPP, effectively exchanging the preferred stock sold under the CPP for CAP convertible preferred stock. As of June 30, 2010, we have not participated in CAP.

American Recovery and Reinvestment Act of 2009:  On February 17, 2009, the ARRA was signed into law. ARRA includes a wide variety of programs intended to stimulate the economy and provide for infrastructure, health, education and energy needs. In addition, ARRA included limitations on compensation of the most highly compensated employees in companies that are recipients of TARP funds. The new legislation requires the Secretary of the Treasury (“Secretary”) to establish executive compensation and corporate governance standards for TARP recipients, which would apply to a TARP recipient as long as the company had an outstanding TARP obligation. The ARRA permits a TARP recipient to repay the funds and accrued dividends provided under TARP without penalty and without the need to replace TARP funds with Tier 1 capital, subject to the Secretary’s consultation with the recipient’s federal regulatory agency.

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The ARRA requires the Secretary to include certain elements within the new compensation and corporate governance standards. The standards establish limits on compensation that exclude incentives for senior executives (the top five most highly paid employees) to take unnecessary and excessive risks. There are also provisions allowing a TARP recipient to recover any bonus, retention award or incentive compensation paid to any of the 25 most highly compensated employees, based on statements of earnings that are later found to be materially false. The standards prohibit golden parachutes to the ten most highly compensated employees. Golden parachute means any payment to a senior executive officer for departure from a company, except for payments for services performed or benefits accrued. The standards must also include a prohibition on the payment, or accruing, of any bonus, retention award, or incentive compensation to the most highly compensated employees while any TARP obligation is outstanding. The prohibition does not apply to the payment of long-term restricted stock meeting certain qualifications. The number of employees to whom the bonus prohibition applies depends on the amount of TARP funds received by a TARP recipient. The Secretary’s standards must prohibit any compensation plan that encourages manipulation of earnings. TARP recipients are not able to claim a deduction, for federal income tax purposes, compensation paid to any of the senior executives in excess of $500 thousand per year.

Each TARP recipient is required to have in place a company-wide policy prohibiting excessive or luxury expenditures, including excessive expenditures on: entertainment and events; office and facility renovations; aviation or transportation services; or other activities that are not reasonable expenditures for staff developments or reasonable performance incentives.

Each TARP recipient must establish a Board Compensation Committee, comprised entirely of independent directors, to review the recipient’s employee compensation plans. The committee will meet at least semi-annually to discuss and evaluate a company’s employee compensation plans in light of any risk posed to the TARP recipient by such plans.

The Chief Executive Officer and the Chief Financial Officer of each TARP recipient must certify in writing that a company is complying with these new requirements. Publicly traded companies must include the certification with its annual filings with the SEC.

During the period in which a TARP recipient has an outstanding TARP obligation, each TARP recipient must permit a separate shareholder vote on executive compensation. The vote is not binding on the board of directors. The SEC has one year to issue any final rules required to carry out this provision.

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Item 1A.

Risk Factors

We incurred a net loss in our last two fiscal years and losses may continue in the future.

We have incurred a net loss before preferred stock dividends and discount accretion of $30.3 million and $110.4 million for our fiscal years ended June 30, 2010 and 2009, respectively. The loss for the fiscal year ended June 30, 2010, was due primarily to an increase of $43.6 million in the provision for loan losses. The loss for the fiscal year ended June 30, 2009, was due primarily due a pre-tax charge of $93.7 million for goodwill impairment and an increase of $26.5 million in the provision for loan losses. These losses may continue in the future and no assurance can be given as to when we may return to profitability or the level of any profitability.

Our current allowance for loan losses may not be adequate and we may have to record additional loan loss provisions to cover losses on current loans, which could be material.

We have established an allowance for loan losses that we believe is adequate to provide for probable incurred losses on existing loans. However, that allowance is an estimate and is likely to be inaccurate to some degree. It is difficult to estimate the precise portion of our loans that will become delinquent and not be repaid. Over the past two years, we and our customers in Ohio, Michigan, Indiana and Maryland have been experiencing a significant economic slowdown and in many locations a decline in real estate values. This has resulted in substantial increases in our nonperforming assets and loan charge-offs. Our estimate of probable incurred losses on existing loans is necessarily subjective and is based on various assumptions and difficult and complex judgments and its adequacy depends on the accuracy of our assumptions and judgments and to some degree on the outcome of future events. Our current allowance for loan losses may be inadequate because:

If our current allowance for loan losses is not adequate, we would have to record additional provisions for loan losses, which would have a negative impact on our results of operations, liquidity and capital levels and could decrease our ability to raise new capital or obtain new sources of funds, in each case potentially materially.

Our business is subject to interest rate risk and variations in market interest rates may negatively affect our financial performance.

We are unable to accurately predict future market interest rates, which are affected by many factors, including: inflation; recession; changes in employment levels; changes in the money supply; and domestic and international disorder and instability in domestic and foreign financial markets. Changes in the interest rate

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environment may reduce the Company’s profits. We expect that the Company will continue to realize income from the differential or “spread” between the interest earned on loans, securities and other interest-earning assets, and interest paid on deposits, borrowings and other interest-bearing liabilities. Net interest spreads are affected by the difference between the maturities and repricing characteristics of interest-earning assets and interest-bearing liabilities. In addition, residential mortgage loan volumes are affected by market interest rates on loans; rising interest rates generally are associated with a lower volume of loan originations while falling interest rates are usually associated with higher loan originations. Conversely, in rising interest rate environments, loan prepayment rates will decline, and in falling interest rate environments, loan prepayment rates will increase. In addition, an increase in the general level of interest rates may adversely affect the ability of some borrowers to pay the interest on and principal of their obligations, especially borrowers with loans that have adjustable rates of interest. Changes in interest rates also significantly impact the valuation of mortgage servicing rights and loans held for sale. As interest rates decline and mortgage loans prepay faster, the current market value of mortgage servicing rights will generally decline in value. Changes in mortgage prepayments, interest rates and other factors can cause the value of this asset to decrease rapidly over a short period of time. Changes in interest rates, prepayment speeds and other factors may also cause the value of the Company’s loans held for sale to change. When interest rates rise, the cost of borrowing will increase. Accordingly, changes in levels of market interest rates could materially and adversely affect the Company’s net interest spread, loan volume, asset quality, levels of prepayments, value of mortgage servicing rights, loans held for sale and cash flows as well as the market value of its securities portfolio and overall profitability.

The market price of our common stock may fluctuate due to the seasonal fluctuations in home buying practices.

The mortgage banking industry generally experiences seasonal trends. These trends reflect the general national pattern of sales and resales of homes. Sales and resales of homes typically peak during the spring and summer seasons and decline to lower levels from mid-November through February. In addition, delinquency rates typically rise in the winter months, which results in higher servicing costs. Our quarter-to-quarter operating results will reflect these seasonal trends, thereby causing short-term fluctuations in our results. Fluctuations in our results may also cause corresponding fluctuations in the market price of our common stock.

Our continued growth depends on our ability to meet minimum regulatory capital levels. Growth and shareholder returns may be adversely affected if sources of capital are not available to help us meet those capital levels.

As we grow, we will have to maintain our regulatory capital levels at or above the minimum levels required by our regulators. If earnings do not meet our current estimates, if we incur unanticipated losses or expenses or if we grow faster than expected, we may need to obtain additional capital sooner than expected, which may take the form of secured or unsecured borrowing, additional issuances of debt, equity-related securities or equity securities. We cannot assure you that we will be able to access sufficient capital in the future on favorable terms, or at all. If we are unable to access sufficient capital, we may be required to reduce our level of assets or make other operational changes or reduce our rate of growth in order to maintain regulatory capital compliance. Under those circumstances, our future results of operations may be materially and adversely affected. Additional issuances of equity or equity-related securities could have a dilutive effect on existing shareholders.

We are subject to uncertainties, and potential additional regulatory or compliance burdens, as a result of our participation in the CPP.

We accepted an investment of $73 million from the Treasury under the CPP. The Securities Purchase Agreement that we (and all other participating institutions) entered into with the Treasury provides that Treasury may unilaterally amend the agreement to the extent required to comply with any changes in applicable federal statutes after the investment was made. As a result of this provision, the Treasury and Congress may impose additional requirements or restrictions on us, including reporting, compliance, corporate governance, executive or employee compensation, dividend payments, stock repurchases, lending or other business practices, capital requirements or other matters. We may be required to expend additional resources in order to comply with these requirements. Such additional requirements could impair our ability to compete with institutions that are not subject to the restrictions because they did not accept an investment from the

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Treasury. In addition, we may be subject to certain restrictions on executive and employee compensation that would limit the amount and the tax deductibility of compensation we pay to our executive officers. To the extent that additional restrictions or limitations on employee compensation are imposed, such as those contained in ARRA and the regulations issued in June 2009, we may be less competitive in attracting and retaining successful incentive compensation based lenders, customer relations personnel and senior executive officers. Additionally, the ability of Congress to utilize the amendment provisions to effect political or public relations goals could result in our being subjected to additional burdens as a result of public perceptions of issues relating to the largest banks, and which are not applicable to community oriented institutions such as us.

We face strong competition from other financial institutions, financial service companies and other organizations offering products and services similar to those offered by us, which could result in our not being able to grow our loan and deposit businesses.

We conduct our business operations primarily in Northeastern Ohio and Southeastern Michigan. We also maintain loan production offices in Ohio, Michigan, Indiana and Maryland. Increased competition within these markets may result in reduced loan originations and deposits. Ultimately, we may not be able to compete successfully against current and future competitors. Many competitors offer the types of banking products and services that we offer. These competitors include other savings associations, national banks, regional banks and other community banks. We also face competition from many other types of financial institutions, including finance companies, brokerage firms, insurance companies, credit unions, mortgage banks and other financial intermediaries. In particular, our competitors include national banks and major financial companies whose greater resources and access to capital may afford them a marketplace advantage by enabling them to maintain numerous banking locations, mount extensive promotional and advertising campaigns and adjust pricing to increase market share.

Additionally, banks and other financial institutions with larger capitalization and financial intermediaries not subject to bank regulatory restrictions have larger lending limits and are thereby able to serve the credit needs of larger clients. These institutions, particularly to the extent they are more diversified than us, may be able to offer the same products and services that we offer at more competitive rates and prices. If we are unable to attract and retain banking clients, we may be unable to increase our loan originations and deposits and we would be materially and adversely affected.

We rely on external financing to fund our operations and the failure to obtain such financing on favorable terms, or at all, in the future could materially and adversely impact our growth strategy and prospects.

We rely on deposits, advances from the FHLB of Cincinnati, and other borrowings to fund our operations. Although we consider such sources of funds adequate for our current capital needs, we may seek additional debt or equity capital in the future to implement our growth strategy. The sale of equity or equity-related securities in the future may be dilutive to our shareholders, and debt financing arrangements may require us to pledge some of our assets and enter into various affirmative and negative covenants, including limitations on operational activities and financing alternatives. Future financing sources, if sought, might be unavailable to us or, if available, could be on terms unfavorable to us and may require OTS approval. If financing sources are unavailable or are not available on favorable terms or we are unable to obtain OTS approval, our growth strategy and future prospects could be materially and adversely impacted.

We may have difficulty managing our growth, which may divert resources and limit our ability to expand our operations successfully.

In past years, we have incurred substantial expenses to build our management team and personnel, develop our delivery systems and establish our infrastructure to support our future growth. Our future success will depend on the ability of our officers and key employees to continue to implement and improve our operational, financial and management controls, reporting systems and procedures and manage a growing number of client relationships. We may not be able to implement improvements in our management information and control systems in an efficient or timely manner. Thus, our growth strategy could place a strain on our administrative and operational infrastructure.

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In addition, we intend to grow our deposits and expand our retail banking franchise. Further expansion will require additional capital expenditures and we may not be successful in expanding our franchise or in attracting or retaining the personnel we require. Furthermore, various factors such as economic conditions, regulatory and legislative considerations and competition may impede or limit our growth. If we are unable to expand our business as anticipated, we may be unable to realize any benefit from the investments made to support future growth. Alternatively, if we are unable to manage future expansion in our operations, we may have to incur additional expenditures beyond current projections to support such growth.

We are subject to extensive regulation that could materially and adversely affect the Company.

Our operations are subject to extensive regulation by federal, state and local governmental authorities and are subject to various laws and judicial and administrative decisions imposing requirements and restrictions on part or all of our operations. We believe that we are in substantial compliance in all material respects with applicable federal, state and local laws, rules and regulations. Any change in the laws or regulations applicable to us, or in banking regulators’ supervisory policies or examination procedures, could materially and adversely affect us.

Financial regulatory reform legislation may have a significant effect on our operations, including increased compliance costs, increased capital requirements and a new banking regulator. On July 21, 2010, the Dodd-Frank Act was signed into law, which significantly changes the regulation of financial institutions and the financial services industry.

Recent enactment of broad financial reform legislation provides for new regulations affecting many aspects of our operations and, depending on the final regulations promulgated under this new law, may adversely impact our profitability and operations.

The U.S. Congress approved the Dodd-Frank Act, which was signed into law by President Obama on July 21, 2010. The Dodd-Frank Act will have a broad impact on the financial services industry, including significant regulatory and compliance changes, such as: (i) enhanced resolution authority of troubled and failing banks and their holding companies; (ii) enhanced lending limits strengthening the existing limits on a depository institution’s credit exposure to one borrower; (iii) increased capital and liquidity requirements; (iv) increased regulatory examination fees; (v) changes to assessments to be paid to the FDIC for federal deposit insurance; and (vi) numerous other provisions designed to improve supervision and oversight of, and strengthening safety and soundness for, the financial services sector. Among the Dodd-Frank Act’s significant regulatory reforms is the creation a new financial consumer protection agency, known as the Bureau of Consumer Financial Protection, which will have broad rulemaking, supervisory and enforcement authority over consumer financial products and services. The potential impact of the Dodd-Frank Act on our operations and activities, both currently and prospectively, include, among others:

The Dodd-Frank Act requires various federal agencies to adopt a broad range of new implementing rules and regulations, and to prepare numerous studies and reports for the U.S. Congress, which may result in additional legislative or regulatory action. The federal agencies are given significant discretion in drafting the implementing rules and regulations, and consequently, many of the details and much of the impact of the Dodd-Frank Act may not be known for many months or years. The changes resulting from the Dodd-Frank Act, as well as the regulations promulgated by federal agencies, may impact the profitability of our business activities, require changes to certain of its business practices or otherwise adversely affect our business.

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If we are unable to redeem the Series A Preferred Stock prior to May 15, 2014, the cost of this capital will increase substantially.

If we are unable to redeem the Series A Preferred Stock prior to May 15, 2014, the cost of this capital will increase substantially on that date, from 5.0% per annum to 9.0% per annum. Depending on our condition at the time, this increase in the annual dividend rate on the Series A Preferred Stock could have a material negative effect on our liquidity and capital, as well as net income available to common shareholders.

The Series A Preferred Stock reduces net income available to holders of our common stock and earnings per share of common stock and the warrant issued to the Treasury may be dilutive to holders of our common stock.

While the additional capital raised through participation in the CPP provided funding for our business, it has increased the number of diluted outstanding shares of common stock and carries a preferred dividend. The dividends declared and the accretion of discount on the Series A Preferred Stock reduce the net income available to holders of our common stock and earnings per share of common stock. The Series A Preferred Stock will also receive preferential treatment in the event of our liquidation, dissolution or winding up. Additionally, the ownership interest of the existing holders of our common stock will be diluted to the extent the warrant issued to the Treasury in conjunction with the sale to the Treasury of the Series A Preferred Stock is exercised. The shares of common stock underlying the warrant represented approximately 21.6% of total shares of common stock outstanding as of June 30, 2010. Although the Treasury has agreed not to vote any of the shares of common stock it receives upon any exercise of the warrant, a transferee of any portion of the warrant or of any common stock acquired upon exercise of the warrant is not bound by this restriction.

We rely heavily on our management team and the unexpected loss of certain key officers could materially and adversely affect the Company.

Our future success and growth is substantially dependent upon the management and banking abilities of our senior executive officers. Attracting and retaining high quality personnel and appropriate succession planning will continue to be critical to the successful implementation of our business strategies. Competition for such personnel is intense, and we cannot assure you that we will be successful in attracting or retaining such personnel. If we experience departures of key personnel, until suitable replacements could be identified and hired, if at all, we could be materially and adversely affected.

We are subject to default and other risks in connection with our mortgage loan originations.

From the time that we fund the mortgage loans we originate to the time we sell them, we are generally at risk for any mortgage loan defaults. We are also at risk if we are unable to sell the loan, either because a purchaser cannot be found or because we could not obtain an acceptable bid price for the loan. This risk is magnified in periods of market downturn. Once we sell the mortgage loans, the risk of loss from mortgage loan defaults and foreclosures passes to the purchaser or insurer of the mortgage loans. However, in the ordinary course of business, we make representations and warranties to the purchasers and insurers of mortgage loans relating to the validity of such loans. If there is a breach of any of these representations or warranties, we may be required to repurchase the mortgage loan and bear any subsequent loss on the mortgage loan. In addition, we incur higher liquidity risk with respect to the nonconforming mortgage loans originated by us because of the lack of a functioning market in which to sell them.

Because of stresses on the Deposit Insurance Fund, the FDIC has recently imposed, and could impose in the future, additional assessments on the banking industry.

The current financial crisis has caused the Deposit Insurance Fund administered by the FDIC to fall below required minimum levels. Because the FDIC replenishes the Deposit Insurance Fund through assessments on the banking industry, we anticipate that the FDIC will likely maintain relatively high deposit insurance premiums for the foreseeable future. The FDIC has recently imposed a special deposit insurance assessment on the banking industry, and there can be no assurance that it will not do so again. It has also required banking organizations to “pre-pay” deposit insurance premiums in order to replenish the liquid assets of the Deposit Insurance Fund, and may impose similar requirements in the future. High insurance premiums, special assessments and pre-payments would adversely affect our results.

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The market price of our common stock may fluctuate significantly, which may make it difficult for you to resell shares of common stock at the times or prices you find attractive.

The market price of our stock price may fluctuate significantly as a result of a variety of factors, many of which are beyond our control. These factors include, in addition to those described in “Cautionary Statement About Forward Looking Statements”:

In addition, in recent years, the stock market in general has experienced extreme price and volume fluctuations. This is due, in part, to investors’ shifting perceptions of the effect of changes and potential changes in the economy on various industry sectors. This volatility has had a significant effect on the market price of securities issued by many companies, including for reasons unrelated to their performance or prospects. These broad market fluctuations may adversely affect the market price of our common stock, notwithstanding our actual or anticipated operating results, cash flows and financial condition. We expect that the market price of our common stock will continue to fluctuate due to many factors, including prevailing interest rates, other economic conditions, our operating performance and investor perceptions of the outlook for us specifically and the banking industry in general. There can be no assurance about the level of the market price of our common stock in the future or that you will be able to resell your shares at times or at prices you find attractive.

We currently have limitations on dividends on the common stock and repurchasing shares of our common stock.

We do not currently pay dividends on our common stock. On March 23, 2009, in connection with our response to the annual examination by the OTS, our board of directors agreed to certain restrictions with regard to our activities as outlined in an agreement with the OTS. Specifically, under the terms of the agreement, we are required to obtain the written consent of the OTS prior to the declaring or paying of any dividends or making any other capital distribution, or repurchasing or redeeming any capital stock in addition to certain other restrictions. These restrictions will remain in effect until such time as the OTS modifies, terminates, or otherwise suspends the restrictions. In addition, our ability to declare or pay dividends on our common stock is restricted as described below. We have no current plans to resume dividend payments on our common stock.

First Place Financial Corp. is a separate legal entity from its subsidiaries and does not have significant operations of its own. Dividends from the Bank normally provide a significant source of capital for First Place

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Financial Corp. The availability of dividends from the Bank is limited by various statutes, regulations and agreements. It is possible, depending upon the financial condition, liquidity and results of operations of the Bank and other factors, that the OTS, as the Bank’s primary regulator, could assert that the payment of dividends or other payments by the Bank are an unsafe or unsound practice. In the event the Bank is unable to pay dividends to First Place Financial Corp. for an extended period of time, we may not be able to service our debt, pay our obligations as they become due, or pay dividends on our common stock. Consequently, the inability to receive dividends from the Bank could materially and adversely affect us.

Until the earlier of March 13, 2012, and the date on which the Treasury no longer holds any shares of our Series A Preferred Stock, we cannot repurchase or redeem or otherwise acquire shares of our common stock or pay quarterly dividends in excess of $0.085 per share per quarter without the approval of the Treasury. Our ability to declare or pay dividends or distributions on, or repurchase, redeem or otherwise acquire for consideration, shares of common stock is also subject to restrictions in the event that we fail to declare and pay full dividends (or declare and set aside a sum sufficient for payment thereof) on the Series A Preferred Stock. In addition, our ability to pay dividends on our common stock is also dependent on the performance of the Bank and on the Bank’s capital requirements.

We may issue equity or equity-related securities or engage in other transactions which dilute our book value per share or are senior to our common stock, which may adversely affect the market price of our common stock.

Our board of directors may determine from time to time that we need to raise additional capital by issuing additional shares of our common stock or other equity-related securities. Except as described under “Underwriting,” we are not restricted from issuing shares of common stock or securities that are convertible into or exchangeable for, or that represent the right to receive, shares of common stock. Because our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of any future offerings, or the prices at which such offerings may be effected. Such offerings may dilute the holdings of our existing common shareholders or reduce the market price of our common stock, or both. Holders of our common stock are not entitled to preemptive rights or other protections against dilution. New investors also may have rights, preferences and privileges that are senior to, and that adversely affect, our then current common shareholders.

Furthermore, if we raise additional capital by incurring debt or issuing preferred stock, upon our liquidation, dissolution or winding up, holders of our debt securities and shares of preferred stock, and lenders with respect to other borrowings, will receive distributions of our available assets prior to the holders of our common stock. Our common stock is also effectively subordinated to all existing and future liabilities and preferred equity of our subsidiaries.

Item 1B.

Unresolved Staff Comments

None.

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Item 2.

Properties

We own our corporate headquarters at 185 East Market Street in Warren, Ohio, a building that also contains a retail office and certain administrative and operations support offices. At June 30, 2010, 32 of the retail locations and one loan production office of the Bank were owned. The remaining 14 retail locations and 23 loan production offices were leased. The net book value of our properties and leasehold improvements was $40 million at June 30, 2010. Table 12 shows information with respect to the offices and other properties of the Company.

TABLE 12. PROPERTIES

Description/Address		Leased/Owned
Corporate Headquarters, First Place Financial Corp.
185 East Market Street, Warren, Ohio		Owned
Retail Locations, First Place Bank
1977 Cooper Foster Park Road, Amherst, Ohio		Leased
4390 Mahoning Avenue, Austintown, Ohio		Owned
101 South Canfield-Niles Rd, Austintown, Ohio		Owned subject to land lease
724 Boardman-Poland Road, Boardman, Ohio		Owned
3900 Market Street, Boardman, Ohio		Owned
7290 Sharon-Warren Road, Brookfield, Ohio		Owned
3801 Boardman Canfield Rd, Canfield, Ohio		Owned
2 South Broad Street, Canfield, Ohio		Owned
352 West Main Street, Canfield, Ohio		Leased(a)
2802 Mayfield Road, Cleveland Heights, Ohio		Leased
325 South High Street, Cortland, Ohio		Owned
6033 Perimeter Drive, Dublin, Ohio		Owned
111 Antioch Drive, Elyria, Ohio		Owned
860 East Broad Street, Elyria, Ohio		Leased(a)
200 Middle Avenue, Elyria, Ohio		Owned
361 Midway Mall Boulevard, Elyria, Ohio		Owned
351 North Main Street, Grafton, Ohio		Owned
100 North Main Street, Hicksville, Ohio		Owned(d)
8226 East Market Street, Howland, Ohio		Owned subject to land lease
10416 Main Street, New Middletown, Ohio		Owned
400 Sheffield Center, Lorain, Ohio		Leased
6002 Warren-Youngstown Road, Niles, Ohio		Owned subject to land lease
35423 Center Ridge Road, North Ridgeville, Ohio		Owned
2 South Main Street, Poland, Ohio		Leased
999 East Main Street, Ravenna, Ohio		Owned
4183 Tallmadge Road, Rootstown, Ohio		Owned
655 Creed Street, Struthers, Ohio		Leased
185 East Market Street, Warren, Ohio		Owned
2001 Elm Road NE, Warren, Ohio		Leased
4460 Mahoning Avenue NW, Warren, Ohio		Owned
4682 Belmont Avenue, Youngstown, Ohio		Leased
25 Market Street, Suite 3, Youngstown, Ohio		Leased
3516 South Meridian Road, Youngstown, Ohio		Owned
479 Old South Woodward, Birmingham, Michigan		Leased
727 South State Rd, Davison, Michigan		Leased
6120 Fenton Rd, Flint, Michigan		Owned

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36

Description/Address		Leased/Owned
24725 West Twelve Mile Road, Southfield, Michigan		Leased
1393 Wheaton St., Suite 100, Troy, Michigan		Leased
First Place Insurance Agency, Ltd.
1275 Boardman-Poland Road, Boardman, Ohio		Owned(b)
8228 East Market Street, Warren, Ohio		Leased
2650 Elm Road, Warren, Ohio		Leased
Title Works Agency, LLC
1275 Boardman-Poland Road, Boardman, Ohio		Owned(b)
8228 East Market Street, Warren, Ohio		Leased

Item 3.

Legal Proceedings

From time to time, we are involved either as a plaintiff or defendant in various legal proceedings that arise during the normal course of business. Currently, we are not involved in any material legal proceedings, the outcome of which would have a material impact on the Company’s financial condition or results of operations.

Item 4.

Submission of Matters to a Vote of Security Holders

None.

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PART II

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

As of August 31, 2010, there were 16,974,056 common shares outstanding held by approximately 6,800 shareholders of record.

Market Prices and Dividends Declared and Stock Performance Graph

The sections entitled Market Prices and Dividends Declared and Stock Performance Graph presented in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations are incorporated herein by reference.

Item 6.

Selected Financial Data

The Selected Financial Data and Selected Financial Ratios and Measures presented in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations are incorporated herein by reference.

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Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

TABLE 1. SELECTED FINANCIAL DATA

June 30, (In thousands)		2010				2009				2008				2007				2006
Financial Condition:
Total assets		$	3,152,639			$	3,404,467			$	3,341,046			$	3,226,213			$	3,113,210
Loans, net			2,289,142				2,428,864				2,620,561				2,481,841				2,328,465
Loans held for sale			233,927				376,406				72,341				96,163				154,799
Allowance for loan losses			45,675				39,580				28,216				25,851				22,319
Nonperforming assets			131,813				140,018				74,417				40,678				20,695
Securities			249,542				276,600				284,433				285,242				302,994
Deposits			2,470,091				2,435,601				2,369,092				2,240,696				2,060,747
Short-term borrowings			35,742				323,458				197,100				226,633				384,187
Long-term debt			378,577				335,159				424,374				366,530				325,589
Total shareholders’ equity			252,471				281,479				318,967				326,187				311,574

Years ended June 30, (In thousands)		2010				2009				2008				2007				2006
Results of Operations:
Interest income		$	157,198			$	171,888			$	189,672			$	186,464			$	149,053
Interest expense			49,357				82,294				102,046				99,459				70,639
Net interest income			107,841				89,594				87,626				87,005				78,414
Provision for loan losses			86,600				42,984				16,467				7,391				5,875
Net interest income after provision for loan losses			21,241				46,610				71,159				79,614				72,539
Noninterest income(a)(b)			49,393				22,536				26,965				32,288				28,985
Noninterest expense(c)			109,667				191,959				84,065				74,196				68,150
Income (loss) before income tax expense (benefit)			(39,033	)			(122,813	)			14,059				37,706				33,374
Income tax expense (benefit)			(7,824	)			(12,379	)			3,269				12,082				10,330
Net income (loss)			(31,209	)			(110,434	)			10,790				25,624				23,044
Preferred stock dividends and discount accretion			4,368				1,297				—				—				—
Income (loss) attributable to common shareholders		$	(35,577	)		$	(111,731	)		$	10,790			$	25,624			$	23,044

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TABLE 2. SELECTED FINANCIAL RATIOS AND MEASURES

As of or for the years ended June 30,		2010				2009				2008				2007				2006
Performance Ratios(a):
Return on average assets			(0.97	)%			(3.31	)%			0.33	%			0.83	%			0.88	%
Return on average equity			(11.45	)			(38.62	)			3.40				7.92				9.32
Return on average tangible assets(b)			(0.97	)			(3.37	)			0.34				0.86				0.91
Return on average tangible equity(b)			(11.89	)			(48.76	)			5.13				11.71				12.96
Efficiency ratio			69.13				168.89				72.39				61.45				62.88
Average interest-earning assets to average interest-bearing liabilities			113.11				111.46				112.44				114.67				115.28
Noninterest expense to average assets			3.41				5.76				2.59				2.41				2.61
Yields/Rates:
Yield on interest-earning assets			5.25	%			5.59	%			6.41	%			6.61	%			6.21	%
Cost of interest-bearing liabilities			1.85				2.96				3.85				4.01				3.37
Interest rate spread			3.40				2.63				2.56				2.60				2.84
Net interest margin, fully taxable equivalent			3.61				2.94				2.99				3.11				3.29
Capital Ratios:
Total equity to total assets			8.01	%			8.27	%			9.55	%			10.11	%			10.01	%
Average equity to average assets			8.47				8.57				9.77				10.50				9.52
Tangible total equity to tangible assets(b)			7.75				7.96				6.55				6.99				6.85
Tangible common equity to tangible assets(b)			5.53				5.92				6.55				6.99				6.85
Tier 1 risk-based capital (First Place Bank)(c)			11.50				11.23				10.45				9.34				10.18
Total risk-based capital (First Place Bank)(c)			12.75				12.37				11.47				10.42				11.16
Per Common Share Data(a):
Basic income (loss)		$	(2.14	)		$	(6.75	)		$	0.67			$	1.51			$	1.58
Diluted income (loss)			(2.14	)			(6.75	)			0.67				1.49				1.55
Dividends declared			0.01				0.19				0.665				0.605				0.56
Common dividend payout ratio			N/A				N/A				99.25				40.60				36.13
Book value			10.76				12.51				18.79				18.92				17.87
Tangible book value			10.24				11.83				12.48				12.64				11.83
Period-end market value			3.00				3.11				9.40				21.12				23.01
Asset Quality Ratios:
Nonperforming loans to total loans			4.20	%			4.18	%			1.91	%			1.35	%			0.71	%
Nonperforming assets to total assets			4.18				4.11				2.23				1.26				0.66
Allowance for loan losses to total loans			1.96				1.60				1.07				1.03				0.95
Allowance for loan losses to nonperforming loans			46.55				38.34				55.63				76.12				133.08
Net charge-offs to average loans			3.34				1.22				0.56				0.16				0.12

40

Introduction

Management’s discussion and analysis generally reviews our consolidated financial condition and results of operations for each of the past three years. This review should be read in conjunction with the consolidated financial statements and footnotes.

Throughout this discussion references to “First Place,” “we,” “our,” “us,” “the Company” and similar terms refer to the consolidated entity consisting of First Place Financial Corp. and its subsidiaries. First Place Financial Corp. refers solely to the parent holding company, and “the Bank” refers to First Place Financial Corp.’s subsidiary, First Place Bank. Additionally, our discussion contains commonly used acronyms and abbreviations. A comprehensive list of the acronyms and abbreviations used throughout this report is included in Note 1 (“Significant Accounting Policies”) in the Notes to Consolidated Financial Statements.

Company History

First Place Financial Corp. was formed as a thrift holding company as a result of the conversion of First Place Bank, formerly known as First Federal Savings and Loan Association of Warren, from a federally chartered mutual savings and loan association to a federally chartered stock savings association in December 1998. First Federal Savings and Loan Association of Warren opened for business in 1922. At the time of the conversion, we had total assets of $610 million. As of June 30, 2010, we had $3.153 billion in total assets.

On June 27, 2006, we acquired The Northern Savings & Loan Company of Elyria, Ohio (“Northern”) and converted it from an Ohio chartered stock savings association to a federally chartered stock savings association. Northern opened for business in 1920. At the time of the merger, Northern had total assets of $360 million. On July 25, 2006, the Company’s two federally chartered savings association subsidiaries, Northern and First Place Bank, merged into a single federal savings association with the name First Place Bank.

On April 27, 2007, the Bank acquired seven retail banking offices in the greater Flint, Michigan area from Republic Bancorp, Inc. and Citizens Banking Corporation. The Bank assumed $200 million in deposits, and received $29 million in consumer loans and fixed assets, and $164 million in cash.

On October 31, 2007, we acquired Hicksville Building, Loan and Savings Bank of Hicksville, Ohio (“HBLS Bank”). As of the acquisition date, HBLS Bank had total assets of $53 million (including $33 million in loans), $40 million in deposits and $9 million in long-term debt. On November 26, 2007, the Company’s two federally chartered savings association subsidiaries, HBLS Bank and First Place Bank, merged into a single federal savings association with the name First Place Bank. On July 9, 2010, we sold our Hicksville branch.

On June 30, 2008, we acquired OC Financial, Inc. of Dublin, Ohio (“OC Financial”), the holding company for Ohio Central Savings (“OC Bank”). As of June 30, 2008, OC Financial had total assets of $68 million (including $42 million in loans), $44 million in deposits and $10 million in long-term debt. On July 11, 2008, the Company’s two federally chartered savings association subsidiaries, OC Bank and First Place Bank, merged into a single federal savings association with the name First Place Bank.

For additional information on acquisitions and divestitures, see Note 2 (“Acquisitions and Divestitures”) in the Notes to Consolidated Financial Statements.

Business Overview

We are a community-oriented financial institution engaged primarily in gathering deposits to originate one- to four-family residential mortgage, commercial and consumer loans. We currently operate 43 retail locations, 2 business financial service centers and 20 loan production offices through our principal subsidiary, First Place Bank. These offices are located in Ohio, Michigan, Indiana and Maryland with a concentration of banking offices in Northeast Ohio and Southeast Michigan. We are currently the second largest publicly traded thrift institution in Ohio. In addition to the customary banking services of accepting deposits and making loans, we offer title insurance, investment brokerage, wealth management and general insurance services.

Since our initial public offering of common stock in 1998, we have expanded our asset base and product offerings in order to increase both fee income and net income. Growth has been achieved by increasing

41

market share in current markets, expanding into new markets in the Midwest by opening de novo loan production and retail banking offices, and through acquisitions. We evaluate acquisition targets based on the economic viability of the markets they are in, the degree to which they can be efficiently integrated into our current operations and the degree to which they are accretive to capital and earnings.

We seek to provide a return to our shareholders through dividends and appreciation by taking on various levels of credit risk, interest rate risk, liquidity risk and capital risk in order to achieve profits. The goal of achieving high levels of profitability on a consistent basis is balanced with acceptable levels of risk in each area. We monitor a number of financial measures to assess profitability and various types of risk. Those measures include, but are not limited to, diluted income (loss) per common share, return on average assets, return on average equity, efficiency ratio, net interest margin, noninterest expense to average assets, loans to deposits, equity to assets, tangible equity to tangible assets, tangible common equity to tangible assets, nonperforming loans to total loans, nonperforming assets to total assets, allowance for loan losses to total loans, allowance for loan losses to nonperforming loans and net portfolio value.

Forward-Looking Statements

When used in this Annual Report, in future filings with the SEC, in press releases or other public or shareholder communications, or in oral statements made with the approval of an authorized executive officer, the words or phrases “will likely result,” “ are expect to,” “will continue,” “is anticipated,” “estimate,” “project,” “believe,” “should,” “may,” “will,” “plan,” or variations of such terms or similar expressions are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause our actual results to be materially different from those indicated. Such statements are subject to certain risks and uncertainties, including changes in economic conditions in the market areas we conduct business, which could materially impact credit quality trends; changes in laws, regulations or policies of regulatory agencies; fluctuations in interest rates; demand for loans in the market areas we conduct business; and competition, that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. We caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. We undertake no obligation to publicly release the result of any revisions that may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.

Financial Condition

Assets totaled $3.153 billion at June 30, 2010, representing a decrease of $251 million, or 7.4%, from $3.404 billion at June 30, 2009. The reduction is due primarily to decreases of $142 million in loans held for sale, $134 million in portfolio loans and $27 million in securities available for sale, partially offset by an increase of $54 million in interest-bearing deposits in other banks. During the same period, total liabilities decreased by $223 million to $2.900 billion, due primarily to a decrease of $288 million in short-term borrowings, partially offset by increases of $43 million in long-term debt and $34 million in deposits. Total equity was $252 million at June 30, 2010, representing a decrease of $29 million, primarily due to our net loss of $31 million for fiscal 2010.

Table 3 presents certain components of the balance sheet and selected financial ratios that are indicative of our financial condition at June 30, 2010 and 2009.

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TABLE 3. FINANCIAL CONDITION

June 30, (Dollars in thousands)		2010				2009				Increase (Decrease)
										Amount				Percent
Balance Sheet Components:
Securities		$	249,542			$	276,600			$	(27,058	)			(9.8	)%
Loans held for sale, at fair value			233,927				376,406				(142,479	)			(37.9	)
Loans			2,334,817				2,468,444				(133,627	)			(5.4	)
Assets			3,152,639				3,404,467				(251,828	)			(7.4	)
Deposits			2,470,091				2,435,601				34,490				1.4
Short-term borrowings			35,742				323,458				(287,716	)			(89.0	)
Long-term debt			378,577				335,159				43,418				13.0
Equity			252,471				281,479				(29,008	)			(10.3	)
Selected Financial Ratios:
Loans to deposits			94.52	%			101.35	%
Total equity to total assets			8.01				8.27
Tangible total equity to tangible assets			7.75				7.96
Tangible common equity to tangible assets			5.53				5.92
Nonperforming loans to total loans			4.20				4.18
Nonperforming assets to total assets			4.18				4.11
Allowance for loan losses to total loans			1.96				1.60
Allowance for loan losses to nonperforming loans			46.55				38.34

Securities:  Our securities decreased $27 million to $250 million at June 30, 2010, from $277 million at June 30, 2009. The decrease resulted from sales and redemptions of $16 million, proceeds from maturities and calls of $13 million and principal paydowns of $52 million. These items were partially offset by purchases of $46 million and a $8 million increase in fair value.

Significant reductions in securities are not likely as we intend to maintain a reasonable level of securities to provide adequate liquidity and in order to have securities available to pledge to secure public deposits, repurchase agreements and other types of transactions. Fluctuations in the fair value of our securities relate primarily to changes in interest rates.

Loans Held for Sale:  We engage in mortgage banking as part of an overall strategy to deliver loan products to customers. As a result, we sell most fixed-rate residential loans and a portion of our adjustable-rate residential loans originated. During fiscal 2010, we originated $1.889 billion in one-to four-family residential loans through our retail and wholesale mortgage banking operations and sold $1.911 billion. This compares to originations of $1.910 billion and sales of $1.568 billion in fiscal 2009. We were able to increase sales activity during fiscal 2010 as a result of continued favorable long-term interest rates.

Loans held for sale totaled $234 million at June 30, 2010, representing a decrease of $142 million, or 37.9%, from $376 million at June 30, 2009. The decrease was due primarily to a higher volume of refinanced loans during the fourth quarter of fiscal 2009, compared to the same period in fiscal 2010.

Loans:  The loan portfolio totaled $2.335 billion at June 30, 2010, representing a decrease of $133 million, or 5.4%, from $2.468 billion at June 30, 2009. The reduction was due to decreases of $67 million, or 7.9%, in residential real estate loans, $35 million, or 2.8%, in commercial loans and $31 million, or 8.4%, in consumer loans. The decrease in all loan categories was the result of deteriorating economic conditions, the tightening of credit underwriting standards and charge-offs. At June 30, 2010, commercial loans accounted for 51.8% of the loan portfolio, residential real estate loans for 33.6% and consumer loans for 14.6%. At June 30, 2009, commercial loans accounted for 50.4% of the loan portfolio, residential real estate loans for 34.5% and

43

consumer loans for 15.1%. We anticipate that the volume of the loan portfolio will remain level or increase slightly during fiscal 2011 and that the mix of the loan portfolio will remain relatively unchanged from the mix at June 30, 2010.

Delinquent Loans:  Delinquent loans are comprised of loans past due 30 to 89 days and loans on nonaccrual status. Table 4 shows the composition of our delinquent loans at June 30, 2010 and 2009, and the extent to which delinquent loan components changed over the past 12 months.

TABLE 4. DELINQUENT LOANS

June 30, (Dollars in thousands)		2010				2009				Increase (Decrease)
										Amount				Percent
Loans Past Due 30 – 89 Days:
Residential real estate		$	22,321			$	29,086			$	(6,765	)			(23.3	)%
Commercial			7,244				15,226				(7,982	)			(52.4	)
Consumer			6,677				4,559				2,118				46.5
Total loans past due 30 – 89 days			36,242				48,871				(12,629	)			(25.8	)
Nonaccrual Loans:
Residential real estate			52,406				48,999				3,407				7.0
Commercial			31,489				35,756				(4,267	)			(11.9	)
Consumer			8,972				13,998				(5,026	)			(35.9	)
Total nonaccrual loans			92,867				98,753				(5,886	)			(6.0	)
Total delinquent loans		$	129,109			$	147,624			$	(18,515	)			(12.5	)
Delinquent loans to total loans			5.53	%			5.98	%

The decrease in delinquent loans during fiscal 2010 was due primarily to higher charge-offs and a decrease in the level of new delinquent loans. Our delinquent loans have decreased for three consecutive quarters and at June 30, 2010, were at their lowest level since March 31, 2009.

Nonperforming Assets:  Nonperforming assets consist of nonperforming loans and real estate owned. Table 5 shows the composition of our nonperforming assets, the allowance for loan losses, selected asset quality ratios and the extent to which nonperforming assets and the allowance changed over the past 12 months.

TABLE 5. NONPERFORMING ASSETS

June 30, (Dollars in thousands)		2010				2009				Increase (Decrease)
										Amount				Percent
Nonperforming Assets:
Nonaccrual loans		$	92,867			$	98,753			$	(5,886	)			(6.0	)%
Troubled debt restructurings performing less than six months			5,253				4,475				778				17.4
Total nonperforming loans			98,120				103,228				(5,108	)			(4.9	)
Real estate owned			33,693				36,790				(3,097	)			(8.4	)
Total nonperforming assets		$	131,813			$	140,018			$	(8,205	)			(5.9	)
Allowance for loan losses		$	45,675			$	39,580			$	6,095				15.4
Selected Asset Quality Ratios:
Nonperforming loans to total loans			4.20	%			4.18	%
Nonperforming assets to total assets			4.18				4.11
Allowance for loan losses to total loans			1.96				1.60
Allowance for loan losses to nonperforming loans			46.55				38.34
Net charge-offs to average loans			3.34				1.22