First Place Financial 10-Q 2006 Q1 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2005

¨ 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

FIRST PLACE FINANCIAL CORP.

(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

(Address of principal executive offices)

(330) 373-1221

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if change since last report)

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  x    No  ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act).    Yes  x    No  ¨

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

15,077,254 common shares as of October 31, 2005

TABLE OF CONTENTS

		Page Number
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements
	Condensed Consolidated Statements of Financial Condition as of September 30, 2005 and June 30, 2005	3
	Condensed Consolidated Statements of Income for the Three Months Ended September 30, 2005 and 2004	4
	Condensed Consolidated Statements of Changes in Shareholders’ Equity for the Three Months Ended September 30, 2005 and 2004	5
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended September 30, 2005 and 2004	6
	Notes to Condensed Consolidated Financial Statements	7-13
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13-22
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	22-23
Item 4.	Controls and Procedures	23
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	23
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	23
Item 3.	Defaults Upon Senior Securities	23
Item 4.	Submission of Matters to a Vote of Security Holders	23
Item 5.	Other Information	23
Item 6.	Exhibits	24
SIGNATURES		25

Part I. FINANCIAL INFORMATION

Item 1. Financial Statements

FIRST PLACE FINANCIAL CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Dollars in thousands, except share data)

	September 30, 2005			June 30, 2005
	(Unaudited)
ASSETS
Cash and due from banks	$	64,759		$	52,549
Securities available for sale		294,763			296,314
Loans held for sale		138,939			145,053
Loans
Mortgage and construction		829,550			827,151
Commercial		742,511			715,903
Consumer		308,372			288,067
Total loans		1,880,433			1,831,121
Less allowance for loan losses		19,194			18,266
Loans, net		1,861,239			1,812,855
Federal Home Loan Bank stock		30,922			30,621
Premises and equipment, net		22,354			21,367
Goodwill		55,173			55,076
Core deposit and other intangibles		14,337			15,282
Other assets		77,806			69,826
Total assets	$	2,560,292		$	2,498,943
LIABILITIES
Deposits
Non-interest bearing	$	228,642		$	235,840
Interest bearing checking		118,667			110,774
Savings		193,052			195,203
Money market		452,478			441,134
Certificates of deposit		762,066			726,388
Total deposits		1,754,905			1,709,339
Short-term borrowings		265,802			262,293
Long-term borrowings		265,184			260,788
Other liabilities		32,932			29,867
Total liabilities		2,318,823			2,262,287
SHAREHOLDERS’ EQUITY
Preferred stock, $.01 par value:
3,000,000 shares authorized, no shares issued and outstanding		—			—
Common stock, $.01 par value:
33,000,000 shares authorized; 18,114,673 shares issued		181			181
Additional paid-in capital		189,140			188,931
Retained earnings		106,007			101,878
Unearned employee stock ownership plan shares		(4,897	)		(5,045	)
Unearned recognition and retention plan shares		(1,125	)		(1,134	)
Treasury stock, at cost, 3,037,419 shares at September 30, 2005 and 3,088,854 shares at June 30, 2005		(43,895	)		(44,638	)
Accumulated other comprehensive loss		(3,942	)		(3,517	)
Total shareholders’ equity		241,469			236,656
Total liabilities and shareholders’ equity	$	2,560,292		$	2,498,943

See accompanying notes to condensed consolidated financial statements.

3

FIRST PLACE FINANCIAL CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(Dollars in thousands, except per share data)

	Three months ended September 30,
	2005		2004
INTEREST INCOME
Loans, including fees	$	31,450	$	24,041
Securities
Taxable		2,936		3,391
Tax exempt		405		399
TOTAL INTEREST INCOME		34,791		27,831
INTEREST EXPENSE
Deposits		9,818		6,795
Short-term borrowings		2,325		886
Long-term borrowings		3,217		3,386
TOTAL INTEREST EXPENSE		15,360		11,067
NET INTEREST INCOME		19,431		16,764
PROVISION FOR LOAN LOSSES		1,355		307
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES		18,076		16,457
NONINTEREST INCOME
Service charges and fees on deposit accounts		1,368		1,380
Net gains on sale of securities		—		304
Net gains on sale of loans		1,883		737
Loan servicing income (loss)		166		(21	)
Other income – bank		1,769		1,244
Other income - non-bank subsidiaries		1,716		1,667
TOTAL NONINTEREST INCOME		6,902		5,311
NONINTEREST EXPENSE
Salaries and employee benefits		7,796		6,950
Occupancy and equipment		2,418		2,413
Professional fees		818		561
Loan expenses		655		539
Marketing		624		674
Franchise taxes		91		505
Amortization of intangible assets		944		958
Other		2,720		2,242
TOTAL NONINTEREST EXPENSE		16,066		14,842
INCOME BEFORE INCOME TAX		8,912		6,926
Provision for income tax		2,745		2,169
NET INCOME	$	6,167	$	4,757
Basic earnings per share	$	0.43	$	0.33
Diluted earnings per share	$	0.42	$	0.33

See accompanying notes to condensed consolidated financial statements.

4

FIRST PLACE FINANCIAL CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(Unaudited)

(Dollars in thousands, except per share data)

	Three months ended September 30,
	2005			2004
Balance at beginning of period	$	236,656		$	223,110
Comprehensive income:
Net income		6,167			4,757
Loss on termination of interest rate swaps reclassified into income, net of tax		335			412
Change in unrealized gain (loss) on securities available For sale, net of reclassification and tax effects		(760	)		2,137
Total comprehensive income		5,742			7,306
Cash dividends declared		(2,038	)		(2,042	)
Commitment to release employee stock ownership plan shares		324			279
Commitment to release recognition and retention plan shares		12			70
Treasury shares acquired		—			(3,091	)
Stock options exercised and related tax benefit		747			229
Issuance of stock options recognized		26			—
Balance at end of period	$	241,469		$	225,861
Cash dividends declared per share	$	0.14		$	0.14

See accompanying notes to condensed consolidated financial statements.

5

FIRST PLACE FINANCIAL CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Dollars in thousands)

	Three months ended September 30,
	2005			2004
Cash flows from operating activities:
Net cash from operating activities	$	4,434		$	(4,265	)
Cash flows from investing activities:
Securities available for sale
Proceeds from sales		—			17,363
Proceeds from maturities, calls and principal paydowns		24,191			21,286
Purchases		(23,828	)		(5,258	)
Net change in interest-bearing deposits in other banks		—			43,476
Net change in loans		(43,074	)		(97,709	)
Proceeds from sale of loans		—			12,946
Premises and equipment expenditures, net		(1,756	)		(532	)
Investment in nonbank affiliates		(96	)		(50	)
Net cash from investing activities		(44,563	)		(8,478	)
Cash flows from financing activities:
Net change in deposits		45,566			(18,973	)
Net change in short-term borrowings		(4,741	)		51,195
Repayment of long-term borrowings		(18,004	)		(4	)
Net proceeds from issuance of subordinated debt securities		30,928			—
Cash dividends paid		(2,038	)		(2,042	)
Proceeds from stock options exercised		628			197
Purchase of treasury stock		—			(3,091	)
Net cash from financing activities		52,339			27,282
Net change in cash and cash equivalents		12,210			14,539
Cash and cash equivalents at beginning of period		52,549			67,350
Cash and cash equivalents at end of period	$	64,759		$	81,889
Supplemental cash flow information:
Cash payments of interest expense	$	14,278		$	9,927
Cash payments of income taxes		500			—
Supplemental noncash disclosures:
Loans securitized	$	44,282		$	47,011
Transfer of loans to other real estate		445			2,513
Transfer of loans from held for sale to portfolio		7,018			—
Transfer from long-term to short-term borrowings		8,250			—

See accompanying notes to condensed consolidated financial statements.

6

FIRST PLACE FINANCIAL CORP. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

1. Significant Accounting Policies

Basis of Presentation. The interim unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (US GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X issued by the Securities and Exchange Commission. The financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in First Place Financial Corp.’s 2005 Annual Report to Shareholders incorporated by reference into First Place Financial Corp.’s 2005 Annual Report on Form 10-K. The interim unaudited condensed consolidated financial statements include all adjustments (consisting of only normal recurring items), which, in the opinion of management, are necessary for a fair presentation of the financial position and results of operations for the periods presented. The results of operations for the interim periods disclosed herein are not necessarily indicative of the results that may be expected for a full year.

Principles of Consolidation. The interim unaudited condensed consolidated financial statements include the accounts of First Place Financial Corp. (Company) and its wholly owned subsidiaries, First Place Bank (Bank) and First Place Holdings, Inc. The condensed consolidated financial statements also include the subsidiaries of First Place Bank, Franklin Safe Deposit Corporation and Franklin Mortgage Services LLC. The condensed consolidated financial statements also include subsidiaries of First Place Holdings, Inc. - First Place Insurance Agency, Ltd., Coldwell Banker First Place Real Estate, Ltd., APB Financial Group, Ltd., American Pension Benefits, Inc. and TitleWorks Agency, LLC. TitleWorks Agency, LLC is a 75% owned subsidiary of First Place Holdings, Inc. The investments of the Company in First Place Capital Trust, First Place Capital II and First Place Capital Trust III have been accounted for under the equity method. This accounting treatment is based on the purpose of First Place Capital Trust, First Place Capital Trust II and First Place Capital Trust III as protecting the interests of the holders of the securities they have issued. All significant intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates.The preparation of the financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates. The allowance for loan losses and the valuation of mortgage servicing rights are particularly subject to change.

Stock Based Compensation. Prior to July 1, 2005, the Company accounted for stock-based compensation expense using the intrinsic value method as required by Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” and as permitted by Statement of Financial Accounting Standards (SFAS) No. 123, “Accounting for Stock-Based Compensation.” No compensation cost for stock options was reflected in net income for fiscal year 2005, as all options granted had an exercise price equal to the market price of the underlying common stock at date of grant.

On July 1, 2005, the Company adopted SFAS No. 123(R) (revised version of SFAS No. 123) which requires measurement of compensation cost for all stock-based awards be based on the grant-date fair value and recognition of compensation cost over the service period of stock-based awards, which is usually the same as the vesting period. The fair value of stock options is determined using the Black-Scholes valuation model, which is consistent with the Company’s valuation methodology previously utilized for options in footnote disclosures required under SFAS No. 123. The fair value of stock grants will also be determined using the Black-Scholes valuation model. The Company has adopted SFAS No. 123(R) using the modified prospective method, which provides for no restatement of prior periods and no cumulative adjustment to equity accounts. It also provides for expense recognition, for both new and existing stock-based awards, as the required services are rendered. SFAS No. 123(R) also amends SFAS No. 95, “Statement of Cash Flows,” and requires tax benefits relating to excess stock-based compensation deductions be presented in the statement of cash flows as financing cash inflows.

On March 29, 2005, the Securities and Exchange Commission (SEC) published Staff Accounting Bulletin No. 107 (SAB 107), which expressed the views of the Staff regarding the interaction between SFAS No. 123(R) and certain SEC rules and regulations and provided the Staff’s views regarding the valuation of stock-based payment arrangements for public companies. SAB 107 requires that stock-based compensation be classified in the same expense category as cash compensation. Accordingly, the Company has included stock-based compensation expense in salaries and employee benefits in the condensed consolidated statements of income.

7

The adoption of SFAS No. 123(R) had the following impact on reported amounts compared with amounts that would have been reported using the intrinsic value method under previous accounting.

	Three months ended September 30, 2005
(Dollars in thousands, except per share data)	Using Previous Accounting		SFAS 123(R) Adjustments			As Reported
Income before income taxes	$	8,938	$	(26	)	$	8,912
Income taxes		2,753		(8	)		2,745
Net income	$	6,185	$	(18	)	$	6,167
Basic earnings per share	$	0.43	$	—		$	0.43
Diluted earnings per share	$	0.42	$	—		$	0.42
Cash flow from operating activities	$	4,408	$	26		$	4,434

The following table illustrates the effect on net income and earnings per share if expense had been measured using the fair value recognition provisions of SFAS No. 123(R).

	Three months ended September 30, 2004
(Dollars in thousands, except per share data)	As Reported			Pro Forma Adjustments			Pro Forma as If under SFAS 123 (R)
Income before income taxes	$	6,926		$	(47	)	$	6,879
Income taxes		2,169			(16	)		2,153
Net income	$	4,757		$	(31	)	$	4,726
Basic earnings per share	$	0.33		$	—		$	0.33
Diluted earnings per share as reported	$	0.33		$	(0.01	)	$	0.32
Cash flow from operating activities	$	(4,265	)	$	47		$	(4,218	)

Segment Information.While the Company’s chief decision-makers monitor the revenue streams of the Company’s various products and services, the identifiable segments are not material, and operations are managed and financial performance is evaluated on a Company-wide basis. Accordingly, all of the Company’s financial service operations are considered by management to be aggregated in one reportable operating segment, community banking.

Reclassifications. Certain reclassifications have been made to prior periods’ condensed consolidated financial statements and related notes in order to conform to the current period presentation.

2. Stock Compensation Plans

On July 2, 1999, the shareholders approved and the Board of Directors established the 1999 Incentive Plan (1999 Plan). The 1999 Plan provided the Board with the authority to compensate directors and key employees with stock awards for their services to the Company. The awards authorized included incentive stock options, nonqualified stock options and stock grants. The granting of stock awards is also referred to as the Recognition and Retention Plan. The 1999 Plan originally authorized 1,124,125 shares of stock for options and 449,650 for grants or a total of 1,573,773. Subsequent to the establishment of the plan, 587,500 shares were added to the shares available for stock options due to a merger. Stock options and stock grants reduce the shares available for grant while unvested awards that are forfeited increase the shares available for grant. As of September 30, 2005, there were 2,461 shares available to be awarded as options and 80,780 shares available to be awarded as stock grants.

On October 28, 2004, the shareholders of the Company approved the creation of the 2004 Incentive Plan (2004 Plan). It is similar to the 1999 Plan. It also provides for awards to be issued in the form of incentive stock options, nonqualified stock options and stock awards. A total of 1,000,000 shares may be issued under the 2004 Plan in any combination of the three types of awards. As of September 30, 2005, no awards have been issued under the 2004 Plan.

8

Stock Options

The Company can issue incentive stock options and nonqualified stock options under the 1999 Plan and the 2004 Plan. Generally, one-fifth of the options awarded become exercisable on each of the first five anniversaries of the date of grant. The option period expires ten years from the date of grant and the exercise price is the market price at the date of grant.

Following is activity under the plans:

	Three months ended September 30, 2005 Total options outstanding
	Shares		Weighted Average Exercise Price		Weighted Average Fair Value
Options outstanding, beginning of period	859,554		$	13.28	$	2.82
Forfeited	—			—		—
Exercised	(51,435	)	$	12.22	$	2.08
Granted	2,000		$	20.98	$	4.51
Options outstanding, end of period	810,119		$	13.37	$	2.87
Options exercisable, end of period	719,336		$	12.64	$	2.65

The aggregate intrinsic value of all options outstanding at September 30, 2005 was $7.13 million. The aggregate intrinsic value of all options that were exercisable at September 30, 2005 was $6.86 million.

	Three months ended September 30, 2005 Total unvested options
	Shares		Weighted Average Fair Value
Unvested options, beginning of period	137,163		$	4.04
Vested	(48,380	)	$	3.27
Granted	2,000		$	4.51
Unvested options, end of period	90,783		$	4.46

Proceeds, related tax benefits realized from options exercised and intrinsic value of options exercised were as follows:

	Three months ended September 30,
	2005		2004
Proceeds of options exercised	$	628	$	197
Related tax benefit recognized		161		32
Intrinsic value of options exercised		461		112

9

Options outstanding at September 30, 2005 were as follows:

	Outstanding		Exercisable
	Shares	Weighted Average Remaining Contractual Life	Shares	Weighted Average Exercise Price
$9.54-$12.00	121,550	4.7	121,550	$	11.15
$12.01-$14.00	538,281	3.7	538,281	$	12.33
$14.01-$20.98	150,288	7.9	59,505	$	18.50
Outstanding at period end	810,119	4.7	719,336	$	12.64

The fair value for stock options granted during the three months ended September 30, 2005, was determined at the date of grant using a Black-Scholes option-pricing model and the following assumptions:

Expected average risk-free interest rate	4.36	%
Expected average life (in years)	5.06
Expected volatility	24.33	%
Expected dividend yield	2.79	%

The expected average risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods corresponding with the life of the option. The expected average life represents the weighted average period of time that options granted are expected to be outstanding giving consideration to vesting schedules, historical exercise and forfeiture patterns. Expected volatility is based on historical volatilities of the Company’s common stock. The expected dividend yield is based on historical information.

Recognition and Retention Plan

The Company can issue stock grants as a form of compensation to directors and key employees under the 1999 Plan and the 2004 Plan. Generally, one-fifth of such shares are earned and nonforfeitable on each of the first five anniversaries of the date of the awards. In the event of the death or disability of a participant or a change in control of the Company, the participant’s shares will be deemed to be entirely earned and nonforfeitable upon such date. Recipients are entitled to receive dividends on their respective shares but are restricted from selling, transferring, or assigning their shares until full vesting of such shares has occurred.

Compensation expense for grants prior to July 1, 2005 is based on the cost of the shares, which approximates fair value at the date of grant, and is recognized over the vesting period of the grant. Compensation expense for grants issued after June 30, 2005 is based on the fair value of the shares at the date of grant. Unearned compensation is reported as a reduction of shareholders’ equity until earned.

Activity in issued but unvested stock grants during the quarter was as follows:

	Shares		Weighted Average Value
Issued and unvested as of June 30, 2005	4,875		$	18.05
Shares vested during the period	(755	)	$	17.20
Issued and unvested as of September 30, 2005	4,120		$	18.20

The intrinsic value of unvested stock grants at September 30, 2005 was $91.

10

Compensation costs for all share-based plans were as follows:

	Three months ended September 30,
	2005				2004
	Stock Options		Stock Grants		Stock Options		Stock Grants
Compensation cost recognized in income	$	26	$	12	$	—	$	70
Related tax benefit recognized		2		4		—		25

The compensation cost yet to be recognized for stock-based awards that have been awarded but not vested is as follows:

	Stock Options		Stock Grants		Total Awards
Remainder of 2006	$	78	$	36	$	114
2007		104		9		113
2008		103		9		112
2009		31		9		40
2010		28		2		30
2011		2		—		2
Total	$	346	$	65	$	411

Weighted average life in years 1.9

3. Earnings per Share

The computation of basic and diluted earnings per share is shown in the following table:

(Dollars in thousands, except share data)	Three months ended September 30,
	2005			2004
Basic earnings per share computation:
Net Income	$	6,167		$	4,757
Gross weighted average shares outstanding		15,058,166			15,065,216
Less: Average unearned ESOP shares		(499,465	)		(558,874	)
Less: Average unearned RRP shares		(85,417	)		(89,633	)
Net weighted average shares outstanding		14,473,284			14,416,709
Basic earnings per share	$	0.43		$	0.33
Diluted earnings per share computation:
Net Income	$	6,167		$	4,757
Weighted average shares outstanding for basic earnings per share		14,473,284			14,416,709
Add: Dilutive effects of assumed exercises of stock options		236,097			215,082
Add: Dilutive effects of unearned Recognition and Retention Plan shares		341			283
Weighted average shares and potentially dilutive shares		14,709,722			14,632,074
Diluted earnings per share	$	0.42		$	0.33

11

There were no stock options that were antidilutive for the three-month period ended September 30, 2005. Therefore, all stock options are considered in computing diluted earnings per share.

4. Junior Subordinated Debentures Owed to Unconsolidated Subsidiary Trusts

In September 2005, the Company formed an affiliated trust, First Place Capital Trust III (the Trust Affiliate) that issued $30,000 of Guaranteed Capital Trust Securities (Trust Preferred Securities). In connection with this transaction, the Company issued $30,928 of Junior Subordinated Deferrable Interest Debentures (Junior Debentures) to the Trust Affiliate. The Company formed the Trust Affiliate 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 Junior Debentures of the Company. The Junior Debentures held by the Trust Affiliate are the sole assets of that trust. Distributions on the Trust Preferred Security issued by First Place Capital Trust III are payable quarterly at a fixed rate of 5.69% for five years through September 15, 2010, and a floating rate of interest that resets quarterly to 1.45% above the 3-month Libor rate for the remaining 25 years. The interest rates on the Junior Debentures are identical to the interest rates on the Trust Preferred Securities.

The Trust Preferred Securities are subject to mandatory redemption, in whole or part, upon repayment of the Junior Debentures. The Company has entered into an agreement that fully and unconditionally guarantees the Trust Preferred Securities subject to the terms of the guarantee. The issuers may redeem the Trust Preferred Securities and the Junior Debentures for a premium through September 15, 2010 at the greater of (i) 107.5% of the principal amount of the Junior Debentures or (ii) the sum of the present values of the scheduled payments of principal during the fixed rate period remaining life of the Debentures discounted to the special redemption date on a quarterly basis at the treasury rate. After September 15, 2010, the issuers may redeem the Trust Preferred Securities and Junior Debentures at par.

A summary of all junior debentures issued by the Company to affiliates follow. These amounts represent the par value of the obligations owed to these affiliates, including the Company’s equity interest in the trusts.

Junior subordinated debentures owed to the following affiliate	September 30, 2005		June 30, 2005
First Place Capital Trust due January 2034	$	15,465	$	15,465
First Place Capital Trust II due January 2034		15,464		15,464
First Place Capital Trust III due September 2035		30,928		—
Total junior subordinated debentures owed to unconsolidated subsidiary trusts	$	61,857	$	30,929

The Company will use the proceeds of the Junior Debentures issued in September 2005 for general corporate purposes. Interest on the all three issues of trust preferred securities may be deferred for a period of up to five years at the option of the issuer. The trusts are accounted for using the equity method of accounting for investments, and therefore have not been included in the consolidated financial statements of the Company.

5. Short-term and Long-term Borrowings

	September 30, 2005		June 30, 2005
Short-term borrowings
Federal Home Loan Bank advances	$	241,925	$	248,097
Securities sold under agreement to repurchase		23,877		14,196
Total	$	265,802	$	262,293
Long-term borrowings
Federal Home Loan Bank advances	$	188,827	$	207,109
Securities sold under agreement to repurchase		14,500		22,750
Junior subordinated debentures owed to unconsolidated subsidiary trusts		61,857		30,929
Total	$	265,184	$	260,788

12

6. Financial Instruments with Off-Balance-Sheet Risk

The Company regularly enters into transactions that generate off-balance-sheet risk. These transactions include commitments to originate loans, commitments to sell loans, loans with future commitments to disburse funds such as construction loans and lines of credit, recourse obligations for loans sold and letters of credit. The Company enters into these transactions to meet customer needs or facilitate the sale of assets. These transactions are recorded on the books of the Company based on their estimated fair value. The nominal values of these types of transactions as of September 30, 2005, are shown below. Current values are also indicated for Guarantee Obligations.

	Nominal Value		Current Asset (Liability) Value
GUARANTEE OBLIGATIONS
Loans sold with recourse	$	258,321	$	(1,233	)
Standby letters of credit		3,379		—
OTHER OBLIGATIONS
Commitments to disburse construction loan funds		204,894
Commitments to originate or purchase loans		206,765
Commitments to sell loans		144,727
Unused lines of credit		196.840
Commercial letters of credit		47,702

The loans sold with recourse were sold to government-sponsored enterprises beginning in 2001. This recourse is limited and is eliminated when the loans reach certain loan to value ratios. The Company is able to reasonably estimate credit losses associated with sold loans where recourse currently exists. Therefore, a liability has been established to recognize those credit losses.

7. Recent Accounting Pronouncements

In March 2004, the Emerging Issues Task Force (EITF) arrived at a Consensus regarding EITF 03-1, The Meaning of Other-Than-Temporary Impairment and its Application to Certain Investments. This Consensus provides additional guidance and requires additional disclosure for annual reporting periods ending after June 15, 2004 and for other reporting periods beginning after June 15, 2004. At its meeting on June 29, 2005 the EITF determined that certain specific guidance in paragraphs 10-18 of EITF 03-1 will be omitted from the final pronouncement and that previous existing pronouncements should be the basis for determining other-than-temporary-impairment. Management does not believe that these recent decisions of the EITF will have a significant impact on accounting for the Company’s investments.

In May 2005, the Financial Accounting Standards Board Issued Statement of Financial Accounting Standards No. 154, Accounting Changes and Error Corrections. This statement changes the requirements for the accounting for and reporting of a change in accounting principle. It is effective for fiscal years beginning after December 15, 2005 and will apply to the Company effective July 1, 2006. Management believes that the adoption of this pronouncement will not have a material impact on the Company’s consolidated financial statements.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following analysis discusses changes in the Company’s results of operations and financial condition during the periods included in the Condensed Consolidated Financial Statements, which are part of this filing.

Forward-Looking Statements

When used in this Form 10-Q, or in future filings with the Securities and Exchange Commission, 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 expected to,” “will continue,” “is anticipated,” “estimate,” “project” 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 the Company’s 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

13

market areas the Company conducts business, which could materially impact credit quality trends, changes in laws, changes in policies by regulatory agencies, fluctuations in interest rates, demand for loans in the market areas the Company conducts business, and competition, which could cause actual results to differ materially from historical earnings and those presently anticipated or projected. The Company wishes to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. The Company undertakes 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.

Business Overview

Background.First Place Financial Corp. (Company) is a unitary savings and loan holding company formed 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. In May 2000, the Company acquired Ravenna Savings Bank. In December 2000, the Company completed a merger of equals with FFY Financial Corp. In May 2004, the Company acquired Franklin Bancorp Inc. In addition, through subsidiaries the Company owns affiliates that operate in the following industries: real estate brokerage, title insurance, investment brokerage and as a general insurance agency.

The Company is a community oriented financial institution engaged primarily in the gathering of deposits to originate residential, commercial and consumer loans. The Company currently operates in Ohio, Michigan, Indiana and Pennsylvania with a concentration of banking offices in Northeast Ohio and Southeast Michigan. The Company also operates loan production offices in various cities in Ohio, Michigan and Indiana. As of September 30, 2005, the Company had $2.6 billion in assets and was the largest publicly traded thrift institution in Ohio.

Strategic Plan. The Company seeks to grow assets and fees in order to grow net income. Currently, the Company seeks to grow by increasing market share in current markets, expanding into new markets in the Midwest by opening de novo loan production and banking offices and through acquisitions. The Company evaluates acquisition targets based on the economic viability of the markets they are in, the degree to which they can be efficiently integrated into current operations and the degree to which they are accretive to earnings, initially and over time.

The Company provides a return to its shareholders 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. The Company uses certain financial ratios and other financial measures to monitor profitability and to monitor the levels of risks. The following section contains a summary of the primary financial measures the Company uses.

Results of Operations

Comparison of the Three Months Ended September 30, 2005 and 2004

Selected Financial Ratios and Other Measures

(Dollars in thousands except per share amounts)	Quarter ended						Increase (decrease)
	9/30/2005			9/30/2004			Amount		Percent
Total assets	$	2,560,292		$	2,280,241		$	280,051	12.3	%
Net income	$	6,167		$	4,757		$	1,410	29.6	%
Diluted earnings per share	$	0.42		$	0.33		$	0.09	27.3	%
Return on average equity		10.23	%		8.44	%			1.79	%
Return on average assets		0.96	%		0.82	%			0.14	%
Net interest margin		3.35	%		3.30	%			0.05	%
Efficiency ratio		60.51	%		66.57	%			-6.06	%
Noninterest expense as a percent of average assets		2.51	%		2.57	%			-0.06	%
Nonperforming assets to total assets		0.72	%		0.65	%			0.07	%
Tangible equity to tangible assets		6.90	%		6.91	%			-0.01	%

14

Summary. Net income of $6.2 million for the quarter ended September 30, 2005 was an increase of $1.4 million or 29.6% over net income of $4.8 million for the quarter ended September 30, 2004. This growth in net income was primarily due to an increase in the net gains on sale of loans and an increase in net interest income due to the growth in assets and net interest margin over the past year. The growth in assets was a result of increases in market share due to additional commissioned loan officers and new locations. There were no acquisitions in the past 15 months. The increase in net income was also due to the fact that noninterest expense grew more slowly than total revenue and other measures of activity. As a result, the ratio of noninterest income to average assets declined to 2.51% for the current quarter compared with 2.57% for the prior year quarter. Nonperforming assets as a percent of total assets increased to 0.72% from 0.65% a year earlier. This increase was concentrated in nonperforming loans and included increases in commercial, consumer and mortgage and construction loans.

From time to time, the Company uses certain financial measures that are similar to the ratios above but are based on measures that omit certain components of net income as determined under generally accepted accounting principles (GAAP). These non-GAAP measures are a supplement to the GAAP measures, which serve to highlight certain transactions, which may be unusual or nonrecurring in nature. In comparing the quarter ended September 30, 2005 with the quarter ended September 30, 2004 there were no such unusual items so this discussion does not include any non-GAAP financial measures.

Net Interest Income.Net interest income for the quarter ended September 30, 2005 totaled $19.4 million, an increase of $2.6 million, or 15.9% from $16.8 million for the quarter ended September 30, 2004. The increase in net interest income resulted from an increase of $286 million or 13.9% in average interest-earning assets compared to the same quarter a year ago. The net interest margin for the current quarter was 3.35%, up from 3.30% in the prior year quarter, primarily due a change in the mix of earning assets. The average yield on interest-earning assets was 5.97% for the quarter ended September 30, 2005, an increase of 52 basis points from 5.45% for the same quarter in the prior year. The increase was due to increases in the yields on loans, securities and Federal Home Loan Bank stock. In addition, an increase in the average balance of loans and a decrease in the average balance of securities shifted the mix of earning assets to include a greater percentage of loans, which also contributed to the increase in the overall yield on assets. The average rate paid on interest-bearing liabilities was 3.01% for the quarter ended September 30, 2005 compared to 2.46% for the prior year quarter, an increase of 55 basis points. This increase was due to increases in the rates paid on short-term borrowings, certificates of deposit, savings and money market accounts partially offset by decreases in the rates paid on long-term borrowing rates and interest-bearing checking accounts. In addition, the mix of deposits changed to include relatively less interest-bearing checking accounts and relatively more savings, money market and certificate of deposit accounts. The change in the mix also contributed to the increase in the rate paid on interest-bearing liabilities.

The following schedule details the various components of net interest income for the quarters indicated. All asset yields are calculated on tax-equivalent basis where applicable. Security yields are based on amortized historic cost.

15

Average Balances, Interest Rates and Yields

(Dollars in thousands)

	Quarter ended September 30, 2005							Quarter ended September 30, 2004
	Average Balance			Interest		Average Yield/cost		Average Balance			Interest		Average Yield/cost
ASSETS
Interest-earning assets
Loans and loans held for sale	$	2,021,363		$	31,482	6.23	%	$	1,650,874			24,074	5.83	%
Securities and interest-bearing deposits		293,378			3,160	4.31	%		378,972			3,658	3.86	%
Federal Home Loan Bank stock		30,624			368	4.82	%		29,485			317	4.31	%
Total interest-earning assets		2,345,365			35,010	5.97	%		2,059,331			28,049	5.45	%
Noninterest-earning assets
Cash and due from banks		51,078							83,079
Allowance for loan losses		(18,728	)						(16,596	)
Other assets		159,004							163,588
Total assets	$	2,536,719						$	2,289,402
LIABILITIES
Interest-bearing liabilities
Deposits
Checking accounts	$	116,071			137	0.47	%	$	185,338			271	0.58	%
Savings and money market accounts		646,126			3,185	1.96	%		522,661			1,609	1.22	%
Certificates of deposit		742,802			6,496	3.47	%		592,799			4,915	3.29	%
Total deposits		1,504,999			9,818	2.59	%		1,300,798			6,795	2.07	%
Borrowings
Short-term		270,658			2,325	3.41	%		242,659			886	1.45	%
Long-term		252,126			3,217	5.06	%		240,654			3,386	5.58	%
Total interest-bearing liabilities		2,027,783			15,360	3.01	%		1,784,111			11,067	2.46	%
Noninterest-bearing liabilities
Noninterest-bearing checking accounts		232,769							243,041
Other liabilities		36,985							38,538
Total liabilities		2,297,537							2,065,690
Shareholders’ equity		239,182							233,712
Total liabilities and shareholders equity	$	2,536,719						$	2,289,402
Fully tax-equivalent net interest income					19,650							16,982
Interest rate spread						2.96	%						2.99	%
Net interest margin						3.35	%						3.30	%
Average interest-earning assets to average interest-bearing liabilities						115.66	%						115.43	%
Tax-equivalent adjustment					219							218
Net interest income				$	19,431						$	16,764

Provision for Loan Losses. The provision for loan losses was $1.4 million for the quarter ended September 30, 2005 compared with $0.3 million for the quarter ended September 30, 2004. The increase in the provision was consistent with the change in net charge-offs compared to the prior year and growth of the loan portfolio. Total loans at September 30, 2005 were $1.880 billion, an increase of $296 million from total loans of $1.584 billion at September 30, 2004. Net charge-offs for the quarter ended September 30, 2005 were $0.4 million compared to net recoveries of $0.2 million for the prior year quarter. The increase in the provision for loan losses is also consistent with the increase in nonperforming loans, which increased to $15.3 million at September 30, 2005 compared with $12.6 million at June 30, 2005.

16

Noninterest Income. Noninterest income totaled $6.9 million for the quarter ended September 30, 2005, an increase of $1.6 million or 30.0% from $5.3 million in the prior year quarter. The increase in noninterest income was due to increases of $1.3 million in mortgage banking income and $0.5 million in other income – bank, partially offset by a decrease of $0.3 million in net gains on sale of securities. Mortgage banking income, consisting of net gain on sale of loans and loan servicing income, increased $1.3 million to $2.0 million in the quarter ended September 30, 2005 compared with $0.7 million in the same quarter in the prior year.

Net gains on sale of loans were $1.9 million for the quarter ended September 30, 2005, an increase of $1.2 million from $0.7 million in the same quarter in the prior year. The increase in the net gains on sale of loans resulted from an increase in the volume of loans sold and from an increase in the average profit margin on sales. For the quarter ended September 30, 2005 total residential loan sales were $321 million compared with a sales of $242 million in the same quarter in the prior year. Residential mortgage loan originations were $420 million for the quarter ended September 30, 2005, up from $339 million from the prior year first quarter. Current quarter residential mortgage loan originations were also at the highest level in the Company’s history. Long-term interest rates increased during the quarter ended September 30, 2005. We expect both rising long-term interest rates and a seasonal decline in the sales of residences to exert downward pressure on the volume of mortgage-banking activity during the second quarter of fiscal 2006 compared with the first quarter of fiscal 2006.

Loan servicing income is composed of the current fees generated from the servicing of sold loans less the current amortization of mortgage servicing rights (MSRs) and the adjustment for any change in the allowance for impairment of MSRs, which are valued at the lower of cost or market. Both the amortization and the valuation of MSRs are sensitive to movements in interest rates. Amortization and impairment valuation allowances tend to increase as rates fall and tend to decrease as rates rise. However, the level of amortization is a function of interest rates over the period while the level of impairment valuation allowances is a function of interest rates at the end of the period. Long-term interest rates have fluctuated significantly over the past three years. As a result, charges for impairment and reversals of impairment of MSRs have often been the most significant component of loan servicing income. The table below shows how the change in the impairment of MSRs affects loan servicing income.

	Three months ended September 30,
	2005			2004
Loan servicing income (loss)
Loan servicing revenue, net of amortization	$	(81	)	$	161
Change in impairment of MSRs		247			(182	)
Total loan servicing income (loss)	$	166		$	(21	)

The increase in total loan servicing income in the current quarter compared to the prior year quarter was due to the reduction of impairment charges of $0.4 million in the current year quarter compared with the prior year. That improvement was partially offset by a decrease of $0.2 million in loan servicing revenue due to the level of payoffs of loans serviced for others during the current quarter. The process used to arrive at the estimated aggregate fair value of the Company’s MSRs is a material estimate that is particularly susceptible to significant changes in the near term as interest rates and other factors change. The value of the loan servicing rights portfolio is analyzed quarterly by considering critical assumptions for prepayment speeds, the targeted investor yield to a buyer of loan servicing rights, and float on escrows. While the Company obtains an outside independent expert evaluation of MSRs each quarter, in order to make the process as accurate as possible, the process is still driven by assumptions about future market activity. Market interest rates are an external factor that has a material influence on this valuation process, as interest rates influence prepayment speeds and targeted investor yields.

Service charges did not materially change for the quarter ended September 30, 2005, as compared with the same period in the prior year. Other income – bank increased for the current quarter due to increases in revenue from letters of credit, merchant services and ATM activity. Other income – non-bank increased slightly due to increased revenues at the Company’s non-bank subsidiaries. There were no gains on the sale of securities during the quarter ended September 30, 2005 compared with gains of $0.3 million in the same quarter in the prior year.

Noninterest Expense.Noninterest expense increased $1.2 million or 8.2% to $16.1 million for the three months ended September 30, 2005 compared with the same quarter in the prior year. Annualized noninterest expense as a percent of average assets was 2.51% for the quarter ended September 30, 2005 compared to 2.57% for the prior year quarter. The

17

increase in noninterest expense was due to increases of $0.8 million in salaries and employee benefits, $0.2 million in professional fees and $0.5 million in other expenses, partially offset by a decrease of $0.4 million in franchise taxes. Salaries and employee benefits increased due to additional personnel at new locations, an increase in commissions from higher volumes of business and an increase in health insurance costs. Professional fees increased due to increases in fees paid to public accounting firms for internal audit and Sarbanes Oxley internal control work. Significant portions of the work in both of those areas have been outsourced. Loan expenses for the quarter ended September 30, 2005 increased $0.2 million to $0.7 million compared with $0.5 million in the prior year quarter. The increase was due to a higher level of loan activity and is consistent with the volume of residential loan originations mentioned above. Other expenses increased primarily due to losses on the sale of real estate owned, increases in ATM expense, shareholder expenses and increases related to a larger asset base and a higher level of business activity. Franchise taxes decreased as a result of the acquisition of Michigan-based Franklin Bancorp, Inc. in 2004. We expect franchise taxes for calendar year 2006 to be similar to the level of taxes experienced in calendar year 2004 rather than the lower levels of tax experienced in calendar year 2005.

Income Taxes. Income tax expense was $2.7 million for the three months ended September 30, 2005 compared with $2.2 million for the comparable period in the prior year. The effective tax rate was 30.8% for the three months ended September 30, 2005 compared with 31.3% for the same period in the prior year.

Financial Condition

General. Assets totaled $2.560 billion at September 30, 2005, an increase of $61 million, or 2.5% from June 30, 2005. This increase was primarily due to the Company’s success in originating new loans, particularly commercial and consumer loans. Capital ratios remain stable, with the ratio of equity to total assets at September 30, 2005 of 9.43% as compared to 9.47% at June 30, 2005.

Securities. Securities available for sale decreased slightly during the first three months of fiscal 2006 and totaled $295 million at September 30, 2005. Purchases of $24 million during the quarter approximately offset maturities and amortization of mortgage-backed securities. There were no sales of securities during the quarter ended September 30, 2005.

Loans Held for Sale.Loans held for sale totaled $139 million at September 30, 2005 compared to $145 million at June 30, 2005, a decrease of $6 million.

Loans. The loan portfolio totaled $1.880 billion at September 30, 2005, an increase of $49 million, or 2.7% from $1.831 billion at June 30, 2005. Mortgage and construction loans grew $2 million or 0.3% and now total $830 million, which is 44.1% of the loan portfolio down from 45.2% at June 30, 2005. While the level of mortgage loan originations was the highest in the Company’s history, the balance did not increase significantly because the majority of the loans were originated for sale. Commercial loans grew $27 million or 3.7% and now total $743 million, which is 39.5% of the loan portfolio, up from 39.1% at June 30, 2005. Consumer loans grew $20 million or 7.0% and now total $308 million, which is 16.4% of the loan portfolio up from 15.7% at June 30, 2005.

Nonperforming Assets and Allowance for Loan Losses.The following table indicates asset quality data over the past year.

Asset Quality History

(Dollars in thousands)	9/30/05			6/30/05			3/31/05			12/31/04			9/30/04
Nonperforming loans	$	15,326		$	12,605		$	12,186		$	11,644		$	10,795
Nonperforming loans as a % of total loan		0.82	%		0.69	%		0.70	%		0.67	%		0.68	%
Nonperforming assets	$	18,443		$	15,611		$	15,052		$	14,584		$	14,859
Nonperforming assets as a % of total assets		0.72	%		0.62	%		0.61	%		0.61	%		0.65	%
Delinquent loans	$	24,795		$	19,601		$	20,308		$	18,711		$	18,031
Delinquent loans as a % of total loans		1.32	%		1.07	%		1.17	%		1.08	%		1.14	%
Allowance for loan losses	$	19,194		$	18,266		$	17,888		$	17,584		$	17,056
Allowance for loan losses as a % of loans		1.02	%		1.00	%		1.03	%		1.02	%		1.08	%
Allowance for loan losses as a % of nonperforming loans		125.24	%		144.91	%		146.79	%		151.01	%		158.00	%

18

Management analyzes the adequacy of the allowance for loan losses regularly through reviews of the performance of the loan portfolio considering economic conditions, changes in interest rates and the effect of such changes on real estate values, changes in the composition of the loan portfolio, and trends in past due and nonperforming loans. The allowance for loan losses is a significant estimate that is particularly susceptible to changes in the near term and is established through a provision for loan losses based on management’s evaluation of the risk in the Company’s loan portfolio and the general economy. This evaluation, which includes a review of all loans for which full collectibility may not be reasonably assured, considers among other matters, the estimated fair value of the underlying collateral, economic conditions, historical loan loss experience and other factors that warrant recognition in providing for an adequate loan loss allowance. Future additions to the allowance for loan losses will be dependent on these factors. The Company maintains an allowance for loan losses at a level adequate to absorb management’s estimate of probable losses in the loan portfolio.

Nonperforming assets at September 30, 2005, were $18.4 million or 0.72% of total assets at September 30, 2005. This is an increase of $2.8 million over June 30, 2005, and represents an increase over the stable level of nonperforming assets as a percent of total assets experienced over the previous three quarters. The increase in nonperforming loans was composed of increases of $1.2 million in commercial loans, $0.8 million in mortgage and construction loans and a $0.8 million increase in consumer loans. Delinquent loans have also increased to $24.8 million or 1.32% of total loans at September 30, 2005 up $5.2 million from June 30, 2005. That increase was composed of $3.5 million of commercial loans, $0.9 million in mortgage and construction loans and $0.8 million in consumer loans. It is important to note that more than 70% of nonperforming loans are secured by 1-4 family residences, and the majority of the remaining loans are secured by commercial real estate. As a result, if the borrower ultimately defaults on the loan, the Company is often able to recover a substantial portion of the loan balance through the sale of the related real estate. However, the Company has increased the level of the allowance for loss on loans. The allowance for loss on loans increased $0.9 million to $19.2 million at September 30, 2005 from $18.3 million at June 30, 2005. The ratio of the allowance for loan losses to total loans has also increased to 1.02% at September 30, 2005 from 1.00% at June 30, 2005. Delinquent loans as a percent of total loans were 1.32% at September 30, 2005 compared with 1.07% at June 30, 2005.

Other assets. Other assets increased $8 million to $78 million at September 30, 2005 compared with $70 million at June 30, 2005. One of the components of other assets is Mortgage Servicing Rights (MSRs). MSRs increased to $23 million at September 30, 2005, from $21 million at June 30, 2005. As of September 30, 2005, the Company serviced $2.303 billion of loans, which carried an average book value equal to 1.01% of the outstanding loan balance.

Deposits.Deposits increased $46 million, or 2.7%, during the first three months of fiscal 2006 and totaled $1.755 billion at September 30, 2005 compared to $1.709 billion at June 30, 2005. This increase was composed of a $36 million increase in retail deposits and a $10 million increase in brokered certificates of deposit. The growth in retail deposits during the current quarter was 2.1%, or 8.3% annualized. At September 30, 2005, the Company had $104 million in brokered deposits with original maturities ranging from nine to forty-two months. The Company considers brokered deposits to be an element of a diversified funding strategy and an alternative to borrowings. Management regularly compares rates to determine the most economical source of funding. The Company anticipates that they will continue to use brokered funds as a funding alternative in the future, but not as the primary source of funding to support growth.

Borrowings. Long-term borrowings increased $5 million during the first quarter of fiscal 2006. That increase was composed of a $31 million increase in junior subordinated debentures, $18 million in repayments of long-term borrowings and an $8 million transfer to short-term borrowings. The additional $31 million of junior subordinated debentures carry a fixed rate of 5.69% for five years and a rate that floats with three-month LIBOR for the remaining 25 years. Short-term borrowings decreased $4 million. That decrease was composed of a $12 million repayment and an $8 million increase due to a transfer from long-term borrowings that is now due in less than one year. At September 30, 2005, $242 million of the $266 million of short-term borrowings were in the form of overnight borrowings from the Federal Home Loan Bank. The rate on those daily borrowings generally approximates the Federal Funds rate, and was approximately 3.75% near the end of September 2005, up 50 basis points from June 30, 2005, due to two 25 basis point rate increases in the discount rate by the Federal Reserve Board. If there are additional rate increases by the Federal Reserve over the remainder of the fiscal year, overnight borrowing costs would increase immediately. However, the impact on net interest income would be mitigated by increases the Company would anticipate on loans in the portfolio that are indexed to the prime rate. The Company presently has $471 million of loans that are indexed to the prime rate that reprice at least monthly compared to $242 million of overnight borrowings.

19

Capital Resources. Total shareholders’ equity increased $5 million, or 3.6% during the quarter ended September 30, 2005 and totaled $241 million. The primary components of the change were net income of $6.2 million, dividends declared of $2.0 million, an increase of $0.8 million in unrealized losses on securities and a $0.7 million increase from the exercise of stock options. There were no purchases of treasury stock during the quarter. During March 2005, the Board of Directors authorized the purchase of up to 500,000 shares of treasury stock over the following 12 months. Under that authorization an additional 450,912 shares can be purchased between October 1, 2005 and March��16, 2006. The stock repurchase program is a component of the Company’s strategy to invest or reduce excess capital after consideration of market and economic factors, the effect on shareholder dilution, adequacy of capital and the effect on liquidity. Shares repurchased by the Company may be used in its dividend reinvestment plan, its stock option plan, as consideration in an acquisition or for general corporate purposes.

Office of Thrift Supervision (OTS) regulations require savings institutions to maintain certain minimum levels of regulatory capital. Additionally, the regulations establish a framework for the classification of savings institutions into five categories: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized. A comparison of the Bank’s actual capital ratios to ratios required to be well capitalized under OTS regulations at September 30, 2005 follows:

	Actual Ratio		Well Capitalized Ratio
Total capital to risk-weighted assets	11.21	%	10.00	%
Tier 1 (core) capital to risk-weighted assets	10.13	%	6.00	%
Tier 1 (core) capital to adjusted total assets	7.30	%	5.00	%

Critical Accounting Policies

The Company follows financial accounting and reporting policies that are in accordance with GAAP and conform to general practices within the banking industry. Some of these accounting policies require management to make estimates and judgments about matters that are uncertain. Application of assumptions different than those used by management could have a material impact on the Company’s financial position or results of operations. These policies are considered to be critical accounting policies. These policies include the policies to determine the adequacy of the allowance for loan losses and the valuation of the mortgage servicing rights. These policies, current assumptions and estimates utilized and the related disclosure of this process are determined by management and reviewed periodically with the Audit Committee of the Board of Directors. Management believes that the judgments, estimates and assumptions used in the preparation of the consolidated financial statements are appropriate given the factual circumstances at the time. Details of the policies and the nature of the estimates follow.

Allowance for loan losses. The allowance for loan losses represents management’s estimate of probable incurred credit losses in the portfolio at each balance sheet date. Management analyzes the adequacy of the allowance based on a review of the loans in the portfolio along with an analysis of external factors. Loans are reviewed individually, or in the case of small homogeneous loans, in the aggregate. This review includes historical data, the ability of the borrower to meet the terms of the loan, an evaluation of the collateral securing the loan, various collection strategies and other factors relevant to the loan or loans. External factors considered include economic conditions, current interest rates, trends in the borrower’s industry and the market for various types of collateral. In addition, overall information about the loan portfolio or segments of the portfolio is considered, including industry concentrations, delinquency statistics and workout experience based on factors such as historical loss experience, the nature and volume of the portfolio, loan concentrations, specific problem loans and current economic conditions. As a result, determining the appropriate level for the allowance for loan losses involves not only evaluating the current financial situation of individual borrowers or groups of borrowers but also current predictions about future cash flows that could change before an actual loss is determined. Based on the variables involved and the fact that management must make judgments about outcomes that are uncertain, the determination of the allowance for loan losses is considered to be a critical accounting policy.

Mortgage Servicing Rights. When the Company sells a mortgage loan and retains the rights to service that loan, the amortized cost of the loan is allocated between the loan sold and the mortgage servicing right retained. The basis assigned to the mortgage servicing right is amortized in proportion to and over the life of the net revenue anticipated to be received from servicing the loan. Mortgage servicing rights are valued at the lower of amortized cost or estimated fair value. Fair value is measured by stratifying the portfolio of loan servicing rights into groups of loans with similar risk characteristics. When the amortized cost of a group of loans exceeds the fair value, an allowance for impairment is

20

recorded to reduce the value of the mortgage servicing rights to fair value. Fair value for each group of loans is determined quarterly by obtaining an appraisal from an independent third party. That appraisal is based on a modeling process in conjunction with information on recent sales of mortgage servicing rights. Some of the assumptions used in the modeling process are prepayment speeds, delinquency rates, servicing costs, periods to hold idle cash, returns currently available on idle cash, and a discount rate, which takes into account the current rate of return anticipated by holders of servicing rights. The process of determining the fair value of servicing rights involves a number of judgments and estimates including the way loans are grouped, the estimation of the various assumptions used by recent buyers and a projection of how those assumptions may change in the future. The most important variable in valuing servicing rights is the level of interest rates. Long-term interest rates are the primary determinant of prepayment speeds while short-term interest rates determine the return available on idle cash. The process of estimating the value of loan servicing rights is further complicated by the fact that short-term and long-term interest rates may change in a similar magnitude and direction or may change independent of each other.

Loan prepayment speeds have varied significantly over the past three years and could continue to vary in the future. In addition, any of the other variables mentioned above could change over time. Therefore, the valuation of mortgage servicing rights is, and is expected to continue to be, a critical accounting policy where the results are based on estimates that are subject to change over time and can have a significant financial impact on the Company.

Liquidity and Cash Flows

Liquidity is a measurement of the Company’s ability to generate adequate cash flows to meet the demands of its customers and provide adequate flexibility for the Company to take advantage of market opportunities. Cash is used to fund loans, purchase investments, fund the maturity of liabilities, and at times to fund deposit outflows and operating activities. The Company’s principal sources of funds are deposits; amortization, prepayments and sales of loans; maturities, sales and principal receipts from securities; borrowings; the issuance of debt or equity securities and operations. Managing liquidity entails balancing the need for cash or the ability to borrow against the objectives of maximizing profitability and minimizing interest rate risk. The most liquid types of assets typically carry the lowest yields.

At September 30, 2005, the Company had $163 million of cash and unpledged securities available to meet cash needs. Unpledged securities can be sold or pledged to secure additional borrowings. In addition, the Company had the ability to borrow an additional $53 million from the Federal Home Loan Bank based on loans currently pledged under blanket pledge agreements. This compared to $151 million of cash and unpledged securities and Federal Home Loan Bank availability of $42 million at June 30, 2005. Potential cash available as measured by liquid assets and borrowing capacity has increased $23 million during fiscal 2006 primarily due to the additional junior subordinated debentures issued during the quarter. Management receives reports on liquidity on a regular basis and considers the level of liquidity in setting both loan and deposit rates. In addition to the sources of funds listed above, the Company has the ability to raise additional funds by increasing deposit rates relative to competition in national markets, or to sell additional loans currently held in the loan portfolio. Management believes that the current and potential resources mentioned are adequate to meet liquidity needs in the foreseeable future.

First Place Financial Corp., as a holding company, has more limited sources of liquidity. In addition to its existing liquid assets, it can raise funds in the securities markets through debt or equity offerings or it can receive dividends from the Bank. Cash can be used by the holding company to make acquisitions, pay the quarterly interest payments on its Junior Subordinated Debentures, pay dividends to common shareholders and to fund operating expenses. At September 30, 2005, the holding company had cash and unpledged securities of $45 million available to meet cash needs. This amount increased significantly from June 30, 2005 primarily due to the issuance of $31 million of junior subordinated debentures during the first quarter of fiscal 2006. Annual debt service on the junior subordinated debentures is approximately $4 million. Banking regulations limit the amount of dividends that can be paid to the holding company without prior approval of the OTS. Generally, the Bank may pay dividends without prior approval as long as the dividend is not more than the total of the current calendar year-to-date earnings plus any earnings from the previous two years not already paid out in dividends, and as long as the Bank would remain well capitalized. At the present time, the Bank could pay approximately $6 million of dividends without OTS approval. Future dividend payments by the Bank beyond the $6 million currently available would be based upon future earnings or the approval of the OTS.

21

Off-balance sheet arrangements

See Note 6 to the Notes to the Condensed Consolidated Financial Statements in Part 1. Item 1 of this Form 10-Q for a discussion of off-balance sheet arrangements.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

The Company, like other financial institutions, is subject to market risk. Market risk is the type of risk that occurs when a company suffers economic loss due to changes in the market value of various types of assets or liabilities. As a financial institution, the Company makes a profit by accepting and managing various risks with credit risk and interest rate risk being the most significant. Interest rate risk is the Company’s primary market risk. It is the risk that occurs when changes in market interest rates will result in a reduction in net interest income or net interest margin because interest-bearing assets and interest-bearing liabilities mature at different intervals and reprice at different times. Asset/liability management is the measurement and analysis of the Company’s exposure to changes in net interest income due to changes in interest rates. The objective of the Company’s asset/liability management function is to balance the goal of maximizing net interest income with the control of risks in the areas of liquidity, safety, capital adequacy and earnings volatility. In general, the Company’s customers seek loans with long-term fixed rates and deposit products with shorter maturities, which creates a mismatch of asset and liability maturities. The Company’s primary strategy to counteract this mismatch is to sell the majority of long-term fixed rate loans within 60 days after they are closed. The Company manages this risk and other aspects of interest rate risk on a continuing basis through a number of functions including review of monthly financial results, rate setting, cash forecasting and planning, budgeting and an Asset/Liability Committee.

On a quarterly basis, the Asset/Liability Committee reviews the results of an interest rate risk model that forecasts changes in net interest income and net portfolio value (NPV), based on one or more interest rate scenarios. NPV is the market value of financial assets less the market value of financial liabilities. The model combines detailed information on existing assets and liabilities with an interest rate forecast, loan prepayment speed assumptions and assumptions about how those assets and liabilities will react to changes in interest rates. These assumptions are inherently uncertain, and as a result, the model cannot precisely measure net interest income or precisely predict the impact of fluctuations in interest rates on net interest income. Actual results will differ from simulated results due to timing, magnitude and frequency of interest rate changes as well as differences in how interest rates change at various points along the yield curve.

The change in the NPV ratio is a long-term measure of what might happen to the market value of financial assets and liabilities over time if interest rates changed instantaneously and the Company did not change existing strategies. The actual results could be better or worse based on changes in interest rate risk strategies. The table below indicates a comparison of the projected NPV for various changes in interest rates as of the end of the most recent quarter compared with the end of the previous fiscal year. The projections are based on an instantaneous change in interest rates and the assumption that short-term and long-term interest rates change by the same magnitude and in the same direction.

Basis point change in rates	NPV Ratio September 30, 2005		NPV Ratio June 30, 2005
Up 200	9.02	%	9.01	%
Up 100	9.79	%	10.02	%
No Change	10.39	%	10.76	%
Down 100	10.81	%	11.10	%
Down 200	11.26	%	11.49	%

The NPV projections indicate that the Company has experienced a small decrease in its exposure to rising interest rates and has experienced a small increase in its potential benefit from falling interest rates during the first three months of fiscal 2006. The NPV ratio for no change in rates has declined 37 basis points. This was due to the continued increase in short-term interest rates during the quarter and the continuing flattening of the yield curve. This model indicates what would be likely to happen given no change in the shape of the yield curve. The Company also has exposure to changes in the shape of the yield curve.

22

In addition to the risk of changes in net interest income, the Company is exposed to interest rate risk related to loans held for sale and loan commitments. This is the risk that occurs when changes in interest rates will reduce gains or result in losses on the sale of residential mortgage loans that the Company has committed to originate but has not yet contracted to sell. The Company hedges this risk by executing commitments to sell loans or mortgage-backed securities based on the volume of committed loans that are likely to close. Additionally, MSRs act as an economic hedge against rising rates, as they become more valuable in a rising rate environment, often offsetting part or all of the decline in the value of loan commitments or loans held for sale in a rising rate environment.

Item 4. Controls and Procedures

As of the end of the period covered by this quarterly report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective to reasonably ensure that the financial and nonfinancial information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934, including this Form 10-Q for the period ended September 30, 2005, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

There have been no changes in the Company’s internal controls or in other factors that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting. As a result, no corrective actions were taken.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Neither the Company nor the Bank are involved in any pending legal proceedings other than routine legal proceedings occurring in the ordinary course of business, which involve amounts in the aggregate believed by management to be immaterial to the financial condition of the Company and the Bank.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

On March 15, 2005, the Company publicly announced that the Board of Directors had approved a new buy-back program authorizing the purchase of up to 500,000 shares. There were no purchases of treasury stock during the three months ended September 30, 2005. There are 450,912 shares remaining that could be purchased under the March 2005 authorization. The authorization is in force through March 16, 2006.

Item 3. Defaults Upon Senior Securities – Not applicable.

Item 4. Submission of Matters to a Vote of Security Holders – Not applicable

Item 5. Other Information – Not applicable.

23

Item 6. Exhibits

Exhibit 31.1 CEO certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Exhibit 31.2 CFO certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Exhibit 32.1 CEO certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Exhibit 32.2 CFO certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

24

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

FIRST PLACE FINANCIAL CORP.
Date:   November 4, 2005	/s/ Steven R. Lewis	/s/ Paul S. Musgrove
	Steven R. Lewis	Paul S. Musgrove
	President and Chief Executive Officer	Chief Financial Officer

25