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Executives

Steve Lewis - President and CEO

Dave Gifford - CFO

Analysts

John Rowan - Sidoti & Company

Daniel Arnold - Sandler O'Neill & Partners

Chris McGratty - Keefe, Bruyette & Woods

Eric Grubelich - Keefe, Bruyette & Woods

First Place Financial Corp. (OTC:FPFC) F3Q08 (Qtr End 03/31/08) Earnings Call April 24, 2008 5:00 PM ET

Operator

Welcome to the First Place Financial Corp., fiscal 2008, third quarter Earnings Call. There will be a question and answer period at the end of the presentation. (Operator Instructions)

Before we begin today's call I would like to remind everyone that this call may involve certain forward-looking statements such as projections of revenue, earnings, and capital structure, as well as statements on the plans and objectives of the company or its management, statements on economic performance and statements regarding the underlying assumptions of the company's business. The company's actual results could differ materially from any forward-looking statements made today due to several important factors described in the company's latest Securities and Exchange Commission filings. The company assumes no obligation to update any forward-looking statements made during this call. If anyone does not already have a copy of the press release issued by First Place yesterday, you can access it at the company's website, www.firstplacebank.com.

On the conference today from First Place Financial Corp., we have Steve Lewis, President and Chief Executive Officer and Dave Gifford, Chief Financial Officer. We will begin the call with management's prepared remarks and then open the call up to questions.

At this point, I would like to turn the call over to Mr. Lewis.

Steve Lewis

Good morning. As has been our custom, I'd like to provide some highlights as to our financial results for our third fiscal quarter for 2008. That will be followed by some supplemental detail from Mr. Gifford. In addition, we will attempt to provide some guidance where appropriate for the near term.

As noted in the release, we did post $0.30 earnings per share for the quarter, which was generally higher than consensus forecasts, that was despite a rather heavy provision of $4.7 million. In general, we are quite pleased with all operating units of the organization with respect to revenue generation results and cost containment efforts. Asset quality issues and ultimate asset recovery results continue to challenge the company as is certainly true and consistent with the entire industry, particularly here in the Midwest.

We have intentionally restricted asset growth due to the environment, given our desire to preserve capital levels. This is certainly evidenced by the $15 million decrease in assets from 12/31 to 3/31. You will note however, we are roughly $200 million from a year ago, that's primarily due to the 7 branch acquisition that occurred in the fourth quarter of '07 and the closing of the HBLS Bank which occurred in the second quarter of '08, last quarter. As a result, restricting asset growth and improving in other areas of the organization has pushed our equity levels up. Most noteworthy a 11 basis point improvement in our tangible equity at the holding company level.

The commercial portfolio is up roughly $40 million net, from last quarter, while the mortgage portfolio is down at roughly $54 million. That is by design.

Composition of the commercial portfolio looks a little bit like this. On an annualized basis we are showing 21% growth from 3/31 back to 6/30 and in the most recent quarter that growth rate has slowed down to 13.6%. And in terms of composition, a little over $81 million was originated for the quarter. Roughly, $41 million of that is in the C&I portfolio; $35.8 of that is commercial real estate production.

As you look at that now, the C&I portfolio now represents 52% of the commercial loan portfolio; commercial real estate is 39%; and multi-family is roughly 9%. Our homebuilder lines of credit are inclusive in the C&I category.

Despite the environment, deposits however are up roughly $28 million this quarter while costs have been driven down sharply. Our year-to-date growth in deposits is roughly 5.2%, annualized, but this quarter is roughly 5%.

Let's move on to asset quality, where I'm sure there's a great deal of interest and focus. Non-performing loans continue to grow due to the continued stress here in the Midwest. Our non-performing loans now represent a little over $57 million or 2.2% of our loan portfolio. This is an increase of approximately $11 million from the prior quarter.

Our experience continues to follow the same pattern with a heavy concentration in the one- to four-family property category. In response, as noted, we've elevated our reserves from roughly 100 basis points last quarter to 110 basis points. Charge-offs for the quarter totaled roughly $2.1 million or 33 basis points of the average loan portfolio balance for the quarter.

Our REO also, real estate owned also jumped up to roughly $13 million. Now that end is in large part due to some aggressive efforts by the bank to obtain deeds in lieu of pursuing the lengthy foreclosure process. We expect that trend to continue with respect to charge-offs into the next quarter, and we'll talk about that in just a little bit.

As you take a look at the REO summary, just to give you an idea of what that activity is. At the end of the last quarter we had roughly 96 properties with a book value of about $9.6 million. We added 44 properties with a value of approximately $5.7 million. We eliminated 17 properties for just under $2 million, leaving us at March 31 with 123 properties at the $13.2 million. Of that total in REO, roughly 74% of that, as I had mentioned before, is the heavy concentration that we have in one- to four-family family. The remaining $3.4 million, half of that, over half of that is actually concentrated in three properties which consists of two office buildings and one restaurant which is actually currently leased.

Asset quality obviously continues to be a huge management focus here in the organization. We continue to take incremental steps to limit our exposure to any further asset quality deterioration. As an example, in the HELOC portfolio, we have taken some efforts to limit additional line exposure there, which has been driven by-- primarily by changes in FICO scores as well as loan-to-values.

Investment properties, we are practically doing no investment properties. Clearly as you look at the Detroit, Cleveland and even Cincinnati, investment property values have dropped significantly. And clearly with the-- our efforts with respect to pursuing aggressive deed in lieu of foreclosure, we have been sacrificing deficiency judgments with an opportunity to gain control of that process instead of going through the lengthy pipeline that currently exists within many of the markets that we currently operate in.

There's been a lot said about commercial real estate of late. A lot of forecasts that I suppose are a little bit all over the place. We've been doing some additional forecasting and talking to a number of resources that have a particular expertise in the markets that we've been operating in. As an example, Cleveland, the marketplace, despite some forecasts, appears to be relatively stable with cap rates in the 8% range. On the employment side, forecasts are showing a very, very slight but positive growth in employment for the remainder of 2008.

A similar data appears for Detroit with respect to employment. Cap rates are just a little bit higher than the national average right now. Indianapolis, where we do a little bit of business, is actually shaping up to be a bit better market than Cleveland and Detroit due to a healthier local economy and a lower cost of living.

As you look at multi-family areas, clearly supply is up due to the foreclosure activity. This is certainly having a constricting impact in terms of new construction in that category. What we're finding in Detroit as well as Cleveland is really a large number of out-of-state buyers, particularly investors from the coast where cap rates are found to be significantly lower, are attracted to the higher cap rates here in these markets. As an example, in the Detroit area, recent transactions with multi-family over $5 million, 25% of the purchasers were in fact out of state.

As for First Place in terms of our underwriting, what we're looking for with regard to commercial real estate. More equity in is clearly something that fundamentally that we're looking for. Owner-occupied component, today roughly 40% of our commercial real estate has some component of owner-occupied and/or we're looking for national credits in many of those real estate credits. And then obviously higher debt service coverage ratios, better cash flow is clearly a priority.

With respect to margin, we believe we've actually turned the corner and bottomed out with margin as evidenced by the 6 basis point increase, taking us to 298. This is clearly attributable to some aggressive retail strategy to re-price yet retain our deposits. Consequently, you're going to find that our deposit costs have dropped sharply despite the fact that balances are up. But David's going to cover some more detail in that area.

Looking to expense management, our non-interest expense to average assets dropped to almost a company low of 2.45%. Efficiency also dropped to 62%, and if you remove the amortization of intangibles, it is about 58.5%. We're very pleased with these results.

We've announced in previous calls our efforts to control overtime in the organization, eliminating temporary employees, being very aggressive with respect to vendor negotiations, and we have consolidated some departments. All of those have contributed to the overall reduction in expenses.

Looking at our mortgage banking group; they actually had a very stellar quarter, reporting $3.9 million gain on sale. That is inclusive of $1 million due to a mandatory accounting change. Dave's going to cover the detail on that; without that, obviously a $2.9 million pretax gain. That represents roughly $0.04 of non-recurring revenue to the bottom line with regard to earnings per share.

Our service charge income is also up smartly by about 50% from a year ago. That's mostly due to some strategic product realignment and some franchise expansion efforts that we have outlined in previous calls.

REO expense certainly remains a notable negative on the expense line. It was approaching roughly $200,000 a month in the prior quarter. It appears to be dipping, looking ahead to the next quarter to roughly $150,000.

There were some acceleration efforts, first of all obviously, due to taking in additional REO, catching up on some tax accruals and spiffing those properties up as we focus on pushing property out the door during the summer months as fast as we possibly can.

Loan servicing income category; there are a number of moving parts there. Dave will cover that also in some detail.

Because of the positive trends in the areas that I've noted in my comments, the board felt confident that no change in our dividend policy was necessary at this time. As a result, our dividend yield is a strong 5.56% based on the close -- stock price close yesterday.

I'm going to turn it over to David Gifford right now for some additional color. And then I'm going to come back for just a moment or two and provide a little bit of forward-looking comments with respect to what you might see next quarter. David?

Dave Gifford

Thank you, Steve. Good morning. As Steve mentioned, we earned $4.8 million this quarter or $0.30 per diluted share. And we returned to profitability this quarter. Net interest income was up $277,000 from the December quarter. About half of that increase was due to an $18 million increase in average earning assets. The other half was due to an increase in the net interest margin of 6 basis points from 292 for December quarter to 298 for the March quarter.

Last quarter I indicated that we're slightly asset sensitive for periods less than six months. And so we anticipated that Fed rate cuts would result in a decrease in our net interest margin.

When you project net interest margin, one of the hardest components to predict is the change in rates paid on savings and money market accounts. For this quarter we focused on reducing the rates on those accounts and our efforts bore fruit and we were successful. And in part this was due to the fact that our competition reduced their rates and that enabled us to reduce the rates that we were paying on savings and money market accounts.

Our cost of deposits came down 31 basis points this quarter and came down to 3.61%.

Looking forward to the next quarter, we still remain slightly asset sensitive for periods less than six months. However, based on what we anticipate in terms of competition, our outlook is a little more favorable. We're anticipating that the Fed will cut rates again on April 30 by 50 basis points, although daily and weekly our expectation changes there.

And in spite of that, we believe that are net interest margin will improve by six to eight basis points during the quarter. One of the factors; there is a high level of maturities of certificates of deposit and again more rational pricing by our competition. Growth in earning assets during the next quarter will continue to be driven by our commercial loan growth.

The provision for loan losses for the quarter was $4,860,000, which is down from $5,195,000 last quarter. The outlook for the provision next quarter is based on what happens to non-performing loans in the next three months. And I'll leave that for Steve to comment on. He'll give us his prediction.

Non-interest income for the March quarter was $9.9 million, an improvement of 27.6% from a year earlier and dramatically higher than the December 2007 quarter. Mortgage banking gains were especially strong at $3.9 million for the quarter compared with $1.1 million for December 2007 quarter, and $1.8 million for the March 2007 quarter.

Sales of mortgage loans were strong at $329 million for the quarter. As rates dipped for a short period of time in January, we picked up a significant amount of refinance activity and that contributed to our high level of sales for the quarter. This also impacted our loan servicing business. As a result, we did recognize an additional $150,000 of impairment of servicing rights, and along with that we experienced higher amortization of loan servicing rights due to payoffs.

As Steve mentioned, we did benefit this quarter from adopting the SEC's Staff Accounting Bulletin 109. That pronouncement repeals Staff Accounting Bulletin 105, which prohibited us from including the value of potential loan servicing rights when we valued our loan commitment derivatives.

With this change, we now recognize the full value of our loan commitment derivatives when they are issued, less the proportion of the commitments we do not expect to close. This result is then beginning to recognize revenue at the point of application and commitment rather than when the loan is sold.

Effectively, this quarter, we recognized approximately four months with the mortgage banking revenue instead of three. So, $1 million of our mortgage banking gains this quarter were from adopting Staff Accounting Bulletin 109. This increased our after-tax income by $0.04 per diluted share.

Non-interest income also benefited from $490,000 in gain on the sale of loan servicing rights. This was from the sale of servicing rights that took place in September of 2007, and it was from the resolution of a number of items that were contingencies at the time that sale took place.

Non-interest expense was $20 million for the current quarter, down $2.5 million or 11% from $22.5 million for the December quarter. The decline in non-interest expense was due to a $1 million decline in REO expense, and due to not having $800,000 of merger expense that we had in December and of course we had none this quarter.

We do anticipate further reductions in REO expense in the current quarter. Our current level is $550,000 and we expect a significant reduction from that going forward in our fourth quarter.

Our capital ratio has improved this quarter from December. Equity to assets increased to 9.54% from 9.45%, and tangible equity to tangible assets increased to 6.53 from 6.42. Accordingly, yesterday our directors approved dividend of $0.17 for the quarter, this was the same level as the dividend that has been for the last two quarters.

We did not make any purchases of treasury stock this quarter. And in March we let our existing board authorization expire for purchasing treasury stock. So, there are no plans to purchase any more in the immediate future.

Our stock price has continued to be volatile this quarter. We had a low price of $9.85 and a high price of $15.91. Yesterday our stock closed at $12.24. And that is 64% of book value of $19.11 and 97% of our tangible book value.

Steve will now wrap up with some comments about the future and our strategies and opportunities.

Steve Lewis

Thanks, Dave. It should come as no surprise to anybody listening, that as you look ahead to asset growth, we're going to continue with a fairly conservative posture. In really both portfolios we've been really very stingy in terms of what we've added to the mortgage portfolio. We're going to continue that and focus most of the asset generation in that category on sales. As you look at the commercial portfolio, really looking at a -- you can see that the growth rate has trended down over the year. We expect the fourth quarter to be probably in the 9% to 10% range. We do have a very large credit that is moving out to some conduit financing during the month of April, so that will certainly offset some of the growth that would normally occur.

With respect to margin expansion, Dave's pretty much covered that in an adequate amount of detail looking for some additional expansion of six to eight basis points and hoping that, that trend continues well into the next fiscal year.

Asset quality, it's certainly a lot more challenging to predict really than I think any other category on the balance sheet these days. As you look at our efforts to accelerate the recovery of these one- to four-family properties to get title to them so we can move them out. What we're looking at really is an increase in non-performing assets next quarter. We think non-performing loans will be flat, potentially lower depending on the pace at which we can get hold of these deeds.

As a result of this acceleration in the process, I anticipate that charge-offs will actually increase during the next quarter. Clearly, the buildup in the loan loss reserve this quarter was intentional to allow for that to occur in the next quarter. Consequently, we're looking at roughly somewhere in the 100 to 110 basis point loan loss reserve level for the next quarter. But all that being said, we will not allow the coverage ratio to our non-performing loans to drop below 50 basis points, which has been the target we had previously established.

Control on expenses, obviously that is a top priority here. We expect a bit more of that. We are looking to perhaps spend a little more on the marketing budget this quarter and hopefully we'll be able to offset that in some other categories.

With respect to merger and acquisition activity, as you know we announced the agreement to acquire OC Financial, which is a very low risk profile company operating, headquartered in Dublin, Ohio, suburb of Columbus. It's going to marry up actually very well with the significant lending operations that we already have established in that market. This is a capital neutral deal for us. It will be accretive during its first year, not including transaction costs. This certainly continues to be a very fascinating and potentially treacherous M&A environment. I think only those of us who are very thorough in our due diligence processes and have a well defined strategic focus are going to do well. We'll continue to evaluate opportunities that make sense from a pricing and a strategic perspective as well as in some cases even a defensive posture.

With respect to mortgage banking, and estimating roughly $1.5 million for gain on sale, pretax for the next quarter.

Those are all of my Swami predictions for next quarter. And we're going to open it up to some Q&A. Thank you.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Our first question is coming from John Rowan of Sidoti & Company.

John Rowan - Sidoti & Company

Good morning.

Steve Lewis

Hi, John.

John Rowan - Sidoti & Company

Just wanted to talk about the margin a little bit. Obviously, you're looking for some expansion next quarter. But, looking down the road, where do you get compression on the deposit sides where the Fed rate cuts will actually -- will impact your margin negatively?

Dave Gifford

I think there is a limit to how low the Fed can go. We've seen a couple of percent worth of cuts here. I think they're coming near the end.

Steve Lewis

I'd have to agree with that. They're running out of gas a bit. I am no economist but obviously the inflationary fears are out there are growing every day. And I think that's really going to limit just how far the Fed can cut. And our forecast is clearly based on that point that there's really -- they're running out of downside room.

John Rowan - Sidoti & Company

Okay. And also, just to -- can you go back to the deed issue. You're seeking deeds rather than foreclosing on property. Can you explain how that works? Are you renting out the properties?

Steve Lewis

Well, first and foremost is getting control of the property. The foreclosure processes, in many of our markets as we've discussed in the past, is excruciatingly long. And property deterioration can occur during that time and it's obviously a non-earning asset during that time. It's just a lose-lose situation. And as you do the simple math on it, giving something up in the front end is certainly much better than waiting to go through the process and the legal expense, etc cetera.

So we have really stepped up our efforts to convince people in that situation that it's going to be better for them in the long run to give up the deed to that property to us and so that we can pursue our rapid liquidation of the asset. And in many cases, yes, if we get control of it, renting is always a possibility. Some of our properties are currently rented. But as we're heading into the summer months, those are really -- the time you want to get rid of those properties before winter comes back and you're experiencing utilities and the additional deterioration of the property.

Am I answering your question, John?

John Rowan - Sidoti & Company

Yes. But how do you convince someone to give up the deed rather than foreclosing on property?

Steve Lewis

Mostly by waiving our right to a deficiency judgment. Obviously in most cases we're taking back a property that is -- when the loan amount is greater than the fair market value and we're giving up our right to pursue a deficiency. In most cases, quite honestly, you're not going to get anything from the deficiency anyway. But, anybody from a credit standpoint doesn't want that following around -- following their credit history around for the rest of their life. So it's a pretty powerful argument. And there are others things that we do too in that light. It could mean allowing them to stay in the property for a little bit longer period of time without paying anything as well.

John Rowan - Sidoti & Company

Okay and you're taking the charges on the differences immediately, correct?

Steve Lewis

Oh absolutely.

John Rowan - Sidoti & Company

Alright. And then also switch topics a little bit, the allowance, you stated that you expect the allowance ratio to be 100 to 110 basis points next quarter and that the coverage ratio won't fall below 50 basis points. Now you expect non-performing loans to be relatively flat?

Steve Lewis

It all depends on the pace at which we can bring -- convert those non-performing loans to REO. And that is contingent on the deed in lieu. As an example, I believe a little over $2 million in this most recent quarter came to us via the deed in lieu as opposed to through the foreclosure process. And we're expecting similar if not higher numbers this quarter as well. So, the strategy in my mind is working and the last thing you want to do is put more property on your books. But the financial consequences of going through the foreclosure process is far greater.

John Rowan - Sidoti & Company

I mean you say coverage ratio. You're not including REO in that, right?

Steve Lewis

No, REO has already been discounted heavily, but we've been booking REO at about 80% of fair market value.

John Rowan - Sidoti & Company

Okay, I'll let someone else hop on. Thank you.

Steve Lewis

Sure, thanks.

Operator

Thank you. Our next question is coming from Daniel Arnold of Sandler O'Neill & Partners.

Daniel Arnold - Sandler O'Neill & Partners

Hey guys. How's it going?

Steve Lewis

Good morning, Dan. How are you?

Daniel Arnold - Sandler O'Neill & Partners

Good. Just a couple of questions; start off on the credit quality issue. First of all, it looks like the one- to four-family issue seems to be driving the increase in NPAs. And I was just wondering what are you seeing with home values? How far down have those dropped and do they have farther to go in the markets herein?

Steve Lewis

No, I think there's been-- there's clearly been deterioration in the home values. Although I have to say, I think it's been leveling off. Even here in Youngstown-Warren marketplace, activity has been picking up quite a bit, both in terms of sales and even with some of the local contractors that we're dealing with. They've run out of specs and they're coming back looking to build specs, which of course we'll be a pretty stingy with.

So, we are seeing sort of a leveling out of the values. This isn't -- obviously we're not operating in markets such as California and Florida where they're experiencing dramatic declines. We've had modest declines in values and it appears to have leveled out for the most part.

Daniel Arnold - Sandler O'Neill & Partners

Right. So, I mean when you look at the charge-off numbers, you said they're going to increase, how much higher do those have to go? I mean, I guess the question is, you guys have upped the reserve quite a bit and you're talking about keeping the reserve-to-loan ratio pretty constant from where it's at. If those increase, so that numbers have to go up?

Steve Lewis

I think, if we are as successful as what we want to be in terms of achieving those deeds in lieu, which we're going to mark those obviously to market and move those properties out as fast as we can, you could see charge-offs come close to 50 basis points next quarter. That is possible, but only if we're able to, again, only if we're successful in continuing to accelerate that process.

Daniel Arnold - Sandler O'Neill & Partners

Okay, and then, my next question is on the mortgage banking revenue, the gain on loan sale was up quite a bit this quarter. And about $1 million of that was from that accounting change. But even still, it looked like it was up about almost $2 million over the prior quarter. Are you guys selling a lot of loans that you previously have kept on your books or is there some sort of fundamental change in what you did this quarter with the gain on loan sale?

Dave Gifford

We did supplement our normal mortgage banking activity with some sale of loans from the balance sheet, about $45 million worth. But, that's out of $329 million for the quarter. The increase is mostly volume driven from the volume in our originations.

Steve Lewis

And I think we're just -- given the marketplace and the changes that have -- they've pushed down from Fannie and Freddie, we've looked at those and also said, we're really not -- we don't have that appetite to put some of that volume in portfolio.

In the past, we were really using the mortgage portfolio as a bit of an offset. As you look at our targets for balance sheet growth, if the commercial portfolio wasn't getting it done, then we would actually look at that volume and cherry pick some of it for the portfolio.

Today, that strategy has become more constrictive with respect to asset growth. And we're still managing the commercial growth very, very closely and really supplying that growth as the mortgage portfolio amortizes.

Daniel Arnold - Sandler O'Neill & Partners

So pretty much the increase there was almost entirely driven off that increase in originations from the refinancing success?

Steve Lewis

Yes.

Dave Gifford.

Yes.

Daniel Arnold - Sandler O'Neill & Partners

Do you expect to continue-- I mean the end of period mortgage balances were down a little bit this quarter, do you expect to continue those -- to see those continue to run off?

Steve Lewis

Yes. Probably not as aggressively in the most recent quarter due to the sales out of the portfolio that David mentioned. But I would definitely see portfolio continue to shrink during the fourth quarter.

Daniel Arnold - Sandler O'Neill & Partners

What kind of loans were those? Was that in that $45 million or so?

Dave Gifford

They were one- to four-family fixed and variable. It really just was the right thing to do to increase our liquidity and boost the capital.

Steve Lewis

And fund commercial growth.

Dave Gifford

Yeah.

Daniel Arnold - Sandler O'Neill & Partners

Okay. All right. Well thank you very much guys. I appreciate it.

Steve Lewis

Sure, thanks.

Operator

Thank you. Our next question is coming from Chris McGratty of KBW.

Chris McGratty - Keefe, Bruyette & Woods

Good morning. I just had one quick question on the margin. I'm wondering if you're run into any (inaudible), just given that you've been so aggressive on lowering the deposit rates. I guess, how much further? You said you had some deposits, some CDs running down this quarter. Just wondering if you could speak to any color on that?

Dave Gifford

Well, on the CD side, we've been pricing down about 150 basis points from what the CDs are maturing at to what we're putting them on the books at today. And they're still up in the high 2s and the 3% range. So I still think if rates come down there's more room to move there.

Our other products, the money markets and the savings accounts, yeah, we have more room to move there than the Fed has room to move down, I would say.

Chris McGratty - Keefe, Bruyette & Woods

Okay. And then on your loan portfolio, the stuff that's variable. Is it Prime based or LIBOR based?

Dave Gifford

Treasury.

Chris McGratty - Keefe, Bruyette & Woods

Okay.

Operator

Thank you.

(Operator Instructions)

Our next question is coming from Eric Grubelich of KBW.

Eric Grubelich - Keefe, Bruyette & Woods

Hi, good morning.

Steve Lewis

Good Morning.

Eric Grubelich - Keefe, Bruyette & Woods

Just a reminder, I'm not the publishing analyst, McGratty is. David, I just wanted to follow up with a previous question about valuations you were seeing on the residential properties that you have to sell. Did I hear you correctly that you're not seeing much of a discrepancy compared to where you have them marked in REO?

Dave Gifford

That's correct. And you know to be fair; we've been pretty aggressive at writing those down. As I mentioned, generally we've got an appraisal, we've been -- marking about 80% of appraisal I think.

So we've created some cushion there so we're not experiencing any additional loss when the ultimate sale occurs. But in terms of market values, it appears that generally speaking after that, the dip over the last 12, 18 months in market values, as we tend to have reached a level of call it salability in this marketplace and the properties are beginning to move a bit.

Eric Grubelich - Keefe, Bruyette & Woods

Okay. Are you, just geographically, are you seeing any difference in value between properties in Michigan versus your core market in northeast Ohio?

Steve Lewis

Yeah, it's obvious that in the Detroit marketplace, most of which what we have is in the suburbs, they have experienced more market deterioration if you will than Ohio has. And their recovery time is going to clearly be longer. As you look at Detroit versus Cleveland, Cleveland does seem to be in a better position economically right now and with respect to their housing market.

Eric Grubelich - Keefe, Bruyette & Woods

Okay. Thanks a lot.

Steve Lewis

Sure, thanks.

Operator

(Operator Instructions)

Thank you. There are no further questions at this time. I'd like to hand the floor back over to management for any closing comments.

Steve Lewis

We'd like to thank everybody for joining us this morning. I think we've been pretty clear as to what our strategy is moving into the next quarter. And again not to be redundant but I think we are very pleased with what's occurring outside the asset quality and asset quality is certainly a gorilla in this environment right now. But as far as the rest of the organization is concerned, we're pretty pleased with what's happening in the retail and mortgage banking areas and the efforts we've made with respect to cost containment.

We are going to continue to be very aggressive with respect to liquidation of troubled assets. And that's what you can expect from us going forward. If you have any additional questions, David, myself will be in the office all day. Please feel free to give us a call, we'll be happy to address them. Thanks for tuning in.

Operator

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

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