FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
   
þ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2005
For the quarterly period ended
March 31, 2005

OR

   
o TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period fromto
For the transition period from
to

Commission file number0-12379

FIRST FINANCIAL BANCORP.

(Exact name of registrant as specified in its charter)
   
Ohio 31-1042001
   
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
   
300 High Street, Hamilton, Ohio 45011
   
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code(513) 867-5447
Registrant’s telephone number, including area code
(513) 867-5447

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or15(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.

YesXþNo

o

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).

YesXþNo

o

     Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
   
Class
 Outstanding at April 28,July 29, 2005
   
Common stock, No par value
 43,504,92343,230,819
 
 

 


FIRST FINANCIAL BANCORP.

INDEX

 


PART I FINANCIAL INFORMATION
ITEM I FINANCIAL STATEMENTS
FIRST FINANCIAL BANCORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
         
  June 30, December 31,
  2005 2004
ASSETS
        
Cash and due from banks $170,867  $152,437 
Interest-bearing deposits with other banks  0   495 
Federal funds sold and securities purchased under agreements to resell  0   12,049 
Investment securities held-to-maturity, at cost  17,439   12,809 
(market value $17,690 at June 30, 2005 and $13,176 at December 31, 2004)        
Investments available-for-sale, at market value  618,500   655,129 
(cost $617,497 at June 30, 2005 and $651,394 at December 31, 2004)        
Loans:        
Commercial  604,584   635,489 
Real estate-construction  91,342   86,345 
Real estate-mortgage  1,490,388   1,478,930 
Installment  592,904   580,156 
Credit card  21,192   21,894 
Lease financing  3,484   5,229 
         
Total loans  2,803,894   2,808,043 
Less:        
Unearned income  1   6 
Allowance for loan losses  43,506   45,076 
         
Net loans  2,760,387   2,762,961 
Premises and equipment  70,301   66,216 
Goodwill  28,656   28,444 
Other intangibles  7,619   7,838 
Assets related to discontinued operations  106,960   109,073 
Accrued interest and other assets  118,737   112,270 
         
TOTAL ASSETS
 $3,899,466  $3,919,721 
         
         
LIABILITIES
        
Deposits:        
Noninterest-bearing $446,504  $438,367 
Interest-bearing  2,473,222   2,467,498 
         
Total deposits  2,919,726   2,905,865 
         
Short-term borrowings        
Federal funds purchased and securities sold under agreements to repurchase  65,965   64,249 
Federal Home Loan Bank short-term borrowings  49,200   78,100 
Other  12,301   5,845 
         
Total short-term borrowings  127,466   148,194 
         
Federal Home Loan Bank long-term debt  321,220   330,356 
Other long-term debt  30,930   30,930 
Liabilities related to discontinued operations  97,688   100,224 
Accrued interest and other liabilities  32,614   32,697 
         
TOTAL LIABILITIES
  3,529,644   3,548,266 
         
SHAREHOLDERS’ EQUITY
        
Common stock — no par value        
Authorized — 160,000,000 shares        
Issued — 48,558,614 shares in 2005 and 2004  395,171   395,521 
Retained earnings  71,784   65,095 
Accumulated comprehensive income  (4,864)  (3,123)
Restricted Stock Awards  (3,552)  (3,073)
Treasury Stock, at cost, 5,206,711 shares in 2005 and 4,881,378 shares in 2004  (88,717)  (82,965)
         
TOTAL SHAREHOLDERS’ EQUITY
  369,822   371,455 
         
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
 $3,899,466  $3,919,721 
         
See notes to consolidated financial statements.

1


FIRST FINANCIAL BANCORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Dollars in thousands, except per share data) (Unaudited)
                 
  Six months ended Three months ended
  June 30, June 30,
  2005 2004 2005 2004
Interest income                
Loans, including fees $85,748  $81,953  $43,370  $40,983 
Investment securities                
Taxable  10,797   12,770   5,389   6,101 
Tax-exempt  2,469   2,830   1,239   1,381 
                 
Total investment interest  13,266   15,600   6,628   7,482 
Interest-bearing deposits with other banks  1   32   0   15 
Federal funds sold and securities purchased under agreements to resell  225   20   121   9 
                 
Total interest income  99,240   97,605   50,119   48,489 
Interest expense                
Deposits  21,860   17,936   11,434   8,666 
Short-term borrowings  968   1,054   507   537 
Federal Home Loan Bank long-term debt  7,589   7,618   3,781   3,841 
Other long-term debt  938   679   492   337 
                 
Total interest expense  31,355   27,287   16,214   13,381 
                 
Net interest income  67,885   70,318   33,905   35,108 
Provision for loan losses  1,205   4,580   750   2,080 
                 
Net interest income after provision for loan losses  66,680   65,738   33,155   33,028 
                 
Noninterest income                
Service charges on deposit accounts  8,775   9,284   4,609   4,730 
Trust income  7,973   7,922   3,879   4,030 
Bankcard interchange income  2,988   2,448   1,568   1,271 
Investment advisory fees  1,668   1,781   828   879 
Gains from sales of mortgage loans  944   696   480   408 
Investment securities losses  (6)  (3)  0   (1)
Other  7,532   7,026   3,474   3,480 
                 
Total noninterest income  29,874   29,154   14,838   14,797 
                 
Noninterest expenses                
Salaries and employee benefits  38,067   36,937   19,157   18,738 
Net occupancy  4,590   4,125   2,241   1,944 
Furniture and equipment  3,285   3,573   1,664   1,787 
Data processing  3,050   3,333   1,461   1,620 
Marketing  1,225   1,420   714   695 
Communication  1,496   1,393   715   691 
Professional services  2,913   2,372   1,527   1,132 
Amortization of intangibles  440   436   220   220 
Other  11,679   11,676   5,886   5,932 
                 
Total noninterest expenses  66,745   65,265   33,585   32,759 
                 
                 
Earnings from continuing operations before income taxes  29,809   29,627   14,408   15,066 
Income tax expense  9,654   9,599   4,785   4,856 
                 
Earnings from continuing operations  20,155   20,028   9,623   10,210 
                 
Earnings from discontinued operations before income taxes  723   400   416   207 
Income tax expense  263   143   150   80 
                 
Earnings from discontinued operations  460   257   266   127 
                 
Net Earnings $20,615  $20,285  $9,889  $10,337 
                 

2


FIRST FINANCIAL BANCORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
         
  March 31,  December 31, 
  2005  2004 
  (Unaudited)     
ASSETS
        
Cash and due from banks $166,753  $155,353 
Interest-bearing deposits with other banks  3,550   920 
Federal funds sold and securities purchased under agreements to resell  26,450   12,049 
Investment securities held-to-maturity, at cost (market value $13,628 at March 31, 2005 and $13,176 at December 31, 2004)  13,443   12,809 
Investments available-for-sale, at market value (cost $645,497 at March 31, 2005 and $665,763 at December 31, 2004)  641,315   669,431 
Loans:        
Commercial  631,651   644,933 
Real estate-construction  87,576   91,475 
Real estate-mortgage  1,534,656   1,539,398 
Installment  589,817   592,402 
Credit card  20,353   21,895 
Lease financing  4,305   5,229 
       
Total loans  2,868,358   2,895,332 
Less:        
Unearned income  2   6 
Allowance for loan losses  45,976   46,718 
       
Net loans  2,822,380   2,848,608 
Premises and equipment  68,419   66,898 
Goodwill  28,656   28,444 
Other intangibles  7,612   7,855 
Deferred income taxes receivable  9,271   6,357 
Accrued interest and other assets  107,494   107,947 
       
TOTAL ASSETS
 $3,895,343  $3,916,671 
       
         
LIABILITIES
        
Deposits:        
Noninterest-bearing $444,137  $443,902 
Interest-bearing  2,595,608   2,541,084 
       
Total deposits  3,039,745   2,984,986 
         
Short-term borrowings        
Federal funds purchased and securities sold under agreements to repurchase  62,234   61,199 
Federal Home Loan Bank short-term borrowings  0   78,100 
Other  10,250   5,845 
       
Total short-term borrowings  72,484   145,144 
         
Federal Home Loan Bank long-term debt  348,717   350,856 
Other long-term debt  30,930   30,930 
Accrued interest and other liabilities  35,320   33,300 
       
TOTAL LIABILITIES
  3,527,196   3,545,216 
         
SHAREHOLDERS’ EQUITY
        
Common stock – no par value        
Authorized – 160,000,000 shares Issued - 48,558,614 shares in 2005 and 2004  395,311   395,521 
Retained earnings  68,849   65,095 
Accumulated comprehensive income  (8,084)  (3,123)
Restricted Stock Awards  (2,647)  (3,073)
Treasury Stock, at cost, 5,014,591 shares in 2005 and 4,881,378 shares in 2004  (85,282)  (82,965)
       
TOTAL SHAREHOLDERS’ EQUITY
  368,147   371,455 
       
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
 $3,895,343  $3,916,671 
       

See notes to consolidated financial statements.

1


FIRST FINANCIAL BANCORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS
(Dollars in thousands, except per share data)
(Unaudited)
         
  Three months ended 
  March 31, 
  2005  2004 
Interest income        
Loans, including fees $43,819  $42,522 
Investment securities        
Taxable  5,538   6,813 
Tax-exempt  1,230   1,449 
       
Total investment interest  6,768   8,262 
Interest-bearing deposits with other banks  23   28 
Federal funds sold and securities purchased under agreements to resell  104   11 
       
Total interest income  50,714   50,823 
Interest expense        
Deposits  10,816   9,662 
Short-term borrowings  432   499 
Federal Home Loan Bank long-term debt  4,109   4,163 
Other long-term debt  446   342 
       
Total interest expense  15,803   14,666 
       
Net interest income  34,911   36,157 
Provision for loan losses  505   2,600 
       
Net interest income after provision for loan losses  34,406   33,557 
         
Noninterest income        
Service charges on deposit accounts  4,217   4,613 
Trust income  4,094   3,892 
Bankcard interchange  1,432   1,184 
Gains from sales of mortgage loans  464   288 
Investment securities gains (losses)  (6)  (2)
Other  4,923   4,466 
       
Total noninterest income  15,124   14,441 
         
Noninterest expenses        
Salaries and employee benefits  19,224   18,519 
Net occupancy  2,373   2,205 
Furniture and equipment  1,638   1,804 
Data processing  1,725   1,863 
Marketing  529   740 
Communication  784   706 
Professional services  1,400   1,250 
Amortization of intangibles  220   216 
Other  5,929   5,941 
       
Total noninterest expenses  33,822   33,244 
       
         
Income before income taxes  15,708   14,754 
Income tax expense  4,982   4,806 
       
Net earnings $10,726  $9,948 
       
         
Net earnings per share – basic $0.25  $0.23 
       
Net earnings per share – diluted $0.25  $0.23 
       
Cash dividends declared per share $0.16  $0.15 
       
Average basic shares outstanding  43,599,866   43,924,139 
       
Average diluted shares outstanding  43,673,090   43,967,599 
       
                     
  Six months ended     Three months ended
  June 30,     June 30,
  2005 2004     2005 2004
Earnings per share from continuing operations:                    
Basic $0.46  $0.46      $0.22  $0.23 
                     
Diluted $0.46  $0.46      $0.22  $0.23 
                     
Earnings per share from discontinued operations:                    
Basic $0.01  $0.01      $0.01  $0.00 
                     
Diluted $0.01  $0.01      $0.01  $0.00 
                     
Earnings per share:                    
Basic $0.47  $0.46      $0.23  $0.24 
                     
Diluted $0.47  $0.46      $0.23  $0.24 
                     
                     
Cash dividends declared per share $0.32  $0.30      $0.16  $0.15 
                     
Average basic shares outstanding  43,551,614   43,908,838       43,502,193   43,868,314 
                     
Average diluted shares outstanding  43,624,879   43,971,919       43,575,499   43,951,016 
                     

See notes to consolidated financial statements.

23


FIRST FINANCIAL BANCORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, dollars in thousands)
         
  Six months ended
  June 30,
  2005 2004
Operating activities        
Earnings from continuing operations $20,155  $20,028 
Adjustments to reconcile net cash provided by operating activities        
Provision for loan losses  1,205   4,580 
Provision for depreciation and amortization  4,501   4,315 
Net amortization of investment security premiums and accretion of discounts  796   1,401 
Realized investment securities losses  6   3 
Originations of mortgage loans held for sale  (49,950)  (55,856)
Gains from sales of mortgage loans held for sale  (944)  (696)
Proceeds from sale of mortgage loans held for sale  50,457   56,047 
Deferred income taxes  (60)  (49)
(Increase) decrease in interest receivable  (44)  871 
Increase in cash surrender value of life insurance  (3,959)  (767)
Increase in prepaid expenses  (699)  (425)
(Decrease) increase in accrued expenses  (260)  2,439 
Increase (decrease) in interest payable  573   (525)
Other  (697)  (408)
         
Net cash provided by operating activities from continuing operations  21,080   30,958 
         
Investing activities        
Proceeds from sales of securities available-for-sale  680   0 
Proceeds from calls, paydowns and maturities of securities available-for-sale  53,795   123,303 
Purchases of securities available-for-sale  (21,392)  (71,515)
Proceeds from calls, paydowns and maturities of securities held-to-maturity  4,197   11,217 
Purchases of securities held-to-maturity  (8,815)  (5,874)
Net decrease in interest-bearing deposits with other banks  495   1,430 
Net decrease in federal funds sold and securities purchased under agreements to resell  12,049   188 
Net increase in loans and leases  (3,471)  (114,160)
Recoveries from loans and leases previously charged off  2,164   2,765 
Proceeds from disposal of other real estate owned  1,484   2,778 
Purchases of premises and equipment  (6,999)  (3,908)
         
Net cash provided by (used in) investing activities from continuing operations  34,187   (53,776)
         
Financing activities        
Net increase (decrease) in total deposits  13,861   (22,096)
Net decrease in short-term borrowings  (20,728)  (1,799)
Net (decrease) increase in long-term borrowings  (9,136)  24,547 
Cash dividends declared  (13,926)  (13,167)
Purchase of common stock  (7,099)  (3,849)
Proceeds from exercise of stock options, net of shares purchased  191   5 
         
Net cash used in financing activities from continuing operations  (36,837)  (16,359)
         
Net cash provided by (used in) discontinued operations  174   (2,128)
         
         
Cash and cash equivalents:        
Net increase (decrease) in cash and cash equivalents  18,604   (41,305)
Cash and cash equivalents at beginning of period  155,353   183,612 
         
Cash and cash equivalents at end of period $173,957  $142,307 
         
         
Cash and cash equivalents consist of the following:        
Cash and cash equivalents from continuing operations  170,867   139,689 
Cash and cash equivalents from discontinued operations  3,090   2,618 
         
Cash and cash equivalents at end of period $173,957  $142,307 
         

4


FIRST FINANCIAL BANCORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, dollars in thousands)
         
  Three months ended 
  March 31, 
  2005  2004 
         
Operating activities        
Net earnings $10,726  $9,948 
Adjustments to reconcile net cash provided by operating activities        
Provision for loan losses  505   2,600 
Provision for depreciation and amortization  2,325   2,248 
Net amortization of investment security premiums and accretion of discounts  433   606 
Realized investment securities losses  6   2 
Originations of mortgage loans held for sale  (21,286)  (27,244)
Gains from sales of mortgage loans held for sale  (464)  (288)
Proceeds from sale of mortgage loans held for sale  21,552   27,350 
Deferred income taxes  (24)  (34)
Decrease in interest receivable  405   1,327 
Increase in cash surrender value of life insurance  (2,883)  (485)
Increase in prepaid expenses  (578)  (926)
Increase in accrued expenses  555   5,011 
Increase (decrease) in interest payable  503   (10)
Other  4,820   807 
       
Net cash provided by operating activities  16,595   20,912 
         
Investing activities        
Proceeds from sales of securities available-for-sale  680   0 
Proceeds from calls, paydowns and maturities of securities available-for-sale  29,438   66,227 
Purchases of securities available-for-sale  (10,305)  (40,216)
Proceeds from calls, paydowns and maturities of securities held-to-maturity  1,429   10,574 
Purchases of securities held-to-maturity  (2,050)  (4,623)
Net increase in interest-bearing deposits with other banks  (2,630)  (3,181)
Net increase in federal funds sold and securities purchased under agreements to resell  (14,401)  (1,380)
Net decrease (increase) in loans and leases  22,030   (39,907)
Recoveries from loans and leases previously charged off  1,555   1,583 
Proceeds from disposal of other real estate owned  914   1,274 
Purchases of premises and equipment  (2,956)  (2,077)
       
Net cash used in investing activities  23,704   (11,726)
         
Financing activities        
Net increase (decrease) in total deposits  54,759   (13,315)
Net decrease in short-term borrowings  (72,660)  (63,718)
Net (decrease) increase in long-term borrowings  (2,139)  31,636 
Cash dividends declared  (6,972)  (6,593)
Purchase of common stock  (1,906)  (1,859)
Proceeds from exercise of stock options, net of shares purchased  19   1 
       
Net cash used in by financing activities  (28,899)  (53,848)
       
Increase (decrease) in cash and cash equivalents  11,400   (44,662)
Cash and cash equivalents at beginning of period  155,353   183,612 
       
Cash and cash equivalents at end of period $166,753  $138,950 
       
         
  Six months ended
  June 30,
  2005 2004
Supplemental disclosures        
Interest paid $30,783  $27,784 
         
Income taxes paid $10,077  $9,334 
         
Recognition of deferred tax assets attributable to SFAS No. 115 $1,041  $5,799 
         
Acquisition of other real estate owned through Foreclosure $2,676  $1,972 
         
Issuance of restricted stock awards $1,446  $1,531 
         

3


FIRST FINANCIAL BANCORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, dollars in thousands)

         
  Three months ended 
  March 31, 
  2005  2004 
         
Supplemental disclosures        
Interest paid $15,299  $14,675 
       
Income taxes paid $0  $0 
       
Recognition of deferred tax assets (liabilities) attributable to SFAS No. 115 $2,890  $(1,355)
       
         
Acquisition of other real estate owned through foreclosure $2,138  $1,137 
       
Issuance of restricted stock awards $0  $1,537 
       

See notes to consolidated financial statements.

45


FIRST FINANCIAL BANCORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(Unaudited, dollars in thousands)
        
 Three months ended         
 March 31,  Six months ended
 2005 2004  June 30,
  2005 2004
Balances at January 1 $371,455 $366,483  $371,455 $366,483 
Net earnings 10,726 9,948  20,615 20,285 
Other comprehensive income, net of taxes:  
Changes in unrealized (losses) gains on securities, available for sale  (4,961) 2,304 
Changes in unrealized losses on securities, available for sale  (1,741)  (9,617)
          
Comprehensive income 5,765 12,252  18,874 10,668 
Cash dividends declared  (6,972)  (6,593)  (13,926)  (13,167)
Purchase of common stock  (1,906)  (1,859)  (7,099)  (3,849)
Exercise of stock options, net of shares purchased 19 1  191 5 
Restricted stock awards  (640) 0   (640) 0 
Amortization of restricted stock awards 426 531  967 1,063 
          
Balances at March 31
 $368,147 $370,815 
Balances at June 30
 $369,822 $361,203 
          

See notes to consolidated financial statements.

56


FIRST FINANCIAL BANCORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31,
JUNE 30, 2005
(Unaudited, dollars in thousands, except per share data)

The consolidated financial statements for interim periods are unaudited; however, in the opinion of the management of First Financial Bancorp. (First Financial), all adjustments (consisting of only normal recurring adjustments) necessary for a fair presentation have been included.

NOTE 1: BASIS OF PRESENTATION
The consolidated financial statements of First Financial, a bank and savings and loan holding company, include the accounts of First Financial and its wholly-owned subsidiaries — First Financial Bank, N.A., Community First Bank & Trust, Fidelity Federal Savings Bank, Sand Ridge Bank, First Financial Bancorp Service Corp., and First Financial Capital Advisors LLC, a registered investment advisory company. All significant intercompany transactions and accounts have been eliminated in consolidation.

Due to the pending sale of First Financial’s wholly-owned subsidiary, Fidelity Federal Savings Bank, Fidelity Federal’s assets, liabilities, and results of operations and cash flows are classified as discontinued operations. (See Note 2.)

The accompanying financial statements have been prepared in accordance with the instructions for Form 10-Q and, therefore, do not include all information and footnotes necessary to be in conformity with U.S. generally accepted accounting principles for annual financial statements.

The consolidated balance sheet at December 31, 2004, has been derived from the audited financial statements at that date, but does not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements for annual periods. For further information, refer to the consolidated financial statements and footnotes thereto included in the First Financial Bancorp. Annual Report on Form 10-K for the year ended December 31, 2004.

Certain reclassifications of prior year’s amounts have been made to conform to current year presentation. Such reclassifications had no effect on earnings.

NOTE 2: DISCONTINUED OPERATIONS
On March 3, 2005, First Financial announced that it had signed a definitive agreement to sell substantially all of the assets and certain liabilities of its Fidelity Federal Savings Bank subsidiary to Mutual Federal Savings Bank, a subsidiary ofMutualFirstFinancial, Inc. of Muncie, Indiana. In June of 2005, First Financial received approval from the Office of Thrift Supervision for this transaction. The sale of Fidelity Federal is expected to close in September of 2005. Fidelity Federal is reported as a discontinued operation for financial reporting purposes for all periods presented. The results of its operations and its cash flows have been removed from First Financial’s results of continuing operations for all periods presented.
The assets and liabilities of Fidelity Federal that were classified as discontinued as of June 30, 2005, and December 31, 2004, are as follows:
         
  June 30, December 31,
  2005 2004
Assets
        
Cash and due from banks $3,090  $2,916 
Investments available for sale  13,377   14,302 
Other earning assets  5,925   3,475 
Net loans  81,901   85,646 
Bank premises and equipment  665   725 
Interest receivable  1,011   491 
Other assets  991   1,518 
         
Total assets $106,960  $109,073 
         

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  June 30, December 31,
  2005 2004
Liabilities
        
Noninterest-bearing deposits $4,843  $5,536 
Interest-bearing deposits  71,675   73,585 
Borrowings  20,500   20,500 
Other liabilities  670   603 
         
Total liabilities $97,688  $100,224 
         
The results of Fidelity Federal are presented as discontinued operations in a separate category on the income statement following the results from continuing operations. The income from discontinued operations for the six months and three months ended June 30, 2005, and 2004, respectively, is as follows:
                 
  Six months ended Three months ended
  June 30, June 30,
  2005 2004 2005 2004
Interest income                
Loans, including fees $2,871  $3,030  $1,430  $1,478 
Investment securities  253   285   123   141 
Interest-bearing deposits with other banks  41   29   19   19 
Federal funds sold and securities purchased under agreements to resell  74   29   45   11 
                 
Total interest income  3,239   3,373   1,617   1,649 
Interest expense                
Deposits  806   763   416   371 
Federal Home Loan Bank long-term debt  605   771   304   386 
                 
Total interest expense  1,411   1,534   720   757 
                 
Net interest income  1,828   1,839   897   892 
Provision for loan losses  50   262   0   162 
                 
Net interest income after provision for loan losses  1,778   1,577   897   730 
                 
Noninterest income                
Service charges on deposit accounts  104   124   54   65 
Other  77   68   40   43 
                 
Total noninterest income  181   192   94   108 
                 
Noninterest expenses                
Salaries and employee benefits  595   638   281   318 
Net occupancy  45   48   21   24 
Furniture and equipment  31   31   14   13 
Data processing  267   288   131   138 
Other  298   364   128   138 
                 
Total noninterest expenses  1,236   1,369   575   631 
                 
Income before taxes  723   400   416   207 
Income tax expense  263   143   150   80 
                 
Net earnings $460  $257  $266  $127 
                 

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NOTE 3: FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
In the normal course of business, First Financial offers a variety of financial instruments with off-balance sheet risk to its customers to aid them in meeting their requirements for liquidity and credit enhancement and to reduce its own exposure to fluctuations in interest rates. These financial instruments include standby letters of credit and commitments outstanding to extend credit. A discussion of these instruments follows.

First Financial’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for standby letters of credit and commitments outstanding to extend credit is represented by the contractual amounts of those instruments. First Financial uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. Following is a discussion of these transactions.

Standby letters of credit are conditional commitments issued by First Financial to guarantee the performance of a customer to a third party. First Financial’s portfolio of standby letters of credit consists primarily of performance assurances made on behalf of customers who have a contractual commitment to produce or deliver goods or services. The risk to First Financial arises from its obligation to make payment in the event of the customers’ contractual default. As of March 31,June 30, 2005, First Financial had issued standby letters of credit aggregating $40,430$39,788 compared to $43,453 issued as of December 31, 2004. Management conducts regular reviews of these instruments on an individual customer basis, and the results are considered in assessing the need to provide for losses. Management does not anticipate any material losses as a result of these letters of credit.

Loan commitments are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. First Financial evaluates each customer’s creditworthiness on an individual basis. The amount of collateral obtained, if deemed necessary by First Financial upon extension of credit, is based on management’s credit evaluation of the counterparty. The

6



collateral held varies, but may include securities, real estate, inventory, plant, or equipment. First Financial had commitments outstanding to extend credit totaling $517,741$497,928 at March 31,June 30, 2005, and $508,950$500,945 at December 31, 2004. Management does not anticipate any material losses as a result of these commitments.

NOTE 3:4: COMPREHENSIVE INCOME
First Financial discloses comprehensive income in the “Consolidated Statements of Changes in Shareholders’ Equity.” Disclosure of the reclassification adjustments for the six and three months ended March 31,June 30, 2005, and 2004 are shown in the table below.
        
 Three months ended                 
 March 31,  Six months ended Three months ended
 2005 2004  June 30, June 30,
  2005 2004 2005 2004
Net Income
 $10,726 $9,948  $20,615 $20,285 $9,889 $10,337 
Other comprehensive income, net of tax:  
Unrealized holding (losses) gains arising during period  (4,965) 2,303   (1,745)  (9,617) 3,220  (11,920)
Less: reclassification adjustment for gains included in net income  (4)  (1)
Less: reclassification adjustment for (losses) gains included in net income  (4) 0 0 1 
              
Other comprehensive income  (4,961) 2,304   (1,741)  (9,617) 3,220  (11,921)
              
Comprehensive income
 $5,765 $12,252  $18,874 $10,668 $13,109 $(1,584)
              

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NOTE 4:5: ACCOUNTING FOR DERIVATIVES
First Financial follows the provisions of SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” in accounting for its derivative activities. First Financial has interest rate swaps that are accounted for as fair value hedges under SFAS No. 133. First Financial utilizes interest rate swap agreements to effectively modify its exposure to interest rate risk by converting certain fixed rate assets to a floating rate. The use of these interest rate swaps allows First Financial’s subsidiary banks to offer a long-term fixed-rate loan to commercial borrowers. The interest rate swaps allow First Financial to convert the fixed interest rate to a variable rate that better suits its funding position. The swap agreements involve the receipt of floating rate amounts in exchange for fixed interest payments over the life of the agreements without an exchange of the underlying principal amount. The swaps are accounted for under the short-cut method. These contracts are designated as hedges of specific assets. The net interest receivable or payable on swaps is accrued and recognized as an adjustment to the interest income or expense of the hedged asset. First Financial had interest rate swaps with a notional value of $13,750$16,371 at March 31,June 30, 2005, and $12,122$12,046 at March 31,June 30, 2004. The fair value of the swaps was an unrealized gain of $195$296 at March 31,June 30, 2005 and an unrealized loss of $415$201 at March 31,June 30, 2004. These amounts are included with other assets on the balance sheet. The fair value adjustment was made to the hedged item on the balance sheet.

First Financial is exposed to losses if a counterparty fails to make its payment under a contract in which First Financial is in the receiving position. Although collateral or other security may not be obtained, First Financial minimizes its credit risk by monitoring the credit standing of each counterparty and believes that each will be able to fully satisfy its obligation under the agreement.

NOTE 5:6: OTHER LONG-TERM DEBT
Other long-term debt, which appears on the balance sheet, consists of junior subordinated debentures owed to two unconsolidated subsidiary trusts. Capital securities were issued in the third quarter of 2003 by a statutory business trust — First Financial (OH) Statutory Trust II and in the third quarter of 2002 by another statutory business trust — First Financial (OH) Statutory Trust I. First Financial owns 100% of the common equity of both of the trusts. The trusts were formed with the sole purpose of issuing the capital securities and

7


investing the proceeds from the sale of such capital securities in the debentures. The debentures held by the trust are the sole assets of each trust. Distributions on the capital securities are payable quarterly at a variable rate of interest, which is equal to the interest rate being earned by the trust on the debentures and are recorded as interest expense of First Financial. The interest rate is variable and is subject to change every three months. The base index is the three-month LIBOR (London Inter-Bank Offered Rate). On March 31,June 30, 2005, the rates on Trust I and Trust II were 6.49%6.87% and 6.19%, respectively. First Financial has the option to defer interest for up to five years on the debentures. However, the covenants prevent the payment of dividends on common stock if the interest is deferred. The capital securities are subject to mandatory redemption, in whole or in part, upon repayment of the debentures. First Financial has entered into agreements which, taken collectively, fully or unconditionally guarantee the capital securities subject to the terms of the guarantees. The debentures qualify as Tier I capital under Federal Reserve Board guidelines. The debentures issued in 2003 are first redeemable, in whole or in part, by First Financial on September 30, 2008 and mature on September 30, 2033. The amount outstanding, net of offering costs, as of March 31,June 30, 2005, was $20,000. The debentures issued in 2002 are first redeemable, in whole or in part, by First Financial on September 25, 2007, and mature on September 25, 2032. The amount outstanding, net of offering costs, as of March 31,June 30, 2005, was $10,000.

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NOTE 6:7: STOCK OPTIONS
As of March 31,June 30, 2005, First Financial had two stock-based compensation plans. First Financial accounts for those plans under the recognition and measurement principles of Accounting Principles Board Opinion No. 25 “Accounting for Stock Issued to Employees” (APB 25) and related interpretations.intrinsic value method. No stock option-based employee compensation cost is reflected in net income, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net income and earnings per share if First Financial had applied the fair value recognition provisions of FASB Statement No. 123 “Accounting for Stock-Based Compensation” (SFAS No. 123) to stock-based employee compensation.
        
 Three Months Ended                 
 March 31,  Six Months Ended Three Months Ended
 2005 2004  June 30, June 30,
  2005 2004 2005 2004
Net earnings, as reported $10,726 $9,948  $20,615 $20,285 $9,889 $10,337 
Add: restricted stock expense, net of taxes, included in net income 277 345  628 691 351 346 
Deduct: Total stock-based employee compensation expense determined under the fair value based method for all awards, net of related tax effects 321 413  736 818 415 405 
              
Pro forma net earnings $10,682 $9,880  $20,507 $20,158 $9,825 $10,278 
              
  
Earnings per share  
Basic–as reported $0.25 $0.23 
Basic—as reported $0.47 $0.46 $0.23 $0.24 
              
Basic–pro forma $0.25 $0.22 
Basic—pro forma $0.47 $0.46 $0.23 $0.23 
              
Diluted–as reported $0.25 $0.23 
Diluted—as reported $0.47 $0.46 $0.23 $0.24 
              
Diluted–pro forma $0.24 $0.22 
Diluted—pro forma $0.47 $0.46 $0.23 $0.23 
              

SFAS No. 123 was revised in 2004 and was effective for public entities as of the first interim period that begins after June 15, 2005. However, on April 14, 2005, the Securities and Exchange Commission announced the adoption of a new rule that amended the compliance date. The new rule allows companies to implement SFAS No. 123 at the beginning of their next fiscal year, which will be January 1, 2006, for First Financial. This Statement supercedes APB 25 and applies to all awards granted after the required effective

8


date and to awards modified, repurchased, or cancelled after that date. The cumulative effect of initially applying SFAS No. 123, if any, will be recognized as of the required effective date. SFAS No. 123(R) will allow for two transition alternatives for public entities: modified-prospective transition or modified-retrospective transition. Under the modified-prospective transition method, companies would be required to recognize compensation cost for share-based payments to employees based on their grant-date fair value from the beginning of the fiscal period in which the recognition provisions are first applied. Measurement and attribution of compensation cost for awards that were granted prior to, but not vested as of the date SFAS No. 123(R) is adopted would be based on the same estimate of the grant-date fair value and the same attribution method used previously under SFAS No. 123. Prior periods would not be restated. Under the modified-retrospective transition method, companies would be allowed to restate prior periods by recognizing compensation cost in the amounts previously reported in the proforma footnote disclosures under the provisions of SFAS No. 123. See table above for proforma footnote disclosures reported for the three and six months ended March 31,June 30, 2005, and 2004. New awards and unvested awards would be accounted for in the same manner for both the modified-prospective and modified-retrospective methods. First Financial does not plan to adopt SFAS No. 123 early. The method of adoption has not yet been determined. Therefore, the effect of SFAS 123 on First Financial’s financial statements has not yet been determined.

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NOTE 7:8: EMPLOYEE BENEFIT PLANS
First Financial sponsors a non-contributory defined benefit pension plan covering substantially all employees. First Financial expects to contribute $5,600$5,605 to its pension plan in 2005. The following table sets forth information concerning amounts recognized in First Financial’s Consolidated Balance Sheets and Consolidated Statements of Earnings.
        
 Three months ended                 
 March 31,  Six months ended Three months ended
 2005 2004  June 30, June 30,
  2005 2004 2005 2004
Service cost $955 $869  $1,910 $1,721 $955 $852 
Interest cost 748 701  1,495 1,406 748 705 
Expected return on plan assets  (678)  (618)  (1,355)  (1,226)  (678)  (608)
Amortization of transition asset  (16)  (20)  (32)  (40)  (16)  (20)
Amortization of unrecognized prior service cost 15 36  30 73 15 37 
Amortization of actuarial loss 248 203  496 410 248 207 
              
Net periodic benefit cost
 $1,272 $1,171  $2,544 $2,344 $1,272 $1,173 
              

Some of First Financial’s subsidiaries maintain health care and, in limited instances, life insurance plans for current retired employees. The following table sets forth the components of net periodic postretirement benefit costs.
        
 Three months ended                 
 March 31,  Six months ended Three months ended
 2005 2004  June 30, June 30,
  2005 2004 2005 2004
Service cost $955 $869  $40 $42 $20 $21 
Amortization of unrecognized prior service cost 15 36   (2)  (2)  (1)  (1)
Amortization of actuarial loss 248 203   (17)  (21)  (8)  (11)
              
Net periodic postretirement benefit cost
 $1,218 $1,108  $21 $19 $11 $9 
              

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NOTE 8: OTHER MATTERS-MERGERS,9: MERGERS, STRATEGIC PLAN
Core deposit intangibles and mortgage servicing rights are to be amortized over their useful lives. Core deposit balances are being amortized over varying periods, none of which exceeds 10 years.

The mergers of Citizens First State Bank into Community First Bank & Trust, headquartered in Celina, Ohio, a $929 million bank, and Heritage Community Bank into First Financial Bank, N.A., headquartered in Hamilton, Ohio, a $2 billion bank, occurred in March of 2005. The

Having received regulatory approval, the previously announced sale of the Fidelity Federal Savings Bank, headquartered in Marion, Indiana, to Mutual Federal Savings Bank of Muncie, Indiana, is expected to close in late 2005, pending regulatory approval.

September of 2005. See “Note 2: Discontinued Operations.”

First Financial has selected a national bank charter for the consolidation of its operations under one company as provided for in the company’s strategic plan. To effect the consolidation, First Financial plans to merge Sand Ridge Bank, headquartered in Highland, Indiana, and Community First Bank & Trust, headquartered in Celina, Ohio, into First Financial Bank, N.A., headquartered in Hamilton, Ohio. First Financial will file applicationsreceived conditional approval for the merger inmergers from the second quarterOffice of 2005, and, subject to regulatory approval, expects to complete the merger inComptroller of the third quarter of 2005.Currency. Upon completion of the merger, First Financial will have a single bank subsidiary subject to one primary regulator, the Comptroller of the Currency.

The mergers are expected to be completed in August of 2005.

Following the consolidation, the operation of the five lines of business described in the strategic plan will be carried out under the charter of First Financial Bank, N.A. The three banking lines of business will be marketed in their local areas under the brand names Community First Bank & Trust, Sand Ridge Bank, and First Financial Bank. Throughout all of its markets, First Financial Bank, N.A. will provide wealth management services through its First Financial Wealth Management line of business, and the bank will provide insurance services through its First Financial Insurance line of business, which will become a subsidiary of the bank.

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Implementation of the strategic plan that was announced in a press release attached as Exhibit 99.1 to a Form 8-K filed on March 14, 2005, is underway. Costs associated with the operational consolidation element of the plan were previously announced and are still being formulated andestimated to be $4,500 on a pre-tax basis or $0.07 per share. It is expected that the majority of these costs will be released publicly as soon asrecognized in the third and fourth quarters of 2005. Costs include $2,900 for charges associated with staff reductions, $600 in consulting and professional services, and $1,000 in conversion-related programming costs, customer notifications, and other consolidation-related costs. Of these amounts, are reasonably estimated. This should occur during$669 was recognized in the second quarter of 2005. These estimates2005, including $471 in charges associated with staff reductions, $165 in consulting and professional services, and $33 in other consolidation-related costs.
First Financial has made the strategic decision to discontinue offering the dealer-originated installment loan product (indirect lending). This decision was based primarily on the low profit margin of this highly competitive, rate driven product. First Financial will develop as certain locationcontinue offering auto, boat, and other structural decisionsRV loans to customers directly through its branch network. As of June 30, 2005, the indirect loan portfolio balance was approximately $250,000.
The announcement of the establishment of the Cincinnati market marks another milestone in accomplishing the objectives of the strategic plan. As previously stated, metropolitan markets will be a key to our growth strategy and Cincinnati is our largest neighboring market with over $28 billion in deposits, of which First Financial currently has less than a 1 percent share.
NOTE 10: OTHER MATTERS
Core deposit intangibles and mortgage servicing rights are made. We have engaged several subject-matter experts for consultation on these decisions.

to be amortized over their useful lives. Core deposit balances are being amortized over varying periods, none of which exceeds 10 years.

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ITEM 2-MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FIRST FINANCIAL BANCORP. AND SUBSIDIARIES
(Unaudited, dollars in thousands)

SELECTED QUARTERLY FINANCIAL DATA
                                        
 2005 2004  2005 2004
 Mar. 31 Dec. 31 Sep. 30 Jun. 30 Mar. 31  June 30 Mar. 31 Dec. 31 Sep. 30 June 30
 (Dollars in thousands, except per share data) 
 
Net earnings $10,726 $10,009 $10,824 $10,337 $9,948 
Net earnings per share-basic 0.25 0.23 0.25 0.24 0.23 
Net earnings per share-diluted 0.25 0.23 0.25 0.24 0.23 
Average Consolidated Balance Sheet Items:  
Loans less unearned income 2,873,378 2,900,008 2,920,472 2,859,043 2,819,711  2,795,754 2,788,075 2,810,389 2,832,997 2,772,164 
Investment securities 669,176 700,235 729,627 767,667 799,823  635,982 655,114 685,616 715,282 751,843 
Other earning assets 21,616 4,926 9,818 13,827 12,279  17,188 18,141 2,757 6,690 5,947 
                      
Total Earning Assets 3,564,170 3,605,169 3,659,917 3,640,537 3,631,813  3,448,924 3,461,330 3,498,762 3,554,969 3,529,954 
Total assets 3,853,336 3,882,052 3,932,743 3,907,566 3,894,900  3,852,422 3,857,854 3,885,054 3,939,541 3,911,711 
Noninterest-bearing deposits 430,774 432,775 409,237 405,098 395,894  433,379 425,365 427,357 404,659 400,554 
Interest-bearing deposits 2,543,193 2,504,032 2,518,080 2,514,194 2,530,912  2,476,112 2,468,148 2,428,999 2,443,358 2,436,339 
                      
Total deposits 2,973,967 2,936,807 2,927,317 2,919,292 2,926,806  2,909,491 2,893,513 2,856,356 2,848,017 2,836,893 
Borrowings 480,282 547,940 616,459 595,640 573,310  445,141 464,300 528,829 597,258 573,783 
Shareholders’ equity 370,829 370,722 364,495 364,574 367,628  369,477 370,829 370,722 364,495 364,574 
Key Ratios:  
Average equity to average total assets  9.62%  9.55%  9.27%  9.33%  9.44%  9.59%  9.61%  9.54%  9.25%  9.32%
Return on average total assets  1.13%  1.03%  1.09%  1.06%  1.03%  1.03%  1.13%  1.02%  1.09%  1.06%
Return on average equity  11.73%  10.74%  11.81%  11.40%  10.88%  10.74%  11.73%  10.74%  11.81%  11.40%
Return on average tangible equity  13.00%  11.91%  13.14%  12.67%  12.08%  11.90%  13.00%  11.91%  13.14%  12.67%
Net interest margin  3.97%  3.91%  3.93%  3.98%  4.00%  3.94%  3.98%  3.92%  3.96%  4.00%
Net interest margin (fully tax equivalent)  4.06%  3.99%  4.02%  4.07%  4.10%  4.03%  4.07%  4.01%  4.04%  4.09%

These ratios include earnings from continuing and discontinued operations.
NET INTEREST INCOME
Net interest income, First Financial’s principal source of earnings, is the amount by which interest and fees generated by earning assets exceed the interest costs of liabilities obtained to fund them. For analytical purposes, net interest income is also presented in the table that follows, adjusted to a tax equivalent basis assuming a 35% marginal tax rate for interest earned on tax-exempt assets such as municipal loans, tax-free leases, and investments. This is to recognize the income tax savings that facilitates a comparison between taxable and tax-exempt assets.

Management believes that it is a standard practice in the banking industry to present net interest margin and net interest income on a fully tax equivalent basis. Therefore, management believes these measures provide useful information to investors by allowing them to make peer comparisons. Management also uses these measures to make peer comparisons.

Net interest income for the firstsecond quarter of 2005 was $34,911,$33,905, compared to $36,157$35,108 in the firstsecond quarter of 2004, a decline of 3.45%3.43% or $1,246.$1,203. This decrease is due primarily to an increase in deposit costs.costs and a decrease in investment balances. Net interest income on a linked-quarter basis (first(second quarter 2005 compared to fourth quarter 2004) decreased $478 or 1.35% due primarily to fewer days in the first quarter than2005) remained relatively flat, decreasing $75 or 0.22%. Net interest income for 2005 on a year-to-date basis decreased $2,433 or 3.46% from the comparable period in the fourth quarter.2004. First Financial’s net interest margin decreased to 3.97%3.94% in the firstsecond quarter of 2005 from 4.00% in the firstsecond quarter of 2004.Linked quarterLinked-quarter net interest margin has increased sixdecreased four basis points from 3.91%3.98% to 3.97% due3.94%. On a year-to-date basis, net interest margin decreased from 4.01% for 2004 to 3.96% for 2005. Given the improvementloan and deposit mix, stable consumer behavior, the repricing characteristics of the portfolios, and only modest changes in nonaccrual loans.

market interest rates, stability in the margin over the next few quarters should continue.

Average loans, net of unearned income, for the firstsecond quarter of 2005 increased 1.90%0.85% and year-to-date average loan balances increased 1.46% from the comparable periodperiods a year ago. On a linked-quarter basis, average outstanding loan balances decreased 0.92%increased 0.28%. This level ofThe loan growth is well below First Financial’s expectations. First Financial will proactively addressfor all periods has been in the real estate and installment loan growthcategories offset somewhat by a decrease in commercial loans. Our current mix of loans and our recent production should change as it executes its strategic plan. As of March 31, 2005, approximately one third of the total loan portfolio reprices with prime, representing approximately one half of the variable and adjustable rate loan portfolio.

we begin to gradually turn our focus to commercial

1114


lending. The loan portfolio balances are distributed somewhat equally among variable rate loans, adjustable rate loans, and fixed rate loans.
Average deposit balances for the firstsecond quarter increased $47,161$72,598 or 1.61%2.56% from the comparable period a year ago due primarily to an 8.81%8.19% increase in average noninterest-bearing deposit accounts. This increase in noninterest-bearing deposit accounts marks the successful efforts of focused strategies over the past twelve months. OnAverage deposits have increased 0.55% on a linked-quarter basis averageand 2.14% on a year-to-date basis. Interest expense on deposits have increased 1.27%.as a result of overall market rate increases rather than a shift in our competitive position in the markets we serve. More aggressive pricing by competitors has occurred in these markets; therefore, First Financial has kept pace to maintain its position in the market.
                     
  Quarter Ended 
  2005  2004 
  Mar. 31  Dec. 31  Sep. 30  Jun. 30  Mar. 31 
Interest income $50,714  $50,877  $51,151  $50,126  $50,823 
Interest expense  15,803   15,488   14,950   14,126   14,666 
                
Net interest income  34,911   35,389   36,201   36,000   36,157 
Tax equivalent adjustment to interest income  758   773   778   819   860 
                
Net interest income (fully tax equivalent) $35,669  $36,162  $36,979  $36,819  $37,017 
                
                     
Average earning assets  3,564,170   3,605,169   3,659,917   3,640,537   3,631,813 
                     
Net interest margin *  3.97%  3.91%  3.93%  3.98%  4.00%
Net interest margin (tax equivalent)  4.06%  3.99%  4.02%  4.07%  4.10%

* Margins are calculated using netSecurities available for sale were $618,500 at June 30, 2005, compared to $655,129 at December 31, 2004, and $712,847 at June 30, 2004. The change from year-end 2004, is due to purchases of $21,392 in securities; $44,437 million in mortgage-backed and collateralized mortgage obligation paydowns; $10,162 in maturities, calls, and bond premium amortization; and $2,732 in market value increase. The company continues to maintain a shorter portfolio duration (the cash-weighted term to maturity of the portfolio) to reduce its sensitivity to the downward changes in the bond’s price, to changes in interest income annualized divided by average earningrates, and to reduce interest rate risk. The combined investment portfolio was 16.31%, 17.04%, and 18.35% of total assets

for June 30, 2005, December 31, 2004, and June 30, 2004, respectively.

                     
  2005 2004
  June 30 Mar. 31 Dec. 31 Sep. 30 June 30
Interest income $50,119  $49,121  $49,294  $49,573  $48,489 
Interest expense  16,214   15,141   14,783   14,220   13,381 
                     
Net interest income  33,905   33,980   34,511   35,353   35,108 
Tax equivalent adjustment to interest income  756   758   773   778   819 
                     
Net interest income (fully tax equivalent) $34,661  $34,738  $35,284  $36,131  $35,927 
                     
                     
Average earning assets  3,448,924   3,461,330   3,498,762   3,554,969   3,529,954 
                     
Net interest margin *  3.94%  3.98%  3.92%  3.96%  4.00%
Net interest margin (tax equivalent)  4.03%  4.07%  4.01%  4.04%  4.09%
*Margins are calculated using net interest income annualized divided by average earning assets
RATE/VOLUME ANALYSIS
The impact of changes in volume and interest rates on net interest income is illustrated in the following table. As shown, the decreaseincrease in market interest rates had a significant effect on First Financial’s rates impacting both interest income and interest expense for both the threesix months and quarter ended March 31,June 30, 2005, in comparison to 2004. First Financial’s adjustable and variable rate loans repriced downward at a greater magnitudeupward more slowly than First Financial was able to lower itsthe increase in deposit costs. The decrease in volume on earning assets affected interest income more than the decrease in volume on interest-bearing liabilities affected interest expense, resulting in a decrease to net interest income. The change in interest due to the combined effect of both rate and volume has been allocated to the volume and rate variance on a prorated basis.
             
  Three Months    
  Ended    
  Mar. 31, 2005  Change Due To: 
  Over 2004  Rate  Volume 
Interest income $(109) $853  $(962)
Interest expense  1,137   1,559   (422)
          
Net interest income $(1,246) $(706) $(540)
          

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  Six Months         Three Months  
  Ended         Ended  
  June 30, 2005 Change Due To: June 30, 2005 Change Due To:
  Over 2004 Rate Volume Over 2004 Rate Volume
Interest income $1,635  $3,709  ($2,074) $1,630  $2,808  ($1,178)
Interest expense  4,068   4,948   (880)  2,833   3,326   (493)
                         
Net interest income ($2,433) ($1,239) ($1,194) ($1,203) ($518) ($685)
                         
OPERATING RESULTS
Net earnings for the first threesix months of 2005 were $10,726$20,615 or $0.25$0.47 in diluted earnings per share versus $9,948$20,285 or $0.23$0.46 for the first threesix months of 2004. Income from continuing operations for the six months ended June 30, 2005, was $20,155 or $0.46 in diluted earnings per share versus $20,028 or $0.46 in diluted earnings per share for the same period in 2004. This 7.82%0.63% increase in net earningsincome from continuing operations was the result of a decline in the provision for loan loss expense of $2,095$3,375 from the same period in 2004 and an increase in noninterest income of $683$720 for the same period. These positive effects were partially offset by negative variances in net interest income of $1,246$2,433 as outlined in the “Rate/Volume Analysis” and “Net Interest Income” sections and noninterest expense of $578.

First$1,480. Return on average assets of 1.08% for the first six months of 2005 compared to 1.04% for the same period in 2004. Return on average shareholders’ equity from continuing operations was 11.23% for the first six months of 2005 versus 11.14% for the comparable period in 2004.

Net earnings for the second quarter of 2005 were $9,889 or $0.23 in diluted earnings per share, compared to $10,337 or $0.24 in diluted earnings per share for the second quarter of 2004. Income from continuing operations for the second quarter of 2005 was $9,623 or $0.22 in diluted earnings per share compared to the second quarter of 2004 of $10,210 or $0.23 in diluted earnings per share. Return on average assets of 1.03% for the second quarter of 2005 compared to 1.06% for the same period in 2004. Return on average shareholders’ equity was 10.74% for the first six months of 2005 versus 11.40% for the comparable period in 2004.
Second-quarter 2005 noninterest income was $15,124,$14,838, an increase of $683$41 or 4.73%0.28% from the firstsecond quarter of 2004. Bankcard interchange income increased $297 or 23.37% from the same quarter in 2004. The other category of noninterest income remained relatively constant, decreasing $6 or 0.17% from the comparable period in 2004. Gains on the sale of mortgage loans were $480 for the second quarter of 2005 versus $408 for the comparable period in 2004, duean increase of $72. The allowance for impairment on mortgage servicing rights declined $424 for the second quarter of 2005 versus $428 in the comparable quarter in 2004. The insurance product produced $690 in revenue for the second quarter of 2005 compared to changes$643 in estimated life insurance income of $830 reflectedthe comparable period in other noninterest income. Of this $830, approximately $180 is from recurring bank owned life insurance income.2004. Service charge income decreased $396$121 or 8.58%2.56% from the same quarter a year ago largely due to decreased insufficient funds

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charges. Improvements to insufficient funds charges are expected as some deposit product enhancements occur during the latter portion of 2005. Trust revenues for the firstsecond quarter of 2005 increased 5.19%decreased 3.75% or $202$151 from the comparable period last year as a result of the effect of lower long term interest rates on the cash flow of personal trust accounts and the resulting principal liquidations to maintain client determined cash distribution levels.

On a linked-quarter basis, total noninterest income was down 1.32% or $198. Increases in service charges on deposit accounts and bankcard interchange income were offset by decreases in trust revenues and bank-owned life insurance income.
Year-to-date noninterest income increased $720 or 2.47% from 2004 primarily as a result of year-over-year market value improvements, improved sales efforts, and service-fee changes on certain accounts. Bankcardincreased bankcard interchange income increased $247 or 20.84% from the same quarter in 2004 due to increased card usage. Gains on the sale of mortgage loans were $464 for the first quarter$540 and additional bank-owned life insurance income of 2005 versus $289 for the comparable period in 2004, an increase of $175. The other category of noninterest income increased $459 or 10.28% from a year ago.

$125.

Total noninterest expense increased $578$826 or 1.74%2.52% for the firstsecond quarter of 2005 from the firstsecond quarter of 2004. Salaries and employee benefits increased $705$419 or 3.81%2.24% due primarily due to severance charges, of $143enhancements to the executive staff at the parent company, and increased health care costs offset by staff reductions from the merger of $588.Heritage Community Bank into First Financial Bank in the fourth quarter of

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2004. Net occupancy expenses for the firstsecond quarter of 2005, increased $168$297 or 7.62%15.28% as a result of increased building rent, depreciation, and related expenses. Data processingProfessional services expenses increased $395 or 34.89%. Data-processing expense for the quarter decreased $138$159 or 7.41%9.81%.
Consolidation related expenses were $669 in the second quarter of 2005, consisting of $471 in charges associated with staff reductions, $165 in consulting and professional services, and $33 in other consolidation-related costs. The remainder of the total $4,500 in estimated costs should occur throughout the balance of 2005 and possibly into 2006 depending on the timing of decisions regarding the reorganization of certain support functions.
Year-to-date noninterest expenses increased $1,480 or 2.27%. Salaries and benefits increased $1,130 or 3.06%. Net occupancy increased $465 or 11.27%. Professional services expense increased $151$541 or 12.09% from the first quarter of 2004. Furniture and equipment expense22.81%. Data processing expenses decreased $166$283 or 9.20% due to decreased rental of personal computers.

8.49%.

INCOME TAXES
Income tax expense for the first quartersix months of 2005 was $4,982,$9,917 versus $9,742 in 2004. Tax expense relating to operating income totaled $9,919 and $9,745 for the six months ended June 30, 2005 and 2004, respectively, with a tax benefit related to securities transactions of $2 and $3 for the second quarters of 2005 and 2004, respectively. Tax expense related to income from continuing operations for the first six months of 2005 was $9,654, an increase of $176$55 when compared to $4,806$9,599 reported for the same period in 2004. Tax expense related to operating incomediscontinued operations totaled $4,984$263 and $4,807$143 for the quarterssix months ended March 31,June 30, 2005, and 2004, respectively, with a tax benefit of $2 and $1respectively. No taxes related to securities transactions were recorded for the those quarters, respectively. discontinued operations.
First Financial’s overall effective tax rates for the first quarterssix months of 2005 and 2004 were 31.72%32.48% and 32.57%32.44%, respectively.

Effective tax rates for income from continuing operations was 32.39% and 32.40% for the six months ended June 30, 2005, and 2004, respectively. Effective tax rates for income from discontinued operations was 36.38% and 35.75% for the six months ended June 30, 2005, and 2004, respectively.

Income tax expense for the second quarter of 2005 was $4,935, a decrease of $1 when compared to
$4,936 reported for the same period in 2004. Tax expense related to income from continuing operations for the second quarter of 2005 was $4,785, a decrease of $71 when compared to $4,856 reported for the same period in 2004. Tax expense related to discontinued operations totaled $150 and $80 for the quarters ended June 30, 2005, and 2004, respectively.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is maintained at a level believed adequate by management to absorb estimated probable credit losses. Management’s periodic evaluation of the adequacy of the allowance is based on First Financial’s past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay (including the timing of future payments), the estimated value of any underlying collateral, composition of the loan portfolio, current economic conditions, and other relevant factors. This evaluation is inherently subjective, as it requires material estimates including the amounts and timing of future cash flows expected to be received on impaired loans that may be susceptible to significant change. The evaluation of these factors is completed by a group of senior officers from the risk management, credit administration, financial, and lending areas.

The provision for loan losses for the firstsecond quarter of 2005 was $505$750 compared to $2,600$2,080 for the same period in 2004. Net charge-offs of $1,247$1,416 for the firstsecond quarter were $1,452$557 less than the $2,699$1,973 net charge-offs for the firstsecond quarter of 2004. Year-to-date net charge-offs were $2,775 in 2005, down $1,759 from $4,534 recorded in 2004. The change in the provision for loan losses is directionally consistent with changes in asset quality reflected in First Financial’s quarterly analysis of the adequacy of the allowance for loan losses.losses and the continued improvement in credit review and underwriting. Decreases in consumer loans charged-off positively impacted net charge-offs for the firstsecond quarter of 2005 compared to the same period in 2004. The percentage of net charge-offs to average loans for the firstsecond quarter of 2005 was 0.18%0.20% compared to 0.38%0.29% for the same period in 2004. The percentage of net charge-offs to average loans was 0.20% for year-to-date 2005 compared to 0.33% for the same period in 2004. First Financial continued to

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maintain appropriate reserves with an allowance to ending loans ratio of 1.60%1.55% at quarter end versus 1.68%1.65% for the same quarter a year ago. It is management’s belief that the allowance for loan losses is adequate to absorb inherent credit losses.

At March 31,June 30, 2005, and 2004, the recorded investment in loans that are considered to be impaired under FASB Statement No. 114 was $2,173$2,032 and $3,040,$2,653, respectively, all of which are on a nonaccrual basis. The related allowance for loan losses on these impaired loans was $705$563 at March 31,June 30, 2005, and $1,240$1,248 at March 31,June 30, 2004. At March 31,June 30, 2005 and 2004, there were no impaired loans that did not have an allowance for loan losses. The average recorded investment in impaired loans for the quarters ended March 31,June 30, 2005, and 2004, was approximately $2,264$2,348 and $3,134.$2,971. For the six months and quarter ended March 31,June 30, 2005, First Financial recognized interest income on those impaired loans of $21$35 and $14 compared to $52$99 and $47 for the same period in 2004. First Financial recognizes income on impaired loans using the cash basis method. The table that follows indicates the activity in the allowance for loan losses for the quarters presented.

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  Quarter Ended
  2005 2004
  June 30 Mar. 31 Dec. 31     Sep. 30 June 30
Balance at beginning of period $44,172  $45,076  $47,272      $46,482  $46,375 
Provision for loan losses  750   455   (587)      1,985   2,080 
Loans charged off  (2,267)  (2,672)  (2,567)      (1,975)  (3,162)
Recoveries  851   1,313   958       780   1,189 
                         
Net charge-offs  (1,416)  (1,359)  (1,609)      (1,195)  (1,973)
                         
Balance at end of period $43,506  $44,172  $45,076      $47,272  $46,482 
                         
                         
Ratios:                        
Allowance to period end loans, net of unearned income  1.55%  1.59%  1.61%      1.67%  1.65%
Recoveries to charge-offs  37.54%  49.14%  37.32%      39.49%  37.60%
Allowance as a multiple of net charge-offs  30.72   32.50   28.01       39.56   23.56 
                     
  Quarter Ended 
  2005  2004 
  Mar. 31  Dec. 31  Sep. 30  Jun. 30  Mar. 31 
Balance at beginning of period $46,718  $48,590  $47,824  $47,672  $47,771 
Provision for loan losses  505   343   2,097   2,243   2,600 
Loans charged off  (2,802)  (3,179)  (2,124)  (3,289)  (4,282)
Recoveries  1,555   964   793   1,198   1,583 
                
Net charge-offs  (1,247)  (2,215)  (1,331)  (2,091)  (2,699)
                
Balance at end of period $45,976  $46,718  $48,590  $47,824  $47,672 
                
                     
Ratios:                    
Allowance to period end loans, net of unearned income  1.60%  1.61%  1.66%  1.65%  1.68%
Recoveries to charge-offs  55.50%  30.32%  37.34%  36.42%  36.97%
Allowance as a multiple of net charge-offs  36.87   21.09   36.51   22.87   17.66 

NONPERFORMING/UNDERPERFORMING ASSETS

Total underperforming assets, which includes nonaccrual loans, restructured loans, other real estate owned, and loans 90 days or more past due and still accruing, decreased $13,437$466 to $20,937$24,729 at the end of the firstsecond quarter of 2005 from $34,374$25,195 at the end of the firstsecond quarter of 2004. Nonaccrual loans decreased $432 and restructured loans decreased $890. However, other real estate owned increased $813. Accruing loans past due 90 days or more increased $43. On a linked quarter basis, total underperforming assets decreased $5,058. Nonaccrualincreased $4,754. This increase is due primarily to a $4,375 increase in nonaccrual loans are composed primarilythat involves a few large commercial credits and not a widespread decline in overall credit quality. These credits have been appropriately considered in establishing the allowance for loan losses at June 30, 2005. This level of commercial, multi-family, and 1-4 family residential properties. Nonaccrualnonperforming assets remains within an acceptable range. The level of reserves to nonperforming loans decreased $10,078 from the first quarter of 2004, and $3,594 from the linked quarter. Restructured loans decreased significantly from $3,373 a year ago to $885remains strong at March 31, 2005. Other real estate owned decreased $116 from the first quarter of 2004.

181.54%.

The nonperforming assets to ending loans ratio decreased to 0.71%0.85% as of March 31,June 30, 2005, from 1.16%0.87% as of the end of the firstsecond quarter of 2004. This ratio has shown steady improvement each quarter since September of 2003.

Accruing loans past due 90 days or more decreased 56.13% to $590 at the end of the first quarter of 2005 from $1,345 at the end of the first quarter of 2004.

Accruing loans, including loans impaired under FASB Statement No. 114, which are past due 90 days or more, for which there is not a likelihood of becoming current, are transferred to nonaccrual loans. However, those loans which management believes will become current and therefore accruing are classified as “Accruing loans 90 days or more past due” until they become current. First Financial does not have a concentration of credit in any particular industry.

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The table that follows shows the categories that are included in nonperforming and underperforming assets.
                                        
 Quarter Ended  Quarter Ended
 2005 2004  2005 2004
 Mar. 31 Dec. 31 Sep. 30 Jun. 30 Mar. 31  June 30 Mar. 31 Dec. 31 Sep. 30 June 30
Nonaccrual loans $16,508 $20,102 $22,203 $22,723 $26,586  $20,408 $16,033 $17,472 $19,377 $20,840 
Restructured loans 885 2,110 2,344 2,936 3,373  884 885 2,110 2,344 1,774 
Other real estate owned 2,954 1,730 2,731 2,215 3,070  2,673 2,705 1,481 2,386 1,860 
                      
Total nonperforming assets 20,347 23,942 27,278 27,874 33,029  23,965 19,623 21,063 24,107 24,474 
Accruing loans past due           
90 days or more 590 2,053 1,116 721 1,345 
Accruing loans past due 90 days or more 764 352 1,784 879 721 
                      
Total underperforming assets $20,937 $25,995 $28,394 $28,595 $34,374  $24,729 $19,975 $22,847 $24,986 $25,195 
                      
Allowance for loan losses to total underperforming assets  175.93%  221.14%  197.30%  189.19%  184.49%
            
Nonperforming assets as a percentage of loans, net of unearned income plus other real estate owned  0.71%  0.83%  0.93%  0.96%  1.16%  0.85%  0.70%  0.75%  0.85%  0.87%
                      
Underperforming assets as a percent of loans, net of unearned income plus other real estate owned  0.73%  0.90%  0.97%  0.99%  1.21%  0.88%  0.72%  0.81%  0.88%  0.89%
                      

LIQUIDITY AND CAPITAL RESOURCES
Liquidity management is the process by which First Financial provides for the continuing flow of funds necessary to meet its financial commitments on a timely basis. These commitments include withdrawals by depositors, funding credit commitments to borrowers, shareholder dividends, paying expenses of operations, and funding capital expenditures.

Liquidity is derived primarily from deposit growth, maturing loans, the maturity of investment securities, access to other funding sources and markets, and a strong capital position. Total year-to-date average deposits are up $60,805 from the prior year. Average deposits on a linked quarter basis increased $37,160.$15,978. Short-term borrowings decreased $72,660$20,728 from year-end, and long-term borrowings decreased $2,139.

$9,136.

The principal source of asset-funded liquidity is marketable investment securities, particularly those of shorter maturities. At March 31,June 30, 2005, securities maturing in one year or less amounted to $68,793,$82,991, representing 10.51%13.05% of the total of the investment securities portfolio. In addition, other types of assets such as cash and due from banks, federal funds sold and securities purchased under agreements to resell, as well as loans and interest-bearing deposits with other banks maturing within one year, are sources of liquidity. Total asset-funded sources of liquidity at March 31,June 30, 2005, amounted to $721,497,$747,072, representing 18.52%19.16% of total assets. Sources of long-term asset funded liquidity are derived from the maturity of investment securities and maturing loans in excess of one year.

At March 31,June 30, 2005, First Financial had classified $641,315$618,500 in investment securities available-for-sale. Management examines First Financial’s liquidity needs in establishing this classification in accordance with the FASB Statement No. 115 on accounting for certain investments in debt and equity securities.

15


Liquidity is very important and as such is both monitored and managed closely by the asset/liability committee at each affiliate and on a consolidated basis. Liquidity may be used to fund capital expenditures. Capital expenditures were $2,956$6,999 for the first threesix months of 2005. In addition, remodeling is a planned and ongoing process given the 106105 offices of First Financial and its subsidiaries. Material commitments for capital expenditures as of March 31,June 30, 2005, were approximately $5,954.$6,192. Management believes that First Financial has sufficient liquidity to fund its current commitments.

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CAPITAL ADEQUACY
The Federal Reserve established risk-based capital requirements for U.S. banking organizations that have been adopted by the Office of Thrift Supervision for savings and loan associations. Risk weights are assigned to on- and off-balance sheet items in arriving at risk-adjusted total assets. Regulatory capital is divided by risk-adjusted total assets, with the resulting ratios compared to minimum standards to determine whether a bank has adequate capital.

Regulatory guidelines require a 4.00% Tier 1 capital ratio, an 8.00% total risk-based capital ratio, and a 4.00% leverage ratio. Tier 1 capital consists primarily of common shareholders’ equity, net of certain intangibles, and total risked-based capital is Tier 1 capital plus Tier 2 supplementary capital, which is primarily the allowance for loan losses subject to certain limits. The leverage ratio is a result of Tier 1 capital divided by average total assets less certain intangibles.

First Financial’s Tier I ratio at March 31,June 30, 2005, was 13.45%13.08%, its total risked-based capital was 14.70%14.33% and its leverage ratio was 9.65%9.62%. While First Financial subsidiaries’ ratios are well above regulatory requirements, management will continue to monitor the asset mix which affects these ratios due to the risk weights assigned various assets, and the allowance for loan losses, which influences the total risk-based capital ratio.

The following table illustrates the risk-based capital calculations and ratios for the last five quarters.
                                        
 Quarter Ended  Quarter Ended
 2005 2004  2005 2004
 Mar. 31 Dec. 31 Sep. 30 Jun. 30 Mar. 31  June 30 Mar. 31 Dec. 31 Sep. 30 June 30
Tier I Capital  
Shareholders’ equity $368,147 $371,455 $371,352 $361,203 $370,815  $369,822 $368,147 $371,455 $371,352 $361,203 
Trust preferred securities 30,000 30,000 30,000 30,000 30,000  30,000 30,000 30,000 30,000 30,000 
Nonqualifying intangible assets  (32,218)  (32,144)  (32,472)  (32,708)  (32,862)  (32,019)  (32,216)  (32,142)  (32,470)  (32,706)
Unrealized net securities gains 2,764  (2,197)  (4,351) 3,102  (8,819)
Unrealized net securities (gains) losses  (456) 2,764  (2,197)  (4,351) 3,102 
                      
  
Total tier I capital $368,693 $367,114 $364,529 $361,597 $359,134  $367,347 $368,695 $367,116 $364,531 $361,599 
                      
  
Total risk-based capital  
 
Tier I capital $368,693 $367,114 $364,529 $361,597 $359,134  $367,347 $368,695 $367,116 $364,531 $361,599 
Qualifying allowance for loan losses 34,416 34,843 34,579 34,983 34,197  35,217 34,972 35,322 35,197 35,519 
           
Gross unrealized gains on equity securities 24 0 0 0 0 
            
Total risk-based capital $403,109 $401,957 $399,108 $396,580 $393,331  $402,588 $403,667 $402,438 $399,728 $397,118 
                      
  
Risk weighted assets $2,741,726 $2,775,584 $2,752,339 $2,785,789 $2,722,261  $2,809,057 $2,788,550 $2,815,986 $2,803,686 $2,830,535 
                      
  
Risk-based ratios:  
Tier I  13.45%  13.23%  13.24%  12.98%  13.19%  13.08%  13.22%  13.04%  13.00%  12.77%
                      
  
Total risk-based capital  14.70%  14.48%  14.50%  14.24%  14.45%  14.33%  14.48%  14.29%  14.26%  14.03%
                      
  
Leverage  9.65%  9.54%  9.35%  9.33%  9.30%  9.62%  9.64%  9.53%  9.33%  9.33%
                      

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FORWARD-LOOKING INFORMATION
The Form 10-Q should be read in conjunction with the consolidated financial statements, notes and tables included elsewhere in the report and in the First Financial Bancorp. Annual Report on Form 10-K for the year ended December 31, 2004.

Management’s analysis may contain forward-looking statements that are provided to assist in the understanding of anticipated future financial performance. However, such performance involves risks and uncertainties that may cause actual results to differ materially. Factors that could cause actual results to differ from those discussed in the forward looking statements include, but are not limited to, the ability of the company to implement its strategic plan, the strength of the local economies in which operations are conducted, the effects of and changes in policies and laws of regulatory agencies, inflation, and interest rates. For further discussion of certain factors that may cause such forward-looking statements to differ materially from actual results, refer to the 2004 Form 10-K.

10-K and other public documents filed with the Securities and Exchange Commission.

CRITICAL ACCOUNTING POLICIES
The accounting and reporting policies of First Financial comply with U.S. generally accepted accounting principles and conform to general practices within the banking industry. These policies require estimates and assumptions. Changes in underlying factors, assumptions, or estimates in any of these areas could have a material impact on First Financial’s future financial condition and results of operations. In management’s opinion, some of these areas have a more significant impact than others on First Financial’s financial reporting. For First Financial, these areas currently include accounting for the allowance for loan losses, pension costs, and goodwill.

Allowance for Loan Losses—The level of the allowance for loan losses is based upon management’s evaluation of the loan and lease portfolios, past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay (including the timing of future payments), the estimated value of any underlying collateral, composition of the loan portfolio, economic conditions, and other pertinent factors. This evaluation is inherently subjective, as it requires material estimates including the amounts and timing of future cash flows expected to be received on impaired loans that may be susceptible to significant change. The level of allowance maintained is believed by management to be adequate to cover losses inherent in the portfolio. The allowance is increased by provisions charged to expense and decreased by charge-offs, net of recoveries of amounts previously charged-off.

Changes in the allowance can result from changes in economic events, changes in the creditworthiness of the borrowers, or changes in collateral values. The effect of these changes is reflected when known. Though management believes the allowance for loan losses to be adequate as of June 30, 2005, ultimate losses may vary from estimates.

Pension—First Financial sponsors a non-contributory defined benefit pension plan covering substantially all employees. In accordance with applicable accounting rules, First Financial does not consolidate the assets and liabilities associated with the pension plan. At the end of 2004, First Financial’s fair value of the plan assets was less than its benefit obligation. Therefore, First Financial recognized an accrued benefit liability. The measurement of the accrued benefit liability and the annual pension expense involves actuarial and economic assumptions. The assumptions used in pension accounting relate to the discount rates, the expected return on plan assets, and the rate of compensation increase.

Goodwill—Statement of Financial Accounting Standards No. 141 “Business Combinations” and No. 142 “Goodwill and Other Intangible Assets” were issued in Juneestablishes standards for the amortization of 2001intangible assets with indefinite lives and were effective for fiscal years beginning after December 15, 2001.impairment assessment of goodwill. Under these rules, goodwill and intangible assets deemed to have indefinite lives, if any, will no longer beare not amortized, but will beare subject to annual impairment tests in accordance with the Statements.Statement. First Financial has selectedtests for impairment of goodwill as of October 1 aseach year. If any material events occurred during a quarter that would affect goodwill, impairment testing would be performed. Through its date for annual impairment testing.testing as of October 1, 2004, First Financial did not identify any impairment of its goodwill. No events occurred since October 1, 2004, requiring another impairment test of goodwill. Assurance cannot be given that future goodwill impairment tests will not result in a charge to income.

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ACCOUNTING AND REGULATORY MATTERS
Management is not aware of any events or regulatory recommendations that, if implemented, are likely to have a material effect on First Financial’s liquidity, capital resources, or operations.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As described in

The primary source of market risk for First Financial’s Form 10-K for the year ended December 31, 2004, First Financial’s market riskbalance sheet is composed primarily of interest rate risk. There have been no materialThat is, the risk that a change in market rates will adversely affect the market value of the instruments. Bancorp’s risk exposure can be characterized as asset sensitive. As market rates move, there are more dollars of assets repricing to the new rates than liabilities that reprice. While many market sensitive loans and investments are immediately repriceable with changes in market rates, which would positively impact interest income, the non-maturity interest-bearing deposit account (savings, money market, and NOW accounts) rates may behave differently than the current modeling assumptions.
Within the interest rate risk orexposure, a majority of First Financial’s commercial loans reprice with the mannerPrime Rate. Across the time horizon of the yield curve, other rate risk exposures occur with the U.S. Treasury CMT (constant maturity treasury) rates, as those rates are the primary index rates for adjustable rate mortgages, in whichthe one, three, and five year periods. The deposit rates typically depend on local market conditions, somewhat influenced by national market rates. Borrowing rates are impacted by changes in Fed Funds and the Federal Home Loan Bank advance rates for various term structures.
Managing and measuring interest rate risk is a dynamic, multi-faceted process that ranges from reducing the exposure of Bancorp’s net interest margin to changes in interest rates, to assuring that there is sufficient capital and liquidity to support future balance sheet growth. First Financial manages marketinterest rate risk since December 31, 2004.through the asset/liability committees of First Financial’s subsidiaries. The asset/liability committees are comprised of bank officers from various disciplines. Each subsidiary committee establishes policies and rates which lead to the prudent investment of resources, the effective management of risks associated with changing interest rates, the existence of adequate liquidity, and the earning of an adequate return on shareholders’ equity. The management of the risk includes objectives to minimize the adverse changes to net interest income, typically exercised through adjusting rates paid on deposit accounts, managing the volume of assets generated, and monitoring loan rates. Long-term funding is used to fund longer-term assets that are generated within the loan and investment portfolios.
First Financial has a holding company asset/liability committee, comprised of holding company officers and representatives of various subsidiaries. The committee’s function is to develop policies and guidelines, monitor results, and initiate strategies for effective asset/liability management throughout First Financial’s subsidiaries.

ITEM 4. CONTROLS AND PROCEDURES

First Financial has established controls and other procedures designed to ensure that the information required to be disclosed in this report is recorded, processed, summarized, and reported within the required time periods (the disclosure controls and procedures). First Financial’s Chief Executive Officer and Chief Financial Officer, together with members of senior management, have evaluated the disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, First Financial’s Chief Executive Officer and Chief Financial Officer have concluded that the disclosure controls and procedures are effective (i) to ensure that material information relating to First Financial, including its consolidated subsidiaries, is communicated to them on a timely basis, and (ii) to accomplish the purposes for which they were designed.

There were no changes in First Financial’s internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, First Financial’s internal control over financial reporting.

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PART II-OTHER INFORMATION

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

Proceeds.

 (c) The following table shows the total number of shares repurchased in the firstsecond quarter of 2005.

Issuer Purchases of Equity Securities
                 
  (a)  (b)  (c)  (d) 
          Total Number    
          of Shares  Maximum Number 
  Total Number  Average  Purchased as  of Shares that may 
  of Shares  Price Paid  Part of Publicly  yet be purchased 
Period Purchased (1)  Per Share  Announced Plans (2)  Under the Plans 
January 1 through January 31, 2005  91,177  $17.59   36,000   8,253,105 
February 1 through February 28, 2005  81,979  $18.02   36,000   8,217,105 
March 1 through March 31, 2005  34,944  $18.60   34,000   8,183,105 
             
Total  208,100  $17.93   106,000   8,183,105 
             
                 
  (a) (b) (c) (d)
      Total Number  
      of Shares Maximum Number
  Total Number Average Purchased as of Shares that may
  of Shares Price Paid Part of Publicly yet be purchased
Period Purchased (1) Per Share Announced Plans (2) Under the Plans
April 1 through April 30, 2005  43,617  $18.02   42,000   8,141,105 
May 1 through May 31, 2005  131,784  $17.78   114,000   8,027,105 
June 1 through June 30, 2005  137,067  $17.93   132,000   7,895,105 
                 
Total  312,468  $17.88   288,000   7,895,105 
                 

(1) The number of shares purchased in column (a) and the average price paid per share in column (b) include the purchase of shares other than through publicly announced plans. The shares purchased other than through publicly announced plans were purchased pursuant to First Financial’s Thrift Plan, Director Fee Stock Plan, 1999 Stock Option Plan for Non-Employee Directors and 1999 Stock Incentive Plan for Officers and Employees. (The last two plans are referred to hereafter as the Stock Option Plans.) The following tables show the number of shares purchased pursuant to those plans and the average price paid per share. The purchases for the Thrift Plan and the Director Fee Stock Plan were made in open-market transactions. Under the Stock Option Plans, shares were purchased from plan participants at the then current market value in satisfaction of stock option exercise prices.

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  (a)  (b) 
  Total Number  Average 
  of Shares  Price Paid 
Period Purchased  Per Share 
First Financial Bancorp Thrift Plan
        
January 1 through January 31, 2005  12,600  $17.54 
February 1 through February 28, 2005  0   0.00 
March 1 through March 31, 2005  0   0.00 
Total  12,600  $17.54 
       
Director Fee Stock Plan
        
January 1 through January 31, 2005  1,817  $17.28 
February 1 through February 28, 2005  0   0.00 
March 1 through March 31, 2005  0   0.00 
Total  1,817  $17.28 
       
Stock Option Plans
        
January 1 through January 31, 2005  40,760  $17.63 
February 1 through February 28, 2005  45,979   18.20 
March 1 through March 31, 2005  944   18.49 
Total  87,683  $17.94 
       
         
  (a) (b)
  Total Number Average
  of Shares Price Paid
Period Purchased Per Share
First Financial Bancorp Thrift Plan
        
April 1 through April 30, 2005  0   0.00 
May 1 through May 31, 2005  8,150   18.30 
June 1 through June 30, 2005  0   0.00 
         
Total  8,150   18.30 
         
         
Director Fee Stock Plan
        
April 1 through April 30, 2005  1,227  $18.45 
May 1 through May 31, 2005  0   0.00 
June 1 through June 30, 2005  0   0.00 
         
Total  1,227  $18.45 
         
         
Stock Option Plans
        
April 1 through April 30, 2005  390  $18.25 
May 1 through May 31, 2005  9,634   17.76 
June 1 through June 30, 2005  5,067   18.13 
         
Total  15,091  $17.90 
         

(2) First Financial has two publicly announced stock repurchase plans under which it is currently authorized to purchase shares of its common stock. Neither of the plans expired during this quarter. The table that follows provides additional information regarding those plans.
         
  Total Shares  
Announcement Approved for Expiration
Date Repurchase Date
2/25/2003  2,243,715  None
1/25/2000  7,507,500  None

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Item 4.Submission of Matters to a Vote of Security Holders
  On April 26, 2005, Bancorp held its annual meeting of shareholders, the results of which follow:
1) Election of three directors:
                 
          % of Total Votes
Name Term Votes For Shares Voted Withheld
Claude E. Davis 3 years  24,399,038   86.00   3,972,054 
Steven C. Posey 3 years  26,868,739   94.70   1,502,353 
Susan L. Purkrabeck-Knust 3 years  26,981,777   95.10   1,389,315 
     Directors whose terms continue beyond the Annual Meeting in 2005:
Class II expiring in 2006:
James C. Garland
Murph Knapke
Barry S. Porter
Class III expiring in 2007:
Donald M. Cisle
Corrine Finnerty
Bruce E. Leep
2) Proposal to approve an amendment to the 1999 Stock Option Plan for Non-Employee Directors and ratify certain grants previously made pursuant to the plan:
Item 6.Exhibits
                 
      % of Total Votes Votes
  Votes For Shares Voted Against Abstained
Amendment to 1999 Stock Option Plan  17,187,868   60.58   5,171,579   587,480 
  No other matters were brought before the meeting for a vote.

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Item 6.Exhibits
     (a) Exhibits:
 (a) Exhibits:
3.1 Articles of Incorporation, as amended as of April 27, 1999, and incorporated herein by reference to Exhibit 3 to the Form 10-Q for the quarter ended June 30, 1999. File No. 000-12379.
 
 3.2 Amended and Restated Regulations, as amended as of April 22, 2003, and incorporated herein by reference to Exhibit 3.2 to the Form10-Q for the quarter ended June 30, 2003. File No. 000-12379.
 
 4.1 Rights Agreement between First Financial Bancorp. and First National Bank of Southwestern Ohio dated as of November 23, 1993, and incorporated herein by reference to Exhibit 4 to the Form 10-K for year ended December 31, 1998. File No. 000-12379.
 
 4.2 First Amendment to Rights Agreement dated as of May 1, 1998, and incorporated herein by reference to Exhibit 4.1 to the Form 10-Q for the quarter ended March 31, 1998. File No. 000-12379.
 
 4.3 Second Amendment to Rights Agreement dated as of December 5, 2003, and incorporated herein by reference to Exhibit 4.1 to First Financial’s Form 8-K filed on December 5, 2003. File No. 000-12379.
 
 4.4 No instruments defining the rights of holders of long-term debt of First Financial are filed herewith. Pursuant to (b)(4)(iii) of Item 601 of Regulation S-K, First Financial agrees to furnish a copy of any such agreements to the Securities and Exchange Commission upon request.
 
 10.1 Agreement between Mark W. Immelt and First Financial Bancorp. dated August 4, 2000, and incorporated herein by reference to Exhibit 10.3 to the Form10-Q for the quarter ended September 30, 2000. File No. 000-12379.
 
 10.2 Amendment to Employment Agreement between Mark W. Immelt and First Financial Bancorp. dated May 20, 2003, and incorporated herein by reference to Exhibit 10.4 to the Form 10-Q for the quarter ended June 30, 2003. File No. 000-12379.
 
 10.3 Agreement between James C. Hall and First Financial Bancorp. dated June 21, 2001, and incorporated herein by reference to Exhibit 10.5 to the Form 10-K for the year ended December 31, 2001. File No. 000-12379.
 
 10.4 Amendment to Employment Agreement between James C. Hall and First Financial Bancorp. dated May 13, 2003, and incorporated herein by reference to Exhibit 10.3 to the Form 10-Q for the quarter ended June 30, 2003. File No. 000-12379.
 
10.5Agreement between Charles D. Lefferson and First Financial Bancorp. dated August 4, 2000, and incorporated herein by reference to Exhibit 10.5 to the Form 10-K for the year ended December 31, 2002. File No. 000-12379.
 
10.6Amendment to Employment Agreement between Charles D. Lefferson and First Financial Bancorp. dated May 23, 2003, and incorporated herein by reference to Exhibit 10.5 to the Form 10-Q for the quarter ended June 30, 2003. File No. 000-12379.
10.7Agreement between C. Thomas Murrell, III and First Financial Bancorp. dated April 30, 2003, and incorporated herein by reference to Exhibit 10.6 to the Form 10-Q for the quarter ended June 30, 2003. File No. 000-12379.

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10.8First Financial Bancorp. 1991 Stock Incentive Plan, dated September 24, 1991, and incorporated herein by reference to a Registration Statement on Form S-8, Registration No. 33-46819.
10.9First Financial Bancorp. Dividend Reinvestment and Share Purchase Plan, dated April 24, 1997, and incorporated herein by reference to a Registration Statement on Form S-3, Registration No. 333-25745.
10.10First Financial Bancorp. 1999 Stock Incentive Plan for Officers and Employees, dated April 27, 1999, and incorporated herein by reference to a Registration Statement on Form S-3, Registration No. 333-86781.
10.11First Financial Bancorp. 1999 Stock Option Plan for Non-Employee Directors, as amended as of April 26, 2005.
10.12First Financial Bancorp. Director Fee Stock Plan, amended and restated effective April 20, 2004, and incorporated herein by reference to Exhibit 10.12 to the Form 10-Q for the quarter ended June 30, 2004. File No. 000-12379.
10.13Form of Executive Supplemental Retirement Agreement, incorporated herein by reference to Exhibit 10.11 to the Form 10-K for the year ended December 31, 2002. File No. 000-12379.
10.14Form of Endorsement Method Split Dollar Agreement, incorporated herein by reference to Exhibit 10.12 to the Form 10-K for the year ended December 31, 2002. File No. 000-12379.
10.15First Financial Bancorp. Deferred Compensation Plan, effective June 1, 2003, and incorporated herein by reference to Exhibit 10.1 to the Form 10-Q for the quarter ended June 30, 2003. File No. 000-12379.
10.16Agreement between Claude E. Davis and First Financial Bancorp. dated September 21, 2004, and incorporated herein by reference to Exhibit 99.1 to First Financial’s Form 8-K filed on September 24, 2004. File No. 000-12379.
10.17Form of Stock Option Agreement for Incentive Stock Options, incorporated herein by reference to Exhibit 10.1 to the Form 8-K filed on April 22, 2005. File No. 000-12379.
10.18Form of Stock Option Agreement for Nonqualified Stock Options, incorporated herein by reference to Exhibit 10.2 of the Form 8-K filed on April 22, 2005. File No. 000-12379.
10.19Form of Agreement for Restricted Stock Award, incorporated herein by reference to Exhibit 10.3 to the Form 8-K filed on April 22, 2005. File No. 000-12379
10.20Terms of First Financial Bancorp Short-Term Incentive Plan, incorporated herein by reference to the Form 8-K filed on April 22, 2005. File No. 000-12379.
10.21Renewal Employment Agreement between Rex A. Hockemeyer and First Financial Bancorp. dated October 1, 2003, and incorporated herein by reference to Exhibit 10.21 to the Form 10-K for the year ended December 31, 2004. File No. 000-12379.
10.22 Separation Agreement, Waiver of and Release of All Claims and Covenant Not to Sue between James C. Hall and First Financial Bancorp. dated December 9, 2004, and incorporated herein by reference to Exhibit 10.22 to the Form 10-K for the year ended December 31, 2004. File No. 000-12379.
10.6Agreement between Charles D. Lefferson and First Financial Bancorp. dated August 4, 2000, and incorporated herein by reference to Exhibit 10.5 to the Form 10-K for the year ended December 31, 2002. File No. 000-12379.
10.7Amendment to Employment Agreement between Charles D. Lefferson and First Financial Bancorp. dated May 23, 2003, and incorporated herein by reference to Exhibit 10.5 to the Form 10-Q for the quarter ended June 30, 2003. File No. 000-12379.

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 10.8 Agreement between C. Thomas Murrell, III and First Financial Bancorp. dated April 30, 2003, and incorporated herein by reference to Exhibit 10.6 to the Form 10-Q for the quarter ended June 30, 2003. File No. 000-12379.
 
10.9 Agreement between Claude E. Davis and First Financial Bancorp. dated September 21, 2004, and incorporated herein by reference to Exhibit 99.1 to First Financial Bancorp’s Form 8-K filed on September 24, 2004. File No. 000-12379.
 10.2310.10 Renewal Employment Agreement between Rex A. Hockemeyer and First Financial Bancorp. dated October 1, 2003, and incorporated herein by reference to Exhibit 10.21 to the Form 10-K for the year ended December 31, 2004. File No. 000-12379.
10.11First Financial Bancorp. 1991 Stock Incentive Plan, dated September 24, 1991, and incorporated herein by reference to a Registration Statement on Form S-8, Registration No. 33-46819.
10.12First Financial Bancorp. Dividend Reinvestment and Share Purchase Plan, dated April 24, 1997, and incorporated herein by reference to a Registration Statement on Form S-3, Registration No. 333-25745.
10.13First Financial Bancorp. 1999 Stock Incentive Plan for Officers and Employees, dated April 27, 1999, and incorporated herein by reference to a Registration Statement on Form S-3, Registration No. 333-86781.
10.14First Financial Bancorp. 1999 Stock Option Plan for Non-Employee Directors, as amended as of April 26, 2005, and incorporated herein by reference to Exhibit 10.11 to the Form 10-Q for the quarter ended March 31, 2005. File No. 000-12379.
10.15Form of Stock Option Agreement for Incentive Stock Options, incorporated herein by reference to Exhibit 10.1 to the Form 8-K filed on April 22, 2005. File No. 000-12379.
10.16Form of Stock Option Agreement for Nonqualified Stock Options, incorporated herein by reference to Exhibit 10.2 of the Form 8-K filed on April 22, 2005. File No. 000-12379.
10.17Form of Agreement for Restricted Stock Award, incorporated herein by reference to Exhibit 10.3 to the Form 8-K filed on April 22, 2005. File No. 000-12379
10.18First Financial Bancorp. Director Fee Stock Plan, amended and restated effective April 20, 2004, and incorporated herein by reference to Exhibit 10.12 to the Form 10-Q for the quarter ended June 30, 2004. File No. 000-12379.
10.19Form of Executive Supplemental Retirement Agreement, incorporated herein by reference to Exhibit 10.11 to the Form 10-K for the year ended December 31, 2002. File No. 000-12379.
10.20Form of Endorsement Method Split Dollar Agreement, incorporated herein by reference to Exhibit 10.12 to the Form 10-K for the year ended December 31, 2002. File No. 000-12379.
10.21First Financial Bancorp. Deferred Compensation Plan, effective June 1, 2003, and incorporated herein by reference to Exhibit 10.1 to the Form 10-Q for the quarter ended June 30, 2003. File No. 000-12379.
10.22Terms of First Financial Bancorp Short-Term Incentive Plan, incorporated herein by reference to the Form 8-K filed on April 22, 2005. File No. 000-12379.
10.23 First Financial Bancorp. Schedule of Directors’ Fees, incorporated herein by reference to Exhibit 10.23 to the Form 10-K for the year ended December 31, 2004. File No. 000-12379.

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31.1 Certification by Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 31.2 Certification by Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 32.1 Certification of Periodic Financial Report by Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 32.2 Certification of Periodic Financial Report by Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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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 hereunto duly authorized.
   
FIRST FINANCIAL BANCORP.
 
(Registrant)
   
/s/ J. Franklin Hall
 
J. Franklin Hall
Senior Vice President and(Registrant)
Chief Financial Officer
   
/s/ J. Franklin Hall
J. Franklin Hall
Senior Vice President and
Chief Financial Officer
Date 5/9/8/8/05
  

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