FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
   
þ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period endedMarch 31,September 30, 2007
OR
   
o TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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
   
(I.R.S. Employer
incorporation or organization)
 (State or other jurisdiction of
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) 979-5782
          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.
Yesþ Noo
          Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filerþ     Accelerated filero      Non-accelerated filero
          Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of Exchange Act).
Yeso Noþ
          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 27,November 1, 2007
Common stock, No par value 38,921,54337,372,133
 
 

 


 

FIRST FINANCIAL BANCORP.
INDEX
     
  Page No.
    
     
    
     
  1 
     
  2 
     
  3 
     
  54 
     
  65 
     
  1112 
     
  2326 
     
  2427 
     
    
     
  2528 
     
  2730 
     
  3033 
 EX-31.1
 EX-31.2
 EX-32.1
 EX-32.2

 


PART I FINANCIAL INFORMATION
ITEM I FINANCIAL STATEMENTS
FIRST FINANCIAL BANCORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
                
 March 31, December 31,  September 30, December 31, 
 2007 2006  2007 2006 
ASSETS
  
Cash and due from banks $87,969 $119,407  $92,414 $119,407 
  
Federal funds sold 159,200 102,000  71,700 102,000 
Investment securities held-to-maturity 7,769 7,995 
(market value $7,925 at March 31, 2007 and $8,154 at December 31, 2006) 
Investment securities available-for-sale, at market value 325,755 324,259 
(cost $326,243 at March 31, 2007 and $324,922 at December 31, 2006) 
Investment securities held-to-maturity (market value $5,591 at September 30, 2007 and $8,154 at December 31, 2006) 5,467 7,995 
Investment securities available-for-sale, at market value (cost $309,915 at September 30, 2007 and $324,922 at December 31, 2006) 307,908 324,259 
Other investments 33,969 33,969  33,969 33,969 
Loans held for sale 5,763 8,824 
Loans:  
Commercial 709,341 673,445  774,059 673,445 
Real estate — construction 107,867 101,688  155,495 101,688 
Real estate — commercial 647,126 623,603  684,931 623,603 
Real estate — retail 604,213 628,579 
Real estate — residential 556,255 628,579 
Installment 180,116 198,881  149,881 198,881 
Home equity 228,660 228,128  245,853 228,128 
Credit card 23,678 24,587  24,904 24,587 
Lease financing 732 923  500 923 
          
Total loans 2,501,733 2,479,834  2,591,878 2,479,834 
Less:  
Allowance for loan and lease losses 27,407 27,386  29,136 27,386 
          
Net loans 2,474,326 2,452,448  2,562,742 2,452,448 
Loans held for sale 0 8,824 
Premises and equipment, net 79,553 79,609  78,214 79,609 
Goodwill 28,261 28,261  28,261 28,261 
Other intangibles 1,195 5,842  828 5,842 
Accrued interest and other assets 129,991 138,985  141,890 138,985 
          
TOTAL ASSETS
 $3,327,988 $3,301,599  $3,329,156 $3,301,599 
          
  
LIABILITIES
  
Deposits:  
Interest-bearing $627,996 $667,305  $611,764 $667,305 
Savings 564,340 526,663  595,664 526,663 
Time 1,218,823 1,179,852  1,253,383 1,179,852 
          
Total interest-bearing deposits 2,411,159 2,373,820  2,460,811 2,373,820 
Noninterest-bearing 420,521 424,138  389,070 424,138 
          
Total deposits 2,831,680 2,797,958  2,849,881 2,797,958 
Short-term borrowings:  
Federal funds purchased and securities sold under agreements to repurchase 39,998 57,201  26,749 57,201 
Other 52,246 39,500  74,500 39,500 
          
Total short-term borrowings 92,244 96,701  101,249 96,701 
Federal Home Loan Bank long-term debt 60,298 63,762  55,317 63,762 
Other long-term debt 30,930 30,930  20,620 30,930 
Accrued interest and other liabilities 28,481 26,769  30,386 26,769 
          
TOTAL LIABILITIES
 3,043,633 3,016,120  3,057,453 3,016,120 
  
SHAREHOLDERS’ EQUITY
  
Common stock — no par value
Authorized - 160,000,000 shares
Issued - 48,558,614 shares in 2007 and 2006
 393,091 392,736  391,355 392,736 
Retained earnings 73,505 71,320  77,745 71,320 
Accumulated comprehensive income  (13,121)  (13,375)
Treasury Stock, at cost 9,556,771 shares in 2007 and 9,313,207 shares in 2006  (169,120)  (165,202)
Accumulated comprehensive loss  (7,569)  (13,375)
Treasury Stock, at cost 11,153,181 shares in 2007 and 9,313,207 shares in 2006  (189,828)  (165,202)
          
TOTAL SHAREHOLDERS’ EQUITY
 284,355 285,479  271,703 285,479 
          
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
 $3,327,988 $3,301,599  $3,329,156 $3,301,599 
          
See notes to consolidated financial statements.

1


FIRST FINANCIAL BANCORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGSINCOME
(Dollars in thousands, except per share data)
(Unaudited)
                        
 Three months ended  Three months ended Nine months ended 
 March 31,  September 30, September 30, 
 2007 2006  2007 2006 2007 2006 
Interest income  
Loans, including fees $45,064 $42,857  $46,606 $45,484 $136,961 $132,727 
Investment securities  
Taxable 3,891 5,141  3,667 3,728 11,320 12,667 
Tax-exempt 909 1,104  863 996 2,683 3,157 
              
Total investment securities interest 4,800 6,245  4,530 4,724 14,003 15,824 
Federal funds sold 1,756 1,582  1,048 2,116 4,045 5,198 
              
Total interest income 51,620 50,684  52,184 52,324 155,009 153,749 
Interest expense  
Deposits 19,009 14,933  20,528 19,176 58,946 50,663 
Short-term borrowings 996 896  1,041 953 3,021 2,741 
Long-term borrowings 559 2,058  532 686 1,633 3,453 
Subordinated debentures and capital securities 653 598  666 686 1,988 1,923 
              
Total interest expense 21,217 18,485  22,767 21,501 65,588 58,780 
              
Net interest income 30,403 32,199  29,417 30,823 89,421 94,969 
Provision for loan losses 1,356 752 
Provision for loan and lease losses 2,558 2,888 6,012 4,000 
              
Net interest income after provision for loan losses 29,047 31,447 
Net interest income after provision for loan and lease losses 26,859 27,935 83,409 90,969 
  
Noninterest income  
Service charges on deposit accounts 4,744 5,089  5,396 5,672 15,436 16,192 
Trust and wealth management fees 4,160 4,189  4,721 3,949 13,407 12,277 
Bankcard income 1,240 1,123  1,422 1,023 4,086 3,311 
Net gains from sales of loans 162 245  203 2,468 549 2,972 
Gains on sales of branches 0 12,545 0 12,545 
Gain on sale of mortgage servicing rights 1,061 0  0 0 1,061 0 
Losses on sales of investment securities 0  (476)
Gains (losses) on sales of investment securities 367 0 367  (476)
Other 3,377 2,801  2,341 2,623 8,420 8,259 
              
Total noninterest income 14,744 12,971  14,450 28,280 43,326 55,080 
  
Noninterest expenses  
Salaries and employee benefits 18,961 20,217  17,288 19,968 53,383 63,295 
Net occupancy 2,807 2,839  2,728 2,802 8,019 8,339 
Furniture and equipment 1,627 1,480  1,684 1,297 5,019 4,111 
Data processing 845 1,944  1,010 3,058 2,673 8,395 
Marketing 869 683  407 1,138 1,918 2,468 
Communication 865 667  664 821 2,327 2,130 
Professional services 1,006 1,590  964 2,342 3,033 5,761 
Amortization of intangibles 199 217 
Debt extinguishment 0 4,295  0 0 0 4,295 
Other 4,031 4,945  3,980 5,759 13,003 15,952 
              
Total noninterest expenses 31,210 38,877  28,725 37,185 89,375 114,746 
              
Earnings before income taxes 12,581 5,541 
Income before income taxes 12,584 19,030 37,360 31,303 
Income tax expense 4,146 1,574  4,211 6,911 12,380 10,859 
              
Net earnings $8,435 $3,967 
Net income $8,373 $12,119 $24,980 $20,444 
              
  
Earnings per share — basic $0.22 $0.10  $0.22 $0.31 $0.64 $0.52 
              
Earnings per share — diluted $0.22 $0.10  $0.22 $0.31 $0.64 $0.52 
              
Cash dividends declared per share $0.16 $0.16  $0.16 $0.16 $0.48 $0.48 
              
Average basic shares outstanding 39,121,105 39,560,109  38,383,228 39,612,408 38,820,545 39,592,908 
              
Average diluted shares outstanding 39,135,637 39,612,496  38,383,228 39,619,786 38,825,940 39,623,911 
              
See notes to consolidated financial statements.

2


FIRST FINANCIAL BANCORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, dollars in thousands)
         
  Three months ended 
  March 31, 
  2007  2006 
Operating activities        
Net earnings $8,435  $3,967 
Adjustments to reconcile net cash provided by operating activities        
Provision for loan losses  1,356   752 
Provision for depreciation and amortization  2,168   1,975 
Stock-based compensation expense  436   319 
Pension expense  699   1,497 
Net amortization of premiums and accretion of discounts on investment securities  33   (272)
Losses on sales of investment securities  0   476 
Originations of loans held for sale  (28,405)  (18,559)
Net gains from sales of loans held for sale  (162)  (245)
Proceeds from sales of loans held for sale  37,339   18,622 
Deferred income taxes  0   (175)
(Increase) decrease in interest receivable  (1,283)  1,418 
Decrease (increase) in cash surrender value of life insurance  87   (852)
Increase in prepaid expenses  (1,238)  (1,040)
Increase (decrease) in accrued expenses  1,230   (708)
Increase (decrease) in interest payable  331   (60)
Contribution to pension plan  0   (1,406)
Other  15,259   1,773 
       
Net cash provided by operating activities  36,285   7,482 
         
Investing activities        
Proceeds from sales of securities available-for-sale  0   184,902 
Proceeds from calls, paydowns and maturities of securities available-for-sale  15,032   32,331 
Purchases of securities available-for-sale  (16,386)  (2,348)
Proceeds from calls, paydowns and maturities of securities held-to-maturity  226   2,323 
Net increase in federal funds sold  (57,200)  (34,500)
Net (increase) decrease in loans and leases  (24,770)  11,347 
Recoveries from loans and leases previously charged off  818   684 
Proceeds from disposal of other real estate owned  380   804 
Purchases of premises and equipment  (1,528)  (2,500)
       
Net cash (used in) provided by investing activities  (83,428)  193,043 
         
Financing activities        
Net increase in total deposits  33,722   24,965 
Net decrease in short-term borrowings  (4,457)  (18,630)
Payments on long-term borrowings  (3,464)  (203,173)
Cash dividends  (6,250)  (6,338)
Purchase of common stock  (3,930)  0 
Proceeds from exercise of stock options  80   236 
Excess tax benefit on share-based compensation  4   49 
       
Net cash provided by (used in) financing activities  15,705   (202,891)
       
Cash and cash equivalents:        
Net decrease in cash and cash equivalents  (31,438)  (2,366)
Cash and cash equivalents at beginning of period  119,407   163,281 
       
Cash and cash equivalents at end of period $87,969  $160,915 
       

3


FIRST FINANCIAL BANCORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, dollars in thousands)
         
  Three months ended 
  March 31, 
  2007  2006 
Supplemental disclosures        
Interest paid $20,887  $18,545 
       
Income taxes paid $0  $0 
       
Recognition of deferred tax (liabilities) assets attributable to SFAS No. 115 $(64) $670 
       
Acquisition of other real estate owned through foreclosure $718  $316 
       
Issuance of restricted stock awards $64  $35 
       
         
  Nine months ended 
  September 30, 
  2007  2006 
Operating activities        
Net income $24,980  $20,444 
Adjustments to reconcile net cash provided by operating activities        
Provision for loan and lease losses  6,012   4,000 
Depreciation and amortization  6,039   6,326 
Stock-based compensation expense  845   1,306 
Pension expense  2,053   3,971 
Net amortization of premiums and accretion of discounts on investment securities  109   (154)
(Gains) losses on sales of investment securities  (367)  476 
Originations of loans held for sale  (68,027)  (64,509)
Net gains from sales of loans held for sale  (549)  (2,972)
Proceeds from sales of loans held for sale  76,564   66,803 
Deferred income taxes  (2,476)  5,789 
Increase in interest receivable  (3,170)  (409)
Increase in cash surrender value of life insurance  (3,983)  (2,094)
Increase in prepaid expenses  (1,886)  (1,598)
Increase in accrued expenses  593   1,304 
Increase in interest payable  1,911   717 
Contribution to pension plan  0   (5,871)
Other  9,397   5,618 
       
Net cash provided by operating activities  48,045   39,147 
         
Investing activities        
Proceeds from sales of securities available-for-sale  392   184,902 
Proceeds from calls, paydowns and maturities of securities available-for-sale  41,219   58,874 
Purchases of securities available-for-sale  (26,346)  (13,157)
Proceeds from calls, paydowns and maturities of securities held-to-maturity  3,162   4,497 
Purchases of securities held-to-maturity  (634)  0 
Net decrease (increase) in federal funds sold  30,300   (3,000)
Net (increase) decrease in loans and leases  (123,437)  99,773 
Proceeds from surrender of life insurance policies  10,823   0 
Proceeds from disposal of other real estate owned  1,308   2,510 
Purchases of premises and equipment  (4,378)  (12,534)
       
Net cash (used in) provided by investing activities  (67,591)  321,865 
         
Financing activities        
Net increase (decrease) in total deposits  51,923   (148,718)
Net increase (decrease) in short-term borrowings  4,548   (18,505)
Payments on long-term borrowings  (8,445)  (218,458)
Redemption of junior subordinated debt  (10,000)  0 
Cash dividends paid  (18,774)  (19,528)
Purchase of common stock  (26,834)  (2,369)
Proceeds from exercise of stock options  81   254 
Excess tax benefit on share-based compensation  54   98 
       
Net cash used in financing activities  (7,447)  (407,226)
       
         
Cash and cash equivalents:        
Net decrease in cash and cash equivalents  (26,993)  (46,214)
Cash and cash equivalents at beginning of period  119,407   163,281 
       
Cash and cash equivalents at end of period $92,414  $117,067 
       
See notes to consolidated financial statements.

43


FIRST FINANCIAL BANCORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(Unaudited, dollars in thousands)thousands except per share data)
         
  Three months ended 
  March 31, 
  2007  2006 
Balances at January 1 $285,479  $299,881 
Net earnings  8,435   3,967 
Other comprehensive income, net of taxes:        
Changes in unrealized losses on securities, available for sale  111   (1,134)
Changes in employee benefit plans amortization  143   0 
       
Comprehensive income  8,689   2,833 
Cash dividends declared  (6,250)  (6,338)
Purchase of common stock  (3,930)  0 
Excess tax benefit on share-based compensation  4   49 
Exercise of stock options, net of shares purchased  80   221 
Restricted stock awards  (153)  (351)
Share-based compensation expense  436   319 
       
Balances at March 31
 $284,355  $296,614 
       
See notes to consolidated financial statements.
                                 
              Accumulated comprehensive    
              income (loss)    
  Common Common     Unrealized gain      
  stock stock Retained (loss) on AFS Pension Treasury stock  
  shares amount earnings securities obligation Shares Amount Total
   
Balance at January 1, 2006  48,558,614  $392,607  $75,357  $(314) $(7,562)  (8,995,134) $(160,207) $299,881 
                                 
Net income          20,444                   20,444 
                                 
Unrealized holding losses on securities available-for-sale arising during the period              (705)              (705)
                                 
                                 
Total comprehensive income                              19,739 
Cash dividends declared ($0.48 per share)          (19,018)                  (19,018)
                                 
Purchase of common stock                      (152,000)  (2,369)  (2,369)
Tax benefit on stock option exercise      98                       98 
Exercise of stock options, net of shares purchased      (213)              24,589   452   239 
Restricted stock awards, net      (1,642)              71,647   1,291   (351)
Share-based compensation expense      1,306                       1,306 
   
                                 
Balances at September 30, 2006  48,558,614   392,156   76,783   (1,019)  (7,562)  (9,050,898)  (160,833)  299,525 
   
                                 
Balances at January 1, 2007  48,558,614   392,736   71,320   (420)  (12,955)  (9,313,207)  (165,202)  285,479 
                                 
Net income          24,980                   24,980 
                                 
Unrealized holding losses on securities available-for-sale arising during the period              (855)              (855)
                                 
Pension obligation                  6,661           6,661 
                                 
                                 
Total comprehensive income                              30,786 
Cash dividends declared ($0.48 per share)          (18,555)                  (18,555)
Purchase of common stock                      (1,965,700)  (26,834)  (26,834)
Tax benefit on stock option exercise      54                       54 
Exercise of stock options, net of shares purchased      (58)              8,474   139   81 
Restricted stock awards, net      (2,222)              117,252   2,069   (153)
Share-based compensation expense      845                       845 
   
                                 
Balances at September 30, 2007  48,558,614  $391,355  $77,745  $(1,275) $(6,294)  (11,153,181) $(189,828) $271,703 
   

54


FIRST FINANCIAL BANCORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31,SEPTEMBER 30, 2007
(Unaudited, dollars in thousands, except per share data)(Unaudited)
The consolidated financial statements for interim periods are unaudited; however, in the opinion of the management of First Financial Bancorp. (First Financial), all material 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 holding company, include the accounts of First Financial and its wholly-owned subsidiaries — First Financial Bank, N.A. and First Financial Capital Advisors LLC, a registered investment advisory company.advisor. All significant intercompany transactions and accounts have been eliminated in consolidation.
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates, assumptions, and judgments that affect the amounts reported in the financial statements and accompanying notes. Actual realized amounts could differ materially from those estimates. These interim financial statements have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X and serve to update the First Financial Bancorp. Annual Report on Form 10-K (Form 10-K) for the year ended December 31, 2006. These financial statements may not include all information and notes necessary to constitute a complete set of financial statements under U.S. generally accepted accounting principles applicable to annual periods and accordingly should be read in conjunction with the financial information contained in the Form 10-K. Management believes these unaudited consolidated financial statements reflect all adjustments of a normal recurring nature which are necessary for a fair presentation of the results for the interim periods presented. The results of operations for the interim periods are not necessarily indicative of the results that may be expected for the full year or any other interim period. The consolidated balance sheet as of December 31, 2006, has been derived from the audited financial statements in the company’s 2006 Form 10-K.
Certain reclassifications of prior year’s amounts have been made to conform to current year presentation. Such reclassifications had no effect on net earnings.income.
NOTE 2: FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISKRECENTLY ISSUED ACCOUNTING STANDARDS
In the normal course of business, First Financial offers a variety of financial instruments containing off-balance sheet risk. These financial instruments aid its clients in meeting their requirements for liquidity and credit enhancement, as well as to reduce its own exposure to fluctuations in interest rates. U.S. generally accepted accounting principles do not commonly require these financial instruments to be recorded in the Consolidated Balance Sheets, Consolidated Statements of Earnings, Consolidated Statements of Changes in Shareholders’ Equity, and Consolidated Statements of Cash Flows. Following is a discussion of these transactions.
First Financial usesadopted the same credit policiesprovisions of FIN 48, “Accounting for Uncertainty in making commitmentsIncome Taxes — an interpretation of FASB Statement No. 109,” effective January 1, 2007. FIN 48 prescribes a recognition threshold and conditional obligations as it doesmeasurement attribute for on-balance sheet instruments.the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. The adoption of FIN 48 did not have a material financial impact on the consolidated financial statements of First Financial.
Standby lettersIn July of credit are conditional commitments2006, the Emerging Issues Task Force (“EITF”) of FASB issued bya draft abstract for EITF Issue No. 06-4, “Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements.” The EITF reached a consensus that for an endorsement split-dollar life insurance arrangement within the scope of this Issue, an employer under certain conditions should recognize a liability for future benefits. First Financial to guarantee the performancehas purchased bank-owned life insurance on certain of a client to a third party. First Financial’s portfolio of standby letters of credit consists primarily of performance assurances made on behalf of clients who have a contractual commitment to produce or deliver goods or services.its employees. The risk to First Financial arises from its obligation to make payment in the event of the clients’ contractual default and surfaces in the form of credit risk. First Financial had issued standby letters of credit aggregating $21,421 and $24,709 at March 31, 2007, and December 31, 2006, respectively.
Management conducts regular reviewscash surrender value of these instruments on an individual client basis. Management does not anticipate any material losses as a result of these letters of credit.
Loan commitments are agreements to lend to a client as long as therepolicies is no violation of any condition established in the agreement. 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

6


being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. First Financial evaluates each client’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 collateral held varies, but may include securities, real estate, inventory, plant, or equipment. First Financial had commitments outstanding to extend credit totaling $663,684 and $633,104 at March 31, 2007, and December 31, 2006, respectively. Management does not anticipate any material losses as a result of these commitments.
NOTE 3: COMPREHENSIVE INCOME
First Financial discloses comprehensive income in the “Consolidated Statements of Changes in Shareholders’ Equity.” Disclosure of the reclassification adjustments for the three months ended March 31, 2007, and 2006 are shown in the table below.
         
  Three months ended 
  March 31, 
  2007  2006 
Net Earnings
 $8,435  $3,967 
Other comprehensive income, net of tax:        
Unrealized holding gains (losses) arising during period  111   (1,435)
Employee benefit plans amortization  143   0 
Less: Reclassification adjustment for (losses) included in net earnings  0   301 
      ��
Other comprehensive income  254   (1,134)
       
Comprehensive income
 $8,689  $2,833 
       
At March 31, 2007, the pension and other postretirement losses, net of taxes, recorded as accumulated other comprehensive income (loss) are $12,812.
NOTE 4: DERIVATIVES
The use of derivative instruments allows First Financial to meet the needs of its clients while managing the interest-rate risk associated with certain transactions. First Financial’s board of directors has authorized the use of certain derivative products, including interest rate caps, floors, and swaps. Currently, First Financial utilizes interest rate swaps as a means to offer long-term fixed-rate loans to commercial borrowers while maintaining the variable-rate income that better suits First Financial’s interest rate risk profile.
First Financial’s accounting policy for derivatives is based upon SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” and its related amendments.
The net interest receivable or payable on the interest rate swaps is accrued and recognizedcarried as an adjustment to the interest income or interest expense of the hedged item. The fair value of the interest rate swaps is included within accrued interest and other assets on the Consolidated Balance Sheets. The corresponding fair-value adjustment is also includedasset on the Consolidated Balance Sheets in theaccrued interest and other assets. The carrying value was $76.1 million at September 30, 2007. These life insurance policies are generally subject to endorsement split-dollar life insurance arrangements. These arrangements were designed to provide a pre-and postretirement benefit for certain senior officers of the hedged item. Derivative gains and losses not effective in hedging the change in fair value of the hedged item would be recognized immediately in current earnings. The following table summarizes the derivative financial instruments utilized by First Financial and their balances:its subsidiaries. First Financial is required to apply EITF Issue No. 06-4 beginning January 1, 2008, and is currently evaluating the effect the implementation of EITF Issue No. 06-4 will have on its Consolidated Financial Statements.

75


                                     
  March 31, 2007  December 31, 2006  March 31, 2006 
      Estimated      Estimated      Estimated 
  Notional  Fair Value  Notional  Fair Value  Notional  Fair Value 
  Amount  Gain  (Loss)  Amount  Gain  (Loss)  Amount  Gain  (Loss) 
Fair Value Hedges                                    
Pay fixed interest rate swaps $30,568  $460  $(230) $31,155  $557  $(200) $25,725  $832  $(23)
                                     
Matched Client Hedges                                    
Client interest rate swaps  24,673   699   0   24,821   631   0   0   0   0 
Client interest rate swaps with counterparty  24,673   0   (699)  24,821   0   (631)  0   0   0 
                            
                                     
Total $79,914  $1,159  $(929) $80,797  $1,188  $(831) $25,725  $832  $(23)
                            
In September of 2006, the FASB issued Statement No. 157 (SFAS No. 157), “Fair Value Measurements.”
This statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. First Financial is required to apply SFAS No. 157 beginning January 1, 2008, and is currently evaluating the effect the implementation of SFAS No. 157 will have on its Consolidated Financial Statements.
In February of 2007, the FASB issued Statement No. 159 (SFAS No. 159), “The Fair Value Option for Financial Assets and Financial Liabilities — Including an amendment of FASB Statement No. 115.” This statement permits the measurement of many financial instruments and certain other assets and liabilities at fair value on an instrument-by-instrument, irrevocable basis. First Financial is required to apply SFAS No. 159 beginning January 1, 2008, and is currently evaluating the effect the implementation of SFAS No. 159 will have on its Consolidated Financial Statements.
NOTE 3: FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
In the normal course of business, First Financial offers a variety of financial instruments containing off-balance sheet risk. These financial instruments aid its clients in meeting their requirements for liquidity and credit enhancement, as well as to reduce its own exposure to fluctuations in interest rates. U.S. generally accepted accounting principles do not commonly require these financial instruments to be recorded in the Consolidated Balance Sheets, Consolidated Statements of Income, Consolidated Statements of Changes in Shareholders’ Equity, and Consolidated Statements of Cash Flows. Following is a discussion of these transactions.
First Financial uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments.
Standby letters of credit are conditional commitments issued by First Financial to guarantee the performance of a client to a third party. First Financial’s portfolio of standby letters of credit consists primarily of performance assurances made on behalf of clients 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 clients’ contractual default and surfaces in the form of credit risk. First Financial had issued standby letters of credit aggregating $27.1 million and $24.7 million at September 30, 2007, and December 31, 2006, respectively.
Management conducts regular reviews of these instruments on an individual client basis and does not anticipate any material losses arising from these letters of credit.
Loan commitments are agreements to lend to a client as long as there is no violation of any condition established in the agreement. 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 client’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 collateral held varies, but may include securities, real estate, inventory, plant, or equipment. First Financial had commitments outstanding to extend credit totaling $744.3 million and $633.1 million at September 30, 2007, and December 31, 2006, respectively. Management does not anticipate any material losses as a result of these commitments.

6


NOTE 4: INVESTMENTS
The following is a summary of investment securities as of September 30, 2007 (dollars in $000’s):
                                 
  Held-to-Maturity Available-for-Sale
  Amortized Unrealized Unrealized Market Amortized Unrealized Unrealized Market
  Cost Gains Losses Value Cost Gains Losses Value
 
Securities of U.S. government agencies and corporations $0  $0  $0  $0  $80,126  $138  $(182) $80,082 
Mortgage-backed securities  314   3   (1)  316   158,899   707   (3,183)  156,423 
Obligations of state and other political subdivisions  5,153   140   (18)  5,275   60,798   892   (58)  61,632 
Other securities  0   0   0   0   10,092   166   (487)  9,771 
     
Total $5,467  $143  $(19) $5,591  $309,915  $1,903  $(3,910) $307,908 
     
The following is a summary of investment securities as of December 31, 2006 (dollars in $000’s):
                                 
  Held-to-Maturity Available-for-Sale
  Amortized Unrealized Unrealized Market Amortized Unrealized Unrealized Market
  Cost Gains Losses Value Cost Gains Losses Value
   
Securities of U.S. government agencies and corporations $0  $0  $0  $0  $63,118  $223  $(205) $63,136 
Mortgage-backed securities  427   5   0   432   184,787   815   (3,227)  182,375 
Obligations of state and other political subdivisions  7,568   175   (21)  7,722   71,280   1,377   (90)  72,567 
Other securities  0   0   0   0   5,737   459   (15)  6,181 
     
Total $7,995  $180  $(21) $8,154  $324,922  $2,874  $(3,537) $324,259 
     
All unrealized losses on debt securities are due to higher current market yields relative to the yields of the debt securities at their amortized cost. None of the unrealized losses are due to credit risk of the underlying collateral of the debt security. First Financial has the intent and ability to hold all debt security issues temporarily impaired until maturity or recovery of book value. All securities with unrealized losses are reviewed quarterly to determine if any impairment is other than temporary, requiring a write-down to fair market value. At September 30, 2007, management does not consider these securities to be other-than-temporarily impaired.
NOTE 5: DERIVATIVES
The use of derivative instruments allows First Financial to meet the needs of its clients while managing the interest-rate risk associated with certain transactions. First Financial’s board of directors has authorized the use of certain derivative products, including interest rate caps, floors, and swaps. Currently, First Financial utilizes interest rate swaps as a means to offer commercial borrowers products that meet their needs, but also are designed to achieve First Financial’s desired interest rate risk profile at the time.
First Financial’s accounting policy for derivatives is based upon SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” and its related amendments.
The net interest receivable or payable on the interest rate swaps is accrued and recognized as an adjustment to the interest income or interest expense of the hedged item. The fair value of the interest rate swaps is included within accrued interest and other assets on the Consolidated Balance Sheets. The corresponding fair-value adjustment is also included on the Consolidated Balance Sheets in the carrying

7


value of the hedged item. Derivative gains and losses not considered effective in hedging the change in fair value of the hedged item are recognized immediately in current income. The following table summarizes the derivative financial instruments utilized by First Financial and their balances (dollars in $000’s):
                                     
  September 30, 2007 December 31, 2006 September 30, 2006
      Estimated     Estimated     Estimated
  Notional Fair Value Notional Fair Value Notional Fair Value
  Amount Gain (Loss) Amount Gain (Loss) Amount Gain (Loss)
       
Fair Value Hedges                                    
Pay fixed interest rate swaps $29,126  $384  $(256) $31,155  $557  $(200) $31,365  $558  $(226)
Matched Client Hedges                                    
Client interest rate swaps  38,590   1,052   0   24,821   631   0   24,965   671   0 
Client interest rate swaps with counterparty  38,590   0   (1,052)  24,821   0   (631)  24,965   0   (671)
       
Total $106,306  $1,436  $(1,308) $80,797  $1,188  $(831) $81,295  $1,229  $(897)
       
NOTE 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 First Financial (OH) Statutory Trust II and in the third quarter of 2002 by First Financial (OH) Statutory Trust I, both statutory business trusts.
The debentures issued in 2002 were eligible for early redemption by First Financial in September 2007, with a final maturity in 2032. In September 2007, First Financial redeemed all the underlying capital securities relating to First Financial (OH) Statutory Trust I. The total outstanding capital securities redeemed were $10 million. The debentures issued in 2003 are eligible for early redemption by First Financial in September 2008, with a final maturity in 2033.
First Financial owns 100% of the common equity of both of the trusts.remaining trust. The trusts weretrust was formed with the sole purpose of issuing the capital securities and investing the proceeds from the sale of such capital securities in the debentures. The debentures held by the trust are the sole assets of eachthe 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 subject to change every three months, indexed to the three-month LIBOR (London Inter-Bank Offered Rate). 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 First Financial’s 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, but are limited to 25% of qualifying Tier I capital.
                            
 Maturity   Maturity  
 Amount Rate Date Call Date
First Financial (OH) Statutory Trust I $10,000  8.75% 9/25/32 9/25/07 
(dollars in $000’s) Amount Rate Date Call Date
First Financial (OH) Statutory Trust II $20,000  8.45% 9/30/33 9/30/08  $20,000   8.46% 9/30/33 9/30/08

8


NOTE 6: EMPLOYEE BENEFIT PLANS7: ALLOWANCE FOR LOAN AND LEASE LOSSES
Changes in the allowance for loan and lease losses for the previous five quarters are presented in the table that follows (dollars in $000’s):
                             
  Three Months Ended Nine Months Ended
  2007 2006 Sep. 30,
  Sep. 30 June 30 Mar. 30 Dec. 31 Sep. 30 2007 2006
       
Balance at beginning of period $28,060  $27,407  $27,386  $31,888  $30,085  $27,386  $42,485 
Provision for loan losses  2,558   2,098   1,356   5,822   2,888   6,012   4,000 
Loans charged off  (2,097  (2,130  (2,153  (6,541  (2,157  (6,380  (9,077
Loans held for sale write-down  0   0   0   (4,375  0   0   (8,356
Recoveries  615   685   818   592   1,072   2,118   2,836 
       
Balance at end of period $29,136  $28,060  $27,407  $27,386  $31,888  $29,136  $31,888 
       
                             
Allowance for loan and lease losses to total ending loans  1.12%  1.10%  1.10%  1.10%  1.27%  1.12%  1.27%
       
The allowance for loan and lease losses related to loans that are identified as impaired, as defined by SFAS No. 114, as amended by SFAS No. 118, are based on discounted cash flows using the loan’s initial effective interest rate or the fair value of the collateral for certain collateral dependent loans.
First Financial’s investment in impaired loans is as follows (dollars in $000’s):
                     
  As of and for the Quarter Ended 
  2007  2006 
  Sep. 30  June 30  Mar. 31  Dec. 31  Sep. 30 
Impaired loans requiring a valuation $5,325  $7,309  $2,911  $2,639  $5,305 
                
Valuation allowance $2,756  $3,477  $1,219  $1,523  $2,997 
                
Average impaired loans for the period $8,921  $8,435  $3,894  $8,791  $7,312 
                
For all periods presented above, there were no impaired loans that did not require a valuation allowance. First Financial recognized interest income on impaired loans for the nine months and quarter ended September 30, 2007, of $0.3 million and $0.1 million, compared to $0.2 million and $0.1 million for the same periods in 2006. Interest income is recorded on a cash basis during the period the loan is considered impaired after recovery of principal is reasonably assured.
NOTE 8: INCOME TAXES
First Financial’s effective tax rate in the third quarter of 2007 was 33.5%, compared to 36.3% in the third quarter of 2006. The 2007 year-to-date effective tax rate was 33.1% compared to 34.7% in 2006.
First Financial’s income tax returns are subject to review and examination by federal, state, and local government authorities. The calendar years through 2004 have been closed by the Internal Revenue Service. The years open to examination by state and local government authorities vary by jurisdiction, and First Financial is not aware of any material outstanding examination matters.
Effective January 1, 2007, First Financial adopted the provisions of FIN 48. The adoption of FIN 48 did not have a material financial impact on the consolidated financial statements of First Financial. As of September 30, 2007, there were no unrecognized tax benefits.
First Financial sponsorsrecognizes interest and penalties on income tax assessments or income tax refunds in the financial statements as a non-contributory defined benefit pension plan covering substantially all employees. First Financial does not expect, nor is it required, to make any contributions to its pension plan in 2007 due to the improved funded statuscomponent of the pension plan. 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, 
  2007  2006 
Service cost $851  $1,098 
Interest cost  743   744 
Expected return on plan assets  (1,122)  (687)
Amortization of transition asset  (12)  (14)
Amortization of prior service cost  12   14 
Amortization of actuarial loss  227   342 
       
Net periodic benefit cost
 $699  $1,497 
       
Amount recognized in accumulated other comprehensive income (loss) for the period ending March 31, 2007:
     
Amortization of unrecognized net (gain)/loss from prior years $227 
Amortization of prior service cost  12 
Amortization of unrecognized net asset at transition  (12)
Deferred taxes  (83)
    
Total reduction in accumulated other comprehensive income (loss) for the period
 $144 
    
Several 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 for the retired employees.
         
  Three months ended 
  March 31, 
  2007  2006 
Interest cost $20  $21 
Amortization of prior service cost  (1)  (1)
Amortization of actuarial gain  0   (1)
       
Net periodic postretirement benefit cost
 $19  $19 
       
Amount recognized in accumulated other comprehensive income (loss) for the period ending March 31, 2007:
     
Amortization of unrecognized net (gain)/loss from prior years $0 
Amortization of prior service cost  (1)
Amortization of unrecognized net asset at transition  0 
Deferred taxes  0 
    
Total increase in accumulated other comprehensive income (loss) for the period
 $(1)
    
noninterest expense.

9


NOTE 7: RECENTLY ISSUED ACCOUNTING STANDARDS9: EMPLOYEE BENEFIT PLANS
Pension
First Financial adopted FASB Statement No. 156 (SFAS No. 156), “Accounting for Servicing of Financial Assets – an amendment of FASB Statement No. 140,” effective January 1, 2007. SFAS No. 156 requires thatsponsors a non-contributory defined benefit pension plan covering substantially all separately recognized servicing rights be initially measured at fair value, if practicable. For each class of separately recognized servicing assets and liabilities, First Financial must choose to report servicing assets and liabilities either at 1) fair value or 2) amortized cost (amortized cost is consistent with how First Financial has historically recognized servicing rights). Under the fair value approach, servicing assets and liabilities will be recorded at fair value at each reporting date with changes in fair value recorded in earningsemployees. Effective in the period in which the changes occur. Under the amortized cost method, servicing assets and liabilities are amortized in proportion to and over the periodthird quarter of estimated net servicing income or net servicing loss and are assessed for impairment based on fair value at each reporting date. The adoption of SFAS No. 156 did not have a material impact on the Consolidated Financial Statements of First Financial. At March 31, 2007, First Financial had no servicing assets recordedamended the defined benefit pension plan formula to change the determination of participant benefits from a final average earnings plan to a cash balance plan. Pension plan participants prior to July 1, 2007, will transition to the amended plan on January 1, 2008. After July 1, 2007, newly eligible participants will enter the Consolidatedamended plan upon their eligibility date. First Financial Statementsdoes not expect, nor is it required, to make any contributions to its pension plan in 2007 due to the third partyimproved funded status of the pension plan.
The following table sets forth information concerning amounts recognized in First Financial’s Consolidated Balance Sheets and Consolidated Statements of Income (dollars in $000’s).
                 
  Three months ended  Nine months ended 
  September 30,  September 30, 
  2007  2006  2007  2006 
Service cost $881  $844  $2,582  $2,786 
Interest cost  686   760   2,172   2,264 
Expected return on plan assets  (1,084)  (734)  (3,327)  (2,155)
Amortization of transition asset  (12)  (14)  (36)  (42)
Amortization of prior service cost  (45)  14   (20)  42 
Amortization of actuarial loss  229   280   682   902 
             
Net periodic benefit cost
 $655  $1,150  $2,053  $3,797 
             
Amount recognized in accumulated other comprehensive income (loss) for the period ending September 30, 2007 (dollars in $000’s):
     
  2007 
Prior service credit $7,003 
Net actuarial loss reduction  2,898 
Amortization of unrecognized net loss from prior years  682 
Amortization of prior service cost  (20)
Amortization of unrecognized net asset at transition  (36)
Deferred taxes  (3,864)
    
Total net increase in accumulated other comprehensive income (loss) for the period
 $6,663 
    
Other
Several of First Financial’s subsidiaries maintain health care and, in limited instances, life insurance plans for retired employees. The following table sets forth the components of net periodic postretirement benefit costs for those retired employees (dollars in $000’s).
                 
  Three months ended  Nine months ended 
  September 30,  September 30, 
  2007  2006  2007  2006 
Interest cost $20  $21  $60  $63 
Amortization of prior service cost  (1)  (1)  (3)  (3)
Amortization of actuarial loss  0   (1)  0   (3)
             
Net periodic postretirement benefit cost
 $19  $19  $57  $57 
             

10


Amount recognized in accumulated other comprehensive income (loss) for the period ending September 30, 2007 (dollars in $000’s):
     
  2007 
Amortization of unrecognized net (gain)/loss from prior years $0 
Amortization of prior service cost  (3)
Amortization of unrecognized net asset at transition  0 
Deferred taxes  1 
    
Total net reduction in accumulated other comprehensive income (loss) for the period
 $(2)
    
NOTE 10: SUBSEQUENT EVENT
On October 11, 2007, First Financial announced the formation of a long-term exclusive marketing agreement and the sale of all servicing assetsits merchant payment processing portfolio to Metavante Corporation, the current technology provider for First Financial. Under the terms of the agreement, merchant processing will be offered by Metavante to existing clients of First Financial, and First Financial will jointly market merchant processing with Metavante to prospective clients. In exchange for 1,743 merchant accounts in the firstportfolio, First Financial expects to record a pre-tax gain of approximately $5.5 million net of expenses or approximately $0.09 per share in the fourth quarter of 2007.
On October 11, 2007, First Financial adoptedalso announced that it expects to recognize a fourth quarter of 2007 pre-tax charge of approximately $2.3 million to $2.7 million, or $0.04 to $0.05 per share, related to a SFAS No, 88 settlement charge for its defined benefit pension plan. This charge is similar in nature to the provisionscharge First Financial recognized in the fourth quarter of FIN 48, “Accounting2006 in the amount of $3.1 million, or $0.05 per share. The 2007 SFAS No. 88 settlement charge will be incurred as a result of First Financial’s staff changes in 2006 and 2007 and represents the expected future costs associated with maintaining the pension benefit for Uncertainty in Income Taxes –former employees who elected to take a lump-sum distribution during the calendar year 2007 of their pension benefit. Expected fourth quarter of 2007 distributions, combined with contributions made during the first nine months of 2007, have triggered this settlement charge. This charge is an interpretationacceleration of FASB Statement No. 109,” effective January 1, 2007. FIN 48 prescribes a recognition thresholdcosts that were previously deferred under pension accounting rules and measurement attribute forrecognized over time; accordingly, the financial statement recognition and measurement of a tax position taken orfuture pension expense is expected to be taken in a tax return. This interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. First Financial does not anticipate any changes in its current accounting policies associated with the adoption of FIN 48. The adoption of FIN 48 did not have a material financial impact on the consolidated financial statements of First Financial.
First Financial adopted EITF Issue No. 06-5, “Accounting for Purchases of Life Insurance – Determining the Amount That Could Be Realized in Accordance with FASB Technical Bulletin No. 85-4,” effective January 1, 2007. EITF Issue No. 06-5 includes various considerations regarding what should be included in the determination of the amount that could be realized under the insurance contracts. The adoption of EITF 06-5 did not have a material impact on the financial statements of First Financial.
In July of 2006, the Emerging Issues Task Force (“EITF”) of FASB issued a draft abstract for EITF Issue No. 06-4, “Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements.” The EITF reached a consensus that for an endorsement split-dollar life insurance arrangement within the scope of this Issue, an employer should recognize a liability for future benefits. First Financial has purchased bank-owned life insurance on certain of its employees. The cash surrender value of these policies is carried as an asset on the Consolidated Balance Sheets in accrued interest and other assets. The carrying value was $82,884 at March 31, 2007. These life insurance policies are generally subject to endorsement split-dollar life insurance arrangements. These arrangements were designed to provide a pre-and postretirement benefit for senior officers and directors of First Financial and its subsidiaries. First Financial is required to apply EITF Issue No. 06-4 beginning January 1, 2008, and is currently evaluating the effect the implementation of EITF Issue No. 06-4 will have on its Consolidated Financial Statements.
In September of 2006, the FASB issued Statement No. 157 (SFAS No. 157), “Fair Value Measurements.” This statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. First Financial is required to apply SFAS No. 157 beginning January 1, 2008, and is currently evaluating the effect the implementation of SFAS No. 157 will have on its Consolidated Financial Statements.
In February of 2007, the FASB issued Statement No. 159 (SFAS No. 159), “The Fair Value Option for Financial Assets and Financial Liabilities – Including an amendment of FASB Statement No. 115.” This statement permits the measurement of many financial instruments and certain other assets and liabilities at fair value on an instrument-by-instrument, irrevocable basis. First Financial is required to apply SFAS No. 159 beginning January 1, 2008, and is currently evaluating the effect the implementation of SFAS No. 159 will have on its Consolidated Financial Statements.decline.

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ITEM 2-MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

FIRST FINANCIAL BANCORP. AND SUBSIDIARIES
(Unaudited)
(Unaudited, dollars in thousands)
SELECTED QUARTERLY FINANCIAL DATA
                     
  2007  2006 
  Mar. 31  Dec. 31  Sep. 30  Jun. 30  Mar. 31 
Average Consolidated Balance Sheet Items:                    
                     
Loans less unearned income(1)
 $2,490,252  $2,497,389  $2,580,005  $2,614,598  $2,596,755 
                     
Investment securities  367,407   381,985   370,095   380,532   497,528 
                     
Other earning assets  134,635   142,320   158,940   122,413   141,513 
                
                     
Total earning assets $2,992,294  $3,021,694  $3,109,040  $3,117,543  $3,235,796 
                     
Total assets  3,299,346   3,332,388   3,426,417   3,428,839   3,545,412 
 
Noninterest-bearing deposits $401,698  $418,009  $401,685  $424,227  $417,061 
                     
Interest-bearing deposits  2,406,913   2,392,092   2,492,898   2,477,026   2,486,336 
                
                     
Total deposits $2,808,611  $2,810,101  $2,894,583  $2,901,253  $2,903,397 
                     
Borrowings  181,613   192,811   200,856   202,792   313,743 
                     
Shareholders’ equity  286,453   299,320   298,909   296,087   298,578 
Key Ratios:                    
Average equity to average total assets  8.68%  8.98%  8.72%  8.64%  8.42%
Return on average total assets  1.04%  0.10%  1.40%  0.51%  0.45%
Return on average equity  11.94%  1.10%  16.09%  5.90%  5.39%
Return on average tangible equity  13.31%  1.24%  18.20%  6.70%  6.12%
Net interest margin  4.12%  3.95%  3.93%  4.11%  4.04%
Net interest margin (fully tax equivalent)  4.20%  4.05%  4.01%  4.20%  4.12%
(1)Includes loans held for sale.
SUMMARY
MARKET STRATEGY
First Financial intends to concentrateFinancial’s future growth plans and capital investments ininvestment plans are primarily directed towards its larger metropolitan markets. SmallerThe smaller markets in which First Financial operates have historically provided stable, low-cost funding sources to First Financial and areremain an important part of its funding plan. First Financial’s historical strength in a number of these markets should enable it to retain market share.
First Financial’s market strategy is to serve a combination of metropolitan and non-metropolitan markets in Indiana, western Ohio, and northern Kentucky. In addition to geographic fit, each market mustany new markets should have growth potential and the ability to meet profit targets.
As key components to executing its market strategy, First Financial completed the sale of ten and closure of seven banking centers in August of 2006. The sale of ten was completed in three separate transactions with total net gains of $12,545$12.5 million or $0.20 in diluted earnings per share. Total deposits of $108,629$108.6 million were assumed by and total loans of $101,414$101.4 million were sold.sold to the acquirers. The deposits and loans of the seven closed banking centers were transferred to other existing First Financial banking centers.

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First Financial has 83 offices serving nineeight distinct markets with an average banking center deposit size of approximately $36,000.$36 million. The operating model employed to execute its strategic plan includes a structure where market presidents manage thethese distinct markets, with the authority to make decisions at the point of client contact.
OVERVIEW OF OPERATIONS
Net earningsincome for the first three monthsthird quarter of 2007 were $8,435was $8.4 million or $0.22 in diluted earnings per share versus $3,967$12.1 million or $0.10$0.31 in diluted earnings per share for the first three monthsthird quarter of 2006. The $4,468 increase$3.7 million decrease in net earningsincome was due to decreased noninterest income of $13.8 million primarily due to the previously mentioned third quarter of 2006 net gain on the sales of branches, and decreased net interest income of $1,796, increased noninterest income of $1,773, and$1.4 million, partially offset by decreased noninterest expense of $7,667.$8.5 million, decreased provision expense for loan and lease losses of $0.3 million, and decreased income tax expense of $2.7 million. Compared to fourthsecond quarter of 20062007 net earningsincome of $827$8.2 million or $0.02$0.21 in diluted earnings per share, firstthird quarter of 2007 net earningsincome increased $7,608 primarily$0.2 million due to increased noninterest income of $1,840$0.3 million and decreased noninterest expense of $6,559. A detailed discussion$0.7 million, partially offset by decreased net interest income of $0.2 million, increased provision expense for loan and lease losses of $0.4 million, and increased income tax expense of $0.2 million.
Net income for the first nine months of 2007 was $25.0 million or $0.64 in diluted earnings per share versus $20.4 million or $0.52 in diluted earnings per share for the first nine months of 2006. The $4.6 million increase in net income was due to decreased noninterest expense of $25.4 million, partially offset by decreased noninterest income of $11.8 million, decreased net interest income of $5.5 million, increased income tax expense of $1.5 million, and increased provision expense for loan and lease losses of $2.0 million.
Return on average assets for the third quarter of 2007 resultswas 1.00% compared to 1.40% for the comparable period in 2006 and 1.00% for the linked-quarter (third quarter of operations follows.2007 compared to the second quarter of 2007). Return on average shareholders’ equity for the third quarter of 2007 was 12.03% compared to 16.09% for the comparable period in 2006 and 11.61% for the linked-quarter.

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Return on average assets for the first quarternine months of 2007 was 1.04%1.01% compared to 0.45%0.79% for the samecomparable period in 2006. Return on average shareholders’ equity was 11.94%11.86% for the first threenine months of 2007, versus 5.39%9.18% for the comparable period in 2006.
A detailed discussion of the third quarter and first nine months of 2007 results of operations follows.
NET INTEREST INCOME
Net interest income, First Financial’s principal source of earnings,income, is the excess of interest received from earning assets over interest paid on interest-bearing liabilities. 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 tofor both management and investors by allowing them to make peer comparisons. Management also uses these measures to make peer comparisons.
                     
  2007  2006 
  Mar. 31  Dec. 31  Sep. 30  Jun. 30  Mar. 31 
Interest income $51,620  $51,776  $52,324  $50,741  $50,684 
Interest expense  21,217   21,672   21,501   18,794   18,485 
                
Net interest income  30,403   30,104   30,823   31,947   32,199 
Tax equivalent adjustment to interest income  576   712   586   696   661 
                
Net interest income (fully tax equivalent) $30,979  $30,816  $31,409  $32,643  $32,860 
                
                     
Average earning assets $2,992,294  $3,021,694  $3,109,040  $3,117,543  $3,235,796 
                     
Net interest margin *  4.12%  3.95%  3.93%  4.11%  4.04%
Net interest margin (tax equivalent)  4.20%  4.05%  4.01%  4.20%  4.12%
                 
  Three Months Ended  Nine Months Ended 
  September 30,  September 30, 
(dollars in $000’s) 2007  2006  2007  2006 
Net interest income $29,417  $30,823  $89,421  $94,969 
Tax equivalent adjustment  564   586   1,720   1,943 
             
Net interest income — tax equivalent $29,981  $31,409  $91,141  $96,912 
             
                 
Average earning assets $3,007,663  $3,109,040  $2,996,267  $3,153,661 
Net interest margin *  3.88%  3.93%  3.99%  4.03%
                 
Net interest margin (fully tax equivalent) *  3.95%  4.01%  4.07%  4.11%
 
* Margins are calculated using net interest income annualized divided by average earning assets.
Net interest income for the firstthird quarter of 2007 was $30,403$29.4 million compared to $32,199$30.8 million in the firstthird quarter of 2006, a decrease of $1,796$1.4 million or 5.58%4.6%. This decrease is primarily due to a 3.3% net decline in the level of average earnings assets, resulting primarily from the third quarter of 2006 sale of ten branches and their $101.4 million of loans and $108.6 million of deposits.
Net interest income on a linked-quarter basis remained relatively flat, decreasing from $29.6 million in the second quarter of 2007 to $29.4 million in the third quarter of 2007, a $0.2 million or 2.5% annualized decrease. This slight decline in net interest income is primarily a result of deposit mix shift to higher yielding products.
Year-to-date net interest income was $89.4 million compared to $95.0 million in 2006, a $5.6 million or 5.8% decrease. This decrease is primarily due to a 5.0% net decline in the level of average earning assets, resulting primarily from the balance sheet restructure completed in the first quarter of 2006 and the third quarter of 2006 sale of ten banking centersbranches and their associated loans and deposits, and continued effects of increased rates on deposits.
Net interest income on a linked-quarter basis (firstThird quarter of 2007 compared to fourth quarter of 2006) increased $299 or 3.97% on an annualized basis. First Financial continues to experience a positive impact from a continued shift in asset mix, favorable impact from pricing changes of certain deposit products, offset by lower earning asset levels.

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First Financial’s net interest margin increased to 4.12% in the first quarter of 20073.88% decreased 5 basis points from 4.04%3.93% for the firstthird quarter of 2006, reflecting the reduction in earning assets and 3.95% for the linked-quarter.an increase in deposit costs.
Linked-quarter net interest margin decreased 9 basis points from 3.97% to 3.88%. The first quarter of 2007net interest margin was positively impacted by the continuedcontinuing shift from lower yielding indirect installment and conforming mortgageresidential real estate loans to higher yielding commercial and commercial real estate loans, favorable impact from pricing changes in certain deposit products, combined with fewer days in the quarter.loans. These benefits were partiallymore than offset by a continued increase in deposit costs and the 6 basis point seasonal negative impact from the public funds deposit portfolio.

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Year-to-date net interest margin was 3.99% in 2007 compared to 4.03% in 2006, reflecting the planned reduction in earning assets and an increase in deposit costs. Approximately 10 basis points of the first quarter of 2007 net interest margin increase was due to the impact of an accrual of income to convert certain consumer loans from a cycle-date basis of income recognition to a calendar-month basis.
The primary risk to our margin remains unanticipated consumer and competitor behavior related to deposit products, specifically the consumer preference for higher-yielding money market accounts rather than more traditional transaction accounts, and the competitiveness in market pricing for both transaction and certificate of deposit accounts.
The Consolidated Average Balance Sheets and Net Interest Income Analysis that follows isare presented on a GAAP basis.basis (dollars in $000’s).

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QUARTERLY CONSOLIDATED AVERAGE BALANCE SHEETS AND NET INTEREST INCOME ANALYSIS
                                                                        
 March 31, 2007 December 31, 2006 March 31, 2006  September 30, 2007 June 30, 2007 September 30, 2006 
 Average Average Average Average Average Average  Average Average Average Average Average Average 
 Balance Interest Rate Balance Interest Rate Balance Interest Rate  Balance Interest Rate Balance Interest Rate Balance Interest Rate 
Earning Assets
  
Investments:  
Federal funds sold $134,635 $1,756  5.29% $142,320 $1,894  5.28% $141,513 $1,582  4.53% $81,669 $1,048  5.09% $93,986 $1,241  5.30% $158,940 $2,116  5.28%
Investment securities 367,407 4,800  5.30% 381,985 4,910  5.10% 497,528 6,245  5.09% 349,686 4,530  5.14% 364,050 4,673  5.15% 370,095 4,724  5.06%
Loans(1):
  
Commercial loans 686,947 13,982  8.25% 664,501 13,740  8.20% 580,681 10,964  7.66% 766,479 15,421  7.98% 733,972 14,832  8.11% 649,336 13,322  8.14%
Real estate — construction 100,192 2,028  8.21% 96,280 1,975  8.14% 85,672 1,537  7.28% 139,291 2,693  7.67% 118,425 2,268  7.68% 94,135 1,794  7.56%
Real estate — commercial 638,717 10,882  6.91% 627,885 10,588  6.69% 642,386 10,108  6.38% 682,287 11,951  6.95% 658,021 11,423  6.96% 645,967 10,700  6.57%
Real estate — retail 620,843 8,674  5.67% 645,449 8,978  5.52% 762,353 10,446  5.56%
 
Real estate — residential 567,910 8,022  5.60% 592,862 8,334  5.64% 701,461 9,788  5.54%
Installment 189,479 2,889  6.18% 209,056 3,212  6.10% 287,182 4,215  5.95% 155,505 2,438  6.22% 170,750 2,616  6.15% 235,492 3,613  6.09%
Home equity 229,435 5,376  9.50% 229,904 4,764  8.22% 214,675 4,022  7.60% 239,693 4,864  8.05% 231,993 4,674  8.08% 229,583 4,707  8.13%
Credit card 23,809 804  13.70% 23,249 675  11.52% 21,748 599  11.17% 24,586 727  11.73% 23,944 694  11.63% 22,741 656  11.44%
Lease financing 830 22  10.75% 1,065 14  5.22% 2,058 30  5.91% 557 9  6.41% 671 12  7.17% 1,290 19  5.84%
Loan fees 407 1,026 936  481 438 885 
                          
Total loans 2,490,252 45,064  7.34% 2,497,389 44,972  7.14% 2,596,755 42,857  6.69% 2,576,308 46,606  7.18% 2,530,638 45,291  7.18% 2,580,005 45,484  6.99%
                          
Total earning assets 2,992,294 51,620  7.00% 3,021,694 51,776  6.80% 3,235,796 50,684  6.35% 3,007,663 52,184  6.88% 2,988,674 51,205  6.87% 3,109,040 52,324  6.68%
  
Nonearning Assets
  
Cash and due from banks 94,384 106,010 123,129  85,576 94,541 109,896 
Allowance for loan losses  (27,770)  (30,894)  (42,402) 
Allowance for loan and lease losses  (28,278)  (27,482)  (30,284) 
Premises and equipment 79,819 79,123 73,556  79,102 79,491 78,798 
Other assets 160,619 156,455 155,333  165,737 156,532 158,967 
              
Total assets
 $3,299,346 $3,332,388 $3,545,412  $3,309,800 $3,291,756 $3,426,417 
              
  
Interest-bearing liabilities
  
Deposits:  
Interest-bearing $646,548 3,302  2.07% $669,076 4,061  2.41% $726,700 3,202  1.79% $662,890 3,462  2.17% $606,320 2,945  1.95% $724,253 4,563  2.50%
Savings 545,101 2,353  1.75% 526,550 2,380  1.79% 517,603 1,117  0.88% 586,065 2,932  1.98% 578,357 2,751  1.91% 536,534 2,148  1.59%
Time 1,215,264 13,354  4.46% 1,196,466 12,908  4.28% 1,242,033 10,614  3.47% 1,231,875 14,134  4.55% 1,219,242 13,713  4.51% 1,232,111 12,465  4.01%
  
Short-term borrowings 88,533 996  4.56% 94,844 1,027  4.30% 97,414 896  3.73% 88,299 1,041  4.68% 87,129 984  4.53% 91,631 953  4.13%
Long-term borrowings 93,080 1,212  5.28% 97,967 1,296  5.25% 216,329 2,656  4.98% 88,229 1,198  5.39% 90,343 1,211  5.38% 109,225 1,372  4.98%
                          
Total interest-bearing liabilities
 2,588,526 21,217  3.32% 2,584,903 21,672  3.33% 2,800,079 18,485  2.68% 2,627,358 22,767  3.44% 2,581,391 21,604  3.36% 2,693,754 21,501  3.17%
  
Noninterest-bearing liabilities and shareholders’ equity
  
Noninterest-bearing demand 401,698 418,009 417,061  385,653 405,179 401,685 
Other liabilities 22,669 30,156 29,694  20,606 22,832 32,069 
Shareholders’ equity 286,453 299,320 298,578  276,183 282,354 298,909 
              
Total liabilities and shareholders’ equity
 $3,299,346 $3,332,388 $3,545,412  $3,309,800 $3,291,756 $3,426,417 
              
  
Net interest income
 $30,403 $30,104 $32,199  $29,417 $29,601 $30,823 
              
  
Net interest spread
  3.68%  3.47%  3.67%  3.44%  3.51%  3.51%
 
Contribution of noninterest-bearing sources of funds 0.44% 0.48% 0.37%  0.44%  0.46%  0.42%
       
          
Net interest margin(2)
  4.12%  3.95%  4.04%  3.88%  3.97%  3.93%
              
 
(1) Nonaccrual loans and loans held for sale are included in average balances for each applicable loan category.
 
(2) Because noninterest-bearing funding sources, demand deposits, other liabilities, and shareholders’ equity also support earning assets, the net interest margin exceeds the interest spread.

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RATE/VOLUME ANALYSIS
The impact of changes in the volume of interest-earning assets and interest-bearing liabilities and interest rates on net interest income is illustrated in the following table. As shown, the increasetables (dollars in market interest rates had a significant effect on First Financial’s rates, impacting both interest income and interest expense for the quarter ended March 31, 2007, in comparison to the quarter-ended March 31, 2006. First Financial’s adjustable and variable rate loans repriced upward more quickly than the 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.$000’s).
                        
                         Changes for the Three Months Ended Sep. 30 
 Linked Qtr. Income Variance Comparable Qtr. Income Variance  Linked Qtr. Income Variance Comparable Qtr. Income Variance 
 Rate Volume Total Rate Volume Total  Rate Volume Total Rate Volume Total 
Earning assets  
Investment securities $191 ($301)($110) $255 ($1,700)($1,445) $(8) $(135) $(143) $70 $(264) $(194)
Federal funds sold 3  (141)  (138) 264  (90) 174   (48)  (145)  (193)  (76)  (992)  (1,068)
Gross loans (1)
 1,225  (1,133) 92 4,134  (1,927) 2,207   (9) 1,324 1,315 1,189  (67) 1,122 
                          
Total earning assets 1,419  (1,575)  (156) 4,653  (3,717) 936   (65) 1,044 979 1,183  (1,323)  (140)
Interest-bearing liabilities  
Total interest-bearing deposits($37)($303)($340) $4,703 ($627) $4,076  $507 $612 $1,119 $1,704 $(352) $1,352 
Borrowed funds  
Short-term borrowings 64  (95)  (31) 200  (100) 100  32 25 57 127  (39) 88 
Federal Home Loan Bank long-term debt 7  (57)  (50)  (390)  (1,109)  (1,499)  (2)  (8)  (10) 34  (188)  (154)
Other long-term debt  (19)  (15)  (34) 55 0 55  2  (5)  (3)  (8)  (12)  (20)
                          
Total borrowed funds 52  (167)  (115)  (135)  (1,209)  (1,344) 32 12 44 153  (239)  (86)
                          
Total interest-bearing liabilities 15  (470)  (455) 4,568  (1,836) 2,732  539 624 1,163 1,857  (591) 1,266 
                          
Net interest income (2)
 $1,404 ($1,105) $299 $85 ($1,881)($1,796) $(604) $420 $(184) $(674) $(732) $(1,406)
                          
             
  Changes for the 
  Nine Months Ended Sep. 30 
  Year-to-Date Income Variance 
  Rate  Volume  Total 
Earning assets            
Investment securities $327  $(2,148) $(1,821)
Federal funds sold  327   (1,480)  (1,153)
Gross loans (1)
  7,713   (3,479)  4,234 
          
Total earning assets  8,367   (7,107)  1,260 
Interest-bearing liabilities            
Total interest-bearing deposits $9,859  $(1,576) $8,283 
Borrowed funds            
Short-term borrowings  445   (165)  280 
Federal Home Loan Bank long-term debt  (312)  (1,508)  (1,820)
Other long-term debt  77   (12)  65 
          
Total borrowed funds  210   (1,685)  (1,475)
          
Total interest-bearing liabilities  10,069   (3,261)  6,808 
          
Net interest income(2)
 $(1,702) $(3,846) $(5,548)
          
 
(1) Loans held for sale and nonaccrual loans are both included in gross loans.
 
(2) Not tax equivalent.
NONINTEREST INCOME
FirstThird quarter of 2007 noninterest income was $14,744, an increase$14.5 million, a decrease of $1,773$13.8 million or 13.67%48.9% from the firstthird quarter of 2006. Included in2006, primarily due to the firstfollowing:
gain on the sale of investment securities of $0.4 million in the third quarter of 2007
increased trust and wealth management fees and bankcard income totaling $1.2 million in the third quarter of 2007, offset by lower service charge income on deposit accounts of $0.3 primarily as a result of the third quarter of 2006 branch sales
gain on the sale of branches of $12.5 million and gain on the sale of problem loans of $2.2 million in the third quarter of 2006

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On a linked-quarter basis, total noninterest income increased $0.3 million, or 9.0% on an annualized basis, primarily due to the third quarter of 2007 gain on the sale of investment securities of $0.4 million.
Year-to-date noninterest income was $43.3 million in 2007 compared to $55.1 million in 2006, an $11.8 million or 21.3% decrease. This decrease is primarily due to the gains on the sales of branches and problem loans in the third quarter of 2006 and lower service charge income on deposit accounts primarily as a $1,061result of the previously mentioned sale of branches. These decreases were partially offset by the gain on the sale of residential mortgage servicing rights andin the first quarter of 2006 included a $476 loss on the sale of investment securities. Excluding the impact of these items, noninterest2007 and related lower amortization expense, higher year-to-date 2007 trust and wealth management fees, bankcard income, increased $236 or 1.76% primarily due to higherand earnings offrom bank-owned life insurance investments, offset by lower service charge income on deposit accounts primarily dueinsurance.
NONINTEREST EXPENSE
Noninterest expense has improved significantly as a direct result of the successful execution of the Strategic Plan. This resulted in a reduction in noninterest expense of $8.5 million or 22.8% during the third quarter of 2007 as compared to the third quarter of 2006 banking center sales.
On a linked-quarter basis, total noninterest income increased $1,840 or 14.26%. Excluding the $1,061 gain on the sale of residential mortgage servicing rights discussed previously, noninterest income increased $779 or 6.04% primarily due to higher earnings from bank-owned life insurance investments, offset by the seasonal decline in service charge income on deposit accounts.
NONINTEREST EXPENSE
Total noninterest expense decreased $7,667 or 19.72% for the first quarter of 2007 compared to the first quarter of 2006. Excluding the effects of the first quarter of 2007 severance of $933 primarily associated with First Financial’s previously announced plans to outsource the origination, technology, and servicing aspects of its mortgage product and the first quarter of 2006 severance of $155, losses on properties of $354, and debt extinguishment expense of $4,295 incurred due to the balance sheet restructure, noninterest expense decreased $3,796 or 11.14%. This remaining decrease is due to lower salaries and benefits, primarily due to the $1,013 reduction in pension and other retirement-related expenses as a result of a more favorable funded status of the pension plan and a $734 reduction in salaries and incentive-based compensation resulting from reduced staffing levels. Decreases in data processing costs of $1,099 were primarily due to the impact of First Financial’s prior year technology upgrade in which the company moved from an out-sourced to an in-house data processing environment. Professional services decreased $584 primarily due to

15


higher first quarter of 2006 professional services, as well as legal expenses incurred in conjunction with the corporate reorganization.
On a linked-quarter basis, noninterest expense declined $6,559 or 17.37% compared to the fourth quarter of 2006. Noninterest expense was significantly impacted during the fourth quarter of 2006 by the transition costs associated the First Financial’s execution of its Strategic Plan. The first quarter of 2007 was less affected by similar transition costs. The fourth quarter of 2006 was impacted by the following transition costs:following:
  Charges fordecreases in salaries and employee benefits of $2.7 million primarily due to the defined benefit$1.1 million reduction in salaries and other performance and incentive-based compensation, $0.4 million reduction in pension plan associated with staff reductionsand other retirement-related expenses, $0.3 million reduction in health care costs as a result of $2,969, as well aslower staffing levels, and $0.2 million reduction in severance charges of $798costs
 
  Technology consulting anddecreases in data processing of $2.0 million primarily due to $0.5 million in early termination fees associated withon technology contracts incurred in the third quarter of 2006 and the positive impact of First Financial’s 2006 technology upgrade of $1,476in which the company moved from an out-sourced to an in-house data processing environment
 
  Fixed asset signage lossesdecreases in marketing of $0.7 million primarily due to the costs associated with the brandbranding initiative in the prior year
decreases in professional services of $835$1.4 million primarily due to 2006 costs associated with the branding initiative, branch staffing, and recruiting fees, combined with an overall reduction in outside consulting usage
decreases in other noninterest expense of $1.8 million primarily due to the third quarter of 2007 net gain on the disposal of former bank properties and other fixed assets, as well as prior year losses on the disposal of fixed assets associated with closed branches and the technology upgrade
On a linked-quarter basis, noninterest expense was $0.7 million or an annualized 9.7% less than the second quarter of 2007. The firstdecrease in noninterest expense was primarily due to the third quarter of 2007 was impacted bynet gain on the previously mentioned severance chargesdisposal of $933, as well as decreases in pensionformer bank properties and other fixed assets.
Year-to-date noninterest expense was $89.4 million in 2007 compared to $114.7 million in 2006, a $25.3 million or 22.1% decrease, primarily due to the following:
decreases in salaries and employee benefits of $9.9 million primarily due to the $4.9 million reduction in salaries and other performance and incentive-based compensation as a result of an overall reduction in staffing levels, $2.3 million reduction in pension and other retirement-related expenses, $1.9 million reduction in severance costs, and $1.2 million reduction in health care costs
decreases in data processing of $5.7 million primarily due to the $1.6 million reduction in technology contract early termination fees, as well as the decreases due to the efficiencies gained from First Financial’s 2006 technology upgrade in which the company moved from an out-sourced to an in-house data processing environment
decreases in professional services of $2.7 million primarily due to 2006 costs associated with the corporate reorganization, branding initiative, branch staffing, and recruiting fees, combined with an overall reduction in outside consulting usage

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INCOME TAXES
Income tax expense was $4.2 million and $6.9 million for the three months ended September 30, 2007, and 2006, respectively, with tax expense related to securities transactions of $504$0.1 million for the three months ended September 30, 2007. The higher level of income tax expense in the third quarter of 2006 was primarily a result of the third quarter of 2006 gain on the sale of branches and loans, combined with the third quarter of 2006 recognition of a $1.0 million tax expense as a result of a more favorable funded statusan Internal Revenue Service audit of the pension plan, increased salary and incentive-based compensation of $991, decreases in data processing and communication expenses of $1,068 primarily resulting from the impact of First Financial’stwo prior year technology upgrade,tax returns. The effective tax rates for the third quarter of 2007, and decreases in various other miscellaneous expenses of $621 in the areas of training, marketing,2006, were 33.5% and other expenses, none of which are individually significant.
INCOME TAXES36.3%, respectively.
Income tax expense was $12.4 million and $10.9 million for the nine months ended September 30, 2007, and 2006, respectively, with tax expense related to operating incomesecurities transactions of $0.1 million for the first threenine months ofended September 30, 2007, was $4,146 versus $1,574 in 2006, withand a tax benefit related to securities transactions of $0 and $175$0.2 million for the threenine months ended March 31, 2007 and 2006, respectively.
First Financial’s overallSeptember 30, 2006. The effective tax rates for the first threenine months ofended September 30, 2007, and 2006, were 32.95%33.1% and 28.41%34.7%, respectively. The 2007 increase
ASSETS
First Financial has continued to expand its commercial lending sales force and market presence over the past year, which is reflected in the effective rate is primarily dueplanned loan mix shift to decreased tax-exempt municipal income.
ASSETS
The overall decrease inhigher yielding commercial loans. Period-end commercial, commercial real estate, and construction loans, excluding the loan portfolio from 2006 is primarily due toeffects of the impact of several strategic decisions and sale transactions. In the third quarter of 2005, management made the strategic decision to exit the indirect installment loan business resulting in approximately $164,000 in runoff since this decision was made, with first quarter of 2007 runoff of approximately $14,000. Additionally, during 2005 First Financial made the decision to sell most of its mortgage loan production into the secondary market rather than retain the loans in its portfolio. Approximately $102,000 has run off since this decision was made, with first quarter of 2007 runoff of approximately $24,000. This strategy will continue with First Financial’s recently announced plans to outsource the origination, technology, and servicing aspects of its mortgage product.
Since the third quarter of 2005, as a result of First Financial’s decision to improve the Company’s asset mix and lower its risk profile, approximately $260,000 of loans have been sold through various strategic transactions. Included in this amount was approximately $101,000 of loans soldsale, increased from $1.38 billion in the third quarter of 2006 banking center sales and a combined total of approximately $53,000 of problem loans soldto $1.61 billion in the third quarter of 2007, an increase of $236.3 million or 17.1%, as summarized below (dollars in $000’s):
                     
              Annualized  % Change 
  Sep. 30,  June 30,  Sep. 30,  % Change  Comparable 
  2007  2007  2006  Linked Qtr.  Qtr. 
Period-end balances:                    
Commercial $774,059  $747,292  $663,522   14.3%  16.7%
Real estate — commercial  684,931   676,679   625,535   4.9%  9.5%
Real estate — construction  155,495   125,732   92,434   94.7%  68.2%
Strategic loan sale impact        (3,277)      
                
Total $1,614,485  $1,549,703  $1,378,214   16.7%  17.1%
                
During late 2005 and early 2006, management made a number of decisions to realign its balance sheet and change its lending focus. These decisions included exiting indirect installment lending, no longer holding its residential real estate loan originations on the first quarterbalance sheet, and utilizing the sale of 2007. Management estimatesloans to strategically manage the company’s asset mix, risk profile, and credit quality. This has resulted in the cumulative effect of these sales and exit strategies to be approximately $526,000.reduction in loan balances as follows (dollars in $000’s):
     
Indirect installment loan runoff $187,597 
Residential real estate loan runoff  157,381 
Strategic loan sales  260,423 
    
Total $605,401 
    
Average loans for the firstthird quarter of 2007 decreased $113,296$27.3 million or 4.36% from the comparable period a year ago. Total period-end loans for the first quarter of 2007 decreased $110,762 or 4.24%1.1% from the comparable period a year ago. Period-end commercial, commercial real estate, and construction loans, excluding the effectseffect of the banking center and loan sales, increased from $1,271,462 in the first quarter of 2006 to $1,464,334 in the first quarter of 2007 an increaseloan sale, increased $236.3 million or 17.1% from the third quarter of $192,8722006.
Average total loans for the third quarter of 2007 increased $43.6 million or 15.17%.
On a linked-quarter basis, average outstanding loan balances decreased $13,834 or 2.22%6.9% on an annualized basis. However,basis from the second quarter of 2007; and average commercial, commercial real estate, and construction loans increased $39,031$76.9 million or 11.28%20.4% on an annualized basis from the fourthsecond quarter of 2006. On a linked-quarter basis, total period-end loans for the first quarter of 2007 increased $21,899 or 3.52% on an annualized basis.2007. Period-end commercial, commercial real estate, and construction loans increased approximately $64.8 million or 16.7% on an annualized basis from $1,398,736 in the fourthsecond quarter of 2007.

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quarter of 2006 to $1,464,334Year-to-date 2007 average total loans decreased $56.1 million or 2.2% from the comparable period in the first quarter of 2007, an increase of $65,598 or 18.76% on an annualized basis.
During the first quarter of 2007, First Financial completed the previously announced sale of approximately $15,000 in2006; however, average commercial, commercial real estate, residential real estate, and related installmentconstruction loans that had been moved to “loans held for sale” withincreased $167.9 million or 12.5% from the related write-down of approximately $4,375 recognizedcomparable period in the fourth quarter of 2006. The completion of the sale did not have a material financial impact on the first quarter.
Securities available for saleavailable-for-sale were $325,755$307.9 million at March 31,September 30, 2007, compared to $324,259$329.2 million at December 31, 2006.September 30, 2006, and $313.6 million at June 30, 2007. The combined investment portfolio was 11.04%10.4% and 11.09%11.2% of total assets at March 31,September 30, 2007, and 2006, respectively, and 10.8% of total assets at June 30, 2007. At December 31, 2006, respectively.securities available-for-sale were $324.3 million, and the combined investment portfolio was 11.1% of total assets. At September 30, 2007, First Financial held approximately 45% of its available-for-sale securities in pass-through residential real estate instruments. Among other factors, several of the portfolio criteria have been to avoid securities backed by sub-prime assets and also those containing assets that would give rise to material geographic concentrations.
DEPOSITS
InOver the past year, total average deposit balances have remained relatively stable, over the past year, excluding the banking centerbranch and related deposit sale. Competitionsale which occurred in the third quarter of 2006. Deposit growth remains difficult as the consumer’s preference for low costhigher-yielding money market accounts and time deposits, remains intense,rather than more traditional transaction accounts, continues to result in significant shifts in deposit mix. During the third quarter of 2007, First Financial formed the Market Services Group which is staffed by associates with experience in increasing sales and growing client relationships, product development, and branch efficiency. To date, First Financial’s growth has occurred in the money market savings, time, and public funds deposit categories. First Financial continues to expand its product offerings primarilyand increase its sales efforts, particularly in markets that it believes provide the interest-bearing checking and savings account categories, to address runoff and balance migration in the most cost efficient manner. Time deposits have remained relatively flat with most comparative fluctuations related to non-retail activity such as public funds.best growth opportunities.
Average deposit balancesdeposits for the firstthird quarter of 2007 decreased $94,786$58.1 million or 3.26%2.0% from the comparable period a year ago. The decrease was primarily a result of the previously mentioned sale of banking centersbranches in the third quarter of 2006 which included approximately $108,600$61.6 million of actualaverage deposit balances.
On a linked-quarter basis, averageAverage deposits decreased $1,490for the third quarter of 2007 increased $27.4 million or 0.21%3.9% on an annualized basis.basis from the second quarter of 2007. Average total interest-bearing deposits increased $14,821$46.9 million or 2.48%7.8% primarily due to the fluctuation of a large public funds account; and average noninterest-bearing deposits decreased $16,311$19.5 million or 15.61%19.3%, both on an annualized basis from the fourthsecond quarter of 2007.
Year-to-date 2007 average total deposits decreased $81.5 million or 2.8% from the comparable period in 2006. The linked-quarter increaseExcluding the $97.8 million of average deposit balances sold as a result of the previously mentioned sale of branches in timethe third quarter of 2006, year-to-date 2007 average deposits is primarily due toincreased $16.3 million from the fluctuationcomparable period in a large public funds relationship.2006.
ALLOWANCE FOR LOAN AND LEASE LOSSES
Management maintains the allowance at a level that is consideredit considers sufficient to absorb inherent risks in the loan portfolio. Management’s evaluation in establishingdetermination of the adequacy of the allowance includes the evaluation of a number of factors including the loan and lease portfolios, past loan and lease 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 including the recent turmoil in the credit markets, a deterioration in asset values, and other pertinent factors, such astightened liquidity in the secondary market, and periodic internal and external evaluations of delinquent, nonaccrual, and classified loans. The evaluation is inherently subjective as it requires utilizing material estimates, including the amounts and timing of future cash flows expected to be received on impaired loans.loans and the estimated value of underlying collateral. The evaluation of these factors is the responsibility of the Allowance for Loan and Lease Losses Committee, which is comprised of senior officers from the risk management, credit administration, finance, and lending areas.

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In the second quarter of 2005, First Financial made the strategic decision to discontinue the origination of residential real estate loans for retention on its balance sheet. As a result, the residential real estate portfolio has declined $157.4 million, excluding the impact of the loan sales, since that time. Earlier in 2007, First Financial sold the servicing of its remaining residential real estate portfolio and established an agreement to sell future originations to a strategic partner. Prior to this decision, First Financial was not a sub-prime lender, and the company does not originate sub-prime residential real estate loans in the current originate-and-sell model.
At September 30, 2007, the commercial real estate and real estate construction loan portfolio totaled $840.4 million, or 32.4% of total loans, including $94.0 million, or 3.6% of total loans, for commercial real estate construction and $51.6 million, or 2.0% of total loans, for residential construction and land acquisition and development. First Financial’s internal lending policies are key to limiting credit exposure from both the residential construction and land acquisition and development segments in any particular project. Most of the residential construction and land acquisition and development loans are in areas of relatively strong housing demand or with borrowers who have undergone an extensive underwriting process.
First Financial continuously evaluates the commercial real estate and real estate construction portfolio for geographic and borrower concentrations, as well as loan-to-value coverage, and believes its credit underwriting processes are producing a prudent and acceptable level of credit exposure.
The provision for loan and lease losses for the firstthird quarter of 2007 was $1,356$2.6 million compared to $752$2.9 million for the same period in 2006 and $5,822$2.1 million for the fourth quarter oflinked-quarter. Year-to-date provision for loan and lease losses was $6.0 million for 2007 and $4.0 million for 2006. FirstThe increase in provision expense from 2006 is primarily due to loan growth in the commercial, commercial real estate, and construction loan categories.
Third quarter of 2007 net charge-offs were $1,335,$1.5 million, an annualized 0.22%23 basis points of average loans, compared to net charge-offs of $2,581, an annualized 0.40% of average loans, in the first quarter of 2006. Fourththird quarter of 2006 net charge-offs were $10,324 including the $4,375 impact from the transfer of approximately $15,000 of loans to loans held for sale,$1.1 million, an annualized 1.64%17 basis points of average loans. Excluding the impact of the loan sale write-down, fourth quarter of 2006 net charge-offs were $5,949 or an annualized 0.95% of average loans. ThisThe lower level of net charge-offs in the firstthird quarter of 2006 was primarily due to higher commercial and installment loan recoveries of previously charged-off loans.
Third quarter of 2007 is primarily duenet charge-offs were $1.5 million, an annualized 23 basis points of average loans, compared to lower commercial and commercial real estate loansecond quarter of 2007 net charge-offs of $1.4 million, also an annualized 23 basis points of average loans.
Year-to-date 2007 net charge-offs were $4.3 million, an annualized 23 basis points of average loans, compared to year-to-date 2006 net charge-offs of $6.2 million, an annualized 32 basis points of average loans, excluding the impact of the fourthsecond quarter of 2006 loan sale write-down.impact from the transfer of $38.1 million of loans to loans held for sale.
TheFirst Financial’s allowance to ending loans ratio as of March 31,September 30, 2007, was 1.10%1.12% versus 1.56%1.27% for the same quarter a year ago and 1.10% as of June 30, 2007, and December 31, 2006. It is management’s belief that the allowance for loan and lease losses of $27,407$29.1 million is adequate to absorb probable credit losses inherent in the portfolio, and the changes in the allowance and the resultant provision are consistent with the internal assessment of the risk in the loan portfolios. First Financial does not have a concentration of credit in any particular industry. The table that follows indicates the activity in the allowance for loan and lease losses for the quarters presented.quarterly and year-to-date periods presented (dollars in $000’s).

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                     Three Months Ended Nine Months Ended
 Quarter Ended  2007 2006 Sep. 30,
 2007 2006  Sep. 30 June 30 Mar. 30 Dec. 31 Sep. 30 2007 2006
 Mar. 31 Dec. 31 Sep. 30 Jun. 30 Mar. 31       
ALLOWANCE FOR LOAN AND LEASE LOSS ACTIVITYALLOWANCE FOR LOAN AND LEASE LOSS ACTIVITY ALLOWANCE FOR LOAN AND LEASE LOSS ACTIVITY
Balance at beginning of period $27,386 $31,888 $30,085 $40,656 $42,485  $28,060 $27,407 $27,386 $31,888 $30,085 $27,386 $42,485 
Provision for loan losses 1,356 5,822 2,888 360 752  2,558 2,098 1,356 5,822 2,888 6,012 4,000 
Gross charge-offs  
Commercial 746 5,675 1,238 3,521 1,516  1,008 920 746 5,675 1,238 2,674 6,275 
Commercial real estate 146 1,099 119 5,818 276 
Retail real estate 116 2,729 111 1,910 202 
Real estate — commercial 76 176 146 1,099 119 398 6,213 
Real estate — residential 49 57 116 2,729 111 222 2,223 
Installment 741 776 391 562 891  471 604 741 776 391 1,816 1,844 
Home equity 139 331 78 11 209  189 149 139 331 78 477 298 
All other 265 306 220 189 171  304 224 265 306 220 793 580 
                 
Total gross charge-offs (1)
 2,153 10,916 2,157 12,011 3,265  2,097 2,130 2,153 10,916 2,157 6,380 17,433 
Recoveries  
Commercial 269 206 458 476 188  145 246 269 206 458 660 1,122 
Commercial real estate 58 20 129 57 50 
Retail real estate 18 4 130 78 10 
Real estate — commercial 124 48 58 20 129 230 236 
Real estate — residential 25 10 18 4 130 53 218 
Installment 346 292 315 425 350  263 288 346 292 315 897 1,090 
Home equity 76 1 0 0 0  12 25 76 1 0 113 0 
All other 51 69 40 44 86  46 68 51 69 40 165 170 
                 
Total recoveries 818 592 1,072 1,080 684  615 685 818 592 1,072 2,118 2,836 
                 
Total net charge-offs 1,335 10,324 1,085 10,931 2,581  1,482 1,445 1,335 10,324 1,085 4,262 14,597 
                 
Ending allowance for loan losses $27,407 $27,386 $31,888 $30,085 $40,656  $29,136 $28,060 $27,407 $27,386 $31,888 $29,136 $31,888 
                 
  
NET CHARGE-OFFS TO AVERAGE LOANS AND LEASES (ANNUALIZED) (1)NET CHARGE-OFFS TO AVERAGE LOANS AND LEASES (ANNUALIZED) (1) NET CHARGE-OFFS TO AVERAGE LOANS AND LEASES (ANNUALIZED)(1)
Commercial  0.28%  3.27%  0.48%  1.95%  0.93%  0.45%  0.37%  0.28%  3.27%  0.48%  0.37%  1.12%
Commercial real estate  0.06%  0.69%  (0.01%)  3.55%  0.14%
Retail real estate  0.06%  1.66%  (0.01%)  0.99%  0.10%
Real estate — commercial  (0.03%)  0.08%  0.06%  0.69%  (0.01%)  0.03%  1.26%
Real estate — residential  0.02%  0.03%  0.06%  1.66%  (0.01%)  0.04%  0.36%
Installment  0.85%  0.92%  0.13%  0.21%  0.76%  0.53%  0.74%  0.85%  0.92%  0.13%  0.72%  0.39%
Home equity  0.11%  0.57%  0.13%  0.02%  0.39%  0.29%  0.21%  0.11%  0.57%  0.13%  0.21%  0.18%
All other  0.70%  0.78%  0.60%  0.54%  0.31%  0.62%  0.44%  0.70%  0.78%  0.60%  0.58%  0.49%
                 
Total net charge-offs (1)
  0.22%  1.64%  0.17%  1.68%  0.40%  0.23%  0.23%  0.22%  1.64%  0.17%  0.23%  0.75%
                 
 
(1) December 31, 2006, and June 30, 2006, charge-offs include $4,375 and $8,356, respectively, in loans held for sale write-downs to the lower of cost or estimated fair market value.
NONPERFORMING/UNDERPERFORMING ASSETS
Total underperforming assets, which includesinclude nonaccrual loans, restructured loans, other real estate owned, and loans 90 days or more past due and still accruing, of $17.1 million decreased $19,804 to $14,106$5.8 million from $22.9 million at the end of the firstthird quarter of 2007 from $33,910 at the end of the first quarter of 2006. The decrease in underperforming assets is2006 primarily due to a decrease inlower level of commercial, residential real estate, and installment loans nonaccrual loans of $16,073 primarily attributable to the impact of the problem loan sale transactions involving assets with significant credit deterioration and improved credit management processes.loans. A large percentage of the underperforming loansassets are secured by real estate and this collateral has been appropriately considered in establishingevaluating the adequacy of the allowance for loan and lease losseslosses. The ratio of nonperforming assets to ending loans decreased from 88 basis points at March 31,the end of the third quarter of 2006 to 65 basis points at the end of the third quarter of 2007.
Total underperforming assets remained relatively flat at $17.1 million at the end of the third quarter of 2007 compared to $17.2 million at the end of the second quarter of 2007. The ratio of nonperforming assets to ending loans decreased from 1.25%67 basis points at the end of the firstsecond quarter of 20062007 to 0.56%65 basis points at the end of the firstthird quarter of 2007.
On a linked-quarter basis, total underperforming assets increased $755 of which nonaccrual loans increased $529 primarily due to one commercial real estate relationship. The ratio of nonperforming assets to ending loans increased from 0.53% at the end of the fourth quarter of 2006 to 0.56% at the end of the first quarter of 2007.

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Accruing loans, including loans impaired under FASB Statement No. 114,loans, are transferred to nonaccrual status when, in the opinion of management, the collection of principal or interest is doubtful. This generally occurs when a loan becomes 90 days past due as to principal or interest unless the loan is both well secured and in the process of collection.

20


At March 31, 2007, and 2006, the recorded investment in loans that are considered to be impaired under FASB Statement No. 114 was $2,911 and $2,979, respectively. The related allowance for loan losses on these impaired loans was $1,219 at March 31, 2007, and $1,184 at March 31, 2006. At March 31, 2007, and 2006, 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, 2007, and 2006, was approximately $3,894 and $3,024. For the quarter ended March 31, 2007, First Financial recognized interest income on those impaired loans of $21 compared to $38 for the same period in 2006. First Financial recognizes income on impaired loans using the cash basis method.
The table that follows shows the categories that are included in nonperforming and underperforming assets as of March 31,September 30, 2007, and the four previous quarters, as well as related credit quality ratios.ratios (dollars in $000’s).
                                        
 Quarter Ended  Three Months Ended 
 2007 2006  2007 2006 
 Mar. 31 Dec. 31 Sep. 30 Jun. 30 Mar. 31  Sep. 30 June 30 Mar. 30 Dec. 31 Sep. 30 
Nonaccrual loans  
Commercial $2,529 $2,610 $8,056 $4,301 $6,325  $3,782 $6,812 $2,529 $2,610 $8,056 
Commercial real estate 4,947 4,102 4,487 3,107 9,605 
Retail real estate 1,311 1,482 3,604 2,362 8,110 
Real estate — commercial 5,343 4,140 4,947 4,102 4,487 
Real estate — residential 2,147 1,694 1,311 1,482 3,604 
Installment 920 1,328 1,619 1,529 1,789  745 681 920 1,328 1,619 
Home equity 1,038 698 854 831 747  1,117 1,048 1,038 698 854 
All other 20 16 72 72 262  8 21 20 16 72 
                      
Total nonaccrual loans 10,765 10,236 18,692 12,202 26,838  13,142 14,396 10,765 10,236 18,692 
Restructured loans 588 596 603 610 3,293  574 581 588 596 603 
                      
Total nonperforming loans 11,353 10,832 19,295 12,812 30,131  13,716 14,977 11,353 10,832 19,295 
Other real estate owned (OREO) 2,672 2,334 2,859 2,277 2,675  3,124 2,023 2,672 2,334 2,859 
                      
Total nonperforming assets 14,025 13,166 22,154 15,089 32,806  16,840 17,000 14,025 13,166 22,154 
 
Accruing loans past due 90 days or more 81 185 788 758 1,104  222 165 81 185 788 
                      
Total underperforming assets $14,106 $13,351 $22,942 $15,847 $33,910  $17,062 $17,165 $14,106 $13,351 $22,942 
                      
  
Allowance for loan and lease losses to  
Nonaccrual loans  254.59%  267.55%  170.60%  246.56%  151.49%  221.70%  194.92%  254.59%  267.55%  170.60%
Nonperforming assets  195.42%  208.01%  143.94%  199.38%  123.93%
Nonperforming loans  212.42%  187.35%  241.41%  252.82%  165.27%
Total ending loans  1.10%  1.10%  1.27%  1.15%  1.56%  1.12%  1.10%  1.10%  1.10%  1.27%
Nonaccrual loans to total loans  0.43%  0.41%  0.74%  0.47%  1.03%
Nonperforming assets to 
Ending loans, plus OREO  0.56%  0.53%  0.88%  0.58%  1.25%
Total assets, plus OREO  0.42%  0.40%  0.67%  0.44%  0.94%
Nonperforming loans to total loans  0.53%  0.59%  0.45%  0.44%  0.77%
Nonperforming assets to Ending loans, plus OREO  0.65%  0.67%  0.56%  0.53%  0.88%
Total assets  0.51%  0.52%  0.42%  0.40%  0.67%
LIQUIDITY AND CAPITAL RESOURCES
Liquidity management is the process by which First Financial manages the continuing flow of funds necessary to meet its financial commitments on a timely basis and at a reasonable cost. These funding commitments include withdrawals by depositors, credit commitments to borrowers, shareholder dividends, expenses of its operations, and capital expenditures. Liquidity is monitored and closely managed by First Financial’s Asset and Liability Committee (ALCO), a group of senior officers from the lending, deposit gathering, finance, risk management, and treasury areas. ALCO’s primarily responsibilities are to ensure the necessary level of funds are available for normal operations as well as maintain a contingency funding policy to ensure that liquidity stress events are quickly identified, and management plans are in place to respond. This is accomplished through the use of policies which establish limits and require measurements to monitor liquidity trends, including management reporting that identifies the amounts and costs of all available funding sources.

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Liquidity is derived primarily from deposit growth, principal and interest payments on loans and investment securities, maturing loans and investment securities, access to wholesale funding sources, and collateralized borrowings. First Financial’s most stable source of liability-funded liquidity for both theits long and short-term needs is deposit growth and retention of the core deposit base. The deposit base is diversified among individuals, partnerships, corporations, public entities, and geographic markets. This diversification helps First Financial avoidminimize dependence on large concentrations of funding sources.
Capital expenditures, such as banking center expansions and technology investments, were $1,528$4,378 and $2,500$12,534 for the first threenine months of 2007 and 2006, respectively. In addition, remodeling is a planned and ongoing process given the 83 offices of First Financial and its subsidiaries. Material commitments for capital expenditures as of March 31,September 30, 2007, were approximately $2,255.$4.4 million. Management believes that First Financial has sufficient liquidity to fund its future capital expenditure commitments.

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The principal source of asset-funded liquidity is marketable investment securities, particularly those of shorter maturities. The market value of investment securities classified as available-for-sale totaled $325,755$307.9 million at March 31,September 30, 2007. Securities classified as held-to-maturity that are maturing within a short period of time are also a source of liquidity. Securities classified as held-to-maturity that are maturing in one year or less totaled $2,878$0.5 million at March 31,September 30, 2007. 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. Overnight federal funds sold totaled $159,200$71.7 million at March 31,September 30, 2007.
Certain restrictions exist regarding the ability of First Financial’s subsidiaries to transfer funds to First Financial in the form of cash dividends, loans, or advances. The approval of the subsidiaries’ respective primary federal regulators is required for First Financial’s subsidiaries to pay dividends in excess of regulatory limitations. As of March 31,September 30, 2007, the subsidiary bank’s dividend capacity to First Financial was $1,023$1.2 million, plus the subsidiary bank’s earnings for the remainder of 2007, without prior regulatory approval. Management is not aware of any other events or regulatory requirements that, if implemented, are likely to have a material effect on First Financial’s liquidity.
First Financial Bancorp maintains a $75,000 short-term revolving credit facility with an unaffiliated bank. This facility provides First Financial additional liquidity for First Financial for various corporate activities, including the repurchase of First Financial shares and the payment of dividends to shareholders. As of March 31,September 30, 2007, the outstanding balance was $52,246$74.5 million compared to an outstanding balance of $47,000$39.0 million at March 31,September 30, 2006, and $39,500$39.5 million at December 31, 2006. The outstanding balance of this line varies throughout the year depending on First Financial’s cash needs. First Financial entered into the currentcredit facility for $75.0 million during the first quarter of 2007 for a period of one year, and in the third quarter of 2007 increased the line to $85.0 million until February 1, 2008, at which time it will be reduced back to $75.0 million. The credit agreement requires First Financial to maintain certain covenants including covenantsthose related to asset quality and capital levels. The CorporationFirst Financial was in full compliance with all material covenants as of March 31,September 30, 2007.
First Financial Bancorp makesmade quarterly interest payments on its junior subordinated debentures owed to two unconsolidated subsidiary trusts with year-to-date interest expense totaling $653$2.0 million and $598$1.9 million for the quartersnine months ending March 31,September 30, 2007, and 2006, respectively.respectively and quarter-to-date interest expense for those same periods of $0.7 million. In September 2007, First Financial redeemed all the underlying capital securities relating to First Financial (OH) Statutory Trust I. The total outstanding capital securities redeemed were $10 million. Therefore, there will be no future interest payments on that debenture. The $20 million of debentures issued in 2003 remain outstanding.
As part of its capital management efforts, First Financial repurchased 1,469,700 common shares in the third quarter of 2007 at a cost of $19.1 million and a weighted average share repurchase price of $13.00. As of September 30, 2007, First Financial had repurchased 1,965,700 shares at a cost of $26.8 million and a weighted average share repurchase price of $13.65. Subsequent to quarter-end, First Financial reached its targeted repurchase level for 2007 of 2,000,000 shares. First Financial has repurchase capacity from a previously approved plan. Subject to market conditions and the terms of the plan, as well as its internal capital planning and its current and forecasted liquidity levels, First Financial may repurchase additional shares in the fourth quarter of 2007 in excess of its targeted levels.
CAPITAL ADEQUACY
First Financial and its subsidiary, First Financial Bank, are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations involve quantitative measures of assets, liabilities, and certain off-balance sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet minimum capital requirements can initiate regulatory action.
Quantitative measures established by regulation to ensure capital adequacy require First Financial to maintain minimum amounts and ratios (set forth in the following table) of Total and Tier 1 capital (as defined by the regulations) to risk-weighted assets and of Tier 1 capital to average assets. Management believes, as of March 31,September 30, 2007, that First Financial met all capital adequacy requirements to which it

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was subject. At March 31,September 30, 2007, and December 31, 2006, the most recent regulatory notifications categorized First Financial as well-capitalized under the regulatory framework for prompt corrective action.
To be categorized as well-capitalized, First Financial must maintain minimum Total risk-based, Tier 1 risk-based, and Tier 1 leverage

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ratios as set forth in the table. There have been no conditions or events since those notifications that management believes has changed the institution’s category.
First Financial’s Tier I capital is comprised of total shareholders’ equity plus junior subordinated debentures, less unrealized gains and losses and any amounts resulting from the application of SFAS No. 158 “Employers’ Accounting for Defined Benefit Pension and other Postretirement Plans,” that is recorded within accumulated other comprehensive income (loss), intangible assets, and any valuation related to mortgage servicing rights. Total risk-based capital consists of Tier I capital plus qualifying allowance for loan and lease losses and gross realized gains on equity securities.
For purposes of calculating the leverage ratio, average assets represents year-to-datequarterly average assets less assets not qualifying for Total risk-based capital including intangibles and non-qualifying mortgage servicing rights and allowance for loan and lease losses.
The following table illustrates the actual and required capital amounts and ratios as of March 31,September 30, 2007, and the year ended December 31, 2006.2006 (dollars in $000’s).
                                                
 To Be Well To Be Well
 Capitalized Under Capitalized Under
 For Capital Prompt Corrective For Capital Prompt Corrective
 Actual Adequacy Purposes Action Provisions Actual Adequacy Purposes Action Provisions
 Amount Ratio Amount Ratio Amount Ratio Amount Ratio Amount Ratio Amount Ratio
March 31, 2007
 
September 30, 2007
 
Total capital to risk-weighted assets  
Consolidated $325,550  12.64% $206,017  8.00% N/A  10.00% $299,097  11.27% $212,240  8.00% N/A  10.00%
First Financial Bank 339,743  13.37% 203,229  8.00% $254,037  10.00% 341,713  12.97% 210,773  8.00% $263,466  10.00%
  
Tier 1 capital to risk-weighted assets  
Consolidated 298,020  11.57% 103,009  4.00% N/A  6.00% 269,961  10.18% 106,120  4.00% N/A  6.00%
First Financial Bank 305,168  12.01% 101,615  4.00% 152,422  6.00% 305,439  11.59% 105,386  4.00% 158,080  6.00%
  
Tier 1 capital to average assets  
Consolidated 298,020  9.08% 130,796  4.00% N/A  5.00% 269,961  8.21% 131,228  4.00% N/A  5.00%
First Financial Bank 305,168  9.40% 129,433  4.00% 161,791  5.00% 305,439  9.40% 129,810  4.00% 162,263  5.00%
  
December 31, 2006
  
Total capital to risk-weighted assets  
Consolidated $326,779  12.81% $204,120  8.00% N/A  10.00% $326,779  12.81% $204,120  8.00% N/A  10.00%
First Financial Bank 330,128  13.14% 200,921  8.00% $251,151  10.00% 330,128  13.14% 200,921  8.00% $251,151  10.00%
  
Tier 1 capital to risk-weighted assets  
Consolidated 299,199  11.73% 102,060  4.00% N/A  6.00% 299,199  11.73% 102,060  4.00% N/A  6.00%
First Financial Bank 295,595  11.77% 100,460  4.00% 150,690  6.00% 295,595  11.77% 100,460  4.00% 150,690  6.00%
  
Tier 1 capital to average assets  
Consolidated 299,199  8.76% 136,120  4.00% N/A  5.00% 299,199  9.02% 132,109  4.00% N/A  5.00%
First Financial Bank 295,595  8.76% 134,457  4.00% 168,072  5.00% 295,595  9.02% 130,564  4.00% 163,205  5.00%
CRITICAL ACCOUNTING POLICIES
The accounting and financial 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

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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, goodwill, and goodwill.income taxes.
Allowance for loan and lease losses The level of the allowance for loan and lease losses (allowance) is

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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. Loans are charged off when management believes that full collectibilityultimate collectiblity of the loan is unlikely. Allocation of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management’s judgment, is deemed to be uncollectible. 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 adequacy of the allowance can result primarily from changes in economic events, changes in the creditworthiness of the borrowers, or changes in collateral values. The effect of these changes is reflected in the allowance when known. The level of allowance maintained is believed by management to be adequate to cover losses inherent in the portfolio. Though management believes the allowance for loan losses to be adequate, as of March 31, 2007, ultimate losses may vary from current estimates.
Pension First Financial sponsors a non-contributory defined benefit pension plan covering substantially all employees. 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 and other intangible assets Goodwill and intangible assets deemed to have indefinite lives, if any, are not amortized, but are subject to annual impairment tests. Core deposit intangibles are amortized on a straight-line basis over their useful lives. Core deposit intangibles are being amortized over varying periods, none of which exceeds 10 years.
Income taxes —The calculation of First Financial’s income tax provision is complex and requires the use of estimates and judgments in its determination. First Financial estimates income tax expense based on amounts expected to be owed to various tax jurisdictions. Accrued taxes represent the net estimated amount due or to be received from taxing jurisdictions either currently or in the future and are reported as a component of other assets or other liabilities in the Consolidated Balance Sheets. In estimating accrued taxes, First Financial assesses the appropriate tax treatment considering statutory, judicial, and regulatory guidance, including consideration of any reserve required for potential examination issues. Changes in the estimate of accrued taxes occur periodically due to changes in tax rates, interpretations of tax laws, the status of examinations being conducted by taxing authorities, and newly enacted statutory, judicial, and regulatory guidance. These changes, when they occur, affect accrued taxes and can be significant to the operating results of First Financial. The potential impact to First Financial’s operating results for any of the changes cannot be reasonably estimated. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. First Financial and its subsidiaries file a consolidated federal income tax return. Each subsidiary provides for income taxes on a separate return basis, and remits to First Financial amounts determined to be currently payable.
ACCOUNTING AND REGULATORY MATTERS
Note 72 to the Consolidated Financial Statements discusses new accounting standards adopted by First Financial during 2007 and the expected impact of accounting standards recently issued but not yet required to be adopted. To the extent the adoption of new accounting standards materially affects financial condition, results of operations, or liquidity, the impacts are discussed in the applicable section(s) the Management’s Discussion and Analysis and Notes to the Consolidated Financial Statements.

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FORWARD LOOKING INFORMATION
Certain statements contained in this report that are not statements of historical fact constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act (the Act). In addition, certain statements in future filings by First Financial with the Securities and Exchange Commission, in press releases, and in oral and written statements made by or with the approval of First Financial which are not statements of historical fact constitute forward-looking statements within the meaning of the Act. Examples of forward-looking statements include, but are not limited to, projections of revenues, income or loss, earnings or loss per share, the payment or non-payment of dividends, capital structure and other financial items, statements of plans and objectives of First Financial or its management or board of directors, and statements of future economic performances and statements of assumptions underlying such statements. Words such as “believes,” “anticipates,” “intends,” and other similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements.
Forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from those in such statements. Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to, management’s ability to effectively execute its business 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, interest rates, market and monetary fluctuations; technological changes; mergers and acquisitions; the ability to increase market share and control expenses; the effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies as well as the Financial Accounting Standards Board and the Securities and Exchange Commission; the costs and effects of litigation and of unexpected or adverse outcomes in such litigation; and the success of First Financial at managing the risks involved in the foregoing.
In addition, please refer to our Annual Report on Form 10-K for the year ended December 31, 2006, as well as our other filings with the Commission, for a more detailed discussion of these risks and uncertainties and other factors. Such forward-looking statements speak only as of the date on which such statements are made, and First Financial undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made to reflect the occurrence of unanticipated events.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the risk of loss arising from adverse changes in the fair value of financial instruments due to changes in interest rates, foreign exchange rates, and equity prices. The primary source of market risk for First Financial is interest rate risk. Interest rate risk arises in the normal course of business to the extent that there is a divergence between the amount of First Financial’s interest earning assets and the amount of interest earning liabilities that are prepaid/withdrawn, re-price, or mature in specified periods. First Financial seeks to achieve consistent growth in net interest income and capital while managing volatility arising from shifts in market interest rates. The Asset and Liability Committee (ALCO) oversees market risk management, establishing risk measures, limits, and policy guidelines for managing the amount of interest-rate risk and its effect on net interest income and capital.
Interest-rate risk for First Financial’s Consolidated Balance Sheets consists of repricing, option, and basis risks. Repricing risk results from differences in the maturity, or repricing, of interest-bearing assets and liabilities. Option risk in financial instruments arises from embedded options such as loan prepayments, early withdrawal of Certificates of Deposits, and calls on investments and debt instruments that are primarily driven by third party or client behavior. Basis risk refers to the potential for changes in the underlying relationship between market rates or indices, which subsequently result in a narrowing of the net interest margin. Basis risk is also present in managed rate liabilities, such as interest-bearing checking accounts and savings accounts, where historical pricing relationships to market rates may change due to the level or directional change in market interest rates, or competitive pressures.
The interest rate risk position is measured and monitored using earningsincome simulation models and economic value of equity sensitivity analysis that capture both short-term and long-term interest rate risk exposure. EarningsIncome simulation involves forecasting net interest income under a variety of interest rate scenarios including instantaneous shocks.
Presented below is the estimated impact on First Financial’s net interest income as of March 31,September 30, 2007, assuming immediate, parallel shifts in the yield curve:interest rates:
                 
  -200 basis points -100 basis points +100 basis points +200 basis points
March 31, 2007  (8.27%)  (2.77%)  2.09%  3.62%
                 
  -200 basis points  -100 basis points  +100 basis points  +200 basis points 
September 30, 2007  (7.78%)  (2.10%)  1.75%  2.54%
Modeling the sensitivity of net interest income to changes in market interest rates is highly dependent on numerous assumptions incorporated into the modeling process. Market based prepayment speeds are factored into the analysis for loan and securities portfolios. Rate sensitivity for transactional deposit accounts is modeled based on both historical experience and external industry studies.
Additional interest rate scenarios are modeled utilizing most-likely interest rates over the next twelve months. Based on this scenario, First Financial has a relatively neutral rate risk position of a negative 0.60%1.16% when compared to a base-case scenario with interest rates held constant.
First Financial uses economic value of equity sensitivity analysis to understand the impact of long-term cash flows, earnings,income, and capital. Economic value of equity is based on discounting the cash flows for all balance sheet instruments under different interest-rate scenarios. Deposit premiums are based on external industry studies and utilizing historical experience. Presented below is the change in First Financial’s economic value of equity position as of March 31,September 30, 2007, assuming immediate, parallel shifts in the yield curve:interest rates:
                 
  -200 basis points -100 basis points +100 basis points +200 basis points
March 31, 2007  (23.45%)  (9.09%)  5.39%  8.09%
                 
  -200 basis points  -100 basis points  +100 basis points  +200 basis points 
September 30, 2007  (20.74%)  (7.03%)  3.23%  3.14%
See also “Item 2-Management’s Discussion and Analysis of Financial Condition and Results of Operations—Net Interest Income.”

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ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Management is responsible for establishing and maintaining effective disclosure controls and procedures, as defined under Rule 13a-15 of the Securities Exchange Act of 1934, that are designed to cause the material information required to be disclosed by First Financial in the reports it files or submits under the Securities Exchange Act of 1934 to be recorded, processed, summarized, and reported to the extent applicable within the time periods required by the Securities and Exchange Commission’s rules and forms. In designing and evaluating the disclosure controls and procedures, management recognized that a control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.
As of the end of the period covered by this report, First Financial performed an evaluation under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of its disclosure controls and procedures pursuant to Rule 13a-15 of the Securities Exchange Act of 1934. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective at the reasonable assurance level.
Changes in Internal Control over Financial Reporting
No changes were made to the Corporation’s internal control over financial reporting (as defined in Rule 13a-15 under the Securities Exchange Act of 1934) during the last fiscal quarter that materially affected, or are reasonably likely to materially affect, the Corporation’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
 (c) The following table shows the total number of shares repurchased in the firstthird quarter of 2007.
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, 2007  87,025  $16.48   80,000   6,889,105 
February 1 through                
February 28, 2007  76,000   16.48   76,000   6,813,105 
March 1 through                
March 31, 2007  88,000   15.44   88,000   6,725,105 
             
Total  251,025  $16.11   244,000   6,725,105 
             
                 
          (c)  
          Total Number (d)
  (a) (b) 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
July 1 through July 31, 2007  86,253  $14.61   84,000   6,389,105 
August 1 through August 31, 2007  683,000   12.47   683,000   5,706,105 
September 1 through September 30, 2007  702,700   13.32   702,700   5,003,405 
                 
Total  1,471,953  $13.00   1,469,700     
                 
 
(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, 2007  0  $0.00 
February 1 through        
February 28, 2007  0   0.00 
March 1 through        
March 31, 2007  0   0.00 
       
Total  0  $0.00 
       
         
Director Fee Stock Plan
        
January 1 through        
January 31, 2007  2,073  $16.22 
February 1 through        
February 28, 2007  0   0.00 
March 1 through        
March 31, 2007  0   0.00 
       
Total  2,073  $16.22 
       
         
Stock Option Plans
        
January 1 through        
January 31, 2007  4,952  $16.26 
February 1 through        
February 28, 2007  0   0.00 
March 1 through        
March 31, 2007  0   0.00 
       
Total  4,952  $16.26 
       
         
  (a) (b)
  Total Number Average
  of Shares Price Paid
Period Purchased Per Share
First Financial Bancorp Thrift Plan
        
July 1 through July 31, 2007  0  $0.00 
August 1 through August 31, 2007  0   0.00 
September 1 through September 30, 2007  0   0.00 
         
Total  0  $0.00 
         
         
Director Fee Stock Plan
        
July 1 through July 31, 2007  2,253  $14.54 
August 1 through August 31, 2007  0   0.00 
September 1 through September 30, 2007  0   0.00 
         
Total  2,253  $14.54 
         
         
Stock Option Plans
        
July 1 through July 31, 2007  0  $0.00 
August 1 through August 31, 2007  0   0.00 
September 1 through September 30, 2007  0   0.00 
         
Total  0  $0.00 
         
 
(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. However, as of September 30, 2007, all shares approved under the 2003 plan have been repurchased. The table that follows provides additional information regarding those plans.
       
  Total Shares  
Announcement Approved for Expiration
Date Repurchase Date
2/25/20032,243,715None
1/25/2000  7,507,500  None
2/25/20032,243,715Complete

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Item 6. 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,May 1, 2007, and incorporated herein by reference to Exhibit 3.2 to the Form10-QForm 10-Q for the quarter ended June 30, 2003.2007. File No. 000-12379.000-12376.
 
 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.
10.3Agreement 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.
 
 10.410.3 Amendment 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.
 
 10.5Agreement 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.
10.610.4 First 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.
 
 10.710.5 First Financial Bancorp. Dividend Reinvestment and Share Purchase Plan, dated April 24, 1997, and incorporated by reference to a Registration Statement on Form S-3,Registration No. 333-25745.

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 10.810.6 First 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.
 
 10.910.7 First Financial Bancorp. 1999 Non-Employee Director Stock Plan, as dated April 27, 1999 and amended and restated as of April 25, 2006, and incorporated herein by reference to Exhibit 10.11 to the Form 10-Q for the quarter ended March 31, 2006. File No. 001-12379.

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 10.1010.8 First 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.
 
 10.1110.9 Form 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.
 
 10.1210.10 Form 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.
 
 10.1310.11 First 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.
 
 10.1410.12 Form of Stock Option Agreement for Incentive Stock Options, incorporated herein by reference to Exhibit 10.1 to the Form 8-K filed on January 27, 2005. File No. 000-12379.
 
 10.1510.13 Form of Stock Option Agreement for Nonqualified Stock Options, incorporated herein by reference to Exhibit 10.2 of the Form 8-K filed on January 27, 2005. File No. 000-12379.
 
 10.1610.14 Form of First Financial Bancorp. 1999 Stock Incentive Plan for Officers and Employees Agreement for Restricted Stock Award, incorporated herein by reference to Exhibit 10.3 to the Form 8-K filed on January 27, 2005. File No. 000-12379.
 
 10.1710.15 Terms of First Financial Bancorp. Performance Incentive Compensation Plan, incorporated herein by reference to the Form 8-K filed on January 27, 2005. File No. 000-12379.
 
 10.1810.16 First Financial Bancorp. Schedule of Directors’ Fees and incorporated by reference to Exhibit 10.1 to the form 8-K filed on November 9, 2005. File No. 000-12379.
 
 10.1910.17 Form 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.
 
 10.2010.18 Form 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.
 
 10.2110.19 Form 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.
 
 10.2210.20 Severance Agreement and Release between C. Thomas Murrell and First Financial Bancorp. dated December 4, 2005, and incorporated by reference to Exhibit 10.27 to the Form 10-K for the year ended December 31, 2005. File No. 000-12379.
 
 10.2310.21 Severance Agreement and Release between Rex A. Hockemeyer and First Financial Bancorp. dated January 28, 2006, and incorporated by reference to Exhibit 10.28 to the Form 10-K for the year ended December 31, 2005. File No. 000-12379.

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 10.2410.22 Terms of First Financial Bancorp. Short-Term Incentive Plan, incorporated herein by reference to the Form 8-K filed on April 28, 2005. File No. 000-12379.

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 10.2510.23 Severance Agreement and Release between Mark Immelt and First Financial Bancorp. dated June 30, 2006, incorporated herein by reference to the Form 10-Q for the quarter ended June 30, 2006. File No. 000-12379.
 
 10.2610.24 Form of Agreement for Restricted Stock Award for Non-Employee Directors dated April 25, 2006, incorporated herein by reference to the Form 10-Q for the quarter ended June 30, 2006. File No. 000-12379.
 
 10.2710.25 Amended and Restated Employment and Non-Competition Agreement between Claude E. Davis and First Financial Bancorp. dated August 22, 2006, and incorporated herein by reference to Exhibit 10.1 to First Financial Bancorp’s Form 8-K filed on August 28, 2006. File No. 000-12379.
 
 10.2810.26 First Financial Bancorp. Severance Pay Plan as approved January 1, 2007, incorporated herein by reference to the Form 10-K filed on February 27, 2007. File No. 000-12379.
10.27Terms of First Financial Bancorp. Short-Term Incentive Plan, incorporated herein by reference to the Form 8-K filed on May 5, 2007. File No. 000-12379.
 
 14 First Financial Bancorp. Code of Business Conduct and Ethics as approved January 23, 2007, incorporated herein by reference to Exhibit 14 to the Form 10-K for the year ended December 31, 2006. File No. 000-12379.
 
 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)
   FIRST FINANCIAL BANCORP.
(Registrant)
/s/ J. Franklin Hall
 /s/ Anthony M. Stollings
  
J. Franklin Hall Anthony M. Stollings
SeniorExecutive Vice President and
Chief Financial Officer
 Senior Vice President, Chief Accounting
Chief Financial OfficerOfficer, and Controller
(Chief Accounting Officer)
   
Date
11/5/1/07
 Date
11/5/1/07

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