FORM 10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549


þ		QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended~~March 31,~~June 30, 2008


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

(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

4000 Smith Road, Cincinnati, Ohio		45209

(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, a non-accelerated filer or a ~~non-accelerated filer.~~smaller reporting company. See ~~definition~~the definitions of “large accelerated filer,” “accelerated ~~filer~~filer” and ~~large accelerated filer”~~“smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filerþ	Accelerated filero	Non-accelerated filer o	Smaller reporting companyo
	(Do not check if a smaller reporting company)

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 ~~May 7,~~August 6, 2008

Common stock, No par value		~~37,483,422~~37,482,343

PART I — FINANCIAL INFORMATION

ITEM I — FINANCIAL STATEMENTS
FIRST FINANCIAL BANCORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)


	March 31,			December 31,			June 30,			December 31,
	2008			2007			2008			2007
	(Unaudited)						(Unaudited)
ASSETS
Cash and due from banks	$	102,246		$	106,224		$	106,248		$	106,224
Federal funds sold		2,943			106,990			4,005			106,990
Investment securities trading		3,820			0			3,598			0
Investment securities available-for-sale, at market value (cost $339,518 at March 31, 2008 and $306,412 at December 31, 2007)		345,145			306,928
Investment securities held-to-maturity (market value $5,666 at March 31, 2008 and $5,814 at December 31, 2007)		5,414			5,639
Investment securities available-for-sale, at market value (cost $423,186 at June 30, 2008 and $306,412 at December 31, 2007)								421,697			306,928
Investment securities held-to-maturity (market value $5,490 at June 30, 2008 and $5,814 at December 31, 2007)								5,316			5,639
Other investments		34,293			33,969			34,632			33,969
Loans held for sale		4,108			1,515			2,228			1,515
Loans:
Commercial		789,922			785,143			814,779			785,143
Real estate — construction		172,737			151,432			186,178			151,432
Real estate — commercial		726,397			706,409			769,555			706,409
Real estate — residential		519,790			539,332			499,002			539,332
Installment		126,623			138,895			115,575			138,895
Home equity		254,200			250,888			263,063			250,888
Credit card		25,528			26,610			26,399			26,610
Lease financing		258			378			111			378

Total loans		2,615,455			2,599,087			2,674,662			2,599,087
Less:
Allowance for loan and lease losses		29,718			29,057			29,580			29,057

Net loans		2,585,737			2,570,030			2,645,082			2,570,030
Premises and equipment, net		78,585			78,994			79,380			78,994
Goodwill		28,261			28,261			28,261			28,261
Other intangibles		659			698			641			698
Accrued interest and other assets		132,054			130,068			128,874			130,068

TOTAL ASSETS	$	3,323,265		$	3,369,316		$	3,459,962		$	3,369,316


LIABILITIES
Deposits:
Interest-bearing	$	610,154		$	603,870		$	575,236		$	603,870
Savings		617,059			596,636			615,613			596,636
Time		1,206,750			1,227,954			1,167,024			1,227,954

Total interest-bearing deposits		2,433,963			2,428,460			2,357,873			2,428,460
Noninterest-bearing		405,015			465,731			419,045			465,731

Total deposits		2,838,978			2,894,191			2,776,918			2,894,191
Short-term borrowings:
Federal funds purchased and securities sold under agreements to repurchase		27,320			26,289			25,932			26,289
Federal Home Loan Bank		6,500			0			237,900			0
Other		53,000			72,000			54,000			72,000

Total short-term borrowings		86,820			98,289			317,832			98,289
Federal Home Loan Bank long-term debt		42,380			45,896			41,263			45,896
Other long-term debt		20,620			20,620			20,620			20,620
Accrued interest and other liabilities		56,698			33,737			28,039			33,737

TOTAL LIABILITIES		3,045,496			3,092,733			3,184,672			3,092,733

SHAREHOLDERS’ EQUITY
Common stock — no par value Authorized - 160,000,000 shares Issued - 48,558,614 shares in 2008 and 2007		389,986			391,962			390,545			391,962
Retained earnings		79,818			82,093			81,263			82,093
Accumulated comprehensive loss		(3,800	)		(7,127	)		(8,236	)		(7,127	)
Treasury Stock, at cost 11,070,385 shares in 2008 and 11,190,806 shares in 2007		(188,235	)		(190,345	)
Treasury Stock, at cost 11,075,230 shares in 2008 and 11,190,806 shares in 2007								(188,282	)		(190,345	)

TOTAL SHAREHOLDERS’ EQUITY		277,769			276,583			275,290			276,583

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	3,323,265		$	3,369,316		$	3,459,962		$	3,369,316

FIRST FINANCIAL BANCORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
(Unaudited)


	Three months ended				Three months ended				Six months ended
	March 31,				June 30,				June 30,
	2008		2007		2008		2007		2008		2007
Interest income
Loans, including fees	$	42,721	$	45,064	$	39,646	$	45,291	$	82,367	$	90,355
Investment securities
Taxable		3,521		3,891		4,387		3,762		7,908		7,653
Tax-exempt		791		909		792		911		1,583		1,820

Total investment securities interest		4,312		4,800		5,179		4,673		9,491		9,473
Federal funds sold		565		1,756		40		1,241		605		2,997

Total interest income		47,598		51,620		44,865		51,205		92,463		102,825
Interest expense
Deposits		17,739		19,009		14,635		19,409		32,374		38,418
Short-term borrowings		792		996		1,130		984		1,922		1,980
Long-term borrowings		406		559		384		542		790		1,101
Subordinated debentures and capital securities		412		653		302		669		714		1,322

Total interest expense		19,349		21,217		16,451		21,604		35,800		42,821

Net interest income		28,249		30,403		28,414		29,601		56,663		60,004
Provision for loan and lease losses		3,223		1,356		2,493		2,098		5,716		3,454

Net interest income after provision for loan and lease losses		25,026		29,047		25,921		27,503		50,947		56,550
Noninterest income
Service charges on deposit accounts		4,607		4,744		4,951		5,296		9,558		10,040
Trust and wealth management fees		4,622		4,160		4,654		4,526		9,276		8,686
Bankcard income		1,298		1,240		1,493		1,424		2,791		2,664
Net gains from sales of loans		219		162		188		184		407		346
Gain on sale of mortgage servicing rights		0		1,061		0		0		0		1,061
Gain on sale of investment securities		1,585		0
Gains on sales of investment securities						0		0		1,585		0
Other		2,544		3,377		2,462		2,702		5,006		6,079

Total noninterest income		14,875		14,744		13,748		14,132		28,623		28,876

Noninterest expenses
Salaries and employee benefits		17,073		18,961		15,895		17,134		32,968		36,095
Net occupancy		2,952		2,807		2,510		2,484		5,462		5,291
Furniture and equipment		1,653		1,627		1,617		1,708		3,270		3,335
Data processing		793		845		814		818		1,607		1,663
Marketing		517		869		474		642		991		1,511
Communication		805		865		749		798		1,554		1,663
Professional services		761		1,006		1,061		1,063		1,822		2,069
Other		4,466		4,230		4,849		4,793		9,315		9,023

Total noninterest expenses		29,020		31,210		27,969		29,440		56,989		60,650

Income before income taxes		10,881		12,581		11,700		12,195		22,581		24,776
Income tax expense		3,543		4,146		3,892		4,023		7,435		8,169

Net income	$	7,338	$	8,435	$	7,808	$	8,172	$	15,146	$	16,607

Earnings per share — basic	$	0.20	$	0.22	$	0.21	$	0.21	$	0.41	$	0.43

Earnings per share — diluted	$	0.20	$	0.22	$	0.21	$	0.21	$	0.40	$	0.43

Cash dividends declared per share	$	0.17	$	0.16	$	0.17	$	0.16	$	0.34	$	0.32

Average basic shares outstanding		37,066,754		39,121,105		37,114,451		38,965,409		37,090,603		39,042,827

Average diluted shares outstanding		37,431,918		39,135,637		37,524,789		38,967,061		37,478,353		39,050,919

FIRST FINANCIAL BANCORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, dollars in thousands)


	Three months ended						Six months ended
	March 31,						June 30,
	2008			2007			2008			2007
Operating activities
Net income	$	7,338		$	8,435		$	15,146		$	16,607
Adjustments to reconcile net cash provided by operating activities
Provision for loan and lease losses		3,223			1,356			5,716			3,454
Depreciation and amortization		1,824			2,168			3,398			4,100
Stock-based compensation expense		159			436			837			194
Pension expense		336			699			605			1,397
Net amortization of premiums and accretion of discounts on investment securities		39			33			92			69
Gains on sales of investment securities		(1,585	)		0			(1,585	)		0
Originations of loans held for sale		(26,603	)		(28,405	)		(50,469	)		(44,641	)
Net gains from sales of loans held for sale		(219	)		(162	)		(407	)		(346	)
Proceeds from sales of loans held for sale		24,261			37,339			50,187			54,572
Deferred income taxes		(750	)		0			(288	)		(2,471	)
Decrease (increase) in interest receivable		2,738			(1,283	)		3,614			(1,445	)
Decrease in cash surrender value of life insurance		1,022			87
Decrease (increase) in cash surrender value of life insurance								390			(550	)
Increase in prepaid expenses		(704	)		(1,238	)		(876	)		(1,469	)
(Decrease) increase in accrued expenses		(1,572	)		1,230			(4,010	)		1,230
(Decrease) increase in interest payable		(592	)		331			(1,502	)		163
Other		(3,454	)		15,299			(1,925	)		3,657

Net cash provided by operating activities		5,461			36,325			18,923			34,521

Investing activities
Proceeds from sales of securities available for sale		1,124			0			1,124			0
Proceeds from calls, paydowns and maturities of securities available-for-sale		14,224			15,032			51,205			27,132
Purchases of securities available-for-sale		(32,440	)		(16,386	)		(173,052	)		(21,374	)
Proceeds from calls, paydowns and maturities of securities held-to-maturity		225			226			323			2,918
Net decrease (increase) in federal funds sold		104,047			(57,200	)
Purchases of securities held-to-maturity								0			(634	)
Purchases of FHLB stock								(663	)		0
Net decrease in federal funds sold								102,985			47,000
Net increase in loans and leases		(18,940	)		(23,952	)		(82,596	)		(77,642	)
Proceeds from disposal of other real estate owned		278			380			701			1,095
Purchases of premises and equipment		(1,402	)		(1,528	)		(3,801	)		(2,709	)

Net cash provided by (used in) investing activities		67,116			(83,428	)
Net cash used in investing activities								(103,774	)		(24,214	)

Financing activities
Net (decrease) increase in total deposits		(55,213	)		33,722
Net decrease in short-term borrowings		(11,469	)		(4,457	)
Net decrease in total deposits								(117,273	)		(4,499	)
Net increase (decrease) in short-term borrowings								219,543			(12,501	)
Payments on long-term borrowings		(3,516	)		(3,464	)		(4,633	)		(4,741	)
Cash dividends paid		(6,352	)		(6,290	)		(12,717	)		(12,540	)
Purchase of common stock		0			(3,930	)		0			(7,728	)
Proceeds from exercise of stock options		0			80			0			80
Excess tax benefit on share-based compensation		(5	)		4			(45	)		23

Net cash (used in) provided by financing activities		(76,555	)		15,665
Net cash provided by (used in) financing activities								84,875			(41,906	)


Cash and cash equivalents:
Net decrease in cash and cash equivalents		(3,978	)		(31,438	)
Net increase (decrease) in cash and cash equivalents								24			(31,599	)
Cash and cash equivalents at beginning of period		106,224			119,407			106,224			119,407

Cash and cash equivalents at end of period	$	102,246		$	87,969		$	106,248		$	87,808

FIRST FINANCIAL BANCORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(Unaudited, dollars in thousands except per share data)


	Accumulated comprehensive																															Accumulated comprehensive
	income (loss)																															income (loss)
	Common		Common						Unrealized gain															Common		Common						Unrealized gain
	stock		stock			Retained			(loss) on AFS			Pension			Treasury stock									stock		stock			Retained			(loss) on AFS			Pension			Treasury stock
	shares		amount			earnings			securities			obligation			Shares			Amount			Total			shares		amount			earnings			securities			obligation			Shares			Amount			Total
Balances at December 31, 2006		48,558,614	$	392,736		$	71,320		$	(420	)	$	(12,955	)		(9,313,207	)	$	(165,202	)	$	285,479			48,558,614	$	392,736		$	71,320		$	(420	)	$	(12,955	)		(9,313,207	)	$	(165,202	)	$	285,479
Net income							8,435															8,435								16,607															16,607
Unrealized holding gains on securities available-for-sale arising during the period										111												111											(3,079	)											(3,079	)
Changes in accumulated unrealized losses for pension and other postretirement obligations													143									143														286									286

Total comprehensive income																						8,689																							13,814
Cash dividends declared ($0.16 per share)							(6,250	)														(6,250	)
Cash dividends declared ($0.32 per share)																														(12,483	)														(12,483	)
Purchase of common stock																(244,000	)		(3,930	)		(3,930	)																(496,000	)		(7,728	)		(7,728	)
Tax benefit on stock option exercise				4																		4					23																		23
Exercise of stock options, net of shares purchased				(58	)											8,474			138			80					(58	)											8,474			138			80
Restricted stock awards, net of forfeitures				(27	)											(8,038	)		(126	)		(153	)
Restricted stock awards, net																											(2,350	)											125,202			2,197			(153	)
Share-based compensation expense				436																		436					194																		194

Balances at March 31, 2007		48,558,614		393,091			73,505			(309	)		(12,812	)		(9,556,771	)		(169,120	)		284,355
Balances at June 30, 2007																									48,558,614		390,545			75,444			(3,499	)		(12,669	)		(9,675,531	)		(170,595	)		279,226

Balances at December 31, 2007		48,558,614		391,962			82,093			328			(7,455	)		(11,190,806	)		(190,345	)		276,583			48,558,614		391,962			82,093			328			(7,455	)		(11,190,806	)		(190,345	)		276,583
Cumulative adjustment for adoption of new accounting principles on January 1, 2008:
Fair value option (SFAS No. 159)							(750	)		750												0								(750	)		750												0
Cost of split-dollar life insurance for retirees (EITF Issue No. 06-4)							(2,499	)														(2,499	)							(2,499	)														(2,499	)
Net income							7,338															7,338								15,146															15,146
Unrealized holding gains on securities available-for-sale arising during the period										2,496												2,496											(2,024	)											(2,024	)
Changes in accumulated unrealized losses for pension and other postretirement obligations													81									81														165									165

Total comprehensive income																						9,915																							13,287
Cash dividends declared ($0.17 per share)							(6,364	)														(6,364	)
Tax benefit on stock option exercise				(5	)																	(5	)
Restricted stock awards, net of forfeitures				(2,130	)											120,421			2,110			(20	)
Cash dividends declared ($0.34 per share)																														(12,727	)														(12,727	)
Tax liability on stock option exercise																											(45	)																	(45	)
Restricted stock awards, net																											(2,209	)											115,576			2,063			(146	)
Share-based compensation expense				159																		159					837																		837

Balances at March 31, 2008		48,558,614	$	389,986		$	79,818		$	3,574		$	(7,374	)		(11,070,385	)	$	(188,235	)	$	277,769
Balances at June 30, 2008																									48,558,614	$	390,545		$	81,263		$	(946	)	$	(7,290	)		(11,075,230	)	$	(188,282	)	$	275,290

FIRST FINANCIAL BANCORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
~~MARCH 31,~~JUNE 30, 2008
(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 advisor. All 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, 2007. 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, 2007, has been derived from the audited financial statements in the company’s 2007 Form 10-K.

NOTE 2: RECENTLY ADOPTED AND ISSUED ACCOUNTING STANDARDS

Effective January 1, 2008, First Financial adopted FASB Statement No. 157 (SFAS No. 157), “Fair Value Measurements.” This statement defines fair value, establishes a framework for measuring fair value in U.S. generally accepted accounting principles, and expands disclosures about fair value measurements. Fair value is defined under SFAS No. 157, from the point of view of the transferor, as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the principal or most advantageous market for the asset or liability at the measurement date. For further detail on SFAS No. 157, see Note 10 — Fair Value Disclosures.

Effective January 1, 2008, First Financial adopted FASB 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 applied the fair value option to its equity securities of government sponsored entities, specifically 200,000 Federal Home Loan Mortgage Corporation perpetual preferred series V shares, and these securities are classified as trading investment securities at ~~March 31,~~June 30, 2008, in the Consolidated Balance Sheets. In connection with First Financial’s adoption of SFAS No. 159 effective January 1, 2008, a $0.8 million unrealized loss, net of related deferred taxes, was reclassified from accumulated other comprehensive income (loss) to beginning retained earnings as part of a cumulative-effect adjustment. There was no impact on total shareholders’ equity upon adoption. For further detail on SFAS No. 159, see Note 10 — Fair Value Disclosures.

Effective January 1, 2008, First Financial adopted EITF Issue No 06-4, “Accounting for Deferred Compensation and Postretirement Benefit Aspects of Split-Dollar Life Insurance Arrangements.” EITF Issue No. 06-4 applies to split-dollar life insurance arrangements whose benefits continue into the employees’ retirement. First Financial recorded the $2.5 million transition impact of this EITF as a reduction of opening retained earnings as part of a cumulative-effect adjustment and an increase in accrued interest and other liabilities in the Consolidated Balance Sheets, reflective of the ongoing cost of insurance for the pool of retirees.

Effective January 1, 2008, First Financial adopted EITF Issue No. 06-11, “Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards.” EITF Issue No. 06-11 requires companies to recognize in shareholders’ equity the tax benefit of dividends paid on unvested share-based payments, consistent with First Financial’s historical accounting. When the related award is forfeited or is no longer expected to vest (i.e. due to a performance condition not anticipated to be met), Issue No. 06-11 requires companies to record the dividend payment as salary and benefits expense and the related tax impact as a tax benefit in the income statement. The adoption of EITF Issue No. 06-11 did not have a material impact on First Financial.

Effective January 1, 2008, First Financial adopted FSP 39-1, “Amendment of FASB Interpretation No. 39, Offsetting of Amounts Related to Certain Contracts.” FSP 39-1 permits entities to offset fair value amounts recognized for multiple derivative instruments executed with the same counterparty under a master netting agreement. FSP 39-1 clarifies that the fair value amounts recognized for the right to reclaim cash collateral, or the obligation to return cash collateral, arising from the same master netting arrangement, should also be offset against the fair value of the related derivative instruments. First Financial adopted a net presentation for derivative positions and related collateral pursuant entered into under master netting agreements ~~pursuant~~ to the guidance in FSP 39-1. The adoption of FSP 39-1 resulted in balance sheet reclassifications of certain cash collateral-based short-term investments against the related derivative liabilities. The effects of these reclassifications will fluctuate in the future based on the fair values of the derivative contracts, but overall are not expected to have a material impact on either total assets or total liabilities.

In December of 2007, the FASB issued SFAS No. 141(R), “Business Combinations.” This statement will significantly change how business acquisitions are accounted for, continuing the transition to fair value measurement, and will impact financial statements both on the acquisition date and in subsequent periods. This statement requires the acquirer to recognize assets acquired, liabilities assumed, and any noncontrolling interest in the acquiree at their respective fair values as of the acquisition date. SFAS No. 141(R) changes the treatment of acquisition-related costs, restructuring costs related to an acquisition that the acquirer expects but is not obligated to incur, contingent consideration associated with the purchase price, and preacquisition contingencies associated with acquired assets and liabilities. In addition, SFAS No. 141(R) requires enhanced disclosures to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS No. 141(R) is effective for years beginning after December 15, 2008, and is required to be applied prospectively to future business combinations. Early adoption is not permitted.

In December of 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Financial Statements.” This statement will change the accounting and reporting for minority interests, which will be recharacterized as noncontrolling interests and classified as a component of shareholders’ equity. SFAS No. 160 is effective for years beginning after December 15, 2008, and requires retroactive adoption of the presentation and disclosure requirements for existing consolidated minority interests. All other requirements of SFAS No. 160 are required to be applied prospectively, with early adoption not permitted. First Financial has no existing consolidated minority interests and management does not anticipate this will occur in the future; therefore, SFAS No. 160 is not anticipated to have an impact on First Financial.

encouraged. First Financial is currently evaluating the enhanced disclosure requirements and their impact on the 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 with off-balance-sheet risk to its clients to aid them in meeting their requirements for liquidity and credit enhancement. These financial instruments include standby letters of credit and commitments outstanding to extend credit. U.S. generally accepted accounting principles do not 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’s exposure to credit loss from commitments outstanding to extend credit, and in the event of nonperformance by the other party to the financial instrument for standby letters of credit, is represented by the contractual amounts of those instruments. First Financial uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments.

Loan commitments — Commitments to extend credit are agreements to lend to a client as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. First Financial evaluates each 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 ~~$742,285~~$726.4 million and ~~$728,472~~$728.5 million at ~~March 31,~~June 30, 2008, and December 31, 2007, respectively. Management does not anticipate any material losses as a result of these commitments.

Standby letters of credit — These transactions 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 to produce the contracted good or service to a third party. First Financial has issued standby letters of credit aggregating ~~$22,514~~$23.5 million and ~~$25,227~~$25,2 million at ~~March 31,~~June 30, 2008, and December 31, 2007, respectively.

Management conducts regular reviews of these instruments on an individual client basis. Management does not anticipate any material losses as a result of these letters of credit.

fair value of the hedged item are recognized immediately in income. The following table summarizes the derivative financial instruments utilized by First Financial and their balances (dollars in $000’s):


																						June 30, 2008							December 31, 2007							June 30, 2007
	March 31, 2008							December 31, 2007							March 31, 2007									Estimated							Estimated							Estimated
			Estimated							Estimated							Estimated					Notional		Fair Value					Notional		Fair Value					Notional		Fair Value
	Notional		Fair Value					Notional		Fair Value					Notional		Fair Value					Amount		Gain		(Loss)			Amount		Gain		(Loss)			Amount		Gain		(Loss)
	Amount		Gain		(Loss)			Amount		Gain		(Loss)			Amount		Gain		(Loss)

Fair Value Hedges
Pay fixed interest rate swaps	$	27,800	$	1	$	(1,941	)	$	28,903	$	79	$	(866	)	$	30,568	$	460	$	(230	)	$	26,515	$	36	$	(876	)	$	28,903	$	79	$	(866	)	$	29,431	$	968	$	(27	)

Matched Client Hedges
Client interest rate swaps with bank		61,384		5,029		0			51,480		2,702		0			24,673		699		0			87,031		3,233		(70	)		51,480		2,702		0			29,095		195		(48	)
Bank interest rate swaps with counterparty		61,384		0		(5,029	)		51,840		0		(2,702	)		24,673		0		(699	)		87,031		70		(3,233	)		51,480		0		(2,702	)		29,095		48		(195	)


Total	$	150,568	$	5,030	$	(6,970	)	$	131,863	$	2,781	$	(3,568	)	$	79,914	$	1,159	$	(929	)	$	200,577	$	3,339	$	(4,179	)	$	131,863	$	2,781	$	(3,568	)	$	87,621	$	1,211	$	(270	)

NOTE 9: EMPLOYEE BENEFIT PLANS

First Financial sponsors a non-contributory defined benefit pension plan covering substantially all employees. First Financial uses a December 31 measurement date for its defined benefit pension plan. Effective in the third quarter of 2007, First Financial amended 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, transitioned to the amended plan on January 1, 2008. After July 1, 2007, newly eligible participants entered the amended plan upon their eligibility date. Due to the funded status of the pension plan, First Financial does not expect to make any contributions to its pension plan in 2008.

The following table sets forth information concerning amounts recognized in First Financial’s Consolidated Balance Sheets and Consolidated Statements of Earnings (dollars in $000’s).


	Three months ended						Three months ended						Six months ended
	March 31,						June 30,						June 30,
	2008			2007			2008			2007			2008			2007
Service cost	$	590		$	851		$	527		$	851		$	1,117		$	1,701
Interest cost		643			743			642			742			1,285			1,485
Expected return on plan assets		(1,024	)		(1,122	)		(1,025	)		(1,122	)		(2,049	)		(2,243	)
Amortization of transition asset		(9	)		(12	)		(8	)		(12	)		(17	)		(24	)
Amortization of prior service cost		(106	)		12			(106	)		12			(212	)		25
Amortization of actuarial loss		242			227			239			227			481			453

Net periodic benefit cost	$	336		$	699		$	269		$	698		$	605		$	1,397

First Financial also adopted SFAS No. 159 effective January 1, 2008. This statement permits the initial and subsequent measurement of many financial instruments and certain other assets and liabilities at fair value on an instrument-by-instrument, irrevocable basis.

Fair Value Option

The following table summarizes the impact on First Financial’s Consolidated Balance Sheets of adopting the fair value option (FVO) for equity securities of government sponsored entities, specifically 200,000 Federal Home Loan Mortgage Corporation perpetual preferred series V shares with aan original cost basis of $5.0 million. Amounts shown represent the carrying value of the affected investment security categories before and after the change in accounting resulting from the adoption of SFAS No. 159 (dollars in $000’s).


	Jan. 1, 2008
	Balance Sheet						Jan. 1, 2008
	Prior to						Balance Sheet
	Adoption			Adoption Impact			After Adoption
Trading investment securities	$	0		$	3,799		$	3,799
Available-for-sale investment securities		306,928			(3,799	)		303,129
Accumulated comprehensive income (loss)		(7,127	)		750			(6,377	)

Cumulative effect of adoption of the FVO — charge to retained earnings⁽¹⁾				$	750


Retained earnings	$	82,093			($750	)	$	81,343


⁽¹⁾		The adoption of SFAS No. 159 had no overall tax impact due to the transfer of the unrealized loss from accumulated other comprehensive income (loss) to retained earnings, within shareholders’ equity.

Prior to the election of the FVO effective January 1, 2008, First Financial’s equity securities of government sponsored entities totaled $3.8 million and were classified as investment securities available-for-sale. An unrealized loss of $0.8 million, net of taxes of $0.4 million, as of December 31, 2007, was included as a component of accumulated other comprehensive income (loss). In connection with First Financial’s adoption of SFAS No. 159 effective January 1, 2008, the $0.8 million unrealized loss was reclassified from accumulated other comprehensive income (loss) to beginning retained earnings as part of a cumulative-effect adjustment. There was no impact on total shareholders’ equity upon adoption. The equity securities of government sponsored entities are included as trading investment securities on First Financial’s Consolidated Balance Sheets effective January 1, 2008.

At ~~March 31,~~June 30, 2008, the fair value of the equity securities of government sponsored entities for which the FVO was elected was ~~$3.8~~$3.6 million, ~~consistent with~~a decrease of approximately $0.2 million from the fair value of the equity securities at ~~December 31, 2007,~~January 1, 2008, included as investment securities available-for-sale. Since January 1, 2008, changes in market value for the equity securities of government sponsored entities for which the FVO was elected have been recorded in other noninterest income.

Future changes will be recorded similarly. Dividends received on these securities are included in tax-exempt investment security interest income. There were no purchases or sales of similar investment securities in the first or second quarter of 2008.

Fair Value Measurement

The SFAS No. 157 fair value framework includes a hierarchy which focuses on prioritizing the inputs used in valuation techniques. The fair value hierarchy gives the highest priority to quoted prices in active

such items as Level 3. The level within the fair value hierarchy is based on the lowest level of input that is significant in the fair value measurement.

The following describes the valuation techniques used by First Financial to measure different financial assets and liabilities at fair value in the financial statements.

Investment securities- Investment securities classified as trading and available-for-sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted market prices, when available (Level 1). If quoted market prices are not available, fair values are measured utilizing independent valuation techniques of identical or similar investment securities. Third party vendors compile prices from various sources and may apply such techniques as matrix pricing to determine the value of identical or similar investment securities (Level 2). Matrix pricing is a mathematical technique widely used in the banking industry to value investment securities without relying exclusively on quoted prices for the specific investment securities but rather relying on the investment securities’ relationship to other benchmark quoted investment securities. Any investment securities not valued based upon the methods above are considered Level 3.

Loans held for sale — Loans held for sale are carried at the lower of cost or market value. These loans currently consist of one-to-four family residential real estate loans originated for sale to a strategic partner. Fair value is based on the contractual price to be received from our strategic partner, which is not materially different than cost due to the short duration between origination and sale (Level 2). As such, First Financial records any fair value adjustments on a nonrecurring basis. Gains and losses on the sale of loans are recorded as net gains from sales of loans within noninterest income in the Consolidated Statements of Income.

Derivatives — First Financial utilizes interest rate swaps as a means to offer commercial borrowers products that meet their needs, but are also designed to achieve First Financial’s desired interest rate risk profile at the time. The net interest receivable or payable is accrued and recognized as an adjustment to the interest income or interest expense of the hedged item. First Financial utilizes third-party vendors for derivative valuation purposes. These vendors determine the appropriate fair value based on a net present value calculation of the cash flows related to the interest rate swaps using primarily observable market inputs such as interest rate yield curves. The discounted net present value calculated represents the cost to terminate the swap if First Financial should choose to do so on the applicable measurement date (Level 2).

Allowance for loan and lease losses — Loans are designated as impaired when, in the judgment of management based on current information and events, it is probable that all amounts due according to the contractual terms of the loan agreement will not be collected. Impaired loans are valued at the lower of cost or market for purposes of determining the appropriate amount of impairment to be allocated to the allowance for loan and lease losses. Market value is measured based on the value of the collateral securing the loans. Collateral may be in the form of real estate or business assets including equipment, inventory, and accounts receivable. The vast majority of the collateral is real estate. The value of real estate collateral is determined utilizing an income or market valuation approach based on an appraisal conducted by an independent, licensed appraiser outside of the company (Level 2). The value of business equipment is based upon an outside appraisal if deemed significant, or the net book value on the applicable borrower financial statements if not considered significant. Likewise, values for inventory and accounts receivable collateral are based on borrower financial statement balances or aging reports (Level 3). Impaired loans allocated to the allowance for loan and lease losses are measured at fair value on a nonrecurring basis. Any fair value adjustments are recorded in the period incurred as provision for loan and lease losses on the Consolidated Statements of Income.

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

SUMMARY

MARKET STRATEGY

First Financial serves a combination of metropolitan and non-metropolitan markets in Ohio, Indiana, and Kentucky through its full-service banking centers. Market selection is based upon a number of factors, but markets are primarily chosen for their potential for growth and long-term profitability. First Financial’s goal is to develop a competitive advantage through a local market focus; building long-term relationships with clients and helping them reach greater levels of success in their financial life. To help achieve its goals of superior service to an increasing number of clients, First Financial opened two new banking centers in its metropolitan markets in 2007. First Financial has future expansion opportunities in Ohio, Indiana, and Kentucky, including expansion opportunities with properties previously acquired. First Financial announced in December of 2007 its plans to open a new market headquarters in the third quarter of 2008 for its Dayton-Middletown metropolitan ~~market.~~market and began construction on that location during the first quarter of 2008. First Financial intends to concentrate future growth plans and capital investments in its metropolitan ~~markets.~~markets and during the second quarter of 2008 began construction on a new location in Crown Point, Indiana, with plans to start construction on a new location in Cincinnati, Ohio during the third quarter of 2008. Smaller markets have historically provided stable, low-cost funding sources to First Financial and they remain an important part of First Financial’s funding base. First Financial believes its historical strength in these markets should enable it to retain or improve its market share.

As a key component to executing its market strategy, in the first quarter of 2008, First Financial’s corporate headquarters was relocated to its existing Cincinnati market ~~offices in Cincinnati, Ohio.~~offices. The bank subsidiary remains headquartered in Hamilton, Ohio.

First Financial continues to focus on the execution of its strategic initiatives, including the identification of core businesses. Some examples of these efforts include the fourth quarter of 2007 formation of a long-term exclusive marketing agreement and the sale of the merchant payment processing portfolio, as well as the first quarter of 2007 consolidation of seven banking centers and sale of mortgage servicing rights and problem loans.

First Financial has 80 offices serving eight distinct markets with an average banking center deposit size of approximately $35 million. The operating model employed to execute its strategic plan includes a structure where market presidents manage these distinct markets, with the authority to make decisions at the point of client contact.

OVERVIEW OF OPERATIONS

Net income for the ~~first~~second quarter of 2008 was ~~$7.3~~$7.8 million or ~~$0.20~~$0.21 in diluted earnings per share versus ~~$8.4~~$8.2 million or ~~$0.22~~$0.21 in diluted earnings per share for the ~~first~~second quarter of 2007. The ~~$1.1~~$0.4 million decrease in net income was due to lower net interest income of ~~$2.2~~$1.2 million, ~~and~~ increased provision expense for loan and lease losses of ~~$1.8~~$0.4 million, ~~partially offset by increased~~and decreased noninterest income of $0.1 million, decreased noninterest expense of $2.2 million, and decreased income tax expense of $0.6 million. Compared to the fourth quarter of 2007 net income of $10.7 million or $0.29 in diluted earnings per share, first quarter of 2008 net income decreased $3.4 million due to the $5.5 million fourth quarter of 2007 sale of the merchant payment processing portfolio, lower net interest income of $0.9 million, and increased provision for loan and lease losses of $1.5$0.4 million, partially offset by decreased noninterest expense of ~~$2.4~~$1.5 million, and decreased income tax expense of ~~$2.1~~$0.1 million. Compared to the first quarter of 2008 net income of $7.3 million or $0.20 in diluted earnings per share, second quarter of 2008 net income increased $0.5 million primarily due to decreased provision for loan and lease losses of $0.7 million and decreased noninterest expense of $1.1 million, partially offset by decreased noninterest income of $1.1 million and increased income tax expense of $0.3 million.

Net income for the first six months of 2008 was $15.1 million or $0.40 in diluted earnings per share versus $16.6 million or $0.43 for the first six months of 2007. The $1.5 million decrease in net income was due to decreased net interest income of $3.3 million, increased provision expense for loan and lease losses of $2.3

NET INTEREST INCOME

Net interest income, First Financial’s principal source of 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 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 for both management and investors by allowing them to make peer comparisons.


	Three Months Ended						Three Months Ended						Six Months Ended
	March 31,						June 30,						June 30,
(dollars in $000’s)	2008			2007			2008			2007			2008			2007
Net interest income	$	28,249		$	30,403		$	28,414		$	29,601		$	56,663		$	60,004
Tax equivalent adjustment		514			576			510			580			1,024			1,156

Net interest income — tax equivalent	$	28,763		$	30,979		$	28,924		$	30,181		$	57,687		$	61,160


Average earning assets	$	3,005,835		$	2,992,294		$	3,074,885		$	2,988,674		$	3,041,235		$	2,990,474

Net interest margin *		3.78	%		4.12	%		3.72	%		3.97	%		3.75	%		4.05	%
Net interest margin (fully tax equivalent) *		3.85	%		4.20	%		3.78	%		4.05	%		3.81	%		4.12	%

pricing on deposits, substantially offsetting the impact on loan yields from the decline in market interest ~~rates, including a 200~~rates. Linked-quarter net interest margin decreased 6 basis points from 3.78% to 3.72% reflecting the impact of the 225 basis point reduction in the federal funds rate during the first ~~quarter, partially offset by the continued mix shift in earning assets. Linked-quarter net interest margin remained relatively flat, decreasing 1~~half of 2008 and a 3 basis point negative impact from ~~3.79%~~the increase in earnings assets related to ~~3.78%.~~the investment portfolio. On a tax-equivalent basis, the ~~first~~second quarter of 2008 net interest margin was ~~3.85%~~3.78% as compared to ~~3.86%~~3.85% for the ~~fourth~~first quarter of 2008. The pace and magnitude of the recent changes to the federal funds target rate has created a more significant impact on the liability costs for the current reporting period.

Year-to-date net interest income was $56.7 million compared to $60.0 million in 2007, a $3.3 million or 5.6% decrease. Approximately 5 basis points of the year-to-date 2007 net interest margin 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 year-to-date 2007 adjusted net interest margin, excluding the impact of this accrual, was 4.00%. The remaining decline in net interest income and margin is primarily a result of the previously mentioned decline in market interest rates, partially offset by a slight increase in overall earning asset levels and the continued mix shift in their composition. Year-to-date, the cost of the approximate $512 million of time deposit originations relative to the approximate $598 million in maturities has been approximately 125 basis points lower with a 135 basis point reduction in the marginal funding cost after accounting for the net runoff of the time deposit portfolio. Year-to-date net interest margin was 3.75% in 2008, compared to 4.00% in 2007 when adjusted for the year-to-date impact of the interest accrual noted earlier.

On a tax-equivalent year-to-date basis, net interest margin was 3.81% in 2008 compared to an adjusted 4.08% in 2007.

1617

The Consolidated Average Balance Sheets and Net Interest Income Analysis that follows are presented on a GAAP basis (dollars in $000’s).

QUARTERLY CONSOLIDATED AVERAGE BALANCE SHEETS AND NET INTEREST INCOME ANALYSIS


	March 31, 2008								December 31, 2007								March 31, 2007								June 30, 2008								March 31, 2008								June 30, 2007
	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	$	65,799		$	565		3.45	%	$	106,922		$	1,224		4.54	%	$	134,635		$	1,756		5.29	%	$	4,095		$	40		3.93	%	$	65,799		$	565		3.45	%	$	93,986		$	1,241		5.30	%
Investment securities		343,553			4,312		5.05	%		350,346			4,500		5.10	%		367,407			4,800		5.30	%		422,463			5,179		4.93	%		343,553			4,312		5.05	%		364,050			4,673		5.15	%
Loans⁽¹⁾:
Commercial loans		781,358			12,945		6.66	%		777,028			14,595		7.45	%		686,947			13,982		8.25	%		805,122			11,302		5.65	%		781,358			12,945		6.66	%		733,972			14,832		8.11	%
Real estate — construction		162,008			2,474		6.14	%		154,208			2,815		7.24	%		100,192			2,028		8.21	%		179,078			2,287		5.14	%		162,008			2,474		6.14	%		118,425			2,268		7.68	%
Real estate — commercial		708,779			11,975		6.80	%		693,642			12,105		6.92	%		638,717			10,882		6.91	%		747,077			12,059		6.49	%		708,779			11,975		6.80	%		658,021			11,423		6.96	%

Real estate — residential		533,689			7,577		5.71	%		544,326			7,846		5.72	%		620,843			8,674		5.67	%		511,871			7,221		5.67	%		533,689			7,577		5.71	%		592,862			8,334		5.64	%
Installment		132,876			2,222		6.73	%		145,831			2,405		6.54	%		189,479			2,889		6.18	%		121,000			2,012		6.69	%		132,876			2,222		6.73	%		170,750			2,616		6.15	%
Home equity		251,706			4,308		6.88	%		248,248			4,736		7.57	%		229,435			5,376		9.50	%		257,954			3,725		5.81	%		251,706			4,308		6.88	%		231,993			4,674		8.08	%
Credit card		25,745			712		11.12	%		25,271			724		11.37	%		23,809			804		13.70	%		26,043			657		10.15	%		25,745			712		11.12	%		23,944			694		11.63	%
Lease financing		322			7		8.74	%		431			6		5.52	%		830			22		10.75	%		182			3		6.63	%		322			7		8.74	%		671			12		7.17	%
Loan fees					501								477								407								380								501								438

Total loans		2,596,483			42,721		6.62	%		2,588,985			45,709		7.00	%		2,490,252			45,064		7.34	%		2,648,327			39,646		6.02	%		2,596,483			42,721		6.62	%		2,530,638			45,291		7.18	%

Total earning assets		3,005,835			47,598		6.37	%		3,046,253			51,433		6.70	%		2,992,294			51,620		7.00	%		3,074,885			44,865		5.87	%		3,005,835			47,598		6.37	%		2,988,674			51,205		6.87	%

Nonearning Assets
Cash and due from banks		86,879								84,771								94,384								81,329								86,879								94,541
Allowance for loan and lease losses		(28,860	)							(29,503	)							(27,770	)							(29,248	)							(28,860	)							(27,482	)
Premises and equipment		78,969								78,992								79,819								78,933								78,969								79,491
Other assets		155,840								158,315								160,619								155,750								155,840								156,532

Total assets	$	3,298,663							$	3,338,828							$	3,299,346							$	3,361,649							$	3,298,663							$	3,291,756


Interest-bearing liabilities
Deposits:
Interest-bearing	$	623,206			2,066		1.33	%	$	607,009			2,803		1.83	%	$	646,548			3,302		2.07	%	$	590,464			1,089		0.74	%	$	623,206			2,066		1.33	%	$	606,320			2,945		1.95	%
Savings		610,449			2,208		1.45	%		604,063			2,980		1.96	%		545,101			2,353		1.75	%		617,029			1,321		0.86	%		610,449			2,208		1.45	%		578,357			2,751		1.91	%
Time		1,219,373			13,465		4.44	%		1,250,392			14,455		4.59	%		1,215,264			13,354		4.46	%		1,193,447			12,225		4.12	%		1,219,373			13,465		4.44	%		1,219,242			13,713		4.51	%

Short-term borrowings		93,029			792		3.42	%		106,724			1,211		4.50	%		88,533			996		4.56	%		194,183			1,130		2.34	%		93,029			792		3.42	%		87,129			984		4.53	%
Long-term borrowings		64,870			818		5.07	%		71,152			905		5.05	%		93,080			1,212		5.28	%		62,226			686		4.43	%		64,870			818		5.07	%		90,343			1,211		5.38	%

Total interest-bearing liabilities		2,610,927			19,349		2.98	%		2,639,340			22,354		3.36	%		2,588,526			21,217		3.32	%		2,657,349			16,451		2.49	%		2,610,927			19,349		2.98	%		2,581,391			21,604		3.36	%

Noninterest-bearing liabilities and shareholders’ equity
Noninterest-bearing demand		379,240								399,304								401,698								394,352								379,240								405,179
Other liabilities		31,681								23,915								22,669								31,145								31,681								22,832
Shareholders’ equity		276,815								276,269								286,453								278,803								276,815								282,354

Total liabilities and shareholders’ equity	$	3,298,663							$	3,338,828							$	3,299,346							$	3,361,649							$	3,298,663							$	3,291,756

Net interest income				$	28,249							$	29,079							$	30,403							$	28,414							$	28,249							$	29,601

Net interest spread							3.39	%							3.34	%							3.68	%							3.38	%							3.39	%							3.51	%
Contribution of noninterest-bearing sources of funds							0.39	%							0.45	%							0.44	%							0.34	%							0.39	%							0.46	%

Net interest margin⁽²⁾							3.78	%							3.79	%							4.12	%							3.72	%							3.78	%							3.97	%

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 tables (dollars in $000’s).


	Changes for the Three Months Ended March 31																		Changes for the Three Months Ended June 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	$	(54	)	$	(134	)	$	(188	)	$	(239	)	$	(249	)	$	(488	)	$	(100	)	$	967		$	867		$	(210	)	$	716		$	506
Federal funds sold		(296	)		(363	)		(659	)		(613	)		(578	)		(1,191	)		78			(603	)		(525	)		(323	)		(878	)		(1,201	)
Gross loans⁽¹⁾		(2,643	)		(345	)		(2,988	)		(4,541	)		2,198			(2,343	)		(3,851	)		776			(3,075	)		(7,407	)		1,762			(5,645	)

Total earning assets		(2,993	)		(842	)		(3,835	)		(5,393	)		1,371			(4,022	)		(3,873	)		1,140			(2,733	)		(7,940	)		1,600			(6,340	)
Interest-bearing liabilities
Total interest-bearing deposits	$	(2,242	)	$	(257	)	$	(2,499	)	$	(1,795	)	$	525		$	(1,270	)	$	(2,786	)	$	(318	)	$	(3,104	)	$	(4,756	)	$	(18	)	$	(4,774	)
Borrowed funds
Short-term borrowings		(292	)		(127	)		(419	)		(251	)		47			(204	)		(251	)		589			338			(477	)		623			146
Federal Home Loan Bank long-term debt		3			(63	)		(60	)		5			(158	)		(153	)		2			(24	)		(22	)		6			(164	)		(158	)
Other long-term debt		(22	)		(5	)		(27	)		(42	)		(199	)		(242	)		(110	)		0			(110	)		(216	)		(151	)		(367	)

Total borrowed funds		(311	)		(195	)		(506	)		(288	)		(310	)		(598	)		(359	)		565			206			(687	)		308			(379	)

Total interest-bearing liabilities		(2,553	)		(452	)		(3,005	)		(2,083	)		215			(1,868	)		(3,145	)		247			(2,898	)		(5,443	)		290			(5,153	)

Net interest income⁽²⁾	$	(440	)	$	(390	)	$	(830	)	$	(3,310	)	$	1,156		$	(2,154	)	$	(728	)	$	893		$	165		$	(2,497	)	$	1,310		$	(1,187	)

common ~~shares comprised~~shares. Excluding this item, second quarter 2008 noninterest income increased $0.5 million or 3.5% from the first quarter of 2008 primarily due to increases in service charge income on deposit accounts and bankcard related activity, offset by both lower gains on the sale of mortgage loans and lower other income due to valuation adjustments on assets carried at market value.

Year-to-date noninterest income was $28.6 million in 2008 compared to $28.9 million in 2007, a ~~$1.1~~$0.3 million or 0.9% decrease. Noninterest income in the first quarter 2008 included a $1.6 million gain onassociated with the ~~share~~partial redemption ~~and the reversal~~ of ~~the $0.5 million litigation reserve established~~Visa Inc. common shares. Noninterest income in the ~~fourth quarter of 2007. The~~ first quarter of 2007 included a $1.1 million gain on the sale of ~~the servicing rights for First Financial’s residential real estate loans serviced for others.~~mortgage services rights. Excluding these items, ~~first quarter of~~year-to-date 2008 noninterest income decreased ~~$0.4~~$0.8 million or 2.9% from the ~~first quarter of 2007~~prior year comparable period primarily due to lower earnings from bank-owned life insurance ~~offset by higher trust~~ and ~~wealth management fees.~~

On a linked-quarter basis, total noninterest income decreased $5.4 million or 26.6%. First quarter of 2008 noninterest income included the previously mentioned $1.6 million Visa Inc. gain, and the fourth quarter of 2007 included a $5.5 million gain on the sale of First Financial’s merchant payment processing portfolio. Excluding these items, first quarter of 2008 noninterest income decreased $1.5 million or 10.0% from the fourth quarter of 2007 primarily due to a seasonal decline in service charges on ~~deposit accounts and lower trust and~~deposits, offset by increases in wealth management fees ~~offset by higher~~and bankcard income.

NONINTEREST EXPENSE

~~Total noninterest~~Noninterest expense ~~decreased $2.2~~was $28.0 million in the second quarter 2008 compared to $29.4 million in the second quarter 2007, a decrease of $1.4 million or ~~7.0% during the first quarter of 2008 as compared to the first quarter of 2007~~5.0% primarily due to a $1.3 million reduction in the ~~following:~~

	•		decreases in salaries and employee benefits of $1.9 million primarily due to a $0.9 million reduction in severance costs, $0.5 million reduction in salaries and incentive-based compensation as a result of an overall reduction in staffing levels, and $0.2 million reduction in pension and other retirement-related expenses

	•		~~decreases in marketing related costs of $0.4 million primarily due to the costs associated with the branding initiative in 2007~~

liability for retiree medical benefits, which is not expected to be recurring. Excluding the $1.3 million, the decrease was $0.2 million or 0.6%.

On a linked-quarter basis, noninterest expense decreased ~~$2.4~~$1.0 million or ~~7.5%~~3.6% to $28.0 million in the second quarter 2008 from $29.0 million in the ~~fourth~~first quarter 2008 primarily as a result of ~~2007. This decrease~~a $1.3 million reduction in the liability for retiree medical benefits offset by an increase in professional services and seasonal travel costs. Excluding the effects of the retiree medical benefit liability, noninterest expense increased approximately $0.2 million or 0.6%.

Year-to-date noninterest expense was $57.0 million in 2008 compared to $60.7 million in 2007, a $3.7 million or 6.0% decrease. This reduction is primarily ~~due~~the result of a $3.1 million decrease in salary and benefits, with an approximate $1.2 million reduction in base salary expense and $1.9 million reduction in associated pension and retiree costs. The remainder of the decrease is a result of lower marketing related expenses as compared to ~~the $2.2 million pension settlement charge which occurred in the fourth quarter of~~ 2007. ~~The prior period pension settlement charge was an acceleration of costs that were previously deferred under pension accounting rules and would have been recognized in future periods.~~

INCOME TAXES

Income tax expense was ~~$3.5~~$3.9 million and ~~$4.1~~$4.0 million for the ~~first~~second quarters of 2008 and 2007, respectively. The effective taxes rates for the ~~first~~second quarters of 2008 and 2007 were ~~32.6%~~33.3% and 33.0%, respectively.

Income tax expense was $7.4 million and $8.2 million for the six months ended June 30, 2008, and 2007, respectively, with a tax benefit related to securities transactions of $0.6 million and $0.2 million for the six months ended June 30, 2008 and 2007, respectively. The effective tax rate for the six months ended June 30, 2008, and 2007, was 32.9% and 33.0%, respectively.

ASSETS

Loan growth continues to be driven by First Financial’s efforts to deepen its market presence, primarily in its metropolitan ~~markets, resulting in the mix~~markets. The company continues to shift its lending from lower yielding consumer ~~lending~~loans to higher yielding commercial loans. Average total loans during the ~~first~~second quarter of 2008 increased ~~$109.9~~$114.8 million or ~~4.4%~~4.5% from the comparable period a year ago. Average commercial, commercial real estate, and construction loans increased ~~$228.7~~$221.0 million or ~~16.1%~~14.6% from the ~~first~~second quarter of 2007.

During late 2005 and early 2006, management made a number of strategic decisions to realign its balance sheet and change its lending focus. These decisions included exiting indirect installment lending and no longer holding its residential real estate loan originations on the balance sheet. This has resulted in the cumulative reduction in indirect installment and residential real estate loan balances of ~~$206~~$214 million and ~~$194~~$215 million, respectively, since that time.

Average total loans for the ~~first~~second quarter of 2008 ~~remained relatively flat, increasing $8.1~~increased $51.9 million or ~~1.2%~~8.0% on an annualized basis from the ~~fourth~~first quarter of ~~2007;~~2008; however, average commercial, commercial real estate, and construction loans increased ~~$28.6~~$79.1 million or ~~7.0%~~19.2% on an annualized basis from the ~~fourth~~first quarter of 2008.

Year-to-date 2008 average total loans increased $112.2 million or 4.5% from the comparable period in 2007. However, average commercial, commercial real estate, and construction loans increased $224.6 million or 15.3% from the comparable period in 2007.

Securities available-for-sale were $421.7 million at June 30, 2008, compared to $313.6 million at June 30, 2007, and $345.1 million at March 31, ~~2008, compared to $325.8 million at March 31, 2007, and $306.9 million at December 31, 2007.~~2008. The combined investment portfolio was ~~11.7%~~13.4% and ~~11.0%~~10.8% of total assets at June 30, 2008, and 2007, respectively, and 11.7% of total assets at March 31, ~~2008,~~2008. At December 31, 2007, securities available-for-sale were $306.9 million, and ~~2007, respectively, and~~the combined investment portfolio was 10.3% of total ~~assets at December 31, 2007.~~assets. The investment portfolio, as a percentage of total assets, remains low relative to our peers; however, First Financial is reviewing various portfolio strategies and expects to increase this percentage as opportunities present themselves. At ~~March 31,~~June 30, 2008, First Financial held approximately ~~58%~~65% of its available-for-sale securities in mortgage related instruments, substantially all of which are held in highly rated agency pass-through residential mortgage instruments. Among other factors, portfolio selection criteria avoid securities backed by sub-prime assets and also those containing assets that would give rise to material geographic concentrations.

In the first quarter of 2008, First Financial adopted ~~SFAS~~FASB Statement No. 159 ~~effective January 1, 2008. This statement permits the initial~~(SFAS No. 159), “The Fair Value Option for Financial Assets and ~~subsequent measurement~~Financial Liabilities – Including an Amendment of ~~many financial instruments and certain other assets and liabilities at fair value on an instrument-by-instrument, irrevocable basis.~~FASB Statement No. 115.” First Financial applied the fair value option to its equity securities of government sponsored entities (“GSE”), specifically 200,000 Federal Home Loan Mortgage Corporation perpetual preferred series V ~~shares,~~shares; and these securities are classified as trading investment securities. During the first quarter, there was minimal change in the carrying and market value of those securities ~~at March 31,~~as compared to year end 2007 and therefore no material income statement effect was recognized. During the second quarter of 2008, there was significant volatility in the market value of this GSE and while First ~~Financial’s Consolidated Balance Sheets.~~Financial still holds the securities, it recorded a loss in market value, through the income statement, of $0.2 million. Since the end of the second quarter, there remains uncertainty surrounding the government’s plans for the GSE which has had an effect on the post-second quarter market value of these securities. The fair value accounting treatment discussed above will require First Financial to recognize in its income statement both the market value increases and decreases in future periods.

DEPOSITS AND FUNDING

Total deposit balances, both average and period-end, ~~were up slightly~~declined on both a ~~year-over-year basis~~comparative quarter and ~~declined~~ on a linked-quarter basis. ~~The seasonal fluctuation~~Much of the decline has been the result of the overall level of deposit rates in our markets and the decision not to be a price leader when, in our view, it is not profitable to do so. While First Financial has experienced balance outflow in the time and wholesale categories due to this decision, net inflows in period end noninterest-bearing deposits on a year-over-year and linked-quarter basis have occurred.

Average transaction account balances increased approximately $22.8 million or 1.9% from ~~a large commercial noninterest-bearing account was~~ the ~~primary reason~~second quarter 2007. Average total interest-bearing deposits for the ~~linked-quarter decline. Transaction~~second quarter 2008 decreased $3.0 million or 0.1%, and average noninterest-bearing deposits decreased $10.8 million or 2.7%, both from the second quarter 2007. Average deposits for the second quarter 2008 decreased $13.8 million or 0.5% from the comparable period a year ago.

Period-end and average noninterest-bearing deposits increased $14.0 million and $15.1 million, respectively from the first quarter 2008. Average total deposits for the second quarter 2008 decreased $37.0 million or 5.2% on an annualized basis from the first quarter 2008. Average total interest-bearing deposits decreased $52.1 million or 8.5%, and average noninterest-bearing deposits increased $15.1 million or 15.9%, both on an annualized basis from the first quarter 2008. Average transaction account balances ~~both~~decreased approximately $26.2 million or 8.5%, on an annualized basis from the first quarter 2008.

~~time deposits, rather than more traditional transaction accounts, continues to result in shifts in deposit mix and behavior-based margin compression.~~

Average deposits for the first quarter of 2008 increased $23.7 million or 0.8% from the comparable period a year ago. Average total interest-bearing deposits for the first quarter of 2008 increased $46.1 million or 1.9%, and average noninterest-bearing deposits decreased $22.5 million or 5.6%, both from the first quarter of 2007. Average transaction account balances increased approximately $41 million or 3.4% from the first quarter of 2007.

Average deposits for the first quarter of 2008 decreased $28.5 million or 4.0% on an annualized basis from the fourth quarter of 2007. Average total interest-bearing deposits decreased $8.4 million or 1.4%, and average noninterest-bearing deposits decreased $20.1 million or 20.1%, both on an annualized basis from the fourth quarter of 2007. Average transaction account balances increased approximately $22 million or 7.3%, offset by the runoff of time and wholesale account balances of approximately $31 million or 9.9%, both on an annualized basis from the fourth quarter of 2007. Period-end noninterest-bearing deposits decreased $60.7 million from the fourth quarter of 2007 primarily due to the seasonal deposit activity of large commercial clients. balance sheet management processes.

ALLOWANCE FOR LOAN AND LEASE LOSSES

Management maintains the allowance at a level that is considered sufficient to absorb inherent risks in the loan portfolio. Management’s evaluation in establishing the adequacy of the allowance includes evaluation of 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, and other pertinent factors, such as 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. 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.

~~While most indications point~~First Financial’s credit quality metrics continue to ~~a continued decline in~~be favorably impacted by its consistent focus on strong underwriting and the 2005 strategic decision to shift away from certain consumer-based lending. While the performance of certain real estate and consumer-based lending products has continued to decline as a result of the broad economic downturn, First Financial’s overall credit quality remains stable. ~~First Financial’s~~As the composition of the total loan portfolio ~~has, and continues to shift away~~migrates from ~~most~~ consumer-based ~~lending. As such,~~lending, the expected effects on First Financial from such economic conditions, relative to the industry, should be less severe. Additionally, the mix of the total loan portfolio has shifted not only in product type, but in the risk profile of the borrowers due to the improvements in both underwriting and in the resolution strategies used for problem credits. However, there always remains the possibility of an unexpected event or a further deterioration in the economy which could ~~result in~~lead to higher credit costs.

Total nonperforming asset levels have remained relatively consistent over the past ~~four~~five quarters ~~fluctuating less than 5% since~~with the ratio of nonperforming assets to total assets ranging from a low of 51 basis points to a high of 55 basis points. At the end of the second quarter of ~~2007. At~~2008, total nonperforming assets were $19.1 million, an increase of $1.5 million from the end of the first quarter of 2008. Compared to the end of the first quarter of 2008, ~~total nonperforming assets were $17.6 million, an increase of $0.3 million from the end of the fourth quarter of 2007. Compared to the end of the fourth quarter of 2007,~~ the ratio of nonperforming loans to total loans ~~increased 2~~decreased 1 basis ~~points~~point to 5857 basis points at the end of the ~~first~~second quarter of 2008, and the ratio of nonperforming assets to period-end loans, plus other real estate owned, ~~remained consistent at 67~~increased 4 basis points to 71 basis points at the end of the ~~first~~second quarter of 2008. Other real estate owned increased $1.4 million during the second quarter 2008 and was equally spilt between commercial and residential categories. A number of the properties are under sale contract and lengthy holding periods are not anticipated.

Delinquency trends have remained relatively stable over the past five quarters with total loans 30-89 days past due, at June 30, 2008, of $22.1 million or 0.83% of period end loans. Since the end of the second quarter of 2008, approximately $3.9 million of these deliquencies have either been paid down or resolved. Management closely monitors these trends and ratios and considers the current level of delinquent loans consistent with our expectations of the total loan portfolio’s behavior.

First Financial’s allowance for loan and lease losses was $29.6 million at June 30, 2008 compared to $29.7 million at March 31, 2008, and $28.1 million at June 30, 2007. The allowance for loan and lease losses at June 30, 2008, was 2.8 times the second quarter annualized net charge-offs, consistent with the 2.9 times at March 31, 2008. The allowance for loan and lease losses to period-end loans ratio was ~~1.14%~~1.11% as of June 30, 2008, compared to the June 30, 2007, and March 31, ~~2007,~~2008, ratios of 1.10% and ~~December 31, 2007,~~1.14%, respectively. Overall credit coverage ratios remain strong at June 30, 2008, with the allowance for

nonperforming assets are secured by real estate, and this collateral has been appropriately considered in establishing the allowance for loan and lease losses.

At ~~March 31,~~June 30, 2008, the commercial real estate and real estate construction loan portfolio totaled ~~$899.1~~$955.7 million, or ~~34.4%~~35.7% of total loans, including ~~$130.2~~$136.0 million or ~~5.0%~~5.1% of total loans for commercial real estate construction, and ~~$42.5~~$50.2 million or ~~1.6%~~1.9% of total loans, for residential construction, land acquisition, and development. In this challenging environment, lenders are closely monitoring the status of all residential construction and land development projects and First Financial is no different. At June 30, 2008, First Financial had one construction and development loan totaling $0.5 million reported as a nonperforming loan. First Financial believes its internal lending policies, ~~and extensive~~comprehensive underwriting standards and aggressive monitoring and frequent communication with borrowers are key to ~~managing~~limiting credit exposure from both the residential construction and land acquisition and development segments in any particular project.

First Financial continually 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.

Shared national credit exposure for First Financial is approximately $37 million or 1.4% of total loans, and is dispersed among 40 credits. These loans were acquired over the past 18 months and have no single credit exposure greater than $2 million. These loans are held in the loan portfolio and each has been subjected to the customary commercial loan underwriting process and is routinely monitored for credit deterioration. As of the June 30, 2008, the values and reserves for these loans were deemed appropriate.

Since the first quarter of 2007, First Financial has experienced ~~nearly 10%~~11.2% growth in its total home equity loan portfolio average balances. While this category of loans has proven problematic for some in our industry, First Financial believes its current underwriting criteria coupled with the monitoring of a number of metrics including credit scores, loan-to-value ratios, line size, and usage, provides adequate oversight for the growth. The origination methods for our home equity lending also keep both the credit decision and the documentation under the control of First Financial associates. Our recent spike in credit losses for home equity is attributable to a few large credits that were originated several years ago, prior to the standardization of our underwriting guidelines. The remaining portfolio of loans that have a similar profile have been reviewed and have been appropriately accounted for in the second quarter. At June 30, 2008, approximately 98% of the outstanding home equity loans had a credit line size of less than $250 thousand and had an average outstanding balance of $24 thousand. First Financial maintains a strong pricing discipline for its home equity loan product and does not sacrifice loan quality for growth.

In the second quarter of 2005, First Financial made the strategic ~~decision~~decisions to discontinue the origination of residential real estate loans for retention on its balance ~~sheet.~~sheet and to exit its indirect installment lending. As a result, the residential real estate ~~portfolio has~~and indirect installment portfolios have declined ~~$194~~$215 million excluding the impact of the loan sales, since that time. In the first quarter of 2007, First Financial sold the servicing of its remaining residential real estate portfolio and established an agreement to sell substantially all its 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.

~~First~~Second quarter of 2008 net charge-offs were $2.6 million, an annualized 40 basis points of average loans, compared to ~~first~~second quarter of 2007 net charge-offs of ~~$1.3~~$1.4 million, an annualized 23 basis points of average loans, and first quarter of 2008 net charge-offs of $2.6 million, an annualized 40 basis points of average loans. Year-to-date 2008 net charge-offs were $5.2 million, an annualized 40 basis points of average loans, compared to year-to-date 2007 net charge-offs of $2.8 million, an annualized 22 basis points of average ~~loans,~~loans. Both the first and ~~fourth quarter~~second quarters of ~~2007 net charge-offs of $1.7 million, an annualized 26 basis points of average loans. Approximately $0.5 million or 8 basis points of the increase is due to the impact of four~~2008 were adversely impacted by a few large home equity loan ~~charge-offs.~~ charge-offs totaling approximately 8 basis points and 7 basis points, respectively. Based on our current knowledge, First Financial believes this two quarter volatility, in terms of individual loan charge-off size, is unusual and expects that overall charge-off levels for home equity should return to historical levels.

From an industry perspective, home equity lending may continue to experience stress, as borrowers come under continued pressure in the current economic environment. First Financial’s overall credit quality metrics for its home equity loan portfolio continue to remain stable, as over the past eight quarters both the home equity net charge-off ratio and ratio of nonaccrual home equity loans to total home equity loans have consistently been below 50 basis points, when the previously mentioned first ~~quarter~~half of 2008 home equity loan charge-offs are excluded. First Financial has underwritten all home equity loans held in its portfolio and has not utilized the much publicized brokerage channel for originations. First Financial continues to actively monitor its home equity loan portfolio but may experience similar volatility in upcoming quarters.

The provision for loan and lease losses for the ~~first~~second quarter of 2008 was ~~$3.2~~$2.5 million compared to ~~$1.4~~$2.1 million for the same period in 2007 and ~~$1.6~~$3.2 million for the linked-quarter. Year-to-date provision for loan and lease losses was $5.7 million for 2008 and $3.5 million for 2007. The increase in provision expense from these periods is primarily ~~due to~~ due to our current estimate of potential losses inherent in the loan portfolio, primarily driven by changes in consumer-based credit.

It is management’s belief that the ~~$29.7~~$29.6 million allowance for loan and lease losses at ~~March 31,~~June 30, 2008, 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.

The table that follows indicates the activity in the allowance for loan losses for the quarterly and year-to-date periods presented (dollars in $000’s).


	Three Months Ended															Three Months Ended															Six Months Ended
	2008			2007												2008						2007									June 30,
	Mar. 31			Dec. 31			Sep. 30			Jun. 30			Mar. 31			June 30			Mar. 31			Dec. 31			Sep. 30			June 30			2008			2007

ALLOWANCE FOR LOAN AND LEASE LOSS ACTIVITY
Balance at beginning of period	$	29,057		$	29,136		$	28,060		$	27,407		$	27,386		$	29,718		$	29,057		$	29,136		$	28,060		$	27,407		$	29,057		$	27,386
Provision for loan losses		3,223			1,640			2,558			2,098			1,356			2,493			3,223			1,640			2,558			2,098			5,716			3,454
Gross charge-offs
Commercial		545			1,433			1,008			920			746			946			545			1,433			1,008			920			1,491			1,666
Real estate – commercial		806			465			76			176			146
Real estate – residential		39			33			49			57			116
Commercial real estate																	589			806			465			76			176			1,395			322
Retail real estate																	227			39			33			49			57			266			173
Installment		564			522			471			604			741			482			564			522			471			604			1,046			1,345
Home equity		651			285			189			149			139			525			651			285			189			149			1,176			288
All other		498			304			304			224			265			426			498			304			304			224			924			489

Total gross charge-offs(1)		3,103			3,042			2,097			2,130			2,153			3,195			3,103			3,042			2,097			2,130			6,298			4,283
Recoveries
Commercial		144			342			145			246			269
Real estate – commercial		3			632			124			48			58
Real estate – residential		11			3			25			10			18
Recoveries Commercial																	166			144			342			145			246			310			515
Commercial real estate																	19			3			632			124			48			22			106
Retail real estate																	5			11			3			25			10			16			28
Installment		315			242			263			288			346			246			315			242			263			288			561			634
Home equity		0			19			12			25			76			30			0			19			12			25			30			101
All other		68			85			46			68			51			98			68			85			46			68			166			119

Total recoveries		541			1,323			615			685			818			564			541			1,323			615			685			1,105			1,503

Total net charge-offs		2,562			1,719			1,482			1,445			1,335			2,631			2,562			1,719			1,482			1,445			5,193			2,780

Ending allowance for loan losses	$	29,718		$	29,057		$	29,136		$	28,060		$	27,407		$	29,580		$	29,718		$	29,057		$	29,136		$	28,060		$	29,580		$	28,060


NET CHARGE-OFFS TO AVERAGE LOANS AND LEASES (ANNUALIZED)
NET CHARGE-OFFS TO AVERAGE LOANS AND LEASES (ANNUALIZED)⁽¹⁾
Commercial		0.21	%		0.56	%		0.45	%		0.37	%		0.28	%		0.39	%		0.21	%		0.56	%		0.45	%		0.37	%		0.30	%		0.33	%
Real estate – commercial		0.46	%		-0.10	%		-0.03	%		0.08	%		0.06	%
Real estate – residential		0.02	%		0.02	%		0.02	%		0.03	%		0.06	%
Commercial real estate																	0.31	%		0.46	%		(0.10	%)		(0.03	%)		0.08	%		0.38	%		0.07	%
Retail real estate																	0.18	%		0.02	%		0.02	%		0.02	%		0.03	%		0.10	%		0.05	%
Installment		0.75	%		0.76	%		0.53	%		0.74	%		0.85	%		0.78	%		0.75	%		0.76	%		0.53	%		0.74	%		0.77	%		0.80	%
Home equity		1.04	%		0.43	%		0.29	%		0.21	%		0.11	%		0.77	%		1.04	%		0.43	%		0.29	%		0.21	%		0.90	%		0.16	%
All other																	0.64	%		0.92	%		0.48	%		0.62	%		0.44	%		0.77	%		0.56	%

All other		0.92	%		0.48	%		0.62	%		0.44	%		0.70	%
Total net charge-offs		0.40	%		0.26	%		0.23	%		0.23	%		0.22	%
Total net charge-offs⁽¹⁾																	0.40	%		0.40	%		0.26	%		0.23	%		0.23	%		0.40	%		0.22	%

NONPERFORMING/UNDERPERFORMING ASSETS

The ratio of nonperforming loans to total loans decreased from 59 basis points at the end of the second quarter of 2007 to 57 basis points at the end of the second quarter of 2008. Total nonperforming assets at the end of the ~~first~~second quarter of 2008 were ~~$17.6~~$19.1 million, an increase of ~~$3.6~~$2.1 million from the end of the ~~first~~second quarter of 2007 primarily due to a higher level of nonaccrual residential loans and other real estate ~~loans consistent with the industry~~owned, offset by a decline in both commercial and ~~weakness in the consumer sector. As a result, the~~commercial real estate loans.

The ratio of nonperforming loans to total loans ~~increased~~decreased from ~~45 basis points at the end of the first quarter of 2007 to~~ 58 basis points at the end of the first quarter of ~~2008. This 13 basis point increase in the ratio of nonperforming loans~~2008 to total loans, combined with the recent developments in the overall consumer credit environment, have been the primary drivers for the increase in the allowance for loan and lease losses to total loans ratio from 1.10% to 1.14%. The ratio of nonperforming assets to period-end loans, plus other real estate owned, increased from 5657 basis points at the end of the ~~first quarter of 2007 to 67 basis points at the end of the first quarter of 2008.~~

Total nonperforming assets on a linked-quarter basis increased $0.3 million from the end of the fourth quarter of 2007. The ratio of nonperforming loans to total loans increased from 56 basis points at the end of the fourth quarter of 2007 to 58 basis points at the end of the firstsecond quarter of 2008, and the ratio of nonperforming assets to period-end loans, plus other real estate owned, ~~remained consistent at~~increased from 67 basis points at the end of the first quarter of 2008 ~~as compared~~ to 71 basis points at the end of the ~~fourth~~second quarter of ~~2007.~~2008. Total nonperforming assets on a linked-quarter basis increased $1.5 million from the end of the first quarter of 2008.

Accruing loans, including impaired 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.

The table that follows shows the categories that are included in nonperforming and underperforming assets as of ~~March 31,~~June 30, 2008, and the four previous quarters, as well as related credit quality ratios (dollars in $000’s).


	Three Months Ended															Quarter Ended
	2008			2007												2008						2007
	Mar. 31			Dec. 31			Sep. 30			Jun. 30			Mar. 31			June 30			Mar. 31			Dec. 31			Sep. 30			June 30

Nonaccrual loans
Commercial	$	3,952		$	2,677		$	3,782		$	6,812		$	2,529		$	5,447		$	3,952		$	2,677		$	3,782		$	6,812
Real estate — commercial		4,415			5,965			5,343			4,140			4,947
Real estate — residential		4,529			3,063			2,147			1,694			1,311
Real estate – commercial																	3,592			4,415			5,965			5,343			4,140
Real estate – residential																	4,461			4,529			3,063			2,147			1,694
Installment		544			734			745			681			920			438			544			734			745			681
Home equity		1,221			1,662			1,117			1,048			1,038			866			1,221			1,662			1,117			1,048
All other		30			12			8			21			20			8			30			12			8			21

Total nonaccrual loans		14,691			14,113			13,142			14,396			10,765			14,812			14,691			14,113			13,142			14,396
Restructured loans		562			567			574			581			588			554			562			567			574			581

Total nonperforming loans		15,253			14,680			13,716			14,977			11,353			15,366			15,253			14,680			13,716			14,977
Other real estate owned (OREO)		2,368			2,636			3,124			2,023			2,672			3,763			2,368			2,636			3,124			2,023

Total nonperforming assets		17,621			17,316			16,840			17,000			14,025			19,129			17,621			17,316			16,840			17,000
Accruing loans past due 90 days or more		372			313			222			165			81			245			372			313			222			165

Total underperforming assets	$	17,993		$	17,629		$	17,062		$	17,165		$	14,106		$	19,374		$	17,993		$	17,629		$	17,062		$	17,165


Allowance for loan and lease losses to
Nonaccrual loans		202.29	%		205.89	%		221.70	%		194.92	%		254.59	%		199.70	%		202.29	%		205.89	%		221.70	%		194.92	%
Nonperforming loans		194.83	%		197.94	%		212.42	%		187.35	%		241.41	%
Nonperforming assets																	192.50	%		194.83	%		197.94	%		212.42	%		187.35	%
Total ending loans		1.14	%		1.12	%		1.12	%		1.10	%		1.10	%		1.11	%		1.14	%		1.12	%		1.12	%		1.10	%
Nonperforming loans to total loans		0.58	%		0.56	%		0.53	%		0.59	%		0.45	%
Nonaccrual loans to total loans																	0.57	%		0.58	%		0.56	%		0.53	%		0.59	%
Nonperforming assets to
Ending loans, plus OREO		0.67	%		0.67	%		0.65	%		0.67	%		0.56	%		0.71	%		0.67	%		0.67	%		0.65	%		0.67	%
Total assets		0.53	%		0.51	%		0.51	%		0.52	%		0.42	%		0.55	%		0.53	%		0.51	%		0.51	%		0.52	%

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 the 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 minimize dependence on large concentrations of funding sources.

Capital expenditures, such as banking center expansions and technology investments, were ~~$1.4~~$3.8 million and ~~$1.5~~$2.7 million for the first ~~three~~six months of 2008 and 2007, respectively. Management believes that First Financial has sufficient liquidity to fund its future capital expenditure commitments.

~~In addition, from~~From time to time, First Financial utilizes its short-term line of credit and longer-term advances from the Federal Home Loan Bank (FHLB) as a funding ~~source.~~sources. At ~~March~~June 30, 2008 and December 31, 2007, total short-term borrowings from the FHLB were $237.9 million and $0, respectively. At June 30, 2008, and December 31, 2007, total long-term borrowings from the FHLB were ~~$42.4~~$41.3 million and $45.9 million, respectively. The total available remaining borrowing capacity from the FHLB at ~~March 31,~~June 30, 2008, was ~~$384.7~~$108.9 million.

As of ~~March 31,~~June 30, 2008, First Financial has pledged certain residential real estate loans totaling ~~$546.5~~$528.7 million as collateral for borrowings to the FHLB. For ease of borrowing execution, First Financial utilizes a blanket collateral agreement with the FHLB.

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 ~~$345.1~~$421.7 million at ~~March 31,~~June 30, 2008. 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 $0.5 million at ~~March 31,~~June 30, 2008. The market value of securities classified as trading totaled ~~$3.8~~$3.6 million at ~~March 31,~~June 30, 2008. 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 ~~$2.9~~$4.0 million at ~~March 31,~~June 30, 2008.

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. Dividends paid to First Financial from its subsidiaries totaled ~~$7.4~~$14.6 million for the first ~~quarter~~half of 2008. As of ~~March 31,~~June 30, 2008, First Financial’s subsidiaries had retained earnings of ~~$133.8~~$135.7 million of which ~~$0.4~~$2.2 million was available for distribution to First Financial 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 short-term revolving credit facility with an unaffiliated bank. This facility provides First Financial additional liquidity for various corporate activities, including the repurchase of First Financial shares and the payment of dividends to shareholders. As of ~~March 31,~~June 30, 2008, the outstanding balance was ~~$53.0~~$54.0 million compared to an outstanding balance of $72.0 million at December 31, 2007. The outstanding balance of this line varies throughout the year depending on First Financial’s cash needs. First Financial renewed the $75.0 million credit facility during the first quarter of 2008 for a period of one year. The credit agreement requires First Financial to maintain certain covenants including those related to asset quality and capital levels. First Financial was in full compliance with all covenants as of ~~March 31, 2008, and December 31, 2007.~~June 30, 2008.

First Financial Bancorp makes quarterly interest payments on its junior subordinated debentures owed to unconsolidated subsidiary trusts. Interest expense related to this other long-term debt totaled ~~$0.4~~$0.3 million and $0.7 million for the three months ending ~~March 31,~~June 30, 2008, and 2007, respectively. Year-to-date interest expense totaled $0.7 million and $1.3 million for the six months ending June 30, 2008, and 2007, respectively. In September of 2007, First Financial redeemed all the underlying capital securities relating

First Financial had no share repurchase activity under publicly announced plans in the first ~~quarter~~half of 2008, and at this time, First Financial does not plan to repurchase any of its shares the remainder of 2008. In the first ~~quarter~~half of 2007, First Financial repurchased ~~244,000~~496,000 common shares at a cost of ~~$3.9~~$7.7 million and a weighted average share repurchase price of ~~$16.11.~~$15.58.

In connection with First Financial’s adoption of SFAS No. 159 effective January 1, 2008, a $0.8 million unrealized loss was reclassified from accumulated other comprehensive income (loss) to beginning retained earnings as part of a cumulative-effect adjustment. There was no impact on total shareholders’ equity upon adoption.

First Financial also adopted EITF Issue No. 06-4 effective January 1, 2008. Issue No. 06-4 applies to split-dollar life insurance arrangements whose benefits continue into the employees’ retirement. First Financial recorded a transition adjustment in the amount of $2.5 million for the impact of this EITF effective January 1, 2008, as a reduction of opening retained earnings and an increase in accrued interest and other liabilities in the Consolidated Balance Sheets.

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. Consolidated regulatory capital ratios at June 30, 2008, included the leverage ratio of 8.21%, Tier 1 ratio of 9.99%, and total capital ratio of 11.06%. All regulatory capital ratios exceeded the amounts necessary to be classified as “well capitalized,” and total regulatory capital exceeded the “minimum” requirement by approximately $84.1 million, on a consolidated basis. The tangible capital ratio decreased from 7.55% at March 31, 2008, to 7.18% at June 30, 2008, primarily as a result of loan and investment portfolio growth.

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,~~June 30, 2008, that First Financial met all capital adequacy requirements to which it was subject. At ~~March 31,~~June 30, 2008, and December 31, 2007, 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 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 unrealized gains on equity securities.

For purposes of calculating the leverage ratio, average assets represents quarterly 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.

Forecasted growth in certain earning asset classes is expected to continue while risk-based capital relief is expected from other balance sheet strategies under consideration for execution in the third and fourth quarters including asset securitizations and non-strategic asset sales, which would likely generate non-

2527

recurring gains. First Financial remains vigilant in the management of its capital adequacy and has evaluated its proforma capital under certain stress case scenarios. First Financial believes it has sufficient capital to manage through extreme and extended periods of stress. It is important to note, however, First Financial does not expect to experience these extreme levels of stress and remains comfortable with charge-off estimates of approximately 30 to 40 basis points.

The following table illustrates the actual and required capital amounts and ratios as of ~~March 31,~~June 30, 2008, and the year ended December 31, 2007 (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, 2008
June 30, 2008
Total capital to risk-weighted assets
Consolidated	$	302,332		11.31	%	$	213,779		8.00	%		N/A		10.00	%	$	303,952		11.06	%	$	219,805		8.00	%		N/A		10.00	%
First Financial Bank		340,943		12.82	%		212,763		8.00	%	$	265,954		10.00	%		342,722		12.53	%		218,754		8.00	%	$	273,443		10.00	%

Tier 1 capital to risk-weighted assets
Consolidated		272,614		10.20	%		106,890		4.00	%		N/A		6.00	%		274,372		9.99	%		109,902		4.00	%		N/A		6.00	%
First Financial Bank		303,951		11.43	%		106,382		4.00	%		159,572		6.00	%		305,738		11.18	%		109,377		4.00	%		164,066		6.00	%


Tier 1 capital to average assets
Consolidated		272,614		8.32	%		130,790		4.00	%		N/A		5.00	%		274,372		8.21	%		133,310		4.00	%		N/A		5.00	%
First Financial Bank		303,951		9.35	%		129,829		4.00	%		162,286		5.00	%		305,738		9.19	%		132,813		4.00	%		166,016		5.00	%


December 31, 2007
Total capital to risk-weighted assets
Consolidated	$	303,103		11.38	%	$	213,041		8.00	%		N/A		10.00	%	$	303,103		11.38	%	$	213,041		8.00	%		N/A		10.00	%
First Financial Bank		341,702		12.92	%		211,604		8.00	%	$	264,505		10.00	%		341,702		12.92	%		211,604		8.00	%	$	264,505		10.00	%


Tier 1 capital to risk-weighted assets
Consolidated		274,046		10.29	%		106,520		4.00	%		N/A		6.00	%		274,046		10.29	%		106,520		4.00	%		N/A		6.00	%
First Financial Bank		305,394		11.55	%		105,802		4.00	%		158,703		6.00	%		305,394		11.55	%		105,802		4.00	%		158,703		6.00	%


Tier 1 capital to average assets
Consolidated		274,046		8.26	%		132,395		4.00	%		N/A		5.00	%		274,046		8.26	%		132,395		4.00	%		N/A		5.00	%
First Financial Bank		305,394		9.30	%		131,121		4.00	%		163,901		5.00	%		305,394		9.30	%		131,121		4.00	%		163,901		5.00	%

Management’s determination of the adequacy of the allowance is based on an assessment of the inherent loss given the conditions at the time. The allowance is increased by provisions charged to expense and decreased by charge-offs, net of recoveries of amounts previously charged-off. The allowance for commercial loans, including time and demand notes, tax-exempt loans, commercial real estate, and commercial capital leases begins with a process of estimating the probable losses inherent in the portfolio. The estimates for these commercial loans are established by category and based on First Financial’s internal system of credit risk ratings and historical loss data.

The estimate of losses inherent in the commercial portfolio may then be adjusted for management’s estimate of probable losses on specific exposures as well as trends in delinquent and nonaccrual loans and other factors such as prevailing economic conditions, lending strategies, and other influencing factors. In the commercial portfolio, certain loans, typically larger-balance non-homogeneous exposures, may have a specific allowance established based on the borrower’s overall financial condition, resources and payment record, support from guarantors, and the realizable value of any collateral.

The allowance for consumer loans which includes residential real estate, installment, home equity, credit card, consumer leasing, and overdrafts is established for each of the categories by estimating losses inherent in that particular category of consumer loans. The estimate of losses is primarily based on historical loss rates. Consumer loans are evaluated as an asset type within a category (i.e., residential real estate, installment, etc.), as these loans are smaller and more homogeneous.

Larger balance commercial and commercial real estate loans are impaired when, based on current information and events, it is probable that First Financial will be unable to collect all principal and interest amounts due according to the contractual terms of the loan agreement.

Loans that are impaired are recorded at the present value of expected future cash flows discounted at the loan’s effective interest rate or if the loan is collateral dependent, impairment measurement is based on the fair value of the collateral. Income on impaired loans is recorded on the cash basis.

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 were amortized on a straight-line basis over their useful lives, none of which exceeded 10 years. Core deposit intangibles were fully amortized by the end of the first quarter of 2008.

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.

2729

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 2 to the Consolidated Financial Statements discusses new accounting standards adopted by First Financial during 2008 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.

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 risk that the strength of the United States economy in general and the strength of the local economies in which First Financial conducts operations may be different from expected, resulting in, among other things, a deterioration in credit quality or a reduced demand for credit, including the resultant effect on First Financial’s loan portfolio and allowance for loan and lease losses; 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, 2007, 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.

2830

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 income simulation models and economic value of equity sensitivity analysis that capture both short-term and long-term interest rate risk exposure. Income 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,~~June 30, 2008, assuming immediate, parallel shifts in interest rates:

-200 basis points -100 basis points +100 basis points +200 basis points
March 31, 2008 (10.39 %) (3.73 %) 2.23 % 4.47 %


	-200 basis points			-100 basis points			+100 basis points			+200 basis points
June 30, 2008		(5.82	%)		(1.40	%)		0.48	%		0.89	%

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 ~~0.04%~~0.41% 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, 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,~~June 30, 2008, assuming immediate, parallel shifts in interest rates:

-200 basis points -100 basis points +100 basis points +200 basis points
March 31, 2008 (23.27 %) (9.03 %) 2.52 % 2.99 %


	-200 basis points			-100 basis points			+100 basis points			+200 basis points
June 30, 2008		(21.80	%)		(7.06	%)		1.84	%		(0.43	%)

See also “Item 2-Management’s Discussion and Analysis of Financial Condition and Results of Operations—Net Interest Income.”

2931

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.

3032

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 ~~first~~second quarter of 2008.

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, 2008 3,160 $ 10.33 0 4,969,105
February 1 through February 29, 2008 0 0 0 4,969,105
March 1 through March 31, 2008 0 0 0 4,969,105

Total 3,160 $ 10.33 0 4,969,105


	(a)		(b)		(c)		(d)
					Total Number
					of Shares		Maximum Number
	Total Number		Average		Purchased as		of Shares that may
	of Shares		Price Paid		Part of Publicly		yet be purchased
Period	Purchased (1)		Per Share		Announced Plans (2)		Under the Plans
April 1 through April 30, 2008		2,648	$	13.45		0		4,969,105
May 1 through May 31, 2008		0		0		0		4,969,105
June 1 through June 30, 2008		0		0		0		4,969,105

Total		2,648	$	13.45		0		4,969,105


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

3133

(a) (b)
Total Number Average
of Shares Price Paid
Period Purchased Per Share
First Financial Bancorp Thrift Plan

January 1 through
January 31, 2008 0 $ 0.00
February 1 through February 29, 2008 0 0.00
March 1 through March 31, 2008 0 0.00

Total 0 $ 0.00

Director Fee Stock Plan

January 1 through January 31, 2008 3,160 $ 10.33
February 1 through February 29, 2008 0 0.00
March 1 through March 31, 2008 0 0.00

Total 3,160 $ 10.33

Stock Option Plans

January 1 through January 31, 2008 0 $ 0.00
February 1 through February 29, 2008 0 0.00
March 1 through March 31, 2008 0 0.00

Total 0 $ 0.00


	(a)		(b)
	Total Number		Average
	of Shares		Price Paid
Period	Purchased		Per Share
First Financial Bancorp Thrift Plan
April 1 through
April 30, 2008		0	$	0.00
May 1 through May 31, 2008		0		0.00
June 1 through June 30, 2008		0		0.00

Total		0	$	0.00


Director Fee Stock Plan
April 1 through April 30, 2008		2,648	$	13.45
May 1 through May 31, 2008		0		0.00
June 1 through June 30, 2008		0		0.00

Total		2,648	$	13.45


Stock Option Plans
April 1 through April 30, 2008		0	$	0.00
May 1 through May 31, 2008		0		0.00
June 1 through June 30, 2008		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 ~~March 31,~~June 30, 2008, all shares under the 2003 plan have been repurchased. The table that follows provides additional information regarding those plans.

Total Shares

Repurchased

Announcement

Approved for

Under

Expiration

Date

Repurchase

the Plan

Date

1/25/2000

7,507,500

2,538,395

None

2/25/2003

2,243,715

Complete

~~Item 5. Other items~~

On April 28, 2008, the Compensation Committee approved the Long-Term Incentive Plan Grant Design and the Short-Term Incentive Plan Design. Copies of these designs are included as exhibits to this Form 10-Q. Awards were previously reported on a Form 8-K filed with the SEC on February 28, 2008.

3234

Item 6. Exhibits

(a) Exhibits:

	~~(a)~~		~~Exhibits:~~

	3.1		Articles of Incorporation, as amended as of February 26, 2008, and incorporated herein by reference to Exhibit 3.1 to the Form 10-K for the year ended December 31, 2007. File No. 000-12379.

	3.2		Amended and Restated Regulations, as amended as of May 1, 2007, and incorporated herein by reference to Exhibit 3.2 to the Form 10-Q for the quarter ended June 30, 2007. File No. ~~000-12376.~~000-12379.

	4.1		Rights Agreement between First Financial Bancorp. and First National Bank of Southwestern Ohio dated as of November 23, 1993, and incorporated herein by reference to Exhibit 4 to the Form 10-K for year ended December 31, 1998. File No. 000-12379.

	4.2		First Amendment to Rights Agreement dated as of May 1, 1998, and incorporated herein by reference to Exhibit 4.1 to the Form 10-Q for the quarter ended March 31, 1998. File No. 000-12379.

	4.3		Second Amendment to Rights Agreement dated as of December 5, 2003, and incorporated herein by reference to Exhibit 4.1 to First Financial’s Form 8-K filed on December 5, 2003. File No. 000-12379.

	4.4		No instruments defining the rights of holders of long-term debt of First Financial are filed herewith. Pursuant to (b)(4)(iii) of Item 601 of Regulation S-K, First Financial agrees to furnish a copy of any such agreements to the Securities and Exchange Commission upon request.

	10.1		Agreement between 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.

	10.2		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.

	10.3		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.

	10.4		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.

	10.5		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.

	10.6		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.


	10.8		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.

	10.9		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.

	10.10		First Financial Bancorp. Deferred Compensation Plan, effective June 1, 2003, incorporated herein by reference to Exhibit 10.1 to the Form 10-Q for the quarter ended June 30, 2003. File No. 000-12379.

	10.11		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.

	10.12		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.

	10.13		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.

	10.14		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.

	10.15		Form of Stock Option Agreement for Non-Qualified Stock Options, incorporated herein by reference to Exhibit 10.2 of the Form 8-K filed on April 22, 2005. File No. 000-12379.

	10.16		Form of Stock Option Agreement for Restricted Stock Awards, incorporated herein by reference to Exhibit 10.3 to the Form 8-K filed on April 22, 2005. File No. 000-12379.

	10.17		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.

	10.18		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.

	10.19		First Financial Bancorp. Amended and Restated Severance Pay Plan as approved April 28, 2008, incorporated by reference to the Form 10-Q filed on May 9, 2008. File No. 000-12379.

	10.20		Terms 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.

	10.21		First Financial Bancorp. Amended and Restated Key ~~Manager~~Management Severance Plan as approved February 26, 2008, incorporated herein by reference to the Form 10-Q filed on May 9, 2008. File No. 000-12379.


	Page No.
Part I-FINANCIAL INFORMATION

Item 1-Financial Statements

Consolidated Balance Sheets - ~~March 31,~~June 30, 2008 and December 31, 2007		1

Consolidated Statements of Income - Six and Three Months Ended ~~March 31,~~June 30, 2008 and 2007		2

Consolidated Statements of Cash Flows - ~~Three~~Six Months Ended ~~March 31,~~June 30, 2008 and 2007		3

Consolidated Statements of Changes in Shareholders’ Equity - ~~Three~~Six Months Ended ~~March 31,~~June 30, 2008 and 2007		4

Notes to Consolidated Financial Statements		5

Item 2-Management’s Discussion and Analysis of Financial Condition and Results of Operations		15

Item 3-Quantitative and Qualitative Disclosures about Market Risk		2931

Item 4-Controls and Procedures		3032

Part II-OTHER INFORMATION

Item 2-Unregistered Sales of Equity Securities and Use of Proceeds		3133

Item ~~5-Other Information~~4-Submission of Matters to a Vote of Security Holders		3235

Item 6-Exhibits		3336

Signatures		3639
~~EX-10.19~~
~~EX-10.21~~
~~EX-10.22~~
~~EX-10.23~~
~~EX-10.24~~
EX-31.1
EX-31.2
EX-32.1
EX-32.2


	As of and for the Quarter Ended										As of and for the Quarter Ended
	2008		2007								2008				2007
	Mar. 31		Dec. 31		Sep. 30		June 30		Mar. 31		June 30		Mar. 31		Dec. 31		Sep. 30		June 30
Impaired loans requiring a valuation	$	4,721	$	4,822	$	5,325	$	7,309	$	2,911	$	5,279	$	4,721	$	4,822	$	5,325	$	7,309

Valuation allowance	$	2,125	$	2,705	$	2,756	$	3,477	$	1,219	$	2,106	$	2,125	$	2,705	$	2,756	$	3,477

Average impaired loans for the period	$	6,137	$	9,755	$	8,921	$	8,435	$	3,894
Average impaired loans year-to-date											$	8,469	$	6,137	$	9,755	$	8,921	$	8,435


				% of Total			Votes
Name	Term	Votes For		Shares Voted			Withheld
Claude E. Davis	3 years		30,123,425		98.2	%		539,501
Susan L. Knust	3 years		30,171,361		98.4	%		491,565

	10.22		Form of Agreement for Restricted Stock Award dated February 14, 2008, incorporated herein by reference to the Form 10-Q filed on May 9, 2008. File No. 000-12379.

	10.23		Long-Term Incentive Plan Grant Design (2008)., incorporated herein by reference to the Form 10-Q filed on May 9, 2008. File No. 000-12379.

	10.24		Short-Term Incentive Plan Design (2008)., incorporated herein by reference to the Form 10-Q filed on May 9, 2008. 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.


	Held-to-Maturity									Available-for-Sale									Held-to-Maturity									Available-for-Sale
	Amortized		Unrealized		Unrealized			Market		Amortized		Unrealized		Unrealized			Market		Amortized		Unrealized		Unrealized			Market		Amortized		Unrealized		Unrealized			Market
	Cost		Gains		Losses			Value		Cost		Gains		Losses			Value		Cost		Gains		Losses			Value		Cost		Gains		Losses			Value

Securities of U.S. government agencies and corporations	$	0	$	0	$	0		$	0	$	85,126	$	2,310	$	0		$	87,436	$	0	$	0	$	0		$	0	$	65,106	$	964	$	0		$	66,070
Mortgage-backed securities		241		1		(1	)		241		196,799		2,636		(229	)		199,206		221		0		(1	)		220		305,505		976		(3,566	)		302,915
Obligations of state and other political subdivisions		5,173		254		(2	)		5,425		52,767		954		(35	)		53,686		5,095		179		(4	)		5,270		47,768		581		(79	)		48,270
Other securities		0		0		0			0		4,826		180		(189	)		4,817		0		0		0			0		4,807		118		(483	)		4,442

Total	$	5,414	$	255	$	(3	)	$	5,666	$	339,518	$	6,080	$	(453	)	$	345,145	$	5,316	$	179	$	(5	)	$	5,490	$	423,186	$	2,639	$	(4,128	)	$	421,697


												Fair Value Measurements Using						Netting			Assets/Liabilities at
	Fair Value Measurements Using						Netting			Assets/Liabilities at		Level 1		Level 2		Level 3		Adjustments⁽¹⁾			Fair Value
	Level 1		Level 2		Level 3		Adjustments⁽¹⁾			Fair Value
Assets
Trading investment securities⁽²⁾	$	3,820	$	0	$	0	$	0		$	3,820	$	3,598	$	0	$	0	$	0		$	3,598
Derivatives		0		5,030		0		(5,029	)		1		0		3,339		0		(3,303	)		36
Available-for-sale investment securities		228		344,917		0		0			345,145		174		421,523		0		0			421,697

Total	$	4,048	$	349,947	$	0	$	(5,029	)	$	348,966	$	3,772	$	424,862	$	0		($3,303	)	$	425,331

Liabilities — Derivatives	$	0	$	6,970	$	0	$	(5,029	)	$	1,941
Liabilities
Derivatives												$	0	$	4,179	$	0		($3,303	)	$	876


⁽¹⁾		Amounts represent the impact of legally enforceable master netting arrangements that allow First Financial to settle positive and negative positions and also cash collateral held with the same counterparties.

⁽²⁾		Amount represents an item for which First Financial elected the fair value option under SFAS No. 159.


	Fair Value Measurements Using						Year-to-Date		Fair Value Measurements Using						Year-to-Date
	Level 1		Level 2		Level 3		Gains (Losses)		Level 1		Level 2		Level 3		Gains (Losses)
Assets
Loans held for sale	$	0	$	4,108	$	0	$	0	$	0	$	2,228	$	0	$	0
Impaired loans⁽¹⁾		0		2,515		80		0		0		3,068		35		0


⁽¹⁾		Amounts represent the fair value of collateral for impaired loans allocated to the allowance for loan and lease losses.


⁽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.


⁽¹⁾		Loans held for sale and nonaccrual loans are both included in gross loans.

⁽²⁾		Not tax equivalent.


	Changes for the
	Six Months Ended June 30
	Year-to-Date Income Variance
	Rate			Volume			Total
Earning assets
Investment securities	$	(431	)	$	449		$	18
Federal funds sold		(1,020	)		(1,372	)		(2,392	)
Gross loans⁽¹⁾		(11,501	)		3,513			(7,988	)

Total earning assets		(12,952	)		2,590			(10,362	)
Interest-bearing liabilities
Total interest-bearing deposits	$	(6,332	)	$	288		$	(6,044	)
Borrowed funds
Short-term borrowings		(805	)		747			(58	)
Federal Home Loan Bank long-term debt		17			(328	)		(311	)
Other long-term debt		(251	)		(357	)		(608	)

Total borrowed funds		(1,039	)		62			(977	)

Total interest-bearing liabilities		(7,371	)		350			(7,021	)

Net interest income⁽²⁾	$	(5,581	)	$	2,240		$	(3,341	)

FIRST FINANCIAL BANCORP.
(Registrant)

/s/ J. Franklin Hall

J. Franklin Hall

/s/ Anthony M. Stollings

Anthony M. Stollings

Executive Vice President and Chief Financial Officer

Senior Vice President, Chief Accounting Officer, and Controller