10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-Q

þ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 2011.

Or

o Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from _______________ to ______________

Commission File Number 000-17122

FIRST FINANCIAL HOLDINGS, INC.

(Exact name of Registrant as specified in its charter)

Delaware	57-0866076
(State or other jurisdiction of Incorporation or organization	I.R.S. Employer Identification No.)
2440 Mall Drive, Charleston, South Carolina	29406
(Address of principal executive offices)	(Zip Code)

(843) 529-5933

Registrant’s telephone number, including area code

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes þ No o      

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes þ No o      

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” “and smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o Accelerated filer þ Non-accelerated filer o Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Act).

Yes o No þ      

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 July 29, 2011
Common Stock, $0.01 par value	16,526,752

FIRST FINANCIAL HOLDINGS, INC.
Index to Form 10-Q

Part I – Financial Information
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheets	3
Consolidated Statements of Operations	4
Consolidated Statements of Changes in Shareholders’ Equity	5
Consolidated Statements of Cash Flows	6
Notes to Consolidated Financial Statements	7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
Item 3. Quantitative and Qualitative Disclosures About Market Risk	46
Item 4. Controls and Procedures	46
Part II – Other Information
Item 1. Legal Proceedings	47
Item 1A. Risk Factors	47
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	47
Item 3. Defaults Upon Senior Securities	47
Item 4. Reserved	47
Item 5. Other Information	47
Item 6. Exhibits	47
Signatures	49

2

FIRST FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (Unaudited)

(in thousands, except share data)	June 30, 2011			September 30, 2010			June 30, 2010
ASSETS
Cash and due from banks	$	60,905		$	49,246		$	52,104
Interest-bearing deposits with banks		4,094			6,028			4,920
Total cash and cash equivalents		64,999			55,274			57,024
Investment securities:
Securities available for sale, at fair value		418,967			407,976			413,617
Securities held to maturity, at amortized cost, approximate fair value $23,879, $24,878, and $24,315, respectively		21,977			22,529			22,512
Nonmarketable securities - FHLB stock		37,626			42,867			46,141
Total investment securities		478,570			473,372			482,270
Loans		2,372,069			2,564,348			2,590,819
Less: Allowance for loan losses		55,491			86,871			86,945
Net loans		2,316,578			2,477,477			2,503,874
Loans held for sale		84,288			28,400			15,030
FDIC indemnification asset, net		58,926			67,583			66,794
Premises and equipment, net		81,257			82,649			82,724
Goodwill		3,250			5,751			5,751
Other intangible assets, net		2,776			3,084			3,186
Other assets		130,900			92,951			70,504
Assets of discontinued operations		—			36,474			37,187
Total assets	$	3,221,544		$	3,323,015		$	3,324,344
LIABILITIES
Deposits:
Noninterest-bearing checking	$	234,478		$	227,477		$	227,245
Interest-bearing checking		437,179			386,267			379,625
Savings and money market		506,236			506,957			505,057
Retail time deposits		854,202			999,374			984,366
Wholesale time deposits		283,650			294,988			367,365
Total deposits		2,315,745			2,415,063			2,463,658
Advances from FHLB		557,500			508,235			478,364
Long-term debt		47,204			47,204			47,204
Other liabilities		34,531			31,865			8,089
Liabilities of discontinued operations		—			2,458			3,232
Total liabilities		2,954,980			3,004,825			3,000,547
SHAREHOLDERS’ EQUITY
Preferred stock, Series A, $.01 par value, authorized 3,000,000 shares, issued 65,000 shares at June 30, 2011, September 30, 2010 and June 30, 2010, respectively (Redemption value $65,000)		1			1			1
Common stock, $.01 par value, authorized 34,000,000 shares at June 30, 2011, and 24,000,000 at September 30, 2010 and June 30, 2010, issued 21,465,163 shares at June 30, 2011, September 30, 2010 and June 30, 2010, respectively		215			215			215
Additional paid-in capital		195,597			194,767			195,145
Treasury stock at cost, 4,938,411 shares at June 30, 2011, September 30, 2010 and June 30, 2010		(103,563	)		(103,563	)		(103,563	)
Retained earnings		174,300			221,920			224,901
Accumulated other comprehensive income		14			4,850			7,098
Total shareholders’ equity		266,564			318,190			323,797
Total liabilities and shareholders’ equity	$	3,221,544		$	3,323,015		$	3,324,344

See accompanying notes to consolidated financial statements.

3

FIRST FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

	Three Months Ended June 30,						Nine Months Ended June 30,
(in thousands, except per share data)	2011			2010			2011			2010
INTEREST INCOME
Interest and fees on loans	$	34,497		$	37,485		$	105,707		$	115,770
Interest and dividends on investments		4,527			5,882			14,324			18,977
Other		448			901			1,697			3,018
Total interest income		39,472			44,268			121,728			137,765
INTEREST EXPENSE
Interest on deposits		5,929			8,189			20,408			24,742
Interest on borrowed money		4,127			4,863			12,369			17,442
Total interest expense		10,056			13,052			32,777			42,184
NET INTEREST INCOME		29,416			31,216			88,951			95,581
Provision for loan losses		77,803			36,373			100,961			107,615
Net interest loss after provision for loan losses		(48,387	)		(5,157	)		(12,010	)		(12,034	)
NONINTEREST INCOME
Service charges and fees on deposit accounts		6,982			6,645			19,641			19,129
Insurance		1,239			1,069			3,007			2,680
Mortgage and other loan income		2,045			2,469			5,798			7,012
Trust and plan administration		1,116			1,016			3,405			3,327
Brokerage fees		657			644			1,837			1,690
Gain on sale of business		6,540			—			6,540			—
Other		644			1,939			1,763			4,432
Net securities gains		—			—			1,419			—
Impairment losses on investment securities
Total other-than-temporary impairment losses on investment securities		(54	)		(311	)		(710	)		(2,623	)
Less: Noncredit-related losses (gains) recognized in other comprehensive income before taxes		—			—			—			—
Net impairment losses recognized in earnings		(54	)		(311	)		(710	)		(2,623	)
Total noninterest income		19,169			13,471			42,700			35,647
NONINTEREST EXPENSE
Salaries and employee benefits		16,451			15,518			50,491			45,472
Occupancy costs		2,203			2,099			6,646			6,562
Furniture and equipment		1,838			2,044			5,524			5,801
Other real estate expenses, net		800			809			1,794			4,114
FDIC insurance and regulatory fees		850			1,112			3,514			3,399
Professional services		1,658			1,436			4,526			3,045
Advertising and marketing		813			674			2,370			2,195
Other loan expense		1,097			451			2,921			1,441
Goodwill impairment		2,501			—			2,501			—
Intangible asset amortization		102			102			307			307
Other expense		4,185			4,429			12,462			13,534
Total noninterest expense		32,498			28,674			93,056			85,870
Loss from continuing operations before taxes		(61,716	)		(20,360	)		(62,366	)		(62,257	)
Income tax benefit from continuing operations		(19,417	)		(7,825	)		(19,749	)		(24,509	)
NET LOSS FROM CONTINUING OPERATIONS		(42,299	)		(12,535	)		(42,617	)		(37,748	)
(Loss) income from discontinued operations (net of income tax)		(701	)		506			354			2,131
NET LOSS		(43,000	)		(12,029	)		(42,263	)		(35,617	)
Preferred stock dividends		812			813			2,437			2,440
Accretion on preferred stock discount		149			140			440			413
NET LOSS AVAILABLE TO COMMON SHAREHOLDERS	$	(43,961	)	$	(12,982	)	$	(45,140	)	$	(38,470	)
Net loss per common share from continuing operations
Basic	$	(2.62	)	$	(0.82	)	$	(2.75	)	$	(2.46	)
Diluted	$	(2.62	)	$	(0.82	)	$	(2.75	)	$	(2.46	)
Net (loss) income per common share from discontinued operations
Basic	$	(0.04	)	$	0.03		$	0.02		$	0.13
Diluted	$	(0.04	)	$	0.03		$	0.02		$	0.13
Net loss per common share
Basic	$	(2.66	)	$	(0.79	)	$	(2.73	)	$	(2.33	)
Diluted	$	(2.66	)	$	(0.79	)	$	(2.73	)	$	(2.33	)
Average common shares outstanding
Basic		16,527			16,527			16,527			16,506
Diluted		16,527			16,527			16,527			16,506

See accompanying notes to consolidated financial statements.

4

FIRST FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)

	Preferred Stock				Common Stock				Additional Paid-in Capital		Treasury Stock At cost			Retained Earnings			Accumulated Other Comprehensive Income			Total
(In thousands, except per share data)	Shares		Amount		Shares		Amount
Balance at September 30, 2009		65	$	1		15,897	$	208	$	185,249	$	(103,563	)	$	265,821		$	3,933		$	351,649
Net loss															(35,617	)					(35,617	)
Other comprehensive income:
Unrealized net gain on securities available for sale, net of tax of $2,101																		3,165			3,165
Total comprehensive loss																					(32,452	)
Stock based compensation expense										288											288
Common stock issued pursuant to public offering						630		7		9,183											9,190
Stock options exercised										12											12
Accretion of preferred stock										413					(413	)					—
Cash dividends:
Common stock ($0.15 per share)															(2,450	)					(2,450	)
Preferred stock															(2,440	)					(2,440	)
Balance at June 30, 2010		65	$	1		16,527	$	215	$	195,145	$	(103,563	)	$	224,901		$	7,098		$	323,797
Balance at September 30, 2010		65	$	1		16,527	$	215	$	194,767	$	(103,563	)	$	221,920		$	4,850		$	318,190
Net loss															(42,263	)					(42,263	)
Other comprehensive loss:
Unrealized net loss on securities available for sale, net of tax benefit of $3,075																		(4,836	)		(4,836	)
Total comprehensive loss																					(47,099	)
Stock based compensation expense										390											390
Accretion of preferred stock										440					(440	)					—
Cash dividends:
Common stock ($0.15 per share)															(2,480	)					(2,480	)
Preferred stock															(2,437	)					(2,437	)
Balance at June 30, 2011		65	$	1		16,527	$	215	$	195,597	$	(103,563	)	$	174,300		$	14		$	266,564

See accompanying notes to consolidated financial statements.

5

FIRST FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

	Nine Months Ended June 30,
(in thousands)	2011			2010
Operating Activities
Net loss	$	(42,263	)	$	(35,617	)
Less: Income from discontinued operations		354			2,131
Net loss from continuing operations		(42,617	)		(37,748	)
Adjustments to reconcile net income to net cash provided by operating activities
Provision for loan losses		100,961			107,615
Depreciation		4,198			4,463
Amortization of intangibles		307			307
Net increase in current & deferred income tax		(25,871	)		(28,277	)
Amortization of mark-to-market adjustments		(294	)		(3,387	)
Fair value of adjustments on other real estate owned		1,603			2,968
Amortization of unearned discounts on investments, net		(1,453	)		(2,654	)
Other-than-temporary impairment losses		710			2,623
Loans originated for sale		(360,406	)		(174,067	)
Proceeds from loans held for sale		247,389			186,865
Gain on sale of loans, net		(3,164	)		(2,225	)
(Gain) loss on sale of other real estate owned, net		(732	)		1,873
Recognition of stock-based compensation expense		390			288
Decrease (increase) in prepaid FDIC insurance premium		2,833			(12,165	)
FDIC reimbursement of covered asset losses		11,266			—
Goodwill impairment		2,501			—
Gain on sale of property and equipment, net		—			(1,354	)
Other		2,701			(9,987	)
Discontinued operations, net		33,763			4,000
Net cash (used) provided by operating activities		(25,915	)		39,138
Investing Activities
Securities available-for-sale:
Proceeds from sales		775			21
Proceeds from maturities, calls and payments		88,889			117,790
Purchases		(107,874	)		(33,577	)
Proceeds from maturities, calls and payments, securities held to maturity		615			—
Redemption FHLB stock, net		5,242			—
Decrease in loans, net		90,148			(26,738	)
Proceeds from sales of other real estate owned		9,617			17,348
Proceeds from sale of business		38,000			—
Decrease in property and equipment, net		(2,806	)		(5,771	)
Discontinued operations, net		608			(282	)
Net cash provided by investing activities		123,214			68,791
Financing Activities
Increase in demand and savings deposits, net		19,178			76,244
(Decrease) increase in time deposits, net		(156,374	)		67,604
Decrease in short term borrowings, net		—			(258,000	)
Proceeds of FHLB advances, net		49,265			(14,387	)
Proceeds from issuance of common stock, net		—			9,190
Exercise of stock options		—			12
Dividends paid on preferred stock		(2,480	)		(2,440	)
Dividends paid on common stock		(2,437	)		(2,450	)
Net cash used by financing activities		(92,848	)		(124,227	)
Net increase (decrease) in cash and cash equivalents		4,451			(16,298	)
Cash and cash equivalents at beginning of period, continuing operations		55,274			74,622
Cash and cash equivalents at beginning of period, discontinued operations		5,274			3,691
Cash and cash equivalents at beginning of period		60,548			78,313
Cash and cash equivalents at end of period, continuing operations		64,999			57,024
Cash and cash equivalents at end of period, discontinued operations		—			4,991
Cash and cash equivalents at end of period	$	64,999		$	62,015
Supplemental disclosures:
Cash paid during the period for
Interest	$	32,699		$	43,627
Income taxes		3,282			5,473
Loans foreclosed		28,553			12,354
Loans securitized into mortgage-backed securities		198,922			143,380
Unrealized (loss) gain on securities available for sale, net of income tax		(4,836	)		3,165

See accompanying notes to consolidated financial statements.

6

FIRST FINANCIAL HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
June 30, 2011

NOTE 1. Basis of Presentation and Accounting Policies

          The accompanying unaudited consolidated financial statements for First Financial Holdings, Inc. (“First Financial”) and its wholly-owned subsidiaries, including its depository institution First Federal Savings and Loan Association of Charleston (“First Federal”), have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and the instructions for Form 10-Q and Article 10 of Regulation S-X pursuant to the Securities Exchange Act of 1934. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended June 30, 2011 are not necessarily indicative of the results that may be expected for the year ending September 30, 2011. Certain amounts have been reclassified to conform to the current year presentation. First Financial’s significant accounting policies are described in Note 1 to the Consolidated Financial Statements included in First Financial’s 2010 Annual Report on Form 10-K. For interim reporting purposes, First Financial follows the same basic accounting policies, as updated by the information contained in this report. For further information, refer to the consolidated financial statements and footnotes included in First Financial’s 2010 Annual Report on Form 10-K.

          First Financial has one active wholly-owned trust formed for the purpose of issuing securities which qualify as regulatory capital and is considered a Variable Interest Entity (“VIE”). First Financial is not the primary beneficiary, and consequently, the trust is not consolidated in the consolidated financial statements. The trust issued $46.4 million in trust preferred securities to investors in 2004 and there remains $46.4 million outstanding at June 30, 2011. The gross proceeds from the issuance were used to purchase junior subordinated deferrable interest debentures issued by First Financial, which is the sole asset of the trust. The trust preferred securities held by this entity qualify as Tier 1 capital and are classified as long-term debt on the Consolidated Balance Sheets, with the associated interest expense recorded in interest on borrowed money on the Consolidated Statements of Operations. The expected losses and residual returns for this entity are absorbed by the trust preferred security holders, and consequently First Financial is not exposed to loss related to this VIE.

Discontinued Operations

          On May 26, 2011, First Financial entered into a stock purchase agreement with Hub International, LLC (“Hub”) whereby Hub agreed to acquire all of the stock of First Financial’s wholly-owned subsidiary, First Southeast Insurance Services, Inc. (“First Southeast”). On June 1, 2011, First Financial completed the stock sale in exchange for $38.0 million in cash. First Financial has no continuing cash flow from First Southeast. As of the transaction sale date, the assets and liabilities of First Southeast were removed from First Financial’s Consolidated Balance Sheets. The financial condition and operating results for this subsidiary have been segregated from the financial condition and operating results of First Financial’s continuing operations throughout this report and, as such, are presented as a discontinued operation.

Recently Adopted Accounting Pronouncements

Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2010-20, “Receivables (Topic 310) – Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses”

          This ASU requires new disclosures and clarifies existing disclosure requirements regarding the nature of credit risk inherent in an entity’s loan portfolio; how that risk is analyzed and assessed in arriving at the allowance for loan losses; and the changes and reasons for those changes in the allowance for loan losses. The FASB’s objective is to improve these disclosures and, thus, increase the transparency in financial reporting, as well as clarify the requirements for existing disclosures. The adoption of ASU 2010-20 was effective for First Financial beginning December 15, 2010 and is included in Note 3 to the Consolidated Financial Statements.

Recently Issued Accounting Pronouncements

FASB ASU 2011-05, “Comprehensive Income (Topic 220) – Presentation of Comprehensive Income”

          This ASU increases the prominence of other comprehensive income (“OCI”) in financial statements and provides two options for presenting OCI. The ASU eliminates the current placement near the statement of shareholders’ equity or detailed in the Consolidated Statement of Changes in Shareholders’ Equity. The ASU provides for an OCI statement to be included with the net income statement, and together the two will make a statement of total comprehensive income. Alternatively, businesses can have an OCI statement separate from a net income statement, but the two statements will have to appear consecutively within a financial report. The ASU does not affect the calculation of earnings per share. The ASU is effective for the first interim or annual period beginning on or after December 15, 2011. First Financial does not expect the adoption of ASU 2011-05 to have a material impact on its financial condition or results of operations.

7

FASB ASU 2011-04, “Fair Value Measurement (Topic 820) – Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs”

          This ASU amends the wording used to describe many of the requirements in GAAP for measuring fair value and for disclosing information about fair value measurements. The ASU clarifies the application of existing fair value measurement requirements and changes principles or requirement for measuring fair value or for disclosing information about fair value measurements. The ASU will require new disclosures for any transfers between Levels 1 and 2 of the fair value hierarchy, not just significant transfers, and further expands focus on Level 3 measurements, including quantitative information about the significant unobservable inputs used for all Level 3 measurements, a qualitative discussion about the sensitivity of recurring Level 3 measurements to changes in the unobservable inputs disclosed, and a description of the valuation processes. The ASU is effective for reporting periods beginning on or after December 15, 2011. First Financial does not expect the adoption of ASU 2011-03 to have a material impact on its financial condition or results of operations.

FASB ASU 2011-03, “Transfer and Servicing (Topic 860) – Reconsideration of Effective Control of Repurchase Agreements”

          This ASU improves the accounting for repurchase agreements (repos) and other agreements that entitle and obligate a transferor to repurchase or redeem financial assets before their maturity. The ASU removes from the assessment of effective control: (1) the criterion requiring the transferor to have the ability to repurchase or redeem the financial assets on substantially the agreed terms, even in the event of default by the transferee, and (2) the collateral maintenance implementation related to that criterion. Other criterion applicable to assessment of effective control are not changed by the amendments in this ASU. The ASU is effective for the first interim or annual period beginning on or after December 15, 2011. First Financial does not expect the adoption of ASU 2011-03 to have a material impact on its financial condition or results of operations.

FASB ASU 2011-02, “Receivables (Topic 310) – A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring”

          This ASU provides additional guidance or clarification in determining whether a creditor has granted a concession and whether the debtor is experiencing financial difficulties for purposes of determining whether a restructuring constitutes a troubled debt restructuring (“TDR”). This ASU clarifies that in order for a restructuring to constitute a TDR, a creditor must separately conclude the two conditions exist: (1) the restructuring constitutes a concession, and (2) the debtor is experiencing financial difficulties. The ASU clarifies guidance on a creditor’s evaluation of whether it has granted a concession. Additionally, the ASU clarifies guidance on a creditor’s evaluation of whether a debtor is experiencing financial difficulties. The ASU is effective for interim or annual periods beginning on or after June 15, 2011. First Financial does not expect the adoption of ASU 2011-02 to have a material impact on its financial condition or results of operations.

FASB ASU 2010-29, “Business Combinations (Topic 805) - Disclosure of Supplementary Pro Forma Information for Business Combinations”

          This ASU requires new pro forma revenue and earnings disclosures for business combinations occurring during the year to be presented as if the business combination occurred as of the beginning of the current fiscal year, or if comparative statements are presented, as if the business combination occurred as of the beginning of the comparative year. In addition, this ASU requires disclosure of the nature and amount of any material nonrecurring adjustments directly attributable to the business combination to be included in the pro forma revenue and earnings. The amended disclosure is effective for business combinations consummated on or after December 15, 2010, with earlier application permitted. First Financial does not expect the adoption of ASU 2010-29 to have a material impact on its consolidated financial condition or results of operations.

FASB ASU 2010-28, “Intangibles-Goodwill and Other (Topic 350) - When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts”

          This ASU requires a Step 2 impairment test to be performed even if the carrying amount of goodwill is zero or negative for a reporting unit. Additionally, in considering whether it is more likely than not that an impairment exists, an evaluation must be made to determine whether any adverse qualitative factors exist that require goodwill to be tested for impairment more often than annually if an event occurs or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying amount. The amended disclosure is effective for fiscal years beginning on or after December 15, 2010, with earlier application prohibited. First Financial does not expect the adoption of ASU 2010-28 to have a material impact on its consolidated financial condition or results of operations.

Note 2. Investment Securities

          The following table presents amortized cost, gross unrealized gains and losses, and estimated fair value on investment securities.

8

	As of June 30, 2011								As of September 30, 2010
(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Securities available for sale
Obligations of the U.S. Government agencies and corporations	$	1,860	$	27	$	—	$	1,887	$	2,021	$	28	$	—	$	2,049
State and municipal obligations		450		16		—		466		450		16		—		466
Collateralized debt obligations		7,385		—		4,031		3,354		7,780		—		4,363		3,417
Mortgage-backed securities		89,756		3,738		29		93,465		79,754		3,454		60		83,148
Collateralized mortgage obligations		313,029		5,656		4,145		314,540		303,088		10,277		1,268		312,097
Other securities		5,318		109		172		5,255		5,809		1,326		336		6,799
Total securities available for sale	$	417,798	$	9,546	$	8,377	$	418,967	$	398,902	$	15,101	$	6,027	$	407,976
Securities held to maturity
State and municipal obligations	$	21,070	$	1,904	$	2	$	22,972	$	21,623	$	2,350	$	1	$	23,972
Certificates of deposit		907		—		—		907		906		—		—		906
Total securities held to maturity	$	21,977	$	1,904	$	2	$	23,879	$	22,529	$	2,350	$	1	$	24,878
Nonmarketable securities
FHLB stock	$	37,626	$	—	$	—	$	37,626	$	42,867	$	—	$	—	$	42,867

          Securities with a fair market value of $225.6 million at June 30, 2011 and $324.9 million at September 30, 2010 were pledged to secure public deposits, repurchase agreements and other liabilities. Except for obligations of the U.S. Government and its agencies, no holdings of any single issue exceeded 10% of consolidated shareholders’ equity at June 30, 2011 or September 30, 2010.

          The amortized cost and estimated fair value of investment securities by contractual maturity are presented in the following table. Actual maturities may differ from contractual maturities, as borrowers have the right to call or prepay obligations with or without call or prepayment penalties.

	As of June 30, 2011
(in thousands)	Amortized Cost		Fair Value
Securities available for sale
Due within one year	$	146	$	146
Due after one year through five years		1,713		1,740
Due after five years through ten years		1,006		1,063
Due after ten years		12,148		8,013
		15,013		10,962
Mortgage-backed securities		89,756		93,465
Collateralized mortgage obligations		313,029		314,540
Total	$	417,798	$	418,967
Securities held to maturity
Due within one year	$	907	$	907
Due after five years through ten years		768		768
Due after ten years		20,302		22,204
Total	$	21,977	$	23,879

          The following table presents gross unrealized losses on investment securities and the fair value of the related securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position.

9

	Less than 12 Months						12 Months or Longer						Total
June 30, 2011 (dollars in thousands)	#		Fair Value		Unrealized Losses		#		Fair Value		Unrealized Losses		#		Fair Value		Unrealized Losses
Securities available for sale
Collateralized debt obligations		1	$	281	$	25		14	$	3,073	$	4,006		15	$	3,354	$	4,031
Mortgage-backed securities		—		—		—		1		577		29		1		577		29
Collateralized mortgage obligations		13		68,884		1,925		10		36,247		2,220		23		105,131		4,145
Other securities		—		—		—		1		823		172		1		823		172
Total		14	$	69,165	$	1,950		26	$	40,720	$	6,427		40	$	109,885	$	8,377
Securities held to maturity
State and municipal obligations		1	$	476	$	2		—	$	—	$	—		1	$	476	$	2
	Less than 12 Months						12 Months or Longer						Total
September 30, 2010 (dollars in thousands)	#		Fair Value		Unrealized Losses		#		Fair Value		Unrealized Losses		#		Fair Value		Unrealized Losses
Securities available for sale
Collateralized debt obligations		1	$	292	$	14		14	$	3,125	$	4,349		15	$	3,417	$	4,363
Mortgage-backed securities		—		—		—		1		572		60		1		572		60
Collateralized mortgage obligations		11		44,214		130		8		39,280		1,138		19		83,494		1,268
Other securities		—		—		—		2		1,659		336		2		1,659		336
Total		12	$	44,506	$	144		25	$	44,636	$	5,883		37	$	89,142	$	6,027
Securities held to maturity
State and municipal obligations		1	$	769	$	1		—	$	—	$	—		1	$	769	$	1

Other-Than-Temporary Impairment (“OTTI”)

          Management evaluates securities for OTTI on at least a quarterly basis. In determining OTTI, investment securities are evaluated according to Accounting Standards Codification (“ASC”) 320-10 and management considers many factors including: (1) the length of time and extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, (3) whether the market decline was affected by macroeconomic conditions, and (4) whether First Financial has the intent to sell the debt security or more likely than not will be required to sell the debt security before its anticipated recovery. The assessment of whether OTTI exists involves a high degree of subjectivity and is based on information available to management on the assessment date. In assessing the recovery of value, the key factors reviewed include the length of time and the extent the fair value has been less than the carrying cost, adverse conditions, if any, specifically related to the security, industry or geographic area, historical and implied volatility of the fair value of the security, credit quality factors affecting the issuer or the underlying collateral, payment structure of the security, payment history of the security, changes to the credit rating of the security, recoveries or declines in value subsequent to the balance sheet date or any other relevant factors. Evaluations are performed on a more frequent basis as the degree to which fair value is below carrying cost or the length of time that the fair value has been continuously below carrying cost increases.

          At June 30, 2011, the majority of unrealized losses were related to trust preferred collateralized debt obligations (“CDOs”) and private-label collateralized mortgage obligations (“CMOs”) as discussed below. For the nine months ended June 30, 2011, credit-related OTTI of $710 thousand was recorded in net impairment losses recognized in earnings in the Consolidated Statements of Operations. The components of the OTTI were: $454 thousand on CDOs and $256 thousand on CMOs. The total carrying value of securities affected by credit-related OTTI represent less than 2.1% of the carrying value of First Financial’s investment portfolio at June 30, 2011, and therefore have negligible impact on First Financial’s liquidity and capital positions.

Collateralized debt obligations

          The CDO portfolio is collateralized primarily with trust preferred securities issued by other financial institutions. To determine the fair value, cash flow models for trust preferred CDOs provided by a third-party pricing service are utilized. The models estimate default vectors for the underlying issuers within each CDO security, estimate expected bank failures across the entire banking system to determine the impact on each CDO, and assign a risk rating to each individual issuer in the collateral pool. The individual risk ratings for the underlying securities in the pools were determined by a number of factors including Tier 1 capital ratio, return on assets, percent of nonperforming loans, percent of commercial and construction loans, and level of broker deposits for each underlying issuer. The risk ratings were used to determine an expected default vector for each CDO. The model assigns assumptions for constant default rate, loss severity, recovery lags, and prepayment assumptions, which were reviewed for reasonableness and consistency by management. The resulting projected cash flows were compared to book value to determine the amount of, if any, OTTI.

          The following table provides information regarding the CDO portfolio characteristics and fiscal year-to-date OTTI losses.

10

Collateralized Debt Obligations at June 30, 2011 (in thousands)
									Nine Months Ended June 30, 2011 OTTI1
Name	Single/ Pooled	Class/ Tranche	Amortized Cost		Fair Value		Unrealized Loss		Credit Portion		Other		Total
ALESCO I	Pooled	B-1	$	554	$	182	$	372	$	95	$	—	$	95
ALESCO II	Pooled	B-1		370		252		118		—		—		—
MCAP III	Pooled	B		430		225		205		—		—		—
MCAP IX	Pooled	B-1		449		173		276		—		—		—
MCAP XVIII	Pooled	C-1		179		84		95		—		—		—
PRETZL XI	Pooled	B-1		860		317		543		22		—		22
PRETZL XIII	Pooled	B-1		327		136		191		90		—		90
PRETZL IV	Pooled	MEZ		121		57		64		—		—		—
PRETZL VII	Pooled	MEZ		326		110		216		—		—		—
PRETZL XII	Pooled	B-2		592		317		275		—		—		—
PRETZL XIV	Pooled	B-1		672		193		479		202		—		202
PRETZLVI	Pooled	MEZ		513		404		109		32		—		32
TRPREF II	Pooled	B		706		291		415		13		—		13
USCAP II	Pooled	B-1		980		331		649		—		—		—
USCAP III	Pooled	B-1		306		282		24		—		—		—
TOTAL			$	7,385	$	3,354	$	4,031	$	454	$	—	$	454

			Dollar Basis
									Constant Default Rate
	Lowest Rating					% Deferrals / Defaults2									Discount Margin3
Name			% Performing						High			Low
ALESCO I		C		64.16	%		35.84	%		1.72	%		0.25	%		11.70	%
ALESCO II		C		70.75			29.25			1.39			0.21			11.65
MCAP III		CC		70.43			29.57			0.61			0.09			10.50
MCAP IX		C		58.29			41.71			1.46			0.22			16.80
MCAP XVIII		C		65.52			34.48			1.37			0.20			11.05
PRETZL XI		C		68.87			31.13			1.46			0.21			11.60
PRETZL XIII		C		67.46			32.54			1.40			0.21			11.57
PRETZL IV		CC		72.93			27.07			3.20			0.47			11.00
PRETZL VII		C		32.16			67.84			0.34			0.05			16.80
PRETZL XII		C		67.31			32.69			0.79			0.12			11.62
PRETZL XIV		C		65.02			34.98			1.21			0.18			11.57
PRETZLVI		D		26.38			73.62			2.19			0.32			11.00
TRPREF II		C		61.19			38.81			1.41			0.21			11.92
US CAP II		C		78.82			21.18			0.66			0.10			11.65
USCAP III		C		71.51			28.49			0.61			0.09			11.53
Total				65.43	%		34.57	%

1	Recognized in Impairment losses on investment securities on the Consolidated Statements of Operations
2	Represents percentage of the underlying trust preferred collateral not currently making dividend payments or issued by financial institutions that have been placed into receivership by the FDIC
3	Fair market value discount margin to LIBOR

          The estimated fair value of these CDOs continues to be adversely affected by the elevated credit losses within the financial industry caused by the recession, continued uncertain economic conditions, high unemployment rates, and the weak national housing market, all of which have severely impacted the creditworthiness of the underlying issuers. As of June 30, 2011, management does not intend to sell these securities, nor is it more likely than not that it will be required to sell the securities before the amortized cost basis is recovered as First Financial has adequate other sources of liquidity.

11

Collateralized mortgage obligations

          The CMO portfolio, which is mainly comprised of private-label, non-agency securities, was priced using fair value cash flow models. In making the determination of each CMO’s fair value, considerations were given to recent transaction volumes, price quotations and related price variability, available broker information, and market liquidity. Deterioration in value was due, in part, to forced sales and illiquid market conditions in which these securities trade; and accordingly, First Financial does not believe that these values accurately reflect the true fair value of these securities. A pricing model is utilized to estimate each security’s cash flow and adjusted price based on coupon, credit rating, constant prepayment rate, and required yields or spreads. If a private label security is rated below investment grade by a credit rating agency, a stress test is performed to determine if the security has any OTTI. See Note 7 to the Consolidated Financial Statements for additional information on fair value.

          The following table presents the investment grades assigned by the rating agencies and OTTI losses for the CMO securities which were in a loss position at June 30, 2011.

Collateralized Mortgage Obligations at June 30, 2011 (in thousands)								Nine Months Ended June 30, 2011 OTTI1
Moody/S&P Ratings		#		Fair Value		Unrealized Loss		Credit Portion		Other		Total
A			5	$	41,336	$	726	$	—	$	—	$	—
BBB			8		28,980		1,105		—		—		—
Below investment grade			10		34,815		2,314		256		—		256
Total			23	$	105,131	$	4,145	$	256	$	—	$	256
1	Recognized in Impairment losses on investment securities on the Consolidated Statements of Operations

          The OTTI in the table above was related to one private-label security with credit-related deterioration evidenced by the following metrics:

	June 30, 2011	September 30, 2010
Lowest Credit rating	C	Caa3
Rating agency	Dominion Bond Rating Service	Moody’s
Twelve-month average loss severity	47.38%	47.83%
Twelve-month average default rate	6.22	7.29
60 Dayor more delinquency rate	41.51	30.72

           Based on First Financials’ policy, the credit rating in the table above reflects the lowest credit rating by any major rating agency. As of June 30, 2011, management does not intend to sell this security, nor is it more likely than not that it will be required to sell the security before the amortized cost basis is recovered as First Financial has adequate other sources of liquidity.

          The following table presents the cumulative credit-related losses recognized in earnings.

12

		Three Months Ended June 30, 2011								Three Months Ended June 30, 2010
(in thousands)		CDOs		CMOs		Other Securities1		Total		CDOs		CMOs		Other Securities		Total
Cumulative credit related losses recognized in earnings at March 31,		$	5,533	$	1,355	$	1,100	$	7,988	$	4,592	$	1,099	$	1,100	$	6,791
Additions
Credit loss for which no previous OTTI recognized			—		—		—		—		20		—		—		20
Credit loss for which previous OTTI recognized			54		—		—		54		291		—		—		291
Cumulative credit related losses recognized in earnings at June 30,		$	5,587	$	1,355	$	1,100	$	8,042	$	4,903	$	1,099	$	1,100	$	7,102
		Nine Months Ended June 30, 2011								Nine Months Ended June 30, 2010
		CDOs		CMOs		Other Securities1		Total		CDOs		CMOs		Other Securities		Total
Cumulative credit related losses recognized in earnings at September 30,		$	5,133	$	1,099	$	1,100	$	7,332	$	3,731	$	748	$	—	$	4,479
Additions
Credit loss for which no previous OTTI recognized			—		—		—		—		100		—		1,100		1,200
Credit loss for which previous OTTI recognized			454		256		—		710		1,072		351		—		1,423
Cumulative credit related losses recognized in earnings at June 30,		$	5,587	$	1,355	$	1,100	$	8,042	$	4,903	$	1,099	$	1,100	$	7,102
1	An impaired other security for which a $1.1 million OTTI charge was taken in a prior year was sold in the quarter ended March 31, 2011. A gain of $1.4 million was recognized in earnings during that quarter.

NOTE 3. Loans, Impaired Loans, and Allowance for Loan Losses

          The following table presents the loan portfolio by major category.

Loans (in thousands)	June 30, 2011		September 30, 2010
Residential loans
Residential 1-4 family	$	895,650	$	836,644
Residential construction		19,603		14,436
Residential land		42,763		56,344
Total residential loans		958,016		907,424
Commercial loans
Commercial business		80,566		92,650
Commercial real estate		482,315		598,547
Commercial construction		16,037		28,449
Commercial land		70,562		143,366
Total commercial loans		649,480		863,012
Consumer loans
Home equity		379,122		397,632
Manufactured housing		274,192		269,857
Marine		57,406		65,901
Other consumer		53,853		60,522
Total consumer loans		764,573		793,912
Total loans		2,372,069		2,564,348
Less: Allowance for loan losses		55,491		86,871
Net loans	$	2,316,578	$	2,477,477
Residential 1-4 family, to be sold in the secondary market	$	23,994	$	28,400
Loans held for sale; to be sold in a bulk sale		60,294		—
Total loans held for sale	$	84,288	$	28,400

13

          The following table presents the loan portfolio by age of delinquency.

Age Analysis Past Due Loans
	As of June 30, 2011
(in thousands)	31-59 Days Past Due		60-89 Days Past Due		90 Days and Greater Past Due		90 Days and Greater, Accruing		Total Past Due		Current1		Total Loans
Residential loans
Residential 1-4 family	$	159	$	1,245	$	1,242	$	—	$	2,646	$	893,004	$	895,650
Residential construction		—		—		—		—		—		19,603		19,603
Residential land		—		325		451		—		776		41,987		42,763
Total residential loans		159		1,570		1,693		—		3,422		954,594		958,016
Commercial loans
Commercial business		2,091		296		3,664		—		6,051		74,515		80,566
Commercial real estate		2,568		135		16,396		—		19,099		463,216		482,315
Commercial construction		—		—		1,451		—		1,451		14,586		16,037
Commercial land		722		99		5,411		—		6,232		64,330		70,562
Total commercial loans		5,381		530		26,922		—		32,833		616,647		649,480
Consumer loans
Home equity		2,227		1,038		9,165		—		12,430		366,692		379,122
Manufactured housing		1,512		786		2,953		—		5,251		268,941		274,192
Marine		208		55		94		—		357		57,049		57,406
Other consumer		465		124		129		76		794		53,059		53,853
Total consumer loans		4,412		2,003		12,341		76		18,832		745,741		764,573
Total loans	$	9,952	$	4,103	$	40,956	$	76	$	55,087	$	2,316,982	$	2,372,069
Total loans excluding covered loans	$	7,218	$	3,874	$	24,771	$	76	$	35,939	$	2,173,843	$	2,209,782

¹ Included in current loans are $1.5 million of performing TDRs.

          On April 10, 2009, First Federal entered into a purchase and assumption agreement with the Federal Deposit Insurance Corporation (“FDIC”) to acquire certain assets and liabilities of Cape Fear Bank. The acquired loan portfolio and other repossessed assets (solely comprised of other real estate owned (“OREO”)) are subject to a loss sharing agreement with the FDIC and the table above includes these “covered loans” and “covered OREO.”

          The following table summarizes nonperforming assets.

Nonperforming Assets (in thousands)	June 30, 2011		September 30, 2010
Nonaccrual loans	$	40,956	$	140,231
Loans 90+ days, still accruing		76		175
Restructured loans, still accruing		1,535		750
Total nonperforming loans		42,567		141,156
Nonperforming loans held for sale		42,656		—
Other repossessed assets acquired		27,812		11,950
Total nonperfoming assets	$	113,035	$	153,106

          Covered loans that were performing at the time of acquisition and have subsequently become nonperforming and placed on nonaccrual or have migrated to other repossessed assets acquired are included in the table above. Covered nonperforming loans totaled $16.9 million at June 30, 2011, compared with $9.8 million at September 30, 2010. OREO totaled $7.3 million at June 30, 2011, compared with $4.9 million at September 30, 2010. Covered loans which were considered nonperforming at acquisition, and accounted for as specified by ASC 310-30, are not included in the table above as these loans are recorded at fair value.

14

Impaired Loans

          In accordance with ASC 310-10-35, a loan is considered impaired when First Federal determines it is probable that the principal and interest due under the contractual terms of the loan will not be collected. Criticized and classified commercial loans (as defined in the “Criticized Loans, Classified Loans and Other Risk Characteristics” section of this Note) greater than $500,000 are reviewed for potential impairment as part of a monthly problem loan review process. In addition, homogeneous loans which have been modified are reviewed for potential impairment. Smaller balance homogenous loans, such as residential mortgage loans and consumer loans, are evaluated collectively for potential loss.

          In assessing the impairment of a loan and the related reserve required for that loan, various methodologies are employed. Impairment measurement on loans that are not collateral dependent is determined primarily using the present value of expected future cash flows discounted at the loan’s effective interest rate. With respect to most real estate loans, and specifically if the loan is considered to be collected through a probable foreclosure, an approach that estimates the fair value of the underlying collateral is used. The collateral is appraised to reflect estimated realizable value, with the market value being adjusted for estimated selling costs. First Federal’s policy is to update collateral appraisals on impaired loans at least annually, and more frequently if deemed necessary based on market conditions or specific circumstances. Significant downward trends in the real estate market can adversely affect First Federal’s collateral position. For larger credits or loans that are classified “substandard” or worse that rely primarily on real estate collateral, re-appraisal would occur earlier than the stated policy if management believes the market conditions have changed such that the existing appraisal may no longer reflect the current market value of the property. At a minimum, at the time a loan with a principal balance of over $500,000 is downgraded to “substandard” or worse, or if the loan is determined to be impaired, the property securing the loan is re-appraised to update the value. In addition to updated appraisals, market bids or current offers may be utilized to estimate current value.

          First Federal maintains a valuation reserve for impaired loans as part of the allowance for loan losses. Cash collected on impaired nonaccrual loans is applied to outstanding principal. Effective June 30, 2011, First Financial reclassified $155.3 million of certain nonperforming and performing loans to loans held for sale. Prior to the loan reclassification, the June 30, 2011 total recorded investment in impaired loans was $104.4 million. A summary of impaired loans, related valuation reserves, and their effect on interest income follows.

Impaired Loans
(in thousands)	Unpaid Contractual Principal Balance		Recorded Investment With No Specific Allowance		Recorded Investment With Specific Allowance		Total Recorded Investment		Specific Allowance		Year to Date Average Balance		Interest Income Recognized for the Quarter		Interest Income Recognized Year to Date
June 30, 2011
Residential loans
Residential 1-4 family	$	1,449	$	733	$	601	$	1,334	$	127	$	4,513	$	10	$	30
Residential land		—		—		—		—		—		1,128		—		—
Total residential loans		1,449		733		601		1,334		127		5,641		10		30
Commercial loans
Commercial business		3,388		1,343		1,745		3,088		8		3,682		—		—
Commercial real estate		16,601		9,153		3,193		12,346		436		33,168		13		26
Commercial construction		1,497		265		1,186		1,451		444		2,882		—		—
Commercial land		7,886		2,976		1,380		4,356		378		29,216		—		—
Total commercial loans		29,372		13,737		7,504		21,241		1,266		68,947		13		26
Consumer loans
Home equity		2,575		811		1,639		2,450		1,032		1,479		—		—
Manufactured Housing		156		139		—		139		—		35		—		—
Marine		—		—		—		—		—		4		—		—
Total consumer loans		2,731		950		1,639		2,589		1,032		1,518		—		—
Total impaired loans	$	33,552	$	15,420	$	9,744	$	25,164	$	2,425	$	76,106	$	23	$	56
September 30, 2010
Residential loans
Residential 1-4 family	$	3,483	$	2,489	$	691	$	3,180	$	178			$	—	$	—
Residential land		3,868		1,635		549		2,184		77				—		—
Total residential loans		7,351		4,124		1,240		5,364		255				—		—
Commercial loans
Commercial business		3,583		1,578		1,106		2,684		877				—		—
Commercial real estate		44,794		19,154		14,712		33,866		2,925				—		—
Commercial construction		6,588		4,148		780		4,928		343				—		—
Commercial land		63,106		17,412		22,284		39,696		8,674				—		—
Total commercial loans		118,071		42,292		38,882		81,174		12,819				—		—
Consumer loans
Home equity		338		338		—		338		—				—		—
Marine		15		—		15		15		3				—		—
Total consumer loans		353		338		15		353		3				—		—
Total impaired loans	$	125,775	$	46,754	$	40,137	$	86,891	$	13,077	$	89,311	$	—	$	—

Troubled Debt Restructuring

          First Federal accounts for certain loan modifications or restructurings as a troubled debt restructurings (“TDR”). In general, the modification or restructuring of a loan is considered a TDR if, for economic or legal reasons related to a borrower’s financial difficulties, a concession is granted to the borrower that First Federal would not otherwise consider. As of June 30, 2011, First Federal had 23 TDRs with an aggregate balance of $13.1 million classified as impaired and included in the appropriate nonperforming loan category in the tables above. Included in the impaired total were two TDRs that were considered performing in accordance with modified terms and still accruing interest.

Criticized Loans, Classified Loans and Other Risk Characteristics

          Federal regulations provide for the designation of lower quality loans as special mention, substandard, doubtful or loss. Commercial loans designated as special mention are considered “criticized” by regulatory definitions and possess characteristics of weakness which may not necessarily manifest into future loss. Commercial loans designated as substandard, doubtful or loss are considered “classified” by regulatory definitions. Substandard loans are inadequately protected by the current net worth, liquidity and paying capacity of the borrower or any collateral pledged and include loans characterized by the distinct possibility that some loss will occur if the deficiencies are not corrected. Loans classified as doubtful have all the weaknesses inherent in those classified substandard with the added characteristic that the weaknesses make collection or liquidation in full highly questionable and improbable on the basis of currently existing facts, conditions and values. Loans classified as loss are those considered uncollectible and of such little value that their continuance without the establishment of a specific loss reserve is not warranted. When First Federal classifies problem loans as a loss, they are charged-off in the period in which they are deemed uncollectible. First Federal evaluates its loans regularly to determine whether they are appropriately rated in accordance with applicable regulations and internal policies. The following table presents the risk profiles for the commercial loan portfolio by the primary categories monitored.

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Commercial Credit Quality1	As of June 30, 2011
(in thousands)	Commercial Business		Commercial Real Estate		Commercial Construction		Commercial Land		Total Commercial Loans
Pass	$	61,301	$	359,606	$	10,310	$	31,943	$	463,160
Special mention		4,313		45,151		1,344		16,457		67,265
Substandard		12,357		65,378		3,380		15,595		96,710
Doubtful		214		319		—		216		749
Total		78,185		470,454		15,034		64,211		627,884
Covered ASC 310-30 loans		2,381		11,861		1,003		6,351		21,596
Total	$	80,566	$	482,315	$	16,037	$	70,562	$	649,480

¹        Credit quality indicators are reviewed and updated as applicable on an ongoing basis in accordance with credit policies.

          For residential and consumer loans, First Federal evaluates credit quality based on payment activity, accrual status, and if a loan was modified from its original contractual terms. Similar to commercial loans classified as substandard or doubtful, nonperforming residential and consumer loans are considered to be classified loans. The following tables present the risk indicators for the residential and consumer loan portfolios.

Residential Credit Quality1	As of June 30, 2011
(in thousands)	Residential 1-4 Family		Residential Construction		Residential Land		Total Residential Loans
Performing2	$	893,350	$	19,603	$	42,039	$	954,992
Nonperforming		1,975		—		451		2,426
Total		895,325		19,603		42,490		957,418
Covered ASC 310-30 loans		325		—		273		598
Total	$	895,650	$	19,603	$	42,763	$	958,016

¹        Credit quality indicators are reviewed and updated as applicable on an ongoing basis in accordance with credit policies.

²        Performing residential loans include $9.2 million of classified loans.

Consumer Credit Quality1	As of June 30, 2011
(in thousands)	Home Equity		Manufactured Housing		Marine		Other Consumer		Total Consumer Loans
Performing2	$	369,352	$	271,239	$	57,312	$	53,613	$	751,516
Nonperforming		9,165		2,953		94		205		12,417
Total		378,517		274,192		57,406		53,818		763,933
Covered ASC 310-30 loans		605		—		—		35		640
Total	$	379,122	$	274,192	$	57,406	$	53,853	$	764,573

¹        Credit quality indicators are reviewed and updated as applicable on an ongoing basis in accordance with credit policies.

²        Performing consumer loans include $9 thousand of classified loans.

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A summary of changes in the allowance for loan losses follows.

Allowance for Loan Losses
	As of and for the Three Months Ended June 30, 2011
(in thousands)	Residential		Commercial Business		Commercial Real Estate		Commercial Construction		Commercial Land		Consumer		Total
Allowance for Loan Losses:
Balance at March 31, 2010	$	9,831	$	8,060	$	25,277	$	1,984	$	17,052	$	22,934	$	85,138
Provision for loan losses		14,094		3,105		27,789		2,147		24,502		6,166		77,803
Loan charge-offs		16,493		6,882		41,033		3,098		34,191		6,506		108,203
Recoveries		217		56		11		31		196		242		753
Net charge-offs		16,276		6,826		41,022		3,067		33,995		6,264		107,450
Balance at June 30, 2011	$	7,649	$	4,339	$	12,044	$	1,064	$	7,559	$	22,836	$	55,491

	As of and for the Nine Months Ended June 30, 2011
(in thousands)	Residential		Commercial Business		Commercial Real Estate		Commercial Construction		Commercial Land		Consumer		Total
Allowance for Loan Losses:
Balance at September 30, 2010	$	10,730	$	7,169	$	22,598	$	1,620	$	21,795	$	22,959	$	86,871
Provision for loan losses		16,138		6,089		32,900		2,822		26,710		16,302		100,961
Loan charge-offs		19,803		9,153		43,639		3,415		41,599		17,321		134,930
Recoveries		584		234		185		37		653		896		2,589
Net charge-offs		19,219		8,919		43,454		3,378		40,946		16,425		132,341
Balance at June 30, 2011	$	7,649	$	4,339	$	12,044	$	1,064	$	7,559	$	22,836	$	55,491
Loans as of June 30, 2011
Individually evaluated for impairment	$	1,334	$	3,088	$	12,346	$	1,451	$	4,356	$	2,589	$	25,164
Collectively evaluated for impairment		956,084		75,097		458,108		13,583		59,855		761,344		2,324,071
Covered ASC 310-30 loans		598		2,381		11,861		1,003		6,351		640		22,834
Total loans	$	958,016	$	80,566	$	482,315	$	16,037	$	70,562	$	764,573	$	2,372,069

NOTE 4. FDIC Indemnification Asset

          The following table presents the change in the FDIC indemnification asset during the current fiscal year.

(in thousands)	Amount Receivable		Discount			Net Receivable
Balance at September 30, 2010	$	70,079	$	(2,496	)	$	67,583
Payments from FDIC for losses on covered assets		10,425		—			10,425
Valuation adjustment on acquired other real estate owned		79		—			79
Discount accretion		—		1,689			1,689
Balance at June 30, 2011	$	59,733	$	(807	)	$	58,926

          During the nine-months ended June 30, 2011, First Federal received payments totaling $11.3 million from the FDIC, of which $10.4 million was credited to the FDIC indemnification asset and $842 thousand was credited to other real estate owned expenses, net and other loan expense on the Consolidated Statements of Operations. Subsequent to June 30, 2011 First Federal received a payment of $278 thousand. These payments satisfied all claims through March 31, 2011. Based on the June 30, 2011 reporting period, First Federal filed a $8.9 million claim with the FDIC under the terms of the loss share agreement and payment is expected.

NOTE 5. Goodwill.

          The Consolidated Balance Sheets at September 30, 2010 and June 30, 2010 included goodwill totaling $28.3 million, which was comprised of $5.8 million related to continuing operations and $22.5 million which was reclassified as part of assets of discontinued operations. On June 1, 2011, the sale of First Southeast was complete and its assets and liabilities, including goodwill, were removed from First Financial’s Consolidated Balance Sheet.

          As of May 31, 2011, First Financial performed its annual goodwill impairment test on the goodwill from continuing operations, which is associated with Kimbrell Insurance Group, Inc., (“Kimbrell”), a subsidiary of First Financial, and Atlantic Acceptance Corporation

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(“Atlantic”), a subsidiary of First Federal. The Step 1 analysis indicated that the carrying amount exceeded estimated fair value for both entities; therefore, Step 2 testing was required. As a result of the Step 2 analysis, First Financial determined that the goodwill associated with Kimbrell and Atlantic was impaired due to updated discounted cash flow projections, and, in the case of Atlantic, a change in business strategy. During the third quarter of fiscal 2011, First Financial recorded a non-cash, not tax-deductible goodwill impairment charge of $2.5 million.

NOTE 6. Shareholders’ Equity, Accumulated Other Comprehensive Income, and Earnings Per Share

          The components of accumulated other comprehensive income, net of tax, are presented below.

		Nine Months Ended June 30,
(in thousands)		2011			2010
Balance at September 30		$	4,850		$	3,933
Unrealized (losses) gains on securities available for sale			(8,621	)		2,643
Less:	Reclassification of other-than-temporary loss included in income for the period		710			2,623
	Tax benefit (expense)		3,075			(2,101	)
Total other comprehensive (loss) income			(4,836	)		3,165
Balance at June 30		$	14		$	7,098

          The following table displays the components of the numerators and denominators for the basic and diluted earnings per common share.

	Three Months Ended June 30,						Nine Months Ended June 30,
(in thousands, except per share data)	2011			2010			2011			2010
Net loss from continuing operations	$	(42,299	)	$	(12,535	)	$	(42,617	)	$	(37,748	)
Preferred stock dividends		812			813			2,437			2,440
Accretion on preferred stock discount		149			140			440			413
Net loss from continuing operations available to common shareholders		(43,260	)		(13,488	)		(45,494	)		(40,601	)
(Loss) income from discontinued operations (net of tax)		(701	)		506			354			2,131
Net loss available to common shareholders	$	(43,961	)	$	(12,982	)	$	(45,140	)	$	(38,470	)
Weighted average basic shares		16,527			16,527			16,527			16,506
Effect of dilutive stock options		—			—			—			—
Weighted average dilutive shares		16,527			16,527			16,527			16,506
Net loss per common share from continuing operations
Basic	$	(2.62	)	$	(0.82	)	$	(2.75	)	$	(2.46	)
Diluted		(2.62	)		(0.82	)		(2.75	)		(2.46	)
Net (loss) income per common share from discontinued operations
Basic	$	(0.04	)	$	0.03		$	0.02		$	0.13
Diluted		(0.04	)		0.03			0.02			0.13
Net loss per common share
Basic	$	(2.66	)	$	(0.79	)	$	(2.73	)	$	(2.33	)
Diluted		(2.66	)		(0.79	)		(2.73	)		(2.33	)

          As of June 30, 2011 and 2010 there were 683,791 and 972,840 potential additional shares issued through the exercise of stock options or warrants, respectively, which were excluded from the calculation of diluted earnings per share as a result of being anti-dilutive.

NOTE 7. Fair Value of Financial Instruments

          Fair value estimates are intended to represent the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Where there is no active market for a financial

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instrument, First Financial has made estimates using discounted cash flow or other valuation techniques. Inputs to these valuation methods are subjective in nature, involve uncertainties, and require significant judgment and therefore cannot be determined with precision. Accordingly, the derived fair value estimates presented below are not necessarily indicative of the amounts First Financial could realize in a current market exchange.

          Assets and liabilities are recorded at fair value according to a fair value hierarchy comprised of three levels. The levels are based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. The level of an asset or liability within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement (with Level 1 considered highest and Level 3 considered lowest). A brief description of each level follows.

• Level 1 – Valuation is based on quoted prices for identical instruments in active markets.

• Level 2 – Valuation is based on quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.

• Level 3 – Valuation is generated from model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates that market participants would use in pricing the asset or liability. Valuation techniques include the use of discounted cash flow models and similar techniques.

          The following table presents the carrying value and fair value of the financial instruments.

	As of June 30, 2011				As of September 30, 2010
(in thousands)	Carrying Value		Fair Value		Carrying Value		Fair Value
Assets
Cash and cash equivalents	$	64,999	$	64,999	$	55,274	$	55,274
Securities available for sale		418,967		418,967		407,976		407,976
Securities held to maturity		21,977		23,879		22,529		24,878
Nonmarketable securites - FHLB stock		37,626		37,626		42,867		42,867
Net loans		2,316,578		2,367,836		2,477,477		2,550,329
Loans held for sale		84,288		84,288		28,400		28,400
FDIC indemnification asset, net		58,926		58,926		67,583		67,583
Residential mortgage servicing rights1		12,403		12,403		10,200		10,200
Accrued interest receivable1		9,646		9,646		9,765		9,765
Derivative financial instruments1		969		969		2,205		2,205
Liabilities
Deposits		2,315,745		2,324,770		2,415,063		2,436,024
Advances from FHLB		557,500		585,420		508,235		546,056
Long-term debt		47,204		43,936		47,204		40,710
Accrued interest payable2		8,667		8,667		11,358		11,358

1	Included as part of Other Assets in the Consolidated Balance Sheets as of June 30, 2011 and September 30, 2010.
2	Included as part of Other Liabilities in the Consolidated Balance Sheets as of June 30, 2011 and September 30, 2010.

          The carrying amount approximates fair value for cash and cash equivalents, accrued interest receivable and accrued interest payable. The methods and assumptions used to estimate the fair value for the other financial instruments are set forth below. There were no changes in the valuation methods used to estimate fair value since September 30, 2010.

Securities available for sale

          The fair value of available for sale securities that are classified as Level 3 include certain private-label mortgage-backed securities and trust preferred CDOs. In the absence of observable or corroborated market data, estimates that incorporate market-based assumptions are used when such information is available. These values take into account recent market activity as well as other market observable data such as interest rate, spread and prepayment information. When market observable data is not available, the valuation of the security is subjective and may involve substantial judgment. First Financial’s fair value models incorporate market participant data and knowledge of the structures of each individual security to develop cash flows specific to each security and apply appropriate discount rates. The discount rates are developed by determining credit spreads above a benchmark rate, such as LIBOR, and adding premiums for illiquidity based on a comparison of initial issuance spread to LIBOR versus a financial sector curve for recently issued debt to LIBOR. Specific securities that have increased uncertainty regarding the receipt of cash flows are discounted at higher rates due to the addition of a deal specific credit premium. Pricing is reviewed for reasonableness based on the direction of the specific markets and the general economic indicators. To determine the fair value, cash flow models for trust preferred CDOs provided by a third-party pricing service are utilized. The models estimate default vectors for the underlying issuers within each CDO security, estimate expected bank failures across the entire banking system to

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determine the impact on each CDO, and assign a risk rating to each individual issuer in the collateral pool. To determine the pricing valuation for private-label CMOs, First Financial obtains fair values for similar agency products from third party pricing brokers and determines an economic spread between agency and non-agency products. A pricing model is utilized to estimate each security’s cash flows and adjusted price based on coupon, constant prepayment rate, and required yields or spreads. If a private label security is rated below investment grade by a credit agency, a stress test is performed to determine OTTI.

Securities held to maturity

          The fair value of securities classified as held to maturity is based on quoted prices for similar assets.

Nonmarketable securities – FHLB stock

          The carrying amount of Federal Home Loan Bank (“FHLB”) stock is used to approximate the fair value as this security is not readily marketable, recorded at cost (par value), and evaluated for impairment based on the ultimate recoverability of the par value. First Financial considers positive and negative evidence, including the profitability and asset quality of the issuer, dividend payment history and recent redemption experience, when determining the ultimate recoverability of the par value. First Financial believes its investment in FHLB stock is ultimately recoverable at par.

Net loans

          The fair value of net loans is estimated based on discounted cash flows. The cash flows take into consideration current portfolio interest rates and repricing characteristics as well as assumptions relating to prepayment speeds. The discount rates take into consideration the current market interest rate environment, a credit risk component based on the credit characteristics of each loan portfolio, and a liquidity premium reflecting the liquidity or illiquidity of the market. Impaired loans are measured based on the fair value of the underlying collateral or discounted cash flow analyses, where applicable.

Loans held for sale

          Loans held for sale is comprised of residential mortgage loans originated for sale in the secondary market and certain nonperforming and performing loans identified to be sold in a bulk sale. The fair value of residential mortgage loans originated for sale in the secondary market is based on purchase commitments or quoted prices for the same or similar loans and classified as nonrecurring Level 2. The fair value of the nonperforming and performing loans identified to be sold in a bulk sale is based on market prices derived from indicative pricing and similar transactions recently completed in the distressed asset market. These loans are recorded at estimated fair value, net of transaction costs and are classified as nonrecurring Level 3.

FDIC indemnification asset, net

          The fair value is determined by the projected cash flows from the FDIC loss-share agreement based on expected reimbursements for losses at the applicable loss sharing percentages pursuant to the terms of the loss-share agreement. Cash flows are discounted to reflect the timing and receipt of the loss-sharing reimbursements from the FDIC.

Residential mortgage servicing rights

          The estimated fair value of residential mortgage servicing rights (“MSRs”) is obtained through an independent third party analysis of future cash flows. The evaluation utilizes assumptions market participants would use in determining fair value including market discount rates, prepayment speeds, servicing income, servicing costs, default rates and other market driven data, as well as the market’s perception of future interest rate movements. MSRs are classified as Level 3.

Derivative financial instruments

          Fair value of the derivative instruments is based on quoted market prices.

Deposits

          The fair value of core deposits, which include checking, savings and money market accounts, are, by definition, equal to the amount payable on demand as of the valuation date (i.e. their carrying amounts). Fair values for time deposits are based on the discounted value of contractual cash flows at current interest rates. The estimated fair value of deposits does not take into account the value of First Financial’s long-term relationships with depositors, commonly known as core deposit intangibles, which are separate intangible assets, and not considered financial instruments.

Advances from FHLB and Long-term debt

          The fair value of these financial instruments is estimated using observable market prices and by discounting future cash flows using current interest rates for similar financial instruments.

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Assets Recorded at Fair Value on a Recurring Basis

          The following table presents the financial instruments measured at fair value on a recurring basis.

	As of June 30, 2011
(in thousands)	Level 1		Level 2		Level 3		Total
Obligations of the U.S. government agencies and corporations	$	—	$	1,887	$	—	$	1,887
State and municipal obligations		—		466		—		466
Collateralized debt obligations		—		—		3,354		3,354
Mortgage-backed securities		—		84,308		9,157		93,465
Collateralized mortgage obligations		—		50,386		264,154		314,540
Other securities		1,000		1,594		2,661		5,255
Securities available for sale		1,000		138,641		279,326		418,967
Residential mortgage servicing rights		—		—		12,403		12,403
Derivative financial instruments		969		—		—		969
Total assets at fair value	$	1,969	$	138,641	$	291,729	$	432,339

          For the three and nine months ended June 30, 2011, certain securities classified as Level 3 had $54 thousand and $710 thousand, respectively, in impairment losses which were considered OTTI. Some of the securities are currently paying interest but are not projected to completely repay principal. The anticipated loss of principal is based on cash flow projections which were modeled using a third party program. At June 30, 2011, management reviewed the loss severity and duration of the Level 3 securities and determined it has the ability and intent to hold these securities until the unrealized loss is recovered.

Changes in Fair Value Measurement Levels

          The following table includes changes in Level 3 fair value measurements based on the hierarchy levels previously discussed. The (losses) gains in the following table may include changes to fair value due in part to observable factors that may be part of the valuation methodology. There were no transfers in or out of the Level 3 category for the three and nine months ended June 30, 2011.

	Three Months Ended June 30, 2011						Nine Months Ended June 30, 2011
(in thousands)	Securities Available For Sale			Residential Mortgage Servicing Rights			Securities Available For Sale			Residential Mortgage Servicing Rights
Balance, beginning of period	$	291,100		$	13,168		$	326,668		$	10,200
Total net (losses) gains for the year included in:
Income		(54	)		(1,431	)		709			(912	)
Other comprehensive loss, gross		(1,930	)		—			(7,852	)		—
Purchases		8,811			—			15,860			—
Sales 1		—			—			—			—
Servicing rights		—			666			—			3,115
Paydowns		(18,601	)		—			(56,059	)		—
Balance, end of period	$	279,326		$	12,403		$	279,326		$	12,403

¹ Level 3 impaired security with a cost basis of less that $100 thousand was sold during the quarter ended March 31, 2011. A gain in the amount of $1.4 million was recognized in earnings for the nine months ended June 30, 2011.

Assets Recorded at Fair Value on a Nonrecurring Basis

          The following table presents the assets measured at fair value on a nonrecurring basis categorized by the level of inputs used in the valuation of each asset and the corresponding realized loss.

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(in thousands)	As of June 30, 2011		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Year to Date Losses
Loans held for sale	$	84,288	$	—	$	23,994	$	60,294	$	—
Impaired loans, net of specific allowance		22,739		—		—		22,739		(2,347	)
Other repossessed assets acquired		27,812		—		—		27,812		(4,821	)
Total nonrecurring basis measured assets	$	134,839	$	—	$	23,994	$	110,845	$	(7,168	)

          Impaired loans are evaluated and valued at the time the loan is identified as impaired, at the lower of cost or fair value. These loans are generally collateral dependent and their value is measured based on the value of the collateral securing these loans and are classified at Level 3 in the fair value hierarchy. Specific reserves for impaired loans were $2.4 million at June 30, 2011.

          Other repossessed assets acquired in settlement of loans are recorded at the lower of the principal balance of the loan or fair value of the property less estimated selling expenses. Fair value is generally based on appraisals of the real estate or market prices for similar non-real estate property and is considered to be Level 3 in the fair value hierarchy.

NOTE 8. Income Tax

The income tax benefit for the three months ended June 30, 2011 was $(19.4) million, compared with $(7.8) million for the same period of the prior fiscal year. The higher benefit was primarily the result of a higher pre-tax loss in the current quarter, partially offset by a $4.0 million tax expense associated with permanent tax differences realized due to the sale of First Southeast. The effective tax rate for the three months ended June 30, 2011 was 31.46%, compared with 38.43% for the same period of fiscal 2010. The decrease in the effective tax rate was primarily the result of an increase in the tax loss relative to unfavorable permanent tax adjustments recognized in the current quarter associated with the sale of First Southeast and the goodwill impairment.

The income tax benefit for the nine months ended June 30, 2011 was $(19.7) million, compared with a benefit of $(24.5) million for the same period of fiscal 2010. The lower tax benefit was primarily the result of the above mentioned permanent tax difference. The effective tax rate for the nine months ended June 30, 2011 was 31.67%, compared with 39.37% for the same period of fiscal 2010. The decrease in the effective tax rate was primarily the result of a higher taxable loss in the current fiscal year as well as an increase in permanent tax adjustments recognized in the third quarter of 2011 due to the sale of First Southeast and the goodwill impairment.

NOTE 9. Share-Based Payment Arrangements

          First Financial has two share-based compensation plans authorizing the granting of qualified and nonqualified stock options, restricted stock awards, and stock appreciation rights to employees and non-employee directors as well as performance awards to non-employee directors. As of June 30, 2011, aggregate shares available for future issuance under the current shareholder approved plans may not exceed 1,224,762. This total includes 273,941 shares still outstanding from earlier adopted plans from which no new grants may be issued. At June 30, 2011, First Financial had 455,897 shares related to option and stock appreciation rights and 225,000 shares related to restricted stock awards available for grant.

          Stock options currently granted under the plans generally expire five years from the date of grant. Restrictions on non-vested stock generally lapse in three annual installments beginning on the first anniversary of the grant date. Forfeited and expired options become available for future grants.

          Compensation expense for stock options is recognized in salaries and employee benefits in the Consolidated Statements of Operations based on the fair value at the date of grant and is recognized on a straight line basis over the requisite service period of the awards. For the three and nine months ended June 30, 2011, First Financial recorded a net share-based compensation expense of $185 thousand and $288 thousand, respectively, as compared with an expense of $185 thousand and $288 thousand for the same periods of the prior fiscal year. First Financial recognized an income tax benefit of approximately $100 thousand for the nine months ended June 30, 2011 and 2010, respectively, related to share-based compensation. For all other periods presented the tax benefit was less than $100 thousand.

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          A summary of stock option activity is presented below.

	Number of Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value (000)
Outstanding at September 30, 2010		720,851		$	24.63
Granted		—			—
Exercised		—			—
Forfeited or expired		(176,986	)		25.71
Outstanding at June 30, 2011		543,865		$	24.27		2.1	$	1
Exercisable at June 30, 2011		442,095		$	26.10		1.9	$	—

          As of June 30, 2011, there was $395 thousand of total unrecognized compensation cost related to non-vested share-based compensation arrangements (share options) granted under the plans.

NOTE 10. Commitments and Contingencies

Branch Purchase and Assumption Agreement

On June 22, 2011, First Financial announced First Federal signed a purchase and assumption agreement with Liberty Savings Bank, FSB (“Liberty”) to acquire the deposits and select loans associated with Liberty’s five bank branches in the Hilton Head, South Carolina market. Based on information available at signing, First Federal expects to acquire approximately $110 million in deposits and $27 million in loans. The transaction is subject to regulatory approval and is expected to close in the fourth calendar quarter.

Loan commitments

          Commitments to extend credit are agreements to lend to borrowers as long as there is no violation of any condition established by the commitment letter. Commitments generally have fixed expiration dates or other termination clauses. The majority of the commitments will be funded within a 12 month period. First Federal evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary upon extension of credit, is based on management’s credit evaluation of the borrower. Collateral held varies but primarily consists of residential or income producing commercial properties. Unused lines of credit on equity loans, credit cards, other consumer and commercial loans and standby letters of credit were $354.8 million at June 30, 2011.

          Outstanding commitments on loans not yet closed, including commitments issued to correspondent lenders, totaled $24.0 million at June 30, 2011. These were principally commitments for loans on single-family residential and commercial property. Outstanding undisbursed closed construction loans, primarily consisting of permanent residential construction, and commercial property construction, totaled $28.4 million at June 30, 2011. In addition, at June 30, 2011, First Federal had undisbursed closed loans of $17.1 million.

Standby letters of credit

          Standby letters of credit represent First Federal’s obligations to a third party contingent on the failure of its customer to perform under the terms of an underlying contract with the third party or obligate First Federal to stand as surety for the benefit of the third party. The underlying contract may entail either financial or non-financial obligations and may involve such things as the customer’s delivery of merchandise, completion of a construction contract, release of a lien, or repayment of an obligation. Under the terms of a standby letter, drafts will generally be drawn only when the underlying event fails to occur as intended. First Federal can seek recovery of the amounts paid from the borrower. In addition, some of these standby letters of credit are collateralized. Commitments under standby letters of credit are usually for one year or less. As of June 30, 2011, there was no current liability associated with these standby letters of credit. The maximum potential amount of undiscounted future payments related to standby letters of credit at June 30, 2011, was $900 thousand.

Derivative instruments

          First Financial uses derivatives as part of its interest rate management activities. First Financial does not elect hedge accounting treatment for any of its derivative transactions; consequently, all changes in the fair value of derivative instruments are recorded as noninterest income in the Consolidated Statements of Operations.

          As part of the risk management strategy in the mortgage banking area, various derivative instruments such as interest rate lock commitments and forward sales contracts are utilized. Rate lock commitments are residential mortgage loan commitments

23

with customers, which guarantee a specified interest rate for a specified period of time. Forward contracts are agreements to purchase or sell loans, securities or other money market instruments at a future specified date at a specified price or yield. First Financial’s obligations under forward contracts consist of commitments to deliver mortgage loans in the secondary market at a future date and commitments to sell “to be issued” MBS. The commitments to originate fixed rate conforming loans totaled $39.7 million at June 30, 2011. It is anticipated that $31.6 million or approximately 80% of these loans will close. The fair value of this $31.6 million represents an asset, which totaled $41 thousand at June 30, 2011. The off-balance sheet obligations under the above derivative instruments totaled $72.0 million at June 30, 2011, with a fair value of $438 thousand as of June 30, 2011.

          First Financial utilizes derivative instruments, such as futures contracts and exchange-traded option contracts to achieve a fair value return that would substantially offset the changes in fair value of MSRs attributable to interest rates. Changes in the fair value of these derivative instruments are recorded net in noninterest income in loan servicing operations, and are offset by the changes in the fair value of the MSRs. During the nine months ended June 30, 2011, gross MSRs values decreased $912 thousand due to portfolio runoff, partially offset by positive interest rate movements, while hedge losses totaled $40 thousand. The notional value of off-balance sheet positions as of June 30, 2011 totaled $61.0 million with a fair value of an asset of $25 thousand.

NOTE 11. Business Segments

          Prior to June 30, 2011, First Financial had two principal operating segments, banking and insurance, which were evaluated regularly by management and First Financial’s Board of Directors in deciding how to allocate resources and assess performance. On June 1, 2011, First Financial sold its insurance agency subsidiary, First Southeast, and its results of operations are now segregated from continuing operations and displayed as (loss) income from discontinued operations on a net basis. As displayed in the table below, the remaining components of the former Insurance segment are no longer material on an individual component (ie. noninterest income, noninterest expense, etc.) or a net income basis. First Financial continues to monitor the revenue streams of its various financial products and services but now manages its operations and evaluates its financial performance on a consolidated basis. As of June 30, 2011, First Financial considers its former Banking and Other business segments to not be independent and determined that they are one operating segment. The following table summarizes the impact of the sale on the remaining operations and demonstrates the immaterial nature of the remaining insurance segment. Effective with the September 30, 2011 financial statements, First Financial will no longer report business segment results.

	Three Months Ended June 30, 2011												Three Months Ended June 30, 2010
(in thousands)	Banking			Insurance			Other			Total			Banking			Insurance		Other			Total
Interest income	$	39,468		$	8		$	(4	)	$	39,472		$	44,265		$	9	$	(6	)	$	44,268
Interest expense		9,323			—			733			10,056			12,390			—		662			13,052
Net interest income		30,145			8			(737	)		29,416			31,875			9		(668	)		31,216
Provision for loan losses		77,803			—			—			77,803			36,373			—		—			36,373
Net interest (loss) income after provision for loan losses		(47,658	)		8			(737	)		(48,387	)		(4,498	)		9		(668	)		(5,157	)
Noninterest income		10,824			1,237			7,108			19,169			11,881			1,071		519			13,471
Noninterest expense		27,173			2,906			2,419			32,498			25,136			979		2,559			28,674
(Loss) income from continuing operations before income taxes		(64,007	)		(1,661	)		3,952			(61,716	)		(17,753	)		101		(2,708	)		(20,360	)
Income tax (benefit) expense from continuing operations		(24,978	)		(636	)		6,197			(19,417	)		(6,899	)		39		(965	)		(7,825	)
Net (loss) income from continuing operations		(39,029	)		(1,025	)		(2,245	)		(42,299	)		(10,854	)		62		(1,743	)		(12,535	)
(Loss) income from discontinued operations		—			(701	)		—			(701	)		—			506		—			506
Net (loss) income	$	(39,029	)	$	(1,726	)	$	(2,245	)	$	(43,000	)	$	(10,854	)	$	568	$	(1,743	)	$	(12,029	)

	Nine Months Ended June 30, 2011												Nine Months Ended June 30, 2010
	Banking			Insurance			Other			Total			Banking			Insurance			Other			Total
Interest income	$	121,719		$	19		$	(10	)	$	121,728		$	137,751		$	27		$	(13	)	$	137,765
Interest expense		30,555			—			2,222			32,777			40,014			—			2,170			42,184
Net interest income		91,164			19			(2,232	)		88,951			97,737			27			(2,183	)		95,581
Provision for loan losses		100,961			—			—			100,961			107,615			—			—			107,615
Net interest (loss) income after provision for loan losses		(9,797	)		19			(2,232	)		(12,010	)		(9,878	)		27			(2,183	)		(12,034	)
Noninterest income		31,645			3,024			8,031			42,700			31,683			2,682			1,282			35,647
Noninterest expense		82,525			4,953			5,578			93,056			77,637			2,997			5,236			85,870
(Loss) income from continuing operations before income taxes		(60,677	)		(1,910	)		221			(62,366	)		(55,832	)		(288	)		(6,137	)		(62,257	)
Income tax (benefit) expense from continuing operations		(23,890	)		(731	)		4,872			(19,749	)		(22,191	)		(163	)		(2,155	)		(24,509	)
Net (loss) income from continuing
operations		(36,787	)		(1,179	)		(4,651	)		(42,617	)		(33,641	)		(125	)		(3,982	)		(37,748	)
Income from discontinued operations		—			354			—			354			—			2,131			—			2,131
Net (loss) income	$	(36,787	)	$	(825	)	$	(4,651	)	$	(42,263	)	$	(33,641	)	$	2,006		$	(3,982	)	$	(35,617	)
Total assets	$	3,210,021		$	9,410		$	2,113		$	3,221,544		$	3,271,969		$	56,965		$	(4,590	)	$	3,324,344

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NOTE 12. Discontinued Operations

          On May 26, 2011, First Financial entered into a stock purchase agreement with Hub whereby Hub agreed to acquire all of the stock of First Southeast. On June 1, 2011, First Financial completed the stock sale in exchange for $38.0 million in cash. First Financial has no continuing cash flow from First Southeast.

          First Southeast had experienced a decline in revenues and returns over the last several years, primarily the result of recessionary economy and a generally soft insurance market, which negatively impacted premium pricing. In addition, First Financial evaluated its future capital requirements in light of upcoming regulatory capital changes resulting from the Dodd-Frank Wall Street Reform and Consumer Protection Act and determined that re-deploying the capital supporting the insurance agency to support the banking operations would increase overall value and returns to shareholders. The sale of First Southeast also generated tangible capital as it eliminated $28.9 million in goodwill and intangibles.

          The table below summarizes the assets and liabilities of First Southeast as of September 30, 2010.

(in thousands)	September 30, 2010
Assets
Cash and due from banks	$	375
Interest-bearing deposits with banks		4,900
Total cash and cash equivalents		5,275
Premises and equipment, net		763
Goodwill		22,508
Other intangible assets, net		6,671
Other assets		1,257
Total discontinued assets	$	36,474
Liabilities
Other liabilities		2,458
Total discontinued liabilities	$	2,458

          The operating results for the three and nine months ended June 30, 2011 and June 30, 2010 were as follows.

	Three Months Ended June 30,					Nine Months Ended June 30,
(in thousands)	2011			2010		2011			2010
Interest Income	$	4		$	13	$	24		$	31
Noninterest income
Insurance		3,357			5,229		13,860			16,555
Other		(1	)		5		(1	)		4
Total noninterest income		3,360			5,247		13,883			16,590
Noninterest expense
Salaries and employee benefits		3,018			3,376		9,644			9,899
Occupancy costs		145			210		586			635
Furniture and equipment		128			212		542			644
Professional services		7			18		39			34
Advertising and marketing		24			33		113			120
Intangible asset amortization		90			129		361			409
Other expense		1,104			451		2,032			1,380
Total noninterest expense		4,516			4,429		13,317			13,121
(Loss) income from discontinued operations before taxes		(1,156	)		818		566			3,469
Income tax (benefit) expense from discontinued operations		(455	)		312		212			1,338
Net (loss) income from discontinued operations	$	(701	)	$	506	$	354		$	2,131

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Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations
Five Quarter Summary of Selected Financial Data

	Three Months Ended
(dollars in thousands, except per share data)	June 30, 2011			March 31, 2011			December 31, 2010			September 30, 2010			June 30, 2010
Summary of Operations
Interest income	$	39,472		$	40,184		$	42,072		$	43,108		$	44,268
Interest expense		10,056			10,897			11,824			12,274			13,052
Net interest income		29,416			29,287			30,248			30,834			31,216
Provision for loan losses		77,803			12,675			10,483			17,579			36,373
Net interest (loss) income after provision for loan losses		(48,387	)		16,612			19,765			13,255			(5,157	)
Noninterest income		19,169			12,212			11,319			13,771			13,471
Noninterest expense		32,498			31,073			29,485			30,297			28,674
(Loss) income from continuing operations before taxes		(61,716	)		(2,249	)		1,599			(3,271	)		(20,360	)
Income tax (benefit) expense from continuing operations		(19,417	)		(902	)		570			(1,557	)		(7,825	)
Net (loss) income from continuing operations		(42,299	)		(1,347	)		1,029			(1,714	)		(12,535	)
(Loss) income from discontinued operations		(701	)		917			138			542			506
Net (loss) income		(43,000	)		(430	)		1,167			(1,172	)		(12,029	)
Preferred stock dividends		812			812			813			813			813
Accretion on preferred stock		149			147			144			142			140
Net (loss) income available to common shareholders	$	(43,961	)	$	(1,389	)	$	210		$	(2,127	)	$	(12,982	)
Per Common Share Data
Net (loss) income per common share from continuing operations
Basic	$	(2.62	)	$	(0.14	)	$	0.00		$	(0.16	)	$	(0.82	)
Diluted		(2.62	)		(0.14	)		0.00			(0.16	)		(0.82	)
Net (loss) income per common share from discontinued operations
Basic	$	(0.04	)	$	0.06		$	0.01		$	0.03		$	0.03
Diluted		(0.04	)		0.06			0.01			0.03			0.03
Net (loss) income per common share
Basic	$	(2.66	)	$	(0.08	)	$	0.01		$	(0.13	)	$	(0.79	)
Diluted		(2.66	)		(0.08	)		0.01			(0.13	)		(0.79	)
Market price, end of period		8.97			11.31			11.51			11.14			11.45
Book value per common share		12.20			14.92			15.15			15.32			15.66
Tangible book value per common share (non-GAAP)1		11.83			12.65			12.86			13.02			13.34
Dividends		0.05			0.05			0.05			0.05			0.05
Shares outstanding, end of period		16,527			16,527			16,527			16,527			16,527
Balance Sheet Summary, at period end
Assets	$	3,221,544		$	3,302,012		$	3,301,338		$	3,323,015		$	3,324,344
Investment securities		478,570			446,464			435,498			473,372			482,270
Loans		2,372,069			2,559,845			2,583,367			2,564,348			2,590,819
Allowance for loan losses		55,491			85,138			88,349			86,871			86,945
Deposits		2,315,745			2,344,780			2,409,612			2,415,063			2,463,658
Advances from FHLB and long-term debt		604,704			608,710			544,310			555,439			525,568
Shareholders’ equity		266,564			311,527			315,322			318,190			323,797
Balance Sheet Summary, average for the quarter
Assets	$	3,294,350		$	3,310,796		$	3,323,825		$	3,316,098		$	3,358,635
Investment securities		464,277			435,568			453,666			457,363			494,171
Loans		2,548,417			2,590,383			2,585,589			2,582,361			2,606,284
Allowance for loan losses		81,025			88,086			87,605			86,994			84,665
Deposits		2,360,572			2,397,801			2,424,807			2,450,148			2,466,284
Advances from FHLB and long-term debt		593,103			555,630			543,039			519,619			547,729
Shareholders’ equity		302,996			313,663			318,202			321,379			330,829
Selected Ratios from Continuing Operations
Return on average assets2		(5.14	)%		(0.16	)%		0.12	%		(0.21	)%		(1.49	)%
Return on average equity2		(55.84	)		(1.72	)		1.29			(2.13	)		(15.15	)
Net interest margin (FTE)3		3.83			3.83			3.83			3.92			3.95
Efficiency ratio (non-GAAP)1		76.93			77.02			69.77			67.35			63.51
Selected Ratios from Consolidated Operations
Return on average assets2		(5.22	)%		(0.05	)%		0.14	%		(0.14	)%		(1.43	)%
Return on average equity2		(56.77	)		(0.55	)		1.47			(1.46	)		(14.54	)
Capital Ratios
Equity to assets		8.27	%		9.43	%		9.55	%		9.58	%		9.74	%
Tangible common equity to tangible assets (non-GAAP)1		6.08			6.40			6.51			6.55			6.71
Leverage capital ratio4		7.48			8.58			8.58			8.47			8.46
Tier 1 risk-based capital ratio4		10.07			11.51			11.42			11.27			11.19
Total risk-based capital ratio4		11.33			12.78			12.69			12.55			12.46

1	See Item 2. Management’s Discussion and Anaylsis of Financial Condition and Results of Operations - Use of Non-GAAP Financial Measures
2	Annualized percentages
3	Net interest margin includes taxable equivalent adjustments to interest income based on a federal tax rate of 35%.
4	These ratios are calculated for First Federal. In July 2011, First Financial downstreamed $20.0 million of capital to First Federal. After the effect of the downstream, the June 30, 2011, pro forma leverage capital, tier 1 risk-based capital, and total risk-based capital ratios for First Federal are 8.05%, 10.91%, and 12.18%, respectively.

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Five Quarter Summary of Selected Financial Data (continued)

	Three Months Ended
(dollars in thousands, except per share data)	2011			2011			2010			2010			2010
Asset Quality Metrics
Allowance for loan losses as a percent of loans		2.34	%		3.33	%		3.42	%		3.39	%		3.36	%
Allowance for loan losses as a percent of nonperforming loans		130.36			54.48			56.41			61.54			65.75
Nonperforming loans as a percent of loans		1.79			6.10			6.06			5.50			5.10
Nonperforming assets as a percent of loans and other repossessed assets acquired1		4.63			7.05			6.77			5.94			5.56
Nonperforming assets as a percent of total assets		3.51			5.52			5.34			4.61			4.35
Net loans charged-off as a percent of average loans2		16.87			2.45			1.39			2.73			4.94
Net loans charged-off	$	107,450		$	15,886		$	9,005		$	17,652		$	32,159
Asset Quality Metrics excluding Nonperforming Loans Held For Sale
Nonperforming assets excluding nonperforming loans held for sale as a percent of loans and other repossessed assets acquired		2.93	%		7.05	%		6.77	%		5.94	%		5.56	%
Nonperforming assets excluding nonperforming loans held for sale as a percent of total assets		2.18			5.52			5.34			4.61			4.35
Asset Quality Metrics Excluding Covered Loans
Allowance for loan losses as a percent of loans		2.51	%		3.57	%		3.68	%		3.66	%		3.65	%
Allowance for loan losses as a percent of nonperforming loans		216.35			60.79			61.83			66.15			70.80
Nonperforming loans as a percent of loans		1.16			5.87			5.95			5.54			5.15
Nonperforming assets as a percent of loans and other repossessed assets acquired1		3.91			6.65			6.46			5.82			5.49
Nonperforming assets as a percent of total assets		2.76			4.84			4.72			4.16			3.95
Asset Quality Metrics Excluding Covered Loans and Nonperforming Loans Held for Sale
Nonperforming assets excluding nonperforming loans held for sale as a percent of loans and other repossessed assets acquired		2.07	%		6.65	%		6.46	%		5.82	%		5.49	%
Nonperforming assets excluding nonperforming loans held for sale as a percent of total assets		1.43			4.84			4.72			4.16			3.95

1	Nonperforming loans held for sale in the amount of $42,656 thousand is included in loans.
2	Annualized percentage

          The following presents management’s discussion and analysis of First Financial Holdings, Inc. (“First Financial”) and its wholly-owned subsidiaries, including its depository institution, First Federal Savings and Loan Association of Charleston (“First Federal”) with regard to their financial condition and results of operations for the three and nine months ended June 30, 2011. It should be read in conjunction with the unaudited Consolidated Financial Statements and Notes included elsewhere in this report and the audited Consolidated Financial Statements and Notes contained in First Financial’s 2010 Annual Report on Form 10-K. In addition, the following discussion and analysis should be read together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in First Financial’s 2010 Annual Report on Form 10-K, which contains important additional information that is necessary to understand First Financial and its financial condition and results of operations for the periods covered by this report.

          All of First Financial’s electronic filings with the Securities and Exchange Commission (“SEC”), including the Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and other documents filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, are accessible at no cost on First Financial’s website, www.firstfinancialholdings.com. The information on the website does not constitute a part of this report. First Financial’s filings are also available through the SEC’s website at www.sec.gov.

Discontinued Operations

          As a result of First Financial’s sale of its insurance agency subsidiary, First Southeast Insurance Services, Inc. (“First Southeast”), which was completed on June 1, 2011, the financial condition and operating results for this subsidiary have been segregated from the financial condition and operating results of First Financial’s continuing operations throughout this Form and, as such, are presented as a discontinued operation. While all prior periods have been revised retrospectively to align with this treatment, these changes do not affect First Financial’s reported consolidated financial condition or net income for any of the prior periods.

Forward-Looking Statements

          Statements in this report that are not statements of historical fact, including without limitation, statements that include terms such as “believes,” “expects,” “anticipates,” “estimates,” “forecasts,” “intends,” “plans,” “targets,” “potentially,” “probably,” “projects,” “outlook,” or similar expressions or future conditional verbs such as “may,” “will,” “should,” “would,” or “could” constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements

27

regarding First Financial’s future financial and operating results, plans, objectives, expectations and intentions involve risks and uncertainties, many of which are beyond First Financial’s control or are subject to change. No forward-looking statement is a guarantee of future performance and actual results could differ materially. Factors that could cause or contribute to such differences include, but are not limited to:

• A large portion of First Financial’s loan portfolio is secured by residential and commercial real estate. Continued deterioration in residential and commercial real estate values could lead to additional losses, which may cause First Financial’s net income to decline and could have a negative impact on its capital, financial condition, and results of operations.

• Repayment of First Financial’s commercial loans is often dependent on the cash flows of the borrower, which may be unpredictable, and the collateral securing these loans may fluctuate in value.

• First Financial’s allowance for loan losses may not be sufficient to absorb losses in its loan portfolio. Additions to the allowance for loan losses may be required by increasing the provision for loan losses, which would cause net income to decline and could have a negative impact on First Financial’s capital and financial position.

• The current economic conditions in the nation and the market areas First Financial serves may continue to adversely impact First Financial’s earnings and could increase credit risk associated with its loan portfolios.

• While First Financial attempts to manage the risk from changes in market interest rates, interest rate risk management techniques are not exact and a rapid or substantial increase or decrease in interest rates could adversely affect net interest income and results of operations.

• First Financial is highly dependent on key members of its senior management team, which has changed significantly during the past two years, and there is risk that it will not be able to develop a cohesive and unified management team.

• Further economic downturns may adversely affect First Financial’s investment securities portfolio and profitability.

• If First Financial is unable to continue to attract or retain core deposits, to obtain third party borrowings on favorable terms, or to have access to interbank or other liquidity sources, its cost of funds will increase, adversely affecting its ability to generate funds necessary for lending operations, reducing net interest margin and negatively affecting results of operations.

• While the remaining insurance activities are significantly reduced, a general decline in economic conditions and volatility or decline in premiums or claims associated with catastrophic events may adversely affect the revenues of First Financial’s insurance segment.

• Economic and other circumstances may require First Financial to raise capital at times or in amounts that are unfavorable.

• First Financial’s participation in the Troubled Asset Relief Program Capital Purchase Program (“TARP CPP”) and other government regulations impose restrictions and obligations that limit its ability to pay or increase dividends, repurchase shares of preferred or common stock, and access the equity capital markets.

• If First Financial is unable to redeem its Series A Preferred Stock within five years from the issuance date, the cost of this capital will increase substantially.

• First Financial is subject to extensive governmental regulation, which could have an adverse impact on its operations.

• The impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) and the implementing regulations, which has, among other things, eliminated the Office of Thrift Supervision (“OTS”), resulting in the powers and responsibilities of the OTS being assumed by the Office of the Comptroller of the Currency with respect to First Federal and the Federal Reserve Board (“Federal Reserve”) with respect to First Financial, tightened capital standards, created a new Bureau of Consumer Financial Protection and is expected to result in new regulations that are expected to increase First Financial’s costs of operations.

• Increased competition with other financial institutions may have an adverse effect on First Financial’s ability to retain and grow its client base, which could have a negative effect on financial condition and results of operations.

• First Financial may be adversely affected by the soundness of other financial institutions.

• If First Financial’s goodwill becomes further impaired, it may need to record an additional impairment charge, which could negatively affect results of operations and capital.

• First Financial’s potential inability to integrate companies it may acquire in the future could expose it to financial, execution, and operational risks that could negatively affect its financial condition and results of operations. Acquisitions may be dilutive to common shareholders and Federal Deposit Insurance Corporation (“FDIC”)-assisted transactions have additional compliance risk that other acquisitions do not have.

• If the FDIC changes its assessment rate or deposit insurance premium methodology, First Financial’s FDIC insurance premium may increase and this could have a negative effect on First Financial’s financial condition or results of operations.

• First Financial is party to various lawsuits incidental to its business. Litigation is subject to many uncertainties such that the expenses and ultimate exposure with respect to many of these matters cannot be ascertained.

• First Financial’s business continuity plans or data security systems could prove to be inadequate, resulting in a material interruption in, or disruption to, business and a negative impact on results of operations.

• First Financial’s controls and procedures may fail or be circumvented, which could have a material adverse effect on business, results of operations, and financial condition.

• The price of First Financial’s common stock may fluctuate significantly, and this may make it difficult for investors to resell their common stock when they want or at prices they find attractive.

• Anti-takeover provisions could negatively impact First Financial shareholders.

          These factors also include risks and uncertainties detailed from time to time in First Financial’s other filings with the SEC, such as the risk factors listed in “Item 1A. Risk Factors,” of First Financial’s 2010 Annual Report on Form 10-K and subsequent Forms 10-Q (including this Form 10-Q). Other factors not currently anticipated may also materially and adversely affect First Financial’s results of operations, cash flows, and financial condition. There can be no assurance that future results will meet expectations.

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While First Financial believes that the forward-looking statements in this report are reasonable, the reader should not place undue reliance on any forward-looking statement. In addition, these statements speak only as of the date made. First Financial does not undertake, and expressly disclaims any obligation to update or alter any statements, whether as a result of new information, future events or otherwise, except as required by applicable law.

Critical Accounting Policies

          First Financial’s Consolidated Financial Statements are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and follow general practices within the financial institutions industry. Application of these principles requires management to make estimates, assumptions, and complex judgments that affect the amounts reported in the financial statements and accompanying notes. These estimates, assumptions, and judgments are based on information available as of the date of the financial statements. Accordingly, as this information changes, the financial statements could reflect different estimates, assumptions, and judgments. Actual results could differ significantly from these estimates. Certain policies inherently have a greater reliance on the use of estimates, assumptions, and judgments and, as such, have a greater possibility of producing results that could be materially different than originally reported. Estimates that are particularly susceptible to significant change include those relating to the allowance for loan losses, goodwill, fair value measurements, and income taxes. First Financial believes that these estimates and the related accounting policies are important to the portrayal of its financial condition and results of operations. Therefore, management considers them to be critical accounting policies and discusses them directly with the Audit Committee of the Board of Directors. First Financial’s accounting policies are more fully described in Note 1 to the Consolidated Financial Statements contained in First Financial’s 2010 Annual Report on Form 10-K, and the more significant assumptions and estimates made by management are more fully described in “Management’s Discussion and Results of Operations – Critical Accounting Policies” in First Financial’s 2010 Annual Report on Form 10-K. For additional information regarding updates during fiscal 2011, see Note 1 to the Consolidated Financial Statements in this report.

Use of Non-GAAP Financial Measures

          In addition to results presented in accordance with GAAP, this report includes non-GAAP financial measures such as the efficiency ratio, tangible common equity to tangible assets ratio, and tangible common book value. We believe these non-GAAP financial measures provide additional information that is useful to investors in understanding our underlying performance, our business and performance trends and such measures help facilitate performance comparisons with others in the banking industry. Non-GAAP measures have inherent limitations, are not required to be uniformly applied and are not audited. Readers should be aware of these limitations and should be cautious in their use of such measures. To mitigate these limitations, we have procedures in place to ensure that these measures are calculated using the appropriate GAAP or regulatory components in their entirety and to ensure that our performance is properly reflected to facilitate consistent period-to-period comparisons. Although we believe the above non-GAAP financial measures enhance investors’ understanding of our business and performance, these non-GAAP measures should not be considered in isolation, or as a substitute for GAAP basis financial measures.

          The efficiency ratio measures the amount of revenue (defined as the sum of net interest income on a fully tax-equivalent basis and noninterest income) needed to cover noninterest expenses. In accordance with industry standards, the presentation of net interest margin on a taxable equivalent basis using a 35% effective federal tax rate allows comparability of net interest margin with industry peers by eliminating the effect of the differences in portfolios attributable to the proportion represented by both taxable and tax-exempt investments.

          First Financial believes that the exclusion of goodwill and other intangible assets facilitates the comparison of results for ongoing business operations. The tangible common equity (“TCE”) ratio and tangible common book value (“TBV”) have become a focus of some investors, analysts and banking regulators. Management believes these measures may assist in analyzing First Financial’s capital position absent the effects of intangible assets and preferred stock. Because TCE and TBV are not formally defined by GAAP or codified in the federal banking regulations, these measures are considered to be non-GAAP financial measures. However, analysts and banking regulators may assess First Financial’s capital adequacy using TCE or TBV, therefore, management believes that it is useful to provide investors the ability to assess its capital adequacy on the same basis.

          The following table presents the calculation of these non-GAAP measures for the past five quarters.

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Non-GAAP Reconciliation (Unaudited)	For the Three Months Ended
(in thousands, except per share data)	June 30, 2011			March 31, 2011			December 31, 2010			September 30, 2010			June 30, 2010
Efficiency Ratio from Continuing Operations
Net interest income (A)	$	29,416		$	29,287		$	30,248		$	30,834		$	31,216
Taxable equivalent adjustment (B)		144			144			157			149			148
Noninterest income (C)		19,169			12,212			11,319			13,771			13,471
Gain on sale of business (D)1		6,540			—			—			—			—
Net securities gains (losses) (E)		(54	)		1,297			(534	)		(230	)		(311	)
Noninterest expense (F)		32,498			31,073			29,485			30,297			28,674
Efficiency Ratio: F/(A+B+C-D-E) (non-GAAP)		76.93	%		77.02	%		69.77	%		67.35	%		63.51	%
Tangible Assets and Tangible Common Equity
Total assets	$	3,221,544		$	3,302,012		$	3,301,338		$	3,323,015		$	3,324,344
Goodwill2		(3,250	)		(28,260	)		(28,260	)		(28,260	)		(28,260	)
Other intangible assets, net3		(2,776	)		(9,278	)		(9,515	)		(9,754	)		(9,997	)
Tangible assets (non-GAAP)	$	3,215,518		$	3,264,474		$	3,263,563		$	3,285,001		$	3,286,087
Total shareholders’ equity	$	266,564		$	311,527		$	315,322		$	318,190		$	323,797
Preferred stock		(65,000	)		(65,000	)		(65,000	)		(65,000	)		(65,000	)
Goodwill2		(3,250	)		(28,260	)		(28,260	)		(28,260	)		(28,260	)
Other intangible assets, net3		(2,776	)		(9,278	)		(9,515	)		(9,754	)		(9,997	)
Tangible common equity (non-GAAP)	$	195,538		$	208,989		$	212,547		$	215,176		$	220,540
Shares outstanding, end of period (000s)		16,527			16,527			16,527			16,527			16,527
Tangible common equity to tangible assets (non-GAAP)		6.08	%		6.40	%		6.51	%		6.55	%		6.71	%
Tangible common book value per share (non-GAAP)	$	11.83		$	12.65		$	12.86		$	13.02		$	13.34
Pre-tax Pre-provision Earnings from Continuing Operations
(Loss) income before income taxes	$	(61,716	)	$	(2,249	)	$	1,599		$	(3,271	)	$	(20,360	)
Provision for loan losses		77,803			12,675			10,483			17,579			36,373
Pre-tax pre-provision earnings (non-GAAP)	$	16,087		$	10,426		$	12,082		$	14,308		$	16,013

1	The gain resulted from the sale of First Financial’’s insurance agencey subsidiary, First Southeast, which was completed on June 1, 2011.
2	Goodwill represents goodwill for Continuing Operations, as show n on the Consolidated Balance Sheets, and includes goodwill for Discontinued Operations of $22.5 million for the quarters ended March 31, 2011, December 31, 2010, September 30, 2010, and June 30, 2010, respectively.
3	Intangible assets represents intangible assets for Continuing Operations, as shown on the Consolidated Balance Sheets, and includes intangible assets for Discontinued Operations of $6.4 million, $6.5 million, $6.7 million and $6.8 million for the quarters ended March 31, 2011, December 31, 2010, September 30, 2010, and June 30, 2010, respectively.

Results of Operations

          First Financial recorded a net loss of $(43.0) million for the third fiscal quarter or three months ended June 30, 2011, compared with $(12.0) million for the three months ended June 30, 2010. The net loss for the current fiscal quarter was the result of an additional provision for loan losses associated with reclassifying $155.3 million of portfolio loans to loans held for sale at estimated fair value, less transaction costs. After the effect of the preferred stock dividend and related accretion, First Financial recorded a net loss available to common shareholders of $(44.0) million for the three months ended June 30, 2011, compared with $(13.0) million for the three months ended June 30, 2010. Diluted net loss per common share was $(2.66) for the current quarter, compared with $(0.79) for the same quarter last year.

          For the nine months ended June 30, 2011, First Financial recorded a net loss of $(42.3) million, compared with $(35.6) million for the same period of fiscal 2010. After the effect of the preferred stock dividend and related accretion, the net loss available to common shareholders was $(45.1) million for the nine months ended June 30, 2011, compared with $(38.5) million for the same period of fiscal 2010. Diluted net loss per common share was $(2.73) compared with $(2.33) for the same period of fiscal 2010.

Third Quarter Fiscal 2011 Highlights

• First Financial completed the sale of First Southeast to Hub International, LLC on June 1, 2011 for a cash purchase price of $38.0 million and recorded a $6.5 million pre-tax gain on the sale (excluding transaction related costs).

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• On June 22, 2011, First Financial announced First Federal signed a purchase and assumption agreement with Liberty Savings Bank, FSB (“Liberty”) to acquire the deposits and select loans associated with Liberty’s five bank branches in the Hilton Head, South Carolina market. Based on information available at signing, First Federal expects to acquire approximately $110 million in deposits and $27 million in loans. The transaction is subject to regulatory approval and is expected to close in the fourth calendar quarter.

• Effective June 30, 2011, First Financial reclassified $155.3 million of certain nonperforming and performing loans to loans held for sale. First Financial is pursuing potential sale alternatives that are expected to result in the disposition of these assets prior to the calendar year end. As a result of the reclassification, First Financial recorded the following:

o Charged-off $95.0 million against the allowance for loan losses to record the loans at estimated fair value, less transaction costs;

o Recorded a net incremental provision for loan losses of $65.7 million;

o Reduced delinquent loans at June 30, 2011 by $6.3 million;

o Reduced nonperforming loans at June 30, 2011 by $111.0 million; and

o Transferred $60.3 million to loans held for sale at estimated fair value.

Net Interest Income

          The following tables present an analysis of net interest income, interest spread and net interest margin with average balances and related weighted average interest rates.

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Average Balances, Net Interest Income, Average Rates	For the Three Months Ended June 30,
	2011							2010
(dollars in thousands)	Average Balance			Interest		Average Rate		Average Balance			Interest		Average Rate
Earning assets
Interest-bearing deposits with banks	$	6,681		$	1	0.06	%	$	5,735		$	4	0.25	%
Securities available for sale		403,052			4,178	4.16			425,528			5,553	5.23
Securities held to maturity1		21,968			272	7.60			22,502			279	7.61
Nonmarketable securities - FHLB stock		39,257			77	0.79			46,141			50	0.43
Loans2		2,566,827			34,497	5.39			2,617,584			37,485	5.74
FDIC indemnification asset, net		61,261			447	2.93			66,105			897	5.44
Total earning assets		3,099,046			39,472	5.13	%		3,183,595			44,268	5.60	%
Nonearning assets
Cash and due from banks		57,411							57,887
Allowance for loan losses		(81,025	)						(76,938	)
Other assets		192,685							157,228
Assets from discontinued operations		26,233							36,863
Total assets	$	3,294,350						$	3,358,635
Interest-bearing liabilities
Deposits:
Interest-bearing checking	$	440,905		$	331	0.30	%	$	378,240		$	414	0.44	%
Savings and money market		507,622			527	0.42			503,962			1,107	0.88
Time deposits		1,167,749			5,071	1.74			1,358,775			6,668	1.97
Total deposits		2,116,276			5,929	1.12	%		2,240,977			8,189	1.47	%
Advances from FHLB		547,291			3,330	2.44			501,917			4,066	3.25
Long-term debt		45,812			797	6.98			45,812			797	6.98
Total interest-bearing liabilities		2,709,379			10,056	1.49	%		2,788,706			13,052	1.88	%
Noninterest-bearing liabilities
Noninterest-bearing checking		244,296							225,306
Other liabilities		35,419							10,899
Liabilities from discontinued operations		2,260							2,895
Total liabilities		2,991,354							3,024,911
Shareholders’ equity		302,996							330,829
Total liabilities and shareholders’ equity	$	3,294,350						$	3,358,635
Net interest income/interest spread				$	29,416	3.64	%				$	31,216	3.72	%
Contribution of noninterest bearing sources of funds3						0.19							0.23
Net interest margin (FTE)4						3.83	%						3.95	%

1	Interest income used in the average rate calculation includes the tax equivalent adjustment of $144 thousand, and $148 thousand for the three months ended June 30, 2011, and 2010, respectively, calculated based on a federal tax rate of 35%.
2	Average loans include loans held for sale and nonaccrual loans. Loan fees, which are not material for any of the periods, have been included in loan interest income for the rate calculation.
3	Equates to total cost of funds of 1.37% and 1.74% for the three months ended June 30, 2011, and 2010, respectively.
4	Net interest margin exceeds the interest spread due to noninterest-bearing funding sources supporting earning assets.

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Average Balances, Net Interest Income, Average Rates	For the Nine Months Ended June 30,
	2011							2010
(dollars in thousands)	Average Balance			Interest		Average Rate		Average Balance			Interest		Average Rate
Earning assets
Interest-bearing deposits with banks	$	8,116		$	9	0.15	%	$	6,406		$	7	0.15	%
Securities available for sale		388,240			13,244	4.56			456,643			18,007	5.27
Securities held to maturity1		22,127			840	7.77			22,473			903	8.22
Nonmarketable securities - FHLB stock		40,870			240	0.79			46,141			67	0.19
Loans2		2,597,093			105,707	5.44			2,649,604			115,770	5.84
FDIC indemnification asset, net		64,942			1,688	3.48			64,624			3,011	6.23
Total earning assets		3,121,388			121,728	5.23	%		3,245,891			137,765	5.69	%
Nonearning assets
Cash and due from banks		55,141							58,135
Allowance for loan losses		(85,569	)						(77,803	)
Other assets		196,398							161,469
Assets from discontinued operations		28,573							36,799
Total assets	$	3,315,931						$	3,424,491
Interest-bearing liabilities
Deposits:
Interest-bearing checking	$	418,014		$	1,106	0.35	%	$	361,071		$	1,150	0.43	%
Savings and money market		500,149			1,672	0.45			497,416			3,423	0.92
Time deposits		1,244,982			17,630	1.89			1,292,315			20,169	2.09
Total deposits		2,163,145			20,408	1.26	%		2,150,802			24,742	1.54	%
Advances from FHLB		518,065			9,979	2.58			532,393			14,664	3.68
Long-term debt		45,812			2,390	6.98			151,318			2,778	2.45
Total interest-bearing liabilities		2,727,022			32,777	1.61	%		2,834,513			42,184	1.99	%
Noninterest-bearing liabilities
Noninterest-bearing checking		236,586							219,432
Other liabilities		37,632							22,808
Liabilities from discontinued operations		2,895							3,116
Total liabilities		3,004,135							3,079,869
Shareholders’ equity		311,796							344,622
Total liabilities and shareholders’ equity	$	3,315,931						$	3,424,491
Net interest income/interest spread				$	88,951	3.62	%				$	95,581	3.70	%
Contribution of noninterest bearing sources of funds3						0.21							0.25
Net interest margin (FTE)4						3.83	%						3.96	%

1	Interest income used in the average rate calculation includes the tax equivalent adjustment of $446 thousand, and $479 thousand for the nine months ended June 30, 2011, and 2010, respectively, calculated based on a federal tax rate of 35%.
2	Average loans include loans held for sale and nonaccrual loans. Loan fees, which are not material for any of the periods, have been included in loan interest income for the rate calculation.
3	Equates to total cost of funds of 1.48% and 1.85% for the nine months ended June 30, 2011, and 2010, respectively.
4	Net interest margin exceeds the interest spread due to noninterest-bearing funding sources supporting earning assets.

          The declines in net interest margin for the three and nine month periods were primarily the result of reductions in the yield on assets exceeding the decline in cost of funds. Increases in nonperforming loan levels reduced the net interest margin in the nine months ended June 30, 2011 by approximately 3.0 basis points from the prior fiscal year. First Financial continues to reprice deposits as market competition will support, and earning assets continue to reprice and be replaced with lower yielding assets due to the current low interest rate environment.

          The declines in net interest income for the three and nine month periods were primarily the result of a decline in average earning assets due to lower loan demand from creditworthy borrowers and loan charge-offs, as well as using cash flow from investment securities to fund maturing deposits or paydown borrowings rather than being fully reinvested.

          The following table presents changes in interest income, interest expense and net interest income due to volume and rate variances for major categories of earning assets and interest-bearing liabilities.

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	For The Three Months Ended June 30,2011 versus 2010Increase (Decrease)Due to									For The Nine Months Ended June 30,2011 versus 2010Increase (Decrease)Due to
(in thousands)	Volume			Rate			Net			Volume			Rate			Net
Interest income
Interest-bearing deposits with banks	$	—		$	(3	)	$	(3	)	$	2		$	—		$	2
Securities available for sale		(280	)		(1,095	)		(1,375	)		(2,505	)		(2,258	)		(4,763	)
Securities held to maturity		(7	)		—			(7	)		(14	)		(49	)		(63	)
Nonmarketable securities - FHLB stock		(8	)		35			27			(8	)		181			173
Loans		(715	)		(2,273	)		(2,988	)		(2,259	)		(7,804	)		(10,063	)
FDIC indemnification asset, net		(61	)		(389	)		(450	)		15			(1,338	)		(1,323	)
Total interest income	$	(1,071	)	$	(3,725	)	$	(4,796	)	$	(4,769	)	$	(11,268	)	$	(16,037	)
Interest expense
Deposits:
Interest-bearing checking	$	61		$	(144	)	$	(83	)	$	167		$	(211	)	$	(44	)
Savings and money market		(27	)		(553	)		(580	)		(70	)		(1,681	)		(1,751	)
Time deposits		(877	)		(720	)		(1,597	)		(719	)		(1,820	)		(2,539	)
Total deposits		(843	)		(1,417	)		(2,260	)		(622	)		(3,712	)		(4,334	)
Advances from FHLB, and long-term debt		343			(1,079	)		(736	)		(3,296	)		(1,777	)		(5,073	)
Total interest expense		(500	)		(2,496	)		(2,996	)		(3,918	)		(5,489	)		(9,407	)
Net interest income	$	(571	)	$	(1,229	)	$	(1,800	)	$	(851	)	$	(5,779	)	$	(6,630	)
Note: The change in interest not solely due to changes in volume or rates has been allocated in proportion to the absolute dollar amounts of the change in each.

Provision for Loan Losses

          After determining what First Financial believes is an adequate allowance for loan losses based on the estimated risk inherent in the loan portfolio, the provision for loan losses is calculated based on the net effect of the change in the allowance for loan losses and net charge-offs. The provision for loan losses was $77.8 million for the quarter ended June 30, 2011, compared with $36.4 million for the same quarter last fiscal year. The increase was primarily the result of $65.7 million in additional provision related to the above mentioned loan reclassification, which was the net result of the incremental charge-offs to write-down the loans transferred to estimated fair value and a reserve release comprised of the specific reserves and allocated general reserves associated with the transferred loans, as well as adjustments to the internal and external qualitative factors for the risk inherent in the remaining loan portfolio Excluding the effects of the loan reclassification, the provision for loan losses during the third quarter of fiscal 2011 would have been $12.1 million. For the nine months ended June 30, 2011, the provision for loan losses was $101.0 million, compared with $107.6 million for the same period of fiscal 2010. The decrease was primarily the result of lower net charge-offs and some stabilization in the level of classified loans during the current fiscal year, partially offset by the $65.7 million in additional provision related to the loan reclassification. See “ – Asset Quality” and “ – Allowance for Loan Losses” for additional discussion regarding the calculation of the allowance for loan losses and information related to loan charge-offs.

Noninterest Income

The following table summarizes the components of noninterest income.

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Noninterest Income

	Three Months Ended June 30,						Nine Months Ended June 30,						Three Month Change						Nine Month Change
(dollars in thosuands)	2011			2010			2011			2010			$			%			$			%
Service charges and fees on deposit accounts	$	6,982		$	6,645		$	19,641		$	19,129		$	337			5.1	%	$	512			2.7	%
Insurance		1,239			1,069			3,007			2,680			170			15.9			327			12.2
Mortgage and other loan income		2,045			2,469			5,798			7,012			(424	)		(17.2	)		(1,214	)		(17.3	)
Trust and plan administration		1,116			1,016			3,405			3,327			100			9.8			78			2.3
Brokerage fees		657			644			1,837			1,690			13			2.0			147			8.7
Gain on sale		6,540			—			6,540			—			6,540			NM			6,540			NM
Other		644			1,939			1,763			4,432			(1,295	)		(66.8	)		(2,669	)		(60.2	)
Net securities gains		—			—			1,419			—			—			NM			1,419			NM
Net impairment losses recognized in earnings		(54	)		(311	)		(710	)		(2,623	)		257			(82.6	)		1,913			(72.9	)
Total noninterest inocme	$	19,169		$	13,471		$	42,700		$	35,647		$	5,698			42.3	%	$	7,053			19.8	%
*NM - Not meaningful.

          The increase in noninterest income for the current three month period as compared with the same period last fiscal year was primarily the result of the $6.5 million gain (excluding transaction costs) from the sale of First Southeast, partially offset by a decrease in other income ($1.3 million) due to the receipt of $1.5 million from the FDIC in April 2010 as a final settlement in connection with the 2009 purchase of Cape Fear Bank and a decrease in mortgage and other loan income ($424 thousand) due to a decline in the volume of loans sold during the current quarter.

          For the nine month period, the increase in noninterest income was primarily the result of the gain on the sale of First Southeast ($6.5 million), lower net impairment losses recognized in earnings ($1.9 million), and higher net securities gains ($1.4 million), partially offset by lower other income ($2.7 million) as well as lower mortgage and other loan income ($1.2 million). The increase in net securities gains was primarily the result of a $1.4 million gain on the sale of one security in the second fiscal quarter of 2011. The lower net impairment losses recognized in earnings was primarily the result of lower OTTI charges on investment securities in the current fiscal year. The decrease in other income was primarily the result of the above mentioned $1.5 million settlement with the FDIC in the third fiscal quarter of 2010 and a $1.2 million gain on the donation of a branch location recorded during the first fiscal quarter of 2010. The decrease in mortgage and other loan income was primarily the result of a decline in the volume of loans sold during the nine months ended June 30, 2011 and the reversal of late fees related to nonperforming and charged-off loans.

          On June 29, 2011, the Federal Reserve issued a set of rules implementing the Durbin interchange amendment of the Dodd-Frank Act. The final rule set a cap interchange rate of $0.21 cents per transaction, plus an additional five basis points of the transaction cost for fraud charges. The Federal Reserve also approved an interim final rule that allows for an upward adjustment of no more than $0.01 on the debit interchange fee for implementing certain fraud prevention standards. Additionally, the Federal Reserve adopted requirements that issuers include two unaffiliated networks for routing debit transactions, one that is signature-based and one that is PIN-based. The rules are effective October 1, 2011 and banks with less than $10.0 billion in assets are considered exempt. At this time, the impact on debit card income for community banks that are exempt from the new interchange rules, including First Federal, is unknown.

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Noninterest Expense

The following table summarizes the components of noninterest expense.

Noninterest Expense

	Three Months Ended June 30,				Nine Months Ended June 30,				Three Month Change						Nine Month Change
(dollars’ in thosuands)	2011		2010		2011		2010		$			%			$			%
Salaries and employee benefits	$	16,451	$	15,518	$	50,491	$	45,472	$	933			6.0	%	$	5,019			11.0	%
Occupancy costs		2,203		2,099		6,646		6,562		104			5.0			84			1.3
Furniture and equipment		1,838		2,044		5,524		5,801		(206	)		(10.1	)		(277	)		(4.8	)
Other real estate expenses, net		800		809		1,794		4,114		(9	)		(1.1	)		(2,320	)		(56.4	)
FDIC insurance and regulatory fees		850		1,112		3,514		3,399		(262	)		(23.6	)		115			3.4
Professional services		1,658		1,436		4,526		3,045		222			15.5			1,481			48.6
Advertising and marketing		813		674		2,370		2,195		139			20.6			175			8.0
Other loan expense		1,097		451		2,921		1,441		646			143.2			1,480			102.7
Goodwill impairment		2,501		—		2,501		—		2,501			NM			2,501			NM
Intangible asset amortization		102		102		307		307		—			—			—			—
Other expense		4,185		4,429		12,462		13,534		(244	)		(5.5	)		(1,072	)		(7.9	)
Total noninterest expense	$	32,498	$	28,674	$	93,056	$	85,870	$	3,824			13.3	%	$	7,186			8.4	%

*NM - Not meaningful.

          The increase in noninterest expense for the three months ended June 30, 2011 as compared with the same period last fiscal year was primarily the result of a goodwill impairment charge ($2.5 million), higher salaries and employee benefits ($933 thousand) and other loan expense ($646 thousand), partially offset by a net decline in most other noninterest expense categories. The goodwill impairment charge, related to First Financial’s remaining insurance operations, was recorded in the current quarter. See Note 5 to the Consolidated Financial Statements for additional information. Salaries and employee benefits increased over the same quarter last year due to new positions added during the last twelve months in wealth management, correspondent lending, mortgage originations, operations and administrative areas. The increase in other loan expense was primarily the result of higher foreclosure-related expenses due to elevated loan collection activity.

          For the nine months ended June 30, 2011, the increase in noninterest expense was primarily the result of higher salaries and employee benefits ($5.0 million), the above mentioned goodwill impairment charge ($2.5 million), other loan expense ($1.5 million), and professional services ($1.5 million), partially offset by lower other real estate owned (“OREO”) expenses, net ($2.3 million) and other expense ($1.1 million). The increase in salaries and employee benefits was primarily the result of $2.5 million in severance recorded during the current fiscal year as well as positions added during 2010. The increase in other loan expense was primarily the result of higher foreclosure-related expenses due to elevated loan collection activity. The increase in professional services was primarily the result of utilizing outside resources related to loss-share management, implementation of several strategic initiatives, and the fee paid to the advisors of the First Southeast sale. The decrease in OREO expenses, net was primarily the result of a $1.3 million reduction in the second fiscal quarter of 2011 due to OREO valuation loss claims and recoverable expenses on covered OREO acquired from the former Cape Fear Bank that were eligible for reimbursement from the FDIC through the loss share agreement and lower fair value writedowns on properties in the current fiscal year. The decrease in other expense was primarily the result of a $1.2 million contribution in conjunction with the donation of a branch location recorded during the first fiscal quarter of 2010. The variances in the other categories were the result of substantially the same factors discussed above in the quarterly results analysis.

Income Taxes

          The income tax benefit for the three months ended June 30, 2011 was $(19.4) million, compared with $(7.8) million for the same period of the prior fiscal year. The higher benefit was primarily the result of a higher pre-tax loss in the current quarter, partially offset by a $4.0 million tax expense associated with permanent tax differences realized due to the sale of First Southeast. The income tax benefit for the nine months ended June 30, 2011 was $(19.7) million, compared with a benefit of $(24.5) million for the same period of fiscal 2010. The lower tax benefit was primarily the result of the above mentioned permanent tax difference.

          As of June 30, 2011, First Financial had a net deferred tax asset of $16.7 million, compared with $4.0 million at September 30, 2010. The increase was primarily the result of the pre-tax loss in the current quarter, which generated a net operating loss carry-forward, as well as a $3.1 million increase due to the change in other comprehensive income. First Financial evaluates its deferred tax position on a quarterly basis based on its ability to generate future taxable income during the periods in which temporary differences become deductible, changes in existing tax laws, and potential tax strategies. While First Financial recorded a net loss in the current and prior fiscal year-to-date periods, management believes that its strong history of net income, current federal income tax receivables from loss carry-backs, as well as expected reversals of temporary tax differences represent positive evidence that the deferred tax benefits will be realized. As such, First Financial believes that a valuation allowance was not required as of June 30, 2011.

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Financial Condition

          Total assets at June 30, 2011, were $3.2 billion, a decrease of $101.5 million or 3.1% from September 30, 2010, and a decrease of $102.8 million or 3.1% from June 30, 2010. The declines were primarily the result of a decrease in the loan portfolio and the sale of First Southeast, partially offset by an increase in loans held for sale and other assets. The decline in the loan portfolio from both prior periods was primarily the result of reclassifying $155.3 million of certain nonperforming and performing loans to loans held for sale as of June 30, 2011.

Cash and Cash Equivalents

          Cash and cash equivalents totaled $65.0 million at June 30, 2011, an increase of $9.7 million or 17.6% over September 30, 2010, and an increase of $8.0 million or 14.0% over June 30, 2010. The increases were the result of normal fluctuations in transaction accounts and a higher volume of cash items in process on the last business day of the current quarter.

Investment Securities

          Investment securities at June 30, 2011 were $478.6 million, essentially unchanged from September 30, 2010 and June 30, 2010. New purchases during the past twelve months were essentially offset by cash flows from maturities and prepayments. See Note 2 to the Consolidated Financial Statements for additional information.

Loans

          The following table summarizes the loan portfolio by major categories.

Loans (in thousands)	June 30, 2011		March 31, 2011		December 31, 2010		September 30, 2010		June 30, 2010
Residential loans
Residential 1-4 family	$	895,650	$	916,146	$	887,924	$	836,644	$	810,180
Residential construction		19,603		20,311		15,639		14,436		12,016
Residential land		42,763		48,955		53,772		56,344		57,977
Total residential loans		958,016		985,412		957,335		907,424		880,173
Commercial loans
Commercial business		80,566		91,005		91,129		92,650		111,826
Commercial real estate		482,315		570,300		590,816		598,547		593,894
Commercial construction		16,037		22,269		23,895		28,449		40,102
Commercial land		70,562		119,326		133,899		143,366		164,671
Total commercial loans		649,480		802,900		839,739		863,012		910,493
Consumer loans
Home equity		379,122		387,957		396,010		397,632		404,140
Manufactured housing		274,192		270,694		269,555		269,857		264,815
Marine		57,406		59,428		62,830		65,901		68,393
Other consumer		53,853		53,454		57,898		60,522		62,805
Total consumer loans		764,573		771,533		786,293		793,912		800,153
Total loans		2,372,069		2,559,845		2,583,367		2,564,348		2,590,819
Less: Allowance for loan losses		55,491		85,138		88,349		86,871		86,945
Net loans	$	2,316,578	$	2,474,707	$	2,495,018	$	2,477,477	$	2,503,874

          Total loans at June 30, 2011, decreased $192.3 million or 7.5% from September 30, 2010, and decreased $218.8 million or 8.4% from June 30, 2010. The declines were primarily the result of reclassifying $155.3 million in certain nonperforming and performing loans to loans held for sale as of June 30, 2011. In addition to the loan reclassification, the loan portfolio declined due to lower loan demand from creditworthy borrowers, charge-offs, and transfers of nonperforming loans to OREO, as well as paydowns due to normal borrower activity.

37

          The following table summarizes the book value of the loans transferred to loans held for sale as of June 30, 2011.

Loans Transferred To Held For Sale			Delinquent (30 - 89 days		Nonperforming (90 days and
(in thousands)	Current		past due)		greater)		Total
Residential loans
Residential 1-4 family	$	4,261	$	915	$	20,191	$	25,367
Residential land		—		—		3,081		3,081
Total residential loans		4,261		915		23,272		28,448
Commercial loans
Commercial business		2,659		—		5,413		8,072
Commercial real estate		23,850		2,959		47,153		73,962
Commercial construction		1,712		—		2,197		3,909
Commercial land		5,533		1,833		31,131		38,497
Total commercial loans		33,754		4,792		85,894		124,440
Consumer loans
Home equity		35		579		1,796		2,410
Total consumer loans		35		579		1,796		2,410
Total loans	$	38,050	$	6,286	$	110,962	$	155,298

          At June 30, 2011, loans held for sale was comprised of $24.0 million in residential mortgage loans awaiting sale in the secondary market and $60.3 million of certain nonperforming and performing loans identified to be sold. Loans held for sale at June 30, 2011, increased $55.9 million over September 30, 2010, and increased $69.3 million over June 30, 2010. The increases were primarily the result of the above mentioned loan reclassification, which transferred the loans at estimated fair value, less transaction costs. First Financial is pursuing potential sale alternatives that are expected to result in the disposition of these assets prior to the calendar year end. The residential mortgage loans to be sold in the secondary market generally settle in 45 to 60 days.

          Included in the portfolio loans table above are covered loans. The following table includes the outstanding balance for the covered loans at June 30, 2011. The table also includes the amount of covered delinquent loans and nonperforming loans by category, as well as total other repossessed assets acquired (solely comprised of OREO) and total covered criticized and classified loans.

38

	As of June 30, 2011
Loans Covered Under Loss Share Agreement (dollars in thousands)	Loan		Delinquent Loans		Nonperforming Loans
Residential loans
Residential 1-4 family1	$	2,945	$	—	$	942
Residential land		8,456		—		328
Total residential loans		11,401		—		1,270
Commercial loans
Commercial business		13,317		361		3,007
Commercial real estate		89,336		1,969		10,285
Commercial construction		1,600		—		—
Commercial land		18,270		478		1,988
Total commercial loans		122,523		2,808		15,280
Consumer loans
Home equity		26,467		156		279
Other consumer		1,896		1		89
Total consumer loans		28,363		157		368
Total loans	$	162,287	$	2,965	$	16,918
Other repossessed assets acquired	$	7,270
Criticized loans2		11,116
Classified loans2		41,044

1	Residential 1-4 family nonperforming loans includes a restructured loan, still accruing interest in the amount of $733 thousand.
2	Criticized and classified loans include loans that meet the definition of delinquent or nonperforming as disclosed above.

Asset Quality

          National economic conditions over the last several years have contributed to the historically high credit costs realized by the financial industry. The markets in which First Financial operates are not immune to these conditions, and have been a factor in higher levels of nonperforming assets and charge-offs First Financial has reported since fiscal 2009.

          First Financial has experienced stabilization in its credit metrics over the past two quarters as evidenced by lower delinquent loan and nonperforming loan levels. In addition, the current quarter represents the fifth consecutive quarter of little to no increase in criticized and classified loans. As a result of these trends and in order to further reduce nonperforming loan levels, First Financial selected $155.3 million of certain nonperforming and performing loans considered to have higher risk of further credit deterioration to sell in a bulk transaction rather than work out these loans through the normal special asset resolution process.

          In creating this pool of loans, the objective was to reduce the inherent risk in the overall loan portfolio and minimize future negative migration. The selection process included all nonperforming commercial and residential mortgage loans and was expanded to include performing criticized and classified commercial loans in excess of $200,000, which were believed to have a high probability for further credit deterioration. In addition, loans with direct and indirect exposure to the principal borrower were included to account for the borrower’s entire lending relationship. Finally, certain nonperforming loans with sensitive relationships were removed from the pool as First Financial believes that it can manage these loans with minimal incremental loss exposure.

          A third party advisor was engaged to assess the distressed asset market and to analyze First Financial’s pool relative to recent transactions to determine its estimated value. The elements of the pool were evaluated on a category basis with ranges of comparable loan types as well as on an individual loan basis for the larger credits. The advisor’s assessment, combined with preliminary indicative pricing received on portions of the pool from interested parties was utilized to determine the blended pricing for the pool and approximates fair value.

          The following table summarizes the effect of the loan reclassification on the credit metrics at and for the quarter ended June 30, 2011, and demonstrates that First Federal realized improvements in all credit quality metrics prior to the loan reclassification.

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	As of and for the Three Months Ended June 30, 2011
	Delinquent Loans											Nonperforming Loans											Net Charge-Offs
Loan Reclassification	Before						After					Before						After					Before						After
(in thousands)	$			% of Portfolio			$		% of Portfolio			$			% of Portfolio			$		% of Portfolio			$			% of Portfolio			$		% of Portfolio
Residential loans	$	2,644			0.27	%	$	1,729		0.18	%	$	25,698			2.61	%	$	2,426		0.25	%	$	1,698			0.69	%	$	16,276		6.59	%
Commercial loans		10,703			1.38			5,911		0.91			113,618			14.68			27,724		4.27			6,522			3.30			84,910		42.98
Consumer loans		6,996			0.91			6,417		0.84			14,213			1.85			12,417		1.62			4,225			2.20			6,264		3.26
Total loans	$	20,343			0.80	%	$	14,057		0.59	%	$	153,529			6.07	%	$	42,567		1.79	%	$	12,445			1.95	%	$	107,450		16.87	%
Total at March 31, 2011	$	26,537										$	156,266										$	15,886
Change from March 31, 2011		(6,194	)										(2,737	)										(3,441	)

Loan Monitoring

          Management monitors the loan portfolio on a regular basis to determine where risk mitigation efforts can be utilized to assist in preventing or mitigating future losses. An element of the credit risk management process is regular loan reviews to determine risk levels and exposure to loss. The depth of review varies by asset types, depending on the nature of those assets and risk characteristics. While certain assets may represent a substantial investment and warrant individual reviews, other assets may have less risk because the asset size is small, the risk is spread over a large number of obligors or the obligations are well collateralized and further analysis of individual assets would expand the review process without measurable advantage to risk assessment. Asset types with these characteristics may be reviewed as a total homogenous portfolio on the basis of risk indicators such as delinquency (as with consumer and residential real estate loans) or credit rating. In addition, a formal review process may be conducted on individual assets within the homogenous pool that represent potential risk.

          The ongoing loan review process covers problem loans including all commercial loans greater than $200,000 and more than 30 days past due and all criticized and classified loans over $500,000. Action plans to address the credit weaknesses are presented and approved plans are monitored. Loan reviews emphasize the borrower’s and guarantor’s global cash flow analysis as a key determinant in the credit quality risk rating and to identify deterioration in the financial condition of the borrowers that may limit their ability to continue to service their debt or to carry their obligations to contractual term. In addition, reviews may include evaluations of collateral values as determined necessary based on credit policies and credit risk rating. First Federal’s policy is to update collateral appraisals on problem loans at least annually, or more frequently if circumstances warrant.

Delinquent Loans

          The following table presents delinquent loans by portfolio for the last five quarters. The table includes covered loans which became delinquent since acquisition and which were not acquired with deteriorated credit quality and accounted for in accordance with ASC 310-30.

	June 30, 2011					March 31, 2011					December 31, 2010					September 30, 2010					June 30, 2010
Delinquent Loans
(30-89 days past due)			% of					% of					% of					% of					% of
(in thousands)	$		Portfolio			$		Portfolio			$		Portfolio			$		Portfolio			$		Portfolio
Residential loans
Residential 1-4 family	$	1,404		0.16	%	$	3,050		0.33	%	$	6,712		0.76	%	$	3,486		0.42	%	$	5,244		0.65	%
Residential construction		—		—			—		—			—		—			—		—			—		—
Residential land		325		0.76			1,398		2.86			432		0.80			302		0.54			799		1.38
Total residential loans		1,729		0.18			4,448		0.45			7,144		0.75			3,788		0.42			6,043		0.69
Commercial loans
Commercial business		2,387		2.96			1,618		1.78			3,476		3.81			2,140		2.31			2,355		2.11
Commercial real estate		2,703		0.56			9,322		1.63			10,600		1.79			8,920		1.49			7,441		1.25
Commercial construction		—		—			—		—			635		2.66			1,981		6.96			—		—
Commercial land		821		1.16			4,220		3.54			5,348		3.99			3,428		2.39			1,192		0.72
Total commercial loans		5,911		0.91			15,160		1.89			20,059		2.39			16,469		1.91			10,988		1.21
Consumer loans
Home equity		3,266		0.86			3,550		0.92			4,355		1.10			4,625		1.16			4,661		1.15
Manufactured housing		2,298		0.84			2,491		0.92			4,043		1.50			3,207		1.19			2,992		1.13
Marine		264		0.46			296		0.50			707		1.13			462		0.70			425		0.62
Other consumer		589		1.09			592		1.11			905		1.56			1,765		2.92			527		0.84
Total consumer loans		6,417		0.84			6,929		0.90			10,010		1.27			10,059		1.27			8,605		1.08
Total delinquent loans	$	14,057		0.59	%	$	26,537		1.04	%	$	37,213		1.44	%	$	30,316		1.18	%	$	25,636		0.99	%

          Total delinquent loans at June 30, 2011 decreased $16.3 million or 53.6% from September 30, 2010. The decline was primarily the result of ongoing focused collection efforts, changes in seasonal customer behavior, as well as $6.3 million that transferred to loans held for sale as a result of the above mentioned loan reclassification. Total delinquent loans at June 30, 2011 included $3.0 million in covered loans, as compared with $5.0 million at September 30, 2010.

40

Nonperforming Assets

          Nonperforming assets include nonaccrual loans, loans delinquent 90 days or more and still accruing, restructured loans still accruing, and other repossessed assets acquired through foreclosure. With the exception of the credit card portfolio, loans are placed on nonaccrual status when they become 90 days delinquent. In addition, loans that were not delinquent in excess of 90 days but exhibit sufficient weaknesses and doubt as to their ability to repay all principal and interest in accordance with contractual terms have been classified as impaired under ASC 310-10-35 and placed on nonaccrual status.

          The following table presents the composition of nonperforming assets. The table includes covered loans which have migrated to nonaccrual status since acquisition and which were not acquired with deteriorated credit quality and accounted for in accordance with ASC 310-30. Loans classified as nonperforming at acquisition are not included below since these loans were adjusted to fair value, which included estimates of credit loss at acquisition date. The acquired portfolio is subject to a loss sharing agreement with the FDIC.

	June 30, 2011					March 31, 2011					December 31, 2010					September 30, 2010					June 30, 2010
Nonperforming Assets (in thousands)	$		% of Portfolio			$		% of Portfolio			$		% of Portfolio			$		% of Portfolio			$		% of Portfolio
Residential loans
Residential 1-4 family	$	1,242		0.14	%	$	23,663		2.58	%	$	20,371		2.29	%	$	17,350		2.07	%	$	17,898		2.21	%
Residential construction		—		—			—		—			—		—			—		—			—		—
Residential land		451		1.05			3,604		7.36			4,997		9.29			4,872		8.65			5,527		9.53
Total residential loans		1,693		0.18			27,267		2.77			25,368		2.65			22,222		2.45			23,425		2.66
Commercial loans
Commercial business		3,664		4.55			9,151		10.06			9,769		10.72			6,951		7.50			6,789		6.07
Commercial real estate		16,396		3.40			60,256		10.57			57,724		9.77			48,973		8.18			35,560		5.99
Commercial construction		1,451		9.05			4,074		18.29			4,484		18.77			5,704		20.05			5,738		14.31
Commercial land		5,411		7.67			40,740		34.14			43,824		32.73			46,109		32.16			50,269		30.53
Total commercial loans		26,922		4.15			114,221		14.23			115,801		13.79			107,737		12.48			98,356		10.80
Consumer loans
Home equity		9,165		2.42			9,379		2.42			9,450		2.39			6,969		1.75			6,937		1.72
Manufactured housing		2,953		1.08			3,517		1.30			3,609		1.34			2,909		1.08			3,189		1.20
Marine		94		0.16			42		0.07			67		0.11			188		0.29			135		0.20
Other consumer		129		0.24			181		0.34			555		0.96			206		0.34			16		0.03
Total consumer loans		12,341		1.61			13,119		1.70			13,681		1.74			10,272		1.29			10,277		1.28
Total nonaccrual loans		40,956		1.73			154,607		6.04			154,850		5.99			140,231		5.47			132,058		5.10
Loans 90+ days still accruing		76					109					204					175					170
Restructured Loans, still accruing		1,535					1,550					1,578					750					—
Total nonperforming loans		42,567		1.79	%		156,266		6.10	%		156,632		6.06	%		141,156		5.50	%		132,228		5.10	%
Nonperforming loans held for sale		42,656					—					—					—					—
Other repossessed assets acquired		27,812					25,986					19,660					11,950					12,543
Total nonperfoming assets	$	113,035				$	182,252				$	176,292				$	153,106				$	144,771

          Total nonperforming loans at June 30, 2011 decreased $98.6 million or 69.8% from September 30, 2010. The decline was primarily the result of $111.0 million of nonperforming loans that transferred to loans held for sale as a result of the above mentioned loan reclassification, partially offset by a net increase in nonperforming loans between September 30, 2010 and December 31, 2010. Nonperforming assets at June 30, 2011 included $16.9 million in nonperforming covered loans and $7.3 million in covered OREO, as compared with $9.8 million in nonperforming covered loans and $4.9 million in covered OREO at September 30, 2010.

41

          The following table presents net charge-offs by loan category.

	For the Three Months Ended
	June 30, 2011					March 31, 2011						December 31, 2010					September 30, 2010					June 30, 2010
Net Charge-offs (in thousands)	$		% of Portfolio*			$			% of Portfolio*			$		% of Portfolio*			$		% of Portfolio*			$		% of Portfolio*
Residential loans
Residential 1-4 family	$	12,177		5.28	%	$	976			0.43	%	$	612		0.28	%	$	2,311		1.12	%	$	1,673		0.84	%
Residential construction		—		—			—			—			—		—			—		—			—		—
Residential land		4,099		34.79			620			4.83			735		5.34			1,297		9.08			975		6.51
Total residential loans		16,276		6.59			1,596			0.65			1,347		0.58			3,608		1.61			2,648		1.22
Commercial loans
Commercial business		6,826		30.60			1,829			8.00			264		1.15			1,789		7.00			3,868		13.62
Commercial real estate		41,022		29.15			2,195			1.51			237		0.16			3,402		2.28			5,267		3.55
Commercial construction		3,067		53.06			(3	)		(0.05	)		314		4.80			270		3.15			2,051		16.30
Commercial land		33,995		118.23			4,824			14.94			2,127		6.14			4,175		10.84			12,165		27.53
Total commercial loans		84,910		42.98			8,845			4.28			2,942		1.38			9,636		4.35			23,351		10.00
Consumer loans
Home equity		4,725		4.91			3,368			3.43			2,974		3.00			2,669		2.66			4,379		4.32
Manufactured housing		1,049		1.54			1,172			1.74			834		1.24			1,145		1.71			950		1.46
Marine		44		0.30			258			1.69			184		1.14			195		1.16			401		2.31
Other consumer		446		3.28			647			4.66			724		4.89			399		2.59			430		2.73
Total consumer loans		6,264		3.26			5,445			2.80			4,716		2.39			4,408		2.21			6,160		3.09
Total net charge-offs	$	107,450		16.87	%	$	15,886			2.45	%	$	9,005		1.39	%	$	17,652		2.73	%	$	32,159		4.94	%

          The increase in net charge-offs of $75.3 million for the quarter ended June 30, 2011, over the June 30, 2010, quarter was primarily the result of $95.0 million in gross charge-offs due to the above mentioned loan reclassification, partially offset by lower net charge-offs as a result of First Federal’s normal credit monitoring practices.

          The following table details classified assets by category as well as reserves allocated to classified loans.

	As of June 30, 2011																September 30, 2010
	Performing				Nonperforming				Total
Classified Assets (dollars in thousands)	Covered Classified		Non- covered Classified		Covered Classified		Non- covered Classified		Covered		Non- covered		Total Classified		Allocated Reserves		Total Classified
Residential loans
Residential 1-4 family	$	22	$	346	$	942	$	1,033	$	964	$	1,379	$	2,343	$	246	$	18,953
Residential land		8,046		737		328		123		8,374		860		9,234		256		5,902
Total residential loans		8,068		1,083		1,270		1,156		9,338		2,239		11,577		502		24,855
Commercial loans
Commercial business		2,092		6,815		3,007		657		5,099		7,472		12,571		1,243		19,445
Commercial real estate		11,160		37,339		10,285		6,913		21,445		44,252		65,697		5,054		103,405
Commercial construction		288		1,641		—		1,451		288		3,092		3,380		667		9,832
Commercial land		2,509		7,891		1,988		3,423		4,497		11,314		15,811		2,109		69,550
Total commercial loans		16,049		53,686		15,280		12,444		31,329		66,130		97,459		9,073		202,232
Consumer loans
Home equity		7		—		279		8,886		286		8,886		9,172		2,322		6,921
Manufactured housing		—		—		—		2,953		—		2,953		2,953		422		2,896
Marine		—		—		—		94		—		94		94		19		188
Other consumer		—		—		89		116		89		116		205		24		207
Total consumer loans		7		—		368		12,049		375		12,049		12,424		2,787		10,212
Total classified loans		24,124		54,769		16,918		25,649		41,042		80,418		121,460		12,362		237,299
Loans held for sale		—		—		—		56,056		—		56,056		56,056		—		—
Other repossessed assets acquired		—		—		7,270		20,542		7,270		20,542		27,812		—		11,950
Total classified assets	$	24,124	$	54,769	$	24,188	$	102,247	$	48,312	$	157,016	$	205,328	$	12,362	$	249,249

Allowance for Loan Losses

          First Federal maintains an allowance, which is intended to be management’s best estimate of probable inherent losses in the outstanding loan portfolio. The allowance is decreased by actual loan charge-offs, net of recoveries, and is increased as necessary by charges to current period operating results through the provision for loan losses. A committee consisting of members of lending management, credit risk management, and accounting and finance meets at least quarterly with executive management to review the credit quality of the loan portfolios and to evaluate the allowance. First Federal utilizes an external firm to review the loan quality and reports the results of its reviews to executive management and the Board of Directors on a quarterly basis. Such reviews also assist management in establishing the level of the allowance.

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          The allowance is based on management’s continuing review and evaluation of the estimated risk inherent in the loan portfolio. The factors that are considered in a determination of the level of the allowance include an assessment of current economic conditions, the composition of the loan portfolio, historical trends in the loan portfolio, historical loss experience by categories of loans, ongoing reviews of the loan portfolio, monitoring watch list loans, and concentrations of credit exposure. The value of the underlying collateral is also considered as necessary. This process provides an allowance consisting of two components: allocated and unallocated, as appropriate. To arrive at the allocated component of the allowance, First Federal combines estimates of the allowance needed for loans analyzed individually and on a pooled basis. The result of the allocation may determine that there is no unallocated portion. In addition to being used to categorize risk, First Federal’s internal risk rating system is used as part of the total factors that are used to determine the allocated allowance for the loan portfolio. Loans are segmented into categories for analysis based in part on the risk profile inherent in each category. Loans are further segmented into risk rating pools within each category to appropriately recognize changes in inherent risk.

          A primary component of determining appropriate reserve factors in the allowance calculation is the actual loss history for a rolling 36-month period, tracked by major loan category. In addition, more recent trends are considered by evaluating one-year and the most recent quarter historical loss ratios to ensure appropriate consideration of trends by loan sector. First Federal’s policy is to adjust the rolling 36-month loss history with internal and external qualitative factors as considered necessary at each period end given the facts at the time. The following qualitative factors that are likely to cause estimated credit losses in First Federal’s existing portfolio to differ from historical loss experience include:

• Changes in lending policies and procedures.

• Changes in regional and local economic and business conditions and developments that affect the collectability of the portfolio.

• Changes in the volume and severity of past due loans, the volume of nonaccrual loans, and the volume and severity of classified loans.

• Changes in the quality of First Federal’s loan review system.

• Changes in the value of underlying collateral for collateral-dependent loans.

          After determining qualitative adjustments, as applicable, the allowance is allocated to the components of the portfolio based on the adjusted loss rates. The portion of the allowance that is allocated to impaired loans is determined by estimating the inherent loss on each problem credit through a present value of expected future cash flow analysis, the estimated fair value of the underlying collateral, or its observable market price.

          The following table sets forth the changes in the allowance.

	Three Months Ended						Nine Months Ended
(in thousands)	June 30, 2011			June 30, 2010				June 30, 2011			June 30, 2010
Balance, beginning of period	$	85,138		$	82,731		$	86,871		$	68,473
Provision for loan losses		77,803			36,373			100,961			107,615
Charge-offs		(108,203	)		(34,119	)		(134,932	)		(93,078	)
Recoveries		753			1,960			2,591			3,935
Net charge-offs		(107,450	)		(32,159	)		(132,341	)		(89,143	)
Balance, end of period	$	55,491		$	86,945		$	55,491		$	86,945

          The allowance for loan losses totaled 2.34% of total loans at June 30, 2011, compared with 3.39% of total loans at September 30, 2010, and 3.36% of total loans at June 30, 2010. The decreases were primarily the result of an improvement in credit quality measures and a reduction in the risk inherent in the loan portfolio following the reclassification of $155.3 million of certain nonperforming and performing loans to loans held for sale. As loans held for sale are measured at fair value and further deterioration will be recorded through noninterest income, they are no longer included in the calculation of the allowance for loan losses. The write-down to estimated fair value, less transaction costs, for the transferred loans was charged-off against the allowance for loan losses, which increased the charge-offs for the current quarter. When calculating the allowance for loan losses as of June 30, 2011, the specific and allocated general reserves associated with the transferred loans were released. Further, the internal and external qualitative factors were evaluated and were adjusted for the risk inherent in the remaining loan portfolio. Based on this analysis, $29.3 million was released from the allowance for loan losses.

          Following the reclassification of loans, total delinquent loans decreased 47.0% from March 31, 2011 and nonperforming loans declined 72.8% from March 31, 2011. Nonperforming assets, excluding covered loans and nonperforming loans held for sale, to total assets decreased from 4.84% at March 31, 2011, to 1.43% at June 30, 2011. The allowance for loan losses at June 30, 2011 represents 216.35% of non-covered nonperforming loans, compared with 66.15% at September 30, 2010, and 70.80% at June 30, 2010.

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          First Federal has implemented appropriate policies surrounding loan loss identification, loan monitoring and allowance for loan loss methodologies, have consistently applied processes implemented, have utilized relevant information available to make determinations about the allowance, and have determined that the controls in place are adequate to ensure that the allowance is appropriate at each balance sheet date. Because events affecting borrowers and collateral charge-offs cannot be predicted with certainty, there can be no assurance that increases to the allowance will not be necessary should the quality of any loans deteriorate. Management believes that the allowance is adequate and sufficient for the risk inherent in the portfolio as of each balance sheet date. Further, management believes that the allowance is appropriate under GAAP for all periods presented.

Other Assets

          Other assets totaled $130.9 million at June 30, 2011, an increase of $37.9 million or 40.8% over September 30, 2010, and an increase of $60.4 million or 85.7% over June 30, 2010. The increases were primarily the result of higher current tax receivable assets associated with the loss recorded in the current fiscal quarter. In addition, the increase over June 30, 2010, was attributed to additional OREO properties acquired during the past twelve months.

Deposits

          Deposits totaled $2.3 billion at June 30, 2011, a decrease of $99.3 million or 4.1% from September 30, 2010, and a decrease of $147.9 million or 6.0% from June 30, 2010. Core deposits, which include checking, savings and money market accounts, totaled $1.2 billion at June 30, 2011, an increase of $57.2 million or 5.1% over September 30, 2010, and an increase of $66.0 million or 5.9% over June 30, 2010. The increases were primarily the result of several marketing initiatives and campaigns during the last twelve months to attract and retain core deposits. Time deposits at June 30, 2011 totaled $1.1 billion, a decrease of $156.5 million or 12.1% from September 30, 2010, and a decrease of $213.9 million or 15.8% from June 30, 2010. The decreases were primarily the result of a planned reduction in maturing high rate retail and wholesale time deposits.

Borrowed Funds

          Borrowed funds are comprised of advances from the FHLB and long-term debt. Borrowings totaled $604.7 million at June 30, 2011, an increase of $49.3 million or 8.9% over September 30, 2010, and an increase of $79.1 million or 15.1% over June 30, 2010. The increases were in FHLB advances as the result of a shift in funding mix due to the planned reduction in high rate retail and wholesale time deposits, partially offset by using cash flow from the investment securities and loan portfolios.

Capital

          Shareholders’ equity totaled $266.6 million at June 30, 2011, a decrease of $51.6 million or 16.2% from September 30, 2010 and a decrease of $57.2 million or 17.7% from June 30, 2010. The decreases were primarily the result of net losses incurred during the last fiscal year. While First Financial is not currently required to report risk-based capital metrics at the holding company level, using June 30, 2011 data on a pro forma basis, Tier 1 capital for First Financial was projected to be in excess of $300 million and total risk-based capital is projected to be in excess of 14%. First Federal’s regulatory capital ratios continue to be above “well-capitalized” minimums, as evidenced by the key capital ratios and additional capital information presented in the following table.

	For the Quarter Ended
	June 30, 2011			March 31, 2011			December 31, 2010			September 30, 2010			June 30, 2010
First Financial:
Equity to assets		8.27	%		9.43	%		9.55	%		9.58	%		9.74	%
Tangible common equity to tangible assets (non-GAAP)		6.08	%		6.40	%		6.51	%		6.55	%		6.71	%
Book value per common share	$	12.20		$	14.92		$	15.15		$	15.32		$	15.66
Tangible common book value per share (non-GAAP)		11.83			12.65			12.86			13.02			13.34
Dividends paid per common share, authorized		0.05			0.05			0.05			0.05			0.05
Common shares outstanding, end of period (000s)		16,527			16,527			16,527			16,527			16,527

First Federal:	Regulatory Minimum for “Well-Capitalized”
Leverage capital ratio		4.00	%	7.48	%	8.58	%	8.58	%	8.47	%	8.46	%
Tier 1 risk-based capital ratio		6.00		10.07		11.51		11.42		11.27		11.19
Total risk-based capital ratio		10.00		11.33		12.78		12.69		12.55		12.46

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          Effective July 28, 2011, First Financial downstreamed capital of $20.0 million to First Federal. As a result of this action, the pro-forma leverage ratio, the tier 1 risk-based capital ratio, and the total risk-based capital ratio for First Federal at June 30, 2011 was 8.05%, 10.91%, and 12.18%, respectively.

          During the quarter ended March 31, 2011, First Financial applied to the United States Department of the Treasury (“Treasury”) for participation in the Small Business Lending Fund (“SBLF”). If approved, First Financial has the option to accept the capital from the SBLF. If First Financial accepts the capital, the proceeds will be used to repay the TARP CPP capital. As of the filing of this report, First Financial has not received a decision from Treasury.

Contractual Obligations and Off-Balance Sheet Arrangements

          Contractual obligations and off-balance sheet arrangements are described in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in First Financial’s 2010 Annual Report on Form 10-K. There have been no material changes to those obligations or arrangements outside the ordinary course of business since the most recent fiscal year end, except as indicated below. See Note 10 to the Consolidated Financial Statements for additional information.

          On June 22, 2011, First Financial announced that First Federal had signed a purchase and assumption agreement with Liberty to acquire deposits and select loans associated with Liberty’s five branches located in the Hilton Head, South Carolina market. The transaction is subject to regulatory approval and is expected to close in the fourth calendar quarter.

Liquidity

First Federal Liquidity

          An important component of First Federal’s asset/liability structure is the level of liquidity available to meet the needs of its customers and creditors. Primary sources of liquidity include deposit growth, loan repayments, investment maturities, asset sales, borrowings and interest received. The desired level of liquidity is determined by management in conjunction with the Asset/Liability Committee (“ALCO”) of First Federal. The level of liquidity is based on management’s strategic direction, commitments to make loans and the ALCO’s assessment of First Federal’s ability to generate funds. Management believes First Federal has sufficient liquidity to meet foreseeable future funding needs.

          First Federal’s primary sources of funds consist of retail and commercial deposits, wholesale deposits, borrowings from the FHLB and Federal Reserve, principal repayments on loans and mortgage-backed securities, securities sold under agreements to repurchase, and the sale of loans and securities. Each of First Federal’s sources of liquidity is subject to various uncertainties beyond the control of First Federal. As a measure of protection, First Federal has back-up sources of funds available, including excess borrowing capacity and excess liquidity in securities available for sale.

First Financial Liquidity

          As a holding company, First Financial conducts its business through its subsidiaries. Unlike First Federal, First Financial is not subject to any regulatory liquidity requirements. Potential sources for First Financial’s payment of principal and interest on its borrowings, preferred and common stock dividends and for its future funding needs include dividends from First Federal and other subsidiaries, payments from existing cash reserves, interest on investment securities and additional borrowings or stock offerings. As of June 30, 2011, First Financial had liquid assets of $66.0 million compared with $26.1 million at September 30, 2010 and $29.9 million at June 30, 2010. The increase in liquid assets was primarily the result of the $38.0 million in cash received as a result of the First Southeast sale, combined with the receipt of dividends from non-bank subsidiaries. On July 28, 2011, First Financial downstreamed $20.0 million to First Federal. After this transaction, First Financial will have in excess of $40.0 million of liquid assets.

Asset and Liability Management

          First Federal’s treasury function manages the wholesale segments of the balance sheet, including investments, purchased funds, long-term debt and derivatives. Management’s objective is to achieve the maximum level of stable earnings over the long term, while controlling the level of interest rate risk, credit risk, market risk and liquidity risk, and optimizing capital utilization. Market risk reflects the risk of economic loss resulting from adverse changes in market price and interest rates. This risk of loss can be reflected in diminished current market values and/or reduced potential net interest income in future periods. First Federal’s market risk arises primarily from interest rate risk inherent in its lending, deposit-gathering, and other funding activities. The structure of its loan, investment, deposit, and borrowing portfolios is such that a significant increase in interest rates may adversely impact net market values and net interest income. In managing the investment portfolio to achieve its stated objective, First Federal invests predominately in U.S. Treasury and agency securities, MBS, asset-backed and collateralized debt securities including trust preferred securities, corporate bonds and municipal bonds. Treasury strategies and activities are overseen by First Federal’s ALCO and the Investment Committee. ALCO activities are summarized and reviewed quarterly with the Board of Directors.

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Interest Rate Risk

          The nature of the banking business, which involves paying interest on deposits at varying rates and terms and charging interest on loans at other rates and terms, creates interest rate risk. As a result, net interest margin, earnings and the market value of assets and liabilities are subject to fluctuations arising from the movement of interest rates. First Federal manages several forms of interest rate risk, including asset/liability mismatch, basis risk and prepayment risk. First Federal’s profitability is affected by fluctuations in interest rates, thus management focuses on maintaining a reasonable balance between exposure to interest rate fluctuations and earnings. A sudden and substantial increase or decrease in interest rates may adversely impact earnings to the extent that the interest rates on interest-earning assets and interest-bearing liabilities do not change at the same speed, to the same degree or on the same basis.

          Based on static gap analysis, rate-sensitive liabilities repricing within one year exceeded rate-sensitive assets repricing within one year by $55 thousand or an immaterial amount of total assets as of June 30, 2011, compared with $26.9 million or 0.8% of total assets at September 30, 2010. The change reflects a more asset-sensitive position than at September 30, 2010 due primarily to extending the maturity profile of time deposits. Repricing gap analysis is limited in its ability to measure interest rate sensitivity. The repricing characteristics of assets, liabilities, and off-balance sheet derivatives can change in different interest rate scenarios, thereby changing the repricing position from that outlined above. Further, basis risk is not captured by repricing gap analysis. Basis risk is the risk that changes in interest rates will reprice interest-bearing liabilities differently from interest-earning assets, thus causing an asset/liability mismatch. This analysis does not take into consideration the repricing dynamics in adjustable-rate loans, such as minimum and maximum annual and lifetime interest rate adjustments and also the index utilized and whether the index is a current or lagging index. Included in the analysis are estimates of prepayments on fixed-rate loans and mortgage-backed securities in a one-year period and expectations that under current interest rates, certain advances of the FHLB of Atlanta will not be called and loans will not reprice due to floors. Also included in the analysis are estimates of core deposit attrition, based on recent studies and regression analysis of the core deposits.

          First Federal is essentially interest rate neutral; however, the slight positive gap normally indicates that a rise in market rates would have a positive effect on net interest income. The opposite would generally occur when an institution has a negative gap position.

          Net interest income simulations were performed as of June 30, 2011 to evaluate the impact of market rate changes on net interest income over the subsequent 12 months assuming expected changes in balance sheet composition over that time period. If market interest rates were to increase immediately by 100 or 200 basis points net interest income would be expected to decrease by 1.31% and 2.78%, respectively, from what it would be if rates were to remain at June 30, 2011 levels. Based on the static gap analysis, First Federal is asset sensitive, therefore interest income would be expected to increase in a rising rate environment. However, net interest income is expected to decrease due to basis risk as assets are generally forecast not to reprice to the same degree or pursuant to the same indices as liabilities. Net interest income simulation for 100 and 200 basis point declines in market rates were not performed at June 30, 2011 as the results would not have been meaningful given the current levels of short-term market interest rates. Net interest income is not only affected by the level and direction of interest rates, but also by the shape of the yield curve, pricing spreads in relation to market rates, balance sheet growth, the mix of different types of assets and liabilities, and the timing of changes in these variables.

          Another regulatory measure analyzes the economic value of equity at risk by evaluating the impact of an immediate change in interest rates on the market value of portfolio equity. If market interest rates were to increase immediately by 100 or 200 basis points (a parallel and immediate shift in the yield curve), the economic value of equity would increase by 2.81% and increase by 1.36%, respectively, from where it would be if rates were to remain at June 30, 2011 levels. Scenarios different from those outlined above, whether different by timing, level, or a combination of factors, could produce different results.

          Computation of prospective effects of hypothetical interest rate changes are based on numerous assumptions, including relative levels of market interest rates, loan prepayments and deposit attrition rates, and should not be relied upon as indicative of actual results. Further, the computations do not contemplate any actions that First Federal could undertake in response to changes in interest rates.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

          There has been no material change in the information concerning quantitative and qualitative disclosures about market risk contained in Item 7A of First Financial’s 2010 Annual Report on Form 10-K, except as set forth in “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Interest Rate Risk” of this Form 10-Q.

Item 4. Controls and Procedures

          a) An evaluation of First Financial’s disclosure controls and procedures (as defined in Section 13a-15(e) or 15d-15(e) of the Securities Exchange Act of 1934 (the “Act”) was carried out under the supervision and with the participation of First Financial’s Chief Executive Officer, Chief Financial Officer and First Financial’s Disclosure Committee as of the end of the period covered by this quarterly report. In designing and evaluating First Financial’s disclosure controls and procedures, management recognized

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that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Based on their evaluation, First Financial’s Chief Executive Officer and Chief Financial Officer concluded that First Financial’s disclosure controls and procedures as of June 30, 2011, are effective in ensuring that the information required to be disclosed by First Financial in the reports it files or submits under the Act is (i) accumulated and communicated to First Financial’s management (including the Chief Executive Officer and Chief Financial Officer) in a timely manner, and (ii) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

          b) There have been no changes in First Financial’s internal control over financial reporting (as defined in Rule 13a-15(f) of the Act) that occurred during the quarter ended June 30, 2011, that has materially affected, or is reasonably likely to materially affect, First Financial’s internal control over financial reporting. First Financial does not expect that its internal control over financial reporting will prevent all error and all fraud. A control procedure, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control procedure are met. Because of the inherent limitations in all control procedures, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within First Financial have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any control procedure also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in cost-effective control procedures, misstatements due to error or fraud may occur and not be detected.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

          From time to time, First Financial is subject to various legal proceedings and claims which arise in the ordinary course of business. As of June 30, 2011, such litigation would not materially affect First Financial’s consolidated financial position or results of operations.

Item 1A. Risk Factors

          There have been no material changes to the risk factors disclosed in First Financial’s 2010 Annual Report on Form 10-K.

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

          None.

Item 3. Defaults Upon Senior Securities

          None.

Item 4. Reserved

          None.

Item 5. Other Information

          None.

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Item 6. Exhibits

EXHIBIT INDEX
Exhibit Number	Description
3.1	First Financial’s Certificate of Incorporation, as amended (incorporated by reference to First Financial’s Form 10-Q for December 31, 2010)
3.3	First Financial’s Bylaws, as amended (incorporated by reference to First Financial’s Form 8-K filed on December 22, 2010)
10	Stock Purchase Agreement dated as of May 26, 2011 by and between Hub International Midwest Limited and First Financial Holdings, Inc. (incorporated by reference to First Financial’s Form 8-K filed on May 27, 2011)
31.1	Rule 13a-14(a)/15(d)-149a) Certificate of Chief Executive Officer
31.2	Rule 13a-14(a)/15(d)-149a) Certificate of Chief Financial Officer
32	Section 1350 Certificate of Chief Executive Officer and Chief Financial Officer
101*	The following material from First Financial’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011, formatted in Extensible Business Reporting Language (“XBRL.”): 1) Consolidated Balance Sheets, 2) Consolidated Statements of Operations, 3) Consolidated Statements of Changes in Shareholders’ Equity, 4) Consolidated Statements of Cash Flows, and 5) Notes to Consolidated Financial Statements
*	In accordance with Regulation S-T, the XBRL-related information in Exhibit 101 to this Quarterly Report on Form 10-Q shall be deemed to be “furnished” and not “filed.”

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, First Financial Holdings, Inc. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	FIRST FINANCIAL HOLDINGS, INC.
Date: August 8, 2011	/s/ Blaise B. Bettendorf
	Blaise B. Bettendorf
	Executive Vice President and Chief Financial Officer
	(Principal Financial and Accounting Officer)

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EX-31.1

EXHIBIT 31.1

RULE 13a-14(a)/15(d)-14(a) CERTIFICATE OF CHIEF EXECUTIVE OFFICER

I, R. Wayne Hall, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of First Financial Holdings, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respect the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

	a.	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	b.	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
	c.	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	d.	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonable likely to materially affect, the registrant’s internal control over financial reporting; and
5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
	a.	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
	b.	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 8, 2011	/s/ R. Wayne Hall
	R. Wayne Hall
	President and Chief Executive Officer

EX-31.2

EXHIBIT 31.2

RULE 13a-14(a)/15(d)-14(a) CERTIFICATE OF CHIEF FINANCIAL OFFICER

I, Blaise B. Bettendorf, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of First Financial Holdings, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respect the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

	a.	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	b.	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
	c.	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	d.	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonable likely to materially affect, the registrant’s internal control over financial reporting; and
5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
	a.	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
	b.	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 8, 2011	/s/ Blaise B. Bettendorf
	Blaise B. Bettendorf
	Executive Vice President and Chief Financial Officer

EX-32

EXHIBIT 32

SECTION 1350 CERTIFICATE OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER

In connection with the Quarterly Report on Form 10-Q of First Financial Holdings, Inc. (“First Financial”) for the period ended June 30, 2011 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, R. Wayne Hall, President and Chief Executive Officer of First Financial, and Blaise B. Bettendorf, Executive Vice President and Chief Financial Officer of First Financial, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

1.	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and
2.	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of First Financial.

Date: August 8, 2011

/s/ R. Wayne Hall	/s/ Blaise B. Bettendorf
R. Wayne Hall	Blaise B. Bettendorf
President and Chief Executive Officer	Executive Vice President and Chief Financial Officer

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CONSOLIDATED BALANCE SHEETS (Parentheticals) (USD $) In Thousands, except Share data	Jun. 30, 2011	Sep. 30, 2010	Jun. 30, 2010
Held to maturity securities, fair vaue (in Dollars)	$ 23,879	$ 24,878	$ 24,315
Preferred stock, Series A, par value (in Dollars per share)	$ 0.01	$ 0.01	$ 0.01
Preferred stock, Series A, shares authorized	3,000,000	3,000,000	3,000,000
Preferred stock, Series A, shares issued	65,000	65,000	65,000
Preferred stock, Series A, Redemption value (in Dollars)	$ 65,000	$ 65,000	$ 65,000
Common stock, par value (in Dollars per share)	$ 0.01	$ 0.01	$ 0.01
Common stock, shares authorized	34,000,000	24,000,000	24,000,000
Common stock, shares issued	21,465,163	21,465,163	21,465,163
Treasury stock, shares	4,938,411	4,938,411	4,938,411

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CONSOLIDATED STATEMENTS OF OPERATIONS (USD $) In Thousands, except Per Share data	3 Months Ended		9 Months Ended
	Jun. 30, 2011	Jun. 30, 2010	Jun. 30, 2011	Jun. 30, 2010
INTEREST INCOME
Interest and fees on loans	$ 34,497	$ 37,485	$ 105,707	$ 115,770
Interest and dividends on investments	4,527	5,882	14,324	18,977
Other	448	901	1,697	3,018
Total interest income	39,472	44,268	121,728	137,765
INTEREST EXPENSE
Interest on deposits	5,929	8,189	20,408	24,742
Interest on borrowed money	4,127	4,863	12,369	17,442
Total interest expense	10,056	13,052	32,777	42,184
NET INTEREST INCOME	29,416	31,216	88,951	95,581
Provision for loan losses	77,803	36,373	100,961	107,615
Net interest loss after provision for loan losses	(48,387)	(5,157)	(12,010)	(12,034)
NONINTEREST INCOME
Service charges and fees on deposit accounts	6,982	6,645	19,641	19,129
Insurance	1,239	1,069	3,007	2,680
Mortgage and other loan income	2,045	2,469	5,798	7,012
Trust and plan administration	1,116	1,016	3,405	3,327
Brokerage fees	657	644	1,837	1,690
Gain on sale of business	6,540	0	6,540	0
Other	644	1,939	1,763	4,432
Net securities gains	0	0	1,419	0
Impairment losses on investment securities
Total other-than-temporary impairment losses on investment securities	(54)	(311)	(710)	(2,623)
Less: Noncredit-related losses (gains) recognized in other comprehensive income before taxes	0	0	0	0
Net impairment losses recognized in earnings	(54)	(311)	(710)	(2,623)
Total noninterest income	19,169	13,471	42,700	35,647
NONINTEREST EXPENSE
Salaries and employee benefits	16,451	15,518	50,491	45,472
Occupancy costs	2,203	2,099	6,646	6,562
Furniture and equipment	1,838	2,044	5,524	5,801
Other real estate expenses, net	800	809	1,794	4,114
FDIC insurance and regulatory fees	850	1,112	3,514	3,399
Professional services	1,658	1,436	4,526	3,045
Advertising and marketing	813	674	2,370	2,195
Other loan expense	1,097	451	2,921	1,441
Goodwill impairment	2,501	0	2,501	0
Intangible asset amortization	102	102	307	307
Other expense	4,185	4,429	12,462	13,534
Total noninterest expense	32,498	28,674	93,056	85,870
Loss from continuing operations before taxes	(61,716)	(20,360)	(62,366)	(62,257)
Income tax benefit from continuing operations	(19,417)	(7,825)	(19,749)	(24,509)
NET LOSS FROM CONTINUING OPERATIONS	(42,299)	(12,535)	(42,617)	(37,748)
(Loss) income from discontinued operations (net of income tax)	(701)	506	354	2,131
NET LOSS	(43,000)	(12,029)	(42,263)	(35,617)
Preferred stock dividends	812	813	2,437	2,440
Accretion on preferred stock discount	149	140	440	413
NET LOSS AVAILABLE TO COMMON SHAREHOLDERS	$ (43,961)	$ (12,982)	$ (45,140)	$ (38,470)
Net loss per common share from continuing operations
Basic (in Dollars per share)	$ (2.62)	$ (0.82)	$ (2.75)	$ (2.46)
Diluted (in Dollars per share)	$ (2.62)	$ (0.82)	$ (2.75)	$ (2.46)
Net (loss) income per common share from discontinued operations
Basic (in Dollars per share)	$ (0.04)	$ 0.03	$ 0.02	$ 0.13
Diluted (in Dollars per share)	$ (0.04)	$ 0.03	$ 0.02	$ 0.13
Net loss per common share
Basic (in Dollars per share)	$ (2.66)	$ (0.79)	$ (2.73)	$ (2.33)
Diluted (in Dollars per share)	$ (2.66)	$ (0.79)	$ (2.73)	$ (2.33)
Average common shares outstanding
Basic (in Shares)	16,527	16,527	16,527	16,506
Diluted (in Shares)	16,527	16,527	16,527	16,506

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Document And Entity Information	9 Months Ended
	Jun. 30, 2011	Jul. 29, 2011
Document and Entity Information [Abstract]
Entity Registrant Name	FIRST FINANCIAL HOLDINGS INC /DE/
Document Type	10-Q
Current Fiscal Year End Date	--09-30
Entity Common Stock, Shares Outstanding		16,526,752
Amendment Flag	false
Entity Central Index Key	0000787075
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Filer Category	Accelerated Filer
Entity Well-known Seasoned Issuer	No
Document Period End Date	Jun. 30, 2011
Document Fiscal Year Focus	2011
Document Fiscal Period Focus	Q3

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Goodwill.

9 Months Ended

Jun. 30, 2011

Goodwill Disclosure [Text Block]

NOTE 5. Goodwill.

          The Consolidated Balance Sheets at September 30, 2010 and June 30, 2010 included goodwill totaling $28.3 million, which was comprised of $5.8 million related to continuing operations and $22.5 million which was reclassified as part of assets of discontinued operations. On June 1, 2011, the sale of First Southeast was complete and its assets and liabilities, including goodwill, were removed from First Financial’s Consolidated Balance Sheet.

          As of May 31, 2011, First Financial performed its annual goodwill impairment test on the goodwill from continuing operations, which is associated with Kimbrell Insurance Group, Inc., (“Kimbrell”), a subsidiary of First Financial, and Atlantic Acceptance Corporation (“Atlantic”), a subsidiary of First Federal. The Step 1 analysis indicated that the carrying amount exceeded estimated fair value for both entities; therefore, Step 2 testing was required. As a result of the Step 2 analysis, First Financial determined that the goodwill associated with Kimbrell and Atlantic was impaired due to updated discounted cash flow projections, and, in the case of Atlantic, a change in business strategy. During the third quarter of fiscal 2011, First Financial recorded a non-cash, not tax-deductible goodwill impairment charge of $2.5 million.

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Commitments and Contingencies

9 Months Ended

Jun. 30, 2011

Commitments and Contingencies Disclosure [Text Block]

NOTE 10. Commitments and Contingencies

Branch Purchase and Assumption Agreement

On June 22, 2011, First Financial announced First Federal signed a purchase and assumption agreement with Liberty Savings Bank, FSB (“Liberty”) to acquire the deposits and select loans associated with Liberty’s five bank branches in the Hilton Head, South Carolina market. Based on information available at signing, First Federal expects to acquire approximately $110 million in deposits and $27 million in loans. The transaction is subject to regulatory approval and is expected to close in the fourth calendar quarter.

Loan commitments

          Commitments to extend credit are agreements to lend to borrowers as long as there is no violation of any condition established by the commitment letter. Commitments generally have fixed expiration dates or other termination clauses. The majority of the commitments will be funded within a 12 month period. First Federal evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary upon extension of credit, is based on management’s credit evaluation of the borrower. Collateral held varies but primarily consists of residential or income producing commercial properties. Unused lines of credit on equity loans, credit cards, other consumer and commercial loans and standby letters of credit were $354.8 million at June 30, 2011.

          Outstanding commitments on loans not yet closed, including commitments issued to correspondent lenders, totaled $24.0 million at June 30, 2011. These were principally commitments for loans on single-family residential and commercial property. Outstanding undisbursed closed construction loans, primarily consisting of permanent residential construction, and commercial property construction, totaled $28.4 million at June 30, 2011. In addition, at June 30, 2011, First Federal had undisbursed closed loans of $17.1 million.

Standby letters of credit

          Standby letters of credit represent First Federal’s obligations to a third party contingent on the failure of its customer to perform under the terms of an underlying contract with the third party or obligate First Federal to stand as surety for the benefit of the third party. The underlying contract may entail either financial or non-financial obligations and may involve such things as the customer’s delivery of merchandise, completion of a construction contract, release of a lien, or repayment of an obligation. Under the terms of a standby letter, drafts will generally be drawn only when the underlying event fails to occur as intended. First Federal can seek recovery of the amounts paid from the borrower. In addition, some of these standby letters of credit are collateralized. Commitments under standby letters of credit are usually for one year or less. As of June 30, 2011, there was no current liability associated with these standby letters of credit. The maximum potential amount of undiscounted future payments related to standby letters of credit at June 30, 2011, was $900 thousand.

Derivative instruments

          First Financial uses derivatives as part of its interest rate management activities. First Financial does not elect hedge accounting treatment for any of its derivative transactions; consequently, all changes in the fair value of derivative instruments are recorded as noninterest income in the Consolidated Statements of Operations.

          As part of the risk management strategy in the mortgage banking area, various derivative instruments such as interest rate lock commitments and forward sales contracts are utilized. Rate lock commitments are residential mortgage loan commitments with customers, which guarantee a specified interest rate for a specified period of time. Forward contracts are agreements to purchase or sell loans, securities or other money market instruments at a future specified date at a specified price or yield. First Financial’s obligations under forward contracts consist of commitments to deliver mortgage loans in the secondary market at a future date and commitments to sell “to be issued” MBS. The commitments to originate fixed rate conforming loans totaled $39.7 million at June 30, 2011. It is anticipated that $31.6 million or approximately 80% of these loans will close. The fair value of this $31.6 million represents an asset, which totaled $41 thousand at June 30, 2011. The off-balance sheet obligations under the above derivative instruments totaled $72.0 million at June 30, 2011, with a fair value of $438 thousand as of June 30, 2011.

          First Financial utilizes derivative instruments, such as futures contracts and exchange-traded option contracts to achieve a fair value return that would substantially offset the changes in fair value of MSRs attributable to interest rates. Changes in the fair value of these derivative instruments are recorded net in noninterest income in loan servicing operations, and are offset by the changes in the fair value of the MSRs. During the nine months ended June 30, 2011, gross MSRs values decreased $912 thousand due to portfolio runoff, partially offset by positive interest rate movements, while hedge losses totaled $40 thousand. The notional value of off-balance sheet positions as of June 30, 2011 totaled $61.0 million with a fair value of an asset of $25 thousand.

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Basis of Presentation and Accounting Policies

9 Months Ended

Jun. 30, 2011

Organization, Consolidation and Presentation of Financial Statements Disclosure and Significant Accounting Policies [Text Block]

NOTE 1. Basis of Presentation and Accounting Policies

          The accompanying unaudited consolidated financial statements for First Financial Holdings, Inc. (“First Financial”) and its wholly-owned subsidiaries, including its depository institution First Federal Savings and Loan Association of Charleston (“First Federal”), have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and the instructions for Form 10-Q and Article 10 of Regulation S-X pursuant to the Securities Exchange Act of 1934. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended June 30, 2011 are not necessarily indicative of the results that may be expected for the year ending September 30, 2011. Certain amounts have been reclassified to conform to the current year presentation. First Financial’s significant accounting policies are described in Note 1 to the Consolidated Financial Statements included in First Financial’s 2010 Annual Report on Form 10-K. For interim reporting purposes, First Financial follows the same basic accounting policies, as updated by the information contained in this report. For further information, refer to the consolidated financial statements and footnotes included in First Financial’s 2010 Annual Report on Form 10-K.

          First Financial has one active wholly-owned trust formed for the purpose of issuing securities which qualify as regulatory capital and is considered a Variable Interest Entity (“VIE”). First Financial is not the primary beneficiary, and consequently, the trust is not consolidated in the consolidated financial statements. The trust issued $46.4 million in trust preferred securities to investors in 2004 and there remains $46.4 million outstanding at June 30, 2011. The gross proceeds from the issuance were used to purchase junior subordinated deferrable interest debentures issued by First Financial, which is the sole asset of the trust. The trust preferred securities held by this entity qualify as Tier 1 capital and are classified as long-term debt on the Consolidated Balance Sheets, with the associated interest expense recorded in interest on borrowed money on the Consolidated Statements of Operations. The expected losses and residual returns for this entity are absorbed by the trust preferred security holders, and consequently First Financial is not exposed to loss related to this VIE.

Discontinued Operations

          On May 26, 2011, First Financial entered into a stock purchase agreement with Hub International, LLC (“Hub”) whereby Hub agreed to acquire all of the stock of First Financial’s wholly-owned subsidiary, First Southeast Insurance Services, Inc. (“First Southeast”). On June 1, 2011, First Financial completed the stock sale in exchange for $38.0 million in cash. First Financial has no continuing cash flow from First Southeast. As of the transaction sale date, the assets and liabilities of First Southeast were removed from First Financial’s Consolidated Balance Sheets. The financial condition and operating results for this subsidiary have been segregated from the financial condition and operating results of First Financial’s continuing operations throughout this report and, as such, are presented as a discontinued operation.

Recently Adopted Accounting Pronouncements

Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2010-20, “Receivables (Topic 310) – Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses”

          This ASU requires new disclosures and clarifies existing disclosure requirements regarding the nature of credit risk inherent in an entity’s loan portfolio; how that risk is analyzed and assessed in arriving at the allowance for loan losses; and the changes and reasons for those changes in the allowance for loan losses. The FASB’s objective is to improve these disclosures and, thus, increase the transparency in financial reporting, as well as clarify the requirements for existing disclosures. The adoption of ASU 2010-20 was effective for First Financial beginning December 15, 2010 and is included in Note 3 to the Consolidated Financial Statements.

Recently Issued Accounting Pronouncements

FASB ASU 2011-05, “Comprehensive Income (Topic 220) – Presentation of Comprehensive Income”

          This ASU increases the prominence of other comprehensive income (“OCI”) in financial statements and provides two options for presenting OCI. The ASU eliminates the current placement near the statement of shareholders’ equity or detailed in the Consolidated Statement of Changes in Shareholders’ Equity. The ASU provides for an OCI statement to be included with the net income statement, and together the two will make a statement of total comprehensive income. Alternatively, businesses can have an OCI statement separate from a net income statement, but the two statements will have to appear consecutively within a financial report. The ASU does not affect the calculation of earnings per share. The ASU is effective for the first interim or annual period beginning on or after December 15, 2011. First Financial does not expect the adoption of ASU 2011-05 to have a material impact on its financial condition or results of operations.

FASB ASU 2011-04, “Fair Value Measurement (Topic 820) – Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs”

          This ASU amends the wording used to describe many of the requirements in GAAP for measuring fair value and for disclosing information about fair value measurements. The ASU clarifies the application of existing fair value measurement requirements and changes principles or requirement for measuring fair value or for disclosing information about fair value measurements. The ASU will require new disclosures for any transfers between Levels 1 and 2 of the fair value hierarchy, not just significant transfers, and further expands focus on Level 3 measurements, including quantitative information about the significant unobservable inputs used for all Level 3 measurements, a qualitative discussion about the sensitivity of recurring Level 3 measurements to changes in the unobservable inputs disclosed, and a description of the valuation processes. The ASU is effective for reporting periods beginning on or after December 15, 2011. First Financial does not expect the adoption of ASU 2011-03 to have a material impact on its financial condition or results of operations.

FASB ASU 2011-03, “Transfer and Servicing (Topic 860) – Reconsideration of Effective Control of Repurchase Agreements”

          This ASU improves the accounting for repurchase agreements (repos) and other agreements that entitle and obligate a transferor to repurchase or redeem financial assets before their maturity. The ASU removes from the assessment of effective control: (1) the criterion requiring the transferor to have the ability to repurchase or redeem the financial assets on substantially the agreed terms, even in the event of default by the transferee, and (2) the collateral maintenance implementation related to that criterion. Other criterion applicable to assessment of effective control are not changed by the amendments in this ASU. The ASU is effective for the first interim or annual period beginning on or after December 15, 2011. First Financial does not expect the adoption of ASU 2011-03 to have a material impact on its financial condition or results of operations.

FASB ASU 2011-02, “Receivables (Topic 310) – A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring”

          This ASU provides additional guidance or clarification in determining whether a creditor has granted a concession and whether the debtor is experiencing financial difficulties for purposes of determining whether a restructuring constitutes a troubled debt restructuring (“TDR”). This ASU clarifies that in order for a restructuring to constitute a TDR, a creditor must separately conclude the two conditions exist: (1) the restructuring constitutes a concession, and (2) the debtor is experiencing financial difficulties. The ASU clarifies guidance on a creditor’s evaluation of whether it has granted a concession. Additionally, the ASU clarifies guidance on a creditor’s evaluation of whether a debtor is experiencing financial difficulties. The ASU is effective for interim or annual periods beginning on or after June 15, 2011. First Financial does not expect the adoption of ASU 2011-02 to have a material impact on its financial condition or results of operations.

FASB ASU 2010-29, “Business Combinations (Topic 805) - Disclosure of Supplementary Pro Forma Information for Business Combinations”

          This ASU requires new pro forma revenue and earnings disclosures for business combinations occurring during the year to be presented as if the business combination occurred as of the beginning of the current fiscal year, or if comparative statements are presented, as if the business combination occurred as of the beginning of the comparative year. In addition, this ASU requires disclosure of the nature and amount of any material nonrecurring adjustments directly attributable to the business combination to be included in the pro forma revenue and earnings. The amended disclosure is effective for business combinations consummated on or after December 15, 2010, with earlier application permitted. First Financial does not expect the adoption of ASU 2010-29 to have a material impact on its consolidated financial condition or results of operations.

FASB ASU 2010-28, “Intangibles-Goodwill and Other (Topic 350) - When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts”

          This ASU requires a Step 2 impairment test to be performed even if the carrying amount of goodwill is zero or negative for a reporting unit. Additionally, in considering whether it is more likely than not that an impairment exists, an evaluation must be made to determine whether any adverse qualitative factors exist that require goodwill to be tested for impairment more often than annually if an event occurs or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying amount. The amended disclosure is effective for fiscal years beginning on or after December 15, 2010, with earlier application prohibited. First Financial does not expect the adoption of ASU 2010-28 to have a material impact on its consolidated financial condition or results of operations.

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Fair Value of Financial Instruments

9 Months Ended

Jun. 30, 2011

Fair Value Disclosures [Text Block]

NOTE 7. Fair Value of Financial Instruments

          Fair value estimates are intended to represent the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Where there is no active market for a financial instrument, First Financial has made estimates using discounted cash flow or other valuation techniques. Inputs to these valuation methods are subjective in nature, involve uncertainties, and require significant judgment and therefore cannot be determined with precision. Accordingly, the derived fair value estimates presented below are not necessarily indicative of the amounts First Financial could realize in a current market exchange.

          Assets and liabilities are recorded at fair value according to a fair value hierarchy comprised of three levels. The levels are based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. The level of an asset or liability within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement (with Level 1 considered highest and Level 3 considered lowest). A brief description of each level follows.

• Level 1 – Valuation is based on quoted prices for identical instruments in active markets.

• Level 2 – Valuation is based on quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.

• Level 3 – Valuation is generated from model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates that market participants would use in pricing the asset or liability. Valuation techniques include the use of discounted cash flow models and similar techniques.

          The following table presents the carrying value and fair value of the financial instruments.

	As of June 30, 2011				As of September 30, 2010
(in thousands)	Carrying Value		Fair Value		Carrying Value		Fair Value
Assets
Cash and cash equivalents	$	64,999	$	64,999	$	55,274	$	55,274
Securities available for sale		418,967		418,967		407,976		407,976
Securities held to maturity		21,977		23,879		22,529		24,878
Nonmarketable securites - FHLB stock		37,626		37,626		42,867		42,867
Net loans		2,316,578		2,367,836		2,477,477		2,550,329
Loans held for sale		84,288		84,288		28,400		28,400
FDIC indemnification asset, net		58,926		58,926		67,583		67,583
Residential mortgage servicing rights1		12,403		12,403		10,200		10,200
Accrued interest receivable1		9,646		9,646		9,765		9,765
Derivative financial instruments1		969		969		2,205		2,205
Liabilities
Deposits		2,315,745		2,324,770		2,415,063		2,436,024
Advances from FHLB		557,500		585,420		508,235		546,056
Long-term debt		47,204		43,936		47,204		40,710
Accrued interest payable2		8,667		8,667		11,358		11,358

1	Included as part of Other Assets in the Consolidated Balance Sheets as of June 30, 2011 and September 30, 2010.
2	Included as part of Other Liabilities in the Consolidated Balance Sheets as of June 30, 2011 and September 30, 2010.

          The carrying amount approximates fair value for cash and cash equivalents, accrued interest receivable and accrued interest payable. The methods and assumptions used to estimate the fair value for the other financial instruments are set forth below. There were no changes in the valuation methods used to estimate fair value since September 30, 2010.

Securities available for sale

          The fair value of available for sale securities that are classified as Level 3 include certain private-label mortgage-backed securities and trust preferred CDOs. In the absence of observable or corroborated market data, estimates that incorporate market-based assumptions are used when such information is available. These values take into account recent market activity as well as other market observable data such as interest rate, spread and prepayment information. When market observable data is not available, the valuation of the security is subjective and may involve substantial judgment. First Financial’s fair value models incorporate market participant data and knowledge of the structures of each individual security to develop cash flows specific to each security and apply appropriate discount rates. The discount rates are developed by determining credit spreads above a benchmark rate, such as LIBOR, and adding premiums for illiquidity based on a comparison of initial issuance spread to LIBOR versus a financial sector curve for recently issued debt to LIBOR. Specific securities that have increased uncertainty regarding the receipt of cash flows are discounted at higher rates due to the addition of a deal specific credit premium. Pricing is reviewed for reasonableness based on the direction of the specific markets and the general economic indicators. To determine the fair value, cash flow models for trust preferred CDOs provided by a third-party pricing service are utilized. The models estimate default vectors for the underlying issuers within each CDO security, estimate expected bank failures across the entire banking system to determine the impact on each CDO, and assign a risk rating to each individual issuer in the collateral pool. To determine the pricing valuation for private-label CMOs, First Financial obtains fair values for similar agency products from third party pricing brokers and determines an economic spread between agency and non-agency products. A pricing model is utilized to estimate each security’s cash flows and adjusted price based on coupon, constant prepayment rate, and required yields or spreads. If a private label security is rated below investment grade by a credit agency, a stress test is performed to determine OTTI.

Securities held to maturity

          The fair value of securities classified as held to maturity is based on quoted prices for similar assets.

Nonmarketable securities – FHLB stock

          The carrying amount of Federal Home Loan Bank (“FHLB”) stock is used to approximate the fair value as this security is not readily marketable, recorded at cost (par value), and evaluated for impairment based on the ultimate recoverability of the par value. First Financial considers positive and negative evidence, including the profitability and asset quality of the issuer, dividend payment history and recent redemption experience, when determining the ultimate recoverability of the par value. First Financial believes its investment in FHLB stock is ultimately recoverable at par.

Net loans

          The fair value of net loans is estimated based on discounted cash flows. The cash flows take into consideration current portfolio interest rates and repricing characteristics as well as assumptions relating to prepayment speeds. The discount rates take into consideration the current market interest rate environment, a credit risk component based on the credit characteristics of each loan portfolio, and a liquidity premium reflecting the liquidity or illiquidity of the market. Impaired loans are measured based on the fair value of the underlying collateral or discounted cash flow analyses, where applicable.

Loans held for sale

          Loans held for sale is comprised of residential mortgage loans originated for sale in the secondary market and certain nonperforming and performing loans identified to be sold in a bulk sale. The fair value of residential mortgage loans originated for sale in the secondary market is based on purchase commitments or quoted prices for the same or similar loans and classified as nonrecurring Level 2. The fair value of the nonperforming and performing loans identified to be sold in a bulk sale is based on market prices derived from indicative pricing and similar transactions recently completed in the distressed asset market. These loans are recorded at estimated fair value, net of transaction costs and are classified as nonrecurring Level 3.

FDIC indemnification asset, net

          The fair value is determined by the projected cash flows from the FDIC loss-share agreement based on expected reimbursements for losses at the applicable loss sharing percentages pursuant to the terms of the loss-share agreement. Cash flows are discounted to reflect the timing and receipt of the loss-sharing reimbursements from the FDIC.

Residential mortgage servicing rights

          The estimated fair value of residential mortgage servicing rights (“MSRs”) is obtained through an independent third party analysis of future cash flows. The evaluation utilizes assumptions market participants would use in determining fair value including market discount rates, prepayment speeds, servicing income, servicing costs, default rates and other market driven data, as well as the market’s perception of future interest rate movements. MSRs are classified as Level 3.

Derivative financial instruments

          Fair value of the derivative instruments is based on quoted market prices.

Deposits

          The fair value of core deposits, which include checking, savings and money market accounts, are, by definition, equal to the amount payable on demand as of the valuation date (i.e. their carrying amounts). Fair values for time deposits are based on the discounted value of contractual cash flows at current interest rates. The estimated fair value of deposits does not take into account the value of First Financial’s long-term relationships with depositors, commonly known as core deposit intangibles, which are separate intangible assets, and not considered financial instruments.

Advances from FHLB and Long-term debt

          The fair value of these financial instruments is estimated using observable market prices and by discounting future cash flows using current interest rates for similar financial instruments.

Assets Recorded at Fair Value on a Recurring Basis

          The following table presents the financial instruments measured at fair value on a recurring basis.

	As of June 30, 2011
(in thousands)	Level 1		Level 2		Level 3		Total
Obligations of the U.S. government agencies and corporations	$	—	$	1,887	$	—	$	1,887
State and municipal obligations		—		466		—		466
Collateralized debt obligations		—		—		3,354		3,354
Mortgage-backed securities		—		84,308		9,157		93,465
Collateralized mortgage obligations		—		50,386		264,154		314,540
Other securities		1,000		1,594		2,661		5,255
Securities available for sale		1,000		138,641		279,326		418,967
Residential mortgage servicing rights		—		—		12,403		12,403
Derivative financial instruments		969		—		—		969
Total assets at fair value	$	1,969	$	138,641	$	291,729	$	432,339

          For the three and nine months ended June 30, 2011, certain securities classified as Level 3 had $54 thousand and $710 thousand, respectively, in impairment losses which were considered OTTI. Some of the securities are currently paying interest but are not projected to completely repay principal. The anticipated loss of principal is based on cash flow projections which were modeled using a third party program. At June 30, 2011, management reviewed the loss severity and duration of the Level 3 securities and determined it has the ability and intent to hold these securities until the unrealized loss is recovered.

Changes in Fair Value Measurement Levels

          The following table includes changes in Level 3 fair value measurements based on the hierarchy levels previously discussed. The (losses) gains in the following table may include changes to fair value due in part to observable factors that may be part of the valuation methodology. There were no transfers in or out of the Level 3 category for the three and nine months ended June 30, 2011.

	Three Months Ended June 30, 2011						Nine Months Ended June 30, 2011
(in thousands)	Securities Available For Sale			Residential Mortgage Servicing Rights			Securities Available For Sale			Residential Mortgage Servicing Rights
Balance, beginning of period	$	291,100		$	13,168		$	326,668		$	10,200
Total net (losses) gains for the year included in:
Income		(54	)		(1,431	)		709			(912	)
Other comprehensive loss, gross		(1,930	)		—			(7,852	)		—
Purchases		8,811			—			15,860			—
Sales 1		—			—			—			—
Servicing rights		—			666			—			3,115
Paydowns		(18,601	)		—			(56,059	)		—
Balance, end of period	$	279,326		$	12,403		$	279,326		$	12,403

¹ Level 3 impaired security with a cost basis of less that $100 thousand was sold during the quarter ended March 31, 2011. A gain in the amount of $1.4 million was recognized in earnings for the nine months ended June 30, 2011.

Assets Recorded at Fair Value on a Nonrecurring Basis

          The following table presents the assets measured at fair value on a nonrecurring basis categorized by the level of inputs used in the valuation of each asset and the corresponding realized loss.

(in thousands)	As of June 30, 2011		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Year to Date Losses
Loans held for sale	$	84,288	$	—	$	23,994	$	60,294	$	—
Impaired loans, net of specific allowance		22,739		—		—		22,739		(2,347	)
Other repossessed assets acquired		27,812		—		—		27,812		(4,821	)
Total nonrecurring basis measured assets	$	134,839	$	—	$	23,994	$	110,845	$	(7,168	)

          Impaired loans are evaluated and valued at the time the loan is identified as impaired, at the lower of cost or fair value. These loans are generally collateral dependent and their value is measured based on the value of the collateral securing these loans and are classified at Level 3 in the fair value hierarchy. Specific reserves for impaired loans were $2.4 million at June 30, 2011.

          Other repossessed assets acquired in settlement of loans are recorded at the lower of the principal balance of the loan or fair value of the property less estimated selling expenses. Fair value is generally based on appraisals of the real estate or market prices for similar non-real estate property and is considered to be Level 3 in the fair value hierarchy.

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Discontinued Operations

9 Months Ended

Jun. 30, 2011

Disposal Groups, Including Discontinued Operations, Disclosure [Text Block]

NOTE 12. Discontinued Operations

          On May 26, 2011, First Financial entered into a stock purchase agreement with Hub whereby Hub agreed to acquire all of the stock of First Southeast. On June 1, 2011, First Financial completed the stock sale in exchange for $38.0 million in cash. First Financial has no continuing cash flow from First Southeast.

          First Southeast had experienced a decline in revenues and returns over the last several years, primarily the result of recessionary economy and a generally soft insurance market, which negatively impacted premium pricing. In addition, First Financial evaluated its future capital requirements in light of upcoming regulatory capital changes resulting from the Dodd-Frank Wall Street Reform and Consumer Protection Act and determined that re-deploying the capital supporting the insurance agency to support the banking operations would increase overall value and returns to shareholders. The sale of First Southeast also generated tangible capital as it eliminated $28.9 million in goodwill and intangibles.

          The table below summarizes the assets and liabilities of First Southeast as of September 30, 2010.

(in thousands)	September 30, 2010
Assets
Cash and due from banks	$	375
Interest-bearing deposits with banks		4,900
Total cash and cash equivalents		5,275
Premises and equipment, net		763
Goodwill		22,508
Other intangible assets, net		6,671
Other assets		1,257
Total discontinued assets	$	36,474
Liabilities
Other liabilities		2,458
Total discontinued liabilities	$	2,458

          The operating results for the three and nine months ended June 30, 2011 and June 30, 2010 were as follows.

	Three Months Ended June 30,					Nine Months Ended June 30,
(in thousands)	2011			2010		2011			2010
Interest Income	$	4		$	13	$	24		$	31
Noninterest income
Insurance		3,357			5,229		13,860			16,555
Other		(1	)		5		(1	)		4
Total noninterest income		3,360			5,247		13,883			16,590
Noninterest expense
Salaries and employee benefits		3,018			3,376		9,644			9,899
Occupancy costs		145			210		586			635
Furniture and equipment		128			212		542			644
Professional services		7			18		39			34
Advertising and marketing		24			33		113			120
Intangible asset amortization		90			129		361			409
Other expense		1,104			451		2,032			1,380
Total noninterest expense		4,516			4,429		13,317			13,121
(Loss) income from discontinued operations before taxes		(1,156	)		818		566			3,469
Income tax (benefit) expense from discontinued operations		(455	)		312		212			1,338
Net (loss) income from discontinued operations	$	(701	)	$	506	$	354		$	2,131

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Income Tax

9 Months Ended

Jun. 30, 2011

Income Tax Disclosure [Text Block]

NOTE 8. Income Tax

The income tax benefit for the three months ended June 30, 2011 was $(19.4) million, compared with $(7.8) million for the same period of the prior fiscal year. The higher benefit was primarily the result of a higher pre-tax loss in the current quarter, partially offset by a $4.0 million tax expense associated with permanent tax differences realized due to the sale of First Southeast. The effective tax rate for the three months ended June 30, 2011 was 31.46%, compared with 38.43% for the same period of fiscal 2010. The decrease in the effective tax rate was primarily the result of an increase in the tax loss relative to unfavorable permanent tax adjustments recognized in the current quarter associated with the sale of First Southeast and the goodwill impairment.

The income tax benefit for the nine months ended June 30, 2011 was $(19.7) million, compared with a benefit of $(24.5) million for the same period of fiscal 2010. The lower tax benefit was primarily the result of the above mentioned permanent tax difference. The effective tax rate for the nine months ended June 30, 2011 was 31.67%, compared with 39.37% for the same period of fiscal 2010. The decrease in the effective tax rate was primarily the result of a higher taxable loss in the current fiscal year as well as an increase in permanent tax adjustments recognized in the third quarter of 2011 due to the sale of First Southeast and the goodwill impairment.

          After determining what First Financial believes is an adequate allowance for loan losses based on the estimated risk inherent in the loan portfolio, the provision for loan losses is calculated based on the net effect of the change in the allowance for loan losses and net charge-offs. The provision for loan losses was $77.8 million for the quarter ended June 30, 2011, compared with $36.4 million for the same quarter last fiscal year. The increase was primarily the result of $65.7 million in additional provision related to the above mentioned loan reclassification, which was the net result of the incremental charge-offs to write-down the loans transferred to estimated fair value and a reserve release comprised of the specific reserves and allocated general reserves associated with the transferred loans, as well as adjustments to the internal and external qualitative factors for the risk inherent in the remaining loan portfolio Excluding the effects of the loan reclassification, the provision for loan losses during the third quarter of fiscal 2011 would have been $12.1 million. For the nine months ended June 30, 2011, the provision for loan losses was $101.0 million, compared with $107.6 million for the same period of fiscal 2010. The decrease was primarily the result of lower net charge-offs and some stabilization in the level of classified loans during the current fiscal year, partially offset by the $65.7 million in additional provision related to the loan reclassification. See “ – Asset Quality” and “ – Allowance for Loan Losses” for additional discussion regarding the calculation of the allowance for loan losses and information related to loan charge-offs.

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Shareholders' Equity, Accumulated Other Comprehensive Income, and Earnings Per Share

9 Months Ended

Jun. 30, 2011

Stockholders' Equity Note Disclosure [Text Block]

NOTE 6. Shareholders’ Equity, Accumulated Other Comprehensive Income, and Earnings Per Share

          The components of accumulated other comprehensive income, net of tax, are presented below.

		Nine Months Ended June 30,
(in thousands)		2011			2010
Balance at September 30		$	4,850		$	3,933
Unrealized (losses) gains on securities available for sale			(8,621	)		2,643
Less:	Reclassification of other-than-temporary loss included in income for the period		710			2,623
	Tax benefit (expense)		3,075			(2,101	)
Total other comprehensive (loss) income			(4,836	)		3,165
Balance at June 30		$	14		$	7,098

          The following table displays the components of the numerators and denominators for the basic and diluted earnings per common share.

	Three Months Ended June 30,						Nine Months Ended June 30,
(in thousands, except per share data)	2011			2010			2011			2010
Net loss from continuing operations	$	(42,299	)	$	(12,535	)	$	(42,617	)	$	(37,748	)
Preferred stock dividends		812			813			2,437			2,440
Accretion on preferred stock discount		149			140			440			413
Net loss from continuing operations available to common shareholders		(43,260	)		(13,488	)		(45,494	)		(40,601	)
(Loss) income from discontinued operations (net of tax)		(701	)		506			354			2,131
Net loss available to common shareholders	$	(43,961	)	$	(12,982	)	$	(45,140	)	$	(38,470	)
Weighted average basic shares		16,527			16,527			16,527			16,506
Effect of dilutive stock options		—			—			—			—
Weighted average dilutive shares		16,527			16,527			16,527			16,506
Net loss per common share from continuing operations
Basic	$	(2.62	)	$	(0.82	)	$	(2.75	)	$	(2.46	)
Diluted		(2.62	)		(0.82	)		(2.75	)		(2.46	)
Net (loss) income per common share from discontinued operations
Basic	$	(0.04	)	$	0.03		$	0.02		$	0.13
Diluted		(0.04	)		0.03			0.02			0.13
Net loss per common share
Basic	$	(2.66	)	$	(0.79	)	$	(2.73	)	$	(2.33	)
Diluted		(2.66	)		(0.79	)		(2.73	)		(2.33	)

          As of June 30, 2011 and 2010 there were 683,791 and 972,840 potential additional shares issued through the exercise of stock options or warrants, respectively, which were excluded from the calculation of diluted earnings per share as a result of being anti-dilutive.

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CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (Parentheticals) (USD $) In Thousands, except Per Share data	9 Months Ended
	Jun. 30, 2011	Jun. 30, 2010
Tax effect of unrealized gain (loss) on available for sale securities (in Dollars)	$ 3,075	$ 2,101
Par value of Common Stock Cash Dividends	$ 0.15	$ 0.15

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Investment Securities

9 Months Ended

Jun. 30, 2011

Investment Securities [Text Block]

Note 2. Investment Securities

          The following table presents amortized cost, gross unrealized gains and losses, and estimated fair value on investment securities.

	As of June 30, 2011								As of September 30, 2010
(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Securities available for sale
Obligations of the U.S. Government agencies and corporations	$	1,860	$	27	$	—	$	1,887	$	2,021	$	28	$	—	$	2,049
State and municipal obligations		450		16		—		466		450		16		—		466
Collateralized debt obligations		7,385		—		4,031		3,354		7,780		—		4,363		3,417
Mortgage-backed securities		89,756		3,738		29		93,465		79,754		3,454		60		83,148
Collateralized mortgage obligations		313,029		5,656		4,145		314,540		303,088		10,277		1,268		312,097
Other securities		5,318		109		172		5,255		5,809		1,326		336		6,799
Total securities available for sale	$	417,798	$	9,546	$	8,377	$	418,967	$	398,902	$	15,101	$	6,027	$	407,976
Securities held to maturity
State and municipal obligations	$	21,070	$	1,904	$	2	$	22,972	$	21,623	$	2,350	$	1	$	23,972
Certificates of deposit		907		—		—		907		906		—		—		906
Total securities held to maturity	$	21,977	$	1,904	$	2	$	23,879	$	22,529	$	2,350	$	1	$	24,878
Nonmarketable securities
FHLB stock	$	37,626	$	—	$	—	$	37,626	$	42,867	$	—	$	—	$	42,867

          Securities with a fair market value of $225.6 million at June 30, 2011 and $324.9 million at September 30, 2010 were pledged to secure public deposits, repurchase agreements and other liabilities. Except for obligations of the U.S. Government and its agencies, no holdings of any single issue exceeded 10% of consolidated shareholders’ equity at June 30, 2011 or September 30, 2010.

          The amortized cost and estimated fair value of investment securities by contractual maturity are presented in the following table. Actual maturities may differ from contractual maturities, as borrowers have the right to call or prepay obligations with or without call or prepayment penalties.

	As of June 30, 2011
(in thousands)	Amortized Cost		Fair Value
Securities available for sale
Due within one year	$	146	$	146
Due after one year through five years		1,713		1,740
Due after five years through ten years		1,006		1,063
Due after ten years		12,148		8,013
		15,013		10,962
Mortgage-backed securities		89,756		93,465
Collateralized mortgage obligations		313,029		314,540
Total	$	417,798	$	418,967
Securities held to maturity
Due within one year	$	907	$	907
Due after five years through ten years		768		768
Due after ten years		20,302		22,204
Total	$	21,977	$	23,879

          The following table presents gross unrealized losses on investment securities and the fair value of the related securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position.

	Less than 12 Months						12 Months or Longer						Total
June 30, 2011 (dollars in thousands)	#		Fair Value		Unrealized Losses		#		Fair Value		Unrealized Losses		#		Fair Value		Unrealized Losses
Securities available for sale
Collateralized debt obligations		1	$	281	$	25		14	$	3,073	$	4,006		15	$	3,354	$	4,031
Mortgage-backed securities		—		—		—		1		577		29		1		577		29
Collateralized mortgage obligations		13		68,884		1,925		10		36,247		2,220		23		105,131		4,145
Other securities		—		—		—		1		823		172		1		823		172
Total		14	$	69,165	$	1,950		26	$	40,720	$	6,427		40	$	109,885	$	8,377
Securities held to maturity
State and municipal obligations		1	$	476	$	2		—	$	—	$	—		1	$	476	$	2
	Less than 12 Months						12 Months or Longer						Total
September 30, 2010 (dollars in thousands)	#		Fair Value		Unrealized Losses		#		Fair Value		Unrealized Losses		#		Fair Value		Unrealized Losses
Securities available for sale
Collateralized debt obligations		1	$	292	$	14		14	$	3,125	$	4,349		15	$	3,417	$	4,363
Mortgage-backed securities		—		—		—		1		572		60		1		572		60
Collateralized mortgage obligations		11		44,214		130		8		39,280		1,138		19		83,494		1,268
Other securities		—		—		—		2		1,659		336		2		1,659		336
Total		12	$	44,506	$	144		25	$	44,636	$	5,883		37	$	89,142	$	6,027
Securities held to maturity
State and municipal obligations		1	$	769	$	1		—	$	—	$	—		1	$	769	$	1

Other-Than-Temporary Impairment (“OTTI”)

          Management evaluates securities for OTTI on at least a quarterly basis. In determining OTTI, investment securities are evaluated according to Accounting Standards Codification (“ASC”) 320-10 and management considers many factors including: (1) the length of time and extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, (3) whether the market decline was affected by macroeconomic conditions, and (4) whether First Financial has the intent to sell the debt security or more likely than not will be required to sell the debt security before its anticipated recovery. The assessment of whether OTTI exists involves a high degree of subjectivity and is based on information available to management on the assessment date. In assessing the recovery of value, the key factors reviewed include the length of time and the extent the fair value has been less than the carrying cost, adverse conditions, if any, specifically related to the security, industry or geographic area, historical and implied volatility of the fair value of the security, credit quality factors affecting the issuer or the underlying collateral, payment structure of the security, payment history of the security, changes to the credit rating of the security, recoveries or declines in value subsequent to the balance sheet date or any other relevant factors. Evaluations are performed on a more frequent basis as the degree to which fair value is below carrying cost or the length of time that the fair value has been continuously below carrying cost increases.

          At June 30, 2011, the majority of unrealized losses were related to trust preferred collateralized debt obligations (“CDOs”) and private-label collateralized mortgage obligations (“CMOs”) as discussed below. For the nine months ended June 30, 2011, credit-related OTTI of $710 thousand was recorded in net impairment losses recognized in earnings in the Consolidated Statements of Operations. The components of the OTTI were: $454 thousand on CDOs and $256 thousand on CMOs. The total carrying value of securities affected by credit-related OTTI represent less than 2.1% of the carrying value of First Financial’s investment portfolio at June 30, 2011, and therefore have negligible impact on First Financial’s liquidity and capital positions.

Collateralized debt obligations

          The CDO portfolio is collateralized primarily with trust preferred securities issued by other financial institutions. To determine the fair value, cash flow models for trust preferred CDOs provided by a third-party pricing service are utilized. The models estimate default vectors for the underlying issuers within each CDO security, estimate expected bank failures across the entire banking system to determine the impact on each CDO, and assign a risk rating to each individual issuer in the collateral pool. The individual risk ratings for the underlying securities in the pools were determined by a number of factors including Tier 1 capital ratio, return on assets, percent of nonperforming loans, percent of commercial and construction loans, and level of broker deposits for each underlying issuer. The risk ratings were used to determine an expected default vector for each CDO. The model assigns assumptions for constant default rate, loss severity, recovery lags, and prepayment assumptions, which were reviewed for reasonableness and consistency by management. The resulting projected cash flows were compared to book value to determine the amount of, if any, OTTI.

          The following table provides information regarding the CDO portfolio characteristics and fiscal year-to-date OTTI losses.

Collateralized Debt Obligations at June 30, 2011 (in thousands)
									Nine Months Ended June 30, 2011 OTTI1
Name	Single/ Pooled	Class/ Tranche	Amortized Cost		Fair Value		Unrealized Loss		Credit Portion		Other		Total
ALESCO I	Pooled	B-1	$	554	$	182	$	372	$	95	$	—	$	95
ALESCO II	Pooled	B-1		370		252		118		—		—		—
MCAP III	Pooled	B		430		225		205		—		—		—
MCAP IX	Pooled	B-1		449		173		276		—		—		—
MCAP XVIII	Pooled	C-1		179		84		95		—		—		—
PRETZL XI	Pooled	B-1		860		317		543		22		—		22
PRETZL XIII	Pooled	B-1		327		136		191		90		—		90
PRETZL IV	Pooled	MEZ		121		57		64		—		—		—
PRETZL VII	Pooled	MEZ		326		110		216		—		—		—
PRETZL XII	Pooled	B-2		592		317		275		—		—		—
PRETZL XIV	Pooled	B-1		672		193		479		202		—		202
PRETZLVI	Pooled	MEZ		513		404		109		32		—		32
TRPREF II	Pooled	B		706		291		415		13		—		13
USCAP II	Pooled	B-1		980		331		649		—		—		—
USCAP III	Pooled	B-1		306		282		24		—		—		—
TOTAL			$	7,385	$	3,354	$	4,031	$	454	$	—	$	454

			Dollar Basis
									Constant Default Rate
	Lowest Rating					% Deferrals / Defaults2									Discount Margin3
Name			% Performing						High			Low
ALESCO I		C		64.16	%		35.84	%		1.72	%		0.25	%		11.70	%
ALESCO II		C		70.75			29.25			1.39			0.21			11.65
MCAP III		CC		70.43			29.57			0.61			0.09			10.50
MCAP IX		C		58.29			41.71			1.46			0.22			16.80
MCAP XVIII		C		65.52			34.48			1.37			0.20			11.05
PRETZL XI		C		68.87			31.13			1.46			0.21			11.60
PRETZL XIII		C		67.46			32.54			1.40			0.21			11.57
PRETZL IV		CC		72.93			27.07			3.20			0.47			11.00
PRETZL VII		C		32.16			67.84			0.34			0.05			16.80
PRETZL XII		C		67.31			32.69			0.79			0.12			11.62
PRETZL XIV		C		65.02			34.98			1.21			0.18			11.57
PRETZLVI		D		26.38			73.62			2.19			0.32			11.00
TRPREF II		C		61.19			38.81			1.41			0.21			11.92
US CAP II		C		78.82			21.18			0.66			0.10			11.65
USCAP III		C		71.51			28.49			0.61			0.09			11.53
Total				65.43	%		34.57	%

1	Recognized in Impairment losses on investment securities on the Consolidated Statements of Operations
2	Represents percentage of the underlying trust preferred collateral not currently making dividend payments or issued by financial institutions that have been placed into receivership by the FDIC
3	Fair market value discount margin to LIBOR

          The estimated fair value of these CDOs continues to be adversely affected by the elevated credit losses within the financial industry caused by the recession, continued uncertain economic conditions, high unemployment rates, and the weak national housing market, all of which have severely impacted the creditworthiness of the underlying issuers. As of June 30, 2011, management does not intend to sell these securities, nor is it more likely than not that it will be required to sell the securities before the amortized cost basis is recovered as First Financial has adequate other sources of liquidity.

Collateralized mortgage obligations

          The CMO portfolio, which is mainly comprised of private-label, non-agency securities, was priced using fair value cash flow models. In making the determination of each CMO’s fair value, considerations were given to recent transaction volumes, price quotations and related price variability, available broker information, and market liquidity. Deterioration in value was due, in part, to forced sales and illiquid market conditions in which these securities trade; and accordingly, First Financial does not believe that these values accurately reflect the true fair value of these securities. A pricing model is utilized to estimate each security’s cash flow and adjusted price based on coupon, credit rating, constant prepayment rate, and required yields or spreads. If a private label security is rated below investment grade by a credit rating agency, a stress test is performed to determine if the security has any OTTI. See Note 7 to the Consolidated Financial Statements for additional information on fair value.

          The following table presents the investment grades assigned by the rating agencies and OTTI losses for the CMO securities which were in a loss position at June 30, 2011.

Collateralized Mortgage Obligations at June 30, 2011 (in thousands)								Nine Months Ended June 30, 2011 OTTI1
Moody/S&P Ratings		#		Fair Value		Unrealized Loss		Credit Portion		Other		Total
A			5	$	41,336	$	726	$	—	$	—	$	—
BBB			8		28,980		1,105		—		—		—
Below investment grade			10		34,815		2,314		256		—		256
Total			23	$	105,131	$	4,145	$	256	$	—	$	256
1	Recognized in Impairment losses on investment securities on the Consolidated Statements of Operations

          The OTTI in the table above was related to one private-label security with credit-related deterioration evidenced by the following metrics:

	June 30, 2011	September 30, 2010
Lowest Credit rating	C	Caa3
Rating agency	Dominion Bond Rating Service	Moody’s
Twelve-month average loss severity	47.38%	47.83%
Twelve-month average default rate	6.22	7.29
60 Dayor more delinquency rate	41.51	30.72

           Based on First Financials’ policy, the credit rating in the table above reflects the lowest credit rating by any major rating agency. As of June 30, 2011, management does not intend to sell this security, nor is it more likely than not that it will be required to sell the security before the amortized cost basis is recovered as First Financial has adequate other sources of liquidity.

          The following table presents the cumulative credit-related losses recognized in earnings.

		Three Months Ended June 30, 2011								Three Months Ended June 30, 2010
(in thousands)		CDOs		CMOs		Other Securities1		Total		CDOs		CMOs		Other Securities		Total
Cumulative credit related losses recognized in earnings at March 31,		$	5,533	$	1,355	$	1,100	$	7,988	$	4,592	$	1,099	$	1,100	$	6,791
Additions
Credit loss for which no previous OTTI recognized			—		—		—		—		20		—		—		20
Credit loss for which previous OTTI recognized			54		—		—		54		291		—		—		291
Cumulative credit related losses recognized in earnings at June 30,		$	5,587	$	1,355	$	1,100	$	8,042	$	4,903	$	1,099	$	1,100	$	7,102
		Nine Months Ended June 30, 2011								Nine Months Ended June 30, 2010
		CDOs		CMOs		Other Securities1		Total		CDOs		CMOs		Other Securities		Total
Cumulative credit related losses recognized in earnings at September 30,		$	5,133	$	1,099	$	1,100	$	7,332	$	3,731	$	748	$	—	$	4,479
Additions
Credit loss for which no previous OTTI recognized			—		—		—		—		100		—		1,100		1,200
Credit loss for which previous OTTI recognized			454		256		—		710		1,072		351		—		1,423
Cumulative credit related losses recognized in earnings at June 30,		$	5,587	$	1,355	$	1,100	$	8,042	$	4,903	$	1,099	$	1,100	$	7,102
1	An impaired other security for which a $1.1 million OTTI charge was taken in a prior year was sold in the quarter ended March 31, 2011. A gain of $1.4 million was recognized in earnings during that quarter.

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Loans, Impaired Loans, and Allowance for Loan Losses

9 Months Ended

Jun. 30, 2011

Loans, Notes, Trade and Other Receivables Disclosure [Text Block]

NOTE 3. Loans, Impaired Loans, and Allowance for Loan Losses

          The following table presents the loan portfolio by major category.

Loans (in thousands)	June 30, 2011		September 30, 2010
Residential loans
Residential 1-4 family	$	895,650	$	836,644
Residential construction		19,603		14,436
Residential land		42,763		56,344
Total residential loans		958,016		907,424
Commercial loans
Commercial business		80,566		92,650
Commercial real estate		482,315		598,547
Commercial construction		16,037		28,449
Commercial land		70,562		143,366
Total commercial loans		649,480		863,012
Consumer loans
Home equity		379,122		397,632
Manufactured housing		274,192		269,857
Marine		57,406		65,901
Other consumer		53,853		60,522
Total consumer loans		764,573		793,912
Total loans		2,372,069		2,564,348
Less: Allowance for loan losses		55,491		86,871
Net loans	$	2,316,578	$	2,477,477
Residential 1-4 family, to be sold in the secondary market	$	23,994	$	28,400
Loans held for sale; to be sold in a bulk sale		60,294		—
Total loans held for sale	$	84,288	$	28,400

          The following table presents the loan portfolio by age of delinquency.

Age Analysis Past Due Loans
	As of June 30, 2011
(in thousands)	31-59 Days Past Due		60-89 Days Past Due		90 Days and Greater Past Due		90 Days and Greater, Accruing		Total Past Due		Current1		Total Loans
Residential loans
Residential 1-4 family	$	159	$	1,245	$	1,242	$	—	$	2,646	$	893,004	$	895,650
Residential construction		—		—		—		—		—		19,603		19,603
Residential land		—		325		451		—		776		41,987		42,763
Total residential loans		159		1,570		1,693		—		3,422		954,594		958,016
Commercial loans
Commercial business		2,091		296		3,664		—		6,051		74,515		80,566
Commercial real estate		2,568		135		16,396		—		19,099		463,216		482,315
Commercial construction		—		—		1,451		—		1,451		14,586		16,037
Commercial land		722		99		5,411		—		6,232		64,330		70,562
Total commercial loans		5,381		530		26,922		—		32,833		616,647		649,480
Consumer loans
Home equity		2,227		1,038		9,165		—		12,430		366,692		379,122
Manufactured housing		1,512		786		2,953		—		5,251		268,941		274,192
Marine		208		55		94		—		357		57,049		57,406
Other consumer		465		124		129		76		794		53,059		53,853
Total consumer loans		4,412		2,003		12,341		76		18,832		745,741		764,573
Total loans	$	9,952	$	4,103	$	40,956	$	76	$	55,087	$	2,316,982	$	2,372,069
Total loans excluding covered loans	$	7,218	$	3,874	$	24,771	$	76	$	35,939	$	2,173,843	$	2,209,782

¹ Included in current loans are $1.5 million of performing TDRs.

          On April 10, 2009, First Federal entered into a purchase and assumption agreement with the Federal Deposit Insurance Corporation (“FDIC”) to acquire certain assets and liabilities of Cape Fear Bank. The acquired loan portfolio and other repossessed assets (solely comprised of other real estate owned (“OREO”)) are subject to a loss sharing agreement with the FDIC and the table above includes these “covered loans” and “covered OREO.”

          The following table summarizes nonperforming assets.

Nonperforming Assets (in thousands)	June 30, 2011		September 30, 2010
Nonaccrual loans	$	40,956	$	140,231
Loans 90+ days, still accruing		76		175
Restructured loans, still accruing		1,535		750
Total nonperforming loans		42,567		141,156
Nonperforming loans held for sale		42,656		—
Other repossessed assets acquired		27,812		11,950
Total nonperfoming assets	$	113,035	$	153,106

          Covered loans that were performing at the time of acquisition and have subsequently become nonperforming and placed on nonaccrual or have migrated to other repossessed assets acquired are included in the table above. Covered nonperforming loans totaled $16.9 million at June 30, 2011, compared with $9.8 million at September 30, 2010. OREO totaled $7.3 million at June 30, 2011, compared with $4.9 million at September 30, 2010. Covered loans which were considered nonperforming at acquisition, and accounted for as specified by ASC 310-30, are not included in the table above as these loans are recorded at fair value.

Impaired Loans

          In accordance with ASC 310-10-35, a loan is considered impaired when First Federal determines it is probable that the principal and interest due under the contractual terms of the loan will not be collected. Criticized and classified commercial loans (as defined in the “Criticized Loans, Classified Loans and Other Risk Characteristics” section of this Note) greater than $500,000 are reviewed for potential impairment as part of a monthly problem loan review process. In addition, homogeneous loans which have been modified are reviewed for potential impairment. Smaller balance homogenous loans, such as residential mortgage loans and consumer loans, are evaluated collectively for potential loss.

          In assessing the impairment of a loan and the related reserve required for that loan, various methodologies are employed. Impairment measurement on loans that are not collateral dependent is determined primarily using the present value of expected future cash flows discounted at the loan’s effective interest rate. With respect to most real estate loans, and specifically if the loan is considered to be collected through a probable foreclosure, an approach that estimates the fair value of the underlying collateral is used. The collateral is appraised to reflect estimated realizable value, with the market value being adjusted for estimated selling costs. First Federal’s policy is to update collateral appraisals on impaired loans at least annually, and more frequently if deemed necessary based on market conditions or specific circumstances. Significant downward trends in the real estate market can adversely affect First Federal’s collateral position. For larger credits or loans that are classified “substandard” or worse that rely primarily on real estate collateral, re-appraisal would occur earlier than the stated policy if management believes the market conditions have changed such that the existing appraisal may no longer reflect the current market value of the property. At a minimum, at the time a loan with a principal balance of over $500,000 is downgraded to “substandard” or worse, or if the loan is determined to be impaired, the property securing the loan is re-appraised to update the value. In addition to updated appraisals, market bids or current offers may be utilized to estimate current value.

          First Federal maintains a valuation reserve for impaired loans as part of the allowance for loan losses. Cash collected on impaired nonaccrual loans is applied to outstanding principal. Effective June 30, 2011, First Financial reclassified $155.3 million of certain nonperforming and performing loans to loans held for sale. Prior to the loan reclassification, the June 30, 2011 total recorded investment in impaired loans was $104.4 million. A summary of impaired loans, related valuation reserves, and their effect on interest income follows.

Impaired Loans
(in thousands)	Unpaid Contractual Principal Balance		Recorded Investment With No Specific Allowance		Recorded Investment With Specific Allowance		Total Recorded Investment		Specific Allowance		Year to Date Average Balance		Interest Income Recognized for the Quarter		Interest Income Recognized Year to Date
June 30, 2011
Residential loans
Residential 1-4 family	$	1,449	$	733	$	601	$	1,334	$	127	$	4,513	$	10	$	30
Residential land		—		—		—		—		—		1,128		—		—
Total residential loans		1,449		733		601		1,334		127		5,641		10		30
Commercial loans
Commercial business		3,388		1,343		1,745		3,088		8		3,682		—		—
Commercial real estate		16,601		9,153		3,193		12,346		436		33,168		13		26
Commercial construction		1,497		265		1,186		1,451		444		2,882		—		—
Commercial land		7,886		2,976		1,380		4,356		378		29,216		—		—
Total commercial loans		29,372		13,737		7,504		21,241		1,266		68,947		13		26
Consumer loans
Home equity		2,575		811		1,639		2,450		1,032		1,479		—		—
Manufactured Housing		156		139		—		139		—		35		—		—
Marine		—		—		—		—		—		4		—		—
Total consumer loans		2,731		950		1,639		2,589		1,032		1,518		—		—
Total impaired loans	$	33,552	$	15,420	$	9,744	$	25,164	$	2,425	$	76,106	$	23	$	56
September 30, 2010
Residential loans
Residential 1-4 family	$	3,483	$	2,489	$	691	$	3,180	$	178			$	—	$	—
Residential land		3,868		1,635		549		2,184		77				—		—
Total residential loans		7,351		4,124		1,240		5,364		255				—		—
Commercial loans
Commercial business		3,583		1,578		1,106		2,684		877				—		—
Commercial real estate		44,794		19,154		14,712		33,866		2,925				—		—
Commercial construction		6,588		4,148		780		4,928		343				—		—
Commercial land		63,106		17,412		22,284		39,696		8,674				—		—
Total commercial loans		118,071		42,292		38,882		81,174		12,819				—		—
Consumer loans
Home equity		338		338		—		338		—				—		—
Marine		15		—		15		15		3				—		—
Total consumer loans		353		338		15		353		3				—		—
Total impaired loans	$	125,775	$	46,754	$	40,137	$	86,891	$	13,077	$	89,311	$	—	$	—

Troubled Debt Restructuring

          First Federal accounts for certain loan modifications or restructurings as a troubled debt restructurings (“TDR”). In general, the modification or restructuring of a loan is considered a TDR if, for economic or legal reasons related to a borrower’s financial difficulties, a concession is granted to the borrower that First Federal would not otherwise consider. As of June 30, 2011, First Federal had 23 TDRs with an aggregate balance of $13.1 million classified as impaired and included in the appropriate nonperforming loan category in the tables above. Included in the impaired total were two TDRs that were considered performing in accordance with modified terms and still accruing interest.

Criticized Loans, Classified Loans and Other Risk Characteristics

          Federal regulations provide for the designation of lower quality loans as special mention, substandard, doubtful or loss. Commercial loans designated as special mention are considered “criticized” by regulatory definitions and possess characteristics of weakness which may not necessarily manifest into future loss. Commercial loans designated as substandard, doubtful or loss are considered “classified” by regulatory definitions. Substandard loans are inadequately protected by the current net worth, liquidity and paying capacity of the borrower or any collateral pledged and include loans characterized by the distinct possibility that some loss will occur if the deficiencies are not corrected. Loans classified as doubtful have all the weaknesses inherent in those classified substandard with the added characteristic that the weaknesses make collection or liquidation in full highly questionable and improbable on the basis of currently existing facts, conditions and values. Loans classified as loss are those considered uncollectible and of such little value that their continuance without the establishment of a specific loss reserve is not warranted. When First Federal classifies problem loans as a loss, they are charged-off in the period in which they are deemed uncollectible. First Federal evaluates its loans regularly to determine whether they are appropriately rated in accordance with applicable regulations and internal policies. The following table presents the risk profiles for the commercial loan portfolio by the primary categories monitored.

Commercial Credit Quality1	As of June 30, 2011
(in thousands)	Commercial Business		Commercial Real Estate		Commercial Construction		Commercial Land		Total Commercial Loans
Pass	$	61,301	$	359,606	$	10,310	$	31,943	$	463,160
Special mention		4,313		45,151		1,344		16,457		67,265
Substandard		12,357		65,378		3,380		15,595		96,710
Doubtful		214		319		—		216		749
Total		78,185		470,454		15,034		64,211		627,884
Covered ASC 310-30 loans		2,381		11,861		1,003		6,351		21,596
Total	$	80,566	$	482,315	$	16,037	$	70,562	$	649,480

¹        Credit quality indicators are reviewed and updated as applicable on an ongoing basis in accordance with credit policies.

          For residential and consumer loans, First Federal evaluates credit quality based on payment activity, accrual status, and if a loan was modified from its original contractual terms. Similar to commercial loans classified as substandard or doubtful, nonperforming residential and consumer loans are considered to be classified loans. The following tables present the risk indicators for the residential and consumer loan portfolios.

Residential Credit Quality1	As of June 30, 2011
(in thousands)	Residential 1-4 Family		Residential Construction		Residential Land		Total Residential Loans
Performing2	$	893,350	$	19,603	$	42,039	$	954,992
Nonperforming		1,975		—		451		2,426
Total		895,325		19,603		42,490		957,418
Covered ASC 310-30 loans		325		—		273		598
Total	$	895,650	$	19,603	$	42,763	$	958,016

¹        Credit quality indicators are reviewed and updated as applicable on an ongoing basis in accordance with credit policies.

²        Performing residential loans include $9.2 million of classified loans.

Consumer Credit Quality1	As of June 30, 2011
(in thousands)	Home Equity		Manufactured Housing		Marine		Other Consumer		Total Consumer Loans
Performing2	$	369,352	$	271,239	$	57,312	$	53,613	$	751,516
Nonperforming		9,165		2,953		94		205		12,417
Total		378,517		274,192		57,406		53,818		763,933
Covered ASC 310-30 loans		605		—		—		35		640
Total	$	379,122	$	274,192	$	57,406	$	53,853	$	764,573

¹        Credit quality indicators are reviewed and updated as applicable on an ongoing basis in accordance with credit policies.

²        Performing consumer loans include $9 thousand of classified loans.

A summary of changes in the allowance for loan losses follows.

Allowance for Loan Losses
	As of and for the Three Months Ended June 30, 2011
(in thousands)	Residential		Commercial Business		Commercial Real Estate		Commercial Construction		Commercial Land		Consumer		Total
Allowance for Loan Losses:
Balance at March 31, 2010	$	9,831	$	8,060	$	25,277	$	1,984	$	17,052	$	22,934	$	85,138
Provision for loan losses		14,094		3,105		27,789		2,147		24,502		6,166		77,803
Loan charge-offs		16,493		6,882		41,033		3,098		34,191		6,506		108,203
Recoveries		217		56		11		31		196		242		753
Net charge-offs		16,276		6,826		41,022		3,067		33,995		6,264		107,450
Balance at June 30, 2011	$	7,649	$	4,339	$	12,044	$	1,064	$	7,559	$	22,836	$	55,491

	As of and for the Nine Months Ended June 30, 2011
(in thousands)	Residential		Commercial Business		Commercial Real Estate		Commercial Construction		Commercial Land		Consumer		Total
Allowance for Loan Losses:
Balance at September 30, 2010	$	10,730	$	7,169	$	22,598	$	1,620	$	21,795	$	22,959	$	86,871
Provision for loan losses		16,138		6,089		32,900		2,822		26,710		16,302		100,961
Loan charge-offs		19,803		9,153		43,639		3,415		41,599		17,321		134,930
Recoveries		584		234		185		37		653		896		2,589
Net charge-offs		19,219		8,919		43,454		3,378		40,946		16,425		132,341
Balance at June 30, 2011	$	7,649	$	4,339	$	12,044	$	1,064	$	7,559	$	22,836	$	55,491
Loans as of June 30, 2011
Individually evaluated for impairment	$	1,334	$	3,088	$	12,346	$	1,451	$	4,356	$	2,589	$	25,164
Collectively evaluated for impairment		956,084		75,097		458,108		13,583		59,855		761,344		2,324,071
Covered ASC 310-30 loans		598		2,381		11,861		1,003		6,351		640		22,834
Total loans	$	958,016	$	80,566	$	482,315	$	16,037	$	70,562	$	764,573	$	2,372,069

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Business Segments

9 Months Ended

Jun. 30, 2011

Segment Reporting Disclosure [Text Block]

NOTE 11. Business Segments

          Prior to June 30, 2011, First Financial had two principal operating segments, banking and insurance, which were evaluated regularly by management and First Financial’s Board of Directors in deciding how to allocate resources and assess performance. On June 1, 2011, First Financial sold its insurance agency subsidiary, First Southeast, and its results of operations are now segregated from continuing operations and displayed as (loss) income from discontinued operations on a net basis. As displayed in the table below, the remaining components of the former Insurance segment are no longer material on an individual component (ie. noninterest income, noninterest expense, etc.) or a net income basis. First Financial continues to monitor the revenue streams of its various financial products and services but now manages its operations and evaluates its financial performance on a consolidated basis. As of June 30, 2011, First Financial considers its former Banking and Other business segments to not be independent and determined that they are one operating segment. The following table summarizes the impact of the sale on the remaining operations and demonstrates the immaterial nature of the remaining insurance segment. Effective with the September 30, 2011 financial statements, First Financial will no longer report business segment results.

	Three Months Ended June 30, 2011												Three Months Ended June 30, 2010
(in thousands)	Banking			Insurance			Other			Total			Banking			Insurance		Other			Total
Interest income	$	39,468		$	8		$	(4	)	$	39,472		$	44,265		$	9	$	(6	)	$	44,268
Interest expense		9,323			—			733			10,056			12,390			—		662			13,052
Net interest income		30,145			8			(737	)		29,416			31,875			9		(668	)		31,216
Provision for loan losses		77,803			—			—			77,803			36,373			—		—			36,373
Net interest (loss) income after provision for loan losses		(47,658	)		8			(737	)		(48,387	)		(4,498	)		9		(668	)		(5,157	)
Noninterest income		10,824			1,237			7,108			19,169			11,881			1,071		519			13,471
Noninterest expense		27,173			2,906			2,419			32,498			25,136			979		2,559			28,674
(Loss) income from continuing operations before income taxes		(64,007	)		(1,661	)		3,952			(61,716	)		(17,753	)		101		(2,708	)		(20,360	)
Income tax (benefit) expense from continuing operations		(24,978	)		(636	)		6,197			(19,417	)		(6,899	)		39		(965	)		(7,825	)
Net (loss) income from continuing operations		(39,029	)		(1,025	)		(2,245	)		(42,299	)		(10,854	)		62		(1,743	)		(12,535	)
(Loss) income from discontinued operations		—			(701	)		—			(701	)		—			506		—			506
Net (loss) income	$	(39,029	)	$	(1,726	)	$	(2,245	)	$	(43,000	)	$	(10,854	)	$	568	$	(1,743	)	$	(12,029	)

	Nine Months Ended June 30, 2011												Nine Months Ended June 30, 2010
	Banking			Insurance			Other			Total			Banking			Insurance			Other			Total
Interest income	$	121,719		$	19		$	(10	)	$	121,728		$	137,751		$	27		$	(13	)	$	137,765
Interest expense		30,555			—			2,222			32,777			40,014			—			2,170			42,184
Net interest income		91,164			19			(2,232	)		88,951			97,737			27			(2,183	)		95,581
Provision for loan losses		100,961			—			—			100,961			107,615			—			—			107,615
Net interest (loss) income after provision for loan losses		(9,797	)		19			(2,232	)		(12,010	)		(9,878	)		27			(2,183	)		(12,034	)
Noninterest income		31,645			3,024			8,031			42,700			31,683			2,682			1,282			35,647
Noninterest expense		82,525			4,953			5,578			93,056			77,637			2,997			5,236			85,870
(Loss) income from continuing operations before income taxes		(60,677	)		(1,910	)		221			(62,366	)		(55,832	)		(288	)		(6,137	)		(62,257	)
Income tax (benefit) expense from continuing operations		(23,890	)		(731	)		4,872			(19,749	)		(22,191	)		(163	)		(2,155	)		(24,509	)
Net (loss) income from continuing
operations		(36,787	)		(1,179	)		(4,651	)		(42,617	)		(33,641	)		(125	)		(3,982	)		(37,748	)
Income from discontinued operations		—			354			—			354			—			2,131			—			2,131
Net (loss) income	$	(36,787	)	$	(825	)	$	(4,651	)	$	(42,263	)	$	(33,641	)	$	2,006		$	(3,982	)	$	(35,617	)
Total assets	$	3,210,021		$	9,410		$	2,113		$	3,221,544		$	3,271,969		$	56,965		$	(4,590	)	$	3,324,344

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FDIC Indemnification Asset

9 Months Ended

Jun. 30, 2011

FDIC Indemnification Asset [Text Block]

NOTE 4. FDIC Indemnification Asset

          The following table presents the change in the FDIC indemnification asset during the current fiscal year.

(in thousands)	Amount Receivable		Discount			Net Receivable
Balance at September 30, 2010	$	70,079	$	(2,496	)	$	67,583
Payments from FDIC for losses on covered assets		10,425		—			10,425
Valuation adjustment on acquired other real estate owned		79		—			79
Discount accretion		—		1,689			1,689
Balance at June 30, 2011	$	59,733	$	(807	)	$	58,926

          During the nine-months ended June 30, 2011, First Federal received payments totaling $11.3 million from the FDIC, of which $10.4 million was credited to the FDIC indemnification asset and $842 thousand was credited to other real estate owned expenses, net and other loan expense on the Consolidated Statements of Operations. Subsequent to June 30, 2011 First Federal received a payment of $278 thousand. These payments satisfied all claims through March 31, 2011. Based on the June 30, 2011 reporting period, First Federal filed a $8.9 million claim with the FDIC under the terms of the loss share agreement and payment is expected.

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CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (USD $) In Thousands	Total	Preferred Stock [Member]	Common Stock [Member]	Additional Paid-in Capital [Member]	Treasury Stock [Member]	Retained Earnings [Member]	Accumulated Other Comprehensive Income (Loss) [Member]
Balance at Sep. 30, 2009	$ 351,649	$ 1	$ 208	$ 185,249	$ (103,563)	$ 265,821	$ 3,933
Balance (in Shares) at Sep. 30, 2009		65	15,897
Net loss	(35,617)					(35,617)
Other comprehensive income:
Unrealized net gain (loss) on securities available for sale, net of tax of $2,101 and $3,075 for 9 Months ended June 2010 and 2011 respectively	3,165						3,165
Total comprehensive loss	(32,452)
Stock based compensation expense	288			288
Common stock issued pursuant to public offering	9,190		7	9,183
Common stock issued pursuant to public offering (in Shares)			630
Stock options exercised	12			12
Accretion of preferred stock	413			413		(413)
Cash dividends:
Common stock ($0.15 per share)	(2,450)					(2,450)
Preferred stock	(2,440)					(2,440)
Balance at Jun. 30, 2010	323,797	1	215	195,145	(103,563)	224,901	7,098
Balance (in Shares) at Jun. 30, 2010		65	16,527
Balance at Sep. 30, 2010	318,190	1	215	194,767	(103,563)	221,920	4,850
Balance (in Shares) at Sep. 30, 2010		65	16,527
Net loss	(42,263)					(42,263)
Other comprehensive income:
Unrealized net gain (loss) on securities available for sale, net of tax of $2,101 and $3,075 for 9 Months ended June 2010 and 2011 respectively	(4,836)						(4,836)
Total comprehensive loss	(47,099)
Stock based compensation expense	390			390
Accretion of preferred stock	440			440		(440)
Cash dividends:
Common stock ($0.15 per share)	(2,480)					(2,480)
Preferred stock	(2,437)					(2,437)
Balance at Jun. 30, 2011	$ 266,564	$ 1	$ 215	$ 195,597	$ (103,563)	$ 174,300	$ 14
Balance (in Shares) at Jun. 30, 2011		65	16,527

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CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) In Thousands	9 Months Ended
	Jun. 30, 2011	Jun. 30, 2010
Operating Activities
Net loss	$ (42,263)	$ (35,617)
Less: Income from discontinued operations	354	2,131
Net loss from continuing operations	(42,617)	(37,748)
Adjustments to reconcile net income to net cash provided by operating activities
Provision for loan losses	100,961	107,615
Depreciation	4,198	4,463
Amortization of intangibles	307	307
Net increase in current & deferred income tax	(25,871)	(28,277)
Amortization of mark-to-market adjustments	(294)	(3,387)
Fair value of adjustments on other real estate owned	1,603	2,968
Amortization of unearned discounts on investments, net	(1,453)	(2,654)
Other-than-temporary impairment losses	710	2,623
Loans originated for sale	(360,406)	(174,067)
Proceeds from loans held for sale	247,389	186,865
Gain on sale of loans, net	(3,164)	(2,225)
(Gain) loss on sale of other real estate owned, net	(732)	1,873
Recognition of stock-based compensation expense	390	288
Decrease (increase) in prepaid FDIC insurance premium	2,833	(12,165)
FDIC reimbursement of covered asset losses	11,266	0
Goodwill impairment	2,501	0
Gain on sale of property and equipment, net	0	(1,354)
Other	2,701	(9,987)
Discontinued operations, net	33,763	4,000
Net cash (used) provided by operating activities	(25,915)	39,138
Investing Activities
Proceeds from sales	775	21
Proceeds from maturities, calls and payments	88,889	117,790
Purchases	(107,874)	(33,577)
Proceeds from maturities, calls and payments, securities held to maturity	615	0
Redemption FHLB stock, net	5,242	0
Decrease in loans, net	90,148	(26,738)
Proceeds from sales of other real estate owned	9,617	17,348
Proceeds from sale of business	38,000	0
Decrease in property and equipment, net	(2,806)	(5,771)
Discontinued operations, net	608	(282)
Net cash provided by investing activities	123,214	68,791
Financing Activities
Increase in demand and savings deposits, net	19,178	76,244
(Decrease) increase in time deposits, net	(156,374)	67,604
Decrease in short term borrowings, net	0	(258,000)
Proceeds of FHLB advances, net	49,265	(14,387)
Proceeds from issuance of common stock, net	0	9,190
Exercise of stock options	0	12
Dividends paid on preferred stock	(2,480)	(2,440)
Dividends paid on common stock	(2,437)	(2,450)
Net cash used by financing activities	(92,848)	(124,227)
Net increase (decrease) in cash and cash equivalents	4,451	(16,298)
Cash and cash equivalents at beginning of period, continuing operations	55,274	74,622
Cash and cash equivalents at beginning of period, discontinued operations	5,274	3,691
Cash and cash equivalents at beginning of period	60,548	78,313
Cash and cash equivalents at end of period, continuing operations	64,999	57,024
Cash and cash equivalents at end of period, discontinued operations	0	4,991
Cash and cash equivalents at end of period	64,999	62,015
Supplemental disclosures:
Interest	32,699	43,627
Income taxes	3,282	5,473
Loans foreclosed	28,553	12,354
Loans securitized into mortgage-backed securities	198,922	143,380
Unrealized (loss) gain on securities available for sale, net of income tax	$ (4,836)	$ 3,165

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Share-Based Payment Arrangements

9 Months Ended

Jun. 30, 2011

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

NOTE 9. Share-Based Payment Arrangements

          First Financial has two share-based compensation plans authorizing the granting of qualified and nonqualified stock options, restricted stock awards, and stock appreciation rights to employees and non-employee directors as well as performance awards to non-employee directors. As of June 30, 2011, aggregate shares available for future issuance under the current shareholder approved plans may not exceed 1,224,762. This total includes 273,941 shares still outstanding from earlier adopted plans from which no new grants may be issued. At June 30, 2011, First Financial had 455,897 shares related to option and stock appreciation rights and 225,000 shares related to restricted stock awards available for grant.

          Stock options currently granted under the plans generally expire five years from the date of grant. Restrictions on non-vested stock generally lapse in three annual installments beginning on the first anniversary of the grant date. Forfeited and expired options become available for future grants.

          Compensation expense for stock options is recognized in salaries and employee benefits in the Consolidated Statements of Operations based on the fair value at the date of grant and is recognized on a straight line basis over the requisite service period of the awards. For the three and nine months ended June 30, 2011, First Financial recorded a net share-based compensation expense of $185 thousand and $288 thousand, respectively, as compared with an expense of $185 thousand and $288 thousand for the same periods of the prior fiscal year. First Financial recognized an income tax benefit of approximately $100 thousand for the nine months ended June 30, 2011 and 2010, respectively, related to share-based compensation. For all other periods presented the tax benefit was less than $100 thousand.

          A summary of stock option activity is presented below.

	Number of Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value (000)
Outstanding at September 30, 2010		720,851		$	24.63
Granted		—			—
Exercised		—			—
Forfeited or expired		(176,986	)		25.71
Outstanding at June 30, 2011		543,865		$	24.27		2.1	$	1
Exercisable at June 30, 2011		442,095		$	26.10		1.9	$	—

          As of June 30, 2011, there was $395 thousand of total unrecognized compensation cost related to non-vested share-based compensation arrangements (share options) granted under the plans.

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CONSOLIDATED BALANCE SHEETS (USD $) In Thousands	Jun. 30, 2011	Sep. 30, 2010	Jun. 30, 2010
ASSETS
Cash and due from banks	$ 60,905	$ 49,246	$ 52,104
Interest-bearing deposits with banks	4,094	6,028	4,920
Total cash and cash equivalents	64,999	55,274	57,024
Investment securities:
Securities available for sale, at fair value	418,967	407,976	413,617
Securities held to maturity, at amortized cost, approximate fair value $23,879, $24,878, and $24,315, respectively	21,977	22,529	22,512
Nonmarketable securities - FHLB stock	37,626	42,867	46,141
Total investment securities	478,570	473,372	482,270
Loans	2,372,069	2,564,348	2,590,819
Less: Allowance for loan losses	55,491	86,871	86,945
Net loans	2,316,578	2,477,477	2,503,874
Loans held for sale	84,288	28,400	15,030
FDIC indemnification asset, net	58,926	67,583	66,794
Premises and equipment, net	81,257	82,649	82,724
Goodwill	3,250	5,751	5,751
Other intangible assets, net	2,776	3,084	3,186
Other assets	130,900	92,951	70,504
Assets of discontinued operations	0	36,474	37,187
Total assets	3,221,544	3,323,015	3,324,344
LIABILITIES
Noninterest-bearing checking	234,478	227,477	227,245
Interest-bearing checking	437,179	386,267	379,625
Savings and money market	506,236	506,957	505,057
Retail time deposits	854,202	999,374	984,366
Wholesale time deposits	283,650	294,988	367,365
Total deposits	2,315,745	2,415,063	2,463,658
Advances from FHLB	557,500	508,235	478,364
Long-term debt	47,204	47,204	47,204
Other liabilities	34,531	31,865	8,089
Liabilities of discontinued operations	0	2,458	3,232
Total liabilities	2,954,980	3,004,825	3,000,547
SHAREHOLDERS’ EQUITY
Preferred stock, Series A, $.01 par value, authorized 3,000,000 shares, issued 65,000 shares at June 30, 2011, September 30, 2010 and June 30, 2010, respectively (Redemption value $65,000)	1	1	1
Common stock, $.01 par value, authorized 34,000,000 shares at June 30, 2011, and 24,000,000 at September 30, 2010 and June 30, 2010, issued 21,465,163 shares at June 30, 2011, September 30, 2010 and June 30, 2010, respectively	215	215	215
Additional paid-in capital	195,597	194,767	195,145
Treasury stock at cost, 4,938,411 shares at June 30, 2011, September 30, 2010 and June 30, 2010	(103,563)	(103,563)	(103,563)
Retained earnings	174,300	221,920	224,901
Accumulated other comprehensive income	14	4,850	7,098
Total shareholders’ equity	266,564	318,190	323,797
Total liabilities and shareholders’ equity	$ 3,221,544	$ 3,323,015	$ 3,324,344