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 March 31, 2012
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 April 30, 2012
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 Comprehensive Income	5
Consolidated Statements of Changes in Shareholders’ Equity	6
Consolidated Statements of Cash Flows	7
Notes to Consolidated Financial Statements	9
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	31
Item 3. Quantitative and Qualitative Disclosures About Market Risk	48
Item 4. Controls and Procedures	49
Part II – Other Information
Item 1. Legal Proceedings	49
Item 1A. Risk Factors	49
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	49
Item 3. Defaults Upon Senior Securities	49
Item 4. Mine Safety Disclosures	49
Item 5. Other Information	49
Item 6. Exhibits	50
Signatures	52

2

FIRST FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (Unaudited)

(in thousands, except share data)	March 31, 2012				December 31, 2011				March 31, 2011
ASSETS
Cash and due from banks		$	57,645			$	61,400			$	59,495
Interest-bearing deposits with banks			5,879				15,275				5,167
Total cash and cash equivalents			63,524				76,675				64,662
Investment securities
Securities available for sale, at fair value			442,531				404,550				383,229
Securities held to maturity, at amortized cost, approximate fair value $22,553, $23,242, and $23,207, respectively			19,835				20,486				21,962
Nonmarketable securities			37,965				32,694				41,273
Total investment securities			500,331				457,730				446,464
Loans			2,355,567				2,385,457				2,559,845
Less: Allowance for loan losses			50,776				53,524				85,138
Net loans			2,304,791				2,331,933				2,474,707
Loans held for sale			52,339				48,303				19,467
FDIC indemnification asset, net			46,272				51,021				61,135
Premises and equipment, net			80,237				79,979				81,251
Goodwill			---				---				630
Other intangible assets, net			2,310				2,401				2,653
Other assets			95,734				98,922				108,891
Assets of discontinued operations			---				---				42,152
Total assets		$	3,145,538			$	3,146,964			$	3,302,012
LIABILITIES
Deposits
Noninterest-bearing checking		$	308,007			$	279,520			$	233,197
Interest-bearing checking			435,063				429,697				437,113
Savings and money market			563,344				522,496				501,924
Retail time deposits			753,481				791,544				893,064
Wholesale time deposits			204,594				215,941				279,482
Total deposits			2,264,489				2,239,198				2,344,780
Advances from FHLB			533,000				561,000				561,506
Long-term debt			47,204				47,204				47,204
Other liabilities			22,802				22,384				30,539
Liabilities of discontinued operations			---				---				6,456
Total liabilities			2,867,495				2,869,786				2,990,485
SHAREHOLDERS’ EQUITY
Preferred stock, Series A, $.01 par value, authorized 3,000,000 shares, issued 65,000 shares at March 31, 2012, December 31, 2011, and March 31, 2011, respectively (Redemption value $65,000)			1				1				1
Common stock, $.01 par value, authorized 34,000,000 shares at March 31, 2012, December 31, 2011, and March 31, 2011, issued 21,465,163 shares at March 31, 2012, December 31, 2011 and March 31, 2011, respectively			215				215				215
Additional paid-in capital			196,204				196,002				195,361
Treasury stock at cost, 4,938,411 shares at March 31, 2012, December 31, 2011 and March 31, 2011, respectively			(103,563	)			(103,563	)			(103,563	)
Retained earnings			187,311				187,367				219,088
Accumulated other comprehensive (loss) income			(2,125	)			(2,844	)			425
Total shareholders’ equity			278,043				277,178				311,527
Total liabilities and shareholders’ equity		$	3,145,538			$	3,146,964			$	3,302,012
See accompanying notes to consolidated financial statements.

3

FIRST FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

	Three Months Ended March 31,
(in thousands, except per share data)	2012				2011
INTEREST INCOME
Interest and fees on loans		$	32,476			$	34,844
Interest and dividends on investments			3,867				4,774
Other			16				566
Total interest income			36,359				40,184
INTEREST EXPENSE
Interest on deposits			3,951				6,879
Interest on borrowed money			4,156				4,018
Total interest expense			8,107				10,897
NET INTEREST INCOME			28,252				29,287
Provision for loan losses			6,745				12,675
Net interest income after provision for loan losses			21,507				16,612
NONINTEREST INCOME
Service charges and fees on deposit accounts			7,302				6,381
Mortgage and other loan income			3,435				1,124
Trust and plan administration			1,081				1,112
Brokerage fees			664				666
Other			769				675
Net securities gains			---				1,419
Other-than-temporary impairment losses on investment securities			(69	)			(122	)
Total noninterest income			13,182				11,255
NONINTEREST EXPENSE
Salaries and employee benefits			15,142				17,396
Occupancy costs			2,267				2,208
Furniture and equipment			1,809				1,825
Other real estate expenses, net			530				(133	)
FDIC insurance and regulatory fees			986				1,484
Professional services			1,431				1,326
Advertising and marketing			656				993
Other loan expense			1,351				925
Intangible asset amortization			90				82
Other expense			4,447				4,039
Total noninterest expense			28,709				30,145
Net Income (Loss) from continuing operations before taxes			5,980				(2,278	)
Income tax expense (benefit) from continuing operations			4,241				(913	)
NET INCOME (LOSS) FROM CONTINUING OPERATIONS			1,739				(1,365	)
Income from discontinued operations, net of tax			---				935
NET INCOME (LOSS)			1,739				(430	)
Preferred stock dividends			813				812
Accretion on preferred stock discount			156				147
NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS		$	770			$	(1,389	)
Net income (loss) per common share from continuing operations
Basic		$	0.05			$	(0.14	)
Diluted			0.05				(0.14	)
Net income per common share from discontinued operations
Basic		$	---			$	0.06
Diluted			---				0.06
Net income (loss) per common share
Basic		$	0.05			$	(0.08	)
Diluted			0.05				(0.08	)
Average common shares outstanding
Basic			16,527				16,527
Diluted			16,528				16,527
See accompanying notes to consolidated financial statements.

4

FIRST FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (Unaudited)

	Three Months Ended March 31,
(in thousands)	2012				2011
NET INCOME (LOSS)		$	1,739			$	(430	)
OTHER COMPREHENSIVE INCOME (LOSS), BEFORE TAX
Unrealized gain (loss) on securities available for sale			1,246				(2,906	)
Less: Reclassification of other-than-temporary loss included in income for the period			(69	)			(122	)
Tax (expense) benefit			(458	)			1,178
TOTAL OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX			719				(1,850	)
TOTAL COMPREHENSIVE INCOME (LOSS)		$	2,458			$	(2,280	)
See accompanying notes to consolidated financial statements.

5

FIRST FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)

							Additional Paid-in Capital		Treasury Stock At cost			Retained Earnings			Accumulated Other Comprehensive Income (Loss)
	Preferred Stock			Common Stock
(in thousands, except per share data)	Shares	Amount		Shares	Amount													Total
Balance at December 31, 2010	65	$	1	16,527	$	215	$	195,090	$	(103,563	)	$	221,304		$	2,275		$	315,322
Net loss													(430	)					(430	)
Other comprehensive loss, net of tax																(1,850	)		(1,850	)
Stock based compensation expense								124											124
Accretion of preferred stock								147					(147	)					---
Cash dividends
Common stock ($0.05 per share)													(827	)					(827	)
Preferred stock													(812	)					(812	)
Balance at March 31, 2011	65	$	1	16,527	$	215	$	195,361	$	(103,563	)	$	219,088		$	425		$	311,527
Balance at December 31, 2011	65	$	1	16,527	$	215	$	196,002	$	(103,563	)	$	187,367		$	(2,844	)	$	277,178
Net income													1,739						1,739
Other comprehensive income, net of tax																719			719
Stock based compensation expense								46											46
Accretion of preferred stock								156					(156	)					---
Cash dividends
Common stock ($0.05 per share)													(826	)					(826	)
Preferred stock													(813	)					(813	)
Balance at March 31, 2012	65	$	1	16,527	$	215	$	196,204	$	(103,563	)	$	187,311		$	(2,125	)	$	278,043

See accompanying notes to consolidated financial statements.

6

FIRST FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

	Three Months Ended March 31,
(in thousands)	2012			2011
Operating Activities
Net Income (loss)	$	1,739		$	(430	)
Less: Income (loss) from discontinued operations		---			935
Net income from continuing operations		1,739			(1,365	)
Adjustments to reconcile net income to net cash provided by operating activities
Provision for loan losses		6,745			12,675
Depreciation		1,380			1,367
Amortization of intangibles		90			82
Net decrease (increase) in current & deferred income tax		4,510			(3,708	)
Mark-to-market adjustments		(5,292	)		2,214
Fair value of adjustments on other real estate owned		2,420			(1,774	)
Accretion/amortization of unearned discounts/premiums on investments, net		189			(482	)
Other-than-temporary impairment losses		69			122
Loans originated for sale		(162,090	)		(64,431	)
Proceeds from loans held for sale		161,213			74,442
Gain on sale of loans, net		(3,159	)		(950	)
Gain on sale of other real estate owned, net		(643	)		(65	)
Recognition of stock-based compensation expense		46			124
Decrease in prepaid FDIC insurance premium		663			1,246
FDIC reimbursement of covered asset losses		5,368			8,378
Other		(369	)		1,742
Discontinued operations, net		---			(1,006	)
Net cash provided by operating activities		12,879			28,611
Investing Activities
Securities available-for-sale
Proceeds from sales		---			---
Proceeds from maturities, calls and payments		26,009			28,596
Purchases		(63,085	)		(42,231	)
Proceeds from maturities, calls and payments, securities held to maturity		666			---
Purchases FHLB and Federal Reserve stock, net		(5,271	)		---
Decrease (increase) in loans, net		14,969			(2,296	)
Proceeds from sales of other real estate owned		6,638			1,990
Increase in property and equipment, net		(1,638	)		(799	)
Discontinued operations, net		---			(38	)
Net cash used by investing activities		(21,712	)		(14,778	)

See accompanying notes to consolidated financial statements.

7

FIRST FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (continued)

	Three Months Ended March 31,
(in thousands)		2012			2011
Financing Activities
Increase in demand and savings deposits, net		74,701			63,548
Decrease in time deposits, net		(49,380	)		(128,381	)
(Repayments) proceeds of FHLB advances, net		(28,000	)		64,500
Dividends paid on common stock		(826	)		(827	)
Dividends paid on preferred stock		(813	)		(812	)
Net cash used by financing activities		(4,318	)		(1,972	)
Net (decrease) increase in cash and cash equivalents		(13,151	)		11,861
Cash and cash equivalents at beginning of period, continuing operations		76,675			53,404
Cash and cash equivalents at beginning of period, discontinued operations		---			3,022
Cash and cash equivalents at beginning of period		76,675			56,426
Cash and cash equivalents at end of period, continuing operations		63,524			64,662
Cash and cash equivalents at end of period, discontinued operations		---			3,625
Cash and cash equivalents at end of period	$	63,524		$	68,287
Supplemental disclosures
Cash paid during the period for
Interest	$	9,017		$	13,515
Income taxes		16			3,267
Loans foreclosed		9,480			9,551
Loans securitized into mortgage-backed securities		127,401			59,376
Unrealized gain on securities available for sale, net of tax		719			(1,850	)

See accompanying notes to consolidated financial statements.

8

FIRST FINANCIAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 2012

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 First Federal Bank (“First Federal”), a South Carolina-chartered commercial bank, 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 months ended March 31 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012.

          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 2011 Annual Report on Form 10-K for the fiscal year ending September 30, 2011. 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 2011 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 March 31, 2012. The net 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 for First Financial 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.

Change in Fiscal Year

          On December 20, 2011, First Financial’s Board of Directors approved an amendment to Article VIII of First Financial’s bylaws to change First Financial’s fiscal year end from September 30^th to December 31^st of each year. The change was effective December 31, 2011 and the current fiscal year began on January 1, 2012 and will end on December 31, 2012. The change in fiscal year end resulted in a three-month transition period which began on October 1, 2011 and ended on December 31, 2011. As a result of its change in fiscal year, First Financial filed a Transition Report on Form 10-Q with the Securities and Exchange Commission (“SEC”) on February 9, 2012 which covered the transition period from October 1, 2011 to December 31, 2011.

Discontinued Operations

          As a result of First Financial’s sale of its insurance agency subsidiary, First Southeast Insurance Services, Inc., which was completed on June 1, 2011, and its managing general insurance agency subsidiary, Kimbrell Insurance Group, Inc., which was completed on September 30, 2011, the financial condition, operating results, and the gain or loss on the sales, net of transaction costs and taxes, for these subsidiaries 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 discontinued operations. 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 operating results for any of the prior periods.

Recently Adopted Accounting Pronouncements

FASB ASU 2011-05, “Comprehensive Income (Topic 220) – Presentation of Comprehensive Income” as amended by Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2011-12, “Comprehensive Income (Topic 220)-Deferral of the Effective Date for Amendments to the Presentation of Reclassification of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update (“ASU”) 2011-05.”

          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 adoption of ASU 2011-05 was effective December 15, 2011. First Financial elected to present a separate OCI statement which is located immediately following its Consolidated Statements of Operations.

9

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 adoption of ASU 2011-04 was effective for reporting periods beginning on or after December 15, 2011 and is included in Note 6 to the Consolidated Financial Statements.

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

          This ASU improves the accounting for repurchase agreements and other agreements that entitle and obligate a transferor to repurchase or redeem financial assets before their maturity. ASU 2011-03 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 criterions applicable to the assessment of effective control are not changed by the amendments in this ASU. The adoption of ASU 2011-03 was effective December 15, 2011 and did not have a material impact on First Financial’s financial condition or results of operations.

Recently Issued Accounting Pronouncements

FASB ASU 2011-11, “Balance Sheet (Topic 210) - Disclosures about Offsetting Assets and Liabilities.”

          This ASU addresses the differences in reporting between GAAP and International Financial Reporting Standards (“IFRS”) regarding offsetting (netting) assets and liabilities and enhances current disclosures. ASU 2011-11 requires entities to disclose both gross information and net information about instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement. The scope includes derivatives, sale and repurchase agreements and reverse sales and repurchase agreements, as well as securities borrowing and securities lending arrangements. ASU 2011-11 is effective for annual reporting periods beginning on or after January 1, 2013 and interim periods within those annual periods. First Financial does not expect the adoption of ASU 2011-11 to have a material impact on its 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.

10

	As of March 31, 2012											As of December 31, 2011
(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	$	1,755		$	29		$	---		$	1,784	$	1,790		$	33		$	---		$	1,823
State and municipal obligations		450			31			---			481		450			38			---			488
Collateralized debt obligations		6,941			142			3,568			3,515		7,012			---			3,765			3,247
Mortgage-backed securities		139,057			3,825			88			142,794		80,696			3,719			16			84,399
Collateralized mortgage obligations		290,458			2,773			5,434			287,797		312,124			3,289			6,118			309,295
Other securities		5,797			611			248			6,160		5,582			56			340			5,298
Total securities available for sale	$	444,458		$	7,411		$	9,338		$	442,531	$	407,654		$	7,135		$	10,239		$	404,550
Securities held to maturity
State and municipal obligations	$	19,327		$	2,718		$	---		$	22,045	$	19,978		$	2,756		$	---		$	22,734
Certificates of deposit		508			---			---			508		508			---			---			508
Total securities held to maturity	$	19,835		$	2,718		$	---		$	22,553	$	20,486		$	2,756		$	---		$	23,242
Nonmarketable securities
Federal Home Loan Bank stock		4,211			---			---			4,211		---			---			---			---
Federal Reserve Bank stock	$	33,754		$	---		$	---		$	33,754	$	32,694		$	---		$	---		$	32,694
Total nonmarketable securities	$	37,965		$	---		$	---		$	37,965	$	32,694		$	---		$	---		$	32,694

          Securities with a fair market value of $277.6 million at March 31, 2012 and $237.8 million at December 31, 2011 were pledged to secure public and certain customer deposits, repurchase agreements, and advances from the Federal Home Loan Bank (“FHLB”) of Atlanta and the Federal Reserve Bank of Richmond. During the three months ended March 31, 2012, $37.1 million of mortgage-backed securities issued by the Federal National Mortgage Association (“Fannie Mae”) were purchased. As a result of these purchases, the fair value of securities Issued by Fannie Mae totaled $55.9 million as of March 31, 2012, which exceeded 10% of shareholders’ equity.

          The amortized cost and estimated fair value of investment securities by contractual maturity are presented in the following table. Expected 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 March 31, 2012
(in thousands)	Amortized Cost		Fair Value
Securities available for sale
Due within one year	$	145	$	145
Due after one year through five years		1,610		1,639
Due after five years through ten years		1,005		1,072
Due after ten years		9,840		6,246
		12,600		9,102
Mortgage-backed securities		139,057		142,794
Collateralized mortgage obligations		290,458		287,797
Other securities with no stated maturity		2,343		2,838
Total	$	444,458	$	442,531
Securities held to maturity
Due within one year	$	508	$	508
Due after one year through five years		---		---
Due after five years through ten years		1,516		1,594
Due after ten years		17,811		20,451
Total	$	19,835	$	22,553

          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.

11

	Less than 12 Months						12 Months or Longer						Total
March 31, 2012 (dollars in thousands)	#		Fair Value		Unrealized Losses		#		Fair Value		Unrealized Losses		#		Fair Value		Unrealized Losses
Securities available for sale
Collateralized debt obligations		---	$	---	$	---		14	$	2,856	$	3,568		14	$	2,856	$	3,568
Mortgage-backed securities		4		36,588		76		1		575		12		5		37,163		88
Collateralized mortgage obligations		14		80,910		2,530		16		45,385		2,904		30		126,295		5,434
Other securities		1		990		10		1		758		238		2		1,748		248
Total		19	$	118,488	$	2,616		32	$	49,574	$	6,722		51	$	168,062	$	9,338
	Less than 12 Months						12 Months or Longer						Total
December 31, 2011 (dollars in thousands)	#		Fair Value		Unrealized Losses		#		Fair Value		Unrealized Losses		#		Fair Value		Unrealized Losses
Securities available for sale
Collateralized debt obligations		1	$	260	$	47		14	$	2,987	$	3,718		15	$	3,247	$	3,765
Mortgage-backed securities		---		---		---		1		577		16		1		577		16
Collateralized mortgage obligations		16		88,673		3,359		14		34,310		2,759		30		122,983		6,118
Other securities		2		1,977		29		1		685		311		3		2,662		340
Total		19	$	90,910	$	3,435		30	$	38,559	$	6,804		49	$	129,469	$	10,239

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 March 31, 2012, 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 three months ended March 31, 2012, a credit-related OTTI of $69 thousand was recorded in net impairment losses recognized in earnings in the Consolidated Statements of Operations. The total carrying value of securities affected by credit-related OTTI represents 5.2% of the carrying value of First Financial’s investment portfolio at March 31, 2012, which has a 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 in pooled issuances. 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 OTTI, if any.

     The following table provides information regarding the CDO portfolio characteristics and OTTI losses.

12

Collateralized Debt Obligations at March 31, 2012
(in thousands)											Quarter Ended March 31, 2012 OTTI1
Name	Single/ Pooled	Class/ Tranche		Amortized Cost		Fair Value		Unrealized Loss (Gain)			Credit Portion		Other		Total
ALESCO I	Pooled		B-1	$	537	$	272	$	265		$	---	$	---	$	---
ALESCO II	Pooled		B-1		367		275		92			---		---		---
MCAP III	Pooled		B		288		140		148			---		---		---
MCAP IX	Pooled		B-1		306		118		188			---		---		---
MCAP XVIII	Pooled		C-1		179		94		85			---		---		---
PRETZL XI	Pooled		B-1		856		321		535			---		---		---
PRETZL XIII	Pooled		B-1		325		116		209			---		---		---
PRETZL IV	Pooled		MEZ		121		51		70			---		---		---
PRETZL VII	Pooled		MEZ		332		151		181			---		---		---
PRETZL XII	Pooled		B-2		550		337		213			---		---		---
PRETZL XIV	Pooled		B-1		634		184		450			30		---		30
TRPREF II	Pooled		B		658		260		398			---		---		---
USCAP II	Pooled		B-1		963		298		665			11		---		11
USCAP III	Pooled		B-1		308		239		69			---		---		---
Subtotal - CDOs in a loss position					6,424		2,856		3,568			41		---		41
PRETZLVI	Pooled		MEZ		517		659		(142	)		---		---		---
Total CDOs				$	6,941	$	3,515	$	3,426		$	41	$	---	$	41

		Dollar Basis
Name	Lowest Rating	% Performing			% Deferrals / Defaults2			Constant Default Rate						Discount Margin3
								High			Low
ALESCO I	C		79.55	%		20.45	%		1.19	%		0.25	%		11.70	%
ALESCO II	C		78.99			21.01			1.35			0.26			11.65
MCAP III	CC		58.89			41.11			2.59			0.51			10.50
MCAP IX	D		49.32			50.68			0.92			0.25			16.80
MCAP XVIII	C		60.61			39.39			1.00			0.25			11.05
PRETZL XI	C		67.71			32.29			0.92			0.25			11.60
PRETZL XIII	C		62.92			37.08			1.88			0.37			11.57
PRETZL IV	CC		72.93			27.07			2.66			0.52			11.00
PRETZL VII	C		33.65			66.35			1.96			0.39			16.80
PRETZL XII	C		66.09			33.91			0.72			0.25			11.62
PRETZL XIV	C		61.45			38.55			1.01			0.25			11.57
TRPREF II	C		61.19			38.81			2.25			0.44			11.92
US CAP II	C		77.35			22.65			0.79			0.25			11.65
USCAP III	C		72.26			27.74			1.09			0.25			11.53
PRETZLVI	D		26.38			73.62			1.83			0.36			11.00
Total			64.48	%		35.52	%
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 March 31, 2012, management does not intend to sell these securities, nor is it more likely than not that First Financial 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 is mainly comprised of private-label, non-agency mortgage-backed securities. To determine the fair value, cash flow models provided by a third-party pricing service are utilized. The models incorporate recent transaction volumes, price quotations and related price variability, available broker information, and market liquidity. As a result, the models estimate each security’s cash flow and adjusted price based on coupon, credit rating, constant prepayment rate, and required yields or spreads.

13

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 6 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 March 31, 2012.

(in thousands)	As of March 31, 2012						Quarter Ended March 31, 2012 OTTI1
Moody/S&P Ratings	#		Fair Value		Unrealized Loss		Credit Portion		Other		Total
AAA		3	$	24,732	$	188	$	---	$	---	$	---
AA		3		17,004		340		---		---		---
A		3		18,393		1,311		---		---		---
BBB		10		19,585		1,610		---		---		---
Below investment grade		11		46,581		1,985		28		---		28
Total		30	$	126,295	$	5,434	$	28	$	---	$	28
1 Recognized in Impairment losses on investment securities on the Consolidated Statements of Operations

The OTTI in the table above was related to two securities with credit-related deterioration evidenced by the following metrics:

Description	2004 ARM Senior Support	2005 Fixed 5 Year Senior
	As of March 31, 2012
Credit rating	C	CC
Rating agency	Moody’s	Standard & Poor’s
Twelve-month average loss severity	36.94%	76.71%
Twelve-month average default rate	6.19	2.09
60 Day or more delinquency rate	24.67	18.29
	As of December 31, 2011
Credit rating	C	CC
Rating agency	Moody’s	Standard & Poor’s
Twelve-month average loss severity	38.36%	76.71%
Twelve-month average default rate	3.89	1.94
60 Day or more delinquency rate	28.28	19.23

     The credit rating displayed in the above table reflects the lowest credit rating by the major rating agencies. As of March 31, 2012, management does not intend to sell these securities, nor is it more likely than not that it will be required to sell these securities 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.

	Quarter Ended March 31, 2012								Quarter Ended March 31, 2011
(in thousands)	CDOs		CMOs		Other Securities		Total		CDOs		CMOs		Other Securities		Total
Cumulative credit related losses recognized in earnings at beginning of period	$	5,782	$	1,509	$	1,100	$	8,391	$	5,411	$	1,355	$	1,100	$	7,866
Additions
Credit loss for which no previous OTTI recognized		---		---		---		---		---		---		---		---
Credit loss for which previous OTTI recognized		41		28		---		69		122		---		---		122
Cumulative credit related losses recognized in earnings at end of period	$	5,823	$	1,537	$	1,100	$	8,460	$	5,533	$	1,355	$	1,100	$	7,988

14

NOTE 3. Loans and Other Repossessed Assets Acquired

     The following table presents the loan portfolio by major category.

LOANS (in thousands)	March 31, 2012		December 31, 2011
Residential loans
Residential 1-4 family	$	972,881	$	975,405
Residential construction		15,501		15,117
Residential land		40,794		41,612
Total residential loans		1,029,176		1,032,134
Commercial loans
Commercial business		88,054		83,814
Commercial real estate		447,339		456,541
Commercial construction		16,289		16,477
Commercial land		54,786		61,238
Total commercial loans		606,468		618,070
Consumer loans
Home equity		347,825		357,270
Manufactured housing		275,845		275,275
Marine		50,458		52,590
Other consumer		45,795		50,118
Total consumer loans		719,923		735,253
Total loans		2,355,567		2,385,457
Less: Allowance for loan losses		50,776		53,524
Net loans	$	2,304,791	$	2,331,933
Loans Held For Sale	$	52,339	$	48,303

     The loans held for sale are comprised of residential mortgage loans to be sold in the secondary market, and generally settle in 45 to 60 days.

     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 the former Cape Fear Bank (the “Cape Fear Acquisition”). Refer to Note 4 to the Consolidated Financial Statements for additional information regarding the Cape Fear Acquisition. 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 presents the loan portfolio by age of delinquency.

15

Age Analysis Past Due Loans
	As of March 31, 2012
(in thousands)	30-59 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		$	982		$	907		$	6,649		$	---		$	8,538		$	964,343		$	972,881
Residential construction			---			---			---			---			---			15,501			15,501
Residential land			123			---			1,398			---			1,521			39,273			40,794
Total residential loans			1,105			907			8,047			---			10,059			1,019,117			1,029,176
Commercial loans
Commercial business			1,462			215			1,931			---			3,608			84,446			88,054
Commercial real estate			2,560			505			18,474			---			21,539			425,800			447,339
Commercial construction			---			---			261			---			261			16,028			16,289
Commercial land			2,271			---			5,240			---			7,511			47,275			54,786
Total commercial loans			6,293			720			25,906			---			32,919			573,549			606,468
Consumer loans
Home equity			1,845			1,470			9,779			---			13,094			334,731			347,825
Manufactured housing			1,377			125			2,648			---			4,150			271,695			275,845
Marine			324			34			63			---			421			50,037			50,458
Other consumer			286			159			131			51			627			45,168			45,795
Total consumer loans			3,832			1,788			12,621			51			18,292			701,631			719,923
Total loans		$	11,230		$	3,415			46,574		$	51		$	61,270		$	2,294,297			2,355,567
Total loans excluding covered loans		$	8,343		$	3,200		$	31,664		$	51		$	43,258		$	2,187,165		$	2,230,423

¹    Included in current loans are $3.3 million of covered and non-covered performing troubled debt restructurings (“TDRs”). Covered includes $734 thousand in residential 1-4 family. Non-covered includes $698 thousand in commercial business, $1.5 million in commercial real estate, $176 thousand in home equity, and $137 thousand in manufactured housing.

     The following table summarizes nonperforming assets.

Nonperforming Assets (in thousands)	March 31, 2012			December 31, 2011
Nonaccrual loans		$	46,574		$	45,178
Loans 90+ days, still accruing			51			121
Restructured loans, still accruing			3,276			2,411
Total nonperforming loans			49,901			47,710
Other repossessed assets acquired			21,818			20,487
Total nonperfoming assets		$	71,719		$	68,197
Total nonperforming loans excluding nonperforming covered loans		$	34,257		$	30,187
Total nonperforming assets excluding nonperforming covered assets		$	44,712		$	43,124

     Loans acquired in the Cape Fear Acquisition that were performing at the time of acquisition, but have subsequently become nonaccrual are included in the tables above. Nonperforming loans acquired at acquisition are included in the current loan category in the “Age Analysis Past Due Loans” table above and, as such, are not included in the “Nonperforming Assets” table above since these loans were adjusted to fair value at the acquisition date and accounted for under ASC 310-30.

Impaired Loans

16

     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.

     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. A summary of impaired loans, related valuation reserves, and their effect on interest income follows.

17

Impaired Loans
(in thousands)	Unpaid Contractual Principal Balance			Recorded Investment With No Specific Allowance			Recorded Investment With Specific Allowance			Total Recorded Investment			Specific Allowance			Quarter to Date Average Balance			Interest Income Recognized Quarter to Date
March 31, 2012
Residential loans
Residential 1-4 family		$	2,832		$	2,413		$	285		$	2,698		$	88		$	2,472		$	---
Residential land			---			---			---			---			---			---			---
Total residential loans			2,832			2,413			285			2,698			88			2,472			---
Commercial loans			.
Commercial business			2,347			2,141			40			2,181			4			2,917			6
Commercial real estate			13,203			9,189			1,922			11,111			541			11,692			12
Commercial construction			311			261			---			261			---			261			---
Commercial land			3,518			1,397			1,144			2,541			334			3,135			---
Total commercial loans			19,379			12,988			3,106			16,094			879			18,004			18
Consumer loans
Home equity			6,462			5,546			---			5,546			---			4,661			---
Manufactured housing			154			137			---			137			---			135			---
Marine			---			---			---			---			---			---			---
Total consumer loans			6,616			5,683			---			5,683			---			4,796			---
Total impaired loans		$	28,827		$	21,084		$	3,391		$	24,475		$	967		$	25,271		$	18
December 31, 2011
Residential loans
Residential 1-4 family		$	2,366		$	1,957		$	288		$	2,245		$	93		$	1,637		$	10
Residential land			---			---			---			---			---			---			---
Total residential loans			2,366			1,957			288			2,245			93			1,637			10
Commercial loans
Commercial business			4,134			2,143			1,510			3,653			11			3,400			---
Commercial real estate			14,336			8,819			3,453			12,272			967			12,928			10
Commercial construction			311			261			---			261			---			261			---
Commercial land			6,258			2,024			1,704			3,728			327			4,495			---
Total commercial loans			25,039			13,247			6,667			19,914			1,305			21,083			10
Consumer loans
Home equity			4,356			2,978			797			3,775			1			3,017			---
Manufactured housing			155			133			---			133			---			134			---
Marine			---			---			---			---			---			---			---
Total consumer loans			4,511			3,111			797			3,908			1			3,151			---
Total impaired loans		$	31,916		$	18,315		$	7,752		$	26,067		$	1,399		$	25,870		$	20

     The total recorded investment in covered impaired loans was $8.3 million as of March 31, 2012. These loans had a specific allowance of less than $100 thousand as of March 31, 2012.

Troubled Debt Restructuring (“TDR”)

     First Federal accounts for certain loan modifications or restructurings as a 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. Concessions may relate to the contractual interest rate, maturity date, payment structure of the note or other actions. In accordance with GAAP, loans acquired under ASC 310-30 are not initially considered to be TDRs. The following table provides a summary of TDRs by accruing status. The TDRs on nonaccrual status are included in the nonperforming asset table above.

18

Troubled Debt Restructurings
	As of March 31, 2012						As of December 31, 2011
(in thousands)	Still Accruing		Nonaccrual		Total		Still Accruing		Nonaccrual		Total
Residential 1-4 family	$	734	$	1,722	$	2,456	$	734	$	1,269	$	2,003
Commercial loans
Commercial business		698		1,113		1,811		700		1,113		1,813
Commercial real estate		1,530		4,916		6,446		977		5,293		6,270
Commercial land		---		2,172		2,172		---		2,192		2,192
Total commercial loans		2,228		8,201		10,429		1,677		8,598		10,275
Consumer loans
Home equity		176		4,402		4,578		---		3,775		3,775
Manufactured housing		137		---		137		---		133		133
Total consumer loans		313		4,402		4,715		---		3,908		3,908
Total loans	$	3,276	$	14,325	$	17,601	$	2,411	$	13,775	$	16,186

     Once a loan is deemed to be a TDR, it is reviewed for potential impairment in accordance with ASC 310-10-35. The following table provides a summary of the loans that were restructured as TDRs during the three months ended March 31, 2012 and 2011 and displays the incremental impact to the allowance for loan losses as a result of the modification.

Troubled Debt Restructurings
	Quarter Ended March 31, 2012
	Outstanding Recorded Investment1
(dollars in thousands)	#	Pre-Modification		Post-Modification - By Type				Total Post- Modification Investment		Increase to Allowance
		Total		Rate		Structure
Residential 1-4	1	$	471	$	471	$	---	$	471	$	---
Commercial real estate	1		558		---		558		558		---
Home equity	4		956		956		---		956		---
Total Restructured Loans	6	$	1,985	$	1,427	$	558	$	1,985	$	---
	Quarter Ended March 31, 2011
	Outstanding Recorded Investment1
(dollars in thousands)	#	Pre-Modification		Post-Modification - By Type				Total Post- Modification Investment		Increase to Allowance
		Total		Rate		Structure
Residential 1-4	1	$	202	$	206	$	---	$	206	$	---
Commercial business	1		299		---		299		299		---
Commercial real estate	6		3,715		---		3,715		3,715		13
Commercial land	3		12,173		---		10,173		10,173		18
Total Restructured Loans	11	$	16,389	$	206	$	14,187	$	14,393	$	31

¹ Outstanding recorded investment as defined by ASC 310-35-24, includes the loan balance, accrued interest, loan fees or costs, and unamortized premium or discount.

          The following table provides a summary of the loans that were modified for rate or structure as a TDR during the twelve months ended March 31, 2012 and 2011 and which subsequently defaulted during the three months ended March 31, 2012 and 2011. There was no incremental impact to the allowance for loan losses as a result of the defaults as the defaulted loans were already reviewed for impairment in accordance with ASC 310-10-35.

19

Defaulted TDRs with structure or rate modifications
	Quarters Ended March 31,
	2012							2011
(dollars in thousands)	#	Recorded Investment				Total Recorded Investment			#	Recorded Investment				Total Recorded Investment
		Rate		Structure						Rate		Structure
Residential 1-4	---	$	---	$	---	$	---		1	$	707	$	---	$	707
Commercial Real Estate	3		---		1,943		1,943		4		970		5,109		6,079
Commercial land	---		---		---		---		2		---		2,712		2,712
Home equity	4		1,287		---		1,287		---		---		---		---
Defaulted TDRs	7	$	1,287	$	1,943	$	3,230		7	$	1,677	$	7,821	$	9,498

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. Loans designated as special mention are considered “criticized” by regulatory definitions and possess characteristics of weakness which may not necessarily manifest into future loss. 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 commercial loans regularly to determine whether they are appropriately risk 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 March 31, 2012
(in thousands)	Commercial Business		Commercial Real Estate		Commercial Construction		Commercial Land		Total Commercial Loans
Pass	$	71,617	$	338,626	$	16,028	$	24,908	$	451,179
Special mention		3,945		40,378		---		15,460		59,783
Substandard		11,757		62,188		261		12,679		86,885
Doubtful		---		472		---		---		472
Total		87,319		441,664		16,289		53,047		598,319
Covered ASC 310-30 loans		735		5,675		---		1,739		8,149
Total	$	88,054	$	447,339	$	16,289	$	54,786	$	606,468
1Credit 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. In addition, residential and consumer loans that are part of a classified commercial relationship (i.e., the non-commercial loans in that borrower’s relationship) are also rated as classified loans unless the underlying facts support otherwise.

          The following tables present the risk indicators for the residential and consumer loan portfolios.

Residential Credit Quality1
	As of March 31, 2012
(in thousands)	Residential 1-4 Family		Residential Construction		Residential Land		Total Residential Loans
Performing	$	963,051	$	15,501	$	38,991	$	1,017,543
Performing classified		2,268		---		321		2,589
Nonperforming		7,382		---		1,398		8,780
Total		972,701		15,501		40,710		1,028,912
Covered ASC 310-30 loans		180		---		84		264
Total	$	972,881	$	15,501	$	40,794	$	1,029,176
1Credit quality indicators are reviewed and updated as applicable on an ongoing basis in accordance with credit policies.

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Consumer Credit Quality1	As of March 31, 2012
(in thousands)	Home Equity			Manufactured Housing			Marine			Other Consumer			Total Consumer Loans
Performing		$	334,878		$	273,060		$	50,395		$	45,595		$	703,928
Performing classified			2,639			---			---			51			2,690
Nonperforming			9,956			2,785			63			131			12,935
Total			347,473			275,845			50,458			45,777			719,553
Covered ASC 310-30 loans			352			---			---			18			370
Total		$	347,825		$	275,845		$	50,458		$	45,795			719,923
1Credit quality indicators are reviewed and updated as applicable on an ongoing basis in accordance with credit policies.

   An analysis of changes in the allowance for loan losses follows.

Allowance for Loan Losses
	As of and for the Quarter Ended March 31, 2012
(in thousands)	Residential				Commercial Business				Commercial Real Estate				Commercial Construction			Commercial Land				Consumer				Total
Allowance for Loan Losses
Balance at beginning of period		$	8,748			$	4,106			$	11,711			$	397		$	5,981			$	22,581			$	53,524
Provision for loan losses			41				719				567				2			1,046				4,370				6,745
Loan charge-offs			(1,253	)			(887	)			(1,624	)			---			(1,505	)			(4,802	)			(10,071	)
Recoveries			45				62				162				2			66				241				578
Net charge-offs			(1,208	)			(825	)			(1,462	)			2			(1,439	)			(4,561	)			(9,493	)
Balance at end of period		$	7,581			$	4,000			$	10,816			$	401		$	5,588			$	22,390			$	50,776
Loans as of March 31, 2012
Individually evaluated for impairment		$	2,698			$	2,181			$	11,111			$	261		$	2,541			$	5,683			$	24,475
Collectively evaluated for impairment			1,026,214				85,138				430,553				16,028			50,506				713,870				2,322,309
Covered ASC 310-30 loans			264				735				5,675				---			1,739				370				8,783
Total loans		$	1,029,176			$	88,054			$	447,339			$	16,289		$	54,786			$	719,923			$	2,355,567

Allowance for Loan Losses
	As of and for the Quarter Ended March 31, 2011
(in thousands)	Residential				Commercial Business				Commercial Real Estate				Commercial Construction			Commercial Land				Consumer				Total
Allowance for Loan Losses
Balance at beginning of period		$	9,955			$	8,558			$	25,159			$	1,723		$	20,940			$	22,014			$	88,349
Provision for loan losses			1,472				1,331				2,312				258			937				6,365				12,675
Loan charge-offs			(1,701	)			(1,903	)			(2,336	)			---			(5,282	)			(5,757	)			(16,979	)
Recoveries			105				74				142				3			457				312				1,093
Net charge-offs			(1,596	)			(1,829	)			(2,194	)			3			(4,825	)			(5,445	)			(15,886	)
Balance at end of period		$	9,831			$	8,060			$	25,277			$	1,984		$	17,052			$	22,934			$	85,138

Other Repossessed Assets Acquired

   The following table presents the components of other repossessed assets acquired, which is comprised of OREO and other consumer-related repossessed items, such as manufactured houses and boats, and is included in other assets on the Consolidated Balance Sheets.

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(in thousands)	March 31, 2012		December 31, 2011
Residential real estate	$	7,147	$	7,753
Commercial real estate		4,605		5,382
Land		7,956		5,824
Consumer-related assets		2,110		1,528
Total other repossessed assets acquired	$	21,818	$	20,487

The following table presents the components of other real estate expenses, net.

	Quarters Ended March 31,
(in thousands)	2012			2011
Gain on sale of other real estate, net	$	(643	)	$	(65	)
Fair-value writedown		989			615
Expenses, net		243			218
Rental Income		(59	)		(16	)
Covered OREO expense reimbursement		---			(885	)
Total other real estate expenses, net	$	530		$	(133	)

NOTE 4. FDIC Indemnification Asset

     First Federal has a loss share agreement with the FDIC related to the Cape Fear Acquisition which affords First Federal significant protection regarding certain acquired assets. Under the loss sharing agreement, First Federal shares in the losses on assets covered under the agreement with the FDIC. On losses up to $110.0 million, First Federal assumes the first $32.4 million and the FDIC reimburses First Federal for 80% of the losses greater than $32.4 million and up to $110.0 million. On losses exceeding $110.0 million, the FDIC will reimburse First Federal for 95% of the losses. The expected reimbursements under the loss sharing agreement were recorded as an indemnification asset at the time of the Cape Fear Acquisition in April 2009.

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

(in thousands)	Gross Receivable			Discount			Net Receivable
Balance at December 31, 2011	$	51,213		$	(192	)	$	51,021
Payments from FDIC for losses on covered assets		(4,764	)		---			(4,764	)
Discount accretion		---			15			15
Balance at March 31, 2012	$	46,449		$	(177	)	$	46,272

     During the three months ended March 31, 2012. First Federal received payments totaling $5.3 million from the FDIC for loss claims on loans, of which $4.8 million was credited to the FDIC indemnification asset and the remaining balance was credited to OREO expenses, net and other loan expense on the Consolidated Statements of Operations. As of the March 31, 2012 quarterly reporting period, First Federal filed a $4.0 million claim with the FDIC under the terms of the loss share agreement, and payment is expected during the second calendar quarter of 2012.

NOTE 5. Earnings Per Share

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

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	Three Months Ended March 31,
(in thousands, except per share data)	2012		2011
Net income (loss) from continuing operations	$	1,739	$	(1,365	)
Preferred stock dividends		813		812
Accretion on preferred stock discount		156		147
Net income (loss) from continuing operations available to common shareholders		770		(2,324	)
Income from discontinued operations, net of tax		---		935
Net income (loss) available to common shareholders	$	770	$	(1,389	)
Weighted average basic shares		16,527		16,527
Effect of dilutive stock options		1		---
Weighted average dilutive shares		16,528		16,527
Net income (loss) per common share from continuing operations
Basic	$	0.05	$	(0.14	)
Diluted		0.05		(0.14	)
Net income per common share from discontinued operations
Basic	$	---	$	0.06
Diluted		---		0.06
Net income (loss) per common share
Basic	$	0.05	$	(0.08	)
Diluted		0.05		(0.08	)

     As of March 31, 2012 and 2011, there were 624,157 and 768,743 potential additional shares issued through the exercise of stock options and warrants, respectively, which were excluded from the calculation of diluted earnings per share as a result of being anti-dilutive.

NOTE 6. 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.

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	As of March 31, 2012				As of December 31, 2011
(in thousands)	Carrying Value		Fair Value		Carrying Value		Fair Value
Assets
Cash and cash equivalents	$	63,524	$	63,524	$	76,675	$	76,675
Securities available for sale		442,531		442,531		404,550		404,550
Securities held to maturity		19,835		22,553		20,486		23,242
Nonmarketable securities		37,965		37,965		32,694		32,694
Net loans		2,304,791		2,411,901		2,331,933		2,427,526
Loans held for sale		52,339		52,339		48,303		48,303
FDIC indemnification asset, net		46,272		46,272		51,021		51,021
Other repossessed assets acquired1		21,818		21,818		20,487		20,487
Residential mortgage servicing rights1		11,898		11,898		10,663		10,663
Accrued interest receivable1		8,634		8,634		8,759		8,759
Derivative financial instruments1		1,801		1,801		2,238		2,238
Liabilities
Deposits		2,264,489		2,277,373		2,239,198		2,253,138
Advances from FHLB		533,000		569,062		561,000		598,616
Long-term debt		47,204		44,897		47,204		43,487
Accrued interest payable2		7,198		7,198		8,095		8,095
1 Included as part of Other Assets in the Consolidated Balance Sheets.
2 Included as part of Other Liabilities in the Consolidated Balance Sheets.

     The methods and assumptions used to estimate the fair value of financial instruments are set forth below. There were no changes in the valuation methods used to estimate fair value since December 31, 2011.

Assets Recorded at Fair Value on a Recurring Basis

     The following tables present the financial instruments measured at fair value on a recurring basis.

	As of March 31, 2012
(in thousands)	Level 1		Level 2		Level 3		Total
Obligations of the U.S. government agencies and corporations	$	---	$	1,784	$	---	$	1,784
State and municipal obligations		---		481		---		481
Collateralized debt obligations		---		---		3,515		3,515
Mortgage-backed securities		---		142,794		---		142,794
Collateralized mortgage obligations		---		238,604		49,193		287,797
Other securities		1,494		3,350		1,316		6,160
Securities available for sale		1,494		387,013		54,024		442,531
Residential mortgage servicing rights		---		---		11,898		11,898
Derivative financial instruments		1,801		---		---		1,801
Total assets at fair value	$	3,295	$	387,013	$	65,922	$	456,230
	As of December 31, 2011
(in thousands)	Level 1		Level 2		Level 3		Total
Obligations of the U.S. government agencies and corporations	$	---	$	1,823	$	---	$	1,823
State and municipal obligations		---		488		---		488
Collateralized debt obligations		---		---		3,247		3,247
Mortgage-backed securities		---		84,399		---		84,399
Collateralized mortgage obligations		---		256,615		52,680		309,295
Other securities		1,000		3,197		1,101		5,298
Securities available for sale		1,000		346,522		57,028		404,550
Residential mortgage servicing rights		---		---		10,663		10,663
Derivative financial instruments		2,238		---		---		2,238
Total assets at fair value	$	3,238	$	346,522	$	67,691	$	417,451

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Securities Available for Sale

     The fair value of securities available for sale 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. To determine the fair value, cash flow models provided by a third-party pricing service are utilized. The 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 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. For trust preferred CDOs, 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. For private-label CMOs, the pricing model estimates each security’s cash flows and adjusted price based on coupon, constant prepayment rate, default rate, and required yields or spreads. If a security is rated below investment grade by a credit agency, a stress test is performed to determine OTTI.

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

     The fair value of derivative instruments is based on quoted market prices.

     The following table presents quantitative information regarding the assumptions used for valuing Level 3 assets.

(dollars in thousands)	Fair Value as of March 31, 20121		Valuation Technique1	Unobservable Input	Range (Weighted Average)
Collateralized debt obligations	$	3,515	Discounted cash flow	Discount Margin to LIBOR Constant Default Rate Default Percentage	10.50% - 16.80% (11.85%) 0.25% - 2.66% (0.85%) 20.45% - 66.35% (35.52%)
Collateralized mortgage obligations		49,193	Discounted cash flow	Constant Prepayment Rate Constant Default Rate Loss severity	5.00% - 30.00% (14.62%) 1.00% - 10.00% (3.41%) 30.00% - 60.00% (48.32%)
MSRs		11,898	Discounted cash flow	Constant Prepayment Rate Discount rate Delinquency percentage	16.2% 10.49% 2.13%
1 Other level 3 securities totaling $1.3 million are valued based on data provided by the issuer

Changes in Fair Value Measurement Levels

     First Financial evaluates the holdings within its investment portfolio on a quarterly basis to determine the most appropriate pricing level based on current economic and market conditions and credit trends. Transfers between levels are recorded during the quarter in which the transfer was deemed necessary. No securities were transferred between levels during the quarter ended March 31, 2012.

     The following table includes changes in Level 3 fair value measurements based on the hierarchy levels previously discussed.

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	Quarter Ended March 31, 2012
(in thousands)	Securities Available For Sale			Residential Mortgage Servicing Rights
Balance, beginning of period	$	57,028		$	10,663
Total net losses for the year included in Income		(69	)		(538	)
Other comprehensive income, gross		274			---
Purchases		215			---
Sales		---			---
Servicing assets that resulted from transfers of financial assets		---			1,773
Paydowns		(3,424	)		---
Balance, end of period	$	54,024		$	11,898

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 March 31, 2012		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	$	52,339	$	---	$	52,339	$	---	$	---
Impaired loans, net of specific allowance		23,508		---		---		23,508		1,002
FDIC indemnification asset, net		46,272		---		---		46,272		---
Other repossessed assets acquired		21,818		---		---		21,818		721
Total nonrecurring basis measured assets	$	143,937	$	---	$	52,339	$	91,598	$	1,723

Loans Held for Sale

     Loans held for sale are comprised of residential mortgage loans originated for sale in the secondary market. 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.

Impaired Loans, net of Specific Allowance

     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. Certain assumptions and unobservable inputs are currently being used by appraisers. Year-to-date losses include change-offs which had a specific reserve established in prior quarters. Specific reserves for impaired loans were $1.0 million at March 31, 2012.

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 reimbursements from the FDIC.

Other Repossessed Assets Acquired

     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. Certain assumptions and unobservable inputs are currently being used by appraisers.

Assets Not Recorded at Fair Value

     The following table presents the assets not recorded at fair value categorized by the level of inputs.

	As of March 31, 2012
(in thousands)	Level 1			Level 2			Level 3			Total
Cash and cash equivalents		$	63,524		$	---		$	---		$	63,524
Securities held to maturity			---			22,553			---			22,553
Nonmarketable securities			---			---			37,965			37,965
Net loans			---			---			2,411,901			2,411,901
Accrued interest receivable			8,634			---			---			8,634
Deposits			---			---			2,277,373			2,277,373
Advances from FHLB			---			---			569,062			569,062
Long term debt			---			---			44,897			44,897
Accrued interest payable			7,198			---			---			7,198
Total assets at fair value		$	79,356		$	22,553		$	5,341,198		$	5,443,107

     Additionally, accounting standards require the disclosure of the estimated fair value of financial instruments that are not recorded at fair value. A financial instrument is defined as cash, evidence of an ownership interest in an entity or a contract that creates a contractual obligation or right to deliver or receive cash or another financial instrument from a second entity. For the

26

financial instruments that First Financial does not record at fair value, estimates of fair value are calculated based on the value of one trading unit without regard to any premium or discount that may result from concentrations of ownership of a financial instrument, possible tax ramifications, estimated transaction costs that may result from bulk sales or the relationship between various financial instruments. No readily available market exists for a significant portion of First Financial’s financial instruments. Fair value estimates for these instruments are based on current economic conditions, currency and interest rate characteristics, loss experience and other factors. Many of these estimates involve uncertainties and matters of significant judgment and cannot be determined with precision. Therefore, the calculated fair value estimates in many instances cannot be sustained by comparison to independent markets, and may not be realizable in a current sale of the instrument. In addition, changes in assumptions could significantly affect these fair value estimates. The following methods and assumptions were used by First Financial in estimating the fair value of these financial instruments.

Cash and Cash Equivalents

     For these short-term instruments, the carrying amounts are a reasonable estimate of their fair values.

Securities Held to Maturity

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

Nonmarketable Securities

     The carrying amount of FHLB and Federal Reserve stock is used to approximate the fair value of these securities as these securities are not readily marketable, are recorded at cost (par value), and are 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 and Federal Reserve 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. The carrying amount of accrued interest approximates fair value.

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. The carrying amount of accrued interest approximates fair value.

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.

NOTE 7. Income Tax

     The income tax expense for the three months ended March 31, 2012 was $4.2 million, compared with a $913 thousand benefit for the same period of the prior year. The quarter ended March 31, 2012 included a $2.1 million write-down of the state deferred tax asset in connection with First Federal’s conversion from a thrift to a state-chartered commercial bank due to a difference in South Carolina income tax laws for banks versus thrifts. The effective tax rate for the three months ended March 31, 2012, excluding the deferred tax asset write-down, was 35.62%, compared with 40.08% for the same period of the prior year.

     First Financial regularly monitors its net deferred tax assets, which totaled $879 thousand at March 31, 2012. First Financial considers the cumulative three-year pretax operating results as well as the timing, nature and amount of future taxable income, various plans to maximize the realization of deferred tax assets and taxable income within the carryback and carry forward periods, the reversal of taxable temporary differences as well as future events and uncertainties in making its determination of the realization of its net deferred tax asset. After evaluating all positive and negative evidence available as of March 31, 2012, First Financial concluded that it is more likely than not that it will be able to realize all remaining net deferred tax benefits and that a valuation allowance was not needed at March 31, 2012.

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NOTE 8. Share-Based Payment Arrangements

     First Financial has two share-based compensation plans from which new awards may be granted. These plans may issue qualified and non-qualified options, restricted stock awards, and stock appreciation rights to employees and nonemployee directors. First Financial also has four plans that currently have option grants outstanding, but no new issuances may be made since these plans have been abandoned. Any forfeited or expired option under the abandoned plans cannot be reissued. At March 31, 2012, there were 166,509 options which remained outstanding under the four abandoned plans. 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.

     Compensation expense for stock options is recognized in salaries and employee benefits in the Consolidated Statements of Operations. First Financial recorded a share-based compensation expense of $46 thousand and $124 thousand for the three months ended March 31, 2012 and 2011, respectively. First Financial recognized an income tax benefit of less than $100 thousand in each of the three months ended March 31, 2012 and 2011.

     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 December 31, 2011		404,387		23.80
Granted		---
Exercised		---
Forfeited or expired		(12,037	)	25.92
Outstanding at March 31, 2012		392,350		23.73	1.7	$	21
Exercisable at March 31, 2012		339,013		25.15	1.5	$	6

     As of March 31, 2012, there was $161 thousand of total unrecognized compensation cost related to non-vested share-based compensation arrangements (share options) granted under the plans.

NOTE 9. Commitments and Contingencies

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 twelve 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. Outstanding commitments on loans not yet closed include commitments issued to correspondent lenders and are principally commitments for loans on single-family residential and commercial property.

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 from the borrower for the amounts paid. 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 March 31, 2012 and December 31, 2011, there was no recorded liability associated with these standby letters of credit.

     The following table presents First Federal’s loan commitments.

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(in thousands)	March 31, 2012		December 31, 2011
Avaliable unused lines of credit	$	345,174	$	345,734
Commitments to fund commercial real estate, construction and land development loans		31,091		30,531
Other unused commitments		61,290		73,835
Standby letters of credit		4,511		574

Derivative Instruments

          First Federal utilizes derivatives as part of its risk management strategy in conducting its mortgage activities. These instruments may consist of financial forward and future contracts, when-issued securities and options written and purchased. A derivative is a financial instrument that derives its cash flows, and therefore its value, by reference to an underlying instrument, index or referenced interest rate. First Federal does not elect hedge accounting treatment for any of its derivative transactions; consequently, changes in fair value, both gains and losses, of the instrument are recorded in the Consolidated Statements of Operations in mortgage and other loan income.

          Derivative contracts related to MSRs are used to offset changes in fair value and are written in amounts referred to as notional amounts. Notional amounts only provide the basis for calculating payments between counterparties and do not represent amounts to be exchanged between the parties, and are not a measure of financial risk. On March 31, 2012 and December 31, 2011, First Federal had derivative financial instruments outstanding with notional amounts totaling $52.5 million and $48.0 million, respectively. The estimated net fair value of the open contracts related to the MSRs was a loss of $166 thousand at March 31, 2012 compared to a gain of $354 thousand at December 31, 2011.

          The following table presents First Federal’s mortgage loan pipeline and obligations under forward commitments along with the fair value of those obligations.

(in thousands)	March 31, 2012		December 31, 2011
Mortgage loan pipeline	$	123,808	$	85,460
Expected pipeline closures		92,603		63,945
Fair value of mortgage loan pipeline		1,134		1,104
Forward commitments		178,196		148,902
Fair value of forward commitments		569		358

NOTE 10. Subsequent Events

Liberty Savings Bank Branch Acquisition

          On April 20, 2012, First Federal consummated its acquisition of five retail banking branches located in Hilton Head, South Carolina market from Liberty Savings Bank, FSB. The deposits associated with these branches totaled $115.6 million and consisted predominately of core transaction and savings accounts. Additionally, First Federal purchased $21.0 million in loans, primarily residential mortgage and home equity lines of credit.

Plantation Federal Bank FDIC-Assisted Transaction

          On April 27, 2012, First Federal assumed all deposits and substantially all assets and certain other liabilities of Plantation Federal Bank (“Plantation”), a full-service community bank headquartered in Pawleys Island, South Carolina, from the FDIC, as receiver for Plantation (the “Transaction”). Planation operated three branches along the coast of South Carolina under the name of Plantation Fedral and three branches in the Greenville South Carolina market under the name of First Savers Bank.

          The Transaction was made pursuant to a purchase and assumption agreement, in the FDIC’s customary form, entered into by First Federal and the FDIC as of April 27, 2012 (the “P&A Agreement”). The Transaction included all six branch offices of Plantation, which now operate as branches of First Federal.

          Based on December 31, 2011 reported balances, Plantation had total assets of $486.4 million, including loans of $348.6 million, and total deposits of $440.5 million. The assets were acquired at an asset discount bid of $47.0 million and the deposits were acquired with no premium.

          In connection with the Transaction, the FDIC made a closing payment to First Federal of $46.0 million, subject to customary post-closing adjustments based upon the final closing date balance sheet for Plantation.

          The P&A Agreement includes a customary loss sharing agreement with the FDIC covering approximately $220 million of Plantation’s assets. First Federal will share in the losses on the asset pools (including commercial loans and foreclosed assets)

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covered under the loss sharing agreement, but the FDIC is obligated to reimburse First Federal for 80% of all eligible losses with respect to covered assets, beginning with the first dollar of loss incurred through $55 million in losses. First Federal absorbs losses greater than $55 million up to $65 million. The FDIC will reimburse First Federal for 60% of all eligible losses in excess of $65 million. First Federal has a corresponding obligation to reimburse the FDIC according to the same arrangement for eligible recoveries with respect to covered assets. After the fifth anniversary of the Transaction (or earlier in certain circumstances), the FDIC has a right to recover a portion of its shared-loss reimbursements if losses on the covered assets are less than currently anticipated, as measured by a formula set forth in the P&A Agreement. The P&A Agreement generally provides for additional recovery sharing for an additional three years.

          The FDIC has certain rights to withhold loss sharing payments if First Federal does not perform its obligations under the loss sharing agreement in accordance with its terms and to withdraw the loss share protection if certain significant transactions are effected without FDIC consent, some of which may be beyond First Financial’s control, including certain business combination transactions and sales of shares by First Financial’s shareholders that would result in a change in control under the Change in Bank Control Act.

          Under the P&A Agreement, First Federal has options, exercisable for various defined periods, to acquire at fair market value any bank premises that were owned by, or assume any leases relating to bank premises leased by, Plantation and to assume or reject service provider contracts. First Federal is currently reviewing Plantation’s bank premises and related leases and other contracts.

          The foregoing summary of the P&A Agreement (including the associated loss sharing agreement) is not complete and is qualified in its entirety by reference to the full text of the P&A Agreement, a copy of which is filed as an exhibit to this Form 10-Q and is incorporated herein by reference.

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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
	Quarters Ended
(dollars in thousands, except per share data)	March 31, 2012			December 31, 2011			September 30, 2011			June 30, 2011			March 31, 2011
Summary of Operations
Interest income	$	36,359		$	37,612		$	38,556		$	39,472		$	40,184
Interest expense		8,107			8,713			9,492			10,056			10,897
Net interest income		28,252			28,899			29,064			29,416			29,287
Provision for loan losses		6,745			7,445			8,940			77,803			12,675
Net interest income (loss) after provision for loan losses		21,507			21,454			20,124			(48,387	)		16,612
Noninterest income		13,182			32,770			14,238			11,422			11,255
Noninterest expense		28,709			28,886			29,588			28,599			30,145
Income (loss) from continuing operations before taxes		5,980			25,338			4,774			(65,564	)		(2,278	)
Income tax expense (benefit) from continuing operations		4,241			9,766			1,893			(25,288	)		(913	)
Net income (loss) from continuing operations		1,739			15,572			2,881			(40,276	)		(1,365	)
(Loss) income from discontinued operations		—			—			(1,804	)		(2,724	)		935
Net income (loss)		1,739			15,572			1,077			(43,000	)		(430	)
Preferred stock dividends		813			813			813			812			812
Accretion on preferred stock		156			153			151			149			147
Net income (loss) available to common shareholders	$	770		$	14,606		$	113		$	(43,961	)	$	(1,389	)
Per Common Share Data
Net income (loss) per common share from continuing operations
Basic	$	0.05		$	0.88		$	0.12		$	(2.50	)	$	(0.14	)
Diluted		0.05			0.88			0.12			(2.50	)		(0.14	)
Net (loss) income per common share from discontinued operations
Basic	$	—		$	—		$	(0.11	)	$	(0.16	)	$	0.06
Diluted		—			—			(0.11	)		(0.16	)		0.06
Net income (loss) per common share
Basic	$	0.05		$	0.88		$	0.01		$	(2.66	)	$	(0.08	)
Diluted		0.05			0.88			0.01			(2.66	)		(0.08	)
Market price, end of period	$	11.00		$	8.93		$	4.01		$	8.97		$	11.31
Book value per common share		12.89			12.84			12.31			12.20			14.92
Tangible book value per common share (non-GAAP)1		12.75			12.69			12.16			11.83			12.65
Dividends		0.05			0.05			0.05			0.05			0.05
Shares outstanding, at period end		16,527			16,527			16,527			16,527			16,527
Balance Sheet Summary, at period end
Assets	$	3,145,538		$	3,146,964		$	3,206,310		$	3,221,544		$	3,302,012
Investment securities		500,331			457,730			469,561			478,570			446,464
Loans		2,355,567			2,385,457			2,355,280			2,372,069			2,559,845
Allowance for loan losses		50,776			53,524			54,333			55,491			85,138
Deposits		2,264,489			2,239,198			2,302,857			2,315,745			2,344,780
Advances from FHLB and long-term debt		580,204			608,204			605,204			604,704			608,710
Shareholders’ equity		278,043			277,178			268,506			266,564			311,527
Balance Sheet Summary, average for the quarter
Assets	$	3,151,385		$	3,153,286		$	3,201,416		$	3,294,350		$	3,310,796
Investment securities		490,356			469,925			468,360			464,277			435,568
Loans		2,420,000			2,428,743			2,442,071			2,566,827			2,607,161
Allowance for loan losses		52,282			54,178			55,503			81,025			88,086
Deposits		2,228,613			2,272,036			2,302,518			2,360,572			2,397,801
Advances from FHLB and long-term debt		609,665			565,114			595,508			593,103			555,630
Shareholders’ equity		277,390			279,066			267,404			302,996			313,663
Selected Ratios from Continuing Operations
Return on average assets2		0.22	%		1.98	%		0.36	%		(4.89	)%		(0.16	)%
Return on average equity2		2.51			22.32			4.31			(53.17	)		(1.74	)
Net interest margin (FTE)3		3.84			3.91			3.87			3.83			3.83
Efficiency ratio (non-GAAP)1		68.87			70.12			70.90			69.69			76.53
Selected Ratios from Consolidated Operations
Return on average assets2		0.22	%		1.98	%		0.13	%		(5.22	)%		(0.05	)%
Return on average equity2		2.51			22.32			1.61			(56.77	)		(0.55	)
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%.

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Five Quarter Summary of Selected Financial Data (Continued)
	Quarters Ended
(dollars in thousands)	March 31, 2012			December 31, 2011			September 30, 2011			June 30, 2011			March 31, 2011
Capital Ratios
Equity to assets		8.84	%		8.81	%		8.37	%		8.27	%		9.43	%
Tangible common equity to tangible assets (non-GAAP)1		6.70			6.67			6.27			6.08			6.40
Tier 1 leverage capital ratio1		10.22
Tier 1 risk-based capital ratio1		14.81
Total risk-based capital ratio1		16.08
Tier 1 Leverage capital ratio - First Federal		9.00			8.92			8.26			7.48			8.58
Tier 1 risk-based capital ratio - First Federal		13.05			12.35			11.26			10.07			11.51
Total risk-based capital ratio - First Federal		14.32			13.61			12.53			11.33			12.78
Asset Quality Metrics
Allowance for loan losses as a percent of loans		2.16	%		2.24	%		2.31	%		2.34	%		3.33	%
Allowance for loan losses as a percent of nonperforming loans		101.75			112.19			126.64			130.36			54.48
Nonperforming loans as a percent of loans		2.12			2.00			1.82			1.79			6.10
Nonperforming assets as a percent of loans and other repossessed assets acquired2		3.02			2.83			4.48			4.63			7.05
Nonperforming assets as a percent of total assets		2.28			2.17			3.38			3.51			5.52
Net loans charged-off as a percent of average loans3		1.60			1.39			1.71			16.87			2.45
Net loans charged-off	$	9,493		$	8,254		$	10,098		$	107,450		$	15,886
Asset Quality Metrics Excluding Covered Loans
Allowance for loan losses as a percent of non-covered loans		2.28	%		2.39	%		2.47	%		2.51	%		3.57	%
Allowance for loan losses as a percent of non-covered nonperforming loans		148.22			177.35			227.09			216.35			60.79
Nonperforming loans as a percent of non-covered loans		1.54			1.34			1.09			1.16			5.87
Nonperforming assets as a percent of non-covered loans and other repossessed assets acquired2		2.00			1.91			3.58			3.91			6.65
Nonperforming assets as a percent of total assets		1.42			1.37			2.52			2.76			4.84
1   The quarter ended March 31, 2012 represents the first period holding company ratios for First Financial are required to be filed with the Federal Reserve Bank included within FR Y-9C, Consolidated Financial Statements for Bank Holding Companies. The capital ratios presented above for the holding company are considered preliminary until the regulatory report is filed with the Federal Reserve Bank.
2    Nonperforming loans held for sale in the amount of $39,412 and $42,656 thousand is included in loans at September 30, 2011 and June 30, 2011.
3   Annualized percentage

          The following presents management’s discussion and analysis of First Financial Holdings, Inc. (“First Financial”) and its wholly-owned subsidiaries, including First Federal Bank (“First Federal”), a South Carolina-chartered commercial bank, with regard to their financial condition and results of operations for the three months ended March 31, 2012. 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 2011 Annual Report on Form 10-K for the fiscal year ended September 30, 2011. 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 2011 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 and is not incorporated herein by reference. First Financial’s filings are also available through the SEC’s website at www.sec.gov.

Change in Fiscal Year

          On December 20, 2011, First Financial’s Board of Directors approved an amendment to Article VIII of First Financial’s bylaws to change First Financial’s fiscal year end from September 30^th to December 31^st of each year. The change was effective December 31, 2011 and the current fiscal year began on January 1, 2012 and will end on December 31, 2012. The change in fiscal year end resulted in a three-month transition period which began on October 1, 2011 and ended on December 31, 2011. As a result of its change in fiscal year, First Financial filed a Transition Report on Form 10-Q with the SEC on February 9, 2012 which covered the transition period from October 1, 2011 to December 31, 2011.

Discontinued Operations

          As a result of First Financial’s sale of its insurance agency subsidiary, First Southeast Insurance Services, Inc., which was completed on June 1, 2011, and its managing general insurance agency subsidiary, Kimbrell Insurance Group, Inc., which was completed on September 30, 2011, the financial condition, operating results, and the gain or loss on the sales, net of transaction costs and taxes, for these subsidiaries have been segregated from the financial condition and operating results of First Financial’s continuing operations throughout this document and, as such, are presented as discontinued operations. 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 operating results 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

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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 from those anticipated by the forward-looking statements. 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 business 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 recent negative developments in the financial industry, the domestic and international credit markets, and the economy in general may continue to adversely impact First Financial’s earnings and could increase its credit risk associated with the loan portfolios.

• First Financial’s business is predominately conducted throughout coastal South Carolina, as well as in the Florence, South Carolina and Wilmington, North Carolina markets; continuation of the economic downturn in First Financial’s primary market area could negatively impact its results of operations and its financial position.

• First Financial’s net interest income may decline based on the interest rate environment.

• First Financial may not be able to adequately anticipate and respond to changes in market interest rates.

• 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.

• Economic and other circumstances may require First Financial to raise capital at times or in amounts that are unfavorable. If First Financial has to issue shares of stock, they will dilute the percentage ownership interest of existing shareholders and may dilute the book value per share of common stock and adversely affect the terms on which First Financial may obtain additional capital.

• Government regulations and the terms of First Financial’s Series A Prefered Stock impose restrictions and obligations that may limit First Financial’s ability to pay or increase dividends, repurchase shares of preferred or common stock, and access the equity capital markets.

• If First Financial is unable or chooses not to redeem its Series A Preferred Stock within five years from the issuance date, the cost of this capital will increase.

• First Financial is subject to extensive regulation, which could restrict its activities, have an adverse impact on its operations, and impose financial requirements or limitations on the conduct of its business.

• Financial reform legislation enacted by the U.S. Congress, and further changes in regulation to which First Financial is exposed, will result in additional laws and regulations that are expected to increase costs of operations.

• 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.

• First Financial depends on the accuracy and completeness of information about its clients and counterparties.

• The accuracy of First Financial’s financial statements and related disclosures could be affected because it is exposed to conditions or assumptions different from the judgments, assumptions, or estimates used in its critical accounting policies.

• 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.

• Negative public opinion regarding First Financial and the financial institutions industry generally could damage First Financial’s reputation and adversely impact earnings.

• First Financial is exposed to a possible loss of its senior management team and key employees. If First Financial were to lose key employees, it may experience a disruption in its relationships with certain customers.

• 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.

• First Financial’s stock price may be volatile, which could result in losses to our investors and litigation against First Financial.

• Future sales of First Financial’s stock by its shareholders or the perception that those sales could occur may cause its stock price to decline.

• 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 2011 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. While First Financial believes that the forward-looking statements in this report are reasonable, the reader should not place undue

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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, 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 2011 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 2011 Annual Report on Form 10-K. For additional information regarding updates, 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 U.S. GAAP, this report includes non-GAAP financial measures such as the efficiency ratio, tangible common equity to tangible assets ratio, tangible common book value, and pre-tax pre-provision earnings. First Financial believes these non-GAAP financial measures provide additional information that is useful to investors in understanding its underlying performance, 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, First Financial has procedures in place to ensure that these measures are calculated using the appropriate GAAP or regulatory components in their entirety and to ensure that its performance is properly reflected to facilitate consistent period-to-period comparisons. Although First Financial believes the above non-GAAP financial measures enhance investors’ understanding of its business and performance, these non-GAAP measures should not be considered in isolation, or as a substitute for GAAP basis financial measures. Investors should consider First Financial’s performance and financial condition as reported under GAAP and all other relevant information when assessing First Financial’s performance or financial condition.

     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, First Financial believes that presenting net interest income on a taxable equivalent basis when calculating the efficiency ratio, using a 35% effective federal tax rate, allows comparability 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 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 and, therefore, management believes that it is useful to provide investors the ability to assess its capital adequacy on the same basis.

     First Financial believes that pre-tax pre-provision earnings are a useful measure in assessing its core operating performance, particularly during times of economic stress. This measurement, as defined by management, represents total revenue (net interest income plus noninterest income) less noninterest expense. As recent results for the banking industry demonstrate, credit write-downs, loan charge-offs, and related provisions for loan losses can vary significantly from period to period, making a measure that helps isolate the impact of credit costs on profitability important to investors.

     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 Quarters Ended
(dollars in thousands, except per share data)	March 31, 2012			December 31, 2011			September 30, 2011			June 30, 2011			March 31, 2011
Efficiency Ratio from Continuing Operations
Net interest income (A)	$	28,252		$	28,899		$	29,064		$	29,416		$	29,287
Taxable equivalent adjustment (B)		182			145			159			144			144
Noninterest income (C)		13,182			32,770			14,238			11,422			11,255
Gain on sold loan pool, net (D)		---			20,796			1,900			---			---
Net securities (losses) gains (E)		(69	)		(180	)		(169	)		(54	)		1,297
Noninterest expense (F)		28,709			28,886			29,588			28,599			30,145
Efficiency Ratio: F/(A+B+C-D-E) (non-GAAP)		68.87	%		70.12	%		70.90	%		69.69	%		76.53	%
Tangible Assets and Tangible Common Equity
Total assets	$	3,145,538		$	3,146,964		$	3,206,310		$	3,221,544		$	3,302,012
Goodwill1		---			---			---			(3,250	)		(28,260	)
Other intangible assets, net2		(2,310	)		(2,401	)		(2,491	)		(2,776	)		(9,278	)
Tangible assets (non-GAAP)	$	3,143,228		$	3,144,563		$	3,203,819		$	3,215,518		$	3,264,474
Total shareholders’ equity	$	278,043		$	277,178		$	268,506		$	266,564		$	311,527
Preferred stock		(65,000	)		(65,000	)		(65,000	)		(65,000	)		(65,000	)
Goodwill1		---			---			---			(3,250	)		(28,260	)
Other intangible assets, net2		(2,310	)		(2,401	)		(2,491	)		(2,776	)		(9,278	)
Tangible common equity (non-GAAP)	$	210,733		$	209,777		$	201,015		$	195,538		$	208,989
Shares outstanding, end of period (000s)		16,527			16,527			16,527			16,527			16,527
Tangible common equity to tangible assets (non-GAAP)		6.70	%		6.67	%		6.27	%		6.08	%		6.40	%
Book value per common share	$	12.89		$	12.84		$	12.31		$	12.20		$	14.92
Tangible book value per common share (non-GAAP)		12.75			12.69			12.16			11.83			12.65
Pre-tax Pre-provision Earnings from Continuing Operations
Income (loss) before income taxes	$	5,980		$	25,338		$	4,774		$	(65,564	)	$	(2,278	)
Provision for loan losses		6,745			7,445			8,940			77,803			12,675
Pre-tax pre-provision earnings (non-GAAP)	$	12,725		$	32,783		$	13,714		$	12,239		$	10,397

1	Goodwill represents goodwill for Continuing Operations, as shown on the balance sheet, and includes goodwill for Discontinued Operations of $3,250 and $27,630 for the quarters ended June 30, 2011 and March 31, 2011, respectively.
2	Intangible assets represents intangible assets for Continuing Operations, as shown on the balance sheet, and includes intangible assets for Discontinued Operations of $205 and $6,625 for the quarters ended June 30, 2011, and March 31, 2011, respectively.

Charter Conversion

          On February 3, 2012, First Financial received approval from the Board of Governors of the Federal Reserve (the “Federal Reserve”) to convert from a savings and loan holding company to a bank holding company and First Federal received approval to become a member of the Federal Reserve System. On February 22, 2012 First Federal (formerly known as First Federal Savings and Loan Association of Charleston) converted from a federal savings and loan association to a South Carolina-chartered commercial bank and became a member of the Federal Reserve System. In connection with First Federal’s conversion, First Financial registered with the Federal Reserve as a bank holding company. As a result of the charter conversion and membership in the Federal Reserve System, the South Carolina State Board of Financial Institutions and the Federal Reserve serves as First Federal’s primary regulators. The Federal Reserve also serves as First Financial’s primary regulator.

          As a result of First Federal’s charter conversion and Federal Reserve membership, First Federal is subject to Federal Reserve Supervisory Letter SR 91-17, which provides application and supervision standards for de novo state member banks and converting thrifts. The guidance includes standards for senior management and directors, policies, cash flows between the bank and the holding company, and capital levels, among other things. With respect to capital levels, the guidance provides that de novo state member banks and converting thrifts maintain a Tier 1 leverage capital ratio of 9% for the first three years as a state member bank unless an exception is granted. First Federal had a Tier 1 leverage capital ratio of 9.00% at March 31, 2012.

Subsequent Events

Liberty Savings Bank Branch Acquisition

          On April 20, 2012, First Federal consummated its acquisition of five retail banking branches located in Hilton Head, South Carolina market from Liberty Savings Bank, FSB. The deposits associated with these branches totaled $115.6 million

35

and consisted predominately of core transaction and savings accounts. Additionally, First Federal purchased $21.0 million in loans, primarily residential mortgage and home equity lines of credit.

Plantation Federal Bank FDIC-Assisted Transaction

          On April 27, 2012, First Federal assumed all deposits and substantially all assets and certain other liabilities of Plantation Federal Bank (“Plantation”), a full-service community bank headquartered in Pawleys Island, South Carolina, from the FDIC, as receiver for Plantation (the “Transaction”). Plantation operated three branches along the coast of South Carolina under the name of Plantation Federal and three branches in the Greeenville, South Carolina market under the name of First Savers Bank.

          The Transaction was made pursuant to a purchase and assumption agreement, in the FDIC’s customary form, entered into by First Federal and the FDIC as of April 27, 2012 (the “P&A Agreement”). The Transaction included all six branch offices of Plantation, which now operate as branches of First Federal.

          Based on December 31, 2011 reported balances, Plantation had total assets of $486.4 million, including loans of $348.6 million, and total deposits of $440.5 million. The assets were acquired at an asset discount bid of $47.0 million and the deposits were acquired with no premium.

          In connection with the Transaction, the FDIC made a closing payment to First Federal of $46.0 million, subject to customary post-closing adjustments based upon the final closing date balance sheet for Plantation.

          The P&A Agreement includes a customary loss sharing agreement with the FDIC covering approximately $220 million of Plantation’s assets. First Federal will share in the losses on the asset pools (including commercial loans and foreclosed assets) covered under the loss sharing agreement, but the FDIC is obligated to reimburse First Federal for 80% of all eligible losses with respect to covered assets, beginning with the first dollar of loss incurred through $55 million in losses. First Federal absorbs losses greater than $55 million up to $65 million. The FDIC will reimburse First Federal for 60% of all eligible losses in excess of $65 million. First Federal has a corresponding obligation to reimburse the FDIC according to the same arrangement for eligible recoveries with respect to covered assets. After the fifth anniversary of the Transaction (or earlier in certain circumstances), the FDIC has a right to recover a portion of its shared-loss reimbursements if losses on the covered assets are less than currently anticipated, as measured by a formula set forth in the P&A Agreement. The P&A Agreement generally provides for additional recovery sharing for an additional three years.

          The FDIC has certain rights to withhold loss sharing payments if First Federal does not perform its obligations under the loss sharing agreement in accordance with its terms and to withdraw the loss share protection if certain significant transactions are effected without FDIC consent, some of which may be beyond First Financial’s control, including certain business combination transactions and sales of shares by First Financial’s shareholders that would result in a change in control under the Change in Bank Control Act.

          Under the P&A Agreement, First Federal has options, exercisable for various defined periods, to acquire at fair market value any bank premises that were owned by, or assume any leases relating to bank premises leased by, Plantation and to assume or reject service provider contracts. First Federal is currently reviewing Plantation’s bank premises and related leases and other contracts.

The foregoing summary of the P&A Agreement (including the associated loss sharing agreement) is not complete and is qualified in its entirety by reference to the full text of the P&A Agreement, a copy of which is filed as an exhibit to this Form 10-Q and is incorporated herein by reference.

Results of Operations

          First Financial recorded net income of $1.7 million for the three months ended March 31, 2012, compared with $15.6 million for the three months ended December 31, 2011 and a net loss of $(430) thousand for the three months ended March 31, 2011. The quarter ended March 31, 2012 included a $2.1 million write-down of the state deferred tax asset in connection with First Federal’s conversion from a thrift to a state-chartered commercial bank related to different state income tax laws for banks and thrifts. The quarter ended December 31, 2011 included a $20.8 million pre-tax gain ($12.7 million after-tax) from a bulk loan sale. After the effect of the preferred stock dividend and related accretion, First Financial reported net income (loss) available to common shareholders of $770 thousand for the three months ended March 31, 2012, compared with $14.6 million for the three months ended December 31, 2011 and $(1.4) million for the three months ended March 31, 2011. Diluted net income (loss) per common share was $0.05 for the quarter ended March 31, 2012, compared with $0.88 for the prior quarter and $(0.08) for the same quarter last year.

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	Quarters Ended March 31,
	2012							2011
(dollars in thousands)	Average Balance			Interest		Average Rate		Average Balance			Interest		Average Rate
Earning assets
Interest-bearing deposits with banks	$	8,484		$	1	0.05	%	$	7,294		$	2	0.11	%
Securities available for sale		434,798			3,378	3.11			372,342			4,350	4.67
Securities held to maturity1		20,247			334	10.25			21,953			272	7.69
Nonmarketable securities		35,311			155	1.77			41,273			152	1.49
Loans2		2,420,000			32,476	5.39			2,607,161			34,844	5.42
FDIC indemnification asset, net		48,774			15	0.12			65,686			564	3.48
Total earning assets		2,967,614			36,359	4.94	%		3,115,709			40,184	5.25	%
Nonearning assets
Cash and due from banks		53,821							56,646
Allowance for loan losses		(52,282	)						(88,086	)
Assets from discontinued operations		---							41,640
Other assets		182,232							184,887
Total assets	$	3,151,385						$	3,310,796
Interest-bearing liabilities
Deposit accounts
Interest-bearing checking	$	421,543		$	125	0.12	%	$	414,333		$	409	0.40	%
Savings		215,523			84	0.16			173,143			113	0.26
Money market		329,420			313	0.38			316,774			365	0.47
Time deposits		979,831			3,429	1.41			1,268,407			5,992	1.92
Total deposits		1,946,317			3,951	0.82	%		2,172,657			6,879	1.28	%
Advances from FHLB		563,759			3,359	2.40			509,818			3,221	2.56
Long-term debt		45,906			797	6.95			45,812			797	7.06
Total interest-bearing liabilities		2,555,982			8,107	1.28	%		2,728,287			10,897	1.62	%
Noninterest-bearing liabilities
Noninterest-bearing deposits		282,296							225,144
Liabilities from discontinued operations		---							5,683
Other liabilities		35,717							38,019
Total liabilities		2,873,995							2,997,133
Shareholders’ equity		277,390							313,663
Total liabilities and shareholders’ equity	$	3,151,385						$	3,310,796
Net interest income/interest spread				$	28,252	3.66	%				$	29,287	3.63	%
Contribution of noninterest-bearing sources of funds3						0.18							0.20
Net interest margin (FTE)4						3.84	%						3.83	%

1	Interest income used in the average rate calculation includes the tax equivalent adjustment of $182 thousand, and $144 thousand for the quarters ended March 31, 2012 and 2011, respectively, calculated based on a federal tax rate of 35%.
2	Average balances of loans include loans held for sale and nonaccrual loans.
3	Equates to total cost of funds of 1.15% and 1.50% for the quarters ended March 31, 2012 and 2011, respectively.
4	Net interest margin exceeds the interest spread due to noninterest-bearing funding sources supporting earning assets.

     The slight increase in net interest margin as the decrease in the rate on interest-bearing liabilities slightly exceeded the decrease in the yield on earning assets primarily due to the growth in core deposits. The yield on securities held to majority increased over the prior year quarter due to accelerating the accretion on a called security, however this had a negligible impact on the yield on total earning assets. The decrease in net interest income was primarily the result of a decline in average earning assets due to the bulk loan sale, combined with the decline in net loans due to the generally lower loan demand from creditworthy borrowers and loan charge-offs. The decline in loans was partially offset by an increase in investment securities.

     Net interest income can be analyzed in terms of the impact of changes in volume as well as changes to interest rates. 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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	Quarters Ended March 31, 2012 versus 2011 Increase (Decrease) due to
(in thousands)	Volume			Rate			Net
Interest income
Interest-bearing deposits with banks	$	---		$	(1	)	$	(1	)
Securities available for sale		648			(1,620	)		(972	)
Securities held to maturity		(22	)		84			62
Nonmarketable securities		(23	)		26			3
Loans		(2,237	)		(131	)		(2,368	)
FDIC indemnification asset, net		(116	)		(433	)		(549	)
Total interest income	$	(1,750	)	$	(2,075	)	$	(3,825	)
Interest expense
Interest-bearing deposits
Interest-bearing checking	$	7		$	(291	)	$	(284	)
Savings and money market		49			(130	)		(81	)
Time deposits		(1,198	)		(1,365	)		(2,563	)
Total interest-bearing deposits		(1,142	)		(1,786	)		(2,928	)
Advances from FHLB and long-term debt		330			(192	)		138
Total interest expense		(812	)		(1,978	)		(2,790	)
Net interest income	$	(938	)	$	(97	)	$	(1,035	)
Note: The change in interest not solely due to changes in volume or rate has been allocated in proportion to the absolute dollar amounts of the change in each.

     The decrease in net interest income reflects volume and rate variances that were negative in the aggregate. The negative volume variance was primarily the result of a decline in loan balances, partially offset by an increase in securities available for sale and a decline in time deposit balances. The decrease in the loan portfolio was primarily the result of the bulk loan sale as well as declines due to generally lower loan demand from creditworthy borrowers and loan payments and paydowns. The decrease in time deposits was primarily the result of an ongoing strategy to reduce maturing high rate retail and wholesale time deposits due to lower funding needs and a shift to core deposits. The negative rate variance was primarily the result of the continued low interest rate environment, as reductions in deposit interest expense were substantially offset by reductions in interest and dividends on investments. The decrease in interest expense was primarily the result of First Financial’s ongoing strategy to shift funding from maturing high rate deposits to lower cost core deposits, including noninterest-bearing deposits. The decrease in interest on investments was primarily the result of replacing maturing investment securities with new purchases at considerably lower yields.

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 $6.7 million for the quarter ended March 31, 2012, compared with $12.7 million for the same quarter last year. The decrease was primarily the result of the lower charge-offs and continued stabilization in historical loss trends and credit metrics through March 31, 2012. Some of the charge-offs for the quarter ended March 31, 2012 had a specific reserve established in previous quarters. See the “Asset Quality” and “Allowance for Loan Losses” sections below 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.

Noninterest Income
	Quarters Ended March 31,						Quarter Change
(in thousands)	2012			2011			$			%
Service charges and fees on deposit accounts	$	7,302		$	6,381		$	921			14.4	%
Mortgage and other loan income		3,435			1,124			2,311			205.6
Trust and plan administration		1,081			1,112			(31	)		(2.8	)
Brokerage fees		664			666			(2	)		(0.3	)
Other		769			675			94			13.9
Net securities gains		---			1,419			(1,419	)		(100.0	)
Other-than-temporary impairment losses on investment securities		(69	)		(122	)		53			(43.4	)
Total noninterest income	$	13,182		$	11,255		$	1,927			17.1	%

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The increase was primarily the result of higher mortgage and other loan income due to higher residential mortgage origination levels related to the continued low interest rate environment and the addition of correspondent lenders as well as higher service charges on deposit accounts due to higher transaction-related revenue from increases in both volume and fees partially offset by the gain on the sale of one security during the March 31, 2011 quarter.

Noninterest Expense

The following table summarizes the components of noninterest expense.

Noninterest Expense
	Quarters Ended March 31,					Quarter Change
(in thousands)	2012		2011			$			%
Salaries and employee benefits	$	15,142	$	17,396		$	(2,254	)		(13.0	)%
Occupancy costs		2,267		2,208			59			2.7
Furniture and equipment		1,809		1,825			(16	)		(0.9	)
Other real estate expenses, net		530		(133	)		663			NM
FDIC insurance and regulatory fees		986		1,484			(498	)		(33.6	)
Professional services		1,431		1,326			105			7.9
Advertising and marketing		656		993			(337	)		(33.9	)
Other loan expense		1,351		925			426			46.1
Intangible asset amortization		90		82			8			9.8
Other expense		4,447		4,039			408			10.1
Total noninterest expense	$	28,709	$	30,145		$	(1,436	)		(4.8	)%
NM - Not meaningful.

     The decrease in noninterest expense was primarily the result of lower salaries and employee benefits FDIC insurance and regulatory fees; and advertising and marketing expenses, partially offset by higher OREO expenses, net other loan expense, and other expense. The decrease in salaries and employee benefits was primarily the result of compensation agreements with retiring executives which entered into during the prior year quarter. The decrease in FDIC insurance and regulatory fees was primarily the result of the new assessment methodology implemented by the FDIC during 2011. The decrease in advertising and marketing was primarily the result of the rolling out the new First Federal branch through media campaigns during the prior year quarter. The increase in OREO expenses, net was primarily the result of reclassifying $1.3 million of OREO valuation adjustments and expense reimbursements on foreclosed properties during the prior year quarter as they became eligible for claims to the FDIC through the loss share agreement, partially offset by lower valuation adjustments on properties held in the current quarter. The increase in other loan expense was primarily the result of higher foreclosure related expenses. The increase in other expense was primarily the result of higher processing fees related to a new reward program for deposit customers.

Income Taxes

     The income tax expense for the three months ended March 31, 2012 was $4.2 million, compared with a $913 thousand benefit for the same period of the prior year. The quarter ended March 31, 2012 included a $2.1 million write-down of the state deferred tax asset in connection with First Federal’s conversion from a thrift to a state-chartered commercial bank due to a difference in South Carolina income tax laws for banks versus thrifts. The effective tax rate for the three months ended March 31, 2012, excluding the deferred tax asset write-down was 35.62%, compared with 40.08% for the same period of the prior year. The decrease in the effective tax rate was primarily the result of the proportion of tax-exempt income and other deductions as compared with total pre-tax income (or pre-tax loss for the three months ended March 31, 2011) as the absolute dollar amount of adjustments was essentially unchanged from the same period of the prior year. As a result of First Federal’s conversion from a thrift to a bank, the basis for calculating taxes for South Carolina changed from pre-tax income (which incorporated permanent tax differences) at a rate of 6% to book net income (after applicable federal taxes) at a rate of 4.5%.

     First Financial regularly monitors its net deferred tax assets, which totaled $879 thousand at March 31, 2012. First Financial considers the cumulative three-year pretax operating results as well as the timing, nature and amount of future taxable income, various plans to maximize the realization of deferred tax assets and taxable income within the carryback and carryforward periods, the reversal of taxable temporary differences as well as future events and uncertainties in making its determination of the realization of its net deferred tax asset. After evaluating all positive and negative evidence available as of March 31, 2012, First Financial concluded that it is more likely than not that it will be able to realize its net deferred tax benefits and that a valuation allowance was not needed at March 31, 2012.

Financial Condition

     Total assets at March 31, 2012 were $3.1 billion, essentially unchanged from December 31, 2011 and a decrease of $156.5 million or 4.7% from March 31, 2011. The decline was primarily the result of a bulk loan sale with an aggregate book balance of $155.3 million, which occurred during the fourth calendar quarter of 2011, as well as the sales of First Southeast Insurance Services Inc. and Kimbrell Insurance Group, Inc. during 2011, partially offset by an increase in total investment securities and loans held for sale.

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Cash and Cash Equivalents

     Cash and cash equivalents totaled $63.5 million at March 31, 2012, a decrease of $13.2 million or 17.2% from December 31, 2011 and essentially unchanged from March 31, 2011. The decrease was the result of normal fluctuations in transaction accounts and a higher volume of cash items in process on the last business day of the December 31, 2011 quarter.

Investment Securities

     Investment securities at March 31, 2012 totaled $500.3 million, an increase of $42.6 million or 9.3% over December 31, 2011 and an increase of $53.9 million or 12.1% over March 31, 2011. The increases were primarily the result of purchasing mortgage-backed agency securities and Federal Reserve stock, partially offset by normal cash flows and prepayments received during the quarter. 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)	March 31, 2012		December 31, 2011		September 30, 2011		June 30, 2011		March 31, 2011
Residential loans
Residential 1-4 family	$	972,881	$	975,405	$	909,907	$	895,650	$	916,146
Residential construction		15,501		15,117		16,431		19,603		20,311
Residential land		40,794		41,612		40,725		42,763		48,955
Total residential loans		1,029,176		1,032,134		967,063		958,016		985,412
Commercial loans
Commercial business		88,054		83,814		80,871		80,566		91,005
Commercial real estate		447,339		456,541		471,296		482,315		570,300
Commercial construction		16,289		16,477		15,051		16,037		22,269
Commercial land		54,786		61,238		67,432		70,562		119,326
Total commercial loans		606,468		618,070		634,650		649,480		802,900
Consumer loans
Home equity		347,825		357,270		369,213		379,122		387,957
Manufactured housing		275,845		275,275		276,047		274,192		270,694
Marine		50,458		52,590		55,243		57,406		59,428
Other consumer		45,795		50,118		53,064		53,853		53,454
Total consumer loans		719,923		735,253		753,567		764,573		771,533
Total loans		2,355,567		2,385,457		2,355,280		2,372,069		2,559,845
Less: Allowance for loan losses		50,776		53,524		54,333		55,491		85,138
Net loans	$	2,304,791	$	2,331,933	$	2,300,947	$	2,316,578	$	2,474,707

     Total loans at March 31, 2012 decreased $29.9 million or 1.3% from December 31, 2011 and decreased $204.3 million or 8.0% from March 31, 2011. The decrease from December 31, 2011 was primarily the result of declines in the commercial real estate, commercial land, and home equity loan portfolios. The decrease from March 31, 2011 was primarily the result of the bulk loan sale, partially offset by increases in residential loans retained in the portfolio as a result of higher originations during late 2011. For both comparative periods, continued lower loan demand from creditworthy borrowers, charge-offs, transfers of nonperforming loans to OREO, and paydowns due to normal borrower activity also contributed to the overall reduction in loans.

     At March 31, 2012, loans held for sale totaled $52.3 million, an increase of $4.0 million or 8.4% over December 31, 2011 and an increase of $32.9 million over March 31, 2011. The increases in residential mortgage loans to be sold in the secondary market over both prior periods were primarily the result of higher borrower demand due to the low interest rate environment. These loans generally settle in 45 to 60 days.

     Included in the portfolio loans table above are loans covered under a loss share agreement with the FDIC (“covered loans”), as discussed in Note 4 to the Consolidated Financial Statements. The following table provides a summary of all the covered loans as well as several credit metrics by loan type.

40

	As of March 31, 2012						As of December 31, 2011
Loans Covered Under Loss Share Agreement (dollars in thousands)	Loans Outstanding		Covered Delinquent Loans		Covered Nonperforming Loans		Loans Outstanding		Covered Delinquent Loans		Covered Nonperforming Loans
Residential loans
Residential 1-4 family1	$	2,717	$	367	$	734	$	2,796	$	---	$	734
Residential land		6,123		---		132		7,464		53		253
Total residential loans		8,840		367		866		10,260		53		987
Commercial loans
Commercial business		8,653		298		1,372		11,127		148		2,851
Commercial real estate		71,624		888		11,140		77,834		1,149		10,661
Commercial construction		---		---		---		1,036		---		312
Commercial land		9,394		1,020		1,387		13,951		274		2,102
Total commercial loans		89,671		2,206		13,899		103,948		1,571		15,926
Consumer loans
Home equity		25,112		429		839		25,493		637		506
Other consumer		1,521		100		40		1,685		42		104
Total consumer loans		26,633		529		879		27,178		679		610
Total loans	$	125,144	$	3,102	$	15,644	$	141,386	$	2,303	$	17,523
Other repossessed assets acquired	$	11,363					$	7,550
Criticized loans2		4,756						6,902
Classified loans2		29,724						33,509

1	Residential 1-4 family nonperforming loans includes a restructured loan, still accruing interest in the amount of $734 thousand.
2	See Note 3 to the Consolidated Financial Statements for the regulatory definition of criticized and classified.

Asset Quality

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

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 monthly loan reviews to determine risk levels and exposure to loss. The monthly loan review process evaluates all commercial loans greater than $200,000 that are more than 30 days past due and all criticized and classified loans over $500,000. The depth of the review varies by asset type, depending on the nature of those assets and their 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 improvement to risk assessment. Asset types with these characteristics may be reviewed as a total homogenous portfolio (as is the case with residential and consumer loans) on the basis of risk indicators such as delinquency or credit rating. In addition, a formal review process may be conducted on individual assets within the homogenous pool that represent potential risk. For the larger credits, 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 deterioration in market value is observed.

Delinquent Loans

     The following table presents loans that were past due 30-89 days which were not otherwise on nonaccrual status. 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. Details of delinquent covered loans are presented in the “Loans Covered Under Loss Share Agreement” table in the “Loans” section above.

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DELINQUENT LOANS	March 31, 2012					December 31, 2011					September 30, 2011					June 30, 2011					March 31, 2011
(30-89 days past due) (dollars in thousands)	$			% of Portfolio		$			% of Portfolio		$			% of Portfolio		$			% of Portfolio		$			% of Portfolio
Residential loans
Residential 1-4 family		$	1,889	0.19	%		$	2,986	0.31	%		$	1,722	0.19	%		$	1,404	0.16	%		$	3,050	0.33	%
Residential construction			---	---				---	---				---	---				---	---				---	---
Residential land			123	0.30				561	1.35				65	0.16				325	0.76				1,398	2.86
Total residential loans			2,012	0.20				3,547	0.34				1,787	0.18				1,729	0.18				4,448	0.45
Commercial loans
Commercial business			1,677	1.90				908	1.08				868	1.07				2,387	2.96				1,618	1.78
Commercial real estate			3,065	0.69				3,514	0.77				3,394	0.72				2,703	0.56				9,322	1.63
Commercial construction			---	---				---	---				595	3.95				---	---				---	---
Commercial land			2,271	4.15				1,185	1.94				537	0.80				821	1.16				4,220	3.54
Total commercial loans			7,013	1.16				5,607	0.91				5,394	0.85				5,911	0.91				15,160	1.89
Consumer loans
Home equity			3,315	0.95				4,525	1.27				3,408	0.92				3,266	0.86				3,550	0.92
Manufactured housing			1,502	0.54				3,267	1.19				2,600	0.94				2,298	0.84				2,491	0.92
Marine			358	0.71				597	1.14				980	1.77				264	0.46				296	0.50
Other consumer			445	0.97				831	1.66				629	1.19				589	1.09				592	1.11
Total consumer loans			5,620	0.78				9,220	1.25				7,617	1.01				6,417	0.84				6,929	0.90
Total delinquent loans		$	14,645	0.62	%		$	18,374	0.77	%		$	14,798	0.63	%		$	14,057	0.59	%		$	26,537	1.04	%

     Total delinquent loans at March 31, 2012 decreased $3.7 million or 20.3% from December 31, 2011. The decreases in delinquent residential and consumer loans were primarily the result of a seasonal increase normally experienced in the fourth calendar quarter each year. The increase in delinquent commercial loans was primarily the result of two loans, both of which are in the process of resolution.

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 exhibited doubt as to their ability to repay all contractual principal and interest have been classified as impaired under ASC 310-10-35, as discussed further below, 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. Details of nonperforming covered loans are presented in the “Loans Covered Under Loss Share Agreement” table in the “Loans” section above.

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	March 31, 2012					December 31, 2011					September 30, 2011					June 30, 2011					March 31, 2011
NONPERFORMING ASSETS (dollars in thousands)	$			% of Portfolio		$			% of Portfolio		$			% of Portfolio		$			% of Portfolio		$			% of Portfolio
Residential loans
Residential 1-4 family		$	6,649	0.68	%		$	4,977	0.51	%		$	1,595	0.18	%		$	1,242	0.14	%		$	23,663	2.58	%
Residential construction			---	---				---	---				---	---				---	---				---	---
Residential land			1,398	3.43				1,448	3.48				1,140	2.80				451	1.05				3,604	7.36
Total residential loans			8,047	0.78				6,425	0.62				2,735	0.28				1,693	0.18				27,267	2.77
Commercial loans
Commercial business			1,931	2.19				3,665	4.37				4,322	5.34				3,664	4.55				9,151	10.06
Commercial real estate			18,474	4.13				17,160	3.76				18,400	3.90				16,396	3.40				60,256	10.57
Commercial construction			261	1.60				573	3.48				266	1.77				1,451	9.05				4,074	18.29
Commercial land			5,240	9.56				5,232	8.54				6,310	9.36				5,411	7.67				40,740	34.14
Total commercial loans			25,906	4.27				26,630	4.31				29,298	4.62				26,922	4.15				114,221	14.23
Consumer loans
Home equity			9,779	2.81				8,192	2.29				6,871	1.86				9,165	2.42				9,379	2.42
Manufactured housing			2,648	0.96				3,461	1.26				2,922	1.06				2,953	1.08				3,517	1.30
Marine			63	0.12				246	0.47				47	0.09				94	0.16				42	0.07
Other consumer			131	0.29				224	0.45				127	0.24				129	0.24				181	0.34
Total consumer loans			12,621	1.75				12,123	1.65				9,967	1.32				12,341	1.61				13,119	1.70
Total nonaccrual loans			46,574	1.98				45,178	1.89				42,000	1.78				40,956	1.73				154,607	6.04
Loans 90+ days still accruing			51					121					171					76					109
Restructured loans, still accruing			3,276					2,411					734					1,535					1,550
Total nonperforming loans			49,901	2.12	%			47,710	2.00	%			42,905	1.82	%			42,567	1.79	%			156,266	6.10	%
Nonperforming loans held for sale			---					---					39,412					42,656					---
Other repossessed assets acquired			21,818					20,487					26,212					27,812					25,986
Total nonperfoming assets		$	71,719				$	68,197				$	108,529				$	113,035				$	182,252

     Total nonperforming assets at March 31, 2012 increased $3.5 million or 5.2% over December 31, 2011. The increase was primarily the result of higher nonperforming residential loans due to five accounts totaling $1.8 million. While total nonperforming commercial loans decreased from the linked quarter, nonperforming commercial real estate loans increased due to two accounts totaling $3.4 million. Total nonperforming consumer loans were essentially unchanged from the prior quarter as the increase in nonperforming home equity loans due to six impaired loans totaling $1.7 million was more than offset by decreases in the other consumer categories. Covered nonperforming loans decreased $1.9 million from December 31, 2011 to $15.6 million at March 31, 2012. Covered OREO totaled $11.4 million at March 31, 2012, an increase of $3.8 million over December 31, 2011.

     First Federal accounts for certain loan modifications or restructurings as a troubled debt restructuring (“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. Concessions may relate to the contractual interest rate, maturity date, payment structure of the note or other actions. As part of First Federal’s action plan for individual loan relationships, First Federal may restructure loan terms to assist borrowers facing challenges in the current economic environment. See Note 3 to the Consolidated Financial Statements for additional details on TDRs.

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

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	March 31, 2012					December 31, 2011					September 30, 2011				June 30, 2011				March 31, 2011
NET CHARGE-OFFS (dollars in thousands)	$			% of Portfolio*		$			% of Portfolio*		$		% of Portfolio		$		% of Portfolio*		$			% of Portfolio*
Residential loans
Residential 1-4 family	$	507		0.21	%	$	391		0.16	%	$	414	0.18	%	$	12,177	5.28	%	$	976		0.43	%
Residential construction		---		---			---		---			---	---			---	---			---		---
Residential land		701		6.75			532		5.31			165	1.58			4,099	34.79			620		4.83
Total residential loans		1,208		0.47			923		0.37			579	0.24			16,276	6.59			1,596		0.65
Commercial loans
Commercial business		825		3.60			640		3.22			136	0.69			6,826	30.60			1,829		8.00
Commercial real estate		1,462		1.30			1,417		1.22			433	0.36			41,022	29.15			2,195		1.51
Commercial construction		(2	)	(0.05	)		(3	)	(0.07	)		635	16.12			3,067	53.06			(3	)	(0.05	)
Commercial land		1,439		9.87			804		4.94			2,052	12.15			33,995	118.23			4,824		14.94
Total commercial loans		3,724		2.41			2,858		1.83			3,256	2.04			84,910	42.98			8,845		4.28
Consumer loans
Home equity		2,264		2.57			2,955		3.26			4,910	5.28			4,725	4.91			3,368		3.43
Manufactured housing		1,467		2.13			845		1.23			978	1.42			1,049	1.54			1,172		1.74
Marine		361		2.83			142		1.05			158	1.12			44	0.30			258		1.69
Other consumer		469		3.90			531		4.09			217	1.61			446	3.28			647		4.66
Total consumer loans		4,561		2.51			4,473		2.41			6,263	3.31			6,264	3.26			5,445		2.80
Total net charge-offs	$	9,493		1.60	%	$	8,254		1.39	%	$	10,098	1.71	%	$	107,450	16.87	%	$	15,886		2.45	%

   *Represents an annualized rate

     The increase in net charge-offs for the quarter ended March 31, 2012 as compared with the prior quarter was primarily the result of the higher residential and commercial charge-offs related to covered loans.

     The following table details classified assets by category.

	March 31, 2012											December 31, 2011
CLASSIFIED ASSETS (dollars in thousands)	Covered Classified			Non-covered Classified				Total Classified				Covered Classified			Non-covered Classified				Total Classified
Residential loans
Residential 1-4 family		$	734		$	8,916			$	9,650			$	734		$	7,232			$	7,966
Residential land			133			1,586				1,719				253			1,518				1,771
Total residential loans			867			10,502				11,369				987			8,750				9,737
Commercial loans
Commercial business			2,702			9,058				11,760				4,386			9,466				13,852
Commercial real estate			21,871			40,789				62,660				22,569			39,936				62,505
Commercial construction			---			261				261				588			261				849
Commercial land			2,553			10,126				12,679				3,516			10,697				14,213
Total commercial loans			27,126			60,234				87,360				31,059			60,360				91,419
Consumer loans
Home equity			1,690			10,905				12,595				1,359			8,087				9,446
Manufactured housing			---			2,785				2,785				---			3,461				3,461
Marine			---			63				63				15			231				246
Other consumer			41			141				182				89			256				345
Total consumer loans			1,731			13,894				15,625				1,463			12,035				13,498
Total classified loans			29,724			84,630				114,354				33,509			81,145				114,654
Other repossessed assets acquired			11,363			10,455				21,818				7,550			12,937				20,487
Total classified assets		$	41,087		$	95,085			$	136,172			$	41,059		$	94,082			$	135,141
Classified assets/FFCH tier 1 capital + ALLL						25.53	%			36.56	%						25.15	%			36.12	%

Allowance for Loan Losses

     First Federal maintains an allowance for loan losses (the “allowance”) which is management’s best estimate of probable losses inherent in the outstanding loan portfolio. The allowance is periodically 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. The allowance is based on management’s continuing review and credit risk evaluation of the loan portfolio. The factors that are considered in determining the level of the allowance include First Federal’s 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 loan monitoring and

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reviews, impaired loan values and trends, the value of underlying collateral, concentrations of credit, regulatory examination results, and other factors indicative of potential losses remaining in the portfolio.

     A committee consisting of members of lending management, credit risk management, and accounting 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 Audit Committee of Board of Directors on a quarterly basis. Such reviews also assist management in validating the accuracy of the credit risk rating process and establishing the level of the allowance.

     The portfolio evaluation and allowance calculation process segregates the allowance into 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 calculation may determine that there is an unallocated portion. As of March 31, 2012, there was no unallocated portion in the allowance for loan losses, In addition to being used to categorize risk, First Federal’s internal credit risk rating system is 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 tracked by major loan category. First Federal currently estimates the losses inherent in the loan portfolio based on a rolling eighteen month historical loss period to evaluate the allowance. The loss history is reviewed by loan sector along with more recent trends, such as one-year and the most recent quarter historical loss ratios to determine the direction and anticipation of probable future losses. First Federal’s policy is to adjust the loss history with internal and external qualitative factors at each period end, as appropriate, given the facts available 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; and

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

     Upon completion of the qualitative adjustments, 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 loss inherent in each problem credit through a discounted cash flow methodology or based on the value of the underlying collateral.

     The following table sets forth the changes in the allowance.

	Quarters Ended
(in thousands)	March 31, 2012			March 31, 2011
Balance, beginning of period	$	53,524		$	88,349
Provision for loan losses		6,745			12,675
Charge-offs		(10,071	)		(16,979	)
Recoveries		578			1,093
Net charge-offs		(9,493	)		(15,886	)
Balance, end of period	$	50,776		$	85,138

     The allowance for loan losses was $50.8 million at March 31, 2012 or 2.16% of total loans, compared with $53.5 million or 2.24% of total loans at December 31, 2011 and $85.1 million or 3.33% of total loans at March 31, 2011. The decreases were primarily the result of the continued improvement in historical loss factors and stable credit metrics since the bulk loan sale in October 2011. The allowance for loan losses at March 31, 2012 was 2.28% of loans excluding covered loans, and represented 1.48 times coverage of the non-covered nonperforming loans.

     First Federal believes that it uses relevant information available to make determinations about the allowance and that it has established its existing allowance in accordance with GAAP. Management and the Board of Directors have implemented appropriate policies surrounding loan loss identification, loan monitoring and allowance for loan loss methodologies, have consistently applied processes implemented, and have determined that the controls in place are adequate to ensure that the allowance is appropriate at each balance sheet date. If circumstances differ substantially from the assumptions used in making determinations, adjustments to the allowance may be necessary and results of operations could be affected. 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.

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Other Assets

     Other assets totaled $95.7 million at March 31, 2012, a decrease of $3.2 million or 3.2% from December 31, 2011 and a decrease of $13.2 million or 12.1% from March 31, 2011. The decrease from December 31, 2011 was primarily the result of current tax adjustments as well as a $2.1 million write-down of the state deferred tax asset in connection with First Federal’s conversion from a thrift to a state-chartered commercial bank due to a difference in South Carolina tax laws for banks versus thrifts. The decrease from March 31, 2011 was primarily the result of the above mentioned factors as well as federal tax refunds received during the twelve month period and reductions in OREO levels.

Deposits

     Deposits totaled $2.3 billion at March 31, 2012, an increase of $25.3 million or 1.1% over December 31, 2011 and a decrease of $80.3 million or 3.4% from March 31, 2011. Core deposits, which include checking, savings, and money market accounts, totaled $1.3 billion at March 31, 2012, an increase of $74.7 million or 6.1% over December 31, 2011 and an increase of $134.2 million or 11.4% over March 31, 2011. The increase over December 31, 2011 was primarily the result of a net addition in the number of deposit accounts as well as a seasonal fluctuation. The increase over March 31, 2011 was primarily the result of new retail deposit products introduced during 2011 as well as several marketing initiatives during the last twelve months to attract and retain core deposits. Time deposits at March 31, 2012 totaled $958.1 million, a decrease of $49.4 million or 4.9% from December 31, 2011 and a decrease of $214.5 million or 18.3% from March 31, 2011. The decreases were primarily the result of a planned reduction in maturing high rate retail and wholesale time deposits and lower funding needs relative to asset growth during the last twelve months.

Borrowed Funds

     Borrowed funds are comprised of advances from the Federal Home Loan Bank (“FHLB”) and long-term debt. Borrowings totaled $580.2 million at March 31, 2012, a decrease of $28.0 million or 4.6% from December 31, 2011 and a decrease of $28.5 million or 4.7% from March 31, 2011. The decreases were primarily the result of a shift in funding mix due to the growth of core deposits.

Capital

     Shareholders’ equity at March 31, 2012 was $278.0 million, essentially unchanged from December 31, 2011 and a decrease of $33.5 million or 10.7% from March 31, 2011. The decrease was primarily the result of net operating results during the last twelve months combined with a reduction in accumulated other comprehensive income during the period related to investment securities valuations. First Financial and First Federal’s regulatory capital ratios are in excess of “well-capitalized” minimums, as presented in the following table.

	For the Quarters Ended
	March 31,			December 31,			September 30,			June 30,			March 31,
	2012			2011			2011			2011			2011
First Financial
Equity to assets		8.84	%		8.81	%		8.37	%		8.27	%		9.43	%
Tangible common equity to tangible assets (non-GAAP)		6.70			6.67			6.27			6.08			6.40
Book value per common share		$ 12.89			$ 12.84			$ 12.31			12.20			$ 14.92
Tangible book value per common share (non-GAAP)		12.75			12.69			12.16			11.83			12.65
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

	Regulatory Minimum for “Well-Capitalized”
Tier 1 leverage capital ratio1		5.00	%	10.22	%
Tier 1 risk-based capital ratio1		6.00		14.81
Total risk-based capital ratio1		10.00		16.08
First Federal2
Leverage capital ratio		5.00	%	9.00	%	8.92	%	8.26	%	7.48	%	8.58	%
Tier 1 risk-based capital ratio		6.00		13.05		12.35		11.26		10.07		11.51
Total risk-based capital ratio		10.00		14.32		13.61		12.53		11.33		12.78

1

The quarter ended March 31, 2012 represents the first period holding company ratios for First Financial are required to be filed with the Federal Reserve Bank included within FR Y-9C, Consolidated Financial Statements for Bank Holding Companies . The capital ratios presented above for the holding company are considered preliminary until the regulatory report is filed with the Federal Reserve Bank.

2

Capital ratios for the quarter ended March 31, 2012 for First Federal Bank are based on reporting requirements for financial institutions filing FFIEC 041, FDIC Consolidated Reports of Condition and Income (the “Call Report”). Prior period ratios are reported based on superseded regulatory requirements previously issued by the Office of Thrift Supervision.

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     As a result of First Federal’s charter conversion and Federal Reserve membership, First Federal is subject to Federal Reserve Supervisory Letter SR 91-17, which provides guidance that de novo state member banks and converting thrifts maintain a Tier 1 leverage capital ratio of 9% for the first three years as a member bank unless an exception is granted. First Federal had a Tier 1 leverage capital ratio of 9.00% at March 31, 2012.

     On March 29, 2012, the U.S. Treasury completed the sale of its $65 million Fixed Rate Cumulative Perpetual Preferred Stock, Series A (“preferred stock”) investment in First Financial to private investors through a registered public offering at $873.51 per share. There was no impact to First Financial’s financial condition or operating results due to the transaction. On April 30, 2012, First Financial declared a quarterly cash dividend of $12.50 per preferred share payable on May 15, 2012 to preferred shareholders of record as of May 5, 2012.

     On April 30, 2012, First Financial declared a quarterly cash dividend of $0.05 per common share, payable on May 29, 2012 to common shareholders of record as of May 14, 2012.

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 2011 Annual Report on Form 10-K. There have been no material changes to those obligations or arrangements outside the ordinary course of business. See Note 9 to the Consolidated Financial Statements for additional information.

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. First Federal’s primary sources of funds consist of retail and commercial deposits, borrowings from the FHLB and Federal Reserve, other short term borrowings, principal repayments on loans and cash flows on investment securities, the sale of loans and securities, and brokered deposits. First Federal’s 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 future funding needs.

     As of March 31, 2012, First Federal had the capacity to borrow an additional $793.6 million with the FHLB of Atlanta, the Federal Reserve, and through federal funds lines with three unaffiliated banks. None of the federal funds lines had outstanding balances at March 31, 2012.

First Financial Liquidity

     As a holding company, First Financial conducts its business through its subsidiaries. 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 future funding needs include dividends from First Federal and other subsidiaries, payments from existing cash reserves, sales of marketable securities, and additional borrowings or stock offerings. Potential uses of First Financial’s cash and cash equivalents include divided and interest payments, operating expenses, or capital contributions to its subsidiaries including First Federal. As of March 31, 2012, First Financial had cash and cash equivalents of $35.9 million, compared with $39.0 million at December 31, 2011. The decrease was primarily the result of quarterly dividend payments to preferred and common shareholders. In April 2012, the Board of Directors approved a $10.0 million downstream of capital to First Federal to support recent acquisition activities.

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 change 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 agency securities, agency and private label mortgage-backed securities, 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 Investment Committee. ALCO activities are summarized and reviewed quarterly with the Board of Directors.

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. An objective of First Federal’s asset/liability management policy is to maintain a balanced risk profile so that variations to net interest income stay within policy limits. A sudden and substantial increase or decrease in interest rates may adversely impact earnings to the extent that the interest rates on

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interest-earning assets and interest-bearing liabilities do not change at the same speed, to the same degree or on the same basis. Asset/liability management is the process by which First Federal evaluates and changes, when appropriate, the mix, maturity and pricing of assets and liabilities in an attempt to reduce a materially adverse impact on earnings resulting from the direction, frequency, and magnitude of change in market interest rates. Although the net interest income of any financial institution is perceived as being vulnerable to fluctuations in interest rates, management has attempted to maintain this vulnerability within board limits.

     First Federal’s prepayment risk arises from the loans originated and investment securities purchased in which the underlying assets are real estate secured mortgage loans and may payoff prior to their contractual maturities. Both of these types of assets are subject to principal reduction due to principal prepayments resulting from borrowers’ elections to refinance the underlying mortgages based on market and other conditions. Prepayment rate projections utilize actual prepayment speed experience and available market information on similar instruments. The prepayment rates form the basis for income recognition of premiums or discounts on the related assets. Changes in prepayment estimates may cause the earnings recognized on these assets to vary over the term that the assets are held, creating volatility in the net interest margin. Prepayment rate assumptions are monitored and updated monthly to reflect actual activity and the most recent market projections.

     First Federal’s ALCO has established policies and monitors results to manage interest rate risk and utilizes measures such as gap analysis, which is a measurement of the differences between interest-sensitive assets and interest-sensitive liabilities repricing for a particular time period and includes loan prepayment assumptions. Particular assets and liabilities, such as adjustable rate mortgages, are also evaluated for the manner in which changes in interest rates or selected indices may affect their repricing. Asset/liability modeling is performed to assess varying interest rate and balance sheet mix assumptions. First Federal adjusts its interest rate sensitivity position primarily through decisions on the pricing, maturity, and marketing of particular deposit and loan products and by decisions regarding the structure of maturities of FHLB advances and other borrowings or wholesale funding options.

     Based on gap analysis, rate-sensitive assets repricing within one year exceeded rate-sensitive liabilities repricing within one year by $197.2 million or 6.27% of total assets as of March 31, 2012, compared with rate-sensitive liabilities repricing within one year exceeding rate-sensitive assets repricing within one year by $66.0 million or 2.10% of total assets as of December 31, 2011. The change reflects a more asset-sensitive position than at December 31, 2011 primarily the result of shortening the maturity profile of assets due to higher loan prepayments. 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 from 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 decay rates, based on recent studies and regression analysis of core deposits.

     First Federal is slightly asset sensitive and a 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 March 31, 2012 to evaluate the impact of market rate changes on net interest income over the subsequent 12 months assuming a static balance sheet composition. If market interest rates were to increase immediately by 100 basis points, net interest income would be expected to be essentially unchanged from what it would be if rates were to remain at March 31, 2012 levels. If market interest rates were to increase immediately by 200 basis points, net interest income would be expected to decrease by 0.61% from what it would be if rates were to remain at March 31, 2012 levels. The projected decrease is the result of some of the shorter term liabilities repricing immediately while the loans will reprice over a longer period based on contractual repricing dates at a smaller rate increment due to interest rate floors. Net interest income simulation for 100 and 200 basis point declines in market rates were not performed at March 31, 2012 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 test measures the economic value of equity at risk by analyzing 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 7.77% and increase by 10.00%, respectively, from where it would be if rates were to remain at March 31, 2012 levels. The increases are primarily the result of the core deposit intangibles, which increase in value as interest rates rise. 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 decay rates, and should not be relied upon as indicative of actual results. Further, the computations do not contemplate any actions that may be taken in response to changes in interest rates.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

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          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 2011 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 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, regardless of how remote. Based on their evaluation, First Financial’s Chief Executive Officer and its Chief Financial Officer concluded that First Financial’s disclosure controls and procedures as of March 31, 2012, 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 the 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 March 31, 2012 that have materially affected, or are 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 regardless of how remote. 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 March 31, 2012, First Financial believes that such litigation will 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 2011 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. Mine Safety Disclosures

          Not applicable.

Item 5. Other Information

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          None.

Item 6. Exhibits

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EXHIBIT INDEX

Exhibit Number	Description
2.1	Purchase and Assumption Agreement, dated as of April 27, 2012, by and among the Federal Deposit Insurance Corporation, receiver of Plantation Federal Bank, Paw leys Island, South Carolina, First Federal Bank and the Federal Deposit Insurance Corporation acting in its corporate capacity
3.1	First Financial’s Amended and Restated Bylaws (incorporated by reference to First Financial’s Form 8-K filed on March 23, 2012)
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 Form 10-Q for the quarterly period ended March 31, 2012, formatted in Extensible Business Reporting Language (“XBRL”): 1) Consolidated Balance Sheets, 2) Consolidated Statements of Operations, 3) Consolidated Statement of Comprehensive Income, 4) Consolidated Statements of Changes in Shareholders’ Equity, 5) Consolidated Statements of Cash Flows, and 6) Notes to Consolidated Financial Statements

* In accordance with Regulation S-T, the XBRL-related information in Exhibit 101 to this 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: May 9, 2012	/s/ Blaise B. Bettendorf
	Blaise B. Bettendorf
	Executive Vice President and Chief Financial Officer
	(Duly Authorized Officer and Principal Financial and Accounting Officer)

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