##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PERSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2008
 OR
 o
    
    TRANSITION REPORT PERSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission file number: 0-51153
 FEDFIRST FINANCIAL CORPORATION
  United States
(State or other jurisdiction of
incorporation or organization)
    
    25-1828028
(I.R.S. Employer Identification No.)Donner at Sixth Street, Monessen, Pennsylvania
    
    15062(Address of principal executive offices)
    
    (Zip Code)
 (724) 684-6800
 þ o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer  o
(Do not check if a smaller reporting company)
    
    Smaller reporting company þ
 o þ




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##### 



FORM 10-Q
 INDEX
 PagePART I  FINANCIAL INFORMATIONItem 1. Financial Statements
    
    
    1Consolidated Statements of Financial Condition at September 30, 2008
(Unaudited) and December 31, 2007
    
    
    1Consolidated Statements of Operations (Unaudited) for the Three and Nine
Months Ended September 30, 2008 and 2007
    
    
    2Consolidated Statements of Changes in Stockholders Equity and
Comprehensive (Loss) Income for the Nine Months Ended September 30, 2008
and 2007 (Unaudited)
    
    
    3Consolidated Statements of Cash Flows for the Nine Months Ended September
30, 2008 and 2007 (Unaudited)
    
    
    4Notes to the Unaudited Consolidated Financial Statements
    
    
    5Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    16Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    27Item 4. Controls and Procedures
    
    
    27PART II  OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    28Item 1A. Risk Factors
    
    
    28Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    28Item 3. Defaults Upon Senior Securities
    
    
    28Item 4. Submission of Matters to a Vote of Security Holders
    
    
    28Item 5. Other Information
    
    
    29Item 6. Exhibits
    
    
    29SIGNATURES
    
    
    30EX-31.1EX-31.2EX-32.1EX-32.2




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements.
 
 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
 September 30,
    
    December 31,2008
    
    2007(Dollars in thousands, except share data)
    
    (UNAUDITED)Assets:Cash and cash equivalents:Cash and due from banks
    
    $
    2,035
    
    
    $
    2,127Interest-earning deposits
    
    
    5,614
    
    
    
    3,425Total cash and cash equivalents
    
    
    7,649
    
    
    
    5,552Securities available-for-sale
    
    
    91,906
    
    
    
    89,073Loans, net
    
    
    225,455
    
    
    
    187,954Federal Home Loan Bank (FHLB) stock, at cost
    
    
    6,628
    
    
    
    5,076Accrued interest receivable  loans
    
    
    1,090
    
    
    
    966Accrued interest receivable  securities
    
    
    472
    
    
    
    651Premises and equipment, net
    
    
    2,800
    
    
    
    2,956Bank-owned life insurance
    
    
    7,741
    
    
    
    7,538Goodwill
    
    
    1,080
    
    
    
    1,080Real estate owned
    
    
    674
    
    
    
    1,119Other assets
    
    
    351
    
    
    
    366Deferred tax assets
    
    
    4,265
    
    
    
    2,942Total assets
    
    $
    350,111
    
    
    $
    305,273Liabilities and Stockholders Equity:Deposits:Noninterest-bearing
    
    
    13,655
    
    
    
    8,918Interest-bearing
    
    
    159,430
    
    
    
    146,640Total deposits
    
    
    173,085
    
    
    
    155,558Borrowings
    
    
    131,508
    
    
    
    101,074Advance payments by borrowers for taxes and insurance
    
    
    251
    
    
    
    477Accrued interest payable  deposits
    
    
    892
    
    
    
    1,116Accrued interest payable  borrowings
    
    
    550
    
    
    
    413Other liabilities
    
    
    3,270
    
    
    
    2,782Total liabilities
    
    
    309,556
    
    
    
    261,420Minority interest in subsidiary
    
    
    89
    
    
    
    80Stockholders equity:Preferred stock $0.01 par value; 10,000,000 shares authorized; none issued
    
    
    
    
    
    
    Common stock $0.01 par value; 20,000,000 shares authorized; 6,707,500
shares issued and 6,380,275 and 6,518,200 shares outstanding
    
    
    67
    
    
    
    67Additional paid-in-capital
    
    
    29,169
    
    
    
    29,084Retained earnings  substantially restricted
    
    
    18,474
    
    
    
    18,520Accumulated other comprehensive loss, net of deferred taxes of $(1,613) and $(45)
    
    
    (2,501
    )
    
    
    (70
    )Unearned Employee Stock Ownership Plan (ESOP)
    
    
    (1,944
    )
    
    
    (2,074
    )Common stock held in treasury, at cost (327,225 and 189,300 shares)
    
    
    (2,799
    )
    
    
    (1,754
    )Total stockholders equity
    
    
    40,466
    
    
    
    43,773Total liabilities and stockholders equity
    
    $
    350,111
    
    
    $
    305,273
  1




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##### Table of Contents



CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
 For the Three Months
    
    For the Nine MonthsEnded September 30,
    
    Ended September 30,(Dollars in thousands, except per share data)
    
    2008
    
    2007
    
    2008
    
    2007Interest income:Loans
    
    $
    3,218
    
    
    $
    2,689
    
    
    $
    8,937
    
    
    $
    7,764Securities
    
    
    1,315
    
    
    
    1,005
    
    
    
    4,074
    
    
    
    2,999Other interest-earning assets
    
    
    69
    
    
    
    131
    
    
    
    252
    
    
    
    408Total interest income
    
    
    4,602
    
    
    
    3,825
    
    
    
    13,263
    
    
    
    11,171Interest expense:Deposits
    
    
    1,149
    
    
    
    1,372
    
    
    
    3,688
    
    
    
    3,789Borrowings
    
    
    1,273
    
    
    
    804
    
    
    
    3,516
    
    
    
    2,569Total interest expense
    
    
    2,422
    
    
    
    2,176
    
    
    
    7,204
    
    
    
    6,358Net interest income
    
    
    2,180
    
    
    
    1,649
    
    
    
    6,059
    
    
    
    4,813Provision for loan losses
    
    
    260
    
    
    
    395
    
    
    
    539
    
    
    
    470Net interest income after provision for loan losses
    
    
    1,920
    
    
    
    1,254
    
    
    
    5,520
    
    
    
    4,343Noninterest income:Fees and service charges
    
    
    132
    
    
    
    108
    
    
    
    352
    
    
    
    304Insurance commissions
    
    
    373
    
    
    
    397
    
    
    
    1,486
    
    
    
    1,328Income from bank-owned life insurance
    
    
    67
    
    
    
    70
    
    
    
    203
    
    
    
    212Net gain (loss) on sales of securities
    
    
    
    
    
    
    (2
    )
    
    
    156
    
    
    
    (1,412
    )Net gain on sale of real estate owned
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    7
    
    
    
    2
    
    
    
    19
    
    
    
    9Total noninterest income
    
    
    582
    
    
    
    575
    
    
    
    2,216
    
    
    
    441Noninterest expense:Compensation and employee benefits
    
    
    1,373
    
    
    
    1,463
    
    
    
    4,147
    
    
    
    4,239Occupancy
    
    
    328
    
    
    
    301
    
    
    
    987
    
    
    
    832FDIC insurance premiums
    
    
    9
    
    
    
    6
    
    
    
    20
    
    
    
    17Data processing
    
    
    104
    
    
    
    94
    
    
    
    315
    
    
    
    279Other
    
    
    566
    
    
    
    462
    
    
    
    1,501
    
    
    
    1,378Total noninterest expense
    
    
    2,380
    
    
    
    2,326
    
    
    
    6,970
    
    
    
    6,745Minority interest in net income of consolidated subsidiary
    
    
    5
    
    
    
    15
    
    
    
    61
    
    
    
    53Income (loss) before income tax expense (benefit)
    
    
    117
    
    
    
    (512
    )
    
    
    705
    
    
    
    (2,014
    )Income tax expense (benefit)
    
    
    51
    
    
    
    (165
    )
    
    
    306
    
    
    
    (640
    )Net income (loss)
    
    $
    66
    
    
    $
    (347
    )
    
    $
    399
    
    
    $
    (1,374
    )Earnings (loss) per share:Basic and diluted
    
    $
    0.01
    
    
    $
    (0.05
    )
    
    $
    0.07
    
    
    $
    (0.21
    )Weighted-average shares outstanding:Basic
    
    
    5,905,927
    
    
    
    6,438,228
    
    
    
    5,968,648
    
    
    
    6,442,220Diluted
    
    
    5,905,927
    
    
    
    6,438,228
    
    
    
    5,968,648
    
    
    
    6,442,220
  2




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##### Table of Contents



CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY AND
COMPREHENSIVE (LOSS) INCOME (UNAUDITED)
 Accumulated
    
    
    
    
    
    
    CommonAdditional
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    Stock
    
    
    TotalCommon
    
    
    Paid-in-
    
    
    Retained
    
    
    Comprehensive
    
    
    Unearned
    
    
    Held in
    
    
    Stockholders
    
    
    Comprehensive(Dollars in thousands)
    
    Stock
    
    
    Capital
    
    
    Earnings
    
    
    Loss
    
    
    ESOP
    
    
    Treasury
    
    
    Equity
    
    
    LossBalance at January 1, 2007
    
    $
    67
    
    
    $
    28,787
    
    
    $
    20,475
    
    
    $
    (737
    )
    
    $
    (2,246
    )
    
    $
    
    
    
    $
    46,346Comprehensive income:Net loss
    
    
    
    
    
    
    
    
    
    
    (1,374
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,374
    )
    
    $
    (1,374
    )Transfer of securities to
held for trading,
net of tax of $(552)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    857
    
    
    
    
    
    
    
    
    
    
    
    857
    
    
    
    857Unrealized loss on securities
available-for-sale,
net of tax of $(191)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (296
    )
    
    
    
    
    
    
    
    
    
    
    (296
    )
    
    
    (296
    )Purchase of common
stock to be held in
treasury (121,200 shares)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,125
    )
    
    
    (1,125
    )ESOP shares committed to be
released (12,961 shares)
    
    
    
    
    
    
    (10
    )
    
    
    
    
    
    
    
    
    
    
    129
    
    
    
    
    
    
    
    119Stock-based compensation
expense
    
    
    
    
    
    
    246
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    246Stock awards granted
    
    
    
    
    
    
    (51
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    51
    
    
    
    Stock awards forfeited
    
    
    
    
    
    
    29
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (30
    )
    
    
    (1
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (813
    )Balance at September 30, 2007
    
    $
    67
    
    
    $
    29,001
    
    
    $
    19,101
    
    
    $
    (176
    )
    
    $
    (2,117
    )
    
    $
    (1,104
    )
    
    $
    44,772
 Accumulated
    
    
    
    
    
    
    CommonAdditional
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    Stock
    
    
    TotalCommon
    
    
    Paid-in-
    
    
    Retained
    
    
    Comprehensive
    
    
    Unearned
    
    
    Held in
    
    
    Stockholders
    
    
    ComprehensiveStock
    
    
    Capital
    
    
    Earnings
    
    
    Loss
    
    
    ESOP
    
    
    Treasury
    
    
    Equity
    
    
    LossBalance at January 1, 2008
    
    $
    67
    
    
    $
    29,084
    
    
    $
    18,520
    
    
    $
    (70
    )
    
    $
    (2,074
    )
    
    $
    (1,754
    )
    
    $
    43,773Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    399
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    399
    
    
    $
    399Unrealized loss on securities
available-for-sale,
net of tax of ($1,506)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,336
    )
    
    
    
    
    
    
    
    
    
    
    (2,336
    )
    
    
    (2,336
    )Reclassification adjustment
on sales of securities
available-for-sale,
net of tax of $61
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (95
    )
    
    
    
    
    
    
    
    
    
    
    (95
    )
    
    
    (95
    )Cumulative effect
adjustment on benefit
plan reserve
    
    
    
    
    
    
    
    
    
    
    (445
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (445
    )Purchase of common
stock to be held in
treasury (154,925 shares)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,194
    )
    
    
    (1,194
    )ESOP shares committed to be
released (12,961 shares)
    
    
    
    
    
    
    (33
    )
    
    
    
    
    
    
    
    
    
    
    130
    
    
    
    
    
    
    
    97Stock-based compensation
expense
    
    
    
    
    
    
    267
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    267Stock awards granted
    
    
    
    
    
    
    (149
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    149
    
    
    
    Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (2,032
    )Balance at September 30, 2008
    
    $
    67
    
    
    $
    29,169
    
    
    $
    18,474
    
    
    $
    (2,501
    )
    
    $
    (1,944
    )
    
    $
    (2,799
    )
    
    $
    40,466
  3




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##### Table of Contents



CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
 For the PeriodEnded September 30,(Dollars in thousands)
    
    2008
    
    2007Cash flows from operating activities:Net income (loss)
    
    $
    399
    
    
    $
    (1,374
    )Adjustments to reconcile net income (loss) to net cash provided
by operating activitiesMinority interest in net income of consolidated subsidiary
    
    
    61
    
    
    
    53Provision for loan losses
    
    
    539
    
    
    
    470Depreciation
    
    
    376
    
    
    
    299Net (gain) loss on sales of securities
    
    
    (156
    )
    
    
    1,412Proceeds from sales of securities held for trading
    
    
    
    
    
    
    40,483Proceeds from principal repayments of securities held for trading
    
    
    
    
    
    
    638Net amortization of security premiums and loan costs
    
    
    (379
    )
    
    
    (588
    )Non cash expense for ESOP
    
    
    97
    
    
    
    119Non cash expense for stock-based compensation
    
    
    267
    
    
    
    246Increase in bank-owned life insurance
    
    
    (203
    )
    
    
    (212
    )Decrease in other assets
    
    
    36
    
    
    
    96Increase in other liabilities
    
    
    479
    
    
    
    141Net cash provided by operating activities
    
    
    1,516
    
    
    
    41,783Cash flows from investing activities:Net loan originations
    
    
    (38,066
    )
    
    
    (13,281
    )Proceeds from sale of student loan portfolio
    
    
    
    
    
    
    12Proceeds from maturities of and principal repayments of
securities available-for-sale
    
    
    12,955
    
    
    
    13,293Proceeds from sales of securities available-for-sale
    
    
    8,766
    
    
    
    2,569Purchases of securities available-for-sale
    
    
    (28,352
    )
    
    
    (51,219
    )Purchases of premises and equipment
    
    
    (220
    )
    
    
    (1,184
    )(Increase) decrease in FHLB stock, at cost
    
    
    (1,552
    )
    
    
    365Proceeds from sale of real estate owned
    
    
    509
    
    
    
    Net cash used in investing activities
    
    
    (45,960
    )
    
    
    (49,445
    )Cash flows from financing activities:Net increase (decrease) in borrowings
    
    
    30,434
    
    
    
    (1,717
    )Net increase in deposits
    
    
    17,527
    
    
    
    11,069Increase in advance payments by borrowers for taxes and insurance
    
    
    (226
    )
    
    
    (43
    )Purchases of common stock held in treasury
    
    
    (1,194
    )
    
    
    (1,125
    )Net cash provided by financing activities
    
    
    46,541
    
    
    
    8,184Net increase in cash and cash equivalents
    
    
    2,097
    
    
    
    522Cash and cash equivalents, beginning of period
    
    
    5,552
    
    
    
    4,499Cash and cash equivalents, end of period
    
    $
    7,649
    
    
    $
    5,021Supplemental cash flow information:Cash paid for:Interest on deposits and borrowings
    
    $
    7,291
    
    
    $
    6,359Income tax expense
    
    
    44
    
    
    
    36Transfer of securities from available-for-sale to held for trading
    
    
    
    
    
    
    42,531Real estate acquired in settlement of loans
    
    
    360
    
    
    
    641
  4




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##### Table of Contents



Notes to the Unaudited Consolidated Financial Statements
 Note 1. Basis of Presentation/Nature of Operations
     Note 2. Recent Accounting Pronouncements
 The Hierarchy of Generally Accepted Accounting Principles. The
Hierarchy of Generally Accepted Accounting Principles. The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles.
 Accounting for Financial Guarantee Insurance Contracts  an interpretation of SFAS No. 60. Accounting for Financial Guarantee Insurance Contracts  an
interpretation of SFAS No. 60. Accounting and Reporting
by
 5




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##### Table of Contents



Insurance Enterprises
 Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating
Securities. Determining Whether Instruments Granted in Share-Based Payment Transactions Are
Participating Securities.
 Determining Whether an Instrument (or an Embedded Feature) Is Indexed to an Entitys Own Stock. Determining Whether an Instrument (or an Embedded Feature)
Is Indexed to an Entitys Own Stock
 Noncontrolling Interests in Consolidated Financial Statements  an amendment of Accounting Research
Bulletin (ARB) No. 51. Noncontrolling Interests
in Consolidated Financial Statements  an amendment of ARB No. 51
 The Fair Value Option for Financial Assets and Financial Liabilities: The Fair Value Option for Financial Assets and Financial Liabilities
 6




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##### Table of Contents



Fair Value Measurements: Fair Value Measurements
 Effective Date of FASB Statement No. 157: Effective
Date of FASB Statement No. 157
 Determination of the Useful Life of Intangible Assets. Determination of the Useful Life of Intangible Assets Goodwill and Other Intangible Assets
 Determining the Fair Value of a Financial Asset When The Market for That Asset Is Not Active: Determining the Fair Value of a Financial Asset When The
Market for That Asset Is Not Active
 Staff Accounting Bulletin No. 110. Share-Based Payment
 Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards. Accounting for Income Tax Benefits of Dividends on
Share-Based Payment Awards
 7




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##### Table of Contents



Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar
Life Insurance Arrangements: Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar
Life Insurance Arrangements
 Note 3. Securities
  Gross
    
    GrossAmortized
    
    Unrealized
    
    Unrealized
    
    FairSeptember 30, 2008
    
    Cost
    
    Gains
    
    Losses
    
    ValueGovernment-Sponsored Enterprises
    
    $
    14,712
    
    
    $
    71
    
    
    $
    146
    
    
    $
    14,637Mortgage-backed
    
    
    53,397
    
    
    
    281
    
    
    
    286
    
    
    
    53,392REMICs
    
    
    23,867
    
    
    
    75
    
    
    
    3,031
    
    
    
    20,911Corporate debt
    
    
    3,995
    
    
    
    
    
    
    
    1,078
    
    
    
    2,917Equities
    
    
    49
    
    
    
    
    
    
    
    
    
    
    
    49Total securities available-for-sale
    
    $
    96,020
    
    
    $
    427
    
    
    $
    4,541
    
    
    $
    91,906
 Gross
    
    GrossAmortized
    
    Unrealized
    
    Unrealized
    
    FairDecember 31, 2007
    
    Cost
    
    Gains
    
    Losses
    
    ValueGovernment-Sponsored Enterprises
    
    $
    22,321
    
    
    $
    353
    
    
    $
    
    
    
    $
    22,674Mortgage-backed
    
    
    34,948
    
    
    
    242
    
    
    
    37
    
    
    
    35,153REMICs
    
    
    27,875
    
    
    
    80
    
    
    
    478
    
    
    
    27,477Corporate debt
    
    
    3,995
    
    
    
    
    
    
    
    275
    
    
    
    3,720Equities
    
    
    49
    
    
    
    
    
    
    
    
    
    
    
    49Total securities available-for-sale
    
    $
    89,188
    
    
    $
    675
    
    
    $
    790
    
    
    $
    89,073
 8




---



##### Table of Contents



Level 1 
    
    Quoted prices for identical instruments in active markets.Level 2 
    
    Quoted prices for similar instruments in active markets; quoted prices for
identical or similar instruments in markets that are active, and model derived
valuations in which significant inputs or significant drivers are observable in active
markets.Level 3 
    
    Valuations derived from valuation techniques in which one or more
significant inputs or significant drivers are unobservable.
   9




---



##### Table of Contents



Significant Other
    
    Significant(Dollars in thousands)
    
    Observable Inputs
    
    Unobservable InputsSeptember 30, 2008
    
    (Level 2)
    
    (Level 3)
    
    TotalSecurities available-for-sale
    
    $
    85,246
    
    
    $
    6,660
    
    
    $
    91,906
 SignificantUnobservable Inputs(Dollars in thousands)
    
    (Level 3)December 31, 2007
    
    $
    6,390Total unrealized losses
    
    
    (858
    )Paydowns and maturities
    
    
    (227
    )Net transfers in (out) of level 3
    
    
    1,355September 30, 2008
    
    $
    6,660The amount of total unrealized
losses for the period
included in earnings (or changes
in net assets) attributable
to the change in unrealized gains
(losses) relating to
assets still held at
September 30, 2008
    
    $
    (858
    )
 10




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##### Table of Contents



Less than 12 months
    
    12 months or more
    
    TotalNumber of
    
    Fair
    
    Unrealized
    
    Number of
    
    Fair
    
    Unrealized
    
    Number of
    
    Fair
    
    UnrealizedSeptember 30, 2008
    
    Securities
    
    Value
    
    Losses
    
    Securities
    
    Value
    
    Losses
    
    Securities
    
    Value
    
    LossesGovernment-sponsored
enterprises
    
    
    2
    
    
    $
    3,854
    
    
    $
    146
    
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    
    2
    
    
    $
    3,854
    
    
    $
    146Mortgage-backed
    
    
    51
    
    
    
    31,234
    
    
    
    285
    
    
    
    2
    
    
    
    15
    
    
    
    1
    
    
    
    53
    
    
    
    31,249
    
    
    
    286REMICs:Private label
issuer:Prime fixed
and
adjustable
rate
    
    
    5
    
    
    
    2,301
    
    
    
    496
    
    
    
    1
    
    
    
    660
    
    
    
    109
    
    
    
    6
    
    
    
    2,961
    
    
    
    605Alt-A fixed
rate
    
    
    10
    
    
    
    7,507
    
    
    
    2,063
    
    
    
    1
    
    
    
    1,317
    
    
    
    275
    
    
    
    11
    
    
    
    8,824
    
    
    
    2,338Government-sponsored enterprises
    
    
    7
    
    
    
    1,501
    
    
    
    88
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7
    
    
    
    1,501
    
    
    
    88Total REMICs
    
    
    22
    
    
    
    11,309
    
    
    
    2,647
    
    
    
    2
    
    
    
    1,977
    
    
    
    384
    
    
    
    24
    
    
    
    13,286
    
    
    
    3,031Corporate debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    2,917
    
    
    
    1,078
    
    
    
    3
    
    
    
    2,917
    
    
    
    1,078Total securities
temporarily
impaired
    
    
    75
    
    
    $
    46,397
    
    
    $
    3,078
    
    
    
    7
    
    
    $
    4,909
    
    
    $
    1,463
    
    
    
    82
    
    
    $
    51,306
    
    
    $
    4,541
 Less than 12 months
    
    12 months or more
    
    TotalNumber of
    
    Fair
    
    Unrealized
    
    Number of
    
    Fair
    
    Unrealized
    
    Number of
    
    Fair
    
    UnrealizedDecember 31, 2007
    
    Securities
    
    Value
    
    Losses
    
    Securities
    
    Value
    
    Losses
    
    Securities
    
    Value
    
    LossesMortgage-backed
    
    
    8
    
    
    $
    9,946
    
    
    $
    35
    
    
    
    3
    
    
    $
    119
    
    
    $
    2
    
    
    
    11
    
    
    $
    10,065
    
    
    $
    37REMICs:Private label issuer:Prime fixed and
adjustable rate
    
    
    2
    
    
    
    778
    
    
    
    2
    
    
    
    2
    
    
    
    1,028
    
    
    
    16
    
    
    
    4
    
    
    
    1,806
    
    
    
    18Alt-A fixed rate
    
    
    7
    
    
    
    8,390
    
    
    
    380
    
    
    
    1
    
    
    
    766
    
    
    
    57
    
    
    
    8
    
    
    
    9,156
    
    
    
    437Government-sponsored
enterprises
    
    
    3
    
    
    
    3,277
    
    
    
    22
    
    
    
    5
    
    
    
    130
    
    
    
    1
    
    
    
    8
    
    
    
    3,407
    
    
    
    23Total REMICs
    
    
    12
    
    
    
    12,445
    
    
    
    404
    
    
    
    8
    
    
    
    1,924
    
    
    
    74
    
    
    
    20
    
    
    
    14,369
    
    
    
    478Corporate debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    3,720
    
    
    
    275
    
    
    
    3
    
    
    
    3,720
    
    
    
    275Total securities
temporarily impaired
    
    
    20
    
    
    $
    22,391
    
    
    $
    439
    
    
    
    14
    
    
    $
    5,763
    
    
    $
    351
    
    
    
    34
    
    
    $
    28,154
    
    
    $
    790
   11




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##### Table of Contents



Note 4. Loans
  September 30, 2008
    
    December 31, 2007
    
    September 30, 2007(Dollars in thousands)
    
    Amount
    
    Percent
    
    Amount
    
    Percent
    
    Amount
    
    PercentReal estate-mortgage:One-to-four family residential
    
    $
    156,634
    
    
    
    66.8
    %
    
    $
    135,453
    
    
    
    70.4
    %
    
    $
    136,237
    
    
    
    71.9
    %Multi-family
    
    
    10,288
    
    
    
    4.4
    
    
    
    11,985
    
    
    
    6.2
    
    
    
    14,087
    
    
    
    7.4Commercial
    
    
    20,988
    
    
    
    9.0
    
    
    
    14,483
    
    
    
    7.5
    
    
    
    13,143
    
    
    
    6.9Total real estate-mortgage
    
    
    187,910
    
    
    
    80.2
    
    
    
    161,921
    
    
    
    84.1
    
    
    
    163,467
    
    
    
    86.2Real estate-construction:Residential
    
    
    11,131
    
    
    
    4.8
    
    
    
    6,671
    
    
    
    3.5
    
    
    
    4,127
    
    
    
    2.2Commercial
    
    
    2,543
    
    
    
    1.1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total real estate-construction
    
    
    13,674
    
    
    
    5.9
    
    
    
    6,671
    
    
    
    3.5
    
    
    
    4,127
    
    
    
    2.2Consumer:Home equity
    
    
    21,891
    
    
    
    9.2
    
    
    
    17,862
    
    
    
    9.3
    
    
    
    15,713
    
    
    
    8.3Loans on savings accounts
    
    
    865
    
    
    
    0.4
    
    
    
    675
    
    
    
    0.4
    
    
    
    597
    
    
    
    0.3Home improvement
    
    
    243
    
    
    
    0.1
    
    
    
    281
    
    
    
    0.1
    
    
    
    293
    
    
    
    0.2Other
    
    
    617
    
    
    
    0.3
    
    
    
    592
    
    
    
    0.3
    
    
    
    655
    
    
    
    0.3Total consumer
    
    
    23,616
    
    
    
    10.0
    
    
    
    19,410
    
    
    
    10.1
    
    
    
    17,258
    
    
    
    9.1Commercial business
    
    
    9,099
    
    
    
    3.9
    
    
    
    4,341
    
    
    
    2.3
    
    
    
    4,821
    
    
    
    2.5Total loans
    
    $
    234,299
    
    
    
    100.0
    %
    
    $
    192,343
    
    
    
    100.0
    %
    
    $
    189,673
    
    
    
    100.0
    %Net premiums on loans purchased
    
    
    129
    
    
    
    
    
    
    
    191
    
    
    
    
    
    
    
    254Net deferred loan costs
    
    
    887
    
    
    
    
    
    
    
    491
    
    
    
    
    
    
    
    478Loans in process
    
    
    (8,214
    )
    
    
    
    
    
    
    (3,614
    )
    
    
    
    
    
    
    (2,537
    )Allowance for loan losses
    
    
    (1,646
    )
    
    
    
    
    
    
    (1,457
    )
    
    
    
    
    
    
    (1,018
    )Loans, net
    
    $
    225,455
    
    
    
    
    
    
    $
    187,954
    
    
    
    
    
    
    $
    186,850
 12




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##### Table of Contents



Nonperforming Assets.
 September 30,
    
    December 31,
    
    September 30,(Dollars in thousands)
    
    2008
    
    2007
    
    2007Nonaccrual loans:Real estate  mortgage
    
    $
    853
    
    
    $
    1,264
    
    
    $
    950Real estate  construction
    
    
    
    
    
    
    
    
    
    
    Consumer
    
    
    5
    
    
    
    17
    
    
    
    161Commercial business
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    858
    
    
    
    1,281
    
    
    
    1,111Accruing loans past due 90 days or more
    
    
    
    
    
    
    
    
    
    
    Total of nonaccrual and 90 days or more
past due loans (nonperforming loans)
    
    
    858
    
    
    
    1,281
    
    
    
    1,111Real estate owned
    
    
    674
    
    
    
    1,119
    
    
    
    1,210Total nonperforming assets
    
    $
    1,532
    
    
    $
    2,400
    
    
    $
    2,321Troubled debt restructurings
    
    
    
    
    
    
    
    
    
    
    Troubled debt restructurings and total
nonperforming assets
    
    $
    1,532
    
    
    $
    2,400
    
    
    $
    2,321Total nonperforming loans to total loans
    
    
    0.37
    %
    
    
    0.67
    %
    
    
    0.59
    %Total nonperforming loans to total assets
    
    
    0.25
    
    
    
    0.42
    
    
    
    0.38Total nonperforming assets to total assets
    
    
    0.44
    
    
    
    0.79
    
    
    
    0.80
 Allowance for loan losses.
 Three Months Ended
    
    Nine Months Ended
    
    Year EndedSeptember 30,
    
    September 30,
    
    December 31,(Dollars in thousands)
    
    2008
    
    2007
    
    2008
    
    2007
    
    2007Allowance at beginning of period
    
    $
    1,516
    
    
    $
    941
    
    
    $
    1,457
    
    
    $
    866
    
    
    $
    866Provision for loan losses
    
    
    260
    
    
    
    395
    
    
    
    539
    
    
    
    470
    
    
    
    1,119Charge-offs
    
    
    (130
    )
    
    
    (318
    )
    
    
    (350
    )
    
    
    (318
    )
    
    
    (528
    )Recoveries
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net charge-offs
    
    
    (130
    )
    
    
    (318
    )
    
    
    (350
    )
    
    
    (318
    )
    
    
    (528
    )Allowance at end of period
    
    $
    1,646
    
    
    $
    1,018
    
    
    $
    1,646
    
    
    $
    1,018
    
    
    $
    1,457
 13




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##### Table of Contents



Note 5. Deposits
  September 30, 2008
    
    December 31, 2007
    
    September 30, 2007(Dollars in thousands)
    
    Amount
    
    Percent
    
    Amount
    
    Percent
    
    Amount
    
    PercentNoninterest-bearing demand deposits
    
    $
    13,655
    
    
    
    7.9
    %
    
    $
    8,918
    
    
    
    5.7
    %
    
    $
    9,212
    
    
    
    6.0
    %Interest-bearing demand deposits
    
    
    11,233
    
    
    
    6.5
    
    
    
    11,864
    
    
    
    7.6
    
    
    
    12,675
    
    
    
    8.2Savings accounts
    
    
    23,662
    
    
    
    13.7
    
    
    
    23,056
    
    
    
    14.8
    
    
    
    24,032
    
    
    
    15.5Money market accounts
    
    
    39,935
    
    
    
    23.1
    
    
    
    13,676
    
    
    
    8.8
    
    
    
    13,590
    
    
    
    8.8Certificates of deposit
    
    
    84,600
    
    
    
    48.8
    
    
    
    98,044
    
    
    
    63.1
    
    
    
    95,055
    
    
    
    61.5Total deposits
    
    $
    173,085
    
    
    
    100.0
    %
    
    $
    155,558
    
    
    
    100.0
    %
    
    $
    154,564
    
    
    
    100.0
    %
 Note 6. Borrowings
  Nine Months
    
    Year
    
    Nine MonthsEnded
    
    Ended
    
    EndedSeptember 30,
    
    December 31,
    
    September 30,(Dollars in thousands)
    
    2008
    
    2007
    
    2007Maximum amount outstanding at any month end
during the period
    
    $
    131,508
    
    
    $
    101,074
    
    
    $
    89,663Average amounts outstanding during the period
    
    
    116,812
    
    
    
    82,880
    
    
    
    79,926Weighted average rate during the period
    
    
    4.01
    %
    
    
    4.32
    %
    
    
    4.29
    %Balance outstanding at end of period
    
    $
    131,508
    
    
    $
    101,074
    
    
    $
    87,606Weighted average rate at end of period
    
    
    3.95
    %
    
    
    4.30
    %
    
    
    4.37
    %
 Note 7. Earnings (Loss) Per Share
  14




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##### Table of Contents



Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,(Dollars in thousands, except per share amounts)
    
    2008
    
    2007
    
    2008
    
    2007Net income (loss)
    
    $
    66
    
    
    $
    (347
    )
    
    $
    399
    
    
    $
    (1,374
    )Weighted-average shares outstanding:Basic
    
    
    5,905,927
    
    
    
    6,438,228
    
    
    
    5,968,648
    
    
    
    6,442,220Effect of dilutive stock options and
restrictive stock awards
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Diluted
    
    
    5,905,927
    
    
    
    6,438,228
    
    
    
    5,968,648
    
    
    
    6,442,220Earnings (loss) per share:Basic
    
    $
    0.01
    
    
    $
    (0.05
    )
    
    $
    0.07
    
    
    $
    (0.21
    )Diluted
    
    $
    0.01
    
    
    $
    (0.05
    )
    
    $
    0.07
    
    
    $
    (0.21
    )
 Note 8. Insurance Activities of Exchange Underwriters, Inc. and Related Information
  Three Months
    
    Nine Months
    
    YearEnded
    
    Ended
    
    EndedSeptember 30,
    
    September 30,
    
    December 31,(Dollars in thousands)
    
    2008
    
    2007
    
    2008
    
    2007
    
    2007Insurance commissions
    
    $
    373
    
    
    $
    397
    
    
    $
    1,486
    
    
    $
    1,328
    
    
    $
    1,639Income before income tax expense
    
    
    50
    
    
    
    129
    
    
    
    531
    
    
    
    469
    
    
    
    472
 September 30,
    
    December 31,2008
    
    2007
    
    2007Total assets
    
    $
    1,242
    
    
    $
    1,167
    
    
    $
    1,258
 Note 9. Stock Based Compensation
   15




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##### Table of Contents



Stock OptionsWeighted
    
    WeightedNumber
    
    Average
    
    Averageof
    
    Exercise
    
    RemainingStock-Based Compensation
    
    Shares
    
    Price
    
    TermOutstanding at January 1, 2008
    
    
    239,500
    
    
    $
    10.05
    
    
    
    8.80Granted
    
    
    35,000
    
    
    
    6.70Exercised or converted
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    Expired
    
    
    
    
    
    
    Outstanding at September 30, 2008
    
    
    274,500
    
    
    $
    9.62
    
    
    
    8.05Exercisable at September 30, 2008
    
    
    93,300
    
    
    $
    10.08
    
    
    
    7.78
 Stock Options
    
    Restricted Stock AwardsNumber of
    
    Fair-Value
    
    Number of
    
    Fair-ValueShares
    
    Price
    
    Shares
    
    PriceNonvested at January 1, 2008
    
    
    194,100
    
    
    $
    3.14
    
    
    
    79,100
    
    
    $
    10.03Granted
    
    
    35,000
    
    
    
    2.86
    
    
    
    17,000
    
    
    
    6.70Vested
    
    
    47,900
    
    
    
    3.14
    
    
    
    19,500
    
    
    
    10.05Forfeited
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Nonvested at September 30, 2008
    
    
    181,200
    
    
    $
    3.09
    
    
    
    76,600
    
    
    $
    9.29
 
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
  Forward-Looking Statements
  16




---



##### Table of Contents



General
     Balance Sheet Analysis
 Assets.
   17




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##### Table of Contents



Liabilities.
   Stockholders Equity.
 Results of Operations for the Three Months Ended September 30, 2008 and 2007
 Overview.
 Three Months EndedSeptember 30,(Dollars in thousands)
    
    2008
    
    2007Net income (loss)
    
    $
    66
    
    
    $
    (347
    )Return on average assets
    
    
    0.08
    %
    
    
    (0.49
    )%Return on average equity
    
    
    0.65
    
    
    
    (3.07
    )Average equity to average assets
    
    
    11.81
    
    
    
    16.03
 Net Interest Income.
  18




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19




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##### Table of Contents



Average Balances and Yields .
 Three Months Ended September 30,2008
    
    
    
    
    
    
    
    
    
    
    2007Interest
    
    
    
    
    
    
    
    
    
    
    InterestAverage
    
    
    and
    
    
    Yield/
    
    
    Average
    
    
    and
    
    
    Yield/Balance
    
    
    Dividends
    
    
    Cost
    
    
    Balance
    
    
    Dividends
    
    
    CostAssets:Interest-earning assets:Loans, net (1)(2)
    
    $
    218,341
    
    
    $
    3,218
    
    
    
    5.90
    %
    
    $
    183,778
    
    
    $
    2,689
    
    
    
    5.85
    %Securities (3)
    
    
    98,410
    
    
    
    1,315
    
    
    
    5.34
    
    
    
    71,401
    
    
    
    1,005
    
    
    
    5.63Other interest-earning assets
    
    
    10,864
    
    
    
    69
    
    
    
    2.54
    
    
    
    8,904
    
    
    
    131
    
    
    
    5.88Total interest-earning
assets
    
    
    327,615
    
    
    $
    4,602
    
    
    
    5.62
    
    
    
    264,083
    
    
    $
    3,825
    
    
    
    5.79Noninterest-earning assets
    
    
    16,201
    
    
    
    
    
    
    
    
    
    
    
    17,613Total assets
    
    $
    343,816
    
    
    
    
    
    
    
    
    
    
    $
    281,696Liabilities and
Stockholders equity:Interest-bearing liablities:Interest-bearing
demand deposits
    
    $
    11,871
    
    
    $
    14
    
    
    
    0.47
    %
    
    $
    13,060
    
    
    $
    16
    
    
    
    0.49
    %Savings accounts
    
    
    23,787
    
    
    
    45
    
    
    
    0.76
    
    
    
    24,712
    
    
    
    62
    
    
    
    1.00Money market accounts
    
    
    37,429
    
    
    
    296
    
    
    
    3.16
    
    
    
    13,137
    
    
    
    138
    
    
    
    4.20Certificates of deposit
    
    
    85,208
    
    
    
    794
    
    
    
    3.73
    
    
    
    98,347
    
    
    
    1,156
    
    
    
    4.70Total interest-bearing
deposits
    
    
    158,295
    
    
    
    1,149
    
    
    
    2.90
    
    
    
    149,256
    
    
    
    1,372
    
    
    
    3.68Borrowings
    
    
    127,254
    
    
    
    1,273
    
    
    
    4.00
    
    
    
    74,549
    
    
    
    804
    
    
    
    4.31Total interest-bearing
liabilities
    
    
    285,549
    
    
    
    2,422
    
    
    
    3.39
    
    
    
    223,805
    
    
    
    2,176
    
    
    
    3.89Noninterest-bearing liabilities
    
    
    17,672
    
    
    
    
    
    
    
    
    
    
    
    12,737Total liabilities
    
    
    303,221
    
    
    
    
    
    
    
    
    
    
    
    236,542Stockholders equity
    
    
    40,595
    
    
    
    
    
    
    
    
    
    
    
    45,154Total liabilities and
stockholders equity
    
    $
    343,816
    
    
    
    
    
    
    
    
    
    
    $
    281,696Net interest income
    
    
    
    
    
    $
    2,180
    
    
    
    
    
    
    
    
    
    
    $
    1,649Interest rate spread (4)
    
    
    
    
    
    
    
    
    
    
    2.23
    %
    
    
    
    
    
    
    
    
    
    
    1.90
    %Net interest margin (5)
    
    
    
    
    
    
    
    
    
    
    2.66
    
    
    
    
    
    
    
    
    
    
    
    2.50Average interest-earning
assets to average
interest-bearing liablities
    
    
    
    
    
    
    
    
    
    
    114.73
    %
    
    
    
    
    
    
    
    
    
    
    118.00
    %
 
 (1)
    
    Amount is net of deferred loan costs, loans in process and allowance for loan losses.(2)
    
    Amount includes nonaccrual loans in average balances only.(3)
    
    Amount does not include effect of unrealized gain (loss) on securities available-for-sale.(4)
    
    Interest rate spread represents the difference between the weighted-average yield on
interest-earning assets and the weighted-average cost of interest-bearing liabilities.(5)
    
    Net interest margin represents net interest income divided by average interest-earning
assets. 20




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##### Table of Contents



Rate/Volume Analysis .
 Three Months Ended September 30, 2008Compared ToThree Months Ended September 30, 2007Increase (decrease) due to(Dollars in thousands)
    
    Volume
    
    Rate
    
    TotalInterest and dividend income:Loans, net
    
    $
    506
    
    
    $
    23
    
    
    $
    529Securities
    
    
    364
    
    
    
    (54
    )
    
    
    310Other interest-earning assets
    
    
    23
    
    
    
    (85
    )
    
    
    (62
    )Total interest-earning assets
    
    
    893
    
    
    
    (116
    )
    
    
    777Interest expense:Deposits
    
    
    82
    
    
    
    (305
    )
    
    
    (223
    )Borrowings
    
    
    531
    
    
    
    (62
    )
    
    
    469Total interest-bearing liablities
    
    
    613
    
    
    
    (367
    )
    
    
    246Change in net interest income
    
    $
    280
    
    
    $
    251
    
    
    $
    531
 Provision for Loan Losses.
 Noninterest Income .
 21




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##### Table of Contents



Noninterest Expense.
 Three Months EndedSeptember 30,(Dollars in thousands)
    
    2008
    
    
    2007Compensation and employee benefits
    
    $
    1,373
    
    
    $
    1,463Occupancy
    
    
    328
    
    
    
    301FDIC insurance premiums
    
    
    9
    
    
    
    6Data processing
    
    
    104
    
    
    
    94Advertising
    
    
    22
    
    
    
    45Professional services
    
    
    146
    
    
    
    129Stationary, printing and supplies
    
    
    27
    
    
    
    32Telephone
    
    
    13
    
    
    
    13Postage
    
    
    31
    
    
    
    29Correspondent bank fees
    
    
    38
    
    
    
    31Real estate owned expense
    
    
    114
    
    
    
    All other
    
    
    175
    
    
    
    183Total noninterest expense
    
    $
    2,380
    
    
    $
    2,326
  Income Tax (Benefit) Expense.
 Results of Operations for the Nine Months Ended September 30, 2008 and 2007
 Overview.
 Nine Months EndedSeptember 30,(Dollars in thousands)
    
    2008
    
    2007Net income (loss)
    
    $
    399
    
    
    $
    (1,374
    )Return on average assets
    
    
    0.16
    %
    
    
    (0.65
    )%Return on average equity
    
    
    1.26
    
    
    
    (4.00
    )Average equity to average assets
    
    
    12.70
    
    
    
    16.30
 Net Interest Income.
 22




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23




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##### Table of Contents



Average Balances and Yields .
 Nine Months Ended September 30,2008
    
    
    
    
    
    
    
    
    
    
    2007Interest
    
    
    
    
    
    
    
    
    
    
    InterestAverage
    
    
    and
    
    
    Yield/
    
    
    Average
    
    
    and
    
    
    Yield/Balance
    
    
    Dividends
    
    
    Cost
    
    
    Balance
    
    
    Dividends
    
    
    CostAssets:Interest-earning assets:Loans, net (1)(2)
    
    $
    203,051
    
    
    $
    8,937
    
    
    
    5.87
    %
    
    $
    178,462
    
    
    $
    7,764
    
    
    
    5.80
    %Securities (3)
    
    
    99,671
    
    
    
    4,074
    
    
    
    5.45
    
    
    
    75,742
    
    
    
    2,999
    
    
    
    5.28Other interest-earning assets
    
    
    11,227
    
    
    
    252
    
    
    
    2.99
    
    
    
    9,459
    
    
    
    408
    
    
    
    5.75Total interest-earning
assets
    
    
    313,949
    
    
    $
    13,263
    
    
    
    5.63
    
    
    
    263,663
    
    
    $
    11,171
    
    
    
    5.65Noninterest-earning assets
    
    
    17,873
    
    
    
    
    
    
    
    
    
    
    
    17,272Total assets
    
    $
    331,822
    
    
    
    
    
    
    
    
    
    
    $
    280,935Liabilities and
Stockholders equity:Interest-bearing liablities:Interest-bearing
demand deposits
    
    $
    11,900
    
    
    $
    42
    
    
    
    0.47
    %
    
    $
    13,065
    
    
    $
    47
    
    
    
    0.48
    %Savings accounts
    
    
    23,495
    
    
    
    140
    
    
    
    0.79
    
    
    
    25,452
    
    
    
    191
    
    
    
    1.00Money market accounts
    
    
    26,853
    
    
    
    640
    
    
    
    3.18
    
    
    
    10,984
    
    
    
    325
    
    
    
    3.95Certificates of deposit
    
    
    93,970
    
    
    
    2,866
    
    
    
    4.07
    
    
    
    94,229
    
    
    
    3,226
    
    
    
    4.56Total interest-bearing
deposits
    
    
    156,218
    
    
    
    3,688
    
    
    
    3.15
    
    
    
    143,730
    
    
    
    3,789
    
    
    
    3.51Borrowings
    
    
    116,812
    
    
    
    3,516
    
    
    
    4.01
    
    
    
    79,926
    
    
    
    2,569
    
    
    
    4.29Total interest-bearing
liabilities
    
    
    273,030
    
    
    
    7,204
    
    
    
    3.52
    
    
    
    223,656
    
    
    
    6,358
    
    
    
    3.79Noninterest-bearing liabilities
    
    
    16,645
    
    
    
    
    
    
    
    
    
    
    
    11,477Total liabilities
    
    
    289,675
    
    
    
    
    
    
    
    
    
    
    
    235,133Stockholders equity:
    
    
    42,147
    
    
    
    
    
    
    
    
    
    
    
    45,802Total liabilities and
stockholders equity
    
    $
    331,822
    
    
    
    
    
    
    
    
    
    
    $
    280,935Net interest income
    
    
    
    
    
    $
    6,059
    
    
    
    
    
    
    
    
    
    
    $
    4,813Interest rate spread (4)
    
    
    
    
    
    
    
    
    
    
    2.11
    %
    
    
    
    
    
    
    
    
    
    
    1.86
    %Net interest margin (5)
    
    
    
    
    
    
    
    
    
    
    2.57
    
    
    
    
    
    
    
    
    
    
    
    2.43Average interest-earning
assets to average
interest-bearing liablities
    
    
    
    
    
    
    
    
    
    
    114.99
    %
    
    
    
    
    
    
    
    
    
    
    117.89
    %
 
 (1)
    
    Amount is net of deferred loan costs, loans in process and allowance for loan losses.(2)
    
    Amount includes nonaccrual loans in average balances only.(3)
    
    Amount does not include effect of unrealized gain (loss) on securities available-for-sale.(4)
    
    Interest rate spread represents the difference between the weighted-average yield on
interest-earning assets and the weighted-average cost of interest-bearing liabilities.(5)
    
    Net interest margin represents net interest income divided by average interest-earning
assets. 24




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##### Table of Contents



Rate/Volume Analysis .
 Nine Months Ended September 30, 2008Compared ToNine Months Ended September 30, 2007Increase (decrease) due to(Dollars in thousands)
    
    Volume
    
    Rate
    
    TotalInterest and dividend income:Loans, net
    
    $
    1,078
    
    
    $
    95
    
    
    $
    1,173Securities
    
    
    975
    
    
    
    100
    
    
    
    1,075Other interest-earning assets
    
    
    67
    
    
    
    (223
    )
    
    
    (156
    )Total interest-earning assets
    
    
    2,120
    
    
    
    (28
    )
    
    
    2,092Interest expense:Deposits
    
    
    313
    
    
    
    (414
    )
    
    
    (101
    )Borrowings
    
    
    1,125
    
    
    
    (178
    )
    
    
    947Total interest-bearing liablities
    
    
    1,438
    
    
    
    (592
    )
    
    
    846Change in net interest income
    
    $
    682
    
    
    $
    564
    
    
    $
    1,246
 Provision for Loan Losses.
 Noninterest Income .
 25




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##### Table of Contents



Noninterest Expense.
 Nine Months EndedSeptember 30,(Dollars in thousands)
    
    2008
    
    
    2007Compensation and employee benefits
    
    $
    4,147
    
    
    $
    4,239Occupancy
    
    
    987
    
    
    
    832FDIC insurance premiums
    
    
    20
    
    
    
    17Data processing
    
    
    315
    
    
    
    279Advertising
    
    
    92
    
    
    
    118Professional services
    
    
    415
    
    
    
    413Stationary, printing and supplies
    
    
    84
    
    
    
    97Telephone
    
    
    45
    
    
    
    40Postage
    
    
    102
    
    
    
    94Correspondent bank fees
    
    
    117
    
    
    
    92Real estate owned expense
    
    
    114
    
    
    
    All other
    
    
    532
    
    
    
    524Total noninterest expense
    
    $
    6,970
    
    
    $
    6,745
  Income Tax (Benefit) Expense.
 Liquidity and Capital Management
 Liquidity Management .
    26




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##### Table of Contents

\

September 30,(Dollars in thousands)
    
    2008Loans in process
    
    $
    8,214Unused revolving lines of credit
    
    
    2,801Unused commercial business lines of credit
    
    
    2,267One-to-four family residential commitments
    
    
    1,345Consumer commitments
    
    
    434Commercial commitments
    
    
    1,375Total commitments outstanding
    
    $
    16,436
 Capital Management.
 Off-Balance Sheet Arrangements.
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk.
  
 Item 4. Controls and Procedures.
   27




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##### Table of Contents



PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings.
  
 Item 1A. Risk Factors.
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
  Total Number of
    
    
    Maximum NumberShares Purchased as
    
    
    of Shares that MayTotal Number
    
    
    Average Price
    
    
    Part of the Publicly
    
    
    Yet Be Purchasedof Shares
    
    
    Paid per
    
    
    Announced Program
    
    
    Under the ProgramPeriod
    
    Purchased (2)
    
    
    Share
    
    
    (1)
    
    
    (1)July 2008
    
    
    6,434
    
    
    $
    6.34
    
    
    
    6,325
    
    
    
    121,750August 2008
    
    
    5,366
    
    
    
    6.43
    
    
    
    1,500
    
    
    
    120,250September 2008
    
    
    22,000
    
    
    
    6.07
    
    
    
    22,000
    
    
    
    98,250Total
    
    
    33,800
    
    
    
    6.18
    
    
    
    29,825
 
 (1)
    
    On May 22, 2008, the Company announced that the board of directors had approved a
program allowing the Company to repurchase up to 140,000 shares of the Companys
outstanding common stock, which was approximately 5% of outstanding shares held by persons
other than FFMHC on that date. This repurchase program is scheduled to expire on November
30, 2008. As of September 30, 2008, 41,750 shares of the Companys common stock had been
repurchased under this program.(2)
    
    The Company purchased 3,975 shares that were not made pursuant to a publicly announced
program to satisfy the Companys obligation to purchase shares from participants in the
Companys Equity Incentive Plan to cover income taxes on vested shares. 
 Item 3. Defaults Upon Senior Securities.
  
 Item 4. Submission of Matters to a Vote of Security Holders.
 28




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##### Table of Contents



Item 5. Other Information.
  
 Item 6. Exhibits.
 3.1
    
    Amended and Restated Charter of FedFirst Financial Corporation (1)3.2
    
    Amended and Restated Bylaws of FedFirst Financial Corporation (2)4.0
    
    Specimen Stock Certificate of FedFirst Financial Corporation (1)31.1
    
    Rule 13a-14 (a) / 15d-14 (a) Certification (President and Chief Executive Officer)31.2
    
    Rule 13a-14 (a) / 15d-14 (a) Certification (Chief Financial Officer)32.1
    
    Certification of John G. Robinson pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2
    
    Certification of Robert C. Barry Jr. pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 (1)
    
    Incorporated herein by reference to the Exhibits to the Registration Statement on Form SB-2,
and amendments thereto, initially filed on December 17, 2004, Registration No. 333-121405.(2)
    
    Incorporated herein by reference to the Exhibits to FedFirst Financial Corporations Form 8-K
filed on October 26, 2007. 29




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##### Table of Contents



SIGNATURES
  FEDFIRST FINANCIAL CORPORATION(Registrant)Date:
November 14, 2008
    
    /s/ John G. RobinsonJohn G. RobinsonPresident and Chief Executive OfficerDate:
November 14, 2008
    
    /s/ Robert C. Barry Jr.Robert C. Barry Jr.Chief Financial Officer and Senior Vice President(Principal Financial Officer and Chief
Accounting Officer)
 30