FFCO (MM)

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 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

(Exact name of registrant as specified in its charter)

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
(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 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. (Check one):

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o       No þ

As of August 5, 2008, the issuer had 6,390,750 shares of common stock outstanding.

 

 

FORM 10-Q

INDEX

		Page
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements			1
Consolidated Statements of Financial Condition at June 30, 2008 (Unaudited) and December 31, 2007			1
Consolidated Statements of Operations (Unaudited) for the Three and Six Months Ended June 30, 2008 and 2007			2
Consolidated Statements of Changes in Stockholders’ Equity and Comprehensive (Loss) Income for the Six Months Ended June 30, 2008 and 2007 (Unaudited)			3
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2008 and 2007 (Unaudited)			4
Notes to the Unaudited Consolidated Financial Statements			5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			13
Item 3. Quantitative and Qualitative Disclosures About Market Risk			23
Item 4. Controls and Procedures			23
PART II – OTHER INFORMATION
Item 1. Legal Proceedings			24
Item 1A. Risk Factors			24
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			24
Item 3. Defaults Upon Senior Securities			24
Item 4. Submission of Matters to a Vote of Security Holders			25
Item 5. Other Information			25
Item 6. Exhibits			25
SIGNATURES
EX-10.1
EX-31.1
EX-31.2
EX-32.1
EX-32.2

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

		June 30,				December 31,
		2008				2007
(Dollars in thousands, except share data)		(UNAUDITED)
Assets:
Cash and cash equivalents:
Cash and due from banks		$	1,914			$	2,127
Interest-earning deposits			5,369				3,425
Total cash and cash equivalents			7,283				5,552
Securities available-for-sale			96,245				89,073
Loans, net			207,253				187,954
Federal Home Loan Bank (“FHLB”) stock, at cost			6,017				5,076
Accrued interest receivable — loans			1,011				966
Accrued interest receivable — securities			636				651
Premises and equipment, net			2,846				2,956
Bank-owned life insurance			7,674				7,538
Goodwill			1,080				1,080
Real estate owned			974				1,119
Other assets			564				366
Deferred tax assets			4,071				2,942
Total assets		$	335,654			$	305,273
Liabilities and Stockholders’ Equity:
Deposits:
Noninterest-bearing			11,137				8,918
Interest-bearing			157,420				146,640
Total deposits			168,557				155,558
Borrowings			120,908				101,074
Advance payments by borrowers for taxes and insurance			616				477
Accrued interest payable — deposits			787				1,116
Accrued interest payable — borrowings			485				413
Other liabilities			3,361				2,782
Total liabilities			294,714				261,420
Minority interest in subsidiary			83				80
Stockholders’ 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 6,397,075 and 6,518,200 shares outstanding			67				67
Additional paid-in-capital			29,241				29,084
Retained earnings — substantially restricted			18,408				18,520
Accumulated other comprehensive loss, net of deferred taxes of $(1,375) and $(45)			(2,133	)			(70	)
Unearned Employee Stock Ownership Plan (“ESOP”)			(1,987	)			(2,074	)
Common stock held in treasury, at cost (310,425 and 189,300 shares)			(2,739	)			(1,754	)
Total stockholders’ equity			40,857				43,773
Total liabilities and stockholders’ equity		$	335,654			$	305,273

See Notes to the Unaudited Consolidated Financial Statements

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

		For the Three Months								For the Six Months
		Ended June 30,								Ended June 30,
(Dollars in thousands, except per share data)		2008				2007				2008				2007
Interest income:
Loans		$	2,901			$	2,581			$	5,719			$	5,075
Securities			1,373				969				2,759				1,994
Other interest-earning assets			81				158				183				277
Total interest income			4,355				3,708				8,661				7,346
Interest expense:
Deposits			1,231				1,249				2,539				2,417
Borrowings			1,125				809				2,243				1,765
Total interest expense			2,356				2,058				4,782				4,182
Net interest income			1,999				1,650				3,879				3,164
Provision for loan losses			220				30				279				75
Net interest income after provision for loan losses			1,779				1,620				3,600				3,089
Noninterest income:
Fees and service charges			118				101				220				196
Insurance commissions			393				340				1,113				931
Income from bank-owned life insurance			69				72				136				142
Net gain (loss) on sales of securities			—				(1	)			156				(1,410	)
Loss on sale of real estate owned			—				—				(3	)			—
Other			9				4				12				7
Total noninterest income			589				516				1,634				(134	)
Noninterest expense:
Compensation and employee benefits			1,312				1,356				2,774				2,776
Occupancy			318				278				659				531
FDIC insurance premiums			5				5				11				11
Data processing			105				95				211				185
Other			496				471				935				916
Total noninterest expense			2,236				2,205				4,590				4,419
Minority interest in net income of consolidated subsidiary			13				7				56				38
Income (loss) before income tax expense (benefit)			119				(76	)			588				(1,502	)
Income tax expense (benefit)			54				(18	)			255				(475	)
Net income (loss)		$	65			$	(58	)		$	333			$	(1,027	)
Earnings (loss) per share:
Basic and diluted		$	0.01			$	(0.01	)		$	0.06			$	(0.16	)
Weighted-average shares outstanding:
Basic			5,995,088				6,444,010				5,983,500				6,414,977
Diluted			5,995,088				6,448,038				5,983,500				6,419,483

See Notes to the Unaudited Consolidated Financial Statements

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY AND
COMPREHENSIVE (LOSS) INCOME (UNAUDITED)

														Accumulated								Common
						Additional								Other								Stock				Total
		Common				Paid-in-				Retained				Comprehensive				Unearned				Held in				Stockholders’				Comprehensive
		Stock				Capital				Earnings				Loss				ESOP				Treasury				Equity				Loss
(Dollars in thousands)
Balance at January 1, 2007		$	67			$	28,787			$	20,475			$	(737	)		$	(2,246	)		$	—			$	46,346
Comprehensive income:
Net loss			—				—				(1,027	)			—				—				—				(1,027	)		$	(1,027	)
Transfer of securities to held for trading, net of tax of $(552)			—				—				—				857				—				—				857				857
Unrealized loss on securities available-for-sale, net of tax of $(435)			—				—				—				(675	)			—				—				(675	)			(675	)
Purchase of common stock to stock to be held in treasury (65,300 shares)			—				—				—				—				—				(611	)			(611	)
ESOP shares committed to be released (8,640 shares)			—				(6	)			—				—				86				—				80
Stock-based compensation expense			—				167				—				—				—				—				167
Stock awards forfeited			—				10				—				—				—				(10	)			—
Total comprehensive loss																														$	(845	)
Balance at June 30, 2007		$	67			$	28,958			$	19,448			$	(555	)		$	(2,160	)		$	(621	)		$	45,137

														Accumulated								Common
						Additional								Other								Stock				Total
		Common				Paid-in-				Retained				Comprehensive				Unearned				Held in				Stockholders’				Comprehensive
		Stock				Capital				Earnings				Loss				ESOP				Treasury				Equity				Loss
Balance at January 1, 2008		$	67			$	29,084			$	18,520			$	(70	)		$	(2,074	)		$	(1,754	)		$	43,773
Comprehensive income:
Net income			—				—				333				—				—				—				333			$	333
Unrealized loss on securities available-for-sale, net of tax of $(1,269)			—				—				—				(1,969	)			—				—				(1,969	)			(1,969	)
Reclassification adjustment on sales of securities available-for-sale, net of tax of $60			—				—				—				(94	)			—				—				(94	)			(94	)
Cumulative effect adjustment on benefit plan reserve			—				—				(445	)			—				—				—				(445	)
Purchase of common stock to be held in treasury (121,125 shares)			—				—				—				—				—				(985	)			(985	)
ESOP shares committed to be released (8,640 shares)			—				(16	)			—				—				87				—				71
Stock-based compensation expense			—				173				—				—				—				—				173
Total comprehensive loss																														$	(1,730	)
Balance at June 30, 2008		$	67			$	29,241			$	18,408			$	(2,133	)		$	(1,987	)		$	(2,739	)		$	40,857

See Notes to the Unaudited Consolidated Financial Statements

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

		For the Period
		Ended June 30,
(Dollars in thousands)		2008				2007
Cash flows from operating activities:
Net income (loss)		$	333			$	(1,027	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities
Minority interest in net income of consolidated subsidiary			56				38
Provision for loan losses			279				75
Depreciation			248				181
Net (gain) loss on sales of securities			(156	)			1,410
Proceeds from sales of securities held for trading			—				40,483
Proceeds from principal repayments of securities held for trading			—				638
Net loss on sale of real estate owned			3				—
Net amortization of security premiums and loan costs			(53	)			(651	)
Non cash expense for ESOP			71				80
Non cash expense for stock-based compensation			173				167
Increase in bank-owned life insurance			(136	)			(142	)
(Increase) decrease in other assets			(566	)			339
Increase (decrease) in other liabilities			356				(79	)
Net cash provided by operating activities			608				41,512
Cash flows from investing activities:
Net loan originations			(19,921	)			(4,890	)
Proceeds from sale of student loan portfolio			—				12
Proceeds from maturities of and principal repayments of securities available-for-sale			9,213				10,702
Proceeds from sales of securities available-for-sale			8,766				—
Purchases of securities available-for-sale			(28,352	)			(37,330	)
Purchases of premises and equipment			(138	)			(1,095	)
(Increase) decrease in FHLB stock, at cost			(941	)			855
Proceeds from sale of other real estate owned			509				—
Net cash used in investing activities			(30,864	)			(31,746	)
Cash flows from financing activities:
Net increase (decrease) in borrowings			19,834				(19,393	)
Net increase in deposits			12,999				10,562
Increase in advance payments by borrowers for taxes and insurance			139				145
Purchases of common stock held in treasury			(985	)			(611	)
Net cash provided by (used in) financing activities			31,987				(9,297	)
Net increase in cash and cash equivalents			1,731				469
Cash and cash equivalents, beginning of period			5,552				4,499
Cash and cash equivalents, end of period		$	7,283			$	4,968
Supplemental cash flow information:
Cash paid for:
Interest on deposits and borrowings		$	5,039			$	4,310
Income tax expense			31				25
Transfer of securities from available-for-sale to held for trading			—				42,531
Real estate acquired in settlement of loans			360				—

See Notes to the Unaudited Consolidated Financial Statements

Notes to the Unaudited Consolidated Financial Statements

Note 1. Basis of Presentation/Nature of Operations

The accompanying unaudited Consolidated Financial Statements include the accounts of FedFirst Financial Corporation, a federally chartered holding company (“FedFirst Financial” or the “Company”), whose wholly owned subsidiaries are First Federal Savings Bank (the “Bank”), a federally chartered stock savings bank, and FedFirst Exchange Corporation (“FFEC”), a subsidiary of the Bank. FFEC has an 80% controlling interest in Exchange Underwriters, Inc. Exchange Underwriters, Inc. is an independent insurance agency that offers property and casualty, commercial liability, surety and other insurance products. The Company is a majority owned subsidiary of FedFirst Financial Mutual Holding Company (“FFMHC”), a federally chartered mutual holding company. FFMHC has virtually no operations and assets other than an investment in the Company, and is not included in these financial statements. All significant intercompany transactions have been eliminated.

We operate as a community-oriented financial institution offering residential, multi-family and commercial mortgages, consumer loans and commercial business loans as well as a variety of deposit products for individuals and businesses from nine locations in southwestern Pennsylvania. We conduct insurance brokerage activities through Exchange Underwriters, Inc. The Bank is subject to competition from other financial institutions and to the regulations of certain federal and state agencies and undergoes periodic examinations by those regulatory authorities.

The unaudited consolidated financial statements were prepared in accordance with instructions to Form 10-Q and, therefore, do not include information or notes necessary for a complete presentation of financial position, results of operations, changes in stockholders’ equity and cash flows in conformity with accounting principles generally accepted in the United States of America (“GAAP”). However, all normal recurring adjustments that, in the opinion of management, are necessary to make the consolidated financial statements not misleading have been included. These interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007, as amended. Certain items previously reported have been reclassified to conform with the current reporting period’s format. The results of operations for the three and six months ended June 30, 2008 are not necessarily indicative of the results that may be expected for the full year or any other interim period.

In preparing financial statements in conformity with GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and income and expenses during the reporting period. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to determination of the allowance for losses on loans, the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans, evaluation of securities for other-than-temporary impairment and the valuation of deferred tax assets.

Note 2. Recent Accounting Pronouncements

The Hierarchy of Generally Accepted Accounting Principles. In May 2008, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standard (“SFAS”) No. 162, The Hierarchy of Generally Accepted Accounting Principles. SFAS No. 162 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements. This Statement is effective 60 days following the Securities and Exchange Commission’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles. The Company does not anticipate this statement having a material effect on its financial condition or operations upon adoption.

Accounting for Financial Guarantee Insurance Contracts – an interpretation of SFAS No. 60. In May 2008, the FASB issued SFAS No. 163, Accounting for Financial Guarantee Insurance Contracts – an interpretation of SFAS No. 60. This Statement clarifies how SFAS No. 60, Accounting and Reporting by

Insurance Enterprises , applies to financial guarantee insurance contracts issued by insurance enterprises, including the recognition and measurement of premium revenue and claim liabilities. It also requires expanded disclosures about financial guarantee insurance contracts. SFAS No. 163 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and all interim periods within those fiscal years, except for disclosures about the insurance enterprise’s risk-management activities, which are effective the first period (including interim periods) beginning after May 23, 2008. Except for the required disclosures, earlier application is not permitted. The Company does not anticipate this statement having a material effect on its financial condition or operations upon adoption.

Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities. In June 2008, the FASB issued FASB Staff Position (“FSP”) Emerging Issues Task Force (“EITF”) 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities. This FSP clarifies that all outstanding unvested share-based payment awards that contain rights to nonforfeitable dividends participate in undistributed earnings with common shareholders. Awards of this nature are considered participating securities and the two-class method of computing basic and diluted earnings per share must be applied. This FSP is effective for fiscal years beginning after December 15, 2008. The Company does not anticipate this FSP having a material effect on its financial condition or operations upon adoption.

Noncontrolling Interests in Consolidated Financial Statements – an amendment of Accounting Research Bulletin (“ARB”) No. 51. In December, 2007 the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements – an amendment of ARB No. 51 . SFAS 160 establishes standards related to the treatment of noncontrolling interests. A noncontrolling interest, sometimes called a minority interest, is the portion of equity in a subsidiary not attributable, directly or indirectly, to a parent. SFAS No. 160 will require noncontrolling interests to be treated as a separate component of equity, not as a liability or other item outside permanent equity. The Statement applies to the accounting for noncontrolling interests and transactions with noncontrolling interest holders in consolidated financial statements. The objective of this Statement is to improve the relevance, comparability, and transparency of the financial information that a reporting entity provides in its consolidated financial statements. Before this Statement was issued, limited guidance existed for reporting noncontrolling interests. As a result, considerable diversity in practice existed. So-called minority interests were reported in the consolidated statement of financial position as liabilities or in the mezzanine section between liabilities and equity. This statement, which the Company does not anticipate having a material effect on its financial condition or operations upon adoption, is effective for fiscal years and interim periods within those fiscal years beginning on or after December 15, 2008. Earlier application is prohibited.

The Fair Value Option for Financial Assets and Financial Liabilities: In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities . SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing certain entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. SFAS 159 expands the use of fair value accounting but does not affect existing standards which require assets and liabilities to be carried at fair value. The Company adopted the standards but did not elect the fair value option for any financial assets or financial liabilities as of January 1, 2008.

Fair Value Measurements: In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements . SFAS 157 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. This Statement does not require any new fair value measurements, however, for some entities the application of this Statement will change current practice. This statement was adopted on January 1, 2008 and did not have a material effect on the Company’s financial condition or operations.

Effective Date of FASB Statement No. 157: In February 2008, the FASB issued FSP 157-2, Effective Date of FASB Statement No. 157 , that permits a one-year deferral in applying the measurement provisions of SFAS 157 to non-financial assets and non-financial liabilities (non-financial items) that are not recognized or disclosed at fair value in an entity’s financial statements on a recurring basis (at least annually). Therefore, if

the change in fair value of a non-financial item is not required to be recognized or disclosed in the financial statements on an annual basis or more frequently, the effective date of application of SFAS 157 to that item is deferred until fiscal years beginning after November 15, 2008 and interim periods within those fiscal years. This deferral does not apply, however, to an entity that applied SFAS 157 in interim or annual financial statements prior to the issuance of FSP 157-2. This FSP will not have a material effect on the Company’s financial condition or operations upon adoption.

Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements: In March 2007, the Emerging Issues Task Force (“EITF”) reached a consensus on Issue No. 06-4 stating that for an endorsement split-dollar life insurance arrangement, an employer should recognize a liability for future benefits based on the substantive agreement with the employee. The consensus is effective for fiscal years beginning after December 15, 2007. The Company recognized the effects of applying the consensus on this issue through a $445,000 cumulative-effect adjustment to retained earnings at January 1, 2008.

Note 3. Securities

The following table sets forth the amortized cost and fair value of securities available-for-sale at the dates indicated (dollars in thousands).

						Gross				Gross
		Amortized				Unrealized				Unrealized				Fair
June 30, 2008		Cost				Gains				Losses				Value
Government-Sponsored Enterprises		$	15,712			$	113			$	161			$	15,664
Mortgage-backed			54,965				111				1,170				53,906
REMICs			25,033				49				1,506				23,576
Corporate debt			3,994				—				944				3,050
Equities			49				—				—				49
Total securities available-for-sale		$	99,753			$	273			$	3,781			$	96,245

						Gross				Gross
		Amortized				Unrealized				Unrealized				Fair
December 31, 2007		Cost				Gains				Losses				Value
Government-Sponsored Enterprises		$	22,321			$	353			$	—			$	22,674
Mortgage-backed			34,948				242				37				35,153
REMICs			27,875				80				478				27,477
Corporate debt			3,995				—				275				3,720
Equities			49				—				—				49
Total securities available-for-sale		$	89,188			$	675			$	790			$	89,073

The Company adopted SFAS 157 on January 1, 2008. SFAS 157 establishes a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Financial instruments are categorized based on the following characteristics or inputs to the valuation techniques:

	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.

The following tables set forth the fair value hierarchy of securities at June 30, 2008.

(Dollars in thousands)

Significant Other

Significant

Observable Inputs

Unobservable Inputs

June 30, 2008

(Level 2)

(Level 3)

Total

Securities available-for-sale

$

88,723

$

7,522

$

96,245

		Significant
(Dollars in thousands)		Unobservable Inputs
		(Level 3)
December 31, 2007		$	6,390
Total unrealized losses			(727	)
Paydowns and maturities			(164	)
Net transfers in (out) of level 3			2,023
June 30, 2008		$	7,522
The 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 June 30, 2008		$	(727	)

The level 3 securities at June 30, 2008 are comprised of 10 securities: six mortgage-backed securities valued at for $3.8 million, or 50.0% of the total; three corporate debt securities (pooled Trust Preferred insurance corporation obligations) valued at $3.0 million, or 40.5% of the total; and one REMIC private label Alt-A security valued at $717,000, or 9.5% of the total. As noted in the table above, reclassifications of securities are reported as net transfers in (out) of level 3 and are the result of the ability to obtain observable data and pricing.

The following table presents gross unrealized losses and fair value of securities aggregated by category and length of time that individual securities have been in a continuous loss position at the dates indicated (dollars in thousands).

		Less than 12 months												12 months or more												Total
		Number of				Fair				Unrealized				Number of				Fair				Unrealized				Number of				Fair				Unrealized
June 30, 2008		Securities				Value				Losses				Securities				Value				Losses				Securities				Value				Losses
Government-sponsored enterprises			2			$	3,839			$	161				—			$	—			$	—				2			$	3,839			$	161
Mortgage-backed			52				44,902				1,169				2				17				1				54				44,919				1,170
REMICs:
Private label issuer:
Prime fixed and adjustable rate			5				2,834				164				1				676				108				6				3,510				272
Alt-A fixed rate			10				8,917				942				1				1,360				235				11				10,277				1,177
Government-sponsored enterprises			8				3,651				57				—				—				—				8				3,651				57
Total REMICs			23				15,402				1,163				2				2,036				343				25				17,438				1,506
Corporate debt			—				—				—				3				3,050				944				3				3,050				944
Total securities temporarily impaired			77			$	64,143			$	2,493				7			$	5,103			$	1,288				84			$	69,246			$	3,781

		Less than 12 months												12 months or more																Total
		Number of				Fair				Unrealized				Number of				Fair				Unrealized				Number of				Fair				Unrealized
December 31, 2007		Securities				Value				Losses				Securities				Value				Losses				Securities				Value				Losses
Mortgage-backed			8			$	9,946			$	35				3			$	119			$	2				11			$	10,065			$	37
REMICs:
Private label issuer:
Prime fixed and adjustable rate			2				778				2				2				1,028				16				4				1,806				18
Alt-A fixed rate			7				8,390				380				1				766				57				8				9,156				437
Government-sponsored enterprises			3				3,277				22				5				130				1				8				3,407				23
Total REMICs			12				12,445				404				8				1,924				74				20				14,369				478
Corporate debt			—				—				—				3				3,720				275				3				3,720				275
Total securities temporarily impaired			20			$	22,391			$	439				14			$	5,763			$	351				34			$	28,154			$	790

The Company invests in and is subject to credit risk related to private label mortgage-backed securities that are directly supported by underlying mortgage loans. The Company’s private label mortgage-backed securities are credit-enhanced, senior tranches of securities in which the subordinate classes of the securities provide credit support for the senior class of securities. Losses in the underlying loan pool would generally have to exceed the credit support provided by the subordinate classes of securities before the senior class of securities would experience any credit losses. The Company also invests in corporate debt and is subject to credit risk related to pooled Trust Preferred insurance corporation obligations.

The Company has reviewed its available for sale investment securities at June 30, 2008 and has determined that all unrealized losses are temporary, based on an evaluation of the creditworthiness of the issuers/guarantors as well as the underlying collateral, if applicable, and other facts and circumstances. The Company monitors the credit ratings of all securities for downgrades as well as placement on negative outlook or credit watch. Also, management evaluates other facts and circumstances that may be indicative of an other than temporary impairment condition. Additionally, the Company has the ability and the intent to hold such securities through to recovery of the unrealized losses. The ability and intent of the Company is demonstrated by the fact that the Company is well capitalized and has no need to sell these securities. As a result of this evaluation, management does not believe it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the individual securities. Therefore, the Company does not consider the investments to be other-than-temporarily impaired at June 30, 2008.

Note 4. Loans

The following table sets forth the composition of our loan portfolio at the dates indicated.

		June 30, 2008								December 31, 2007								June 30, 2007
(Dollars in thousands)		Amount				Percent				Amount				Percent				Amount				Percent
Real estate-mortgage:
One-to-four family residential		$	146,466				67.7	%		$	135,453				70.4	%		$	132,819				73.3	%
Multi-family			9,215				4.3				11,985				6.2				15,106				8.3
Commercial			18,668				8.6				14,483				7.5				12,438				6.9
Total real estate-mortgage			174,349				80.6				161,921				84.1				160,363				88.5
Real estate-construction:
Residential			9,395				4.3				6,671				3.5				3,206				1.8
Commercial			2,673				1.2				—				—				—				—
Total real estate-construction			12,068				5.5				6,671				3.5				3,206				1.8
Consumer:
Home equity			21,143				9.8				17,862				9.3				12,209				6.7
Loans on savings accounts			689				0.3				675				0.4				410				0.2
Home improvement			253				0.1				281				0.1				318				0.2
Other			617				0.3				592				0.3				666				0.4
Total consumer			22,702				10.5				19,410				10.1				13,603				7.5
Commercial business			7,411				3.4				4,341				2.3				3,916				2.2
Total loans		$	216,530				100.0	%		$	192,343				100.0	%		$	181,088				100.0	%
Net premiums on loans purchased			143								191								251
Net deferred loan costs			556								491								446
Loans in process			(8,460	)							(3,614	)							(1,384	)
Allowance for loan losses			(1,516	)							(1,457	)							(941	)
Loans, net		$	207,253							$	187,954							$	179,460

Nonperforming Assets. The following table provides information with respect to our nonperforming assets at the dates indicated.

		June 30,				December 31,				June 30,
(Dollars in thousands)		2008				2007				2007
Nonaccrual loans:
Real estate — mortgage		$	749			$	1,264			$	477
Real estate — construction			—				—				—
Consumer			4				17				169
Commercial business			—				—				—
Total			753				1,281				646
Accruing loans past due 90 days or more			—				—				—
Total of nonaccrual and 90 days or more past due loans (nonperforming loans)			753				1,281				646
Real estate owned			974				1,119				569
Total nonperforming assets		$	1,727			$	2,400			$	1,215
Troubled debt restructurings			—				—				—
Troubled debt restructurings and total nonperforming assets		$	1,727			$	2,400			$	1,215
Total nonperforming loans to total loans			0.35	%			0.67	%			0.36	%
Total nonperforming loans to total assets			0.22				0.42				0.24
Total nonperforming assets to total assets			0.51				0.79				0.44

Allowance for loan losses. The allowance for loan losses is a valuation allowance for probable losses inherent in the loan portfolio. We evaluate the need to establish allowances against losses on loans on a quarterly basis. When additional allowances are necessary, a provision for loan losses is recorded. The following table summarizes the activity in the allowance for loan losses for the periods indicated.

		Three Months Ended								Six Months Ended								Year Ended
		June 30,								June 30,								December 31,
(Dollars in thousands)		2008				2007				2008				2007				2007
Allowance at beginning of period		$	1,345			$	911			$	1,457			$	866			$	866
Provision for loan losses			220				30				279				75				1,119
Charge-offs			(49	)			—				(220	)			—				(528	)
Recoveries			—				—				—				—				—
Net charge-offs			(49	)			—				(220	)			—				(528	)
Allowance at end of period		$	1,516			$	941			$	1,516			$	941			$	1,457

Note 5. Deposits

The following table sets forth the balances of our deposit products at the dates indicated.

		June 30, 2008								December 31, 2007								June 30, 2007
(Dollars in thousands)		Amount				Percent				Amount				Percent				Amount				Percent
Noninterest-bearing demand deposits		$	11,137				6.6	%		$	8,918				5.7	%		$	8,799				5.7	%
Interest-bearing demand deposits			12,014				7.1				11,864				7.6				13,341				8.7
Savings accounts			23,950				14.2				23,056				14.8				25,145				16.3
Money market accounts			33,154				19.7				13,676				8.8				12,032				7.8
Certificates of deposit			88,302				52.4				98,044				63.1				94,740				61.5
Total deposits		$	168,557				100.0	%		$	155,558				100.0	%		$	154,057				100.0	%

Note 6. Borrowings

We utilize borrowings as a supplemental source of funds for loans and securities. The primary source of borrowings are FHLB advances and, to a limited extent, repurchase agreements. The following table sets forth information concerning our borrowings for the periods indicated.

		Six Months				Year				Six Months
		Ended				Ended				Ended
		June 30,				December 31,				June 30,
(Dollars in thousands)		2008				2007				2007
Maximum amount outstanding at any month end during the period		$	121,776			$	101,074			$	89,663
Average amounts outstanding during the period			111,534				82,880				82,659
Weighted average rate during the period			4.02	%			4.32	%			4.27	%
Balance outstanding at end of period		$	120,908			$	101,074			$	69,930
Weighted average rate at end of period			3.84	%			4.30	%			4.10	%

Note 7. Earnings (Loss) Per Share

Basic earnings per common share is calculated by dividing the net income (loss) available to common stockholders by the weighted-average number of common shares outstanding during the period. Diluted earnings per common share is computed in a manner similar to basic earnings per common share except that the weighted-average number of common shares outstanding is increased to include the incremental common shares (as computed using the treasury stock method) that would have been outstanding if all potentially dilutive common stock equivalents were issued during the period. Common stock equivalents include restricted stock awards and stock options. Anti-dilutive shares are common stock equivalents with weighted-average exercise prices in excess of the weighted-average market value for the periods presented. There was no dilution from stock options for the three months or six months ended June 30, 2008. Unallocated common shares held by the Employee Stock Ownership Plan (“ESOP”) are not included in the weighted-average number of common shares outstanding for purposes of calculating both basic and diluted earnings per common share until they are committed to be released.

		Three Months Ended								Six Months Ended
		June 30,								June 30,
(Dollars in thousands, except per share amounts)		2008				2007				2008				2007
Net income (loss)		$	65			$	(58	)		$	333			$	(1,027	)
Weighted-average shares outstanding:
Basic			5,995,088				6,444,010				5,983,500				6,414,977
Effect of dilutive stock options and restrictive stock awards			—				4,028				—				4,506
Diluted			5,995,088				6,448,038				5,983,500				6,419,483
Earnings (loss) per share:
Basic		$	0.01			$	(0.01	)		$	0.06			$	(0.16	)
Diluted		$	0.01			$	(0.01	)		$	0.06			$	(0.16	)

Note 8. Insurance Activities of Exchange Underwriters, Inc. and Related Information

Exchange Underwriters, Inc. is managed separately from the banking and related financial services that the Company offers. Exchange Underwriters, Inc. is a full-service, independent insurance agency that offers property and casualty, commercial general liability, surety and other insurance products. The following table sets forth information for Exchange Underwriters, Inc. for the dates indicated.

		Three Months								Six Months								Year
		Ended								Ended								Ended
		June 30,								June 30,								December 31,
(Dollars in thousands)		2008				2007				2008				2007				2007
Insurance commissions		$	393			$	340			$	1,113			$	931			$	1,639
Income before income tax expense			109				70				481				341				472

		June 30,								December 31,
		2008				2007				2007
Total assets		$	1,276			$	1,145			$	1,258

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

This discussion should be read in conjunction with the unaudited consolidated financial statements, notes and tables included in this report. For further information, refer to the consolidated financial statements and notes included in FedFirst Financial Corporation’s Annual Report on Form 10-K for the year ended December 31, 2007, as amended.

Forward-Looking Statements

This report contains certain “forward-looking statements” within the meaning of the federal securities laws. These statements are not historical facts, rather statements based on FedFirst Financial’s current expectations regarding its business strategies, intended results and future performance. Forward-looking statements are preceded by terms such as “expects,” “believes,” “anticipates,” “intends” and similar expressions.

Management’s ability to predict results or the effect of future plans or strategies is inherently uncertain. Factors which could affect actual results include the following: interest rate trends; the general economic climate in the market area in which FedFirst Financial operates, as well as nationwide; FedFirst Financial’s

ability to control costs and expenses; competitive products and pricing; loan delinquency rates and changes in federal and state legislation and regulation. Additional factors that may affect our results are discussed in FedFirst Financial’s Annual Report on Form 10-K under “Item 1A. Risk Factors.” These factors should be considered in evaluating the forward-looking statements and undue reliance should not be placed on such statements. FedFirst Financial assumes no obligation to update any forward-looking statements.

General

FedFirst Financial Corporation (“FedFirst Financial” or the “Company”) is a federally chartered savings and loan holding company established in 1999 to be the holding company for First Federal Savings Bank (“First Federal” or the “Bank”), a federally chartered savings bank. FedFirst Financial’s business activity is the ownership of the outstanding capital stock of First Federal. FedFirst Financial does not own or lease any property, but uses the premises, equipment and other property of First Federal with the payment of appropriate rental fees, as required by applicable law and regulations, under the terms of an expense allocation agreement. In the future, FedFirst Financial may acquire or organize other operating subsidiaries; however, there are no current plans, arrangements, agreements or understandings, written or oral, to do so.

We operate as a community-oriented financial institution offering residential, multi-family and commercial mortgages, consumer loans and commercial business loans as well as a variety of deposit products for individuals and businesses from nine locations in southwestern Pennsylvania. We conduct insurance brokerage activities through Exchange Underwriters, Inc., an 80%-owned subsidiary. The Bank is subject to competition from other financial institutions and to the regulations of certain federal and state agencies and undergoes periodic examinations by those regulatory authorities.

FedFirst Financial Mutual Holding Company (“FFMHC”) is our federally chartered mutual holding company parent. As a mutual holding company, FFMHC is a non-stock company that has as its members the depositors of First Federal. FFMHC does not engage in any business activity other than owning a majority of the common stock of FedFirst Financial. So long as we remain in the mutual holding company form of organization, FFMHC will own a majority of the outstanding shares of FedFirst Financial.

Our website address is www.firstfederal-savings.com. Information on our website should not be considered a part of this Form 10-Q.

Balance Sheet Analysis

Assets. Total assets at June 30, 2008 were $335.7 million, an increase of $30.4 million, or 10.0%, from total assets of $305.3 million at December 31, 2007.

Securities available-for-sale increased $7.2 million, or 8.1%, to $96.2 million at June 30, 2008 compared to $89.1 million at December 31, 2007. In March 2008, the Company purchased $24.4 million in mortgage-backed securities and $4.0 million in Government-sponsored enterprise securities, which was partially offset by the sales and calls of $10.8 million in Government-sponsored enterprise securities and paydowns. This activity was based on an evaluation of the securities portfolio in March 2008 in light of the current economic environment, whereby the Company determined there were several securities likely to be called. In addition, the securities portfolio reflects an unrealized loss of $3.5 million at June 30, 2008 compared to $115,000 at December 31, 2007.

Loans, net, increased $19.3 million, or 10.3%, to $207.3 million at June 30, 2008 compared to $188.0 million at December 31, 2007. The increase was primarily the result of growth in one-to-four family residential real estate, commercial real estate, home equity, and commercial business loans partially offset by payoffs on multi-family loans.

Real estate owned decreased $145,000 to $974,000 at June 30, 2008 compared to $1.1 million at December 31, 2007. The Company sold one property for $509,000. We also transferred two one-to-four family residential real estate properties valued at $360,000 into real estate owned. As part of taking possession of these properties, the Company recorded $183,000 in charge-offs.

Liabilities. Total liabilities at June 30, 2008 were $294.7 million, compared to $261.4 million at December 31, 2007, an increase of $33.3 million, or 12.7%.

Total deposits increased $13.0 million, or 8.4%, to $168.6 million at June 30, 2008 compared to $155.6 million at December 31, 2007. The increase in deposits was primarily in money market deposit and noninterest-bearing demand deposit accounts. The Company offers a competitive rate on its money market accounts to attract new customers with the intention of retaining and building on such relationships in the future. In addition, the relationships developed with our loan customers have helped drive the increase in money market accounts as well as in noninterest-bearing demand deposits. This increase was partially offset by a decrease in certificates of deposit, primarily in higher costing short-term certificates.

Borrowings increased $19.8 million, or 19.6%, to $120.9 million at June 30, 2008 compared to $101.1 million at December 31, 2007. We utilized borrowings to purchase securities and fund loan growth.

Stockholders’ Equity. Stockholders’ equity was $40.9 million at June 30, 2008, a decrease of $2.9 million from December 31, 2007. The decrease in stockholders’ equity was primarily due to the $2.0 million change in the unrealized loss position of the securities portfolio, net of tax, the repurchase of $985,000 in common stock, and the recognition of a cumulative effect adjustment of $445,000 in the Company’s bank-owned life insurance benefit plan reserve as a result of the adoption of EITF Issue No. 06-4. The decrease was partially offset by net income of $333,000 for the six months ended June 30, 2008.

Results of Operations for the Three Months Ended June 30, 2008 and 2007

Overview. The Company had net income of $65,000 for the three months ended June 30, 2008, compared to a net loss of $58,000 for the same period in 2007.