For the full-year of 2008, net incomewas $23.0 million and earnings per diluted share were $0.61, compared with netincome of $35.7 million and earnings per diluted share of $0.93 for the full-year of 2007. For the fourth quarter of 2008, net income was $2.1 million andearnings per diluted share were $0.06, compared with net income of $10.7million and earnings per diluted share of $0.29 for the fourth quarter of2007, and net income of $5.7 million and earnings per diluted share of $0.15for the third quarter of 2008.The following table presents First Financial's return on average assetsand return on average shareholders' equity for the third and fourth quartersof 2008, the fourth quarter of 2007, and the full-years of 2008 and 2007.Table IQuarter Year 4Q-08 3Q-08 4Q-0720082007Return on Average Assets 0.23 0.66 1.27 0.67 1.08Return on Average Shareholders' Equity2.89 8.2415.37 8.2112.73Fourth quarter 2008 results, when compared with the third quarter of 2008,were impacted by the previously announced increase in the loan loss reserveand a higher level of net charge-offs due to the rapid deterioration in theoverall economic environment. The financial impact of these items was adecrease to fourth quarter 2008 net income and earnings per diluted share onan after-tax basis of $4.9 million, or $0.13 per share, respectively.The following table presents a summary of significant items impactingresults for the third and fourth quarters and full-years of 2008 and 2007.Table II ($ in thousands, excluding per share data)2008 2007 Full-Year4Q3Q Full-Year4Q 3QLoss on FHLMC shares$(3,738) $(137) $(3,400) $-$- $-Increase in Loan Loss Reserve & Higher Charge-offs (7,539)(7,539) - - Gain on Sale of Merchant Payment Processing Portfolio - 5,501 5,501-Pension Settlement Charges -(2,222) (2,222) -Gains on Sales of Investment Securities (VISA 2008; MasterCard 2007)1,585 367 -367Gain on Sale of Mortgage Servicing Rights - 1,061 Visa Member Litigation Charges -(461) (461) -Impact to Pre- Tax Net Income$(9,692) $(7,676) $(3,400) $4,246$2,818 $367After-Tax Impact to Earnings Per Diluted Share$(0.17)$(0.13)$(0.06)$0.07 $0.05$0.01Loss related to the company's investment in 200,000 Federal Home Loan Mortgage Corporation (FHLMC) perpetual preferred series V shares.Commenting on the company's results, Claude Davis, First FinancialBancorp's president and chief executive officer said, "We are taking a numberof steps to better position ourselves for these uncertain economic conditions.Throughout 2008, the company grew commercial loans, controlled its expenses,and maintained strong capital and liquidity levels. Ourassociates are to be commended for their dedication and hard work. "The expected quarterly cash dividend will be reduced to $0.10 pershare from the previous $0.17 per share. We believe that this action isconsistent with our other capital management strategies and will further boostour already strong capital levels.
economy, we believe that our excess risk-based capital position will allow the company to successfully weather theeconomic challenges that lie ahead, and still allow us to take advantage ofgrowth opportunities."For additional information on First Financial's comparable financialresults, please refer to the discussions that follow detailing revenue andexpense fluctuations.DETAILS OF RESULTSUnless otherwise noted, all amounts discussed in this earnings release arepre-tax except net income and per-share data which are presented after-tax.Percentage changes are not annualized unless specifically noted.CREDIT QUALITYThe following table presents First Financial's key credit quality metrics.Table IIIThree Months EndedDec 31, Sept 30, June 30, March 31, Dec. 31,2008 20082008 20082007 Total NonperformingLoans $18,185$14,038$15,366$15,253$14,680 Total NonperformingAssets$22,213$18,648$19,129$17,621$17,316 Nonperforming Assetsas a of:Period-End Loans, Plus Other Real Estate Owned 0.830.700.710.670.67Total Assets0.600.530.550.530.51 Nonperforming Loans asa of Total Loans0.680.530.570.580.56 Allowance for Loan &Lease Losses$35,873$30,353$29,580$29,718$29,057 Allowance for Loan &Lease Losses as a of:Period-End Loans1.3184.108.40.206.12Nonaccrual Loans 199.5 219.5 199.7 202.3 205.9Nonperforming Loans197.3 216.2 192.5 194.8 197.9 Total Net Charge-Offs $4,955 $2,446 $2,631 $2,652 $1,719 Annualized Net-Charge-Offs as a of AverageLoans & Leases0.730.360.400.400.26Table III Twelve Months EndedDec 31,Dec. 31,20082007Total Nonperforming Loans $18,185 $14,680Total Nonperforming Assets$22,213 $17,316Nonperforming Assets as a of: Period-End Loans, PlusOther Real EstateOwned 0.83 0.67 Total Assets 0.60 0.51Nonperforming Loans as a of Total Loans 0.68 0.56Allowance for Loan & Lease Losses $35,873 $29,057Allowance for Loan & Lease Losses as a of: Period-End Loans 1.34 1.12 Nonaccrual Loans199.5205.9 Nonperforming Loans 197.3197.9Total Net Charge-Offs $12,594$5,981Annualized Net-Charge- Offs as a of Average Loans & Leases 0.47 0.24First Financial's credit quality trends were relatively stable and withintheir expected range throughout most of 2008. However, toward the end of theyear, the company began to experience some deterioration within its commerciallending portfolios as borrowers came under increased stress due to thecontinued economic downturn, eroding real estate values and increasing levelsof unemployment. During the fourth quarter, the company announced itsintentions to charge-off two large and previously identified credits from itscommercial and commercial real estate lending portfolios.
This action resultedin a $2.4 million increase to net charge-offs compared with the third quarter2008 level. These two credits were 9 basis points of the full-year 2008 netcharge-offs to average loans and leases ratio of 47 basis points.Also consistent with the deteriorating economic conditions, the resolutionof problem credits across all lending portfolios has begun to take longer thanpreviously experienced, resulting in nonperforming loans increasing at afaster pace than historical levels. At the end of the fourth quarter of 2008,total nonperforming loans increased $4.1 million to $18.2 million, or 0.68 oftotal loans, compared with $14.0 million, or 0.53 of total loans at the endof the third quarter of 2008.Although credit costs trended higher during the fourth quarter of 2008,coverage ratios remained strong. The allowance for loan and lease losses as apercent of nonperforming loans was 197.3 at the end of the fourth quarter of2008, compared with 216.2 at the end of the third quarter of 2008.First Financial believes that its fourth quarter and full-year 2008 creditcosts, although higher than previous levels, are still favorable relative toindustry and peer levels.Total loans 30 to 89 days past due at December 31, 2008 were $22.6million, or 0.84 of period end loans, compared with $22.3 million, or 0.84at September 30, 2008, and $26.5 million, or 1.02 at December 31, 2007.Management closely monitors these trends and ratios and currently considersthe level of delinquent loans consistent with its expectation of the totalloan portfolio's behavior.The allowance for loan and lease losses grew a net $5.5 million from thethird quarter level. This increase reflects the company's recognition of acontinuing decline in economic conditions and the uncertainty surrounding thetiming of an economic recovery. The allowance for loan and lease losses as apercent of period-end loans is based on the estimated potential lossesinherent in the loan portfolio in today's economic environment. The companybelieves that the $35.9 million allowance for loan and lease losses atDecember 31, 2008 or 1.34 of period end loans is adequate to absorb probablecredit losses inherent in its lending portfolio.Other real estate owned decreased $0.6 million to $4.0 million at December31, 2008 from $4.6 million at September 30, 2008, and increased $1.4 millionfrom $2.6 million at December 31, 2007.