First Financial Service Corporation (the Company), (Nasdaq: FFKY)
today announced diluted net income per share of $0.21 for the
quarter ended September 30, 2008, compared to $0.45 for the quarter
ended September 30, 2007. Diluted net income per share for the nine
months ended September 30, 2008, was $1.06, compared to $1.46 for
the nine months ended September 30, 2007. The third quarter and
year-to-date earnings decline was primarily driven by a higher
provision for loan loss specifically reserved against a previously
classified commercial real estate relationship. �The financial
services industry is facing challenging times as the nation forges
through this period of economic uncertainty,� stated Chief
Executive Officer, B. Keith Johnson. �The Company has not remained
immune to this unstable environment. We have substantially
increased our allowance for loan losses during the quarter arising
from deterioration of the fair value of a commercial real estate
development loan. This relationship was previously classified
during the first quarter of 2008. Although a higher provision was
recorded in the third quarter, the Bank remains well-capitalized in
regards to regulatory guidelines as of September 30, 2008. Also,
the Bank has no exposure to Freddie Mac and Fannie Mae preferred
stock. In addition, we do not have direct exposure to interest rate
swaps or other complex derivative instruments.� �Despite economic
pressures, the total loan portfolio grew $28.9 million from the
prior quarter as the communities within our current geographic
footprint continued to expand. We are committed to serving the
strong relationships we have developed over the years with our
customers. Credit quality metrics have improved as non-performing
loans have decreased to 1.41% of total loans as of September 30,
2008 from 1.81% at June 30, 2008. Non-performing assets have also
improved to 2.07% of total assets as of September 30, 2008 from
2.23% at June 30, 2008. As we move forward, we remain optimistic
that we can weather the impact of the current interest rate
environment and the aftermath of recent governmental legislation.�
During the third quarter, the Company opened its twentieth banking
center, which expanded the Bank�s current footprint in Bullitt
County, Kentucky. The Cedar Grove Banking Center complements the
existing branches located in Shepherdsville and Mt. Washington,
Kentucky. The Bank will continue its expansion efforts in the
fourth quarter with two additional branches that will be under
development. The first branch will be in Hardin County, Kentucky
located at the entrance to the Fort Knox military base. The other
branch will be the fourth site in Louisville, Kentucky located in
the Middletown area. Total deposits were $776.9 million at
September 30, 2008, a decrease of $8.2 million for the quarter and
an increase of $87.7 million for the year, including $56.3 million
from the acquisition. Our acquisition of The Farmers State Bank has
broadened our retail branch network to fifteen in the Louisville
Metropolitan Area, which now extends into Southern Indiana. As
previously noted, additional sites within the Louisville market are
under development with our next location scheduled to open in the
second quarter of 2009. Competition for deposits is fierce in all
of the markets we serve. This intense competition and future
federal rate cuts could add to additional margin compression as the
interest rate environment continues to be volatile. Commercial
lending continues to be the Company�s focus, which has resulted in
a 10% compound annual growth rate in the total loan portfolio and a
12% compound annual growth rate in commercial loans since the
beginning of 2004. Commercial loans were $608.9 million at
September 30, 2008, an increase of $24.8 million, or 4%, for the
third quarter and $64.0 million, or 12% for the year. The growth in
the Company�s commercial loan portfolio has favorably impacted the
level of interest income generated by the Company. Average earning
assets increased by $109.1 million as of September 30, 2008,
compared to September 30, 2007. Despite the increase in earning
assets, the Company�s net interest margin realized a decline of ten
basis points. Net interest margin decreased to 3.81% for the nine
months ended September 30, 2008, compared to 3.91% for the same
period in 2007. The Federal Reserve has decreased the Federal Funds
rate by 225 basis points in 2008 through September 30th. In
addition, the Federal Reserve slashed the federal funds rate an
additional 50 basis points on October 8, 2008 in an emergency rate
cut. Variable rate loans that are tied to the federal prime rate
are immediately repriced downward with these rate cuts. However,
interest rates paid on customer deposits have not adjusted downward
proportionately with the declining interest yields on loans and
investments. Sixty percent of deposits are time deposits that
reprice over a longer period of time. The increase in the volume of
earning assets did have a positive impact on net interest income,
which increased $744,000 and $1,262,000 for the three and nine
months ended September 30, 2008, compared to the respective periods
ended September 30, 2007. The percentage of non-performing loans to
total loans increased to 1.41% at September 30, 2008 compared to
1.00% at September 30, 2007, but has improved compared to 1.81% at
June 30, 2008. Annualized net charge-offs as a percent of average
total loans were 0.09% for the quarter ended September 30, 2008,
compared to 0.02% for September 30, 2007. Net charge-offs are
higher in 2008 due primarily to $246,000 partial charge-off of a
classified commercial real estate relationship in the second
quarter. Provision for loan loss expense increased $980,000 to
$1,720,000 for the three months ended September 30, 2008, compared
to the same period ended September 30, 2007. The increase for the
third quarter was related to an additional $1,359,000 of specific
reserve for a classified commercial real estate development loan.
For the nine months ended September 30, 2008, provision for loan
loss expense increased $1,871,000 to $2,819,000 compared to the
nine months ended September 30, 2007. The increase in provision for
loan loss expense year-to-date was related to growth in the loan
portfolio, as well as from the specific reserves set aside for
loans classifieds during 2008. The Company recorded a lower
provision for loan loss expense during the first quarter of 2007,
based on improved performance of one of the Company�s credit
relationships. Non-interest income increased $162,000 for the three
months ended September 30, 2008, compared the three months ended
September 30, 2007. Customer service fees on deposit accounts
increased $306,000 for the third quarter 2008 compared to the same
quarter in 2007. Brokerage commissions and gain on sale of mortgage
loans also increased for the quarter, while other income declined.
For the nine months ended September 30, 2008 non-interest income
increased $271,000, compared to the nine months ended September 30,
2007. Non-interest income was decreased by a $216,000 write-down of
other-than-temporary impaired investment securities in the second
quarter of 2008. The increase in 2008 was also offset by a $227,000
gain on the sale of real estate held for development included in
2007�s non-interest income with no such gain recorded in 2008. This
real estate was held for development through the Company�s wholly
owned subsidiary, First Federal Office Park, LLC. Only one other
property remains for sale in this development. Further reducing
non-interest income for the year was as 10% or $151,000 write-down,
in the third quarter, of the carrying value of a real estate owned
property that had been held for twelve months. Non-interest expense
increased $1.6 million to $7.6 million for the three months ended
September 30, 2008, compared to the same three months ended
September 30, 2007. Contributing to the increase in non-interest
expense for the quarter was a $731,000 increase in employee
compensation expense. Twenty-five associates have been added to
support our recent expansion efforts, plus an additional twenty
employees were added in the second quarter as a result of the
acquisition. Also contributing to the increase to non-interest
expense were increases in office occupancy expense and equipment,
FDIC insurance premiums, information systems and outside services
and other expenses. For the nine months ended September 30, 2008,
non-interest expense increased $2.7 million compared to the same
nine months ended September 30, 2007. The increase was partially
offset by the one-time write-off of $229,000 in unamortized
issuance costs of our trust preferred securities in the first
quarter of 2007. First Financial Service Corporation is the parent
bank holding company of First Federal Savings Bank of
Elizabethtown, which was chartered in 1923. The Bank serves the
needs and caters to the economic strengths of the local communities
in which it operates and strives to provide a high level of
personal and professional customer service. The Bank offers a
variety of financial services to its retail and commercial banking
customers. These services include personal and corporate banking
services, and personal investment financial counseling services.
Today, the Bank serves seven contiguous counties encompassing
Central Kentucky and the Louisville Metropolitan area, including
Southern Indiana, through its 20 full-service banking centers and a
commercial private banking center. This press release contains
forward-looking statements under the Private Securities Litigation
Reform Act of 1995 that are subject to certain risks and
uncertainties that could cause actual results to differ materially
from historical income and those presently anticipated or
projected. The Company cautions readers not to place undue reliance
on any such forward-looking statements, which speak only as of the
date of this release. Such risks and uncertainties include those
detailed in the Company�s filings with the Securities and Exchange
Commission, risks of adversely changing results of operations,
risks related to the Company�s acquisition strategy, risk of loans
and investments, including the effect of the change of the local
economic conditions, risks associated with the adverse effects of
the changes in interest rates, and competition for the Company�s
customers by other providers of financial services, all of which
are difficult to predict and many of which are beyond the control
of the Company. First Financial Service Corporation�s stock is
traded on the Nasdaq Global Market under the symbol �FFKY.� Market
makers for the stock are: Keefe, Bruyette & Woods, Inc. � FTN
Midwest Securities � J.J.B. Hilliard, W.L. Lyons Company, Inc. Howe
Barnes Investments, Inc. � Stifel Nicolaus & Company Knight
Securities, LP FIRST FINANCIAL SERVICE CORPORATION Consolidated
Balance Sheets (Unaudited) � � September 30, December 31, (Dollars
in thousands, except share data) � 2008 � � 2007 � � ASSETS: Cash
and due from banks $ 27,079 $ 14,948 Federal funds sold � 4,600 � �
- � Cash and cash equivalents � 31,679 � � 14,948 � � Securities
available-for-sale 17,119 22,004 Securities held-to-maturity, fair
value of $7,583 (Sept 2008) and $17,624 (Dec 2007) � 7,658 � �
17,681 � Total securities � 24,777 � � 39,685 � � Loans held for
sale 2,191 780 Loans, net of unearned fees 870,294 767,256
Allowance for loan losses � (10,508 ) � (7,922 ) Net loans �
861,977 � � 760,114 � � Federal Home Loan Bank stock 8,515 7,621
Cash surrender value of life insurance 8,561 8,290 Premises and
equipment, net 30,246 26,335 Real estate owned: Acquired through
foreclosure 5,649 1,749 Held for development 45 45 Other
repossessed assets 91 52 Goodwill 12,166 8,384 Core deposit
intangible 1,851 - Accrued interest receivable 4,169 4,324 Other
assets � 1,549 � � 1,144 � � TOTAL ASSETS $ 991,275 � $ 872,691 � �
LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES: Deposits:
Non-interest bearing $ 63,051 $ 46,978 Interest bearing � 713,870 �
� 642,265 � Total deposits � 776,921 � � 689,243 � � Short-term
borrowings 65,300 42,800 Advances from Federal Home Loan Bank
52,981 53,083 Subordinated debentures 18,000 10,000 Accrued
interest payable 458 1,093 Accounts payable and other liabilities
2,036 1,789 Deferred income taxes � 1,123 � � 1,223 � � TOTAL
LIABILITIES � 916,819 � � 799,231 � Commitments and contingent
liabilities - - � STOCKHOLDERS' EQUITY: Serial preferred stock,
5,000,000 shares authorized and unissued - - Common stock, $1 par
value per share; authorized 10,000,000 shares; issued and
outstanding, 4,668,030 shares (Sept 2008), and 4,661,083 shares
(Dec 2007) � 4,668 4,661 Additional paid-in capital 34,115 33,886
Retained earnings 37,539 35,225 Accumulated other comprehensive
loss � (1,866 ) � (312 ) � TOTAL STOCKHOLDERS' EQUITY � 74,456 � �
73,460 � TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 991,275 � $
872,691 � FIRST FINANCIAL SERVICE CORPORATION Consolidated
Statements of Income (Unaudited) � � � Three Months Ended Nine
Months Ended (Dollars in thousands, except per share data)
September 30, September 30, � 2008 � � 2007 � 2008 � � 2007
Interest and Dividend Income: Loans, including fees $ 14,337 $
14,760 $ 41,718 $ 43,065 Taxable securities 403 490 1,095 1,638 Tax
exempt securities � 90 � � 102 � 297 � � 317 Total interest income
� 14,830 � � 15,352 � 43,110 � � 45,020 � Interest Expense:
Deposits 5,325 6,695 15,815 19,082 Short-term borrowings 156 465
661 1,452 Federal Home Loan Bank advances 610 345 1,808 1,022
Subordinated debentures � 315 � � 167 � 649 � � 549 Total interest
expense � 6,406 � � 7,672 � 18,933 � � 22,105 � Net interest income
8,424 7,680 24,177 22,915 Provision for loan losses � 1,720 � � 740
� 2,819 � � 948 Net interest income after provision for loan losses
� 6,704 � � 6,940 � 21,358 � � 21,967 � Non-interest Income:
Customer service fees on deposit accounts 1,817 1,511 4,865 4,274
Gain on sale of mortgage loans 179 144 566 435 Gain on sale of
investments 52 - 52 - Gain on sale of real estate held for
development - - - 227 Losses on securities transactions - - (216 )
- Write down on real estate acquired through foreclosure (151 ) -
(160 ) - Brokerage commissions 109 106 352 308 Other income � 361 �
� 444 � 1,001 � � 945 Total non-interest income � 2,367 � � 2,205 �
6,460 � � 6,189 � Non-interest Expense: Employee compensation and
benefits 3,867 3,136 10,765 9,365 Office occupancy expense and
equipment 779 604 2,112 1,766 Marketing and advertising 215 228 638
677 Outside services and data processing 882 638 2,365 1,974 Bank
franchise tax 258 234 761 699 Write off of issuance cost of Trust
Preferred Securities - - - 229 Amortization of core deposit
intangible 56 - 59 - Other expense � 1,580 � � 1,166 � 3,791 � �
3,112 Total non-interest expense � 7,637 � � 6,006 � 20,491 � �
17,822 � Income before income taxes 1,434 3,139 7,327 10,334 Income
taxes � 443 � � 1,008 � 2,354 � � 3,343 Net Income $ 991 � $ 2,131
$ 4,973 � $ 6,991 � Shares applicable to basic income per share
4,667,081 4,681,582 4,665,058 4,739,352 Basic income per share $
0.21 � $ 0.46 $ 1.07 � $ 1.48 � Shares applicable to diluted income
per share 4,683,978 4,731,496 4,689,458 4,792,560 Diluted income
per share $ 0.21 � $ 0.45 $ 1.06 � $ 1.46 � Cash dividends declared
per share $ 0.190 � $ 0.190 $ 0.570 � $ 0.536 � FIRST FINANCIAL
SERVICE CORPORATION Unaudited Selected Ratios and Other Data � � �
� As of and For the As of and For the Three Months Ended Nine
Months Ended September 30, � September 30, Selected Data � 2008 � �
2007 � � 2008 � � 2007 � � Performance Ratios � Return on average
assets 0.40 % 0.99 % 0.72 % 1.11 % � Return on average equity 5.18
% 11.70 % 8.80 % 12.92 % � Average equity to average assets 7.76 %
8.48 % 8.21 % 8.59 % � Net interest margin 3.72 % 3.85 % 3.81 %
3.91 % � Efficiency ratio from continuing operations 70.77 % 60.76
% 66.89 % 61.24 % � Book value per share $ 15.95 $ 15.50 � Average
Balance Sheet Data � Average total assets $ 980,698 $ 851,915 $
919,624 $ 841,989 � Average interest earning assets 905,461 796,382
852,966 788,364 � Average loans 861,230 745,028 811,036 731,276 �
Average interest-bearing deposits 735,301 651,639 678,791 643,434 �
Average total deposits 797,907 700,367 737,638 689,037 � Average
total stockholders' equity 76,147 72,256 75,510 72,331 � Asset
Quality Ratios � Non-performing loans as a percent of total loans
(1) 1.41 % 1.00 % � Non-performing assets as a percent of total
loans (1) 2.07 % 1.23 % � Allowance for loan losses as a percent of
total loans (1) 1.21 % 1.11 % � Allowance for loan losses as a
percent of non-performing loans 85 % 111 % � Annualized net
charge-offs to total loans (1) 0.09 % 0.02 % � (1) Excludes loans
held for sale.
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