FFKY First Financial Service Corp.

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 8-K

CURRENT REPORT

 

Current Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

May 21, 2014

(Date of earliest event reported)

 

 

First Financial Service Corporation

(Exact name of registrant as specified in its charter)

 

Securities and Exchange Commission File Number: 0-18832

 

 

Kentucky	61-1168311
(State or other jurisdiction	(IRS Employer Identification No.)
of incorporation or organization)

 

 

2323 Ring Road	(270) 765-2131
Elizabethtown, Kentucky 42701	(Registrant's telephone number,
(Address of principal executive offices)	including area code)
(Zip Code)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

Item 5.07:  Submission of Matters to a Vote of Security Holders

 

The 2014 Annual Meeting of the shareholders of First Financial Service Corporation was held on May 21, 2014.  At the meeting, the nominees listed below were elected as directors of the Corporation for three-year terms. The voting results for the matters brought before the 2014 Annual Meeting was as follows:

 

1. Election of Directors.

 

Name		Term Expires				Votes For				Abstentions				Broker Non-Votes
J. Stephen Mouser			2017				1,983,155				282,287				1,420,020
Gregory S. Schreacke			2017				1,796,389				469,053				1,420,020
Michael L. Thomas			2017				1,872,281				393,161				1,420,020

 

2.  Approval of executive compensation.

Votes For				Against				Abstentions				Broker Non-Votes
	1,650,994				412,877				201,571				1,420,020

  

3.  Approval of the frequency of voting on the approval of executive compensation.

1 Year				2 Years				3 Years				Abstentions				Broker Non-Votes
	2,080,451				20,276				60,538				104,177				1,420,020

 

4. Ratification of Crowe Horwath LLP as the independent registered public accountants for the year ending December 31, 2014.

Votes For				Against				Abstentions				Broker Non-Votes
	3,350,000				102,152				233,310				-

 

Item 7.01 Regulation FD Disclosures.

 

A copy of the presentation made at the 2014 Annual Meeting of the shareholders of First Financial Service Corporation is furnished as Exhibit 99.1 to this Current Report.

 

Exhibit 99 shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”), or otherwise subject to the liabilities of that section. None of the information in Exhibit 99 shall be deemed incorporated by reference in any filing under the Securities Act of 1933 or the Exchange Act, except as shall be expressly set forth by specific reference in any such filing.

 

Additional Information for Shareholders

 

On April 21, 2014, First Financial Service Corporation, Inc. (“FFKY”), entered into an Agreement and Plan of Share Exchange with Community Bank Shares of Indiana, Inc. (“CBIN”), whereby CBIN will acquire all of the outstanding shares of FFKY common stock in a statutory share exchange (the “Share Exchange”). Exhibit 99 includes information about the terms of the proposed Share Exchange, CBIN, and the combined company that would result upon completion of the proposed transaction.

 

CBIN has stated in its Current Report on 8-K filed April 22, 2014 that CBIN intends to file a registration statement on Form S-4 with the SEC to register CBIN’s shares that will be issued to FFKY’s shareholders in connection with the transaction. The registration statement will include a joint proxy statement/prospectus that will be distributed to shareholders of both CBIN and FFKY and other relevant materials in connection with the proposed Share Exchange transaction involving FFKY and CBIN. Investors and security holders are urged to read the registration statement and joint proxy/prospectus when it becomes available (and any other documents filed with the SEC in connection with the transaction or incorporated by reference into the joint proxy/prospectus) because such documents will contain important information regarding the proposed Share Exchange. Investors and security holders may obtain free copies of these documents and other documents filed with the SEC on the SEC’s website at http://www.sec.gov. Investors and security holders may also obtain free copies of the documents filed with the SEC by FFKY at FFKY’s website at http://www.ffsbky.com or by contacting Frank Perez, FFKY’s Chief Financial Officer, by telephone at (270) 765-2131.

 

 

FFKY, CBIN and their respective directors and executive officers may be deemed to be participants in the solicitation of proxies from shareholders of FFKY and from shareholders of CBIN in connection with the proposed Share Exchange. Information about the directors and executive officers of FFKY is set forth in the proxy statement for FFKY’s 2014 annual meeting of stockholders filed with the SEC on April 21, 2014. Information about the directors and executive officers of CBIN is set forth in the proxy statement for CBIN’s 2014 annual meeting of stockholders filed with the SEC on April 4, 2014. Additional information regarding the interests of these participants and other persons who may be deemed participants in the Share Exchange may be obtained by reading the joint proxy statement/prospectus regarding the Share Exchange when it becomes available.

 

Forward-Looking Statements

 

Statements in Exhibit 99 to this report that are not statements of historical fact are forward-looking statements. FFKY may make forward-looking statements in future filings with the Securities and Exchange Commission (“SEC”), in press releases, and in oral and written statements made by or with the approval of FFKY. Forward-looking statements include, but are not limited to: (1) projections of revenues, income or loss, earnings or loss per share, capital structure and other financial items; (2) plans and objectives of the Corporation or its management or Board of Directors; (3) statements regarding future events, actions or economic performance; and (4) statements of assumptions underlying such statements. Words such as “estimate,” “strategy,” “believes,” “anticipates,” “expects,” “intends,” “plans,” “targeted,” and similar expressions are intended to identify forward-looking statements, but are not the exclusive means of identifying such statements. Various risks and uncertainties may cause actual results to differ materially from those indicated by our forward-looking statements. Factors that might cause such a difference include, but are not limited to, expected cost savings, synergies and other financial benefits from the proposed Share Exchange might not be realized within the expected time frames and costs or difficulties relating to integration matters might be greater than expected; the requisite shareholder and regulatory approvals for the proposed Share Exchange might not be obtained; market, economic, operational, liquidity, credit and interest rate risks associated with the FFKY’s and CBIN’s businesses, competition, government legislation and policies (including the impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act and its related regulations) might affect the ability of FFKY and CBIN to execute their respective business plans (including the proposed acquisition of First Federal Savings Bank); deviations from performance expectations related to the acquisition of First Federal Savings Bank and the other subsidiaries, the failure of one or more of the accredited investors who have signed a subscription agreement to purchase CBIN’s common stock immediately prior to the Share Exchange; and other matters disclosed periodically in FFKY’s filings with the SEC.

 

Our forward-looking statements speak only as of the date on which they are made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances occurring after the date of any such statement except if required by law to do so.

 

Item 9.01 Financial Statements and Exhibits.

 

(d) Exhibits

 

99.      Presentation made at the 2014 Annual Meeting of the shareholders of First Financial Service Corporation

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

 

		FIRST FINANCIAL SERVICE CORPORATION
Date: May 22, 2014	By:	/s/ Frank Perez
		Frank Perez Chief Financial Officer & Principal Accounting Officer

 

 

Shareholder Meeting May 21, 2014 1

This presentation contains forward - looking statements, including statements about beliefs and expectations based on the information available to, and assumptions and estimates made by, management as of the date made. These forward - looking statements cover, among other things, anticipated future revenue, expenses, capital ratios, and the future plans and prospects of First Financial Service Corporation. For a discussion of the risks and uncertainties that may cause actual results to differ from these expectations and our other forward - looking statements, refer to First Financial Service Corporation’s 2013 Annual Report on Form 10 - K, including the “Risk Factors” section, and other periodic reports filed with the Securities and Exchange Commission. Forward - looking statements speak only as of the date they are made, and First Financial Service Corporation undertakes no obligation to update them in light of new information or future events. 2

 Our associates are key to everything we do. ◦ Take care of our associates.  Best place to work Nine Years in a Row. ◦ Take care of our customers. ◦ Take care of our community. ◦ Take care of our shareholders. 4 Our Heart Is In Everything we Do ! For Associates with the Passion to Serve. Helping Every Customer Succeed!

 Asset quality remediation. ◦ Lower the overall risk profile of the Company.  Financial Improvement.  Place the Company in the best position to attract outside capital. 5

 The Company’s problem assets had to be resolved before it could address the need for more capital.  Problem asset charges resulted in significant losses to earnings and created the need for additional common equity.  As long as the problem assets remained elevated, uncertainty existed as to the extent of future losses.  Resolving problem assets: ◦ Lowers the overall risk profile of the Company. ◦ Minimizes the additional expected equity losses from problem assets . ◦ Reduces the drag on earnings from problem asset cost. 6

7 In Thousands $5,000 $20,000 $35,000 $50,000 $65,000 $80,000 • $55 million reduction • 86 % improvement from the peak. • Four Properties make up 65% of total.

8 In Thousands $15,000 $35,000 $55,000 $75,000 $95,000 • $66 million reduction. • 74 % improvement from the peak. • One property is 50% of total OREO.

9 In Thousands $20,000 $40,000 $60,000 $80,000 $100,000 $120,000 • $72 million reduction • 68 % improvement from the peak

NPA’s projected decline to $12 million. Improvement beyond quarter end.  Sales contracts executed on other real estate owned properties and various work out arrangements are in place.  $10 million book value to close during the second and third quarter 2014.  Projected 44% decline. 10 $- $20,000 $40,000 $60,000 $80,000 $100,000 March 2011 June 2011 September 2011 December 2011 March 2012 June 2012 September 2012 December 2012 March 2013 June 2013 September 2013 December 2013 March 2014 Q2 and Q3 Non - performing assets (In Thousands)

 Asset quality remediation.  Financial Improvement. ◦ Increase the visibility and certainty of viability going forward.  Place the Company in the best position to attract outside capital. 11

12 In Thousands $(14,000) $(12,000) $(10,000) $(8,000) $(6,000) $(4,000) $(2,000) $- $2,000 3/2011 6/2011 9/2011 12/2011 3/2012 6/2012 9/2012 12/2012 3/2013 6/2013 9/2013 12/2013 3/2014 Quarterly Net Income (Loss) Consolidated Company recorded a net loss of $313,000 for the year ended December 31, 2013.

13 In Thousands $(14,000) $(12,000) $(10,000) $(8,000) $(6,000) $(4,000) $(2,000) $- $2,000 $4,000 3/2011 6/2011 9/2011 12/2011 3/2012 6/2012 9/2012 12/2012 3/2013 6/2013 9/2013 12/2013 3/2014 Quarterly Net Income (Loss) - Bank • The Bank recorded net income of $2.7 million for the year ended December 31, 2013. • Three consecutive quarters of positive earnings.

14 In Thousands Provision for loan loss and write down on OREO. $(4,000) $(2,000) $- $2,000 $4,000 $6,000 $8,000 $10,000 $12,000 $14,000 $16,000 $18,000 3/2011 6/2011 9/2011 12/2011 3/2012 6/2012 9/2012 12/2012 3/2013 6/2013 9/2013 12/2013 3/2014 Problem Asset Related Cost

2.00 2.20 2.40 2.60 2.80 3.00 3.20 3.40 Net Interest Margin (%) 15

0.40 0.60 0.80 1.00 1.20 1.40 1.60 Interest Bearing Deposits (%) 16

Production improving. Experienced Lending and Credit Team.  Focus on growth markets of Louisville, Hardin, and Bullitt Counties.  E xperienced “in - market” commercial lenders.  Focus on loan diversification. 17 $- $5,000 $10,000 $15,000 $20,000 $25,000 $30,000 New Loans Produced (In Thousands)

 Core earnings will improve with net loan growth and substantial cost cutting austerity measures. ◦ Earning asset levels too low to support the current infrastructure.  Problem loan roll off decreased the size of the loan portfolio.  High liquidity levels pressure top line interest income.  Future growth in earnings will be slow and challenging.  While challenges persist, the improvement in earnings to date has been significant. 18

 Asset quality remediation.  Financial Improvement.  Place the Company in the best position to attract outside capital. 19

 Enhance the Bank’s capital ratios to meet the consent order capital ratio requirements.  Holding Company Equity Resolution. ◦ Need for more common equity. ◦ Pay back $20 million of TARP funds plus dividends in arrears.  Dividend rate increased from 5% to 9% in January 2014. ◦ Pay deferred interest on $18 million of Trust Preferred Securities.  Fourth quarter 2015 deadline looming. 20

To Place the Company in the position to attract outside capital 21

 Reduce the size of the Company to lessen the amount of equity needed to support total assets and improve the Bank’s capital ratios. ◦ Enhanced the Bank’s capital position through asset reduction.  Sold our four Southern Indiana branches July 2012.  Asset reductions of approximately $150 million in 2013. ◦ The Bank produced positive earnings of $2.7 million for 2013. 22

7.08% 6.31% 5.95% 5.86% 5.90% 5.72% 6.50% 6.68% 6.84% 7.27% 7.80% 7.96% 8.15% 4.00% 4.50% 5.00% 5.50% 6.00% 6.50% 7.00% 7.50% 8.00% 8.50% Tier I Leverage Ratio 23

11.43% 10.48% 9.94% 10.18% 10.70% 10.66% 11.88% 12.21% 12.33% 12.36% 13.14% 13.48% 14.13% 7.00% 8.00% 9.00% 10.00% 11.00% 12.00% 13.00% 14.00% 15.00% Total Risk Based Capital Ratio In Compliance with Order 24

 Worked with Private investors to purchase our TARP Securities from the U.S. Treasury on 4/19/2013.  Structured exit agreement with primary investor.  Redeem $20 million of preferred stock for $12 million during the second year or a change of control.  Allows for the capture of the $8 million gain on redemption.  Very attractive to outside capital. 25

 Recapture Deferred Tax Asset (DTA) ◦ Results in $23 million of net income at the Bank and Holding Company upon recapture.  Minimum of six consecutive quarterly core earnings needed.  Equity increases by $23 million. ◦ Very attractive to outside capital.  Future increase in value of investment. 26

 Financial trends. ◦ Improving risk profile.  Reduced asset size lowered the capital need.  Realize $8 million gain if preferred stock can be redeemed.  Recapture DTA of $23 million upon sustained profitability. ◦ Restores $23 million of capital. 27

 Capital solution time frame.  Most immediate challenge is to repay deferred interest on our Trust Preferred Securities ( TruPS ) . ◦ Avoid default risk in fourth quarter of 2015. ◦ Deferral of $4.3 million at 3/31/2014.  Increasing $327,250 per quarter of deferral.  Avoid default on TRuPS . ◦ Holding Company triggers default on TRUPs.  Possible sale of Bank to pay Holding Company debt. ◦ Eliminates the DTA.  Eliminates ability to capture the $23 million in capital. 28

 IRS limitations on $23 million DTA recapture ◦ Issuing new stock resulting in over a 50% change in ownership limits the full DTA recapture.  Limits amount of capital that can be raised through a stock sale to new investors. ◦ May not raise sufficient funds for all capital needs. 29

 Business as usual – not feasible. ◦ Earnings will be insufficient to get the TruPS current prior to the default date.  Raise capital from institutional investors and current shareholders.  Business Combination. 30

 Substantial capital raise needed to address all needs.  Significant dilution to current shareholders .  Amount of capital limited by IRS rules. ◦ Capital raise may not be enough to resolve all capital challenges.  Short - term investment horizon for institutional investors. ◦ Managing with a goal to sell in three to five years.  Pressure to maximize profits. ◦ Require branch rationalization and closings. ◦ Immediate downsizing of personnel. ◦ Culture and community secondary to shareholder return. 31

 Business combination was the superior strategic alternative. ◦ Superior returns for current FFKY shareholders. ◦ Retains the focus on customer service. ◦ Retains the focus on the community. 32

 Material Terms of the Agreement  Highlights  Overview of Community Bank Shares of Indiana, Inc. and Your Community Bank  Combined Company Profile  Time Line 33

 On April 22, 2014 we announced a business combination with Community Bank Shares of Indiana, Inc . (Nasdaq CBIN)  CBIN will acquire all of the outstanding shares of First Financial Service Corporation through a share exchange.  First Federal Savings Bank will merge into Your Community Bank with Your Community Bank as the surviving Bank. 34

 FFKY Shareholders will receive .153 shares of CBIN’s common stock for each FFKY share, subject to adjustment in certain circumstances.  TARP preferred stock paid off.  Trust Preferred Securities assumed, will pay past dividends.  One director of FFKY appointed to CBIN Holding Company Board and another FFKY director appointed to Your Community Bank board.  Details of terms of the share exchange described in the Form 8K mailed to FFKY shareholders. Also available from the SEC website http://www.sec.gov . 35

 Solid footprint North and South of Ohio River along the I - 65 and I - 64 corridor expanding East to Lexington, KY.  Creates a dynamic community banking franchise covering the complete Louisville MSA. ◦ Seventh largest footprint in the Louisville Metro market. ◦ Third largest locally owned bank in Louisville Metro with $862 million in total deposits.  Immediate increase in FFKY tangible book value per share.  Immediate earnings per share to FFKY shareholders. 36

 The combined company will have $1.6 billion combined company with significant earnings power. ◦ Projected Return on Assets in excess of 1.0% after first full year of combined operations. ◦ Banks with $1.0 billion plus in total assets generally trade at a higher multiple of earnings  CBIN pays a dividend of $0.48 per year (equivalent to $0.07 per FFKY share).  Provides FFKY shareholders greater liquidity through a larger market capitalization. 37

Your Community Bank 38

 Founded 1934  Began trading on the NASDAQ in 1995 under the symbol CBIN  24 Locations throughout Indiana and Kentucky with a significant presence in the Louisville MSA  $850 million in assets, CBIN is Southeast Indiana’s largest locally - owned bank holding company  2013 Return on Assets of 1.07%  2013 Return on TCE of 14.17% 39 CBIN Branch Network

“Achieving financial goals with exceptional people and exceptional service”  Focus on: ◦ Building relationships in its communities. ◦ Develop and strengthen profitable customers.  Strong corporate culture drives financial success. ◦ Build culture by investing in people. 40

 Up to date with technology.  Strong commitment to associates.  Heavy community involvement.  Customer philosophy to build lasting relationships. 41

 Best Places to Work in Indiana 2012 – 2014.  Best Place to Work in Kentucky 2014.  Among top - performing banks under $2B by the American Banker magazine.  Several awards in recognition of a strong corporate culture. ◦ Indiana Bankers Association ◦ Indiana Chamber of Commerce ◦ Business First Magazine 42

43 $1.77 $1.79 $2.06 $2.32 $- $0.50 $1.00 $1.50 $2.00 $2.50 2010 2011 2012 2013 Earnings Per Share ($) 9.4% CAGR

44 1.2 0.87 0.62 0.67 0.88 0.65 0.36 0.18 - 0.20 0.40 0.60 0.80 1.00 1.20 1.40 2010 2011 2012 2013 Peer CBIN Cost of Deposits (%)

45 3.67 3.66 3.51 3.36 3.90 4.07 4.07 4.24 2.50 2.70 2.90 3.10 3.30 3.50 3.70 3.90 4.10 4.30 4.50 2010 2011 2012 2013 Peer CBIN Net Interest Margin (%)

46 0.45 0.43 0.81 0.69 0.85 0.94 0.95 1.04 - 0.20 0.40 0.60 0.80 1.00 1.20 2010 2011 2012 2013 Peer CBIN Return on Average Assets (%)

47 4.36 4.93 9.39 7.19 13.55 12.32 12.53 13.61 - 2.00 4.00 6.00 8.00 10.00 12.00 14.00 16.00 2010 2011 2012 2013 Peer CBIN Return on Average Common Equity (%)

48

 $1.6 Billion in assets.  $1.4 Billion in deposits.  Contiguous franchises provides scale and expansion . 49

50

 Combined footprint of 41 branches.  Solid footprint North and South of Ohio River along the I - 65 and I - 64 corridor expanding East to Lexington , KY.  Creates a dynamic community banking franchise covering the complete Louisville MSA. ◦ Seventh largest footprint in the Louisville Metro market. ◦ Third largest locally owned bank in Louisville Metro with $862 million in total deposits  Strong focus on serving Communities in all markets. 51

52

 Subject to regulatory and shareholder approval. ◦ CBIN will File for Regulatory Approval – Anticipated filing date May 2014. ◦ Regulatory approval anticipated between August and November. ◦ Proposed share exchange will be submitted for shareholder vote at a special meeting sometime in the August to November time frame. ◦ FFKY and First Federal Savings Bank will operate as independent entities until closing, which will occur promptly after regulatory and shareholder approval. 53

A great deal of effort and hard work from everyone in the organization has opened the door to a tremendous opportunity. This business combination with our neighbor, Your Community Bank, will be a new and exciting beginning of a new era for shareholders, associates, customers, and the community. 54

55