UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 11-K
ANNUAL REPORT PURSUANT TO SECTION 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2006
Commission File Number: 0-18832
FIRST FINANCIAL SERVICE CORPORATION
401(K)/EMPLOYEE STOCK OWNERSHIP PLAN
(Full title of the plan)
FIRST FINANCIAL SERVICE CORPORATION
(Name of issuer of the securities held pursuant to the Plan)
2323 Ring Road, Elizabethtown, Kentucky 42701
(Address of principal executive offices)
FIRST FINANCIAL SERVICE CORPORATION
401(K)/EMPLOYEE STOCK OWNERSHIP PLAN
FINANCIAL STATEMENTS
December 31, 2006
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FIRST FINANCIAL SERVICE CORPORATION
401(K)/EMPLOYEE STOCK OWNERSHIP PLAN
FINANCIAL STATEMENTS
December 31, 2006
CONTENTS
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FINANCIAL STATEMENTS |
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SUPPLEMENTAL SCHEDULE |
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SCHEDULE H, LINE 4i, SCHEDULE OF ASSETS (HELD AT END OF YEAR) |
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Plan Administrator
First Financial Service Corporation
401(k)/Employee Stock Ownership Plan
Elizabethtown, Kentucky
We have audited the accompanying statements of net assets available for benefits of the First Financial Service Corporation’s 401(k)/Employee Stock Ownership Plan (the “Plan”) as of December 31, 2006 and 2005, and the related statements of changes in net assets available for benefits for the year ended December 31, 2006. These financial statements are the responsibility of the Plan’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the net assets available for benefits of the Plan as of December 31, 2006 and 2005, and the changes in net assets available for benefits for the year ended December 31, 2006 in conformity with U.S. generally accepted accounting principles.
Our audit was conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental schedule of assets (held at end of year) is presented for the purpose of additional analysis and is not a required part of the basic financial statements but is supplementary information required by the Department of Labor’s Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. The supplemental schedule is the responsibility of the Plan’s management. The supplemental schedule has been subjected to the auditing procedures applied in the audit of the basic 2006 financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic 2006 financial statements taken as a whole.
/s/ Crowe Chizek and Company LLC |
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Crowe Chizek and Company LLC |
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Louisville, Kentucky |
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June 29, 2007 |
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FIRST FINANCIAL SERVICE CORPORATION
401 (K)/EMPLOYEE STOCK OWNERSHIP PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
December 31, 2006 and 2005
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| 2005 |
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ASSETS |
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Investments, at fair value (Note 3): |
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First Financial Service Corporation common stock |
| $ | 6,421,677 |
| $ | 5,178,124 |
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Mutual funds |
| 5,743,744 |
| 31,758 |
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Money market accounts |
| 1,502,592 |
| — |
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Other short term investments |
| 24,152 |
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Participant loans |
| 175,888 |
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Employer contributions receivable |
| 1,398 |
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Cash |
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| (480 | ) | ||
Total Assets |
| 13,869,451 |
| 5,209,402 |
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LIABILITIES |
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NET ASSETS AVAILABLE FOR BENEFITS |
| $ | 13,869,451 |
| $ | 5,209,402 |
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See accompanying notes to financial statements.
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FIRST FINANCIAL SERVICE CORPORATION
401 (K)/EMPLOYEE STOCK OWNERSHIP PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
Year Ended December 31, 2006
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Additions to net assets attributed to: |
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Investment income: (Note 3) |
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Dividends and interest |
| $ | 593,068 |
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Net appreciation in fair value of investments |
| 988,286 |
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| 1,581,354 |
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Contributions: |
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Employer |
| 525,788 |
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Employee and after tax |
| 576,613 |
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Rollovers |
| 29,140 |
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| 1,131,541 |
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Total additions |
| 2,712,895 |
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Deductions from net assets attributed to: |
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Distributions |
| 157,386 |
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Administrative expenses |
| 6,636 |
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Total deductions |
| 164,022 |
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Net increase |
| 2,548,873 |
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Transfers, net (Note 1) |
| 6,111,176 |
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Net assets available for benefits |
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Beginning of year |
| 5,209,402 |
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End of year |
| $ | 13,869,451 |
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See accompanying notes to financial statements.
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FIRST FINANCIAL SERVICE CORPORATION
401 (K)/EMPLOYEE STOCK OWNERSHIP PLAN
December 31, 2006 and 2005
NOTE 1 - PLAN DESCRIPTION
The following brief description of the First Financial Service Corporation 401(k)/Employee Stock Ownership Plan (the “Plan”) provides only general information. Participants should refer to the Plan Agreement for a complete description of the Plan’s provisions. The sponsor of the Plan is First Financial Service Corporation (the “Company” or “Employer”).
General: The Plan is a defined contribution plan covering substantially all employees of First Financial Service Corporation, a bank holding company and its subsidiaries, which include First Federal Savings Bank, First Service Corporation of Elizabethtown, and First Federal Office Park, LLC (collectively the “Company”).
Employees of the Company are eligible for participation in the Plan upon the completion of at least 1,000 hours of service in one full year. The employee becomes a participant on the first day of the month following fulfillment of these requirements. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 (“ERISA”).
Effective January 1, 2006, the Company merged its 401(k) plan into its Employee Stock Ownership Plan. The assets of the 401(k) plan were transferred into the ESOP plan and was renamed the First Financial Service Corporation 401(k)/Employee Stock Ownership plan. Within the Plan, there are two parts, the Employee Stock Ownership Plan (“ESOP”) and a 401(k) portion. The Company makes contributions to these parts as determined by the Plan document, the Company’s Board of Directors, and within the guidelines of ERISA and the regulations of the Internal Revenue Service.
Contributions: Participants may contribute up to 50% of their compensation up to the maximum amount allowed by the IRS through regular payroll deductions under the 401(k) provisions of the Plan. The employer matches 100% of the employee contributions up to 6% of the employee’s compensation. If the employee does not contribute at least 2% of their compensation, then the employer makes a minimum contribution of 2% of the employee’s compensation. Employer contributions under the ESOP are at the discretion of the Employer’s Board of Directors. To be eligible to receive an employer contribution, a participant must work 1,000 hours in the plan year. Contributions are allocated based on the participant’s allocable share of the company contribution, which is based on compensation.
Participant Accounts: Net income, investment gains and losses recognized, and increases and decreases in the fair value of assets are allocated annually in the same proportion that each participant’s account balance bears to the total account balances of all participants at the beginning of each annual period, adjusted by any distributions or contributions during the period. The employer contributions are allocated to the accounts of the participants in the same proportion as each participant’s compensation, for the Plan year, bears to the total compensation of all participants. Participants who have completed ten years of service and have obtained the age of 55 are qualified to diversify their employer optional contributions.
Retirement, Death and Disability: A participant is entitled to 100% of their account balance upon retirement, death or disability.
Vesting: Participants are immediately vested in the Company’s ESOP contributions, their voluntary contributions and the matching contributions plus actual earnings thereon.
Payment of Benefits: Upon retirement, permanent disability or death, a participant or his or her designated beneficiary may elect to receive the amount credited to his or her account in a lump-sum distribution, or in equal installments over a period not exceeding the life expectancy of the participant. If a participant’s account balance exceeds $5,000, no portion of the account balance will be distributed as a lump-sum without the participant’s consent.
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Investment Options: Each participant may direct their contributions and the Company’s matching contribution to any of the investment options available under the Plan, including the Company’s common stock. Bank ESOP contributions are non-participant directed and are made in the form of First Financial Service Corporation common stock.
Voting Rights: While the Plan entitles its trustee to vote Company shares held by the Plan, the Company currently permits participants to vote Company shares allocated to their account. Participants are notified by the trustee prior to the time such votes are to be executed.
Loan Provisions: Participants may borrow up to the lesser of $50,000 or 50% of the vested portion of their account balance, subject to certain restrictions, in accordance with interest rates and collateral requirements established by the Company.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting: The financial statements of the Plan are prepared under the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America.
Use of Estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the plan administrator to make estimates and assumptions that affect certain reported amounts and disclosures, and actual results may differ from these estimates.
Investment Valuation and Income Recognition: The Plan’s investments are stated at fair value. Quoted market prices are used to value mutual funds. Investments in the common stock of First Financial Service Corporation are valued at the last reported sales price on the last business day of the year. Short-term investments are valued based upon the underlying investments in the account. Participant loans are valued at cost which approximates fair value. In accordance with the policy of stating investments at fair value, the Plan presents the net appreciation (depreciation) as both realized gains or losses and unrealized appreciation (depreciation) on those investments in the statement of changes in net assets available for benefits.
Purchases and sales of securities are recorded on a trade date basis. Interest income is recorded on the accrual basis. Dividends are recorded on the ex-dividend date.
Risks and Uncertainties for Investments: The Plan provides for certain investment options. The underlying investment securities are exposed to various risks, such as interest rate, market and credit risks. Due to the level of risk associated with certain investment securities and the level of uncertainty related to changes in the value of investment securities will occur in the near term and that such changes could materially affect the amounts reported in the statement of net assets available for benefits and participants’ individual account balances. The Plan has an investment in the First Financial Service Corporation common stock amounting to $6,421,677 as of December 31, 2006. This amount represents 46% of net assets available for benefits as of December 31, 2006.
Payment of Benefits: Benefits are recorded when paid.
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NOTE 3 - INVESTMENTS
The following presents investments that represent 5% or more of the Plan’s net assets.
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Investments at fair value as determined by quoted market prices |
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First Financial Service Corporation common stock |
| 6,421,677 |
| 5,178,124 |
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Mutual Funds: |
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American Smallcap World Fund |
| 1,204,840 |
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Vanguard Index Trust-500 |
| 892,269 |
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Investments at fair value as determined by Fiserv Trust Company: |
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Cash Management Trust of America money market |
| 1,496,377 |
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During the year ended December 31, 2006, the Plan’s investments (including investments bought, sold and held during the year) appreciated (depreciated) in value as follows:
First Financial Service Corporation common stock |
| $ | 617,425 |
| 1,009,949 |
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Mutual funds |
| 370,861 |
| 1,243 |
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Money market accounts |
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Net appreciation |
| $ | 988,286 |
| $ | 1,011,192 |
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Dividends and interest reported by the trustee for the year ended December 31, 2006 were $593,068.
NOTE 4 - INCOME TAX STATUS
The Internal Revenue Service has determined and informed the Company by a letter dated November 27, 2002, that the Plan and related trust are designed in accordance with applicable sections of the Internal Revenue Code (IRC). As the employer is following all the terms of the Plan, and the Plan’s eligibility requirements and benefit provisions are not more favorable for highly compensated employees than non-highly compensated employees, under the terms of the determination letters, management believes the Plan is qualified under the appropriated requirements of the Internal Revenue Code. Although the Plan has been amended since receiving the determination letter, the Plan Administrator believes the Plan is designed and is currently being operated in compliance with the applicable requirements of the IRC.
NOTE 5 - PLAN TERMINATION
Although it has not expressed any intent to do so, the Company has the right under the Plan to discontinue its contributions at any time and to terminate the Plan subject to the provisions of ERISA and its related regulations. In the event of plan termination, participants will become 100% vested in their accounts.
NOTE 6 — TERMINATED PARTICIPANTS
Included in net assets available for benefits are amounts allocated to individuals who have elected to withdraw from the Plan, but who have not yet been paid. Plan assets allocated to these participants was $4,054 at December 31, 2006.
NOTE 7 - PARTY-IN-INTEREST TRANSACTIONS
Parties-in-interest are defined under the Department of Labor’s Rules and Regulations as any fiduciary of the Plan, any party rendering service to the Plan, the employer and certain others. Certain plan investments represent interest in investments managed by Fiserv Trust Company. Fiserv Trust Company is the Trustee as defined by the Plan
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and, therefore, qualifies as party-in-interest. Professional fees of approximately $6,636 were paid for the administration of the Plan by the Plan for the year ended December 31, 2006. McCready and Keene, Inc. is the record keeper of the plan and is considered a party-in-interest. Participant loans also qualify as party-in-interest transactions.
The Plan held 208,496 and 178,803 shares of First Financial Service Corporation common stock at December 31, 2006 and 2005, and recognized dividend income of $565,983 during 2006 from its investments in the Employer common stock.
NOTE 8 — EMPLOYER OPTIONAL CONTRIBUTIONS
Employer optional contributions are invested in First Financial Service Corporation common stock. Participants are also allowed to contribute deferral contributions to the First Financial Service Corporation common stock fund. The following reflects the net assets of the First Financial Service Corporation common stock fund as the non-participant directed net assets available for benefits of the fund cannot be separately identified for reporting purposes:
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| December 31, |
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| 2006 |
| 2005 |
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Net Assets: |
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Common Stock |
| $ | 6,421,677 |
| $ | 5,178,124 |
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The following reflects the net assets and changes in the net assets of the First Financial Service Corp. common stock fund as the changes in non-participant directed net assets available for benefits of the fund cannot be separately identified for reporting purposes:
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Change in Net Assets: |
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Contributions |
| $ | 177,490 |
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Net appreciation, including interest and dividends |
| 1,085,988 |
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Distributions |
| (19,925 | ) | |
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| $ | 1,243,553 |
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NOTE 9 — SUBSEQUENT EVENTS
Effective January 1, 2007, the Plan was amended to allow transfers out of the First Financial Service Corporation common stock for all types of contribution accounts which hold Qualifying Employer Securities—including the ESOP Contribution Account. This rule applies to all participants for their entire account invested in Employer Stock, and to any beneficiary who has an account under the Plan and is entitled to exercise the rights of a participant. If you elect to transfer some or all of your account out of First Financial Service Corporation common stock, you can then direct the investment of that amount into other investment options offered by the Plan.
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SUPPLEMENTAL SCHEDULE
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FIRST FINANCIAL SERVICE CORPORATION
401 (K)/EMPLOYEE STOCK OWNERSHIP PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 2006
Name of Plan Sponsor: First Financial Service Corporation
Employer Identification Number: 61-1168311
Three-digit Plan Number: 003
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Party |
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| Identity of Issue, Borrower, |
| Description of Investments Including |
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Interest |
| Lessor or Similar Party |
| Maturity Date and Rate of Interest |
| Cost |
| Value |
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| First Financial Service Corporation |
| Common Stock |
| $ 6,143,007 |
| $ 6,421,677 |
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| American AMCAP Fund |
| Mutual Fund |
| # |
| 228,549 |
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| American Capital Income Builder |
| Mutual Fund |
| # |
| 485,696 |
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| American Capital World Growth and Income |
| Mutual Fund |
| # |
| 506,346 |
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| American Europacific Growth Fund |
| Mutual Fund |
| # |
| 149,849 |
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| American New Economy Fund |
| Mutual Fund |
| # |
| 207,747 |
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| American New Perspective Fund |
| Mutual Fund |
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| 258,166 |
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| American New World Fund |
| Mutual Fund |
| # |
| 124,752 |
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| American Smallcap World Fund |
| Mutual Fund |
| # |
| 1,204,840 |
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| American Washington Mutual Investors |
| Mutual Fund |
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| 277,427 |
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| Investment Company of America |
| Mutual Fund |
| # |
| 293,354 |
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| Pimco Global Bond Fund |
| Mutual Fund |
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| 106,070 |
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| Pimco Pacific Investment Total Return Fund |
| Mutual Fund |
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| 348,358 |
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| Vanguard Index Small Cap |
| Mutual Fund |
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| 434,712 |
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| Vanguard Index Trust-500 Portfolio |
| Mutual Fund |
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| 892,269 |
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| Vanguard Total Intl Stock Index Portfolio |
| Mutual Fund |
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| 225,609 |
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| Total Mutual Funds |
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| 5,743,744 |
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| Aspen Investments |
| Short-Term Investment |
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| 24,152 |
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| Cash Management Trust of America |
| Short-Term Investment |
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| 1,496,377 |
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| Fiserv Trust Institutional Money Market |
| Short-Term Investment |
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| 6,117 |
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| Fiserv Trust Money Market |
| Short-Term Investment |
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| 98 |
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| Total Short-Term Investments |
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| 1,526,744 |
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| Pooled Loan Account |
| Participant Loans |
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| 175,888 |
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| Total Investments |
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| $ 6,143,007 |
| $ 13,868,053 |
* Represents parties-in-interest
# Investment is participant directed therefore historical cost is not included.
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FIRST FINANCIAL SERVICE CORPORATION
401(K)/EMPLOYEE STOCK OWNERSHIP PLAN
FORM 11-K
DECEMBER 31, 2006
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the trustees have duly caused this annual report to be signed on its behalf by the undersigned hereunto duly authorized.
FIRST FINANCIAL SERVICE CORPORATION |
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| 401(K)/EMPLOYEE STOCK OWNERSHIP PLAN |
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Date: June 29, 2007 | By: | /s/ Gregory Schreacke | |
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| Gregory Schreacke | |
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| Executive Vice President & | |
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| Chief Financial Officer | |
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| First Financial Service Corporation | |
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EXHIBIT INDEX
Exhibit No. |
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23.1 |
| Consent of Crowe Chizek and Company LLC, an independent registered public accounting firm (filed herewith). |
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