| May 1, 2009 | For More Information Contact: |
| | Steven M. Zagar |
| | Chief Financial Officer |
| | First Financial Service Corporation |
| | (270) 765-2131 |
First Financial Service Corporation
Announces Quarterly Results
Elizabethtown, Kentucky, May 1, 2009 – First Financial Service Corporation (the Company, Nasdaq: FFKY) today announced diluted net income per common share of $0.10 for the quarter ended March 31, 2009, compared to $0.40 for the quarter ended March 31, 2008. The first quarter earnings decline was driven by a higher provision for loan losses, margin compression, higher operating expenses and impairment losses on securities. Earnings available to common shareholders were also impacted by dividends paid on preferred shares.
After careful consideration, the Company elected to participate in the U.S. Treasury’s voluntary Capital Purchase Program (CPP) in which First Financial Service Corporation issued $20 million in senior preferred shares to the U.S. Treasury. This transaction closed during January 2009 and details of the transaction can be found in a Securities and Exchange Commission filing dated January 12, 2009.
“Participation in CPP has strengthened our balance sheet to maintain our well-capitalized status in terms of regulatory guidelines,” stated Chief Executive Officer, B. Keith Johnson. “This will assist the Bank in weathering the uncertain economic climate and enable us to take advantage of potential growth opportunities as they arise. During the first quarter of 2009, we were able to continue extending loans to new and existing customers from CPP proceeds. This is evident based on the strong loan growth achieved during the most recent quarter.”
“Our first quarter financial performance however, does reflect our continued efforts to manage risks in our loan portfolio. The Company recorded a large provision expense related partially to growth realized in the portfolio, but mainly due to increased general and specific reserves that were necessary for probable incurred credit loss resulting from continued deterioration in asset quality. It is likely provision expense will remain elevated throughout the year to compensate for weak economic conditions impacting some of our customer relationships as well as depressed residential and commercial real estate values. 2009 will continue to be a challenging time for our financial institution as we manage the overall level of our credit quality. Like all banks, our Company will also face increased FDIC insurance premiums as well as generally higher operating expenses during the year as we add additional banking centers. The new banking centers will be critical to enable the Company to continue its organic growth in our existing markets. Despite these unprecedented economic challenges, First Financial is committed to making prudent decisions to build long-term value for our shareholders, customers and associates.”
Total deposits were $821.5 million at March 31, 2009, an increase of $46.1 million from the fourth quarter of 2008. After our acquisition of Farmers State Bank in 2008, our retail branch network has broadened 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 early in the third quarter of 2009. Competition for deposits remains competitive in all of the markets we serve. This intense competition and any additional actions taken by the Federal Open Markets Committee (FOMC) could add to additional margin compression as the interest rate environment continues to be uncertain.
The demand for commercial lending continues to be strong in all markets we serve. Commercial loans were $666.2 million at March 31, 2009, an increase of $28.6 million, or 4.50%, from the fourth quarter 2008. 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 $154.8 million as of March 31, 2009, compared to March 31, 2008. Despite the increase in earning assets, the Company’s net interest margin realized a modest decline of ten basis points. Net interest margin decreased to 3.73% for the quarter ended March 31, 2009, compared to 3.83% for the same period in 2008. The current Federal Funds rate remains in a range of 0.00% to 0.25%. Correspondingly, variable rate loans that are tied to the federal prime rate have been repriced downward in relation to the prime rate. 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 $1,144,000 for the three months ended March 31, 2009, compared to the respective period ended March 31, 2008.
The percentage of non-performing loans to total loans increased to 2.30% at March 31, 2009 compared to 1.86% at December 31, 2008 and 0.71% at March 31, 2008. Annualized net charge-offs as a percent of average total loans increased to 0.23% for the quarter ended March 31, 2009, compared to 0.07% for December 31, 2008 and 0.06% for the quarter ended March 31, 2008. Net charge-offs were higher in the current period due to increased charge-offs in the consumer and commercial real estate loan portfolios.
Provision for loan loss expense increased $1,461,000 for the three months ended March 31, 2009, compared to the same period ended March 31, 2008. The increase for the first quarter of 2009 was related to growth in the loan portfolio and from the specific reserves set aside for loans classified during 2009. Provision expense was also higher due to increasing the general reserve factors for commercial real estate loans during the quarter as the level of classified loans has increased sharply. As economic conditions continue to deteriorate, management’s emphasis will be to proactively review credit quality and the adequacy of the allowance for loan losses. Although resulting in substantial provisioning in the second half of 2008 and continuing into 2009, we believe that this proactive approach will put the Company in a better position to withstand the uncertainty over the next few quarters.
Non-interest income increased $49,000 for the three months ended March 31, 2009, compared the three months ended March 31, 2008. Customer service fees on deposit accounts increased $61,000 for the first quarter 2009 compared to the same quarter in 2008. Gain on sale of mortgage loans increased $29,000, while brokerage commissions decreased $25,000, for the current quarter compared to same quarter in the prior year. Other income increased $156,000 for the quarter ended March 31, 2009 compared to the quarter ended March 31, 2008. The increase in other income is attributable to a gain on sale of other real estate owned recorded during the quarter. The increase in non-interest income was offset by other-than-temporary impairment losses of $155,000 on two pooled trust preferred security investments.
Non-interest expense increased $1.4 million to $7.8 million for the three months ended March 31, 2009, compared to the same three months ended March 31, 2008. Contributing to the increase in non-interest expense for the quarter was a $584,000 increase in employee compensation expense. Twenty employees were added in the second quarter of 2008 as a result of the Farmers State Bank acquisition. Further contributing to the increase to non-interest expense were increases in office occupancy expense and equipment, information systems and outside services, amortization for core deposit intangible and marketing and advertising. FDIC insurance premiums also increased $89,000 for the quarter ended March 31, 2009 compared to the quarter ended March 31, 2008. The FDIC increased insurance premiums for the first quarter 2009 for all financial institutions. The Company will most likely be subject to higher premiums beginning in the second quarter 2009 along with any special assessments imposed by the FDIC on all financial institutions. Additionally, other expenses increased $338,000 for the quarter ended March 31, 2009 over the same period in 2008. The increase was related to higher interchange expenses, postage and courier, loss on NOW accounts and maintenance and repair on other real estate owned.
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 |
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FIRST FINANCIAL SERVICE CORPORATION
Consolidated Balance Sheets
(Unaudited)
| | | March 31, | | | December 31, | |
| (Dollars in thousands, except share data) | | 2009 | | | 2008 | |
| | | | | | | |
| ASSETS: | | | | | | |
| Cash and due from banks | | $ | 15,198 | | | $ | 17,310 | |
| Interest bearing deposits | | | 2,839 | | | | 3,595 | |
| Total cash and cash equivalents | | | 18,037 | | | | 20,905 | |
| | | | | | | | | |
| Securities available-for-sale | | | 15,673 | | | | 15,775 | |
| Securities held-to-maturity, fair value of $6,123 Mar (2009) and $6,846 Dec (2008) | | | 6,097 | | | | 7,022 | |
| Total securities | | | 21,770 | | | | 22,797 | |
| | | | | | | | | |
| Loans held for sale | | | 10,728 | | | | 9,567 | |
| Loans, net of unearned fees | | | 943,336 | | | | 903,434 | |
| Allowance for loan losses | | | (15,072 | ) | | | (13,565 | ) |
| Net loans | | | 938,992 | | | | 899,436 | |
| | | | | | | | | |
| Federal Home Loan Bank stock | | | 8,515 | | | | 8,515 | |
| Cash surrender value of life insurance | | | 8,745 | | | | 8,654 | |
| Premises and equipment, net | | | 30,635 | | | | 30,068 | |
| Real estate owned: | | | | | | | | |
| Acquired through foreclosure | | | 5,348 | | | | 5,925 | |
| Held for development | | | 45 | | | | 45 | |
| Other repossessed assets | | | 92 | | | | 91 | |
| Goodwill | | | 11,931 | | | | 11,931 | |
| Core deposit intangible | | | 1,602 | | | | 1,703 | |
| Accrued interest receivable | | | 3,999 | | | | 4,379 | |
| Deferred income taxes | | | 1,090 | | | | 1,147 | |
| Other assets | | | 2,393 | | | | 1,451 | |
| | | | | | | | | |
| TOTAL ASSETS | | $ | 1,053,194 | | | $ | 1,017,047 | |
| | | | | | | | | |
| LIABILITIES AND STOCKHOLDERS' EQUITY | | | | | | | | |
| LIABILITIES: | | | | | | | | |
| Deposits: | | | | | | | | |
| Non-interest bearing | | $ | 57,499 | | | $ | 55,668 | |
| Interest bearing | | | 764,019 | | | | 719,731 | |
| Total deposits | | | 821,518 | | | | 775,399 | |
| | | | | | | | | |
| Short-term borrowings | | | 65,000 | | | | 94,869 | |
| Advances from Federal Home Loan Bank | | | 52,841 | | | | 52,947 | |
| Subordinated debentures | | | 18,000 | | | | 18,000 | |
| Accrued interest payable | | | 279 | | | | 288 | |
| Accounts payable and other liabilities | | | 2,718 | | | | 2,592 | |
| | | | | | | | | |
| TOTAL LIABILITIES | | | 960,356 | | | | 944,095 | |
| Commitments and contingent liabilities | | | - | | | | - | |
| | | | | | | | | |
| STOCKHOLDERS' EQUITY: | | | | | | | | |
| Serial preferred stock, $1 par value per share; authorized 5,000,000 shares; issued and outstanding, 20,000 shares Mar (2009) | | | 19,740 | | | | - | |
| Common stock, $1 par value per share; authorized 10,000,000 shares; issued and outstanding, 4,679,504 shares Mar (2009), and 4,668,030 shares Dec (2008) | | | 4,680 | | | | 4,668 | |
| Additional paid-in capital | | | 34,578 | | | | 34,145 | |
| Retained earnings | | | 36,069 | | | | 36,476 | |
| Accumulated other comprehensive loss | | | (2,229 | ) | | | (2,337 | ) |
| | | | | | | | | |
| TOTAL STOCKHOLDERS' EQUITY | | | 92,838 | | | | 72,952 | |
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | | $ | 1,053,194 | | | $ | 1,017,047 | |
FIRST FINANCIAL SERVICE CORPORATION
Consolidated Statements of Income
(Unaudited)
| | | Three Months Ended | |
| (Dollars in thousands, except per share data) | | March 31, | |
| | | 2009 | | | 2008 | |
| Interest and Dividend Income: | | | | | | |
| Loans, including fees | | $ | 13,944 | | | $ | 14,032 | |
| Taxable securities | | | 308 | | | | 384 | |
| Tax exempt securities | | | 106 | | | | 100 | |
| Total interest income | | | 14,358 | | | | 14,516 | |
| | | | | | | | | |
| Interest Expense: | | | | | | | | |
| Deposits | | | 4,500 | | | | 5,686 | |
| Short-term borrowings | | | 43 | | | | 322 | |
| Federal Home Loan Bank advances | | | 597 | | | | 596 | |
| Subordinated debentures | | | 329 | | | | 167 | |
| Total interest expense | | | 5,469 | | | | 6,771 | |
| | | | | | | | | |
| Net interest income | | | 8,889 | | | | 7,745 | |
| Provision for loan losses | | | 2,045 | | | | 584 | |
| Net interest income after provision for loan losses | | | 6,844 | | | | 7,161 | |
| | | | | | | | | |
| Non-interest Income: | | | | | | | | |
| Customer service fees on deposit accounts | | | 1,477 | | | | 1,416 | |
| Gain on sale of mortgage loans | | | 177 | | | | 148 | |
| Total other-than-temporary impairment losses | | | (1,183 | ) | | | - | |
| Portion of loss recognized in other comprehensive income (before taxes) | | | 1,028 | | | | - | |
| Net impairment losses recognized in earnings | | | (155 | ) | | | - | |
| Write down on real estate acquired through foreclosure | | | (17 | ) | | | - | |
| Brokerage commissions | | | 93 | | | | 118 | |
| Other income | | | 428 | | | | 272 | |
| Total non-interest income | | | 2,003 | | | | 1,954 | |
| | | | | | | | | |
| Non-interest Expense: | | | | | | | | |
| Employee compensation and benefits | | | 4,002 | | | | 3,418 | |
| Office occupancy expense and equipment | | | 848 | | | | 653 | |
| Marketing and advertising | | | 265 | | | | 214 | |
| Outside services and data processing | | | 793 | | | | 717 | |
| Bank franchise tax | | | 264 | | | | 250 | |
| FDIC insurance premiums | | | 179 | | | | 90 | |
| Amortization of core deposit intangible | | | 101 | | | | - | |
| Other expense | | | 1,331 | | | | 993 | |
| Total non-interest expense | | | 7,783 | | | | 6,335 | |
| | | | | | | | | |
| Income before income taxes | | | 1,064 | | | | 2,780 | |
| Income taxes | | | 303 | | | | 897 | |
| Net Income | | | 761 | | | | 1,883 | |
| Less: | | | | | | | | |
| Dividends on preferred stock | | | (267 | ) | | | - | |
| Accretion on preferred stock | | | (11 | ) | | | - | |
| Net income available to common shareholders | | $ | 483 | | | $ | 1,883 | |
| | | | | | | | | |
| Shares applicable to basic income per share | | | 4,676,587 | | | | 4,663,447 | |
| Basic income per share | | $ | 0.10 | | | $ | 0.40 | |
| | | | | | | | | |
| Shares applicable to diluted income per share | | | 4,676,690 | | | | 4,697,876 | |
| Diluted income per share | | $ | 0.10 | | | $ | 0.40 | |
| | | | | | | | | |
| Cash dividends declared per share | | $ | 0.190 | | | $ | 0.190 | |
FIRST FINANCIAL SERVICE CORPORATION
Unaudited Selected Ratios and Other Data
| | | As of and For the | |
| | | Three Months Ended | |
| | | March 31, | |
| Selected Data | | 2009 | | | 2008 | |
| | | | | | | |
| Performance Ratios | | | | | | |
| | | | | | | |
| Return on average assets | | | 0.30 | % | | | 0.87 | % |
| | | | | | | | | |
| Return on average equity | | | 3.37 | % | | | 10.16 | % |
| | | | | | | | | |
| Average equity to average assets | | | 8.82 | % | | | 8.52 | % |
| | | | | | | | | |
| Net interest margin | | | 3.73 | % | | | 3.83 | % |
| | | | | | | | | |
| Efficiency ratio from continuing operations | | | 71.46 | % | | | 65.31 | % |
| | | | | | | | | |
| Book value per share | | $ | 15.62 | | | $ | 16.01 | |
| | | | | | | | | |
| Average Balance Sheet Data | | | | | | | | |
| | | | | | | | | |
| Average total assets | | $ | 1,039,731 | | | $ | 875,286 | |
| | | | | | | | | |
| Average interest earning assets | | | 973,336 | | | | 818,565 | |
| | | | | | | | | |
| Average loans | | | 939,647 | | | | 774,443 | |
| | | | | | | | | |
| Average interest-bearing deposits | | | 760,753 | | | | 639,274 | |
| | | | | | | | | |
| Average total deposits | | | 814,870 | | | | 693,609 | |
| | | | | | | | | |
| Average total stockholders' equity | | | 91,711 | | | | 74,547 | |
| | | | | | | | | |
| Asset Quality Ratios | | | | | | | | |
| | | | | | | | | |
| Non-performing loans as a percent of total loans (1) | | | 2.30 | % | | | 0.71 | % |
| | | | | | | | | |
| Non-performing assets as a percent of total loans (1) | | | 2.87 | % | | | 1.11 | % |
| | | | | | | | | |
| Allowance for loan losses as a percent of total loans (1) | | | 1.60 | % | | | 1.08 | % |
| | | | | | | | | |
| Allowance for loan losses as a percent of non-performing loans | | | 70 | % | | | 151 | % |
| | | | | | | | | |
| Net charge-offs to total loans (1) | | | 0.23 | % | | | 0.06 | % |
(1) Excludes loans held for sale.
