First Financial Service Corporation Announces Quarterly Results

ELIZABETHTOWN, Ky., Aug. 15, 2011 /PRNewswire/ -- First Financial Service Corporation (the Company, NASDAQ: FFKY) today announced a diluted net loss per common share of $(2.57), or $(12.2 million) for the quarter ended June 30, 2011, compared to a diluted net loss per common share of $(0.07), or $(.3 million) for the quarter ended June 30, 2010.  Diluted net loss per common share for the six months ended June 30, 2011, was $(3.06), compared to diluted net income per common share of $0.04 for the six months ended June 30, 2010.  

"We continue to dedicate a significant amount of resources in working the problem assets through the system," stated Chief Executive Officer, B. Keith Johnson.  "We had over half of our non-performing assets appraised, including our high end residential development loans and related other real estate owned during the quarter.  The lower values on the appraisals contributed to $13.0 million in provision expense and $4.9 million in write downs on other real estate owned for the year.  The charges are a necessary step in the process of working through this credit cycle.  Our focus for 2011 will be to continue to bring resolution to our problem loans, drive improvements in operational efficiency, and build upon the sustained success of our retail franchise.  We are confident our efforts will get us through this credit cycle."

The following table provides information with respect to non-performing assets for the periods indicated.

The Company's non-performing assets declined $7.1 million from March 31, 2011 and increased $9.5 million from December 31, 2010.  During the second quarter, $14.6 million in charge-offs and $4.6 million in write downs in real estate acquired through foreclosure were recorded further reducing the Company's non-performing assets.  Over half of the total non-performing assets have been re-appraised during the first six months of the year, including substantially all the high end residential developments.  The high end residential developments are where the larger write downs have occurred.  Offsetting the decline in non-performing assets from these write downs, was an increase in restructured loans.   The Company entered into loan modifications that suspended principal payments for a certain period on three loan relationships totaling $23.3 million during the six months ended June 30, 2011, which caused them to be reclassified as restructured loans.  Based on recent appraisal valuations and cash flow analysis, $2.1 million impairment has been recorded against these three credit relationships.  The percentage of non-performing assets to total assets was 6.56% at June 30, 2011, 6.89% at March 31, 2011, and 5.45% at December 31, 2010.

Balance sheet changes through the second quarter of 2011 include a decrease in total assets of $77.4 million to $1.2 billion.  The securities portfolio increased $85.4 million as the Company continued to invest a portion of its overnight liquidity.  Loans receivable, net of unearned fees declined $82.5 million to $799.4 million at June 30, 2011 compared to December 31, 2010.  Total deposits declined $46.7 million from a $26.6 million decrease in certificates of deposit and a $15.1 decrease in money market accounts.  

Net interest margin decreased to 2.88% for the six months ended June 30, 2011 compared to 3.05% for the year ended December 31, 2010, compared to 3.18% for the same period in 2010.  The decline is mostly attributed to the Bank's increased liquidity efforts, the decline in loan balances, as well as the increase in the amount of non-performing loans.

Provision for loan loss expense increased by $6.2 million to $9.5 million for the three months ended June 30, 2011, compared to the same period ended June 30, 2010.  Provision for loan loss increased $8.0 million to $12.9 million for the six months ended June 30, 2011, compared to the same six month period in 2010.  Annualized net charge-offs as a percentage of average total loans increased to 4.21% for the six months ended June 30, 2011 as the Company had net charge-offs of $17.9 million during the period. The Company charged off $9.9 million of its specific reserves on its collateral dependent loans.  The decline in the specific reserves resulted in a decline in the allowance for loan losses as a percent of total loans.  The allowance for loan losses as a percent of total loans was 2.22% for June 30, 2011 compared to 2.57% at December 31, 2010.

Non-interest income decreased $4.3 million for the three months ended and $4.5 million for the six months ended June 30, 2011 compared to the same period in 2010.  The decline was related to a $4.7 million increase for the three months ended and a $4.9 million increase for the six months ended June 30, 2011 in loss on sale and write downs on real estate acquired through foreclosure.

Non-interest expense increased $1.3 million to $9.9 million for the three months ended June 30, 2011 compared to the same period ended in 2010.  For the six month respective periods non-interest expense increased $2.4 million to $19.3 million.  The increase in non-interest expense was largely driven by an increase in FDIC insurance premiums, real estate acquired through foreclosure expense, and legal and loan expense arising from loan workouts.

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 eight contiguous counties encompassing Central Kentucky and the Louisville Metropolitan area, including Southern Indiana, through its 22 full-service banking centers and a commercial private banking center.

This press release contains forward-looking statements. Statements that are not historical or current facts, including statements about beliefs and expectations, are forward-looking statements and are 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 and expenses and the future plans and prospects of First Federal Savings Bank. Forward-looking statements involve inherent risks and uncertainties, and important factors could cause actual results to differ materially from those anticipated. Adverse conditions in the commercial real estate markets, as well as a delay or failure of recovery in the residential real estate markets, could cause additional credit losses and deterioration in asset values. First Financial Service Corporation's results also be adversely affected by further deterioration in business and economic conditions both generally and in the markets we serve; changes in interest rates; deterioration in the credit quality of its loan portfolios or in the value of the collateral securing those loans; deterioration in the value of securities held in its investment securities portfolio; legal and regulatory developments; increased competition from both banks and non-banks; changes in customer behavior and preferences; effects of critical accounting policies and judgments; and management's ability to effectively manage credit risk, residual value risk, market risk, operational risk, interest rate risk, and liquidity risk.

For discussion of these and other risks that may cause actual results to differ from expectations, refer to First Financial Service Corporation's Annual Report on Form 10-K for the year ended December 31, 2010, as amended by Form 10-K/A filed May 13, 2011 with the Securities and Exchange Commission, including the section entitled "Risk Factors," and all subsequent filings 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.

First Financial Service Corporation's stock is traded on the Nasdaq Global Market under the symbol "FFKY."  Market makers for the stock are:

SOURCE First Financial Service Corporation