First Financial Service Corporation Announces Quarterly Results

ELIZABETHTOWN, Ky., April 26 /PRNewswire-FirstCall/ -- First Financial Service Corporation (the Company), (Nasdaq: FFKY) today announced flat diluted net income per common share of $0.10 for the quarter ended March 31, 2010 and 2009.

"Our associates and management continue to work tirelessly through this challenging recessionary environment" stated Chief Executive Officer B. Keith Johnson.  "I am very impressed with the efforts of our associates during these times with their focus and commitment to serving our customers.  This commitment allowed us to cultivate additional relationships across all of our markets generating a $42 million, or 4% increase in total deposits for the quarter, continuing the momentum from 2009 of a $274 million, or 33% increase in total deposits – one of the strongest years for deposit growth in our history.  Highlighting the growth for the quarter was a 19% growth in deposits in our Louisville footprint and a 6% growth in our Southern Indiana footprint.  Checking deposits grew $9 million, or 5% during the quarter following an 8% growth in checking deposits for 2009.  

The strength of our core franchise will contribute to our ability to profitably navigate through this recession, which has been challenging for many of our land development and commercial real estate customers leading to deterioration in our overall credit quality.  While our credit quality metrics will continue to be under pressure, the pace of deterioration has slowed and some of our metrics have stabilized over the past several quarters.  Classified loans as a percent of total loans was 6.77% at March 31, 2010 compared to 6.73% at December 31, 2009, and 6.63% for March 31, 2009.  This is a positive sign.  Non-performing loans as a percent of total loans was 3.43% at March 31, 2010, an improvement from 3.82% at December 31, 2009, but elevated from 2.30% for March 31, 2009.  Our annualized net charge offs as a percent of total loans were 0.27% as of March 31, 2010, an improvement from 0.54% for the year ended December 31, 2009, and an increase from 0.23% for the quarter ended March 31, 2009.  We continued our efforts to ensure the adequacy of the allowance for the quarter by increasing the allowance for loan loss to 1.95% of total loans at March 31, 2010, from 1.78% at December 31, 2009 and 1.60% at March 31, 2009.  The increase in reserves boosts our coverage ratio of allowance for loan loss as a percent of total loans which stood at 57% at March 31, 2010 compared to 47% at December 31, 2009.  We are aggressively working with our borrowers and look forward to sharing prosperous times with them again as our nation returns to more stable economic conditions."

Balance sheet changes during the first quarter of 2010 include an increase in total assets of $43.3 million to $1.25 billion.  This increase was due to an increase of cash and cash equivalents of $40.7 million and an increase of investment securities of $32.9 million since December 31, 2009.  These increases were partially off-set by a decline in gross loans of $28.5 million.  This shift in the balance sheet reflects a conscious effort by management to add on-balance sheet liquidity to protect the Bank against any adverse changes to its current wholesale funding position.

Commercial loans were $681.3 million at March 31, 2010, a decrease of $24.0 million, or 3.4%, from December 31, 2008.  The decline in the Company's commercial loan portfolio is a result of pay-offs on several large commercial relationships.  Although there remains a high demand for loans from quality borrowers, management has elected to shift its focus to preserve capital as the nation continues to pull out of this recession.  

Total deposits were $1.09 billion at March 31, 2010, an increase of $42.4 million from December 31, 2009.    The increase was the result of a deposit promotion held in February.  Competition for deposits remains very competitive in all of the markets we serve.  Competition for deposits combined with continued repricing of variable rate loans could add to additional margin compression over the next several quarters.

The percentage of non-performing loans to total loans decreased to 3.43% at March 31, 2010 compared to 3.82% at December 31, 2009.  The decrease was primarily attributed to a reduction in restructured loans and well as a few non-accrual loans being transferred to other real estate owned in the first quarter of 2010 compared to the most recent quarter ended December 31, 2009.  Annualized net charge-offs as a percentage of average total loans marginally increased to 0.27% for the quarter ended March 31, 2010, compared to 0.23% for the quarter ended March 31, 2009.  

Average earning assets increased by $193.9 million as of March 31, 2010, compared to March 31, 2009.  Despite the large increase in earning assets, the Company's net interest margin realized a sharp decline of 61 basis points.  Net interest margin decreased to 3.12% for the quarter ended March 31, 2010, compared to 3.73% for the same period in 2009.  The decline is mostly attributed to the Bank's increased liquidity efforts by placing assets into lowering yielding investments other than loans.  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.  Fifty-nine percent of deposits are time deposits that reprice over a longer period of time.  The increase in the volume of earning assets and the change to the mix of earning assets had basically no impact on net interest income, which only increased $12,000 for the three months ended March 31, 2010, compared to the respective period ended March 31, 2009.  

Provision for loan loss expense was lower by $293,000 at $1.8 million for the three months ended March 31, 2010, compared to the same period ended March 31, 2009.  During the first quarter of 2010, the Company continued its efforts to ensure the adequacy of the allowance by adding specific reserves to several large commercial real estate relationships based on updated appraisals received by the Bank.  The provision was lower for the current period compared to the same period a year ago due to the $28.5 million decline in total loans for the first three months of the year from December 31, 2009, which lowered the overall level of general reserves.  As economic conditions continue to impact our loan portfolio, management's emphasis will be to proactively review credit quality and the adequacy of the allowance for loan losses.  As a result of this provisioning, allowance for loan losses as a percent of total loans increased to 1.95% from 1.78% at December 31, 2009 and 1.60% at March 31, 2009.

Non-interest income increased $135,000 for the three months ended March 31, 2010, compared to the three months ended March 31, 2009.  Customer service fees on deposit accounts increased $48,000 for the first quarter 2010 compared to the same quarter in 2009.  Gain on sale of mortgage loans increased $122,000 due to continued refinancing activity, while brokerage commissions were flat, for the current quarter compared to the same quarter in the prior year.  The increase in non-interest income for the quarter was also reflective of a $26,000 loss on the sale of other real estate owned, a $23,000 loss on the sale of an equity investment security and an increase of $17,000 of other-than-temporary credit losses on trust preferred security investments.  Additionally, other non-interest income increased $14,000 for the first quarter compared to same quarter in 2009.  

Non-interest expense increased $491,000 to $8.3 million for the three months ended March 31, 2010, compared to the same periods ended March 31, 2009.  Employee compensation and benefits expense increased $88,000 due to normal cost of living increases over the prior year.  FDIC insurance premiums also increased for the quarter by $481,000 due to increased deposit levels combined with higher assessment rates.  The increases in non-interest expenses were off-set by decreases in outside services and data processing of $63,000, marketing and advertising of $40,000, office occupancy expense and equipment of $44,000 and amortization of core deposit intangible of $43,000.  Other non-interest expense was also slightly higher in the first quarter of 2010 by $26,000 compared to the first quarter of 2009.  

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 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:

SOURCE First Financial Service Corporation

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