First Financial Service Corporation Announces Quarterly Earnings

ELIZABETHTOWN, Ky., May 19, 2011 /PRNewswire/ -- First Financial Service Corporation (the Company, NASDAQ: FFKY) today announced a diluted net loss per common share of $(0.49), or ($2,334,000) for the quarter ended March 31, 2011, compared to diluted net income per common share of $0.10, or $491,000 for the quarter ended March 31, 2010.  

"We are disappointed with our quarterly performance as our problem assets continued to have a significant impact on earnings," stated Chief Executive Officer, B. Keith Johnson.  "Our results were impacted by a $2.5 million pre-tax provision on one of our non-performing subdivision development loans due to an updated appraisal received May 5, 2011.  We continue to dedicate a significant amount of resources in working the problem assets through the system.  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 Company entered into loan modifications that suspended principal payments for a certain period on two loan relationships totaling $13.5 million during the quarter ended March 31, 2011, which caused them to be reclassified as restructured loans.  As a result, the percentage of non-performing assets to total assets increased to 6.89% at March 31, 2011 compared to 5.45% at December 31, 2010, and 3.85% from 2009.  

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

The Company's non-performing assets are largely comprised of residential housing development loans and other real estate acquired through foreclosure in Jefferson and Oldham Counties.  Six relationships totaling $42.9 million make up over 48% of our non-performing assets.    These high-end subdivisions, while showing initial progress, have stalled due to the recession.  At March 31, 2011, substantially all of the loan portfolio concentration in these counties has been classified as impaired.   Most of the remaining concentration related to the housing industry is located outside of Jefferson and Oldham counties.  These are smaller subdivision development projects, having stronger guarantors that generally have a sufficient amount of business activity.

We anticipate that economic activity currently surrounding the Company's market will enhance our local market's ability to work through this recessionary cycle.  Two primary economic developments are influencing our core market.  Most of our geographic market surrounds the Ft. Knox military base, which has undergone a major transformation as a result of the 2005 Base Realignment and Closure Act.  The Ft. Knox transformation will result in a net increase in employment of 6,500 to the area including 3,500 new civilian families with the Human Resource Command Center.  Additionally, on April 13, 2011, the Commonwealth of Kentucky Cabinet for Economic Development announced that UFLEX Ltd., from Noida, India will locate its first U.S. packaging plan in Hardin County, Kentucky.  This initial $90 million investment will bring 125 jobs to the area with its first phase and ultimately double the investment to $180 million and 250 jobs.  

Balance sheet changes during the first quarter of 2011 include a decrease in total assets of $33.3 million to $1.3 billion.  The securities portfolio increased $47.4 million as the Company continued to invest a portion of its overnight liquidity.  Loans receivable, net of unearned fees declined $23.6 million to $858.4 million at March 31, 2011 compared to December 31, 2010.  Total deposits declined $7.1 million primarily due to a $5.7 million decline in certificates of deposit.

Net interest margin decreased to 2.91% at March 31, 2011 compared to 3.05% for the year ended December 31, 2010, compared to 3.12% for the same period in 2010.  The decline is mostly attributed to the Bank's increased liquidity efforts as well as the increase in the amount of non-performing assets.

Provision for loan loss expense increased by $1.7 million to $3.5 million for the three months ended March 31, 2011, compared to the same period ended March 31, 2010.  Annualized net charge-offs as a percentage of average total loans increased to 0.71% for the three months ended March 31, 2011 as the Company had net charge-offs of $1.5 million during the quarter, largely related to specific reserves on collateral dependent loans.  The allowance for loan losses as a percent of total loans was 2.86% at March 31, 2011 and December 31, 2010.

For the quarter ended March 31, 2011, non-interest income decreased $145,000 to $2.0 million, compared to the quarter ended a year ago.  

Non-interest expense increased $1.1 million to $9.4 million for the three months ended March 31, 2011 compared to the same period ended in 2010.  Employee compensation and benefits expense increased $239,000 for the quarter due to higher insurance claims under the self funded insurance plan.  FDIC insurance premiums increased $310,000 due to the higher FDIC insurance rate from the Bank's regulatory rating.  Expense related to real estate acquired through foreclosure increased $227,000 due to the higher level of properties in this portfolio at March 31, 2011.

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