First Financial Service Corporation Reports Improved Credit Quality for the Fifth Consecutive Quarter

ELIZABETHTOWN, Ky., Aug.9, 2013 /PRNewswire/ --First Financial Service Corporation (the Company, NASDAQ: FFKY) today reported a net loss to common stockholders of $1.4 million for the quarter ended June 30, 2013, an improvement from the net loss to common stockholders of $4.4 million for the same quarter in 2012. The net loss per diluted common share was $0.29 for the quarter ended June 30, 2013, compared to a net loss per diluted common share of $0.92 for the same quarter in 2012, an improvement of 68%.

First Financial also reported a net loss of $1.5 million for the six months ended June 30, 2013, an improvement from the net loss to common stockholders of $5.0 million for the same six-month period in 2012. The net loss per diluted common share was $0.32 for the six months ended June 30, 2013, compared to a net loss per diluted common share of $1.04 for the six months ended June 30, 2012, an improvement of 69%.

"We continue to see significant progress in credit trends with an improvement in the overall loan portfolio," said President, Greg Schreacke. "This is extremely important to us as we continue to shift our focus from dealing with problem assets to positioning the Company for profitable performance. While net loans declined 3.2% from the previous quarter mainly due to normal pay downs in the loan portfolio and continued reduction in non-performing loans, new loan production is accelerating. The Company generated $38 million in new loans during the second quarter following $34 million in the first quarter of 2013 and $26 million in quarter ended December 31, 2012."

SECOND QUARTER 2013 HIGHLIGHTS

• Non-performing assets, excluding restructured loans that are accruing and paying as agreed, declined by $8.3 million or 20.6%, to $32.1 million from March 31, 2013 and $42.6 million or 57.0% from June 30, 2012. This represents the fifth consecutive quarterly reduction in non-performing assets, excluding restructured loans that are accruing and paying as agreed.
• Allowance for loan losses to total non-performing loans, excluding restructured loans that are accruing and paying as agreed, was 89.3% at June 30, 2013 compared to 42.0% for the same quarter last year.
• Annualized net charge-offs were 0.06% at June 30, 2013 compared to 1.37% for the same quarter last year.
• Other real estate expenses have declined 69.4% for the six months ended June 30, 2013 to $800,000 when compared to $2.7 million for the same period last year.
• Net interest margin improved to 2.87% for the quarter ended June 30, 2013, up from 2.66% last quarter and 2.42% for the quarter ended June 30, 2012. The yield on interest earning assets improved by 12 basis points and the cost of interest bearing liabilities improved by 9 basis points when compared to the quarter ended March 31, 2013.
• Regulatory capital ratios continue to improve at the bank level. The tier I leverage ratio was 7.27%, the tier I risk-based ratio was 11.09%, and the total risk-based ratio was 12.36% for the quarter ended June 30, 2013 compared to 5.73%, 9.42%, and 10.68% respectively for the quarter ended June 30, 2012.

"The improvement to the net interest margin is consistent with our expectations," said Chief Financial Officer, Frank Perez. "The combination of improved net interest margin and better asset quality are key factors as we move forward and put our challenges behind us."

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. Currently, the Bank serves six contiguous counties in central Kentucky through its 17 full-service banking centers.

This release includes forward-looking statements. The words "expect," "anticipate," "goal," "objective," "intend," "plan," "believe," "should," "seek," "estimate" and similar expressions identify forward-looking statements, but other statements not limited to historical information may also be considered forward-looking. All forward-looking statements are subject to risks, uncertainties and other factors that may cause our actual results to differ materially from any results expressed or implied by such forward-looking statements. Such risks and uncertainties include, without limitation, (i) events or conditions that adversely affect the financial condition of borrowers; (ii) continuation of the current historically low short-term interest rate environment; (iii) our ability to attract performing loans; (iv) changes in loan underwriting, credit review or loss reserve policies resulting from economic conditions, regulatory oversight or regulatory developments; (v) the effectiveness of our efforts to improve, resolve or liquidate lower-quality assets; (vi) increased competition from other financial institutions; (vii) greater than anticipated adverse conditions in the national or local economies, particularly in commercial and residential real estate markets; (viii) rapid fluctuations or unanticipated changes in interest rates; (ix) events that would cause us to conclude that there was impairment of any asset, including intangible assets; (x) events that further reduce the value of, or increase expenses associated with, other real estate owned; (xi) our ability to comply with regulatory capital requirements; and (xiii) changes in state and federal legislation, regulations or policies applicable to banks and other financial service providers, including implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act. A more detailed description of these and other risks and uncertainties is contained in our most recent annual report on Form 10-K and our most recent quarterly report on Form 10-Q filed with the Securities and Exchange Commission. Many of the risks and uncertainties described above are beyond our ability to control or predict, and therefore readers are cautioned not to put undue reliance on the forward-looking statements made in this release. First Financial Service Corporation disclaims any obligation to update or revise any forward-looking statements made in this release, whether as a result of new information, future events or otherwise, unless required by law.

FIRST FINANCIAL SERVICE CORPORATION
Consolidated Balance Sheets
(Unaudited)
						June 30,		December 31,
(Dollars in thousands, except per share data)						2013		2012
ASSETS:
Cash and due from banks						$ 11,947		$ 12,598
Interest bearing deposits						15,978		50,505
Total cash and cash equivalents						27,925		63,103
Securities available-for-sale						309,132		354,131
Loans held for sale						3,595		3,887
Loans, net of unearned fees						490,586		524,835
Allowance for loan losses						(15,947)		(17,265)
Net loans						474,639		507,570
Federal Home Loan Bank stock						4,430		4,805
Cash surrender value of life insurance						10,244		10,060
Premises and equipment, net						26,742		27,048
Real estate owned:
Acquired through foreclosure, net of valuation
allowance of $721 Jun (2013) and $500 Dec (2012)						14,169		22,286
Other repossessed assets						37		34
Accrued interest receivable						2,390		2,690
Accrued income taxes						2,907		2,928
Low-income housing investments						6,821		7,061
Other assets						1,487		1,459
	TOTAL ASSETS					$ 884,518		$ 1,007,062
	LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits:
Non-interest bearing						$ 80,584		$ 75,842
Interest bearing						717,793		846,778
Total deposits						798,377		922,620
Advances from Federal Home Loan Bank						22,526		12,596
Subordinated debentures						18,000		18,000
Accrued interest payable						3,798		3,121
Accrued senior preferred dividend						2,969		2,469
Accounts payable and other liabilities						4,246		3,884
	TOTAL LIABILITIES					849,916		962,690
Commitments and contingent liabilities						-		-
STOCKHOLDERS' EQUITY:
Senior preferred stock, $1 par value per share;
authorized 5,000,000 shares; issued and
outstanding, 20,000 shares with a liquidation
preference of $23.0 million Jun (2013), and
$22.5 million Dec (2012)						19,970		19,943
Common stock, $1 par value per share;
authorized 35,000,000 shares; issued and
outstanding, 4,855,890 shares Jun (2013), and 4,775,114
shares Dec (2012)						4,856		4,775
Additional paid-in capital						35,990		35,782
Accumulated deficit						(18,929)		(17,398)
Accumulated other comprehensive income						(7,285)		1,270
	TOTAL STOCKHOLDERS' EQUITY					34,602		44,372
	TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY					$ 884,518		$ 1,007,062

		FIRST FINANCIAL SERVICE CORPORATION
		Consolidated Statements of Operations
				(Unaudited)
					Three Months Ended			Six Months Ended
(Amounts in thousands, except per share data)					June 30,			June 30,
					2013	2012		2013	2012
Loans, including fees					$ 6,603	$ 8,868		$ 13,421	$ 18,829
Taxable securities					1,541	1,726		3,198	3,436
Tax exempt securities					67	144		132	357
	Total interest income				8,211	10,738		16,751	22,622
Interest Expense:
Deposits					1,774	3,444		3,910	7,389
Federal Home Loan Bank advances					132	283		264	567
Subordinated debentures					341	341		682	682
	Total interest expense				2,247	4,068		4,856	8,638
Net interest income					5,964	6,670		11,895	13,984
Provision for loan losses					212	915		(825)	1,927
Net interest income after provision for loan losses					5,752	5,755		12,720	12,057
Non-interest Income:
Customer service fees on deposit accounts					1,307	1,399		2,498	2,782
Gain on sale of mortgage loans					161	384		588	695
Gain on sale of investments					334	598		843	1,309
Loss on sale of investments					(334)	(303)		(616)	(303)
Other than temporary impairment loss:
Total other-than-temporary impairment losses					-	-		-	(26)
Portion of loss recognized in other comprehensive
income/(loss) (before taxes)					-	-		-	-
Net impairment losses recognized in earnings					-	-		-	(26)
Loss on sale and write downs on real estate acquired
through foreclosure					(532)	(2,016)		(1,592)	(3,582)
Gain on sale of premises and equipment					-	322		-	322
Gain on sale on real estate acquired through foreclosure					150	210		207	613
Gain on sale of real estate held for development					-	-		-	175
Brokerage commissions					139	112		257	207
Other income					461	617		955	1,028
	Total non-interest income				1,686	1,323		3,140	3,220
Non-interest Expense:
Employee compensation and benefits					3,757	3,822		7,550	7,675
Office occupancy expense and equipment					690	782		1,398	1,550
Marketing and advertising					74	135		174	168
Outside services and data processing					941	893		1,804	1,704
Bank franchise tax					315	402		630	744
FDIC insurance premiums					505	682		1,194	1,097
Amortization of intangible assets					-	62		-	127
Real estate acquired through foreclosure expense					524	2,336		818	2,676
Loan expense					385	656		607	1,164
Other expense					1,372	1,446		2,688	2,800
	Total non-interest expense				8,563	11,216		16,863	19,705
Loss before income taxes					(1,125)	(4,138)		(1,003)	(4,428)
Income tax expense/(benefit)					1	1		1	1
Net Loss					(1,126)	(4,139)		(1,004)	(4,429)
Less:
Dividends on preferred stock					(250)	(250)		(500)	(500)
Accretion on preferred stock					(13)	(13)		(27)	(27)
Net loss attributable to common shareholders					$ (1,389)	$ (4,402)		$ (1,531)	$ (4,956)
Shares applicable to basic loss per common share					4,806,444	4,767,464		4,797,259	4,764,240
Basic loss per common share					$ (0.29)	$ (0.92)		$ (0.32)	$ (1.04)
Shares applicable to diluted loss per common share					4,806,444	4,767,464		4,797,259	4,764,240
Diluted loss per common share					$ (0.29)	$ (0.92)		$ (0.32)	$ (1.04)
Cash dividends declared per common share					$ -	$ -		$ -	$ -

			Quarter Ended June 30,
				2013				2012
(Dollars in thousands)
			Average		Average		Average		Average
			Balance	Interest	Yield/Cost (5)		Balance	Interest	Yield/Cost (5)
ASSETS
Interest earning assets:
U.S. Government and federal agency			$ -	$ -	-%		$ 19,399	$ 98	2.03%
Mortgage-backed securities			244,501	1,031	1.69%		309,475	1,498	1.94%
State and political subdivision
securities (1)			15,501	248	6.42%		13,755	218	6.36%
Trust Preferred Securities			-	-	-%		1,032	16	6.22%
Corporate bonds			59,231	377	2.55%		412	1	0.97%
Loans (2) (3) (4)			499,079	6,603	5.31%		662,340	8,868	5.37%
FHLB stock			4,430	47	4.26%		4,805	56	4.67%
Interest bearing deposits			24,982	16	0.26%		107,296	57	0.21%
Total interest earning assets			847,724	8,322	3.94%		1,118,514	10,812	3.88%
Less: Allowance for loan losses			(16,156)				(17,759)
Non-interest earning assets			78,642				92,289
Total assets			$ 910,210				$ 1,193,044
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest bearing liabilities:
Savings accounts			$ 91,122	$ 52	0.23%		$ 98,445	$ 72	0.29%
NOW and money market
accounts			265,784	153	0.23%		305,064	390	0.51%
Certificates of deposit and
other time deposits			390,885	1,569	1.61%		605,531	2,983	1.98%
FHLB advances			13,762	132	3.85%		27,678	282	4.09%
Subordinated debentures			18,000	341	7.60%		18,000	341	7.60%
Total interest bearing liabilities			779,553	2,247	1.16%		1,054,718	4,068	1.55%
Non-interest bearing liabilities:
Non-interest bearing deposits			80,433				82,698
Other liabilities			11,060				5,069
Total liabilities			871,046				1,142,485
Stockholders' equity			39,164				50,559
Total liabilities and
stockholders' equity			$ 910,210				$ 1,193,044
Net interest income				$ 6,075				$ 6,744
Net interest spread					2.78%				2.33%
Net interest margin					2.87%				2.42%
(1) Taxable equivalent yields are calculated assuming a 34% federal income tax rate.
(2) Includes loan fees, immaterial in amount, in both interest income and the calculation of yield on loans.
(3) Calculations include non-accruing loans in the average loan amounts outstanding.
(4) Includes loans held for sale.
(5) Annualized

			Six Months Ended June 30,
				2013				2012
(Dollars in thousands)
			Average		Average		Average		Average
			Balance	Interest	Yield/Cost (5)		Balance	Interest	Yield/Cost (5)
ASSETS
Interest earning assets:
U.S. Government and federal agency			$ 3,822	$ 28	1.48%		$ 21,537	$ 230	2.15%
Mortgage-backed securities			266,443	2,241	1.70%		294,883	2,969	2.03%
State and political subdivision
securities (1)			15,078	421	5.63%		16,636	541	6.56%
Trust Preferred Securities			-	-	-%		1,055	29	5.54%
Corporate bonds			50,862	651	2.58%		206	1	0.98%
Loans (2) (3) (4)			510,593	13,421	5.30%		694,733	18,829	5.47%
FHLB stock			4,555	98	4.34%		4,805	103	4.32%
Interest bearing deposits			27,701	34	0.25%		95,855	104	0.22%
Total interest earning assets			879,054	16,894	3.88%		1,129,710	22,806	4.07%
Less: Allowance for loan losses			(16,587)				(17,868)
Non-interest earning assets			81,181				92,995
Total assets			$ 943,648				$ 1,204,837
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest bearing liabilities:
Savings accounts			$ 88,947	$ 107	0.24%		$ 96,491	$ 143	0.30%
NOW and money market
accounts			272,224	355	0.26%		304,972	838	0.55%
Certificates of deposit and
other time deposits			419,536	3,448	1.66%		621,632	6,408	2.08%
FHLB advances			13,168	264	4.04%		27,761	567	4.12%
Subordinated debentures			18,000	682	7.64%		18,000	682	7.64%
Total interest bearing liabilities			811,875	4,856	1.21%		1,068,856	8,638	1.63%
Non-interest bearing liabilities:
Non-interest bearing deposits			79,492				79,215
Other liabilities			10,727				4,858
Total liabilities			902,094				1,152,929
Stockholders' equity			41,554				51,908
Total liabilities and
stockholders' equity			$ 943,648				$ 1,204,837
Net interest income				$ 12,038				$ 14,168
Net interest spread					2.67%				2.44%
Net interest margin					2.76%				2.53%
(1) Taxable equivalent yields are calculated assuming a 34% federal income tax rate.
(2) Includes loan fees, immaterial in amount, in both interest income and the calculation of yield on loans.
(3) Calculations include non-accruing loans in the average loan amounts outstanding.
(4) Includes loans held for sale.
(5) Annualized

				Three Months Ended				Six Months Ended
				June 30,				June 30,
(Dollars in thousands)				2013		2012		2013		2012
Balance at beginning of period				$ 15,812		$ 17,329		$ 17,265		$ 17,181
Loans charged-off:
Residential mortgage				-		31		-		62
Consumer & home equity				92		158		155		276
Commercial & commercial real estate				61		2,190		546		2,990
Total charge-offs				153		2,379		701		3,328
Recoveries:
Residential mortgage				4		-		4		1
Consumer & home equity				48		42		90		86
Commercial & commercial real estate				24		75		114		102
Total recoveries				76		117		208		189
Net loans charged-off				77		2,262		493		3,139
Provision for loan losses				212		915		(825)		1,927
Balance at end of period				15,947		15,982		15,947		15,969
Less: Allowance allocated to loans held for
sale in probable branch divestiture				-		(682)		-		(669)
Balance at end of period, net				$ 15,947		$ 15,300		$ 15,947		$ 15,300
Allowance for loan losses to total loans (1) (2)				3.25%		2.50%		3.25%		2.50%
Annualized net charge-offs to average
loans outstanding				0.06%		1.37%		0.19%		0.91%
Allowance for loan losses to
total non-performing loans (2)				89%		42%		89%		42%
(1) Includes loans held for sale in probablebranch divestiture and probable loan sale for 2012
(2) Includes allowance allocated to loans held for sale in probable branch divestiture for 2012

			June 30,		March 31,		December 31,		September 30,		June 30,
(Dollars in thousands)			2013		2013		2012		2012		2012
Restructured on non-accrual status			$ 8,639		$ 9,099		$ 9,753		$ 16,151		$ 21,844
Past due 90 days still on accrual			-		1,950		-		-		-
Loans on non-accrual status			9,215		9,596		11,702		15,565		16,217
Total non-performing loans			17,854		20,645		21,455		31,716		38,061
Real estate acquired through
foreclosure			14,169		19,705		22,286		28,649		36,529
Other repossessed assets			37		32		34		24		30
Total non-performing assets			$ 32,060		$ 40,382		$ 43,775		$ 60,389		$ 74,620
Ratios: Non-performing loans
to total loans (includes loans held for sale in
probable branch divestiture and probable
loan sale for 2012)			3.64%		4.08%		4.09%		5.53%		5.97%
Non-performing assets
to total loans (includes loans held for sale in
probable branch divestiture and probable
loan sale for 2012)			6.54%		7.98%		8.34%		10.53%		11.71%

SOURCE First Financial Service Corporation