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TheStreet Open House

7 Cheapest Bank Takeout Target Stocks From KBW (Update 2)

3. First Financial Service Corp.

Shares of First Financial Service Corp. (FFKY) of Elizabethtown, Ky., closed at $3.00 Friday, returning 96% year-to-date, following a 62% decline during 2011. To put those figures in perspective, the 52-week return for the shares was 15%.

The shares trade for 44% of tangible book value.

The company owes $20 million in TARP money.

Fist Financial Service Corp. had $1.2 billion in total assets as of March 31. The company on May 15 announced that its main subsidiary First Federal Savings Bank had agreed to sell four branches in Louisville to First Security Bank of Owensboro, Ky. First Security will pay a premium of $3.6 million to assume $217 million in deposits, while also assuming $74 million in loans, at a 1% discount.

First Financial Service Corp. expects the branch sale, "combined with the impending sale of four southern Indiana branches announced earlier this year," to increase First Federal Savings Bank's total risk-based capital ratio "to over 13.00%" from 10.70% as of March 31, which will exceed the 12.00% risk-based capital ratio required under a regulatory consent order.

The holding company reported a first-quarter net loss to common shareholders of $533 thousand, or 12 cents a share, compared to a loss of $2.3 million, or 49 cents a share, during the first quarter of 2011. The provision for loan losses declined to $1.0 million during the first quarter from $3.5 million a year earlier. The company's nonperforming assets ratio was 6.63% as of March 31, with a Texas Ratio of 88.53%, according to Thomson Reuters Bank Insight.

KBW analyst Catherine Mealor rates First Financial Service Corp. "Market Perform," and said on May 22 that with the latest announced branch deal, the company "only needs $3M to be compliant with its consent order, versus $28M last quarter." The analyst increased her 2012 EPS estimate to a net loss of 95 cents, from a net loss of $2.12, while maintaining her 2013 EPS estimate of five cents.

Mealor said that "FFKY has come a long way over the last couple quarters, and we continue to be impressed with the internal capital generated through the divestitures outside the core markets of operation," adding that "while the company still has a ways to go, we are increasing our price target by $1 to $3.50, which is in line with its peer group and represents 0.5x current tangible book value .

Interested in more on First Defiance Financial? See TheStreet Ratings' report card for this stock.

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