Year End 2013

February 12, 2014


Dear Shareholders,

2013. Quite a year. A year of great progress, development and changes. As we stated in the beginning of 2013, this year was a year of building on the foundation we laid in previous months and years.

Here are just a few of the many accomplishments.

  • We had a capital raise for our retail investors and were successful at raising just over $1 million in a very short period of time.
  • We announced a 5% stock dividend which was very well received.
  • Our lending group produced loans which grew by $67 million which was approximately 23% growth and in the top percentile of our peer group.
  • Our deposits grew $29 million, an increase of nearly 8%.
  • We introduced a new checking product, BaZing Checking, a No Closing Cost mortgage loan and several other new innovations.
  • Our Lexington location recouped all of the costs associated with opening a new branch and is now consistently profitable in a record period of time. Our Newburgh location reached profitability in December while our Downtown Evansville location is close to posting its first profitable month.
  • We were featured in TOPS magazine, Lexington, Kentucky’s premier magazine publication.
  • Began operation of our brokerage unit to provide a wider array of products and services for our customers.
  • We were featured on the front cover and inside article of the Evansville Business magazine.
  • Veribanc, an independent bank rating firm recognized us as a Blue Ribbon Bank with a Commendation of Excellence, awarding us their highest rating.
  • Inc. Magazine named First Security Bank as one of their Hire Power award winners as a Top 10 private business job creator in the State of KY, and the only bank in the state so recognized.
  • Most recently the Greater Owensboro Chamber of Commerce recognized us as their Business of the Year in the large business category of over 51 employees.
  • We have been growing so fast that we need additional capital to not only support our growth but also our future expansion efforts in new and existing markets. We recently were successful in raising several million dollars for your company which will be put to good use.

Your Board of Directors has declared a Common Stock dividend of $0.16 per share,our 42nd consecutive dividend, to all shareholders of record as of January 29, 2014, the record date. Your check is enclosed or has been direct deposited into your account.

Our year-end 2013 financial report for First Security is enclosed. Financial highlights of the year, as compared to one year ago unless indicated otherwise, follow:

  • Assets at year end totaled $479 million which is an increase of 12%
  • Loans and Deposits - Loans increased 23% while Deposits increased 8%
  • Book Value per Share increased 2%
  • Tangible Book Value per Share declined 6% primarily influenced by accounting rules relative to the value of our investment portfolio.
  • Net Income for the quarter was $295,000, down 74% over the same quarter in 2012. However, adjusting 2012 fourth quarter net income for securities gains and strategic expenses results in a 77% increase in fourth quarter 2013 net income as compared to 2012.
  • Non-interest income, excluding securities gains, was up 10%
  • Non-interest expense was up 13% year over year but up only 7% for the fourth quarter of 2013 as compared to the fourth quarter of 2012 as the Company’s non-interest expense has begun to normalize. Most of this increase was related to compensation of new staff at the three new locations opened in the prior year.
  • Return on assets, year to date was .25% compared to .61%
  • Return on equity was 4.78% compared to 10.18%
  • Diluted earnings per share were $1.40 compared to $2.72
  • Non-performing assets to total assets is .98%

Maintaining strong credit quality will continue to be a focus. While not immune from credit losses, we have continued to perform better than our peer group. The total amount set aside as reserves to cover losses within the Company’s loan portfolio totals $4.1 million, representing 1.10% of total loans. The Company believes it has recorded an adequate reserve, in the form of an allowance for loan losses and a discount on purchased loans.

Net income for the year was $1.1 million resulting in basic and diluted earnings per share of $1.40. While net income for 2013 was less than 2012, our results were slightly better than expected based on the initial expense of opening three new locations as well as the significant security sales recorded in 2012.

For the Company, adjusting for certain one-time events including securities gains and strategic expenses, net income for the fourth quarter of 2013 versus 2012 was $295 thousand as compared to $167 thousand, representing an increase of $128 thousand. Net income, as adjusted, during each quarter of 2013 was better than the prior quarter as the Company posted $158 thousand during the first quarter of 2013, $230 thousand during the second quarter of 2013, $265 thousand during the third quarter of 2013, and $295 thousand during the fourth.

We believe we are building a franchise that positions us well for many years to come. We continue to look at opportunities to expand not only in the existing markets we serve but also in other strategic locations. While we are excited about our 2013 results, we know that the investments made will still require patience as we grow the foundation we have laid. We are keenly focused on balancing our investments and still providing long-term returns for our shareholders.

We have included with this report a couple of graphs that indicate our historical earnings and return on equity as well as projections for 2014. As illustrated below, we are projecting substantial improvement in ROE that is anticipated to return to double digits in 2015 if not sooner. Our earnings projection for 2014 is nearly triple what it was in 2013.

Year End 2013 Net Income (click to enlarge)     Year End 2013 Return On Equity (click to enlarge)

As always, please feel free to contact us should you have any questions, suggestions, or comments. We thank you for your continued support and welcome any opportunity to provide you with banking products and services to meet your needs.



M. Lynn CooperJames T. "Tab" Quisenberry
President and CEOChairman of the Board

Equal Housing Lender   Member FDIC
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