3rd Quarter 2013
November 9, 2013
As we approach the end of 2013, we are pleased with what we have accomplished yet more excited about where we are going. As we have discussed in previous communication, 2013 has been a year to focus on making our recently opened banking centers profitable and growing our legacy markets. The investment in our expansion has paid off. We are soundly profitable in one of the banking centers that opened in the 1st quarter of 2012 and very near profitability in the two banking centers that were opened in the latter half of 2012. In addition, all of our legacy markets, Owensboro, Evansville, and Bowling Green have grown their customer base nicely during 2013. Some additional highlights from the quarter follow:
- Dividend - Your Board of Directors has declared a Common Stock dividend of $0.16 per share, our 41st consecutive dividend, to all shareholders of record as of October 30, 2013, the record date. The dividend yield is approximately 2.25% based upon the most recent known stock sale of $28.50 per share.
- Capital - We were extremely pleased with our recent common stock capital raise whereby we raised over $1 million in additional capital in just a few short months. As a company that continues to look for opportunities to grow, we will continue to consider offering our common stock for sale from time to time. While the Company is no longer offering common stock for sale to individual shareholders, we are evaluating the next steps in attracting capital that will help your Bank grow for many years to come.
- Inc. Magazine - Your Company was recently featured in the annual Inc. Magazine, Hire Power Awards, recognizing private businesses that have generated the most jobs in the past 18 months. From January 1st, 2012 to June 30th 2013, your Company generated 27 full-time jobs placing it among the top 10 private business job creators within the state of KY. We were # 6 in the state of KY and the only bank in the state to receive this recognition (press release is enclosed).
- Capital - We are pleased with shareholder interest in purchasing additional common stock. As a company that continues to look for opportunities to grow, and as indicated in previous shareholder letters, we are close to attracting a significant amount of new capital which will help your Bank grow for years to come. Over the next few months we may offer accredited shareholders stock for purchase at a price offered to larger block investors. More to come.
We have recently partnered with Registrar and Transfer Company to perform all shareholder services for First Security. This well respected company has services that we believe will help the Company administer its growing shareholder base and also provide each of you with additional options to track and monitor your First Security Common Stock. Please note that additional communications may be sent via Registrar and Transfer Company.
We are pleased to announce that your Company recorded net income of $265,000 for the third quarter, or $0.33 diluted earnings per share down from the third quarter of 2012 but improved from the first and second quarter of 2013 (absent the impact of any gains on the sale of securities). Net income for the third quarter was 15% higher than the second quarter net income (excluding the impact of the net gain on the sale of securities). Our financial results for the third quarter are consistent with our projection that each quarter of 2013 should improve over the prior quarter.
Our third quarter 2013 financial report for First Security is enclosed. Financial highlights for the 3rd quarter are compared to the same period one-year ago, unless stated otherwise:
- Assets at quarter end totaled $458 million which is an increase of12%
- Loans - Loans increased 21% or $63.4 million
- Deposits - Deposits increased 10% or $33.9 million
- Book Value per Share increased 6%
- Tangible Book Value per Share declined by 6%
- Net Interest Margin Margin declined 26 basis points from 3.65% to 3.39%
- Net Income for the current quarter was $265,000, down from $314,000
- Diluted earnings per share for the current quarter was $0.33 versus $0.40
- Net interest income, our primary source of revenue, increased 11%
- Noninterest income increased 9%
- Noninterest expense increased 13% (due primarily to new branch office openings)
While the strong growth in loans, deposits and net interest income came from both new and existing banking centers, the increase in noninterest expense was primarily driven by the addition of the Lexington, Newburgh and downtown Evansville branch offices opened in 2012. A substantial impact to earnings for the quarter and year, as compared to the same prior year period, was a 12 basis point and 26 basis point decline in net interest margin. This decline has narrowed as compared to the second quarter 2013 year over year and quarter over quarter results, a sign that the impact of a declining margin may be slowing. We have worked hard to offset this decline in part with additional, high quality loans.
Maintaining strong credit quality will continue to be a focus of your company. While not immune from credit losses, we have continued to perform better than our peer group with nonperforming assets to total assets at the end the quarter at 1.19%. The total amount set aside as reserves to cover losses within the Company’s loan portfolio totals $4.2 million, representing 1.16% 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.
We believe we are continuing to build a franchise of which each shareholder will reap the benefits for many years to come. We ask for your continued support as we continue to build your Company. Referrals to First Security Bank are always welcomed. Please use opportunities that present themselves to refer others to First Security. New business generates more potential profit which oftentimes has a positive affect upon stock price. 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