First Financial of Kentucky's Deal to Sell Branches Is Called Off

First Financial Service Corp. of Elizabethtown, Ky., may have to come up with another plan to boost regulatory capital.

The $1.1 billion-asset parent company of First Federal Savings Bank said late Thursday that First Security Bank of Owensboro has terminated a deal to buy four First Federal branches in Louisville.

First Federal agreed in May to sell four of its 17 branches to First Security in a deal First Federal projected would boost its Tier 1 capital ratio to more than 8% from 6.5% and its total risk-based capital ratio to more than 13% from 11.88%, as of Sept. 30.

In March, First Federal, which has been under a consent order since April 2011, entered into an agreement with the Federal Deposit Insurance Corp. that obligated the company to achieve a Tier 1 capital ratio of 9% and a total risk-based capital ratio of 12% by June 30. The order requires First Federal to develop a plan to sell or merge itself into another federal insured financial institution in the event the company cannot reach the required levels.

The buyer, First Security, called off the deal because it was unable to raise sufficient capital to receive regulatory approval for the deal.

First Federal says it will continue to look for ways to achieve its capital targets. "Our ongoing efforts to evaluate all available strategic options to meet required regulatory capital levels will continue despite the termination of the agreement to sell our Louisville branches," Gregory S. Schreacke, First Financial's president, said in a news release.

In July, First Federal sold four branches to First Savings Bank of Clarksville, Ind., in a deal that netted the company $3.1 million. The company also has sold commercial real estate loans totaling $10.7 million, at par, to First Capital Bank of Kentucky, and has entered into a deal to sell 14 real-estate-owned properties First Federal expects will net $15 million, according to the company's latest quarterly filing with the Securities Exchange Commission.