10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
	For the quarterly period ended September 30, 2007
	OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
	Commission File Number 0-18832

First Financial Service Corporation

(Exact Name of Registrant as specified in its charter)

Kentucky	61-1168311
(State or other jurisdiction	(IRS Employer Identification No.)
of incorporation or organization)

2323 Ring Road

Elizabethtown, Kentucky  42701

(Address of principal executive offices)

(Zip Code)

(270) 765-2131

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes  x  No  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.  See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer  o  Accelerated Filer  x    Non-Accelerated Filer  o

Indicate by a check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  o  No  x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class	Outstanding as of October 31, 2007
Common Stock	4,664,583 shares

FIRST FINANCIAL SERVICE CORPORATION

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION
Preliminary Note Regarding Forward-Looking Statements
Item 1.	Consolidated Financial Statements and Notes to Consolidated Financial Statements
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3.	Quantitative and Qualitative Disclosures about Market Risk
Item 4.	Controls and Procedures
PART II – OTHER INFORMATION
Item 1.	Legal Proceedings
Item 1A.	Risk Factors
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds
Item 3.	Defaults upon Senior Securities
Item 4.	Submission of Matters to a Vote of Security Holders
Item 5.	Other Information
Item 6.	Exhibits
	SIGNATURES

2

PRELIMINARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Statements in this report that are not statements of historical fact are forward-looking statements. First Financial Service Corporation (the “Corporation”) may also make forward-looking statements in future filings with the Securities and Exchange Commission (“SEC”), in press releases, and in oral and written statements made by or with the approval of the Corporation.  Forward-looking statements include, but are not limited to: (1) projections of revenues, income or loss, earnings or loss per share, capital structure and other financial items; (2) plans and objectives of the Corporation or its management or Board of Directors; (3) statements regarding future events, actions or economic performance; and (4) statements of assumptions underlying such statements.  Words such as “estimate,” “strategy,” “believes,” “anticipates,” “expects,” “intends,” “plans,” “targeted,” and similar expressions are intended to identify forward-looking statements, but are not the exclusive means of identifying such statements.

Various risks and uncertainties may cause actual results to differ materially from those indicated by our forward-looking statements.  In addition to those risks described under “Item 1A Risk Factors,” of our 2006 Annual Report on Form 10-K and of this report, the following factors could cause such differences: changes in general economic conditions and economic conditions in Kentucky and the markets we serve, any of which may affect, among other things, our level of non-performing assets, charge-offs, and provision for loan loss expense; changes in interest rates that may reduce interest margins and impact funding sources; changes in market rates and prices which may adversely impact the value of financial products including securities, loans and deposits; changes in tax laws, rules and regulations; various monetary and fiscal policies and regulations, including those determined by the Federal Reserve Board, the Federal Deposit Insurance Corporation (“FDIC”) and the Kentucky Office of Financial Institutions (“KOFI”); competition with other local and regional commercial banks, savings banks, credit unions and other non-bank financial institutions; our ability to grow core businesses; our ability to develop and introduce new banking-related products, services and enhancements and gain market acceptance of such products; and management’s ability to manage these and other risks.

Our forward-looking statements speak only as of the date on which they are made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date of the statement to reflect the occurrence of unanticipated events.

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Item 1.

FIRST FINANCIAL SERVICE CORPORATION

Consolidated Balance Sheets

(Unaudited)

	September 30,			December 31,
(Dollars in thousands, except share data)	2007			2006
ASSETS
Cash and due from banks	$	17,655		$	19,082
Securities available-for-sale	22,760			28,223
Securities held-to-maturity, fair value of $20,304 Sep (2007) and $23,817 Dec (2006)	20,461			24,224
Total securities	43,221			52,447
Loans held for sale	1,407			673
Loans, net of unearned fees	768,216			705,037
Allowance for loan losses	(8,491		)	(7,684		)
Net loans	761,132			698,026
Federal Home Loan Bank stock	7,621			7,621
Cash surrender value of life insurance	8,196			7,947
Premises and equipment, net	25,434			22,500
Real estate owned:
Acquired through foreclosure	1,699			918
Held for development	91			337
Other repossessed assets	63			82
Goodwill	8,384			8,384
Accrued interest receivable	4,264			4,094
Other assets	1,394			1,388
TOTAL ASSETS	$	879,154		$	822,826
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES:
Deposits:
Non-interest bearing	$	50,685		$	40,349
Interest bearing	645,919			600,688
Total deposits	696,604			641,037
Short-term borrowings	68,200			68,500
Advances from Federal Home Loan Bank	28,118			28,224
Subordinated debentures	10,000			10,000
Accrued interest payable	1,040			273
Accounts payable and other liabilities	1,576			1,321
Deferred income taxes	1,307			1,373
TOTAL LIABILITIES	806,845			750,728
Commitments and contingent liabilities	—			—
STOCKHOLDERS’ EQUITY:
Serial preferred stock, 5,000,000 shares authorized and unissued	—			—
Common stock, $1 par value per share; authorized 10,000,000 shares; issued and outstanding, 4,664,583 shares Sep (2007), and 4,384,088 shares Dec (2006)	4,665			4,384
Additional paid-in capital	33,940			27,419
Retained earnings	33,749			40,210
Accumulated other comprehensive income/ (loss)	(45		)	85
TOTAL STOCKHOLDERS’ EQUITY	72,309			72,098
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	879,154		$	822,826

See notes to consolidated financial statements.

4

FIRST FINANCIAL SERVICE CORPORATION

Consolidated Statements of Income

(Unaudited)

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(Dollars in thousands, except per share data)	2007		2006		2007		2006
Interest and Dividend Income:
Loans, including fees	$	14,760	$	13,104	$	43,065	$	37,106
Taxable securities	490		640		1,638		2,111
Tax exempt securities	102		78		317		208
Total interest income	15,352		13,822		45,020		39,425
Interest Expense:
Deposits	6,695		4,898		19,082		13,503
Short-term borrowings	465		801		1,452		889
Federal Home Loan Bank advances	345		407		1,022		2,280
Subordinated debentures	167		235		549		665
Total interest expense	7,672		6,341		22,105		17,337
Net interest income	7,680		7,481		22,915		22,088
Provision for loan losses	740		249		948		346
Net interest income after provision for loan losses	6,940		7,232		21,967		21,742
Non-interest Income:
Customer service fees on deposit accounts	1,511		1,481		4,274		4,108
Gain on sale of mortgage loans	144		204		435		608
Gain on sale of real estate held for development	—		—		227		—
Brokerage commissions	106		79		308		250
Other income	444		269		945		856
Total non-interest income	2,205		2,033		6,189		5,822
Non-interest Expense:
Employee compensation and benefits	3,136		2,968		9,365		8,763
Office occupancy expense and equipment	604		523		1,766		1,589
Marketing and advertising	228		209		677		628
Outside services and data processing	638		650		1,974		1,907
Bank franchise tax	234		224		699		667
Write off of issuance cost of Trust Preferred Securities	—		—		229		—
Other expense	1,166		863		3,112		2,607
Total non-interest expense	6,006		5,437		17,822		16,161
Income before income taxes	3,139		3,828		10,334		11,403
Income taxes	1,008		1,257		3,343		3,738
Net Income	$	2,131	$	2,571	$	6,991	$	7,665
Shares applicable to basic income per share	4,681,582		4,822,492		4,739,352		4,821,124
Basic income per share	$	0.46	$	0.53	$	1.48	$	1.59
Shares applicable to diluted income per share	4,731,496		4,873,224		4,792,560		4,865,430
Diluted income per share	$	0.45	$	0.53	$	1.46	$	1.57
Cash dividends declared per share	$	0.190	$	0.173	$	0.536	$	0.487

See notes to the unaudited consolidated financial statements.

5

FIRST FINANCIAL SERVICE CORPORATION

Consolidated Statements of Comprehensive Income

(Unaudited)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(Dollars in thousands)	2007			2006			2007			2006
Net Income	$	2,131		$	2,571		$	6,991		$	7,665
Other comprehensive income (loss):
Change in unrealized gain (loss) on securities available-for-sale	364			344			(196		)	(159		)
Reclassification of realized amount	—			—			—			—
Net unrealized gain (loss) recognized in comprehensive income	364			344			(196		)	(159		)
Tax effect	(124		)	(117		)	66			54
Total other comphrehensive income (loss)	240			227			(130		)	(105		)
Comprehensive Income	$	2,371		$	2,798		$	6,861		$	7,560

See notes to the unaudited consolidated financial statements.

6

FIRST FINANCIAL SERVICE CORPORATION

Consolidated Statement of Changes in Stockholders’ Equity

Nine Months Ended September 30, 2007

(Dollars In Thousands, Except Per Share Amounts)

(Unaudited)

	Common Shares		Stock Amount			Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income/(Loss), Net of Tax			Total
Balance, January 1, 2007	4,384		$	4,384		$	27,419		$	40,210		$	85		$	72,098
Net income									6,991						6,991
Stock dividend-10%	424		424			10,493			(10,917		)				—
Stock issued for stock options exercised and employee benefit plans	9		9			166									175
Compensation expense for stock options						76									76
Net change in unrealized gains (losses) on securities available-for-sale, net of tax												(130		)	(130		)
Cash dividends declared and cash dividends for fractional shares for stock dividend ($.54 per share)									(2,535		)				(2,535		)
Stock repurchased	(152	)	(152		)	(4,214		)	—			—			(4,366		)
Balance, September 30, 2007	4,665		$	4,665		$	33,940		$	33,749		$	(45	)	$	72,309

See notes to the unaudited consolidated financial statements.

7

FIRST FINANCIAL SERVICE CORPORATION

Consolidated Statements of Cash Flows

(Dollars In Thousands)

(Unaudited)

	Nine Months Ended
	September 30,
	2007			2006
Operating Activities:
Net income	$	6,991		$	7,665
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses	948			346
Depreciation on premises and equipment	1,076			1,034
Federal Home Loan Bank stock dividends	—			(314		)
Net amortization (accretion) available-for-sale	(1		)	8
Net amortization (accretion) held-to-maturity	16			24
Gain on sale of real estate held for development	(227		)	—
Gain on sale of mortgage loans	(435		)	(608		)
Origination of loans held for sale	(25,778		)	(31,272		)
Proceeds on sale of loans held for sale	25,479			30,744
Compensation expense for stock options	76			53
Changes in:
Cash surrender value of life insurance	(249		)	(221		)
Interest receivable	(170		)	(582		)
Other assets	(5		)	287
Interest payable	767			(12		)
Accounts payable and other liabilities	255			832
Net cash from operating activities	8,743			7,984
Investing Activities:
Purchases of securities available-for-sale	(395		)	(4,866		)
Maturities of securities available-for-sale	5,663			5,084
Maturities of securities held-to-maturity	3,747			6,754
Net change in loans	(64,083		)	(43,105		)
Net purchases of premises and equipment	(4,010		)	(2,937		)
Sales of real estate for development	473			—
Net cash from investing activities	(58,605		)	(39,070		)
Financing Activities
Net change in deposits	55,567			22,110
Change in short-term borrowings	(300		)	56,500
Repayments to Federal Home Loan Bank	(106		)	(50,114		)
Proceeds from issuance of subordinated debentures	10,000			—
Payoff of subordinated debentures	(10,000		)	—
Issuance of common stock for options and employee benefit plans	175			61
Dividends paid	(2,535		)	(2,352		)
Common stock repurchased	(4,366		)	—
Net cash from financing activities	48,435			26,205
(Decrease) Increase in cash and cash equivalents	(1,427		)	(4,881		)
Cash and cash equivalents, beginning of period	19,082			20,451
Cash and cash equivalents, end of period	$	17,655		$	15,570

See notes to the unaudited consolidated financial statements.

8

Notes To Unaudited Consolidated Financial Statements

1.BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation – The accompanying unaudited consolidated financial statements include the accounts of First Financial Service Corporation and its wholly owned subsidiary, First Federal Savings Bank. First Federal Savings Bank has two wholly owned subsidiaries, First Service Corporation of Elizabethtown and First Federal Office Park, LLC. Unless the text clearly suggests otherwise, references to “us,” “we,” or “our” include First Financial Service Corporation and its wholly-owned subsidiary. All significant intercompany transactions and balances have been eliminated.

The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine month periods ending September 30, 2007 are not necessarily indicative of the results that may occur for the year ending December 31, 2007. For further information, refer to the consolidated financial statements and footnotes thereto included in the Corporation’s annual report on Form 10-K for the period ended December 31, 2006.

Stock Dividends – We declared a 10% stock dividend on August 16, 2007 to our shareholders of record as of August 29, 2007, payable on September 14, 2007. The payment of this dividend was in addition to the regular quarterly cash dividend. Per share amounts have been restated for the impact of the stock dividend.

Adoption of New Accounting Standards – We adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“FIN 48”), on January 1, 2007. The adoption of FIN 48 had no affect on our financial statements. We have no unrecognized tax benefits and do not anticipate any increase in unrecognized benefits during 2007 relative to any tax positions taken prior to January 1, 2007. Should the accrual of any interest or penalties relative to unrecognized tax benefits be necessary, it is our policy to record such accruals in our income tax accounts; no such accruals exist as of January 1, 2007, or at September 30, 2007. We file a consolidated U.S. federal income tax return and the Company and its non-bank subsidiaries file an income tax return in the state of Kentucky. These returns are subject to examination by taxing authorities for all years after 2003.

Reclassifications – Some items in the prior period financial statements were reclassified to conform to the current period presentation.

Effect of Newly Issued But Not Yet Effective Accounting Standards – In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS No. 157”), which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. More specifically, this statement clarifies the definition of fair value, establishes a fair valuation hierarchy based upon observable (e.g. quoted prices, interest rates, yield curves) and unobservable market inputs, and expands disclosure requirements to include the inputs used to develop estimates of fair value and the effects of the estimates on income for the period. This statement does not require any new fair value measurements. This pronouncement is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. We are in the process of evaluating the impact, if any; the adoption of SFAS No. 157 will have on our financial statements.

In September 2006, the FASB Emerging Issues Task Force finalized Issue No. 06-4, “Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements.”  This issue requires that a liability be recorded during the service period when a split-dollar life insurance agreement continues after participants’ employment or retirement. The required accrued liability will be based on either the post-employment benefit cost for the continuing life insurance or based on the future death benefit depending on the contractual terms of the underlying

9

agreement. This issue is effective for fiscal years beginning after December 15, 2007. We are in the process of evaluating the impact, if any; the adoption of Issue 06-4 will have on our financial statements.

In February 2007, the FASB issued SFAS 159, “The Fair Value Option for Financial Assets and Financial Liabilities — Including an amendment of FASB Statement No. 115.” This statement allows companies to record certain financial assets and financial liabilities at full fair value if they so choose. The statement was issued to mitigate volatility in reported earnings caused by an accounting model utilizing multiple measurement attributes. The adoption of the fair value option is recorded as a cumulative-effect adjustment to the opening balance of retained earnings, which would be January 1, 2008. Upon adoption, the difference between the carrying amount and the fair value of the items chosen is removed from the balance sheet and included in the cumulative-effect adjustment. Subsequent changes in fair value are recorded through the income statement. We are in the process of evaluating the impact, if any; the adoption of SFAS No. 159 will have on our financial statements.

10

2.SECURITIES

The amortized cost basis and fair values of securities are as follows:

			Gross		Gross
	Amortized		Unrealized		Unrealized
(Dollars in thousands)	Cost		Gains		Losses			Fair Value
Securities available-for-sale:
September 30, 2007:
U. S. Treasury and agencies	$	497	$	—	$	(1	)	$	496
Mortgage-backed	7,927		4		(117		)	7,814
Equity	1,553		540		(103		)	1,990
State and municipal	10,038		4		(394		)	9,648
Corporate	2,812		—		—			2,812
Total	$	22,827	$	548	$	(615	)	$	22,760
December 31, 2006:
U.S. Treasury and agencies	$	3,497	$	—	$	(13	)	$	3,484
Mortgage-backed	9,425		8		(189		)	9,244
Equity	1,553		629		(36		)	2,146
State and municipal	10,299		7		(277		)	10,029
Corporate	3,320		—		—			3,320
Total	$	28,094	$	644	$	(515	)	$	28,223

			Gross		Gross
	Amortized		Unrecognized		Unrecognized
	Cost		Gains		Losses			Fair Value
Securities held-to-maturity:
September 30, 2007:
U.S. Treasury and agencies	$	16,098	$	16	$	(103	)	$	16,011
Mortgage-backed	3,412		2		(76		)	3,338
Corporate	951		4		–			955
Total	$	20,461	$	22	$	(179	)	$	20,304
December 31, 2006:
U.S. Treasury and agencies	$	18,097	$	4	$	(318	)	$	17,783
Mortgage-backed	4,127		3		(111		)	4,019
Corporate	2,000		15		–			2,015
Total	$	24,224	$	22	$	(429	)	$	23,817

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3.LOANS

Loans are summarized as follows:

	September 30,			December 31,
(Dollars in thousands)	2007			2006
Commercial	$	51,602		$	40,902
Real estate commercial	463,572			410,146
Real estate construction	27,207			23,953
Residential mortgage	133,368			137,334
Consumer and home equity	64,321			62,805
Indirect consumer	28,999			30,857
Loans held for sale	1,407			673
	770,476			706,670
Less:
Net deferred loan origination fees	(853		)	(960		)
Allowance for loan losses	(8,491		)	(7,684		)
	(9,344		)	(8,644		)
Loans	$	761,132		$	698,026

The allowance for loan loss is summarized as follows:

	As of and For the						As of and For the
	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(Dollars in thousands)	2007			2006			2007			2006
Balance, beginning of period	$	7,822		$	7,408		$	7,684		$	7,377
Provision for loan losses	740			249			948			346
Charge-offs	(129		)	(157		)	(330		)	(443		)
Recoveries	58			77			189			297
Balance, end of period	$	8,491		$	7,577		$	8,491		$	7,577

Impaired loans are summarized below. There were no impaired loans for the periods presented that have not been reviewed by management for an allowance allocation.

	As of and For the		As of and For the
	Nine Months Ended		Year Ended
	September 30,		December 31,
(Dollars in thousands)	2007		2006
End of period impaired loans	$	7,656	$	4,838
Amount of allowance for loan loss allocated	770		128

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We report non-performing loans as impaired. Our non-performing loans by source were as follows:

	September 30,		December 31,
(Dollars in thousands)	2007		2006
Restructured	$	2,375	$	2,470
Loans past due over 90 days still on accrual	—		—
Non accrual loans	5,281		2,368
Total	$	7,656	$	4,838

4.EARNINGS PER SHARE

The reconciliation of the numerators and denominators of the basic and diluted EPS is as follows:

	Three Months Ended				Nine Months Ended
(Dollars in thousands,	September 30,				September 30,
except per share data)	2007		2006		2007		2006
Net income available to common shareholders	$	2,131	$	2,571	$	6,991	$	7,665
Basic EPS:
Weighted average common shares	4,681		4,822		4,739		4,821
Diluted EPS:
Weighted average common shares	4,681		4,822		4,739		4,821
Dilutive effect of stock options	50		51		53		44
Weighted average common and incremental shares	4,731		4,873		4,792		4,865
Earnings Per Share:
Basic	$	0.46	$	0.53	$	1.48	$	1.59
Diluted	$	0.45	$	0.53	$	1.46	$	1.57

Stock options for 28,600 shares of common stock were not included in the September 30, 2007 computation of diluted earnings for both the quarter and year to date per share because they were anti-dilutive. All outstanding stock options for the September 30, 2006 period were included in diluted earnings per share.

5.STOCK OPTION PLAN

Our 2006 Stock Incentive Plan, which is shareholder approved, succeeded our 1998 Stock Option and Incentive Plan. Under the 2006 Plan, we may grant either incentive or non-qualified stock options to key employees and directors for a total of 647,350 shares of our common stock at not less than fair value at the date such options are granted. Options available for future grant under the 1998 Plan totaled 38,500 shares and were rolled into the 2006 Plan. We believe that the ability to award stock options and other forms of stock-based incentive compensation can assist us in attracting and retaining key employees. Stock-based incentive compensation is also a  means  to  align  the  interests  of  key  employees  with  those  of our shareholders  by  providing  awards  intended  to  reward   recipients  for  our  long-term  growth. The option to purchase shares vest over periods of one to five years and expire ten years after the date of grant. We issue new shares of common stock upon the exercise of stock options. At September 30, 2007 options available for future grant under the 2006 Plan totaled 618,750. Compensation cost related to options granted under the 1998 and 2006 Plans that was charged against earnings for the nine month periods ended September 30, 2007 and 2006 was $76,565 and $53,485.

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The fair value of each option award is estimated on the date of grant using the Black-Scholes option valuation model that uses various weighted-average assumptions. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant. The expected volatility is based on the fluctuation in the price of a share of stock over the period for which the option is being valued and the expected life of the options granted represents the period of time the options are expected to be outstanding.

A summary of option activity under the 1998 and 2006 Plans as of September 30, 2007 is presented below:

					Weighted
			Weighted		Average
	Number		Average		Remaining	Aggregate
	of		Exercise		Contractual	Intrinsic
	Options		Price		Term	Value
						(Dollars In Thousands)
Outstanding, beginning of period	186,076		$	18.50
Granted during period	—		—
Exercised during the period	(5,009	)	14.42
Outstanding, end of period	181,067		$	18.61	5.5	$	1,564
Eligible for exercise at period end	114,044		$	16.41	4.1	$	1,237

There were no options granted for the nine months ended September 30, 2007 and 2006. The total intrinsic value of options exercised during the nine months ended September 30, 2007 and 2006 was $67,520 and $10,641. There was no tax benefit recognized from the option exercises as they are considered incentive stock options.

As of September 30, 2007 there was $262,761 of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the 1998 and 2006 Plans. That cost is expected to be recognized over a weighted-average period of 3.6 years. Cash received from option exercises under all share-based payment arrangements for the periods ended September 30, 2007 and 2006 was $72,228 and $9,835.

14

Item 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

GENERAL

We conduct operations in 15 full-service banking centers in six contiguous counties in Central Kentucky along the Interstate 65 corridor. Our markets range from the major metropolitan area of Louisville in Jefferson County, Kentucky, approximately 40 miles north of our headquarters in Elizabethtown, Kentucky, to Hart County, Kentucky, approximately 30 miles south of Elizabethtown. Our markets are supported by a diversified industry base and have a regional population of over 1 million.

We serve the needs and cater to the economic strengths of the local communities in which we operate and strive to provide a high level of personal and professional customer service. We offer a variety of financial services to our retail and commercial banking customers. These services include personal and corporate banking services and personal investment financial counseling services.

Through our personal investment financial counseling services, we offer a wide variety of mutual funds, equity investments, and fixed and variable annuities. We invest in the wholesale capital markets to manage a portfolio of securities and use various forms of wholesale funding. The security portfolio contains a variety of instruments, including callable debentures, taxable and non-taxable debentures, fixed and adjustable rate mortgage backed securities, and collateralized mortgage obligations.

Our results of operations depend primarily on net interest income, which is the difference between interest income from interest-earning assets and interest expense on interest-bearing liabilities. Our operations are also affected by non-interest income, such as service charges, insurance agency revenue, loan fees, gains and losses from the sale of mortgage loans and gains from the sale of real estate held for development. Our principal operating expenses, aside from interest expense, consist of compensation and employee benefits, occupancy costs, data processing expense and provisions for loan losses.

This discussion and analysis covers material changes in the financial condition since December 31, 2006 and material changes in the results of operations for the three and nine month periods ending, September 30, 2007 as compared to 2006. It should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in the Annual Report on Form 10-K for the period ended December 31, 2006.

OVERVIEW

Over the past several years we have focused on enhancing and expanding our retail and commercial banking network in our core markets as well as establishing our presence in the Louisville market. Our core markets, five counties other than Louisville/Jefferson County where we have a combined 21% market share, have become increasingly competitive as several new banks have entered these markets in the past few years. In order to protect and grow our market share, we replaced existing branches with newer, enhanced facilities and anticipate constructing several new facilities over the next few years. In addition to the enhancement and expansion in our core markets, we have been increasing our presence in the Louisville market. Approximately 75% of the deposit base in the Louisville market is controlled by six out-of-state banks. While the market is very competitive, we believe this creates an opportunity for smaller community banks with more power to make decisions locally. We believe our investment in these initiatives along with our continued commitment to a high level of customer service will continue to enhance our market share in our core markets and our development in the Louisville market.

Our retail branch network continues to generate encouraging results. Total deposits have grown at a 10% compound annual growth rate over the past three years. Total deposits were $696.6 million at September 30, 2007, an increase of $55.6 million, or 9% from December 31, 2006. The continued development of the retail branch network into the Louisville market also yielded positive results. We have a combined $55.0 million in deposits in our three full-service facilities in the Louisville market, representing a 41% increase in deposits for the first nine months and a 213% increase from December 31, 2004. We opened two of these facilities in the second quarter of 2004 to support our growing customer base in this market and in June 2007 we opened our third new full service-banking center in the Louisville market.

We have developed a strong commercial real estate niche in our markets. We have an experienced team of bankers who are focused on providing service and convenience to our customers. It is quite common for our

15

bankers to close loans at a customer’s place of business or even the customer’s personal residence. This high level of service has been especially well received in our Louisville market, which is dominated by regional banks. Currently, borrowers representing 26% percent of our loan portfolio resides in the Louisville market. To further develop our commercial banking relationships in Louisville, we opened a private banking office in April 2007. This office is an upscale facility complementing our retail branch network in Louisville, allowing us to further attract commercial deposit relationships in conjunction with our commercial lending relationships.

Our emphasis on commercial lending generated a 10% compound annual growth rate in the total loan portfolio and a 20% compound annual growth rate in commercial loans over the past three years. Commercial loans were $542.4 million at September 30 2007, an increase of $67.4 million, or 14% from December 31, 2006. The growth in our commercial and commercial real estate loan portfolio, coupled with our efforts to fund these loans with lower cost customer deposits is our primary business model and has substantially contributed to the growth in earnings over the past several years.

CRITICAL ACCOUNTING POLICIES

Our accounting and reporting policies comply with U.S. generally accepted accounting principles and conform to general practices within the banking industry. The accounting policy relating to the allowance for loan losses is critical to the understanding of our results of operations since the application of this policy requires significant management assumptions and estimates that could result in materially different amounts to be reported if conditions or underlying circumstances were to change.

Allowance for Loan Losses – We maintain an allowance sufficient to absorb probable incurred credit losses existing in the loan portfolio. The Allowance for Loan Loss Review Committee evaluates the allowance for loan losses on a quarterly basis.  We estimate the allowance using past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of the underlying collateral, and current economic conditions.  While we estimate the allowance for loan losses based in part on historical losses within each loan category, estimates for losses within the commercial real estate portfolio are more dependent upon credit analysis and recent payment performance.Allocations of the allowance may be made for specific loans or loan categories, but the entire allowance is available for any loan that, in management’s judgment, should be charged off.

The allowance consists of specific and general components. The specific component relates to loans that are individually classified as impaired or loans otherwise classified as substandard or doubtful. The general component covers non-classified loans and is based on historical loss experience adjusted for current factors. Allowance estimates are developed with actual loss experience adjusted for current economic conditions. Allowance estimates are considered a prudent measurement of the risk in the loan portfolio and are applied to individual loans based on loan type.

Based on our calculation, an allowance of $8.5 million or 1.11% of total loans was our estimate of probable losses within the loan portfolio as of September 30, 2007.  This estimate resulted in a provision for loan losses on the income statement of $948,000 for the 2007 nine month period.  If the mix and amount of future charge off percentages differ significantly from those assumptions used by management in making its determination, the allowance for loan losses and provision for loan losses on the income statement could be materially increased.

Stock-based Compensation – We adopted the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123 (R) “Share-Based Payment (Revised 2004),” on January 1, 2006. Among other things, SFAS No. 123 (R) eliminates the ability to account for stock-based compensation using the intrinsic value based method of accounting and requires that such transactions be recognized as compensation expense in the income statement based on their fair values on the date of the grant. SFAS No. 123 (R) requires that management make assumptions including stock price volatility and expected forfeitures that are utilized to measure compensation expense. We estimate fair value of stock options granted at the date of grant using the Black-Scholes option pricing model, which requires the input of highly subjective assumptions, such as volatility, risk free interest rates and dividend pay out rates.

16

RESULTS OF OPERATIONS

Net income for the quarter ended September 30, 2007 was $2.1 million or $0.45 per share diluted compared to $2.6 million or $0.53 per share diluted for the same period in 2006. Net income for the nine month period ended September 30, 2007 was $7.0 million or $1.46 per share diluted compared to $7.7 million or $1.57 per share diluted for the same period a year ago. Earnings decreased for 2007 compared to 2006 due to a decrease in our net interest margin, an increase in provision for loan loss expense and a higher level of non-interest expense related to our expansion efforts. Our book value per common share increased from $14.53 at September 30, 2006 to $15.50 at September 30, 2007. Annualized net income for the first nine months of 2007 generated a return on average assets of 1.11% and a return on average equity of 12.92%. These compare with a return on average assets of 1.31% and a return on average equity of 15.11% for the first nine months of 2006, also on an annualized basis.

Net Interest Income – The principal source of our revenue is net interest income. Net interest income is the difference between interest income on interest-earning assets, such as loans and securities and the interest expense on liabilities used to fund those assets, such as interest-bearing deposits and borrowings. Net interest income is impacted by both changes in the amount and composition of interest-earning assets and interest-bearing liabilities as well as market interest rates.

The growth in our commercial loan portfolio has increased the level of interest income generated. Average interest earning assets increased $52.6 million for the 2007 quarter and $55.4 million for the nine months compared to 2006. The yield on earning assets averaged 7.67% and 7.66% for the three and nine month 2007 periods compared to an average yield on earning assets of 7.39% and  7.21% for the same periods in 2006. This increase was slightly offset by a larger increase in our cost of funds. On an annualized basis, the net interest margin as a percent of average earning assets decreased 16 basis points to 3.85% for the quarter ended September 30, 2007 and 14 basis points to 3.91% for the nine months ended September 30, 2007 compared to 4.01% and 4.05% for the same periods in 2006.

Our cost of funds averaged 4.20% and 4.11% for the quarter and nine month periods ended September 30, 2007 compared to an average cost of funds of 3.72% and 3.47% for the same periods in 2006. Deposit costs have accelerated due to the re-pricing of maturing certificates of deposit that roll off into new certificates of deposit at higher interest rates. In addition, we were paying higher rates on our money market products. Going forward, our cost of funds is expected to decrease as certificates of deposit re-price and roll off into new certificates of deposit at lower interest rates.

The increase in the volume of interest earning assets has resulted in an increase in net interest income of $199,000 and $827,000 for the quarter and nine month periods ended September 30, 2007 compared to the same periods a year ago. Our net interest margin is likely to compress in future quarters as a result of the recent 50 basis point decrease by the Federal Open Market Committee (FOMC), as our loan portfolio is primarily priced off the prime rate and our deposits are priced off of the London Interbank Offering Rate (LIBOR). The prime rate decreased 50 basis points in conjunction with the FOMC rate decrease lowering our yield on loans. LIBOR, which is a market driven rate, did not decline in rate as much as the prime rate. Therefore, our deposit costs will not decline as fast as our yield on loans. This will in turn lower our net interest margin.

17

AVERAGE BALANCE SHEET

The following tables provide information relating to our average balance sheet and reflect the average yield on assets and average cost of liabilities for the indicated periods. Yields and costs for the periods presented are derived by dividing income or expense by the average monthly balance of assets or liabilities, respectively.

	Quarter Ended September 30,
	2007							2006
	Average					Average		Average					Average
(Dollars in thousands)	Balance			Interest		Yield/Cost (5)		Balance			Interest		Yield/Cost (5)
ASSETS
Interest earning assets:
U.S. Treasury and agencies	$	16,583		$	146	3.49	%	$	25,880		$	212	3.25	%
Mortgage-backed securities	11,514			125		4.31		14,315			153		4.24
Equity securities	2,036			19		3.70		1,867			15		3.19
State and political subdivision securities (1)	9,405			155		6.54		7,261			119		6.50
Corporate bonds	3,820			65		6.75		6,377			115		7.15
Loans (2) (3) (4)	745,028			14,760		7.86		677,359			13,104		7.68
FHLB stock	7,621			126		6.56		7,401			107		5.74
Interest bearing deposits	375			9		9.53		3,324			37		4.42
Total interest earning assets	796,382			15,405		7.67		743,784			13,862		7.39
Less: Allowance for loan losses	(8,024		)					(7,449		)
Non-interest earning assets	63,557							56,326
Total assets	$	851,915						$	792,661
LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest bearing liabilities:
Savings accounts	$	92,877		$	731	3.12	%	$	88,454		$	650	2.92	%
NOW and money market accounts	126,193			631		1.98		128,322			534		1.65
Certificates of deposit and other time deposits	432,569			5,333		4.89		356,313			3,714		4.14
Short term borrowings	33,639			465		5.48		59,722			801		5.32
FHLB advances	29,929			345		4.57		33,113			407		4.88
Subordinated debentures	10,000			167		6.63		10,000			235		9.32
Total interest bearing liabilities	725,207			7,672		4.20		675,924			6,341		3.72
Non-interest bearing liabilities:
Non-interest bearing deposits	48,728							42,091
Other liabilities	5,724							5,006
Total liabilities	779,659							723,021
Stockholders’ equity	72,256							69,640
Total liabilities and stockholders’ equity	$	851,915						$	792,661
Net interest income				$	7,733						$	7,521
Net interest spread						3.47	%						3.67	%
Net interest margin						3.85	%						4.01	%

(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

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	Nine Months Ended September 30,
	2007							2006
	Average					Average		Average					Average
(Dollars in thousands)	Balance			Interest		Yield/Cost (5)		Balance			Interest		Yield/Cost (5)
ASSETS
Interest earning assets:
U.S. Treasury and agencies	$	19,252		$	519	3.60	%	$	29,334		$	687	3.13	%
Mortgage-backed securities	12,335			398		4.31		15,211			485		4.26
Equity securities	2,081			56		3.60		1,935			52		3.59
State and political subdivision securities (1)	10,035			480		6.40		6,546			316		6.45
Corporate bonds	4,721			250		7.08		5,899			304		6.89
Loans (2) (3) (4)	731,276			43,065		7.87		658,777			37,106		7.53
FHLB stock	7,621			368		6.46		7,298			314		5.75
Interest bearing deposits	1,043			47		6.03		7,981			268		4.49
Total interest earning assets	788,364			45,183		7.66		732,981			39,532		7.21
Less: Allowance for loan losses	(7,828		)					(7,401		)
Non-interest earning assets	61,453							56,820
Total assets	$	841,989						$	782,400
LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest bearing liabilities:
Savings accounts	$	98,894		$	2,417	3.27	%	$	93,932		$	1,932	2.75	%
NOW and money market accounts	121,932			1,599		1.75		130,543			1,521		1.56
Certificates of deposit and other time deposits	422,608			15,066		4.77		346,919			10,050		3.87
Short term borrowings	35,303			1,452		5.50		22,485			889		5.29
FHLB advances	29,866			1,022		4.58		63,258			2,280		4.82
Subordinated debentures	10,000			549		7.34		10,000			665		8.89
Total interest bearing liabilities	718,603			22,105		4.11		667,137			17,337		3.47
Non-interest bearing liabilities:
Non-interest bearing deposits	45,603							42,802
Other liabilities	5,452							4,648
Total liabilities	769,658							714,587
Stockholders’ equity	72,331							67,813
Total liabilities and stockholders’ equity	$	841,989						$	782,400
Net interest income				$	23,078						$	22,195
Net interest spread						3.55	%						3.74	%
Net interest margin						3.91	%						4.05	%

(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

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RATE/VOLUME ANALYSIS

The table below provides information regarding changes in interest income and interest expense for the indicated periods. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (1) changes in rate (changes in rate multiplied by old volume); (2) changes in volume (change in volume multiplied by old rate); and (3) changes in rate-volume (change in rate multiplied by change in volume). Changes in rate-volume are proportionately allocated between rate and volume variance.

	Three Months Ended									Nine Months Ended
	September 30,									September 30,
	2007 vs. 2006									2007 vs. 2006
	Increase (decrease)									Increase (decrease)
	Due to change in									Due to change in
							Net									Net
(Dollars in thousands)	Rate			Volume			Change			Rate			Volume			Change
Interest income:
U.S. Treasury and agencies	$	15		$	(81	)	$	(66	)	$	93		$	(261	)	$	(168	)
Mortgage-backed securities	2			(30		)	(28		)	6			(93		)	(87		)
Equity securities	2			2			4			—			4			4
State and political subdivision securities	1			35			36			(3		)	167			164
Corporate bonds	(50		)	—			(50		)	(54		)	—			(54		)
Loans	322			1,334			1,656			1,744			4,215			5,959
FHLB stock	16			3			19			40			14			54
Interest bearing deposits	21			(49		)	(28		)	69			(290		)	(221		)
Total interest earning assets	329			1,214			1,543			1,895			3,756			5,651
Interest expense:
Savings accounts	47			34			81			379			106			485
NOW and money market accounts	106			(9		)	97			183			(105		)	78
Certificates of deposit and other time deposits	746			873			1,619			2,578			2,438			5,016
Short term borrowings	(336		)	—			(336		)	563			—			563
FHLB advances	(24		)	(38		)	(62		)	(110		)	(1,148		)	(1,258		)
Subordinated debentures	(68		)	—			(68		)	(116		)	—			(116		)
Total interest bearing liabilities	471			860			1,331			3,477			1,291			4,768
Net change in net interest income	$	(142	)	$	354		$	212		$	(1,582	)	$	2,465		$	883

Non-Interest Income and Non-Interest Expense

The following tables provide a comparison of the components of non-interest income and expenses for the periods ended September 30, 2007 and 2006. The tables show the dollar and percentage change from 2006 to 2007. Below each table is a discussion of significant changes and trends.

	Three Months Ended September 30,
(Dollars in thousands)	2007		2006		Change			%
Non-interest income
Customer service fees on deposit accounts	$	1,511	$	1,481	$	30		2.0	%
Gain on sale of mortgage loans	144		204		(60		)	-29.4	%
Brokerage commissions	106		79		27			34.2	%
Other income	444		269		175			65.1	%
	$	2,205	$	2,033	$	172		8.5	%

20

	Nine Months Ended September 30,
(Dollars in thousands)	2007		2006		Change			%
Non-interest income
Customer service fees on deposit accounts	$	4,274	$	4,108	$	166		4.0	%
Gain on sale of mortgage loans	435		608		(173		)	-28.5	%
Gain on sale of real estate held for development	227		—		227			100.0	%
Brokerage commissions	308		250		58			23.2	%
Other income	945		856		89			10.4	%
	$	6,189	$	5,822	$	367		6.3	%

Growth in customer service fees on deposit accounts, our largest component of non-interest income, is primarily due to growth in customer deposits, overdraft fee income on retail checking accounts and the sale of fee-based products for 2007. We continue to increase our customer base through cross-selling opportunities and marketing initiatives and promotions. In addition, we continue to emphasize growing our checking account base to better enhance our profitability and franchise value.

We originate qualified VA, KHC, RHC and conventional secondary market loans and sell them into the secondary market with servicing rights released. For the quarter and the first nine months of 2007, gain on sale of mortgage loans decreased due to a decrease in the volume of loans closed.

Through our subsidiary, First Federal Office Park, we hold commercial lots adjacent to our home office on Ring Road in Elizabethtown, that are available for sale. During the March 2007 quarter we recorded $227,000 in gains from a lot sale. Currently, one of the original nine lots held for sale remain unsold.

Included in other income for the three and nine month periods ended September 30, 2007 was $104,000 from an easement settlement related to our Shepherdsville banking center.

	Three Months Ended September 30,
(Dollars in thousands)	2007		2006		Change			%
Non-interest expenses
Employee compensation and benefits	$	3,136	$	2,968	$	168		5.7	%
Office occupancy expense and equipment	604		523		81			15.5	%
Marketing and advertising	228		209		19			9.1	%
Outside services and data processing	638		650		(12		)	-1.8	%
Bank franchise tax	234		224		10			4.5	%
Other expense	1,166		863		303			35.1	%
	$	6,006	$	5,437	$	569		10.5	%

	Nine Months Ended September 30,
(Dollars in thousands)	2007		2006		Change		%
Non-interest expenses
Employee compensation and benefits	$	9,365	$	8,763	$	602	6.9	%
Office occupancy expense and equipment	1,766		1,589		177		11.1	%
Marketing and advertising	677		628		49		7.8	%
Outside services and data processing	1,974		1,907		67		3.5	%
Bank franchise tax	699		667		32		4.8	%
Write off of issuance cost of Trust Preferred Securities	229		—		229		100.0	%
Other expense	3,112		2,607		505		19.4	%
	$	17,822	$	16,161	$	1,661	10.3	%

21

Employee compensation and benefits is the largest component of non-interest expense. Employee compensation increased for the quarter and nine months ended September 30, 2007. Three commercial lending associates and twenty retail associates have been added with our expansion efforts. These associates were hired for a commercial private banking center which opened in April 2007 and a new Louisville retail branch facility which opened in June 2007. We look for a continued increase in employee compensation and benefits expense in line with recent trends, as we progress with our retail expansion and market efforts.

Office occupancy expense and equipment as well as marketing and advertising increased due to additional operating expenses related to our expansion efforts. We anticipate the increased level of non-interest expense to continue in 2007 with continued retail expansion.

Included in other expense for the September 2007 nine month period is $229,000 in unamortized trust preferred issuance cost from the redemption of all of our $10.0 million issuance of cumulative trust preferred securities. These securities paid distributions at a quarterly adjustable rate of LIBOR plus 360 basis points (8.97% on March 26, 2007). We re-issued new cumulative trust preferred securities at a 10 year fixed rate of 6.69%.

In 2007 we created a new debit rewards program intended to increase debit card activity. Expenses related to this program were $118,000 for 2007. Also during 2007, interchange expense increased $192,000 due to the switch to real-time debit card processing, which is more expensive per item than the batch processing method we used during 2006. Other expense also increased for the three and nine month periods ended September 30, 2007 due to $127,000 recorded for back taxes paid on a repossessed real estate property.

Our efficiency ratio was 61% for the nine months ended September 30, 2007 compared to 58% for the 2006 period.

ANALYSIS OF FINANCIAL CONDITION

Total assets at September 30, 2007 increased to $879.2 million compared to $822.8 million at December 31, 2006, an increase of $56.4 million. The increase was primarily driven by an increase in loans of $63.1 million. The growth in loans was funded with deposits, which increased $55.6 million for the period as well as a $9.2 million decrease in investment securities.

Loans

Net loans increased $63.1 million to $761.1 million at September 30, 2007 compared to $698.0 million at December 31, 2006. Our commercial, commercial real estate and real estate construction portfolios increased $67.4 million to $542.4 million at September 30, 2007. For the 2007 period, these loans comprised 70% of the total loan portfolio compared to 66% at September 30, 2006. Consumer, home equity and indirect consumer remained relatively constant for the 2007 period. Offsetting this growth was a $4.0 million decrease in the residential mortgage loan portfolio to $133.4 million at September 30, 2007, compared to $137.3 million at December 31, 2006.

	September 30,			December 31,
(Dollars in thousands)	2007			2006
Commercial	$	51,602		$	40,902
Real estate commercial	463,572			410,146
Real estate construction	27,207			23,953
Residential mortgage	133,368			137,334
Consumer and home equity	64,321			62,805
Indirect consumer	28,999			30,857
Loans held for sale	1,407			673
	770,476			706,670
Less:
Net deferred loan origination fees	(853		)	(960		)
Allowance for loan losses	(8,491		)	(7,684		)
	(9,344		)	(8,644		)
Loans	$	761,132		$	698,026

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Allowance and Provision for Loan Losses

Our financial performance depends on the quality and quantity of the loans we originate and management’s ability to assess the degree of risk in existing loans when it determines the allowance for loan losses. An increase in loan charge-offs or non-performing loans or an inadequate allowance for loan losses could reduce net interest income, net income and capital and limit the range of products and services we can offer.

The Allowance for Loan Loss Review Committee evaluates the allowance for loan losses quarterly to maintain a level sufficient to absorb incurred credit losses existing in the loan portfolio. Periodic provisions to the allowance are made as needed. The allowance is determined based on the application of loss estimates to graded loans by categories. The amount of the provision for loan losses necessary to maintain an adequate allowance is also based upon an analysis of such factors as changes in lending policies and procedures; underwriting standards; collection; charge-off and recovery history; changes in national and local economic business conditions and developments; changes in the characteristics of the portfolio; ability and depth of lending management and staff; changes in the trend of the volume and severity of past due, non-accrual and classified loans; troubled debt restructuring and other loan modifications; and results of regulatory examinations.

The following table provides an analysis of loan loss experience for the periods indicated.

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(Dollars in thousands)	2007		2006		2007			2006
Balance at beginning of period	$	7,822	$	7,408	$	7,684		$	7,377
Loans charged-off:
Real estate mortgage	18		—		18			3
Consumer	111		125		295			322
Commercial	—		32		17			118
Total charge-offs	129		157		330			443
Recoveries:
Real estate mortgage	—		—		9			7
Consumer	55		76		174			203
Commercial	3		1		6			87
Total recoveries	58		77		189			297
Net loans charged-off	71		80		141			146
Provision for loan losses	740		249		948			346
Balance at end of period	$	8,491	$	7,577	$	8,491		$	7,577
Allowance for loan losses to total loans (excluding loans held for sale)					1.11		%	1.10		%
Annualized net charge-offs to average loans outstanding					0.02		%	0.03		%
Allowance for loan losses to total non-performing loans					111		%	141		%

The provision for loan losses increased $491,000 to $740,000 for the quarter ended September 30, 2007, and increased $602,000 to $948,000 for the nine months ended September 30, 2007 compared to the same periods in 2006. The allowance for loan losses increased $914,000 to $8.5 million from September 30, 2006 to September 30, 2007. The increase in the allowance was related to a $63.2 million increase in net loans for the year, as well as provision recorded, in conjunction with a $1.3 million increase in classified loans for the 2007 period. For the three and nine months ended September 30, 2007, $387,000 in provision was directly related to assets classified during the period. In addition, we recorded a smaller provision for 2006 due to the improved performance of certain credit relationships which resulted in a reduction in the allowance allocated to those loans.

Federal regulations require banks to classify their own assets on a regular basis. The regulations provide for three categories of classified loans — substandard, doubtful and loss. A bank must establish general allowances for loan losses for any assets classified as substandard or doubtful. If an asset or portion thereof is classified as

23

loss, the bank must either establish specified allowances for loan losses in the amount of 100% of the portion of the asset classified loss, or charge off the amount of the loss.

The following table provides information with respect to classified loans for the periods indicated:

	September 30,
(Dollars in thousands)	2007		2006
Classified Loans
Substandard	$	14,220	$	12,144
Doubtful	65		911
Loss	68		28
Total Classified	$	14,353	$	13,083

The $2.1 million increase in substandard assets for 2007 was primarily the result of the downgrading of loans with five borrowers in the amount of a $2.8 million, $1.7 million, $1.1 million, $957,000 and $641,000, respectively. Offsetting this increase were upgrades of three classified loans having balances of $2.0 million, $1.1 million and $458,000.

Although we may allocate a portion of the allowance to specific loans or loan categories, the entire allowance is available for active charge-offs. We develop our allowance estimates based on actual loss experience adjusted for current economic conditions. Allowance estimates represent a prudent measurement of the risk in the loan portfolio, which we apply to individual loans based on loan type.

Non-Performing Assets

Non-performing assets consist of certain restructured loans for which interest rate or other terms have been renegotiated, loans on which interest is no longer accrued, real estate acquired through foreclosure and repossessed assets. We do not have any loans greater than 90 days past due still on accrual. Loans, including impaired loans under SFAS 114, are placed on non-accrual status when they become past due 90 days or more as to principal or interest, unless they are adequately secured and in the process of collection. Loans are considered impaired when we no longer anticipate full principal or interest payments in accordance with the contractual loan terms. We carry impaired loans at the present value of expected future cash flows discounted at the loan’s effective interest rate or at the fair value of the collateral if the loan is secured by collateral.

We review our loans on a regular basis and implement normal collection procedures when a borrower fails to make a required payment on a loan. If the delinquency on a mortgage loan exceeds 90 days and is not cured through normal collection procedures or an acceptable arrangement is not worked out with the borrower, we institute measures to remedy the default, including commencing a foreclosure action. We generally charge off consumer loans when management deems a loan uncollectible and any available collateral has been liquidated. We handle commercial business and real estate loan delinquencies on an individual basis with the advice of legal counsel.

We recognize interest income on loans on the accrual basis except for those loans in a non-accrual of income status. We discontinue accruing interest on impaired loans when management believes, after consideration of economic and business conditions and collection efforts that the borrowers’ financial condition is such that collection of interest is doubtful, typically after the loan becomes 90 days delinquent. When we discontinue interest accrual, we reverse existing accrued interest and subsequently recognize interest income only to the extent we receive cash payments.

We classify real estate acquired as a result of foreclosure or by deed in lieu of foreclosure as real estate owned until such time as it is sold. We classify new and used automobile, motorcycle and all terrain vehicles acquired as a result of foreclosure as repossessed assets until they are sold. When such property is acquired we record it at the lower of the unpaid principal balance of the related loan or its fair market value. We charge any write-down of the property at the time of acquisition to the allowance for loan losses. Subsequent gains and losses are included in non-interest income and non-interest expense.  Real estate acquired through foreclosure increased $782,000 to $1.7 million at September 30, 2007 compared to $918,000 at December 31, 2006.  The increase was the result of a commercial real estate relationship totaling $1.5 million.

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The following table provides information with respect to non-performing assets for the periods indicated.

	September 30,			December 31,
(Dollar in thousands)	2007			2006
Restructured	$	2,375		$	2,470
Past due 90 days still on accrual	—			—
Loans on non-accrual status	5,281			2,368
Total non-performing loans	7,656			4,838
Real estate acquired through foreclosure	1,699			918
Other repossessed assets	63			82
Total non-performing assets	$	9,418		$	5,838
Interest income that would have been earned on non-performing loans	$	603		$	368
Interest income recognized on non-performing loans	200			227
Ratios: Non-performing loans to total loans (excluding loans held for sale)	1.00		%	0.69		%
Non-performing assets to total loans (excluding loans held for sale)	1.23		%	0.83		%

Non-performing loans increased $2.8 million to $7.7 million at September 30, 2007 compared to $4.8 million at December 31, 2006. The increase was related to an increase in non-accrual loans of $2.9 million. This was primarily the result of two commercial real estate credit relationships totaling $1.1 million and $1.5 million. These credit relationships are well secured and no loss is expected.

Non-performing assets for the 2007 period include $2.4 million in restructured commercial, residential mortgage and consumer loans. The restructured loans primarily consist of two credit relationships with balances of $2.0 million, and $199,000. The terms of these loans have been renegotiated to reduce the rate of interest and extend the term, thus reducing the amount of cash flow required from the borrower to service the loans. The borrowers are currently meeting the terms of the restructured loans.

Investment Securities

Interest on securities provides us our largest source of interest income after interest on loans, constituting 4.3% of the total interest income for the nine months ended September 30, 2007. The securities portfolio serves as a source of liquidity and earnings and contributes to the management of interest rate risk. We have the authority to invest in various types of liquid assets, including short-term United States Treasury obligations and securities of various federal agencies, obligations of states and political subdivisions, corporate bonds, certificates of deposit at insured savings and loans and banks, bankers’ acceptances, and federal funds. We may also invest a portion of our assets in certain commercial paper and corporate debt securities. We are also authorized to invest in mutual funds and stocks whose assets conform to the investments that we are authorized to make directly. The available-for-sale and held-to-maturity investment portfolios decreased by $9.2 million during the 2007 period as securities were called for redemption in accordance with their terms due to increasing rates. During the year we made purchases of investments in state and municipal obligations. The state and municipal obligations have an average life of 10 years. We purchased these securities to enhance earnings.

We review unrealized losses at least on a quarterly basis to determine whether the losses are other than temporary and more frequently when economic or market concerns warrant such evaluation. We consider the length of time and the extent to which the fair value has been less than cost, the financial condition and near-term prospects of the issuer, and our intent and ability to retain the investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. In analyzing an issuer’s financial condition, we may consider whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, and the results of reviews of the issuer’s financial condition. The unrealized losses on our investments in U.S. Treasury and agencies, mortgage-backed securities and obligations of state and political subdivisions are due to interest rate increases. Because the decline in market value is attributable to changes in interest rates and not credit quality, and because we have the ability and intent to hold these investments until recovery of fair value, which may be maturity, we do not consider these investments to be other than temporarily impaired at September 30, 2007.

25

Deposits

We rely primarily on customer service and long-standing relationships with customers to attract and retain deposits. Market interest rates and rates on deposit products offered by competing financial institutions can significantly affect our ability to attract and retain deposits. In conjunction with our initiatives to expand and enhance our retail branch network, we emphasize growing our customer checking account base to better enhance profitability and franchise value. Total deposits increased $55.6 million year to date compared to December 31, 2006. This was primarily the result of an increase in certificates of deposit and non-interest bearing deposits. Retail and commercial deposits increased $45.5 million and we added $10.1 million in public funds and brokered certificates of deposit.

The following table breaks down our deposits.

	September 30,		December 31,
	2007		2006
	(In Thousands)
Non-interest bearing	$	50,685	$	40,349
NOW demand	74,387		73,552
Savings	84,552		84,994
Money market	53,379		53,917
Certificates of deposit	433,601		388,225
	$	696,604	$	641,037

Short-Term Borrowings

Short-term borrowings consist of federal funds purchased and securities sold under agreements to repurchase. We had short-term borrowings of $68.2 million and $68.5 million from the FHLB of Cincinnati at September 30, 2007 and December 31, 2006. These borrowings averaged a rate of 5.50% and 5.31% for the respective periods.

Advances from Federal Home Loan Bank

Deposits are the primary source of funds for our lending and investment activities and for our general business purposes. We can also use advances (borrowings) from the Federal Home Loan Bank (FHLB) of Cincinnati to compensate for reductions in deposits or deposit inflows at less than projected levels. Advances from the FHLB are secured by our stock in the FHLB, certain securities, certain commercial real estate loans and substantially all of our first residential mortgage loans. At September 30, 2007 we had $28.1 million in advances outstanding from the FHLB.

Subordinated Debentures

We have $10.0 million in outstanding subordinated debentures. A trust we formed completed a private placement of 10,000 shares of cumulative trust preferred securities with a liquidation preference of $1,000 per security for a total outstanding of $10.0 million. The proceeds of the offering were loaned to us in exchange for junior subordinated deferrable interest debentures. In accordance with FASB Interpretation 46, the trust is not consolidated with our financial statements but rather the subordinated debentures are shown as a liability. These securities paid distributions of interest. On March 26, 2007 we called the $10.0 million in subordinated debentures adjustable quarterly at LIBOR plus 360 basis points (8.97% on March 26, 2007) and we issued new 30 year cumulative trust preferred securities at a 10 year fixed rate of 6.69% adjusting quarterly thereafter at LIBOR plus 160 basis points. Refinancing at a lower interest rate will reduce interest expense approximately $226,000 per year based on current rates. The subordinated debentures are considered as Tier I capital for the Corporation under current regulatory guidelines.

26

LIQUIDITY

Liquidity risk arises from the possibility that we may not be able to satisfy current or future financial commitments, or may become unduly reliant on alternative funding sources. The objective of liquidity risk management is to ensure that we can meet the cash flow requirements of depositors and borrowers, as well as our operating cash needs, at a reasonable cost, taking into account all on- and off-balance sheet funding demands. We maintain an investment and funds management policy, which identifies the primary sources of liquidity, establishes procedures for monitoring and measuring liquidity, and establishes minimum liquidity requirements in compliance with regulatory guidance. The Asset Liability Committee continually monitors our liquidity position.

Our sources of funds include the sale of securities in the available-for-sale portion of the investment portfolio, principal pay-downs on loans and mortgage-backed securities, proceeds realized from loans held for sale, brokered deposits and other wholesale funding. We also secured federal funds borrowing lines from two of our correspondent banks of $15 million each. Our banking centers also provide access to retail deposit markets. If large certificate depositors shift to our competitors or other markets in response to interest rate changes, we have the ability to replenish those deposits through alternative funding sources. Traditionally, we have also borrowed from the FHLB to supplement our funding requirements. At September 30, 2007, we had an unused approved line of credit in the amount of $90.5 million and sufficient collateral available to borrow, approximately, an additional $60.0 million in advances from the FHLB. We believe our sour ces of liquidity are adequate to meet expected cash needs for the foreseeable future.

At the holding company level, the Corporation uses cash to pay dividends to stockholders, repurchase common stock, make selected investments and acquisitions, and service debt. The main sources of funding for the Corporation include dividends from the Bank, borrowings and access to the capital markets.

The primary source of funding for the Corporation has been dividends and returns of investment from the Bank. Kentucky banking laws limit the amount of dividends that may be paid to t he Corporation by the Bank without prior approval of the KOFI. Under these laws, the amount of dividends that may be paid in any calendar year is limited to current year’s net income, as defined in the laws, combined with the retained net income of the preceding two years, less any dividends declared during those periods. At September 30 2007, the Bank had approximately $19.9 million of retained earnings that could be used to pay dividends without prior regulatory approval. Because of these limitations, consolidated cash flows as presented in the consolidated statements of cash flows may not represent cash immediately available to the Corporation. During the nine month period ended September 30, 2007, the Bank declared and paid dividends of $7.7 million to the Corporation.

CAPITAL

Stockholders’ equity increased $211,000 for the period ended September 30, 2007 compared to December 31, 2006. The increase in capital was primarily due to the net income earned during the period. This increase was offset by the repurchase of our own common stock and cash dividends declared during the period. Average stockholders’ equity to average assets ratio decreased to 8.59% for the nine month period ended September 30, 2007 compared to 8.67% for 2006.

During the first nine months of 2007, we purchased 152,041 shares of our own common stock for $4.4 million. The repurchase program authorizes the repurchase of 398,601 shares from time-to-time if market conditions are deemed favorable. The repurchase program will remain effective until the number of shares authorized is repurchased or until the program expires September 19, 2008. As of September 30, 2007, 246,060 shares could be repurchased under the current stock repurchase program.

Each of the federal bank regulatory agencies has established minimum leverage capital requirements for banks. Banks must maintain a minimum ratio of Tier 1 capital to adjusted average quarterly assets ranging from 3% to 5%, subject to federal bank regulatory evaluation of an organization’s overall safety and soundness. We intend to maintain a capital position that meets or exceeds the “well capitalized” requirements as defined for banks by the FDIC. The following table shows the ratios of Tier 1 capital and total capital to risk-adjusted assets and the leverage ratios for the Corporation and the Bank as of September 30, 2007.

27

									To Be Considered
									Well Capitalized
									Under Prompt
					For Capital				Correction
	Actual				Adequacy Purposes				Action Provisions
(Dollars in thousands)	Amount		Ratio		Amount		Ratio		Amount	Ratio
As of September 30, 2007:
Total risk-based capital (to risk-weighted assets)
Consolidated	$	82,658	10.8	%	$	61,418	8.0	%	N/A	N/A
Bank	79,504		10.4		61,212		8.0		76,516	10	%
Tier I capital (to risk-weighted assets)
Consolidated	73,970		9.6		30,709		4.0		N/A	N/A
Bank	70,789		9.3		30,606		4.0		45,909	6	%
Tier I capital (to average assets)
Consolidated	73,970		8.8		33,741		4.0		N/A	N/A
Bank	70,789		8.4		33,786		4.0		42,233	5	%

									To Be Considered
									Well Capitalized
									Under Prompt
					For Capital				Correction
	Actual				Adequacy Purposes				Action Provisions
(Dollars in thousands)	Amount		Ratio		Amount		Ratio		Amount	Ratio
As of December 31, 2006:
Total risk-based capital (to risk-weighted assets)
Consolidated	$	81,583	11.6	%	$	56,504	8.0	%	N/A	N/A
Bank	78,653		11.2		56,376		8.0		70,470	10.0
Tier I capital (to risk-weighted assets)
Consolidated	73,639		10.4		28,252		4.0		N/A	N/A
Bank	70,709		10.0		28,188		4.0		42,282	6.0
Tier I capital (to average assets)
Consolidated	73,639		9.2		32,014		4.0		N/A	N/A
Bank	70,709		8.9		31,962		4.0		39,953	5.0

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Asset/Liability Management and Market Risk

To minimize the volatility of net interest income and exposure to economic loss that may result from fluctuating interest rates, we manage our exposure to adverse changes in interest rates through asset and liability management activities within guidelines established by our Asset Liability Committee (“ALCO”). The ALCO, which includes senior management representatives, has the responsibility for approving and ensuring compliance with asset/liability management polices. Interest rate risk is the exposure to adverse changes in the net interest income as a result of market fluctuations in interest rates. The ALCO, on an ongoing basis, monitors interest rate and liquidity risk in order to implement appropriate funding and balance sheet strategies. Management considers interest rate risk to be our most significant market risk.

We utilize an earnings simulation model to analyze net interest income sensitivity. We then evaluate potential changes in market interest rates and their subsequent effects on net interest income. The model projects the effect of instantaneous movements in interest rates of both 100 and 200 basis points. We also incorporate assumptions based on the historical behavior of our deposit rates and balances in relation to changes in interest rates into the model. These assumptions are inherently uncertain and, as a result, the model cannot precisely measure future net interest income or precisely predict the impact of fluctuations in market interest rates on net interest income. Actual results will differ from the model’s simulated results due to timing, magnitude and frequency of interest rate changes as well as changes in market conditions and the application and timing of various management strategies.

28

Our interest sensitivity profile was liability sensitive at September 30, 2007 and December 31, 2006. Given a sustained 100 basis point decrease in rates, our base net interest income would remain constant at September 30, 2007 compared to an increase of .55% at December 31, 2006. Given a 100 basis point increase in interest rates our base net interest income would decrease by an estimated .36% at September 30, 2007 compared to a decrease of .48% at December 31, 2006.

Our interest sensitivity at any point in time will be affected by a number of factors. These factors include the mix of interest sensitive assets and liabilities, their relative pricing schedules, market interest rates, deposit growth, loan growth, decay rates and prepayment speed assumptions.

We have been restructuring our balance sheet so that our change to net interest income will be relatively neutral whether interest rates increase or decrease in the future. As demonstrated by the September 30, 2007 sensitivity table, we remained in a slightly liability sensitive position as compared to December 31, 2006. This means that our earning assets, which consist of loans and investment securities, will change in price at a slower rate than our deposits and borrowings. Therefore, if short term interest rates increase 200 basis points, our net interest income will decrease or remain relatively neutral. Likewise, if short term interest rates decrease 200 basis points, our net interest income will decrease or remain relatively neutral.

We continually monitor the effects rate changes will have on our level of net interest income, and management works to structure the maturity and pricing of loans and deposits to mitigate large swings in net interest income. During 2007 and 2006, we made efforts to increase the level of short-term deposits offering more attractive rates on short-term certificates of deposits. Also, during the third quarter of 2006, we paid off a fixed rate FHLB advance that had converted to a variable rate advance. We replaced this borrowing initially with overnight short-term borrowings. In March 2007, we called our $10.0 million in subordinated debentures adjustable quarterly at LIBOR plus 360 basis points (8.97% on March 26, 2007) and we re-issued new 30 year cumulative trust preferred securities at a 10 year fixed rate of 6.69% adjusting quarterly thereafter at LIBOR plus 160 basis points. In addition, the majority of the newly originated or renewed loans during 2007 and 2006 were fixed rates loans with the interest rate fixed from three to five years.

29

Our sensitivity to interest rate changes is presented below based on data as of September 30, 2007 and December 31, 2006 annualized to a one year period.

	September 30, 2007
	Decrease in Rates								Increase in Rates
	200			100					100			200
(Dollars in thousands)	Basis Points			Basis Points			Base		Basis Points			Basis Points
Projected interest income
Loans	$	55,889		$	57,240		$	58,590	$	59,802		$	61,025
Investments	1,952			1,990			2,033		2,076			2,120
Total interest income	57,841			59,230			60,623		61,878			63,145
Projected interest expense
Deposits	20,945			21,662			22,394		23,101			23,858
Borrowed funds	4,894			5,549			6,210		6,872			7,536
Total interest expense	25,839			27,211			28,604		29,973			31,394
Net interest income	$	32,002		$	32,019		$	32,019	$	31,905		$	31,751
Change from base	$	(17	)	$	—				$	(114	)	$	(268	)
% Change from base	(.05		)%	0		%			(.36		)%	(.84		)%

	December 31, 2006
	Decrease in Rates								Increase in Rates
	200			100					100			200
(Dollars in thousands)	Basis Points			Basis Points			Base		Basis Points			Basis Points
Projected interest income
Loans	$	58,262		$	59,517		$	60,592	$	61,623		$	62,759
Investments	2,342			2,482			2,535		2,625			2,653
Total interest income	60,604			61,999			63,127		64,248			65,412
Projected interest expense
Deposits	20,643			21,500			22,356		23,124			23,891
Borrowed funds	5,071			5,628			6,090		6,608			7,040
Total interest expense	25,714			27,128			28,446		29,732			30,931
Net interest income	$	34,890		$	34,871		$	34,681	$	34,516		$	34,481
Change from base	$	209		$	190				$	(165	)	$	(200	)
% Change from base	.60		%	.55		%			(.48		)%	(.58		)%

Item 4. CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures

Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this quarterly report on Form 10-Q. Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of the end of the period covered by this quarterly report on Form 10-Q to ensure that information we are required to disclose in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

30

Limitations on the Effectiveness of Controls

A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, with our company have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, that breakdowns can occur because of simple errors or mistakes, and that controls can be circumvented by the acts of individuals or groups. Because of the inherent limitations in a cost effective control system, misstatements due to error or fraud may occur and not be detected.

Changes in internal control over financial reporting

There was no change in our internal control over financial reporting that occurred during the period covered by this quarterly report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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Part II - -  OTHER INFORMATION

Item 1.	Legal Proceedings
	Although, from time to time, we are involved in various legal proceedings in the normal course of business, there are no material pending legal proceedings to which we are a party, or to which any of our property is subject.
Item 1A.	Risk Factors
	We did not have any changes to our risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2006.
Item 2.	Unregistered Sales of Securities and Use of Proceeds
	(e) Issuer Purchases of Equity Securities

				Total Number of	Maxium
	Total	Average		Shares Purchased	Number of Shares
	Number	Price		as Part of	that May Yet Be
	of Shares	Paid		Publicly Announced	Purchased Under
Period	Purchased	per Share		Plans	the Plan
July 1 - July 31	22,000	$	28.20	22,000	266,000
August 1 - August 31	16,940	28.10		16,940	249,060
September 1 - September 30	3,000	27.75		3,000	246,060
Total	41,940	$	28.13	41,940

Item 3.	Defaults Upon Senior Securities
	Not Applicable
Item 4.	Submission of Matters to a Vote of Security Holders
	None
Item 5.	Other Information
	None
Item 6.	Exhibits:
	31.1	Certification of Chief Executive Officer Pursuant to Section 302 of Sarbanes-Oxley Act
	31.2	Certification of Chief Financial Officer Pursuant to Section 302 of Sarbanes-Oxley Act
	32	Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 18 U.S.C. Section 1350 (As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002)

32

FIRST FINANCIAL SERVICE CORPORATION

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: November 9, 2007	By:	/s/ B. Keith Johnson
		B. Keith Johnson
		President and Chief Executive Officer

Date:  November 9, 2007	By:	/s/ Gregory S. Schreacke
		Gregory S. Schreacke
		Chief Financial Officer
		Principal Accounting Officer

33

INDEX TO EXHIBITS

Exhibit No.	Description
31.1	Certification of Chief Executive Officer Pursuant to Section 302 of Sarbanes-Oxley Act
31.2	Certification of Chief Financial Officer Pursuant to Section 302 of Sarbanes-Oxley Act
32	Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 (As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002)

34

EX-31.1

EXHIBIT 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO SECTION 302 OF SARBANES-OXLEY ACT

I, B. Keith Johnson, certify that:

1)I have reviewed this quarterly report on Form 10-Q of First Financial Service Corporation;

2)Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3)Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4)The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U. S. generally accepted accounting principles;

c)evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5)The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors:

a)all significant deficiencies in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial data; and

b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 9, 2007	By:	/s/ B. Keith Johnson
		B. Keith Johnson
		President and Chief Executive Officer

1

EX-31.2

EXHIBIT 31.2

CERTIFICATION  OF CHIEF FINANCIAL OFFICER

PURSUANT TO SECTION 302 OF SARBANES-OXLEY ACT

I, Gregory Schreacke, certify that:

1)I have reviewed this quarterly report on Form 10-Q of First Financial Service Corporation;

2)Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3)Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4)The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U. S. generally accepted accounting principles;

c)evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5)The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors:

a)all significant deficiencies in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial data; and

b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 9, 2007	By:	/s/ Gregory Schreacke
		Gregory Schreacke
		Chief Financial Officer
		Principal Accounting Officer

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EX-32

EXHIBIT 32

CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350

(AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002)

In connection with the Quarterly Report of First Financial Service Corporation (the “Corporation”) on Form 10-Q for the period ended September 30, 2007 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, the Chief Executive Officer and Chief Financial Officer of the Corporation, certify, pursuant to 18 U.S.C. Section 1350, that:

1.The Report fully complies with the requirements of section 13 (a) or 15(d) of the Securities Exchange Act of 1934 and;

2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation;

Date: November 9, 2007	By:	/s/ B. Keith Johnson
		B. Keith Johnson
		President and Chief Executive Officer

Date: November 9, 2007	By:	/s/ Gregory Schreacke
		Gregory Schreacke
		Chief Financial Officer
		Principal Accounting Officer

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