First Federal Bankshares, Inc. Announces Earnings and Declares Dividend

SIOUX CITY, Iowa, Jan. 22 /PRNewswire-FirstCall/ -- First Federal
Bankshares, Inc. (the "Company") (Nasdaq: FFSX), the parent company of Vantus
Bank (the "Bank") reported net income for the three months ended
December 31, 2007, of $318,000, or $0.10 per diluted share, compared to
$412,000, or $0.12 per diluted share for the three months ended
December 31, 2006. For the six months ended December 31, 2007, the Company
had net income of $732,000, or $0.22 per diluted share, compared to
$1.4 million, or $0.41 per diluted share for the six months ended
December 31, 2006.
The Company's annualized return on average equity (ROE) for the most
recent quarter was 1.86% compared to 2.35% for the same period a year ago.
Annualized return on average assets (ROA) for the quarter was 0.20% compared
to 0.28% twelve months prior. ROE and ROA for the six months ended December
31, 2007, were 0.23% and 2.12%, respectively. This compared to 0.46% and
3.93%, respectively, for the same period in the previous year.
Net interest income for the three-month period ended December 31, 2007,
increased $339,000 from $3.9 million for the three months ended December 31,
2006, to $4.2 million for the three months ended December 31, 2007. For the
three months ended December 31, 2007, the Company's net interest margin was
3.02% compared to 2.89% for the same period a year ago. The increase in
margin was due to asset yields rising faster than the cost of the Company's
interest-bearing liabilities. Asset yields increased 29 basis points due
primarily to increases in yields on the Company's investment and loan
portfolios. The Company's interest-bearing liabilities only increased nine
basis points during the same time period. In addition, average earning assets
for the three months ended December 31, 2007, increased $21.5 million compared
to the same period last year.
Compared to the quarter ended September 30, 2007, the Company's net
interest margin improved from 2.96% to 3.02% in the most recent quarter.
Michael Dosland, President and Chief Executive Officer, commented, "The
Company has benefited from recent declines in market interest rates, which has
provided us the opportunity to lower our deposit costs." Dosland added,
"Although we can't be certain in the current rate environment, we expect our
net interest margin to continue to improve modestly in the near term as our
liability costs adjust downward at a faster pace than the yield on our earning
assets."
For the six month period ended December 31, 2007, net interest income
increased to $8.3 million compared to $8.0 million for the same period ended
December 31, 2006. For the six months ended December 31, 2007, the Company's
net interest margin declined slightly from 3.00% to 2.96%. The decline in
margin was offset by an increase in average earning assets. Average earning
assets as of December 31, 2007, increased $27.5 million to $566.2 million as
compared to the same period last year.
Non-interest income totaled $1.6 million for the three months ended
December 31, 2007, compared to $1.5 million for the three months ended
December 31, 2006. For the six months ended December 31, 2007 and 2006,
non-interest income was $3.1 million in each period. The decline in service
fees on deposits was offset by an increase in fees charged on consumer and
commercial loans. The decrease in service fees on deposits was due to the
elimination of fees on internet banking services and lower income from
overdraft fees as a result of the implementation of an overdraft protection
product. These changes were driven by competitive forces in the Company's
market areas. The corresponding increase in the amount of service fees on
commercial and consumer loans is due to the collection of prepayment penalties
on a number of large commercial real estate loans that refinanced during the
period.
Non-interest expense for the three months ended December 31, 2007,
increased $443,000 or 9.8% over the same period last year. For the six months
ended December 31, 2007, non-interest expense increased $1.2 million or 13.2%
as compared to the six months ended December 31, 2006. Personnel expense
increased $493,000 or 9.6% for the six months ended December 31, 2007, as
compared to the same period last year. This increase was primarily due to the
increase in the number of full-time equivalent employees as compared to last
year. The number of full-time equivalent employees was 196 as of
December 31, 2007, as compared to 177 at the same time last year. This
increase was primarily due to the opening of a new banking center in the
Des Moines market, as well as the hiring of certain key employees over the
past twelve months. Advertising, donations, and public relations for the six
months ended December 31, 2007, increased $382,000 to $766,000 as compared to
the same period last year. This change was due to increased costs associated
with the promotion of the Bank's new name and brand. Data processing, ATM,
and other item processing expense increased $184,000 from $603,000 for the six
months ended December 31, 2006, to $787,000 for the six months ended December
31, 2007. This increase was partially due to costs associated with the
purchase of new debit card stock in association with the name change and the
recognition of allowances for debit card and checking account overdraft
losses.
Provision for loan losses for the six months ended December 31, 2007, was
$513,000 compared to $503,000 for the six months ended December 31, 2006.
Provision for loan losses for the quarter ended December 31, 2007, was
$492,000 compared to $403,000 in the same quarter last year. Provision
expense recorded in the most recent quarter was primarily due to the partial
charge-off of two commercial real estate loan relationships during the period
and the establishment of a specific loss allowance on a commercial loan to a
concrete pumping company. The collateral securing the two commercial real
estate relationships, which consisted of single-family homes and lots, were
transferred to foreclosed and repossessed property. The loan loss provision
in the same quarter of the previous year was primarily related to the
Company's reclassification of $10.3 million in non-performing and classified
loans to held for sale status. These loans were subsequently sold in 2007.
Non-performing loans increased slightly from $2.8 million at December 31,
2006, to $3.0 million as of December 31, 2007. Despite only a modest increase
in non-performing loans in recent periods, the Company has experienced a more
significant increase in classified loans over the same timeframe. These loans
continue to perform under the terms of their loan agreements, but exhibit
stress that results in increased scrutiny by management. Classified loans
have increased principally in response to well-publicized difficulties in the
markets for commercial and residential real estate in the Des Moines market
area. Management expects this trend to continue in the near term, but
believes that the situation is manageable. Over 70% of the Company's
classified loans at December 31, 2007, were related to only five borrowers.
In the judgment of management, additional losses on these relationships are
not expected at this time. However, there can be no assurances.
Income tax expense for the six months ended December 31, 2007, was
$143,000 compared to $441,000 for the six months ended December 31, 2006.
Income tax expense for these periods represented 16.3% and 25.3% of pre-tax
income, respectively. Income tax expense for the three months ended December
31, 2007 and 2006, was $28,000 and $77,000 or 8.1% and 16.8% of pre-tax
income, respectively. The decrease in the Company's effective tax rates in
the most recent periods occurred because tax-exempt income has become a larger
percentage of pre-tax income.
Total assets increased by $25.3 million, or 4.2%, to $626.0 million at
December 31, 2007, from $600.6 million at December 31, 2006. This increase
was primarily due to the purchase of $50 million in variable-rate
trust-preferred pooled securities (TPSs) that are currently funded by
short-term advances from the Federal Home Loan Bank (FHLB). This development
was partially offset by a $19.3 million or 3.2% decline in loans receivable
and a $10.3 million decline in non-performing and classified loans held for
sale. Deposits totaled $451.7 million at December 31, 2007, an increase of
$4.0 million, over the previous year. Total deposits declined significantly
from June 30, 2007, as a result of management's decision to replace
$50 million in brokered certificates of deposits (originally drawn to fund the
purchase of the aforementioned TPSs) with $50 million in advances from the
FHLB.
Dividend Declared
On January 17, 2008, the Board of Directors of First Federal Bankshares,
Inc. declared a quarterly cash dividend of $0.105 per share. The dividend is
payable on February 29, 2008, to stockholders of record on February 15, 2008.
Other Matters
The Company continues to construct a new full-service banking center in
Ankeny, Iowa, a fast-growing community north of Des Moines. The Company
expects to open this location in the Spring of 2008. Also, the Company
continues to search for additional banking center locations in the growing Des
Moines metro area.
The Company's book value per share was $20.12 at December 31, 2007,
compared to $20.72 at June 30, 2007. This decline was attributable to a
$2.7 million increase in accumulated other comprehensive loss. This increase
was caused by a decline in the fair value of the Company's available-for-sale
securities, most notability its portfolio of TPSs. In recent months,
well-publicized volatility in national credit markets has resulted in
significant fluctuations in the value of the Company's TPSs. In the opinion
of management this volatility is due to market perceptions of credit risk. It
does not reflect the underlying credit quality or performance of the community
banks, thrifts, insurance companies, and, to a very limited extent, the REITS
that secure the Company's TPSs. There have been no significant defaults or
payment deferrals or other financial difficulties reported by the financial
institutions that secure the Company's TPSs. Regardless, continued volatility
in the market value of these securities could result in significant
fluctuations in the value of these securities. This could have an adverse
affect on the Company's accumulated other comprehensive loss. Management
believes the Company's TPS portfolio is its single most profitable earning
asset as measured by estimated return on assets and return on equity.
In January, the FHLB informed the Bank that its borrowing limit at the
FHLB was reduced from 35% of total assets to 25% of total assets (or from
approximately $219 million to $156 million). The Bank currently has only
$90 million in borrowings outstanding with the FHLB. As a result, this
development is not expected to have a near-term impact on the Bank's
operations. In any event, the Bank has access to adequate levels of
alternative borrowing sources such as fed funds lines, repurchase agreements,
and brokered certificates of deposits. Furthermore, the Bank continues to be
classified "well-capitalized" under regulatory standards. The FHLB's decision
affected other financial institutions as well as the Bank and was based on its
analysis of non-performing assets and earnings trends in recent periods.
Management expects that its borrowing limit at the FHLB will be restored as
asset quality and earnings improve, although there can be no assurances.
About Vantus Bank
The Company's banking subsidiary, Vantus Bank, is headquartered in Sioux
City, Iowa. Founded in 1923, Vantus Bank is a community bank serving
businesses and consumers in seven full-service offices in northwest Iowa, a
full-service office in South Sioux City, Nebraska, and six full-service
offices in central Iowa, including three in the Des Moines market area.
Certain matters in the press release are "forward looking statements"
intended to qualify for the safe harbor from liability as established by the
Private Securities Litigation Reform Act of 1995. Such forward looking
statements include words and phrases such as "will likely result," "are
expected to," "will continue," "is anticipated," "estimate," "project,"
"intends to," or similar expressions. Similarly statements that describe the
Company's future plans, objectives, or goals are forward-looking statements.
The Company wishes to caution the readers not to place undue reliance on any
such forward-looking statements, which speak only as of the date of the press
release, and to advise readers that various factors could affect the Company's
financial performance and could cause results for future periods to differ
materially from those anticipated or projected. Such factors include, but are
not limited to: (i) general market interest rates, (ii) general economic
conditions, (iii) legislative/regulatory changes, (iv) monetary and fiscal
policies of the U.S. Treasury and Federal Reserve, (v) changes in the quality
or composition of the Company's loan and investment portfolios, (vi) demand
for loan products, (vii) deposit flow, (viii) competition, (ix) demand for
financial services in the Company's markets and (x) changes in accounting
principles, policies, or guidelines.

FIRST FEDERAL BANKSHARES, INC. and SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)

(Dollars in thousands, except per December 31 June 30 December 31
share amounts) 2007 2007 2006
ASSETS
Cash and cash equivalents $20,780 $25,738 $19,357
Securities available-for-sale, at
fair value 109,738 122,309 62,887
Securities held-to-maturity, at cost 8,960 9,549 11,899
Non-performing and classified loans
held for sale, at lower of cost or
fair value - - 10,349
Mortgage loans held for sale 1,663 2,131 -
Loans receivable, net 420,260 427,954 439,560
Office property and equipment, net 18,478 16,205 14,408
Federal Home Loan Bank stock, at cost 5,240 3,560 4,583
Accrued interest receivable 3,035 2,940 2,702
Goodwill 18,417 18,417 18,417
Foreclosed and repossessed assets 3,611 2,156 471
Other assets 15,800 14,858 16,007
Total assets $625,982 $645,817 $600,640
LIABILITIES
Deposits $451,655 $507,865 $447,663
Advances from FHLB and other borrowings 102,659 62,202 77,888
Advance payments by borrowers for
taxes and insurance 888 916 914
Accrued interest payable 2,478 2,691 2,524
Accrued expenses and other liabilities 1,862 1,888 1,962
Total liabilities 559,542 575,562 530,951
STOCKHOLDERS' EQUITY
Common stock, $.01 par value 51 51 51
Additional paid-in capital 39,388 39,230 38,951
Retained earnings, substantially
restricted 59,014 58,704 57,715
Treasury stock, at cost (28,536) (26,886) (26,224)
Accumulated other comprehensive loss (2,871) (179) (79)
Unearned ESOP (606) (665) (725)
Total stockholders' equity 66,440 70,255 69,689
Total liabilities and
stockholders' equity $625,982 $645,817 $600,640

Actual number of shares outstanding
at end of period, net of
treasury stock 3,302,971 3,389,971 3,410,748
Average shares outstanding used to
compute:
Basic earnings per share 3,248,309 3,316,774 3,309,482
Diluted earnings per share 3,265,856 3,343,532 3,342,938
Shareholders' equity to total assets 10.61% 10.88% 11.60%
Book value per share $20.12 $20.72 $20.43

FIRST FEDERAL BANKSHARES, INC. and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

Three months ended Six months ended
(Dollars in thousands, except per December 31 December 31
share amounts) 2007 2006 2007 2006
Interest on loans $7,403 $7,535 $14,834 $15,171
Interest on investment securities 1,994 1,004 4,019 1,798
Interest on cash and cash equivalents 8 110 58 244
Total interest income 9,405 8,649 18,911 17,213
Interest on deposit liabilities 3,915 3,784 8,477 7,206
Interest on borrowings 1,289 1,003 2,153 2,040
Total interest expense 5,204 4,787 10,630 9,246
Net interest income 4,201 3,862 8,281 7,967
Provision for loan losses 492 403 513 503
Net interest income after provision 3,709 3,459 7,768 7,464
Service charges on deposit accounts 835 857 1,618 1,763
Fees on commercial and consumer loans 123 51 221 85
Gain on sale of real estate held for
development 47 20 47 60
Mortgage banking revenue 177 178 371 378
Other income 403 397 837 817
Total non-interest income 1,585 1,503 3,094 3,103
Personnel expense 2,825 2,618 5,631 5,138
Office property and equipment 701 687 1,402 1,365
Data processing, ATM and debit card
transaction costs, and other item
processing expense 417 294 787 603
Professional, insurance, and
regulatory expense 252 275 507 559
Advertising, donations, and public
relations 303 217 766 384
Communications, postage, and office
supplies 225 208 435 402
Other expense 225 206 459 372
Total non-interest expense 4,948 4,505 9,987 8,823
Income from continuing operations
before income taxes 346 457 875 1,744
Income tax expense 28 77 143 441
Income from continuing operations 318 380 732 1,303
Income from discontinued operations,
net of tax - 32 - 76
Net income $318 $412 $732 $1,379

Basic earnings per share:
Income from continuing operations $0.10 $0.11 $0.23 $0.40
Income from discontinued operations - 0.01 - 0.02
Net income per share $0.10 $0.12 $0.23 $0.42

Diluted earnings per share:
Income from continuing operations $0.10 $0.11 $0.22 $0.39
Income from discontinued operations - 0.01 - 0.02
Net income per share $0.10 $0.12 $0.22 $0.41

Cash dividends declared per share $0.105 $0.105 $0.210 $0.205

FIRST FEDERAL BANKSHARES, INC and SUBSIDIARIES
SELECTED FINANCIAL DATA (unaudited)

At or for the At or for the
three months ended six months ended
(Dollars in thousands, except per December 31 December 31
share amounts) 2007 2006 2007 2006
Average total assets $627,507 $596,890 $629,536 $594,044
Average interest-earning assets 563,207 541,706 566,179 538,682
Average interest-bearing
liabilities 510,941 480,272 512,934 477,159
Average interest-earning assets to
average interest-bearing
liabilities 110.23% 112.79% 110.38% 112.89%

Activity in the allowance for loan
losses during the period:
Balance at beginning of period $1,743 $5,482 $1,797 $5,466
Provision for loan losses 492 403 513 503
Charge-offs:
Single-family mortgage loans - - - (20)
Commercial real estate loans (182) - (182) -
Commercial business loans (15) (2,617) (71) (2,617)
Consumer loans (33) (49) (79) (127)
Total loans charged-off (230) (2,666) (332) (2,764)
Loans transferred to held for sale - (1,300) - (1,300)
Recoveries 51 125 78 139
Charge-offs net of recoveries (179) (3,841) (254) (3,925)
Balance at end of period $2,056 $2,044 $2,056 $2,044

Non-performing loans receivable $2,988 $2,775 $2,988 $2,775
Non-performing loans to total
loans receivable 0.70% 0.63% 0.70% 0.63%
Allowance for loan losses to
non-performing loans 68.81% 73.66% 68.81% 73.66%
Ratio of allowance for loan losses
to total loans held for investment
at end of period 0.47% 0.46% 0.47% 0.46%

Selected operating data: (1)
Return on average assets 0.20% 0.28% 0.23% 0.46%
Return on average equity 1.86% 2.35% 2.12% 3.93%
Net interest rate spread 2.62% 2.42% 2.55% 2.54%
Net yield on average
interest-earning assets (2) 3.02% 2.89% 2.96% 3.00%
Efficiency ratio (3) 85.53% 83.94% 87.74% 79.29%

(1) Annualized except for efficiency ratio.
(2) Net interest income, tax-effected, divided by average
interest-earning assets.
(3) Non-interest expense divided by net interest income plus non-interest
income, less gain (loss) on sale of other real estate owned,
investments, and fixed assets.

FIRST FEDERAL BANKSHARES, INC and SUBSIDIARIES
SELECTED FINANCIAL DATA (unaudited)

Weighted
(Dollars in thousands, except per share amounts) December 31 Average
Time deposits maturing within 2007 Rate
Three months $68,297 4.83%
Four to six months 83,650 4.91%
Seven to twelve months 33,565 4.47%
More than twelve months 57,369 4.70%
Total time deposits $242,881 4.77%

FHLB advances and all other
borrowings maturing within
Three months $63,909 4.73%
Four to six months 9,000 5.54%
Seven to twelve months 13,000 5.50%
More than twelve months 16,750 4.98%
Total FHLB advances and
all other borrowings $102,659 4.94%

Three months ended Six months ended
December 31 December 31
2007 2006 2007 2006
Market price per share:
High for the period $19.00 $22.51 $19.00 $22.51
Low for the period $12.80 $21.40 $17.50 $21.40
Close at end of period $14.05 $21.70 $14.05 $21.70

SOURCE First Federal Bankshares, Inc.

Michael W. Dosland, President and Chief Executive Officer of First Federal
Bankshares, Inc., +1-712-277-0222