First Federal Bankshares, Inc. Reports Net Loss in Fiscal Third Quarter and
Suspends Fiscal Fourth Quarter Dividend
SIOUX CITY, Iowa, May 2 /PRNewswire-FirstCall/ -- First Federal
Bankshares, Inc. (the "Company") (Nasdaq: FFSX), the parent company of Vantus
Bank (the "Bank"), recorded a net loss for the three months ended March 31,
2008, of $1.5 million or $0.47 per diluted share, compared to net income of
$1.0 million, or $0.30 per diluted share for the three months ended March 31,
2007. For the nine months ended March 31, 2008, the Company recorded a net
loss of $802,000, or $0.25 per diluted share, compared to net income of
$2.4 million, or $0.72 per diluted share for the nine months ended March 31,
2007.
Results of operations during the three months ended March 31, 2008, were
negatively affected by a significant increase in the Company's provision for
loan losses for the period. Non-performing loans increased from $3.1 million
or 0.72% of loans receivable at December 31, 2007, to $9.3 million or 2.24% of
loans receivable at March 31, 2008. In addition, adversely classified assets
(which include non-performing loans) increased from $8.5 million or 1.36% of
total assets at December 31, 2007, to $14.2 million or 2.38% of total assets
at March 31, 2008. Adversely classified assets consist of loans rated
"Substandard", "Doubtful", or "Loss", as well as foreclosed and repossessed
assets. Loans rated "Special Mention" increased from $13.9 million at
December 31, 2007, to $21.7 million at March 31, 2008.
The increase in non-performing loans and adversely classified assets was
primarily driven by four large loan relationships totaling $5.6 million, which
defaulted during the quarter. Two of these loans totaling $3.5 million are
in the renewable fuels industry and two totaling $2.1 million are in real
estate development. As a result of these defaults, the loans were downgraded
to "Substandard" and were placed on non-accrual. In addition to these loans,
the Company downgraded to "Special Mention" a $6.1 million loan on a land
development project and a $3.2 million loan to a clothing distributor that is
secured by commercial real estate.
In all of the instances cited in the preceding paragraph, management of
the Company currently believes the estimated fair value of the collateral
securing these loans exceeds the amounts due the Company. Accordingly, the
Company does not anticipate a need for specific loss allowance on these
relationships at this time, although there can be no assurances. However, in
addition to the Company's absolute level of classified assets, management's
assessment of current economic conditions and expectations for near-term
losses are key components in the calculation of the Company's allowance for
loan losses. Changes in these assessments and/or expectations warranted an
increase in certain subjective factors used in the Company's computation of
its allowance for loan loss. As a result of these developments, as well as
$380,000 specific loss allowance on an additional loan relationship discussed
in the next paragraph, the Company recorded a provision for loan losses of
approximately $2.7 million during the three months ended March 31, 2008,
compared to $31,000 for the corresponding quarter in 2007. In addition, the
Company recorded a loss of $171,000 as a result of the disposition of certain
foreclosed real estate properties during the period. This amount has been
included in other non-interest expense.
In addition to the developments discussed in the previous paragraph, a
$1.4 million loan to an out-of-market concrete pumping contractor deteriorated
further during the quarter. Management now believes the probable outcome for
this loan relationship will be the complete liquidation of the loan collateral
to satisfy the amounts owed to the Company. Accordingly, during the quarter
the Company increased its specific allowance on this loan relationship from
$180,000 to $560,000 based on management's current assessment of the value of
the collateral. However, there can be no assurances that the Company will be
able to liquidate the collateral for the value estimated by management.
As a result of the developments described in the preceding paragraphs, the
Company's allowance for loan loss increased from $2.1 million or 0.47% of
total loans at December 31, 2007, to $4.7 million or 1.13% of total loans at
March 31, 2008. Although management believes that the Company's present level
of allowance for loan losses is adequate, there can be no assurance that
future adjustments to the allowance will not be necessary, which could
adversely affect the Company's results of operations.
Net interest income for the three-month period ended March 31, 2008,
increased $0.1 million from $3.8 million for the three months ended March 31,
2007, to $3.9 million for the three months ended March 31, 2008. For the
three months ended March 31, 2008, the Company's net interest margin was 2.86%
compared to 2.79% for the same period a year ago. The increase in margin was
due to liability costs falling faster than the yield of the Company's
interest-earning assets. Asset yields decreased 20 basis points.
Approximately half of this decrease was due to a decline in yields on the
Company's loan portfolio. The remaining decrease was related to the reversal
of interest on loans that were placed on non-accrual during the period.
During the most recent quarter, the Company's cost of interest-bearing
liabilities declined 40 basis points in response to overall decreases in
market interest rates. The increase in margin was partially offset by a
decrease in the Company's average interest-earning assets. Average
interest-earning assets decreased $7.0 million to $553.1 million during the
most recent quarter compared to $560.1 million for the three months ended
March 31, 2007.
For the nine month period ended March 31, 2008, net interest income
increased to $12.2 million compared to $11.8 million for the same period ended
March 31, 2007. For the nine months ended March 31, 2008, the Company's net
interest margin remained at 2.93%. However, average interest-earning assets
for the nine month period ended March 31, 2008, increased $15.9 million to
$561.5 million compared to $545.7 million for the nine months ended March 31,
2007. The change was primarily due to increases in the Company's investment
portfolio.
Non-interest income for the three months ended March 31, 2008 and 2007,
totaled $1.4 million. For the nine months ended March 31, 2008 and 2007,
non-interest income totaled $4.5 million. A 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 was 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 March 31, 2008, increased
$0.7 million or 14.4% over the same period last year. For the nine months
ended March 31, 2008, non-interest expense increased $1.8 million or 13.5% as
compared to the nine months ended March 31, 2007. Personnel expense increased
$0.9 million or 11.1% for the nine months ended March 31, 2008, as compared to
the same period last year. This increase was primarily due to merit increases
and an 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
March 31, 2008, as compared to 182 at the same time last year. This increase
was primarily due to the opening of two new banking centers 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 nine months
ended March 31, 2008, increased $0.5 million to $1.0 million 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 $0.3 million from $0.9 million for
the nine months ended March 31, 2007, to $1.2 million for the nine months
ended March 31, 2008. This increase was partially due to costs associated
with the purchase of new debit card stock in association with the name change.
In addition, the Company has been successful at increasing the number of
internet banking and cell phone users. As a result, processing costs to
service these channels have increased as compared to the previous year.
Income tax benefit for the nine months ended March 31, 2008, was $890,000
compared to an expense of $561,000 for the nine months ended March 31, 2007.
Income tax benefit for the three months ended March 31, 2008, was $1.0 million
compared to an expense of $120,000 for the same period a year ago.
Total assets decreased by $48.5 million, or 7.5%, to $597.4 million at
March 31, 2008, from $645.8 million at June 30, 2007. This decrease was due
to short term investments and cash being used to repay wholesale borrowings.
In addition, loans receivable declined $15.7 million as loan prepayment
activity increased. Total deposits declined significantly from June 30, 2007,
as a result of management's decision to replace $50 million in brokered
certificates of deposit with $50 million in advances from the FHLB.
Excluding brokered certificates, deposit liabilities increased $6.3 million or
1.4% since June 30, 2007. This increase was led by total checking accounts,
which were up $4.9 million or 3.6%.
Other Matters
The Company's book value per share was $17.47 at March 31, 2008, compared
to $20.72 at June 30, 2007. This decline was attributable to the Company's
net loss from operations, as well as a $9.6 million increase in accumulated
other comprehensive loss, which is a component of stockholders' equity. This
increase was caused by a decline in the fair value of the Company's
available-for-sale securities, most notably its portfolio of trust-preferred
pooled securities ("TPSs"). As of March 31, 2008, the Company owned TPSs with
an amortized cost of $65.2 million. The cash flows of the Company's TPSs are
derived from trust preferred securities and subordinated debt issued by
well-diversified pools of banks and thrifts (73%), insurance companies (25%),
and REIT/homebuilders (2%). The Company's TPS securities are secured through
a combination of subordination from lower classes within the TPS structures,
as well as over-collateralization of available future contractual cash flows.
At the time of purchase, each of the securities in the Company's TPS portfolio
were rated either single-A (61% of the portfolio) or triple-B (39% of the
portfolio) by a nationally recognized rating agency. In December 2007,
however, a TPS with an amortized cost of $5.1 million was downgraded to
triple-C due to the default of two REITs within the TPS. This security is the
only TPS in the Company's portfolio that has an exposure to REITs (27%).
On March 31, 2008, the fair value of the Company's TPS portfolio was
estimated to be $49.7 million or 76.3% of unamortized cost, compared to
$57.9 million or 88.8% of unamortized cost at December 31, 2007. In
management's judgment, the significant decline in the estimated fair value of
the Company's TPS portfolio was not the result of a decline in the credit
quality of the community banks, thrifts, and insurance companies that support
these securities. The Company expects to receive all contractual principal
and interest payments due on these securities, including the security that was
recently downgraded to triple-C. For these reasons management has concluded
that the decline in the estimated fair value of the Company's TPS portfolio is
temporary. As such, the Company recorded the corresponding fair value
adjustment as a component of other comprehensive loss, net of estimated income
tax benefit. Accumulated other comprehensive loss is a component of
stockholders' equity. This loss does not affect the cash flows of the Company
and does not affect the regulatory capital of the Bank. As of March 31, 2008,
the Bank remained well-capitalized for regulatory capital purposes.
It should be noted, however, that future defaults by the companies that
underlie the Company's TPS portfolio, negative actions by ratings agencies, or
deterioration in market conditions or other factors could result in the
Company concluding at some future date that all or portions of its TPS
portfolio have been "other than temporarily impaired" or "permanently
impaired." Such determination could have a material adverse impact on the
Company's future earnings and stockholders' equity.
Quarterly Dividend
On April 17, 2008, the Board of Directors of the Company elected to
suspend the regular quarterly cash dividend for the Company's fiscal fourth
quarter. Michael W. Dosland, President and CEO, stated "While the suspension
of the dividend was a difficult decision, our Board of Directors believes
that it is in the Company's best interests to preserve capital given recent
negative trends in our operating performance and asset quality, as well as
recent deterioration in economic conditions and financial markets." The
Company intends to reassess the dividend on a quarterly basis, but does not
anticipate reinstatement until operating results and asset quality improve
and/or economic conditions and financial markets stabilize. This decision is
expected to preserve approximately $1.4 million in capital on an annualized
basis.
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 business
and consumers in seven full-service offices in northwest Iowa, a full-service
office in South Sioux City, Nebraska, and seven full-service offices in
central Iowa, including four 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 Company's loan and investment portfolios, (vi) demand for
loan products, (vii) deposit flow, (viii) competition, (ix) demand for
financial services in 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 March 31 June 30 March 31
share amounts) 2008 2007 2007
ASSETS
Cash and cash equivalents $13,238 $25,738 $22,472
Securities available-for-sale, at
fair value 96,976 122,309 131,376
Securities held-to-maturity, at cost 8,328 9,549 11,576
Mortgage loans held for sale 3,042 2,131 --
Loans receivable, net 406,312 427,954 427,318
Office property and equipment, net 18,858 16,205 14,627
Federal Home Loan Bank stock, at cost 4,795 3,560 3,827
Accrued interest receivable 2,801 2,940 2,966
Goodwill 18,417 18,417 18,417
Foreclosed and repossessed assets 3,419 2,156 534
Deferred tax asset 6,637 165 183
Other assets 14,531 14,693 14,410
Total assets $597,354 $645,817 $647,706
LIABILITIES
Deposits $464,180 $507,865 $505,530
Advances from FHLB and other borrowings 70,125 62,202 67,155
Advance payments by borrowers for
taxes and insurance 407 916 380
Accrued interest payable 3,110 2,691 2,884
Accrued expenses and other liabilities 1,819 1,888 1,665
Total liabilities 539,641 575,562 577,614
STOCKHOLDERS' EQUITY
Common stock, $.01 par value 51 51 51
Additional paid-in capital 39,460 39,230 39,144
Retained earnings, substantially
restricted 57,139 58,704 58,383
Treasury stock, at cost (28,536) (26,886) (26,765)
Accumulated other comprehensive loss (9,824) (179) (26)
Unearned ESOP (577) (665) (695)
Total stockholders' equity 57,713 70,255 70,092
Total liabilities and stockholders'
equity $597,354 $645,817 $647,706
Actual number of shares outstanding
at end of period, net of treasury
stock 3,304,471 3,389,971 3,395,371
Average shares outstanding used to
compute:
Basic earnings per share 3,245,390 3,316,774 3,316,039
Diluted earnings per share 3,262,073 3,343,532 3,346,111
Shareholders' equity to total assets 9.66% 10.88% 10.82%
Book value per share $17.47 $20.72 $20.64
FIRST FEDERAL BANKSHARES, INC. and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
Three months Nine months
ended ended
(Dollars in thousands, except per share March 31 March 31
amounts) 2008 2007 2008 2007
Interest on loans $6,641 $7,341 $21,474 $22,512
Interest on investment securities 1,864 1,531 5,884 3,329
Interest on cash and cash equivalents 67 74 125 318
Total interest income 8,572 8,946 27,483 26,159
Interest on deposit liabilities 3,570 4,183 12,047 11,390
Interest on borrowings 1,092 919 3,245 2,958
Total interest expense 4,662 5,102 15,292 14,348
Net interest income 3,910 3,844 12,191 11,811
Provision for loan losses 2,681 31 3,194 534
Net interest income after provision 1,229 3,813 8,997 11,277
Service charges on deposit accounts 774 771 2,392 2,534
Fees on commercial and consumer loans 58 51 278 136
Gain on sale of real estate held for
development -- 15 47 75
Mortgage banking revenue 148 152 519 530
Other income 414 363 1,252 1,180
Total non-interest income 1,394 1,352 4,488 4,455
Personnel expense 2,932 2,567 8,563 7,706
Office property and equipment 732 751 2,134 2,116
Data processing, ATM and debit card
transaction costs, and other item
processing expense 393 309 1,179 912
Professional, insurance, and regulatory
expense 283 252 790 810
Advertising, donations, and public
relations 288 160 1,054 544
Communications, postage, and office
supplies 212 212 647 614
Other expense 350 288 810 660
Total non-interest expense 5,190 4,539 15,177 13,362
Income (loss) from continuing
operations before income taxes (2,567) 626 (1,692) 2,370
Income tax expense (benefit) (1,033) 120 (890) 561
Income (loss) from continuing
operations (1,534) 506 (802) 1,809
Income from discontinued operations,
net of tax -- 514 -- 590
Net income (loss) ($1,534) $1,020 ($802) $2,399
Basic earnings per share:
Income (loss) from continuing
operations ($0.47) $0.15 ($0.25) $0.54
Income from discontinued operations -- 0.16 -- 0.18
Net income (loss) per share ($0.47) $0.31 ($0.25) $0.72
Diluted earnings per share:
Income (loss) from continuing
operations ($0.47) $0.15 ($0.25) $0.54
Income from discontinued operations -- 0.15 -- 0.18
Net income (loss) per share ($0.47) $0.30 ($0.25) $0.72
Cash dividends declared per share $0.105 $0.105 $0.315 $0.310
FIRST FEDERAL BANKSHARES, INC and SUBSIDIARIES
SELECTED FINANCIAL DATA (unaudited)
At or for the three At or for the nine
months ended months ended
(Dollars in thousands, except per March 31 March 31
share amounts) 2008 2007 2008 2007
Average total assets $619,378 $616,268 $626,151 $601,272
Average interest-earning assets 553,125 560,102 561,529 545,670
Average interest-bearing
liabilities 505,468 500,187 510,444 484,698
Average interest-earning assets to
average interest-bearing
liabilities 109.43% 111.98% 110.01% 112.58%
Activity in the allowance for loan
losses during the period:
Balance at beginning of period $2,056 $2,044 $1,797 $5,466
Provision for loan losses 2,681 31 3,194 534
Charge-offs:
Single-family mortgage loans -- (4) (165) (24)
Commercial real estate loans -- -- (17) --
Commercial business loans -- (3) (71) (2,620)
Consumer loans (70) (63) (149) (190)
Total loans charged-off (70) (70) (402) (2,834)
Loans transferred to held for sale -- -- -- (1,300)
Recoveries 26 26 104 165
Charge-offs net of recoveries (44) (44) (298) (3,969)
Balance at end of period $4,693 $2,031 $4,693 $2,031
Non-performing loans receivable $9,286 $3,094 $9,286 $3,094
Non-performing loans to total
loans receivable 2.24% 0.72% 2.24% 0.72%
Allowance for loan losses to non-
performing loans 50.54% 65.64% 50.54% 65.64%
Ratio of allowance for loan losses
to total loans held for investment
at end of period 1.13% 0.47% 1.13% 0.47%
Selected operating data: (1)
Return on average assets -0.99% 0.65% -0.17% 0.53%
Return on average equity -9.37% 5.78% -1.58% 4.57%
Net interest rate spread 2.58% 2.38% 2.56% 2.49%
Net yield on average
interest-earning assets (2) 2.86% 2.79% 2.93% 2.93%
Efficiency ratio (3) 97.91% 87.01% 90.97% 81.90%
(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 March 31 Average
share amounts) 2008 Rate
Time deposits maturing within ...
Three months $86,939 4.84%
Four to six months 44,690 4.15%
Seven to twelve months 56,930 4.12%
More than twelve months 53,424 4.46%
Total time deposits $241,983 4.46%
FHLB advances and all other borrowings maturing
within ...
Three months $40,375 4.73%
Four to six months 13,000 5.54%
Seven to twelve months 12,500 5.50%
More than twelve months 4,250 4.98%
Total FHLB advances and all other borrowings $70,125 4.94%
Three months ended Nine months ended
March 31 March 31
2008 2007 2008 2007
Market price per share:
High for the period $15.50 $22.22 $19.00 $22.51
Low for the period $10.91 $21.31 $10.91 $21.31
Close at end of period $13.80 $21.31 $13.80 $21.31
SOURCE First Federal Bankshares, Inc.
Michael W. Dosland, President and Chief Executive Officer of First Federal
Bankshares, Inc., +1-712-277-0222
