<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to ____________
Commission File Number 0-28312
FIRST FEDERAL BANCSHARES OF ARKANSAS, INC.
- ------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Texas 71-0785261
- --------------------------------------- ---------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
200 West Stephenson
Harrison, Arkansas 72601
- --------------------------------------- ---------------------------
(Address of principal executive office) (Zip Code)
(501) 741-7641
----------------------------------------------------
(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
----- -------
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: As of
October 31, 1996, there were issued and outstanding 5,153,751 shares of the
Registrant's Common Stock, par value $.01 per share.
<PAGE>
FIRST FEDERAL BANCSHARES OF ARKANSAS, INC.
TABLE OF CONTENTS
PAGE
----
PART I. FINANCIAL INFORMATION
- ------- ---------------------
Item 1. Consolidated Financial Statements
Consolidated Statements of Financial Condition
(As of September 30, 1996 (unaudited) and December 31, 1995) 1
Consolidated Statements of Operations for the three and nine months
ended September 30, 1996 (unaudited) and 1995 (unaudited) 2
Consolidated Statement of Stockholders' Equity for the nine
months ended September 30, 1996 (unaudited) 3
Consolidated Statements of Cash Flows for the nine
months ended September 30, 1996 (unaudited) and 1995 (unaudited) 4
Notes to Unaudited Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 9
PART II. OTHER INFORMATION
- -------- -----------------
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES
<PAGE>
FIRST FEDERAL BANCSHARES OF ARKANSAS, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(IN THOUSANDS)
September 30, December 31,
ASSETS 1996 1995
------------- ------------
(Unaudited)
Cash and cash equivalents $ 8,210 $ 8,845
Investment securities:
Available for sale 301 258
Held to maturity 103,983 96,054
Federal Home Loan Bank stock 2,982 2,821
Loans receivable, net 385,000 339,505
Accrued interest receivable 3,896 3,477
Real estate acquired in settlement of
loans, net 184 234
Office properties and equipment, net 3,564 2,993
Prepaid expenses and other assets 1,485 292
-------- --------
TOTAL ASSETS $509,605 $454,479
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits $421,531 $417,229
Advance payments by borrowers for
taxes and insurance 625 746
Income taxes payable 73 --
Other liabilities 4,037 1,196
-------- --------
Total Liabilities 426,266 419,171
-------- --------
STOCKHOLDERS' EQUITY:
Preferred Stock, no par value, 5,000,000 shares
authorized, none issued
Common Stock, $.01 par value, 20,000,000 shares
authorized, 5,153,751 shares issued and
outstanding as of September 30, 1996 52 --
Additional paid-in capital 49,913 --
Common Stock acquired by ESOP (3,952) --
Retained earnings--substantially restricted 37,148 35,157
Unrealized gain--investment securities
available for sale, net of income taxes 178 151
-------- --------
Total stockholders' equity 83,339 35,308
-------- --------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $509,605 $454,479
-------- --------
-------- --------
The accompanying notes are an integral part
of the consolidated financial statements.
1
<PAGE>
FIRST FEDERAL BANCSHARES OF ARKANSAS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Earnings Per Share)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1996 1995 1996 1995
------ ------ ------ ------
Interest income:
Loans receivable $7,784 $6,562 $22,456 $18,650
Investment securities 1,729 1,538 4,685 4,883
Mortgage-backed securities 5 213 17 663
Other 82 93 378 248
------ ------ ------- -------
Total interest income 9,600 8,406 27,536 24,444
------ ------ ------- -------
Interest Expense:
Deposits 5,556 5,596 16,815 15,836
Other 0 0 35 0
------ ------ ------- -------
Total interest expense 5,556 5,596 16,850 15,836
------ ------ ------- -------
Net interest income before
provision for loan losses 4,044 2,810 10,686 8,608
Provision for loan losses 0 0 0 8
------ ------ ------- -------
Net interest income after
provision for loan losses 4,044 2,810 10,686 8,600
------ ------ ------- -------
Noninterest income:
Gain on sales of investment
securities 0 0 1 4
Deposit fee income 189 183 565 534
Other 118 96 342 284
------ ------ ------- -------
Total noninterest income 307 279 908 822
------ ------ ------- -------
Noninterest expenses:
Salaries and employee benefits 1,159 825 3,159 2,565
Net occupancy expense 170 153 495 454
Federal insurance premiums 243 228 717 680
SAIF special assessment 2,611 0 2,611 0
Provision for real estate losses 8 0 8 0
Data processing 187 158 555 458
Postage and supplies 65 57 218 192
Other 295 227 795 676
------ ------ ------- -------
Total noninterest expenses 4,738 1,648 8,558 5,025
------ ------ ------- -------
Income (loss) before income taxes (387) 1,441 3,036 4,397
Provision (benefit) for income taxes (127) 461 1,045 1,396
------ ------ ------- -------
Net income (loss) $ (260) $ 980 $ 1,991 $ 3,001
------ ------ ------- -------
------ ------ ------- -------
Earnings (loss) per share $(0.05) N/A $ 0.42 N/A
------ -------
------ -------
The accompanying notes are an integral part
of the consolidated financial statements.
2
<PAGE>
FIRST FEDERAL BANCSHARES OF ARKANSAS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Unaudited)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(In Thousands)
<TABLE>
<CAPTION>
Unrealized
Gain on
Investment
Shares Securities
Additional Acquired Available
Common Paid-In By The Retained For Sale,
Stock Capital ESOP Earnings Net Total
------ ---------- -------- --------- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 $35,157 $151 $35,308
Net income 1,991 1,991
Proceeds from Issuance
of 5,153,751 shares
of common stock $52 $49,848 49,900
Loan to Employee Stock
Ownership Plan (ESOP) $(4,123) (4,123)
Repayment of ESOP loan
and related increase
in share value 65 171 236
Net change in unrealized
gain on investment
securities available
for sale, net of
income taxes 27 27
------ ---------- -------- --------- ----------- --------
Balance, September 30, 1996 $52 $49,913 $(3,952) $37,148 $178 $83,339
</TABLE>
3
<PAGE>
FIRST FEDERAL BANCSHARES OF ARKANSAS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended September 30,
-------------------------------
1996 1995
---------- -----------
(In Thousands)
OPERATING ACTIVITIES:
Net income $ 1,991 $ 3,001
Adjustments to reconcile net income
to net cash provided by operating
activities:
Provision for loan losses -- 8
Provision for REO losses 8 --
Deferred tax provision 89 52
Gain on sale of real estate owned (5) (11)
Depreciation 297 293
Accretion of deferred loan fees (505) (355)
Repayment of ESOP loan and related
increase in share value 236 --
Changes in operating assets & liabilities:
Accrued interest receivable (419) (68)
Prepaid expenses & other assets (1,193) (91)
Other liabilities 2,809 979
------- -------
Net cash provided by operating activities 3,308 3,808
------- -------
INVESTING ACTIVITIES:
Purchases of investment securities--(held to
maturity) (40,129) (13,205)
Proceeds from maturities of investment
securities--(held to maturity) 32,038 31,377
Loan originations, net of repayments (45,030) (38,402)
Proceeds from sales of real estate owned 88 117
Purchases of office properties & equipment (868) (283)
------- -------
Net cash used by investing activities (53,901) (20,396)
------- -------
FINANCING ACTIVITIES:
Net increase in deposits 4,302 18,891
Increase (decrease) in advance payments by
borrowers for taxes & insurance (121) 19
Increase from issuance of common stock, net
of related expenses 45,777 --
------- -------
Net cash provided by financing activities 49,958 18,910
------- -------
(Continued)
4
<PAGE>
FIRST FEDERAL BANCSHARES OF ARKANSAS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended September 30,
-------------------------------
1996 1995
---------- -----------
(In Thousands)
Net increase (decrease) in cash and
cash equivalents (635) 2,322
CASH AND CASH EQUIVALENTS:
Beginning of period 8,845 8,280
------- -------
End of period $8,210 $10,602
------- -------
------- -------
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Cash paid for:
Interest $16,873 $15,759
------- -------
------- -------
Income taxes $ 1,724 $ 1,196
------- -------
------- -------
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING ACTIVITIES:
Real estate acquired in settlement of loans $ 41 $ 128
------- -------
------- -------
Loans to facilitate sales of real
estate owned $ 54 $ 108
------- -------
------- -------
Change in unrealized gains $ 27 $ 35
------- -------
------- -------
(Concluded)
The accompanying notes are an integral part
of the consolidated financial statements.
5
<PAGE>
FIRST FEDERAL BANCSHARES OF ARKANSAS, INC.
Notes to Unaudited Consolidated Financial Statements
NOTE 1 -- BASIS OF PRESENTATION
First Federal Bancshares of Arkansas, Inc. (the "Corporation") was
incorporated under Texas law in January 1996 by First Federal Bank of
Arkansas, FA (the "Bank") in connection with the conversion of the Bank from
a federally chartered mutual savings and loan association to a federally
chartered stock savings and loan association, the issuance of the Bank's
stock to the Corporation, and the offer and sale of the Corporation's common
stock by the Corporation (the "Conversion"). Upon consummation of the
conversion on May 3, 1996, the Corporation became the unitary holding company
for the Bank. The financial statements for the periods prior to May 3, 1996
presented herein are those of the Bank prior to the Conversion.
The accompanying unaudited consolidated financial statements of the
Corporation have been prepared in accordance with instructions to Form 10-Q.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. However, such information reflects all adjustments (consisting
solely of normal recurring adjustments) which are, in the opinion of
management, necessary for a fair statement of results for the interim periods.
The results of operations for the nine months ended September 30, 1996 are
not necessarily indicative of the results to be expected for the year ending
December 31, 1996. The unaudited consolidated financial statements and notes
thereto should be read in conjunction with the audited financial statements
and notes thereto for the year ended December 31, 1995, contained in the
Corporation's prospectus dated March 22, 1996.
NOTE 2 -- PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Corporation and the Bank. All significant intercompany items have been
eliminated.
NOTE 3 -- EARNINGS PER SHARE
The average number of common shares used to calculate earnings per share for
the three and nine months ended September 30, 1996 was 4,748,228 and
4,743,751, respectively. In addition, such calculations assume that the
Corporation was a public company as of January 1, 1996. Earnings per share
for the three and nine months ended September 1995 is not applicable, as the
Conversion was not completed until May 3, 1996.
6
<PAGE>
NOTE 4 -- SECURITIES
Investment securities consisted of the following (in thousands of dollars):
September 30, 1996
------------------------
Amortized Fair
AVAILABLE FOR SALE Cost Value
---------- ------
FHLMC Preferred Stock $12 $301
--- ----
Total $12 $301
--- ----
--- ----
September 30, 1996
------------------------
Amortized Fair
HELD TO MATURITY Cost Value
--------- ------
U.S. Government and
Agency Obligations $103,749 $102,931
Mortgage-Backed Securities
--FHLMC 234 242
-------- --------
Total $103,983 $103,173
-------- --------
-------- --------
7
<PAGE>
NOTE 5 -- LOANS RECEIVABLE
Loans receivable consisted of the following (in thousands of dollars):
September 30, 1996
------------------
First Mortgage Loans:
One-to-four family residences $328,446
Other properties 20,228
Construction 18,270
Less:
Unearned discounts (1,277)
Undisbursed loan funds (8,238)
Deferred loan fees, net (3,092)
--------
Total first mortgage loans 354,337
--------
Consumer and other loans:
Commercial loans 4,008
Automobile 7,628
Consumer loans 4,097
Home equity and second mortgage 12,972
Savings loans 1,429
Other 1,608
Add:
Deferred loan costs 127
--------
Total consumer and other loans 31,869
--------
Allowance for losses (1,206)
--------
Loans receivable, net $385,000
--------
--------
Non-accrual loans at September 30, 1996 (in thousands of dollars) were $563.
All loans 90 days or more past due are reported as non-accrual.
A summary of the activity in the allowances for loan and real estate losses
is as follows (in thousands of dollars):
Real
Loans Estate
-------- --------
Balance at December 31, 1995 $1,228 $ --
Provisions for estimated losses -- 8
Recoveries 2 --
Losses charged off (24) (8)
------ -----
Balance at September 30, 1996 $1,206 $ --
------ -----
------ -----
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
At September 30, 1996, the Corporation's assets amounted to $509.6
million as compared to $454.5 million at December 31, 1995. The $55.1
million or 12.1% increase was primarily due to an increase of $45.5 million
or 13.4% in loans receivable, net, and a $7.9 million or 8.3% increase in
investment securities held to maturity. Such increase in loans receivable,
net and investment securities held to maturity were due to the deployment of
net proceeds of $45.8 million resulting from the sale of 5,153,751 shares of
the Corporation's common stock at a price of $10.00 per share. As discussed
in Note 1 to the Notes to Unaudited Consolidated Financial Statements, the
conversion was consummated on May 3, 1996. Liabilities increased $7.1
million or 1.7% to $426.3 million at September 30, 1996 compared to $419.2
million at December 31, 1995. Stockholders' equity amounted to $83.3 million
or 16.4% of total assets at September 30, 1996 compared to $35.3 million or
7.8% of total assets at December 31, 1995. The increase in stockholders'
equity during the nine month period was due to the receipt of net Conversion
proceeds and net income of $2.0 million.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
GENERAL. The Corporation reported a net loss of $260,000 during the
three months ended September 30, 1996 compared to net income of $980,000 for
the same period in 1995. The decrease of $1.2 million in net income in the
1996 period compared to the same period in 1995 was due primarily to
legislation passed by Congress to recapitalize the Savings Association
Insurance Fund ("SAIF"). As a result of such legislation, the Corporation
recorded a one-time pre-tax charge against third quarter earnings of $2.6
million with a $1.7 million after-tax affect. The comparative period decline
was partially offset by an increase in net interest income. Net interest
income is determined by the Corporation's interest rate spread (i.e., the
difference between the yields earned on its interest-earning assets and the
rates paid on its interest-bearing liabilities) and the relative amounts of
interest-earning assets and interest-bearing liabilities. The increase in
net interest income of $1.2 million or 43.9% was due to an increase in the
ratio of interest-earning assets to interest-bearing liabilities to 117.3%
for the 1996 period compared to 105.8% for the 1995 period. In addition, the
Corporation's interest rate spread increased to 2.51% for the 1996 period
compared to 2.30% for the 1995 period.
INTEREST INCOME. Interest income amounted to $9.6 million for the three
months ended September 30, 1996 compared to $8.4 million for the same period
in 1995. The increase of $1.2 million or 14.2% was primarily due to an
increase in the average balance of loans receivable. The increase in the
average balance of loans receivable was due to continued loan demand and
portfolio growth as well as the deployment of Conversion proceeds in such
assets.
INTEREST EXPENSE. Interest expense decreased $40,000 or .7% to $5.6
million for the three months ended September 30, 1996 compared to $5.6
million for the same period in 1995. Such decrease was primarily due to a
decrease in the average rate paid on deposits.
9
<PAGE>
NONINTEREST INCOME. Noninterest income amounted to $307,000 for the
three months ended September 30, 1996 compared to $279,000 for the same
period in 1995. The increase of $28,000 or 10.0% was due to an increase of
$6,000 or 3.3% in deposit fee income and an increase of $22,000 or 22.9% in
other miscellaneous income.
NONINTEREST EXPENSE. Noninterest expenses, excluding the SAIF special
assessment of $2.6 million, increased $479,000 or 29.1% to $2.1 million for
the three months ended September 30, 1996 compared to $1.6 million for the
same period in 1995. Such increase was due primarily to an increase of
$334,000 or 40.5% in salaries and employee benefits and a $29,000 or 18.4%
increase in data processing. The increase in salaries and employee benefits
was due to normal merit increases, an increase in employees and costs
associated with the adoption of the Corporation's Employee Stock Ownership
Plan. The increase in data processing was primarily due to an increase in
the number of accounts.
The SAIF special assessment of $2.6 million for the three months ended
September 30, 1996 was due to legislation passed by Congress that imposed on
SAIF members a one-time assessment to recapitalize the SAIF. See "SAIF
Special Assessment."
INCOME TAXES. Income taxes amounted to a tax benefit of $127,000 and a
tax provision of $461,000 for the three months ended September 30, 1996 and
1995, respectively.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
GENERAL. The Corporation reported net income of $2.0 million during the
nine months ended September 30, 1996 compared to $3.0 million for the same
period in 1995. The decrease of $1.0 million in net income in the 1996
period compared to the same period in 1995 was due primarily to legislation
passed by Congress to recapitalize the SAIF. As a result of such
legislation, the Corporation recorded a one-time pre-tax charge against third
quarter earnings of $2.6 million with a $1.7 million after-tax affect. The
comparative period decline was partially offset by an increase in net
interest income. The increase in net interest income of $2.1 million or
24.1% was due to an increase in the ratio of interest-earning assets to
interest-bearing liabilities to 111.6% for the 1996 period compared to 105.8%
for the 1995 period. The Corporation's interest rate spread was 2.46% for
the 1996 period compared to 2.41% for the 1995 period.
INTEREST INCOME. Interest income amounted to $27.5 million for the nine
months ended September 30, 1996 compared to $24.4 million for the same period
in 1995. The increase of $3.1 million or 12.6% was primarily due to an
increase in the average balance of loans receivable. The increase in the
average balance of loans receivable was due to continued loan demand and
portfolio growth as well as the deployment of Conversion proceeds in such
assets. The increase in interest income resulting from a higher average
balance of loans was partially offset by a decrease in interest income on
investment and mortgage-backed securities due to a decrease in the average
balance of such securities. Such decrease was due to sales of
mortgage-backed securities and payments and maturities of mortgage-backed and
investment securities. The Corporation used such cash primarily
10
<PAGE>
to fund loan originations. Management intends to continue to use funds from
the payments and maturities of mortgage-backed and investment securities to
originate higher yielding loans.
INTEREST EXPENSE. Interest expense increased $1.0 million or 6.4% to
$16.8 million for the nine months ended September 30, 1996 compared to $15.8
million for the same period in 1995. Such increase was due to an increase in
the average balance of deposits, reflecting interest credited on deposits, as
well as an increase in the average rate paid on such liabilities from 5.25%
during the nine months ended September 30, 1995 to 5.34% for the same period
in 1996.
NONINTEREST INCOME. Noninterest income amounted to $908,000 for the nine
months ended September 30, 1996 compared to $822,000 for the same period in
1995. The increase of $86,000 or 10.5% was due to an increase of $31,000 or
5.8% in deposit fee income and an increase of $58,000 or 20.4% in other
miscellaneous income.
NONINTEREST EXPENSE. Noninterest expenses, excluding the SAIF special
assessment of $2.6 million, increased $922,000 or 18.3% to $5.9 million for
the nine months ended September 30, 1996 compared to $5.0 million for the
same period in 1995. Such increase was due primarily to an increase of
$594,000 or 23.2% in salaries and employee benefits and a $97,000 or 21.2%
increase in data processing. The increase in salaries and employee benefits
was due to normal merit increases, an increase in employees and costs
associated with the adoption of the Corporation's Employee Stock Ownership
Plan. The increase in data processing was primarily due to an increase in
the number of accounts.
The SAIF special assessment of $2.6 million for the nine months ended
September 30, 1996 is due to legislation passed by Congress that imposed on
SAIF members a one-time assessment to recapitalize the SAIF. See "SAIF
Special Assessment."
INCOME TAXES. Income taxes amounted to $1.0 million and $1.4 million for
the nine months ended September 30, 1996 and 1995, respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Corporation's liquidity, represented by cash and cash equivalents, is
a product of its operating, investing and financing activities. The
Corporation's primary sources of funds are deposits, amortization,
prepayments and maturities of outstanding loans, maturities of investment
securities, mortgage-backed securities and other short-term investments and
funds provided from operations. While scheduled loan amortization and
maturing investment securities, mortgage-backed securities and short-term
investments are relatively predictable sources of funds, deposit flows and
loan prepayments are greatly influenced by general interest rates, economic
conditions and competition. The Corporation manages the pricing of its
deposits to maintain a steady deposit balance. In addition, the Corporation
invests excess funds in overnight deposits and other short-term
interest-earning assets which provide liquidity to meet lending requirements.
The Corporation has generally been able
11
<PAGE>
to generate enough cash through the retail deposit market, its traditional
funding source, to offset the cash utilized in investing activities. As an
additional source of funds, the Corporation may borrow from the Federal Home
Loan Bank ("FHLB") of Dallas. At September 30, 1996, the Corporation did not
have any outstanding advances from the FHLB of Dallas.
As of September 30, 1996, the Bank's regulatory capital was well in
excess of all applicable regulatory requirements. At September 30, 1996, the
Bank's tangible, core and risk-based capital ratios amounted to 12.0%, 12.0%
and 23.2%, respectively, compared to regulatory requirements of 1.5%, 3.0%
and 8.0%, respectively.
SAIF SPECIAL ASSESSMENT
The deposits of the Bank are insured by the SAIF of the Federal Deposit
Insurance Corporation ("FDIC"). Both the SAIF and the Bank Insurance Fund
("BIF"), the federal deposit insurance fund that covers commercial bank
deposits, are required by law to attain and thereafter maintain a reserve
ratio of 1.25% of insured deposits. The BIF had achieved a fully funded
status in contrast to the SAIF and the FDIC had recently reduced the average
deposit insurance premium paid by BIF-insured commercial banks to a level
substantially below the average premium paid by SAIF-insured institutions.
In late 1995, the FDIC approved a final rule regarding deposit insurance
premiums which, effective with the semiannual premium assessment on January 1,
1996, reduced deposit insurance premiums for BIF member institutions to
zero (subject to an annual minimum of $2,000) for institutions in the lowest
risk category. Deposit insurance premiums for SAIF members were maintained
at their then existing levels (23 basis points for institutions in the lowest
risk category). Accordingly, until the SAIF had attained a reserve ratio of
1.25% of insured deposits, SAIF members such as the Bank would have been
competitively disadvantaged as compared to commercial banks due to this
premium differential.
Legislation, passed by the U.S. House of Representatives and the Senate,
was signed into law by the President on September 30, 1996 to recapitalize
the SAIF. The special assessment was fully anticipated by the Bank because
legislation had been close to enactment on several occasions over the past
year. As a result of such legislation, the Bank was required to pay a
one-time special assessment of 65.7 cents for every $100 of deposits which
amounted to $2.6 million pre-tax with a $1.7 million after-tax effect.
The legislation also mandated that SAIF-insured institutions' (such as
the Bank) deposit insurance premiums decline from 23 basis points to
approximately 6.4 basis points, effective January 1, 1997. The mandated
decline in the premium rate is expected to reduce the Bank's pre-tax annual
SAIF premiums by approximately $700,000 (based on current deposit levels).
Management believes that based on current deposit levels, it will take
approximately four years of such reduced future annual premiums to offset the
negative impact on the Bank's third quarter earnings.
12
<PAGE>
FIRST FEDERAL BANCSHARES OF ARKANSAS, INC.
PART II
Item 1. LEGAL PROCEEDINGS
-----------------
Neither the Corporation nor the Bank is involved in any pending
legal proceedings other than non-material legal proceedings occurring
in the ordinary course of business.
Item 2. CHANGES IN SECURITIES
---------------------
Not applicable.
Item 3. DEFAULTS UPON SENIOR SECURITIES
-------------------------------
Not applicable.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
Not applicable.
Item 5. OTHER INFORMATION
-----------------
None.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
July 8, 1996 -- Press release dated June 24, 1996;
Director resignation for health reasons
13
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
FIRST FEDERAL BANCSHARES OF ARKANSAS, INC.
Date: October 31, 1996 By: /s/ Larry J. Brandt
--------------------------------
Larry J. Brandt
President
Date: October 31, 1996 By: /s/ Tommy W. Richardson
--------------------------------
Tommy W. Richardson
Chief Financial Officer
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-1-1996
<PERIOD-END> SEP-30-1996
<CASH> 3,279
<INT-BEARING-DEPOSITS> 4,931
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 301
<INVESTMENTS-CARRYING> 103,983
<INVESTMENTS-MARKET> 103,173
<LOANS> 386,206
<ALLOWANCE> 1,206
<TOTAL-ASSETS> 509,605
<DEPOSITS> 421,531
<SHORT-TERM> 0
<LIABILITIES-OTHER> 4,735
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0
0
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<YIELD-ACTUAL> 7.75
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</TABLE>
