<PAGE> 1
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 March 31, 1998
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 incorporation or (I.R.S. Employer
organization) Identification Number)
200 West Stephenson
Harrison, Arkansas 72601
(Address of principal executive office) (Zip Code)
(870) 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 May 11, 1998, there
were issued and outstanding 4,896,063 shares of the Registrant's Common Stock,
par value $.01 per share.
<PAGE> 2
FIRST FEDERAL BANCSHARES OF ARKANSAS, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Statements of Financial Condition
(As of March 31, 1998 (unaudited) and December 31, 1997) 1
Consolidated Statements of Income and Comprehensive Income for
the three months ended March 31, 1998 (unaudited) and 1997
(unaudited) 2
Consolidated Statement of Stockholders' Equity for the three
months ended March 31, 1998 (unaudited) 3
Consolidated Statements of Cash Flows for the three months
ended March 31, 1998 (unaudited) and 1997 (unaudited) 4
Notes to Unaudited Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures about Market Risk 12
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 14
</TABLE>
<PAGE> 3
FIRST FEDERAL BANCSHARES OF ARKANSAS, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In Thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
----------- ------------
ASSETS (Unaudited)
<S> <C> <C>
Cash and cash equivalents $11,398 $6,627
Investment securities - held to maturity 103,574 95,533
Federal Home Loan Bank stock 3,743 3,603
Loans receivable, net 438,335 433,942
Accrued interest receivable 4,109 4,134
Real estate acquired in settlement of loans, net 3,443 195
Office properties and equipment, net 5,174 5,218
Prepaid expenses and other assets 624 355
----------- ------------
TOTAL ASSETS $570,400 $549,607
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits $462,340 $450,874
Federal Home Loan Bank advances 19,994 11,997
Advance payments by borrowers for
taxes and insurance 438 900
Other liabilities 3,401 2,952
----------- ------------
Total liabilities 486,173 466,723
----------- ------------
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,
4,896,063 shares outstanding 52 52
Additional paid-in capital 50,210 50,237
Employee stock benefit plans (5,914) (6,207)
Retained earnings-substantially restricted 44,059 42,982
----------- ------------
88,407 87,064
Treasury stock, at cost, 257,688 shares (4,180) (4,180)
----------- ------------
Total stockholders' equity 84,227 82,884
----------- ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $570,400 $549,607
=========== ============
</TABLE>
See notes to unaudited consolidated financial statements.
1
<PAGE> 4
FIRST FEDERAL BANCSHARES OF ARKANSAS, INC.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------
1998 1997
--------- ---------
<S> <C> <C>
INTEREST INCOME:
Loans receivable $8,843 $8,220
Investment securities 1,735 1,552
Other 50 43
--------- ---------
Total interest income 10,628 9,715
--------- ---------
INTEREST EXPENSE:
Deposits 5,908 5,560
Other borrowings 270 13
--------- ---------
Total interest expense 6,178 5,573
--------- ---------
NET INTEREST INCOME 4,450 4,142
PROVISION FOR LOAN LOSSES 15 --
--------- ---------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 4,435 4,142
--------- ---------
NONINTEREST INCOME:
Deposit fee income 198 190
Other 260 128
--------- ---------
Total noninterest income 458 318
--------- ---------
NONINTEREST EXPENSES:
Salaries and employee benefits 1,647 1,265
Net occupancy expense 206 188
Federal insurance premiums 70 68
Data processing 229 205
Postage and supplies 97 88
Other 414 298
--------- ---------
Total noninterest expenses 2,663 2,112
--------- ---------
INCOME BEFORE INCOME TAXES 2,230 2,348
INCOME TAX PROVISION 810 838
--------- ---------
NET INCOME 1,420 1,510
OTHER COMPREHENSIVE INCOME,
NET OF TAX:
Unrealized holding gain on securities
arising during period -- 12
--------- ---------
COMPREHENSIVE INCOME $1,420 $1,522
========= =========
EARNINGS PER SHARE:
Basic $ 0.31 $ 0.33
========= =========
Diluted $ 0.30 $ 0.33
========= =========
</TABLE>
See notes to unaudited consolidated financial statements.
2
<PAGE> 5
FIRST FEDERAL BANCSHARES OF ARKANSAS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Employee
Additional Stock
Common Paid-In Benefit Retained Treasury
Stock Capital Plans Earnings Stock Total
------- ---------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997 $52 $50,237 $(6,207) $42,982 $(4,180) $82,884
Net income 1,420 1,420
Repayment of ESOP loan 156 104 260
Common stock acquired for
employee stock benefit plan (183) (183)
Stock compensation expense 189 189
Dividends paid (343) (343)
------- ---------- -------- -------- -------- --------
Balance, March 31, 1998 $52 $50,210 $(5,914) $44,059 $(4,180) $84,227
======= ========== ======== ======== ======== ========
</TABLE>
See notes to unaudited consolidated financial statements.
3
<PAGE> 6
FIRST FEDERAL BANCSHARES OF ARKANSAS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
-----------------------------
1998 1997
------- -------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $1,420 $1,510
Adjustments to reconcile net income
to net cash provided by operating activities:
Provision for loan losses 15 --
Deferred tax provision 13 16
Loss on sale of real estate owned 39 --
Gain on sale of mortgage loans
originated to sell (42) --
Depreciation 125 112
Accretion of deferred loan fees (192) (143)
Repayment of ESOP loan 260 186
Stock compensation expense 189 --
Changes in operating assets & liabilities:
Accrued interest receivable 25 (113)
Prepaid expenses & other assets (269) 111
Other liabilities 1,245 934
-------------- --------------
Net cash provided by operating activities 2,828 2,613
-------------- --------------
INVESTING ACTIVITIES:
Purchases of investment securities-held to
maturity (24,937) (3,419)
Proceeds from maturities of investment
securities-held to maturity 16,755 2,009
Loan originations, net of repayments (10,517) (7,167)
Proceeds from sales of mortgage loans
originated to sell 2,988 --
Proceeds from sales of real estate owned 69 --
Purchases of office properties and equipment (81) (1,574)
-------------- --------------
Net cash used by investing activities (15,723) (10,151)
-------------- --------------
</TABLE>
(Continued)
4
<PAGE> 7
FIRST FEDERAL BANCSHARES OF ARKANSAS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
-----------------------------
1998 1997
--------- ---------
<S> <C> <C>
FINANCING ACTIVITIES:
Net increase in deposits 11,466 8,554
Advances from FHLB 7,997 3,000
Net increase (decrease) in advance payments
by borrowers for taxes & insurance (462) 75
Common stock acquired for employee stock
benefit plan (992) --
Dividends paid (343) (245)
--------- --------
Net cash provided by financing activities 17,666 11,384
--------- --------
Net increase in cash and cash equivalents 4,771 3,846
CASH AND CASH EQUIVALENTS:
Beginning of period 6,627 6,819
--------- ---------
End of period $11,398 $10,665
========= =========
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Cash paid for:
Interest $ 6,150 $ 5,507
========= =========
Income taxes $ -- $ --
========= =========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
ACTIVITIES:
Real estate acquired in settlement of loans $ 3,356 $ --
========= =========
Increase in unrealized gains, net $ -- $ 12
========= =========
</TABLE>
(Concluded)
See notes to unaudited consolidated financial statements.
5
<PAGE> 8
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 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 three months ended March 31, 1998 are not
necessarily indicative of the results to be expected for the year ending
December 31, 1998. 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, 1997, contained in the
Corporation's 1997 Annual Report to Stockholders.
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 - RECENTLY ISSUED ACCOUNTING STANDARDS
The Corporation has adopted Financial Accounting Standards Board Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income ("SFAS
130") for the quarter ended March 31, 1998. This statement requires that all
items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. This
statement does not require a specific format for that financial statement but
requires that an enterprise display an amount representing total comprehensive
income for the period in that financial statement. The Corporation has
presented the components of other comprehensive income and total comprehensive
income below the total for net income in the consolidated statements of income
and comprehensive income. SFAS 130 also requires that an enterprise (a)
classify items of other comprehensive income
6
<PAGE> 9
by their nature in a financial statement and (b) display the accumulated
balance of other comprehensive income separately from retained earnings and
additional paid-in capital in the equity section of the statement of financial
condition. SFAS 130 requires restatement of all periods presented.
NOTE 4 - EARNINGS PER SHARE
The weighted average number of common shares used to calculate earnings per
share for the quarters ended March 31, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Basic weighted - average shares 4,552,948 4,511,344
Effect of dilutive securities 114,766 --
--------- ---------
Diluted weighted - average shares 4,667,714 4,511,344
</TABLE>
During the first quarter of 1997, there were no potential dilutive securities.
NOTE 5 - DECLARATION OF DIVIDENDS
At their meeting on February 25, 1998, the Board of Directors declared a $.07
(seven cent) per share cash dividend on the common stock of the Corporation.
The cash dividend was paid on March 26, 1998 to the stockholders of record at
the close of business on March 12, 1998.
NOTE 6 - INVESTMENT SECURITIES
Investment securities consisted of the following (in thousands):
<TABLE>
<CAPTION>
March 31, 1998
------------------
Amortized Fair
HELD TO MATURITY Cost Value
--------- --------
<S> <C> <C>
U. S. Government and
Agency obligations $103,438 $103,371
Mortgage-backed securities
- -FHLMC 136 143
--------- --------
Total $103,574 $103,514
========= ========
</TABLE>
7
<PAGE> 10
NOTE 7 - LOANS RECEIVABLE
Loans receivable consisted of the following (in thousands):
<TABLE>
<CAPTION>
March 31, 1998
----------------
<S> <C>
First mortgage loans:
One- to four- family residences $376,081
Other properties 17,461
Construction 21,007
Less:
Unearned discounts (327)
Undisbursed loan funds (6,810)
Deferred loan fees, net (3,295)
--------------
Total first mortgage loans 404,117
--------------
Consumer and other loans:
Commercial 6,226
Automobile 8,698
Consumer 3,805
Home equity and second mortgage 12,904
Savings 1,703
Other 1,793
Add deferred loan costs 144
--------------
Total consumer and other loans 35,273
--------------
Allowance for loan losses (1,055)
--------------
Loans receivable, net $438,335
==============
</TABLE>
Non-accrual loans at March 31, 1998 were $1.4 million. All loans 90 days or
more past due are recorded as non-accrual. The Bank reclassified a previously
reported non-accrual commercial real estate loan to real estate acquired in
settlement of loans in the first quarter of 1998. The value of the property
was estimated at $3.2 million based upon an appraisal less estimated selling
expenses. A preliminary offer in excess of the appraisal amount has been
received. All offers will be contingent upon a due diligence process to be
performed by the prospective buyer. The property will be operated by a
management company until disposition.
A summary of the activity in the allowances for loan losses is as follows (in
thousands):
<TABLE>
<S> <C>
Balance at December 31, 1997 $1,196
Provisions for estimated losses 15
Recoveries 1
Losses charged off (157)
-------
Balance at March 31, 1998 $1,055
=======
</TABLE>
8
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
At March 31, 1998, the Corporation's assets amounted to $570.4 million as
compared to $549.6 million at December 31, 1997. The $20.8 million or 3.8%
increase was primarily due to an increase of $8.0 million or 8.4% in investment
securities - held to maturity, a $4.4 million or 1.0% increase in loans
receivable, net, a $4.8 million or 72.0% increase in cash and cash equivalents,
and a $3.2 million increase in real estate acquired in settlement of loans,
net. The loans receivable increase resulted from the continued origination of
loans during the three months ended March 31, 1998. Originations for the three
month period ended March 31, 1998 consisted of $28.2 million in one- to four-
family residential loans, $3.7 million in commercial loans, $6.0 million in
construction loans and $6.6 million in consumer installment loans, of which
$2.1 million consisted of home equity loans and $2.2 million consisted of
automobile loans. At March 31, 1998, the Bank had outstanding loan commitments
of $2.4 million, unused lines of credit of $3.5 million, and the undisbursed
portion of construction loans of $6.8 million. Real estate acquired in
settlement of loans increased $3.2 million due to the Bank accepting a deed in
lieu of foreclosure on a commercial real estate loan. Liabilities increased
$19.5 million or 4.2% to $486.2 million at March 31, 1998 compared to $466.7
million at December 31, 1997. The increase in liabilities was primarily due to
an increase of $11.5 million or 2.5% in deposits and an $8.0 million or 66.7%
increase in advances from the Federal Home Loan Bank ("FHLB") of Dallas. The
increases in deposits and advances from the FHLB of Dallas were used to fund
the net loan increase, to purchase additional investment securities and to
increase cash and cash equivalents. Stockholders' equity amounted to $84.2
million or 14.77% of total assets at March 31, 1998 compared to $82.9 million
or 15.08% of total assets at December 31, 1997. The increase in stockholders'
equity was primarily due to net income in the amount of $1.4 million. Such
increase during the three months ended March 31, 1998 was partially offset by
the payment of cash dividends aggregating $343,000.
Non-performing assets, consisting of non-accruing loans and repossessed
assets, amounted to $4.9 million or .85% of total assets at March 31, 1998,
compared to $5.2 million or .94% of total assets at December 31, 1997. The
Bank reclassified a previously reported non-accrual commercial real estate loan
to real estate acquired in settlement of loans in the first quarter of 1998.
The value of the property was estimated at $3.2 million based upon an appraisal
less estimated selling expenses. A preliminary offer in excess of the
appraisal amount has been received. All offers will be contingent upon a due
diligence process to be performed by the prospective buyer. The property will
be operated by a management company until disposition.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
GENERAL. The Corporation reported net income of $1.4 million during the
three months ended March 31, 1998 compared to net income of $1.5 million for
the same period in 1997. The decrease of $90,000 in net income in the 1998
period compared to the same period in 1997 was primarily due
9
<PAGE> 12
to an increase in noninterest expenses reduced by increases in net interest
income and noninterest income. Net interest income rose from $4.1 million for
the three months ended March 31, 1997 to $4.5 million for the same period in
1998. 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
Corporation's interest rate spread decreased to 2.56% for the 1998 three month
period compared to 2.58% for the 1997 three month period. These and other
significant fluctuations in operations are discussed below.
INTEREST INCOME. Interest income amounted to $10.6 million for the three
months ended March 31, 1998 compared to $9.7 million for the same period in
1997. The increase of $900,000 or 9.4% 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 portfolio growth. Such increase was partially
offset by a decline in the average yield earned on such assets due primarily to
the origination of loans at market interest rates which are currently lower
than the average yield of the Bank's loan portfolio. The average balance of
investment securities increased due to additional purchases of investment
securities. The average yield earned on investment securities increased due to
the purchase of longer term investments at rates higher than the average rate
earned on such assets in portfolio.
INTEREST EXPENSE. Interest expense increased $600,000 or 10.9% to $6.2
million for the three months ended March 31, 1998 compared to $5.6 million for
the same period in 1997. Such increase was primarily due to an increase in the
average balance of deposits as well as an increase in the average balance of
FHLB of Dallas advances.
NONINTEREST INCOME. Noninterest income amounted to $458,000 for the three
months ended March 31, 1998 compared to $318,000 for the same period in 1997.
The increase of $140,000 or 44.0% was due primarily to a gain of $42,000 on the
sale of originated loans on the secondary market and to the recognition of
income in the amount of $77,000 from operations of commercial real estate
owned.
NONINTEREST EXPENSE. Noninterest expenses increased $551,000 or 26.1%
between the 1998 and 1997 three month periods. Such increases were due
primarily to increases in salaries and employee benefits, occupancy costs due
to branch expansions, legal fees in connection with a commercial loan
foreclosure and a loss on disposition of real estate owned. Salaries and
employee benefits increased by $380,000 or 30.2% from $1.3 million to $1.6
million for the three month period March 31, 1997 and 1998, respectively.
Costs associated with the management recognition and retention plan of $189,000
were recognized in the three month period ended March 31, 1998 compared to none
in the three month period ended March 31, 1997 due to the plan not being
implemented until May 1997. The recognition of costs related to the release of
unallocated shares from the employee stock ownership plan ("ESOP") increased by
$69,000 or 41.4% from $167,000 to $236,000 for the three month period ended
March 31, 1997 and 1998, respectively, due to the increase in the Corporation's
stock price. Compensation expenses associated with the ESOP are based on the
number of shares released from the ESOP Trust and the current price of the
Corporation's
10
<PAGE> 13
common stock. The increase in salaries and employee benefits was also due to
normal salary and merit increases as well as an increase in personnel resulting
from expansion of the Bank's operations. Occupancy expenses were $206,000 and
$188,000 for the three month periods ended March 31, 1998 and 1997,
respectively, resulting in a $18,000 or 9.6% increase. Such increase was
primarily due to branch expansions.
INCOME TAXES. Income taxes amounted to $810,000 and $838,000 for the
three months ended March 31, 1998 and 1997, respectively, resulting in
effective tax rates of 36.3% and 35.7%, 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 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 Bank has borrowed from the FHLB of Dallas. At
March 31, 1998, the Bank had outstanding advances from the FHLB of Dallas in
the amount of $20.0 million. Such advances were used in the Bank's normal
operations and investing activities.
As of March 31, 1998, the Bank's regulatory capital was in excess of all
applicable regulatory capital adequacy requirements. At March 31, 1998, the
Bank's tangible, core and risk-based capital ratios amounted to 11.8%, 11.8%
and 22.4%, respectively, compared to regulatory requirements of 1.5%, 3.0% and
8.0%, respectively.
IMPACT OF INFLATION AND CHANGING PRICES
The financial statements and related financial data presented herein have
been prepared in accordance with instructions to Form 10-Q, which require the
measurement of financial position and operating results in terms of historical
dollars, without considering changes in relative purchasing power over time due
to inflation.
Unlike most industrial companies, virtually all of the Bank's assets and
liabilities are monetary in nature. As a result, interest rates generally have
a more significant impact on a financial institution's performance than does
the effect of inflation.
11
<PAGE> 14
THE YEAR 2000 ISSUE
The Company is aware of the issues associated with the programming code in
existing computer systems as the Year 2000 approaches. The Year 2000 Issue is
the result of computer programs being written using two digits rather than four
digits to define the applicable year. Computer programs that have
time-sensitive coding may recognize a date using "00" as the year 1900 rather
than the year 2000. Systems that do not properly recognize such information
could generate erroneous data or cause a system to fail.
The Bank has conducted a review of its computer systems to identify the
systems that could be affected by the Year 2000 Issue and is developing an
implementation plan to resolve the issue. The majority of the Bank's data
processing is provided by a third party service bureau. The service bureau is
actively involved in resolving Year 2000 issues and has provided the Bank with
frequent updates regarding their progress. The service bureau has advised the
Bank that it expects to have the majority of the Year 2000 issues resolved
before the end of 1998 to allow the Bank to test their system for Year 2000
compliance. The Bank presently believes that, based on the progress of the
Bank's service bureau, the Year 2000 problem will not pose significant
operational problems for the Bank's computer system.
QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
For a discussion of the Corporation's asset and liability management policies
as well as the potential impact of interest rate changes upon the market value
of the Bank's portfolio equity, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations" in the Corporation's 1997 Annual
Report to Stockholders. There has been no material change in the Corporation's
asset and liability position or the market value of the Bank's portfolio equity
since December 31, 1997.
12
<PAGE> 15
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
None.
13
<PAGE> 16
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: May 11, 1998 By: /s/ Larry J. Brandt
-----------------------------
Larry J. Brandt
President
Date: May 11, 1998 By: /s/ Tommy W. Richardson
-----------------------------
Tommy W. Richardson
Chief Financial Officer
14
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 6,972
<INT-BEARING-DEPOSITS> 4,426
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 103,574
<INVESTMENTS-MARKET> 103,514
<LOANS> 439,390
<ALLOWANCE> 1,055
<TOTAL-ASSETS> 570,400
<DEPOSITS> 462,340
<SHORT-TERM> 7,000
<LIABILITIES-OTHER> 3,839
<LONG-TERM> 12,994
<COMMON> 40,168
0
0
<OTHER-SE> 44,059
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</TABLE>
