SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------------
FORM 10-Q
[Mark One]
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
[ ] 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: 0-25509
First Federal Bankshares,Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 42-1485449
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
329 Pierce Street, Sioux City, Iowa 51101
(Address of principal executive offices)
Registrant's telephone number, including area code 712-277-0200
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Former name, former address and former fiscal year, if changed
since last report
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.
Class Outstanding at May 9, 2000
------- ---------------------------
(Common Stock, $.01 par value) 4,683,678
<PAGE>
FIRST FEDERAL BANKSHARES, INC.
INDEX
Page
Part I. Financial Information
Item I. Financial Statements of First Federal
Bankshares, Inc. and Subsidiaries 1
Consolidated Condensed Balance Sheets
at March 31, 2000 and June 30, 1999 1
Consolidated Condensed Statements of Operations
for the three- and nine-month periods ended
March 31, 2000 and 1999 2
Consolidated Condensed Statements of Changes in
Stockholders' Equity for the nine-month periods
ended March 31, 2000 and 1999 3
Consolidated Condensed Statements of Comprehensive
Income for the three- and nine-month periods ended
March 31, 2000 and 1999 4
Consolidated Condensed Statements of Cash Flows
for the nine-month periods ended
March 31, 2000 and 1999 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Part II. Other Information 16
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FIRST FEDERAL BANKSHARES, INC AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, June 30,
2000 1999
-----------------------------------------
(Unaudited)
<S> <C> <C>
Assets
- ------
Cash and interest bearing deposits $18,096,581 $15,067,956
Securities available for sale 118,819,812 122,047,213
(amortized cost $126,091,221 and $125,558,397)
Securities held to maturity 28,377,077 32,006,095
(fair value of $27,592,632 and $31,756,870)
Loans receivable, net 496,157,555 457,058,054
Real estate owned and in judgement, net 244,887 32,350
Real estate held for development 870,479 599,311
Office property and equipment, net 15,483,595 15,411,818
Federal Home Loan Bank stock, at cost 8,928,900 8,094,300
Accrued interest receivable 4,770,871 4,602,258
Deferred tax asset 3,020,197 1,197,000
Excess of cost over fair value of assets acquired 20,142,221 20,946,396
Other assets 4,904,137 3,608,987
-----------------------------------------
Total assets $719,816,312 $680,671,738
=========================================
Liabilities
Deposits $483,469,104 $464,169,478
Advances from Federal Home Loan Bank 160,941,478 138,617,385
Advance payments by borrowers for
taxes and insurance 1,202,732 2,557,118
Accrued taxes on income 791,982 419,106
Accrued interest payable 4,363,084 4,172,328
Accrued expenses and other liabilities 2,178,562 2,463,316
-----------------------------------------
Total liabilities 652,946,942 612,398,731
-----------------------------------------
Stockholders' equity
Common stock, $.01 par value 48,277 48,178
Additional paid-in capital 35,994,165 35,957,560
Treasury stock, at cost - 144,050 shares (1,273,138) -
Unearned ESOP shares (1,675,250) (1,813,758)
Unearned recognition and retention plan (539,800) -
Retained earnings, substantially restricted 38,873,525 36,283,211
Accumulated other comprehensive income (loss) (4,558,409) (2,202,184)
-----------------------------------------
Total stockholders' equity 66,869,370 68,273,007
-----------------------------------------
Total liabilities and stockholders' equity $719,816,312 $680,671,738
=========================================
</TABLE>
See accompanying notes to consolidated condensed financial statements.
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<PAGE>
FIRST FEDERAL BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the three months For the nine months
ended March 31, ended March 31,
2000 1999 2000 1999
--------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C>
Interest income:
Loans receivable $ 9,441,789 $ 7,819,221 $ 27,318,136 $ 24,044,530
Mortgage-backed securities 525,111 505,977 1,742,741 1,687,373
Investment securities 2,172,213 1,173,437 6,301,350 3,839,780
Other interest-earning assets 41,617 96,057 123,568 152,805
--------------------------------------------------------------
Total interest income 12,180,730 9,594,692 35,485,795 29,724,488
--------------------------------------------------------------
Interest expense:
Deposits 5,125,659 4,071,435 15,079,871 13,037,947
Borrowings 2,528,222 1,601,726 6,810,712 5,030,350
--------------------------------------------------------------
Total interest expense 7,653,881 5,673,161 21,890,583 18,068,297
--------------------------------------------------------------
Net interest income 4,526,849 3,921,531 13,595,212 11,656,191
Provision for loan losses 159,000 105,000 399,000 255,000
--------------------------------------------------------------
Net interest income after provision 4,367,849 3,816,531 13,196,212 11,401,191
--------------------------------------------------------------
Noninterest income:
Service charges and other fees 668,350 555,823 2,129,439 1,515,135
Gain on sale of branch deposits -- -- -- 1,087,884
Gain on sale of loans held for sale 12,497 59,258 138,207 233,669
Gain (loss) on sale of fixed assets 90,242 (10,122) 106,537 (1,529)
Gain on sale of real estate owned and held for investment 43,157 41,247 404,331 41,247
Loss on sale of securities available for sale -- -- (50,535) --
Real estate-related activities 329,464 193,242 1,061,047 548,908
Other income, net 356,685 176,902 1,073,982 615,805
--------------------------------------------------------------
Total noninterest income 1,500,395 1,016,350 4,863,008 4,041,119
--------------------------------------------------------------
Noninterest expense:
Compensation and employee benefits 2,245,467 1,872,776 6,734,877 5,532,888
Office property and equipment 565,052 463,009 1,718,712 1,341,543
Deposit insurance premiums 25,044 60,367 165,149 178,512
Data processing expense 110,814 100,285 333,164 296,357
Advertising 103,987 143,483 363,825 430,587
Amortization of intangibles 243,156 85,989 737,741 257,967
Other general and administrative 766,650 554,743 2,415,751 1,963,664
--------------------------------------------------------------
Total noninterest expense 4,060,170 3,280,652 12,469,219 10,001,518
--------------------------------------------------------------
Earnings before taxes on income 1,808,074 1,552,229 5,590,001 5,440,792
Taxes on income 644,000 563,079 1,962,000 1,982,079
--------------------------------------------------------------
Net earnings $ 1,164,074 $ 989,150 $ 3,628,001 $ 3,458,713
==============================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Per share data: (1)
Basic earnings $ 0.26 $ 0.21 $ 0.79 $ 0.74
==============================================================
Diluted earnings $ 0.26 $ 0.21 $ 0.79 $ 0.73
==============================================================
Dividends declared $ 0.075 $ 0.146 $ 0.225 $ 0.291
==============================================================
</TABLE>
--------------------------------------------------------------
(1) Adjusted for April 1999 second step offering and exchange.
See accompanying notes to consolidated condensed financial statements.
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<PAGE>
FIRST FEDERAL BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Nine months ended March 31,
2000 1999
------------------------------
(Unaudited)
<S> <C> <C>
Capital Stock
Beginning of year balance $48,178 $46,773
Stock options exercised 99 167
- --------------------------------------------------------------------------------------------------------------------
End of period balance 48,277 46,940
- --------------------------------------------------------------------------------------------------------------------
Additional paid-in capital
Beginning of year balance 35,957,560 11,059,966
Stock options exercised 30,429 54,691
Stock depreciation of allocated ESOP shares (12,074) -
Grant of RRP shares at market 18,250 -
- --------------------------------------------------------------------------------------------------------------------
End of period balance 35,994,165 11,114,657
- --------------------------------------------------------------------------------------------------------------------
Treasury stock, at cost
Beginning of year balance - -
Treasury stock purchased (1,930,138) -
RRP shares granted 657,000 -
- --------------------------------------------------------------------------------------------------------------------
End of period balance (1,273,138) -
- --------------------------------------------------------------------------------------------------------------------
Unearned ESOP shares
Beginning of year balance (1,813,758) -
ESOP shares allocated 138,508 -
- --------------------------------------------------------------------------------------------------------------------
End of period balance (1,675,250) -
- --------------------------------------------------------------------------------------------------------------------
Unearned recognition and retention plan shares
Beginning of year balance - -
RRP shares granted (675,250) -
Amortization of RRP expense 135,450 -
- --------------------------------------------------------------------------------------------------------------------
End of period balance (539,800) -
- --------------------------------------------------------------------------------------------------------------------
Retained earnings, substantially restricted
Beginning of year balance 36,283,211 30,678,991
Net earnings 3,628,001 3,458,713
Dividends paid on common stock (1,037,687) (817,510)
- --------------------------------------------------------------------------------------------------------------------
End of period balance 38,873,525 33,320,194
- --------------------------------------------------------------------------------------------------------------------
Accumulated other comprehensive income
Beginning of year balance (2,202,184) 234,353
Net change in unrealized losses on securities available for sale (2,356,225) (389,579)
- --------------------------------------------------------------------------------------------------------------------
End of period balance (4,558,409) (155,226)
- --------------------------------------------------------------------------------------------------------------------
Total stockholders' equity $66,869,370 $44,326,565
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated condensed financial statements.
-3-
<PAGE>
FIRST FEDERAL BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
Three Months Ended Nine months ended
March 31, March 31,
--------------------------- ----------------------------
2000 1999 2000 1999
---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C>
Net earnings $1,164,074 $989,150 $3,628,001 $3,458,713
Other comprehensive income:
Unrealized holding losses arising during
the period, net of tax (233,399) (240,236) (2,330,171) (389,579)
Less: reclassification adjustment for net realized
gains included in net income (net of tax expense) (26,054) - (26,054) -
-------- -------- ---------- --------
Other comprehensive income (loss), net of tax (259,453) (240,236) (2,356,225) (389,579)
-------- -------- ---------- --------
-------- -------- ---------- --------
Comprehensive income $904,621 $748,914 $1,271,776 $3,069,134
======== ======== ========== ==========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
-4-
<PAGE>
FIRST FEDERAL BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine months ended March 31,
2000 1999
----------------------------------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net earnings $3,628,001 $3,458,713
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Loans originated for sale to investors (17,190,882) (27,189,689)
Proceeds from sale of loans originated for sale 17,463,178 27,386,792
Provision for losses on loans and other assets 399,000 255,000
Depreciation and amortization 1,955,935 926,431
Provision for deferred taxes (467,197) 190,000
Net gain on sale of loans (138,207) (233,669)
Net realized loss on sale of securities available for sale 50,535 -
Net gain on sale of branch deposits - (1,087,884)
Net gain on sales of real estate owned and held for development (404,331) (41,247)
Net loan fees deferred 98,805 36,236
Amortization of premiums and discounts on loans,
mortgage-backed securities, and investment securities, net 608,945 (16,555)
Increase in other assets (1,509,117) (227,958)
Increase in accrued expenses and other liabilities 316,378 498,338
--------------------------------
Net cash provided by operating activities 4,811,043 3,954,508
--------------------------------
Cash flows from investing activities:
Purchase of securities held to maturity (519,205) (10,527,262)
Proceeds from maturities of securities held to maturity 4,134,358 16,415,656
Purchase of securities available for sale (8,875,000) (62,031,575)
Proceeds from sale of securities available for sale 3,131,067 -
Purchase of Federal Home Loan Bank Stock (834,600) (623,700)
Proceeds from maturities of securities available for sale 5,222,473 45,800,271
Loans purchased (15,654,000) (3,672,000)
(Increase) decrease in loans receivable (26,571,111) 16,606,228
Proceeds from sale of real estate owned and held for development 2,592,036 657,198
Net expenditures on real estate owned and held for development (824,173) -
Proceeds from sale of office property and equipment 152,264 -
Purchase of office property and equipment (1,020,473) (2,052,439)
--------------------------------
Net cash (used in) provided by investing activities (39,066,364) 572,377
--------------------------------
Cash flows from financing activities:
Increase in deposits 19,299,626 27,436,896
Branch deposits transferred due to sale, net - (18,281,111)
Proceeds from advances from FHLB 57,500,000 29,000,000
Repayment of advances from FHLB (35,223,997) (30,103,479)
Issuance of common stock 30,528 54,858
Purchase of treasury stock (1,930,138) -
Cash dividends paid (1,037,687) (475,497)
Net decrease in advances from borrowers for taxes and insurance (1,354,386) (1,210,069)
--------------------------------
Net cash provided by financing activities 37,283,946 6,421,598
--------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Net increase in cash and cash equivalents 3,028,625 10,948,483
Cash and cash equivalents at beginning of period 15,067,956 17,225,007
--------------------------------
Cash and cash equivalents at end of period $18,096,581 $28,173,490
================================
</TABLE>
See accompanying notes to consolidated condensed financial statements.
-5-
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
FIRST FEDERAL BANKSHARES, INC. AND SUBSIDIARIES
1. BASIS OF PRESENTATION
The consolidated condensed balance sheet information for June 30, 1999 was
derived from the Company's audited Consolidated Balance Sheets for the fiscal
year ended June 30, 1999. The consolidated condensed financial statements at and
for the three months and nine months ended March 31, 2000 and 1999 are
unaudited. The financial statements at and for the three months and nine months
ended March 31, 1999 are those of First Federal Savings Bank of Siouxland (the
"Bank" or "First Federal") rather than those of First Federal Bankshares, Inc.
(the "Registrant" or the "Company"). The Registrant was formed as a holding
company to own all of the capital stock of the Bank following its "second-step"
offering in April 1999, in which each share of First Federal's common stock was
exchanged for 1.64696 shares of Company common stock.
In the opinion of management of the Company these financial statements reflect
all adjustments, consisting only of normal recurring accruals necessary to
present fairly these consolidated condensed financial statements. The results of
operations for the interim periods are not necessarily indicative of results
that may be expected for an entire year. Certain information and footnote
disclosure normally included in financial statements prepared in accordance with
generally accepted accounting principles have been omitted.
This report contains certain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. The Company intends such
forward-looking statements to be covered by the safe harbor provisions for
forward-looking statements contained in the Private Securities Reform Act of
1995, and is including this statement for the purposes of these safe harbor
provisions. Forward-looking statements, which are based on certain assumptions
and describe future plans, strategies and expectations of the Company, are
generally identifiable by use of the words "believe," "expect," "intend,"
"anticipate," "estimate," "project" or similar expressions. The Company's
ability to predict results or the actual effect of future plans or strategies is
inherently uncertain. Factors which could have a material adverse effect on the
Company's future activities and operating results include, but are not limited
to, changes in: interest rates, general economic conditions, legislative and
regulatory changes, U.S. monetary and fiscal policies, demand for products and
services, deposit flows, competition and accounting policies, principles and
guidelines. These risks and uncertainties should be considered in evaluating
forward-looking statements and undue reliance should not be placed on such
statements.
2. REORGANIZATION, CONVERSION AND ACQUISITION
Prior to April 13, 1999, the Bank was owned approximately 53.49% by First
Federal Bankshares, M.H.C. (the "Mutual Holding Company") and 46.51% by public
shareholders. On April 13, 1999, pursuant to a plan of conversion and
reorganization, and after a series of transactions: (1) the Company was formed
to own all of the capital stock of the Bank, (2) the Company sold the ownership
interest in the Bank previously held by the Mutual Holding Company to the public
in a subscription and community offering (the "Offering"), (3) previous public
shareholders of the Bank had their shares exchanged (the "Exchange") into common
shares of the Company (exchange ratio of 1.64696 to 1) and (4) the Mutual
Holding Company ceased to exist.
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<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
As a result of the reorganization, the consolidated financial statements for
prior periods have been restated to reflect the changes in the par value of
common stock from $1.00 to $.01 per share and in the number of authorized shares
of common stock from 20,000,000 to 12,000,000.
The primary purpose of the Offering was to fund the acquisition of Mid-Iowa
Financial Corp. ("MIFC") and its wholly-owned subsidiary, Mid-Iowa Savings Bank,
FSB located in Newton, Iowa. The shareholders of MIFC received $28.3 million
cash for all outstanding shares on April 13, 1999, the effective date. The
acquisition was accounted for as a purchase; accordingly, MIFC's results of
operations are included in the financial statements from the acquisition date
forward. The excess of purchase price over the fair value of the net
identifiable assets of $12.6 million was recorded as goodwill and is being
amortized on a straight-line basis over 25 years.
3. EARNINGS PER SHARE
The following information was used in the computation of net earnings per common
share on both a basic and diluted basis for the periods presented. Prior period
information was restated for the Offering and Exchange.
<TABLE>
<CAPTION>
Three months ended Nine months ended
March 31, March 31,
2000 1999 2000 1999
----------------------------- ----------------------------
<S> <C> <C> <C> <C>
Basic earnings per share:
- ------------------------
Net earnings $ 1,164,074 $ 989,150 $ 3,628,001 $ 3,458,713
Weighted average shares
outstanding 4,655,030 4,690,372 4,763,638 4,685,797
Less: unearned ESOP shares (171,533) -- (175,808) --
----------- ----------- ----------- -----------
Weighted average common
shares - basic 4,483,497 4,690,372 4,587,830 4,685,797
Basic earnings per share $ .26 $ .21 $ .79 $ .74
=========== =========== =========== ===========
Diluted earnings per share:
- ---------------------------
Weighted average common
shares outstanding - basic 4,483,497 4,690,372 4,587,830 4,685,797
Assumed incremental common
shares issued upon:
vesting of RRP shares 12,985 -- 4,816 --
exercise of stock options 8,254 47,108 14,494 44,473
----------- ----------- ----------- -----------
Weighted average diluted
shares outstanding 4,504,736 4,737,480 4,607,140 4,730,270
Diluted earnings per share $ .26 $ .21 $ .79 $ .73
=========== =========== =========== ===========
</TABLE>
<PAGE>
4. DIVIDENDS
On January 20, 2000 the Company declared a cash dividend on its common stock,
equal to $.075 per share. On February 29, 2000, dividends totaling $353,979 were
paid to stockholders of record as of February 15, 2000.
-7-
<PAGE>
On April 20, 2000 the
Company declared a cash dividend on its common stock, payable on May 31, 2000 to
stockholders of record as of May 17, 2000, equal to $.075 per share.
5. EMPLOYEE BENEFIT PLANS
On October 21, 1999, the First Federal Bankshares, Inc. 1999 Recognition and
Retention Plan ("RRP") and the First Federal Bankshares, Inc. 1999 Stock Option
Plan ("SOP") were approved by the stockholders of the Company at its 1999 annual
meeting. In December 1999, the Company acquired 79,050 shares of common stock to
be reserved for RRP awards to certain officers and directors. On October 21,
1999, 73,000 shares were awarded under the RRP. Shares awarded under the RRP
vest in five equal annual installments beginning on the first anniversary of the
award. RRP expense for the three months and nine months ended March 31, 2000
totaled $81,000 and $135,000, respectively.
The SOP permits the board of directors to grant options to certain officers and
directors to purchase up to 263,500 shares of the Company's common stock. The
price at which options may be exercised cannot be less than the fair value of
the shares at the date the options are awarded. On October 21, 1999, the Company
awarded 240,000 options under the SOP to certain officers and directors of the
Company. The exercise price of these options is $9.25 per share. The options
become exercisable at a rate of 20% each year for five years after the date of
the award and have a fixed maximum term of ten years.
6. SHARE REPURCHASE PLAN
On December 10, 1999 the Company announced a stock repurchase program to acquire
up to 241,239 shares, or 5%, of the Company's common stock. During the quarter
ended March 31, 2000 the Company purchased 100,000 shares of its common stock at
an average cost of $8.75 per share. Since the program was announced, the Company
has repurchased a total of 138,000 shares at a cost of $1.2 million.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FINANCIAL CONDITION
Total assets increased by $39.1 million, or 5.8%, to $719.8 million at March 31,
2000 from $680.7 million at June 30, 1999. The increase in total assets was
primarily due to an increase in loans receivable. Loans receivable increased by
$39.1 million, or 8.6%, to $496.2 million at March 31, 2000 from $457.1 million
at June 30, 1999. Cash and interest-bearing deposits increased by $3.0 million,
or 20.1%, to $18.1 million at March 31, 2000 from $15.1 million at June 30,
1999. The increase in cash was largely due to the addition of seven banking
offices in central Iowa due to the MIFC acquisition. The balance of deferred tax
assets increased by $1.8 million, or 152.3%, to $3.0 million at March 31, 2000
from $1.2 million at June 30, 1999, primarily due to an increase in the tax
benefit related to unrealized holding losses in the Company's available-for-sale
securities portfolio in the generally higher rate environment brought on by a
series of Federal Reserve Board (FRB) rate hikes. In addition, the Company's
investment in Federal Home Loan Bank (FHLB) stock increased by $835,000 during
the current fiscal year period. The Company is required to maintain a certain
level of FHLB stock as collateral for FHLB advances. Offsetting the increase in
cash and other asset balances were decreases in the balance of investment
securities, as management sought to increase the average balances of
higher-yielding loans in response to demand in its market area. The balance of
-8-
<PAGE>
securities available for sale decreased by $3.2 million, or 2.6%, to $118.8
million at March 31, 2000 from $122.0 million at June 30, 1999. In addition, the
balance of securities held to maturity decreased by $3.6 million, or 11.3%, to
$28.4 million at March 31, 2000 from $32.0 million at June 30, 1999.
Deposits increased by $19.3 million, or 4.2%, to $483.5 million at March 31,
2000 from $464.2 million at June 30, 1999. The increase in deposits was partly
due to approximately $10.0 million in semi-annual real estate tax receipts
deposited at the end of the quarter by a local taxing authority. Advances from
the Federal Home Loan Bank increased by $22.3 million, or 16.1%, to $160.9
million at March 31, 2000 from $138.6 million at June 30, 1999. The increase in
deposits and FHLB advances funded the increase in loans receivable.
Total stockholders' equity decreased by $1.4 million to $66.9 million at March
31, 2000 from $68.3 million at June 30, 1999. Earnings totaled $3.6 million for
the first nine months of the fiscal year. Largely offsetting the earnings for
the period was a decrease of $2.4 million in other comprehensive income. This
decrease was primarily due to an increase in unrealized losses in the Company's
available-for-sale securities portfolio due to lower valuations for such
securities in the generally higher interest rate environment. In December 1999
the Company commenced a share repurchase program to acquire approximately
241,000 shares, or 5%, of its outstanding common stock. Since the program was
announced, the Company has repurchased 138,000 shares of its common stock at an
average cost of $8.83 per share. In addition, the Company purchased 79,050
common shares at $9.00 per share for the First Federal Bankshares, Inc. 1999
Recognition and Retention Plan. Awards under the RRP totaled 73,000 shares. The
remaining 6,050 RRP shares are held as treasury stock pending award.
LIQUIDITY
OTS regulations require that thrift institutions such as the Bank maintain an
average daily balance of liquid assets (cash, certain time deposits, banker's
acceptances and specified United States government, state or federal agency
obligations) in each calendar quarter of not less than 4% of the average daily
balance of its liquidity base (net withdrawable deposits plus short term
borrowings) during the preceding quarter. For the quarter ended March 31, 2000
the Company's average liquidity position was $147.5 million, or 28.8% of its
liquidity base for the preceding quarter.
CAPITAL
The Company's total equity decreased by $1.4 million to $66.9 million at
March 31, 2000 from $68.3 million at June 30, 1999. The OTS requires that the
Company meet minimum tangible, leverage (core) and risk-based capital
requirements. As of March 31, 2000 the Company was in compliance with all
regulatory capital requirements. The Company's required, actual and excess
capital levels as of March 31, 2000 were as follows:
Excess of
Actual Over
Required % of Actual % of Regulatory
Amount Assets Amount Assets Requirement
------ ------ ------ ------ -----------
(Dollars in thousands)
Tangible Capital $10,485 1.5% $46,070 6.59% $35,585
Core Capital 27,960 4.0% 46,070 6.59% 18,110
Risk-based Capital 31,795 8.0% 49,436 12.44% 17,641
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<PAGE>
COMPARISON OF THE RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED
MARCH 31, 2000 and 1999
General. Net earnings increased by $175,000, or 17.7%, to $1.2 million for the
three months ended March 31, 2000 from $1.0 million for the three months ended
March 31, 1999. Diluted earnings per share totaled $.26 and $.21, respectively,
for the three months ended March 31, 2000 and 1999. The acquisition of Mid-Iowa
Financial Corp. (MIFC), effective April 13, 1999, was accounted for using the
purchase method of accounting; therefore, the results of operations for the
three months ended March 31, 1999 do not include MIFC results.
Interest Income. Interest income increased by $2.6 million, or 27.0%, to $12.2
million for the three months ended March 31, 2000 from $9.6 million for the
three months ended March 31, 1999, largely due to an increase in the average
balance of interest-earning assets. The average balance of interest-earning
assets increased by $142.2 million, or 27.8%, to $653.7 million for the three
months ended March 31, 2000 from $511.5 million for the three months ended March
31, 1999. The increase in average balances of interest-earning assets was
largely due to the acquisition of MIFC. The average yield on interest-earning
assets decreased to 7.45% for the three months ended March 31, 2000 from 7.50%
for the three months ended March 31, 1999, primarily due to lower yields on
loans receivable and mortgage-backed securities and to changes in the mix of
interest-earning assets. Investment securities, with generally lower yields than
yields on loans receivable, made up 19.9% of interest-earning assets for the
three months ended March 31, 2000 as compared to 14.3% of interest-earning
assets for the three months ended March 31, 1999. The change in the mix of
interest-earning assets was primarily due to the acquisition of MIFC. MIFC's
investment portfolio totaled $46.1 million, or 29.7%, of MIFC's interest-earning
assets on the effective date of the acquisition.
Interest income on loans for the three months ended March 31, 2000 increased by
$1.6 million, or 20.8%, to $9.4 million for the three months ended March 31,
2000 from $7.8 million for the three months ended March 31, 1999. The increase
in interest income on loans was primarily due to an increase of $89.0 million,
or 22.3%, in the average balance of loans receivable, to $488.5 million for the
three months ended March 31, 2000 from $399.5 million for the three months ended
March 31, 1999. The increase in the average balance of loans receivable was due
to originations of commercial real estate and commercial operating loans during
the current year quarter and to growth related to the MIFC acquisition. The
average yield on loans decreased to 7.73% for the three months ended March 31,
2000 from 7.83% for the three months ended March 31, 1999. The yield on loans
receivable during the quarter ended March 31, 2000 was impacted by amortization
of the purchase premium paid for MIFC loans that totaled $81,000 for the
quarter.
Interest income on mortgage-backed securities for the three months ended March
31, 2000 increased by $19,000, or 3.8%, when compared to the three months ended
March 31, 1999. The increase was due to an increase of $1.6 million, or 5.3%, in
the average balance of mortgage-backed securities to $32.3 million for the three
months ended March 31, 2000 from $30.7 million for the three months ended March
31, 1999. The average yield on mortgage-backed securities decreased to 6.51% for
the three months ended March 31, 2000 from 6.60% for the three months ended
March 31, 1999.
-10-
<PAGE>
Interest income on investment securities increased by $999,000, or 85.1%, as the
average balance of investment securities increased by $56.9 million, or 77.9%,
to $129.9 million at March 31, 2000 from $73.0 million at March 31, 1999.
The increase in the average balance of investment securities was largely due to
the acquisition of MIFC's investment portfolio. The average yield on investment
securities increased by 27 basis points to 6.69% for the three months ended
March 31, 2000 from 6.42% for the three months ended March 31, 1999.
Interest Expense. Interest expense increased by $2.0 million, or 34.9%, to $7.7
million for the three months ended March 31, 2000 from $5.7 million for the
three months ended March 31, 1999. The average rate paid on interest-bearing
liabilities increased by 24 basis points to 4.96% for the three months ended
March 31, 2000 from 4.72% for the three months ended March 31, 1999.
Interest on deposits increased by $1.1 million, or 25.9%, to $5.1 million for
the three months ended March 31, 2000 from $4.0 million for the three months
ended March 31, 1999. The increase in interest on deposits was primarily due to
an increase in the average balance of deposits as a result of the MIFC
acquisition. The average balance of deposits increased by $75.7 million, or
20.4%, to $446.9 million at March 31, 2000 from $371.2 million at March 31,
1999. The increase in interest paid on deposits was also due to an increase of
20 basis points in the average cost of deposits to 4.59% for the three months
ended March 31, 2000 from 4.39% for the three months ended March 31, 1999. Rates
paid on deposit accounts were increased during the current year period in
response to generally higher market rates resulting from the series of FRB rate
increases starting in June 1999.
Interest on borrowings increased by $926,000, or 57.8%, to $2.5 million for the
three months ended March 31, 2000 from $1.6 million for the three months ended
March 31, 1999. The increase in interest on borrowings was primarily due to an
increase in the average balance of advances. Average advance balances increased
by $60.7 million, or 55.3%, to $170.5 million at March 31, 2000 from $109.8
million at March 31, 1999. The increase in interest expense was also due to an
increase of 9 basis points in the average cost of borrowings to 5.93% for the
three months ended March 31, 2000 from 5.84% for the three months ended March
31, 1999.
Net Interest Income. Net interest income increased by $605,000, or 15.4%, to
$4.5 million for the three months ended March 31, 2000 from $3.9 million for the
three months ended March 31, 1999. This increase was primarily due to an
increase totaling $5.7 million in the average balance of interest-earning assets
net of interest-bearing liabilities to $36.2 million at March 31, 2000 from
$30.5 million at March 31, 1999. Partially offsetting the increases due to
average balances was a decrease in the Company's interest rate spread. The
Company's interest rate spread for the three months ended March 31, 2000
decreased by 29 basis points, or 10.4%, to 2.50% for the three months ended
March 31, 2000 from 2.79% for the quarter ended March 31, 1999. The decrease in
the interest rate spread resulted from an increase of 24 basis points in the
cost of interest-bearing liabilities and a decrease of 5 basis points in the
Company's yield on interest-earning assets.
Provision for Loan Loss. Provision for loan loss expense totaled $159,000 and
$105,000, respectively, for the three months ended March 31, 2000 and 1999.
Provision for loan loss expense was increased due to increased loan volume,
largely resulting from the MIFC acquisition. The allowance for losses on loans
is based on management's periodic evaluation of the loan portfolio and reflects
an amount that, in management's opinion, is adequate to absorb losses in the
existing portfolio. In evaluating the portfolio, management takes into
consideration numerous factors, including current economic conditions, prior
loan loss experience, the composition of the loan portfolio, and management's
estimate of anticipated credit losses.
-11-
<PAGE>
Noninterest Income. Noninterest income increased by $484,000, or 47.6%, to $1.5
million for the three months ended March 31, 2000 from $1.0 million for the
three months ended March 31, 1999. Service charges and other fees increased by
$113,000, or 20.3%, to $668,000 for the three months ended March 31, 2000 from
$556,000 for the three months ended March 31, 1999. The increase in service
charges and other fees was largely due to growth related to the MIFC acquisition
and to increases in the number of commercial deposit account relationships.
Additionally, fee schedule changes, which included several service fee
increases, went into effect in June 1999. Income from other real estate-related
activities increased by $136,000, or 70.5%, to $329,000 for the three months
ended March 31, 2000 from $193,000 for the three months ended March 31, 1999.
The increase in real estate-related income was primarily due to income from the
real estate brokerage company acquired in the merger with MIFC. Noninterest
income also increased due to recognition of a $43,000 gain on sale of developed
lots and a $90,000 gain on the sale of properties previously held for office
expansion during the three months ended March 31, 2000. Other income increased
by $180,000, or 101.6%, to $357,000 for the three months ended March 31, 2000
from $177,000 for the three months ended March 31, 1999 largely due to earnings
in the Company's non-bank subsidiaries. During the three months ended March 31,
2000, gain on sale of loans held for sale decreased by $47,000, or 78.9%, when
compared to the same quarter of 1999 due to a continuing slowdown in mortgage
activity related to rising mortgage interest rates.
Noninterest expense. Noninterest expense increased by $780,000, or 23.8%, to
$4.1 million for the three months ended March 31, 2000 from $3.3 million for the
three months ended March 31, 1999. Compensation and benefits expense increased
by $373,000, or 19.9%, to $2.2 million for the three months ended March 31, 2000
from $1.9 million for the three months ended March 31, 1999. Staff increased by
23 full-time-equivalent employees, or 11.9%, to 216 employees at March 31, 2000
from 193 employees at March 31, 1999. In addition, compensation expense related
to the 1999 RRP approved in October 1999, totaled $81,000 for the three months
ended March 31, 2000.
Office property and equipment expense increased by $102,000, or 22.0%, over the
prior year, partially due to the completion of a new office building in
Grinnell, Iowa and to the addition of the seven MIFC offices. Deposit insurance
premium expense and advertising expense decreased by $35,000, or 58.5%, and
$39,000, or 27.5%, respectively, for the three months ended March 31, 2000 as
compared to the three months ended March 31, 1999. The deposit insurance premium
annual rate decreased to 2.1% per hundred for the quarter ended March 31, 2000
from an annual rate of 6.1% per hundred for the quarter ended March 31, 1999.
Due to this rate decrease the Company's deposit insurance premium cost decreased
in spite of the increase in deposits resulting from the MIFC acquisition.
Amortization of intangibles increased by $157,000 to $243,000 for the three
months ended March 31, 2000 from $86,000 for the three months ended March 31,
1999 due to amortization of the goodwill related to the MIFC acquisition that
closed in April 1999. Other general and administrative expenses increased by
$212,000, or 38.2%, for the three months ended March 31, 2000 as compared to the
three months ended March 31, 1999, largely due to noninterest expenses of the
real estate brokerage company acquired from MIFC.
Net earnings and income tax expense. Net earnings before income taxes increased
by $256,000, or 16.5%, to $1.8 million for the three months ended March 31,
2000, from $1.6 million for the three months ended March 31, 1999. Income tax
expense increased by $81,000, or 14.4%, to $644,000 for the three months ended
March 31, 2000 from $563,000 for the three months ended March 31, 1999.
-12-
<PAGE>
COMPARISON OF THE RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED
MARCH 31, 2000 and 1999
General. Net earnings totaled $3.6 million, or $.79 per diluted share, for the
nine months ended March 31, 2000 as compared to net earnings totaling $3.5
million, or $.73 per diluted share, for the nine months ended March 31, 1999.
The acquisition of MIFC was accounted for using the purchase method of
accounting; therefore, the results of operations for the nine months ended March
31, 1999 do not include MIFC results.
Interest Income. Interest income increased by $5.8 million, or 19.4%, to $35.5
million for the nine months ended March 31, 2000 from $29.7 million for the nine
months ended March 31, 1999, largely due to an increase in the average balance
of interest-earning assets. The average balance of interest-earning assets
increased by $119.5 million, or 23.0%, to $639.8 million for the nine months
ended March 31, 2000 from $520.3 million for the nine months ended March 31,
1999. The increase in average balances of interest-earning assets was primarily
due to the acquisition of MIFC. The average yield on interest-earning assets
decreased to 7.40% for the nine months ended March 31, 2000 from 7.62% for the
nine months ended March 31, 1999, primarily due to lower yields on loans
receivable and mortgage-backed securities and to changes in the mix of
interest-earning assets. Investment securities, with generally lower yields than
yields on loans receivable, made up 19.9% of interest-earning assets for the
nine months ended March 31, 2000 as compared to 15.0% of interest-earning assets
for the nine months ended March 31, 1999. The change in the mix of
interest-earning assets was primarily due to the acquisition of MIFC.
Interest income on loans for the nine months ended March 31, 2000 increased by
$3.3 million, or 13.6%, to $27.3 million for the nine months ended March 31,
2000 from $24.0 million for the nine months ended March 31, 1999. The increase
in interest income on loans was primarily due to an increase of $69.2 million,
or 17.1%, in the average balance of loans receivable, to $473.4 million for the
nine months ended March 31, 2000 from $404.2 million for the nine months ended
March 31, 1999. The average yield on loans decreased to 7.69% for the nine
months ended March 31, 2000 from 7.93% for the nine months ended March 31, 1999.
Interest income on mortgage-backed securities for the nine months ended March
31, 2000 increased by $55,000, or 3.3%, when compared to the nine months ended
March 31, 1999. The increase was due to an increase of $2.5 million, or 7.3%, in
the average balance of mortgage-backed securities to $36.1 million for the nine
months ended March 31, 2000 from $33.6 million for the nine months ended March
31, 1999. The average yield on mortgage-backed securities decreased to 6.44% for
the nine months ended March 31, 2000 from 6.69% for the nine months ended March
31, 1999.
Interest income on investment securities increased by $2.5 million, or 64.1%, as
the average balance of investment securities increased by $48.8 million, or
62.4%, to $127.1 million at March 31, 2000 from $78.3 million at March 31, 1999.
The average yield on investment securities increased by 7 basis points to 6.61%
for the nine months ended March 31, 2000 from 6.54% for the nine months ended
March 31, 1999.
Interest Expense. Interest expense increased by $3.8 million, or 21.2%, to $21.9
million for the nine months ended March 31, 2000 from $18.1 million for the nine
months ended March 31, 1999. The average rate paid on interest-bearing
liabilities decreased by 7 basis points to 4.85% for the nine months ended March
31, 2000 from 4.92% for the nine months ended March 31, 1999.
-13-
<PAGE>
Interest on deposits increased by $2.1 million, or 15.7%, to $15.1 million for
the nine months ended March 31, 2000 from $13.0 million for the nine months
ended March 31, 1999. The increase in interest on deposits was primarily due to
an increase in the average balance of deposits as a result of the MIFC
acquisition. The average balance of deposits increased by $70.0 million, or
18.5%, to $447.3 million at March 31, 2000 from $377.3 million at March 31,
1999. The increase in interest paid on deposits due to increased average
balances was partly offset by an 11 basis point decrease in the average cost of
deposits to 4.50% for the nine months ended March 31, 2000 from 4.61% for the
nine months ended March 31, 1999.
Interest on borrowings increased by $1.8 million, or 35.4%, to $6.8 million for
the nine months ended March 31, 2000 from $5.0 million for the nine months ended
March 31, 1999. The increase in interest on borrowings was primarily due to an
increase in the average balance of advances. Average advance balances increased
by $41.5 million, or 36.9%, to $154.2 million at March 31, 2000 from $112.7
million at March 31, 1999. The increase in interest expense due to increased
advance balances was partly offset by a decrease of 6 basis points in the
average cost of borrowings to 5.89% for the nine months ended March 31, 2000
from 5.95% for the nine months ended March 31, 1999.
Net Interest Income. Net interest income increased by $1.9 million, or 16.6%, to
$13.6 million for the nine months ended March 31, 2000 from $11.7 million for
the nine months ended March 31, 1999. The Company's interest rate spread for the
nine months ended March 31, 2000 decreased by 16 basis points, or 5.9%, to 2.54%
from 2.70% for the nine months ended March 31, 1999.
Provision for Loan Loss. Provision for loan loss expense totaled $399,000 and
$255,000, respectively, for the nine months ended March 31, 2000 and 1999.
Noninterest Income. Noninterest income increased by $822,000, or 20.3%, to $4.9
million for the nine months ended March 31, 2000 from $4.1 million for the nine
months ended March 31, 1999. Service charges and other fees increased by
$614,000, or 40.5%, to $2.1 million for the nine months ended March 31, 2000
from $1.5 million for the nine months ended March 31, 1999. The increase in
service charges and other fees was largely due to growth related to the MIFC
acquisition. Gains on the sale of real estate owned and held for development
totaled $404,000 and $41,000, respectively, for the nine months ended March 31,
2000 and 1999. In addition, a gain on sale of fixed assets totaling $107,000 for
the nine months ended March 31, 2000 compared to a loss on sale of fixed assets
totaling $10,000 for the nine months ended March 31, 1999. Income from other
real estate-related activities increased by $512,000, or 93.3%, to $1.1 million
for the nine months ended March 31, 2000 from $549,000 for the nine months ended
March 31, 1999. The increase in real estate-related income was primarily due to
earnings from the real estate brokerage company acquired in the merger with
MIFC. Other income increased by $458,000, or 74.4%, to $1.1 million for the nine
months ended March 31, 2000 from $616,000 for the nine months ended March 31,
1999 largely due to earnings in the Company's non-bank subsidiaries. During the
nine months ended March 31, 2000, gain on sale of loans held for sale decreased
by $95,000, or 40.9%, when compared to the same period of 1999, reflecting the
slowdown in mortgage activity due to higher mortgage interest rates. The
increases in noninterest income during the nine months ended March 31, 2000,
when compared to the nine months ended March 31, 1999, more than offset the $1.1
million gain on sale of branch deposits that was recorded during the nine months
ended March 31, 1999.
-14-
<PAGE>
Noninterest expense. Noninterest expense increased by $2.5 million, or 24.7%, to
$12.5 million for the nine months ended March 31, 2000 from $10.0 million for
the nine months ended March 31, 1999. Compensation and benefits expense
increased by $1.2 million, or 21.7%, to $6.7 million for the nine months ended
March 31, 2000 from $5.5 million for the nine months ended March 31, 1999.
Office property and equipment expense increased by $377,000, or 28.1%, over the
prior year. Deposit insurance premium expense and advertising expense decreased
by $13,000 and $67,000, respectively, for the nine months ended March 31, 2000
as compared to the nine months ended March 31, 1999. Amortization of intangibles
increased by $480,000 to $738,000 for the nine months ended March 31, 2000 from
$258,000 for the nine months ended March 31, 1999 due to amortization of the
goodwill related to the MIFC acquisition that commenced in April 1999. Data
processing expense increased by $37,000, or 12.4%, to $333,000 for the nine
months ended March 31, 2000 from $296,000 for the nine months ended March 31,
1999. Other general and administrative expenses increased by $452,000, or 23.0%,
for the nine months ended March 31, 2000 as compared to the nine months ended
March 31, 1999. The increase in other noninterest expense was largely due to
noninterest expenses of the MIFC real estate brokerage firm.
Net earnings and income tax expense. Net earnings before income taxes totaled
$5.6 million for the nine months ended March 31, 2000 as compared to $5.4
million for the nine months ended March 31, 1999. Income tax expense totaled
$2.0 million for each of the nine-month periods ended March 31, 2000 and 1999.
The Company's effective tax rate decreased to 35.1% for the nine months ended
March 31, 2000 from 36.4% for the nine months ended March 31, 1999 partially due
to increased balances in the Company's tax-exempt investment portfolio during
the nine months ended March 31, 2000 as compared to the same period in 1999.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which is scheduled to be effective for the
Company for the year beginning July 1, 2000. This statement requires recognition
of all derivative instruments as either assets or liabilities in the statement
of financial position measured at fair value. This statement requires that
changes in the derivative's fair value be recognized currently in earnings
unless specific hedge accounting criteria are met. Special accounting for
qualifying hedges allows gains and losses from derivatives to offset related
results on the hedged item in the income statement and requires a company to
formally document, designate and assess the effectiveness of transactions for
which hedge accounting is applied. The impact the adoption of SFAS No. 133 will
have on the Company's financial statements has not been determined. The Company
expects to adopt SFAS NO. 133 when required.
-15-
<PAGE>
PART II. OTHER INFORMATION
Legal Proceedings.
There are various claims and lawsuits in which the Registrant is periodically
involved incidental to the Registrant's business. In the opinion of management,
no material loss is expected from any of such pending claims or
lawsuits.Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of security holders during the period
covered by this report.
Exhibits and Reports on Form 8-K.
(a) Exhibits
none
(b) Reports on Form 8-K
On January 5, 2000 the Registrant filed a current report on Form 8-K
relating to the Company's announcement that it is commencing a share
repurchase program calling for the repurchase of up to 241,239 shares, or
approximately 5% of the shares outstanding, in open market purchases.
-16-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed by the undersigned
thereunto duly authorized.
FIRST FEDERAL BANKSHARES, INC.
DATE: May 10, 2000 BY: /s/ Barry E. Backhaus
---------------------
Barry E. Backhaus
President and
Chief Executive Officer
DATE: May 10, 2000 BY: /s/ Katherine Bousquet
----------------------
Katherine Bousquet
Chief Financial Officer
-17-
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> MAR-31-2000
<CASH> 14,565,307
<INT-BEARING-DEPOSITS> 3,531,274
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 118,819,812
<INVESTMENTS-CARRYING> 28,377,077
<INVESTMENTS-MARKET> 27,592,632
<LOANS> 499,535,015
<ALLOWANCE> 3,377,460
<TOTAL-ASSETS> 719,816,312
<DEPOSITS> 483,469,104
<SHORT-TERM> 78,704,444
<LIABILITIES-OTHER> 8,536,360
<LONG-TERM> 82,237,034
0
0
<COMMON> 48,277
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<INTEREST-OTHER> 123,568
<INTEREST-TOTAL> 35,485,795
<INTEREST-DEPOSIT> 15,079,871
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<SECURITIES-GAINS> (50,535)
<EXPENSE-OTHER> 12,469,219
<INCOME-PRETAX> 5,590,001
<INCOME-PRE-EXTRAORDINARY> 3,628,001
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,628,001
<EPS-BASIC> .79
<EPS-DILUTED> .79
<YIELD-ACTUAL> 2.83
<LOANS-NON> 370,000
<LOANS-PAST> 1,118,000
<LOANS-TROUBLED> 436,302
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