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 September 30, 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.
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(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
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(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 November 8, 2000
------- --------------------------------
(Common Stock, $.01 par value) 4,690,161
<PAGE>
FIRST FEDERAL BANKSHARES, INC.
INDEX
Page
Part I. Financial Information
Item I. Financial Statements of First Federal
Bankshares, Inc. and Subsidiaries 1
Condensed Consolidated Balance Sheets
at September 30, 2000 and June 30, 2000 1
Condensed Consolidated Statements of Operations
for the three-month periods ended
September 30, 2000 and 1999 2
Condensed Consolidated Statements of Changes in
Stockholders' Equity for the three-month periods
ended September 30, 2000 and 1999 3
Condensed Consolidated Statements of Comprehensive
Income for the three-month periods ended
September 30, 2000 and 1999 4
Condensed Consolidated Statements of Cash Flows
for the three-month periods ended
September 30, 2000 and 1999 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 7
Part II. Other Information 12
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FIRST FEDERAL BANKSHARES, INC and SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, June 30,
2000 2000
-------------------------------------
(Unaudited)
<S> <C> <C>
Assets
------
Cash and cash equivalents $20,729,862 $20,166,706
Securities available for sale 111,918,527 117,326,062
(amortized cost $117,462,287 and $124,252,112)
Securities held to maturity 23,227,582 23,737,311
(fair value of $22,850,831 and $23,067,005)
Loans receivable, net 522,521,675 505,089,564
Office property and equipment, net 15,090,716 15,314,905
Federal Home Loan Bank stock, at cost 9,468,700 8,928,900
Accrued interest receivable 5,018,559 4,800,415
Deferred tax asset 1,847,000 2,362,000
Excess of cost over fair value of assets acquired 19,658,596 19,900,409
Other assets 4,625,348 5,755,245
-------------------------------------
Total assets $734,106,565 $723,381,517
=====================================
Liabilities
Deposits $470,574,279 $471,625,531
Advances from Federal Home Loan Bank 183,466,536 174,020,499
Advance payments by borrowers for
taxes and insurance 1,878,948 2,828,275
Accrued taxes on income 274,043 292,740
Accrued interest payable 5,775,727 4,297,514
Accrued expenses and other liabilities 2,193,172 2,204,039
-------------------------------------
Total liabilities 664,162,705 655,268,598
-------------------------------------
Stockholders' equity
Common stock, $.01 par value, 12,000,000 shares authorized;
4,834,211 and 4,833,608 shares issued
at September 30, 2000 and June 30, 2000, respectively 48,342 48,336
Additional paid-in capital 35,998,669 36,002,723
Retained earnings, substantially restricted 40,631,420 39,782,321
Treasury stock, at cost, 144,050 shares
at September 30,2000 and June 30, 2000 (1,273,138) (1,273,138)
Accumulated other comprehensive income (loss) (3,475,760) (4,343,049)
Unearned ESOP (1,593,090) (1,634,600)
Unearned RRP (392,583) (469,674)
-------------------------------------
Total stockholders' equity 69,943,860 68,112,919
-------------------------------------
Total liabilities and stockholders' equity $734,106,565 $723,381,517
=====================================
</TABLE>
See notes to condensed consolidated financial statements.
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<PAGE>
FIRST FEDERAL BANKSHARES, INC. and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three months
ended September 30,
2000 1999
-------------------------------------
(Unaudited)
<S> <C> <C>
Interest income:
Loans receivable $10,323,525 $8,853,615
Mortgage-backed securities 483,427 637,800
Investment securities 2,136,093 2,008,707
Other interest-earning assets 37,463 40,447
-------------------------------------
Total interest income 12,980,508 11,540,569
-------------------------------------
Interest expense:
Deposits 5,609,353 4,945,158
Borrowings 2,859,076 2,077,674
-------------------------------------
Total interest expense 8,468,429 7,022,832
-------------------------------------
Net interest income 4,512,079 4,517,737
Provision for loan losses 145,000 105,000
-------------------------------------
Net interest income after provision for loan losses 4,367,079 4,412,737
-------------------------------------
Noninterest income:
Service charges and other fees 829,884 693,693
Gain on sale of loans held for sale 64,081 85,464
Gain on sale of real estate owned and held for investment 29,500 173,186
Net gain on sale of securities 7,637 -
Real estate-related activities 301,701 428,740
Other income 378,182 363,247
-------------------------------------
Total noninterest income 1,610,985 1,744,330
-------------------------------------
Noninterest expense:
Compensation and employee benefits 2,198,480 2,181,554
Office property and equipment 604,951 584,215
Deposit insurance premiums 25,044 70,892
Data processing expense 122,244 115,972
Advertising 85,395 118,487
Amortization of intangibles 241,813 248,636
Other general and administrative 966,545 899,190
-------------------------------------
Total noninterest expense 4,244,472 4,218,946
-------------------------------------
Earnings before taxes on income 1,733,592 1,938,121
Taxes on income 523,000 740,000
-------------------------------------
Net earnings $1,210,592 $1,198,121
=====================================
Per share data:
Basic earnings per share $0.27 $0.26
=====================================
Diluted earnings per share $0.27 $0.26
=====================================
Dividends declared per share $0.080 $0.075
=====================================
</TABLE>
See notes to condensed consolidated financial statements.
-2-
<PAGE>
FIRST FEDERAL BANKSHARES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Three months ended September 30,
2000 1999
---------------------------------------
(Unaudited)
<S> <C> <C>
Capital Stock
Beginning of year balance $48,336 $48,178
Stock options exercised 6 70
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End of period balance 48,342 48,248
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Additional paid-in capital
Beginning of year balance 36,002,723 35,957,560
Stock options exercised 1,842 21,431
Stock depreciation of allocated ESOP shares (5,896) -
-------------------------------------------------------------------------------------------------------------------------
End of period balance 35,998,669 35,978,991
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Treasury stock, at cost
Beginning of year balance (1,273,138) -
Treasury stock purchased - -
-------------------------------------------------------------------------------------------------------------------------
End of period balance (1,273,138) -
-------------------------------------------------------------------------------------------------------------------------
Unearned ESOP shares
Beginning of year balance (1,634,600) (1,813,758)
ESOP shares allocated 41,510 44,575
-------------------------------------------------------------------------------------------------------------------------
End of period balance (1,593,090) (1,769,183)
-------------------------------------------------------------------------------------------------------------------------
Unearned recognition and retention plan shares
Beginning of year balance (469,674) -
Amortization of RRP expense 77,091 -
-------------------------------------------------------------------------------------------------------------------------
End of period balance (392,583) -
-------------------------------------------------------------------------------------------------------------------------
Retained earnings, substantially restricted
Beginning of year balance 39,782,321 36,283,211
Net earnings 1,210,592 1,198,121
Dividends paid on common stock (361,493) (362,226)
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End of period balance 40,631,420 37,119,106
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Accumulated other comprehensive income (loss)
Beginning of year balance (4,343,049) (2,202,184)
Net change in unrealized losses on securities available-for-sale 867,289 (816,777)
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End of period balance (3,475,760) (3,018,961)
-------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity $69,943,860 $68,358,201
=========================================================================================================================
</TABLE>
See notes to condensed consolidated financial statements.
-3-
<PAGE>
FIRST FEDERAL BANKSHARES, INC. and SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income
<TABLE>
<CAPTION>
Three months ended
September 30,
--------------------------------
2000 1999
---- ----
(Unaudited)
<S> <C> <C>
Net earnings $1,210,592 $1,198,121
Other comprehensive income:
Unrealized holding gains (losses) arising during the period, net of tax 872,733 (816,777)
Less: reclassification adjustment for net realized gains
inclulded in net income, net of tax expense (5,444) -
--------------- ----------------
Other comprehensive income (loss), net of tax 867,289 (816,777)
--------------- ----------------
--------------- ----------------
Comprehensive income $2,077,881 $381,344
=============== ================
</TABLE>
See notes to condensed consolidated financial statements.
-4-
<PAGE>
FIRST FEDERAL BANKSHARES, INC. and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three months ended September 30,
2000 1999
----------------------------------------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net earnings $1,210,592 $1,198,121
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Loans originated for sale to investors (6,603,850) (6,635,103)
Proceeds from sale of loans originated for sale 6,559,780 7,407,277
Provision for loan losses 145,000 105,000
Depreciation and amortization 683,665 552,833
Net gain on sale of loans (64,081) (85,464)
Net gain on sale of real estate owned and held for development (29,500) (173,186)
Net loan fees deferred (2,606) 33,862
Amortization of premiums and discounts on loans,
mortgage-backed securities, and investment securities 165,232 198,495
(Increase) decrease in accrued interest receivable (218,144) 193,602
Decrease (increase) in other assets 1,644,358 (1,937,070)
Increase in accrued interest payable 1,478,213 428,611
Decrease in accrued expenses and other liabilities (10,867) (346,553)
(Decrease) increase in taxes payable (18,697) 39,457
----------------------------------------
Net cash provided by operating activities 4,939,095 979,882
----------------------------------------
Cash flows from investing activities:
Purchase of securities held-to-maturity - (519,205)
Proceeds from maturities of securities held-to-maturity 509,975 1,140,961
Proceeds from sale of securities available-for-sale 5,928,476 -
Purchase of securities available-for-sale - (2,000,000)
Purchase of Federal Home Loan Bank Stock (539,800) -
Proceeds from maturities of securities available-for-sale 878,770 2,230,391
Loans purchased (1,753,000) (1,570,000)
Increase in loans receivable (15,995,238) (7,091,040)
Proceeds from sale of real estate owned and held for development 66,198 1,541,255
Net expenditures on real estate owned and held for development (452,766) (258,520)
Proceeds from sale of office property and equipment - 49,005
Purchase of office property and equipment (80,445) (572,474)
----------------------------------------
Net cash used in investing activities (11,437,830) (7,049,627)
----------------------------------------
Cash flows from financing activities:
(Decrease) increase in deposits (1,051,252) 5,186,171
Proceeds from advances from FHLB 23,500,000 10,000,000
Repayment of advances from FHLB (14,077,885) (7,073,615)
Net decrease in advances from borrowers for taxes and insurance (949,327) (892,082)
Issuance of common stock, net 1,848 21,501
Cash dividends paid (361,493) (362,226)
----------------------------------------
Net cash provided by financing activities 7,061,891 6,879,749
----------------------------------------
Net increase in cash and cash equivalents 563,156 810,004
Cash and cash equivalents at beginning of period 20,166,706 15,067,956
----------------------------------------
Cash and cash equivalents at end of period $20,729,862 $15,877,960
========================================
</TABLE>
See notes to condensed consolidated financial statements.
-5-
<PAGE>
6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FIRST FEDERAL BANKSHARES, INC. and SUBSIDIARIES
1. BASIS OF PRESENTATION
The condensed consolidated balance sheet information for June 30, 2000 was
derived from the Company's audited Consolidated Balance Sheets for the fiscal
year ended June 30, 2000. The condensed consolidated financial statements at and
for the three months ended September 30, 2000 and 1999 are unaudited.
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 condensed consolidated 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.
A summary of significant accounting policies followed by the Company is set
forth in Note 1 of the Company's 2000 Annual Report to Stockholders and is
incorporated herein by reference.
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 AND CONVERSION
First Federal Bankshares, Inc. (the "Company") is the holding company for First
Federal Bank (the "Bank"). The Company owns 100% of the Bank's common stock.
Currently, the Company engages in no other significant activities beyond its
ownership of the Bank's common stock. 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 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.
-6-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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.
Three months ended
September 30,
2000 1999
---- ----
Basic earnings per share computation:
Net earnings $1,210,592 $1,198,121
Wieghted-average common shares
outstanding 4,455,529 4,641,309
--------- ---------
Basic earnings per share $0.27 $0.26
========= =========
Diluted earnings per share computation:
Net earnings $1,210,592 $1,198,121
Weighted average common
shares outstanding - basic 4,455,529 4,641,309
Incremental option shares using
treasury stock method 33,104 18,877
Weighted average diluted
shares outstanding 4,488,633 4,660,186
--------- ---------
Diluted earnings per share $0.27 $0.26
========= =========
4. DIVIDENDS
On July 20, 2000 the Company declared a cash dividend on its common stock,
payable on August 31, 2000 to stockholders of record as of August 17, 2000,
equal to $.08 per share. Dividends totaling $361,493 were paid to stockholders.
On October 26, 2000 the Company declared a cash dividend on its common stock,
payable on November 30, 2000 to stockholders of record as of November 16, 2000
equal to $.08 per share. Approximately $361,490 will be paid to stockholders on
November 30, 2000.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FINANCIAL CONDITION
Total assets increased by $10.7 million, or 1.5%, to $734.1 million at September
30, 2000 from $723.4 million at June 30, 2000. The increase in total assets was
primarily due to an increase in loans receivable. Loans receivable increased by
$17.4 million, or 3.4%, to $522.5 million at September 30, 2000 from $505.1
million at June 30, 2000. The increase in loans receivable was primarily due to
an increase in the origination of commercial real estate and commercial business
loans, which generally have interest rates higher than those of residential
single-family mortgages. Partially offsetting the increase in loans was a
decrease in the balance of total investment securities.
-7-
<PAGE>
Securities available-for-sale ("AFS") decreased by $5.4 million, or 4.6%, to
$111.9 million at September 30, 2000 from $117.3 million at June 30, 2000.
During the three months ended September 30, 2000 the Company sold AFS
mortgage-backed securities with principal balances totaling $5.9 million in
order to fund loan growth. Securities held-to-maturity decreased by $510,000, or
2.1%, to $23.2 million at September 30, 2000 from $23.7 million at June 30, 2000
due to principal repayment and amortization.
Deposits decreased by $1.0 million, or .2%, to $470.6 million at September 30,
2000 from $471.6 million at June 30, 2000. Advances from the Federal Home Loan
Bank increased by $9.5 million, or 5.4%, to $183.5 million at September 30, 2000
from $174.0 million at June 30, 2000. The increase in the balance of advances
partially funded the increase in loan balances. Advance payments by borrowers
for taxes and insurance decreased by $949,000, or 33.6%, due to the payout in
September 2000 of the first half of Iowa real estate taxes from escrow accounts.
Total stockholders' equity increased by $1.8 million to $69.9 million at
September 30, 2000 from $68.1 million at June 30, 2000. Earnings totaled $1.2
million for the first quarter of the fiscal year. In addition, accumulated other
comprehensive income (loss) decreased by $867,000 as unrealized losses on
available-for-sale securities decreased due to higher market valuations. The
higher valuations occurred as market interest rates stabilized after a series of
six interest rate increases by the Federal Reserve Board between June 1999 and
May 2000. Dividends declared during the quarter totaled $362,000 excluding
dividends on unallocated Employee Stock Ownership Plan ("ESOP") shares.
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 September 30,
2000 the Company's average liquidity position was $142.8 million, or 25.7% of
its liquidity base for the preceding quarter.
CAPITAL
The Company's total equity increased by $1.8 million to $69.9 million at
September 30, 2000 from $68.1 million at June 30, 2000. The OTS requires that
the Bank meet minimum tangible, leverage (core) and risk-based capital
requirements. As of September 30, 2000 the Bank was in compliance with all
regulatory capital requirements. The Bank's required, actual and excess capital
levels as of September 30, 2000 are as follows:
Excess of
Actual Over
Required % of Actual % of Regulatory
Amount Assets Amount Assets Requirement
------ ------ ------ ------ -----------
(Amounts in thousands)
Tangible Capital $10,681 1.5% $47,783 6.71% $37,102
Core Capital 21,361 3.0% 47,783 6.71% 26,422
Risk-based Capital 33,902 8.0% 51,310 12.11% 17,408
-8-
<PAGE>
COMPARISON OF THE RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED
September 30, 2000 and 1999
General. Net earnings for each of the three months ended September 30, 2000 and
1999 totaled $1.2 million. Diluted earnings per share totaled $0.27 and $0.26,
respectively, for the three months ended September 30, 2000 and 1999.
Interest Income. Interest income increased by $1.4 million, or 12.5%, to $13.0
million for the three months ended September 30, 2000 from $11.6 million for the
three months ended September 30, 1999, largely due to an increase in the average
balance of interest-earning assets. The average balance of interest-earning
assets increased by $41.7 million, or 6.6%, to $673.0 million for the three
months ended September 30, 2000 from $631.3 million for the three months ended
September 30, 1999. The average yield on interest-earning assets increased to
7.71% for the three months ended September 30, 2000 from 7.31% for the three
months ended September 30, 1999, primarily due to higher yields on loans
receivable and investment and mortgage-backed securities in the generally higher
interest rate environment and to changes in the mix of interest-earning assets.
Interest income on loans for the three months ended September 30, 2000 increased
by $1.4 million, or 16.6%, to $10.3 million for the three months ended September
30, 2000 from $8.9 million for the three months ended September 30, 1999. The
increase in interest income on loans was primarily due to an increase of $51.4
million, or 11.1%, in the average balance of loans receivable, to $514.5 million
for the three months ended September 30, 2000 from $463.1 million for the three
months ended September 30, 1999. The average yield on loans increased to 8.03%
for the three months ended September 30, 2000 from 7.65% for the three months
ended September 30, 1999. The increase in the average yield on loans was due to
the Company's strategy of increasing its portfolio of commercial real estate,
commercial business and consumer loans that generally have higher interest rates
than residential single-family mortgages.
Interest income on mortgage-backed securities for the three months ended
September 30, 2000 decreased by $154,000, or 24.2%, when compared to the three
months ended September 30, 1999. The average balance of mortgage-backed
securities decreased by $11.3 million, or 28.3%, to $28.6 million at September
30, 2000 from $39.9 million at September 30, 1999. The average yield on
mortgage-backed securities increased to 6.75% for the three months ended
September 30, 2000 from 6.39% for the three months ended September 30, 1999, as
variable rate securities repriced upward in the generally higher market interest
rate environment.
Interest income on investment securities increased by $127,000, or 6.3%, as the
average balance of investment securities increased by $2.6 million, or 2.1%, to
$127.6 million at September 30, 2000 from $125.0 million at September 30, 1999.
The average yield on investment securities increased by 26 basis points to 6.69%
for the three months ended September 30, 2000 from 6.43% for the three months
ended September 30, 1999.
Interest Expense. Interest expense increased by $1.5 million, or 20.6%, to $8.5
million for the three months ended September 30, 2000 from $7.0 million for the
three months ended September 30, 1999. Interest on deposits increased by
$664,000, or 13.4%, to $5.6 million for the three months ended September 30,
2000 from $4.9 million for the three months ended September 30, 1999. The
increase in interest on deposits was primarily due to a 56 basis point increase
-9-
<PAGE>
in the average cost of deposits to 4.97% for the three months ended September
30, 2000 from 4.41% for the three months ended September 30, 1999. The generally
higher market interest rate environment during the current fiscal year
influenced the rates paid on deposits. Strong competition for deposits in this
environment made it more difficult for the Company to attract transaction
accounts, as has been its strategy in recent years. The average balance of
deposits increased by only $2.5 million, or .5%, to $451.1 million at September
30, 2000 from $448.7 million at September 30, 1999.
In order to fund the increase in loan balances the Company increased its
borrowing from the Federal Home Loan Bank (the "FHLB"). Interest on FHLB
advances increased by $781,000, or 37.6%, to $2.9 million for the three months
ended September 30, 2000 from $2.1 million for the three months ended September
30, 1999. The increase in interest on borrowings was primarily due to an
increase in the average balance of advances. The average balance of advances
increased by $38.1 million, or 26.8%, to $180.0 million at September 30, 2000
from $141.9 million at September 30, 1999. The increase in interest expense was
also due to an increase of 49 basis points in the average cost of borrowings to
6.35% for the three months ended September 30, 2000 from 5.86% for the three
months ended September 30, 1999.
Net Interest Income. The increase in interest income was offset by the increase
in interest expense. Net interest income totaled $4.5 million for each of the
three months ended September 30, 2000 and 1999. The Company's interest rate
spread for the three months ended September 30, 2000 decreased to 2.35% from
2.56% for the three months ended September 30, 1999.
Provision for Loan Loss. Provision for loan losses increased by $40,000, or
38.1%, to $145,000 for the three months ended September 30, 2000 from $105,000
for the three months ended September 30, 2000 and 1999. Provision for loan
losses was increased due to increased loan balances. 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.
Noninterest Income. Noninterest income decreased by $133,000, or 7.6%, to $1.6
million for the three months ended September 30, 2000 from $1.7 million for the
three months ended September 30, 1999. The decrease in noninterest income was
primarily due to decreases in income related to single-family residential
mortgage origination activity. Single-family residential mortgage origination
activity was generally lower during the three months ended September 30, 2000 as
compared to the three months ended September 30, 1999. Gain on sale of loans
held for sale decreased by $21,000, or 25.0%, to $64,000 for the three months
ended September 30, 2000 from $85,000 for the three months ended September 30,
1999. Gain on sale of real estate held for development totaled $30,000 and
$55,000, respectively, for the three months ended September 30, 2000 and 1999;
and, gain on sale of real estate owned totaled $118,000 for the three months
ended September 30, 1999 with no gain recorded for the three months ended
September 30, 2000. Income from other real estate-related activities decreased
by $127,000, or 29.6%, to $302,000 for the three months ended September 30, 2000
from $429,000 for the three months ended September 30, 1999, primarily due to a
decrease in sales revenue in the Company's real estate brokerage subsidiary in a
generally slower real estate market. Partially offsetting these decreases in
noninterest income was an increase of $136,000, or 19.6%, in service charges and
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<PAGE>
other fees for the three months ended September 30, 2000 as compared to the
three months ended September 30, 1999. The increase in service charges and other
fees resulted from prepayment penalty income and service fees from the Company's
growing business and personal deposit account relationships. Other income
increased by $23,000, or 6.2%, to $386,000 for the three months ended September
30, 2000 from $363,000 for the three months ended September 30, 1999 largely due
to receipt of interest totaling $65,000 on franchise tax refunds from prior
years.
Noninterest expense. Noninterest expense totaled $4.2 million for each of the
three months ended September 30, 2000 and 1999. The Company has focused renewed
attention on controlling noninterest expense since the completion of recent bank
acquisitions in the two preceding fiscal years. Compensation and benefits
expense totaled $2.2 million for each of the three months ended September 30,
2000 and 1999 largely due to a reduction in full-time-equivalent ("FTE")
employees. This reduction in FTE's largely offset additional expense related to
annual salary increases, which took effect in January 2000.
Office property and equipment expense and data processing expense increased by
$21,000, or 3.6%, and $6,000, or 5.4%, respectively, for the three months ended
September 30, 2000 as compared to the same period of the prior year. Deposit
insurance premium expense and advertising expense decreased by $46,000, or
64.7%, and $33,000, or 27.9%, respectively, for the three months ended September
30, 2000 as compared to the three months ended September 30, 1999. The deposit
insurance premium rate decreased to $0.0206 per hundred dollars of deposits for
the quarter ended September 30, 2000 from $0.0580 per hundred dollars of
deposits for the quarter ended September 30, 1999. Other general and
administrative expenses increased by $67,000, or 7.5%, for the three months
ended September 30, 2000 as compared to the three months ended September 30,
1999.
Net earnings and income tax expense. Net earnings before income taxes totaled
$1.7 million and $1.9 million, respectively, for the three months ended
September 30, 2000 and 1999. Income tax expense decreased by $217,000, or 29.3%,
to $523,000 for the three months ended September 30, 2000 from $740,000 for the
three months ended September 30, 1999. The decrease in income tax expense was
largely due to receipt of state franchise tax refunds from prior years that
totaled $105,000. The refunds were in settlement of an issue that had been under
examination for several years. The Company had not previously accrued the tax
benefit related to the resolution of this issue since the outcome was unknown.
The Company's effective tax rate, excluding the franchise tax refund, decreased
to 36.2% for the three months ended September 30, 2000 from 38.2% for the three
months ended September 30, 1999.
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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
27 - Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the period covered by this
report.
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<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: November 8, 2000 BY: /s/ Barry E. Backhaus
----------------------
Barry E. Backhaus
President and
Chief Executive Officer
DATE: November 8, 2000 BY: /s/ Katherine Bousquet
-----------------------
Katherine Bousquet
Vice President and Treasurer
(Principal Financial and
Accounting Officer
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