UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from __________ to __________
Commission file number 0-37053
FIRST FEDERAL BANCSHARES, INC.
(Exact name of small business issuer as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
37-1397683
(IRS Employer Identification No.)
109 East Depot Street, Colchester, Illinois
(Address of Principal Executive Offices)
62326
(ZIP Code)
(309) 776-3225
(Issuer's telephone number, including area code)
State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date.
As of October 31, 2000 the Registrant had outstanding 2,242,500 shares of common
stock.
Transitional Small Business Disclosure format (Check one): Yes [ ] No [X]
<PAGE>
FIRST FEDERAL BANCSHARES, INC.
Form 10-QSB Quarterly Report
Index
Page
----
PART I - Financial Information
Item 1 Financial Statements ...................................... 1
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations ........... 6
PART II - Other Information
Item 1 Legal Proceedings ......................................... 10
Item 2 Changes in Securities ..................................... 10
Item 3 Defaults Upon Senior Securities ........................... 10
Item 4 Submission of Matters to a Vote of Securities
Holders ................................................. 10
Item 5 Other Information ......................................... 10
Item 6 Exhibits and Reports on Form 8-K .......................... 11
SIGNATURES ................................................................ 12
<PAGE>
First Federal Bancshares, Inc. and Subsidiary
Consolidated Statements of Financial Condition
(in thousands of dollars, except share data)
(unaudited)
September 30, February 29,
2000 2000
---- ----
ASSETS
Cash and cash equivalents ....................... $ 24,428 $ 5,762
Time deposits in other financial institutions ... 2,562 1,572
Securities available-for-sale ................... 31,412 29,442
Securities held-to-maturity (fair value:
September 30 - $56,702 February 29 - $56,037) . 58,692 58,927
Loans receivable, net ........................... 116,667 113,602
Real estate owned, net .......................... 24 48
Premises and equipment .......................... 1,597 1,637
Excess of cost over fair value of net assets
acquired ....................................... 22 47
Accrued interest receivable ..................... 2,132 2,013
Other assets .................................... 112 137
--------- ---------
TOTAL ASSETS .................................... $ 237,648 $ 213,187
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits ........................................ $ 184,727 $ 182,572
Federal Home Loan Bank advances ................. 7,000 6,000
Advances from borrowers for taxes and
insurance ...................................... 78 296
Accrued interest payable ........................ 701 120
Other liabilities ............................... 392 173
--------- ---------
Total liabilities .......................... 192,898 189,161
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value,
1,000,000 shares authorized; none issued
or outstanding ................................. -- --
Common stock, $.01 par value, 4,000,000 shares
authorized; 2,242,500 shares issued ............ 22 --
Additional paid-in capital ...................... 21,302 --
Retained earnings ............................... 25,129 24,130
Unearned ESOP shares ............................ (1,794) --
Accumulated other comprehensive income (loss) ... 91 (104)
--------- ---------
Total stockholders' equity ................. 44,750 24,026
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ...... $ 237,648 $ 213,187
========= =========
See notes to consolidated financial statements.
1
<PAGE>
First Federal Bancshares, Inc. and Subsidiary
Consolidated Statements of Income
(in thousands of dollars, except share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months One Month Seven Months
Ended September 30, Ended Ended September 30,
---------------------- June 30 ----------------------
2000 1999 2000 2000 1999
---- ---- ---- ---- ----
Interest income
<S> <C> <C> <C> <C> <C>
Loans ............................................. $ 2,292 $ 1,919 $ 733 $ 5,252 $ 4,483
Securities and other .............................. 1,599 1,444 489 3,539 3,319
------- ------- ------- ------- -------
Total ......................................... 3,891 3,363 1,222 8,791 7,802
Interest expense
Deposits .......................................... 2,379 2,065 763 5,424 4,836
Federal Home Loan Bank advances ................... 91 49 21 181 49
------- ------- ------- ------- -------
Total ......................................... 2,470 2,114 784 5,605 4,885
------- ------- ------- ------- -------
Net interest income .................................... 1,421 1,249 438 3,186 2,917
Provision for loan losses .............................. -- 33 1 30 56
------- ------- ------- ------- -------
Net interest income after provision for
loan losses .......................................... 1,421 1,216 437 3,156 2,861
Noninterest income
Service charges ................................... 36 30 13 85 63
Other fee income .................................. 31 32 10 70 58
Other income ...................................... 26 8 18 59 47
------- ------- ------- ------- -------
Total noninterest income ...................... 93 70 41 214 168
Noninterest expense
Compensation and benefits ......................... 407 392 169 936 805
Occupancy and equipment ........................... 109 86 27 216 199
Data processing ................................... 153 109 36 300 272
Federal insurance premiums ........................ 20 38 6 46 88
Advertising ....................................... 23 24 5 49 69
Other operating expenses .......................... 171 81 27 288 202
------- ------- ------- ------- -------
Total noninterest expense ..................... 883 730 270 1,835 1,635
------- ------- ------- ------- -------
Income before income taxes ............................. 631 556 208 1,535 1,394
Provision for income taxes ............................. 221 188 62 536 487
------- ------- ------- ------- -------
Net income ........................................ $ 410 $ 368 $ 146 $ 999 $ 907
======= ======= ======= ======= =======
Comprehensive income (loss) ............................ $ 836 $ 15 $ (84) $ 1,194 $ 355
======= ======= ======= ======= =======
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
First Federal Bancshares, Inc. and Subsidiary
Consolidated Statements of Cash Flows
(in thousands of dollars)
(unaudited)
Seven Months Ended
September 30,
----------------------
2000 1999
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ........................................... $ 999 $ 907
Adjustments to reconcile net income to net cash
from operating activities
Net discount accretion on securities ............ (13) (13)
Depreciation .................................... 108 105
Amortization of intangibles ..................... 25 24
Provision for loan losses ....................... 30 56
FHLB stock dividends ............................ (32) --
Gain on sale of real estate owned ............... (27) (5)
Net change in:
Accrued interest receivable ................. (119) (328)
Accrued interest payable and other
liabilities ................................ 670 (483)
Other assets ................................ 25 18
-------- --------
Net cash from operating activities .......... 1,666 281
CASH FLOWS FROM INVESTING ACTIVITIES
Net change in time deposits in other financial
institutions ........................................ (990) --
Purchase of securities ............................... (2,613) (18,780)
Proceeds from sales, calls, and maturities of
securities .......................................... 1,000 5,310
Principal repayments on mortgage-backed securities ... 862 2,413
Dividend revinvestments .............................. (614) (445)
Net change in loans .................................. (3,119) (4,357)
Redemption of FHLB stock ............................. -- 35
Proceeds from sales of real estate owned ............. 75 --
Purchase of premises and equipment ................... (68) (103)
-------- --------
Net cash from investing activities .............. (5,467) (15,927)
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits ............................... 2,155 (1,240)
Net change in advances from borrowers for taxes
and insurance ....................................... (218) (206)
Net change in Federal Home Loan Bank advances ........ 1,000 8,000
Net proceeds from stock issuance ..................... 19,530 --
-------- --------
Net cash from financing activities .............. 22,467 6,554
-------- --------
Net change in cash and cash equivalents .............. 18,666 (9,092)
Cash and cash equivalents at beginning of period ..... 5,762 16,171
-------- --------
Cash and cash equivalents at end of period ........... $ 24,428 $ 7,079
======== ========
Cash paid during the period for
Interest ........................................ $ 5,024 $ 4,393
Income taxes .................................... 545 465
See notes to consolidated financial statements.
3
<PAGE>
First Federal Bancshares, Inc. and Subsidiary
Consolidated Statements of Stockholders' Equity
Seven months ended September 30, 2000 and 1999
(in thousands of dollars, except share data)
(unaudited)
<TABLE>
<CAPTION>
Accumulated
Other Total
Additional Unearned Compre- Stock-
Common Paid-in Retained ESOP Treasury hensive holders'
Stock Capital Earnings Shares Stock Income (Loss) Equity
----- ------- -------- ------ ----- ------------- ------
1999
----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at February 28, 1999 .................... $ -- $ -- $ 22,623 $ -- $ -- $ 714 $ 23,337
Comprehensive income
Net income .................................. -- -- 907 -- -- -- 907
Change in fair value of securities
classified as available-for-sale,
net of reclassification and
tax effects ............................... -- -- -- -- -- (552) (552)
--------
Total comprehensive income ............... 355
-------- -------- -------- -------- ----------- -------- --------
Balance at September 30, 1999 ................... $ -- $ -- $ 23,530 $ -- $ -- $ 162 $ 23,692
======== ======== ======== ======== =========== ======== ========
2000
----
Balance at February 29, 2000 .................... $ -- $ -- $ 24,130 $ -- $ -- $ (104) $ 24,026
Comprehensive income
Net income .................................. -- -- 999 -- -- -- 999
Change in fair value of securities
classified as available-for-sale,
net of reclassification and
tax effects ............................... -- -- -- -- -- 195 195
--------
Total comprehensive income ............... 1,194
Issuance of stock ............................... 22 21,302 -- (1,794) -- -- 19,530
-------- -------- -------- -------- ----------- -------- --------
Balance at September 30, 2000 ................... $ 22 $ 21,302 $ 25,129 $ (1,794) $ -- $ 91 $ 44,750
======== ======== ======== ======== =========== ======== ========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
FIRST FEDERAL BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(table amounts in thousands of dollars, except share data)
Note 1 - Basis of Presentation
The accompanying interim consolidated financial statements have been prepared
pursuant to the rules and regulations for reporting on Form 10-QSB. Accordingly,
certain disclosures required by generally accepted accounting principles are not
included herein. These interim statements should be read in conjunction with the
consolidated financial statements and notes thereto included in the Company's
Registration Statement on Form SB-2, as amended, filed with the Securities and
Exchange Commission. The February 29, 2000 balance sheet presented herein has
been derived from the audited financial statements included in the Company's
Registration Statement on Form SB-2 filed with the Securities and Exchange
Commission, but does not include all disclosures required by generally accepted
accounting principles.
Interim statements are subject to possible adjustment in connection with the
annual audit of the Company for the year ending December 31, 2000. In the
opinion of management of the Company, the accompanying unaudited interim
consolidated financial statements reflect all adjustments (consisting of normal
recurring adjustments) necessary for a fair presentation of the consolidated
financial position and consolidated results of operations for the periods
presented. The results of operations for the seven-month and three-month periods
ended September 30, 2000 and 1999 are not necessarily indicative of the results
to be expected for the full year.
Note 2 - Conversion to Stock Form of Ownership
On December 8, 1999, the Board of Directors of First Federal Bank (the "Bank")
adopted a Plan of Conversion to convert from a federally chartered mutual
savings bank to a federally chartered stock savings bank with the concurrent
formation of a holding company. The conversion was accomplished through the sale
of all of the Bank's stock to the Company and the sale of the Company's stock to
the public on September 27, 2000.
In connection with the conversion, the Company issued 2,242,500 shares of common
stock for gross proceeds of $22.4 million. The aggregate purchase price was
determined by an independent appraisal. The Bank issued all of its outstanding
capital stock to the Company in exchange for one-half of the net proceeds of the
offering. The Company accounted for the purchase in a manner similar to a
pooling of interests whereby assets and liabilities of the Bank maintain their
historical cost basis in the consolidated company.
5
<PAGE>
Note 3 - Employee Stock Ownership Plan
In connection with the conversion, the Bank established an Employee Stock
Ownership Plan ("ESOP") for the benefit of its employees. The Company issued
179,400 shares of common stock to the ESOP in exchange for a 10 year note in the
amount of approximately $1.8 million. The $1.8 million for the ESOP purchase was
borrowed from the Company.
Shares issued to the ESOP are allocated to ESOP participants based on principal
repayments made by the ESOP on the loan from the Company. The loan is secured by
shares purchased with the loan proceeds and will be repaid by the ESOP with
funds from the Company's discretionary contributions to the ESOP and earnings on
ESOP assets. Principal payments are scheduled to occur over a ten-year period.
However, in the event the Corporation's contributions exceed the minimum debt
service requirements, additional principal payments will be made.
Note 4 - Earnings per Share
Amounts reported as earnings per common share reflect earnings available to
common stockholders for the year divided by the weighted average number of
common shares outstanding during the year. Earnings per share is calculated
beginning with the date of conversion and, therefore, no earnings per share is
reported for this quarter.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
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 as amended, and is including this statement for 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
affect on the operations and future prospects of the Company and its
wholly-owned subsidiaries include, but are not limited to, changes in: interest
rates; general economic conditions; legislative/regulatory provisions; monetary
and fiscal policies of the U.S. Government, including policies of the U.S.
Treasury and the Federal Reserve Board; the quality or composition of the loan
or investment portfolios; demand for loan products; deposit flows; competition;
demand for financial services in the Company's market area; and accounting
principles, policies, and guidelines. These risks and uncertainties should be
considered in evaluating forward-looking statements and undue reliance should
not be placed on such statements. Further information concerning the Company and
its business, including additional factors that could materially affect the
Company's financial results, is included in the Company's filings with the
Securities and Exchange Commission.
The following discussion compares the financial condition of First Federal
Bancshares, Inc. (Company) and its wholly owned subsidiary, First Federal Bank
(Bank), at September 30, 2000 to its financial condition at February 29, 2000
and the results of operations for the seven-month and three-month periods ended
September 30, 2000 to the same periods in 1999. This discussion should be read
in conjunction with the interim financial statements and footnotes included
herein.
Financial Condition
Total assets at September 30, 2000 were $237.6 million compared to $213.2
million at February 29, 2000, an increase of $24.4 million. The growth in total
assets primarily reflects proceeds of $19.5 million from the initial public
offering. During the seven months ended September 30, 2000, loans increased $3.1
million while securities available-for-sale increased $2.0 million.
The allowance for loan losses was $523,000 at September 30, 2000 and $483,000 at
February 29, 2000. There were no impaired loans at either date.
Total liabilities at September 30, 2000 were $192.9 million compared to $189.2
million at February 29, 2000, an increase of $3.7 million, primarily due to an
increase in deposits of $2.1 million and a $1.0 million increase in Federal Home
Loan Bank advances. The increase was used to help fund the growth in loans
receivable.
Stockholders' equity at September 30, 2000 was $44.8 million compared to $24.0
million at February 29, 2000, an increase of $20.8 million. The increase
primarily reflects net proceeds of $19.5 million from the initial public
offering and net income of $999,000.
7
<PAGE>
Results of Operations
Net income increased $42,000 to $410,000 for the quarter ended September 30,
2000 compared to the same period in 1999. Net income increased $92,000 to
$999,000 for the seven months ended September 30, 2000 compared to the seven
months ended September 30, 1999. Fluctuations in net income are discussed below.
Net interest income was $1.4 million for the quarter ended September 30, 2000
compared to $1.2 million for the same period in 1999. Net interest income
increased to $3.2 million for the seven-month period ended September 30, 2000
compared to $2.9 million for the same period in 1999. The net interest margin
increased to 2.58% and 2.53% for the three months and seven months ended
September 30, 2000, respectively, from 2.47% and 2.51% for the three months and
seven months ended September 30, 1999, respectively. The increases in interest
margins are primarily due to higher market interest rates for loans and
increased average balances of loans, which have higher yields than securities.
Although the average cost of funds also increased, the average yield on assets
increased at a higher rate resulting in increased margins and spreads.
The provision for loan losses was zero and $30,000 for the quarter and
seven-month periods ended September 30, 2000 and $33,000 and $56,000 for the
same periods in 1999. Management believes that the allowance is adequate based
on: the low level of past due loans in the portfolio; actual loss experience;
and current economic conditions. Most of the Company's loans are secured by
first mortgages on residential or commercial real estate.
Noninterest income increased $23,000 to $93,000 and increased $46,000 to
$214,000 for the three-month and seven-month periods ended September 30, 2000,
respectively, compared to the same periods in 1999. The increase for the seven
month period was primarily due to increased service charges while the increase
for the three-month period was primarily due to miscellaneous other income.
Noninterest expense was $883,000 and $730,000 for the quarters ended September
30, 2000 and 1999, and $1.8 million and $1.6 million for the seven months ended
September 30, 2000 and 1999, respectively. The increase in noninterest expense
for both periods primarily reflects increased salaries related to the hiring of
a full-time commercial loan officer. In addition, data processing expenses have
increased as a result of increased volume of loans and deposits and occupancy
and equipment expense has increased due to depreciation of new ATM machines and
various equipment that was acquired in the prior year. Various other expenses
also increased during both periods. These increases were partially offset by a
decrease in FDIC insurance premiums.
The Company's federal income tax expense increased $33,000 to $221,000 for the
quarter ended September 30, 2000 compared to the same period in 1999, while
income tax expense increased $49,000 to $536,000 for the seven-month period
ended September 30, 2000 compared to the same period in 1999. Income tax expense
was approximately 34.9% of pretax income in each period.
Liquidity
Federal regulations require the Bank to maintain minimum levels of liquid
assets. The required percentage has varied from time to time based upon economic
conditions and savings flows and is currently 4.0% of net withdrawable savings
deposits and borrowings payable on demand or in one year or less during the
preceding calendar month. First Federal has historically maintained its
liquidity ratio for regulatory purposes at levels in excess of those required.
The Bank's regulatory liquidity at September 30, 2000 was 39.6%.
First Federal must maintain an adequate level of liquidity to ensure the
availability of sufficient funds to fund loan originations and deposit
withdrawals, to satisfy other financial commitments and to take advantage of
investment opportunities. First Federal invests excess funds in overnight
deposits and other short-term interest-bearing assets to provide liquidity to
meet these needs. At September 30, 2000, cash and cash equivalents totaled $24.4
million. This high level of liquid assets resulted from the completion of the
Company's public offering on September 27, 2000. The Company intends to invest
the proceeds of the offering over time in loans and securities. At September 30,
2000, First Federal had commitments to fund loans of $2.2 million. At the same
time, certificates of deposit which are scheduled to mature in one year or
8
<PAGE>
less totaled $114.5 million. Management believes, based on past experience, that
a significant portion of those deposits will remain with First Federal. Based on
the foregoing, in addition to First Federal's high level of core deposits and
capital, First Federal considers its liquidity and capital resources sufficient
to meet its outstanding short-term and long-term needs.
Capital Resources
The Bank is subject to capital-to-asset requirements in accordance with bank
regulations. The following table summarizes the Bank's regulatory capital
requirements versus actual capital as of September 30, 2000:
ACTUAL REQUIRED EXCESS
--------------- -------------- ---------------
AMOUNT % AMOUNT % AMOUNT %
------ --- ------ --- ------ ---
Core capital ......... $33,974 14.3% $ 1,359 4.0% $32,615 10.3%
Risk-based capital ... 34,956 32.1 2,796 8.0 32,160 24.1
9
<PAGE>
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Periodically, there have been various claims and lawsuits involving the
Company, such as claims to enforce liens, condemnation proceedings on
properties in which the Company holds security interest, claims involving
the making and servicing of real property loans and other issues incident
to the Company's business, In the opinion of management, after consultation
with the Company's legal counsel, no significant loss is expected from any
of such pending claims or lawsuits. The Company is not a party to any
material pending legal proceedings.
ITEM 2. CHANGES IN SECURITIES.
Use of Proceeds. On September 27, 2000, the Company completed an offering
of securities registered pursuant to the Securities Act of 1933, as
amended. In connection therewith:
1. The effective date of the registration statement on Form SB-2, as
amended (File No. 333-36368) was July 11, 2000.
2. The offering of securities was not underwritten. Friedman, Billings,
Ramsey & Co, Inc. acted as marketing agent.
3. The class of securities registered was common stock, $0.01 par value
per share. The amount of such securities registered was 2,578,875
shares at an offering price of $10.00 per share. The offering
terminated on September 21, 2000 with the sale of 2,245,000 shares at
a price of $10.00 per share.
4. The total offering expenses incurred by the Company were approximately
$1.1 million, none or which were paid directly or indirectly to
directors or officers of the Company or their associates.
5. The net proceeds of the offering were $21.3 million of which $1.8
million was loaned to the Bank's employee stock ownership plan to
purchase stock in the offering. One-half of the net proceeds were
invested in the Bank and the remaining was invested in short-term
securities. These uses of proceeds do not represent a material change
in the use of proceeds described in the Company's prospectus dated
July 11, 2000.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS.
None
10
<PAGE>
ITEM 5. OTHER INFORMATION.
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
10.1 Employment Agreement between First Federal Bancshares, Inc. and
James J. Stebor
10.2 Employment Agreement between First Federal Bank and James J.
Stebor
10.3 First Federal Bank Supplemental Executive Retirement Plan
10.4 First Federal Bank Employee Severance Compensation Plan
27.0 Financial Data Schedule
(b) Reports on Form 8-K. A Form 8-K was filed by the Company on August 9,
2000 reporting under Item 8 the Company's change in fiscal year to
December 31 from February 28, effective December 31, 2000.
11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRST FEDERAL BANCSHARES, INC.
Date: November 14, 2000 /s/ JAMES J. STEBOR
-------------------------------------
James J. Stebor
President and Chief Executive Officer
Date: November 14, 2000 /s/ CATHY D. PENDELL
-------------------------------------
Cathy D. Pendell
Treasurer
12
