SIOUX CITY, Iowa, Aug. 12 IA-FFSX-Q4-Earns.
SIOUX CITY, Iowa, Aug. 12 /PRNewswire-FirstCall/ -- Excluding a non-cash
goodwill impairment charge First Federal Bankshares, Inc. (the "Company")
(Nasdaq: FFSX), the parent company of Vantus Bank (the "Bank"), reported a net
loss of $854,000, or $0.26 per diluted share for the three months ended June
30, 2008, compared to net income of $670,000, or $0.20 per diluted share, for
the three months ended June 30, 2007. During the most recent quarter, the
Company recognized a one-time non-cash goodwill impairment charge of $18.4
million related to earlier whole-bank acquisitions by the Company. The
goodwill impairment charge, which was required by generally accepted
accounting principles as a result of the Company's stock trading at a discount
to book value, has no impact on the Company's liquidity, cash flows, or
regulatory capital. Including this charge, the Company's net loss was $19.3
million, or $5.94 per diluted share, for the three months ended June 30, 2008.
Excluding the goodwill impairment charge, the net loss amounted to $4.0
million, or $1.25 per diluted share for the twelve months ended June 30, 2008,
compared to net income of $3.1 million, or $0.92 diluted share, for the twelve
months ended June 30, 2007. Including the goodwill charge, the Company
reported a net loss of $22.5 million, or $6.92 per diluted share for the
twelve months ended June 30, 2008, compared to net income of $3.1 million, or
$0.93 per diluted share, for the twelve months ended June 30, 2007.
In addition to the goodwill impairment charge, the Company's results for
the three- and twelve-months ended June 30, 2008, were adversely affected
by a non-cash "other than temporary" impairment charge on the Company's
trust-preferred pooled securities portfolio of $809,000 and $4.6 million,
respectively, and a loan loss provision of $1.4 million and $4.6 million,
respectively.
Earnings Details and Operating Results
Barry E. Backhaus, who returned as Interim President and Chief Executive
Officer of the Company on June 18, 2008, stated "Industry, financial, and
market conditions for our industry remain challenging. However, our management
team continues to execute our strategic plan, which focuses on growing our
franchise. During our just-completed fiscal year, the growth in the number of
new households increased 145.0% over fiscal year 2007. During the same
timeframe, the number of checking accounts increased by 2,349 or 12.2%. In
addition to this growth, the number of consumer loans originated increased
88.0%. Over the past fiscal year, the Company also opened branches in Jordan
Creek and Ankeny, Iowa. The number of customers that use our online banking
service has increased over the last fiscal year, which we believe will lower
our overhead costs in the long run. We believe these growth trends will
continue as the new branches mature and we continue to promote our Company's
brand and image. The Company also has had successes in the commercial banking
area. Commercial core deposit balances have increased 15.3%, the number of
customers using cash management products increased 102.7%, penetration of the
Company's business remote deposit product (FRED) increased 112.5%, and the
number of commercial internet banking users increased 27.4%. Finally, the
Company recently rolled out a small business banking initiative. We believe
these as well as other new initiatives planned for the 2009 fiscal year will
assist in growing the franchise and will lead to a return to profitability as
industry conditions improve."
The "other than temporary" impairment charge relates to one of the
Company's trust-preferred pooled securities investments. As previously
reported by the Company, the investment rating of this investment was lowered
from "triple-B" to "triple-C" in December 2007. In December 2007 and in March
of 2008, the Company recorded an "other than temporary" impairment charge on
this investment. At June 30, 2008, the remaining carrying value of this
investment was $0.6 million. Mr. Backhaus, stated, "While we believe the
Company will receive all of the principal and interest due from this
investment, an impairment loss is required to be recognized under generally
accepted accounting principles."
Non-performing loans increased from $9.3 million or 2.2% of loans
receivable at March 31, 2008 to $17.7 million or 4.3% of loans receivable at
June 30, 2008. Adversely classified assets (which include non-performing
loans and consist of loans rated "substandard," "doubtful," or "loss," as well
as foreclosed and repossessed assets) increased from $14.2 million or 2.4% of
total assets at March 31, 2008, to $24.2 million or 4.2% of total assets at
June 30, 2008.
The increase in non-performing loans and adversely classified assets was
primarily related to three large commercial real estate loan relationships
totaling $12.9 million. In all of these instances, the Company believes the
estimated fair value of the collateral securing these loans exceeds the
amounts due the Company; accordingly, the Company did not record a specific
loss allowance on these loans.
The Company's allowance for loan loss increased from $4.7 million or 1.1%
of total loans at March 31, 2008, to $5.9 million or 1.4% of total loans at
June 30, 2008.
Mr. Backhaus stated, "This has been a difficult year for us and the entire
banking industry in regards to loans. However, we believe we have identified
our problem credits and have taken appropriate action to minimize the risk of
future losses."
Net interest income for the three months ended June 30, 2008 was $4.0
million, a decrease of $0.1 million from $4.1 million for the three months
ended June 30, 2007. For the three months ended June 30, 2008, the Company's
net interest margin was 3.13% compared to 2.83% for the same period a year
ago. The increase in margin was due to liability costs falling faster than
the yield of the Company's interest-earning assets. During the most recent
quarter, asset yields decreased 72 basis points, while the cost of
interest-bearing liabilities declined 121 basis points reflecting overall
decreases in market interest rates. The increase in margin was offset by
a decrease in the Company's average interest-earning assets. Average
interest-earning assets decreased $64.7 million to $520.1 million during the
most recent quarter compared to $584.8 million for the three months ended June
30, 2007. During the year, cash flows from the investment and loan portfolio
were used to pay off brokered certificates of deposit.
For the twelve months ended June 30, 2008, net interest income increased
to $16.2 million compared to $15.9 million for the same period ended June 30,
2007. For the twelve months ended June 30, 2008, the Company's net interest
margin increased to 2.97% from 2.90% for the twelve months ended June 30,
2007. The increase in margin was partially offset by a decrease in average
interest-earning assets. Average earning assets for the twelve months ended
June 30, 2008, were $551.2 million compared to $555.4 million for the twelve
months ended June 30, 2007.
Non-interest income for the three months ended June 30, 2008, totaled $0.9
million compared to $1.5 million for the three months ended June 30, 2007.
For the twelve months ended June 30, 2008, non-interest income was $1.6
million compared to $6.0 million for the twelve months ended June 30, 2007.
Non-interest income for the three- and twelve-month periods ended June 30,
2008 reflected the other than temporary impairment charge discussed above.
Excluding this charge, non-interest income increased by $0.2 million or 10.0%
during the three months ended June 30, 2008, compared to the same period in
the previous year. The increase was primarily attributed to an increase in
mortgage banking revenue, which increased due to an improvement in the value
of the Company's mortgage servicing rights. Excluding the impairment charge,
non-interest income increased by $0.2 million or 3.5% during the twelve months
ended June 30, 2008, compared to the same period in the previous year. The
increase was attributable to the increase in mortgage banking revenue and an
increase in the amount of commercial and consumer loan service fees. The
increase in the amount of service fees on commercial and consumer loans was
due to the collection of prepayment penalties on a number of large commercial
real estate loans that refinanced during the period.
Excluding the goodwill impairment charge discussed above, non-interest
expense for the three months ended June 30, 2008, increased $0.3 million or
5.4% over the same period last year. Excluding the goodwill impairment
charge, for the twelve months ended June 30, 2008, non-interest expense
increased $2.1 million or 11.6% as compared to the twelve months ended June
30, 2007. Personnel expense increased $1.0 million or 9.6% for the twelve
months ended June 30, 2008, as compared to the same period last year, due
primarily to normal pay increases and an increase in the number of full-time
equivalent employees as compared to last year. The number of full-time
equivalent employees was 195 as of June 30, 2008, as compared to 185 at the
same time last year. The increase in personnel was primarily due to the
opening of two new banking centers in the Des Moines market, as well as the
hiring of certain key employees over the past twelve months. Advertising,
donations, and public relations for the twelve months ended June 30, 2008,
increased $0.7 million to $1.4 million as compared to the same period last
year, due to increased costs associated with the promotion of the Bank's new
name and brand. Data processing, ATM, and other item processing expense
increased $0.3 million from $1.3 million for the twelve months ended June 30,
2007, to $1.6 million for the twelve months ended June 30, 2008. This
increase was partially due to the increased number of new checking accounts
opened during fiscal year 2008 as compared to the previous year. In addition,
the Company has been successful at increasing the number of internet and
mobile banking users and the number of debit card transactions has increased.
As a result, processing costs to service these channels have increased as
compared to the previous year.
Income tax benefit for the twelve months ended June 30, 2008, was $2.9
million compared to an expense of $739,000 for the twelve months ended June
30, 2007. Income tax benefit for the three months ended June 30, 2008, was
$633,000 compared to an expense of $178,000 for the same period a year ago.
Total assets decreased by $80.9 million, or 12.5%, to $564.9 million at
June 30, 2008, from $645.8 million at June 30, 2007. This decrease was due to
short term investments and cash being used to repay wholesale borrowings. In
addition, loans receivable declined $20.1 million as loan prepayment activity
increased. Total deposits declined significantly from June 30, 2007, as a
result of management's decision to replace $50.0 million in brokered
certificates of deposit with $50.0 million in advances from the FHLB.
Excluding brokered certificates, deposit liabilities decreased $11.3 million
or 2.5% since June 30, 2007. However, total checking account balances have
increased $9.7 million or 7.0% during the same timeframe.
The Company's tangible book value per share was $9.69 at June 30, 2008,
compared to $15.29 at June 30, 2007. The Company's total risk based capital
ratio is 10.82% at June 30, 2008. This is considered "well capitalized" under
regulatory guidelines. The decline in tangible book value per share was
attributable to the Company's net loss from operations for the year ended June
30, 2008, as well as a $13.7 million increase in accumulated other
comprehensive loss, which is a component of stockholders' equity. This
increase was caused by a decline in the fair value of the Company's
available-for-sale securities, most notably its portfolio of trust-preferred
pooled securities ("TPSs").
Trust Preferred Securities Portfolio
As of June 30, 2008, the Company owned TPSs with an amortized cost of
$60.7 million. The cash flows of the Company's TPSs are derived from trust
preferred securities and subordinated debt issued by well-diversified pools of
banks and thrifts (76%), insurance companies (24%), and REIT/homebuilders
(less than 1%). The Company's TPS securities are secured through a
combination of subordination from lower classes within the TPS structures, as
well as over-collateralization of available future contractual cash flows. At
the time of purchase, each of the securities in the Company's TPS portfolio
were rated either single-A (66% of the portfolio) or triple-B (33% of the
portfolio) by a nationally recognized rating agency. In December 2007,
however, a TPS was downgraded to triple-C due to the default of two REITs
within the TPS. This security is the only TPS in the Company's portfolio that
has an exposure to REITs (27%).
On June 30, 2008, the fair value of the Company's TPS portfolio was
estimated to be $39.5 million or 65.1% of unamortized cost, compared to $49.7
million or 76.3% of unamortized cost at March 31, 2008. The Company expects
to receive all contractual principal and interest payments due on these
securities, and the Company has the intent to hold these securities until the
market value recovers or the maturity of the securities. For these reasons,
management has concluded that the decline in the estimated fair value of the
Company's TPS portfolio is temporary, with the exception of the Triple-C rated
security. As such, the Company recorded the corresponding fair value
adjustment as a component of other comprehensive loss, net of estimated income
tax benefit. Accumulated other comprehensive loss is a component of
stockholders' equity. This loss does not affect the cash flows of the Company
and does not affect the regulatory capital of the Bank. It should be noted,
however, that the rating agencies have placed most of these bonds on their
watch list for possible ratings downgrade. In addition, should the Company
determine that all or portions of its TPS portfolio to be "other than
temporary", it would have material adverse effect on the Company's current or
future earnings, stockholders' equity, and regulatory capital.
About Vantus Bank
The Company's banking subsidiary, Vantus Bank, is headquartered in Sioux
City, Iowa. Founded in 1923, Vantus Bank is a community bank serving
businesses and consumers in seven full-service offices in northwest Iowa, a
full-service office in South Sioux City, Nebraska, and seven full-service
offices in central Iowa, including four in the Des Moines market area.
Certain matters in the press release are "forward-looking statements"
intended to qualify for the safe harbor from liability as established by the
Private Securities Litigation Reform Act of 1995. Such forward-looking
statements include words and phrases such as "believes" "will likely result,"
"are expected to," "will continue," "is anticipated," "estimate," "project,"
"intends to," or similar expressions. Similarly statements that describe the
Company's future plans, objectives, or goals are forward-looking statements.
The Company wishes to caution the readers not to place undue reliance on any
such forward-looking statements, which speak only as of the date of the press
release, and to advise readers that various factors could affect the Company's
financial performance and could cause results for future periods to differ
materially from those anticipated or projected. Such factors include, but are
not limited to: (i) general market interest rates, (ii) general economic
conditions, (iii) legislative/regulatory changes, (iv) monetary and fiscal
policies of the U.S. Treasury and Federal Reserve, (v) changes in the quality
or composition of Company's loan and investment portfolios, (vi) demand for
loan products, (vii) deposit flow, (viii) competition, (ix) demand for
financial services in Company's markets and (x) changes in accounting
principles, policies, or guidelines.
FIRST FEDERAL BANKSHARES, INC. and SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
June 30 June 30
(Dollars in thousands, except per2008 2007
share amounts)
ASSETS
Cash and cash equivalents $12,491 $25,738
Securities available-for-sale, at
fair value 84,229 122,309
Securities held-to-maturity, at cost 7,000 9,549
Mortgage loans held for sale 1,102 2,131
Loans receivable, net 407,819 427,954
Office property and equipment, net 18,76216,205
Federal Home Loan Bank stock, at cost4,283 3,560
Accrued interest receivable 2,535 2,940
Goodwill -18,417
Foreclosed and repossessed assets 873 2,156
Deferred tax asset 9,256 165
Other assets16,55614,693
Total assets$564,906 $645,817
LIABILITIES
Deposits $446,568 $507,865
Advances from FHLB and other
borrowings 81,63762,202
Advance payments by borrowers for
taxes and insurance 884 916
Accrued interest payable 1,801 2,691
Accrued expenses and other liabilities 1,996 1,888
Total liabilities532,886 575,562
STOCKHOLDERS' EQUITY
Common stock, $.01 par value5151
Additional paid-in capital 39,50539,230
Retained earnings, substantially restricted 35,48458,704
Treasury stock, at cost(28,535) (26,886)
Accumulated other comprehensive loss (13,936) (179)
Unearned ESOP (549) (665)
Total stockholders' equity32,02070,255
Total liabilities and
stockholders' equity $564,906 $645,817
Actual number of shares outstanding
at end of period, net of treasury stock 3,304,471 3,389,971
Average shares outstanding used to compute:
Basic earnings per share 3,244,570 3,316,774
Diluted earnings per share 3,244,570 3,316,774
Shareholders' equity to total assets 5.67%10.88%
Book value per share $9.69$20.72
Tangible book value per share$9.69$15.29
FIRST FEDERAL BANKSHARES, INC. and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
Three months Twelve months
endedended
June 30 June 30
(Dollars in thousands, except per20082007 2008 2007
share amounts)
Interest on loans $6,143 $7,333 $27,618 $29,845
Interest on investment securities1,474 2,136 7,3575,465
Interest on cash and cash equivalents1 148 126 465
Total interest income 7,618 9,61735,101 35,775
Interest on deposit liabilities 2,857 4,67014,904 16,059
Interest on borrowings 731 861 3,9763,819
Total interest expense 3,588 5,53118,880 19,878
Net interest income 4,030 4,08616,221 15,897
Provision for loan losses1,376 13 4,570 547
Net interest income after provision2,654 4,07311,651 15,350
Service charges on deposit accounts884 800 3,2753,334
Fees on commercial and consumer loans 70 60 348 196
Gain on sale of real estate held for
development - 3047 105
Other-than-temporary impairment of
investment securities(809) -(4,569) -
Mortgage banking revenue 318 151 837 681
Other income 430 507 1,6901,673
Total non-interest income893 1,548 1,6285,989
Personnel expense2,907 2,76011,470 10,465
Office property and equipment 713 735 2,8472,851
Data processing, ATM and debit card
transaction costs, and other
item processing expense 385 350 1,5641,261
Professional, insurance, and
regulatory expense360 340 1,1491,150
Advertising, donations, and public
relations 321 175 1,375 719
Communications, postage, and office
supplies 235 201 883 815
Goodwill impairment 18,417 -18,417-
Other expense 113 212 930 860
Total non-interest expense23,451 4,77338,635 18,121
Income (loss) from continuing
operations before income taxes(19,904)848 (25,356) 3,218
Income tax expense (benefit) (633)178(2,900) 739
Income (loss) from continuing
operations(19,271)670 (22,456) 2,479
Income from discontinued operations,
net of tax - - - 590
Net income (loss) ($19,271) $670 ($22,456) $3,069
Basic earnings per share:
Income (loss) from continuing
operations ($5.94) $0.20($6.92) $0.75
Income from discontinued operations- - - 0.18
Net income (loss) per share ($5.94) $0.20($6.92) $0.93
Diluted earnings per share:
Income (loss) from continuing
operations ($5.94) $0.20($6.92) $0.74
Income from discontinued operations- - - 0.18
Net income (loss) per share ($5.94) $0.20($6.92) $0.92
Cash dividends declared per share - $0.105$0.315 $0.415
FIRST FEDERAL BANKSHARES, INC and SUBSIDIARIES
SELECTED FINANCIAL DATA (unaudited)
At or for the At or for the
three months twelve months
ended ended
June 30 June 30
(Dollars in thousands, except per2008 2007 2008 2007
share amounts)
Average total assets $588,500 $644,243 $616,908 $600,538
Average interest-earning assets 520,131 584,764 551,244 555,415
Average interest-bearing
liabilities480,134 527,007 502,905 495,240
Average interest-earning assets to
average interest-bearing
liabilities 108.33% 110.96% 109.61% 112.15%
Activity in the allowance for loan
losses during the period:
Balance at beginning of period $4,693$2,031$1,797$5,466
Provision for loan losses 1,37613 4,570 547
Charge-offs:
Single-family mortgage loans- (69) (165) (93)
Commercial real estate loans- (41) (17) (41)
Commercial business loans(145) (74) (216) (2,694)
Consumer loans(46) (94) (195) (284)
Total loans charged-off(191) (278) (593) (3,112)
Loans transferred to held for sale- - -(1,300)
Recoveries 1631 120 196
Charge-offs net of recoveries(175) (247) (473) (4,216)
Balance at end of period $5,894$1,797$5,894$1,797
Non-performing loans receivable $17,749$1,242 $17,749$1,242
Non-performing loans to total
loans receivable 4.29% 0.29% 4.29% 0.29%
Allowance for loan losses to
non-performing loans 33.21% 144.69%33.21% 144.69%
Ratio of allowance for loan losses
to total loans held for
investment at end of period 1.42% 0.42% 1.42% 0.42%
Selected operating data: (1)
Return on average assets -13.10% 0.42%-3.64% 0.50%
Return on average equity -136.45% 3.81% -34.63% 4.39%
Net interest rate spread 2.91% 2.42% 2.65% 2.46%
Net yield on average
interest-earning assets (2) 3.13% 2.83% 2.97% 2.90%
Efficiency ratio (3)87.84%84.87%90.21%82.71%
(1) Annualized except for efficiency ratio.
(2) Net interest income, tax-effected, divided by average
interest-earning assets.
(3) Non-interest expense divided by net interest income plus non-interest
income, less gain (loss) on sale of other real estate owned,
investments, and fixed assets.
FIRST FEDERAL BANKSHARES, INC and SUBSIDIARIES
SELECTED FINANCIAL DATA (unaudited)
Weighted
June 30 Average
(Dollars in thousands, except2008Rate
per share amounts)
Time deposits maturing within
Three months $47,817 3.99%
Four to six months23,844 3.45%
Seven to twelve months72,140 3.61%
More than twelve months 76,369 3.98%
Total time deposits $220,170 3.80%
FHLB advances and all other
borrowings maturing within
Three months $64,887 3.00%
Four to six months - -
Seven to twelve months 4,500 4.80%
More than twelve months 12,250 5.04%
Total FHLB advances and all other borrowings $81,637 3.40%
Three months ended Twelve months ended
June 30 June 30
2008 2007 2008 2007
Market price per share:
High for the period $14.87 $21.55 $19.00 $22.51
Low for the period $6.00 $18.50 $6.00 $18.50
Close at end of period $6.57 $19.44 $6.57 $19.44
SOURCE First Federal Bankshares, Inc.
