EX-99.1 2 pressrelease81109.txt PRESS RELEASE ISSUED AUGUST 11, 2009 FIRST FEDERAL BANKSHARES, INC. PRESS RELEASE August 11, 2009 For Immediate Release For Further Information Contact: Levon Mathews President and Chief Executive Officer First Federal Bankshares, Inc. 712.277.0201 FIRST FEDERAL BANKSHARES, INC. REPORTS FOURTH QUARTER AND FISCAL YEAR END RESULTS AND RESIGNATION OF CHIEF EXECUTIVE OFFICER Sioux City, Iowa. First Federal Bankshares, Inc. (the "Company") (Nasdaq Global Market: FFSX), the parent company of Vantus Bank (the "Bank"), recorded a net loss for the three months ended June 30, 2009, of $17.7 million or $5.46 per diluted share, compared to a net loss of $22.2 million, or $6.84 per diluted share, for the three months ended June 30, 2008. For the twelve months ended June 30, 2009, the Company recorded a net loss of $18.6 million, or $5.75 per diluted share, compared to a net loss of $25.4 million, or $7.82 per diluted share, for the twelve months ended June 30, 2008. The loss for the three and twelve months ended June 30, 2009 was primarily attributable to "other than temporary impairment" ("OTTI") charges of $12.3 million and $19.2 million, respectively, relating to the Company's pooled trust preferred collateralized debt obligations ("trust preferred CDOs"). In addition, based on an evaluation of the Bank's deferred tax asset as of June 30, 2009, the Company concluded that it was more likely than not that a portion of the deferred tax asset will not be realized. As a result, the financial results for the three and twelve months ended June 30, 2009 reflected a valuation allowance of $8.8 million related to the deferred tax asset. Analysis of Financial Results The Company's trust preferred CDOs are substantially illiquid, and their valuation is highly complex and involves a comprehensive process including quantitative modeling and significant judgment. As a result, the Company engaged an independent consulting firm to assist in the valuation of these securities. Based on the consulting firm's findings, management determined the Company's trust preferred CDO securities had an aggregate fair value of $10.0 million at June 30, 2009. To determine the write down on these securities, management completed an analysis of projected cash flows and discounted the cash flows at the original purchased yield. The difference in the cost basis of the security and the net present value of the cash flows was considered a credit-related loss and was recorded through operations as an impairment loss. The effects of the trust preferred CDO securities on the Company's operations and capital position will continue to be influenced by external market conditions and other factors outside of the Company's control, including but not limited to, specific issuer credit deterioration, deferral and default rates of specific issuer financial institutions, failure or government seizure of the underlying financial institutions, rating agency actions, and the prices at 1 which observable market transactions in these types of securities occur. While management closely monitors the performance of the Company's trust preferred CDO securities and does not intend to sell these securities prior to the recovery in value, the current market environment significantly limits the Company's ability to mitigate its exposure to future credit-related OTTI write downs and price changes in these securities. Accordingly, if the aforementioned market conditions deteriorate further, it is likely that the Company would then determine additional credit-related OTTI on the Company's trust preferred CDO securities. Such a determination would correspondingly have a further material adverse impact on the Company's earnings, shareholders' equity and regulatory capital. Net interest income for the three-month period ended June 30, 2009 decreased $0.5 million from $4.0 million for the three months ended June 30, 2008, to $3.5 million for the three months ended June 30, 2009. Even though the dollar amount of net interest income decreased, net interest margin increased. For the three months ended June 30, 2009, the Company's net interest margin was 3.22% compared to 3.13% 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. The increase in margin was offset by a decrease in the Company's average interest-earning assets. Average interest-earning assets decreased to $436.1 million during the most recent quarter compared to $520.1 million for the three months ended June 30, 2008. The change in earning assets was primarily due to increased prepayments in the declining interest rate environment. In addition, the decline in earning assets was attributable to the sale of the Bank's Grinnell, Iowa branch that closed in December 2008 and a bulk sale of approximately $14.0 million of single-family mortgages that occurred during the third fiscal quarter. For the twelve month period ended June 30, 2009, net interest income decreased to $16.0 million compared to $16.2 million for the same period ended June 30, 2008 For the twelve months ended June 30, 2009, the Company's net interest margin was 3.44% compared to 2.97% for the same period a year ago. The increase in margin was offset by a decrease in average earning assets. Average interest-earning assets for the twelve month period ended June 30, 2009 decreased to $471.2 million compared to $551.2 million for the twelve months ended June 30, 2008. The provision for loan losses for the three months ended June 30, 2009, was $1.7 million compared to $1.4 million for the three months ended June 30, 2008. For the twelve months ended June 30, 2009, provision for loan losses totaled $3.8 million as compared to $4.6 million for the twelve months ended June 30, 2008. During the current quarter, the Company recognized specific allowances of $350,000 on a loan to a used car dealership in Des Moines, Iowa, $933,000 on a loan for the construction of a bio-diesel plant in south-eastern Nebraska, and $230,000 on a loan for the purchase of rental properties in Central Iowa. Non-interest income for the three months ended June 30, 2009 totaled $1.6 million as compared to $1.7 million for the three months ended June 30, 2008. The decrease was attributable to decreases in services charges on commercial and consumer loans as the level of prepayment activity on these types of loans decreased causing a decrease in the level of prepayment penalties on these loans. In addition, other income decreased. Other income relates to income 2 generated from the sale of fixed annuities and mutual funds. The level of sales of these items declined for the three months ended June 30, 2009 as compared to the three months ended June 30, 2008. Excluding the gain on sale of the Grinnell, Iowa branch, for the twelve months ended June 30, 2009, non-interest income totaled $6.4 million as compared to $6.2 million for the twelve months ended June 30, 2009. The increase was attributable to an increase in service fees on deposits and an increase in mortgage banking revenue. The improvement in service charges on deposit accounts was primarily attributable to the overall increase in the number of deposit accounts as compared to last year and the increase in mortgage banking revenue was attributable to the aforementioned bulk sale of single family mortgages. Excluding the goodwill impairment that occurred in fiscal year 2008, non-interest expense for the three months ended June 30, 2009 increased $0.3 million to $5.3 million as compared to $5.0 million for the three months ended June 30, 2008. For the twelve months ended June 30, 2009, non-interest expense increased to $20.8 million from $20.2 million during the same time period a year ago. The increase for both periods was due to an increase in FDIC deposit insurance premium expense and professional, insurance and regulatory expense, partially offset by a decrease in compensation and benefit expense. The increase in the professional, insurance, and regulatory expense was due to costs of consulting firms assisting the Company in evaluating "other than temporary" impairment issues related to the Company's investment in trust preferred securities. In addition, legal fees have increased due to the enhanced regulatory enforcement oversight of the Bank. Also contributing to the increase was an increase in insurance costs. FDIC deposit insurance premium expense increased due to the FDIC special assessment of approximately $250,000 that was recognized during the current quarter and an overall increase in the Company's deposit premiums. The decrease in compensation and benefit expense was primarily due to the sale of the Grinnell, Iowa branch and the reorganization plan that the Company implemented in the second and third quarters during the current fiscal year. The reorganization plan reduced the number of full-time equivalent employees to 144 as compared to 195 in the previous year. Management anticipates the reorganization will save the Company approximately $2.5 million a year. Although non-performing assets increased to $29.2 million at June 30, 2009 compared to $18.6 million at June 30, 2008, non-performing assets decreased during the quarter as compared to $29.6 million as of March 31, 2009. The decrease from quarter to quarter was attributable to the sale of previously foreclosed properties. Total assets decreased by $61.5 million to $503.5 million at June 30, 2009, from $565.0 million at June 30, 2008. The decrease was partially due to the aforementioned sale of the Grinnell, Iowa, branch, the aforementioned bulk sale of mortgage loans and planned run-off in the Bank's commercial real estate portfolio. Deposits totaled $392.9 million at June 30, 2009, as compared to $446.6 million at June 30, 2008. The decrease was primarily attributed to the aforementioned sale of the Bank's Grinnell, Iowa, branch. Regulatory Update The Bank's regulatory capital ratios as of June 30, 2009 were as follows: a Tier 1 Leverage Ratio of 4.47% (compared to the adequately capitalized threshold of 4.00%); a Tier 1 Risk-Based Capital Ratio of 3.35% (compared to the adequately 3 capitalized threshold of 4.00%); and a Total Risk-Based Capital Ratio of 3.98% (compared to the adequately capitalized threshold of 8.00%). As previously reported, the Company received notification on May 10, 2009 from the Office of Thrift Supervision ("OTS") that the Bank was considered significantly undercapitalized under the Prompt Corrective Action (PCA) capital categories and that the Bank must increase its capital and return to adequately capitalized status. As previously reported, the Company has been anticipating the issuance by the OTS of a PCA Directive and Stipulation to a PCA Directive. Also as previously reported, on July 31, 2009, the Company consented to the issuance of a Cease and Desist Order. Among other things, the Cease and Desist Order requires that by August 31, 2009, the Board of Directors must adopt and submit to the OTS a business plan for enhancing the consolidated capital and earnings of the Company. At a minimum, the business plan must address how the Bank will increase its Tier 1 Capital Ratio to at least 8.0% and its Total Risk-Based Capital Ratio to at least 12.0% by December 31, 2009, and how it will maintain these ratios thereafter. The Company has been in contact with several private equity groups related to a possible capital infusion in the Bank. However, there can be no assurance that the Company will succeed in raising additional capital from private equity or other sources. Moreover, such a transaction would likely result in substantial dilution to the Company's current stockholders and could adversely affect the price of the Company's common stock. Going Concern Assessment As a result of the above-described regulatory actions and the current uncertainties associated with the Company's ability to increase the Bank's capital levels to meet regulatory requirements, management believes the Company's independent registered public accounting firm may express substantial doubt about the Company's ability to continue as a going concern in the auditors' report contained within the Company's annual report on Form 10-K. The Company is working to implement the capital infusion described above in order to increase the Bank's regulatory capital ratios to address the uncertainties giving rise to a possible going concern assessment. Resignation of President and Chief Executive Officer On August 10, 2009, Levon Mathews submitted his resignation as President and Chief Executive Officer of the Company and of the Bank. Mr. Mathews has accepted a position as President and Chief Executive Officer of a financial institution outside the Bank's market area. Mr. Mathews' resignation is effective September 25, 2009 and he is expected to remain as President and Chief Executive Officer of the Company and the Bank through that date. The Board of Directors has initiated a search for a successor to Mr. Mathews and will consider internal as well as external candidates for the position. 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 4 consumers in seven full-service offices in northwest Iowa, a full-service office in South Sioux City, Nebraska, and six 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)

FIRST FEDERAL BANKSHARES, INC. and SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

FIRST FEDERAL BANKSHARES, INC and SUBSIDIARIES SELECTED FINANCIAL DATA (unaudited)

FIRST FEDERAL BANKSHARES, INC and SUBSIDIARIES SELECTED FINANCIAL DATA (unaudited)

FIRST FEDERAL BANKSHARES INC 8-K