SCHEDULE 14-A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
First Federal Bankshares, Inc.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required.
[_] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2).
[_] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
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4) Proposed maximum aggregate value of transaction:
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[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
September 22, 2005
Dear Fellow Stockholder:
On behalf of the Board of Directors and management of First Federal
Bankshares, Inc. (the "Company"), I cordially invite you to attend the 2005
Annual Meeting of Stockholders. The meeting will be held at 9:00 a.m., Nebraska
time on October 27, 2005 at the Marina Inn Conference Center, 4th and B Streets,
South Sioux City, Nebraska.
The enclosed Notice of Annual Meeting and Proxy Statement describe the
formal business to be transacted. During the meeting we will also report on the
Company's fiscal 2005 financial and operating performance.
An important aspect of the meeting process is the stockholder vote on
corporate business items. I urge you to exercise your rights as a stockholder to
vote and participate in this process. Stockholders are being asked to consider
and vote upon the proposals (i) to elect three directors of the Company and (ii)
to ratify the appointment of the independent registered public accounting firm
of the Company for the fiscal year ending June 30, 2006. The Board has carefully
considered these proposals and believes that their approval is in the best
interests of the Company and its stockholders. Accordingly, your Board of
Directors unanimously recommends that you vote for each of these proposals.
I encourage you to attend the meeting in person. Whether or not you attend
the meeting, I hope that you will read the enclosed Proxy Statement and then
complete, sign and date the enclosed proxy card and return it in the postage
prepaid envelope provided. Returning a properly executed and dated proxy card
will save the Company additional expense in soliciting proxies and will ensure
that your shares are represented. Please note that you may vote in person at the
meeting even if you have previously returned the proxy.
Thank you for your attention to this important matter.
Sincerely,
/s/ Barry Backhaus
Barry Backhaus
President and Chief Executive Officer
FIRST FEDERAL BANKSHARES, INC.
329 Pierce Street
Sioux City, Iowa 51101
(712) 277-0200
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To be Held on October 27, 2005
Notice is hereby given that the Annual Meeting of Stockholders (the
"Meeting") of First Federal Bankshares, Inc. will be held at the Marina Inn
Conference Center, 4th and B Streets, South Sioux City, Nebraska at 9:00 a.m.,
Nebraska time, on October 27, 2005.
A Proxy Card and a Proxy Statement for the Meeting are enclosed.
The Meeting is for the purpose of considering and acting upon:
1. The election of three directors of the Company;
2. The ratification of the appointment of McGladrey & Pullen, LLP as
the independent registered public accounting firm of the Company for
the fiscal year ending June 30, 2006;
and such other matters as may properly come before the Meeting, or any
adjournments thereof. The Board of Directors is not aware of any other business
to come before the Meeting.
Any action may be taken on the foregoing proposals at the Meeting on the
date specified above, or on any date or dates to which the Meeting may be
adjourned. Stockholders of record at the close of business on September 2, 2005
(the "Record Date") are the stockholders entitled to vote at the Meeting and any
adjournments thereof. A list of stockholders entitled to vote at the Meeting
will be available at 329 Pierce Street, Sioux City, Iowa for a period of ten
days prior to the Meeting and will also be available for inspection at the
Meeting.
You are requested to complete and sign the enclosed form of proxy, which
is solicited on behalf of the Board of Directors, and to mail it promptly in the
enclosed envelope. The proxy will not be used if you attend and vote at the
Meeting in person.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Suzette F. Hoevet
Suzette F. Hoevet
Secretary
Sioux City, Iowa
September 22, 2005
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IMPORTANT: THE PROMPT RETURN OF PROXIES WILL SAVE THE COMPANY THE EXPENSE OF
FURTHER REQUESTS FOR PROXIES TO ENSURE A QUORUM AT THE MEETING. A SELF-ADDRESSED
ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE. NO POSTAGE IS REQUIRED IF MAILED
WITHIN THE UNITED STATES.
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PROXY STATEMENT
First Federal Bankshares, Inc.
329 Pierce Street
Sioux City, Iowa 51101
(712) 277-0200
ANNUAL MEETING OF STOCKHOLDERS
To Be Held October 27, 2005
This Proxy Statement is furnished in connection with the solicitation on
behalf of the Board of Directors of First Federal Bankshares, Inc. (the
"Company"), the parent company of First Federal Bank (the "Bank" or "First
Federal"), of proxies to be used at the Annual Meeting of Stockholders of the
Company (the "Meeting") which will be held at the Marina Inn Conference Center,
4th and B Streets, South Sioux City, Nebraska on October 27, 2005, at 9:00 a.m.,
Nebraska time, and all adjournments of the Meeting. The accompanying Notice of
Annual Meeting and this Proxy Statement are first being mailed to stockholders
on or about September 22, 2005.
At the Meeting, stockholders of the Company are being asked to consider
and vote upon the proposals to elect three directors of the Company and to
ratify the appointment of McGladrey & Pullen, LLP as the independent registered
public accounting firm of the Company for the fiscal year ending June 30, 2006.
Vote Required and Proxy Information
All shares of the Company's Common Stock, par value $.01 per share (the
"Common Stock"), represented at the Meeting by properly executed proxies
received prior to or at the Meeting, and not revoked, will be voted at the
Meeting in accordance with the instructions thereon. If no instructions are
indicated, properly executed proxies will be voted for the proposals set forth
in this Proxy Statement. The Company does not know of any matters, other than as
described in the Notice of Annual Meeting, that are to come before the Meeting.
If any other matters are properly presented at the Meeting for action, the
persons named in the enclosed form of proxy and acting thereunder will have the
discretion to vote on such matters in accordance with their best judgment.
The holders of a majority of all of the shares of the Company's Common
Stock entitled to vote at the Meeting, present in person or by proxy, shall
constitute a quorum for all purposes. Abstentions and broker non-votes are
counted for purposes of determining a quorum. In the event there are not
sufficient votes for a quorum, or to approve or ratify any matter being
presented at the Meeting, the Meeting may be adjourned in order to permit the
further solicitation of proxies.
As to the election of directors, the proxy card being provided by the
Board of Directors enables a stockholder to vote FOR the election of the
nominees proposed by the Board, or to WITHHOLD AUTHORITY to vote for one or more
of the nominees being proposed. Under Delaware law and the Company's Certificate
of Incorporation and Bylaws, directors are elected by a plurality of votes cast,
without regard to either broker non-votes or proxies as to which authority to
vote for the nominees being proposed is withheld.
As to the ratification of the appointment of McGladrey & Pullen, LLP as
the independent registered public accounting firm of the Company, by checking
the appropriate box, a stockholder may: (i) vote FOR the item; (ii) vote AGAINST
the item; or (iii) ABSTAIN from voting on the item. Under Delaware law and the
Company's Certificate of Incorporation and Bylaws, the ratification of this
matter shall be determined by a majority of the votes cast without regard to
broker non-votes or proxies marked ABSTAIN.
Proxies solicited hereby will be returned to the Company and will be
tabulated by the Inspector of Election designated by the Board of Directors.
A proxy given pursuant to the solicitation may be revoked at any time
before it is voted. Proxies may be revoked by: (i) filing with the Secretary of
the Company at or before the Meeting a written notice of revocation
bearing a later date than the proxy; (ii) duly executing a subsequent proxy
relating to the same shares and delivering it to the Secretary of the Company at
or before the Meeting; or (iii) attending the Meeting and voting in person
(although attendance at the Meeting will not in and of itself constitute
revocation of a proxy). Any written notice revoking a proxy should be delivered
to Suzette F. Hoevet, Secretary, First Federal Bankshares, Inc., 329 Pierce
Street, Sioux City, Iowa 51101.
In accordance with the provisions of the Company's Certificate of
Incorporation, record holders of Common Stock who beneficially own in excess of
10% of the outstanding shares of Common Stock (the "Limit") are not entitled to
any vote with respect to the shares held in excess of the Limit. The Company's
Certificate of Incorporation authorizes the Board of Directors (i) to make all
determinations necessary or desirable to implement the Limit, including
determining whether persons or entities are acting in concert, and (ii) to
demand that any person who is reasonably believed to beneficially own stock in
excess of the Limit supply information to the Company to enable the Board of
Directors to implement and apply the Limit.
Voting Securities and Certain Holders Thereof
Stockholders of record as of the close of business on September 2, 2005
will be entitled to one vote for each share of Common Stock then held. As of
that date, the Company had 3,548,703 shares of Common Stock issued and
outstanding. The following table sets forth information as of September 2, 2005
regarding share ownership of those persons or entities known by management to
own beneficially more than five percent of the issued and outstanding Common
Stock and of all directors and executive officers of the Company as a group.
This information is based solely upon information supplied to the Company and
the filings required pursuant to the Securities Exchange Act of 1934.
Shares
Beneficial Owner Beneficially Owned Percent of Class
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First Federal Employee Stock Ownership Plan (1)
329 Pierce Street
Sioux City, Iowa 51101 248,524 7.00%
Tontine Financial Partners, L.P.
Tontine Management, L.L.C.
Jeffrey L. Gendell
55 Railroad Avenue, 3rd Floor
Greenwich, Connecticut 06830 329,100 (2) 9.27%
Directors and executive officers of the Company as a group (10 persons) 316,267 (3) 8.91%
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(1) The amount reported represents shares held by the Employee Stock Ownership
Plan ("ESOP"), 150,577 shares of which have been allocated to accounts of
participants. First Bankers Trust Services of Quincy, Illinois, the
trustee of the ESOP, may be deemed to beneficially own the shares held by
the ESOP that have not been allocated to accounts of participants.
Participants in the ESOP are entitled to instruct the trustee as to the
voting of shares allocated to their accounts under the ESOP. Unallocated
shares held in the ESOP's suspense account are voted by the trustee in the
same proportion as allocated shares voted by participants.
(2) As of December 31, 2004. Based upon a Schedule 13D/A filed with the SEC on
January 5, 2005 by Tontine Financial Partners, L.P.
(3) Amount includes shares held directly, as well as shares held jointly with
family members, shares held in retirement accounts, shares held in a
fiduciary capacity or by certain family members, with respect to which
shares the holder may be deemed to have sole or shared voting and/or
investment power. The amount above excludes options that have not vested
and do not vest within 60 days of September 2, 2005.
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PROPOSAL I - ELECTION OF DIRECTORS
The Company's Board of Directors is presently composed of nine members,
each of whom is also a director of the Bank. The directors are divided into
three classes. Directors of the Company are generally elected to serve for
three-year terms which are staggered to provide for the election of
approximately one-third of the directors each year. Three directors will be
elected at the Meeting to serve for three-year terms and until their respective
successors shall have been elected and shall qualify.
The following table sets forth certain information regarding the Company's
Board of Directors, including their terms of office, and nominees for election
as directors. It is intended that the proxies solicited on behalf of the Board
of Directors (other than proxies in which the vote is withheld as to the
nominee) will be voted at the Meeting for the election of the nominees
identified in the following table. If any nominee is unable to serve, the shares
represented by all such proxies will be voted for the election of such
substitute as the Board of Directors may recommend. At this time, the Board of
Directors knows of no reason why any nominee might be unable to serve, if
elected. Except as described herein, there are no arrangements or understandings
between any director or nominee and any other person pursuant to which such
director or nominee was selected.
Shares of Common
Age at Current Stock Beneficially
June 30, Director Term to Owned at Percent
Name (1) 2005 Position(s) Held Since (2) Expire September 2, 2005 (3) of Class
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NOMINEES FOR TERMS TO EXPIRE IN 2008
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Arlene T. Curry, J.D. 47 Director 2002 2005 5,769 (4) *
Gary L. Evans 66 Director 1989 2005 26,530 (5) *
Allen J. Johnson 66 Director 1993 2005 12,769 (6) *
DIRECTORS CONTINUING IN OFFICE
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Barry E. Backhaus 60 President, Chief Executive 1987 2007 119,842 (7) 3.38%
Officer and Chairman of the
Board
David S. Clay 47 Director 1998 2007 16,525 (8) *
Ronald A. Jorgensen 48 Director 2005 2007 -- --
Jon G. Cleghorn 63 Director 1997 2006 47,800 (6) 1.35%
Steven L. Opsal 51 Executive Vice President 1998 2006 69,703 (9) 1.96%
and Director
David Van Engelenhoven 62 Director 1993 2006 12,367 (10) *
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* Less than 1%.
(1) The mailing address for each person listed is 329 Pierce Street, Sioux
City, Iowa 51101.
(2) In certain cases, reflects initial appointment to the Board of Directors
of the Bank or its mutual predecessor, First Federal Savings and Loan
Association of Sioux City, as the case may be.
(3) Includes all shares of Common Stock held directly, as well as by spouses
and minor children, in trust and other indirect ownership, over which
shares the directors effectively exercise sole or shared voting and/or
investment power. Includes shares granted under the 1999 Recognition and
Retention Plan, as amended (a restricted stock plan, described below),
which are subject to future vesting but as to which voting may currently
be directed.
(4) Includes 3,450 shares subject to options under the 1999 Stock Option Plan
that have vested or that vest within 60 days of the Record Date.
(5) Includes 2,450 shares subject to options under the 1999 Stock Option Plan
that have vested or that vest within 60 days of the Record Date.
(6) Includes 450 shares subject to options under the 1999 Stock Option Plan
that have vested or that vest within 60 days of the Record Date.
(7) Includes 28,700 shares subject to options under the 1999 Stock Option Plan
that have vested or that vest within 60 days of the Record Date.
(8) Includes 823 and 5,450 shares subject to options under the 1992 Directors'
Plan and the 1999 Stock Option Plan, respectively, that have vested or
that vest within 60 days of the Record Date.
(9) Includes 6,588 and 27,300 shares subject to options under the 1992 and
1999 Stock Option Plans, respectively, that have vested or that vest
within 60 days of the Record Date.
(10) Includes 1,450 shares subject to options under the 1999 Stock Option Plan
that have vested or that vest within 60 days of the Record Date.
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The business experience of each director is set forth below. All directors
have held their present positions for at least the past five years, except as
otherwise indicated.
Board of Directors
Barry E. Backhaus has been President and Chief Executive Officer of the
Bank since 1990 and Chairman of the Board since 1997; he has been affiliated
with the Bank since 1969. Mr. Backhaus has been President, Chief Executive
Officer and Chairman of the Board of the Company since its formation in 1998.
David S. Clay is Vice President and Treasurer of Grinnell College,
Grinnell, Iowa.
Jon G. Cleghorn is retired. From the time of its formation in 1998 until
his retirement in July 2004, Mr. Cleghorn was Executive Vice President and Chief
Operating Officer of the Company. Mr. Cleghorn has been affiliated with the Bank
in various capacities since 1974. He was Executive Vice President of the Bank
from 1990 until his retirement.
Arlene T. Curry, JD, is a community volunteer. From 2000 to 2005, Ms.
Curry served as Executive Director of The Kind World Foundation, Dakota Dunes,
South Dakota, and Senior Counsel for Waitt Media, Inc., a TV and radio
broadcasting network.
Gary L. Evans is the retired President and Chief Executive Officer of
Sioux Honey Association.
Allen J. Johnson is the retired President and Chief Executive Officer of
Great West Casualty Company, a property and casualty company located in South
Sioux City, Nebraska.
Ronald A. Jorgensen is the Vice President for Business and Finance of
Morningside College, Sioux City, Iowa.
Steven L. Opsal is Executive Vice President of the Bank. Mr. Opsal was
previously the President and Chief Executive Officer of Grinnell Federal Savings
Bank and GFS Bancorp, Inc. prior to their merger into the Bank. Mr. Opsal has
been Executive Vice President of the Company since its formation in 1998.
David Van Engelenhoven is the President of Van Engelenhoven Agency, Inc.,
an insurance agency located in Orange City, Iowa.
Board Independence
The Board of Directors has determined that, except as to Messrs. Backhaus,
Cleghorn and Opsal, each member of the Board is an "independent director" within
the meaning of the NASDAQ corporate governance listing standards. Mr. Backhaus
and Mr. Opsal are not considered independent because they are executive officers
of First Federal Bankshares, Inc. Mr. Cleghorn is not considered independent
because, prior to his retirement in July 2004, he was an executive officer of
First Federal Bankshares, Inc.
Meetings and Committees of the Board of Directors
General. The business of the Company's Board of Directors is conducted
through meetings and activities of the Board and its committees. During the
fiscal year ended June 30, 2005, the Board of Directors held eight regular
meetings and no special meetings. During the fiscal year ended June 30, 2005, no
directors attended fewer than 75 percent of the total meetings of the Board of
Directors and committees on which such director served.
The standing committees include the Compensation and Benefits, Nominating
and Audit Committees.
Nominating Committee. The Nominating Committee consists of Directors David
S. Clay, Gary L. Evans, Arlene T. Curry, Allen J. Johnson, Ronald A. Jorgensen
and David Van Engelenhoven. Each member of the Nominating Committee is
considered "independent" as defined in the NASDAQ corporate governance listing
standards. The Board of Directors has adopted a written charter for the
Committee, which is available at the
4
Company's website at www.firstfederalbank.com. The Committee met one time during
the fiscal year ended June 30, 2005.
The functions of the Nominating Committee include the following:
o to lead the search for individuals qualified to become members of
the Board and to select director nominees to be presented for
stockholder approval;
o to review and monitor compliance with the requirements for board
independence;
o to review the committee structure and make recommendations to the
Board regarding committee membership;
o to develop and recommend to the Board for its approval a set of
corporate governance guidelines; and
o to develop and recommend to the Board for its approval a
self-evaluation process for the Board and its committees.
The Nominating Committee identifies nominees by first evaluating the
current members of the Board of Directors willing to continue in service.
Current members of the Board with skills and experience that are relevant to the
Company's business and who are willing to continue in service are first
considered for re-nomination, balancing the value of continuity of service by
existing members of the Board with that of obtaining a new perspective. If any
member of the Board does not wish to continue in service, or if the Committee or
the Board decides not to re-nominate a member for re-election, or if the size of
the Board is increased, the Committee would solicit suggestions for director
candidates from all Board members. In addition, the Committee is authorized by
its charter to engage a third party to assist in the identification of director
nominees. The Nominating Committee would seek to identify a candidate who at a
minimum satisfies the following criteria:
o has the highest personal and professional ethics and integrity and
whose values are compatible with the Company's;
o has had experiences and achievements that have given him or her the
ability to exercise and develop good business judgment;
o is willing to devote the necessary time to the work of the Board and
its committees, which includes being available for Board and
committee meetings;
o is familiar with the communities in which the Company operates
and/or is actively engaged in community activities;
o is involved in other activities or interests that do not create a
conflict with his or her responsibilities to the Company and its
stockholders; and
o has the capacity and desire to represent the balanced, best
interests of the stockholders of the Company as a group, and not
primarily a special interest group or constituency.
Finally, the Nominating Committee will take into account whether a
candidate satisfies the criteria for "independence" under the NASDAQ corporate
governance listing standards, and if a nominee is sought for service on the
audit committee, the financial and accounting expertise of a candidate,
including whether the individual qualifies as an audit committee financial
expert.
Procedures for the Nomination of Directors by Stockholders. The Nominating
Committee has adopted procedures for the submission of director nominees by
stockholders. If a determination is made that an additional
5
candidate is needed for the Board, the Nominating Committee will consider
candidates submitted by the Company's stockholders. Stockholders can submit
qualified names of candidates for director by writing to our Corporate
Secretary, at 329 Pierce Street, Sioux City, Iowa 51101. The Corporate Secretary
must receive a submission not less than ninety (90) days prior to the
anniversary date of the Company's proxy materials for the preceding year's
annual meeting. The submission must include the following information:
o the name and address of the stockholder as they appear on the
Company's books, and number of shares of the Company's common stock
that are owned beneficially by such stockholder (if the stockholder
is not a holder of record, appropriate evidence of the stockholder's
ownership will be required);
o the name, address and contact information for the candidate, and the
number of shares of common stock of the Company that are owned by
the candidate (if the candidate is not a holder of record,
appropriate evidence of the stockholder's ownership will be
required);
o a statement of the candidate's business and educational experience;
o such other information regarding the candidate as would be required
to be included in the proxy statement pursuant to SEC Rule 14A;
o a statement detailing any relationship between the candidate and the
Company;
o a statement detailing any relationship between the candidate and any
customer, supplier or competitor of the Company;
o detailed information about any relationship or understanding between
the proposing stockholder and the candidate; and
o a statement that the candidate is willing to be considered and
willing to serve as a director if nominated and elected.
Submissions that are received and that meet the criteria outlined above
are forwarded to the Chairman of the Nominating Committee for further review and
consideration. A nomination submitted by a stockholder for presentation by the
stockholder at an annual meeting of stockholders must comply with the procedural
and informational requirements described in this proxy statement under the
heading "Stockholder Proposals."
Stockholder Communications with the Board. A stockholder of the Company
who wishes to communicate with the Board or with any individual director may
write to the Corporate Secretary of the Company, 329 Pierce Street, Sioux City,
Iowa 51101, Attention: Board Administration. The letter should indicate that the
author is a stockholder and if shares are not held of record, should include
appropriate evidence of stock ownership. Depending on the subject matter,
management will:
o forward the communication to the director or directors to whom it is
addressed;
o attempt to handle the inquiry directly, for example where it is a
request for information about the Company or a stock-related matter;
or
o not forward the communication if it is primarily commercial in
nature, relates to an improper or irrelevant topic, or is unduly
hostile, threatening, illegal or otherwise inappropriate.
At each Board meeting, management will present a summary of all
communications received since the last meeting that were not forwarded and make
those communications available to the directors.
Compensation and Benefits Committee. The Compensation and Benefits
Committee consists of Directors David S. Clay, Gary L. Evans, Arlene T. Curry
and David Van Engelenhoven. Each member of the Compensation and Benefits
Committee is considered "independent" as defined in the NASDAQ corporate
governance listing
6
standards. The Committee meets to review, evaluate and recommend goals relevant
to the Company's management, review such officers' performance in light of these
goals and determine (or recommend to the full Board of Directors for
determination) such officers' cash and equity compensation based on this
evaluation. The Committee determines compensation and benefit programs and
adjustments. The Committee met four times in fiscal 2005. The Board of Directors
has adopted a written charter for the Committee, which is available at the
Company's website at www.firstfederalbank.com. The report of the Compensation
and Benefits Committee is included elsewhere in this proxy statement.
Audit Committee. The Audit Committee consists of Directors David S. Clay,
Allen J. Johnson and David Van Engelenhoven. Each member of the Audit Committee
is considered "independent" as defined in the NASDAQ corporate governance
listing standards and under SEC Rule 10A-3. The Board of Directors has
determined that David S. Clay qualifies as an "audit committee financial expert"
as that term is defined by the rules and regulations of the SEC. The duties and
responsibilities of the Audit Committee include, among other things:
o retaining, overseeing and evaluating a firm of independent certified
public accountants to audit the Company's annual financial
statements;
o in consultation with the independent registered public accounting
firm and the internal auditor, reviewing the integrity of the
Company's financial reporting processes, both internal and external;
o approving the scope of the audit in advance;
o reviewing the financial statements and the audit report with
management and the independent registered public accounting firm;
o considering whether the provision by the independent registered
public accounting firm of services not related to the annual audit
and quarterly reviews is consistent with maintaining the auditor's
independence;
o reviewing earnings and financial releases and quarterly reports
filed with the SEC;
o consulting with the internal audit staff and reviewing management's
administration of the system of internal accounting controls as
required by Section 404 of the Sarbanes-Oxley Act of 2002;
o approving all engagements for audit and non-audit services by the
independent registered public accounting firm; and
o reviewing the adequacy of the audit committee charter.
The Audit Committee met five times during the fiscal year ended June 30,
2005. The Audit Committee reports to the Board on its activities and findings.
The Board of Directors has adopted a written charter for the Audit Committee,
which is appended to this proxy statement as Appendix A and which is available
at the Company's website at www.firstfederalbank.com.
Audit Committee Report
As part of its responsibilities, the Audit Committee hereby reports the
following:
1. The Audit Committee has reviewed and discussed the audited financial
statements with the Company's management.
2. The Audit Committee has discussed with the independent registered
public accounting firm the matters required to be discussed by SAS
61 (Codification of Statements on Auditing Standards, AU 380).
7
3. The Audit Committee has received the written disclosures and the
letter from the independent registered public accounting firm
required by Independence Standards Board Standard No. 1,
Independence Discussions with Audit Committees, and has discussed
with the independent registered public accounting firm its
independence.
4. Based on review and discussions referred to in paragraph 1 through 3
above, the Audit Committee recommended to the Board of Directors of
the Company, and the Board has approved, that the audited financial
statements be included in the Company's annual report on Form 10-K
for the fiscal year ended June 30, 2005, for filing with the
Securities and Exchange Commission. In addition, the Audit Committee
appointed McGladrey & Pullen, LLP as the Company's independent
registered public accounting firm for the fiscal year ending June
30, 2006, subject to the ratification of this appointment by the
stockholders.
This report shall not be deemed incorporated by reference by any general
statement incorporating by reference this proxy statement into any filing under
the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the
extent that the Company specifically incorporates this information by reference.
This report shall not otherwise be deemed filed under such Acts.
The undersigned members of the Audit Committee have submitted this report.
David S. Clay, Chairman
Allen J. Johnson
David Van Engelenhoven
Ownership Reports by Officers and Directors
The Common Stock of the Company is registered pursuant to Section 12(g) of
the Securities Exchange Act of 1934 (the "Exchange Act"). The officers and
directors of the Company and beneficial owners of greater than 10% of the
Company's Common Stock ("10% beneficial owners") are required to file reports on
Forms 3, 4 and 5 with the Securities and Exchange Commission (the "SEC")
disclosing changes in beneficial ownership of the Common Stock. SEC rules
require disclosure in the Company's proxy statement of the failure of an
officer, director or 10% beneficial owner of the Company's Common Stock to file
a Form 3, 4 or 5 on a timely basis. Based on the Company's review of such
ownership reports, no officer or director of the Company failed to file such
ownership reports on a timely basis for the fiscal year ended June 30, 2005,
except for a late-filed Form 3 related to the appointment of Katherine A.
Bousquet as the Company's interim Chief Financial Officer.
8
Executive Compensation
The following table sets forth for the fiscal years ended June 30, 2005,
2004 and 2003, certain information as to the total remuneration paid by the Bank
to the Chief Executive Officer of the Bank and the Company, and each of the
other executive officer of the Company who received salary and bonuses that in
the aggregate exceeded $100,000 for fiscal year 2005 (the "named executive
officers").
==========================================================================================================
Annual Compensation (1) Long-Term Compensation
- ----------------------------------------------------------------------------------------------------------
Awards Payouts
-------------------- -------
Other
Year Annual Restricted Options/ All
Name and Ended Bonus Compensation Stock SARS LTIP Other
principal position June 30, Salary (3) (2) Awards (4) (#) Payouts Compensation
- ----------------------------------------------------------------------------------------------------------
Barry E. Backhaus 2005 $238,374 $10,704 $-- $59,846 3,700 $-- $--
President and Chief 2004 229,575 26,033 -- -- -- -- --
Executive Officer 2003 220,712 48,257 -- -- -- -- --
- ----------------------------------------------------------------------------------------------------------
Steven L. Opsal 2005 $138,600 $ 5,186 $-- $37,419 2,300 $-- $--
Executive Vice 2004 132,817 17,779 -- -- -- -- --
President 2003 127,708 27,922 -- -- -- -- --
==========================================================================================================
- ----------
(1) The Company does not maintain a deferred compensation plan for employees.
Amounts do not include benefits pursuant to the Bank's Pension Plan. See
"Benefits."
(2) The Company also provides certain members of senior management with the
use of an automobile, membership dues and other personal benefits. The
aggregate amount of such other benefits provided to each of the named
executive officers did not exceed the lesser of $50,000 or 10% of his cash
compensation.
(3) Amounts represent bonuses earned by the executive and accrued as
compensation expense by the Company in the fiscal year shown. Amounts are
actually paid in the following fiscal year.
(4) Represents the fair value of the restricted stock awards at the date of
grant. Awards vest September 23, 2005. Dividends paid with respect to all
shares awarded are paid to the recipient of the award.
Directors' Compensation
Each non-employee member of the Board of Directors of First Federal
received fees of $750 for each meeting attended in fiscal 2005. Each
non-employee member of the Loan Committee, Compensation and Benefits Committee
and Audit Committee was paid $250, $400 and $500, respectively, for each
committee meeting attended in fiscal 2005. During the fiscal year ended June 30,
2005, First Federal paid a total of $73,150 in directors' and committee fees,
which amounts included fees deferred at the election of directors pursuant to
the Deferred Compensation Plan for Directors. See "Benefits--Deferred
Compensation Plan for Directors."
In addition to the foregoing fees, First Federal pays annual retainer fees
of $7,500 for each non-employee director; $4,000 for the Audit Committee
Chairperson, and $2,000 for the Compensation and Benefits Committee Chairperson.
Such retainer fees are paid on a quarterly basis.
No separate compensation was paid to directors for service on the Board of
Directors or Board Committees of the Company.
Benefits
Pension Plan. First Federal enrolls all regular full-time employees who
have attained the age of 21 and completed one year of service of 1,000 hours or
more in a defined benefit non-contributory pension plan. The pension plan
provides for monthly payments to or on behalf of each covered employee upon the
employee's retirement. These payments are calculated in accordance with a
formula based on the employee's "average annual compensation," which is defined
as the highest average of eligible compensation for five consecutive calendar
years of employment.
9
The formula for determining normal retirement allowance is: 1.0%* X
years of benefit service X high 5 average salary = regular annual allowance.
Under the plan, the Bank makes an annual contribution for the benefit
of eligible employees computed on an actuarial basis. The plan was in a fully
funded status for a significant number of years, but contributions were required
beginning in fiscal year 2003. To reduce the costs associated with this plan,
the Bank suspended annual contributions to the plan as of August 1, 2005.
Employee benefits under the plan vest as designated in the schedule below:
Completed Years Vested
of Employment Percentages
------------- -----------
Fewer than 5 ...................... 0%
5 or more ......................... 100%
The following table illustrates regular annual allowance amounts at age 65
under the regular retirement benefit plan provisions available at various levels
of compensation and years of benefit service (figured on the formula shown
above):
Years of Benefit Service
----------------------------------------------------------
Average Salary 10 15 20 25 30
- -------------------------------------------------------------------------------
$ 20,000 $ 2,000 $ 3,000 $ 4,000 $ 5,000 $ 6,000
$ 30,000 $ 3,000 $ 4,500 $ 6,000 $ 7,500 $ 9,000
$ 50,000 $ 5,000 $ 7,500 $ 10,000 $ 12,500 $ 15,000
$ 75,000 $ 7,500 $ 11,250 $ 15,000 $ 18,750 $ 22,500
$ 100,000 $ 10,000 $ 15,000 $ 20,000 $ 25,000 $ 30,000
$ 150,000 $ 15,000 $ 22,500 $ 30,000 $ 37,500 $ 45,000
As of June 30, 2005, Mr. Backhaus had 34 years of benefit service and Mr.
Opsal had 29 years of benefit service under the pension plan.
Employee Stock Ownership Plan and Trust. The Bank has established the
Employee Stock Ownership Plan (the "ESOP") for eligible employees. The ESOP is a
tax-qualified plan subject to the requirements of the Employee Retirement Income
Security Act of 1974 ("ERISA") and the Internal Revenue Code of 1986, as amended
(the "Code"). Employees with a 12 month period of employment with the Bank
during which they worked at least 1,000 hours and who have attained age 21 are
eligible to participate. Shares purchased by the ESOP are held in a suspense
account for allocation among participants.
Contributions to the ESOP and shares released from the suspense account
are allocated among participants on the basis of compensation in the year of
allocation, up to an annual adjusted maximum level of compensation. Benefits
generally become 100% vested after five years of credited service. Participants
were credited for years of service with the Bank prior to the effective date of
the ESOP. Forfeitures are reallocated among remaining participating employees in
the same proportion as contributions. Benefits may be payable upon death,
retirement, early retirement, disability, or separation from service.
The Compensation and Benefits Committee administers the ESOP. The
committee may instruct the trustee of the ESOP regarding investment of funds
contributed to the ESOP. The ESOP trustee must vote all allocated shares held in
the ESOP in accordance with the instructions of the participating employees.
Under the ESOP, unallocated shares and shares held in the suspense account will
be voted in a manner calculated to most accurately reflect the instructions the
ESOP trustee has received from participants regarding allocated stock, subject
to and in accordance with the fiduciary duties under ERISA owed by the trustee
to the ESOP participants.
- ----------
*2% on all accrued benefits through September 1, 1996; 1.5% on all accrued
benefits through February 1, 2004.
10
Stock Option Plans. In 1992, the Board of Directors of the Bank adopted
the First Federal Savings Bank of Siouxland 1992 Incentive Stock Option Plan
(the "1992 Stock Option Plan") and the 1992 Stock Option Plan for Outside
Directors (the "Directors' Plan"). In connection with the formation of the
Company, options under such plans to purchase common stock of the Bank were
converted into options to purchase the Company's Common Stock. All Officers and
key employees of the Company, the Bank and its subsidiaries are eligible to
participate in the 1992 Stock Option Plan. Only non-employee directors are
eligible to participate in the Directors' Plan. In 1999, the Board of Directors
of the Company adopted the 1999 Stock Option Plan, which was approved by Company
stockholders in October 1999 and amended and restated in 2003 (the "1999 Stock
Option Plan"). Officers, employees and non-employee directors of the Company,
the Bank and its subsidiaries are all eligible to participate in the 1999 Stock
Option Plan.
Pursuant to the 1992 Stock Option Plan, the Directors' Plan and the 1999
Stock Option Plan, stock options for 164,353, 41,088 and 263,500 shares,
respectively, were eligible for issuance to plan participants. Pursuant to these
option plans, grants may be made of (i) options to purchase Common Stock
intended to qualify as incentive stock options under Section 422 of the Code,
(ii) options that do not so qualify ("non-qualified options"), and (iii) reload
options, dividend equivalent rights and "Limited Rights" (described below) that
are exercisable only upon a change in control of the Company. Incentive stock
options may only be granted to employees of the Company, the Bank or an
affiliate of the Company or the Bank. Non-employee directors may be granted
non-qualified stock options.
The grant of awards under the 1992 Stock Option Plan was determined by a
committee of the Board of Directors consisting of the four non-employee
directors serving on the Compensation and Benefits Committee. The grant of
awards under the 1999 Stock Option Plan is determined by a committee of the
Board of Directors consisting of (i) at least two non-employee directors of the
Company or (ii) the entire Board of the Company. With respect to the Directors'
Plan, all options were granted at the time of the implementation of the plan.
Each then director was granted non-qualified options to purchase 3,903 shares
and the Chairman of the Board received options for an additional 3,903 shares of
common stock.
In granting options to plan participants, the Compensation and Benefits
Committee considers, among other things, position and years of service, and the
value of the individual's services to the Company and the Bank. Options are
exercisable at a rate prescribed by the Committee; provided, however, that all
options are 100% exercisable in the event the optionee terminates his employment
due to death, disability, retirement or in the event of a change in control (as
defined in the Plan). The exercise price may be paid in cash or Common Stock, or
in the case of the 1999 Stock Option Plan, by a cashless exercise through a
broker-dealer. Under the 1992 Stock Option Plan, the Company may issue
replacement options in exchange for previously granted non-statutory options at
exercise prices that may be less than the previous exercise price, but may not
be less than 85% of the fair market value of the Common Stock on the date such
replacement options are granted.
The term of stock options generally does not exceed 10 years from the date
of grant. No incentive stock option granted in connection with the plans is
exercisable more than three months after the date on which the optionee ceases
to perform services for the Bank or the Company for any reason other than death,
disability, retirement or, in connection with a change in control. In the case
of the 1992 Stock Option Plan, incentive stock options may be exercised for up
to one year in the event of termination of employment due to death, disability,
retirement or a change-in-control of the Company, and for up to five years in
the case of the 1999 Stock Option Plan. In the case of both the 1992 Stock
Option Plan and 1999 Stock Option Plan and by operation of law, if an optionee
ceases to perform services for the Bank or the Company due to retirement or
following a change in control, any incentive stock options exercised more than
three months following the date the optionee ceases to perform services shall be
treated as a non-statutory stock option as described above. In the case of the
1999 Stock Option Plan, if an optionee ceases to perform services for the Bank
or the Company due to disability, any incentive stock options exercised more
than one year following the date the optionee ceases to perform services shall
be treated as non-statutory stock options as described above. Incentive stock
options exercised by the heirs or devisees of a deceased optionee are eligible
for incentive option treatment if the optionee's death occurred while employed
or within three months of termination of employment. Options granted under the
Directors' Plan expire upon the earlier of 10 years following the date of grant
or one year following the date the optionee ceases to be a director.
11
Pursuant to the 1992 Stock Option Plan and the 1999 Stock Option Plan, the
Compensation and Benefits Committee may grant Limited Rights to employees
simultaneously with the grant of any option. A Limited Right gives the option
holder the right, upon a change in control of the Company or the Bank, to
receive the excess of the market value of the shares represented by the Limited
Rights on the date exercised over the exercise price. Limited Rights generally
will be subject to the same terms and conditions and exercisable to the same
extent as stock options, as described above. Payment upon exercise of a Limited
Right will be in cash. Limited Rights may be granted at the time of, and must be
related to, the grant of a stock option. Upon the exercise of a Limited Right,
the related option will cease to be exercisable. If a Limited Right is granted
with and related to an incentive stock option, the Limited Right must satisfy
all the restrictions and limitations to which the related incentive stock option
is subject.
The 1999 Stock Option Plan provides for dividend equivalent rights, which
may also be granted at the time of the grant of a stock option. Dividend
equivalent rights entitle the option holder to receive an amount of cash at the
time that certain extraordinary dividends are declared equal to the amount of
the extraordinary dividend multiplied by the number of shares of common stock
underlying the unexercised portion of the related options. For these purposes,
an extraordinary dividend is defined as any dividend paid on shares of Common
Stock where the rate of dividend exceeds the Bank's weighted average cost of
funds on interest-bearing liabilities for the current and preceding three
quarters.
The 1999 Stock Option Plan also provides for reload options, which may
also be granted at the time of the grant of a stock option. Reload options
entitle the option holder, who has delivered shares that he or she owns as
payment of the exercise price for option stock, to a new option to acquire
additional shares equal in amount to the shares he or she has traded in to
satisfy the option exercise price. Reload options may also be granted to replace
option shares retained by the employer for payment of the option holder's
withholding tax. The option price at which additional shares of stock can be
purchased by the option holder through the exercise of a reload option is equal
to the market value of the previously owned stock at the time it was surrendered
to the employer. The option period during which the reload option may be
exercised expires at the same time as that of the original option that the
holder has exercised.
Shares as to which awards may be granted under the plans, and shares then
subject to awards, will be adjusted by the Compensation and Benefits Committee
in the event of any merger, consolidation, reorganization, recapitalization,
stock dividend, stock split, combination or exchange of shares or other change
in the corporate structure of the Company without receipt of payment or
consideration by the Company.
Shares issued upon the exercise of a stock option may be either authorized
but unissued shares, or reacquired shares held by the Company as treasury stock.
Any shares subject to an award that expires or is terminated unexercised will
again be available for issuance under the respective plan. Generally, in the
discretion of the Compensation and Benefits Committee, all or any non-qualified
stock options granted under a stock option plan may be transferable by the
participant but only to the persons or classes of persons determined by the
Committee. No other award or any other right or interest therein is assignable
or transferable except under limited exceptions set forth in the option plan.
Set forth below is certain information regarding options granted to the
named executive officers during fiscal 2005.
=====================================================================================================
OPTIONS GRANTED IN LAST FISCAL YEAR
=====================================================================================================
Percent of Total
Options Granted
to Employees in Grant Date
Name Options Granted FY 2005 Exercise Price Expiration Date Present Value (1)
- -----------------------------------------------------------------------------------------------------
Barry E. Backhaus 3,700 34% $23.46 9-23-2014 $24,568
- -----------------------------------------------------------------------------------------------------
Steven L. Opsal 2,300 21% $23.46 9-23-2014 17,928
=====================================================================================================
- ----------
(1) The grant-date value was calculated using the Black-Scholes European
option model, an expected life of 7.5 years, expected volatility of
24.564%, yield rate of 1.776% and risk-free rate of return of 3.912%.
12
The table below sets forth certain information with respect to options
exercised by the named executive officers in fiscal 2005.
=====================================================================================================
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
=====================================================================================================
Number of Unexercised Value of Unexercised
Options at In-The-Money Options at
Fiscal Year-End Fiscal Year-End
Shares Acquired Value ----------------------------------------------------
Name Upon Exercise Realized Exercisable/Unexercisable Exercisable/Unexercisable
- -----------------------------------------------------------------------------------------------------
Barry E. Backhaus 10,000 $138,500 25,000/3,700 $281,500/$--
- -----------------------------------------------------------------------------------------------------
Steven L. Opsal -- $ -- 31,588/2,300 $282,620/$--
=====================================================================================================
Recognition and Retention Plan. In 1999 the Company established the 1999
Recognition and Retention Plan, which was approved by the Company stockholders
in October 1999 and amended and restated in 2003 (the "1999 Recognition Plan").
The Bank provided sufficient funds for the 1999 Recognition Plan to acquire
79,050 authorized-but-unissued shares of Common Stock of the Company.
Key employees and non-employee directors of the Company and the Bank are
eligible to participate in the 1999 Recognition Plan. The plan is intended to
provide plan participants with a proprietary interest in the Company in a manner
designed to encourage such persons to remain with these entities and to provide
further incentives to achieve corporate objectives.
The Compensation and Benefits Committee administers the plan and makes
awards under the plan. Awards are granted in the form of shares of Common Stock
held by the plan. Awards are nontransferable and nonassignable and the shares
awarded are earned (i.e., become vested) at a rate or rates determined by the
Committee. The Committee members may provide for a less or more rapid earnings
rate with respect to awards granted under the plan. Awards become fully vested
upon termination of employment due to death, disability, retirement and a change
in control. Where an officer terminates employment with the Company or the Bank
for any other reason, the officer's nonvested awards will be forfeited.
When shares become vested, the participants will recognize income equal to
the fair market value of the Common Stock at that time. The amount of income
recognized by a participant will be a deductible expense for federal income tax
purposes for the Company. Under the 1999 Recognition Plan, unvested shares are
held by the Company in escrow. Dividends on unvested shares are distributed to
participants when paid. In addition, participants have the right to vote the
shares awarded to them, whether or not vested.
Restricted stock awarded under this plan will be adjusted by the Committee
in the event of a reorganization, recapitalization, stock split, stock dividend,
combination or exchange of shares, merger, consolidation or other change in
corporate structure.
Equity Compensation Plan Disclosure. Set forth below is information as of
June 30, 2005 regarding compensation plans under which equity securities of the
Company are authorized for issuance.
=======================================================================================================
Number of Securities to be
Issued upon Exercise of Number of Securities
Outstanding Options and Weighted Average Remaining Available for
Plan Rights Exercise Price Issuance under Plans
- -------------------------------------------------------------------------------------------------------
Equity compensation plans
approved by stockholders 139,461 $ 12.09 16,088 (1)
- -------------------------------------------------------------------------------------------------------
Equity compensation plans not
approved by stockholders -- -- --
- -------------------------------------------------------------------------------------------------------
Total 139,461 $ 12.09 16,088 (1)
=======================================================================================================
- ----------
(1) Shares available for future issuance pursuant to the 1999 Recognition and
Retention Plan, as amended and the 1999 Stock Option Plan, as amended.
13
2005 Deferred Compensation Plan for Directors. The Board of Directors of
the Bank adopted a 2005 Deferred Compensation Plan for Directors (the "2005
Deferred Plan"), which became effective as of January 1, 2005. The 2005 Deferred
Plan is designed to comply with the requirements of Code Section 409A. Pursuant
to the 2005 Deferred Plan, directors of the Bank may elect to defer all or
one-half of their fees received for service on the Board of Directors and on
committees of the Board of Directors. Compensation paid to directors who are
also Bank employees and special compensation for services to the Bank such as
legal and investment advisory services are not eligible for deferral. The Bank
credits to a special memorandum account the amounts of any such deferred fees as
of the last day of each month. Interest is paid on such amounts at a rate equal
to the average weighted cost of certificates of deposit of the Bank for the
previous month. Prior to January 1 of each deferral year, a director must file
an election with the Bank designating the form in which he will receive his
deferred compensation benefit. Such deferral election is irrevocable with
respect to the calendar year for which it is filed, provided, however, that a
director may delay distributions or modify a previous deferral election from a
lump sum distribution to annual payments upon his separation from service if:
(i) the new deferral election is not effective for 12 months, (ii) the original
distribution date is at least 12 months from the date of the change in the
election, and (iii) the new distribution date must be at least five years after
the original distribution date. Deferred fees will be paid out upon the
director's death, disability, or separation from service as a director of the
Bank. At the election of the director, the distribution may be paid out in a
lump sum or in equal monthly installments over a period of ten years, or such
shorter period as shall be approved by the Board of Directors.
1995 Deferred Compensation Plan for Directors. In March 1995, the Board of
Directors of the Bank adopted a Deferred Compensation Plan for Directors (the
"Deferred Plan"), which became effective as of January 1, 1995. Pursuant to the
Deferred Plan, directors of the Bank may elect to defer all or one-half of their
fees received for service on the Board of Directors and on committees of the
Board of Directors. The Bank shall credit to a special memorandum account the
amounts of any such deferred fees as of the last day of each month. Interest
will be paid on such amounts at a rate equal to the average weighted cost of
certificates of deposit of the Bank for the previous month. Deferred fees will
be paid out upon the death, disability or termination of a director as a
director of the Bank. At the election of the director, the distribution may be
paid out in a lump sum or in equal monthly installments over a period of ten
years, or such shorter period as shall be approved by the Board of Directors.
Contributions to the Deferred Plan were frozen, effective December 31, 2004.
First Federal Bank Incentive Award Plan. Effective for the 2005 fiscal
year, the Board of Directors approved the First Federal Bank Incentive Award
Plan. This plan provides cash award opportunities for employees, including
officers, based upon their attainment of specified goals and objectives.
Certain Transactions with the Bank
Under federal law, all loans or extensions of credit to executive officers
and directors must be made on substantially the same terms, including interest
rates and collateral, as those prevailing at the time for comparable
transactions with the general public and must not involve more than the normal
risk of repayment or present other unfavorable features. However, regulations
permit executive officers and directors to receive the same terms through
benefit or compensation plans that are widely available to other employees, as
long as the director or executive officer is not given preferential treatment
compared to the other participating employees. In addition, loans made to a
director or executive officer in excess of the greater of $25,000 or 5% of the
Bank's capital and surplus (up to a maximum of $500,000) must be approved in
advance by a majority of the disinterested members of the Board of Directors.
All loans made by First Federal to its officers, directors, and executive
officers were made in the ordinary course of business, were made on the same
terms, including interest rates and collateral, as those prevailing at the time
for comparable transactions with other persons and did not involve more than the
normal risk of collectibility or present other unfavorable features.
As of June 30, 2005, the aggregate principal balance of loans outstanding
for all Company executive officers and directors, and family members was
$1,078,660.
Employment Agreements
The continued success of First Federal depends to a significant degree on
the skills and competence of its officers. First Federal has entered into
employment agreements with certain of its executive officers, including
14
Barry E. Backhaus, President and Chief Executive Officer and Steven L. Opsal,
Executive Vice President. The employment agreements are intended to assist First
Federal in maintaining a stable and competent management base by enabling First
Federal to offer protections to designated employees in the event of termination
without cause in connection with a change in control, as defined in the
employment agreements.
The employment agreement for each executive officer has a term of 36
months. On each anniversary date, the agreement may be extended for an
additional 12 months, so that the remaining term shall be 36 months. If the
agreement is not renewed, the agreement will expire 24 months following the
anniversary date. Under the agreement, the current Base Salary for Mr. Backhaus
(as defined in the agreement) is $243,048; and for Mr. Opsal - $142,000. The
Base Salary may be increased but not decreased. In addition to the Base Salary,
the agreement provides for, among other things, participation in retirement
plans and other employee and fringe benefits applicable to executive personnel.
The agreement provides for termination by the Bank for cause at any time. In the
event the Bank terminates the executive's employment for reasons other than
disability, retirement, or for cause, or in the event of the executive's
resignation from the Bank (such resignation to occur within the period or
periods set forth in the employment agreement) upon (i) failure to re-elect the
executive to his or her current offices, (ii) a material change in the
executive's functions, duties or responsibilities, or relocation of his or her
principal place of employment by more than 30 miles (with respect to Mr. Opsal,
this restriction applied only through September 1, 2001), (iii) liquidation or
dissolution of the Bank or the Company, (iv) a breach of the agreement by the
Bank, or (v) following a change in control of the Bank or the Company, the
executive or, in the event of death, his or her beneficiary would be entitled to
a cash severance payment equal to 299% of the average of the last five years'
compensation. Messrs. Backhaus and Opsal would receive an aggregate of $864,862
and $492,900, respectively, pursuant to the respective employment agreement upon
a change in control of the Bank or the Company, based upon current level of
compensation. The Bank would also continue the executive's life, health, dental
and disability coverage for 36 months from the date of termination. In the event
the payments to the executive would include an "excess parachute payment" as
defined by the Internal Revenue Code of 1986, as amended (relating to payments
made in connection with a change in control), the payments would be reduced in
order to avoid having an excess parachute payment.
Under the agreement, the executive's employment may be terminated upon
retirement in accordance with any retirement policy established on behalf of the
executive and with his or her consent. Upon the executive's retirement, he or
she will be entitled to all benefits available to him or her under any
retirement or other benefit plan maintained by the Bank. In the event of the
executive's disability for a period of six months, the Bank may terminate the
agreement provided that the Bank will be obligated to pay Base Salary for the
remaining term of the agreement or one year, whichever is longer, reduced by any
benefits paid to the executive pursuant to any disability insurance policy or
similar arrangement maintained by the Bank. In the event of the executive's
death, the Bank will pay Base Salary to named beneficiaries for one year
following death, and will also continue medical, dental, and other benefits to
his or her family for one year. The employment agreement provides that,
following termination of employment, the executive will not compete with the
Bank for a period of one year.
Report of the Compensation and Benefits Committee on Executive Compensation
Under rules established by the SEC, the Company is required to provide
certain data and information in regard to the compensation and benefits provided
to its Chief Executive Officer and other executive officers. The Chief Executive
Officer and other executive officers did not receive compensation from the
Company in fiscal year 2005. Consequently, the compensation discussed in this
Compensation Committee Report relates to that provided by the Bank.
The Compensation and Benefits Committee annually reviews the performance
of executive management and approves changes to base compensation, bonuses and
benefits for senior management. It is intended that the executive compensation
program will enable the Company and the Bank to attract, develop and retain
strong executive officers who are capable of maximizing the Company's
performance for the benefit of the stockholders. The Committee has adopted a
compensation strategy that seeks to provide competitive compensation strongly
aligned with the financial performance of the Company and the Bank.
The Committee uses a peer comparison employing at least two published
compensation surveys in determining the salary, bonuses and benefits of senior
management. While the Committee weighs a variety of
15
different factors in its deliberations, it has emphasized and will continue to
emphasize profitability, net income, earnings per share and book value as
factors in setting the compensation of the Chief Executive Officer. In fiscal
year 2005, a bonus was earned by executive officers based on those and other
factors. Other non-quantitative factors considered by the Committee in fiscal
2005 included general management oversight of the Company and the Bank, the
quality of communication with the Board of Directors, and the productivity of
employees. Finally, the Committee considered the standing of the Bank with
customers and the community, as evidenced by the level of customer/community
complaints and compliments. While each of the quantitative and non-quantitative
factors described was considered by the Committee, such factors were not
assigned a specific weighting in evaluating the performance of the Chief
Executive Officer.
After evaluating the foregoing factors, the Committee granted a 4%
increase in the base salary of the Chief Executive Officer for calendar year
2005.
This report has been provided by the Compensation and Benefits Committee.
David S. Clay Arlene T. Curry
Gary L. Evans, Chairman David Van Engelenhoven
16
Stock Performance Graph
Set forth below is a stock performance graph comparing the yearly
cumulative total return on the Company's Common Stock with (a) the yearly
cumulative total return on stocks included in the Nasdaq National Market Index,
and (b) the yearly cumulative total return on stocks included in the SNL Bank
Index. The cumulative total return on the Company's common stock was computed
assuming the reinvestment of dividends at the frequency rate with which
dividends were paid during the period shown, and reflects the exchange of
1.64696 shares of Company Common Stock for each share of Bank common stock in
April 1999. The information presented below is for the period beginning on June
30, 2000 and ending on June 30, 2005.
There can be no assurance that the Company's stock performance will
continue in the future with the same or similar trend depicted in the graph. The
Company will not make or endorse any predictions as to future stock performance.
[GRAPH OMITTED]
- ---------------------------------------------------------------------------------------------
6/30/00 6/30/01 6/30/02 6/30/03 6/30/04 6/30/05
- ---------------------------------------------------------------------------------------------
First Federal Bankshares, Inc. 100.00 165.85 180.93 242.18 315.46 290.95
- ---------------------------------------------------------------------------------------------
Nasdaq National Market 100.00 54.46 36.89 40.90 51.61 51.84
- ---------------------------------------------------------------------------------------------
SNL Bank Index 100.00 127.44 121.04 122.90 141.10 145.41
- ---------------------------------------------------------------------------------------------
17
Transactions with Certain Related Persons
All transactions between the Company and its executive officers,
directors, holders of 10% or more of the shares of its common stock and
affiliates thereof, are on terms no less favorable to the Company than could
have been obtained by it in arm's-length negotiations with unaffiliated persons.
Such transactions must be approved by a majority of the independent directors of
the Company not having any interest in the transaction.
Section 402 of the Sarbanes-Oxley Act of 2002 generally prohibits an
issuer from: (1) extending or maintaining credit; (2) arranging for the
extension of credit; or (3) renewing an extension of credit in the form of a
personal loan for an officer or director. There are several exceptions to this
general prohibition, one of which is applicable to the Company. Sarbanes-Oxley
does not apply to loans made by a depository institution that is insured by the
FDIC and is subject to the insider lending restrictions of the Federal Reserve
Act. All loans to the Bank's directors and officers are made in conformity with
the Federal Reserve Act and applicable regulations.
PROPOSAL II - RATIFICATION OF APPOINTMENT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Audit Committee of the Board of Directors of the Company has approved
the engagement of McGladrey & Pullen, LLP ("McGladrey") to be the Company's
independent registered public accounting firm for the 2006 fiscal year, subject
to the ratification of the engagement by the Company's stockholders. At the
Meeting, stockholders will consider and vote on the ratification of the
engagement of McGladrey for the Company's fiscal year ending June 30, 2006. A
representative of McGladrey is expected to attend the Meeting to respond to
appropriate questions and to make a statement, if deemed appropriate.
Set forth below is certain information concerning aggregate fees billed
for professional services rendered during fiscal years 2005 and 2004 by
McGladrey.
Audit Fees. During the past two fiscal years the fees billed for
professional services rendered by McGladrey for the audit of the Company's
annual financial statements and for the review of the Company's Forms 10-Q were
$220,700 for 2005 and $99,200 for 2004.
Audit-Related Fees. During fiscal 2005 and 2004, aggregate fees billed for
professional services rendered during fiscal 2005 and 2004 by McGladrey that are
reasonably related to the performance of the audit, including the audits of the
ESOP and the Retirement Plan, were $12,600 and $12,000.
Tax Fees. During the past two fiscal years, the fees billed for
professional services rendered during fiscal 2005 and fiscal 2004 by McGladrey
for tax services were $14,300 and $13,600, respectively.
All Other Fees. There were no aggregate fees billed to the Company by
McGladrey that are not described above during the past two fiscal years.
Policy on Audit Committee Pre-Approval of Audit and Non-Audit Services of
Independent Registered Public Accounting Firm
The Audit Committee's policy is to pre-approve all audit and non-audit
services provided by the independent registered public accounting firm.
Non-audit services may include audit-related services, tax services and other
services. Pre-approval is generally provided for up to one year and any
pre-approval is detailed as to particular service or category of services and is
generally subject to a specific budget. The Audit Committee has delegated
pre-approval authority to its Chairman when expedition of services is necessary.
The independent registered public accounting firm and management are required to
periodically report to the full Audit Committee regarding the extent of services
provided by the independent registered public accounting firm in accordance with
this pre-approval, and the fees for the services performed to date. All of the
non-audit service fees paid in fiscal 2005 and 2004 were approved per the Audit
Committee's pre-approval policies.
18
The Audit Committee has considered whether the provision of non-audit
services, which relate primarily to tax services rendered, was compatible with
maintaining McGladrey's independence. The Audit Committee concluded that
performing such services did not affect McGladrey's independence in performing
its function as auditor of the Company.
In order to ratify the selection of McGladrey & Pullen, LLP as the
independent registered public accounting firm for the 2006 fiscal year, the
proposal must receive at least a majority of the votes cast "FOR" or "AGAINST",
either in person or by proxy, in favor of such ratification.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE RATIFICATION OF THE
APPOINTMENT OF MCGLADREY & PULLEN, LLP AS THE INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM OF THE COMPANY FOR THE FISCAL YEAR ENDING JUNE 30, 2006.
STOCKHOLDER PROPOSALS
In order to be eligible for inclusion in the Company's proxy materials for
the next annual meeting of stockholders, any stockholder proposal to take action
at such meeting must be received at the Company's office located at 329 Pierce
Street, Sioux City, Iowa 51101 no later than May 26, 2006. Any such proposal
shall be subject to the requirements of the proxy rules adopted under the
Securities Exchange Act of 1934.
ADVANCE NOTICE OF BUSINESS TO BE BROUGHT BEFORE
AN ANNUAL MEETING
The Bylaws of the Company provide an advance notice procedure for certain
business, or nominations to the Board of Directors, to be brought before an
annual meeting. In order for a stockholder to properly bring business before an
annual meeting, or to propose a nominee to the Board, the stockholder must give
written notice to the Secretary of the Company not less than ninety (90) days
before the date fixed for such meeting; provided, however, that in the event
that less than one hundred (100) days notice or prior public disclosure of the
date of the meeting is given or made, notice by the stockholder to be timely
must be received not later than the close of business on the tenth day following
the day on which such notice of the date of the annual meeting was mailed or
such public disclosure was made. The notice must include the stockholder's name,
record address, and number of shares owned by the stockholder, describe briefly
the proposed business, the reasons for bringing the business before the annual
meeting, and any material interest of the stockholder in the proposed business.
In the case of nominations to the Board, certain information regarding the
nominee must be provided. Nothing in this paragraph shall be deemed to require
the Company to include in its proxy statement and proxy relating to an annual
meeting any stockholder proposal that does not meet all of the requirements for
inclusion established by the SEC in effect at the time such proposal is
received.
The date on which next year's annual meeting of stockholders is expected
to be held is October 26, 2006. Accordingly, advance written notice for certain
business, or nominations to the Board of Directors, to be brought before the
next Annual Meeting must be given to the Company by July 29, 2006. If notice is
received after that date, it will be considered untimely, and the Company will
not be required to present the matter at the stockholders meeting.
OTHER MATTERS
The Board of Directors is not aware of any business to come before the
Meeting other than those matters described above in this Proxy Statement.
However, if any other matter should properly come before the Meeting, it is
intended that holders of the proxies will act in accordance with their best
judgment.
The cost of solicitation of proxies will be borne by the Company. The
Company will reimburse brokerage firms and other custodians, nominees and
fiduciaries for reasonable expenses incurred by them in sending proxy materials
to the beneficial owners of Common Stock. In addition to solicitation by mail,
directors, officers and regular employees of the Company and the Bank may
solicit proxies personally or by telegraph or telephone without additional
compensation.
19
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED JUNE
30, 2005, WILL BE FURNISHED WITHOUT CHARGE TO STOCKHOLDERS AS OF THE RECORD DATE
UPON WRITTEN OR TELEPHONIC REQUEST TO SUZETTE F. HOEVET, SECRETARY, FIRST
FEDERAL BANKSHARES, INC., 329 PIERCE STREET, SIOUX CITY, IOWA 51101 OR CALL
(712) 277-0200.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Suzette F. Hoevet
Suzette F. Hoevet
Secretary
Sioux City, Iowa
September 22, 2005
20
Appendix A
AUDIT COMMITTEE CHARTER
First Federal Bankshares, Inc.
------------------------------
I. Purpose
The Audit Committee is appointed by the Board of Directors of First Federal
Bankshares, Inc. (the Company) to assist the Board in fulfilling its oversight
responsibilities related to corporate accounting, financial reporting practices,
internal controls, quality and integrity of financial reports, internal and
independent audit processes, legal compliance and business ethics. The Audit
Committee's primary duties and responsibilities are to:
o Monitor the integrity of the Company's financial reporting process,
systems of internal controls regarding finance, accounting, legal
and regulatory compliance, and disclosure controls and procedures.
o Provide direction to and oversight of the internal audit and
regulatory compliance functions.
o Monitor the independence, qualifications and performance of the
Company's independent auditors.
o Provide an avenue of communication among the Board of Directors, the
Audit Committee, Senior Management, internal audit and compliance
staff, and the independent external auditors.
The Committee's function is one of oversight, recognizing that the Company's
management is responsible for preparing the Company's financial statements, and
the independent auditor is responsible for auditing those statements. In
adopting this Charter, the Board of Directors acknowledges that the Committee
members are not employees of the Company and are not providing any expert or
special assurance as to the Company's financial statements or any professional
certification as to the external auditor's work or auditing standards. Each
member of the Committee shall be entitled to rely on the integrity of those
persons and organizations within and outside the Company that provide
information to the Committee and the accuracy and completeness of the financial
and other information provided to the Committee by such persons or organizations
absent actual knowledge to the contrary.
II. MEMBERSHIP
Audit Committee members shall be appointed by the Board based on
recommendations, if any, from the Board Nominating Committee and shall meet the
applicable requirements set forth by the National Association of Securities
Dealers, Inc. ("NASD") through its wholly-owned subsidiary, the Nasdaq Stock
Market, Inc.
The Committee shall be comprised of three or more directors, each of whom shall
be independent, non-executive directors, free from any financial, family or
other material personal relationship that, in the opinion of the Board, would
interfere with the exercise of his or her independent judgment as a member of
the Committee. No person may serve on the Committee who fails to satisfy NASD
rules for "independent" audit committee members, as those rules may be amended
from time to time.
All members of the Committee shall have a basic understanding of finance and
accounting practices and be able to read and understand fundamental financial
statements, including a company's balance sheet, income statement and cash flow
statement. At least one member of the Committee shall have past employment
experience in finance or accounting, requisite professional certification in
accounting, or other comparable accounting or related financial management
expertise. The Board shall determine whether at least one member of the
Committee qualifies as an "audit committee financial expert" in compliance with
criteria established by the SEC from time to time. The existence of such member,
including his or her name and whether or not he or she is independent, shall be
disclosed in periodic filings as required by the SEC.
A chairperson of the Committee (the "Chairperson") will be designated annually
by majority vote of the full Committee membership.
A-1
The entire Committee or any individual Committee member may be removed from
office without cause by the affirmative vote of a majority of the Board of
Directors. Any Committee member may resign effective upon giving written notice
to the Chairman of the Board of Directors, the Corporate Secretary, or the Board
of Directors. If the resignation is effective at a future time, the Board may
elect a successor to take office when the resignation becomes effective.
III. MEETINGS
The Audit Committee shall meet at least four times annually, or more frequently
as circumstances dictate. The Chairperson shall be responsible for determining
meeting agendas, attendees and the frequency and length of meetings, subject to
the overall authority of the Committee. The Chairperson should consult, as
necessary, with other Committee members, the Internal Auditor, the Compliance
Officer, independent auditors and/or legal counsel prior to each meeting to
finalize the agenda and overview issues to be discussed. Each regularly
scheduled meeting shall conclude with an executive session of the Committee
absent members of management and on such terms and conditions as the Committee
may elect.
As part of responsibility to foster open communication, the Committee will meet
at least annually in separate executive sessions with each of the following to
discuss matters that the Committee or any one these groups believe should be
discussed privately: Executive Management, the Internal Auditor and Compliance
Officer, and the independent auditors.
The Committee may appoint a Secretary whose duties and responsibilities shall be
to keep full and complete records of the proceedings of the Committee for the
purposes of reporting Committee activities to the Board of Directors. The
Secretary need not be a Director.
IV. AUTHORITY TO CONDUCT INVESTIGATIONS AND RETAIN ADVISORS
The Audit Committee has the authority to conduct any investigation appropriate
to fulfilling its responsibilities, and it has direct access to the independent
auditors as well as all books, records, facilities and personnel of the Company.
The Committee has the ability to retain, at the Company's expense, special
legal, accounting, or other consultants or experts it deems necessary in the
performance of its duties.
V. RESPONSIBILITIES AND DUTIES
The duties and responsibilities of a member of the Audit Committee are in
addition to those duties generally pertaining to a member of the Board of
Directors and are set forth below as a guide with the understanding that the
Committee may alter or supplement them as appropriate under the circumstances to
the extent permitted by applicable law or listing standard.
A. General Procedures
------------------
1. Review and reassess the adequacy of this Charter at least annually
and submit the Charter to the Board of Directors for re-approval.
Annual proxy statements will include a statement indicating that the
Audit Committee is governed by a charter. In accordance with
Securities and Exchange Commission ("SEC") regulations, the Charter
will be published as an appendix to the annual proxy statement at
least every three years or in the next annual proxy statement after
any significant amendment to the Charter.
2. Report Committee meeting proceedings to the Board, including any
issues with respect to the quality or integrity of the Company's
financial statements, compliance with legal or regulatory
requirements, the performance and independence of the independent
auditors or the internal audit function, along with such
recommendations the Committee may deem appropriate.
3. The Committee shall undertake an annual evaluation assessing its
performance with respect to its purposes and its duties and tasks
set forth in this Charter, with such evaluation being reported to
the Board of Directors.
A-2
B. Independent (External) Auditors
-------------------------------
1. Appoint, compensate, and oversee the work performed by the
independent auditor for the purpose of preparing or issuing an audit
report or related work. Review the performance of the independent
auditors and remove the independent auditors if circumstances
warrant. The independent auditors shall report directly to the
Committee and the Committee shall oversee the resolution of
disagreements between management and the independent auditors in the
event that they arise.
2. Review with the independent accountants the scope of the proposed
annual audit of the consolidated financial statements, of
management's assessment of the internal controls over financial
reporting, and of the effectiveness of the Company's internal
control over financial reporting. Consider the coordination of
internal and external audit procedures to promote an effective use
of resources and ensure a complete but non-redundant audit. The
scope should include the requirement that the independent
accountants inform the Committee of any significant changes in the
independent auditor's original audit plan and that the independent
auditor conducts a Statement on Auditing Standards (SAS) No. 71
-Interim Financial Review prior to the Company's filing of each
quarterly report to shareholders (Form 10-Q). This review may be
delegated to the Committee Chairperson, who shall report the outcome
to the full Committee at the next scheduled Committee meeting.
3. Approve all audit and non-audit services to be provided by the
independent auditor to the Company and its subsidiaries (other than
with respect to de minimus exceptions permitted by the
Sarbanes-Oxley Act of 2002) in advance of the provision of those
services, as well as the applicable fees and terms, in accordance
with the Audit Committee Pre-Approval Policy.
4. With respect to non-audit services, consider whether the independent
auditor's performance of any non-audit services is compatible with
the external auditor's independence. This responsibility may be
delegated to the Committee Chairperson, who shall report their
conclusion to the full Committee at the next scheduled Committee
meeting. Approval of non-audit services shall be disclosed in
periodic reports filed with the SEC pursuant to Section 13(a) of the
Securities Exchange Act of 1934.
5. In accordance with Independence Standards Board Standard No. 1 (ISBS
No. 1), review annually a formal written statement from the
independent auditors regarding all significant relationships they
have with the Company. The Audit Committee should discuss with the
independent auditors any relationships or services that could impair
the auditors' independence. As necessary, the Audit Committee shall
take, or recommend that the full Board take, appropriate action to
oversee the independence of the outside auditors.
6. At least annually, the Committee shall obtain and review a report by
the independent auditor describing:
a. The independent auditor's internal quality control procedures;
and
b. Any material issues raised by the most recent internal quality
control review or peer review of the independent auditor's
firm, or by any inquiry or investigation by governmental or
professional authorities, within the preceding five years,
respecting one or more independent audits carried out by the
independent auditor's firm, and the steps taken to deal with
those issues, if any.
7. Review with the independent auditor any problems or difficulties and
management's response, review the independent auditor's attestation
and report on management's internal control report, and hold timely
discussions with the independent auditors regarding the following:
a. all critical accounting policies and practices;
b. all alternative treatments of financial information within
generally accepted accounting principles that have been
discussed with management, ramifications of the use of such
alternative disclosures and treatments, and the treatment
preferred by the independent auditor;
A-3
c. other material written communications between the independent
auditor and management including, but not limited to, the
management letter and schedule of unadjusted differences; and
d. an analysis of the auditor's judgment as to the quality of the
Company's accounting principles, setting forth significant
reporting issues and judgments made in connection with the
preparation of the financial statements.
8. Any current or former employee of the independent auditor who has
participated in any capacity in the audit of the Company during the
one-year period preceding the date of the initiation of the audit
shall not be hired by the Company as the Company's CEO, CFO,
controller, chief accounting officer or any equivalent position, in
accordance with Section 206 of the Sarbanes-Oxley Act of 2002. The
Audit Committee will pre-approve the hiring of any current or former
employee of the independent auditor who meets the one-year cooling
off period requirement.
C. Financial Statements/Internal Controls
--------------------------------------
1. Review annual financial statements with management and the
independent auditors to determine that the independent auditors are
satisfied with the disclosure and content of the financial
statements, including the nature and extent of any significant
changes in accounting principles. Discuss certain matters required
to be communicated to audit committees in accordance with SAS No. 61
- Communication with Audit Committees, as it may be modified or
supplemented, including, but not limited to, significant judgments,
significant estimates, critical accounting policies and unadjusted
differences. Approve such financial statements prior to release of
the annual earnings.
2. The Chairperson shall meet quarterly with the independent auditors
and management to discuss the quarterly financial statements,
including the Company's disclosure in the "Management's Discussion
and Analysis" section thereof, and shall report to the Committee at
its next scheduled meeting. The Chairperson shall immediately notify
the Committee of any significant concerns.
3. If SAS No. 71 reviews of interim financial statements uncover any
significant matters as described in SAS No. 61, discuss such matters
with the independent auditors prior to the filing of the Company's
Form 10-Q or as soon as practicable thereafter given the
circumstances.
4. Review with management major issues regarding accounting principles
and financial statement presentations, including any significant
changes in the Company's selection or application of accounting
principles, and major issues as to the adequacy of the Company's
internal controls and any special audit steps adopted in light of
material control deficiencies.
5. Review analyses prepared by management (and the independent auditor
as noted above) setting forth significant financial reporting issues
and judgments made in connection with the preparation of the
financial statements, including analyses of the effects of
alternative GAAP methods on the financial statements.
6. Review with management the effect of regulatory and accounting
initiatives, as well as off-balance sheet structures, on the
financial statements of the Company.
7. In consultation with the independent auditors and the internal
auditors, review the integrity of the organization's financial
reporting processes (both internal and external), and the internal
control structure (including disclosure controls).
8. Review with management, the independent auditors, and the internal
auditors the basis for the annual report filed under Section 36 of
the Federal Deposit Insurance Act (including the reports under
Section 404 of the Sarbanes-Oxley Act) which includes:
a. audited financial statements;
A-4
b. reports by management stating management's responsibility for
preparing financial statements, maintaining adequate internal
controls and procedures, and complying with laws and
regulations regarding safety and soundness;
c. management's assessment of the effectiveness of the Company's
internal control over financial reporting; and
d. the independent auditor's report on the Company's consolidated
financial statements, on management's assessment of the
internal controls over financial reporting and on the
effectiveness of the Company's internal controls over
financial reporting.
9. Review disclosures made to the Committee by the Company's CEO and
CFO during their certification process for the Form 10-K and Form
10-Q about any significant deficiencies in the design or operation
of internal controls or material weaknesses therein and any fraud
involving management or other employees who have a significant role
in the Company's internal controls.
10. Establish a policy requiring that the Audit Committee be informed,
on a timely basis, of any communications from the SEC (or other
regulatory bodies that have authority over financial reporting or
controls) in regard to the Company's filings.
11. Establish procedures for:
a. The receipt, retention and treatment of complaints received by
the Company regarding accounting, internal accounting controls
or auditing matters; and
b. The confidential, anonymous submission by the Company's
employees of concerns regarding accounting, internal control
or auditing matters.
These procedures are set forth in the Company's Whistleblower
Protection Policy and any supporting internal handbooks and
memorandums.
12. Based on its review and discussions with management, the internal
auditors, and the independent auditor, recommend to the Board of
Directors whether the Company's financial statements should be
included in the Company's Annual Report on Form 10-K (or the annual
report to stockholders if distributed prior to the filing of the
Form 10-K) and in the Company's Quarterly Report on Form 10-Q prior
to the filing of such report. The report on Form 10-K should state
whether the Committee has:
a. Reviewed and discussed the audited financial statements with
management;
b. Discussed with the independent auditors the matters required
to be discussed by SAS No. 61; and
c. Reviewed certain written disclosures from the external
auditors regarding their independence as required by ISBS No.
1, and discussed with the auditors their independence.
Based on the foregoing, the report should also include a statement
whether the Audit Committee recommended to the Board that the
audited financial statements be included in the annual report filed
with the SEC.
13. The Chairperson shall review earnings press releases with management
and the independent auditors prior to release, including review of
"pro forma" or "adjusted" non-GAAP information therein.
14. Review and discuss with management any written financial information
or earnings guidance provided to financial analysts and rating
agencies.
D. Internal Audit and Regulatory Compliance Functions
--------------------------------------------------
1. Review and approve the Internal Audit Charter and the Compliance
Risk Management Program annually.
A-5
2. Oversee the appointment, replacement, reassignment, or dismissal of
the Internal Auditor and the Compliance Officer.
3. Review the budget for the internal audit and compliance functions,
the adequacy of internal audit and compliance staff qualifications
and the number of internal audit and compliance staff annually.
4. Review the internal audit and compliance functions of the Company
including independence and the authority of reporting relationships.
5. Review and approve the annual internal audit and compliance risk
assessments and audit plans and any significant changes to the
plans.
6. Review progress reports on executing the approved internal audit and
compliance plans.
7. Review findings from completed internal and compliance audits
together with management's responses and follow-up to these audit
reports.
8. Inquire whether the Internal Auditor or Compliance Officer have
encountered any difficulties in the course of their audits,
including any restrictions on the scope of their work or access to
required information.
E. Legal/Compliance Matters and Risk Management
--------------------------------------------
1. On at least an annual basis, review with the Company's counsel, any
legal matters that could have a significant impact on the Company's
financial statements.
2. Provide oversight to the Company's ethics program by reviewing the
Code of Ethics and the Code of Business Conduct annually and
requiring management to report on procedures that provide assurance
that these Codes are followed and properly communicated to all
employees.
3. Review and pre-approve all related party transactions.
4. Discuss policies with respect to risk assessment and risk
management. Such discussions should include the Company's major
financial and accounting risk exposures and the steps management has
undertaken to control them.
5. Prepare the Audit Committee Report required by SEC regulations to be
included in the Company's annual proxy statement.
A-6
REVOCABLE PROXY
FIRST FEDERAL BANKSHARES, INC.
ANNUAL MEETING OF STOCKHOLDERS
October 27, 2005
The undersigned hereby appoints the official proxy committee consisting of
the members of the Board of Directors of First Federal Bankshares, Inc. (the
"Company") who are not named as nominees below, with full powers of substitution
to act as attorneys and proxies for the undersigned to vote all shares of Common
Stock of the Company that the undersigned is entitled to vote at the 2005 Annual
Meeting of Stockholders ("Meeting") to be held at the Marina Inn Conference
Center, 4th and B Streets, South Sioux City, Nebraska, at 9:00 a.m. (Nebraska
time) on October 27, 2005. The official proxy committee is authorized to cast
all votes to which the undersigned is entitled as follows:
VOTE
FOR WITHHELD
--------- --------
1. The election as directors of all nominees listed [_] [_]
below (except as marked to the contrary below) for
the respective terms specified in the proxy
statement:
Arlene T. Curry
Gary L. Evans
Allen J. Johnson
INSTRUCTION: To withhold your vote for one or more nominees, write the name of
the nominee(s) on the line(s) below.
- ------------------------------------
- ------------------------------------
- ------------------------------------
FOR AGAINST ABSTAIN
----- ------- -------
2. The ratification of the appointment of McGladrey & [_] [_] [_]
Pullen, LLP as independent registered public
accounting firm for the fiscal year ending June
30, 2006.
The Board of Directors recommends a vote "FOR" Proposals 1 and 2.
- --------------------------------------------------------------------------------
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE SPECIFIED, THIS
PROXY WILL BE VOTED FOR EACH OF THE PROPOSITIONS STATED ABOVE. IF ANY OTHER
BUSINESS IS PRESENTED AT SUCH MEETING, THIS PROXY WILL BE VOTED BY THE MAJORITY
OF THE BOARD OF DIRECTORS. AT THE PRESENT TIME, THE BOARD OF DIRECTORS KNOWS OF
NO OTHER BUSINESS TO BE PRESENTED AT THE MEETING.
- --------------------------------------------------------------------------------
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
Should the undersigned be present and elect to vote at the Meeting or at
any adjournment thereof and after notification to the Secretary of the Company
at the Meeting of the stockholder's decision to terminate this proxy, then the
power of said attorneys and proxies shall be deemed terminated and of no further
force and effect. This proxy may also be revoked by sending written notice to
the Secretary of the Company at the address set forth on the Notice of Annual
Meeting of Stockholders, or by the filing of a later dated proxy prior to a vote
being taken on a particular proposal at the Meeting.
The undersigned acknowledges receipt from the Company prior to the
execution of this proxy of notice of the Meeting, a proxy statement dated
September 22, 2005, and audited financial statements.
Dated: [_]Check Box if You Plan to Attend
Annual Meeting
- ---------------------------------- ----------------------------------
PRINT NAME OF STOCKHOLDER PRINT NAME OF STOCKHOLDER
- ---------------------------------- ----------------------------------
SIGNATURE OF STOCKHOLDER SIGNATURE OF STOCKHOLDER
Please sign exactly as your name appears on this card. When signing as attorney,
executor, administrator, trustee or guardian, please give your full title. If
shares are held jointly, each holder should sign.
- --------------------------------------------------------------------------------
Please complete and date this proxy and return it promptly
in the enclosed postage-prepaid envelope.
- --------------------------------------------------------------------------------