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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to ____________
Commission File Number 0-28312
FIRST FEDERAL BANCSHARES OF ARKANSAS, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Texas 71-0785261
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(State or other jurisdiction of incorporation or organization) (I.R.S. Employer
Identification Number)
200 West Stephenson
Harrison, Arkansas 72601
- ---------------------------------------------- -------------------
(address of principal executive office) (Zip Code)
(501) 741-7641
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: As of August 5,
1996, there were issued and outstanding 5,153,751 shares of the Registrant's
Common Stock, par value $.01 per share.
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FIRST FEDERAL BANCSHARES OF ARKANSAS, INC.
TABLE OF CONTENTS
PAGE
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PART I. FINANCIAL INFORMATION
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Item 1. Consolidated Financial Statements
Consolidated Statements of Financial Condition
(As of June 30, 1996 (unaudited) and December 31, 1995) 1
Consolidated Statements of Income for the three and six months
ended June 30, 1996 (unaudited) and 1995 (unaudited) 2
Consolidated Statements of Cash Flows for the six
months ended June 30, 1996 (unaudited) and 1995 (unaudited) 3
Notes to Unaudited Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 6
PART II. OTHER INFORMATION
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Item 1. Legal Proceedings 10
Item 2. Changes in Securities 10
Item 3. Defaults Upon Senior Securities 10
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURES
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FIRST FEDERAL BANCSHARES OF ARKANSAS, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(IN THOUSANDS)
June 30, December 31,
ASSETS 1996 1995
-------------- ---------------
(Unaudited)
Cash and cash equivalents $ 13,824 $ 8,845
Investment securities:
Available for sale 264 258
Held to maturity 110,973 96,054
Federal Home Loan Bank stock 2,938 2,821
Loans receivable, net 369,161 339,505
Accrued interest receivable 3,839 3,477
Real estate acquired in settlement of loans, net 151 234
Office properties and equipment, net 3,219 2,993
Prepaid expenses and other assets 570 292
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TOTAL ASSETS $504,939 $454,479
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits $419,611 $417,229
Advance payments by borrowers for
taxes and insurance 410 746
Income taxes payable 109 --
Other liabilities 1,378 1,196
-------- --------
Total Liabilities 421,508 419,171
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STOCKHOLDERS' EQUITY:
Preferred Stock, no par value, 5,000,000 shares
authorized, none issued and outstanding
Common Stock, $.01 par value, 20,000,000 shares
authorized, 5,153,751 shares issued and
outstanding as of June 30, 1996 52 --
Additional paid-in capital 49,872 --
Common Stock acquired by ESOP (4,056) --
Retained earnings-substantially restricted 37,408 35,157
Unrealized gain-investment securities
available for sale, net of income taxes 155 151
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Total stockholders' equity 83,431 35,308
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TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $504,939 $454,479
======= =======
The accompanying notes are an integral part of the consolidated financial
statements.
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FIRST FEDERAL BANCSHARES OF ARKANSAS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Earnings Per Share)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------- --------------------------
1996 1995 1996 1995
----------- ---------- ------------ -----------
Interest income:
Loans receivable $7,427 $6,194 $14,673 $12,088
Investment securities 1,589 1,655 2,956 3,345
Mortgage-backed securities 6 221 12 450
Other 210 84 296 156
------ ------ ------- ------
Total interest income 9,232 8,154 17,937 16,039
------ ------ ------- -------
Interest Expense:
Deposits 5,557 5,377 11,260 10,240
Other 35 -- 35 --
------ ------ ------ ------
Total interest expense 5,592 5,377 11,295 10,240
------ ------ ------ ------
Net interest income before
provision for loan losses 3,640 2,777 6,642 5,799
Provision for loan losses -- 2 -- 8
------- ------- ------ ------
Net interest income after
provision for loan losses 3,640 2,775 6,642 5,791
------- ------- ------ -----
Noninterest income:
Gain on sales of investment
securities -- 3 1 4
Deposit fee income 197 178 375 351
Other 114 98 225 188
------ ----- ------ -------
Total noninterest income 311 279 601 543
------ ----- ------ ------
Noninterest expenses:
Salaries and employee benefits 1,029 851 2,000 1,740
Net occupancy expense 163 147 326 301
Federal insurance premiums 238 225 473 451
Data processing 189 149 368 300
Postage and supplies 73 65 153 136
Other 259 231 500 450
------ ------ ------ ------
Total noninterest expenses 1,951 1,668 3,820 3,378
------ ------ ------ ------
Income before income taxes 2,000 1,386 3,423 2,956
Provision for income taxes 692 458 1,172 935
------ ------ ------ -----
Net income $ 1,308 $ 928 $ 2,251 $ 2,021
====== ====== ====== ======
Earnings per share $ 0.28 N/A $ 0.47 N/A
====== ======
The accompanying notes are an integral part of the consolidated financial
statements.
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FIRST FEDERAL BANCSHARES OF ARKANSAS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended June 30,
---------------------------------------
1996 1995
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(In Thousands)
OPERATING ACTIVITIES:
Net income $ 2,251 $ 2,021
Adjustments to reconcile net income
to net cash provided by operating activities:
Provision for loan losses -- 8
Deferred tax provision 134 28
Gain on sale of real estate owned (3) (11)
Depreciation 195 197
Accretion of deferred loan fees (360) (191)
Repayment of ESOP loan and related
increase in share value 91 --
Changes in operating assets & liabilities:
Accrued interest receivable (362) 246
Prepaid expenses & other assets (277) (56)
Other liabilities 155 276
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Net cash provided by operating activities 1,824 2,518
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INVESTING ACTIVITIES:
Purchases of investment securities-(held to (38,085) (7,611)
maturity)
Proceeds from maturities of investment
securities-(held to maturity) 23,048 19,442
Loan originations, net of repayments (29,296) (22,031)
Proceeds from sales of real estate owned 86 117
Purchases of office properties & equipment (421) (255)
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Net cash used by investing activities (44,668) (10,338)
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FINANCING ACTIVITIES:
Net increase in deposits 2,382 9,744
Increase (decrease) in advance payments by
borrowers for taxes & insurance (336) (125)
Increase from issuance of common stock, net
of related expenses 45,777 --
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Net cash provided by financing activities 47,823 9,619
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(Continued)
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FIRST FEDERAL BANCSHARES OF ARKANSAS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended June 30,
-------------------------------------
1996 1995
--------------- --------------
(In Thousands)
Net increase in cash and
cash equivalents 4,979 1,799
CASH AND CASH EQUIVALENTS:
Beginning of year 8,845 8,280
------ ------
End of year $13,824 $10,079
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SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Cash paid for:
Interest on deposits $11,322 $10,175
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Income taxes $ 874 $ 786
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SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES:
Real estate acquired in settlement of loans $ -- $ 128
====== ======
Loans to facilitate sales of real estate owned $ 54 $ 108
====== ======
Change in unrealized gains $ 4 $ 35
====== ======
(Concluded)
The accompanying notes are an integral part of the consolidated financial
statements.
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FIRST FEDERAL BANCSHARES OF ARKANSAS, INC.
Notes to Unaudited Consolidated Financial Statements
NOTE 1 - BASIS OF PRESENTATION
First Federal Bancshares of Arkansas, Inc. (the "Corporation") was incorporated
under Texas law in January 1996 by First Federal Bank of Arkansas, FA (the
"Bank") in connection with the conversion of the Bank from a federally
chartered mutual savings and loan association to a federally chartered stock
savings and loan association, the issuance of the Bank's stock to the
Corporation, and the offer and sale of the Corporation's common stock by the
Corporation (the "Conversion"). Upon consummation of the Conversion on May 3,
1996, the Corporation became the unitary holding company for the Bank. The
financial statements for the periods prior to May 3, 1996 presented herein are
those of the Bank prior to the Conversion.
The accompanying unaudited consolidated financial statements of the Corporation
have been prepared in accordance with instructions to Form 10-Q. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. However,
such information reflects all adjustments (consisting solely of normal
recurring adjustments) which are, in the opinion of management, necessary for a
fair statement of results for the interim periods.
The results of operations for the six months ended June 30, 1996 are not
necessarily indicative of the results to be expected for the year ending
December 31, 1996. The unaudited consolidated financial statements and notes
thereto should be read in conjunction with the audited financial statements and
notes thereto for the year ended December 31, 1995, contained in the
Corporation's prospectus dated March 22, 1996.
NOTE 2 - PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of the
Corporation and the Bank. All significant intercompany items have been
eliminated.
NOTE 3 - EARNINGS PER SHARE
The average number of common shares used to calculate earnings per share for
the three and six months ended June 30, 1996 was 4,741,524 and 4,741,487,
respectively. In addition, such calculations assume that the Corporation was a
public company as of January 1, 1996. Earnings per share for the three and six
months ended June 1995 is not applicable, as the Conversion was not completed
until May 3, 1996.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
At June 30, 1996, the Corporation's assets amounted to $505.0 million as
compared to $454.5 million at December 31, 1995. The $50.5 million or 11.1%
increase was primarily due to an increase of $29.7 million or 8.7% in loans
receivable, net, a $14.9 million or 15.5% increase in investment securities
held to maturity and a $5.0 million or 56.3% increase in cash and cash
equivalents. Such increase in loans receivable, net, investment securities
held to maturity and cash and cash equivalents were due to the deployment of
net proceeds of $45.8 million resulting from the sale of 5,153,751 shares of
the Corporation's common stock at a price of $10.00 per share. The Conversion
was consummated on May 3, 1996. Liabilities increased $2.3 million or 0.6% to
$421.5 million at June 30, 1996 compared to $419.2 million at December 31,
1995. Stockholders' equity amounted to $83.4 million or 16.5% of total assets
at June 30, 1996 compared to $35.3 million or 7.8% of total assets at December
31, 1995. The increase in stockholders' equity during the six month period was
due to the receipt of net Conversion proceeds and net income of $2.3 million.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1996 AND 1995
GENERAL. The Corporation reported net income of $1.3 million during the
three months ended June 30, 1996 compared to $928,000 for the same period in
1995. The increase of $380,000 or 40.9% in net income in the 1996 period
compared to the same period in 1995 was due primarily to an increase in net
interest income. Net interest income is determined by the Corporation's
interest rate spread (i.e., the difference between the yields earned on its
interest-earning assets and the rates paid on its interest-bearing liabilities)
and the relative amounts of interest-earning assets and interest-bearing
liabilities. The increase in net interest income of $863,000 or 31.1% was due
to an increase in the ratio of interest-earning assets to interest-bearing
liabilities to 111.1% for the 1996 period compared to 105.8% for the 1995
period. In addition, the Corporation's interest rate spread increased to 2.51%
for the 1996 period compared to 2.32% for the 1995 period.
INTEREST INCOME. Interest income amounted to $9.2 million for the three
months ended June 30, 1996 compared to $8.2 million for the same period in
1995. The increase of $1.1 million or 13.2% was primarily due to an increase
in the average balance of loans receivable. The increase in the average
balance of loans receivable was due to continued loan demand and portfolio
growth as well as the deployment of Conversion proceeds in such assets.
INTEREST EXPENSE. Interest expense increased $215,000 or 4.0% to $5.6
million for the three months ended June 30, 1996 compared to $5.4 million for
the same period in 1995. Such increase was primarily due to an increase in the
average balance of deposits reflecting interest credited on deposits.
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NONINTEREST INCOME. Noninterest income amounted to $311,000 for the
three months ended June 30, 1996 compared to $279,000 for the same period in
1995. The increase of $32,000 or 11.5% was due to an increase of $19,000 or
10.7% in deposit fee income and an increase of $16,000 or 16.3% in other
miscellaneous income.
NONINTEREST EXPENSE. Noninterest expenses increased $283,000 or 17.0%
to $2.0 million for the three months ended June 30, 1996 compared to $1.7
million for the same period in 1995. Such increase was due primarily to an
increase of $178,000 or 20.9% in salaries and employee benefits and a $40,000
or 26.8% increase in data processing. The increase in salaries and employee
benefits was due to normal merit increases, an increase in employees and costs
associated with the adoption of the Corporation's Employee Stock Ownership
Plan. The increase in data processing was primarily due to an increase in the
number of accounts.
INCOME TAXES. Income taxes amounted to $692,000 and $458,000 for the
three months ended June 30, 1996 and 1995, respectively, resulting in effective
tax rates of 34.6% and 33.0%, respectively.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
GENERAL. The Corporation reported net income of $2.3 million during the
six months ended June 30, 1996 compared to $2.0 million for the same period in
1995. The increase of $230,000 or 11.4% in net income in the 1996 period
compared to the same period in 1995 was due primarily to an increase in net
interest income. The increase in net interest income of $843,000 or 14.5% was
due to an increase in the ratio of interest-earning assets to interest-bearing
liabilities to 109.2% for the 1996 period compared to 105.7% for the 1995
period. The Corporation's interest rate spread was 2.41% for the 1996 period
compared to 2.47% for the 1995 period.
INTEREST INCOME. Interest income amounted to $17.9 million for the six
months ended June 30, 1996 compared to $16.0 million for the same period in
1995. The increase of $1.9 million or 11.8% was primarily due to an increase
in the average balance of loans receivable. The increase in the average
balance of loans receivable was due to continued loan demand and portfolio
growth as well as the deployment of Conversion proceeds in such assets. The
increase in interest income resulting from a higher average balance of loans
was partially offset by a decrease in interest income on investment and
mortgage-backed securities due to a decrease in the average balance of such
securities. Such decrease was due to sales of mortgage-backed securities and
payments and maturities of mortgage-backed and investment securities. The
Corporation used such cash primarily to fund loan originations.
INTEREST EXPENSE. Interest expense increased $1.1 million or 10.3% to
$11.3 million for the six months ended June 30, 1996 compared to $10.2 million
for the same period in 1995. Such increase was due to an increase in the
average balance of deposits, reflecting
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interest credited on deposits, as well as an increase in the rate paid on such
liabilities from 5.13% during the six months ended June 30, 1995 to 5.36% for
the same period in 1996.
NONINTEREST INCOME. Noninterest income amounted to $601,000 for the six
months ended June 30, 1996 compared to $543,000 for the same period in 1995.
The increase of $58,000 or 10.7% was due to an increase of $24,000 or 6.8% in
deposit fee income and an increase of $37,000 or 19.7% in other miscellaneous
income.
NONINTEREST EXPENSE. Noninterest expenses increased $442,000 or 13.1%
to $3.8 million for the six months ended June 30, 1996 compared to $3.4 million
for the same period in 1995. Such increase was due primarily to an increase of
$260,000 or 14.9% in salaries and employee benefits and a $68,000 or 22.7%
increase in data processing. The increase in salaries and employee benefits
was due to normal merit increases, an increase in employees and costs
associated with the adoption of the Corporation's Employee Stock Ownership
Plan. The increase in data processing was primarily due to an increase in the
number of accounts.
INCOME TAXES. Income taxes amounted to $1.2 million and $935,000 for
the six months ended June 30, 1996 and 1995, respectively, resulting in
effective tax rates of 34.2% and 31.6%, respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Corporation's liquidity, represented by cash and cash equivalents,
is a product of its operating, investing and financing activities. The
Corporation's primary sources of funds are deposits, amortization, prepayments
and maturities of outstanding loans, maturities of investment securities,
mortgage-backed securities and other short-term investments and funds provided
from operations. While scheduled loan amortization and maturing investment
securities, mortgage-backed securities and short-term investments are
relatively predictable sources of funds, deposit flows and loan prepayments are
greatly influenced by general interest rates, economic conditions and
competition. The Corporation manages the pricing of its deposits to maintain a
steady deposit balance. In addition, the Corporation invests excess funds in
overnight deposits and other short-term interest-earning assets which provide
liquidity to meet lending requirements. The Corporation has generally been
able to generate enough cash through the retail deposit market, its traditional
funding source, to offset the cash utilized in investing activities. As an
additional source of funds, the Corporation may borrow from the Federal Home
Loan Bank ("FHLB") of Dallas. At June 30, 1996, the Corporation did not have
any outstanding advances from the FHLB of Dallas.
As of June 30, 1996, the Bank's regulatory capital was well in excess of
all applicable regulatory requirements. At June 30, 1996, the Bank's tangible,
core and risk-based capital ratios amounted to 12.2%, 12.2% and 24.2%,
respectively, compared to regulatory requirements of 1.5%, 3.0% and 8.0%,
respectively.
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PROPOSED DEPOSIT INSURANCE PREMIUMS
The deposits of the Bank are insured by the Savings Association
Insurance Fund ("SAIF") of the Federal Deposit Insurance Corporation ("FDIC").
Both the SAIF and the Bank Insurance Fund ("BIF"), the federal deposit
insurance fund that covers commercial bank deposits, are required by law to
attain and thereafter maintain a reserve ratio of 1.25% of insured deposits.
The BIF has achieved a fully funded status in contrast to the SAIF and the FDIC
recently reduced the average deposit insurance premium paid by BIF-insured
commercial banks to a level substantially below the average premium paid by
SAIF-insured institutions.
In late 1995, the FDIC approved a final rule regarding deposit insurance
premiums which, effective with the semiannual premium assessment on January 1,
1996, reduced deposit insurance premiums for BIF member institutions to zero
(subject to an annual minimum of $2,000) for institutions in the lowest risk
category. Deposit insurance premiums for SAIF members were maintained at their
existing levels (23 basis points for institutions in the lowest risk category).
Accordingly, in the absence of further legislative action, until the SAIF
attains a reserve ratio of 1.25% of insured deposits, SAIF members such as the
Bank will be competitively disadvantaged as compared to commercial banks due to
this premium differential. It is anticipated that, under present conditions,
it will be at least several years before the SAIF reaches a reserve ratio of
1.25% of insured deposits.
The U.S. House of Representatives and Senate had actively considered
legislation which would have eliminated the premium differential between
SAIF-insured institutions and BIF-insured institutions by recapitalizing the
SAIF's reserves to the required ratio. The legislation had been, for some
time, included as part of a fiscal 1996 federal budget bill, but was eliminated
prior to the bill being enacted on April 26, 1996. In light of the
legislation's elimination and the uncertainty of the legislative process
generally, management cannot predict whether legislation reducing SAIF premiums
and/or imposing a special one-time assessment will be adopted, or, if adopted,
the amount of the assessment, if any, that would be imposed on the Bank.
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FIRST FEDERAL BANCSHARES OF ARKANSAS, INC.
PART II
Item 1. Legal Proceedings
Neither the Corporation nor the Bank is involved in any pending
legal proceedings other than non-material legal proceedings
occurring in the ordinary course of business.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
None.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRST FEDERAL BANCSHARES OF ARKANSAS, INC.
Date: August 7, 1996 By: /s/Larry J. Brandt
----------------------------------------
Larry J. Brandt
President
Date: August 7, 1996 By: /s/Tommy W. Richardson
----------------------------------------
Tommy W. Richardson
Chief Financial Officer
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