Can Vantus return to prosperity?
By Dave Dreeszen Journal business editor | Posted: Sunday, August 10, 2008
SIOUX CITY -- During its 85-year history, Vantus Bank survived both the Great Depression of the 1930s and the Savings and Loan crisis of the 1980s.
Today's continued troubles in the U.S. financial sector is again testing the resolve of the Sioux City-based bank, which has struggled lately with a tumbling stock price, lagging financial performance and growing portfolio of troubled loans.
"All banks are going through kind of a tough time and so are we,'' interim president and CEO Barry Backhaus said in an interview last week. "You always expect, once in a while, some years to come along that don't work out, and this is one of them.''
Backhaus, who led the bank from 1990 to 2006, came out of retirement following the resignation of his successor, Mike Dosland, on July 18. Dosland, who accepted a job with another firm, left after just 30 months with Vantus, which had only four presidents previously in its history.
The board of directors for First Federal Bankshares, the holding company for Vantus, did not ask for Dosland's resignation, according to Backhaus. The announcement came a day after the company stock dipped below $2 per share for the first time.
First Federal (FFSX) is the only publicly traded bank headquartered in Sioux City. The stock, which tumbled from a 52-week high of $19 per share about a year ago and was as high as $10 per share as recently as June, closed at $5.21 on Friday.
The stock's rapid decline came as a shock to longtime investors like Sheila Kobs of Wright City, Mo. Kobs, who worked as a teller at a First Federal office in Sioux City in the 1990s, viewed the company as a safe investment, given its past track record.
"I knew it was going to go down. I just didn't know the bottom was going to drop out,'' said Kobs, who bought 210 shares after the bank went public in the 1990s. Over the years, she plowed her dividends into buying more stock.
New earnings report
Investors like Kobs are awaiting the scheduled release this week of the bank's fourth quarter and yearly earnings, for the three- and 12-month periods ended June 30.
Citing a "quiet period'' mandated by securities regulators prior to release of such a report, Vantus leaders last week declined to discuss financial details. But Backhaus said the bank's performance is starting to turn around.
He cites a couple of examples. In the past 12 months, Vantus, which has offices in Siouxland and central Iowa, has recorded triple-digit gains in the number of households served, and a 12 percent jump in the number of checking accounts, he said.
"There's a lot of positive going on,'' Backhaus said. " "We're anticipating some pretty good quarters going forward.''
In its last earnings report, for the three-month period ending March 31, First Federal reported a net loss of $1.5 million, or 47 cents per share. During the quarter, the bank set aside $2.7 million to account for possible losses on loans, up from just $31,000 a year earlier.
Non-performing loans tripled from $3.1 million on Dec. 31 to $9.3 million on March 31, with the run-up primarily driven by four large commercial loans that defaulted during the quarter.
Based largely on those quarterly results, Bankrate.com, an independent online financial services firm, gave Vantus its lowest rating - or one star.
Bankrate.com's "Safe-and-Safe rating system uses 22 tests to measure a financial institution's capital adequacy, asset quality, profitability and liquidity. A majority of institutions are in the three to four star range. The three other banks in Sioux City rated by the Bankrate.com -- Security National, Liberty National and Pinnacle -- all received four stars, or "sound'' ratings.
Backhaus cautioned not to read too much into the Bankrate.com rating. In particular, he took issue with the online site's conclusion, in its online report, that the bank has "below standard capitalization.'' The Vantus CEO said the bank is "well capitalized,'' as defined by applicable regulatory definitions.
Greg McBride, senior financial analyst for Bankrate.com, said the firm's ratings are designed to be a supplement for consumers, rather than a replacement for the Federal Deposit Insurance Corp. system, which insures deposits up to $100,000 per person.
"A one-star rating is not indicative of an institution in danger of failing,'' McBride said. "As long as your deposits are fully protected by insurance, you have no capital at risk.''
Another independent firm, Bauer Financial, awarded Vantus a three-star, or "adequate'' rating. Bauer Financial rates institutions on zero to five stars, with five the highest. No other local institution rated by Bauer received a rating lower than four stars, according to a check of the firm's Web site.
Continuing financial woes
Tight credit, a faltering economy, slumping real estate prices and rising home foreclosures has been battering the U.S. financial sector for months.
Erik Oja, regional bank analyst, for S&P Equity Research, said Midwest states like Iowa have been less susceptible to the problems to other high-growth areas of the country.
"As with any agricultural areas, I think the economy here is generally fine, and has avoided the boom-bust we see in Arizona, parts of California and parts of Florida, as well as the stagnation we see in parts of Michigan, Indiana and Ohio,'' Oja said.
Backhaus pointed out that Sioux City housing sector has performed better than most other areas of Iowa, with new construction continuing in such areas as Dakota Dunes and Whispering Creek. In central Iowa, where Vantus has seven offices and has been in an expansion mode in recent years, the growth has not been as strong.
In June, Vantus filed a lawsuit, seeking to recover about $6.3 million in principal and interest the bank says it's due on nearly 19 acres in a large residential housing development in West Des Moines. The developer, Regency Homes, announced earlier this year it was getting out of the home construction business. Five other banks also have sued to foreclose on property in the development, known as Michael's Landing.
Backhaus declined to specifically comment on the Regency case, or other large non-performing commercial loans, which the bank listed in its most recent quarterly report. Two loans, totaling $3.5 million, are in the renewable fuels industry, while two others, totaling $2.1 million, involve real estate development.
Since his return to day-to-day management three weeks ago, Backhaus has kept busy getting up to speed with all the bank's business, and visiting all 13 offices.
Board chair Arlene Curry said she and the other directors felt fortunate Backhaus was willing to temporarily put his retirement on hold to lead the bank at a time of need.
"He was the best choice all the way around,'' Curry said. "He creates confidence with shareholders and the community.''
Backhaus, who started as a teller at First Federal Bank 36 years ago, took over as CEO and president in 1990 following the retirement of L. Norman Sloan. Backhaus led the bank's reorganization from a mutual association to a mutual holding company in 1992, and its conversion to a full stock-owned corporation in 1999.
The bank, founded in 1923 as the Sioux City Building, Loan and Savings Association, changed its name to First Federal Savings and Loan in 1933, at the midst of the Great Depression.
Last year, the bank dropped its longstanding First Federal name in favor of a new moniker, Vantus Bank. The change, Backhaus said, has helped differentiate the bank from competing institutions with variations of First Federal in their names.
Today's continued troubles in the U.S. financial sector is again testing the resolve of the Sioux City-based bank, which has struggled lately with a tumbling stock price, lagging financial performance and growing portfolio of troubled loans.
"All banks are going through kind of a tough time and so are we,'' interim president and CEO Barry Backhaus said in an interview last week. "You always expect, once in a while, some years to come along that don't work out, and this is one of them.''
Backhaus, who led the bank from 1990 to 2006, came out of retirement following the resignation of his successor, Mike Dosland, on July 18. Dosland, who accepted a job with another firm, left after just 30 months with Vantus, which had only four presidents previously in its history.
The board of directors for First Federal Bankshares, the holding company for Vantus, did not ask for Dosland's resignation, according to Backhaus. The announcement came a day after the company stock dipped below $2 per share for the first time.
First Federal (FFSX) is the only publicly traded bank headquartered in Sioux City. The stock, which tumbled from a 52-week high of $19 per share about a year ago and was as high as $10 per share as recently as June, closed at $5.21 on Friday.
The stock's rapid decline came as a shock to longtime investors like Sheila Kobs of Wright City, Mo. Kobs, who worked as a teller at a First Federal office in Sioux City in the 1990s, viewed the company as a safe investment, given its past track record.
"I knew it was going to go down. I just didn't know the bottom was going to drop out,'' said Kobs, who bought 210 shares after the bank went public in the 1990s. Over the years, she plowed her dividends into buying more stock.
New earnings report
Investors like Kobs are awaiting the scheduled release this week of the bank's fourth quarter and yearly earnings, for the three- and 12-month periods ended June 30.
Citing a "quiet period'' mandated by securities regulators prior to release of such a report, Vantus leaders last week declined to discuss financial details. But Backhaus said the bank's performance is starting to turn around.
He cites a couple of examples. In the past 12 months, Vantus, which has offices in Siouxland and central Iowa, has recorded triple-digit gains in the number of households served, and a 12 percent jump in the number of checking accounts, he said.
"There's a lot of positive going on,'' Backhaus said. " "We're anticipating some pretty good quarters going forward.''
In its last earnings report, for the three-month period ending March 31, First Federal reported a net loss of $1.5 million, or 47 cents per share. During the quarter, the bank set aside $2.7 million to account for possible losses on loans, up from just $31,000 a year earlier.
Non-performing loans tripled from $3.1 million on Dec. 31 to $9.3 million on March 31, with the run-up primarily driven by four large commercial loans that defaulted during the quarter.
Based largely on those quarterly results, Bankrate.com, an independent online financial services firm, gave Vantus its lowest rating - or one star.
Bankrate.com's "Safe-and-Safe rating system uses 22 tests to measure a financial institution's capital adequacy, asset quality, profitability and liquidity. A majority of institutions are in the three to four star range. The three other banks in Sioux City rated by the Bankrate.com -- Security National, Liberty National and Pinnacle -- all received four stars, or "sound'' ratings.
Backhaus cautioned not to read too much into the Bankrate.com rating. In particular, he took issue with the online site's conclusion, in its online report, that the bank has "below standard capitalization.'' The Vantus CEO said the bank is "well capitalized,'' as defined by applicable regulatory definitions.
Greg McBride, senior financial analyst for Bankrate.com, said the firm's ratings are designed to be a supplement for consumers, rather than a replacement for the Federal Deposit Insurance Corp. system, which insures deposits up to $100,000 per person.
"A one-star rating is not indicative of an institution in danger of failing,'' McBride said. "As long as your deposits are fully protected by insurance, you have no capital at risk.''
Another independent firm, Bauer Financial, awarded Vantus a three-star, or "adequate'' rating. Bauer Financial rates institutions on zero to five stars, with five the highest. No other local institution rated by Bauer received a rating lower than four stars, according to a check of the firm's Web site.
Continuing financial woes
Tight credit, a faltering economy, slumping real estate prices and rising home foreclosures has been battering the U.S. financial sector for months.
Erik Oja, regional bank analyst, for S&P Equity Research, said Midwest states like Iowa have been less susceptible to the problems to other high-growth areas of the country.
"As with any agricultural areas, I think the economy here is generally fine, and has avoided the boom-bust we see in Arizona, parts of California and parts of Florida, as well as the stagnation we see in parts of Michigan, Indiana and Ohio,'' Oja said.
Backhaus pointed out that Sioux City housing sector has performed better than most other areas of Iowa, with new construction continuing in such areas as Dakota Dunes and Whispering Creek. In central Iowa, where Vantus has seven offices and has been in an expansion mode in recent years, the growth has not been as strong.
In June, Vantus filed a lawsuit, seeking to recover about $6.3 million in principal and interest the bank says it's due on nearly 19 acres in a large residential housing development in West Des Moines. The developer, Regency Homes, announced earlier this year it was getting out of the home construction business. Five other banks also have sued to foreclose on property in the development, known as Michael's Landing.
Backhaus declined to specifically comment on the Regency case, or other large non-performing commercial loans, which the bank listed in its most recent quarterly report. Two loans, totaling $3.5 million, are in the renewable fuels industry, while two others, totaling $2.1 million, involve real estate development.
Since his return to day-to-day management three weeks ago, Backhaus has kept busy getting up to speed with all the bank's business, and visiting all 13 offices.
Board chair Arlene Curry said she and the other directors felt fortunate Backhaus was willing to temporarily put his retirement on hold to lead the bank at a time of need.
"He was the best choice all the way around,'' Curry said. "He creates confidence with shareholders and the community.''
Backhaus, who started as a teller at First Federal Bank 36 years ago, took over as CEO and president in 1990 following the retirement of L. Norman Sloan. Backhaus led the bank's reorganization from a mutual association to a mutual holding company in 1992, and its conversion to a full stock-owned corporation in 1999.
The bank, founded in 1923 as the Sioux City Building, Loan and Savings Association, changed its name to First Federal Savings and Loan in 1933, at the midst of the Great Depression.
Last year, the bank dropped its longstanding First Federal name in favor of a new moniker, Vantus Bank. The change, Backhaus said, has helped differentiate the bank from competing institutions with variations of First Federal in their names.
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bill wrote on Aug 10, 2008 10:04 PM:
Not Quite That Safe wrote on Aug 10, 2008 11:03 AM:
In reviewing the level of its "adversely classified" loans (2.4% of assets/$12.7 million @ 3/2008) & its $4.7 million in bad debt reserves, an increase in the bad debt reserve of, $5 to $10 million may be required soon.
As I see it, the BOD/ interim CEO Backhaus have two options: 1) try to re-capitalize the bank or 2) sell it as soon as possible before the OTS puts it under supervision.
They might be able to gain some capital by selling branches (property and deposits) as possible, but this would likely be insufficient if my fears regarding the trust-preferred securities come true. I wish the BOD/ Backhaus the best of luck in resolving this unfortunate situation. "
Someone wrote on Aug 10, 2008 10:26 AM:
B Conner wrote on Aug 10, 2008 9:10 AM: