First Federal Bankshares Inc. in Sioux City, Iowa, is running out of time to raise capital, and now it also needs to find a chief executive.

The $503 million-asset company said after the market closed Tuesday that Levon Mathews, who was brought in late last year to turn around the company, will resign as president and CEO on Sept. 25 to join another bank. First Federal did not identify the bank.

The company also said its Vantus Bank was significantly undercapitalized on June 30 and that regulators have given it until the end of the month to submit a plan to recapitalize itself.

Vantus has been under an Office of Thrift Supervision "prompt corrective action" order since May to raise capital.

First Federal also said it expects its auditors to question the company's viability, given the possibility of further writedowns on investments and its inability to raise capital so far.

The amount First Federal needs to raise has also grown. In March, $5 million would have been enough. Now, said Mike Heller, the president of the bank rating firm Veribanc Inc., the company's capital need is closer to $35 million.

"Its equity has really been bitten into. … The only way out is to raise a tremendous amount of capital, which is tough," Heller said. "I would say their outlook is pretty bleak."

A call to the company was not returned Wednesday.

First Federal's precarious position is largely due to paper losses on its investments in trust-preferred collateralized debt obligations. The securities have a face value of $65 million, but First Federal has marked them down to $10 million.

The company reported Tuesday that it lost $17.7 million in its fiscal fourth quarter, which ended June 30. It took a $12.3 million other-than-temporary impairment charge during the period.

For the full fiscal year, the company lost $18.6 million, after other-than-temporary impairment charges of $19.2 million.

First Federal has been searching for capital since Mathews' arrival, when it hired the investment bank Sandler O'Neill & Partners LP to solicit private-equity investors.

In a June filing, the company said it had signed a letter of intent with a private-equity group to make a large investment.

Tuesday's announcement did not update the status of that proposed investment. First Federal said only, "The company has been in contact with several private-equity groups related to a possible capital infusion in the bank."

First Federal would not be the first institution whose private-equity partner got cold feet.

In June, a private-equity firm signed a letter of intent to pump $210 million into Temecula Valley Bancorp Inc. By early July, the deal was off, and the Federal Deposit Insurance Corp. seized the California company's Temecula Valley Bank.

One glimmer of hope is that investors sometimes take a more forgiving stance on securities problems than on loan woes, said Charles R. Crowley, a managing director at Stifel, Nicolaus & Co. Inc.

"Some investors might look at investments that were a bad idea in hindsight as less significant than bad credit decisions," Crowley said. "In general, though, investors in any kind of recapitalization want to be satisfied that the bleeding has [stopped] or is about to stop."

Heller said First Federal's credit quality is also in bad condition.

On June 30, the company had nonperforming assets of $29.2 million, up 60% from a year earlier and making up 5.81% of total assets.

The provision for loan losses was $1.7 million, up 21% from a year earlier.

The combination of credit hits and writedowns left Vantus with a total risk-based capital ratio of 3.98% and a leverage ratio of 4.47%. On May 10, the OTS gave the company until June 15 to submit a capital plan and until Sept. 30 to return Vantus to adequately capitalized status or face seizure. On July 31, the OTS told First Federal to submit a plan by Aug. 31 detailing how it will raise Vantus' leverage ratio to 8% and the thrift's total risk-based capital ratio to 12% by yearend.

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