First Federal, Under Regulatory Order, Revises '09 Loss to $46.2 Million

by Gwen Moritz  on Thursday, Apr. 15, 2010 10:33 pm  

First Federal Bancshares of Arkansas, the publicly traded holding company for First Federal Bank, on Thursday announced a restatement of its 2009 results that increased its net loss by nearly $20 million.

The Harrison company (Nasdaq:FFBH) also announced that it had consented to a cease-and-desist order issued by the Office of Thrift Supervision, the chief regulator of federally chartered savings and loans. Among other things, the order requires First Federal to raise its capital ratios significantly.

"The revised net loss available to common shareholders for the year ended December 31, 2009, was $46.2 million, or $9.54 per common share, increased from $27.0 million, or $5.56 per common share, that was previously reported for the year ended December 31, 2009," according to a press release issued late Thursday afternoon.

Specifically, the thrift holding company recorded an additional loan loss provision of $6.3 million (for a total of $8.2 million) for the fourth quarter of 2009 and a valuation allowance of $14.7 million for the federal deferred tax asset. The federal deferred tax asset valuation allowance resulted in an income tax provision of $11.9 million for the fourth quarter.

Taking the hits in fiscal 2009 "were significant but prudent actions to position us for potential profitability in 2010," CEO Larry Brandt said in the news release. "The 'Great Recession' has had a very detrimental impact on our market area of Northwest Arkansas, and consequently, our operating results. Management and the Board will continue to work diligently to resolve our operational issues. In addition, we will consider all strategic alternatives available to us to improve our capital ratios, including raising capital in the latter half of this year," he said.

The OTS had not made the cease-and-desist order public, but it was attached as an exhibit with First Federal's annual report filed with the Securities & Exchange Commission on Thursday, as was the consent agreement.

The order requires First Federal to increase its core capital ratio to 8 percent from its current level of 5.75 percent and its risk-based capital to 12 percent from 9.97 percent. It also requires new internal and external reviews and forbids First Federal from making new commercial real estate or development loans without prior approval from the OTS.

"The majority of our nonperforming assets are in Benton and Washington counties in Northwest Arkansas and the Bank has been actively addressing nonperforming assets long before this formal action," Brandt said in the release. "We believe that with time, most of the nonperforming loans will be resolved, either by returning them to performing loans or through an orderly liquidation of the loans."



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