Bank’s parent loses its auditor

First Federal Bancshares of Arkansas, the Harrison based holding company for First Federal Bank of Arkansas, notified the Securities and Exchange Commission this week that its accounting firm will no longer audit its books.

Deloitte & Touche LLP notified First Federal Bancshares that it would resign as the company’s independent registered public accounting firm, according to the statement filed with the SEC.

Deloitte & Touche will complete its review of First Federal’s condensed consolidated third-quarter financial information, the document stated.

First Federal Bancshares of Arkansas has seen its stock’s average price plunge 92.2 percent in the past five years. On Oct. 24, 2005, it closed at $23.10 on the Nasdaq exchange. Although the stock maintained its average and even gained a slight sum during the next year - closing at $23.58 on Oct. 23, 2006 - it began losing steadily in the ensuing years. On Oct. 22, 2007 itclosed at $17.64, then at $8.85 on Oct. 21, 2008. On Oct. 21, 2009, it closed at $3.95.

On Friday the stock closed at $1.80, unchanged from Thursday. The 52-week range for the shares is $1.50 to $4.

Larry Brandt, First Federal’s president and chief executive officer, said Thursday that Deloitte & Touche’s decision was “a business decision on their part.”

“They decided they were going to make a change. We didn’t have any disagreements, that’s the key thing,” Brandt said.

Deloitte & Touche did not return telephone calls on Thursday and Friday asking for comment.

The SEC document includes a statement by First Federal and by Deloitte & Touche that the financial reports for fiscal years 2008 and 2009 did not contain any adverse opinions, modifications of audit scope or other uncertainty. There was a previously reported restatement of losses for fiscal 2009 that was filed with the SEC on July 23.

In restating its net loss for 2009, First Federal almost doubled its loss - from $26.2 million to $45.5 million. The stated reason was that the bank’s third-party audit recommended increasing the loan-loss provision by $6.3 million and the deferred tax-asset valuation allowance by $14.7 million.

Brandt often blamed the troubled housing market in Northwest Arkansas for the bank’s nonperforming loans and financial losses in 2008 and 2009.

First Federal posted $905,000 in net income for the first quarter of 2010. Secondquarter profit was $637,000, compared with a second quarter net loss of $937,000 in 2009.

As part of the document filed with the SEC in July, Deloitte & Touche included a report that questioned the bank’s ability to operate in the future.

“... the Company’s significant operating losses in 2009, significant levels of criticized assets, and decline in capital levels raise substantial doubt about its ability to continue as a going concern,” the report stated.

“Going concern” is an accounting term for an assumption that expects a business to continue in operation indefinitely. The auditor must appraise if significant doubt exists of a client’s ability to continue as a going concern for a period not exceeding one year after the date of the financial statements, according to a business dictionary at www.allbusiness.com.

First Federal Bank was issued cease-and-desist orders by the federal Office of Trust Supervision on April 14 that imposed operating restrictions on the bank.

The orders required the corporation and the bank to, among other things, file with the Office of Thrift Supervision capital plans and updated business plans at prescribed time periods. The bank was to increase regulatory capital levels to 8 percent, up from its current 5.75 percent for core capital, and 12 percent from 9.97 percent for its risk-based capital by the end of the year.Other actions prescribed for First Federal included making no further commercial real estate loans or development loans without approval from the Office of Thrift Supervision.

According to the notes Deloitte & Touche filed with the restated financial documents of fiscal 2009, “the projected results of operations in 2010 and balance sheet shrinkage will not be sufficient to comply with the orders.”