FIRST FEDERAL OF NORTHRN MCHGN BNCRP INC 
By ALPENA, Mich., Oct. 28, 2011 /PRNewswire/ -- First Federal of Northern Michigan Bancorp, Inc. (Nasdaq: FFNM) (the "Company") reported consolidated net earnings of $235,000, or $0.08 per basic and diluted share, for the quarter ended September 30, 2011 compared to consolidated net earnings of $72,000, or $0.02 per basic and diluted share, for the quarter ended September 30, 2010.
Consolidated net income for the nine months ended September 30, 2011 was $658,000, or $0.23 per basic and diluted share, compared to $593,000, or $0.21 per basic and diluted share for the nine months ended September 30, 2010.
Listed below are a few key points relative to the Company's results for the quarter ended September 30, 2011:
-- Modest but continued quarter over quarter improvement in the Company's
net interest margin (from 3.93% for the quarter ended September 30, 2010
to 3.98% for the quarter ended September 30, 2011).
-- Improvement in year-to-date net interest margin from 3.75% for the nine
months ended September 30, 2010 to 4.05% for the same period in 2011.
-- Provision for Loan Losses of ($67,000) and ($19,000), for the three and
nine months ended September 30, 2011, respectively, as compared to
provisions of $353,000 and $959,000 for the three and nine months ended
September 30, 2010, respectively.
-- First Federal of Northern Michigan remains "well-capitalized" for
regulatory capital purposes.
-- Strong relative stock performance year-to-date versus Nasdaq Bank Index
(+54.27%)
Michael W. Mahler, President and Chief Executive Officer of the Company, commented, "We are pleased to report another quarter of positive earnings. Six of our last seven quarters have been profitable, which demonstrates that our focused efforts over the last three years have begun to produce sustainable earnings. While we continue to focus on improving our asset quality metrics, we have begun to shift our focus toward loan production and growing our balance sheet to leverage our strong capital position. We believe that commercial loan opportunities may begin to emerge in several of the markets we serve. Demand for credit among our commercial borrowers has been muted during this business cycle. As the Michigan economy improves, we expect to see lending opportunities created from the pent up demand and deferred capital expenditures. In addition, we are taking advantage of our strong reputation as a mortgage lender to capitalize on the declining mortgage interest rate environment and have focused our resources on refinancing loans that are not currently held on our balance sheet. We have seen market share growth in several markets served."
Mahler also commented, "On the asset quality front, we have seen commercial non-performing loans decline to two loans totaling $400,000. We are very pleased with the improvement in this portfolio. Overall, non-performing loans have decreased $3.2 million since the start of the year. Additionally, the Bank accepted purchase agreements near the end of the quarter on the two largest pieces of commercial bank-owned property. Both transactions are expected to close during the fourth quarter. The sales of these properties will further reduce the Texas ratio which stands at 33.06% at September 30, 2011. In addition, we have also seen improvement in several other key areas related to asset quality, including delinquency trends, the number of classified loans and the level of non accrual loan balances."
Selected Financial Ratios
For the Three Months For the Nine Months
Ended September 30 Ended September 30
-------------------- -------------------
2011 2010 2011 2010
---- ---- ---- ----
Performance Ratios:
Net interest margin 3.98% 3.93% 4.05% 3.75%
Average interest rate
spread 3.85% 3.77% 3.90% 3.57%
Return on average
assets* 0.43% 0.13% 0.38% 0.35%
Return on average
equity* 4.01% 1.25% 3.77% 3.40%
* Annualized
As of
-----
September 30, December 31, September 30,
2011 2010 2010
-------------- ------------- --------------
Asset Quality Ratios:
Non-performing assets
to total assets 3.55% 4.37% 4.36%
Non-performing loans
to total loans 2.38% 4.13% 3.79%
Allowance for loan
losses to non-
performing loans 48.54% 42.85% 48.74%
Allowance for loan
losses to total loans 1.16% 1.77% 1.85%
"Texas Ratio" (Bank) 33.06% 39.66% 40.64%
Total non-performing
loans ($000 omitted) $3,408 $6,606 $6,250
Total non-performing
assets ($000 omitted) $7,868 $9,424 $9,841
Financial Condition
Total assets of the Company at September 30, 2011 were $221.8 million, an increase of $6.1 million, or 2.8%, from assets of $215.7 million at December 31, 2010. Net loans receivable decreased $15.8 million to $141.3 million at September 30, 2011, due to the continued effect of adjustable-rate or balloon mortgage loans that have paid off or been refinanced and sold into the secondary market, a large purchased mortgage loan which paid off during the nine-month period, consumer loan balances that have declined due to normal pay-downs, pay-off of one out-of-state commercial loan participation of approximately $1.3 million and four in-state commercial loan participations totaling almost $3.0 million, and in general, limited originations of loans to be held in the Company's portfolio. Investment securities increased $14.8 million from December 31, 2010 to September 30, 2011 due primarily to the purchase of mortgage-backed and municipal securities as excess liquidity rose and as we received funds from loan pay-offs.
Deposits decreased $2.7 million to $152.8 million at September 30, 2011 from $155.5 million at December 31, 2010. During this period, lower-costing accounts such as savings and checking accounts increased by approximately $3.8 million. Our liquid, or non-traditional, certificate of deposit accounts also increased by $1.2 million during this time period. This was partially offset by decreases of $4.7 million in our traditional certificate of deposit accounts and $3.0 million in our money market accounts as we lowered rates on these products in step with the market. FHLB advances increased $4.0 million to $33.0 million from December 31, 2010 as deposits decreased.
The ratio of total nonperforming assets to total assets was 3.55% at September 30, 2011 compared to 4.37% at December 31, 2010 and 4.36% at September 30, 2010. Non-performing assets decreased by $1.6 million from December 31, 2010 to September 30, 2011. The Company continues to closely monitor non-performing assets and has taken a variety of steps to reduce the level thereof, such as:
-- Timely pursuit of foreclosure and/or repossession options coupled with
quick and aggressive marketing efforts of repossessed assets;
-- Restructuring loans, where feasible, to assist borrowers in working
through this financially challenging time;
-- Allowing borrowers to structure short-sales of properties, where
appropriate and feasible; and
-- Working with borrowers to find a means of reducing outstanding debt
(such as through sales of collateral).
Stockholders' equity was $24.6 million at September 30, 2011 compared to $23.2 million at December 31, 2010. The increase was due primarily to net earnings for the nine-month period of $658,000 and an increase of $623,000 in the unrealized gain on available-for-sale investment securities, net of tax. First Federal of Northern Michigan's regulatory capital remains at levels in excess of regulatory requirements, as shown in the table below.
Regulatory Minimum to be
Well
Actual Minimum Capitalized
------ ------- -----------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
Dollars in Thousands
Tier
1
(Core)
capital
(
to
adjusted
assets) $22,143 10.07% $8,799 4.00% $10,999 5.00%
Total
risk-
based
capital
(
to
risk-
weighted
assets) $23,579 17.10% $11,034 8.00% $13,792 10.00%
Tier
1
risk-
based
capital
(
to
risk
weighted
assets) $22,143 16.05% $5,517 4.00% $8,275 6.00%
Tangible
Capital
(
to
tangible
assets) $22,143 10.07% $3,300 1.50% $4,400 2.00%
Results of Operations
Interest income decreased to $2.6 million for the three months ended September 30, 2011 from $2.9 million for the year earlier period. Interest income decreased to $7.9 million for the nine months ended September 30, 2011 as compared to $8.7 million for the nine months ended September 30, 2010. The decrease in interest income for the three month period was due to two main factors: a period over period decrease of $6.5 million in the average balance of our interest-earning assets and a decrease of 45 basis points in the yield on interest-earning assets due in large part to lower market interest rates period over period.
Interest expense decreased to $564,000 for the three months ended September 30, 2011 from $851,000 for the three months ended September 30, 2010. Interest expense for the nine months ended September 30, 2011 decreased to $1.8 million from $2.7 million for the nine months ended September 30, 2010. The decrease in interest expense for the three-month period was due in part to a $9.3 million decrease in the average balance of our interest-bearing liabilities and a decrease in our overall cost of funds of 47 basis points period over period. Most notably, our certificates of deposit decreased $6.1 million from the three-month period ended September 30, 2010 to the same period in 2011 and the cost of our certificates of deposit decreased 49 basis points period over period.
In addition, the average balance of our FHLB advances decreased $5.3 million from the three-month period ended September 30, 2010 to the same period in 2011 and the cost of our FHLB advances decreased 81 basis points period over period.
The Company's net interest margin increased to 3.98% for the three-month period ended September 30, 2011 from 3.93% for the same period in 2010. During this time period, the average yield on interest-earning assets decreased 45 basis points to 5.08% from 5.53%. The average cost of funds decreased 53 basis points to 1.23% from 1.76%, due to reductions of 49 basis points on our certificates of deposit, 43 basis points on our Money market and NOW accounts, and 81 basis points on our FHLB advances quarter over quarter. For the nine-month period ended September 30, 2011, the Company's net interest margin increased to 4.05% from 3.75% for the same period in 2010. During this time period, the average yield on interest-earning assets decreased 25 basis points to 5.21% from 5.46%, while the cost of funds decreased 69 basis points to 1.92% from 2.61%.
The provision for loan losses for the three-month period ended September 30, 2011 was income of $67,000, as compared to expense of $353,000 for the prior year period. For the nine-month period ended September 30, 2011, the provision for loan losses was income of $19,000 as compared to expense of $959,000 for the same period ended September 30, 2010. Our provision for loan losses is based on an eight-quarter rolling average of actual net charge-offs adjusted for various environmental factors for each pool of loans in our portfolio. Total net charge-offs for the quarter-ended September 30, 2011 were $470,000 as compared to $1.3 million for the quarter ended September 30, 2009, which rolled-off our required reserve calculation based on our methodology of using the most recent eight-quarter rolling average for each loan pool. That decrease in charge-offs quarter over quarter resulted in lower loss factors which were applied to our various pools of loans (other than our mortgage pool) to establish an adequate reserve. The reserve factor applied to our pool of mortgage loans increased as a result of increased charge-offs in this pool for the quarter ended September 30, 2011. Additionally, loan balances have declined substantially from December 31, 2010 and asset quality metrics have improved. The net of these factors enabled us to reverse provision expense recorded in prior periods. The provision was based on management's review of the components of the overall loan portfolio, the status of non-performing loans and various subjective factors.
Non-interest income decreased to $469,000 for the three months ended September 30, 2011 from $717,000 for the three months ended September 30, 2010. Non-interest income decreased to $1.3 million for the nine months ended September 30, 2011 from $2.6 million for the nine months ended September 30, 2010. The nine-month results in 2010 reflected a $497,000 gain on sale of investments as a result of a restructuring of the investment portfolio in an effort to reduce credit risk as well as a $200,000 settlement on a lawsuit. Although mortgage banking activities, consisting mostly of homeowner refinances, picked-up in the third quarter of 2011, we experienced a decrease in mortgage banking activities income as compared to both the three- and nine-month periods ended September 30, 2011. During the quarter ended September 30, 2011 we began holding certain 15-year residential mortgages in our portfolio, rather than sell them into the secondary market, in an effort to increase interest income in the coming periods.
Non-interest expenses were $2.3 million for both the three-month periods ended September 30, 2011 and 2010. Non-interest expense decreased to $6.8 million for the nine months ended September 30, 2011 from $7.0 million for the nine months ended September 30, 2010. For both the three- and nine-month periods ended September 30, 2011 we have reduced compensation & benefit, FDIC premium, advertising and occupancy expenses while other expenses have increased due mostly to expenses associated with problem loans and bank-owned properties.
Safe Harbor Statement
This news release and other releases and reports issued by the Company, including reports to the Securities and Exchange Commission, may contain "forward-looking statements." The Company cautions readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. The Company is including this statement for purposes of taking advantage of the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995.
First Federal of Northern Michigan Bancorp, Inc. and
Subsidiaries
Consolidated Balance Sheet
--------------------------
September 30, December 31,
2011 2010
-------------- -------------
(Unaudited)
ASSETS
Cash and cash equivalents:
Cash on hand and due from banks $8,049,998 $1,889,999
Overnight deposits with FHLB 49,255 72,658
------ ------
Total cash and cash equivalents 8,099,253 1,962,657
Securities AFS 50,088,379 35,301,238
Securities HTM 2,485,000 2,520,000
Loans held for sale 616,748 -
Loans receivable, net of
allowance for loan losses of
$1,654,364 and
$2,831,332 as of September 30, 2011 and December 31, 2010, respectively 141,296,254 157,143,918
Foreclosed real estate and other
repossessed assets 4,459,351 2,818,343
Federal Home Loan Bank stock, at
cost 3,266,100 3,775,400
Premises and equipment 5,931,999 6,026,793
Accrued interest receivable 1,170,671 1,230,938
Intangible assets 407,968 627,306
Prepaid FDIC premiums 802,780 967,143
Deferred tax asset 330,386 659,194
Other assets 2,840,209 2,700,034
--------- ---------
Total assets $221,795,098 $215,732,964
============ ============
LIABILITIES AND STOCKHOLDERS'
EQUITY
Liabilities:
Deposits $152,814,940 $155,465,896
Advances from borrowers for taxes
and insurance 221,753 130,030
Federal Home Loan Bank Advances 33,000,000 29,000,000
REPO Sweep Accounts 9,417,231 6,172,362
Accrued expenses and other
liabilities 1,756,116 1,728,735
--------- ---------
Total liabilities 197,210,040 192,497,023
----------- -----------
Stockholders' equity:
Common stock ($0.01 par value
20,000,000 shares authorized
3,191,799 shares issued) 31,918 31,918
Additional paid-in capital 23,852,021 23,822,152
Retained earnings 2,896,221 2,238,064
Treasury stock at cost (307,750
shares) (2,963,918) (2,963,918)
Unearned compensation (556) (38,382)
Accumulated other comprehensive
income 769,372 146,107
------- -------
Total stockholders' equity 24,585,058 23,235,941
---------- ----------
Total liabilities and
stockholders' equity $221,795,098 $215,732,964
============ ============
First Federal of Northern Michigan Bancorp, Inc.
and Subsidiaries
Consolidated Statement of Income
For the Three
Months For the Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
2011 2010 2011 2010
--- --- --- ---
(Unaudited) (Unaudited)
Interest
income:
Interest
and fees
on loans $2,196,300 $2,590,033 $6,786,817 $7,683,432
Interest
and
dividends
on
investments
Taxable 151,190 107,003 380,407 346,409
Tax-
exempt 39,735 40,738 120,074 152,005
Interest
on
mortgage-
backed
securities 200,442 168,757 583,510 490,603
------- ------- ------- -------
Total
interest
income 2,587,667 2,906,531 7,870,808 8,672,449
--------- --------- --------- ---------
Interest
expense:
Interest
on
deposits 381,124 560,106 1,226,252 1,799,663
Interest
on
borrowings 183,030 291,228 523,785 908,467
------- ------- ------- -------
Total
interest
expense 564,154 851,334 1,750,037 2,708,130
------- ------- --------- ---------
Net
interest
income 2,023,513 2,055,197 6,120,771 5,964,319
Provision
for loan
losses (67,079) 352,711 (18,959) 958,639
------- ------- -------
Net
interest
income
after
provision
for loan
losses 2,090,592 1,702,486 6,139,730 5,005,680
--------- --------- --------- ---------
Non-
interest
income:
Service
charges
and other
fees 197,267 206,024 542,986 609,538
Mortgage
banking
activities 218,671 447,319 637,116 1,010,634
Gain on
sale of
investments - - - 496,817
Net gain
(loss) on
sale of
premises
and
equipment, (802) - (544) 9,423
Net gain
(loss) on
sale real
estate
owned
and other
repossessed
assets (7,680) (1,147) (54,368) 43,298
Other 61,846 65,267 186,447 391,603
------ ------ ------- -------
Total non-
interest
income 469,302 717,463 1,311,637 2,561,312
------- ------- --------- ---------
Non-
interest
expense:
Compensation
and
employee
benefits 1,128,911 1,203,326 3,457,099 3,568,567
FDIC
Insurance
Premiums 54,061 88,820 176,448 277,368
Advertising 30,924 42,320 87,763 98,312
Occupancy 264,703 277,658 802,398 878,471
Amortization
of
intangible
assets 73,113 73,113 219,338 219,338
Service
bureau
charges 69,383 71,230 224,881 236,926
Professional
services 108,471 79,008 329,619 331,210
Other 595,593 512,725 1,495,664 1,363,511
------- ------- --------- ---------
Total non-
interest
expense 2,325,161 2,348,200 6,793,210 6,973,703
--------- --------- --------- ---------
Income
before
income
tax
benefit 234,733 71,750 658,157 593,289
Income tax
benefit - - - -
--- --- --- ---
Net Income $234,733 $71,750 $658,157 $593,289
======== ======= ======== ========
Per share
data: $-
Net income
per share
Basic $0.08 $0.02 $0.23 $0.21
Diluted $0.08 $0.02 $0.23 $0.21
Weighted
average
number of
shares
outstanding
Basic and
diluted 2,884,049 2,884,249 2,884,049 2,884,049
Dividends
per
common
share $- $- $- $-
SOURCE First Federal of Northern Michigan Bancorp, Inc.
