ALPENA, Mich., Aug. 5 /PRNewswire-FirstCall/ -- First Federal of Northern Michigan Bancorp, Inc. (Nasdaq: FFNM) (the "Company") reported consolidated net earnings from continuing operations of $319,000, or $0.11 per basic and diluted share, for the quarter ended June 30, 2010 compared to consolidated net earnings from continuing operations of $42,000, or $0.01 per basic and diluted share, for the quarter ended June 30, 2009.
Consolidated net income from continuing operations for the six months ended June 30, 2010 was $522,000, or $0.18 per basic and diluted share, compared to consolidated net earnings from continuing operations of $189,000, or $0.07 per basic and diluted share, for the six months ended June 30, 2009.
Listed below are several key points relative t o the Company's results for the quarter ended June 30, 2010:
- Significant quarter over quarter improvement in the Company's net interest margin (from 3.29% to 3.73%) due primarily to a 76 basis point reduction in the cost of funds.
- $2.2 million decrease in non-performing assets since March 31, 2010 and $5.4 million decrease since December 31, 2009.
- First Federal of Northern Michigan remains "well-capitalized" for regulatory purposes.
- Provision for loan losses of $595,000 due in large part to a $751,000 charge-down on a previously identified substandard classified commercial credit.
- Gain on sale of securities of $447,000 due to restructuring of the securities portfolio to reduce credit risk and improve our risk-weighted capital ratios.
Michael W. Mahler, President and Chief Executive Officer of the Company, commented, "While the current economic conditions and interest rate environment continue to pose challenges for us, we are pleased to report net income for the second quarter of 2010. During the quarter, market interest rates on mortgage loans reached historical lows. The yields available on securities issued on U.S. Government-sponsored enterprises, which comprise a majority of our investment portfolio, also fell. This, combined with minimal commercial loan opportunities, has made growth difficult, and has brought pressure on net interest margin. Our increase in net interest margin has come almost purely on the cost of funds side, where lower market interest rates have reduced the costs of our deposits and borrowings. We continue our relationship-focused "Community Bank" approach to building customer relationships and, consequently, growing our lower-costing core deposit base."
Mahler also commented , "The return to strong asset quality continues to be our top priority. Non-performing assets have decreased over $5.4 million since the end of 2009. Our Texas Ratio has decreased from 64.29% at December 31, 2009 to 41.42% at June 30, 2010. During the quarter, we took a $751,000 second charge-down on a previously identified substandard classified commercial credit based upon an updated appraisal, and were still able to report net earnings for the quarter."
Mahler continued, "In June we undertook a strategy to restructure our investment portfolio with the aim of reducing credit risk and boosting capital via exchanging higher risk-weighted securities for those with lower risk-weightings. As a side benefit, we were able to capture a one-time $447,000 gain on the investment securities we sold.
"Despite two profitable quarters and improvements to our asset quality metrics and operating performance, we continue to be concerned with the Michigan economy, credit quality, and the stability or improvement of the underlying collateral values in our loan portfolio. We proactively monitor our non-performing assets in an effort to minimize losses from these credits."
Selected Financial Ratios
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| For the Three Months Ended June 30 |
| For the Six Months Ended June 30 | |
| 2010 | 2009 |
| 2010 | 2009 | |
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Performance Ratios: |
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Net interest margin | 3.73% | 3.29% |
| 3.67% | 3.21% | |
Average interest rate spread | 3.55% | 2.96% |
| 3.47% | 2.86% | |
Return on average assets* | 0.56% | 0.07% |
| 0.45% | 0.12% | |
Return on average equity* | 5.41% | 0.56% |
| 4.42% | 0.96% | |
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* Annualized |
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| As of | |
| June 30, 2010 |
| December 31, 2009 |
| June 30, 2009 | |
Asset Quality Ratios: |
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Non-performing assets to total assets | 4.40% |
| 6.58% |
| 4.96% | |
Non-performing loans to total loans | 4.20% |
| 6.73% |
| 4.47% | |
Allowance for loan losses to non-performing loans | 44.66% |
| 31.05% |
| 31.64% | |
Allowance for loan losses to total loans | 1.87% |
| 2.09% |
| 1.41% | |
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"Texas Ratio" (Bank) | 41.42% |
| 64.29% |
| 44.02% | |
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Total non-performing loans ($000 omitted) | $7,000 |
| $11,786 |
| $8,269 | |
Total non-performing assets ($000 omitted) | $9,992 |
| $15,366 |
| $11,934 | |
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Financial Condition
Total assets of the Company at June 30, 2010 were $226.9 million, a decrease of $6.6 million, or 2.8%, from total assets of $233.5 million at December 31, 2009. Net loans receivable decreased $7.6 million to $163.6 million at June 30, 2010, due to adjustable-rate or balloon mortgage loans that have paid off or been refinanced and sold into the secondary market, consumer loan balances that have declined due to normal pay-downs, limited originations of loans to be held in the Company's portfolio and charge-offs of commercial loans. Investment securities available for sale increased $558,000 and investment securities held to maturity decreased $1.4 million from December 31, 2009 to June 30, 2010 due in part to the restructuring of the investment portfolio in an effort to reduce credit risk and improve risk-weighted capital ratios.
Deposits decreased slightly, by $273,000 to $157.8 million at June 30, 2010 as we continued our focus on building relationshi ps rather than growing non-core deposits. FHLB advances decreased $6.4 million as our asset base shrank during the first six months of the year.
The ratio of total nonperforming assets to total assets was 4.40% at June 30, 2010 compared to 6.58% at December 31, 2009 and 4.96% at June 30, 2009. Non-performing assets decreased by $5.4 million from December 31, 2009 to June 30, 2010. The Company continues to closely monitor non-performing assets and has taken a variety of steps to reduce them, 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 $23.5 million at June 30, 2010 compared to $23.1 million at December 31, 2009. The increase was due primarily to net earnings for the six-month period of $522,000. First Federal of Northern Michigan's regulatory capital remains at levels in excess of regulatory requirements, as shown in the table below.
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| Regulatory |
| Minimum to be | |
| Actual |
| Minimum |
| Well Capitalized | |
| Amount | Ratio |
| Amount | Ratio |
| Amount | Ratio | |
| Dollars in Thousands | |
Tier 1 (Core) capital ( to |
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adjusted assets) | $ 20,998 | 9.34% |
| $ 8,997 | 4.00% |
| $ 11,246 | 5.00% | |
Total risk-based capital ( to risk- |
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weighted assets) | $ 22,928 | 14.91% |
| $ 12,304 | 8.00% |
| $ 15,380 | 10.00% | |
Tier 1 risk-based capital ( to |
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risk weighted assets) | $ 20,998 | 13.65% |
| $ 6,152 | 4.00% |
| $ 9,228 | 6.00% | |
Tangible Capital ( to |
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tangible assets) | $ 20,998 | 9.34% |
| $ 3,374 | 1.50% |
| $ 4,498 | 2.00% | |
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Results of Operations
Interest income decreased to $ 2.9 million for the three months ended June 30, 2010 from $3.2 million for the year earlier period. Interest income decreased to $5.8 million for the six months ended June 30, 2010 as compared to $6.5 million for the six months ended June 30, 2009. The decrease in interest income for the three month period was due to two main factors: a period over period decrease of $15.5 million in the average balance of our interest-earning assets and a decrease of 16 basis points in the yield on interest-earning assets due in part to lower market interest rates period over period.
Interest expense decreased to $900,000 for the three months ended June 30, 2010 from $1.3 million for the three months ended June 30, 2009. Interest expense for the six months ended June 30, 2010 decreased to $1.9 million from $2.8 million for the six months ended June 30, 2009. The decrease in interest expense for the three-month period was due in part to a $7.0 million decrease in the average balance of our interest-bearing liabilities and a decrease in our overall cost of funds of 76 basis points period over period. Most notably, the average balance of our certificates of deposit decreased $9.9 million from the three-month period ended June 30, 2009 to the same period in 2010 and the cost of our certificates of deposits decreased 80 basis points period over period.
The Company's net interest margin increased to 3.73% for the three-month period ended June 30, 2010 from 3.29% for the same period in 2009. During this time period, the average yield on interest-earning assets decreased 16 basis points to 5.43% from 5.59%. The average cost of funds decreased 76 basis points to 1.88% from 2.64%, due to reductions of 80 basis points on our certificates of deposit, 34 basis points on our Money market and NOW accounts, and 106 basis points on our FHLB advances quarter over quarter. For the six-month period ended June 30, 2010, the Company's net interest margin increased to 3.67% from 3.21% for the same period in 2009. During this time period, the average yield on interest-earning assets decreased 24 basis points to 5.40% from 5.64%, while the cost of funds decreased 85 basis points to 2.64% from 3.49%.
The provision for loan losses for the three-month period ended June 30, 2010 was $595,000, as compared to $252,000 for the prior year period. The increase related mainly to one previously identified substandard classified commercial credit for which we received updated information which indicated that an additional reserve of $751,000 was required, partially offset by the movement of a large commercial loan from our higher-risk construction pool to the general commercial loan pool as the construction phase was successfully completed. For the six-month period ended June 30, 2010, the provision for loan losses was $606,000 as compared to $516,000 for the same period ended June 30, 2009. Both six-month periods included significant increases in the pr ovision for or charge-downs on commercial credits. 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 increased to $1.3 million for the three months ended June 30, 2010 from $764,000 for the three months ended June 30, 2009. Non-interest income increased to $1.8 million for the six months ended June 30, 2010 from $1.6 million for the six months ended June 30, 2009. Both the three- and six-month results reflected a $447,000 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. Offsetting these positive factors was a decrease in mortgage banking activities income for both the three- and six-month periods. Despite current historically low interest rates, mortgage banking activities, consisting mostly of homeowner refinances, peaked in March 2009. Mortgage refinances were considerably lower for both the three- and six-month periods ended June 30, 2010 as compared to the prior year periods.
Non-interest expense increased from $2.3 million for the three months ended June 30, 2009 to $2.4 million for the three months ended June 30, 2010. Non-interest expense increased to $4.6 million for the six months ended June 30, 2010 from $4.5 million for the six months ended June 30, 2009. For both three-and six-month periods ended June 30, 2010, other expenses increased primarily due to a $185,000 second write-down on a commercial REO property based upon updated valuation information obtained. Partially offsetting the increase in other expense, our FDIC premiums decreased for both the three- and six-month periods ended June 30, 2010 due to a FDIC special assessment of $108,000 paid during the second quarter of 2009.
Federal income tax expense for the three- and six-month periods ended June 30, 2010 reflected the partial reversal of our de ferred tax asset valuation allowance based on achieving positive pre-tax income results of $217,000 and $521,000 for the three and six months ended June 30, 2010, respectively.
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.
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First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries | |
Consolidated Balance Sheet | |
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| June 30, 2010 | December 31, 2009 | |
| (Unaudited) |
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ASSETS |
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Cash and cash equivalents: |
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Cash on hand and due from banks | $ 3,113,464 | $ 2,583,131 | |
Overnight deposits with FHLB | 2,321,978 | 515,927 | |
Total cash and cash equivalents | 5,435,442 | 3,099,058 | |
Securities AFS | 34,270,362 | 33,712,724 | |
Securities HTM | 2,574,383 | 3,928,167 | |
Loans held for sale | 770,876 | 51,970 | |
Loans receivable, net of allowance for loan losses of $3,125,990 and $3,660,344 as of June 30, 2010 and December 31, 2009, respectively | 163,616,758 | 171,219,105 | |
Foreclosed real estate and other repossessed assets | 2,991,871 | 3,579,895 | |
Federal Home Loan Bank stock, at cost | 4,196,900 | 4,196,900 | |
Premises and equipment | 6,288,978 | 6,563,683 | |
Accrued interest receivable | 1,097,581 | 1,230,287 | |
Intangible assets | 773,531 | 919,757 | |
Prepaid FDIC premiums | 1,135,512 | 1,314,850 | |
Deferred tax asset | 643,428 | 559,235 | |
Other assets | 3,154,175 | 3,130,063 | |
Total assets | $ 226,949,797 | $ 233,505,694 | |
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LIABILITIES AND STOCKHOLDERS' EQUITY |
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Liabilities: |
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Deposits | $ 157,826,584 | $ 158,099,809 | |
Advances from borrowers for taxes and insurance | 373,714 | 105,419 | |
Federal Home Loan Bank Advances | 38,000,000 | 44,400,000 | |
Note Payable. | - | 630,927 | |
REPO Sweep Accounts | 5,245,624 | 5,407,791 | |
Accrued exp enses and other liabilities | 2,003,573 | 1,809,266 | |
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Total liabilities | 203,449,495 | 210,453,212 | |
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Stockholders' equity: |
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Common stock ($0.01 par value 20,000,000 shares authorized |
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3,191,999 shares issued) | 31,920 | 31,920 | |
Additional paid-in capital | 23,770,323 | 23,722,767 | |
Retained earnings | 2,521,803 | 2,000,264 | |
Treasury stock at cost (307,750 shares) | (2,963,918) | (2,963,918) | |
Unearned compensation | (99,805) | (161,678) | |
Accumulated other comprehensive income | 239,979 | 423,127 | |
Total stockholders' equity | 23,500,302 | 23,052,482 | |
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Total liabilities and stockholders' equity | $ 226,949,797 | $ 233,505,694 | |
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First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries |
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Consolidated Statement of Income |
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| For the Three Months |
| For the Six Months | |
| Ended June 30, |
| Ended June 30, | |
| 2010 | 2009 |
| 2010 | 2009 | |
| (Unaudited) |
| (Unaudited) | |
Interest income: |
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Interest and fees on loans | $ 2,552,986 | $ 2,865,275 |
| $ 5,093,399 | $ 5,807,615 | |
Interest and dividends on investments |
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Taxable | 106,843 | 114,720 |
| 239,406 | 258,522 | |
Tax-exempt | 58,455 | 60,950 |
| 111,267 | 114,546 | |
Interest on mortgage-backed securities. | 165,313 | 143,925 |
| 321,846 | 294,751 | |
Total interest income | 2,883,597 | 3,184,871 |
| 5,765,918 | 6,475,434 | |
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Interest expense: |
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Interest on deposits | 601,733 | 880,890 |
| 1,239,557 | 1,941,176 | |
Interest on borrowings | 298,657 | 427,973 |
| 617,239 | 856,532 | |
Total interest expense | 900,390 | 1,308,864 |
| 1,856,796 | 2,797,708 | |
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Net interest income | 1,983,207 | 1,876,007 |
| 3,909,122 | 3,677,726 | |
Provision for loan losses | 594,840 | 251,839 |
| 605,928 | 516,069 | |
Net interest income after provision for loan losses | 1,388,367 | 1,624,168 |
| 3,303,194 | 3,161,657 | |
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Non-interest income: |
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Service charges and other fees | 199,340 | 229,457 |
| 403,514 | 444,329 | |
Mortgage banking activities | 315,223 | 473,871 |
| 563,315 | 923,076 | |
Gain on sale of investments. | 447,387 | 1,227 |
| 496,817 | 1,227 | |
Net gain (loss) on sale of premises and equipment, |
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real estate owned and other repossessed assets | 42,691 | (44,064) |
| 53,867 | 27,478 | |
Other | 260,723 | 103,383 |
| 326,336 | 166,000 | |
Total non-interest income | 1,265,364 | 763,874 |
| 1,843,849 | 1,562,110 | |
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Non-interest expense: |
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Compensation and employee benefits | 1,194,299 | 1,171,455 |
| 2,365,241 | 2,319,257 | |
FDIC Insurance Premiums | 94,348 | 191,044 |
| 188,548 | 270,608 | |
Advertising | 36,103 | 44,321 |
| 55,992 | 61,871 | |
Occupancy | 288,237 | 300,069 |
| 600,813 | 602,487 | |
Amortization of intangible assets | 73,112 | 37,754 |
| 146,225 | 126,871 | |
Service bureau charges | 86,114 | 86,552 |
| 165,696 | 178,511 | |
Professional services | 149,091 | 163,219 |
| 252,202 | 266,123 | |
Other | 515,103 | 350,984 |
| 850,786 | 657,484 | |
Total non-interest expense | 2,436,407 | 2,345,398 |
| 4,625,503 | 4,483,212 | |
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Income from continuing operations before income tax expense (benefit) | 217,324 | 42,646 |
| 521,540 | 240,555 | |
Income tax expense from continuing operations | (101,913) | 328 |
| - | 51,740 | |
Net income from continuing operations | 319,237 | 42,318 |
| 521,540 | 188,815 | |
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Discontinued Operations: |
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Loss from discontinued operations, net of income tax benefit |
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of $0 and $43,209 | - | - |
| - | (83,875) | |
Gain on sale of discontinued operations, net of income tax expense |
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of $0 and $19,585 | - | - |
| - | 38,017 | |
Loss from discontinued operations | - | - |
| - | (45,858) | |
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Net Income | $ 319,237 | $ 42,318 |
| $ 521,540 | $ 142,957 | |
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Per share data: |
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Income per share from continuing operations |
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Basic | $ 0.11 | $ 0.01 |
| $ 0.18 | $ 0.07 | |
Diluted | $ 0.11 | $ 0.01 |
| $ 0.18 | $ 0.07 | |
Loss per share from discontinued operations |
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Basic | $ - | $ - |
| $ - | $ (0.02) | |
Diluted | $ - | $ 0; - |
| $ - | $ (0.02) | |
Net income per share |
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Basic | $ 0.11 | $ 0.01 |
| $ 0.18 | $ 0.05 | |
Diluted | $ 0.11 | $ 0.01 |
| $ 0.18 | $ 0.05 | |
Weighted average number of shares outstanding |
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Basic | 2,884,249 | 2,884,249 |
| 2,884,249 | 2,884,249 | |
Including dilutive stock options | 2,884,249 | 2,884,249 |
| 2,884,249 | 2,884,249 | |
Dividends per common share | $ - | $ 0; - |
| $ - | $ - | |
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CONTACT: Amy E. Essex, Chief Financial Officer, Treasurer & Corporate Secretary, First Federal of Northern Michigan Bancorp, Inc., +1-989-356-9041
