SECURITIES AND EXCHANGE COMMISSION
450 FIFTH STREET, N.W.
WASHINGTON, D.C. 20549
FORM 10-QSB
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- ----- SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2001
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- ----- SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
------------------ -----------------
Commission File Number 000-31957
ALPENA BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
UNITED STATES 38-3567362
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 S. SECOND AVENUE, ALPENA, MICHIGAN 49707
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (517) 356-9041
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceeding12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes __X__ No _____
Indicate the number of shares outstanding of each of the
registrant's classes of common stock, as of the latest practicable date.
Common Stock, Par Value $1.00 Outstanding at November 1, 2001
(Title of Class) 1,641,579 shares
ALPENA BANCSHARES, INC.
FORM 10-QSB
QUARTER ENDED SEPTEMBER 30, 2001
PART I - FINANCIAL INFORMATION
Interim Financial Information required by Rule 10-01 of Regulation S-X and Item
303 of Regulation S-K is included in this Form 10-QSB as referenced below:
ITEM 1 - FINANCIAL STATEMENTS PAGE
----
Consolidated Statements of Financial Condition at
September 30, 2001 and December 31, 2000......................................3
Consolidated Statements of Operations for the Three and Nine
Months Ended September 30, 2001 and September 30, 2000........................4
Consolidated Statement of Changes in Stockholders' Equity
For the Nine Months Ended September 30, 2001..................................5
Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 2001 and September 30, 2000.....................................6
Notes to Consolidated Financial Statements.......................................7
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION........................................9
PART II - OTHER INFORMATION
OTHER INFORMATION................................................................................14
SIGNATURES.......................................................................................15
When used in this Form 10-QSB or future filings by Alpena Bancshares, Inc. (the
"Company") with the Securities and Exchange Commission ("SEC"), in the Company's
press releases or other public or stockholder communications, or in oral
statements made with the approval of an authorized executive officer, the words
or phrases "would be," "will allow," "intends to," "will likely result," "are
expected to," "will continue," "is anticipated," "estimate," "project," or
similar expressions are intended to identify "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995.
The Company wishes to caution readers not to place undue reliance on any such
forward-looking statements, which speak only as of the date made, and to advise
readers that various factors, including regional and national economic
conditions, changes in levels of market interest rates, credit and other risks
of lending and investment activities and competitive and regulatory factors,
could affect the Company's financial performance and could cause the Company's
actual results for future periods to differ materially from those anticipated or
projected.
The Company does not undertake, and specifically disclaims any obligation, to
update any forward-looking statements to reflect occurrences or unanticipated
events or circumstances after the date of such statements.
2.
ALPENA BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
September 30, 2001 December 31, 2000
------------------ -----------------
(Unaudited)
ASSETS
Cash and cash equivalents:
Cash on hand and due from banks .......................................... $ 3,747,095 $ 4,528,091
Overnight deposits with FHLB ............................................. 16,360,153 12,299,411
------------- -------------
Total cash and cash equivalents .......................................... 20,107,248 16,827,502
Securities available-for-sale ............................................ 21,506,198 15,425,198
Loans held for sale ...................................................... 119,104 849,953
Loans receivable, net of allowance for loan losses of
$677,000 in 2001 and $649,000 in 2000) ............................... 190,365,872 218,956,703
Foreclosed real estate and other repossessed assets ...................... 157,192 149,936
Real estate held for investment .......................................... 685,683 1,113,047
Federal Home Loan Bank stock, at cost .................................... 4,293,600 4,293,600
Premises and equipment ................................................... 4,800,143 4,485,970
Accrued interest receivable .............................................. 1,403,200 1,489,841
Core deposit intangibles ................................................. 1,987,775 2,141,529
Other assets ............................................................. 1,778,957 1,276,170
------------- -------------
Total assets ............................................................. $ 247,204,972 $ 267,009,449
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits ................................................................. $ 167,110,693 $ 162,771,407
Advances from borrowers for taxes and insurance .......................... 603,559 255,242
Federal Home Loan Bank advances .......................................... 56,934,600 82,434,600
Accrued expenses and other liabilities ................................... 1,851,439 1,877,934
Deferred income taxes .................................................... 304,629 198,877
------------- -------------
Total liabilities ........................................................ 226,804,920 247,538,060
------------- -------------
Commitments and contingencies ............................................ -- --
Stockholders' equity:
Common stock ($1.00 par value, 20,000,000 shares authorized, 1,641,579 and
1,642,200 shares issued and outstanding in 2001 and 2000, respectively 1,641,579 1,642,200
Additional paid-in capital ............................................... 5,179,398 5,122,163
Retained earnings, restricted ............................................ 3,772,000 3,427,000
Retained earnings ........................................................ 9,362,776 9,059,139
Shares purchased for Recognition and Retention Plan ...................... -- (4,193)
Accumulated other comprehensive income ................................... 444,299 225,080
------------- -------------
Total stockholders' equity ............................................... 20,400,052 19,471,389
------------- -------------
Total liabilities and stockholders' equity ............................... $ 247,204,972 $ 267,009,449
============= =============
See accompanying notes to consolidated financial statements.
3.
ALPENA BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
------------------------------- -------------------------------
2001 2000 2001 2000
------------ ------------ ------------ ------------
(Unaudited)
Interest income:
Interest and fees on loans ........................ $ 3,794,767 $ 4,345,533 $ 12,109,949 $ 12,810,465
Interest and dividends on investments ............. 474,527 301,221 1,259,741 989,077
Interest on mortgage-backed securities ............ 34,530 26,022 107,946 78,711
------------ ------------ ------------ ------------
Total interest income ............................. 4,303,824 4,672,776 13,477,636 13,878,253
------------ ------------ ------------ ------------
Interest expense:
Interest on deposits .............................. 1,934,685 1,895,546 6,119,976 5,512,934
Interest on borrowings ............................ 855,251 1,316,817 2,715,872 3,782,227
------------ ------------ ------------ ------------
Total interest expense ............................ 2,789,936 3,212,363 8,835,848 9,295,161
------------ ------------ ------------ ------------
Net interest income ............................... 1,513,888 1,460,413 4,641,788 4,583,092
Provision for loan losses ......................... 75,000 45,000 180,000 135,000
------------ ------------ ------------ ------------
Net interest income after provision for
loan losses ..................................... 1,438,888 1,415,413 4,461,788 4,448,092
------------ ------------ ------------ ------------
Other income:
Service charges and other fees .................... 290,766 215,551 783,180 586,551
Mortgage banking activities ....................... 257,858 84,051 801,787 138,210
Gain on sale of available-for-sale investments .... 182,906 756,894 182,906 1,003,154
Net gain (loss) on sale of premises and equipment,
real estate owned and other repossessed assets .. (145,327) (297,228) (185,274) (296,769)
Other ............................................. 47,413 19,955 103,714 71,942
------------ ------------ ------------ ------------
Total other income ................................ 633,616 779,223 1,686,313 1,503,088
------------ ------------ ------------ ------------
Other expenses:
Compensation and employee benefits ................ 991,390 731,870 2,684,369 2,174,620
Federal insurance premiums ........................ 7,845 7,945 23,102 24,335
Advertising ....................................... 44,828 39,108 136,231 113,407
Occupancy ......................................... 294,964 239,887 795,511 656,081
Amortization of core deposit intangible ........... 51,256 51,254 153,759 149,407
Other ............................................. 287,672 248,580 911,349 743,159
------------ ------------ ------------ ------------
Other expenses .................................... 1,677,955 1,318,644 4,704,321 3,861,009
------------ ------------ ------------ ------------
Income before income tax expense .................. 394,549 875,992 1,443,780 2,090,171
Income tax expense ................................ 148,049 301,487 524,999 712,322
------------ ------------ ------------ ------------
Net income ........................................ $ 246,500 $ 574,505 $ 918,781 $ 1,377,849
============ ============ ============ ============
Earnings per share data:
Basic earnings per share .......................... $ 0.15 $ 0.35 $ 0.56 $ 0.84
Weighted average number of shares outstanding ..... 1,641,579 1,642,200 1,641,743 1,642,174
Diluted earnings per share ........................ $ 0.15 $ 0.35 $ 0.58 $ 0.84
Weighted average number of shares outstanding,
including dilutive stock options ................ 1,642,916 1,642,200 1,642,189 1,642,174
Dividends per common share ........................ $ 0.125 $ 0.125 $ 0.375 $ 0.40
See accompanying notes to consolidated financial statements.
4.
ALPENA BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001
Accumulated
Additional Other Shares
Common Paid-in Retained Comprehensive Acquired by
Stock Capital Earnings Income RRP Total
------------ ------------ ------------ ------------ ------------ ------------
Balance at December 31, 2000 ..... $ 1,642,200 $ 5,122,163 $ 12,486,139 $ 225,080 $ (4,193) 19,471,389
Stock issued upon exercise of
stock options (200 shares) ..... -- -- -- -- -- --
Forfeiture of shares in connection
with RRP stock ................. (621) -- -- -- 621 --
RRP stock release ................ 57,235 3,572 60,807
Net income for the period ........ -- -- 918,781 -- -- 918,781
Changes in unrealized gain on
available-for-sale securities .. -- -- -- 219,219 -- 219,219
------------
Total comprehensive income ....... -- -- -- -- -- 1,138,000
Dividends declared ............... -- -- (270,144) -- -- (270,144)
------------ ------------ ------------ ------------ ------------ ------------
Balance at September 30, 2001 ... $ 1,641,579 $ 5,179,398 $ 13,134,776 $ 444,299 $ -- $ 20,400,052
============ ============ ============ ============ ============ ============
See accompanying notes to consolidated financial statements.
5.
ALPENA BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended
September 30,
----------------------------
2001 2000
------------ ------------
(Unaudited)
Cash flows provided by (used in) operating activities:
Net income ................................................................. $ 918,781 $ 1,377,849
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation ........................................................... 319,100 293,922
Amortization of core deposit intangible ................................ 153,759 147,219
(Gain) loss on sale of investment securities available for sale ........ (182,906) (1,003,154)
(Gain) loss on sale of real estate held for investment ................. 28,210 --
(Gain) loss on sale of premises and equipment,
real estate owned and other repossessed assets ....................... 157,064 296,216
Accretion of discounts, amortization of premiums,
and other deferred yield items, net .................................. 33,667 69,364
Increase (decrease) in advance payments by borrowers for taxes and insurance 348,317 342,523
Provision for loan losses .............................................. 180,000 135,000
(Increase) decrease in accrued interest receivable ..................... 86,641 (179,564)
(Increase) decrease in prepaid expenses and other assets ............... (397,035) (146,456)
Increase (decrease) in accrued expenses and other liabilities .......... (26,495) (228,108)
Increase (decrease) in deferred income taxes ........................... -- --
Increase (decrease) in other, net ...................................... (275,916) 74,183
------------ ------------
Net cash provided by (used in) operating activities ........................ 1,343,187 1,178,994
------------ ------------
Cash flows provided by (used in) investing activities:
Proceeds from sales of:
Investment securities available-for-sale ................................. 185,844 1,023,229
Real estate held for investment .......................................... 374,583 165,095
Real estate owned, other repossessed assets and premises and equipment ... 239,706 354,759
Purchases of:
Investment securities available-for-sale ................................. (13,166,342) --
Real estate held for investment .......................................... (14,550) (10,336)
Premises and equipment ................................................... (590,190) (456,213)
Originations of loans held for sale ........................................ (48,577,484) (10,020,277)
Principal amount of loans sold ............................................. 49,308,333 10,020,277
(Increase) decrease in net loans receivable ................................ 28,200,602 (1,442,105)
Principal payments received on:
Investment securities .................................................... 7,000,000 --
Mortgage-backed securities ............................................... 406,915 171,016
------------ ------------
Net cash provided by (used in) investing activities ........................ 23,367,417 (194,555)
------------ ------------
Cash flows provided by (used in) financing activities:
Proceeds from Federal Home Loan Bank advances .............................. 22,500,000 94,500,000
Repayments of Federal Home Loan Bank advances .............................. (48,000,000) (98,000,000)
Increase (decrease) in deposits ............................................ 4,339,286 102,514
Dividend paid on common stock .............................................. (270,144) (286,634)
Issuance of common stock ................................................... -- 45,466
Net cash provided by (used in) financing activities ........................ (21,430,858) (3,638,654)
------------ ------------
Net increase (decrease) in cash and cash equivalents ............................ 3,279,746 (2,654,215)
Cash and cash equivalents at beginning of period ................................ 16,827,502 9,538,552
------------ ------------
Cash and cash equivalents at end of period ...................................... $ 20,107,248 $ 6,884,337
------------ ------------
Supplemental disclosure of cash flow information:
Cash paid during the period for income taxes .................................... $ 385,000 $ 575,000
------------ ------------
Cash paid during the period for interest ........................................ $ 8,735,599 $ 9,312,485
------------ ------------
See accompanying notes to consolidated financial statements.
6.
ALPENA BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
The accompanying consolidated financial statements have been prepared on an
accrual basis of accounting and include the accounts of Alpena Bancshares, Inc.
(the "Company") and its wholly-owned direct and indirect subsidiaries, First
Federal of Northern Michigan (the "Bank") and Financial Service and Mortgage
Corporation ("FSMC"). FSMC invests in real estate that includes leasing,
selling, developing, and maintaining real estate properties. All significant
intercompany balances and transactions have been eliminated in the
consolidation.
These interim financial statements are prepared without audit and reflect all
adjustments, which, in the opinion of management, are necessary to present
fairly the consolidated financial position of the Company at September 30, 2001,
and its results of operations and statement of cash flows for the periods
presented. All such adjustments are normal and recurring in nature. The
accompanying consolidated financial statements do not purport to contain all the
necessary financial disclosures required by generally accepted accounting
principles that might otherwise be necessary and should be read in conjunction
with the consolidated financial statements and notes thereto of the Company
included in the Annual Report for the year ended December 31, 2000. Results for
the nine months ended September 30, 2001 are not necessarily indicative of the
results that may be expected for the year ending December 31, 2001.
REAL ESTATE HELD FOR SALE - FSMC is engaged in the development and sale of real
estate. Land held for sale or development is carried at cost, including
development costs, not in excess of fair value less costs to sell determined on
an individual project basis.
MORTGAGE BANKING ACTIVITIES - In 2000, the Bank began selling to investors a
portion of its originated residential mortgage loans. The mortgage loans
serviced for others are not included in the consolidated statements of financial
condition.
When the Bank acquires mortgage servicing rights through the origination of
mortgage loans and sells those loans with servicing rights retained, it
allocates the total cost of the mortgage loans to the mortgage servicing rights
based on their relative fair value. Capitalized mortgage servicing rights are
amortized as a reduction of servicing fee income in proportion to, and over the
period of, estimated net servicing income by use of a method that approximates
the level-yield method. Capitalized mortgage servicing rights are periodically
evaluated for impairment. If impairment is identified, the amount of impairment
is charged to earnings with the establishment of a valuation allowance against
the capitalized mortgage servicing rights.
OTHER COMPREHENSIVE INCOME - Accounting principles generally require that
recognized revenue, expenses, gains and losses be included in net income.
Certain changes in assets and liabilities, however, such as unrealized gains and
losses on available-for-sale securities, are reported as a separate component in
the equity section of the consolidated balance sheet. Such items along with net
income, are components of comprehensive income.
INCOME TAXES - The provision for income taxes is based upon the effective tax
rate expected to be applicable for the entire year.
7.
ALPENA BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. (continued)
EARNINGS PER SHARE - Basic earnings per share is based on the weighted average
number of shares outstanding in each period. Fully diluted earnings per share
are based on weighted average shares outstanding assuming the exercise of the
dilutive stock options. The Company uses the treasury stock method to compute
fully diluted earnings per share, which assumes proceeds from the assumed
exercise of stock options would be used to purchase common stock at the average
market price during the period.
NOTE 2--REORGANIZATION.
The Company was formed as the Bank's holding company on November 14, 2000
pursuant to a plan of reorganization adopted by the Bank and its stockholders.
Pursuant to the reorganization, each share of the Bank's stock held by existing
stockholders of the Bank was exchanged for a share of common stock of the
Company by operation of law. The reorganization had no financial statement
impact and is reflected for all prior periods presented. Approximately 56% of
the Company's outstanding common stock is owned by Alpena Bancshares M.H.C., a
mutual holding company (the "M.H.C."). The remaining 44% of the Company's stock
is owned by the general public. The activity of the M.H.C. is not included in
these financial statements.
NOTE 3--DIVIDENDS.
Payment of dividends on the common stock is subject to determination and
declaration by the Board of Directors and will depend upon a number of factors,
including capital requirements, regulatory limitations on the payment of
dividends, the Company's results of operation and financial condition, tax
considerations and general economic conditions. Alpena Bancshares, M.H.C. (the
majority shareholder of the Company) filed a notice with the Office of Thrift
Supervision (the "OTS") requesting approval to waive payment of cash dividends
from the Company for each quarterly dividend to be paid for the year ending
December 31, 2001. In a letter dated April 13, 2001, the OTS did not object to
the dividend waiver request for the four quarters ending December 31, 2001,
subject to the following conditions: (1) for as long as the Company is
controlled by the M.H.C. the amount of dividends waived by the M.H.C. must be
segregated and considered as a restriction on retained earnings of the Company
(the cumulative dividends waived to date are $3.772 million); (2) the amount of
the dividend waived by the M.H.C. shall be available for declaration as a
dividend solely to the M.H.C.; and (3) the amount of the dividend waived by the
M.H.C. must be considered as having been paid by the Company in evaluating any
proposed dividend. In addition, the OTS may rescind its non-objection to the
waiver of dividends for subsequent periods, if, based on subsequent
developments, the proposed waivers are determined to be detrimental to the safe
and sound operation of the Company.
On September 14, 2001, the Company declared a cash dividend on its common stock,
payable on, or about, October 25, 2001, to shareholders of record as of
September 30, 2001, equal to $0.125 per share. The dividend on all shares
outstanding totaled $205,000, of which $90,000 was paid to shareholders. Because
the OTS has agreed to allow the M.H.C. to waive its dividend (amounting to
$115,000), this dividend will not be paid.
8.
ALPENA BANCSHARES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion compares the financial condition of the Company and its
wholly owned direct and indirect subsidiaries at September 30, 2001 and December
31, 2000, and the results of operations for the three and nine month periods
ended September 30, 2001 and 2000. This discussion should be read in conjunction
with the interim financial statements and footnotes included herein.
FINANCIAL CONDITION
Total assets declined $19.8 million, or 7.4%, to $247.2 million at September 30,
2001 from $267.0 million at December 31, 2000. Net loans decreased $29.3
million, or 13.3%, to $190.5 million at September 30, 2001 from $219.8 million
at December 31, 2000 as a result of borrower refinancing of balloon mortgage
loans into 15 and 30 year fixed rate loans that were subsequently sold by the
Bank in the secondary market. Such sales totaled $49.3 million for the nine
months ended September 30, 2001.
Deposits increased $4.3 million, or 2.7%, to $167.1 million at September 30,
2001 from $162.8 million at December 31, 2000. Of this increase, $4.6 million
was attributable to the Bank obtaining brokered certificates of deposit with
maturities ranging from one to five years. These certificates were obtained at
rates, which at the time were more favorable than those from other sources,
including FHLB advances. Borrowings in the form of Federal Home Loan Bank
advances declined $25.5 million, or 30.9%, to $56.9 million at September 30,
2001 from $82.4 million at December 31, 2000. This decrease was a result of the
previously mentioned changes in loans receivable and deposits.
Stockholders' equity increased by $929,000, or 4.8%, to $20.4 million at
September 30, 2001 from $19.5 million at December 31, 2000. The increase in
stockholders' equity was primarily due to net income of $919,000 and an increase
in accumulated other comprehensive income of $219,000 as the result of higher
market values on available-for-sale securities in the generally lower market
interest rate environment. These increases were partially offset by dividends of
$270,000 paid to the stockholders.
RESULTS OF OPERATIONS
Net income declined 57.1% to $247,000 for the three months ended September 30,
2001 from $575,000 for the same period ended September 30, 2000. Net income for
the nine months ended September 30, 2001 was $919,000, a decline of $459,000 or
33.3% from the same period in 2000. The decreases in net income were primarily
due to other income realized from the sale of investment securities in 2000 and
an increase in operating expenses in 2001. The declines were partially offset by
an increase in mortgage banking income as well as higher service charges and
other fees in 2001.
Interest income was $4.3 million and $13.5 million for the three and nine months
ended September 30, 2001, respectively, from $4.7 million and $13.9 million for
the comparable periods in 2000. The decrease in interest income for the three
and nine month periods ended September 30, 2001 from the prior year periods was
primarily due to the sale of mortgage loans. The sale of these loans resulted in
a decline in the average balance of residential mortgage loans of approximately
$42.1 million and $31.0 million for the three and nine month periods ended
September 30, 2001, respectively, from the prior year periods. These declines
were partially offset by increases in the average balances of non-mortgage loans
of $10.6 million and $12.5 million, investment securities of $7.5 million and
$5.5 million and other investments, which are primarily overnight deposits, of
$15.0 million and $7.4 million for the three and nine months ended September 30,
2001, respectively, from the prior year periods.
9.
ALPENA BANCSHARES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (continued)
Interest expense was $2.8 million and $8.8 million for the three and nine month
periods ended September 30, 2001 compared to $3.2 million and $9.3 million for
the same periods in 2000. The decline in interest expense was attributable to
lower interest rates paid on interest-bearing liabilities and to lower average
balances on these liabilities for the periods ended September 30, 2001 compared
to the same periods one year earlier.
Net interest income was relatively unchanged at $1.5 million and $4.6 million
for each of the three and nine months ended September 30, 2001 and 2000. For the
three and nine months ended September 30, 2001, the percentage of average
interest-earning assets to average interest-bearing liabilities increased to
104.5% and 104.1% from 103.0% and 102.9% for the same periods one year earlier.
The net interest rate spread declined to 2.39% for both the three and nine
months ended September 30, 2001 from 2.44% and 2.50% for the same periods in
2000. The yield on average interest-earning assets declined to 7.32% for the
three months ended September 30, 2001 from 7.83% for the period ended September
30, 2000, while the yield for the nine month period declined to 7.56% from
7.75%. The cost of average interest-bearing liabilities declined to 4.92% from
5.39% for the three months ended September 30, 2001 and September 30, 2000,
respectively. This cost declined to 5.17% from 5.25% for the nine month period
ended September 30, 2001 when compared to the same period one year earlier.
Provision for loan losses increased to $75,000 and $180,000 for the three and
nine months ended September 30, 2001, respectively, compared to $45,000 and
$135,000 for the same periods in 2000. Management continues to monitor loan loss
provisions because of the inherent risk of the loan (primarily commercial and
consumer) portfolio. Net loans receivable, excluding loans held for sale, were
$190.4 million at September 30, 2001 compared to $219.0 million at December 31,
2000. Total nonperforming assets declined slightly to $806,000 at September 30,
2001 from $820,000 at December 31, 2000.
While management believes that, based on information currently available, the
allowance for loan losses is sufficient to cover losses inherent in the
Company's loan portfolio at this time, no assurance can be given that the level
of allowance will be sufficient to cover future loan losses or that future
adjustments to the allowance will not be necessary if economic and/or other
conditions differ substantially from the economic and other conditions
considered by management in evaluating the adequacy of the current level of the
allowance.
Other income declined $145,000 to $634,000 for the three months ended September
30, 2001, and increased $183,000 to $1.7 million for the nine month period ended
September 30, 2001 from the same periods one year earlier. The increase was
primarily attributable to mortgage banking activities income, and also partially
due to increases in various fees collected. These increases were partially
offset by having lower recorded gains from the sale of available-for-sale
securities in 2001. During 2000, the Company began selling new originations of
15 to 30 year fixed rate loans in the secondary market generally with servicing
retained. For the three and nine month periods ended September 30, 2001, the
Company had mortgage banking activities income of $258,000 and $802,000,
respectively, compared to $84,000 and $138,000 for the same periods in 2000.
Also in 2000, the Company recognized gains in the liquidation of certain
available-for-sale securities to enhance both liquidity and future earnings.
These gains totaled approximately $183,000 for the three and nine month periods
ended September 31, 2001 which reflect declines of $574,000 and $820,000 from
the three and nine months periods ended September 30, 2000, respectively.
10.
ALPENA BANCSHARES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (continued)
Other expenses were $1.7 million and $4.7 million for the three and nine months
ended September 30, 2001, respectively, compared to $1.3 million and $3.9
million for the same periods ended September 30, 2000. The increase was
attributable to higher compensation and benefits, occupancy, and other expenses.
The increase in compensation and benefit expense was primarily due to additional
personnel, general overall increases in wage rates, an increase in commissions
paid due to increased loan originations and a higher cost of benefits in the
2001 period. Occupancy expense increased primarily because of increased
depreciation expense on equipment. The increase in other expense was
attributable to increases in several various expense accounts.
Federal income taxes declined to $148,000 and $525,000 for the three and nine
month periods ended September 30, 2001, respectively, compared to $301,000 and
$712,000 for the same periods in 2000. The decrease was attributable to the
decline in taxable income.
11.
ALPENA BANCSHARES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY
The Company's primary sources of funds are deposits, FHLB advances, and proceeds
from principal and interest payments and prepayments on loans and
mortgage-backed and investment securities. While maturities and scheduled
amortization of loans and mortgage-backed securities are a predictable source of
funds, deposit flows and mortgage prepayments are greatly influenced by general
interest rates, economic conditions and competition.
Liquidity represents the amount of an institution's assets that can be quickly
and easily converted into cash without significant loss. The most liquid assets
are cash, short-term U.S. Government securities, U.S. Government agency
guaranteed securities and certificates of deposit. The Company is required to
maintain sufficient levels of liquidity as defined by the OTS regulations. This
requirement may be varied at the direction of the OTS. Regulations currently in
effect require that the Company must maintain sufficient liquidity to ensure its
safe and sound operation. The Company's objective for liquidity is to be above
6%. Liquidity for the three months ended September 30, 2001 averaged $27.1
million, or 17.6%, compared to $15.9 million, or 7.68% and $16.5 million, or
8.10% for the three months ended December 31, 2000 and September 30, 2000,
respectively. The levels of these assets are dependent on the Company's
operating, financing, lending and investing activities during any given period.
The Company intends to retain for the portfolio certain originated residential
mortgage loans (primarily adjustable rate and balloon mortgage loans) and to
generally sell the remainder in the secondary market. The Company will from time
to time participate in or originate commercial real estate loans, including real
estate development loans. During the nine months ended September 30, 2001 the
Company originated $79.4 million in residential mortgage loans, of which $30.1
million were retained in the portfolio while the remainder were sold in the
secondary market or are being held for sale. This compares to $36.2 million in
originations during the first nine months of 2000 of which $26.2 million were
retained in the portfolio. The Company also originated $11.4 million of
commercial loans and $9.3 million of consumer loans in the first nine months of
2001 compared to $6.4 million of commercial loans and $11.5 million of consumer
loans for the same period in 2000. Of total loans receivable, excluding loans
held for sale, mortgage loans comprised 81.3% and 84.0%, commercial loans 5.8%
and 4.8% and consumer loans 12.9% and 11.2% at September 30, 2001 and December
31, 2000, respectively.
Deposits are a primary source of ; funds for use in lending and for other
general business purposes. At September 30, 2001, deposits funded 67.6% of the
Company's total assets compared to 61.0% at December 31, 2000. Management
believes that a significant portion of such deposits will remain with the
Company. Borrowings may be used to compensate for seasonal or other reductions
in normal sources of funds or for deposit outflows at more than projected
levels. Borrowings may also be used on a longer-term basis to support increased
lending or investment activities. At September 30, 2001, the Company had $56.9
million in FHLB advances. Total borrowings as a percentage of total assets were
23.0% at September 30, 2001 as compared to 30.9% at December 31, 2000. The
Company has sufficient available collateral to obtain additional advances from
the FHLB, and, based upon current FHLB stock ownership, could obtain up to a
total of approximately $85 million in such advances.
12.
ALPENA BANCSHARES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CAPITAL RESOURCES
Stockholders' equity at September 30, 2001 was $20.4 million, or 8.3% of total
assets, compared to $19.5 million, or 7.3% of total assets, at December 31,
2000. (See "Consolidated Statement of Changes in Stockholders' Equity.") The
Bank is subject to three capital-to-assets levels in accordance with the OTS
regulations. The Bank exceeded all regulatory capital requirements at September
30, 2001. The following table summarizes the Bank's actual capital with the
regulatory capital requirements and with requirements to be "Well Capitalized"
under prompt corrective action provisions, as of September 30, 2001:
Minimum
Regulatory To Be Well
Actual Minimum Capitalized
------------------ ----------------- ------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
(Dollars in Thousands)
Capital Requirements:
Tangible equity capital $16,643 6.82% $ 3,658 1.50% $ 4,878 2.00%
Tier 1 (Core) capital $16,643 6.82% $ 9,756 4.00% $12,195 5.00%
Total risk-based capital $17,320 12.86% $10,778 8.00% $13,472 10.00%
Tier 1 risk-based capital $16,642 12.35% $ 5,389 4.00% $ 8,083 6.00%
13.
ALPENA BANCSHARES, INC.
FORM 10-QSB
QUARTER ENDED SEPTEMBER 30, 2001
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings:
Not applicable.
Item 2 - Changes in Securities:
Not applicable.
Item 3 - Defaults Upon Senior Securities:
Not applicable.
Item 4 - Submission of Matters to a Vote of Security Holders:
Not applicable
Item 5 - Other Information:
In the first quarter of 2001, the Bank changed its name to
"First Federal of Northern Michigan" from "First Federal
Savings and Loan Association of Alpena, MI", to more
accurately reflect the market area served by the Bank.
Item 6 - Exhibits and Reports on Form 8-K:
(a) Exhibits:
None
(b) Reports on Form 8-K:
None
14.
ALPENA BANCSHARES, INC.
FORM 10-QSB
QUARTER ENDED SEPTEMBER 30, 2001
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ALPENA BANCSHARES, INC.
Registrant
Date: November 14, 2001 /s/ Martin A. Thomson
-----------------------
Martin A. Thomson
Title: President and Chief Executive Officer
(Duly Authorized Officer)
Date: November 14, 2001 /s/ James D. Hubinger
---------------------------
James D. Hubinger
Title: Treasurer and Chief Financial Officer
(Principal Financial Officer)
15.