ALPENA, Mich., April 30 /PRNewswire-FirstCall/ -- First Federal of Northern Michigan Bancorp, Inc. (the "Company") reported consolidated net earnings from continuing operations of $202,000, or $0.07 per basic and diluted share, for the quarter ended March 31, 2010 compared to consolidated net earnings from continuing operations of $147,000, or $0.05 per basic and diluted share, for the quarter ended March 31, 2009.
Listed below are several key points relative to the Company's results for the quarter ended March 31, 2010:
-- Significant quarter over quarter improvement in the Company's net interest margin (from 3.10% to 3.58%) due primarily to a 94 basis point reduction in the cost of funds. -- $3.1 million decrease in non-performing assets since December 31, 2009. -- First Federal of Northern Michigan remains "well-capitalized" for regulatory purposes. -- Provision for loan losses reduced to $11,000 for the quarter due to favorable information received on a large classified credit.
Michael W. Mahler, President and Chief Executive Officer of the Company, commented,
"We are pleased, of course, to be able to report modest earnings for this quarter. We are even more encouraged by the $3.1 million reduction in our non-performing assets since December 31, 2009. Our level of non-performing assets remains higher than what we would consider acceptable, but we continue to aggressively address problem assets as they come to light. The return to strong asset quality is our top priority. We continue to see improvement in our net interest margin, mainly as a result of lowering our cost of funds and also due to maintaining disciplined pricing on the loan side. The core operations of the Company continue to produce income to offset the high cost of FDIC insurance and the holding costs of other real estate owned. Our primary concerns for 2010 remain the Michigan economy, credit quality, and the stability or improvement of the underlying collateral values in our loan portfolio."
Selected Financial Ratios For the Three Months Ended March 31 -------------------- 2010 2009 ---- ---- Performance Ratios: Net interest margin 3.58% 3.10% Average interest rate spread 3.38% 2.74% Return on average assets* 0.35% 0.16% Return on average equity* 3.43% 1.35% Pre-provision Pre-tax net earnings $315,303 $462,141 * Annualized As of ----- March 31, December 31, March 31, 2010 2009 2009 ---------- ------------- ---------- Asset Quality Ratios Non-performing assets to total assets 5.37% 6.58% 5.71% Non-performing loans to total loans 5.00% 6.73% 6.50% Allowance for loan losses to non-performing loans 40.55% 31.05% 44.89% Allowance for loan losses to total loans 2.03% 2.09% 2.92% "Texas Ratio" (Bank) 50.87% 64.29% 47.40% Total non-performing assets (000's omitted) $12,222 $15,366 $14,268 Financial Condition
Total assets of the Company at March 31, 2010 were $229.7 million, a decrease of $3.8 million, or 1.6%, from assets of $233.5 million at December 31, 2009. Net loans receivable decreased $2.8 million to $168.4 million at March 31, 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, and limited originations of loans to be held in the Company's portfolio. Investment securities decreased $676,000 from December 31, 2009 to March 31, 2010 due in part to the sale of a $1 million municipal security which was sold because of the perceived credit risk inherent in the security.
Deposits decreased $1.5 million to $156.6 million at March 31, 2010. Most of the decrease in deposits was in non-interest bearing personal and business checking accounts due to usage of funds in customers' accounts as opposed to closing of accounts. FHLB advances decreased $2.2 million as our asset base shrank during the quarter.
The ratio of total nonperforming assets to total assets was 5.37% at March 31, 2010 compared to 6.58% at December 31, 2009 and 5.71% at March 31, 2009. Non-performing assets decreased by $3.1 million from December 31, 2009 to March 31, 2010. 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 $23.3 million at March 31, 2010 compared to $23.1 million at December 31, 2009. The increase was due primarily to net earnings for the three-month period of $202,000. 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 Actual Minimum Well Capitalized Amount Ratio Amount Ratio Amount Ratio ------ ----- ------ ----- ------ ----- Dollars in Thousands Tier 1 (Core)capital (to adjusted assets) $20,537 9.03% $9,102 4.00% $11,378 5.00% Total risk-based capital (to risk- weighted assets) $22,550 14.07% $12,819 8.00% $16,024 10.00% Tier 1 risk-based capital (to risk weighted assets) $20,537 12.82% $6,410 4.00% $9,614 6.00% Tangible Capital (to tangible assets) $20,537 9.03% $3,413 1.50% $4,551 2.00% Results of Operations
Interest income decreased to $ 2.9 million for the three months ended March 31, 2010 from $3.3 million for the year earlier period. The decrease in interest income was due to two factors: a decrease of $17.2 million in the average balance of our interest-earning assets and a decrease of 31 basis points in the yield on interest-earning assets due in part to lower market interest rates period over period.
Interest expense decreased to $956,000 for the three months ended March 31, 2010 from $1.5 million for the three months ended March 31, 2009. The decrease in interest expense for the three-month period was due in part to a $10.8 million decrease in the average balance of our interest-bearing liabilities and a decrease in our overall cost of funds of 94 basis points period over period. Most notably, the average balance of our certificates of deposit decreased $13.3 million from the three-month period ended March 31, 2009 to the same period in 2010 and the cost of our certificates of deposits decreased 119 basis points period over period.
The Company's net interest margin increased to 3.58% for the three-month period ended March 31, 2010 from 3.10% for the same period in 2009. During this time period, the average yield on interest-earning assets decreased 31 basis points to 5.37% from 5.68%, while the average cost of funds decreased 94 basis points to 2.00% from 2.94%, due mainly to a reduction of 119 basis points on our certificates of deposit.
The provision for loan losses for the three-month period ended March 31, 2010 was $11,000, as compared to $264,000 for the prior year period. The decrease related mainly to one large commercial credit for which we had established a large reserve in 2009 based on known information at that time. In early 2010 we received updated information that led us to reverse approximately $146,000 of the reserve we had established in 2009, resulting in a smaller than anticipated provision for the quarter. 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 from $798,000 for the three months ended March 31, 2009 to $578,000 for the three months ended March 31, 2009. The results reflected a decrease in mortgage banking activities income to $248,000 for the three months ended March 31, 2010 as compared to $449,000 for the same period in 2009. During 2009, and continuing into 2010, many homeowners in the Company's markets took the opportunity to refinance their mortgages due to lower market interest rates. The majority of these loans were sold into the secondary market, generating mortgage banking activities income for the Company. This refinance activity peaked in March 2009. Mortgage refinances were considerably lower for the three-month period ended March 31, 2010 as compared to the prior year period.
Non interest expense increased slightly from $2.1 million for the three months ended March 31, 2009 to $2.2 million for the three months ended March 31, 2010. Our FDIC premiums increased by $15,000, or 18.4% period over period as the Company's assessment rate increased and other expenses increased by $29,000, or 10.0% (mostly expenses related to credit quality and repossessed properties).
Federal income tax expense for the three-month period ended March 31, 2010 was based on our pre-tax income for the quarter of $304,000.
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 March 31, December 31, 2010 2009 --------- ------------ (Unaudited) ASSETS Cash and cash equivalents: Cash on hand and due from banks $1,900,416 $2,583,131 Overnight deposits with FHLB 957,583 515,927 ------- ------- Total cash and cash equivalents 2,857,999 3,099,058 Securities AFS 33,036,832 33,712,724 Securities HTM 3,925,900 3,928,167 Loans held for sale 78,600 51,970 Loans receivable, net of allowance for loan losses of $3,488,356 and $3,660,344 as of March 31, 2010 and December 31, 2009, respectively 168,447,089 171,219,105 Foreclosed real estate and other repossessed assets 3,618,759 3,579,895 Federal Home Loan Bank stock, at cost 4,196,900 4,196,900 Premises and equipment 6,435,712 6,563,683 Accrued interest receivable 1,230,488 1,230,287 Intangible assets 846,644 919,757 Prepaid FDIC Premiums 1,225,090 1,314,850 Deferred Tax Asset 578,653 559,235 Other assets 3,188,349 3,130,063 --------- --------- Total assets $229,667,015 $233,505,694 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Deposits $156,612,187 $158,099,809 Advances from borrowers for taxes and insurance 276,519 105,419 Federal Home Loan Bank Advances 42,200,000 44,400,000 Note Payable - 630,927 REPO Sweep Accounts 5,596,791 5,407,791 Accrued expenses and other liabilities 1,703,219 1,809,266 --------- --------- Total liabilities 206,388,716 210,453,212 ----------- ----------- Stockholders' equity: Common stock ($0.01 par value 20,000,000 shares authorized 3,191,999 shares issued) 31,920 31,920 Additional paid-in capital 23,744,409 23,722,767 Retained earnings 2,202,566 2,000,264 Treasury stock at cost (307,750 shares) (2,963,918) (2,963,918) Unearned compensation (130,516) (161,678) Accumulated other comprehensive income 393,838 423,127 ------- ------- Total stockholders' equity 23,278,299 23,052,482 ---------- ---------- Total liabilities and stockholders' equity $229,667,015 $233,505,694 ============ ============ First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries Consolidated Statement of Income For the Three Months Ended March 31, --------------- 2010 2009 --- --- (Unaudited) Interest income: Interest and fees on loans $2,540,413 $2,942,340 Interest and dividends on investments 185,375 197,398 Interest on mortgage-backed securities 156,533 150,826 ------- ------- Total interest income 2,882,321 3,290,564 --------- --------- Interest expense: Interest on deposits 637,824 1,060,286 Interest on borrowings 318,582 428,559 ------- ------- Total interest expense 956,406 1,488,845 ------- --------- Net interest income 1,925,915 1,801,719 Provision for loan losses 11,088 264,230 ------ ------- Net interest income after provision for loan losses 1,914,827 1,537,489 --------- --------- Non-interest income: Service charges and other fees 204,174 214,872 Mortgage banking activities 248,092 449,205 Gain on sale of available-for-sale investments 49,430 - Net gain (loss) on sale of premises and equipment, real estate owned and other repossessed assets 11,176 71,542 Other 65,613 62,617 ------ ------ Total non-interest income 578,485 798,236 ------- ------- Non-interest expense: Compensation and employee benefits 1,170,942 1,147,802 FDIC Insurance Premiums 94,200 79,564 Advertising 19,889 17,550 Occupancy 312,576 302,418 Amortization of intangible assets 73,113 89,117 Service bureau charges 79,582 91,959 Professional services 103,111 102,904 Other 335,683 306,500 ------- ------- Total non-interest expense 2,189,096 2,137,814 --------- --------- Income from continuing operations before income tax expense (benefit) 304,216 197,911 Income tax expense from continuing operations 101,913 51,412 ------- ------ Net income from continuing operations 202,303 146,499 ------- ------- Discontinued Operations: Loss from discontinued operations, net of income tax benefit of $0 and $43,209 - (83,875) Gain on sale of discontinued operations, net of income tax expense of $0 and $19,585 - 38,017 --- ------ Loss from discontinued operations - (45,858) ------- Net Income $202,303 $100,641 ======== ======== Per share data: Income per share from continuing operations Basic $0.07 $0.05 Diluted $0.07 $0.05 Loss per share from discontinued operations Basic $- $(0.02) Diluted $- $(0.02) Net income per share Basic $0.07 $0.03 Diluted $0.07 $0.03 Weighted average number of shares outstanding Basic 2,884,249 2,884,249 Including dilutive stock options 2,884,249 2,884,249 Dividends per common share $- $-
First Federal of Northern Michigan Bancorp, Inc.
CONTACT: Amy E. Essex, Chief Financial Officer, Treasurer & Corporate
Secretary, First Federal of Northern Michigan Bancorp, Inc., +1-989-356-9041
Web Site: http://www.first-federal.com/
