First Federal of Northern Michigan Bancorp, Inc. Announces Fourth Quarter 2009 and Full Year Results
ALPENA, Mich., March 3 /PRNewswire-FirstCall/ -- First Federal of Northern Michigan Bancorp, Inc. (Nasdaq: FFNM) (the "Company") reported a consolidated net loss from continuing operations of $3.1 million, or $1.07 per basic and diluted share, for the quarter ended December 31, 2009 compared to a consolidated net loss from continuing operations of $2.3 million, or $0.81 per basic and diluted share, for the quarter ended December 31, 2008.
Consolidated net loss from continuing operations for the twelve months ended December 31, 2009 was $6.7 million, or $2.33 per basic and diluted share, compared to consolidated net loss from continuing operations of $3.2 million, or $1.10 per basic and diluted share, for the twelve months ended December 31, 2009.
The three- and twelve-month results reflected a provision for loan losses of $2.7 million and $6.2 million, respectively, which related primarily to several non-performing commercial loan relationships and a non-cash valuation allowance related to the Company's deferred tax asset reflecting the Company's recent losses resulting from the distressed operating environment confronting banks.
Listed below are several key points relative to the Company's 2009 results:
- Significant year over year improvement in the Company's net interest margin (from 2.93% to 3.26%).
- 293% increase in industry-wide FDIC insurance costs year over year.
- $1.6 million increase in non-performing assets, year over year.
- First Federal of Northern Michigan (the "Bank") remains "well-capitalized" for regulatory purposes.
Michael W. Mahler, President and Chief Executive Officer of the Company, commented,
"First Federal's operating performance has been affected by the distressed Michigan and national economies and their negative impact on real estate values in our market area and the financial strength of our borrowers. The level of problem assets and costs associated with their administration and disposition increased substantially during the course of the year. We aggressively addressed problem assets as they came to light and acted as expeditiously as circumstances would allow while also continuing to build our loan loss reserves. The return to strong asset quality is out top priority. In spite of the loan loss provision expense and the costs associated with problem asset administration, we made great improvement through the year in elevating our net interest margin, elevating non-interest income and reducing our controllable expenses."
Selected Financial Ratios
For the Three Months For the Twelve Months
Ended December 31 Ended December 31
-------------------- ---------------------
2009 2008 2009 2008
---- ---- ---- ----
Performance Ratios:
Net interest margin 3.24% 2.90% 3.26% 2.93%
Average interest
rate spread 3.00% 2.53% 2.97% 2.51%
Return on average
assets* -5.22% -3.70% -2.80% -1.30%
Return on average
equity* -45.89% -29.53% -23.21% -10.05%
* Annualized
As of
-----
December 31, December 31,
2009 2008
------------- -------------
Asset Quality Ratios:
Non-performing assets to total assets 6.58% 5.57%
Non-performing loans to total loans 6.74% 6.14%
Allowance for loan losses to non-
performing assets 23.82% 40.90%
Allowance for loan losses to total
loans 2.09% 2.85%
Allowance for loan losses $3,660 $5,647
Total non-performing loans $11,786 $12,169
Total non-performing assets $15,366 $13,807
Financial Condition
Total assets of the Company at December 31, 2009 were $233.5 million, a decrease of $14.2 million, or 5.7%, from assets of $247.7 million at December 31, 2008. Net loans receivable decreased $21.1 million to $171.2 million at December 31, 2009, 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 commercial loan charge-offs. The decline in net loans receivable was partially offset by an increase of approximately $8.0 million in the Company's investment securities portfolio.
Deposits decreased $7.7 million to $158.1 million and the Company's REPO sweep accounts decreased $4.0 million to $5.4 million at December 31, 2009, as economic conditions in our market areas remained depressed and real estate values continued to decline. Most of the loss in deposits was in our certificate of deposit accounts. As these deposits matured and were set to reprice lower, some left the Bank and were replaced with lower costing FHLB advances. As reported in the previous quarter, most of the decline in REPO sweep accounts was due to lower cash balances held by our commercial customers and not due to deposit relationships leaving the Bank.
The ratio of total nonperforming assets to total assets was 6.58% at December 31, 2009 compared to 5.57% at December 31, 2008. Non-performing assets increased by $1.6 million from December 31, 2008 to December 31, 2009. 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;
- Working with borrowers to find a means of reducing outstanding debt (such as through sales of collateral);
Stockholders' equity was $23.1 million at December 31, 2009 as compared to $29.4 million at December 31, 2008. The decrease was due primarily to the net loss for the twelve-month period of $6.8 million. First Federal of Northern Michigan's regulatory capital remains at levels in excess of regulatory requirements, as shown in the table below.
Capital Required
To be
Categorized as
Well-Capitalized
Capital Required Under Prompt
Actual Capital at For Capital Corrective Action
December 31, 2009 Adequacy Purposes Provisions
-------------- --------------- ----------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
(Dollars in Thousands)
Total risk-based
capital (to
risk-weighted
assets) $22,304 13.57% $13,153 8.00% $16,442 10.00%
Tier 1 risk-
based capital
(to risk-
weighted assets) $20,240 12.31% $6,577 4.00% $9,865 6.00%
Tangible capital
(to tangible
assets) $20,240 8.75% $3,470 1.50% $4,627 2.00%
Results of Operations
Interest income decreased to $ 2.9 million for the three months ended December 31, 2009 from $3.4 million for the year earlier period. Interest income decreased by $1.5 million to $12.4 million for the twelve-month period ended December 31, 2009 from $14.0 million for the same period in 2008. The decreases in interest income were due to two factors: a decrease in the average balance of our interest-earning assets due mostly to reductions in the size of our mortgage loan portfolio and a decrease in the yield on interest-earning assets due in part to lower market interest rates and in part to the impact of loans placed on non-accrual status during the three- and twelve-month periods ended December 31, 2009.
Interest expense decreased to $1.1 million for the three months ended December 31, 2009 from $1.7 million for the three months ended December 31, 2008. Interest expense for the twelve months ended December 31, 2009 decreased to $5.1 million from $7.1 million for the twelve months ended December 31, 2009. The decrease in interest expense for the three- and twelve-month periods was due in part to a decrease in both the average balance and cost of our FHLB borrowings, which the Company was able to pay down because of asset shrinkage and in part due to a decrease in the cost of certificates of deposit, many of which matured and re-priced lower.
The Company's net interest margin increased to 3.24% for the three-month period ended December 31, 2009 from 2.90% for the same period in 2008. During this time period, the average yield on interest-earning assets decreased 53 basis points to 5.17% from 5.70%, while the average cost of funds decreased 100 basis points to 2.17% from 3.17%. For the twelve-month period ended December 31, 2009, the Company's net interest margin increased to 3.26% from 2.93% for the same period in 2008. During this time period, the average yield on interest-earning assets decreased 35 basis points to 5.51% from 5.96%, while the cost of funds decreased 89 basis points to 2.55% from 3.44%.
The provision for loan losses for the three-month period ended December 31, 2009 was $2.7 million, as compared to $3.2 million for the prior year period. For the twelve-month period ended December 31, 2009, the provision for loan losses was $6.2 million as compared to $4.4 million for the same period ended December 31, 2008. The increase for the twelve-month period related to increases in provision and charge-offs on several 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 from $406,000 for the three months ended December 31, 2008 to $521,000 for the three months ended December 31, 2009. Non interest income increased from $1.7 million for the twelve months ended December 31, 2008 to $2.6 million for the twelve months ended December 31, 2009. The three- and twelve-month period results reflected increased mortgage banking activities income of $130,000 and $982,000, respectively. Many homeowners in the Company's markets took the opportunity to refinance due to lower market interest rates during the year ended December 31, 2009 as compared to the same period in 2008. The majority of these loans were sold into the secondary market.
Non interest expense increased from $2.4 million for the three months ended December 31, 2008 to $2.8 million for the three months ended December 31, 2009. Notably, compensation and employee benefits increased $150,000 period over period as the Bank took advantage of the relatively low stock price and pre-paid the ESOP loan, which will result in lower compensation costs going forward. In addition, our FDIC premiums increased by $66,000 period over period as the Company's assessment rate increased and other expenses increased by $67,000 (mostly expenses related to credit quality and repossessed properties). Non interest expense increased from $8.9 million for the twelve months ended December 31, 2008 to $9.4 million for the twelve months ended December 31, 2009. The increase was mainly the result of the increase in FDIC assessment as well as the industry-wide FDIC special assessment, increases in professional services and other expenses (as noted in the three-month discussion), partially offset by decreases in our cost of compensation and employee benefits expenses and occupancy expenses.
Federal income tax expense for the three- and twelve-month periods ended December 31, 2009 was impacted by the valuation allowance on our deferred tax assets of $3.0 million. The Company recorded this valuation allowance because it concluded, based on currently available evidence, that it is "more likely than not" that the future tax assets recognized will be not be realized before their expiration.
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
Consolidated Balance Sheet
December 31, December 31,
2009 2008
------------ ------------
ASSETS
Cash and cash equivalents:
Cash on hand and due from banks $2,583,131 $3,097,788
Overnight deposits with FHLB 515,927 372,523
------- -------
Total cash and cash equivalents 3,099,058 3,470,311
Securities AFS 33,712,724 25,665,178
Securities HTM 3,928,167 4,022,235
Loans held for sale 51,970 107,000
Loans receivable, net of allowance for
loan losses of $3,660,344 and
$5,647,055 as of December 31, 2009 and
December 31, 2008, respectively 171,219,105 192,270,714
Foreclosed real estate and other
repossessed assets 3,579,895 1,637,923
Federal Home Loan Bank stock, at cost 4,196,900 4,196,900
Premises and equipment 6,563,683 7,089,746
Accrued interest receivable 1,230,287 1,469,176
Intangible assets 919,757 1,192,853
Deferred tax asset, net of valuation
allowance of $3,033,352 and $0,
respectively 559,235 2,379,279
Other assets 4,444,913 2,560,243
Assets of discontinued operation - 1,610,734
--- ---------
Total assets $233,505,694 $247,672,293
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $158,099,809 $165,778,598
Advances from borrowers for taxes
and insurance 105,419 104,475
Federal Home Loan Bank Advances 44,400,000 40,200,000
Note Payable 630,927 768,651
REPO Sweep Accounts 5,407,791 9,447,415
Accrued expenses and other liabilities 1,809,265 1,877,600
Liabilities of discontinued operations - 76,792
--- ------
Total liabilities 210,453,212 218,253,531
----------- -----------
Commitments and contingencies - -
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 23,722,767 24,302,102
Retained earnings 2,000,264 8,762,412
Treasury stock at cost (307,750
shares) (2,963,918) (2,963,918)
Unallocated ESOP - (764,861)
Unearned compensation (161,678) (286,324)
Accumulated other comprehensive
income 423,127 337,431
------- -------
Total stockholders' equity 23,052,482 29,418,762
---------- ----------
Total liabilities and
stockholders' equity $233,505,694 $247,672,293
============ ============
First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries
Consolidated Statement of Income
For the Three Months For the Twelve Months
Ended December 31, Ended December 31,
------------------ ------------------
2009 2008 2009 2008
---- ---- ---- ----
Interest income:
Interest and
fees on loans $2,534,151 $3,012,497 $11,104,555 $12,587,844
Interest and
dividends on
investments 175,725 193,721 760,513 958,351
Interest on
mortgage-
backed
securities 146,449 155,175 577,377 420,968
------- ------- ------- -------
Total interest
income 2,856,325 3,361,393 12,442,445 13,967,163
--------- --------- ---------- ----------
Interest expense:
Interest on
deposits 720,521 1,085,239 3,457,053 4,897,194
Interest on
borrowings 351,639 579,698 1,630,886 2,233,276
------- ------- --------- ---------
Total interest
expense 1,072,160 1,664,937 5,087,939 7,130,470
--------- --------- --------- ---------
Net interest
income 1,784,165 1,696,456 7,354,506 6,836,693
Provision for
loan losses 2,703,109 3,177,994 6,195,820 4,420,659
--------- --------- --------- ---------
Net interest
(expense)
income after
provision for
loan losses (918,944) (1,481,538) 1,158,686 2,416,034
-------- ---------- --------- ---------
Non-interest
income:
Service charges
and other fees 207,939 233,668 869,427 942,115
Mortgage banking
activities 245,842 115,369 1,413,468 431,752
Gain on sale
of available-
for-sale
investments - (9,990) 1,227 6,062
Net gain (loss) on
sale of premises
and equipment,
real estate
owned and other
repossessed
assets (4,913) (6,696) 20,438 21,801
Other 31,991 29,093 99,988 95,201
Insurance &
brokerage
commissions 40,174 45,000 169,971 180,000
------ ------ ------- -------
Total non-
interest
income 521,033 406,444 2,574,519 1,676,931
------- ------- --------- ---------
Non-interest
expenses:
Compensation
and employee
benefits 1,320,337 1,170,158 4,735,104 4,824,985
FDIC insurance
premiums 102,820 36,681 479,627 121,919
Advertising 23,680 51,738 117,335 150,652
Occupancy 305,424 311,907 1,202,478 1,262,859
Amortization
of intangible
assets 73,112 77,122 273,096 308,489
Service bureau
charges 79,492 79,673 334,535 320,191
Professional
services 118,137 99,861 477,848 409,092
Other 777,140 585,491 1,739,966 1,475,311
------- ------- --------- ---------
Total non-
interest
expenses 2,800,143 2,412,631 9,359,989 8,873,498
--------- --------- --------- ---------
Loss from
continuing
operations
before income
tax expense (3,198,054) (3,487,725) (5,626,784) (4,780,533)
Income tax
expense
(benefit)
from
continuing
operations (111,049) (1,168,060) 1,089,536 (1,600,703)
-------- ---------- --------- ----------
Net loss from
continuing
operations (3,087,005) (2,319,665) (6,716,320) (3,179,830)
Loss from
discontinued
operations,
net of income
tax benefit of
$0, $0, $43,209,
and $29,745,
respectively - (3,986) (83,875) (61,204)
Gain on sale of
discontinued
operations,
net of income
tax expense
of $0, $0, $19,585
and $0,
respectively - - 38,017 -
--- --- ------ ---
Net loss (3,087,005) (2,323,651) (6,762,178) (3,241,033)
========== ========== ========== ==========
Per share data:
Loss per share
from continuing
operations
Basic $(1.07) $(0.81) $(2.33) $(1.10)
Diluted $(1.07) $(0.81) $(2.33) $(1.10)
Income (loss)
per share from
discontinued
operations
Basic $- $(0.00) $(0.01) $(0.02)
Diluted $- $(0.00) $(0.01) $(0.02)
Net loss per share
Basic $(1.07) $(0.81) $(2.34) $(1.12)
Diluted $(1.07) $(0.81) $(2.34) $(1.12)
Dividends per
common share $- $- $- $0.15
SOURCE First Federal of Northern Michigan Bancorp, Inc.
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