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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."

Sel ected 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.

Copyright 2009 PR Newswire. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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