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First Federal of Northern Michigan Banco Reports Operating Results (10-Q)

May 15, 2009 | About:

First Federal of Northern Michigan Banco (FFNM) filed Quarterly Report for the period ended 2009-03-31.

Alpena Bancshares is the parent corporation for First Federal of Northern Michigan a federally-chartered savings bank headquartered in Alpena Michigan. Their deposits are insured by the Federal Deposit Insurance Corporation. They operate nine full-service offices in their market area of Northern Michigan. First Federal of Northern Michigan Banco has a market cap of $5 million; its shares were traded at around $1.75 with and P/S ratio of 0.3.

Highlight of Business Operations:

Total assets increased by $2.1 million, or 1.0%, from $247.7 million as of December 31, 2008 to $249.8 million as of March 31, 2009. Investment securities available for sale increased by $3.7 million and net loans receivable decreased $628,000 during this time period. Total deposits decreased $1.4 million from December 31, 2008 to March 31, 2009 while Federal Home Loan Bank advances increased by $4.2 million and equity increased by $131,000.

ASSETS: Total assets increased $2.1 million, or 1.0%, to $249.8 million at March 31, 2009 from $247.7 million at December 31, 2008. Investment securities available for sale increased $3.7 million, or 14.4% from December 31, 2008 to March 31, 2009 as the Company employed a leveraging strategy. Net loans receivable decreased $628,000, or 0.3%, to $191.6 million at March 31, 2009 from $192.3 million at December 31, 2008. The decrease in net loans was attributable primarily to the payoff of mortgage and consumer loans, as market mortgage rates decreased, causing many loans to refinance. A majority of originated mortgage loans were sold into the secondary market. Mortgage loans held for sale increased from $107,000 at December 31, 2008 to $1.4 million due to increased secondary market activity in the first three months of 2009 coupled with the timing of the closing of sold loans and the subsequent delivery of those loans to our secondary market investor.

LIABILITIES: Deposits decreased $1.4 million, or 1.0%, to $164.4 million at March 31, 2009 from $165.8 million at December 31, 2008. The decrease was primarily in certificate of deposit balances, reflecting continued competition for deposits and increased pressure on market deposit rates. REPO Sweep accounts decreased $1.9 million to $7.6 million at March 31, 2009 from $9.4 million at December 31, 2008 due to the closure of a few accounts and to an overall reduction in balances of the remaining accounts as our commercial customers used their cash balances to fund their working capital needs. Total FHLB advances increased $4.2 million to $44.4 million at March 31, 2009 to fund both the decrease in deposits and the increase in investment securities.

Interest Income: Interest income was $3.3 million for the three months ended March 31, 2009, compared to $3.6 million for the comparable period in 2008. The average balance of interest earning assets increased by $900,000 from $232.2 million for the three months ended March 31, 2008 to $233.1 million for the three months ended March 31, 2009 and the average yield on interest earning assets decreased over that same time period from 6.19% to 5.68%. This yield decrease was primarily attributable to a 200 basis point reduction in the prime rate from March 31, 2008 to March 31, 2009 and a corresponding decrease in market rates on commercial loans. In addition, our non-performing assets increased by $3.4 million from March 31, 2008 to March 31, 2009. While the yield on our mortgage loan portfolio remained relatively stable for the quarter ended March 31, 2009 compared to the same period in March 2008, the average balance of our mortgage loan portfolio decreased by $6 million to $90.8 million during that time period. The average balance of our non-mortgage loan portfolio increased $1.9 million to $106.9 million for the three months ended March 31, 2009, while the yield on these assets decreased to 5.65% from 6.63% period over period.

Net Interest Income: Net interest income increased slightly to $1.8 million for the three-month period ended March 31, 2009 from $1.7 million for the same period in 2008. For the three months ended March 31, 2009, average interest-earning assets increased $900,000, or 0.3%, to $233.1 million when compared to the same period in 2008. Average interest-bearing liabilities increased $1.2 million, or 0.5%, to $205.0 million for the quarter ended March 31, 2009 from $203.8 million for the quarter ended March 31, 2008. The yield on average interest-earning assets decreased to 5.68% for the three month period ended March 31, 2009 from 6.19% for the same period ended in 2008. In addition, the cost of average interest-bearing liabilities decreased to 2.94% from 3.66% for the three month periods ended March 31, 2009 and 2008, respectively. Our interest rate spread increased by 21 basis points to 2.74% while our net interest margin increased by 12 basis points to 3.10% for the three month period ended March 31, 2009 from 2.98% for same period in 2008.

The Company intends to retain for its portfolio certain originated residential mortgage loans (primarily adjustable rate and shorter term fixed rate mortgage loans) and to generally sell the remainder in the secondary market. The Bank will from time to time participate in or originate commercial real estate loans, including real estate development loans. During the three month period ended March 31, 2009, the Company originated $37.9 million in residential mortgage loans, of which $1.9 million were retained in portfolio while the remainder were sold in the secondary market or are being held for sale. This compares to $6.4 million in originations during the first three months of 2008 of which $3.1 million were retained in portfolio. The Company also originated $7.1 million of commercial loans and $1.0 million of consumer loans in the first three months of 2009 compared to $4.8 million of commercial loans and $1.4 million of consumer loans for the same period in 2008. Of total loans receivable, excluding loans held for sale, mortgage loans comprised 44.8% and 47.9%, commercial loans 42.8% and 38.5% and consumer loans 12.4% and 13.6% at March 31, 2009 and March 31, 2008, respectively.

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