Safe and Sound

First Federal of Northern Michigan

Alpena, MI
3
Star Rating
Alpena, MI-based First Federal of Northern Michigan is an FDIC-insured bank started in 1957. As of December 31, 2017, the bank held equity of $30.3 million on $320.2 million in assets.

Thanks to the work of 90 full-time employees in 8 offices in MI, the bank has amassed loans and leases worth $192.0 million, including $169.8 million worth of real estate loans. U.S. bank customers currently have $272.2 million in deposits with the bank.

Overall, Bankrate believes that, as of December 31, 2017, First Federal of Northern Michigan exhibited a generally satisfactory condition, earning 3 out of 5 stars for safety and soundness. Keep reading for an analysis of how the bank fared on the three major criteria Bankrate used to score American banks.

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THE INSTITUTION'S SCORE

Capital Score

When it comes to measuring an a bank's financial resilience, capital is key. It works as a buffer against losses and affords protection for depositors when a bank is struggling financially. When it comes to safety and soundness, more capital is better.

On our test to measure capital adequacy, First Federal of Northern Michigan received a score of 10 out of a possible 30 points, falling short of the national average of 13.13.

One important measure of this buffer is a bank's Tier 1 capital ratio. First Federal of Northern Michigan's Tier 1 capital ratio was 15.55 percent, exceeding the 6 percent level regulators consider adequate, but below the national average of 25.65 percent. The higher the capital ratio, the better the bank will be able to stand up to financial downturns.

Overall, First Federal of Northern Michigan held equity amounting to 9.46 percent of its assets, which was lower than the national average of 12.03 percent.

Asset Quality Score

Bankrate uses this test to estimate the impact of problem assets, such as past-due mortgages, on the bank's reserves set aside to cover loan losses, as well as overall capitalization.

A bank with lots of these kinds of assets could eventually be forced to use capital to absorb losses, cutting down on its equity buffer. It also means that there are likely to be many assets that are in non-accrual status and thus aren't earning interest for the bank, decreasing earnings and increasing the chances of a failure in the future.

On Bankrate's test of asset quality, First Federal of Northern Michigan scored 40 out of a possible 40 points, above the national average of 37.49 points.

A handy indicator of asset quality is the percentage of problem assets a bank holds compared to its total assets. As of December 31, 2017, 0.98 percent of First Federal of Northern Michigan's loans were noncurrent -- in other words, they were more than 90 days past due or were in non-accrual status. That's below the national average of 1.01 percent.

Banks maintain a reserve to handle troubled assets known as an "allowance for loan and lease losses." Comparing how large that reserve is to the total amount of at-risk loans can be a handy indicator when evaluating a bank's ability to manage problem assets. Unfortunately, the FDIC did not provide information on First Federal of Northern Michigan's loan loss allowance in its most recent filings.

Earnings score

How profitable a bank is affects its long-term survivability. A bank can retain its earnings, increasing its capital buffer, or put them to work addressing problematic loans, likely making the bank better able to withstand economic shocks. Losses, on the other hand, take away from a bank's ability to do those things.

First Federal of Northern Michigan underperformed the average on Bankrate's test of earnings, achieving a score of 4 out of a possible 30.

Return on equity, calculated by dividing net income (essentially, profit) by total equity, is one important way to measure a bank's earnings. First Federal of Northern Michigan's most recent annualized quarterly return on equity was 1.54 percent, below the national average of 8.10 percent.

The bank recorded net income of $472,000 on total equity of $30.3 million for the twelve months ended December 31, 2017. The bank had an annualized return on average assets, or ROA, of 0.14 percent, below the 1 percent deemed satisfactory in accordance with industry standards and below the average for U.S. banks of 1.00 percent.

WHAT IS SAFE & SOUND?

Bankrate.com's Safe & Sound Ratings provide a star rating system to evaluate the current financial status of financial institutions. The information gathered about banks, credit unions and thrifts is updated as set forth in the Terms of Use of Safe & Sound Ratings and Reports. The Safe & Sound Ratings information is grouped by categories of banks, thrifts and credit unions.

Scoring methodology

Bankrate.com evaluates the financial condition of institutions and assigns a one- to five-star rating for each with five stars representing the highest rating. Institutions with satisfactory performance will generally receive a rating of three or more stars. The majority of institutions fall into the three- to four-star range. An institution with an "NR" rating may be too new to rate or may have limited the publicly available information in their regulatory filings. The "NR" is not an indication of financial strength or weakness. The Safe & Sound rating is believed to be reliable, but the information is not guaranteed. In addition, events since the information was collected may have altered the institution's financial condition.