FOR IMMEDIATE RELEASE
July 27, 2007
Contact: Martin A. Thomson
Chief Executive Officer
First Federal of Northern Michigan Bancorp, Inc.
(989) 356-9041
FIRST FEDERAL OF NORTHERN MICHIGAN BANCORP, INC.
ANNOUNCES SECOND QUARTER 2007 EARNINGS
Alpena, Michigan - (July 27, 2007) First Federal of Northern Michigan Bancorp,
Inc. (Nasdaq: FFNM) (the "Company") reported consolidated net income of
$142,000, or $0.05 per basic and diluted share, for the quarter ended June 30,
2007, compared to net income of $99,000, or $0.03 per basic and diluted share,
for the quarter ended June 30, 2006. Earnings-per-share was calculated based on
weighted average outstanding shares of 2,900,329 and 3,136,545 for the periods
ended June 30, 2007 and 2006, respectively.
Consolidated net earnings for the six months ended June 30, 2007 were $165,000,
or $0.06 per basic and diluted share, compared to $311,000, or $0.10 per basic
and diluted share, for the six months ended June 30, 2006.
Financial Condition
Total assets of the Company at June 30, 2007 were $264.1 million, a decrease of
$16.8 million, or 5.99%, over assets of $281.0 million at December 31, 2006. The
ratio of total nonperforming assets to total assets was 2.04% at June 30, 2007
compared to 1.59% at December 31, 2006.
Stockholders' equity decreased to $33.9 million at June 30, 2007 from $35.5
million at December 31, 2006, a decline of $1.6 million. During the three months
ended June 30, 2007, the Company repurchased 113,150 shares of its common stock
at a total cost of $1,040,073, concluding its stock repurchase program which was
announced and commenced in March, 2007. As a result of this program, the Company
repurchased a total of 151,750 shares at a total cost of $1,398,558. Dividends
were $144,000 and $295,000 for the three and six months ended June 30, 2007,
respectively. As mentioned in the previous quarter, the Company chose to
restructure its balance sheet through an early adoption of FAS 159, resulting in
a $461,000 one-time cumulative-effect adjustment to retained earnings during the
quarter ended March 31, 2007. The unrealized loss on available for sale
securities, net of tax, was $146,000 at June 30, 2007 as compared to $264,000 at
December 31, 2006, an improvement of $118,000. The cumulative loss in value on
securities was due to changes in interest rates and was not considered by
management to be other than temporary.
Results of Operations
Interest income decreased to $4.1 million for the three months ended June 30,
2007 from $4.2 million for the year earlier period, due mainly to a decrease of
$20.4 million in the average balance of interest-earnings assets to $248.1
million for the three month period ended June 30, 2007 from $268.5 million for
the three month period ended June 30, 2006. This was partially offset by an
increase in the yield on interest earning assets of 28 basis points to 6.56%
three month period over three month period. Interest income was $8.2 million for
both the six months ended June 30, 2007 and 2006. Interest income remained
stable six month period over six month period, despite a decrease in the average
balance of interest-earning assets of $12.9 million to $253.9 million from the
six month period ended June 30, 2006 to the six month period ended June 30,
2007. This was attributable to an increase in yield on interest earning assets
of 29 basis points to 6.49% six month period over six month period. Notably, the
yield on mortgage loans increased 10 basis points six month period over six
month period to 6.19% over an average balance of $103.2 million while the yield
on investment securities increased 53 basis points to 4.51% over an average
balance of $35.3 million.
Interest expense increased to $2.1 million for the three months ended June 30,
2007 from $2.0 million for the three months ended June 30, 2006. Interest
expense for the six months ended June 30, 2007 increased to $4.3 million from
$4.0 million for the six months ended June 30, 2006. The increase in interest
expense for both the three and six month periods was due primarily to an
increase in the cost of our certificates of deposits. The cost of these deposits
increased from 3.94% from the three months ended June 30, 2006 to 4.50% for the
three months ended June 30, 2007 and increased from 3.82% for the six months
ended June 30, 2006 to 4.51% for the six months ended June 30, 2007, as lower
costing deposits matured and were re-priced at a higher rate, reflecting
continued upward market pressure on deposit rates. In addition, the cost of our
FHLB advances increased 3 basis points from 4.88% for the three months ended
June 30, 2006 to 4.91% for the three months ended June 30, 2007. The cost of
these advances increased 20 basis points from 4.80% for the six months ended
June 30, 2006 to 5.00% for the six months ended June 30, 2007.
The Company's net interest margin for the three months ended June 30, 2007 was
3.15% as compared to 3.18% for the three months ended June 30, 2006. The
Company's interest rate spread decreased to 2.69% for the three months ended
June 30, 2007 from 2.76% for the three months ended June 30, 2006. The Company's
net interest margin for the six months ended June 30, 2007 was 3.05% as compared
to 3.20% for the six months ended June 30, 2006. The Company's interest rate
spread decreased to 2.60% for the six month ended June 30 2007, from 2.80% for
the six months ended June 30, 2006.
The provision for loan losses for the three and six month periods ended June 30,
2007 was $113,000 and $199,000, respectively, as compared to $133,000 and
$202,000 for the prior year period. Although the provision for loan loss was
moderately lower in the quarter ended June 30, 2007 than in the year earlier
period, the Company does continue to experience a high level of classified
assets due to the current somewhat weak economic conditions in the northern
Michigan market as well as declining real estate values. Classified assets are
monitored quarterly and the loan loss reserve is adjusted as needed to reflect
any changes in the status of classified assets.
Non interest income increased from $1.1 million for the three months ended June
30, 2006 to $1.2 million for the three months ended June 30, 2007, primarily due
to the gain on trading activities associated with our early adoption of FAS 159,
partially offset by decreases in insurance brokerage income and service charges
and other fees. Non interest income decreased from $2.2 million for the six
months ended June 30, 2006 to $2.1 million for the six months ended June 30,
2007. The decrease was primarily in the areas of insurance brokerage commission
and service charges and other fees, offset by a gain on trading activities
during the six months ended June 30, 2007.
Non interest expense decreased from $2.9 million for the three months ended June
30, 2006 to $2.8 million for the three months ended June 30, 2007 and decreased
from $5.8 million for the six months ended June 30, 2006 to $5.6 million for the
six months ended June 30, 2007. The decreases period over period were mainly the
result of a reduction in compensation and benefit expenses due to the closure
last year of one of our under-performing branches and other cost-cutting
measures, as well as a reduction in insurance brokerage commission expense.
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
June 30, 2007 December 31, 2006
--------------- ------------------
(Unaudited)
ASSETS Cash and cash equivalents:
Cash on hand and due from banks $ 3,224,509 $ 4,159,833
Overnight deposits with FHLB 1,224,152 832,968
---------------- -------------------
Total cash and cash equivalents 4,448,661 4,992,801
Securities AFS 31,650,387 43,100,430
Securities HTM 2,795,000 1,750,000
Loans held for sale 226,447 72,000
Loans receivable, net of allowance for loan losses of $2,201,398 and
$2,079,069 as of June 30, 2007 and December 31, 2006, respectively 204,346,405 209,518,068
Foreclosed real estate and other repossessed assets 561,173 475,312
Real estate held for investment 135,543 135,543
Federal Home Loan Bank stock, at cost 4,196,900 4,196,900
Premises and equipment 7,912,082 8,075,238
Accrued interest receivable 1,814,880 2,138,667
Intangible assets 2,341,269 2,589,463
Goodwill 1,396,854 1,396,854
Other assets 2,292,532 2,517,548
--------------- -------------------
Total assets $ 264,118,133 $ 280,958,824
=============== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $ 169,520,641 $ 177,057,993
Advances from borrowers for taxes and insurance 343,473 44,389
Federal Home Loan Bank advances and Note Payable 48,688,395 66,042,134
Borrowings at fair value 9,889,000 -
Accrued expenses and other liabilities 1,794,055 2,361,573
--------------- -------------------
Total liabilities 230,235,564 245,506,089
--------------- -------------------
Commitments and contingencies - -
Stockholders' equity:
Common stock ($0.01 par value 20,000,000 shares authorized
3,190,999 shares issued) 31,910 31,910
Additional paid-in capital 24,293,617 24,261,737
Retained earnings 14,144,168 14,576,468
Treasury stock at cost (307,750 and 156,000 shares, respectively) (2,963,918) (1,565,359)
Unallocated ESOP (1,009,277) (1,059,130)
Unearned compensation (467,950) (528,987)
Accumulated other comprehensive loss (145,981) (263,904)
--------------- -------------------
Total stockholders' equity 33,882,569 35,452,735
--------------- -------------------
Total liabilities and stockholders' equity $ 264,118,133 $ 280,958,824
=============== ===================
First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries
Consolidated Statement of Income
For the Three Months For the Six Months
Ended June 30, Ended June 30,
----------------------------------------------------------------------
2007 2006 2007 2006
---------------- --------------- ----------------- -------------
(Unaudited) (Unaudited)
Interest income:
Interest and fees on loans $ 3,601,249 $ 3,607,804 $ 7,187,176 $ 7,024,417
Interest and dividends on investments 436,514 547,520 946,363 1,109,331
Interest on mortgage-backed securities 22,235 53,014 69,335 107,989
---------------- --------------- ----------------- ------------
Total interest income 4,059,999 4,208,338 8,202,875 8,241,737
Interest expense:
Interest on deposits 1,377,441 1,326,612 2,809,351 2,566,522
Interest on borrowings 737,095 757,110 1,539,181 1,426,457
---------------- --------------- ----------------- ------------
Total interest expense 2,114,536 2,083,722 4,348,532 3,992,979
---------------- --------------- ----------------- ------------
Net interest income 1,945,463 2,124,617 3,854,343 4,248,758
Provision for loan losses 113,351 133,000 198,980 202,500
---------------- --------------- ----------------- ------------
Net interest income after provision for loan losses 1,832,112 1,991,617 3,655,363 4,046,258
---------------- --------------- ----------------- ------------
Non Interest income:
Service charges and other fees 215,961 283,984 412,975 521,130
Mortgage banking activities 111,547 93,590 199,430 166,393
Gain (loss) on sale of available-for-sale investments - (43,565) - (43,565)
Net gain (loss) on sale of premises and equipment,
real estate owned and other repossessed assets (10,585) 1,750 (12,418) 4,006
Other 13,409 1,708 25,337 46,928
Net gain on trading activities 176,424 - 166,800 -
Insurance & Brokerage Commissions 649,179 738,417 1,341,998 1,507,071
---------------- --------------- ----------------- ------------
Total other income 1,155,934 1,075,884 2,134,123 2,201,963
Non interest expenses:
Compensation and employee benefits 1,522,100 1,614,006 3,090,927 3,158,906
SAIF Insurance Premiums 5,366 6,045 10,866 12,453
Advertising 44,803 81,623 85,321 132,712
Occupancy 376,323 332,806 743,940 702,087
Amortization of intangible assets 123,314 124,880 248,195 249,761
Service Bureau Charges 87,640 91,591 163,585 177,872
Insurance & Brokerage Commission Expense 233,398 279,133 474,198 547,240
Professional Services 90,627 75,083 170,906 160,418
Other 327,667 314,513 612,998 639,373
---------------- --------------- ----------------- ------------
Other expenses 2,811,238 2,919,681 5,600,937 5,780,823
---------------- --------------- ----------------- ------------
Income before income tax expense 176,808 147,820 188,549 467,398
Income tax (benefit) expense 35,143 49,310 23,150 156,680
---------------- --------------- ----------------- ------------
Net income $ 141,665 $ 98,510 $ 165,400 $ 310,718
================ =============== ================= ============
Per share data:
Basic earnings per share $ 0.05 $ 0.03 $ 0.06 $ 0.10
Weighted average number of shares outstanding 2,900,329 3,136,545 2,966,449 3,126,700
Diluted earnings per share $ 0.05 $ 0.03 $ 0.06 $ 0.10
Weighted average number of shares outstanding,
including dilutive stock options 2,901,056 3,137,591 2,967,219 3,127,667
Dividends per common share 0.05 0.05 0.05 0.05