FOR IMMEDIATE RELEASE
November 6, 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 THIRD QUARTER 2007 EARNINGS
Alpena, Michigan - (November 6, 2007) First Federal of Northern Michigan
Bancorp, Inc. (Nasdaq: FFNM) (the "Company") reported a consolidated net loss of
$68,000, or $0.03 per basic and diluted share, for the quarter ended September
30, 2007 compared to consolidated net earnings of $326,000, or $0.11 per basic
and diluted share, for the quarter ended September 30, 2006. The major factor
impacting the net loss for the three months ended September 30, 2007 was a
$282,000 pre-tax loss on trading activities related to the Company's early
adoption of FAS 159. As of September 30, 2007 the Company no longer has any
assets or liabilities recorded at fair value. The Company has no plans in the
near future to record any assets or liabilities at fair value.
Consolidated net earnings for the nine months ended September 30, 2007 were
$97,000, or $0.02 per basic and diluted share, compared to net earnings of
$636,000, or $0.21 per basic and diluted share, for the nine months ended
September 30, 2006.
In calculating diluted earnings per share for the three and nine month periods
ended September 30, 2007, 37,920 options were not included in the calculation,
as the strike price of those options exceeded the average price per share of the
Company's stock for the respective periods.
Earnings-per-share was calculated based on weighted average outstanding shares
of 2,884,010 and 2,938,665 for the three and nine month periods ended September
30, 2007, respectively and 3,039,173 and 3,097,204 for the three and nine month
periods ended September 30, 2006, respectively.
Financial Condition
Total assets of the Company at September 30, 2007 were $262.5 million, a
decrease of $18.4 million, or 6.6%, over assets of $281.0 million at December
31, 2006. The ratio of total nonperforming assets to total assets was 2.15% at
September 30, 2007 compared to 1.59% at December 31, 2006.
Stockholders' equity decreased to $33.9 million at September 30, 2007 from $35.5
million at December 31, 2006, a decline of $1.6 million. Dividends were $144,000
and $438,000 for the three and nine months ended September 30, 2007,
respectively. Also impacting the decrease in stockholders' equity from December
31, 2006 to September 30, 2007 was the Company's repurchase of 151,750 shares of
its common stock at a total cost of $1,398,558, in connection with its stock
repurchase program which was announced and commenced in March 2007. As mentioned
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in previous quarters, 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 $23,000 at
September 30, 2007 as compared to $264,000 at December 31, 2006, an improvement
of $241,000. 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 September
30, 2007 from $4.6 million for the three months ended September 30, 2006.
Interest income for the nine months ended September 30, 2007 decreased to $12.3
million from $12.8 million for the nine months ended September 30, 2006. The
decrease in interest income was due primarily to the collection, during the
three months ended September 31, 2006, of a large commercial non-accrual loan
relationship which resulted in an additional $279,000 in interest income for
that quarter.
Interest expense decreased to $2.1 million for the three months ended September
30, 2007 from $2.3 million for the three months ended September 30, 2006.
Interest expense for the nine months ended September 30, 2007 increased to $6.4
million from $6.2 million for the nine months ended September 30, 2006. The 3.2%
increase in interest expense nine month period over nine month period was
primarily attributable to an increased cost of funds on certificates of deposit
for the period ended September 30, 2007 compared to September 30, 2006. The cost
of certificates of deposit increased from 3.88% for the nine-month period ended
September 30, 2006 to 4.51% for the same period ended September 30, 2007,
reflecting higher market rates. The effect of the increase in cost of deposits
was partially offset by the decline in the average balances of certificates of
deposit of $11.2 million period over period as non-relationship customers took
certificate of deposit dollars to institutions paying higher deposit rates.
The provisions for loan losses for the three and nine month periods ended
September 30, 2007 were $111,000 and $310,000, respectively, as compared to
$216,000 and $419,000 for the prior year period. During the quarter ended
September 30, 2006, the Company had increased its reserves on certain commercial
and mortgage loans based on deterioration of those credits during the quarter,
which accounted for the higher provision for the three and nine month periods
ended September 30, 2006 as compared to 2007.
Non interest income decreased from $1.1 million for the three months ended
September 30, 2006 to $740,000 for the three months ended September 30, 2007.
The primary reason for this decrease was a $282,000 loss on trading activities
related to FHLB advances. Non interest income decreased from $3.3 million for
the nine months ended September 30, 2006 to $2.9 million for the nine months
ended September 30, 2007. The primary reasons for the decrease nine month period
over nine month period were decreases of $151,000 in service charges and other
fees, $116,000 in loss on trading activities related mainly to FHLB advances,
and a $176,000 decrease in insurance and brokerage commissions period over
period.
Non interest expense increased from $2.7 million for the three months ended
September 30, 2006 to $2.9 million for the three months ended September 30,
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2007. The increase was primarily due to increases of $42,000 in compensation and
employee benefits, $10,000 in advertising, $31,000 in occupancy and $38,000 in
professional services expenses partially offset by a decrease of $20,000 in
service bureau expenses. Non interest expense was $8.5 million for both the nine
month periods ended September 30, 2007 and September 30, 2006. There were no
notable differences in expense structure nine month period over nine month
period.
Following a management evaluation of the Company's operations from both a
financial and customer service perspective, the Board of Directors approved the
closure of the Company's branch office in Mancelona, Michigan effective February
1, 2008. The branch accounts for about 2.6% of the Company's deposits.
Management believes that a majority of the deposits will not be retained by the
Company, and has factored this into its analysis. The Company owns and intends
to sell this branch facility. Management believes the costs to exit this market
will not exceed $25,000.
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.
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First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries
Consolidated Balance Sheet
September 30, 2007 December 31, 2006
------------------ -----------------
(Unaudited)
ASSETS
Cash and cash equivalents:
Cash on hand and due from banks ................................................ $ 2,585,836 $ 4,159,833
Overnight deposits with FHLB ................................................... 600,330 832,968
------------ ------------
Total cash and cash equivalents ................................................ 3,186,166 4,992,801
Securities AFS ................................................................ 27,767,690 43,100,430
Securities HTM ................................................................. 2,795,000 1,750,000
Loans held for sale ............................................................ - 72,000
Loans receivable, net of allowance for loan losses of $2,197,253 and
$2,079,069 as of September 30, 2007 and December 31, 2006, respectively 207,542,822 209,518,068
Foreclosed real estate and other repossessed assets ............................ 1,055,750 475,312
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 ......................................................... 7,797,019 8,075,238
Accrued interest receivable .................................................... 2,044,334 2,138,667
Intangible assets .............................................................. 2,218,738 2,589,463
Goodwill ....................................................................... 1,396,854 1,396,854
Other assets ................................................................... 2,386,836 2,517,548
------------- ------------
Total assets ................................................................... $ 262,523,652 $ 280,958,824
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits ....................................................................... $ 166,590,112 $ 177,057,993
Advances from borrowers for taxes and insurance ................................ 92,384 44,389
Federal Home Loan Bank advances and Note Payable ............................... 60,068,395 66,042,134
Accrued expenses and other liabilities ......................................... 1,945,190 2,361,573
------------- ------------
Total liabilities .............................................................. 228,696,081 245,506,089
Stockholders' equity:
Common stock ($0.01 par value 20,000,000 shares authorized
3,191,999 and 3,190,999 shares issued, respectively).................... 31,920 31,910
Additional paid-in capital ..................................................... 24,313,129 24,261,737
Retained earnings ............................................................. 13,901,485 14,576,468
Treasury stock at cost (307,750 and 156,000 shares, respectively)..... (2,963,918) (1,565,359)
Unallocated ESOP ............................................................... (986,560) (1,059,130)
Unearned compensation .......................................................... (445,477) (528,987)
Accumulated other comprehensive loss............................... (23,008) (263,904)
------------- ------------
Total stockholders' equity ..................................................... 33,827,571 35,452,735
------------- ------------
Total liabilities and stockholders' equity ..................................... $ 262,523,652 $ 280,958,824
============= =============
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First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries
Consolidated Statement of Income
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
---------------------------- ---------------------------
2007 2006 2007 2006
---------------------------- ---------------------------
(Unaudited) (Unaudited)
Interest income:
Interest and fees on loans .................................. $ 3,709,722 $ 4,045,724 $10,896,898 $11,070,141
Interest and dividends on investments .................... 416,676 508,482 1,363,039 1,617,813
Interest on mortgage-backed securities ................... 13,395 48,621 82,730 156,610
----------- ----------- ---------- ----------
Total interest income ........................................ 4,139,793 4,602,827 12,342,667 12,844,564
----------- ----------- ---------- ----------
Interest expense:
Interest on deposits .......................................... 1,391,569 1,426,972 4,200,920 3,993,494
Interest on borrowings ....................................... 708,554 826,375 2,247,734 2,252,832
----------- ----------- ---------- ----------
Total interest expense ....................................... 2,100,123 2,253,347 6,448,654 6,246,326
----------- ----------- ---------- ----------
Net interest income .......................................... 2,039,670 2,349,480 5,894,013 6,598,238
Provision for loan losses .................................... 110,957 216,357 309,937 418,857
----------- ----------- ---------- ----------
Net interest income after provision for loan losses ..... 1,928,713 2,133,123 5,584,076 6,179,381
----------- ----------- ---------- ----------
Non Interest income:
Service charges and other fees ............................. 236,870 280,096 649,844 801,226
Mortgage banking activities ................................. 77,673 72,779 277,104 239,172
Loss on sale of available-for-sale investments .......... - - - (43,565)
Net loss on sale of premises and equipment,
real estate owned and other repossessed assets ................... (6,691) (6,971) (19,109) (2,965)
Other ........................................................... 12,756 32,863 38,094 79,791
Net loss on trading activities .............................. (282,354) - (115,554) -
Insurance & brokerage commissions ....................... 701,520 712,119 2,043,519 2,219,190
----------- ----------- ---------- ----------
Total other income ........................................... 739,774 1,090,886 2,873,898 3,292,849
----------- ----------- ---------- ----------
Non interest expenses:
Compensation and employee benefits ...................... 1,560,340 1,518,219 4,651,267 4,677,125
SAIF insurance premiums .................................... 5,070 5,877 15,936 18,330
Advertising .................................................... 75,301 64,924 160,623 197,636
Occupancy ........................................................... 358,052 326,637 1,101,993 1,028,724
Amortization of intangible assets ................................... 122,531 124,881 370,725 374,642
Service bureau charges .............................................. 73,593 93,970 237,178 271,842
Insurance & brokerage commission expense ........................... 245,193 252,757 719,391 799,997
Professional services ............................................... 76,537 38,134 247,443 198,552
Other .............................................................. 335,954 309,680 948,952 949,054
----------- ----------- ---------- ----------
Other expenses ............................................... 2,852,571 2,735,079 8,453,508 8,515,902
----------- ----------- ---------- ----------
Income before income tax expense ......................... (184,084) 488,930 4,466 956,328
Income tax (benefit) expense ............................... (85,614) 163,275 (62,464) 319,955
----------- ----------- ---------- ----------
Net income ..................................................... $ (98,470) $ 325,655 $ 66,930 $ 636,373
=========== =========== ========== ==========
Per share data:
Basic earnings per share .................................... $ (0.03) $ 0.11 $ 0.02 $ 0.21
Weighted average number of shares outstanding ......... 2,884,010 3,039,173 2,938,665 3,097,204
Diluted earnings per share .................................. $ (0.03) $ 0.11 $ 0.02 $ 0.21
Weighted average number of shares outstanding,
including dilutive stock options .......................... 2,921,131 3,040,130 2,976,264 3,098,168
Dividends per common share ................................ $ 0.05 $ 0.05 $ 0.15 $ 0.15
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