FOR IMMEDIATE RELEASE
August 8, 2008
Contact: Amy E. Essex
Chief Financial Officer, Treasurer & Corporate Secretary
First Federal of Northern Michigan Bancorp, Inc.
(989) 356-9041
FIRST FEDERAL OF NORTHERN MICHIGAN BANCORP, INC.
ANNOUNCES SECOND QUARTER 2008 EARNINGS
Alpena, Michigan - (August 8, 2008) First Federal of Northern Michigan Bancorp,
Inc. (Nasdaq: FFNM) (the "Company") reported a consolidated net loss of
$251,000, or $0.09 per basic and diluted share, for the quarter ended June 30,
2008 compared to a consolidated net loss of $236,000, or $0.08 per basic and
diluted share, for the quarter ended June 30, 2007.
The consolidated net loss for the six months ended June 30, 2008 was $283,000,
or $0.10 per basic and diluted share, compared to $215,000, or $0.07 per basic
and diluted share, for the six months ended June 30, 2007.
The major factors influencing the losses were our lower interest income and
higher provision for loan loss period over period, as explained below in the
"Results of Operations" section.
Michael W. Mahler, President and Chief Executive Officer of the Company,
commented "This is a tough time in banking. Our customer base in Northeast
Michigan is struggling in these economic times. We have seen substantial
declines in property values in many of our markets. We have made some tough
decisions in an effort to bolster our long-term prospects: we have closed two
underperforming bank branches in the past two years, we have hired a full-time
Chief Credit Officer with years of banking experience, and we have tightened our
loan underwriting standards. At the same time, we have ample capital that will
help buoy us through these difficult times, and we continue to look for prudent
ways to grow the Bank and increase earnings."
Selected Financial Ratios
For the Three Months Ended June 30
---------------------------------------------------
2008 2007
------------------------- ----------------------
Performance Ratios:
Net interest margin 2.93% 3.15%
Average interest rate spread 2.48% 2.70%
Return on average assets* -0.41% -0.35%
Return on average equity* -3.07% -2.71%
* Annualized
As of
---------------------------------------------------------
June 30, 2008 December 31, 2007
------------------------- ----------------------------
Asset Quality Ratios
Non-performing assets to total assets 3.57% 4.15%
Non-performing loans to total loans 3.96% 4.54%
Allowance for loan losses to non-performing assets 32.35% 38.58%
Allowance for loan losses to total loans 1.45% 1.95%
Financial Condition
Total assets of the Company at June 30, 2008 were $248.1 million, a decrease of
$2.7 million, or 1.1%, over assets of $250.8 million at December 31, 2007. The
ratio of total nonperforming assets to total assets was 3.57% at June 30, 2008
compared to 4.15% at December 31, 2007. Non-performing assets decreased by $1.6
million from December 31, 2007 to June 30, 2008 due primarily to the collection
of SBA guarantees on two commercial loans and to the partial charge-off of one
commercial real-estate loan. The Company is actively pursuing options to reduce
the level of non-performing assets.
Stockholders' equity decreased by $558,000 from $32.5 million at December 31,
2007 to $31.9 million at June 30, 2008. The decrease in equity was attributable
primary to the net loss for the six month period of $283,000, dividends of
$288,000 and an increase of $143,000 in the unrealized loss on
available-for-sale securities.
Results of Operations
Interest income decreased to $3.5 million for the three months ended June 30,
2008 from $4.1 million for the year earlier period. Interest income decreased by
$1.1 million to $7.1 million for the six-month period ended June 30, 2008 from
$8.2 million for the same period in 2007. The decreases in interest income were
due to three factors: a decrease in the average balance of our interest-earning
assets due to reductions in the size of our loan portfolio, a decrease in the
yield on interest-earning assets due in part to lower market interest rates, and
an increase in the level of our non-performing loans period over period.
Interest expense decreased to $1.8 million for the three months ended June 30,
2008 from $2.1 million for the three months ended June 30, 2007. Interest
expense for the six months ended June 30, 2008 decreased to $3.7 million from
$4.3 million for the six months ended June 30, 2007. The decrease in interest
expense for the three- and six-month periods was due primarily to a decrease in
our cost of funds related to higher-costing certificates of deposits which
matured and re-priced lower and due to lower interest rates for FHLB borrowings.
The Company's net interest margin decreased to 2.93% for the three-month period
ended June 30, 2008 from 3.15% for the same period in 2007. During this time
period, the average yield on interest-earning assets decreased 56 basis points
to 6.00% from 6.56%, while the cost of funds decreased 35 basis points to 3.51%
from 3.86%. For the six-month period ended June 30, 2008, the interest rate
spread decreased to 2.51% from 2.60% for the same period in 2007. During this
time period, the average yield on interest-earning assets decreased 39 basis
points to 6.10% from 6.49%, while the cost of funds decreased 31 basis points to
3.59% from 3.90%.
The provision for loan losses for the three-month period ended June 30, 2008 was
$342,000, as compared to $113,000 for the prior year period. For the six-month
period ended June 30, 2008, the provision for loan losses was $367,000 as
compared to $199,000 for the same period ended June 30, 2007. The increase in
provision for both the three- and six-month periods related primarily to an
additional provision for one large commercial relationship. 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 decreased from $883,000 for the three months ended June 30,
2007 to $822,000 for the three months ended June 30, 2008. Non interest income
decreased from $1.9 million for the six months ended June 30, 2007 to $1.8
million for the six months ended June 30, 2008. The decreases for both the
three- and six-month periods were primarily attributed to a decrease in
insurance brokerage commissions due to the sale in April 2008 of the exclusive
Blue Cross Blue Shield insurance contract, partially offset by increases in
service charges & other fees and mortgage banking activities income.
Non interest expense decreased from $3.1 million for the three months ended June
30, 2007 to $2.6 million for the three months ended June 30, 2008. Non interest
expense decreased from $5.8 million for the six months ended June 30, 2007 to
$5.3 million for the six months ended June 30, 2008. The decreases period over
period were mainly the result of prepayment penalties of $293,000 paid on FHLB
advances during the six months ended June 30, 2007, reductions in compensation
and benefit expenses due to the closure of one of our under-performing branches
and other cost-cutting measures, as well as a reduction in insurance brokerage
commission expense due to the sale in April 2008 of the exclusive Blue Cross
Blue Shield insurance contract.
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, 2008 December 31, 2007
-------------------- ----------------------
(Unaudited)
ASSETS
Cash and cash equivalents:
Cash on hand and due from banks.................................. $ 4,480,257 $ 3,567,858
Overnight deposits with FHLB..................................... 2,178,114 1,772,999
---------------- ----------------
Total cash and cash equivalents.................................. 6,658,371 5,340,857
Securities AFS................................................... 22,936,299 20,680,913
Securities HTM................................................... 4,076,769 2,770,000
Loans receivable, net of allowance for loan losses of -
$2,863,864 and $4,013,454 as of June 30, 2008 and
December 31, 2007, respectively ............................... 195,083,817 201,333,427
Foreclosed real estate and other repossessed assets.............. 998,229 1,279,543
Real estate held for investment.................................. - 105,543
Federal Home Loan Bank stock, at cost............................ 4,196,900 4,196,900
Premises and equipment........................................... 7,310,029 7,619,016
Accrued interest receivable...................................... 1,504,977 1,699,706
Intangible assets................................................ 1,595,307 2,093,735
Goodwill......................................................... 1,408,604 1,396,854
Other assets..................................................... 2,344,398 2,314,797
---------------- ----------------
Total assets..................................................... $ 248,113,700 $ 250,831,292
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits........................................................ $ 167,225,179 $ 164,469,673
Advances from borrowers for taxes and insurance................. 267,694 729
Federal Home Loan Bank advances and Note Payable................ 47,968,651 52,683,795
Accrued expenses and other liabilities.......................... 706,629 1,173,550
---------------- ----------------
Total liabilities............................................... 216,168,153 218,327,747
---------------- ----------------
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...................................... 24,367,111 24,327,466
Retained earnings............................................... 11,845,294 12,416,364
Treasury stock at cost (307,750 shares)......................... (2,963,918) (2,963,918)
Unallocated ESOP................................................ (908,431) (958,651)
Unearned compensation........................................... (348,648) (414,549)
Accumulated other comprehensive (loss) income................... (77,781) 64,913
--------------- ----------------
Total stockholders' equity...................................... 31,945,547 32,503,545
--------------- ----------------
Total liabilities and stockholders' equity...................... $ 248,113,700 $ 250,831,292
=============== ================
First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries
Consolidated Statement of Operations
For the Three Months For the Six Months
Ended June 30, Ended June 30,
----------------------------------- ------------------------------
2008 2007 2008 2007
------ ------ ------ ------
(Unaudited) (Unaudited)
Interest income:
Interest and fees on loans................................. $ 3,143,876 $ 3,601,249 $ 6,418,423 $ 7,187,176
Interest and dividends on investments...................... 239,668 434,649 516,245 934,001
Interest on mortgage-backed securities..................... 107,892 21,558 146,292 66,527
------------- ------------ ------------- -------------
Total interest income...................................... 3,491,436 4,057,456 7,080,960 8,187,704
------------- ------------ ------------- -------------
Interest expense:
Interest on deposits....................................... 1,241,813 1,377,441 2,536,265 2,809,351
Interest on borrowings..................................... 548,412 737,095 1,121,331 1,539,181
------------- ------------ ------------- -------------
Total interest expense..................................... 1,790,225 2,114,536 3,657,596 4,348,532
------------- ------------ ------------- -------------
Net interest income........................................ 1,701,211 1,942,921 3,423,364 3,839,172
Provision for loan losses.................................. 342,264 113,351 367,234 198,980
------------- ------------ ------------- -------------
Net interest income after provision for loan losses........ 1,358,947 1,829,570 3,056,130 3,640,192
------------- ------------ ------------- -------------
Non Interest income:
Service charges and other fees............................. 237,110 215,961 463,285 412,975
Mortgage banking activities................................ 125,912 111,547 230,718 199,431
(Loss) gain on sale of available-for-sale investments...... - (96,655) 16,052 (96,655)
Net gain (loss) on sale of premises and equipment,
real estate owned and other repossessed assets........... 25,894 (10,585) 23,093 (12,418)
Other...................................................... 26,251 13,409 49,281 25,337
Insurance & Brokerage Commissions.......................... 407,166 649,179 1,017,197 1,341,999
------------- ------------ ------------- -------------
Total non interest income.................................. 822,333 882,856 1,799,626 1,870,669
------------- ------------ ------------- -------------
Non interest expenses:
Compensation and employee benefits......................... 1,432,159 1,522,100 2,909,596 3,090,927
SAIF Insurance Premiums.................................... 32,607 5,367 51,795 10,866
Advertising................................................ 41,500 44,802 81,146 85,321
Occupancy.................................................. 377,690 376,323 723,067 743,940
Amortization of intangible assets.......................... 100,162 123,314 225,164 248,195
Service Bureau Charges..................................... 85,716 87,640 168,085 163,585
Insurance & Brokerage Commission Expense................... 87,166 233,398 311,043 474,198
Professional Services...................................... 109,018 90,627 201,366 170,906
Other ..................................................... 292,630 620,555 609,443 905,885
------------- ------------ ------------- -------------
Total non interest expenses................................ 2,558,648 3,104,126 5,280,705 5,893,823
------------- ------------ ------------- -------------
Loss before income tax benefit............................. (377,368) (391,700) (424,949) (382,962)
Income tax benefit......................................... (126,381) (155,302) (142,304) (168,325)
------------- ------------ ------------- -------------
Net loss................................................... $ (250,987) $ (236,398) $ (282,645) $ (214,637)
============= ============ ============= ============
- -----------------------------------------------------------------------------------------------------------------------------------
Per share data:
Basic loss per share....................................... $ (0.09) $ (0.08) $ (0.10) $ (0.07)
Weighted average number of shares outstanding ............. 2,884,249 2,900,329 2,884,249 2,966,449
Diluted loss per share..................................... $ (0.09) $ (0.08) $ (0.10) $ (0.07)
Weighted average number of shares outstanding,
including dilutive stock options......................... 2,884,249 2,900,329 2,884,249 2,966,449
Dividends per common share................................. $ 0.05 $ 0.05 $ 0.10 $ 0.10