FOR IMMEDIATE RELEASE
October 31, 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 THIRD QUARTER EARNINGS
Alpena, Michigan - (October 31, 2008) First Federal of Northern Michigan
Bancorp, Inc. (Nasdaq: FFNM) (the "Company") reported a consolidated net loss of
$635,000, or $0.22 per basic and diluted share, for the quarter ended September
30, 2008 compared to a consolidated net loss of $25,000, or $0.01 per basic and
diluted share, for the quarter ended September 30, 2007.
The consolidated net loss for the nine months ended September 30, 2008 was
$917,000, or $0.32 per basic and diluted share, compared to $239,000, or $0.08
per basic and diluted share, for the nine months ended September 30, 2007.
Michael W. Mahler, President and Chief Executive Officer of the Company,
commented "Our major issue this past quarter was the continued deterioration of
a large commercial credit. We were conservative in our investment portfolio and
therefore did not experience the losses on Freddie and Fannie preferred stock,
Sub Prime/Alt A mortgage-backed securities, auction rate securities or Trust
Preferred securities that many of our competitors experienced. We recorded
substantial growth in deposits this past quarter as depositors became less
concerned about rate and more concerned about the safety of their deposits. We
believe this is a unique opportunity for us to leverage our capital and seek
ways to increase earnings."
Selected Financial Ratios
For the Three Months Ended September 30
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2008 2007
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Performance Ratios:
Net interest margin 2.91% 3.32%
Average interest rate spread 2.50% 2.86%
Return on average assets* -1.02% -0.04%
Return on average equity* -7.81% -0.28%
* Annualized
As of
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September 30, 2008 December 31, 2007
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Asset Quality Ratios
Non-performing assets to total assets 3.88% 4.15%
Non-performing loans to total loans 4.21% 4.54%
Allowance for loan losses to non-performing assets 28.36% 38.53%
Allowance for loan losses to total loans 1.42% 1.95%
Financial Condition
Total assets of the Company at September 30, 2008 were $254.2 million, an
increase of $3.4 million, or 1.4%, over assets of $250.8 million at December 31,
2007. The ratio of total nonperforming assets to total assets was 3.88% at
September 30, 2008 compared to 4.15% at December 31, 2007. Non-performing assets
decreased by $552,000 from December 31, 2007 to September 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, partially offset by additions to
our non-performing assets during the nine month period. The Company continues to
pursue options to reduce the level of non-performing assets.
Stockholders' equity decreased by $1.2 million from $32.5 million at December
31, 2007 to $31.3 million at September 30, 2008. The decrease in equity was
attributable primary to the net loss for the nine month period of $917,000 and
dividends of $433,000.
Results of Operations
Interest income decreased to $3.5 million for the three months ended September
30, 2008 from $4.1 million for the year earlier period. Interest income
decreased by $1.7 million to $10.6 million for the nine-month period ended
September 30, 2008 from $12.3 million for the same period in 2007. The decreases
in interest income were due primarily to two factors: a decrease in the average
balance of our interest-earning assets due to reductions in the size of our loan
portfolio and a decrease in the yield on interest-earning assets due in part to
lower market interest rates.
Interest expense decreased to $1.8 million for the three months ended September
30, 2008 from $2.1 million for the three months ended September 30, 2007.
Interest expense for the nine months ended September 30, 2008 decreased to $5.5
million from $6.4 million for the nine months ended September 30, 2007. The
decrease in interest expense for the three- and nine-month periods was due
primarily to decreases in the average balance of and interest rates on our
Federal Home Loan Bank Advances period over period as well as a decrease in our
cost of funds related to higher-costing certificates of deposits which matured
and re-priced lower.
The Company's net interest margin decreased to 2.91% for the three-month period
ended September 30, 2008 from 3.32% for the same period in 2007. During this
time period, the average yield on interest-earning assets decreased 77 basis
points to 5.92% from 6.69%, while the cost of funds decreased 41 basis points to
3.42% from 3.83%. For the nine-month period ended September 30, 2008, the
interest rate spread decreased to 2.51% from 2.68% for the same period in 2007.
During this time period, the average yield on interest-earning assets decreased
52 basis points to 6.03% from 6.55%, while the cost of funds decreased 34 basis
points to 3.53% from 3.87%.
The provision for loan losses for the three-month period ended September 30,
2008 was $875,000, as compared to $111,000 for the prior year period. For the
nine-month period ended September 30, 2008, the provision for loan losses was
$1.2 million as compared to $310,000 for the same period ended September 30,
2007. The increase in provision for both the three- and nine-month periods
related primarily to an additional provision for a large commercial relationship
that continued to deteriorate. 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 $1.0 million for the three months ended
September 30, 2007 to $652,000 for the three months ended September 30, 2008.
Non interest income decreased from $2.9 million for the nine months ended
September 30, 2007 to $2.5 million for the nine months ended September 30, 2008.
The decreases for both the three- and nine-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 and other fees and mortgage banking
activities income.
Non interest expense decreased from $3.0 million for the three months ended
September 30, 2007 to $2.4 million for the three months ended September 30,
2008. Non interest expense decreased from $8.9 million for the nine months ended
September 30, 2007 to $7.7 million for the nine months ended September 30, 2008.
The decreases period over period were mainly the result of prepayment penalties
of $293,000 paid on FHLB advances during the nine months ended September 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
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September 30, 2008 December 31, 2007
(Unaudited)
ASSETS
Cash and cash equivalents:
Cash on hand and due from banks ......................................................... $ 4,165,050 $ 3,567,858
Overnight deposits with FHLB ............................................................ 7,117,803 1,772,999
Total cash and cash equivalents ......................................................... 11,282,853 5,340,857
Securities AFS ......................................................................... 24,218,210 20,680,913
Securities HTM .......................................................................... 4,074,502 2,770,000
Loans held for sale ..................................................................... 367,722 -
Loans receivable, net of allowance for loan losses of $2,791,922 and
$4,013,454 as of September 30, 2008 and December 31, 2007, respectively ........ 194,495,330 201,333,427
Foreclosed real estate and other repossessed assets ..................................... 1,537,310 1,279,543
Federal Home Loan Bank stock, at cost ................................................... 4,196,900 4,196,900
Premises and equipment .................................................................. 7,230,339 7,619,016
Accrued interest receivable ............................................................. 1,586,094 1,699,706
Intangible assets ....................................................................... 1,495,145 2,093,735
Goodwill ................................................................................ 1,408,604 1,396,854
Other assets ............................................................................ 2,349,197 2,420,340
Total assets ............................................................................ $254,242,206 $ 250,831,292
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits ................................................................................ $ 176,349,954 $ 164,469,673
Advances from borrowers for taxes and insurance ......................................... 166,092 729
Federal Home Loan Bank advances and Note Payable ........................................ 45,968,651 52,683,795
Accrued expenses and other liabilities .................................................. 410,405 1,173,550
Total liabilities ....................................................................... 222,895,102 218,327,747
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 .............................................................. 24,377,322 24,327,466
Retained earnings ...................................................................... 11,066,347 12,416,364
Treasury stock at cost (307,750 shares).................................................. (2,963,918) (2,963,918)
Unallocated ESOP ........................................................................ (883,291) (958,651)
Unearned compensation ................................................................... (317,486) (414,549)
Accumulated other comprehensive income................................................... 36,210 64,913
Total stockholders' equity .............................................................. 31,347,104 32,503,545
Total liabilities and stockholders' equity .............................................. $ 254,242,206 $ 250,831,292
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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,
2008 2007 2008 2007
(Unaudited) (Unaudited)
Interest income:
Interest and fees on loans ...................................... 3,156,924 3,709,722 $ 9,575,347 $ 10,896,898
Interest and dividends on investments ........................... 248,386 416,676 764,630 1,350,677
Interest on mortgage-backed securities .......................... 119,501 13,395 265,793 79,922
Total interest income ........................................... 3,524,811 4,139,793 10,605,770 12,327,497
Interest expense:
Interest on deposits ............................................ 1,275,690 1,391,569 3,811,954 4,200,920
Interest on borrowings .......................................... 532,247 708,554 1,653,578 2,247,734
Total interest expense .......................................... 1,807,937 2,100,123 5,465,532 6,448,654
Net interest income ............................................. 1,716,874 2,039,670 5,140,238 5,878,843
Provision for loan losses ....................................... 875,431 110,957 1,242,665 309,937
Net interest income after provision for loan losses ............ 841,443 1,928,713 3,897,573 5,568,906
Non Interest income:
Service charges and other fees .................................. 245,162 236,870 708,447 649,844
Mortgage banking activities ..................................... 85,665 77,673 316,382 277,104
(Loss) gain on sale of available-for-sale investments ......... - - 16,052 (96,655)
Net gain (loss) on sale of premises and equipment,
real estate owned and other repossessed assets ................ 5,403 (6,691) 28,497 (19,109)
Other ........................................................... 18,076 12,756 67,358 38,094
Insurance & Brokerage Commissions .............................. 298,059 701,520 1,315,255 2,043,519
Total non interest income ....................................... 652,365 1,022,127 2,451,991 2,892,797
Non interest expenses:
Compensation and employee benefits .............................. 1,411,486 1,560,340 4,321,082 4,651,267
SAIF Insurance Premiums ......................................... 33,443 5,070 85,238 15,936
Advertising ..................................................... 47,714 75,302 128,860 160,623
Occupancy ....................................................... 330,703 358,052 1,053,770 1,101,993
Amortization of intangible assets ............................... 100,162 122,531 325,327 370,725
Service Bureau Charges .......................................... 72,432 73,593 240,518 237,178
Insurance & Brokerage Commission Expense ........................ (1,169) 245,193 309,874 719,391
Professional Services ........................................... 112,423 76,537 313,789 247,443
Other .......................................................... 341,162 507,308 950,604 1,413,192
Total non interest expenses ..................................... 2,448,355 3,023,925 7,729,062 8,917,748
Loss before income tax benefit .................................. (954,548) (73,084) (1,379,498) (456,045)
Income tax benefit .............................................. (319,814 (48,428 (462,118 (216,753)
Net loss ........................................................ $ (634,734) $ (24,656) $ (917,380) $(239,292)
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Per share data:
Basic loss per share ............................................ $ (0.22) $ (0.01) $ (0.32) $ (0.08)
Weighted average number of shares outstanding ................ 2,884,249 2,884,010 2,884,249 2,938,665
Diluted loss per share .......................................... $ (0.22) $ (0.01) $ (0.32) $ (0.08)
Weighted average number of shares outstanding,
including dilutive stock options .............................. 2,884,249 2,884,010 2,884,249 2,938,665
Dividends per common share ...................................... $ 0.05 $ 0.05 $ 0.15 $ 0.15
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