FOR IMMEDIATE RELEASE
March 5, 2009
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 FOURTH QUARTER 2008 EARNINGS
Alpena, Michigan - (March 5, 2009) First Federal of Northern Michigan Bancorp,
Inc. (Nasdaq: FFNM) (the "Company") reported a consolidated net loss of
$2,324,000, or $0.81 per basic and diluted share, for the quarter ended December
31, 2008, compared to a consolidated net loss of $1,361,000, or $0.47 per basic
and diluted share, for the quarter ended December 31, 2007.
The consolidated net loss for the twelve months ended December 31, 2008 was
$3,241,000, or $1.12 per basic and diluted share, compared to $1,600,000, or
$0.56 per basic and diluted share, for the twelve months ended December 31,
2007.
The main factor driving the net losses for the three- and twelve-month periods
ended December 31, 2008 was the provision for loan losses of $3.2 million and
$4.4 million for the respective periods, which were driven by weak economic
conditions in our market area.
The Company took several steps in 2008 to reduce non-interest expenses,
including closing an under-performing branch, and reducing compensation cost via
staff reductions and benefit cuts. In early 2009, the Company sold the assets of
its insurance subsidiary, which will further reduce non-interest expenses and
allow the Company to focus on core banking operations.
Michael W. Mahler, President and Chief Executive Officer of the Company,
commented "Our major issue continues to be credit quality, which is driven by
very weak economic conditions in our market area. However, while other banks
continue to report losses in their investment portfolios and impairment of
intangible assets and goodwill, these are issues not affecting us. We have been
conservative in our investment decisions and that has paid off for us in the
long run. We continue to look for ways to improve earnings. We recently
completed the sale of the insurance operations of our insurance subsidiary, the
InsuranCenter of Alpena. The sale of this business segment will result in
improved earnings going forward. In the months to come, our focus will continue
to be on improving asset quality, whether that means foreclosure, repossession
and sale of non-performing assets; assisting troubled borrowers in refinancing
with other financial institutions; or working with viable borrowers to help them
make it through these troubled times. There is no one-size-fits-all answer to
working with our troubled borrowers so credit-by-credit we are exploring all
avenues to determine which is the best route to take to return the Company to
profitability. Despite the significant provision expense which drove our loss
for the year, the Company still remains well capitalized with significant
cushion to withstand this difficult economic period."
Selected Financial Ratios
For the Twelve Months Ended December 31
----------------------------------------------------
2008 2007
------------------------ -----------------------
Performance Ratios:
Net interest margin 2.93% 3.14%
Average interest rate spread 2.51% 2.67%
Return on average assets -1.30% -0.60%
Return on average equity -10.45% -4.64%
As of
----------------------------------------------------
December 31, 2008 December 31, 2007
------------------------ -----------------------
Asset Quality Ratios:
Non-performing assets to total assets 5.57% 4.15%
Non-performing loans to total loans 6.14% 4.54%
Allowance for loan losses to non-performing assets 40.90% 38.53%
Allowance for loan losses to total loans 2.85% 1.95%
Financial Condition
Total assets of the Company at December 31, 2008 were $247.7 million, a decrease
of $3.2 million, or 1.26%, from assets of $250.8 million at December 31, 2007.
The ratio of nonperforming assets to total assets was 5.57% at December 31, 2008
compared to 4.15% at December 31, 2007. Non-performing assets increased by
$3,391,000 from December 31, 2007 to December 31, 2008.The increase in
non-performing assets included a $2.0 million increase in non-performing
commercial loans, most of which related to two large commercial relationships.
The increase in non-performing assets also included a $1.0 million increase in
non-performing residential mortgages, of which $857,000 related to one large
residential mortgage. The Company has established an aggressive plan to reduce
the level of non-performing assets in 2009 and beyond.
Stockholders' equity decreased by $3.1 million from $32.5 million at December
31, 2007 to $29.4 million at December 31, 2008. The decrease in equity was
attributable primarily to the net loss for the twelve month period of $3.2
million and dividends of $433,000. In an effort to preserve capital, in December
2008 the Company announced the suspension of its quarterly cash dividend. The
Company intends to review this decision on a quarterly basis. First Federal of
Northern Michigan's regulatory capital remains at levels in excess of regulatory
requirements, as shown in the table below.
Capital Required to be
Categorized as
Well-Capitalized Under
Actual Capital Capital Required for Capital Prompt Corrective
at December 31, 2008 Adequacy Purposes Action Provisions
----------------------------------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
----------------------------------------------------------------------------------------
(Dollars in Thousands)
December 31, 2008
Total capital (to risk-
weighted assets) $27,079 15.75% $13,757 8.00% $17,197 10.00%
Tier 1 capital (to risk-
weighted assets) $24,887 14.47% $ 6,879 4.00% $10,318 6.00%
Tangible capital (to
tangible assets) $24,887 10.31% $ 3,620 1.50% $ 4,826 2.00%
Results of Operations
Interest income decreased to $3.4 million for the three months ended December
31, 2008 from $3.9 million for the year earlier period. Interest income
decreased by $2.2 million to $14.0 million for the twelve-month period ended
December 31, 2008 from $16.2 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 $1.7 million for the three months ended December
31, 2008 from $2.0 million for the three months ended December 31, 2008.
Interest expense for the twelve months ended December 31, 2008 decreased to $7.1
million from $8.4 million for the twelve months ended December 31, 2007. The
decrease in interest expense for the three- and twelve-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 the
average balance of certificates of deposit and a decrease in the cost of funds
related to higher-costing certificates of deposits which matured and re-priced
lower.
The Company's net interest margin decreased to 2.90% for the three-month period
ended December 31, 2008 from 3.14% for the same period in 2007. During this time
period, the average yield on interest-earning assets decreased 78 basis points
to 5.70% from 6.48%, while the cost of funds decreased 63 basis points to 3.17%
from 3.80%. For the twelve-month period ended December 31, 2008, the net
interest margin decreased to 2.93% from 3.14% for the same period in 2007.
During this time period, the average yield on interest-earning assets decreased
57 basis points to 5.96% from 6.53%, while the cost of funds decreased 41 basis
points to 3.44% from 3.85%.
The provision for loan losses for the three-month period ended December 31, 2008
was $3.2 million, as compared to $2.1 million for the prior year period. For the
twelve-month period ended December 31, 2008, the provision for loan losses was
$4.4 million as compared to $2.4 million for the same period ended December 31,
2007. The increase in provision for both the three- and twelve-month periods
related primarily to additional provisions for several commercial relationships
that continued to deteriorate, and also a large provision on a residential
mortgage loan related to one of the commercial credits. The provision was based
on management's review of the components of the overall loan portfolio, the
status of non-performing loans and various other factors.
Non-interest income decreased from $1.1 million for the three months ended
December 31, 2007 to $690,000 for the three months ended December 31, 2008.
Non-interest income decreased from $4.0 million for the twelve months ended
December 31, 2007 to $3.1 million for the twelve months ended December 31, 2008.
The decrease for the three-month period was 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 as well as decreases in
service charges and other fees and mortgage banking activities income period
over period. For the twelve-month period, the decrease was also due to a
decrease period over period related to insurance brokerage commissions, but this
decrease was offset by a year-over-year increase in service charges and other
fee income and mortgage banking activities income.
Non-interest expense decreased from $3.0 million for the three months ended
December 31, 2007 to $2.7 million for the three months ended December 31, 2008.
Non-interest expense decreased from $11.9 million for the twelve months ended
December 31, 2007 to $10.4 million for the twelve months ended December 31,
2008. The decreases period over period were mainly the result of prepayment
penalties of $293,000 paid on FHLB advances during the twelve months ended
December 31, 2007, reductions in compensation and benefit expenses due to the
closure of an under-performing branch 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
- -----------------------------------------------------------------------------------------------------------------------
December 31, 2008 December 31, 2007
----------------- -----------------
(Unaudited)
ASSETS
Cash and cash equivalents:
Cash on hand and due from banks .............................................. $ 3,097,788 $ 3,567,858
Overnight deposits with FHLB ................................................. 372,523 1,772,999
----------------- -----------------
Total cash and cash equivalents .............................................. 3,470,311 5,340,857
Securities AFS .............................................................. 25,665,178 20,680,913
Securities HTM ............................................................... 4,022,235 2,770,000
Loans held for sale .......................................................... 107,000 -
Loans receivable, net of allowance for loan losses of $5,647,055 and
$4,013,454 as of December 31, 2008 and December 31, 2007, respectively...... 192,270,714 201,333,427
Foreclosed real estate and other repossessed assets .......................... 1,637,923 1,279,543
Federal Home Loan Bank stock, at cost ........................................ 4,196,900 4,196,900
Premises and equipment ....................................................... 7,089,746 7,619,016
Accrued interest receivable .................................................. 1,469,176 1,699,706
Intangible assets ............................................................ 1,394,983 2,093,735
Goodwill ..................................................................... 1,408,604 1,396,854
Other assets ................................................................. 4,939,523 2,420,340
----------------- -----------------
Total assets ................................................................. $ 247,672,293 $ 250,831,292
================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits ..................................................................... $ 165,778,598 $ 157,832,584
Advances from borrowers for taxes and insurance .............................. 104,475 729
Federal Home Loan Bank Advances .............................................. 40,200,000 51,700,000
Note Payable ................................................................. 768,651 983,795
REPO Sweep Accounts .......................................................... 9,447,415 6,637,089
Accrued expenses and other liabilities ....................................... 1,954,392 1,173,550
----------------- -----------------
Total liabilities ............................................................ 218,253,531 218,327,747
----------------- -----------------
Commitments and contingencies ................................................ - -
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 ................................................... 24,302,102 24,327,466
Retained earnings ........................................................... 8,762,412 12,416,364
Treasury stock at cost (307,750 shares)....................................... (2,963,918) (2,963,918)
Unallocated ESOP ............................................................. (764,861) (958,651)
Unearned compensation ........................................................ (286,324) (414,549)
Accumulated other comprehensive income........................................ 337,431 64,913
----------------- -----------------
Total stockholders' equity ................................................... 29,418,762 32,503,545
----------------- -----------------
Total liabilities and stockholders' equity ................................... $ 247,672,293 $ 250,831,292
================= =================
First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries
Consolidated Statement of Income
For the Three Months For the Twelve Months
Ended December 31, Ended December 31,
--------------------------- ---------------------------
2008 2007 2008 2007
----------- ----------- ----------- -----------
(Unaudited) (Unaudited)
Interest income:
Interest and fees on loans ........................................ $ 3,012,497 $ 3,559,399 $12,587,844 $14,456,297
Interest and dividends on investments ............................. 193,721 300,591 958,351 1,651,268
Interest on mortgage-backed securities ............................ 155,175 12,760 420,968 92,682
----------- ----------- ----------- -----------
Total interest income ............................................. 3,361,393 3,872,749 13,967,163 16,200,247
----------- ----------- ----------- -----------
Interest expense:
Interest on deposits .............................................. 1,085,239 1,332,039 4,897,194 5,532,959
Interest on borrowings ............................................ 579,698 665,861 2,233,276 2,913,595
----------- ----------- ----------- -----------
Total interest expense ............................................ 1,664,937 1,997,901 7,130,470 8,446,554
----------- ----------- ----------- -----------
Net interest income ............................................... 1,696,456 1,874,848 6,836,694 7,753,693
Provision for loan losses ......................................... 3,177,994 2,067,443 4,420,659 2,377,380
----------- ----------- ----------- -----------
Net interest (expense) income after provision for loan losses ..... (1,481,538) (192,595) 2,416,035 5,376,313
----------- ----------- ----------- -----------
Non-interest income:
Service charges and other fees .................................... 233,668 261,252 942,115 911,096
Mortgage banking activities ....................................... 115,369 140,901 431,752 418,005
(Loss) gain on sale of available-for-sale investments ............. (9,990) 46 6,062 (96,609)
Net gain (loss) on sale of premises and equipment,
real estate owned and other repossessed assets .................. (6,696) (21,316) 21,801 (40,425)
Other ............................................................. 29,113 25,792 96,471 63,886
Insurance & Brokerage Commissions ................................. 328,864 682,817 1,644,119 2,726,335
----------- ----------- ----------- -----------
Total non-interest income ......................................... 690,328 1,089,492 3,142,319 3,982,288
----------- ----------- ----------- -----------
Non-interest expenses:
Compensation and employee benefits ................................ 1,377,288 1,585,607 5,698,370 6,236,874
SAIF Insurance Premiums ........................................... 36,681 4,901 121,919 20,837
Advertising ....................................................... 55,798 39,773 184,658 200,396
Occupancy ......................................................... 341,364 403,227 1,395,134 1,505,220
Amortization of intangible assets ................................. 100,162 125,002 425,489 495,728
Service Bureau Charges ............................................ 79,673 80,721 320,191 317,899
Insurance & Brokerage Commission Expense .......................... - 228,704 309,874 948,095
Professional Services ............................................. 100,278 77,764 414,067 325,207
Prepayment penalty on FHLB advances ............................... - - - 464,240
Other ............................................................ 611,313 411,004 1,561,918 1,359,957
----------- ----------- ----------- -----------
Total non-interest expenses ....................................... 2,702,556 2,956,703 10,431,619 11,874,451
----------- ----------- ----------- -----------
Loss before income tax benefit .................................... (3,493,766) (2,059,806) (4,873,265) (2,515,850)
Income tax benefit ................................................ (1,170,115) (699,140) (1,632,232) (915,893)
----------- ----------- ----------- -----------
Net loss .......................................................... $(2,323,651) $(1,360,666) $(3,241,033) $(1,599,957)
=========== =========== =========== ===========
Per share data:
Basic loss per share .............................................. $ (0.81) $ (0.47) $ (1.12) $ (0.56)
Weighted average number of shares outstanding ..................... 2,884,249 2,884,249 2,884,249 2,884,249
Diluted loss per share ............................................ $ (0.81) $ (0.47) $ (1.12) $ (0.56)
Weighted average number of shares outstanding,
including dilutive stock options ................................ 2,884,249 2,884,249 2,884,249 2,884,249
Dividends per common share ........................................ $ - $ 0.05 $ 0.15 $ 0.20