FOR IMMEDIATE RELEASE
November 9, 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 THIRD QUARTER 2009 RESULTS
Alpena, Michigan - (November 9, 2009) First Federal of Northern Michigan
Bancorp, Inc. (Nasdaq: FFNM) (the "Company") reported a consolidated net loss
from continuing operations of $3.8 million, or $1.32 per basic and diluted
share, for the quarter ended September 30, 2009 compared to a consolidated net
loss from continuing operations of $610,000, or $0.21 per basic and diluted
share, for the quarter ended September 30, 2008.
Consolidated net loss from continuing operations for the nine months ended
September 30, 2009 was $3.6 million, or $1.26 per basic and diluted share,
compared to consolidated net loss from continuing operations of $860,000, or
$0.30 per basic and diluted share, for the nine months ended September 30, 2008.
The three- and nine-month results reflected a substantial provision for loan
losses which related primarily to two large commercial loan relationships and a
non-cash valuation allowance related to the Company's deferred tax asset.
Michael W. Mahler, President and Chief Executive Officer of the Company,
commented, "Our results from core banking activities have steadily improved. We
have successfully implemented strategies to reduce the costs of our deposits and
to incorporate floors on variable rate loans, both of which have contributed to
our significant increase in net interest margin. In addition, we have
aggressively moved to reduce our manageable non-interest expenses. These
strategies, coupled with strong levels of mortgage banking activities, have
resulted in a marked improvement in pre-tax, pre-provision core operating
earnings. Unfortunately, continued credit quality issues and declines in
commercial and residential real-estate markets have had a detrimental impact on
our net results."
Mahler continued, "We are very disappointed with the results of the quarter and
their impact on our year-to-date performance. Improvements made to the baseline
profitability of the Bank were not enough to counter the impact that the
continued deterioration within real estate markets had on our loan loss
provision. Additionally, our recent losses impacted the value of the Company's
deferred tax assets, requiring a $2.0 million valuation allowance to be
established as required by Generally Accepted Accounting Principles (GAAP). The
valuation allowance is an estimate that is based on many subjective factors.
Future evaluation of those factors could result in additional reserves or income
recovery. "
Selected Financial Ratios
For the Three Months Ended September 30 For the Nine Months Ended September 30
------------------------------------------- -------------------------------------------
2009 2008 2009 2008
-------------------- -------------------- -------------------- --------------------
Performance Ratios:
Net interest margin 3.41% 2.91% 3.28% 2.94%
Average interest rate spread 3.15% 2.50% 2.96% 2.51%
Return on average assets* -6.33% -1.01% -2.02% -0.49%
Return on average equity* -51.12% -7.91% -16.40% -3.76%
* Annualized
As of
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September 30, 2009 December 31, 2008 September 30, 2008
---------------------------------------------------------------------
Asset Quality Ratios:
Non-performing assets to total assets 5.98% 5.57% 3.88%
Non-performing loans to total loans 5.88% 6.14% 4.21%
Allowance for loan losses to non-performing assets 27.32% 40.90% 28.36%
Allowance for loan losses to total loans 2.13% 2.85% 1.42%
Total non-performing loans $10,782 $12,169 $8,327
Total non-performing assets $14,317 $13,807 $9,864
Financial Condition
Total assets of the Company at September 30, 2009 were $239.4 million, a
decrease of $8.3 million, or 3.4%, from assets of $247.7 million at December 31,
2008. Net loans receivable decreased $13.5 million to $178.7 million at
September 30, 2009, due to adjustable-rate or balloon mortgage loans which have
paid off or been refinanced and sold into the secondary market, consumer loan
balances which have declined due to normal pay-downs, limited originations of
loans, and commercial loan charge-offs. The decline in net loans receivable was
partially offset by an increase of approximately $7.2 million in our investment
securities portfolio. Our deposits decreased $9.4 million to $156.4 million and
our REPO sweep accounts decreased $2.6 million to $6.9 million at September 30,
2009. Most of the loss in deposits was in our certificates of deposit. As these
deposits matured and were set to reprice lower, some left the Bank and were
replaced with lower costing FHLB advances. Most of the decline in REPO sweep
accounts was due to lower cash balances held by our commercial customers and not
due to deposit relationships leaving the Bank.
The ratio of total nonperforming assets to total assets was 5.98% at September
30, 2009 compared to 5.57% at December 31, 2008. Non-performing assets increased
by $510,000 from December 31, 2008 to September 30, 2009. The Company continues
to closely monitor non-performing assets and is actively pursuing options to
reduce the level thereof.
Stockholders' equity was $26.0 million at September 30, 2009 as compared to
$29.4 million at December 31, 2008. The decrease was due primarily to the net
loss for the nine-month period of $3.7 million. 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
Actual Capital Capital Required for Capital Well-Capitalized Under Prompt
at September Adequacy Purposes Corrective Action Provisions
--------------------- ------------------------------ --------------------------------
Amount Ratio Amount Ratio Amount Ratio
(Dollars in Thousands)
Total risk-based capital (to risk-
weighted assets) $ 25,142 14.69% $ 13,692 8.00% $ 17,115 10.00%
Tier 1 risk-based capital (to risk-
weighted assets) $ 22,996 13.44% $ 6,846 4.00% $ 10,269 6.00%
Tangible capital (to
tangible assets) $ 22,996 9.71% $ 3,552 1.50% $ 4,736 2.00%
Results of Operations
Interest income decreased to $3.1 million for the three months ended September
30, 2009 from $3.5 million for the year earlier period. Interest income
decreased by $1.0 million to $9.6 million for the nine-month period ended
September 30, 2009 from $10.6 million for the same period in 2008. The decreases
in interest income were due to two factors: a decrease in the average balance of
our interest-earning assets due mostly to reductions in the size of our mortgage
loan portfolio and a decrease in the yield on interest-earning assets due in
part to lower market interest rates and in part to the impact of loans placed on
non-accrual status during the three- and nine-month periods ended September 30,
2009.
Interest expense decreased to $1.2 million for the three months ended September
30, 2009 from $1.8 million for the three months ended September 30, 2008.
Interest expense for the nine months ended September 30, 2009 decreased to $2.1
million from $3.9 million for the nine months ended June 30, 2008. The decrease
in interest expense for the three- and nine-month periods was due in part to a
decrease in both the average balance and cost of our FHLB borrowings, which we
were able to pay down because of asset shrinkage and in part due to a decrease
in the cost of certificates of deposit, many of which matured and re-priced
lower.
The Company's net interest margin increased to 3.41% for the three-month period
ended September 30, 2009 from 2.91% for the same period in 2008. During this
time period, the average yield on interest-earning assets decreased 34 basis
points to 5.58% from 6.92%, while the average cost of funds decreased 99 basis
points to 2.43% from 3.42%. For the nine-month period ended September 30, 2009,
the Company's net interest margin increased to 3.28% from 2.94% for the same
period in 2008. During this time period, the average yield on interest-earning
assets decreased 41 basis points to 5.63% from 6.04%, while the cost of funds
decreased 87 basis points to 2.67% from 3.54%.
The provision for loan losses for the three-month period ended September 30,
2009 was $3.0 million, as compared to $875,000 for the prior year period. Two
large commercial relationships were placed on non-accrual status during the
quarter ended September 30, 2009, resulting in additional provision totaling
almost $1.5 million. In addition, our recent history of commercial charge-offs
has resulted in a higher estimated loss factor being applied to our entire
portfolio of commercial loans, which mainly accounts for the remainder of the
increased provision. For the nine-month period ended September 30, 2009, the
provision for loan losses was $3.5 million as compared to $1.2 million for the
same period ended September 30, 2008. The increase for the nine-month period
related to increases in provision on several 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 subjective factors.
Non interest income increased from $400,000 for the three months ended September
30, 2008 to $491,000 for the three months ended September 30, 2009. Non interest
income increased from $1.3 million for the nine months ended September 30, 2008
to $2.1 million for the nine months ended September 30, 2009. The increases for
both the three- and nine-month periods were primarily attributed to an increase
in mortgage banking activities income. Many homeowners in our markets took the
opportunity to refinance due to lower market interest rates during the first
nine months of 2009 as compared to the same period in 2008. The majority of
these loans were sold into the secondary market.
Non interest expense decreased from $2.2 million for the three months ended
September 30, 2008 to $2.1 million for the three months ended September 30,
2009. Compensation and employee benefits, professional services and other
expenses (mostly expenses related to credit quality issues and repossessed
properties) decreased, partially offset by an increase in our FDIC premiums. Non
interest expense increased from $6.5 million for the nine months ended September
30, 2008 to $6.6 million for the nine months ended September 30, 2009. The
increase was mainly the result of an increase in our general FDIC assessment,
plus the FDIC special assessment, increases in professional services and other
expenses (mostly expenses related to credit quality and repossessed properties),
partially offset by decreases in our cost of compensation and employee benefits
expenses and occupancy expenses.
Federal income tax expense for the three- and nine-month periods ended September
30, 2009 is impacted by the valuation allowance on our deferred tax assets of
$2.0 million. The Company recorded this valuation allowance because it
concluded, based on currently available evidence, that it is "more likely than
not" that the future tax assets recognized will be not be realized before their
expiration.
Safe Harbor Statement
This news release and other releases and reports issued by the Company,
including reports to the Securities and Exchange Commission, may contain
"forward-looking statements." The Company cautions readers not to place undue
reliance on any such forward-looking statements, which speak only as of the date
made. The Company is including this statement for purposes of taking advantage
of the safe-harbor provisions of the Private Securities Litigation Reform Act of
1995.
First Federal of Northern Michigan Bancorp, Inc.
Consolidated Balance Sheet
- ------------------------------------------------------------------------------------------------------------------------------
September 30, 2009 December 31, 2008
-------------------- -------------------
(Unaudited)
ASSETS
Cash and cash equivalents:
Cash on hand and due from banks ..........................................................$ 2,212,553 $ 3,097,788
Overnight deposits with FHLB ............................................................. 64,036 372,523
----------- -----------
Total cash and cash equivalents .......................................................... 2,276,589 3,470,311
Securities AFS .......................................................................... 32,879,094 25,665,178
Securities HTM ........................................................................... 3,980,434 4,022,235
Loans held for sale ...................................................................... 50,000 107,000
Loans receivable, net of allowance for loan losses of $4,309,341 and
$5,647,055 as of September 30, 2009 and December 31, 2008, respectively ... 178,737,529 192,270,714
Foreclosed real estate and other repossessed assets ...................................... 3,535,684 1,637,923
Federal Home Loan Bank stock, at cost .................................................... 4,196,900 4,196,900
Premises and equipment ................................................................... 6,779,358 7,089,746
Accrued interest receivable .............................................................. 1,368,598 1,469,176
Intangible assets ........................................................................ 992,869 1,192,853
Other assets ............................................................................. 4,613,876 4,939,523
Assets of discontinued operation.......................................................... - 1,610,734
------------ -------------
Total assets ............................................................................$239,410,931 $ 247,672,293
============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits ...............................................................................$ 156,358,009 $ 165,778,598
Advances from borrowers for taxes and insurance ........................................ 188,965 104,475
Federal Home Loan Bank Advances ........................................................ 46,750,000 40,200,000
Note Payable ........................................................................... 630,927 768,651
REPO Sweep Accounts .................................................................... 6,872,443 9,447,415
Accrued expenses and other liabilities ................................................. 2,651,190 1,877,600
Liabilities of discontinued operations ................................................. - 76,792
------------- -------------
Total liabilities ...................................................................... 213,451,534 218,253,531
------------- -------------
Commitments and contingencies .......................................................... - -
------------- -------------
Stockholders' equity:
Common stock ($0.01 par value 20,000,000 shares authorized
3,191,999 shares issued).............................................................. 31,920 31,920
Additional paid-in capital ............................................................. 24,299,147 24,302,102
Retained earnings ..................................................................... 5,087,238 8,762,412
Treasury stock at cost (307,750 shares)................................................. (2,963,918) (2,963,918)
Unallocated ESOP ....................................................................... (683,861) (764,861)
Unearned compensation .................................................................. (192,839) (286,324)
Accumulated other comprehensive income.................................................. 381,710 337,431
------------- ------------
Total stockholders' equity ............................................................. 25,959,397 29,418,762
------------- -------------
Total liabilities and stockholders' equity ............................................$ 239,410,931 $ 247,672,293
============== =============
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,
------------------------ -----------------------
2009 2008 2009 2008
----------- ---------- --------- ----------
(Unaudited) (Unaudited)
Interest income:
Interest and fees on loans .......................................$ 2,762,789 $ 3,156,924 $ 8,570,404 $ 9,575,347
Interest and dividends on investments ............................ 211,720 248,386 584,788 764,630
Interest on mortgage-backed securities ........................... 136,177 119,501 430,928 265,793
----------- ----------- ----------- -----------
Total interest income ............................................ 3,110,686 3,524,810 9,586,120 10,605,770
----------- ----------- ----------- -----------
Interest expense:
Interest on deposits ............................................. 795,356 1,275,690 2,736,532 3,811,954
Interest on borrowings ........................................... 422,715 532,247 1,279,247 1,653,578
----------- ----------- ----------- -----------
Total interest expense ........................................... 1,218,071 1,807,937 4,015,779 5,465,532
----------- ----------- ----------- -----------
Net interest income .............................................. 1,892,615 1,716,873 5,570,341 5,140,238
Provision for loan losses ........................................ 2,976,642 875,431 3,492,711 1,242,665
----------- ----------- ----------- -----------
Net interest income (loss) after provision for loan losses ....... (1,084,027) 841,442 2,077,630 3,897,573
----------- ----------- ----------- -----------
Non-interest income:
Service charges and other fees ................................... 217,159 245,162 661,488 708,447
Mortgage banking activities ...................................... 244,550 85,665 1,167,626 316,382
Gain on sale of available-for-sale investments ................... - - 1,227 16,052
Net gain (loss) on sale of premises and equipment,
real estate owned and other repossessed assets ................. (2,128) 5,403 25,350 28,497
Other ............................................................ 16,637 18,076 67,997 66,108
Insurance & Brokerage Commissions ................................ 15,157 45,000 129,797 135,000
----------- ----------- ----------- -----------
Total non-interest income ........................................ 491,375 399,307 2,053,486 1,270,486
----------- ----------- ----------- -----------
Non-interest expenses:
Compensation and employee benefits ............................... 1,095,509 1,203,733 3,414,767 3,654,827
SAIF Insurance Premiums .......................................... 106,199 33,443 376,807 85,238
Advertising ...................................................... 31,784 40,118 93,655 98,914
Occupancy ........................................................ 294,567 299,616 897,054 950,952
Amortization of intangible assets ................................ 73,113 77,122 199,983 231,367
Service Bureau Charges ........................................... 76,533 72,432 255,043 240,518
Insurance & Brokerage Commission Expense ......................... - - - -
Professional Services ............................................ 93,588 112,057 359,711 309,231
Other ........................................................... 305,341 319,303 962,826 889,820
----------- ----------- ----------- ----------
Total non-interest expenses ...................................... 2,076,634 2,157,824 6,559,846 6,460,867
----------- ----------- ----------- ----------
Loss from continuing operations before income tax benefit ........ (2,669,286) (917,075) (2,428,731) (1,292,808)
Income tax expense (benefit) from continuing operations .......... 1,148,845 (307,073) 1,200,585 (432,643)
----------- ----------- ----------- ----------
Net loss from continuing operations .............................. (3,818,131) (610,002) (3,629,316) (860,165)
Loss from discontinued operations, net of income tax benefit
of $0, $12,741, $43,209, and $29,745, respectively ............... - (24,733) (83,875) (57,215)
Gain on sale of discontinued operations, net of income tax expense..
of $0, $0, $19,585 and $0, respectively .......................... - - 38,017 -
----------- ----------- ---------- ----------
Net loss .........................................................$ (3,818,131) $ (634,735) $ (3,675,174) $ (917,380)
============ =========== ============ ==========
Per share data:
Loss per share from continuing operations
Basic .........................................................$ (1.32) $ (0.21) $ (1.26) $ (0.30)
Diluted .......................................................$ (1.32) $ (0.21) $ (1.26) $ (0.30)
Income (loss) per share from discontinued operations
Basic .........................................................$ - $ (0.01) $ (0.01) $ (0.02)
Diluted .......................................................$ - $ (0.01) $ (0.01) $ (0.02)
Net loss per share
Basic $ (1.32) $ (0.22) $ (1.27) $ (0.32)
Diluted .......................................................$ (1.32) $ (0.22) $ (1.27) $ (0.32)
Dividends per common share .......................................$ - $ 0.05 $ - $ 0.15