ALPENA, Mich., Aug. 8 /PRNewswire-FirstCall/ -- 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, December 31,
2008 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, restricted - -
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
SOURCE First Federal of Northern Michigan Bancorp, Inc.
For further information: Amy E. Essex, Chief Financial Officer, Treasurer & Corporate Secretary of First Federal of Northern Michigan Bancorp, Inc., +1-989-356-9041
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