ALPENA, Mich., April 27 /PRNewswire-FirstCall/ -- First Federal of Northern Michigan Bancorp, Inc. (the "Company") reported consolidated net income of $24,000, or $0.01 per basic and diluted share, for the quarter ended March 31, 2007, compared to net income of $212,000, or $0.07 per basic and diluted share, for the quarter ended March 31, 2006.
Earnings-per-share was calculated based on weighted average outstanding shares of 3,033,303 for the three-month period ended March 31, 2007, and 3,116,745 for the three-month period ended March 31, 2006.
During the three months ended March 31, 2007, the Company recorded a cumulative-effect adjustment to retained earnings of $461,000 as a result of the Company's election to early adopt Statement of Financial Accounting Standards ("SFAS") No. 159 and No. 157. Effective January 1, 2007, the Company elected the fair value measurement option for certain pre-existing financial assets and liabilities including $4.8 million of available- for-sale securities and $10.0 million of Federal Home Loan Bank advances. Under the provisions of SFAS No. 159, the cumulative-effect adjustment is a one-time charge to equity and will not be recognized in current earnings.
The Company believes early adoption of SFAS No. 159 and No. 157 will have a positive impact on the Company's ability to manage its balance sheet from both a market and an interest rate risk perspective which will benefit net interest income, net income and earnings per share for the remainder of 2007 and beyond. A more detailed discussion of the early adoption of SFAS No. 159 and No. 157 will be included in the Company's Form 10-QSB for the first quarter of 2007.
Financial Condition
Total assets of the Company at March 31, 2007 were $271.9 million, a decrease of $9.1 million, or 3.24%, over assets of $281.0 million at December 31, 2006. The ratio of total nonperforming assets to total assets was 1.56% at March 31, 2007 compared to 1.59% at December 31, 2006.
Stockholders' equity decreased to $34.7 million at March 31, 2007 from $35.5 million at December 31, 2006, a decline of $729,000. During the three months ended March 31, 2007, the Company repurchased 156,000 shares of its common stock at a total cost of $358,000. Dividends for the three months ended March 31, 2007 were $150,000. As mentioned above, the Company chose to restructure its balance sheet through an early adoption of FAS 159, resulting in a $461,000 one-time cumulative-effect adjustment to retained earnings. The unrealized loss on available for sale securities, net of tax, was $141,000 at March 31, 2007 as compared to $264,000 at December 31, 2006, an improvement of $123,000. The cumulative loss in value on securities was due to interest rates and was not considered by management to be other than temporary.
Results of Operations
Interest income increased to $4.1 million for the three months ended March 31, 2007 from $4.0 million for the same period ended March 31, 2006. While the average balance of interest earning assets decreased by $5.3 million from $265.1 million at March 31, 2006 to $259.8 million at March 31, 2007, the yield on interest earning assets increased over that same time period from 6.13% to 6.43%. This was primarily attributable to the non-mortgage loan portfolio which grew $13.3 million in average balance from March 31, 2006 to March 31, 2007, reflecting our continued emphasis on commercial lending, while the yield grew from 7.53% to 7.56% over that same time period. In addition, while the average balance of mortgage loans decreased by $2.8 million from March 31, 2006 to March 31, 2007, the yield on that portfolio increased from 6.02% to 6.15%.
Interest expense increased to $2.2 million for the three months ended March 31, 2007 from $1.9 million for the three months ended March 31, 2006. The increase in interest expense was mainly attributable to an increase in the average balance of FHLB borrowings of $6.6 million for the quarter ended March 31, 2007 as compared to the quarter ended March 31, 2006, and an increase in the cost of those borrowings of 38 basis points from the quarter ended March 31, 2006 to the quarter ended March 31, 2007 due to market interest rate increases. In addition, the cost of certificates of deposit increased 81 basis points from the quarter ended March 31, 2006 to the same period in 2007. However, the average balance of those deposits decreased by $10.5 million from March 31, 2006 to March 31, 2007.
The Company's net interest margin for the three months ended March 31, 2007 was 2.96% as compared to 3.22% for the three months ended March 31, 2006. The Company's interest rate spread decreased from 2.83% for the three months ended March 31, 2007 to 2.50% for the three months ended March 31, 2007.
The provision for loan losses for the three month period ended March 31, 2007 was $86,000 as compared to $69,000 for the prior year period. These increases reflected an increase in classified assets due to the current somewhat weak economic conditions in the northern Michigan market as well as declining real estate values.
Non interest income was $978,000 for the three month period ended March 31, 2007, a decrease of $148,000 or 13.1%, from the same period in 2006. The primary reason for the decrease was a reduction of $76,000 in insurance and brokerage commissions due mainly to a loss in insurance contingency income quarter over quarter and the loss of a large commercial insurance customer. In addition, we experienced a $40,000 decrease in service charges and other fees, which was due mainly to a decrease in customer usage of our Bounce Protection program and ATM network, and also a reduction in loan late fees related to a change in how we recognize those fees as income.
Non interest expense was $2.8 million for the three month period ended March 31, 2007, a $71,000 or 2.5% decrease from the same period in 2006. The decrease was primarily due to a decrease of $ 27,000 in expense related to insurance and brokerage activities. We also recorded a $10,000 decrease in service bureau charges related to change in our core processing system vendor in late 2006. Other expenses decreased $39,000, reflecting largely a decrease in expenses associated with our repossessed assets.
The Company had a federal income tax benefit of $12,000 for the three months ended March 31, 2007 due to tax-exempt interest income in excess of pre-tax income, compared to federal income tax expense of $107,000 for the same period in 2006.
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
March 31, December 31,
2007 2006
(Unaudited)
ASSETS
Cash and cash equivalents:
Cash on hand and due from banks $3,176,308 $4,159,833
Overnight deposits with FHLB 1,618,457 832,968
Total cash and cash equivalents 4,794,765 4,992,801
Securities AFS 34,233,844 43,100,430
Securities HTM 1,750,000 1,750,000
Securities Trading 4,755,925 -
Loans held for sale 172,077 72,000
Loans receivable, net of allowance
for loan losses of $2,099,662 and
$2,079,069 as of March 31, 2007 and
December 31, 2006, respectively 204,829,690 209,518,068
Foreclosed real estate and other
repossessed assets 522,438 475,312
Real estate held for investment 135,543 135,543
Federal Home Loan Bank stock, at cost 4,196,900 4,196,900
Premises and equipment 7,990,850 8,075,238
Accrued interest receivable 2,083,798 2,138,667
Intangible assets 2,464,583 2,589,463
Goodwill 1,396,854 1,396,854
Other assets 2,540,723 2,517,548
Total assets $271,867,990 $280,958,824
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $173,162,074 $177,057,993
Advances from borrowers for taxes and
insurance 190,753 44,389
Federal Home Loan Bank advances and
Note Payable 50,592,134 66,042,134
Borrowing held for trading 10,337,328 -
Accrued expenses and other liabilities 2,861,540 2,361,573
Total liabilities 237,143,829 245,506,089
Stockholders' equity:
Common stock ($0.01 par value
20,000,000 shares authorized
3,190,999 shares issued) 31,910 31,910
Additional paid-in capital 24,281,938 24,261,737
Retained earnings 13,990,116 14,576,468
Treasury stock at cost (194,600 and
156,000 shares, respectively) (1,923,844) (1,565,359)
Unallocated ESOP (1,034,216) (1,059,130)
Unearned compensation (498,468) (528,987)
Accumulated other comprehensive loss (123,275) (263,904)
Total stockholders' equity 34,724,161 35,452,735
Total liabilities and stockholders'
equity $271,867,990 $280,958,824
First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries
Consolidated Statement of Income
For the Three Months
Ended March 31,
2007 2006
(Unaudited)
Interest income:
Interest and fees on loans $3,585,927 $3,416,613
Interest and dividends on investments 509,849 561,811
Interest on mortgage-backed securities 47,100 54,975
Total interest income 4,142,876 4,033,399
Interest expense:
Interest on deposits 1,431,910 1,239,910
Interest on borrowings 802,086 669,347
Total interest expense 2,233,996 1,909,257
Net interest income 1,908,880 2,124,141
Provision for loan losses 85,629 69,500
Net interest income after provision
for loan losses 1,823,251 2,054,641
Non Interest income:
Service charges and other fees 197,015 237,146
Mortgage banking activities 87,884 72,803
Net gain (loss) on sale of premises
and equipment, real estate owned
and other repossessed assets (1,833) 2,256
Other 11,929 45,220
Net loss on trading activities (9,624) -
Insurance & Brokerage Commissions 692,819 768,654
Total other income 978,190 1,126,079
Non interest expenses:
Compensation and employee benefits 1,568,828 1,544,900
SAIF Insurance Premiums 5,500 6,408
Advertising 40,519 51,089
Occupancy 367,617 369,281
Amortization of intangible assets 124,881 124,881
Service Bureau Charges 75,945 86,281
Insurance & Brokerage Commission Expense 240,800 268,107
Professional Services 80,279 85,335
Other 285,331 324,860
Other expenses 2,789,699 2,861,142
Income before income tax expense 11,742 319,578
Income tax expense (11,993) 107,370
Net income $23,735 $212,208
Per share data:
Basic earnings per share $0.01 $0.07
Weighted average number of shares
outstanding 3,033,303 3,116,745
Diluted earnings per share $0.01 $0.07
Weighted average number of shares
outstanding, including dilutive
stock options 3,034,309 3,120,904
Dividends per common share $0.05 $0.05
