ALPENA, Mich., Aug. 8 /PRNewswire-FirstCall/ -- First Federal of Northern Michigan Bancorp, Inc. (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
