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Consolidated net income from continuing operations for the six months ended June 30, 2009 was $189,000, or $0.07 per basic and diluted share, compared to consolidated net loss from continuing operations of $250,000, or $0.09 per basic and diluted share, for the six months ended June 30, 2008.
The three- and six-month results reflected a substantial increase in FDIC insurance premiums, including the FDIC special assessment which was charged to all banks during the second quarter of 2009 and which amounted to $108,000 for the Company.
Michael W. Mahler, President and Chief Executive Officer of the Company, commented, "We are extremely pleased to post a profit again this quarter. Another strong quarter of mortgage banking activities income along with continued improvement in our net interest margin were the primary drivers of our net income for the quarter. While we have continued our efforts to reduce our non-interest expenses, unfortunately, we were required to record in the second quarter the FDIC special assessment of $108,000. We are encouraged by our improving net interest margin along with the results of our steps taken to reduce our level of non-performing assets. Our markets are feeling the strain from the protracted economic downturn in the state of Michigan that began in 2007 and has only deepened further since. In spite of the challenges, the Bank is making progress on reducing its level of non-performing assets, which fell by $1.9 million from December 31, 2008, and by $2.3 million from March 31, 2009, in spite of the fact that a large commercial loan relationship was downgraded to non-performing status during the quarter ended June 30, 2009."
Selected Financial Ratios
For the Three Months For the Six Months
Ended June 30 Ended June 30
---------------------- -----------------------
2009 2008 2009 2008
----------- ---------- ----------- -----------
Performance Ratios:
Net interest margin 3.32% 2.93% 3.22% 2.96%
Average interest rate
spread 2.98% 2.48% 2.87% 2.51%
Return on average assets* 0.07% -0.41% 0.23% -0.46%
Return on average equity* 0.56% -3.07% 1.90% -3.46%
* Annualized
As of
-----------------------------------------------
June 30, 2009 December 31, 2008 June 30, 2008
------------- ----------------- -------------
Asset Quality Ratios
Non-performing assets to
total assets 4.96% 5.57% 3.57%
Non-performing loans to
total loans 4.47% 6.14% 3.96%
Allowance for loan
losses to non-
performing assets 21.92% 40.90% 32.35%
Allowance for loan losses
to total loans 1.41% 2.85% 1.45%
Total non-performing
loans $8,269 $12,169 $7,854
Total non- performing
assets $11,934 $13,807 $8,852
Financial Condition
Total assets of the Company at June 30, 2009 were $240.5 million, a decrease of $7.2 million, or 2.9%, from assets of $247.7 million at December 31, 2008. The ratio of total nonperforming assets to total assets was 4.96% at June 30, 2009 compared to 5.57% at December 31, 2008. Non-performing assets decreased by $1.9 million from December 31, 2008 to June 30, 2009 due primarily to partial charge-offs of several commercial and mortgage loans. The Company continues to closely monitor non-performing assets and is actively pursuing options to reduce the level thereof.
Stockholders' equity was $29.6 million at June 30, 2009 as compared to $29.4 million at December 31, 2008. The increase was due primarily to net income for the six-month period of $143,000. The decrease of $111,000 in the unrealized gain on available-for-sale securities was offset by changes in unallocated ESOP and unearned compensation related to vesting of previously granted employee stock options and awards.
Results of Operations
Interest income decreased to $3.2 million for the three months ended June 30, 2009 from $3.5 million for the year earlier period. Interest income decreased by $600,000 to $6.5 million for the six-month period ended June 30, 2009 from $7.1 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 quarter.
Interest expense decreased to $1.3 million for the three months ended June 30, 2009 from $1.8 million for the three months ended June 30, 2008. Interest expense for the six months ended June 30, 2009 decreased to $2.8 million from $3.7 million for the six months ended June 30, 2008. The decrease in interest expense for the three- and six-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 deposits, many of which matured and re-priced lower.
The Company's net interest margin increased to 3.32% for the three-month period ended June 30, 2009 from 2.93% for the same period in 2008. During this time period, the average yield on interest-earning assets decreased 38 basis points to 5.62% from 6.00%, while the cost of funds decreased 87 basis points to 2.64% from 3.51%. For the six-month period ended June 30, 2009, the Company's net interest margin increased to 3.22% from 2.96% for the same period in 2008. During this time period, the average yield on interest-earning assets decreased 45 basis points to 5.65% from 6.10%, while the cost of funds decreased 80 basis points to 2.79% from 3.59%.
The provision for loan losses for the three-month period ended June 30, 2009 was $252,000, as compared to $342,000 for the prior year period. One large commercial relationship was placed on non-accrual status, along with smaller credits, in both the three-month period ended June 30 2009 and 2008. However, the large relationship placed on non-accrual status in 2008 had a bigger impact on the provision expense, resulting in a comparatively lower provision for this period in 2009. For the six-month period ended June 30, 2009, the provision for loan losses was $516,000 as compared to $367,000 for the same period ended June 30, 2008. The increase for the six-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 $459,000 for the three months ended June 30, 2008 to $764,000 for the three months ended June 30, 2009. Non interest income increased from $871,000 for the six months ended June 30, 2008 to $1.6 million for the six months ended June 30, 2009. The increases for both the three- and six-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 six months of 2009 as compared to the same period in 2008, and we sold the majority of those loans into the secondary market.
Non interest expense increased from $2.2 million for the three months ended June 30, 2008 to $2.3 million for the three months ended June 30, 2009. Non interest expense increased from $4.3 million for the six months ended June 30, 2008 to $4.5 million for the six months ended June 30, 2009. The increases were mainly the result of an increase in our general FDIC assessment, plus the FDIC special assessment of $108,000 which we were required to expense as of the quarter ended June 30, 2009. During the three- and six-month periods ended June 30, 2009 we were able to reduce many of our expenses period over period, including compensation and employee benefits, occupancy and amortization of intangible assets. However, during those same periods we experienced an increase in professional services fees related to expenses for strategic planning, additional audit fees and increased OTS assessments and an increase in other expenses which were mainly related to delinquent loans and repossessed properties, including the payment of approximately $125,000 in property taxes totaling approximately $125,000 on one large commercial credit of which the assets were repossessed during the quarter.
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, 2009 December 31, 2008
-------------------- --------------------
(Unaudited)
ASSETS
Cash and cash equivalents:
Cash on hand and due from banks $3,062,708 $3,097,788
Overnight deposits with FHLB 610,004 372,523
-------------------- --------------------
Total cash and cash equivalents 3,672,712 3,470,311
Securities AFS 27,605,970 25,665,178
Securities HTM 4,017,701 4,022,235
Loans held for sale 211,400 107,000
Loans receivable, net of
allowance for loan losses of
$2,616,242 and $5,647,055 as of
June 30, 2009 and December 31,
2008, respectively 182,315,510 192,270,714
Foreclosed real estate and other
repossessed assets 3,664,925 1,637,923
Federal Home Loan Bank stock, at
cost 4,196,900 4,196,900
Premises and equipment 6,911,216 7,089,746
Accrued interest receivable 1,216,577 1,469,176
Intangible assets 1,065,982 1,192,853
Other assets 5,626,898 4,939,523
Assets of discontinued operation - 1,610,734
-------------------- --------------------
Total assets $240,505,791 $247,672,293
==================== ====================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $162,254,027 $165,778,598
Advances from borrowers for taxes
and insurance 414,553 104,475
Federal Home Loan Bank Advances 39,950,000 40,200,000
Note Payable 630,927 768,651
REPO Sweep Accounts 5,491,573 9,447,415
Accrued expenses and other
liabilities 2,200,522 1,877,600
Liabilities of discontinued
operations - 76,792
-------------------- --------------------
Total liabilities 210,941,603 218,253,531
-------------------- --------------------
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 24,299,106 24,302,102
Retained earnings 8,905,368 8,762,412
Treasury stock at cost (307,750 shares) (2,963,918) (2,963,918)
Unallocated ESOP (710,861) (764,861)
Unearned compensation (224,001) (286,324)
Accumulated other comprehensive
income 226,574 337,431
-------------------- --------------------
Total stockholders' equity 29,564,188 29,418,762
-------------------- --------------------
Total liabilities and
stockholders' equity $240,505,791 $247,672,293
==================== ====================
First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries
Consolidated Statement of Income
For the Three Months For the Six Months
Ended June 30, Ended June 30,
----------------------- -----------------------
2009 2008 2009 2008
----------- ----------- ----------- -----------
(Unaudited) (Unaudited)
Interest income:
Interest and fees on
loans $2,865,276 $3,143,876 $5,807,615 $6,418,423
Interest and dividends
on investments 175,670 239,668 373,068 516,245
Interest on mortgage-
backed securities 143,925 107,892 294,751 146,292
----------- ----------- ----------- -----------
Total interest income 3,184,871 3,491,436 6,475,434 7,080,960
----------- ----------- ----------- -----------
Interest expense:
Interest on deposits 880,890 1,241,813 1,941,176 2,536,265
Interest on borrowings 427,973 548,412 856,532 1,121,331
----------- ----------- ----------- -----------
Total interest expense 1,308,863 1,790,225 2,797,708 3,657,596
----------- ----------- ----------- -----------
Net interest income 1,876,007 1,701,211 3,677,726 3,423,364
Provision for loan losses 251,839 342,264 516,069 367,234
----------- ----------- ----------- -----------
Net interest income
after provision for loan
losses 1,624,168 1,358,947 3,161,657 3,056,130
----------- ----------- ----------- -----------
Non Interest income:
Service charges and
other fees 229,457 237,110 444,329 463,285
Mortgage banking
activities 473,871 125,912 923,076 230,718
Gain on sale of
available-for-sale
investments 1,227 - 1,227 16,052
Net gain (loss) on sale
of premises and equipment,
real estate owned and
other repossessed assets (44,064) 25,894 27,478 23,093
Other 18,765 25,001 51,360 48,031
Insurance & brokerage
commissions 84,618 45,000 114,640 90,000
----------- ----------- ----------- -----------
Total non interest income 763,874 458,916 1,562,110 871,178
----------- ----------- ----------- -----------
Non interest expenses:
Compensation and
employee benefits 1,171,455 1,224,234 2,319,257 2,451,094
FDIC insurance premiums 191,044 32,607 270,608 51,795
Advertising 44,321 28,656 61,871 58,796
Occupancy 300,069 343,818 602,487 651,336
Amortization of
intangible assets 37,754 77,122 126,871 154,244
Service bureau charges 86,551 85,716 178,511 168,085
Professional services 163,219 107,518 266,123 197,174
Other 350,984 273,155 657,484 570,518
----------- ----------- ----------- -----------
Total non interest
expenses 2,345,398 2,172,826 4,483,212 4,303,042
----------- ----------- ----------- -----------
Income (loss) from
continuing operations
before income tax
benefit 42,644 (354,963) 240,555 (375,733)
Income tax expense
(benefit) from
continuing operations 328 (118,763) 51,740 (125,571)
----------- ----------- ----------- -----------
Net income (loss) from
continuing operations 42,316 (236,199) 188,815 (250,162)
Discontinued Operations:
Loss from discontinued
operations. Net of income
tax benefit of $0, $7,619,
$43,209, and $16,733 - (14,790) (83,875) (32,483)
Gain on sale of
discontinued operations,
net of income tax expense
of $0, $0, $19,565 and $0 - - 38,017 -
----------- ----------- ----------- -----------
Net Income (Loss) 42,316 (250,989) 142,957 (282,645)
=========== =========== =========== ===========
Per share data:
Income (loss) per share
from continuing operations
Basic $0.01 $(0.08) $0.07 $(0.09)
Diluted $0.01 $(0.08) $0.07 $(0.09)
Loss per share from
discontinued operations
Basic $- $(0.01) $(0.02) $(0.01)
Diluted $- $(0.01) $(0.02) $(0.01)
Net income (loss) per share
Basic $0.01 $(0.09) $0.05 $(0.10)
Diluted $0.01 $(0.09) $0.05 $(0.10)
Dividends per common share $- $0.05 $- $0.10
SOURCE First Federal of Northern Michigan Bancorp, Inc.
http://www.first-federal.com
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