First Federal of Northern Michigan Bancorp, Inc. Announces First Quarter 2009 Earnings

ALPENA, Mich., May 1 /PRNewswire-FirstCall/ -- First Federal of Northern Michigan Bancorp, Inc. (Nasdaq: FFNM) (the "Company") reported consolidated net income from continuing operations of $146,500, or $0.05 per basic and diluted share, for the quarter ended March 31, 2009, compared to a consolidated net loss from continuing operations of $14,000, or $0.00 per basic and diluted share, for the quarter ended March 31, 2008.

The major factor for the improved earnings in the current year quarter was mortgage banking activities income of $449,000 as compared to $105,000 for the same quarter in 2008.

Michael W. Mahler, President and Chief Executive Officer of the Company, commented, "We were encouraged this quarter by the high level of mortgage refinance activity. Most of the refinanced loans were sold into the secondary market and we recorded gain and fee income. This activity, although slowed somewhat, continues to be relatively strong as we head into the second quarter of 2009. We continued to experience credit quality issues in the quarter, resulting in a $264,000 provision for loan losses. However, we seem to be turning the corner with many of our troubled commercial credits. We will continue to monitor these loans closely. We were able to reduce our non-interest expense quarter over quarter due to the sale of our insurance subsidiary, the InsuranCenter of Alpena, and other cost-cutting measures we put in place at the end of 2008. As we sold the InsuranCenter at the end of February 2009, we expect an even greater reduction in non-interest expense for the quarter ended June 30, 2009 as compared to the quarter ended June 30, 2008."

Selected Financial Ratios

                                                    For the Three
                                                     Months Ended
                                                       March 31
                                                    -------------
                                                     2009     2008
                                                     ----     ----

    Performance Ratios:
    Net interest margin                              3.10%    2.98%
    Average interest rate spread                     2.74%    2.53%
    Return on average assets*                        0.16%   -0.05%
    Return on average equity*                        1.35%   -0.39%

    * Annualized


                                                  As of
                             ------------------------------------------------
                             March 31, 2009 December 31, 2008  March 31, 2008
                             -------------- -----------------  --------------
    Asset Quality Ratios
    Non-performing assets
     to total assets              5.71%            5.57%            4.43%
    Non-performing loans
     to total loans               6.50%            6.14%            4.86%
    Allowance for loan losses
     to non-performing assets    40.41%           40.90%           36.69%
    Allowance for loan losses
     to total loans               2.92%            2.85%            1.99%

    Total non-performing
     assets (000's omitted)    $14,268          $13,807          $10,835

Financial Condition

Total assets of the Company at March 31, 2009 were $249.8 million, an increase of $2.1 million, or 0.8%, from assets of $247.7 million at December 31, 2008. The ratio of nonperforming assets to total assets was 5.71% at March 31, 2009 compared to 5.57% at December 31, 2008 and 4.43% at March 31, 2008. Non-performing assets increased by $461,000 from December 31, 2008 to March 31, 2009. The increase in non-performing assets reflected seven mortgage loans and two small commercial loans which were placed in non-accrual status during the quarter.

Stockholders' equity increased by $131,000 from $29.4 million at December 31, 2008 to $29.5 million at March 31, 2009. The increase in equity was attributable primarily to the net income for the three-month period of $100,600. In an effort to preserve capital, in December 2008 the Company announced the suspension of its quarterly cash dividend, which continued into the first quarter of 2009. The Company intends to review this decision on a quarterly basis. Despite the reduction in regulatory capital of $2.3 million related to Disallowed Deferred Tax Assets, 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
                                                       Well-Capitalized Under
                Actual Capital    Capital Required For    Prompt Corrective
              at March 31, 2009 Capital Adequacy Purposes Action Provisions
              ----------------- ------------------------- ------------------
               Amount    Ratio     Amount       Ratio       Amount    Ratio
               ------    -----     ------       -----       ------    -----
                                 (Dollars in Thousands)

    March 31,
     2009
      Total
       capital
       (to risk-
       weighted
       assets) $26,584   15.06%   $14,122       8.00%       $17,652   10.00%
      Tier 1
       capital
       (to risk-
       weighted
       assets) $24,334   13.79%    $7,061       4.00%       $10,591    6.00%
      Tangible
       capital
       (to
       tangible
       assets) $24,334    9.94%    $3,674       1.50%        $4,899    2.00%

Results of Operations

Interest income decreased to $3.3 million for the three months ended March 31, 2009, from $3.6 million for the year earlier period. The decrease in interest income was due primarily to two factors: a decrease in the average balance of our interest-earning assets due to reductions in the size of our loan portfolio and a decrease in the yield on interest-earning assets due in part to lower market interest rates and in part to increases in non-accrual loans.

Interest expense decreased to $1.5 million for the three months ended March 31, 2009 from $1.9 million for the three months ended March 31, 2008. The decrease in interest expense for the three-month period was due primarily to decreases in the average balance of and interest rates on our Federal Home Loan Bank advances period over period as well as a decrease in the average balance of certificates of deposit and a decrease in the cost of funds related to higher-costing certificates of deposits which matured and re-priced lower.

The Company's net interest margin increased to 3.10% for the three-month period ended March 31, 2009 from 2.98% for the same period in 2008. During this time period, the average yield on interest-earning assets decreased 51 basis points to 5.68% from 6.19%, while the cost of funds decreased 72 basis points to 2.94% from 3.66%.

The provision for loan losses for the three-month period ended March 31, 2009 was $264,000, as compared to $25,000 for the prior year period. The increase in provision for the three-month period related primarily to additional provisions for several commercial relationships. The provision was based on management's review of the components of the overall loan portfolio, the status of non-performing loans and various other factors.

Non-interest income increased from $412,000 for the three months ended March 31, 2008 to $763,000 for the three months ended March 31, 2009. The increase for the three-month period was primarily attributed to a marked increased in mortgage banking activities income, which was driven by low market interest rates.

Non-interest expenses were $2.1 million for both the three months ended March 31, 2008 and 2009. Compensation and employee benefits were $79,000 lower period over period as a result of cost-cutting measures put in place in 2008. These savings were partially offset by a $60,000 increase in FDIC premiums period over period. In addition, the Company recorded an additional $10,000 in amortization of intangible assets due to the recharacterization of goodwill related to the Grotenhuis income stream as an amortizable intangible asset.

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, 2009    December 31, 2008
                                      ----------------  -------------------
                                         (Unaudited)
    ASSETS
    Cash and cash equivalents:
    Cash on hand and due from banks       $2,048,952           $3,097,788
    Overnight deposits with FHLB             460,858              372,523
                                             -------              -------
    Total cash and cash equivalents        2,509,810            3,470,311
    Securities AFS                        29,365,064           25,665,178
    Securities HTM                         4,019,968            4,022,235
    Loans held for sale                    1,396,684              107,000
    Loans receivable, net of allowance
     for loan losses of $5,765,561 and
     $5,647,055 as of March  31, 2009
     and December 31, 2008, respectively 191,642,968          192,270,714
    Foreclosed real estate and other
     repossessed assets                    1,424,033            1,637,923
    Federal Home Loan Bank stock,
     at cost                               4,196,900            4,196,900
    Premises and equipment                 6,951,582            7,089,746
    Accrued interest receivable            1,483,700            1,469,176
    Intangible assets                      1,139,095            1,192,853
    Other assets                           5,627,613            4,939,523
    Assets of discontinued operation               -            1,610,734
                                           ---------            ---------
    Total assets                        $249,757,417         $247,672,293
                                        ============         ============


    LIABILITIES AND STOCKHOLDERS' EQUITY
    Liabilities:
    Deposits                            $164,397,207          165,778,598
    Advances from borrowers for taxes
     and insurance                           275,176             $104,475
    Federal Home Loan Bank advances       44,350,000           40,200,000
    Note payable                             768,651              768,651
    REPO sweep accounts                    7,571,905            9,447,415
    Accrued expenses and other liabilities 2,844,648            1,877,600
    Liabilities of discontinued operation          -               76,792
                                              ------               ------

    Total liabilities                    220,207,587          218,253,531
                                         -----------          -----------


    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            24,300,037           24,302,102
    Retained earnings                      8,863,053            8,762,412
    Treasury stock at cost
     (307,750 shares)                     (2,963,918)          (2,963,918)
    Unallocated ESOP                        (737,861)            (764,861)
    Unearned compensation                   (255,163)            (286,324)
    Accumulated other comprehensive
     income                                  311,762              337,431
                                             -------              -------
    Total stockholders' equity            29,549,830           29,418,762
                                          ----------           ----------

    Total liabilities and stockholders'
     equity                             $249,757,417         $247,672,293
                                        ============         ============



    First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries
    Consolidated Statement of Income
    --------------------------------

                                                     For the Three Months
                                                        Ended March 31,
                                                       -----------------
                                                       2009        2008
                                                       ----        ----
                                                          (Unaudited)
    Interest income:
    Interest and fees on loans                      $2,942,340  $3,274,547
    Interest and dividends on investments              197,398     276,577
    Interest on mortgage-backed securities             150,826      38,400
                                                       -------      ------
    Total interest income                            3,290,564   3,589,524

    Interest expense:
    Interest on deposits                             1,060,286   1,294,452
    Interest on borrowings                             428,559     572,919
                                                       -------     -------
    Total interest expense                           1,488,845   1,867,371
                                                     ---------   ---------

    Net interest income                              1,801,719   1,722,153
    Provision for loan losses                          264,230      24,970
                                                       -------      ------
    Net interest income after provision for
     loan losses                                     1,537,489   1,697,183
                                                     ---------   ---------

    Non Interest income:
    Service charges and other fees                     214,872     226,175
    Mortgage banking activities                        449,205     104,806
    Gain on sale of available-for-sale investments           -      16,052
    Net gain (loss) on sale of premises and equipment,
      real estate owned and other repossessed assets    71,542      (2,801)
    Other                                               32,595      23,030
    Insurance & Brokerage Commissions                   30,022      45,000
                                                        ------      ------
    Total non interest income                          798,236     412,262

    Non interest expenses:
    Compensation and employee benefits               1,147,802   1,226,860
    SAIF Insurance Premiums                             79,564      19,188
    Advertising                                         17,550      30,140
    Occupancy                                          302,418     307,518
    Amortization of intangible assets                   89,117      77,122
    Service Bureau Charges                              91,959      82,369
    Insurance & Brokerage Commission Expense                 -           0
    Professional Services                              102,904      89,656
    Prepayment penalty on FHLB advances                      -           -
    Other                                              306,500     297,363
                                                       -------     -------
    Total non interest expenses                      2,137,814   2,130,216
                                                     ---------   ---------

    Income (loss) from continuing operations
     before income tax expense (benefit)               197,911     (20,771)
    Income tax expense (benefit) from continuing
     operations                                         51,412      (6,808)
                                                        ------      ------
    Net income (loss) from continuing operations       146,499     (13,963)

    Loss from discontinued operations, net of income
     tax benefit of $23,624 and $9,115                 (45,858)    (17,693)
                                                       -------     -------

    Net Income (loss)                                 $100,641    $(31,656)
                                                      ========    ========


    Per share data:
    Income (loss) per share from continuing
     Operations
       Basic                                             $0.05          $-
       Diluted                                           $0.05          $-
    Loss per share from discontinued operations
       Basic                                            $(0.02)     $(0.01)
       Diluted                                          $(0.02)     $(0.01)
    Net income (loss) per share
       Basic                                             $0.03      $(0.01)
       Diluted                                           $0.03      $(0.01)
    Weighted average number of shares outstanding
       Basic                                         2,884,249   2,884,249
       Including dilutive stock options              2,884,249   2,884,249
    Dividends per common share                              $-       $0.05

SOURCE First Federal of Northern Michigan Bancorp, Inc.