First Federal of Northern Michigan Bancorp, Inc. Announces Fourth Quarter 2015 and Full Year Results

26 Feb, 2016, 10:00 ET from First Federal of Northern Michigan Bancorp, Inc.

ALPENA, Mich., Feb. 26, 2016 /PRNewswire/ -- First Federal of Northern Michigan Bancorp, Inc. (OTCQX: FFNM) (the "Company") the holding company of First Federal of Northern Michigan reported consolidated net income of $805,000, or $0.23 per basic share, for the quarter ended December 31, 2015 compared to $319,000, or $0.09 per basic share, for the quarter ended December 31, 2014.  

Consolidated net income for the year ended December 31, 2015 was $3.4 million, or $0.92 per basic share, compared to $2.2 million, or $0.70 per basic share, for the year ended December 31, 2014. 

Michael W. Mahler, Chief Executive Officer of the Company commented, "We are pleased to see the momentum of growth continue in the fourth quarter with the $10.1 million, or 3.1% increase of the balance sheet in 2015.  This level of growth aided in an increase of $1.3 million, or 16.8% increase in top line revenues for the year. While net interest income increased we experienced a decrease in net interest margin, due in large part to the continued low interest rate environment that existed for much of the year.

Mahler continued, "We are further pleased with the 48% reduction in our non-performing assets (NPA) since the beginning of the year. Most encouraging is the decline of our Texas ratio to 7.8%, the lowest level since the Bank began monitoring this ratio in 2009. In addition, we experienced a net recovery of our provision for loan loss as a result of net recoveries of $651,000 on charged off loans, with most of that total related to a single loan that was charged off in 2014."    

Craig A. Kus, President and Chief Operating Officer added, "With the merger more than a year behind us we are seeing the synergies and strength of a merged organization.  When factoring out the bargain purchase gain that was included in the 2014 results the Company was able to grow pre-tax income $1.5 million, or 579%. This is a direct result of our continued business effort to increase revenues and enhance shareholder value."

Performance Highlights:

  • The Company reported net income of $3.4 million for the year ended December 31, 2015 as compared to $2.2 million for 2014, primarily as a result of the following year over year differences:
    • Increase in net interest income of $1.3 million as a result of our first year post merger with the interest earning assets acquired from Bank of Alpena. 
    • Provision for loan losses resulted in income of $535,000 in 2015 as compared to provisions of $284,000 in 2014, due primarily to a recovery of $543,000 on a commercial participation loan that was charged off in 2014.
    • An increase of $140,000 in service charge income and $89,000 in insurance and brokerage commissions.
    • Increases of $870,000 in salaries and benefits, $112,000 in occupancy and $162,000 in professional services partially offset by a decrease of $266,000 in merger related expenses, primarily related to a full year post merger with Bank of Alpena.
  • Net interest margin (NIM) decreased to 2.96% in 2015 from 3.31% in 2014 due to growth of lower yielding available-for-sale bonds throughout the year.
  • Deferred tax asset valuation recovery of $1.7 million during the year.
  • Tangible book value per share at December 31, 2015 was $8.68 compared to $7.85 at December 31, 2014, primarily reflecting the Company's improvement to earnings period over period.

Financial Condition

  • Total assets increased $10.4 million to $336.0 million at December 31, 2015 from $325.6 million at December 31, 2014.
    • Cash and cash equivalents decreased $3.9 million.
    • Net loans receivable increased $4.3 million, primarily related to mortgage lending.
    • Investment securities AFS increased $8.5 million. We have maintained a short duration of 36 months on our investment portfolio in anticipation of rising rates and for funding loan growth.
    • Federal Home Loan Bank (FHLB) stock decreased $1.0 million as the FHLB repurchased stock in 2015.
    • Deferred tax asset increased $1.8 million, related primarily to a recovery of $1.7 million in the valuation allowance previously recorded.
  • Total liabilities increased $7.5 million year over year.
    • Deposits decreased $2.2 million.
    • FHLB advances increased $10.0 million as we funded the loan and available-for-sale bond growth.
  • Stockholders' equity was $33.3 million at December 31, 2015 compared to $30.5 million at December 31, 2014.
    • Net income for the year of $3.4 million;
    • Decrease in the unrealized gain on available-for-sale securities of $250,000 year over year.
    • Offset by dividends of $373,000.
    • First Federal of Northern Michigan's regulatory capital remains at levels in excess of regulatory requirements, as shown in the table below.

 





Regulatory


Minimum to be


 Actual 


 Minimum 


 Well Capitalized 


 Amount 

 Ratio 


 Amount 

 Ratio 


 Amount 

 Ratio 


Dollars in Thousands










  Tier 1 Leverage Ratio (core capital to average assets)

$      30,004

8.83%


$ 13,589

4.00%


$ 16,986

5.00%










  Common Equity Tier 1 Risk-based capital (to risk-weighted assets)

$      30,004

17.00%


$   7,944

4.50%


$ 11,475

6.50%










  Tier 1 Risk-based capital ( to risk-weighted assets)

$      30,004

17.00%


$ 10,592

6.00%


$ 14,123

8.00%










  Total Risk-based capital (to risk-weighted assets)

$      31,563

17.88%


$ 14,123

8.00%


$ 17,654

10.00%

 

Asset Quality

The ratio of total non-performing assets to total assets was 0.77% at December 31, 2015 compared to 1.52% at December 31, 2014. Non-performing assets decreased $2.4 million to $2.6 million at December 31, 2015 from $5.0 million at December 31, 2014, mainly as a result the sale of $2.1 million in foreclosed assets in 2015.                   


As of

As of


December 31, 2015


December 31, 2014

Asset Quality Ratios:




Non-performing assets to total assets

0.77%


1.52%

Non-performing loans to total loans

0.84%


1.29%

Allowance for loan losses to non-performing loans

109.53%


66.82%

Allowance for loan losses to total loans (1)

0.92%


0.86%





"Texas Ratio" (Bank) (2)

7.83%


17.06%

Classified Asset Ratio (3)

31.13%


22.98%





Total non-performing loans ($000 omitted)

$1,424


$2,139

Total non-performing assets ($000 omitted)

$2,595


$4,963





(1) This ratio does not include the credit mark associated with acquired loans.

(2) Texas Ratio is defined by management as total non-performing assets divided by tangible 

      common equity capital plus loan loss reserves.




(3) Classified asset ratio is calculated by dividing classified assets (substandard assets plus 

     real estate owned and other repossessed assets) by tier 1 capital plus loan loss reserves.

 

Results of Operations:

  • Interest income increased to $2.7 million for the three months ended December 31, 2015 from $2.6 million for the quarter ended December 31, 2014 and increased to $10.6 million for the year ended December 31, 2015 as compared to $9.1 million for 2014.
    • Increases of $22.1 million and $73.2 million, respectively, in the average balance of our interest-earning assets were offset by decreases of 22 basis points and 40 basis points, respectively, in the yield on interest-earning assets due in part to lower market interest rates and growth of the available-for-sale bond portfolio.
  • Interest expense increased to $319,000 for the quarter ended December 31, 2015 from $304,000 for the quarter ended December 31, 2014 and increased to $1.2 million for 2015 from $1.1 million for 2014.
    • Year over year increase $25.0 million in the average balance of our interest-bearing liabilities was offset by a decrease in our overall cost of funds of 5 basis points for the twelve-month period ended December 31, 2015.
  • Provision for loan losses for the three months ended December 31, 2015 and 2014 resulted in a recovery of $510,000 compared to provisions of $11,000, respectively.
  • Provision for loans losses for the twelve months ended December 31, 2015 and 2014 resulted in a recovery of $535,000 compared to provisions of $284,000, respectively.
    • For the three- and twelve-month periods, the recovery of provision resulted from the collection of $543,000 associated with a single commercial loan that was charged off in 2014.
  • Non-interest income decreased to $547,000 for the three months ended December 31, 2015 from $573,000 for the three months ended December 31, 2014. Non-interest income decreased to $2.0 million for the year ended December 31, 2015 from $3.5 million for the year December 31, 2014.
    • During 2014 the Company recorded a bargain purchase gain of $2.0 million as a result of our merger with Bank of Alpena.
    • Service charge income increased $140,000 year over year.
    • Mortgage banking income increased $59,000, as originations of mortgages sold increased $3.2 million year over year.
    • Year over year the Company had a $156,000 increase to gain on sale of Bank owned property with the sale of our former operations building early in 2015.
  • Non-interest expense remained unchanged at $2.6 million for the three-month period ended December 31, 2015 and 2014. Non-interest expense increased to $10.1 million for the twelve months ended December 31, 2015 from $9.0 million for the same period in 2014.
    • For the twelve-month period, the increase relates to an $870,000 increase in compensation and employee benefits with the added staff members as a result of the merger in late 2014.
    • In addition, the Company had a decrease of $266,000 in merger related expenses that was partially offset by an increase of $162,000 in professional services year over year. 
  • The Company recorded a federal income tax benefit of $1.7 million as a result of a recovery of the valuation allowance associated with the Company's deferred tax asset that had been previously recorded.

 

Net Interest Margin:

  • Decreased to 2.91% for the three-month period ended December 31, 2015 from 3.12% for the same period in 2014.
    • Average yield on interest-earning assets decreased 22 basis points to 3.31% from 3.53%.
    • Average cost of funds decreased slightly to 0.54% from 0.55%.
  • Decreased to 2.96% for the year ended December 31, 2015 from 3.31% for 2014.
    • Average yield on interest-earning assets decreased 40 basis points to 3.36% from 3.76%;
    • Average cost of funds decreased 5 basis points to 0.53% from 0.58%.

 

 

First Federal of Northern Michigan Bancorp, Inc




Consolidated Balance Sheet









December 31, 2015


December 31, 2014


 (unaudited)




 (dollars in thousands)

Assets




Cash and cash equivalents

7,574


11,205

Overnight deposits with Federal Home Loan Bank

$                        29


$                      267





Total cash and cash equivalents

7,603


11,472





Deposit held in other financial institutions

9,390


8,429

Securities available for sale, at fair value

128,418


119,968

Securities held to maturity

745


790

Loans - net

167,984


163,647

Loans held for sale

563


88

Federal Home Loan Bank stock

1,636


2,591

Property and equipment

6,329


6,336

Assets held for sale - net

271


478

Foreclosed real estate and other repossessed assets

1,171


2,823

Accrued interest receivable

1,039


986

Intangible assets

1,044


1,286

Deferred tax asset

2,615


851

Originated mortgage servicing right - net

578


710

Bank owned life insurance

4,857


4,727

Other assets

1,766


685

Total assets

$               336,009


$               325,867





Liabilities and Stockholders' Equity




Liabilities




Non-interest bearing deposits

61,654


56,032

Interest-bearing deposits

$               206,873


$               214,702

Advances from Federal Home Loan Bank

32,928


22,885

Accrued expenses and other liabilities

1,213


1,712

Total liabilities

302,668


295,331





Stockholders' Equity




Common stock ($0.01 par value 20,000,000 shares authorized, 4,034,764




  shares issued and 3,727,014 outstanding) - at December 31, 2015 and 2014 , respectively

40


40

Additional paid-in capital

28,264


28,264

Retained earnings

7,820


4,765

Treasury stock at cost (307,750 shares) - at December 31, 2015 and 2014 , respectively

(2,964)


(2,964)

Accumulated other comprehensive income

181


431

Total stockholders' equity

33,341


30,536





Total liabilities and stockholders' equity

$               336,009


$               325,867





 

 

First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries





Consolidated Statement of Operations








For the Three Months


For the Twelve Months


 Ended December 31,


 Ended December 31,


 (dollars in thousands)


2015


2014


2015


2014


(Unaudited)




(Unaudited)



Interest income:








Interest and fees on loans

$      2,025


$      2,058


$      8,119


$      7,394

Interest and dividends on investments








   Taxable

334


264


1,272


781

   Tax-exempt

24


31


113


158

Interest on mortgage-backed securities

295


290


1,106


767

Total interest income

2,679


2,643


10,611


9,100









Interest expense:








Interest on deposits

232


235


941


818

Interest on borrowings

86


69


304


264

Total interest expense

319


304


1,245


1,082









Net interest income

2,360


2,339


9,366


8,018

(Recovery of) Provision for loan losses

(510)


11


(535)


284

Net interest income after provision for loan losses

2,870


2,329


9,901


7,734









Non-interest income:








Service charges and other fees

251


232


947


807

Mortgage banking activities

154


121


532


472

Gain (Loss) on sale of available-for-sale investments

1


(5)


4


(4)

Net (loss) gain on sale of premises and equipment,








  real estate owned and other repossessed assets

(1)


(48)


80


(76)

Insurance and brokerage commission

39


43


206


117

 Bargain purchase gain

-


166


-


1,982

Other

103


64


227


180

Total non-interest income

547


573


1,996


3,478









Non-interest expenses:








Compensation and employee benefits

1,560


1,412


5,831


4,961

FDIC insurance premiums

69


60


251


207

Advertising

29


58


164


183

Occupancy

312


303


1,145


1,032

Amortization of intangible assets

61


63


243


146

Service bureau charges

117


107


437


345

Professional services

167


173


555


393

Collection activity

12


34


94


68

Real estate owned and other repossessed asset

1


152


298


272

Merger related expense

-


1


-


266

Other

284


218


1,103


1,090

Total non-interest expenses

2,612


2,582


10,120


8,963









Income before income tax expense

805


319


1,778


2,249

Income tax expense

-


-


(1,650)


-









Net income

$         805


$         319


$      3,428


$      2,249









Other comprehensive (loss) income:








Unrealized (loss) gain on available-for-sale investment securities - net of tax

(435)


(275)


(253)


594

Reclassification adjustment for gains (losses) realized in earnings - net of tax

5


(0)


3


(3)









   Comprehensive income

$         376


$           44


$      3,178


$      2,840









Per share data:








Net income (loss) per share








   Basic

$        0.22


$        0.09


$        0.92


$        0.70

   Diluted

$        0.22


$        0.09


$        0.92


$        0.70









Weighted average number of shares outstanding








   Basic and diluted

3,727,014


3,727,014


3,727,014


3,727,014

   Dividends per common share

$        0.03


$        0.02


$        0.10


$        0.08

 

Safe Harbor Statement

This news release and other releases and reports issued by the Company 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.

 

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SOURCE First Federal of Northern Michigan Bancorp, Inc.



RELATED LINKS

http://www.first-federal.com