First Federal of Northern Michigan Bancorp, Inc. Announces Second Quarter 2014 Results

PR Newswire

ALPENA, Mich., July 24, 2014 /PRNewswire/ -- First Federal of Northern Michigan Bancorp, Inc. (FFNM) (the "Company") reported consolidated net income of $94,000, or $0.03 per basic and diluted earnings per share, for the quarter ended June 30, 2014 compared to a consolidated net loss of $4,000, or less than $0.01 per basic and diluted loss per share, for the quarter ended June 30, 2013.  

Consolidated net income for the six months ended June 30, 2014 was $316,000, or $0.11 per basic and diluted share, compared to $64,000, or $0.02 per basic and diluted share for the six months ended June 30, 2013. 

Listed below are highlights related to the Company's results for the three and six months ended June 30, 2014:

  • Non-performing assets decreased to $3.9 million at June 30, 2014 from $4.1 million at December 31, 2013, resulting in a decline of our classified asset ratio from 23.53% as of December 31, 2013 to 22.51% at June 30, 2014.
  • Provision for loan losses were zero and $16,000, for the three and six months ended June 30, 2014, respectively, as compared to $196,000 and $340,000 for the three and six months ended June 30, 2013, respectively.
  • Quarter over quarter decline in the Company's net interest margin (to 3.50% for the quarter ended June 30, 2014 from 3.70% for the quarter ended June 30, 2013) due primarily to a 26 basis point reduction in the yield on our interest-earning assets, partially offset by a decrease of 7 basis points in our overall cost of funds period over period.
  • Decrease in non interest expense of $66,000 and $164,000 for the three and six months ended June 30, 2014 when compared to the same periods one year earlier, in spite of recording $42,000 of merger related expenses during the quarter ended June 30, 2014.
  • Increase of $9.9 million of lower cost average core deposits in the last six months ended June 30, 2014.
  • First Federal of Northern Michigan remains "well-capitalized" for regulatory purposes.

Michael W. Mahler, President and Chief Executive Officer of the Company, commented, "Our improvement to pre-tax earnings, which grew to $316,000 year over year, reflects the improvement of the core profitability of the Bank.  We are happy with the progress and expect it to continue as we look forward.  We are very pleased with the continued improvement in our asset quality position. Provision needs for the quarter ended June 30, 2014 declined as we saw net recoveries of $29,000 compared to net-charge offs of $29,000 across all portfolios when compared to the year earlier period.  Additionally, delinquency trends continue to show improvement across all loan portfolios when compared to year end data. This data supports our belief that the asset quality metrics will continue to improve into the foreseeable future.  Of course this is all contingent upon the national, state and regional economic recovery continuing."    

Mahler further commented, "Our continued focus on core deposits has resulted in balance growth in excess of $9.0 million dollars so far this year, which helped to slow the decline in our net interest margin.  This is vitally important given the pressure asset yields are under in this continuing low interest rate environment.  Additionally, we are pleased with the $653,000 in loan growth in the mortgage portfolio that occurred during the second quarter of 2014.  While mortgage loan production has been soft year to date it is in line with our expectation. However, we currently have our strongest mortgage construction pipeline in years.  In addition, we are beginning to see increases in commercial loan demand in our region as some borrowers seek expansion opportunities or capital spending which previously had been deferred.  We are hopeful that the demand will result in enhanced originations as we move forward.  This growth is important to help us offset the impact of diminishing margins."

Mahler added, "Our cost cutting initiatives have reduced non-interest expenses for the quarter by $66,000, when compared to the same quarter last year, and a six month reduction of $164,000.   This represents a 4.0% reduction for the first six months and extends across most expense categories.  Real estate owned cost reductions represent 57% of the total savings.  This reduced level of spending year over year occurred in spite of merger related expenses which totaled nearly $42,000 in the second quarter.  We anticipate these one-time costs to end in the third quarter with the expected closing of the merger."    

Asset Quality

Total nonperforming assets to total assets decreased from 3.03% at June 30, 2013 to 1.95% at December 31, 2013 and further decreased to 1.78% at June 30, 2014. Non-performing assets decreased by $169,000 from December 31, 2013 to June 30, 2014.  The Company continues to closely monitor non-performing assets and has taken a variety of steps to reduce the level thereof, such as:

  • Timely pursuit of foreclosure and/or repossession options coupled with quick and aggressive marketing efforts of repossessed assets.
  • Restructuring loans, where feasible, to assist borrowers in working through this financially challenging time.
  • Allowing borrowers to structure short-sales of properties, where appropriate and feasible.
  • Working with borrowers to find a means of reducing outstanding debt (such as through sales of collateral).

As of


June 30, 2014


December 31, 2013


June 30, 2013

Asset Quality Ratios:






Non-performing assets to total assets

1.78%


1.95%


3.03%

Non-performing loans to total loans

1.63%


1.67%


3.13%

Allowance for loan losses to non-performing loans

67.61%


63.65%


38.36%

Allowance for loan losses to total loans

1.09%


1.07%


1.20%







"Texas Ratio" (Bank)(1)

16.04%


17.02%


27.07%

Classified asset ratio (2)

22.51%


23.53%


37.23%







Total non-performing loans ($000 omitted)

$2,199


$2,311


$4,409

Total non-performing assets ($000 omitted)

$3,922


$4,091


$6,507







(1) "Texas" ratio is calculated by dividing total non performing loans plus real estate owned by tangible capital plus loan loss reserves







(2) Classified asset ratio is calculated by dividing classified assets (substandard assets plus real estate owned and other repossessed assets) by core capital plus loan loss reserves.




 

Non-performing assets were positively impacted by a net reduction of $128,000 in loans placed in non-accrual status during the six months ended June 30, 2014.  In addition, during the six-month period ended June 30, 2014 the classified asset ratio improved to 22.51% from 23.53% as of December 31, 2013.

Financial Condition

Total assets of the Company at June 30, 2014 were $219.8 million, an increase of $10.1 million, or 4.8%, from total assets of $209.7 million at December 31, 2013. Net loans receivable decreased $1.2 million to $135.1 million at June 30, 2014, with the decline coming primarily in the commercial loan portfolio. When compared to December 31, 2013 we have seen a $653,000 increase in our mortgage portfolio as a result of retaining high-quality 10- and 15-year fixed rate mortgages.

Deposits increased $9.0 million to $169.0 million at June 30, 2014, with the growth coming mostly in our lower-costing checking and savings products. FHLB advances increased $344,000 during the six months ended June 30, 2014.

Stockholders' equity was $24.2 million at June 30, 2014 compared to $23.5 million at December 31, 2013. The increase was due primarily to an increase of $434,000 in the unrealized gain on available for sale securities, net of tax and net income reported of $316,000. 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 (Core) capital  ( to adjusted assets)

$  22,966

10.48%


$    8,767

4.00%


$  10,959

5.00%

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

$  24,453

18.24%


$  10,723

8.00%


$  13,404

10.00%

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

$  22,966

17.13%


$    5,362

4.00%


$    8,043

6.00%

Tangible Capital ( to tangible assets)

$  22,966

10.48%


$    3,288

1.50%


$    4,384

2.00%










 

Results of Operations

Interest income decreased to $2.0 million for the three months ended June 30, 2014 from $2.1 million for the year earlier period, due mainly to a decrease of 26 basis points in the average yield on interest-earning assets period over period. Interest income decreased $110,000 to $4.1 million for the six-month period ended June 30, 2014 from $4.2 million for the same period in 2013, due mainly to lower market interest rates period over period.

Interest expense decreased to $259,000 for the three months ended June 30, 2014 from $285,000 for the three months ended June 30, 2013. Interest expense for the six months ended June 30, 2014 decreased to $508,000 from $606,000 for the six months ended June 30, 2013. The decrease in interest expense for both the three- and six-month periods was due primarily to a decrease in our cost of funds related to certificates of deposit and FHLB advances. The average cost of our certificates of deposit decreased to 0.98% for the three months ended June 30, 2014 from 1.02% for the three months ended June 30, 2013 and to 0.97% for the six months ended June 30, 2014 from 1.06% for the six months ended June 30, 2013, as higher costing deposits matured and either left the Bank, as we made the strategic decision to not be a market leader in rates in the current interest rate environment, or were re-priced at lower rates. In addition, the cost of our FHLB advances decreased 14 basis points from 1.23% for the three months ended June 30, 2013 to 1.09% for the three months ended June 30, 2014 and 28 basis points from 1.36% for the six months ended June 30, 2013 to 1.08% for the six months ended June 30, 2014 due primarily to lower market interest rates.

The Company's net interest margin decreased to 3.50% for the three-month period ended June 30, 2014 from 3.70% for the same period in 2013 and decreased to 3.59% for the six-month period ended June 30, 2014 from 3.66% for the same period in 2013 as a result of the factors mentioned above.

The provision for loan losses for the three months ended June 30, 2014 were zero as compared to provision of $196,000 for the prior year period. For the six months ended June 30, 2014, the provision for loan losses were $16,000 as compared to $340,000 for the same period ended June 30, 2013. During the quarter ended June 30, 2014, we had net recoveries of $29,000 compared to $29,000 of net charge-offs during the quarter ended June 30, 2013 in large part due to the decline in the number of loans in foreclosure. The direct effect of the decrease in charge-offs quarter over quarter and reduced general reserve factors resulted in the decrease in provision expense for the period ended June 30, 2014.

Non interest income decreased to $344,000 for the three months ended June 30, 2014 from $465,000 for the three months ended June 30, 2013 as 2014 we experienced period over period decreases in the following income categories:

  • Service charges and other fees of $34,000,
  • Mortgage banking activities of $33,000,
  • Other non-interest income of $37,000 primarily related to reduced insurance and brokerage commission income.

Non interest income decreased to $681,000 for the six months ended June 30, 2014 from $905,000 for the six months ended June 30, 2013, mainly due to a decrease of $108,000 in mortgage banking activities year over year.  In addition, we experienced decreases of $46,000 in service charge income and $44,000 in other income related to insurance and brokerage activities. 

Non interest expense decreased $66,000 for the three months ended June 30, 2014 when compared to the three months ended June 30, 2013. Non interest expense decreased $164,000 for the six months ended June 30, 2014 compared to the same period one year earlier.  Most notably for both the three- and six-month periods, real estate owned expenses decreased $76,000 and $93,000, respectively.  In addition, for the three- and six-month periods salaries and benefits decreased $25,000 and $75,000, respectively and amortization of intangible assets decreased $20,000.  Expenses associated with professional services declined $22,000 for the three months ended June 30, 2014, while increasing $57,000, related to merger costs for the six months ended June 30, 2014.  These period over period decreases were offset by increases of $68,000 and $5,000 in other expenses for the three- and six-month period ended June 30, 2014, respectively.  This increase is primarily related to an increase in commercial loan expenses related to troubled credits in the portfolio.

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, 2014

 December 31, 2013


     (Unaudited)


ASSETS



Cash and cash equivalents:



Cash on hand and due from banks

$                 3,235,034

$                 2,760,010

Overnight deposits with FHLB

2,066

5,823

Total cash and cash equivalents

3,237,100

2,765,833

Securities AFS 

61,466,330

50,358,175

Securities HTM

2,215,000

2,255,000

Loans held for sale

380,405

175,400

Loans receivable, net of allowance for loan losses of $1,486,809 and



  $1,471,622 as of June 30, 2014 and December 31, 2013, respectively

135,068,805

136,314,964

Foreclosed real estate and other repossessed assets

1,723,024

1,780,058

Federal Home Loan Bank stock, at cost

3,266,100

3,266,100

Premises and equipment

5,122,666

5,203,301

Accrued interest receivable

714,126

744,730

Intangible assets

-

39,732

Deferred tax asset

574,768

798,163

Originated mortgage servicing rights 

773,413

860,024

Bank owned life insurance

4,667,787

4,610,070

Other assets

580,782

485,234




Total assets

$              219,790,306

$              209,656,784







LIABILITIES AND STOCKHOLDERS' EQUITY



Liabilities:



Deposits

$              168,999,329

$              160,029,115

Advances from borrowers for taxes and insurance

383,311

151,254

Federal Home Loan Bank Advances

25,157,152

24,813,409

Accrued expenses and other liabilities

1,091,910

1,138,324




Total liabilities

195,631,702

186,132,102




Stockholders' equity:



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



 3,191,799 shares issued and outstanding) at June 30, 2014 and December 31, 2013

31,918

31,918

Additional paid-in capital

23,853,891

23,853,891

Retained earnings 

2,963,515

2,763,242

Treasury stock at cost (307,750 shares) at June 30, 2014 and December 31, 2013

(2,963,918)

(2,963,918)

Accumulated other comprehensive income (loss)

273,198

(160,451)

Total stockholders' equity

24,158,604

23,524,682




Total liabilities and stockholders' equity

$              219,790,306

$              209,656,784




 

 

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,


2014


2013


2014


2013


(Unaudited)


(Unaudited)

Interest income:








Interest and fees on loans

$        1,690,977


$        1,826,649


$        3,401,391


$        3,643,262

Interest and dividends on investments








   Taxable

149,521


123,992


300,197


239,320

   Tax-exempt

41,028


37,349


82,484


75,043

Interest on mortgage-backed securities

143,269


106,795


285,563


222,166

Total interest income

2,024,795


2,094,783


4,069,635


4,179,791









Interest expense:








Interest on deposits

191,720


208,639


378,248


430,540

Interest on borrowings

66,890


76,022


129,656


175,463

Total interest expense

258,610


284,661


507,904


606,003









Net interest income

1,766,185


1,810,122


3,561,731


3,573,788

Provision for loan losses

-


195,753


15,765


339,827

Net interest income after provision for loan losses

1,766,185


1,614,369


3,545,966


3,233,961









Non-interest income:








Service charges and other fees

188,126


222,279


369,218


414,719

Mortgage banking activities

128,244


161,691


224,082


332,123

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








  real estate owned and other repossessed assets

(21,251)


(5,730)


(26,064)


750

Other 

49,232


86,371


113,350


157,363

Total non-interest income

344,351


464,613


680,586


904,955









Non-interest expense:








Compensation and employee benefits

1,109,608


1,134,644


2,218,651


2,293,901

FDIC Insurance Premiums

45,330


48,978


90,874


94,677

Advertising

43,989


28,796


71,624


67,716

Occupancy

219,570


218,208


455,945


451,655

Amortization of intangible assets

10,086


29,645


39,732


59,292

Service bureau charges

83,790


77,089


146,176


154,583

Professional services

164,885


186,970


294,143


236,696

Collection activity

11,291


21,591


29,496


63,764

Real estate owned & other repossessed assets

11,732


88,153


28,681


121,419

Other 

316,092


248,419


535,595


531,084

Total non-interest expense

2,016,373


2,082,496


3,910,917


4,074,787









Income (loss) before income tax benefit

94,163


(3,513)


315,635


64,129

Income tax benefit 

-


-


-


-









Net (loss) income

$            94,163


$             (3,513)


$           315,635


$            64,129









Other comprehensive income (loss):








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

160,996


(457,978)


$           433,649


$          (557,775)

Reclassification adjustment for losses realized in earnings - net of tax

-


-


-


-









   Comprehensive income (loss)

$           255,159


$          (461,491)


$           749,284


$          (493,646)









Per share data:








Net (loss) income per share 








   Basic

$                0.03


$               (0.00)


$                0.11


$                0.02

   Diluted 

$                0.03


$               (0.00)


$                0.11


$                0.02









Weighted average number of shares outstanding








   Basic

2,884,049


2,884,049


2,884,049


2,884,049

   Including dilutive stock options

2,884,049


2,884,049


2,884,049


2,884,049

Dividends per common share

$                0.02


$                   -


$                0.02


$                   -









 

  

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