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

ALPENA, Mich., April 25, 2014 /PRNewswire/ -- First Federal of Northern Michigan Bancorp, Inc. (Nasdaq: FFNM) (the "Company") reported consolidated net earnings of $221,000, or $0.08 per basic and diluted share, for the quarter ended March 31, 2014 compared to consolidated net earnings of $68,000, or $0.02 per basic and diluted share, for the quarter ended March 31, 2013.  

The Company's results for the quarter ended March 31, 2014 include:

  • Provision for loan losses of $16,000 as compared to $144,000 for the prior year period.
  • Quarter over quarter decline in the Company's non-interest expenses of $98,000.
  • The continued growth of lower cost average core deposits by $7.7 million over the last 12 months.

Michael W. Mahler, President and Chief Executive Officer of the Company, commented,

"We are pleased to see the lowest level of provision expense in six quarters. It is a function of the improvement in our asset quality in recent quarters.  Both our Texas and Classified Asset ratios have fallen to pre-2008 levels.  We continue to see improved delinquency trends across all loan categories.  While loan production has not met our expectations, we are hopeful that with the onset of warmer weather and the continued favorable interest rate environment, we will see an increase in both commercial loan demand and improved real estate activity throughout the region." 

Mahler continued "We are pleased with our reduction in non-interest expense for the quarter.  The savings comes from a reduction in the number of full-time employees, changes to expenses for certain benefit plans, expenses related to troubled credits, including commercial loan and real estate owned expenses.  The other area of savings came from a reduction in service bureau expenses resulting from a change in our operating platform during the third quarter of 2013.  This overall 4.9% reduction in expenses for the quarter is more impressive when we consider that professional fees increased nearly $56,000, related to the proposed merger with Alpena Banking Corporation, in the first quarter of 2014 and none in the first quarter of 2013."

Mahler concluded "Lastly, we are pleased that our net interest margin (NIM) increased to 3.66% from 3.61% quarter to quarter.  The stability of our margin is a function of the significant growth in average core deposits which are up $7.7 million in the first quarter of 2014, allowing us to displace higher cost deposits.  We are pleased that we have been able to maintain our margin in this difficult operating environment while not taking on any additional interest rate risk. Our sensitivity profile has not materially changed when we compare ourselves to the same period one year earlier."

Asset Quality

Total nonperforming assets to total assets decreased from 3.30% at March 31, 2013 to 1.95% at December 31, 2013 and decreased further to 1.81% at March 31, 2014. Non-performing assets decreased $192,000 from December 31, 2013 to March 31, 2014 and decreased $2.9 million from March 31, 2013 to March 31, 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; securing judgments when feasible, and
  • Working with borrowers to find a means of reducing outstanding debt (such as through sales of collateral).

As of


March 31, 2014


December 31, 2013


March 31, 2013

Asset Quality Ratios






Non-performing assets to total assets

1.81%


1.95%


3.30%

Non-performing loans to total loans

1.43%


1.67%


3.32%

Allowance for loan losses to non-performing loans

74.34%


63.65%


36.24%

Allowance for loan losses to total loans

1.06%


1.07%


1.20%







"Texas Ratio" (Bank) (1)

16.09%


17.02%


29.41%

Classified Asset Ratio (2)

22.71%


23.53%


53.00%







Total non-performing loans (000's omitted)

$1,961


$2,311


$4,622

Total non-performing assets (000's omitted)

$3,899


$4,091


$7,027













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

      capital plus loan loss reserve.


(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.

Financial Condition

Total assets of the Company at March 31, 2014 were $215.3 million, an increase of $5.6 million, or 2.7%, from $209.7 million at December 31, 2013. Securities available for sale increased $6.1 million, to $56.4 million, while net loans receivable decreased $989,000 to $135.3 million at March 31, 2014.

Deposits increased $5.7 million to $165.7 million at March 31, 2014 from December 31, 2013. FHLB advances decreased $581,000 as proceeds from loan payments and payoffs, as well as cash on hand, were used to pay off maturing advances.

Stockholders' equity increased $436,000 to $24.0 million at March 31, 2014 from December 31, 2013.  The increase was due primarily to net earnings for the three-month period of $221,000 and an increase of $273,000 in the unrealized gain on available-for-sale investment securities, offset by a dividend payment of $58,000. First Federal of Northern Michigan remains "well-capitalized" for regulatory purposes, 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)

$     22,778

10.61%


$        8,586

4.00%


$     10,732

5.00%

  Total risk-based capital ( to risk-









          weighted assets)

$     24,236

18.14%


$       10,686

8.00%


$     13,357

10.00%

  Tier 1 risk-based capital ( to 









          risk weighted assets)

$     22,778

17.05%


$        5,343

4.00%


$       8,014

6.00%

  Tangible Capital ( to 









          tangible assets)

$     22,778

10.61%


$        3,220

1.50%


$       4,293

2.00%

Results of Operations

Interest income decreased slightly to $2.0 million for the three months ended March 31, 2014 from $2.1 million for the year earlier period. The decrease in interest income resulted primarily from:

  • $3.2 million decrease in average balances in our mortgage portfolio and a 26 basis point decline of yield from 5.14% to 4.88%.
  • $467,000 decrease in average balance in our non-mortgage portfolio and a 9 basis point decrease in yield to 5.16% from 5.25%.
  • These decreases were offset in part by an increase of $3.6 million in average balance of our available for sale investment portfolio and a 24 basis point increase in yield to 2.13% from 1.89%.
  • Yield on interest-earning assets decreased 10 basis points to 4.18% from 4.28%.

Interest expense decreased to $249,000 for the three months ended March 31, 2014 from $321,000 for the three months ended March 31, 2013. The decrease in interest expense was due primarily to:

  • The cost of FHLB advances decreasing 40 basis points to 1.07% from 1.47%;
  • The cost of interest-bearing deposits decreasing 11 basis points to 0.55% from 0.66%.
  • Overall cost of funds decreasing 16 basis points to 0.62% from 0.78%.

The Company's net interest margin increased to 3.66% for the three-month period ended March 31, 2014 from 3.61% for the same period in 2013 as a result of the factors mentioned above.

The provision for loan losses for the three-month period ended March 31, 2014 was $16,000, as compared to $144,000 for the prior year period. During the quarter ended March 31, 2014, we removed specific reserves of approximately $44,000 on one commercial credit relationship which was classified as a Troubled Debt Restructuring. In addition, during the quarter ended March 31, 2014 we experienced fewer loans requiring specific reserves along with lower level of charge-offs. The provision was based on management's review of the components of the overall loan portfolio, the status of non-performing loans and other subjective factors.

Non interest income decreased to $336,000 for the quarter ended March 31, 2014 from  $440,000 for the 2013 period. Despite low mortgage rates, income related to mortgage banking activities decreased $75,000 for the three months ended March 31, 2014 when compared to the same period in 2013.

Non interest expense decreased $98,000 to $1.9 million for the 2014 period from $2.0 million for the three months ended March 31, 2013, as we saw declines in the following areas:

  • $50,000 in compensation and employee benefits, as we reduced staffing and self-insured a portion of our health insurance premiums.
  • $11,000 in marketing,
  • $15,000 in service bureau,
  • $40,000 in expenses related to troubled credits and real estate owned,
  • $40,000 in other expenses related to commercial loans.
  • Partially offsetting these decreases was an increase of $56,000 in professional service fees primarily related to the proposed merger.

During the quarters ended March 31, 2014 and March 31, 2013 the Company recorded no tax expense.

Selected Performance Ratios



For the Three Months Ended March 31


2014


2013





Performance Ratios:




Net interest margin

3.66%


3.61%

Average interest rate spread

3.57%


3.50%

Return on average assets*

0.42%


0.13%

Return on average equity*

3.73%


1.07%





* Annualized




 

 

First Federal of Northern Michigan Bancorp, Inc




Consolidated Balance Sheet









 March 31, 2014 


 December 31, 2013 


     (Unaudited) 



ASSETS




Cash and cash equivalents:




Cash on hand and due from banks

$                 2,868,380


$              2,760,010

Overnight deposits with FHLB

278,575


5,823

Total cash and cash equivalents

3,146,955


2,765,833

Securities AFS 

56,442,499


50,358,175

Securities HTM

2,255,000


2,255,000

Loans held for sale

235,500


175,400

Loans receivable, net of allowance for loan losses of $1,458,130 and 




  $1,471,058 as of March  31, 2014 and December 31, 2013, respectively

135,326,174


136,314,964

Foreclosed real estate and other repossessed assets

1,938,058


1,780,058

Federal Home Loan Bank stock, at cost

3,266,100


3,266,100

Premises and equipment

5,159,558


5,203,301

Accrued interest receivable

828,205


744,730

Intangible assets

10,087


39,732

Deferred tax asset

657,705


798,163

Originated mortgage servicing rights

812,421


860,024

Bank owned life insurance

4,638,674


4,610,070

Other assets

549,713


485,234

Total assets

$              215,266,649


$           209,656,784









LIABILITIES AND STOCKHOLDERS' EQUITY




Liabilities:




Deposits

$              165,719,953


$           160,029,115

Advances from borrowers for taxes and insurance

321,427


151,254

Advances from Federal Home Loan Bank 

24,232,904


24,813,409

Accrued expenses and other liabilities

1,031,238


1,138,324





Total liabilities

191,305,522


186,132,102





Stockholders' equity:




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




  3,191,799 shares issued)

31,918


31,918

Additional paid-in capital

23,853,891


23,853,891

Retained earnings 

2,927,034


2,763,242

Treasury stock at cost (307,750 shares)

(2,963,918)


(2,963,918)

Accumulated other comprehensive income (loss)

112,202


(160,451)

Total stockholders' equity

23,961,127


23,524,682





Total liabilities and stockholders' equity

$              215,266,649


$           209,656,784

 

 

First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries




Consolidated Statement of Income and Comprehensive Income





For the Three Months


 Ended March 31, 


2014


2013


(Unaudited)

Interest income:




Interest and fees on loans

$    1,710,414


$    1,816,613

Interest and dividends on investments




   Taxable

150,676


115,329

   Tax-exempt

41,456


37,695

Interest on mortgage-backed securities

142,294


115,371

Total interest income

2,044,840


2,085,008





Interest expense:




Interest on deposits

186,527


221,902

Interest on borrowings

62,766


99,441

Total interest expense

249,293


321,343





Net interest income

1,795,547


1,763,665

Provision for loan losses

15,765


144,074

Net interest income after provision for loan losses

1,779,782


1,619,591





Non-interest income:




Service charges and other fees

181,092


192,440

Mortgage banking activities

95,838


170,432

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




  real estate owned and other repossessed assets

(4,813)


6,479

Other 

64,118


70,992

Total non-interest income

336,235


440,343





Non-interest expense:




Compensation and employee benefits

1,109,043


1,159,257

FDIC Insurance Premiums

45,544


45,699

Advertising

27,635


38,919

Occupancy

236,375


233,446

Amortization of intangible assets

29,646


29,646

Service bureau charges

62,386


77,494

Professional services

129,258


72,863

Collection activity

18,205


42,173

Real estate owned & other repossessed assets

16,949


33,266

Other 

219,503


259,527

Total non-interest expense

1,894,544


1,992,289





Income before income tax expense 

221,473


67,645

Income tax expense

-


-





Net Income

$      221,473


$        67,645





Other Comprehensive Income (Loss):




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

$      272,653


$       (99,797)

Reclassification adjustment for gains realized in earnings - net of tax

$                  -


$                  -





   Comprehensive income (Loss) 

$      494,126


$       (32,152)





Per share data:




Net Income per share 




   Basic

$            0.08


$            0.02

   Diluted 

$            0.08


$            0.02





Weighted average number of shares outstanding




   Basic

2,884,049


2,884,049

   Including dilutive stock options

2,884,049


2,884,049

Dividends per common share

$            0.02


$               -









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.

SOURCE First Federal of Northern Michigan Bancorp, Inc.

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