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.
