First Federal of Northern Michigan Bancorp, Inc. Announces First Quarter 2016 Results

ALPENA, Mich., April 22, 2016 /PRNewswire/ -- First Federal of Northern Michigan Bancorp, Inc. (OTCQX: FFNM) (the "Company") reported consolidated net earnings of $261,000, or $0.07 per basic and diluted share, for the quarter ended March 31, 2016 compared to consolidated net earnings of $356,000, or $0.10 per basic and diluted share, for the quarter ended March 31, 2015. Annualized return on average assets was 0.31% and return on average equity was 3.07% for the first quarter of 2016 compared to 0.42% and 4.58%, respectively for the prior year period.

The Company's results for the quarter ended March 31, 2016 include:

• Quarter over quarter increase of $23,000 to interest income partially offset by an increase of $17,000 to interest expense.
• Provision for loan losses of $32,000 as compared to $23,000 for the prior year period.
• Quarter over quarter increase in the Company's non-interest expense of $83,000, primarily resulting from employment costs related to healthcare and the frozen pension plan and increased occupancy expenses related to technology upgrades late in 2015 and in the first quarter of 2016 when compared to the same period in 2015.
• Tangible book value per share at March 31, 2016 was $8.86 compared to $8.36 at March 31, 2015, primarily reflecting the Company's improvement to earnings following the merger.

When comparing our results for the three months ended March 31, 2016 to the three months ended March 31, 2015, net interest income remained unchanged at $2.3 million. Non-interest income decreased $9,000 to $485,000 for the quarter ended March 31, 2016 from $494,000 for the quarter ended March 31, 2015. Our non-interest expenses increased $83,000 to $2.5 million for the three months ended March 31, 2016 from $2.4 million for the three months ended March 31, 2015.

Michael W. Mahler, Chief Executive Officer of the Company, commented, "We are pleased with our commercial loan pipeline as we continue to focus our efforts on growing our commercial loan portfolio, which is evidenced by the recent addition of three commercial lenders to our lending team. We believe our increased presence, market and product expansion along with higher commercial loan demand accounts for the growth in our commercial pipeline. We remain confident that our long term strategy will result in quality loan growth and provide the earnings growth needed to enhance value for our shareholders." 

Mahler continued "While provision expense increased quarter over quarter, asset quality remains strong as demonstrated by a 10.9% Texas ratio as of March 31, 2016. This is also evident with a $1.0 million reduction to our non-performing assets and net recoveries on charged off loans as compared to the same period one year earlier. We are disappointed to report that late in the quarter we did place a commercial loan into non-accrual status. This well-seasoned loan is supported with a government guarantee so we do not expect the default to have a significant impact on the Bank as we look ahead. The action though did negatively impact earnings for the quarter by more than $20,000. We view this as an isolated situation within the portfolio as demonstrated by the strong asset quality metrics cited above."

Financial Condition

Total assets of the Company at March 31, 2016 were $330.6 million, a decrease of $5.4 million, or 1.6%, from $336.0 million at December 31, 2015. Cash and cash equivalents increased $4.0 million, or 52.8%, while securities available for sale decreased $5.1 million, or 4.0%, to $123.3 million and deposits held in other financial institutions decreased $744,000, or 7.9%, as we had certificates of deposits mature during the first three months of 2016. In addition, net loans receivable decreased $1.6 million, or 1.0%, to $166.4 million at March 31, 2016. 

Deposits increased $2.2 million, or less than 1.0%, to $270.7 million at March 31, 2016 from December 31, 2015. FHLB advances decreased $8.4 million, or 25.7%, as proceeds from loan payments and matured securities were used to pay off maturing advances.

Stockholders' equity increased $661,000, or 2.0%, to $34.0 million at March 31, 2016 from December 31, 2015.  The increase was due primarily to net earnings for the three-month period of $261,000 and an increase of $549,000 in the unrealized gain on available-for-sale investment securities, offset by a dividend payment of $149,000. At March 31, 2016 First Federal of Northern Michigan remains "well-capitalized" for regulatory purposes, as shown in the table below.

Results of Operations

Interest income remained steady at $2.6 million for the three months ended March 31, 2016 and 2015. During the three months ended March 31, 2016 our yield on interest-earning assets remained unchanged at 3.34% when compared to the same period in 2015.

Interest expense increased to $318,000 for the three months ended March 31, 2016 from $301,000 for the three months ended March 31, 2015. The increase in interest expense was due primarily to an 11 basis point increase in the cost of FHLB advances to 1.31% from 1.20% partially offset by a decrease of $2.7 million in the average balance of our interest-bearing deposit accounts during the three months ended March 31, 2016 as compared to the prior year period.

The Company's net interest margin decreased to 2.93% for the three-month period ended March 31, 2016 from 2.96% for the same period in 2015 as a result of the factors mentioned above.

The provision for loan losses for the three-month period ended March 31, 2016 was $32,000, as compared to $23,000 for the prior year period. The increase in provision expense quarter over quarter is primarily related to an increase in delinquencies in our loan portfolio offset by fewer loans requiring specific reserves along with a net recovery position on previously charged off loans. 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 $485,000 for the quarter ended March 31, 2016 from $494,000 for the 2015 period. Income related to insurance and brokerage commissions decreased $18,000, while we recorded a $5,000 loss on sale of bank owned properties as compared to a gain of $91,000 for the year earlier period. Partially offsetting these decreases was the collection of $100,000 in life insurance proceeds during the three months ended March 31, 2016.

Non-interest expense increased $83,000 to $2.5 million for the 2016 period from $2.4 million for the three months ended March 31, 2015, as we saw increases in the following areas:

• $44,000 in compensation and employee benefits, as a result of  increased health care costs associated with increased premiums and claims activity along with increase funding expenses related to our frozen pension plan,
• $50,000 in occupancy related to technology upgrades made late in 2015 and early 2016,
• $21,000 in service bureau (bank operating system) fees,
• Partially offsetting these increases was a decrease of $40,000 in collection and real estate owned expenses.

During the quarters ended March 31, 2016 and March 31, 2015 the Company recorded no tax expense.

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