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

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.

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.                   

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%.

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