First Federal of Northern Michigan Bancorp, Inc. (FFNM: OTCQX U.S. Premier) | First Federal of Northern Michigan Bancorp, Inc. Announces Third Quarter 2017 Results

OTC

ALPENA, Mich., Oct. 27, 2017 /PRNewswire/ — First Federal of Northern Michigan Bancorp, Inc. (OTCQX: FFNM) (the “Company”) reported consolidated net income of $396,000, or $0.11 per share, for the quarter ended September 30, 2017 compared to $310,000, or $0.08 per share, for the quarter ended September 30, 2016. Consolidated net income for the nine months ended September 30, 2017 was $1.4 million, or $0.35 per share, compared to $768,000, or $0.21 per share for the nine months ended September 30, 2016. 

First Federal Of Northern Michigan Bancorp, Inc. logo (PRNewsFoto/First Federal of Northern Michi)

Listed below are highlights related to the Company’s results for the three and nine months ended September 30, 2017:

  • Net loan growth of $6.0 million during the nine-month period ended September 30, 2017.
  • Quarter over quarter increase of $184,000 to net interest income and an increase of $615,000 in net interest income for the nine month period year over year.
  • Quarter over quarter decrease in the Company’s non-interest expense of $32,000 and $148,000 for the nine month period year over year.   
  • Tangible book value per share at September 30, 2017 was $9.08 compared to $9.04 at September 30, 2016.
  • First Federal of Northern Michigan remains “well-capitalized” for regulatory purposes.

Michael W. Mahler, Chief Executive Officer of the Company, commented, “We are pleased that the $6.0 million of loan growth has resulted in an 8% increase to net interest income for the third quarter and a 9% increase for the first nine months of 2017. The continued conversion of investments to loans has contributed to the 16 basis point increase to the net interest margin from 2.94% to 3.10% for the nine months ended September 30, 2017.”

Mahler continued, “In addition to the increase to net interest income, we are pleased with the decline of $148,000 in non-interest expenses we have achieved to date for 2017. The contribution of lower expenses and the improved earnings structure of our balance sheet has allowed us to grow pre-tax, pre-provision income by 57% for the quarter and 99% for the first nine months of the year when compared to the prior year period. Our recent announcement to exit the Oscoda market demonstrates our commitment to improve efficiency, focus on earnings growth, and create shareholder value through improved earnings.”

Financial Condition

Total assets of the Company at September 30, 2017 were $336.3 million, a decrease of $8.7 million, or 2.5%, from total assets of $344.9 million at December 31, 2016. Net loans receivable increased $6.0 million, or 3.3%, to $187.5 million at September 30, 2017. When compared to December 31, 2016, we have seen a $5.6 million increase in our commercial loan portfolio and an increase of $1.0 million in our mortgage loan portfolio as we have focused our efforts on growing loans organically in our market areas. Partially offsetting these increases is a decrease of $489,000 in our consumer loan portfolio for the nine months ended September 30, 2017.             

Deposits decreased $10.8 million during the first nine months of 2017 to $282.6 million at September 30, 2017.  While the balance of our Federal Home Loan Bank advances increased $412,000 during the nine months ended September 30, 2017.

Stockholders’ equity was $34.5 million at September 30, 2017 compared to $32.9 million at December 31, 2016. The increase was due primarily to net income of $1.4 million and a decrease of $877,000 in the unrealized loss on available for sale securities net of tax, partially offset by the payment of $522,000 in dividends to shareholders. First Federal of Northern Michigan’s regulatory capital remains at levels in excess of regulatory requirements, as shown in the table below.

Results of Operations

Interest income increased $160,000 to $2.8 million for the three months ended September 30, 2017 from $2.7 million for the year earlier period, due mainly to an $11.5 million increase to the average balance of interest-earning assets, which lead to an 8 basis point increase in our yield on interest-earning assets from 3.40% to 3.48% period over period. Interest income increased $564,000 to $8.5 million for the nine-month period ended September 30, 2017 from $7.9 million for the same period in 2016, due mainly to an $11.2 million increase to the average balance of interest-earning assets and in turn an increase of 13 basis points in our yield on interest-earning assets from 3.35% for the nine months ended September 30, 2016 to 3.48% for the same period in 2017.

Interest expense decreased to $301,000 for the three months ended September 30, 2017 from $326,000 for the three months ended September 30, 2016. Interest expense for the nine months ended September 30, 2017 decreased to $914,000 from $965,000 for the nine months ended September 30, 2016. The decrease in interest expense for both the three- and nine-month periods was due primarily to a decrease of $4.1 million and $5.7 million, respectively, in the average balance of our Federal Home Loan Bank advances.

The Company’s net interest margin increased to 3.11% for the three-month period ended September 30, 2017 from 2.99% for the same period in 2016, and increased to 3.10% for the nine-month period ended September 30, 2017 from 2.94% for the same period in 2016 as a result of the factors mentioned above.

The provision for loan losses for the three months ended September 30, 2017 was $16,000 compared to $35,000 for the prior year period. For the nine months ended September 30, 2017, the provision for loan losses was $150,000 compared to $92,000 for the nine months ended September 30, 2016. During the quarter ended September 30, 2017, we had net charge offs of $59,000 compared to $16,000 of net recoveries during the quarter ended September 30, 2016, in large part due to a charge off recorded on a single mortgage loan. The direct effect of $6.0 million in net loan growth for the first nine months of 2017 and net charges offs of $33,000 as compared to net recoveries of $38,000 for the prior year period is the principal factor for the increase in provision expense for the nine-month period ended September 30, 2017.

Non-interest income decreased to $505,000 for the three months ended September 30, 2017 from $527,000 for the three months ended September 30, 2016 with the following period over period changes:

  • $91,000 decrease to gain on sale of available for sale securities.
  • Partially offsetting this decrease are the following increases:
    • $27,000 in mortgage banking activities,
    • $24,000 in service charge fee income
    • $11,000 in gain on sale of bank owned property.

Non-interest income remained unchanged at $1.4 million for the nine months ended September 30, 2017 when compared to the same period ended September 30, 2016.

Non-interest expense remained relatively unchanged at $2.5 million for the three months ended September 30, 2017 when compared to the three months ended September 30, 2016. Non-interest expense decreased $148,000 for the nine months ended September 30, 2017 compared to the year earlier period.  For the nine-month period ended September 30, 2017, the following decreases were noted when compared to the nine-month period ended September 30, 2016:

  • $35,000 related to real estate owned and repossessed asset expenses,
  • $22,000 in collection expenses,
  • $43,000 in Federal Deposit Insurance premiums,
  • $44,000 in professional services.

Selected Performance Ratios

Select Performance and Financial Statistics (unaudited):

in thousands (except share data)

For the Three Months Ended
September 30,

For the Nine Months Ended
September 30,

2017

2016

2017

2016

Net interest margin

3.11%

2.99%

3.10%

2.94%

Average interest rate spread

2.98%

2.84%

2.97%

2.80%

Total non-performing assets *

$            3,334

$            3,307

$            3,334

$            3,307

Total non-performing loans *

$            2,631

$            2,070

$            2,631

$            2,070

Non-performing assets to total assets *

0.99%

1.00%

0.99%

1.00%

Non-performing loans to total loans *

1.37%

1.18%

1.37%

1.18%

Texas ratio * (1) 

10.74%

11.12%

10.74%

11.12%

Classified asset ratio * (2)

30.32%

32.15%

30.32%

32.15%

Allowance for loan losses to total loans *

0.94%

0.96%

0.94%

0.96%

Return on average assets * (3)

0.46%

0.37%

0.46%

0.37%

Return on average equity * (3)

4.58%

3.59%

4.58%

3.59%

Efficiency ratio (4)

82.54%

90.94%

83.38%

91.03%

Dividend payout ratio (basic)

47.04%

48.02%

39.96%

58.25%

Tangible book value per share *

$              9.08

$              9.04

$              9.08

$              9.04

Earnings per share

$              0.11

$              0.08

$              0.35

$              0.21

Total shares outstanding

3,726,925

3,726,925

3,726,925

3,726,925

* these are measurements as of a point in time, therefore there is no variation between the three-month and six-month periods.

(1) Texas Ratio is defined by management as total non-performing assets divided by tangible capital plus loan loss reserves.

(2) Classified asset ratio is calculated by dividing classified assets (substandard assets plus real estate owned other repossessed

      assets) by core capital plus loan loss reserves.  

(3) Annualized.

(4) Non-interest expense divided by net interest income plus non-interest income, excluding any gains or losses.

 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.

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