UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
————————————————
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): October 29, 2012
FIRST FEDERAL OF NORTHERN MICHIGAN BANCORP, INC.
(Exact name of Registrant as specified in its charter)
Maryland (State or Other Jurisdiction of Incorporation) |
0-31957 (Commission File Number) |
38-0135202 (I.R.S. Employer Identification No.)
|
100 S. Second Ave., Alpena, Michigan 49707
(Address of principal executive offices)
(989) 356-9041
Registrant's telephone number, including area code
Not Applicable
(Former Name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions: | |
¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
¨ |
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
¨ |
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 2.02 Results of Operations and Financial Condition
On October 29, 2012, First Federal of Northern Michigan Bancorp, Inc. (the "Company") issued a press release regarding its results of operations and financial condition at and for the three and nine months ended September 30, 2012. The text of the press release is included as Exhibit 99.1 to this report. The information included in the press release text is considered to be "furnished" under the Securities Exchange Act of 1934. The Company will include final financial statements and additional analyses at and for the three and nine months ended September 30, 2012, as part of its Form 10-Q covering that period.
Item 9.01 Financial Statements and Exhibits
(a) | Financial Statements of businesses acquired. Not Applicable. |
(b) | Pro forma financial information. Not Applicable. |
(c) | Shell Company Transactions. Not Applicable |
(d) | Exhibits. |
The following Exhibit is attached as part of this report:
99.1 | Press release dated October 29, 2012, announcing the Company’s results of operations and financial condition at and for the three and nine months ended September 30, 2012. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
FIRST FEDERAL OF NORTHERN MICHIGAN BANCORP, INC. | |
Date: October 29, 2012 | By: /s/ Amy E. Essex |
Amy E. Essex | |
Chief Financial Officer | |
(Duly Authorized Representative) |
First Federal of Northern Michigan Bancorp, Inc. Announces Third Quarter 2012 Results
ALPENA, Mich., Oct. 29, 2012 /PRNewswire/ -- First Federal of Northern Michigan Bancorp, Inc. (Nasdaq: FFNM) (the "Company") reported consolidated net income of $273,000, or $0.09 per basic and diluted share, for the quarter ended September 30, 2012 compared to $235,000, or $0.08 per basic and diluted share, for the quarter ended September 30, 2011.
Consolidated net income for the nine months ended September 30, 2012 was $604,000, or $0.21 per basic and diluted share, compared to $658,000, or $0.23 per basic and diluted share for the nine months ended September 30, 2011.
Performance Highlights:
Michael W. Mahler, President and Chief Executive Officer of the Company, commented, "We are pleased with the improvement in pretax operating income for the quarter. The strength of the quarter was driven by core banking activity. Our reputation as the premier mortgage lender in our home market has helped us to improve market share during this renewed period of refinance activity. Compared to the same quarter a year ago, mortgage banking fees increased by $223,000 for the quarter. Along with this higher non-interest income, we have also seen a significant reduction in non-interest expenses. Compared to the prior year quarter, non-interest expenses have declined by $248,000 primarily related to collection and foreclosure related expenses. This reduction in expenses is expected given the improvement in the asset quality profile of the Bank. The September 30, 2012 quarter was once again productive in terms of divesting bank owned properties. We expect to see continued improvements in our expenses given the steady improvements to the level of non-performing assets over the last twelve months."
Mahler continued, "In the last year, non-performing assets have declined from $7.9 million to $5.3 million. This represents a 32.9% improvement. Reducing NPA's still remains our primary focus with a target Texas Ratio of 10%. At the end of the third quarter of 2012, our Texas Ratio stood at 22.59%. Our target is well within reach. Delinquency trends are once again showing improvement across all loan categories confirming our belief that the asset quality metrics will continue to improve into the foreseeable future. Of course this is all contingent upon the national, state and regional economic recovery continuing." Mahler further commented "We are again very pleased with the continued growth in our core deposits which has helped to slow the decline of our net interest margin. This is vitally important given the pressure asset yields are under in this historic interest rate environment."
Mahler added, "This quarter's provision expense improved over last quarter. We believe our provision needs will continue to decline given the overall improvement to our asset quality factors. This year the main factor influencing the provision expense relates to the mortgage loan losses tied to the declining property values and the increase in foreclosure activity that began in 2011 when unemployment benefit extensions expired. The increase in real estate sales activity within our footprint over the last two quarters has helped to stem the tide of property value declines. Additionally there are far fewer loans entering the foreclosure pipeline than there are falling out of it each month. Collectively these factors bode well for the future in terms of our provision expense needs."
Asset Quality
The ratio of total nonperforming assets to total assets was 2.48% at September 30, 2012 compared to 3.11% at December 31, 2011 and 3.55% at September 30, 2011. Non-performing assets decreased by $1.4 million from December 31, 2011 to September 30, 2012, mainly as a result of the sale of other repossessed assets. The Company continues to closely monitor non-performing assets and has taken a variety of steps to reduce the level thereof, such as:
As of | |||||
September 30, 2012 | December 31, 2011 | September 30, 2011 | |||
Asset Quality Ratios: | |||||
Non-performing assets to total assets | 2.48% | 3.11% | 3.55% | ||
Non-performing loans to total loans | 2.17% | 2.34% | 2.38% | ||
Allowance for loan losses to non-performing loans | 55.34% | 45.47% | 48.54% | ||
Allowance for loan losses to total loans | 1.20% | 1.07% | 1.16% | ||
"Texas Ratio" (Bank) | 22.59% | 28.28% | 33.06% | ||
Total non-performing loans ($000 omitted) | $3,043 | $3,339 | $3,408 | ||
Total non-performing assets ($000 omitted) | $5,331 | $6,746 | $7,868 |
Non-performing assets were positively impacted by the sales of several pieces of both commercial and residential REO during the nine months ended September 30, 2012.
Financial Condition
Total assets of the Company at September 30, 2012 were $214.9 million, a decrease of $2.1 million from assets of $217.0 million at December 31, 2011. Net loans receivable decreased $2.5 million to $138.4 million at September 30, 2012, mostly in our mortgage and consumer loan portfolios. Our commercial loan portfolio grew by $786,000 during the nine-month period.
Deposits increased $8.0 million to $158.7 million at September 30, 2012 from $150.6 million at December 31, 2011. We saw substantial growth in many of our core deposit products during the nine-month period and we experienced declines in our certificate of deposit products, as we were not a market leader in rates for those products. FHLB advances decreased $9.5 million to $25.0 million at September 30, 2012 from $34.5 million at December 31, 2011 due mainly to increases in our deposit base.
Stockholders' equity increased to $25.3 million at September 30, 2012 from $24.6 million at December 31, 2011. The increase in stockholders' equity was mainly attributable to two factors: our net income for the nine-month period of $604,000 and an increase of $119,000 in the unrealized gain on available for sale securities net of tax. First Federal of Northern Michigan's regulatory capital remains at levels in excess of regulatory requirements, 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) | $ 21,909 | 10.27% | $ 8,532 | 4.00% | $ 10,665 | 5.00% | ||||||
Total risk-based capital ( to risk- | ||||||||||||
weighted assets) | $ 23,593 | 17.22% | $ 10,958 | 8.00% | $ 13,698 | 10.00% | ||||||
Tier 1 risk-based capital ( to | ||||||||||||
risk weighted assets) | $ 21,909 | 15.99% | $ 5,479 | 4.00% | $ 8,219 | 6.00% | ||||||
Tangible Capital ( to | ||||||||||||
tangible assets) | $ 21,909 | 10.27% | $ 3,200 | 1.50% | $ 4,266 | 2.00% |
Results of Operations
Interest income decreased to $2.3 million for the three months ended September 30, 2012 from $2.6 million for the comparable period in 2011. Interest income was $7.1 million for the nine months ended September 30, 2012, compared to $7.9 million for the comparable period in 2011. This decrease was due in large part to decreases of $8.9 million in average balances of mortgage loans period over period. In addition, the average yield on interest-earning assets decreased 51 basis points to 4.70% for the nine-month period ended September 30, 2012 as compared to 5.21% for the same period in 2011.
Interest expense was $394,000 for the three-month period ended September 30, 2012, compared to $564,000 for the prior year period. Interest expense was $1.3 million for the nine-month period ended September 30, 2012 compared to $1.8 million for the same period in 2011. The decrease in interest expense was due primarily to decreases in the average balance of and interest rates on our certificates of deposits period over period. We experienced a $6.8 million decrease in the average balance of certificates of deposits for the nine months ended September 30, 2012 when compared to the same period in 2011, and the average rate on those deposits decreased 50 basis points to 1.26% for the nine-month period ended September 30, 2012 as compared to the year-earlier period and to 1.18% for the three-month period ended September 30, 2012 from 1.66% for the three-month period in 2011. In addition, our cost of funds relating to our FHLB advances decreased 25 basis points to 1.97% nine-month period over nine-month period and from 2.13% to 1.93% three-month period over three-month period.
The Company's net interest margin decreased to 3.81% for the three-month period ended September 30, 2012 from 3.98% for the same period in 2011 and decreased to 3.84% for the nine-month period ended September 30, 2012 from 4.05% for the same period in 2011 as a result of the factors mentioned above.
The provision for loan losses for the three-month period ended September 30, 2012 was $234,000 as compared to income of $67,000 for the prior year period. The provision for loan losses was $1.2 million for the nine-month period ended September 30, 2012 as compared to income of $19,000 for the comparable period in 2011. Our provision for loan losses is based on an eleven-quarter rolling average of actual net charge-offs adjusted for various environmental factors for each pool of loans in our portfolio. During the nine-month period ended September 30, 2012, we added specific reserves of approximately $170,000 on two commercial credit relationships, one of which was reclassified as a Troubled Debt Restructuring, had net charge-off of approximately $250,000 on commercial credits, increased the general reserve factor applied to the entire portfolio of residential mortgages as a result of increased charge-off history in 2012, and increased our general reserve pool for special mention and substandard commercial credits based on the inherent increased risk in those credits.
Non-interest income increased to $803,000 for the three months ended September 30, 2012 from $469,000 for the three months ended September 30, 2011. During the three-month period ended September 30, 2012, we sold municipal bonds for credit reasons resulting in a gain on sale of investments of $47,000 period and also received settlement proceeds of $65,000 from a lawsuit involving a troubled credit. Non-interest income was $1.6 million for the nine-month period ended September 30, 2012, an increase of $329,000 or 25.1%, from the same period in 2011. The three- and nine-month periods in 2012 reflected increases in mortgage banking activities income of $223,000 and $239,000, respectively, as compared to the same periods in 2011, due to sustained low mortgage rates which have increased refinance activity and also as a result of a small uptick in home sales in our markets.
Non-interest expenses decreased to $2.1 million for the three-month period ended September 30, 2012 as compared to $2.3 million for the same period in 2011. Non-interest expense decreased to $6.5 million for the nine months ended September 30, 2012 from $6.8 million for the nine months ended September 30, 2011. For both the three- and nine-month periods ended September 30, 2012 we experienced a reduction in other expenses of $271,000 and $312,000, respectively, mainly related to lower costs associated with problem loans and Bank-owned properties. During the three- and nine-month periods we experienced increases in compensation and employee benefit expenses of $115,000 and $235,000, respectively, due in part to the addition of a commercial lender in late 2011 and a Treasury Management professional in early 2012 and due to increased lender commissions as a result of increased mortgage originations in 2012 as compared to 2011.
For the Three Months Ended September 30 | For the Nine Months Ended September 30 | ||||
2012 | 2011 | 2012 | 2011 | ||
Performance Ratios: | |||||
Net interest margin | 3.81% | 3.98% | 3.84% | 4.05% | |
Average interest rate spread | 3.68% | 3.85% | 3.71% | 3.90% | |
Return on average assets* | 0.50% | 0.43% | 0.37% | 0.38% | |
Return on average equity* | 4.29% | 4.01% | 3.19% | 3.77% | |
* Annualized |
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.
First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries | |||
Consolidated Balance Sheet | |||
September 30, 2012 | December 31, 2011 | ||
(Unaudited) | |||
ASSETS | |||
Cash and cash equivalents: | |||
Cash on hand and due from banks | $ 3,249,826 | $ 2,713,701 | |
Overnight deposits with FHLB | 35,934 | 35,797 | |
Total cash and cash equivalents | 3,285,760 | 2,749,498 | |
Securities AFS | 52,483,641 | 53,048,503 | |
Securities HTM | 2,395,000 | 2,435,000 | |
Loans held for sale | 1,041,454 | - | |
Loans receivable, net of allowance for loan losses of $1,683,731 and | |||
$1,517,695 as of September 30, 2012 and December 31, 2011, respectively | 138,373,228 | 140,883,591 | |
Foreclosed real estate and other repossessed assets | 2,287,858 | 3,407,939 | |
Federal Home Loan Bank stock, at cost | 3,266,100 | 3,266,100 | |
Premises and equipment | 5,730,687 | 5,845,881 | |
Accrued interest receivable | 1,119,332 | 1,148,500 | |
Intangible assets | 187,962 | 334,855 | |
Prepaid FDIC premiums | 627,164 | 758,733 | |
Deferred tax asset | 1,194,873 | 387,065 | |
Other assets | 2,941,641 | 2,779,124 | |
Total assets | $ 214,934,700 | $ 217,044,789 | |
LIABILITIES AND STOCKHOLDERS' EQUITY | |||
Liabilities: | |||
Deposits | $ 158,675,753 | $ 150,649,073 | |
Advances from borrowers for taxes and insurance | 210,174 | 128,028 | |
Federal Home Loan Bank Advances | 25,000,000 | 34,500,000 | |
REPO Sweep Accounts | 4,245,047 | 5,592,326 | |
Accrued expenses and other liabilities | 1,511,098 | 1,606,569 | |
Total liabilities | 189,642,072 | 192,475,995 | |
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 | 23,852,702 | |
Retained earnings | 3,583,678 | 2,980,176 | |
Treasury stock at cost (307,750 shares) | (2,963,918) | (2,963,918) | |
Unearned compensation | - | (556) | |
Accumulated other comprehensive income | 787,059 | 668,472 | |
Total stockholders' equity | 25,292,628 | 24,568,794 | |
Total liabilities and stockholders' equity | $ 214,934,700 | $ 217,044,789 |
First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries | |||||||
Consolidated Statement of Income | |||||||
For the Three Months | For the Nine Months | ||||||
Ended September 30, | Ended September 30, | ||||||
2012 | 2011 | 2,012 | 2011 | ||||
(Unaudited) | (Unaudited) | ||||||
Interest income: | |||||||
Interest and fees on loans | $ 1,995,749 | $ 2,196,300 | $ 6,047,447 | $ 6,786,817 | |||
Interest and dividends on investments | |||||||
Taxable | 136,100 | 151,190 | 423,308 | 380,407 | |||
Tax-exempt | 38,438 | 39,735 | 116,240 | 120,074 | |||
Interest on mortgage-backed securities | 142,309 | 200,442 | 486,153 | 583,510 | |||
Total interest income | 2,312,596 | 2,587,667 | 7,073,148 | 7,870,808 | |||
Interest expense: | |||||||
Interest on deposits | 249,442 | 381,124 | 793,620 | 1,226,252 | |||
Interest on borrowings | 144,584 | 183,030 | 491,872 | 523,785 | |||
Total interest expense | 394,026 | 564,154 | 1,285,492 | 1,750,037 | |||
Net interest income | 1,918,570 | 2,023,513 | 5,787,656 | 6,120,771 | |||
Provision for loan losses | 234,005 | (67,079) | 1,188,588 | (18,959) | |||
Net interest income after provision for loan losses | 1,684,565 | 2,090,592 | 4,599,068 | 6,139,730 | |||
Non-interest income: | |||||||
Service charges and other fees | 205,592 | 197,267 | 563,084 | 542,986 | |||
Mortgage banking activities | 441,445 | 218,671 | 876,090 | 637,116 | |||
Net loss on sale of premises and equipment | (698) | (544) | (698) | (544) | |||
Net loss on real estate owned and other repossessed assets | (9,993) | (7,937) | (80,098) | (54,368) | |||
Net gain on sale of investment securities | 47,017 | - | 47,017 | - | |||
Other | 119,519 | 61,846 | 234,961 | 186,447 | |||
Total non-interest income | 802,882 | 469,302 | 1,640,356 | 1,311,637 | |||
Non-interest expense: | |||||||
Compensation and employee benefits | 1,243,598 | 1,128,911 | 3,692,139 | 3,457,099 | |||
FDIC Insurance Premiums | 47,190 | 54,061 | 141,314 | 176,448 | |||
Advertising | 29,005 | 30,924 | 111,489 | 87,763 | |||
Occupancy | 239,900 | 264,703 | 719,148 | 802,398 | |||
Amortization of intangible assets | 29,646 | 73,113 | 146,893 | 219,338 | |||
Service bureau charges | 73,495 | 69,383 | 229,149 | 224,881 | |||
Professional services | 89,559 | 108,471 | 297,403 | 329,619 | |||
Other | 324,903 | 595,593 | 1,183,209 | 1,495,664 | |||
Total non-interest expense | 2,077,296 | 2,325,160 | 6,520,744 | 6,793,210 | |||
Income (loss) before income tax expense or (benefit) | 410,151 | 234,734 | (281,320) | 658,157 | |||
Income tax expense (benefit) | 137,375 | - | (884,822) | - | |||
Net income | $ 272,776 | $ 234,734 | $ 603,502 | $ 658,157 | |||
Other comprehensive income: | |||||||
Net income | $ 272,776 | $ 234,734 | $ 603,502 | $ 658,157 | |||
Change in unrealized gain (loss) on available-for-sale securities, net of tax | (48,099) | 283,537 | 118,588 | 623,264 | |||
Comprehensive income | $ 224,678 | $ 518,271 | $ 722,090 | $ 1,281,421 | |||
Per share data: | |||||||
Net income per share | |||||||
Basic | $ 0.09 | $ 0.08 | $ 0.21 | $ 0.23 | |||
Diluted | $ 0.09 | $ 0.08 | $ 0.21 | $ 0.23 | |||
Weighted average number of shares outstanding | |||||||
Basic | 2,884,049 | 2,884,049 | 2,884,049 | 2,884,049 | |||
Dividends per common share | $ - | $ - | $ - | $ - |
CONTACT: Amy E. Essex, Chief Financial Officer, Treasurer & Corporate Secretary, First Federal of Northern Michigan Bancorp, Inc., +1-989-356-9041