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): July 24, 2014
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 July 24, 2014, 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 six months ended June 30, 2014. 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 six months ended June 30, 2014, 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 July 24, 2014, announcing the Company’s results of operations and financial condition at and for the three and six months ended June 30, 2014. |
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: July 24, 2014 | By: | /s/ Eileen M. Budnick | |
| Eileen M. Budnick | |||
| VP - Director of Financial Reporting & Accounting | |||
| (Duly Authorized Representative) | |||
First Federal of Northern Michigan Bancorp, Inc. 8-K
Exhibit 99.1
FOR IMMEDIATE RELEASE
July 24, 2014
| Contact: | Michael W. Mahler | |
| President and CEO | ||
| First Federal of Northern Michigan Bancorp, Inc. | ||
| (989) 356-9041 |
FIRST FEDERAL OF NORTHERN MICHIGAN BANCORP, INC.
ANNOUNCES SECOND QUARTER 2014 RESULTS
Alpena, Michigan - (July 24, 2014) First Federal of Northern Michigan Bancorp, Inc. (Nasdaq: FFNM) (the “Company”) reported consolidated net income of $94,000, or $0.03 per basic and diluted earnings per share, for the quarter ended June 30, 2014 compared to a consolidated net loss of $4,000, or less than $0.01 per basic and diluted loss per share, for the quarter ended June 30, 2013.
Consolidated net income for the six months ended June 30, 2014 was $316,000, or $0.11 per basic and diluted share, compared to $64,000, or $0.02 per basic and diluted share for the six months ended June 30, 2013.
Listed below are highlights related to the Company’s results for the three and six months ended June 30, 2014:
Michael W. Mahler, President and Chief Executive Officer of the Company, commented, “Our improvement to pre-tax earnings, which grew to $316,000 year over year, reflects the improvement of the core profitability of the Bank. We are happy with the progress and expect it to continue as we look forward. We are very pleased with the continued improvement in our asset quality position. Provision needs for the quarter ended June 30, 2014 declined as we saw net recoveries of $29,000 compared to net-charge offs of $29,000 across all portfolios when compared to the year earlier period. Additionally, delinquency trends continue to show improvement across all loan portfolios when compared to year end data. This data supports 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, “Our continued focus on core deposits has resulted in balance growth in excess of $9.0 million dollars so far this year, which helped to slow the decline in our net interest margin. This is vitally important given the pressure asset yields are under in this continuing low interest rate environment. Additionally, we are pleased with the $653,000 in loan growth in the mortgage portfolio that occurred during the second quarter of 2014. While mortgage loan production has been soft year to date it is in line with our expectation. However, we currently have our strongest mortgage construction pipeline in years. In addition, we are beginning to see increases in commercial loan demand in our region as some borrowers seek expansion opportunities or capital spending which previously had been deferred. We are hopeful that the demand will result in enhanced originations as we move forward. This growth is important to help us offset the impact of diminishing margins.”
Mahler added, “Our cost cutting initiatives have reduced non-interest expenses for the quarter by $66,000, when compared to the same quarter last year, and a six month reduction of $164,000. This represents a 4.0% reduction for the first six months and extends across most expense categories. Real estate owned cost reductions represent 57% of the total savings. This reduced level of spending year over year occurred in spite of merger related expenses which totaled nearly $42,000 in the second quarter. We anticipate these one-time costs to end in the third quarter with the expected closing of the merger.”
Asset Quality
Total nonperforming assets to total assets decreased from 3.03% at June 30, 2013 to 1.95% at December 31, 2013 and further decreased to 1.78% at June 30, 2014. Non-performing assets decreased by $169,000 from December 31, 2013 to June 30, 2014. 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 | ||||||||||||
| June 30, 2014 | December 31, 2013 | June 30, 2013 | ||||||||||
| Asset Quality Ratios: | ||||||||||||
| Non-performing assets to total assets | 1.78 | % | 1.95 | % | 3.03 | % | ||||||
| Non-performing loans to total loans | 1.63 | % | 1.67 | % | 3.13 | % | ||||||
| Allowance for loan losses to non-performing loans | 67.61 | % | 63.65 | % | 38.36 | % | ||||||
| Allowance for loan losses to total loans | 1.09 | % | 1.07 | % | 1.20 | % | ||||||
| "Texas Ratio" (Bank) (1) | 16.04 | % | 17.02 | % | 27.07 | % | ||||||
| Classified asset ratio (2) | 22.51 | % | 23.53 | % | 37.23 | % | ||||||
| Total non-performing loans ($000 omitted) | $ | 2,199 | $ | 2,311 | $ | 4,409 | ||||||
| Total non-performing assets ($000 omitted) | $ | 3,922 | $ | 4,091 | $ | 6,507 | ||||||
| (1) "Texas" ratio is calculated by dividing total non performing loans plus real estate owned by tangible capital plus | |||||
| loan loss reserves | |||||
| (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. | |||||
Non-performing assets were positively impacted by a net reduction of $128,000 in loans placed in non-accrual status during the six months ended June 30, 2014. In addition, during the six-month period ended June 30, 2014 the classified asset ratio improved to 22.51% from 23.53% as of December 31, 2013.
Financial Condition
Total assets of the Company at June 30, 2014 were $219.8 million, an increase of $10.1 million, or 4.8%, from total assets of $209.7 million at December 31, 2013. Net loans receivable decreased $1.2 million to $135.1 million at June 30, 2014, with the decline coming primarily in the commercial loan portfolio. When compared to December 31, 2013 we have seen a $653,000 increase in our mortgage portfolio as a result of retaining high-quality 10- and 15-year fixed rate mortgages.
Deposits increased $9.0 million to $169.0 million at June 30, 2014, with the growth coming mostly in our lower-costing checking and savings products. FHLB advances increased $344,000 during the six months ended June 30, 2014.
Stockholders’ equity was $24.2 million at June 30, 2014 compared to $23.5 million at December 31, 2013. The increase was due primarily to an increase of $434,000 in the unrealized gain on available for sale securities, net of tax and net income reported of $316,000. First Federal of Northern Michigan’s regulatory capital remains at levels in excess of regulatory requirements, as shown in the table below.
| Actual | Regulatory Minimum | Minimum to be Well Capitalized | ||||||||||||||||||||||
| Amount | Ratio | Amount | Ratio | Amount | Ratio | |||||||||||||||||||
| Dollars in Thousands | ||||||||||||||||||||||||
| Tier 1 (Core) capital ( to | ||||||||||||||||||||||||
| adjusted assets) | $ | 22,966 | 10.48 | % | $ | 8,767 | 4.00 | % | $ | 10,959 | 5.00 | % | ||||||||||||
| Total risk-based capital ( to risk- | ||||||||||||||||||||||||
| weighted assets) | $ | 24,453 | 18.24 | % | $ | 10,723 | 8.00 | % | $ | 13,404 | 10.00 | % | ||||||||||||
| Tier 1 risk-based capital ( to | ||||||||||||||||||||||||
| risk weighted assets) | $ | 22,966 | 17.13 | % | $ | 5,362 | 4.00 | % | $ | 8,043 | 6.00 | % | ||||||||||||
| Tangible Capital ( to | ||||||||||||||||||||||||
| tangible assets) | $ | 22,966 | 10.48 | % | $ | 3,288 | 1.50 | % | $ | 4,384 | 2.00 | % | ||||||||||||
Results of Operations
Interest income decreased to $2.0 million for the three months ended June 30, 2014 from $2.1 million for the year earlier period, due mainly to a decrease of 26 basis points in the average yield on interest-earning assets period over period. Interest income decreased $110,000 to $4.1 million for the six-month period ended June 30, 2014 from $4.2 million for the same period in 2013, due mainly to lower market interest rates period over period.
Interest expense decreased to $259,000 for the three months ended June 30, 2014 from $285,000 for the three months ended June 30, 2013. Interest expense for the six months ended June 30, 2014 decreased to $508,000 from $606,000 for the six months ended June 30, 2013. The decrease in interest expense for both the three- and six-month periods was due primarily to a decrease in our cost of funds related to certificates of deposit and FHLB advances. The average cost of our certificates of deposit decreased to 0.98% for the three months ended June 30, 2014 from 1.02% for the three months ended June 30, 2013 and to 0.97% for the six months ended June 30, 2014 from 1.06% for the six months ended June 30, 2013, as higher costing deposits matured and either left the Bank, as we made the strategic decision to not be a market leader in rates in the current interest rate environment, or were re-priced at lower rates. In addition, the cost of our FHLB advances decreased 14 basis points from 1.23% for the three months ended June 30, 2013 to 1.09% for the three months ended June 30, 2014 and 28 basis points from 1.36% for the six months ended June 30, 2013 to 1.08% for the six months ended June 30, 2014 due primarily to lower market interest rates.
The Company’s net interest margin decreased to 3.50% for the three-month period ended June 30, 2014 from 3.70% for the same period in 2013 and decreased to 3.59% for the six-month period ended June 30, 2014 from 3.66% for the same period in 2013 as a result of the factors mentioned above.
The provision for loan losses for the three months ended June 30, 2014 were zero as compared to provision of $196,000 for the prior year period. For the six months ended June 30, 2014, the provision for loan losses were $16,000 as compared to $340,000 for the same period ended June 30, 2013. During the quarter ended June 30, 2014, we had net recoveries of $29,000 compared to $29,000 of net charge-offs during the quarter ended June 30, 2013 in large part due to the decline in the number of loans in foreclosure. The direct effect of the decrease in charge-offs quarter over quarter and reduced general reserve factors resulted in the decrease in provision expense for the period ended June 30, 2014.
Non interest income decreased to $344,000 for the three months ended June 30, 2014 from $465,000 for the three months ended June 30, 2013 as 2014 we experienced period over period decreases in the following income categories:
Non interest income decreased to $681,000 for the six months ended June 30, 2014 from $905,000 for the six months ended June 30, 2013, mainly due to a decrease of $108,000 in mortgage banking activities year over year. In addition, we experienced decreases of $46,000 in service charge income and $44,000 in other income related to insurance and brokerage activities.
Non interest expense decreased $66,000 for the three months ended June 30, 2014 when compared to the three months ended June 30, 2013. Non interest expense decreased $164,000 for the six months ended June 30, 2014 compared to the same period one year earlier. Most notably for both the three- and six-month periods, real estate owned expenses decreased $76,000 and $93,000, respectively. In addition, for the three- and six-month periods salaries and benefits decreased $25,000 and $75,000, respectively and amortization of intangible assets decreased $20,000. Expenses associated with professional services declined $22,000 for the three months ended June 30, 2014, while increasing $57,000, related to merger costs for the six months ended June 30, 2014. These period over period decreases were offset by increases of $68,000 and $5,000 in other expenses for the three- and six-month period ended June 30, 2014, respectively. This increase is primarily related to an increase in commercial loan expenses related to troubled credits in the portfolio.
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 | ||||||||
| June 30, 2014 | December 31, 2013 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Cash and cash equivalents: | ||||||||
| Cash on hand and due from banks | $ | 3,235,034 | $ | 2,760,010 | ||||
| Overnight deposits with FHLB | 2,066 | 5,823 | ||||||
| Total cash and cash equivalents | 3,237,100 | 2,765,833 | ||||||
| Securities AFS | 61,466,330 | 50,358,175 | ||||||
| Securities HTM | 2,215,000 | 2,255,000 | ||||||
| Loans held for sale | 380,405 | 175,400 | ||||||
| Loans receivable, net of allowance for loan losses of $1,486,809 and | ||||||||
| $1,471,622 as of June 30, 2014 and December 31, 2013, respectively | 135,068,805 | 136,314,964 | ||||||
| Foreclosed real estate and other repossessed assets | 1,723,024 | 1,780,058 | ||||||
| Federal Home Loan Bank stock, at cost | 3,266,100 | 3,266,100 | ||||||
| Premises and equipment | 5,122,666 | 5,203,301 | ||||||
| Accrued interest receivable | 714,126 | 744,730 | ||||||
| Intangible assets | — | 39,732 | ||||||
| Deferred tax asset | 574,768 | 798,163 | ||||||
| Originated mortgage servicing rights | 773,413 | 860,024 | ||||||
| Bank owned life insurance | 4,667,787 | 4,610,070 | ||||||
| Other assets | 580,782 | 485,234 | ||||||
| Total assets | $ | 219,790,306 | $ | 209,656,784 | ||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| Liabilities: | ||||||||
| Deposits | $ | 168,999,329 | $ | 160,029,115 | ||||
| Advances from borrowers for taxes and insurance | 383,311 | 151,254 | ||||||
| Federal Home Loan Bank Advances | 25,157,152 | 24,813,409 | ||||||
| Accrued expenses and other liabilities | 1,091,910 | 1,138,324 | ||||||
| Total liabilities | $ | 195,631,702 | $ | 186,132,102 | ||||
| Stockholders' equity: | ||||||||
| Common stock ($0.01 par value 20,000,000 shares authorized | ||||||||
| 3,191,799 shares issued and outstanding) at June 30, 2014 and December 31, 2013 | 31,918 | 31,918 | ||||||
| Additional paid-in capital | 23,853,891 | 23,853,891 | ||||||
| Retained earnings | 2,963,515 | 2,763,242 | ||||||
| Treasury stock at cost (307,750 shares) at June 30, 2014 and December 31, 2013 | (2,963,918 | ) | (2,963,918 | ) | ||||
| Accumulated other comprehensive income (loss) | 273,198 | (160,451 | ) | |||||
| Total stockholders' equity | 24,158,604 | 23,524,682 | ||||||
| Total liabilities and stockholders' equity | $ | 219,790,306 | $ | 209,656,784 | ||||
| First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries | ||||||||||||||||
| Consolidated Statement of Income | ||||||||||||||||
| For the Three Months | For the Six Months | |||||||||||||||
| Ended June 30, | Ended June 30, | |||||||||||||||
| 2014 | 2013 | 2014 | 2013 | |||||||||||||
| (Unaudited) | (Unaudited) | |||||||||||||||
| Interest income: | ||||||||||||||||
| Interest and fees on loans | $ | 1,690,977 | $ | 1,826,649 | $ | 3,401,391 | $ | 3,643,262 | ||||||||
| Interest and dividends on investments | ||||||||||||||||
| Taxable | 149,521 | 123,992 | 300,197 | 239,320 | ||||||||||||
| Tax-exempt | 41,028 | 37,349 | 82,484 | 75,043 | ||||||||||||
| Interest on mortgage-backed securities | 143,269 | 106,795 | 285,563 | 222,166 | ||||||||||||
| Total interest income | 2,024,795 | 2,094,783 | 4,069,635 | 4,179,791 | ||||||||||||
| Interest expense: | ||||||||||||||||
| Interest on deposits | 191,720 | 208,639 | 378,248 | 430,540 | ||||||||||||
| Interest on borrowings | 66,890 | 76,022 | 129,656 | 175,463 | ||||||||||||
| Total interest expense | 258,610 | 284,661 | 507,904 | 606,003 | ||||||||||||
| Net interest income | 1,766,185 | 1,810,122 | 3,561,731 | 3,573,788 | ||||||||||||
| Provision for loan losses | — | 195,753 | 15,765 | 339,827 | ||||||||||||
| Net interest income after provision for loan losses | 1,766,185 | 1,614,369 | 3,545,966 | 3,233,961 | ||||||||||||
| Non-interest income: | ||||||||||||||||
| Service charges and other fees | 188,126 | 222,279 | 369,218 | 414,719 | ||||||||||||
| Mortgage banking activities | 128,244 | 161,691 | 224,082 | 332,123 | ||||||||||||
| Net gain (loss) on sale of premises and equipment, | ||||||||||||||||
| real estate owned and other repossessed assets | (21,251 | ) | (5,730 | ) | (26,064 | ) | 750 | |||||||||
| Other | 49,232 | 86,371 | 113,350 | 157,363 | ||||||||||||
| Total non-interest income | 344,351 | 464,613 | 680,586 | 904,955 | ||||||||||||
| Non-interest expense: | ||||||||||||||||
| Compensation and employee benefits | 1,109,608 | 1,134,644 | 2,218,651 | 2,293,901 | ||||||||||||
| FDIC Insurance Premiums | 45,330 | 48,978 | 90,874 | 94,677 | ||||||||||||
| Advertising | 43,989 | 28,796 | 71,624 | 67,716 | ||||||||||||
| Occupancy | 219,570 | 218,208 | 455,945 | 451,655 | ||||||||||||
| Amortization of intangible assets | 10,086 | 29,645 | 39,732 | 59,292 | ||||||||||||
| Service bureau charges | 83,790 | 77,089 | 146,176 | 154,583 | ||||||||||||
| Professional services | 164,885 | 186,970 | 294,143 | 236,696 | ||||||||||||
| Collection activity | 11,291 | 21,591 | 29,496 | 63,764 | ||||||||||||
| Real estate owned & other repossessed assets | 11,732 | 88,153 | 28,681 | 121,419 | ||||||||||||
| Other | 316,092 | 248,419 | 535,595 | 531,084 | ||||||||||||
| Total non-interest expense | 2,016,373 | 2,082,496 | 3,910,917 | 4,074,787 | ||||||||||||
| Income (loss) before income tax benefit | 94,163 | (3,513 | ) | 315,635 | 64,129 | |||||||||||
| Income tax benefit | — | — | — | — | ||||||||||||
| Net (loss) income | $ | 94,163 | $ | (3,513 | ) | $ | 315,635 | $ | 64,129 | |||||||
| Other comprehensive income (loss): | ||||||||||||||||
| Unrealized (loss) gain on available-for-sale investment securities - net of tax | 160,996 | (457,978 | ) | $ | 433,649 | $ | (557,775 | ) | ||||||||
| Reclassification adjustment for losses realized in earnings - net of tax | — | — | — | — | ||||||||||||
| Comprehensive income (loss) | $ | 255,159 | $ | (461,491 | ) | $ | 749,284 | $ | (493,646 | ) | ||||||
| Per share data: | ||||||||||||||||
| Net (loss) income per share | ||||||||||||||||
| Basic | $ | 0.03 | $ | (0.00 | ) | $ | 0.11 | $ | 0.02 | |||||||
| Diluted | $ | 0.03 | $ | (0.00 | ) | $ | 0.11 | $ | 0.02 | |||||||
| Weighted average number of shares outstanding | ||||||||||||||||
| Basic | 2,884,049 | 2,884,049 | 2,884,049 | 2,884,049 | ||||||||||||
| Including dilutive stock options | 2,884,049 | 2,884,049 | 2,884,049 | 2,884,049 | ||||||||||||
| Dividends per common share | $ | 0.02 | $ | — | $ | 0.02 | $ | — | ||||||||