First Federal of Northern Michigan Bancorp, Inc. 8-K
Exhibit 99.1
FOR IMMEDIATE RELEASE
March 18, 2014
| Contact: | Eileen M. Budnick | |
| | VP - Director of Financial Reporting & Accounting, Treasurer & Corporate Secretary | |
| | First Federal of northern Michigan Bancorp, Inc. | |
| | (989) 356-9041 | |
| | | |
FIRST FEDERAL OF NORTHERN MICHIGAN BANCORP, INC.
ANNOUNCES FOURTH QUARTER 2013 AND FULL YEAR RESULTS
Alpena, Michigan - (March 7, 2014) First Federal of Northern Michigan Bancorp, Inc. (Nasdaq: FFNM) (the “Company”) reported a consolidated net loss of $192,000, or $0.07 per basic share, for the quarter ended December 31, 2013 compared to a consolidated net loss of $818,000, or $0.28 per basic share, for the quarter ended December 31, 2012.
Consolidated net income for the twelve months ended December 31, 2013 was $55,000, or $0.02 per basic share, compared to a consolidated net loss of $214,000, or $0.07 per basic share, for the twelve months ended December 31, 2012.
President and CEO Michael Mahler commented, “Provision expense for the fourth quarter was $266,000, mainly associated with the charge-off of a commercial credit that became troubled late in 2012. In contrast, our year end results have been positively impacted by a decline of $730,000 in provision expense year over year. We are encouraged by the continued reduction in the level of non-performing assets (NPA) which decreased by 44.2% since the end of last year. The reduction of NPAs continues to positively impact our Texas ratio, which decreased to 17.02% from 30.78% and our classified asset ratio, which declined to 23.53% from 54.24% as of December 31, 2013 and December 31, 2012, respectively.
Mahler continued, “During the fourth quarter we experienced a decrease of $270,000 in mortgage banking fees compared to the same quarter a year ago, while our year end results were impacted by a decrease of $658,000 when compared to 2012. We have seen a decline in refinance activity during 2013 and anticipate this will not change in the near future.”
Mahler further stated, “We were very pleased with our decrease, year over year, in non-interest expense, despite incurring approximately $100,000 of merger related expenses in the fourth quarter of 2013. Continued asset quality improvement has led to a reduction in expenses associated with troubled credits, collection activity and bank owned properties. In addition, the decline in mortgage banking activities has resulted in lower compensation expense for the year.”
Performance Highlights:
- The Company reported net income of $55,000 for the year ended December 31, 2013 as compared to a net loss of $214,000 for 2012, primarily as a result of the following year over year differences:
- Provision for loan losses of $637,000 in 2013 as compared to $1.4 million in 2012 due primarily to the charge-off of $589,000 on a commercial participation loan in 2013.
- Decreased in collection activity and real estate owned expenses of $217,000 as a result of improvement in asset quality in 2013.
- Decrease of $457,000 in non-interest expenses year over year primarily due to decreases in the costs associated with our troubled loans and repossessed properties.
- Decrease in salaries and benefits of $259,000 year over year due in part to self insuring a portion of health care cost.
- $3.2 million decrease in non-performing assets since December 31, 2012, due to reductions to the balances of loans placed on non-accrual and real estate owned/other repossessed asset portfolio.
- Continued decline in net interest margin (NIM) due mainly to declining yields on loans:
- Year over year decline from 3.78% in 2012 to 3.64% in 2013
- First Federal of Northern Michigan remains “well-capitalized” for regulatory purposes.
Asset Quality
The ratio of total non-performing assets to total assets was 1.95% at December 31, 2013 compared to 3.42% at December 31, 2012. Non-performing assets decreased $3.2 million to $4.1 million at December 31, 2013 from $7.3 million at December 31, 2012, mainly as a result of the Company’s focus to monitor non-performing assets and taking a variety of steps to reduce them, such as:
- Timely pursuit of foreclosure and/or repossession options coupled with quick and aggressive marketing efforts of repossessed assets;
- Restructuring loans, where feasible, to assist borrowers during this financially challenging time;
- Allowing borrowers to structure short-sales of properties, where appropriate and feasible; and
- Working with borrowers to find a means of reducing outstanding debt (such as through sales of collateral).
| | | As of |
| | | December 31, 2013 | | December 31, 2012 |
| Asset Quality Ratios: | | | | | | | | |
| Non-performing assets to total assets | | | 1.95 | % | | | 3.42 | % |
| Non-performing loans to total loans | | | 1.67 | % | | | 3.50 | % |
| Allowance for loan losses to non-performing loans | | | 63.65 | % | | | 35.50 | % |
| Allowance for loan losses to total loans | | | 1.07 | % | | | 1.24 | % |
| | | | | | | | | |
| "Texas Ratio" (Bank) (1) | | | 17.02 | % | | | 30.78 | % |
| Clasified Asset Ratio (2) | | | 23.53 | % | | | 54.24 | % |
| | | | | | | | | |
| Total non-performing loans ($000 omitted) | | $ | 2,311 | | | $ | 4,930 | |
| Total non-performing assets ($000 omitted) | | $ | 4,091 | | | $ | 7,317 | |
| | | | | | | | | |
| (1) Texas Ratio is defined by management as total non-performing assets divided by tangible capital. | | | | | |
| | | | | | | | | |
| (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. |
Financial Condition
Total assets decreased $4.2 million to $209.7 million at December 31, 2013 from $213.8 million at December 31, 2012.Net loans receivable decreased $2.6 million- Mortgage loans decreased $2.7 million due a decline in loan production of this type;
- Consumer loans decreased $1.8 million due to normal pay-downs and few opportunities for originations of this loan type;
- Commercial loans increased $1.6 million;
- Allowance for loan losses decreased $278,000.
- Investment securities AFS decreased $406,000 as we did not replace certain maturing or called securities due to the rate environment.
- Prepaid FDIC premiums decreased $583,000 as the Company received a refund of the unused portion of prepaid premiums paid in 2009.
Total liabilities decreased $3.3 million year over year.- Deposits increased $1.7 million.
- FHLB advances decreased $1.5 million as we paid off maturing advances with deposit growth.
- Repo Sweep accounts decreased $3.2 million as we discontinued offering this product during 2013.
- Stockholders’ equity was $23.5 million at December 31, 2013 compared to $24.4 million at December 31, 2012.
- Net income for the year of $55,000;
- Decrease in the unrealized gain on available-for-sale securities of $907,000 year over year.
- Decreased as a result of a dividend of $57,700 paid in the fourth quarter of 2013.
- 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) |
| Total risk-based capital ( to risk- | | | | | | | | | | | | | | | | | | | | | | | | |
| weighted assets) | | $ | 24,035 | | | | 17.89 | % | | $ | 10,748 | | | | 8.00 | % | | $ | 13,436 | | | | 10.00 | % |
| Tier 1 risk-based capital ( to | | | | | | | | | | | | | | | | | | | | | | | | |
| risk-weighted assets) | | $ | 22,563 | | | | 16.79 | % | | $ | 5,374 | | | | 4.00 | % | | $ | 8,061 | | | | 6.00 | % |
| Tangible Capital ( to | | | | | | | | | | | | | | | | | | | | | | | | |
| tangible assets) | | $ | 22,563 | | | | 10.79 | % | | $ | 3,137 | | | | 1.50 | % | | $ | 4,183 | | | | 2.00 | % |
Results of Operations:
- Interest income decreased slightly to $2.1 million for the three months ended December 31, 2013 from $2.2 million for the year earlier period and decreased to $8.3 million for the twelve months ended December 31, 2013 as compared to $9.2 million for the prior year period.
- Two main factors for both the three- and twelve-month periods: decreases in the average balance of our interest-earning assets and decreases in the yield on interest-earning assets due in part to lower market interest rates.
- Interest expense decreased to $270,000 for the three months ended December 31, 2013 from $369,000 for the prior year period and decreased to $1.2 million for 2013 from $1.7 million for 2012.
- Two main factors for both the three- and twelve-month periods: decreases of $5.0 million and $6.4 million, respectively, in the average balance of our interest-bearing liabilities during those periods and decreases in our overall cost of funds of 22 basis points and 27 basis points for the three- and twelve-month periods, respectively, due to declining market interest rates and a shift in the composition of our deposit base.
- Provision for loan losses for the three months ended December 31, 2013 and 2012 was $265,000 and $179,000, respectively.
- The higher provision during the 2013 period resulted from our recording provision expense based on additional risk factors not related to historical loss.
- Provision for loans losses for the twelve months ended December 31, 2013 and 2012 was $637,000 and $1.4 million, respectively.
- In 2012, the Company had net charge-offs of $1.1 million in loans, including $840,000 of residential mortgage loans.
- In contrast, in 2013 the Company had net charge offs of $915,000, including $674,000 of commercial real estate loans.
- Non-interest income decreased to $414,000 for the three months ended December 31, 2013 from $637,000 for the three months ended December 31, 2012. Non-interest income decreased to $1.8 million for the year ended December 31, 2013 from $2.3 million for the year December 31, 2012.
- Mortgage banking activities decreased $658,000 for the twelve months ended December 31, 2013 when compared to the same period ended December 31, 2012.
- Year over year the Company had increases of $97,000 in service charges and other fee income and $103,000 in gain on sale of assets and real estate owned.
- Non-interest expense decreased to $2.14 million for the three months ended December 31, 2013 from $2.19 million for the three months ended December 31, 2012. Non-interest expense decreased to $8.3 million for the twelve months ended December 31, 2013 from $8.7 million for the twelve months ended December 31, 2012.
- For both the three- and the twelve-month periods, the decrease in other expenses related primarily to decreased expenses associated with troubled loans and repossessed properties, which were considerably lower in 2013 than in 2012.
Net Interest Margin:
- Increased to 3.66% for the three-month period ended December 31, 2013 from 3.62% for the same period in 2012.
- Average yield on interest-earning assets decreased 15 basis points to 4.20% from 4.35%.
- Average cost of funds decreased 22 basis points to 0.65% from 0.87%, due to reductions of 18 basis points on our certificates of deposit and 51 basis points on our FHLB advances quarter over quarter.
- Decreased to 3.64% for the twelve-month period ended December 31, 2013 from 3.78% for the same period in 2012.
- Average yield on interest-earning assets decreased 38 basis points to 4.23% from 4.61%;
- Average cost of funds decreased 27 basis points to 0.69% from 0.96%.
| First Federal of Northern Michigan Bancorp, Inc. | | | | |
| Consolidated Balance Sheet | | | | |
| | | |
| | | December 31, 2013 | | December 31, 2012 |
| | | |
| ASSETS | | |
| Cash and cash equivalents: | | | | | | | | |
| Cash on hand and due from banks | | $ | 2,760,010 | | | $ | 2,732,109 | |
| Overnight deposits with FHLB | | | 5,823 | | | | 19,701 | |
| Total cash and cash equivalents | | | 2,765,833 | | | | 2,751,810 | |
| Securities AFS | | | 50,358,175 | | | | 50,763,551 | |
| Securities HTM | | | 2,255,000 | | | | 2,345,000 | |
| Loans held for sale | | | 175,400 | | | | 78,712 | |
| Loans receivable, net of allowance for loan losses of $1,471,058 and | | | | | | | | |
| $1,749,915 as of December 31, 2013 and December 31, 2012, respectively | | | 136,314,964 | | | | 138,911,989 | |
| Foreclosed real estate and other repossessed assets | | | 1,780,058 | | | | 2,387,307 | |
| Federal Home Loan Bank stock, at cost | | | 3,266,100 | | | | 3,266,100 | |
| Premises and equipment | | | 5,203,301 | | | | 5,394,412 | |
| Accrued interest receivable | | | 744,730 | | | | 970,450 | |
| Intangible assets | | | 39,732 | | | | 158,316 | |
| Deferred tax asset | | | 799,163 | | | | 330,831 | |
| Originated mortgage servicing right (net of valuation reserve) | | | 860,024 | | | | 1,016,070 | |
| Bank owned life insurance | | | 4,610,070 | | | | 4,474,563 | |
| Other assets | | | 483,234 | | | | 1,567,980 | |
| Total assets | | $ | 209,655,784 | | | $ | 214,417,091 | |
| | | | | | | | | |
| | | | | | | | | |
| LIABILITIES AND STOCKHOLDERS' EQUITY | | | | | | | | |
| Liabilities: | | | | | | | | |
| Deposits | | $ | 160,029,115 | | | $ | 158,350,134 | |
| Advances from borrowers for taxes and insurance | | | 151,254 | | | | 132,823 | |
| Federal Home Loan Bank Advances | | | 24,813,409 | | | | 26,357,962 | |
| REPO Sweep Accounts | | | — | | | | 3,183,351 | |
| Accrued expenses and other liabilities | | | 1,138,324 | | | | 1,375,093 | |
| Total liabilities | | | 186,132,102 | | | | 189,399,363 | |
| | | | | | | | | |
| 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 | | | | 23,853,891 | |
| Retained earnings | | | 2,763,242 | | | | 2,766,170 | |
| Treasury stock at cost (307,750 shares) | | | (2,963,918 | ) | | | (2,963,918 | ) |
| Unearned compensation | | | — | | | | — | |
| Accumulated other comprehensive income (loss) | | | (160,451 | ) | | | 746,723 | |
| Total stockholders' equity | | | 23,524,682 | | | | 24,434,783 | |
| | | | | | | | | |
| Total liabilities and stockholders' equity | | $ | 209,656,784 | | | $ | 213,834,146 | |
| First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries | | | | |
| Consolidated Statement of Operations | | |
| | | For the Three Months | | For the Twelve Months |
| | | Ended December 31, | | Ended December 31, |
| | | | | |
| | | 2013 | | 2012 | | 2013 | | 2012 |
| | | (Unaudited) | | | | (Unaudited) | | |
| Interest income: | | | | | | | | | | | | | | | | |
| Interest and fees on loans | | $ | 1,773,414 | | | $ | 1,880,387 | | | $ | 7,203,339 | | | $ | 7,927,834 | |
| Interest and dividends on investments | | | | | | | | | | | | | | | | |
| Taxable | | | 122,565 | | | | 116,321 | | | | 483,784 | | | | 539,629 | |
| Tax-exempt | | | 39,064 | | | | 37,695 | | | | 151,162 | | | | 153,935 | |
| Interest on mortgage-backed securities | | | 138,522 | | | | 134,627 | | | | 480,540 | | | | 620,780 | |
| Total interest income | | | 2,073,565 | | | | 2,169,030 | | | | 8,318,825 | | | | 9,242,178 | |
| | | | | | | | | | | | | |
| Interest expense: | | | | | | | | | | | | | | | | |
| Interest on deposits | | | 194,069 | | | | 240,173 | | | | 825,655 | | | | 1,033,792 | |
| Interest on borrowings | | | 75,036 | | | | 127,827 | | | | 324,053 | | | | 619,700 | |
| Total interest expense | | | 269,105 | | | | 368,000 | | | | 1,149,708 | | | | 1,653,492 | |
| | | | | | | | | | | | | |
| Net interest income | | | 1,804,460 | | | | 1,801,030 | | | | 7,169,117 | | | | 7,588,686 | |
| Provision for loan losses | | | 265,739 | | | | 178,435 | | | | 637,299 | | | | 1,367,023 | |
| Net interest (expense) income after provision for loan losses | | | 1,538,721 | | | | 1,622,595 | | | | 6,531,818 | | | | 6,221,663 | |
| | | | | | | | | | | | | |
| Non-interest income: | | | | | | | | | | | | | | | | |
| Service charges and other fees | | | 202,390 | | | | 197,093 | | | | 857,212 | | | | 760,177 | |
| Mortgage banking activities | | | 97,102 | | | | 367,032 | | | | 585,095 | | | | 1,243,122 | |
| Gain on sale of available-for-sale investments | | | — | | | | — | | | | — | | | | 47,017 | |
| Net gain (loss) on sale of premises and equipment, | | | 2,673 | | | | (3,796 | ) | | | 11,757 | | | | (4,494 | ) |
| Net gain (loss) on sale real estate owned | | | | | | | | | | | | | | | | |
| and other repossessed assets | | | 23,071 | | | | (3,052 | ) | | | 3,275 | | | | (83,150 | ) |
| Other | | | 88,494 | | | | 78,928 | | | | 320,325 | | | | 313,889 | |
| Total non-interest income | | | 413,730 | | | | 636,204 | | | | 1,777,664 | | | | 2,276,561 | |
| | | | | | | | | | | | | |
| Non-interest expenses: | | | | | | | | | | | | |
| Compensation and employee benefits | | | 1,180,537 | | | | 1,220,914 | | | | 4,653,520 | | | | 4,913,054 | |
| FDIC insurance premiums | | | 45,542 | | | | 47,462 | | | | 183,596 | | | | 188,776 | |
| Advertising | | | 34,775 | | | | 44,337 | | | | 130,166 | | | | 155,826 | |
| Occupancy | | | 221,712 | | | | 240,146 | | | | 911,290 | | | | 959,294 | |
| Amortization of intangible assets | | | 29,646 | | | | 29,646 | | | | 118,584 | | | | 176,539 | |
| Service bureau charges | | | 66,616 | | | | 77,025 | | | | 300,500 | | | | 306,174 | |
| Professional services | | | 165,950 | | | | 126,316 | | | | 509,795 | | | | 423,719 | |
| Collection activity | | | 45,211 | | | | 49,661 | | | | 152,814 | | | | 206,095 | |
| Real estate owned and other repossessed asset | | | 69,158 | | | | 104,448 | | | | 245,125 | | | | 409,243 | |
| Other | | | 285,140 | | | | 251,530 | | | | 1,049,340 | | | | 973,510 | |
| Total non-interest expenses | | | 2,144,286 | | | | 2,191,485 | | | | 8,254,729 | | | | 8,712,230 | |
| | | | | | | | | | | | | | | | | |
| Income (loss) before income tax expense | | | (191,835 | ) | | | 67,314 | | | | 54,753 | | | | (214,006 | ) |
| Income tax expense (benefit) | | | — | | | | 884,822 | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | |
| Net income (loss) | | | (191,835 | ) | | | (817,507 | ) | | | 54,753 | | | | (214,006 | ) |
| | | | | | | | | | | | | | | | | |
| Other comprehensive income (loss): | | | | | | | | | | | | | | | | |
| Other comprehensive income (loss) - net of tax: | | | (191,835 | ) | | | (817,507 | ) | | | 54,753 | | | | (214,006 | ) |
| Unrealized (loss) gain on investment securities - available for sale | | | (75,284 | ) | | | — | | | | (907,174 | ) | | | 110,270 | |
| Reclassification adjustment for gains realized in earnings | | $ | — | | | $ | — | | | $ | — | | | $ | (31,020 | ) |
| | | | | | | | | | | | | | | | | |
| Comprehensive loss | | $ | (267,119 | ) | | $ | (817,507 | ) | | $ | (852,421 | ) | | $ | (134,756 | ) |
| | | | | | | | | | | | | | | | | |
| Per share data: | | | | | | | | | | | | | | | | |
| Net income per share | | | | | | | | | | | | | | | | |
| Basic | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| Diluted | | | — | | | | — | | | | — | | | | — | |
| Weighted average number of shares outstanding | | | | | | | | | | | | | | | | |
| Basic and diluted | | $ | 2,884,049 | | | $ | 2,884,049 | | | $ | 2,884,049 | | | $ | 2,884,049 | |
| Dividends per common share | | $ | 0.02 | | | $ | — | | | $ | 0.02 | | | $ | — | |
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.
