First Federal of Northern Michigan Bancorp, Inc. Announces Fourth Quarter 2012 and Full Year Results

Mar 22, 2013, 16:15 ET from First Federal of Northern Michigan Bancorp, Inc.

ALPENA, Mich., March 22, 2013 /PRNewswire/ -- First Federal of Northern Michigan Bancorp, Inc. (Nasdaq: FFNM) (the "Company") reported a consolidated net loss of $818,000, or $0.28 per basic share, for the quarter ended December 31, 2012 compared to consolidated net income of $84,000, or $0.03 per basic and diluted share, for the quarter ended December 31, 2011.  

Consolidated net loss for the twelve months ended December 31, 2012 was $214,000, or $0.07 per basic share, compared to consolidated net income of $742,000, or $0.26 per basic and diluted share, for the twelve months ended December 31, 2011.  

President and CEO Michael Mahler commented, "Our fourth quarter performance was negatively impacted by increasing the reserve for our deferred tax asset (DTA).  While we saw continued strength in non interest income through our mortgage banking activity and a continued decline of non-interest expense, collectively they were not enough to offset the lack of meaningful loan growth and the increase in our provision expense year over year.  The increase in provision expense was driven primarily by mortgage charge-offs, which were negatively impacted by the continued decline in real estate values in the markets we serve. These charge-offs resulted in a reduction in earnings which had an impact on the value of our DTA, resulting in the fourth quarter adjustment (expense) of $885,000, reversing what we recovered in the first quarter." 

Mahler further stated, "We were very pleased with our market share growth in the area of mortgage lending, with $52.4 million in mortgage originations in 2012. It is clearly a core competency that we are very proud of and we believe the reputation we have earned continues to regularly bring new lending opportunities to us." 

Performance Highlights: 

  • The Company reported a net loss of $214,000 for the twelve-month period ended December 31, 2012 as compared to net income of $742,000 for the prior-year period, primarily as a result of the following year over year differences:
    • Provision for loan losses of $1.4 million in 2012 as compared to $284,000 in 2011 due primarily to the charge-off of $840,000 in residential mortgage loans in 2012.
    • Increase in mortgage banking activities income of $274,000 year over year, despite the Company's focus on placing certain mortgage loans in portfolio.
    • Increase in salaries and benefits of $291,000 year over year related to increased mortgage lender commissions due to heavy mortgage volume in 2012 .
  • $581,000 increase in non-performing assets since December 31, 2011. However in the fourth quarter of 2012 we placed a $2.0 million commercial loan on non-accrual status, which negatively impacted our asset quality metrics. We believe that the loan is well collateralized and, as of December 31, 2012, we determined no specific reserve was necessary.
  • Decrease of $322,000 in non-interest expenses year over year primarily due to decreases in the costs associated with our troubled loans and repossessed properties.
  • Continued decline in net interest margin (NIM) due mainly to declining yields on loans:
    • Quarter over quarter decline from 3.94% for the fourth quarter of 2011 to 3.62% in the fourth quarter of 2012
    • Year over year decline from 4.02% in 2011 to 3.78% in 2012
  • The Company increased the valuation allowance against its deferred tax asset (DTA) by $885,000 during the fourth quarter of 2012 based on an analysis of the amount of DTA expected to be recognized by the Company in the foreseeable future.
  • First Federal of Northern Michigan remains "well-capitalized" for regulatory purposes.

Asset Quality

The ratio of total nonperforming assets to total assets was 3.42% at December 31, 2012 compared to 3.11% at December 31, 2011. Non-performing assets increased $581,000 to $7.3 million at December 31, 2012 from $6.7 million at  December 31, 2011, mainly as the result of a $2.0 million commercial loan which was placed on non-accrual status, but which was adequately collateralized, at the end of 2012. The Company continues to closely monitor non-performing assets and has taken 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;
  • 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, 2012

December 31, 2011

Asset Quality Ratios:

Non-performing assets to total assets

3.42%

3.11%

Non-performing loans to total loans

3.50%

2.34%

Allowance for loan losses to non-performing loans

35.50%

45.47%

Allowance for loan losses to total loans

1.24%

1.07%

"Texas Ratio" (Bank) (1)

30.83%

28.28%

Total non-performing loans ($000 omitted)

$4,930

$3,338

Total non-performing assets ($000 omitted)

$7,317

$6,746

(1) Represents total non-performing assets divided by tangible 

      capital plus allowance for loan losses.

Financial Condition

  • Total assets decreased $3.2 million to $213.8 million at December 31, 2012  from $217.0 million at December 31, 2011.
    • Net loans receivable decreased $2.0 million
      • Consumer loans decreased $3.2 million due to normal pay-downs and a decrease in originations of this loan type;
      • Commercial loans increased $1.6 million;
      • Allowance for loan losses increased by $232,000
    • Investment securities AFS decreased $2.3 million as we did not replace certain maturing or called securities due to the interest rate environment.
  • Total liabilities decreased $3.1 million year over year.
    • Deposits increased $7.7 million as we continued our focus on increasing core deposits.
    • FHLB advances decreased $8.1 million as we paid off maturing advances with deposit growth.
  • Stockholders' equity was $24.4 million at December 31, 2012 compared to $24.6 million at December 31, 2011.
    • Net loss for the year of $214,000;
    • Increase in the unrealized gain on available-for-sale securities of $79,000 year over year.
    • 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)

  Total risk-based capital ( to risk-

          weighted assets)

$          23,727

17.36%

$  10,934

8.00%

$  13,667

10.00%

  Tier 1 risk-based capital ( to 

          risk-weighted assets)

$          22,019

16.11%

$     5,467

4.00%

$     8,200

6.00%

  Tangible Capital ( to 

          tangible assets)

$          22,019

10.33%

$     3,197

1.50%

$     4,263

2.00%

Results of Operations:

  • Interest income decreased to $2.2 million for the three months ended December 31, 2012 from $2.5 million for the year earlier period and decreased to $9.2 million for the twelve months ended December 31, 2012 as compared to $10.4 million for the prior year period.
    • 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 $368,000 for the three months ended December 31, 2012 from $512,000 for the prior year period and decreased to $1.7 million for 2012 from $2.3 million for 2011.
    • For both the three- and twelve-month periods: decreases of  $10.2 million and $6.8 million, respectively, in the average balance of our interest-bearing liabilities during those periods, and decreases in our overall cost of funds of 26 basis points and 30 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, 2012 and 2011 was $179,000 and $303,000, respectively.
    • The higher provision during the 2011 period resulted from our recording provisions on several residential mortgage loans which were in various states of foreclosure.
  • Provision for loans losses for the twelve months ended December 31, 2012 and 2011 was $1.4 million and $284,000, respectively.
    • In 2011 we were able to reverse provision expense recorded during the first three quarters because our eight-quarter rolling average of charge-offs declined. 
    • In contrast, in 2012, the Company had net charge-offs of $1.1 million in loans, including $840,000 of residential mortgage loans.
  • Non-interest income increased to $636,000 for the three months ended December 31, 2012 from $620,000 for the three months ended December 31, 2011. Non-interest income increased to $2.3 million for the twelve months ended December 31, 2012 from $1.9 million for the twelve months ended December 31, 2011.
    • 2012 reflected a $47,000 gain on sale of investments primarily as a result of selling a municipal security which the Company felt posed a credit risk and also an increase of $274,000 in mortgage banking activities, consisting mostly of homeowner refinances, as compared to the twelve-month period in 2011.
  • Non-interest expense decreased to $2.19 million for the three months ended December 31, 2012 from $2.24 million for the three months ended December 31, 2011. Non-interest expense decreased to $8.7 million for the twelve months ended December 31, 2012 from $9.0 million for the twelve months ended December 31, 2011.
    • For both the three- and the twelve-month periods, other expenses decreased primarily related to expenses associated with troubled loans and repossessed properties, which were considerably lower in 2012 than in 2011 .  

Net Interest Margin:

  • Decreased to 3.62% for the three-month period ended December 31, 2012 from 3.94% for the same period in 2011.
    • Average yield on interest-earning assets decreased 59 basis points to 4.35% from 4.94%.
    • Average cost of funds decreased 26 basis points to 0.87% from 1.13%, due to reductions of 32 basis points on our certificates of deposit, 3 basis points on our money market and NOW accounts, and 31 basis points on our FHLB advances quarter over quarter.
  • Decreased to 3.78% for the twelve-month period ended December 31, 2012 from 4.02% for the same period in 2011.
    • Average yield on interest-earning assets decreased 53 basis points to 4.61% from 5.14%;
    • Average cost of funds decreased 30 basis points to 0.96% from 1.26%.

 

First Federal of Northern Michigan Bancorp, Inc.

Consolidated Balance Sheet

December 31, 2012

 December 31, 2011 

 (Unaudited) 

ASSETS

Cash and cash equivalents:

Cash on hand and due from banks

$             2,732,109

$               2,713,701

Overnight deposits with FHLB

19,701

35,797

Total cash and cash equivalents

2,751,810

2,749,498

Securities AFS 

50,763,551

53,048,503

Securities HTM

2,345,000

2,435,000

Loans HFS

78,712

-

Loans receivable, net of allowance for loan losses of $1,749,915 and 

  $1,517,695 as of December  31, 2012 and December 31, 2011, respectively

138,911,989

140,883,591

Foreclosed real estate and other repossessed assets

2,387,307

3,407,939

Federal Home Loan Bank stock, at cost

3,266,100

3,266,100

Premises and equipment

5,394,412

5,845,881

Accrued interest receivable

970,450

1,148,500

Intangible assets

158,316

334,855

Prepaid FDIC Premiums

582,945

758,733

Deferred tax asset

330,831

387,065

Originated mortgage servicing rights 

1,016,070

993,186

Bank-owned life insurance

4,474,563

1,413,387

Other assets

402,091

372,551

Total assets

$         213,834,147

$           217,044,789

LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities:

Deposits

$         158,350,134

$           150,649,073

Advances from borrowers for taxes and insurance

132,823

128,028

Federal Home Loan Bank Advances

26,357,962

34,500,000

REPO Sweep Accounts

3,183,351

5,592,326

Accrued expenses and other liabilities

1,375,093

1,606,568

Total liabilities

189,399,363

192,475,995

Stockholders' equity:

Common stock ($0.01 par value 20,000,000 shares authorized 

  3,191,999 shares issued)

31,918

31,920

Additional paid-in capital

23,853,891

23,852,701

Retained earnings 

2,766,170

2,980,176

Treasury stock at cost (307,750 shares)

(2,963,918)

(2,963,918)

Unearned compensation

-

(556)

Accumulated other comprehensive income

746,723

668,471

Total stockholders' equity

24,434,784

24,568,794

Total liabilities and stockholders' equity

$         213,834,147

$           217,044,789

 

 

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, 

2012

2011

2012

2011

(Unaudited)

(Unaudited)

Interest income:

Interest and fees on loans

$   1,880,387

$   2,139,109

$ 7,927,833

$ 8,925,925

Interest and dividends on investments

   Taxable

116,321

140,765

539,630

521,173

   Tax-exempt

37,695

39,073

153,935

159,147

Interest on mortgage-backed securities

134,627

200,556

620,780

784,065

Total interest income

2,169,030

2,519,503

9,242,178

10,390,310

Interest expense:

Interest on deposits

240,173

322,907

1,033,792

1,549,159

Interest on borrowings

127,827

188,828

619,700

712,612

Total interest expense

368,000

511,735

1,653,492

2,261,771

Net interest income

1,801,030

2,007,768

7,588,686

8,128,539

Provision for loan losses

178,435

302,711

1,367,023

283,752

Net interest income after provision for loan losses

1,622,595

1,705,057

6,221,663

7,844,787

Non-interest income:

Service charges and other fees

197,093

186,932

760,177

729,918

Mortgage banking activities

367,032

331,691

1,243,122

968,807

Gain on sale of available-for-sale investments

-

-

47,017

-

Net loss on sale of premises and equipment,

(3,796)

(2,562)

(4,494)

(3,106)

Net gain (loss) on sale of real estate owned

 and other repossessed assets

(3,052)

6,489

(83,150)

(47,879)

Other 

78,928

97,455

313,889

283,901

Total non-interest income

636,205

620,005

2,276,561

1,931,641

Non-interest expenses:

Compensation and employee benefits

1,220,915

1,165,226

4,913,054

4,622,326

FDIC insurance premiums

47,462

47,353

188,776

223,801

Advertising

44,337

45,911

155,826

133,674

Occupancy

240,146

246,577

959,294

1,048,974

Amortization of intangible assets

29,646

73,113

176,539

292,451

Service bureau charges

77,025

75,629

306,174

300,510

Professional services

126,316

103,387

423,719

433,006

Other 

405,639

483,912

1,588,848

1,979,575

Total non-interest expenses

2,191,486

2,241,108

8,712,230

9,034,317

Income (loss) before income tax expense

67,314

83,954

(214,006)

742,111

Income tax expense

884,822

-

-

-

Net income (loss)

$     (817,508)

$        83,954

$   (214,006)

$    742,111

Comprehensive income (loss):

Net income (loss)

$     (817,508)

$        83,954

$   (214,006)

$    742,111

Change in unrealized gain on available-for-sale 

 securities, net of tax

(40,337)

(100,901)

78,250

522,364

Comprehensive income (loss)

$     (857,845)

$       (16,947)

$   (135,756)

$ 1,264,475

Per share data:

Net income (loss) per share

   Basic

$          (0.28)

$           0.03

$        (0.07)

$         0.26

   Diluted

$          (0.28)

$           0.03

$        (0.07)

$         0.26

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

$                 -

$                -

$               -

$               -

 

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.

SOURCE First Federal of Northern Michigan Bancorp, Inc.



RELATED LINKS

http://www.first-federal.com