First Federal of Northern Michigan Bancorp, Inc. Announces First Quarter 2017 Results

ALPENA, Mich., April 28, 2017 /PRNewswire/ -- First Federal of Northern Michigan Bancorp, Inc. (OTCQX: FFNM) (the "Company") reported consolidated net earnings of $390,000, or $0.10 per basic and diluted share, for the quarter ended March 31, 2017 compared to consolidated net earnings of $261,000, or $0.07 per basic and diluted share, for the quarter ended March 31, 2016. Annualized return on average assets was 0.45% and return on average equity was 4.67% for the first quarter of 2017 compared to 0.31% and 3.07%, respectively for the prior year period.

The Company's results for the quarter ended March 31, 2017 include:

• Net loan growth of $2.4 million.
• Quarter over quarter increase of $168,000 to net interest income.
• Provision for loan losses of $87,000 as compared to $32,000 for the prior year period.
• Quarter over quarter decrease of $109,000, or 4.3%, in the Company's non-interest expenses including employment costs.
• Tangible book value per share at March 31, 2017 was $8.78 compared to $8.86 at March 31, 2016.

When comparing our results for the three months ended March 31, 2017 to the three months ended March 31, 2016, net interest income increased $168,000, or 7.2%, to $2.5 million. Non-interest income decreased $93,000 to $392,000 for the quarter ended March 31, 2017 from $485,000 for the quarter ended March 31, 2016. Our non-interest expenses decreased $109,000 to $2.4 million for the three months ended March 31, 2017 from $2.5 million for the three months ended March 31, 2016.

Michael W. Mahler, Chief Executive Officer of the Company, commented, "We are pleased with the $2.4 million of net loan growth for the first quarter of 2017. Since the start of the year, we have experienced an increase of $5.0 million in our commercial loan portfolio as our larger lending force continues to focus on quality loan generation throughout our expanded Northern Michigan markets." 

Mahler continued "We remain confident that our enriched commercial lending strategy will result in loan growth to provide for the earnings improvement required to enhance value for our shareholders. In addition, we experienced an increase of $184,000, or 63%, to pre-tax, pre-provision income as a result of our loan growth and simultaneous expense reductions during the first quarter this year when compared to the same quarter a year ago."

Financial Condition

Total assets of the Company at March 31, 2017 were $346.0 million, an increase of $1.1 million, or 0.3%, from $344.9 million at December 31, 2016. Cash and cash equivalents decreased slightly and securities available for sale remained relatively unchanged at March 31, 2017 as compared to March 31, 2016. In addition, net loans receivable increased $2.4 million, or 1.3%, to $183.8 million at March 31, 2017.

Deposits increased $766,000, or 0.3%, to $294.2 million at March 31, 2017 from December 31, 2016. Federal Home Loan Bank (FHLB) advances decreased $661,000, or 3.8%, as proceeds from loan payments and matured securities were used to pay off maturing advances.

Stockholders' equity increased $602,000, or 1.8%, to $33.5 million at March 31, 2017 from December 31, 2016.  The increase was due primarily to net earnings for the three-month period of $390,000 and a reduction of $361,000 in the other comprehensive income component of the unrealized loss on available-for-sale investment securities, offset by a dividend payment of $149,000. At March 31, 2017 First Federal of Northern Michigan remains "well-capitalized" for regulatory purposes, as shown in the table below.

Results of Operations

Interest income increased $157,000, or 6.0%, to $2.8 million for the three months ended March 31 2017 compared to $2.6 million for the three months ended March 31, 2016. During the three months ended March 31, 2017, our yield on interest-earning assets increased to 3.43% from 3.34% for the same period in 2016.

Interest expense decreased to $307,000 for the three months ended March 31, 2017 from $318,000 for the three months ended March 31, 2016. The decrease in interest expense was due primarily to a $9.8 million average balance decrease in FHLB advances for the three months ended March 31, 2017.

The Company's net interest margin increased to 3.04% for the three-month period ended March 31, 2017 from 2.93% for the same period in 2016 as a result of the factors mentioned above.

The provision for loan losses for the three-month period ended March 31, 2017 was $87,000, as compared to $32,000 for the prior year period. The increase in provision expense quarter over quarter is primarily related to the growth we have experienced in our loan portfolio offset by fewer loans requiring specific reserves along with a net recoveries of $10,000 on previously charged off loans. The provision was based on management's review of the components of the overall loan portfolio, the status of non-performing loans and other subjective factors.           

Non-interest income decreased to $392,000 for the quarter ended March 31, 2017 from $485,000 for the 2016 period. For the three months ended March 31, 2017, income related to insurance and brokerage commissions decreased $17,000 when compared to the same period last year.  In addition, the three months ended March 31, 2016 included collection of $100,000 in life insurance proceeds. During the three months ended March 31, 2017, we recorded a $26,000 gain on sale of available-for-sale securities and bank owned properties as compared to a loss of $5,000 for the three months ended March 31, 2016, which partially offset the decreases above.

Non-interest expense decreased $109,000 to $2.4 million for the 2017 period from $2.5 million for the three months ended March 31, 2016, as we experienced decreases in the following areas:

• $67,000 in compensation and employee benefits, as a result of  decreased health care costs associated with lower period over period claims activity,
• $34,000 in occupancy related to technology upgrades implemented in the first three months of 2016,
• $20,000 in Federal Deposit Insurance Corporation expenses,
• Partially offsetting these decreases was an increase of $22,000 in collection and real estate owned expenses.

During the quarters ended March 31, 2017 and March 31, 2016, the Company recorded no tax expense.

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.