First Federal of Northern Michigan Bancorp, Inc. Announces First Quarter 2018 Results

ALPENA, Mich., April 27, 2018 /PRNewswire/ -- First Federal of Northern Michigan Bancorp, Inc. (OTCQX: FFNM) (the "Company") reported consolidated net earnings of $396,000, or $0.11 per basic share, for the quarter ended March 31, 2018 compared to consolidated net earnings of $390,000, or $0.10 per basic share, for the quarter ended March 31, 2017. Annualized return on average assets was 0.50% and return on average equity was 4.84% for the first quarter of 2018 compared to 0.45% and 4.67%, respectively for the prior year period.

The Company's results for the quarter ended March 31, 2018 include:

• Provision for loan losses resulted in income of $84,000 as compared to expense of $87,000 for the prior year period.
• Quarter over quarter increase of $192,000, or 49.0%, in the Company's non-interest income with the deposit premium received in relation to the sale of deposits and certain loans in the Oscoda market.
• One-time expenses totaling $202,000 related to the merger with Mackinac Financial Corporation.
• Tangible book value per share at March 31, 2018 was $8.49 compared to $8.78 at March 31, 2017.

When comparing our results for the three months ended March 31, 2018 to the three months ended March 31, 2017, net interest income, after provision, increased $194,000, or 8.1%, to $2.6 million. Non-interest income increased $192,000, or 49%, to $584,000 for the quarter ended March 31, 2018 from $392,000 for the quarter ended March 31, 2017. Our non-interest expenses increased $276,000, or 11.5%, to $2.7 million for the three months ended March 31, 2018 from $2.4 million for the three months ended March 31, 2017.

Michael W. Mahler, Chief Executive Officer of the Company, commented, "Our focus for the first quarter of 2018 has been on a seamless and efficient merger with Mackinac Financial Corporation. The net income results contain $314,000 in one-time merger related expenses and absent those expenses our net income would have been $710,000 or $0.19 per share." 

Financial Condition

Total assets of the Company at March 31, 2018 were $310.5 million, a decrease of $10.8 million, or 3.4%, from $321.2 million at December 31, 2017. Cash and cash equivalents decreased $3.2 million, or 38.2%, and securities available for sale decreased $3.7 million, or 3.8%, to $95.1 million as of March 31, 2018 as compared to $98.8 million as of March 31, 2017. In addition, net loans receivable decreased $2.9 million, or 1.5%, to $188.6 million at March 31, 2018. For the three months ended March 31, 2018, the decrease to net loans is primarily attributed to the sale of certain loans assigned to the Oscoda branch.

Deposits decreased $8.5 million, or 3.2%, to $261.8 million at March 31, 2018 from $270.3 million as of December 31, 2017. This decrease is the direct result of the sale of deposits that were held in the Oscoda market. Federal Home Loan Bank (FHLB) advances decreased $1.5 million, or 9.3%, as proceeds from loan payments and matured securities were used to pay off maturing advances.

Stockholders' equity decreased $747,000, or 2.3%, to $32.2 million at March 31, 2018 from $32.9 million at December 31, 2017.  The decrease was due primarily to net earnings for the three-month period of $396,000 and a reduction of $957,000 in the other comprehensive income component of the unrealized loss on available-for-sale investment securities, offset by a dividend payment of $186,000. At March 31, 2018 First Federal of Northern Michigan remains "well-capitalized" for regulatory purposes, as shown in the table below.

Results of Operations

Interest income remained unchanged at $2.8 million for the three months ended March 31 2018 and 2017.  During the three months ended March 31, 2018, our yield on interest-earning assets increased to 3.73% from 3.43% for the same period in 2017.

Interest expense decreased to $285,000 for the three months ended March 31, 2018 from $307,000 for the three months ended March 31, 2017. The decrease in interest expense was due primarily to a $26.7 million average balance decrease in total deposit for the three months ended March 31, 2018.

The Company's net interest margin increased to 3.34% for the three-month period ended March 31, 2018 from 3.04% for the same period in 2017 as a result of the factors mentioned above and the collection of interest income as a long-term non-accrual loan paid off during the quarter.

The provision for loan losses for the three-month period ended March 31, 2018 resulted in income of $84,000, as compared to expense of $87,000 for the prior year period. The decrease in provision expense quarter over quarter is primarily related to the decline we have experienced in our loan portfolio. 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 increased to $584,000 for the quarter ended March 31, 2018 from $392,000 for the 2017 period, primarily due to the $227,000 in deposit premium received on the sale of the deposits and certain loans in the Oscoda market.

Non-interest expense increased $276,000 to $2.7 million for the 2018 period from $2.4 million for the three months ended March 31, 2017, as we experienced decreases in the following areas:

• $203,000 in compensation and employee benefits, primarily a result of one-time accrued expense associated with paid time off, to be paid to employees upon closing of the merger with Mackinac Financial Corporation.
• $202,000 in professional services, primarily as a result of expenses incurred that relate to our pending merger.
• Partially offsetting these increases were decreases of $53,000 in collection and real estate owned expenses and $19,000 marketing expenses.

Federal income tax expense for the quarter ended March 31, 2018 was $104,000 compared to no recorded federal income taxes for the quarter ended March 31, 2017.

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.