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

ALPENA, Mich., July 28, 2017 /PRNewswire/ -- First Federal of Northern Michigan Bancorp, Inc. (OTCQX: FFNM) (the "Company") reported consolidated net income of $520,000, or $0.14 per share, for the quarter ended June 30, 2017 compared to $197,000, or $0.05 per share, for the quarter ended June 30, 2016. Annualized return on average assets was 0.61% and return on average equity was 6.10% for the six months ended June 30, 2017 compared to 0.24% and 2.30%, respectively for the prior year period.

Consolidated net income for the six months ended June 30, 2017 was $910,000, or $0.24 per share, compared to $457,000, or $0.12 per share for the six months ended June 30, 2016. 

Listed below are highlights related to the Company's results for the three and six months ended June 30, 2017:

• Net loan growth of $6.4 million during the six-month period ended June 30, 2017.
• Quarter over quarter increase of $264,000 to net interest income and an increase of $431,000 in net interest income for the six month period year over year.
• Increase in non-interest income of $75,000 quarter over quarter, primarily related to mortgage banking activities and gain on sale of bank owned properties.
• Quarter over quarter decrease in the Company's non-interest expense of $7,000 and $117,000 for the six month period year over year.   
• Tangible book value per share at June 30, 2017 was $9.04 compared to $9.02 at June 30, 2016.
• First Federal of Northern Michigan remains "well-capitalized" for regulatory purposes.

Michael W. Mahler, Chief Executive Officer of the Company, commented, "We are pleased that our concentrated effort to grow loans and fund them through our bond portfolio has resulted in a 10% and 8% increase to net interest income for the three and six months ended June 30, 2017. This repositioning of the balance sheet has resulted in an increase to our net interest margin to 3.09% from 2.91% year over year.  The successful conversion of the bond portfolio into the loan portfolio will continue to produce long term and sustainable earnings enhancement which will drive shareholder value."

Mahler continued, "As a result of the $6.4 million in net loan growth and continued reductions to non-interest expenses, we have experienced an increase of $530,000, or 103%, to pre-tax, pre-provision income for the first six months of the year when compared to the prior year period. The improvement to our earnings profile paved the way for the dividend increase announced during the second quarter of 2017."

Financial Condition

Total assets of the Company at June 30, 2017 were $342.2 million, a decrease of $2.7 million, or less than 1.0%, from total assets of $344.9 million at December 31, 2016. Net loans receivable increased $6.4 million to $187.8 million at June 30, 2017. When compared to December 31, 2016, we have seen an $8.3 million increase in our commercial loan portfolio as we have focused our efforts on growing loans organically in our market areas. Partially offsetting the increase in commercial loans are decreases of $1.1 million and $653,000 in our mortgage and consumer loan portfolios, respectively.

Mahler added, "With the continued evaluation of the markets we serve and our focus on organic lending opportunities, the Bank made the decision late in the quarter to enter into a new market by hiring a well-established lender in Petoskey Michigan. We view this market as a long term strategic priority as the demographics and economic activity of the Petoskey region are very attractive. With the addition of a seasoned lender from Petoskey we believe our Bank will be able to capitalize on the area's economic expansion."   

Deposits decreased $9.6 million during the first six months of 2017 to $283.8 million at June 30, 2017.  While the balance of our Federal Home Loan Bank advances increased $4.7 million during the six months ended June 30, 2017.

Stockholders' equity was $34.4 million at June 30, 2017 compared to $32.9 million at December 31, 2016. The increase was due primarily to net income of $910,000 and a decrease of $960,000 in the unrealized loss on available for sale securities net of tax, partially offset by the payment of $335,000 in dividends to shareholders. First Federal of Northern Michigan's regulatory capital remains at levels in excess of regulatory requirements, as shown in the table below.

Results of Operations

Interest income increased to $2.8 million for the three months ended June 30, 2017 from $2.6 million for the year earlier period, due mainly to an $11.9 million increase to the average balance of interest-earning assets, which lead to an 18 basis point increase in our yield on interest-earning assets from 3.31% to 3.49% period over period. Interest income increased to $5.6 million for the six-month period ended June 30, 2017 from $5.2 million for the same period in 2016, due mainly to an $11.0 million increase to the average balance of interest-earning assets and in turn an increase of 14 basis points in our yield on interest-earning assets from 3.32% for the six months ended June 30, 2016 to 3.46% for the same period in 2017.

Interest expense decreased to $306,000 for the three months ended June 30, 2017 from $321,000 for the three months ended June 30, 2016. Interest expense for the six months ended June 30, 2017 decreased to $613,000 from $639,000 for the six months ended June 30, 2016. The decrease in interest expense for both the three- and six-month periods was due primarily to a decrease of $3.2 million and $6.5 million, respectively, in the average balance of our Federal Home Loan Bank advances.

The Company's net interest margin increased to 3.11% for the three-month period ended June 30, 2017 from 2.90% for the same period in 2016, and increased to 3.09% for the six-month period ended June 30, 2017 from 2.91% for the same period in 2016 as a result of the factors mentioned above.

The provision for loan losses for the three months ended June 30, 2017 was $48,000 compared to $25,000 for the prior year period. For the six months ended June 30, 2017, the provision for loan losses was $134,000 compared to $57,000 for the six months ended June 30, 2016. During the quarter ended June 30, 2017, we had net recoveries of $16,000 compared to $31,000 of net recoveries during the quarter ended June 30, 2016, in large part due to the decline in the number of loans in foreclosure. The direct effect of $4.1 million and $6.4 million in loan net loan growth for the three- and six- month periods ended June 30, 2017, respectively, is the principal factor for the increase in provision expense for the three- and six- month period ended June 30, 2017.

Non-interest income increased to $498,000 for the three months ended June 30, 2017 from $423,000 for the three months ended June 30, 2016 with the following period over period decreases in 2016:

• Mortgage banking activities of $19,000,
• Gain on sale of bank owned property of $37,000, which includes gain on sale of real estate owned through foreclosures,
• Gain on sale of available for sale securities of $10,000.

Non-interest income decreased to $890,000 for the six months ended June 30, 2017 from $908,000 for the year earlier period, mainly due to a decrease of $111,000 in other income related to life insurance proceeds received during the six months ended June 30, 2016. Partially offsetting this decrease were increases of $20,000 in mortgage banking income, $27,000 in gain on sale of available for sale securities, and $51,000 in gain on sale of bank owned properties during the six months ended June 30, 2017.

Non-interest expense remained unchanged at $2.5 million for the three months ended June 30, 2017 when compared to the three months ended June 30, 2016. Non-interest expense decreased $117,000 for the six months ended June 30, 2017 compared to the year earlier period.  For the six-month period ended June 30, 2017, the following decreases were noted when compared to the six-month period ended June 30, 2016:

• $25,000 related to Federal Deposit Insurance Corporation premiums,
• $38,000 in occupancy expenses,
• $13,000 in amortization of intangible assets,
• $34,000 in professional services.

Selected Performance Ratios

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.