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

ALPENA, Mich., Feb. 16, 2018 /PRNewswire/ -- First Federal of Northern Michigan Bancorp, Inc. (OTCQX: FFNM) (the "Company") reported a consolidated net loss of $682,000, or $0.18 per basic and diluted share, for the quarter ended December 31, 2017 compared to income of $548,000, or $0.15 per basic and diluted share, for the quarter ended December 31, 2016.  The quarterly and year end net earnings above include a reduction of $1.2 million related to the write down of our deferred tax asset (DTA) that resulted from the late December signing of the Tax Cut and Jobs Act.  Absent the tax entry referenced above, our quarterly earnings would have been $518,000, or $0.14 per share.

Consolidated net income for the twelve months ended December 31, 2017 was $624,000, or $0.17 per basic and diluted share, compared to $1.3 million, or $0.35 per basic and diluted share for the twelve months ended December 31, 2016.  Absent the tax entry referenced above, our twelve month earnings would have been $1.8 million, or $0.49 per share.

Michael W. Mahler, Chief Executive Officer of the Company, commented, "We are pleased with the continued momentum of loan growth achieved in 2017, as we recognized an increase, of $4.0 million in net loans during the fourth quarter and $10.1 million for the year. This level of loan growth as resulted in an increase of 9% in interest income year over year. This growth was the result of our efforts to increase market share in our existing markets and was accomplished without relaxing underwriting standards."

Mahler continued, "The continued improvement to the earnings structure of the balance sheet and the sustained ability to reduce non-interest expenses for the year has allowed us to grow pre-tax, pre-provision income 35% for the quarter and 65% for the year when compared to the prior year period. Embedded in our 2017 results were costs associated with our recently announced plan to merge with Mackinac Financial Corporation along with the one-time costs of selling our branch deposits in Oscoda which closed in early February.  Absent these one-time expenses, our performance was even better. We achieved capital growth, increased our loan to asset ratio to 60%, reduced expenses and improved our prospects for future earnings growth with the moves made in 2017."

Mahler furthered, "We are excited with the post year end announced merger with and into Mackinac Financial Corporation. Our shareholders, communities and staff will be well served under this business combination. Our present focus is to work through the various approval processes and ready our Bank, customers and staff for the transition set to occur late spring or early summer." 

Performance Highlights

• Net loan growth of $4.0 million since September 30, 2017 and $10.1 million since December 31, 2016.
• Net interest income increased $379,000 to $2.8 million for the three months ended December 31, 2017 when compared the same period in 2016 and increased $993,000 to $10.3 million for the twelve months ended December 31, 2017 when compared to the twelve months ended December 31, 2016.
• Provision for loan loss was $155,000 for the year ended December 31, 2017 compared to $95,000 for the year ended December 31, 2016.
• Decreases of $68,000, quarter over quarter, and $105,000, year over year, in the Company's non-interest income.    
• Federal income tax expense increased to $1.5 million for the twelve months ended December 31, 2017, primarily related to the signing of the Tax Cuts and Jobs Act. A reduction of the deferred tax asset valuation reserve resulted in no tax expense for the twelve months ended December 31, 2016.
• Tangible book value per share at December 31, 2017 was $8.67 compared to $8.60 at December 31, 2016.
• First Federal of Northern Michigan remains "well-capitalized" for regulatory purposes.

Financial Condition

• Total assets of the Company at December 31, 2017 were $321.2 million, a decrease of $23.7 million, or 6.9%, from total assets of $345.0 million at December 31, 2016.
• We have experienced an increase in our net loans of $10.1 million:
• With a $9.5 million increase in our commercial loan portfolio, we have focused our efforts on growing loans organically in and around our market areas.
• We increased our mortgage loan portfolio $1.1 million as we continue to retain high quality adjustable rate mortgages and 10- and 15-year fixed rate loans in our mortgage portfolio. In addition, the consumer loan portfolio decreased $341,000 during the twelve months ended December 31, 2017. 

• We experienced a decrease of $1.7 million in our deposits held at other financial institutions during the twelve months ended December 31, 2017.
• Investments available for sale decreased $29.3 million to $98.8 million as of December 31, 2017 compared to $128.1 million as of December 31, 2016. This decrease is the result of bond sales to fund loan growth and payoff Federal Home Loan Bank advances during the year.
• Deposits decreased $23.1 million to $270.3 million at December 31, 2017. The balance of our Federal Home Loan Bank advances decreased $869,000 to $16.6 million during the same period.
• Stockholders' equity remained at $32.9 million for the twelve months ended December 31, 2017 and December 31, 2016.
• During 2017, the Company paid $708,000 in shareholder dividends.
• We experienced an increase of $21,000 in the unrealized loss on available-for-sale securities, net of tax.
• Partially offsetting these decreases is our reported net income of $624,000 for the year ended December 31, 2017.
• 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

• During the three months ended December 31, 2017, interest income increased $374,000 to $3.1 million from $2.7 million for the three months ended December 31, 2016 and increased $936,000 to $11.5 million for the twelve-month period ended December 31, 2017 from $10.6 million for same period in 2016.
• During the three months ended December 31, 2017, the yield on our interest-earning assets increased 54 basis points to 3.90% from 3.36% as of December 31, 2016. While the yield on our interest-earning assets increased 22 basis points to 3.57% for the twelve months ended December 31, 2017 from 3.35% for the year ended December 31, 2016. These increases are primarily related to the recovery of interest income on a long standing non-accrual loan that was paid off during the fourth quarter of 2017.
• During the three months ended December 31, 2017, interest expense decreased slightly to $313,000 from $318,000 for the three months ended December 31, 2016 and decreased to $1.2 million, as of December 31, 2017, from $1.3 million for the twelve months ended December 31, 2016.
• The average cost of our certificates of deposit increased to 1.10% for the three months ended December 31, 2017 from 0.99% during the same period a year earlier. In addition, the cost of these funds increased to 1.04% for the year ended December 31, 2017 from 0.99% for the same period in 2016. The average balance of our certificate of deposits decreased $5.5 million for the twelve months ended December 31, 2017.
• The cost of our FHLB advances increased 15 basis points from 1.24% for the three months ended December 31, 2016 to 1.39% for the three months ended December 31, 2017. In addition, the cost of these funds increased 4 basis points from 1.34% for the year ended December 31, 2016 to 1.38% for the year ended December 31, 2017. For the twelve months ended December 31, 2017 the average balance of our FHLB advances decreased $5.3 million.
• Interest-bearing core deposit balances decreased $15.5 million for the year ended December 31, 2017.
• Net interest margin increased to 3.50% for the three-month period ended December 31, 2017 from 2.96% for the same period in 2016, and increased to 3.19% for the twelve months ended December 31, 2017 from 2.94% for the year in 2016 as a result of the factors mentioned above.
• For the twelve months ended December 31, 2017, provision for loan loss was $155,000 as compared to $95,000 for same period in 2016.
• For the twelve-month period ended December 31, 2017, we experienced net charge offs of $7,000 compared to net recoveries of $31,000 for the twelve month period ended December 31, 2016.
• Non-interest income decreased to $449,000 for the three months ended December 31, 2017 from $517,000 for the three months ended December 31, 2016 with the following period-over-period decreases noted in 2017:
• Service charges of $27,000.
• Gain on sale of securities of $34,000.
• Non-interest income decreased $105,000 to $1.8 million for the twelve months ended December 31, 2017 from $2.0 million for the twelve months ended 2016 with the following activity noted year over year:
• Mortgage banking income increased $65,000.
• Gain on sale of securities decreased $98,000.
• Other income decreased $82,000, primarily related to life insurance proceeds received in 2016.
• Non-interest expense increased $120,000, to $2.5 million, for the three months ended December 31, 2017 when compared to $2.3 million for the same period one year earlier. The following are increases noted in the quarter over quarter period ended December 31, 2017 and 2016:
• Compensation and employee benefits of $29,000.
• Federal Deposit Insurance Corporation (FDIC) premiums of $19,000.
• Professional services of $69,000, associated with the sale of our Oscoda branch and merger related fees.
• Non-interest expense remained steady at $9.8 million, for the twelve month periods ended December 31, 2017 and 2016. 

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.