ALPENA — The directors of Mackinac Financial Corporation, the holding company for mBank, and the directors of First Federal of Northern Michigan Bancorp, Inc., the holding company for First Federal of Northern Michigan announced in a press release Wednesday the execution of a definitive agreement for Mackinac Financial to acquire First Federal through an all-stock merger into a subsidiary of Mackinac Financial.

Upon the closing of the transaction, Michael W. Mahler, First Federal of Northern Michigan CEO, will remain with mBank at its Alpena location as EVP of community banking and administration. In this position Mahler will oversee company-wide retail lending and branch banking platforms, as well as human resources, professional development, and marketing. In addition, one mutually agreeable director from First Federal will join the Mackinac and mBank boards.

“We are extremely pleased and excited to be able to partner with another long-standing community-focused institution in First Federal and have Mike join our executive leadership team as Alpena becomes another key commerce and operational hub of the organization.” Kelly W. George, mBank President and CEO, said. “mBank remains a safe and sound community bank, and we believe the customer-centric cultures and community bank-oriented traditions of our two organizations are very complementary and were the driving impetus for the combination of the two banks.”

First Federal shareholders will receive 0.576 shares of Mackinac common stock for each share of First Federal common stock. The aggregate value of the stock consideration, based on an assumed price of Mackinac shares of $15.75, is $33.8 million. Mackinac Financial expects to issue approximately 2.15 million shares to First Federal shareholders in connection with the transaction. Under the terms of the agreement, shareholders of First Federal also will receive a special cash dividend immediately prior to close of $8 million subject to maintenance of a minimum equity requirement. Total consideration to First Federal shareholders in connection with the transaction would equate to $41.8 million, or $11.22 per share, based upon the assumed value of Mackinac common shares.

“We believe this merger is an excellent opportunity to create long term value for First Federal shareholders and continue a strong community focused banking presence in Alpena and the other communities we serve,” Mahler said. “Further, the scale and lending limits of the commercial banking platform that Mackinac brings will combine with our robust mortgage platform to offer our valued clients an even more complete banking experience. More importantly, we have spent significant time with mBank’s leadership to ensure their culture, customer service approach, commitment to their employees and community focus is consistent with First Federal’s.”

The transaction will increase mBank’s market position as the largest bank headquartered in the Upper Peninsula with post-transaction assets estimated at approximately $1.3 billion and gross balance sheet loans of approximately $1 billion. Combined deposits are expected to total approximately $1.1 billion. It also is anticipated that mBank will rank as the 10th largest bank headquartered in Michigan, out of 97, ranked by total assets of such institutions as of Sept. 30, 2017, after giving effect to the acquisition.

“The combined organization will have a strong capital position and well-structured balance sheet to further actively compete and grow within our expanding geographic footprint along with providing accretive financial returns to our shareholders. From the entire mBank staff, management, and board of directors, we all look forward to working with First Federal,” George said. “We want to assure the First Federal customers, shareholders and employees that as we move through to the closing of the transaction, we will work transparently in making the transaction as smooth as possible.”

The transaction remains subject to approval by First Federal and Mackinac Financial shareholders and approval by federal and state regulatory authorities as well as the satisfaction of other customary closing conditions provided in the merger agreement.

Statistics

∫ First Federal of Northern Michigan has approximately $320 million in assets and $283 million in deposits, primarily all core deposits.

∫ Mackinac Financial Corporation has assets in excess of $980 million.

∫ Combined offices will equate to 30 banking centers.

∫ The transaction is expected to close in the second quarter of 2018.

∫ Anticipated results include earnings per share accretion of 8 percent in 2018 (exclusive of deal costs) and an expected tangible book value earn back period of three years or less.

∫ The transaction is the fourth strategic expansion by Mackinac since late 2014.