Mackinac Financial Corporation Reports Results for the 2013 Third Quarter and Nine Month Periods

MANISTIQUE, MI--(Marketwired - Oct 30, 2013) - Mackinac Financial Corporation (NASDAQ: MFNC), the bank holding company for mBank (the "Bank"), today announced third quarter 2013 income of $.846 million or $.15 per share compared to net income available to common shareholders of $.897 million, or $.21 per share for the third quarter of 2012. Operating results for the first nine months of 2013 totaled $2.719 million or $.49 per share compared to $2.536 million or $.60 per share, excluding the $3.0 million deferred tax valuation adjustment, for the same period in 2012.

Weighted average shares totaled 5,559,108 shares for the nine month period in 2013 compared to 3,857,002 million in 2012 and 5,562,835 shares in the 2013 third quarter compared to 4,722,029 shares in 2012. The increase in outstanding shares for 2013 reflects the issuance of 2.138 million shares of common stock in August of 2012. Quarterly and nine month per share earnings for 2012 have been adjusted for the common stock issuance.

The Corporation's subsidiary, mBank, recorded net income of $3.820 million for the first nine months of this year compared to $3.577 million, excluding the deferred tax valuation adjustment, for the same period in 2012.

Total assets of the Corporation at September 30, 2013 were $567.917 million, up 3.05 % from the $551.117 million reported at September 30, 2012 and up 4.02% from the $545.980 million of total assets at year-end 2012. The Corporation and the Bank are both "well-capitalized" with Tier 1 Capital at the Corporation of 10.90% and 10.20% at the Bank.

Key highlights for the first nine months of 2013 results include:

• Continued strong credit quality with a Texas Ratio of 9.56% with nominal nonperforming loans of $4.313 million, a $.977 million reduction from a year earlier.
  
  
• Loan growth of $23.318 million, or 5.19% in the first nine months of 2013.
  
  
• Stability and above peer average net interest margin at 4.15%.
  
  
• Nine month secondary mortgage loan income of $.781 million.
  
  
• Continued success in SBA/USDA lending with gains on the sale of these loans of $.798 million in the first nine months of 2013. The corporation continues to be a state leader within these various loan programs ranking 9^th in terms of the number of SBA 7A loans originated, 30, and 13^th based on total dollars equating to $9.553 million for the most recent SBA fiscal year end of September 30^th, 2013.
  
  
• Redemption, at par, of $7.0 million of the Corporation's $11.0 million Series A Preferred stock.
  
  
• Mackinac Commercial Credit completed initial staffing and is processing asset based loan and factoring opportunities.
  
  

Loans and Nonperforming Assets

Total loans at September 30, 2013 were $472.495 million, an 8.88% increase from the $433.958 million at September 30, 2012 and up $23.318 million from year-end 2012 total loans of $449.177 million. In addition to the balance sheet totals, the company services $126 million of sold mortgage loans, up from $78 million at September 30, 2012. We also service another $71 million of sold SBA and USDA loans. Total loans under management now $670 million. The Corporation had total new loan production of $139 million in the first nine months of this year. Comprising the total production were $60 million in commercial loans, and $79 million in retail, $72 million of which were mortgages. The Upper Peninsula continues to drive a large majority of the new originations, totaling $97 million, with Northern Lower production of $34 million and Southeast Michigan with $8 million.

Commenting on new loan production, Kelly W. George, President and Chief Executive Officer of mBank stated, "We are seeing good loan opportunities in all of our markets but Southeast Michigan from a commercial lending growth standpoint has been stymied due to increased competition as more larger and non-traditional lenders turned to offense with rates and terms we were not comfortable entertaining for our balance sheet structure. We also remain cautiously optimistic with our mortgage lending activity as it continues to perform well given the recent volatility of rates we have experienced, with a good mix of home purchases and refinances. We are closely monitoring the mortgage markets as we look toward the future. Our commercial pipeline remains good throughout all our regions heading into the end of the year for both traditional and SBA/USDA guaranteed loans we expect to close."

Nonperforming loans totaled $4.313 million, .91% of total loans at September 30, 2013 compared to $5.290 million, or 1.22% of total loans at September 30, 2012 and down $.374 million from December 31, 2012. Nonperforming assets were reduced by $1.920 million from a year ago and stood at 1.21% of total assets. Total loan delinquencies resided at .36% or $4.313 million, almost solely made up of non-accrual commercial loans. George, commenting on overall credit quality, "We remain pleased with the overall credit performance metrics of our loan portfolio from both a micro perspective as noted above, as well as from a macro perspective with all industry segments performing satisfactory with a good diversification of loan types being originated. Our performance metrics have improved and our current level of nonperforming assets has resulted in lower costs, which we believe will continue. We will remain diligent in our timely monitoring on any problem loans that arise and will stay true to our core underwriting principles and will not stretch credit quality even with more banks lending and competition fierce for new loans to augment balance sheet growth."

Margin Analysis

Net interest income in the first nine months of 2013 increased to $15.773 million, or 4.15%, compared to $14.712 million, or 4.19%, in the same period in 2012. The increase in net interest income is due primarily to increased levels of earning assets. George, commenting on margin items stated, "We have managed our margin prudently in this continued low interest rate environment. We have used some extended term wholesale funding sources given the inability to get market clients to move into these longer terms liabilities to match fund longer term fixed rate loans as best we can to help mitigate longer term interest rate risk should rates move forward more quickly than market indicators foresee. We also continue to offer very competitive variable rate loans with interest rate floors to protect the margin in the near term, and balance the overall interest rate risk in the portfolio."

Deposits

Total deposits of $461.688 million at September 30, 2013 increased 5.08% from deposits of $439.363 million on September 30, 2012. Total deposits on September 30, 2013 were up $27.131 million from year-end 2012 deposits of $434.557 million. The overall increase in deposits for the nine months of 2013 is comprised of an increase in noncore deposits of $24.461 million and an increase in core deposits of $2.670 million. George, commenting on core deposits, stated, "Though not as robust as previous years with respect to our overall core deposit growth, we remain pleased that our overall net growth has been concentrated in transactional accounts even with reducing rates on these types of accounts and certificates as well, in order to enhance our net interest margin. We experienced some certificate withdrawals from primarily rate driven clients that has stunted overall core deposit growth. We continue to monitor our markets to remain competitive in pricing and to maintain our core deposit relationships with service and products to serve their needs. We also experienced some withdrawals by several of our larger commercial accounts as they have utilized their liquidity for business expansion opportunities and general debt pay downs given their limited investment options. We supplemented our deposit growth with manageable levels of noncore deposits to manage interest rate risk in this prolonged low interest rate cycle, and also aligns our funding costs with rates and maturities on loans as noted previously."

Noninterest Income

Noninterest income, at $2.747 million in the first nine months of 2013, decreased $.313 million from the same period in 2012 of $3.060 million. Levels of income from secondary market mortgage activities and gains from SBA/USDA loan sales were lower in 2013. Income from secondary mortgage activities totaled $.781 million in 2013 compared to $.844 million in 2012. SBA/USDA loan sale gains were behind 2012 with 2013 year to date gains of $.798 million compared to 2012 gains of $1.126 million.

Noninterest Expense

Noninterest expense, at $13.193 million in the first nine months of 2013, increased $.785 million, or 6.33% from the same period in 2012. A significant portion of this increase in expense, approximately $.300 million was due to the initial start-up and operational costs of our newly formed asset based lending subsidiary. We are also experiencing added costs given the growth of the company's operating platform and the need to keep pace both from a personnel, and infrastructure standpoint, with the changing internal risk profile of the company and external banking regulatory environment. Our overall non-interest expense base remains at, or below peer levels and we remain diligent in overseeing that the expense base is well controlled.

Capital

Total shareholders' equity at September 30, 2013 was $67.045 million, compared to $72.945 million on September 30, 2012, a decrease of $5.900 million, or 8.09%. Common shareholders' equity was $63.045 million, or $11.30 per share at September 30, 2013 compared to $61.945 million, or $11.14 per share at September 30, 2012 and $61.448 million, or $11.05 per share on December 31, 2012.

Paul D. Tobias, Chairman and Chief Executive Officer, concluded, "Our operating results reflect strong loan production and balance sheet growth, improved credit quality and a sustainable above average interest margin. We recognize the challenges to improving our operating results, but are confident that current momentum, the strength of our balance sheet and access to capital will help us improve our returns on equity.

"Looking forward, we believe that as the economy continues to improve, opportunities for franchise expansion will present themselves. We retired $7 million of our preferred stock and intend to retire the remaining $4.0 million balance prior to 2013 year-end. After the preferred redemption our capital will still exceed regulatory 'well-capitalized' ratios. With our strong capital base and improving core earnings generation, coupled with our stable and experienced management team, we stand ready to create shareholder value through either organic growth or acquisition."

Mackinac Financial Corporation is a registered bank holding company formed under the Bank Holding Company Act of 1956 with assets in excess of $550 million and whose common stock is traded on the NASDAQ stock market as "MFNC." The principal subsidiary of the Corporation is mBank. Headquartered in Manistique, Michigan, mBank has 11 branch locations; seven in the Upper Peninsula, three in the Northern Lower Peninsula and one in Oakland County, Michigan. The Company's banking services include commercial lending and treasury management products and services geared toward small to mid-sized businesses, as well as a full array of personal and business deposit products and consumer loans.

Forward-Looking Statements

This release contains certain forward-looking statements. Words such as "anticipates," "believes," "estimates," "expects," "intends," "should," "will," and variations of such words and similar expressions are intended to identify forward-looking statements: as defined by the Private Securities Litigation Reform Act of 1995. These statements reflect management's current beliefs as to expected outcomes of future events and are not guarantees of future performance. These statements involve certain risks, uncertainties and assumptions that are difficult to predict with regard to timing, extent, likelihood, and degree of occurrence. Therefore, actual results and outcomes may materially differ from what may be expressed or forecasted in such forward-looking statements. Factors that could cause a difference include among others: changes in the national and local economies or market conditions; changes in interest rates and banking regulations; the impact of competition from traditional or new sources; and the possibility that anticipated cost savings and revenue enhancements from mergers and acquisitions, bank consolidations, branch closings and other sources may not be fully realized at all or within specified time frames as well as other risks and uncertainties including but not limited to those detailed from time to time in filings of the Company with the Securities and Exchange Commission. These and other factors may cause decisions and actual results to differ materially from current expectations. Mackinac Financial Corporation undertakes no obligation to revise, update, or clarify forward-looking statements to reflect events or conditions after the date of this release.

MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES

SELECTED FINANCIAL HIGHLIGHTS

(Dollars in thousands, except per share data)			September 30, 2013				December 31, 2012				September 30, 2012
			(Unaudited)								(Unaudited)
Selected Financial Condition Data (at end of period):
Assets			$	567,917			$	545,980			$	551,117
Loans				472,495				449,177				433,958
Investment securities				48,096				43,799				42,476
Deposits				461,688				434,557				439,363
Borrowings				35,852				35,925				35,925
Common Shareholders' Equity				63,045				61,448				61,945
Shareholders' equity				67,045				72,448				72,945
Selected Statements of Income Data (nine months and year ended):
Net interest income			$	15,773			$	19,824			$	14,712
Income before taxes and preferred dividend				4,477				6,165				4,569
Net income				2,719				6,458				5,536
Income per common share - Basic*				.49				1.51				1.30
Income per common share - Diluted*				.49				1.51				1.25
Weighted average shares outstanding				5,559,108				4,285,043				3,857,002
Weighted average shares outstanding- Diluted				5,559,108				4,285,043				3,976,852
Three Months Ended:
Net interest income			$	5,348			$	5,112			$	4,930
Income before taxes and preferred dividend				1,352				1,596				1,562
Net income				846				922				897
Income per common share - Basic				.15				.21				.21
Income per common share - Diluted*				.15				.21				.20
Weighted average shares outstanding*				5,562,835				5,559,859				4,722,029
Weighted average shares outstanding- Diluted				5,562,835				5,559,859				4,858,215
Selected Financial Ratios and Other Data:
Performance Ratios:
Net interest margin				4.15	%			4.17	%			4.19	%
Efficiency ratio				70.36				67.95				67.07
Return on average assets				.66				1.23				1.42
Return on average common equity				5.89				12.43				15.21
Return on average equity				5.30				10.26				12.41
Average total assets			$	550,013			$	526,740			$	520,387
Average common shareholders' equity				61,776				51,978				48,604
Average total shareholders' equity				68,599				62,939				59,582
Average loans to average deposits ratio				103.40	%			99.45	%			98.90	%
Common Share Data at end of period:
Market price per common share			$	9.10			$	7.09			$	7.60
Book value per common share			$	11.30			$	11.05			$	11.14
Common shares outstanding				5,581,339				5,559,859				5,559,914
Other Data at end of period:
Allowance for loan losses			$	4,959			$	5,218			$	5,186
Non-performing assets			$	6,881			$	7,899			$	8,801
Allowance for loan losses to total loans				1.05	%			1.16	%			1.20	%
Non-performing assets to total assets				1.21	%			1.45	%			1.60	%
Texas ratio				9.56	%			10.17	%			11.26	%
Number of:
	Branch locations			11				11				11
	FTE Employees			128				121				121

*Earnings per share data for 2012 restated for common stock issuance

MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
					September 30, 2013				December 31, 2012				September 30, 2012
					(Unaudited)								(Unaudited)
ASSETS
Cash and due from banks					$	22,791			$	26,958			$	31,403
Federal funds sold						3				3				16,002
	Cash and cash equivalents					22,794				26,961				47,405
Interest-bearing deposits in other financial institutions						10				10				10
Securities available for sale						48,096				43,799				42,476
Federal Home Loan Bank stock						3,060				3,060				3,060
Loans:
	Commercial					353,526				342,841				329,891
	Mortgage					104,504				95,413				93,446
	Consumer					14,465				10,923				10,621
		Total Loans				472,495				449,177				433,958
			Allowance for loan losses			(4,959	)			(5,218	)			(5,186	)
	Net loans					467,536				443,959				428,772
Premises and equipment						10,484				10,633				10,744
Other real estate held for sale						2,568				3,212				3,511
Deferred Tax Asset						7,953				9,131				9,670
Other assets						5,416				5,215				5,469
TOTAL ASSETS					$	567,917			$	545,980			$	551,117
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Deposits:
	Noninterest bearing deposits				$	70,063			$	67,652			$	62,306
	NOW, money market, interest checking					158,588				155,465				152,286
	Savings					12,694				13,829				15,783
	CDs < $100,000					133,821				135,550				142,125
	CDs > $100,000					23,816				24,355				25,390
	Brokered					62,706				37,706				41,473
			Total deposits			461,688				434,557				439,363
	Borrowings					35,852				35,925				35,925
	Other liabilities					3,332				3,050				2,884
			Total liabilities			500,872				473,532				478,172
SHAREHOLDERS' EQUITY:
	Preferred stock - No par value:
		Authorized - 500,000 shares				4,000				11,000				11,000
		Issued and outstanding - 4,000, 11,000 and 11,000 respectively
	Common stock and additional paid in capital - No par value
		Authorized - 18,000,000 shares
		Issued and outstanding - 5,581,339, 5,559,859 and 5,559,914 respectively				53,915				53,797				55,047
		Retained earnings				8,780				6,727				6,028
		Accumulated other comprehensive income				350				924				870
			Total shareholders' equity			67,045				72,448				72,945
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY					$	567,917			$	545,980			$	551,117

MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
				Three Months Ended September 30,						Nine Months Ended September 30,
				2013			2012			2013			2012
				(Unaudited)						(Unaudited)
INTEREST INCOME:
	Interest and fees on loans:
		Taxable		$	6,077		$	5,803		$	17,980		$	17,256
		Tax-exempt			26			28			81			90
	Interest on securities:
		Taxable			245			226			726			728
		Tax-exempt			9			6			22			20
	Other interest income				33			41			96			96
		Total interest income			6,390			6,104			18,905			18,190
INTEREST EXPENSE:
	Deposits				879			1,011			2,642			2,986
	Borrowings				163			163			490			492
		Total interest expense			1,042			1,174			3,132			3,478
Net interest income					5,348			4,930			15,773			14,712
Provision for loan losses					375			150			850			795
Net interest income after provision for loan losses					4,973			4,780			14,923			13,917
OTHER INCOME:
	Deposit service fees				158			155			495			538
	Income from secondary market loans sold				203			320			781			844
	SBA/USDA loan sale gains				135			506			798			1,126
	Mortgage servicing income				128			92			413			292
	Other				114			76			260			260
		Total other income			738			1,149			2,747			3,060
OTHER EXPENSE:
	Salaries and employee benefits				2,226			2,063			6,907			6,041
	Occupancy				362			370			1,107			1,050
	Furniture and equipment				274			213			799			660
	Data processing				269			253			802			739
	Professional service fees				161			210			706			700
	Loan and deposit				55			195			173			674
	Writedowns and losses on other real estate held for sale				57			265			146			450
	FDIC insurance assessment				100			36			300			354
	Telephone				84			56			229			168
	Advertising				119			96			334			292
	Other				652			610			1,690			1,280
		Total other expenses			4,359			4,367			13,193			12,408
Income before provision for income taxes					1,352			1,562			4,477			4,569
Provision for (benefit of) income taxes					456			528			1,508			(1,458	)
NET INCOME					896			1,034			2,969			6,027
Preferred dividend and accretion of discount					50			137			250			491
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS				$	846		$	897		$	2,719		$	5,536
INCOME PER COMMON SHARE*:
	Basic			$	.15		$	.21		$	.49		$	1.30
	Diluted			$	.15		$	.20		$	.49		$	1.25

*Earnings per share data for 2012 restated for common stock issuance

MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES
LOAN PORTFOLIO AND CREDIT QUALITY
(Dollars in thousands)
Loan Portfolio Balances (at end of period):
			September 30, 2013			December 31, 2012			September 30, 2012
			(Unaudited)			(Unaudited)			(Unaudited)
Commercial Loans:
Real estate - operators of nonresidential buildings			$	101,406		$	95,151		$	88,505
Hospitality and tourism				41,473			40,787			36,950
Lessors of residential buildings				14,573			12,672			12,326
Real estate agents and managers				10,975			10,597			12,336
Gasoline stations and convenience stores				10,897			11,393			12,394
Other				158,148			155,012			145,623
	Total Commercial Loans			337,472			325,612			308,134
1-4 family residential real estate				98,770			87,948			86,643
Consumer				14,465			10,923			10,621
Construction
	Commercial			16,054			17,229			21,757
	Consumer			5,734			7,465			6,803
	Total Loans		$	472,495		$	449,177		$	433,958

Credit Quality (at end of period):
			September 30, 2013				December 31, 2012				September 30, 2012
			(Unaudited)				(Unaudited)				(Unaudited)
Nonperforming Assets :
Nonaccrual loans			$	4,313			$	4,687			$	3,122
Loans past due 90 days or more				-				-				-
Restructured loans				-				-				2,168
	Total nonperforming loans			4,313				4,687				5,290
Other real estate owned				2,568				3,212				3,511
	Total nonperforming assets		$	6,881			$	7,899			$	8,801
Nonperforming loans as a % of loans				.91	%			1.04	%			1.22	%
Nonperforming assets as a % of assets				1.21	%			1.45	%			1.60	%
Reserve for Loan Losses:
At period end			$	4,959			$	5,218			$	5,186
As a % of average loans				1.09	%			1.24	%			1.24	%
As a % of nonperforming loans				114.98	%			111.33	%			98.03	%
As a % of nonaccrual loans				114.98	%			111.33	%			166.11	%
Texas Ratio				9.56	%			10.17	%			11.26	%
Charge-off Information (year to date):
	Average loans		$	456,831			$	422,440			$	417,159
	Net charge-offs		$	1,110			$	978			$	860
	Charge-offs as a % of average loans			.32	%			.23	%			.28	%

MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES
QUARTERLY FINANCIAL HIGHLIGHTS
			QUARTER ENDED
			(Unaudited)
			September 30, 2013				June 30, 2013				March 31, 2013				December 31, 2012				September 30, 2012
BALANCE SHEET (Dollars in thousands)
Total loans			$	472,495			$	455,555			$	454,051			$	449,177			$	433,958
Allowance for loan losses				(4,959	)			(5,177	)			(5,037	)			(5,218	)			(5,186	)
	Total loans, net			467,536				450,378				449,014				443,959				428,772
Total assets				567,917				553,501				541,896				545,980				551,117
Core deposits				375,166				357,935				362,911				372,496				372,500
Noncore deposits (1)				86,522				89,972				62,325				62,061				66,863
	Total deposits			461,688				447,907				425,236				434,557				439,363
Total borrowings				35,852				35,925				40,925				35,925				35,925
Common shareholders' equity				63,045				62,520				62,039				61,448				61,945
Total shareholders' equity				67,045				66,520				73,039				72,448				72,945
Total shares outstanding				5,581,339				5,554,459				5,557,859				5,559,859				5,559,859
Weighted average shares outstanding				5,562,835				5,556,133				5,559,859				5,559,859				4,722,029
AVERAGE BALANCES (Dollars in thousands)
Assets			$	560,089			$	548,455			$	541,279			$	545,661			$	545,788
Loans				464,324				456,937				449,065				438,168				424,461
Deposits				456,191				439,780				429,174				433,573				439,327
Common Equity				62,134				62,483				61,238				61,936				56,327
Equity				66,134				67,483				72,238				72,936				67,327
INCOME STATEMENT (Dollars in thousands)
Net interest income			$	5,348			$	5,269			$	5,156			$	5,112			$	4,930
Provision for loan losses				375				100				375				150				150
	Net interest income after provision			4,973				5,169				4,781				4,962				4,780
Total noninterest income				738				1,251				758				983				1,149
Total noninterest expense				4,359				4,523				4,311				4,349				4,367
Income before taxes				1,352				1,897				1,228				1,596				1,562
Provision for income taxes				456				637				415				536				528
	Net income			896				1,260				813				1,060				1,034
Preferred dividend expense				50				63				137				138				137
Net income available to common shareholders			$	846			$	1,197			$	676			$	922			$	897
PER SHARE DATA
Earnings			$	.15			$	.22			$	.12			$	.21			$	.21
Book value per common share				11.30				11.26				11.16				11.05				11.14
Market value, closing price				9.10				8.88				9.21				7.09				7.60
ASSET QUALITY RATIOS
Nonperforming loans/total loans				.91	%			.87	%			.84	%			1.04	%			1.22	%
Nonperforming assets/total assets				1.21				1.17				1.41				1.45				1.60
Allowance for loan losses/total loans				1.09				1.14				1.11				1.16				1.20
Allowance for loan losses/nonperforming loans				114.98				129.98				131.41				111.33				96.99
Texas ratio (2)				9.56				9.02				9.81				10.17				11.26
PROFITABILITY RATIOS
Return on average assets				.60	%			.88	%			.51	%			.67	%			.65	%
Return on average common equity				5.40				7.69				4.47				5.93				6.33
Return on average equity				5.08				7.12				3.79				5.03				5.29
Net interest margin				4.12				4.16				4.18				4.11				4.10
Efficiency ratio				70.64				68.02				72.65				70.52				67.29
Average loans/average deposits				101.78				103.90				104.63				99.45				96.62
CAPITAL ADEQUACY RATIOS
Tier 1 leverage ratio				10.90	%			11.01	%			12.23	%			11.98	%			10.16	%
Tier 1 capital to risk weighted assets				12.45				12.74				13.98				13.81				12.87
Total capital to risk weighted assets				13.47				13.85				15.06				14.93				14.12
Average equity/average assets (for the quarter)				11.81				12.30				13.35				13.37				12.34
Tangible equity/tangible assets (at quarter end)				11.81				12.02				13.48				13.27				13.24

(1) Noncore deposits includes Internet CDs, brokered deposits and CDs greater than $100,000

(2)Texas ratio equals nonperforming assets divided by shareholders' equity plus allowance for loan losses

Contact:
Ernie R. Krueger
[phone]
Email Contact
Website: www.bankmbank.com