Mackinac Financial Corporation Reports First Quarter 2014 Results

Marketwired

MANISTIQUE, MI--(Marketwired - Apr 29, 2014) -  Mackinac Financial Corporation (NASDAQ: MFNC), the bank holding company for mBank (the "Bank"), today announced first quarter 2014 income of $.660 million or $.12 per share compared to net income of $.676 million, or $.12 per share for the first quarter of 2013. The Corporation's primary asset, mBank, recorded a 9.34% increase in net income which equated to $1.100 million for the first quarter of 2014 compared to $1.006 million in 2013. Total assets of the Corporation at March 31, 2014 were $583.592 million, up 7.69% from the $541.896 million reported at March 31, 2013.

Shareholders' equity at March 31, 2014 totaled $65.730 million, compared to $73.039 million on March 31, 2013, a decrease of $7.309 million. Book value of common shareholders' equity was $11.89 per share at March 31, 2014 compared to $11.16 per share at March 31, 2013. The decrease in equity, between periods, includes the redemption of the Preferred Series A Stock of $11 million. Weighted average shares outstanding totaled 5,530,908 shares in the 2014 first quarter compared to 5,559,859 for the same period in 2013.

Some highlights for the first quarter include:

  • Strong credit quality with a Texas ratio of 5.18% compared to 9.81% one year ago.

  • Strong net interest margin improving to 4.25% compared to 4.18% for the first quarter of 2013. 

  • Total new loan production of $32.1 million.

  • Increase of dividend on common stock to $.05 per share from $.04 per share one year ago.

  • Continued success with SBA/USDA lending programs with loan sale gains of $.382 million.

Loans and Non-performing Assets

Total loans at March 31, 2014 were $485.862 million, a 7.01% increase from the $454.051 million at March 31, 2013 and up $2.030 million from year-end 2013 total loans of $483.832 million. New loan production totaled $31.1 million with the Upper Peninsula contributing $21.7 million, the Northern Lower Peninsula $8.0 million and Southeast Michigan $1.4 million. Commercial loan production accounted for $19.1 million of the quarter's total, with consumer, primarily 1-4 family mortgages of $12.0 million. Commenting on new loan production and overall lending activities, Kelly W. George, President and CEO of mBank, stated, "We were generally pleased with our overall loan production for the quarter in light of the very harsh and elongated winter in Northern Michigan where the majority of our lending activities reside, especially within the retail loan segments. Loan balance growth was stymied due to various commercial loan pay downs for existing clients as they moved to reduce debt with excess cash reserves, and a few relationships exited as the bank elected to not match various terms and rates that were outside of our acceptable parameters. We continue to see more competitive commercial lending rates and terms within all our markets as more financial intuitions look to grow commercial loans in this interest rate environment that has materially slowed the recent healthy mortgage lending business for many. Our loan pipeline remains good for both traditional commercial and SBA loans, and we have begun to see an increase in mortgage lending activities as we move into our customary higher volume lending seasons in the North through the second and third quarters." 

Nonperforming loans totaled $1.491 million, .31% of total loans at March 31, 2014 compared to $3.833 million, or .84% of total loans at March 31, 2013 and down $.533 million from December 31, 2013. Nonperforming assets were reduced by $4.001 million from a year ago and stood at .63% of total assets and equated to $3.657 million. Total loan delinquencies greater than 30 days resided at a nominal .25% or $1.212 million. George, commenting on credit quality, stated, "Our credit risk quality metrics and overall loan portfolio payment performance remains strong. We are diligent within our loan origination structures and will not stretch our prudent lending parameters for new loans. We continue to timely identify any problems so they can be evaluated and action plans put in place to either rehabilitate the credit or exit it from the bank in a timely manner to alleviate any excessive ongoing administrative costs." 

Margin Analysis

Net interest income in the first quarter of 2014 increased to $5.593 million, 4.25%, compared to $5.156 million, or 4.18%, in the first quarter of 2013. The interest margin increase was largely due to decreased overall funding costs. George stated, "We will continue our efforts to maintain our strong net interest margin within this historically low interest rate cycle though the use of continued targeted funding strategies and disciplined loan pricing and terms in efforts to mitigate longer term interest rate risk. We continue to look for any investment opportunities that fit our balance sheet structure but will not take unnecessary risk associated with investment portfolio opportunities that improperly extend duration in order to enhance short term yields in our collective judgments. We will remain committed to our core banking philosophy which emphasizes loan growth as the best asset to invest in to benefit and help grow the economic bases in our local communities, which in turn also provides for the best overall returns to our shareholders."

Deposits

Total deposits of $475.710 million at March 31, 2014 increased by 11.87% from deposits of $425.236 million on March 31, 2013 and were up $9.411 million from year end deposits $466.299 million. The overall increase in deposits for the first three months of 2014 from year end is comprised of an increase in core deposits, mostly in certificates of deposits. George, commenting on core deposits and overall liquidity needs, stated, "The Corporation maintains a sound liquidity position to fund operations and loan growth. We proactively review our pricing levels within the different segments of our deposit products in order to best manage our net interest margin to capture as many dollars as we can. We will also utilize alternative funding sources such as internet CDs and small levels of wholesale deposits when deemed necessary to structure different liabilities to match asset growth durations, and cover any potential short term funding gaps that could arise."

Noninterest Income/Expense

Noninterest income, at $.691 million in the first quarter of 2014, decreased $.067 million from the first quarter 2013 level of $.758 million. The primary driver for the decrease was a reduced level of fees and gains on the sale of loans from secondary market mortgage lending of $.196 million from prior year period. Noninterest expense, at $5.107 million in the first quarter of 2014, increased $.796 million, or 18.47% from the first quarter of 2013. The largest increase from the first quarter of 2013 was in salaries and benefits, largely reflective of the compensation packages for the staff up of our asset based lending subsidiary formed in the third quarter of 2013. We also had increased occupancy costs between periods due primarily to our new Marquette branch office, which we moved into late in 2013. We incurred some additional legal costs as well in the first quarter of 2014 for the exploration of an acquisition and additional SEC filing work needed this year.

Assets and Capital

Total assets of the Corporation at March 31, 2014 were $583.592 million, up 7.69% from the $541.896 million reported at March 31, 2013 and up $10.792 million from the $572.800 million of total assets at year-end 2013. The increase in assets during the first quarter was primarily due to increased liquidity, as we grew our deposits in anticipation of loan funding needs. Common shareholders' equity at March 31, 2014 totaled $65.730 million, or $11.89 per share, compared to $62.039 million, or $11.16 per share on March 31, 2013. The Corporation and the Bank are both "well-capitalized" with Tier 1 Capital at the Corporation of 10.25% and 10.10% at the Bank.

Paul D. Tobias, Chairman and Chief Executive Officer of Mackinac, concluded, "We are looking forward to another year of progress in the organic growth of our Corporation which will be enhanced from the recent startup of our asset based lending subsidiary and our proven track record of core bank balance sheet growth with good quality loans and sustained levels of SBA/USDA lending. We also believe that we will have accretive opportunities for acquisitions that augment our footprint as the regulatory and operating costs for smaller banks lead them to consider a sale. We remain committed to our shareholders in all of our endeavors to increase value by building a safe and sound company with strong asset growth, increasing core earnings and growing returns on equity." 

Mackinac Financial Corporation is a registered bank holding company formed under the Bank Holding Company Act of 1956 with assets in excess of $580 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)   March 31, 2014     December 31, 2013     March 31, 2013  
    (Unaudited)     (Unaudited)     (Unaudited)  
Selected Financial Condition Data (at end of period):                        
Assets   $ 583,592     $ 572,800     $ 541,896  
Loans     485,862       483,832       454,051  
Investment securities     47,411       44,388       48,556  
Deposits     475,710       466,299       425,236  
Borrowings     38,852       37,852       40,925  
Common Shareholders' Equity     65,730       65,249       62,039  
Shareholders' equity     65,730       65,249       73,039  
                         
                         
Selected Statements of Income Data:                        
Net interest income   $ 5,593     $ 21,399     $ 5,156  
Income before taxes and preferred dividend     994       5,534       1,228  
Net income     660       5,629       676  
Income per common share - Basic     .12       1.01       .12  
Income per common share - Diluted     .12       1.00       .12  
Weighted average shares outstanding     5,530,908       5,558,313       5,559,859  
Weighted average shares outstanding- Diluted     5,549,730       5,650,058       5,559,859  
                         
Selected Financial Ratios and Other Data:                        
Performance Ratios:                        
Net interest margin     4.25 %     4.17 %     4.18 %
Efficiency ratio     80.57       67.46       72.65  
Return on average assets     .46       1.01       .51  
Return on average common equity     4.09       9.07       4.47  
Return on average equity     4.09       8.26       3.79  
                         
Average total assets   $ 580,717     $ 555,152     $ 541,279  
Average common shareholders' equity     65,462       62,082       61,238  
Average total shareholders' equity     65,462       68,172       72,238  
Average loans to average deposits ratio     102.62 %     103.46 %     104.63 %
                         
                         
Common Share Data at end of period:                        
Market price per common share   $ 12.54     $ 9.90     $ 9.21  
Book value per common share   $ 11.89       11.77     $ 11.16  
Dividends paid per share, annualized   $ .20       .20     $ .16  
Common shares outstanding     5,527,690       5,541,390       5,557,859  
                         
Other Data at end of period:                        
Allowance for loan losses   $ 4,883     $ 4,661     $ 5,037  
Non-performing assets   $ 3,657     $ 3,908     $ 7,658  
Allowance for loan losses to total loans     1.01 %     .96 %     1.11 %
Non-performing assets to total assets     .63 %     .68 %     1.41 %
Texas ratio     5.18 %     5.59 %     9.90 %
                         
Number of:                        
  Branch locations     11       11       11  
  FTE Employees     133       133       126  
                         
                         
                         
MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES  
CONSOLIDATED BALANCE SHEETS  
   
    March 31,     December 31,     March 31,  
    2014     2013     2013  
    (Unaudited)           (Unaudited)  
ASSETS                        
                         
Cash and due from banks   $ 24,748     $ 18,216     $ 12,598  
Federal funds sold     3       3       3  
  Cash and cash equivalents     24,751       18,219       12,601  
                         
Interest-bearing deposits in other financial institutions     10       10       10  
Securities available for sale     47,411       44,388       48,556  
Federal Home Loan Bank stock     3,060       3,060       3,060  
                         
Loans:                        
  Commercial     361,299       359,368       345,032  
  Mortgage     110,759       110,663       97,216  
  Consumer     13,804       13,801       11,803  
    Total Loans     485,862       483,832       454,051  
      Allowance for loan losses     (4,883 )     (4,661 )     (5,037 )
Net loans     480,979       479,171       449,014  
                         
Premises and equipment     9,800       10,210       10,587  
Other real estate held for sale     2,166       1,884       3,825  
Deferred tax asset     9,533       9,933       8,726  
Other assets     5,882       5,925       5,517  
                         
TOTAL ASSETS   $ 583,592     $ 572,800     $ 541,896  
                         
LIABILITIES AND SHAREHOLDERS' EQUITY                        
                         
LIABILITIES:                        
Deposits:                        
  Noninterest bearing deposits   $ 68,027     $ 72,936     $ 57,547  
  NOW, money market, interest checking     148,023       149,123       161,445  
  Savings     14,425       13,039       13,273  
  CDs     154,371       140,495       130,646  
  CDs > $100,000     23,317       23,159       24,619  
  Brokered     67,547       67,547       37,706  
      Total deposits     475,710       466,299       425,236  
                         
Borrowings:                        
  Fed funds purchased     -       -       5,000  
  FHLB and other     38,852       37,852       35,925  
      Total borrowings     38,852       37,852       40,925  
  Other liabilities     3,300       3,400       2,696  
    Total liabilities     517,862       507,551       468,857  
                         
SHAREHOLDERS' EQUITY:                        
  Preferred stock - No par value:                        
    Authorized 500,000 shares, Issued and outstanding - 11,000 shares     -       -       11,000  
  Common stock and additional paid in capital - No par value                        
    Authorized - 18,000,000 shares                        
    Issued and outstanding - 5,527,690; 5,541,390; and 5,557,859 shares respectively     53,590       53,621       53,888  
    Retained earnings     11,796       11,412       7,181  
    Accumulated other comprehensive income     344       216       970  
                         
      Total shareholders' equity     65,730       65,249       73,039  
                         
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY   $ 583,592     $ 572,800     $ 541,896  
                         
                         
                         
MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
 
    Three Months Ended
    March 31,
    2014   2013
    (Unaudited)
INTEREST INCOME:            
  Interest and fees on loans:            
    Taxable   $ 6,281   $ 5,889
    Tax-exempt     23     27
  Interest on securities:            
    Taxable     237     240
    Tax-exempt     13     7
  Other interest income     48     31
    Total interest income     6,602     6,194
             
INTEREST EXPENSE:            
  Deposits     822     877
  Borrowings     187     161
    Total interest expense     1,009     1,038
             
Net interest income     5,593     5,156
Provision for loan losses     183     375
Net interest income after provision for loan losses     5,410     4,781
             
OTHER INCOME:            
  Deposit service fees     157     162
  Income from secondary market loans sold     103     299
  SBA/USDA loan sale gains     382     109
  Mortgage servicing income     13     103
  Other     36     85
    Total other income     691     758
             
OTHER EXPENSE:            
  Salaries and employee benefits     2,541     2,306
  Occupancy     538     382
  Furniture and equipment     319     270
  Data processing     286     265
  Advertising     107     104
  Professional service fees     331     225
  Loan and deposit     79     73
  Writedowns and losses on other real estate held for sale     -     2
  FDIC insurance assessment     85     105
  Telephone     82     82
  Other     739     497
    Total other expenses     5,107     4,311
             
Income before provision for income taxes     994     1,228
Provision for income taxes     334     415
             
NET INCOME     660     813
             
Preferred dividend and accretion of discount     -     137
             
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS   $ 660   $ 676
             
INCOME PER COMMON SHARE:            
  Basic   $ .12   $ .12
  Diluted   $ .12   $ .12
MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES
LOAN PORTFOLIO AND CREDIT QUALITY
(Dollars in thousands)
 
Loan Portfolio Balances (at end of period):
             
    March 31,   December 31,   March 31,
    2014   2013   2013
    (Unaudited)   (Unaudited)   (Unaudited)
Commercial Loans:                  
Real estate - operators of nonresidential buildings   $ 97,153   $ 100,333   $ 94,828
Hospitality and tourism     44,243     45,360     42,733
Lessors of residential buildings     13,649     14,191     13,162
Gasoline stations and convenience stores     11,980     11,534     11,201
Commercial construction     10,685     10,904     16,295
Insurance agencies and brokerages     10,331     10,097     11,854
Other     173,258     166,949     154,959
  Total Commercial Loans     361,299     359,368     345,032
                   
1-4 family residential real estate     104,376     103,768     89,629
Consumer     13,804     13,801     11,803
Consumer construction     6,383     6,895     7,587
                   
  Total Loans   $ 485,862   $ 483,832   $ 454,051
                   
                   
                   
Credit Quality (at end of period):  
   
                   
    March 31,     December 31,     March 31,  
    2014     2013     2013  
    (Unaudited)     (Unaudited)     (Unaudited)  
Nonperforming Assets :                        
Nonaccrual loans   $ 983     $ 1,410     $ 3,833  
Loans past due 90 days or more     -       -       -  
Restructured loans     508       614       -  
  Total nonperforming loans     1,491       2,024       3,833  
Other real estate owned     2,166       1,884       3,825  
  Total nonperforming assets   $ 3,657     $ 3,908     $ 7,658  
Nonperforming loans as a % of loans     .31 %     .42 %     .84 %
Nonperforming assets as a % of assets     .63 %     .68 %     1.41 %
Reserve for Loan Losses:                        
At period end   $ 4,883     $ 4,661     $ 5,037  
As a % of average loans     1.00 %     1.01 %     1.12 %
As a % of nonperforming loans     327.50 %     230.29 %     131.41 %
As a % of nonaccrual loans     496.74 %     330.57 %     131.41 %
Texas Ratio     5.18 %     5.59 %     9.90 %
                         
Charge-off Information (year to date):                        
  Average loans   $ 486,354     $ 462,500     $ 449,065  
  Net charge-offs (recoveries)   $ (40 )   $ 2,232     $ 364  
  Charge-offs as a % of average loans, annualized     N/M %     .48 %     .32 %
                   
                   
                   
MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES  
QUARTERLY FINANCIAL HIGHLIGHTS  
                             
  QUARTER ENDED  
  (Unaudited)  
  March 31,     December     September     June 30,     March 31,  
  2014     31, 2013     30, 2013     2013     2013  
BALANCE SHEET (Dollars in thousands)                                      
                                       
Total loans $ 485,862     $ 483,832     $ 472,495     $ 455,555     $ 454,051  
Allowance for loan losses   (4,883 )     (4,661 )     (4,959 )     (5,177 )     (5,037 )
Total loans, net   480,979       479,171       467,536       450,378       449,014  
  Total assets   583,592       572,800       567,917       553,501       541,896  
Core deposits   384,846       375,593       375,166       357,935       362,911  
Noncore deposits   90,864       90,706       86,522       89,972       62,325  
  Total deposits   475,710       466,299       461,688       447,907       425,236  
Total borrowings   38,852       37,852       35,852       35,925       40,925  
Common shareholders' equity   65,730       65,249       63,045       62,520       62,039  
Total shareholders' equity   65,730       65,249       67,045       66,520       73,039  
Total shares outstanding   5,527,690       5,541,390       5,581,339       5,554,459       5,557,859  
Weighted average shares outstanding   5,530,908       5,555,952       5,562,835       5,556,133       5,559,859  
                                       
AVERAGE BALANCES (Dollars in thousands)                                      
                                       
Assets $ 580,717     $ 569,443     $ 560,089     $ 548,455     $ 541,279  
Loans   486,354       479,321       464,324       456,937       449,065  
Deposits   473,951       461,630       456,191       439,780       429,174  
Common Equity   65,462       62,950       62,134       62,483       61,238  
Equity   65,462       66,906       66,134       67,483       72,238  
                                       
INCOME STATEMENT (Dollars in thousands)                                      
                                       
Net interest income $ 5,593     $ 5,626     $ 5,348     $ 5,269     $ 5,156  
Provision for loan losses   183       825       375       100       375  
  Net interest income after provision   5,410       4,801       4,973       5,169       4,781  
Total noninterest income   691       1,191       738       1,251       758  
Total noninterest expense   5,107       4,935       4,359       4,523       4,311  
Income before taxes   994       1,057       1,352       1,897       1,228  
Provision for income taxes   334       (1,911 )     456       637       415  
  Net income   660       2,968       896       1,260       813  
Preferred dividend expense   -       58       50       63       137  
Net income available to common shareholders $ 660     $ 2,910     $ 846     $ 1,197     $ 676  
                                       
PER SHARE DATA                                      
                                       
Earnings $ .12     $ .52     $ .15     $ .22     $ .12  
Book value per common share   11.89       11.77       11.30       11.26       11.16  
Market value, closing price   12.54       9.90       9.10       8.88       9.21  
                                       
ASSET QUALITY RATIOS                                      
                                       
Nonperforming loans/total loans   .31 %     .42 %     .91 %     .87 %     .84 %
Nonperforming assets/total assets   .63       .68       1.21       1.17       1.41  
Allowance for loan losses/total loans   1.01       .96       1.09       1.14       1.11  
Allowance for loan losses/nonperforming loans   327.50       230.29       114.98       129.98       131.41  
Texas ratio (1)   5.18       5.59       9.56       9.02       9.81  
                                       
PROFITABILITY RATIOS                                      
                                       
Return on average assets   .46 %     2.03 %     .60 %     .88 %     .51 %
Return on average common equity   4.09       18.34       5.40       7.69       4.47  
Return on average equity   4.09       17.26       5.08       7.12       3.79  
Net interest margin   4.25       4.24       4.12       4.16       4.18  
Efficiency ratio   80.57       66.94       70.64       68.02       72.65  
Average loans/average deposits   102.62       103.83       101.78       103.90       104.63  
                                       
CAPITAL ADEQUACY RATIOS                                      
                                       
Tier 1 leverage ratio   10.25 %     10.31 %     10.90 %     11.01 %     12.23 %
Tier 1 capital to risk weighted assets   11.79       11.83       12.45       12.74       13.98  
Total capital to risk weighted assets   12.79       12.79       13.47       13.85       15.06  
Average equity/average assets (for the quarter)   11.27       11.75       11.81       12.30       13.35  
Tangible equity/tangible assets (at quarter end)   11.26       11.75       11.81       12.30       13.35  
                                       

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

Contact:

Ernie R. Krueger
(906)341-7158
Website: www.bankmbank.com

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