Mackinac Financial Corporation Reports First Quarter 2013 Results

MANISTIQUE, MI--(Marketwired - Apr 30, 2013) - Mackinac Financial Corporation (NASDAQ: MFNC), the bank holding company for mBank (the "Bank"), today announced first quarter 2013 income of $.676 million or $.12 per share compared to net income of $.498 million, or $.12 per share for the first quarter of 2012. The Corporation's primary asset, mBank, recorded net income of $1.006 million for the first quarter of 2013 compared to $.800 million in 2012. The first quarter 2013 results include a provision for loan losses of $.375 million compared to $.495 million for the same period in 2012. Total assets of the Corporation at March 31, 2013 were $541.896 million, up 6.99 % from the $506.496 million reported at March 31, 2012.

Shareholders' equity at March 31, 2013 totaled $73.039 million, compared to $56.095 million on March 31, 2012, an increase of $16.944 million. Book value of common shareholders' equity was $11.16 per share at March 31, 2013 compared to $13.19 per share at March 31, 2012. The increase in equity, between periods, includes the issuance of 2.138 million shares of common stock in August 2012 for net proceeds of $11.6 million. Weighted average shares outstanding totaled 5,559,859 shares in 2013 first quarter compared to 3,419,736 for the same period in 2012.

Some highlights for the first quarter include:

• New loan production of $39.8 million which encompassed $15.6 million of new commercial originations and $24.2 million of consumer loans predominantly mortgage related. The Upper Peninsula region accounted for $27.4 million of the new production with the Northern Lower Peninsula equating to $10.4 million and Southeast Michigan $2.0 million.
  
  

• Secondary mortgage loan income of $.299 million, compared to $.298 million in the first quarter of 2012.
  
  

• Stable net interest margin holding up well at 4.18% compared to 4.17% for the first quarter of 2012.
  
  

• Improved credit quality with a Texas Ratio of 9.90% compared to 16.84% one year ago.
  
  

Loans and Non-performing Assets

Total loans at March 31, 2013 were $454.051 million, a 9.57% increase from the $414.402 million at March 31, 2012 and up $4.874 million from year-end 2012 total loans of $449.177 million. Commenting on new loan production and overall loan growth, Kelly W. George, President and CEO of mBank stated, "We are still seeing good loan opportunities in all of our markets but have lost some transactions given interest rates and credit structures that did not work for our balance sheet and credit parameters. These were primarily in Southeast Michigan this quarter but all markets are experiencing highly competitive fixed rate commercial loan pricing. In addition, and consistent with previous years given the seasonality of our business primarily in the North, the extended winter and cold has delayed some economic progress for construction projects and just general borrowers overall ability to purchase and/or develop various commercial real estate transactions. We remain encouraged in the North with the 1-4 family mortgage lending activity continuing during this traditional slow period which should bode well for increased lending activities as we enter our peak mortgage lending periods within the late second and third quarters. Our pipeline remains strong too with already funded and waiting to be adjudicated SBA transactions which will lead to increased balance sheet growth and non-interest income generation in the next several quarters."

Nonperforming loans totaled $3.833 million, .84% of total loans at March 31, 2013 compared to $6.857 million, or 1.65% of total loans at March 31, 2012 and down $.854 million from December 31, 2012. Nonperforming assets were reduced by $2.693 million from a year ago and stood at 1.41% of total assets and equated to $7.7 million. Total loan delinquencies greater than 30 days resided at .50 % or $2.266 million. George, commenting on credit quality, stated, "Our overall loan portfolio and corresponding risk tolerance metrics continue to perform well with no material adverse items to note for this quarter. We remain diligent on overall new origination structures to not stretch our comfort zone for new loans, and we continue to timely identify any problems so they can be evaluated and actions plans put in place to either rehabilitate the credit or exit it from the bank. All remaining ORE properties continue to be assessed prudently for collateral valuations and we are confident in their current carrying levels."

Margin Analysis

Net interest margin in the first quarter of 2013 increased to $5.156 million, 4.18%, compared to $4.763 million, or 4.17%, in the first quarter of 2012. The interest margin increase was largely due to decreased overall funding costs. George stated, "We expect some margin pressure as we progress through the year due to increased competition on pricing for new loans and renewals which as noted above stunted our new loan growth this quarter. This resulted in our decision also to operate a little thinner on the liquidity side until the loan pipeline fully picked up given the seasonality of our business. We also remain timely in monitoring the liability side of the balance sheet by making any adjustments to our deposits rates based on market conditions to ensure we are maximizing our ability to maintain our interest spread."

Deposits

Total deposits of $425.236 million at March 31, 2013 increased by 3.19% from deposits of $412.088 million on March 31, 2012, however total deposits on March 31, 2013 were down $9.321 million from year-end 2012 deposits of $434.557 million. The overall decrease in deposits for the first three months of 2013 from year end is comprised of a decrease in core deposits, mostly in transactional accounts due to seasonal and some onetime cash needs of some of our larger commercial client relationships. George, commenting on core deposits, stated, "We have seen very good core deposit growth over the past several years and expect to see continued growth as we expand our customer relationships and also when our tourism season comes into full swing in later May. This continued low interest rate environment has impacted client decisions to remain in shorter term certificates or more liquid accounts as they wait out this period for increases in longer term fixed rate deposits."

Noninterest Income/Expense

Noninterest income, at $.758 million in the first quarter of 2013, increased $.152 million from the first quarter 2012 level of $.606 million with the largest drivers of this income coming from the secondary market mortgage area, which totaled $.299 million in the first quarter. Noninterest expense, at $4.311 million in the first quarter of 2013, increased $.477 million, or 12.44% from the first quarter of 2012. The largest increase from the first quarter of 2012 was in salaries and benefits which reflect several needed staff additions to augment lending/operational controls and sales throughout that 12 month period, and our customary salary and benefit annual awards for overall staff retention and incentive culture. The Corporation continues to look for ways to control costs and remains below peer levels in terms of salary and benefits as a percentage of total assets residing at 1.58%.

Assets and Capital

Total assets of the Corporation at March 31, 2013 were $541.896 million, up 6.99% from the $506.496 million reported at March 31, 2012 and down $4.084 million from the $545.980 million of total assets at year-end 2012. The decrease in assets was primarily due to a decrease in liquidity, as we experienced some seasonal deposit outflows and funded loan growth from cash on hand. Common shareholders' equity at March 31, 2012 totaled $62.039 million, or $11.16 per share, compared to $45.119 million, or $13.19 per share on March 31, 2012. This decrease in book value between periods reflects the impact of our 2012 capital raise when we issued 2.138 million shares of common stock for net proceeds of $11.6 million. The Corporation and the Bank are both "well-capitalized" with Tier 1 Capital at the Corporation of 12.23% and 9.95% at the Bank.

Paul D. Tobias, Chairman and Chief Executive Officer, concluded, "We are pleased with our first quarter operating results. Looking forward, we expect to complete our recently announced plan to redeem $7 million of our $11 million outstanding preferred stock early in the second quarter. This redemption was contemplated when we issued stock in August 2012, and we will redeem the balance of our preferred prior to the contractual increase in rate from the current 5% to 9% which would otherwise occur in April 2014."

Mackinac Financial Corporation is a registered bank holding company formed under the Bank Holding Company Act of 1956 with assets in excess of $500 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, 2013				December 31, 2012				March 31, 2012
			(Unaudited)								(Unaudited)
Selected Financial Condition Data (at end of period):
Assets			$	541,896			$	545,980			$	506,496
Loans				454,051				449,177				414,402
Investment securities				48,556				43,799				36,788
Deposits				425,236				434,557				412,088
Borrowings				40,925				35,925				35,997
Common Shareholders' Equity				62,039				61,448				45,119
Shareholders' equity				73,039				72,448				56,095
Selected Statements of Income Data:
Net interest income			$	5,156			$	19,824			$	4,763
Income before taxes and preferred dividend				1,228				6,165				1,040
Net income				676				6,458				498
Income per common share - Basic				.12				1.51				.12
Income per common share - Diluted				.12				1.51				.11
Weighted average shares outstanding				5,559,859				4,285,043				3,419,736
Weighted average shares outstanding - Diluted				5,559,859				4,285,043				3,524,953
Selected Financial Ratios and Other Data:
Performance Ratios:
Net interest margin				4.18	%			4.17	%			4.17	%
Efficiency ratio				72.65				67.95				71.01
Return on average assets				.51				1.23				.40
Return on average common equity				4.47				12.43				4.53
Return on average equity				3.79				10.26				3.62
Average total assets			$	541,279			$	526,740			$	503,412
Average common shareholders' equity				61,238				51,978				44,229
Average total shareholders' equity				72,238				62,939				55,418
Average loans to average deposits ratio				104.63	%			99.45	%			98.73	%
Common Share Data at end of period:
Market price per common share			$	9.21			$	7.09			$	7.00
Book value per common share			$	11.16			$	11.05			$	13.19
Common shares outstanding				5,557,859				5,559,859				3,419,736
Other Data at end of period:
Allowance for loan losses			$	5,037			$	5,218			$	5,382
Non-performing assets			$	7,658			$	7,899			$	10,351
Allowance for loan losses to total loans				1.11	%			1.16	%			1.30	%
Non-performing assets to total assets				1.41	%			1.47	%			2.04	%
Texas ratio				9.90	%			10.25	%			16.96	%
Number of:
	Branch locations			11				11				11
	FTE Employees			126				121				114

MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
					March 31,				December 31,				March 31,
					2013				2012				2012
					(Unaudited)								(Unaudited)
ASSETS
Cash and due from banks					$	12,598			$	26,958			$	16,912
Federal funds sold						3				3				14,000
	Cash and cash equivalents					12,601				26,961				30,912
Interest-bearing deposits in other financial institutions						10				10				10
Securities available for sale						48,556				43,799				36,788
Federal Home Loan Bank stock						3,060				3,060				3,060
Loans:
	Commercial					345,032				342,841				318,810
	Mortgage					97,216				95,413				81,953
	Consumer					11,803				10,923				13,639
	Total Loans					454,051				449,177				414,402
		Allowance for loan losses				(5,037	)			(5,218	)			(5,382	)
	Net loans					449,014				443,959				409,020
Premises and equipment						10,587				10,633				9,774
Other real estate held for sale						3,825				3,212				3,494
Deferred tax asset						8,726				9,131				7,958
Other assets						5,517				5,215				5,480
TOTAL ASSETS					$	541,896			$	545,980			$	506,496
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Deposits:
	Noninterest bearing deposits				$	57,547			$	67,652			$	52,470
	NOW, money market, interest checking					161,445				155,465				151,614
	Savings					13,273				13,829				13,601
	CDs < $100,000					130,646				135,550				137,501
	CDs > $100,000					24,619				24,355				24,066
	Brokered					37,706				37,706				32,836
		Total deposits				425,236				434,557				412,088
Borrowings:
	Fed funds purchased					5,000				-				-
	FHLB and other					35,925				35,925				35,997
		Total borrowings				40,925				35,925				35,997
	Other liabilities					2,696				3,050				2,316
		Total liabilities				468,857				473,532				450,401
SHAREHOLDERS' EQUITY:
	Preferred stock - No par value:
		Authorized 500,000 shares, Issued and outstanding - 11,000 shares				11,000				11,000				10,976
	Common stock and additional paid in capital - No par value
		Authorized - 18,000,000 shares
		Issued and outstanding - 5,557,859; 5,559,859; and 3,419,736 shares respectively				53,888				53,797				43,525
		Retained earnings				7,181				6,727				990
		Accumulated other comprehensive income				970				924				604
			Total shareholders' equity			73,039				72,448				56,095
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY					$	541,896			$	545,980			$	506,496

MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
				Three Months Ended
				March 31,
				2013			2012
				(Unaudited)
INTEREST INCOME:
	Interest and fees on loans:
		Taxable		$	5,889		$	5,580
		Tax-exempt			27			32
	Interest on securities:
		Taxable			240			264
		Tax-exempt			7			7
	Other interest income				31			25
		Total interest income			6,194			5,908
INTEREST EXPENSE:
	Deposits				877			983
	Borrowings				161			162
		Total interest expense			1,038			1,145
Net interest income					5,156			4,763
Provision for loan losses					375			495
Net interest income after provision for loan losses					4,781			4,268
OTHER INCOME:
	Deposit service fees				162			194
	Income from secondary market loans sold				299			298
	SBA/USDA loan sale gains				109			-
	Mortgage servicing income				103			85
	Other				85			29
		Total other income			758			606
OTHER EXPENSE:
	Salaries and employee benefits				2,306			1,975
	Occupancy				382			345
	Furniture and equipment				270			228
	Data processing				265			228
	Professional service fees				225			180
	Loan and deposit				73			141
	Writedowns and losses on other real estate held for sale				2			11
	FDIC insurance assessment				105			159
	Telephone				82			55
	Advertising				104			98
	Other				497			414
		Total other expenses			4,311			3,834
Income before provision for income taxes					1,228			1,040
Provision for income taxes					415			349
NET INCOME					813			691
Preferred dividend and accretion of discount					137			193
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS				$	676		$	498
INCOME PER COMMON SHARE:
	Basic			$	.12		$	.12
	Diluted			$	.12		$	.11

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,
			2013			2012			2012
			(Unaudited)			(Unaudited)			(Unaudited)
Commercial Loans:
Real estate - operators of nonresidential buildings			$	94,828		$	95,151		$	78,769
Hospitality and tourism				42,733			40,787			33,452
Lessors of residential buildings				13,162			12,672			15,460
Insurance agencies and brokerages				11,854			12,128			11,302
Gasoline stations and convenience stores				11,201			11,393			11,872
Other				154,959			153,481			145,839
	Total Commercial Loans			328,737			325,612			296,694
1-4 family residential real estate				89,629			87,948			81,953
Consumer				11,803			10,923			8,524
Construction
	Commercial			16,295			17,229			22,116
	Consumer			7,587			7,465			5,115
	Total Loans		$	454,051		$	449,177		$	414,402

Credit Quality (at end of period):
			March 31,				December 31,				March 31,
			2013				2012				2012
			(Unaudited)				(Unaudited)				(Unaudited)
Nonperforming Assets :
Nonaccrual loans			$	3,833			$	4,687			$	4,457
Loans past due 90 days or more				-				-				-
Restructured loans				-				-				2,400
	Total nonperforming loans			3,833				4,687				6,857
Other real estate owned				3,825				3,212				3,494
	Total nonperforming assets		$	7,658			$	7,899			$	10,351
Nonperforming loans as a % of loans				.84	%			1.04	%			1.65	%
Nonperforming assets as a % of assets				1.41	%			1.45	%			2.04	%
Reserve for Loan Losses:
At period end			$	5,037			$	5,218			$	5,382
As a % of average loans				1.12	%			1.24	%			1.30	%
As a % of nonperforming loans				131.41	%			111.33	%			78.49	%
As a % of nonaccrual loans				131.41	%			111.33	%			120.75	%
Texas Ratio				9.90	%			10.25	%			16.96	%
Charge-off Information (year to date):
	Average loans		$	449,065			$	422,440			$	380,066
	Net charge-offs		$	364			$	978			$	429
	Charge-offs as a % of average loans, annualized			.32	%			.23	%			.45	%

MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES
QUARTERLY FINANCIAL HIGHLIGHTS
		QUARTER ENDED
		(Unaudited)
		March 31,			December 31,			September 30,			June 30,			March 31,
		2013			2012			2012			2012			2012
BALANCE SHEET (Dollars in thousands)
Total loans		$	454,051		$	449,177		$	433,958		$	419,453		$	414,402
Allowance for loan losses			(5,037	)		(5,218	)		(5,186	)		(5,083	)		(5,382	)
	Total loans, net		449,014			443,959			428,772			414,370			409,020
Total assets			541,896			545,980			551,117			524,366			506,496
Core deposits			362,911			372,496			372,500			357,933			355,186
Noncore deposits (1)			62,325			62,061			66,863			67,448			56,902
	Total deposits		425,236			434,557			439,363			425,381			412,088
Total borrowings			40,925			35,925			35,925			35,997			35,997
Common shareholders' equity			62,039			61,448			61,945			49,352			45,119
Total shareholders' equity			73,039			72,448			72,945			60,352			56,095
Total shares outstanding			5,557,859			5,559,859			5,559,859			3,419,736			3,419,736
Weighted average shares outstanding			5,559,859			5,559,859			4,722,029			3,419,736			3,419,736
AVERAGE BALANCES (Dollars in thousands)
Assets		$	541,279		$	545,661		$	545,788		$	511,681		$	503,412
Loans			449,065			438,168			424,461			422,887			404,048
Deposits			429,174			433,573			439,327			452,655			409,250
Common Equity			61,238			61,936			56,327			44,927			44,469
Equity			72,238			72,936			67,327			55,915			55,418
INCOME STATEMENT (Dollars in thousands)
Net interest income		$	5,156		$	5,112		$	4,930		$	5,019		$	4,763
Provision for loan losses			375			150			150			150			495
	Net interest income after provision		4,781			4,962			4,780			4,869			4,268
Total noninterest income			758			983			1,149			1,305			606
Total noninterest expense			4,311			4,349			4,367			4,207			3,834
Income before taxes			1,228			1,596			1,562			1,967			1,040
Provision for income taxes			415			536			528			(2,335	)		349
	Net income		813			1,060			1,034			4,302			691
Preferred dividend expense			137			138			137			161			193
Net income (loss) available to common shareholders		$	676		$	922		$	897		$	4,141		$	498
PER SHARE DATA
Earnings		$	.12		$	.21		$	.21		$	.97		$	.12
Book value per common share			11.16			11.05			11.14			14.43			13.19
Market value, closing price			9.21			7.09			7.60			5.99			7.00
ASSET QUALITY RATIOS
Nonperforming loans/total loans			.84	%		1.07	%		1.23	%		1.28	%		1.65	%
Nonperforming assets/total assets			1.41			1.47			1.61			1.70			2.04
Allowance for loan losses/total loans			1.11			1.16			1.20			1.21			1.30
Allowance for loan losses/nonperforming loans			131.41			108.96			96.99			94.57			78.49
Texas ratio (2)			9.90			10.25			11.35			13.70			16.96
PROFITABILITY RATIOS
Return on average assets			.51	%		.67	%		.65	%		3.21	%		.40	%
Return on average common equity			4.47			5.93			6.33			36.57			4.53
Return on average equity			3.79			5.03			5.29			29.39			3.62
Net interest margin			4.18			4.11			4.10			4.30			4.17
Efficiency ratio			72.65			70.52			67.29			63.61			71.01
Average loans/average deposits			104.63			99.45			96.62			101.50			98.73
CAPITAL ADEQUACY RATIOS
Tier 1 leverage ratio			12.23	%		11.98	%		10.16	%		9.95	%		10.08	%
Tier 1 capital to risk weighted assets			13.98			13.81			12.87			11.55			11.62
Total capital to risk weighted assets			15.06			14.93			14.12			12.80			12.87
Average equity/average assets			13.16			13.37			10.93			11.01			11.33
Tangible equity/tangible assets			13.36			13.17			13.15			11.42			11.00

(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