Mackinac Financial Corporation Reports Strong Second Quarter 2012 Results and Records a $3 Million Valuation Adjustment to Deferred Tax Assets

Mackinac Financial Corporation Reports Strong Second Quarter 2012 Results and Records a $3 Million Valuation Adjustment to Deferred Tax Assets
Loan Portfolio Balances

MANISTIQUE, MI--(Marketwire -08/02/12)- Mackinac Financial Corporation (MFNC), the bank holding company for mBank (the "Bank"), today announced second quarter 2012 income of $4.141 million or $1.21 per share compared to net income of $.603 million, or $.18 per share for the second quarter of 2011. The 2012 YTD and 2nd quarter results include a $3 million valuation adjustment to deferred tax assets, which equates to $.88 per share.

Operating results excluding the deferred tax asset for the first six months of 2012 totaled $1.639 million or $.48 per share compared to $.859 million or $.25 per share for the same period in 2011. The Corporation's subsidiary mBank recorded net income of $2.248 million, excluding the valuation adjustment to deferred taxes, for the first six months of this year compared to $1.439 million for the same period in 2011.

Some highlights for the first six months of 2012 results include:

  • Improved credit quality with a Texas Ratio of 13.59% compared to 23.38% one year ago, with nonperforming loans of $5.375 million, a $4.066 million reduction from a year earlier

  • Reduced credit related charges in 2012 at $.403 million compared to $.748 million in the 2011 six month period

  • Improved net interest margin at 4.23% compared to 3.85% for the first six months of 2011

  • Six month Secondary mortgage loan income of $.524 million, compared to $.199 million in the same period of 2011

  • Continued success in SBA/USDA lending initiatives, with $.620 million in sold guarantees to the secondary market. The Corporation continues to be a state leader in supporting small businesses with these programs ranking 9th in the state in total dollars for all banks for newly originated SBA 7(a) loans for the third quarter 2012 Michigan SBA results. The Corporation, under this program, originated 21 loans totaling $9.6 million.

  • Growth in core deposits of $9.2 million

Loans and Nonperforming Assets

Total loans at June 30, 2012 were $419.453 million, a 6.24% increase from the $394.812 million at June 30, 2011 and up $18.207 million from year-end 2011 total loans of $401.246 million. The Corporation had total loan production for all loan types of $101 million in the first six months of this year. Comprising the total production were $54 million in commercial loans, and $47 million in retail, $44 million of which were mortgages. The Upper Peninsula continues to drive a large majority of the new originations, totaling $66 million, with Southeast Michigan production of $18 million, and the Northern Lower Peninsula with $17 million. Commenting on loan growth, Kelly W. George, President and CEO of mBank, stated, "We are very pleased with the level of loan activity we are seeing in all our markets. The activity is all encompassing, including new home purchases and refinances, as well as small business expansion for various needs. Actual loan outstandings would have been greater, but the Corporation experienced unexpected large loan pay downs as a result of excess cash flow from strong commercial credits, and has also begun to experience tougher competition in the marketplace with respect to rate conditions. This has led to several relationships exiting because of pricing reasons. However, given our balance sheet and funding structure, we felt it was prudent to not try to retain these loans."

Nonperforming loans totaled $5.375 million, 1.28% of total loans at June 30, 2012 compared to $9.441 million, or 2.39% of total loans at June 30, 2011 and down $2.618 million from December 31, 2011. Nonperforming assets were reduced by $5.354 million from a year ago and stood at 1.70% of total assets. Total loan delinquencies resided at .82% or $3.448 million, almost solely made up of non-accrual commercial loans. George, commenting on credit quality, stated, "We are pleased with our continued reduction in the level of nonperforming assets and the overall payment performance on our total loan portfolio which has been good for several years now since coming out of the severe economic conditions from the 2008 downturn. Our current level of nonperforming assets is manageable and our associated costs are now more in line with a normal business climate with the reductions we have seen this year. We will remain diligent and timely in our recognition and disposal methods for our remaining nonperforming assets in terms of any future deterioration and in the event any new issues arise in subsequent quarters."

Manistique Papers Inc. Bankruptcy and Community Partnership Lending

As noted in our 2011 annual report, mBank was very close to consummating the sale of Manistique Papers Inc. out of a Chapter 11 bankruptcy process where it had played the lead role in facilitating since August of 2011 when mBank stepped in as the Senior Lender through a variety of transactions to purchase legacy debt of the corporation and provide new working capital funding to prevent the liquidation and closure of this 91 year old paper mill and the loss of approximately 150 jobs. We are very pleased to announce that in May of this year, though the collective efforts of various parties, we were able to close a sale to The Watermill Group, a private equity firm located in Boston Mass., to become the new owner of the local mill and ensure its continued vital operations for our local community in Manistique. George commenting on the sale events, "We could not be happier for the outcome of this endeavor we chose to take on 10 months ago to support our second largest employer and icon of the local business community Manistique Papers and all the good people who have worked there for years. Manistique Papers will benefit greatly from The Watermill Group's financial stability, operational expertise and experience in environmental paper and we appreciate the Watermill team's creative strategies for revitalizing the mill and the commitment they've shown to the company and local community. We're pleased to be working with them going forward and look forward to a mutually rewarding banking relationship as we move into a new rewarding chapter of the paper mills legacy."

Margin Analysis

Net interest margin in the first six months of 2012 increased to $9.782 million, 4.23%, compared to $8.319 million, or 3.85%, in the same period in 2011. The interest margin increase was largely due to decreased funding costs. George, commenting on margin items, stated, "We expect some margin pressure in future periods with this prolonged low interest rate environment, which limits investment options and provides for a highly competitive commercial loan procurement market for all banks centered on pricing options. We are continually seeing added pressure from existing borrowers and new credit opportunities for longer fixed rate terms and lower variable rate floors as we continue to look to structure our balance sheet with properly matched liabilities to manage our growth with diligence towards limiting longer term interest rate risk given the continued uncertainty of where interest rates will move in the next 12-24 months."

Deposits

Total deposits of $425.381 million at June 30, 2012 increased 6.43% from deposits of $399.667 million on June 30, 2011. Total deposits on June 30, 2012 deposits were up $20.592 million from year-end 2011 deposits of $404.789 million. The overall increase in deposits for the six months of 2012 is comprised of an increase in noncore deposits of $11.383 million and increased core deposits of $9.209 million. George, commenting on core deposits, stated, "In 2012 we have continued to experience a good growth rate on core deposits though lower than in previous years which is partially due to our reduced rates on transactional accounts to manage our net interest margin where we have seen a small exit from primarily rate only driven clients. We have supplemented our deposit growth with noncore deposits to manage interest rate risk in this prolonged low interest rate cycle, along with the need to align our funding costs with rates and maturities on loans as noted previously."

Noninterest Income/Expense

Noninterest income, at $1.911 million in the first six months of 2012, decreased $.014 million from the same period in 2011 of $1.925 million with the largest drivers of this income coming from the secondary market mortgage activities and gains from SBA/USDA loan sales. Income from secondary mortgage activities totaled $.524 million in 2012 compared to $.199 million in 2011. SBA/USDA loan sale gains were behind 2011 with year to date gains of $.620 million compared to 2011 gains of $1.186 million.

Noninterest expense, at $8.041 million in the first six months of 2012, increased $.253 million, or 3.25% from the same period in 2011. 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 at 1.58%.

Assets and Capital

Total assets of the Corporation at June 30, 2012 were $524.366 million, up 6.50% from the $492.373 million reported at June 30, 2011 and up 5.23% from the $498.311 million of total assets at year-end 2011.

Total shareholders' equity at June 30, 2012 totaled $60.352 million, compared to $54.784 million on June 30, 2011, an increase of $5.568 million, or 10.16%. Book value of common shareholders' equity was $14.43 per share at June 30, 2012 compared to $12.86 per share at June 30, 2011 and compared to $46.148 million, or $12.97 per share on December 31, 2011. The Corporation and the Bank are both "well-capitalized" with Tier 1 Capital at the Corporation of 10.16% and 9.52% at the Bank.

Weighted average shares outstanding totaled 3,419,736 for both periods. The common stock warrants outstanding of 379,310 shares were slightly dilutive for the 2012 second quarter by $.04 per share and for the six month period at $.05 per share.

Paul D. Tobias, Chairman and Chief Executive Officer, concluded, "We are pleased with our 2012 year to date operating results. Our loan production has been steady and we have a good pipeline of portfolio loans and SBA/USDA opportunities. Loan portfolio expansion will be challenging but we expect continued growth. Our credit quality is strong and we expect increased noninterest revenue, mainly from SBA/USDA loan sales later this year."

"Looking forward, we are excited about our rights offering and the pending investment from the Steinhardt family. We expect to complete these transactions within the next few weeks and issue approximately 2.2 million shares with net proceeds of roughly $12.0 million. This will provide the funding necessary to pursue several initial strategic alternatives. This new capitalization and the access to the capital and the funding that accompany an association with the Steinhardt's will be significant catalysts in the execution of our long-term strategic plan for franchise growth and increasing shareholder value."

Mackinac Financial Corporation is a registered bank holding company formed under the Bank Holding Company Act of 1956 with assets in excess of $520 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 June 30, December 31, June 30, share data) 2012 2011 2011 ----------- ------------- ----------- (Unaudited) (Unaudited) Selected Financial Condition Data (at end of period): Assets $ 524,366 $ 498,311 $ 492,373 Loans 419,453 401,246 394,812 Investment securities 39,054 38,727 38,613 Deposits 425,381 404,789 399,667 Borrowings 35,997 35,997 36,069 Common Shareholders' Equity 49,352 44,342 43,973 Shareholders' equity 60,352 55,263 54,784 Selected Statements of Income Data (six months and year ended): Net interest income $ 9,782 $ 17,929 $ 8,319 Income before taxes and preferred dividend 3,007 3,316 1,856 Net income 4,639 1,452 859 Income per common share - Basic 1.36 .42 .25 Income per common share - Diluted 1.31 .41 .25 Weighted average shares outstanding 3,419,736 3,419,736 3,419,736 Weighted average shares outstanding- Diluted 3,532,640 3,500,204 3,504,567 Three Months Ended: Net interest income $ 5,019 4,901 4,178 Income before taxes and preferred dividend 1,967 105 1,197 Net income 4,141 (114) 603 Income per common share - Basic 1.21 (.03) .18 Income per common share - Diluted 1.17 (.03) .17 Weighted average shares outstanding 3,419,736 3,419,736 3,419,736 Weighted average shares outstanding- Diluted 3,539,908 3,480,347 3,509,810 Selected Financial Ratios and Other Data: Performance Ratios: Net interest margin 4.23% 4.06% 3.85% Efficiency ratio 66.98 68.43 71.47 Return on average assets 2.20 .30 .36 Return on average common equity 24.99 3.30 4.00 Return on average equity 20.07 2.66 3.21 Average total assets $ 507,546 $ 489,539 $ 486,714 Average common shareholders' equity 44,706 43,940 43,255 Average total shareholders' equity 55,666 54,561 54,005 Average loans to average deposits ratio 100.12% 98.05% 96.19% Common Share Data at end of period: Market price per common share $ 5.99 $ 5.42 $ 6.00 Book value per common share $ 14.43 $ 12.97 $ 12.86 Common shares outstanding 3,419,736 3,419,736 3,419,736 Other Data at end of period: Allowance for loan losses $ 5,083 $ 5,251 $ 6,155 Non-performing assets $ 8,893 $ 11,155 $ 14,247 Allowance for loan losses to total loans 1.21% 1.31% 1.56% Non-performing assets to total assets 1.70% 2.24% 2.89% Texas ratio 13.59% 18.43% 23.38% Number of: Branch locations 11 11 12 FTE Employees 120 116 113
  MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS June 30, December 31, June 30, 2012 2011 2011 ----------- ------------- ----------- (Unaudited) (Unaudited) ASSETS Cash and due from banks $ 33,248 $ 20,071 $ 22,294 Federal funds sold - 13,999 12,000 ----------- ------------- ----------- Cash and cash equivalents 33,248 34,070 34,294 Interest-bearing deposits in other financial institutions 10 10 10 Securities available for sale 39,054 38,727 38,613 Federal Home Loan Bank stock 3,060 3,060 3,060 Loans: Commercial 319,398 311,215 305,752 Mortgage 90,260 83,106 83,194 Consumer 9,795 6,925 5,866 ----------- ------------- ----------- Total Loans 419,453 401,246 394,812 Allowance for loan losses (5,083) (5,251) (6,155) ----------- ------------- ----------- Net loans 414,370 395,995 388,657 Premises and equipment 10,134 9,627 9,623 Other real estate held for sale 3,518 3,162 4,806 Deferred Tax Asset 10,271 8,427 8,444 Other assets 10,701 5,233 4,866 ----------- ------------- ----------- TOTAL ASSETS $ 524,366 $ 498,311 $ 492,373 =========== ============= =========== LIABILITIES AND SHAREHOLDERS' EQUITY LIABILITIES: Deposits: Noninterest bearing deposits $ 59,872 $ 51,273 $ 49,769 NOW, money market, interest checking 143,795 152,563 149,448 Savings 14,248 14,203 16,526 CDs < $100,000 140,018 130,685 114,215 CDs > $100,000 25,975 23,229 23,102 Brokered 41,473 32,836 46,607 ----------- ------------- ----------- Total deposits 425,381 404,789 399,667 Borrowings 35,997 35,997 36,069 Other liabilities 2,636 2,262 1,853 ----------- ------------- ----------- Total liabilities 464,014 443,048 437,589 SHAREHOLDERS' EQUITY: Preferred stock - No par value: Authorized 500,000 shares, Issued and outstanding - 11,000 shares 11,000 10,921 10,811 Common stock and additional paid in capital - No par value Authorized - 18,000,000 shares Issued and outstanding - 3,419,736 shares 43,525 43,525 43,525 Retained earnings 5,131 492 (102) Accumulated other comprehensive income 696 325 550 ----------- ------------- ----------- Total shareholders' equity 60,352 55,263 54,784 ----------- ------------- ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 524,366 $ 498,311 $ 492,373 =========== ============= =========== MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Three Months Ended Six Months Ended June 30, June 30, -------------------- -------------------- 2012 2011 2012 2011 --------- --------- --------- --------- (Unaudited) (Unaudited) INTEREST INCOME: Interest and fees on loans: Taxable $ 5,873 $ 5,198 $ 11,453 $ 10,334 Tax-exempt 30 37 62 79 Interest on securities: Taxable 238 292 502 574 Tax-exempt 7 7 14 14 Other interest income 30 30 55 63 --------- --------- --------- --------- Total interest income 6,178 5,564 12,086 11,064 --------- --------- --------- --------- INTEREST EXPENSE: Deposits 992 1,231 1,975 2,449 Borrowings 167 155 329 296 --------- --------- --------- --------- Total interest expense 1,159 1,386 2,304 2,745 --------- --------- --------- --------- Net interest income 5,019 4,178 9,782 8,319 Provision for loan losses 150 600 645 600 --------- --------- --------- --------- Net interest income after provision for loan losses 4,869 3,578 9,137 7,719 --------- --------- --------- --------- OTHER INCOME: Deposit service fees 189 219 383 436 Income from secondary market loans sold 226 120 524 199 SBA/USDA loan sale gains 620 950 620 1,186 Mortgage servicing income 115 - 200 - Other 155 59 184 104 --------- --------- --------- --------- Total other income 1,305 1,348 1,911 1,925 --------- --------- --------- --------- OTHER EXPENSE: Salaries and employee benefits 2,003 1,806 3,978 3,630 Occupancy 335 349 680 714 Furniture and equipment 219 221 447 415 Data processing 258 179 486 355 Professional service fees 310 232 490 385 Loan and deposit 338 252 479 431 Writedowns and losses on other real estate held for sale 174 (35) 185 432 FDIC insurance assessment 159 255 318 540 Telephone 57 58 112 109 Advertising 98 111 196 199 Other 256 301 670 578 --------- --------- --------- --------- Total other expenses 4,207 3,729 8,041 7,788 --------- --------- --------- --------- Income before provision for income taxes 1,967 1,197 3,007 1,856 Provision for income taxes (2,335) 402 (1,986) 616 --------- --------- --------- --------- NET INCOME 4,302 795 4,993 1,240 --------- --------- --------- --------- Preferred dividend and accretion of discount 161 192 354 381 --------- --------- --------- --------- NET INCOME AVAILABLE TO COMMON SHAREHOLDERS $ 4,141 $ 603 $ 4,639 $ 859 ========= ========= ========= ========= INCOME PER COMMON SHARE: Basic $ 1.21 $ .18 $ 1.36 $ .25 ========= ========= ========= ========= Diluted $ 1.17 $ .17 $ 1.31 $ .25 ========= ========= ========= ========= MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES LOAN PORTFOLIO AND CREDIT QUALITY (Dollars in thousands) Loan Portfolio Balances (at end of period): June 30, December 31, June 30, 2012 2011 2011 ----------- ------------- ----------- (Unaudited) (Unaudited) (Audited) Commercial Loans: Real estate - operators of nonresidential buildings $ 83,539 $ 75,391 $ 59,587 Hospitality and tourism 36,557 33,306 33,467 Lessors of nonresidential buildings 13,358 16,499 16,316 Real estate agents and managers 12,860 10,617 14,909 Other 150,291 155,657 158,411 ----------- ------------- ----------- Total Commercial Loans 296,605 291,470 282,690 1-4 family residential real estate 84,665 77,332 79,013 Consumer 9,795 6,925 5,866 Construction Commercial 22,793 19,745 23,062 Consumer 5,595 5,774 4,181 ----------- ------------- ----------- Total Loans $ 419,453 $ 401,246 $ 394,812 =========== ============= =========== Credit Quality (at end of period): June 30, December 31, June 30, 2012 2011 2011 ----------- ------------- ----------- (Unaudited) (Unaudited) (Unaudited) Nonperforming Assets : Nonaccrual loans $ 5,375 $ 5,490 $ 7,639 Loans past due 90 days or more - - - Restructured loans - 2,503 1,802 ----------- ------------- ----------- Total nonperforming loans 5,375 7,993 9,441 Other real estate owned 3,518 3,162 4,806 ----------- ------------- ----------- Total nonperforming assets $ 8,893 $ 11,155 $ 14,247 =========== ============= =========== Nonperforming loans as a % of loans 1.28% 1.99% 2.39% ----------- ------------- ----------- Nonperforming assets as a % of assets 1.70% 2.24% 2.89% ----------- ------------- ----------- Reserve for Loan Losses: At period end $ 5,083 $ 5,251 $ 6,155 ----------- ------------- ----------- As a % of average loans 1.23% 1.35% 1.62% ----------- ------------- ----------- As a % of nonperforming loans 94.57% 65.69% 65.19% ----------- ------------- ----------- As a % of nonaccrual loans 94.57% 95.65% 80.57% ----------- ------------- ----------- Texas Ratio 13.59% 18.43% 23.38% ----------- ------------- ----------- Charge-off Information (year to date): Average loans $ 413,467 $ 388,115 $ 379,153 ----------- ------------- ----------- Net charge-offs $ 813 $ 3,662 $ 1,058 ----------- ------------- ----------- Charge-offs as a % of average loans .20% .94% .28% ----------- ------------- ----------- MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES QUARTERLY FINANCIAL HIGHLIGHTS QUARTER ENDED -------------------------------------------------------- (Unaudited) -------------------------------------------------------- December September June 30, March 31, 31, 30, June 30, 2012 2012 2011 2011 2011 ---------- ---------- ---------- ---------- ---------- BALANCE SHEET (Dollars in thousands) Total loans $ 419,453 $ 414,402 $ 401,246 $ 391,903 $ 394,812 Allowance for loan losses (5,083) (5,382) (5,251) (5,838) (6,155) ---------- ---------- ---------- ---------- ---------- Total loans, net 414,370 409,020 395,995 386,065 388,657 Intangible assets - - - - - Total assets 524,366 506,496 498,311 498,598 492,373 Core deposits 357,933 355,186 348,724 346,843 329,958 Noncore deposits (1) 67,448 56,902 56,065 58,215 69,709 ---------- ---------- ---------- ---------- ---------- Total deposits 425,381 412,088 404,789 405,058 399,667 Total borrowings 35,997 35,997 35,997 35,997 36,069 Common shareholders' equity 49,352 45,119 44,342 44,613 43,973 Total shareholders' equity 60,352 56,095 55,263 55,479 54,784 Total shares outstanding 3,419,736 3,419,736 3,419,736 3,419,736 3,419,736 AVERAGE BALANCES (Dollars in thousands) Assets $ 511,681 $ 503,412 $ 487,304 $ 497,333 $ 494,481 Loans 422,887 404,048 396,197 397,665 378,250 Deposits 452,655 409,250 390,940 403,957 401,549 Common Equity 44,927 44,469 44,325 44,105 43,354 Equity 55,915 55,418 55,219 54,998 54,138 INCOME STATEMENT (Dollars in thousands) Net interest income $ 5,019 $ 4,763 $ 4,901 $ 4,709 $ 4,178 Provision for loan losses 150 495 1,300 400 600 ---------- ---------- ---------- ---------- ---------- Net interest income after provision 4,869 4,268 3,601 4,309 3,578 Total noninterest income 1,305 606 725 1,006 1,348 Total noninterest expense 4,207 3,834 4,221 3,960 3,729 ---------- ---------- ---------- ---------- ---------- Income before taxes 1,967 1,040 105 1,355 1,197 Provision for income taxes (2,335) 349 27 455 402 ---------- ---------- ---------- ---------- ---------- Net income 4,302 691 78 900 795 ---------- ---------- ---------- ---------- ---------- Preferred dividend expense 161 193 192 193 192 ---------- ---------- ---------- ---------- ---------- Net income (loss) available to common shareholders $ 4,141 $ 498 $ (114) $ 707 $ 603 ========== ========== ========== ========== ========== PER SHARE DATA Earnings $ 1.21 $ .15 $ (.03) $ .21 $ .18 Book value per common share 14.43 13.19 12.97 13.05 12.86 Market value, closing price 5.99 7.00 5.42 5.46 6.00 ASSET QUALITY RATIOS Nonperforming loans/total loans 1.28% 1.65% 1.99% 2.47% 2.39% Nonperforming assets/total assets 1.70 2.04 2.24 2.99 2.89 Allowance for loan losses/total loans 1.21 1.30 1.31 1.49 1.56 Allowance for loan losses/nonperform ing loans 94.57 78.49 65.69 60.35 65.19 Texas ratio (2) 13.59 16.84 18.43 24.28 23.38 PROFITABILITY RATIOS Return on average assets 3.21% .40% (.09)% .56% .49% Return on average common equity 36.57 4.53 (1.02) 6.35 5.58 Return on average equity 29.39 3.62 (.82) 5.10 4.47 Net interest margin 4.30 4.17 4.38 4.14 3.79 Efficiency ratio 63.61 71.01 69.04 67.39 67.84 Average loans/average deposits 101.50 98.73 101.34 98.44 94.20 CAPITAL ADEQUACY RATIOS Tier 1 leverage ratio 10.16% 9.95% 10.08% 9.73% 9.50% Tier 1 capital to risk weighted assets 12.87 11.55 11.62 11.65 11.40 Total capital to risk weighted assets 14.12 12.80 12.87 12.97 12.66 Average equity/average assets 10.93 11.01 11.33 11.06 10.95 Tangible equity/tangible assets 11.51 11.01 11.33 11.06 10.95 (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

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