Mackinac Financial Corporation Reports First Quarter 2014 Results

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 < $100,000					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