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


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

MANISTIQUE, MI -- (Marketwired) -- 10/30/13 -- Mackinac Financial Corporation (NASDAQ: MFNC), the bank holding company for mBank (the "Bank"), today announced third quarter 2013 income of $.846 million or $.15 per share compared to net income available to common shareholders of $.897 million, or $.21 per share for the third quarter of 2012. Operating results for the first nine months of 2013 totaled $2.719 million or $.49 per share compared to $2.536 million or $.60 per share, excluding the $3.0 million deferred tax valuation adjustment, for the same period in 2012.

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

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

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

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


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

Loans and Nonperforming Assets

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

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

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

Margin Analysis

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

Deposits

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

Noninterest Income

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

Noninterest Expense

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

Capital

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

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

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

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

Forward-Looking Statements

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


 
                                                                            
               MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES              
                        SELECTED FINANCIAL HIGHLIGHTS                       
                                                                            
                                                                            
                                       September     December    September  
(Dollars in thousands, except per         30,          31,          30,     
 share data)                              2013         2012         2012    
                                      -----------  -----------  ----------- 
                                      (Unaudited)               (Unaudited) 
Selected Financial Condition Data (at                                       
 end of period):                                                            
Assets                                $   567,917  $   545,980  $   551,117 
Loans                                     472,495      449,177      433,958 
Investment securities                      48,096       43,799       42,476 
Deposits                                  461,688      434,557      439,363 
Borrowings                                 35,852       35,925       35,925 
Common Shareholders' Equity                63,045       61,448       61,945 
Shareholders' equity                       67,045       72,448       72,945 
                                                                            
                  
                                                          
Selected Statements of Income Data                                          
 (nine months and year ended):                                              
Net interest income                   $    15,773  $    19,824  $    14,712 
Income before taxes and preferred                                           
 dividend                                   4,477        6,165        4,569 
Net income                                  2,719        6,458        5,536 
Income per common share - Basic*              .49         1.51         1.30 
Income per common share - Diluted*            .49         1.51         1.25 
Weighted average shares outstanding     5,559,108    4,285,043    3,857,002 
Weighted average shares outstanding-                                        
 Diluted                                5,559,108    4,285,043    3,976,852 
                                                                            
Three Months Ended:                                                         
Net interest income                   $     5,348  $     5,112  $     4,930 
Income before taxes and preferred                                           
 dividend                                   1,352        1,596        1,562 
Net income                                    846          922          897 
Income per common share - Basic               .15          .21          .21 
Income per common share - Diluted*            .15          .21          .20 
Weighted average shares outstanding*    5,562,835    5,559,859    4,722,029 
Weighted average shares outstanding-                                        
 Diluted                                5,562,835    5,559,859    4,858,215 
                                                                            
Selected Financial Ratios and Other                                         
 Data:                                                                      
Performance Ratios:                                                         
Net interest margin                          4.15%        4.17%        4.19%
Efficiency ratio                            70.36        67.95        67.07 
Return on average assets                      .66         1.23         1.42 
Return on average common equity              5.89        12.43        15.21 
Return on average equity                     5.30        10.26        12.41 
                                                                            
Average total assets                  $   550,013  $   526,740  $   520,387 
Average common shareholders' equity        61,776       51,978       48,604 
Average total shareholders' equity         68,599       62,939       59,582 
Average loans to average deposits                                           
 ratio                                     103.40%       99.45%       98.90%
                                                                            
                                                                            
Common Share Data at end of period:                                         
Market price per common share         $      9.10  $      7.09  $      7.60 
Book value per common share           $     11.30  $     11.05  $     11.14 
Common shares outstanding               5,581,339    5,559,859    5,559,914 
                                                                            
Other Data at end of period:                                                
Allowance for loan losses             $     4,959  $     5,218  $     5,186 
Non-performing assets                 $     6,881  $     7,899  $     8,801 
Allowance for loan losses to total                                          
 loans                                       1.05%        1.16%        1.20%
Non-performing assets to total assets        1.21%        1.45%        1.60%
Texas ratio                                  9.56%       10.17%       11.26%
                                                                            
Number of:                                                                  
 Branch locations                              11           11           11 
 FTE Employees                                128          121          121 
                                                                            
*Earnings per share data for 2012 restated for common stock issuance        
                                                                            
                                                                            
                                                                            
                    MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES         
                              CONSOLIDATED BALANCE SHEETS                   
                                                                            
                                                                            
                                       September     December    September  
                                          30,          31,          30,     
                                         2013          2012         2012    
                                     ------------  -----------  ----------- 
                                      (Unaudited)               (Unaudited) 
ASSETS                                                                      
                                                                            
Cash and due from banks              $     22,791  $    26,958  $    31,403 
Federal funds sold                              3            3       16,002 
                                     ------------  -----------  ----------- 
 Cash and cash equivalents                 22,794       26,961       47,405 
                                                                            
Interest-bearing deposits in other                                          
 financial institutions                        10           10           10 
Securities available for sale              48,096       43,799       42,476 
Federal Home Loan Bank stock                3,060        3,060        3,060 
                                                                            
Loans:                                                                      
 Commercial                               353,526      342,841      329,891 
 Mortgage                                 104,504       95,413       93,446 
 Consumer                                  14,465       10,923       10,621 
                                     ------------  -----------  ----------- 
  Total Loans                             472,495      449,177      433,958 
   Allowance for loan losses               (4,959)      (5,218)      (5,186)
                                     ------------  -----------  ----------- 
 Net loans                                467,536      443,959      428,772 
                                                                            
Premises and equipment                     10,484       10,633       10,744 
Other real estate held for sale             2,568        3,212        3,511 
Deferred Tax Asset                          7,953        9,131        9,670 
Other assets                                5,416        5,215        5,469 
                                     ------------  -----------  ----------- 
                                                                            
TOTAL ASSETS                         $    567,917  $   545,980  $   551,117 
                                     ============  ===========  =========== 
                                                                            
LIABILITIES AND SHAREHOLDERS' EQUITY                                        
                                                                            
LIABILITIES:                                                                
Deposits:                                                                   
 Noninterest bearing deposits        $     70,063  $    67,652  $    62,306 
 NOW, money market, interest                                                
  checking                                158,588      155,465      152,286 
 Savings                                   12,694       13,829       15,783 
 CDs < $100,000                           133,821      135,550      142,125 
 CDs > $100,000                            23,816       24,355       25,390 
 Brokered                                  62,706       37,706       41,473 
                                     ------------  -----------  ----------- 
   Total deposits                         461,688      434,557      439,363 
                                                                            
 Borrowings                                35,852       35,925       35,925 
 Other liabilities                          3,332        3,050        2,884 
                                     ------------  -----------  ----------- 
   Total liabilities                      500,872      473,532      478,172 
                                                                            
SHAREHOLDERS' EQUITY:                                                       
 Preferred stock - No par value:                                            
  Authorized - 500,000 shares               4,000       11,000       11,000 
  Issued and outstanding - 4,000,                                           
   11,000 and 11,000 respectively                                           
 Common stock and additional paid in                                        
  capital - No par value                                                    
  Authorized - 18,000,000 shares                                            
  Issued and outstanding -                                                  
   5,581,339, 5,559,859 and                                                 
   5,559,914 respectively                  53,915       53,797       55,047 
  Retained earnings                         8,780        6,727        6,028 
  Accumulated other comprehensive                                           
   income                                     350          924          870 
                                     ------------  -----------  ----------- 
                                                                            
   Total shareholders' equity              67,045       72,448       72,945 
                                     ------------  -----------  ----------- 
                                                                            
TOTAL LIABILITIES AND SHAREHOLDERS'                                         
 EQUITY                              $    567,917  $   545,980  $   551,117 
                                     ============  ===========  =========== 
                                                                            
                                                                            
                                                                            
                  MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES           
                       CONSOLIDATED STATEMENTS OF OPERATIONS                
                                                                            
                                       Three Months Ended Nine Months Ended 
                                         September 30,      September 30,   
                                      ------------------- ----------------- 
                                         2013      2012     2013     2012   
                                      --------- --------- -------- -------- 
                                          (Unaudited)        (Unaudited)    
INTEREST INCOME:                                                            
 Interest and fees on loans:                                                
  Taxable                             $   6,077 $   5,803 $ 17,980 $ 17,256 
  Tax-exempt                                 26        28       81       90 
 Interest on securities:                                                    
  Taxable                                   245       226      726      728 
  Tax-exempt                                  9         6       22       20 
 Other interest income                       33        41       96       96 
                                      --------- --------- -------- -------- 
  Total interest income                   6,390     6,104   18,905   18,190 
                                      --------- --------- -------- -------- 
                                                                            
INTEREST EXPENSE:                                                           
 Deposits                                   879     1,011    2,642    2,986 
 Borrowings                                 163       163      490      492 
                                      --------- --------- -------- -------- 
  Total interest expense                  1,042     1,174    3,132    3,478 
                                      --------- --------- -------- -------- 
                                                                            
Net interest income                       5,348     4,930   15,773   14,712 
Provision for loan losses                   375       150      850      795 
                                      --------- --------- -------- -------- 
Net interest income after provision                                         
 for loan losses                          4,973     4,780   14,923   13,917 
                                      --------- --------- -------- -------- 
                                                                            
OTHER INCOME:                                                               
 Deposit service fees                       158       155      495      538 
 Income from secondary market loans                                         
  sold                                      203       320      781      844 
 SBA/USDA loan sale gains                   135       506      798    1,126 
 Mortgage servicing income                  128        92      413      292 
 Other                                      114        76      260      260 
                                      --------- --------- -------- -------- 
  Total other income                        738     1,149    2,747    3,060 
                                      --------- --------- -------- -------- 
                                                                            
OTHER EXPENSE:                                                              
 Salaries and employee benefits           2,226     2,063    6,907    6,041 
 Occupancy                                  362       370    1,107    1,050 
 Furniture and equipment                    274       213      799      660 
 Data processing                            269       253      802      739 
 Professional service fees                  161       210      706      700 
 Loan and deposit                            55       195      173      674 
 Writedowns and losses on other real                                        
  estate held for sale                       57       265      146      450 
 FDIC insurance assessment                  100        36      300      354 
 Telephone                                   84        56      229      168 
 Advertising                                119        96      334      292 
 Other                                      652       610    1,690    1,280 
                                      --------- --------- -------- -------- 
  Total other expenses                    4,359     4,367   13,193   12,408 
                                      --------- --------- -------- -------- 
                                                                            
Income before provision for income                                          
 taxes                                    1,352     1,562    4,477    4,569 
Provision for (benefit
 of) income                                           
 taxes                                      456       528    1,508   (1,458)
                                      --------- --------- -------- -------- 
                                                                            
NET INCOME                                  896     1,034    2,969    6,027 
                                      --------- --------- -------- -------- 
                                                                            
Preferred dividend and accretion of                                         
 discount                                    50       137      250      491 
                                                                            
                                      --------- --------- -------- -------- 
NET INCOME AVAILABLE TO COMMON                                              
 SHAREHOLDERS                         $     846 $     897 $  2,719 $  5,536 
                                      ========= ========= ======== ======== 
                                                                            
INCOME PER COMMON SHARE*:                                                   
 Basic                                $     .15 $     .21 $    .49 $   1.30 
                                      ========= ========= ======== ======== 
 Diluted                              $     .15 $     .20 $    .49 $   1.25 
                                      ========= ========= ======== ======== 
                                                                            
                                                                            
*Earnings per share data for 2012 restated for common stock issuance        
                                                                            
                                                                            
                                                                            
               MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES              
                      LOAN PORTFOLIO AND CREDIT QUALITY                     
                                                                            
(Dollars in thousands)                                                      
                                                                            
Loan Portfolio Balances (at end of period):                                 
                                                                            
                                          September    December   September 
                                             30,         31,         30,    
                                             2013        2012        2012   
                                         ----------- ----------- -----------
                                         (Unaudited) (Unaudited) (Unaudited)
Commercial Loans:                                                           
Real estate - operators of                                                  
 nonresidential buildings                $   101,406 $    95,151 $    88,505
Hospitality and tourism                       41,473      40,787      36,950
Lessors of residential buildings              14,573      12,672      12,326
Real estate agents and managers               10,975      10,597      12,336
Gasoline stations and convenience stores      10,897      11,393      12,394
Other                                        158,148     155,012     145,623
                                         ----------- ----------- -----------
  Total Commercial Loans                     337,472     325,612     308,134
                                                                            
1-4 family residential real estate            98,770      87,948      86,643
Consumer                                      14,465      10,923      10,621
Construction                                                                
  Commercial                                  16,054      17,229      21,757
  Consumer                                     5,734       7,465       6,803
                                         ----------- ----------- -----------
                                                                            
  Total Loans                            $   472,495 $   449,177 $   433,958
                                         =========== =========== ===========
                                                                            
                                                                            
                                                                            
                                                                            
Credit Quality (at end of period):                                          
                                                                            
                                                                            
                                       September     December    September  
                                          30,          31,          30,     
                                          2013         2012         2012    
                                      -----------  -----------  ----------- 
                                      (Unaudited)  (Unaudited)  (Unaudited) 
Nonperforming Assets :                                                      
Nonaccrual loans                      $     4,313  $     4,687  $     3,122 
Loans past due 90 days or more                  -            -            - 
Restructured loans                              -            -        2,168 
                                      -----------  -----------  ----------- 
 Total nonperforming loans                  4,313        4,687        5,290 
Other real estate owned                     2,568        3,212        3,511 
                                      -----------  -----------  ----------- 
 Total nonperforming assets           $     6,881  $     7,899  $     8,801 
                                      ===========  ===========  =========== 
Nonperforming loans as a % of loans           .91%        1.04%        1.22%
                                      -----------  -----------  ----------- 
Nonperforming assets as a % of assets        1.21%        1.45%        1.60%
                                      -----------  -----------  ----------- 
Reserve for Loan Losses:                                                    
At period end                         $     4,959  $     5,218  $     5,186 
                                      -----------  -----------  ----------- 
As a % of average loans                      1.09%        1.24%        1.24%
                                      -----------  -----------  ----------- 
As a % of nonperforming loans              114.98%      111.33%       98.03%
                                      -----------  -----------  ----------- 
As a % of nonaccrual loans                 114.98%      111.33%      166.11%
                                      -----------  -----------  ----------- 
Texas Ratio                                  9.56%       10.17%       11.26%
                                      -----------  -----------  ----------- 
                                                                            
Charge-off Information (year to                                             
 date):                                                                     
 Average loans                        $   456,831  $   422,440  $   417,159 
                                      -----------  -----------  ----------- 
 Net charge-offs                      $     1,110  $       978  $       860 
                                      -----------  -----------  ----------- 
 Charge-offs as a % of average loans          .32%         .23%         .28%
                                      -----------  -----------  ----------- 
                                                                            
                        
                                                    
                                                                            
                       MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES      
                               QUARTERLY FINANCIAL HIGHLIGHTS               
                                                                            
                                        QUARTER ENDED                       
                 -----------------------------------------------------------
                                         (Unaudited)                        
                 -----------------------------------------------------------
                  September                           December    September 
                     30,      June 30,    March 31,      31,         30,    
                    2013        2013        2013        2012        2012    
                 ----------  ----------  ----------  ----------  ---------- 
BALANCE SHEET                                                               
 (Dollars in                                                                
 thousands)                                                                 
                                                                            
Total loans      $  472,495  $  455,555  $  454,051  $  449,177  $  433,958 
Allowance for                                                               
 loan losses         (4,959)     (5,177)     (5,037)     (5,218)     (5,186)
                 ----------  ----------  ----------  ----------  ---------- 
 Total loans,                                                               
  net               467,536     450,378     449,014     443,959     428,772 
Total assets        567,917     553,501     541,896     545,980     551,117 
Core deposits       375,166     357,935     362,911     372,496     372,500 
Noncore deposits                                                            
 (1)                 86,522      89,972      62,325      62,061      66,863 
                 ----------  ----------  ----------  ----------  ---------- 
 Total deposits     461,688     447,907     425,236     434,557     439,363 
Total borrowings     35,852      35,925      40,925      35,925      35,925 
Common                                                                      
 shareholders'                                                              
 equity              63,045      62,520      62,039      61,448      61,945 
Total                                                                       
 shareholders'                                                              
 equity              67,045      66,520      73,039      72,448      72,945 
Total shares                                                                
 outstanding      5,581,339   5,554,459   5,557,859   5,559,859   5,559,859 
Weighted average                                                            
 shares                                                                     
 outstanding      5,562,835   5,556,133   5,559,859   5,559,859   4,722,029 
                                                                            
AVERAGE BALANCES                                                            
 (Dollars in                                                                
 thousands)                                                                 
                                                                            
Assets           $  560,089  $  548,455  $  541,279  $  545,661  $  545,788 
Loans               464,324     456,937     449,065     438,168     424,461 
Deposits            456,191     439,780     429,174     433,573     439,327 
Common Equity        62,134      62,483      61,238      61,936      56,327 
Equity               66,134      67,483      72,238      72,936      67,327 
                                                                            
INCOME STATEMENT                                                            
 (Dollars in                                                                
 thousands)                                                                 
                                                                            
Net interest                                                                
 income          $    5,348  $    5,269  $    5,156  $    5,112  $    4,930 
Provision for                                                               
 loan losses            375         100         375         150         150 
                 ----------  ----------  ----------  ----------  ---------- 
 Net interest                                                               
  income after                                                              
  provision           4,973       5,169       4,781       4,962       4,780 
Total                                                                       
 noninterest                                                                
 income                 738       1,251         758         983       1,149 
Total                                                                       
 noninterest                                                                
 expense              4,359       4,523       4,311       4,349       4,367 
                 ----------  ----------  ----------  ----------  ---------- 
Income before                                                               
 taxes                1,352       1,897       1,228       1,596       1,562 
Provision for                                                               
 income taxes           456         637         415         536         528 
                 ----------  ----------  ----------  ----------  ---------- 
 Net income             896       1,260         813       1,060       1,034 
                 ----------  ----------  ----------  ----------  ---------- 
Preferred                                                                   
 dividend                                                                   
 expense                 50          63         137         138         137 
                 ----------  ----------  ----------  ----------  ---------- 
Net income                                                                  
 available to                                                               
 common                                                                     
 shareholders    $      846  $    1,197  $      676  $      922  $      897 
                 ==========  ==========  ==========  ==========  ========== 
                                                                            
PER SHARE DATA                                                              
                                                                            
Earnings         $      .15  $      .22  $      .12  $      .21  $      .21 
Book value per                                                              
 common share         11.30       11.26       11.16       11.05       11.14 
Market value,                                                               
 closing price         9.10        8.88        9.21        7.09        7.60 
                                                                            
ASSET QUALITY                                                               
 RATIOS                                                                     
                                                                            
Nonperforming                                                               
 loans/total                                                                
 loans                  .91%        .87%        .84%       1.04%       1.22%
Nonperforming                                                               
 assets/total                                                               
 assets                1.21        1.17        1.41        1.45        1.60 
Allowance for             
                                                  
 loan                                                                       
 losses/total                                                               
 loans                 1.09        1.14        1.11        1.16        1.20 
Allowance for                                                               
 loan                                                                       
 losses/nonperfo                                                            
 rming loans         114.98      129.98      131.41      111.33       96.99 
Texas ratio (2)        9.56        9.02        9.81       10.17       11.26 
                                                                            
PROFITABILITY                                                               
 RATIOS                                                                     
                                                                            
Return on                                                                   
 average assets         .60%        .88%        .51%        .67%        .65%
Return on                                                                   
 average common                                                             
 equity                5.40        7.69        4.47        5.93        6.33 
Return on                                                                   
 average equity        5.08        7.12        3.79        5.03        5.29 
Net interest                                                                
 margin                4.12        4.16        4.18        4.11        4.10 
Efficiency ratio      70.64       68.02       72.65       70.52       67.29 
Average                                                                     
 loans/average                                                              
 deposits            101.78      103.90      104.63       99.45       96.62 
                                                                            
CAPITAL ADEQUACY                                                            
 RATIOS                                                                     
                                                                            
Tier 1 leverage                                                             
 ratio                10.90%      11.01%      12.23%      11.98%      10.16%
Tier 1 capital                                                              
 to risk                                                                    
 weighted assets      12.45       12.74       13.98       13.81       12.87 
Total capital to                                                            
 risk weighted                                                              
 assets               13.47       13.85       15.06       14.93       14.12 
Average                                                                     
 equity/average                                                             
 assets (for the                                                            
 quarter)             11.81       12.30       13.35       13.37       12.34 
Tangible                                                                    
 equity/tangible                                                            
 assets (at                                                                 
 quarter end)         11.81       12.02       13.48       13.27       13.24 
                                                                            
                                                                            
(1) Noncore deposits includes Internet CDs, brokered deposits and CDs       
greater than $100,000                                                       
(2)Texas ratio equals nonperforming assets divided by shareholders' equity  
plus allowance for loan losses                                              

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

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