NEWS RELEASE TRANSMITTED BY Marketwire

FOR: MACKINAC FINANCIAL CORPORATION NASDAQ SYMBOL:  MFNC

Mackinac Financial Corporation Reports First Quarter 2012 Results

MAY 2, 2012 - 16:00 ET

MANISTIQUE, MI--(Marketwire - May 2, 2012) - Mackinac Financial Corporation (NASDAQ: MFNC), the bank holding company for mBank (the "Bank"), today announced first quarter 2012 income of $.498 million or $.15 per share compared to net income of $.256 million, or $.07 per share for the first quarter of 2011. The Corporation's primary asset, mBank, recorded net income of $.800 million for the first quarter of 2012. The first quarter results include a provision for loan losses of $.495 million and negligible ORE writedowns and losses. Operating results for the same period in 2011 include no provision for loan losses, and $.467 million of ORE writedowns and losses. 

Total shareholders' equity at March 31, 2012 totaled $56.095 million, compared to $54.097 million on March 31, 2011, an increase of $1.998 million, or 3.69%. Book value of common shareholders' equity was $13.19 per share at March 31, 2012 compared to $12.67 per share at March 31, 2011. 

Weighted average shares outstanding totaled 3,419,736 for both periods. The common stock warrants outstanding of 379,310 shares were slightly dilutive, at approximately $.01 per share, for the 2012 first quarter, as the market value of our stock remained above the $4.35 strike price.

Some highlights for the first quarter include:

• Strong loan production, with loan balances increasing by $13.156 million. A good backlog of over $20 million of new loans has been adjudicated and is ready to close in the next 60 days. Some of these loans are SBA transactions which will lead to improved noninterest income levels for the next couple quarters.
  
  
• Improved net interest margin at 4.17% compared to 3.92% for the first quarter of 2011.
  
  
• Core deposit growth of $6.462 million. 
  
  
• Secondary mortgage loan income of $.262 million, compared to $.079 million in the first quarter of 2011.
  
  
• Improved credit quality with a Texas Ratio of 16.84% compared to 24.96% one year ago.
  
  

Loans and Non-performing Assets

Total loans at March 31, 2012 were $414.402 million, a 10.62% increase from the $374.609 million at March 31, 2011 and up $13.156 million from year-end 2011 total loans of $401.246 million. Commenting on loan growth, Kelly W. George, President and CEO of mBank, stated, "We are seeing good loan opportunities in all of our markets, but are especially pleased with the resurgence of good commercial lending opportunities in Southeast Michigan, which bodes well for our organization and is a good economic indicator for the State of Michigan. We are also highly encouraged with the 1-4 family mortgage lending momentum continuing from late last year during a traditionally slow time of the year in our Northern markets. This should bode well for increased lending activities as we enter our peak mortgage lending periods within the late second and third quarters."

Nonperforming loans totaled $6.857 million, 1.65% of total loans at March 31, 2012 compared to $9.964 million, or 2.66% of total loans at March 31, 2011 and down $1.136 million from December 31, 2011. Nonperforming assets were reduced by $4.694 million from a year ago and stood at 2.04% of total assets. Total loan delinquencies resided at 1.17% or $4.8 million, almost solely made up of non-accrual commercial loans. George, commenting on credit quality, stated, "We believe that we will have further reductions of our nonperforming assets as the economy continues to improve and ORE properties become more marketable. Our nonperforming assets are manageable and our associated costs are now more in line with a normal business climate."

Margin Analysis

Net interest margin in the first quarter of 2012 increased to $4.763 million, 4.17%, compared to $4.141 million, or 3.92%, in the first quarter of 2011. The interest margin increase was largely due to decreased funding costs. George stated, "We expect some margin pressure as we progress through the year due to increased competition on pricing for new loans and renewals. More banks are now on the offense and we expect pricing to be very competitive." 

Deposits

Total deposits of $412.088 million at March 31, 2012 increased by 2.82% from deposits of $400.783 million on March 31, 2011. Total deposits on March 31, 2012 deposits were up $7.299 million from year-end 2011 deposits of $404.789 million. The overall increase in deposits for the first three months of 2012 is comprised of an increase in noncore deposits of $.837 million and increased core deposits of $6.462 million. George, commenting on core deposits, stated, "We are now into the third full year of a low interest rate environment. Our liabilities have all repriced and we believe we are at the low point of this economic cycle. Our strategy going forward will focus on deposit retention and further reduction of interest rate risk."

Noninterest Income/Expense

Noninterest income, at $.606 million in the first quarter of 2012, increased $.029 million from the first quarter 2011 level of $.577 million with the largest drivers of this income coming from the secondary market mortgage area, which totaled $.298 million in the first quarter. 

Noninterest expense, at $3.834 million in the first quarter of 2012, decreased $.225 million, or 5.54% from the first quarter of 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 residing at 1.58%. 

Assets and Capital

Total assets of the Corporation at March 31, 2012 were $506.496 million, up 2.78 % from the $492.790 million reported at March 31, 2011 and up 1.64% from the $498.311 million of total assets at year-end 2011. Common Shareholders' equity at March 31, 2011 totaled $45.119 million, or $13.19 per share, compared to $43.340 million, or $12.67 per share on March 31, 2011. The Corporation and the Bank are both "well-capitalized" with Tier 1 Capital at the Corporation of 9.95% and 9.24% at the Bank.

Paul D. Tobias, Chairman and Chief Executive Officer, concluded, "We are pleased with our first quarter operating results. Our loan production is picking up and our pipeline is strong, which will lead to increased net interest income in future periods. Our credit quality continues to improve and we expect increased noninterest revenue, mainly from SBA/USDA loan sales later this year."

"Looking forward, we expect to complete our recently announced investment from the Steinhardt family and our common stock rights offering later in the second quarter. This will provide the funding necessary to eliminate our TARP preferred stock and the associated 379,310 common stock warrants which are substantially 'in the money.' This redemption and the access to the capital and the funding that accompanies 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 $500 million and whose common stock is traded on the NASDAQ stock market as "MFNC." The principal subsidiary of the Corporation is mBank. Headquartered in Manistique, Michigan, mBank has 11 branch locations; seven in the Upper Peninsula, three in the Northern Lower Peninsula and one in Oakland County, Michigan. The Company's banking services include commercial lending and treasury management products and services geared toward small to mid-sized businesses, as well as a full array of personal and business deposit products and consumer loans.

Forward-Looking Statements

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

MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES
SELECTED FINANCIAL HIGHLIGHTS
(Dollars in thousands, except per share data)			March 31, 2012				December 31, 2011				March 31, 2011
			(Unaudited)								(Unaudited)
Selected Financial Condition Data (at end of period):
Assets			$	506,496			$	498,311			$	492,790
Loans				414,402				401,246				374,609
Investment securities				36,788				38,727				37,543
Deposits				412,088				404,789				400,783
Borrowings				35,997				35,997				36,069
Common Shareholders' Equity				45,119				44,342				43,340
Shareholders' equity				56,095				55,263				54,097
Selected Statements of Income Data:
Net interest income			$	4,763			$	17,929			$	4,141
Income before taxes and preferred dividend				1,040				3,316				659
Net income				496				1,452				256
Income per common share - Basic				.15				.42				.07
Income per common share - Diluted				.14				.41				.07
Weighted average shares outstanding				3,419,736				3,419,736				3,419,736
Weighted average shares outstanding- Diluted				3,524,953				3,500,204				3,419,736
Selected Financial Ratios and Other Data:
Performance Ratios:
Net interest margin				4.17	%			4.06	%			3.92	%
Efficiency ratio				71.01				68.43				75.73
Return on average assets				.40				.30				.22
Return on average common equity				4.53				3.30				2.40
Return on average equity				3.62				2.66				1.92
Average total assets			$	503,412			$	489,539			$	478,861
Average common shareholders' equity				44,229				43,940				43,147
Average total shareholders' equity				55,418				54,561				53,870
Average loans to average deposits ratio				98.73	%			98.05	%			98.27	%
Common Share Data at end of period:
Market price per common share			$	7.00			$	5.42			$	6.02
Book value per common share			$	13.19			$	12.97			$	12.67
Common shares outstanding				3,419,736				3,419,736				3,419,736
Other Data at end of period:
Allowance for loan losses			$	5,382			$	5,251			$	6,184
Non-performing assets			$	10,351			$	11,155			$	15,045
Allowance for loan losses to total loans				1.30	%			1.31	%			1.65	%
Non-performing assets to total assets				2.04	%			2.24	%			3.05	%
Texas ratio				16.84	%			18.43	%			24.96	%
Number of:
	Branch locations			11				11				11
	FTE Employees			114				116				108

 

MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
				March 31,				December 31,				March 31,
				2012				2011				2011
				(Unaudited)								(Unaudited)
ASSETS
Cash and due from banks				$	16,912			$	20,071			$	41,715
Federal funds sold					14,000				13,999				12,000
	Cash and cash equivalents				30,912				34,070				53,715
Interest-bearing deposits in other financial institutions					10				10				734
Securities available for sale					36,788				38,727				37,543
Federal Home Loan Bank stock					3,060				3,060				3,423
Loans:
	Commercial				318,810				311,215				287,760
	Mortgage				81,953				83,106				81,404
	Consumer				13,639				6,925				5,445
		Total Loans			414,402				401,246				374,609
			Allowance for loan losses		(5,382	)			(5,251	)			(6,184	)
	Net loans				409,020				395,995				368,425
Premises and equipment					9,774				9,627				9,715
Other real estate held for sale					3,494				3,162				5,081
Deferred Tax Asset					7,958				8,427				8,773
Other assets					5,480				5,233				5,381
TOTAL ASSETS				$	506,496			$	498,311			$	492,790
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Deposits:
	Noninterest bearing deposits			$	52,470			$	51,273			$	39,269
	NOW, money market, interest checking				151,614				152,563				154,420
	Savings				13,601				14,203				17,691
	CDs < $100,000				137,501				130,685				104,258
	CDs > $100,000				24,066				23,229				21,803
	Brokered				32,836				32,836				63,342
		Total deposits			412,088				404,789				400,783
Borrowings					35,997				35,997				36,069
Other liabilities					2,316				2,262				1,841
	Total liabilities				450,401				443,048				438,693
SHAREHOLDERS' EQUITY:
Preferred stock - No par value:
	Authorized 500,000 shares, Issued and outstanding - 11,000 shares				10,976				10,921				10,757
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				990				492				(705	)
	Accumulated other comprehensive income				604				325				520
		Total shareholders' equity			56,095				55,263				54,097
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY				$	506,496			$	498,311			$	492,790

 

MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
				Three Months Ended
				March 31,
				2012			2011
				(Unaudited)
INTEREST INCOME:
	Interest and fees on loans:
		Taxable		$	5,580		$	5,136
		Tax-exempt			32			42
	Interest on securities:
		Taxable			264			282
		Tax-exempt			7			7
	Other interest income				25			33
		Total interest income			5,908			5,500
INTEREST EXPENSE:
	Deposits				983			1,219
	Borrowings				162			140
		Total interest expense			1,145			1,359
Net interest income					4,763			4,141
Provision for loan losses					495			-
Net interest income after provision for loan losses					4,268			4,141
OTHER INCOME:
	Deposit service fees				194			217
	Income from secondary market loans sold				298			78
	SBA/USDA loan sale gains				-			236
	Mortgage servicing income				85			-
	Other				29			46
		Total other income			606			577
OTHER EXPENSE:
	Salaries and employee benefits				1,975			1,824
	Occupancy				345			365
	Furniture and equipment				228			194
	Data processing				228			176
	Professional service fees				180			153
	Loan and deposit				141			179
	Writedowns and losses on other real estate held for sale				11			467
	FDIC insurance assessment				159			285
	Telephone				55			51
	Advertising				98			88
	Other				414			277
		Total other expenses			3,834			4,059
Income before provision for income taxes					1,040			659
Provision for income taxes					349			214
NET INCOME					691			445
Preferred dividend and accretion of discount					193			189
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS				$	498		$	256
INCOME PER COMMON SHARE:
	Basic			$	.15		$	.07
	Diluted			$	.14		$	.07

 

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,
			2012			2011			2011
			(Unaudited)			(Unaudited)			(Audited)
Commercial Loans:
Real estate - operators of nonresidential buildings			$	78,769		$	75,391		$	58,132
Hospitality and tourism				33,452			33,306			35,016
Lessors of nonresidential buildings				15,460			16,499			17,091
Real estate agents and managers				13,296			10,617			15,518
Other				155,717			155,657			138,565
	Total Commercial Loans			296,694			291,470			264,322
1-4 family residential real estate				81,953			77,332			75,663
Consumer				8,524			6,925			5,445
Construction
	Commercial			22,116			19,745			23,438
	Consumer			5,115			5,774			5,741
	Total Loans		$	414,402		$	401,246		$	374,609

 

Credit Quality (at end of period):
			March 31,				December 31,				March 31,
			2012				2011				2011
			(Unaudited)				(Unaudited)				(Unaudited)
Nonperforming Assets:
Nonaccrual loans			$	4,457			$	5,490			$	9,859
Loans past due 90 days or more				-				-				-
Restructured loans				2,400				2,503				105
	Total nonperforming loans			6,857				7,993				9,964
Other real estate owned				3,494				3,162				5,081
	Total nonperforming assets		$	10,351			$	11,155			$	15,045
Nonperforming loans as a % of loans				1.65	%			1.99	%			2.66	%
Nonperforming assets as a % of assets				2.04	%			2.24	%			3.05	%
Reserve for Loan Losses:
At period end			$	5,382			$	5,251			$	6,184
As a % of average loans				1.30	%			1.35	%			1.65	%
As a % of nonperforming loans				78.49	%			65.69	%			62.06	%
As a % of nonaccrual loans				120.75	%			95.65	%			62.72	%
Texas Ratio				16.84	%			18.43	%			24.96	%
Charge-off Information (year to date):
	Average loans		$	404,048			$	388,115			$	380,066
	Net charge-offs		$	364			$	3,662			$	429
	Charge-offs as a % of average loans			.10	%			.94	%			.11	%

 

			QUARTER ENDED
			(Unaudited)
			March 31,				December 31,				September 30,				June 30,				March 31,
			2012				2011				2011				2011				2011
BALANCE SHEET (Dollars in thousands)
Total loans			$	414,402			$	401,246			$	391,903			$	394,812			$	374,609
Allowance for loan losses				(5,382	)			(5,251	)			(5,838	)			(6,155	)			(6,184	)
	Total loans, net			409,020				395,995				386,065				388,657				368,425
Intangible assets				-				-				-				-				-
Total assets				506,496				498,311				498,598				492,373				492,790
Core deposits				355,186				348,724				346,843				329,958				315,638
Noncore deposits (1)				56,902				56,065				58,215				69,709				85,145
	Total deposits			412,088				404,789				405,058				399,667				400,783
Total borrowings				35,997				35,997				35,997				36,069				36,069
Common shareholders' equity				45,119				44,342				44,613				43,973				43,340
Total shareholders' equity				56,095				55,263				55,479				54,784				54,097
Total shares outstanding				3,419,736				3,419,736				3,419,736				3,419,736				3,419,736
AVERAGE BALANCES (Dollars in thousands)
Assets			$	503,412			$	487,304			$	497,333			$	494,481			$	478,861
Loans				404,048				396,197				397,665				378,250				380,066
Deposits				409,250				390,940				403,957				401,549				386,743
Common Equity				44,469				44,325				44,105				43,354				43,138
Equity				55,418				55,219				54,998				54,138				53,870
INCOME STATEMENT (Dollars in thousands)
Net interest income			$	4,763			$	4,901			$	4,709			$	4,178			$	4,141
Provision for loan losses				495				1,300				400				600				-
	Net interest income after provision			4,268				3,601				4,309				3,578				4,141
Total noninterest income				606				725				1,006				1,348				577
Total noninterest expense				3,834				4,221				3,960				3,729				4,059
Income before taxes				1,040				105				1,355				1,197				659
Provision for income taxes				349				27				455				402				214
	Net income			691				78				900				795				445
Preferred dividend expense				193				192				193				192				189
Net income (loss) available to common shareholders			$	498			$	(114	)		$	707			$	603			$	256
PER SHARE DATA
Earnings			$	.15			$	(.03	)		$	.21			$	.18			$	.07
Book value per common share				13.19				12.97				13.05				12.86				12.67
Market value, closing price				7.00				5.42				5.46				6.00				6.02
ASSET QUALITY RATIOS
Nonperforming loans/total loans				1.65	%			1.99	%			2.47	%			2.39	%			2.66	%
Nonperforming assets/total assets				2.04				2.24				2.99				2.89				3.05
Allowance for loan losses/total loans				1.30				1.31				1.49				1.56				1.65
Allowance for loan losses/nonperforming loans				78.49				65.69				60.35				65.19				62.06
Texas ratio (2)				16.84				18.43				24.28				23.38				24.96
PROFITABILITY RATIOS
Return on average assets				.40	%			(.09	)%			.56	%			.49	%			.22	%
Return on average common equity				4.53				(1.02	)			6.35				5.58				2.40
Return on average equity				3.62				(.82	)			5.10				4.47				1.92
Net interest margin				4.17				4.38				4.14				3.79				3.92
Efficiency ratio				71.01				69.04				67.39				67.84				75.73
Average loans/average deposits				98.73				101.34				98.44				94.20				98.27
CAPITAL ADEQUACY RATIOS
Tier 1 leverage ratio				9.95	%			10.08	%			9.73	%			9.50	%			9.70	%
Tier 1 capital to risk weighted assets				11.55				11.62				11.65				11.40				11.61
Total capital to risk weighted assets				12.80				12.87				12.97				12.66				12.86
Average equity/average assets				11.01				11.33				11.06				10.95				11.25
Tangible equity/tangible assets				11.01				11.33				11.06				10.95				11.25

(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

FOR FURTHER INFORMATION PLEASE CONTACT:

Contact:
Investor Relations
(888) 343-8147
Website: www.bankmbank.com