SOURCE: Mackinac Financial Corporation

February 04, 2010 11:06 ET

Mackinac Financial Corporation Announces 2009 Results of Operations/Increased Franchise Value

MANISTIQUE, MI--(Marketwire - February 4, 2010) - Mackinac Financial Corporation (NASDAQ: MFNC), the holding company for mBank, has reported net income of $1.907 million, or $.56 per share, for the year ended December 31, 2009, compared to a net income of $1.872 million, or $.55 per share, for 2008. Weighted average shares outstanding amounted to 3,419,736 in 2009 and 3,422,012 in 2008.

The 2009 results include $1.208 million of gains related to branch office sales and $1.471 million of security gains. The 2008 results included the positive effect, $3.475 million of a lawsuit settlement and the negative effect, $.425 million, of a severance agreement.

Listed below are several key points relative to our 2009 results:

-- In 2009 book value per share increased by $.95 to $13.10. This marks
   the fourth consecutive year of increased shareholder value and a
   cumulative book value increase of $3.35 per share since the December
   2004 recapitalization at $9.75 per share.

-- We grew bank deposits by $26 million, net after the sale of two branch
   offices with $30 million in core deposits. We experienced deposit
   growth in all of our markets, with $26 million in Northern Lower
   Michigan, $20 million in Southeast Michigan and $10 million in the
   Upper Peninsula. Most of our 2009 deposit growth occurred in low cost
   transactional accounts which grew by $41 million.

-- We continued to experience good loan demand with approximately $88
   million of new loan production with a $14 million increase in loans
   outstanding, after reductions for amortization and payoffs. We were
   successful in producing loans in all of our markets but were less
   aggressive in Southeast Michigan where the recession is severe.
   Loan production totaled $44 million in the Upper Peninsula, $35
   million in Northern Lower Michigan and $9 million in Southeast
   Michigan.

-- In 2009 mBank was recognized as the top SBA loan originator in the
   Upper Peninsula with 27 SBA transactions, totaling $7.4 million. mBank
   totals equated to seventh overall for the State of Michigan with 36
   transactions and $13.2 million.

-- We improved our net interest margin from 3.20% in the fourth quarter of
   2008 to 3.74% in 2009's fourth quarter.

-- We continued to focus on enhancing our core earnings by controlling
   noninterest expense, increasing noninterest income and margin
   improvement. The combination of these three factors resulted in a
   decrease in our efficiency ratio from 86% in 2008 to 73% in 2009.

-- We had an increase in nonperforming assets from $7 million at 2008
   year end to $21 million at the end of 2009. Despite the appearance of
   this increase, we do not have systematic loan issues.  The increase for
   2009 included three large credit relationships totaling $10 million,
   for which we believe we are adequately reserved. The nonperforming
   assets by region are as follows; $13 million in Southeast Michigan,
   $6 million in Northern Lower Michigan and $2 million in the Upper
   Peninsula.

Following is more detailed information concerning our 2009 results. We have also included, as a part of this release a "Five Year Overview" which illustrates the progress of MFNC in terms of key shareholder metrics, since the recapitalization which occurred in December 2004. As this overview depicts, throughout the national and state specific economic challenges over the past several years, we have continued to improve the core operating platform of MFNC.

In April of 2009, the Corporation, in an abundance of caution, decided to participate in the TARP program and issued $11 million of preferred stock. In order to offset the cost of the preferred, we infused a portion of the TARP proceeds, $3 million, into the Bank and leveraged this excess capital by purchasing approximately $40 million of investment securities. We funded the purchase of these investments by issuing brokered deposits. In December, we began the process of deleveraging this position in anticipation of narrowing spreads and recognized a fourth quarter security gain of $.827 million. This strategy has resulted in overall security gains in excess of $1 million.

The net income of $1.907 million, $.56 per share, along with an increase in the unrealized value of securities held for sale contributed to the 2009 overall increase in common shareholders' equity of $3.233 million, or 7.8%. Paul Tobias, Chairman of MFNC, commenting on the overall results for 2009, stated, "Although our results in 2009 were stymied by a worsening national economy and the severe deterioration that occurred in the automotive industry and Michigan real estate markets, we still made significant progress to increase our franchise value. We were able to absorb increases in loan loss provisions, FDIC insurance premiums, and costs associated with higher levels of nonperforming assets and still post an overall increase in common shareholders' equity which equated to $.95 per share."

At 2009 year-end, the Corporation's loans stood at $384.310 million, an increase of $14.030 million, or 3.79%, from 2008 year-end balances of $370.280 million. Total loan originations in 2009 amounted to $88.122 million. Loan amortization and principal payoffs totaled $60.415 million. A good portion of these payoffs pertained to loan relationships that no longer met our pricing or credit standards. Loan growth was primarily from the Upper Peninsula markets where the economy is more stable.

Total assets of the Corporation at December 31, 2009 were $515.377 million, an increase of $63.946 million, or 14.17% from total assets of $451.431 million reported at December 31, 2008.

Total deposits grew from $371.097 million at December 31, 2008, to $421.389 million at December 31, 2009, an increase of $50.292 million, or 13.55%. This increase is composed of an increase in wholesale brokered deposits of $24.288 million and an increase in bank deposits of $26.004 million. During 2009, we increased investment securities which were funded primarily with wholesale deposits that were priced lower than in-market deposits. In August of 2009 we completed the sale of $30 million in deposits including the bank facilities of two branch offices in Upper Michigan which resulted in a $1.208 million gain. Kelly George, President and Chief Executive Officer of mBank, commenting on the deposit growth and branch sales, stated, "The sale of these branches tightened up our existing footprint in the Upper Peninsula and will allow us to concentrate on markets with higher growth potential, in addition to enabling the Corporation to strategically transition the Bank's footprint into 'commercial hubs' of the Upper Peninsula to better allocate personnel resources and management time. We continue to focus our efforts on growing transactional accounts and were successful in growing demand, money market and NOW accounts in total from $121.413 million at 2008 year-end to $149.875 million at 2009 year-end."

Net interest income for the year ended December 31, 2009 was $16.287 million compared to $12.864 million for the year ended December 31, 2008, an increase of $3.423 million. The margin percentage for 2009 was 3.59% compared to 3.23% in 2008 and 3.60% in 2007.

We recognize the importance of cost control, especially in times of economic slowdown. In 2009 our total noninterest expense was $13.802 million compared to $12.558 million in 2008 and $12.100 million in 2007. The increase in 2009 was primarily attributable to costs associated with higher levels of nonperforming assets and increased FDIC insurance premiums. Salaries and benefits were reduced from $6.886 million in 2008 to $6.583 million in 2009.

Nonperforming assets increased in 2009 as the economy continued to weaken, especially in Southeast Michigan. Nonperforming loans totaled $15.237 million, or 3.96% of total loans at December 31, 2009. Nonperforming assets at December 31, 2009 were $21.041 million, 4.08% of total assets, compared to $7.076 million or 1.57% of total assets at December 31, 2008. Kelly George commented, "The elevated level of nonperforming assets, while still below peers and manageable, does concern us given the challenges throughout the state. We do not have a systematic problem with our overall loan portfolio, with over 58%, $8.8 million, of our problem loans stemming from two credit relationships in Southeast Michigan that we continue to devote significant attention to in order to reduce nonperformers in a timely manner and with minimal income statement impact. In retrospect, these large loans appeared sound and adequately collateralized at inception; however, as the economy worsened and real estate values declined, the borrowers have not been able to weather the storm. This in turn has led to a very cautious approach in all markets, but particularly in Southeast Michigan, which includes an emphasis on smaller loans and very conservative collateral valuations. We continue to focus on early identification and resolution of all our problem credits to minimize carrying costs, collateral deterioration and incremental loss."

Shareholders' equity totaled $55.299 million at December 31, 2009, compared to $41.552 million at the end of 2008, an increase of $13.747 million. This increase includes $10.5 million of preferred stock that was issued by MFNC as a TARP recipient, consolidated net income of $1.907 million, the capital contribution impact of stock options and also the increase in equity due to the increase in the market value of held-for-sale investments, which amounted to $.648 million.

Mr. Tobias concluded, "We will continue to consider all business combination options that would create shareholder value, but we have built our business plan on resolving the existing asset quality problems, building core deposits and managing costs. We believe that our book value growth has been significant and franchise value will be recognized by the market when the perception of Michigan and the confidence in the asset quality component of banking improves."

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 10 branch locations; six 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

                                                   For The Years Ended
                                                       December 31,
(Dollars in thousands, except per share data)      2009           2008
                                               ------------   ------------
                                               (Unaudited)    (Unaudited)
Selected Financial Condition Data (at end of
 period):
Assets                                         $    515,377   $    451,431
Loans                                               384,310        370,280
Investment securities                                46,513         47,490
Deposits                                            421,389        371,097
Borrowings                                           36,140         36,210
Shareholders' equity                                 55,299         41,552


Selected Statements of Income Data:
Net interest income                            $     16,287   $     12,864
Income before taxes and preferred dividend            3,535          2,659
Net income                                            1,907          1,872
Income per common share - Basic                         .56            .55
Income per common share - Diluted                       .56            .55
Weighted average shares outstanding               3,419,736      3,422,012


Selected Financial Ratios and Other Data:
Performance Ratios:
Net interest margin                                    3.59%          3.23%
Efficiency ratio                                      73.37          85.51
Return on average assets                                .39            .44
Return on average equity                               3.77           4.61

Average total assets                           $    493,652   $    425,343
Average total shareholders' equity                   50,531         40,630
Average loans to average deposits ratio               92.99%        105.61%


Common Share Data at end of period:
Market price per common share                  $       4.64   $       4.40
Book value per common share                    $      13.10   $      12.15
Common shares outstanding                         3,419,736      3,419,736

Other Data at end of period:
Allowance for loan losses                      $      5,225   $      4,277
Non-performing assets                          $     21,041   $      7,076
Allowance for loan losses to total loans               1.36%          1.16%
Non-performing assets to total assets                  4.08%          1.57%
Number of:
     Branch locations                                    10             12
     FTE Employees                                      100            100




              MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES
                        CONSOLIDATED BALANCE SHEETS

                                             December 31,    December 31,
(Dollars in thousands)                           2009            2008
                                             -------------   -------------
                                              (unaudited)      (audited)
ASSETS

Cash and due from banks                      $      18,433   $      10,112
Federal funds sold                                  27,000               -
                                             -------------   -------------
   Cash and cash equivalents                        45,433          10,112

Interest-bearing deposits in other financial
 institutions                                          678             582
Securities available for sale                       46,513          47,490
Federal Home Loan Bank stock                         3,794           3,794

Loans:
   Commercial                                      305,670         296,088
   Mortgage                                         74,350          70,447
   Installment                                       4,290           3,745
                                             -------------   -------------
     Total Loans                                   384,310         370,280
       Allowance for loan losses                    (5,225)         (4,277)
                                             -------------   -------------
   Net loans                                       379,085         366,003

Premises and equipment                              10,165          11,189
Other real estate held for sale                      5,804           2,189
Other assets                                        23,905          10,072
                                             -------------   -------------

TOTAL ASSETS                                 $     515,377   $     451,431
                                             =============   =============

LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
   Non-interest-bearing deposits             $      35,878   $      30,099
   Interest-bearing deposits:
     NOW, Money Market, Checking                    95,790          70,584
     Savings                                        18,207          20,730
     CDs < $100,000                                 59,953          73,752
     CDs > $100,000                                 36,385          25,044
     Brokered                                      175,176         150,888
                                             -------------   -------------
       Total deposits                              421,389         371,097

   Borrowings:
     Federal funds purchased                             -               -
     Short-term                                     15,000               -
     Long-term                                      21,140          36,210
                                             -------------   -------------
       Total borrowings                             36,140          36,210
   Other liabilities                                 2,549           2,572
                                             -------------   -------------
     Total liabilities                             460,078         409,879

Shareholders' equity:
   Preferred stock - No par value:
     Authorized 500,000 shares, no shares
      outstanding                                   10,514               -
   Common stock and additional paid in
    capital - No par value
     Authorized - 18,000,000 shares
     Issued and outstanding - 3,419,736
      shares                                        43,494          42,815
     Accumulated deficit                               198          (1,708)
     Accumulated other comprehensive income
      (loss)                                         1,093             445
                                             -------------   -------------

       Total shareholders' equity                   55,299          41,552
                                             -------------   -------------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY   $     515,377   $     451,431
                                             =============   =============








              MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES
                   CONSOLIDATED STATEMENTS OF OPERATIONS


(Dollars in thousands, except per
 share data)                            For The Years Ended December 31,
                                         2009         2008         2007
                                      -----------  -----------  ----------
INTEREST INCOME:                      (unaudited)   (audited)    (audited)
     Interest and fees on loans:
          Taxable                     $    20,521  $    22,555  $   26,340
          Tax-exempt                          292          404         533
     Interest on securities:
          Taxable                           2,783        1,293       1,100
          Tax-exempt                           19            5           -
     Other interest income                     93          305         722
                                      -----------  -----------  ----------
          Total interest income            23,708       24,562      28,695
                                      -----------  -----------  ----------

INTEREST EXPENSE:
     Deposits                               6,431       10,115      13,224
     Borrowings                               990        1,583       2,054
                                      -----------  -----------  ----------
          Total interest expense            7,421       11,698      15,278
                                      -----------  -----------  ----------

Net interest income                        16,287       12,864      13,417
Provision for loan losses                   3,700        2,300         400
                                      -----------  -----------  ----------
Net interest income after provision
 for loan losses                           12,587       10,564      13,017
                                      -----------  -----------  ----------

OTHER INCOME:
   Service fees                             1,023          838         688
   Net security gains                       1,471           64          (1)
   Net gains on sale of secondary
    market loans                              830          120         498
   Proceeds from settlement of
    lawsuits                                    -        3,475         470
   Other                                    1,427          156         351
                                      -----------  -----------  ---------- 
          Total other income                4,751        4,653       2,006
                                      -----------  -----------  ----------

OTHER EXPENSES:
   Salaries and employee benefits           6,583        6,886       6,757
   Occupancy                                1,385        1,374       1,272
   Furniture and equipment                    805          771         678
   Data processing                            862          844         785
   Professional service fees                  603          508         532
   Loan and deposit                         1,772          569         285
   Telephone                                  187          170         228
   Advertising                                322          305         370
   Other                                    1,283        1,131       1,193
                                      -----------  -----------  ----------
          Total other expenses             13,802       12,558      12,100
                                      -----------  -----------  ----------

Income before provision for income
 taxes                                      3,536        2,659       2,923
Provision for (benefit of) income
 taxes                                      1,120          787      (7,240)
                                      -----------  -----------  ----------

                                      -----------  -----------  ----------
NET INCOME                            $     2,416  $     1,872  $   10,163
                                      -----------  -----------  ----------

Preferred dividend expense                    509            -           -

                                      -----------  -----------  ----------
NET INCOME AVAILABLE TO COMMON
 SHAREHOLDERS                         $     1,907  $     1,872  $   10,163
                                      ===========  ===========  ==========

INCOME PER COMMON SHARE
   Basic                              $       .56  $       .55  $     2.96
                                      ===========  ===========  ==========
   Diluted                            $       .56  $       .55  $     2.96
                                      ===========  ===========  ==========







             MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES
                    LOAN PORTFOLIO AND CREDIT QUALITY


(Dollars in thousands)

Loan Portfolio Balances (at end of period):

                                               December 31,   December 31,
                                                   2009           2008
                                               -------------  -------------
                                               (unaudited)    (unaudited)
Commercial Loans:
Real estate - operators of nonresidential
 buildings                                     $      48,689  $      41,299
Hospitality and tourism                               45,315         35,086
Real estate agents and managers                       24,242         29,292
Operators of nonresidential buildings                 12,619         13,467
Other                                                150,214        145,831
                                               -------------  -------------
   Total Commercial Loans                            281,079        264,975

1-4 family residential real estate                    67,232         65,595
Consumer                                               4,290          3,745
Construction
   Commercial                                         24,591         31,113
   Consumer                                            7,118          4,852
                                               -------------  -------------

   Total Loans                                 $     384,310  $     370,280
                                               =============  =============



Credit Quality (at end of period):

                                               December 31,   December 31,
                                                   2009           2008
                                               ------------   ------------
                                               (unaudited)    (unaudited)
Nonperforming Assets :
Nonaccrual loans                               $     14,368   $      4,887
Loans past due 90 days or more                            -              -
Restructured loans                                      869
                                               ------------   ------------
   Total nonperforming loans                         15,237          4,887
Other real estate owned                               5,804          2,189
                                               ------------   ------------
   Total nonperforming assets                  $     21,041   $      7,076
                                               ============   ============
Nonperforming loans as a % of loans                    3.96%          1.32%
                                               ------------   ------------
Nonperforming assets as a % of assets                  4.08%          1.57%
                                               ------------   ------------
Reserve for Loan Losses:
At period end                                  $      5,225   $      4,277
                                               ------------   ------------
As a % of average loans                                1.39%          1.18%
                                               ------------   ------------
As a % of nonperforming loans                         34.29%         87.52%
                                               ------------   ------------
As a % of nonaccrual loans                            36.37%         87.52%
                                               ============   ============

Charge-off Information (year to date):
   Average loans                               $    374,796   $    361,324
                                               ------------   ------------
   Net charge-offs                             $      2,752   $      2,169
                                               ------------   ------------
   Charge-offs as a % of average loans                  .73%           .60%
                                               ------------   ------------










          MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES
                  QUARTERLY FINANCIAL HIGHLIGHTS

                                        QUARTER ENDED
                    -----------------------------------------------------
                                          (Unaudited)
                    -----------------------------------------------------
                    December   September    June       March     December
                       31,        30,        30,        31,         31,
                      2009       2009       2009       2009        2008
                   ---------   ---------  ---------  ---------  ----------
BALANCE SHEET
 (Dollars in
 thousands)

Total loans        $ 384,310   $ 384,100  $ 372,004  $ 370,776  $  370,280
Allowance for loan
 losses               (5,225)     (4,081)    (4,119)    (4,793)     (4,277)
                   ---------   ---------  ---------  ---------  ----------
   Total loans, net  379,085     380,019    367,885    365,983     366,003
Intangible assets          -           -          6         26          46
Total assets         515,377     513,180    506,304    466,375     451,431
Core deposits        209,828     200,541    202,892    196,860     195,165
Noncore
 deposits (1)        211,561     218,040    210,260    188,897     175,932
                   ---------   ---------  ---------  ---------  ----------
   Total deposits    421,389     418,581    413,152    385,757     371,097
Total borrowings      36,140      36,140     36,210     36,210      36,210
Total shareholders'
 equity               55,299      55,766     53,939     41,864      41,552
Total shares
 outstanding       3,419,736   3,419,736  3,419,736  3,419,736   3,419,736

AVERAGE BALANCES
 (Dollars in
 thousands)

Assets             $ 514,102   $ 513,687  $ 491,205  $ 454,740  $  441,583
Loans                386,203     370,310    371,609    370,943     366,077
Deposits             418,280     419,102    401,510    372,669     358,213
Equity                55,665      54,594     49,855     41,813      41,516

INCOME STATEMENT
 (Dollars in
 thousands)

Net interest
 income            $   4,431   $   4,310  $   4,051  $   3,495  $    3,330
Provision for loan
 losses                2,300         700        150        550       1,100
                   ---------   ---------  ---------  ---------  ----------
   Net interest
    income after
    provision          2,131       3,610      3,901      2,945       2,230
Total noninterest
 income                1,503       2,418        439        391         308
Total noninterest
 expense               3,650       3,443      3,470      3,239       2,961
                   ---------   ---------  ---------  ---------  ----------
Income before taxes      (16)      2,585        870         97        (423)
Provision for
 income taxes            (22)        864        271          7        (171)
                   ---------   ---------  ---------  ---------  ----------
   Net income              6       1,721        599         90        (252)
                   ---------   ---------  ---------  ---------  ----------
Preferred dividend
 expense                 186         185        138          -           -
                   ---------   ---------  ---------  ---------  ----------
Net income
 available to
 common
 shareholders      $    (180)  $   1,536  $     461  $      90  $     (252)
                   =========   =========  =========  =========  ==========

PER SHARE DATA

Earnings           $    (.05)  $     .45  $     .13  $     .03  $     (.07)
Book value  per
 common share          13.10       13.25      12.73      12.24       12.15
Market value,
 closing price          4.64        4.10       4.50       4.00        4.40

ASSET QUALITY
 RATIOS

Nonperforming
 loans/total loans      3.96%       3.00%      2.66%      3.52%      1.32%
Nonperforming
 assets/total
 assets                 4.08        3.38       2.93       3.27        1.57
Allowance for loan
 losses/total loans     1.36        1.06       1.11       1.29        1.16
Allowance for loan
 losses/nonperform-
 ing loans             34.29       35.40      41.71      36.72       87.52

PROFITABILITY
 RATIOS

Return on average
 assets                 (.14)%      1.19%       .38%       .08%      (.23)%
Return on average
 equity                (1.28)      11.16       3.71        .87       (2.42)
Net interest margin     3.74        3.66       3.58       3.35        3.20
Efficiency ratio       71.03       70.09      76.55      82.36       80.30
Average
 loans/average
 deposits              92.33       88.36      92.55      99.54      102.20

CAPITAL ADEQUACY
 RATIOS

Tier 1 leverage
 ratio                  9.75%       9.74%      9.65%      7.86%      8.01%
Tier 1 capital to
 risk weighted
 assets                11.92       12.18      11.94       9.31        9.25
Total capital to
 risk weighted
 assets                13.17       13.19      13.00      10.56       10.38
Average
 equity/average
 assets                10.83       10.63      10.15       9.19        9.40
Tangible
 equity/tangible
 assets                10.83       10.87      10.65       8.97        9.20

(1)  Noncore deposits includes Internet CDs, brokered deposits and CDs
greater than $100,000

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