Earnings Analysis
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2010 2009 2008
-------- --------- --------
Income before tax and preferred dividends,
as reported: $ (3,917) $ 3,536 $ 2,659
Credit related costs:
Loan loss provision 6,500 3,700 2,300
OREO write-downs/gains and losses 2,753 208 (80)
Noncore income:
Security gains 215 1,471 64
Gain on sale of branch offices - 1,208 -
-------- --------- --------
"Adjusted" income before taxes and preferred
dividends $ 5,121 $ 4,765 $ 4,815
======== ========= ========
(Excluding items, noted above)
As you will note from the chart above, the company's "core earnings" run
rate outside of extraordinary credit related charges and other one-time
items has improved as the result of lowered funding costs from the
significant growth in our core deposit base, control of non-interest
expenses, and increases in non-interest income from our SBA/USDA lending
programs and secondary market 1-4 family loan sales. It should be noted
that the subsidiary bank posted a small profit for the year of
approximately $83,000.
Paul Tobias, Chairman of MFNC, commenting on the overall results for 2010,
stated, "During 2010 we recognized the losses associated with a few large
credits, booked prior to the recession, that were well secured at the time
of loan origination but suffered from operating models that could not
withstand the severe recession and the deterioration of collateral values
in Southeastern Michigan. Despite the challenging times, we have made
significant progress to increase our franchise value. Our remaining
portfolio continues to perform satisfactorily and asset quality matrices
continue to outperform peers. We are confident that credit related expenses
will decrease in 2011 and return to normal levels in 2012."
Listed below are several key points relative to our 2010 results:
- We grew core bank deposits by $80 million. This reduced our reliance
on wholesale deposits by $115.4 million, reducing balance sheet risk. We
experienced core deposit growth in all of our markets, with $40 million in
Northern Lower Michigan, $11 million in Southeast Michigan and $29 million
in the Upper Peninsula. Most of our 2010 deposit growth occurred in low
cost transactional accounts which grew by $44 million.
- We continued to experience good loan demand with approximately $114
million of new loan production. At 2010 year-end, the Corporation's loans
stood at $383.086 million, a slight decrease from the 2009 year-end
balances of $384.310 million. Our total outstanding loans declined by $1.2
million after reductions for loan sales, (both SBA/USDA and secondary
market) amortization and payoffs, some associated with the elimination of
problem assets. We continue to be highly successful in producing well
priced high quality loans in the Upper Peninsula with 2010 loan production
of $81 million. Loan production totaled $22 million in Northern Lower
Michigan and $11 million in Southeast Michigan where the market have been
hit the hardest by the recession.
- In 2010 we had continued success in the origination and sales of
SBA/USDA loans with total fee income of $.9 million in 2010 compared to $.5
million in fee income during 2009. We continue to be a state leader in
these programs.
- One of our initiatives for 2010 was the expansion of our consumer
lending program by hiring several key mortgage loan producers and the
centralization of our consumer lending processing. This was successful,
with secondary market fee income of $.5 million in 2010 compared to $.3
million in 2009 and an increase in total consumer loan production from $39
million in 2009 to $60 million in 2010. We also have retained the servicing
of approximately $27 million of mortgage loans which provides future
refinancing opportunities and is a source of core deposits.
- We improved our net interest margin from 3.74% in the fourth quarter of
2009 to 3.88% in 2010's fourth quarter. Given our current funding
structure, we expect to see this improve throughout 2011 as
well.
- We had an overall reduction in nonperforming assets from $21.0 million
at the end of 2009 to $16.1 million at the end of 2010. As noted above, the
resolution of problem assets during 2010 impacted our earnings but we
divested these problem loans and OREO properties so that we could eliminate
holding costs and forego the opportunity cost that impacts longer-term
shareholder value creation.
MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES
SELECTED FINANCIAL HIGHLIGHTS
For The Years Ended
December 31,
(Dollars in thousands, except per share data) 2010 2009
----------- -----------
(Unaudited) (Unaudited)
Selected Financial Condition Data (at end of
period):
Assets $ 478,696 $ 515,377
Loans 383,086 384,310
Investment securities 33,860 46,513
Deposits 386,779 421,389
Borrowings 36,069 36,140
Shareholders' equity 53,882 55,299
Selected Statements of Income Data:
Net interest income $ 16,385 $ 16,287
Income before taxes and preferred dividend (3,917) 3,536
Net income (1,160) 1,907
Income per common share - Basic (.34) .56
Income per common share - Diluted (.34) .56
Weighted average shares outstanding 3,419,736 3,419,736
Selected Financial Ratios and Other Data:
Performance Ratios:
Net interest margin 3.66% 3.59%
Efficiency ratio 72.57 72.24
Return on average assets (.23) .39
Return on average equity (2.06) 3.77
Average total assets $ 502,993 $ 493,652
Average total shareholders' equity 56,171 50,531
Average loans to average deposits ratio 94.36% 92.99%
Common Share Data at end of period:
Market price per common share $ 4.58 $ 4.64
Book value per common share $ 12.63 $ 13.10
Common shares outstanding 3,419,736 3,419,736
Other Data at end of period:
Allowance for loan losses $ 6,613 $ 5,225
Non-performing assets $ 16,125 $ 21,041
Allowance for loan losses to total loans 1.73% 1.36%
Non-performing assets to total assets 3.37% 4.08%
Texas ratio 26.66% 34.77%
Number of:
Branch locations 11 10
FTE Employees 110 100
MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, December 31,
(Dollars in thousands) 2010 2009
------------ ------------
(Unaudited) (Audited)
ASSETS
Cash and due from banks $ 22,719 $ 18,433
Federal funds sold 12,000 27,000
------------ ------------
Cash and cash equivalents 34,719 45,433
Interest-bearing deposits in other financial
institutions 713 678
Securities available for sale 33,860 46,513
Federal Home Loan Bank stock 3,423 3,794
Loans:
Commercial 308,677 305,670
Mortgage 68,473 74,350
Installment 5,936 4,290
------------ ------------
Total Loans 383,086 384,310
Allowance for loan losses (6,613) (5,225)
------------ ------------
Net loans 376,473 379,085
Premises and equipment 9,660 10,165
Other real estate held for sale 5,562 5,804
Other assets 14,286 23,905
------------ ------------
TOTAL ASSETS $ 478,696 $ 515,377
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Non-interest-bearing deposits $ 41,264 $ 35,878
Interest-bearing deposits:
NOW, Money Market, Checking 134,703 95,790
Savings 17,670 18,207
CDs < $100,000 96,976 59,953
CDs > $100,000 22,698 36,385
Brokered 73,467 175,176
------------ ------------
Total deposits 386,778 421,389
Borrowings:
Federal funds purchased - -
Short-term 20,000 15,000
Long-term 16,069 21,140
------------ ------------
Total borrowings 36,069 36,140
Other liabilities 1,967 2,549
------------ ------------
Total liabilities 424,814 460,078
Shareholders' equity:
Preferred stock - No par value:
Authorized 500,000 shares, no shares
outstanding 10,706 10,514
Common stock and additional paid in capital
- No par value
Authorized - 18,000,000 shares
Issued and outstanding - 3,419,736 shares 43,525 43,493
Accumulated deficit (961) 199
Accumulated other comprehensive income
(loss) 612 1,093
------------ ------------
Total shareholders' equity 53,882 55,299
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 478,696 $ 515,377
============ ============
MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share
data) For The Years Ended December 31,
2010 2009 2008
---------- ----------- -----------
INTEREST INCOME: (Unaudited) (Audited) (Audited)
Interest and fees on loans:
Taxable $ 21,091 $ 20,521 $ 22,555
Tax-exempt 188 292 404
Interest on securities:
Taxable 1,406 2,783 1,293
Tax-exempt 28 19 5
Other interest income 127 93 305
---------- ----------- -----------
Total interest income 22,840 23,708 24,562
---------- ----------- -----------
INTEREST EXPENSE:
Deposits 5,607 6,431 10,115
Borrowings 848 990 1,583
---------- ----------- -----------
Total interest expense 6,455 7,421 11,698
---------- ----------- -----------
Net interest income 16,385 16,287 12,864
Provision for loan losses 6,500 3,700 2,300
---------- ----------- -----------
Net interest income after provision for
loan losses 9,885 12,587 10,564
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OTHER INCOME:
Service fees 990 1,023 838
Net security gains 215 1,471 64
Net gains on sale of secondary market
loans 1,407 830 120
Proceeds from settlement of lawsuits - - 3,475
Other 183 1,427 156
---------- ----------- -----------
Total other income 2,795 4,751 4,653
---------- ----------- -----------
OTHER EXPENSES:
Salaries and employee benefits 6,918 6,583 6,886
Occupancy 1,313 1,385 1,374
Furniture and equipment 806 805 771
Data processing 740 862 844
Professional service fees 627 603 508
Loan and deposit 4,620 1,793 489
Telephone 193 187 170
Advertising 297 322 305
Other 1,084 1,262 1,211
---------- ----------- -----------
Total other expenses 16,598 13,802 12,558
---------- ----------- -----------
Income before provision for income
taxes (3,918) 3,536 2,659
Provision for (benefit of) income taxes (3,500) 1,120 787
---------- ----------- -----------
---------- ----------- -----------
NET INCOME $ (418) $ 2,416 $ 1,872
---------- ----------- -----------
Preferred dividend expense 742 509 -
---------- ----------- -----------
NET INCOME AVAILABLE TO COMMON
SHAREHOLDERS $ (1,160) $ 1,907 $ 1,872
========== =========== ===========
INCOME PER COMMON SHARE
Basic $ (0.34) $ .56 $ .55
========== =========== ===========
Diluted $ (0.34) $ .56 $ .55
========== =========== ===========
MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES
LOAN PORTFOLIO AND CREDIT QUALITY
(Dollars in thousands)
Loan Portfolio Balances (at end of period):
December 31, December 31,
2010 2009
------------- -------------
(Unaudited) (Audited)
Commercial Loans:
Real estate - operators of nonresidential
buildings $ 58,114 $ 48,689
Hospitality and tourism 37,737 45,315
Operators of nonresidential buildings 16,598 12,619
Real estate agents and managers 15,857 24,242
Other 135,411 150,214
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Total Commercial Loans 263,717 281,079
1-4 family residential real estate 75,074 67,232
Consumer 5,283 4,290
Construction
Commercial 33,330 24,591
Consumer 5,682 7,118
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Total Loans $ 383,086 $ 384,310
============= =============
Credit Quality (at end of period):
December 31, December 31,
2010 2009
------------ ------------
(Unaudited) (Audited)
Nonperforming Assets:
Nonaccrual loans $ 5,921 $ 14,368
Loans past due 90 days or more - -
Restructured loans 4,642 869
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Total nonperforming loans 10,563 15,237
Other real estate owned 5,562 5,804
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Total nonperforming assets $ 16,125 $ 21,041
============ ============
Nonperforming loans as a % of loans 2.76% 3.96%
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Nonperforming assets as a % of assets 3.37% 4.08%
------------ ------------
Reserve for Loan Losses:
At period end $ 6,613 $ 5,225
------------ ------------
As a % of average loans 1.72% 1.39%
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As a % of nonperforming loans 62.61% 34.29%
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As a % of nonaccrual loans 111.69% 36.37%
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Texas Ratio 26.66% 34.77%
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Charge-off Information (year to date):
Average loans $ 384,347 $ 374,796
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Net charge-offs $ 5,112 $ 2,752
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Charge-offs as a % of average loans 1.33% .73%
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MACKINAC FINANCIAL CORPORATION
FIVE YEAR OVERVIEW
QUARTER ENDED
--------------------------------------------------------
(Unaudited)
--------------------------------------------------------
December September June March December
31, 30, 30, 31, 31,
2010 2010 2010 2010 2009
--------- --------- --------- --------- ---------
BALANCE SHEET
(Dollars in
thousands)
Total loans $ 383,086 $ 382,727 $ 384,839 $ 377,311 $ 384,310
Allowance for
loan losses (6,613) (5,437) (6,371) (4,737) (5,225)
--------- --------- --------- --------- ---------
Total loans,
net 376,473 377,290 378,468 372,574 379,085
Intangible assets - - - - -
Total assets 478,696 499,006 500,774 502,427 515,377
Core deposits 290,614 287,055 271,026 236,227 209,828
Noncore deposits
(1) 96,165 117,469 134,758 168,985 211,561
--------- --------- --------- --------- ---------
Total deposits 386,779 404,524 405,784 405,212 421,389
Total borrowings 36,069 36,069 36,140 36,140 36,140
Total
shareholders'
equity 53,882 55,987 56,231 58,722 55,299
Total shares
outstanding 3,419,736 3,419,736 3,419,736 3,419,736 3,419,736
AVERAGE BALANCES
(Dollars in
thousands)
Assets $ 488,320 $ 512,335 $ 502,942 $ 508,495 $ 514,102
Loans 385,296 385,268 382,169 384,640 386,203
Deposits 393,266 416,847 405,449 413,897 418,280
Equity 55,015 56,668 57,889 55,109 55,665
INCOME STATEMENT
(Dollars in
thousands)
Net interest
income $ 4,276 $ 4,064 $ 4,023 $ 4,022 $ 4,431
Provision for
loan losses 1,800 1,000 2,800 900 2,300
--------- --------- --------- --------- ---------
Net interest
income after
provision 2,476 3,064 1,223 3,122 2,131
Total noninterest
income 747 648 593 807 1,503
Total noninterest
expense 4,037 3,601 5,330 3,629 3,650
--------- --------- --------- --------- ---------
Income before
taxes (814) 111 (3,514) 300 (16)
Provision for
income taxes 1,093 30 (1,212) (3,411) (22)
--------- --------- --------- --------- ---------
Net income (1,907) 81 (2,302) 3,711 6
--------- --------- --------- --------- ---------
Preferred
dividend expense 185 185 186 185 186
--------- --------- --------- --------- ---------
Net income
available to
common
shareholders $ (2,092) $ (104) $ (2,488) $ 3,526 $ (180)
========= ========= ========= ========= =========
PER SHARE DATA
Earnings $ (.61) $ (.03) $ (.73) $ 1.03 $ (.05)
Book value per
common share 12.63 13.26 13.34 14.08 13.10
Market value,
closing price 4.58 5.10 6.50 4.72 4.64
ASSET QUALITY
RATIOS
Nonperforming
loans/total
loans 2.76 % 2.94 % 2.87 % 2.62% 3.96%
Nonperforming
assets/total
assets 3.37 3.41 3.34 3.51 4.08
Allowance for
loan
losses/total
loans 1.73 1.42 1.66 1.26 1.36
Allowance for
loan
losses/nonperfo-
rming loans 62.61 48.34 57.69 47.87 34.29
Texas ratio (2) 26.66 27.68 26.71 27.76 34.77
PROFITABILITY
RATIOS
Return on average
assets (1.70)% (.08)% (1.98)% 2.81% (.14)%
Return on average
equity (15.09) (0.73) (17.24) 25.95 (1.28)
Net interest
margin 3.88 3.69 3.56 3.51 3.74
Efficiency ratio 65.05 75.98 76.04 78.12 71.03
Average
loans/average
deposits 97.97 92.42 94.26 92.93 92.33
CAPITAL ADEQUACY
RATIOS
Tier 1 leverage
ratio 9.25 % 9.22 % 9.38 % 9.85% 9.75%
Tier 1 capital to
risk weighted
assets 11.36 11.73 11.65 12.48 11.92
Total capital to
risk weighted
assets 12.62 12.98 12.91 13.69 13.17
Average
equity/average
assets 11.27 11.06 11.51 10.84 10.83
Tangible
equity/tangible
assets 11.27 11.06 11.51 10.84 10.83
(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 Information: Contact: Investor Relations (888) 343-8147 Website: www.bankmbank.com
