SOURCE: Mackinac Financial Corporation

Mackinac Financial Corporation

February 05, 2013 14:12 ET

Mackinac Financial Corporation Announces 2012 Results of Operations With Improved Profitability and Asset Quality

MANISTIQUE, MI--(Marketwire - Feb 5, 2013) - Mackinac Financial Corporation (NASDAQ: MFNC), the holding Corporation for mBank, today announced net income of $6.459 million or $1.51 per share, for the year ended December 31, 2012, compared to net income of $1.452 million, or $.42 per share, for 2011. The Corporation's primary asset, mBank, recorded net income of $7.884 million for the fiscal year 2012 compared to $2.656 million for 2011. The 2012 consolidated and bank results include a $3.0 million deferred tax valuation adjustment. 

Total assets of the Corporation at 2012 year-end were $545.980 million, up 9.57% from the $498.311 million at 2011 year-end. The Corporation and the Bank are both "well-capitalized" with Tier 1 Capital at the Corporation of 11.98% and 9.63% at the Bank.

Some highlights for 2012 include:

  • Consummation of a common stock rights offering and the investment by Steinhardt Capital Investors, LLLP with the issuance of 2.140 million shares for net proceeds of $11.500 million.

  • In December, the Corporation announced its first quarterly dividend since the recapitalization at $.04 per share.

  • New loan production of $214.1 million. Balance sheet growth equated to $47.9 million for 2012, an 11.9% increase in loans outstanding from 2011 year end.

  • 2012 secondary mortgage loan income of $1.390 million, compared to $.700 million in 2011.

  • Continued success with the sale of SBA and USDA loan guarantees with sales generating $1.126 million in 2012.

  • 2012 core deposit growth of $24 million from 2011 year end, an increase of 6.8%.

  • Improved net interest margin at 4.17% compared to 4.06% in 2011.

  • Improved credit quality with a Texas Ratio of 10.30% compared to 18.43% one year ago, with nonperforming assets of $8.001 million at 2012 year end compared to $11.155 million a year ago.

  • Opening of our new standalone Escanaba branch banking center relocated from an in-store Menards location in August, and the opening of our new loan production office in Traverse City. Both locations are considered core commerce center hubs in their respective markets. 

Loan Production

Total loans at 2012 year-end were $449.177 million, an 11.95% increase from the $401.246 million at 2011 year-end. The Corporation had total loan production for all loan types of $214 million in 2012. Comprising the total production were $103 million in commercial loans, and $111 million in consumer loans, $101 million of which were mortgages. The Upper Peninsula continues to drive a large majority of the new originations, totaling $134 million, with Southeast Michigan production of $42 million, and the Northern Lower Peninsula with $38 million. Commenting on new loan opportunities, Kelly W. George, President and Chief Executive Officer of mBank, stated, "We were extremely pleased with our success in loan production in 2012. Our loan production was all encompassing, including new home purchases and refinances, small business expansion and working capital advances, and also included loan relationships we procured from our competition. We continue to see good loan opportunities, both commercial and retail in all our markets. Our focus on SBA/USDA lending programs has allowed small businesses in our markets to take advantage of these loan programs to garner the additional capital they have needed to grow their operations and provide more jobs and commerce to these areas. We continue to remain very diligent within our credit underwriting parameters to ensure the new growth is coming onto our balance sheet in a prudent and sound manner with discipline in both loan structuring and pricing. In addition to the $449 million in balance sheet loans, we also have $50 million of SBA/USDA loans and $97 million of secondary market mortgage loans that we sold but retained servicing on. This increases our loans under management to $596 million."

Secondary Market Mortgage Lending

The Corporation made a concentrated effort several years ago to augment this line of business through some key personnel additions and technology enhancements. These efforts were well rewarded, with production of $74.1 million in secondary market mortgage loans compared to $39.0 million in 2011. Gains and fees from secondary mortgage activity totaled $1.390 million in 2012 compared to $.700 million in 2011. In addition, the Corporation also received $.179 million in fees on its secondary market servicing portfolio.

SBA/USDA Program Lending

The Corporation continues to have success in this line of business as in years past with 2012 gains from sales of SBA/USDA guaranteed loan balances amounting to $1.176 million compared to $1.500 million in 2011. The guaranteed SBA/USDA loan balances sold totaled $11.962 million for 2012, compared to $23.806 million in 2011. The Bank also services approximately $50 million of SBA/USDA loans which generated an additional $.374 million in fees during 2012. The Corporation remains a state leader in the origination of these government lending programs.

Nonperforming Loans / Assets

Nonperforming loans totaled $4.789 million, 1.07% of total loans at December 31, 2012 compared to $7.993 million, or 1.99% of total loans at December 31, 2011. Nonperforming assets were reduced by $3.154 million from a year ago and stood at $8.001 million, or 1.47% of total assets. George, commenting on credit quality, stated, "We have continued to aggressively remedy or exit our remaining problem assets throughout the year and are pleased with our continued reduction in the level of nonperforming assets and our overall loan portfolio payment performance with delinquent loans greater than 30 days residing at a nominal .73% of total loans. Our current level of nonperforming assets and associated costs are now more in line with a normal business climate and we continue to validate the underlying collateral to ensure the security has not deteriorated and carrying values are accurate."

Margin Analysis

Net interest income and the net interest margin in 2012 increased to $19.824 million, and 4.17%, compared to $17.929 million, and 4.06%, in 2011. The interest margin increase was largely due to decreased funding costs. George, commenting on the margin, stated, "We expect some margin pressure in future periods from a national economic policy that fosters a low interest rate environment and remain proactive in managing both the asset and the liability side of the balance sheet to mitigate the downward pressure. This interest rate environment has also limited investment options and puts pressure on our loan portfolio yields in this prolonged economic cycle. Our challenge is to continue growing our loan portfolio with a good balance of fixed and variable rate loans, structured to mitigate long-term interest rate risk when an upward interest rate movement begins to occur." 

Deposits

Total deposits of $434.557 million at 2012 year-end increased 11.64% from deposits of $404.789 million at 2011 year-end. The overall increase in deposits for 2012 is comprised of an increase in core deposits of $23.772 million and increased noncore deposits of $5.996 million. George, commenting on core deposits, stated, "In 2012 we experienced continued good core deposit growth, though lower than in previous years, partially due to proactive rate reductions on deposit products that led to some balance reductions from strictly price driven non-relationship deposit customers. Our balance sheet liquidity was strong throughout 2012, and we were able to fund the majority of our balance sheet growth with core deposits."

Noninterest Income/Expense

Noninterest income, at $4.043 million in 2012, increased $.387 million from 2011's total of $3.656 million. The largest driver of noninterest income in 2012 was secondary market mortgage activities and gains from SBA/USDA loan sales. Income from secondary mortgage activities totaled $1.390 million in 2012 compared to $.700 million in 2011. SBA/USDA loan sale gains were $1.176 million compared to 2011 gains of $1.500 million.

Noninterest expense, at $16.757 million in 2012, increased $.788 million, or 4.93% from 2011. Increased expenses were noted in data processing, professional services associated with the divesture auction of our TARP securities and nominal employment costs. The FDIC premiums were reduced by $.390 million, or 45.94% in 2012 from $.849 million in 2011. George, commenting on areas of increased expenses, stated, "We remain diligent in our efforts to manage our operating expenses in the ongoing evaluation of our operating platform to improve efficiencies. This has become ever more challenging for all banks in our current regulatory banking climate, where the need is critical to ensure that comprehensive risk management systems and personnel infrastructure keep pace with a constantly changing banking profile, both internally and externally."

Capital

In August, the Corporation consummated the common stock rights offering and the capital investment by Steinhardt Capital Investors, LLLP with the issuance of 2.140 million shares of common stock for $11.500 million in net proceeds. Total shareholders' equity at December 31, 2012 totaled $72.448 million, compared to $55.263 million at 2011 year-end, an increase of $17.185 million, or 31.10%. Book value of common shareholders' equity was $11.05 per share at December 31, 2012 compared to $12.97 per share at December 31, 2011.

Paul D. Tobias, Chairman and Chief Executive Officer, concluded, "We are proud of our operating results for 2012. Looking forward, we are well positioned for expansion with strong credit quality and capital above the 'well capitalized' regulatory guidelines. The capital raised this year and our new relationship with the Steinhardt family are significant achievements and give us flexibility in an uncertain banking world. Regulatory costs and increasing capital requirements are creating an environment where capital is once again 'King.' To provide further flexibility, we are also in the process of setting up an $8.0 million line of credit with one of our correspondent banks.

"Our capital strength and our earnings momentum has led to the establishment of a dividend on our common stock, initially at $.04 per quarter. We are pleased to be able to reward our shareholders for their loyalty and faith. We will continue to focus on our organic growth but will also keep an eye out for external expansion opportunities that we can execute and where returns will exceed our cost of capital.

"On the list of value creation options will be the partial or full redemption of our preferred stock securities, now held by friends and investors. The current dividend at 5% without tax shelter moves to 9% without tax shelter in early 2014. We will evaluate our redemption strategy and base our timing and level of redemption on these cost factors and the quality of probable returns of alternate uses. We believe prudent growth, strong earnings, proper use of capital and returning excess capital to shareholders will help create fair market valuation for the benefit of all shareholders."

Mackinac Financial Corporation is a registered bank holding company formed under the Bank Holding Company Act of 1956 with assets of $546 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 Corporation'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  
             
             
    December 31,     December 31,  
(Dollars in thousands, except per share data)   2012     2011  
    (Unaudited)        
Selected Financial Condition Data (at end of period):                
Assets   $ 545,980     $ 498,311  
Loans     449,177       401,246  
Investment securities     43,799       38,727  
Deposits     434,557       404,789  
Borrowings     35,925       35,997  
Common Shareholders' Equity     61,448       44,342  
Shareholders' equity     72,448       55,263  
                 
                 
Selected Statements of Income Data                
Net interest income   $ 19,824     $ 17,929  
Income before taxes and preferred dividend     6,165       3,316  
Net income     6,459       1,452  
Income per common share - Basic     1.51       .42  
Income per common share - Diluted     1.46       .41  
Weighted average shares outstanding     4,285,043       3,419,736  
Weighted average shares outstanding - Diluted     4,412,625       3,500,204  
                 
Selected Financial Ratios and Other Data:                
Performance Ratios:                
Net interest margin     4.17 %     4.06 %
Efficiency ratio     67.95       68.43  
Return on average assets     1.23       .30  
Return on average common equity     12.43       3.30  
Return on average equity     10.26       2.66  
                 
Average total assets   $ 526,740     $ 489,539  
Average common shareholders' equity     51,978       43,940  
Average total shareholders' equity     62,939       54,561  
Average loans to average deposits ratio     99.45 %     98.05 %
                 
                 
Common Share Data at end of period:                
Market price per common share   $ 7.09     $ 5.42  
Book value per common share   $ 11.05     $ 12.97  
Common shares outstanding     5,559,859       3,419,736  
                 
Other Data at end of period:                
Allowance for loan losses   $ 5,218     $ 5,251  
Non-performing assets   $ 8,001     $ 11,155  
Allowance for loan losses to total loans     1.16 %     1.31 %
Non-performing assets to total assets     1.47 %     2.24 %
Texas ratio     10.30 %     18.43 %
                 
Number of:                
  Branch locations     11       11  
  FTE Employees     121       116  
                   
         
MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
 
             
             
    December 31,     December 31,  
    2012     2011  
    (Unaudited)        
ASSETS                
                 
Cash and due from banks   $ 26,958     $ 20,071  
Federal funds sold     3       13,999  
  Cash and cash equivalents     26,961       34,070  
                 
Interest-bearing deposits in other financial institutions     10       10  
Securities available for sale     43,799       38,727  
Federal Home Loan Bank stock     3,060       3,060  
                 
Loans:                
  Commercial     342,841       311,215  
  Mortgage     95,413       83,106  
  Consumer     10,923       6,925  
    Total Loans     449,177       401,246  
      Allowance for loan losses     (5,218 )     (5,251 )
  Net loans     443,959       395,995  
                 
Premises and equipment     10,633       9,627  
Other real estate held for sale     3,212       3,162  
Deferred Tax Asset     9,131       8,427  
Other assets     5,215       5,233  
                 
TOTAL ASSETS   $ 545,980     $ 498,311  
                 
LIABILITIES AND SHAREHOLDERS' EQUITY                
                 
LIABILITIES:                
Deposits:                
  Noninterest bearing deposits   $ 67,652     $ 51,273  
  NOW, money market, interest checking     155,465       152,563  
  Savings     13,829       14,203  
  CDs < $100,000     135,550       130,685  
  CDs > $100,000     24,355       23,229  
  Brokered     37,706       32,836  
      Total deposits     434,557       404,789  
                 
  Borrowings     35,925       35,997  
  Other liabilities     3,050       2,262  
    Total liabilities     473,532       443,048  
                 
SHAREHOLDERS' EQUITY:                
  Preferred stock - No par value:                
    Authorized 500,000 shares, Issued and outstanding - 11,000 shares     11,000       10,921  
  Common stock and additional paid in capital - No par value                
    Authorized - 18,000,000 shares                
    Issued and outstanding - 5,559,914, 3,419,736 and 3,419,736 shares respectively     53,797       43,525  
    Retained earnings     6,727       492  
    Accumulated other comprehensive income     924       325  
                 
      Total shareholders' equity     72,448       55,263  
                 
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY   $ 545,980     $ 498,311  
                 
   
MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
 
       
       
    For the Years Ended December 31,  
    2012     2011     2010  
    (Unaudited)              
INTEREST INCOME:                        
  Interest and fees on loans:                        
    Taxable   $ 23,197     $ 21,627     $ 21,091  
    Tax-exempt     116       147       188  
  Interest on securities:                        
    Taxable     948       1,162       1,406  
    Tax-exempt     27       28       28  
  Other interest income     139       108       127  
    Total interest income     24,427       23,072       22,840  
                         
INTEREST EXPENSE:                        
  Deposits     3,946       4,530       5,607  
  Borrowings     657       613       848  
    Total interest expense     4,603       5,143       6,455  
                         
Net interest income     19,824       17,929       16,385  
Provision for loan losses     945       2,300       6,500  
Net interest income after provision for loan losses     18,879       15,629       9,885  
                         
OTHER INCOME:                        
  Deposit service fees     699       832       990  
  Net security gains     -       (1 )     215  
  Income from secondary market loans sold     1,390       700       539  
  SBA/USDA loan sale gains     1,176       1,500       868  
  Mortgage servicing income     417       400       -  
  Other     361       225       183  
    Total other income     4,043       3,656       2,795  
                         
OTHER EXPENSE:                        
  Salaries and employee benefits     8,288       7,275       6,918  
  Occupancy     1,372       1,376       1,313  
  Furniture and equipment     885       827       806  
  Data processing     991       761       740  
  Professional service fees     1,196       756       627  
  Loan and deposit     877       1,137       910  
  Writedowns and losses on other real estate held for sale     489       1,137       2,753  
  FDIC insurance assessment     459       849       957  
  Telephone     233       215       193  
  Advertising     376       351       297  
  Other     1,591       1,285       1,084  
    Total other expenses     16,757       15,969       16,598  
                         
Income before provision for income taxes     6,165       3,316       (3,918 )
Provision for income taxes     (922 )     1,098       (3,500 )
                         
NET INCOME     7,087       2,218       (418 )
                         
Preferred dividend and accretion of discount     629       766       742  
                         
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS   $ 6,458     $ 1,452     $ (1,160 )
                         
INCOME PER COMMON SHARE:                        
  Basic   $ 1.51     $ .42     $ (.34 )
  Diluted   $ 1.46     $ .41     $ (.34 )
                           
 
MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES
LOAN PORTFOLIO AND CREDIT QUALITY
 
 
(Dollars in thousands)
 
Loan Portfolio Balances (at end of period):
         
    December 31,   December 31,
    2012   2011
    (Unaudited)   (Unaudited)
Commercial Loans:            
Real estate - operators of nonresidential buildings   $ 95,151   $ 75,391
Hospitality and tourism     40,787     33,306
Real estate agents and managers     12,672     10,617
Lessors of nonresidential buildings     12,128     16,499
Other     164,874     155,657
  Total Commercial Loans     325,612     291,470
             
1-4 family residential real estate     87,948     77,332
Consumer     10,923     6,925
Construction            
  Commercial     17,229     19,745
  Consumer     7,465     5,774
             
  Total Loans   $ 449,177   $ 401,246
               
 
Credit Quality (at end of period):
             
    December 31,     December 31,  
    2012     2011  
    (Unaudited)     (Unaudited)  
Nonperforming Assets :                
Nonaccrual loans   $ 4,687     $ 5,490  
Loans past due 90 days or more     -       -  
Restructured loans     102       2,503  
  Total nonperforming loans     4,789       7,993  
Other real estate owned     3,212       3,162  
  Total nonperforming assets   $ 8,001     $ 11,155  
Nonperforming loans as a % of loans     1.07 %     1.99 %
Nonperforming assets as a % of assets     1.47 %     2.24 %
Reserve for Loan Losses:                
At period end   $ 5,218     $ 5,251  
As a % of average loans     1.24 %     1.35 %
As a % of nonperforming loans     108.96 %     65.69 %
As a % of nonaccrual loans     111.33 %     95.65 %
Texas Ratio     10.30 %     18.43 %
                 
Charge-off Information (year to date):                
  Average loans   $ 422,440     $ 388,115  
  Net charge-offs   $ 977     $ 3,662  
  Charge-offs as a % of average loans, annualized     .23 %     .94 %
                 
 
MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES QUARTERLY FINANCIAL HIGHLIGHTS 
   
                               
    QUARTER ENDED  
    (Unaudited)  
    December 31,     September 30,     June 30,     March 31,     December 31,  
    2012     2012     2012     2012     2011  
BALANCE SHEET (Dollars in thousands)                                        
                                         
Total loans   $ 449,177     $ 433,958     $ 419,453     $ 414,402     $ 401,246  
Allowance for loan losses     (5,218 )     (5,186 )     (5,083 )     (5,382 )     (5,251 )
  Total loans, net     443,959       428,772       414,370       409,020       395,995  
Total assets     545,980       551,117       524,366       506,496       498,311  
Core deposits     372,496       372,500       357,933       355,186       348,724  
Noncore deposits (1)     62,061       66,863       67,448       56,902       56,065  
  Total deposits     434,557       439,363       425,381       412,088       404,789  
Total borrowings     35,925       35,925       35,997       35,997       35,997  
Common shareholders' equity     61,448       61,945       49,352       45,119       44,342  
Total shareholders' equity     72,448       72,945       60,352       56,095       55,263  
Total shares outstanding     5,559,859       5,559,859       3,419,736       3,419,736       3,419,736  
Weighted average shares outstanding     5,559,859       4,722,029       3,419,736       3,419,736       3,419,736  
                                         
AVERAGE BALANCES (Dollars in thousands)                                        
                                         
Assets   $ 545,661     $ 545,788     $ 511,681     $ 503,412     $ 487,304  
Loans     438,168       424,461       422,887       404,048       396,197  
Deposits     433,573       439,327       452,655       409,250       390,940  
Common Equity     61,936       56,327       44,927       44,469       44,325  
Equity     72,936       67,327       55,915       55,418       55,219  
                                         
INCOME STATEMENT (Dollars in thousands)                                        
                                         
Net interest income   $ 5,112     $ 4,930     $ 5,019     $ 4,763     $ 4,901  
Provision for loan losses     150       150       150       495       1,300  
  Net interest income after provision     4,962       4,780       4,869       4,268       3,601  
Total noninterest income     983       1,149       1,305       606       725  
Total noninterest expense     4,349       4,367       4,207       3,834       4,221  
Income before taxes     1,596       1,562       1,967       1,040       105  
Provision for income taxes     536       528       (2,335 )     349       27  
  Net income     1,060       1,034       4,302       691       78  
Preferred dividend expense     138       137       161       193       192  
Net income (loss) available to common shareholders   $ 922     $ 897     $ 4,141     $ 498     $ (114 )
                                         
PER SHARE DATA                                        
                                         
Earnings   $ .17     $ .19     $ 1.21     $ .15     $ (.03 )
Book value per common share     11.05       11.14       14.43       13.19       12.97  
Market value, closing price     7.09       7.60       5.99       7.00       5.42  
                                         
ASSET QUALITY RATIOS                                        
                                         
Nonperforming loans/total loans     1.07 %     1.22 %     1.28 %     1.65 %     1.99 %
Nonperforming assets/total assets     1.47       1.60       1.70       2.04       2.24  
Allowance for loan losses/total loans     1.16       1.20       1.21       1.30       1.31  
Allowance for loan losses/nonperforming loans     108.96       98.03       94.57       78.49       65.69  
Texas ratio (2)     10.30       11.26       13.59       16.84       18.43  
                                         
PROFITABILITY RATIOS                                        
                                         
Return on average assets     .67 %     .65 %     3.21 %     .40 %     (.09) %
Return on average common equity     5.93       6.33       36.57       4.53       (1.02 )
Return on average equity     5.03       5.29       29.39       3.62       (.82 )
Net interest margin     4.11       4.10       4.30       4.17       4.38  
Efficiency ratio     70.52       67.29       63.61       71.01       69.04  
Average loans/average deposits     99.45       96.62       101.50       98.73       101.34  
                                         
CAPITAL ADEQUACY RATIOS                                        
                                         
Tier 1 leverage ratio     11.98 %     11.93 %     10.16 %     9.95 %     10.08 %
Tier 1 capital to risk weighted assets     13.81       14.02       12.87       11.55       11.62  
Total capital to risk weighted assets     14.93       15.15       14.12       12.80       12.87  
Average equity/average assets     13.37       12.34       10.93       11.01       11.33  
Tangible equity/tangible assets     13.26       13.36       11.51       11.01       11.33  
 
(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
 

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