MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES SELECTED FINANCIAL HIGHLIGHTS For The Years Ended December 31, (Dollars in thousands,except per share data) 2006 2005 ----------- ----------- (Unaudited) (Audited) Selected Financial Condition Data (at end of period): Total assets $ 382,791 $ 298,722 Total loans 322,581 239,771 Total deposits 312,421 232,632 Borrowings and subordinated debentures 38,307 36,417 Total shareholders' equity 28,790 26,588 Selected Statements of Income Data: Net interest income $ 11,593 $ 9,780 Income (loss) before taxes 1,216 (7,364) Net income (loss) 1,716 (7,364) Income (loss) per common share - Basic .50 (2.15) Income (loss) per common share - Diluted .50 (2.15) Selected Financial Ratios and Other Data: Performance Ratios: Net interest margin 3.51% 3.64% Efficiency ratio 93.95 160.43 Return on average assets .49 (2.58) Return on average equity 6.19 (25.63) Average total assets $ 347,927 $ 285,896 Average total shareholders' equity 27,744 28,732 Average loans to average deposits ratio 99.77% 98.17% Common Share Data at end of period: Market price per common share $ 11.50 $ 9.10 Book value per common share $ 8.40 $ 7.75 Common shares outstanding 3,428,695 3,428,695 Weighted average shares outstanding 3,428,695 3,428,695 Other Data at end of period: Allowance for loan losses $ 5,006 $ 6,108 Non-performing assets $ 2,965 $ 1,059 Allowance for loan losses to total loans 1.55% 2.55% Non-performing assets to total assets .77% .35% Number of: Branch locations 13 12 MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in thousands, except per share data) December 31, 2006 2005 ----------- ----------- ASSETS (Unaudited) (Audited) Cash and due from banks $ 4,865 $ 4,833 Federal funds sold 5,841 3,110 ----------- ----------- Cash and cash equivalents 10,706 7,943 Interest-bearing deposits in other financial institutions 856 1,025 Securities available for sale 32,769 34,210 Federal Home Loan Bank stock 3,794 4,855 Loans: Commercial 261,726 192,826 Mortgage 58,014 44,660 Installment 2,841 2,285 ----------- ----------- Total loans 322,581 239,771 Allowance for loan losses (5,006) (6,108) ----------- ----------- Net loans 317,575 233,663 Premises and equipment 12,453 11,987 Other real estate held for sale 26 945 Other assets 4,612 4,094 ----------- ----------- TOTAL ASSETS $ 382,791 $ 298,722 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Non-interest-bearing deposits $ 23,471 $ 19,684 Interest-bearing deposits Money market 42,340 31,198 NOW, Savings, and IRA 53,079 55,923 CDs < $100,000 80,719 67,725 CDs > $100,000 23,645 12,335 Brokered 89,167 45,767 ----------- ----------- Total deposits 312,421 232,632 Borrowings 38,307 36,417 Other liabilities 3,273 3,085 ----------- ----------- Total liabilities 354,001 272,134 Shareholders' equity: Preferred stock - No par value: Authorized 500,000 shares, no shares outstanding - - Common stock and additional paid-in capital - No par value Authorized - 18,000,000 shares Issued and outstanding - 3,428,695 shares 42,720 42,412 Retained earnings (13,743) (15,461) Accumulated other comprehensive income (loss) (187) (363) ----------- ----------- Total shareholders' equity 28,790 26,588 ----------- ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 382,791 $ 298,722 =========== =========== MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in thousands, For The Years Ended December 31, except per share data) 2006 2005 2004 -------- -------- -------- (Unaudited) (Audited) (Audited) Interest income: Interest and fees on loans: Taxable $ 21,239 $ 13,862 $ 14,517 Tax-exempt 753 928 1,180 Interest on securities: Taxable 1,186 1,455 2,401 Tax-exempt 87 167 171 Other interest income 787 564 584 -------- -------- -------- Total interest income 24,052 16,976 18,853 -------- -------- -------- Interest expnese: Deposits 10,575 5,259 5,443 Borrowings 1,884 1,937 4,730 Subordinated debentures - - 442 Total interest expense 12,459 7,196 10,615 -------- -------- -------- Net interest income 11,593 9,780 8,238 -------- -------- -------- Provision for loan losses (861) - - -------- -------- -------- Net interest income after provision for loan losses 12,454 9,780 8,238 -------- -------- -------- Other income: Service fees 547 586 982 Net gains on sale of loans 197 49 39 Loan and lease fees 79 21 17 Net security gains (losses) (1) 95 - Gain on sale of branches - - 205 Gain on settlement of subordinated debentures - - 6,617 Other 161 360 682 -------- -------- -------- Total other income 983 1,111 8,542 -------- -------- -------- Other expenses: Salaries and employee benefits 6,132 6,090 8,032 Occupancy 1,264 1,053 994 Furniture and equipment 631 560 887 Data processing 691 1,720 1,220 Accounting, legal and consulting fees 1,425 886 1,836 Loan and deposit 392 852 1,718 Telephone 210 271 382 Advertising 346 814 115 Penalty on prepayment of FHLB borrowings - 4,320 - Other 1,130 1,689 3,044 -------- -------- -------- Total other expenses 12,221 18,255 18,228 -------- -------- -------- Income (loss) before provision for income taxes 1,216 (7,364) (1,448) Provision for (benefit of) income taxes (500) - 147 -------- -------- -------- Net income (loss) $ 1,716 $ (7,364) $ (1,595) -------- -------- -------- Income (loss) per common share: Basic $ .50 $ (2.15) $ (3.23) ======== ======== ======== Diluted $ .50 $ (2.15) $ (3.23) ======== ======== ======== MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES LOAN PORTFOLIO AND CREDIT QUALITY (Dollars in thousands) Loan Portfolio Balances (at end of period): December 31, 2006 2005 ---------- ---------- Commercial Loans Real estate - operators of nonresidential buildings $ 44,308 $ 28,217 Hospitality and tourism 30,826 37,681 Real estate agents and managers 25,071 10,588 New car dealers 10,086 9,995 Other 115,426 88,842 ---------- ---------- Total Commercial Loans 225,717 175,323 1-4 family residential real estate 58,014 44,660 Consumer 2,841 2,285 Construction 36,009 17,503 ---------- ---------- Total Loans $ 322,581 $ 239,771 ========== ========== Credit Quality (at end of period): December 31, 2006 2005 ---------- ---------- Nonperforming Assets Nonaccrual loans $ 2,899 $ 15 Loans past due 90 days or more 40 99 Restructured loans - - ---------- ---------- Total nonperforming loans 2,939 114 Other real estate owned 26 945 ---------- ---------- Total nonperforming assets $ 2,965 $ 1,059 ========== ========== Nonperforming loans as a % of loans .91% .05% ---------- ---------- Nonperforming assets as a % of assets .77% .35% ---------- ---------- Reserve for Loan Losses: At period end $ 5,006 $ 6,108 ---------- ---------- As a % of loans 1.55% 2.55% ---------- ---------- As a % of nonperforming loans 170.33% 5,357.89% ---------- ---------- As a % of nonaccrual loans 172.68% N/M% ========== ========== Charge-off Information: Average loans $ 278,953 $ 207,928 ---------- ---------- Net charge-offs $ 241 $ 858 ---------- ---------- Charge-offs as a % of average loans .09% .41% ---------- ---------- MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES QUARTERLY FINANCIAL HIGHLIGHTS QUARTER ENDED ------------------------------------------------ Dec 31, Sept 30, June 30, March 31, Dec 31, 2006 2006 2006 2006 2005 --------- --------- --------- --------- --------- BALANCE SHEET (Dollars in thousands) Total loans $ 322,581 $ 292,614 $ 283,110 $ 264,471 $ 239,771 Allowance for loan losses (5,006) (5,316) (5,415) (5,415) (6,108) --------- --------- --------- --------- --------- Total loans, net 317,575 287,298 277,695 259,056 233,663 Intangible assets 205 237 268 299 330 Total assets 382,791 363,191 352,497 334,591 298,722 Core deposits 199,609 195,774 185,784 183,438 174,530 Noncore deposits (1) 112,812 97,720 98,380 84,516 58,102 --------- --------- --------- --------- --------- Total deposits 312,421 293,494 284,164 267,954 232,632 Total borrowings 38,307 38,307 37,617 36,417 36,417 Total shareholders' equity 28,790 28,226 27,179 27,173 26,588 Total shares outstanding 3,428,695 3,428,695 3,428,695 3,428,695 3,428,695 INCOME STATEMENT (Dollars in thousands) Net interest income $ 3,027 $ 2,952 $ 2,935 $ 2,679 $ 2,680 Provision for loan losses (261) - - (600) - --------- --------- --------- --------- --------- Net interest income after provision 3,288 2,952 2,935 3,279 2,680 Total noninterest income 276 240 251 216 303 Total noninterest expense 3,226 3,002 2,996 2,997 4,011 --------- --------- --------- --------- --------- Income before taxes 338 190 190 498 (1,028) Provision for income taxes - (500) - - - --------- --------- --------- --------- --------- Net income $ 338 $ 690 $ 190 $ 498 $ (1,028) ========= ========= ========= ========= ========= PER SHARE DATA Earnings per share - basic $ .10 $ .20 $ .05 $ .15 $ (.30) Earnings per share - diluted .10 .20 .05 .15 (.30) Book value per share 8.40 8.23 7.93 7.93 7.75 ASSET QUALITY RATIOS Nonperforming loans/total loans .91% .71% .16% N/M% .05% Nonperforming assets/total assets .77 .58 .14 .28 .35 Allowance for loan losses/total loans 1.55 1.82 1.91 2.05 2.55 Allowance for loan losses/nonperforming loans 170.33 257.43 1,214.13 N/M 5,357.89 PROFITABILITY RATIOS Return on average assets .37% .75% .22% .63% (1.41)% Return on average equity 4.68 9.76 2.82 7.47 (14.95) Net interest margin 3.44 3.36 3.62 3.62 3.96 Efficiency ratio 94.60 91.17 91.41 99.37 128.37 Average loans/average deposits 102.29 97.51 99.67 98.44 102.01 CAPITAL ADEQUACY RATIOS Leverage ratio 7.85 7.81 8.04 8.54 9.23 Tier 1 capital ratio 8.77 9.36 9.28 9.74 10.57 Total capital ratio 10.02 10.62 10.54 11.00 11.84 Average equity/average assets 7.81 7.73 7.94 8.48 9.45 Tangible equity/tangible assets 7.47 7.71 7.64 8.04 8.80 (1) Noncore deposits includes brokered deposits and CDs greater than $100,000
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