SOURCE: Mackinac Financial Corporation

Mackinac Financial Corporation

February 02, 2017 14:16 ET

Mackinac Financial Corporation Reports 2016 Fourth Quarter and Annual Results Including Two Acquisitions With Full Operational Integration

MANISTIQUE, MI--(Marketwired - Feb 2, 2017) - Mackinac Financial Corporation (NASDAQ: MFNC) (the "Corporation"), the bank holding company for mBank, today announced 2016 net income of $4.48 million, or $.72 per share, compared to net income $5.60 million, or $.90 per share, in 2015. The 2016 results include expenses related to the acquisitions of Niagara Bancorporation, Inc. ("Niagara") and First National Bank of Eagle River ("Eagle River"). Year-to-date transaction related expenses, largely associated with the early termination of the Eagle River data processing system, totaled $3.10 million with an after-tax impact of $2.05 million on earnings that equated to $.33 per share. Adjusted core net income (exclusive of all transaction-related expenses) for 2016 was $6.53 million, or $1.05 per share. 

Net income for the fourth quarter ended December 31, 2016 increased 6.6% to $1.70 million, or $0.27 per share, compared to $1.60 million, or $0.26 per share, in the prior year period. Acquisition-related expenses of $.18 million in the fourth quarter reduced net income by $.11 million, or $0.02 per share, on an after tax basis. The adjusted core net income for the fourth quarter of 2016 (exclusive of all transaction related expenses) was $1.81 million, or $0.29 per share. No further transaction related expenses are anticipated from Eagle River or Niagara in 2017. 

mBank, the Corporation's primary asset, recorded net income of $6.05 million in 2016, compared to $6.94 million, in 2015. Acquisition-related expenses totaled $2.66 million, with an after-tax impact of $1.75 million. Adjusted core net income (exclusive of all transaction-related expenses) for 2016 was $7.80 million.

Total assets of the Corporation at December, 31 2016 were $983.52 million, compared to $739.27 million at December 31, 2015. Shareholders' equity at December 31, 2016 totaled $78.61 million, compared to $76.60 million at December 31, 2015. The book value per share equated to $12.55 compared to $12.32 per share a year ago. Year-end tangible book value was $11.29 per share and the per share market price was $13.47, or 119%. Weighted average shares outstanding totaled 6,236,067 for year-end 2016 compared to 6,241,921 for the same period in 2015.

Key highlights for the 2016 results include:

  • The 2016 acquisitions of Niagara and Eagle River added approximately $194 million in assets, $115 million in loan balances and $163 million in core deposits to the Corporation. Since the December 2014 Peninsula Financial Corporation acquisition, the Corporation has grown assets, including organic growth, approximately $370 million from $613.94 million to the current $983.52 million, an increase of 60%.

  • Total interest income of $37.98 million for 2016 compared to $33.51 million for the same period in 2015. 

  • Total new loan production for 2016 was $301.9 million versus $234.70 million for the same period in 2015, an increase of $67.20 million, or 29%. 

  • Net Interest Margin remains very good at 4.19%. Net interest income before loan provisions increased from $29.12 million in 2015 to $33.10 million in 2016, a 14% increase.

  • Credit quality at the bank remains strong with a Texas Ratio of 11.76% compared to 6.34% one year ago, and nonperforming assets of $8.91 million, or .91% of total assets, compared to $4.86 million, or .66 % of total assets, for the same period in 2015. The change in credit quality metrics is predominately due to the acquired loan portfolios of Eagle River and Niagara. The Corporation's pre-transaction diligence has been accurate to date as to the purchase accountings marks associated with both loan portfolios, and management remains comfortable with the overall carrying values.

  • Increased contribution from secondary mortgage market activity with loans totaling $53.2 million. 2016 Income from this source totaled $1.58 million compared to $1.07 million for 2015, equating to an increase of 47% in overall production. 

  • Gains on sold SBA (Small Business Administration) loan premiums for 2016 were $.90 million compared to $.61 million for the same period of 2015.

Loans Growth and Production

Total loans at year-end 2016 were $781.86 million, a $163.47 million increase equating to 26% from $618.39 million at December 31, 2015. Eagle River and Niagara accounted for approximately 18% of the total. In addition to the aforementioned balance sheet totals, the Corporation services $221.35 million of sold mortgage loans and $52.98 million of sold SBA and USDA loans. Total loans under management equal $1.06 billion. Legacy company loan growth (excluding Eagle River and Niagara) was $50.31 million, or 8.1%, with the largest sector increase in our commercial lending area which grew approximately 12.5% in 2016 totaling over $56 million. Balance sheet retail loans, predominantly mortgage, decreased by approximately 11.5% primarily due to client refinances into secondary market mortgage loans.

Total new loan production for 2016 was $301.9 million versus $234.70 million for the same period in 2015, an increase of $67.10 million, or 29%. Commercial production accounted for $169.40 million and aggregate mortgage (mainly 1-4 family) and consumer production was $132.5 million. The Upper Peninsula region contributed $163.30 million, Northern Lower Peninsula $58.9 million, Southeast Michigan $60.9 million and the newly acquired Wisconsin markets $18.8 million. Commenting on new loan production and overall lending activities, Kelly W. George, President and CEO of mBank, stated, "We are very pleased with the new loan opportunities and production in all of our markets. Loan production is up over $67 million from the prior year with all business lines experiencing large increases from 2015 levels. This increase includes SBA lending, which outpaced prior year results and remains a key initiative for our company to help our local markets and businesses get access to capital to expand and grow their economic bases. As can be seen, our legacy bank footprint in Michigan had a strong year of loan production and generated solid organic growth to augment the pickup in loans from both acquisitions. Both of those acquisitions also helped with the overall mix and improved the granularity of our loan portfolio. We are also very excited about the momentum in our new markets in Wisconsin and the opportunities to develop new client relationships and build on existing ones now that all operational and cultural items have been fully integrated."

Credit Quality

Nonperforming loans totaled $4.12 million, .53% of total loans at December 31, 2016, up $1.585 million from 2015 balances of $2.539 million. Total loan delinquencies greater than 30 days resided at a nominal .83%, or $6.47 million. Mr. George, commenting on credit quality, stated, "Our credit quality metrics remain strong with no systematic issues within our loan book as we remain vigilant to ensure continued prudent underwriting standards and not stretch for loans that do not meet our policy guidelines. The slight increase in metrics is related to the acquired loan portfolios through our 2016 acquisitions, similar to what we experienced in 2014 with the Peninsula Bank ('Pen') acquisition. These metrics are expected to normalize in 2017 as they did with Pen. We remain comfortable with our purchase accounting marks and corresponding accretion levels from both transactions this year. We further believe our loan loss reserve methodology will continue to adequately support total reserves when combining all purchase accounting marks and mBank standalone loans."

Margin Analysis

2016 net interest income and net interest margin were $33.10 million and 4.19%, compared to $29.12 million and 4.30%, for 2015. The increase in net interest income was due to the Niagara and Eagle River acquisitions as well as organic loan growth from the legacy operations. The Corporation also had increased net interest contribution due to the accretive attributes associated with the purchase accounting adjustments related to the three acquisitions completed in the past two years. Mr. George stated, "We have been successful in maintaining our strong net interest margin within this historically low interest rate cycle through the use of both core and wholesale funding strategies coupled with disciplined loan pricing. With expected future rate increases on the horizon, we will be proactive in reviewing both loan and core deposit pricing in our markets in an effort to continue to maximize margin dollars without taking any undue long term interest rate risk. The bank's balance sheet remains short term in nature and prudently structured to take advantage of any future movements upward in short term interest rates which will be beneficial for future earnings."

Deposits

Total deposits of $823.51 million at December 31, 2016 increased by $213.19 million (including approximately $163 million of core deposits from the Niagara and Eagle River acquisitions accounting for 76% of the total increase) from deposits of $610.32 million on December 31, 2015. Mr. George, commenting on overall deposits and liquidity, stated, "The company maintains a strong liquidity position with many different funding sources to support loan growth and operations. We remain committed to growing core deposits in our local communities through a very competitive product and service mix. We will also continue to utilize alternative funding sources such as internet CDs and managed levels of wholesale deposits to adequately position the liability side of our balance sheet to best match up our asset durations for long term sustainability of our margin." 

Noninterest Income/Expense

Noninterest income, at $4.15 million for 2016, increased $.26 million from $3.89 million in 2015. The primary reason for the improvement was increased year over year activity in the secondary mortgage market as well as SBA gains. Income from sold secondary mortgages totaled $1.58 million compared to $1.07 million in 2015 while SBA gains were $.90 million compared to $.61 million in 2015. Noninterest expense, at $29.88 million in 2016, increased $6.00 million from 2015. The 2016 increase was largely attributable to the acquisition costs including the aforementioned Eagle River data processing termination fee. There were also customary increases in salaries and benefits given additional employees and increased occupancy expense due to the acquired branch offices. Consistent with management's operating diligence prior to both acquisitions, the Corporation has reached the expected levels of overall efficiencies and targeted accretion levels of earnings.

Assets and Capital

Total assets of the Corporation at December 31, 2016 were $983.52 million, up $244.25 million from the $739.27 million reported at year-end 2015, with approximately $194 million attributable to the acquisitions in 2016. The Corporation is "adequately" capitalized and the Bank is "well-capitalized" with Total Capital to Risk Weighted Assets at the Corporation of 9.45% and 11.92% at the Bank.

Paul D. Tobias, Chairman and Chief Executive Officer of the Corporation, commented, "Mackinac remains focused on expanding our community oriented and client focused bank through both organic growth and through targeted accretive acquisition opportunities. Our two 2016 transactions in Niagara and Eagle River complemented our legacy markets very well, providing more operating leverage and scale to drive higher monthly core earnings and increased market deposits and loans for a better mix of both. Our experienced management team and culture will remain focused on developing shareholder value through sound decision making and execution. 

Mackinac Financial Corporation is a registered bank holding company formed under the Bank Holding Company Act of 1956 with assets in excess of $950 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 22 branch locations; twelve in the Upper Peninsula, three in the Northern Lower Peninsula, one in Oakland County, Michigan and seven in Northern Wisconsin. 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, 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  
   
  As of and for the     As of and for the  
  Year Ending     Year Ending  
  December 31,     December 31,  
(Dollars in thousands, except per share data) 2016     2015  
  (Unaudited)     (Unaudited)  
Selected Financial Condition Data (at end of period):              
Assets $ 983,520     $ 739,269  
Loans   781,857       618,394  
Investment securities   86,273       53,728  
Deposits   823,512       610,323  
Borrowings   67,579       45,754  
Shareholders' equity   78,609       76,602  
               
               
Selected Statements of Income Data:              
Net interest income $ 33,098     $ 29,120  
Income before taxes   6,766       7,929  
Net income   4,483       5,596  
Income per common share - Basic   .72       .90  
Income per common share - Diluted   .71       .89  
Weighted average shares outstanding   6,236,067       6,241,921  
Weighted average shares outstanding - Diluted   6,289,149       6,273,321  
               
               
Selected Financial Ratios and Other Data:              
Performance Ratios:              
Net interest margin   4.19 %     4.30 %
Return on average assets   .52       .76  
Return on average equity   5.73       7.41  
               
Average total assets $ 865,573     $ 738,688  
Average total shareholders' equity   78,300       75,545  
Average loans to average deposits ratio   98.14 %     100.52 %
               
               
Common Share Data at end of period:              
Market price per common share $ 13.47     $ 11.49  
Book value per common share   12.55       12.32  
Tangible book value per share   11.29       11.54  
Dividends per share, annualized   .400       .400  
Common shares outstanding   6,263,371       6,217,620  
               
Other Data at end of period:              
Allowance for loan losses $ 5,020     $ 5,004  
Non-performing assets $ 8,906     $ 4,863  
Allowance for loan losses to total loans   .64 %     .81 %
Non-performing assets to total assets   .91 %     .66 %
Texas ratio   11.76 %     6.34 %
               
Number of:              
  Branch locations   22       17  
  FTE Employees   222       173  
                 
                 
                 
MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES  
CONSOLIDATED BALANCE SHEETS  
   
  December 31,     December 31,  
  2016     2015  
  (Unaudited)     (Audited)  
ASSETS              
               
Cash and due from banks $ 44,620     $ 25,005  
Federal funds sold   2,135       3  
  Cash and cash equivalents   46,755       25,008  
               
Interest-bearing deposits in other financial institutions   14,047       5,089  
Securities available for sale   86,273       53,728  
Federal Home Loan Bank stock   2,911       2,169  
               
Loans:              
  Commercial   543,573       450,275  
  Mortgage   218,171       152,272  
  Consumer   20,113       15,847  
    Total Loans   781,857       618,394  
      Allowance for loan losses   (5,020 )     (5,004 )
  Net loans   776,837       613,390  
               
Premises and equipment   15,891       12,524  
Other real estate held for sale   4,782       2,324  
Deferred tax asset   10,035       9,213  
Deposit based intangibles   2,172       1,076  
Goodwill   5,694       3,805  
Other assets   18,123       10,943  
               
TOTAL ASSETS $ 983,520     $ 739,269  
               
LIABILITIES AND SHAREHOLDERS' EQUITY              
               
LIABILITIES:              
Deposits:              
  Noninterest bearing deposits $ 164,179     $ 122,775  
  NOW, money market, interest checking   286,622       202,784  
  Savings   58,315       30,882  
  CDs < $250,000   141,629       124,084  
  CDs > $250,000   8,489       8,532  
  Brokered   164,278       121,266  
      Total deposits   823,512       610,323  
               
  Borrowings   67,579       45,754  
  Fed funds purchased   6,000       -  
  Other liabilities   7,820       6,590  
    Total liabilities   904,911       662,667  
               
SHAREHOLDERS' EQUITY:              
  Preferred stock - No par value:              
    Authorized 500,000 shares, Issued and outstanding - none   -       -  
  Common stock and additional paid in capital - No par value              
    Authorized - 18,000,000 shares              
    Issued and outstanding - 6,263,371 and 6,217,620; shares respectively   61,583       61,133  
    Retained earnings   17,206       15,221  
    Accumulated other comprehensive income              
        Unrealized (loss) gains on available for sale securities   (102 )     297  
        Minimum pension liability   (78 )     (49 )
               
        Total shareholders' equity   78,609       76,602  
               
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 983,520     $ 739,269  
               
               
               
MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
 
  For the Years Ended
  December 31,
  2016     2015   2014
  (Unaudited)     (Audited)   (Audited)
INTEREST INCOME:                  
  Interest and fees on loans:                  
    Taxable $ 36,078     $ 32,034   $ 26,461
    Tax-exempt   64       13     30
  Interest on securities:                  
    Taxable   1,322       1,095     962
    Tax-exempt   220       162     64
  Other interest income   299       209     152
    Total interest income   37,983       33,513     27,669
                   
INTEREST EXPENSE:                  
  Deposits   3,322       3,251     3,218
  Borrowings   1,563       1,142     924
    Total interest expense   4,885       4,393     4,142
                   
Net interest income   33,098       29,120     23,527
Provision for loan losses   600       1,204     1,200
Net interest income after provision for loan losses   32,498       27,916     22,327
                   
OTHER INCOME:                  
  Deposit service fees   995       836     701
  Income from mortgage loans sold on the secondary market   1,575       1,071     637
  SBA/USDA loan sale gains   897       610     757
  Mortgage servicing income - net   (40 )     547     675
  Net security gains   150       455     54
  Other   576       370     288
    Total other income   4,153       3,889     3,112
                   
OTHER EXPENSE:                  
  Salaries and employee benefits   14,582       12,449     10,303
  Occupancy   2,680       2,424     2,129
  Furniture and equipment   1,749       1,551     1,268
  Data processing   1,620       1,381     1,150
  Advertising   620       507     449
  Professional service fees   1,169       1,270     1,163
  Loan and deposit   1,296       955     699
  Writedowns and losses on other real estate held for sale   202       332     280
  FDIC insurance assessment   488       506     362
  Telephone   528       455     327
  Transaction related expenses   3,101       -     2,475
  Other   1,850       2,046     2,005
    Total other expenses   29,885       23,876     22,610
                   
Income before provision for income taxes   6,766       7,929     2,829
Provision for (benefit of) income taxes   2,283       2,333     1,129
                   
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS $ 4,483     $ 5,596   $ 1,700
                   
INCOME PER COMMON SHARE:                  
  Basic $ .72     $ .90   $ .30
  Diluted $ .71     $ .89   $ .30
                     
                     
                     
MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES
LOAN PORTFOLIO AND CREDIT QUALITY
 
(Dollars in thousands)
 
Loan Portfolio Balances (at end of period):
       
  December 31,   December 31,
  2016   2015
  (Unaudited)   (Unaudited)
Commercial Loans:          
Real estate - operators of nonresidential buildings $ 121,861   $ 102,620
Hospitality and tourism   68,025     41,300
Lessors of residential buildings   27,590     25,930
Gasoline stations and convenience stores   20,509     21,647
Logging   19,903     17,346
Commercial construction   11,505     15,330
Other   274,180     226,102
  Total Commercial Loans   543,573     450,275
           
1-4 family residential real estate   205,945     140,502
Consumer   20,113     15,847
Consumer construction   12,226     11,770
           
  Total Loans $ 781,857   $ 618,394
             
             
             
Credit Quality (at end of period):  
           
  December 31,     December 31,  
  2016     2015  
  (Unaudited)     (Unaudited)  
Nonperforming Assets:              
Nonaccrual loans $ 3,959     $ 2,353  
Loans past due 90 days or more   -       32  
Restructured loans   165       154  
  Total nonperforming loans   4,124       2,539  
Other real estate owned   4,782       2,324  
  Total nonperforming assets $ 8,906     $ 4,863  
Nonperforming loans as a % of loans   1.14 %     .41 %
Nonperforming assets as a % of assets   .91 %     .66 %
Reserve for Loan Losses:              
At period end $ 5,020     $ 5,004  
As a % of average loans   .71 %     .83 %
As a % of nonperforming loans   1.22 %     197.09 %
As a % of nonaccrual loans   1.27 %     212.66 %
Texas Ratio   11.76 %     6.34 %
               
Charge-off Information (year to date):              
  Average loans $ 703,047     $ 602,904  
  Net charge-offs (recoveries) $ 584     $ 1,340  
  Charge-offs as a % of average loans   .08 %     .22 %
                 
                 
                 
MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES
QUARTERLY FINANCIAL HIGHLIGHTS
                     
  QUARTER ENDED  
  (Unaudited)  
  December 31,   September 30,   June 30,   March 31,   December 31,  
  2016   2016   2016   2016   2015  
BALANCE SHEET (Dollars in thousands)                              
                               
Total loans $ 781,857   $ 756,804   $ 725,635   $ 618,625   $ 618,394  
Allowance for loan losses   (5,020)     (4,862)     (4,733)     (4,824)     (5,004)  
  Total loans, net   776,837     751,942     720,902     613,801     613,390  
Total assets   983,520     959,121     892,328     732,932     739,269  
Core deposits   650,745     660,867     579,606     473,761     480,525  
Noncore deposits   172,767     146,313     158,757     119,217     129,798  
  Total deposits   823,512     807,180     738,363     592,978     610,323  
Total borrowings   67,579     67,730     70,604     56,454     45,754  
Total shareholders' equity   78,609     78,285     77,081     77,395     76,602  
Total tangible equity   70,743     70,356     69,916     72,544     71,721  
Total shares outstanding   6,263,371     6,263,371     6,226,246     6,231,246     6,217,620  
Weighted average shares outstanding   6,263,371     6,238,756     6,227,730     6,214,083     6,225,614  
                               
AVERAGE BALANCES (Dollars in thousands)                              
                               
Assets $ 958,781   $ 930,353   $ 834,674   $ 737,088   $ 733,035  
Loans   771,279     734,702     689,462     615,684     613,846  
Deposits   800,508     780,265     679,183     604,363     602,857  
Equity   78,406     78,027     79,481     77,284     75,871  
                               
INCOME STATEMENT (Dollars in thousands)                              
                               
Net interest income $ 9,118   $ 8,696   $ 7,996   $ 7,288   $ 7,365  
Provision for loan losses   250     200     150     -     349  
  Net interest income after provision   8,868     8,496     7,846     7,288     7,016  
Total noninterest income   1,141     1,489     896     627     1,142  
Total noninterest expense   7,509     7,285     8,893     6,198     6,306  
Income before taxes   2,500     2,700     (151)     1,717     1,852  
Provision for income taxes   802     922     (26)     585     259  
Net income available to common shareholders $ 1,698   $ 1,778   $ (125)   $ 1,132   $ 1,593  
Income pre-tax, pre-provision $ 2,750   $ 2,900   $ (1)   $ 1,717   $ 2,201  
                               
PER SHARE DATA                              
                               
Earnings $ .27   $ .29   $ (.02)   $ .18   $ .26  
Book value per common share   12.55     12.50     12.38     12.42     12.32  
Tangible book value per share   11.29     11.23     11.23     11.64     11.54  
Market value, closing price   13.47     11.49     11.01     10.25     11.49  
Dividends per share   .100     .100     .100     .100     .100  
                               
ASSET QUALITY RATIOS                              
                               
Nonperforming loans/total loans   1.14 %   .62 %   .46 %   .28 %   .50 %
Nonperforming assets/total assets   .91     .83     .76     .60     .73  
Allowance for loan losses/total loans   .64     .64     .65     .78     .81  
Allowance for loan losses/nonperforming loans   1.22     104.13     142.52     280.96     197.09  
Texas ratio   11.76     10.55     9.13     5.61     6.34  
                               
PROFITABILITY RATIOS                              
                               
Return on average assets   .70 %   .76 %   (.06) %   .62 %   .86 %
Return on average equity   8.62     9.06     (.63)     5.89     8.33  
Net interest margin   4.14     4.18     4.19     4.33     4.34  
Average loans/average deposits   96.35     94.16     101.51     101.87     101.82  
                               
CAPITAL ADEQUACY RATIOS                              
                               
Tier 1 leverage ratio   7.18 %   7.29 %   7.68 %   9.55 %   9.81 %
Tier 1 capital to risk weighted assets   8.80     8.22     8.76     10.82     10.23  
Total capital to risk weighted assets   9.45     8.81     9.39     11.57     11.94  
Average equity/average assets (for the quarter)   8.18     8.39     9.52     10.49     11.19  
Tangible equity/tangible assets (at quarter end)   7.25     7.40     7.90     9.96     9.77  
                               

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