SOURCE: Mackinac Financial Corporation

April 27, 2005 15:59 ET

Mackinac Financial Corporation Reports First Quarter 2005 Results

MANISTIQUE, MI -- (MARKET WIRE) -- April 27, 2005 -- Mackinac Financial Corporation (NASDAQ: MFNC), the bank holding company for North Country Bank and Trust (the "Bank"), today announced a first quarter 2005 loss of $5.241 million or $1.53 per share compared to a loss of $1.667 million, or $4.75 per share for the first quarter of 2004. The results of operations for the first quarter of 2005 include a penalty of $4.320 million on the prepayment of $50.039 million of the FHLB borrowings. Excluding this prepayment penalty, the net loss in the first quarter of 2005 amounted to $.921 million.

Paul Tobias, Chairman and Chief Executive Officer, commented, "The first quarter of 2005 has been a period of transition and preparation. We are excited at the progress we've made in the short period since the recapitalization in December 2004. We have made the first step in restructuring our balance sheet to reduce risk and improve future earnings by prepaying long-term fixed rate FHLB borrowings. We have also been successful in recruiting three additional commercial lenders which will provide us with additional lending expertise in key markets, helping us to attain our aggressive loan growth targets in 2005 and beyond. We are looking forward to our upcoming announcement to change our Bank's name from North Country Bank and Trust to mBank. We are planning an aggressive marketing campaign which will include product revisions and competitive pricing which will help us re-establish and expand our market presence."

Total assets of the Corporation at March 31, 2005 were $275.216 million, down 31.3 percent from the $400.429 million in total assets reported at March 31, 2004. First quarter-end total assets were down 18.9 percent from the $339.497 million of total assets at year-end 2004.

Total loans at March 31, 2005 were $194.831 million, down from $255.021 million at March 31, 2004 or a 23.6 percent reduction. Total loans at the end of the first quarter of 2005 declined $9.001 million, or 4.4 percent from year-end 2004 total loans of $203.832 million. During the first quarter of 2005, the Bank experienced an unusual level of payout and refinancings, approximately $16.8 million. Tobias stated, "While we are disappointed that we have experienced a higher level of loan run-off than what we anticipated, we are very pleased with our commercial lending team and the momentum that is building. Our loan officers in our existing markets and in our new Oakland County market are seeing the volume and types of opportunities that we hoped we would see."

Total deposits of $205.239 million at March 31, 2005 were down 28.5 percent from deposits of $287.072 million on March 31, 2004. Deposits were down $10.411 million, or 4.8 percent from year-end 2004 deposits of $215.650 million. The Bank experienced decreases in deposits during the first quarter of 2005 largely due to seasonal runoff from municipal, individual, and corporate tax deposits and maturing of Internet deposits. Mr. Tobias added, "We expected that the deposit side of the business would be a challenge and it is. Our strategy remains the same. We will continue to staff and train our branch personnel and offer competitive products to our customers through relationship oriented bankers. Our name change and branding campaign will help us re-establish our deposit base and earn back a fair share of our markets."

The Bank's credit quality has improved dramatically in the past twelve months with nonperforming loans, as a percent of loans, at 1.17% compared to 7.48% at March 31, 2004. The reduction of problem loans resulted from extensive efforts by management in the past several quarters. Nonperforming assets, which amounted to $50.438 million, or 11.94% of assets at December 31, 2003, were reduced to $3.787 million, 1.38% of assets at March 31, 2005. Tobias, commenting on credit quality, stated, "We have made tremendous strides in this area. The improved credit quality of the Bank allows our lending staff to concentrate on new loan production and is expected to reduce operating expense in future periods."

Shareholders' equity at March 31, 2005 totaled $28.854 million, or $8.42 per share. The Corporation is well capitalized with Tier 1 capital in excess of 9% and total risk-based capital in excess of 14%.

Tobias concluded, "We are pleased with our progress to date. We have taken the first steps towards implementing our business plan, but still have the challenge to execute. We have restructured our liabilities for less risk and to improve our interest margin, we have hired additional lenders to help attain loan growth and we will be initiating new loan and deposit products to be more competitive in our markets. We are also anticipating a data processing system conversion later in 2005 to reduce costs and enhance our sales and customer service capabilities."

Mackinac Financial Corporation is a registered bank holding company which owns North Country Bank and Trust. The Bank has 12 branches in Northern Michigan and a commercial banking office in Bloomfield Hills, 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 checking and savings accounts, time deposits, interest bearing transaction accounts, safe deposit facilities, real estate mortgage lending, and direct and indirect consumer financing.

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 form 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

(Dollars in thousands, except
 per share data) *

                                            For The Period Ended
                                    March 31,    December 31,   March 31,
                                      2005          2004          2004
                                   -----------   -----------   -----------
                                   (Unaudited)                 (Unaudited)

Selected Financial Condition Data
 (at end of period):

Total assets                       $   275,216   $   339,497   $   400,429
Total loans                            194,831       203,832       255,021
Total deposits                         205,239       215,650       287,072
Borrowings and subordinated
 debentures                             38,135        85,039        99,476
Total shareholders' equity              28,854        34,730         9,371

Selected Statements of Income
 Data:
Net interest income                $     2,205   $     8,238   $     2,011
Loss before taxes                        5,241        (1,448)       (1,677)
Net loss                                 5,241        (1,595)       (1,677)
Loss per common share - Basic            (1.53)        (3.23)        (4.75)
Loss per common share - Diluted          (1.53)        (3.23)        (4.75)

Selected Financial Ratios and
 Other Data:
Performance Ratios:
Net interest margin                       3.21%         2.57%         1.62%
Efficiency ratio                        300.96        103.05        151.76
Return on average assets                 (7.16)        (0.44)        (1.62)
Return on average equity                (69.25)       (18.64)        70.37

Average total assets               $   296,856   $   365,024   $   414,832
Average total shareholders'
 equity                            $    30,692   $     8,555   $     7,664
Average loans to average
 deposits ratio                          95.54%        97.40%        97.10%

Common Share Data (at end of
 period):
Market price per common share      $     18.13   $     17.97   $     39.80
Book value per common share        $      8.42   $     10.13   $     26.70
Common shares outstanding            3,428,695     3,428,695       350,958

Other Data (at end of period):
Allowance for loan losses          $     6,836   $     6,966   $    12,730
Non-performing assets              $     3,787   $     6,037   $    22,942
Allowance for loan losses to
 total loans                              3.51%         3.42%         4.99%
Non-performing assets to
 total assets                             1.38%         1.78%         5.73%
Number of:
  Branch locations                          12            12            22


 *  Historical per share data has been adjusted for the 1:20 reverse stock
    split distributed in December 2004.


            MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES
                    CONSOLIDATED BALANCE SHEETS


(Dollars in thousands except
 per share data)

                                            For The Period Ended
                                    March 31,    December 31,   March 31,
                                      2005          2004          2004
                                  -----------   -----------   -----------
                                 (Unaudited)                  (Unaudited)
ASSETS
     Cash and due from banks       $     3,656   $     4,230   $     5,421
     Federal funds sold                 10,207        39,848        40,698
                                   -----------   -----------   -----------
       Cash and cash equivalents        13,863        44,078        46,119

Interest-bearing deposits in other
 financial institutions                     14        18,535        12,695
     Securities available for sale      52,298        57,075        65,305
     Federal Home Loan Bank stock        4,805         4,754         4,601
     Total loans                       194,831       203,832       255,021
       Allowance for loan losses        (6,836)       (6,966)      (12,730)
                                   -----------   -----------   -----------
     Net loans                         187,995       196,866       242,291

     Premises and equipment             10,588        10,739        13,222
     Other real estate held for
      sale                               1,515         1,730         3,861
     Other assets                        4,138         5,720        12,335
                                   -----------   -----------   -----------

       Total assets                $   275,216   $   339,497   $   400,429
                                   ===========   ===========   ===========

LIABILITIES AND SHAREHOLDERS'
 EQUITY
     Liabilities:
       Non-interest-bearing
        deposits                   $    19,722   $    20,956   $    24,378
       Interest-bearing
        deposits                       185,517       194,694       262,694
                                   -----------   -----------   -----------
          Total deposits               205,239       215,650       287,072

     Borrowings                         38,135        85,039        87,026
     Subordinated debentures                 0             0        12,450
     Other liabilities                   2,988         4,078         4,510
                                   -----------   -----------   -----------
       Total liabilities               246,362       304,767       391,058

     Shareholders' equity:
       Preferred stock - No par
        value:
       Authorized 500,000 shares,
        no shares outstanding                0             0             0
       Common stock - No par value:
       Authorized 18,000,000 shares
       Issued and outstanding -
        3,428,695, 3,428,695 and
        350,958 respectively            42,335        42,335        16,175
       Accumulated deficit             (13,338)       (8,097)       (8,169)
       Accumulated other
        comprehensive income              (143)          492         1,365
                                   -----------   -----------   -----------

       Total shareholders' equity       28,854        34,730         9,371
                                   -----------   -----------   -----------

       Total liabilities and
        shareholders' equity       $   275,216   $   339,497   $   400,429
                                   ===========   ===========   ===========


             MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES
                  CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in thousands except per share data)          Three Months Ended
                                                           March 31,
                                                       2005         2004
                                                     --------     --------
Interest income:                                   (Unaudited)  (Unaudited)
  Interest and fees on loans:
    Taxable                                          $  3,059     $  3,796
    Tax-exempt                                            242          319
  Interest on securities:
    Taxable                                               462          698
    Tax-exempt                                             42           43
  Other interest income                                   183          120
                                                     --------     --------
    Total interest income                               3,988        4,976
                                                     --------     --------

Interest expense:
  Deposits                                              1,130        1,665
  Borrowings                                              653        1,181
  Subordinated debentures                                   0          119
                                                     --------     --------
    Total interest expense                              1,783        2,965
                                                     --------     --------

Net interest income                                     2,205        2,011
Provision for loan losses                                   0            0
                                                     --------     --------
Net interest income after provision for loan losses     2,205        2,011
                                                     --------     --------

Other income:
  Service fees                                            161          293
  Net security losses                                      (1)           0
  Other loan and lease income                               7            5
  Net gains on sale of loans                                0           12
  Gain on sale of property and equipment                    2            0
  Other operating income                                   15          353
                                                     --------     --------
    Total other income                                    184          663
                                                     --------     --------

Other expenses:
  Salaries, commissions, and related benefits           1,504        1,499
  Furniture and equipment expense                         159          258
  Occupancy expense                                       226          347
  Data processing                                         246          355
  Accounting, legal, and consulting fees                  318          406
  Loan and deposit expense                                293          493
  Telephone                                                60          213
  Advertising expense                                     139           17
  Penalty on prepayment of FHLB borrowings              4,320            0
  Other                                                   365          753
                                                     --------     --------
    Total other expenses                                7,630        4,341
                                                     --------     --------

Loss before provision for income taxes                 (5,241)      (1,667)
Provision for income taxes                                  0            0
                                                     --------     --------

Net loss                                             $ (5,241)    $ (1,667)
                                                     ========     ========
Loss per common share:
  Basic                                              $  (1.53)    $  (4.75)
                                                     ========     ========
  Diluted                                            $  (1.53)    $  (4.75)
                                                     ========     ========


             MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES
                    LOAN PORTFOLIO AND CREDIT QUALITY

(Dollars in thousands)

Loan Portfolio Balances
 (at end of period):

                                   March 31,    December 31,     March 31,
                                     2005           2004           2004
                                  ----------     ----------     ----------
Commercial Loans
   Hospitality and tourism        $   45,390     $   52,659     $   54,418
   Gaming                             12,618         14,310         20,746
   Petroleum                           7,939          7,718          5,331
   Forestry                            5,486          2,245          1,300
   Other                              73,110         76,133        123,502
                                  ----------     ----------     ----------
     Total Commercial Loans          144,543        153,065        205,297

1-4 family residential real
 estate                               45,425         45,292         46,221
Consumer                               2,277          2,379          2,867
Construction                           2,586          3,096            636
                                  ----------     ----------     ----------

Total Loans                       $  194,831     $  203,832     $  255,021
                                  ==========     ==========     ==========


Credit Quality (at end of period):

                                   March 31,    December 31,     March 31,
                                     2005           2004           2004
                                  ----------     ----------     ----------
Nonperforming Assets
Nonaccrual loans                  $    2,272     $    4,307     $   18,297
Loans past due 90 days or more             0              0            736
Restructured loans                         0              0             48
                                  ----------     ----------     ----------
   Total nonperforming loans           2,272          4,307         19,081
Other real estate owned                1,515          1,730          3,861
                                  ----------     ----------     ----------
   Total nonperforming assets     $    3,787     $    6,037     $   22,942
                                  ==========     ==========     ==========
Nonperforming loans as a % of
 loans                                  1.17%          2.11%          7.48%
                                  ----------     ----------     ----------
Nonperforming assets as a % of
 assets                                 1.38%          1.78%          5.73%
                                  ----------     ----------     ----------
Reserve for Loan Losses:
At period end                     $    6,836     $    6,966     $   12,730
                                  ----------     ----------     ----------
As a % of loans                         3.51%          3.42%          4.99%
                                  ----------     ----------     ----------
As a % of nonperforming loans         300.88%        161.74%         66.72%
                                  ----------     ----------     ----------
As a % of nonaccrual loans            300.88%        161.74%         69.57%
                                  ----------     ----------     ----------

Contact Information